Sales Cases For Finals2

Republic of the Philippines
Ô
Manila
SECOND DIVISION

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Ô petitioners,
vs.
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respondents.
DECISION
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J.:
This is a petition for review on p of the Decision1 of the Court of Appeals (CA) in CA-G.R. CV
No. 53117 affirming the Decision 2 of the Regional Trial Court (RTC) of San Carlos City, Negros
Occidental, which ordered the dismissal of the petitionersǯ complaint for recovery of possession and
damages.
The Antecedents
Gertrudis Wuthrich and her six other siblings were the co-owners of a parcel of land identified as
Lot No. 124 of the San Carlos City, Negros Occidental Cadastre, with an area of 1,729 square meters
and covered by Transfer Certificate of Title (TCT) No. 1453-R (T-29937)-38.3 Over time, Gertrudis
and two other co-owners sold each of their one-seventh (1/7) shares, or a total area of 741 square
meters, to Jesus Mascuñana. The latter then sold a portion of his 140 -square-meter undivided share
of the property to Diosdado Sumilhig. Mascuñana later sold an additional 160 -square-meter portion
to Sumilhig on April 7, 1961. However, the parties agreed to revoke the said deed of sale and, in lieu
thereof, executed a Deed of Absolute Sale on August 12, 1961. In the said deed, Mascuñana, as
vendor, sold an undivided 469-square-meter portion of the property for P4,690.00, with P3,690.00
as down payment, and under the following terms of payment:
That the balance of ONE THOUSAND PESOS (P1,000.00) shall be paid by the VENDEE unto the
VENDOR as soon as the above-portions of Lot 124 shall have been surveyed in the name of the
VENDEE and all papers pertinent and necessary to the issuance of a separate Certificate of Title in
the name of the VENDEE shall have been prepared. 4
On December 31, 1961, Mascuñana and Jose G. Estabillo executed a Deed of Exchange and Absolute
Sale of Real Estate,5 in which Estabillo deeded to Mascuñana a portion of his property abutting that
of Sumilhig on the southeast.
In the meantime, a survey was conducted for the co-owners of Lot No. 124 on July 9, 1962. The
subdivision plan of the said lot was approved by the Director of Lands on August 2, 1962. The
portion of the property deeded to Sumilhig was identified in the said plan as Lot No. 124 -B.6
Meanwhile, Mascuñana died intestate on April 20, 1965 and was survived by his heirs, Eva M.
Ellisin, Renee Hewlett, Carmen Vda. de Opeña, Marilou Dy and Jose Ma. R. Mascuñana.
On April 24, 1968, Sumilhig executed a Deed of Sale of Real Property 7 on a portion of Lot No. 124-B
with an area of 469 square meters and the improvements thereon, in favor of Corazon Layumas, the
wife of Judge Rodolfo Layumas, for the price of P11,000.00. The spouses Layumas then had the
property subdivided into two lots: Lot No. 124-B-2 with an area of 71 square meters under the
name of Jesus Mascuñana, and Lot No. 124-B-1, with an area of 469 square meters under their
names.8 The spouses Layumas took possession of the property and caused the cutting of tall grasses
thereon. Upon the plea of a religious organization, they allowed a chapel to be constructed on a
portion of the property. 9 In January 1985, the spouses Layumas allowed Aquilino Barte to stay on a
portion of the property to ward off squatters. 10 Barte and his kin, Rostom Barte, then had their
houses constructed on the property.
On October 1, 1985, the spouses Layumas received a Letter11 from the counsel of Renee Tedrew,
offering to buy their share of the property for US$1,000.00. For her part, Corazon Layumas wrote
Pepito Mascuñana, offering to pay the amount of P1,000.00, the balance of the purchase price of the
property under the deed of absolute sale executed by Mascuñana and Sumilhig on August 12,
1961.12 However, the addressee refused to receive the mail matter.13
Unknown to the spouses Layumas, TCT No. 898614 was issued over Lot No. 124-B in the name of
Jesus Mascuñana on March 17, 1986.
On November 17, 1986, the heirs of Mascuñana filed a Complaint 15 for recovery of possession of Lot
No. 124-B and damages with a writ of preliminary injunction, alleging that they owned the subject
lot by virtue of successional rights from their deceased father. They averred that Barte
surreptitiously entered the premises, fenced the area and constructed a house thereon without
their consent. Attached as annexes to the complaint were TCT No. 8986 and a certification 16 from
the Office of the City Treasurer, Land Tax Division, vouching that the property in question was
owned by the petitioners and that they had paid the taxes thereon until 1992.
In his answer to the complaint, Barte admitted having occupied a portion of Lot No. 124-B, but
claimed that he secured the permission of Rodolfo Layumas, the owner of the subject property. He
added that he did not fence the property, and that the petitioners did not use the same as a
passageway in going to Broce Street from their house. Barte raised the following special defenses:
(a) the petitioners were estopped from asserting ownership over the lot in question because they
did not object when he occupied the said portion of the lot; (b) neither did the petitioners protest
when a church was built on the property, or when residential houses were constructed thereon; (c)
the petitioners still asked Barte and the other occupants whether they had notified Rodolfo
Layumas of the constructions on the property; and (d) the heirs of Mascuñana, through the lawyer
of Mrs. Renee M. Tedrew, even wrote a letter17 to Rodolfo Layumas on October 1, 1985, expressing
her willingness to buy the subject property for US$1,000.00.
On April 8, 1991, the spouses Layumas filed a Motion for Leave to Intervene, 18 alleging therein that
they had a legal interest in Lot No. 124-B-1 as its buyers from Sumilhig, who in turn purchased the
same from Mascuñana. In their answer in intervention, 19 the spouses Layumas alleged that they
were the true owners of the subject property and that they had wanted to pay the taxes thereon,
but the Land Tax clerk refused to receive their payments on account that the petitioners had
already made such payment. The spouses Layumas further maintained that the petitioners had no
cause of action against Barte, as they had authorized him to occupy a portion of Lot No. 124-B-1.
The spouses Layumas also averred that the petitioners were estopped from denying their right of
ownership and possession of the subject lot, as one of them had even offered to repurchase a
portion of Lot No. 124-B _letter. The said spouses interposed a counterclaim for damages,
claiming ownership over the property, and prayed, thus:
WHEREFORE, it is most respectfully prayed that this HONORABLE COURT render judgment in favor
of the Intervenors and the defendant Aquilino Barte, ordering:
1. That the complaint against Aquilino Barte be dismissed with costs against the plaintiff;
2. That the Intervenors spouses Judge Rodolfo S. Layumas and Corazon A. Layumas be
declared as the legal and true owners of Lot 124-B;
3. That the plaintiffs should deliver immediately to the Intervenors, TCT No. 8986 which is
in their possession;
4. That the plaintiffs be made to pay to the Intervenors the sum of THIRTY THOUSAND
(P30,000.00) PESOS moral damages; TEN THOUSAND (P10,000.00) PESOS attorneyǯs fees
plus THREE HUNDRED (P300.00) PESOS as appearance fee per hearing.
Intervenors pray for such other relief and remedies as may be deemed by this Honorable Court as
just and equitable in the premises.
At the trial, intervenor Rodolfo Layumas testified that he and his wife bought the subject property
in 1968, and that nobody objected to their possession of the land, including the pet itioners. In 1970,
a religious organization asked his permission to construct a chapel on the disputed lot; he allowed
the construction since the same would be used for the He further declared that part of the
chapel still stood on the property. In 1985, a fire razed the townǯs public market, thereby
dislocating numerous people. Barte was one of the fire victims, who also happened to be a good
friend and political supporter of Rodolfo. Out of goodwill, Barte was allowed to occupy a portion of
the said lot, along with some other fire victims. Rodolfo clarified that the others were to stay there
only on a temporary basis, but admitted that Barteǯs children also stayed in the subject property. 20
Rodolfo Layumas further narrated that in 1987, Corazon wrote one of the petitioners -heirs, Pepito
Mascuñana, requesting that the title of the lot be transferred in Sumilhigǯs name so that they could
likewise arrange for the conveyance of the title in their names. Pepito failed to claim the letter, and
thereafter, filed a case of ejectment against Barte and Rodolfo Layumasǯ brother-in-law, Pepito
Antonio. The case, the witness added, was dismissed as against the two parties. Offered in evidence
were the following: a Sworn Statement on the Current and Fair Market Value of the Real Property
issued in 1973 as required by Presidential Decree No. 76, and tax receipts.21
Rodolfo Layumas admitted on cross-examination that at the time they bought the property from
Sumilhig, the title was still in the possession of the Wuthrich family. He added that he filed an
adverse claim before the Register of Deeds of San Carlos City, Negros Occidental, on Lot No. 124-B
in January 1986, or after the case had already been filed in court. Lastly, the witness deposed that
he did not fence the property after buying the same, but that his brother -in-law constructed a coco-
lumber yard thereon upon his authority. 22
On January 30, 1996, the trial court rendered judgment in favor of Barte and the spouses Layumas.
The
of the decision reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of Intervenors-

counterclaimants and defendant and against plaintiffs-counterclaim defendants ordering as
follows:
1. The dismissal of the plaintiffǯs complaint with costs against them;
2. The plaintiffs to jointly pay Intervenors-counterclaimants now RTC Judge Rodolfo S.

Layumas and Corazon A. Layumas:
(a) P10,000.00 for attorneyǯs fees; and
(b) P30,000.00 as moral damages;
3. The plaintiffs, as counterclaim defendants, to comply with the above-stated obligation of

their late father, Mr. Jesus Mascuñana, under the Deed of Absolute Sale, Exh. "3", pp. 92-93,
Exp., thru plaintiff Mr. Jose Mascuñana, including the desegragation (p) survey to
desegregate the 469-square-meter portion of said Lot No. 124-B, San Carlos Cadastre, this
province, sold to the late Diosdado Sumilhig, if the same has not yet been done despite what
has been said herein earlier to said effect, and the execution of the Final Deed of Sale in their
capacity as the heirs and successors-in-interest of the late Mr. Jesus Mascuñana, thru Mr.
Jose Mascuñana, covering the 469-square-meter desegregated portion of said Lot No. 124 -B,
within sixty (60) days counted from the finality of this Decision, in favor of the Intervenors-
spouses, after which the said Intervenors-spouses shall pay them, thru Mr. Jose Mascuñana,
the P1,000.00 balance due to them as successors-in-interest of the late Mr. Jesus
Mascuñana;
4. In case plaintiffs fail to comply with what are herein ordered for them to do, the Clerk of
Court V of this Court to do all that they were to do as herein ordered in the text and
dispositive portion hereof, at the expense of Intervenors spouses to be later reimbursed by
plaintiffs, including the desegragation (p) survey of said 469-square-meter portion of said
Lot [No.] 124-B, San Carlos Cadastre, Negros Occidental, if the same has not yet been done
and the execution of the Final Deed of Sale on behalf of all the plaintiffs as heirs and
successors-in-interest of the late Mr. Jesus Mascuñana covering the said desegregated
portion of 469 square meters of the aforesaid lot, in favor of Intervenors spouses, to the end
that separate title therefor may be issued in their names, after they shall have paid the
P1,000.00 balance due plaintiffs under said Deed of Absolute Sale, Exh. "3."
SO ORDERED.23
Forthwith, the petitioners appealed the case to the CA, raising the following issues of fact and law:
a. Whether or not the contract of alienation of Lot No. 124-B in favor of Diosdado Sumilhig
in 1961 was a contract to sell or a contract of sale;
b. Whether or not Diosdado Sumilhig had any right to sell Lot No. 124-B in favor of
intervenor Corazon Layumas in 1968. 24
On May 5, 2003, the CA affirmed the decision of the trial court. It ruled that the contract between
the petitionersǯ father and Sumilhig was one of sale. Foremost, the CA explained, the contract was
denominated as a "Deed of Absolute Sale." The stipulations in the contract likewise revealed the
clear intention on the part of the vendor (Mascuñana) to alienate the property in favor of the
vendee (Sumilhig). In three various documents, the late Mascuñana even made declarations that
Sumilhig was already the owner of the disputed land. The CA added that the admission may be
given in evidence against Mascuñana and his predecessors-in-interest under Section 26, Rule 130 of
the Revised Rules on Evidence. As to the argument that the contract between Mascuñana and
Sumilhig was not effective because it was subject to a suspensive condition that did not occur, the
CA ruled that the condition referred to by the petitioners refers only to the payment of the balance
of the purchase price and not to the effectivity of the contract.j__ j
As to the petitionersǯ contention that even if the contract were one of sale, ownership cannot be
transferred to Sumilhig because Mascuñana was not yet the owner of the lot at the time of the
alleged sale, the appellate court ruled that the registration of the land to be sold is not a
prerequisite to a contract of sale.
The Present Petition
Aggrieved, the petitioners filed the instant petition for review on p with this Court, where
the following lone legal issue was raised:
WAS THE SALE OF LOT NO. 124-B MADE BY JESUS M. MASCUÑANA IN FAVOR OF DIOSDADO
SUMILHIG A CONTRACT TO SELL OR CONTRACT OF SALE?25
We note that the original action of the petitioners against Aquilino Barte was one for recovery of
possession of Lot No. 124-B. With the intervention of the respondents Rodolfo and Corazon
Layumas who claimed ownership over the property, and the acquiescence of the parties, evidence
was adduced to prove who, between the petitioners (as plaintiffs) and the respondents (as
defendants-intervenors) were the lawful owners of the subject property and entitled to its
possession.
The petitioners resolutely contend that the Deed of Absolute Sale dated August 12, 1961 between
their father and Sumilhig was a mere contract to sell because at the time of the said sale, the late
Mascuñana was not yet the registered owner of Lot No. 124 or any of its portions. They assert that
Sumilhig could not have acquired any rights over the lot due to the fact that a person can only sell
what he owns or is authorized to sell, and the buyer can acquire no more than what the seller can
transfer legally. Finally, the petitioners insist that the document in controversy was subject to a
suspensive condition, not a resolutory condition, which is a typical attribute of a contract of sale.
The petition is denied for lack of merit.
The issues raised by the petitioners in this case are factual, and under Rule 45 of the Rules of Court,
only questions of law may be raised in this Court, the reason being that this Court is not a trier of
facts. It is not to re-examine the evidence on record and to calibrate the same. Moreover, the
findings and conclusions of the trial court as affirmed by the CA are conclusive on the Court, absent
of any evidence that the trial court, as well as the CA ignored, misinterpreted and misconstrued
facts and circumstances of substance which, if considered, would alter or reverse the outcome of
the case.26
We have reviewed the records and find no justification for a reversal or even a modification of the
assailed decision of the CA.
Even on the merits of the petition, the Court finds that the decision of the trial court as well as the
ruling of the CA are based on the evidence on record and the applicable law.
The petitioners reiterated their pose that the deed of absolute sale over the property executed by
their father, Jesus Mascuñana, as vendor, and Diosdado Sumilhig as vendee, was a contract to sell
and not a contract of sale. They assert that on its face, the contract appears to be a contract to sell,
because the payment of the P1,000.00 balance of the purchase price was subject to a suspensive
condition: the survey of the property, the segregation of the portion thereof subject of the sale, and
the completion of the documents necessary for the issuance of a Torrens title over the property to
and in the name of Sumilhig who was the vendee. The petitioners assert that Sumilhig never paid
the aforesaid amount to the vendor; hence, the obligation of the latter and his predecessors-in-
interest (herein petitioners) to execute a final deed of sale never arose. As such, they aver, title to
the property remained reserved in the vendor and his heirs even after his death. There was no need
for the vendor to rescind the deed or collect the said amount of P1,000.00 under Article 1191 of the
New Civil Code because such a remedy applies only to contracts of sale. The petitioners insist that
Sumilhig never acquired title over the property; he could not have transferred any title to the
respondents. Sumilhig could not have transferred that which he did not own.
The petitionersǯ contention has no factual and legal bases.
The deed of absolute sale executed by Jesus Mascuñana and Sumilhig, provides, thus:
That the VENDOR is the true and absolute owner of a parcel of land known as Lot No. 124 of the
Cadastral Survey of San Carlos, situated at Broce Street and is free from liens and encumbrances,
and covered by O.C.T. No. T-299[3]7 (R-1453) of Reg. of Deeds, Negros Occ.
That for and in consideration of the sum of FOUR THOUSAND SIX HUNDRED NINETY PESOS
(P4,690.00), Philippine Currency, to be paid by the VENDEE in the manner hereinafter stated, the
VENDOR does hereby sell, transfer, cede and convey, a portion of the above-described property
containing an area of 469 square meters, the sketch of which can be found at the back of this
document and having a frontage at Broce Street of around 14 meters, and from the Broce Street to
the interior on its Southwest side with a length of 30.9 meters, with a length of 24.8 meters on its
Northeast side where it turned to the right with a length of 2.8 meters and continuing to Northwest
with a length of 6.72 meters, the backyard dimension is 17.5 meters to the Northwest, unto the
VENDEE, his heirs and assigns, by way of Absolute Sale, upon the receipt of the down payment of
THREE THOUSAND SIX HUNDRED NINETY PESOS (P3,690.00), which is hereby acknowledged by
the VENDOR as received by him.

That the balance of ONE THOUSAND PESOS (P1,000.00) shall be paid by the VENDEE unto the
VENDOR as soon as the above-portions of Lot 124 shall have been surveyed in the name of the
VENDEE and all papers pertinent and necessary to the issuance of a separate Certificate of Title in
the name of the VENDEE shall have been prepared.
The evidence on record shows that during the lifetime of vendor Jesus Mascuñana, and even after
his death, his heirs, the petitioners herein, unequivocably declared that Diosdado Sumilhig was the
owner of the property subject of this case, and that the respondents acquired title over the
property, having purchased the same _ a deed of absolute sale from Diosdado Sumilhig. Thus, on
December 31, 1961, Jesus Mascuñana and Jose Estabillo executed a Deed of Exchange and Absolute
Sale of Real Estate, in which both parties declared that they were co-owners of portions of Lot No.
124 abutted by the property owned by Diosdado Sumilhig. 27
In the subdivision plan of Lot No. 124, signed by Ricardo Quilop, Private Land Surveyor, following
his survey of Lot No. 124 on July 9, 1962 for and in behalf of Jesus Mascuñana,
, it appears that
Lot No. 124-B with an area of 540 square meters belonged to Diosdado Sumilhig, 28 which is abutted
by Lot No. 124-C, owned by Jesus Mascuñana.
On October 1, 1985, long after the death of Jesus Mascuñana, one of his heirs, petitioner Renee
Tedrew, through counsel, wrote respondent Rodolfo Layumas offering to buy the property
occupied by his overseer Aquilino Barte for US$1,000.00:
ATTY. RODOLFO S. LAYUMAS

San Carlos City
Negros Occidental
Dear Atty. Layumas:
This has reference to the lot located at Broce Street, portions of which are presently occupied by
Mr. Barte.
Mrs. Renee Tedrew (nee Agapuyan), who is now in the United States, would like to offer the amount
of $1,000.00 to buy your share of the said lot.
If you are amenable, kindly inform the undersigned for him to communicate [with] Mrs. Tedrew in
California.
Very truly yours,
(Sgd.)
SAMUEL SM LEZAMA 29
It was only after the respondents rejected the proposal of petitioner Renee Tedrew that the
petitioners secured title over the property on March 17, 1986 in the name of Jesus Mascuñana
(already deceased at the time), canceling TCT No. 967 issued on July 6, 1962 under the name of
Jesus Mascuñana, who appears to be a co-owner of Lot No. 124 with an undivided two -seventh
(2/7) portion thereof. 30
While it is true that Jesus Mascuñana executed the deed of absolute sale over the property on
August 12, 1961 in favor of Diosdado Sumilhig for P4,690.00, and that it was only on July 6, 1962
that TCT No. 967 was issued in his name as one of the co-owners of Lot No. 124, Diosdado Sumilhig
and the respondents nevertheless acquired ownership over the property. The deed of sale executed
by Jesus Mascuñana in favor of Diosdado Sumilhig on August 12, 1961 was a perfected contract of
sale over the property. It is settled that a perfected contract of sale cannot be challenged on the
ground of the non-transfer of ownership of the property sold at that time of the perfection of the
contract, since it is consummated upon delivery of the property to the vendee. It is through
tradition or delivery that the buyer acquires ownership of the property sold. As provided in Article
1458 of the New Civil Code, when the sale is made through a public instrument, the execution
thereof is equivalent to the delivery of the thing which is the object of the contract, unless the
contrary appears or can be inferred. The record of the sale with the Register of Deeds and the
issuance of the certificate of title in the name of the buyer over the property merely bind third
parties to the sale. As between the seller and the buyer, the transfer of ownership takes effect upon
the execution of a public instrument covering the real property. 31 Long before the petitioners
secured a Torrens title over the property, the respondents had been in actual possession of the
property and had designated Barte as their overseer.
Article 1458 of the New Civil Code provides:
By the contract of sale, one of the contracting parties obligates himself to transfer the ownership of
and to deliver a determinate thing, and the other to pay therefor a price certain in money or its
equivalent.
A contract of sale may be absolute or conditional.
Thus, there are three essential elements of sale, to wit:
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.32
In this case, there was a meeting of the minds between the vendor and the vendee, when the vendor
undertook to deliver and transfer ownership over the property covered by the deed of absolute sale
to the vendee for the price of P4,690.00 of which P3,690.00 was paid by the vendee to the vendor as
down payment. The vendor undertook to have the property sold, surveyed and segregated and a
separate title therefor issued in the name of the vendee, upon which the latter would be obliged to
pay the balance of P1,000.00. There was no stipulation in the deed that the title to the property
remained with the vendor, or that the right to unilaterally resolve the contract upon the buyerǯs
failure to pay within a fixed period was given to such vendor. Patently, the contract executed by the
parties is a deed of sale and not a contract to sell. As the Court ruled in a recent case:
In i_
(158 SCRA 375), we have said that, although denominated a "Deed of
Conditional Sale," a sale is still absolute where the contract is devoid of any _ that title is
reserved or the right to unilaterally rescind is stipulated, until or unless the price is paid.
Ownership will then be transferred to the buyer upon actual or constructive delivery ( by the
execution of a public document) of the property sold. Where the condition is imposed upon the
perfection of the contract itself, the failure of the condition would prevent such perfection. If the
condition is imposed on the obligation of a party which is not fulfilled, the other party may either
waive the condition or refuse to proceed with the sale. (Art. 1545, Civil Code)
Thus, in one case, when the sellers declared in a "Receipt of Down Payment" that they received an
amount as purchase price for a house and lot without any reservation of title until full payment of
the entire purchase price, the implication was that they sold their property. In

p
_
it was stated:
A deed of sale is considered absolute in nature where there is neither a stipulation in the deed that
title to the property sold is reserved in the seller until full payment of the price, nor one giving the
vendor the right to unilaterally resolve the contract the moment the buyer fails to pay within a fixed
period.
Applying these principles to this case, it cannot be gainsaid that the contract of sale between the
parties is absolute, not conditional. There is no reservation of ownership nor a stipulation providing
for a unilateral rescission by either party. In fact, the sale was consummated upon the delivery of
the lot to respondent. Thus, Art. 1477 provides that the owner ship of the thing sold shall be
transferred to the vendee upon the actual or constructive delivery thereof.33
The condition in the deed that the balance of P1,000.00 shall be paid to the vendor by the vendee as
soon as the property sold shall have been surveyed in the name of the vendee and all papers
pertinent and necessary to the issuance of a separate certificate of title in the name of the vendee
shall have been prepared is not a condition which prevented the efficacy of the contract of sale. It
merely provides the manner by which the total purchase price of the property is to be paid. The
condition did not prevent the contract from being in full force and effect:
The stipulation that the "payment of the full consideration based on a survey shall be due and
payable in five (5) years from the execution of a formal deed of sale" is not a condition which affects
the efficacy of the contract of sale. It merely provides the manner by which the full consideration is
to be computed and the time within which the same is to be paid. But it does not affect in any
manner the effectivity of the contract. ǥ34
In a contract to sell, ownership is retained by a seller and is not to be transferred to the vendee until
full payment of the price. Such payment is a positive suspensive condition, the failure of which is
not a breach of contract but simply an event that prevented the obligation from acquiring binding
force.35
It bears stressing that in a contract of sale, the non-payment of the price is a resolutory condition
which extinguishes the transaction that, for a time, existed and discharges the obligation created
under the transaction.36 A seller cannot unilaterally and extrajudicially rescind a contract of sale
unless there is an express stipulation authorizing it. In such case, the vendor may file an action for
specific performance or judicial rescission.37
Article 1169 of the New Civil Code provides that 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. In this case, the vendor (Jesus Mascuñana) failed to comply with his obligation of
segregating Lot No. 124-B and the issuance of a Torrens title over the property in favor of the
vendee, or the latterǯs successors-in-interest, the respondents herein. Worse, petitioner Jose
Mascuñana was able to secure title over the property under the name of his deceased father.
& && the petition is DENIED for lack of merit. Costs against the
petitioners.
SO ORDERED.
Puno, (Chairman), Austria-Martinez, Tinga, and Chico-Nazario, JJ., concur.

""!
1Penned by Associate Justice Rosmari D. Carandang, with Associate Justices Conrado M.

Vasquez, Jr. and Mercedes Gozo-Dadole, concurring.
2 Penned by Judge Abraham D. Caña.
3 Exhibit "L," Records, p. 253.
4 Records, p. 210.
5 Exhibit "17," Records, p. 287.
6 Exhibit "19," at 289.
7 Exhibit "2," at 208.
8 Exhibit "10," at 219.
9 TSN, 19 April 1994, pp. 23-24.
10 Exhibits "1" and "10," at 207 and 219.
11 Exhibit "4," at 212.
12 Exhibit "5-A," at 214.
13
14 Exhibit "A," Records, p. 183.
15 Records, p. 1.
16 at 7.
17 Records, p. 26.
18 at 86.
19 at 88.
20 TSN, 19 August 1994, pp. 16, 23-25.
21 at 32-37.
22 at 46, 49-51.
23 Records, pp. 376-377.
24 CA c
, p. 46.
25 c
, p. 15.
26See Morales _ Court of Appeals, G.R. No. 91003, 23 May 1991, 197 SCRA 391; Universal
Motors Corporation _ Court of Appeals, G.R. No. 47432, 27 January 1992, 205 SCRA 448;
and Arroyo _ Court of Appeals, G.R. No. 96602 and G.R. No. 96715, 19 November 1991, 203
SCRA 750.
27 Exhibits "17-A" and "17-C,." Records, p. 287.
28 Exhibits "19" and "19-A," at 289.
30 Exhibit "N," at 257.
31 Art. 1458, New Civil Code.
32 Heirs of Juan San Andres _ Rodriguez,G.R. No. 135634, 31 May 2000, 332 SCRA 769.
33
34
35 Heirs of Pedro Escanlar _ Court of Appeals,G.R. No. 119777, 23 October 1997, 281 SCRA
176.
36
37 Benito _ Saquitan-Ruiz, G.R. No. 149906, 26 December 2002, 394 SCRA 250.
The Lawphil Project - Arellano Law Foundation

Ô
Manila
EN BANC

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&&petitioner,
vs.
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_
ÔJ.:
The petitioner seeks a reversal of the Court of Appeals decision dated December 13, 1974 affirming
the Trial Court's judgment convicting her of estafa. We denied the petition initially but granted a
motion for reconsideration and gave the petition due course.
As found by the trial court and the Court of Appeals, Rosalinda Cruz, the private offended party, and
accused Victoria Vallarta are long time friends and business acquaintances. On November 20, 1968,
Cruz entrusted to Victoria Vallarta seven pieces of jewelry. In December of the same year, Vallarta
decided to buy some items, exchanged one item with another, and issued a post -dated check in the
amount of P5,000 dated January 30, 1969. Rosalinda Cruz de posited said check with the bank.
However, upon presentment, the check was dishonored and Cruz was informed that Vallarta's
account had been closed. Cruz apprised Vallarta of the dishonor and the latter promised to give
another check. Later, Vallarta pleaded for more time. Still later, she started avoiding Cruz. Hence,
this criminal action was instituted.
Based on the foregoing facts, both the trial court and the Court of Appeals found Vallarta guilty
beyond reasonable doubt of the crime of estafa.
WE affirm.
Petitioner is charged under Art. 315 (2) (d) as amended by Rep. Act No. 4885, of the Revised Penal
Code, which penalizes any person who shall defraud another "(b)y postdating a check, or issuing a
check in payment of an obligation when the offender had no funds in the bank, or his funds
deposited therein were not sufficient to cover the amount of the check."
By virtue of Rep. Act No. 4885, "(t)he failure of the drawer of the check to deposit the amount
necessary to cover his check within three (3) days from receipt of notice from the bank and/or the
payee or holder that said check has been dishonored for lack or insufficiency of funds" is deemed
p evidence of deceit constituting false pretense or fraudulent act.
To constitute estafa under this provision the act of post-dating or issuing a check in payment of an
obligation must be the efficient cause of defraudation, and as such it should be either prior to, or
simultaneous with the act of fraud. The offender must be able to obtain money or property from the
offended party because of the issuance of a check whether post-dated or not. That is, the latter
would not have parted with his money or other property were it not for the issuance of the check.
likewise, the check should not be, issued in payment of a pre-existing obligation (People v. Lilius, 59
Phil. 339 [1933]).
In seeking acquittal, petitioner stresses that the transaction between her and Cruz was a "sale or
return," perfected and consummated on November 20, 1968 when the seven pieces of jewelry were
delivered. The check issued in December 1968 was therefore in payment of a pre-existing
obligation. Thus, even if it was dishonored, petitioner claims that she can only be held civilly liable,
but not criminally liable under Art. 315 (2) ( d), Revised Penal Code. She also argues that at any rate,
what prompted Cruz to deliver the jewelry was the social standing of petitioner Vallarta and not the
postdated check.
She thus assigns as errors the finding of that Court that the jewelries were on
November 20, 1968, but the sale was p in December 1968, and the finding that there was
deceit in the issuance of the postdated check.
In order to arrive at the proper characterization of the transaction between Vallarta and Cruz, that
is, whether it was a "sale or return" or some other transaction, it is necessary to determine the
intention of the parties.
The following excerpts from the transcript of stenographic notes are significant:
I. Direct Examination of Rosalinda Cruz
Q: Now, what happened with that business transaction of yours with

Mrs. Vallarta?
A: After that and after she
to buy two sets and changed

the ruby ring with another ring, she gave me postdated check; I
waited for January 30, 1969. 1 deposited the check in the Security
Bank. And after that I knew (learned) that it was closed account
(TSN, June 29, 1972, p. 9) (Emphasis supplied).
II. Cross-Examination of Rosalinda Cruz
Q: Now, you mentioned about certain jewelries in Exh. "A. Could you
tell under your oath whether all the jewelries listed here (Exh. "A")
were taken by Mrs. Vallarta at one single instance?
A: Yes, Sir. It was on one (1) day when I entrusted them to her so she
can
p ( at p. 22) (Emphasis supplied).
III. Cross-Examination of Rosalinda Cruz
COURT: But could you still recall or you cannot recall whether you
agreed to reduce the cost to Five Thousand Eight Hundred (
P5,800.00) Pesos?
A Yes, Sir. I agreed to reduce it to Five Thousand Eight Hundred

(P5,800.00) Pesos, Sir, when I went to see her in her house to finalize
what jewelries she wanted (. at p. 26).
Note that Vallarta changed the ruby ring because it was not acceptable to her, and chose another
ring. Likewise, the price to be paid for the jewelry was finally agreed upon only in December 1968.
Thus, there was a meeting of the minds between the parties as to the object of the contract and the
consideration therefore only in December 1968, the same time that the check was issued. The
delivery made on November 20, 1968 was only for the purpose of enabling Vallarta to select what
jewelry she wanted.
Properly, then, the transaction entered into by Cruz and Vallarta was not a "sale or return." Rather,
it was a "sale on approval " (also called " sale on acceptance, " "sale on trial." or "sale on
satisfaction" [CIVIL CODE, art. 1502]). In a "sale or return," the ownership passes to the buyer on
delivery (CIVIL CODE, art. 1502). (The subsequent return of the goods reverts ownership in the
seller [CIVIL CODE, art. 1502]). Delivery, or tradition. as a mode of acquiring ownership must be
p p of a contract (CIVIL CODE, art. 712), e.g. sale.
If there was no meeting of the minds on November 20, 1968, then, as of that date, there was yet no
contract of sale which could be the basis of delivery or tradition. Thus, the delivery made on
November 20, 1968 was not a delivery for purposes of transferring ownership Ȅ the prestation
incumbent on the vendor. If ownership over the jewelry was not transmitted on that date, then it
could have been transmitted only in December 1968, the date when the check was issued. In which
case, it was a "sale on approval" since ownership passed to the buyer. Vallarta, only when she
signified her approval or acceptance to the seller, Cruz, and the price was agreed upon.
Thus, when the check which later bounced was issued, it was not in payment of a pre-existing
obligation. Instead the issuance of the check was simultaneous with the transfer of ownership over
the jewelry. But was the check issued simultaneously with the fraud?
Republic Act No. 4885, amending Art. 315 (2) (d), Revised Penal Code, establishes a p
evidence of deceit upon proof that the drawer of the check failed to deposit the amount necessary
to cover his check within three (3) days from receipt of notice of dishonor for lack or insufficiency
of funds.
Admittedly, (1) the check was dishonored as Vallarta's account had been earlier closed; (2) she was
notified by Cruz of the dishonor: and, (3) Vallarta failed to make it good within three days. Deceit is
therefore presumed.
Petitioner lays stress on her being an alumna of a reputable school, on her having a husband who is
a bank manager, and on the big land-holdings of her father, and argues that it was these
qualifications and not the post-dated check which prompted Cruz to deliver the jewelry (Rollo, pp.
78-79: Motion for Reconsideration, pp. 10-11). Hence, there was no deceit. It is thus suggested that
a person of petitioner's social standing cannot be guilty of deceit, at least in so far as issuing
bouncing checks is concerned. This reasoning does not merit serious consideration. If accepted, it
could result in a law that falls unequally on persons depending on their social position.
Did Cruz part with the jewelry solely because she knew Vallarta to be rich, or did she do so because
of the check issued to her? As the trial court and the Court of Appeals found, petitioner was able to
obtain the jewelry because she issued the check. Her failure to deposit the necessary amount to
cover it within three days from notice of dishonor created the p presumption established
by the amendatory law, Rep. Act No. 4885, which she failed to rebut.
Petitioner, however, contends that Rep. Act No. 4885 is unconstitutional. She claims that even as the
presumption of deceit established by Rep. Act No. 4885 is stated under the guise of being
p . It is in effect a conclusive presumption, because after the prosecution has proved that: (1) the
check has been dishonored; (2) notice has been given to the drawer; and, (3) three days from
notice, the check is not funded or the obligation is not paid, the accused is held guilty. Thus, it is
alleged, the constitutional presumption of innocence is violated.
Contrary to petitioner's assertion, the presumption of deceit under Rep. Act No. 4885 is not
conclusive. It is rebuttable. For instance, We ruled in the case of
_
(56 Phil. 31
[1931]) that good faith is a defense to a charge of estafa by postdating a check, as when the drawer,
foreseeing his inability to pay the check at maturity, made an arrangement with his creditor as to
the manner of payment of the debt.
Moreover, it is now well settled that "there is no constitutional objection to the pas sage of a law
providing that the presumption of innocence may be overcome by a contrary presumption founded
upon the experience of human conduct, and enacting what evidence shall be sufficient to overcome
such presumption of innocence" (People v. Mingoa, 92 Phil. 856 [1953] at 858-59, citing I COOLEY,
A TREATISE ON THE CONSTITUTIONAL LIMITATIONS, 639-641). And the "legislature may enact
that when certain facts have been proved they shall be prima facie evidence of the existence of the
guilt of the accused and shift the burden of proof provided there be a rational connection between
the facts proved and the ultimate fact presumed so that the inference of the one from proof of the
others is not unreasonable and arbitrary because of lack of connection between the two in common
experience" (People v. Mingoa, . See also US v. Luling, 34 Phil. 725 [1916]).
There can be no doubt that the "postdating or issuing of a check in payment of an obligation when
the offender had no funds in the bank, or his funds deposited therein were not sufficient to cover
the amount of the check," is a false pretense or a fraudulent act. It is so characterized by Art. 315 (2)
(d), Revised Penal Code. Republic Act No. 4885 does nothing more than limit the period within
which the drawer/issuer must pay the creditor.
Petitioner also argues that Rep. Act No. 4885 violates the constitutional injunction against
imprisonment for non-payment of debt. Ironically, she does not question the constitutionality of
Art. 315 (2) (d), Revised Penal Code, which defines the crime she is being accused of, and provides
for its punishment. In fact, she concedes the constitutionality of the latter statute. She further
concedes that a person may be imprisoned for "criminal fraud" covered by Art. 315 (2) of the
Revised Penal Code.
In
_ (No. L-45490, November 20, 1978, 86 SCRA 568), this Court ruled that Rep. Act
No. 4885 has not changed the rule established in Art. 315 (2) (d) prior to the amendment; that
Republic Act No. 4885 merely established the prima facie evidence of deceit, and eliminated the
requirement that the drawer inform the payee that he had no funds in the bank or the funds
deposited by him were not sufficient to cover the amount of the check. Thus, even with the
amendment introdu ced by Rep. Act No. 4885 it is still criminal fraud or deceit in the issuance of a
check which is made punishable under the Revised Penal Code, and not the non-payment of the
debt.
Petitioner also assigns as error the denial by the trial court of her motion for reconsideration. Her
motion was directed at the finding of the trial court that no payments were made. Alleging that a
check drawn by one Sison was given by petitioner to Cruz in payment of the rubber check,
petitioner claims that had her motion for reconsideration been granted, she would have called to
the witness stand the Branch Manager of Security Bank and Trust Company, Pasay City, where the
check was allegedly deposited by Cruz, for said bank manager to Identify the owner-holder of the
savings account to which the amount in Sison's check had been credited (Brief for Petitioner, p. 46).
Granting that the bank manager's testimony would have been as alleged by petitioner, Our decision
would remain. As correctly observed by both the trial court and the Court of Appeals (Court of
Appeals Decision, pp. 2-3), the payments petitioner allegedly made were not shown to have any
relevance to the obligation in question.
WHEREFORE, finding no error in the assailed decision of the Court of Appeals, the same is
AFFIRMED. Costs against the petitioner.
SO ORDERED.
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* See also People v. Lilius, , where the drawer, upon issuing the check, stated
that he was not sure whether he had sufficient funds in the drawee bank, and that if
he did not have, he would cable to have sufficient funds placed to his credit.

Ô
Manila
THIRD DIVISION

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petitioner,
vs.
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respondent.
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&J.:
Before Us is a petition for review on p seeking the reversal of the November 9, 1983
decision of the then Intermediate Appellate Court in
CA-G.R. CV No. 68281, penned by the Honorable Justice Eduardo P. Caguioa, with Justices Gaviola
and Quetulio-Losa concurring, which dismissed petitioner's complaint and absolved herein
respondent from any liability to the former.
It appears on record that respondent LPJ Enterprises, Inc. had a contract to supply 300,000 bags of
cement per year to Atlas Consolidated Mining and Development Corporation (Atlas for short), a
member of the Soriano Group of Companies. The cement was delivered packed in kraft paper bags,
then as now, in common use.
Sometime in October, 1970, Cesar Campos, a Vice-President of petitioner Industrial Textile

Manufacturing Company of the Philippines (or Itemcop, for brevity), asked Lauro Panganiban, Jr.,
President of respondent corporation, if he would like to cooperate in an experiment to develop
plastic cement bags. Panganiban acquiesced, principally because Itemcop is a sister corporation of
Atlas, respondent's major client. A few weeks later, Panganiban accompanied Paulino Ugarte,
another Vice-President of Itemcop, to the factory of respondent's supplier, Luzon Cement
Corporation in Norzagaray, Bulacan, to test fifty (50) pieces of plastic cement bags. The experiment,
however, was unsuccessful. Cement dust oozed out under pressure through the small holes of the
woven plastic bags and the loading platform was filled with dust. The second batch of plastic bags
subjected to trial was likewise a failure. Although the weaving of the plastic bags was already
tightened, cement dust still spilled through the gaps. Finally, with thre e hundred (300) "improved
bags", the seepage was substantially reduced. Ugarte then asked Panganiban to send 180 bags of
cement to Atlas via commercial shipping. Campos, Ugarte, and two other officials of petitioner
company followed the 180 bags to the plant of Atlas in Sangi, Toledo, Cebu where they professed
satisfaction at the performance of their own plastic bags. On December 29, 1970, Campos sent
Panganiban a letter proclaiming dramatic results in the experiment. Consequently, Panganiban
agreed to use the plastic cement bags. Four purchase orders (P.O.s) were thereafter issued, to wit:
DATE NUMBER OF BAGS UNIT COST AMOUNT
5 January 1971 53,800 P .83 P44,654.00

24 February 1971 11,000 .90 9,900.00
March 1971 41,000 .92 37,720.00
6 April 1971 10,000 .92 9,200.00
ȄȄȄȄ
TOTAL: P101,474.00
Petitioner delivered the above orders consecutively on January 12, February 17, March 19, and
April 17, 1971 (p. 74, c
). Respondent, on the other hand, remitted the amounts of P1,640.00,

P2,480.00. and P13,230.00 on March 31, April 31, and May 3, 1971 respectively, thereby leaving a
balance of P84,123.80 (p. 58, .). No other payments were made, thus prompting A. Soriano y Cia
of petitioner's Legal Department to send demand letters to respondent corporation. Reiteratio ns
thereof were later sent by petitioner's counsel. A collection suit was filed on April 11, 1973 when
the demands remained unheeded.
At the trial on the merits, respondent admitted its liability for the 53,800 polypropylene lime bags
covered by the first purchase order. (TSN, January 5, 1971, p. 131). With respect to the second,
third, and fourth purchase orders, respondent, however, denied full responsibility therefor.
Respondent said that it will pay, as it did pay for, only the 15,000 plastic bags it actually used in
packing cement. As for the remaining 47,000 bags, the workers of Luzon Cement strongly objected
to the use thereof due to the serious health hazards posed by the continued seepage of cement dust.
Notwithstanding the measures adopted by respo ndent such as the use of masks, gloves. and
conveyor system, the workers still refused to utilize the plastic bags. Respondent was, therefore,
constrained to revert to the use of kraft paper bags in packing cement. Thereafter, petitioner was
asked to take back the unused plastic bags. Considering however, that the bags were in the cement
factory of respondent's supplier, petitioner maintained that it was respondent's obligation to return
the bags to them. Apparently, this was not done and so petitioner demanded payment for the said
bags.
On May 25, 1981, the trial court rendered its decision, the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered sentencing the defendant to pay the

sum of P84,123.80 with l2% interest from May, 1971 plus 15% of the
total obligation as attorney's fees, and the costs.
SO ORDERED. (p. 80, .)
Respondent corporation's appeal was upheld by the appellate court when it reversed the trial
court's decision and dismissed the case with costs against petitioner. (p. 28, .). Hence, the
present recourse.
The first issue to be resolved is the propriety of this petition as it calls for a re-examination of the
factual findings of the appellate court.
As asserted by herein respondent, it is well-entrenched in Our jurisprudence that this Court is not a
trier of facts (Valdez v. CA, 194 SCRA 360 [1991]). As a rule, it is also settled that the factual findings
of the appellate court are final and conclusive (Bustamante v. CA, 193 SCRA 603 [1991];
Radiowealth FinanceCompany v. Palileo, 197 SCRA 245 [1991]). However, in a long line of cases,
We have pronounced certain exceptions, as when the inference made is manifestly mistaken or
when the judgment is based on misapprehension of facts or when the appellate court overlooked
relevant facts not disputed by the parties and which if properly considered, would justify a different
conclusion (Aquino v. CA, 204 SCRA 247 [1991]; Manlapaz v. CA, 147 SCRA 236 [1987]; Sacay v.
Sandiganbayan, 142 SCRA 593, [1986]; Moran v. CA, 133 SCRA 88 [1984]).
A review of the record instantly reveals that the case at bar falls under the last exception. As earlier
adverted to, respondent has repeatedly admitted its liability for the 53,800 plastic lime bags
amounting to P44,654.00 yet the appellate court disregarded this fact and totally cleared
respondent from all responsibility. On this point alone, the decision of the appellate court may be
overturned, or at least modified.
Let Us now turn to the crux of the controversy, which is whether or not respondent may be held
liable for the 47,000 plastic bags which were not actually used for packing cement as originally
intended.
It is beyond dispute that prior to respondent's transaction with petitioner, the bags were already
tested and the results thereof, albeit initially unsuccessful, were nevertheless favorably considered
after due alterations were made. Verily, it is on the basis of such experimental findings that
respondent agreed to use the plastic cement bags and thereafter issued the purchase orders
heretofore mentioned. Significantly, the quantity of bags ordered by respondent also negates its
position that the bags were still under experimentation. Indeed, if it were so, the bags ordered
should have been considerably lesser in number and would normally increase as the suitability of
the plastic bags became more definite. Likewise, it is worthy to note that as of the date of
petitioner's third delivery on March 19, 1971, respondent has received a total of 52,000 bags. By
then, it was very probable that the problems alluded to by respondent could no longer be resolved,
thus, only 15,000 bags were actually used and 37,000 bags were already considered unfit for
packing cement. Under such predicament, it was but logical for respondent to cancel then the fourth
purchase order for another 10,000 bags. Surprisingly, respondent still accepted the same upon
delivery on April 17, 1971 and remitted its payments until May 3, 1971. When petitioner sent
letters demanding the full payment of the bags, respondent simply declared that it did not receive
any because it transferred its offices to another place. In the meantime, the bags remained in the
custody of Luzon Cement, respondent's supplier and virtually a stranger as far as petitioner is
concerned. It is for this reason that petitioner may not be expected to just pull out its bags from
Luzon Cement.
Not to be overlooked also is the fact that Panganiban, respondent corporation's president, also
collected due commissions for the four purchase orders issued in favor of petitioner. (p. 79, c
).
Finally, the conditions which allegedly govern the transaction according to respondent may not be
considered. The trial court correctly observed that such conditions should have been distinctly
specified in the purchase orders and respondent's failure to do so is fatal to its cause. We find that
Article 1502 of the Civil Code, invoked by both parties herein, has no application at all to this case.
The provision in the Uniform Sales Act and the Uniform Commercial Code from which Article 1502
was taken, clearly requires an express written agreement to make a sales contract either a "sale or
return" or a "sale on approval". Parol or extrinsic testimony could not be admitted for the purpose
of showing that an invoice or bill of sale that was complete in every aspect and purporting to
embody a sale without condition or restriction constituted a contract of sale or return. If the
purchaser desired to incorporate a stipulation securing to him the right of return, he should have
done so at the time the contract was made. On the other hand, the buyer cannot accept part and
reject the rest of the goods since this falls outside the normal intent of the parties in the "on
approval" situation. (67 !2d, pp. 733, 748).
In the light of these principles, We hold that the transaction between respondent and petitioner
constituted an absolute sale. Accordingly, respondent is liable for the plastic bags delivered to it by
petitioner.
WHEREFORE, premises considered, the decision appealed from is hereby SET ASIDE and the
decision of the trial court REINSTATED.
SO ORDERED.
! &i_ ! c !! pp.

THIRD DIVISION
[G.R. No. 151212. September 10, 2003]
TEN FORTY REALTY AND DEVELOPMENT CORP., Represented by its President, VERONICA G.
LORENZANA, _. MARINA CRUZ, .
DECISION
PANGANIBAN, ! +
In an ejectment suit, the question of ownership may be provisionally ruled upon for the sole
purpose of determining who is entitled to possession p. In the present case, both parties
base their alleged right to possess on their right to own. Hence, the Court of Appeals did not err in
passing upon the question of ownership to be able to decide who was entitled to physical
possession of the disputed land.
The Case
Before us is a Petition for Review under Rule 45 of the Rules of Court, seeking to nullify the August
31, 2001 Decision and December 19, 2001 Resolution of the Court of Appeals (CA) in CA- GR SP No.
64861. The dispositive portion of the assailed Decision is as follows:
ǲWHEREFORE, premises considered, the petition is hereby DISMISSED and the Decision dated May
4, 2001 is hereby AFFIRMED.ǳ
The assailed Resolution denied petitioner's Motion for Reconsideration.
The Facts
The facts of the case are narrated by the CA as follows:
ǲA complaint for ejectment was filed by [Petitioner Ten Forty Realty and Development Corporation]
against x x x [Respondent Marina Cruz] before the Municipal Trial Court in Cities (MTCC) of
Olongapo City, docketed as Civil Case 4269, which alleged that: petitioner is the true and absolute
owner of a parcel of lot and residential house situated in #71 18th Street, E.B.B. Olongapo City,
particularly described as:
ǮA parcel of residential house and lot situated in the above-mentioned address containing an area of
324 square meters more or less bounded on the Northeast by 041 (Lot 255, Ts-308); on the
Southeast by 044 (Lot 255, Ts-308); on the Southwest by 043 (Lot 226 -A & 18th street) and on the
Northwest by 045 (Lot 227, Ts-308) and declared for taxation purposes in the name of [petitioner]
under T.D. No. 002-4595-R and 002-4596.ǯ
having acquired the same on December 5, 1996 from Barbara Galino by virtue of a Deed of Absolute
Sale; the sale was acknowledged by said Barbara Galino through a '®,; payment of the
capital gains tax for the transfer of the property was evidenced by a Certification Authorizing
Registration issued by the Bureau of Internal Revenue; petitioner came to know that Barbara
Galino sold the same property on April 24, 1998 to Cruz, who immediately occupied the property
and which occupation was merely tolerated by petitioner; on October 16, 1998, a complaint for
ejectment was filed with the Barangay East Bajac-Bajac, Olongapo City but for failure to arrive at an
amicable settlement, a Certificate to File Action was issued; on April 12, 1999 a demand letter was
sent to [respondent] to vacate and pay reasonable amount for the use and occupation of the same,
but was ignored by the latter; and due to the refusal of [respondent] to vacate the premises,
petitioner was constrained to secure the services of a counsel for an agreed fee of P5,000.00 as
attorneyǯs fee and P500.00 as appearance fee and incurred an expense of P5,000.00 for litigation.
ǲIn respondentǯs Answer with Counterclaim, it was alleged that: petitioner is not qualified to own
the residential lot in dispute, being a public land; according to Barbara Galino, she did not sell her
house and lot to petitioner but merely obtained a loan from Veronica Lorenzana; the payment of
the capital gains tax does not necessarily show that the Deed of Ab solute Sale was at that time
already in existence; the court has no jurisdiction over the subject matter because the complaint
was filed beyond the one (1) year period after the alleged unlawful deprivation of possession; there
is no allegation that petitioner had been in prior possession of the premises and the same was lost
thru force, stealth or violence; evidence will show that it was Barbara Galino who was in possession
at the time of the sale and vacated the property in favor of respondent; never was there an
occasion when petitioner occupied a portion of the premises, before respondent occupied the lot in
April 1998, she caused the cancellation of the tax declaration in the name of Barbara Galino and a
new one issued in respondentǯs name; petitioner obtained its tax declaration over the same
property on November 3, 1998, seven (7) months [after] the respondent [obtained hers]; at the
time the house and lot [were] bought by respondent, the house was not habitable, the power and
water connections were disconnected; being a public land, respondent filed a miscellaneous sales
application with the Community Environment and Natural Resources Office in Olongapo City; and
the action for ejectment cannot succeed where it appears that respondent had been in possession of
the property prior to the petitioner.ǳ
In a Decision dated October 30, 2000, the Municipal Trial Court in Cities (MTCC) ordered
respondent to vacate the property and surrender to petitioner possession thereof. It also directed
her to pay, as damages for its continued unlawful use, P500 a month from April 24, 1999 until the
property was vacated, P5,000 as attorneyǯs fees, and the costs of the suit.
On appeal, the Regional Trial Court (RTC) of Olongapo City (Branch 72) reversed the MTCC. The
RTC ruled as follows: 1) respondentǯs entry into the property was not by mere tolerance of
petitioner, but by virtue of a Waiver and Transfer of Possessory Rights and Deed of Sale in her
favor; 2) the execution of the Deed of Sale without actual transfer of the physical possession did not
have the effect of making petitioner the owner of the property, because there was no delivery of the
object of the sale as provided for in Article 1428 of the Civil Code; and 3) being a corporation,
petitioner was disqualified from acquiring the property, which was public land.
Ruling of the Court of Appeals
Sustaining the RTC, the CA held that petitioner had failed to make a case for unlawful detainer,
because no contract -- express or implied -- had been entered into by the parties with regard to
possession of the property. It ruled that the action should have been for forcible entry, in which
prior physical possession was indispensable -- a circumstance petitioner had not shown either.
The appellate court also held that petitioner had challenged the RTCǯs ruling on the question of
ownership for the purpose of compensating for the latterǯs failure to counter such ruling. The RTC
had held that, as a corporation, petitioner had no right to acquire the property which was alienable
public land.
Hence, this Petition.
Issues
Petitioner submits the following issues for our consideration:
ǲ1. The Honorable Court of Appeals had clearly erred in not holding that [r]espondentǯs
occupation or possession of the property in question was merely through the
tolerance or permission of the herein [p]etitioner;
ǲ[2.] The Honorable Court of Appeals had likewise erred in holding that the ejectment
case should have been a forcible entry case where prior physical possession is
indispensable; and
ǲ[3.] The Honorable Court of Appeals had also erred when it ruled that the herein
[r]espondentǯs possession or occupation of the said property is in the nature of an
exercise of ownership which should put the herein [p]etitioner on guard.ǳ
The Courtǯs Ruling
The Petition has no merit.
First Issue:

*pp @
p
Petitioner faults the CA for not holding that the former merely tolerated respondentǯs occupation of
the subject property. By raising this issue, petitioner is in effect asking this Court to reassess factual
findings. As a general rule, this kind of reassessment cannot be done through a petition for review
on certiorari under Rule 45 of the Rules of Court, because this Court is not a trier of facts; it reviews
only questions of law. Petitioner has not given us ample reasons to depart from the general rule.
On the basis of the facts found by the CA and the RTC, we find that petitioner failed to substantiate
its case for unlawful detainer. Admittedly, no express contract existed between the parties. Not
shown either was the corporationǯs alleged tolerance of respondentǯs possession.
While possession by tolerance may initially be lawful, it ceases to be so upon the ownerǯs demand
that the possessor by tolerance vacate the property. To justify an action for unlawful detainer, the
permission or tolerance must have been present at the beginning of the possession. Otherwise, if
the possession was unlawful from the start, an action for unlawful detainer would be an improper
remedy. _
elucidates thus:

ǲA close assessment of the law and the concept of the word Ǯtoleranceǯ confirms our view heretofore
expressed that such tolerance must be present right from the start of possession sought to be
recovered, to categorize a cause of action as one of unlawful detainer not of forcible entry. Indeed,
to hold otherwise would espouse a dangerous doctrine. And for two reasons. First. Forcible entry
into the land is an open challenge to the right of the possessor. Violation of that right authorizes the
speedy redress Ȃ in the inferior court Ȃ provided for in the rules. If one year from the forcible entry
is allowed to lapse before suit is filed, then the remedy ceases to be speedy; and the possessor is
deemed to have waived his right to seek relief in the inferior court. Second, if a forcible entry action
in the inferior court is allowed after the lapse of a number of years, then the result may well be that
no action for forcible entry can really prescribe. No matter how long such defendant is in physical
possession, plaintiff will merely make a demand, bring suit in the inferior court Ȃ upon a plea of
tolerance to prevent prescription to set in Ȃ and summarily throw him out of the land. Such a
conclusion is unreasonable. Especially if we bear in mind the postulates that proceedings of
forcible entry and unlawful detainer are summary in nature, and that the one year time bar to suit
is but in pursuance of the summary nature of the action.ǳ
In this case, the Complaint and the other pleadings do not recite any _ pthat would
substantiate the claim of petitioner that it permitted or tolerated the occupation of the property by
Respondent Cruz. The Complaint contains only bare allegations that 1) respondent immediately
occupied the subject property after its sale to her, an action merely tolerated by petitioner; and 2)
her allegedly illegal occupation of the premises was by mere tolerance.
These allegations contradict, rather than support, petitionerǯs theory that its cause of action is for
unlawful detainer. ¢, these arguments advance the view that respondentǯs occupation of the
property was unlawful at its inception. p, they counter the essential requirement in unlawful
detainer cases that petitionerǯs supposed act of sufferance or tolerance must be present right from
the start of a possession that is later sought to be recovered.
As the bare allegation of petitionerǯs tolerance of respondentǯs occupation of the premises has not
been proven, the possession should be deemed illegal from the beginning. Thus, the CA correctly
ruled that the ejectment case should have been for forcible entry -- an action that had already
prescribed, however, when the Complaint was filed on May 12, 1999. The prescriptive period of one
year for forcible entry cases is reckoned from the date of respondentǯs actual entry into the land,
which in this case was on April 24, 1998.
Second Issue:
#
Much of the difficulty in the present controversy stems from the legal characterization of the
ejectment Complaint filed by petitioner. Specifically, was it for unlawful detainer or for forcible
entry?
The answer is given in Section 1 of Rule 70 of the Rules of Court, which we reproduce as follows:
ǲSECTION 1. - p - Subject to the provisions of the next

succeeding section, a person deprived of the possession of any land or building by force,
intimidation, threat, strategy, or stealth, or a lessor, vendor, vendee, or other person against whom
the possession of any land or building is unlawfully withheld after the expiration or termination of
the right to hold possession, by virtue of any contract, express or implied, or the legal
representatives or assigns of any such lessor, vendor, vendee, or other person, may, at any time
within one (1) year after such unlawful deprivation or withholding of possession, bring an action in
the proper Municipal Trial Court against the person or persons unlawfully withholding or depriving
of possession, or any person or persons claiming under them, for the restitution of such possession,
together with damages and costs.ǳ
While both causes of action deal only with the sole issue of physical or p possession, the two
cases are really separate and distinct, as explained below:
ǲx x x. In forcible entry, one is deprived of physical possession of land or building by means of force,
intimidation, threat, strategy, or stealth. In unlawful detainer, one unlawfully withholds possession
thereof after the expiration or termination of his right to hold possession under any contract,
express or implied. In forcible entry, the possession is illegal from the beginning and the basic
inquiry centers on who has the prior possession p. In unlawful detainer, the possession was
originally lawful but became unlawful by the expiration or termination of the right to possess,
hence the issue of rightful possession is decisive for, in such action, the defendant is in actual
possession and the plaintiffǯs cause of action is the termination of the defendantǯs right to continue
in possession.
ǲWhat determines the cause of action is the nature of defendantǯs entry into the land. If the entry is
illegal, then the action which may be filed against the intruder within one year therefrom is forcible
entry. If, on the other hand, the entry is legal but the possession thereafter became illegal, the case
is one of unlawful detainer which must be filed within one year from the date of the last demand.ǳ
It is axiomatic that what determines the nature of an action as well as which court has jurisdiction
over it are the allegations in the complaint and the character of the relief sought.
In its Complaint, petitioner alleged that, having acquired the subject property from Barbara Galino
on December 5, 1996, it was the true and absolute owner thereof; that Galino had sold the property
to Respondent Cruz on April 24, 1998; that after the sale, the latter immediately occupied the
property, an action that was merely tolerated by petitioner; and that, in a letter given to respondent
on April 12, 1999, petitioner had demanded that the former vacate the property, but that she
refused to do so. Petitioner thereupon prayed for judgment ordering her to vacate the property and
to pay reasonable rentals for the use of the premises, attorneyǯs fees and the costs of the suit.
The above allegations appeared to show the elements of unlawful detainer. They also conferred
initiatory jurisdiction on the MTCC, because the case was filed a month after the last demand to
vacate -- hence, within the one-year prescriptive period.
However, what was actually proven by petitioner was that possession by respondent had been
illegal from the beginning. While the Complaint was crafted to be an unlawful detainer suit,
petitionerǯs real cause of action was for forcible entry, which had already prescribed. Consequently,
the MTCC had no more jurisdiction over the action.
The appellate court, therefore, did not err when it ruled that petitionerǯs Complaint for unlawful
detainer was a mere subterfuge or a disguised substitute action for forcible entry, which had
already prescribed. To repeat, to maintain a viable action for forcible entry, plaintiff must have
been in prior physical possession of the property; this is an essential element of the suit.
Third Issue:

p*
Petitioner next questions the CAǯs pronouncement that respondentǯs occupation of the property
was an exercise of a right flowing from a claim of ownership. It submits that the appellate court
should not have passed upon the issue of ownership, because the only question for resolution in an
ejectment suit is that of possession p.
Clearly, each of the parties claimed the right to possess the disputed property because of alleged
ownership of it. Hence, no error could have been imputed to the appellate court when it passed
upon the issue of ownership only for the purpose of resolving the issue of possession p The
CAǯs holding is moreover in accord with jurisprudence and the law.
./ pi

#p i
_
In a contract of sale, the buyer acquires the thing sold only upon its delivery ǲin any of the ways
specified in Articles 1497 to 1501, or in any other manner signifying an agreement that the
possession is transferred from the vendor to the vendee.ǳ With respect to incorporeal property,
Article 1498 lays down the general rule: the execution of a public instrument shall be equivalent to
the delivery of the thing that is the object of the contract if, from the deed, the contrary does not
appear or cannot be clearly inferred.
However, ownership is transferred not by contract but by tradition or delivery. Nowhere in the
Civil Code is it provided that the execution of a Deed of Sale is a pp
_ presumption of delivery
of possession of a piece of real estate.
This Court has held that the execution of a public instrument gives rise only to a prima facie
presumption of delivery. Such presumption is destroyed when the delivery is not effected because
of a legal impediment. _

p had earlier ruled that such constructive or symbolic
delivery, being merely presumptive, was deemed negated by the failure of the vendee to take actual
possession of the land sold.
It is undisputed that petitioner did not occupy the property from the time it was allegedly sold to it
on December 5, 1996 or at any time thereafter. Nonetheless, it maintains that Galinoǯs continued
stay in the premises from the time of the sale up to the time respondentǯs occupation of the sam e on
April 24, 1998, was possession held on its behalf and had the effect of delivery under the law.
Both the RTC and the CA disagreed. According to the RTC, petitioner did not gain control and
possession of the property, because Galino had continued to e xercise ownership rights over the
realty. That is, she had remained in possession, continued to declare it as her property for tax
purposes and sold it to respondent in 1998.
For its part, the CA found it highly unbelievable that petitioner -- which claims to be the owner of
the disputed property -- would tolerate possession of the property by respondent from April 24,
1998 up to October 16, 1998. How could it have been so tolerant despite its knowledge that the
property had been sold to her, and that it was by virtue of that sale that she had undertaken major
repairs and improvements on it?
Petitioner should have likewise been put on guard by respondentǯs declaration of the property for
tax purposes on April 23, 1998, as annotated in the tax certificate filed seven months later. Verily,
the tax declaration represented an adverse claim over the unregistered property and was inimical
to the right of petitioner.
Indeed, the above circumstances derogated its claim of control and possession of the property.
* p i

_

The ownership of immovable property sold to two different buyers at different times is governed
by Article 1544 of the Civil Code, which reads as follows:
ǲArticle 1544. x x x
ǲShould 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.
ǲShould there be no inscription, the ownership shall pertain to the person who in good faith was
first in possession; and, in the absence thereof, to the person who presents the oldest title, provided
there is good faith.ǳ
Galino allegedly sold the property in question to petitioner on December 5, 1996 and, subsequently,
to respondent on April 24, 1998. Petitioner thus argues that being the first buyer, it has a better
right to own the realty. However, it has not been able to establish that its Deed of Sale was
recorded in the Registry of Deeds of Olongapo City. Its claim of an unattested and unverified
notation on its Deed of Absolute Sale is not equivalent to registration. It admits that, indeed, the
sale has not been recorded in the Registry of Deeds.
In the absence of the required inscription, the law gives preferential right to the buyer who in good
faith is first in possession. In determining the question of who isin possession, certain basic
parameters have been established by jurisprudence.
¢, the possession mentioned in Article 1544 includes not only material but also symbolic
possession. p, possessors in good faith are those who are not aware of any flaw in their title or
mode of acquisition. @, buyers of real property that is in the possession of persons other than
the seller must be wary -- they must investigate the rights of the possessors. ¢, good faith is
always presumed; upon those who allege bad faith on the part of the possessors rests the burden of
proof.
Earlier, we ruled that the subject property had not been delivered to petitioner; hence, it did not
acquire possession either materially or symbolically. As between the two buyers, therefore,
respondent was first in actual possession of the property.
Petitioner has not proven that respondent was aware that her mode of acquiring the property was
defective at the time she acquired it from Galino. At the time, the property -- which was public land
-- had not been registered in the name of Galino; thus, respondent relied on the tax declarations
thereon. As shown, the formerǯs name appeared on the tax declarations for the property until its
sale to the latter in 1998. Galino was in fact occupying the realty when respondent took over
possession. Thus, there was no circumstance that could have placed the latter upon inquiry or
required her to further investigate petitionerǯs right of ownership.
i
p*

p)
Private corporations are disqualified from acquiring lands of the public domain, as provided under
Section 3 of Article XII of the Constitution, which we quote:
ǲSec. 3. Lands of the public domain are classified into agricultural, forest or timber, mineral lands,
and national parks. Agricultural lands of the public domain may be further classified by law
according to the uses to which they may be devoted. Alienable lands of the public domain shall be
limited to agricultural lands. _ p p
p

p /p
/p %_ /p
p Citizens of the Philippines may not lease not more than five hundred
hectares, or acquire not more than twelve hectares thereof by purchase, homestead, or grant. x x x.ǳ
(Italics supplied)
While corporations cannot acquire land of the public domain, they can however acquire private
land. Hence, the next issue that needs to be resolved is the determination of whether the disputed
property is private land or of the public domain.
According to the certification by the City Planning and Development Office of Olong apo City, the
contested property in this case is alienable and disposable public land. It was for this reason that
respondent filed a miscellaneous sales application to acquire it.
On the other hand, petitioner has not presented proof that, at the time it purchased the property
from Galino, the property had ceased to be of the public domain and was already private land. The
established rule is that alienable and disposable land of the public domain held and occupied by a
possessor -- personally or through predecessors-in-interest, openly, continuously, and exclusively
for 30 years -- is 0 converted to private property by the mere lapse of time.
In view of the foregoing, we affirm the appellate courtǯs ruling that respondent is entitled to
possession p. This determination, however, is only provisional in nature. Well-settled is the
rule that an award of possession p over a piece of property does not constitute 0p as
to the issue of its ownership.
Î, this Petition is i.#.i and the assailed Decision ¢¢c$.i. Costs against
petitioner.
SO ORDERED.
Sandoval-Gutierrez, Corona, and Carpio-Morales, JJ., concur.
Puno, (Chairman), on official leave.
c
, pp. 8-19.
Penned by Justice Remedios A. Salazar-Fernando and concurred in by Justices Romeo A. Brawner
(Division chairman) and Rebecca de Guia-Salvador (member); ., pp. 139-147.
c
, p. 162.
CA Decision, p. 8; rollo, p. 146.
., pp. 1-3 & 139-141.
Penned by Judge Eduardo D. Alfonso Jr.
The RTC Decision dated May 4, 2001 was penned by Judge Eliodoro G. Ubiadas.
The case was deemed submitted for decision on August 9, 2002, upon the Courtǯs receipt of
respondentǯs Memorandum signed by Atty. Carmelino M. Roque. Petitionerǯs Memorandum, filed
on July 23, 2002, was signed by Atty. Oscar L. Karaan.
Petitionerǯs Memorandum, p. 8;
, p. 199.
Alfaro v. Court of Appeals, 416 Phil. 310, August 28, 2001; Villalon v. Court of Appeals, 377 Phil.
556, December 2, 1999; Cebu Shipyard and Engineering Works v. William Lines, 366 Phil. 439, May
5, 1999.
Arcal v. CA, 348 Phil. 813, January 26, 1998; Hilario v. CA, 329 Phil. 202, August 7, 1996, citing
Odsigue v. CA, 233 SCRA 626, July 4, 1994.
! _ , supra.
131 Phil. 365, March 27, 1968.
., p. 373, per Sanchez, J.
Complaint, par. 7, p. 3;
, p. 22.
Position Paper of petitioner, p. 2;
, p. 50.
! _ , supra.
Amagan v. Marayag, 383 Phil. 486, February 28, 2000.
Go v. CA, supra, p. 184, per Gonzaga-Reyes, J., citing Sarmiento _. CA, 320 Phil. 146, 153-154,
November 16, 1995, per Regalado J.
Ibid.; Isidro _. Court of Appeals, 228 SCRA 503, December 15, 1993; §33(2) of Batas Pambansa (BP)
Blg. 129, as amended by Republic Act (RA) No. 7691.
p_ , 348 Phil. 37, January 5, 1998, citing several cases; 1_ , 335 Phil. 1107, February
24, 1997.
., par. 3, pp. 2 &. 21.
Complaint, par. 2, p. 1; rollo, p. 20.
., par. 6, p. 2; ibid.
., par. 7, p. 3; id, p. 22.
., par. 10, p. 3; ibid.
., par. 11, p. 3; ibid.
., p. 4; id, p. 23.
_ i ) , 367 SCRA 631, October 19, 2001; @_

0, 367 SCRA 17, October 10, 2001.
The other essential element of forcible entry is deprivation of possession by force, intimidation,
threats, strategy, or stealth.
§16 of Rule 70 of the Rules of Court.
Article 1496 of the Civil Code.
Equatorial Realty Development Inc. v. Mayfair Theater, Inc., 370 SCRA 56, November 21, 2001;
Ocejo, Perez & Co. v. International Bank, 37 Phil. 631, February 14, 1918; Roman _. Grimlt, 6 Phil.
96, April 11, 1906.
Santos v. Santos, 366 SCRA 395, October 2, 2001.
Equatorial Realty Development Inc. _. Mayfair Theater, Inc., supra.
.
Article 1497 of the Civil Code provides that the ǲthing sold shall be understood as delivered, when it
is placed in the control and possession of the vendee.ǳ
Annex ǲI,ǳ Declaration of Real Property;
, p. 41.
Annexes ǲAǳ and ǲBǳ of Complaint;
, pp. 25-26.
Under Section 113 of Presidential Decree (PD) No. 1529, to constitute constructive notice to the
whole world, instruments of conveyance over unregistered lands must be registered in the office of
the Register of Deeds for the province or city where the land lies.
Annex ǲCǳ of Complaint;
, p. 27.
Petitionerǯs Memorandum, p. 10;
, p. 201.
Navera _. CA, 184 SCRA 585, April 26, 1990.

_
155 SCRA 685, November 27, 1987; p_ ¢, 31
Phil. 144, July 23, 1915, cited in &_ , 230 SCRA 446, February 28, 1994.
Development Bank of the Philippines _. CA, 375 Phil. 114, October 13, 1999; Ballatan v. CA, 363 Phil.
408, March 2, 1999.
See Section 7 of Article XII of the Constitution; Bernas, The 1987 Constitution of the Republic of the
Philippines: a Commentary, 1996 ed., p. 1020.
c
, p. 48.
Under the Public Land Act (Commonwealth Act No. 141, as amended), alienable public land may be
acquired by the filing of an application for a sales, a homestead, a free or a special patent.
Republic _. CA, 374 Phil. 209, September 30, 1999; Natividad _. CA, 202 SCRA 493, October 4, 1991;
Republic _. Intermediate Appellate Court, 168 SCRA 165, November 29, 1988; Director of Lands _.
Intermediate Appellate Court, 146 SCRA 509, December 29, 1986.
Amagan _. Marayag, supra.
Javelosa _. CA, 333 Phil. 331, December 10, 1996.

Ô
Manila
EN BANC

)23 ..
VISAYAN SAWMILL COMPANY, INC., and ANG TAY, petitioners, vs. THE HONORABLE COURT OF
APPEALS and RJH TRADING, represented by RAMON J. HIBIONADA, proprietor, respondents.
Saleto J. Erames and Edilberto V. Logronio for petitioners.
Eugenio O. Original for private respondent.
SYLLABUS
1. CIVIL LAW; CONTRACT TO SELL; EFFECT OF VENDEE'S FAILURE TO COMPLY WITH POSITIVE
SUSPENSIVE CONDITION; CASE AT BAR. Ȅ The petitioner corporation's obligation to sell is
unequivocally subject to a positive suspensive condition, i.e., the private respondent's opening,
making or indorsing of an irrevocable and unconditional letter of credit. The former agreed to
deliver the scrap iron only upon payment of the purchase price by means of an irrevocable and
unconditional letter of credit. Otherwise stated, the contract is not one of sale where the buyer
acquired ownership over the property subject to the resolutory condition that the purchase price
would be paid after delivery. Thus, there was to be no actual sale until the opening, making or
indorsing of the irrevocable and unconditional letter of credit. Since what obtains in the case at bar
is a mere promise to sell, the failure of the private respondent to comply with the positive
suspensive condition cannot even be considered a breach Ȅ casual or serious Ȅ but simply an
event that prevented the obligation of petitioner corporation to convey title from acquiring binding
force. In Luzon Brokerage Co., Inc. vs. Maritime Building Co., Inc., this Court stated: ". . . The upshot
of all these stipulations is that in seeking the ouster of Maritime for failure to pay the price as
agreed upon, Myers was not rescinding (or more properly, resolving) the contract, but precisely
enforcing it according to its express terms. In its suit Myers was not seeking restitution to it of the
ownership of the thing sold (since it was never disposed of), such restoration being the logical
consequence of the fulfillment of a resolutory condition, express or implied (Article 1190); neither
was it seeking a declaration that its obligation to sell was extinguished. What it sought was a
judicial declaration that because the suspensive condition (full and punctual payment) had not been
fulfilled, its obligation to sell to Maritime never arose or never became effective and, therefore, it
(Myers) was entitled to repossess the property object of the contract, possession being a mere
incident to its right of ownership. It is elementary that, as stated by Castan, -- 'b) Si la condicion
suspensiva llega a faltar, la obligacion se tiene por no existente, y el acreedor pierde todo derecho,
incluso el de utilizar las medidas conservativas.'(3 Castan, Derecho Civil, 7a Ed., p. 107). (Also Puig
Peña, Der. Civ., T. IV (1), p. 113).'"
2. ID.; ID.; ID.; RESCISSION. Ȅ The obligation of the petitioner corporation to sell did not arise; it
therefore cannot be compelled by specific performance to comply with its prestation. In short,
Article 1191 of the Civil Code does not apply; on the contrary, pursuant to Article 1597 of the Civil
Code, the petitioner corporation may totally rescind, as it did in this case, the contract. Said Article
provides: "ART. 1597. Where the goods have not been delivered to the buyer, and the buyer has
repudiated the contract of sale, or has manifested his inability to perform his obligations,
thereunder, or has committed a breach thereof, the seller may totally rescind the contract of sale by
giving notice of his election so to do to the buyer."
3. ID.; ID.; IN CASE AT BAR, VENDOR'S CONSENT TO DIGGING UP AND GATHERING OF SCRAP IRON
NOT CONSTRUED AS DELIVERY THEREOF; REASONS THEREFOR. Ȅ Paragraph 6 of the Complaint
reads: "6. That on May 17, 1983 Plaintiff with the consent of defendant Ang Tay sent his men to the
stockyard of Visayan Sawmill Co., Inc. at Cawitan, Sta. Catalina, Negros Oriental to dig and gather
the scrap iron and stock the same for weighing." This permission or consent can, by no stretch of
the imagination, be construed as delivery of the scrap iron in the sense that, as held by the public
respondent, citing Article 1497 of the Civil Code, petitioners placed the private respondent in
control and possession thereof. In the first place, said Article 1497 falls under the Chapter
Obligations of the Vendor, which is found in Title VI (Sales), Book IV of the Civil Code. As such,
therefore, the obligation imposed therein is premised on an existing obligation to deliver the
subject of the contract. In the instant case, in view of the private respondent's failure to comply
with the positive suspensive condition earlier discussed, such an obligation had not yet arisen. In
the second place, it was a mere accommodation to expedite the weighing and hauling of the iron in
the event that the sale would materialize. The private respondent was not thereby placed in
possession of and control over the scrap iron. Thirdly, We cannot even assume the conversion of
the initial contract or promise to sell into a contract of sale by the petitioner corporation's alleged
implied delivery of the scrap iron because its action and conduct in the premises do not support
this conclusion. Indeed, petitioners demanded the fulfillment of the suspensive condition and
eventually cancelled the contract.
4. ID.; CONTRACTS; DAMAGES; MORAL DAMAGES; PURPOSE OF AWARD THEREOF; EXEMPLARY
DAMAGES. Ȅ In contracts, such as in the instant case, moral damages may be recovered if
defendants acted fraudulently and in bad faith, while exemplary damages may only be awarded if
defendants acted in a wanton, fraudulent, reckless, oppressive or malevolent manner. In the instant
case, the refusal of the petitioners to deliver the scrap iron was founded on the non-fulfillment by
the private respondent of a suspensive condition. It cannot, therefore, be said that the herein
petitioners had acted fraudulently and in bad faith or in a wanton, reckless, oppressive or
malevolent manner. What this Court stated in Inhelder Corp. vs. Court of Appeals needs to be
stressed anew: "At this juncture, it may not be amiss to remind Trial Courts to guard against the
award of exhorbitant (sic) damages that are way out of proportion to the environmental
circumstances of a case and which, time and again, this Court has reduced or eliminated. Judicial
discretion granted to the Courts in the assessment of damages must always be exercised with
balanced restraint and measured objectivity." For, indeed, moral damages are emphatically not
intended to enrich a complainant at the expense of the defendant. They are awarded only to enable
the injured party to obtain means, diversion or amusements that will serve to obviate the moral
suffering he has undergone, by reason of the defendant's culpable action. Its award is aimed at the
restoration, within the limits of the possible, of the spiritual status quo ante, and it must be
proportional to the suffering inflicted.
ROMERO, J., dissenting:
1. CIVIL LAW; CONTRACT OF SALE; DEFINED; WHEN PERFECTED; CASE AT BAR. Ȅ Article 1458 of
the Civil Code has this definition: "By a contract of sale, one of the contracting parties obligates
himself to transfer the ownership of and to deliver a determinate thing and the other to pay
therefor a price certain in money or its equivalent." Article 1475 gives the significance of this
mutual undertaking of the parties, thus: "The contract of sale is perfected at the moment there is a
meeting of minds upon the thing which is the object of the contract and upon the price. From that
moment, the parties may reciprocally demand performance, subject to the provisions of the law
governing the form of contracts." Thus, when the parties entered into the contract entitled
"Purchase and Sale of Scrap Iron" on May 1, 1983, the contract reached the stage of perfection,
there being a meeting of the' minds upon the object which is the subject matter of the contract and
the price which is the consideration. Applying Article 1475 of the Civil Code, from that moment, the
parties may reciprocally demand performance of the obligations incumbent upon them, i.e.,
delivery by the vendor and payment by the vendee.
2. ID.; ID.; DELIVERY; HOW ACCOMPLISHED; CASE AT BAR. Ȅ From the time the seller gave access
to the buyer to enter his premises, manifesting no objection thereto but even sending 18 or 20
people to start the operation, he has placed the goods in the control and possession of the vendee
and delivery is effected. For according to Article 1497, "The thing sold shall be understood as
delivered when it is placed in the control and possession of the vendee." Such action or real delivery
(traditio) is the act that transfers ownership. Under Article 1496 of the Civil Code, "The ownership
of the thing sold is acquired by the vendee from the moment it is delivered to him in any of the
ways specified in Articles 1497 to 1501, or in any other manner signifying an agreement that the
possession is transferred from the vendor to the vendee."
3. ID.; ID.; PROVISION IN CONTRACT REGARDING MODE OF PAYMENT NOT ESSENTIAL REQUISITE
THEREOF; WHEN PROVISION CONSIDERED A SUSPENSIVE CONDITION. Ȅ a provision in the
contract regarding the mode of payment, like the requirement for the opening of the Letter of
Credit in this case, is not among the essential requirements of a contract of sale enumerated in
Articles 1305 and 1474, the absence of any of which will prevent the perfection of the contract from
happening. Likewise, it must be emphasized that not every provision regarding payment should
automatically be classified as a suspensive condition. To do so would change the nature of most
contracts of sale into contracts to sell. For a provision in the contract regarding the payment of the
price to be considered a suspensive condition, the parties must have made this clear in certain and
unambiguous terms, such as for instance, by reserving or withholding title to the goods until full
payment by the buyer. This was a pivotal circumstance in the Luzon Brokerage case where the
contract in question was replete with very explicit provisions such as the following: "Title to the
properties subject of this contract remains with the Vendor and shall pass to, and be transferred in
the name of the Vendee only upon complete payment of the full price . . .;" 10 the Vendor (Myers)
will execute and deliver to the Vendee a definite and absolute Deed of Sale upon full payment of the
Vendee . . .; and "should the Vendee fail to pay any of the monthly installments, when due, or
otherwise fail to comply with any of the terms and conditions herein stipulated, then this Deed of
Conditional Sale shall automatically and without any further formality, become null and void." It is
apparent from a careful reading of Luzon Brokerage, as well as the cases which preceded it and the
subsequent ones applying its doctrines, that the mere insertion of the price and the mode of
payment among the terms and conditions of the agreement will not necessarily make it a contract
to sell. The phrase in the contract "on the following terms and conditions" is standard form which is
not to be construed as imposing a condition, whether suspensive or resolutory, in the sense of the
happening of a future and uncertain event upon which an obligation is made to depend. There must
be a manifest understanding that the agreement is in what may be referred to as "suspended
animation" pending compliance with provisions regarding payment. The reservation of title to the
object of the contract in the seller is one such manifestation. Hence, it has been decided in the case
of Dignos v. Court of Appeals that, absent a proviso in the contract that the title to the property is
reserved in the vendor until full payment of the purchase price or a stipulation giving the vendor
the right to unilaterally rescind the contract the moment the vendee fails to pay within the fixed
period, the transaction is an absolute contract of sale and not a contract to sell.
4. ID.; ID.; CONTRACT OF SALE DISTINGUISHED FROM CONTRACT TO SELL; EFFECT OF NON-
PAYMENT OF PURCHASE PRICE; EFFECT OF DELIVERY ON OWNERSHIP OF OBJECT OF
CONTRACT. Ȅ In a contract of sale, the non-payment of the price is a resolutory condition which
extinguishes the transaction that, for a time, existed and discharges the obligations created
thereunder. On the other hand, "the parties may stipulate that ownership in the thing shall not pass
to the purchaser until he has fully paid the price." In such a contract to sell, the full payment of the
price is a positive suspensive condition, such that in the event of non-payment, the obligation of the
seller to deliver and transfer ownership never arises. Stated differently, in a contract to sell,
ownership is not transferred upon delivery of property but upon full payment of th e purchase
price. Consequently, in a contract of sale, after delivery of the object of the contract has been made,
the seller loses ownership and cannot recover the same unless the contract is rescinded. But in the
contract to sell, the seller retains ownership and the buyer's failure to pay cannot even be
considered a breach, whether casual or substantial, but an event that prevented the seller's duty to
transfer title to the object of the contract.
5. ID.; ID.; CASE OF SYCIP V. NATIONAL COCONUT CORPORATION, ET AL., G.R. NO. L-6618, APRIL
28, 1956, DISTINGUISHED FROM CASE AT BAR. Ȅ Worthy of mention before concluding is Sycip v.
National Coconut Corporation, et al. since, like this case, it involves a failure to open on time the
Letter of Credit required by the seller. In Sycip, after the buyer offered to buy 2,000 tons of copra,
the seller sent a telegram dated December 19, 1946 to the buyer accepting the offer but on
condition that the latter opens a Letter of Credit within 48 hours. It was not until December 26,
1946, however, that the Letter of Credit was opened. The Court, speaking through Justice Bengzon,
held that because of the delay in the opening of the Letter of Credit; the seller was not obliged to
deliver the goods. Two factors distinguish Sycip from the case at bar. First, while there has already
been a perfected contract of sale in the instant case, the parties in Sycip were still undergoing the
negotiation process. The seller's qualified acceptance in Sycip served as a counter offer which
prevented the contract from being perfected. Only an absolute and unqualified acceptance of a
definite offer manifests the consent necessary to perfect a contract. Second, the Court found in Sycip
that time was of the essence for the seller who was anxious to sell to other buyers should the
offeror fail to open the Letter of Credit within the stipulated time. In contrast, there are no indicia in
this case that can lead one to conclude that time was of the essence for petitioner as would make
the eleven-day delay a fundamental breach of the contract.
6. ID.; OBLIGATIONS AND CONTRACTS; RESCISSION UNDER ARTICLE 1191 OF THE CIVIL CODE;
WHEN PROPER; DELAY IN PAYMENT FOR TWENTY DAYS NOT CONSIDERED A SUBSTANTIAL
BREACH OF CONTRACT; CASE AT BAR. Ȅ The right to rescind pursuant to Article 1191 is not
absolute. Rescission will not be permitted for slight or casual breach of the contract. Here,
petitioners claim that the breach is so substantial as to justify rescission . . . I am not convinced that
the circumstances may be characterized as so substantial and fundamental as to defeat the object of
the parties in making the agreement. None of the alleged defects in the Letter of Credit would serve
to defeat the object of the parties. It is to be stressed that the purpose of th e opening of a Letter of
Credit is to effect payment. The above-mentioned factors could not have prevented such payment. It
is also significant to note that petitioners sent a telegram to private respondents on May 23, 1983
cancelling the contract. This was before they had even received on May 26, 1983 the notice from the
bank about the opening of the Letter of Credit. How could they have made a judgment on the
materiality of the provisions of the Letter of Credit for purposes of rescinding the contract even
before setting eyes on said document? To be sure, in the contract, the private respondents were
supposed to open the Letter of Credit on May 15, 1983 but, it was not until May 26, 1983 or eleven
(11) days later that they did so. Is the eleven-day delay a substantial breach of the contract as could
justify the rescission of the contract? In Song Fo and Co. v. Hawaiian-Philippine Co., it was held that
a delay in payment for twenty (20) days was not a violation of an essential condition of the contract
which would warrant rescission for non-performance. In the instant case, the contract is bereft of
any suggestion that time was of the essence. On the contrary, it is noted that petitioners allowed
private respondents' men to dig and remove the scrap iron located in petitioners' premises
between May 17, 1983 until May 30, 1983 or beyond the May 15, 1983 deadline for the opening of
the Letter of Credit. Hence, in the absence of any indication that the time was of the essence, the
eleven-day delay must be deemed a casual breach which cannot justify a rescission.
DECISION
DAVIDE, JR., J p:
By this petition for review under Rule 45 of the Rules of Court, petitioners urge this Court to set
aside the decision of public respondent Court of Appeals in C.A.-G.R. CV No. 08807, 1 promulgated
on 16 March 1988, which affirmed with modification, in respect to the moral damages, the decision
of the Regional Trial Court (RTC) of Iloilo in Civil Case No. 15128, an action for specific performance
and damages, filed by the herein private respondent against the petitioners. The dispositive portion
of the trial court's decision reads as follows:
"IN VIEW OF THE ABOVE FINDINGS, judgment is hereby rendered in favor of plaintiff and against
the defendants ordering the latter to pay jointly and severally plaintiff, to wit:
1) The sum of Thirty-Four Thousand Five Hundred Eighty Three and 16/100 (P34,583.16), as
actual damages;
2) The sum of One Hundred Thousand (P100,000.00) Pesos, as moral damages;
3) The sum of Ten Thousand (P10,000.00) Pesos, as exemplary damages;
4) The sum of TWENTY Five Thousand (P25,000.00) Pesos, as attorney's fees; and
5) The sum of Five Thousand (P5,000.00) Pesos as actual litis expenses." 2
The public respondent reduced the amount of moral damages to P25,000.00.
The antecedent facts, summarized by the public respondent, are as follows:
"On May 1, 1983, herein plaintiff-appellee and defendants-appellants entered into a sale involving
scrap iron located at the stockyard of defendant-appellant corporation at Cawitan, Sta. Catalina,
Negros Oriental, subject to the condition that plaintiff -appellee will open a letter of credit in the
amount of P250,000.00 in favor of defendant -appellant corporation on or before May 15, 1983. This
is evidenced by a contract entitled `Purchase and Sale of Scrap Iron' duly signed by both parties.
On May 17, 1983, plaintiff-appellee through his man (sic), started to dig and gather and (sic) scrap
iron at the defendant-appellant's (sic) premises, proceeding with such endeavor until May 30 when
defendants-appellants allegedly directed plaintiff-appellee's men to desist from pursuing the work
in view of an alleged case filed against plaintiff-appellee by a certain Alberto Pursuelo. This,
however, is denied by defendants-appellants who allege that on May 23, 1983, they sent a telegram
to plaintiff-appellee cancelling the contract of sale because of failure of the latter to comply with the
conditions thereof.
On May 24, 1983, plaintiff-appellee informed defendants-appellants by telegram that the letter of
credit was opened May 12, 1983 at the Bank of the Philippine Islands main office in Ayala, but then
(sic) the transmittal was delayed.
On May 26, 1983, defendants-appellants received a letter advice from the Dumaguete City Branch of
the Bank of the Philippine Islands dated May 26, 1983, the content of which is quited (sic) as
follows:
'Please be advised that we have received today cable advise from our Head Office which reads as
follows:
'Open today our irrevocable Domestic Letter of Credit No. 01456-d fot (sic) P250,000.00 favor ANG
TAY c/o Visayan Sawmill Co., Inc. Dumaguete City, Negros Oriental Account of ARMACO-MARSTEEL
ALLOY CORPORATION 2nd Floor Alpap 1 Bldg., 140 Alfaro stp (sic) Salcedo Village, Makati, Metro
Manila Shipments of about 500 MT of assorted steel scrap marine/heavy equipment expiring on
July 24, 1983 without recourse at sight draft drawn on Armaco Marsteel Alloy Corporation
accompanied by the following documents: Certificate of Acceptance by Armaco -Marsteel Alloy
Corporation shipment from Dumaguete City to buyer's warehouse partial shipment
allowed/transhipment (sic) not allowed'.
For your information'.
On July 19, 1983, plaintiff-appellee sent a series of telegrams stating that the case filed against him
by Pursuelo had been dismissed and demanding that defendants-appellants comply with the deed
of sale, otherwise a case will be filed against them.
In reply to those telegrams, defendants-appellants' lawyer, on July 20, 1983 informed plaintiff-
appellee's lawyer that defendant-appellant corporation is unwilling to continue with the sale due to
plaintiff-appellee's failure to comply with essential pre-conditions of the contract.
On July 29, 1983, plaintiff-appellee filed the complaint below with a petition for prelimina ry
attachment. The writ of attachment was returned unserved because the defendant-appellant
corporation was no longer in operation and also because the scrap iron as well as other pieces of
machinery can no longer be found on the premises of the corporation." 3
In his complaint, private respondent prayed for judgment ordering the petitioner corporation to
comply with the contract by delivering to him the scrap iron subject thereof; he further sought an
award of actual, moral and exemplary damages, attorney's fees and the costs of the suit. 4
In their Answer with Counterclaim, 5 petitioners insisted that the cancellation of the contract was
justified because of private respondent's non-compliance with essential pre-conditions, among
which is the opening of an irrevocable and unconditional letter of credit not later than 15 May
1983.
During the pre-trial of the case on 30 April 1984, the parties defined the issues to be resolved; these
issues were subsequently embodied in the pre-trial order, to wit:
"1. Was the contract entitled Purchase and Sale of Scrap Iron, dated May 1, 1983 executed by the
parties cancelled and terminated before the Complaint was filed by anyone of the parties; if so,
what are the grounds and reasons relied upon by the cancelling parties; and were the reasons or
grounds for cancelling valid and justified?
2. Are the parties entitled to damages they respectively claim under the pleadings?" 6
On 29 November 1985, the trial court rendered its judgment, the dispositive portion of which was
quoted earlier.
Petitioners appealed from said decision to the Court of Appeals which docketed the same as C.A.-
G.R. CV No. 08807. In their Brief, petitioners, by way of assigned errors, alleged that the trial court
erred:
"1. In finding that there was delivery of the scrap iron subject of the sale;
2. In not finding that plaintiff had not complied with the conditions in the contract of sale;
3. In finding that defendants-appellants were not justified in cancelling the sale;
4. In awarding damages to the plaintiff as against the defendants-appellants;

5. In not awarding damages to defendants-appellants." 7
Public respondent disposed of these assigned errors in this wise:
"On the first error assigned, defendants-appellants argue that there was no delivery because the
purchase document states that the seller agreed to sell and the buyer agreed to buy 'an
undetermined quantity of scrap iron and junk which the seller will identify and designate.' Thus, it
is contended, since no identification and designation was made, there could be no delivery. In
addition, defendants-appellants maintain that their obligation to deliver cannot be completed until
they furnish the cargo trucks to haul the weighed materials to the wharf.
The arguments are untenable. Article 1497 of the Civil Code states:
'The thing sold shall be understood as delivered when it is placed in the control and possession of
the vendee.'
In the case at bar, control and possession over the subject matter of the contract was given to
plaintiff-appellee, the buyer, when the defendants-appellants as the sellers allowed the buyer and
his men to enter the corporation's premises and to dig-up the scrap iron. The pieces of scrap iron
then (sic) placed at the disposal of the buyer. Delivery was therefore complete. The identification
and designation by the seller does not complete delivery.
On the second and third assignments of error, defendants-appellants argue that under Articles
1593 and 1597 of the Civil Code, automatic rescission may take place by a mere notice to the buyer
if the latter committed a breach of the contract of sale.
Even if one were to grant that there was a breach of the contract by the buyer, automatic rescission
cannot take place because, as already (sic) stated, delivery had already been made. And, in cases
where there has already been delivery, the intervention of the court is necessary to annul the
contract.
As the lower court aptly stated:
'Respecting these allegations of the contending parties, while it is true that Article 1593 of the N ew
Civil Code provides that with respect to movable property, the rescission of the sale shall of right
take place in the interest of the vendor, if the vendee fails to tender the price at the time or period
fixed or agreed, however, automatic rescission is not allowed if the object sold has been delivered
to the buyer (Guevarra vs. Pascual, 13 Phil. 311; Escueta vs. Pando, 76 Phil 256), the action being
one to rescind judicially and where (sic) Article 1191, supra, thereby applies. There being already
an implied delivery of the items, subject matter of the contract between the parties in this case, the
defendant having surrendered the premises where the scraps (sic) were found for plaintiff's men to
dig and gather, as in fact they had dug and gathered, this Court finds the mere notice of resolution
by the defendants untenable and not conclusive on the rights of the plaintiff (Ocejo Perez vs. Int.
Bank, 37 Phi. 631). Likewise, as early as in the case of Song Fo vs. Hawaiian Philippine Company, it
has been ruled that rescission cannot be sanctioned for a slight or casual breach (47 Phil. 821).'
In the case of Angeles vs. Calasanz (135 (1935) SCRA 323), the Supreme Court ruled:
'Article 1191 is explicit. In reciprocal obligations, either party has the right to rescind the contract
upon failure of the other to perform the obligation assumed thereunder.
Of course, it must be understood that the right of a party in treating a contract as cancelled or
resolved on account of infractions by the other contracting party must be made known to the other
and is always provisional, being ever subject to scrutiny and review by the proper court.'
Thus, rescission in cases falling under Article 1191 of the Civil Code is always subject to review by
the courts and cannot be considered final.
In the case at bar, the trial court ruled that rescission is improper because the breach was very
slight and the delay in opening the letter of credit was only 11 days.
'Where time is not of the essence of the agreement, a slight delay by one party in the performance of
his obligation is not a sufficient ground for rescission of the agreement. Equity and justice mandates
(sic) that the vendor be given additional (sic) period to complete payment of the purchase price.'
(Taguda vs. Vda. de Leon, 132 SCRA (1984), 722).'
There is no need to discuss the fourth and fifth assigned errors since these are merely corollary to
the first three assigned errors." 8
Their motion to reconsider the said decision having been denied by public respondent in its
Resolution of 4 May 1988, 9 petitioners filed this petition reiterating the abovementioned
assignment of errors.
There is merit in the instant petition.
Both the trial court and the public respondent erred in the appreciation of the nature of the
transaction between the petitioner corporation and the private respondent. To this Court's mind,
what obtains in the case at bar is a mere contract to sell or promise to sell, and not a contract of
sale.
The trial court assumed that the transaction is a contract of sale and, influenced by its view that
there was an "implied delivery" of the object of the agreement, concluded that Article 1593 of the
Civil Code was inapplicable; citing Guevarra vs. Pascual 10 and Escueta vs. Pando, 11 it ruled that
rescission under Article 1191 of the Civil Code could only be done judicially. The trial court further
classified the breach committed by the private respondent as slight or casual, foreclosing, thereby,
petitioners' right to rescind the agreement.
Article 1593 of the Civil Code provides:
"ARTICLE 1593. With respect to movable property, the rescission of the sale shall of right take place
in the interest of the vendor, if the vendee, upon the expiration of the period fixed for the delivery of
the thing, should not have appeared to receive it, or, having appeared, he should not have tendered
the price at the same time, unless a longer period has been stipulated for its payment."
Article 1191 provides:

"ARTICLE 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the
obligors should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the obligation, with the
payment of damages in either case. He may also seek rescission, even after he has chosen
fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a
period."
xxx xxx xxx
Sustaining the trial court on the issue of delivery, public respondent cites Article 1497 of the Civil
Code which provides:
"ARTICLE 1497. The thing sold shall be understood as delivered, when it is placed in the control
and possession of the vendee."
In the agreement in question, entitled PURCHASE AND SALE OF SCRAP IRON, 12 the seller bound
and promised itself to sell the scrap iron upon the fulfillment by the private respondent of his
obligation to make or indorse an irrevocable and unconditional letter of credit in payment of the
purchase price. Its principal stipulation reads, to wit:
xxx xxx xxx
"Witnesseth:
That the SELLER agrees to sell, and the BUYER agrees to buy, an undetermined quantity of scrap
iron and junk which the SELLER will identify and designate now at Cawitan, Sta. Catalina, Negros
Oriental, at the price of FIFTY CENTAVOS (P0.50) per kilo on the following terms and conditions:
1. Weighing shall be done in the premises of the SELLER at Cawitan, Sta. Catalina, Neg. Oriental.
2. To cover payment of the purchase price, BUYER will open, make or indorse an irrevocable and
unconditional letter of credit not later than May 15, 1983 at the Consolidated Bank and Trust
Company, Dumaguete City, Branch, in favor of the SELLER in the sum of TWO HUNDRED AND FIFTY
THOUSAND PESOS (P250,000.00), Philippine Currency.
3. The SELLER will furnish the BUYER free of charge at least three (3) cargo trucks with drivers, to
haul the weighed materials from Cawitan to the TSMC wharf at Sta. Catalina for loading on BUYER's
barge. All expenses for labor, loading and unloading shall be for the account of the BUYER.
4. SELLER shall be entitled to a deduction of three percent (3%) per ton as rust allowance."
(Emphasis supplied).
The petitioner corporation's obligation to sell is unequivocally subject to a positive suspensive

condition, i.e., the private respondent's opening, making or indorsing of an irrevocable and
unconditional letter of credit. The former agreed to deliver the scrap iron only upon payment of the
purchase price by means of an irrevocable and unconditional letter of credit. Otherwise stated, the
contract is not one of sale where the buyer acquired ownership over the property subject to the
resolutory condition that the purchase price would be paid after delivery. Thus, there was to be no
actual sale until the opening, making or indorsing of the irrevocable and unconditional letter of
credit. Since what obtains in the case at bar is a mere promise to sell, the failure of the private
respondent to comply with the positive suspensive condition cannot even be considered a breach
Ȅ casual or serious Ȅ but simply an event that prevented the obligation of petitioner corporation
to convey title from acquiring binding force. In Luzon Brokerage Co., Inc. vs. Maritime Building Co.,
Inc., 13 this Court stated:
" . . . The upshot of all these stipulations is that in seeking the ouster of Maritime for failure to pay
the price as agreed upon, Myers was not rescinding (or more properly, resolving) the contract, but
precisely enforcing it according to its express terms. In its suit Myers was not seeking restitution to
it of the ownership of the thing sold (since it was never disposed of), such restoration being the
logical consequence of the fulfillment of a resolutory condition, express or implied (article 1190);
neither was it seeking a declaration that its obligation to sell was extinguished. What it sought was
a judicial declaration that because the suspensive condition (full and punctual payment) had not
been fulfilled, its obligation to sell to Maritime never arose or never became effective and, therefore,
it (Myers) was entitled to repossess the property object of the contract, possession being a mere
incident to its right of ownership. It is elementary that, as stated by Castan, Ȅ
'b) Si la condicion suspensiva llega a faltar, la obligacion se tiene por no existente, y el acreedor
pierde todo derecho, incluso el de utilizar las medidas conservativas.' (3 Cast n, Derecho Civil, 7a
Ed., p. 107). (Also Puig Peña, Der. Civ., T. IV (1), p. 113)'."
In the instant case, not only did the private respondent fail to open, make or indorse an irrevocable
and unconditional letter of credit on or before 15 May 1983 despite his earlier representation in his
24 May 1983 telegram that he had opened one on 12 May 1983, the letter of advice received by the
petitioner corporation on 26 May 1983 from the Bank of the Philippine Islands Dumaguete City
branch explicitly makes reference to the opening on that date of a letter of credit in favor of
petitioner Ang Tay c/o Visayan Sawmill Co. Inc., drawn without recourse on ARMACO-MARSTEEL
ALLOY CORPORATION and set to expire on 24 July 1983, which is indisputably not in accordance
with the stipulation in the contract signed by the parties on at least three (3) counts: (1) it was not
opened, made or indorsed by the private respondent, but by a corporation which is not a party to
the contract; (2) it was not opened with the bank agreed upon; and (3) it is not irrevocable and
unconditional, for it is without recourse, it is set to expire on a specific date and it stipulates certain
conditions with respect to shipment. In all probability, private respondent may have sold the
subject scrap iron to ARMACO-MARSTEEL ALLOY CORPORATION, or otherwise assigned to it the
contract with the petitioners. Private respondent's complaint fails to disclose the sudden entry into
the picture of this corporation.
Consequently, the obligation of the petitioner corporation to sell did not arise; it therefore cannot
be compelled by specific performance to comply with its prestation. In short, Article 1191 of the
Civil Code does not apply; on the contrary, pursuant to Article 1597 of the Civil Code, the petitioner
corporation may totally rescind, as it did in this case, the contract. Said Article provides:
"ARTICLE 1597. Where the goods have not been delivered to the buyer, and the buyer has
The trial court ruled, however, and the public respondent was in agreement, that there had been an
implied delivery in this case of the subject scrap iron because on 17 May 1983, private respondent's
men started digging up and gathering scrap iron within the petitioner's premises. The entry of
these men was upon the private respondent's request. Paragraph 6 of the Complaint reads:
"6. That on May 17, 1983 Plaintiff with the consent of defendant Ang Tay sent his men to the
the scrap iron and stock the same for weighing." 14
This permission or consent can, by no stretch of the imagination, be construed as delivery of the
scrap iron in the sense that, as held by the public respondent, citing Article 1497 of the Civil Code,
petitioners placed the private respondent in control and possession thereof. In the first place, said
Article 1497 falls under the Chapter 15 Obligations of the Vendor, which is found in Title VI (Sales),
Book IV of the Civil Code. As such, therefore, the obligation imposed therein is premised on an
existing obligation to deliver the subject of the contract. In the instant case, in view of the private
respondent's failure to comply with the positive suspensive condition earlier discussed, such an
obligation had not yet arisen. In the second place, it was a mere accommodation to expedite the
weighing and hauling of the iron in the event that the sale would materi alize. The private
respondent was not thereby placed in possession of and control over the scrap iron. Thirdly, We
cannot even assume the conversion of the initial contract or promise to sell into a contract of sale
by the petitioner corporation's alleged implied delivery of the scrap iron because its action and
conduct in the premises do not support this conclusion. Indeed, petitioners demanded the
fulfillment of the suspensive condition and eventually cancelled the contract.
All told, Civil Case No. 15128 filed before the trial court was nothing more than the private
respondent's preemptive action to beat the petitioners to the draw.
One last point. This Court notes the palpably excessive and unconscionable moral and exemplary
damages awarded by the trial court to the private respondent despite a clear absence of any legal
and factual basis therefor. In contracts, such as in the instant case, moral damages may be
recovered if defendants acted fraudulently and in bad faith, 16 while exemplary damages may only
be awarded if defendants acted in a wanton, fraudulent, reckless, oppressive or malevolent manner.
17 In the instant case, the refusal of the petitioners to deliver the scrap iron was founded on the
non-fulfillment by the private respondent of a suspensive condition. It cannot, therefore, be said
that the herein petitioners had acted fraudulently and in bad faith or in a wanton, reckless,
oppressive or malevolent manner. What this Court stated in Inhelder Corp. vs. Court of Appeals 18
needs to be stressed anew:
"At this juncture, it may not be amiss to remind Trial Courts to guard against the award of
exhorbitant (sic) damages that are way out of proportion to the environmental circumstances of a
case and which, time and again, this Court has reduced or eliminated. Judicial discretion granted to
the Courts in the assessment of damages must always be exercised with balanced restraint and
measured objectivity."
For, indeed, moral damages are emphatically not intended to enrich a complainant at the expense of
the defendant. They are awarded only to enable the injured party to obtain means, diversion or
amusements that will serve to obviate the moral suffering he has undergone, by reason of the
defendant's culpable action. Its award is aimed at the restoration, within the limits of the possible,
of the spiritual status quo ante, and it must be proportional to the suffering inflicted. 19
WHEREFORE, the instant petition is GRANTED. The decision of public respondent Court of Appeals
in C.A.-G.R. CV No. 08807 is REVERSED and Civil Case No. 15128 of the Regional Trial Court of Iloilo
is ordered DISMISSED.
Costs against the private respondent.
SO ORDERED.
Narvasa, C .J ., Cruz, Feliciano, Padilla, Bidin and Bellosillo, JJ ., concur.
Gutierrez, Jr., J ., On terminal leave.
Melo and Quiason, JJ ., No part.
Separate Opinions
I vote to dismiss the petition.
Petitioner corporation, Visayan Sawmill Co., Inc., entered into a contract on May 1, 1983 with
private respondent RJH Trading Co. represented by private respondent Ramon J. Hibionada. The
contract, entitled "PURCHASE AND SALE OF SCRAP IRON," stated:
This contract for the Purchase and Sale of Scrap Iron, made and executed at Dumaguete City, Phil.,
this 1st day of May, 1983 by and between:
VISAYAN SAWMILL CO., INC., . . . hereinafter called the SELLER, and
RAMON J. HIBIONADA, . . . hereinafter called the BUYER,
witnesseth:
Oriental, at the price of FIFTY CENTAVOS (P.50) per kilo on the following terms and conditions:
1. Weighing shall be done in the premises of the SELLER at Cawitan, Sta. Catalina, Negros Oriental.
2. To cover payment of the purchase price BUYER will open, make or indorse an irrevocable and
Company, Dumaguete City Branch, in favor of the SELLER in the sum of TWO HUNDRED AND FIFTY
THOUSAND PESOS (P250,000.00), Philippine currency.
haul the weighed materials from Cawitan to the TSMC wharf at Sta. Catalina for loading on BUYER'S
4. SELLER shall be entitled to a deduction of three percent (3%) per ton as rust allowance.
xxx xxx xxx
On May 17, 1983, the workers of private respondents were allowed inside petitioner company's
premises in order to gather the scrap iron. However, on May 23, 1983, petitioner company sent a
telegram which stated:
"RAMON HIBIONADA
RJH TRADING
286 QUEZON STREET
ILOILO CITY
DUE YOUR FAILURE TO COMPLY WITH CONDITIONS BEFORE DEADLINE OUR CONTRACT FOR
PURCHASE SCRAP IRON CANCELLED
VISAYAN SAWMILL CO., INC."
Hibionada wired back on May 24, 1983 the following:
"ANG TAY VISAYAN SAWMILL
DUMAGUETE CITY
LETTER OF CREDIT AMOUNTING P250,000.00 OPENED MAY 12, 1983 BANK OF PI MAIN OFFICE
AYALA AVENUE MAKATI METRO MANILA BUT TRANSMITTAL IS DELAYED PLEASE CONSIDER
REASON WILL PERSONALLY FOLLOW-UP IN MANILA THANKS REGARDS.
RAMON HIBIONADA"
On May 26, 1983, petitioner company received the following advice from the Dum aguete City
Branch of The Bank of Philippine Islands: cdll
"Opened today our Irrevocable Domestic Letter of Credit 2-01456-4 for P250,000.00 in favor ANG
TAY c/o Visayan Sawmill Co., Inc. Dumaguete City Negros Oriental Account of ARMACO-MARSTEEL
ALLOW (sic) CORPORATION 2nd Floor Alpap 1 Bldg., 140 Alfaro st. Salcedo Village Makati Metro
July 23, 1983 without recourse at slight draft drawn on Armaco-Marsteel Alloy Corporation
accompanied by the following documents: Certificate of acceptance by Armaco -Marsteel Allow (sic)
allowed/transhipment not allowed."
Subsequently, petitioners' counsel sent another telegram to private respondents stating that:
"VISAYAN SAWMILL COMPANY UNWILLING TO CONTINUE SALE OF SCRAP IRON TO HIBIONADA
DUE TO NON COMPLIANCE WITH ESSENTIAL PRE CONDITIONS"
Consequently, private respondents filed a complaint for specific performance and damages with the
Regional Trial Court (RTC) of Iloilo (Branch XXXV) which decided in favor of private respondents.
The RTC decision having been affirmed by the Court of Appeals, the present petition was filed.
Finding the petition meritorio us, the ponencia reversed the decision of the Court of Appeals. Based
on its appreciation of the contract in question, it has arrived at the conclusion that herein contract
is not a contract of sale but a contract to sell which is subject to a positive suspensive condition, i.e.,
the opening of a letter of credit by private respondents. Since the condition was not fulfilled, the
obligation of petitioners to convey title did not arise. The lengthy decision of Luzon Brokerage Co.,
Inc. v. Maritime Co. Inc. 1 penned by Justice J.B.L. Reyes, was cited as authority on the assumption
that subject contract is indeed a contract to sell but which will be shown herein as not quite
accurate.
Evidently, the distinction between a contract to sell and a contract of sale is crucial in this case.
Article 1458 of the Civil Code has this definition: "By a contract of sale, one of the contracting
parties obligates himself to transfer the ownership of and to deliver a determinate thing and the
other to pay therefor a price certain in money or its equivalent."
Article 1475 gives the significance of this mutual undertaking of the parties, thus: "The contract of
sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the
contract and upon the price. From that moment, the parties may reciprocally demand performance,
subject to the provisions of the law governing the form of contracts."
Thus, when the parties entered into the contract entitled "Purchase and Sale of Scrap Iron" on May
1, 1983, the contract reached the stage of perfection, there being a meeting of the' minds upon the
object which is the subject matter of the contract and the price which is the consideration. Applying
Article 1475 of the Civil Code, from that moment, the parties ma y reciprocally demand performance
of the obligations incumbent upon them, i.e., delivery by the vendor and payment by the vendee.
Petitioner, in its petition, admits that "[b]efore the opening of the letter of credit, buyer Ramon
Hibionada went to Mr. Ang Tay and informed him that the letter of credit was forthcoming and if it
was possible for him (buyer) to start cutting and digging the scrap iron before the letter of credit
arrives and the former (seller) manifested no objection, and he immediately sent 18 or 20 people to
start the operation." 2
From the time the seller gave access to the buyer to enter his premises, manifesting no objection
thereto but even sending 18 or 20 people to start the operation, he has placed the goods in the
control and possession of the vendee and delivery is effected. For according to Article 1497, "The
thing sold shall be understood as delivered when it is placed in the control and possession of the
vendee." 3
Such action or real delivery (traditio) is the act that transfers ownership. Under Article 1496 of the
Civil Code, "The ownership of the thing sold is acquired by the vendee from the moment it is
delivered to him in any of the ways specified in Articles 1497 to 1501, or in any other manner
signifying an agreement that the possession is transferred from the vendor to the vendee."
That payment of the price in any form was not yet effected is immaterial to the transfer of the right
of ownership. In a contract of sale, the non-payment of the price is a resolutory condition which
thereunder. 4
On the other hand, "the parties may stipulate that ownership in the thing shall not pass to the
purchaser until he has fully paid the price." 5 In such a contract to sell, the full payment of the price
is a positive suspensive condition, such that in the event of non-payment, the obligation of the seller
to deliver and transfer ownership never arises. Stated differently, in a contract to sell, ownership is
not transferred upon delivery of property but upon full payment of the purchase price. 6
Consequently, in a contract of sale, after delivery of the object of the contract has been made, the
seller loses ownership and cannot recover the same unless the contract is rescinded. But in the
At the outset, it must be borne in mind that a provision in the contract regarding the mode of
payment, like the requirement for the opening of the Letter of Credit in this case, is not among the
essential requirements of a contract of sale enumerated in Articles 1305 7 and 1474, 8 the absence
of any of which will prevent the perfection of the contract from happening. Likewise, it must be
emphasized that not every provision regarding payment should automatically be classified as a
suspensive condition. To do so would change the nature of most contracts of sale into contracts to
sell. For a provision in the contract regarding the payment of the price to be considered a
suspensive condition, the parties must have made this clear in certain and unambiguous terms,
such as for instance, by reserving or withholding title to the goods until full payment by the buyer. 9
This was a pivotal circumstance in the Luzon Brokerage case where the contract in question was
replete with very explicit provisions such as the following: "Title to the properties subject of this
contract remains with the Vendor and shall pass to, and be transferred in the name of the Vendee
only upon complete payment of the full price . . .;" 10 the Vendor (Myers) will execute and deliver to
the Vendee a definite and absolute Deed of Sale upon full payment of the Vendee . . .; 11 and "should
the Vendee fail to pay any of the monthly installments, when due, or otherwise fail to comply with
any of the terms and conditions herein stipulated, then this Deed of Conditional Sale shall
automatically and without any further formality, become null and void." 12
It is apparent from a careful reading of Luzon Brokerage, as well as the cases which preceded it 13
and the subsequent ones applying its doctrines, 14 that the mere insertion of the price and the
mode of payment among the terms and conditions of the agreement will not necessarily make it a
contract to sell. The phrase in the contract "on the following terms and conditions" is standard form
which is not to be construed as imposing a condition, whether suspensive or resolutory, in the
sense of the happening of a future and uncertain event upon which an obligation is made to depend.
There must be a manifest understanding that the agreement is in what may be referred to as
"suspended animation" pending compliance with provisions regarding payment. The reservation of
title to the object of the contract in the seller is one such manifestation. Hence, it has been decided
in the case of Dignos v. Court of Appeals 15 that, absent a proviso in the contract that the title to the
property is reserved in the vendor until full payment of the purchase price or a stipulation giving
the vendor the right to unilaterally rescind the contract the mo ment the vendee fails to pay within
the fixed period, the transaction is an absolute contract of sale and not a contract to sell. 16
In the instant case, nowhere in the contract did it state that the petitioners reserve title to the goods
until private respondents have opened a letter of credit. Nor is there any provision declaring the
contract as without effect until after the fulfillment of the condition regarding the opening of the
letter of credit.
Examining the contemporaneous and subsequent conduct of the parties, which may be relevant in
the determination of the nature and meaning of the contract, 17 it is significant that in the telegram
sent by petitioners to Hibionada on May 23, 1983, it stated that "DUE [TO] YOUR FAILURE TO
COMPLY WITH CONDITIONS BEFORE DEADLINE OUR CONTRACT FOR PURCHASE SCRAP IRON
CANCELLED." And in some of the pleadings in the course of this litigation, petitioners referred to
the transaction as a contract of sale. 18
In light of the provisions of the contract, contemporaneous and subsequent acts of the parties and
the other relevant circumstances surrounding the case, it is evident that the stipulation for the
buyer to open a Letter of Credit in order to cover the payment of the purchase price does not bear
the marks of a suspensive condition. The agreement between the parties was a contract of sale and
the "terms and conditions" embodied therein which are standard form, are clearly resolutory in
nature, the breach of which may give either party the option to bring an action to rescind and/or
seek damages. Contrary to the conclusions arrived at in the ponencia, the transaction is not a
contract to sell but a contract of sale.
However, the determination of the nature of the contract does not settle the controversy. A breach
of the contract was committed and the rights and liabilities of the parties must be established. The
ponencia, notwithstanding its conclusion that no contract of sale existed, proceeded to state that
petitioner company may rescind the contract based on Article 1597 of the Civil Code which
expressly applies only to a contract of sale. It provides:
giving notice of his election so to do to the buyer." (Emhasis supplied).
The ponencia was then confronted with the issue of delivery since Article 1597 applies only
"[w]here the goods have not yet been delivered." In this case, as aforestated, the workers of private
respondents were actually allowed to enter the petitioners' premises, thus, giving them control and
possession of the goods. At this juncture, it is even unnecessary to discuss the issue of delivery in
relation to the right of rescission nor to rely on Article 1597. In every contract which contains
reciprocal obligations, the right to rescind is always implied under Article 1191 of the Civil Code in
case one of the parties fails to comply with his obligations. 19
The right to rescind pursuant to Article 1191 is not absolute. Rescission will not be permitted for
slight or casual breach of the contract. 20 Here, petitioners claim that the breach is so substantial as
to justify rescission, not only because the Letter of Credit was not opened on May 15, 1983 as
stipulated in the contract but also because of the following factors: (1) the Letter of Credit, although
opened in favor of petitioners was made against the account of a certain Marsteel Alloy
Corporation, instead of private respondent's account; (2) the Letter of Credit referred to "assorted
steel scrap" instead of "scrap iron and junk" as provided in the contract; (3) the Letter of Credit
placed the quantity of the goods at "500 MT" while the contract mentioned "an undetermined
quantity of scrap iron and junk"; (4) no amount from the Letter of Credit will be released unless
accompanied by a Certificate of Acceptance; and (5) the Le tter of Credit had an expiry date.
I am not convinced that the above circumstances may be characterized as so substantial and
fundamental as to defeat the object of the parties in making the agreement. 21 None of the alleged
defects in the Letter of Credit would serve to defeat the object of the parties. It is to be stressed that
the purpose of the opening of a Letter of Credit is to effect payment. The above-mentioned factors
could not have prevented such payment. It is also significant to note that petitioners sent a telegram
to private respondents on May 23, 1983 cancelling the contract. This was before they had even
received on May 26, 1983 the notice from the bank about the opening of the Letter of Credit. How
could they have made a judgment on the materiality of the provisions of the Letter of Credit for
purposes of rescinding the contract even before setting eyes on said document?
To be sure, in the contract, the private respondents were supposed to open the Letter of Credit on
May 15, 1983 but, it was not until May 26, 1983 or eleven (11) days later that they did so. Is the
eleven-day delay a substantial breach of the contract as could justify the rescission of the contract?
In Song Fo and Co. v. Hawaiian-Philippine Co. 22 it was held that a delay in payment for twenty (20)
days was not a violation of an essential condition of the contract which would warrant rescission
for non-performance. In the instant case, the contract is bereft of any suggestion that time was of
the essence. On the contrary, it is noted that petitioners allowed private respondents' men to dig
and remove the scrap iron located in petitioners' premises between May 17, 1983 until May 30,
1983 or beyond the May 15, 1983 deadline for the opening of the Letter of Credit. Hence, in the
absence of any indication that the time was of the essence, the eleven-day delay must be deemed a
casual breach which cannot justify a rescission.
Worthy of mention before concluding is Sycip v. National Coconut Corporation, et al. 23 since, like
this case, it involves a failure to open on time the Letter of Credit required by the seller. In Sycip,
after the buyer offered to buy 2,000 tons of copra, the seller sent a telegram dated December 19,
1946 to the buyer accepting the offer but on condition that the latter opens a Letter of Credit within
48 hours. It was not until December 26, 1946, however, that the Letter of Credit was opened. The
Court, speaking through Justice Bengzon, held that because of the delay in the opening of the Letter
of Credit; the seller was not obliged to deliver the goods.
Two factors distinguish Sycip from the case at bar. First, while there has already been a perfected
contract of sale in the instant case, the parties in Sycip were still undergoing the negotiation
process. The seller's qualified acceptance in Sycip served as a counter offer which prevented the
contract from being perfected. Only an absolute and unqualified acceptance of a definite offer
manifests the consent necessary to perfect a contract. 24 Second, the Court found in Sycip that time
was of the essence for the seller who was anxious to sell to other buyers should the offeror fail to
open the Letter of Credit within the stipulated time. In contrast, there are no indicia in this case that
can lead one to conclude that time was of the essence for petitioner as would make the eleven-day
delay a fundamental breach of the contract.
In sum, to my mind, both the trial court and the respondent Court of Appeals committed no
reversible error in their appreciation of the agreement in question as a contract of sale and not a
contract to sell, as well as holding that the breach of the contract was not substantial and, therefore,
petitioners were not justified in law in rescinding the agreement.
PREMISES CONSIDERED, the Petition must be DISMISSED and the decision of the Court of Appeals
AFFIRMED.
Griño-Aquino, Regalado, Nocon and Campos, Jr., JJ ., join Justice Romero's dissent.
Footnotes
1. Rollo, 18-25.
2. Rollo, 60-61.
3. Rollo, 61-62.
4. Id., 34-40.
5. Id., 44-52.
6. Rollo, 8.
7. Id., 62-63.
8. Rollo, 63-65.
9. Id., 27.
10. 12 Phil. 311 [1908].
11. 76 Phil. 256 [1946].
12. Annex "A" of Complaint; Rollo, 41.
13. 46 SCRA 381, 387 [1972].
14. Rollo, 35.
15. Chapter 4.
16. Article 2220, Civil Code; Zenith Insurance Corp. vs. Court of Appeals, 185 SCRA 398 [1990].
17. Article 2232, Id.
18. 122 SCRA 576, 585 [1983].
19. R&B Surety & Insurance Co., Inc. vs. Intermediate Appellate Court, 129 SCRA 736 [1984] citing
Grand Union Supermarket, Inc. vs. Espina, Jr., 94 SCRA 53 [1979], citing the concurring and
dissenting opinion of Justice J.B.L. Reyes in Pangasinan Transportation Company vs. Legaspi, 12
SCRA 597 [1964]; Radio Communications of the Phils., Inc. vs. Rodriguez, 182 SCRA 899 [1990].
1. G.R. No. L-25885, August 18, 1972, 46 SCRA 381. Hereinafter referred to as Luzon Brokerage
case.
2. Rollo, p. 10; (Underscoring supplied).
3. Art. 1497, Civil Code.
4. Hanlon v. Haussermann, 40 Phil. 796 (1920).
5. Art. 1478, Civil Code.
6. Caridad Estates, Inc. v. Santero, 71 Phil. 114 (1940); Manuel v. Rodriguez, 109 Phil. 1 (1960).
7. Article 1305 of the Civil Code provides:
"A contract is a meeting of minds between two persons whereby one binds himself, with respect to
the other, to give something or to render some service."
8. Article 1475, paragraph 1 of the Civil Code Provides:
"The contract of sale is perfected at the moment there is a meeting of minds upon the thing which is
the object of the contract and upon the price."
9. Lim v. Court of Appeals, G.R. No. 85733, February 23, 1990, 182 SCRA 564.
10. Supra, note 1 at 386.
11. Id., at 387.
12. Id., at 386.
13. Caridad Estates, Inc. v. Santero, supra, note 3; Manuel v. Rodriguez, supra, note 3.
14. Lim v. Court of Appeals, G.R. No. 85733, February 23, 1990, 182 SCRA 564; Alfonso v. Court of
Appeals, G.R. No. 63745, June 8, 1990, 186 SCRA 400.
15. G.R. No. L-59266, February 29, 1988, 158 SCRA 375.
16. See also Taguba v. Vda., de Leon, G.R. No. L-59980, October 23, 1984, 132 SCRA 722.
17. Javier v. Court of Appeals, G.R. No. 48194, March 15, 1990, 183 SCRA 171; Universal Textile
Mills, Inc. v. NLRC, G.R. No. 87245, April 6, 1990, 184 SCRA 273.
18. Petition, p. 4, Rollo, p. 7; Reply, p. 4, Rollo, p. 107.

19. University of the Philippines v. de los Angeles, G.R. No. L-28602, September 29, 1970, 35 SCRA
102; Siy v. Court of Appeals, et al., G.R. No. L-39778, September 13, 1985, 138 SCRA 536; Lim v.
Court of Appeals, G.R. No. 85733, February 23, 1990, 182 SCRA 564.
20. Taguba v. de Leon, G.R. No. L-59980, October 23, 1984, 132 SCRA 722; Angeles v. Calasanz, G.R.
No. L-42283, March 18, 1985, 135 SCRA 323; Tan v. Court of Appeals, G.R. No. 80479, July 28, 1989,
175 SCRA 656; Jimenez v. Court of Appeals. G.R. No. 92171, March 13, 1991, 195 SCRA 205.
21. Delta Motor Corporation v. Genuino, G.R. No. 55665, February 8, 1989, 170 SCRA 29; Ang v.
Court of Appeals, G.R. No. 80058, February 13, 1989, 170 SCRA 286.
22. 47 Phil. 821 (1925).
23. G.R. No. L-6618, April 28, 1956 (Unreported).
24. Article 1319, Civil Code; Weldon Construction Corpora tion v. Court of Appeals, G.R. No. L-35721,
October 12, 1987, 154 SCRA 618.
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Appeal by certiorari from the decision dated December 11, 1961, of then Auditor General Pedro M.
Gimenez, disallowing the request of petitioner for the refund of real estate tax in the amount of
P30,460.90 paid to the Provincial Treasurer of Bulacan.
The facts of the case are as follows:
On June 8, 1960, at a meeting with the Cabinet, the President of the Philippines, acting on the
reports of the Committee created to survey suitable lots for relocating squatters in Manila and
suburbs, and of the Social Welfare Administrator together with the recommendation of the
Manager of the Government Service Insurance System, approved in principle the acquisition by the
People's Homesite and Housing Corporation of the unoccupied portion of the Sapang Palay Estate in
Sta. Maria, Bulacan for relocating the squatters who desire to settle north of Manila, and of another
area either in Las Piñas or Parañaque, Rizal, or Bacoor, Cavite for those who desire to settle south of
Manila. The project was to be financed through the flotation of bonds under the charter of the PHHC
in the amount of P4.5 million, the same to be absorbed by the Government Service Insurance
System. The President, through the Executive Secretary, informed the PHHC of such approval by
letter bearing the same date (Annex "B").
On June 10, 1960, the Board of Directors of the PHHC passed Resolution No. 700 (Annex "C")
authorizing the purchase of the unoccupied portion of the Sapang Palay Estate at P0.45 per square
meter "subject to the following conditions precedent: 31 4564
1. That the confirmation by the OEC and the President of the purchase price of P0.45
per sq. m. shall first be secured, pursuant to OEC Memorandum Circular No. 114,
dated May 6, 1957.
2. That the portion of the estate to be acquired shall first be defined and delineated.
3. That the President of the Philippines shall first provide the PHHC with the
necessary funds to effect the purchase and development of this property from the
proposed P4.5 million bond issue to be absorbed by the GSIS.
4. That the contract of sale shall first be approved by the Auditor General pursuant
to Executive Order dated February 3, 1959.
5. The vendor shall agree to the dismissal with prejudice of Civil Case No. Q-3332
C.F.I. Quezon City, entitled "Phil. Suburban Dev. Corp. V. Ortiz, et al."
On July 13, 1960, the President authorized the floating of bonds under Republic Act Nos. 1000 and
1322 in the amount of P7,500,000.00 to be absorbed by the GSIS, in order to finance the acquisition
by the PHHC of the entire Sapang Palay Estate at a price not to exceed P0.45 per sq. meter.
On December 29,1960, after an exchange of communications, Petitioner Philippine Suburban

Development Corporation, as owner of the unocc upied portion of the Sapang Palay Estate
(specifically two parcels covered by TCT Nos. T-23807 and T-23808), and the People's Homesite
and Housing Corporation, entered into a contract embodied in a public instrument entitled "Deed of
Absolute Sale" (Annex "F") whereby the former conveyed unto the latter the two parcels of land
abovementioned, under the following terms and conditions, among others: 31 4564
1. That for and in consideration of the sum of THREE MILLION THREE HUNDRED
EIGHTY-SIX THOUSAND TWO HUNDRED TWENTY THREE (P3,386,223.00) PESOS,
Philippine currency, to be paid by the VENDEE to the herein VENDOR in the manner
outlined hereinbelow, the VENDOR by these presents does hereby sell, transfer and
convey by way of absolute sale unto the VENDEE, its successors, administrators or
assigns, the above described two (2) parcels of land, together with all the
improvements existing thereon;
2. That the payment of the consideration mentioned in paragraph 1 above shall be

made as follows:
(a) The vendee is presently negotiating or securing from the GOVERNMENT

SERVICE INSURANCE SYSTEM, by virtue of a directive of the President of the
Philippines, a loan for the purchase of the above described two (2) parcels of land in
anticipation of the purchase by the said GOVERNMENT SERVICE INSURANCE
SYSTEM of the bonds to be floated by the National Government to enable the
VENDEE to make this purchase, and from whatever amount may be granted as loan
by the GOVERNMENT SERVICE INSURANCE SYSTEM to the VENDEE, ONE MILLION
SEVEN HUNDRED TEN THOUSAND (P1,710,000.00) PESOS shall be retained by the
said VENDEE for the purpose of paying and clearing the existing lien annotated at
the back of the aforesaid Transfer Certificates of Title Nos. T-23807 and T-23808,
said payment to be made directly to the MORTGAGEES and the difference shall be
paid to the VENDOR, provided that this first payment shall not be less than ONE
MILLION SEVEN HUNDRED TEN THOUSAND (P1,710,000.00) PESOS and the
VENDOR is hereby constituted as Attorney-in-fact and authorized to receive from,
and the GOVERNMENT SERVICE INSURANCE SYSTEM is directed to pay the balance
of the loan direct to the herein VENDOR chargeable against VENDEE's loan from the
GOVERNMENT SERVICE INSURANCE SYSTEM; provided, however, That should this
amount be more than sufficient to cover the said mortgage lien, the VENDEE shall
pay the difference to the VENDOR; and provided, further, That the VENDOR shall
take charge of the preparation and registration of the documents necessary in
clearing the above referred to mortgage lien, with the understanding that the
expenses for preparation, notarization, registration, including documentary stamps,
and other expenses for the cancellation of said mortgage lien shall be for the account
of the VENDOR and shall be advanced by the VENDEE to the VENDOR;
(b) That out of the sum of P1,710,000.00 to be retained by the VENDEE mentioned
in the immediately preceding paragraph 2(a) for the purpose of discharging the said
mortgage lien, the VENDEE shall deduct and further retain or keep as a trust fund
the amount of FORTY THOUSAND (P40,000) PESOS, Philippine Currency, to answer
for the remaining Notice of Lis Pendens annotated at the back of Transfer Certificate
of Title Nos. T-23807 and T-23808 until such lien shall have been discharged or
cancelled, the VENDEE binding itself to deliver forthwith the said amount of
P40,000.00 unto the successful party involved in said Notice of Lis Pendens;
(c) The remaining balance of the total consideration in the amount of ONE MILLI ON
SIX HUNDRED SEVENTY-SIX THOUSAND TWO HUNDRED TWENTY-THREE PESOS
(P1,676,223.00), Philippine Currency, or whatever amount is not paid by virtue of
the first payment mentioned in paragraph (a) above, shall be paid by the VENDEE
unto the VENDOR immediately upon the VENDEE's obtaining sufficient funds from
proceeds of bonds floated by the VENDEE or the Government for the purchase of the
properties subject of this transaction; provided, however, That full and complete
payment of the balance mentioned in this particular paragraph 2(c) shall be made or
paid by the VENDEE within a period of sixty (60) days from date of delivery of title
by the VENDOR in the name of the VENDEE; and provided, further, That this sixty
(60) days period may be extended for another period of sixty (60) days upon
written request by the VENDEE at least five (5) days prior to the expiration of the
said sixty (60) days period. Should there be instituted any legal action, however, for
the collection of any amounts due from the VENDEE in favor of the VENDOR, the
VENDEE binds itself to pay unto the VENDOR a sum equivalent to twenty-five (25%)
per centum of the total balance due from the, VENDEE in favor of the VENDOR as
and by way of attorney's fees, and the costs of suit;
3. That the VENDOR hereby warrants to defend the title and ownership of the
VENDEE to the two (2) parcels of land above described from any claim or claims of
third parties whomsoever;
(4.) That all expenses for the preparation and notarization of this document shall be
for the account of the VENDOR; provided, however, That registration and issuance
of certificates of title in the name of the VENDEE shall be for the account of the
VENDEE." (Annex "F")
The above document was not registered in the Office of the Register of Deeds until March 14, 1961,
due to the fact, petitioner claims, that the PHHC could not at once advance the money needed for
registration expenses. In the meantime, the Auditor General, to whom a copy of the contract had
been submitted for approval in conformity with Executive Order No. 290, expressed objections
thereto and requested a re-examination of the contract, in view of the fact that from 1948 to
December 20, 1960, the entire hacienda was assessed at P131,590.00, and reassessed beginning
December 21, 1960 in the greatly increased amount of P4,898,110.00. Said objections were
embodied in a letter to the President, dated January 9, 1961, but this notwithstanding, the
President, through the Executive Secretary, approved the Deed of Absolute Sale on February 1,
1961.
It appears that as early as the first week of June, 1960, prior to the signing of the deed by the
parties, the PHHC acquired possession of the property, with the consent of petitioner, to enable the
said PHHC to proceed immediately with the construction of roads in the new settlement and to
resettle the squatters and flood victims in Manila who were rendered homeless by the floods or
ejected from the lots which they were then occupying (Annexes "D" and "D-1").
On April 12, 1961, the Provincial Treasurer of Bulacan requested the PHHC to withhold the amount
of P30,099.79 from the purchase price to be paid by it to the Philippine Suburban Development
Corporation. Said amount represented the realty tax due on the property involved for the calendar
year 1961 (Annex "G").
Petitioner, through the PHHC, paid under protest the abovementioned amount to the Provincial
Treasurer of Bulacan and thereafter, or on June 13, 1961, by letter, requested then Secretary of
Finance Dominador Aytona to order a refund of the amount so paid. Petitioner claimed that it
ceased to be the owner of the land in question upon the execution of the Deed of Absolute Sale on
December 29, 1960. Upon recommendation of the Provincial Treasurer of Bulacan, said request
was denied by the Secretary of Finance in a letter-decision dated August 22, 1961. Pertinent
portions of this decision are quoted hereunder: 31 4564
.... the records show that the deed of sale executed on December 29, 1960 ... was
approved by the President upon favorable recommendation of the Cabinet and the
Committee created for the purpose of surveying suitable lots which may be acquired
for relocating squatters in Manila on February 1, 1961 only and that said instrument
of sale was registered with the Register of Deeds on March 14, 1961.
That Corporation, as vendor, maintains that in view of the execution of the deed of
sale on December 29, 1960 it ceased to be the owner of the property involved and
that consequently it was under no obligation to pay the real propert y tax thereon
effective January 1, 1961. In support of its stand, that Corporation cites Article 1498
of the New Civil Code of the Philippines which provides that "when the sale is made
through a public instrument, the execution thereof shall be equivalent to the
delivery of the thing which is the object of the contract, if from the deed the contrary
does not appear or cannot clearly be inferred" and Article 1496 of the same Code
which states 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 Articles 1497 to
1501, or in any other manner signifying an agreement that the possession is
transferred from the vendor to the vendee." On the other hand, the Provincial
Treasurer contends that, as under the Land Registration Act (Act No. 496) the
Philippine Suburban Development Corporation is still the owner of the property
until the deed of sale covering the same has been actually registered, the vendor is
still liable to the payment of real property tax for the calendar year 1961.
It is now claimed in this appeal that the Auditor General erred in disallowing the refund of the real
estate tax in the amount of P30,460.90 because aside from the presumptive delivery of the property
by the execution of the deed of sale on December 29, 1960, the possession of the property was
actually delivered to the vendee prior to the sale, and, therefore, by the transmission of ownership
to the vendee, petitioner has ceased to be the owner of the propert y involved, and, consequently,
under no obligation to pay the real property tax for the year 1961.
Respondent, however, argues that the presumptive delivery of the property under Article 1498 of
the Civil Code does not apply because of the requirement in the contract that the sale shall first be
approved by the Auditor General, pursuant to the Executive Order dated February 3, 1959 and later
by the President, and that the petitioner should register the deed and secure a new title in the name
of the vendee before the government can be compelled to pay the balance of P1,676,223.00 of the
purchase price. Respondent further contends that since the property involved is a land registered
under the Land Registration Act (Act No. 496), until the deed of sale has been actually registered,
the vendor remains as the owner of the said property, and, therefore, liable for the payment of real
property tax.
We find the petition meritorious.
I.
It cannot be denied that the President of the Philippines, on June 8, 1960, a t his Cabinet meeting,
approved and authorized the purchase by the national government, through the PHHC, of the
unoccupied portion of the property of petitioner; that on June 10, 1960, the PHHC, acting pursuant
to the aforecited approval of the President, passed its Resolution No. 700 approving and
authorizing the purchase of the unoccupied portion of said property; and that after the PHHC took
possession of the aforementioned property on the first week of June, 1960 to use it as a
resettlement area for squatters and flood victims from Manila and suburbs, the President of the
Philippines at his Cabinet meeting on June 13, 1960, approved and authorized the purchase by the
PHHC of the entire property consisting of 752.4940 hectares, instead of only the unoccupied
portion thereof as was previously authorized.
Considering the aforementioned approval and authorization by the President of the Philippines of
the specific transaction in question, and the fact that the contract here involved Ȅ which is for a
special purpose to meet a special situation Ȅ was entered into precisely to implement the
Presidential directive, the prior approval by the Auditor General envisioned by Administrative
Order No. 290, dated February 3, 1959, would therefore, not be necessary.
As We held in ¢ 2 #$c*i_ #

$ ,
the approval by the Auditor General contemplated by Administrative Order No. 290 dated February
3, 1959, refers to contracts in general, ordinarily entered into by government offices and
government-owned or controlled corporations, and not to a contract for a special purpose, to meet
a special situation and entered into in implementation of a Presidential directive to solve and
emergency. In other words, where the contract already bears the approval of the President, the
action of the Auditor General would no longer be necessary because under the said Administrative
Order, the President has, at any rate, the final say.
II
Under the civil law, delivery (tradition) as a mode of transmission of ownership maybe actual (real
tradition) or constructive (constructive tradition). When the sale of real property is made in a
public instrument, the execution thereof is equivalent to the delivery of the thing object of the
contract, if from the deed the contrary does not appear or cannot clearly be inferred.
In other words, there is symbolic delivery of the property subject of the sale by the execution of the
public instrument, unless from the express terms of the instrument, or by clear inference
therefrom, this was not the intention of the parties. Such would be the case, for instance, when a
certain date is fixed for the purchaser to take possession of the property subject of the conveyance,
or where, in case of sale by installments, it is stipulated that until the last installment is made, the
title to the property should remain with the vendor, or when the vendor reserves the right to use
and enjoy the properties until the gathering of the pending crops, or where the vendor has no
control over the thing sold at the moment of the sale, and, therefore, its material delivery could not
have been made.
In the case at bar, there is no question that the vendor had actually placed the vendee in possession
and control over the thing sold, even before the date of the sale. The condition that petitioner
should first register the deed of sale and secure a new title in the name of the vendee before the
latter shall pay the balance of the purchase price, did not preclude the transmission of ownership.
In the absence of an express stipulation to the contrary, the payment of the purchase price of the
good is not a condition, precedent to the transfer of title to the buyer, but title passes by the
delivery of the goods.
III .
We fail to see the merit in respondent's insistence that, although possession was transferred to the
vendee and the deed of sale was executed in a public instrument on December 29, l960, the vendor
still remains as owner of the property until the deed of sale is actually registered with the Office of
the Register of Deeds, because the land sold is registered under the Torrens System. In a long line of
cases already decided by this Court, the constant doctrine has been that, as between the parties to a
contract of sale, registration is not necessary to make it valid and effective, for actual notice is
equivalent to registration. / Indeed, Section 50 of the Land Registration Act provides that, even
without the act of registration, a deed purporting to convey or affect registered land shall operate
as a contract between the parties. The registration is intended to protect the buyer against claims of
third persons arising from subsequent alienations by the vendor, and is certainly not necessary to
give effect to the deed of sale, as between the parties to the contract.
The case of _ @pp,. cited by respondent, refers to a case involving conflicting rights
over registered property and those of innocent transferees who relied on the clean titles of the
properties in question. It is, therefore, not relevant to the case at bar.
In the case at bar, no rights of third persons are involved, much less is there any subsequent
alienation of the same property. It is undisputed that the property is in the possession of the
vendee, even as early as the first week of June, 1960, or six (6) months prior to the execution of the
Deed of Absolute Sale on December 29, 1960. Since the delivery of possession, coupled with the
execution of the Deed of Absolute Sale, had consummated the sale and transferred the title to the
purchaser, We, therefore, hold that the payment of the real estate tax after such transfer is the
responsibility of the purchaser. However, in the case at bar, the purchaser PHHC is a government
entity not subject to real property tax.
WHEREFORE, the appealed decision is hereby reversed, and the real property tax paid under
protest to the Provincial Treasurer of Bulacan by petitioner Philippine Suburban Development
Corporation, in the amount of P30,460,90, is hereby ordered refunded. Without any
pronouncement as to costs.
$

! ¢ & !! pp j j 17
""! ñ.£îhqwâ£
1 4 SCRA 867, 885.
2 Tolentino, V Civil Code, pp. 41, 42.
3 Articles 1496, 1498, Civil Code of the Philippines.
4 [10 Manresa 156 (1950 Ed.); Aviles et al. v. Arcega, et al., 44 Phil., 924] .
5 Addison v. Felix, 38 Phil., 404; Masallo v. Cesar, 39 Phil., 134.
6 Ocejo Perez & Co. v. International Bank, 37 Phil., 631.
7 Obras Pias v. Deverra Ignacio, 17 Phil., 45; Gustilo v. Maravilla, 48 Phil., 442;
Quimson v. Suarez, 45 Phil., 901; Winkleman v. Veluz, 43 Phil., 609; Galasinao v.
Austria, 97 Phil., 82.
8 Galanza v. Nuesa, 95 Phil., 713; Sapto, et al. v. Fabiana, 103 Phil 683, 685.
9 67 Phil., 308.
10 Sapto, et al., v. Fabiana, ..
11 Republic v. Aricheta, 2 SCRA 469. See also Sec. 7 of Rep. Act No. 1322 which
states that "All the projects of the People's Homesite and Housing Corporation
financed under this act shall be exempt from national and local taxes and fees of any
kind."

Ô
Manila
SECOND DIVISION

. .$)%/ ..
8Ô*Ô( Ô
petitioner,
vs.
&Ô9&(&Ôrespondents
! i

p ,*p _
-' J
:p
Subject of this petition for review is the decision of the Court of Appeals (Seventeenth Division) in
CA-G.R. No. 09149, affirming with modification the jud gment of the Regional Trial Court, Sixth (6th)
Judicial Region, Branch LVI. Himamaylan, Negros Occidental, in Civil Case No. 1272, which was
private respondent Alberto Nepales' action for specific performance of a contract of sale with
damages against petitioner Norkis Distributors, Inc.
The facts borne out by the record are as follows:
Petitioner Norkis Distributors, Inc. (Norkis for brevity), is the distributor of Yamaha motorcycles in
Negros Occidental with office in Bacolod City with Avelino Labajo as its Branch Manager. On
September 20, 1979, private respondent Alberto Nepales bought from the Norkis-Bacolod branch a
brand new Yamaha Wonderbike motorcycle Model YL2DX with Engine No.
L2-329401K Frame No. NL2-0329401, Color Maroon, then displayed in the N orkis showroom. The
price of P7,500.00 was payable by means of a Letter of Guaranty from the Development Bank of the
Philippines (DBP), Kabankalan Branch, which Norkis' Branch Manager Labajo agreed to accept.
Hence, credit was extended to Nepales for the price of the motorcycle payable by DBP upon release
of his motorcycle loan. As security for the loan, Nepales would execute a chattel mortgage on the
motorcycle in favor of DBP. Branch Manager Labajo issued Norkis Sales Invoice No. 0120 (Exh.1)
showing that the contract of sale of the motorcycle had been perfected. Nepales signed the sales
invoice to signify his conformity with the terms of the sale. In the meantime, however, the
motorcycle remained in Norkis' possession.
On November 6, 1979, the motorcycle was registered in the Land Transportation Commission in the
name of Alberto Nepales. A registration certificate (Exh. 2) in his name was issued by the Land
Transportation Commission on November 6, 1979 (Exh. 2 -b). The registration fees were paid by
him, evidenced by an official receipt, Exhibit 3.
On January 22, 1980, the motorcycle was delivered to a certain Julian Nepales who was allegedly
the agent of Alberto Nepales but the latter denies it (p. 15, t.s.n., August 2, 1984). The record shows
that Alberto and Julian Nepales presented the unit to DBP's Appraiser-Investigator Ernesto Arriesta
at the DBP offices in Kabankalan, Negros Occidental Branch (p. 12, c
). The motorcycle met an

accident on February 3, 1980 at Binalbagan, Negros Occidental. An investigation conducted by the
DBP revealed that the unit was being driven by a certain Zacarias Payba at the time of the accident
(p. 33, c
). The unit was a total wreck (p. 36, t.s.n., August 2,1984; p. 13, c
), was returned, and

stored inside Norkis' warehouse.
On March 20, 1980, DBP released the proceeds of private respondent's motorcycle loan to Norkis in
the total sum of P7,500. As the price of the motorcycle later increased to P7,828 in March, 1980,
Nepales paid the difference of P328 (p. 13, c
) and demanded the delivery of the motorcycle.

When Norkis could not deliver, he filed an action for specific performance with damages against
Norkis in the Regional Trial Court of Himamaylan, Negros Occidental, Sixth (6th) Judicial Region,
Branch LVI, where it was docketed as Civil Case No. 1272. He alleged that Norkis failed to deliver
the motorcycle which he purchased, thereby causing him damages.
Norkis answered that the motorcycle had already been delivered to private respondent before the
accident, hence, the risk of loss or damage had to be borne by him as owner of the unit.
After trial on the merits, the lower court rendered a decision dated August 27, 1985 ruling in favor
of private respondent (p. 28, c
.) thus:
WHEREFORE, judgment is rendered in favor of the plaintiff and against the

defendants. The defendants are ordered to pay solidarity to the plaintiff the present
value of the motorcycle which was totally destroyed, plus interest equivalent to
what the Kabankalan Sub-Branch of the Development Bank of the Philippines will
have to charge the plaintiff on fits account, plus P50.00 per day from February 3,
1980 until full payment of the said present value of the motorcycle, plus P1,000.00
as exemplary damages, and costs of the litigation. In lieu of paying the present value
of the motorcycle, the defendants can deliver to the plaintiff a brand-new
motorcycle of the same brand, kind, and quality as the one which was totally
destroyed in their possession last February 3, 1980. (pp. 28-29, c
.)
On appeal, the Court of appeals affirmed the appealed judgment on August 21, 1989, but deleted the
award of damages "in the amount of Fifty (P50.00) Pesos a day from February 3, 1980 until
payment of the present value of the damaged vehicle" (p35, c
). The Court of Appeals denied

Norkis' motion for reconsideration. Hence, this Petition for Review.
The principal issue in this case is who should bear the loss of the motorcycle. The answer to this
question would depend on whether there had already been a transfer of ownership of the
motorcycle to private respondent at the time it was destroyed.
Norkis' theory is that:
. . . After the contract of sale has been perfected (Art. 1475) and even before
delivery, that is, even before the ownership is transferred to the vendee, the risk of
loss is shifted from the vendor to the vendee. Under Art. 1262, the obligation of the
vendor to deliver a thing becomes extinguished if the thing is lost by
fortuitous event (Art. 1174), that is, without the fault or fraud of the vendor and
before he has incurred in delay (Art. 11 65, par. 3). If the thing sold is p, the
loss or destruction does not extinguish the obligation (Art. 1263). A thing is
determinate when it is particularly designated or physically segregated from all
others of the same class (Art. 1460). Thus, the vendor becomes released from his
obligation to deliver the determinate thing sold while the vendee's obligation to pay
the price subsists. If the vendee had paid the price in advance the vendor may retain
the same. The legal effect, therefore, is that the vendee assumes the risk of loss by
fortuitous event (Art. 1262) after the perfection of the contract to the time of
delivery. (Civil Code of the Philippines, Ambrosio Padilla, Vol. 5,1987 Ed., p. 87.)
Norkis concedes that there was no "actual" delivery of the vehicle. However, it insists that there was
constructive delivery of the unit upon: (1) the issuance of the Sales Invoice No. 0120 (Exh. 1) in the
name of the private respondent and the affixing of his signature thereon; (2) the registration of the
vehicle on November 6, 1979 with the Land Transportation Commission in private respondent's
name (Exh. 2); and (3) the issuance of official receipt (Exh. 3) for payment of registration fees (p.
33, c
).
That argument is not well taken. As pointed out by the private respondent, the issuance of a sales
invoice does not prove transfer of ownership of the thing sold to the buyer. An invoice is nothing
more than a detailed statement of the nature, quantity and cost of the thing sold and has been
considered not a bill of sale (Am. Jur. 2nd Ed., Vol. 67, p. 378).
In all forms of delivery, it is necessary that the act of delivery whether constructive or actual, be
coupled with the intention of delivering the thing. The act, without the intention, is insufficient (De
Leon, Comments and Cases on Sales, 1978 Ed., p Manresa, p. 94).
When the motorcycle was registered by Norkis in the name of private respondent, Norkis did not
intend yet to transfer the title or ownership to Nepales, but only to facilitate the execution of a
chattel mortgage in favor of the DBP for the release of the buyer's motorcycle loan. The Letter of
Guarantee (Exh. 5) issued by the DBP, reveals that the execution in its favor of a chattel mortgage
over the purchased vehicle is a pre-requisite for the approval of the buyer's loan. If Norkis would
not accede to that arrangement, DBP would not approve private respondent's loan application and,
consequently, there would be no sale.
In other words, the critical factor in the different modes of effecting delivery, which gives legal
effect to the act, is the actual intention of the vendor to deliver, and its acceptance by the vendee.
Without that intention, there is no tradition (Abuan vs. Garcia, 14 SCRA 759).
In the case of _.¢

/and Tioco (38 Phil. 404, 408), this Court held:
The Code imposes upon the vendor the obligation to

_ the thing sold. The thing
is considered to be delivered when it is "placed in the hands and possession of the
vendee." (Civil Code, Art. 1462). It is true that the same article declares that the
execution of a public instrument is equivalent to the delivery of the thing which is
the object of the contract, but, in order that this symbolic delivery may produce the
effect of tradition, it is necessary that the vendor shall have had such p
over
the thing sold that, at the moment of the sale, its material delivery p
have been
made. It is not enough to confer upon the purchaser the and theof
possession. @

p p
. When there is no
impediment whatever to prevent the thing sold passing into the tenancy of the
purchaser by the sole will of the vendor, symbolic delivery through the execution of
a public instrument is sufficient. But / p
p p_ 0
p

p p p
0
p

%
_ p.(Emphasis supplied.)
The Court of Appeals correctly ruled that the purpose of the execution of the sales invoice dated
September 20, 1979 (Exh. B) and the registration of the vehicle in the name of plaintiff-appellee
(private respondent) with the Land Registration Commission (Exhibit C) was not to transfer to
Nepales the ownership and dominion over the motorcycle, but only to comply with the
requirements of the Development Bank of the Philippines for processing private respondent's
motorcycle loan. On March 20, 1980, before private respondent's loan was released and before he
even paid Norkis, the motorcycle had already figured in an accident while driven by one Zacarias
Payba. Payba was not shown by Norkis to be a representative or relative of private respondent. The
latter's supposed relative, who allegedly took possession of the vehicle from Norkis did not explain
how Payba got hold of the vehicle on February 3, 1980. Norkis' claim that Julian Nepales was acting
as Alberto's agent when he allegedly took delivery of the motorcycle (p. 20, Appellants' Brief), is
controverted by the latter. Alberto denied having authorized Julian Nepales to get the motorcycle
from Norkis Distributors or to enter into any transaction with Norkis relative to said motorcycle. (p.
5, t.s.n., February 6, 1985). This circumstances more than amply rebut the disputable presumption
of delivery upon which Norkis anchors its defense to Nepales' action (pp. 33-34, c
).
Article 1496 of the Civil Code which provides that "in the absence of an express assumption of risk
by the buyer, the things sold remain at seller's risk until the ownership there of is transferred to the
buyer," is applicable to this case, for there was neither an actual nor constructive delivery of the
thing sold, hence, the risk of loss should be borne by the seller, Norkis, which was still the owner
and possessor of the motorcycle when it was wrecked. This is in accordance with the well-known
doctrine of .
WHEREFORE, finding no reversible error in the decision of the Court of Appeals in CA-G.R. No.
09149, we deny the petition for review and hereby affirm the appealed decision, with costs against
the petitioner.
SO ORDERED.
#_pp$

!! pp
FIRST DIVISION
[G.R. No. 114172. August 25, 2003]
JUANITA P. PINEDA, assisted by her husband, CRISPIN PINEDA, and LILIA SAYOC, , _.
COURT OF APPEALS and TERESITA A. GONZALES, assisted by her husband, FRANCISCO G.
GONZALES, .
DECISION
CARPIO, !.:
The Case
This petition for review on p seeks to reverse the Decision of the Court of Appeals dated 26
August 1993 in CA-G.R. SP No. 28651 as well as the Resolution dated 4 March 1994 denying the
motion for reconsideration. In its assailed decision, the Court of Appeals declared void the orders of
the Regional Trial Court of Cavite City dated 10 January 1992, 5 February 1992 and 30 April 1992,
and made the preliminary injunction permanent. In the first order, the trial court declared that
Teresita A. Gonzales, despite notice, failed to appear at the hearing of the motion to surrender
Transfer Certificate of Title No. T-16084 and to file opposition to the motion. In the second order,
the trial court declared void the original and ownerǯs duplicate of Transfer Certificate of Title No. T-
16084 and ordered the reinstatement of Transfer Certificate of Title No. T-8361. In the third order,
the trial court denied the motions to lift the first order and to reconsider the second order.
The Facts
On 4 January 1982, the Spouses Virgilio and Adorita Benitez (ǲSpouses Benitezǳ) mortgaged a house
and lot (ǲPropertyǳ) covered by Transfer Certificate of Title No. T-8361 (ǲTCT 8361ǳ) in favor of
Juanita P. Pineda (ǲPinedaǳ) and Leila P. Sayoc (ǲSayocǳ). The real estate mortgage secured the
Spouses Benitezǯs loan of P243,000 with a one-year maturity period. Pineda and Sayoc did not
register the mortgage with the Register of Deeds. The Spouses Benitez delivered the ownerǯs
duplicate of TCT 8361 to Pineda.
On 9 November 1983, with the consent of Pineda, the Spouses Benitez sold the house, which was
part of the Property, to Olivia G. Mojica (ǲMojicaǳ). On the same date, Mojica filed a petition for the
issuance of a second ownerǯs duplicate of TCT 8361 alleging that she ǲpurchased a parcel of landǳ
and the ǲownerǯs duplicate copy of TCT No. T-8361 was lost.ǳ
On 7 December 1983, the trial court granted the petition. The Register of Deeds of Cavite City
issued the second ownerǯs duplicate of TCT 8361 in the name of the Spouses Benitez.
On 12 December 1983, the Spouses Benitez sold the lot covered by TCT 8361 to Mojica. With the
registration of the deed of sale and presentation of the second ownerǯs duplicate of TCT 8361, the
Register of Deeds cancelled TCT 8361 and issued Transfer Certificate of Title No. T-13138 (ǲTCT
13138ǳ) in the name of Mojica.
On 22 February 1985, Mojica obtained a loan of P290,000 from Teresita A. Gonzales (ǲGonzalesǳ).
Mojica executed a promissory note and a deed of mortgage over the Property in favor of Gonzales.
Gonzales registered this deed of mortgage with the Register of Deeds of Cavite City who annotated
the mortgage on TCT 13138 as Entry No. 33209.
Meanwhile, on 8 May 1985, Pineda and Sayoc filed a complaint before the Regional Trial Court of
Cavite City, docketed as Civil Case No. 4654, against the Spouses Benitez and Mojica. The complaint
prayed for the cancellation of the second ownerǯs duplicate of TCT 8361 and the award of moral
damages and attorneyǯs fees.
In their answer, the Spouses Benitez admitted selling to Mojica the Property which was already
subject to a previous mortgage in favor of Pineda and Sayoc. The Spouses Benitez claimed that
under the p
, Mojica, with the conformity of Pineda and Sayoc, agreed
to assume the balance of the mortgage debt of the Spouses Benitez to Pineda and Sayoc.
The Spouses Benitez denied any knowledge of Mojicaǯs petition for the issuance of a second ownerǯs
duplicate of TCT 8361. The Spouses Benitez prayed for the dismissal of the complaint and the
award of moral damages and attorneyǯs fees. The Spouses Benitez also prayed that in case the court
would render judgment in favor of Pineda and Sayoc, only Mojica should be held liable.
On the other hand, Mojica denied conspiring with the Spouses Benitez and committing fraud in
filing the petition for the issuance of a second ownerǯs duplicate of TCT 8361. Mojica stated that
the Spouses Benitez sold to her the Property. Mojica claimed that upon the execution of the deed of
sale, the Spouses Benitez delivered to her the ownerǯs duplicate of TCT 8361. However, Mojica
alleged that the ownerǯs duplicate of TCT 8361 was lost.
Mojica also asserted that she verified with the Register of Deeds of Cavite City the provision in the
deed of sale that the Property was free from all liens and encumbrances and found the same to be
true. Mojica added that on learning of the Spouses Benitezǯs mortgage with Pineda and Sayoc, she
signed the p
. Mojica contended that since Pineda, for herself and
Sayoc, conformed to this agreement, Pineda and Sayoc had no personality to file the complaint.
Mojica further alleged that Pineda and Sayoc were in estoppel from challenging the validity of the
second ownerǯs duplicate of TCT 8361 because Pineda and Sayoc, despite notice, failed to oppose
the reconstitution of the title.
Mojica maintained that the Spouses Benitez are indispensable parties because TCT 8361 was in
their name. Mojica also asserted that she did not breach the p
since
she had paid the Spouses Benitez an amount more than their debt to Pineda and Sayoc. Mojica
contended that had the Spouses Benitez paid the amount to Pineda and Sayoc, there would have
been no obligation to assume. Mojica prayed for the dismissal of the complaint and t he award of
moral and exemplary damages and attorneyǯs fees.
During the pendency of the case, Pineda caused the annotation on 18 August 1986 of a notice of

on the original of TCT 8361 with the Register of Deeds.
After trial, the trial court rendered a Decision dated 15 June 1987, the dispositive portion of which
reads:
WHEREFORE, in view of the foregoing, the Court hereby renders judgment declaring the second
ownerǯs duplicate of TCT No. T-8361 of the land records of Cavite as null and void and the Register
of Deeds of Cavite City is hereby ordered upon payment of the corresponding legal fees the
annotation of this pronouncement in its record and the revival of the first ownerǯs duplicate with
the same faith and credit before its alleged loss. The counterclaim of defendants Benitezes is
hereby dismissed. No pronouncement as to costs.
SO ORDERED.
On 7 December 1987, Mojica defaulted in paying her obligation to Gonzales. Hence, Gonzales
extrajudicially foreclosed the mortgage. On 27 January 1988, Gonzales purchased at public auction
the Property for P423,244.88.
For failure of Mojica to redeem the Property, Gonzales consolidated the title to the Property. On 29
March 1989, Gonzales executed the corresponding Affidavit of Consolidation.
On 30 March 1989, the Register of Deeds of Cavite City cancelled TCT 13138, which was in Mojicaǯs
name, and issued Transfer Certificate of Title No. T-16084 (ǲTCT 16084ǳ) in the name of Gonzales.
TCT 16084 contained Entry No. 35520, the notice of
dated 18 August 1986 in relation to
Civil Case No. 4654. The Register of Deeds annotated on TCT 16084 the notice of
, even
though TCT 13138 did not contain such annotation.
Meanwhile, dissatisfied with the trial courtǯs decision, the Spouses Benitez and Mojica appealed to
the Court of Appeals, docketed as CA-G.R. CV No. 15417. On 29 January 1991, the Court of Appeals
rendered a Decision affirming the trial courtǯs decision declaring void the second ownerǯs duplicate
of TCT 8361. The decision of the Court of Appeals became final and was entered in the Book of
Entries of Judgments on 17 June 1991.
The Court of Appeals returned the records of the case to the trial court on 10 July 1991. On motion
of Pineda and Sayoc, the trial court issued a writ of execution to enforce the judgment.
However, the writ of execution was returned unsatisfied. The Sheriffǯs Return of 12 September
1991 stated that the Register of Deeds could not implement the writ of execution. The Sheriffǯs
Return showed that the Register of Deeds had already cancelled TCT 8361 and issued TCT 16084 in
the name of Gonzales by virtue of the consolidation of title dated 29 March 1989.
Consequently, on 6 December 1991, Pineda and Sayoc filed a motion with the trial court for the
issuance of an order requiring Gonzales to surrender the ownerǯs duplicate of TCT 16084 to the
Register of Deeds of Cavite City.
In its Order dated 10 January 1992 (ǲfirst orderǳ), the trial court declared that Gonzales, despite
notice, failed to appear at the hearing and to oppose the motion to surrender TCT 16084. In the
same order, the trial court directed Gonzales to file a memorandum. Gonzales received this order
on 20 January 1992.
Subsequently, Gonzales filed a motion to lift the first order alleging that since she was not a party in
Civil Case No. 4654, the decision did not bind her. Gonzales also claimed that she did not receive
notice of the hearing, copy of the motion to surrender TCT 16084 and the order resetting the
hearing because she was in the United States of America. Gonzales finally alleged that she was an
innocent purchaser for value.
In an Order dated 5 February 1992 (ǲsecond orderǳ), the trial court declared void the original and
the ownerǯs duplicate of TCT 16084 in the name of Gonzales. The trial court ordered the
reinstatement of TCT 8361 in the name of the Spouses Benitez.
Gonzales filed a motion for reconsideration of the second order. On 30 April 1992, the trial court
issued an Order (ǲthird orderǳ) denying Gonzalesǯ motions to lift the first order and to reconsider
the second order.
Aggrieved by the trial courtǯs orders, Gonzales filed with the Court of Appeals a petition for the
issuance of a writ of prohibitory injunction.
On 26 August 1993, the Court of Appeals rendered a decision disposing as follows:
WHEREFORE, the petition is granted. The assailed orders dated 10 January 1992, 5 February 1992,
and 30 April 1992 are hereby declared NULL and VOID, and the preliminary prohibitory injunction
is made permanent.
SO ORDERED.
Hence, the instant petition.
The Ruling of the Court of Appeals
In the Court of Appeals, Gonzales maintained that the trial court had no jurisdiction over her person
and property because Pineda and Sayoc did not implead her as a party in Civil Case No. 4654.
Insisting that the questioned orders were procured through extrinsic or collateral fraud, Gonzales
claimed that the orders of the trial court were void. Gonzales further alleged that she was an
innocent purchaser for value making her title to the Property indefeasible and imprescriptible.
Pineda and Sayoc, on the other hand, argued that the notice of
annotated on the title of
the Property bound Gonzales, as subsequent purchaser of the Property, to the outcome of the case.
Pineda and Sayoc contended that Gonzales was not a purchaser in good faith because Gonzales had
constructive notice of the pending litigation when she purchased the Property.
Moreover, Pineda and Sayoc argued that no separate action is necessary to cancel the title because
Gonzales is bound by the outcome of the litigation. They contended that there was no extrinsic
fraud because the notice of
warned Gonzales of the pendency of Civil Case No. 4654
where she could have intervened. Pineda and Sayoc further alleged that foreclosure and sale, not a
mortgage, vest title on a mortgagee. Foreclosure and sale, however, are always subject to a notice
of
.
In granting the petition, the Court of Appeals ruled that the trial court erred when it voided TCT
16084 upon a mere motion for the surrender of the ownerǯs duplicate of TCT 16084. The Court of
Appeals further held that the trial court erred in ordering the reinstatement of TCT 8361 in the
name of the Spouses Benitez.
The Court of Appeals held that Pineda and Sayoc should have filed the petition to surrender TCT
16084 in the original case where the decree of registration of TCT 16084 was entered and not in
Civil Case No. 4654. The second paragraph of Section 108 of Presidential Decree No. 1529 (ǲPD
1529ǳ) requires the filing of such separate petition. The appellate court stated that it was beyond
the trial courtǯs authority to act on the matter on a mere motion to surrender TCT 16084.
The Court of Appeals likewise ruled that the trial court did not acquire jurisdiction over the person
of Gonzales because she was not a party in Civil Case No. 4654. The appellate court found that
Gonzales could not have known of, and appeared at, the hearing of the motion to surrender TCT
16084 because Gonzales was then out of the country.
Assuming that the trial court could validly act on the motion of Pineda and Sayoc, the Court of
Appeals declared that the orders nevertheless contravened Section 107 of PD 1529. This provision
of law requires a hearing before the court can act on a petition to surrender a duplicate certificate
of title.
The Issues
Petitioners raise the following issues for resolution:
1. Whether a notice of
binds a subsequent purchaser of the property to the
outcome of the pending case.
2. Whether TCT 13138 and TCT 16084, being derived from the void second ownerǯs
duplicate of TCT 8361, are also void.
3. Whether a separate action should be filed to cancel TCT 16084.
4. Whether Gonzales was an innocent purchaser for value.
5. Whether Gonzales was denied due process of law.

The Ruling of the Court
We deny the petition.

@@jj@@j
Mojica filed a petition for reconstitution of the ownerǯs duplicate of TCT 8361 claiming that this
ownerǯs duplicate was lost. However, contrary to Mojicaǯs claims, the ownerǯs duplicate of TCT
8361 was not lost but in Pinedaǯs possession. Since the ownerǯs duplicate of TCT 8361 was in fact
not lost or destroyed, there was obviously nothing to reconstitute or replace. Therefore, the trial
court correctly ruled that the reconstitution proceedings and the second ownerǯs duplicate of TCT
8361 are void. As the Court held in R w Durawood Co., Inc. v. Cour of App als:
In the instant case, the ownerǯs duplicate certificates of title were in the possession of Dy Quim
Pong, the petitionerǯs chairman of the board and whose family controls the petitioner -corporation.
Since said certificates were not in fact ǲlost or destroyedǳ, there was no necessity for the petition
filed in the trial court for the ǲIssuance of New Ownerǯs Duplicate Certificates of Title . . .ǳ In fac,
h said cour n v r acquir d jurisdicion o ord r h issuanc of n w c rifica s. H nc , h
n wly issu d duplica s ar h s lv s null and void. (Emphasis supplied)
Mojica registered with the Register of Deeds the deed of sale executed by the Spouses Benitez
conveying the Property to her. Mojica also presented to the Register of Deeds the second ownerǯs
duplicate of TCT 8361. The Register of Deeds cancelled TCT 8361 and issued on 14 December 1983
TCT 13138 in the name of Mojica. However, since TCT 13138 is derived from the void second
ownerǯs duplicate of TCT 8361, TCT 13138 is also void. No valid transfer certificate of title can
issue from a void transfer certificate of title, unless an innocent purchaser for value has intervened.
Mojica was not a purchaser in good faith. Mojica alleged that the Spouses Benitez gave her the
ownerǯs duplicate of TCT 8361 on 9 November 1983, the day the Spouses Benitez sold to her the
house. However, in her petition for reconstitution, which she also filed on the same day, 9
November 1983, Mojica claimed that the ownerǯs duplicate of TCT 8361 was lost. In effect, Mojica
claimed that she received the ownerǯs duplicate of TCT 8361 from the Spouses Benitez, lost the
same, and filed the petition for reconstitution, all on the same day, 9 November 1983.
In her petition for reconstitution, Mojica also claimed that she ǲpurchased a parcel of landǳ when in
fact she only purchased on 9 November 1983 the house, and not the lot covered by TCT 8361.
Obviously, Mojica procured the reconstitution of the second ownerǯs duplicate of TCT 8361 through
misrepresentation. Hence, Mojica was not a purchaser in good faith when she later purchased on
12 December 1983 the lot since she knew of the irregularity in the reconstitution of the second
ownerǯs duplicate of TCT 8361.
Therefore, TCT 13138 issued in the name of Mojica is void. However, what is void is the transfer
certificate of title and no the title over the Property. The title refers to the ownership of the
Property covered by the transfer certificate of title while the transfer certificate of title merely
evidences that ownership. A certificate of title is not equivalent to title as the Court explained in
T Sh ng v. Cour of App als:
xxx Th c rifica r f rr d o is ha docu n issu d by h R gis r of D ds nown as h

Transf r C rifica of Til (TCT). By il , h law r f rs o own rship which is r pr s n d by
ha docu n. Petitioner apparently confuses certificate with title. Placing a parcel of land under
the mantle of the Torrens system does not mean that ownership thereof can no longer be disputed.
Ownership is different from a certificate of title. The TCT is only the best proof of ownership of a
piece of land. Besides, the certificate cannot always be considered as conclusive evidence of
ownership. Mere issuance of the certificate of title in the name of any person does not foreclose the
possibility that the real property may be under co-ownership with persons not named in the
certificate or that the registrant may only be a trustee or that other parties may have acquired
interest subsequent to the issuance of the certificate of title. To r p a, r gisraion is no h
quival n of il , bu is only h b s vid nc h r of. Til as a conc p of own rship should
no b confus d wih h c rifica of il as vid nc of such own rship alhough boh ar
in rchang abl . xxx (Emphasis supplied)
$0p@
The prior mortgage of the Property by the Spouses Benitez to Pineda and Sayoc did not prevent the
Spouses Benitez, as owners of the Property, from selling the Property to Mojica. A mortgage is
merely an encumbrance on the property and does not extinguish the title of the debtor who does
not lose his principal attribute as owner to dispose of the property. The law even considers void a
stipulation forbidding the owner of the property from alienating the mortgaged immovable.
Since the Spouses Benitez were the undisputed owners of the Property, they could validly sell and
deliver the Property to Mojica. The execution of the notarized deed of sale between the Spouses
Benitez and Mojica had the legal effect of actual or physical delivery. Ownership of the Property
passed from the Spouses Benitez to Mojica. The nullity of the second ownerǯs duplicate of TCT 8361
did not affect the validity of the sale as between the Spouses Benitez and Mojica.

@
After the sale of the Property to her, Mojica obtained a loan from Gonzales secured by a real estate
mortgage over the Property. Gonzales registered this mortgage on 22 February 1985 with the
Register of Deeds who annotated the mortgage on the void TCT 13138 in Mojicaǯs name. The nullity
of TCT 13138 did not automatically carry with it the nullity of the annotation of Gonzalesǯ
mortgage. The rule is that a mortgage annotated on a void title is valid if the mortgagee registered
the mortgage in good faith. In Blanco v. Esqui rdo, the Court held:
That the certificate of title issued in the name of Fructuosa Esquierdo is a nullity, the same having
been secured thru fraud, is not here in question. The only question for determination is whether the
defendant bank is entitled to the protection accorded to ǲinnocent purchasers for valueǳ, which
phrase, according to sec. 38 of the Land Registration Law, includ s an innoc n orgag for
valu . The question, in our opinion, must be answered in the affirmative.
The trial court, in the decision complained of, made no finding that the defendant mortgagee bank
was a party to the fraudulent transfer of the land to Fructuosa Esquierdo. Indeed, there is nothing
alleged in the complaint which may implicate said defendant mortgagee in the fraud, or justify a
finding that it acted in bad faith. On the other hand, the certificate of title was in the name of the
mortgagor Fructuosa Esquierdo when the land was mortgaged by her to the defendant bank. Such
being the case, the said defendant bank, as mortgagee, had the right to rely on what appeared in the
certificate and, in the absence of anything to excite suspicion, was under no obligation to look
beyond the certificate and investigate the title of the mortgagor appearing on the face of said
certificate. (De Lara, et al. vs. Ayroso, 95 Phil., 185; 50 Off. Gaz., [10] 4838, Joaquin vs. Madrid, et al.,
106 Phil., 1060). B ing hus an innoc n orgag for valu , is righ or li n upon h land
orgag d us b r sp c d and pro c d, v n if h orgagor obain d h r il h r o
hru fraud. The remedy of the persons prejudiced is to bring an action for damages against those
causing the fraud, xxx. (Emphasis supplied)
Thus, the annotation of Gonzalesǯ mortgage on TCT 13138 was valid and operated to bind the
Property and the world, despite the invalidity of TCT 13138.
Gonzales registered her mortgage in good faith. Gonzales had no actual notice of the prior
unregistered mortgage in favor of Pineda and Sayoc. To bind third parties to an unregistered
encumbrance, the law requires actual notice. The fact that Mojica, who sold the Property to
Gonzales, had actual notice of the unregistered mortgage did not constitute actual notice to
Gonzales, absent proof that Gonzales herself had actual notice of the prior mortgage. Thus,
Gonzales acquired her rights as a mortgagee in good faith.
When Mojica defaulted in paying her debt, Gonzales caused the extrajudicial foreclosure of the
mortgaged Property. Gonzales purchased the mortgaged Property as the sole bidder at the public
auction sale. For Mojicaǯs failure to redeem the foreclosed Property within the prescribed period,
Gonzales consolidated her title to the Property. Absent any evidence to the contrary, the sale at
public auction of the Property to Gonzales was valid. Thus, the title or ownership of the Property
passed from Mojica to Gonzales. At this point, therefore, Gonzales became the owner of the
Property.
When Gonzales purchased the Property at the auction sale, Pineda and Sayoc had already
annotated the
on the original of TCT 8361, which remained valid. However, the
mortgage of Gonzales was validly registered prior to the notation of the
The subsequent
annotation of the
could not defeat the rights of the mortgagee or the purchaser at the
auction sale who derived their rights under a prior mortgage validly registered. The settled rule is
that the auction sale retroacts to the date of the registration of the mortgage, putting the auction
sale beyond the reach of any intervening
sale or attachment. As the Court explained in
Cavil s, Jr. v. Bauisa:
We have also consistently ruled that an auction or execution sale retroacts to the date of levy of the
lien of attachment. When the subject property was sold on execution to the petit ioners, this sale
retroacted to the date of inscription of petitionersǯ notice of attachment on October 6, 1982. The
earlier registration of the petitionersǯ levy on preliminary attachment gave them superiority and
preference in rights over the attached property as against respondents.
Accordingly, we rule that the execution sale in favor of the petitioner Caviles spouses was anterior
and superior to the sale of the same property to the respondent Bautista spouses on October 18,
1982. The right of petitioners to the surrender of the ownerǯs duplicate copy of TCT No. 57006
covering the subject property for inscription of the certificate of sale, and for the cancellation of
said certificate of title and the issuance of a new title in favor of petitioners cannot be gainsaid.
A contrary rule would make a prior registration of a mortgage or any lien meaningless. The prior
registered mortgage of Gonzales prevails over the subsequent notice of
, even if the
auction sale took place after the notation of the
. Consequently, TCT 16084, issued to
Gonzales after she presented the sheriffǯs certificate of sale and her affidavit of consolidation, is
valid.
What remained with Pineda and Sayoc after the foreclosure was the mortgagorǯs residual rights
over the foreclosed Property, which rights are the equity of redemption and a share in the surplus
fund, if any. Since Mojica was not a purchaser in good faith, the residual rights of Mojica were
subject to the claim of Pineda and Sayoc. Of course, Pineda and Sayoc may still file an action to
recover the outstanding debt of the Spouses Benitez, and even go after Mojica for her assumption of
obligation under the p
.
@ . ¢_
_ p
Pineda and Sayoc were negligent in not registering their mortgage, which ultimately led to this
controversy. Had Pineda and Sayoc registered their mortgage, their rights as prior mortgagees
would have prevailed over that of Gonzales. Pineda and Sayoc were also negligent in not
foreclosing their mortgage ahead of Gonzales, when they could have done so as early as 4 January
1983 after the Spouses Benitez defaulted on their loan. In contrast, the loan of Mojica fell due only
on 7 December 1987.
Since Gonzales vigilantly exercised her right to foreclose the mortgaged Property ahead of Pineda
and Sayoc, Gonzalesǯ mortgage would still prevail over the mortgage of Pineda and Sayoc even if
Gonzalesǯ mortgage was not validly registered. The unregistered mortgage of Pineda and Sayoc was
extinguished upon foreclosure of Gonzalesǯ mortgage even assuming for the sake of argument that
the latter mortgage was unregistered. Between two unregistered mortgagees, both being in good
faith, the first to foreclose his mortgage prevails over the other.
Even assuming that Gonzalesǯ mortgage was not validly registered, the notice of
could
still not defeat Gonzalesǯ right under the foreclosure sale. The effect of the notice of
was
to subject Gonzales, as the subsequent purchaser of the Property, to the outcome of the case. The
outcome of the case is the cancellation of the second ownerǯs duplicate of TCT 8361. The complaint
of Pineda and Sayoc simply prayed for the cancellation of the second ownerǯs duplicate of TCT 8361
and the award of damages.
The notice of
would only bind Gonzales to the declaration of nullity of the second
ownerǯs duplicate of TCT 8361. Gonzales could not use TCT 13138, as a void issue of the void
second ownerǯs duplicate of TCT 8361, to secure a new TCT in her name. This is the legal
consequence of the notice of
, which would have bound Gonzales had the registration of
her mortgage been void. However, the declaration of nullity of TCT 13138 would still not make the
mortgage of Pineda and Sayoc preferred over that of Gonzales. Since Gonzales foreclosed her
mortgage ahead of Pineda and Sayoc, she would still have a better right than Pineda and Sayoc who
slept on their rights as mortgagees.
p

The nullity of TCT 13138 did not affect the validity of the title or ownership of Mojica or Gonzales as
subsequent transferees of the Property. What is void is the transfer certificate of title, not the il
or own rship itself of Mojica or Gonzales. The notice of
could not defeat Gonzalesǯ
rights over the Property for two reasons. First, Gonzales registered in good faith her mortgage
before the notation of the
making the registration of her mortgage valid despite the
invalidity of TCT 13138. Second, since Gonzalesǯ mortgage was valid, the auction sale retroacted to
the date of registration of her mortgage, making the auction sale prior in time to the notice of

. Thus, TCT 16084, issued to Gonzales as a result of the foreclosure sale, is valid.
Î, the petition is DENIED. The Decision dated 26 August 1993 and the Resolution dated
4 March 1994 of the Court of Appeals in CAȂG.R. SP No. 28651 are AFFIRMED. Petitioners Juanita P.
Pineda and Lilia Sayoc are directed to surrender the ownerǯs duplicate of Transfer Certificate of
Title No. 8361 to the Register of Deeds of Cavite City for cancellation. Transfer Certificate of Title
No. 16084 in the name of Teresita A. Gonzales is declared valid. This is without prejudice to any
action petitioners Juanita P. Pineda and Lilia Sayoc may file against the Spouses Virgilio and Adorita
Benitez as well as Olivia G. Mojica. No pronouncement as to costs.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Vitug, Ynares-Santiago, and Azcuna, JJ., concur.
Under Rule 45 of the Rules of Court.
Penned by Associate Justice Buenaventura J. Guerrero, with Associate Justices Lourdes K. Tayao-
Jaguros, Gloria C. Paras and Alfredo J. Lagamon concurring, and Associate Justice Artemon D. Luna
dissenting.
Penned by Judge Rolando D. Diaz.
Branch 17.
Paragraph 1 of the Deed of Real Estate Mortgage, Exhibit ǲB,ǳ Records, p. 5.
Exhibit ǲD,ǳ , p. 9.
Records, p. 8.

Exhibit ǲC,ǳ , p. 56.
Branch 17.
Records, p. 34.
Rollo, pp. 29-32.
In TCT 16084, the notice of

erroneously referred to Civil Case No. 4554.
Penned by Associate Justice Alfredo L. Benipayo with Associate Justices Manuel C. Herrera and
Regina G. Ordoñez-Benitez concurring.
Rollo, pp. 75-82.

Otherwise known as the ǲProperty Registration Decree.ǳ
Sec. 109 of PD 1529 provides:
ǲSEC. 109. #p

p

p p p . Ȃ In case of loss or theft of an
ownerǯs duplicate certificate of title, due notice under oath shall be sent by the owner or by
someone in his behalf to the Register of Deeds of the province or city where the land lies as soon as
the loss or theft is discovered. If a duplicate certificate is lost or destroyed, or cannot be produced
by a person applying for the entry of a new certificate to him or for the registration of any
instrument, a sworn statement of the fact of such loss or destruction may be filed by the registered
owner or other person in interest and registered.
Upon the petition of the registered owner or other person in interest, the court may, after notice
and due hearing, direct the issuance of a new duplicate certificate, which shall contain a
memorandum of the fact that it is issued in place of the lost duplicate certificate, but shall in all
respects be entitled to like faith and credit as the original duplicate, and shall thereafter be
regarded as such for all purposes of this decree.ǳ
Demetriou _ Court of Appeals, G.R. No. 115595, 14 November 1994, 238 SCRA 158; Serra Serra _
Court of Appeals, G.R. No. 34080, 22 March 1991, 195 SCRA 482.
324 Phil. 109 (1996).
Sps. Eduarte _ CA, 323 Phil. 462 (1996); Tenio-Obsequio _ Court of Appeals, G.R. No. 107967, 1
March 1994, 230 SCRA 550; Jose _ Court of Appeals, G.R. No. 85157, 26 December 1990, 192 SCRA
735; Duran _ Intermediate Appellate Court, G.R. No. L- 64159, 10 September 1985, 138 SCRA 489.
G.R. No. 115402, 15 July 1998, 292 SCRA 544.
E. C. McCullough & Co. _ Veloso and Serna, 46 Phil. 1 (1924).
Articles 1496 and 1498 of the Civil Code provide, respectively:
ǲArt. 1496. The ownership of the thing sold is acquired by the vendee from the moment it is
delivered to him, in any of the ways specified in Articles 1497 to 1501, or in any other manner
signifying an agreement that the possession is transferred from the vendor to the vendee.
xxx
Art. 1498. When the sale is made through a public instrument, the execution thereof shall be
equivalent to the delivery of the thing which is the object of the contract, if from the deed t he
contrary does not appear or cannot clearly be inferred.
xxx.ǳ
Penullar _ PNB, 205 Phil. 127 (1983).

110 Phil. 494 (1960).
note 20.
Dr. Caviles, Jr. _ Bautista, 377 Phil. 25 (1999).

Capistrano _ PNB, 101 Phil. 1117 (1957).
Looyuko _ Court of Appeals, 413 Phil. 445 (2001).
Sulit _ Court of Appeals, G.R. No. 119247, 14 February 1997, 268 SCRA 441.
note 5.
Records, pp. 1-4.
PHILIPPINE JURISPRUDENCE - FULL TEXT

G.R. No. 162873 July 21, 2006
JOSE CAOIBES, JR., ET AL. vs. CORAZON CAOIBES-PANTOJA, ET AL.

Ô
Manila
**
Ô

/5%
Ô(Ô
&(Ô)#&*(Ô petitioners,
vs.
+(Ô-)!!0!"#$%33!$)#*
respondent.
*Ô
&ÔJ
:
Petitioners Jose Caoibes, Jr., Melencio Caoibes and Loida Caoibes, as FIRST PARTY, and
respondent Corazon Caoibes-Pantoja, as SECOND PARTY, forged on May 10, 1982 an
agreement entitled "Renunciation and Transfer of Claims, Rights, and Interests" (the
agreement) covering a parcel of land, Lot 2 of plan Psd-162069 (Lot 2), situated in Calaca,
Batangas containing an area of 54,665 sq. m., the pertinent portions of which agreement
read:
xxxx
THAT under and by virtue of a court approved document entitled "Compromise

Agreement" entered into by the parties in Special Proceeding No. 857 and Civil
Case No. 861 of the Court of First Instance of Batangas, Branch VII, in particular
Paragraph 4 (b) of aforesaid document, the FIRST PARTY are to receive, among
others, in full ownership pro indiviso, and free from all liens and encumbrances,
the following described real property, to wit:
A parcel of land (&"of plan Psd-162069), situated in the sitio of

Taklang-Anak, Barrio of Calantas, Municipality of Calaca, Province of
Batangas. Bounded on the NW., along line 1-2, by center of Creek and
property of Felimon Las Herras (Lot 1 of plan Psu-101302); on the SE.,
along lines 2, 3, 4 and 5, by Lot 1 of plan Psu-162069; on the S., along lines
5, 6, 7, 8 and 9, by Creek; on the NW., along lines 9, 10, 11, 12, 13 and 1, by
center of Creek and property of Felimon Las Herras (Lot 1 of plan Psu-
101302). x x x containing an area of FIFTY-FOUR THOUSAND SIX
HUNDRED SIXTY-FIVE (54,665) square meters.
THAT issuance to the FIRST PARTY of the proper title to the aforesaid property is
presently the subject of a land registration proceeding &
- pending
before the Court of First Instance of Batangas, Branch VII, acting as a land
registration court.
THAT for and in consideration of the payment by the SECOND PARTY[-herein

respondent Corazon Caoibes-Pantoja] of the loan secured by a real estate
mortgage constituted on the property described and delineated in Transfer
Certificate of Title No. - .of the Registry of Deeds of Batangas, said loan in the
principal amount of NINETEEN THOUSAND PESOS (P19,000.00) exclusive of
accrued interest being presently outstanding in the name of GUILLERMO C.
JAVIER with the LEMERY SAVINGS AND LOAN ASSOCIATION, Balayan Branch,
and the further undertaking of the SECOND PARTY to forthwith deliver upon
release to the FIRST PARTY aforesaid TCT No. P-189 free from all liens and
encumbrances, the FIRST PARTY 3$% &' Ô)#
(*43)"70;3"!0"!"!25)0<! said FIRST PARTY may have
7"3)5 "%0 ));) 3 3= x x x [illegible] 3$%
Ô*)#
,!)0#0;3"! x x x [illegible] and claims, in a
manner )$!5"and 072)$5unto and 0=)7="3Ô*,, her
heirs, successors and assigns;
THAT by virtue of aforestated renunciation and transfer, the Ô*,0!

3$%!$;)"#)#>!$!"0""#"43)"70;3"!0"!"!
!")"0! the FIRST PARTY may have 0"3 !2"0="3
5)#;0!")"0 2#0;<"0#5!430"30!0!"<".1
x x x x (Emphasis and underscoring supplied)

As reflected in the aboveȂquoted agreement of the parties, petitioners, as FIRST PARTY,
renounced, relinquished, abandoned and transferred, ceded and conveyed whatever
rights "[they] may have" over Lot 2 in favor of respondent, as second party, and on
account of the renunciation and transfer, petitioners transferred "whatever rights . . .
[they] may have in the prosecution of the land registration proceeding," LRC No. N-411.
About 14 years after the execution of the partiesǯ above-said agreement or in 1996,
respondent filed a motion to intervene and be substituted as applicant in LRC Case No. N-
411. The motion was opposed by petitioners who denied the authenticity and due
execution of the agreement, they claiming that the same was without the consent and
conformity of their mother, the "usufructuary owner [ p]" of the land. The land
registration court, finding for petitioners, denied respondentǯs motion by Order of March
2, 1999.
Respondent thus filed on March 16, 2000 a Complaint for Specific Performance and
Damages against petitioners before the Regional Trial Court (RTC) of Balayan, Batangas,
docketed as Civil Case No. 3705, for the enforcement of petitionersǯ obligation under the
agreement. To the complaint, petitioners filed a motion to dismiss anchored on
prescription, laches and prematurity of action on account of respondentǯs failure to refer
the case to the
for conciliation.
On their defense of prescription, petitioners argued:
It was clearly alleged in the complaint that the purported RENUNCIATION AND
TRANSFER OF CLAIMS, RIGHTS AND INTERESTS was . . . entered into on or about
May 10, 1982 Ȃ a period of almost 18 LONG YEARS [BEFORE] THE PRESENT
ACTION. Under Article 1144 (1) of the New Civil Code, it is required that an action
founded upon a written contract must be brought WITHIN TEN (10) YEARS
FROM THE TIME THE RIGHT OF ACTION ACCRUES.2 (Underscoring supplied)
Branch 9 of the Balayan RTC, by Resolution3 dated July 12, 2000, granted petitionersǯ
motion in this wise:
The Court is of the view that immediately after the execution of the
RENUNCIATION contract, herein defendants were deemed to have renounced and
transferred their rights or whatever claim they may have on the subject property
and the latter should have at once acted to make the renunciation effective by
having herself substituted to petitioner in the land registration proceedings. Her
failure to make immediately effective the terms of the said RENUNCIATION was
constitutive of what is referred to as the requisite "cause of action" on the part of
the plaintiff.
A cause of action arises when that which should have been done is not done, or
that which should not have been done is done, and in cases where there is no
special provision for such computation, recourse must be had to the rule that the
period must be counted from the day on which the corresponding action could
have been instituted (Central Philippine University vs. CA, 246 SCRA 511).
The fact, that, from the day immediately following the execution of the
RENUNCIATION contract up to the present, with the defendants still continuing
the land registration proceedings without any substitution of plaintiff, could only
be interpreted as a clear manifestation of defendantsǯ willful violation of the
claimed RENUNCIATION contract. It is quite incorrect, therefore, to say that the
violation happened only when the defendants objected that they be substituted
by plaintiff in an intervention proceedings filed by the latter.
The added fact that plaintiff did not raise this glaring violation earlier is
something that eludes the comprehension of this Court. What separates the
execution of the contract and the filing of this case is a period of almost
EIGHTEEN (18) long years Ȃ way beyond the prescriptive period set by law. 4
(Underscoring supplied)
On appeal by respondent, the Court of Appeals, by Decision 5 of December 4, 2003 subject

of the present petition for review on certiorari, reversed the trial courtǯs Resolution, it
holding that prescription had not yet set in. The Court of Appeals reasoned:
x x x It is not from the date of the instrument but from the date of the breach that
the period of prescription of action starts. Since, it was only in 1996 when
plaintiff-appellant moved to intervene and be substituted as the applica nt in the
land registration proceeding involving the subject property that defendants -
appelleesǯ raised the issue of genuineness and due execution of the instrument, it
is only from this date that the cause of action of plaintiff-appellant accrued. The
period should not be made to retroact to the date of the execution of the
instrument on May 10, 1982 as claimed by the defendants-appellees for at that
time, there would be no way for the plaintiff-appellant to know of the violation of
her rights.6 (Underscoring supplied)
The appellate court thus ordered the remand of the case to the trial court for further
proceedings.
Petitionersǯ motion for reconsideration of the de cision of the appellate court having been
denied, the present petition for review on certiorari was filed, faulting said court to have
I. . . . ERRED IN REVERSING THE TRIAL COURT AND LABOR[ING] UNDER A

GROSS MISAPPREHENSION OF FACTS IN HOLDING THAT THE ACTION OF
RESPONDENT HAS NOT YET PRESCRIBED.
II. . . . ERRED IN RULING THAT RESPONDENTǯS CAUSE OF ACTION ACCRUED

ONLY IN 1996 WHEN SHE MOVED TO INTERVENE AND BE SUBSTITUTED AS AN
APPLICANT, IN LIEU OF PETITIONERS IN THE LAND REGISTRATION
PROCEEDING (LRC N-411) BEFORE THE REGIONAL TRIAL COURT, BRANCH 11
OF BALAYAN, BATANGAS.
III. . . . COMMITTED REVERSIBLE ERROR IN HOLDING THAT THE PERIOD OF

PRESCRIPTION SHOULD NOT BE MADE TO RETROACT TO THE DATE OF THE
EXECUTION OF THE INSTRUMENT ON MAY 10, 1982.
IV. . . . ERRED IN NOT DISMISSING THE COMPLAINT JUST THE SAME BY NOT
FINDING THAT LACHES HAD ALREADY SET IN.7
By the earlier-quoted pertinent portions of the agreement, petitio ners renounced and
transferred whatever rights, interests, or claims they had over Lot 2 in favor of
respondent for and in consideration of her payment of the therein mentioned loan in the
principal amount of P19,000 which was outstanding in the name of one Guillermo C.
Javier.
Articles 1458, 1498 and 1307 of the Civil Code which are pertinent to the resolution of
the petition provide:
Art. 1458. By the contract of sale one of the contracting parties obligates himself
to transfer the ownership of and to deliver a determinate thing, and the other to
pay therefor a price certain in money or its equivalent.
xxxx
Art. 1498. When the sale is made through a public instrument, the execution
thereof shall be equivalent to the delivery of the thing which is the object of the
contract, if from the deed the contrary does not appear or cannot clearly be
inferred.
xxxx
Art. 1307. Innominate contracts shall be regulated by the stipulations of the

parties, by the provisions of Title I and II of this Book, by h rul s gov rning h
os analogous noina conracs, and by the customs of the place.
(Emphasis and underscoring supplied)
The agreement of the parties is analogous to a deed of sale in favor of respondent, it

having transferred ownership for and in consideration of her payment of the loan in the
principal amount of P19,000 outstanding in the name of one Guillermo C. Javier. The
agreement having been made through a public instrument, the execution was equivalent
to the delivery of the property to respondent .8
In respondentǯs complaint for specific performance, she seeks to enforce the agreement
for her to be subrogated and/or substituted as applicant in the land regi stration
proceeding over Lot 2. The agreement is of course in consonance with Sec. 22 of P.D.
1529 (Property Registration Decree which became effective on June 11, 1978) reading:
SEC. 22. i

. Ȅ After the filing of the
application and before the issuance of the decree of registration, the land therein
described may still be the subject of dealings in whole or in part, in which case the
interested party shall present to the court the pertinent instruments together
with the subdivision plan approved by the Director of Lands in case of transfer of
portions thereof, and the court, after notice to the parties, shall order such land
registered subject to the conveyance or encumbrance created by said
instruments, or order that the decree of registration be issued in the name of the
person to whom the property has been conveyed by said instruments.
In $ _

,9 this Court, passing on Sec. 29 of Art. No. 496, as amended
(Land Registration Act), which is substantially incorporated in the immediately-quoted
Sec. 22 of the Property Registration Decree, held:
35)4#!"?0"3)""3) 502)"0=;0!")"0$)<##

by substituting the "buyer" or the "person to whom the property has been
conveyed" for the applicant. 0"3#!0"?0"3)""3@$%@"3
@ !"43<"3 "%3)!$27%#@$) )"%""32)!
He
may thus be a total stranger to the land registration proceedings. The only
requirements of the law are: (1) that the instrument be presented to the court by
the interested party together with a motion that the same be considered in
relation with the application; and (2) that prior notice be given to the parties to
the case. x x x (Emphasis supplied)
In light of the law and jurisprudence, the substitution by respondent of petitione rs as

applicant in the land registration case over Lot 2 is not even necessary. All respondent
has to do is to comply with the requirements under the above-quoted Sec. 22 of the
Property Registration Decree. . it was unnecessary for respondent to file the case for
specific performance subject of the present petition against petitioners to honor their
agreement allowing her to be substituted in their stead as applicant in the land
registration proceeding.
Î the assailed decision of the Court of Appeals is

Ô*and ÔÔ*.
The complaint of respondent, docketed by the Regional Trial Court of Balayan, Batangas
as Civil Case No. 3705, Corazon Caoibes-Pantoja is, in light of the foregoing ratiocination,
*ÔÔÔ*.
SO ORDERED.
ã @

p! ! ! concur.
""!
1 RTC records at 6-7.
2 Id. at 15.
3 Id. at 36-43.
4 Id. at 41-42.
5 Penned by Justice Remedios A. Salazar-Fernando and concurred in by Justices

Eubolo G. Verzola and Edgardo F. Sundiam, CA
at 57-64.
6 Id. at 63.
7 c
, pp. 7-8.
8 Art. 1496 of the Civil Code provides:
The ownership of the thing is acquired by the vendee from the moment it is
delivered to him in any of the ways specified in Articles 1497 to 1501, or in any
other manner signifying an agreement that the possession is transferred from the
vendor to the vendee.
9 G.R. No. L-36637, July 14, 1978, 84 SCRA 67, 77.

PHILIPPINE JURISPRUDENCE Ȃ FULL TEXT
G.R. No. 124242 January 21, 2007
SAN LORENZO DEVELOPMENT CORPORATION VS. COURT OF
APPEALS, ET AL.

Ô
Manila
SECOND DIVISION

))%
Ô&+*
&petitioner,
vs.
&Ô(&Ô
((ÔÔÔ
&& )#+
&&
& respondents.
DECISION
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
pp p
i 1 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 ,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 Babasantaǯs 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 Managerǯs 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

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 * 4 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 $ _ 6 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 * to SLDCǯs 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
%% _ on 19 April 1990. 9 Respondent Babasantaǯs
motion for the issuance of a preliminary injunction was likewise granted by the trial
court in its * dated 11 January 199110 conditioned upon his filing of a bond in the
amount of fifty thousand pesos (P50,000.00).
SLDC in its

%% _ alleged that on 11 February 1989, the Spouses Lu
executed in its favor an * & the lots subject of the complaint. Accordingly, i t
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 i

$ 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
. 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 Babasantaǯs 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 i p 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 attorneyǯs fees. On the complaint-in-intervention,
the trial court ordered the Register of Deeds of Laguna, Calamba Branch to cancel the
notice of
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 courtǯs 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 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 i p 11 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
i
$ 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 attorneyǯs fees to
Babasanta.
SLDC and the Spouses Lu filed separate motions for reconsideration with the appellate
court.12 However, in a $ 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 c
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 SLDCǯs motion for reconsideration on the
ground that no new or substantial arguments were raised therein which would warrant
modification or reversal of the courtǯs 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
Babasantaǯs 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 latterǯs
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
was annotated only on 2 June 1989 long after the sale of the property
to it was consummated on 3 May 1989.j j 8
Meanwhile, in an 2 ./% $ 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
annotated on
the titles of the property made as early as 2 June 1989. Hence, petitionerǯs registration of
the sale did not confer upon it any right. Babasanta further asserted that petitionerǯs 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) managerǯs 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 Luǯs letter
dated 29 May 1989 18 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.
Babasantaǯs 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 Babasantaǯs 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, Babasantaǯs claim of ownership should nevertheless fail.
Sale, being a consensual contract, is perfected by mere consent 25 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
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 _
if the buyer already had possession of the object even before the sale;35 and
p , 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 t he 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 0 (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 faithȄ 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 Babasantaǯs 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

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
obliterate
the effects of delivery and possession in good faith which admittedly had occurred prior
to SLDCǯs knowledge of the transaction in favor of Babasanta?
We do not hold so.
It must be stressed that as early as 11 February 1989, the Spouses Lu executed the *
&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 i

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
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 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 p 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.
9__ j 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. Ȃ 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 such¾by the express wording of Section
52¾from the time of the registration of the notice of
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
cannot help Babasantaǯs position a bit and it is
irrelevant to the good or bad faith characterization of SLDC as a purchaser. A notice of

, as the Court held in #1_ . ,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, SLDCǯs faith in the merit of its cause has been vindicated with the Courtǯs
present decision which is the ultimate denouement on the controversy.
The Court of Appeals has made capital 43 of SLDCǯs averment in its
%%
_ 44 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
i

$ in favor of SLDC and therefore, as previously
explained, it has no effect on the legal position of SLDC.
Assuming / that SLDCǯs registration of the sale had been tainted by the
prior notice of
and assuming further for the same nonce that this is a case of
double sale, still Babasantaǯs claim could not prevail over that of SLDCǯs. In _

,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 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 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.j:9; j
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, SLDCǯs right is definitely superior to that of Babasantaǯs.
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 ip_ c/,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.
Î 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.
SO ORDERED.
Puno, (Chairman), Austria-Martinez, Callejo, Sr., and Chico-Nazario, JJ., concur.
""!
1 RTC Records, pp. 1-11.
2 . at 30-37.
3 at 73-90.
4 . at 104-106.
5 . at 96.
6 . at 98- 100.
7 . at 116-119.
8 . at 120-121.
9 . at 162-168.
10 . at 287-288.
11Penned by Justice Cesar D. Francisco, concurred in by Justices Eubulo G. Verzola

and Oswaldo D. Agcaoili.
12 CA c
, pp. 204-220 for SLDC and pp. 224-230 for Spouses Lu.
13 . at 251.
14 . at 261-262.
15 c
, pp. 19-20.
16 . at 347-348.
17 RTC Records, p. 9.
18 c
, p. 11.
19 Art. 1315, Civil Code.
21 Tan _ Lim, 357 Phil. 452 (1998); Cenido _ Apacionado, 376 Phil. 801 (1999).
22 Ong _ Court of Appeals, 361 Phil. 228 (1999).
23 Odyssey Park, Inc. _ Court of Appeals, 345 Phil. 475 (1997).
24 Vda. de Zulueta, et.al., _ Octaviano, 205 Phil. 247 (1983).
25 Co _ Court of Appeals, 349 Phil. 745 (1998); Fule _ Court of Appeals, 350 Phil.
349 (1998).
26 Xentrex Automotive, Inc. _ Court of Appeals, 353 Phil. 258 (1998).
27 San Juan Structural and Steel Fabricators, Inc. _ Court of Appeals, 357 Phil. 631
(1998); Archipelago Management and Marketing Corporation _ Court of Appeals,

359 Phil. 363 (1998.
28 Villanueva, Philippine Law on Sales, 1995 Edition, at p. 5.
29 Gonzales _ Rojas, 16 Phil. 51 (1910); Ocejo, Perez and Co. _ International Bank,
37 Phil. 631 (1917-18); Fidelity and Deposit Co. _ Wilson, 8 Phil. 51 (1907).
30 Art. 1495, Civil Code
33 Art. 1498, par. 2, Civil Code.
35
37 Dawson _ Register of Deeds of Quezon City, 356 Phil. 1037 (1998).
38Nuguid _ Court of Appeals, G.R. No. 77423, 13 March 1989, 171 SCRA 213;
Bautista _ Court of Appeals, G.R. No. 106042, 28 February 1994, 230 SCRA 446.
39 Balatbat _ Court of Appeals, 329 Phil. 858 (1996).
40 Bautista _ Court of Appeals, note 39.
41 Viray _ Court of Appeals, 350 Phil. 107 (1998); Heirs of Leopoldo Vencilao, Sr.
_ Court of Appeals, 351 Phil. 815 (1998); Heirs of Spouses Benito Gavino and
Juana Euste _ Court of Appeals, 353 Phil. 686 (1998).
42 124 Phil. 1067, 1072 (1966); citation omitted.
43 c
, pp. 25-29.
45 TSN, September 19, 1991, pp. 11-12, 14-15, 19.
46G.R. No. 95843, 2 September 1992, 213 SCRA 415 pPalanca _ Director of
Lands, 43 Phil. 146 (1922); Cagaoan _ Cagaoan, 43 Phil. 554 (1922); Fernandez _
Mercader, 43 Phil. 581 (1922).
47 11 Phil. 768 (1908).

G.R. No. L-15155 December 29, 1960
BOARD OF LIQUIDATORS vs. EXEQUIEL FLORO, ET AL.

Ô
Manila
EN BANC

&- *2<$. .
(*&' *Ô petitioner-appellant,

vs.
1' &&&
oppositors-appellees.
'

,Ô
(
&
J.:
From the order of the Court of First Instance of Manila, dated August 10, 1955, denying its
petition to exclude certain pieces of steel matting from the assets of the insolvent M. P.
Malabanan, the Board of Liquidators appealed to the Court of Appeals. The latter certified
the case to this Court on the ground that only questions of law are involved.
The Board of Liquidators (hereinafter referred to as the Board) is an agency of the

Government created under Executive Order No. 372 (November 24, 1950), and, pursuant
to Executive Order No. 377 (December 1, 1950), took over the functions of the defunct
Surplus Property Liquidating Committee.
On June 14, 1952 Melecio Malabanan entered into an agreement with the Board for the
salvage of surplus properties sunk in territorial waters off the provinces of Mindoro, La
Union, and Batangas (Exhibit "A"). By its terms, Malabanan was to commence operations
within 30 days from execution of said contract, which was to be effective for a period of
one (1) year from the start of operations, extendible for a total period of not more than
six (6) months. On June 10, 1953, Malabanan requested for an extension of one (1) year
for the salvage in waters of Mindoro and Batangas; and the Board extended the contract
up to November 30, 1953. On November 18, 1953, Malabanan requested a second
extension of one more year for the waters of Occidental Mindoro, and Board again
extended the contract up to August 31, 1954. Malabanan submitted a recovery report
dated July 26, 1954, wherein it is stated that he had recovered a total of 13,107 pieces of
steel mattings, as follows:
1. December, 1953-April 30, 1954 2,5552

2. May 1, 1954-June 30, 1954 10,552
13,107 (pieces)
Four months previously, Malabanan had entered into an agreement with Exequiel Floro,
dated March 31, 1954 (Exhibit 1, Floro), in which, among other things, it was agreed that
Floro would advance to Malabanan certain sums of money, not to exceed P25,000.00,
repayment, thereof being secured by quantities of steel mattings which Malabanan would
consign to Floro; that said advances were to paid within a certain period, and upon
default at the expiration thereof, Floro was, authorized to sell w hatever steel mattings
were in his possession under said contract, in amount sufficient to satisfy the advances.
Pursuant thereto, Floro claims to have made total advances to the sum of P24,224.50.
It appears that as Malabanan was not able to repay Floro's advances, the latter, by a
document dated August 4, 1954, sold 11,047 pieces of steel mattings to Eulalio Legaspi
for the sum of P24,803.40.
Seventeen days later, on August 21, 1954, Malabanan filed in the Court of First Instance of
Manila a petition for voluntary insolvency, attaching thereto a Schedule of Accounts, in
which the Board was listed as one of the creditors for P10,874.46, and Exequiel Floro for
P24,220.50, the origin of the obligations being described as "Manila Royalty" and
"Salvaging Operations", respectively. Also attached was an Inventory of Properties, listing
certain items of personal property allegedly aggregating P33,707.00 in value. In this list
were included 11,167 pieces of steel mattings with an alleged estimated value of
P33,501.00.
Soon after, the Board, claiming to be the owner of the listed steel matting, filed a petition
to exclude them from the inventory; and to make the insolvent account for a further
1,940 pieces of steel matting, the difference between the number stated in the insolvent's
recovery report of July 26, 1954 and that stated in the inventory. Exequiel Floro opposed
the Board's petition and claimed that the steel matting listed had become the property of
Eulalio Legaspi by virtue of a deed of sale in his favor, executed by Floro pursuant to the
latter's contract with Malabanan on March 31, 1954. The court below, after reception of
evidence as to the genuineness and due execution of the deed of sale to Legaspi, as well as
of the contract between Malabanan and Floro, denied the Board's petition, declaring that
Malabanan had acquired ownership over the steel mattings under his contract with the
Board; that Exequiel Floro was properly authorized to dispose of the steel mattings under
Floro's contract with Malabanan; and that the sale to Eulalio Legaspi was valid and not
contrary to the Insolvency Law.
In this appeal, the Board contends that Malabanan did not acquire ownership over the
steel mattings due to his failure to comply with the terms of the contract, allegedly
constituting conditions precedent for the transfer of title, namely: payment of the price;
audit and check as to the nature, quantity and value of properties salvaged; weighing of
the salvaged properties to be conducted jointly by representatives of the Board and of
Malabanan; determination of the site for storage; audit and verification of the recovery
reports by government auditors; and firing of performance bond.
We are of the opinion, and so hold, that the contract (Exhibit "A") between Malabanan
and the Board had effect of vesting Malabanan with title to, or ownership of the steel
mattings in question as soon as they were brought up from the bottom of the sea. This is
shown by pertinent provisions of the contract as follows:
10. For and in consideration of the assignment by the BOARD OF LIQUIDATORS to

the CONTRACTOR (Malabanan) of all right, title and interest in and to all surplus
properties
_ by the CONTRACTOR under this contract, the CONTRACTOR
shall pay to the Government Ninety Pesos (P90.00) per long ton(2,240 lbs.) of
surplus properties recovered.
11. Payment of the agreed price shall be made monthly during the first ten (10)
days of every month on the basis of recovery reports of sunken surplus properties
salvaged during the preceding month, duly verified and audited by the authorized
representative of the BOARD OF LIQUIDATORS.
That Malabanan was required under the contract to post a bond of P10,000.00 to
guarantee compliance with the terms and conditions of the contract; that the operation
for salvage were entirely at Malabanan's expense and risks; that gold, silver, copper,
coins, currency, jewelry, precious stones, etc. were excepted from the contract, and were
instead required to be turned over to the Board for disposition; that the expense s for
storage, including guard service, were for Malabanan's account Ȅ all these circumstances
indicated that ownership of the goods passed to Malabanan as soon as they were
recovered or salvaged (i.e., as soon as the salvor had gained effective possession of the
goods), and not only after payment of the stipulated price. .
While there can be reservation of title in the seller until full payment of the price (Article
1478, N.C.C.), or, until fulfillment of a condition (Article 1505, N.C.C.); and while execution
of a public instrument amounts to delivery only when from the deed the contrary does
not appear or cannot clearly be inferred (Article 1498, ), there is nothing in the said
contract which may be deemed a reservation of title, or from which it may clearly be
inferred that delivery was not intended.
The contention that there was no delivery is incorrect. While there was no physical
tradition, there was one by agreement (traditio
) in conformity with Article
1499 of the Civil Code.

Art. 1499 Ȅ The delivery of movable property may likewise be made by the mere
consent or agreement of the contracting parties, if the thing sold cannot be
transferred to the possession of the vendee at the time of the sale. . . .
As observed earlier, there is nothing in the terms of the public instrument in question
from which an intent to withhold delivery or transfer of title may be inferred.
The Board also contends that as no renewal of the bond required was filed for the
extension of the contract, it ceased to have any force and effect; and, as the steel mattings
were recovered during the extended period of the contract, Malabanan did not acquire
any rights thereto. The pertinent portion of the contract provides:
12. Jointly with the execution of this contract, the CONTRACTOR shall file a bond
in the amount of TEN THOUSAND (P10,000.00) PESOS to guarantee his faithful
compliance with the terms and conditions herein; Provided, that this contract
shall not be considered to have been executed notwithstanding the signing hereof
by the parties until said bond shall have been properly filed.
Malabanan filed a bond dated June 10, 1952, effective for one (1) year, or up to June 10,
1953. The principal contract, executed on June 14, 1952, was first extended to November
30, 1953, and finally, to August 31, 1954. As can be seen, there was no longer any bond
from June 11, 1953 to August 31, 1954.
The lapse of the bond did not extinguish the contract between Malabanan and the Board.
The requirement that a bond be posted was already complied with when Malabanan filed
the bond dated June 10, 1952. A bond merely stands as guaranty for a principal obligation
which exist independently of said bond, the latter being an accessory contract (Valencia
_. RFC & C.A., 103 Phil., 444). Significantly, its purpose, as per the terms of the contract,
was "to guarantee his (Malabanan's) faithful compliance with the terms and conditions
herein" and, for violation of the contract, the Board may declare "the bond forfeited" (par.
13). Being for its benefit, the Board could legally waive the bond requirement (Valencia
_. RFC, et al., .), and it did so when, the bond already having expired, it extended the
contract not only once, but twice. In none of the resolutions extending contract (Annexes
"C" & "E", pp. 108-112, Record on Appeal) was there a requirement that the bond be
renewed, in the face of the first indorsement by the Executive Officer recommending that
Malabanan's request for a second extension be granted "provided the bond be originally
posted should continue."
There is no merit to the suggestion that there being a novation, Article 1299 of the Civil
Code should govern. Novation is never presumed, it being required that the intent to
novate be expressed clearly and unequivocally, or that the terms of the new agreement be
incompatible with the old contract (Article 1292, N.C.C.; Martinez _. Cavives, 25 Phil.
581; Tiu Siuce _. Habaña, 45 Phil. 707; Pablo _. Sapungan, 71 Phil. 145; Young _. Villa,
93 Phil., 21; 49 Off. Gaz., [5] 1818.) Here there was neither express novation nor
incompatibility from which it could be implied. Moreover, a mere extension of the term
(period) for payment or performance is not novation (Inchausti _. Yulo, 34 Phil. 978;
Zapanta _. De Rotaeche, 21 Phil. 154; Pablo _. Sapungan, ); and, while the
extension covered only some of the areas originally agreed upon, this change did not alter
the essence of the contract (cf. Ramos _. Gibbon, 67 Phil., 371; Bank of P.I. vs. Herridge,
47 Phil., 57).
It is next contended that the sale by Floro to Legaspi on August 4, 1954 (within 30 days
prior to petition for insolvency) was _ as a fraudulent transfer under Section 70 of the
Insolvency Law. The court below held that the sale to Legaspi was valid and not violative
of Section 70; but there having been no proceedings to determine whether the sale was
fraudulent, we think it was premature for the court below to decide this point, especially
because under section 36, No. 8. of the Insolvency Act, all proceedings to set aside
fraudulent transfers should be brought and prosecuted by the assignee, who can legally
represent all the creditors of the insolvent (Maceda, et al., _. Hernandez, et al., 70 Phil.,
261). To allow a single creditor to bring such a proceeding would invite a multiplicity of
suits, since the resolution of his case would not bind the other creditors, who may refile
the same claim independently, with diverse proofs, and possibly give rise to
contradictory rulings by the courts.
The order appealed from is hereby affirmed in so far as it declares the disputed goods to
be the property of the insolvent; but without prejudice to the right of the assignee in
insolvency to take whatever action may be proper to attack the alleged fraudulent
transfer of the steel matting to Eulalio Legaspi, and to make the proper parties account
for the difference between the number of pieces of steel matting stated in the insolvent's
recovery report, Annex "B" (13,107), and that stated in his inventory (11,167). Costs
against appellant.
! & &

)& i_
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& Ô *- &&1

3&)4 30562"-55)&)4#)"0

&-../))% ./
Ô(&&7!

&Ô&

Ô
Manila
FIRST DIVISION

&-../))% ./
Ô(&&petitioner,
vs.
(& &ÔÔ)#
respondents.
8ÔJ.
Petitioner seeks a review of the resolution of the Court of Appeals (Special Division of Five) dated
October 30, 1968, reversing its decision of November 2, 1967 (Fifth Division), and its resolution of
December 6, 1968 denying petitioner's motion for reconsideration.
The dispositive part of the challenged resolution reads:
Wherefore, the motion for reconsideration filed on behalf of appellee Emma Infante,
is hereby granted and the decision of November 2, 1967, is hereby annulled and set
aside. Another judgement shall be entered affirming that of the court
dated January 20, 1965, which dismisses the plaintiff's complaint and defendant's
counterclaim.
Without costs.
The facts of the case as follows:
Prior to January 27, 1955, respondent Jose Poncio, a native of the Batanes Islands, was the owner of
the parcel of land herein involve with improvements situated at 179 V. Agan St., San Juan, Rizal,
having an area of some one hundred ninety-five (195) square meters, more or less, covered by TCT
No. 5040 and subject to mortgage in favor of the Republic Savings Bank for the sum of P1,500.00.
Petitioner Rosario Carbonell, a cousin and adjacent neighbor of respondent Poncio, and also from
the Batanes Islands, lived in the adjoining lot at 177 V. Agan Street.
Both petitioners Rosario Carbonell and respondent Emma Infante offered to buy the said lot from
Poncio (Poncio's Answer, p. 38, rec. on appeal).
Respondent Poncio, unable to keep up with the installments due on the mortgage, approached
petitioner one day and offered to sell to the latter the said lot, excluding the house wherein
respondent lived. Petitioner accepted the offer and proposed the price of P9.50 per square meter.
Respondent Poncio, after having secured the consent of his wife and parents, accepted the price
proposed by petitioner, on the condition that from the purchase price would come the money to be
paid to the bank.
Petitioner and respondent Jose Poncio then went to the Republic Savings Bank and secured the
consent of the President thereof for her to pay the arrears on the mortgage and to continue the
payment of the installments as they fall due. The amount in arrears reached a total sum of P247.26.
But because respondent Poncio had previously told her that the money, needed was only P200.00,
only the latter amount was brought by petitioner constraining respondent Jose Poncio to withdraw
the sum of P47.00 from his bank deposit with Republic Savings Bank. But the next day, petitioner
refunded to Poncio the sum of P47.00.
On January 27, 1955, petitioner and respondent Poncio, in the presence of a witness, made and
executed a document in the Batanes dialect, which, translated into English, reads:
CONTRACT FOR ONE HALF LOT WHICH I BOUGHT FROM
JOSE PONCIO
Beginning today January 27, 1955, Jose Poncio can start living on the lot sold by him
to me, Rosario Carbonell, until after one year during which time he will not pa
anything. Then if after said one can he could not find an place where to move his
house, he could still continue occupying the site but he should pay a rent that man,
be agreed.
(Sgd)
JOSE
PONCI
O
(Sgd.)
ROSAR
IO
CARBO
NELL
(Sgd)
CONST
ANCIO
MEON
ADA
Witnes
s
(Pp. 6-7 rec. on appeal).
Thereafter, petitioner asked Atty. Salvador Reyes, also from the Batanes Islands, to prepare the
formal deed of sale, which she brought to respondent Poncio together with the amount of some
P400.00, the balance she still had to pay in addition to her assuming the mortgaged obligation to
Republic Savings Bank.
Upon arriving at respondent Jose Poncio's house, however, the latter told petitioner that he could
not proceed any more with the sale, because he had already given the lot to respondent Emma
Infants; and that he could not withdraw from his deal with respondent Mrs. Infante, even if he were
to go to jail. Petitioner then sought to contact respondent Mrs. Infante but the latter refused to see
her.
On February 5, 1955, petitioner saw Emma Infante erecting a all around the lot with a gate.
Petitioner then consulted Atty. Jose Garcia, who advised her to present an adverse claim over the
land in question with the Office of the Register of Deeds of Rizal. Atty. Garcia actually sent a letter of
inquiry to the Register of Deeds and demand letters to private respondents Jose Poncio and Emma
Infante.
In his answer to the complaint Poncio admitted "that on January 30, 1955, Mrs. Infante improved
her offer and he agreed to sell the land and its improvements to her for P3,535.00" (pp. 38-40,
ROA).
In a private memorandum agreement dated January 31, 1955, respondent Poncio indeed bound
himself to sell to his corespondent Emma Infante, the property for the sum of P2,357.52, with
respondent Emma Infante still assuming the existing mortgage debt in favor of Republic Savings
Bank in the amount of P1,177.48. Emma Infante lives just behind the houses of Poncio and Rosario
Carbonell.
On February 2, 1955, respondent Jose Poncio executed the formal deed of sale in favor of
respondent Mrs. Infante in the total sum of P3,554.00 and on the same date, the latter paid Republic
Savings Bank the mortgage indebtedness of P1,500.00. The mortgage on the lot was eventually
discharged.
Informed that the sale in favor of respondent Emma Infante had not yet been registered, Atty.
Garcia prepared an adverse claim for petitioner, who signed and swore to an registered the same on
¢ j
The deed of sale in favor of respondent Mrs. Infante was registered only on ¢ jj
As a 2
r

consequence thereof, a Transfer Certificate of Title was issued to her but with the annotation of the
adverse claim of petitioner Rosario Carbonell.
Respondent Emma Infante took immediate possession of the lot involved , covered the same with
500 cubic meters of garden soil and built therein a wall and gate, spending the sum of P1,500.00.
She further contracted the services of an architect to build a house; but the construction of the same
started only in 1959 Ȅ years after the litigation actually began and during its pendency.
Respondent Mrs. Infante spent for the house the total amount of P11,929.0 0.
On June 1, 1955, petitioner Rosario Carbonell, thru counsel, filed a second amended complaint
against private respondents, praying that she be declared the lawful owner of the questioned parcel
of land; that the subsequent sale to respondents Ramon R. Infante and Emma L. Infante be declared
null and void, and that respondent Jose Poncio be ordered to execute the corresponding deed of
conveyance of said land in her favor and for damages and attorney's fees (pp. 1-7, rec. on appeal in
the C.A.).
Respondents first moved to dismiss the complaint on the ground, among others, that petitioner's
claim is unenforceable under the Statute of Frauds, the alleged sale in her favor not being evidenced
by a written document (pp. 7-13, rec. on appeal in the C.A.); and when said motion was denied
without prejudice to passing on the question raised therein when the case would be tri ed on the
merits (p. 17, ROA in the C.A.), respondents filed separate answers, reiterating the grounds of their 2

motion to dismiss (pp. 18-23, ROA in the C.A.).

During the trial, when petitioner started presenting evidence of the sale of the land in question to

!
her by respondent Poncio, part of which evidence was the agreement written in the Batanes dialect
"#
aforementioned, respondent Infantes objected to the presentation by petitioner of parole evidence
to prove the alleged sale between her and responden t Poncio. In its order of April 26, 1966, the trial
court sustained the objection and dismissed the complaint on the ground that the memorandum 2

presented by petitioner to prove said sale does not satisfy the requirements of the law (pp. 31-35,
$

%
ROA in the C.A.).
From the above order of dismissal, petitioner appealed to the Supreme Court (G.R. No. L-11231)
which ruled in a decision dated May 12, 1958, that the Statute of Frauds, being applicable only to
executory contracts, does not apply to the alleged sale between petitioner and respondent Poncio,
which petitioner claimed to have been partially performed, so that petitioner is entitled to establish
by parole evidence "the truth of this allegation, as well as the contract itself." The order appealed
from was thus reversed, and the case remanded to the court for further proceedings (pp. 26-
49, ROA in the C.A.).
After trial in the court < a decision was, rendered on December 5, 1962, declaring the second
sale by respondent Jose Poncio to his co-respondents Ramon Infante and Emma Infante of the land
in question null and void and ordering respondent Poncio to execute the proper deed of conveyance
of said land in favor of petitioner after compliance by the latter of her covenants under her
agreement with respondent Poncio (pp. 5056, ROA in the C.A.).
On January 23, 1963, respondent Infantes, through another counsel, filed a motion for re-trial to
adduce evidence for the proper implementation of the court's decision in case it would be affirmed
on appeal (pp. 56-60, ROA in the C.A.), which motion was opposed by petitioner for being
premature (pp. 61-64, ROA in the C.A.). Before their motion for re-trial could be resolved,
respondent Infantes, this time through their former counsel, filed another motion for new trial,
claiming that the decision of the trial court is contrary to the evidence and the law (pp. 64-78, ROA
in the C.A.), which motion was also opposed by petitioner (pp. 78-89, ROA in the C.A.).
The trial court granted a new trial (pp. 89-90, ROA in the C.A.), at which re-hearing only the
respondents introduced additional evidence consisting principally of the cost of improvements they
introduced on the land in question (p. 9, ROA in the C.A.). 2

#
&
After the re-hearing, the trial court rendered a decision, reversing its decision of December 5, 1962

#
on the ground that the claim of the respondents was superior to the claim of petitioner, and &
#
dismissing the complaint (pp. 91-95, ROA in the C.A.), From this decision, petitioner Rosario
Carbonell appealed to the respondent Court of Appeals (p. 96, ROA in the C.A.).
On November 2, 1967, the Court of Appeals (Fifth Division composed of Justices Magno Gatmaitan,
Salvador V. Esguerra and Angle H. Mojica, speaking through Justice Magno Gatmaitan), rendered
judgment reversing the decision of the trial court, declaring petitioner therein, to have a superior
right to the land in question, and condemning the defendant Infantes to reconvey to petitioner after
her reimbursement to them of the sum of P3,000.00 plus legal interest, the landin question and all
its improvements (Appendix "A" of Petition). 2
'

#
Respondent Infantes sought reconsideration of said decision and acting on the motion for
reconsideration, the Appellate Court, three Justices (Villamor, Esguerra and Nolasco) of Special
Division of Five, granted said motion, annulled and set aside its decision of November 2, 1967, and
entered another judgment affirming the decision of the court , with Justices Gatmaitan
and Rodriguez dissenting (Appendix "B" of Petition).
Petitioner Rosario Carbonell moved to reconsider the Resolution of the Special Division of Five,
which motion was denied by Minute Resolution of December 6, 1968 (but with Justices Rodriguez
and Gatmaitan voting for reconsideration) [Appendix "C" of Petition].
Hence, this appeal by p .
Article 1544, New Civil Code, which is decisive of this case, recites:
If the same thing should have been sold to different vendees, the ownership shall be
transferred to the person _ if
it should _

Should it be_
the ownership shall belong to the person acquiring
it p in the Registry of Property.

p the ownership shall pertain to the person
< and, in the absence thereof, to the person who
presents the oldest title, provided there is good faith (emphasis supplied).
It is essential that the buyer of realty must act in good faith in registering his deed of sale to merit
the protection of the second paragraph of said Article 1544.
Unlike the first and third paragraphs of said Article 1544, which accord preference to the one who
first takes possession in good faith of personal or real property, the second paragraph directs that
ownership of immovable property should be recognized in favor of one =
p =his right. Under the first and third paragraph, must characterize the act of
anterior registration (DBP vs. Mangawang, et al., 11 SCRA 405; Soriano, et al. vs. Magale, et al., 8
SCRA 489).
If there is no inscription, what is decisive is prior possession in good faith. If there is inscription, as
in the case at bar, prior registration in good faith is a pre-condition to superior title.
When Carbonell bought the lot from Poncio on January 27, 1955, she was the only buyer thereof
and the title of Poncio was still in his name solely encumbered by bank mortgage duly annotated
thereon. Carbonell was not aware Ȅ and she could not have been aware Ȅ of any sale of Infante as
there was no such sale to Infante then. Hence, Carbonell's prior purchase of the land was made in
good faith. Her good faith subsisted and continued to exist when she recorded her adverse claim 2

four (4) days prior to the registration of Infantes's deed of sale. Carbonell's good faith did not cease

(
after Poncio told her on January 31, 1955 of his second sale of the same lot to Infante. Because of #
that information, Carbonell wanted an audience with Infante, which desire underscores Carbonell's
good faith. With an aristocratic disdain unworthy of the good breeding of a good Christian and good
neighbor, Infante snubbed Carbonell like a leper and refused to see her. So Carbonell did the next
best thing to protect her right Ȅ she registered her adversed claim on February 8, 1955. Under the
circumstances, this recording of her adverse claim should be deemed to have been done in good
faith and should emphasize Infante's bad faith when she registered her deed of sale four (4) days
later on February 12, 1955.
Bad faith arising from previous knowledge by Infante of the prior sale to Carbonell is shown by the
following facts, the vital significance and evidenciary effect of which the respondent Court of
Appeals either overlooked of failed to appreciate:
(1) Mrs. Infante refused to see Carbonell, who wanted to see Infante after she was informed by
Poncio that he sold the lot to Infante but several days before Infante registered her deed of sale.
This indicates that Infante knew Ȅ from Poncio and from the bank Ȅ of the prior sale of the lot by
Poncio to Carbonell. Ordinarily, one will not refuse to see a neighbor. Infante lives just behind the
house of Carbonell. Her refusal to talk to Carbonell could only mean that she did not want to listen
to Carbonell's story that she (Carbonell) had previously bought the lot from Poncio. 2

#
(2) Carbonell was already in possession of the mortgage passbook [not Poncio's saving deposit
passbook Ȅ Exhibit "1" Ȅ Infantes] and Poncio's copy of the mortgage contract, when Poncio sold
the lot Carbonell who, after paying the arrearages of Poncio, assumed the balance of his mortgaged
indebtedness to the bank, which in the normal c ourse of business must have necessarily informed
Infante about the said assumption by Carbonell of the mortgage indebtedness of Poncio. Before or
upon paying in full the mortgage indebtedness of Poncio to the Bank. Infante naturally must have
demanded from Poncio the delivery to her of his mortgage passbook as well as Poncio's mortgage
contract so that the fact of full payment of his bank mortgage will be entered therein; and Poncio, as
well as the bank, must have inevitably informed her that said mortgage passbook could not be given
to her because it was already delivered to Carbonell.
If Poncio was still in possession of the mortgage passbook and his copy of the mortgage contract at
the time he executed a deed of sale in favor of the Infantes and when the Infantes redeemed his
mortgage indebtedness from the bank, Poncio would have surrendered his mortgage passbook and
his copy of the mortgage contract to the Infantes, who could have presented the same as exhibits
during the trial, in much the same way that the Infantes were able to present as evidence Exhibit
"1" Ȅ Infantes, Poncio's savings deposit passbook, of which Poncio necessarily remained in
possession as the said deposit passbook was never involved in the contract of sale with assumption
of mortgage. Said savings deposit passbook merely proves that Poncio had to withdraw P47.26,
which amount was tided to the sum of P200.00 paid by Carbonell for Poncio's amortization
arrearages in favor of the bank on January 27, 1955; because Carbonell on that day brought with
her only P200.00, as Poncio told her that was the amount of his arrearages to the bank. But the next
day Carbonell refunded to Poncio the sum of P47.26. 2

#
(3) The fact that Poncio was no longer in possession of his mortgage passbook and that the said
mortgage passbook was already in possession of Carbonell, should have compelled Infante to
inquire from Poncio why he was no longer in possession of the mortgage passbook and from
Carbonell why she was in possession of the same (Paglago, et. al vs. Jara et al 22 SCRA 1247, 1252- 2
)

1253). The only plausible and logical reason why Infante did not bother anymore to make such
#
injury , w because in the ordinary course of business the bank must have told her that Poncio
already sold the lot to Carbonell who thereby assumed the mortgage indebtedness of Poncio and to
whom Poncio delivered his mortgage passbook. Hoping to give a semblance of truth to her
pretended good faith, Infante snubbed Carbonell's request to talk to her about the prior sale to her
b Poncio of the lot. As aforestated, this is not the attitude expected of a good neighbor imbued with
Christian charity and good will as well as a clear conscience.
(4) Carbonell registered on February 8, 1955 her adverse claim, which was accordingly annotated
on Poncio's title, four [4] days before Infante registered on February 12, 1955 her deed of sale
executed on February 2, 1955. Here she was again on notice of the prior sale to Carbonell. Such
registration of adverse claim is valid and effective (Jovellanos vs. Dimalanta, L-11736-37, Jan. 30,
1959, 105 Phil. 1250-51).
(5) In his answer to the complaint filed by Poncio, as defendant in the Court of First Instance, he
alleged that both Mrs. Infante and Mrs. Carbonell offered to buy the lot at P15.00 per square meter,
which offers he rejected as he believed that his lot is worth at least P20.00 per square meter. It is
therefore logical to presume that Infante was told by Poncio and consequently knew of the offer of
Carbonell which fact likewise should have put her on her guard and should have compelled her to
inquire from Poncio whether or not he had already sold the property to Carbonell.
As recounted by Chief Justice Roberto Concepcion, then Associate Justice, in the preceding case of
Rosario Carbonell vs. Jose Poncio, Ramon Infante and Emma Infante (1-11231, May 12, 1958),
Poncio alleged in his answer:
... that he had consistently turned down several offers, made by plaintiff, to buy the
land in question, at P15 a square meter, for he believes that it is worth not less than
P20 a square meter; that Mrs. Infante, likewise, tried to buy the land at P15 a square
meter; that, on or about January 27, 1955, Poncio was advised by plaintiff that
should she decide to buy the property at P20 a square meter, she would allow him
to remain in the property for one year; that
p p
p p p
p
p
<p ,

p _
p

,<!
j
$ _

_

< that Poncio has not lost 'his mind,' to sell his
property, worth at least P4,000, for the paltry sum P1,177.48, the amount of his
obligation to the Republic Saving s Bank; and that plaintiff's action is barred by the
Statute of Frauds. ... (pp. 38-40, ROA, emphasis supplied).

EXISTENCE OF THE PRIOR SALE TO CARBONELL

DULY ESTABLISHED
(1) In his order dated April 26, 1956 dismissing the complaint on the ground that the private
document Exhibit "A" executed by Poncio and Carbonell and witnessed by Constancio Meonada
captioned "Contract for One-half Lot which I Bought from Jose Poncio," was not such a
memorandum in writing within the purview of the Statute of Frauds, the trial judge himself
recognized the fact of the prior sale to Carbonell when he stated that "the memorandum in question

p
p

There is
no mention of the reconsideration, a description of the property and such other essential elements
of the contract of sale. There is nothing in the memorandum which would tend to show even in the 2

slightest manner that it was intended to be an evidence of contract sale. On the contrary,

_

pp
p By the very contents of the memorandum itself, it cannot therefore, be
considered to be the memorandum which would show that a sale has been made by Poncio in favor # #
of the plaintiff" (p. 33, ROA, emphasis supplied). As found by the trial court, to repeat the said
memorandum states "that p
p

of the property in favor of the plaintiff
pp

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

ppp
p
,p

_p
@ for
instance,p
_

p

./p &

pppp
,pp _ p
p _ ./ p

for one year, from January 27, 1955, free of charge, and
that, if he cannot find a place where to transfer his house thereon, he may remain
upon. p

p, p

./
=
== p
=
=p
p

_ p

_ p j

p Upon the other hand,

p
_ p ./
.

p
_

p the Batanes. Moreover, p, ./

p p

p$ ./_ p
pp$ ,pp
Then, also, defendants say in their brief:
The only allegation in plaintiff's complaint that bears any relation to

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

- p,

ppp p

/
>-
/
,p
p

_

p
_ p
p

p
(pp. 46-49, ROA, emphasis supplied). 2
*

+r,#+-#

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

p
p

p_

p_ ./ =,
/ p

p

./ ,,
,
,_

p
p ./ ,,

pp p p @
p

p
p
_

/ p p_

c
p_& ppp, ¢

p, c
p_
&
p
The defendant contends on the other
hand that the testimony of the plaintiff, as well as her witnesses, regarding the sale
of the land made by Poncio in favor of the plaintiff is inadmissible under the
provision of the Statute of Fraud based on the argument that the note Exh. "A" is not
the note or memorandum referred to in the to in the Statute of Fraud . The
defendants argue that Exh. "A" fails to comply with the requirements of the Statute
of Fraud to qualify it as the note or memorandum referred to therein and open the
way for the presentation of parole evidence to prove the fact contained in the note
or memorandum. @ _ p

p

- p

./,, p_ pp

p p
./ ,,
p

pp p _
p @ p

_
_ p

p ./ == For a while, this court had that similar impression 2

but after a more and thorough consideration of the context in Exh. 'A' and for the
#
reasons stated above, the Court has arrived at the conclusion stated earlier (pp. 52-
54, ROA, emphasis supplied).
(4) After re-trial on motion of the Infantes, the trial Judge rendered on January 20, 1965 another
decision dismissing the complaint, although he found
1. @!j

p p
p

j
more or less, covered by TCT No.
5040 of the Province of Rizal, located at San Juan del Monte, Rizal, p

<
2. @ p plaintiff was not reduced to writing except for a
short note or memorandum Exh. A, which also recited that the defendant Poncio
would be allowed to continue his stay in the premises, among other things, ... (pp.
91-92, ROA, emphasis supplied).
From such factual findings, the trial Judge confirms the due execution of Exhibit "A", only that his
legal conclusion is that it is not sufficient to transfer ownership (pp. 93-94, ROA).
(5) In the first decision of November 2, 1967 of the Fifth Division of the Court of Appeals composed
of Justices Esguerra (now Associate Justice of the Supreme Court), Gatmaitan and Mojica, penned by
Justice Gatmaitan, the Court of Appeals found that:
c
_
_

p

! pp _
p &
p./ p

! p

/p

p
pc
_p
!
p
p p p & p
./the private document p p

p =

= and going so far even as to state that from that day onwards,
_
p
_ ,p

,p
c!
pp
p
_ p Art. 1500, New
Civil Code;_ , _ p p_
_ p
_

?
2

! pc
p p

./p
_
_
pp #

p
pp
p
p 2

p Couto v. Cortes, 8 Phil 459, so much so that under the New Civil Code, while
a sale of an immovable is ordered to be reduced to a public document, Art. 1358,

!

that mandate does not render an oral sale of realty invalid, but merely incapable of !
proof, where still executory and action is brought and resisted for its performance,
#

!
#
1403, par. 2, 3; but

/ p _
_ p in any case where evidence to further demonstrate
is presented and admitted as the case was here, then

p p

p p p
p
p
p _ p pp Art. 1357; and thus it is that
what we now have is a case wherein c
_

p
_!j
Exhibit A,
_ p
¢ j
and on other, a sale is due form

in favor of Emma L. Infante on 2 February, 1955, Exhibit 3-Infante, and registered in
due form with title unto her issued on 12 February, 1955; the vital question must
now come on which of these two sales should prevail; ... (pp. 74-76, rec., emphasis
supplied).
(6) In the resolution dated October 30, 1968 penned by then Court of Appeals Justice Esguerra
(now a member of this Court), concurred in by Justices Villamor and Nolasco, constituting the
majority of a Special Division of Five, the Court of Appeals, upon motion of the Infantes, while
reversing the decision of November 2, 1967 and affirming the decision of the trial court of January
20, 1965 dismissing plaintiff's complaint, / p ./==
_ !j

p =

pp
=because it "neither specifically describes the property and
its boundaries, nor mention its certificate of title number, nor states the price certain to be paid, or
contrary to the express mandate of Articles 1458 and 1475 of the Civil Code.
(7) In his dissent concurred in by Justice Rodriguez, Justice Gatmaitan maintains his decision of
November 2, 1967 as well as his findings of facts therein, and reiterated that the private
memorandum Exhibit "A", is a perfected sale, as a sale is consensual and consummated by mere
consent, and is binding on and effective between the parties. This statement of the principle is
correct [pp. 89-92, rec.].
III
ADEQUATE CONSIDERATION OR PRICE FOR THE SALE

IN FAVOR OF CARBONELL
It should be emphasized that the mortgage on the lot was about to be foreclosed by the bank for
failure on the part of Poncio to pay the amortizations thereon . To forestall the foreclosure and at
the same time to realize some money from his mortgaged lot, Poncio agreed to sell the same to
Carbonell at P9.50 per square meter, on condition that Carbonell [1] should pay (a) the amount of
P400.00 to Poncio and 9b) the arrears in the amount of P247.26 to the bank; and [2] should assume
his mortgage indebtedness. The bank president agreed to the said sale with assumption of
mortgage in favor of Carbonell an Carbonell accordingly paid the arrears of P247.26. On January 27,
1955, she paid the amount of P200.00 to the bank because that was the amount that Poncio told her
as his arrearages and Poncio advanced the sum of P47.26, which amount was refunded to him by
Carbonell the following day. This conveyance was confirmed that same day, January 27, 1955, by
the private document, Exhibit "A", which was prepared in the Batanes dialect by the witness
Constancio Meonada, who is also from Batanes like Poncio and Carbonell.
The sale did not include Poncio's house on the lot. And Poncio was given the right to continue
staying on the land without paying any rental for one year, after which he should pay rent if he
could not still find a place to transfer his house. All these terms are part of the consideration of the
sale to Carbonell.
It is evident therefore that there was ample consideration, and not merely the sum of P200.00, for
the sale of Poncio to Carbonell of the lot in question.
But Poncio, induced by the higher price offered to him by Infante, reneged on his commitment to
Carbonell and told Carbonell, who confronted him about it, that he would not withdraw from his
deal with Infante even if he is sent to jail The victim, therefore, "of injustice and outrage is the
widow Carbonell and not the Infantes, who without moral compunction exploited the greed and
treacherous nature of Poncio, who, for love of money and without remorse of conscience,
dishonored his own plighted word to Carbonell, his own cousin.
Inevitably evident therefore from the foregoing discussion, is the bad faith of Emma Infante from
the time she enticed Poncio to dishonor his contract with Carbonell, and instead to sell the lot to her
(Infante) by offering Poncio a much higher price than the price for which he sold the same to
Carbonell. Being guilty of bad faith, both in taking physical possession of the lot and in recording
their deed of sale, the Infantes cannot recover the value of the improvements they introduced in the
lot. And after the filing by Carbonell of the complaint in June, 1955, the Infantes had less
justification to erect a building thereon since their title to said lot is seriously disputed by Carbonell
on the basis of a prior sale to her.
With respect to the claim of Poncio that he signed the document Exhibit "A" under the belief that it
was a permit for him to remain in the premises in ease he decides to sell the property to Carbonell
at P20.00 per square meter, the observation of the Supreme Court through Mr. Chief Justice
Concepcion in G.R. No. L-11231, , bears repeating:
... Incidentally, the allegation in Poncio's answer to the effect that he signed Exhibit A
under the belief that it 'was a permit for him to remain in the premises in the event
that 'he decided to sell the property' to the plaintiff at P20.00 a sq. m is, on its face,
somewhat difficult to believe. Indeed, if he had not decided as yet to sell that land to
plaintiff, who had never increased her offer of P15 a square meter, there as no
reason for Poncio to get said permit from her. Upon the they if plaintiff intended to
mislead Poncio, she would have Exhibit A to be drafted, probably, in English, instead
of taking the trouble of seeing to it that it was written precisely in his native dialect,
the Batanes. Moreover, Poncio's signature on Exhibit A suggests that he is neither
illiterate nor so ignorant as to sign a document without reading its contents, apart
from the fact that Meonada had read Exhibit A to him-and given him a copy thereof,
before he signed thereon, according to Meonada's uncontradicted testimony. (pp.
46-47, ROA).
As stressed by Justice Gatmaitan in his first decision of November 2, 1965, which he reiterated in
his dissent from the resolution of the majority of the Special Division. of Five on October 30, 1968,
Exhibit A, the private document in the Batanes dialect, is a valid contract of sale between the
parties, since sale is a consensual contract and is perfected by mere consent (Couto vs. Cortes, 8
Phil. 459). Even an oral contract of realty is all between the parties and accords to the vendee the
right to compel the vendor to execute the proper public document As a matter of fact, Exhibit A,
while merely a private document, can be fully or partially performed, to it from the operation of the
statute of frauds. Being a all consensual contract, Exhibit A effectively transferred the possession of
the lot to the vendee Carbonell by p (Article 1500, New Civil Code); because
thereunder the vendor Poncio continued to retain physical possession of the lot as tenant of the
vendee and no longer as knew thereof. More than just the signing of Exhibit A by Poncio and 2
" ...
Carbonell with Constancio Meonada as witness to fact the contract of sale, the transition was
further confirmed when Poncio agreed to the actual payment by at Carbonell of his mortgage
arrearages to the bank on January 27, 1955 and by his consequent delivery of his own mortgage
passbook to Carbonell. If he remained owner and mortgagor, Poncio would not have surrendered
his mortgage passbook to' Carbonell.
IV
IDENTIFICATION AND DESCRIPTION OF THE DISPUTED LOT IN THE MEMORANDUM EXHIBIT "A"
The claim that the memorandum Exhibit "A" does not sufficiently describe the disputed lot as the
subject matter of the sale, was correctly disposed of in the first decision of the trial court of
December 5, 1962, thus: "The defendant argues that there is even no description of the lot referred
to in the note (or memorandum), especially when the note refers to only one-half lot. With respect
to the latter argument of the defendant, plaintiff points out that one - half lot was mentioned in
Exhibit 'A' because the original description carried in the title states that it was formerly part of a
bigger lot and only segregated later. The explanation is tenable, in (sic) considering the time value
of the contents of Exh. 'A', the court has arrived at the conclusion that there is sufficient description
of the lot referred to in Exh. As none other than the parcel of lot occupied by the defendant Poncio
and where he has his improvements erected. The Identity of the parcel of land involved herein is
sufficiently established by the contents of the note Exh. 'A'. For a while, this court had that similar
impression but after a more and through consideration of the context in Exh. 'A' and for the reasons
stated above, the court has arrived to (sic) the conclusion stated earlier" (pp. 53-54, ROA).
Moreover, it is not shown that Poncio owns another parcel with the same area, adjacent to the lot of
his cousin Carbonell and likewise mortgaged by him to the Republic Savings Bank. The transaction
therefore between Poncio and Carbonell can only refer and does refer to the lot involved herein. If
Poncio had another lot to remove his house, Exhibit A would not have stipulated to allow him to
stay in the sold lot without paying any rent for one year and thereafter to pay rental in case he
cannot find another place to transfer his house.
While petitioner Carbonell has the superior title to the lot, she must however refund to respondents
Infantes the amount of P1,500.00, which the Infantes paid to the Republic Savings Bank to redeem
the mortgage.
It appearing that the Infantes are possessors in bad faith, their rights to the improvements they
introduced op the disputed lot are governed by Articles 546 and 547 of the New Civil Code . Their
expenses consisting of P1,500.00 for draining the property, filling it with 500 cubic meters of
garden soil, building a wall around it and installing a gate and P11,929.00 for erecting a b '
bungalow thereon, are useful expenditures, for they add to the value of the property (Aringo vs. 2

Arenas, 14 Phil. 263; Alburo vs. Villanueva, 7 Phil. 277; Valencia vs. Ayala de Roxas, 13 Phil. 45). !

#
Under the second paragraph of Article 546, the possessor in good faith can retain the useful
improvements unless the person who defeated him in his possession refunds him the amount of
such useful expenses or pay him the increased value the land may have acquired by reason thereof.
Under Article 547, the possessor in good faith has also the right to remove the useful improvements
if such removal can be done without damage to the land, unless the person with the su perior right
elects to pay for the useful improvements or reimburse the expenses therefor under paragraph 2 of
Article 546. These provisions seem to imply that the possessor in bad faith has neither the right of
retention of useful improvements nor the right to a refund for useful expenses.
But, if the lawful possessor can retain the improvements introduced by the possessor in bad faith
for pure luxury or mere pleasure only by paying the value thereof at the time he enters into
possession (Article 549 NCC), as a matter of equity, the Infantes, although possessors in bad faith,
should be allowed to remove the aforesaid improvements, unless petitioner Carbonell chooses to
pay for their value at the time the Infantes introduced said useful improvements in 1955 and 1959.
The Infantes cannot claim reimbursement for the current value of the said useful improvements;
because they have been enjoying such improvements for about two decades without paying any
rent on the land and during which period herein petitioner Carbonell was deprived of its
possession and use. 2

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

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

Ô ))" 00!

8J., concurring:
I concur. My concurrence proceeds from the same premise as the dissenting opinion of Justice
Munoz Palma that both the conflicting buyers of the real property in question, namely, petitioner
Rosario Carbonell as the first buyer may be deemed purchasers in good faith at the respective dates
of their purchase.
The answer to the question of who between the two buyers in good faith should prevail is provided
in the second paragraph of Article 1544 of the Civil Code (formerly Article 1473 of the old Civil
Code) which ordains that "the ownership of the immovable property shall belong to the person
acquiring it who in good faith first recorded it in the Registry of Property."
In the case at bar, the seller executed on January 27, 1955 the private memorandum of sale of the
property in favor of the first buyer Carbonell, However, six days later on February 2, 1955, the
seller sold the property for a second time for an improved price, this time executing a formal
registrable deed of sale in favor of the second buyer Infante.
So it was that when the first buyer Carbonell saw the seller a few days afterwards bringing the
formal deed of sale for the seller's signature and the balance of the agreed cash payment, the seller
told her that he could not proceed anymore with formalizing the first sale because he had already
formalized the second sale in favor of the second buyer Infante.
Since Carbonell (the first buyer) did not have a formal registrable deed of sale, she did the next best
thing to protect her legal rights and registered on February 8, 1955 with the Rizal Register of Deeds
her adverse claim as first buyer entitled to the property. The second buyer Infante registered the
deed of sale in her favor with the Rizal Register of Deeds only on February 12, 1955
(notwithstanding its having been executed ten days earlier on February 2, 1955), and therefore the
transfer certificate of title issued in her favor carried the duly annotated adverse claim of Carbonell
as the first buyer.
Both these registrations were in good faith and hence, as provided by the cited code article, the first
buyer Carbonell as also the first registrant is legally entitled to the property.
The fact that Carbonell registered only an adverse claim as she had no registrable deed of sale is of
no moment. The facts of record amply show that she had a written memorandum of sale, which was
partially executed with the advance payment made by her for the seller's mortgage account with
the bank, and which was perfected and binding in law by their accord on the subject matter and
price. Carbonell could in law enforce in court her rights as first buyer under the memorandum
agreement and compel the seller to execute in her favor a formal registrable deed of sale which
would relate back to the date of the original memorandum agreement.
And under the cited code provision, Carbonell had to duly register such adverse claim as first buyer,
as otherwise the subsequent registration of the second buyer's deed of sale would have obliterated
her legal rights and enable the seller to achieve his fraudulent act of selling the property a second
time for a better price in derogation of her prior right thereto.
The fact that the seller refused to execute the formal deed of sale in Carbonell's favor and (as was
only to be expected) informed her that he could not proceed anymore with the sale because he had
sold it for a second time for a better price did not convert her prior registration of her adverse claim
into one of bad faith.
The fraudulent seller's act of informing the first buyer that he has wrongfully sold his property for a
second time cannot work out to his own advantage and to the detriment of the innocent first buyer
(by being considered as an "automatic registration" of the second sale) and defeat the first buyer's
right of priority, in time in right and in registration.
The governing principle here is 0 (first in time, stronger in right).
Knowledge gained by the first buyer of the second sale cannot defeat the first buyer's rights except
only as provided by the Civil Code and that is where the second buyer first registers in
the second sale ahead of the first. Such knowledge of the first buyer does not bar her from availing
of her rights under the law, among them, to register first her purchase as against the second buyer.
But in other so knowledge gained by the second buyer of the first sale defeats his rights even if he is
first to register the second sale, since such knowledge taints his prior registration with bad faith.
This is the price exacted by Article 1544 of the Civil Code for the second buyer being able to
displace the first buyer: that before the second buyer can obtain priority over the first, he must
show that he acted in (i.e. in ignorance of the first sale and of the first buyer's
rights) Ȅ from the time of acquisition until the title is transferred to him by registration or failing
registration, by delivery of possession. The second buyer must show p good faith and
innocence or lack of knowledge of the first sale until his contract ripens into full ownership through
prior registration as provided by law.
The above principles were aptly restated in a 1948 Court of Appeals decision in the case of

_
penned by Justice J.B.L. Reyes, then a member of the appellate court. The facts of that
case and the case at bar are virtually Identical, except that the earlier case was decided under the
old Civil Code (Article 1473 thereof now reproduced as Article 1544 of the present Civil Code), and
the p thereof, is fully applicable, as follows:
Analysis of article 1473 of the Civil Code shows that a p_ can
obtain over the first, it is indispensable that he should have acted in
(that is to say, in ignorance of the rights of the first vendee's rights)

by actual or constructive delivery of the thing sold. This is
the p /p
for his being able to
p the first vendee; and the mere
fact that the second contract of sale was perfected in good faith is p

p_ p
p
That the second buyer innocently agreed to purchase the land may protect him
against responsibility of conspiring with his vendor to defraud the established rights
of the first purchaser; but to defeat the latter's priority in time (based on the old
principle = 0 = first in time, better in right) the good faith or
innocence of the posterior vendee must needs continue
his contract ripens into
ownership by tradition or recording (Palanca vs. Director of lands, 43 Phil. 141,
154).
That the formal deed of conveyance to Gabino Gallardo was executed after that of
Caoagas is of no moment, the contract of sale being p by mere
accord on the subject matter and the price, even if neither is delivered (Article 1450,
Civil Code), the deed of conveyance will
p to the date of the original
agreement.
Finally, in the present case, the first buyer's registration (February 8, 1955) concededly p
the second buyer's registration (February 12, 1955) by four days, and therefore, as provided by the
Civil Code, the first buyer thereby duly preserved her right of and is entitled to the
property.
+&J., dissenting:
Strongly convinced as I am that the decision of the Court of Appeals under review should be
affirmed, this dissenting opinion is being written.
We are here confronted with a double sale made by Jose Poncio of his 195-square meter lot located
at V. Again St., San Juan, Rizal, covered by Transfer Certificate of Title No. 5040, the solution to
which is found in Art. 1544 of the Civil Code, more particularly the second paragraph thereof which
provides that should the thing sold be immovable property, the ownership shall belong to the
person acquiring it p c
1. The p

c
.

p
That Rosario Carbonell is a buyer in good faith cannot be disputed for at the time negotiations for
the purchase of the lot were being made between her and the vendor, Jose Poncio, as of January 27,
1955, there was no indication at all from the latter that another sale was being contemplated.
That Emma Infante is likewise is supported by: (a) an express finding of the
trial court in its decision of January 20, 1965, to the effect that when the vendor and purchaser.
Infante consummated the sale on or about January 29, 1955, an examination of the original of T.C.T.
5040 on file with the Register of Deeds of Rizal as well as the owner's duplicate revealed no
annotation of any encumbrance or lien other than the mortgage in favor of the Republic Savings
Bank (p. 92, Record on Appeal); (b) the findings of fact of the Court of Appeals given in the decision
penned by then Justice Salvador V. Esguerra as well as in the first decision written by Justice Magno
Gatmaitan which subsequently became the basis of the dissenting opinion to the majority, and from
which I quote:
2. CONSIDERING: That as basis for discussion of this issue, it must have to be

remembered that the first vendee, Rosario Carbonell, certainly was an innocent
purchaser ... but also must it be remembered that .)
¢ j
./%

c ..; indeed as Emma has testified
on this detail, it is easy to accept her declaration:
Q. When Mr. Jose Poncio offered you this land in

question, did he tell you that the land was sold or
otherwise promised to Mrs. Carbonell?
A. Of course not, otherwise will never buy.

(tsn. II:27)
in other words, at the respective dates of their purchase, both _ c.

p p ... (pp. 9-10 of Justice Gatmaitan's decision found on
pp. 76-77, rollo; see also p. 7 of his dissenting opinion found on p. 95, rollo).
Departing from a well-entrenched rule set down in a long array of decisions of this Court that
factual findings of the trial court and of the Court -of Appeals are generally binding and conclusive,
and that on appeal by certiorari, questions of fact are not to be determined nor reviewed by Us the
Majority Opinion of my colleagues however undertakes a fact-finding process of its own, and draws
the conclusion that Emma Infante was a buyer in bad faith because, among other things: (a) Emma
allegedly refused to talk to Rosario Carbonell when the latter went to see her about the sale of the
lot, which "is not the attitude expected of a good neighbor imbued with Christian charity and
goodwill as well as a clean conscience" (p. 10, Majority Opinion); (b) "(B)efore or upon paying in
full the mortgage indebtedness of Poncio to the bank. Infante naturally _ demanded from
Poncio the delivery to her of his mortgage passbook as well as Poncio's mortgage contract. . and
Poncio as well as the bank, must have inevitably informed here that said mortgage passbook could
not be given to her because it was already delivered to Carbonell" (p. 9, Ibid); and (c) "... (T)he
victim, therefore, 'of injustice and outrage is the widow Carbonell and not the Infantes, without
moral compunction /
and treacherous nature of Poncio,
_ and
of conscience, dishonored his own plighted word to Carbonell, his own cousin. ...
Inevitably evident therefore from the foregoing discussion, is . from
the time she p ppp

Carbonell ..." (p. 20, Majority Opinion; all italicized portions supplied) Ȅ all of which are
_ p p
p pa quo and the

appellate court sustaining the good faith of Emma Infante.
2. Inasmuch as the two purchasers are undoubtedly in good faith, the next question to be resolved
is of the two registered her purchase or title
In applying Art. 1544 of the Civil Code, it is not enough that the buyer bought the property in good
faith, but of her title must also be accomplished This requirement
of good faith is not only applicable to the second or subsequent purchaser but to the first as well.
Construing and applying the second paragraph of Art. 1473 of the Spanish Civil Code which h as
been adopted_ in Art. 1544 of the Civil Code of the Philippines, this Court in Leung Lee vs.
FL Strong Machinery Co., et al 37 Phil. 644, declared:
It has been suggested that since the provisions of article 1473 of the Civil Code
require "good faith," in express terms, in relation to "possession" and title but
contain no express requirement as to 'good faith' in relation to the "inscription" of
the property in the registry, it must he presumed that good faith is not an essential
requisite of registration in order that it may have the effect contemplated in this
article. We cannot agree with this contention. It could not have been the intention of
the legislator to base the preferential right secured under this article of the code
upon an inscription of title in bad faith. Such an interpretation placed upon the
language of this section would open wide the door to fraud and collusion. The public
records cannot be converted into instruments of fraud and oppression by one who
secures an inscription therein in bad faith. The force and effect given by law to an
inscription in a public record presupposes the good faith of him who enters such
inscription; and rights created by statute, which are predicated upon an inscription
in a public registry, do not and cannot accrue under an inscription "in bad faith," to
the benefit of the person who thus makes the inscription. (pp. 648 -649, supra)
Good faith means "freedom from knowledge and circumstances which ought to put a person on
inquiry"; it consists of an honest intention to abstain from taking any conscientious advantage of
another.
On this point it is my view that Rosario Carbonell cannot be held to have a title superior to that of
Emma Infante for even if We were to concede that the notation of her adverse claim on February 8,
1955, was in the nature of registration of title as required in Art. 1544 of the Civil Code, the same
was not accomplished in good faith. This is obvious from occurrences narrated in the Majority
Opinion, thus: that on January 27, 1955, Carbonell and Jose Poncio made and executed the
memorandum of sale, Exhibit A; that thereafter Carbonell asked Atty. Salvador Reyes to prepare the
formal deed of sale which she brought to Poncio together with the amount of some P400.00, the
balance she had to pay in addition to her assuming the mortgage obligation to Republic Savings
Bank; that upon arriving at Poncio's house the latter told Carbonell that he could not proceed
anymore with the sale because he had already given the lot to Emma Infants; that on ¢

j

. erecting a wall around the lot with a gate; that Carbonell
consulted Atty. Jose Garcia who advised her to present an adverse claim with the office of the
Register of Deeds, and that that
_.
Atty. Garcia prepared the notice of adverse claim which was signed and sworn to by
Rosario Carbonell and registered on February 8, 1955. (see pp. 34, Decision)
At the time petitioner herein caused the annotation of her adverse claim she was, therefore,
cognizant of facts which impaired her title to the property in question, and taking advantage of the
situation that the second purchaser had not as yet registered her deed of sale, she went ahead of the
second buyer and annotated what was only in the nature of an adverse claim inasmuch as she had
no registrable document of sale at the time. That annotation of Carbonell's adverse claim did not
produce any legal effects as to place her in a preferential situation to that of Infante, the second
purchaser, for the simple reason that a _

It is a settled rule that the inscription in the registry, to be effective, must be made in good
faith. (Pena, supra, p. 164)
3. One last point to be considered is the theory advanced by the dissenting opinion of Justice
Gatmaitan that while Carbonell's registration of her adverse claim may indeed be considered in bad
faith, nonetheless that of Infante was likewise in bad faith because at the time of the registration of
the latter's deed of sale there was already inscribed on the original of the title on file with the
Register of Deeds the adverse claim of Rosario Carbonell.
With due respect to the foregoing conclusion of highly respected Colleague, I hold the view that the
act of the registration of Infante's deed of sale on ¢ jj
was but a formality in the

sense that it simply formalized what had already been accomplished earlier, that is, the
p

p

!j
when she brought the memorandum of sale, Exh. A, to Jose Poncio and was
informed by the latter that he could not go through with the sale because he had already sold it to
Emma Infante, which information was bolstered by the fact that Carbonell saw Infante erecting a
wall around the lot on ¢

We have long accepted the rule that

_
What would be the
purpose of registration other than to give notice to interested parties and to the w hole world of the
existence of rights or liens against the property under question?
What has been clearly and succinctly postulated in T. de Winkleman and Winkleman vs. Veluz 1922,
43 Phil. 604, 609, is applicable to the case before Us, and We quote therefrom:
. . . The purpose of registering an instrument relating to land, annuities, mortgages,

liens or any other class of real rights is to give notice to persons interested of the
existence of these various liens against the property. If the parties interested have
actual notice of the existence of such liens then the necessity for registration does
not exist. Neither can one who has p
p of existing liens acquire any rights
in such property free from such liens by the mere fact that such liens have not been
proven recorded. (citing Obras Pias vs. Devera Ignacio, 17 Phil. 45, 47).
We cannot overlook the fact that while it may be true that the vendor Poncio had signed the
memorandum, Exh. A, from which it may be implied that he sold a lot to Carbonell, there were other
things to be accomplished for purposes of binding third parties, the lot in question being registered
land, such as the execution of a formal deed of sale. Such a document of sale was never signed by
Poncio for according to petitioner Carbonell, when she presented to Poncio the corresponding
document together with the sum of P400.00 which according to her was the balance of the
purchase price after she had assumed the mortgage with the Republic Bank, she was informed by
the vendor that the property had been sold to another. That sale was confirmed when Carbonell
saw Infante erecting a wall around the lot on February 5, 1955. As of that moment when Carbonell
had notice or actual knowledge of the second sale in favor of Emma Infante a valid registration of
the latter's deed of sale was constituted as against Carbonell. Accordingly, Infante has a preferential
right to the property, the registration of her sale having been effected in the foregoing manner,
prior to the annotation of Carbonell's adverse claim on¢ j
The circumstances of the present case are strikingly similar to the hypothetical problem posed in
Commentator Edgardo Paras' Book on the Civil Code of the Philippines and I wholeheartedly concur
with his solution of the problem which is based on law. From him I quote:
A sold a parcel of land with a torrens title to B on January 5. A week later, A sold the
same land to C. Neither sale was registered. As soon as B learned of the sale in favor
of C, he (B) registered an adverse claim stating that he was making the claim
because the second sale was in fraud of his rights as first buyer. Later, C registered
the deed of sale that had been made in his favor. Who is now the owner B or C?
Ans. C is clearly the owner, although he was the second buyer. This is so, not
because of the registration of the sale itself but because of the AUTOMATIC
registration in his favor caused by Bs knowledge of the first sale (actual knowledge
being equivalent to registration). The purpose of registration is to notify. This
notification was done because of Bs knowledge. It is wrong to assert that B was only
trying to protect his right-for there was no more right to be protected. He should
have registered the sale BEFORE knowledge came to him. It is now too late. It is
clear from this that with respect to the principle "actual knowledge is equivalent to
registration of the sale about which knowledge has been obtained' Ȅ the knowledge
may be that-of either the FIRST or the SECOND buyer. (pp. 142-143, Vol. V, 1972
Ed.)
Aside from the fact that the sale to Infante was considered registered prior to the registration of
Carbonell's notice of adverse claim, Infante also took immediate physical possession of the property
by erecting a fence with a gate around the lot on February 5, at least tree days prior to Carbonell Is
registration on February 8, 1955.
On top of all these, equity is on the side of Emma Infante. Under the Majority Opinion, Emma Infante
stands to lose the lot she bought in good faith wh ich was fully paid for plus the building she erected
thereon for which she spent the total sun of a little less than P14,000.00, or equivalent to about
P40,000.00 at the time the case was decided by the Appellate Court, considering that Rosario
Carbonell is being given the option either to order the removal of the house or to acquire it at
P13,429.00. On this point I agree with the following statement of Justice Esguerra who penned the
decision of the Appellate Court, thus:
It is indeed inequitable and re revolting to one's sense of justice and fairness that
Rosario Carbonell who paid out of her own money the sum of only P200.00 to the
Republic Savings Bank for the account of Jose Poncio, which was the motivation for
the execution of the private instrument, Exhibit A, should have a superior right to
the land involved. The property has been improved at a great expense and a
building of strong materials has been constructed thereon Emma Infants ho spent
for her lot and building the total sum of P13,429.00 made , up of P11,929.00 for cost
of land and improvements and the building and P1,500.00 to discharge the
mortgage in favor of the Republic Savings Bank. with the present purchasing power
of the peso this aft i more than 13 years, would be not equivalent to abo ut
P40,000.00. Courts should not lend a hand to the perpetration of such kind of
injustice and outrage (see page 88, rollo)
I close paraphrasing the Supreme Court of Oklahoma in

_ @
217 p. 376; 377,
that "equity is a right wiseneth that considerate all of the particular circumstances of the case and is
also tempered with the sweetness of mercy." (quoting from St. Germain) In this case now before Us
there is no need to invoke mercy, for all that is required is a p p

ppp narrated above which warrant a judgment in favor of respondents Infants.
With all the foregoing, I vote for the affirmance of the decision under review.
Ô ))" 00!
8J., concurring:
I concur. My concurrence proceeds from the same premise as the dissenting opinion of Justice
Munoz Palma that both the conflicting buyers of the real property in question, namely, petitioner
Rosario Carbonell as the first buyer may be deemed purchasers in good faith at the respective dates
of their purchase.
The answer to the question of who between the two buyers in good faith should prevail is provided
in the second paragraph of Article 1544 of the Civil Code (formerly Article 1473 of the old Civil
Code) which ordains that "the ownership of the immovable property shall belong to the person
acquiring it who in good faith first recorded it in the Registry of Property."
In the case at bar, the seller executed on January 27, 1955 the private memorandum of sale of the
property in favor of the first buyer Carbonell, However, six days later on February 2, 1955, the
seller sold the property for a second time for an improved price, this time executing a formal
registrable deed of sale in favor of the second buyer Infante.
So it was that when the first buyer Carbonell saw the seller a few days afterwards bringing the
formal deed of sale for the seller's signature and the balance of the agreed cash payment, the seller
told her that he could not proceed anymore with formalizing the first sale because he had already
formalized the second sale in favor of the second buyer Infante.
Since Carbonell (the first buyer) did not have a formal registrable deed of sale, she did the next best
thing to protect her legal rights and registered on February 8, 1955 with the Rizal Register of Deeds
her adverse claim as first buyer entitled to the property. The second buyer Infante registered the
deed of sale in her favor with the Rizal Register of Deeds only on February 12, 1955
(notwithstanding its having been executed ten days earlier on February 2, 1955), and therefore the
transfer certificate of title issued in her favor carried the duly annotated adverse claim of Carbonell
as the first buyer.
Both these registrations were in good faith and hence, as provided by the cited code article, the first
buyer Carbonell as also the first registrant is legally entitled to the property.
The fact that Carbonell registered only an adverse claim as she had no registrable deed of sale is of
no moment. The facts of record amply show that she had a written memorandum of sale, which was
partially executed with the advance payment made by her for the seller's mortgage account with
the bank, and which was perfected and binding in law by their accord on the subject matter and
price. Carbonell could in law enforce in court her rights as first buyer under the memorandum
agreement and compel the seller to execute in her favor a formal registrable deed of sale which
would relate back to the date of the original memorandum agreement.
And under the cited code provision, Carbonell had to duly register such adverse claim as first buyer,
as otherwise the subsequent registration of the second buyer's deed of sale would have obliterated
her legal rights and enable the seller to achieve his fraudulent act of selling the property a second
time for a better price in derogation of her prior right thereto.
The fact that the seller refused to execute the formal deed of sale in Carbonell's favor and (as was
only to be expected) informed her that he could not proceed anymore with the sale because he had
sold it for a second time for a better price did not convert her prior registration of her adverse claim
into one of bad faith.
The fraudulent seller's act of informing the first buyer that he has wrongfully sold his property for a
second time cannot work out to his own advantage and to the detriment of the innocent first buyer
(by being considered as an "automatic registration" of the second sale) and defeat the first buyer's
right of priority, in time in right and in registration.
The governing principle here is 0 (first in time, stronger in right).
Knowledge gained by the first buyer of the second sale cannot defeat the first buyer's rights except
only as provided by the Civil Code and that is where the second buyer first registers in
the second sale ahead of the first. Such knowledge of the first buyer does not bar her from availing
of her rights under the law, among them, to register first her purchase as against the second buyer.
But in other so knowledge gained by the second buyer of the first sale defeats his rights even if he is
first to register the second sale, since such knowledge taints his prior registration with bad faith.
This is the price exacted by Article 1544 of the Civil Code for the second buyer being able to
displace the first buyer: that before the second buyer can obtain priority over the first, he must
show that he acted in (i.e. in ignorance of the first sale and of the first buyer's
rights) Ȅ from the time of acquisition until the title is transferred to him by registration or failing
registration, by delivery of possession. The second buyer must show p good faith and
innocence or lack of knowledge of the first sale until his contract ripens into full ownership through
prior registration as provided by law.
The above principles were aptly restated in a 1948 Court of Appeals decision in the case of

_
penned by Justice J.B.L. Reyes, then a member of the appellate court. The facts of that
case and the case at bar are virtually Identical, except that the earlier case was decided under the
old Civil Code (Article 1473 thereof now reproduced as Article 1544 of the present Civil Code), and
the p thereof, is fully applicable, as follows:
Analysis of article 1473 of the Civil Code shows that a p_ can
obtain over the first, it is indispensable that he should have acted in
(that is to say, in ignorance of the rights of the first vendee's rights)

by actual or constructive delivery of the thing sold. This is
the p /p
for his being able to
p the first vendee; and the mere
fact that the second contract of sale was perfected in good faith is p

p_ p
p
That the second buyer innocently agreed to purchase the land may protect him
against responsibility of conspiring with his vendor to defraud the established rights
of the first purchaser; but to defeat the latter's priority in time (based on the old
principle = 0 = first in time, better in right) the good faith or
innocence of the posterior vendee must needs continue
his contract ripens into
ownership by tradition or recording (Palanca vs. Director of lands, 43 Phil. 141,
154).
That the formal deed of conveyance to Gabino Gallardo was executed after that of
Caoagas is of no moment, the contract of sale being p by mere
accord on the subject matter and the price, even if neither is delivered (Article 1450,
Civil Code), the deed of conveyance will
p to the date of the original
agreement.
Finally, in the present case, the first buyer's registration (February 8, 1955) concededly p
the second buyer's registration (February 12, 1955) by four days, and therefore, as provided by the
Civil Code, the first buyer thereby duly preserved her right of and is entitled to the
property.
+&J., dissenting:
Strongly convinced as I am that the decision of the Court of Appeals under review should be
affirmed, this dissenting opinion is being written.
We are here confronted with a double sale made by Jose Poncio of his 195-square meter lot located
at V. Again St., San Juan, Rizal, covered by Transfer Certificate of Title No. 5040, the solution to
which is found in Art. 1544 of the Civil Code, more particularly the second paragraph thereof which
provides that should the thing sold be immovable property, the ownership shall belong to the
person acquiring it p c
1. The p

c
.

p
That Rosario Carbonell is a buyer in good faith cannot be disputed for at the time negotiations for
the purchase of the lot were being made between her and the vendor, Jose Poncio, as of January 27,
1955, there was no indication at all from the latter that another sale was being contemplated.
That Emma Infante is likewise is supported by: (a) an express finding of the
trial court in its decision of January 20, 1965, to the effect that when the vendor and purchaser.
Infante consummated the sale on or about January 29, 1955, an examination of the original of T.C.T.
5040 on file with the Register of Deeds of Rizal as well as the owner's duplicate revealed no
annotation of any encumbrance or lien other than the mortgage in favor of the Republic Savings
Bank (p. 92, Record on Appeal); (b) the findings of fact of the Court of Appeals given in the decision
penned by then Justice Salvador V. Esguerra as well as in the first decision written by Justice Magno
Gatmaitan which subsequently became the basis of the dissenting opinion to the majority, and from
which I quote:
2. CONSIDERING: That as basis for discussion of this issue, it must have to be

remembered that the first vendee, Rosario Carbonell, certainly was an innocent
purchaser ... but also must it be remembered that .)
¢ j
./%

c ..; indeed as Emma has testified
on this detail, it is easy to accept her declaration:
Q. When Mr. Jose Poncio offered you this land in

question, did he tell you that the land was sold or
otherwise promised to Mrs. Carbonell?
A. Of course not, otherwise will never buy.
(tsn. II:27)
in other words, at the respective dates of their purchase, both _ c.

p p ... (pp. 9-10 of Justice Gatmaitan's decision found on
pp. 76-77, rollo; see also p. 7 of his dissenting opinion found on p. 95, rollo).
Departing from a well-entrenched rule set down in a long array of decisions of this Court that
factual findings of the trial court and of the Court of Appeals are generally binding and conclusive,
and that on appeal by certiorari, questions of fact are not to be determined nor reviewed by Us the
Majority Opinion of my colleagues however undertakes a fact-finding process of its own, and draws
the conclusion that Emma Infante was a buyer in bad faith because, among other things: (a) Emma
allegedly refused to talk to Rosario Carbonell when the latter went to see her about the sale of the
lot, which "is not the attitude expected of a good neighbor imbued with Christian charity and
goodwill as well as a clean conscience" (p. 10, Majority Opinion); (b) "(B)efore or upon paying in
full the mortgage indebtedness of Poncio to the bank. Infante naturally _ demanded from
Poncio the delivery to her of his mortgage passbook as well as Poncio's mortgage contract. . and
Poncio as well as the bank, must have inevitably informed here that said mortgage passbook could
not be given to her because it was already delivered to Carbonell" (p. 9, ); and (c) "... (T)he
victim, therefore, 'of injustice and outrage is the widow Carbonell and not the Infantes, without
moral compunction /
and treacherous nature of Poncio,
_ and
of conscience, dishonored his own plighted word to Carbonell, his own cousin. ...
Inevitably evident therefore from the foregoing discussion, is . from
the time she p ppp

Carbonell ..." (p. 20, Majority Opinion; all italicized portions supplied) Ȅ all of which are
_ p p
p pa quo and the

appellate court sustaining the good faith of Emma Infante.
2. Inasmuch as the two purchasers are undoubtedly in good faith, the next question to be resolved
is of the two registered her purchase or title
In applying Art. 1544 of the Civil Code, it is not enough that the buyer bought the property in good
faith, but of her title must also be accomplished This requirement
of good faith is not only applicable to the second or subsequent purchaser but to the first as well.
Construing and applying the second paragraph of Art. 1473 of the Spanish Civil Code which has
been adopted_ in Art. 1544 of the Civil Code of the Philippines, thi s Court in ) ) _
¢)$p
37 Phil. 644, declared:
It has been suggested that since the provisions of article 1473 of the Civil Code
require "good faith," in express terms, in relation to "possession" and title but
contain no express requirement as to 'good faith' in relation to the "inscription" of
the property in the registry, it must he presumed that good faith is not an essential
requisite of registration in order that it may have the effect contemplated in this
article. We cannot agree with this contention. It could not have been the intention of
the legislator to base the preferential right secured under this article of the code
upon an inscription of title in bad faith. Such an interpretation placed upon the
language of this section would open wide the door to fraud and collusion. The public
records cannot be converted into instruments of fraud and oppression by one who
secures an inscription therein in bad faith. The force and effect given by law to an
inscription in a public record presupposes the good faith of him who enters such
inscription; and rights created by statute, which are predicated upon an inscription
in a public registry, do not and cannot accrue under an inscription "in bad faith," to
the benefit of the person who thus makes the inscription. (pp. 648 -649, )
Good faith means "freedom from knowledge and circumstances which ought to put a person on
inquiry"; it consists of an honest intention to abstain from taking any conscientious advantage of
another.
On this point it is my view that Rosario Carbonell cannot be held to have a title superior to that of
Emma Infante for even if We were to concede that the notation of her adverse claim on February 8,
1955, was in the nature of registration of title as required in Art. 1544 of the Civil Code, the same
was not accomplished in good faith. This is obvious from occurrences narrated in the Majority
Opinion, thus: that on January 27, 1955, Carbonell and Jose Poncio made and executed the
memorandum of sale, Exhibit A; that thereafter Carbonell asked Atty. Salvador Reyes to prepare the
formal deed of sale which she brought to Poncio together with the amount of some P400.00, the
balance she had to pay in addition to her assuming the mortgage obligation to Republic Savings
Bank; that upon arriving at Poncio's house the latter told Carbonell that he could not proceed
anymore with the sale because he had already given the lot to Emma Infants; that on ¢

j

. erecting a wall around the lot with a gate; that Carbonell
consulted Atty. Jose Garcia who advised her to present an adverse claim with the office of the
Register of Deeds, and that that
_.
Atty. Garcia prepared the notice of adverse claim which was signed and sworn to by
Rosario Carbonell and registered on February 8, 1955. (see pp. 34, Decision)
At the time petitioner herein caused the annotation of her adverse claim she was, therefore,
cognizant of facts which impaired her title to the property in question, and taking advantage of the
situation that the second purchaser had not as yet registered her deed of sale, she went ahead of the
second buyer and annotated what was only in the nature of an adverse claim inasmuch as she had
no registrable document of sale at the time. That annotation of Carbonell's adverse claim did not
produce any legal effects as to place her in a preferential situation to that of Infante, the second
purchaser, for the simple reason that a _

It is a settled rule that the inscription in the registry, to be effective, must be made in good
faith. (Pena, , p. 164)
3. One last point to be considered is the theory advanced by the dissenting opinion of Justice
Gatmaitan that while Carbonell's registration of her adverse claim may indeed be considered in bad
faith, nonetheless that of Infante was likewise in bad faith because at the time of the registration of
the latter's deed of sale there was already inscribed on the original of the title on file with the
Register of Deeds the adverse claim of Rosario Carbonell.
With due respect to the foregoing conclusion of highly respected Colleague, I hold the view that the
act of the registration of Infante's deed of sale on ¢ jj
was but a formality in the

sense that it simply formalized what had already been accomplished earlier, that is, the
p

p

!j
when she brought the memorandum of sale, Exh. A, to Jose Poncio and was
informed by the latter that he could not go through with the sale because he had already sold it to
Emma Infante, which information was bolstered by the fact that Carbonell saw Infante erecting a
wall around the lot on ¢

We have long accepted the rule that

_
What would be the
purpose of registration other than to give notice to interested parties and to the whole world of the
existence of rights or liens against the property under question?
What has been clearly and succinctly postulated in @ -

-
_
1922,
43 Phil. 604, 609, is applicable to the case before Us, and We quote therefrom:
... The purpose of registering an instrument relating to land, annuities, mortgages,
liens or any other class of real rights is to give notice to persons interested of the
existence of these various liens against the property. If the parties interested have
actual notice of the existence of such liens then the necessity for registration does
not exist. Neither can one who has p
p of existing liens acquire any rights
in such property free from such liens by the mere fact that such liens have not been
proven recorded. (citing Obras Pias vs. Devera Ignacio, 17 Phil. 45, 47).
We cannot overlook the fact that while it may be true that the vendor Poncio had signed the
memorandum, Exh. A, from which it may be implied that he sold a lot to Carbonell, there were other
things to be accomplished for purposes of binding third parties, the lot in question being registered
land, such as the execution of a formal deed of sale. Such a document of sale was never signed by
Poncio for according to petitioner Carbonell, when she presented to Poncio the corresponding
document together with the sum of P400.00 which according to her was the balance of the
purchase price after she had assumed the mortgage with the Republic Bank, she was informed by
the vendor that the property had been sold to another. That sale was confirmed when Carbonell
saw Infante erecting a wall around the lot on February 5, 1955. As of that moment when Carbonell
had notice or actual knowledge of the second sale in favor of Emma Infante a valid registration of
the latter's deed of sale was constituted as against Carbonell. Accordingly, Infante has a preferential
right to the property, the registration of her sale having been effected in the foregoing manner,
prior to the annotation of Carbonell's adverse claim on¢ j
The circumstances of the present case are strikingly similar to the hypothetical problem posed in
Commentator Edgardo Paras' Book on the Civil Code of the Philippines and I wholeheartedly concur
with his solution of the problem which is based on law. From him I quote:
A sold a parcel of land with a torrens title to B on January 5. A week later, A sold the
same land to C. Neither sale was registered. As soon as B learned of the sale in favor
of C, he (B) registered an adverse claim stating that he was making the claim
because the second sale was in fraud of his rights as first buyer. Later, C registered
the deed of sale that had been made in his favor. Who is now the owner B or C?
Ans. C is clearly the owner, although he was the second buyer. This is so, not
because of the registration of the sale itself but because of the AUTOMATIC
registration in his favor caused by Bs knowledge of the first sale (actual knowledge
being equivalent to registration). The purpose of registration is to notify. This
notification was done because of Bs knowledge. It is wrong to assert that B was only
trying to protect his right-for there was no more right to be protected. He should
have registered the sale BEFORE knowledge came to him. It is now too late. It is
clear from this that with respect to the principle "actual knowledge is equivalent to
registration of the sale about which knowledge has been obtained' Ȅ the knowledge
may be that-of either the FIRST or the SECOND buyer. (pp. 142-143, Vol. V, 1972
Ed.)
Aside from the fact that the sale to Infante was considered registered prior to the registration of
Carbonell's notice of adverse claim, Infante also took immediate physical possession of the property
by erecting a fence with a gate around the lot on February 5, at least tree days prior to Carbonell Is
registration on February 8, 1955.
On top of all these, equity is on the side of Emma Infante. Under the Majority Opinion, Emma Infante
stands to lose the lot she bought in good faith which was fully paid for plus the building she erected
thereon for which she spent the total sun of a little less than P14,000.00, or equivalent to about
P40,000.00 at the time the case was decided by the Appellate Court, considering that Rosario
Carbonell is being given the option either to order the removal of the house or to acquire it at
P13,429.00. On this point I agree with the following statement of Justice Esguerra who penned the
decision of the Appellate Court, thus:
It is indeed inequitable and re revolting to one's sense of justice and fairness that
Rosario Carbonell who paid out of her own money the sum of only P200.00 to the
Republic Savings Bank for the account of Jose Poncio, which was the motivation for
the execution of the private instrument, Exhibit A, should have a superior right to
the land involved. The property has been improved at a great expense and a
building of strong materials has been constructed thereon Emma Infants ho spent
for her lot and building the total sum of P13,429.00 made, up of P11,929.00 for cost
of land and improvements and the building and P1,500.00 to discharge the
mortgage in favor of the Republic Savings Bank. with the present purchasing power
of the peso this aft i more than 13 years, would be not equivalent to about
P40,000.00. Courts should not lend a hand to the perp etration of such kind of
injustice and outrage (see page 88, rollo)
I close paraphrasing the Supreme Court of Oklahoma in

_ @
217 p. 376; 377,
that "equity is a right wiseneth that considerate all of the particular circumstances of the case and is
also tempered with the sweetness of mercy." (quoting from St. Germain) In this case now before Us
there is no need to invoke mercy, for all that is required is a p p

ppp narrated above which warrant a judgment in favor of respondents Infants.
With all the foregoing, I vote for the affirmance of the decision under review.
""!
TEEHANKEE SEPARATE OPINION
1 Fall text is reproduced in the main opinion, at page 7.
2 Also expressed as "Prior tempore, prior jure" (First in time, prior in right).
3 46 O.G. No. 11, p. 5568, Reyes, J.B.L., J. and Gutierrez David and Borromeo,
JJ. concurring.
4 Emphasis Supplied.
MUNOZ PALMA SEPARATE OPINION
1 Perez vs. Evite 1 SCRA 949;
Paredes vs. Borja, 3 SCRA 495;
De la Cruz vs. Dollete, 5 SCRA 257;

De Gala-Sison vs. Manalo, 8 SCRA 595;
Goduco vs. Court of Appeals, 14 SCRA 282;
Ramos vs. Pepsi Cola Bottling Co., 19 SCRA 289;
Mackay Radio & Tel. Co. vs. Rich 28 SCRA 699;
Ramirez Tel. Corp. vs. Bank of America, 29 SCRA 191;
Miguel vs. Court of Appeals, 29 SCRA 760;
People vs. Pareja, 30 SCRA, 693;
Chan vs. Court of Appeals, 33 SCRA 737;
People vs. Demetrio Sales, 44 SCRA 489;
Evangelista & Co., et al vs. Estrella Abad Santos, 51 SCRA 417;
Tiongco vs. De La Merced, 58 SCRA 89
Ramos vs. Court of Appeals, 63 SCRA 331;
Perido vs. Perido, 63 SCRA 97
Alaras et al. vs. Court of Appeals, et al. 64 SCRA 671
2 Tamayo vs. Callejo, 46 SCRA 27;
Tagumpay Minerals & Mining Ass. vs. Masangkay, 46 SCRA 608;
Fortus vs. Novero, 23 SCRA 1336
3 see Paras on the Civil Code of the Philippines, 1972 Vol. 5, pp. 142-143; Palancas
director of Lands, 43 Phil. 149, 154; Pena Registration of Land Titles and Deeds,
1970 Ed., p. 164-1 Soriano et. al s Heirs of D. Magali, et al. 8 SCRA 489-1 Granados vs.
Monton, 86 Phil. 42
3* Leung Lee vs. FL Strong machinery, .
4 Fule vs. De Legare, et al., L-17951, Feb. 28, 1963, -1 SCRA 351, 356
5 Jovellanos vs. Dimalanta, L-11736-37 Jan. 30, 1959 105 Phil. 1250.
6 Prof. Edgardo Paras is now a Judge of the Court of First Instance of the province of
Bulacan

G.R. No. L-20601 February 28, 1966
BUTUAN SAWMILL, INC. vs. COURT OF TAX APPEALS, ET AL.

Ô
Manila
EN BANC

&- $)% .
( ÔÎ&&
petitioner,
vs.

1&Ô&
respondents.
i_ #

*p
p

,Ô
(
&
J.:
Appeal from a decision of the Court of Tax Appeals, in its CTA Case No. 965, ordering
petitioner herein, Butuan Sawmill, Inc., to pay respondent Commissioner of Internal
Revenue the sum of P36,107.74 as deficiency sales tax and surcharge due on its sales of
logs to buyers in Japan from January 31, 1951 to June 8, 1953. 2
&
!
/ 0
The facts, as found and stated by the lower court in its decision, are in full accord with the
evidences presented therein; hence, we quote them hereunder:
. . . that during the period from January 31, 1951 to June 8, 1953, it sold logs to
Japanese firms at prices FOB Vessel Magallanes, Agusan (in some cases FOB
Vessel, Nasipit, also in Agusan); that the FOB prices included costs of loading,
wharfage stevedoring and other costs in the Philippines; that the quality, quantity
and measurement specifications of the logs were certified by the Bureau of
Forestry; that the freight was paid by the Japanese buyers; and the payments of
the logs were effected by means of irrevocable letters of credit in favor of
petitioner and payable through the Philippine National Bank or any other bank
named by it.
Upon investigation by the Bureau of Internal Revenue, it was ascertained that no

sales tax return was filed by the petitioner and neither did it pay the
corresponding tax on the sales. On the basis of agent Antonio Mole's report dated
September 17, 1957, respondent, on August 27, 1958, determined against
petitioner the sum of P40,004.01 representing sales tax, surcharge and
compromise penalty on its sales [tax, surcharge and compromise penalty on its
sales] of logs from January 1951 to June 1953 pursuant to Sections 183, 186 and
209 of the National Internal Revenue Code (Exhibit "E", p. 14, CTA rec. & p. 14,
BIR rec.). And in consequence of a reinvestigation, respondent, on November 6,
1958, amended the amount of the previous assessment to P38,917.74 (Exh. "F", p.
52, BIR rec.). Subsequent requests for reconsideration of the amended
assessment having been denied (Exh. "G", p. 55, BIR rec.; Exh. "H", pp. 75-76, BIR
rec.: Exh. "I", pp. 79-80, BIR rec.; Exh. "J", p. 81, BIR rec.), petitioner filed the
instant petition for review on November 7, 1960.
On the bases of the above-quoted findings and circumstances, the lower court upheld the
legality and correctness of the amended assessment of the sales tax and surcharge, ruling 2
/
that the sales in question, in the light of our previous decisions 1, were domestic or "local"
sales, and, therefore, subject to sales tax under the provision of section 186 of the Tax
Code, as amended by Republic Acts Nos. 558 and 594; and that the assessment thereof
was made well within the ten-year period prescribed by Section 332(a) of the same Code,
since petitioner herein omitted to file its sales tax returns for the years 1951, 1952 and
1953, and this omission was discovered only on September 17, 1957. The imposition of
the compromise penalty was, however, eliminated therefrom for want of agreement
between the taxpayer and the Collector (now Commissioner) of Internal Revenue. A
motion to reconsider said decision having been denied, petitioner herein interposed the
present appeal before this Court.
The issues presented in this appeal are: whether or not petitioner herein is liable to pay
the 5% sales tax as then prescribed by Section 186 of the Tax Code on its sales of logs to
the Japanese buyers; and whether or not the assessment thereof was made within the
prescriptive period provided by law therefor.j j 17
On the first issue, petitioner herein insists that the circumstances enumerated in the
above finding, which this Court had, in previous decisions ( footnote [1]), considered as
determinative of the place of transfer of ownership of the logs sold, for purposes of
taxation, are not in themselves evidentiary indications to show that the parties intended
the title of the logs to pass to the Japanese buyers in Japan. Thus, it points out that the
"FOB" feature of the sales contract was made only to fix its price and not to fix the place of
delivery; that the requirement of certification of quality, quantity, and measurement
specifications of the logs by local authorities was done to comply with local laws, rules,
and regulations, and was not a part of the sales arrangement; that the payment of freight
by the Japanese buyers is not an uncommon feature of "FOB" shipments; and that the
payment of prices by means of irrevocable letters of credit is but a common established
business practice to secure payment of the price to the seller. It also insists that, even
assuming that the "FOB" feature of the disputed sales determines the of transfer of
ownership, the same is merely a p presumption which yields to contrary proof
such as that the logs were made deliverable to the "order of the shipper" and the logs
were shipped at the risk of the shipper, which circumstances, if considered, would negate
the above implications. Hence, petitioner herein contends that the disputed sales were
consummated in Japan, and, therefore, not subject to the taxing juri sdiction of our
Government. 2

0
$ ! $
The above contentions of petitioner are devoid of merit. In a decided case with practically
identical set of facts obtaining in the case at bar, this Court declared:
. . . it is admitted that the agreed price was "F.O.B. Agusan", thus indicating,
although p , that the parties intended the title to pass to the buyer upon
delivery of the logs in Agusan; on board the vessels that took the goods to Japan.
Moreover, said p proof was bolstered up by the following
circumstances, namely:
1. Irrevocable letters of credit were opened by the Japanese buyers in favor of the
petitioners.
2. Payment of freight charges of every shipment by the Japanese buyers.
3. The Japanese buyers chartered the ships that carried the logs they purchased
from the Philippines to Japan.
4. The Japanese buyers insured the shipment of logs and collected the insurance
coverage in case of loss in transit.
5. The petitioner collected the purchase price of every shipment of logs by

surrendering the covering letter of credit, bill of lading, which was indorsed in
blank, tally sheet, invoice and export entry, to the corresponding bank in Manila
of the Japanese agent bank with whom the Japanese buyers opened letters of
credit.
6. In case of natural defects in logs shipped to the buyers discovered in Japan,

instead of returning such defective logs, accepted them, but were granted a
corresponding credit based on the contract price.
7. The logs purchased by the Japanese buyers were measured by a representative

of the Director of Forestry and such measurement was final, thereby making the
Government of the Philippines a sort of agent of the Japanese buyers.
Upon the foregoing facts and authority of &

@&A) p _
p

c _ , G.R. No. L-13186 (January 28, 1961),$) p _

p
c _ (56 Off. Gaz. 517) and- $)
i _
p _ @/

(G.R. No. L-11710, June 30, 1958), it is
clear that said export sales had been consummated in the Philippines and were,
accordingly, subject to sales tax therein." (Taligaman Lumber Co., Inc. vs. Collector of
Internal Revenue, G.R. No. L-15716, March 31, 1962).
With respect to petitioner's contention that there are proofs to rebut the p
finding and circumstances that the disputed sales were consummated here in the
Philippines, we find that the allegation is not borne out by the law or the evidence.
That the specification in the bill of lading to the effect that the goods are deliverable to the
order of the seller or his agent does not necessarily negate the passing of title to the
goods upon delivery to the carrier is clear from the second part of paragraph 2 of Article
1503 of the Civil Code of the Philippines (which appellant's counsel improperly omits
from his citation):
Where goods are shipped, and by the bill of lading the goods are deliverable to the
seller or his agent, or to the order of the seller or of his agent, the seller thereby
reserves the ownership in the goods. ("0=A2 "="3=<="3$055=
5)#0;"34!30 45#3)7 )!!#""3$%!30 <"="3
;#!"3!55!B! "%0"3;#!!3)55$#<#"$5%="3
!=!20; =<)2$%"3$%=30!$50;)"0!#"3
2")2".
Moreover, it has been "a settled rule that in petitions to review decisions of the Court of
Tax Appeals, only questions of law may be raised and may be passed upon by this Court"
(Gutierrez vs. Court of Tax Appeals & Collector of Internal Revenue vs. Gutierrez, G.R. Nos.
L-7938 & L-9771, May 21, 1957, cited in Sanchez vs. Commissioner of Customs, G.R. No.
L-8556, September 30, 1957); and it having been found that there is no proof to
substantiate the foregoing contention of petitioner, the same should also be ruled as
devoid of merit.
On the second issue, petitioner avers that the filing of its income tax returns, wherein the
proceeds of the disputed sales were declared, is substantial compliance with the
requirement of filing a sales tax return, and, if there should be deemed a return filed,
Section 331, and not Section 332(a), of the Tax Code providing for a five-year prescriptive
period within which to make an assessment and collection of the tax in question from the
time the return was deemed filed, should be applied to the case at bar. Since petitioner
filed its income tax returns for the years 1951, 1952 and 1953, and the assessment was
made in 1957 only, it further contends that the assessment of the sale s tax corresponding
to the years 1951 and 1952 has already prescribed for having been made outside the five-
year period prescribed in Section 331 of the Tax Code and should, therefore, be deducted
from the assessment of the deficiency sales tax made by respondent.
The above contention has already been raised and rejected as not meritorious in a
previous case decided by this Court. Thus, we held that an income tax return cannot be
considered as a return for compensating tax for purposes of computing the period of
prescription under Section 331 of the Tax Code, and that the taxpayer must file a return
for the particular tax required by law in order to avail himself of the benefits of Section
331 of the Tax Code; otherwise, if he does not file a return, an assessment may be made
within the time stated in Section 332(a) of the same Code (Bisaya Land Transportation
Co., Inc. vs. Collector of Internal Revenue & Collector of Internal Revenue vs. Bisaya Land
Transportation Co., Inc., G.R. Nos. L-12100 & L-11812, May 29, 1959). The principle
enunciated in this last cited case is applicable by analogy to the case at bar.
It being undisputed that petitioner failed to file a return for the disputed sales
corresponding to the years 1951, 1952 and 1953, and this omission was discovered only
on September 17, 1957, and that under Section 332(a) of the Tax Code assessment
thereof may be made within ten (10) years from and after the discovery of the omission
to file the return, it is evident that the lower court correctly held that the assessment and
collection of the sales tax in question has not yet prescribed.
Wherefore, the decision appealed from should be, as it is hereby affirmed, with costs
against petitioner.
& ! &

p p& ic
$

& !
'
_p !! pp
""!
1Taligaman Lumber Co., Inc. vs. Collector of Internal Revenue, L-15716, March 31,
1962; Bislig Bay Lumber Co., Inc. vs. Collector of Internal Revenue, L-13186,
January 28, 1961; Western Mindanao Development Lumber Co., Inc. vs. CTA, et al.,
L-11710, June 30, 1958; and Misamis Lumber Co., Inc. vs. Collector of Internal
Revenue, L-10131, Septem

Ô
Manila
FIRST DIVISION

)% ../
(&&&Ô
)#&1C&Ô
D
petitioners,
vs.

&Ô)#&respondents.
J.:
The petition for review on p in the case at bar seeks the reversal of the decision of the Court
of Appeals, affirming that of the Regional Trial Court ("RTC"), Branch 101, of Quezon City, which
found herein petitioners Mobil Oil Philippines, Inc., and Caltex Philippines, Inc., jointly and severally
liable to private respondent Continental Cement Corporation in the amount of eight million pesos
(P8,000,000.00) for actual damages, plus ten per cent (10%) thereof by way of attorney's fees, for
having delivered water-contaminated bunker fuel oil to the serious prejudice and damage of the
cement firm. 2
& )
!
$ 1) 2 345
6
#
Sometime in May 1982, petitioner Mobil Oil Philippines, Inc. ("MOPI"), a firm engaged in the
marketing of petroleum products to industrial users, entered into a supply agreement with private
respondent Continental Cement Corporation ("CCC"), a cement producer, under which the former
would supply the latter's industrial fuel oil ("IFO") or bunker fuel oil ("BFO") requirements. MOPI
extended to CCC an unsecured credit line of P2,000,000.00 against which CCC's purchases of oil
could initially be charged.
MOPI had a "hauling contract" with Century Freight Services ("CFS") whereby CFS undertook the
delivery of Mobil products to designated consignees of MOPI.
During the period starting from 12 July to 07 October 1982, MOPI made a total of sixty-seven
deliveries of BFO, each delivery consisting of 20,000 liters, to CCC's cement factory in Norzagaray,
Bulacan. On 08 October 1982, CCC discovered that what should have been MOPI's 20,000 BFO
delivery to CCC's Norzagaray plant, through CFS's lorry truck, was, in fact, pure water. CCC at once
informed MOPI of this anomaly and of its intention to meanwhile hold in abeyance all payments due
to MOPI on its previous deliveries until such time as the parties would have ascertained that those
deliveries were not themselves adulterated. CCC suggested that MOPI's storage tank in the
Norzagaray plant be likewise investigated for possible contamination.
MOPI and CCC agreed to conduct an actual water content test. The water draining activity
conducted on 22 October 1982 in the presence of representatives of both MOPI and CCC yielded the
following findings:
!*#@2#i.c@®#
WE, MOBIL OIL PHILS., INC. and CONTINENTAL CEMENT CORPORATION, on this
22nd day of October, 1982 at CCC Plantsite, Norzagaray, Bulacan, represented in this
act by MESSRS. R. d. J. AGUIRRE, E.R. PAMARAN, U.A. TESORO and RICARDO S. DE
SILVA, EDITH M. YAO, CORNELIO A. PAZ, III respectively, hereby undertake detailed
verification of water contained on all BFO delivered by MOBIL OIL PHILS., INC.,
except those that have been already used in cement operation by CCC; as a
consequence of the water anomaly (p) delivered by MOBIL instead of BFO dated
October 8, 1982 of Mobil lorry (Truck Plate No. 794) as follows:
-@.c*#@.#@
@*c.@#®$c®.i
$*&)i.).c.
#*.*¢ic2$)@;ic2$@*@)ã2#@@"#)@.c
39 210 8,190
NOTE: Drums No. 1 to 35 Ȅ pure water while Drums No. 36-39 Ȅ a mixture of BFO
and water, with corresponding sample taken.
WE, MOBIL PHILS., INC. and CONTINENTAL CEMENT CORPORATION duly

represented by the above-mentioned authorized representative jointly subscribed
and manifested to the accuracy and correctness of the counting in terms of liters
water content of all BFO delivered by MOBIL OIL PHILS., INC. to CCC, except those
that have been already used in cement operation by CCC. Further, we agreed that
the drum/s used in counting the water content has the net capacity of 210 liters.
MOBIL OIL PHILS, INC. CONTINENTAL CEMENT CORPORATION

By: By:
xxx xxx xxx.

This "joint undertaking" was signed by representatives of MOPI and CCC in the presence of
P/Cpl. Jose S. Sison of the Norzagaray police and Alfonso D. Chua, AVP of CCC, and duly
notarized.
Another testing of the BFO delivered by MOPI was undertaken by CCC. MOPI, this time, did not send
any representative in the draining activity, conducted on 19 November 1982, but in attendance
were a representative from the Criminal Investigation Service (CIS) of Camp Olivas, Pampanga, and
the local captain. The draining activity came out with the following results; _:
!*#@2#i.c@®#
¢
-

_ $
*

.p.
& ¢
*
WE, CONTINENTAL CEMENT CORPORATION, on this 19th day of November 1982, represented in
this act by MESSRS. FEDERICO D. MEMBREBE, CORNELIO A. PAZ III, EDITH M. YAO in the presence
of CIS TEODORO CARREON of Camp Olivas, San Fernando, Pampanga and Brgy. Captain DALMACIO
LAPIG of Brgy. Bigte, Norzagaray, Bulacan, hereby undertake the continuation and final counting of
water content on all bunker fuel oil delivered by Mobil Oil Phils., Inc. except those that have b een
already used in cement operation by Continental Cement Corporation; as a consequence of the
water delivered by Mobil Oil Phils., Inc. lorry (Truck Plate No. 794) instead of bunker fuel oil dated
October 8, 1982.
That this continuation and final counting was made in the presence of the aforecited
national and local authority in the absence of Mobil Oil Phils., Inc. representative
who continuously and wantonly refused to continue on witnessing and attesting to
their water deliveries instead of bunker fuel oil inspite of the three (3) letters
advising them of the counting dated October 26, 1982 duly receipted by Mobil Oil
Phils., Inc. on October 27, 1982; October 30, 1982 duly receipted November 2, 1982
and November 11, 1982 duly receipted November 12, 1982 with the following
results as follows:
A. @*c.@#®#.i@*$*&)
#*.*¢ic2$)@;ic2$@*@)ã2#@@"#)@.c
1 210 210 Ȅ a mixture of 30% Bunker Oil and 70% Water.
B. $*&))*cc"@@c2®)@.#*. A
#*.*¢ic2$)@;ic2$@*@)ã2#@@"#)@.c
Back Compartment
45 210 9,450
Front Compartment
40 210 8,400
ȄȄ ȄȄȄ ȄȄȄ
Total 85 17,850
ȄȄ ȄȄȄ
WE, FEDERICO D. MEMBREBE, Head, Quality Control; CORNELIO A. PAZ, III Plant
Accountant; MRS. EDITH YAO, Warehouse Supervisor, representing CONTINENTAL
CEMENT CORPORATION in this act, and CIS TEODORO CARREON, Camp Olivas, San
Fernando, Pampanga and DALMACIO LAPIG, Brgy. Captain of Brgy. Bigte,
Norzagaray, Bulacan, jointly subscribed and attested to the accuracy and
correctness of the second and final counting in terms of liters water content of all
bunker oil delivered by Mobil Oil Phils., Inc. to CONTINENTAL CEMENT
CORPORATION, except those that have been already used in the cement operation
by said Continental Cement Corporation.
FURTHER, we certify that the drums used in counting the water content has a net
capacity of 210 liters. This joint undertaking has been executed for all legal
purposes it will be used.
Like the first "joint undertaking," this document was notarized.
Alleging in the complaint it ultimately filed with the RTC that its factory equipment broke down
from 19 to 22 September 1982 due to the utilization of the water -contaminated BFO supplied by
MOPI; that on 23 September 1982, its plant operations had t o be stopped completely; and that it
was able to resume operations only after essential repairs had been undertaken on 02 October
1982; CCC sought to recover consequential damages from MOPI. In answer, MOPI averred that CCC
had accepted each delivery of BFO in accordance with the procedure for testing and acceptance of
BFO deliveries; that it was only on 08 October 1982 that CCC brought to its attention the alleged
anomalous delivery of 20,000 liters of BFO under invoice No. 47587 through Mariano Rivera's lorry
truck; that when the delivery was being inspected by CCC's representatives, the truck driver and
helper fled; that Rivera acknowledged full liability for such delivery; that Rivera promised to pay
the amount of P42,730.00 for the 20,000 liters of BFO delivered; and that MOPI agreed to the water
draining activity solely for the purpose of maintaining good business relations with CCC but not to
admit any liability therefor. In its compulsory counterclaim, MOPI claimed that CCC had an
outstanding obligation to it, as of 30 November 1982, in the amount of P1,096, 238.51, and that as a
consequence of the "frivolous and malicious suit" which besmirched MOPI's reputation, it suffered
moral damages of not less than P10,000,000.00, exemplary damages of the same amount, and the
incurrence of attorney's fees.
On 23 August 1983, Caltex (Philippines) Inc., through its president, Amaury R. Gutierrez, informed
CCC that it would be the new owner of MOPI, effective 01 September 1983, and that Caltex would 2
!
"assume all the rights and obligations of MOPI under all its existing contracts with its consumers )"#
and dealers." / Disturbed somehow by the news, CCC filed an /% urgent motion for the
issuance of a writ of attachment The RTC issued the writ on 13 September 1983 conditioned on
the filing by CCC of a bond in the amount of P5,000,000.00. .
Considering that, prior to the transfer of MOPI's controlling interest to Caltex, a subsidiary of MOPI,
named International Filters Corporation, was renamed Mobil Philippines, Inc. ("MPI"), with MOPI's
officers as incorporators, CCC filed a motion to amend the complaint as to so implead both Caltex
and MPI party-defendants. The amended complaint was filed with the motion. MOPI, MPI and
Caltex thereupon filed an amended answer.
On 28 November 1984, upon motion of defendants, the RTC lifted the writ of attachment it had
issued on condition that MPI would keep and maintain on deposit with the Security Bank and Trust
Company, an amount of P10,000,000.00. The depository bank was later changed to Citibank NT &
SA.
In due course, the RTC rendered a decision resolving the following issues agreed upon by the
parties at the pre-trial conference; to wit:
1. Whether or not there were deliveries of BFO (or IFO) mixed with water before
October 8, 1982;
2. Whether or not the defendants were liable for the contamination of the IFO
notwithstanding that, although defendant MOPI contracted the carrier of the IFO,
both MOPI and CCC had agreed upon the personnel of the carrier; and
3. Whether or not the BFO mixed with water resulted in damage to CCC's machinery
and loss of production/income.
The RTC found that there were deliveries of adulterated IFO even prior to 08 October 1982
based on the results of the draining activity conducted on 22 October 1982 and on 19
November 1982. The findings showed that the adulteration of the IFO was "well over the
tolerable water contents as stated
in the Petron Basic Line (Exhibit 'V') which should only be 0.1% (Exhibit 'V-3-a')."
Although the tests did not include deliveries before October 1982, it was safe to say, the
court observed, that the residue in the storage tank would be "plain water which would be
in big volume" considering that the draining pipe in CCC's storage tank for MOPI's IFO was
eight (8) inches above the bottom of the huge storage tank. /
Relative to the second issue, the RTC held that the allegation of the defendants that the carrier was
chosen by CCC was a lame excuse. It noted that it was MOPI itself which entered into the hauling
contract with CFS, and that there was, in fact, a "tacit admission" of liability on the part of the oil
companies when they replaced the 20,000 liters of "mostly water" delivered on 08 October 1982 by
an "agent or surrogate" of defendants. No fraud on the part of defendants, nevertheless, was seen to
have attended the deliveries of contaminated oil which could warrant an award of damages outside
of actual damages.
On the third issue, the lower court, noting the testimonies of the plan t manager, Ricardo de Silva,
and of Engineer Filomeno L. Villaluz, concluded that the lowered temperature resulting from the
water-contaminated BFO caused the loosening of the magneton bricks lining the rotary kiln used in
the clinkering process in cement production. The actual damage caused amounted, as prayed for
and as testified to by CCC's vice-resident Urbano Cruz, to P8,000,000.00.
The defendants appealed to the Court of Appeals. On 19 September 1991, the appellate court
rendered judgment affirming the decision of the RTC.
On the contention that the RTC erred in finding that BFO deliveries prior to 08 October 1982 were
contaminated with water and that no Mobil BFO deliveries remained unused as of 22 October 1982
when the first water-draining was conducted, the Court of Appeals held that appellants hardly
could espouse this view considering that MOPI had participated in the water-draining activity on 22
October 1982 and that the "joint undertaking" of even date attested to the presence of a substantial
amount of unused BFO.
The appellate court agreed with the RTC that appellants aptly should be accountable for the water -
contaminated deliveries. As the seller, MOPI so warranted that the BFO it had sold was
adulteration-free IFO. The appellants, held the appellate court, were in no position to evade liability
by instead pointing to the carrier since it was Mobil which contracted for the hauler's services and
there was no evidence that CCC had any direct involvement in the hauling agreement.
The Court of Appeals upheld the findings of the trial court that the water-contaminated BFO
delivered by MOPI indeed caused damage to CCC's rotary kiln. It said:
The fact remains that 7,350 liters of pure water and 1,050 liters of adulterated BFO
were found inside Mobil's storage tank, not including that which have already been
used in plaintiff-appellee's operations. This also does not include that amount of
water which was not drained out of the same storage tank, considering the trial
court's observation during its ocular inspection, that the pipe used in draining out
the water content of said tank is located about 8 inches from the bottom of the tank.
It can therefore be logically concluded that such substantial amount of adulterated
BFO did in fact generate less heat and thereby caused the unstable temperature of
plaintiff-appellee's rotary kiln.
Neither can we give credence to the testimonies of defendants-appellants' expert

witnesses, citing several factors which may have caused the unstable temperature
inside the rotary kiln. This is in the light of the fact that no evidence was presented
showing the presence of any of these factors in the instant case. These witnesses
even admitted that they never had any occasion to conduct an investigation of the
subject machinery. "Expert opinions are not ordinarily conclusive in the sense that
they must be accepted as true on the subject of their testimony, but are generally
regarded as purely advisory in character; the courts may place whatever weight
they choose upon such testimony and may accept it, if they find that it is consistent
with the facts of the case or otherwise reasonable. (Francisco, Revised Rules of
Court in the Philippines. Volume VII, Part I, pp.
596-597)
The appellate court gave little value to the claim that CCC's financial difficulties motivated the latter
to file the case. It upheld the award of attorney's fees, the same having been so stipulated not only
in the credit agreement between the parties but also in the invoices issued by MOPI.
Petitioners, in the instant petition for review on p , so craft the issues as to lend credence to
their thesis that the appeal involves questions of law rather than of fact, thus:
1. Whether or not Petitioner Mobil is estopped from claiming that no Mobil BFO
remained by Continental on 22 October 1982; and that the deliveries of BFO
made by Mobil to Continental 8 October 1982 were contaminated with
water?
2. Whether or not Petitioners can be held liable for the contaminated BFO delivered
on 8 October 1982 on the ground that Country Freight Service, as carrier-hauler,
was an of Mobil? .
While petitioners do not dispute that the 07th October 1982 delivery of IFO has been found on 08
October 1982 to be adulterated or contaminated, they, however, insist that the shipments to
that delivery date has been "used up and/or not contaminated with water." This matter is clearly
a question of fact that may not be freely taken up anew by this Court.
The claim that the Court of Appeals "conveniently made an inference that the subject Continental
storage tank contained Mobil BFO deliveries only because Mobil and Continental agreed to jointly
examine the same," and that the appellate court had so misapprehended the facts, is
unacceptable. The factual finding that deliveries previous to 08 October 1982 were adulterated BFO
was supported by the 22 October 1982 "joint undertaking ." This document, witnessed and signed
by representatives of both MOPI and CCC, clearly showed that a "detailed verification of water
contained on
BFO delivered by MOBIL OIL PHILS., INC., except those that have already been used
in cement operation by CCC," was undertaken. Implicit from this statement was that there still was
at the time an availability of BFO in the storage tank designated by CCC for past Mobil deliveries.
The same could be said of the second water draining process, evidenced by the second "joint
undertaking." Although done without the participation of MOPI, the latter, nonethel ess, was notified
of the "counting" p , the last of which had indicated that failure on MOPI's part to send a
representative would be tantamount to a _ of its right to participate therein.
The appellate court may not thus be faulted for holding that petitioners are barred from
questioning the results of water draining processes conducted on the MOPI tank in the CCC
plantsite, in the same manner that MOPI may not belatedly question the testing procedure
theretofore adopted. MOPI cannot be allowed to turn its back to its own acts (or inactions) to the
prejudice of CCC, which, in good faith, relied upon MOPI's conduct.
The unrebutted testimony of CCC's plant manager, Engineer De Silva, has clearly established that
BFO from MOPI was used from 19 to 21 September 1982, and that such use directly caused damage
to CCC's rotary kiln; thus:
Q: You mentioned that under the bunker fuel oil supply agreement
between the Mobil Oil Philippines and Continental Cement
Corporation, Mobil Oil delivered bunker fuel oil to the premises of
Continental Cement and that this bunker fuel oil is stored in one of
the tank(s) within the premises of Continental Cement to which you
previously identified in Exhibit "DD". Now when did the Continental
Cement the bunker fuel oil supplied by Mobil Oil under the
same bunker fuel oil agreement?
A: On j j sir.
Q: Now, what happened to the operation with the use of the bunker
fuel oil supplied by Mobil Oil?
A: It was found out that during the introduction of the Mobil Oil
bunker fuel oil we observed that the flame is very different from the
normal behavior when we are using other fuel oil. So,
we have difficulty on how to balance the flame. On the second
day, we tried to resume the normal flame but still coating cannot be
developed and clinkering process is very abnormal in the sense that
it resulted to under burning of clinker and poor quality of clinker
coming out from the rotary kiln. Then on the third day, which is the
21st, we found out that there are some red spots that occurred on
the kiln shale (p).
Q: By the way, for clarification. When you used this bunker oil from
the defendant delivery on September 19, 1982 and as you have said,
and the Court have seen that there were panels indicating the
conditions of the rotary kiln, did it register a particular heat?
A: Yes, your Honor.
Q: What was your reading then?
A: For the inlet chamber temperature the ideal temperature kiln in

order to have clinkering process is from 950 to 1,000'C.
Q: And on that day, did you come to know what was the heat for the
inlet chamber?
A: It is in our logsheet, sir. It is very behind the normal.
xxx xxx xxx
Q: Now, for how many days did you continue using that bunker fuel
oil supplied by Mobil Oil Philippines?
A: We used that oil from September 19 up to September 22.
Q: After that, what happened?
A: Then after the 22, we decided to stop the plant.
Q: Why did you decide to stop the operation of the plant?
A: Because we are encountering difficulty in our operation, sir. We

cannot attain the production target of 1,200 metric tons a day.
Likewise, we have seen red spots, which occurred on the 21st of
September, so since these red spots cannot be developed, cannot be
cured anymore, to avoid further damages on the equipment, we
decided to stop.
Q: What are these red spots?

A: These red spots, sir are sign that the brick lining inside the kiln
already fall down (p). So when the red sport (p) are present,
meaning to say that there is no more brick lining.
COURT:
Q: Where does these appear, outside the cylindrical kiln or where?
A: Outside the cylindrical kiln shale (p), sir.
ATTY. RACHO:
Q: What is the reason why the brick-lining is no longer there?
A: Sir, I would like to inform you that the life of the brick-lining is
purely dependent on the temperature inside the kiln. Once, this is
heated up to about 1,400'C, this has to be maintained most of the
time. Any fluctuation in the temperature inside the kiln will result to
contraction and expansion of the kiln shell likewise, on the brick. So
this contraction and expansion during that time will result to
lossening (p) of the bricks, which is installed inside. And if this is
not properly coated, there is no coating as I previously mentioned,
this will fall down. Since this is installed in circumferential manner,
one or two pieces of bricks that full (p) down, all the rest will
continue then the second ring will get loose, so this will fall down
also.
Q: Now, on what day did these red spots developed since you first
used the bunker fuel oil supplied by Mobil Oil Philippines ?
A: On the second and third day which is on the 20th and 21st of
September, sir, 1982.
Urbano Cruz, vice-president of CCC, corroborating Engineer De Silva, testified that CCC started
using BFO from MOPI only on 19 September 1982 and that such use had to be stopped on 22
September 1982 because of the abnormality in the heat it generated in the rotary kiln .
Petitioners, in a bid to still avoid liability, would argue that CCC waived its right to claim damages
by failing to observe the Procedures Manual handed to it by MOPI, and that it was private
respondent's "strict legal duty to inspect the deliveries prior to acceptance." CCC hardly could be
blamed, however, for relying on the goodwill, reputation and business stature of petitioners. It was
enough that CCC, as a precautionary measure, so conducted random checking and added
supervisors to oversee the BFO deliveries. /
The Court of Appeals, anent the second issue, correctly ruled that MOPI could be held accountable
for the acts of CFS. The hauling contract executed by and between MOPI and CFS (to which CCC
was not a party) laid out the responsibilities of CFS (the contractor); thus: 2
)"
# )"

#
1. The CONTRACTOR, in consideration of payments to be made by MOBIL in
accordance with the rates specified by the BOE (BOE Resolution 81-07) hereby
undertakes and binds itself to haul and transport any and all outgoing and incoming
products of MOBIL on a non-exclusive basis from the latter's Manila Terminal
and/or from any other specified point or points to the various shipping points or
destinations in the area of Luzon, Philippines. PROVIDED, that the CONTRACTOR
may be required by MOBIL to render hauling services outside of the specified points
at the rate prevailing in the area.
2. The CONTRACTOR hereby binds and obligates itself to deliver to the consignees
any and all cargoes within twenty-four (24) hours upon receipt of MOBIL'S written
instruction or the corresponding invoice/documents pertaining to said cargoes. It
shall be the CONTRACTOR's responsibility to insist that receipt of goods by
consignee or his authorized representative is acknowledged in writing on the
Delivery Receipt and/or TOAs and these receipts shall be surrendered to MOBIL's
Bulk Plant immediately after delivery.
xxx xxx xxx
7. MOBIL binds and obligates itself to pay all hauling fees due to the CONTRACTOR,
computed in accordance with the government specified rates within reasonable
time from presentation of the hauling bills but in no case shall such bills be rendered
oftener than once a week but preferably twice a month.
MOBIL is hereby authorized by the CONTRACTOR to withhold from the hauling fees
any amount to satisfy CONTRACTOR's liability to MOBIL.
That bills should be supported by Hauler's Copy of Invoices and TOAs duly
authenticated by MOBIL's authorized personnel. .
CFS was the contractor of MOPI, not CCC, and the contracted price of the BFO that CCC paid
to MOPI included hauling charges. The presumption laid down under Article 1523 of the
Civil Code that delivery to the carrier should be deemed to be delivery to the buyer would
have no application where, such as in this case, the sale itself specifically called for delivery
by the seller to the buyer at the latter's place of business. 2
' 37+8

#
WHEREFORE, the herein questioned decision of the Court of Appeals is AFFIRMED . Costs

against petitioners. (
#
SO ORDERED.
&

® ! !! pp

!
_
""!
1 Penned by Associate Justice Alfredo L. Benipayo and concurred in by Associate

Justices Manuel O. Herrera and Cancio C. Garcia.
2 Penned by Judge Pedro T. Santiago.
3 Records, p. 69.
4 .
5 Exh. M., Records, p. 76.
6 c
, p. 23.
7 Exh. A; Records, p. 191.
8 Records, p. 187.
9 ., p. 200.
10 ., p. 219.
11 ., p. 222.
12 ., p. 246.
13 ., p. 346.
14 ., p. 352.
15 ., p. 749.
16 ., p. 750.
17 RTC Decision, p. 4, Records, p. 750.
18 c
, p. 46.
19 c
, p. 20.
20 c
, p. 21.
21 Findings of facts may only be passed upon and reviewed by this Court in the
following instances: (1) when the conclusion is a finding grounded entirely on
speculation, surmises or conjectures; (2) when the inference made is manifestly
mistaken, absurd or impossible; (3) when there is a grave abuse of discretion; (4)
when the judgment is based on a misapprehension of facts; (5) when the findings of
fact are conflicting; (6) when the Court of Appeals, in making its findings, went
beyond the issues of the case and the same is contrary to the admissions of both
appellant and appellee; (7) when the findings of the Court of Appeals are contrary to
those of the trial court; (8) when the findings of fact are conclusions without citation
of specific evidence on which they are based; (9) when the facts set forth in the
petition as well as in the petitioners' main and reply briefs are not disputed by the
respondents; and (10) when the finding of fact of the Court of Appeals is premised
on the supposed absence of evidence and is contradicted by the evidence on record
(Medina vs. Asistio, Jr., 191 SCRA 218).
22 c
, p. 24.
23 TSN, July 7, 1983, pp. 23 & 25.
24 TSN, April 12, 1984, pp. 9-17.
25 TSN, July 29, 1983, pp. 11-13.
26 c
, p. 28.
27 TSN, October 4, 1984, p. 8.
28 Hauling Contrad.
29 Records, pp. 78-80.
30 TSN, August 25, 1983, p. 4.

Ô
Manila
SECOND DIVISION

7<$ ..
&ÔÔ

petitioner,
vs.
&Ô)#8Ô respondents.
&
( )*p
) )p _
&*J.:
This is a review of the decision of the Court of Appeals, promulgated on July 19,1988, the
dispositive part of which reads:
WHEREFORE, the judgment appealed from is affirmed insofar as it orders defendant

Filipino Merchants Insurance Company to pay the plaintiff the sum of P51,568.62
with interest at legal rate from the date of filing of the complaint, and is modified
with respect to the third party complaint in that (1) third party defendant E. Razon,
Inc. is ordered to reimburse third party plaintiff the sum of P25,471.80 with legal
interest from the date of payment until the date of reimbu rsement, and (2) the
third-party complaint against third party defendant Compagnie Maritime Des
Chargeurs Reunis is dismissed.
The facts as found by the trial court and adopted by the Court of Appeals are as follows:
This is an action brought by the consignee of the shipment of fishmeal loaded on

board the vessel SS Bougainville and unloaded at the Port of Manila on or about
December 11, 1976 and seeks to recover from the defendant insurance company the
amount of P51,568.62 representing damages to said shipment which has been
insured by the defendant insurance company under Policy No. M-2678. The 2

defendant brought a third party complaint against third party defendants

Compagnie Maritime Des Chargeurs Reunis and/or E. Razon, Inc. seeking judgment )
against the third (sic) defendants in case Judgment is rendered against the third #
party plaintiff. It appears from the evidence presented that in December 1976, 2

plaintiff insured said shipment with defendant insurance company under said cargo ) 9
Policy No. M-2678 for the sum of P267,653.59 for the goods described as 600 metric &# 0
%#
tons of fishmeal in new gunny bags of 90 kilos each from Bangkok, Thailand to
Manila against all risks under warehouse to warehouse terms. Actually, what was
imported was 59.940 metric tons not 600 tons at $395.42 a ton CNF Manila. The
fishmeal in 666 new gunny bags were unloaded from the ship on December 11,
1976 at Manila unto the arrastre contractor E. Razon, Inc. and defendant's surveyor 2
) :; &<
ascertained and certified that in such discharge 105 bags were in bad order # 9
347

condition as jointly surveyed by the ship's agent and the arrastre contractor. The
condition of the bad order was reflected in the turn over survey report of Bad Order
cargoes Nos. 120320 to 120322, as Exhibit C-4 consisting of three (3) pages which
are also Exhibits 4, 5 and 6- Razon. The cargo was also surveyed by the arrastre
contractor before delivery of the cargo to the consignee and the condition of the
cargo on such delivery was reflected in E. Razon's Bad Order Certificate No. 14859,
14863 and 14869 covering a total of 227 bags in bad order condition. Defendant's
surveyor has conducted a final and detailed survey of the cargo in the warehouse for
which he prepared a survey report Exhibit F with the findings on the extent of
shortage or loss on the bad order bags totalling 227 bags amounting to 12,148 kilos,
Exhibit F-1. Based on said computation the plaintiff made a formal claim against the
defendant Filipino Merchants Insurance Company for P51,568.62 (E xhibit C) the
computation of which claim is contained therein. A formal claim statement was also
presented by the plaintiff against the vessel dated December 21, 1976, Exhibit B, but
the defendant Filipino Merchants Insurance Company refused to pay the claim. 2

Consequently, the plaintiff brought an action against said defendant as adverted to
above and defendant presented a third party complaint against the vessel and the
arrastre contractor.
The court below, after trial on the merits, rendered judgment in favor of private respondent, the
decretal portion whereof reads:
WHEREFORE, on the main complaint, judgment is hereby rendered in favor of the
plaintiff and against the defendant Filipino Merchant's (sic) Insurance Co., ordering
the defendants to pay the plaintiff the following amount:
The sum of P51,568.62 with interest at legal rate from the date of the filing of the
complaint;
On the third party complaint, the third party defendant Compagnie Maritime Des
Chargeurs Reunis and third party defendant E. Razon, Inc. are ordered to pay to the
third party plaintiff jointly and severally reimbursement of the amounts paid by the
third party plaintiff with legal interest from the date of such payment until the date
of such reimbursement. 2
&

Without pronouncement as to costs.
On appeal, the respondent court affirmed the decision of the lower court insofar as the award on
the complaint is concerned and modified the same with regard to the adjudication of the third -party
complaint. A motion for reconsideration of the aforesaid decision was denied, hence this petition
with the following assignment of errors:
1. The Court of Appeals erred in its interpretation and application of the "all risks"
clause of the marine insurance policy when it held the petitioner liable to the private
respondent for the partial loss of the cargo, notwithstanding the clear absence of
proof of some fortuitous event, casualty, or accidental cause to which the loss is
attributable, thereby contradicting the very precedents cited by it in its decision as
well as a prior decision of the same Division of the said court (then composed of
Justices Cacdac, Castro-Bartolome, and Pronove);
2. The Court of Appeals erred in not holding that the private respondent had no
insurable interest in the subject cargo, hence, the marine insurance policy taken out
by private respondent is null and void;
3. The Court of Appeals erred in not holding that the private respondent was guilty
of fraud in not disclosing the fact, it being bound out of utmost good faith to do so,
that it had no insurable interest in the subject cargo, which bars its recovery on the
policy.
On the first assignment of error, petitioner contends that an "all risks" marine policy has a technical
meaning in insurance in that before a claim can be compensable it is essential that there must be
"some fortuity, " "casualty" or "accidental cause" to which the alleged loss is attributable and the
failure of herein private respondent, upon whom lay the burden, to adduce evidence showing that
the alleged loss to the cargo in question was due to a fortuitous event precludes his right to recover
from the insurance policy. We find said contention untenable.
The "all risks clause" of the Institute Cargo Clauses read as follows:
5. This insurance is against all risks of loss or damage to the subject-matter insured
but shall in no case be deemed to extend to cover loss, damage, or expense
proximately caused by delay or inherent vice or nature of the subject-matter
insured. Claims recoverable hereunder shall be payable irrespective of percentage.
An "all risks policy" should be read literally as meaning all risks whatsoever and covering all losses
by an accidental cause of any kind. The terms "accident" and "accidental", as used in insurance
contracts, have not acquired any technical meaning. They are construed by the courts in their
ordinary and common acceptance. Thus, the terms have been taken to mean that which happens by
chance or fortuitously, without intention and design, and which is unexpected, unusual and
unforeseen. An accident is an event that takes place without one's foresight or expectation; an event
that proceeds from an unknown cause, or is an unusual effect of a known cause and, therefore, not
expected.
The very nature of the term "all risks" must be given a broad and comprehensive meaning as
covering any loss other than a willful and fraudulent act of the insured. / This is pursuant to the
very purpose of an "all risks" insurance to give protection to the insured in those cases where
difficulties of logical explanation or some mystery surround the loss or damage to property. An
"all asks" policy has been evolved to grant greater protection than that afforded by the "perils
clause," in order to assure that no loss can happen through the incidence of a cause neither insured
against nor creating liability in the ship; it is written against all losses, that is, attributable to
external causes. .
The term "all risks" cannot be given a strained technical meaning, the language of the clause under
the Institute Cargo Clauses being unequivocal and clear, to the effect that it extends to all
damages/losses suffered by the insured cargo except (a) loss or damage or expense proximately
caused by delay, and (b) loss or damage or expense proximately caused by the inherent vice or
nature of the subject matter insured.
Generally, the burden of proof is upon the insured to show that a loss arose from a covered peril,
but under an "all risks" policy the burden is not on the insured to prove the precise cause of loss or
damage for which it seeks compensation. The insured under an "all risks insurance policy" has the
initial burden of proving that the cargo was in good condition when the policy attached and that the
cargo was damaged when unloaded from the vessel; thereafter, the burden then shifts to the
insurer to show the exception to the coverage. As we held in %$
_ 2

/p ) the basic rule is that the insurance company has the burden of proving

#

that the loss is caused by the risk excepted and for want of such proof, the company is liable. !
#
Coverage under an "all risks" provision of a marine insurance policy creates a special type of
insurance which extends coverage to risks not usually contemplated and avoids putting upon the
insured the burden of establishing that the loss was due to the peril falling within the policy's
coverage; the insurer can avoid coverage upon demonstrating that a specific provision expressly
excludes the loss from coverage. A marine insurance policy providing that the insurance was to
be "against all risks" must be construed as creating a special insurance and extending to other risks
than are usually contemplated, and covers all losses except such as arise from the fraud of the
insured. The burden of the insured, therefore, is to prove merely that the goods he transported
have been lost, destroyed or deteriorated. Thereafter, the burden is shifted to the insurer to prove 2

that the loss was due to excepted perils. To impose on the insured the burden of proving the precise
#
cause of the loss or damage would be inconsistent with the broad protective purpose of "all risks"
insurance.
In the present case, there being no showing that the loss was caused by any of the excepted perils,
the insurer is liable under the policy. As aptly stated by the respondent Court of Appeals, upon due
consideration of the authorities and jurisprudence it discussed Ȅ
... it is believed that in the absence of any showing that the losses/damages were
caused by an excepted peril, i.e. delay or the inherent vice or nature of the subject
matter insured, and there is no such showing, the lower court did not err in holding
that the loss was covered by the policy.
There is no evidence presented to show that the condition of the gunny bags in
which the fishmeal was packed was such that they could not hold their contents in
the course of the necessary transit, much less any evidence that the bags of cargo
had burst as the result of the weakness of the bags themselves. Had there been such
a showing that spillage would have been a certainty, there may have been good
reason to plead that there was no risk covered by the policy (See Berk vs. Style
[1956] cited in Marine Insurance Claims, , p. 125). Under an 'all risks' policy, it
was sufficient to show that there was damage occasioned by some accidental cause
of any kind, and there is no necessity to point to any particular cause. 2
;

#
Contracts of insurance are contracts of indemnity upon the terms and conditions specified in the
policy. The agreement has the force of law between the parties. The terms of the policy constitute
the measure of the insurer's liability. If such terms are clear and unambiguous, they must be taken
and understood in their plain, ordinary and popular sense.
Anent the issue of insurable interest, we uphold the ruling of the respondent court that private
respondent, as consignee of the goods in transit under an invoice containing the terms under "C & F
Manila," has insurable interest in said goods.
Section 13 of the Insurance Code defines insurable interest in property as every interest in
property, whether real or personal, or any relation thereto, or liability in respect thereof, of such
nature that a contemplated peril might directly damnify the insured. In principle, anyone has an
insurable interest in property who derives a benefit from its existence or would suffer loss from its
destruction whether he has or has not any title in, or lien upon or possession of the property y.
Insurable interest in property may consist in (a) an existing interest; (b) an inchoate interest
founded on an existing interest; or (c) an expectancy, coupled with an existing interest in that out of
which the expectancy arises. /
Herein private respondent, as vendee/consignee of the goods in transit has such existing interest
therein as may be the subject of a valid contract of insurance. His interest over the goods is based
on the perfected contract of sale. The perfected contract of sale between him and the shipper of
the goods operates to vest in him an equitable title even before delivery or before be performed the
conditions of the sale. . The contract of shipment, whether under F.O.B., C.I.F., or C. & F. as in this 2

case, is immaterial in the determination of whether the vendee has an insurable interest or not in *

the goods in transit. The perfected contract of sale even without delivery vests in the vendee an
equitable title, an existing interest over the goods sufficient to be the subject of insurance.
Further, Article 1523 of the Civil Code provides that where, in pursuance of a contract of sale, the
seller is authorized or required to send the goods to the buyer, delivery of the goods to a carrier,
whether named by the buyer or not, for, the purpose of transmission to the buyer is deemed to be a
delivery of the goods to the buyer, the exceptions to said rule not obtaining in the present case. The
Court has heretofore ruled that the delivery of the goods on board the carrying vessels partake of 2

the nature of actual delivery since, from that time, the foreign buyers assumed the risks of loss of
#

#
the goods and paid the insurance premium covering them.
C & F contracts are shipment contracts. The term means that the price fixed includes in a lump sum
the cost of the goods and freight to the named destination. It simply means that the seller must
pay the costs and freight necessary to bring the goods to the named destination but the risk of loss
or damage to the goods is transferred from the seller to the buyer when the goods pass the ship's
rail in the port of shipment. 2
#

#
Moreover, the issue of lack of insurable interest was not among the defenses averred in petitioners
answer. It was neither an issue agreed upon by the parties at the pre-trial conference nor was it
raised during the trial in the court below. It is a settled rule that an issue which has not been raised
in the court cannot be raised for the first time on appeal as it would be offensive to the basic
rules of fair play, justice and due process. This is but a permuted restatement of the long settled
rule that when a party deliberately adopts a certain theory, and the case is tried and decided upon
that theory in the court below, he will not be permitted to change his theory on appeal because, to
permit him to do so, would be unfair to the adverse party.
If despite the fundamental doctrines just stated, we nevertheless decided to indite a disquisition on
the issue of insurable interest raised by petitioner, it was to put at rest all doubts on the matter
under the facts in this case and also to dispose of petitioner's third assignment of error which
consequently needs no further discussion.
WHEREFORE, the instant petition is DENIED and the assailed decision of the respondent Court of
Appeals is AFFIRMED in .
SO ORDERED.

!! pp
$
p% @ A!
_
""!
1 Rollo, 41; Justice Gonzaga-Reyes, , with Justices Serafin E. Camilon and

Pedro A. Ramirez concurring.
2 Rollo, 26-28.
3 , 8-29.
4 , 10-11.
5 Original Record, Civil Case No. (112091) R-81-750, 26.

6 29A Am. Jur., 308-309.
7 Phoenix Ins. Co. vs. Branch (Fla. App) 234 So 2d 396.
8 Morrison Grain Co. vs. Utica Mut. Ins. Co. (.1 980, CA S Fla.) 632 F. 2d 424
9 Gilmore and Black, The Law of Admiralty, 68,169.
10 See Footnote 8, .
11 49 Phil. 753 (1926).
12 Walker vs. Traveller's Indemnity Co., (La. App.) 289 So. 2nd 864,869.
13 Goix vs. Knox, 1 Johns. Cas. 337, cited in Words and Phrases, Permanent Ed., Vol.
3, (1953 ed.) 310.
14 Rollo, 32.
15 Pacific Banking Corp. vs. Court of Appeals, G.R. No. 41014, Nov. 28,1988.
16 43 Am. Jur. 2d, 507-508.
17 Sec. 14, Insurance Code.
18 Original Record, Folder of Exhibits, Exh. C-2, 6.
19 43 Am. Jur. 2d, 522; Vance on Insurance, 164-168.
20 Rattan Arts & Decorations, Inc. vs. Collector of Internal Revenue, et al., 13 SCRA
626 (1965).
21 Business Law Principles and Cases by Harold Luck, Charles M. Hewitt, John D.
Donnel, and A. James Barns, Second Uniform Commercial Code Edition, 751-752.
22 Guide to INCO Terms, 1980 Ed., 48-50.
23 De Los Santos vs. Court of Appeals, et al., 140 SCRA 44 (1985); Dulos Realty &
Development Corp. vs. Court of Appeals, et al., 157 SCRA 425 (1988); Ramos, et al.
vs. Intermediate Appellate Court, et. al. G.R. No. 78282, July 5,1989.
24 Molina vs. Somes, 24 Phil. 49 (1913); Agoncillo, et al. vs. Javier, 38 Phil, 424
(1918).

G.R. No. L-7047 August 21, 1958
RAYMOND TOMASSI vs. FERNANDO VILLA-ABRILLE
Ô
Manila
(

&-//;!" .
,*ÔÔ plaintiff-appellant,

vs.
*
&&-(&& defendant-appellee.
! - i $

c
*&&J.:
In a replevin action Raymond Tomassi seeks to recover from Fernando Villa-Abrille

chattels enumerated and described in paragraphs 6 and 7 of the amended complaint filed
in the Court of First Instance of Leyte (civil case No. 769).
On 28 May 1948 Fernando Villa-Abrille purchased from the Surplus Property

Commission at a public auction sale Ȅ
All movable goods located at CMD-3 Area, Samar Naval Base, Guiuan, Samar,
consisting more or less of the following: 21 Revolving Cranes; 75 Caryalls; 30 2
'

Generators; 2 Swing cranes; 7 Coater pumps; 6 Electric Welders; 2 Dredges; 6

#
Road Rollers; 5 Tractors; 455 Trucks Cargo and Dump; 50 Compressors; 20
Weapon Carriers; 30 Trailers, assorted sizes; 3 tons canvass; 90 tons Iron Sheets,
16"/6"; 5 Road rollers (SPC Invoice No. 7770, Appendix A; Exhibits C & 2),
excluding certain articles enumerated therein. Immediately, he took possession of all the
properties within CMD-3 Area. On 6 October 1949 Santiago Gancayco purchased from the
Surplus Property Commission at a public auction said sale Ȅ
1-Lot of surplus property known as Lot No. 1, per Notice of Sale dated August 27,
1949 and Notice of Negotiated Sale of September 17, 1949, ALL AT GUIUAN BASE
(SPC Invoice No. 10658, Appendix B, Exhibit Q), 2
=

#
excluding certain articles enumerated therein. On 2 February 1950 Raymond Tomassi

acquired by purchase all the rights, share and interest of Santiago Gancayco to the
properties mentioned in SPC Invoice No. 10658 (Exhibits P & 1), except those expressly 2
* (
excluded in the deed of sale. #
Averring and claiming that by the sale to the plaintiff by Gancayco of the chattels
enumerated in paragraphs 6 and 7 of the amended complaint, he became the owner of
the said properties; that the defendant is unlawfully withholding and retaining
possession of the said chattels; and that in spite of repeated demands for their delivery to
him, the defendant has unlawfully refused and continues to refuse to deliver them to him,
the plaintiff prays, among others, that he be declared the owner of the said properties
and entitled to the possession of the same.
In answer, the defendant sets up the defense that the enumeration of the articles in SPC
Invoice No. 7770 (Appendix A, Exhibits C & 2), was not intended to be a complete
inventory of the surplus materials sold to him "but merely as a general description listing
of the same as may be gleaned from the phrase 'consisting of more or less of the
following' which immediately precedes the enumeration . . .;" and that the sale made by
the Surplus Property Commission on 6 October 1949 to Santiago Gancayco (SPC Invoice
No. 10658, Appendix B, Exhibit Q), did not vest in him ownership of any surplus property
in the CMD-3 Area, Guiuan, Samar, except construction materials excluded from the sale
of 28 May 1948 made in his (defendant's) favor (SPC Invoice No. 7770, Appendix A,
Exhibits C & 2). By way of counterclaim he prays that the plaintiff be ordered to pay him
an amount of not less than P100,000 as damages.
After trial, the Court rendered judgment declaring the defendant owner of and with right
to possess the articles in CMD-3 Area, Samar Naval Base, Guiuan, Samar, dismissing the
complaint with costs, and ordering the plaintiff Raymond Tomassi and the Manila Fidelity 2

and Surety Company to pay jointly and severally to the defendant the sum of P119,000

# '

for damages. The plaintiff has appealed. #
#
Invoice No. 7770 of the Surplus Property Commission dated 28 May 1948 (Appendix A,
Exhibits C & 2), which recites Ȅ
SOLD TO: MR. FERNANDO VILLA-ABRILLE

27 Victory, Manila
All movable goods located at CMD-3 Area, Samar Naval Base, Guiuan, Samar,
consisting more or less of the following: 21 Revolving Cranes, etc., etc.,
could and can have no other meaning than that "All movable goods located at CMD-3
Area, Samar Naval Base, Guiuan, Samar," were sold to the appellee Villa-Abrille. The
phrase "consisting more or less of the following" followed by an enumeration of articles
sold does not mean that whatever excess article or articles not included in the
enumeration is not included in the sale to the appellee Villa-Abrille and may be sold to
another bidder by the Surplus Property Commission. This interpretation is in consonance
with article 6 of the terms and conditions of the sale appearing at the back of SPC Invoice
No. 7770, Appendix A, Exhibits C & 2, which reads:
Unless otherwise specified, the quantities of the various items listed are
approximate only. Any variations between the quantity stated for any item sold
on a per item basis and the quantity or such item actually delivered to the Buyer
will be adjusted on the basis of the unit price quoted for such item or items.
On 19 May 1948 the Control Committee of the Government Enterprise Council approved
the sale "of all movable goods located at CMD-3 Area, Samar Naval Base, Guiuan, Samar,
excluding the items indicated in the letter of this office, dated April 29, 1948," in favor of
the appellee Villa-Abrille (Exhibit 4). As early as 4 August 1948, or long before the sale by
the Surplus Property Commission to Santiago Gancayco made on 6 October 1949 of a lot
of surplus property (SPC Invoice No. 10658, Appendix B, Exhibit Q), which the appellant
acquired by purchase from Santiago Gancayco on 22 February 1950 (Exhibits P and 1),
the Board of Liquidators had acknowledged "that the intention of the sale was for all the
movable goods for purposes of liquidation less the specified exclusions as indicated in
the corresponding Invoice No. 7770 dated May 28, 1948 and the frozen items covered by
the freezing order of April 2, 1948 among which is construction materials" (Exhibits 2-C
& 7); and that "It is the intention of the sale to include all movable goods located thereat,
subject to the specified exclusions and freezing order, for purposes of liquidation."
(Exhibits 2-A & 8.).
What had been sold to the appellee Fernando Villa-Abrille by the Surplus Property
Commission apparently was partly sold again to Santiago Gancayco who in turn sold it to
the appellant Raymond Tomassi. The transaction between the Surplus Property 2
9
#
Commission and Santiago Gancayco would seem to be a case of double sale, and if that
should be the fact it would be governed by paragraph 1, Article 1473 of the old Civil
Code1 which provides that Ȅ
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 personal property.
As it was the appellee Fernando Villa-Abrille who in good faith first took possession of
the articles in controversy, he has a better right to ownership and possession over them
than the appellant Raymond Tomassi.
The trial court found that the appellee suffered damages in the sum of P119,000 and
ordered the appellant and the Manila Fidelity and Surety Company jointly and severally
to pay it to the appellee. As there is no satisfactory evidence to show such damages, the
same being purely speculative, the appellee is not entitled to recover such damages.
The judgment appealed from dismissing the amended complaint is affirmed, and
reversed on the award of damages to the appellee, with costs in both instances against
the appellant.
! & $ c &

p pc ! & )
. p¢
/!! concur.
""!
1 Article 1544, new Civil Code.

G.R. No. 166913 October 5, 2007
SPS. MARIANO S. TANGLAO, ET AL. vs. SPS. CORAZON S.
PARUNGAO, ET AL.

Ô
Manila
Ô*
Ô

. 2"$/
Ô ÔÔÔ

&)#+
& petitioners,
vs.
Ô ÔÔ+Ô
)#&+
C#2)!#D
!$!"0""#$%&ÎÔ
,Ô -
&*(Ô
&*&(Ô
)#

& -*+ respondents.
*Ô
Ô*
&- +J.:
For our resolution is the instant Petition for Review on seeking to reverse the
Decision1 of the Court of Appeals (Fifteenth Division) dated January 31, 2005 in CA-G.R.
SP No. 78079.
The facts of the case are:
In 1992, spouses Lorenzo and Corazon Parungao, respondents, purchased from Spring
Homes Subdivision (Spring Homes) Lot Nos. 1, 2, 3, and 4 with a total area of 486 square
meters (sq. m.) at P1,350.00 per sq. m. or a total price of P656,100.00. In addition, they
also bought Lot Nos. 7, 8, and 9 with a total area of 457 sq. m. at P1,550.00 per sq. m. or a
total price of P708,360.00. All these lots are located at Block VI, Phase II-C, Spring Homes,
Barangay Culiat, Calamba City, Laguna. Respondents made a down payment of
P536,000.00, leaving a balance of P828,450.00, exclusive of interest.
Sometime in November 1992, respondents introduced improvements on the lots

consisting of a concrete perimeter fence with cyclone wires on top, a heavy steel gate,
and two fish breeding buildings, all at a cost of P945,000.00. They also elevated the
ground level of the lots by filling them with earth and "adobe."
Under the terms of the Contracts to Sell signed by respondents and Spring Homes, the
balance of P828,450.00 was to be paid by them within one year from its execution; and
that should they apply for a loan as payment for the balance, they would continue to pay
the monthly installment until their obligation is fully paid.
Respondents failed to pay the installments. They also failed to secure a loan because
Spring Homes refused to deliver to them the Transfer Certificates of Title (TCTs)
covering the lots required in their application for a loan secured by a real estate
mortgage. Apparently, respondents had requested Spring Homes to furnish them copies
of the Contracts to Sell, the TCTs, receipts of real estate taxes paid, tax declarations, and
the survey and vicinity plans of the lots they purchased. However, Roy Madamba,
salesman-representative of Spring Homes, gave respondents only copies of the Contracts
to Sell. But respondents returned these copies to Spring Homes for correction of the lot
numbers and the names of the vendees.
On April 11, 1997, Spring Homes executed two separate Deeds of Absolute Sale in favor
of spouses Mariano and Corazon Tanglao, petitioners, wherein the former sold to the
latter two lots covered by TCT Nos. T-268566 and T-268572. Hence, the said TCTs were
cancelled and in lieu thereof, TCT Nos. T-393365 and T-3377723 were issued in the
names of petitioners. It turned out that the lots sold to them were among the lots
previously sold to respondents.
In a letter dated September 15, 1997, respondents demanded that Spring Homes deliver
to them the corrected Contracts to Sell, as well as the TCTs covering the lots they
purchased.
Meanwhile, petitioners took possession of the two lots they bought . They forcibly opened
the steel gate as well as the doors of the buildings and entered the premises.
When informed of these events, respondents demanded an explanation from Spring

Homes. Bertha Pasic, its treasurer, apologized and promised she would settle the matter
with petitioners. However, the controversy was not settled.
On July 15, 1999, respondents filed with the Housing and Land Use Regulatory Board
(HLURB), Regional Office No. 1V a complaint for annulment of deed of sale and/or return
of investment for the seven (7) lots and costs of improvements, plus interest and
damages, docketed as HLURB Case No. R-1V6-08199-1104. Impleaded as respondents
were Spring Homes, Berta Pasic, Felipa Messiah, and petitioners.
Despite notice, Spring Homes, Pasic, and Messiah did not file their respective answers to
the complaint, nor did they appear during the hearings.
On October 3, 2000, HLURB Arbiter Gregorio L. Dean rendered a Decision, the dispositive
portion of which reads:
WHEREFORE, judgment is hereby rendered:
1. Dismissing the complaint filed against respondents Felipa Messiah and Spouses
Tanglao for lack of merit;
2. Ordering respondent Spring Homes to pay complainants:
a) Php536,000.00 by way of refund of payments with 12% interest per

annum to commence from August 11, 1999;
b) Php935,000.00 as actual damages; and
c) Php20,000.00 as attorneyǯs fees..
3. Ordering respondents Spring Homes Subdivision Co., Inc., and Bertha Pasic,
jointly and severally, to pay complainant the sum of Php20,000.00 as moral
damages and to pay this Board the sum of Php10,000.00 as administrative fine.
IT IS SO ORDERED. 2
>

Dissatisfied with the ruling, respondents filed a petition for review with the HLURB
Board of Commissioners, docketed as HLURB Case No. REM-A-001211-0272. # >
# >/?&
#
On August 24, 2001, the HLURB Board of Commissioners rendered its Judgment
reversing the Arbiterǯs Decision and granting the petition for review, thus:
WHEREFORE, premises considered, the petition for review is granted. The

decision of the office below is set aside and a new decision is rendered as follows:
1. Declaring as valid and subsisting the contract to sell between complainants and
respondent Spring Homes;
2. Directing complainants to immediately update the ir account and directing

respondent Spring Homes to accept payment and to deliver title to complainants
upon full payment of the purchases price;
3. Declaring as invalid the deed of absolute sale in favor of the spouses Tanglao
over the subject lots and directing the cancellation of respondent spouses TCTs
Nos. T-268566 and T-268572 of the Registry of Deeds for Calamba, Laguna and
its reversion to respondent Spring Homes;
4. Directing respondent Spring Homes to refund to respondent spouses Tanglao

all the amounts paid by the latter in connection with the sale of the subject lots to
the latter with 12% interest reckoned from the date of the sale;
5. Directing respondent Spring Homes to pay administrative fine of P10,000.00

for unsound business practice.
SO ORDERED.
The HLURB Board of Commissioners found that at the time of the sale of the two lots in
question to petitioners, the contracts between respondents and Spring Homes were still
subsisting. Moreover, the fence and existing structures erected on the premises should
have forewarned petitioners that there are adverse claimants of the two lots.
Petitioners filed a motion for reconsideration, but this was denied by the HLURB Board of
Commissioners in a Resolution promulgated on February 22, 2002.
Petitioners then filed an appeal with the Office of the President, docketed as O.P. Case No.
02-C-099. But in its Decision dated March 12, 2003, the Office of the President dismissed
their appeal and affirmed the Decision of the HLURB Board of Commissioners.
Petitionersǯ motion for reconsideration was also denied by the said Office in its Order
dated June 18, 2003.
Eventually, petitioners filed with the Court of Appeals a petition for review under Rule 43
of the 1997 Rules of Civil Procedure, as amended.
On January 31, 2004, the Court of Appeals rendered its Decision dismissing the petition,
thus:
WHEREFORE, premises considered, the petition for review is DENIED DUE

COURSE and ordered DISMISSED. The Decision dated 12 March 2003 of the Office
of the President which affirmed the Decision of the HLURB Board of
Commissioners (Third Division) dated 24 August 2001 reversing the 03 October
2000 Decision of Housing and Land Use Arbiter Gerardo L. Dean and the Order
dated 18 June 2003 of the Office of the President denying the motion for
reconsideration are hereby AFFIRMED. Costs against petitioners Sps. Mariano S.
Tanglao and Corazon M. Tanglao.
SO ORDERED.
The Court of Appeals held that there was a perfected contract to sell between
respondents and Spring Homes as early as 1992. As this contract was subsisting at the
time of the second sale, respondents have a superior right over the lots in question.
The only issue for our resolution is who between the petitioners and respondents have
the right of ownership over the two lots in controversy.
The ownership of immovable property sold to two different persons at different times is
governed by Article 1544 of the Civil Code, 2 which 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 taken possession
thereof in good faith, if it should be movable property.
Should it be immovable property, the ow nership shall belong to the person

acquiring it who, in good faith, first recorded it in the Registry of Property.
Should there be no inscription, the ownership shall pertain to the person who in
good faith was first in possession and, in the absence thereof, to the person who
presents the oldest title, provided there is good faith.
In double sales of immovable property, the governing principle is

0 (first in time, stronger in right). Thus, in _
,3 this Court 2
>
held that under Article 1544, preferential rights shall be accorded to: (1) the person #
acquiring it who in good faith first recorded it in the Registry of Property, (2) in default
thereof to the person who in good faith was first in possession, and (3) in default thereof,
to the person who presents the oldest title, provided there is good faith. )55="3!
2)!!;#=)0"30!!!"0)5$0;"3$)!02 <0!="3 ="0)50;3"!
;)"#""3 !25)0<0;4!30 ="30<<7)$5.4
In *pp 1_ .
,5 this Court, speaking through then Associate Justice (now Chief
Justice) Reynato S. Puno, laid down the following rules in the application of Article 1544: 2
@ #
(1) Knowledge by the first buyer of the second sale cannot defeat the first buyerǯs rights
except when the second buyer first registers in good faith the second sale; and (2)
Knowledge gained by the second buyer of the first sale defeats his rights even if he is first
to register, since such knowledge taints his registration with bad faith. Differently put,
the act of registration by the second buyer must be coupled with good faith, meaning, the
registrant must have no knowledge of the defect or lack of title of his vendor or must not
have been aware of facts which should put him upon such inquiry and investigation as
might be necessary to acquaint him with the defects in the title of his vendor. 6
Applying the foregoing doctrines, the pivotal question before us is whether petitioners,
the second buyers, are purchasers in good faith.
A purchaser in good faith or innocent purchaser for value is one who buys property and 2
#
pays a full and fair price for it at the time of the purchase or before any notice of some
other personǯs claim on or interest in it.7 The burden of proving the status of a purchaser
in good faith lies upon him who asserts that status and it is not sufficient to invoke the
ordinary presumption of good faith, that is, that everyone is presumed to have acted in
good faith.8
In the instant case, the HLURB Arbiter, the HLURB Commission, the Office of the
President, and the Court of Appeals found that at the time of the second sale to
petitioners by Spring Homes, there were already 22 )"! and 0< 7<"! on the
two lots in question. These facts should have put petitioners on their guard. Ô""5#0!
"35"3)")$%=)5 "%0 !!!!0= !!"3"3)"3!55
<!"$4)%)#!35#07!"0;)""30;3"!="3!0 !!!!0=40"3"
!230?0%"3$%2)3)#5%$;)##)!)$%0;#=)0"3)#2)"
3)7)%0;3"7"3 "% .9
As the petitioners cannot be considered buyers in good faith, they cannot rely upon the
indefeasibility of their TCTs in view of the doctrine that the defense of indefeasibility of a
torrens title does not extend to transferees who take the certificate of title in bad faith. 10
Considering that respondents who, in good faith, were first in possession of the subject
lots, we rule that the ownership thereof pertains to them.
Î, we *, the petition. The Decision of the Court of Appeals (Fifteenth

Division) dated January 31, 2005 in CA-G.R. SP No. 78079 is *in oo. Costs
against the petitioners.
Ô**
! pp!! concur.
""!
1c
, pp. 20-41. Penned by Associate Justice Celia C. Librea-Leagogo and

concurred in by Associate Justice Andres B. Reyes, Jr., and Associate Justice Lucas
P. Bersamin.
2@ ¢c
i _
_ , G.R. No. 151212, September 10,
2003, 410 SCRA 484.
3 G.R. No. 144576, May 28, 2004, 430 SCRA 210, citing &
_

261 SCRA 128 (1996).
4
_ $
, G.R. No. 142403, March 26, 2003, 399
SCRA 573.
5 G.R. No. 156973, June 4, 2004, 431 SCRA 116.
6 ) i _
_
, G.R. No. 124242, January 21,
2005, 449 SCRA 99, citing #_
171 SCRA 213 (1989);
&_
230 SCRA 446 (1994).
7 @_ , G.R. No. 140889, May 9, 2002, 382 SCRA 130, citing i__
$
, 318 SCRA 711 (1999A;c
p_
301 SCRA 366 (1999);
_
196 SCRA 705 (1991).
8 _
, G.R. No. 122249, January 29, 2004, 421 SCRA 310.
9 *pp 1_ .
footnote 5, pp. 124-125, citing _ $
397 SCRA 271 (2003).
10&p! _
, G.R. No. 105902, February 9, 2000, 325 SCRA
137, citing
p ./p p _
, 281 SCRA 232
(1997).

Ô**
Ô
ÔÔ
(&&,
(*+ )# &

(&Ô-(*+
Petitioners,
Present:
QUISUMBING, ! , Chairperson,
CARPIO,
- versus - CARPIO MORALES,
TINGA, and
VELASCO, JR., !!.

&Ô )# ÔÔ

&&* )# &
Promulgated:
Respondents.
September 14, 2007
A---------------------------------------------------A
*Ô
' Ô ( J.:
For review on certiorari are both the Decision dated September 7, 2004 and the Resolution
dated November 5, 2004 of the Court of Appeals in CA-G.R. CV No. 78642, which had affirmed the
Decision dated October 15, 2002 of the Regional Trial Court (RTC) of Quezon City, Branch 80 in
Civil Case No. Q-98-36074.
The facts, borne by the records, are as follows:
Aurea Paredes Vda. de Pascual and Araceli Felicia P. Sevilla are among the registered 2
'
owners of a parcel of land covered by Transfer Certificate of Title (TCT) No. RT-18756 (224112)
PR-26276 consisting of 746 square meters located at No. 315 Roosevelt Avenue, San Francisco Del
Monte, Quezon City. On the said lot stands a four-door apartment.
Sometime in 1970, herein respondent spouses Leopoldo and Clarita Magtoto rented a unit
of the apartment and used it as a grocery store. After several years, they also rented the adjoining
unit as a junkshop. 2

r &
# ) #
In December 1985, Aurea, represented by her attorney-in-fact, Araceli, sold to the Magtoto
spouses the two units consisting of 154 square meters for P700,000.00. The Conditional Deed of Sale
executed by the parties stated:
1. That the VENDEE shall pay the VENDOR the sum of ONE HUNDRED FIFTY
THOUSAND (P150,000.00) PESOS representing the down payment;
2. That the subject property will be resurveyed to determine the exact area and a
separate title will be applied in favor of the VENDEE;
3. That upon issuance of said title, the same will be used to apply for a loan, after
which, the sum of TWO HUNDRED THOUSAND (P200,000.00) PESOS will be
paid to the VENDOR as part of the purchase price;
4. That the remaining balance of the purchase price shall be annotated at the back
of the title which shall be paid by the VENDEE to the VENDOR within one (1)
year from January 15, 1986 to January 15, 1987; on a monthly basis of P27,500
per month;
5. That in case any of the aforementioned terms and conditions will not
materialize, this Conditional Deed of Sale shall automatically and without any
formality, becomes null and void, and the VENDOR is given the right to retain
15% of the down payment as rentals of the premises.
2
" <#
However, in July 1990, Araceli, as co-owner and attorney-in-fact of the other co-owners,
offered to sell the whole lot consisting of 746 square meters to herein petitioner spouses Brilly and
Olivia Bernardez. At that time, the property was mortgaged in favor of Banco Filipino; but the
mortgage was cancelled upon payment of P754,753.26 by the Bernardez spouses.
Meanwhile, the Magtoto spouses filed a complaint for injunction and damages against Aurea
and Araceli for their alleged refusal to honor the first Conditional Deed of Sale disposing of the 154-
square meter portion of the property. A notice of
was accordingly inscribed at the back
of TCT No. RT-18756 (224112) PR-26276 in October 1990.
In November 1990, a second Deed of Conditional Sale was executed by Aurea and Araceli, this
time over the whole lot consisting of 746 square meters, in favor of the Bernardez spouses, for
P7,000,000.00 payable as follows:
A. PESOS: One Million (P1,000,000.00), Philippine Currency, upon execution

hereof and receipt of which is hereby acknowledged by the VENDOR to their
complete satisfaction;
B. PESOS: Two Million (P2,000,000.00), Philippine Currency, upon submission to

the VENDEE by co-owner Araceli Felicia P. Pascual-Sevilla of the appropriate
Special Power/s of Attorney from her co-owners re-confirming her authority to
represent them in this transaction, which submission Vendor Araceli Felicia P.
Pascual-Sevilla undertakes shall be not later than 15 January 1991;
C. PESOS: Two Million (P2,000,000.00), Philippine Currency, on or before 31

January 1991, provided that Vendor Araceli Felicia P. Pascual-Sevillaǯs authority
as attorney-in-fact of her other co-owners has been reconfirmed as above
provided, and that the Certificate of Title to the property which the VENDOR
represented to have been destroyed by the fire that hit the Quezon City Hall
including the offices of the Register of Deeds, shall have been duly reconstituted
in accordance with law;
D. PESOS: Two Million (P2,000,000.00), Philippine Currency, on or before 15 May
1991, provided the conditions stated in the immediately preceding paragraph
have been fully satisfied and the premises shall have been completely vacated by
tenants and other occupants; otherwise, this installment payment shall become
due and payable only on such later date as all such prior conditions shall have
been fully and completely complied with.
Thereafter, the Bernardez spouses paid P1,000,000.00 as down payment and the second
Deed of Conditional Sale was annotated on TCT No. RT-18756 (224112) PR-26276.
In an interesting twist, the notice of

was meanwhile cancelled by virtue of an 2
R

&
alleged court order, which the RTC later disclaimed. Upon discovery of the forgery, the trial court # 6
#
immediately ordered the re-annotation of the notice of
.
Alarmed by the forgery, the Magtoto spouses informed the Bernardez spouses of the
pending case involving the disputed property and advised them to review the sale before they make
the next payment.
In the intervening time, the trial court dismissed the civil case filed by the Magtoto spouses.
The latter appealed the said dismissal to the Court of Appeals.
Meanwhile, the Bernardez spouses and the vendors entered into a Memorandum of
Agreement concerning the second Deed of Conditional Sale. Under the said agreement, the spouses
made an additional payment of P2,300,000.00 in order to proceed with the sale.
Acting on the appeal filed by the Magtoto spouses, the Court of Appeals ruled favorably, to
wit:
Î, in view of the foregoing considerations, the decision appealed

from is hereby
Ô* and ÔÔ* and a new one is "#:
1) Declaring the Conditional Deed of Sale e nforceable in accordance with this

Decision;
2) Ordering the appellees to cause the issuance of a separate title in favor of

the appellants covering 154 square meters of the lot, and upon the issuance of said
title, the appellants are ordered to comply with their obligation under condition no.
3 of the contract;
3) After the above-mentioned have been complied with, the appellants are
ordered to pay P8,500.00 to the appellees representing the deficiency in the July
installment and thereafter to pay the monthly installment of P27,500.00 for six (6)
consecutive months; and
4) Pending its full payment, the remaining balance aforementioned shall be

annotated at the separate title of the appellants in compliance with the terms o f the
contract.
2<")!"2!"!.
Ô**.
Consequently, a deed of conveyance was issued in favor of the Magtoto spouses. Forthwith,
a separate title was issued in their name under TCT No. N-187873.
Undaunted, the Bernardez spouses filed a Complaint for specific performance with damages and
annulment of title against the Magtoto spouses and the vendors. The case was dismissed for lack of
merit, which dismissal the Court of Appeals affirmed in its assailed Decision and Resolution.
Hence, the instant petition raising the following as issues:
I.
THE TRIAL COURT ERRED IN NOT REJECTING AS A FALSIFICATION THE SUPPOSED

INSCRIPTION ON OCTOBER 10, 1990 OF THE LIS PENDENS APPEARING ON PAGE 5
OF THE CERTIFICATE OF TITLE IT BEING UTTERLY WAY OUT OF THE
CHRONOLOGICAL ORDER OF THE ENTRIES THEREIN.
II.
THE TRIAL COURT ERRED IN NOT APPRECIATING THE UNCONTROVERTED CLAIM

OF PLAINTIFFS-APPELLANTS, BUTTRESSED BY THE OFFICIAL RECORDS, THAT
THEY WERE NOT AWARE OF ANY ENCUMBRANCE, ADVERSE CLAIM OR LIEN ON
THE PROPERTY AT THE TIME THEY BOUGHT IT.
III.
THE TRIAL COURT ERRED IN HOLDING THAT PLAINTIFFS-APPELLANTS FAILED

TO PROVE THEIR SUPERIOR RIGHT OVER THE DEFENDANTS-APPELLEES ON THE
[154-SQUARE] METER PORTION OF THE PROPERTY COVERED BY TCT NO. 224112,
AND IN DISMISSING THE COMPLAINT.
The Bernardez spouses contend that the Court of Appeals erred in finding that they failed to 2
< #
prove their status as purchasers in good faith. They insist they had no knowledge of any prior claim
on the disputed property. They also assert that the October 10, 1990 inscription of
on
the subject title was fraudulent and that their reg istration in good faith precedes that of the
Magtoto spouses.
The Magtoto spouses, on the other hand, counter that the alleged fraud involving the
inscription of
was caused by the Bernardez spousesǯ own attempt to re-page the title.
They also point out that the Bernardez spouses had not acquired ownership rights over the subject
property as their covenant with the vendors was merely a contract to sell. They stress that the sale
to them of the 154-square meter portion of the subject property to ok place five years ahead of the
sale to the Bernardez spouses of the entire property. Finally, respondents aver that the Bernardez
spouses failed to exercise due caution when they proceeded with the sale transaction despite
knowledge of a pending litigation involving the property.
Simply put, the sole issue for resolution is: Who Ȃ between the petitioners (Bernardezes)
and private respondents (Magtotos) Ȃ has the better right to the 154-square meter portion of the
subject property?
We shall now resolve the petition on the merits.
This case involves a double sale of an immovable, specifically the 154-square meter portion
of the disputed property. In this connection, the pertinent Article of the Civil Code provides:
Art. 1544. If the same thing should have been sold to different vendees, the
ownership shall be transferred to the person who may have first taken possession
thereof in good faith, if it should be movable property.
Ô35# 0" $ 0<<7)$5 "% "3 4!30 !3)55 $5; " "3
! )2?00; 0" 43 0 ;# =)0"3 =0!" 2## 0" 0 "3 ;0!"% =
"%
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.)
The law is clear that when the thing sold twice is an immovable, the one who acquires it and
first records it in the Registry of Property shall be deemed the owner. , 0 .
First in time, stronger in right. However, the act of registration must be coupled with good faith.
That is, the registrant must have no knowledge of any defect in the title of the vendor or must not
have been aware of facts which should have put him upo n such inquiry and investigation as might
be necessary to acquaint him with any such defect.
In this particular case, facts on record clearly show that the Bernardez spouses knew, at the
time they bought the subject property, that the 154 -square meter portion of the lot had been
previously sold to the Magtoto spouses and that there was in fact a pending litigation involving the
said property. Petitioner Brilly Bernardez himself, in his January 14, 1991 letter to Araceli Felicia P.
Sevilla, admitted such knowledge, to wit:
Dear Mrs. Sevilla,
Please be hereby informed that on account of our recently discovered

pendency of Civil Case No. Q-90-6808 entitled ǲSpouses Leopoldo Magtoto and
Clarita Magtoto Ȃ versus Ȃ Aurea Vda. de Pascual and Araceli P. Sevillaǳ before
Branch LXXXVI (86) of the Regional Trial Court at Quezon City, which materially
affects our rights as Vendee of the entire property subject of our Deed of Conditional
Sale dated November 16, 1990, we are constrained to with[h]old further payments
under the aforesaid Deed of Conditional Sale until the matter of the pending case is
finally resolved in your favor.
xxxx
Further, the said prior sale of the 154-square meter portion of the property to the Magtoto
spouses was precisely the reason why the Bernardez spouses entered into a Memorandum of
Agreement with the vendors in order to proceed with the sale . By their own admissions and
undertakings, the Bernardez spouses are already estopped from claiming lack of knowledge of the
prior sale. They cannot be said to have been in good faith in registering the subject property in
their name. Hence, between the Bernardez spouses and the Magtoto spouses, we rule that the latter
have a better right to the 154-square meter portion of the property, having first registered the same
in good faith.
Thus, we find that the trial court and the Court of Appeals correctly dismissed for lack of
merit the complaint filed by the Bernardez spouses.
Î, the petition is ** for lack of merit. The assailed Decision dated
September 7, 2004 and Resolution dated November 5, 2004 of the Court of Appeals in CA -G.R. CV
No. 78642, which had affirmed the Decision of the Regional Trial Court of Quezon City, Branch 80 in
Civil Case No. Q-98-36074, are *. Costs against petitioners.
Ô**
&*
' Ô (
Associate Justice
WE CONCUR:

Associate Justice
&Ô *

Associate Justice Associate Justice
Ô(

&Ô
Associate Justice
Ô
I attest that the conclusions in the above Decision had been reached in consultation before the
case was assigned to the writer of the opinion of the Courtǯs Division.
&*
' Ô (
Associate Justice
Chairperson

Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairpersonǯs
Attestation, I certify that the conclusions in the above Decision had been reached in consultation
before the case was assigned to the writer of the opinion of the Courtǯs Division.
,Ô

Chief Justice
c
, pp. 35-51. Penned by Associate Justice Remedios A. Salazar-Fernando, with Presiding

Justice Cancio C. Garcia (now a member of this Court) and Associate Justice Hakim S.
Abdulwahid concurring.
Id. at 52-53.
Records, pp. 480-497. Penned by Judge Agustin S. Dizon.
Id. at 382.
Id. at 21-27.
Id. at 22-23.
Id. at 31-32.
Id. at 42-45.
c
, pp. 42-43.
Records, pp. 1-15.
c
, p. 23.
) i _
_
, G.R. No. 124242, January 21, 2005,
449 SCRA 99, 115-116.
Records, p. 33.
Supra note 8.

Ô**
Ô
CARMELITA FUDOT, G.R. No. 171008

Petitioner,
Present:
QUISUMBING, !
- versus -
CARPIO,
CARPIO MORALES,
TINGA, and
CATTLEYA LAND, INC., VELASCO, JR., !!
Respondent.

Promulgated:
September 13, 2007
x-----------------------------------------------------------------------------------x
*Ô
TINGA, ! :
For resolution is a petition that seeks to nullify the Decision and Resolution of the Court of
Appeals dated 28 April 2005 and 11 January 2006, respectively, in C.A.ȂG.R. CV No. 73025 which
declared respondent as having a better right over a parcel of land located in Doljo, Panglao, Bohol.
The facts, as culled from the records, follow.
Sometime in July 1992, Cattleya Land, Inc. (hereinafter referred to as respondent) asked
someone to check, on its behalf, the titles of nine (9) lots, the subject land included, which it
intended to buy from the spouses Troadio and Asuncion Tecson . Finding no defect on the titles,
respondent purchased the nine lots through a Deed of Conditional Sale on 6 November 1992.
Subsequently, on 30 August 1993, respondent and the Tecsons executed a Deed of Absolute Sale
over the same properties. The Deed of Conditional Sale and the Deed of Absolute Sale were
registered with the Register of Deeds on 06 November 1992 and 04 October 1993, respectively .
The Register of Deeds, Atty. Narciso dela Serna, refused to actually annotate the deed of sale on the
titles because of the existing notice of attachment in connection with Civil Case No. 3399 pending
before the Regional Trial Court of Bohol. The attachment was eventually cancelled by virtue of a
compromise agreement between the Tecsons and their attaching creditor which was brokered by
respondent. Titles to six (6) of the nine (9) lots were issued, but the Register of Deeds refused to
issue titles to the remaining three (3) lots , because the titles covering the same were still
unaccounted for.
On 23 January 1995, petitioner presented for registration before the Register of Deeds the
ownerǯs copy of the title of the subject pro perty, together with the deed of sale purportedly
executed by the Tecsons in favor of petitioner on 19 December 1986. On the following day,
respondent sent a letter of protest/opposition to petitionerǯs application . Much to its surprise,
2

respondent learned that the Register of Deeds had already registered the deed of sale in favor of # A #

# >
petitioner and issued a new title in her name. 8 A
#
On 5 May 1995, respondent filed its Complaint for Quieting Of Title &/Or Recovery Of
Ownership, Cancellation Of Title With Damages before the Regional Trial Court of Tagbilaran City . 2

* #
On 26 June 1995, Asuncion filed a complaint-in-intervention, claiming that she never signed any
2
B
deed of sale covering any part of their conjugal property in favor of petitioner. She averred that her
# B

#
signature in petitionerǯs deed of sale was forged thus, said deed should be declared null and void.
She also claimed that she has discovered only recently that there was an amorous relationship
between her husband and petitioner.
Petitioner, for her part, alleged in her answer that the spouses Tecson had sold to her the
subject property for P20,000.00 and delivered to her the ownerǯs copy of the title on 26 December
1986. She claims that she subsequently presented the said title to the Register of Deeds but the
latter refused to register the same because the property was still under attachment.
On 31 October 2001, the trial court rendered its decision: (i) quieting the title or ownership of
the subject land in favor of respondent; (ii) declaring the deed of sale between petitioner and
spouses Tecson invalid; (iii) ordering the registration of the subject land in favor of respondent; (iv)
dismissing respondentǯs claim for damages against the Register of Deeds for insufficiency of
evidence; (v) dismissing Asuncionǯs claim for damages against petitioner for lack of factual basis;
and (vi) dismissing petitionerǯs counterclaim for lack of the required preponderance of evidence.
According to the trial court, respondent had recorded in good faith the deed of sale in its favor
ahead of petitioner. Moreover, based on Asuncionǯs convincing and unrebutted testimony, the trial
court concluded that the purported signature of Asuncion in the deed of sale in favor of petitioner
was forged, thereby rendering the sale void.
Petitioner sought recourse to the Court of Appeals, arguing in the main that the rule on double
sale was applicable to the case. The appellate court, however, dismissed her appeal, holding that
there was no double sale because the alleged sale to petitioner was null and void in view of the
forgery of Asuncionǯs purported signature in the deed. The appellate court noted that petitioner
failed to rebut Asuncionǯs testimony despite opportunities to do so. Moreover, even if there was
double sale, according to the appellate court, respondentǯs claim would still prevail since it was able
to register the second sale in its favor in good faith, had made inquiries before it purchased the lots,
and was informed that the titles were free from encumbrance except the attachment on the
property due to Civil Case No. 3399.
Petitioner sought reconsideration of the decision but the Court of Appeals denied her motion
for reconsideration for lack of merit.
Petitioner thus presents before this Court the following issues for resolution:
I.
BETWEEN 2 BUYERS OF REGISTERED LAND, WHO HAS THE BETTER RIGHT-IS

IT THE FIRST BUYER WHO WAS GIVEN THE OWNERǯS DUPLICATE TCT
TOGETHER WITH A DEED OF SALE IN 1986, OR THE SECOND BUYER IN 1992
WITH ONLY A DEED OF SALE.
II.
IS A BUYER OF REGISTERED LAND WHO DID NOT DEMAND OR REQUIRE THE

DELIVERY OF THE OWNERǯS DUPLICATE TCT A BUYER IN GOOD FAITH.
III.
II. IN SUBSEQUENT REGISTRATION OF REGISTERED LANDS, AS BY SALE,
WHICH LAW SHALL GOVERN, ARTICLE 1455 OF CIVIL CODE OR P.D. 1529 OR
TORRENS SYSTEM.
Petitioner avers that she was the first buyer in good faith and even had in her possession
the ownerǯs copy of the title so much so that she was able to register the deed of sale in her favor
and caused the issuance of a new title in her name. She argues that the presentation and surrender
of the deed of sale and the ownerǯs copy carried with it the ǲconclusive authority of Asuncion
Tecsonǳ which cannot be overturned by the latterǯs oral deposition.
Petitioner claims that respondent did not demand nor require delivery of the ownerǯs
duplicate title from the spouses Tecson, neither did it investigate the circumstan ces surrounding
the absence of the title. These indicate respondentǯs knowledge of a defect in the title of the spouses
and, thus, petitioner concludes that respondent was not a buyer in good faith.
Finally, petitioner insists that the applicable law in this case is P.D. No. 1529, a special law
dealing precisely with the registration of registered lands or any subsequent sale thereof, and not
Article 1544 of the Civil Code which deals with immovable property not covered by the Torrens
System.
Respondent points out, on one hand, that petitionerǯs first two issues which present an
inquiry on who has a better right or which one is a buyer in good faith, are questions of fact not
proper in a petition for review. The third issue, on the other hand, is ostensibly a question of law
which had been unsuccessfully raised below.
Respondent maintains that there is no room to speak of petitioner as a buyer in good faith
since she was never a buyer in the first place, as her claim is based on a null and void deed of sale,
so the court found. Respondent also asserts that its status as a buyer in good faith was
established and confirmed in the proceedings before the two courts below.
Lastly, respondent argues that P.D. No. 1529 finds no application in the in stant case. The
ǲproduction of the ownerǯs duplicate certificate x x x being conclusive authority from the registered
ownerǳ is only true as between the registration applicant and the register of deeds concerned, but
never to third parties. Such conclusive authority, respondent adds, is ǲonly for the Register of Deeds
to enter a new certificate or to make a memorandum of registration in accordance with such
instrument.ǳ It cannot cure the fatal defect that the instrument from which such registration was
effected is null and void , respondent concludes.
The petition is bereft of merit.
Petitionerǯs arguments, which rest on the assumption that there was a double sale, must fail.
In the first place, there is no double sale to speak of. Art. 1544 of the Civil Code, which
provides the rule on double sale, applies only to a situation where the same property is validly sold
to different vendees. In this case, there is only one sale to advert to, that between the spouses
Tecson and respondent.
In c
_ @ , this Court ruled that the Civil Law provision on double sale is not 2
9

# *
applicable where there is only one valid sale, the previous sale having been found to be fraudulent.
#
Likewise, in .

_
, where the same parcel of land was purportedly sold to
two different parties, the Court held that despite the fact that one deed of sale was registered ahead
of the other, Art. 1544 of the Civil Code will not apply where sai d deed is found to be a forgery, the
result of this being that the right of the other vendee should prevail.
The trial court declared that the sale between the spouses Tecson and petitioner is invalid, as
it bears the forged signature of Asuncion. Said finding is based on the unrebutted testimony of
Asuncion and the trial courtǯs visual analysis and comparison of the signatures in her Complaint-
in-Intervention and the purported deed of sale. This finding was upheld by the Court of Appeals, as
it ruled that the purported sale in petitionerǯs favor is null and void, taking into account Asuncionǯs
unrefuted deposition. In particular, the Court of Appeals noted petitionerǯs failure to attend the
taking of the oral deposition and to give written interrogatories. In short, she did not take the
necessary steps to rebut Asuncionǯs definitive assertion.
The congruence of the wills of the spouses is essential for the valid disposition of conju gal
property. Thus, under Article 166 of the Civil Code which was still in effect on 19 December 1986
when the deed of sale was purportedly executed, the husband cannot generally alienate or
encumber any real property of the conjugal partnership without the wifeǯs consent.
In this case, following Article 173 of the Civil Code, on 26 June 1995, or eight and a half years
(8 ½) after the purported sale to petitioner, Asuncion filed her Complaint -in-Intervention seeking
the nullification thereof, and while her marriage with Troadio was still subsisting. Both the Court of
Appeals and the trial court found Asuncionǯs signature in the deed of sale to have been forged, and
consequently, the deed of sale void for lack of marital consent . We find no reason to disturb the
findings of the trial court and the Court of Appeals. Findings of fact of lower courts are deemed
conclusive and binding upon the Supreme Court subject to certain exceptions, none of which are
present in this case. Besides, it has long been recognized in our jurisprudence that a forged deed is a
nullity and conveys no title.
Petitioner argues she has a better right over the property in question, as the holder of and the
first one to present, the ownerǯs copy of the title for the issuance of a new TCT. The Court is not
persuaded.
The act of registration does not validate petitionerǯs otherwise void contract . Registration is a 2
&

mere ministerial act by which a deed, contract, or instrument is sought to be inscrib ed in the #
records of the Office of the Register of Deeds and annotated at the back of the certificate of title
covering the land subject of the deed, contract, or instrument. While it operates as a notice of the
deed, contract, or instrument to others, it does not add to its validity nor converts an invalid
instrument into a valid one as between the parties, nor amounts to a declaration by the state that
the instrument is a valid and subsisting interest in the land. The registration of petitionerǯs void
deed is not an impediment to a declaration by the courts of its invalidity.
Even assuming that there was double sale in this case, petitioner would still not prevail. The
pertinent portion of Art. 1544 provides:
Art. 1544. x x x.
Should it be immovable property, the ownership shall belong to the person

acquiring it who in good faith first recorded it in the Registry of Property.
x x x x.
In interpreting this provision, the Court declared that the governing principl e is
0 (first in time, stronger in right). Knowledge gained by the first buyer of the
second sale cannot defeat the first buyerǯs rights, except where the second buyer registers in good
faith the second sale ahead of the first as provided by the aforequoted provision of the Civil Code.
Such knowledge of the first buyer does not bar him from availing of his rights under the law, among
them to register first his purchase as against the second buyer. However, knowledge gained by the
second buyer of the first sale defeats his rights even if he is first to register the second sale, since
such knowledge taints his prior registration with bad faith. It is thus essential, to merit the
protection of Art. 1544, second paragraph, that the second realty buyer must act in good faith in
registering his deed of sale.
We agree with the trial court and the Court of Appeals that respondent was a buyer in good
faith, having purchased the nine (9) lots, including the subject lo t, without any notice of a previous
sale, but only a notice of attachment relative to a pending civil case. In fact, in its desire to finally
have the title to the properties transferred in its name, it persuaded the parties in the said case to
settle the same so that the notice of attachment could be cancelled.
Relevant to the discussion are the following provisions of P.D. No. 1529:
Sec. 51. _ p

.Ȅ An owner of
registered land may convey, mortgage, lease, charge or otherwise deal with the
same in accordance with existing laws. He may use such forms of deeds, mortgages,
lease or other voluntary instruments as are sufficient in law. But no deed,
mortgage, lease or other voluntary instrument, except a will pur porting to convey
or affect registered land shall take effect as a conveyance or bind the land, but shall
operate only as a contract between the parties and as evidence of authority to the
Register of Deeds to make Registration.
3)2"=;0!")"0!3)55$"3 )"07)2""27%)==2""3

5)#0!=))!"30# !!)22# , and in all cases under this Decree,
the registration shall be made in the office of the Register of Deeds for the province
or city where the land lies. (Emphasis supplied)
Sec. 52. p_ p .ȄEvery 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.
It has been held that between two transactions concerning the same parcel of land, the
registered transaction prevails over the earlier unregistered right. The act of registration operates
to convey and affect the registered land so that a bona fide purchaser of such land acquires good
title as against a prior transferee, if such prior transfer was unrecorded. As found by the courts
, respondent was able to register its purchase ahead of petitioner. It will be recalled that
respondent was able to register its Deed of Conditional Sale with the Register of Deeds as early as 6
November 1992, and its Deed of Absolute Sale on 14 October 1993 . On the other hand, petitioner
was able to present for registration her deed of sale and ownerǯs copy of the title only on 23 January
1995, or almost nine years after the purported sale. Why it took petitioner nine (9) years to
present the deed and the ownerǯs copy, she had no credible explanation; but it is clear that when
she finally did, she already had constructive notice of the deed of sale in respondentǯs favor.
Without a doubt, respondent had acquired a better title to the property.
Finally, anent petitionerǯs claim that P.D. No. 1529 applies to registered lands or any
subsequent sale thereof, while Art. 1544 of the Civil Code applies only to immovable property not
covered by the Torrens System, suffice it to say that this quandary has already been answered by an
eminent former member of this Court, Justice Jose Vitug, who explained that the registration
contemplated under Art. 1544 has been held to refer to registration under P.D. No. 1529, thus:
3 ;0!")"0 2"< 5)"# # "
3)! $ 35# " =
" ;0!")"0 # 2" . &)# ;0!")"0 2" C4 * .D which
considers the act of registration as the operative act that binds the land (see
$ _ c
, 1 O.G. [12] 900, p_ c
73 Phil 694). On lands covered
by the Torrens System, the purchaser acquires such rights and interest as they
appear in the certificate of title, unaffected by any prior lien or encumbr ance not
noted therein. The purchaser is not required to explore farther than what the
Torrens title, upon its face, indicates. The only exception is where the purchaser has
actual knowledge of a flaw or defect in the title of the seller or of such liens or
encumbrances which, as to him, is equivalent to registration (see Sec. 39, Act 496;
&
_ , G.R. 75336, 18 October 1988; Hernandez vs. Sales, 69 Phil 744;
@0
, L-26677, 27 March 1981) (Emphasis supplied)
WHEREFORE, the petition is DENIED. The assailed decision and resolution of the Court of
Appeals are affirmed. Costs against petitioner.
SO ORDERED.
DANTE O. TINGA

p !p

WE CONCUR:
LEONARDO A. QUISUMBING
p !p
Chairperson
ANTONIO T. CARPIO CONCHITA CARPIO MORALES

p !p p !p
PRESBITERO J. VELASCO, JR.

p !p

Ô
LEONARDO A. QUISUMBING
p !p
pi_

Attestation, it is hereby certified that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion of the Courtǯs Division.
REYNATO S. PUNO
!p

c
pp. 22-32. Penned by Associate Justice Sesinando E. Villon, with Associate Justices
Arsenio J. Magpale and Enrico A. Lanzanas, concurring.
Id. at 35.
Id. at 48-49. Vide Entry No. 83422 and Entry No. 87549, respectively of the Register of
Deeds of Bohol.
@ _ @@ p

c
pp. 51-52.
Id. at 47-55.
Docketed as Civil Case No. 5781,

)p _
¢ #p

. The case was eventually raffled to Branch 4, 7th Judicial Region, Tagbilaran City.
c
, pp. 60-61. Asuncion Tecsonǯs testimony was made through oral deposition; records,
pp. 497-510.
Records, Vol. 1, pp. 66-68; Complaint-in-Intervention; id. at 66.
Volume 1, pp. 35-41; Answer with Counter Claim and Motion to Dismiss, Records.
c
pp. 57-64.
Id. at 64.
Id. at 62-63.
Id. at 22-32, 28-29; CA Decision dated 28 April 2005.
c
, p. 30.
Supra note 2; Resolution dated 11 January 2006.
c
, p. 12.
Id. at 14.
Id. at 15-16.
Id. at 12-17.
Id. at 67.
Id. at 70-71.
Id. at 72-73.
CIVIL CODE, 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.
No. L-59514, 25 February 1988, 158 SCRA 138.
119 Phil. 69 (1963).

_ $p, G.R. No. 155043, 30 September 2004, 439 SCRA 649, 661.
Article 166. Unless the wife has been declared a non compos mentis or a spendthrift, or is
under civil interdiction or is confined in a leprosarium, the husband cannot alienate or encumber
any real property of the conjugal partnership without the wifeǯs consent. If she refuses
unreasonably to give her consent, the court may compel her to grant the same.
This article shall not apply to property acquired by the conjugal partnership before the
effective date of this Code.
Art. 173. The wife may, during the marriage and within ten years from the transaction
questioned, ask the courts for the annulment of any contract of the husband entered into without
her consent, when such consent is required, or any act or contract of the husband which tends to
defraud her or impair her interest in the conjugal partnership property. Should the wife fail to
exercise this right, she or her heirs after the dissolution of the marriage, may demand the value of
property fraudulently alienated by the husband.
The exceptions are: when the findings are grounded on speculation, surmises or
conjectures; when the inference made is manifestly mistaken, absurd or impossible; when ther e is
grave abuse of discretion in the appreciation of facts; when the factual findings of the trial and
appellate courts are conflicting; when the Court of Appeals, in making its findings, has gone beyond
the issues of the case and such findings are contra ry to the admissions of both appellant and
appellee; when the judgment of the appellate court is premised on a misapprehension of facts or
when it has failed to notice certain relevant facts which, if properly considered, will justify a
different conclusion; when the findings of fact are conclusions without citation of specific evidence
upon which they are based; and when findings of fact of the Court of Appeals are premised on the
absence of evidence but are contradicted by the evidence on record.
p _

, 341 Phil. 261, 275 (1997).

_
, G.R. No. 70263, 14 May 1990, 185 SCRA 352.
p_
, 401 Phil. 350, 367 (2000).
p

_ _ "
, 107 Phil 791 (1960).
2
_
, G.R. No. 125254, 11 October 2005, 472 SCRA 241, 253 citing
2p_
, 278 SCRA 702 (1997).

_
, 331 Phil. 294, 321-322 (1996) citing VITUG,
COMPENDIUM OF CIVIL LAW AND JURISPRUDENCE, 1993 Ed., p. 604.
$p_ $ , G.R. No. 158682, 31 January 2005, 450 SCRA 363, 368.
VITUG, COMPENDIUM OF CIVIL LAW AND JURISPRUDENCE (1993), p. 604, cited in _
i , G.R. No. 154409, 21 June 2004, 432 SCRA 544, 557.

Ô*
Ô
Ô ÔÔ
&)#1&",

.
Petitioners,
Present:
PUNO, !., ,
-versus- SANDOVAL-GUTIERREZ,
CORONA,
AZCUNA, and
GARCIA, !!
Ô ÔÔ &* )# &

*,
Promulgated:
Respondents.
August 17, 2007
x-----------------------------------------------------------------------------------------
x
DECISION
SANDOVAL-GUTIERREZ, !
:
Challenged in this Petition for Review on Certiorari is the Decision dated October 9, 1998 of
the Court of Appeals (Seventeenth Division) in CA -G.R. CV No. 51480, entitled _

./
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_

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On May 7, 1993, spouses Avelino and Exaltacion Salera, now petitioners, filed with the
Regional Trial Court (RTC), Branch 11, Calubian, Leyte, a complaint for quieting of title, docketed as
Civil Case No. CN-27, against spouses Celedonio and Policronia Rodaje, herein respondents.
Petitioners alleged that they are the absolute owners of a parcel of land situated at Basud, San
Isidro, Leyte with an area of 448.98 square meters, more or less. They acquired the property from
the heirs of Brigido Tonacao as shown by a Deed of Absolute Sale executed on June 23, 1986. They
had the document registered in the Registry of Deeds of Iloilo on July 1, 1986. When they asked the
Provincial Assessor to declare the property under their names for taxation purposes, they found
that Tax Declaration No. 2994 (R-5) in the name of Brigido was already cancelled and
another one, Tax Declaration No. 2408, was issued in the names of respondents . Petitioners
further alleged that they have been in possession of the property and the house they built thereon
because they had paid the purchase price even before the execution of the deed of sale.
In their answer to the complaint, respondents claimed that they are the absolute owners of
the same property. They acquired it from Catalino Tonacao, the father of Brigido, in a Deed of
Absolute Sale dated June 6, 1986. The sale was registered in the Registry of Deeds of Leyte on
June 10, 1986 and Tax Declaration No. 2408 was issued in their names. Prior thereto, or on
January 11, 1984, they had a verbal contract of sale with Catalino. They paid him P1,000.00 as
downpayment. They agreed that the balance of P4,000.00 shall be paid upon execution of the deed
of sale. Since then, they have been exercising their right of ownership over the property and the
building constructed thereon peacefully, publicly, adversely and continuou sly. Apart from being
the first registrants, they are buyers in good faith.
On July 17, 1995, the RTC rendered a Decision declaring petitioners the rightful and legal
owners of the property, thus: 2

0 +8 0 3 3AC-#
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In view of all the foregoing, judgment is hereby rendered in favor of the D
#
plaintiffs and against the defendants, declaring the plaintiffs the rightful and legal
owners of the property described in paragraph 3 of the complaint; declaring as null
and void the sale (Exhibits ǲ1ǳ and ǲ2ǳ) made by Catalino Tonacao to herein
defendants for lack of capacity to sell; and ordering the cancellation of Tax
Declaration No. 2408 issued in favor of Sps. Celedonio Rodaje and Policronia Rodaje
by the Provincial Assessor of Leyte and directing defendants to pay the costs.
In declaring null and void the Deed of Absolute Sale between Catalino and herein
respondents and ordering the cancellation of Tax Declaration No. 2408 issued in the latterǯs names,
the RTC ratiocinated as follows:
Assessing the validity of the sale in favor of plaintiffs by the heirs of Brigido
Tonacao vis-à-vis the sale by Catalino Tonacao, father of Brigido Tonacao, to the
defendants of the property, the Court believes that the former must survive over the
latter.
To begin with, defendants admit that Brigido Tonacao was the declared
owner of the land in question before defendants purchased such land from Catalino
Tonacao. Defendants also admit that the wife and children of Brigido Tonacao
indeed partitioned the land in question extrajudicially among themselves and that
such wife and children of Brigido Tonacao sold the land to plaintiffs although
defendants question the capacity of some children to sell the property for being
minors. 2
#
These admissions tend to establish ownership of the land in question by
Brigido Tonacao. Upon his death, therefore, the property subject of the case at bar
would by operation of law on succession, pass to the heirs of Brigido Tonacao,
namely: to the surviving spouse and his children.
Catalino Tonacao, the father of the deceased Brigido Tonacao, is excluded by
operation of law by the presence of the compulsory heirs who are the children of
Brigido Tonacao. Whatever sale Catalino Tonacao may have executed in favor of
the defendants is a sale by one who has no legal personality or authority to do so.
Thus, the sale by Catalino Tonacao to defendants is invalidated by his lack of
personality to execute such sale, which conferred no rights to the defendants nor
did it impair the right of Brigido Tonacaoǯs heirs to dispose of their inheritance in
favor of the plaintiffs.

On appeal, the Court of Appeals, in a Decision dated October 9, 1998, reversed and set aside
the trial courtǯs Decision, declaring respondents the true and lawful owners of the property in
dispute, thus:
WHEREFORE, the decision, dated July 17, 1995, of the Regional Trial Court
(Branch 11) in Calubian, Leyte is hereby REVERSED AND SET ASIDE. Therewithal,
another judgment is rendered declaring the order of the trial court null and void,
hereby: declaring the defendants-appellants to have the superior right to the
property in question and to be the true and lawful owners thereof; directing the
Register of Deeds of Leyte to cancel the Deed of Absolute Sale, dated June 23, 1986,
in favor of the plaintiffs-appellees and to reinstate the Deed of Absolute Sale in favor
of the defendants-appellants and Tax Declaration No. 2408 be issued in favor of
spouses Celedonio Rodaje and Policronia Rodaje; and directing the plaintiffs-
appellees and other persons claiming rights under them, and residing in the
premises of the land in question, to immediately vacate the same and to remove
whatever improvements they had placed in the premises. No pronouncement as to
costs.
The issue before us is which of the two contracts of sale is valid.
Petitioners contend that the sale between Catalino and respondents is void because the
former was not the owner of the lot, hence ǲhad no legal capacity to sue.ǳ The true owner was
Brigido as shown by Tax Declaration No. 2994 (R-5) in his name. Thus, his spouse and children,
being his successors-in-interest, could validly sell the property to them (petitioners).
On the other hand, respondents insist that they are buyers in good faith. They bought the
property, had the deed of sale registered, and took possession thereof ahead of petitioners. They
also constructed a house thereon which they used as a store. They paid the real estate taxes
corresponding to the period from 1974 up to 1993.
The Court of Appeals, in upholding the validity of the sale in favor of respondents, relied on
Article 1544 of the Civil Code on double sale, thus:
As between two purchasers, the one who registered the sale in his favor has a
preferred right over the other who has not registered his title, even if the latter is in
actual possession of the immovable property (Tañedo v. Court of Appeals, 252 SCRA
80). A fortiori¸ the defendants-appellants have a superior right over the contested
property inasmuch as they have both actual possession and prior registration of the
conveyance (Exhibit ǲ2ǳ; page 6, TSN, August 9, 1994; page 5, TSN, August 23,
1994). Dominium a possessione cepisse dicitur. Right is said to have its beginning
from possession.
The applicable provision of the New Civil Code provides:
Art. 1544. If the same thing should have been sold to

different vendees, the ownership shall be transferred to the
person who may have 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.
xxx
Since the controversy involves two deeds of sale over the same property,
Article 1544 properly applies thereto (Vda. De Alcantara v. Court of Appeals, 252
SCRA 457). Following the above-quoted provision, the court a quo was not justified
in according preferential rights to the plaintiffs-appellees, who had registered the
sale in their favor later, as against the defendants-appellants.
The Court of Appeals is wrong. Article 1544 of the Civil Code contemplates a case of double
sale or multiple sales by a !0;57#. More specifically, it covers a situation where a single 2
9

#

vendor sold one and the same immovable property to two or more buyers. It cannot be invoked
#
where the two different contracts of sale are made by two different persons, one of them not being
the owner of the property sold. In the instant case, the property was sold by two different vendors 2

#
to different purchasers. The first sale was between Catalino and herein respondents, while the
second was between Brigidoǯs heirs and herein petitioners.
Settled is the principle that this Court is not a trier of facts. In Gabriel v. Mabanta we said
that ǲ(t)his rule, however, is not an iron-clad rule.ǳ One of the recognized exceptions is when the
findings of fact of the Court of Appeals are contrary to those of the trial court, as in this case.
Here, the trial court which had the opportunity to observe the demeanor of the parties and
first to consider the evidence submitted by them, concluded that respondents are not purchasers in
good faith, thus:
The court finds no merit in the claim of good faith by the defendants in
purchasing the land in question. Exhibit ǲ14ǳ, which is Tax Declaration No. 2408,
shows that such declaration is a transfer from Tax Declaration No. 2994 (R-5) in the
name of Brigido Tonacao. Defendants, therefore, knew when they bought the
property that they were buying the property from Catalino who is not the registered
owner. The Deed of Sale (Exh. ǲ2ǳ) showcases defendantsǯ bad faith in that they
purchased the property from Catalino Tonacao and Lourdes Tonacao and not from
the declared owner, Brigido Tonacao.
In reversing the trial courtǯs findings, the appellate court found, thus:
Since the plaintiffs-appellees had prior knowledge of the sale of the
questioned property to the defendants-appellantsȄand even recognized and
respected the latterǯs possession thereofȄthey acted with gross and evident bad
faith in perfecting a contract of sale in their favor. Accordingly, since it has been
proven that the defendants-appellants were the anterior possessors in good faith,
ownership of the questioned property vested in them by sheer force of law.
Besides, the defendants-appellants subsequently registered the deed of sale in their
favor on June 10, 1986. For all intents and purposes, they were the first to register
the deed of conveyance. Irrefragably, since they were the first vendees, their
registration enjoyed the presumption of good faith.
Good faith is something internal. Actually, it is a question of intention. In ascertaining

oneǯs intention, this Court must rely on the evidence of oneǯs 2#2"and "4)#)2"!. Good
faith, or want of it, is capable of being ascertained only from the acts of one claiming its presence,
for it is a condition of the mind which can be judged by actual or fancied tokens or signs. Good faith
consists in the possessorǯs belief that the person from whom he received the thing was the owner of
the same and could convey his title. Good faith, while it is always to be presumed in the absence of
proof to the contrary, requires a well founded belief that the person from whom title was received
was himself the owner of the land, with the right to convey it. There is good faith where there is an
honest intention to abstain from taking any unconscientious advantage of another.
Contrastingly, in Magat, Jr. v. Court of Appeals, the Court explained that ǲ[b]ad faith does not
simply connote bad judgment or negligence. It imports a dishonest purpose or some moral
obliquity and conscious doing of wrong. It means a breach of a known duty through some motive
or interest or ill will that partakes of the nature of fraud.ǳ In Arenas v. Court of Appeals, the Court
held that the determination of whether one acted in bad faith is evidentiary in nature. Thus,
ǲ[s]uch acts (of bad faith) must be substantiated by evidence.ǳ Indeed, the unbroken jurisprudence
is that ǲ[b]ad faith under the law cannot be presumed; it must be established by clear and
convincing evidence.ǳ
Evidence submitted to the court, oral and documentary, established that respondents knew
beforehand that the property was declared in the name of Brigido Tonacao for taxation purposes.
Respondent Celedonio Rodaje testified as follows:
Q: Mr. Celedonio Rodaje, you said the property you bought in this case was
bought from Catalino Tonacao?
A: It was from Catalino Tonacao.
Q: And the Deed of Absolute Sale was executed in the year 1986?
A: Yes.
Q: It was likewise Catalino Tonacao who signed and executed the Deed of
Absolute Sale?
A: Yes, including his wife.
Q: Before you purchased this property, did you find for yourself the ownership
of the property you were supposed to buy?
A: Yes, I did.
Q: Did Catalino Tonacao presented to you a document showing that he really
owns the property?
A: The Tax Declaration of his son Brigido Tonacao signed by Catalino Tonacao.
Q: It was presented to you, the Tax Declaration declared in the name of Brigido
Tonacao?
A: It was presented to me.
Respondents claim that they have been in possession of the lot even before the execution of
the Deed of Absolute Sale on June 6, 1986. Catalino allowed them to take possession after they
made an initial payment on January 11, 1984. They constructed a house thereon which they use as
a store. They are the ones paying the electric bills and realty taxes.
However, a perusal of the records of the case shows that petitioners are the ones in prior
possession of the property. After they purchased it from the heirs of Brigido in 1981, they started
building a house thereon. The construction was completed in 1984. The house was declared in the
name of their daughter Aida Salera under Tax Declaration No. 4403 issued on October 11, 1984.
She occupied the house and used it as a sari-sari store until 1985 when she had to close it because
business was bad. Even the electrical connection of the house was registered in her name. In fact,
respondent Celedonio Rodaje testified that the electric bills are in the name of Aida Salera, thus:
Q: Aida Salera testified that she is the owner of the house, plaintiffǯs daughter in
this case. She presented the electric bills in her name, what can you say to
that?
A: The electric bills are in her name, but I was the one paying.
Q: How did it come that the electric bills are in her name?
A: It was a time when the house was newly constructed where she lived for a
while.
Q: You said you were the one paying her electric bills, do you have any evidence
to prove your allegation?
A: I have.
Q: What is your proof?
A: A certification from the electric bill collector that I have paid the electric bills
from the beginning.
The certification referred to by respondent Celedonio states that ǲMr. Celedonio C. Rodaje,
Jr. is the one paying the 52"02$055!=0#)Ô)5) whose dwelling unit is situated in barangay
Basud, San Isidro, Leyte since 1986.ǳ The certification clearly shows that the house is owned by
Aida Salera and that respondents started paying the electric bills only in 1986.
Respondent Celedonio Rodaje likewise testified that he paid the realty taxes for the lot
ǲfrom 1974 to 1984 up to the present.ǳ However, it appears from his Realty Tax Clearance that he
paid only in 1984 and that the payment was in lump sum.
As stated earlier, respondents knew, prior to the sale to them, that the lot was declared for
taxation purposes under the name of Brigido. Thus, respondents should have been wary in buying
the property. Any lot buyer is expected to be vigilant, exercising utmost care in determining
whether the seller is the true owner of the property and whether there are other claimants. There
is no indication from the record that respondents first determined the status of the lot.
While tax declarations are not conclusive proofs of ownership, however, they are good
indicia of possession in the concept of owner, for no one in his right mind would be paying taxes for
a property that is not in his actual or at least constructive possession. Hence, as between Brigido
and Catalino, the former had better right to the property. In other words, Catalino, not being the
owner or possessor, could not validly sell the lot to respondents.
The Court is convinced that respondents had knowledge that the disputed property was
previously sold to petitioners by Brigidoǯs heirs. Obviously, aware that the sale to petitioners was
not registered, they purchased the property and have the sale registered ahead of petitioners, who
although in possession, failed to have their contract of sale registered immediately in the Registry
of Deeds.
Î, the petition is *. The assailed Decision of the Court of Appeals in
CA-G.R. CV No. 51480 is
Ô* and the Decision of the trial court is Ô*.
Ô**.
ANGELINA SANDOVAL-GUTIERREZ
Associate Justice
WE CONCUR:
,Ô

!p
Chairperson
RENATO C. CORONA ADOLFO S. AZCUNA
CANCIO C. GARCIA
Associate Justice

Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the
conclusions in the above Decision were reached in consultation before the case was assigned to the
writer of the opinion of the Courtǯs Division.
,Ô

Chief Justice
Penned by Justice Ramon Mabutas, Jr. and concurred in by Justices Hilarion L. Aquino and
Renato C. Dacudao (all retired).

c
& @
Ap _
G.R. No. 132161, January 17,
2004, 448 SCRA 347.
.
G.R. No. 142403, March 26, 2003, 399 SCRA 573, citing
_
305 SCRA 118
(1999).

#
& _ .
$
G.R. Nos. 164801 & 165165, June 30, 2006,
494 SCRA 308.
¸ citing _ $467 SCRA 341 (2005).
G.R. No. 124221, August 4, 2000, 337 SCRA 298, cited in
#
& _
.
$

G.R. No. 126640, November 23, 2000, 345 SCRA 617
TSN, pp. 71-72 dated August 9, 1994.
TSN, p. 7 dated November 23, 1993.
Documentary Exhibits of Plaintiffs, p. 6.
TSN, pp. 8-9 dated November 23, 1993.
Documentary Exhibits of Plaintiffs, pp. 11-12.
TSN, p. 69 dated August 9, 1994.
Documentary Exhibits of Defendants, p. 13.
TSN, p. 64 dated August 9, 1994.
Documentary Exhibits of Defendants, p. 5.

_
G.R. No. 95608, January 21, 1997, 266 SCRA 392;
p
_ $G.R. No. 151440, June 17, 2003, 404 SCRA 193;
_ ) _ i i, G.R. No. 83904, August 13, 1990, 188 SCRA 508, citing
c_
112 SCRA 542 (1982).
G.R. No. 19009 September 26, 1922
E.C. MCCULLOUGH & CO. vs. S. M. BERGER

Ô
Manila
(

..Ô "<$ .

&& 9
plaintiff-appelle,
vs.
Ô

( defendant-appellant.
¢ (i -

(®p
Ô
For cause of action it is alleged that in the month of February, 1918, plaintiff and
defendant and defendant entered into an agreement by which the defendant was to
deliver plaintiff 501 bales of tobacco of New York City in good condition. That delivery
was made and the plaintiff paid the full purchase price. That upon an examination later
the tobacco was found to be in must condition, and its value was $12,000 less than it
would have been if the tobacco had been in the condition which defendant agreed that it
should be, as a result of which plaintiff claims damages for P12,000, United States 2
743

currency, or P24,000, Philippine currency. That when the condition of the tobacco was
R E ) # F3+ 444

# )
discovered, plaintiff promptly notified the defendant, who ignored the protest. #
# $
Wherefore, the plaintiff prays judgment for the amount of P24,000, Philippine currency, +r 444#
for costs and general relief.
For answer, the defendant denies all the material allegation of the complaint, and, as a
further and separate defense, alleges that on August 15, 1918, he was advised by the
plaintiff that the latter was dissatisfied with the quality of the tobacco, and he made him a
formal written offer to repurchase the tobacco at the original selling price with accrued 2
# )
interest, and that plaintiff rejected the offer.

) #
That defendant has been ready and willing at all reasonable times to accept the return of
the tobacco and to return the amount of the purchase price with legal interest, and has a
repeatedly tendered to the plaintiff such purchase price in exchange for the return of the
tobacco, and that plaintiff had refused to return it. That any damages which plaintiff may
have suffered have been wholly due to his willful refusal to return and redeliver the
tobacco.
Upon such issues there was a stipulation of facts, and after trial the lower court rendered
judgment against the defendant and in favor of the plaintiff for the sum of P11,867.98 or
P23,735.96 with legal interest from January 6, 192, and costs, from which, after his
motion for a new trial was overruled, the defendant appeals, claiming that the court
erred: First, in finding that the tobacco was not in good condition when it arrived in New
York; second, in holding that the plaintiff is entitled to maintain an action for breach of
contract after having agreed with the defendant to rescind and to make restitution of the
subject-matter and the price after a violation of the agreement; third in holding that the
plaintiff, having elected to rescind and notified the defendant of such an election, may
now refused it and affirm the same and recover from the alleged breach of warranty;
fourth, in holding that this action should be maintained, no claim having been made for
the alleged breach of warranty of quality within the statutory period; and, fifth, in
overruling the defendant's motion for a new trial.
ÔJ.:
In February, 1918, the defendant met the plaintiff in the city of Manila and advised him
that he had made a shipment of 501 bales of tobacco to new York City consigned to S.
Lowenthal & Sons, who had refused to honor the draft which was drawn upon them. He
asked the plaintiff whether he could use the tobacco provided it was "perfectly sound." At
the plaintiff's request the defendant made and signed a writing as follows:
Referring to the shipment of 501 bales of tobacco sold you consisting of 188 200-
pound bales of scrap and 313 200-pound bales of booked tobacco, I beg to
confirm my verbal conversation with you in stating that I guarantee the arrival of
the tobacco in New York in good condition, subject, of course, to conditions
arising after its departure from Manila, which contingencies are covered by
adequate insurance. (Stipulation par. 1.)
Upon the strength of this the plaintiff cabled his New York office to honor the defendant's
draft, which was ninety days' sight for $33,109, and was the same draft and amount
which had been refused by S. Lowenthal & Sons. The draft was honored by his New York
office at plaintiff's request. The shipment consisted of 188 bales of "scrap," invoiced at 28
cents, gold, per pound, and 313 bales of "striped" and "booked" at 36 cents, gold, per
pound, and was made c.i.f. New York. Before its arrival in New York the plaintiff had
found purchasers for a large portion of it with whom he had made contracts for sale
subject to examination as to condition. The tobacco arrived in two shipments. The first of
213 bales on April 26, and the second of 288 bales on May 18, 1918, and it was at once
placed in warehouses by plaintiff. With the exception of four or five bales, it appeared
from an examination that the tobacco was well baled, and to all outward appearances was
in good condition after the shipment. After it was placed in the warehouse, the tobacco
itself was examined as to its condition and quality by the different buyers to whom the
plaintiff had contracted to sell it, and after such physical inspection, they refused to
accept it and complete their purchase because it was "musty." It appears that the plaintiff 2
)
had sold 188 bales of the tobacco before its arrival in New York to a customer in Red Lion, & /

#
#
Pennsylvania, to whom he shipped 75 bales of it after its arrival. This customer refused to
receive any of the remaining bales which he had purchased, and the plaintiff was
compelled to again reship it back to New York. Complying with his agreement, on May 21,
1918, the plaintiff paid the defendant's draft which he had previously accepted, thus
completing his part of the contract with the defendant.
On May 23, 1918, and as a result of physical inspection, the plaintiff cabled the defendant
that the tobacco was unsatisfactory, and on June 13, he again cabled that there would
likely be a loss. On June 28, 1918, the plaintiff wrote a letter to the defendant in which,
among other things, he says:
. . . The tobacco has a very strong ground smell and somewhat of a musty smell as
though it had been mixed up with must tobacco. In other words, it appears like
this tobacco assorted from bales which were mildewed and this is that part of the
bale which was not mildewed. It does not seem possible that this od or, or musty
smell, could have developed in transit as it seems perfectly clear that the tobacco
was packed in that same condition. In all the bales which we have examined,
which have been considerable, the tobacco seems to be perfectly dry. In view of
that I can see nothing but every indication that the tobacco was originally a bad
lot.
In this letter he also advised the defendant that he was doing everything he could to sell
the tobacco, and that he did not have any prospective buyer even at a loss of 25 per cent.
August 9, 1918, the defendant acknowledge the receipt of the letter and cables, saying
that he was "not in a position to lose between seventeen and twenty thousand pesos, and
that he would consent to a reduction of four thousand pesos, if that wa s acceptable, and, if
it was not, to have the bank pay back the amount of the draft with interest and take
charge of the tobacco until the defendant would arrive in New York." The plaintiff did not
receive this cable until August 21, when he cabled in reply that he would turn the tobacco
over to the defendant, and that he "awaited telegraphic instruction in regard to it. That at
least twenty dealers had passed on the tobacco." At that time the plaintiff had sold 66
bales of scattered samples from which, with the 75 bales sold to the Red Lion customer,
he realized $9,031.71.
September 5, 1918, the defendant wrote the New York Agency of the Philippine National
Bank in which he said that the plaintiff had advised him that the tobacco on arrival was
satisfactory, and that there would be a loss, and that the had assured its arrival at
destination "in good condition." That he was taking it back. That the bank should pay
plaintiff $33,109 plus interest upon delivery to it of the 501 bales. That "on no account
should they agree to accept any shortage in the number of bales."
October 18, 1918, without any knowledge of the defendant's instruction to the bank, the
plaintiff wrote him that his proposition to take the tobacco back was satisfactory in which
he said that he had not heard from the bank "at the time of writing with reference to
taking back of the tobacco."
October 30, 1918, the bank wrote the plaintiff that it would take back the identical 501
bales, and pay him the amount of the draft and interest. The plaintiff then wrote the bank
a complete history of the transaction, and explained why the identical 501 bales could not
be returned. That he had realized $9,031.71 from 141 bales of it which he had sold, for
which he would account and return the balance of the tobacco which was then unsold and
in the New York warehouse. The $9,031.71 was more than the actual agreed purchase
price of the 141 bales. This offer was cabled to the defendant, who replied:
The instructions given you in my letter dated September 5, 1918, will not be
modified.
The bank notified the plaintiff of the receipt of this cable, and in turn notified the plaintiff
of the receipt of this cable, and in turn notified the plaintiff of the receipt of this cable, and
in turn notified the defendant that the plaintiff would sell the tobacco at public auction,
and then sue him for the balance of the purchase price, and later the plaintiff did sell the
remainder of the tobacco upon which there was a net actual loss to him of $11,867.98,
over and above all actual charges and expenses.
Although at the time of the making of the contract between them the plaintiff and
defendant were in Manila, the tobacco involved was on the high seas in transit to New
York. From necessity the plaintiff could not see or examine it and would not know
anything about its grade or quality, and, for that reason, insisted that the defendant
should make and sign the writing above quoted in which he says:
I guarantee the arrival of the tobacco in New York in good condition, subject, of
course to, to conditions arising after its departure from Manila, which
contingencies are covered by adequate insurance.
The trial court found and the testimony is conclusive that the tobacco did not arrive in
New York "in good condition," and that , as a matter of fact, it was not "in good condition"
when it left Manila.
The plaintiff and defendant had known each other for about ten years, and had mutual
confidence in each other, and were experienced business men.
Defendant's draft of the tobacco had been dishonored. Plaintiff was willing to take the
tobacco and honor the draft, with the proviso that the defendant would guarantee its
arrival "in good condition."
The evidence shows that in the whole transaction, the plaintiff acted in good faith and
made an earnest effort to protect the defendant and minimized his loss. Defendant knew
that in the very nature of things the plaintiff bought the tobacco for the purpose of resale,
and that in the ordinary course of business, he would resell it. The record shows that he
found purchasers for portions of it before its arrival in New York. The only reason why
plaintiff's sales were not consummated was because the tobacco did not stand inspection
and was not "in good condition" at the time of its arrival in New York. In other words,
plaintiff bought and paid the defendant for tobacco which was not "in good condition,"
and bought it for the purpose of resale. In the very nature of things, the defendant knew
that the plaintiff bought the tobacco for the purpose of resale, and he also knew that , if
the tobacco was not "in good condition," it was not worth the amount of the purchase
price which plaintiff paid.
The defense cites and relies upon articles 336 and 342 of the Code of Commerce which
are as follows:
A purchaser who, at the time of receiving the merchandise, fully examines the
vendor, alleging a defect in the quantity or quality of the merchandise.
A purchaser shall have a right of action against a vendor for defects in the
quantity or quality of merchandise receive in bales or packages, provided he
brings his action within the four days following it receipt, and that the damage is
not due to accident or to natural defect of the merchandise or to fraud.
In such cases the purchaser may choose between the rescission of the contract or
its fulfillment in accordance with what has been agreed upon, but always with the
payment of the damages he may have suffered by reason of the defects or faults.
The vendor may avoid this claim by demanding when making the delivery that
the merchandise be examined by the purchaser for his satisfaction with regard to
the quantity and quality thereof.
Article 342:
A purchaser who has not made any claim based on the inherent defects in the
article sold, within the thirty days following its delivery, shall lose all rights of
action against the vendor for such defects.
Whatever may be the rule as to sales which are completed within the jurisdiction of the
Philippine Islands, those sections do not, and were never intended to, apply to a case
founded upon the facts shown in the record. Although it is true that the contract between
the plaintiff and the defendant was made in Manila, yet at the time it was made the
tobacco was on the high seas, and under the contract, it was to be delivered "in good
condition" in the City of New York, in consideration of which the plaintiff agreed to pay
the draft. That is to say, the transaction was not complete until after the arrival of the
tobacco in New York "in good condition," and the payment of the draft . It must be
conceded that if, for any reason, the tobacco did not arrive in New York, the defendant
could not recover upon the draft from the plaintiff. Hence, it must follow that the delivery
of the tobacco at New York was a condition precedent which devolved upon the
defendant to perform without which he would not have a cause of action against the
plaintiff.
It is true that the writing recites "the shipment of 501 bales of tobacco sold you." Yet, the
fact remains that it was necessary to deliver the tobacco in New York to complete the
sale.
Contracts of this nature should be construed with reference to the surrounding

conditions and the relative situation of the parties.
At the time this contract was made both parties were in Manila, the tobacco was in transit
to New York, and the defendant knew that the plaintiff entered into the contract for the
purpose of a resale. Soon after the contract was made, the plaintiff left Manila and went to
New York where, relying upon this contract with the defendant, he found purchasers for
the tobacco on the assumption that it was "in good condition."
Although the word @!5#@0!!#0"340""2")2""3")!)2"0!34!"3)"

"3!)54)!"2< 5""05"3)07)5="3;#!04,E

The case of Middleton vs. Ballingall (1 Cal., 446), is somewhat in point, in which the court
says:
I think that the fair construction to be put upon the contract is, that on the arrival
of the ship containing the goods, the defendants should deliver them, and the
plaintiffs should pay the contract price. And the authorities hold that the arrival of
the goods, in such case, is a condition precedent, which must be shown to have
taken place before either party can bring suit.
In the instant case, the contract was at least executory as to the delivery of the tobacco in
New York.
Cyc., vol. 35, pp. 274, 275 and 276, says:
In order to pass the title to goods as against the seller or those claiming under him
there must be a valid existing and completed contract of sale. Under a complete
contract of sale the property in the goods passes at once from the seller to the
buyer, at the place where the contract becomes complete, and for this reason the
agreement is frequently called an executed contract. The sale is, however, an
executory contract, if the seller merely promises to transfer the property at some
future day, or the agreement contemplates the performance of some act or
condition necessary to complete the transfer. #!23)2")2""05"3
)2"0! =<#"32#0"0=5=055#430230!2!!)%"27""3
A2"%0")A2"#2")2""0"5 )!!!""3$%)!);)0!"
"3!55 !!25)0<0;#30<
While certain terms and expressions
standing alone import an executed or executory contract, they are by no means
conclusive but must be construed with reference to other provisions of the
contract and according to what appears to have been the real intention of the
parties, and so a mere recital in the writing evidencing the contract that the
article is "sold" or that the buyer has "purchased" it does not necessarily make the
contract executed; while on the other hand a recital that the seller "agrees to sell"
is not conclusive that the title was not intended to pass immediately.
The trial court found and the evidence sustains the finding that that plaintiff acted in good
faith. The contract was made in February, 1918 the draft was payable ninety days after
date; the first shipment of 213 bales arrived on April 26, and the second of 288 bales on
May 18, and the plaintiff the draft on May 21 1918, and the transaction between the
parties then became complete. On May 23, he cabled the defendant that the tobacco was
unsatisfactory. On June 13, he cabled that there would be a loss. On June 28, he wrote the
letter above quoted. September 5, the defendant wrote the New York Agency of the
Philippine National Bank that he would take the tobacco back on condition that there was
not any shortage in the number of bales. During all of this time, the defendant had the use
of plaintiff's money. It is true that the defendant offered to take the tobacco back and
refund the money, but this offer was not actually made to the plaintiff until October , and
was upon the condition that the full amount of the 501 bales should be returned, which
was an impossible condition for the plaintiff to perform. But the plaintiff did offer to 2
#
account to the defendant for the tobacco which he had sold and to return all of the unsold

#
tobacco which was then in his warehouse, and the defendant declined the offer. As a
business man, he knew that the plaintiff has then purchased the tobacco for the purpose
of a resale, and that the tobacco had arrived at New York about five months before the
offer was made, and he also knew that the plaintiff was using every effort to sell it and
convert it into money, and that he would sell the whole or any part of it if a purchaser
could be found at a reasonable price. At the time the defendant's offer was communicated
to the plaintiff by the bank the plaintiff in turn offered to account to the defendant for the
entire proceeds of the 141 bales which he had already sold, and to deliver to him all of the
unsold tobacco. This was all that the plaintiff could do under the existing conditions. The
fact that the defendant did not accept this offer is strong evidence that he was seeking an
undue advantage, and that his offer to plaintiff was not made in good faith. 2

# #

#
The second shipment arrived in New York on May 18, and the plaintiff could not be
expected to take any final action until the las shipment arrived. On learning the true
condition of the tobacco, the plaintiff cabled the defendant on May 23 that it was
unsatisfactory, and again on June 13, that there would be a substantial loss, which was
followed by the letter of June 28th above quoted.
The defects in the tobacco were inherent and could not be ascertained without opening
the bales and making a physical examination. When this was done, the plaintiff promptly
cabled the defendant that the tobacco was not satisfactory. In the nature of things, the
plaintiff could not then render the defendant a statement of the amount of this claim. By
the terms of the contract, the defendant guaranteed the arrival of the tobacco in New
York "in good condition."
Plaintiff's first cable sent ten days after the arrival of the tobacco advised the defendant
that it was unsatisfactory, and the second, twenty-six days after its arrival, advised him
that there would be a loss.
Appellant's attorneys have submitted a very able and adroit brief in which they severely
criticize the evidence on the part of the plaintiff. Upon all of the material questions of fact,
the trial court found for the plaintiff, and, in our opinion, the evidence sustains the
findings.
It must be remembered that during all these times there was about ten thousand miles of
ocean between them.
The plaintiff had parted with his money and honored the draft, expecting to sell the
tobacco and get his money back with a profit.
The testimony is conclusive that the plaintiff in good faith tried to sell the tobacco, and
that he sold the 141 bales at the best obtainable price; that the only reason why he did
not sell the remainder was because the tobacco was not "in good condition;" and that
when he first knew that it was not "in good condition," he promptly cabled that defendant
that it was unsatisfactory.
As we construe the record, after the tobacco was inspected, the plaintiff promptly advised
the defendant that it was unsatisfactory, and that he would have to sustain a loss, and in
goo faith undertook to protect the defendant and to minimize the loss, and plaintiff's
claim is not barred by the provisions of either article 336 or 342 of the Code of
Commerce.
The judgment is affirmed, with costs. So ordered.

! !$
p
_p 1
*c
!! concur.
Ô ))" 00!
ÔJ., concurring:
I concur in the conclusion reached in this case and in accord with most that is said in the
opinion. But in the view I take of the case, it ought not to be said that the sale was not
complete until the arrival of the tobacco in New York.
In view of the express guaranty given by the defendant to the effect that the tobacco
would arrive in good condition, barring certain contingencies, and it having been clearly
proved that the tobacco was not in good condition upon arrival there, a right of action
accrued to the plaintiff to be indemnified to the extent allowed, and this independently of
article 342 of the Code of Commerce. But, even supposing this provision to be applicable,
claim was made within thirty days after complete delivery had been effected. The
maneuvers of the defendant relative to taking back the tobacco Ȅ on terms which he
must have believed would be impossible of fulfillment Ȅ were ruse to gain an advantage
in the impending legal controversy; and the contention that there was a rescission, or
accepted offer or rescission, is untenable.

Ô
Manila
FIRST DIVISION

&-*2<$ . .
,Ô&&Ôpetitioner,
vs.
(& &Ô)#Ô(8Ô
C(&*Drespondents,
c @(p)*p

_ (
)*p _
&-J:
Subject of this Petition for Review is the Decision of the then Court of Appeals in CA-G.R. No. 65328-
R reversing the judgment of the then Court of First Instance of Rizal, Branch XX, in Civil Case No.
16624, and dismissing petitioner Chrysler Philippines Corporation's suit for Damages against
private respondent Sambok Motors Company (Bacolod) arising from breach of contract. 2

)

#
Petitioner is a domestic corporation engaged in the assembling and sale of motor vehicles and other
automotive products. Respondent Sambok Motors Co., a general partnership, during the period
relevant to these proceedings, was its dealer for automotive products with offices at Bacolod
(Sambok, Bacolod) and Iloilo (Sambok, Iloilo). The two offices were run by relatives. Miguel Ng was
Assistant Manager for Sambok, Bacolod, while an elder brother, Pepito Ng, was the President.
On September 7, 1972, petitioner filed with the Court of First Instance of Rizal, Branch XX, Pasig,
Rizal, a Complaint for Damages against Allied Brokerage Corporation, Negros Navigation Company
and Sambok, Bacolod, alleging that on October 2, 1970, Sambok, Bacolod, ordered from petitioner
various automotive products worth P30,909.61, payable in 45 days; that on November 25, 1970,
petitioner delivered said products to its forwarding agent, Allied Brokerage Corporation, for 2
'
shipment; that Allied Brokerage loaded the goods on board the M/S Doña Florentina, a vessel

#

owned and operated by Negros Navigation Company, for delivery to Sambok, Bacolod; that when
#
petitioner tried to collect from the latter the amount of P31,037.56, representing the price of the
#
spare parts plus handling charges, Sambok, Bacolod, refused to pay claiming that it had not received
the merchandise; that petitioner also demanded the return of the merchandise or their value from
Allied Brokerage and Negros Navigation, but both denied any liability.
In its Answer, Sambok, Bacolod, denied having received from petitioner or from any of its co-
defendants, the automotive products referred to in the Complaint, and professed no knowledge of
having ordered from petitioner said articles.
Upon a Joint Motion to Dismiss filed by petitioner and Allied Brokerage, the Trial Court. on October
23, 1975, dismissed the case with prejudice against Allied Brokerage for lack of cause of action, and
also dismissed the latter's counterclaim against petitioner.
On July 31, 1978, the Trial Court rendered its Decision dismissing the Complaint against Negros
Navigation for lack of cause of action, but finding Sambok, Bacolod, liable for the claim of petitioner,
thus:
PREMISES CONSIDERED, the Court renders judgment as follows:

(1) The complaint against defendant Negros Navigation is dismissed for lack of
cause of action.
(2) Defendant Sambok Motors Co. (Bacolod) is ordered to pay plaintiff Chrysler
Philippines Corporation:
(a) The sum of Thirty-One Thousand Thirty Seven Pesos and Fifty Six
Centavos (P31,037.56) with interest at the rate of twelve percent
(12) per annum from January 1, 1971 until fully paid;
(b) The sum of Five Thousand Pesos as and for attorney's fees and
expenses of litigation;
(c) The costs of the suit.
(3) The counterclaim of defendant Negros Navigation and Sambok Motors Co.
(Bacolod) are dismissed for lack of merit.
The case against Negros Navigation was dismissed for failure of petitioner and Sambok, Bacolod, to
file the necessary notices and claims as conditions precedent for a judicial action.
On the other hand, the Trial Court found that the act of Sambok, Bacolod, "in refusing to take
delivery of the shipment for no justifiable reason from Negros Navigation despite having received
the Bill of Lading constituted wrongful neglect or refusal to accept and pay for the subject shipment,
by reason of which defendant Sambok Motors may be held liable for damages." 2

#
B
Sambok, Bacolod, appealed. On November 26, 1980, respondent Appellate Court set aside the
$ #
appealed judgment and dismissed petitioner's Complaint, after finding that the latter had not
performed its part of the obligation under the contract by not delivering the goods at Sambok,
Iloilo, the place designated in the Parts Order Form (Exhibits "A", "A-1" to "A-6"), and must,
therefore, suffer the loss. In other words, respondent Appellate Court found. that ther e was
misdelivery.
Hence, this Petition for Review on Certiorari, with the following errors assigned to respondent
Court:
The Respondent Court of Appeals erred in finding that the issue of misshipment or
misdelivery of the automotive spare parts involved in the litigation was raised by
the private respondent Sambok Motors Co. (Bacolod) in the Trial Court.
II
The Respondent Court of Appeals erred in refusing to apply the provisions of

Section 18, Rule 46 of the Revised Rules of Court quoted below, that since the
question of misshipment or misdelivery was not raised by the private respondent in
the Trial Court, this issue cannot for the first time be raised on appeal.
Section 18. Questions that may be raised on appeal. Whether or not
the appellant has filed a motion for new trial in the court below, he
may include in his assignment of errors any question of law or fact
that has been raised in the court below and which is within the
issues framed by the parties.
III
The Respondent Court of Appeals erred in finding that the private respondent gave
the alleged instruction to the petitioner to ship the automotive spare parts to Iloilo
City and not to Bacolod City.
IV
The Respondent Court of Appeals erred in finding that the defendant Negros
Navigation notified the private respondent of the arrival of the shipment at Bacolod
City.
The Respondent Court of Appeals erred in reversing the decision of the Trial Court
that the act of the private respondent in refusing to take delivery of the automotive
spare parts that it purchased from the petitioner after having been notified of the
shipment constitutes wrongful neglect resulting in the loss of the cargo for which it
should be liable in damages to the petitioner.
To our minds, the matter of misdelivery is not the decisive factor for relieving Sambok, Bacolod, of
liability herein. While it may be that the Parts Order Form (E exhibits "A", "A-1" to "A-6")
specifically indicated Iloilo as the destination, as testified to by Ernesto Ordonez, Parts Sales
Representative of petitioner, Sambok, Bacolod, and Sambok, Iloilo, are actually one. In fact,
admittedly, the order for spare parts was made by the President of Sambok, Pepito Ng, through its
marketing consultant. Notwithstanding, upon receipt of the Bill of Lading, Sambok, Bacolod, 2
9
initiated, but did not pursue, steps to take delivery as they were advised by Negros Navigation that /#

because some parts were missing. they would just be informed as soon as the missing parts were # #
located.
It was only four years later, however, or in 1974, when a warehouseman of Negros Navigation,
Severino Aguarte, found in their off-shore bodega, parts of the shipment.- in question, but already
deteriorated and valueless.
Under the circumstances, Sambok, Bacolod, cannot be faulted for not accepting or refusing to accept 2

the shipment from Negros Navigation four years after shipment. The evidence is clear that Negros

Navigation could not produce the merchandise nor ascertain its whereabouts at the time Sambok, *
Bacolod, was ready to take delivery. Where the seller delivers to the buyer a quantity of goods less
$ #
than he contracted to sell, the buyer may reject them.
From the evidentiary record, Negros Navigation was the party negligent in failing to deliver the
complete shipment either to Sambok, Bacolod, or to Sambok, Iloilo, but as the Trial Court found,
petitioner failed to comply with the conditions precedent to the filing of a judicial action . Thus, in
the last analysis, it is petitioner that must shoulder the resulting loss. The general rule that before, 2

delivery, the risk of loss is home by the seller who is still the owner, under the principle of = #
= /is applicable in petitioner's case.
In sum, the judgment of respondent Appellate Court, will have to be sustained not on the basis of
misdelivery but on non-delivery since the merchandise was never placed in the control and
possession of Sambok, Bacolod, the vendee.
WHEREFORE, we hereby affirm the Decision of the then Court of Appeals in CA-G.R. No. 65328-R,
without pronouncement as to costs.
SO ORDERED.
@ @A
! i
¢ !! pp
c
_!
""!
1 Exhibit "6", Deposition, Miguel Ng, p.4.
2 CFI Decision, Rollo, p. 140.
3 T.S.N., June 6, 1975, p. 581.
4 Folio of Exhibits, pp. 22-23, Deposition of Miguel Ng.
5 Rollo, pp. 136-137.
6 Article 1522, Civil Code.

G.R. No. 147839 June 8, 2006
GAISANO CAGAYAN, INC. VS. INSURANCE CO. OF NORTH AMERICA

Ô
Manila
FIRST DIVISION

/.
Ô ,

Petitioner,
vs.
Ô ,Respondent.
DECISION
Ô-+J.:
Before the Court is a petition for review on certiorari of the Decision1 dated October 11,
2000 of the Court of Appeals (CA) in CA-G.R. CV No. 61848 which set aside the Decision
dated August 31, 1998 of the Regional Trial Court, Branch 138, Makati (RTC) in Civil Case
No. 92-322 and upheld the causes of action for damages of Insurance Company of North
America (respondent) against Gaisano Cagayan, Inc. (petitioner); and the CA Resolution
dated April 11, 2001 which denied petitioner's motion for reconsideration.
The factual background of the case is as follows:
Intercapitol Marketing Corporation (IMC) is the maker of Wrangler Blue Jeans. Levi
Strauss (Phils.) Inc. (LSPI) is the local distributor of products bearing trademarks owned
by Levi Strauss & Co.. IMC and LSPI separately obtained from respondent fire insurance
policies with book debt endorsements. The insurance policies provide for coverage on
"book debts in connection with ready-made clothing materials which have been sold or
delivered to various customers and dealers of the Insured anywhere in the Philippines."2
The policies defined book debts as the "unpaid account still appearing in the Book of
Account of the Insured 45 days after the time of the loss covered under this Policy."3 The 2
) 0
policies also provide for the following conditions: /
#

6

1. Warranted that the Company shall not be liable for any unpaid account in #

respect of the merchandise sold and delivered by the Insured which are r7 #
outstanding at the date of loss for a period in excess of six (6) months from the
date of the covering invoice or actual delivery of the merchandise whichever shall
first occur.
2. Warranted that the Insured shall submit to the Company within twelve (12)
days after the close of every calendar month all amount shown in their books of
accounts as unpaid and thus become receivable item from their customers and
dealers. x x x4
xxxx
Petitioner is a customer and dealer of the products of IMC and LSPI. On February 25, 2
=
1991, the Gaisano Superstore Complex in Cagayan de Oro City, owned by petitioner, was ) /#

6 #
consumed by fire. Included in the items lost or destroyed in the fire were stocks of ready-
made clothing materials sold and delivered by IMC and LSPI.
On February 4, 1992, respondent filed a complaint for damages against petitioner. It

alleges that IMC and LSPI filed with respondent their claims under their respective fire
insurance policies with book debt endorsements; that as of February 25, 1991, the unpaid
accounts of petitioner on the sale and delivery of ready-made clothing materials with IMC
was P2,119,205.00 while with LSPI it was P535,613.00; that respondent paid the claims
of IMC and LSPI and, by virtue thereof, respondent was subrogated to their rights against
petitioner; that respondent made several demands for payment upon petitioner but these 2
R
went unheeded. 5 '
=
/
)

In its Answer with Counter Claim dated July 4, 1995, petitioner contends that it could not #
be held liable because the property covered by the insurance policies were destroyed due
to fortuities event or force majeure; that respondent's right of subrogation has no basis
inasmuch as there was no breach of contract committed by it since the loss was due to
fire which it could not prevent or foresee; that IMC and LSPI never communicated to it
that they insured their properties; that it never consented to paying the claim of the
insured.6 2
9 =
$

At the pre-trial conference the parties failed to arrive at an amicable settlement.7 Thus, #
trial on the merits ensued.
On August 31, 1998, the RTC rendered its decision dismissing respondent's complaint.8 It
held that the fire was purely accidental; that the cause of the fire was not attributable to
the negligence of the petitioner; that it has not been established that petitioner is the
debtor of IMC and LSPI; that since the sales invoices state that "it is further agreed that 2
& (
merely for purpose of securing the payment of purchase price, the above-described

merchandise remains the property of the vendor until the purchase price is fully paid", / )
IMC and LSPI retained ownership of the delivered goods and must bear the loss.
=

) /#
Dissatisfied, petitioner appealed to the CA.9 On October 11, 2000, the CA rendered its
decision setting aside the decision of the RTC. The dispositive portion of the decision
reads:
WHEREFORE, in view of the foregoing, the appealed decision is REVERSED and SET
ASIDE and a new one is entered ordering defendant-appellee Gaisano Cagayan, Inc. to
pay:
1. the amount of P2,119,205.60 representing the amount paid by the plaintiff-

appellant to the insured Inter Capitol Marketing Corporation, plus legal interest
from the time of demand until fully paid;
2. the amount of P535,613.00 representing the amount paid by the plaintiff -

appellant to the insured Levi Strauss Phil., Inc., plus legal interest from the time of
demand until fully paid.
With costs against the defendant-appellee.

SO ORDERED.10
The CA held that the sales invoices are proofs of sale, being detailed statements of the 2
'
nature, quantity and cost of the thing sold; that loss of the goods in the fire must be borne # =(

by petitioner since the _ contained in the sales invoices is an exception under
Article 1504 (1) of the Civil Code, to the general rule that if the thing is lost by a fortuitous # B (
event, the risk is borne by the owner of the thing at the time the loss under the principle #
of res perit domino; that petitioner's obligation to IMC and LSPI is not the delivery of the
lost goods but the payment of its unpaid account and as such the obligation to pay is not
extinguished, even if the fire is considered a fortuitous event; that by subrogation, the
insurer has the right to go against petitioner; that, being a fire insurance with book debt
endorsements, what was insured was the vendor's interest as a creditor.11
Petitioner filed a motion for reconsideration 12 but it was denied by the CA in its
Resolution dated April 11, 2001. 13
Hence, the present petition for review on certiorari anchored on the following
Assignment of Errors:
THE COURT OF APPEALS ERRED IN HOLDING THAT THE INSURANCE IN THE INSTANT
CASE WAS ONE OVER CREDIT.
THE COURT OF APPEALS ERRED IN HOLDING THAT ALL RISK OVER THE SUBJECT 2
&
GOODS IN THE INSTANT CASE HAD TRANSFERRED TO PETITIONER UPON DELIVERY = G
THEREOF.
THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS AUTOMATIC

SUBROGATION UNDER ART. 2207 OF THE CIVIL CODE IN FAVOR OF RESPONDENT.14
Anent the first error, petitioner contends that the insurance in the present case cannot be
deemed to be over credit since an insurance "on credit" belies not only the nature of fire
insurance but the express terms of the policies; that it was not credit that was insured
since respondent paid on the occasion of the loss of the insured goods to fire and not
because of the non-payment by petitioner of any obligation; that, even if the insurance is
deemed as one over credit, there was no loss as the accounts were not yet due since no
prior demands were made by IMC and LSPI against petitioner for payment of the debt
and such demands came from respondent only after it had already paid IMC and LSPI
under the fire insurance policies.15
As to the second error, petitioner avers that despite delivery of the goods, petitioner-
buyer IMC and LSPI assumed the risk of loss when they secured fire insurance policies
over the goods.
Concerning the third ground, petitioner submits that there is no subrogation in favor of
respondent as no valid insurance could be maintained thereon by IMC and LSPI since all
risk had transferred to petitioner upon delivery of the goods; that petitioner was not
privy to the insurance contract or the payment between respondent and its insured nor
was its consent or approval ever secured; that this lack of privity forecloses any real
interest on the part of respondent in the obligation to pay, limiting its interest to keeping
the insured goods safe from fire.
For its part, respondent counters that while ownership over the ready- made clothing
materials was transferred upon delivery to petitioner, IMC and LSPI have insurable
interest over said goods as creditors who stand to suffer direct pecuniary loss from its
destruction by fire; that petitioner is liable for loss of the ready-made clothing materials
since it failed to overcome the presumption of liability under Article 1265 16 of the Civil
Code; that the fire was caused through petitioner's negligence in failing to provide
stringent measures of caution, care and maintenance on its property because electric
wires do not usually short circuit unless there are defects in their installation or when
there is lack of proper maintenance and supervision of the property; that petitioner is
guilty of gross and evident bad faith in refusing to pay respondent's valid claim and
should be liable to respondent for contracted lawyer's fees, litigation expenses and cost of
suit.17
As a general rule, in petitions for review, the jurisdiction of this Court in cases brought
before it from the CA is limited to reviewing questions of law which involves no
examination of the probative value of the evidence presented by the litigants or any of
them.18 The Supreme Court is not a trier of facts; it is not its function to analyze or weigh
evidence all over again.19 Accordingly, findings of fact of the appellate court are generally
conclusive on the Supreme Court.20
Nevertheless, jurisprudence has recognized several exceptions in which factual issues

may be resolved by this Court, such as: (1) when the findings are grounded entirely on
speculation, surmises or conjectures; (2) when the inference made is manifestly
mistaken, absurd or impossible; (3) when there is grave abuse of discretion; (4) when the
judgment is based on a misapprehension of facts; (5) when the findings of facts are
conflicting; (6) when in making its findings the CA went beyond the issues of the case, or
its findings are contrary to the admissions of both the appellant and the appellee; (7)
when the findings are contrary to the trial court; (8) when the findings are conclusions
without citation of specific evidence on which they are based; (9) when the facts set forth
in the petition as well as in the petitioner's main and reply briefs are not disputed by the
respondent; (10) when the findings of fact are premised on the supposed absence of
evidence and contradicted by the evidence on record; and (11) when the CA manifestly
overlooked certain relevant facts not disputed by the parties, which, if properly
considered, would justify a different conclusion.21 Exceptions (4), (5), (7), and (11) apply
to the present petition.
At issue is the proper interpretation of the questioned insurance policy. Petitioner claims
that the CA erred in construing a fire insurance policy on book debts as one covering the
unpaid accounts of IMC and LSPI since such insurance applies to loss of the ready-made
clothing materials sold and delivered to petitioner.
The Court disagrees with petitioner's stand.
It is well-settled that when the words of a contract are plain and readily understood,
there is no room for construction.22 In this case, the questioned insurance policies
provide coverage for "book debts in connection with ready-made clothing materials
which have been sold or delivered to various customers and dealers of the Insured
anywhere in the Philippines." 23 ; and defined book debts as the "unpaid account still
appearing in the Book of Account of the Insured 45 days after the time of the loss covered
under this Policy."24 Nowhere is it provided in the questioned insurance policies that the
subject of the insurance is the goods sold and delivered to the customers and dealers of
the insured.
Indeed, when the terms of the agreement are clear and explicit that they do not justify an
attempt to read into it any alleged intention of the parties, the terms are to be understood
literally just as they appear on the face of the contract.25 Thus, what were insured against
were the accounts of IMC and LSPI with petitioner which remained unpaid 45 days after
the loss through fire, and not the loss or destruction of the goods delivered.
Petitioner argues that IMC bears the risk of loss because it expressly reserved ownership
of the goods by stipulating in the sales invoices that "[i]t is further agreed that merely for
purpose of securing the payment of the purchase price the above described merchandise
remains the property of the vendor until the purchase price thereof is fully paid."26
The Court is not persuaded.
The present case clearly falls under paragraph (1), Article 1504 of the Civil Code:
ART. 1504. Unless otherwise agreed, the goods remain at the seller's risk until the
ownership therein is transferred to the buyer, but when the ownership therein is 2
= & =
transferred to the buyer the goods are at the buyer's risk whether actual delivery has (
#
;! !!!

been made or notexcept that: # ( #
(1) Where delivery of the goods has been made to the buyer or to a bailee for the buyer,
in pursuance of the contract and the ownership in the goods has been retained by the
seller merely to secure performance by the buyer of his obligations under the contract,
the goods are at the buyer's risk from the time of such delivery; (Emphasis supplied)
xxxx
Thus, when the seller retains ownership only to insure that the buyer will pay its debt,
the risk of loss is borne by the buyer.27 Accordingly, petitioner bears the risk of loss of the
goods delivered.
IMC and LSPI did not lose complete interest over the goods. They have an insurable
interest until full payment of the value of the delivered goods. Unlike the civil law concept
of res perit domino, where ownership is the basis for consideration of who bears the risk
of loss, in property insurance, one's interest is not determined by concept of title, but
whether insured has substantial economic interest in the property. 28
Section 13 of our Insurance Code defines insurable interest as "every interest in property,
whether real or personal, or any relation thereto, or liability in respect thereof, of such
nature that a contemplated peril might directly damnify the insured." Parenthetically,
under Section 14 of the same Code, an insurable interest in property may consist in: (a)
an existing interest; (b) an inchoate interest founded on existing interest; or (c) an
expectancy, coupled with an existing interest in that out of which the expectancy arises.
Therefore, an insurable interest in property does not necessarily imply a property
interest in, or a lien upon, or possession of, the subject matter of the insurance, and
neither the title nor a beneficial interest is requisite to the existence of such an interest, it
is sufficient that the insured is so situated with reference to the property that he would be
liable to loss should it be injured or destroyed by the peril against which it is insured.29
Anyone has an insurable interest in property who derives a benefit from its existence or
would suffer loss from its destruction.30 Indeed, a vendor or seller retains an insurable
interest in the property sold so long as he has any interest therein, in other words, so long
as he would suffer by its destruction, as where he has a vendor's lien.31 In this case, the
insurable interest of IMC and LSPI pertain to the unpaid accounts appearing in their
Books of Account 45 days after the time of the loss covered by the policies.
The next question is: Is petitioner liable for the unpaid accounts?
Petitioner's argument that it is not liable because the fire is a fortuitous event under
Article 117432 of the Civil Code is misplaced. As held earlier, petitioner bears the loss
under Article 1504 (1) of the Civil Code.
Moreover, it must be stressed that the insurance in this case is not for loss of goods by
fire but for petitioner's accounts with IMC and LSPI that remained unpaid 45 days after
the fire. Accordingly, petitioner's obligation is for the payment of money. As correctly
stated by the CA, where the obligation consists in the payment of money, the failure of the
debtor to make the payment even by reason of a fortuitous event shall not relieve him of
his liability.33 The rationale for this is that the rule that an obligor should be held exempt
from liability when the loss occurs thru a fortuitous event only holds true when the
obligation consists in the delivery of a determinate thing and there is no stipulation
holding him liable even in case of fortuitous event. It does not apply when the obligation
is pecuniary in nature.34
Under Article 1263 of the Civil Code, "[i]n an obligation to deliver a generic thing, the loss
or destruction of anything of the same kind does not extinguish the obligation." If the
obligation is generic in the sense that the object thereof is designated merely by its class
or genus without any particular designation or physical segregation from all others of the
same class, the loss or destruction of anything of the same kind even without the debtor's
fault and before he has incurred in delay will not have the effect of extinguishing the
obligation. 35 This rule is based on the principle that the genus of a thing can never perish.
Genus nunquan perit.36 An obligation to pay money is generic; therefore, it is not excused
by fortuitous loss of any specific property of the debtor.37
Thus, whether fire is a fortuitous event or petitioner was negligent are matters
immaterial to this case. What is relevant here is whether it has been established that
petitioner has outstanding accounts with IMC and LSPI. 2
B
= ) /

With respect to IMC, the respondent has adequately established its claim. Exhibits "C" to ## #
"C-22" 38 show that petitioner has an outstanding account with IMC in the amount of
P2,119,205.00. Exhibit "E" 39 is the check voucher evidencing payment to IMC. Exhibit
"F"40 is the subrogation receipt executed by IMC in favor of respondent upon receipt of
the insurance proceeds. All these documents have been properly identified, presented
and marked as exhibits in court. The subrogation receipt, by itself, is sufficient to
establish not only the relationship of respondent as insurer and IMC as the insured, but
also the amount paid to settle the insurance claim. The right of subrogation accrues
simply upon payment by the insurance company of the insurance claim.41 Respondent's
action against petitioner is squarely sanctioned by Article 2207 of the Civil Code which
provides:
Art. 2207. If the plaintiff's property has been insured, and he has received indemnity from
the insurance company for the injury or loss arising out of the wrong or breach of
contract complained of, the insurance company shall be subrogated to the rights of the
insured against the wrongdoer or the person who has violated the contract. x x x
Petitioner failed to refute respondent's evidence.
As to LSPI, respondent failed to present sufficient evidence to prove its cause of action.
No evidentiary weight can be given to Exhibit "F Levi Strauss", 42 a letter dated April 23,
1991 from petitioner's General Manager, Stephen S. Gaisano, Jr., since it is not an
admission of petitioner's unpaid account with LSPI. It only confirms the loss of Levi's
products in the amount of P535,613.00 in the fire that razed petitioner's building on
February 25, 1991.
Moreover, there is no proof of full settlement of the insurance claim of LSPI; no

subrogation receipt was offered in evidence. Thus, there is no evidence that respondent
has been subrogated to any right which LSPI may have against petitioner. Failure to
substantiate the claim of subrogation is fatal to petitioner's case for recovery of the
amount of P535,613.00.
WHEREFORE, the petition is partly *. The assailed Decision dated October 11,
2000 and Resolution dated April 11, 2001 of the Court of Appeals in CA-G.R. CV No. 61848
are * with the * that the order to pay the amount of
P535,613.00 to respondent is *&* for lack of factual basis.
No pronouncement as to costs.
SO ORDERED.

& Ô-+
p !p
WE CONCUR:

(
!p

(On Leave)
Ô &,Ô-Ô
&&Ô
Associate Justice Asscociate Justice

-+
p !p
C E R T I F I C AT I O N
conclusions in the above Decision were reached in consultation before the case was
assigned to the writer of the opinion of the Court's Division.

(
!p
""!
1Penned by Associate Justice Portia Aliño-Hormachuelos and concurred in by

Associate Justices Angelina Sandoval-Gutierrez (now Associate Justice of this
Court) and Elvi John S. Asuncion.
2 Records, pp. 146, 190.
3 Id. at pp. 149 and 200; Exhibits "A-3-a" and "E-2-a Levi Strauss".
4 Id., Exhibits "A-3" and "E-2 Levi Strauss".
5 Id. at 1.
6 Id. at 63.
7 Id. at 93.
8 Id. at 540.
9 CA rollo, p. 18.
10 Id. at 101-102.
11 Id. at 98-100.
12 Id. at 105.
13 Id. at 135.
14 Rollo, p. 36.
15 Id. at 28 (Petition), 132 (Memorandum).

16Art. 1265. Whenever the thing is lost in the possession of the debtor, it shall be
presumed that the loss was due to his fault, unless there is proof to the contrary,
and without prejudice to the provisions of Article 1165. This presumption does
not apply in case of earthquake, flood, storm, or other natural calamity.
17 Rollo, pp. 105 (Comment), 153 (Memorandum).
Spouses Hanopol v. Shoemart, Incorporated, 439 Phil. 266, 277 (2002); St.
18
Michael's Institute v. Santos, 422 Phil. 723, 737 (2001).
19 Go v. Court of Appeals, G.R. No. 158922, May 28, 2004, 430 SCRA 358, 364;
Spouses Hanopol v. Shoemart, Incorporated, supra.
20 Custodio v. Corrado, G.R. No. 146082, July 30, 2004, 435 SCRA 500, 511;
Spouses Hanopol v. Shoemart, Incorporated, supra.
21The Insular Life Assurance Company, Ltd. v. Court of Appeals, G.R. No. 126850,
April 28, 2004, 428 SCRA 79, 86; Aguirre v. Court of Appeals, G.R. No. 122249,
January 29, 2004, 421 SCRA 310, 319.
22 De Mesa v. Court of Appeals, 375 Phil. 432, 443 (1999).
23 Records, pp. 146, 190.
24 Id.
25First Fil-Sin Lending Corporation v. Padillo, G.R. No. 160533, January 12, 2005,
448 SCRA 71, 76; Azarraga v. Rodriguez, 9 Phil. 637 (1908).
26 Records, at the back of pp. 151-173; Exhibits "C" to "C-22".
27 See Lawyers Cooperative Publishing Co. v. Tabora, 121 Phil. 737, 741 (1965).
28 Aetna Ins. Co. v. King, 265 So 2d 716, cited in 43 Am Jur 2d §943.
29 43 Am Jur 2d §943.
30 Id.
31 43 Am Jur 2d §962.
32Art. 1174. Except in cases expressly specified by the law, or when it is

otherwise declared by stipulation, or when the nature of the obligation requires
the assumption of risk, no person shall be responsible for those events which
could not be foreseen, or which, though foreseen were inevitable.
33 CA Decision, p. 11; CA rollo, p. 100.

34 Lawyers Cooperative Publishing v. Tabora, supra note 27, at 741.
35Jurado, Comments and Jurisprudence on Obligations and Contracts (1993), pp.

289-290. See also Republic of the Philippines v. Grijaldo, 122 Phil. 1060, 1066
(1965); De Leon v. Soriano, 87 Phil. 193, 196 (1950).
36Bunge Corp. and Universal Comm. Agencies v. Elena Camenforte & Company, 91
Phil. 861, 865 (1952). See also Republic of the Philippines v. Grijaldo, supra; De
Leon v. Soriano, supra.
37 Ramirez v. Court of Appeals, 98 Phil. 225, 228 (1956).
38 Records, pp. 151-173.
39 Id. at 182.
40 Id. at 183.
41Delsan Transport Lines, Inc. v. Court of Appeals, 420 Phil. 824, 834 (2001);
Philippine American General Insurance Company, Inc. v. Court of Appeals, 339
Phil. 455, 466 (1997).
42 Records, p. 201.

G.R. No. 17551 May 31, 1922
BACHRACH MOTOR CO., INC. vs. TEOFILO MENDOZA

Ô
Manila
EN BANC

/ )% .
(

plaintiff-appellee,
vs.
&*+ defendant-appellant.
!

& p$ !_
Ô*J.:
This action was brought to recover the sum of P6,328.90 the balance alleged to be due on
the purchase price of an auto-truck sold by the plaintiff to the defendant on August 5,
1919. The defendant in his answer alleges as a special defense that the plaintiff, in the
beginning of the month of October of the same year, illegally deprived him of the
possession of the truck and sets up a counterclaim for the sum of P14,350 by way of
damages. The trial court rendered a judgment in favor of the plaintiff for the sum of
P5,032 with the costs and with interest at the rate of 8 per cent per annum on the sum of
P5,950 form October 15, 1919, to December 15 of the same year, and on the sum of
P4,963 from the latter date until paid. From this judgment the defendant appealed. 2

#
#
As a matter of law, there is no merit whatever in the appeal. It appears from the evidence
that the defendant paid P2,000 in cash for the truck and executed a series of promissory
notes for the balance of the purchase price, said balance amounting to P6,300. The notes
were for P350 each, the first note becoming due on September 15, 1919, and the others
falling due successively in their serial order on the 15th of each succeeding month . the
notes were secured by a chattel mortgage upon the struck and the mortgage contained
clauses to the effect that default in payment of any of the notes would render all of them
immediately due and payable, and that any payment made by the defendant to the
plaintiff might be applied by the latter towards the payment of any debt for the moment
due the plaintiff from the defendant, whether included in the mortgage or not.
On October 5 of the same year, the defendant brought the struck of plaintiff's repair shop
for some minor repairs. The repairs were completed the following day, but the plaintiff
refused to return the struck to the defendant until the amount then unpaid on the note
which fell due on September 15 were paid. The defendant in his brief argues vigorously
that an amount equal to the amount of the note had at that time in reality been paid, but
that plaintiff had applied part of it to the repair account of the tr uck and had not credited
it to the note. An analysis of the evidence as a whole shows, however, that the defendant
is basing his argument on an evident error in the transcript of the testimony and that in
realty only P50 had been paid on the September note prior to October 6. In any event, the
point is unimportant; the defendant admits that on the 6th of October there was some
money due the plaintiff and whether this money was due upon the note in question or for
repairs to the truck seems immaterial; the plaintiff would, in either case, have the right of
the retention of the truck until the amount due was paid or tendered him. (Articles 1600 2

37
and 1866, Civil Code.)
__ j8 # "#
7
#

The truck remained in the possession of the plaintiff until October 15 when the defendant #
6
completed the payment of the note payable on September 15, but as the second note of

the series then also had become due the plaintiff continued to retain the truck and o n
#
October 25 the chattel mortgage was foreclosed for default in the payment of said second
note. At the foreclosure sale the truck was bought in by the plaintiff for P1,00. 2
"
37
37

"

The defendant's defense rests wholly upon the theory that the plaintiff retained the " +7
3#44 #
possession of the truck illegally between the dates of October 6 and Octobe r 15, 1919,
and that he, the defendant, therefore was under no obligation to pay the note due on the
last named date. It appearing that the plaintiff's retention of the possession of the truck
was authorized by law, the defendant's position is, of course, untenable. 2

# <
#
The judgment appealed from is therefore affirmed with costs against the appellant. So
ordered.

! $
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G.R. No. 144934 January 15, 2004
ADELFA S. RIVERA vs. FIDELA DEL ROSARIO, ET AL.

Ô
Manila
SECOND DIVISION

.))%
*&Ô

,Ô

)#ÔÔ

petitioners,
vs.
*&*&ÔC#2)!#)#!$!"0""#$%32-! #"!D)#3
2305#ÔÔ
&'
&Ô )#&Ô)55
!)<#*&Ôrespondents.
DECISION
' Ô ( J.:
Before us is a petition for review on p of the Court of Appealsǯ decision1, dated
November 29, 1999, in CA-G.R. CV No. 60552, which affirmed the judgment2 of the
Regional Trial Court (RTC) of Malolos, Bulacan, Branch 17, in Civil Case No. 151-M-93.
The RTC granted respondentsǯ complaint for nullity of contract of sale and annulment of
the transfer certificates of title issued in favor of petitioners.
The facts, as found by the Court of Appeals, are as follows:
Respondents Fidela (now deceased), Oscar, Rosita, Violeta, Enrique Jr., Carlos,
Juanito and Eloisa, all surnamed Del Rosario, were the registered owners of Lot
No. 1083-C, a parcel of land situated at Lolomboy, Bulacan . This lot spanned an
area of 15,029 square meters and was covered by TCT No. T-50.668 (M)
registered in the Registry of Deeds of Bulacan.
On May 16, 1983, Oscar, Rosita, Violeta, Enrique Jr., Juanito, and Eloisa, executed a Special
Power of Attorney3 in favor of their mother and co-respondent, Fidela, authorizing her to
sell, lease, mortgage, transfer and convey their rights over Lot No. 1083-C.4 Subsequently, 2
& ! '
Fidela borrowed P250,000 from Mariano Rivera in the early part of 1987. To secure the ) # ) &
+74@# ' !
loan, she and Mariano Rivera agreed to execute a deed of real estate mortgage and an #
agreement to sell the land. Consequently, on March 9, 1987, Mariano went to his lawyer,
Atty. Efren Barangan, to have three documents drafted: the Deed of Real Estate
Mortgage5, a ® (Agreement to Sell)6, and a Deed of Absolute Sale.7
The ® provided that the children of Mariano Rivera, herein petitioners Adelfa,
Cynthia and Jose, would purchase Lot No. 1083-C for a consideration of P2,141,622.50.
This purchase price was to be paid in three installments: P250,000 upon the signing of
the ®, P750,000 on August 31, 1987, and P1,141,622.50 on December 31, 1987. 8
It also provided that the Deed of Absolute Sale would be executed only after the second
installment is paid and a postdated check for the last installment is deposited with
Fidela.9 As previously stated, however, Mariano had already caused the drafting of the
Deed of Absolute Sale. But unlike the ®, the said deed stipulated a purchase 2
8

price of only P601,160, and covered a certain Lot No. 1083-A in addition to Lot No. 1083- ) # @ +)

C.10 This deed, as well as the ® and the Deed of Real Estate Mortgage11, was -44@# @ 9
signed by Marianoǯs children, petitioners Adelfa, Cynthia and Jose, as buyers and &

mortgagees, on March 9, 1987. 12 )
#
The following day, Mariano Rivera returned to the office of Atty. Barangan, bringing with
him the signed documents. He also brought with him Fidela and her son Oscar del
Rosario, so that the latter two may sign the mortgage and the ® there.
Although Fidela intended to sign only the ® and the Real Estate Mortgage, she
inadvertently affixed her signature on all the three documents in the office of Atty.
Barangan on the said day, March 10, 1987. Mariano then gave Fidela the amount of
P250,000. On October 30, 1987, he also gave Fidela a check for P200,000. In the ensuing
months, also, Mariano gave Oscar del Rosario several amounts totaling P67,800 upon the
latterǯs demand for the payment of the balance despite Oscarǯs lack of authority to receive
payments under the Kasunduan.13 While Mariano was making payments to Oscar, Fidela
entrusted the ownerǯs copy of TCT No. T-50.668 (M) to Mariano to guarantee compliance
with the ®. 2

@ &;)#
"

When Mariano unreasonably refused to return the TCT,14 one of the respondents, Carlos #
del Rosario, caused the annotation on TCT No. T-50.668 (M) of an Affidavit of Loss of the 2
'
ownerǯs duplicate copy of the title on September 7, 1992. This annotation was offset,
) 9
however, when Mariano registered the Deed of Absolute Sale on October 13, 1992, and

# >
afterwards caused the annotation of an Affidavit of Recovery of Title on October 14, 1992. #
Thus, TCT No. T-50.668 (M) was cancelled, and in its place was issued TCT No. 158443
(M) in the name of petitioners Adelfa, Cynthia and Jose Rivera.15 R D
! r 744 *# #
Meanwhile, the Riveras, representing themselves to be the new owners of Lot No. 1083-C,
were also negotiating with the tenant, Feliciano Nieto, to rid the land of the latterǯs
tenurial right. When Nieto refused to relinquish his tenurial right over 9,000 sq. m. of the
land, the Riveras offered to give 4,500 sq. m. in exchange for the surrender. Nieto could
not resist and he accepted. Subdivision Plan No. Psd-031404-052505 was then made on
August 12, 1992. Later, it was inscribed on TCT No. 158443 (M), and Lot No. 1083 -C was
divided into Lots 1083 C-1 and 1083 C-2.16
To document their agreement with Feliciano Nieto, the Riveras executed a ®

® %&)) (Written
Abdication of Rights over a Portion of a Parcel of Land)17 on November 16, 1992. Four
days later, they registered the document with the Registry of Deeds. Two titles were then
issued: TCT No. T-161784 (M) in the name of Nieto, for 4,500 sq. m. of land, and TCT No.
T-161785 (M) in the name of petitioners Adelfa, C ynthia and Jose Rivera, over the
remaining 10,529 sq. m. of land.18
On February 18, 1993, respondents filed a complaint 19 in the Regional Trial Court of
Malolos, asking that the ® be rescinded for failure of the Riveras to comply with
its conditions, with damages. They also sought the annulment of the Deed of Absolute
Sale on the ground of fraud, the cancellation of TCT No. T-161784 (M) and TCT No. T-
161785 (M), and the reconveyance to them of the entire property with TCT No. T-50.668
(M) restored.20
Respondents claimed that Fidela never intended to enter into a deed of sale at the time of
its execution and that she signed the said deed on the mistaken belief that she was merely
signing copies of the ®. According to respondents, the position where Fidelaǯs
name was typed and where she was supposed to sign her name in the ® was
roughly in the same location where it was typed in the Deed of Absolute Sale. They
argued that given Fidelaǯs advanced age (she was then around 72 at the time)21 and the
fact that the documents were stacked one on top of the other at the time of signing, Fidela
could have easily and mistakenly presumed that she was merely signing additional copies
of the Kasunduan. 22 They also alleged that petitioners acquired possession of the TCT
through fraud and machination.
In their defense, petitioners denied the allegations and averred that the Deed of Absolute
Sale was validly entered into by both parties. According to petitioners, Fidela del Rosario
mortgaged Lot No. 1083-C to their predecessor in interest, Mariano Rivera, on March 9,
1987. But on the following day Fidela decided to sell the lot to petitioners for
P2,161,622.50. When Mariano agreed (on the condition that Lot No. 1083 -C will be
delivered free from all liens and encumbrances), the ® was consequently drawn
up and signed. After that, however, Fidela informed Mariano of the existence of Feliciano
Nietoǯs tenancy right over the lot to the extent of 9,000 sq. m. When Mariano continued to
want the land, albeit on a much lower price of only P601,160, as he had still to deal with
Feliciano Nieto, the parties drafted the Deed of Absolute Sale on March 10, 1987, to
supersede the ®.
Petitioners likewise argued that respondentsǯ cause of action had been barred by laches
or estoppel since more than four years has lapsed from the time the parties executed the
Deed of Absolute Sale on March 10, 1987, to the time respondents instituted their
complaint on February 18, 1993.
Petitioners also filed a counterclaim asking for moral and exemplary damages and the
payment of attorneyǯs fees and costs of suit.
After trial, the RTC ruled in favor of respondents:
WHEREFORE, in the light of all the foregoing, judgment is hereby rendered:
1. Declaring the Deed of Absolute Sale dated March 10, 1987 as null and
void;
2. Annulling TCT No. T-158443 (M) and TCT No. T-161785 (M) both in the
names of Adelfa, Cynthia and Jose, all surnamed Rivera;
3. Declaring the plaintiffs to be the legitimate owners of the land covered

by TCT No. T-161785 (M) and ordering defendant Adelfa, Cynthia, and
Jose, all surnamed Rivera, to reconvey the same to the plaintiffs;
4. Ordering the Register of Deeds of Bulacan to cancel TCT No. T-161785

(M) and to issue in its place a new certificate of title in the name of the
plaintiffs as their names appear in TCT No. T-50.668;
5. Declaring TCT No. T-161784 (M) in the name of Feliciano Nieto as valid;
6. Ordering the defendant Riveras to pay the plaintiffs solidarily the

following amounts:
a) P191,246.98 as balance for the 4,500 square-meter portion

given to defendant Feliciano Nieto
b) P200,000.00 as moral damages
c) P50,000.00 as exemplary damages
d) P50,000.00 as attorneyǯs fees
e) costs of the suit.
7. Dismissing the counterclaim of the defendant Riveras;
8. Dismissing the counterclaim and the crossclaim of defendant Feliciano

Nieto.
SO ORDERED.23
The trial court ruled that Fidelaǯs signature in the Deed of Absolute Sale was genuine, but
found that Fidela never intended to sign the said deed. Noting the peculiar differences
between the ® and the Deed of Absolute Sale, the trial court concluded that the
Riveras were guilty of fraud in securing the execution of the deed and its registration in
the Registry of Deeds.24 This notwithstanding, the trial court sustained the validity of TCT
No. T-161784 (M) in the name of Feliciano Nieto since there was no fraud proven on
Nietoǯs part. The trial court found him to have relied in good faith on the representations
of ownership of Mariano Rivera. Thus, Nietoǯs rights, according to the trial court, were
akin to those of an innocent purchaser for value.25
On the foregoing, the trial court rescinded the ® but ruled that the P450,000
paid by petitioners be retained by respondents as payment for the 4,500 sq. m. portion of
Lot No. 1083-C that petitioners gave to Nieto.26 The trial court likewise ordered
petitioners to pay P191,246.98 as balance for the price of the land given to Nieto,
P200,000 as moral damages, P50,000 as exemplary damages, P50,000 as attorneyǯs fees,
and the costs of suit.27
On appeal to the Court of Appeals, the trial courtǯs judgment was modified as follows:
WHEREFORE, the judgment appealed from is hereby AFFIRMED with the

MODIFICATION that the Deed of Absolute Sale dated March 10, 1987 is declared
null and void only insofar as Lot No. 1083-C is concerned, but valid insofar as it
conveyed Lot No. 1083-A, that TCT No. 158443 (M) is valid insofar as Lot No.
1083-A is concerned and should not be annulled, and increasing the amount to be
paid by the defendants-appellants to the plaintiffs-appellees for the 4,500 square
meters of land given to Feliciano Nieto to P323,617.50.
Costs against the defendants-appellants.
SO ORDERED.28
Petitionersǯ motion for reconsideration was denied. Hence, this petition.
While this petition was pending, respondent Fidela del Rosario died. She was substituted
by her children, herein respondents.
In this petition, petitioners rely on the following grounds:
THE HONORABLE COURT OF APPEALS COMMITTED A SERIOUS, GRAVE AND

REVERSIBLE ERROR IN AWARDING & - IN FAVOR OF THE PETITIONERS AND
FELICIANO NIETO WHICH IS ADMITTEDLY A PART AND PORTION OF THE EXISTING
NORTH LUZON EXPRESSWAY AND AS SUCH ACTED WITHOUT OR IN EXCESS OF ITS
JURISDICTION, OR WITH GRAVE ABUSE OF JUDICIAL DISCRETION AMOUNTING TO
LACK OR EXCESS OF JURISDICTION.

RESPONDENTS FAILED TO PAY THE CORRECT DOCKET, FILING AND OTHER LAWFUL
FEES WITH THE OFFICE OF THE CLERK OF COURT OF THE COURT A QUO (RTC,
MALOLOS, BULACAN) AT THE TIME OF THE FILING OF THE ORIGINAL COMPLAINT IN
1993 PURSUANT TO THE SIOL29 DOCTRINE.

[THE] TRIAL COURT AWARDED RELIEFS NOT SPECIFICALLY PRAYED FOR IN THE
AMENDED COMPLAINT WITHOUT REQUIRING THE PAYMENT OF THE CORRECT
DOCKET, FILING AND OTHER LAWFUL FEES.
THE COURT A QUO HAS NO JURISDICTION OVER THE RESPONDENTSǯ CAUSE OF ACTION
AND OVER THE RES CONSIDERING THAT FELICIANO NIETO IS AN AGRICULTURAL
TENANT OF THE RICELAND IN QUESTION.
RESPONDENTS[ǯ] MAIN CAUSE OF ACTION [IS] FOR RESCISSION OF CONTRACT WHICH

IS SUBSIDIARY IN NATURE[,] AND ANNULMENT OF SALE[,] BOTH OF WHICH HAVE
ALREADY PRESCRIBED UNDER ARTICLES 1389 AND 1391 OF THE CIVIL CODE.30
Petitionersǯ assignment of errors may be reduced into three issues: (1) Did the trial court
acquire jurisdiction over the case, despite an alleged deficiency in the amount of filing
fees paid by respondents and despite the fact that an agricultural tenant is involved in the
case? (2) Did the Court of Appeals correctly rule that the Deed of Absolute Sale is valid
insofar as Lot 1083-A is concerned? (3) Is the respondentsǯ cause of action barred by
prescription?
On the first issue, petitioners contend that jurisdiction was not validly acquired because
the filing fees respondents paid was only P1,554.45 when the relief sought was
reconveyance of land that was worth P2,141,622.50 under the ®. They contend
that respondents should have paid filing fees amounting to P12,183.70. In support of
their argument, petitioners invoke the doctrine in p *p ) @*)A_
p 31 and attach a certification 32 from the Clerk of Court of the RTC of Quezon City.
Respondents counter that it is beyond dispute that they paid the correct amount of
docket fees when they filed the complaint. If the assessment was inadequate, they could
not be faulted because the clerk of court made no notice of demand or reassessment,
respondents argue. Respondents also add that since petitioners failed to contest the
alleged underpayment of docket fees in the lower court, they cannot raise the same on
appeal.33
We rule in favor of respondents. Jurisdiction was validly acquired over the complaint. In
Sun Insurance Office, Ltd., (SIOL) v. Asuncion,34 this Court ruled that the filing of the
complaint or appropriate initiatory pleading and the payment of the prescribed docket
fee vest a trial court with jurisdiction over the subject matter or nature of the action. If
the amount of docket fees paid is insufficient considering the amount of the claim, the
clerk of court of the lower court involved or his duly authorized deputy has the
responsibility of making a deficiency assessment. The party filing the case will be
required to pay the deficiency, but jurisdiction is not automatically lost.
Here it is beyond dispute that respondents paid the full amount of docket fees as assessed
by the Clerk of Court of the Regional Trial Court of Malolos, Bulacan, Branch 17, where
they filed the complaint. If petitioners believed that the assessment was incorrect, they
should have questioned it before the trial court. Instead, petitioners belatedly question
the alleged underpayment of docket fees through this petition, attempting to support
their position with the opinion and certification of the Clerk of Court of another judicial
region. Needless to state, such certification has no bearing on the instant case.
Petitioners also contend that the trial court does not have jurisdiction over the case
because it involves an agricultural tenant. They insist that by virtue of Presidential
Decree Nos. 316 and 1038,35 it is the Department of Agrarian Reform Adjudication Board
(DARAB) that has jurisdiction.36
Petitionersǯ contention lacks merit. The DARAB has exclusive original jurisdiction over
cases involving the rights and obligations of persons engaged in the management,
cultivation and use of all agricultural lands covered by the Comprehensive Agrarian
Reform Law.37 However, the cause of action in this case is primarily against the
petitioners, as indispensable parties, for rescission of the Kasunduan and nullification of
the Deed of Sale and the TCTs issued because of them. Feliciano Nieto was impleaded
merely as a necessary party, stemming from whatever rights he may have acquired by
virtue of the agreement between him and the Riveras and the corresponding TCT issued.
Hence, it is the regular judicial courts that have jurisdiction over the case.
On the second issue, contrary to the ruling of the Court of Appeals that the Deed of
Absolute Sale is void only insofar as it covers Lot No. 1083-C, we find that the said deed is
void in its entirety. Noteworthy is that during the oral arguments before the Court of
Appeals, both petitioners and respondents admitted that Lot No. 1083 -A had been
expropriated by the government long before the Deed of Absolute Sale was entered
into.38 Whatǯs more, this case involves only Lot No. 1083-C. It never involved Lot 1083-A.
Thus, the Court of Appeals had no jurisdiction to adjudicate on Lot 1083 -A, as it was
never touched upon in the pleadings or made the subject of evidence at trial.39
As to the third issue, petitioners cite Articles 1383, 40 138941 and 139142 of the New Civil
Code. They submit that the complaint for rescission of the ®should have been
dismissed, for respondentsǯ failure to prove that there was no other legal means available
to obtain reparation other than to file a case for rescission, as required by Article 1383.
Moreover, petitioners contend that even assuming respond ents had satisfied this
requirement, prescription had already set in, the complaint having been filed in 1992 or
five years after the execution of the Deed of Absolute Sale in March 10, 1987.
Respondents counter that Article 1383 of the New Civil Code applies only to rescissible
contracts enumerated under Article 1381 of the same Code, while the cause of action in
this case is for rescission of a reciprocal obligation, to which Article 119143 of the Code
applies. They assert that their cause of action had not prescribed because the four-year
prescriptive period is counted from the date of discovery of the fraud, which, in this case,
was only in 1992.
Rescission of reciprocal obligations under Article 1191 of the New Civil Code should be
distinguished from rescission of contracts under Article 1383 of the same Code. Both
presuppose contracts validly entered into as well as subsisting, and both require mutual
restitution when proper, nevertheless they are not entirely identical.44
In countless times there has been confusion between rescission under Articles 1381 and
1191 of the Civil Code. Through this case we again emphasize that rescission of reciprocal
obligations under Article 1191 is different from rescissible contracts under Chapter 6 of
the law on contracts under the Civil Code.45 While Article 1191 uses the term rescission, 2
& 33A3
the original term used in Article 1124 of the old Civil Code, from which Article 1191 was 38C8# 33A3

# 38C8

based, was
.46 Resolution is a principal action that is based on breach of a party, 38C3#
while rescission under Article 1383 is a subsidiary action limited to cases of rescission for
lesion under Article 1381 of the New Civil Code, 47 which expressly enumerates the
following rescissible contracts:
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 stated 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.
Obviously, the ® does not fall under any of those situations mentioned in Article
1381. Consequently, Article 1383 is inapplicable. Hence, we rule in favor of the
respondents.
May the contract entered into between the parties, however, be rescinded based on
Article 1191?
A careful reading of the ® reveals that it is in the nature of a contract to sell, as
distinguished from a contract of sale. In a contract of sale, the title to the property passes
to the vendee upon the delivery of the thing sold; while in a contract to sell, ownership is,
by agreement, reserved in the vendor and is not to pass to the vendee until full payment
of the purchase price.48 In a contract to sell, the payment of the purchase price is a
positive suspensive condition,49 the failure of which is not a breach, casual or serious, but
a situation that prevents the obligation of the vendor to convey title from acquiring an
obligatory force.50
Respondents in this case bound themselves to deliver a deed of absolute sale and clean
title covering Lot No. 1083-C after petitioners have made the second installment. This
promise to sell was subject to the fulfillment of the suspensive condition that pe titioners
pay P750,000 on August 31, 1987, and deposit a postdated check for the third installment
of P1,141,622.50. 51 Petitioners, however, failed to complete payment of the second
installment. The non-fulfillment of the condition rendered the contract to sell ineffective
and without force and effect. It must be stressed that the breach contemplated in Article
1191 of the New Civil Code is the obligorǯs failure to comply with an obligation already
extant, not a failure of a condition to render binding that obligation.52 Failure to pay, in
this instance, is not even a breach but an event that prevents the vendorǯs obligation to
convey title from acquiring binding force.53 Hence, the agreement of the parties in the
instant case may be set aside, but not because of a breach on the part of petitioners for
failure to complete payment of the second installment. Rather, their failure to do so
prevented the obligation of respondents to convey title from acquiring an obligatory
force.54
Coming now to the matter of prescription. Contrary to petitionersǯ assertion, we find that
prescription has not yet set in. Article 1391 states that the action for annulment of void
contracts shall be brought within four years. This period shall begin from the time the
fraud or mistake is discovered. Here, the fraud was discovered in 1992 and the complaint
filed in 1993. Thus, the case is well within the prescriptive period.
On the matter of damages, the Court of Appeals awarded respondents P323,617.50 as

actual damages for the loss of the land that was given to Nieto, P200,000 as moral
damages, P50,000 as exemplary damages, P50,000 as attorneyǯs fees and the costs of suit.
Modifications are in order, however.
Moral damages may be recovered in cases where one willfully causes injury to property,
or in cases of breach of contract where the other party acts fraudulently or in bad faith.55
Exemplary damages are imposed by way of example or correction for the public good, 56
when the party to a contract acts in a wanton, fraudulent, oppressive or malevolent
manner.57 Attorneyǯs fees are allowed when exemplary damages are awarded and when
the party to a suit is compelled to incur expenses to protect his interest.58
While it has been sufficiently proven that the respondents are entitled to damages, the
actual amounts awarded by the lower court must be reduced because damages are not
intended for a litigantǯs enrichment, at the expense of the petitioners. 59 The purpose for
the award of damages other than actual damages would be served, in this case, by
reducing the amounts awarded.
Respondents were amply compensated through the award of actual damages, which
should be sustained. The other damages awarded total P300,000, or almost equivalent to
the amount of actual damages. Practically this will double the amount of actual damages
awarded to respondents. To avoid breaching the doctrine on enrichment, award for
damages other than actual should be reduced. Thus, the amount of moral damages should
be set at only P30,000, and the award of exemplary damages at only P20,000. The award
of attorneyǯs fees should also be reduced to P20,000, which under the circumstances of
this case appears justified and reasonable.
Î the assailed decision of the Court of Appeals is MODIFIED. The Deed of
Absolute Sale in question is declared NULL and VOID in its entirety. Petitioners are
ORDERED to pay respondents P323,617.50 as actual damages, P30,000.00 as moral
damages, P20,000.00 as exemplary damages and P20,000.00 as attorneyǯs fees. No
pronouncement as to costs.
Ô**
@A%$
0 @!! concur.
""!
1c
, pp. 98-111. Penned by Associate Justice Hector L. Hofileña, with Associate

Justices Omar U. Amin and Jose L. Sabio, Jr., concurring.
2 . at 158-189; Records, pp. 1080-1121.
3 Records, pp. 386-387.
4 c
pp. 99-100.
5 Records, pp. 395-396.
6 c
pp. 115-116; Records, pp. 11-12.
7 Records, p. 100.
8 c
p. 100.
9 Annex "C", at 115.
10 Annex "D", . at 117-118.
11 Records, pp. 395-396.
12 c
pp. 100-101.
13 Rollo, pp. 101-102.
14 . at 165.
15 . at 102.
16 . at 103.
17 Records, pp. 211-214.
18 c
p. 103.
20 c
p. 103.
21 See c
p. 428.
22 See Annexes "C" and "D", at 115-118.
23 c
pp. 188-189.
24 Records, p. 1104.
25 . at 1107-1108.
26 . at 1109.
27 . at 1121.
28 c
p. 110.
29 Sun Insurance Office, Ltd., (SIOL)_ Asuncion, G.R. Nos. 79937-38, 13 February
1989, 170 SCRA 274.
30 c
p. 66.
31 G.R. Nos. 79937-38, 13 February 1989, 170 SCRA 274.
32 Annex "V", c
p. 370.
33 c
p. 380.
34 note 31 at 285.
35P.D. No. 316, "Prohibiting the Ejectment of Tenant-Tillers from their

Farmholdings Pending the Promulgation of the Rules and Regulati ons
Implementing Presidential Decree No. 27". P.D. 1038, "Strengthening the Security
of Tenure of Tenant-Tillers in Non-Rice/Corn Producing Private Agricultural
Lands".
36 c
pp. 285-312.
37 Section 1, Rule II, 2002 DARAB Rules of Procedure.
38 CA c
pp. 219-251.
39 De Ysasi _ Arceo, G.R. No. 136586, 22 November 2001, 370 SCRA 296, 303,
citing Lazo_ Republic Surety & Insurance Co., Inc., No. L-27365, 30 January 1970,
31 SCRA 329, 334.
40Art. 1383. The action for rescission is subsidiary; it cannot be instituted except
when the party suffering damages has no other legal means to obtain reparation
for the same.
41 Art. 1389. The action to claim rescission must be commenced within four years.
42 Art. 1391. The action for annulment shall be brought within four years.
This period shall begin:
In cases of intimidation, violence or undue influence, from the time the defect of
the consent ceases.
In case of mistake or fraud, from the time of the discovery of the same.
And when the action refers to contracts entered into by minors or other
incapacitated persons, from the time the guardianship ceases.
43Art. 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.
xxx
44 Ong _ Court of Appeals, G.R. No. 97347, 6 July 1999, 310 SCRA 1, 9.
45Iringan _ Court of Appeals, G.R. No. 129107, 26 September 2001, 366 SCRA 41,
49.
46 note 44.
47 note 45.
48 Chua _ CA, G.R. No. 119255, 9 April 2003, p. 17.
49 Heirs of Spouses Remedios R. Sandejas and Eliodoro P. Sandejas, Sr. _ Lina, G.R.
No. 141634, 5 February 2001, 351 SCRA 183, 195.

50 Cheng _ Genato, G.R. No. 129760, 29 December 1998, 300 SCRA 722, 734.
51 c
p. 12.
52 Padilla _ Paredes, G.R. No. 124874, 17 March 2000, 328 SCRA 434, 445.
53Villaflor _ Court of Appeals, G.R. No. 95694, 9 October 1997, 280 SCRA 297,
339.
54 See Ong _ Court of Appeals, at 11.
55Insular Life Assurance Company, Ltd. _ Young, G.R. Nos. 140964 & 142267, 16
January 2002, 373 SCRA 626, 642; Article 2220, Civil Code.
BPI Investment Corp. _ D.G. Carreon Commercial Corp., G.R. No. 126524, 29
56
November 2001, 371 SCRA 58, 70; Article 2229, Civil Code.
57Aurillo, Jr. _ Rabi, G. R. No. 120014, 26 November 2002, p. 22; Article 2232,
Civil Code.
58Bañas, Jr. _ Court of Appeals, G.R. No. 102967, 10 February 2000, 325 SCRA
259, 283; Article 2208, Civil Code.
59Northwest Airlines _ Laya, G.R. No. 145956, 29 May 2002, 382 SCRA 730, 739;
Insular Life Assurance Company Ltd._ Young,supra.
Ô <"
)05)
**
Ô
&
,+
Petitioner,

.
Present:
YNARES-SANTIAGO, !
- versus -
AUSTRIA-MARTINEZ,
CHICO-NAZARIO,
NACHURA, and
REYES, !!
(& &Ô

&
*Ô Ô)#Î&&

+
Respondents. Promulgated:
November 28, 2008
x-----------------------------------------------------------------------------------------
x
*Ô
J.:
In this petition for p and prohibition under Rule 65, Jaime L. Yaneza, petitioner,
assails the Court of Appealsǯ denial of his Motion for Extension of Time to File Petition for Review
on the ground that it was filed after the lapse of the reglementary period for filing the appeal.
Petitioner is the owner of a 603-square-meter parcel of land, denominated as Lot 2730 -A

and situated along Calle Kay Rumagit, Sitio Haligionan, Brgy. San Juan, Baras, Rizal. He purchased
the property from a certain Rudy Llagas on June 19, 1990. 2
E< -48
&< & / #
Respondents, Manuel A. de Jesus and Wilhelmina M. Manzano, are the owners of Lot 2732
which is adjacent to Lot 2730-A. The respondentsǯ lot has no access to the nearest road except
through a road which they constructed over a portion of Lot 2730-A. 2
)< 9 0
$
! #
On September 26, 1995, petitioner sent a letter to respondents informing them that he is
the owner of Lot 2730 -A and that he does not agree with the use of the portion of his lot as an
access road because it will affect the configuration of his property . As an option, petitioner offered
to sell to the respondents the entire property.
Apparently, respondents did not agree to the proposition because two days later, petitioner
wrote another letter to them, offering instead a perpetual easement of right of way (4 meters wide)
and stating that he will prepare the necessary document to facilitate the transaction.
Instead of a deed of perpetual easement, it appears that petitioner and respondents

executed a Deed of Absolute Sale on October 20, 1995 over a 175-sq m portion of Lot 2730-A, to be
used as an access road 5-meters wide, for a consideration of P20,000.00. The Deed of Absolute Sale
contained the following terms and conditions: 2

+4@#
1] The portion subject of this sale agreement is as per the sketch plan
attached herein as Annex ǲAǳ and made as an integral part of this instrument;
2] The total purchase for the aforesaid portion of lot shall be in the sum of
TWENTY THOUSAND (P20,000.00) PESOS, Philippine Currency, payable on cash
basis upon the signing and execution of this deed, the signature of the VENDOR
being his acknowledgment that he already received the said amount satisfactorily;
3] The realty taxes and assessments on the lot subject of this sale agreement,
costs of preparation of the document of sale, all other taxes, cost of subdivision
survey to segregate the portion of lot, and all the incidental expenses to facilitate
issuance of the individual transfer certificate of titles for the resulting lots shall be
for the sole account and expense of the VENDEE;
4] The use of the aforesaid portion of lot sold shall be for ǥ the purpose of
the ǥ right of way of and for the abovesaid property of the VENDEE, whereby the
VENDOR, by virtue whereof, shall have the perpetual right and/or privilege to use
the same as right of way for his own purposes.
Almost a year later, or on September 12, 1996, petitioner informed respondents that he is
canceling the deed of sale by way of a Deed of Cancellation which he executed on his own. 2
#
When respondents refused to honor the cancellation, petitioner filed a Complaint for
Cancellation of Contract with the Municipal Circuit Trial Court (MCTC) of Teresa -Baras on April 22,
1997. The complaint alleged that, contrary to what was stated in the Deed of Absolute Sale,
respondents constructed an access road 8-m wide (with an area of 280 sq m); that the respondents
have not complied with the conditions stated in the Deed of Absolute Sale and the Deed of
Undertaking attached thereto; and that respondents have been dumping high piles of gravel, sand
and soil along the access road in violation of the condition in the deed of sale that the access road
will be used only for the purpose of a right of way. The complaint prayed for the court to declare as
canceled the grant of right of way to respondents and to order them to pay moral and exemplary
damages and attorneyǯs fees.
In their Answer with Counterclaims, respondents averred that they purchased the disputed
280-sq m portion of Lot 2730-A from its previous owner, Rudy Llagas, as early as March 2, 1994.
After the sale, they immediately constructed a 7 by 35-m road with a total area of 245 sq m, leaving
a 1 by 35-m strip along the western portion as an easement along the irrigation canal. However, to
buy peace and avoid any conflict with the petitioner, who was claiming to be the new owner,
respondents agreed to pay P20,000.00 in consideration of the petitionerǯs desistance from further
pursuing his claim over the 280 sq m area. Petitioner prepared the Deed of Absolute Sale and
respondents agreed to sign it without prejudice to the resolution of the civil case (Civil Case No.
777-M), filed by Llagas against the petitioner, on the issue of the ownership of the property.
Respondents narrated that, after they signed the Deed of Absolute Sale but before they
could deliver the P20,000.00, they discovered that it covered only 175 sq m, not 280 sq m . There
was an immediate renegotiation between the parties and, for an additional consideration of
P40,000.00, petitioner agreed to sell the entire 280 sq m. Relying on the petitionerǯs assurance that
he will prepare a new deed of sale to reflect the new agreement, respondents paid him the
additional P40,000.00 as evidenced by an Acknowledgment Receipt. Despite several demands,
petitioner failed to present the new deed of sale.
According to the respondents, petitioner initially allowed them peaceful possession and use
of the area even when he started constructing his house adjacent to the access road. However, while
petitioner was constructing his house, a serious misunderstanding took place between petitioner
and respondentsǯ caretaker, Benjamin Manzano, brought about by the latterǯs refusal to allow
petitioner to tap water and electricity from the respondentsǯ property . Petitioner allegedly
retaliated and took possession of the eastern half portion of the 280 -sq-m area by constructing a
fence along the length of the access road, which reduced it to a narrow passage that could not allow
trucks to pass through. On account of this dispute, Manzano, upon respondentsǯ authority, filed a
complaint before the & ) to compel the petitioner to remove the fence but the
petitioner did not attend the conciliation proceedings. Respondents obtained from the a
certification to file an action in court, but petitioner preempted them by filing the instant case.
Respondents pointed out that the petitioner did not seek the intervention of the & )
before he filed the instant case; hence, the petitionerǯs complaint should be dismissed fo r failure to
state a cause of action.
In claiming damages, respondents alleged that the construction of the fence caused them
difficulties when they started developing their property because the trucks that carried the
necessary materials could not pass through the access road. They purportedly incurred additional
costs since they had to hire laborers to manually carry the construction materials from the
road to the construction site.
Respondents further asserted that what was agreed upon was a sale and not only an
easement of right of way. They denied the existence of the Deed of Undertaking which does not
even bear their signatures. And respondents argued that the deed of sale may not be canceled
unilaterally by the petitioner since they already acquired full ownership over the property by virtue
thereof.
Finally, respondents stressed that it is the petitioner who is actually enjoying a right of way
along the access road in compliance with the condition stated in the Deed of Absolute Sale . It is the
petitioner who violated the terms of the contract when he obstructed the access road with the
concrete fence he built thereon. For this violation, petitioner should be denied his right of way over
the access road. Moreover, petitionerǯs property abuts the road; hence, there is actually
no need for him to be granted a right of way.
During trial, petitioner testified for himself and presented his brother, Cesar Yaneza, as
witness. Petitioner narrated that Cesar handed to him the P20,000.00 and that he constructed the
iron fence during the latter part of 1996 because respondents did not comply with the conditions
set out in the Deed of Undertaking. Cesar Yaneza testified that he was the one who delivered the
Deed of Absolute Sale to the office of respondent Manuel de Jesus in Manila and that the latter
requested that he leave the Deed of Undertaking so that his wife can also sign the same, but he
never returned the document despite several demands.
For the respondents, respondent M anuel de Jesus, Rudy Llagas and Benjamin Manzano
testified. Rudy Llagas admitted that he indeed sold to the respondents the subject property which is
on the western side; what he sold to the petitioner was on the eastern side of his property.
Respondent Manuel de Jesus swore that he and petitioner agreed on a price of P20,000.00 for the 5-
m by 35-m area and an additional P40,000.00 to increase the area to 8 -m by 35-m, so that the total
consideration was P60,000.00. He claimed he had to agree to the addition al amount because by
then he had already constructed the gate to, and trucks could not enter, their property. And finally,
Benjamin Manzano attested that when petitioner started constructing his house, petitioner asked
him if he could tap water and electri city from respondentsǯ property, but he did not agree. He said
that, after a few days from said incident, petitioner constructed the low level iron fence in the
middle of the road right of way.
On September 6, 1999, the MCTC promulgated its decision dism issing the complaint and
granting the respondentsǯ counterclaims, thus:
In view of the foregoing considerations, this Court hereby resolves to order

the following:
1. To dismiss the complaint as well as the plaintiffǯs claim for damages and
attorneyǯs fees;
2. For plaintiff to execute a new deed of absolute sale covering the access
road or road right of way of 8 meters wide by 35 meter long, including
the meter easement beside the irrigation canal; with a total area of 280
sq. m. from the northwest portion of Lot 2730, now covered by TCT No.
50181 of the Register of Deeds of Rizal, Morong Branch, without
prejudice to the outcome of Civil Case No. 777 -M filed by Rudy Llagas
against plaintiff Jaime Yaneza;
3. To cancel and declare as null and void the plaintiffǯs right of way over
the access road of defendants;
4. For plaintiff to remove at his expense, the steel fence or structure he

caused to be constructed at about the middle of defendantsǯ access road
or found within the 280 sq.m. area that obstruct, impede or alter the full
and peaceful use by defendants of subject realty;
5. To restore defendants to the full, adequate and peaceful possession and

use of subject realty;
6. For plaintiff to pay to the defendants the following:
a. P1,000,000.00 as actual damages;
b. P1,300,000.00 as moral damages;
c. P300,000.00 as exemplary damages;
d. P300,000.00 as attorneyǯs fees;
e. P30,000.00 as reimbursement for incidental litigation

expenses;
f. 6% interest on the actual damages from the time they

were incurred up to the time of finality of the decision;
g. 6% interest on the award for moral, exemplary,

attorneyǯs fees and litigation expenses from the
promulgation of the decision until its finality;
h. Costs.
SO ORDERED.
On January 5, 2001, the Regional Trial Court (RTC), Morong, Rizal Branch 78, rendered a
Decision on petitionerǯs appeal affirming the MCTC Decision with the modification that the
monetary award (item no. 6 of the dispositive portion) in favor of the respondents was deleted.
Respondents filed a motion for reconsideration with respect to the deletion of the award of
damages, but the same was denied for failure to include a Notice of Hearing. Respondents filed a
Petition for Relief from Judgment, the status of which was not disclosed by the parties in this
petition.
Meanwhile, petitionerǯs counsel received a copy of the RTC Decision on February 6, 2001.
On February 9, 2001, he withdrew his appearance for the petitioner. On February 22, 2001,
petitioner, through his new counsel, filed an Urgent Motion for Extension of Time to File Petition for
Review praying that they be given a period of 15 days from February 24, 2001, or until March 12,
2001, within which to file the petition.
On February 28, 2001, the CA issued a Resolution denying the Urgent Motion for having
been filed one day late and, consequently, dismissed the appeal. On March 27, 2001, petitioner filed
a Motion for Reconsideration and a Motion for Leave of Court to Admit Petition for Review, but the
CA denied the motions in its Resolution dated July 25, 2001.
Disgruntled with the CA Resolutions, petitioner filed this Petition for and
Prohibition, raising the following issues:
WHETHER THE PETITION SHOULD BE GIVEN DUE COURSE IN THE LIGHT OF THE
CIRCUMSTANCES AFFECTING THE TIMELINESS OF THE FILING THEREOF.
WHETHER THE APPEALED DECISION OF THE REGIONAL TRIAL COURT WAS

RENDERED AND WRITTEN AS REQUIRED BY THE 1987 PHILIPPINE
CONSTITUTION AND THE RULES OF COURT.
WHETHER THE PLAINTIFF HAS NO CAUSE OF ACTION.
WHETHER THE PETITIONER MAY BE COMPELLED TO EXECUTE A DEED OF

CONVEYANCE AGAINST HIS WILL AND IN VIOLATION OF HIS
CONSTITUTIONAL RIGHT AGAINST
DEPRIVATION OF PROPERTY WITHOUT DUE PROCESS OF LAW, AND THE CIVIL

LAW AGAINST UNJUST ENRICHMENT.
The petition has no merit.
In the interest of substantial justice, petitioner begs this Courtǯs indulgence for the late filing
of his motion for extension of time, which he claims is due to an honest mistake.
Certainly, we cannot ascribe grave abuse of discretion upon a court that denies a motion for
extension of time filed after the expiration of the reglementary period to file a petition. A motion for
extension of time to file a petition should be filed prior to the expiration or lapse of the period set
by law, otherwise, there is no longer any period to extend and the judgment or order to be appealed
from will have become final and executory. Once the judgment becomes final and executory, the
appellate court is without jurisdiction to modify or reverse it.
We have repeatedly pronounced that perfection of an appeal in the manner and within the
period prescribed by law is mandatory and jurisdictional. The fail ure to perfect an appeal is not a
mere technicality as it deprives the appellate court of jurisdiction over the appeal. Hence, anyone
seeking an exemption from the application of the reglementary period for filing an appeal has the
burden of proving the existence of an exceptionally meritorious instance warranting such deviation.
But none obtains in this case.
Even on the merits, we find the petition noticeably infirm. The petitionerǯs complaint for
cancellation of the contract was correctly dismissed by the MCTC.
Petitionerǯs cause of action for cancellation of the contract is based on a breach of contract
as provided in Article 1191 of the Civil Code and is properly denominated ǲrescission,ǳ or
ǲresolutionǳ under the Old Civil Code. It is grounded on th e respondentsǯ alleged noncompliance
with the conditions embodied in the Deed of Absolute Sale and the Deed of Undertaking . In
particular, petitioner claims that respondents constructed a road three meters wider than what was
agreed upon in the deed of sale and failed to comply with their undertaking to facilitate the transfer
of the title over the subject area.
To state the obvious, the construction of the road beyond the stipulated area does not
constitute a breach of contract. Breach of contract implies a failure, without legal excuse, to perform
any promise or undertaking that forms part of the contract. Altho ugh the contract specifically
stated the area covered by the sale, it did not contain a promise by the respondents that they will
only occupy such area. Albeit apparently wrong, petitionerǯs cause of action should not have been
based on the contract of sale. 2

#

# ;!
%#
Neither could the respondent be faulted for not facilitating the transfer of the title over the
subject area. Respondents did not sign the Deed of Undertaking, and thus, could not have assumed
the obligations contained therein. Moreover, considering that the respondents specifically denied
the existence of the document and petitioner failed to authenticate it, the RTC was correct in
declaring that it has no probative weight.
Besides, rescission of a contract will not be permitted for a slight or c asual breach but only
for a substantial and fundamental breach as would defeat the very object of the parties in making
the agreement. It must be a breach of faith that destroys or violates the reciprocity between the
parties. The alleged breach by the respondents was definitely not of such level and magnitude.
Most importantly, rescission of a contract presupposes the existence of a valid and

subsisting obligation. The breach contemplated in Article 1191 is the obligorǯs failure to comply
with an existing obligation. It would be useless to rescind a contract that is no longer in existence.
Here, we find that the contract of sale sought to be canceled by the petitioner does not exist
anymore; hence, the filing of the petition for cancellation was an exercise in futility.
The records show that the partiesǯ original agreement, embodied in the Deed of Absolute
Sale, had already been superseded or novated by a new contract, albeit an oral one, covering an
increased area of 280 sq m. In his testimony, petitioner admitted that he received from his brother,
Cesar Yaneza, the P20,000.00 that respondents paid. This, taken with the respondentsǯ narration of
the circumstances surrounding the signing of the deed of sale and the subsequent renegotiation for
an increased area, together with the Acknowledgment Receipt showing that an additional
P40,000.00 was paid to the petitioner, reasonably leads us to believe that the parties had actually
entered into a new agreement which covered the entire 280-sq m area where the access road was
laid.
The new contract of sale between the parties is valid despite it not being evidenced by any
writing. The requirement under the Statute of Frauds does not affect the validity of the contract of
sale but is needed merely for its enforceability. In any case, it applies only to contracts which are
executory, and not to those which have been consummated either totally or partially, as in the new
contract of sale herein.
The existence of the new contract of sale over the 280 -sq m area therefore having been
established, it follows that the petitioner may be compelled to execute the corresponding deed of
sale reflecting this new agreement. After the existence of the contract has been admitted, the party
bound thereby may be compelled to e xecute the proper document. This is clear from Article 1357,
_ :
Art. 1357. If the law requires a document or other special form, as in the
acts and contracts enumerated in the following article [Article 1358], the
contracting parties may compel each other to observe that form, once the contract
has been perfected. This right may be exercised simultaneously with the action upon
the contract.
Î, the petition is *ÔÔÔ*

The assailed CA Resolutions dated February 28,
2001 and July 25, 2001 are*
Ô**.
* *(

Associate Justice
WE CONCUR:
Ô &,Ô-Ô
Associate Justice
Chairperson

& Ô-+
-+
(
,Ô
Associate Justice

Ô

Ô &,Ô-Ô
Associate Justice
Chairperson, Third Division

Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson's
Attestation, I certify that the conclusions in the above decision had been reached in consultation
,Ô

Chief Justice
c
p. 83.
Id. at 84.
Id. at 126-128.
Id. at 92-95.
Id. at 91.
Id. at 76-79.
Id. at 97-99.
Id. at 99-100.
Id. at 100-102.
Id. at 102-103
Id. at 104-107.
Id. at 148.
Id. at 149.
Id.
Id. at 153-154.
Id. at 70-75.
Id. at 36.
Id. at 35.
Id. at 349.
ip_
331 Phil. 665, 677 (1996).

_
G.R. No. 150792, March 3, 2004, 424 SCRA 254, 261.
'_ #
G. R. No. 144560, May 13, 2004, 428 SCRA 410, 419.
._
G.R. No. 155251, December 8, 2004, 445 SCRA 500, 528.
Article 1191 of the New Civil Code provides:
Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the
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
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 of the Mortgage Law.
See Blackǯs Law Dictionary, Fifth Edition, p. 171.
& _ ) 1, G.R. No. 156627, June 4, 2004, 431 SCRA 106, 115.
¢pp_ i.pp., G.R. No. 171312, February 4, 2008, 543 SCRA 644, 655.

_
413 Phil. 360, 373 (2001).
See Article 1356 of the New Civil Code.
$p_
G.R. No. 128120, October 20, 2004, 441 SCRA 1, 22.
_ p 376 Phil. 801, 820 (1999).

G.R. No. 172446 October 10, 2007
ALEXANDER "ALEX" MACASAET vs. R. TRANSPORT
CORPORATION

Ô
Manila
Ô**
Ô

/2"$ /
&1*@&1@Ô petitioner,

vs.

Ô respondent.
*Ô
J.:
This petition seeks the reversal of the Decision1 of the Court of Appeals dated 5 October
2005 in CA G.R. CV No. 70585, as well as its Resolution2 dated 28 March 2006 denying
petitioner's motion for reconsideration.
First, the factual background.
On 3 January 1996, a Complaint for Recovery of Possession and Damages3 was filed by
herein respondent R. Transport Corporation against herein petitioner Alexander
Macasaet before the Regional Trial Court (RTC) of Makati, Branch 147. The complaint
alleged that R. Transport was a holder of Certificates of Public Convenience (CPC) to
operate a public utility bus service within Metro Manila and the provinces whereas New
Mindoro Transport Classic (NMTC), represented by petitioner, operates a transportation
company in Oriental Mindoro. On 11 October 1995, and Macasaet entered into a "Deed of
Sale with Assumption of Mortgage" (deed of sale)4 over four (4) passenger buses5
whereby Macasaet undertook to pay the consideration of twelve million pesos
(P12,000,000.00) and assume the existing mortgage obligation on the said buses in favor
of Phil. Hino Sales Corporation. Accordingly, R. Transport delivered to Macasaet two (2)
passenger buses.
Despite repeated demands, however, Macasaet failed to pay the stipulated purchase
price. This prompted R. Transport to file a complaint seeking the issuance of a writ of
replevin, praying for judgment declaring R. Transport as the lawful owner and possessor
of the passenger buses and ordering Macasaet to remit the amount of P660,000.00
representing the income generated by the two buses from 16 October 1995 to 2 January
1996.6
Prior to the execution of the contract, "Special Trip Contract" was entered into by the
parties on 8 October 1995.7 This contract stipulated that R. Transport would lease the
four buses subject of the deed of sale to Macasaet for the sum of P10,000.00 a day per bus
or a total of P280,000.00 for the duration of one week, from 15-22 October 1995.8
Respondent's finance officer testified that the purpose of the contract was to support the
delivery of the first two buses pending formal execution of the deed of sale.9
On 8 January 1996, on R. Transport's motion, the trial court issued a writ of seizure10
ordering the sheriff to take possession of the two buses in NMTC subject to R. Transport's
filing of a bond in the amount of P12,000,000.00. The sheriff recovered the two buses and
delivered them to R. Transport on 16 January 1996. 11
For his defense, petitioner alleged that he had paid respondent the full consideration of
P12,000,000.00 and had agreed to assume the mortgage obligation in favor of Phil. Hino
Sales Corporation. He claimed ownership over the four passenger buses, including the
two buses already delivered to him. He further contended that he had already remitted
P120,000.00 to respondent as partial payment of the mortgage obligation . Petitioner
admitted that he had been earning at least P7,000.00 per day on each of the buses. 12 For
his counterclaim, he prayed for the return of the bus units seized and the immediate
delivery of the other two units, as well as for payment of damages.13
In its Decision14 dated 15 February 2001, the RTC upheld the right of respondent to
possess the two buses but dismissed its claim for recovery of unpaid rentals for the use of
the two buses. The dispositive portion of the decision reads as follows:
WHEREFORE, in view of the foregoing, the Court hereby renders judgment in

favor of the defendant and against plaintiff, dismissing the Complaint as regards
the claim for recovery of the unpaid rentals of the two (2) passenger buses which
were used by the defendant from October 16, 1995 until January 16, 1996 for lack
of evidence.
SO ORDERED. 15
The trial court observed that there was no basis for the payment of unpaid rentals
because respondent failed to formally offer in evidence the records of operational
expenses incurred by the buses delivered to petitioner and marked as Exhibits "W," "W-
1" to "W-3."16 The trial court did not bother to give a definitive ruling on the issues
related to the counterclaim for specific performance of the deed of sale on the ground
that the issuance of a writ of replevin effectively disposed of the cause of action in the
principal complaint, which is recovery of possession. The trial court was likewise silent
with respect to the status of the deed of sale. 17
Dissatisfied with the RTC's refusal to award rentals, respondent filed a petition for
review before the Court of Appeals asserting its right as an owner to the fruits of the two
passenger buses, over the fruits thereof, , the income derived from their use. The Court
of Appeals, in its Decision dated 5 October 2005, sustained the trial court's finding that
ownership over the passenger buses remained with respondent.
Unlike the RTC, the Court of Appeals ruled that the deed of sale was not perfected, thus,
respondent retained ownership over the buses. It further ordered petitioner to remit the
income from the passenger buses in the amount of P7,000.00 per day for the period
between 16 October 1995 and 16 January 1996, deducting therefrom the amount of
P120,000.00 which had already been remitted to respondent. 18
Macasaet filed a motion for reconsideration which the appellate court denied.
Hence, the instant petition raising this sole issue: Is Section 34 of Rule 132 of the Rules of
Court which states that "the court shall consider no evidence which has not been formally
offered" applicable in the case at bar? 19 However, other interrelated issues have to be
looked into to resolve the controversy.
Petitioner argues in the main that there was no legal and factual basis for the Court of
Appeals to order the remittance of income. He harps on the fact that there was no lease
agreement alleged in respondent's complaint to support its claim for unpaid rentals. He
reiterates the trial court's finding that the exhibits tending to prove the rentals were not
formally offered in evidence. Moreover, no other competent evidence was presented to
substantiate its claim for unpaid rentals.20 Respondent, in its comment, merely parrots
the ruling of the Court of Appeals, petitioner notes. 21
Crucial to the resolution of the case is the continuing efficacy of the deed of sale, which in
turn is the basis in determining the ownership of the buses. Respondent, on the other
hand, claims that the contract was never consummated for lack of consideration and
because of the subsequent disapproval of the security finance needed for petitioner to
assume the mortgage obligation. On the other hand, petitioner asserts ownership over
the subject buses by virtue of payment of the stipulated consideration for the sale.
The appellate court declared that the non-perfection of the deed of sale precluded
petitioner from possessing and enjoying the bu ses, including the income thereof.
Explained the appellate court:
True, the plaintiff-appellant and the defendant-appellee have no agreement as to

the payment of rentals for the subject passenger buses, since what was actually
agreed upon by the parties herein, was not the lease, but the sale of the subject
buses to the defendant-appellee in the amount of P12,000,000.00, with
assumption of mortgage, as evidenced by the i
with Assumption of
Mortgage.
It was pursuant to this i

with Assumption of Mortgage that the subject
two passenger buses were delivered by the plaintiff-appellant to the defendant-
appellee in October,[p] 1995. The said contract was the basis of the defendant-
appellee's possession and enjoyment of the subject property, which includes
entitlement to the income thereof.
However, the aforementioned contract of sale has never been perfected.
Firstly, the court found that no payment has been made by the defendant-
appellee, for otherwise, it could not have upheld t he plaintiff-appellant's
possession over the subject buses. 22
The Court of Appeals erred in stating that the deed of sale was not perfected, for it was.
There was no consummation, though. However, the rescission or resolution of the deed
of sale is in order.
The essential requisites of a contract under Article 1318 of the New Civil Code are: (1)
consent of the contracting parties; (2) object certain which is the subject matter of the
contract; and (3) cause of the obligation which is established. Thus, contracts, other than
real contracts are perfected by mere consent which is manifested by the meeting of the
offer and the acceptance upon the thing and the cause which are to constitute the
contract. Once perfected, they bind other contracting parties and the obligations arising
therefrom have the force of law between the parties and should be complied with in good
faith. The parties are bound not only to the fulfillment of what has been expressly
stipulated but also to the consequences which, according to their nature, may be in
keeping with good faith, usage and law. 23
Being a consensual contract, 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.24 A perfected contract of sale imposes reciprocal
obligations on the parties whereby the vendor obligates himself to transfer the
ownership of and to deliver a determinate thing to the buyer who, in turn, is obligated to
pay a price certain in money or its equivalent.25 Failure of either party to comply with his
obligation entitles the other to rescission as the power to rescind is implied in reciprocal
obligations. 26
Applying these legal precepts to the case at bar, we hold that respondent has the right to
rescind or cancel the deed of sale in view of petitioner's failure to pay the stipulated
consideration. $ p
_ c ,27 cited by the appellate court, is particularly

instructive in distinguishing the legal effects of "failure to pay consideration" and "lack of
consideration:"
x x x Failure to pay the consideration is different from lack of consideration. The

former results in a right to demand the fulfillment or cancellation of the
obligation under an existing contract, while the latter prevents the existence of a
valid contract.
Where the deed of sale states that the purchase price has been paid but in fact has
never been paid, the deed of sale is null and void for lack of
consideration. x x x 28
The Court of Appeals however failed to consider that in the instant case, there was failure
on the part of petitioner to pay the purchase price and to complete the assumption of
mortgage. The latter argued before the lower court that payment was in fact made and
counterclaimed for the immediate delivery of the two other passenger buses and
payment of damages.29 However, this claim remained a claim and was not substantiated.
While the Court of Appeals relied on the text of the deed of sale which adverts to payment
of the purchase price,30 the non-payment of the purchase price was no longer an issue at
the appellate level. Respondent presented strong evidence that petitioner did not pay the
purchase price, and that paved the way for the issuance of a writ of replevin. Petitioner
did not challenge the finding of the trial court before the Court of Appeals and this Court.
He did not also controvert the non-consummation of the assumption of mortgage at any
level of the proceedings.
Non-payment of the purchase price of property constitutes a very good reason to rescind
a sale for it violates the very essence of the contract of sale.31 While it is preferable that
respondent instead should have filed an action to resolve or cancel the deed as the right
to do so must be invoked judicially,32 this shortcoming was cured when the complaint
itself made out a case for rescission or resolution for failure of petitioner to comply with
his obligation to pay the full purchase price. The complaint relevantly alleged:
xxxx
3. (a) That on October 11, 1995, the plaintiff and the defendant entered into and
executed a Deed of Sale with Assumption of Mortgage with plaintiff as Vendor
and the defendant as Vendee covering four (4) units of passenger airconditioned
buses. x x x
3. (b) That the plaintiff and the defendant in said Deed of Sale with Assumption of
Mortgage x x x hereof agreed that the price of the sale of the above-described
motor vehicles is in the sum of PESOS TWELVE MILLION (P12,000,000.00),
Philippine Currency, with the stipulation that the defendant as Vendee will
assume the existing mortgage of the above-described motor vehicle with PHIL.
HINO SALES CORPORATION and consequently, will assume the balance of the
remaining obligation due to PHIL. HINO SALES CORPORATION as agreed upon in
the said Deed of Sale with Assumption of Mortgage;
3. (c) That pursuant to said Deed of Sale with Assumption of Mortgage, the
plaintiff delivered to the defendant at Calapan, Oriental Mindoro, the first two (2)
motor vehicles x x x withholding the other two (2) passenger buses pending the
payment by the defendant to the plaintiff of the purchase price of the sale of
PESOS TWELVE MILLION (P12,000,000.00), Philippine currency and assumption
of mortgage by said defendant obligating himself to pay the remaining balance of
the obligation due to the PHIL. HINO SALES CORPORATION constituted over the
above-described motor vehicles;
3. (d) That inspite of repeated demands made by the plaintiff to the defendant to
pay the purchase price of the sale x x x the defendant, in evident bad faith, refused
and failed and continue to refuse and fail to pay the plaintiff the purchase price of
the said vehicles;
xxxx
4. b.) That the plaintiff-applicant is the owner of the two (2) buses claimed as
above-described and is entitled to the rightful possession thereof x x x
4. c.) That the above-described two (2) units of passenger buses are wrongfully
detained by the defendant pretending that he is the owner under the Deed of Sale
with Assumption of Mortgage which pretension is false because the defendant
has not paid the plaintiff any single centavo out of the PESOS TWELVE MILLION
(P12,000,000.00), Philippine currency, the purchase price of the sale of the four
(4) passenger buses,33
xxxx
As previously noted, petitioner did not pay the full purchase price as stipulated in the
contract whereas respondent complied with its obligation when it delivered the two
buses to petitioner.
A necessary consequence of rescission is restitution with payment of damages. Article

1191 provides:
xxxx
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
impossible.
xxxx
Also, corollary to the rescission of the contract of sale is the recovery of possession of the
object thereof. Thus, petitioner's possession over the passenger buses became unlawful
when upon demand for return, he wrongfully retained possession over the same.
In ordering petitioner to remit to respondent the income derived from the passenger
buses, the appellate court ratiocinated thus:
Although the parties herein did not agree on the rentals for the use of the
property, the fact that the defendant-appellee was able to use the two passenger
buses for the months of October, [p] 1995 to January, [p] 1996, and has derived
income therefrom, was acknowledged by the court and the defendant-
appellee himself.
Under such circumstances, it is but fair that the defendant-appellee be made to

pay reasonable rentals for the use of the two passenger buses from the time that
they were delivered, until they were seized from him. It would be against the
equitable proscription against unjust enrichment for the defendant -appellee to
keep the income from a property over which he has no legal right. It would be
unfair to excuse the defendant-appellee from the payment of reasonable rentals
because he enjoyed and made use of the subject passenger buses. It is a basic rule
in law that no one shall unjustly enrich himself at the expense of another. #
p p1 .
Thus, a modification of the decision of the court is in order.
In view of the plaintiff-appellant's failure to substantiate its claim for the unpaid
rentals amounting to P660,000.00, we could not grant the same.
However, we deem it just for the defendant-appellee to remit the plaintiff-

appellant the income he derived from the subject passenger buses in the amount
of P7,000.00 per day within the period that they were in the defendant-
appellant's possession, that is from October 16, 1997 to January 16, 1995, minus
the amount of P120,000.00 which the defendant -appellee already remitted to the
plaintiff-appellant. 34
It can be inferred from this decision that the appellate court did not consider petitioner
liable for the unpaid rentals when it noted that respondent had failed to support its claim
over it. Instead, it concluded that he was liable to respondent for damages, in the form of
reasonable rentals for the use of the passenger buses.
However, with respect to the amount of damages, we differ from the award of the
appellate court. Settled is the rule that actual damages must be proved with reasonable
degree of certainty. A party is entitled only up to such compensation for the pecuniary
loss that he has duly proven. It cannot be presumed. Absent proof of the amount of actual
damages sustained, the court cannot rely on speculations, conjectures, or guesswork as
to the fact and amount of damages, but must depend upon competent proof that they
have been suffered by the injured party and on the best obtainable evidence of the actual
amount thereof. 35
The appellate court arrived at the amount of P7,000.00 per day as income for the use of
the two passenger buses due to respondent on the basis of the allegations in the answer
of petitioner. 36 The award cannot be sustained because no evidence was produced to
support this averment made by petitioner. Petitioner did not present any record or
journal that would have evidenced the earnings of the passenger buses for said period.
Bare allegations would not suffice.
Since the amount of damages awarded by the Court of Appeals was founded merely on
speculations, we turn to the provisions of the Special Trip Contract. In said contract, the
rental is fixed at P10,000.00 per day for each bus. This duly executed contract was
presented, marked and formally offered in evidence. The fact that Macasaet voluntarily
signed the contract evinced his acquiescence to its terms, particularly the amount of
rentals. Therefore, the amount of P1,460,000.00 is deemed reasonable compensation for
the use of the passenger buses, computed as follows:
Amt of rentals per bus: P10,000.00

x No. of buses: 2
Amt of rentals per day: P 20,000.00
x No. of days (16 Oct-2 Jan) 79
P1,580,000.00
- Payment by Macasaet 120,000.00
TOTAL P1,460,000.00
Since the amount awarded as damages in the form of reasonable rentals is more than the
amount of rentals specified in the complaint, additional filing fees corresponding to the
difference between the amount prayed for in the complaint and the award based on the
evidence should be assessed as a lien on the judgment, as mandated by Section 2, Rule
141 of the Rules of Court, to wit:
SEC. 2. ¢
. Ȅ Where the court in its final judgment awards a claim not
alleged, or a relief different from, or more than that claimed in the pleading, the
party concerned shall pay the additional fees which shall constitute a lien on the
judgment in satisfaction of said lien. The clerk of court shall assess and collect the
corresponding fees.37
WHEREFORE, the petition is DENIED. However, the decision of the Court of Appeals is
MODIFIED in that petitioner is ORDERED to pay respondent damages in the form of
reasonable rentals in the amount of P1,460,000.00 with interest at 12% per annum from
the finality of this decision, with a lien thereon corresponding to the additional filing fees
adverted to above. The Clerk of Court of the Regional Trial Court of Makati is directed to
assess and collect the additional filing fees.
Ô**.
ã %$

p! !! concur.
""!
1c
, pp. 26-35. Penned by Associate Justice Amelita G. Tolentino, and

concurred in by Associate Justices Eliezer R. De los Santos and Vicente S. E.
Veloso.
2 Id. at 6.
3 Id. at 1-9.
4 Records, Vol. II, p. 334.
5Records, Vol. 1, p. 2. Hino EK100-305604, Hino EK100-305607, Hino EK100-

305632, and Hino EK100-305903.
6 Id. at 9.
7 TSN, 11 September 1996, p. 20.
9 TSN, 11 September 1996, p. 21.
10 Records, Vol. I, p. 44.
11 Id. at 46.
12 Rollo, pp. 56-57.
15 Id. at 528.
16 Id.
17 Id. at 526-527.
18 c
, p. 35.
19 Id. at 19.
20 Id. at 19-20.
21 Id. at 47-54.
22 Id. at 31-32.
23Manila Metal Container Corporation v. PNB, G.R. No. 166862, 20 December

2006, 511 SCRA 444, 463-464, citing _
, 395 Phil. 115,
125-126 (2000) and Article 1315 of the New Civil Code.
24 Civil Code, Art. 1475.
25 Civil Code , Art. 1458.
26Civil Code , Art. 1191, as differentiated from rescission of rescissible contracts

under Art. 1380. In rescission under Art. 1191, the only ground is failure of one of
the parties with comply with what is incumbent upon him , while in rescission
under Article 1380, there are several grounds such as lesion, fraud and others
expressly specified by law. See Jurado, Comments and Jurisprudence on
Obligations and Contracts (1993), p. 498.
27 G.R. No. 138018, 26 July 2002.
28 Id. at 469.
31 Palma Gil v. Court of Appeals, 457 Phil. 804, 828 (2003).
32 Civil Code, Art. 1191, par. 3.
33 Records, Vol. I, pp. 2-6.
34 Rollo, p. 33-34.
35Saguid v. Security Finance, Inc., G.R. No. 159467, 9 December 2005, 477 SCRA
256, 275 citing Sabio v. International Corporate Bank, Inc., G.R. No. 132709, 04
September 2001, 364 SCRA 385; Padillo v. Court of Appeals, G.R. No. 117907, 29
November 2001, 371 SCRA 27; and Manufacturers Building, Inc. v. Court of
Appeals, G.R. No. 116847, 16 March 2001, 354 SCRA 521.
37 Nestle Phils. v. FY Sons, Incorporated., G.R. No. 150780, 5 May 2006, 489 SCRA
624, 634, citing Benguet Electric Cooperative, Inc. v. Court of Appeals, 378 Phil.
1137, 1150-1151 (1999), citing Ayala Corporation v. Madayag, G.R. No. 88421, 30
January 1990, 181 SCRA 687; Ng Soon v. Alday, G.R. No. 85879, 29 September
1989, 178 SCRA 221.

Ô
Manila
FIRST DIVISION

&-*2<$ . .
,Ô&&Ôpetitioner,

vs.
(& &Ô)#Ô(8Ô
C(&*Drespondents,
c @(p)*p

_ (
)*p _
&-J:
Subject of this Petition for Review is the Decision of the then Court of Appeals in CA-G.R. No. 65328-
R reversing the judgment of the then Court of First Instance of Rizal, Branch XX, in Civil Case No.
16624, and dismissing petitioner Chrysler Philippines Corporation's suit for Damages against
private respondent Sambok Motors Company (Bacolod) arising from breach of contract.
Petitioner is a domestic corporation engaged in the assembling and sale of motor vehicles and other
automotive products. Respondent Sambok Motors Co., a general partnership, during the period
relevant to these proceedings, was its dealer for automotive products with offices at Bacolod
(Sambok, Bacolod) and Iloilo (Sambok, Iloilo). The two offices were run by relatives. Miguel Ng was
Assistant Manager for Sambok, Bacolod, while an elder brother, Pepito Ng, was the President.
On September 7, 1972, petitioner filed with the Court of First Instance of Rizal, Branch XX, Pasig,
Rizal, a Complaint for Damages against Allied Brokerage Corporation, Negros Navigation Company
and Sambok, Bacolod, alleging that on October 2, 1970, Sambok, Bacolod, ordered from petitioner
various automotive products worth P30,909.61, payable in 45 days; that on November 25, 1970,
petitioner delivered said products to its forwarding agent, Allied Brokerage Corporation, for
shipment; that Allied Brokerage loaded the goods on board the M/S Doña Florentina, a vessel
owned and operated by Negros Navigation Company, for delivery to Sambok, Bacolod; that when
petitioner tried to collect from the latter the amount of P31,037.56, representing the price of the
spare parts plus handling charges, Sambok, Bacolod, refused to pay claiming that it had not received
the merchandise; that petitioner also demanded the return of the merchandise or their value from
Allied Brokerage and Negros Navigation, but both denied any liability.
In its Answer, Sambok, Bacolod, denied having received from petitioner or from any of its co-
defendants, the automotive products referred to in the Complaint, and professed no knowledge of
having ordered from petitioner said articles.
Upon a Joint Motion to Dismiss filed by petitioner and Allied Brokerage, the Trial Court. on October
23, 1975, dismissed the case with prejudice against Allied Brokerage for lack of cause of action, and
also dismissed the latter's counterclaim against petitioner.
On July 31, 1978, the Trial Court rendered its Decision dismissing the Complaint against Negros
Navigation for lack of cause of action, but finding Sambok, Bacolod, liable for the claim of petitioner,
thus:
PREMISES CONSIDERED, the Court renders judgment as follows:
(1) The complaint against defendant Negros Navigation is dismissed for lack of
cause of action.
(2) Defendant Sambok Motors Co. (Bacolod) is ordered to pay plaintiff Chrysler
Philippines Corporation:
(a) The sum of Thirty-One Thousand Thirty Seven Pesos and Fifty Six
Centavos (P31,037.56) with interest at the rate of twelve percent
(12) per annum from January 1, 1971 until fully paid;
(b) The sum of Five Thousand Pesos as and for attorney's fees and
expenses of litigation;
(c) The costs of the suit.
(3) The counterclaim of defendant Negros Navigation and Sambok Motors Co.
(Bacolod) are dismissed for lack of merit.
The case against Negros Navigation was dismissed for failure of petitioner and Sambok, Bacolod, to
file the necessary notices and claims as conditions precedent for a judicial action.
On the other hand, the Trial Court found that the a ct of Sambok, Bacolod, "in refusing to take
delivery of the shipment for no justifiable reason from Negros Navigation despite having received
the Bill of Lading constituted wrongful neglect or refusal to accept and pay for the subject shipment,
by reason of which defendant Sambok Motors may be held liable for damages."
Sambok, Bacolod, appealed. On November 26, 1980, respondent Appellate Court set aside the
appealed judgment and dismissed petitioner's Complaint, after finding that the latter had not
performed its part of the obligation under the contract by not delivering the goods at Sambok,
Iloilo, the place designated in the Parts Order Form (Exhibits "A", "A-1" to "A-6"), and must,
therefore, suffer the loss. In other words, respondent Appellate Court found. that there was
misdelivery.
Hence, this Petition for Review on Certiorari, with the following errors assigned to respondent
Court:
The Respondent Court of Appeals erred in finding that the issue of misshipment or
misdelivery of the automotive spare parts involved in the litigation was raised by
the private respondent Sambok Motors Co. (Bacolod) in the Trial Court.
II
The Respondent Court of Appeals erred in refusing to apply the provisions of

Section 18, Rule 46 of the Revised Rules of Court quoted below, that since the
question of misshipment or misdelivery was not raised by the private respondent in
the Trial Court, this issue cannot for the first time be raised on appeal.
Section 18. Questions that may be raised on appeal. Whether or not

the appellant has filed a motion for new trial in the court below, he
may include in his assignment of errors any question of law or fact
that has been raised in the court below and which is within the
issues framed by the parties.
III
The Respondent Court of Appeals erred in finding that the private respondent gave
the alleged instruction to the petitioner to ship the automotive spa re parts to Iloilo
City and not to Bacolod City.
IV
The Respondent Court of Appeals erred in finding that the defendant Negros
Navigation notified the private respondent of the arrival of the shipment at Bacolod
City.
V
The Respondent Court of Appeals erred in reversing the decision of the Trial Court
that the act of the private respondent in refusing to take delivery of the automotive
spare parts that it purchased from the petitioner after having been notified of the
shipment constitutes wrongful neglect resulting in the loss of the cargo for which it
should be liable in damages to the petitioner.
To our minds, the matter of misdelivery is not the decisive factor for relieving Sambok, Bacolod, of
liability herein. While it may be that the Parts Order Form (E exhibits "A", "A-1" to "A-6")
specifically indicated Iloilo as the destination, as testified to by Ernesto Ordonez, Parts Sales
Representative of petitioner, Sambok, Bacolod, and Sambok, Iloilo, are actually one. In fact,
admittedly, the order for spare parts was made by the President of Sambok, Pepito Ng, through its
marketing consultant. Notwithstanding, upon receipt of the Bill of Lading, Sambok, Bacolod,
initiated, but did not pursue, steps to take delivery as they were advised by Negros Navigation that
because some parts were missing. they would just be informed as soon as the missing parts were
located.
It was only four years later, however, or in 1974, when a warehouseman of Negros Navigation,
Severino Aguarte, found in their off-shore bodega, parts of the shipment.- in question, but already
deteriorated and valueless.
Under the circumstances, Sambok, Bacolod, cannot be faulted for not accepting or refusing to accept
the shipment from Negros Navigation four years after shipment. The evidence is clear that Negros
Navigation could not produce the merchandise nor ascertain its whereabouts at the time Sambok,
Bacolod, was ready to take delivery. Where the seller delivers to the buyer a quantity of goods less
than he contracted to sell, the buyer may reject them.
From the evidentiary record, Negros Navigation was the party negligent in failing to deliver the
complete shipment either to Sambok, Bacolod, or to Sambok, Iloilo, but as the Trial Court found,
petitioner failed to comply with the conditions precedent to the filing of a judicial action. Thus, in
the last analysis, it is petitioner that must shoulder the resulting loss. The general rule that before,
delivery, the risk of loss is home by the seller who is still the owner, under the principle of =
= /is applicable in petitioner's case.
In sum, the judgment of respondent Appellate Court, will have to be sustained not on the basis of
misdelivery but on non-delivery since the merchandise was never placed in the control and
possession of Sambok, Bacolod, the vendee.
WHEREFORE, we hereby affirm the Decision of the then Court of Appeals in CA-G.R. No. 65328-R,
without pronouncement as to costs.
SO ORDERED.
@ @A
! i
¢ !! pp
c
_!
""!
1 Exhibit "6", Deposition, Miguel Ng, p.4.

2 CFI Decision, Rollo, p. 140.
3 T.S.N., June 6, 1975, p. 581.
4 Folio of Exhibits, pp. 22-23, Deposition of Miguel Ng.
5 Rollo, pp. 136-137.
Ô**
Ô
RUDOLF LIETZ, INC., G.R. No. 122463
,
Present:
- versus- PUNO, !.,
, AUSTRIA-
MARTINEZ,
CALLEJO, SR.,
THE COURT OF APPEALS, TINGA, and
AGAPITO BURIOL, TIZIANA CHICO-NAZARIO, !!.

TURATELLO & PAOLA SANI,
c . Promulgated:
December 19, 2005
x --------------------------------------------------------------------x
*Ô
TINGA, !.:
This is a petition for review on certiorari under Rule 45 of the Revised Rules of Court, praying
for the annulment of the i p[1] dated April 17, 1995 and the c
[2] dated October 25,
1995 of the Court of Appeals in CA-G.R. CV No. 38854. The Court of Appeals affirmed the i p[3]
in Civil Case No. 2164 of the Regional Trial Court (RTC), Branch 48, of Palawan and Puerto Princesa
City with the modification that herein respondents Tiziana Turat ello and Paola Sani are entitled to
damages, attorneyǯs fees, and litigation expenses.
The dispositive portion of the RTC i preads:
WHEREFORE, in view of the foregoing and as prayed for by the defendants,

the instant complaint is hereby DISMISSED. Defendantǯs counterclaim is likewise
DISMISSED. Plaintiff, however, is ordered to pay defendant Turatello and Saniǯs
counsel the sum of P3,010.38 from August 9, 1990 until fully paid representing the
expenses incurred by said counsel when the trial was cancelled due to the non-
appearance of plaintiffǯs witnesses. With costs against the plaintiff.
SO ORDERED.[4]
As culled from the records, the following antecedents appear:
Respondent Agapito Buriol previously owned a parcel of unregistered land situated at Capsalay
Island, Port Barton, San Vicente, Palawan. On August 15, 1986, respondent Buriol entered into a
lease agreement with Flavia Turatello and respondents Turatello and Sani, all Italian citizens,
involving one (1) hectare of respondent Buriolǯs property. The lease agreement was for a period of
25 years, renewable for another 25 years. The lessees took possession of the land after paying
respondent Buriol a down payment of P10,000.00.[5] The lease agreement, however, was reduced
into writing only in January 1987.
On November 17, 1986, respondent Buriol sold to petitioner Rudolf Lietz, Inc. the same parcel
of land for the amount of P30,000.00. The i

embodying the agreement
described the land as follows:
A parcel of land, consisting of FIVE (5) hectares, mor e or less, a portion of that
parcel of land declared in the name of Agapito Buriol, under Tax Declaration No.
0021, revised in the year 1985, together with all improvements thereon, situated at
the Island of Capsalay, Barangay Port Barton, municipality of San Vicente, province
of Palawan which segregated from the whole parcel described in said tax
declaration, has the following superficial boundaries: NORTH, Sec. 01-017; and
remaining property of the vendor; EAST, by Seashore; SOUTH, 01-020; and WEST,
by 01-018 (now Elizabeth Lietz).[6]
Petitioner later discovered that respondent Buriol owned only four (4) hectares, and with one
more hectare covered by lease, only three (3) hectares were actually delivered to petitioner. Thus,
petitioner instituted on April 3, 1989 a complaint for
) c p_
0p i against respondents and Flavia Turatello before the R TC. The
complaint alleged that with evident bad faith and malice, respondent Buriol sold to petitioner five
(5) hectares of land when respondent Buriol knew for a fact that he owned only four (4) hectares
and managed to lease one more hectare to Flavia Turatello and respondents Tiziana Turatello and
Paola Sani. The complaint sought the issuance of a restraining order and a writ of preliminary
injunction to prevent Flavia Turatello and respondents Turatello and Sani from introducing
improvements on the property, the annulment of the lease agreement between respondents, and
the restoration of the amount paid by petitioner in excess of the value of the property sold to him.
Except for Flavia Turatello, respondents filed separate answers raising similar defenses of lack of
cause of action and lack of jurisdiction over the action for recovery of possession. Respondents
Turatello and Sani also prayed for the award of damages and attorneyǯs fees.[7]
After trial on the merits, the trial court rendered judgment on May 27, 1992, dismissing both
petitionerǯs complaint and respondentsǯ counterclaim for damages. Petitioner and respondents
Turatello and Sani separately appealed the RTC i p to the Court of Appeals, which affirmed the
dismissal of petitionerǯs complaint and awarded respondents Turatello and Sani damages and
attorneyǯs fees. The dispositive portion of the Court of Appeals i p reads:
WHEREFORE, the decision appealed from is hereby AFFIRMED, with the

following modification:
Plaintiff-appellant Rudolf Lietz, Inc. is hereby (1) ordered to pay defendants-

appellants Turatello and Sani, the sum of P100,000.00 as moral damages; (2)
P100,000.00 as exemplary damages; (3) P135,728.73 as attorneyǯs fees; and (4)
P10,000.00 as litigation expenses.
SO ORDERED.[8]
Petitioner brought to this Court the instant petition afte r the denial of its motion for
reconsideration of the Court of Appeal i p. The instant petition imputes the following errors to
the Court of Appeals.
I. IN DEFENDING AGAPITO BURIOLǯS GOOD FAITH AND IN STATING THAT

ASSUMING THAT HE (BURIOL) WAS IN BAD FAITH PETITIONER WAS
SOLELY RESPONSIBLE FOR ITS INEXCUSABLE CREDULOUSNESS.
II. IN ASSERTING THAT ARTICLES 1542 AND 1539 OF THE NEW CIVIL
CODE ARE, RESPECTIVELY, APPLICABLE AND INAPPLICABLE IN THE CASE
AT BAR.
III. IN NOT GRANTING PETITIONERǯS CLAIM FOR ACTUAL AND EXEMPLARY

DAMAGES.
IV. IN GRANTING RESPONDENTS TIZIANA TURATELLO AND PAOLA SANI

EXHORBITANT [sic] AMOUNTS AS DAMAGES WHICH ARE EVEN BEREFT OF
EVIDENTIARY BASIS.[9]
Essentially, only two main issues confront this Court, namely: (i) whether or not petitioner
is entitled to the delivery of the entire five hectares or its equivalent, and (ii) whether or not
damages may be awarded to either party.
Petitioner contends that it is entitled to the corresponding reduction of the purchase price because
the agreement was for the sale of five (5) hectares although respondent Buriol owned only four (4)
hectares. As in its appeal to the Court of Appeals, petitioner anchors its argument on the second
paragraph of Article 1539 of the Civil Code, which provides:
Art. 1539. The obligation to deliver the thing sold includes that of placing in
the control of the vendee all that is mentioned in the contract, in conformity with the
following rules:
If the sale of real estate should be made with a statement of its area, at the
rate of a certain price for a unit of measure or number, the vendor shall be obliged
to deliver to the vendee, if the latter should demand it, all that may have been stated
in the contract; but, should this be not possible, the vendee may choose between a
proportional reduction of the price and the rescission of the contract, provided that,
in the latter case, the lack in the area be not less than one-tenth of that stated.
. . . .
The Court of Appeals i p, however, declared as inapplicable the abovequoted provision
and instead ruled that petitioner is no longer entitled to a reduction in price based on the
provisions of Article 1542 of the Civil Code, which read:
Art. 1542. In the sale of real estate, made for a lump sum and not at the rate
of a certain sum for a unit of measure or number, there shall be no increase or
decrease of the price, although there be a greater or lesser area or number than that
stated in the contract.
The same rule shall be applied when two or more immovables are sold for a
single price; but if, besides mentioning the boundaries, which is in dispensable in
every conveyance of real estate, its area or number should be designated in the
contract, the vendor shall be bound to deliver all that is included within said
boundaries, even when it exceeds the area or number specified in the contract; an d,
should he not be able to do so, he shall suffer a reduction in the price, in proportion
to what is lacking in the area or number, unless the contract is rescinded because
the vendee does not accede to the failure to deliver what has been stipulated.
Article 1539 governs a sale of immovable by the unit, that is, at a stated rate per unit area. In
a unit price contract, the statement of area of immovable is not conclusive and the price may be
reduced or increased depending on the area actually deliv ered. If the vendor delivers less than the
area agreed upon, the vendee may oblige the vendor to deliver all that may be stated in the contract
or demand for the proportionate reduction of the purchase price if delivery is not possible. If the
vendor delivers more than the area stated in the contract, the vendee has the option to accept only
the amount agreed upon or to accept the whole area, provided he pays for the additional area at the
contract rate.[10]
In some instances, a sale of an immovable may be made for a lump sum and not at a rate per
unit. The parties agree on a stated purchase price for an immovable the area of which may be
declared based on an estimate or where both the area and boundaries are stated.
In the case where the area of the immovable is stated in the contract based on an estimate,
the actual area delivered may not measure up exactly with the area stated in the contract.
According to Article 1542[11] of the Civil Code, in the sale of real estate, made for a lump sum and
not at the rate of a certain sum for a unit of measure or number, there sha ll be no increase or
decrease of the price although there be a greater or lesser area or number than that stated in the
contract. However, the discrepancy must not be substantial. A vendee of land, when sold in gross or
with the description ǲmore or lessǳ with reference to its area, does not thereby ptake all
risk of quantity in the land. The use of ǲmore or lessǳ or similar words in designating quantity
covers only a reasonable excess or deficiency.[12]
Where both the area and the boundaries of the immovable are declared, the area covered
within the boundaries of the immovable prevails over the stated area. In cases of conflict between
areas and boundaries, it is the latter which should prevail. What really defines a piece of ground is
not the area, calculated with more or less certainty, mentioned in its description, but the
boundaries therein laid down, as enclosing the land and indicating its limits . In a contract of sale of
land in a mass, it is well established that the specific boundaries stated in the contract must control
over any statement with respect to the area contained within its boundaries. It is not of vital
consequence that a deed or contract of sale of land should disclose the area with mathematical
accuracy. It is sufficient if its extent is objectively indicated with sufficient precision to enable one to
identify it. An error as to the superficial area is immaterial.[13] Thus, the obligation of the vendor is
to deliver everything within the boundaries, inasmuch as it is the entirety thereof that distinguishes
the determinate object.[14]
As correctly noted by the trial court and the Court of Appeals, the sale between petitioner
and respondent Buriol involving the latterǯs property is one made for a lump sum. Th e i

shows that the parties agreed on the purchase price on a predetermined area of five
hectares within the specified boundaries and not based on a particular rate per area. In accordance
with Article 1542, there shall be no reduction in the purchase price even if the area delivered to
petitioner is less than that stated in the contract. In the instant case, the area within the boundaries
as stated in the contract shall control over the area agreed upon in the contract.
The Court rejects petitionerǯs contention that the propertyǯs boundaries as stated in the
i

are superficial and unintelligible and, therefore, cannot prevail over the area
stated in the contract. First, as pointed out by the Court of Appeals, at an o cular inspection prior to
the perfection of the contract of sale, respondent Buriol pointed to petitioner the boundaries of the
property. Hence, petitioner gained a fair estimate of the area of the property sold to him. Second,
petitioner cannot now assail the contents of the i

, particularly the description of
the boundaries of the property, because petitionerǯs subscription to the i

indicates his assent to the correct description of the boundaries of the property.
Petitioner also asserts that respondent Buriol is guilty of misleading petitioner into
believing that the latter was buying five hectares when he knew prior to the sale that he owned only
four hectares. The review of the circumstances of the alleged misrepresentation is factual and,
therefore, beyond the province of the Court. Besides, this issue had already been raised before and
passed upon by the trial court and the Court of Appeals. The factual finding of the courts below that
no sufficient evidence supports petitionerǯs allegation of misrepresentation is binding on the
Court.
The Court of Appeals reversed the trial courtǯs dismissal of respondents Turatello and Saniǯs
counterclaim for moral and exemplary damages, attorneyǯs fees and litigation expenses. In
awarding moral damages in the amount of P100,000 in favor of Turatello and Sani, the Court of
Appeals justified the award to alleviate the suffering caused by petitionerǯs unfounded civil action.
The filing alone of a civil action should not be a ground for an award of moral damages in the same
way that a clearly unfounded civil action is not among the grounds for moral damages.[15]
Exemplary or corrective damages are imposed, by way of example or correction for the
public good, in addition to the moral, temperate, liquidated or compensatory damages. [16] With the
deletion of the award for moral damages, there is no basis for the award of exemplary damages.
WHEREFORE, the instant petition for review on certiorari is GRANTED in PART. The Court
of Appeals i p in CA-G.R. CV No. 38854 is AFFIRMED with the MODIFICATION that the award
of moral and exemplary damages is DELETED.
SO ORDERED.
DANTE O. TINGA

p !p

Î :
REYNATO S. PUNO
p !p
Chairman

& Ô-+ ROMEO J. CALLEJO, SR.
!!20)"!"02 p !p

$#@ *%#'c*
Associate Justice

Ô
REYNATO S. PUNO
p !p
pi_

Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairmanǯs Attestation,
it is hereby certified that the conclusions in the above Decision had been reached in consultation
HILARIO G. DAVIDE, JR.
!p
[1] Penned by Associate Justice Consuelo Ynares-Santiago, now an Associate Justice of the
Court, and concurred in by !!. Antonio M. Martinez, Chairman, and Ruben T. Reyes; Rollo, pp. 58-
69.
[2]Rollo, p. 70.
[3]. at 95-101.
[4]. at 101.
[5]. at 59.
[6].
[7]RTC Decision, pp. 1-2; Rollo, pp. 95-96.
[8]. at 69.
[9]. at 23.
[10]Article 1540, Civil Code states in full: ǲIf, in the case of the preceding article, there is a
greater area or number in the immovable than that stated in the contract, the vendee may accept
the area included in the contract and reject the rest. If he accepts the whole area, he must pay for
the same at the contract rate.ǳ
[11]
[12]Roble, et al. v. Arbasa, et al., G.R. No. 130707, July 31, 2001, 362 SCRA 69.
[13]Dichoso v. Court of Appeals, G.R. No. 55613, December 10, 1990, 192 SCRA 169.
[14] Article 1542, second paragraph, .
[15]Social Security System v. Court of Appeals, No. L-41299, February 21, 1983, 120 SCRA
707.
[16]Article 2229, Civil Code.

Ô
Manila
FIRST DIVISION

&-/..2"$/ ./
&** *)#Ô&&petitioners,
vs.
(&*&& )#Ô&&

respondents.
ÔJ.:
This is a petition to review and reverse the Resolution dated May 23, 1984 of respondent
Intermediate Appellate Court (now Court of Appeals) in AC G.R. No. CV-64223, which reversed its
previous decision for the petitioners and affirmed the decision of the Municipal Trial Court of
Daraga, Albay in Civil Case No. 362, the dispositive portion of which reads:
... In view of aH the foregoing considerations, the Court has come to the conclusion
that the plaintiff had proven and established not only by preponderance of evidence
but by adequate evidence as well that he is entitled to the relief prayed for in
accordance with the aforecited pertinent provisions of law and judgement is hereby
rendered, ordering defendants to pay jointly and sevemuy unto the plaintiff the sum
of P4,300.00 and P50.00 as litigation expenses and to pay the costs. No other
pronouncement is made as to other claims for damages for reasons of equity. The
compulsory counterclaim is hereby denied and dismissd for lack of merit ... (p. 51,
Rollo)
The facts of the case are briefly as follows:
Petitioner Grageda is the owner and manager of the Sorsogon Home Enterprises while private
respodent is a seller of abaca finished products. On March 26, 1975, Grageda ordered from private
respondent 500 sets of p
("bacbac") pyrex trays and 500 sets of ("bacbac") pyrex
trays with 3 measurements per sample with handle, at P4.50 per set. (E xh. "A", "A-1", "A-2", "A-3")
Prior to April 27, 1975, private respondent delivered some of the items ordered but they were
outrightly rejected. After making the proper corrections, private respondent made subsequent
deliveries, to wit:
April 27, 1975 Ȅ (a) 79 sets of pyrex trays "bacbac" with a total value of P750.00;
April 30, 1975 Ȅ (a) 70 sets of rectangular trays "bacbac" valued at P315.00;
May 1, 1975 Ȅ (a) 100 sets of rectangular trays "bacbac" and
(b) 100 sets of square trays "bacbac" with a total value of

P900.00;
May 3, 1975 Ȅ (a) 270setsofrectangulartrays"bacbac"and
(b) 4 sets of square trays "bacbac" valued at P846.00; and
May 12,1975 Ȅ 188 sets square trays;

May 27, 1975 Ȅ 136 sets of square trays "bacbac" valued at P612.00(p. 36, Rollo)
Said items were all received and duly receipted for by Grageda's caretaker, herein co-petitioner
Montilla.
On several occasions, private respondent demanded payment for the total value of t he deliveries
but Grageda requested for extensions of time within which to pay. Finally, on June 13, 1975, private
respondent sought the assistance of the Albay PC Command and a confrontation was conducted
between Grageda and private respondent. When pressed for payment, Grageda ultimately said that
she rejected the items delivered by private respondent because they were defective. Subsequently,
Grageda sent a letter dated June 20, 1975 to private respondent, to which a Nacida certification
dated June 23, 1975 was annexed (Exh. "6"), informing private respondent of her rejection of the
items delivered, and requesting for their withdrawal from,her . In view of the foregoing,
private respondent filed a Complaint for Sum of Money against the petitioners before the Municipal
Trial Court of Daraga, Albay.
Grageda, on the other hand, claimed that the rectangular and square "bacbac" pyrex trays delivered
by the private respondent from April 27, 1975 until May 25, 1975 were not in accordance with the
sample agreed upon by and between them , which is that the edging or "pleje" should be made of
steel; that as early as May, 1975, she advised private respondent of her rejection of the said items
because their edgings were made of tin plates or of inferior quality; that she demanded their
withdrawal from her but despite repeated requests, private respondent refused to
withdraw the same; that she likewise informed private respondent of her rejection of the said items
at the confrontation with the police on June 13, 1975 and in her letter dated June 20, 1975 (Exhs. "E
", "E-1 ") to which a certification of the Nacida dated June 23, 1975 was annexed (Exh. "6"), stating
therein that said items are inferior and cannot be exported. In addition, Grageda presented two ( 2)
disinterested witnesses who testified that the items delivered by private respondent were different
from the samples desired by her. (pp. 7-8, Rollo)
On February 25, 1977, the Metropolitan Trial Court rendered a decision in private respondent's
favor holding the petitioner civilly liable to the private respondent for having impliedly accepted
the deliveries, pursuant to Article 1585 of the Civil Code. Said decision was reversed by the Court of
First Instance of Albay (now Regional Trial Court). Private respondent appealed to the Court of
Appeals, which affirmed the decision of the Regional Trial Court. On motion for reconsideration,
however, the Court of Appeals reverse its previous decision and affirmed the decision of the
Metropolitan Trial Court.
Hence, this petition, raising the issue of whether or not there was an acceptance of the deliveries
made, or otherwise stated, whether or not there was a rejection seasonably made.
The petition is devoid of merit.
While it is true that Article 1584 of the Civil Code accords Grageda (as buyer) the right to a
reasonable opportunity to examine the abaca "bacbac" goods to ascertain whether they are in
conformity with the contract, such opportunity to examine should be availed of within a reasonable
time in order that private respondent (as the seller) may not be subjected to undue delay or
prejudice in the payment of his raw materials, workers and other damages which may be incurred
due to the deterioration of his products.
In this regard, the trial court found that the delay in the advice or notice of rejection was almost two
(2) months after receipt, hence, was rather too late. In its decision dated February 25, 1977, the
Municipal Trial Court said:
... There is no clear, convincing and competent evidence that defendant Grageda
(petitioner herein) advised or informed plaintiff (private respondent herein) even
one or two weeks after the date of delivery, so that the Court entertains grave and
serious doubts as to whether defendant Grageda really advised or informed plaintiff
that the latter's deliveries from April 27 are rejected, within the month of May, 1975
as alleged by her, in view of plaintiff's vehement denial. Moreover, said allegation is
uncorroborated and not substantiated by her caretaker, co-defendant Montilla, as to
lead the Court to believe that it was only on June 13, 1975 and on June 20, 1975,
(Exhibit "E") that she really informed and advised, with certainty that his plaintiff's
deliveries of 500 rectangular "bacbac" trays and 500 square "bacbac" trays were
rejected. ... (pp. 48-49, Rollo)
We agree with the trial court's observations and conclusions that:
... The provisions of Article 1585 (New Civil Code) which provides, among others,
that "the buyer is deemed to have accepted them," ... "when, after the lapse of a
reasonable time, he retains the goods without intimating to the seller that he has
rejected them" is applicable in the instant case. The evidence clearly and
unmistakably shows that the defendants retained possession of the abaca goods,
subject matter in this case, for practically a month and almost two (2) manths on
June 20, 1975 or until this case was filed on June 27, 1975, without intimating their
rejection to the supplier or seller, within a reasonable time ... for which reason such
retention of the abaca "bacbac" goods for a month or more already amounts to a
waiver of defendants' right to reject acceptance and payment of the plaintiffs' abaca
"bacbac" goods ... . (p. 50, Rollo)
Well settled is the rule that the findings of fact of the trial judge are generally respected on appeal
and We find no cogent reason to disturb the same.
Premises considered, the petition is hereby DENIED and the decision of the Intermediate Appellate
Court is hereby AFFIRMED.
SO ORDERED.
@ ! #_pp!! pp
""!
1 Penned by Justice Desiderio P. Jurado concurred in by Justices Porfirio V. Sison,

Abdulwahid A. Bidin and Marcelino R. Veloso.
2 Penned by Judge Ignacio S. Calleja.

3 Penned by Judge Romulo P. Untalan.

Ô
Manila
SECOND DIVISION

/)23/
&(8&Ôpetitioner,

vs.
Ô ÔÔ&Ô)#&(respondents.
*&
J.:
Before us is a petition for review on p praying for the reversal of the Decision and Resolution dated February 28,
1997 and October 17, 1997, respectively, rendered by the Former Special Fourteenth Division of the Court of Appeals in CA-
GR. CV No. 44448. The appellate court reversed the judgment of the trial court and decreed the contract of sale entered into by
the opposing parties as rescinded.
The facts are:
Respondents SPOUSES ALFONSO and ANACLETA BICHARA were the former registered owners of Lots 621-C-1 and 621-C-2
situated in Legazpi City and covered by Transfer Certificates of Title Nos. 18138 and 18139. The two properties have an
aggregate area of 811 square meters. On July 19, 1983, the respondents sold the two properties to petitioner CENTRAL BANK
OF THE PHILIPPINES for the sum of P405,500.00, or at P500.00 per square meter. The deed of sale contained the following
pertinent stipulations:
xxx xxx xxx
2. The VENDEE by virtue of the sale of real property agreed upon shall pay to the VENDORS at the rate of
FIVE HUNDRED PESOS (P500.00) per square meter or at a total price of FOUR HUNDRED FIVE
THOUSAND FIVE HUNDRED PESOS (P405,500.00), such payment to be effected only after this Deed of
Sale shall have been duly registered and a clean title issued in the name of VENDEE. It is agreed that all
fees and expenses, cost of documentary and science stamps necessary for the registration of the
property with the Registry of Deeds and the transfer of title of the parcels of the land herein sold to the
VENDEE as well as the transfer tax due under this transaction shall be borne by the VENDORS;
xxx xxx xxx
4. The VENDORS hereby likewise undertake at their expense to fill the parcels of land with an escombro
free from waste materials compacted to the street level upon signing of the Deed of Sale to suit the
ground for the construction of the regional office of the Central Bank of the Philippines thereat.
Petitioner caused the two properties to be consolidated, with several other pa rcels of land, into a single estate having a total
area of 6,700 square meters. Lots 621-C-1 and 621-C-2, shaped roughly like a right triangle, represent twelve per cent of the
total area and, more importantly, provide access to Calle Rizal.
The record discloses that despite respondents' failure to pay the capital gains tax and other transfer fees, Transfer Certificate of
Title No. 25267 was nonetheless issued in petitioner's name on September 6, 1983. Two annotations were recorded in the
memorandum of encumbrances. The first was a notice of adverse claim in favor of the heirs of Lutgarda Arcos Rempillo filed
under Entry No. 58127 dated December 27, 1983. The second was a notice of
in favor of one Jaime Rempillo, in
connection with Civil Case No. 7253 pending before the Court of First Instance of Albay filed under Entry No. 58336 dated
January 24, 1984. Both were subsequently cancelled pursuant to a decision in Civil Case No. 7253, per Entry No. 60214 dated
September 12, 1984.
Despite the issuance of the title, petitioner failed to pay respondent. On its part, respondents did not fill up the lot with
escombro despite several demands made by petitioner. Petitioner was thus constrained to undertake the filling up of the said
lots, by contracting the services of BGV Construction. The filling up of the lots cost petitioner P45,000.00. . Petitioner deducted
the said amount from the purchase price payable to respondents.
Petitioner, however, still did not pay the respondents. Consequently, on September 7, 1992, respondents commenced Civil Case
No. 8645, an action for rescission or specific performance with damages, against petitioner before the Regional Trial Court, Fifth
Judicial Region, Branch 7, of Legazpi City. Respondents alleged that petitioner failed to pay the purchase price despite demand.
They prayed for the rescission of the contract of sale and the return of the properties, or in the alternative that petitioner be
compelled to pay the purchase price plus interest at the rate of 12% from July 19, 1983, until fully paid, and to pay
the capital gains and documentary stamp taxes with the Bureau of Internal Revenue and registration fees with the Register of
Deeds.
Petitioner tendered payment to respondents by Central Bank check no. 483008 in the amount of P360,500.00.
Respondents refused the tender, however, in view of their complaint for rescission. After receipt of summons, petitioner filed its
answer averring that it was justified in delaying payment of the purchase price in view of respondents' breach of several
conditions in the contract. First, petitioner alleged that respondents failed to deliver to the former free and legal possession of
the two properties, in view of the encumbrances noted in the title, in addition to the presence of squatters who were not evicted
by respondents. Second, it claimed that respondents did not fill up the lots with escombro free from waste materials, as agreed
upon. Petitioner counterclaimed for damages of P8,000,000.00 representing payments for rentals for the lease of premises it
used as a temporary regional office; P100,000.00 as exemplary damages; P50,000.00 as attorney's fees; and costs.
On January 22, 1993, petitioner filed a motion for consignation before the trial court. The motion was granted per an Order
dated January 26, 1993.
After trial, the trial court issued its Decision dated October 26, 1993, the dispositive portion of which states:
WHEREFORE, in view of the foregoing, decision is hereby rendered as follows:
1. The plaintiffs are ordered to accept the deposited amount of P360,500.00 in February 1993 at the
Office of the RTC Clerk of Court as full payment for the properties in question, considering that the sum
of P45,000.00 expended by defendant in undertaking the filling up of the properties is credited to the
original purchase price of P405,500.00;
2. The defendant is ordered to pay the plaintiffs legal interest at the rate of six (6) per cent on
the original purchase price of P405,000.00 from September 6, 1983 up to July 13, 1992, when the
P45,000.00 was credited to the original purchase price (Exhibit 12-c);
3. The defendant is ordered to pay the plaintiffs legal interest at the rate of six (6) per cent on
the remaining amount of P360,500.00 from July 14, 1992 up to February 1993, when said amount was
deposited at the Office of the RTC Clerk of Court;
4. And other forms of damages sustained by either plaintiffs or defendant are to be borne or shouldered
by the respective party;
With costs against defendant.
Both parties appealed the decision to the Court of Appeals. Initially, issued petitioner's appeal was dismissed for failure to file
the docket fees, per a Resolution dated August 22, 1994. / The dismissal was recalled subsequently upon petitioner's filing of a
Manifestation informing the appellate court that it had withdrawn its appeal at the trial court level. Said manifestation was
duly noted. .
On February 28, 1997 the appellate court rendered judgment reversing the decision of the trial court. Instead it ordered the
rescission of the contract of sale and the reconveyance of the properties to respondents. The appellate court likewise ordered
respondents to reimburse petitioner the cost of filling up the lot wit h escambro, and petitioner to pay respondents attorney's
fees and costs. The motion for reconsideration filed by petitioner was denied in the assailed Resolution of October 17, 1997.
Aggrieved by the ruling, petitioner elevated the matter to us via the instant petition, contending that:
THE COURT OF APPEALS FAILED TO RULE THAT PRIVATE RESPONDENTS DID NOT COMPLY
WITH THEIR OBLIGATIONS TO CBP IN GOOD FAITH THUS PRIVATE RESPONDENTS ARE NOT
ENTITLED AS A MATTER OF RIGHT THE RESCISSION.
II
THE COURT OF APPEALS FAILED TO RULE THAT CBP WAS JUSTIFIED IN WITHHOLDING
PAYMENT OF THE PURCHASE PRICE OF THE SUBJECT LOT SOLD TO THEM BY PRIVATE
RESPONDENTS.
III
THE COURT OF APPEALS FAILED TO RULE THAT THE TRIAL COURT DID NOT COMMIT A
REVERSIBLE ERROR WHEN IT ORDERED SPECIFIC PERFORMANCE INSTEAD OF
RESCISSION.
The right to rescind a contract involving reciprocal obligations is provided for in Article 1191 of the Civil Code, which states:
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 fulfillment and the rescission of the obligation, with the payment
of damages in either case. He may also seek rescission, even after he has choosen fulfillment, if the latter
should become impossible.
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.
The law speak of the right of the "injured party" to choose between rescission or fulfillment of the obligation , with the payment
of damages in either case. Here, respondents claim to be the injured party and consequently seek the rescission of the deed of
sale, or in the alternative, its fulfillment but on terms different from those previously agreed upon. Respondents aver that they
are entitled to cancel the obligation altogether in view of petitioner's failure to pay the purchase price when the same became
due. Petitioner disputes respondent's stand, claiming that if anyone was at fault, it was the latter who dismally failed to comply
with their contractual obligations. Hence, it was entitled to withhold payment of the purchase price.
An instance where the law clearly allows the vendee to withhold payment of the purchase price is Article 1590 of the Civil Code,
which provides:
Should the vendee be disturbed in the possession or ownersh ip of the thing acquired, or should he have
reasonable grounds to fear such disturbance, by a vindicatory action or a foreclosure of mortgage, he
may suspend the payment of the price until the vendor has cause the disturbance or danger to cease ,
unless the latter gives security for the return of the price in a proper case, or it has been stipulated that,
notwithstanding any such contingency, the vendee shall be bound to make the p ayment. A mere act of
trespass shall not authorize the suspension of the payment of the price.
This is not, however, the only justified cause for retention or withholding the payment of the agreed price. A
noted authority on civil law states that the vendee is nonetheless entitled if the vendor fails to perform any
essential obligation of the contract. Such right is premised not on the aforequoted article, but on general
principles of reciprocal obligations.
This view is consistent with our rulings in earlier cases that resolution is allowed only for substantial breaches and not for
those which are slight or casual. Consider our pronouncement in & _.¢p:
The contract in question contains various clauses and stipulations but the defendants refused to fulfill
their promise to sell on the ground that the vendee had not perfected the title papers to the property in
question within the six months agreed upon in clause (c). That stipulation was not an essential part of
the contract and a failure to comply therewith is no obstacle to the fulfillment of the promise to sel l.
xxx xxx xxx
The obligations which the purchaser, Borromeo, imposed upon himself, to perfect the papers to the
property within a period of six months, is not correlative with the obligation to sell the property. These
obligations do not arise from the same cause. They create no reciprocal rights between the contracting
parties, so that a failure to comply with the stipulation contained in clause (c) on the part of the plaintiff
purchaser within the period of six months provided for in the said contract, as he, the plaintiff himself
admits, does not give the defendants the right to cancel the obligation which they imposed upon
themselves to sell the two houses in question in accordance with the provisions of article 1124 of the
Civil Code, since no real juridical bilaterality or reciprocity existed between the two obligations, because
the obligation to perfect the title papers to the houses in question is not correlative with the obligation to
fulfill the promise to sell such property. One obligation is entirely independent of the other. The latter
obligation is not subordinated to nor does it depend upon the fulfillment of the obligation to perfect the
title deeds of the property.
Certainly, non-payment of the purchase price constitutes a very good reason to rescind a sale, for it violates the very essence of
the contract of sale.
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.
We have consequently held that the nonpayment of the purchase price is a resolutory condition, for which the
remedy is either rescission or specific performance under Article 1191. / This is true for reciprocal obligations,
where the obligation of one is a resolutory condition of the other.
In reversing the trial court, the Court of Appeals in the case at bench held that:
The trial court committed a reversible error when it ordered appellants to accept the amount consigned
by appellee with the Clerk of Court as full payment for the two lots sold by appellants to appellee.
Appellee's deliberate refusal to pay appellants the purchase price for the two lots for nine (9) long years
can not just be regarded as a casual, but substantial and fundamental breach of obligation which defeats
the object of the parties. Such substantial and fundamental breach of obligation committed by appellee
gave appellants, under the law, the right to rescind the contract or ask for its specific performance, in
either case with right to demand performance [p].
In the case at bench, appellants were justified in electing rescission instead of specific performance. The
deliberate failure of appellee to pay the purchase price for nine (9) long years after the registration of
the Deed of Absolute Sale, and the subsequent issuance of a clean title to appellee constitutes a serious
and unjustified breach of obligation. In the case of _
, 138 SCRA 536, the Supreme
Court held:
It is noteworthy to mention that in their answer to the petitioner's complaint, the

respondents prayed for the annulment of both the Deed of Conditional Sale (Exh. "A")
and the Deed of Sale with Assumption of Mortgage (Exh. "G") which are the very bases of
the supplemental agreements (Exh. "1", "2" and "5") executed between the petitioner and
the respondent. The technical argument that the respondents never prayed for the
rescission of the contracts and that the trial court and the appellate court should never
have rescinded the same has no merit. Furthermore, by failing to pay the amount of
P12,000.00 and the balance of P4,376.00 as stipulated in the contract within the forty -
five (45) days period, the petitioner clearly committed a breach of contract which
sufficiently and justly entitled the respondents to ask for the rescission of the contracts.
In the case of Nagamull v. Binalbagan Isabel Sugar Co., Inc. (33 SCRA 52), we ruled that ". .
. The breach of contract committed by appellee gave appellant, under the law and seven
under general principles of fairness, the right to rescind the contract or to ask for its
specific performance, in either case with light to demand damages . . ." It is evident, in the
case at bar, that the respondents chose to rescind the contracts after the petitioner
repeatedly failed to pay not only the balance but the initial amount as downpayment in
consideration of which the contracts or agreements were executed. As a matter of fact,
the petitioner later asked the SSS to cancel his loan application. He thereby abandoned
his own claim for specific performance. Therefore, the appellate court correctly affirmed
the rescission of the above-mentioned contracts. It also correctly affirmed the payment of
attorney's fees. While the petitioner may not have acted in bad faith in filing his
complaint, still the payment of attorney's fees is warranted in this case because of the
environmental circumstances which compelled the respondents to litigate for the
protection of their interests [citations omitted].
While appellants are entitled to their claim for attorney's fees, they are not entitled to an award of
damages because they were not able to substantiate their claim for damages to have suffered due to the
failure of appellee to pay the purchase price of the two lots after the registration of the Deed of absolute
Sale with the Register of Deeds of Legaspi City, and the issuance of a clean title to appellee covering the
two lots. . . . .
xxx xxx xxx
In order that damages may be recovered, the best evidence obtainable by the injured party must be
presented. Actual or compensatory damages cannot be presumed, but must be proved with reasonable
degree of certainty. A court cnnot [p] rely on speculation, conjecture or guesswork as to the fact and
amount of damages, but must depend upon competent proof that they have been suffered and on
evidence of the actual amount. If the proof is flimsy and unsubstantial, no damages will be awarded
[citation omitted]. .
We disagree with the appellate court.
By law, "[t]he vendee is bound to accept the delivery and to pay the price of the thing sold at the time and place stipulated in the
contract." In the case at bench, petitioner's obligation to pay arose as soon as the deed of sale was registered and a clean title
was issued. However, petitioner justifies non-payment on respondents' breach of several stipulations in the contract. We have
examined these alleged violations _%B%_ the pertinent provisions of the deed of sale, keeping in mind that only a substantial
breach of the terms and conditions thereof will warrant rescission. Whether a breach is substantial is largely determined by the
attendant circumstances.
Petitioner contends that it was entitled to retain the purchase price due to respondents' failure to pay the capital gains and
documentary stamp taxes and other transfer fees. We have read and examined the contract of sale and we have found nothing
therein to show that payment of the said taxes and fees to be conditions precedent to petitioner's duty to pay. The stipulation is
a standard clause in most contracts of sale and is nothing more than a specification of the party who shall bear such fees and
taxes.
Petitioner likewise insists that its delay in paying the purchase price was justified since a squatters occupied the premises,
contravening the stipulation that the respondent vendors shall convey the properties free from liens and encumbrances. Again,
we cannot support petitioner's view. The squatter's illegal occupation cannot be deemed a lien or encumbrance. By the express
terms of Article 1590 of the Civil Code, a mere act of trespass will not authorize the suspension of payment of the price. Be that
as it may, the usurpation became moot and academic when the squatters left of their own violation in 1988 following a storm .
So far, what emerges as clear is that petitioner's obligation to pay was not subject to the foregoing "conditions," only its
demandability is suspended until the opportune time. That arrived upon the registration of the deed of sale and issuance of a
clean title in favor of the petitioner. Relative thereto, the notice of adverse claim and
became moot issues because
they were cancelled less than a year after their inscription.
We now consider petitioner's final argument, to wit, that it was not obliged to pay until respondents compact the lots to street
level with escombro free from waste material. Taking into account the facts of the case, we find that particular argument of
petitioner to be well-taken. The use to which the parcels of land was to be devoted was no secret between the parties. The
consolidated estate, which incorporated the lots sold by respondents to petitioner, was intended as the site of petitioner's
regional office to serve the Bicol region. The project had its peculiar requirements, not the least of which was that since a
substantial edifice was to be built on the property, the site had to be made suitable for the purpose. Thus, petitioner speci fied
that the lots be filled up in the manner specified in paragraph 4 of the contract. The importance thereof could not have been lost
on respondents.
Evidently then, respondents were guilty of non-performance of said stipulation. The deed of sale expressly stipulated that the
vendors were to undertake, at their expense, the filling up of the lots with escombro free from waste material compacted to the
street level. This was to be accomplished upon the signing of the contract and insofar as petitioner was concerned, responden ts
obligation was demandable at once. Other than his testimony, Alfonso Bichara offered no proof tending to show that he had
complied in the manner agreed upon. Although he did state that he saw no need to comply with the stipulation because the
parcels of land were already level with the street, it was still not shown that the same were in a condition suitable for the
construction of petitioner's regional office. We find it hard to believe that the deed of sale would have specified the nature,
quantity and quality of the filling material were it not to prepare the lots for the construction. Where the terms of a contract are
clear they should be fulfilled according to the literal tenor of their stipulation. If indeed it were true that the lots were already
at street level, petitioner would not have incurred the additional cost of P45,000.00 for having them filled up by the BGV
Corporation.
On the other hand, respondent argue that as proof of petitioner's bad faith, the latter could have undertake the filling up o f the
lots as early as 1989, when it would have cost only about P9,000.00. / The trial court concurred with this view. But we
disagree. Petitioner was under no duty to have done, at the least cost to the latter, what was clearly respondents obligation from
the very beginning. If petitioner was forced to have the subject parcels of land filled up by another party, and subsequently bill
respondents, the former was entitled to do so by right. . Respondents are not in a position to question the resulting expense.
Had they performed their obligation under the contract of sale at the proper time, the expense would surely have been even le ss
than the P9,00000 estimate in 1989.
In this context, the appellate court erred in decreeing the rescission, otherwise called resolution, of the subject deed of sale.
Respondents should not be allowed to rescind the contract where they themselves did not perform their essential obligation
thereunder. It should be emphasized that a contract of sale involves reciprocity between the parties. Since respondents were in
bad faith, they may not seek the rescission of the agreement they themselves breached. Consequently, the decision rendered
by the trial court should be reinstated as being just and proper under the premises.
WHEREFORE, judgment is hereby rendered REVERSING and SETTING ASIDE the Decision dated February 28, 1997 of the Court
of Appeals. The Decision dated October 26, 1993 rendered by the Regional Trial Court of Legazpi City in Civil Case No. 8645 is
hereby REINSTATED. No pronouncement as to costs.j6 j 3
SO ORDERED.
&

$ ã& !! pp
""!
1 c
, pp. 17-30.
2 c
, pp. 32-33.
3 Justice Demetrio G. Demetria, , and Justices Salome A. Montoya and Oswaldo D. Agcaoili,
members.
4 Annex "A" of the Complaint, Record, p. 6.
5 Annex "B" of the Complaint, Record, p. 7.
6 Deed of Absolute Sale, Annex "C" of the Complaint, Record, pp. 7-9.
7 sketch, Exhibit 11, Defendant's Formal Offer of Evidence, p. 17.
8 Annex "D" of Complaint, Records, pp. 10-10-A.
9 Exhibit 12, Defendant's Formal Offer of Evidence, p. 18.
10 Letter dated July 16, 1992, Annex 7 of Answer, Record, p. 34.
11 Letter dated October 20, 1992, Defendant's Formal Offer of Evidence, p. 9.
12 Defendant's Formal Offer of Evidence, p. 10.
13 Record, pp. 17-34.
14 Record, pp. 65-66.
15 Record, p. 67.
16 Record, pp. 149-161.
17 CA c
, p. 13.
18 CA c
, pp. 14-15.
19 Resolution dated August 10, 1995, CA c
, p. 27.
20 Decision, CA c
, pp. 155-169.
21 CA c
, pp. 183-184.
22 Petition, c
, pp. 5-6.
23 V A. TOLENTINO, COMMENTARIES AND JURISPRUDENCE ON THE CIVIL OF THE PHILIPPINES, 137

(1992).
24 Massive Construction, Inc., .

. v. Intermediate Appellate Court, 223 SCRA 1, 10 (1993); Delta Motor
Corporation, v. Genuine, .
., 170 SCRA 29, 34-35 (1989).
25 5 Phil. 49, 54-55 (1905).
26 CIVIL CODE, art. 1458.
27 Jacinto v. Kaparaz,

., 209 SCRA 246, 255 (1992).
28 Songcuan v. Intermediate Appellate Court,

., 191 SCRA 28, 35 (1990).
29 CA c
, pp. 165-168.
30 CIVIL CODE, art. 1582.
31 Vermen Realty Development Corporation v. Court of Appeals,

., 224 SCRA 549, 555 (1993).
32 TSN, August 19, 1993, p. 11.
33 If they ever were. The trial court found that both notices did not pertain to the subject properties
(Decision, Record, pp. 154-155).
34 TSN, June 15, 1993, pp. 16-17.
35 Salvatierra v. Court of Appeals, 261 SCRA 45, 56-57 (1996).
36 Plaintiffs' Memorandum, Record, pp. 123-124.
37 Exhibit "E-3," Plaintiffs' Formal Offer of Evidence, p. 4.
38 Decision, Record, p. 157.
39 Per Article 1167 of the Civil Code, which provides: "If a person obliged to do something fails to do it,
the same shall be executed at his cost. . . . ."
40 IV E. PARAS, CIVIL CODE OF THE PHILIPPINIES ANNOTATED 212 (13th Ed., 1994).

G.R. No. 142310 September 20, 2004
ARRA REALTY CORPORATION, ET AL. vs. GUARANTEE
DEVELOPMENT CORPORATION, ET AL.

Ô
Manila
SECOND DIVISION

Ô "<$
&,)#Ô ÔÔ&Ô &&Ô)#*Ô

*& &&Ô petitioners,
vs.
*
&*Ô ,)#

&*&+ respondents.
DECISION
&&Ô
J.:
Arra Realty Corporation (ARC) was the owner of a parcel of land, located in Alvarado
Street, Legaspi Village, Makati City, covered by Transfer Certificate of Title (TCT) No.
112269 issued by the Register of Deeds.1 Through its president, Architect Carlos D.
Arguelles, the ARC decided to construct a five-story building on its property and engaged
the services of Engineer Erlinda Peñaloza as project and structural engineer. In the
process, Peñaloza and the ARC, through Carlos Arguelles, agreed on November 18, 1982
that Peñaloza would share the purchase price of one floor of the building, consisting of
552 square meters for the price of P3,105,838: P901,738, payable within sixty (60) days
from November 20, 1982, and the balance payable in twenty (20) equal quarterly
installments of P110,205. The parties further agreed that the payments of Peñaloza
would be credited to her account in partial payment of her stock subscription in the
ARCǯs capital stock.2 Sometime in May 1983, Peñaloza took possession of the one-half
portion of the second floor, with an area of 552 square meters3 where she put up her
office and operated the St. Michael International Institute of Technology. Unknown to her,
ARC had executed a real estate mortgage over the lot and the entire building in favor of
the China Banking Corporation as security for a loan on May 12, 1983. 4 The deed was
annotated at the dorsal portion of TCT No. 112269 on June 3, 1983. 5 From February 23,
1983 to May 31, 1984, Peñaloza paid P1,175,124.59 for the portion of the second floor of
the building she had purchased from the ARC. 6 She learned that the property had been
mortgaged to the China Banking Corporation sometime in July 1984. Thereafter, she
stopped paying the installments due on the purchase price of the property.
Peñaloza wrote the China Banking Corporation on August 1, 1984 informing the bank
that the ARC had conveyed a portion of the second floor of the building to her, and that
she had paid P1,175,124.59 out of the total price of P3,105,838. She offered to open an
account with the bank in her name in the amount of P300,000, and to make monthly
deposits of P50,000 each, to serve as payments of the equivalent loan of the ARC upon the
execution of the appropriate documents. She also proposed for the bank to assist h er in
requesting the ARC to execute a deed of absolute sale over the portion of the second floor
she had purchased and the issuance of the title in her name upon the payment of the
purchase price.7 However, the bank rejected her proposal.8 She then wrote the ARC on
August 31, 1984 informing it of China Banking Corporationǯs rejection of her offer to
assume its equivalent loan from the bank and reminded it that it had conformed to her
proposal to assume the payment of its loan from the bank up to the equival ent amount of
the balance of the purchase price of the second floor of the building as agreed upon, and
the consequent execution by the ARC of a deed of absolute sale over the property in her
favor.9 Peñaloza then sent a copy of a deed of absolute sale with assumption of mortgage
for the ARCǯs consideration, and informed the latter that, in the meantime, she was
withholding installment payments. 10 On October 3, 1984, Peñaloza transferred the school
to another building she had purchased, but retained her office therein. She later
discovered that her office had been padlocked.11 She had the office reopened and
continued holding office thereat. To protect her rights as purchaser, she executed on
November 26, 1984 an affidavit of adverse claim over the property which was annotated
at the dorsal portion of TCT No. 112269 on November 27, 1984. 12 However, the adverse
claim was cancelled on February 11, 1985.13
When the ARC failed to pay its loan to China Banking Corporation, the subject property
was foreclosed extrajudicially, and, thereafter, sold at public auction to China Banking
Corporation on August 13, 1986 for P13,953,171.07. 14 On April 29, 1987, the ARC and the
Guarantee Development Corporation and Insurance Agency (GDCIA) executed a deed of
conditional sale covering the building and the lot for P22,000,000, part of which was to be
used to redeem the property from China Banking Corporation. 15 With the money
advanced by the GDCIA, the property was redeemed on May 4, 1987.16 On May 14, 1987,
the petitioner executed a deed of absolute sale over the lot and building in favor of the
GDCIA for P22,000,000.17 The ARC obliged itself under the deed to deliver possession of
the property without any occupants therein. The Register of Deeds, thereafter, issued TCT
No. 147846 in favor of the GDCIA over the property without any liens or encumbrances
on May 15, 1987.18 Of the purchase price of P22,000,000, the GDCIA retained P1,000,000
to answer for any damages arising from any suits of the occupants of the building.
On May 28, 1987, Peñaloza filed a complaint against the ARC, the GDCIA, and the Spouses
Arguelles, with the Regional Trial Court of Makati, Branch 61, for "specific performance or
damages" with a prayer for a writ of preliminary injunction.
Peñaloza prayed for the following reliefs:
WHEREFORE, it is most respectfully prayed of this Honorable Court that Ȃ
1.- Before hearing, a temporary restraining order immediately issue;
2.- After notice and hearing, and the filing of an injunction bond, a
preliminary injunction be issued forthwith enjoining and restraining the
defendant Register of Deeds for Makati, Metro Manila, from receiving and
registering any document transferring, conveying, encumbering or,
otherwise, alienating the land and edifice covered by Transfer Certificate
of Title No. 112269 of said Registry of Deeds and from issuing a new title
therefor;
3.- After hearing and trial Ȃ
(a) Ordering defendants ARRA and Arguelles to execute a deed of

sale in favor of plaintiff over the second floor of that 5-storey
edifice built on 119 Alvarado Street, Legaspi Village, Makati, Metro
Manila, simultaneously with the tender of the remaining balance
on the purchase price thereon;
(b) Ordering defendants ARRA and Arguelles, jointly and severally,

to pay the plaintiff such moral damages as may be proved during
the trial;
(c) Ordering defendants ARRA and Arguelles, jointly and severally,

to pay the plaintiff exemplary damages in such amount as may be
deem (sic) just, sufficient and equitable as exempary (sic)
damages;
(d) Ordering defendants ARRA and Arguelles, jointly and severally,

to pay the plaintiff an amount equivalent to 20% of whatever she
may recover herein as and for attorneyǯs fees; P500.00 per
appearance of counsel in Court; and miscellaneous litigation
expenses and cost of suit;
4.- On the Alternative Cause of Action, in the event that specific

performance cannot be effected for any reason, to render judgment in
favor of the plaintiff and against the defendants Ȃ
(a) Ordering the defendants, jointly and reveraaly (sic), to

restitute to the plaintiff the sum of P1,444,124.59 with interest
thereon at bank borrowing rate from August 1984 until the same
is finally wholly returned;
(b) Ordering the defendants, jointly and severally, to pay the

plaintiff the difference between the selling price on the second
floor of the 5-storey edifice after deducting P1,444,124.59
therefrom;
(c) Directing defendant Guarantee Development Corporation &

Insurance Agency to deposit with the Honorable Court any
amount still in its possession on the purchase price of the land and
the 5-storey edifice in question;
(d) Ordering the defendants, jointly and severally, to pay the

plaintiff moral and exemplary damages as may be proved during
the trial and/or as this Honorable Court may deem just, adequate
and equitable in the premises;
(e) Ordering the defendants, jointly and severally, to pay the

plaintiff an amount equivalent to 20% of whatever she may
recover from the defendants in this suit as and for attorneyǯs fees,
litigation expenses and costs.
PLAINTIFF further prays for such other reliefs and remedies as may be just and
equitable in the premises19
On her first cause of action, Peñaloza alleged, inter alia:
2.- That on or about November 18, 1982, the plaintiff and defendant ARRA
represented by its President and General Manager, defendant Arguelles, entered
into an agreement whereby for and in consideration of the amount of
P3,105,828.00 on a deferred payment plan payable in five (5) years, defendants
ARRA and Arguelles agreed to sell to the plaintiff one (1) whole floor of a
prospective 5-storey building which said defendants planned to build on a 992
square meter lot located at 119 Alvarado Street, Legaspi Village, Makati, Metro
Manila, covered by Transfer Certificate of Title No. 112269 of the Registry of
Deeds for Makati, Metro Manila, copy of which agreement is hereto attached as
Annex "A" and made integral part hereof ;
3.- That consonant with the aforementioned agreement between the plaintiff and
defendants ARRA and Arguelles, the former paid to said defendants the total
amount of P1,377,124.59 as evidenced by receipts and cash vouchers copies of
which are hereto attached as Annexes "B," "B-1" to "B-10" and made integral
parts hereof;
4.- That upon completion of the 5 -storey edifice on May 31, 1984, the plaintiff
made her choice of the second floor thereof as the subject matter or obje ct of the
sale in her favor, and with the express knowledge and consent of defendants
ARRA and Arguelles, she immediately took possession and occupied the same as
contained in a certification to said effect of the defendants, and where they
further certified that the certificate of condominium corresponding to the second
floor "is presently under process," copy of said certification is hereto attached as
Annex "C" hereof;
5.- That sometime in August 1984, the plaintiff learned that the defendants ARRA
and Arguelles, conspiring with one another in a clear and unmistakeably (sic)
scheme to defraud the plaintiff of her investment on the second floor of the 5-
storey edifice, mortgaged the land and the building covered by Transfer
Certificate of Title No. 112269 of the Registry of Deeds for Makati, Metro Manila,
with the China Banking Corporation in order to secure the payment of their loan
in the total sum of P6,500,000.00 without the knowledge and/or consent of the
plaintiff;
6.- That after verifying the fact of mortgage with the China Banking Corporation
and realizing the risk of loss of her investment of P1,377,124.59 she had so far
paid on the purchase price of the second floor of the 5-storey edifice, the plaintiff
wrote the defendants ARRA and Arguelles on August 31, 1984 proposing to
defendants ARRA and Arguelles the execution of a deed of sale with assumption of
mortgage in her favor of the portion of the loan corresponding to the second floor
of the said edifice and informing them of her resolve to hold further payments on
the purchase price of the second floor until her rights and interest over the same
shall have been adequately and properly secured, copy of said letter is hereto
attached as Annex "D" hereof;
7.- That in order to facilitate the transaction and expeditious execution of the sale
over the second floor in her favor, the plaintiff had a Deed of Sale with
Assumption of Mortgage prepared and forwarded the same to defendants ARRA
and Arguelles for their consideration and signature with an accompanying letter
therefor dated September 25, 1984, copy of said draft of a deed of sale with
assumption of mortgage and the accompanying letter therefor are hereto
attached as Annexes "E" and"E-1," respectively;
8.- That by reason of the unjustified, unwarranted and malicious inaction and/or
refusal and failure of the defendants ARRA and Arguelles to comply with
plaintiffǯs perfectly valid and legal demand for the execution of a document of sale
over the second floor of the 5-storey edifice, and in order to protect her rights and
interest in said transaction, the plaintiff caused to be prepared and executed an
affidavit of Adverse Claim and effected the annotation thereof on Transfer
Certificate of Title No. 112269 of the Registry of Deeds for Makati, M.M., copy of
said Adverse Claim is hereto attached as Annex "F" hereof.20
On her second cause of action, Peñaloza alleged, as follows:
9.- That after her occupation and taking possession of the second floor of the said
5-storey edifice, the plaintiff caused the installation of a water tank and water
pumps thereto;
10.- That the water tank installed on the second floor of the 5-storey edifice
involved an outlay of P15,000.00 as evidenced by Cash Vouchers, copies of which
are hereto attached as Annexes "G" and "G-1," while the water pumps involved
the disbursement of P52,000.00 from the funds of the plaintiff as evidenced by
Cash Vouchers, copies of which are hereto attached as Annexes "H," "H-1" hereof;
11.- That when the defendants ARRA and Arguelles mortgaged with (sic) land and
the 5-storey edifice to the China Banking Corporation, the mortgage included the
water tank and water pumps servicing the second floor thereof installed by the
plaintiff;21
Peñaloza caused the annotation of the notice of lis pendens at the do rsal portion of TCT
No. 112269.
The GDCIA interposed the following affirmative and special defenses in its answer to the
complaint:
26. Guarantee acquired clean title to the Property, as evidenced by the transfer
certificate of title attached as Annex 4 hereof.
27. Guarantee was an innocent purchaser for value and in good faith of the
Property who: (i) verified that the title to the Property in the Registry of Deeds of
Makati was absolutely free and clear of any encumbrances, liens or claims other
than the mortgage to China Banking Corporation; and, (ii) even obtained explicit
confirmation of that fact from Arra and Arguelles.
ǥ
30. Consequently, Guarantee could rely, as it did, on the absence of any annotation
of encumbrance on the title to the Property. By clear provision of law, the present
action, which is a collateral attack on the title to the Property in question, cannot
be allowed by the Court.
31. The complaint (para. 6) admits that plaintiff was unable to pay the purchase
price for the portion of the building which she allegedly bought under the letter
agreement with Arra dated November 18, 1982 (Annex "A," Complaint).
Assuming plaintiffǯs agreement with Arra to be valid and enforceable, her failure
to discharge her part of the agreement bars her from now attempting to compel
performance from Arra and Arguelles.
32. Plaintiffǯs remedy, should her claim, indeed, be meritorious, is a personal

action for damages against Arra and Arguelles.22
The GDCIA prayed that, after due proceedings, judgment be rendered in its favor, thus:
WHEREFORE, it is respectfully prayed that, after due hearing, judgment be

rendered:
(i) Dismissing the complaint for lack of merit;
(ii) Ordering plaintiff to pay attorneyǯs fees in such amount as may be

proven in the course of trial;
(iii) Ordering plaintiff to pay to Guarantee the amount of P500,000.00 as

moral damages;
or, in the alternative, should plaintiffǯs claim be adjudged meritorious,
(iv) Ordering defendants Arra and Arguelles, solidarily, to return the

purchase price of the Property with interest as stated in the Deed of
Conditional Sale;
(v) Ordering defendants Arra and Arguelles, solidarily, to pay to

Guarantee the amount of P1,000,000.00 as punitive and exemplary
damages;
(vi) Ordering defendants Arra and Arguelles to pay attorneyǯs fees in such
amount as may be proven in the course of trial;
(vii) Ordering defendants Arra and Arguelles to pay to Guarantee the

amount of P500,000.00 as moral damages.
Other just and equitable reliefs are prayed for.23
The ARC and the Spouses Arguelles interposed the following special and affirmative
defenses:
10. Plaintiff has no cause of action against answering defendants; her complaint is
definitely a nuisance suit;
11. When answering defendants decided to erect a 5-storey building on their lot
in 1982, plaintiff and answering defendants agree that plaintiff will share in the
construction of any one (1) floor thereof; hence, the agreement between them
(Annex "A");
12. Plaintiff not only refused and failed to comply with her Agreement de spite
repeated demands but also grossly violated said agreement as she paid only an
initial amount of P200,000.00 on February 7, 1982 in contrary to the specific,
express decisive stipulation in Annex "A" which was synchronized with the
agreement of Answering Defendants with the contractor of the building, Pyramid
Construction & Engineering Corp., who was committed to finish the building in a
period of five (5) months;
13. Having committed to construct the 5-storey edifice on their lot, answering
defendants has (sic) to raise the required initial amount to start the construction
and for this reason, they were constrained to borrow the rest of the amount
necessary for the completion of the building and they used their own land and the
building itself as collateral to enable defendant Arguelles to finish the building
plus his own funding in the amount of P7,000,000.00;
14. Despite her non-compliance with her agreement, plaintiff, on her own and
without the consent of answering defendants, occupied the second floor of the
building and converted the same into a school the St. Michael International School
and other business establishments whereby she earned no less than
P3,000,000.00 in a period of four (4) years of her occupancy as a squatter thereof
without paying the rentals to answering defendants;
15. Due to plaintiffǯs persistent requests for the issuance in her favor of a
certification of her occupancy of the second floor to enable her to secure a loan in
the amount of P3,105,838.00 to complete payment of her obligation, defendant
Carlos Arguelles, always a kind and understanding person, issued Annex "C" with
the expectation that plaintiff could, indeed, comply with her agreement within a
period of three (3) months as she promised;
16. Having failed to fulfill her promise and to comply with her obligation as
mentioned in the immediately preceding paragraph hereof, plaintiff voluntarily
vacated the second floor of the said building on (sic) May 1986;
17. As a consequence of plaintiffǯs violation of her written agreement, answering

defendants naturally defaulted in their mortgage obligation with China Banking
Corporation and answering defendantsǯ lot and building were, therefore,
foreclosed by said bank and having no means of redeeming the mortgaged
properties within the redemption period, answering defendants were compelled
to negotiate for the sale of the foreclosed properties which sale was monitored to
the plaintiff together with her statement of account;
18. That the negotiation for the sale of the building to ok almost a year and during
such period, plaintiff was cooperative in showing the second floor which she was
then occupying to prospective buyers;
19. Whatever right plaintiff may have acquired over the second floor of the
subject 5-storey building has been extinguished upon her failure to comply with
her obligation, which was the payment of the total amount of P3,105,838.00
within the specific period expressly provided as the essence of the agreement.24
The ARC and the Spouses Arguelles also interposed counterclaims against the GDCIA,
while the latter secured a writ of preliminary attachment against its co-defendants and
garnished their funds. On April 17, 1995, the trial court rendered judgment in favor of
Peñaloza and the GDCIA, and against the ARC and the Spouses Arguelles, thus:
WHEREFORE, premises above considered, judgment is hereby rendered as

prayed for by plaintiff PEÑALOZA in the case for SUM OF MONEY as against
defendants ARRA and SPOUSES CARLOS D. ARGUELLES and REMEDIOS DELA
RAMA-ARGUELLES, who are hereby ORDERED as follows:
1. TO PAY plaintiff the amount of P1,444,124.59 with interest of 12 per

centum per annum from August 1984 until fully paid;
2. TO PAY the amount of P150,000.00 for and as attorneyǯs fees; and
3. TO PAY the Costs of the proceedings.
The case for SPECIFIC PERFORMANCE and prayer for PRELIMINARY INJUNCTION
are considered as DISMISSED on grounds that this case for this alternative relief
was filed after the Transfer Certificate of Title of the property was already issued
by defendant Register of Deeds in the name of GUARANTEE.
The case as against DEFENDANT Guarantee Development Corporation &

Insurance Agency (GUARANTEE) is hereby DISMISSED for insufficiency of
evidence.
The counterclaims of DEFENDANTS are hereby DISMISSED for insufficiency of

evidence.
SO ORDERED.25
Peñaloza, as well as the ARC and the Spouses Arguelles, appealed the decision to the
Court of Appeals (CA). The ARC and the Spouses Arguelles alleged that the Regional Trial
Court (RTC) erred as follows:
I IN NOT ANNULLING OR RESCINDING THE CONDITIONAL DEED OF SALE OF

REALTY DATED APRIL 29, 1987 AND DEED OF ABSOLUTE SALE DATED MAY 14,
1999;
II IN NOT ORDERING THE DEFENDANT GUARANTEE DEVELOPMENT AND
INSURANCE AGENCY TO PAY DEFENDANTS-APPELLANTS FOR THE MALICIOUS
AND UNFOUNDED FILING OF WRIT OF ATTACHMENT AND GARNISHMENT; AND
III IN NOT DIRECTING PACES TO PAY ARRA REALTY AND SPOUSES ARGUELLES
ARREARS IN RENTALS PLUS INTERESTS AND DISMISSING THE ORIGINAL AND
AMENDED COMPLAINTS.26
The CA rendered judgment, on September 30, 1998, affirming with modification the
appealed decision. The fallo reads:
WHEREFORE, the appeals of both ARRA Realty Corporation and plaintiff Engineer
Erlinda Peñaloza are hereby DISMISSED, and the Decision of the lower court is
hereby AFFIRMED but the award of P150,000.00 as attorneyǯs fees in favor of said
plaintiff is deleted. The Register of Deeds of Makati City is hereby ordered to
cancel the Notice of Lis Pendens annotated on Transfer Certificate of Title No.
147845 registered in the name of Guarantee Development Corporation and
Insurance Agency.27
The ARC and the Spouses Arguelles filed a motion for reconsideration of the decision of
the CA on the following grounds:
1.) THIS HONORABLE COURT OF APPEALS ERRED IN NOT RULING THAT

PEÑALOZAǯS ACTION WAS TANTAMOUNT TO FORFEITURE OR WAIVER OF HER
RIGHTS.
2.) THIS HONORABLE COURT OF APPEALS ERRED IN NOT APPRECIATING THE

EVIDENCE OF CO-DEFENDANTS ARRA/ARGUELLES ESPECIALLY THE ARREARS
IN RENTALS/OUT OF POCKET ADVANCES WITH THE RESULTANT UNJUST
ENRICHMENT ON THE PART OF PEÑALOZA.28
However, the appellate court denied the said motion. Peñaloza filed a petition for review
on certiorari with this Court docketed as G.R. No. 136876, wherein she made the
following assignment of errors:
The Court of Appeals gravely erred in finding respondent Guarantee an innocent

purchaser for value and in good faith contrary to settled jurisprudence that a
buyer of a parcel of land who did not pay the purchase price in full and who could
not have failed to know or discover that the land sold to him was in the adverse
possession of another is a buyer in bad faith.
II
The Court of Appeals gravely erred in finding that petitioner, who had established
her legal right for sum of money against respondents Arra and the Arguelles
spouses, may be effectively barred from pursuing her alternative remedy for
recovery of title against respondent Guarantee contrary to Section 2, Rule 8 of the
Rules of Court.
III
The Court of Appeals gravely erred in not awarding damages and attorneyǯs fees
despite violation of the rights of the petitioner on the wrongful or fraudulent
action on the part of the respondents. 29
WHEREFORE, premises considered, it is respectfully prayed that the Decision of

the Court of Appeals in CA-G.R. CV No. 52911 dated September 30, 1998 as well as
its Resolution dated December 23, 1998 be reversed and set aside and that a
Decision be rendered:
1. Declaring as null and void the title of Guarantee (TCT No. 147845) over
the subject property located at No. 119 Alvarado St., Legaspi Village,
Makati, Metro Manila.
2. Ordering respondents to execute a Deed of Sale in favor of the

petitioner covering the subject second floor of the subject property
simultaneously with the tender of the remaining balance on the purchase
price.
3. Ordering respondents, jointly and severally, to pay petitioner moral and

exemplary damages of One Million Pesos (P1,000,000.00).
4. Ordering respondents, jointly and severally, to pay petitioner attorneyǯs

fees of ten (10%) percent of the amount involved.
On the alternative cause of action, in the event that specific performance cannot
be affected, to render judgment:
1. Ordering respondents, jointly and severally, to pay petitioner the sum of

P1,944,124.59 with interest of twelve (12%) percent from August 1984
until fully paid.
2. Ordering respondents, jointly and severally, to pay moral and

exemplary damages of One Million Pesos (P1,000,000.00).
3. Ordering respondents, jointly and severally, to pay attorneyǯs fees of ten

(10%) percent of the amount involved.
Such other reliefs just and proper are, likewise, prayed for.30
On March 15, 1999, the Court resolved to deny due course to the petition for failure of the
petitioner therein to show any reversible error committed by the CA in its decision. Entry
of judgment was made of record on April 14, 1999.31
For their part, the ARC and the Spouses Arguelles, now the petitioner, filed their petition
for review with this Court, contending that:
THE HONORABLE COURT OF APPEALS COMMITTED A SERIOUS ERROR OF LAW

IN NOT HOLDING THAT NO PERFECTED CONTRACT EXISTS BETWEEN ARRA
REALTY CORPORATION AND ENGINEER ERLINDA PEÑALOZA.
II

IN NOT HOLDING THAT GUARANTEE DEVELOPMENT CORPORATION IS NOT AN
INNOCENT PURCHASER FOR VALUE AND THAT AUTOMATIC RESCISSION IS
PRESENT.32
III

IN NOT HOLDING THAT ENGINEER ERLINDA PEÑALOZA IS GUILTY OF FRAUD
AND IS IN BAD FAITH. HENCE, LIABLE FOR DAMAGES.
At the outset, it must be pointed out that the issues raised by the parties in their
respective pleadings in this Court have already been resolved in G.R. No. 136876, where
we denied due course to Peñalozaǯs petition for review. Nonetheless, considering that the
sole petitioner in the said case was Peñaloza, whereas the petitioners in the petition at
bar are the ARC and the Spouses Arguelles, we shall resolve the petition on its merits.
Furthermore, since the issues raised by the petitioners in their assignment of errors are
interrelated, the Court shall delve into and resolve the same simultaneously.
The petitioners posit that no contract of sale over the subject property was perfected
between the petitioner ARC, on the one hand, and respondent Peñaloza, on the other,
because the latter failed to pay the balance of the total purchase price of a portion of the
second floor of the building as provided in their November 18, 1982 agreement. They
aver that respondent Peñaloza bound and obliged herself to pay the downpayment of
P901,738 on or before January 1983, and the balance in twenty (20) equal quarterly
payments of P110,205. However, the petitioners aver, respondent Peñaloza was able to
complete the downpayment only on March 4, 1983 and managed to pay only three
quarterly installments, and part of the fourth quarterly installment. They assert that, in
violation of the November 18, 1982 agreement, respondent Peñaloza used the property
as a school instead of an office, and later abandoned the same without prior notice to the
petitioner ARC. The petitioners assert that respondent Peñaloza failed to pay for the
advances extended to her, amounting to P302,753.06 inclusive of interests, as well as
rentals for her occupancy of the property in the total amount of P2,177,935. The
petitioners contend that, even if the payments of respondent Peñaloza amounting to
P1,735,500 would be deducted from the agreed purchase price, she would still end up
owing the petitioner ARC the net amount of P930,815.56, excluding interests. They aver
that respondent Peñaloza should be ordered to pay damages under Article 19 of the New
Civil Code because she acted in bad faith, and pray that the payments she made to the
petitioner ARC for the purchase of the said portion of the building be forfeited in its favor.
The petitioners further contend that respondent GDCIA was a purchaser of the property
in bad faith because it purchased the lot and building despite its presumed knowledge of
the claims of respondent Peñaloza and the fact that the building was occupied by private
individuals and/or corporations. The petitioners aver that they even offered to return the
P21,000,000 paid by the respondent GDCIA for the property, less the retained
P1,000,000, but that the latter rejected the offer. Hence, the deed of absolute sale
executed by the petitioner ARC and the respondent GDCIA over the property was
automatically rescinded.
In her comment on the petition, respondent Peñaloza averred that her November 18,
1982 agreement with the petitioner ARC is a perfected contract of sale. She asserts that
the CA erred in holding that she was barred from recovering the property from the
respondent GDCIA and in not finding that the latter is not an innocent purchaser in good
faith because, by its own admission, it purchased the building although it w as still
occupied. In fact, she notes, the respondent GDCIA retained P1,000,000 of the purchase
price of the property to answer for any claims for damages of the said occupants. She
prayed, thus:
WHEREFORE, premises considered, it is respectfully prayed that the petition be

denied and that the Decision of the Court of Appeals in CA-G.R. CV No. 52911
dated September 30, 1998 as well as its Resolution dated February 21, 2000 be
modified in that:
1. Declaring as null and void the title of Guarantee (TCT No. 147845) over
the subject property located at No. 119 Alvarado St., Legaspi Village,
Makati, Metro Manila.
2. Ordering petitioners and respondent Guarantee to execute a Deed of

Sale in favor of the petitioner covering the subject second floor of the
subject property simultaneously with the tender of the remaining balance
on the purchase price.
3. Ordering petitioners and respondent Guarantee, jointly and severally,

to pay Peñaloza moral and exemplary damages of One Million Pesos
(P1,000,000.00).

to pay Peñaloza attorneyǯs fees of ten (10%) percent of the amount
involved.
In the alternative, in the event that specific performance cannot be affected, to

render judgment:

to pay petitioner the sum of P1,944,124.59 with interest of twelve (12%)
percent from August 1984 until fully paid.
to pay moral and exemplary damages of One Million Pesos
(P1,000,000.00).

to pay attorneyǯs fees of ten (10%) percent of the amount involved.
Such other reliefs just and proper are, likewise, prayed for.33
In its comment on the petition, the respondent GDCIA avers that the issues raised by the
petitioners and respondent Peñaloza in her Comment had already been resolved by this
Court in G.R. No. 136876, when the petition therein was denied due course.
We rule against the petitioners.
Central to the issue is the November 18, 1982 letter-agreement of the parties, which
reads:
Ms. Erlinda Peñaloza

5th Flr. ODC Intǯl. Plaza Bldg.
Salcedo St., Legaspi Village
Makati, Metro Manila
Dear Linda:
I would like to review the arrangement arrived at our meeting yesterday

afternoon. You shall share one (1) floor of the proposed 5-storey office
building to be constructed on a 992 sq. mt. lot owned by ARRA Realty
Corporation located at Alvarado St., Legaspi Village, Makati, Metro Mla.
The consideration for which you shall own one (1) floor is THREE
MILLION ONE HUNDRED FIVE THOUSAND EIGHT HUNDRED THIRTY-
EIGHT PESOS (P3,105,838.00) on a deferred payment plan. The initial
payment of NINE HUNDRED ONE THOUSAND SEVEN HUNDRED THIRTY-
EIGHT PESOS (P901,738.00) shall be paid within sixty (60) days from
November 20, 1982 and the balance payable in 20 equal quarterly
payments of ONE HUNDRED TEN THOUSAND TWO HUNDRED FIVE
PESOS (P110,205.00). Every payment that you make, ARRA shall credit
your account by way of partial payment to your stock subscriptions of
ARRAǯs capital stock. As soon as our contractor, Pyramid Construction and
Engineering Corporation, complete its commitment with us, which is not
more than five (5) months, you shall immediately take possession of the
floor of your choice. Further, as soon as practicable, the Title
corresponding to the floor that you own shall be transferred to your
name.
However, should you pay in full at the end of the fourth quarter or at any
time prior to the 5-year arrangement, the price shall be adjusted
accordingly.
I believe that this accurately summarizes our understanding. If you have
any questions or if I have not properly stated our agreement, please let me
know, otherwise, you may signify your conformity by signing the
duplicate copy of this letter.
Very truly yours,
(Sgd.)
CARLOS D. ARGUELLES
CONFORME:
President & General Manager
(Sgd.)
ERLINDA PEÑALOZA
PL:FP:ccr
Date: __________ 34
As gleaned from the agreement, the petitioner ARC, as vendor, and respondent Peñaloza,
as vendee, entered into a contract of sale over a portion of the second floor of the building
yet to be constructed for the price of P3,105,838 payable in installments, the first
installment of P901,738 to be paid within sixty (60) days from November 20, 1982 or on
or before January 20, 1983, and the balance payable in twenty (20) equal quarterly
payments of P110,205. As soon as the second floor was constructed within five (5)
months, respondent Peñaloza would take possession of the property, and title thereto
would be transferred to her name. The parties had agreed on the three elements of
subject matter, price, and terms of payment. Hence, the contract of sale was perfected, it
being consensual in nature, perfected by mere consent, which, in turn, was manifested
the moment there was a meeting of the minds as to the offer and the acceptance thereof. 35
The perfection of the sale is not negated by the fact that the property subject of the sale
was not yet in existence. This is so because the ownership by the seller of the thing sold at
the time of the perfection of the contract of sale is not an element of its perfection. A
perfected contract of sale cannot be challenged on the ground of non-ownership on the
part of the seller at the time of its perfection. What the law requires is that the seller has
the right to transfer ownership at the time the thing is delivered. Perfection per se does
not transfer ownership which occurs upon the actual or constructive delivery of the thing
sold.36
In May 1983, respondent Peñaloza took possession of a portion of the second floor of the
building sold to her with an area of 552 square meters. She put up her office and operated
the St. Michael International Institute of Technology. Thenceforth, respondent Peñaloza
became the owner of the property, conformably to Article 1477 of the New Civil Code
which reads:
Art. 1477. The ownership of the thing sold shall be transferred to the vendee upon th e
actual or constructive delivery thereof.
In a contract of sale, until and unless the contract is resolved or rescinded in accordance
with law, the vendor cannot recover the thing sold even if the vendee failed to pay in full
the initial payment for the property. The failure of the buyer to pay the purchase price
within the stipulated period does not by itself bar the transfer of ownership or possession
of the property sold, nor ipso facto rescind the contract.37 Such failure will merely give
the vendor the option to rescind the contract of sale judicially or by notarial demand as
provided for by Article 1592 of the New Civil Code:
Art. 1592. In the sale of immovable property, even though it may have been
stipulated that upon failure to pay the price at the time agreed upon the rescission
of the contract shall of right take place, the vendee may pay, even after the
expiration of the period, as long as no demand for rescission of the contract has
been made upon him either judicially or by a notarial act. After the demand, the
court may not grant him a new term.
Admittedly, respondent Peñaloza failed to pay the downpayment on time. But then, the
petitioner ARC accepted, without any objections, the delayed payments of the
respondent; hence, as provided in Article 1235 of the New Civil Code, the obligation of the
respondent is deemed complied with:
Art. 1235. When the obligee accepts the performance, knowing its incompleteness
or irregularity, and without expressing any protest or objection, the obligation is
deemed fully complied with.
The respondent cannot be blamed for suspending further remittances of payment to the
petitioner ARC because when she pushed for the issuance of her title to the property after
taking possession thereof, the ARC failed to comply. She was aghast when she discovered
that in July 1984, even before she took possession of the property, the petitioner ARC had
already mortgaged the lot and the building to the China Banking Corporation; when she
offered to pay the balance of the purchase price of the property to enable her to secure
her title thereon, the petitioner ARC ignored her offer. Under Article 1590 of the New
Civil Code, a vendee may suspend the payment of the price of the property sold:
Art. 1590. Should the vendee be disturbed in the possession or ownership of the
thing acquired, or should he have reasonable grounds to fear such disturbance, by
a vindicatory action or a foreclosure of mortgage, he may suspend the payment of
the price until the vendor has caused the disturbance or danger to cease, unless
the latter gives security for the return of the price in a proper case, or it has been
stipulated that, notwithstanding any such contingency, the vendee shall be bound
to make the payment. A mere act of trespass shall not authorize the suspension of
the payment of the price.
Respondent Peñaloza was impelled to cause the annotation of an adverse claim at the
dorsal portion of TCT No. 112269. Her testimony is quoted, thus:
Q: And did you finally acquire the certificate of title to the 2nd floor of the said
building?
A: No, Sir.
Q: Why not?
A: Because the said building was mortgaged by ARRA Realty and Architect
Arguelles with China Banking Corporation and subsequently sold to Guaranty
(sic) Development Corporation.
Q: When, for the first time, did you learn about the mortgage of the building to
China Banking Corp.?
A: It was sometime in July of 1984.
Q: How did you learn about it?
A: Since I took possession of the 2nd floor and made payments thereon, I asked
Architect Arguelles every now and then about the execution of a Deed of Sale to
the 2nd floor.
Q: What was the reply of Arguelles?
A: He told me that he had to work out yet the titling of the 2nd floor as a
condominium unit.
Q: Was Arguelles able to have the 2nd floor titled as a condominium unit?
A: No, Sir.
Q: Why not?
A: Because he did not take any steps about it.
Q: When Arguelles did not take steps about it, what did you do?
A: I inquired why Arguelles was not doing anything about the titling of the 2nd
floor and the sale thereof to me. That was how I discovered that Arguelles
mortgaged the same to the China Banking Corp. 38
Q: With those letters, what did you do?
A: On August 31, 1984, I wrote a letter to ARRA requesting them to execute a deed
of sale with the assumption of mortgage in my favor. I attached a copy of the deed
of sale and assumption of mortgage to the said letter, may I request this letter be
marked as Exh. "U" and the deed of sale attached to it with the assumption of
mortgage as Exh. "U-1."
Q: Did ARRA reply to your letter?
A: ARRA and Arguelles ignored the said letter.
Q: What did you do then?

A: On September 25, 1984, I wrote a letter to ARRA which I request to be marked
as Exh. "V" reiterating the signing of the deed of sale and at the same time telling
him that I was suspending my payments on the 2nd floor unless and until he signs
that Deed of Sale. I offered to pay the full amount so I can get the certificate of
title, because I had more than sufficient money to pay him at the time. Here are
copies of my bank deposits from 1982 to 1986 which show my liquidity. I request
that they be marked as Exh. "W" and "W-1" to "W-59" inclusive.
Q: What did ARRA do with that letter?
A: ARRA and Arguelles ignored the said letter.
Q: What steps did you take?
A: Upon [the] advise of my lawyer, I filed a Notice of Adverse Claim dated

November 26, 1984, which I request to be marked as Exh. "X" which was
inscribed the next day, November 7, 1984, at the back of the Certificate of Title
No. 112269, which I request to be marked as Exh. "Y" and the inscription of the
Notice of Adverse Claim to be bracketed and marked as Exh. "Y-1."39
Contrary to the claim of the petitioners, respondent Peñaloza did not waive her right to
enforce the letter-agreement or abandon the property she had purchased from the
petitioner ARC. While she transferred the school to another location, the respondent
maintained her office in the subject property, only to discover that the petitioner had had
her office padlocked. Nevertheless, she had her office reopened and continued holding
office thereat for a year or so, thereafter:
Q: In the meantime, did you continue holding office and holding classes for St.
Michael on the 2nd floor?
A: Sometime in April of 1986 when classes ended I transferred the St. Michael
School to a building which I purchased at Yakal St. also in Makati.
Q: Why did you transfer the St. Michael School at that building in Yakal St.?
A: Because after three years of operation the St. Michael School has grown too big
for the 2nd floor of that building at 119 Alvarado.
Q: How about your Engineering Office?
A: My Engineering Office has also grown bigger, just right for that space at the 2nd
floor, so it remained there.
Q: So the office of Peñaloza Engineering retained the Alvarado office?
A: Yes, Sir.
Q: After St. Michael left it, were you able to hold office there peacefully?
A: No, Sir.
Q: Why not?
A: One Monday, I went to our office at the 2nd floor at 119 Alvarado for work.
Q: Were you able to enter the office?
A: No, Sir.
Q: Why not?
A: Because the padlock that I placed there had been changed.
Q: How did you discover that?
A: Because when I was using my key to my padlock, it would not fit.
Q: What did you do?
A: I went to the office of Engr. Arguelles at ARRA Realty Corp. at the upper floor
and asked them why they changed the padlock. Nobody wanted to explain to me
why the padlock was changed but they gave me the key and I had it duplicated for
my use, so I continued holding office there. I held office in the said premises
continuously for about a year. Later on, it was padlocked. 40
Respondent Peñaloza turned over the possession of the property to the petitioner ARC on
October 7, 1986 and, shortly thereafter, filed her complaint against the petitioner ARC.
The bare fact that the respondent filed her complaint shortly after vacating the property
is evidence of her determination to pursue her claims against the petitioners.
In view of the failure of the petitioner ARC to transfer the title of the property to her
name because of the mortgage thereof to China Banking Corporation and the subsequent
sale thereof to the GDCIA, respondent Peñaloza is entitled to the refund of the amount she
paid to the petitioner ARC, conformably to Article 1398 of the New Civil Code, which
reads:
Art. 1398. An obligation having been annulled, the contracting parties shall
restore to each other the things which have been the subject matter of the
contract, with their fruits, and the price with its interest, except in cases provided
by law.
In obligations to render service, the value thereof shall be the basis for damages.
We reject the petitionersǯ claim that respondent Peñaloza is liable for P2,177,935
by way of advances and unpaid rentals. We note that in their answer to the
amended complaint of respondent Peñaloza, the petitioner s did not interpose any
counterclaims for actual damages in the form of unpaid rentals. Neither did the
petitioners assign as error in their brief in the CA the failure of the trial court to
award P302,753.06 to them for advances. It was only when they moved for the
reconsideration of the decision of the CA did they claim, for the first time on
appeal, their entitlement to P302,753.06 as refund for advances. The petitioner
ARC is, thus, barred from raising the said issue in this Court.41
Likewise barren of factual and legal basis is the petitionersǯ claim for damages against the
respondent based on Article 19 of the New Civil Code, which reads:
Art. 19. Every person must, in the exercise of his rights and in the performance of
his duties, act with justice, give everyone his due, and observe honesty and good
faith.
In this case, respondent Peñaloza suspended the payment of the balance of the purchase
price of the property because she had the right to do so. While she failed to pay the
purchase price on time, the petitioner ARC nevertheless accepted such delayed payments.
The respondent even proposed to assume the loan account of the petitioner ARC with the
China Banking Corporation in an amount equivalent to the balance of the purchase price
of the subject property, which the petitioner ARC rejected. In fine, respondent Peñaloza
acted in accord with law and in utmost good faith. Hence, she is not liable for damages to
the petitioners under Article 19 of the New Civil Code.
The law is that men, singly or in combination, may use any lawful means to accomplish a
lawful purpose, although the means adopted may cause injury to another. 42 When a
person is doing a lawful thing in a lawful way, his conduct is not actionable though it may
result in damages to another; for, though the damage caused is undoubted, no legal right
of another is invaded; hence, it is said to be damnum absque injuria.43
The elements of abuse of rights are the following: (a) the existence of a legal right or duty,
(b) which is exercised in bad faith; and (c) for the sole intent of prejudicing or injuring
another. Malice or bad faith is at the core of said provision.44 Good faith is presumed and
he who alleges bad faith has the duty to prove the same.45 Good faith refers to the state of
the mind which is manifested by the acts of the individual concerned. It consists of the
intention to abstain from taking an unconscionable and unscrupulous advantage of
another.46 Bad faith, on the other hand, does not simply connote bad judgment to simple
negligence. It imports a dishonest purpose or some moral obliquity and conscious doing
of a wrong, a breach of known duty due to some motive or interest or ill-will that
partakes of the nature of fraud.47 Malice connotes ill-will or spite and speaks not in
response to duty. It implies an intention to do ulterior and unjustifiable harm. The
petitioners failed to adduce evidence of bad faith or malice on the part of respondent
Peñaloza. This cannot be said of the petitioner ARC. It mortgaged the property to China
Banking Corporation even after having sold the same to respondent Peñaloza, and,
thereafter, sold the same anew to GDCIA; respondent Peñaloza was, thus, left holding the
proverbial bag.
On the last issue, the petitioners contend that the deed of conditional sale and deed of
absolute sale executed by them and the respondent GDCIA were automatically nullified
because the latter had actual or personal knowledge that the property sold had tenants.
Furthermore, the respondent GDCIA retained P1,000,000 on account of the claims of
respondent Peñaloza, Paces Industrial Development Corporation, and Emeterio Samson
over the portions of the property.
The contention of the petitioners has no merit.
First. The petitioners did not file a counterclaim against the respondent GDCIA for the
rescission of the aforesaid decision.48 Moreover, the petitioners did not adduce evidence
to prove bad faith on the part of the respondent GDCIA. Additionally, the petitioners
warranted in the aforesaid deeds in favor of the said respondent, that:
d) It is hereby agreed, convenanted and stipulated by and between the parties

hereto that the VENDOR will execute and deliver to the VENDEE a definite or
absolute Deed of Sale upon the full payment by the VENDEE of the unpaid balance
of the purchase price hereinabove stipulated.
1. The VENDOR undertakes and commits to deliver the Property, including all
floors of the building, as entirely vacant to the VENDEE not later than May 15,
1987. Physical possession, however, of the first and second floors of the Building
can be turned over to the VENDEE at any time convenient to them. 49
The VENDOR undertakes to perform, fulfill and comply with the representations,
warranties and undertaking stated in the Deed of Conditional Sale. Should the
VENDOR fail to do so, this agreement shall become null and void and the VENDEE
shall be entitled to enforce its right under Section 8 of the Deed of Conditional
Sale.50
Second. The respondent GDCIA relied on the representations of the petitioners. However,
the respondent received claims for ownership of portions of the property from tenants of
the building, including respondent Peñaloza, which impelled it to retain P1,000,000 of the
purchase price to answer for said claims. There is, thus, no factual and legal basis for the
plea of the petitioners that the trial court and the CA erred in not rendering judgment in
their favor declaring the said deeds rescinded.
On the claim of respondent Peñaloza against the petitioners and her co-respondent
GDCIA, we agree with the latter that the same is barred by the resolution of this Court in
G.R. No. 136876, denying due course to her petition for review of the decision of the CA
on the ground that no reversible error was committed by the said court, which resolution
has become final and executory.
& && the petition is **. The assailed decision and

resolution of the Court of Appeals are *. Costs against the petitioners.
Ô**
%$ C@ and p%#CC!! concur.

""!
* On official leave.
** On leave.
1 Exhibit "Y," Records, p. 443.
2 Exhibit "B," at 385.
3 at 613.
4 Exhibit "B," supra.
5 Exhibit "Y," supra.
6 Ibid.
7 Exhibit "S," at 414.
8 Exhibit "T," at 415.
9 at 20.
10 Exhibit "V," at 419.
11 at 619.
12 Exhibit "Y," supra.
13 Records, p. 444.
14 at 535.
15 at 522-529.
16 at 535.
17 at 527-531.
18 at 532-533.
19 at 9-11.
20 at 2-4.
21 at 4.
22 at 80-81.
23 at 82-83.
24 at 221-224.
25 at 1420.
26 Rollo, p. 39.
27 at 28.
28 at 31.
29 at 275-276.
30 at 286-287.
31 at 105.
32 at 10.
33 at 88-90.
34 at 52. (Underscoring supplied).
35 ã 0_
, 299 SCRA 695 (1998).
36 Ibid.
37 *p _

, 233 SCRA 551 (1994).
38 Records, pp. 372-373.
39 at 374-375.
40 at 375-376.
41"
_
, 318 SCRA 215 (1999); 0p! _

, 309 SCRA 602 (1999); c _
301 SCRA 342
(1999); _ , 300 SCRA 722 (1998);
_
, 284
SCRA 493 (1998).
42 c_ p _ # $p * 2, 168 N.E. 766 (1918).
43 - _ ®p, 63 S.E. 109 (1908).
44 &%&#&p _

, 301 SCRA 572 (1999).
45 _
, 242 SCRA 341 (1995).
46 ¢
_
p$ , 195 SCRA 168 (1991).
47 0p! _

48 Rollo, pp. 118-125.
49 Records, p. 90.
50 . at 94.

G.R. No. 155594 September 27, 2004
RHODORA G. BLAS vs. LINDA ANGELES-HUTALLA

Ô
Manila
SECOND DIVISION

.Ô "<$/
*
(&Ô petitioner,
vs.
&* &Ô- && respondent.
DECISION
&&Ô
J.:
Before us is a petition for review of the Decision1 and Resolution2 of the Court of Appeals
(CA) in CA-G.R. CV No. 63978 filed by Rhodora G. Blas.
Respondent Linda Angeles-Hutalla was a Filipino citizen who later became a naturalized
citizen of the United States of America. She owned a grocery store and a restaurant in
Sunnyvale, California, which was beside the small store owned by petitioner Rhodora
Blas, a Filipino citizen and the wife of Victor Blas, also residents of Sunnyvale.
The respondent mentioned to the petitioner that she owned a residential lot located at
No. 843 Kapasigan St., Plainview, Mandaluyong, Metro Manila, on which a three-door
apartment stood, and that she was selling the same. The petitioner expressed her interest
in purchasing the property. At that time, the property was not yet registered in the
respondentǯs name. The respondent and the petitioner agreed to return to the Philippines
so that the latter could see the property. They arrived in the Philippines in June 1988. The
petitioner saw the property and discovered that one of the apartment units w as occupied
by the stepmother of the respondent and the latterǯs nephew. Nevertheless, the petitioner
decided to purchase the property. Thereafter, the respondent executed an unnotarized
deed of sale over the property, including the three-door apartment, in favor of the
petitioner for the price of P250,000.3 Although the respondent claimed in the said deed
that she was the registered owner of the property, the space for the number of the
torrens title in her name was left blank. The petitioner left the deed with her sister
Rodelia Goot and, forthwith, returned to the United States. However, the deed was not
filed or recorded in the Register of Deeds.
After a monthǯs stay in the Philippines, the respondent returned to the United States. The
parties executed on August 8, 1988 a Deed of Sale4 over the property inclusive of the
apartment for the price of US$40,000, and the respondent acknowledged therein the
receipt of the said amount. The deed was notarized by Notary Public Renato A. Calura of
the Santa Clara County, who also acted as a witness to the deed. However, the parties also
executed, on the same day, a Real Estate Purchase Contract and Receipt for Deposit
(REPCRD)5 also notarized by Calura. It was made to appear in the said deed that of the
purchase price of US$40,000, the petitioner made a payment of US$5,000 and obliged
herself to pay US$5,000 on or before August 31, 1988, and US$7,000 on or before January
31, 1989. To pay the balance of US$23,000, the petitioner secured, from the respondent, a
loan of US$23,000 payable monthly for eight (8) years, at a monthly installment of
US$527.08 plus interest thereon at the rate of fifteen percent (15%) per annum, the first
monthly installment falling due on February 28, 1989 and the last monthly installment to
fall due on the last day of February 1997, thus:
2. TERMS AND CONDITIONS:
1. Balance of loan to be financed by Seller, Linda H. Cook, for a period of

eight (8) years at an interest rate of 15% per annum, payable in
installments of $527.68 per month.
2. Buyer and Seller agree that the monthly payments of $527.08 will begin
on FEBRUARY 28, 1989 and will continue each last day of the month until
the last day of FEBRUARY 1997. The total amount of all payments,
constituting both principal and interest, will be $50,600 Dollars.
3. A late charge of $26.35 will be added to any payments received more

than ten days (10) after the payment due date.
4. Buyers to purchase the property in the "as is" condition.
5. Buyers agree to pay all court and legal costs in the case of default of any
condition of this contract or in consequence of any legal dispute resulting
therefrom.
6. Seller to deliver Title of the Property to the Buyer upon completion of
all the requirements and conditions of this agreement and upon the
satisfactory payment of all monies specified.
7. Seller agrees that the Buyer, at any time, may pay off the financed
amount sooner than the terms herein specified, in which case, the interest
charges will be adjusted accordingly.
3. This contract consists of two (2) pages of which this is the first.
4. Buyer and Seller agree to act diligently and in good faith in the performance of
this contract.
5. FINANCING to be provided by Seller under the terms and conditions herein

stated.6
The petitioner executed a promissory note7 promising to pay the respondent the amount
of US$5,000 on or before August 31, 1988; and the amount of US$7,000 on or before
January 31, 1989. The petitioner took possession of the property and allowed Lerma
Laygo, Elma Aguilar, and her sister Rodelia Blas Goot, to occupy the two vacant apartment
units.
In the meantime, the Register of Deeds issued on April 28, 1989 Transfer Certificate of
Title (TCT)8 No. 2184 under the name of the respondent over the residential lot. On
October 10, 1989, the petitioner and her sister Emily Garcia signed a document9 stating
that the deed of sale executed by the respondent in June 1988 in the Philippines had been
executed only for the purpose of evicting the respondentǯs stepmother and nephew from
the apartment and that all parties are bound by the original contract and nothing else.
On January 8, 1998, the respondent, through counsel, wrote Rodelia Goot demanding that
she and the two other tenants in the apartment vacate the property within twenty (20)
days from receipt thereof.10 On February 2, 1998, the respondentǯs counsel received a
Letter from the petitionerǯs counsel dated January 28, 1998, claiming that the latterǯs
client had purchased the property and that, as such, she was the owner thereof. He then
concluded that the demand for the eviction of his clientǯs sister and the two other tenants
in the apartment was without legal basis.11
Subsequently, the respondent, through her attorney -in-fact, filed a complaint against the
petitioner and the two other tenants in the apartment with the barangay captain. In a
Letter12 dated February 5, 1998, the petitioner informed the respondent that she had
filed a complaint against the latter in the proper court in Santa Clara, California, United
States of America, for the rescission of the deed of sale. The respondent, through counsel,
thereafter, wrote the petitionerǯs counsel on the same day, maintaining that being the
registered owner of the property, she had a better right to possess the same.
On February 9, 1998, the petitioner filed a Complaint against the respondent in the
Regional Trial Court (RTC) of Mandaluyong City, Branch 214, for specific performance
and delivery of title, docketed as Civil Case No. MC-98-122. She alleged therein that she
had paid the purchase price in full and despite her demands, the respondent failed and
refused to deliver the torrens title over the property in her name. She prayed that
judgment be rendered in her favor:
WHEREFORE, premises considered, it is most respectfully prayed of this

Honorable Court that, after due notice and hearing, a judgment be rendered:
a. Ordering the defendant to surrender to the plaintiff the ownerǯs

duplicate original of the certificate of title over the property subject
matter of this complaint or in the alternative, ordering the Register of
Deeds of the City of Mandaluyong to cancel Transfer Certificate of Title No.
2184 in the name of the defendant and in lieu thereof, a new one be issued
in the name of the plaintiff;
b. Ordering the defendant to pay the plaintiff the amount of One Million
Pesos (P1,000,000.00) as actual and compensatory damages;
c. Ordering the defendant to pay the plaintiff the amount of One Hundred
Thousand Pesos (P100,000.00) as Moral Damages;
d. Ordering the defendant to pay the plaintiff the amount of One Hundred
Thousand Pesos (P100,000.00) as Exemplary Damages;
e. Ordering the defendant to pay the plaintiff the amount [of] One
Hundred Thousand Pesos (P100,000.00), plus Three Thousand Pesos
(P3,000.00), by way of Attorneyǯs Fees; and
f. Costs of suit.
Other reliefs, just and equitable under the premises, are also prayed for.13
The petitioner appended to her complaint a copy of the unnotarized deed of sale 14
executed by the respondent in the Philippines in June 1988.
In her answer to the complaint, the respondent, through her attorney -in-fact, alleged,
inter alia, that the real and binding deed was the REPCRD notarized in Santa Clara by
Renato Calura on August 9, 1988, not the deed of sale appended to the complaint. She,
likewise, alleged that the balance of the purchase price was still US$26,289.28. The
respondent further stated that, under the said deed, she was entitled to repossess the
property for the petitionerǯs failure to comply with the conditions therein, and prayed
that judgment be rendered in her favor, thus:
WHEREFORE, PREMISES CONSIDERED, after trial on the merits, this Honorable

Court rendered judgment:
1. Declaring the Real Estate Purchase Contract and Receipt for Deposit
(Annex "5") rescinded and consider all payments made by the plaintiff as
rentals for the use of the property; further ordering defendant to
surrender the said house and lot located at #843 Kapasigan St., Plainview
Subd., Mandaluyong City, to herein plaintiff and/or her attorney-in-fact;
2. Ordering plaintiff to pay defendant on her counterclaims as follows:
a) Actual damages ǥǥǥǥǥǥǥǥ P100,000.00
b) Moral damages ǥǥǥǥǥǥǥǥ. 500,000.00
c) Exemplary damages ǥǥǥǥǥǥ. 500,000.00

d) Attorneyǯs fees ǥǥǥǥǥǥǥǥ. 250,000.00
Defendant prays for such other relief and remedy which may be deemed just and
equitable under the premises.15
The respondent appended to her answer a copy 16 of the REPCRD as well as the document
signed by the petitioner and her sister Emily dated October 10, 1989.
In her answer, through her attorney-in-fact, to the request for admission filed by the
petitioner, the respondent denied the genuineness and due execution of the unnotarized
deed of sale executed by her in June 1988 in the Philippines.
##0"0)570#2="3"0"0
The petitioner testified that, as indicated in the deed of sale17 which the respondent
executed in the Philippines, she purchased the property for P250,000, which she paid in
full to the respondent at the Intercontinental Hotel, where she was then billeted.
However, the respondent did not issue any receipt therefor. The petitioner then
requested her to deliver the ownerǯs duplicate of title over the property so that the deed
of sale could be notarized and filed with the register of deeds, and the title, thereafter,
transferred in her name, but the respondent refused. Considering that the title to the
property was not yet in her name, the petitioner did not pay the realty taxes for the
property since 1988.
##0"0)570#2="3! #"
The respondent testified that she sold the property for US$40,000, under the deed of
sale18 and the REPCRD.19 She averred that the petitioner made a downpayment of
US$5,000 at the Intercontinental Hotel in Makati City after their arrival in the Philippines
in June 1988. However, she failed to pay the installment due on January 31, 1989 in the
amount of US$7,000. The petitioner merely paid the monthly installments on her loan on
an irregular basis until the last installment payment in the amount of US$500 in March
1997.20 The respondent averred that the petitioner still had a balance on the
downpayment of the property and on her loan inclusive of "late fees," computed, thus:
1) Balance of Downpayment inclusive of "

late fees" as of September 1997 ǥǥ..ǥǥǥ. US$12,658.8521
2) Balance of Loan as of September 1997 ǥǥǥ 8,533.7722
US$21,192.62
The respondent declared the property for taxation purposes in 1998 and paid the realty
taxes due therefor.23
On June 8, 1999, the trial court rendered judgment and ordered the dismissal of the
complaint as well as the respondentǯs counterclaim. The trial court ruled that the real and
binding deed of sale executed by the parties was the REPCRD and that since the
petitioner failed to pay in full the purchase price of the property, the respondent had the
right to rescind the said contract and regain possession of the property. The fallo of the
decision reads:
WHEREFORE, the complaint for specific performance against herein defendant is

hereby DISMISSED. Plaintiff is hereby ordered to reconvey possession of the
subject property to herein defendant. The counterclaim of defendant is, likewise,
dismissed.
SO ORDERED.24
The petitioner appealed the decision to the CA where she asserted the following:
THE HONORABLE TRIAL COURT ERRED IN HOLDING THAT THE REAL

CONTRACT BETWEEN THE PARTIES IS THE REAL ESTATE PURCHASE
CONTRACT.
II
ASSUMING, WITHOUT ADMITTING, THAT THE REAL CONTRACT BETWEEN THE

PARTIES, IS THE REAL ESTATE PURCHASE CONTRACT, THE REGIONAL TRIAL
COURT GRAVELY ERRED IN ORDERING THE RECONVEYANCE OF THE PROPERTY
AND TREATING THE SUMS PAID BY HEREIN APPELLANT AS RENTAL FOR THE
USE OF THE SAME.25
The petitioner averred, inter alia, that the Maceda Law should apply in her favor. On May
14, 2002, the CA rendered judgment affirming the decision of the RTC. The appellate
court held that the deed of sale executed by the respondent in the Philippines 26 was
superseded by the deed of sale she executed in the United States. 27 The CA also ruled that
although notarized in the United States of America, the REPCRD 28 is admissible in
evidence since the genuineness and due execution was admitted by the respondent. The
appellate court rejected the application of the Maceda Law because the petitioner failed
to invoke the same in the trial court and did so for the first time only in the CA.
Upon the denial of her motion for reconsideration of the said decision, the petitioner
sought relief in this Court via a petition for review, asserting that Ȃ
A.
THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED AND COMMITTED

GRAVE ABUSE OF DISCRETION IN RULING THAT THE DOCUMENT
DENOMINATED AS "REAL ESTATE PURCHASE CONTRACT WITH RECEIPT OF
DEPOSIT" IS ADMISSIBLE IN EVIDENCE.
B.
BOTH THE TRIAL COURT AND THE HONORABLE COURT OF APPEALS

COMMITTED GRAVE ERROR IN RULING THAT THE APPLICABILITY OF THE
MACEDA LAW CANNOT BE CONSIDERED.29
On the first issue, the petitioner avers that she objected to the admission in evidence of
the REPCRD precisely because the respondent failed to prove the authenticity of the deed.
She asserts that the REPCRD was never marked in evidence during the pre-trial, nor
presented during the trial. By her failure to present Notary Public Renato Calura, the
respondent even failed to prove that the REPCRD was executed and notarized in
accordance with law. She avers that the respondent also failed to prove compliance with
the requirements of Section 2 of Act No. 2103, and cites our ruling in Lopez v. Court of
Appeals.30 The petitioner claims that what the respondent identified, by her testimony,
was the Deed of Sale31 she executed on August 8, 1988 in California, and which she
adopted as her evidence.
For her part, the respondent contends that the petitioner failed to challenge the Order of
the trial court dated December 1, 1998 admitting the REPCRD in evidence. She insists
that she complied with Section 20, Rule 132 of the Rules of Court, as amended, and that
the petitioner herself admitted the genuineness and due execution of the REPCRD when
she testified.
For its part, the CA admitted in evidence the REPCRD with the following rat iocination:
We agree that the authenticity and due execution of Exhibit "4 -A" was not
sufficiently established.
While the Real Estate Purchase Contract and Receipt for Deposit marked as
Exhibit "4-A" was allegedly notarized in the United States of America, it could not
be admitted in evidence in Philippine courts unless it is certified as such in
accordance with the provisions of Section 24, Rule 132 of the Rules of Court by a
secretary of the embassy or legation, consul-general, consul, vice-consul, consular
agent or by any officer in the foreign service of the Philippines stationed in the
foreign country in which the record is kept of said public document and
authenticated by the seal of his office. Since the Real Estate Purchase Contract and
Receipt for Deposit was not accordingly certified, the deed could only be
considered as a private document and must be accompanied by proof of its due
execution and authenticity before it could be received in evidence.
In the Rules, there are two (2) ways by which the due execution and authenticity
of private document are proved, thus:
"SEC. 20. Proof of private document. Ȃ Before any private document

offered as authentic is received in evidence, its due execution and
authenticity must be proved either:
(a) By anyone who saw the document executed or written; or
(b) By evidence of the genuineness of the signature or

handwriting of the maker.
Any other private document need only be identified as that which it is

claimed to be."
Upon closer scrutiny of the records, however, we discovered that plaintiff-

appellant did not interpose a timely objection to the receipt of this document in
evidence, thus, explaining the trial courtǯs declaration that "[i]ndeed, the best
evidence to establish the true intent of the parties is not less than the Real Estate
Purchase Contract and Receipt for Deposit (Real Purchase Contract), Exh. 4-A,
whose genuineness and due execution, have remained unchallenged." The Rules
of Court pertinently provides in Rule 132, thus:
"SEC. 35. When to make offer. Ȃ xxx
Documentary and object evidence shall be offered after the presentation

of a partyǯs testimonial evidence. Such offer shall be done orally unless
allowed by the court to be done in writing.
SEC. 36. Objection. Ȃ Objection to evidence offered orally must be made

immediately after the offer is made.
Objection to a question propounded in the course of the oral examination

of a witness shall be made as soon as the grounds therefor shall become
reasonably apparent.
An offer of evidence in writing shall be objected to within three (3) days

after notice of the offer unless a different period is allowed by the court.
In any case, the grounds for the objections must be specified." [Emphasis
supplied.]
In an Order dated 5 October 1998, the court a quo declared:
"As prayed for by Atty. Clodualdo C. de Jesus, defendant is given a period

of five (5) days from today to submit his written formal offer of evidence
furnishing a copy to Atty. Juanito I. Velasco, Jr., who is, likewise, given a
period of five (5) days to submit his comment. xxx"
Plaintiff-appellant received a copy of defendant-appelleeǯs formal offer of
evidence on 19 October 1998, but filed her comments and objections thereto only
eleven (11) days later or on 30 October 1998. Clearly, this was beyond the period
set by the Rules and by the trial court.
The established doctrine is that when a party failed to interpose a timely

objection to evidence at the time they were offered in evidence, such objection
shall be considered as waived. In Tison v. Court of Appeals, the Supreme Court set
out the applicable principle in the following terms:
"[F]or while the documentary evidence submitted by petitioners do not

strictly conform to the rules on their admissibility, we are, however, of the
considered opinion that the same may be admitted by reason of private
respondentǯs failure to interpose any timely objection thereto at the time
they were being offered in evidence. It is elementary that an objection
shall be made at the time when an alleged inadmissible document is
offered in evidence, otherwise, the objection shall be treated as waived,
since the right to object is merely a privilege which the party may waive.
As explained in Abrenica vs. Gonda, et al., it has been repeatedly laid down
as a rule of evidence that a protest or objection against the admission of
any evidence must be made at the proper time, otherwise, it will be
deemed to have been waived. The proper time is when from the question
addressed to the witness, or from the answer thereto, or from the
presentation of the proof, the inadmissibility of the evidence is, or may be
inferred.
Thus, a failure to except to the evidence because it does not conform with
the statute is a waiver of the provisions of the law. That objection to a
question put to a witness must be made at the time the question is asked.
An objection to the admission of evidence on the ground of incompetency,
taken after the testimony has been given, is too late. Thus, for instance,
failure to object to parol evidence given on the stand, where the party is in
a position to object, is a waiver of any objections thereto." [Emphasis
added.]
We find no sufficient reason, therefore, to reverse the trial courtǯs ruling

on the admissibility of Exhibit "4-A."32
The contention of the petitioner has no merit.
We agree that the petitioner objected to the admission of the REPCRD when it was
formally offered in evidence33 by the respondent on the ground that its authenticity had
not been established. In her memorandum,34 the petitioner averred that the REPCRD
violated the parol evidence rule, notwithstanding which the trial court admitted the same
as part of the evidence of the respondent.35 However, on appeal in the CA, the petitioner
invoked the Maceda Law, under which a buyer who has paid at least two years of
installments under a contract of sale of real estate on installment payments, including
residential apartments, is granted a grace period of one month for every year of
installment payments made. The petitioner thereby admitted that she had made
installment payments not only on the downpayment for the property but also on her loan
from the respondent as provided for in the REPCRD. By invoking the Maceda Law, the
petitioner thereby admitted the due execution, authenticity and the binding effect of the
REPCRD. After having admitted that she had partially complied with the terms and
conditions set forth therein, the petitioner can no longer assail the REPCRD without
running afoul the doctrine of estoppel. The petitioner had either of two choices Ȃ take a
definite and unequivocal stance and assert that the REPCRD was not authentic and, as
such, inadmissible in evidence; or maintain that the said deed was valid and authentic,
and that she had, in fact, partially complied with the terms and conditions therein set
forth. Indeed, the petitioner cannot validly invoke two defenses which are patently
inconsistent with each other. Furthermore, this is not a case of the petitioner asserting
two alternative causes of action, for the fact of the matter is, she failed to allege
alternative causes of action in her complaint.
The record shows that the petitioner had been insisting, all along, in the trial court that
the real and binding documents between her and the respondent are the following: the
Deed of Sale36 the respondent executed in the Philippines in June 1988; and the Deed of
Sale37 the latter executed in California on August 8, 1988. But then, on appeal, the
petitioner sculptured a two-pronged, diametrically antithetical attack of the trial courtǯs
decision, claiming that the REPCRD was null and void and inadmissible in evidence; but
later stressed that the REPCRD was valid and binding on the parties. The petitioner
sought refuge in the Maceda Law as a prop for an alternative relief to fend off the
rescission of the REPCRD and the eviction of her sister and the latterǯs tenants from the
property. We agree with the following pronouncement of the CA:
Third. Plaintiff-appellantǯs assertion that we apply the Maceda Law is repugnant

to her theory that she has fully paid the consideration of the contract of sale. In so
insisting on the benefit of the statute, plaintiff-appellant is in reality abandoning
her theory and is belatedly conforming with defendant-appelleeǯs position. Thus,
to allow her to switch theories for convenience would be seriously offensive to
the rules of fair play especially because defendant-appellee already underwent
the inconvenience and the tediousness of a lawsuit upon instance of plaintiff-
appellant. To even consider the application of this law for the benefit of
defendant-appellee is an inconsideration to the other. We invoke the
pronouncement of the Supreme Court stating that "the rule is well -settled that
points of law, theories, issues, and arguments not adequately brought to the
attention of the trial court need not be, and ordinarily will not be considered, by a
reviewing court as they cannot be raised for the first time on appeal because this
would be offensive to the basic rules of fair play, justice, and due process."38
The petitionerǯs insistence that the real and binding contract between her and the
respondent is the deed of sale executed by the respondent on August 8, 1988, 39 and not
the REPCRD, is in sharp contrast to the contrary ruling of the CA, thus:
Second. We observe that Exhibit "B" and Exhibit "4" are so grossly inconsistent to
allow them to be construed together. The only conclusion is that Exhibit "4"
superseded Exhibit "B," thus, the agreed consideration for the sale is US$40,000
and not the PhP250,000.00 as stated in Exhibit "B." By plaintiff-defendantǯs
admission, the only amount she has ever paid to defendant-appellee is
PhP250,000.00. Hence, Blasǯs insistence of full payment is clearly without basis.40
From the foregoing the (sic) testimony, Hutalla clarified that Exhibit "D" for the
plaintiff-appellant or Exhibit "4" to defendant -appellee does not stand alone but
should be read together with Exhibit "4-A." This explanation is plausible
considering that the two documents were signed by the contracting parties and
their witness on the same day, 9 August 1998. Moreover, the terms stated in the
two (2) contracts are not inconsistent; the Real Estate Purchase Contract with
Receipt for Deposit only set forth in detail the schedule of payment for the
consideration in the Deed of Sale or Exhibit "4." 41
On this score, however, we are not in full accord with the CA nor the petitioner.
It is settled that the real nature of a contract may be determined from the express terms
of the written agreement and from the contemporaneous and subsequent acts of the
parties thereto.42 In the construction or interpretation of an instrument, the intention of
the parties is primordial and is to be pursued. 43 If the terms of a contract are clear and
leave no doubt upon the intention of the contracting parties, the literal meaning of its
stipulations shall control. 44 If the contract appears to be contrary to the evident
intentions of the parties, the latter shall prevail over the former. 45 The denomination
given by the parties in their contract is not conclusive of the nature of the contents.46
The agreement of the parties may be embodied in only one contract or in two or more
separate writings. In such event, the writings of the parties should be read and
interpreted together in such a way as to render their intention effective.47
It bears stressing that the petitioner and/or the respondent executed the following:
*2<" *)" A30$0"<$
Deed of Sale48 June 1988 Exhibit "B"
Deed of Sale49 August 8, 1988 Exhibits "D" and "4"
REPCRD50 August 5, 1988 Exhibit "4-A"
Certificate51 October 10, 198952 Exhibit "5"
Under the first deed of sale,53 the respondent sold the property to the petitioner for
P250,000, and the respondent acknowledged receipt of such amount from the petitioner.
Under the REPCRD dated August 5, 1988 which was notarized on August 8, 1988, the
respondent sold the property to the petitioner for US$40,000 with a downpayment of
US$17,000, payable in installments; the balance via a loan from the respondent payable in
monthly installments. Under the second deed of sale 54 the respondent executed in
California, the property was sold to the petitioner for US$40,000, receipt of which the
respondent acknowledged. The two deeds of sale are inconsistent because while the
purchase price under the first deed is only P250,000, the purchase price of the property
under the second deed is US$40,000. The Court notes that in 1988, the rate of exchange
was P21.33 to a US dollar; 55 hence, the equivalent par value of US$40,000 was P553,200.
The petitioner certified under a document56 that the first deed of sale did not reflect the
true intention of the parties because the respondent executed the same merely to
convince her stepmother and nephew to vacate the property. While the petitioner also
certified in the same document that the only real and binding contract between her and
the respondent was the original contract and that any other agreement would be null and
void, she nevertheless signed the REPCRD on August 5, 1988 and made partial payments
over time as set forth therein. The petitioner could not have referred to the second deed
of sale as the "original contract" because she made partial payments to the respondent
under the REPCRD even after signing the said certificate.57 Taking into consideration all
the foregoing documents in connection with the partial payments made by the petitioner
to the respondent during the period of August 8, 1988 to March 1997, the parties
intended the REPCRD and the second deed of sale 58 to be the real and binding contracts
between them.
We are convinced, beyond cavil, that under the two contracts, the petitioner and the
respondent entered into a contract of sale over the subject property for the price of
US$40,000, with a downpayment of US$17,00 0, payable as follows: US$5,000 having been
already paid by the petitioner to the respondent at the Intercontinental Hotel in June
1988; US$5,000 on or before August 31, 1988; and US$7,000 on or before January 31,
1989. Considering that the petitioner obta ined a loan from the respondent, the balance of
US$23,000 was, likewise, already paid. However, of the US$17,000 downpayment, the
petitioner managed to pay only US$10,000, and failed to pay US$7,000 due on or before
January 31, 1989, exclusive of "late fees."
It must be stressed that a sale is at once perfected when a person (the seller) obligates
himself, for a price certain, to deliver and to transfer ownership of a specified thing or
right to another (the buyer) over which the latter agrees. 59 From the time the contract is
perfected, the parties are bound not only to the fulfillment of what has been expressly
stipulated but also to all the consequences which, according to their nature, may be in
keeping with good faith, usage and law.60
In a contract of sale, the title to the property passes to the vendee upon the constructive
or actual delivery thereof, as provided for in Article 1477 of the New Civil Code. The
vendor loses ownership over the property and cannot recover it until and unless the
contract is rescinded by a notarial deed or by judicial action as provided for in Article
1592 of the New Civil Code. A contract of sale is absolute, absent any stipulation therein
reserving title over the property to the vendee until full payment of the purchase pri ce
nor giving the vendor the right to unilaterally rescind the contract in case of non-
payment.61 In a contract of sale, the non-payment of the price is a resolutory condition
which extinguishes the transaction that, for a time existed, and discharges the obligations
created thereunder.62 Having failed to pay, in full, the purchase price of the property as
agreed upon by her and the respondent, the petitionerǯs plea for a reversal of the decision
of the appellate court is bereft of factual and legal basis.
The petitioner cannot find refuge in Article 1592 of the New Civil Code which reads:
Article 1592. In the sale of immovable property, even though it may have been
stipulated that upon failure to pay the price at the time agreed upon, the
rescission of the contract shall of right take place, the vendee may pay, even after
the period, as long as no demand for the rescission of the contract had been made
upon him either judicially or by a notarial act. After the demand, the court may
not grant a new term.
This is so because (a) the respondent sought the rescission of the REPCRD in her
answer to the complaint of the petitioner; (b) the petitioner failed to tender the
amount of US$7,000 inclusive of the "late fees" due, and to consign the same
before the trial court upon the filing of her complaint therein or in the course
thereof. Under Article 1256 of the New Civil Code, the petitioner shall be released
from liability only by the consignation of the amount due after compliance with
the requirements prescribed by law.
& && the petition is **. The Decision dated May 14,
2002 of the Court of Appeals is *. No costs.
Ô**
%$ @and p%#C!! concur.
""!
* On leave.
1Penned by Associate Justice Romeo A. Brawner, with Associate Justices Mario L.

Guariña III and Danilo B. Pine, concurring; Rollo, pp. 55-68.
2 Rollo, pp. 70-71.
3 Exhibit "B," Records, p. 137.
4 Exhibit "D," . at 139.
5 Exhibit "4-A," at 165-166.
6 . at 165.
7 Exhibit "12," . at 186.
8 Exhibit "A," . at 135.
9 Exhibit "5," . at 168.
10 Exhibit "6," . at 169.
11 Exhibit "7," . at 170.

12 Exhibit "8," . at 171.
13 . at 5-6.
14 . at 10.
15 . at 27-28.
16 . at 41-42.
18 See note 4.
19 See note 5.
20 Exhibit "9-F," Records, p. 179.
21 Exhibit "10-D," . at 184.
22 Exhibit "9-F," at 179.
23 Exhibits "2" and "3," . at 34 and 37.
24 Rollo, p. 190.
25 CA Rollo, p. 22.
26 See note 3.
27 See note 18.
28 See note 5.
29 Rollo, p. 23.
30 156 SCRA 838 (1987).
31 See note 27.
32 Rollo, pp. 60-63.
33 Records, pp. 195-197.
34 . at 213-232.
35 at 209.
37 Exhibit "D," Id. at 139.
38 Rollo, p. 67.
39 See note 37.
40 Rollo, p. 63.
41 . at 67.
42
_
, 345 SCRA 468 (2000).
43
ip _
, 332 SCRA 605 (2000).
44 Article 1370, New Civil Code.
45 Ibid.
46 c _

, 250 SCRA 223 (1995).
47 _ i , 288 SCRA 654 (1998).
48 Executed by the respondent.
49 Executed by the respondent.
50 Executed by the petitioner and the respondent.
51 Signed by the petitioner and Emily Garcia.
52 Notarized on August 8, 1988.
54 Exhibit "D," Id. at 139.
55Reference Exchange Rate Bulletin, Treasury Department, Central Bank of the

Philippines.
57 Exhibit "9-B," Id. at 175.
58 See note 54.

59 c _
.
60 Id. at 234.
61 See &_

, 290 SCRA 532 (1998).
62 .p
_
, 281 SCRA 176 (1997).
THIRD DIVISION
FERNANDO CARRASCOSO, JR.,
,
-versus-
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,
c .
x---------------------------------------x
PHILIPPINE LONG DISTANCE TELEPHONE COMPANY,
,
-versus-
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.
c
G.R. No. 123672
Present:
PANGANIBAN, ! ,
SANDOVAL-GUTIERREZ,

CARPIO MORALES, and GARCIA, !!

G. R. No. 164489
Promulgated:
December 14, 2005
x----------------------------------------------x
*Ô
&Ô 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[1] situated in Sablayan, Occidental Mindoro.
On February 15, 1972, at a special meeting of El Doradoǯs Board of Directors, a

Resolution[2] was passed authorizing 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,[3] El Dorado, through Feliciano
Leviste, sold the property to Fernando O. Carrascoso, Jr. (Carrascoso). 2
; 9
) # "9 <
R;="';
#
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 t he 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 THOUSA ND 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.[4] (Underscoring supplied) 2
#
From the above-quoted provisions of the Deed of Sale, Carra scoso 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:
ǲRESOLVED that by reason of the sale of that parcel of land covered by TCT
No. T-93 to Dr. FERNANDO O. CARRASCOSO, JR., "3 2 )"0 0" !!
$62"0 " "3 "% $0; <";); C!02D $% *
*

ÔÔ
")%$)E=30!2302)!5;)!"3$)5)2"3*#
=Ô)5!3)55$2;0F#$%*
*
ÔÔ
;
ǲRESOLVED, 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.;
ǲRESOLVED, FINALLY, that in case of any mortgage on the property, the

corporation waives the preference of any vendorǯs lien on the property.ǳ[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
ǲAǳ and made an integral part hereof, the El Dorado Plantation, Inc. has
$62"0 " "3 )=<"0# "% $0; <";);# $% *
)#

))!2!
" )% $)E = 30! 2302 )! 5; )! "3 )%<" = "3
$)5)2#"35*)# 5)")"02
#"3*#=Ô)5AGH
3=!3)55$2;0F#$%"37#"30*
)#
))!2!

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 vendorǯs 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 ǲAǳ 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.[6] (Emphasis and underscoring supplied)
On the following day, March 24, 1972, Carrascoso and his wife Marlene executed a Real
Estate Mortgage[7] over the property in favor of Home Savings Bank (HSB) to secure a loan in the
amount of P1,000,000.00. Of this amount, P290,000.00 was paid to Philippine National Bank to
release the mortgage priorly constituted on the property and P210,000.00 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] 2

<
#
H

># ' R
#
The March 23, 1972 Deed of Sale of Real Property was registered and annotated on El
Doradoǯs TCT No. T-93 as Entry No. 15240 [9] on April 5, 1972. On even date, TCT No. T-93
covering the property was cancelled and TCT No. T-6055[10] was in its stead issued by the
Registry of Deeds of Occidental Mindoro in the name of Carrascoso on which 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 P70,000.00 as requested by the spou ses Carrascoso.[12] The
Amendment of Real Estate Mortgage was also 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, 19 75, Carrascoso and the Philippine Long Distance Telephone
Company (PLDT), through its President Ramon Cojuangco, executed an Agreement to Buy and
Sell[14] whereby the former agreed to sell 1,000 hectares of the property to the latter at a
consideration of P3,000.00 per hectare or a total of P3,000,000.00. 2

/9( 8)#
The July 11, 1975 Agreement to Buy and Sell was not registered and annotated on
Carrascosoǯs 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[15] dated December 27, 1976, called the
attention of the Board to Carrascosoǯs failure to pay the balance of the purchase price of the 2
/

"9
property amounting to P1,300,000.00. And Lauroǯs 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]
Lauroǯs desire to rescind the sale was reiterated in two other letters [17] addressed to the
Board dated January 20, 1977 and March 3, 1977.
Jose P. Leviste, as President of El Dorado, later sent a letter of February 21, 1977 [18] to
Carrascoso informing him that 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 c orporation,
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.[19] (Underscoring supplied)
Jose Leviste, by letter[20] dated March 10, 1977, informed Lauroǯs counsel Atty. Aquino of
his (Joseǯs) February 21, 1977 letter to Carrascoso, he lamenting that ǲCarrascoso has not deemed it
fit to give [his] letter the courtesy of a replyǳ 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 correspondin g action for rescission of the contract
against . . . Carrascoso.ǳ[21]
Lauro and El Dorado finally filed on March 15, 1977 a complaint [22] for rescission of the
March 23, 1972 Deed of Sale 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. 2
&
#
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 P500,000.00, (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
P100,000.00 for attorneyǯs 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 ) 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[25] over the 1,000 hectare portion of the property subject of their July 11, 1975
Agreement to Buy and Sell. The 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 VENDORǯs 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 o f 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.[26] (Underscoring supplied)
In turn, PLDT, by Deed of Absolute Sale [27] dated May 30, 1977, conveyed the aforesaid
1,000 hectare portion of the property to its subsidiary, PLDT Agricultural Corporation (PLDTAC),
for a consideration of P3,000,000.00, the amount of P2,620,000.00 of which was payable to PLDT
upon signing of said Deed, and P380,000.00 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,[28] adopted and approved a Resolution ratifying and conferring ǲthe prosecution of Civil
Case No. R-226 of the Court of First Instance of Occidental Mindoro, entitled ǮLauro P. Leviste vs.
Fernando Carascoso (sic), etc.ǯ initiated by stockholder Mr. Lauro P. Leviste.ǳ[29]
In his Answer with Compulsory Counterclaim,[30] Carrascoso alleged that: (1) he had not
paid his remaining P1,300,000.00 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,[31] 42774,[32] 42769[33] and 24772,[34] respectively. On even date,
Carrascosoǯs TCT No. T-6055 was cancelled and TCT No. T-12480[35] covering the 1,000 hectare
portion of the property was issued in the name of PLDTAC. The March 15, 1977 Notice of )
was carried over to TCT No. T-12480.
On July 31, 1978, PLDT and PLDTAC filed an Urgent Motion for Intervention[36] which was
granted by the trial court by Order[37] of September 7, 1978.
PLDT and PLDTAC thereupon filed their Answer In Intervention with Compulsory
Counterclaim and Crossclaim [38] against Carrascoso on November 13, 1978, alleging that: (1)
when Carrascoso executed the April 6, 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
had been annotated on
Carrascosoǯs title; and (4) Lauro and El Dorado knew of the sale by Carrascoso to PLDT and PLDTǯs
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[40] of January 28, 1991, Branch 45 of the San Jose Occidental Mindoro Regional
Trial Court to which the CFI has been renamed, dismissed the complaint on the ground of
prematurity, disposing as follows, quoted _ :
WHEREFORE, in view of all the foregoing considerations, judgment is

hereby rendered:
1. Dismissing the plaintiffsǯ 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 latterǯs unpaid balance to the former;
3. Dismissing the defendants-intervenorsǯ counterclaim and cross-claim; and
4. Ordering the plaintiffs to pay to (sic) the costs of suit.
SO ORDERED.[41] (Underscoring supplied)
Carrascoso, PLDT and PLDTAC filed their respective appeals to the Court of Appeals.
By Decision[42] of January 31, 1996, the appellate court reversed the decision of the trial
court, disposing as follows, quoted _ :
Î not being meritorious, PLDTǯs/PLDTACǯs appeal is hereby

DISMISSED and finding El Doradoǯs 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 tenantsǯ 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 attorneyǯs 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 latterǯs 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.
Ô**
[43] (Underscoring supplied)
PLDT and PLDTAC filed on February 22, 1996, a Motion for Reconsideration [44] of the
January 31, 1996 CA Decision, while Carrascoso went up this Court by filing on March 25, 1996 a
petition for review,[45] docketed as G.R. No. 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
.
Lauro, in the meantime, died, hence, on April 16, 1996, a Motion for Substitution of Party[46]
was filed praying that his heirs, represented by Conrad C. Leviste, be substituted as respondents.
The Motion was granted by Resolution[47] of July 10, 1996.
PLDT and PLDTAC filed their Comment [48] to Carrascosoǯs petition and prayed that
judgment be rendered finding 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
, 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
to thereby render said notice ineffective.
El Dorado and the heirs of Lauro, both represented by Conrad C. Leviste, also filed their
Comment[49] to Carrascosoǯs 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 .[50] (Underscoring
supplied)
Carrascoso filed on November 13, 1996 his Reply [51] to the Comment of El Dorado a nd the
heirs of Lauro.
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[52] of June 30, 2003,
directed the appellate court to resolve the same.
By Resolution[53] of July 8, 2004, the CA denied PLDT and PLDTACǯs Motion for
Reconsideration for lack of merit.
PLDT[54] thereupon filed on September 2, 2004 a petition for review [55] before this Court,
docketed as G.R. No. 164489, 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[56] of August 25, 2004, G.R. No. 164489 was consolidated with G.R. No.
123672.
In his petition, Carrascoso faults the CA as follows:
I
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.[57] (Underscoring supplied)
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 ) .#i.#, 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 ) .#i.#, THE SAME IN DISREGARD OF
THE LEGAL PRINCIPLE THAT RESPONDENTS EL DORADO ET AL.ǯs PRIOR, ACTUAL
KNOWLEDGE OF PETITIONER PLDTǯS 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
).#i.#.[58] (Underscoring supplied)
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 pro perty under the March 23,
1972 Deed of Sale of Real Property is recognized, hence, El Dorado could collect the unpaid balance
of P1,300,000.00 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 [59] signed by
HSB President Gregorio B. Licaros.
Carrascoso further posits that extensions of the period to pay El Dorado were verbally
accorded him by El Doradoǯs 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
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 whic h 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.[60] They are to be 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. [63] The non-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.[64] Such failure to pay the price in the manner prescribed by the 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 own ership 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 P1,300,000.00 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 interpo sing no objection
to Carrascosoǯs 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 buyerǯs 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 Doradoǯs subordinating its ǲpreferred claimǳ or waiving its superior

ǲvendorǯs lienǳ 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 t he 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 Carrascosoǯs

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 Doradoǯs yielding its ǲsuperior lienǳ 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.[66] (Underscoring supplied)
Respecting Carrascosoǯs insistence that he was granted verbal extensions within which to
pay the balance of the purchase price of the property by El Doradoǯs 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 ǲnumerousǳ requests, with his obligation to pay the
amount of P1,300,000.00 and 10% annual interest thereon, and advising him that ǲwe would like
to rescind the contract of sale.ǳ This letter reiterated the term of payment agreed upon in the
March 23, 1972 Deed of Sale of Real Property and Carrascososǯs non-compliance therewith.
Carrascoso, harping on Jose Levisteǯs March 10, 1977 letter to Lauroǯs counsel wherein he
(Jose Leviste) stated that ǲsome 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,ǳ argues that
the extensions priorly given to him ǲno doubt lead to the logical conclusion on some of the
directorsǯ inability to file suit against him.ǳ[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 peri od 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 Doradoǯs cause of action for rescission of that
contract arose.[68] (Underscoring supplied)
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;[69] four months after the execution of the Deed of Sale,
upon inquiry 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; [70] and he thus brought the
matter again to El Dorado which informed him that the 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 P2,890,000.00 for
which he should be reimbursed, his unpaid obligation to El Dorado amounting to P1,300,000.00 to
be deducted therefrom.[72]
The breach of an express warranty makes the seller liable for damages.[73] The following
requisites must be 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.[75] The fact of tenancy[76] not having
been priorly established,[77] El Dorado may not be held liable for 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 ) .
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 decisi on 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 ) .[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 ǲAǳ 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 Agreemen t 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
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
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
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
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

in effect (1) keeps the subject matter of
litigation p 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 purchaser or not; but (3) does not
create a non-existent right or lien.
The doctrine of
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
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.[82] (Italics in the 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 PLDTǯs 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?[83] (Underscoring supplied)
Further, in its July 8, 2004 Resolution, the CA held:
PLDT cannot shield itself from the notice of

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
PLDTǯs possession at the time the notice of

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
.[84] (Underscoring
supplied)
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.[85] In the 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 [87] and 1187[88] of the Civil Code as held in

_
.[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.[90] Whereas in a
contract to sell, upon fulfillment of the suspensive condition, ownership will not automatically
transfer to the buyer although the property may have been previously delivered to him. The
prospective seller still has to convey title to the prospective buyer by entering into a contract of
absolute sale.[91]
A perusal of the contract[92] adverted to in

reveals marked differences from the
Agreement to Buy and Sell in the case at bar. In the
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 ǲdefinitely 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,ǳ such that in the April 6, 1977 Deed of Absolute Sale subsequently executed, the parties
declared that they ǲare now decided to executeǳ such deed, indicating that the Agreement to Buy
and Sell was, as the appellate court held, merely a preparatory contr act 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, ǲduring the existence of the Agreement, shall not sell, cede, assign and/or transfer the
parcel of land,ǳ 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. [94] (Underscoring
supplied)
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 ownerǯs 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 ownerǯs duplicate certificate of title. The
reason for requiring the production of the ownerǯs 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[95]
In

p _
,[96] where a Deed of Absolute Sale covering a parcel of land
was executed prior to the annotation of a notice of
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
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
, the CLUB must be legally held to have been aware of the flaws
in the title. By virtue of the
, its acquisition of the property was subject to
whatever judgment was to be rendered in Civil Case No. 6365. xxx The CLUBǯs 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.[97] (Underscoring supplied)
PLDT further argues that El Doradoǯs prior, actual knowledge of the July 11, 1975
Agreement to Buy and Sell is equivalent to prior registration not affected by the Notice of )
. As such, it concludes that it was not a purchaser
nor a purchaser in bad
faith.
PLDT anchors its argument on the testimony of Lauro and El Doradoǯs counsel Atty. Aquino
from which it infers that Atty. Aquino filed the complaint for rescission and caused the notice of

to be annotated on Carrascosoǯs 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. Aquinoǯs 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 ǲNotice of Lis Pendensǳ.
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. Trini dad 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
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
on Carrascosoǯs
title.
Respecting Carrascosoǯs 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.[101] In the case at bar, however, apart from Carrascosoǯs 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
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 Carrascosoǯs 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.[102] (Underscoring supplied)
The appellate courtǯs 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.[103] (Underscoring supplied)
The April 6, 1977 and May 30, 1977 Deeds of Absolute Sale being subject to the notice of

, 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
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 tree s 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. [104] Good faith is
thus identified by the belief that the land is owned; or 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, [106] and in the proper case,
expenses for pure luxury or mere pleasure.[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 t he 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.[109] Thus, until March 15, 1977
when the Notice of ) was annotated on Carrascosoǯs 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 1,0 00
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, [110] to be pegged at its current fair
market value.[111]
The commencement of PLDTǯs 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]
Î, the petitions are **. The Decision dated January 13, 1996 and
Resolution dated July 8, 2004 of the Court of Appeals are * with * 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 (ǲplus valueǳ) 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 (P2,000.00) 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 i n 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.
Costs against petitioners.
Ô**

&Ô
p !p
WE CONCUR:

(
p !p

&Ô*
&- +
p !p

p !p

p !p
Ô
I attest that the conclusions in the above Decision were reached in consultation before the case
was assigned to the writer of the opinion of the Courtǯs Division.

(
p !p

Pursuant to Article VIII, Section 13 of the Constitution, and the Division Chairmanǯs
Attestation, it is hereby certified that the conclusions in the above Decision were reached in
consultation before the case was assigned to the writer of the opinion of the Court.
&
*
*
!p

[1] Exhibit ǲAǳ, II Records at 366-372.
[2] I Records at 9-10.
[3] Exhibit ǲ1ǳ, II Records at 376-380.
[4] at 377-378.
[5] Exhibit ǲ2ǳ, at 857.
[6] Exhibit ǲ2-Aǳ, at 858.
[7] Exhibit ǲD-3-aǳ, at 384-389.
[8] G.R. No. 123672 c
at 38.
[9] Exhibit ǲA-2ǳ, II, Records at 371.
[10] Exhibit ǲDǳ, at 381-383.
[11] II Records at 382.
[12] Exhibit ǲD-3-bǳ, II Records at 390-391.
[13] II Records at 462-A.
[14] Exhibit ǲ15ǳ, I Records at 159-163.
[15] Exhibit ǲEǳ, II Records at 393-394.
[17] Exhibits ǲFǳ and ǲGǳ, II Records at 395-398.
[18] Exhibit ǲH-1ǳ, at 400-401.
[19] at 401.
[20] Exhibit ǲHǳ, II Records at 399.
[21]
[22] I Records at 1-8.
[23] at 7-8.
[24] Exhibit ǲL-1ǳ, II Records at 472.
[26] at 261-262.
[27] Exhibit ǲTǳ, I Records at 265-267.
[28] Exhibit ǲKǳ, II Records at 406-408.
[29] Exhibit ǲJǳ, at 405.
[30] I Records at 145-153.
[33] at 472.
[35] Exhibit ǲQǳ, III Records at 1480.
[36] I Records at 220-223.
[37] at 240.
[38] at 247-255.
[39] at 251-252.
[40] III Records at 1962-1970.
[41] at 1969-1970.
[42] G.R. No. 123672 c
at 35-58.
[43] at 56-58.
[44] at 147-154.
[45] at 11-33.
[46] at 79-81.
[47] at 95.
[48] at 87-94.
[49] at 102-126.
[50] at 126.
[51] at 128-134.
[52] at 171-177.
[53] at 181-196.
[54] PLDTAC, now a moribund company, no longer joined in the petition.
[55] G.R. No. 164489 c
at 210-246.
[56] at 50.
[57] G.R. No. 123672 c
at 20-21.
[58] G.R. No. 164489 c
at 226.
[59] Exhibit ǲ5ǳ, II Records at 864.
[60] *_

, 310 SCRA 1, 9 (1999) (citation omitted).
[61] IV A. Tolentino, COMMENTARIES AND JURISPRUDENCE ON THE CIVIL CODE OF THE

PHILIPPINES, 175 (1997 ed).
[62]
_
, 361 SCRA 56, 68 (2001).
[63] at 66.
[64] &
_
%
, 439 SCRA 273, 293 (2004) (citation omitted),

_ _
. $p
$

417 SCRA 277, 285 (2003) (citation omitted).
[65]
_
, at 57.
[66] G.R. No. 123672 c
at 44-45.
[67] at 22.
[68] at 47.
[69] TSN, August 21, 1979 at 45.
[70] TSN, June 2, 1980 at 15.

[71] TSN, August 21, 1979 at 47.
[72] at 26.
[73] C. Villanueva, LAW ON SALES, 538 (2004 ed).
[74] CIVIL CODE, art. 1546.
[75] &_ $% i
[438 SCRA 259, 265-266 (2004)] provides:
Tenants are defined as persons who Ȃ in themselves and with the aid available from
within their immediate farm households Ȃ cultivate the land belonging to or possessed
by another, with the latterǯs consent; for purposes of production, sharing the produce
with the landholder under the share tenancy system, or paying to the landholder a
price certain or ascertainable in produce or money or both under the leasehold
tenancy system.
[76] !pi _
_
[436 SCRA 392, 398-399
(2004)] provides:
xxx a tenancy relationship cannot be presumed. There must be evidence to prove this
allegation. xxx
xxx
The requisites of a tenancy relationship are as follows: (1) the parties are the landowner
and the tenant; (2) the subject is agricultural land; (3) there is consent by the landowner; (4)
the purpose is agricultural production; (5) there is personal cultivation, and (6) there is
sharing of the harvests. All these requisites are necessary to create a tenancy relationship, and
the absence of one or more requisites will not make the alleged tenant a 0 tenant. xxx
unless a person has established his status as a 0 tenant, he is not xxx covered by the Land
Reform Program of the Government under existing tenancy laws. xxx
[77] + _ (i _

p _
, 162 SCRA 636 (1988).
[78] G.R. No. 164489 c
at 232.
[80]
__

, 281 SCRA 298, 306 (1997) (citations omitted).
[81] . _

, 267 SCRA 380, 397-398 (1997) citations omitted).
[82] )_

, 347 SCRA 86, 96-97 (2000) (citations omitted).
[83] G.R. No. 123672 c
at 51.
[84] at 192-195.
[85] !_
_
, 210 SCRA 126, 132 (1992) (citation omitted).
[86]
p _
, 240 SCRA 565, 576-577 (1995).
[87] Art. 1181. In conditional obligations, the acquisition of rights, as well as the extinguishment
or loss of those already acquired, shall depend upon the happening of the event which
constitutes the condition.
[88] Art. 1187. The effects of a conditional obligation to give, once the condition has been
fulfilled, shall retroact to the day of the constitution of the obligation. Nevertheless, when the
obligation imposes reciprocal prestations upon the parties, the fruits and interests during the
pendency of the condition shall be deemed to have been mutually compensated. If the
obligation is unilateral, the debtor shall appropriate the fruits and interests received, unless
from the nature and circumstances of the obligation it should be inferred that the intention of
the person constituting the same was different.
[89] 263 SCRA 15 (1996).
[90]
_
, at 27-28.
[91] at 28.
[92] RECEIPT OF DOWNPAYMENT
xxx
Received from Miss Ramona Patricia Alcaraz of 146 Timog, Quezon City, the sum of
Fifty Thousand Pesos purchase price of our inherited house and lot, covered by TCT No.
119627 of the Registry of Deeds of Quezon City, in the total amount of P1,240,000.00.
We bind ourselves to effect the transfer in our names from our deceased father,
Constancio P. Coronel, the transfer certificate of title immediately upon receipt of the down
payment above-stated.
On our presentation of the T CT already in or (sic) name, We will immediately execute

the deed of absolute sale of said property and Miss Ramona Patricia Alcaraz shall immediately
pay the balance of the P1,190,000.00.
[93]
_ , 328 SCRA 434, 442-443 (2000).
[94] !_
_
210 SCRA 126, 134-135 (1992) (citations omitted).
[95] ) ) _ ( _ #

0, 89 SCRA 520, 528 (1979) (citations omitted).
[96] 125 SCRA 471 (1983).
[97] at 477-478 (citation omitted).

[98] TSN, August 21, 1979 at 8-13.
[99] TSN, February 4, 1982 at 39-44.
[100] G.R. No. 123672 c
at 124-125.
[101] ¢pp _ _ _p p , 7 SCRA 577, 584-585 (1963) (citation
omitted).
[102] G.R. No. 123672 c
at 55.
[103] IV A. Tolentino, COMMENTARIES AND JURISPRUDENCE ON THE CIVIL CODE OF THE

PHILIPPINES, 180-181 (1997 ed).
[104] $p _ $p , 439 SCRA 625, 643 (2004) (citations omitted).
[105] at 644 (citation omitted).
[106] CIVIL CODE, art. 546.
[107] CIVIL CODE, art 548.
[108] &
_
, 304 SCRA 34, 46 (1999).
[109] The July 11, 1975 Agreement to Buy and Sell likewise provides that PLDT shall have the
right to enter any part of the 1,000 hectare portion of the property within the period of the
Agreement for purposes of commencing its development.
[110] c
_
, G.R. No. 157044, October 5, 2005.
[111] p_

, 244 SCRA 407, 415-416 (1995).
[112] c
_

[113] @ p
$p _
, 268 SCRA 5, 22 (1997).

Ô
Manila
SECOND DIVISION

/. ))% ..
,
&Ôpetitioner,
vs.
*&& )#
*&Ôrespondents.
'
i
! ® & c #
0
c
# $
! ! _
&* J.:
This petition for review on p assails the decision of the then Intermediate Appellate Court
dismissing the complaint filed by herein petitioner against the herein p rivate respondent in the
former Court of First Instance of Negros Occidental in Civil Case No. 13821 thereof.
The factual backdrop of this controversy, as culled from the records, shows that on May 17, 1978,
petitioner Jerry T. Moles commenced a suit against private respondent Mariano M. Diolosa in the
aforesaid trial court, Branch IV in Bacolod City, for rescission of contract with damages. Private
respondent moved to dismiss on the ground of improper venue, invoking therefor Sales Invoice No.
075A executed between petitioner and private respondent on April 23, 1977 which provides that
all judicial actions arising from this contract shall be instituted in the City of Iloilo. This was
opposed by petitioner who averred that there is no formal document evidencing the sale which is
substantially verbal in character. In an order dated June 23, 1978, the trial court denied the motion
to dismiss, holding that the question of venue could not be resolved at said stage of the case. The
subsequent motion for reconsideration was likewise denied.
Consequently, private respondent, invoking the aforesaid venue stipulation, preceeded to this Court
on a petition for prohibition with preliminary injunction in G.R. No. 49078, questioning the validity
of the order denying his aforesaid two motions and seeking to enjoin the trial court from further
proceeding with the case. This petition was dismissed for lack of merit in a resolution of the Court,
dated February 7, 1979, and which became final on March 15, 1979. Thereafter, private respondent
filed his answer and proceeded to trial.
The aforecited records establish that sometime in 1977, petitioner needed a linotype printing
machine for his printing business, The LM Press at Bacolod City, and applied for an industrial loan
with the Development Bank of the Philippines. (hereinafter, DBP) for the purchase thereof. An
agent of Smith, Bell and Co. who is a friend of petitioner introduced the latter to private respondent,
owner of the Diolosa Publishing House in Iloilo City, who had two available machines. Thereafter,
petitioner went to Iloilo City to inspect the two machines offered for sale and was informed that the
same were secondhand but functional.
On his second visit to the Diolosa Publishing House, petitioner together with Rogelio Yusay, a letter
press machine operator, decided to buy the linotype machine, Model 14. The transaction was
basically verbal in nature but to facilitate the loan application with the DBP, a pro forma invoice,
dated April 23, 1977 and reflecting the amount of P50,000.00 as the consideration of the sale, was
signed by petitioner with an addendum that payment had not yet been made but that he promised
to pay the full amount upon the release of his loan from the aforementioned bank on or before the
end of the month. Although the agreed selling price was only P40,000.00, the amount on the
invoice was increased by P10,000.00, said increase being intended for the purchase of new matrices
for said machine.
Sometime between April and May, 1977, the machine was delivered to petitioner's publishing
house at Tangub, Bacolod City where it was installed by one Crispino Escurido, an employee of
respondent Diolosa. Another employee of the Diolosa Publishing House, Tomas Plondaya, stayed at
petitioners house for almost a month to train the latter's cousin in operating the machine.
Under date of August 29, 1977, private respondent issued a certification wherein he warranted that
the machine sold was in A-1 condition, together with other express warranties. /
Prior to the release of the loan, a representative from the DBP, Bacolod, supposedly inspected the
machine but he merely looked at it to see that it was there . The inspector's recommendation was
favorable and, thereafter, petitioner's loan of P50,000.00 was granted and released. However,
before payment was made to private respondent, petitioner required the former, in a letter dated
September 30, 1977, to accomplish the following, with the explanations indicated by him:
1.) Crossed check for P15,407.10 representing.
a) P 10,000.00-Overprice in the machine:
b) P203.00-Freight and handling of the machine;
c) P203.00-Share in the electric repair; and
d) P5,000.00- Insurance that Crispin will come back and repair the linotype machine
at seller's account as provided in the contract; after Crispin has put everything in
order when he goes home on Sunday he will return the check of P15,000.00.
2) Official receipt in the amount of P 50,000.00 as full payment of the linotype

machine.
These were immediately complied with by private respondent and on the same day, September
30,1977, he received the DBP check for P50,000.00. .
It is to be noted that the aforesaid official receipt No. 0451, dated September 30, 1977 and prepared
and signed by private respondent, expressly states that he received from the petitioner the DBP
check for P50,000.00 issued in our favor in full payment of one (1) Unit Model 14 Linotype Machine
as per Invoice dated April 23, 1977.
On November 29, 1977, petitioner wrote private respondent that the machine was not functioning
properly as it needed a new distributor bar. In the same letter, petitioner unburdened himself of his
grievances and sentiments in this wise.
We bought this machine in good faith because we trusted you very much being our
elder brother in printing and publishing business. We did not hire anybody to look
over the machine, much more ask for a rebate in your price of P40,000.00 and
believed what your trusted two men, Tomas and Crispin, said although they were
hiding the real and actual condition of the machine for your business protection.
Until last week, we found out the worst ever to happen to us. We have been cheated
because the expert of the Linotype machine from Manila says, that the most he will
buy your machine is at P5,000.00 only. ...
Private respondent made no reply to said letter, so petitioner engaged the services of other
technicians. Later, after several telephone calls regarding the defects in the machine, private
respondent sent two technicians to make the necessary repairs but they failed to put the machine in
running condition. In fact, since then petitioner was never able to use the machine.
On February 18, 1978, not having received from private respondent the action requested in his
preceding letter as herein before stated, petitioner again wrote private respondent, this time with
the warning that he would be forced to seek legal remedies to protect his interest.
Obviously in response to the foregoing letter, private respondent decided to purchase a new
distributor bar and, on March 16, 1978, private respondent delivered this spare part to petitione r
through one Pedro Candido. However, when thereafter petitioner asked private respondent to pay
for the price of the distributor bar, the latter asked petitioner to share the cost with him. Petitioner
thus finally decided to indorse the matter to his lawyer.
An expert witness for the petitioner, one Gil Legaspina, declared that he inspected the linotype
machine involved in this case at the instance of petitioner. In his inspection thereof, he found the
following defects: (1) the vertical automatic stop lever in the casting division was worn out; (2) the
justification lever had a slight breach (balana in the dialect); (3) the distributor bar was worn out;
(4) the partition at the entrance channel had a tear; (5) there was no "pie stacker" tube entrance;
and (6) the slouch arm lever in the driving division was worn out.
It turned out that the said linotype machine was the same machine that witness Legaspina had
previously inspected for Sy Brothers, a firm which also wanted to buy a linotype machine for their
printing establishment. Having found defects in said machine, the witness informed Sy Brother
about his findings, hence the purchase was aborted. In his opinion, major repairs were needed to
put the machine back in good running condition.
After trial, the court rendered a decision the dispositive portion of which reads:
IN VIEW OF THE FOREGOING CONSIDERATIONS, judgment is hereby rendered as

follows:
(1) Decreeing the rescission of the contract of sale involving one linotype machine
No. 14 between the defendant as seller and the plaintiff as buyer;
(2) Ordering the plaintiff to return to the defendant at the latter's place of business
in Iloilo City the linotype machine aforementioned together with all accessories that
originally were delivered to the plaintiff;
(3) Ordering the defendant to return to the plaintiff the sum of Forty Thousand
Pesos (P40,000.00) representing the price of the linotype machine, plus interest at
the legal rate counted from May 17, 1978 when this action was instituted, until fully
paid;
(4) Ordering the defendant to indemnify the plaintiff the sum of Four Thousand Five
Hundred Pesos (P4,500.00) representing unearned income or actual damages;
(5) Ordering the defendant to pay the plaintiff the sum of One Thousand Pesos
(Pl,000.00) for attorney's fees.
Costs against the defendant.
From this decision, private respondent appealed to the Intermediate Appellate Court which
reversed the judgment of the lower court and dismissed petitioner's complaint, hence the present
petition.
We find merit in petitioner's cause.
On the matter of venue, private respondent relies on the aforementioned Sales Invoice No. 076A
which allegedly requires that the proper venue should be Iloilo City and not Bacolod City. We agree
with petitioner that said document is not the contract evidencing the sale of the linotype machine, it
being merely a preliminary memorandum of a proposal to buy one linotype machine, using for such
purpose a printed form used for printing job orders in private respondent's printing business. As
hereinbefore explained, this issue on venue was brought to Us by private respondent in a special
civil action for prohibition with preliminary injunction in G.R. No. 49078. After considering the
allegations contained, the issues raised and the arguments adduced in said petition, as well as the
comments thereto, the Court dismissed the petition for lack of merit. Respondent court erred in
reopening the same issue on appeal, with a contrary ruling.
Furthermore, it was error for the respondent court, after adopting the factual findings of the lower
court, to reverse the latter's holding that the sales invoice is merely a memorandum. The
records do not show that this finding is grounded entirely on speculation, surmises or conjectures
as to warrant a reversal thereof. In fact, as hereinbefore stated, private respondent expressly
admitted in his official receipt No. 0451, dated September 30, 1977, that the said sales invoice was
merely a invoice. Consequently, the printed provisions therein, especially since the
printed form used was for purposes of other types of transactions, could not have been intended by
the parties to govern their transaction on the printing machine. It is obvious that a venue
stipulation, in order to bind the parties, must have been intelligently and deliberately intended by
them to exclude their case from the reglementary rules on venue. Yet, even such intended variance
may not necessarily be given judicial approval, as, for instance, where there are no restrictive or
qualifying words in the agreement indicating that venue cannot be laid in any place other than that
agreed upon by the parties, /and in contracts of adhesion.
Now, when an article is sold as a secondhand item, a question arises as to whether there is an
implied warranty of its quality or fitness. It is generally held that in the sale of a designated and
specific article sold as secondhand, there is no implied warranty as to its quality or fitness for the
purpose intended, at least where it is subject to inspection at the time of the sale. On the other hand,
there is also authority to the effect that in a sale of a secondhand articles there may be, under some
circumstances, an implied warranty of fitness for the ordinary purpose of the article sold or for the
particular purpose of the buyer. .
In a line of decisions rendered by the United States Supreme Court, it had theretofore been held
that there is no implied warranty as to the condition, adaptation, fitness, or suitability for the
purpose for which made, or the quality, of an article sold as and for a secondhand article.
Thus, in finding for private respondent, the respondent court cited the ruling in _

tothe effect that unless goods are sold as to raise an implied warranty, as a general rule there is
no implied warranty in the sale of secondhand articles.
Said general rule, however, is not without exceptions. Article 1562 of our Civil Code, which was
taken from the Uniform Sales Act, provides:
Art. 1562. In a sale of goods, there is an implied warranty or condition as to the

quality or fitness of the goods, as follows:
(1) Where the buyer, expressly or by implication, makes known to the seller the
particular purpose for which the goods are acquired, and it appears that the buyer
relies on the seller's skill or judgment (whether he be the grower or manufacturer
or not), there is an implied warranty that the goods shall be reasonably fit for such
purpose;
xxx
In i$ _ $c_ $ the District Court of Appeals, 3rd District,
California, in applying a similar provision of law, ruled:
'There is nothing in the Uniform Sales Act declaring there is no implied warranty in
the sale of secondhand goods. Section 1735 of the Civil Code declares there is no
implied warranty or condition as to the quality or fitness for any particular purpose,
of goods supplied under a contract to sell or a sale, except (this general statement is
followed by an enumeration of several exceptions). It would seem that the
legislature intended this section to apply to all sales of goods, whether new or
secondhand. In subdivision 1 of this section, this language is used: where the buyer
... makes known to the seller the particular purpose for which the goods are
required, and it appears that the buyer relies on the seller's skill or judgment ...
there is an implied warranty that the goods shall be reasonably fit for such purpose.'
Furthermore, and of a more determinative role in this case, a perusal of past American decisions
likewise reveals a uniform pattern of rulings to the effect that an express warranty can be made by
and also be binding on the seller even in the sale of a secondhand article.
In the aforecited case of $ _
p while holding that there was an express warranty in

the sale of a secondhand engine, the court said that it was not error to refuse an instruction that
upon the sale of secondhand goods no warranty was implied, since secondhand goods might be sold
under such circumstances as to raise an implied warranty.
To repeat, in the case before Us, a certification to the effect that the linotype machine bought by
petitioner was in A-1 condition was issued by private respondent in favor of the former. This
cannot but be considered as an express warranty. However, it is private respondent's submission,
that the same is not binding on him, not being a part of the contract of sale between them. This
contention is bereft of substance.
It must be remembered that the certification was a condition for the release of
petitioner's loan which was to be used as payment for the purchase price of the machine. Private
respondent failed to refute this material fact. Neither does he explain why he made that express
warranty on the condition of the machine if he had not intended to be bound by it. In fact, the
respondent court, in declaring that petitioner should have availed of the remedy of requiring
repairs as provided for in said certification, thereby considered the same as part and parcel of the
verbal contract between the parties.
On the basis of the foregoing circumstances, the inescapable conclusion is that private respondent
is indeed bound by the express warranty he executed in favor of herein petitioner.
We disagree with respondent court that private respondents express warranty as to the A-1
condition of the machine was merely dealer's talk. Private respondent was not a dealer of printing
or linotype machines to whom could be ascribed the supposed resort to the usual exaggerations of
trade in said items. His certification as to the condition of the machine was not made to induce
petitioner to purchase it but to confirm in writing for purposes of the financing aspect of the
transaction his representations thereon. Ordinarily, what does not appear on the face of the written
instrument should be regarded as dealer's or trader's talk; conversely, what is specifically
represented as true in said document, as in the instant case, cannot be considered as mere dealer's
talk.
On the question as to whether the hidden defects in the machine is sufficient to warrant a rescission
of the contract between the parties, we have to consider the rule on redhibitory defects
contemplated in Article 1561 of the Civil Code. A redhibitory defect must be an imperfection or
defect of such nature as to engender a certain degree of importance. An imperfection or defect of
little consequence does not come within the category of being redhibitory.
As already narrated, an expert witness for the petitioner categorically established that the machine
required major repairs before it could be used. This, plus the fact that petitioner never made
appropriate use of the machine from the time of purchase until an action was filed, attest to the
major defects in said machine, by reason of which the rescission of the contract of sale is sought.
The factual finding, therefore, of the trial court that the machine is not reasonably fit for the
particular purpose for which it was intended must be upheld, there being ample evidence to sustain
the same.
At a belated stage of this appeal, private respondent came up for the first time with the contention
that the action for rescission is barred by prescription. While it is true that Article 1571 of the Civil
Code provides for a prescriptive period of six months for a redhibitory action a cursory reading of
the ten preceding articles to which it refers will reveal that said rule may be applied only in case of
implied warranties. The present case involves one with and express warranty. Consequently, the
general rule on rescission of contract, which is four years /shall apply. Considering that the
original case for rescission was filed only one year after the delivery of the subject machine, the
same is well within the prescriptive period. This is aside from the doctrinal rule that the defense of
prescription is waived and cannot be considered on appeal if not raised in the trial court, and this
case does not have the features for an exception to said rule.
WHEREFORE, the judgment of dismissal of the respondent court is hereby REVERSED and SET
ASIDE, and the decision of the court is hereby REINSTATED.
SO ORDERED.
$
p% @ A
!! pp
""!
1 Special Fourth Civil Cases Division; Justice Marcelino R. Veloso. ponente, Justices
Mariano A. Zosa and Abdulwahid A. Bidin, concurring.
2 Judge Segundino G. Chua, presiding.
3 Rollo, 5-10; 19-28.
4 Exhibit A.
5 Exhibit A,
6 TSN., Aug. 11, 1980, 21-23; 36-38.
7 Exhibit C; Rollo, 22.
8 TSN, Oct. 8, 1979, 47.
9 Rollo, 22.
10 Exhibit B.
11 Exhibit E.
12 T.S.N., Oct. 8, 1979, 15-16, 25-27.
13 Exhibit F.
14 TSN, Feb. 28, 1980, 5-8, 11-15.
15 Rollo, 19-20.
16 Legaspi vs. Court of Appeals, et al. 142 SCRA 82 (1986).
17 Polytrade Corporation vs. Blanco, 30 SCRA 187 (1969).
18 Sweet Lines, Inc. vs. Teves, et al., 83 SCRA 361 (1978).

19 46 Am. Jur. 545.
20 Fairbanks Steam Shovel Co. vs. Holt and Jeffrey, 79 Wash. 361; Perine Machinery
Co. vs. Buck, 156 Pac. 20; Ramming vs. Caldwell, 43 III. App. 626; and Hanna-
Breckinridge Co. vs. Holey-Matthews Mfg. Co., 140 SW 923, cited in Durbin vs.
Denham, 29 ALR 1227.
21 11 CA Rep. 2d 530.
22 Markman vs. Hallbeck, 206 III. App. 465, cited in Capistrano, Civil Code, Vol. IV,
124.
23 92 P 2d 424, 46 Am. Jur. 545-546.
24 Fairbanks Steam Shovel Co. vs. Holt & Jeffrey, 79 Wash. 361; Yello Jacket Min. Co.
vs. Tegarden, 104 Ark. 573; Hanna Breckinridge Co. vs. Holey-Matthews Mfg. Co.,
160 Mo. Appeal 437; and Markman vs. Hallbeck, 206 11). App. 465, as reported in
29 ALR 12311236.
25 Puyat & Sons, Inc. vs. Arco Amusement Co., 72 Phil. 402 (1941).
26 10 Manresa, 1950 Ed., 250.
28 Ramos vs. Osorio, et al., 38 SCRA (1971); Director of Lands vs. Dano, et al., 96
SCRA 161 (1980).
Ô**
Ô
*

///
"0"0
Present:
QUISUMBING, !.,

TINGA,
VELASCO, JR., and
BRION, !!.
&Ô * (

Ô&**

! #"!
Promulgated:
September 29, 2008
x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
*Ô
&ÔJ.:
Under a ǲcar-swappingǳ scheme, respondent Bruno Soledad (Soledad) sold his Mitsubishi
GSR sedan 1982 model to petitioner Jaime Ang (Ang) by Deed of Absolute Sale dated July 28, 1992.
For his part, Ang conveyed to Soledad his Mitsubishi Lancer model 1988, also by Deed of Absolute
Sale of even date. As Angǯs car was of a later model, Soledad paid him an additional P55,000.00.
Ang, a buyer and seller of used vehicles, later offered the Mitsubishi GSR for sale through
Far Eastern Motors, a second-hand auto display center. The vehicle was eventually sold to a certain
Paul Bugash (Bugash) for P225,000.00, by Deed of Absolute Sale dated August 14, 1992. Before the
deed could be registered in Bugashǯs name, however, the vehicle was seized by virtue of a writ of
replevin dated January 26, 1993 issued by the Cebu City Regional Trial Court (RTC), Branch 21 in
Civil Case No. CEB-13503, ǲ& ¢p _ c
p ,ǳ on account of
the alleged failure of Ronaldo Panes, the owner of the veh icle prior to Soledad, to pay the mortgage
debt constituted thereon.
To secure the release of the vehicle, Ang paid BA Finance the amount of P62,038.47 on
March 23, 1993. Soledad refused to reimburse the said amount, despite repeated demands,
drawing Ang to charge him for Estafa with abuse of confidence before the Office of the City
Prosecutor, Cebu City. By Resolution of July 15, 1993, the City Prosecutorǯs Office dismissed the
complaint for insufficiency of evidence, drawing Ang to file on November 9 , 1993 the first of three
successive complaints for damages against Soledad before the RTC of Cebu City where it was
docketed as Civil Case No. Ceb-14883.
Branch 19 of the Cebu City RTC, by Order dated May 4, 1995, dismissed Civil Case No. Ceb -
14883 for failure to submit the controversy to barangay conciliation.
Ang thereafter secured a certification to file action and again filed a complaint for damages,
docketed as Ceb-17871, with the RTC of Cebu City, Branch 14 which dismissed it, by Order dated
March 27, 1996, on the ground that the amount involved is not within its jurisdiction.
Ang thereupon filed on July 15, 1996 with the Municipal Trial Court in Cities (MTCC) a
complaint, docketed as R-36630, the subject of the instant petition.
After trial, the MTCC dismissed the complaint on the ground of prescription, _ :

It appearing that the Deed of Sale to plaintiff o[f] subject vehicle was
dated and executed on 28 July 1992, the complaint before the Barangay
terminated 21 September 1995 per Certification to File Action attached to
the Complaint, and this case eventually was filed with this Court on 15 July
1996, "30! )2"0 3)! )5)#% $ $)# !02 < "3) !0A CD
<"3!5) !#=<"3#507%="3!$62"73025""3 5)0"0==
$% " "3 =050; = "30! )2"0 !)" " "3 )=?"# "025
/
ǳ (Emphasis and underscoring supplied)
His motion for reconsideration having been denied, Ang appealed to the RTC, Branch 7 of
which affirmed the dismissal of the complaint, albeit it rendered judgment in favor of Ang ǲfor the
sake of justice and equity, and in consonance with the salutary principle of non-enrichment at
anotherǯs expense.ǳ The RTC ratiocinated:
xxxx
[I]t was error for the Court to rely on Art. 1571 of the Civil Code to
declare the action as having prescribed, since the action is not one for the
enforcement of the warranty against hidden defects. Moreover, Villostas vs.
Court of Appeals declared that the six-month prescriptive period for a
redhibitory action applies only to implied warranties. 3 0! 3 )
A !! 4))"%
= )" )55 43)" ) 50! 0! "
= "3 0705 #
"3 ;)5 5)4 !20 "0 43023 !")"! 0" )50) "3)" )2"0!
I ) 40"" 2")2"J !20$! 0 " C D %)! [Engineering &
Machinery Corporation vs. Court of Appeals, G.R. No. 522 67, January 24,
1996].
More appropriate to the discussion would be defendantǯs warranty

against eviction, which he explicitly made in the Deed of Absolute Sale: I
hereby covenant my absolute ownership to (sic) the above -described
property and the same is free from all liens and encumbrances and I will
defend the same from all claims or any claim whatsoeverǥǳ
Ô"055 "3 " =0#! "3)" 5)0"0== 2)" 27 # "30!
4))"%
30!!340;=2< 50)240"3"3?0!0"!
xxxx
"35!!="3!)E=6!"02)#?0"%)#02!)2
40"3 "3 !)5")% 020 5 = -023<" )" )"3J! A !
#=#)" !35# 0<$! 5)0"0== "3
/ which on March
23, 1993 he paid BA Finance Corporation to release the mortgage on the car.
The RTC thus disposed as follows:
Wherefore, judgment is rendered directing defendant to pay plaintiff

P62,038.47, the amount the latter paid B A Finance Corporation to release
the mortgage on the vehicle, with interest at the legal rate computed from
March 23, 1993. Except for this, the judgment in the decision of the trial
court, dated October 8, 2001 dismissing the claims of plaintiff is affirmed.ǳ
Soledadǯs Motion for Reconsideration was denied by Order of December 12, 2002, hence, he
elevated the case to the Court of Appeals, Cebu City.
The appellate court, by the challenged Decision of August 30, 2006, noting the sole issue to be
resolved whether the RTC erred in directing Soledad to pay Ang the amount the latter paid to BA
Finance plus legal interest, held that, following
p _ , Ang ǲcannot
anymore seek refuge under the Civil Code provisions granting award of damages for breach of
warranty against _pfor the simple fact that three years and ten months have lapsed from the
execution of the deed of sale in his favor prior to the filing of the instant complaint.ǳ It further held:
It bears to stress that the deed of absolute sale was executed

on July 28, 1992, and the instant complaint dated May 15, 1996 was
received by the MTCC on July 15, 1996.
While it is true that someone unjustly enriched himself at the

expense of herein respondent, we agree with petitioner (Soledad)
that it is not he.
The appellate court accordingly reversed the RTC decision and denied the petition.
By Resolution of April 25, 2007, the appellate court denied Angǯs motion for
reconsideration, it further noting that when Ang settled the mortgage debt to BA Finance, he did so
voluntarily in order to resell the vehicle, hence, Soledad did not benefit from it as he was unaware
of the mortgage constituted on the vehicle by the previous owner.
The appellate court went on to hold that Soledad ǲhas nothing to do with the transaction
anymore; his obligation ended when he delivered the subject vehicle to the respondent up on the
perfection of the contract of sale.ǳ And it reiterated its ruling that the action, being one arising from
breach of , had prescribed, it having been filed beyond the 6-month prescriptive
period.
The appellate court brushed aside Angǯs contention that Soledad was the proximate cause of
the loss due to the latterǯs failure to thoroughly examine and verify the registration and ownership
of the previous owner of the vehicle, given that Ang is engaged in the business of buying and selling
second-hand vehicles and is therefore expected to be cautious in protecting his rights under the
circumstances.
Hence, the present recourse Ȃ petition for review on certiorari, Ang maintaining that his
cause of action had not yet prescribed when he filed the complaint and he should not be blamed for
paying the mortgage debt.
To Ang, the ruling in _ is not applicable to this case, there being an /
warranty in the herein subject Deed of Absolute Sale and, therefore, the action based thereon
prescribes in ten (10) years following . ($p _ which held that where
there is an express warranty in the contract, the prescriptive period is the one specified in the
contract or, in the absence thereof, the general rule on rescission of contract.
Ang likewise maintains that he should not be blamed for paying BA Finance and should thus
be entitled to reimbursement and damages for, following p! _
, in case
of breach of an / warranty, the seller is liable for damages provided that certain requisites are
met which he insists are present in the case at bar.
The resolution of the sole issue of whether the complaint had prescribed hinges on a
determination of what kind of warranty is provided in the Deed of Absolute Sale subject of the
present case.
A warranty is a statement or representation mad e by the seller of goods,

contemporaneously and as part of the contract of sale, having reference to the character, quality or
title of the goods, and by which he promises or undertakes to insure that certain facts are or shall
be as he then represents them.
Warranties by the seller may be express or implied. Art. 1546 of the Civil Code defines
/ warranty as follows:
ǲArt. 1546. %)==0<)"0 ==)2")% <0!$%"3

!555)"0;""3"30;0!)A !!4))"%0="3)")5
"#2%=!23)==0<)"0 <0!0!" 0#2"3$%
" 23)! "3 !)< )# 0= "3 $% 23)!! "3 "30;
5%0; "3. No affirmation of the value of the thing, nor any
statement purporting to be a statement of the sellerǯs opinion only,
shall be construed as a warranty, unless the seller made such
affirmation or statement as an expert and it was relied upon by the
buyer.ǳ(Emphasis and underscoring supplied)
On the other hand, an

warranty is that which the law derives by application or
inference from the nature of the transaction or the relative situation or circumstances of the
parties, irrespective of any intention of the seller to create it. Among the implied warranty
provisions of the Civil Code are: as to the sellerǯs title (Art. 1548), against hidden defects and
encumbrances (Art. 1561), as to fitness or merchantability (Art. 1562), and against eviction (Art.
1548).
The earlier cited ruling in . ($p states that ǲthe prescriptive period
for instituting actions based on a breach of / warranty is that specified in the contract, and in
the absence of such period, the general rule on rescission of contract, which is = years (Article
1389, Civil Code).ǳ
As for actions based on breach of

warranty, the prescriptive period is, under Art.
1571 (warranty against hidden defects of or encumbrances upon the thing sold) and Art. 1548
(warranty against eviction), six months from the date of delivery of the thing sold.
The following provision of the Deed of Absolute Sale reflecting the kind of warranty made
by Soledad reads:
xxxx
I hereby covenant my )$!5" 4!30 " C!02D "3

)$7-#!20$# "% )# "3 !)< 0! = =< )55 50!
)#2<$)2!and4055#=#"3!)<=<)5525)0<!
)% 25)0< 43)"!7; will save the vendee from any suit by the
government of the Republic of the Philippines.
x x x x (Emphasis supplied)
In declaring that he owned and had clean title to the vehicle at the time the Deed of Absolute
Sale was forged, Soledad gave an 0< 50# warranty of title. In pledging that he ǲwill defend the
same from all claims or any claim whatsoever [and] will save the vendee from any suit by the
government of the Republic of the Philippines,ǳ Soledad gave a warranty );)0!"702"0.
Given Angǯs business of buying and selling used vehicles, he could not have merely relied on
Soledadǯs affirmation that the car was free from liens and encumbrances. He was expected to have
thoroughly verified the carǯs registration and related documents.
Since what Soledad, as seller, gave was an implied warranty, the prescriptive period to file a
breach thereof is six months after the delivery of the vehicle, following Art. 1571. But even if the
date of filing of the action is reckoned from the date petitioner instituted his first complaint for
damages on November 9, 1993, and not on July 15, 1996 when he filed the complaint subject of the
present petition, the action just the same had prescribed, it having been filed 16 months after July
28, 1992, the date of delivery of the vehicle.
On the merits of his complaint for damages, even if Ang invokes breach of warranty against eviction
as inferred from the second part of the earlier-quoted provision of the Deed of Absolute Sale, the
following essential requisites for such breach, _ :
ǲA breach of this warranty requires the concurrence of the

following circumstances:
(1) The purchaser has been # 07#="3435 )"

="3"30;!5#;
(2) This eviction is by a =0)56#;<";
(3) The $)!0! "3= 0! $% 70" = ) 0;3" 0 " "3
!)5<)#$%"37#; and
(4) The 7# 3)! $ !<<# )# <)# 2-

#=#)"0"3!0"=702"0)""30!")2="37#.
In the absence of these requisites, a breach of the warranty

against eviction under Article 1547 cannot be declared.ǳ (Emphasis
supplied),
have not been met. For one, there is no judgment which deprived Ang of the vehicle. For another,
there was no suit for eviction in which Soledad as seller was impleaded as co-defendant at the
instance of the vendee.

Finally, even under the principle of

which the RTC applied, Ang cannot
recover from Soledad the amount he paid BA Finance. For, as the appellate court observed, Ang
settled the mortgage debt on his own volition under the supposition that he would resell the car. It
turned out
that he did pay BA Finance in order to avoid returning the payment made by the ultimate buyer
Bugash. It need not be stressed that Soledad did not benefit from Angǯs paying BA Finance, he not
being the one who mortgaged the vehicle, hence, did not benefit from the proceeds thereof.
Î, the petition is, in light of the foregoing disquisition, **.
SO ORDERED.
&Ô
Associate Justice
WE CONCUR:
&*
' Ô ( *

p !p p !p

Ô(

&Ô
*
(
p !p p !p
Ô

&*
' Ô (
p !p

,Ô

!p
Exhibit ǲC,ǳ records, p. 86.
Exhibit ǲ2,ǳ id. at 136.

Exhibit ǲD,ǳ id. at 87.
Exhibit ǲJ,ǳ id. at 94.
See Chattel Mortgage, Exhibit ǲE,ǳ id. at 88.
Exhibit ǲG,ǳ id. at 91.
Exhibit ǲ4,ǳ id. at 138-141.
Annex ǲA,ǳ CA
, pp. 38-41.
Annex ǲCǳ, id. at 49; penned by Judge Ramon G. Codilla, Jr.
Annex ǲD,ǳ id. at 50-53.
Annex ǲG,ǳ id. at 66-67; penned by Judge Renato C. Dacudao.
Annex ǲH,ǳ id. at 68-72.
Annex ǲJ,ǳ id. at 87; penned by Judge Edgemelo C. Rosales
Annex ǲK,ǳ id. at 90-91; penned by Judge Simeon Dumdum, Jr.
` Id. at 91-92.
Annex ǲM,ǳ id. at 99-100.
Id. at 169-177; penned by Associate Justice Marlene Gonzales -Sison, with the concurrence of
Associate Justices Arsenio J. Magpale and Agustin S. Dizon.
G.R. No. 154554, November 9, 2005, 474 SCRA 427.
Annex ǲC,ǳ CA
, pp. 206-209. Penned by Associate Justice Stephen C. Cruz and concurred

in by Executive Justice Arsenio J. Magpale and Associate Justice Agustin S. Dizon.
G.R. No. 52267, January 24, 1996, 252 SCRA 156.
G.R. Nos. 123672 & 164489, December 14, 2005, 477 SCRA 666.
DE LEON, COMMENTS AND CASES ON SALES 299 (2000).
Id. at 304.
p

_
, G.R. No. 119745, June 20, 1997, 274 SCRA
597, 600.

G.R. No. L-12375 August 30, 1918
DY CAY vs. CROSSFIELD & O'BRIEN

Ô
Manila
(

&- /;!" .
*,8 #2)!#
*,,)#<00!")"="3!")"=*,8 #2)!#
appellant,
vs.
ÔÔ&*9B( appellees.
. @

@

&&J.:
Two questions are submitted for resolution by this appeal, namely: (1) Whether section
145 of the Code of Civil Procedure, as amended by Act No. 2347, relating to new trials,
should be construed as fixing a time limit within which a judge of first instance can set
aside a judgment and grant a new trial; and (2) whether the law firm of Crossfield &
O'Brien should be paid for their professional services in certain intestate proceedings on
a basis or on the basis of the terms of the contract with their client.
A Chinaman by the name of Dy Cay was appointed administrator of the estate of the
Chinaman Dy Kiu, deceased. The administrator desired to prosecute an action against the
firm of Dy Buncio & Co. for the liquidation of the partnership business in which the
deceased had been interested. To initiate and push the necessary legal proceedings, the
administrator, apparently under authority from the court, entered into a contract with
Attorneys Crossfield & O'Brien of the following tenor:
Whereas Attorney C. W. O'Brien had been acting as counsel in the case of Dy Kiu,
deceased, and filed a petition for the administration of the latter's estate, and still
has to obtain the appointment of a guardian an d make arrangements for the
administration of the accounts which said deceased had in the business of the
firm Dy Buncio and Company: Therefore, we do hereby obligate and bind
ourselves to pay, for the service already rendered and for the services which in
the future shall be rendered by Attorneys Crossfield & O'Brien, ten per centum
(10%) of the sum that may be collected from said company. It is understood that
all this shall be in consideration of the services rendered in the Court of First
Instance and in the Supreme Court, at Manila, Philippine Islands, and, should it be
necessary to go outside of Manila, the parties shall be governed by another
agreement.
In witness whereof, this agreement is signed by the widow, in his behalf and in
that of his children, by the judicial administrator, and by attorney C. W. O'Brien,
for Crossfield & O'Brien, this 10th day of June, 1915, in Manila, P.I.
(Signed) Dy Cay.
CROSSFIELD & O'BRIEN.

(Signed) By C. W. O'Brien.
Signed in the presence of:
(Signed) JOSE S. Y. PENG.
(Signed) FRANCISCO GUINA.
During the pendency of the action for dissolution of the partnership, the interested
attorneys entered into the following
STIPULATION:
It is hereby agreed and stipulated by and between the parties hereto, by their
respective attorneys, that Mr. John T. Macleod be the liquidator to determine the
respective interests of Dy Buncio, the Estate of Dy Kiu, and the Estate of Dy Laco,
in the business of Dy Buncio & Company, of Manila, Philippine Islands, and the
interests of said company in other partnerships in the provinces, and that Carlos
P. Tan Guien Lay shall assist him as the representative of Dy Buncio, and shall
furnish him such data and information as he may require, and that Dy Cay, the
administrator of the Estate of Dy Kiu, shall assist him in representation of said
estate in a similar capacity, and Yap Cha shall act in a similar capacity for Dy Sui,
the heir of Dy Laco; that Mr. Macleod shall be furnished all information, books and
accounts of whatever nature or description that pertain to said business and its
branches, and any of the parties shall have free access to the same in order to
properly arrive at the respective values of the different partners' interests.
And it is expressly stipulated and agreed that each of the parties hereto shall be
bound by the findings and the value placed upon their respective interest by the
said John T. Macleod, and that in case the said Dy Buncio does not wish to
purchase the interests of the above-mentioned estate of Dy Kiu at the value
placed upon same by the said John T. Macleod, then the business shall be
immediately liquidated in accordance with the terms of the Article of Co -
partnership, dated May 2, 1908, and the proceeds thereof divided among the
three partners Dy Buncio, Dy Laco and Dy Kiu, or their successors, in proportion
to the value of their respective interests as determined by the said liquidator.
In case said Dy Buncio desires to purchase the interests of the estate of Dy Kiu, he
shall be allowed to pay the purchase price partly in cash and the balance in
installments, the terms and conditions of which shall be then agreed upon.
In witness whereof, we have hereunto set our hands, this 10th day of June 1915,
at Manila, P.I.
(Sgd.) GIBBS, MCDONOUGH & BLANCO,

BY. C.A. MCDONOUGH.
LAWRENCE, ROSS & BLOCK,
i&p
i
(Sgd.) CROSSFIELD & O'BRIEN,

. i®
In pursuance of this stipulation, Macleod examined all the books and papers of Dy Buncio
& Co. and made a report showing that the share of Dy Kiu in the business was P40,636.85.
Dy Cay, the administrator of the estate of Dy Kiu, then objected to the stipulation claiming
that he had not authorized it. After setting forth these facts, in a letter of December 10,
1915, the administrator asked Crossfield & O'Brien to withdraw as his attorneys in the
case. For the same purpose, the administrator, on February 16, 1916, filed a motion
praying that it be made to appear of record that he was no longer represented by
Attorneys Crossfield & O'Brien. This firm field their opposition to the motion. On March
14, 1916, the court issued an order to the effect that, upon the determination of the
amount of the fees of these attorneys, they cease to represent the administrator in the
proceedings. In conformity with this order and after evidence had been taken, the
Honorable Jose Abreu, sitting as judge of first instance, rendered a decision on March 31,
1916, fixing the fees due Crossfield & O'Brien on a quantum meruit at P2,000. The
administrator excepted to the court's decision. Attorneys Crossfield & O'Brien also
excepted to the decision on April 10, 1916, and moved the court "for a rehearing and
modification of the same, for the reason that the court erred in holding that the
agreement entered into between the administrator and them as attorneys could not be
taken as the basis for payment as it had already been shown that there is more than
P40,000 coming to the estate from the source governed by this agreement . . . ." On August
17, 1916, the Honorable James Ostrand, sitting as judge of first instance, promulgated an
order revoking the order of March 31, 1916, and fixing the fees of Crossfield & O'Brien, in
accordance with their contract with the administrator of the state, at 10 per cent of the
amount of P40,636.85 or P4,063.68, which sum the administrator was directed to pay the
attorneys out of any available funds pertaining to the estate of Dy Kiu. The court
mentioned in this order that as the contract between the administrator and Attorneys
Crossfield & O'Brien was fair and equitable, and binding upon the parties, the full fee
provided for in said contract should be allowed. The court also remarked that "after
further consideration, Judge Abreu in conversation with the undersigned express his
conformity with this view." The administrator appeals from this last order of the court.
1. pj
_
p p# p . Ȅ The
first assignment of error reads: "The court erred in its order dated August 17, 1916, in
revoking, setting aside, and modifying the order of March 31, 1916, after the time had
elapsed in which the court had jurisdiction to revoke, set aside or modify said order of
March 31, 1916."
The Code of Civil Procedure, as originally enacted, provided in section 145 for new trials
"at any time during the term at which an action has been tried in the Court of First
Instance . . . ." This section has been superseded since July 1, 1914, by Act No. 2347
providing that: "Within thirty days after notice of a decision rendered by a Court of First
Instance, the judge thereof may, at the petition of the party aggrieved, and after due
notice to the adverse party, set aside the judgment and grant a new trial," for any of three
specified causes. Crossfield & O'Brien's motion of April 10, 1916, for a rehearing and a
modification of the first decision must be taken as a petition to "set aside the judgment
and grant a new trial," as these words are used in code section 145, as amended. The
precise question is, therefore, whether, or a motion made in time, a judgment, setting
aside a former judgment but not filed for more than four months after notice of the first
judgment, is valid.
Either view we take of this question forces us on to the horns of a dilemma. On the one
hand, the Legislature can constitutionally enact a statute of limitations for motions for a
new trial. Rehearing or new trials are not essential to due process of law. (James _ Appel
[1904], 192 U. S., 129.) Public policy and sound practice demand that, at the risk of
occasional errors, judgments of courts should become final at some definite date fixed by
law. The very object for which court were instituted was to put an end to controversies.
To fulfill this purpose and to do so speedily, certain time limits, more or less arbitrary,
have to be set up to spur on the slothful. "If a vacillating, irresolute judge were allowed to
thus keep causes ever within his power, to determine and redetermine them term after
term, to bandy his judgments about from one party to the other, and to change his
conclusions as freely and as capriciously as a chameleon may change its hues, then
litigation might become more intolerable then the wrongs it is intended to redress." (
Arnedo _ Llorente and Liongson [1911], 18 Phil., 257.)
On the other hand, the right of a defeated party to have an error in a judgment corrected
should not be taken away from him by a mere delay on the part of the judge in deciding
the motion, a delay for which the defeated party would in no way be responsible. (See
Santos _ Villafuerte [1906], 5 Phil., 739.) The time during which a court considers a
motion to set aside a judgment or for a new trial should not be counted in determining
the statutory period. To say that all motions of this character must be decided within
thirty days after notice of a decision, regardless of their importance or difficulty, or of the
time of submission, would be subversive of justice. If the provision of law is to be held
rigid and mandatory, the effect will be to require many motions to be decided without
due consideration, a result which will defeat the spirit of the code. ( Gomer _ Chaffe
[1880], 5 Colo., 383.) Actually applying these views to our present facts, since the motion
was presented in time, the court even after the expiration of the thirty day period had
jurisdiction to consider the motion and to modify or set aside its judgment.
What is said in the preceding paragraph is more truly indicative of the attitude of this
court than of the writer. The court in construing certain sections of the Code of Civil
Procedure has displayed a willingness to permit of an extension of time, if the motion for
such extension is presented before the code limit expires. ( p,
Lavitoria _ Judge of First Instance of Tayabas and Director of Lands [1915], 32 Phil., 204;
Lim _ Singian and Soler [1918], 37 Phil., 817.) In about the only decision of a contrary
spirit (Biunas _ Mora [1916], 34 Phil., 282), the words used are said to be p.
Parenthetically, it may be remarked, that the shock done to the feelings of the writer,
through the failure of the judiciary to assist in the legislative reformation of the
of the courts in order that justice may be truly expedited, is partially mitigated
by a realization that judges possess no inherent right to enter new judgments for an
indefinite period after the entry of the original judgment. No unlicensed jurisdiction,
untrammelled by observance of the mandate of the law, vests in the judiciary. If a judge
fails to act within a reasonable period after the filing of a timely and proper motion to set
aside a judgment and grant a new trial, and after the thirty days named by the law have
expired, his silence must be taken as tantamount to a denial of justice; mandamus would
undoubtedly lie, not to interfere with the exercise of his judicial discretion, but to compel
him to exercise his discretion.
2. . Ȅ The second and third assignments of error assail the
action of the Court in allowing Crossfield & O'Brien the full amount provided for in the
contract, as attorney's fees.
The contract executed by the administrator and Attorneys Crossfield & O'Brien was valid
and reasonable. The attorneys, having performed the task assigned to them, should
receive the payment expressly authorized.
The order of the Court of First Instance of August 17, 1916, is affirmed, with costs against
appellant. So ordered.

! _p 1¢ !! concur.

!! did not sit in the case.
THIRD DIVISION
[G.R. No. 119745. June 20, 1997]
POWER COMMERCIAL AND INDUSTRIAL CORPORATION, r, _. COURT OF APPEALS,

SPOUSES REYNALDO and ANGELITA R. QUIAMBAO and PHILIPPINE NATIONAL BANK, .
DECISION
PANGANIBAN, ! :
Is the sellerǯs failure to eject the lessees from a lot that is the subject of a contract of sale with
assumption of mortgage a ground (1) for rescission of such contract and (2) for a return by the
mortgagee of the amortization payments made by the buyer who assumed such mortgage?
Petitioner posits an affirmative answer to such question in this petition for review on p of
the March 27, 1995 Decision of the Court of Appeals, Eighth Division, in CA-G.R. CV Case No. 32298
upholding the validity of the contract of sale with assumption of mortgage and absolving the
mortgagee from the liability of returning the mortgage payments already made.
The Facts
Petitioner Power Commercial & Industrial Development Corporation, an industrial asbestos

manufacturer, needed a bigger office space and warehouse for its products. For this purpose, on
January 31, 1979, it entered into a contract of sale with the spouses Reynaldo and Angelita R.
Quiambao, herein private respondents. The contract involved a 612-sq. m. parcel of land covered
by Transfer Certificate of Title No. S-6686 located at the corner of Bagtican and St. Paul Streets, San
Antonio Village, Makati City. The parties agreed that petitioner would pay private respondents
P108,000.00 as down payment, and the balance of P295,000.00 upon the execution of the deed of
transfer of the title over the property. Further, petitioner assumed, as part of the purchase price,
the existing mortgage on the land. In full satisfaction thereof, he paid P79,145.77 to Respondent
Philippine National Bank (ǲPNBǳ for brevity).
On June 1, 1979, respondent spouses mortgaged again said land to PNB to guarantee a loan of
P145,000.00, P80,000.00 of which was paid to respondent spouses. Petitioner agreed to assume
payment of the loan.
On June 26, 1979, the parties executed a Deed of Absolute Sale With Assumption of Mortgage which
contained the following terms and conditions:
ǲThat for and in consideration of the sum of Two Hundred Ninety-Five Thousand Pesos
(P295,000.00) Philippine Currency, to us in hand paid in cash, and which we hereby acknowledge
to be payment in full and received to our entire satisfaction, by POWER COMMERCIAL AND
INDUSTRIAL DEVELOPMENT CORPORATION, a 100% Filipino Corporation, organized and existing
under and by virtue of Philippine Laws with offices located at 252-C Vito Cruz Extension, we hereby
by these presents SELL, TRANSFER and CONVEY by way of absolute sale the above described
property with all the improvements existing thereon unto the said Power Commercial and
Industrial Development Corporation, its successors and assigns, free from all liens and
encumbrances.
ǲWe hereby certify that the aforesaid property is not subject to nor covered by the provisions of the
Land Reform Code -- the same having no agricultural lessee and/or tenant.
ǲWe hereby also warrant that we are the lawful and absolute owners of the above described
property, free from any lien and/or encumbrance, and we hereby agree and warrant to defend its
title and peaceful possession thereof in favor of the said Power Commercial and Industrial
Development Corporation, its successors and assigns, against any claims whatsoever of any and all
third persons; subject, however, to the provisions hereunder provided to wit:
That the above described property is mortgaged to the Philippine National Bank, Cubao, Branch,
Quezon City for the amount of one hundred forty -five thousand pesos, Philippine, evidenced by
document No. 163, found on page No. 34 of Book No. XV, Series of 1979 of Notary Public Herita L.
Altamirano registered with the Register of Deeds of Pasig (Makati), Rizal xxx;
That the said Power Commercial and Industrial Development Corporation assumes to pay in full the
entire amount of the said mortgage above described plus interest and bank charges, to the said
mortgagee bank, thus holding the herein vendor free from all claims by the said bank;
That both parties herein agree to seek and secure the agreement and approval of the said Philippine
National Bank to the herein sale of this property, hereby agreeing to abide by any and all
requirements of the said bank, agreeing that failure to do so shall give to the bank first lieu (sic)
over the herein described property.ǳ
On the same date, Mrs. C.D. Constantino, then General Manager of petitioner-corporation, submitted
to PNB said deed with a formal application for assumption of mortgage.
On February 15, 1980, PNB informed respondent spouses that, for petitionerǯs failure to submit the
papers necessary for approval pursuant to the formerǯs letter dated January 15, 1980, the
application for assumption of mortgage was considered withdrawn; that the outstanding balance of
P145,000.00 was deemed fully due and demandable; and that said loan was to be paid in full within
fifteen (15) days from notice.
Petitioner paid PNB P41,880.45 on June 24, 1980 and P20,283.14 on December 23, 1980, payments
which were to be applied to the outstanding loan. On December 23, 1980, PNB received a letter
from petitioner which reads:
ǲWith regard to the presence of the people who are currently in physical occupancy of the (l)ot xxx
it is our desire as buyers and new owners of this lot to make use of this lot for our own purpose,
which is why it is our desire and intention that all the people who are currently physically present
and in occupation of said lot should be removed immediately.
ǲFor this purpose we respectfully request that xxx our assumption of mortgage be given favorable
consideration, and that the mortgage and title be transferred to our name so that we may undertake
the necessary procedures to make use of this lot ourselves.
ǲIt was our understanding that this lot was free and clear of problems of this nature, and that the
previous owner would be responsible for the removal of the people who were there. Inasmuch as
the previous owner has not been able to keep his commitment, it will be necessary for us to take
legal possession of this lot inorder (sic) to take physical possession.ǳ
On February 19, 1982, PNB sent petitioner a letter as follows:
ǲ(T)his refers to the loan granted to Mr. Reynaldo Quiambao which was assumed by you on June 4,
1979 for P101,500.00. It was last renewed on December 24, 1980 to mature on June 4, 1981.
ǲA review of our records show that it has been past due from last maturity with interest arrearages
amounting to P25,826.08 as of February 19, 1982. The last payment received by us was on
December 24, 1980 for P20,283.14. In order to place your account in current form, we request you
to remit payments to cover interest, charges, and at least part of the principal.ǳ
On March 17, 1982, petitioner filed Civil Case No. 45217 against respondent spouses for rescission
and damages before the Regional Trial Court of Pasig, Branch 159. Then, in its reply to PNBǯs letter
of February 19, 1982, petitioner demanded the return of the payments it made on the ground that
its assumption of mortgage was never approved. On May 31, 1983, while this case was pending, the
mortgage was foreclosed. The property was subsequently bought by PNB during the public
auction. Thus, an amended complaint was filed impleading PNB as party defendant.
On July 12, 1990, the trial court ruled that the failure of respondent spouses to deliver actual
possession to petitioner entitled the latter to rescind the sale, and in view of such failure and of the
denial of the latterǯs assumption of mortgage, PNB was obliged to return the payments made by the
latter. The dispositive portion of said decision states:
ǲIN VIEW OF ALL THE FOREGOING, the Court hereby renders judgment in favor of plaintiff and
against defendants:
(1) Declaring the rescission of the Deed of Sale with Assumption of Mortgage executed
between plaintiff and defendants Spouses Quiambao, dated June 26, 1979;
(2) Ordering defendants Spouses Quiambao to return to plaintiff the amount of

P187,144.77 (P108,000.00 plus P79,145.77) with legal interest of 12% per annum from date of
filing of herein complaint, that is, March 17, 1982 until the same is fully paid;
(3) Ordering defendant PNB to return to plaintiff the amount of P62,163.59 (P41,880.45
and P20,283.14) with 12% interest thereon from da te of herein judgment until the same is fully
paid.
ǲNo award of other damages and attorneyǯs fees, the same not being warranted under the facts and
circumstances of the case.
ǲThe counterclaim of both defendants spouses Quiambao and PNB are dismissed for lack of merit.
ǲNo pronouncement as to costs.
ǲSO ORDERED.ǳ
On appeal by respondent-spouses and PNB, Respondent Court of Appeals reversed the trial court.
In the assailed Decision, it held that the deed of sale between respondent spouses and petitioner did
not obligate the former to eject the lessees from the land in question as a condition of the sale, nor
was the occupation thereof by said lessees a violation of the warranty against eviction. Hence, there
was no substantial breach to justify the rescission of said contract or the return of the payments
made. The dispositive portion of said Decision reads:
ǲWHEREFORE, the Decision appealed from is hereby REVERSED and the complaint filed by Power
Commercial and Industrial Development Corporation against t he spouses Reynaldo and Angelita
Quiambao and the Philippine National Bank is DISMISSED. No costs.ǳ
Hence, the recourse to this Court .
Issues
Petitioner contends that: (1) there was a substantial breach of the contract between the parties
warranting rescission; and (2) there was a ǲmistake in paymentǳ made by petitioner, obligating
PNB to return such payments. In its Memorandum, it specifically assigns the following errors of law
on the part of Respondent Court:
ǲA. Respondent Court of Appeals gravely erred in failing to consider in its decision that a
breach of implied warranty under Article 1547 in relation to Article 1545 of the Civil
Code applies in the case-at-bar.
ǲB. Respondent Court of Appeals gravely erred in failing to consider in its decision that a
mistake in payment giving rise to a situation where the principle of solutio indebiti
applies is obtaining in the case-at-bar.ǳ
The Courtǯs Ruling
The petition is devoid of merit. It fails to appreciate the difference between a condition and a
warranty and the consequences of such distinction.
p p
The alleged ǲfailureǳ of respondent spouses to eject the lessees from the lot in question and to
deliver actual and physical possession thereof cannot be considered a substantial breach of a
condition for two reasons: first, such ǲfailureǳ was not stipulated as a condition -- whether
resolutory or suspensive -- in the contract; and second, its effects and consequences were not
specified either.
The provision adverted to by petitioner does not impose a condition or an obligation to eject the
lessees from the lot. The deed of sale provides in part:
ǲWe hereby also warrant that we are the lawful and absolute owners of the above described
property, free from any lien and/or encumbrance, and we hereby agree and warrant to defend its
title and peaceful possession thereof in favor of the said Power Commercial and Industrial
Development Corporation, its successors and assigns, against any claims whatsoever of any and all
third persons; subject, however, to the provisions hereunder provided to wit:ǳ
By his own admission, Anthony Powers, General Manager of petitioner-corporation, did not ask the
corporationǯs lawyers to stipulate in the contract that Respondent Reynaldo was guaranteeing the
ejectment of the occupants, because there was already a _ in said deed of sale that the sellers
were guaranteeing the peaceful possession by the buyer of the land in question. Any obscurity in a
contract, if the above-quoted provision can be so described, must be construed against the party
who caused it. Petitioner itself caused the obscurity because it omitted this alleged condition when
its lawyer drafted said contract.
If the parties intended to impose on respondent spouses the obligation to eject the tenants from the
lot sold, it should have included in the contract a provision similar to that referred to in c _

, where the ejectment of the occupants of the lot sold by private respondent was the
operative act which set into motion the period of petitionerǯs compliance with his own obligation,
to pay the balance of the purchase price. Failure to remove the squatters within the stipulated
period gave the other party the right to either refuse to proceed with the agreement or to waive
that condition of ejectment in consonance with Article 1545 of the Civil Code. In the case cited, the
contract specifically stipulated that the ejectment was a condition to be fulfilled; otherwise, the
obligation to pay the balance would not arise. This is not so in the case at bar.
Absent a stipulation therefor, we cannot say that the parties intended to make its nonfulfillment a
ground for rescission. If they did intend this, their contract should have expressly stipulated so. In
_ , rescission was sought on the ground that the petitioners had failed to fulfill their
obligation ǲto remove and clearǳ the lot sold, the performance of which would have given rise to the
payment of the consideration by private respondent. Rescission was not allowed, however, because
the breach was not substantial and fundamental to the fulfillment by the petitioners of the
obligation to sell.
As stated, the provision adverted to in the contract pertains to the usual warranty against eviction,
and not to a condition that was not met. The terms of the contract are so clear as to leave no room
for any other interpretation.
Futhermore, petitioner was well aware of the presence of the tenants at the time it entered into the
sales transaction. As testified to by Reynaldo, petitionerǯs counsel during the sales negotiation even
undertook the job of ejecting the squatters. In fact, petitioner actually filed suit to eject the
occupants. Finally, petitioner in its letter to PNB of December 23, 1980 admitted that it was the
ǲbuyer(s) and new owner(s) of this lot.ǳ
. p_

pi
_
The Court disagrees with petitionerǯs allegation that the respondent spouses failed to deliver the lot
sold. Petitioner asserts that the legal fiction of symbolic delivery yielded to the truth that, at the
execution of the deed of sale, transfer of possession of said lot was impossible due to the presence
of occupants on the lot sold. We find this misleading.
Although most authorities consider transfer of ownership as the primary purpose of sale, delivery
remains an indispensable requisite as our law does not admit the doctrine of transfer of property
by mere consent. The Civil Code provides that delivery can either be (1) actual (Article 1497) or (2)
constructive (Articles 1498-1501). Symbolic delivery (Article 1498), as a species of constructive
delivery, effects the transfer of ownership through the execution of a public document. Its efficacy
can, however, be prevented if the vendor does not possess control over the thing sold, in which case
this legal fiction must yield to reality.
The key word is p

, not , of the land as petitioner would like us to believe. The Court
has consistently held that:
ǲx x x (I)n order that this symbolic delivery may produce the effect of tradition, it is necessary that
the vendor shall have had such p
over the thing sold that xxx its material delivery could have
been made. It is not enough to confer upon the purchaser the and the of
possession. The thing sold must be placed in his p
. When there is no impediment whatever to
prevent the thing sold passing into the tenancy of the purchaser by the sole will of the vendor,
symbolic delivery through the execution of a public instrument is sufficient. But if, notwithstanding
the execution of the instrument, the purchaser cannot have the enjoyment and material tenancy of
the thing and make use of it himself or through another in his name, because such tenancy and
enjoyment are opposed by the interposition of another will, then fiction yields to reality -- the
delivery has not been effected.ǳ
Considering that the deed of sale between the parties did not stipulate or infer otherwise, delivery
was effected through the execution of said deed. The lot sold had been placed under the control of
petitioner; thus, the filing of the ejectment suit was subsequently done. It signified that its new
owner intended to obtain for itself and to terminate said occupantsǯ actual possession thereof.
Prior physical delivery or possession is not legally required and the execution of the deed of sale is
deemed equivalent to delivery. This deed operates as a formal or symbolic delivery of the property
sold and authorizes the buyer to use the document as proof of ownership. Nothing more is
required.
c & p-._p
Obvious to us in the ambivalent stance of petitioner is its failure to establish any breach of the
warranty against eviction. Despite its protestation that its acquisition of the lot was to enable it to
set up a warehouse for its asbestos products and that failure to deliver actual possession thereof
defeated this purpose, still no breach of warranty against eviction can be appreciated because the
facts of the case do not show that the requisites for such breach have been satisfied. A breach of
this warranty requires the concurrence of the following circumstances:
(1) The purchaser has been deprived of the whole or part of the thing sold;
(2) This eviction is by a final judgment;
(3) The basis thereof is by virtue of a right prior to the sale made by the vendor; and
(4) The vendor has been summoned and made co-defendant in the suit for eviction at the instance
of the vendee.
In the absence of these requisites, a breach of the warranty against eviction under Article 1547
cannot be declared.
Petitioner argues in its memorandum that it has not yet ejected the occupants of said lot, and not
that it has been evicted therefrom. As correctly pointed out by Respondent Court, the presence of
lessees does not constitute an encumbrance of the land, nor does it deprive petitioner of its control
thereof.
We note, however, that petitionerǯs deprivation of ownership and control finally occurred when it
failed and/or discontinued paying the amortizations on the mortgage, causing the lot to be
foreclosed and sold at public auction. But this deprivation is due to petitionerǯs fault, and not to any
act attributable to the vendor-spouses.
Because petitioner failed to impugn its integrity, the contract is presumed, under the law, to be
valid and subsisting.
p $
Contrary to the contention of petitioner that a return of the payments it made to PNB is warranted
under Article 2154 of the Code,
does not apply in this case. This doctrine applies
where: (1) a payment is made when there exists no binding relation between the payor, who has no
duty to pay, and the person who received the payment, and (2) the payment is made through
mistake, and not through liberality or some other cause.
In this case, petitioner was under obligation to pay the amortizations on the mortgage under the
contract of sale and the deed of real estate mortgage. Under the deed of sale (Exh. ǲ2ǳ), both parties
agreed to abide by any and all the requirements of PNB in connection with the real estate
mortgage. Petitioner was aware that the deed of mortgage (Exh. ǲCǳ) made it solidarily and,
therefore, primarily liable for the mortgage obligation:
ǲ(e) The Mortgagor shall neither lease the mortgaged property xxx nor sell or dispose of the same
in any manner, without the written consent of the Mortgagee. However, if not withstanding this
stipulation and during the existence of this mortgage, the property herein mortgaged, or any
portion thereof, is xxx sold, it shall be the obligation of the Mortgagor to impose as a condition of
the sale, alienation or encumbrance that the vendee, or the party in whose favor the alienation or
encumbrance is to be made, should take the property subject to the obligation of this mortgage in
the same terms and condition under which it is constituted, it being understood that the Mortgagor
is not in any manner relieved of his obligation to the Mortgagee under this mortgage by such sale,
alienation or encumbrance; on the contrary both the vendor and the vendee, or the party in whose
favor the alienation or encumbrance is made shall be jointly and severally liable for said mortgage
obligations. xxx.ǳ
Therefore, it cannot be said that it did not have a duty to pay to PNB the amortization on the
mortgage.
Also, petitioner insists that its payment of the amortization was a mistake because PNB
disapproved its assumption of mortgage after it failed to submit the necessary papers for the
approval of such assumption.
But even if petitioner was a third party in regard to the mortgage of the land purchased, the
payment of the loan by petitioner was a condition clearly imposed by the contract of sale. This fact
alone disproves petitionerǯs insistence that there was a ǲmistakeǳ in payment. On the contrary,
such payments were necessary to protect its interest as a ǲthe buyer(s) and new owner(s) of the
lot.ǳ
The quasi-contract of
is one of the concrete manifestations of the ancient principle
that no one shall enrich himself unjustly at the expense of another. But as shown earlier, the
payment of the mortgage was an obligation petitioner assumed under the contract of sale. There is
no unjust enrichment where the transaction, as in this case, is value for value.
All told, respondent Court did not commit any reversible error which would warrant the reversal of
the assailed Decision.
Î, the petition is hereby i.#.i and the assailed Decision is ¢¢c$.i.
SO ORDERED.
Narvasa, C.J., (Chairman), Davide, Jr., and Melo, JJ., concur.
Francisco, J., on leave.

Penned by !. Jesus M. Elbinias and concurred in by!!. Lourdes K. Tayao-Jaguros and B.A. Adefuin-De
la Cruz.
c
, p. 34.
Records, pp. 361-362.
Records, p. 306.
Records, p. 298.
Records, p. 299.
Notice of Extra-Judicial Sale, Records, p. 372.
The decision was penned by then Judge (now Justice of the Court of Appeals) Maria Alicia M.
Austria.
c
, p. 44.
c
, p. 34.
c
, p. 148.
Article 1458, 2nd paragraph, Civil Code; and Romero _. Court of Appeals, 250 SCRA 223, 232,
November 23, 1995.
Records, p. 361.
TSN, April 1, 1987, pp. 19-21; and c
, p. 147.
Article 1377, Civil Code; Ang _. Court of Appeals, 170 SCRA 286, 294, February 13, 1989; and Lim
Yhi Luya _. Court of Appeals, 99 SCRA 668, 682-683, September 11, 1980.
, p. 234.
, p. 296.
Article 1370, Civil Code; Ang _. C.A., , p. 295; Sy _. Court of Appeals, 131 SCRA 116, 124, July 31,
1984; Labasan _. Lacuesta, 86 SCRA 16, 21, October 30, 1978.
TSN, November 4, 1983, p.23 and November 14, 1983, pp. 28-30.
Article 1477 & 1495, Civil Code; Fidelity & Deposit Co. _. Wilson, 8 Phil. 51, 56-57 (1907); Tan
Leonco _. Go Inqui, 8 Phil. 531, 534 (1907); and Kuenzle & Streiff _. Macke & Chandler, 14 Phil.
610, 611-612 (1909).
Addison _. Felix, 38 Phil. 404, 408 (1918); Vda. de Sarmiento _. Lesaca, 108 Phil. 900, 902-903
(1960); and Danguilan _. Intermediate Appellate Court, 168 SCRA 22, 32, November 28, 1988.
.
Manuel R. Dulay Enterprises, Inc. _. Court of Appeals, 225 SCRA 678, 687, August 27, 1993.
Escaler _ Court of Appeals, 138 SCRA 1, 7, August 1, 1985; Canizares Tiana _ Torrejos, 21 Phil. 127,
130 (1911); Bautista _. Laserna, 72 Phil. 506, 510 (1941); and Jovellano _. Lualhati, 47 Phil. 371,
373 (1925).
Investment & Development Corp. _. Court of Appeals, 162 SCRA 636, 641-642, June 27, 1988.
Velez _. Balzarza, 73 Phil. 630, 632 (1942); City of Cebu _. Judge Piccio, 110 Phil. 558, 563 (1960);
and Andres _. Manufacturers Hanover & Trust Corporation, 177 SCRA 618, 622, September 15,
1989.
Records, p. 362.
Article 1216, Civil Code.
Records, p. 256.
.; and Ramie Textiles, Inc. _. Mathay, Sr., 89 SCRA 586, 592, April 30, 1979.
**
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complaint must contain a concise statement of the ultimate facts constituting the plaintiffǯs
cause of action. To determine whether a cause of action is stated, the test is as follows:
admitting the truth of the facts alleged, can the court render a
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** On medical leave.
valid judgment in accordance with the prayer? If the answer is ǲno,ǳ the complaint does not state a
cause of action and should be dismissed forthwith. If ǲyes,ǳ then it does and must be given due
course.

3)!
Before us is a Petition for Review[1] under Rule 45 of the Rules of Court, assailing the June
5, 2002 Decision[2] and the August 8, 2002 Resolution[3] of the Court of Appeals (CA) in CA-GR CV
No. 61229. The dispositive portion of the challenged Decision reads as follows:
ǲWHEREFORE, the instant appeal is GRANTED. The Order dated May 27, 1998 of
the Regional Trial Court of Legazpi City, Branch 9, is hereby REVERSED and the case is
remanded to the court for the appropriate further proceedings.ǳ[4]
The assailed Resolution denied petitionerǯs Motion for Reconsideration.
3"2#"!
The CA narrated the antecedents of the case as follows:
ǲThe subject of this case involves a motor vehicle, particularly described as:
MAKE: 1984 Isuzu JCR 6-Wheeler
PLATE NUMBER: PEL 685
MOTOR NO.: 6BD1-371305
SERIAL NO.: JCR500BOF-21184
ǲThe vehicle was originally owned by Goodyear Philippines, Inc. ([Goodyear]) which it
purchased from Industrial and Transport Equipment, Inc. in 1983. It had since been in the
service of [Goodyear] until April 30, 1986 when it was hijacked. This hijacking was
reported to the Philippine National Police (PNP) which issued out an alert alarm on the said
vehicle as a stolen one. It was later on recovered also in 1986.
ǲThe vehicle was used by [Goodyear] until 1996, when it sold it to Anthony Sy on
September 12, 1996.
ǲSy, in turn, sold it to Jose L. Lee on January 29, 1997. But the latter on December 4,
1997, filed an action for rescission of contract with damages against Sy[,] because he could
not register the vehicle in his name due to the certification from the PNP Regional Traffic
Management Office in Legazpi City that it was a stolen vehicle and the alarm covering the
same was not lifted. Instead, the PNP in Legazpi City impounded the vehicle and charged
Lee criminally.
ǲUpon being informed by Sy of the denial of the registration of the vehicle in Leeǯs
name, [Goodyear] requested on July 10, 1997 the PNP to lift the stolen vehicle alarm status.
This notwithstanding, [Goodyear] was impleaded as third-party defendant in the third-
party complaint filed by Sy on January 9, 1998.
ǲA motion to dismiss was filed by [Goodyear] on March 24, 1998 on the twin grounds
that the third-party complaint failed to state a cause of action and even if it did, such cause
of action was already extinguished. An opposition thereto was interposed by Sy on April 17,
1998.
ǲThe Regional Trial Court [(RTC)] resolved to dismiss the third-party complaint on the
basis of the first proffered ground in its challenged Order dated May 27, 1998. It
ratiocinated:
ǮA perusal of the third party complaint does not

expressly show any act or omission committed by the third party
defendant which violates a right of the third party com plainant. The
third party complaint failed to show that the vehicle in question
belongs to a person other than the third party defendant at the time
the said motor vehicle was sold by the third party defendant to the
third party plaintiff. On the contrary[,] the third party defendant has
not denied having sold to the third party plaintiff the said motor
vehicle which had been in its possession as owner from 1986 to
1996. The fact that the said motor vehicle was included by the PNP
in its alert status as stolen vehicle[,] resulted only following the
report by the third party defendant that it was hijacked in 1986. But
when the said motor vehicle was recovered, the third party
defendant informed the PNP about the said recovery and requested
the lifting of the alert status on it as stolen vehicle.
ǮIf the PNP has not removed the said vehicle from its
alert status as a stolen vehicle, [then] that does not make [Goodyear]
not the owner thereof. Hence, [Goodyear], the third party defendant,
is not guilty of any breach resulting from any flaw in the title over the
said vehicle. This is confirmed by the allegation of the third party
plaintiff as answering defendant in paragraph 6 of its Answer with
Counterclaim and Affirmative Defenses dated January 9, 1998,
hereunder quoted as follows:
ǲ6. Defendant specifically denies the
allegations contained in paragraph 9 of [p]laintiffǯs
complaint, the truth of the matter is that [d]efendant
help[ed] plaintiff in removing the impediments in the
registration and transfer of ownership and that
defendant ha[d] no knowledge of any flaw [in] the
title of Goodyear Philippines, Inc.ǳ
ǮUnder Rules 16, a motion to dismiss may be made on any

of the following grounds:
ǲg) That the pleading asserting the claim states

no cause of action.ǳ
ǮWHEREFORE, for failure of the third party complaint to state a

cause of action, the same is hereby ordered DISMISSED.ǯǳ[5]

50;="3"= )5!
In granting the appeal, the CA reasoned that the Third-Party Complaint had stated a cause of
action. ¢, petitioner did not make good its warranty in the Deed of Sale: to convey the vehicle to
Respondent Anthony Sy free from all liens, encumbrances and legal impediments. The reported
hijacking of the vehicle was a legal impediment that prevented its subsequent sale.
p, Respondent Sy had a right to protect and a warranty to enforce, while petitioner had
the corresponding obligation to honor that warranty. The latter caused the impairment of that
right, though, when the vehicle it had sold to him was refused registration, because of the non-
lifting of the alert status issued at its instance. That petitioner had to execute all documents
necessary to confer a perfect title to him before he could seek recourse to the courts was deemed a
ludicrous condition precedent, because it could easily refuse to fulfill that condition in order to
obviate the filing of a case against it.
Hence, this Petition.[6]
The Issues
Petitioner raises the following issues for the Courtǯs consideration:
ǲI.
Whether or not the Court of Appeals erred in reversing and setting aside the decision of the
Regional Trial Court, dismissing the complaint against petitioner for lack of a cause of
action.
ǲII.
Whether or not the Court of Appeals erred in failing to find that petitioner did not breach
any warranty in the absence of proof that at the time it sold the subject vehicle to Sy,
petitioner was not the owner thereof.
ǲIII.
Whether or not the Court of Appeals erred in failing to find that the cause of action, if ever it
existed, was already extinguished.ǳ[7]

The foregoing issues actually point to one main question: did the Third-Party Complaint state
a cause of action against petitioner?
3"J!50;
The Petition has merit.
)0!!:
Îh h r a Caus of Acion
Îas Sa d in h Third-Pary Coplain
A cause of action is a formal statement of the operative facts that give rise to a remedial
right.[8] The question of whether the complaint states a cause of action is determined by its
averments regarding the acts committed by the defendant.[9] Thus, it ǲmust contain a concise
statement of the ultimate or essential facts constituting the plaintiffǯs cause of action.ǳ[10] Failure
to make a
sufficient allegation of a cause of action in the complaint ǲwarrants its dismissal.ǳ[11]
El ns of a
Caus of Acion
A cause of action, which is an act or omission by which a party violates the right of
another,[12] has these elements:
ǲ1) the legal right of the plaintiff;
ǲ2) the correlative obligation of the defendant to respect that legal right; and
ǲ3) an act or omission of the defendant that violates such right.ǳ[13]
In determining whether an initiatory pleading states a cause of action, ǲthe test is as follows:
admitting the truth of the facts alleged, can the court render a valid judgment in accordance with
the prayer?ǳ[14] To be taken into account are only the material allegations in the complaint;
extraneous facts and circumstances or other matters

are not considered.[15] The court
may consider -- in addition to the complaint -- the appended annexes or documents, other pleadings
of the plaintiff, or admissions in the records.[16]

Ro Caus of Acion
Agains P iion r
In the present case, the third element is missing. The Third-Party Complaint filed by Sy is
inadequate, because it did not allege any act or omission that petitioner had committed in violation of
his right to the subject vehicle. The Complaint capitalized merely on the fact that the vehicle --
according to the records of the PNP, which was a stranger to the case -- was ǲa stolen vehicle.ǳ The
pleading did not contain ǲsufficient notice of the cause of actionǳ[17] against petitioner.
Without even going into the veracity of its material allegations, the Complaint is insufficient on
its face.[18] No connection was laid out between the ownerǯs sale of the vehicle and its impounding
by the PNP. That the police did not lift the alert status did not make petitioner less of an owner.
The Deed of Sale between petitioner and Respondent Sy was attached as Annex A[19] to the
Third-Party Complaint filed by the latter against the former. The Deed stated that petitioner was
the absolute owner of the subject vehicle. No contrary assertion was made in the Complaint.
Hence, the trial court correctly observed that the Complaint had failed to show that, at the time of
its sale to Respondent Sy, the vehicle belonged to a person other than petitioner. [20]
To reiterate, the Third-Party Complaint absolutely failed to state an act or omission of
petitioner that had proximately caused injury or prejudice to Sy. Indeed, based on that pleading
alone, the latterǯs claim for relief against petitioner does not appear to exist.
Îarrani s Pass d On
By h V ndor o h V nd
In a contract of sale, the vendor is bound to transfer the ownership of and to deliver the thing
that is the object of the sale.[21] Moreover, the implied warranties are as follows: , the vendor
has a right to sell the thing at the time that its ownership is to pass to the vendee, as a result of
which the latter shall from then on have and enjoy the legal and peaceful possession of the
thing;[22] and, p, the thing shall be free from any charge or encumbrance not declared or
known to the vendee.[23]
Upon the execution of the Deed of Sale, petitioner did transfer ownership of and deliver the vehicle to
Respondent Sy.[24] No other owner or possessor of the vehicle had been alleged, and the ownership and
possession rights of petitioner over it had never been contested. The Deed of Sale executed on September
12, 1996 showed that petitioner was the absolute owner. Therefore, at the time that ownership passed to Sy,
petitioner alone had the right to sell the vehicle.

In the same manner, when he sold the same truck to Jose L. Lee,[25] Respondent Sy was
exercising his right as absolute owner. Unfortunately, though, from the time Respondent Lee
attempted to register the truck in his name, he could not have or enjoy the legal and peaceful
possession of the vehicle, because it had been impounded by the PNP, which also opposed its
registration.
The impoundment of the vehi cle and the failure to register it were clearly acts that were not
deliberately caused by petitioner, but that resulted solely from the failure of the PNP to lift the
latterǯs own alarm over the vehicle. Pursuant to Republic Act 6975,[26] these matters were purely
administrative and governmental in nature. Petitioner had no authority, much less power, over the
PNP. Hence, the former did not breach its obligation as a vendor to Respondent Sy; neither did it
violate his right for which he could maintain an action for the recovery of damages. Without this
crucial allegation of a breach or violation, no cause of action exists.[27]
A warranty is an affirmation of fact or any promise made by a vendor in relation to the thing
sold. As such, a warranty has a natural tendency to induce the vendee -- relying on that affirmation
or promise -- to purchase the thing.[28] The vendor impliedly warrants that that which is being
sold is free from any charge or encumbrance not declared or known to the vendee. The decisive
test is whether the vendor assumes to assert a fact of which the vendee is ignorant.[29]
Ro i n or Br ach
of Îarrany
In the present case, petitioner did not breach the implied warranty against hidden
encumbrances. The subject vehicle that had earlier been stolen by a third party was subsequently
recovered by the authorities and restored to petitioner, its rightful owner. Whether Sy had
knowledge of the loss and subsequent recovery, the fact remained that the vehicle continued to be
owned by petitioner, free from any charge or encumbrance whatsoever.

A lien is ǲa legal right or interest that a creditor has in anotherǯs property, lasting usually
until a debt or duty that it secures is satisfied.ǳ[30] An encumbrance is ǲa claim or liability that is
attached to property or some other right and that may lessen its value, such as a lien or
mortgage.ǳ[31] A legal impediment is a legal ǲhindrance or obstruction.ǳ[32]
The Third-Party Complaint did not allege that petitioner had a creditor with a legal right to or
interest in the subject vehicle. There was no indication either of any debt that was secured by the
vehicle. In fact, there was not even any claim, liability or some other right attached to the vehicle
that would lessen its value. Its impoundment, as well as the refusal of its registration, was not the
hindrance or obstruction in the contemplation of law that the vendor warranted against. Neither of
those instances arose from any liability or obligation that could be satisfied by a legal claim or
charge on, or property right to -- other than an ownership interest in -- the subject vehicle.[33]
Ro Roic of Any
Br ach of Îarrany
that there was a breach of the implied warranty against hidden
encumbrances, notice of the breach was not given to petitioner within a reasonable time. Article
1586 of the Civil Code requires that notice be given after the breach, of which Sy ought to have
known. In his Third-Party Complaint against petitioner, there was no allegation at all that
respondent had given petitioner the requisite notice.[34]

More important, an action for damages for a breach of implied warranties must be brought
within /from the delivery of the thing sold.[35] The vehicle was understood to have been
delivered to Sy when it was placed in his control or possession.[36] Upon execution of the Deed of
Sale on September 12, 1996, control and possession of the vehicle was transferred to respondent.
That the vehicle had been delivered is bolstered by the fact that no contrary allegation was raised in
the Third-Party Complaint. Whether the period should be reckoned from the p
or from the
pp_ delivery through a public instrument, more than six months had lapsed before the
filing of the Third-Party Complaint.
Finally, the argument that there was a breach of the implied warranty against eviction does
not hold water, for there was never any final judgment based on either a right prior to the sale; or
an act that could be imputed[37] to petitioner and deprive Sy of ownership or possession of the
vehicle purchased.

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SO ORDERED.

(
Associate Justice
Chairman, Third Division

Î :
(On official leave) (On medical leave)
&Ô*
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Ô

(
Associate Justice

Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairmanǯs
,Ô

Acting Chief Justice
[1] Rollo, pp. 11-29.
[2] Id., pp. 33-44. Thirteenth Division. Penned by Justice Salvador J. Valdez Jr. (Division chair)
and concurred in by Justices Mercedes Gozo-Dadole and Amelita G. Tolentino (members).
[3] Id., p. 45.
[4] Assailed Decision, p. 12; rollo, p. 44. Uppercase and italics in the original.
[5] Id., pp. 2-4 & 34-36.
[6] This case was deemed submitted for decision on November 21, 2003, upon this Courtǯs
receipt of Respondent Leeǯs Memorandum, signed by Lee himself, assisted by Atty. Danilo S. Azana.
Respondent Syǯs Memorandum, signed by Atty. Aniano A. Albon, was received by this Court on
November 13, 2003; that of petitioner, signed by Attys. Cesar P. Manalaysay and Ajee Acuin Tiu, on
November 18, 2003.
[7] Petitionerǯs Memorandum, pp. 6-7; rollo, pp. 162-163. Original in uppercase.
[8] Feria & Noche, _
p , Vol. I (2001), p. 213.
[9] Regalado, c

) , Vol. I (7th rev. ed., 1999), p. 19.
[10] ! ! _ !, 444 SCRA 250, 259-260, November 25, 2004, per Panganiban, !.
(citing i_ , 436 Phil. 233, 240, August 20, 2002).
[11] c _
p p @ p

, 443 SCRA 56, 69, November 18,
2004, per Panganiban, !. (citing §1 of Rule 16 of the Rules of Court).
[12] §2 of Rule 2 of the Rules of Court.
[13] ! ! _ !; supra, p. 259.
[14] Id., p. 260.
[15] Regalado, supra, p. 251.
[16] See
_ , 390 Phil. 253, 264-266, June 30, 2000; _ , 327 Phil. 799,
807-808, July 5, 1996; and $p $ _ p, 227 Phil. 166, 176, July 30, 1986.
[17] See c_ , 127 Phil. 601, 606, August 30, 1967, per Angeles, !.
[18] See & ) _

, 440 SCRA 498, 510, October 18,
2004 (citing ip_ , 322 SCRA 853, 862, January 20, 2000).
[19] Rollo, p. 56.
[20] RTC Order dated May 27, 1998, p. 1; rollo, p. 66.
[21] §1495 of the Civil Code.
[22] §1547(1) of the Civil Code.
[23] §1547(2) of the Civil Code.
[24] Annex ǲAǳ of Third-Party Complaint; rollo, p. 56.
[25] Annex ǲBǳ of Third-Party Complaint; rollo, p. 57.
[26] §24 of Republic Act No. 6975, otherwise known as the ǲDepartment of the Interior and
Local Government Act of 1990,ǳ provides that the Philippine Natio nal Police (PNP) shall absorb the
office of the National Action Committee on Anti-Hijacking (NACAH) of the Department of National
Defense.
[27] See )p_ , 440 SCRA 483, 491, October 18, 2004
(citing _ , 319 SCRA 323, 327, November 26, 1999).
[28] Baviera,
(1981), p. 128.
[29] Ibid.
[30] Garner (ed. in chief), &

p )ip (7th ed., 1999), p. 933.
[31] Id., p. 547.
[32] Id., p. 756.
[33] See _

& p , 416 Phil. 785, 817-818, September 4, 2001
(citing
_ c@$
, 178 SCRA 299, 307-308, October 4, 1989).
[34] Third-Party Complaint, pp. 1-4; rollo, pp. 50-53.
[35] Art. 1571 of the Civil Code.
[36] Baviera, supra, pp. 61-62.
[37] Baviera, supra, pp. 131-132.

G.R. No. 152219 October 25, 2004
NUTRIMIX FEEDS CORPORATION vs. COURT OF APPEALS, ET AL.

Ô
Manila
SECOND DIVISION

.2"$
1*Ô petitioner,
vs.
&Ô)#Ô ÔÔ*
&Ô respondents.
DECISION
&&Ô
J.:
For review on certiorari is the Decision1 of the Court of Appeals in CA-G.R. CV No. 59615
modifying, on appeal, the Joint Decision 2 of the Regional Trial Court of Malolos, Bulacan,
Branch 9, in Civil Case No. 1026-M-933 for sum of money and damages with prayer for
issuance of writ of preliminary attachment, and Civil Case No. 49-M-944 for damages. The
trial court dismissed the complaint of the respondents, ordering them to pay the
petitioner the unpaid value of the assorted animal feeds delivered to the former by the
latter, with legal interest thereon from the filing of the complaint, including attorneyǯs
fees.
3)2")5"2#"!
On April 5, 1993, the Spouses Efren and Maura Evangelista, the respondents herein,
started to directly procure various kinds of animal feeds from petitioner Nutrimix Feeds
Corporation. The petitioner gave the respondents a credit period of thirty to forty -five
days to postdate checks to be issued in payment for the delivery of the feeds. The
accommodation was made apparently because of the company presidentǯs close
friendship with Eugenio Evangelista, the brother of respondent Efren Evangelista. The
various animal feeds were paid and covered by checks with due dates from July 1993 to
September 1993. Initially, the respondents were good paying customers. In some
instances, however, they failed to issue checks despite the deliveries of animal feeds
which were appropriately covered by sales invoices. Consequently, the
Ô)5!702
*)" <"
<$
21334 June 23, 1993 P 7,260.00
21420 June 26, 1993 6,990.00
21437 June 28, 1993 41,510.00
21722 July 12, 1993 45,185.00
22048 July 26, 1993 44,540.00
22054 July 27, 1993 45,246.00
22186 August 2, 1993 84,900.00
")5: P275,631.00
===========
respondents incurred an aggregate unsettled account with the petitioner in the amount of
P766,151.00. The breakdown of the unpaid obligation is as follows:
32E
()E **)" <"
<$
United Coconut Planters
BTS052084 July 30, 1993 P 47,760.00
Bank
-do- BTS052087 July 30, 1993 131,340.00
-do- BTS052091 July 30, 1993 59,700.00

-do- BTS062721 August 4, 1993 47,860.00
-do- BTS062720 August 5, 1993 43,780.00
-do- BTS062774 August 6, 1993 15,000.00
September 11,
-do- BTS062748 47,180.00
1993
September 11,
-do- BTS062763 48,440.00
1993
September 18,
-do- BTS062766 49,460.00
1993
")5: P490,520.00
==========
When the above-mentioned checks were deposited at the petitionerǯs depository bank,
the same were, consequently, dishonored because respondent Maura Evangelista had
already closed her account. The petitioner made several demands for the respondents to
settle their unpaid obligation, but the latter failed and refused to pay their remaining
balance with the petitioner.
On December 15, 1993, the petitioner filed with the Regional Trial Court of Malolos,
Bulacan, a complaint, docketed as Civil Case No. 1026-M-93, against the respondents for
sum of money and damages with a prayer for issuance of writ of preliminary attachment.
In their answer with counterclaim, the respondents admitted their unpaid obligation but
impugned their liability to the petitioner. They asserted that the nine checks issued by
respondent Maura Evangelista were made to guarantee the payment of the purchases,
which was previously determined to be procured from the expected proceeds in the sale
of their broilers and hogs. They contended that inasmuch as the sudden and massive
death of their animals was caused by the contaminated products of the petitioner, the
nonpayment of their obligation was based on a just and legal ground.
On January 19, 1994, the respondents also lodged a complaint for damages against the
petitioner, docketed as Civil Case No. 49-M-94, for the untimely and unforeseen death of
their animals supposedly effected by the adulterated animal feeds the petitioner sold to
them. Within the period to file an answer, the petitioner moved to dismiss the
respondentsǯ complaint on the ground of litis pendentia. The trial court denied the same
in a Resolution5 dated April 26, 1994, and ordered the consolidation of the case with Civil
Case No. 1026-M-93. On May 13, 1994, the petitioner filed its Answer with Counterclaim,
alleging that the death of the respondentsǯ animals was due to the widespread pestilence
in their farm. The petitioner, likewise, maintained that it received information that the
respondents were in an unstable financial condition and even sold their animals to settle
their obligations from other enraged and insistent creditors. It, moreover, theorized that
it was the respondents who mixed poison to its feeds to make it appear that the feeds
were contaminated.
A joint trial thereafter ensued.
During the hearing, the petitioner presented Rufino Arenas, Nutrimix Assistant Manager,
as its lone witness. He testified that on the first week of August 1993, Nutrimix President
Efren Bartolome met the respondents to discuss the possible settlement of their unpaid
account. The said respondents still pleaded to the petitioner to continue to supply them
with animal feeds because their livestock were supposedly suffering from a disease.6
For her part, respondent Maura Evangelista testified that as direct buyers of animal feeds
from the petitioner, Mr. Bartolome, the company president, gave them a discount of
P12.00 per bag and a credit term of forty-five to seventy-five days.7 For the operation of
the respondentsǯ poultry and piggery farm, the assorted animal feeds sold by the
petitioner were delivered in their residence and stored in an adjacent bodega made of
concrete wall and galvanized iron sheet roofing with monolithic flooring. 8
It appears that in the morning of July 26, 1993, three various kinds of animal feeds,
numbering 130 bags, were delivered to the residence of the respondents in Sta. Rosa,
Marilao, Bulacan. The deliveries came at about 10:00 a.m. and were fed to the animals at
approximately 1:30 p.m. at the respondentsǯ farm in Balasing, Sta. Maria, Bulacan. At
about 8:30 p.m., respondent Maura Evangelista received a radio message from a worker
in her farm, warning her that the chickens were dying at rapid intervals. When the
respondents arrived at their farm, they witnessed the death of 18,000 broilers, averaging
1.7 kilos in weight, approximately forty-one to forty-five days old. The broilers then had a
prevailing market price of P46.00 per kilo.9
On July 27, 1993, the respondents received another delivery of 160 bags of animal feeds
from the petitioner, some of which were distributed to the contract growers of the
respondents. At that time, respondent Maura Evangelista requested the representative of
the petitioner to notify Mr. Bartolome of the fact that their broilers died after having been
fed with the animal feeds delivered by the petitioner the previous day. She, likewise,
asked that a technician or veterinarian be sent to oversee the untoward occurrence.
Nevertheless, the various feeds delivered on that day were still fed to the animals. On July
27, 1993, the witness recounted that all of the chickens and hogs died. 10 Efren Evangelista
suffered from a heart attack and was hospitalized as a consequence of the massive death
of their animals in the farm. On August 2, 1993, another set of animal feeds were
delivered to the respondents, but the same were not returned as the latter were not yet
cognizant of the fact that the cause of the death of their animals was the polluted feeds of
the petitioner.11
When respondent Maura Evangelista eventually met with Mr. Bartolome on an

undisclosed date, she attributed the improbable incident to the animal feeds supplied by
the petitioner, and asked Mr. Bartolome for indemnity for the massive death of her
livestock. Mr. Bartolome disavowed liability thereon and, thereafter, filed a case against
the respondents. 12
After the meeting with Mr. Bartolome, respondent Maura Evangelista requested Dr.
Rolando Sanchez, a veterinarian, to conduct an inspection in the respondentsǯ poultry. On
October 20, 1993, the respondents took ample amount s remaining from the feeds sold by
the petitioner and furnished the same to various government agencies for laboratory
examination.
Dr. Juliana G. Garcia, a doctor of veterinary medicine and the Supervising Agriculturist of
the Bureau of Animal Industry, testified that on October 20, 1993, sample feeds for
chickens contained in a pail were presented to her for examination by respondent Efren
Evangelista and a certain veterinarian.13 The Clinical Laboratory Report revealed that the
feeds were negative of salmonella14 and that the very high aflatoxin level 15 found therein
would not cause instantaneous death if taken orally by birds.
Dr. Rodrigo Diaz, the veterinarian who accompanied Efren at the Bureau of Animal
Industry, testified that sometime in October 1993, Efren sought for his advice regarding
the death of the respondentsǯ chickens. He suggested that the remaining feeds from their
warehouse be brought to a laboratory for examination. The witness claimed that the
feeds brought to the laboratory came from one bag of sealed Nutrimix feeds which was
covered with a sack.
Dr. Florencio Isagani S. Medina III, Chief Scientist Research Specialist of the Philippine
Nuclear Research Institute, informed the trial court that respondent Maura Evangelista
and Dr. Garcia brought sample feeds and four live and healthy chickens to him for
laboratory examination. In his Cytogenetic Analysis,16 Dr. Medina reported that he
divided the chickens into two categories, which he separately fed at 6:00 a.m. with the
animal feeds of a different commercial brand and with the sample feeds supposedly
supplied by the petitioner. At noon of the same day, one of the chickens which had been
fed with the Nutrimix feeds died, and a second chicken died at 5:45 p.m. of the same day.
Samples of blood and bone marrow were taken for chromosome analysis, which showed
pulverized chromosomes both from bone marrow and blood chromosomes. On cross -
examination, the witness admitted that the feeds brought to him were merely placed in a
small unmarked plastic bag and that he had no way of ascertaining whether the feeds
were indeed manufactured by the petitioner.
Another witness for the respondents, Aida Viloria Magsipoc, Forensic Chemist III of the
Forensic Chemist Division of the National Bureau of Investigation, affirmed that she
performed a chemical analysis17 of the animal feeds, submitted to her by respondent
Maura Evangelista and Dr. Garcia in a sealed plastic bag, to determine the presence of
poison in the said specimen. The witness verified that the sample feeds yielded positive
results to the tests for COUMATETRALYL Compound, 18 the active component of
RACUMIN, a brand name for a commercially known rat poison.19 According to the
witness, the presence of the compound in the chicken feeds would be fatal to internal
organs of the chickens, as it would give a delayed blood clotting effect and eventually lead
to internal hemorrhage, culminating in their inevitable death.
Paz Austria, the Chief of the Pesticide Analytical Section of the Bureau of Plants Industry,
conducted a laboratory examination to determine the presence of pesticide residue in the
animal feeds submitted by respondent Maura Evangelista and Dr. Garcia. The tests
disclosed that no pesticide residue was detected in the samples received 20 but it was
discovered that the animal feeds were positive for Warfarin, a rodenticide
(anticoagulant), which is the chemical family of Coumarin. 21
After due consideration of the evidence presented, the trial court ruled in favor of the
petitioner. The dispositive portion of the decision reads:
WHEREFORE, in light of the evidence on record and the laws/jurisprudence

applicable thereon, judgment is hereby rendered:
1) in Civil Case No. 1026-M-93, ordering defendant spouses Efren and

Maura Evangelista to pay unto plaintiff Nutrimix Feeds Corporation the
amount of P766,151.00 representing the unpaid value of assorted animal
feeds delivered by the latter to and received by the former, with legal
interest thereon from the filing of the complaint on December 15, 1993
until the same shall have been paid in full, and the amount of P50,000.00
as attorneyǯs fees. Costs against the aforenamed defendants; and
2) dismissing the complaint as well as counterclaims in Civil Case No. 49-

M-94 for inadequacy of evidence to sustain the same. No pronouncement
as to costs.
SO ORDERED.22
In finding for the petitioner, the trial court ratiocinated as follows:
On the strength of the foregoing disquisition, the Court cannot sustain the
Evangelistasǯ contention that Nutrimix is liable under Articles 1561 and 1566 of
the Civil Code governing "hidden defects" of commodities sold. As already
explained, the Court is predisposed to believe that the subject feeds were
contaminated sometime between their storage at the bodega of the Evangelistas
and their consumption by the poultry and hogs fed therewith, and that the
contamination was perpetrated by unidentified or unidentifiable ill -meaning
mischief-maker(s) over whom Nutrimix had no control in whichever way.
All told, the Court finds and so holds that for inadequacy of proof to the contrary,
Nutrimix was not responsible at all for the contamination or poisoning of the
feeds supplied by it to the Evangelistas which precipitated the mass death of the
latterǯs chickens and hogs. By no means and under no circumstance, therefore,
may Nutrimix be held liable for the sundry damages prayed for by the
Evangelistas in their complaint in Civil Case No. 49-M-94 and answer in Civil Case
No. 1026-M-93. In fine, Civil Case No. 49-M-94 deserves dismissal.
Parenthetically, vis-à-vis the fulminations of the Evangelistas in this specific

regard, the Court does not perceive any act or omission on the part of Nutrimix
constitutive of "abuse of rights" as would render said corporation liable for
damages under Arts. 19 and 21 of the Civil Code. The alleged "callous attitude and
lack of concern of Nutrimix" have not been established with more definitiveness.
As regards Civil Case No. 1026-M-93, on the other hand, the Court is perfectly
convinced that the deliveries of animal feeds by Nutrimix to the Evangelistas
constituted a simple contract of sale, albeit on a continuing basis and on terms or
installment payments. 23
Undaunted, the respondents sought a review of the trial courtǯs decision to the Court of
Appeals (CA), principally arguing that the trial court erred in holding that they failed to
prove that their broilers and hogs died as a result of consuming the petitionerǯs feeds.
On February 12, 2002, the CA modified the decision of the trial court. The fallo of the
decision reads:
WHEREFORE, premises considered, the appealed decision is hereby MODIFIED

such that the complaint in Civil Case No. 1026-M-93 is dismissed for lack of merit.
So ordered.24
In dismissing the complaint in Civil Case No. 1026-M-93, the CA ruled that the
respondents were not obligated to pay their outstanding obligation to the petitioner in
view of its breach of warranty against hidden defects. The CA gave much credence to the
testimony of Dr. Rodrigo Diaz, who attested that the sample feeds distributed to the
various governmental agencies for laboratory examination were taken from a sealed sack
bearing the brand name Nutrimix. The CA further argued that the declarations of Dr. Diaz
were not effectively impugned during cross-examination, nor was there any contrary
evidence adduced to destroy his damning allegations.
On March 7, 2002, the petitioner filed with this Court the instant petition for review on
the sole ground that Ȃ
THE HONORABLE COURT OF APPEALS ERRED IN CONCLUDING THAT THE

CLAIMS OF HEREIN PETITIONER FOR COLLECTION OF SUM OF MONEY AGAINST
PRIVATE RESPONDENTS MUST BE DENIED BECAUSE OF HIDDEN DEFECTS.
3!""0"0
The petitioner resolutely avers that the testimony of Dr. Diaz can hardly be considered as
conclusive evidence of hidden defects that can be attributed to the petitioner.
Parenthetically, the petitioner asserts, assuming that the sample feeds were taken from a
sealed sack bearing the brand name Nutrimix, it cannot decisively be presumed that these
were the same feeds brought to the respondentsǯ farm and given to their chickens and
hogs for consumption.
It is the contention of the respondents that the appellate court correctly ordered the
dismissal of the complaint in Civil Case No. 1026-M-93. They further add that there was
sufficient basis for the CA to hold the petitioner guilty of breach of warranty thereby
releasing the respondents from paying their outstanding obligation.
Oft repeated is the rule that the Supreme Court reviews only errors of law in petitions for
review on certiorari under Rule 45. However, this rule is not absolute. The Court may
review the factual findings of the CA should they be contrary to those of the trial court.
Conformably, this Court may review findings of facts when the judgment of the CA is
premised on a misapprehension of facts.25
The threshold issue is whether or not there is sufficient evidence to hold the petitioner
guilty of breach of warranty due to hidden defects.
The petition is meritorious.
The provisions on warranty against hidden defects are found in Articles 1561 and 1566
of the New Civil Code of the Philippines, which read as follows:
Art. 1561. The vendor shall be responsible for warranty against 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.
Art. 1566. The vendor is responsible to the vendee for any hidden faults or defects
in the thing sold, even though he was not aware thereof.
This provision shall not apply if the contrary has been stipulated, and the vendor was not
aware of the hidden faults or defects in the thing sold.
A hidden defect is one which is unknown or could not have been known to the vendee.26
Under the law, the requisites to recover on account of hidden defects are as follows:
(a) the defect must be hidden;
(b) the defect must exist at the time the sale was made;
(c) the defect must ordinarily have been excluded from the contract;
(d) the defect, must be important (renders thing UNFIT or considerably decreases
FITNESS);
(e) the action must be instituted within the statute of limitations.27
In the sale of animal feeds, there is an implied warranty that it is reasonably fit and
suitable to be used for the purpose which both parties contemplated. 28 To be able to
prove liability on the basis of breach of implied warranty, three things must be
established by the respondents. The first is that they sustained injury because of the
product; the second is that the injury occurred because the product was defective or
unreasonably unsafe; and finally, the defect existed when the product left the hands of the
petitioner.29 A manufacturer or seller of a product cannot be held liable for any damage
allegedly caused by the product in the absence of any proof that the product in question
was defective.30 The defect must be present upon the delivery or manufacture of the
product;31 or when the product left the sellerǯs or manufacturerǯs control;32 or when the
product was sold to the purchaser;33 or the product must have reached the user or
consumer without substantial change in the condition it was sold. Tracing the defect to
the petitioner requires some evidence that there was no tampering with, or changing of
the animal feeds. The nature of the animal feeds makes it necessarily difficult for the
respondents to prove that the defect was existing when the product left the premises of
the petitioner.
A review of the facts of the case would reveal that the petitioner delivered the animal
feeds, allegedly containing rat poison, on July 26, 1993; but it is astonishing that the
respondents had the animal feeds examined only on October 20, 1993, or barely three
months after their broilers and hogs had died. On cross-examination, respondent Maura
Evangelista testified in this manner:
Atty. Cruz:
Q Madam Witness, you said in the last hearing that believing that the 250 bags of
feeds delivered to (sic) the Nutrimix Feeds Corporation on August 2, 1993 were
poison (sic), allegedly your husband Efren Evangelista burned the same with the
chicken[s], is that right?
A Yes, Sir. Some, Sir.
Q And is it not a fact, Madam Witness, that you did not, as according to you, used
(sic) any of these deliveries made on August 2, 1993?
A We were able to feed (sic) some of those deliveries because we did not know
yet during that time that it is the cause of the death of our chicks (sic), Sir.
Q But according to you, the previous deliveries were not used by you because you
believe (sic) that they were poison (sic)?
A Which previous deliveries, Sir[?]
Q Those delivered on July 26 and 22 (sic), 1993?
A Those were fed to the chickens, Sir. This is the cause of the death of the
chickens.
Q And you stated that this last delivery on August 2 were poison (sic) also and
you did not use them, is that right?
Atty. Roxas:
That is misleading.
Atty. Cruz:
She stated that.
Atty. Roxas:
She said some were fed because they did not know yet of the poisoning.
Court:
And when the chickens died, they stopped naturally feeding it to the chickens.
Atty. Cruz:
Q You mean to say, Madam Witness, that although you believe (sic) that the
chickens were allegedly poisoned, you used the same for feeding your animals?
A We did not know yet during that time that the feeds contained poison, only
during that time when we learned about the same after the analysis.
Q Therefore you have known only of the alleged poison in the Nutrimix Feeds
only after you have caused the analysis of the same?
A Yes, Sir.
Q When was that, Madam Witness?
A I cannot be sure about the exact time but it is within the months of October to
November, Sir.
Q So, before this analysis of about October and November, you were not aware
that the feeds of Nutrimix Feeds Corporation were, according to you, with poison?
A We did not know yet that it contained poison but we were sure that the feeds
were the cause of the death of our animals. 34
We find it difficult to believe that the feeds delivered on July 26 and 27, 1993 and fed to
the broilers and hogs contained poison at the time they reached the respondents. A
difference of approximately three months enfeebles the respondentsǯ theory that the
petitioner is guilty of breach of warranty by virtue of hidden defects. In a span of three
months, the feeds could have already been contaminated by outside factors and subjected
to many conditions unquestionably beyond the control of the petitioner. In fact, Dr.
Garcia, one of the witnesses for the respondents, testified that the animal feeds submitted
to her for laboratory examination contained very high level of aflatoxin, possibly caused
by mold (aspergillus flavus).35 We agree with the contention of the petitioner that there is
no evidence on record to prove that the animal feeds taken to the various governmental
agencies for laboratory examination were the same animal feeds given to the
respondentsǯ broilers and hogs for their consumption. Moreover, Dr. Diaz even admitted
that the feeds that were submitted for analysis came from a sealed bag. There is simply
no evidence to show that the feeds given to the animals on July 26 and 27, 1993 were
identical to those submitted to the expert witnesses in October 19 93.
It bears stressing, too, that the chickens brought to the Philippine Nuclear Research
Institute for laboratory tests were healthy animals, and were not the ones that were
ostensibly poisoned. There was even no attempt to have the dead fowls examined.
Neither was there any analysis of the stomach of the dead chickens to determine whether
the petitionerǯs feeds really caused their sudden death. Mere sickness and death of the
chickens is not satisfactory evidence in itself to establish a prima facie case of breach of
warranty.36
Likewise, there was evidence tending to show that the respondents combined different
kinds of animal feeds and that the mixture was given to the animals. Respondent Maura
Evangelista testified that it was common practice among chicken and hog raisers to mix
animal feeds. The testimonies of respondent Maura Evangelista may be thus summarized:
Cross-Examination
Atty. Cruz:
Q Because, Madam Witness, you ordered chicken booster mash from Nutrimix
Feeds Corporation because in July 1993 you were taking care of many chickens,
as a matter of fact, majority of the chickens you were taking care [of] were chicks
and not chickens which are marketable?
A What I can remember was that I ordered chicken booster mash on that month
of July 1993 because we have some chicks which have to be fed with chicken
booster mash and I now remember that on the particular month of July 1993 we
ordered several bags of chicken booster mash for the consumption also of our
chicken in our other poultry and at the same time they were also used to be mixed
with the feeds that were given to the hogs.
Q You mean to say [that], as a practice, you are mixing chicken booster mash
which is specifically made for chick feeds you are feeding the same to the hogs, is
that what you want the Court to believe?
A Yes, Sir, because when you mix chicken booster mash in the feeds of hogs there
is a better result, Sir, in raising hogs.37
Re-Direct Examination
Atty. Roxas:
Q Now, you mentioned that shortly before July 26 and 27, 1993, various types of
Nutrimix feeds were delivered to you like chicks booster mash, broiler starter
mash and hog finisher or hog grower mash. What is the reason for simultaneous
deliveries of various types of feeds?
A Because we used to mix all those together in one feeding, Sir.
Q And what is the reason for mixing the chick booster mash with broiler starter
mash?
A So that the chickens will get fat, Sir.
Re-Cross Examination
Atty. Cruz:
Q Madam Witness, is it not a fact that the mixing of these feeds by you is your own
concuction (sic) and without the advice of a veterinarian expert to do so?
A That is common practice among raisers to mix two feeds, Sir.
Q By yourself, Madam Witness, who advised you to do the mixing of these two
types of feeds for feeding your chickens?
A That is common practice of chicken raisers, Sir.38
Even more surprising is the fact that during the meeting with Nutrimix President Mr.
Bartolome, the respondents claimed that their animals were plagued by disease, and that
they needed more time to settle their obligations with the petitioner. It was only after a
few months that the respondents changed their justification for not paying their
unsettled accounts, claiming anew that their animals were poisoned with the animal
feeds supplied by the petitioner. The volte-face of the respondents deserves scant
consideration for having been conjured as a mere afterthought.
In essence, we hold that the respondents failed to prove that the petitioner is guilty of
breach of warranty due to hidden defects. It is, likewise, rudimentary that common law
places upon the buyer of the product the burden of proving that the seller of the product
breached its warranty.39 The bevy of expert evidence adduced by the respondents is too
shaky and utterly insufficient to prove that the Nutrimix feeds caused the death of their
animals. For these reasons, the expert testimonies lack probative weight. The
respondentsǯ case of breach of implied warranty was fundamentally based upon the
circumstantial evidence that the chickens and hogs sickened, stunted, and died after
eating Nutrimix feeds; but this was not enough to raise a reasonable supposition that the
unwholesome feeds were the proximate cause of the death with that degree of certainty
and probability required.40 The rule is well-settled that if there be no evidence, or if
evidence be so slight as not reasonably to warrant inference of the fact in issue or furnish
more than materials for a mere conjecture, the court will not hesitate to strike down the
evidence and rule in favor of the other party.41 This rule is both fair and sound. Any other
interpretation of the law would unloose the courts to meander aimlessly in the arena of
speculation.42
It must be stressed, however, that the remedy against violations of warranty against
hidden defects is either to withdraw from the contract (accion redhibitoria) or to demand
a proportionate reduction of the price (accion quanti minoris), with damages in either
case.43 In any case, the respondents have already admitted, both in their testimonies and
pleadings submitted, that they are indeed indebted to the petitioner for the unpaid
animal feeds delivered to them. For this reason alone, they should be held liable for their
unsettled obligations to the petitioner.
Î in light of all the foregoing, the petition is *. The assailed
Decision of the Court of Appeals, dated February 12, 2002, is
Ô* and ÔÔ*.
The Decision of the Regional Trial Court of Malolos, Bulacan, Branch 9, dated January 12,
1998, is Ô*. No costs.
Ô**
%$ @ and p%#!! concur.
""!
1Penned by Associate Justice Rodrigo V. Cosico, with Associate Justices

Buenaventura J. Guerrero and Eliezer R. De Los Santos, concurring.
2 Penned by Judge D. Roy A. Masadao, Jr.
3The case is entitled "Nutrimix Feeds Corporation v. Spouses Efren Evangelista

and Maura Evangelista."
4Entitled "Spouses Efren Evangelista and Maura Evangelista v. Nutrimix Feeds

Corporation."
5 Records, pp. 54-55. (Civil Case No. 49-M-94)
6 TSN, 27 November 1995, pp. 22-23.
7 TSN, 17 April 1996, p. 7.
8 TSN, 3 July 1996, pp. 13-15.
9 TSN, 24 July 1996, pp. 15-21.
10 Id. at 23, 26.
11 TSN, 26 November 1996, p. 28.
12 TSN, 9 October 1996, pp. 6-8.
13 TSN, 31 January 1997, pp. 4, 8.

14 Exhibit "43."
15 Exhibit "44."
16 Exhibit "54."
17 Exhibit "56."
18 Exhibit "56-B."
19 Exhibit "56-C."
20 Exhibit "57."
21 Exhibit "58."
22 Records, pp. 373-374. (Civil Case No. 1026-M-93)
23 Id. at 371-372.
24 CA Rollo, p. 184.
25University of the Philippines v. Philab Industries, Inc., G.R. No. 152411,

September 29, 2004.
26 Dino v. Court of Appeals, 359 SCRA 91 (2001).
27 Paras, Civil Code of the Philippines, Annotated, 13th ed., Vol. V, pp. 210-211.
28 Swift & Company v. Redhead, 122 N.W. 140 (1909).
29 Lee Worden v. John Gangelhoff, 241 N.W.2d 650 (1976).
30 63 Am. Jur.2d, Products Liability § 9.
31 Clyde Wayne Fitzgerald v. Caterpillar Tractor Co., 683 S.W.2d 162 (1985).
32 George E. Fellows v. USV Pharmaceutical Corp., 502 F. Supp. 297 (1980).
33 Ford Motor Co. v. K. E. Tidwell, 563 S.W.2d 831 (1978).
34 TSN, 6 December 1996, pp. 5-7. (Emphasis supplied.)
35 TSN, 31 January 1997, pp. 12-14.
36 Poovey v. International Sugar Feed No. 2 Co., 133 S.E. 12 (1926).

37 TSN, 26 November 1996, pp. 8-9. (Emphasis supplied.)
38 TSN, 6 December 1996, pp. 17-18.
39 63 Am. Jur.2d, Products Liability § 875.
40 Edgar Green v. Ralston Purina Co., 376 S.W.2d 119 (1964).
41 SWANN v. Martin, 132 S.E. 16 (1926).
42 Poovey v. International Sugar Feed No. 2 Co., supra.
43 Article 1567 of the Civil Code.

Ô
Manila
SECOND DIVISION

/. ))% ..
,
&Ôpetitioner,
vs.
*&& )#
*&Ôrespondents.
'
i
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c
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! ! _
&* J.:
dismissing the complaint filed by herein petitioner against the herein private respondent in the
respondent moved to dismiss on the ground of improper venue, invoking therefor Sales Invoice No.
petitioner went to Iloilo City to inspect the t wo machines offered for sale and was informed that the
signed by petitioner with an addendum that payment had not yet been made but that he promised
end of the month. Although the agreed selling price was only P40,000.00, the amount on t he
for said machine.
machine but he merely looked at it to see that it was there . The inspector's recommendation was


machine.
distributor bar and, on March 16, 1978, private respondent delivered this spare part to petitioner
for the price of the distributor bar, the latter asked petitioner to share the cost with him. Petit ioner
It turned out that the said linotype machine was the same machine that witness Legaspina had

follows:
in Iloilo City the linotype machine aforementioned t ogether with all accessories that
the legal rate counted from May 17, 1978 when this action was instituted, until fully
paid;
petition.

tothe effect that unless goods are sold as to raise an implied warranty, as a general rule there is

purpose;
xxx

warranty on the condition of the machine if he ha d not intended to be bound by it. In fact, the
talk.
the same.
SO ORDERED.
$
p% @ A
!! pp
""!
1 Special Fourth Civil Cases Division; Justice Marcelino R. Veloso. ponente, Justices
Mariano A. Zosa and Abdulwahid A. Bidin, concurring.
2 Judge Segundino G. Chua, presiding.
3 Rollo, 5-10; 19-28.
4 Exhibit A.
5 Exhibit A,
6 TSN., Aug. 11, 1980, 21-23; 36-38.

7 Exhibit C; Rollo, 22.
8 TSN, Oct. 8, 1979, 47.
9 Rollo, 22.
10 Exhibit B.
11 Exhibit E.
12 T.S.N., Oct. 8, 1979, 15-16, 25-27.
13 Exhibit F.
14 TSN, Feb. 28, 1980, 5-8, 11-15.
15 Rollo, 19-20.
16 Legaspi vs. Court of Appeals, et al. 142 SCRA 82 (1986).
17 Polytrade Corporation vs. Blanco, 30 SCRA 187 (1969).
18 Sweet Lines, Inc. vs. Teves, et al., 83 SCRA 361 (1978).
19 46 Am. Jur. 545.
20 Fairbanks Steam Shovel Co. vs. Holt and Jeffrey, 79 Wash. 361; Perine Machinery
Co. vs. Buck, 156 Pac. 20; Ramming vs. Caldwell, 43 III. App. 626; and Hanna-
Breckinridge Co. vs. Holey-Matthews Mfg. Co., 140 SW 923, cited in Durbin vs.
Denham, 29 ALR 1227.
21 11 CA Rep. 2d 530.
22 Markman vs. Hallbeck, 206 III. App. 465, cited in Capistrano, Civil Code, Vol. IV,
124.
23 92 P 2d 424, 46 Am. Jur. 545-546.
24 Fairbanks Steam Shovel Co. vs. Holt & Jeffrey, 79 Wash. 361; Yello Jacket Min. Co.
vs. Tegarden, 104 Ark. 573; Hanna Breckinridge Co. vs. Holey-Matthews Mfg. Co.,
160 Mo. Appeal 437; and Markman vs. Hallbeck, 206 11). App. 465, as reported in
29 ALR 12311236.
25 Puyat & Sons, Inc. vs. Arco Amusement Co., 72 Phil. 402 (1941).
26 10 Manresa, 1950 Ed., 250.

28 Ramos vs. Osorio, et al., 38 SCRA (1971); Director of Lands vs. Dano, et al., 96
SCRA 161 (1980).
*0!"02"0$"4A !!)#0< 50#4))"%

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Ô**
Ô
*

///
"0"0
Present:
QUISUMBING, !.,
TINGA,
VELASCO, JR., and
BRION, !!.
&Ô * (

Ô&**

! #"!
Promulgated:
September 29, 2008
x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

*Ô
&ÔJ.:
Under a ǲcar-swappingǳ scheme, respondent Bruno Soledad (Soledad) sold his Mitsubishi
GSR sedan 1982 model to petitioner Jaime Ang (Ang ) by Deed of Absolute Sale [1] dated July 28,
1992. For his part, Ang conveyed to Soledad his Mitsubishi Lancer model 1988, also by Deed of
Absolute Sale[2] of even date. As Angǯs car was of a later model, Soledad paid him an additional
P55,000.00.
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Ang, a buyer and seller of used vehicles, later offered the Mitsubishi GSR for sale through
Far Eastern Motors, a second-hand auto display center. The vehicle was eventually sold to a certain
Paul Bugash (Bugash) for P225,000.00, by Deed of Absolute Sale [3] dated August 14, 1992. Before
the deed could be registered in Bugashǯs name, however, the vehicle was seized by virtue of a writ
of replevin[4] dated January 26, 1993 issued by the Cebu City Regional Trial Court (RTC), Branch 21
in Civil Case No. CEB-13503, ǲ&¢p _ c
p ,ǳ on account of
the alleged failure of Ronaldo Panes, the owner of the vehicle prior to Soledad, to pay the mortgage
debt[5] constituted thereon.
+ ¢ . $ p p _

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p p
To secure the release of the vehicle, Ang paid BA Finance the amount of P62,038.47[6] on
March 23, 1993. Soledad refused to reimburse the said amount, despite repeated demands,
drawing Ang to charge him for Estafa with abuse of confidence before the Office of the City
Prosecutor, Cebu City. By Resolution[7] of July 15, 1993, the City Prosecutorǯs Office dismissed the
complaint for insufficiency of evidence, drawing Ang to file on November 9, 1993 the first [8] of
three successive complaints for damages against Soledad before the RTC of Cebu City where it was
docketed as Civil Case No. Ceb-14883.
+ & ¢p
p
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Branch 19 of the Cebu City RTC, by Order[9] dated May 4, 1995, dismissed Civil Case No.
Ceb-14883 for failure to submit the controversy to barangay conciliation.
Ang thereafter secured a certification to file action and again filed a complain t for
damages,[10] docketed as Ceb-17871, with the RTC of Cebu City, Branch 14 which dismissed it, by
Order[11] dated March 27, 1996, on the ground that the amount involved is not within its
jurisdiction.
Ang thereupon filed on July 15, 1996 with the Municipal Trial Court in Cities (MTCC) a
complaint,[12] docketed as R-36630, the subject of the instant petition.
After trial, the MTCC dismissed the complaint on the ground of prescription, _ :
It appearing that the Deed of Sale to plaintiff o[f] subject vehicle was
dated and executed on 28 July 1992, the complaint before the Barangay
terminated 21 September 1995 per Certification to File Action attached to
the Complaint, and this case eventually was filed with this Court on 15 July
1996, "30! )2"0 3)! )5)#% $ $)# !02 < "3) !0A CD
<"3!5) !#=<"3#507%="3!$62"73025""3 5)0"0==
$% " "3 =050; = "30! )2"0 !)" " "3 )=?"# "025
/
ǳ[13] (Emphasis and underscoring supplied)
His motion for reconsideration having been denied, Ang appealed to the RTC, Branch 7 of
which affirmed the dismissal of the complaint, albeit it rendered judgment in favor of Ang ǲfor the
sake of justice and equity, and in consonance with the salutary principle of non-enrichment at
anotherǯs expense.ǳ The RTC ratiocinated:
xxxx
[I]t was error for the Court to rely on Art. 1571 of the Civil Code to
declare the action as having prescribed, since the action is not one for the
enforcement of the warranty against hidden defects. Moreover, Villostas vs.
Court of Appeals declared that the six-month prescriptive period for a
redhibitory action applies only to implied warranties. 3 0! 3 )
A !! 4))"%
= )" )55 43)" ) 50! 0! "
= "3 0705 #
"3 ;)5 5)4 !20 "0 43023 !")"! 0" )50) "3)" )2"0!
I ) 40"" 2")2"J !20$! 0 " C D %)! [Engineering &
Machinery Corporation vs. Court of Appeals, G.R. No. 522 67, January 24,
1996].
More appropriate to the discussion would be defendantǯs warranty

against eviction, which he explicitly made in the Deed of Absolute Sale: I
hereby covenant my absolute ownership to (sic) the above -described
property and the same is free from all liens and encumbrances and I will
defend the same from all claims or any claim whatsoeverǥǳ
Ô"055 "3 " =0#! "3)" 5)0"0== 2)" 27 # "30!
4))"%
30!!340;=2< 50)240"3"3?0!0"!
xxxx
"35!!="3!)E=6!"02)#?0"%)#02!)2

40"3 "3 !)5")% 020 5 = -023<" )" )"3J! A !
#=#)" !35# 0<$! 5)0"0== "3
/ which on March
23, 1993 he paid BA Finance Corporation to release the mortgage on the car.
(Emphasis and underscoring supplied)[14]
The RTC thus disposed as follows:

Wherefore, judgment is rendered directing defendant to pay plaintiff
P62,038.47, the amount the latter paid BA Finance Corporation to release
the mortgage on the vehicle, with interest at the legal rate computed from
March 23, 1993. Except for this, the judgment in the decision of the trial
court, dated October 8, 2001 dismissing the claims of plaintiff is affirmed.ǳ
(Underscoring supplied)[15]
Soledadǯs Motion for Reconsideration was denied by Order[16] of December 12, 2002, hence,
he elevated the case to the Court of Appeals, Cebu City.
The appellate court, by the challenged Decision[17] of August 30, 2006, noting the sole issue
to be resolved whether the RTC erred in directing Soledad to pay Ang the amount the latter paid to
BA Finance plus legal interest, held that, following
p _ ,[18] Ang
ǲcannot anymore seek refuge under the Civil Code provisions granting award of damages for breach
of warranty against _pfor the simple fact that three years and ten months have lapsed from
the execution of the deed of sale in his favor prior to the filing of the instant complaint.ǳ It further
held:
It bears to stress that the deed of absolute sale was executed

on July 28, 1992, and the instant complaint dated May 15, 1996 was
received by the MTCC on July 15, 1996.
While it is true that someone unjustly enriched himself at the

expense of herein respondent, we agree with petitioner (Soledad)
that it is not he.
The appellate court accordingly reversed the RTC decision and denied the petition.
By Resolution[19] of April 25, 2007, the appellate court denied Angǯs motion for
reconsideration, it further noting that w hen Ang settled the mortgage debt to BA Finance, he did so
voluntarily in order to resell the vehicle, hence, Soledad did not benefit from it as he was unaware
of the mortgage constituted on the vehicle by the previous owner.
The appellate court went on to hold that Soledad ǲhas nothing to do with the transaction
anymore; his obligation ended when he delivered the subject vehicle to the respondent upon the
perfection of the contract of sale.ǳ And it reiterated its ruling that the action, being one arising from
breach of , had prescribed, it having been filed beyond the 6-month prescriptive
period.
The appellate court brushed aside Angǯs contention that Soledad was the proximate cause of
the loss due to the latterǯs failure to thoroughly examine and verify the registration and ownership
of the previous owner of the vehicle, given that Ang is engaged in the business of buying and selling
second-hand vehicles and is therefore expected to be cautious in protecting his rights under the
circumstances.
Hence, the present recourse Ȃ petition for review on certiorari, Ang maintaining that his
cause of action had not yet prescribed when he filed the complaint and he should not be blamed for
paying the mortgage debt.
To Ang, the ruling in _ is not applicable to this case, there being an /
warranty in the herein subject Deed of Absolute Sale and, therefore, the action based thereon
prescribes in ten (10) years following . ( $p _ [20] which held that
where there is an express warranty in the contract, the prescriptive period is the one specified in
the contract or, in the absence thereof, the general rule on rescission of contract.
Ang likewise maintains that he should not be blamed for paying BA Finance and should thus
be entitled to reimbursement and damages for, following p! _
,[21] in
case of breach of an / warranty, the seller is liable for damages provided that certain
requisites are met which he insists are present in the case at bar.
The resolution of the sole issue of whether the complaint had prescribed hinges on a
determination of what kind of warranty is provided in the Deed of Absolute Sale subject of the
present case.
A warranty is a statement or representation made by the seller of goods,

contemporaneously and as part of the contract of sale, having reference to the character, q uality or
title of the goods, and by which he promises or undertakes to insure that certain facts are or shall
be as he then represents them.[22]
Warranties by the seller may be express or implied. Art. 1546 of the Civil Code defines
/ warranty as follows:
ǲArt. 1546. %)==0<)"0 ==)2")% <0!$%"3

!555)"0;""3"30;0!)A !!4))"%0="3)")5
"#2%=!23)==0<)"0 <0!0!" 0#2"3$%
" 23)! "3 !)< )# 0= "3 $% 23)!! "3 "30;
5%0; "3. No affirmation of the value of the thing, nor any
statement purporting to be a statement of the sellerǯs opinion only,
shall be construed as a warranty, unless the seller made such
affirmation or statement as an expert and it was relied upon by the
buyer.ǳ(Emphasis and underscoring supplied)
On the other hand, an

warranty is that which the law derives by application or
inference from the nature of the transaction or the relative situation or circumstances of the
parties, irrespective of any intention of the seller to create it.[23] Among the implied warranty
provisions of the Civil Code are: as to the sellerǯs title (Art. 1548), against hidden defects and
encumbrances (Art. 1561), as to fitness or merchantability (Art. 1562), and against eviction (Art.
1548).
The earlier cited ruling in . ($p states that ǲthe prescriptive period
for instituting actions based on a breach of / warranty is that specified in the contract, and in
the absence of such period, the general rule on rescission of contract, which is = years (Article
1389, Civil Code).ǳ
As for actions based on breach of

warranty, the prescriptive period is, under Art.
1571 (warranty against hidden defects of or encumbrances upon the thing sold) and Art. 1548
(warranty against eviction), six months from the date of delivery of the thing sold.
The following provision of the Deed of Absolute Sale reflecting the kind of warranty made
by Soledad reads:
xxxx
I hereby covenant my )$!5" 4!30 " C!02D "3

)$7-#!20$# "% )# "3 !)< 0! = =< )55 50!
)#2<$)2!and4055#=#"3!)<=<)5525)0<!
)% 25)0< 43)"!7; will save the vendee from any suit by the
government of the Republic of the Philippines.
x x x x (Emphasis supplied)
In declaring that he owned and had clean title to the vehicle at the time the Deed of Absolute
Sale was forged, Soledad gave an 0< 50# warranty of title. In pledging that he ǲwill defend the
same from all claims or any claim whatsoever [and] will save the vendee from any suit by the
government of the Republic of the Philippines,ǳ Soledad gave a warranty );)0!"702"0.
Given Angǯs business of buying and selling used vehicles, he could not have merely relied on
Soledadǯs affirmation that the car was free from liens and encumbrances. He was expected to have
thoroughly verified the carǯs registration and related documents.
Since what Soledad, as seller, gave was an implied warranty, the prescriptive period to file a
breach thereof is six months after the delivery of the vehicle, following Art. 1571. But even if the
date of filing of the action is reckoned from the date petitioner instituted his first complaint for
damages on November 9, 1993, and not on July 15, 1996 when he filed the complaint subject of the
present petition, the action just the same had pres cribed, it having been filed 16 month s after July
28, 1992, the date of delivery of the vehicle.
On the merits of his complaint for damages, even if Ang invokes breach of warranty against eviction
as inferred from the second part of the earlier-quoted provision of the Deed of Absolute Sale, the
following essential requisites for such breach, _ :
ǲA breach of this warranty requires the concurrence of the

following circumstances:
(1) The purchaser has been # 07#="3435 )"
="3"30;!5#;
(2) This eviction is by a =0)56#;<";
(3) The $)!0! "3= 0! $% 70" = ) 0;3" 0 " "3
!)5<)#$%"37#; and
(4) The 7# 3)! $ !<<# )# <)# 2-

#=#)"0"3!0"=702"0)""30!")2="37#.
In the absence of these requisites, a breach of the warranty

against eviction under Article 1547 cannot be declared.ǳ [24]
(Emphasis supplied),
have not been met. For one, there is no judgment which deprived Ang of the vehicle. For another,
there was no suit for eviction in which Soledad as seller was impleaded as co-defendant at the
instance of the vendee.

Finally, even under the principle of

which the RTC applied, Ang cannot
recover from Soledad the amount he paid BA Finance. For, as the appellate court observed, Ang
settled the mortgage debt on his own volition under the supposition that he would resell t he car. It
turned out
that he did pay BA Finance in order to avoid returning the payment made by the ultimate buyer
Bugash. It need not be stressed that Soledad did not benefit from Angǯs paying BA Finance, he not
being the one who mortgaged the vehicle, hence, did not benefit from the proceeds thereof.
Î, the petition is, in light of the foregoing disquisition, **.

SO ORDERED.
&Ô
Associate Justice
WE CONCUR:
&*
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[1] Exhibit ǲC,ǳ records, p. 86.
[2] Exhibit ǲ2,ǳ id. at 136.
[3] Exhibit ǲD,ǳ id. at 87.
[4] Exhibit ǲJ,ǳ id. at 94.
[5] See Chattel Mortgage, Exhibit ǲE,ǳ id. at 88.
[6] Exhibit ǲG,ǳ id. at 91.
[7] Exhibit ǲ4,ǳ id. at 138-141.

[8] Annex ǲA,ǳ CA
, pp. 38-41.
[9] Annex ǲCǳ, id. at 49; penned by Judge Ramon G. Codilla, Jr.
[10] Annex ǲD,ǳ id. at 50-53.
[11] Annex ǲG,ǳ id. at 66-67; penned by Judge Renato C. Dacudao.
[12] Annex ǲH,ǳ id. at 68-72.
[13] Annex ǲJ,ǳ id. at 87; penned by Judge Edgemelo C. Rosales
[14] Annex ǲK,ǳ id. at 90-91; penned by Judge Simeon Dumdum, Jr.
[15] ` Id. at 91-92.
[16] Annex ǲM,ǳ id. at 99-100.
[17] Id. at 169-177; penned by Associate Justice Marlene Gonzales-Sison, with the
concurrence of Associate Justices Arsenio J. Magpale and Agustin S. Dizon.
[18] G.R. No. 154554, November 9, 2005, 474 SCRA 427.
[19] Annex ǲC,ǳ CA
, pp. 206-209. Penned by Associate Justice Stephen C. Cruz and

concurred in by Executive Justice Arsenio J. Magpale and Associate Justice Agustin S. Dizon.
[20] G.R. No. 52267, January 24, 1996, 252 SCRA 156.
[21] G.R. Nos. 123672 & 164489, December 14, 2005, 477 SCRA 666.
[22] DE LEON, COMMENTS AND CASES ON SALES 299 (2000).
[23] Id. at 304.
[24] p

_
, G.R. No. 119745, June 20,
1997, 274 SCRA 597, 600.
The vendor shall answer for the eviction even though nothing has been said in the contract on the
subject. But there was express warranty in this case. The bond was just an additional protection
and will not remove the warranty imposed by law.

Ô
Manila
(

&- /)% .
(&&Ô plaintiff-appellee,
vs.
&Ô ,)#Ô

defendant-appellant.
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c
_

J.:
On October 6, 1948, Cesareo Fabricante and the Bureau of Hospitals executed the deed of purchase
and sale Exhibit A, whereby the former sold to the latter a parcel of land of about 423.5790
hectares, situated in Cabusao, Camarines Sur, for the sum of P42,350, with express warranty against
eviction and promise of a bond in the sum of P80,000, to back up the warranty. The conditions of
said bond (Exhibit B), executed on January 4, 1949, by Fabricante, as principal, and the Alto Surety
and Insurance Co., Inc., as surety, were:
WHEREAS, the above bounden PRINCIPAL, on the 6th day of October, 1948 entered into a
contract of purchase and sale of one (1) parcel of land with the BUREAU OF HOSPITALS,
copy of which contract is hereto attached and made a part hereof as annex "A";
WHEREAS, said contract requires said PRINCIPAL to give good and sufficient bond in the
above stated sum as per recommendation of the Department of Justice, dated June 17, 1948,
to secure the full and faithful performance on his part of said contract.
WHEREAS, the said recommendation contains the following conditions: that if the Court
should declare that the land does not belong to the Vendor, the purchase price will be
returned to the Bureau of Hospitals and payment will be made of such damages and
expenses incurred by it in connection with the sale;
NOW, THEREFORE, if the PRINCIPAL shall well and truly perform and fulfill all the
undertakings, covenants, terms, conditions and agreements stipulated in said contract as
modified by said recommendation of the Department of Justice, then this obligation shall be
null and void; otherwise, it shall remain in full force and effect, except as hereunder
provided.
The liability of the ALTO SURETY AND INSURANCE Co., INC., under this bond will expire one
(1) year after the land shall have been registered in the name of the Bureau of Hospitals.
The Bureau of Hospitals, will commence registration proceedings within one (1) year from
the date of this bond.
In case a third party succeeds in claiming a portion of the property above-mentioned, the
PRINCIPAL and consequently the SURETY will respond proportionally at the maximum rate
of P100 per hectare.
The liability of the SURETY shall not in any case exceed that of the PRINCIPAL.
On July 22, 1952, the Republic of the Philippines instituted Civil Case No. 2172 of the Court of First
Instance of Camarines Sur, against Sulpicio Roco, to quiet title to the land above referred to, in view
of the fact that Roco claimed to own a portion thereof, of about 55 hectares. Thereafter Fabricante
was made a party in the proceedings. In due course, decision was rendered by said court, on
October 6, 1954, declaring that the controverted portion is the property of Roco (Exhibit D). Upon
being notified of this decision and asked to pay the corresponding indemnity under Exhibit B, the
surety company suggested that an appeal be taken, but the Government did not do so, and the
decision became final. When, subsequently, a second demand for payment was made, the surety
company replied that it had defenses against liability under, the bond. Hence, the present action
against the surety company.
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In its answer, the latter alleged, by way of special defense, that said bond contemplated a land
registration case to be instituted by the Government within one (1) year from January 4, 1949; that
plaintiff filed no such case, and instead instituted Civil Case No. 2172, after the expiration of said
period; that plaintiff had not notified the defendant of the pendency of said case No. 2172; that
plaintiff failed and neglected to appeal from the decision therein rendered, despite defendant's
aforementioned request; that inasmuch as the land in question is involved in some land registration
cases which are still pending, the title of Roco to the land adjudicated to him in case No. 2172 is not,
as yet definitely settled; that defendant's liability under the bond cannot exceed P100 per hectare;
and that not having paid, as yet, any amount to Roco, plaintiff has not, so far, suffered any damage
by reason of the decision in said Civil Case No. 2172.
After appropriate proceedings, the Court of First Instance of Camarines Sur rendered a decision the
dispositive part of which reads:
The defendant is, consequently, liable under the surety bond to pay the plaintiff for the loss
it suffered by reason of its eviction from a portion of the land sold containing 55 hectares.
Considering, however, that maximum rate of liability at P100.00 per hectare is fixed in the
bond, the defendant shall, pay the plaintiff only the sum of P5,500.00 and the cost of this
action.
The surety company brought this case for review to the Court of Appeals, which, later on, certified
the record to this Court, upon the ground that the issues raised in defendant and appellant's brief
involve purely questions of law.
Indeed, defendant maintains that:
1. The lower court erred in not holding that the filing of civil case No. 2172, Court of First
Instance of Camarines Sur, by plaintiff and appellee against Sulpicio Roco on July 22, 1952,
constitutes a violation of the terms of the bond, E xhibit B, and has released defendant and
appellant from liability.
2. The lower court erred in not holding that the failure of plaintiff and appellee to notify
defendant and appellant of the filing or pendency of civil case No. 2172 has released said
appellant from liability.
3. The lower court erred in not holding that the failure of plaintiff and appellee to appeal
from the decision rendered in civil case No. 2172 after repeated requests by defendant and
appellant on an excellent ground has released said appellant from liability.
4. The lower court erred in not holding that the liability of defendant and appellant cannot
be based on the decision rendered in civil case No. 2172.
5. The lower court ordered in ordering the defendant and appellant to pay the plaintiff and
appellee the sum of P5,500 and the cost of the suit.
The first and fourth assignments of error are predicated upon three propositions, namely: (a) that
the surety bond intends, contemplates and assumes that title to the property would be established
in a land registration proceedings; (b) that the filing of Civil Case No. 2172 is unjustified, and has
increased appellant's risks; and (c) that said civil case was filed out of time.
At the outset, it should be noted that every vendor warrants his title to the thing sold and "shall
answer for the eviction even though nothing has been said in the contract on the subject." (Articles
1547 and 1548, Civil Code of the Philippines.) Cesareo Fabricante, the vendor in the case at bar,
subject to this implied warranty. What is more, he expressly undertook in the deed of purchase and
sale Exhibit A, "to warrant the peaceful possession and title" to the land sold by him, and to "at all
times defend the same against any and all claims of any person or persons whomsoever," and held
"himself responsible for any damages that may be caused" to the Government "by reason of an
eviction from the premises above-described, resulting from any better or superior claim of any
third person whomsoever." Upon the other and, "eviction shall take place whenever by a final
judgment based on a right prior to the sale . . . the vendee is deprived of the whole or part of thing
purchased". (Article 1548, first paragraph, Civil Code of the Philippines.) The judgment effecting the
eviction need not be rendered in a land registration case, provided it is a "final judgment", and "the
vendee need not appeal" therefrom "in order that the vendor may become liable for eviction."
(Article 1549, Civil Code of the Philippines.) These were the rights of the Government under the
law, as buyer of the property above referred to, independently of appellant's bond, prior to its
execution.
It appears, however, that the Secretary of Justice was not satisfied with such rights. He wanted
protection for the Government. Upon his recommendation, Cesareo Fabricante was required
to give a bond in the sum of P80,000. This he did on January 4, 1949, with the defendant herein, as
surety. For obvious reasons, a time limit for defendant's, liability, as such surety, had to be fixed.
Hence, Exhibit B provides that said liability will expire one (1) year after the land shall have been
registered in the name of the Bureau of Hospitals," which would "commence registration
proceedings within one (1) year" from said date. This was a , not pto appellant's
liability.
In any event, the land in dispute was claimed by Silverio Salva in land registration (Special
Proceeding) Case No. 149 of the Court of First Instance of Camarines Sur, instituted on May 6, 1948.
In an opposition, filed on May 14, 1949 (or within the period of one (1) year fixed in Exhibit B), the
Government claimed said land as its own. As correctly stated in the decision appealed from, =

_

p =Hence,
the provision in Exhibit B about the commencement of l and registration proceedings within one (1)
year from January 4, 1949, has been substantially complied with.
It is, urged, however, that a decision in an action to quiet title, such as case No. 2172, was not the
one intended, contemplated and assumed in Exhibit B. This would be correct, if appellant referred
to the event that would fix the of its liability, not

or the pp

There is nothing in Exhibit B which may be construed as barring the plaintiff from vindicating its
rights, , by of the means authorized by law. As already adverted to, this was a right
plaintiff had as vendee, by operation of law, before Exhibit B was executed. This bond did not limit,
qualify or impose restrictions upon such right. It merely gave plaintiff an
protection,
though limited in point of only.
Appellant says that the filing of case No. 2172 was unjustified and increased its risks. This pretense
is based upon two premises, both of which are absolutely false, namely: (1) that the filing of said
case is violative of Exhibit B, as if the same prohibited it, either expressly or by implication; and (2)
that defendant could be required by, plaintiff to pay more than once for the same property, that is
to say, each time said plaintiff lost in the several cases affecting the land in question. Suffice it to
recall, as regards the last premise that Exhibit B limits appellant's liability to a maximum rate of
P100 per hectare, and that the decision in case No. 2172, affected only the 55 hectares claimed by
Roco, not the whole parcel of 423.5790 hectares purchased by plaintiff from Cesareo Fabricante. It
is true that plaintiff may still hold appellant liable in case of eviction as regards the rest of about
368.5790 hectares, but this is property for which liability is exacted in the case at bar.
Needless to say, if case No. 2172 was not contemplated in the bond Exhibit B, as defendant
maintains, it follows that /

p . In other words, the same was not file "out of time."
Not a single legal provision has been invoked in support of the second assignment of error.
Defendant's citations from American Jurisprudence, concerning the effect, upon the liability of a
surety, of any act of the creditor which, injures the surety, increases his risks, or exposes him to
greater liability constitute good law, which is, however, inapplicable to the case at bar, for the
institution of case No. 2172 has not injured the defendant or increased its risks or exposed it to
greater liability.
The third assignment of error is clearly devoid of merit for, by explicit provision of law (Article
1549 of the Civil Code), "the vendee need not appeal from the decision" adjudicating the subject
matter of the sale to a third party, "in order that the vendor may become liable for eviction."
Appellant insists that plaintiff could have pleaded estoppel against Roco it appearing from the
decision rendered in case No. 2172 that Roco did not oppose the entry into the land in question of
the representative of the Government. But, this event took place
_ , so
that it could not have influenced its decision to buy the land, and, hence, could not possibly place
Roco in estoppel, as regards the title to said land.
The fifth assignment of error, is a mere consequence of those already disposed of, and, accordingly,
it needs no further comment.
Wherefore, the decision appealed from is hereby affirmed, with costs against defendant and
appellant, Alto Surety and Insurance Co., Inc. It is so ordered.
! & $ c &

)c ! & ) . p
¢
/!! concur.

Ô
Manila
THIRD DIVISION

./ ../
Î&** Ô&petitioner,

vs.
&ÔÔ ÔÔ,&*)# &
' ()#&
&(8respondents.
(J.:
Is the seller's failure to eject the lessees from a lot that is the subject of a contract of sale with
assumption of mortgage a ground (1) for rescission of such contract and (2) for a return by the
mortgagee of the amortization payments made by the buyer who assumed such mortgage?
Petitioner posits an affirmative answer to such question in this petition for review on p of
the March 27, 1995 Decision of the Court of Appeals, Eighth Division, in CA-G.R. CV Case No. 32298
upholding the validity of the contract of sale with assumption of mortgage and absolving the
mortgagee from the liability of returning the mortgage payments already made.
@ ¢p
Petitioner Power Commercial & Industrial Development Corporation, an industrial asbestos

manufacturer, needed a bigger office space and warehouse for its products. For this purpose, on
January 31, 1979, it entered into a contract of sale with the spouses Reynaldo and Angelita R.
Quiambao, herein private respondents. The contract involved a 612-sq. m. parcel of land covered by
Transfer Certificate of Title No. S-6686 located at the corner of Bagtican and St. Paul Streets, San
Antonio Village, Makati City. The parties agreed that petitioner would pay private respondents
P108,000.00 as down payment, and the balance of P295,000.00 upon the execution of the deed of
transfer of the title over the property. Further, petitioner assumed, as part of the purchase price,
the existing mortgage on the land. In full satisfaction thereof, he paid P79,145.77 to Respondent
Philippine National Bank ("PNB" for brevity).
On June 1, 1979, respondent spouses mortgaged again said land to PNB to guarantee a loan of
P145,000.00, P80,000.00 of which was paid to respondent spouses. Petitioner agreed to assume
payment of the loan.
On June 26, 1979, the parties executed a Deed of Absolute Sale With Assumption of Mortgage which
contained the following terms and conditions:
That for and in consideration of the sum of Two Hundred Ninety-Five Thousand
Pesos (P295,000.00) Philippine Currency, to us in hand paid in cash, and which we
hereby acknowledge to be payment in full and received to our entire satisfaction, by
POWER COMMERCIAL AND INDUSTRIAL DEVELOPMENT CORPORATION, a 100%
Filipino Corporation, organized and existing under and by virtue of Philippine Laws
with offices located at 252-C Vito Cruz Extension, we hereby by these presents SELL,
TRANSFER and CONVEY by way of absolute sale the above described property with
all the improvements existing thereon unto the said Power Commercial and
Industrial Development Corporation, its successors and assigns, free from all liens
and encumbrances.
We hereby certify that the aforesaid property is not subject to nor covered by the
provisions of the Land Reform Code Ȅ the same having no agricultural lessee
and/or tenant.
We hereby also warrant that we are the lawful and absolute owners of the above
described property, free from any lien and/or encumbrance, and we hereby agree
and warrant to defend its title and peaceful possession thereof in favor of the said
Power Commercial and Industrial Development Corporation, its successors and
assigns, against any claims whatsoever of any and all third persons; subject,
however, to the provisions hereunder provided to wit:
That the above described property is mortgaged to the Philippine National Bank,
Cubao, Branch, Quezon City for the amount of one hundred forty -five thousand
pesos, Philippine, evidenced by document No. 163, found on page No. 34 of Book No.
XV, Series of 1979 of Notary Public Herita
L. Altamirano registered with the Register of Deeds of Pasig (Makati), Rizal . . . ;
That the said Power Commercial and Industrial Development Corporation assumes
to pay in full the entire amount of the said mortgage above described plus interest
and bank charges, to the said mortgagee bank, thus holding the herein vendor free
from all claims by the said bank;
That both parties herein agree to seek and secure the agreement and approval of the
said Philippine National Bank to the herein sale of this property, hereby agreeing to
abide by any and all requirements of the said bank, agreeing that failure to do so
shall give to the bank first lieu (p) over the herein described property.
On the same date, Mrs. C.D. Constantino, then General Manager of petitioner-corporation, submitted
to PNB said deed with a formal application for assumption of mortgage .
On February 15, 1980, PNB informed respondent spouses that, for petitioner's failure to submit the
papers necessary for approval pursuant to the former's letter dated January 15, 1980, the
application for assumption of mortgage was considered withdrawn; that the outstanding balance of
P145,000.00 was deemed fully due and demandable; and that said loan w as to be paid in full within
fifteen (15) days from notice.
Petitioner paid PNB P41,880.45 on June 24, 1980 and P20,283.14 on December 23, 1980, payments
which were to be applied to the outstanding loan. On December 23, 1980, PNB received a letter
from petitioner which reads:
With regard to the presence of the people who are currently in physical occupancy
of the (l)ot . . . it is our desire as buyers and new owners of this lot to make use of
this lot for our own purpose, which is why it is our desire and intention that all the
people who are currently physically present and in occupation of said lot should be
removed immediately.
For this purpose we respectfully request that . . . our assumption of mortgage be

given favorable consideration, and that the mortgage and title be transferred to our
name so that we may undertake the necessary procedures to make use of this lot
ourselves.
It was our understanding that this lot was free and clear of problems of this nature,
and that the previous owner would be responsible for the removal of the people
who were there. Inasmuch as the previous owner has not been able to keep his
commitment, it will be necessary for us to take legal possession of this lot inorder
(p) to take physical possession.
On February 19, 1982, PNB sent petitioner a letter as follows:/
(T)his refers to the loan granted to Mr. Reynaldo Quiambao which was assumed by
you on June 4, 1979 for P101,500.00. It was last renewed on December 24, 1980 to
mature on June 4, 1981.
A review of our records show that it has been past due from last maturity with
interest arrearages amounting to P25,826.08 as of February 19, 1982. The last
payment received by us was on December 24, 1980 for P20,283. 14. In order to
place your account in current form, we request you to remit payments to cover
interest, charges, and at least part of the principal.
On March 17, 1982, petitioner filed Civil Case No. 45217 against respondent spouses for rescission
and damages before the Regional Trial Court of Pasig, Branch 159. Then, in its reply to PNB's letter
of February 19, 1982, petitioner demanded the return of the payments it made on the ground that
its assumption of mortgage was never approved. On May 31, 1983, while this case was pending,
the mortgage was foreclosed. The property was subsequently bought by PNB during the public
auction. Thus, an amended complaint was filed impleading PNB as party defendant.
On July 12, 1990, the trial court . ruled that the failure of respondent spouses to deliver actual
possession to petitioner entitled the latter to rescind the sale, and in view of such failure and of the
denial of the latter's assumption of mortgage, PNB was obliged to return the payments made by the
latter. The dispositive portion of said decision states:
IN VIEW OF ALL THE FOREGOING, the Court hereby renders judgment in favor of
plaintiff and against defendants:
(1) Declaring the rescission of the Deed of Sale with Assumption of Mortgage
executed between plaintiff and defendants Spouses Quiambao, dated June 26, 1979 ;
(2) Ordering defendants Spouses Quiambao to return to plaintiff the amount of

P187,144.77 (P108,000.00 plus P79,145.77) with legal interest of 12%
from date of filing of herein complaint, that is, March 17, 1982 until the same is fully
paid;
(3) Ordering defendant PNB to return to plaintiff the amount of P62,163.59

(P41,880.45 and P20,283.14) with 12% interest thereon from date of herein
judgment until the same is fully paid.
No award of other damages and attorney's fees, the same not being warranted
under the facts and circumstances of the case.
The counterclaim of both defendants spouses Quiambao and PNB are dismissed for
lack of merit.
SO ORDERED.
On appeal by respondent-spouses and PNB, Respondent Court of Appeals reversed the trial court.
In the assailed Decision, it held that the deed of sale between respondent spouses and petitioner did
not obligate the former to eject the lessees from the land in question as a condition of the sale, nor
was the occupation thereof by said lessees a violation of the warranty against eviction. Hence, there
was no substantial breach to justify the rescission of said contract or the return of the payments
made. The dispositive portion of said Decision reads:
WHEREFORE, the Decision appealed from is hereby REVERSED and the complaint
filed by Power Commercial and Industrial Development Corporation against the
spouses Reynaldo and Angelita Quiambao and the Philippine National Bank is
DISMISSED. No costs.
Hence, the recourse to this Court.

Petitioner contends that: (1) there was a substantial breach of the contract between the parties
warranting rescission; and (2) there was a "mistake in payment" made by petitioner, obligating
PNB to return such payments. In its Memorandum, it specifically assigns the following errors of law
on the part of Respondent Court:
A. Respondent Court of Appeals gravely erred in failing to consider in its decision

that a breach of implied warranty under Article 1547 in relation to Article 1545 of
the Civil Code applies in the case-at-bar.
B. Respondent Court of Appeals gravely erred in failing to consider in its decision

that a mistake in payment giving rise to a situation where the principle of

applies is obtaining in the case-at-bar.
@ ,c

The petition is devoid of merit. It fails to appreciate the difference between a condition and a
warranty and the consequences of such distinction.
p p
The alleged "failure" of respondent spouses to eject the lessees from the lot in question and to
deliver actual and physical possession thereof cannot be considered a substantial breach of a
condition for two reasons: first, such "failure" was not stipulated as a condition Ȅ whether
resolutory or suspensive Ȅ in the contract; and second, its effects and consequences were not
specified either.
The provision adverted to by petitioner does not impose a condition or an obligation to eject the
lessees from the lot. The deed of sale provides in part:
We hereby also warrant that we are the lawful and absolute owners of the above
described property, free from any lien and/or encumbrance, and we hereby agree
and warrant to defend its title and peaceful possession thereof in favor of the said
Power Commercial and Industrial Development Corporation, its successors and
assigns, against any claims whatsoever of any and all third persons; subject,
however, to the provisions hereunder provided to wit:
By his own admission, Anthony Powers, General Manager of petitioner-corporation, did not ask the
corporation's lawyers to stipulate in the contract that Respondent Reynaldo was guaranteeing the
ejectment of the occupants, because there was already a proviso in said deed of sale that the sellers
were guaranteeing the peaceful possession by the buyer of the land in question. Any obscurity in
a contract, if the above-quoted provision can be so described, must be construed against the party
who caused it. Petitioner itself caused the obscurity because it omitted this alleged condition
when its lawyer drafted said contract.
If the parties intended to impose on respondent spouses the obligation to eject the tenants from the
lot sold, it should have included in the contract a provision similar to that referred to in c _.

, / where the ejectment of the occupants of the lot sold by private respondent was
the operative act which set into motion the period of petitioner's compliance with his own
obligation, . ., to pay the balance of the purchase price. Failure to remove the squatters within the
stipulated period gave the other party the right to either refuse to proceed with the agreement or to
waive that condition of ejectment in consonance with Article 1545 of the Civil Code. In the case
cited, the contract specifically stipulated that the ejectment was a condition to be fulfilled;
otherwise, the obligation to pay the balance would not arise. This is not so in the case at bar.
Absent a stipulation therefor, we cannot say that the parties intended to make its nonfulfillment a
ground for rescission. If they did intend this, their contract should have expressly stipulated so. In
_. .., rescission was sought on the ground that the petitioners had failed to fulfill their
obligation "to remove and clear" the lot sold, the performance of which would have given rise to the
payment of the consideration by private respondent. Rescission was not allowed, however, because
the breach was not substantial and fundamental to the fulfillment by the petitioners of the
obligation to sell.
As stated, the provision adverted to in the contract pertains to the usual warranty against eviction,
and not to a condition that was not met.
The terms of the contract are so clear as to leave no room for any other interpretation. .
Furthermore, petitioner was well aware of the presence of the tenants at the time it entered into
the sales transaction. As testified to by Reynaldo, petitioner's counsel during the sales negotiation
even undertook the job of ejecting the squatters. In fact, petitioner actually filed suit to eject the
occupants. Finally, petitioner in its letter to PNB of December 23, 1980 admitted that it was the
"buyer(s) and new owner(s) of this lot."
. p_

pi
_
The Court disagrees with petitioner's allegation that the respondent spouses failed to deliver the lot
sold. Petitioner asserts that the legal fiction of symbolic delivery yielded to the truth that, at the
execution of the deed of sale, transfer of possession of said lot was impossible due to the presence
of occupants on the lot sold. We find this misleading.
Although most authorities consider transfer of ownership as the primary purpose of sale, delivery
remains an indispensable requisite as our law does not admit the doctrine of transfer of property
by mere consent. The Civil Code provides that delivery can either be (1) actual (Article 1497) or
(2) constructive (Articles 1498-1501). Symbolic delivery (Article 1498), as a species of constructive
delivery, effects the transfer of ownership through the execution of a public document. Its efficacy
can, however, be prevented if the vendor does not possess control over the thing sold, in which
case this legal fiction must yield to reality.
The key word is p

, not , of the land as petitioner would like us to believe. The Court
has consistently held that:
. . . (I)n order that this symbolic delivery may produce the effect of tradition, it is
necessary that the vendor shall have had such p
over the thing sold that . . . its
material delivery could have been made. It is not enough to confer upon the
purchaser the and the of possession. The thing sold must be placed
in his p
. When there is no impediment whatever to prevent the thing sold
passing into the tenancy of the purchaser by the sole will of the vendor, symbolic
delivery through the execution of a public instrument is sufficient. But if,
notwithstanding the execution of the instrument, the purchaser cannot have the
enjoyment and material tenancy of the thing and make use of it himself or through
another in his name, because such tenancy and enjoyment are opposed by the
interposition of another will, then fiction yields to reality Ȅ the delivery has not
been effected.
Considering that the deed of sale between the parties did not stipulate or infer otherwise, delivery
was effected through the execution of said deed. The lot sold had been placed under the control of
petitioner; thus, the filing of the ejectment suit was subsequently done. It signified that its new
owner intended to obtain for itself and to terminate said occupants' actual possession thereof. Prior
physical delivery or possession is not legally required and the execution of the deed of sale is
deemed equivalent to delivery. This deed operates as a formal or symbolic delivery of the
property sold and authorizes the buyer to use the document as proof of ownership. Nothing more is
required.
c & p-._p
Obvious to us in the ambivalent stance of petitioner is its failure to establish any breach of the
warranty against eviction. Despite its protestation that its acquisition of the lot was to enable it to
set up a warehouse for its asbestos products and that failure to deliver actual possession thereof
defeated this purpose, still no breach of warranty against eviction can be appreciated because the
facts of the case do not show that the requisites for such breach have been satisfied. A breach of this
warranty requires the concurrence of the following circumstances:
(1) The purchaser has been deprived of the whole or part of the thing sold;
(2) This eviction is by a final judgment;
(3) The basis thereof is by virtue of a right prior to the sale made by the vendor; and
(4) The vendor has been summoned and made co-defendant in the suit for eviction at the instance
of the vendee.
In the absence of these requisites, a breach of the warranty against eviction under Article
1547 cannot be declared.
Petitioner argues in its memorandum that it has not yet ejected the occupants of said lot, and not
that it has been evicted therefrom. As correctly pointed out by Respondent Court, the presence of
lessees does not constitute an encumbrance of the land, nor does it deprive petitioner of its
control thereof.
We note, however, that petitioner's deprivation of ownership and control finally occurred when it
failed and/or discontinued paying the amortizations on the mortgage, causing the lot to be
foreclosed and sold at public auction. But this deprivation is due to petitioner's fault, and not to any
act attributable to the vendor-spouses.
Because petitioner failed to impugn its integrity, the contract is presumed, under the law, to be
valid and subsisting.
p $

Contrary to the contention of petitioner that a return of the payments it made to PNB is warranted
under Article 2154 of the Code,
does not apply in this case. This doctrine applies
where: (1) a payment is made when there exists no binding relation between the payor, who has no
duty to pay, and the person who received the payment, and (2) the payment is made through
mistake, and not through liberality or some other cause. /
In this case, petitioner was under obligation to pay the amortizations on the mortgage under the
contract of sale and the deed of real estate mortgage. Under the deed of sale (Exh. "2"), both
parties agreed to abide by any and all the requirements of PNB in connection with the real estate
mortgage. Petitioner was aware that the deed of mortgage (Exh. "C") made it solidarily and,
therefore, primarily . liable for the mortgage obligation:
(e) The Mortgagor shall neither lease the mortgaged property. . . nor sell or dispose
of the same in any manner, without the written consent of the Mortgagee. However,
if not withstanding this stipulation and during the existence of this mortgage, the
property herein mortgaged, or any portion thereof, is . . . sold, it shall be the
obligation of the Mortgagor to impose as a condition of the sale, alienation or
encumbrance that the vendee, or the party in whose favor the alienation or
encumbrance is to be made, should take the property subject to the obligation of
this mortgage in the same terms and condition under which it is constituted, it being
understood that the Mortgagor is not in any manner relieved of his obligation to the
Mortgagee under this mortgage by such sale, alienation or encumbrance; on the
contrary both the vendor and the vendee, or the party in whose favor the alienation
or encumbrance is made shall be jointly and severally liable for said mortgage
obligations. . . .
Therefore, it cannot be said that it did not have a duty to pay to PNB the amortization on the
mortgage.
Also, petitioner insists that its payment of the amortization was a mistake because PNB
disapproved its assumption of mortgage after it failed to submit the necessary papers for the
approval of such assumption.
But even if petitioner was a third party in regard to the mortgage of the land purchased, the
payment of the loan by petitioner was a condition clearly imposed by the contract of sale. This fact
alone disproves petitioner's insistence that there was a "mistake" in payment. On the contrary, such
payments were necessary to protect its interest as a "the buyer(s) and new owner(s) of the lot."
The quasi-contract of
is one of the concrete manifestations of the ancient principle
that no one shall enrich himself unjustly at the expense of another. But as shown earlier, the
payment of the mortgage was an obligation petitioner assumed under the contract of sale. There is
no unjust enrichment where the transaction, as in this case, is , value for value.
All told, respondent Court did not commit any reversible error which would warrant the reversal of
the assailed Decision.
WHEREFORE, the petition is hereby DENIED, and the assailed Decision is AFFIRMED.
SO ORDERED.
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(J.:
complaint must contain a concise statement of the ultimate facts constituting the plaintiffǯs
cause of action. To determine whether a cause of action is stated, the test is as follows:
admitting the truth of the facts alleged, can the court render a
A
_____________________
** On medical leave.
valid judgment in accordance with the prayer? If the answer is ǲno,ǳ the complaint does not state a
cause of action and should be dismissed forthwith. If ǲyes,ǳ then it does and must be given due
course.

3)!
Before us is a Petition for Review[1] under Rule 45 of the Rules of Court, assailing the June
5, 2002 Decision[2] and the August 8, 2002 Resolution[3] of the Court of Appeals (CA) in CA-GR CV
No. 61229. The dispositive portion of the challenged Decision reads as follows:
ǲWHEREFORE, the instant appeal is GRANTED. The Order dated May 27, 1998 of
the Regional Trial Court of Legazpi City, Branch 9, is hereby REVERSED and the case is
remanded to the court for the appropriate further proceedings.ǳ[4]
The assailed Resolution denied petitionerǯs Motion for Reconsideration.
3"2#"!
The CA narrated the antecedents of the case as follows:
ǲThe subject of this case involves a motor vehicle, particularly described as:
MAKE: 1984 Isuzu JCR 6-Wheeler
PLATE NUMBER: PEL 685
MOTOR NO.: 6BD1-371305
SERIAL NO.: JCR500BOF-21184

ǲThe vehicle was originally owned by Goodyear Philippines, Inc. ([Goodyear]) which it
purchased from Industrial and Transport Equipment, Inc. in 1983. It had since been in the
service of [Goodyear] until April 30, 1986 when it was hijacked. This hijacking was
reported to the Philippine National Police (PNP) which issued out an alert alarm on the said
vehicle as a stolen one. It was later on recovered also in 1986.
ǲThe vehicle was used by [Goodyear] until 1996, when it sold it to Anthony Sy on
September 12, 1996.
ǲSy, in turn, sold it to Jose L. Lee on January 29, 1997. But the latter on December 4,
1997, filed an action for rescission of contract with damages against Sy[,] because he could
not register the vehicle in his name due to the certification from the PNP Regional Traffic
Management Office in Legazpi City that it was a stolen vehicle and the alarm covering the
same was not lifted. Instead, the PNP in Legazpi City impounded the vehicle and charged
Lee criminally.
ǲUpon being informed by Sy of the denial of the registration of the vehicle in Leeǯs
name, [Goodyear] requested on July 10, 1997 the PNP to lift the stolen vehicle alarm status.
This notwithstanding, [Goodyear] was impleaded as third-party defendant in the third-
party complaint filed by Sy on January 9, 1998.
ǲA motion to dismiss was filed by [Goodyear] on March 24, 1998 on the twin grounds
that the third-party complaint failed to state a cause of action and even if it did, such cause
of action was already extinguished. An opposition thereto was interposed by Sy on April 17,
1998.
ǲThe Regional Trial Court [(RTC)] resolved to dismiss the third-party complaint on the
basis of the first proffered ground in its challenged Order dated May 27, 1998. It
ratiocinated:
ǮA perusal of the third party complaint does not

expressly show any act or omission committed by the third party
defendant which violates a right of the third party complainant. The
third party complaint failed to show that the vehicle in question
belongs to a person other than the third party defendant at the time
the said motor vehicle was sold by the third party defendant to the
third party plaintiff. On the contrary[,] the third party defendant has
not denied having sold to the third party plaintiff the said motor
vehicle which had been in its possession as owner from 1986 to
1996. The fact that the said motor vehicle was included by the PNP
in its alert status as stolen vehicle[,] resulted only following the
report by the third party defendant that it was hijacked in 1986. But
when the said motor vehicle was recovered, the third party
defendant informed the PNP about the said recovery and requested
the lifting of the alert status on it as stolen vehicle.
ǮIf the PNP has not removed the said vehicle from its
alert status as a stolen vehicle, [then] that does not make [Goodyear]
not the owner thereof. Hence, [Goodyear], the third party defendant,
is not guilty of any breach resulting from any flaw in the title over the
said vehicle. This is confirmed by the allegation of the third party
plaintiff as answering defendant in paragraph 6 of its Answer with
Counterclaim and Affirmative Defenses dated January 9, 1998,
hereunder quoted as follows:
ǲ6. Defendant specifically denies the

allegations contained in paragraph 9 of [p]laintiffǯs
complaint, the truth of the matter is that [d]efendant
help[ed] plaintiff in removing the impediments in the
registration and transfer of ownership and that
defendant ha[d] no knowledge of any flaw [in] the
title of Goodyear Philippines, Inc.ǳ
ǮUnder Rules 16, a motion to dismiss may be made on any

of the following grounds:
ǲg) That the pleading asserting the claim states

no cause of action.ǳ
ǮWHEREFORE, for failure of the third party complaint to state a

cause of action, the same is hereby ordered DISMISSED.ǯǳ[5]

50;="3"= )5!
In granting the appeal, the CA reasoned that the Third-Party Complaint had stated a cause of
action. ¢, petitioner did not make good its warranty in the Deed of Sale: to convey the vehicle to
Respondent Anthony Sy free from all liens, encumbrances and legal impediments. The reported
hijacking of the vehicle was a legal impediment that prevented its subsequent sale.
p, Respondent Sy had a right to protect and a warranty to enforce, while petitioner had
the corresponding obligation to honor that warranty. The latter caused the impairment of that
right, though, when the vehicle it had sold to him was refused registration, because of the non-
lifting of the alert status issued at its instance. That petitioner had to execute all documents
necessary to confer a perfect title to him before he could seek recourse to the courts was deemed a
ludicrous condition precedent, because it could easily refuse to fulfill that condition in order to
obviate the filing of a case against it.
Hence, this Petition.[6]

3!!!
Petitioner raises the following issues for the Courtǯs consideration:

ǲI.
Whether or not the Court of Appeals erred in reversing and setting aside the decision of the
Regional Trial Court, dismissing the complaint against petitioner for lack of a cause of
action.
ǲII.
Whether or not the Court of Appeals erred in failing to find that petitioner did not breach
any warranty in the absence of proof that at the time it sold the subject vehicle to Sy,
petitioner was not the owner thereof.
ǲIII.
Whether or not the Court of Appeals erred in failing to find that the cause of action, if ever it
existed, was already extinguished.ǳ[7]
The foregoing issues actually point to one main question: did the Third-Party Complaint state
a cause of action against petitioner?
3"J!50;
The Petition has merit.
)0!!:
Îh h r a Caus of Acion
Îas Sa d in h Third-Pary Coplain
A cause of action is a formal statement of the operative facts that give rise to a remedial
right.[8] The question of whether the complaint states a cause of action is determined by its
averments regarding the acts committed by the defendant.[9] Thus, it ǲmust contain a concise
statement of the ultimate or essential facts constituting the plaintiffǯs cause of action.ǳ[10] Failure
to make a
sufficient allegation of a cause of action in the complaint ǲwarrants its dismissal.ǳ[11]
El ns of a
Caus of Acion
A cause of action, which is an act or omission by which a party violates the right of
another,[12] has these elements:
ǲ1) the legal right of the plaintiff;

ǲ2) the correlative obligation of the defendant to respect that legal right; and
ǲ3) an act or omission of the defendant that violates such right.ǳ[13]
In determining whether an initiatory pleading states a cause of action, ǲthe test is as follows:
admitting the truth of the facts alleged, can the court render a valid judgment in accordance with
the prayer?ǳ[14] To be taken into account are only the material allegations in the complaint;
extraneous facts and circumstances or other matters

are not considered.[15] The court
may consider -- in addition to the complaint -- the appended annexes or documents, other pleadings
of the plaintiff, or admissions in the records.[16]
Ro Caus of Acion
Agains P iion r
In the present case, the third element is missing. The Third-Party Complaint filed by Sy is
inadequate, because it did not allege any act or omission that petitioner had committed in violation of
his right to the subject vehicle. The Complaint capitalized merely on the fact that the vehicle --
according to the records of the PNP, which was a stranger to the case -- was ǲa stolen vehicle.ǳ The
pleading did not contain ǲsufficient notice of the cause of actionǳ[17] against petitioner.
Without even going into the veracity of its material allegations, the Complaint is insufficient on
its face.[18] No connection was laid out between the ownerǯs sale of the vehicle and its impounding
by the PNP. That the police did not lift the alert status did not make petitioner less of an own er.
The Deed of Sale between petitioner and Respondent Sy was attached as Annex A[19] to the
Third-Party Complaint filed by the latter against the former. The Deed stated that petitioner was
the absolute owner of the subject vehicle. No contrary assertion was made in the Complaint.
Hence, the trial court correctly observed that the Complaint had failed to show that, at the time of
its sale to Respondent Sy, the vehicle belonged to a person other than petitioner. [20]
To reiterate, the Third-Party Complaint absolutely failed to state an act or omission of
petitioner that had proximately caused injury or prejudice to Sy. Indeed, based on that pleading
alone, the latterǯs claim for relief against petitioner does not appear to exist.
Îarrani s Pass d On
By h V ndor o h V nd
In a contract of sale, the vendor is bound to transfer the ownership of and to deliver the thing
that is the object of the sale.[21] Moreover, the implied warranties are as follows: , the vendor
has a right to sell the thing at the time that its ownership is to pass to the vendee, as a result of
which the latter shall from then on have and enjoy the legal and peaceful possession of the
thing;[22] and, p, the thing shall be free from any charge or encumbrance not declared or
known to the vendee.[23]
Upon the execution of the Deed of Sale, petitioner did transfer ownership of and deliver the vehicle to
Respondent Sy.[24] No other owner or possessor of the vehicle had been alleged, and the ownership and
possession rights of petitioner over it had never been contested. The Deed of Sale executed on September
12, 1996 showed that petitioner was the absolute owner. Therefore, at the time that ownership passed to Sy,
petitioner alone had the right to sell the vehicle.
In the same manner, when he sold the same truck to Jose L. Lee,[25] Respondent Sy was
exercising his right as absolute owner. Unfortunately, though, from the time Respondent Lee
attempted to register the truck in his name, he could not have or enjoy the legal and peaceful
possession of the vehicle, because it had been impounded by the PNP, which also opposed its
registration.
The impoundment of the vehicle and the failure to register it were clearly acts that were not
deliberately caused by petitioner, but that resulted solely from the failure of the PNP to lift the
latterǯs own alarm over the vehicle. Pursuant to Republic Act 6975,[26] these matters were purely
administrative and governmental in nature. Petitioner had no authority, much less power, over the
PNP. Hence, the former did not breach its obligation as a vendor to Respondent Sy; neither did it
violate his right for which he could maintain an action for the recovery of damages. Without this
crucial allegation of a breach or violation, no cause of action exists.[27]
A warranty is an affirmation of fact or any promise made by a vendor in relation to the thing
sold. As such, a warranty has a natural tendency to induce the vendee -- relying on that affirmation
or promise -- to purchase the thing.[28] The vendor impliedly warrants that that which is being
sold is free from any charge or encumbrance not declared or known to the vendee. The decisive
test is whether the vendor assumes to assert a fact of which the vendee is ignorant.[29]
Ro i n or Br ach
of Îarrany
In the present case, petitioner did not breach the implied warranty against hidden
encumbrances. The subject vehicle that had earlier been stolen by a third party was subsequently
recovered by the authorities and restored to petitioner, its rightful owner. Whether Sy had
knowledge of the loss and subsequent recovery, the fact remained that the vehicle continued to be
owned by petitioner, free from any charge or encumbrance whatsoever.
A lien is ǲa legal right or interest that a creditor has in anotherǯs property, lasting usually
until a debt or duty that it secures is satisfied.ǳ[30] An encumbrance is ǲa claim or liability that is
attached to property or some other right and that may lessen its value, such as a lien or
mortgage.ǳ[31] A legal impediment is a legal ǲhindrance or obstruction.ǳ[32]
The Third-Party Complaint did not allege that petitioner had a creditor with a le gal right to or
interest in the subject vehicle. There was no indication either of any debt that was secured by the
vehicle. In fact, there was not even any claim, liability or some other right attached to the vehicle
that would lessen its value. Its impoundment, as well as the refusal of its registration, was not the
hindrance or obstruction in the contemplation of law that the vendor warranted against. Neither of
those instances arose from any liability or obligation that could be satisfied by a legal claim or
charge on, or property right to -- other than an ownership interest in -- the subject vehicle.[33]
Ro Roic of Any
Br ach of Îarrany
that there was a breach of the implied warranty against hidden
encumbrances, notice of the breach was not given to petitioner within a reasonable time. Article
1586 of the Civil Code requires that notice be given after the breach, of which Sy ought to have
known. In his Third-Party Complaint against petitioner, there was no allegation at all that
respondent had given petitioner the requisite notice.[34]
More important, an action for damages for a breach of implied warranties must be brought
within /from the delivery of the thing sold.[35] The vehicle was understood to have been
delivered to Sy when it was placed in his control or possession.[36] Upon execution of the Deed of
Sale on September 12, 1996, control and possession of the vehicle was transferred to respondent.
That the vehicle had been delivered is bolstered by the fact that no contrary allegation was raised in
the Third-Party Complaint. Whether the period should be reckoned from the p
or from the
pp_ delivery through a public instrument, more than six months had lapsed before the
filing of the Third-Party Complaint.
Finally, the argument that there was a breach of the implied warranty against eviction does
not hold water, for there was never any final judgment based on either a right prior to the sale; or
an act that could be imputed[37] to petitioner and deprive Sy of ownership or possession of the
vehicle purchased.
WHEREFORE, the Petition is hereby GRANTED, and the assailed Decision and Resolution
are REVERSED. The May 27, 1998 Order of the Regional Trial Court is REINSTATED. No costs.
SO ORDERED.

(
Associate Justice

Î :
(On official leave) (On medical leave)
&Ô*
&- +

&Ô


Ô

(
Associate Justice

Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairmanǯs
,Ô

Acting Chief Justice
"025
Addiional Provisions on Îarrani s
Ȃ In addition to the Civil Code provisions on sale
with warranties, the following provisions shall govern the sale of consumer products with
warranty:
a) Terms of express warranty. Ȃ Any seller or manufacturer who gives an express warranty
shall:
1) set forth the terms of warranty in clear and readily understandable language and
clearly identify himself as the warrantor;
2) identify the party to whom the warranty is extended;
3) state the products or parts covered;
4) state what the warrantor will do in the event of a defect, malfunction of failure to
conform to the written warranty and at whose expense;
5) state what the consumer must do to avail of the rights which accrue to the
warranty; and
6) stipulate the period within which, after notice of defect, malfunction or failure to
conform to the warranty, the warrantor will perform any obligation under the
warranty.
b) Express warranty Ȃ operative from moment of sale. Ȃ All written warranties or
guarantees issued by a manufacturer, producer, or importer shall be operative from the
moment of sale.
1) Sales Report. Ȃ All sales made by distributors of products covered by this Article
shall be reported to the manufacturer, producer, or importer of the product sold
within thirty (30) days from date of purchase, unless otherwise agreed upon. The
report shall contain, among others, the date of purchase, model of the product
bought, its serial number, name and address of the buyer. The report made in
accordance with this provision shall be equivalent to a warranty registration with
the manufacturer, producer, or importer. Such registration is sufficient to hold the
manufacturer, producer, or importer liable, in appropriate cases, under its warranty.
2) Failure to make or send report. Ȃ Failure of the distributor to make the report or
send them the form required by the manufacturer, producer, or importer shall
relieve the latter of its liability under the warranty: Provided, however, That the
distributor who failed to comply with its obligation to send the sales reports shall be
personally liable under the warranty. For this purpose, the manufacturer shall be
obligated to make good the warranty at the expense of the distributor.
3) Retail. Ȃ The retailer shall be subsidiarily liable under the warranty in case of
failure of both the manufacturer and distributor to honor the warranty. In such case,
the retailer shall shoulder the expenses and costs necessary to honor the warranty.
Nothing therein shall prevent the retailer from proceeding against the distributor or
manufacturer.
4) Enforcement of warranty or guarantee. Ȃ The warranty rights can be enforced by

presentment of a claim. To this end, the purchaser needs only to present to the
immediate seller either the warranty card of the official receipt along with the
product to be serviced or returned to the immediate seller. No other documentary
requirement shall be demanded from the purchaser. If the immediate seller is the
manufacturer's factory or showroom, the warranty shall immediately be honored. If
the product was purchased from a distributor, the distributor shall likewise
immediately honor the warranty. In the case of a retailer other than the distributor,
the former shall take responsibility without cost to the buyer of presenting the
warranty claim to the distributor in the consumer's behalf.
5) Record of purchases. Ȃ Distributors and retailers covered by this Article shall

keep a record of all purchases covered by a warranty or guarantee for such period of
time corresponding to the lifetime of the product's respecti ve warranties or
guarantees.
6) Contrary stipulations Ȃ null and void. Ȃ All covenants, stipulations or agreements

contrary to the provisions of this Article shall be without legal effect.
c) Designation of warranties. Ȃ A written warranty shall clearly and conspicuously designate

such warranty as:
1) "Full warranty" if the written warranty meets the minimum requirements set
forth in paragraph (d); or
2) "Limited warranty" if the written warranty does not meet such minimum
requirements.
d) Minimum standards for warranties. Ȃ For the warrantor of a consumer product to meet
the minimum standards for warranty, he shall:
1) remedy such consumer product within a reasonable time and without charge in
case of a defect, malfunction or failure to conform to such written warranty;
2) permit the consumer to elect whether to ask for a refund or replacement without
charge of such product or part, as the case may be, where after reasonable number
of attempts to remedy the defect or malfunction, the product continues to hav e the
defect or to malfunction.
The warrantor will not be required to perform the above duties if he can show that the
defect, malfunction or failure to conform to a written warranty was caused by damage due
to unreasonable use thereof.
e) Duration of warranty. Ȃ The seller and the consumer may stipulate the period within
which the express warranty shall be enforceable. If the implied warranty on
merchantability accompanies an express warranty, both will be of equal duration.
Any other implied warranty shall endure not less than sixty (60) days nor more than one
(1) year following the sale of new consumer products.
f) Breach of warranties. Ȃ 1) In case of breach of express warranty, the consumer may elect
to have the goods repaired or its purchase price refunded by the warrantor. In case the
repair of the product in whole or in part is elected, the warranty work must be made to
conform to the express warranty within thirty (30) days by either the warrantor or his
representative. The thirty-day period, however, may be extended by conditions which are
beyond the control of the warrantor or his representative. In case the refund of the
purchase price is elected, the amount directly attributable to the use of the consumer prior
to the discovery of the non-conformity shall be deducted.
2) In case of breach of implied warranty, the consumer may retain in the goods and
recover damages, or reject the goods, cancel and contract and recover from the
seller so much of the purchase price as has been paid, including damages.
?0!0"!=***Ô

Î
&(&,(Ô*(&*
Î,


Ô
Manila
SECOND DIVISION

.2"$
1*Ô petitioner,
vs.
&Ô)#Ô ÔÔ*
&Ô respondents.
DECISION
&&Ô
J.:
For review on certiorari is the Decision1 of the Court of Appeals in CA-G.R. CV No. 59615 modifying,
on appeal, the Joint Decision 2 of the Regional Trial Court of Malolos, Bulacan, Branch 9, in Civil Case
No. 1026-M-933 for sum of money and damages with prayer for issuance of writ of preliminary
attachment, and Civil Case No. 49-M-944 for damages. The trial court dismissed the complaint of the
respondents, ordering them to pay the petitioner the unpaid value of the assorted animal feeds
delivered to the former by the latter, with legal interest thereon from the filing of the complaint,
including attorneyǯs fees.
3)2")5"2#"!
On April 5, 1993, the Spouses Efren and Maura Evangelista, the respondents herein, started to
directly procure various kinds of animal feeds from petitioner Nutrimix Feeds Corporation. The
petitioner gave the respondents a credit period of thirty to forty-five days to postdate checks to be
issued in payment for the delivery of the feeds. The accommodation was made apparently because
of the company presidentǯs close friendship with Eugenio Evangelista, the brother of respondent
Efren Evangelista. The various animal feeds were paid and covered by checks with due dates from
July 1993 to September 1993. Initially, the respondents were good paying customers. In some
instances, however, they failed to issue checks despite the deliveries of animal feeds which were
appropriately covered by sales invoices. Consequently, the
Ô)5!702
*)" <"
<$
21334 June 23, 1993 P 7,260.00
21420 June 26, 1993 6,990.00
21437 June 28, 1993 41,510.00
21722 July 12, 1993 45,185.00
22048 July 26, 1993 44,540.00

22054 July 27, 1993 45,246.00
22186 August 2, 1993 84,900.00
")5: P275,631.00
===========
respondents incurred an aggregate unsettled account with the petitioner in the amount of
P766,151.00. The breakdown of the unpaid obligation is as follows:
()E 32E<$ **)" <"
United Coconut Planters Bank BTS052084 July 30, 1993 P 47,760.00

-do- BTS052087 July 30, 1993 131,340.00
-do- BTS052091 July 30, 1993 59,700.00
-do- BTS062721 August 4, 1993 47,860.00

-do- BTS062720 August 5, 1993 43,780.00
-do- BTS062774 August 6, 1993 15,000.00
-do- BTS062748 September 11, 1993 47,180.00
-do- BTS062763 September 11, 1993 48,440.00
-do- BTS062766 September 18, 1993 49,460.00
")5: P490,520.00
==========
When the above-mentioned checks were deposited at the petitionerǯs depository bank, the same
were, consequently, dishonored because respondent Maura Evangelista had already closed her
account. The petitioner made several demands for the respondents to settle their unpaid obligation,
but the latter failed and refused to pay their remaining balance with the petitioner.
On December 15, 1993, the petitioner filed with the Regional Trial Court of Malolos, Bulacan, a
complaint, docketed as Civil Case No. 1026-M-93, against the respondents for sum of money and
damages with a prayer for issuance of writ of preliminary attachment. In their answer with
counterclaim, the respondents admitted their unpaid obligation but impugned their liability to the
petitioner. They asserted that the nine checks issued by respondent Maura Evangelista were made
to guarantee the payment of the purchases, which was previously determined to be procured from
the expected proceeds in the sale of their broilers and hogs. They contended that inasmuch as the
sudden and massive death of their animals was caused by the contaminated products of the
petitioner, the nonpayment of their obligation was based on a just and legal ground.
On January 19, 1994, the respondents also lodged a complaint for damages against the petitioner,
docketed as Civil Case No. 49-M-94, for the untimely and unforeseen death of their animals
supposedly effected by the adulterated animal feeds the petitioner sold to them. Within the period
to file an answer, the petitioner moved to dismiss the respondentsǯ complaint on the ground of litis
pendentia. The trial court denied the same in a Resolution 5 dated April 26, 1994, and ordered the
consolidation of the case with Civil Case No. 1026-M-93. On May 13, 1994, the petitioner filed its
Answer with Counterclaim, alleging that the death of the respondentsǯ animals was due to the
widespread pestilence in their farm. The petitioner, likewise, maintained that it received
information that the respondents were in an unstable financial condition and even sold their
animals to settle their obligations from other enraged and insistent creditors. It, moreover,
theorized that it was the respondents who mixed poison to its feeds to make it appear that the feeds
were contaminated.
A joint trial thereafter ensued.
During the hearing, the petitioner presented Rufino Arenas, Nutrimix Assistant Manager, as its lone
witness. He testified that on the first week of August 1993, Nutrimix President Efren Bartolome met
the respondents to discuss the possible settlement of their unpaid account. The said respondents
still pleaded to the petitioner to continue to supply them with animal feeds because their livestock
were supposedly suffering from a disease.6
For her part, respondent Maura Evangelista testified that as direct buyers of animal feeds from the
petitioner, Mr. Bartolome, the company president, gave them a discount of P12.00 per bag and a
credit term of forty-five to seventy-five days.7 For the operation of the respondentsǯ poultry and
piggery farm, the assorted animal feeds sold by the petitioner were delivered in their residence and
stored in an adjacent bodega made of concrete wall and galvanized iron sheet roofing with
monolithic flooring. 8
It appears that in the morning of July 26, 1993, three various kinds of animal feeds, numbering 130
bags, were delivered to the residence of the respondents in Sta. Rosa, Marilao, Bulacan. The
deliveries came at about 10:00 a.m. and were fed to the animals at approximately 1:30 p.m. at the
respondentsǯ farm in Balasing, Sta. Maria, Bulacan. At about 8:30 p.m., respondent Maura
Evangelista received a radio message from a worker in her farm, warning her that the chickens
were dying at rapid intervals. When the respondents arrived at their farm, they witnessed the death
of 18,000 broilers, averaging 1.7 kilos in weight, approximately forty-one to forty-five days old. The
broilers then had a prevailing market price of P46.00 per kilo.9
On July 27, 1993, the respondents received another delivery of 160 bags of animal feeds from the
petitioner, some of which were distributed to the contract growers of the respondents. At that time,
respondent Maura Evangelista requested the representative of the petitioner to notify Mr.
Bartolome of the fact that their broilers died after having been fed with the animal feeds delivered
by the petitioner the previous day. She, likewise, asked that a technician or veterinarian be sent to
oversee the untoward occurrence. Nevertheless, the various feeds delivered on that day were still
fed to the animals. On July 27, 1993, the witness recounted that all of the chickens and hogs died. 10
Efren Evangelista suffered from a heart attack and was hospitalized as a consequence of the
massive death of their animals in the farm. On August 2, 1993, another set of animal feeds were
delivered to the respondents, but the same were not returned as the latter were not yet cognizant
of the fact that the cause of the death of their animals was the polluted feeds of the petitioner. 11
When respondent Maura Evangelista eventually met with Mr. Bartolome on an undisclosed date,
she attributed the improbable incident to the animal feeds supplied by the petitioner, and asked Mr.
Bartolome for indemnity for the massive death of her livestock. Mr. Bartolome disavowed liability
thereon and, thereafter, filed a case against the respondents.12
After the meeting with Mr. Bartolome, respondent Maura Evangelista requested Dr. Rolando
Sanchez, a veterinarian, to conduct an inspection in the respondentsǯ poultry. On October 20, 1993,
the respondents took ample amounts remaining from the feeds sold by the petitioner and furnished
the same to various government agencies for laboratory examination.
Dr. Juliana G. Garcia, a doctor of veterinary medicine and the Supervising Agriculturist of the
Bureau of Animal Industry, testified that on October 20, 1993, sample feeds for chickens contained
in a pail were presented to her for examination by respondent Efren Evangelista and a certain
veterinarian.13 The Clinical Laboratory Report revealed that the feeds were negative of salmonella14
and that the very high aflatoxin level 15 found therein would not cause instantaneous death if taken
orally by birds.
Dr. Rodrigo Diaz, the veterinarian who accompanied Efren at the Bureau of Animal Industry,
testified that sometime in October 1993, Efren sought for his advice regarding the death of the
respondentsǯ chickens. He suggested that the remaining feeds from their warehouse be brought to a
laboratory for examination. The witness claimed that the feeds brought to the laboratory came
from one bag of sealed Nutrimix feeds which was covered with a sack.
Dr. Florencio Isagani S. Medina III, Chief Scientist Research Specialist of the Philippine Nuclear
Research Institute, informed the trial court that respondent Maura Evangelista and Dr. Garcia
brought sample feeds and four live and healthy chickens to him for laboratory examination. In his
Cytogenetic Analysis,16 Dr. Medina reported that he divided the chickens into two categories, which
he separately fed at 6:00 a.m. with the animal feeds of a different commercial brand and with the
sample feeds supposedly supplied by the petitioner. At noon of the same day, one of the chickens
which had been fed with the Nutrimix feeds died, and a second chicken died at 5:45 p.m. of the
same day. Samples of blood and bone marrow were taken for chromosome analysis, which showed
pulverized chromosomes both from bone marrow and blood chromosomes. On cross -examination,
the witness admitted that the feeds brought to him wer e merely placed in a small unmarked plastic
bag and that he had no way of ascertaining whether the feeds were indeed manufactured by the
petitioner.
Another witness for the respondents, Aida Viloria Magsipoc, Forensic Chemist III of the Forensic
Chemist Division of the National Bureau of Investigation, affirmed that she performed a chemical
analysis17 of the animal feeds, submitted to her by respondent Maura Evangelista and Dr. Garcia in a
sealed plastic bag, to determine the presence of poison in the said specimen. The witness verified
that the sample feeds yielded positive results to the tests for COUMATETRALYL Compound, 18 the
active component of RACUMIN, a brand name for a commercially known rat poison.19 According to
the witness, the presence of the compound in the chicken feeds would be fatal to internal organs of
the chickens, as it would give a delayed blood clotting effect and eventually lead to internal
hemorrhage, culminating in their inevitable death.
Paz Austria, the Chief of the Pesticide Analytical Section of the Bureau of Plants Industry, conducted
a laboratory examination to determine the presence of pesticide residue in the animal feeds
submitted by respondent Maura Evangelista and Dr. Garcia. The tests disclosed that no pesticide
residue was detected in the samples received20 but it was discovered that the animal feeds were
positive for Warfarin, a rodenticide (anticoagulant), which is the chemical family of Coumarin.21
After due consideration of the evidence presented, the trial court ruled in favor of the petitioner.
The dispositive portion of the decision reads:
WHEREFORE, in light of the evidence on record and the laws/jurisprudence applicable

thereon, judgment is hereby rendered:
1) in Civil Case No. 1026-M-93, ordering defendant spouses Efren and Maura
Evangelista to pay unto plaintiff Nutrimix Feeds Corporation the amount of
P766,151.00 representing the unpaid value of assorted animal feeds delivered by
the latter to and received by the former, with legal interest thereon from the filing of
the complaint on December 15, 1993 until the same shall have been paid in full, and
the amount of P50,000.00 as attorneyǯs fees. Costs against the aforenamed
defendants; and
2) dismissing the complaint as well as counterclaims in Civil Case No. 49-M-94 for
inadequacy of evidence to sustain the same. No pronouncement as to costs.
SO ORDERED.22
In finding for the petitioner, the trial court ratiocinated as follows:
On the strength of the foregoing disquisition, the Court cannot sustain the Evangelistasǯ
contention that Nutrimix is liable under Articles 1561 and 1566 of the Civil Code governing
"hidden defects" of commodities sold. As already explained, the Court is predisposed to
believe that the subject feeds were contaminated sometime between their storage at the
bodega of the Evangelistas and their consumption by the poultry and hogs fed therewith,
and that the contamination was perpetrated by unidentified or unidentifiable ill -meaning
mischief-maker(s) over whom Nutrimix had no control in whichever way.
All told, the Court finds and so holds that for inadequacy of proof to the contrary, Nutrimix
was not responsible at all for the contamination or poisoning of the feeds supplied by it to
the Evangelistas which precipitated the mass death of the latterǯs chickens and hogs. By no
means and under no circumstance, therefore, may Nutrimix be held liable for the sundry
damages prayed for by the Evangelistas in their complaint in Civil Case No. 49-M-94 and
answer in Civil Case No. 1026-M-93. In fine, Civil Case No. 49-M-94 deserves dismissal.
Parenthetically, vis-à-vis the fulminations of the Evangelistas in this specific regard, the
Court does not perceive any act or omission on the part of Nutrimix constitutive of "abuse of
rights" as would render said corporation liable for damages under Arts. 19 and 21 of the
Civil Code. The alleged "callous attitude and lack of concern of Nutrimix" have not been
established with more definitiveness.
As regards Civil Case No. 1026-M-93, on the other hand, the Court is perfectly convinced
that the deliveries of animal feeds by Nutrimix to the Evangelistas constituted a simple
contract of sale, albeit on a continuing basis and on terms or installment payments.23
Undaunted, the respondents sought a review of the trial courtǯs decision to the Court of Appeals
(CA), principally arguing that the trial court erred in holding that they failed to prove that their
broilers and hogs died as a result of consuming the petitionerǯs feeds.
On February 12, 2002, the CA modified the decision of the trial court. The fallo of the decision
reads:
WHEREFORE, premises considered, the appealed decision is hereby MODIFIED such that
the complaint in Civil Case No. 1026-M-93 is dismissed for lack of merit.
So ordered.24
In dismissing the complaint in Civil Case No. 1026-M-93, the CA ruled that the respondents were
not obligated to pay their outstanding obligation to the petitioner in view of its breach of warranty
against hidden defects. The CA gave much credence to the testimony of Dr. Rodrigo Diaz, who
attested that the sample feeds distributed to the various governmental agencies for laboratory
examination were taken from a sealed sack bearing the brand name Nutrimix. The CA further
argued that the declarations of Dr. Diaz were not effectively impugned during cross-examination,
nor was there any contrary evidence adduced to destroy his damning allegations.
On March 7, 2002, the petitioner filed with this Court the instant petition for review on the sole
ground that Ȃ
THE HONORABLE COURT OF APPEALS ERRED IN CONCLUDING THAT THE CLAIMS OF

HEREIN PETITIONER FOR COLLECTION OF SUM OF MONEY AGAINST PRIVATE
RESPONDENTS MUST BE DENIED BECAUSE OF HIDDEN DEFECTS.
3!""0"0
The petitioner resolutely avers that the testimony of Dr. Diaz can hardly be considered as
conclusive evidence of hidden defects that can be attributed to the petitioner. Parenthetically, the
petitioner asserts, assuming that the sample feeds were taken from a sealed sack bearing the brand
name Nutrimix, it cannot decisively be presumed that these were the same feeds brought to the
respondentsǯ farm and given to their chickens and hogs for consumption.
It is the contention of the respondents that the appellate court correctly ordered the dismissal of
the complaint in Civil Case No. 1026-M-93. They further add that there was sufficient basis for the
CA to hold the petitioner guilty of breach of warranty thereby releasing the respondents from
paying their outstanding obligation.
Oft repeated is the rule that the Supreme Court reviews only errors of law in petitions for review on
certiorari under Rule 45. However, this rule is not absolute. The Court may review the factual
findings of the CA should they be contrary to those of the trial court. Conformably, this Court may
review findings of facts when the judgment of the CA is premised on a misapprehension of facts.25
The threshold issue is whether or not there is sufficient evidence to hold the petitioner guilty of
breach of warranty due to hidden defects.
The petition is meritorious.
The provisions on warranty against hidden defects are found in Articles 1561 and 1566 of the New
Civil Code of the Philippines, which read as follows:
Art. 1561. The vendor shall be responsible for warranty against 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.
Art. 1566. The vendor is responsible to the vendee for any hidden faults or defects in the
thing sold, even though he was not aware thereof.
This provision shall not apply if the contrary has been stipulated, and the vendor was not aware of
the hidden faults or defects in the thing sold.
A hidden defect is one which is unknown or could not have been known to the vendee. 26 Under the
law, the requisites to recover on account of hidden defects are as follows:
(a) the defect must be hidden;
(b) the defect must exist at the time the sale was made;
(c) the defect must ordinarily have been excluded from the contract;
(d) the defect, must be important (renders thing UNFIT or considerably decreases
FITNESS);
(e) the action must be instituted within the st atute of limitations.27
In the sale of animal feeds, there is an implied warranty that it is reasonably fit and suitable to be
used for the purpose which both parties contemplated. 28 To be able to prove liability on the basis of
breach of implied warranty, three things must be established by the respondents. Th e first is that
they sustained injury because of the product; the second is that the injury occurred because the
product was defective or unreasonably unsafe; and finally, the defect existed when the product left
the hands of the petitioner.29 A manufacturer or seller of a product cannot be held liable for any
damage allegedly caused by the product in the absence of any proof that the product in question
was defective.30 The defect must be present upon the delivery or manufacture of the product; 31 or
when the product left the sellerǯs or manufacturerǯs control;32 or when the product was sold to the
purchaser;33 or the product must have reached the user or consumer without substantial change in
the condition it was sold. Tracing the defect to the petitioner requires some evidence that there was
no tampering with, or changing of the animal feeds. The nature of the animal feeds makes it
necessarily difficult for the respondents to prove that the defect was existing when the product left
the premises of the petitioner.
A review of the facts of the case would reveal that the petitioner delivered the animal feeds,
allegedly containing rat poison, on July 26, 1993; but it is astonishing that the respondents had the
animal feeds examined only on October 20, 1993, or barely three months after their broilers and
hogs had died. On cross-examination, respondent Maura Evangelista testified in this manner:
Atty. Cruz:
Q Madam Witness, you said in the last hearing that believing that the 250 bags of feeds
delivered to (sic) the Nutrimix Feeds Corporation on August 2, 1993 were poison (sic),
allegedly your husband Efren Evangelista burned the same with the chicken[s], is that right?
A Yes, Sir. Some, Sir.
Q And is it not a fact, Madam Witness, that you did not, as according to you, used (sic) any of
these deliveries made on August 2, 1993?
A We were able to feed (sic) some of those deliveries because we did not know yet during
that time that it is the cause of the death of our chicks (sic), Sir.
Q But according to you, the previous deliveries were not used by you because you believe
(sic) that they were poison (sic)?
A Which previous deliveries, Sir[?]
Q Those delivered on July 26 and 22 (sic), 1993?
A Those were fed to the chickens, Sir. This is the cause of the death of the chickens.
Q And you stated that this last delivery on August 2 were poison (sic) also and you did not
use them, is that right?
Atty. Roxas:
That is misleading.
Atty. Cruz:
She stated that.
Atty. Roxas:
She said some were fed because they did not know yet of the poisoning.
Court:
And when the chickens died, they stopped naturally feeding it to the chickens.
Atty. Cruz:
Q You mean to say, Madam Witness, that although you believe (sic) that the chickens were
allegedly poisoned, you used the same for feeding your animals?
A We did not know yet during that time that the feeds contained poison, only during that
time when we learned about the same after the analysis.
Q Therefore you have known only of the alleged poison in the Nutrimix Feeds only after you
have caused the analysis of the same?
A Yes, Sir.
Q When was that, Madam Witness?
A I cannot be sure about the exact time but it is within the months of October to November,
Sir.
Q So, before this analysis of about October and November, you were not aware that the
feeds of Nutrimix Feeds Corporation were, according to you, with poison?
A We did not know yet that it contained poison but we w ere sure that the feeds were the
cause of the death of our animals.34
We find it difficult to believe that the feeds delivered on July 26 and 27, 1993 and fed to the broilers
and hogs contained poison at the time they reached the respondents. A difference of approximately
three months enfeebles the respondentsǯ theory that the petitioner is guilty of breach of warranty
by virtue of hidden defects. In a span of three months, the feeds could have already been
contaminated by outside factors and subjected to many conditions unquestionably beyond the
control of the petitioner. In fact, Dr. Garcia, one of the witnesses for the respondents, testified that
the animal feeds submitted to her for laboratory examination contained very high level of aflatoxin,
possibly caused by mold (aspergillus flavus). 35 We agree with the contention of the petitioner that
there is no evidence on record to prove that the animal feeds taken to the various governmental
agencies for laboratory examination were the same animal feeds given to the respondentsǯ broilers
and hogs for their consumption. Moreover, Dr. Diaz even admitted that the feeds that were
submitted for analysis came from a sealed bag. There is simply no evidence to show that the feeds
given to the animals on July 26 and 27, 1993 were identical to those submitted to the expert
witnesses in October 1993.
It bears stressing, too, that the chickens brought to the Philippine Nuclear Research Institute for
laboratory tests were healthy animals, and were not the ones that were ostensibly poisoned. There
was even no attempt to have the dead fowls examined. Neither was there any analysis of the
stomach of the dead chickens to determine whether the petitionerǯs feeds really caused their
sudden death. Mere sickness and death of the chickens is not satisfactory evidence in itself to
establish a prima facie case of breach of warranty.36
Likewise, there was evidence tending to show that the respondents combined different kinds of
animal feeds and that the mixture was given to the animals. Respondent Maura Evangelista testified
that it was common practice among chicken and hog raisers to mix animal feeds. The testimonies of
respondent Maura Evangelista may be thus summarized:
Cross-Examination
Atty. Cruz:
Q Because, Madam Witness, you ordered chicken booster mash from Nutrimix Feeds
Corporation because in July 1993 you were taking care of many chickens, as a matter of fact,
majority of the chickens you were taking care [of] were chicks and not chickens which are
marketable?
A What I can remember was that I ordered chicken booster mash on that month of July
1993 because we have some chicks which have to be fed with chicken booster mash and I
now remember that on the particular month of July 1993 we ordered several bags of
chicken booster mash for the consumption also of our chicken in our other poultry and at
the same time they were also used to be mixed with the feeds that were given to the hogs.
Q You mean to say [that], as a practice, you are mixing chicken booster mash which is
specifically made for chick feeds you are feeding the same to the hogs, is that what you want
the Court to believe?
A Yes, Sir, because when you mix chicken booster mash in the feeds of hogs there is a better
result, Sir, in raising hogs.37
Re-Direct Examination
Atty. Roxas:
Q Now, you mentioned that shortly before July 26 and 27, 1993, various types of Nutrimix
feeds were delivered to you like chicks booster mash, broiler starter mash and hog finisher
or hog grower mash. What is the reason for simultaneous deliveries of various types of
feeds?
A Because we used to mix all those together in one feeding, Sir.
Q And what is the reason for mixing the chick booster mash with broiler starter mash?
A So that the chickens will get fat, Sir.
Re-Cross Examination
Atty. Cruz:
Q Madam Witness, is it not a fact that the mixing of these feeds by you is your own
concuction (sic) and without the advice of a veterinarian expert to do so?
A That is common practice among raisers to mix two feeds, Sir.
Q By yourself, Madam Witness, who advised you to do the mixing of these two types of feeds
for feeding your chickens?
A That is common practice of chicken raisers, Sir.38
Even more surprising is the fact that during the meeting with Nutrimix President Mr. Bartolome,
the respondents claimed that their animals were plagued by disease, and that they needed more
time to settle their obligations with the petitioner. It was only after a few months that the
respondents changed their justification for not paying their unsettled accounts, claiming an ew that
their animals were poisoned with the animal feeds supplied by the petitioner . The volte-face of the
respondents deserves scant consideration for having been conjured as a mere afterthought.
In essence, we hold that the respondents failed to prove that the petitioner is guilty of breach of
warranty due to hidden defects. It is, likewise, rudimentary that common law places upon the buyer
of the product the burden of proving that the seller of the product breached its warranty. 39 The
bevy of expert evidence adduced by the respondents is too shaky and utterly insufficient to prove
that the Nutrimix feeds caused the death of their animals. For these reasons, the expert testimonies
lack probative weight. The respondentsǯ case of breach of implied warranty was fundamentally
based upon the circumstantial evidence that the chickens and hogs sickened, stunted, and died after
eating Nutrimix feeds; but this was not enough to raise a reasonable supposition that the
unwholesome feeds were the proximate cause of the death with that degree of certainty and
probability required. 40 The rule is well-settled that if there be no evidence, or if evidence be so
slight as not reasonably to warrant inference of the fact in issue or furnish more than materials for a
mere conjecture, the court will not hesitate to strike down the evidence and rule in favor of the
other party.41 This rule is both fair and sound. Any other interpretation of the law would unloose
the courts to meander aimlessly in the arena of speculation.42
It must be stressed, however, that the remedy against violations of warranty against hidden defects
is either to withdraw from the contract (accion redhibitoria) or to demand a proportionate
reduction of the price (accion quanti minoris), with damages in either case.43 In any case, the
respondents have already admitted, both in their testimonies and pleadings submitted, that they
are indeed indebted to the petitioner for the unpaid animal feeds delivered to them. For this reason
alone, they should be held liable for their unsettled obligations to the petitioner.
Î in light of all the foregoing, the petition is *. The assailed Decision of the
Court of Appeals, dated February 12, 2002, is
Ô* and ÔÔ*. The Decision of the
Regional Trial Court of Malolos, Bulacan, Branch 9, dated January 12, 1998, is Ô*. No
costs.
Ô**
%$ @ and p%#!! concur.
*(,
34))"%0!"0< 50#$"A !!70="3 !4)!"
!2"35)=<"3$)E
&Ô** Ô


Ô
Manila
SECOND DIVISION

/. ))% ..
,
&Ôpetitioner,
vs.
*&& )#
*&Ôrespondents.
'
i
! ® & c #
0
c
# $
! ! _
&* J.:
dismissing the complaint filed by herein petitioner against the herein private respondent in the
respondent moved to dismiss on the ground o f improper venue, invoking therefor Sales Invoice No.
petitioner went to Iloilo City to inspect the two machines offered for sale and was informed that the
signed by petitioner with an addendum that payment had not yet been made but that he prom ised
end of the month. Although the agreed selling price was only P40,000.00, the amount on the
for said machine.
machine but he merely looked at it to see that it was there .The inspector's recommendation was

machine.
distributor bar and, on March 16, 1978, private respondent delivered this spare part to petitioner
for the price of the distributor bar, the latter asked petitioner to share the cost with him. Petitioner
It turned out that the said linotype machine was the same machine t hat witness Legaspina had

follows:
in Iloilo City the linotype machine aforementioned together with all accessories that
the legal rate counted from May 17, 1978 when this action was instituted, unti l fully
paid;
petition.

to the effect that unless goods are sold as to raise an implied warranty, as a general rule there is

purpose;
xxx

warranty on the condition of the machine if he had not intended to be bound by it. In fact, the
talk.
the same.
SO ORDERED.
$
p% @ A
!! pp
Distinction between sale by sample or description vs made to order. The MTC found that it was
made to order and that David complied with the requirements and specifications of Mendoza.

Ô
Manila
FIRST DIVISION

//2"$
Ô(
*+petitioner,
vs.
(*
*respondent.
DECISION
J.:
The Case
This is a petition for review1 of the Decision2 dated 10 October 2000 and the Resolution dated 20
March 2001 of the Court of Appeals in CA-G.R. SP No. 58087. The Court of Appeals dismissed
Teresita B. Mendozaǯs ("Mendoza") petition for review for being insufficient in form and substance
and denied her motion to reconsider the Decision.
3)2"!
This case3 arose from an action for collection of money with damages that Mendoza filed against
Beth David ("David") before the Metropolitan Trial Court of Quezon City ("MTC"), Branch 35.
In her complaint, Mendoza alleged that on 17 February 1997, she ordered three sets of furniture
from David worth P185,650 and paid an initial deposit of P40,650. Mendoza and David agreed on
the specifications of the dining set, sofa set and tea set including the material and quality. On 18
February 1997, Mendoza cancelled some of the furniture she ordered and David agreed to the
cancellation. On 12 April 1997, Mendoza paid an additional deposit of P40,000.
When David delivered the dining set to Mendoza on 17 April 1997, Mendoza rejected the set
because of inferior material and poor quality. Mendoza likewise rejected the sala set and the tea set
for the same reason. When Mendoza requested a refund of her total deposit of P80,650, David
refused. Mendoza then sent David a letter dated 27 May 1997 demanding the refund of her deposit
but David ignored the demand letter. 4 The parties failed to arrive at an amicable settlement. Thus,
Mendoza filed a complaint for collection of money with damages. 5
In her Answer, David admitted that she and Mendoza agreed on the material and quality of the
furniture Mendoza ordered since that was the normal practice for "made to order" furniture. David
stated that on 17 April 1997, she delivered some of the furniture which was received by Mendozaǯs
father. However, Mendoza could not pay the balance of the price and requested payment on
installment which David rejected. As a result of Mendozaǯs non-payment, David reclaimed the
furniture already delivered and informed Mendoza she could get the furniture upon payment of the
balance of P105,000. In the meantime, David stored the furniture in her warehouse. When David
received Mendozaǯs demand letter, she refused to comply with Mendozaǯs request for a refund of
the deposit since all the three sets of furniture Mendoza ordered were already finished and
delivered on the agreed date. David only retrieved the furniture due to non-payment of the
balance.6
On 2 August 1999, the MTC dismissed Mendozaǯs complaint for lack of merit. The MTC held that
David is not liable to return the deposit Mendoza paid. The MTC found there was already a
perfected contract of sale which imposes reciprocal obligations on the parties. Mendoza is obligated
to pay the balance of the purchase price while David is obligated to deliver the three sets of
furniture to Mendoza upon payment of the purchase price.
The MTC found no proof of breach of contract on Davidǯs part. Mendoza failed to present any
evidence that the furniture David delivered to her on 17 April 1997 was not in accordance with the
agreed specifications. Besides, the order receipt for the sofa set, tea set and dining set contained no
specifications on the required material or the quality of workmanship.
Mendoza appealed to the Regional Trial Court of Quezon City ("RTC"), Branch 105, which modified
the decision of the MTC. The dispositive portion of the RTCǯs decision reads:
WHEREFORE, in the light of the foregoing, the decision appealed from is affirmed with
MODIFICATION in that the plaintiff-appellant is ordered to pay to the defendant within sixty
(60) days from receipt of this decision the amount of P55,850.00, with legal interest from 17
April 1997 until fully paid; otherwise, the deposit of P80,650.00 will be deemed forfeited
and the defendant-appellee shall, thereafter, be authorized to dispose of the subject
furniture. Upon timely payment of said obligation by the plaintiff-appellant to the
defendant-appellee, the latter is ordered to deliver the subject furniture to the former. 7
The RTC agreed with the MTC that there was a perfected contract of sale. The RTC found that
Mendoza failed to present any proof to show that the furniture delivered was not in accordance
with the agreed specifications. Applying the doctrine of caveat emptor, the RTC held that Mendoza
should have specified in writing the details of her order. However, the RTC held that the remaining
balance for the furniture ordered was only P55,850 since the total purchase price was reduced to
P136,500 8 because of the cancelled orders.
Mendoza filed a petition for review with the Court of Appeals. On 10 October 2000, the C ourt of
Appeals dismissed the petition for being insufficient in form and substance. The Court of Appeals
held that failure to append the complaint, answer, position papers, memoranda and other evidence
is sufficient ground to dismiss the petition, citing Sections 2 and 3, Rule 42 of the 1997 Rul es of Civil
Procedure. Nevertheless, despite the absence of pleadings and other pertinent documents, the
Court of Appeals ruled that there is no basis for Mendozaǯs claim that the furniture sets did not
meet the agreed specifications. Relying merely on the decisions of the MTC and the RTC, the Court
of Appeals held that factual findings of the lower courts are entitled to great weight and should not
be disturbed except for cogent reasons.9
On 6 November 2000, Mendoza filed a motion for reconsideration which the Court of Appeals
denied. Hence, the instant petition.
3!!!
Mendoza raises the following issues:
1. Whether the Court of Appeals erred in dismissing the petition for review on the ground
that Mendoza failed to attach the required documents to the petition despite subsequent
compliance by Mendoza in her motion for reconsideration.
2. Whether the Court of Appeals erred in dismissing the petition despite the fact that the
transaction between the parties was one of sale by description or sample.
350;="3"
We find the petition partly meritorious. Mendoza substantially complied with the formal
requirements when she filed her motion for reconsideration with the Court of Appeals. However, to
avoid further delay, the Court will resolve the petition on the merits instead of remanding the case
to the Court of Appeals.
Compliance with the Formal Requirements
The Court of Appeals dismissed the case based on Sections 2 and 3, Rule 42 of the 1997 Rules of
Civil Procedure which read:
SEC. 2. Form and contents. Ȃ The petition shall be filed in seven (7) legible copies, with the
original copy intended for the court being indicated as such by the petitioner, and shall (a)
state the full names of the parties to the case, without impleading the lower courts or judges
thereof either as petitioners or respondents; (b) indicate the specific material dates
showing that it was filed on time; (c) set forth concisely a statement of the matters involved,
the issues raised, the specification of errors of fact or law, or both, allegedly committed by
the Regional Trial Court, and the reasons or arguments relied upon for the allowance of the
appeal; (d) be accompanied by clearly legible duplicate originals or true copies of the
judgments or final orders of both lower courts, certified correct by the clerk of court of the
Regional Trial Court, the requisite number of plain copies thereof and of the pleadings and
other material portions of the record as would support the allegations of the petition.
xxx
SEC. 3. Effect of failure to comply with requirements. Ȃ The failure of the petitioner to
comply with any of the foregoing requirements regarding the payment of the docket and
other lawful fees, the deposit for costs, proof of service of the petition, and the contents of
and the documents which should accompany the petition shall be sufficient ground for the
dismissal thereof. (Emphasis supplied)
However, Section 6, Rule 1 of the 1997 Rules of Civil Procedure also provides that rules shall be
liberally construed in order to promote their objective of securing a just, speedy and inexpensive
disposition of every action and proceeding. Indeed, rules of procedure should be used to promote,
not frustrate justice.10 This Court has ruled against the dismissal of appeals based solely on
technicalities in several cases, especially when the appellant had substantially complied with the
formal requirements. 11
In Donato v. Court of Appeals, 12 the Court of Appeals dismissed the petition on two grounds: (a) the
certificate of non-forum shopping was signed by petitionerǯs counsel and not by petitioner
himself;13 and (b) only a certified copy of the questioned decision was annexed to the petition
leaving out copies of the pleadings and other material portions of the record to support the
allegations of the petition. This Court reversed the Court of Appealsǯ dismissal of the case since in
petitionerǯs motion for reconsideration, he submitted a certificate of non-forum shopping signed by
him and attached copies of the pleadings and material portions of the records. This Court
considered the subsequent filing of the certification of non-forum shopping duly signed by
petitioner himself as substantial compliance which justifies relaxation of the rule. As regards the
failure to attach the necessary pleadings and material portions of the records, this Court held:
In like manner, the failure of the petitioner to comply with Section 3, paragraph b, Rule 6 of
the RIRCA, that is, to append to his petition copies of the pleadings and other material
portions of the records as would support the petition, does not justify the outright dismissal
of the petition. It must be emphasized that the RIRCA gives the appellate court a certain
leeway to require parties to submit additional documents as may be necessary in the
interest of substantial justice. Under Section 3, paragraph d of Rule 3 of the RIRCA, the CA
may require the parties to complete the annexes as the court deems necessary, and if the
petition is given due course, the CA may require the elevation of a complete record of the
case as provided for under Section 3(d)(5) of Rule 6 of the RIRCA. At any rate, petitioner
attached copies of the pleadings and other material portions of the records below with his
motion for reconsideration. In Jaro vs. Court of Appeals, the Court reiterated the doctrine
laid down in Cusi-Hernandez vs. Diaz and Piglas-Kamao vs. National Labor Relations
Commission that subsequent submission of the missing documents with the motion for
reconsideration amounts to substantial compliance which calls for the relaxation of the
rules of procedure. xxx (Emphasis supplied)
Similarly, in this case, although Mendoza failed to append the pleadings and pertinent documents in
her petition to the Court of Appeals, Mendoza rectified her error by filing a motion for
reconsideration and appending the pleadings and documents required by the Court of Appeals.
Mendoza appended copies of the following pleadings and documents in her motion for
reconsideration:
1. Complaint filed in the MTC (Annex A)
2. Davidǯs Answer (Annex B)
3. Pre-Trial Order of the MTC (Annex C)

4. Mendozaǯs Memorandum filed in the MTC (Annex D)
5. Davidǯs Memorandum filed in the MTC (Annex E)
6. Mendozaǯs Memorandum filed in the RTC (Annex F)
7. Davidǯs Comment to the Motion for Reconsideration of Mendoza (Annex G)
The Complaint that Mendoza appended also contained the following annexes: (a) the sales invoice
dated 17 February 1997 which indicated the total deposit for the furniture ordered; (b) the letter of
Mendoza to David dated 27 May 1997 demanding the return of the P80,650 deposit; and (c) the
certification to file action from the Office of the Barangay Captain of Barangay Pasong Tamo,
Quezon City.
Instead of denying the Motion for Reconsideration, the Court of Appeals should have ruled on the
merits of the case considering that Mendoza already submitted the pleadings and documents
required by the Court of Appeals. The rules of procedure are designed to ensure a fair, orderly and
expeditious disposition of cases. 14 As much as possible, appeals should not be dismissed on a mere
technicality in order to afford the litigants the maximum opportunity for the adjudication of their
cases on the merits. 15
R lianc on h Facual Findings of h ow r Cours
Likewise, the Court of Appeals should have refrained from hastily dismissing the petition through
the expediency of applying the doctrine that factual findings of the lower courts are entitled to great
weight. The doctrine is applicable where there is substantial evidence to support the findings of fact
by the lower court as borne by the records of the case.16 In this case, the Court of Appeals admitted
that without the pertinent documents and pleadings, it is deprived of a full opportunity to know all
the facts and issues involved in the case.17 The doctrine therefore is not applicable considering the
absence of the records of the case to determine whether substantial evidence supports the factual
findings of the lower court. Instead of relying on the doctrine, the Court of Appeals could have
required Mendoza to submit additional documents in accordance with Section 3 (d), Rule 3 of the
Revised Internal Rules of the Court of Appeals 18 so that it would have a basis for its ruling.
Furthermore, the Court of Appeals could order the Clerk of the RTC to elevate the original records
of the case for a complete adjudication of the case.19
Mad o Ord r or Sal by D scripion or Sapl
David alleges that the three sets of furniture were "made to order" in accordance with the usual
practice of furniture stores. On the other hand, Mendoza insists that the transaction was a sale by
sample or description which can be rescinded as provided under Article 1481 20 of the Civil Code.
There is a sale by sample when a small quantity is exhibited by the seller as a fair specimen of the
bulk, which is not present and there is no opportunity to inspect or examine the same. 21 To
constitute a sale by sample, it must appear that the parties treated the sample as the standard of
quality and that they contracted with reference to the sample with the understanding that the
product to be delivered would correspond with the sample. 22 In a contract of sale by sample, there
is an implied warranty that the goods shall be free from any defect which is not apparent on
reasonable examination of the sample and which would render the goods unmerchantable. 23
There is a sale of goods by description where "a seller sells things as being of a particular kind, the
buyer not knowing whether the sellerǯs representations are true or false, but relying on them as
true; or as otherwise stated, where the buyer has not seen the article sold and relies on the
description given to him by the seller, or has seen the goods, but the want of identity is not
apparent on inspection." 24 A sellerǯs description of the goods which is made part of the basis of the
transaction creates a warranty that the goods will conform to that description. 25 Where the goods
are bought by description from a seller who deals in the goods of that description, there i s an
implied warranty that the goods are of merchantable quality.26
Whether a transaction is a sale by sample, a sale by description or "made to order" is a question of

fact for the trial court to decide from the evidence presented. In this case, the MTC found that there
was a consummated "made to order" agreement between Mendoza and David.
The Court agrees with the MTC that the transaction in this case was a "made to order" agreement.
There is nothing in the records which would show that the intent of the parties was for a sale by
sample or description. Whether a sale is by sample or description depends upon the facts disclosing
the intention of the parties. Other than Mendozaǯs bare allegations that the transaction was a sale
by sample or description, Mendoza failed to produce evidence to substantiate her claim.
The sale of furniture in this case is not a sale by sample. The term sale by sample does not include
an agreement to manufacture goods to correspond with the pattern. 27 In this case, the three sets of
furniture were manufactured according to the specifications provided by the buyer. Mendoza did
not order the exact replica of the furniture displayed in Davidǯs shop but made her own
specifications on the measurement, material and quality of the furniture she ordered.
Neither is the transaction a sale by description. Mendoza did not rely on any description made by
David when she ordered the furniture. Mendoza inspected the furniture displayed in Davidǯs
furniture shop and made her own specifications on the three sets of furniture she ordered.
Br ach of Conrac Ro Prov n
It is undisputed that there was a perfected contract of sale of furniture between Mendoza and
David. The three sets of furniture were delivered or ready for delivery within the agreed period.
The issue for resolution is whether there was breach of contract on Davidǯs part. The Court finds
none.
Part of the exhibits David submitted to the MTC were pictures of the sets of furniture Mendoza
ordered. The MTC found the furniture to be strictly in accordance with the tenor of the contract
between Mendoza and David. The MTC and the RTC, noting the lack of written specifications on the
material and quality of the furniture ordered, held that Mendoza failed to present any proof to show
that the furniture was not in accordance with the agreed specifications. The records show that the
parties agreed that the furniture should be made of narra. Mendoza admitted that the furniture
delivered was made of narra but was of inferior quality. She also complained of deep nail marks and
rough surface at the back of the table and chairs. However, Mendoza failed to prove these
allegations.
In civil cases, the burden of proof28 rests on the party who asserts the affirmative of an issue based
on the pleadings or the nature of the case.29 In this case, the burden lies on Mendoza who must
prove her allegation that there was breach of contract. After reviewing the records of the case, the
Court finds that Mendoza failed to substantiate her claim of breach of contract. Mendoza failed to
present any evidence to overcome the presumption that the transaction was fair and regular.30
Î the Decision of the Court of Appeals dated 10 October 2000 and the Resolution
dated 20 March 2001 are **. Petitioner Teresita B. Mendoza is ordered to pay respondent
Beth David the amount of P55,850 with interest at 6% per annum from 17 April 1997 until finality
of this Decision and 12% per annum thereafter until full payment. Beth David is ordered to deliver
to Teresita B. Mendoza the three sets of furniture Mendoza ordered upon her payment of the
balance of the purchase price with interest.
Ô**
i_ ! ã" % and p!! concur.
Right of the buyer in cases of breach of warranty. Art. 1599 provides for remedies in case of breach
of warranty.

Ô
Manila
**
Ô

/*2<$
Ô Ô 9*

& !"#$%0"!!0#"
(0;3) petitioner,
vs.
&&&Ô!$!"0""#$%30!!7070;! !
&Ô1
respondent.
*Ô
Ô*
&- +J.:
Before us is a petition for review on p assailing the Decision2 dated November 29, 2000 and
Resolution 3 dated April 26, 2001, both issued by the Court of Appeals in CA-G.R. CV No. 40419,
entitled =¢
¢
_ p$ (i _
$

$ c
p
& =
In the second week of December 1988, Filemon Flores, respondent, purchased from Supercars
Management and Development Corporation, petitioner, an Isuzu Carter Crew Cab for P212,000.00
payable monthly with a down payment equivalent to 30% of the price or P63,600.00. The balance
was to be financed by the Rizal Commercial Banking Corporation (RCBC). The sale was coursed
through Pablito Marquez, petitioner's salesman.
Upon delivery of the vehicle on December 27, 1988, respondent paid petitioner the 30% down
payment, plus premium for the vehicle's comprehensive insurance policy amounting to P7,374.80.
The RCBC financed the balance of the purchase price. Its payment was secured by a chattel
mortgage of the same vehicle.
A day after the vehicle was delivered, respondent used it for his family's trip to Bauang, La Union.
While traversing the national highway in Tarlac, Tarlac, the fan belt of the vehicle snapped. Then its
brakes hardened after several stops and did not function properly; the heater plug did not also
function; the engine could not start; and the fuel consumption increased .4
Upon their return to Manila in the first week of January 1989, respondent complained to petitioner
about the defects of the vehicle. Marquez then had the vehicle repaired and returned it to
respondent that same day, assuring the latter that it was already in good condition.
But after driving the vehicle for a few days, the same defects resurfaced, prompting respondent to
send petitioner a letter dated January 30, 1989 rescinding the contract of sale and returning the
vehicle due to breach of warranty against hidden defects. A copy of the letter was furnished RCBC.
In response to respondent's letter, petitioner directed Marquez to have the vehicle fixed.
Thereafter, he returned the vehicle to respondent with the assurance that it has no more defects.
However, when respondent drove it for a few days, he found that the vehicle was still defective.
Hence, on February 7, 1989, respondent sent petitioner another letter restating that he is
rescinding the contract of sale, a copy of which was furnished RCBC. On February 9, 1989, he
returned the vehicle to petitioner. Later, Marquez and Mamerto Catley, petitioner's salesman, tried
to convince respondent to accept the vehicle as it had been completely repaired. But respondent
refused.
On March 1, 1989, respondent sent petitioner a letter demanding the refund of his down payment,
plus the premium he paid for the vehicle's insurance.
Petitioner failed to comply with petitioner's demand. Consequently, respondent stopped paying the
monthly amortization for the vehicle.
On March 21, 1989, RCBC sent respondent a letter demanding that he settle his past overdue
accounts for February 15 and March 15, 1989. In reply, respondent, through a letter dated March
31, 1989, informed RCBC that he had rescinded the contract of sale and had returned the vehicle to
petitioner. This prompted RCBC to file with the Office of the Clerk of Court and ./%*p Sheriff,
Regional Trial Court, Quezon City, a ./%0p
¢ p

$ .
On June 2, 1989, a Notice of Sheriff's Sale of the vehicle was set.
On June 1, 1989, respondent filed with the same Office a $ ;$ asking for the
postponement of the scheduled auction sale until such time that petitioner and/or RCBC shall have
reimbursed him of the amount he paid for the vehicle; and that should the auction sale be
conducted, the proceeds thereof equivalent to the amount he spent be withheld and turned over to
him.
The auction sale proceeded as scheduled. RCBC, being the highest bidder, purchased the vehicle.
Subsequently, RCBC sold the vehicle to a third party.
On November 3, 1989, respondent filed with the Regional Trial Court (RTC), Branch 150, Makati
City a complaint 5 for rescission of contract with damages against petitioner, Marquez, Catley and
RCBC, docketed as Civil Case No. 89-5566.
In their separate answers, petitioner, Marquez and Catley denied having committed any breach of
warranty against hidden defects, claiming that the vehicle had only "minor and inconsequential
defects" which "were promptly and satisfactorily repaired by petitioner Supercars pursuant to its
warranty as the seller." 6 For its part, RCBC claimed that it has no liability whatsoever against
respondent because it merely enforced its right under the chattel mortgage law. All the defendants
prayed for the dismissal of the complaint.
On April 13, 1992, the RTC rendered its Decision in favor of respondent and against the defendants,
thus:
"WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the
defendants, ordering the latter to jointly and severally pay the plaintiff as follows:
1. the amount of P70,974.80 representing the 30% down payment and premium
paid for one year comprehensive motor vehicle insurance plus interests at the rate
of 14% per annum from date of filing of this complaint on October 30, 1989 until
fully paid;
2. the sum of P50,000.00 as moral damages;
3. the sum of P25,000.00 as exemplary damages;
4. the sum of P20,000.00 as attorney's fees; and
5. the costs of suit.
SO ORDERED." 7
Upon motion for reconsideration by RCBC, the RTC, in an Order dated December 21, 1992, modified
its Decision by absolving RCBC from any liability and dismissing the complaint against it, thus:
xxx
"Going into the merits of defendant bank's contention that it has valid and me ritorious
defense which should ultimately exculpate it from any liability, jointly and severally, with
the other defendants, the Court, after a careful review of the evidence on hand, reconsiders
its Decision insofar as the said bank is concerned. The valid exercise by the plaintiff of its
right to rescind the contract of sale for the purchase of the motor vehicle in question does
not apply to defendant bank. Said contract is effective only as against defendant Supercars
Management and Development Corporati on, which must principally suffer the consequence
of its breach of the contract.
This Court likewise takes notice of the fact that since the motor vehicle was voluntarily
surrendered by the plaintiff and that defendant bank merely exercised its right under the
chattel mortgage law, no fault can be attributed to the latter. The fact that the plaintiff sent a
letter to the Office of the City Sheriff of Quezon City, copy furnished the bank, seeking the
postponement of the auction sale of the subject motor vehi cle, will not and cannot be
considered as a valid ground to hold said bank liable for only exercising its rights under the
law. At most, the liability must really be imputed only against defendants Supercars
Management and Development Corporation, Mamerto Catley and Pablito Marquez.
"WHEREFORE, considering the foregoing premises, the Decision of this Court dated April
13, 1992, insofar as it holds defendant Rizal Commercial Banking Corporation jointly and
severally liable to the plaintiff, is hereby MODIFIED and the case against said bank
DISMISSED. Similarly, the compulsory counterclaim against the plaintiff is likewise
dismissed.
The dispositive portion of the same Decision insofar as the rest of the defendants are
concerned is hereby maintained and affirmed .
SO ORDERED." 8
From the above Decision and Order, petitioner, Marquez and Catley interposed an appeal to the
Court of Appeals, docketed as CA-G.R. CV No. 40419. In a Decision dated November 29, 2000, the
Appellate Court affirmed the RTC Decision with modification in the sense that the complaint against
Marquez and Catley was dismissed, thus:
xxx
"It is with respect to appellants Catley and Marquez' liability that we are minded to modify
the (appealed) Decision. The two being mere employees (of appellant Supercars
Management and Development Corporation), they cannot be held liable to refund the
amount claimed by Flores. Nor can they be made liable for damages and attorney's fees,
there being no clear evidence that they had a hand in giving rise thereto.
WHEREFORE, the appealed Amended Decision is AFFIRMED, with the MODIFICATION that
the complaint insofar as defendants-appellants Mamerto Catley and Pablito Marquez is
hereby DISMISSED.
SO ORDERED.9
Petitioner filed a motion for reconsideration but denied in a Resolution dated April 26, 200 1.10
Hence, the instant petition.
Petitioner contends that respondent has "no right to rescind the contract of sale" 11 because "the
motor vehicle in question, as found by the RTC and the Court of Appeals, is already in the hands of a
third party, one Mr. Lim Ȃ an innocent purchaser for value."12 Thus, both courts erred in ordering
petitioner to refund respondent of the amounts he paid for the vehic le.
The issue here is whether respondent has the right to rescind the contract of sale and to claim
damages as a result thereof.
We rule for respondent.
Respondent's complaint filed with the RTC seeks to recover from petitioner the money he paid for
the vehicle due to the latter's breach of his warranty against hidden defects under Articles 1547,13
1561,14 and 1566 15 of the Civil Code. The vehicle, after it was delivered to respondent,
malfunctioned despite repeated repairs by petitioner. Obviously, the vehicle has hidden defects. A
hidden defect is one which is unknown or could not have been known to the vendee. 16
The findings of both the RTC and Court of Appeals that petitioner committed a breach of warranty
against hidden defects are fully supported by the records. The Appellate Court correctly ruled:
"The evidence clearly shows that Flores [now respondent] was justified in opting to rescind
the sale given the hidden defects of the vehicle, allowance for the repair of which he
patiently extended, but which repair did not turn out to be s atisfactory.
xxx
For when by letters of January 30, 1989 and February 7, 1989, which were followed up by
another dated March 1, 1989, Flores declared his rescission of the sale, which rescission
was not impugned or opposed by appellants as in fact they accepted the return of the
vehicle on February 9, 1989, such extra-judicial rescission x x x produced legal effect (2_

, 35 SCRA 102 [1970]; @
! p _

, citing $
. _ $p , 71 Phil. 344 [1940-1941]).
x x x"17
It is well within respondent's right to recover damages from petitioner who committed a breach of
warranty against hidden defects. Article 1599 of the Civil Code partly provides:
"Article 1599. Where there is a breach of warranty by the seller, the buyer may, at his
election:
xxx
(4) Rescind the contract of sale and refuse to receive the goods, or if the goods have already
been received, return them or offer to return them to the seller and recover the price or any
part thereof which has been paid.
When the buyer has claimed and been granted a remedy in anyone of these ways, no other
remedy can thereafter be granted, without prejudice to the provisions of the second
paragraph of Article 1191.
x x x." (Underscoring supplied)
Petitioner's contention that under Article 1191 of the Civil Code, rescission can no longer be availed
of as the vehicle was already in the hands of an innocent purchaser for value lacks merit. Rescission
is proper if one of the parties to a contract commits a substantial breach of its provisions. It creates
an obligation to return the object of the contract. It can be carried out only when the one w ho
demands rescission can return whatever he may be obliged to restore. Rescission abrogates the
contract from its inception and requires a mutual restitution of the benefits received. 18 Petitioner is
thus mandated by law to give back to respondent the purchase price upon his return of the vehicle.
Records show that at the time respondent opted to rescind the contract, the vehicle was still in his
possession. He returned it to petitioner who, without objection, accepted it. Accordingly, the 30%
down payment equivalent to P63,600.00, plus the premium for the comprehensive insurance
amounting to P7,374.80 paid by respondent should be returned by petition er.
As further stated by the Court of Appeals:
"Appellant's invocation of Article 1191 of the Civil Code in support of his argument that as
the vehicle had been sold to a third party, rescission can no longer ensue is misplaced.
For, Flores is asking for the refund of the downpayment and payment for insurance
premiums. This brings us to appellant's final argument.
Appellant's professed excuse from their inability to give refund Ȃ that refund would
necessitate the return of the subject motor vehicle which is impossible because it is now in
the hands of an innocent purchaser for value Ȃ miserably fails.
x x x appellant Supercars was paid the balance of the purchase price by RCBC and, therefore,
in addition to the downpayment given by Flores, it had been fully paid for the vehicle.
., Supercars had nothing more to do with the vehicle." 19
However, the lower court's award of P50,000.00 as moral damages and P25,000.00 as exemplary
damages to respondent is erroneous. While no proof of pecuniary loss is necessary in order that
moral damages may be awarded, the amount of indemnity being left to the discretion of the court, it
is nevertheless essential that the claimant satisfactorily prove the existence of the factual basis of
the damage and its causal relation to defendant's acts. Moral damages are in the category of an
award designed to compensate the claimant for )2")506% suffered and not to impose a penalty
to the wrongdoer. This has not been proved by respondent.
In contracts and quasi-contracts, the court may award exemplary damages if the defendant acted in
a wanton, fraudulent, reckless, oppressive, or malevolent manner. 20 Likewise, respondent failed to
establish that petitioner acted in such manner.
As to the award of attorney's fees, the same must be deleted since the award of moral and
exemplary damages are eliminated.21 Moreover, the trial court did not give any justification for
granting it in its decision. It is now settled that awards of attorney's fees must be based on findings
of fact and law, stated in the decision of the trial court.22
Î, the petition is DENIED. The assailed Decision dated September 20, 1999 and
Resolution dated February 1, 2000 of the Court of Appeals in CA-G.R. CV No. 52177 are AFFIRMED
with MODIFICATION. The award of moral and exemplary damages and attorney's fees are
DELETED. Costs against petitioner.
Ô**
@Ap!! concur.
! on leave.
%$
! No part. Ponente of assailed decision.
Remedy of keeping the objects which was sold and asked for damages and reimbursement is
allowed by 1599. One of the enumerated remedies of the buyer.

Ô
Manila
SECOND DIVISION

. 05/
ÔÔpetitioner,

vs.
&

respondent.
(&&Ô&&J.:
This is a review on p of the Decision of the Court of Appeals affirming that of the Regional
Trial Court of Makati which ordered petitioner to pay private respondent P32,943.00 as
reimbursement for taxes paid, P7,500.00 as attorney's fees and the costs of suit.
Sometime in June of 1987 Harrison Motors Corporation through its president, Renato Claros, sold
two (2) Isuzu Elf trucks to private respondent Rachel Navarro, owner of RN Freight Lines, a
franchise holder operating and maintaining a fleet of cargo trucks all over Luzon. Petitioner, a
known importer, assembler and manufacturer, assembled the two (2) trucks using imported
component parts. Prior to the sale, Renato Claros represented to private respondent that all the
BIR taxes and customs duties for the parts used on the two (2) trucks had been paid for.
On 10 September 1987 the Bureau of Internal Revenue (BIR) and the Land Transportation Office
(LTO) entered into a Memorandum of Agreement (MOA) which provided that prior to registration
in the LTO of any assembled or re-assembled motor vehicle which used imported parts, a Certificate
of Payment should first be obtained from the BIR to prove payment of all taxes required under
existing laws.
On 12 October 1987 the Bureau of Customs (BOC) issued Customs Memorandum Order No. 44-87
promulgating rules, regulations and procedure for the voluntary payment of duties and taxes on
imported motor vehicles assembled by non -assemblers.
Pursuant to the 10 September 1987 MOA between the BIR and the LTO, the BIR issued on 18
December 1987 Revenue Memorandum Order No. 44-87 which provided the procedure governing
the processing and issuance of the Certificate of Payment of internal revenue taxes for purposes of
registering motor vehicles.
On 16 June 1988 the BIR, BOC and LTO entered into a tripartite MOA which provided that prior to
the registration in the LTO of any locally assembled motor vehicle using imported component parts,
a Certificate of Payment should first be obtained from the BIR and the BOC to prove that all existing
taxes and customs duties have been paid. /
In December of 1988 government agents seized and detained the two (2) Elf trucks of respondent
after discovering that there were still unpaid BIR taxes and customs duties thereon. The BIR and
the BOC ordered private respondent to pay the proper assessments or her trucks would be
impounded. Private respondent went to Claros to ask for the receipts evidencing payment of BIR
taxes and customs duties; however, Claros refused to comply. . Private respondent then demanded
from Claros that he pay the assessed taxes and warned him that he would have to reimburse her
should she be forced to pay for the assessments herself. Her demands were again ignored.
But wanting to secure the immediate release of the trucks to comply with her business
commitments, private respondent paid the assessed BIR taxes and customs duties amounting to
P32,943.00. Consequently, she returned to petitioner's office to ask for reimbursement, but
petitioner again refused, prompting her to send a demand letter through her lawyer. When
petitioner still ignored her letter, she filed a complaint for a sum of money on 24 September 1990
with the Regional Trial Court of Makati.
On 24 May 1991 private respondent filed a Motion to Declare Defendant in Default which was
granted by the RTC on the same day.
On 18 November 1991 private respondent filed a Manifestation and Motion praying for the
scheduling of the reception of her evidence /% since petitioner had not as yet filed a Motion to
Lift Order of Default. Thus, on 22 November 1991 the trial court ordered the reception of private
respondent's evidence /% .
It was only on 2 December 1991 when petitioner finally filed a Motion to Lift Order of Default. However, on 20 January 1992 t he trial court denied
petitioner's motion for its failure to attach an affidavit of merit showing that it had a valid and meritorio us defense.
On 5 March 1992 the tr ial court rendered a decision ordering petitioner to reimburse private respondent in the amount of P32,943.00 for the customs duties
and internal revenue taxes the latter had to pay to discharge her two (2) Elf trucks f rom government custody. Petitioner was also required to pay P7,500.00
for attorney's fees plus the costs.
The Court of Appeals subsequently sustained the lower court, hence this recourse of petitioner.
Petitioner argues that it was no longer obliged to pay for the additional taxes and customs duties imposed on the imported component parts by the
Memorandum Orders and the two (2) Memoranda of Agreement since such administrative regulations only took effect after the execution of its contract of
sale with private respondent. Holding it liable for payment of the taxes specified in the administrative regulations, which have the force and effect of la ws,
would not only violate the non -impairment clause of the Constitution but also the principle of non-retroactivity of laws provided in Art. 4 of the Civil Code.
/ Furthermore, petitioner claims that it did pay the assessed taxes and duties otherwise it would not have been able to secure the release o f such spare
parts from the customs and to register the vehicles with the LTO under its name.
The records however reveal that the Memorandum Orders and Memoranda of Agreement do not impose any additional BIR taxes or cu stoms duties.
Customs Memorandum Order No. 44-87 is concerned with the Rules, Regulations and Procedures in the Payment of Duties and Taxes on Imported Vehicles
Locally Assembled by Non-Assemblers. It does not charge any new tax. It simply provides the procedure on how owners/consignees or their purchasers
could voluntarily initiate payment for any unpaid customs duties on locally assembled vehicles using imported component parts.
Neither does BIR Revenue Memorandum Order No. 44 -87 . exact any tax. It merely outlines the procedure which governs the processing and issuance of
the Certificate of Payment of internal revenue taxes for purposes of registering motor vehicles.
The 16 June 1988 tripartite MOA among the BIR, LTO and the BOC virtually contained the same provisions. The MOA provided that prior to registration with
the LTO of any assembled motor vehicle using imported component parts, a certificate of Payment should first be secured from the BIR or the BOC which
should then be duly forwarded to LTO. The Certificate would serve as proof that all taxes and customs duties required under e xisting laws, rules and
regulations had already been settled.
Clearly, petitioner's contention is unmeritorious. What Sec. 10, Art. III, of the Constitution prohibits is the passage of a law which enlarges, abridges or in any
manner changes the intention of the contracting parties. The Memorandum Orders and the two (2) Memoranda of Agreement do not impose any
additional taxes which would unduly impair the contract of sale between petitioner and private respondent. Instead, these adm inistrative regulations were
passed to enforce payment of existing BIR taxes and customs duties at the time of importation.
But who should pay the BIR taxes and customs duties which the administrative regulations sought to enforce?
Petitioner contends that private respondent should b e the one to pay the internal revenue taxes and customs duties. It claims that at the time the
Memorandum Orders and the two (2) Memoranda of Agreement took effect the two (2) Elf trucks were already sold to private resp ondent, thus, it no longer
owned the vehicles. Whatever payments private respondent made to the government after the sale were solely her concern and such burden should not be
passed on to petitione r. Petitioner further argues that holding it liable for payment of BIR taxes and customs duties required under the administrative
regulations violates the principle of non -retroactivity of laws under the Civil Code.
Such contention deserves scant consideration. It is true that administrative rulings and regulations are generally prospectiv e in nature. An inspection of
the two (2) Memoranda of Agreement however demonstrates that their intent is to enforce payment of taxes on assemblers/manufacturers who import
component parts without paying the correct assessments. The WHEREAS clause of the 10 September 1987 MOA clearly illustrates this Ȅ
WHEREAS, in order to avoid or evade the higher taxes on imported motor vehicles, certain persons import parts and assemble an d
re-assemble them into complete motor vehicles, or assemble or re -assemble motor vehicles using imported parts;
While the WHEREAS clause of the 16 June 1988 MOA provides Ȅ
WHEREAS, in order to avoid or evade the higher taxes on imported motor vehicles, certain persons, firms or corporations who a re
non-BOI licensed assemblers of imported motor vehicle component parts would assemble or re -assemble them into whole unit
motor vehicles;
It is also apparent in Par. 9 of the 16 June 1988 MOA that the taxes to be enforced are designated as assembler's/manufacturer's tax. It states Ȅ
9. The BIR shall collect the assembler's/manufacturer's tax, while the BOC shall collect the duties and taxes and _
tax.
Thus, although private respondent is the one required by the administrative regulations to secure the Certificate of Payment for the purpose of registration,
petitioner as the importer and the assembler/manufacturer of the two (2) Elf trucks is still the one liable for payment of re venue taxes and customs duties.
Petitioner's obligation to pay does not arise from the administrative regulations but from the tax laws existing at the time of importation. Hence, even if
private respondent already owned the two (2) trucks when the Memorandum Orders and Memoranda of Agreement took effect, the fa ct remains that
petitioner was still the one duty-bound to pay for the BIR taxes and customs duties.
It is also quite obvious that as between petitioner, who is the importer -assembler/manufacturer, and private respondent, who is merely the buyer, it is
petitioner which has the obligation to pay taxes to the BIR and the BOC. Petitioner would be unjustly enriched if private respondent should be denied
reimbursement. It would inequitably amass profits from selling assembled trucks even if it did not pay the taxes due on its imported spare p arts.
Imposing the tax burden on private respondent would only encourage the proliferation of smugglers who scheme to evade taxes by passing on thei r tax
obligations to their unsuspecting buyers.
In a last ditch effort to exempt itself from liability, petitioner claims that it had paid the taxes due on the imported parts otherwise it would not have been
able to obtain their release from the BOC and to register the vehicles with the LTO.
#% . The fact that petitioner was able to secure the release of the parts from customs and to register the assembled trucks with the LTO does not
necessarily mean that all taxes and customs duties were legally settled. As a matter of fact, the provisions of the two (2) Memoranda of Agreement clearly
establish that the government is aware of the widespread registration of assembled motor vehicles with the LTO even if the taxes due on their imported
component parts remain unpaid. Paragraph 1 of the 10 September 1987 MOA states Ȅ
The LTO shall make as one of the requirements for the registration of motor vehicles that were assembled or re-assembled using
imported parts, the payment to the BIR of the taxes required under existing laws.
The same requirement shall be imposed with respect to the renewal of the registration of such motor vehicles h ad they been
registered or their registration been renewed in the past without the payment of the required taxes.
While par. 1 of the 16 June 1988 MOA states Ȅ
The LTO shall make as one of the requirements for the registration of motor vehicles that were assembled or re-assembled by non-
BOI licensed assemblers using imported component parts, the payment to the BIR and the BOC of taxes and duties required under
existing laws, rules and regulations;
The same requirement shall be imposed with respect to the r enewal of the registration of such motor vehicles even if they were
already registered or their registration had been renewed in the past without the payment of the required taxes.
Obviously, the two (2) Memoranda of Agreement were executed to prevent the anomalous circumstance, as in the case at bar, where assembled vehicles are
registered with the LTO even if taxes and customs duties remain unpaid.
Besides, petitioner's allegation that it already paid the BIR taxes and customs duties is highly doubtful. T his entire controversy would have been avoided had
petitioner simply furnished private respondent with the receipts evidencing payment of BIR taxes and customs duties. If only private respondent had the
receipts to prove payment of such assessments then sh e would have easily secured the release of her two (2) Elf trucks. But petitioner arbitrarily and
unjustly denied private respondent's demands. Instead, petitioner obstinately insisted that it was no longer concerned with t he problem involving the two
(2) trucks since it no longer owned the vehicles after the consummation of the sale.
It is true that the ownership of the trucks shifted to private respondent after the sale. But petitioner must remember that pr ior to its consummation it
expressly intimated to her that it had already paid the taxes and customs
duties. Such representation shall be considered as a seller's express warranty under Art. 1546 of the Civil Code which covers any aff irmation of fact or
any promise by the seller which induces the buyer to purchase the thing and actually purchases it relying on s uch affirmation or promise. It includes all
warranties which are derived from express language, whether the language is in the form of a promise or representation. / Presumably, therefore, private
respondent would not have purchased the two (2) Elf tru cks were it not for petitioner's assertion and assurance that all taxes on its imported parts were
already settled.
This express warranty was breached the moment petitioner refused to furnish private respondent with the corresponding receipts since such do cuments
were the best evidence she could present to the government to prove that all BIR taxes and customs duties on the imported com ponent parts were fully paid.
Without evidence of payment, she was powerless to prevent the trucks from being impounded.
Under Art. 1599 of the Civil Code, once an express warranty is breached the buyer can accept or keep the goods and maintain an action against the seller for
damages. This was what private respondent did. She opted to keep the two (2) trucks which she apparen tly needed for her business and filed a complaint for
damages, particularly seeking the reimbursement of the amount she paid to secure the release of her vehicles.
WHEREFORE, the Decision of the Court of Appeals dated 22 January 1998 ordering petitioner HA RRISON MOTORS CORPORATION to reimburse private
respondent RACHEL A. NAVARRO for the taxes and duties she paid in the amount of P32,943.00 and to pay her attorney's fees in the amount of P7,500.00 is
AFFIRMED. In addition, the amount of P32,943.00 shall ear n interest at the legal rate from 24 September 1990 when private respondent filed her complaint
with the trial court until fully paid. Costs against petitioner.
SO ORDERED.j6 j 3
$ ã& i ) ! !! pp
Failure of PNB to transfer the properties and failure to present title which in the contract was
stipulated that such properties shall be transferred to Mega Prime, this is a breach of warranty. The
remedy thus availed of by MPRH is the reduction of the price which is based on the principle that no
person shall be enriched unjustly (but really, there is an exact basis for this, 1599)

Ô
Manila
**
Ô

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&&(8 petitioner,

vs.
&,*&* Ô respondent.
x-------------------------x

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&,*&* Ô petitioner,

vs.
&&(8 respondent.
x-------------------------x
*Ô
,Ô

J.:
IN sales of realty, a breach in the warranties of the seller entitles the buyer to a proportionate
reduction of the purchase price.
The principle is illustrated in these consolidated petitions for review on p of the Decision1
and Resolution2 of the Court of Appeals (CA) in CA-G.R. CV No. 66759, which reversed and set aside
that of the Regional Trial Court (RTC) in Malabon City. Earlier, the RTC invalidated the sale of
shares of stock in PNB Management and Development Corporation (PNB-Madecor) by and between
Mega Prime Realty Corporation (Mega Prime), as vendee, and the Philippine National Bank (PNB),
as vendor.
3)2"!
The facts, as summarized by the appellate court, are as follows:
Mega Prime filed a complaint for annulment of contract before the RTC of Malabon on November
28, 1997. An amended complaint was subsequently filed on February 17, 1998.
In its amended complaint, Mega Prime alleged, among others, that PNB operates a subsidiary by the
name of PNB Management and Development Corporation. In line with PNB's privatization plan, it
opted to sell or dispose of all its stockholdings over PNB-Madecor to Mega Prime. Thereafter, a deed
of sale dated September 27, 1996 was executed between PNB (as vendor) and Mega Prime (as
vendee) whereby PNB sold, transferred and conveyed to Mega Prime, on "As is where is" basis, all
of its stockholdings in PNB-Madecor for the sum of Five Hundred Five Million Six Hundred Twenty
Thousand Pesos (P505,620,000.00). The pertinent portions of the deed of sale are hereunder
quoted as follows:
WHEREAS, PNB Management and Development Corporation (PNB-MADECOR), a

corporation organized and existing under the laws of the Republic of the Philippines, with
principal office at PNB Financial Center, Roxas Boulevard, Pasay City, Metro Manila, is a
wholly-owned subsidiary of the vendor;
WHEREAS, the Vendee has offered to buy all of the stockholdings of the Vendor in PNB-
MADECOR with an authorized capital stock of P250,000,000.00 and the Vendor has
accepted the said offer;
WHEREAS, the parties have previously agreed for the Vendee to pay the Vendor the
purchase price of all the said stockholdings of the Vendor, as follows:
(i) P50,562,000.00 on or before July 18, 1996 which has been paid;
(ii) P50,562,000.00 on or before September 27, 1996; and
(iii) Balance of the purchase price through loan with the Vendor;
subject to the condition that if the Vendee fails to pay the second installment, the agreement
to sell the said stockholdings will be cancelled and the initial 10% down payment will be
forfeited in favor of the Vendor;
NOW, THEREFORE, for and in consideration of the foregoing premises and the sum of
PHILIPPINE PESOS: FIVE HUNDRED FIVE MILLION SIX HUNDRED TWENTY
(P505,620,000.00), receipt of which in full is hereby acknowledged, the Vendor hereby sells,
transfers and conveys, on "As is where is" basis, unto and in favor of the Vendee, its assigns
and successors-in-interest, all of the Vendor's stockholdings in PNB-MADECOR, free from
any liens and encumbrances, as evidenced by the following Certificates of Stock (the
"Certificates of Stock"):
Number No. of Shares
0010 313,871
0002 1
0003 1
0004 1
0005 1
0006 1
0008 1
0009 1
0012 1
0013 1
hereto attached as Annex "A," and any subscription rights thereto, subject to the following
terms and conditions:
1. The sale of the above stockholdings of the Vendor is on a clean balance sheet, i.e. all assets
and liabilities are squared, and no deposits, furniture, fixtures and equipment, including
receivables shall be transferred to the Vendee, except real properties and improvements
thereon of PNB-MADECOR in Quezon City containing an area of 19,080 sq. m., situated at
the corner of Quezon Boulevard (presently Quezon Avenue) and Roosevelt Avenue covered
by five (5) titles, namely: TCT Nos. 87881, 87882, 87883, 87884, and 160470, per Annexes
"B," "C," "D," "E," and "F" hereof.
Leasehold rights of the Vendor on the Numancia property are excluded from this sale,
however, lease of the Mandy Enterprises and sub-leases thereon shall be honored by the
Vendor which shall become the sub-lessor of the said property. x x x
Pursuant, therefore, to the terms of the above-quoted deed of sale, the parties also entered into a
loan agreement on the same date (September 27, 1996) for P404,496,000.00 and Mega Prime
executed in favor of PNB a promissory note for the P404,496,000.00.
Mega Prime further alleged that one of the principal inducements for it to purchase the
stockholdings of defendant PNB in PNB-Madecor was to acquire assets of PNB-Madecor, specifically
the 19,080 square-meter property located at the corner of Quezon Avenue and Roosevelt Avenue
referred to as the Pantranco property.
Mega Prime then entered into a joint venture to develop the Pantranco property. However, Mega
Prime's joint venture partner pulled out of the agreement when it learned that the property
covered by Transfer Certificate of Title (TCT) No. 160470 was likewise the subject matter of
another title registered in the name of the City Government of Quezon City (TCT No. RT-9987
[266573]). Moreover, the lot plan of the Pantranco property shows that TCT No. 1 60470 covers real
property located right in the middle of the Pantranco property rendering nugatory the plans set up
by Mega Prime for the said property.
Mega Prime sought the annulment of the deed of sale on ground that PNB misrepresented that
among the assets to be acquired by Mega Prime from the sale of shares of stock was the property
covered by TCT No. 160470. However, the subject property was outside the commerce of man, the
same being a road owned by the Quezon City Government.
Mega Prime also sought reimbursement of the P150,000,000.00 plus legal interest incurred by
Mega Prime as expenses for the development of the Pantranco property as actual damages and
further sought moral and exemplary damages and attorney's fees.
In its answer to the amended complaint, PNB maintains that the subject matter of the deed of sale
was PNB's shares of stock in PNB-Madecor which is a separate juridical entity, and not the
properties owned by the latter as evidenced by the deed itself. The sale of PNB's shares of stock in
PNB-Madecor to Mega Prime did not dissolve PNB-Madecor. PNB only transferred its control over
PNB-Madecor to Mega Prime. The real properties of PNB-Madecor did not change ownership, but
remained owned by PNB-Madecor. Moreover, PNB denied that it is liable for P150,000,000.00
allegedly incurred by Mega Prime for the development of the Pantranco property since Mega Prime
itself alleged in its amended complaint that no such development could be undertaken.
According to PNB, Mega Prime's accusation that there was fraudulent misrepresentation on the
former's part is without basis. The best evidence of their transaction is the subject deed of sale
which clearly shows that what PNB sold to Mega Prime was PNB's stockholdings in PNB-Madecor.
As stockholder of PNB-Madecor, PNB did not know nor was it in a position to know, that the Quezon
City Government was able to secure another title over the lot covered by TCT No. 160470. Mega
Prime, as buyer, bought the shares of stock at its own risk under the p_ rule, more so
considering that the sale was made on an "as is where is" basis. Moreover, the fact that the Quezon
City Government was able to secure a title over the same lot does not necessarily mean that PNB-
Madecor's title to it is void or outside the commerce of man. Only a proper proceeding may
determine which of the two (2) titles should prevail over the other. Mega Prime, now as the
controlling stockholder of PNB-Madecor, should have instead filed action to quiet PNB-Madecor's
title over the said lot.3
)#*0! !0"0!
On December 21, 1999, the RTC gave judgment in favor of Mega Prime and against PNB. The
of
the RTC decision states:
WHEREFORE, premises considered, judgment is hereby rendered in favor of plaintiff and

against the defendant, as follows:
(1) Declaring the Deed of Sale of 27 September 1996 as void and rescinded;
(2) Ordering the defendant PNB to reimburse plaintiff the legal interest on the
amount of ONE HUNDRED FIFTY MILLION PESOS (P150,000,000.00) loan intended
by plaintiff in developing the Pantranco properties, as actual damages;
(3) Ordering defendant PNB to pay plaintiff the sum of FIVE MILLION PESOS
(P5,000,000.00) as exemplary damages;
(4) Ordering defendant PNB to pay plaintiff the sum of ONE HUNDRED THOUSAND
PESOS (P100,000.00) as attorney's fees;
(5) Ordering defendant to restore to plaintiff the sum of ONE HUNDRED ONE
MILLION ONE HUNDRED TWENTY-FOUR THOUSAND PESOS (P101,124,000.00)
representing the sum actually paid by plaintiff under the subject contract of sale
with legal interest thereon reckoned from the date of extra judicial demand made by
plaintiff;
(6) Ordering plaintiff to return the five properties covered by T.C.T. Nos. 87881,
87882, 87883, 87884 and 160470 in favor of the defendant under the principle of
mutual restitution;
(7) Ordering plaintiff to return the stockholdings subject matter of the 27

September 1996 contract of sale in favor of defendant;
(8) Ordering defendant to pay the costs of suit.
SO ORDERED.4
PNB elevated the matter to the CA via Rule 41 of the 1997 Rules of Civil Procedure. In its appeal,
PNB contended,
, that what was sold to Mega Prime were the bank's shares of stock in
PNB-Madecor, a corporation separate and distinct from PNB; that the Pantranco property was
never a consideration in the contract of sale; that Mega Prime is presumed to have undertaken due
diligence in ascertaining the ownership of the disputed property, it being a reputable real estate
company.
Further, PNB claimed that Mega Prime bought its shares of stock at its own risk under the p_
rule, as the sale was on an " " basis. That the Quezon City Government was able
to secure title over the same lot does not necessarily mean that PNB-Madecor's title to it was void
or outside the commerce of man. According to PNB, Mega Prime's remedy, as the new controlling
owner of PNB-Madecor, is to file an action for quieting of its title to the questioned lot.
On January 27, 2006, the CA reversed and nullified the RTC ruling, disposing as follows:
WHEREFORE, based on the above premises, the assailed Decision dated 21 December 1999
of the Regional Trial Court of Malabon, Metro Manila, Branch 72, is hereby REVERSED and
SET ASIDE and a new one entered DISMISSING the complaint in Civil Case No. 2793-MN.
The counterclaim of PNB is likewise DISMISSED.
SO ORDERED.5
Both parties moved for reconsideration of the CA decision. Both motions were, however, denied
with finality on July 5, 2006.6
Hence, the present recourse by both PNB and Mega Prime.
PNB first filed its petition for review, docketed as G.R. No. 173454, assailing only the CA's dismissal
of its counterclaim. In its separate petition for review, docketed as G.R. No. 173456, Mega Prime
challenged the reversal by the CA of the RTC decision.
!!!
PNB assigns solely that the CA committed a grave error, giving rise to a question of law, in
concluding that Mega Prime's complaint was not a mere ploy to prevent the foreclosure of the
pledge and in dismissing PNB's counterclaim, ignoring the documentary evidence proving that
Mega Prime's complaint was intended to preempt the foreclosure of the pledge and evade payment
of its P404,496,000.00 overdue debt.
For its part, Mega Prime submits that the CA erred in ruling that Mega Prime did not have sufficient
grounds to have the deed of sale dated September 27, 1996 annulled.
Stripped to its bare essentials, the Court is tasked to resolve the following questions:
A. Are there grounds for the annulment of the deed of sale between PNB and Mega Prime? and
B. Are PNB and Mega Prime entitled to the damages they respectively claim against each other?
50;

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There is no basis for a finding of fraud against PNB to invalidate the sale. A perusal of the deed of
sale reveals that the sale principally involves the entire shareholdings of PNB in PNB-Madecor, not
the properties covered by TCT Nos. 87881, 87882, 87883, 87884 and 160740. Any defect in any of
the said titles should not, therefore, affect the entire sale. Further, there is no evidence that PNB
was aware of the existence of another title on one of the properties covered by TCT No. 160740 in
the name of the Quezon City government before and during the execution of the deed of sale.
Although it is expressly stated in the deed of sale that the transfer of the entire stockholdings of
PNB in PNB-Madecor will effectively result in the transfer of the said properties, the discovery of
the title under the name of the Quezon City government does not substantially affect the integrity of
the object of the sale. This is so because TCT No. 160740 covers only 733.70 square meters of the
entire Pantranco property which has a total area of 19,080 square meters.
We quote with approval the CA observations along this line:
Well-settled is the rule that the party alleging fraud or mistake in a transaction bears the
burden of proof. The circumstances evidencing fraud are as varied as the people who
perpetrate it in each case. It may assume different shapes and forms; it may be committed in
as many different ways. Thus, the law requires that it be established by clear and convincing
evidence.
Fraud is never lightly inferred; it is good faith that is. Under the Rules of Court, it is
presumed that "a person is innocent of crime or wrong" and that "private transactions have
been fair and regular." While disputable, these presumptions can be overcome only by clear
and preponderant evidence. Applied to contracts, the presumption is in favor of validity and
regularity.
In this case, it cannot be said that Mega Prime was able to adduce a preponderance of
evidence before the trial court to show that PNB fraudulently misrepresented that it had
title or authority to sell the property covered by TCT No. 160470. Nor was Mega Prime able
to satisfactorily show that PNB should be held liable for damages allegedly sustained by it.
First, PNB correctly argued that with Mega Prime as a corporation principally engaged in
real estate business it is presumed to be experienced in its business and it is assumed that it
made the proper appraisal and examination of the properties it would acquire from the sale
of shares of stock. In fact, Mega Prime was given copies of the titles to the properties which
were attached to the subject deed of sale. In other words, there was full disclosure on the
part of PNB of the status of the properties of PNB-Madecor to be transferred to Mega Prime
by reason of its purchase of all of PNB's shareholdings in PNB-Madecor.
The general rule is that a person dealing with registered land has a right to rely on the
Torrens certificate of title and to dispense with the need of making further inquiries. This
rule, however, admits of exceptions: when the party has actual knowledge of facts and
circumstances that would impel a reasonably cautious man to make such inquiry or when
the purchaser has knowledge of a defect or the lack of title in his vendor or of sufficient facts
to induce a reasonably prudent man to inquire into the status of the title of the property in
litigation.
A perusal of TCT No. 160470 would show that the property is registered under the name
Marcris Realty Corporation and not under PNB or PNB-Madecor, the alleged owner of the
said property. Moreover, TCT No. 160470 explicitly shows on its face that it covers a road
lot.
This fact notwithstanding, Mega Prime still opted to buy PNB's shares of stock, investing
millions of pesos on the said purchase. Mega Prime cannot therefore claim that it can rely
on the face of the title when the same is neither registered under the name of PNB, the
vendor of the shares of stock in PNB-Madecor, nor of PNB-Madecor, the alleged owner of
the property. This should have forewarned Mega Prime to inquire further into the
ownership of PNB-Madecor with respect to TCT No. 160470. And it should not be heard to
complain that the property covered by TCT No. 160470 is outside the commerce of man, it
being a road, since this fact is evident on the face of TCT No. 160470 itself which describes
the property it covers as a road lot.
If, indeed, the principal inducement for Mega Prime to buy PNB's shares of stock in PNB-
Madecor was the acquisition of the said properties, Mega Prime should have insisted on
putting in writing, whether in the same deed of sale or in a separate agreement, any
condition or understanding of the parties regarding the transfer of titles from PNB-Madecor
to Mega Prime. In buying the shares of stock with notice of the flaw in the certificate of title
of PNB-Madecor, Mega Prime assumed the risks that may attach to the said purchase or said
investment. Clearly, under the deed of sale, Mega Prime purchased the shares of stock of
PNB in PNB-Madecor on an "as is where is" basis, which should give Mega Prime more
reason to investigate and look deeper into the titles of PNB-Madecor.
Second, Mega Prime's remedy is not with PNB. It must be stressed that PNB only sold its
shares of stock in PNB-Madecor which remains to be the owner of the lot in question.
Although, admittedly, PNB-Madecor is a subsidiary of PNB, this does not necessarily mean
that PNB and PNB-Madecor are one and the same corporation.
@ pp
p p

p 0 . If used to perform legitimate
functions, a subsidiary's separate existence shall be respected, and the liability of the parent
corporation as well as the subsidiary will be confined to those arising in their respective
business.
The general rule is that as a legal entity, a corporation has a personality distinct and
separate from its individual stockholders or members, and is not affected by the personal
rights, obligations and transactions of the latter. Courts may, however, in the exercise of
judicial discretion step in to prevent the abuses of separate entity privilege and pierce the
veil of corporate fiction.
The following circumstances are useful in the determination of whether a subsidiary is but a
mere instrumentality of the parent-corporation and whether piercing of the corporate veil
is proper:
(a) The parent corporation owns all or most of the capital stock of the subsidiary.
(b) The parent and subsidiary corporations have common directors or officers.
(c) The parent corporation finances the subsidiary.
(d) The parent corporation subscribes to all the capital stock of the subsidiary or
otherwise causes its incorporation.
(e) The subsidiary has grossly inadequate capital.
(f) The parent corporation pays the salaries and other expenses or losses of the
subsidiary.
(g) The subsidiary has substantially no business except with the parent corporation
or no assets except those conveyed to or by the parent corporation.
(h) In the papers of the parent corporation or in the statements of its officers, the
subsidiary is described as a department or division of the parent corporation, or its
business or financial responsibility is referred to as the parent corporation's own.
(i) The parent corporation uses the property of the subsidiary as its own.
(j) The directors or executives of the subsidiary do not act independently in the
interest of the subsidiary, but take their orders from the parent corporation.
(k) The formal legal requirements of the subsidiary are not observed.
Aside from the fact that PNB-Madecor is a wholly-owned subsidiary of PNB, there are no
other factors shown to indicate that PNB-Madecor is a mere instrumentality of PNB.
Therefore, PNB's separate personality cannot be merged with PNB-Madecor in the absence
of sufficient ground to pierce the veil of corporate fiction. It must be noted that at the outset,
PNB presented to Mega Prime the titles to the properties. With the exception of one (1) title,
TCT No. 160470, the four (4) titles are registered under PNB-Madecor's name and not PNB.
PNB correctly observed that Mega Prime's remedy is not to go after PNB who merely sold
its shares of stock in PNB-Madecor but to file the appropriate action to remove any cloud in
PNB-Madecor's title over TCT No. 160470.
Third, it is significant to note that the deed of sale is a public document duly notarized and
acknowledged before a notary public. As such, it has in its favor the presumption of
regularity, and it carries the evidentiary weight conferred upon it with respect to its due
execution. It is admissible in evidence without further proof of its authenticity and is
entitled to full faith and credit upon its face. Thus,
It has long been settled that a public document executed and attested through the
intervention of the notary public is evidence of the facts in clear, unequivocal
manner therein expressed. It has in its favor the presumption of regularity. To
contradict all these, there must be evidence that is clear, convincing and more than
merely preponderant. The evidentiary value of a notarial document guaranteed by
public attestation in accordance with law must be sustained in full force and effect
unless impugned by strong, complete and conclusive proof.
Based on the above arguments, there is no reason to annul the said deed considering that
both parties freely and fairly entered into the said contract presumptively knowing the
consequences of their acts.
Lastly, Mega Prime, using its business judgment, entered into a sale transaction with PNB
respecting shares of stock in PNB-Madecor, in anticipation of owning properties owned by
PNB-Madecor. However, it was found out later that a title in the name of the Quezon City
Government casts a cloud over PNB-Madecor's title to the so-called Pantranco Properties.
This fact alone cannot justify annulment of a valid and consummated contract of sale. Mega
Prime cannot be relieved from its obligation, voluntarily assumed, under the said contract
simply because the contract turned out to be a poor business judgment or unwise
investment. It should have been more prudent or careful in making such a huge investment
worth millions of pesos. It should have conducted its own due diligence, so to speak. By
signing the deed of sale, Mega Prime accepted the risk of an "as is where is" arrangement
with respect to the sale of shares of stock therein.
The contract has the force of law between the parties and they are expected to abide in good
faith by their respective contractual commitments, not weasel out of them. Just as nobody
can be forced to enter into a contract, in the same manner, once a contract is entered into,
no party can renounce it unilaterally or without the consent of the other. It is a general
principle of law that no one may be permitted to change his mind or disavow and go back
upon his own acts, or to proceed contrary thereto, to the prejudice of the other party.
Contrary to the trial court's finding, We find that there is no sufficient basis to annul the
Deed of Sale dated 27 September 1996. Mega Prime failed to sufficiently prove that PNB
was guilty of misrepresentation or fraud with respect to the said transaction.7
Nevertheless, the Court holds that there was a breach in the warranties of the seller PNB.
Resultantly, a reduction in the sale price should be decreed.
One of the express conditions in the deed of sale is the transfer of the properties under TCT Nos.
87881, 87882, 87883, 87884 and 160740 in the name of Mega Prime:
1. The Sale of the above stockholdings of the vendor is on a clean balance sheet, i.e., all
assets and liabilities are squared, and no deposits, furniture, fixtures and equipment,
including receivables shall be transferred to the vendee, except real properties and
improvements thereon of PNB-Madecor in Quezon City containing an area of 19,080 sq. m.,
situated at the corner of Quezon Boulevard (presently Quezon Avenue) and Roosevelt
Avenue covered by five (5) titles namely: TCT Nos. 87881, 87882, 87883, 87884, and
160470 x x x. 8
Verily, an important sense of the deed of sale is the transfer of ownership over the subject
properties to Mega Prime. Clearly, the failure of the seller PNB to effect a change in ownership of
the subject properties amounts to a hidden defect within the contemplation of Articles 1547 and
1561 of the New Civil Code.
The said provisions of law read:
Art. 1547. In a contract of sale, unless a contrary intention appears, there is:
(1) An implied warranty on the part of the seller that he has a right to sell the thing at the
time when the ownership is to pass, and that the buyer shall from that time have and enjoy
the legal and peaceful possession of the thing;
(2) An implied warranty that the thing shall be free from any hidden faults or defects, or any
charge or encumbrance not declared or known to the buyer.
This article shall not, however, be held to render liable a sheriff, auctioneer, mortgagee,
pledgee, or other person professing to sell by virtue of authority in fact or law, for the sale of
a thing in which a third person has a legal or equitable interest.9
xxxx
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.10
Up to now, the title of the said property is still under the name of the former registered owner
Marcris Realty Corporation. Mega Prime's subsequent discovery that the property covered by TCT
No. 160740 is covered by a title pertaining to the City Government of Quezon City coupled with
PNB's inability up to the present to submit a title in the name of PNB-Madecor constitutes a breach
of warranty. Hence, a proportionate reduction in the consideration of the sale is justified, applying
the Civil Code principle that "no person shall be enriched at the expense of another." 11
The sale of shares of stock was undertaken to effect the transfer of the subject properties with a
total area of 19,080 square meters. When PNB failed to deliver the title to the property covered by
TCT No. 160740, with an area of 733.70 square meters, PNB violated an express warranty under
the deed of sale. Thus, the total consideration in the Deed of Sale should be proportionately reduced
equivalent to the value of the property covered by TCT No. 160740.
Records bear out that the total consideration for the sale contract is P505,620,000.00. The object is
the 19,080-square-meter Pantranco property. Simple division or mathematical computation yields
that the property has a value of P26,500.00 per square meter. Considering that the area covered by
TCT No. 160740 is 733.70 square meters, the purchase price should be proportionately reduced by
P19,443,050.00, an amount arrived at after multiplying P26,500.00 by 733.70 or vice versa.
Necessarily, Mega Prime cannot be considered in default with respect to its obligation to petitioner
bank in view of the modification of the stipulated consideration.
(
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The CA refused to award actual and exemplary damages to Mega Prime. Said the appellate court:
Necessarily, therefore, PNB cannot be made liable for actual damages allegedly sustained by
Mega Prime. The latter's allegation that it incurred expenses for the development of the
Pantranco Property in the amount of P150,000,000.00 deserves scant consideration.
Basic is the jurisprudential principle that in determining actual damages, the courts cannot
rely on mere assertions, speculations, conjectures, or guesswork but must depend on
competent proof or the best obtainable evidence of the actual amount of loss.
Aside from the site development plan adduced by Mega Prime, no other proof was
presented by Mega Prime to show that it had incurred expenses for the development of the
Pantranco property. In fact, Mega Prime itself alleged that its partner pulled out from the
project and the development of the Pantranco Property could not be undertaken after
knowledge of the alleged defective title of PNB-Madecor. Without sufficient proof that Mega
Prime incurred said expenses and that it was due to PNB's fault, then the latter cannot be
held liable for such unsupported allegation.
Regarding the award of exemplary damages, the Court likewise finds that PNB cannot be
made liable for exemplary damages and attorney's fees, there being no adequate proof to
show that PNB was in bad faith when it entered into the contract of sale with Mega Prime.
It is a requisite in the grant of exemplary damages that the act of the offender must be
accompanied by bad faith or done in wanton, fraudulent or malevolent manner. On the
other hand, attorney's fees may be awarded only when a party is compelled to litigate or to
incur expenses to protect his interest by reason of an unjustified act of the other party, as
when the defendant acted in gross and evident bad faith in refusing the plaintiff's plainly
valid, just and demandable claim. Such circumstances were not proved in this case.12
Along the same vein, in dismissing PNB's counterclaims, the CA explained:
In the same vein, We find no reason to hold Mega Prime liable on the counterclaim of PNB
for moral and exemplary damages and attorney's fees. PNB's counterclaim is anchored on
the alleged bad faith and ill motive of Mega Prime in filing the complaint which allegedly
was done by Mega Prime to preempt PNB's foreclosure of the pledge of its shares of stock in
PNB-Madecor. According to PNB, Mega Prime filed its complaint against PNB after Mega
Prime received PNB's letter dated December 11, 1997 reminding it of the maturity date on
November 26, 1997 of its P404,496,000.00 loan with PNB, evidently to prevent PNB from
foreclosing the pledge.
We are not persuaded.
The records show that Mega Prime filed its complaint on November 28, 1997, and it was
preceded by Mega Prime's demand letter dated November 3, 1997 addressed to PNB,
informing PNB of Mega Prime's discovery that the property covered by TCT No. 160470 is
actually owned by the Quezon City Government. In said letter, Mega Prime made a demand
upon PNB to pay to Mega Prime the amounts of P101,124,000.00 as actual damages and
P48,876,000.00 as other expenses, otherwise legal action shall be instituted against PNB.
Clearly, Mega Prime's complaint was filed prior to PNB's letter dated December 11, 1997.
Thus, PNB's allegation that Mega Prime filed its complaint as a mere ploy to prevent
foreclosure of the pledge and thus evade payment of its overdue obligation is not quite true.
Accordingly, in the absence of ample proof that Mega Prime acted in gross and evident bad
faith in instituting the complaint against PNB, there is no justification to grant the
counterclaim of PNB.13
Î, premises considered, the appealed decision is *40"3* in

that the consideration in the Deed of Sale dated September 27, 1996 shall be proportionately
reduced by P19,443,050.00, the value corresponding to the property covered by TCT No. 160740.
Ô**.
What was breached was not the terms and conditions of the mortgage but the mutual/reciprocal
obligations found in 1191 of the CC. They did not only fail to pay the mortgage, they even imposed
new conditions as to how they will pay the obligation. Rescission is in order as the remedy of the
seller.

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&Ô*
*
, *)# , *respondents.
(J
:
A substantial breach of a reciprocal obligation, like failure to pay the price in the manner prescribed
by the contract, entitled the injured party to rescind the obligat ion. Rescission abrogates the
contract from its inception and requires a mutual restitution of benefits received.
3)!
Before us is a Petition for Review on Certiorari1 questioning the Decision 2 of the Court of Appeals
(CA) in CA-GR CV No. 32991 dated October 9, 1992, as well as its Resolution3 dated December 29,
1992 denying petitioner's motion for reconsideration. 4
The dispositive portion of the assailed Decision reads:
"WHEREFORES the Order dated May 15, 1991 is hereby ANNULLED and SET ASIDE and the
Decision dated November 14, 1990 dismissing the [C]omplaint is RESINSTATED. The bonds
posted by plaintiffs-appellees and defendants-appellants are hereby RELEASED."5
3)2"!
The factual antecedents of the case, as found by the CA, are as follows:
"x x x. David Raymundo [herein private respondent] is the absolute and registered owner of
a parcel of land, together with the house and other improvements thereon, located at 1918
Kamias St., Dasmariñas Village, Makati and covered by TCT No. 142177. Defendant George
Raymundo [herein private petitioners] is David's father who negotiated with plaintiffs
Avelina and Mariano Velarde [herein petitioners] for the sale of said property, which was,
however, under lease (Exh. '6', p. 232, Record of Civil Case No. 15952).
"On August 8, 1986, a Deed of Sale with Assumption of Mortgage (Exh. 'A'; Exh. '1', pp. 11-
12, Record) was executed by defendant David Raymundo, as vendor, in favor of plaintiff
Avelina Velarde, as vendee, with the following terms and conditions:
'x x x xxx xxx
'That for and in consideration of the amount of EIGHT HUNDRED THOUSAND PESOS
(P800,000.00), Philippine currency, receipt of which in full is hereby acknowledged
by the VENDOR from the VENDEE, to his entire and complete satisfaction, by these
presents the VENDOR hereby SELLS, CEDES, TRANSFERS, CONVEYS AND DELIVERS,
freely and voluntarily, with full warranty of a legal and valid title as provided by law,
unto the VENDEE, her heirs, successors and assigns, the parcel of land mentioned
and described above, together with the house and other improvements thereon.
'That the aforesaid parcel of land, together with the house and other improvements
thereon, were mortgaged by the VENDOR to the BANK OF THE PHILIPPINE
ISLANDS, Makati, Metro Manila to secure the payment of a loan of ONE MILLION
EIGHT HUNDRED THOUSAND PESOS (P1,800,000.00), Philippine currency, as
evidenced by a Real Estate Mortgage signed and executed by the VENDOR in favor of
the said Bank of the Philippine Islands, on _____ and which Real Estate Mortgage was
ratified before Notary Public for Makati, _____, as Doc. No. ______, Page No. _____, Book
No. ___, Series of 1986 of his Notarial Register.
'That as part of the consideration of this sale, the VENDEE hereby assumes to pay
the mortgage obligations on the property herein sold in the amount of ONE
MILLION EIGHT HUNDRED THOUSAND PESOS (P1,800,000.00), Philippine
currency, in favor of Bank of Philippine Islands, in the name of the VENDOR, and
further agrees to strictly and faithfully comply with all the terms and conditions
appearing in the Real Estate Mortgage signed and executed by the VENDOR in favor
of BPI, including interests and other charges for late payment levied by the Bank, as
if the same were originally signed and executed by the VENDEE.
'It is further agreed and understood by the parties herein that the capital gains tax
and documentary stamps on the sale shall be for the account of the VENDOR;
whereas, the registration fees and transfer tax thereon shall be the account of the
VENDEE.' (Exh. 'A', pp. 11-12, Record).'
"On the same date, and as part of the above-document, plaintiff Avelina Velarde, with the
consent of her husband, Mariano, executed an Undertaking (Exh. 'C', pp. 13-14, Record).'
'x x x xxx xxx
'Whereas, as per deed of Sale with Assumption of Mortgage, I paid Mr. David A.
Raymundo the sum of EIGHT HUNDRED THOUSAND PESOS (P800,000.00),
Philippine currency, and assume the mortgage obligations on the property with the
Bank of the Philippine Islands in the amount of ONE MILLION EIGHT HUNDRED
THOUSAND PESOS (P1,800,000.00), Philippine currency, in accordance with the
terms and conditions of the Deed of Real Estate Mortgage dated _____, signed and
executed by Mr. David A. Raymundo with the said Bank, acknowledged before
Notary Public for Makati, _____, as Doc. No. _____, Page No. _____, Book No. _____, Series
of 1986 of his Notarial Register.
'WHEREAS, while my application for the assumption of the mortgage obligations on

the property is not yet approved by the mortgagee Bank, I have agreed to pay the
mortgage obligations on the property with the Bank in the name of Mr. David A.
Raymundo, in accordance with the terms and conditions of the said Deed of Real
Estate Mortgage, including all interests and other charges for late payment.
'WHEREAS, this undertaking is being executed in favor of Mr. David A. Raymundo,
for purposes of attesting and confirming our private understanding concerning the
said mortgage obligations to be assumed.
'NOW, THEREFORE, for and in consideration of the foregoing premises, and the
assumption of the mortgage obligations of ONE MILLION EIGHT HUNDRED
THOUSAND PESOS (P1,800,000.00), Philippine currency, with the bank of the
Philippine Islands, I, Mrs, Avelina D, Velarde with the consent of my husband,
Mariano Z. Velardo, do hereby bind and obligate myself, my heirs, successors and
assigns, to strictly and faithfully comply with the following terms and conditions:
'1. That until such time as my assumption of the mortgage obligations on the
property purchased is approved by the mortgagee bank, the Bank of the Philippine
Islands, I shall continue to pay the said loan in accordance with the terms and
conditions of the Deed of Real Estate Mortgage in the name of Mr. David A.
Raymundo, the original Mortgagor.
'2. That, in the event I violate any of the terms and conditions of the said Deed of
Real Estate Mortgage, I hereby agree that my downpayment of P800,000.00, plus all
payments made with the Bank of the Philippine Islands on the mortgage loan, shall
be forfeited in favor of Mr. David A. Raymundo, as and by way of liquidated
damages, without necessity of notice or any judicial declaration to that effect, and
Mr. David A. Raymundo shall resume total and complete ownership and possession
of the property sold by way of Deed of Sale with Assumption of Mortgage, and the
same shall be deemed automatically cancelled and be of no further force or effect, in
the same manner as it (the) same had never been executed or entered into.
'3. That I am executing the Undertaking for purposes of binding myself, my heirs,
successors and assigns, to strictly and faithfully comply with the terms and
conditions of the mortgage obligations with the Bank of the Philippine Islands, and
the covenants, stipulations and provisions of this Undertaking.
'That, David A. Raymundo, the vendor of the property mentioned and identified
above, [does] hereby confirm and agree to the undertakings of the Vendee pertinent
to the assumption of the mortgage obligations by the Vendee with the Bank of the
Philippine Islands. (Exh. 'C', pp. 13-14, Record).'
"This undertaking was signed by Avelina and Mariano Velarde and David Raymundo.
"It appears that the negotiated terms for the payment of the balance of P1.8 million was
from the proceeds of a loan that plaintiffs were to secure from a bank with defendant's help.
Defendants had a standing approved credit line with the Bank of the Philippine Islands
(BPI). The parties agreed to avail of this, subject to BPI's approval of an application for
assumption of mortgage by plaintiffs. Pending BPI's approval o[f] the application, plaintiffs
were to continue paying the monthly interests of the loan secured by a real estate mortgage.
"Pursuant to said agreements, plaintiffs paid BPI the monthly interest on the loan secured
by the aforementioned mortgage for three (3) months as follows: September 19, 1986 at
P27,225.00; October 20, 1986 at P23,000.00; and November 19, 1986 at P23,925.00 (Exh.
'E', 'H' & 'J', pp. 15, 17and 18, Record).
"On December 15, 1986, plaintiffs were advised that the Application for Assumption of
Mortgage with BPI, was not approved (Exh. 'J', p. 133, Record). This prompted plaintiffs not
to make any further payment.
"On January 5, 1987, defendants, thru counsel, wrote plaintiffs informing the latter that
their non-payment to the mortgage bank constitute[d] non-performance of their obligation
(Exh. '3', p. 220, Record).
"In a Letter dated January 7, 1987, plaintiffs, thru counsel, responded, as follows:
'This is to advise you, therefore, that our client is willing to pay the balance in cash
not later than January 21, 1987 provided: (a) you deliver actual possession of the
property to her not later than January 15, 1987 for her immediate occupancy; (b)
you cause the release of title and mortgage from the Bank of P.I. and make the title
available and free from any liens and encumbrances; and (c) you execute an
absolute deed of sale in her favor free from any liens or encumbrances not later than
January 21, 1987.' (Exhs. 'k', '4', p. 223, Record).
"On January 8, 1987 defendants sent plaintiffs a notarial notice of cancellation/rescission of

the intended sale of the subject property allegedly due to the latter's failure to comply with
the terms and conditions of the Deed of Sale with Assumption of Mortgage and the
Undertaking (Exh. '5', pp. 225-226, Record)." 6
Consequently, petitioners filed on February 9, 1987 a Complaint against private respondents for
specific performance, nullity of cancellation, writ of possession and damages. This was docketed as
Civil Case No. 15952 at the Regional Trial Court of Makati, Branch 149. The case was tried and
heard by then Judge Consuelo Ynares-Santiago (now an associate justice of this Court), who
dismissed the Complaint in a Decision dated Novem ber 14, 1990.7 Thereafter, petitioners filed a
Motion for Reconsideration.8
Meanwhile, then Judge Ynares-Santiago was promoted to the Court of Appeals and Judge Salvador
S. A. Abad Santos was assigned to the sala she vacated. In an Order dated May 15, 1991,9 Judge Abad
Santos granted petitioner's Motion for Reconsideration and directed the parties to proceed with the
sale. He instructed petitioners to pay the balance of P1.8 million to private respondents who, in
turn, were ordered to execute a deed of absolute sale and to surrender possession of the disputed
property to petitioners.
Private respondents appealed to the CA.
50;="3"= )5
The CA set aside the Order of Judge Abad Santos and reinstated then Judge Ynares-Santiago's
earlier Decision dismissing petitioners' Complaint. Upholding the validity of the rescission made by
private respondents, the CA explained its ruling in this wise:
"In the Deed of Sale with Assumption of Mortgage, it was stipulated that 'as part of the
consideration of this sale, the VENDEE (Velarde)' would assume to pay the mortgage
obligation on the subject property in the amount of P 1.8 million in favor of BPI i n the name
of the Vendor (Raymundo). Since the price to be paid by the Vendee Velarde includes the
downpayment of P800,000.00 and the balance of Pl.8 million, and the balance of Pl.8 million
cannot be paid in cash, Vendee Velarde, as part of the consideration of the sale, had to
assume the mortgage obligation on the subject property. In other words, the assumption of
the mortgage obligation is part of the obligation of Velarde, as vendee, under the contract.
Velarde further agreed 'to strictly and faithfully comply with all the terms and conditions
appearing in the Real Estate Mortgage signed and executed by the VENDOR in favor of BPI x
x x as if the same were originally signed and executed by the Vendee. (p. 2, thereof, p. 12,
Record). This was reiterated by Velarde in the document entitled 'Undertaking' wherein the
latter agreed to continue paying said loan in accordance with the terms and conditions of
the Deed of Real Estate Mortgage in the name of Raymundo. Moreover, it was stipulated that
in the event of violation by Velarde of any terms and conditions of said deed of real estate
mortgage, the downpayment of P800,000.00 plus all payments made with BPI or the
mortgage loan would be forfeited and the [D]eed of [S]ale with [A]ssumption of [M]ortgage
would thereby be Cancelled automatically and of no force and effect (pars. 2 & 3, thereof, pp
13-14, Record).
"From these 2 documents, it is therefore clear that part of the consideration of the sale was
the assumption by Velarde of the mortgage obligation of Raymundo in the amount of Pl.8
million. This would mean that Velarde had to make payments to BPI under the [D]eed of
[R]eal [E]state [M]ortgage the name of Raymundo. The application with BPI for the approval
of the assumption of mortgage would mean that, in case of approval, payment of the
mortgage obligation will now be in the name of Velarde. And in the event said application is
disapproved, Velarde had to pay in full. This is alleged and admitted in Paragraph 5 of the
Complaint. Mariano Velarde likewise admitted this fact during the hearing on September 15,
1997 (p. 47, t.s.n., September 15, 1987; see also pp. 16-26, t.s.n., October 8, 1989). This
being the case, the non-payment of the mortgage obligation would result in a violation of
the contract. And, upon Velarde's failure to pay the agreed price, the[n] Raymundo may
choose either of two (2) actions - (1) demand fulfillment of the contract, or (2) demand its
rescission (Article 1191, Civil Code).
"The disapproval by BPI of the application for assumption of mortgage cannot be used as an
excuse for Velarde's non-payment of the balance of the purchase price. As borne out by the
evidence, Velarde had to pay in full in case of BPI's disapproval of the application for
assumption of mortgage. What Velarde should have done was to pay the balance of P1.8
million. Instead, Velarde sent Raymundo a letter dated January 7, 1987 (Exh. 'K', '4') which
was strongly given weight by the lower court in reversing the decision rendered by then
Judge Ynares-Santiago. In said letter, Velarde registered their willingness to pay the balance
in cash but enumerated 3 new conditions which, to the mind of this Court, would constitute
a new undertaking or new agreement which is subject to the consent or approval of
Raymundo. These 3 conditions were not among those previously agreed upon by Velarde
and Raymundo. These are mere offers or, at most, an attempt to novate. But then again,
there can be no novation because there was no agreement of all the parties to the new
contract (Garcia, Jr. vs. Court of Appeals, 191 SCRA 493).
"It was likewise agreed that in case of violation of the mortgage obligation, the Deed of Sale
with Assumption of Mortgage would be deemed 'automatically cancelled and of no further
force and effect, as if the same had never been executed or entered into.' While it is true that
even if the contract expressly provided for automatic rescission upon failure to pay the
price, the vendee may still pay, he may do so only for as long as no demand for rescission of
the contract has been made upon him either judicially or by a notarial act (Article 1592,
Civil Code). In the case at bar, Raymundo sent Velarde notarial notice dated January 8, 1987
of cancellation/rescission of the contract due to the latter's failure to comply with their
obligation. The rescission was justified in view of Velarde's failure to pay the price (balance)
which is substantial and fundamental as to defeat the object of the parties in making the
agreement. As adverted to above, the agreement of the parties involved a reciprocal
obligation wherein the obligation of one is a r esolutory condition of the obligation of the
other, the non-fulfillment of which entitles the other party to rescind the contract
(Songcuan vs. IAC, 191 SCRA 28). Thus, the non-payment of the mortgage obligation by
appellees Velarde would create a right to demand payment or to rescindthe contract, or to
criminal prosecution (Edca Publishing & Distribution Corporation vs. Santos, 184 SCRA
614). Upon appellee's failure, therefore, to pay the balance, the contract was properly
rescinded (Ruiz vs. IAC, 184 SCRA 720). Consequently, appellees Velarde having violated
the contract, they have lost their right to its enforcement and hence, cannot avail of the
action for specific performance (Voysaw vs. Interphil Promotions, Inc., 148 SCRA 635)."10
Hence, this appeal. 11
3!!!
Petitioners, in their Memorandum, 12 interpose the following assignment of errors:
"I.
The Court of Appeals erred in holding that the non-payment of the mortgage obligation
resulted in a breach of the contract.
"II
The Court of Appeals erred in holding that the rescission (resolution) of the contract by
private respondents was justified.
"III
The Court of Appeals erred in holding that petitioners' January 7, 1987 letter gave three
'new conditions' constituting mere offers or an attempt to novate necessitating a new
agreement between the parties."
3"B!50;
The Petition is partially meritorious.
0!"!!:
Br ach of Conrac
Petitioner aver that their nonpayment of private respondents' mortgage obligation did not
constitute a breach of contract, considering that their request to assume the obligation had been
disapproved by the mortgagee bank. Accordingly, payment of the monthly amortizations ceased to
be their obligation and, instead, it devolved upon private respondents again.
However, petitioners did not merely stop paying the mortgage obligations; they also failed to pay
the balance of the purchase price. As admitted by both parties, their agreement mandated that
petitioners should pay the purchase price balance of P1.8 million to private respondents in case the
request to assume the mortgage would be disapproved. Thus, on December 15, 1986, when
petitioners received notice of the bank's disapproval of their application to assume respondents'
mortgage, they should have paid the balance of the P1.8 million loan.
Instead of doing so, petitioners sent a letter to private respondents offering to make such payment
only upon the fulfillment of certain conditions not originally agreed upon in the contract of sale.
Such conditional offer to pay cannot take the place of actual payment as would discharge the
obligation of a buyer under a contract of sale.
In a contract of sale, the seller obligates itself to transfer the ownership of and deliver a determinate
things, and the buyer to pay therefor a price certain in money or its equivalent.13
Private respondents had already performed their obligation through the execution of the Deed of
Sale, which effectively transferred ownership of the property to petitioner through constructive
delivery. Prior physical delivery or possession is not legally required, and the execution of the Deed
of Sale is deemed equivalent to delivery.14
Petitioners, on the other hand, did not perform their correlative obligation of paying the contract
price in the manner agreed upon. Worse, they wanted private respondentsto perform obligations
beyond those stipulated in the contract before fulfilling their own obligation to pay the full
purchase price.
Ô2#!!
Validiy of h R scission
Petitioners likewise claim that the rescission of the contract by private respondents was not
justified, inasmuch as the former had signified their willingness to pay the balance of the purchase
price only a little over a month from the time they were notified of the disapproval of their
application for assumption of mortgage. Petitioners also aver that the breach of the contract was
not substantial as would warrant a rescission. They cite several cases15in which this Court declared
that rescission of a contract would not be permitted for a slight or casual breach. Finally, they argue
that they have substantially performed their obligation in good faith, considering that they have
already made the initial payment of P800,000 and three (3) monthly mortgage payments.
As pointed out earlier, the breach committed by petitioners was not so much their nonpayment of
the mortgage obligations, as their nonperformance of their reciprocal obligation to pay the
purchase price under the contract of sale. Private respondents' right to rescind the contract finds
basis in Article 1191 of the Civil Code, which explicitly provides as follows:
"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 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 right of rescission of a party to an obligation under Article 1191 of the Civil Code is predicated
on a breach of faith by the other party who violates the reciprocity between them. 16 The breach
contemplated in the said provision is the obligor's failure to comply with an existing obligation.17
When the obligor cannot comply with what is incumbent upon it, the obligee may seek rescission
and, in the absence of any just cause for the court to determine the period of compliance, the court
shall decree the rescission.18
In the present case, private respondents validly exercised their right to rescind the contract,
because of the failure of petitioners to comply with their obligation to pay the balance of the
purchase price. Indubitably, the latter violated the very essence of reciprocity in the contract of
sale, a violation that consequently gave rise to private respondent's right to rescind the same in
accordance with law.
True, petitioners expressed their willingness to pay the balance of the purchase price one month
after it became due; however, this was not equivalent to actual payment as would constitute a
faithful compliance of their reciprocal obligation. Moreover, the offer to pay was conditioned on the
performance by private respondents of additional burdens that had not been agreed upon in the
original contract. Thus, it cannot be said that the breach committed by petitioners was merely slight
or casual as would preclude the exercise of the right to rescind.
Misplaced is petitioners' reliance on the cases 19 they cited, because the factual circumstances in
those cases are not analogous to those in the present one. In ¢there was, on the part of the
buyer, only a delay of twenty (20) days to pay for the goods delivered. Moreover, the buyer's offer
to pay was unconditional and was accepted by the seller.
In ' the breach involved a mere one-week delay in paying the balance of 1,000 which was
actually paid.
In @the alleged breach was private respondent's delay of only a few days, which was for the
purpose of clearing the title to the property; there was no reference whatsoever to the nonpayment
of the contract price.
In the instant case, the breach committed did not merely consist of a slight delay in payment or an
irregularity; such breach would not normally defeat the intention of the parties to the contract.
Here, petitioners not only failed to pay the P1.8 million balance, but they also imposed upon pr ivate
respondents new obligations as preconditions to the performance of their own obligation. In effect,
the qualified offer to pay was a repudiation of an existing obligation, which was legally due and
demandable under the contract of sale. Hence, private respondents were left with the legal option
of seeking rescission to protect their own interest.
Muual R siuion
R quir d in R scission
As discussed earlier, the breach committed by petitioners was the nonperformance of a reciprocal
obligation, not a violation of the terms and conditions of the mortgage contract. Therefore, the
automatic rescission and forfeiture of payment clauses stipulated in the contract does not apply.
Instead, Civil Code provisions shall govern and regulate the resolution of this controversy.
Considering that the rescission of the contract is based on Article 1191 of the Civil Code, mu tual
restitution is required to bring back the parties to their original situation prior to the inception of
the contract. Accordingly, the initial payment of P800,000 and the corresponding mortgage
payments in the amounts of P27,225, P23,000 and P23,925 (totaling P874,150.00) advanced by
petitioners should be returned by private respondents, lest the latter unjustly enrich themselves at
the expense of the former.
Rescission creates the obligation to return the object of the contract. It can be carried out only when
the one who demands rescission can return whatever he may be obliged to restore. 20 To rescind is
to declare a contract void at its inception and to put an end to it as though it never was. It is not
merely to terminate it and release the parties from further obligations to each other, but to
abrogate it from the beginning and restore the parties to their relative positions as if no contract
has been made.21
30#!!
A p o Rova
In view of the foregoing discussion, the Court finds it no longer necessary to discuss the third issue
raised by petitioners. Suffice it to say that the three conditions appearing on the January 7, 1987
letter of petitioners to private respondents were not part of the original contract. By that time, it
was already incumbent upon the former to pay the balance of the sale price. They had no right to
demand preconditions to the fulfillment of their obligati on, which had become due.
WHEREFORE, the assailed Decision is hereby AFFIRMEDwith the MODIFICATIORthat private

respondents are ordered to return to petitioners the amount of P874,150, which the latter paid as a
consequence of the rescinded contract, with legal interest thereon from January 8, 1987, the date of
rescission. No pronouncement as to costs.
SO ORDERED.j6 j 3
$
and _
% !! , concur.
1597 applies and not 1191 because the suspensive condition was not complied with i.e. the opening
of the letters of credit, hence without this, there is not contract of sale but only a promise to sell. In
1191, reciprocal obligations should exist. 1597 applies because the good has not been delivered to
the buyer and the buyer has repudiated the contract of sale (pero contract of sale nga sabi ng code,
hindi promise to sell, so dapat hindi rin 1597 ang mag-apply). Consent to dig up scrap of iron is not
tantamount to constructive delivery.
Ô
Manila
EN BANC

)23 ..
VISAYAN SAWMILL COMPANY, INC., and ANG TAY, petitioners, vs. THE HONORABLE COURT OF
APPEALS and RJH TRADING, represented by RAMON J. HIBIONADA, proprietor, respondents.
Saleto J. Erames and Edilberto V. Logronio for petitioners.
Eugenio O. Original for private respondent.
SYLLABUS
1. CIVIL LAW; CONTRACT TO SELL; EFFECT OF VENDEE'S FAILURE TO COMPLY WITH POSITIVE
SUSPENSIVE CONDITION; CASE AT BAR. Ȅ The petitioner corporation's obligation to sell is
unequivocally subject to a positive suspensive condition, i.e., the private respondent's opening,
making or indorsing of an irrevocable and unconditional letter of credit. The former agreed to
deliver the scrap iron only upon payment of the purchase price by means of an irrevocable and
unconditional letter of credit. Otherwise stated, the contract is not one of sale where the buyer
acquired ownership over the property subject to the resolutory condition that the purchase price
would be paid after delivery. Thus, there was to be no actual sale until the opening, making or
indorsing of the irrevocable and unconditional letter of credit. Since what obtains in the case at bar
is a mere promise to sell, the failure of the private respondent to comply with the positive
suspensive condition cannot even be considered a breach Ȅ casual or serious Ȅ but simply an
event that prevented the obligation of petitioner corporation to convey title from acquiring binding
force. In Luzon Brokerage Co., Inc. vs. Maritime Building Co., Inc., this Court stated: ". . . The upshot
of all these stipulations is that in seeking the ouster of Maritime for failure to pay the price as
agreed upon, Myers was not rescinding (or more properly, resolving) the contract, but precisely
enforcing it according to its express terms. In its suit Myers was not seeking restitution to it of the
ownership of the thing sold (since it was never disposed of), such restoration being the logical
consequence of the fulfillment of a resolutory condition, express or implied (Article 1190); neither
was it seeking a declaration that its obligation to sell was extinguished. What it sought was a
judicial declaration that because the suspensive condition (full and punctual payment) had not been
fulfilled, its obligation to sell to Maritime never arose or never became effective and, therefore, it
(Myers) was entitled to repossess the property object of the contract, possession being a mere
incident to its right of ownership. It is elementary that, as stated by Castan, -- 'b) Si la condicion
suspensiva llega a faltar, la obligacion se tiene por no existente, y el acreedor pierde todo derecho,
incluso el de utilizar las medidas conservativas.'(3 Castan, Derecho Civil, 7a Ed., p. 107). (Also Puig
Peña, Der. Civ., T. IV (1), p. 113).'"
2. ID.; ID.; ID.; RESCISSION. Ȅ The obligation of the petitioner corporation to sell did not arise; it
therefore cannot be compelled by specific performance to comply with its prestation. In short,
Article 1191 of the Civil Code does not apply; on the contrary, p ursuant to Article 1597 of the Civil
Code, the petitioner corporation may totally rescind, as it did in this case, the contract . Said Article
provides: "ART. 1597. Where the goods have not been delivered to the buyer, and the buyer has
3. ID.; ID.; IN CASE AT BAR, VENDOR'S CONSENT TO DIGGING UP AND GATHERING OF SCRAP IRON
NOT CONSTRUED AS DELIVERY THEREOF; REASONS THEREFOR. Ȅ Paragraph 6 of the Complaint
reads: "6. That on May 17, 1983 Plaintiff with the consent of defendant Ang Tay sent his men to the
the scrap iron and stock the same for weighing." This permission or consent can, by no stretch of
the imagination, be construed as delivery of the scrap iron in the sense that, as held by the public
respondent, citing Article 1497 of the Civil Code, petitioners placed the private respondent in
control and possession thereof. In the first place, said Article 1497 falls under the Chapter
Obligations of the Vendor, which is found in Title VI (Sales), Book IV of the Civil Code. As such,
therefore, the obligation imposed therein is premised on an existing obligation to deliver the
subject of the contract. In the instant case, in view of the private respondent's failure to comply
with the positive suspensive condition earlier discussed, such an obligation had not yet arisen. In
the second place, it was a mere accommodation to expedite the weighing and hauling of the iron in
the event that the sale would materialize. The private respondent was not thereby placed in
possession of and control over the scrap iron. Thirdly, We cannot even assume the conversion of
the initial contract or promise to sell into a contract of sale by the petitioner corporation's alleged
implied delivery of the scrap iron because its action and conduct in the premises do not support
this conclusion. Indeed, petitioners demanded the fulfillment of the suspensive condition and
eventually cancelled the contract.
4. ID.; CONTRACTS; DAMAGES; MORAL DAMAGES; PURPOSE OF AWARD THEREOF; EXEMPLARY

DAMAGES. Ȅ In contracts, such as in the instant case, moral damages may be recovered if
defendants acted fraudulently and in bad faith, while exemplary damages may only be awarded if
defendants acted in a wanton, fraudulent, reckless, oppressive or malevolent manner. In the instant
case, the refusal of the petitioners to deliver the scrap iron was founded on the non-fulfillment by
the private respondent of a suspensive condition. It cannot, therefore, be said that the herein
petitioners had acted fraudulently and in bad faith or in a wanton, reckless, oppressive or
malevolent manner. What this Court stated in Inhelder Corp. vs. Court of Appeals needs to be
stressed anew: "At this juncture, it may not be amiss to remind Trial Courts to guard against the
award of exhorbitant (sic) damages that are way out of proportion to the environmental
circumstances of a case and which, time and again, this Court has reduced or eliminated. Judicial
discretion granted to the Courts in the assessment of damages must always be exercised with
balanced restraint and measured objectivity." For, indeed, moral damages are emphatically not
intended to enrich a complainant at the expense of the defendant. They are awarded only to enable
the injured party to obtain means, diversion or amusements that will serve to obviate the moral
suffering he has undergone, by reason of the defendant's culpable action. Its award is aimed at the
restoration, within the limits of the possible, of the spiritual status quo ante, and it must be
proportional to the suffering inflicted.
1. CIVIL LAW; CONTRACT OF SALE; DEFINED; WHEN PERFECTED; CASE AT BAR. Ȅ Article 1458 of
the Civil Code has this definition: "By a contract of sale, one of the contracting parties obligates
himself to transfer the ownership of and to deliver a determinate thing and the other to pay
therefor a price certain in money or its equivalent." Article 1475 gives the significance of this
mutual undertaking of the parties, thus: "The contract of sale is perfected at the moment there is a
meeting of minds upon the thing which is the object of the contract and upon the price. From that
moment, the parties may reciprocally demand performance, subject to the provisions of the law
governing the form of contracts." Thus, when the parties entered into the contract entitled
"Purchase and Sale of Scrap Iron" on May 1, 1983, the contract reached the stage of perfection,
there being a meeting of the' minds upon the object which is the subject matter of the contract and
the price which is the consideration. Applying Article 1475 of the Civil Code, from that moment, the
parties may reciprocally demand performance of the obligations incumbent upon them, i.e.,
delivery by the vendor and payment by the vendee.
2. ID.; ID.; DELIVERY; HOW ACCOMPLISHED; CASE AT BAR. Ȅ From the time the seller gave access
to the buyer to enter his premises, manifesting no objection thereto but even sending 18 or 20
people to start the operation, he has placed the goods in the control and possession of the vendee
and delivery is effected. For according to Article 1497, "The thing sold shall be understood as
delivered when it is placed in the control and possession of the vendee." Such action or real delivery
(traditio) is the act that transfers ownership. Under Article 1496 of the Civil Code, "The ownership
of the thing sold is acquired by the vendee from the moment it is delivered to him in any of the
ways specified in Articles 1497 to 1501, or in any other manner signifying an agreement that the
possession is transferred from the vendor to the vendee."
3. ID.; ID.; PROVISION IN CONTRACT REGARDING MODE OF PAYMENT NOT ESSENTIAL REQUISITE
THEREOF; WHEN PROVISION CONSIDERED A SUSPENSIVE CONDITION. Ȅ a provision in the
contract regarding the mode of payment, like the requirement for the opening of the Letter of
Credit in this case, is not among the essential requirements of a contract of sale enumerated in
Articles 1305 and 1474, the absence of any of which will prevent the perfection of the contract from
happening. Likewise, it must be emphasized that not every provision regarding payment should
automatically be classified as a suspensive condition. To do so would change the nature of most
contracts of sale into contracts to sell. For a provision in the contract regarding the payment of the
price to be considered a suspensive condition, the parties must have made this clear in certain and
unambiguous terms, such as for instance, by reserving or withholding title to the goods unti l full
payment by the buyer. This was a pivotal circumstance in the Luzon Brokerage case where the
contract in question was replete with very explicit provisions such as the following: "Title to the
properties subject of this contract remains with the Vendor and shall pass to, and be transferred in
the name of the Vendee only upon complete payment of the full price . . .;" 10 the Vendor (Myers)
will execute and deliver to the Vendee a definite and absolute Deed of Sale upon full payment of the
Vendee . . .; and "should the Vendee fail to pay any of the monthly installments, when due, or
otherwise fail to comply with any of the terms and conditions herein stipulated, then this Deed of
Conditional Sale shall automatically and without any further formality, bec ome null and void." It is
apparent from a careful reading of Luzon Brokerage, as well as the cases which preceded it and the
subsequent ones applying its doctrines, that the mere insertion of the price and the mode of
payment among the terms and conditions of the agreement will not necessarily make it a contract
to sell. The phrase in the contract "on the following terms and conditions" is standard form which is
not to be construed as imposing a condition, whether suspensive or resolutory, in the sense of the
happening of a future and uncertain event upon which an obligation is made to depend. There must
be a manifest understanding that the agreement is in what may be referred to as "suspended
animation" pending compliance with provisions regarding payment. The reservation of title to the
object of the contract in the seller is one such manifestation. Hence, it has been decided in the case
of Dignos v. Court of Appeals that, absent a proviso in the contract that the title to the property is
reserved in the vendor until full payment of the purchase price or a stipulation giving the vendor
the right to unilaterally rescind the contract the moment the vendee fails to pay within the fixed
period, the transaction is an absolute contract of sale and not a contract to sell.
4. ID.; ID.; CONTRACT OF SALE DISTINGUISHED FROM CONTRACT TO SELL; EFFECT OF NON-
PAYMENT OF PURCHASE PRICE; EFFECT OF DELIVERY ON OWNERSHIP OF OBJECT OF
CONTRACT. Ȅ In a contract of sale, the non-payment of the price is a resolutory condition which
thereunder. On the other hand, "the parties may stipulate that ownership in the thing shall not pass
to the purchaser until he has fully paid the price." In such a contract to sell, the full payment of the
price is a positive suspensive condition, such that in the event of non-payment, the obligation of the
seller to deliver and transfer ownership never arises. Stated differently, in a contract to sell,
ownership is not transferred upon delivery of property but upon full payment of the purchase
price. Consequently, in a contract of sale, after delivery of the object of the contract has been made,
the seller loses ownership and cannot recover the same unless the contract is rescinded. But in the
5. ID.; ID.; CASE OF SYCIP V. NATIONAL COCONUT CORPORATION, ET AL., G.R. NO. L-6618, APRIL
28, 1956, DISTINGUISHED FROM CASE AT BAR. Ȅ Worthy of mention before concluding is Sycip v.
National Coconut Corporation, et al. since, like this case, it involves a failure to open on time the
Letter of Credit required by the seller. In Sycip, after the buyer offered to buy 2,000 tons of copra,
the seller sent a telegram dated December 19, 1946 to the buyer accepting the offer but on
condition that the latter opens a Letter of Credit within 48 hours. It was not until December 26,
1946, however, that the Letter of Credit was opened. The Court, speaking through Justice Bengzon,
held that because of the delay in the opening of the Letter of Credit; the sel ler was not obliged to
deliver the goods. Two factors distinguish Sycip from the case at bar. First, while there has already
been a perfected contract of sale in the instant case, the parties in Sycip were still undergoing the
negotiation process. The seller's qualified acceptance in Sycip served as a counter offer which
prevented the contract from being perfected. Only an absolute and unqualified acceptance of a
definite offer manifests the consent necessary to perfect a contract. Second, the Court found in Sycip
that time was of the essence for the seller who was anxious to sell to other buyers should the
offeror fail to open the Letter of Credit within the stipulated time. In contrast, there are no indicia in
this case that can lead one to conclude that time was of the essence for petitioner as would make
the eleven-day delay a fundamental breach of the contract.
6. ID.; OBLIGATIONS AND CONTRACTS; RESCISSION UNDER ARTICLE 1191 OF THE CIVIL CODE;
WHEN PROPER; DELAY IN PAYMENT FOR TWENTY DAYS NOT CONSIDERED A SUBSTANTIAL
BREACH OF CONTRACT; CASE AT BAR. Ȅ The right to rescind pursuant to Article 1191 is not
absolute. Rescission will not be permitted for slight or casual breach of the contract. Here,
petitioners claim that the breach is so substantial as to justify rescission . . . I am not convinced that
the circumstances may be characterized as so substantial and fundamental as to defeat the object of
the parties in making the agreement. None of the alleged defects in the Letter of Credit would serve
to defeat the object of the parties. It is to be stressed that the purpose of the opening of a Letter of
Credit is to effect payment. The above-mentioned factors could not have prevented such payment. It
is also significant to note that petitioners sent a telegram to private respondents on May 23, 1983
cancelling the contract. This was before they had even received on May 26, 1983 the notice from the
bank about the opening of the Letter of Credit. How could they have made a judgment on the
materiality of the provisions of the Letter of Credit for purposes of rescinding the contract even
before setting eyes on said document? To be sure, in the contract, the private respondents were
supposed to open the Letter of Credit on May 15, 1983 but, it was not until May 26, 19 83 or eleven
(11) days later that they did so. Is the eleven-day delay a substantial breach of the contract as could
justify the rescission of the contract? In Song Fo and Co. v. Hawaiian-Philippine Co., it was held that
a delay in payment for twenty (20) days was not a violation of an essential condition of the contract
which would warrant rescission for non-performance. In the instant case, the contract is bereft of
any suggestion that time was of the essence. On the contrary, it is noted that petitioners allowed
private respondents' men to dig and remove the scrap iron located in petitioners' premises
between May 17, 1983 until May 30, 1983 or beyond the May 15, 1983 deadline for the opening of
the Letter of Credit. Hence, in the absence of any indication that the time was of the essence, the
eleven-day delay must be deemed a casual breach which cannot justify a rescission.
DECISION
DAVIDE, JR., J p:
By this petition for review under Rule 45 of the Rules of Court, petitioners urge this Court to set
aside the decision of public respondent Court of Appeals in C.A.-G.R. CV No. 08807, 1 promulgated
on 16 March 1988, which affirmed with modification, in respect to the moral damages, the decision
of the Regional Trial Court (RTC) of Iloilo in Civil Case No. 15128, an action for specific performance
and damages, filed by the herein private respondent against the petitioners. The dispositive portion
of the trial court's decision reads as follows:
"IN VIEW OF THE ABOVE FINDINGS, judgment is hereby rendered in favor of plaintiff and against
the defendants ordering the latter to pay jointly and severally plaintiff, to wit:
1) The sum of Thirty-Four Thousand Five Hundred Eighty Three and 16/100 (P34,583.16), as
actual damages;
2) The sum of One Hundred Thousand (P100,000.00) Pesos, as moral damages;
3) The sum of Ten Thousand (P10,000.00) Pesos, as exemplary damages;
4) The sum of TWENTY Five Thousand (P25,000.00) Pesos, as attorney's fees; and
5) The sum of Five Thousand (P5,000.00) Pesos as actual litis expenses." 2
The public respondent reduced the amount of moral damages to P25,000.00.
The antecedent facts, summarized by the public respondent, are as follows:
"On May 1, 1983, herein plaintiff-appellee and defendants-appellants entered into a sale involving
scrap iron located at the stockyard of defendant-appellant corporation at Cawitan, Sta. Catalina,
Negros Oriental, subject to the condition that plaintiff -appellee will open a letter of credit in the
amount of P250,000.00 in favor of defendant -appellant corporation on or before May 15, 1983. This
is evidenced by a contract entitled `Purchase and Sale of Scrap Iron' duly signed by both parties.
On May 17, 1983, plaintiff-appellee through his man (sic), started to dig and gather and (sic) scrap
iron at the defendant-appellant's (sic) premises, proceeding with such endeavor until May 30 when
defendants-appellants allegedly directed plaintiff-appellee's men to desist from pursuing the work
in view of an alleged case filed against plaintiff-appellee by a certain Alberto Pursuelo. This,
however, is denied by defendants-appellants who allege that on May 23, 1983, they sent a telegram
to plaintiff-appellee cancelling the contract of sale because of failure of the latter to comply with the
conditions thereof.
On May 24, 1983, plaintiff-appellee informed defendants-appellants by telegram that the letter of
credit was opened May 12, 1983 at the Bank of the Philippine Islands main office in Ayala, but then
(sic) the transmittal was delayed.
On May 26, 1983, defendants-appellants received a letter advice from the Dumaguete City Branch of
the Bank of the Philippine Islands dated May 26, 1983, the content of which is quited (sic) as
follows:
'Please be advised that we have received today cable advise from our Head Office which reads as
follows:
'Open today our irrevocable Domestic Letter of Credit No. 01456 -d fot (sic) P250,000.00 favor ANG
TAY c/o Visayan Sawmill Co., Inc. Dumaguete City, Negros Oriental Account of ARMACO-MARSTEEL
ALLOY CORPORATION 2nd Floor Alpap 1 Bldg., 140 Alfaro stp (sic) Salcedo Village, Makati, Metro
July 24, 1983 without recourse at sight draft drawn on Armaco Marsteel Alloy Corporation
accompanied by the following documents: Certificate of Acceptance by Armaco-Marsteel Alloy
allowed/transhipment (sic) not allowed'.
For your information'.
On July 19, 1983, plaintiff-appellee sent a series of telegrams stating that the case filed against him
by Pursuelo had been dismissed and demanding that defendants -appellants comply with the deed
of sale, otherwise a case will be filed against them.
In reply to those telegrams, defendants-appellants' lawyer, on July 20, 1983 informed plaintiff-
appellee's lawyer that defendant-appellant corporation is unwilling to continue with the sale due to
plaintiff-appellee's failure to comply with essential pre-conditions of the contract.
On July 29, 1983, plaintiff-appellee filed the complaint below with a petition for preliminary
attachment. The writ of attachment was returned unserved because the defendant-appellant
corporation was no longer in operation and also because the scrap iron as well as other pieces of
machinery can no longer be found on the premises of the corporation." 3
In his complaint, private respondent prayed for judgment ordering the petitioner corporation to
comply with the contract by delivering to him the scrap iron subject thereof; he further sought an
award of actual, moral and exemplary damages, attorney's fees and the costs of the suit. 4
In their Answer with Counterclaim, 5 petitioners insisted that the cancellation of the contract was
justified because of private respondent's non-compliance with essential pre-conditions, among
which is the opening of an irrevocable and unconditional letter of credit not later than 15 May
1983.
During the pre-trial of the case on 30 April 1984, the parties defined the issues to be resolved; these
issues were subsequently embodied in the pre-trial order, to wit:
"1. Was the contract entitled Purchase and Sale of Scrap Iron, dated May 1, 1983 executed by the
parties cancelled and terminated before the Complaint was filed by anyone of the parties; if so,
what are the grounds and reasons relied upon by the cancelling parties; and were the reasons or
grounds for cancelling valid and justified?
2. Are the parties entitled to damages they respectively claim under the pleadings?" 6
On 29 November 1985, the trial court rendered its judgment, the dispositive portion of which was
quoted earlier.
Petitioners appealed from said decision to the Court of Appeals which docketed the same as C.A.-
G.R. CV No. 08807. In their Brief, petitioners, by way of assigned errors, alleged that the trial court
erred:
"1. In finding that there was delivery of the scrap iron subject of the sale;
2. In not finding that plaintiff had not complied with the conditions in the contract of sale;
3. In finding that defendants-appellants were not justified in cancelling the sale;
4. In awarding damages to the plaintiff as against the defendants-appellants;
5. In not awarding damages to defendants-appellants." 7
Public respondent disposed of these assigned errors in this wise:
"On the first error assigned, defendants-appellants argue that there was no delivery because the
purchase document states that the seller agreed to sell and the buyer agreed to buy 'an
undetermined quantity of scrap iron and junk which the seller will identify and designate.' Thus, it
is contended, since no identification and designation was made, there could be no delivery. In
addition, defendants-appellants maintain that their obligation to deliver cannot be completed until
they furnish the cargo trucks to haul the weighed materials to the wharf.
The arguments are untenable. Article 1497 of the Civil Code states:
'The thing sold shall be understood as delivered when it is placed in the control and possession of
the vendee.'
In the case at bar, control and possession over the subject matter of the contract was given to
plaintiff-appellee, the buyer, when the defendants-appellants as the sellers allowed the buyer and
his men to enter the corporation's premises and to dig-up the scrap iron. The pieces of scrap iron
then (sic) placed at the disposal of the buyer. Delivery was therefore complete. The identification
and designation by the seller does not complete delivery.
On the second and third assignments of error, defendants-appellants argue that under Articles
1593 and 1597 of the Civil Code, automatic rescission may take place by a mere notice to the buyer
if the latter committed a breach of the contract of sale.
Even if one were to grant that there was a breach of the contract by the buyer, automatic rescission
cannot take place because, as already (sic) stated, delivery had already been made. And, in cases
where there has already been delivery, the intervention of the court is necessary to annul the
contract.
As the lower court aptly stated:
'Respecting these allegations of the contending parties, while it is true that Article 1593 of the New
Civil Code provides that with respect to movable property, the rescission of the sale shall of right
take place in the interest of the vendor, if the vendee fails to tender the price at the time or period
fixed or agreed, however, automatic rescission is not allowed if the object sold has been delivered
to the buyer (Guevarra vs. Pascual, 13 Phil. 311; Escueta vs. Pando, 76 Phil 256), the action being
one to rescind judicially and where (sic) Article 1191, supra, thereby applies. There being already
an implied delivery of the items, subject matter of the contract between the parties in this case, the
defendant having surrendered the premises where the scraps (sic) were found for plaintiff's men to
dig and gather, as in fact they had dug and gathered, this Court finds the mere notice of resolution
by the defendants untenable and not conclusive on the rights of the plaintiff (Ocejo Perez vs. Int.
Bank, 37 Phi. 631). Likewise, as early as in the case of Song Fo vs. Hawaiian Philippine Company, it
has been ruled that rescission cannot be sanctioned for a slight or casual breach (47 Phil. 821).'
In the case of Angeles vs. Calasanz (135 (1935) SCRA 323), the Supreme Court ruled:
'Article 1191 is explicit. In reciprocal obligations, either party has the right to rescind the contract
upon failure of the other to perform the obligation assumed thereunder.
Of course, it must be understood that the right of a party in treating a contract as cancelled or
resolved on account of infractions by the other contracting party must be made known to the other
and is always provisional, being ever subject to scrutiny and review by the proper court.'
Thus, rescission in cases falling under Article 1191 of the Civil Code is always subject to review by
the courts and cannot be considered final.
In the case at bar, the trial court ruled that rescission is improper because the breach was very
slight and the delay in opening the letter of credit was only 11 days.
'Where time is not of the essence of the agreement, a slight delay by one party in the performance of
his obligation is not a sufficient ground for rescission of the agreement. Equity and justice mandates
(sic) that the vendor be given additional (sic) period to complete payment of the purchase price.'
(Taguda vs. Vda. de Leon, 132 SCRA (1984), 722).'
There is no need to discuss the fourth and fifth assigned errors since these are merely corollary to
the first three assigned errors." 8
Their motion to reconsider the said decision having been denied by public respondent in its
Resolution of 4 May 1988, 9 petitioners filed this petition reiterating the abovementioned
assignment of errors.
There is merit in the instant petition.
Both the trial court and the public respondent erred in the appreciation of the nature of the
transaction between the petitioner corporation and the private respondent. "30!"B!<0#
43)"$")0!0"32)!)"$)0!)<2")2""!55 <0!"!55)#")2")2"
=!)5
The trial court assumed that the transaction is a contract of sale and, influenced by its view that
there was an "implied delivery" of the object of the agreement, concluded that Article 1593 of the
Civil Code was inapplicable; citing Guevarra vs. Pascual 10 and Escueta vs. Pando, 11 it ruled that
rescission under Article 1191 of the Civil Code could only be done judicially. The trial court further
classified the breach committed by the private respondent as slight or casual, foreclosing, thereby,
petitioners' right to rescind the agreement.
"ARTICLE 1593. With respect to movable property, the rescission of the sale shall of right take place
in the interest of the vendor, if the vendee, upon the expiration of the period fixed for the delivery of
the thing, should not have appeared to receive it, or, having appeared, he should not have tendered
the price at the same time, unless a longer period has been stipulated for its payment."
Article 1191 provides:
"ARTICLE 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the
period."
xxx xxx xxx
Sustaining the trial court on the issue of delivery, public respondent cites Article 1497 of the Civil
Code which provides:
"ARTICLE 1497. The thing sold shall be understood as delivered, when it is placed in the control
and possession of the vendee."
In the agreement in question, entitled PURCHASE AND SALE OF SCRAP IRON, 12 the seller bound
and promised itself to sell the scrap iron upon the fulfillment by the private respondent of his
obligation to make or indorse an irrevocable and unconditional letter of credit in payment of the
purchase price. Its principal stipulation reads, to wit:
xxx xxx xxx
"Witnesseth:
Oriental, at the price of FIFTY CENTAVOS (P0.50) per kilo on the following terms and conditions:
1. Weighing shall be done in the premises of the SELLER at Cawitan, Sta. Catalina, Neg. Oriental.
2. To cover payment of the purchase price, BUYER will open, make or indorse an irrevocable and
Company, Dumaguete City, Branch, in favor of the SELLER in the sum of TWO HUNDRED AND FIFTY
THOUSAND PESOS (P250,000.00), Philippine Currency.
haul the weighed materials from Cawitan to the TSMC wharf at Sta. Catalina for loading on BUYER's
4. SELLER shall be entitled to a deduction of three percent (3%) per ton as rust allowance."
(Emphasis supplied).
The petitioner corporation's obligation to sell is unequivocally subject to a positive suspensive

condition, i.e., the private respondent's opening, making or indorsing of an irrevocable and
unconditional letter of credit. The former agreed to deliver the scrap iron only upon payment of the
purchase price by means of an irrevocable and unconditional letter of credit. Otherwise stated, the
contract is not one of sale where the buyer acquired ownership over the property subject to the
resolutory condition that the purchase price would be paid after delivery. Thus, there was to be no
actual sale until the opening, making or indorsing of the irrevocable and unconditional letter of
credit. Since what obtains in the case at bar is a mere promise to sell, the failure of the private
respondent to comply with the positive suspensive condition cannot even be considered a breach
Ȅ casual or serious Ȅ but simply an event that prevented the obligation of petitioner corporation
to convey title from acquiring binding force. In Luzon Brokerage Co., Inc. vs. Maritime Building Co.,
Inc., 13 this Court stated:
" . . . The upshot of all these stipulations is that in seeking the ouster of Maritime for failure to pay
the price as agreed upon, Myers was not rescinding (or more properly, resolving) the contract, but
precisely enforcing it according to its express terms. In its suit Myers was not seeking restitution to
it of the ownership of the thing sold (since it was never disposed of), such restoration being the
logical consequence of the fulfillment of a resolutory condition, express or implied (article 1190);
neither was it seeking a declaration that its obligation to sell was extinguished. What it sought was
a judicial declaration that because the suspensive condition (full and punctual payment) had not
been fulfilled, its obligation to sell to Maritime never arose or never became effective and, therefore,
it (Myers) was entitled to repossess the property object of the contract, possession being a mere
incident to its right of ownership. It is elementary that, as stated by Castan, Ȅ
'b) Si la condicion suspensiva llega a faltar, la obligacion se tiene por no existente, y el acreedor
pierde todo derecho, incluso el de utilizar las medidas conservativas.' (3 Cast n, Derecho Civil, 7a
Ed., p. 107). (Also Puig Peña, Der. Civ., T. IV (1), p. 113)'."
In the instant case, not only did the private respondent fail to open, make or indorse an irrevocable
and unconditional letter of credit on or before 15 May 1983 despite his earlier representation in his
24 May 1983 telegram that he had opened one on 12 May 1983, the letter of advice received by the
petitioner corporation on 26 May 1983 from the Bank of the Philippine Islands Dumaguete City
branch explicitly makes reference to the opening on that date of a letter of credit in favor of
petitioner Ang Tay c/o Visayan Sawmill Co. Inc., drawn without recourse on ARMACO-MARSTEEL
ALLOY CORPORATION and set to expire on 24 July 1983, which is indisputably not in accordance
with the stipulation in the contract signed by the parties on at least three (3) counts: (1) it was not
opened, made or indorsed by the private respondent, but by a corporation which is not a party to
the contract; (2) it was not opened with the bank agreed upon; and (3) it is not irrevocable and
unconditional, for it is without recourse, it is set to expire on a specific date and it stipulates certain
conditions with respect to shipment. In all probability, private respondent may have sold the
subject scrap iron to ARMACO-MARSTEEL ALLOY CORPORATION, or otherwise assigned to it the
contract with the petitioners. Private respondent's complaint fails to disclose the sudden entry into
the picture of this corporation.
Consequently, the obligation of the petitioner corporation to sell did not arise; it therefore cannot
be compelled by specific performance to comply with its prestation. In short, Article 1191 of the
Civil Code does not apply; on the contrary, pursuant to Article 1597 of the Civil Code, the petitioner
corporation may totally rescind, as it did in this case, the contract. Said Article provides:
The trial court ruled, however, and the public respondent was in agreement, that there had been an
implied delivery in this case of the subject scrap iron because on 17 May 1983, private respondent's
men started digging up and gathering scrap iron within the petitioner's premises. The entry of
these men was upon the private respondent's request. Paragraph 6 of the Complaint reads:
"6. That on May 17, 1983 Plaintiff with the consent of defendant Ang Tay sent his men to the
the scrap iron and stock the same for weighing." 14
This permission or consent can, by no stretch of the imagination, be construed as delivery of the
scrap iron in the sense that, as held by the public respondent, citing Article 1497 of the Civil Code,
petitioners placed the private respondent in control and possession thereof. In the first place, said
Article 1497 falls under the Chapter 15 Obligations of the Vendor, which is found in Title VI (Sales),
Book IV of the Civil Code. As such, therefore, the obligation imposed therein is premised on an
existing obligation to deliver the subject of the contract. In the instant case, in view of the private
respondent's failure to comply with the positive suspensive condition earlier discussed, such an
obligation had not yet arisen. In the second place, it was a mere accommodation to expedite the
weighing and hauling of the iron in the event that the sale would materialize. The private
respondent was not thereby placed in possession of and control over the scrap iron. Thirdly, We
cannot even assume the conversion of the initial contract or promise to sell into a contract of sale
by the petitioner corporation's alleged implied delivery of the scrap iron because its action and
conduct in the premises do not support this conclusion. Indeed, petitioners demanded the
fulfillment of the suspensive condition and eventually cancelled the contract.
All told, Civil Case No. 15128 filed before the trial court was nothing more than the private
respondent's preemptive action to beat the petitioners to the draw.
One last point. This Court notes the palpably excessive and unconscionable moral and exemplary
damages awarded by the trial court to the private respondent despite a clear absence of any legal
and factual basis therefor. In contracts, such as in the instant case, moral damages may be
recovered if defendants acted fraudulently and in bad faith, 16 while exemplary damages may only
be awarded if defendants acted in a wanton, fraudulent, reckless, oppressive or malevolent manner.
17 In the instant case, the refusal of the petitioners to deliver the scrap iron was founded on the
non-fulfillment by the private respondent of a suspensive condition. It cannot, therefore, be said
that the herein petitioners had acted fraudulently and in bad faith or in a wanton, reck less,
oppressive or malevolent manner. What this Court stated in Inhelder Corp. vs. Court of Appeals 18
needs to be stressed anew:
"At this juncture, it may not be amiss to remind Trial Courts to guard against the award of
exhorbitant (sic) damages that are way out of proportion to the environmental circumstances of a
case and which, time and again, this Court has reduced or eliminated. Judicial discretion granted to
the Courts in the assessment of damages must always be exercised with balanced restraint and
measured objectivity."
For, indeed, moral damages are emphatically not intended to enrich a complainant at the expense of
the defendant. They are awarded only to enable the injured party to obtain means, diversion or
amusements that will serve to obviate the moral suffering he has undergone, by reason of the
defendant's culpable action. Its award is aimed at the restoration, within the limits of the possible,
of the spiritual status quo ante, and it must be proportional to the suffering inflicted. 19
WHEREFORE, the instant petition is GRANTED. The decision of public respondent Court of Appeals
in C.A.-G.R. CV No. 08807 is REVERSED and Civil Case No. 15128 of the Regional Trial Court of Iloilo
is ordered DISMISSED.
Costs against the private respondent.
SO ORDERED.
Narvasa, C .J ., Cruz, Feliciano, Padilla, Bidin and Bellosillo, JJ ., concur.
Gutierrez, Jr., J ., On terminal leave.
Melo and Quiason, JJ ., No part.
Separate Opinions
I vote to dismiss the petition.
Petitioner corporation, Visayan Sawmill Co., Inc., entered into a contract on May 1, 1983 with
private respondent RJH Trading Co. represented by private respondent Ramon J. Hibionada. The
contract, entitled "PURCHASE AND SALE OF SCRAP IRON," stated:
This contract for the Purchase and Sale of Scrap Iron, made and executed at Dumaguete City, Phil.,
this 1st day of May, 1983 by and between:
VISAYAN SAWMILL CO., INC., . . . hereinafter called the SELLER, and
RAMON J. HIBIONADA, . . . hereinafter called the BUYER,
witnesseth:
Oriental, at the price of FIFTY CENTAVOS (P.50) per kilo on the following terms and conditions:
1. Weighing shall be done in the premises of the SELLER at Cawitan, Sta. Catalina, Negros Oriental.
2. To cover payment of the purchase price BUYER will open, make or indorse an irrevocable and
Company, Dumaguete City Branch, in favor of the SELLER in the sum of TWO HUNDRED AND FIFTY
THOUSAND PESOS (P250,000.00), Philippine currency.
haul the weighed materials from Cawitan to the TSMC wharf at Sta. Catalina for loading on BUYER'S
4. SELLER shall be entitled to a deduction of three percent (3%) per ton as rust allowance.
xxx xxx xxx
On May 17, 1983, the workers of private respondents were allowed inside petitioner company's
premises in order to gather the scrap iron. However, on May 23, 1983, petitione r company sent a
telegram which stated:
"RAMON HIBIONADA
RJH TRADING
286 QUEZON STREET
ILOILO CITY
DUE YOUR FAILURE TO COMPLY WITH CONDITIONS BEFORE DEADLINE OUR CONTRACT FOR
PURCHASE SCRAP IRON CANCELLED
VISAYAN SAWMILL CO., INC."
Hibionada wired back on May 24, 1983 the following:
"ANG TAY VISAYAN SAWMILL

DUMAGUETE CITY
LETTER OF CREDIT AMOUNTING P250,000.00 OPENED MAY 12, 1983 BANK OF PI MAIN OFFICE
AYALA AVENUE MAKATI METRO MANILA BUT TRANSMITTAL IS DELAYED PLEASE CONSIDER
REASON WILL PERSONALLY FOLLOW-UP IN MANILA THANKS REGARDS.
RAMON HIBIONADA"
On May 26, 1983, petitioner company received the following advice from the Dumaguete City
Branch of The Bank of Philippine Islands: cdll
"Opened today our Irrevocable Domestic Letter of Credit 2-01456-4 for P250,000.00 in favor ANG
TAY c/o Visayan Sawmill Co., Inc. Dumaguete City Negros Oriental Account of ARMACO-MARSTEEL
ALLOW (sic) CORPORATION 2nd Floor Alpap 1 Bldg., 140 Alfaro st. Salcedo Village Makati Metro
July 23, 1983 without recourse at slight draft drawn on Armaco-Marsteel Alloy Corporation
accompanied by the following documents: Certificate of acceptance by Armaco -Marsteel Allow (sic)
allowed/transhipment not allowed."
Subsequently, petitioners' counsel sent another telegram to private respondents stating that:
"VISAYAN SAWMILL COMPANY UNWILLING TO CONTINUE SALE OF SCRAP IRON TO HIBIONADA

DUE TO NON COMPLIANCE WITH ESSENTIAL PRE CONDITIONS"
Consequently, private respondents filed a complaint for specific performance and damages with the
Regional Trial Court (RTC) of Iloilo (Branch XXXV) which decided in favor of private respondents.
The RTC decision having been affirmed by the Court of Appeals, the present petition was filed.
Finding the petition meritorious, the ponencia reversed the decision of the Court of Appeals. Based
on its appreciation of the contract in question, it has arrived at the conclusion that herein contract
is not a contract of sale but a contract to sell which is subject to a positive suspensive condition, i.e.,
the opening of a letter of credit by private respondents. Since the condition was not fulfilled, the
obligation of petitioners to convey title did not arise. The lengthy decision of Luzon Brokerage Co.,
Inc. v. Maritime Co. Inc. 1 penned by Justice J.B.L. Reyes, was cited as authority on the assumption
that subject contract is indeed a contract to sell but which will be shown herein as not quite
accurate.
Evidently, the distinction between a contract to sell and a contract of sale is crucial in this case.
Article 1458 of the Civil Code has this definition: "By a contract of sale, one of the contracting
parties obligates himself to transfer the ownership of and to deliver a determinate thing and the
other to pay therefor a price certain in money or its equivalent."
Article 1475 gives the significance of this mutual undertaking of the parties, thus: "The contract of
sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the
contract and upon the price. From that moment, the parties may reciprocally demand performance,
subject to the provisions of the law governing the form of contracts."
Thus, when the parties entered into the contract entitled "Purchase and Sale of Scrap Iron" on May
1, 1983, the contract reached the stage of perfection, there being a meeting of the' minds upon the
object which is the subject matter of the contract and the price which is the consideration. Applying
Article 1475 of the Civil Code, from that moment, the parties may reciprocally demand performance
of the obligations incumbent upon them, i.e., delivery by the vendor and payment by the vendee.
Petitioner, in its petition, admits that "[b]efore the opening of the letter of credit, buyer Ramon
Hibionada went to Mr. Ang Tay and informed him that the letter of credit was forthcoming and if it
was possible for him (buyer) to start cutting and digging the scrap iron before the letter of credit
arrives and the former (seller) manifested no objection, and he immediately sent 18 or 20 people to
start the operation." 2
From the time the seller gave access to the buyer to enter his premises, manifesting no objection
thereto but even sending 18 or 20 people to start the operation, he has placed the goods in the
control and possession of the vendee and delivery is effected. For according to Article 1497, "The
thing sold shall be understood as delivered when it is placed in the control and possession of the
vendee." 3
Such action or real delivery (traditio) is the act that transfers ownership. Under Article 1496 of the
Civil Code, "The ownership of the thing sold is acquired by the vendee from the moment it is
delivered to him in any of the ways specified in Articles 1497 to 1501, or in any other manner
signifying an agreement that the possession is transferred from the vendor to the vendee."
That payment of the price in any form was not yet effected is immaterial to the transfer of the right
of ownership. In a contract of sale, the non-payment of the price is a resolutory condition which
thereunder. 4
On the other hand, "the parties may stipulate that ownership in the thing shall not pass to the
purchaser until he has fully paid the price." 5 In such a contract to sell, the full payment of the price
is a positive suspensive condition, such that in the event of non-payment, the obligation of the seller
to deliver and transfer ownership never arises. Stated differently, in a contract to sell, ownership is
not transferred upon delivery of property but upon full payment of the purchase price. 6
Consequently, in a contract of sale, after delivery of the object of the contract has been made, the
seller loses ownership and cannot recover the same unless the contract is rescinded. But in the
At the outset, it must be borne in mind that a provision in the contract regarding the mode of
payment, like the requirement for the opening of the Letter of Credit in this case, is not among the
essential requirements of a contract of sale enumerated in Articles 1305 7 and 1474, 8 the absence
of any of which will prevent the perfection of the contract from happening. Likewise, it must be
emphasized that not every provision regarding payment should automatically be classified as a
suspensive condition. To do so would change the nature of most contracts of sale into contracts to
sell. For a provision in the contract regarding the payment of the price to be considered a
suspensive condition, the parties must have made this clear in certain and unambiguous terms,
such as for instance, by reserving or withholding title to the goods until full payment by the buyer. 9
This was a pivotal circumstance in the Luzon Brokerage case where the contract in question was
replete with very explicit provisions such as the following: "Title to the properties subject of this
contract remains with the Vendor and shall pass to, and be transferred in the name of the Vendee
only upon complete payment of the full price . . .;" 10 the Vendor (Myers) will execute and deliver to
the Vendee a definite and absolute Deed of Sale upon full payment of the Vendee . . .; 11 and "should
the Vendee fail to pay any of the monthly installments, when due, or otherwise fail to comply with
any of the terms and conditions herein stipulated, then this Deed of Conditional Sale shall
automatically and without any further formality, become null and void." 12
It is apparent from a careful reading of Luzon Brokerage, as well as the cases which preceded it 13
and the subsequent ones applying its doctrines, 14 that the mere insertion of the price and the
mode of payment among the terms and conditions of the agreement will not necessarily make it a
contract to sell. The phrase in the contract "on the following terms and conditions" is standard form
which is not to be construed as imposing a condition, whether suspensive or resolutory, in the
sense of the happening of a future and uncertain event upon which an obligation is made to depend.
There must be a manifest understanding that the agreement is in what may be referred to as
"suspended animation" pending compliance with provisions regarding payment. The reservation of
title to the object of the contract in the seller is one such manifestation. Hence, it has been decided
in the case of Dignos v. Court of Appeals 15 that, absent a proviso in the contract that the title to the
property is reserved in the vendor until full payment of the purchase price or a stipulation giving
the vendor the right to unilaterally rescind the contract the moment the vendee fails to pay within
the fixed period, the transaction is an absolute contract of sale and not a contract to sell. 16
In the instant case, nowhere in the contract did it state that the petitioners reserve title to the goods
until private respondents have opened a letter of credit. Nor is there any provision declaring the
contract as without effect until after the fulfillment of the condition regarding the opening of the
letter of credit.
Examining the contemporaneous and subsequent conduct of the parties, which may be relevant in
the determination of the nature and meaning of the contract, 17 it is significant that in th e telegram
sent by petitioners to Hibionada on May 23, 1983, it stated that "DUE [TO] YOUR FAILURE TO
COMPLY WITH CONDITIONS BEFORE DEADLINE OUR CONTRACT FOR PURCHASE SCRAP IRON
CANCELLED." And in some of the pleadings in the course of this litigation, petitioners referred to
the transaction as a contract of sale. 18
In light of the provisions of the contract, contemporaneous and subsequent acts of the parties and
the other relevant circumstances surrounding the case, it is evident that the stipulation for the
buyer to open a Letter of Credit in order to cover the payment of the purchase price does not bear
the marks of a suspensive condition. The agreement between the parties was a contract of sale and
the "terms and conditions" embodied therein which are standard form, are clearly resolutory in
nature, the breach of which may give either party the option to bring an action to rescind and/or
seek damages. Contrary to the conclusions arrived at in the ponencia, the transaction is not a
contract to sell but a contract of sale.
However, the determination of the nature of the contract does not settle the controversy. A breach
of the contract was committed and the rights and liabilities of the parties must be established. The
ponencia, notwithstanding its conclusion that no contract of sale existed, proceeded to state that
petitioner company may rescind the contract based on Article 1597 of the Civil Code which
expressly applies only to a contract of sale. It provides:
giving notice of his election so to do to the buyer." (Emhasis supplied).
The ponencia was then confronted with the issue of delivery since Article 1597 applies only
"[w]here the goods have not yet been delivered." In this case, as aforestated, the workers of private
respondents were actually allowed to enter the petitioners' premises, thus, giving them control and
possession of the goods. At this juncture, it is even unnecessary to discuss the issue of delivery in
relation to the right of rescission nor to rely on Article 1597. In every contract which contains
reciprocal obligations, the right to rescind is always implied under Article 1191 of the Civil Code in
case one of the parties fails to comply with his obligations. 19
The right to rescind pursuant to Article 1191 is not absolute. Rescission will not be permitted for
slight or casual breach of the contract. 20 Here, petitioners claim that the breach is so substantial as
to justify rescission, not only because the Letter of Credit was not opened on May 15, 1983 as
stipulated in the contract but also because of the following factors: (1) the Letter of Credit, although
opened in favor of petitioners was made against the account of a certain Marsteel Alloy
Corporation, instead of private respondent's account; (2) the Letter of Credit referred to "assorted
steel scrap" instead of "scrap iron and junk" as provided in the contract; (3) the Letter of Credit
placed the quantity of the goods at "500 MT" while the contract mentioned "an undetermined
quantity of scrap iron and junk"; (4) no amount from the Letter of Credit will be released unless
accompanied by a Certificate of Acceptance; and (5) the Letter of Credit had an expiry date.
I am not convinced that the above circumstances may be characterized as so substantial and
fundamental as to defeat the object of the parties in making the agreement. 21 None of the alleged
defects in the Letter of Credit would serve to defeat the object of the parties. It is to be stressed that
the purpose of the opening of a Letter of Credit is to effect payment. The above-mentioned factors
could not have prevented such payment. It is also significant to note that petitioners sent a telegram
to private respondents on May 23, 1983 cancelling the contract. This was before they had even
received on May 26, 1983 the notice from the bank about the opening of the Letter of Credit. How
could they have made a judgment on the materiality of the provisions of the Letter of Credit for
purposes of rescinding the contract even before setting eyes on said document?
To be sure, in the contract, the private respondents were supposed to open the Letter of Credit on
May 15, 1983 but, it was not until May 26, 1983 or eleven (11) days later that they did so. Is the
eleven-day delay a substantial breach of the contract as could justify the rescission of the contract?
In Song Fo and Co. v. Hawaiian-Philippine Co. 22 it was held that a delay in payment for twenty (20)
days was not a violation of an essential condition of the contract which would warrant rescission
for non-performance. In the instant case, the contract is bereft of any suggestion that time was of
the essence. On the contrary, it is noted that petitioners allowed private respondents' men to dig
and remove the scrap iron located in petitioners' premises between May 17, 1983 until May 30,
1983 or beyond the May 15, 1983 deadline for the opening of the Letter of Credit. Hence, in the
absence of any indication that the time was of the essence, the eleven-day delay must be deemed a
casual breach which cannot justify a rescission.
Worthy of mention before concluding is Sycip v. National Coconut Corporation, et al. 23 since, like
this case, it involves a failure to open on time the Letter of Credit required by the seller. In Sycip,
after the buyer offered to buy 2,000 tons of copra, the seller sent a telegram dated December 19,
1946 to the buyer accepting the offer but on condition that the latter opens a Letter of Credit within
48 hours. It was not until December 26, 1946, however, that the Letter of Credit was opened. T he
Court, speaking through Justice Bengzon, held that because of the delay in the opening of the Letter
of Credit; the seller was not obliged to deliver the goods.
Two factors distinguish Sycip from the case at bar. First, while there has already been a perfected
contract of sale in the instant case, the parties in Sycip were still undergoing the negotiation
process. The seller's qualified acceptance in Sycip served as a counter offer which prevented the
contract from being perfected. Only an absolute and unqualified acceptance of a definite offer
manifests the consent necessary to perfect a contract. 24 Second, the Court found in Sycip that time
was of the essence for the seller who was anxious to sell to other buyers should the offeror fail to
open the Letter of Credit within the stipulated time. In contrast, there are no indicia in this case that
can lead one to conclude that time was of the essence for petitioner as would make the eleven -day
delay a fundamental breach of the contract.
In sum, to my mind, both the trial court and the respondent Court of Appeals committed no
reversible error in their appreciation of the agreement in question as a contract of sale and not a
contract to sell, as well as holding that the breach of the contract was not substantial and, therefore,
petitioners were not justified in law in rescinding the agreement.
PREMISES CONSIDERED, the Petition must be DISMISSED and the decision of the Court of Appeals
AFFIRMED.
Griño-Aquino, Regalado, Nocon and Campos, Jr., JJ ., join Justice Romero's dissent.
1545, there is an obligation imposed before the contract of sale and without this there is no
obligation that arises, however this may be waived, as in this case where the condition was not a
condition for the perfection of the contract but something to be done after the consummation.
Moreover, even if it was a condition for the perfection, Lim waived that condition because it knew
that the lease with Tanglawin was terminated and that it took the property from Gonzales even
with that knowledge.
Ô +&ÔG.R. No. 130403
"0"0
Present:
PUNO, !., ,
SANDOVAL-GUTIERREZ,
-7!!- CORONA,
AZCUNA and
GARCIA, !!
Ô

&)#
,ÔÎ

! #"!
Promulgated:
July 30, 2007
A--------------------------------------------------A
*Ô
J
:
At bar is an appeal by certiorari under Rule 45 of the Rules of Court questioning the
decision[1] and resolution[2] of the Court of Appeals (CA) in CA-G.R. CV No. 41716 entitled _
)@p _ ¢pp

.
The facts follow.

Petitioner Francisco Gonzales, Roque Ma. Gonzales and Carmen Gonzales (Gonzaleses) were
the owners of Motown Vehicles, Inc. (Motown). Motown was the licensed distributor of Ford
vehicles in the country. Its assets included two build ings standing on a 4,944 sq. m. lot leased from
Tanglaw Realty Inc. (Tanglaw).
In 1988, when Ford Philippines ceased operations, the Gonzaleses sold Motownǯs shares of
stocks to respondents Severino C. Lim and Toyota Shaw, Inc. which was then putting up a Toyota
car dealership. The ǲAgreementǳ signed by the parties stated that the sale included Motownǯs two
lease contracts with Tanglaw. It read:
WHEREAS, Motown, which owns these fixed and moveable improvements

and equipmentsǥdoes not own the land on which these improvements and
equipments are located, but merely leases the bare landǥ from Tanglaw Realty
Corp. under 2 Lease Contracts both dated June 17, 1978 both commencing Nov. 15,
1977 and expiring Nov. 14, 2002.
xxx xxx xxx
4. PAYMENT Ȅ The aforementioned price amounting to P6,746,000.00 shall

be paid by [respondents] to the [Gonzaleses] in two (2) installments payable
simultaneous to the occurrence of the following events:
1. P6,246,000 Ȃ [u]pon signing of this contract xxx
2. P500,000 Ȃ [u]pon receipt of official communication from

Tanglaw Realty Corporation to the effect that Motown can have
continuing and unhampered use of the pieces of [the leased]
landǥcovered by the 2 Lease Contractsǥ[I]t is understood that the
continuation of the lease at a reasonable rate for the original term of
the 2 lease agreements is a central, indivisible and very basic part of
this agreement, since the [bases] for the valuation of Motown by
[respondents are] its location and the improvements and
equipments contained therein.[3]
xxx xxx xxx
After paying the initial installment of P6,246,000 to the Gonzaleses, respondents claimed
they discovered that one of Motownǯs lease contracts had already been terminated prior to the sale.
As a result, they were allegedly constrained to negotiate with Tan glaw for a new lease contract
(with a higher rental).
Subsequently, respondents filed a case in the Regional Trial Court (RTC), Branch 65 of
Makati,[4] for declaratory relief with damages against the Gonzaleses, seeking release from their
obligation to pay the P500,000 balance.
During the trial, respondents (as then plaintiffs) accused the Gonzaleses of falsely
representing to them that the latterǯs two lease contracts were still subsisting at the time of the sale.
They maintained that the Gonzaleses guaranteed a ǲcontinuing and unhampered useǳ of the
premises but Tanglaw had nonetheless threatened to evict them from one of the leased portions .
To support their claim, they presented in court a copy of the ǲAgreementǳ indicating the
Gonzalesesǯ alleged warranty that the two lease contracts with Tanglaw were still good.
Petitioner (with his then co-defendants) countered that respondents were well aware of the
termination of one of the two lease contracts at the time of sale. He denied giving a warranty on
both contracts and explained that he only signed the ǲAgreementǳ (showing Motownǯs two lease
contracts with Tanglaw) on prodding by respondents that they needed it to convince Toyota
Philippines they were ready with their dealership site. According to petitioner, respondents told
him it was only ǲfor showǳ and amendments thereto would be made later on.
Petitioner added that his only undertaking was to help respondents negotiate a new lease
contract that would have similar terms as his. As a counterclaim, petitioner asked for the payment
of respondentsǯ P500,000 balance.
After trial, the RTC dismissed respondentsǯ case but granted petitionerǯs counterclaim of
P500,000. The court ǯs decision read:
...[T]he court finds that [petitioner] did not warrant the existence of the lease
on one of the premises. The court believes that even before the [ǲAgreementǳ] has
been executed[,] [respondents were] already aware that one of the leases has been
terminatedǥ[I]f [petitioner] warranted anything at all, it was only that he will help
[respondents] procure a new lease contract under the old term.
xxx xxx xxx
ǥIn view of the foregoing, the complaint is DISMISSED[.] On the

counterclaim, [respondents] are ordered to pay [petitioner] P500,000, representing
the outstanding balance for the sale of Motown shares of stocks plus legal interest
from October 10, 1989, the date of the lease between Tanglaw Realty and Toyota
Shaw, Inc., when [petitioner] was deemed to have fulfilled his promise.
xxx xxx xxx
SO ORDERED.[5]
Respondents appealed to the CA which affirmed with modification the trial courtǯs decision. It
agreed with the RTC that respondents could not feign ignorance of Motownǯs terminated lease
contract; however, it deleted the order directing respondents to pay petitioner P500,000. The CA
ruled that the payment was not due since petitioner failed to obtain the required official
communication from Tanglaw. The CA decision read:
xxx xxx xxx
xxx. The phrase ǲcontinuation of the lease contract at a reasonable rateǳ proves that
[respondents] did not contemplate stepping into the shoes of Motown as lessee of the
parcels of land because if what they truly expected was to continue exactly the same
lease agreement between [Tanglaw] and Motown, there would have been no need to
include [said] phraseǥ Clearly, [respondents] anticipated nay expected that if they
continue the lease, it would not be under the same terms and conditions as the
original contract, but rather at a new, reasonable rate. Therefore, there was no
warranty from [petitioner]ǥ
ǥ[W]ith regard to the question of whether [respondents] are now obliged to

pay [petitioner] the P500,000.00ǥ, the Court finds that [petitioner had] not been able
to fulfill [his] obligation to submit the required official communication from Tanglaw
Realty Corporation. Thus, [respondents] areǥfreed from their oblig ation to pay the
final installment of P500,000.00.
xxx xxx xxx

WHEREFORE, judgment is hereby rendered MODIFYING the lower courtǯs
decision by deleting the portion ordering [respondents] to pay [petitioner] P500,000
plus legal interest. Instead, the Court hereby declares [petitionerǯs] counterclaim
DISMISSED.[6]
Petitioner filed a motion for reconsiderat ion (MR), contending that the payment of the
P500,000 balance was already due because respondents themselves had prevented him from
fulfilling his undertaking in the ǲAgreement.ǳ Petitioner insisted that since respondents negotiated
directly with Tanglaw for a new lease contract, petitionerǯs obligation should be deemed fulfilled.
The CA denied the MR.[7] Hence, this petition.[8]

In this petition, the lone issue for resolution is whether petitioner was still entitled to the
payment of P500,000 despite failure to comply with the provision in the ǲAgreementǳ requiring him
to obtain an official communication from Tanglaw regarding the continuation of Motownǯs lease
contract.
At the outset, petitionerǯs undertaking set forth in the ǲAgreementǳ may be deemed a
ǲcondition,ǳ a future and uncertain event upon which the existence of an obligation is made to
depend or that which subordinates the existence of a liability under a contract to a certain future
event.[9] It was a condition that was imposed on an obligation after the consummation of the
contract of sale, not a condition on the perfection of the contract itself (non -fulfillment of which
could have prevented the juridical relation from coming into existence).
Article 1545 of the Civil Code is pertinent:
Art. 1545. Î3 "3 $50;)"0 = 0"3 )"%" ) 2")2" = !)5 0!
!$62" " )% 2#0"0 43023 0! " =<# !23 )"% <)% =! "
2#40"3"32")2"3<)%4)07 =<)2="32#0"0
If the
other party has promised that the condition should happen or be performed, such
first mentioned party may also treat the nonperformance of the condition as a
breach of warranty. (emphasis supplied)
xxx xxx xxx

These options were echoed in c _ ,[10] where we declared that if the condition
was imposed on an obligation of a party which was not complied with, the other party may either
(1) refuse to proceed with the agreement or (2) waive the fulfillment of the condition.
In the case at bar, respondents obviously did not choose the first option as they proceeded
with their contract with petitioner despite the latterǯs non -fulfillment of the condition in the
agreement. In fact, in their comment, they stated that they ǲtook possession of the properties and
caused extensive improvement and installed facilities and equipmentǳ thereon.[11]
Did respondents, however, waive fulfillment of the condition? Yes.
The records reveal that respondents negotiated directly with Tanglaw for a new lease
contract even without the required official communication that petitioner was supposed to obtain
for them, a condition in the ǲAgreementǳ which they themselves imposed on the latter. Although
they had the right to require his compliance with the condition or compel his performance of the
undertaking, they opted otherwise.
Respondentsǯ assertion that they were merely forced to deal directly with Tanglaw because
the latter had threatened to evict them has no merit. As the RTC and the CA both held, respondents,
at the time of the sale, already knew that one of Motownǯs two lease contracts with Tanglaw had
been terminated. This being a finding of fact, we shall not look into it, absent any compelling reason
to do so.[12] Respondents therefore cannot invoke this argument to justify their actions and evade
their liability to petitioner.

Moreover, respondentsǯ contention that the condition did not preclude them from dealing
with Tanglaw or that they were ǲto refrain from negotiating directlyǳ [13] can only mean that they
did not really expect petitioner to comply strictly and absolutely with it. Respondentsǯ conduct
showed that they did not only disregard the condition but also placed petitioner in a position that
his compliance was no longer necessary. We are thus constrained to rule that they had effectively
waived compliance with the condition.
Finally, the condition was deemed waived when respondents forged their new lease
contract with Tanglaw.[14]
Î, the petition is hereby *. The assailed decision and resolution of the
Court of Appeals in CA-G.R. CV No. 41716 are hereby ÔÔ* and the decision of the Regional
Trial Court Ô*.
Ô**.
he Benos sold lot to Lawilao and the condition that Lawilao will pay half to the Benos spouses and
half to the bank (assumption of mortgage). But Lawilao did not assume the mortgage, in fact, it
asked for restructuring of the loan. Hence, Benos moved that the Pacto de Retro contract be
rescinded. The Lawilao consigned money to the bank but it was meant to apply to the loan to the
bank and not to the Benos spouses. Lawilao cannot be granted the consolidation of ownership.
1592 shall apply, because there was no payment at the time agreed upon and that there was in fact
a judicial demand for rescission when in the answer of the Benos's spounses in their counterclaim,
they alleged that there was no payment, hence the pacto de retro is null and void. This serves as the
judicial demand equivalent to rescission.

Ô
Manila
Ô*
Ô

/.*2<$
ÔÔ
(Ô)#(Ô petitioners,
vs.
ÔÔ
&Î&)# &&Î& respondents.
*Ô
,Ô-Ô J

:
This petition for review under Rule 45 of the Rules of Court assails the December 5, 2005 Decision1
of the Court of Appeals in CA-G.R. SP No. 78845, affirming the Judgment2 dated July 1, 2003 of the
Regional Trial Court of Bontoc, Mountain Province, Branch 35, in Civil Case No. 1091. The Regional
Trial Court reversed the Decision3 dated November 14, 2002 of the Municipal Circuit Trial Court of
Bauko, Mountain Province in Civil Case No. 314, and ordered the consolidation of ownership of
subject property in the name of respondent-spouses Gregorio and Janice Gail Lawilao. Also assailed
is the March 17, 2006 Resolution 4 denying petitionersǯ motion for reconsideration.
The antecedent facts are as follows:
On February 11, 1999, petitioner-spouses Jaime and Marina Benos ("the Benos spouses") and
respondent-spouses Gregorio and Janice Gail Lawilao ("the Lawilao spouses") executed a Pacto de
Retro Sale5 where the Benos spouses sold their lot covered by Tax Declaration No. 25300 and the
building erected thereon for P300,000.00, one half of which was to be paid in cash to the Benos
spouses and the other half to be paid to the bank to pay off the loan of the Benos spouse s which was
secured by the same lot and building. Under the contract, the Benos spouses could redeem the
property within 18 months from date of execution by returning the contract price, otherwise, the
sale would become irrevocable without necessity of a final deed to consolidate ownership over the
property in the name of the Lawilao spouses.
After paying the P150,000.00, the Lawilao spouses immediately took possession of the property
and leased out the building thereon. However, instead of paying the loan to the bank, Janice Lawilao
restructured it twice. Eventually, the loan became due and demandable.
On August 14, 2000, a son of the Benos spouses paid the bank P159,000.00 representing the
principal and interest. On the same day, the Lawilao spouses also went to the bank and offered to
pay the loan, but the bank refused to accept the payment. The Lawilao spouses then filed with the
Municipal Circuit Trial Court a petition 6 docketed as Civil Case No. 310 for consignation against the
bank and simultaneously deposited the amount of P159,000.00. Upon the bankǯs motion, the court
dismissed the petition for lack of cause of action.
Subsequently, the Lawilao spouses filed with the Municipal Circuit Trial Court a complaint docketed
as Civil Case No. 314, for consolidation of ownership. This complaint is the precursor of the instant
petition. The Benos spouses moved to dismiss on grounds of lack of jurisdiction and lack of cause of
action but it was denied and the parties went to trial.
On November 14, 2002, the Municipal Circuit Trial Court rendered judgment in favor of the Benos
spouses, the dispositive portion of which states:
IN THE LIGHT of all the foregoing considerations, for lack of legal and factual basis to
demand consolidation of ownership over the subject property, the above-entitled case is
hereby ordered dismissed.
No pronouncement as to damages on the ground that no premium should be assessed on

the right to litigate.
No costs.
SO ORDERED.7
The Lawilao spouses appealed before the Regional Trial Court which reversed the Municipal Circuit
Trial Court and declared the ownership of the subject property consolidated in favor of the Lawilao
spouses.8
The Benos spouses appealed to the Court of Appeals which affirmed the Regional Trial Court on
December 5, 2005. The dispositive portion of the Decision reads:
WHEREFORE, the petition for review is DISMISSED for lack of sufficient merit. The decision
rendered by the Regional Trial Court, Branch 35, Bontoc, Mountain Province in Civil Case
No. 1091 on 1 July 2003, reversing the decision of the Municipal Circuit Trial Court of
Bauko-Sabangan, Mountain Province in (Civil Case No.) 314, is AFFIRMED.
SO ORDERED.9
The appellate court denied petitionersǯ motion for reconsideration, hence, the instant petition on
the following assignment of errors:
4.0. It was error for the Regional Trial Court and, subsequently, the Court of Appeals to rule
that respondents can consolidate ownership over the subject property.
4.1. It was likewise error for said lower courts not to have ruled that the contract between
the parties is actually an equitable mortgage. 10
The Benos spouses argue that consolidation is not proper because the Lawilao spouses violated the
terms of the contract by not paying the bank loan; that having breached the terms of the contract,
the Lawilao spouses cannot insist on the performance thereof by the Benos spouses; that the
contract was actually an equitable mortgage as shown by the inadequacy of the consideration for
the subject property; and that respondent -spousesǯ remedy should have been for recovery of the
loan or foreclosure of mortgage.
The Lawilao spouses, on the other hand, assert that the Pacto de Retro Sale reflected the partiesǯ
true agreement; that the Benos spouses cannot vary its terms and conditions because they did not
put in issue in their pleadings its ambiguity, mistake or imperfection as well as its failure to express
the partiesǯ true intention; that the Benos spouses admitted its genuineness and due execution; and
that the delivery of the property to the Lawilao spouses after the execution of the contract shows
that the agreement was a sale with a right of repurchase and not an equitable mortgage.
The Lawilao spouses also claim that they complied with their obligation when they offered to pay
the loan to the bank and filed a petition for consignation; and that because of the failure of the
Benos spouses to redeem the property, the title and ownership thereof immediately vested in them
(Lawilao spouses).
The issue for resolution is whether the Lawilao spouses can consolidate ownership over the subject
property.
The petition is impressed with merit.
In ruling for respondents, the Court of Appeals held that: (1) the pacto de retro sale was perfected
because the parties voluntarily agreed upon the object thereof and the price; (2) the Lawilao
spouses acquired possession over the property immediately after execution of the pacto de retro
sale; (3) the pacto de retro sale does not provide for automatic rescission in case the Lawilao
spouses fail to pay the full price; (4) the Benos spouses did not rescind the contract after the
Lawilao spouses failed to pay the P150,000.00 loan; (5) Janice Lawilao offered to pay the loan and
deposited P150,000.00 to the bank although the period for payment had expired thus, complying
with Article 1592 of the Civil Code allowing payment even after expiration of the period as long as
no demand for rescission of the contract had been made either judicially or by a notarial act; (6) the
title and ownership of the Lawilao spouses became absolute when the Benos spouses failed to
repurchase the lot within the redemption period; and (7) the payment by the Benos spousesǯ son of
P159,000.00 to the bank does not amount to a repurchase as it violates Article 1616 of the Civil
Code requiring the vendor to return to the vendee the price of the sale, the expenses of the contract
and other necessary and useful expenses.11
Contrary to the aforesaid findings, the evidence shows that the Lawilao spouses did not make a
valid tender of payment and consignation of the balance of the contract price. As correctly found by
the Regional Trial Court:
As matters stand, no valid tender of payment and/or consignation of the P150,000.00 which
the Appellant (Lawilaos) still owes the Appellee (Benos) has been effected by the former.
The amount of P159,000.00 deposited with the MCTC is in relation to Civil Case No. 310
earlier dismissed by said court, and not to the instant action. Hence, this Court cannot
automatically apply such sum in satisfaction of the aforesaid debt of the Appellant and
order the Appellee creditor to accept the same. 12 (Emphasis supplied)
The Lawilao spouses did not appeal said finding, and it has become final and binding on them.
Although they had repeatedly alleged in their pleadings that the amount of P159,000.00 was still
with the trial court which the Benos spouses could withdraw anytime, they never made any step to
withdraw the amount and thereafter consign it. Compliance with the requirements of tender and
consignation to have the effect of payment are mandatory. Thus Ȃ
Tender of payment is the manifestation by debtors of their desire to comply with or to pay
their obligation. If the creditor refuses the tender of payment without just cause, the
debtors are discharged from the obligation by the consignation of the sum due.
Consignation is made by depositing the proper amount to the judicial authority, before
whom the tender of payment and the announcement of the consignation shall be proved. All
interested parties are to be notified of the consignation. Compliance with these requisites is
mandatory.13 (Emphasis supplied)
In the instant case, records show that the Lawilao spouses filed the petition for consignation against
the bank in Civil Case No. 310 without notifying the Benos spouses. The petition was dismissed for
lack of cause of action against the bank. Hence, the Lawilao spouses failed to prove their offer to pay
the balance of the purchase price and consignation. In fact, even before the filing of the consignation
case, the Lawilao spouses never notified the Benos spouses of their offer to pay.
Thus, as far as the Benos are concerned, there was no full and complete payment of the contract
price, which gives them the right to rescind the contract pursuant to Articles 1191 in relation to
Article 1592 of the Civil Code, which provide:
Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the
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 of the Mortgage Law.
Art. 1592. In the sale of immovable property, even though it may have been stipulated that
upon failure to pay the price at the time agreed upon the rescission of the contract shall of
right take place, the vendee may pay, even after the expiration of the period, as long as no
demand for rescission of the contract has been made upon him either ju dicially or by a
notarial act. After the demand, the court may not grant him a new term.
In the instant case, while the Benos spouses did not rescind the Pacto de Retro Sale through a
notarial act, they nevertheless rescinded the same in their Answer with Counterclaim where they
stated that:
14. Plaintiffs did not perform their obligation as spelled out in the Pacto de Retro Sale
(ANNEX "A"), particularly the assumption of the obligation of defendants to the Rural Bank
of Bontoc. Defendants were the ones who paid their loan through their son, ZALDY BENOS.
As a result, ANNEX "A" is rendered null and of no effect. Therefore, the VENDEE a retro who
is one of plaintiffs herein cannot consolidate her ownership over the property subject of the
null and ineffective instrument.
15. Since plaintiffs did not perform their corresponding obligation under ANNEX "A",
defendants have been all too willing to return the amount of ON[E] HUNDRED FIFTY
THOUSAND PESOS (P150,000.00) and reasonable interest thereon to plaintiffs. But
plaintiffs refused to accept the same.
With the filing of this answer, defendants pray that this serves as a notice of tender of
payment, and they shall consign the amount with the proper court as soon as it is legally
feasible.14
They also prayed that the Municipal Circuit Trial Court render judgment "[d]eclaring the Pacto de
Retro Sale rescinded or ineffective or void for lack of, or insufficient consideration." 15
In Iringan v. Court of Appeals,16 we ruled that "even a crossclaim found in the Answer could
constitute a judicial demand for rescission that satisfies the requirement of the law." Similarly, the
counterclaim of the Benos spouses in their answer satisfied the requisites for the judicial rescission
of the subject Pacto de Retro Sale.
The Municipal Circuit Trial Court thus correctly dismissed the complaint for consolidation of
ownership filed by the Lawilao spouses for their failure to comply with the conditions of the Pac to
de Retro Sale. Nevertheless, it refused to declare the rescission of the Pacto de Retro Sale as prayed
for in the counterclaim of the Benos spouses, stating that:
How about the other obligations and/or rights owing to either party by virtue of the Pacto
de Retro Sale? This, the court opines that it can not delve into without overstepping the
limits of his functions there being appropriate remedies. It is hornbook in our jurisprudence
that a right in law may be enforced and a wrong way be remedied but always through the
appropriate action.17
The issue of rescission having been put in issue in the answer and the same having been litigated
upon without objections by the Lawilao spouses on grounds of jurisdiction, the Municipal Circuit
Trial Court should have ruled on the same and wrote finis to the controversy.
Thus, as a necessary consequence of its ruling that the Lawilao spouses breached the terms of the
Pacto de Retro Sale, the Municipal Circuit Trial Court should have rescinded the Pacto de Retro Sale
and directed the Benos spouses to return P150,000.00 to the Lawilao spouses, pursuant to our
ruling in Cannu v. Galang,18 to wit:
Petitioners maintain that inasmuch as respondents-spouses Galang were not granted the
right to unilaterally rescind the sale under the Deed of Sale with Assumption of Mortgage,
they should have first asked the court for the rescission thereof before they fully paid the
outstanding balance of the mortgage loan with the NHMFC. They claim that such payment is
a unilateral act of rescission which violates existing jurisprudence.
In @_
, this court said:
. . . [T]he power to rescind obligations is implied in reciprocal ones in case one of the
obligors should not comply with what is incumbent upon him is clear from a reading
of the Civil Code provisions. However, it is equally settled that, in the absence of a
stipulation to the contrary, this power must be invoked judicially; it cannot be
exercised solely on a partyǯs own judgment that the other has committed a breach of
the obligation. Where there is nothing in the contract empowering the petitioner to
rescind it without resort to the courts, the petitionerǯs action in unilaterally
terminating the contract in this case is unjustified.
It is evident that the contract under consideration does not contain a provision authorizing
its extrajudicial rescission in case one of the parties fails to comply with what is incumbent
upon him. This being the case, respondents-spouses should have asked for judicial
intervention to obtain a judicial declaration of rescission. Be that as it may, and considering
that respondents-spousesǯ Answer (with affirmative defenses) with Counterclaim seeks for
the rescission of the Deed of Sale with Assumption of Mortgage, it behooves the court to
settle the matter once and for all than to have the case re-litigated again on an issue already
heard on the merits and which this court has already taken cognizance of. Having found that
petitioners seriously breached the contract, we, therefore, declare the same is rescinded in
favor of respondents-spouses.
As a consequence of the rescission or, more accurately, resolution of the Deed of Sale with
Assumption of Mortgage, it is the duty of the court to require the parties to surrender
whatever they may have received from the other. The parties should be restored to their
original situation.
The record shows petitioners paid respondents-spouses the amount of P75,000.00 out of
the P120,000.00 agreed upon. They also made payments to NHMFC amounting to
P55,312.47. As to the petitioner sǯ alleged payment to CERF Realty of P46,616.70, except for
petitioner Leticia Cannuǯs bare allegation, we find the same not to be supported by
competent evidence. As a general rule, one who pleads payment has the burden of proving
it. However, since it has been admitted in respondents-spousesǯ Answer that petitioners
shall assume the second mortgage with CERF Realty in the amount of P35,000.00, and that
Adelina Timbang, respondents-spousesǯ very own witness, testified that same has been
paid, it is but proper to return this amount to petitioners. The three amounts total
P165,312.47 -- the sum to be returned to petitioners.
WHEREFORE, the petition is GRANTED. The Decision dated December 5, 2005 and Resolution dated
March 17, 2006 of the Court of Appeals in CA-G.R. SP No. 78845, affirming the Judgment dated July
1, 2003 of the Regional Trial Court of Bontoc, Mountain Province, Branch 35, in Civil Case No. 1091,
are REVERSED and SET ASIDE. The Decision dated November 14, 2002 of the Municipal Circuit
Trial Court of Bauko, Mountain Province in Civil Case No. No. 314 dismissing respondentsǯ
complaint for consolidation of ownership and damages is REINSTATED WITH THE MODIFICATION
that the Pacto de Retro Sale dated February 11, 1999 is declared rescinded and petitioners are
ordered to return the amount of P150,000.00 to respondents. No costs.
SO ORDERED.
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**
Ô

( EG.R. No. 170115
Petitioner,
Present:

Ynares-Santiago, !. (Chairperson),
Austria-Martinez,
- versus - Corona,*
Nachura, and
Reyes, !!
Ô &Ô
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&&
&*

*)#&
' Ô*
Respondents. Promulgated:
February 19, 2008
x ----------------------------------------------------------------------------------------x
DECISIOR

,Ô-Ô J.:
This is a petition for review on certiorari of the Decision[1] of the Court of Appeals dated
March 29, 2005 in CA-G.R. CV No. 53632, which affirmed the Decision[2] of the Regional
Trial Court of Cebu City, Branch 6, in Civil Case No. CEB -11140 for specific performance and
reconveyance of property. Also assailed is the Resolution [3] dated August 31, 2005 denying the
motion for reconsideration.
On September 27, 1961, petitioner Province of Cebu leased [4] in favor of Rufina Morales a
210-square meter lot which formed part of Lot No. 646-A of the Banilad Estate. Subsequently or
sometime in 1964, petitioner donated several parcels of land to the City of Cebu. Among those
donated was Lot No. 646 -A which the City of Cebu divided into sub -lots. The area occupied by
Morales was thereafter denominated as Lot No. 646 -A-3, for which Transfer Certificate of Title
(TCT) No. 30883[5] was issued in favor of the City of Cebu.
On July 19, 1965, the city sold Lot No. 646 -A-3 as well as the other donated lots at public
auction in order to raise money for infrastructure projects. The highest bidder for Lot No. 646 -A-3
was Hever Bascon but Morales was allowed to match the highest bid since she had a preferential
right to the lot as actual occupant thereof.[6] Morales thus paid the required deposit and partial
payment for the lot.[7]
In the meantime, petitioner filed an action for reversion of donation against the City of Cebu
docketed as Civil Case No. 238-BC before Branch 7 of the then Court of First Instance of Cebu. On
May 7, 1974, petitioner and the City of Cebu entered into a compromise agreement which the court
approved on July 17, 1974. [8] The agreement provided for the return of the donated lots to
petitioner except those that have already been utilized by the City of Cebu. Pursuant thereto, Lot
No. 646-A-3 was returned to petitioner and registered in its name under TCT No. 104310.[9]
Morales died on February 20, 1969 during the pendency of Civil Case No. 238-BC.[10] Apart
from the deposit and down payment, she was not able to make any other payments on the balance
of the purchase price for the lot.
On March 11, 1983, one of the nieces of Morales, respondent Catalina V. Quesada, wrote to
then Cebu Governor Eduardo R. Gullas asking for the formal conveyance of Lot No. 646 -A-3 to
Moralesǯ surviving heirs, in accordance with the award earlier made by the City of Cebu.[11] This
was followed by another letter of the same tenor dated October 10, 1986 addressed to Governor
Osmundo G. Rama.[12]
The requests remained unheeded thus, Quesada, together with the other nieces of Morales
namely, respondents Nenita Villanueva and Erlinda V. Adriano, as well as Moralesǯ sister, Felomina
V. Panopio, filed an action for specific performance and reconveyance of property against
petitioner, which was docketed as Civil Case No. CEB-11140 before Branch 6 of the Regional Trial
Court of Cebu City.[13] They also consigned with the court the amount of P13,450.00 representing
the balance of the purchase price which petitioner allegedly refused to accept.[14]
Panopio died shortly after the complaint was filed.[15]
Respondents averred that the award at public auction of the lot to Morales was a valid and
binding contract entered into by the City of Cebu and that the lot was inadvertently returned to
petitioner under the compromise judg ment in Civil Case No. 238-BC. They alleged that they could
not pay the balance of the purchase price during the pendency of said case due to confusion as to
whom and where payment should be made. They thus prayed that judgment be rendered o rdering
petitioner to execute a final deed of absolute sale in their favor, and tha t TCT No. 104310 in the
name of petitioner be cancelled.[16]
Petitioner filed its answer but failed to present evidence despite sev eral opportunities given
thus, it was deemed to have waived its right to present evidence.[17]
On March 6, 1996, the trial court rendered judgment, the dispositive part of which reads:
WHEREFORE, judgment is rendered in favor of the plaintiffs and against the

defendant Province of Cebu, hereby directing the latter to convey Lot 646-A-3 to the
plaintiffs as heirs of Rufina Morales, and in this connection, to execute the necessary
deed in favor of said plaintiffs.
SO ORDERED.[18]
In ruling for the respondents, the trial court held thus:
[T]he Court is convinced that there was already a consummated sale between the
City of Cebu and Rufina Morales. There was the offer to sell in that public auction
sale. It was accepted by Rufina Morales with her bid and was granted the award for
which she paid the agreed downpayment. It cannot be gainsaid that at that time the
owner of the property was the City of Cebu. It has the absolute right to dispose of it
thru that public auction sale. The donation by the defendant Province of Cebu to
Cebu City was not voided in that Civil Case No. 238-BC. The compromise agreement
between the parties therein on the basis of which judgment was rendered did not
provide nullification of the sales or disposition made by the City of Cebu. Being
virtually successor-in-interest of City of Cebu, the defendant is bound by the
contract lawfully entered into by the former. Defendant did not initiate any move to
invalidate the sale for one reason or another. Hence, it stands as a perfectly valid
contract which defendant must respect. Rufina Morales had a vested right over the
property. The plaintiffs being the heirs or successors-in-interest of Rufina Morales,
have the right to ask for the conveyance of the property to them. While it may be
true that the title of the property still remained in the name of the City of Cebu until
full payment is made, and this could be the reason why the lot in question was
among those reverted to the Province, the sellerǯs obligation under the contract was,
for all legal purposes, transferred to, and assumed by, the defendant Province of
Cebu. It is then bound by such contract.[19]
Petitioner appealed to the Court of Appeals which affirmed the decision of the trial court
. Upon denial of its motion for reconsideration, petitioner filed the instant petition under Rule
45 of the Rules of Court, alleging that the appellate court erred in:
FINDING THAT RUFINA MORALES AND RESPONDENTS, AS HER HEIRS, HAVE THE
RIGHT TO EQUAL THE BID OF THE HIGHEST BIDDER OF THE SUBJECT PROPERTY
AS LESSEES THEREOF;
FINDING THAT WITH THE DEPOSIT AND PARTIAL PAYMENT MADE BY RUFINA
MORALES, THE SALE WAS IN EFFECT CLOSED FOR ALL LEGAL PURPOSES, AND
THAT THE TRANSACTION WAS PERFECTED AND CONSUMMATED;
FINDING THAT LACHES AND/OR PRESCRIPTION ARE NOT APPLICABLE AGAINST

RESPONDENTS;
FINDING THAT DUE TO THE PENDENCY OF CIVIL CASE NO. 238 -BC, PLAINTIFFS
WERE NOT ABLE TO PAY THE AGREED INSTALLMENTS;
AFFIRMING THE DECISION OF THE TRIAL COURT IN FAVOR OF THE

RESPONDENTS AND AGAINST THE PETITIONERS.[20]
The petition lacks merit.
The appellate court correctly ruled that petitioner, as successor-in-interest of the City of Cebu,
is bound to respect the contract of sale entered into by the latter pertaining to Lot No. 646-A-3. The
City of Cebu was the owner of the lot when it awarded the same to respondentsǯ predecessor-in-
interest, Morales, who later became its owner before the same was erroneously returned to
petitioner under the compromise judgment . The award is tantamount to a perfected contract of
sale between Morales and the City of Cebu, while partial payment of the purchase price and actual
occupation of the property by Morales and respondents effectively transferred ownership of the lot
to the latter. This is true notwithstanding the failure of Morales and respondents to pay the balance
of the purchase price.
Petitioner can no longer assail the award of the lot to Morales on the ground that she had no
right to match the highest bid during the public auction. Whether Morales, as actual occupant
and/or lessee of the lot, was qualified and had the right to match the highest bid is a foregone
matter that could have been questioned when the award was made. When the City of Cebu
awarded the lot to Morales, it is assumed that she met all qualifications to match the highest bid.
The subject lot was auctioned in 1965 or more than four decades ago and was never questioned.
Thus, it is safe to assume, as the appellate court did, that all requirements for a valid public auction
sale were complied with.
A sale by public auction is perfected ǲwhen the auctioneer announces its perfection by the
fall of the hammer or in other customary mannerǳ. [21] It does not matter that M orales merely
matched the bid of the highest bidder at the said auction sale. The contract of sale was nevertheless
perfected as to Morales, since she merely stepped into the shoes of the highest bidder.
Consequently, there was a meeting of minds between the City of Cebu and Morales as to the
lot sold and its price, such that each party could reciprocally demand performance of the contract
from the other.[22] A contract of sale is a consensual contract and 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. The elements of a valid contract of sale under Article 1458 of the
Civil Code are: (1) consent or meeting of the minds; (2) determinate subject matter; and (3) price
certain in money or its equivalent.[23] All these elements were present in the transaction between
the City of Cebu and Morales.
There is no merit in petitionerǯs assertio n that there was no perfected contract of sale
because no ǲContract of Purchase and Saleǳ was ever executed by the parties. As previously stated,
a contract of sale is a consensual contract that is perfected upon a meeting of minds as to the object
of the contract and its price. Subject to the provisions of the Statute of Frauds, a formal document is
not necessary for the sale transaction to acquire binding effect. [24] For as long as the essential
elements of a contract of sale are proved to exist in a given transaction, the contract is deemed
perfected regardless of the absence of a formal deed evidencing the same.
Similarly, petitioner erroneously contends that the failure of Morales to pay the balance of
the purchase price is evidence that there was really no contract of sale over the lot between
Morales and the City of Cebu. On the contrary, the fact that there was an agreed price for the lot
proves that a contract of sale was indeed perfected between the parties. Failure to pay the balance
of the purchase price did not render the sale inexistent or invalid, but merely gave rise to a right in
favor of the vendor to either demand specific performance or rescission of the contract of sale.[25]
It did not abolish the contract of sale or result in its automatic invalidation.
As correctly found by the appellate court, the contract of sale between the City of Cebu and
Morales was also partially consummated. The latter had paid the deposit and downpayment for the
lot in accordance with the terms of the bid award. She first occupied the property as a lessee in
1961, built a house thereon and was continuously in possession of the lot as its owner until her
death in 1969. Respondents, on the other hand, who are all surviving heirs of Morales, likewise
occupied the property during the lat terǯs lifetime and continue to reside on the property to this
day.[26]
The stages of a contract of sale are as follows: (1) , covering the period from the
time the prospective contracting parties indicate interest in the contract to the time the contract is
perfected; (2) p, which takes place upon the concurrence of the essential elements of the
sale which are the meeting of the minds of the parties as to the object of the contract and upon the
price; and (3) p, which begins when the parties perform their respective undertakings
under the contract of sale, culminating in the extinguishment thereof. [27] In this case, respondentsǯ
predecessor had undoubtedly commenced performing her obligation by making a down payment
on the purchase price. Unfortunately, however, she was not able to complete the payments due to
legal complications between petitioner and the city.
Thus, the City of Cebu could no longer dispose of the lot in question when it was included as
among those returned to petitioner pursuant to the compromise agreement in Civil Case No. 238-
BC. The City of Cebu had sold the property to Morales even though there remained a balance on the
purchase price and a formal contract of sale had yet to be executed. Incidentally, the failure of
respondents to pay the balance on the purchase price and the non-execution of a formal agreement
was sufficiently explained by the fact that the trial court, in Civil Case No. 238 -BC, issued a writ of
preliminary injunction enjoining the city from further disposing the d onated lots. According to
respondents, there was confusion as to the circumstances of payment considering that both the city
and petitioner had refused to accept payment by virtue of the injunction.[28] It appears that the
parties simply mistook Lot 646-A-3 as among those not yet sold by the city.
The City of Cebu was no longer the owner of Lot 646-A-3 when it ceded the same to
petitioner under the compromise agreement in Civil Case No. 238 -BC. At that time, the city merely
retained rights as an unpaid seller but had effectively transferred ownership of the lot to Morales.
As successor-in-interest of the city, petitioner could only acq uire rights that its predecessor had
over the lot. These rights include the right to seek rescission or fulfillment of the terms of the
contract and the right to damages in either case.[29]
In this regard, the records show that respondent Quesada wrote to then Cebu Governor
Eduardo R. Gullas on March 11, 1983, asking for the formal conveyance of Lot 646 -A-3 pursuant to
the award and sale earlier made by the City of Cebu. On October 10, 1986, she again wrote to
Governor Osmundo G. Rama reiterating her previous request. This means that petitioner had
known, at least as far back as 1983, that the city sold the lot to respondentsǯ predecessor and that
the latter had paid the deposit and the required down payment. Despite this knowledge, however,
petitioner did not avail of any rightful recourse to resolve the matter.
Article 1592 of the Civil Code pertinently provides:
Article 1592. In the sale of immovable property, even though it may have been
been made upon him either judicially or by notarial act . After the demand, the court
may not grant him a new term. (Underscoring supplied)
Thus, respondents could still tender payment of the full purchase price as no demand for
rescission had been made upon them, either judicially or through notarial act. While it is true that it
took a long time for respondents to bring suit for specific performance and consign the balance of
the purchase price, it is equally true that petitioner or its predecessor did not take any action to
have the contract of sale rescinded. Article 1592 allows the vendee to pay as long as no demand for
rescission has been made.[30] The consignation of the balance of the purchase price before the
trial court thus operated as full payment, which resulted in the extinguishment of respondentsǯ
obligation under the contract of sale.
Finally, petitioner cannot raise the issue of prescription and laches at this stage of the
proceedings. Contrary to petitionerǯs assignment of errors, the appellate court made no findings on
the issue because petitioner never raised the matter of prescription and laches either before the
trial court or Court of Appeals. It is basic that defenses and issues not raised below cannot be
considered on appeal.[31] Thus, petitioner cannot plead the matter for the first time before this
Court.
Î in view of the foregoing, the petition is hereby ** and the decision and
resolution of the Court of Appeals in CA-G.R. CV No. 53632 are *.
Ô**.
Ô &,Ô-Ô
Associate Justice
Î :

& Ô-+
Associate Justice

* *(


(
,Ô
Associate Justice
ATTESTATIOR
I attest that the conclusions in the above decision were reached in consultation before the case
Ô &,Ô-Ô
Associate Justice
CERTIFICATIOR
Pursuant to Section 13, Article VIII of the Constitution and the Division Chairpersonǯs
,Ô

Chief Justice
SECOND DIVISION
MAGNA FINANCIAL SERVICES GROUP, G.R. No. 158635

INC.,

Petitioner,
Present:
PUNO,
Chairman,
AUSTRIA-MARTINEZ,
- _ -
CALLEJO, SR.,
TINGA, and
CHICO-NAZARIO, !!.
Promulgated:
ELIAS COLARINA,
R e s p o n d e n t. December 9, 2005
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
DECISION
-+J
:
The undisputed facts of this case show that on 11 June 1997, Elias Colarina bought on
installment from Magna Financial Services Group, Inc., one (1) unit of Suzuki Multicab, more
particularly described as follows:
MAKE - SUZUKI MULTICAB
MODEL - ER HT
ENGINE NO. - 834963
FRAME NO. - LTO -067886-RO7-C
COLOR - WHITE[1]
After making a down payment, Colarina executed a promissory note for the balance of
P229,284.00 payable in thirty-six (36) equal monthly installments at P6,369.00 monthly, beginning
18 July 1997. To secure payment thereof, Colarina executed an integrate d promissory note and
deed of chattel mortgage over the motor vehicle.
Colarina failed to pay the monthly amortization beginning January 1999, accumulating an
unpaid balance of P131,607.00. Despite repeated demands, he failed to make the necessary
payment. On 31 October 2000 Magna Financial Services Group, Inc. filed a Complaint for
Foreclosure of Chattel Mortgage with Replevin[2] before the Municipal Trial Court in Cities
(MTCC), Branch 2, Legaspi City, docketed as Civil Case No. 4822.[3] Upon the filing of a Replevin
Bond, a Writ of Replevin was issued by the MTCC . On 27 December 2000, summons, together with
a copy of the Writ of Replevin, was served on Colarina who voluntarily surrendered physical
possession of the vehicle to the Sheriff, Mr. Antonio Lozano. On 02 January 2001, the aforesaid
motor vehicle was turned over by the sheriff to Magna Financial Services Group, Inc. [4] On 12 July
2001, Colarina was declared in default for having filed his answer after more than six (6) months
from the service of summons upon him. Thereupon, the trial court rendered judgment based on the
facts alleged in the Complaint. In a decision dated 23 July 2001, it held:[5]
WHEREFORE, judgment is hereby rendered in favor of plaintiff Magna

Financial Services Group, Inc. and against the defendant Elias Colarina, ordering the
latter:
a) to pay plaintiff the principal sum of one hun dred thirty one
thousand six hundred seven (P131,607.00) pesos plus
penalty charges at 4.5% per month computed from January,
1999 until fully paid;
b) to pay plaintiff P10,000.00 for attorneyǯs fees; and
c) to pay the costs.
The foregoing money judgment shall be paid within ninety (90) days from the
entry of judgment. In case of default in such payment, the one (1) unit of Suzuki
Multicab, subject of the writ of replevin and chattel mortgage, shall be sold at public
auction to satisfy the said judgment.[6]
Colarina appealed to the Regional Trial Court (RTC) of Legazpi City, Branch 4, where the case
was docketed as Civil Case No. 10013. During the pendency of his appeal before the RTC, Colarina
died and was substituted in the case by his heirs.[7] In a decision dated 30 January 2002, the RTC
affirmed the decision of the MTCC.[8]
Colarina filed a Petition for Review before the Court of Appeals, docketed as CA-G.R. SP No.
69481. On 21 January 2003, the Court of Appeals rendered its decision[9] holding:
. . . We find merit in petitionersǯ assertion that the MTC and the RTC erred in
ordering the defendant to pay the unpaid balance of the purchase price of the
subject vehicle irrespective of the fact that the instant complaint was for the
foreclosure of its chattel mortgage. The principal error committed by the said
courts was their immediate grant, however erroneous, of relief in favor of the
respondent for the payment of the unpaid balance without considering the fact that
the very prayer it had sought was inconsistent with its allegation in the complaint.
Verily, it is beyond cavil that the complaint seeks the judicial foreclosure of
the chattel mortgage. The fact that the respondent had unconscionably sought the
payment of the unpaid balance regardless of its complaint for the foreclosure of the
said mortgage is glaring proof that it intentionally devised the same to deprive the
defendant of his rights. A judgment in its favor will in effect allow it to retain the
possession and ownership of the subject vehicle and at the same time claim against
the defendant for the unpaid balance of its purchase price. In such a case, the
respondent would luckily have its cake and eat it too. Unfortunately for the
defendant, the lower courts had readily, probably unwittingly, made themselves
abettors to respondentǯs devise to the detriment of the defendant.
...
WHEREFORE, finding error in the assailed decision, the instant petition is

hereby GRANTED and the assailed decision is hereby REVERSED AND SET ASIDE.
Let the records be remanded to the court of origin. Accordingly, the foreclosure of
the chattel mortgage over the subject vehicle as prayed for by the respondent in its
complaint without any right to seek the payment of the unpaid balance of the
purchase price or any deficiency judgment against the petitioners pursuant to
Article 1484 of the Civil Code of the Philippines, is hereby ORDERED.[10]
A Motion for Reconsideration dated 11 February 2003[11] filed by Magna Financial Services
Group, Inc., was denied by the Court of Appeals in a resolution dated 22 May 2003. [12] Hence, this
Petition for Review on based on the sole issue:

WHAT IS THE TRUE NATURE OF A FORECLOSURE OF CHATTEL MORTGAGE,
EXTRAJUDICIAL OR JUDICIAL, AS AN EXERCISE OF THE 3RD OPTION UNDER
ARTICLE 1484, PARAGRAPH 3 OF THE CIVIL CODE.
In its Memorandum, petitioner assails the decision of the Court of Appeals and asserts that a
mortgage is only an accessory obligation, the principal one being the undertaki ng to pay the
amounts scheduled in the promissory note. To secure the payment of the note, a chattel mortgage
is constituted on the thing sold. It argues that an action for foreclosure of mortgage is actually in the
nature of an action for sum of money instituted to enforce the payment of the promissory note,
with execution of the security. In case of an extrajudicial foreclosure of chattel mortgage, the
petition must state the amount due on the obligation and the sheriff, after the sale, shall apply th e
proceeds to the unpaid debt. This, according to petitioner, is the true nature of a foreclosure
proceeding as provided under Rule 68, Section 2 of the Rules of Court.[13]
On the other hand, respondent countered that the Court of Appeals correctly set aside the trial
courtǯs decision due to the inconsistency of the remedies or reliefs sought by the petitioner in its
Complaint where it prayed for the custody of the chattel mortgage and at the same time asked for
the payment of the unpaid balance on the motor vehicle. [14]
Article 1484 of the Civil Code explicitly provides:

ART. 1484. In a contract of sale of personal property the price of which is
payable in installments, the vendor may exercise any of the following remedies:
(1) Exact fulfillment of the obligation, should the vendee fail to pay;
(2) Cancel the sale, should the vendeeǯs failure to pay cover two or more
installments;
(3) Foreclose the chattel mortgage or the thing sold, if one has been
constituted, should the vendeeǯs failure to pay cover two or more installments. In
this case, he shall have no further action against the purchaser to recover any
unpaid balance of the price. Any agreement to the contrary shall be void.
Our Supreme Court &pp$ p _ $
â15] held: ǲUndoubtedly the principal
object of the above amendment (referring to Act 4122 amending Art. 1454, Civil Code of 1889) was
to remedy the abuses committed in connection with the foreclosure of chattel mortgages. This
amendment prevents mortgagees from seizing the mortgaged property, buying it at foreclosure sale
for a low price and then bringing the suit against the mor tgagor for a deficiency judgment. The
almost invariable result of this procedure was that the mortgagor found himself minus the property
and still owing practically the full amount of his original indebtedness.ǳ
In its Complaint, Magna Financial Services Group, Inc. made the following prayer:
WHEREFORE, it is respectfully prayed that judgment render ordering
defendant:
1. To pay the principal sum of P131,607.00 with penalty charges at 4.5% per
month from January 1999 until paid plus liquidated damages.
2. Ordering defendant to reimburse the plaintiff for attorneyǯs fee at 25% of

the amount due plus expenses of litigation at not less than P10,000.00.
3. Ordering defendant to surrender to the plaintiff the possession of the

Multicab described in paragraph 2 of the complaint.
4. Plaintiff prays for other reliefs just and equitable in the premises.
It is further prayed that

, an Order of Replevin issue commanding
the Provincial Sheriff at Legazpi City or any of his deputies to take such multicab
into his custody and, after judgment, upon default in the payment of the amount
adjudged due to the plaintiff, to sell said chattel at public auction in accordance with
the chattel mortgage law.[16]
In its Memorandum before us, petitioner resolutely declared that it has opted for the remedy
provided under Article 1484(3) of the Civil Code,[17] that is, to p
the chattel mortgage.
It is, however, unmistakable from the Complaint that petitioner preferred to avail itself of the
first and third remedies under Article 1484, at the same time suing for replevin. For this reason, the
Court of Appeals justifiably set aside the decision of the RTC. Perusing the Complaint, the
petitioner, under its prayer number 1, sought for the payment of the unpaid amortizations which is
a remedy that is provided under Article 1484(1) of the Civil Code, allowing an unpaid vendee to
exact fulfillment of the obligation. At the same time, petitioner prayed that Colarina be ordered to
surrender possession of the vehicle so that it may ultimately be sold at public auction, which
remedy is contained under Article 1484(3). Such a scheme is not only irregular but is a flagrant
circumvention of the prohibition of the law. By praying for the foreclosure of the chattel, Magna
Financial Services Group, Inc. renounced whatever claim it may have under the promissory
note.[18]
Article 1484, paragraph 3, provides that if the vendor has availed himself of the right to
foreclose the chattel mortgage, ǲhe shall have no further action against the purchaser to recover any
unpaid balance of the purchase price. Any agreement to the contrary shall be void.ǳ In other
words, in all proceedings for the foreclosure of chattel mortgages executed on chattels which have
been sold on the installment plan, the mortgagee is limited to the property included in the
mortgage.[19]
Contrary to petitionerǯs claim, a contract of chattel mortgage, which is the transaction involved
in the present case, is in the nature of a conditional sale of personal property given as a security for
the payment of a debt, or the performance of some other obligation specified therein, the condition
being that the sale shall be void upon the seller paying to the purchaser a sum of money or doing
some other act named.[20] If the condition is performed according to its terms, the mortgage and
sale immediately become void, and the mortgagee is thereby divested of his title. [21] On the other
hand, in case of non payment, foreclosure is one of the remedies available to a mortgagee by which
he subjects the mortgaged property to the satisfaction of the obligation to secure that for which the
mortgage was given. Foreclosure may be effected either judicially or extrajudicially, that is, by
ordinary action or by foreclosure under power of sale contained in the mortgage. It may be effected
by the usual methods, including sale of goods at public auction. [22] Extrajudicial foreclosure, as
chosen by the petitioner, is attained by causing the mortgaged propert y to be seized by the sheriff,
as agent of the mortgagee, and have it sold at public auction in the manner prescribed by Section 14
of Act No. 1508, or the Chattel Mortgage Law. [23] This rule governs extrajudicial foreclosure of
chattel mortgage.
In sum, since the petitioner has undeniably elected a remedy of foreclosure under Article
1484(3) of the Civil Code, it is bound by its election and thus may n ot be allowed to change what it
has opted for nor to ask for more. On this point, the Court of Appeals correctly set aside the trial
courtǯs decision and instead rendered a judgment of foreclosure as prayed for by the petitioner.
The next issue of consequence is whether or not there has been an actual foreclosure of the
subject vehicle.
In the case at bar, there is no dispute that the subject vehicle is already in the possession of the
petitioner, Magna Financial Services Group, Inc. However, actual foreclosure has not been pursued,
commenced or concluded by it.
Where the mortgagee elects a remedy of foreclosure, the law requires the actual foreclosure of
the mortgaged chattel. Thus, in $

$ _ ¢ ,[24] our Supreme Court said that it is
actual sale of the mortgaged chattel in accordance with Sec. 14 of Act No. 1508 that would bar the
creditor (who chooses to foreclose) from recovering any unpaid balance.[25] And it is deemed that
there has been foreclosure of the mortgage when all the proceedings of the foreclosure, including
the sale of the property at public auction, have been accomplished.[26]
That there should be actual foreclosure of the mortgaged vehicle was reiterated in the case of
i
_
¢p +[27]
It is thus clear that while ASIAN eventually succeeded in taking possession of the mortgaged
vehicle, it did not pursue the foreclosure of the mortgage as shown by the fact that no auction sale
of the vehicle was ever conducted. As we ruled in Filinvest Credit Corp. v. Phil. Acetylene Co., Inc.
(G.R. No. 50449, 30 January 1982, 111 SCRA 421) Ȃ
Under the law, the delivery of possession of the mortgaged property to the
mortgagee, the herein appellee, can only operate to extinguish appellantǯs liability if
the appellee had actually caused the foreclosure sale of the mortgaged property
when it recovered possession thereof (Northern Motors, Inc. v. Sapinoso, 33 SCRA
356 [1970]; Universal Motors Corp. v. Dy Hian Tat, 28 SCRA 161 [1969]; Manila
Motors Co., Inc. v. Fernandez, 99 Phil. 782 [1956]).
Be that as it may, although no actual foreclosure as contemplated under the law has taken
place in this case, since the vehicle is already in the possession of Magna Financial Services Group,
Inc. and it has persistently and consistently avowed that it elects the remedy of foreclosure, the
Court of Appeals, thus, ruled correctly in directing the foreclosure of the said vehicle without more.
WHEREFORE, premises considered, the instant petition is DENIED for lack of merit and the
decision of the Court of Appeals dated 21 January 2003 is AFFIRMED. Costs against petitioner.
SO ORDERED.

-+
Associate Justice
WE CONCUR:
,Ô

Associate Justice
Chairman

& Ô-+
&&Ô

*

Associate Justice
Ô
I attest that the conclusions in the above Decision were reached in consultation before the
,Ô

Associate Justice
Chairman, Second Division

Pursuant to Article VIII, Section 13 of the Constitution, and the Division Chairmanǯs
&
*
*

Chief Justice
[1] Rollo, p. 50.

[2] Annex A, CA Rollo, p. 23.
[3] Annex I, Rollo, p. 50.
[4] CA Rollo, p. 39.
[5] CA Rollo, pp. 40-41.
[8] Annex H, CA Rollo, pp. 43-47.
[9] Penned by Associate Justice Josefina GuevaraȂSalonga with Associate Justices

Marina L. Buzon and Danilo B. Pine, concurring; CA Rollo, pp. 66-73.
[10] CA Rollo, pp. 71-73.
[11] Rollo, pp. 27-30.
[12] Rollo, p. 39.
[13] Memorandum for the Petitioner, p. 3; Rollo, p. 87.
Rule 68, Section 2 of the Revised Rules of Court on Foreclosure of Real Estate Mortgage
provides:
SEC. 2. ! p

. Ȃ If upon the trial in such
action the court shall find the facts set forth in the complaint to be true, it shall ascertain the
amount due to the plaintiff upon the mortgage debt or obligation, including interest and
other charges as approved by the court, and costs, and shall render judgment for the sum so
found due and order that the same be paid to the court or to the judgment obligee within a
period of not less than ninety (90) days nor more than one hundred twenty (120) days from
the entry of judgment, and that in default of such payment the property shall be sold at
public auction to satisfy the judgment.
[14] Rejoinder, Rollo, p. 95.
[15] 61 Phil. 409, 415 (1935).
[16] CA Rollo, pp. 24-25.
[17] Rollo, p. 88.
[18] Luneta Motor Co. v. Dimagiba, 113 Phil. 864 (1961).
[19] Macondray and Co., Inc. v. Benito, et al., 62 Phil. 137, 142 (1935).
[20] Act No. 1508 - An Act providing for the Mortgaging of personal property and for the
registration of the mortgages so executed.
Section 3. A chattel mortgage is a conditional sale of personal property as security

for the payment of a debt, or the performance of some other obligation specified therein, the
condition being that the sale shall be void upon the sellerǯs paying to the purchaser a sum of
money or doing some other act named. If the condition is performed according to its terms
the mortgage and sale immediately become void, and the mortgagee is thereby divested of
his title.
[21] Bachrach Motor Co. v. Summers, 42 Phil. 3 (1921).
[22] 59 C.J.S. 482 cited in De Leon Credit Transaction, 1995 Ed., p. 384.
[23] Bataan Hardwood Corporation v. Dy Pac and Co., G.R. No. L- 29492, 29 February 1972,
43 SCRA 450.
Section 14, Act No. 1508 of the Chattel Mortgage Law provides:
SEC. 14 The mortgagee, his executor, administrator, or assign, may, after thirty
days from the time of condition broken, caus e the mortgaged property, or any part thereof,
to be sold at public auction by a public officer at a public place in the municipality where the
mortgagor resides, or where the property is situated, provided at least ten days notice of the
time, place, and purpose of such sale has been posted at two or more public places in such
municipality, and the mortgagee, his executor, administrator, or assign, shall notify the
mortgagor or person holding under him and the persons holding subsequent mortgages of
the time and place of sale, either by notice in writing directed to him or left at his abode, if
within the municipality, or sent by mail if he does not reside in such municipality, at least
ten days previous to the sale.
[24] 99 Phil. 782, 786 (1956).
[25] Pacific Commercial Co. v. De la Rama, 72 Phil. 380 (1941).
[26] Macondray & Co., Inc. v. Tan, 38 O.G. 2606; see also Radiowealth, Inc. v. Lavin, L-18563,
27 April 1963, 7 SCRA 804; Vda. De Quiambao, et al. v. Manila Motor Co., Inc., G.R. No. L-
17334, 31 October 1961, 3 SCRA 444, 448-449.
[27] G.R. No. 94828, 18 September 1992, 214 SCRA 103, 107.

Ô
Manila
EN BANC

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plaintiff-appellant,
vs.
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defendant-appellee.
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J.:
On February 9-4, 1938, plaintiff filed a complaint in the Court of First Instance of Manila,
which substantially recites the following facts:
On March 10, 1937, plaintiff Levy Hermanos, Inc., sold to defendant Lazaro Blas Gervacio, a
Packard car. Defendant, after making the initial payment, executed a promissory note for the
balance of P2,400, payable on or before June 15, 1937, with interest at 12 per cent per annum, to
secure the payment of the note, he mortgaged the car to the plaintiff. Defendant failed to pay the
note it its maturity. Wherefore, plaintiff foreclosed the mortgage and the car was sold at public
auction, at which plaintiff was the highest bidder for P1,800. The present action is for the collection
of the balance of P1,600 and interest.
Defendant admitted the allegations of the complaint, and with this admission, the parties
submitted the case for decision. The lower court applied, the provisions of Act No. 4122, inserted as
articles 1454-A of the Civil Code, and rendered judgment in favor of the defendant. Plaintiff
appealed.
Article 1454-A of the Civil Code reads as follows:

In a contract for the sale of personal property payable in installments shall confer
upon the vendor the right to cancel the sale or foreclose the mortgage if one has been given
on the property, without reimbursement to the purchaser of the installments already paid,
if there be an agreement to this effect.
However, if the vendor has chosen to foreclose the mortgage he shall have no further
action against the purchaser for the recovery of any unpaid balance owing by the same and
any agreement to the contrary shall be null and void.
In $p _ i (33 Off. Gaz., 2170), we held that "in order to apply the
provisions of article 1454-A of the Civil Code it must appear that there was a contract for the sale of
personal property payable in installments and that there has been a failure to pay two or more
installments." The contract, in the instant case, while a sale of personal property, is not, however,
one on installments, but on straight term, in which the balance, after payment of the initial sum,
should be paid in its totality at the time specified in the promi ssory note. The transaction is not is
not, therefore, the one contemplated in Act No. 4122 and accordingly the mortgagee is not bound by
the prohibition therein contained as to the right to the recovery of the unpaid balance.
Undoubtedly, the law is aimed at those sales where the price is payable in several installments,
for, generally, it is in these cases that partial payments consist in relatively small amounts,
constituting thus a great temptation for improvident purchasers to buy beyond their means. There
is no such temptation where the price is to be paid in cash, or, as in the instant case, partly in cash
and partly in one term, for, in the latter case, the partial payments are not so small as to place
purchasers off their guard and delude them to a miscalculation of their ability to pay. The oretically,
perhaps, there is no difference between paying the price in tow installments, in so far as the size of
each partial payment is concerned; but in actual practice the difference exists, for, according to the
regular course of business, in contracts providing for payment of the price in two installments,
there is generally a provision for initial payment. But all these considerations are immaterial, the
language of the law being so clear as to require no construction at all.
6 j 3
The suggestion that the cash payment made in this case should be considered as an
installment in order to bring the contract sued upon under the operation of the law, is completely
untenable. A cash payment cannot be considered as a payment by installment, and even if it can be
so considered, still the law does not apply, for it requires non-payment of two or more installments
in order that its provisions may be invoked. Here, only one installment was unpaid.
Judgment is reversed, and the defendant-appellee is hereby sentenced to pay plaintiff-

appellant the sum of P1,600 with interest at the rate of 12 per cent per annum from June 15, 1937,
and the sum of P52.08 with interest at the rate of 6 per cent from the date of the filing of the
complaint, with costs in both instances against the appellee.
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(,*&*,&,*)#(&*petitioners,
vs.

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&respondent.
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:
Assailed via petition for review are issuances of the Court of Appeals in CA-G.R. CV No. 66198,
Decision1 dated April 29, 2004 which set aside the decision of Branch 260 of the Regional Trial
Court (RTC) of Parañaque in Civil Case No. 97-067, and Resolution dated February 21, 2005
denying petitionersǯ motion for reconsideration.
On or about October 27, 1994, 2 petitioner Belen Cordero (Belen), in her own behalf and as attorney-
in-fact of her co-petitioners Darrel Cordero, Egmedio Bautista, Rosemay Bautista, Marion Bautista,
Danny Boy Cordero and Ladylyn Cordero, entered into a contract to sell 3 with respondent, F.S.
Management and Development Corporation, through its chairman Roberto P. Tolentino over five
(5) parcels of land located in Nasugbu, Batangas described in and covered by TCT Nos. 62692,
62693, 62694, 62695 and 20987. The contract to sell contained the following terms and conditions:
1. That the BUYER will buy the whole lots above described from the OWNER consisting of
50 hectares more or less at P25/sq.m. or with a total price of P12,500,000.00;
2. That the BUYER will pay the OWNER the sum of P500,000.00 as earnest money which
will entitle the latter to enter the property and relocate the same, construct the necessary
paths and roads with the help of the necessary parties in the area;
3. The BUYER will pay the OWNER the sum of THREE MILLION FIVE HUNDRED THOUSAND
PESOS ONLY (P3,500,000.00) on or before April 30, 1995 and the remaining balance will be
paid within 18 mons. (sic) from the date of payment of P3.5 Million pesos in 6 equal
quarterly payments or P1,411,000.00 every quarter;
4. The title will be transferred by the OWNER to the BUYER upon complete payment of the
agreed purchase price. Provided that any obligation by the OWNER brought about by
encumbrance or mortgage with any bank shall be settled by the OWNER or by the BUYER
which shall be deducted the total purchase price;
5. Provided, the OWNER shall transfer the titles to the BUYER even before the complete
payment if the BUYER can provide post dated checks which shall be in accordance with the
time frame of payments as above stated and which shall be guaranteed by a reputable bank;
6. Upon the payment of the earnest money and the down payment of 3.5 Million pesos the
BUYER can occupy and introduce improvements in the properties as owner while owner is
guaranteeing that the properties will have no tenants or squatters in the properties and
cooperate in the development of any project or exercise of ownerships by the BUYER;
7. Delay in the payment by the BUYER in the agreed due date will entitle the SELLER for the
legal interest.4
Pursuant to the terms and conditions of the contra ct to sell, respondent paid earnest money in the
amount of P500,000 on October 27, 1994. 5 She likewise paid P1,000,000 on June 30, 1995 and
another P1,000,000 on July 6, 1995. No further payments were made thereafter.6
Petitioners thus sent respondent a demand letter dated November 28, 1996 7 informing her that
they were revoking/canceling the contract to sell and were treating the payments already made as
payment for damages suffered as a result of the breach of contract, and demanding the payment of
the amount of P10 Million Pesos for actual damages suffered due to loss of income by reason
thereof. Respondent ignored the demand, however.
Hence, on February 21, 1997, petitioner Belen, in her own behalf and as attorney-in-fact of her co-
petitioners, filed before the RTC of Parañaque a complaint for rescission of contract with damages 8
alleging that respondent failed to comply with its obligation s under the contract to sell, specifically
its obligation to pay the downpayment of P3.5 Million by April 30, 1995, and the balance within 18
months thereafter; and that consequently petitioners are entitled to rescind the contract to sell as
well as demand the payment of damages.
In its Answer,9 respondent alleged that petitioners have no cause of action considering that they
were the first to violate the contract to sell by preventing access to the properties despite payment
of P2.5 Million Pesos; petitioners prevented it from complying with its obligation to pay in full by
refusing to execute the final contract of sale unless additional payment of legal interest is made; and
petitionersǯ refusal to execute the final contract of sale was due to the willingness of another buyer
to pay a higher price.
In its Pre-trial Order10 of June 9, 1997, the trial court set the pre-trial conference on July 8, 1997
during which neither respondentǯs representative nor its counsel failed to appear. And respondent
did not submit a pre-trial brief, hence, it was declared as in default by the trial court which allowed
the presentation of evidence / by petitioners.11
Petitioners presented as witnesses petitioner Belen and one Ma. Cristina Cleofe. Belen testified on
the execution of the contract to sell; the failure of respondent to make the necessary payments in
compliance with the contract; the actual and moral damages sustained by petitioners as a result of
the breach, including the lost opportunity to sell the properties for a higher price to another buyer,
Ma. Cristina Cleofe; and the attorneyǯs fees incurred by petitioners as a result of the suit.12 Ma.
Cristina Cleofe, on the other hand, testified on the offer she made to petitioners to buy the
properties at P35.00/sq.m.13 which was, however, turned down in light of the contract to sell
executed by petitioners in favor of the respondent.14
Respondent filed a motion to set aside the order of default 15 which was denied by the trial court by
Order dated September 12, 1997. 16 Via petition for certiorari, respondent challenged the said order,
but it was denied by the Court of Appeals. 17
Meanwhile, the trial court issued its decision 18 on November 18, 1997, finding for petitioners and
ordering respondent to pay damages and attorneyǯs fees. The dispositive portion of the decision
reads:
WHEREFORE, premises considered, the contract to sell between the Plaintiffs and the
Defendant is hereby declared as rescinded and the defendant is likewise ordered to pay the
plaintiff:
(1) P4,500,000.00 computed as follows: P5,000,000.00 in actual damages and

P2,000,000.00 in moral and exemplary damages, less defendantǯs previous payment of
P2,500,000.00 under the contract to sell; and
(2) P800,000.00 by way of attorneyǯs fees as well as the costs of suit.
SO ORDERED. (Underscoring supplied)
Before the Court of Appeals to which respondent appealed the trial courtǯs decision, it raised the
following errors:
3.01. The Regional Trial Court erred when it awarded plaintiffs-appellees Five Million Pesos
(P5,000,000.00) as actual damages. Corollary thereto, the Regional Trial Court erred in
declaring defendant-appellant to have acted in wanton disregard of its obligations under
the Contract to Sell.
3.02. The Regional Trial Court erred when it awarded plaintiffs-appellees Two Million Pesos
(P2,000,000.00) as moral and exemplary damages.
3.03. The Regional Trial Court erred when it awarded plaintiffs-appellees Eight Hundred
Thousand Pesos (P800,000.00) as attorneyǯs fees.19
In the assailed decision,20 the Court of Appeals set aside the contract to sell, it finding that
petitionersǯ obligation thereunder did not arise for failure of respondent to pay the full purchase
price. It also set aside the award to petitioners of damages for not being duly proven. And it ordered
petitioners to return "the amount received from [respondent]." Thus the dispositive portion of the
appellate courtǯs decision reads:
WHEREFORE, the Decision dated 18 November 1997 of the Regional Trial Court, Branch
260 of Parañaque City in Civil Case No. 97-067 is hereby VACATED. A NEW DECISION is
ENTERED ordering the SETTING-ASIDE of the Contract to Sell WITHOUT payment of
damages. Plaintiffs-appellees are further ORDERED TO RETURN THE AMOUNTS RECEIVED
from defendant-appellant. (Underscoring supplied)
SO ORDERED.
Their motion for reconsideration having been denied, petitioners filed the present petition for
review which raises the following issues:
1. Whether the Court of Appeals erred in ruling on the nature of the contract despite the fact
that it was not raised on appeal.
2. Whether or not a contract to sell may be subject to rescission under Article 1191 of the
Civil Code.
3. Whether or not the Court of Appeals erred in setting aside the award of damages.
Petitioners contend that the Court of Appeals erred in ruling on the nature of the contract to sell
and the propriety of the remedy of rescission under Article 1191 of the Civil Code, these matters not
having been raised by respondents in the assigned errors. In any event, petitioners claim that the
contract to sell involves reciprocal obligations, hence, it falls within the ambit of Article 1191. 21
While a party is required to indicate in his brief an assignment of errors and only those assigned
shall be considered by the appellate court in deciding the case, appellate courts have ample
authority to rule on matters not assigned as errors in an appeal if these are indispensable or
necessary to the just resolution of the pleaded issues. 22 Thus this Court has allowed the
consideration of other grounds or matters not raised or assigned as errors, to wit: 1) grounds
affecting jurisdiction over the subject matter; 2) matters which are evidently plain or clerical errors
within the contemplation of the law; 3) matters the consideration of which is necessary in arriving
at a just decision and complete resolution of the case or to serve the interest of justice or to avoid
dispensing piecemeal justice; 4) matters of record which were raised in the trial court and which
have some bearing on the issue submitted which the parties failed to raise or which the lower court
ignored; 5) matters closely related to an error assigned; and 6) matters upon which the
determination of a question properly assigned is dependent.23
In the present case, the nature as well as the characteristics of a contract to sell is determinative of
the propriety of the remedy of rescission and the award of damages. As will be discussed shortly,
the trial court committed manifest error in applying Article 1191 of the Civil Code to the present
case, a fundamental error which "lies at the base and foundation of the proceeding, affecting the
judgment necessarily," or, as otherwise expressed, "such manifest error as when removed destroys
the foundation of the judgment." 24 Hence, the Court of Appeals correctly ruled on these matters
even if they were not raised in the appeal briefs.
Under a contract to sell, the seller retains title to the thing to be sold until the purchaser fully pays
the agreed purchase price. The full payment is a positive suspensive condition, the non-fulfillment
of which is not a breach of contract but merely an event that prevents the seller from conveying
title to the purchaser. The non-payment of the purchase price renders the contract to sell
ineffective and without force and effect.25
Since the obligation of petitioners did not arise because of the failure of respondent to fully pay the
purchase price, Article 1191 of the Civil Code would have no application.
c_
26 explained:
Construing the contracts together, it is evident that the parties executed a pp
and not a contract of sale. The petitioners retained ownership without further remedies by
the respondents until the payment of the purchase price of the property in full. Such
)%<"0!) !0"07!! !072#0"0=)05=430230!")55%)$)23
!0!"340!$")7""3)" 7"!"3$50;)"0!="3 "0"0!"
27%"0"5=<)0!0;0)22#)240"3"025 ="30705#. x x x
The -=5=055<"$%"3! #"=30!$50;)"0" )%430230!)!! !07
2#0"0""3$50;)"0="3 "0"0!"!55)##507"3"0"5""3
"%##"32")2""!550==2"07)#40"3"=2)#==2". The
parties stand as if the conditional obligation had never existed. "025 . ="34
0705#4055") 5%$2)!0" ! !!)$50;)"0)5)#%A")"
3
2)$!20!!0=)$50;)"0"3)"0!!"055-A0!"0;"3!! !07
2#0"0"3)70;3) #. [Emphasis and underscoring supplied; citations omitted]
The subject contract to sell clearly states that "title will be transferred by the owner (petitioners) to
the buyer (respondent) upon complete payment of the agreed purchase price." 27 Since respondent
failed to fully pay the purchase price, petitionersǯ obligation to convey title to the properties did not
arise. While rescission does not apply in this case, petitioners may nevertheless cancel the contract
to sell, their obligation not having arisen. 28 This brings this Court to Republic Act No. 6552 (THE
REALTY INSTALLMENT BUYER PROTECTION ACT). In c_
29 this Court held:
Articles 1191 and 1592 of the Civil Code are applicable to contracts of sale. In contracts to
sell, RA 6552 applies. In c
_
,30 the Court declared:
x x x Known as the Maceda Law,

2;0F!02#0"0)5!)5!=)55
E0#!=)5!")"C0#!"0)52<<20)5!0#"0)5D"30;3"="3!55"
2)25"32")2" - )%<"=)0!")55<"$%"3$%430230!!0< 5%
)7""3)" 7"!"3$50;)"0="37#"27%"0"5=<)2?00;
$0#0;=2. It also provides the right of the buyer on installments in case he defaults in
the payment of succeeding installments x x x. [Emphasis supplied]
The properties subject of the contract having been intended for commercial, and not for residential,
purposes, 31 petitioners are entitled to retain the payments already made by respondent. RA 6552
expressly recognizes the vendorǯs right to cancel contracts to sell on installment basis industrial
and commercial properties with full retention of previous payments.32 But even assuming that the
properties were not intended for commercial or industrial purpose, since respondent paid less than
two years of installments, it is not entitled to any refund.33 It is on this score that a modification of
the challenged issuances of the appellate court is in order.
Respecting petitionersǯ claim for damages, failure to make full payment of the purchase price in a
contract to sell is not really a breach, serious or otherwise, but, as priorly stated, an event that
prevents the obligation of the vendor to convey title to the property from arising.34 Consequently,
the award of damages is not warranted in this case.
With regard to attorneyǯs fees, Article 220835 of the Civil Code provides that subject to certain
exceptions, attorneyǯs fees and expenses of litigation, other than judicial costs, cannot be recovered
in the absence of stipulation. None of the enumerated exceptions in Article 2208 is present in this
case. It bears stressing that the policy of the law is to put no premium on the right to litigate. 36
Î, the assailed Court of Appeals Decision dated April 29, 2004 and the Resolution dated
February 21, 2005 in CA-G.R. CV No. 66198 are *40"3"3* that
petitioners are entitled to retain the payments already received from respondent.
SO ORDERED.
ã!
p! !! concur.
@! on leave.
""!
1Penned by Associate Justice Jose C. Reyes, Jr. and concurred in by Associate Justices Portia Aliño-
Hormachuelos and Josefina Guevara-Salonga.
2 RTC records, p. 2; CA rollo, p. 39.
3 Id. at 72-77.
4 Id. at pp. 75-76.
5 Id. at 189.
6 Id. at 190.
7 Id. at 87-89.
8 Id. at 1-15.
9 Id. at 24-30.
10 Id. at 54.
11 Id. at 69.
12 Id. at 187-194.
13 Id. at 90 & 194.
14 Id. at 195.
15 Id. at 101-106.
16 Id. at 130-131.
17 CA rollo, pp. 89-92.
18 RTC Records, pp. 200-203.
19 CA rollo, pp. 44-45.
20 Id. at 150-166.
21 Article 1191 of the Civil Code provides:
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.
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.
22 Hi-Tone Marketing Corporation v. Baikal Realty Corporation, G.R. No. 149992, August 20, 2004,
437 SCRA 121 citing Saura Import and Export Co., Inc. v. Philippine International Surety Co., Inc.,
No. L-15184, 31 May 1963, 8 SCRA 143; Miguel v. Court of Appeals, No. L-20274, 30 October 1969,
29 SCRA 760; Sociedad Europea de Financion, S.A. v. Court of Appeals, G.R. No. 75787, 21 January
1991, 193 SCRA 105; Larobis v. Court of Appeals, 220 SCRA 639, G.R. No. 104189, 30 March 1993;
Logronio v. Talisco, 312 SCRA 52 (1999).
23Hi-Tone Marketing Corporation v. Baikal Realty Corporation, supra; Vide Mendoza v. Bautista,
G.R. No. 143666, March 18, 2005, 453 SCRA 691.
24 Mendoza v. Bautista, supra, citing 5 C.J.S. § 1239 Appeal and Error, p. 70.
25 Ayala Life Assurance, Inc. v. Ray Burton Development Corporation, G.R. No.163075, January 23,
2006, 479 SCRA 462 .
26 G.R. No. 135528, July 14, 2004 434 SCRA 365.
28 cf. Padilla v. Paredes, supra.
29 G.R. No. 145330, October 14, 2005, 473 SCRA 79.
30 G.R. No. 125347, 19 June 1997, 274 SCRA 467, citing the Resolution on Second Motion for
Reconsideration, Luzon Brokerage Co., Inc. v. Maritime Building Co., Inc., No. L-25885, November
16, 1978, 86 SCRA 305.
31 RTC Records, pp. 27 & 48.
32 Luzon Brokerage Co., Inc. v. Maritime Building Co., Inc., supra.
33 Section 4, RA 6552.
34 Rayos v. Court of Appeals, supra; Leaño v. Court of Appeals, G.R. No. 129018, November 15, 2001,
369 SCRA 36; Lacanilao v. Court of Appeals, G.R. No. 121200, September 26, 1996, 262 SCRA 486.
35 Article 2208 provides:
Art. 2208. In the absence of stipulation, attorneyǯs fees and expenses of litigation, other than judicial
costs, cannot be recovered, except:
(1) When exemplary damages are awarded;
(2) When the defendantǯs act or omission has compelled the plaintiff to litigate with third
persons or to incur expenses to protect his interest;
(3) In criminal cases of malicious prosecution against the plaintiff;
(4) In case of a clearly unfounded civil action or proceeding against the plaintiff;
(5) Where the defendant acted in gross and evident bad faith in refusing to satisfy the
plaintiffǯs plainly valid, just and demandable claim;
(6) In actions for legal support;
(7) In actions for the recovery of wages of household helpers, laborers and skilled workers;
(8) In actions for indemnity under workmenǯs compensation and employerǯs liability laws;
(9) In a separate civil action to recover civil liability arising from a crime;
(10) When at least double judicial costs are awarded;
(11) In any other case where the court deems it just a equitable that attorneyǯs fees and
expenses of litigation should be recovered.
In all cases, the attorneyǯs fees and expenses of litigation must be reasonable.
36 Ramos v. Heruela, supra.
FIRST DIVISION
SPOUSES GOMER and G.R. No. 145330
LEONOR RAMOS,
Petitioners, Present:
Davide, Jr., ! ,
,
Quisumbing,
- versus - Ynares-Santiago,
Carpio, and
Azcuna, !!
SPOUSES SANTIAGO and
MINDA HERUELA, and Promulgated:
SPOUSES CHERRY and
RAYMOND PALLORI,
Respondents. October 14, 2005
x-- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
DECISION
c*! +
The Case
Before the Court is a petition for review[1] assailing the Decision[2] dated 23 August 2000 and
the Order dated 20 September 2000 of the Regional Trial Court (ǲtrial courtǳ) of Misamis Oriental,
Branch 21, in Civil Case No. 98-060. The trial court dismissed the plaintiffsǯ action for recovery of
ownership with damages.
3"2#")2"!
The spouses Gomer and Leonor Ramos (ǲspouses Ramosǳ) own a parcel of land, consisting of
1,883 square meters, covered by Transfer Certificate of Title (ǲTCTǳ) No. 16535 of the Register of
Deeds of Cagayan de Oro City. On 18 February 1980, the spouses Ramos made an agreement with
the spouses Santiago and Minda Heruela (ǲspouses Heruelaǳ)[3] covering 306 square meters of the
land (ǲlandǳ). According to the spouses Ramos, the agreement is a contract of conditional sale. The
spouses Heruela allege that the contract is a sale on installment basis.
On 27 January 1998, the spouses Ramos filed a complaint for Recovery of Ownership with
Damages against the spouses Heruela. The case was docketed as Civil Case No. 98-060. The
spouses Ramos allege that out of the P15,300[4] consideration for the sale of the land, the spouses
Heruela paid only P4,000. The last installment that the spouses Heruela paid was on 18 December
1981. The spouses Ramos assert that the spouses Heruelaǯs unjust refusal to pay the balance of the
purchase price caused the cancellation of the Deed of Conditional Sale. In June 1982, the spouses
Ramos discovered that the spouses Heruela were already occupying a portion of the land. Cherry
and Raymond Pallori (ǲspouses Palloriǳ), daughter and son-in-law, respectively, of the spouses
Heruela, erected another house on the land. The spouses Heruela and the spouses Pallori refused to
vacate the land despite demand by the spouses Ramos.
The spouses Heruela allege that the contract is a sale on installment basis. They paid P2,000
as down payment and made the following installment payments:
31 March 1980 P200
2 May 1980 P400 (for April and May 1980)
20 June 1980 P200 (for June 1980)
8 October 1980 P500 (for July, August and part of
September 1980)
5 March 1981 P400 (for October and November
1980)
18 December 1981 P300 (for December 1980 and part
of January 1981)
The spouses Heruela further allege that the 306 square meters specified in the contract was
reduced to 282 square meters because upon subdivision of the land, 24 square meters became part
of the road. The spouses Heruela claim that in March 1982, they expressed their willingness to pay
the balance of P11,300 but the spouses Ramos refused their offer.
350;="30)5"
In its Decision[5] dated 23 August 2000, the trial court ruled that the contract is a sale
by installment. The trial court ruled that the spouses Ramos failed to comply with Section 4 of
Republic Act No. 6552 (ǲRA 6552ǳ),[6] as follows:
SEC. 4. In case where less than two years of installments were paid, the
seller shall give the buyer a grace period of not less than sixty days from the date the
installment became due. If the buyer fails to pay the installments due at the
expiration of the grace period, the seller may cancel the contract after thirty days
from receipt by the buyer of the notice of cancellation or the demand for rescission
of the contract by a notarial act.
The dispositive portion of the Decision reads:
WHEREFORE, the complaint is hereby dismissed and plaintiff[s] are ordered to
execute the corresponding Deed of Sale in favor of defendants after the latter have
paid the remaining balance of Eleven Thousand and Three Hundred Pesos
(P11,300.00).
Plaintiffs are further ordered to pay defendants the sum of P20,000.00, as
Attorneyǯs fees and P10,000.00 as litigation expenses.
SO ORDERED.[7]
In an Order[8] dated 20 September 2000, the trial court denied the spouses Ramosǯ motion for
reconsideration.
3!!!
The spouses Ramos raise the following issues:
I. Whether RA 6552 is applicable to an absolute sale of land;
II. Whether Articles 1191 and 1592 of the Civil Code are applicable to the
present case;
III. Whether the spouses Ramos have a right to cancel the sale;
IV. Whether the spouses Heruela have a right to damages.[9]
350;="3"
The petition is partly meritorious.
Th Agr n is a Conrac o S ll
In its Decision, the trial court ruled on whether the contract made by the parties is a
conditional sale or a sale on installment. The spouses Ramosǯ premise is that since the trial court
ruled that the contract is a sale on installment, the trial court also in effect declared that the sale is
an absolute sale. The spouses Ramos allege that RA 6552 is not applicable to an absolute sale.
Article 1458 of the Civil Code provides that a contract of sale may be absolute or
conditional. A contract of sale is absolute when title to the property passes to the vendee upon
delivery of the thing sold.[10] A deed of sale is absolute when there is no stipulation in the contract
that title to the property remains with the seller until full payment of the purchase price.[11] The
sale is also absolute if there is no stipulation giving the vendor the right to cancel unilaterally the
contract the moment the vendee fails to pay within a fixed period.[12] In a conditional sale, as in a
contract to sell, ownership remains with the vendor and does not pass to the vendee un til full
payment of the purchase price.[13] The full payment of the purchase price partakes of a suspensive
condition, and non-fulfillment of the condition prevents the obligation to sell from arising.[14]
In this case, the agreement of the parties is embodied in a one-page, handwritten
document.[15] The document does not contain the usual terms and conditions of a formal deed of
sale. The original document, elevated to this Court as part of the Records, is torn in part. Only the
words ǲLMENT BASISǳ is legible on the title. The names and addresses of the parties and the
identity of the property cannot be ascertained. The agreement only provides for the following
terms of the sale:
TERM[S] OF SALE:
PRICE PER SQM P50.00 X 306 SQM P 15,300.00
DOWN PAYMENT (TWO THOUSAND PESOS) Ȃ 2,000.00
BALANCE PAYABLE AT MINIMUM OF P200.00 P 13,300.00
PER MONTH UNTIL FULLY PAID =======
In Manu l v. Rodrigu , al.,[16] the Court ruled that to be a written contract, all the
terms must be in writing, so that a contract partly in writing and partly oral is in legal effect an oral
contract. The Court reiterated the Manu l ruling in Alfonso v. Cour of App als:[17]
xxx In $
, ǲonly the price and the terms of payment were in writing,ǳ
but the most important matter in the controversy, the alleged transfer of title was
never ǲreduced to any written document.[ǳ] It was held that the contract should not
be considered as a written but an oral one; not a sale but a promise to sell; and that
ǲthe absence of a formal deed of conveyanceǳ was a strong indication ǲthat the
parties did not intend immediate transfer of title, but only a transfer after full
payment of the price.ǳ Under these circumstances, the Court ruled Article 1504 of
the Civil Code of 1889 (Art. 1592 of the present Code) to be inapplicable to the
contract in controversy Ȃ a contract to sell or promise to sell Ȃ ǲwhere title remains
with the vendor until fulfillment of a positive suspensive condition, such as full
payment of the price x x [x].
The records show that the spouses Heruela did not immediately take actual, physical
possession of the land. According to the spouses Ramos, in March 1981, they allowed the niece of
the spouses Heruela to occupy a portion of the land. Indeed, the spouses Ramos alleged that they
only discovered in June 1982 that the spouses Heruela were already occupying the land. In their
answer to the complaint, the spouses Heruela and the spouses Pallori alleged that their occupation
of the land is lawful because having made partial payments of the purchase price, ǲthey already
considered themselves ownersǳ of the land.[18] Clearly, there was no transfer of title to the
spouses Heruela. The spouses Ramos retained their ownership of the land. This only shows that
the parties did not intend the transfer of ownership until full payment of the purch ase price.
RA 6552 is h Applicabl aw
The trial court did not err in applying RA 6552 to the present case.
Articles 1191[19] and 1592[20] of the Civil Code are applicable to contracts of sale. In
contracts to sell, RA 6552 applies. In Rillo v. Cour of App als,[21] the Court declared:
xxx Known as the Maceda Law, R.A. No. 6552 recognizes in conditional sales of all
kinds of real estate (industrial, commercial, residential) the right of the seller to
cancel the contract upon non-payment of an installment by the buyer, which is
simply an event that prevents the obligation of the vendor to convey title from
acquiring binding force. It also provides the right of the buyer on installments in
case he defaults in the payment of succeeding installments xxx.
Sections 3 and 4 of RA 6552 provide:
Sec. 3. In all transactions or contracts involving the sale or financing of real
estate on installment payments, including residential condominium apartments but
excluding industrial lots, commercial buildings and sales to tenants under Republic
Act Numbered Thirty-eight hundred forty-four as amended by Republic Act
Numbered Sixty-three hundred eighty-nine, where the buyer has paid at least two
years of installments, the buyer is entitled to the following rights in case he defaults
in the payment of succeeding installments:
(a) To pay, without additional interest, the unpaid installments
due within the total grace period earned by him, which is
hereby fixed at the rate of one month grace period for every
one year of installment payments made: _ That this
right shall be exercised by the buyer only once in every five
years of the life of the contract and its extensions, if any.
(b) If the contract is cancelled, the seller shall refund to the buyer
the cash surrender value of the payments on the property
equivalent to fifty per cent of the total payments made and,
after five years of installments, an additional five per cent every
year but not to exceed ninety per cent of the total payments
made: _ That the actual cancellation of the contract
shall take place after thirty days from receipt by the buyer of
the notice of cancellation or the demand for rescission of the
contract by a notarial act and upon full payment of the cash
surrender value to the buyer.
Down payments, deposits or options on the contract shall be included in the
computation of the total number of installments made.

Sec. 4. In case where less than two years of installments were paid, the seller
shall give the buyer a grace period of not less than sixty days from the date the
installment became due. If the buyer fails to pay the installments due at the
expiration of the grace period, the seller may cancel the contract after thirty days
from receipt by the buyer of the notice of cancellation or the demand for rescission
of the contract by a notarial act.
In this case, the spouses Heruela paid less than two years of installments. Thus, Section 4 of
RA 6552 applies. However, there was neither a notice of cancellation nor demand for rescission by
notarial act to the spouses Heruela. In Olypia Housing, Inc. v. Panasiaic Trav l Corp.,[22] the
Court ruled that the vendor could go to court to demand judicial rescission in lieu of a notarial act of
rescission. However, an action for reconveyance is not an action for rescission. The Court
explained in Olypia:
The action for reconveyance filed by petitioner was predicated on an
assumption that its contract to sell executed in favor of respondent buyer had been
validly cancelled or rescinded. The records would show that, indeed, no such
cancellation took place at any time prior to the institution of the action for
reconveyance. xxx
xxx
xxx Not only is an action for reconveyance conceptually different from an action for
rescission but that, also, the effects that flow from an affirmative judgment in either
case would be materially dissimilar in various respects. The judicial resolution of a
contract gives rise to mutual restitution which is not necessarily the situation that
can arise in an action for reconveyance. Additionally, in an action for rescission
(also often termed as resolution), unlike in an action for reconveyance predicated on
an extrajudicial rescission (rescission by notarial act), the Court, instead of
decreeing rescission, may authorize for a just cause the fixing of a period.[23]
In the present case, there being no valid rescission of the contract to sell, the action for
reconveyance is premature. Hence, the spouses Heruela have not lost the statutory grace period
within which to pay. The trial court should have fixed the grace period to sixty days conformably
with Section 4 of RA 6552.
The spouses Heruela are not entirely fault-free. They have been remiss in performing their
obligation. The trial court found that the spouses Heruela offered once to pay the balance of the
purchase price. However, the spouses Heruela did not consign the payment during the pendency of
the case. In the meanwhile, the spouses Heruela enjoyed the use of the land.
For the breach of obligation, the court, in its discretion, and applying Article 2209 of the
Civil Code,[24] may award interest at the rate of 6% per annum on the amount of damages.[25]
The spouses Heruela have been enjoying the use of the land since 1982. In 1995, they allowed their
daughter and son-in-law, the spouses Pallori, to construct a house on the land. Under the
circumstances, the Court deems it proper to award interest at 6% per annum on the balance of the
purchase price.
The records do not show when the spouses Ramos made a demand from the spouses
Heruela for payment of the balance of the purchase price. The complaint only alleged that the
spouses Heruelaǯs ǲunjust refusal to pay in full the purchase price xxx has caused the Deed of
Conditional Sale to be rescinded, revoked and annulled.ǳ[26] The complaint did not specify when
the spouses Ramos made the demand for payment. For purposes of computing the legal interest,
the reckoning period should be the filing on 27 January 1998 of the complaint for reconveyance,
which the spouses Ramos erroneously considered an action for rescission of the contract.
The Court notes the reduction of the land area from 306 square meters to 282 square
meters. Upon subdivision of the land, 24 square meters became part of the road. However,
Santiago Heruela expressed his willingness to pay for the 306 square meters agreed upon despite
the reduction of the land area.[27] Thus, there is no dispute on the amount of the purchase price
even with the reduction of the land area.
On h Award of Aorn yǯs F s and iigaion Exp ns s
The trial court ordered the spouses Ramos to pay the spouses Heruela and the spouses
Pallori the amount of P20,000 as attorneyǯs fees and P10,000 as litigation expenses. Article
2208[28] of the Civil Code provides that subject to certain exceptions, attorneyǯs fees and expenses
of litigation, other than judicial costs, cannot be recovered in the absence of stipulation. None of the
enumerated exceptions applies to this case. Further, the policy of the law is to put no premium on
the right to litigate.[29] Hence, the award of attorneyǯs fees and litigation expenses should be
deleted.
Î, we the Decision dated 23 August 2000 of the Regional Trial Court of
Misamis Oriental, Branch 21, dismissing the complaint for Recovery of Ownership with Damages,
with the following *:
1. The spouses Heruela shall pay the spouses Ramos P11,300 as balance of the purchase
price plus interest at 6% per annum from 27 January 1998. The spouses Heruela shall
pay within 60 days from finality of this Decision;
2. Upon payment, the spouses Ramos shall execute a deed of absolute sale of the l and and
deliver the certificate of title in favor of the spouses Heruela;
3. In case of failure to thus pay within 60 days from finality of this Decision, the spouses
Heruela and the spouses Pallori shall immediately vacate the premises without need of
further demand, and the down payment and installment payments of P4,000 paid by
the spouses Heruela shall constitute rental for the land;
4. The award of P20,000 as attorneyǯs fees and P10,000 as litigation expenses in favor of
the spouses Heruela and the spouses Pallori is deleted.
Ô**.

Associate Justice
Î :
&
*
*
Chief Justice
Chairman

&*
' Ô ( Ô &,Ô-Ô
*&Ô
+
Associate Justice

conclusions in the above Decision were reached in consultation before the case was assigned to the
writer of the opinion of the Courtǯs Division.
&
*
*
ChiefJustice
[1] Under Rule 45 of the 1997 Rules of Civil Procedure.
[2] Penned by Judge Arcadio D. Fabria.
[3] The spouses Ramos and the spouses Heruela are collectively referred to in this Decision as ǲthe
parties.ǳ
[4] P50 per square meter.
[5] Rollo, pp. 15-24.
[6] Otherwise known as the ǲRealty Installment Buyer Protection Act.ǳ
[7] Rollo, pp. 23-24.
[8] ., p. 25.
[9] ., p. 126.
[10] Universal Robina Sugar Milling Corp. v. Heirs of Teves, 438 Phil. 26 (2002).
[11] Adelfa Properties, Inc. v. CA, 310 Phil. 623 (1995).
[12]
[13]
[14] Chua v. Court of Appeals, 449 Phil. 25 (2003).
[15] Records, p. 178.
[16] 109 Phil. 1 (1960).
[17] G.R. No. 63745, 8 June 1990, 186 SCRA 400.
[18] Records, p. 24.
[19] Article 1191 provides:
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
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. 1592. In the sale of immovable property, even though it may have been
been made upon him either judicially or by a notarial act. After the demand, the
court may not grant him a new term.
[21] G.R. No. 125347, 19 June 1997, 274 SCRA 461, citing the Resolution on Second Motion for
Reconsideration, Luzon Brokerage Co., Inc. v. Maritime Building Co., Inc., No. L-25885, 16
November 1978, 86 SCRA 305.
[22] 443 Phil. 385 (2003).
[23]
Art. 2209. If the obligation consists in the payment of a sum of money, and
the debtor incurs in delay, the indemnity for damages, there being no stipulation to
the contrary, shall be the payment of the interest agreed upon, and in the absence of
stipulation, the legal interest, which is six per cent per annum.
[25] Consing v. Court of Appeals, G.R. No. 1 43584, 10 March 2004, 425 SCRA 192; Eastern
Shipping Lines, Inc. v. Court of Appeals, G.R. No. 97412, 12 July 1994, 234 SCRA 78.
[26] Records, p. 4.
[27] TSN, 8 February 2000, p. 20.
Art. 2208. In the absence of stipulation, attorneyǯs fees and expenses of

litigation, other than judicial costs, cannot be recovered, except:
(1) When exemplary damages are awarded;

(2) When the defendantǯs act or omission has compelled the plaintiff to
litigate with third persons or to incur expenses to protect his interest;
(3) In criminal cases of malicious prosecution against the plaintiff;
(4) In case of a clearly unfounded civil action or proceeding against the
plaintiff;
(5) Where the defendant acted in gross and evident bad faith in refusing to
satisfy the plaintiffǯs plainly valid, just and demandable claim;
(6) In actions for legal support;
(7) In actions for the recovery of wages of household helpers, laborers
and skilled workers;
(8) In actions for indemnity under workmenǯs compensation and
employerǯs liability laws;
(9) In a separate civil action to recover civil liability arising from a crime;
(10) When at least double judicial costs are awarded;
(11) In any other case where the court deems it just and equitable that
attorneyǯs fees and expenses of litigation should be recovered.
In all cases, the attorneyǯs fees and expenses of litigation must be reasonable.
[29] Liu v. Loy, Jr., 453 Phil. 232 (2003).

Ô
Manila
THIRD DIVISION

/ 5% ..

& petitioner,
vs.
+*(
(&&- )# &Ôrespondents.
*
$
_ _
Ô&
& J.:
On 22 October 1979, private respondent Zeida B. Brillante-Garfin filed a complaint in the lower
court for specific performance with damages against petitioner Irene P. Relucio, to compel the latter
to: (a) execute, in compliance with the Contract to Buy and Sell in question, a final deed of sale in
favor of the former over two (2) residential subdivision lots in the Mariano Village Subdivision,
Naga City; and (b) construct paved roads on the northern and southern sides of the lots, as
"necessary facilities, improvements, infrastructures and other forms of development of the
subdivision area." Private respondent alleged that the lots, which have a total contract price of
P10,800.00, have already been paid for, as she had already paid P200.00 as down payment, and had
subsequently completed payment of 128 equal monthly installments of P8 9.45 each amounting to
P11,450.00; that as the law allows the charging of interest only as monetary interest or as
compensatory interest, none of which have obtained in her case, as she had never incurred in delay
in the payment of installments due, the stipulated interest of six percent (6%) per annum on the
outstanding balance is null and void; and that the amount of 650.00 representing overpayment be
returned to her.
Petitioner resisted the complaint, maintaining that private respondent, contrary to the latter's
allegations, is obliged to pay interest on the installment payments of the unpaid outstanding
balance even if paid on their "due dates" per schedule of payments; that private respondent had
actually been in arrears in the amount of P4,269.40, representing such interest as of June 1979,
which therefore entitled petitioner to cancel the contract in question. Petitioner then prayed for
judicial affirmance of her Notarial Notice of Cancellation over the said contract in question.
The lower court ordered petitioner:
1. To execute a deed of absolute sale of the two lots described in the complaint in
favor of the plaintiff to enable the latter to secure the corresponding certificate of
title in her name within thirty (30) days from the finality of this Decision;
2. To construct or cause the construction of roads on the Northern and Southern

sides of the said two lots in accordance with the contract if any, and in conformity
with the City of Naga planning ordinance relative to this case;
3. The return to the plaintiff the excess payment of P650.00, plus 6% interest per
annum from the date of the filing of the complaint; and
To pay to the plaintiff attorney's fees in the sum of P l,000.00 and the costs of suit.
The Court of Appeals affirmed in A.C.-GR CV No. 03194 by a

Decision dated 17 July 1986.
Petitioner now comes to this Court, arguing that she has the right to rescind the contract for private
respondent's continued refusal to pay the monthly installments on the contract price.
Two issues are presented for resolution in this petition: (1) whether or not private respondent has
fully paid the stipulated price in the contract so as to be entitled lawfully to demand the execution
of a deed of absolute sale in her favor. This issue in turn will depend on the question of whether or
not petitioner may validly charge interest on installment payments, notwithstanding that private
respondent had been prompt in her monthly payments; and (2) whether or not petitioner's notice
of cancellation was valid and effective.
Examination of the record shows that the questioned Contract to Buy and Sell the subdivision lots
provided for payment by private respondent of the sum of P200.00 as downpayment, and that "the
balance [of P10,600.00] shall be paid in 180 monthly installme nts at P89.45 per month, including
interest rate at six percent (6%) per annum, until the purchase price is fully paid." This stipulation
clearly specified that an interest charge of six percent (6%) per annum was included in the monthly
installment price: private respondent could not have helped noticing that P89.45 multiplied by 180
monthly installments equals P16,101.00, and not P10,600.00. The contract price of P10,800.00 may
thus be seen to be the cash priceof the subdivision lots, that is, the amount payable if the price of
the lots were to be paid in cash and in full at the execution of the contract; it is not the amount that
the vendor will have received in the aggregate after fifteen (15) years if the vendee shall have
religiously paid the monthly installments. The installment price upon the other hand, of the
subdivision lots-the sum total of the monthly installments (i.e., P16,101.00) typically, as in the
instant case, has an interest component which compensates the vendor for waiting fifteen (15)
years before receiving the total principal amount of P10,600.00. Economically or financially,
P10,600.00 delivered in full today is simply worth much more than a long series of small payments
totalling, after fifteen (15) years, P10,600.00. For the vendor, upon receiving the full cash price,
could have deposited that amount in a bank, for instance, and earned interest income which at six
percent (6%) per year and for fifteen (15) years, would precisely total P5,501.00 (the difference
between the installment price of P16,101.00 Ȅ and the cash price of P10,600.00) To suppose, as
private respondent argues, that mere prompt payment of the monthly installments as they fell due
would obviate application of the interest charge of six percent (6%) per annum, is to ignore that
simple economic fact. That economic fact is, of course, recognized by law, which authorizes the
payment of interest when contractually stipulated for by the parties or when implied in
recognized commercial custom or usage.
Vendor and vendee are legally free to stipulate for the payment of either the p p of a
subdivision lot or its
p Should the vendee opt to purchase a subdivision lot via the
installment payment system, he is in effect paying interest on the cash price, whether the fact and
rate of such interest payment is disclosed in the contract or not. The contract for the purchase and
sale of a piece of land on the installment payment system in the case at bar is not only quite lawful;
it also reflects a very wide spread usage or custom in our present day commercial life.
Applying the foregoing analysis to the case at bar: when private respondent started paying monthly
installments in September 1968, the initial P89.45 was apportioned between the principal and the
interest, with P53.00 being allocated to service the interest charge and P36.45 being credited to
the principal. During the succeeding monthly payments, however, as the outstanding balance on the
principal gradually declined, the interest component (in absolute terms) correspondingly fell while
the component credited to the principal increased proportionately, thus amortizing the balance of
the principal purchase prize as that balance gradually declined. / This explains petitioner's theory
of declining balance, which unfortunately was not appreciated by both the trial and appellate
courts.
Despite private respondent's failure to fully pay the stipulated price of the two lots in question,
petitioner, however, could not validly rescind the contract not being lawfully entitled to do so.
Petitioner failed to rebut private respondents' allegations that the former had failed to introduce
required improvements in the subdivision; the former's bare allegation that the improvements
have already been donated to the city government was not accepted by the trial court. Section 23 of
Presidential Decree No. 957, otherwise known as The Subdivision and Condominium Buyers'
Protective Decree, provides:
Section 23. Non-forfeiture of Payments.ȄNo installment payment made by the

buyer in a subdivision or condominium project for the lot or unit he contracted to
buy shall be forfeited in favor of the owner or developer when the buyer, after due
notice to the owner or developer desists front further payment due to the failure of
the owner or developer to develop the subdivisionor condominium project
according to the approved plans and within the time limit for complying with the
same. Such buyer may, at his option, be reimbursed the total amount paid. . .
(Emphasis supplied)
In this respect, the trial court was correct in holding that petitioner could not rescind the
contract. As the law vests upon the buyer the option to demand reimbursement of the total
amount paid, or to wait for further development of the subdivision, privat e respondent who
opted for the latter alternative by waiting for the proper development of the site, may not
be ousted from the subdivision.
ACCORDINGLY, the Court Resolved to GRANT the Petition due course and to SET ASIDE and
NULLIFY the Decision of the Court of Appeals. In lieu thereof, a new Decision is hereby RENDERED
requiring Ȅ
1. the petitioner to complete the necessary improvements and developments in the

subdivision area in accordance with the approved subdivision plans and applicable
provisions of P.D. No. 957 as well as applicable implementing administrative
regulations and City of Naga zoning ordinances, if any;
2. private respondent immediately to resume paying installment payments under

her Contract to Buy and Sell with petitioner, subject to her right to proceed against
petitioner should petitioner fail again to comply with her obligations under P.D. No.
957; and
3. petitioner to execute the Deed of Absolute Sale when private respondent shall
have fully paid the purchase price in accordance with the mentioned Contract to Buy
and Sell.
SO ORDERED.
¢ ! ! !! pp

&!

Ô
Manila
Ô*
Ô

))%
&*&Ô
)# &
+petitioners,
vs.
&Ô(
&&Ô*Î)#Ô
Ô*Î
!"#$%"30)""%-0-=)2" Ô *&respondents.
*J
:
The case before the Court is an appeal _ certiorari from the decision1 of the Court of Appeals
dismissing the petition for certiorari assailing the decision of the Senior Deputy Executive
Secretary, Office of the President sustaining the ruling of the Housing Land Use and Regulatory
Board of Commissioners requiring petitioners to furnish private respondents with copy of the
contract to sell and to accept the balance of the purchase price of a condominium unit.
On July 16, 1988, private respondents Bhavna Harilela and Ramesh Sadhwani (hereinafter referred
to as "Sadhwanis") submitted through St. Martin Realty Corporation, a realtor agent of petitioner
Gold Loop Properties, Inc. (hereinafter referred to as "GLPI"), a signed reservation
application addressed to GLPI for the purchase of one (1) condominium unit at Gold L oop Towers
residential complex, located in Ortigas Complex, Pasig. One of the terms of the reservation was the
execution of a contract to sell once the downpayment was paid in full. Upon submission of the
reservation, the Sadhwanis issued a check for P50,000.00 to cover the reservation fees to Josephine
Flores Guina, agent of St. Martin Realty who issued a receipt to them.j6 j 3
On November 18, 1988, the Sadhwanis paid GLPI the amount of P819,531.25. Subsequently, Bhavna
Harilela signed a "Contract To Sell"2 with GLPI, represented by its President Emmanuel Zapanta. Ms.
Guina assured them that they would be furnished with a copy of the contract after its notarization,
and that the amount, representing the balance of the purchase price, would be included in a loan
application with a bank. However, the contract to sell was not notarized, as the private respondents
were not able to supply GLPI with a copy of their passports.
Under the contract, GLPI agreed to sell to Sadhwanis a 198.75 square meters condominium unit
particularly Unit R-84 of Southwest Tower. The contract price was P2,484,375.00, inclusive of a
reservation deposit of P50,000.00.
The Contract to Sell, Section 3, provides:
"Section 3. PURCHASE PRICE AND TERMS OF PAYMENT.

"(a) The purchase price of the UNIT, exclusive of interest shall be TWO MILLION FOUR
HUNDRED EIGHTY FOUR THOUSAND THREE HUNDRED SEVENTY FIVE (P2,484,375.00)
Pesos, Philippine Currency, payable as follows:
<" **)"
Downpayment of 35% P869,531.25
Less: Reservation 50,000.00 July 16, 1988
Net Downpayment 819,531.25 Oct. 21, 1988
Balance Payable P1,614,843.80
thru the bank designated by the SELLER and subject to standard banking requisites and
approval.
"NOTE: In the event of non-approval of the loan by the bank, the BUYER commits to adopt
the "Co-Terminus Payment Plan" retroactive to the date of scheduled downpayment as
reflected above. This plan requires the payment of non-interest bearing equal monthly
installments spreads on the full balance of the purchase price commencing 30 days after the
scheduled downpayment up to January 1990." 3
GLPI informed the Sadhwanis that the bank loan accommodation which was to serve as payment of
the balance of the purchase price was disapproved, and thus, per the terms of the Contract to Sell,
the balance would become payable through the Co -terminus Payment Plan schedule of payments, in
implementation of which petitioners were informed by letter 4 dated March 15, 1989, which
pertinently reads:
"Despite diligent efforts and ardent representations on our part to have the approval of the
loan in accordance with the Contract, such approval could not be obtained for the reason
that banks are not willing to extend a loan to be secured by a still ongoing project.
Accordingly, the balance of the purchase price should now be paid in equal monthly
installments until January 1990 pursuant to the aforequoted provision. The schedule of
these payments in implementation of this ǮCo-Terminus Payment Planǯ should be as follows:
@*)"=)%<" <"
March 20, 1989 (Covering the period from P538,281.25

Nov. 21, 1989 to March 21, 1989)
April 20, 1989 107,626.25
May 20, 1989 107,626.25
June 20, 1989 107,626.25

July 20, 1989 107,626.25
August 20, 1989 107,626.25
September 20, 1989 107,626.25
October 20, 1989 107,626.25
November 20, 1989 107,626.25
December 20, 1989 107,626.25
January 20, 1989 107,626.25
"TOTAL P1,614,843.80"
By letter5 dated March 16, 1989, addressed to GLPI, the Sadhwanis offered to resell their rights to
the condominium unit they purchased. The letter contained proposals which read:
"Per our verbal agreement, this comes to formalize the earnest intention of my clients,
Spouses Ramesh and Anita Sadhwani, to sell their rights over Unit R-84 of the Gold Loop
Towers, under the following terms and conditions:
@' Ô:
198.75 SQ. M. @ 12,500 PER SQ. M. = P2,484,375.00
Less: 35% downpayment paid 11-15-88 869,531.25
Balance = 1,614,843.75
Monthly amortization payable in = 89,713.54
18 months starting December 1988 until = 3%

May 1990 @ 3% penalty for delayed
amortization
Penalty per month = P 2,691.41
x 3 months
"Total Penalty = P 8,074.22
@-Ô&:
198.75 sq. m. @ P14,500.00 per sq. m. = P2,881,875.00

Less: Balance = 1,614,843.75
P1,267,031.25
Less: Interest for delayed Amortization = 8,074.22
Net cash involved payable in 6 months = P1,258,957.03"
Petitioners rejected the offer on the resale of the rights over the condominium unit proposed by
private respondents because the offer was unreasonable, unfair and inequitable.
On March 19 and April 25, 1989, respondent Ramesh J. Sadhwani demanded a copy of the contract
to sell, noting that his wife had no official document to show that she bought a condominium unit
from GLPI and there were conditions and/or stipulations in the contract which she could not be
expected to comply with, unless a copy of the same be given to her. By letter dated May 22, 1989 to
GLPI, respondent Sadhwaniǯs counsel made a formal demand for the delivery to him of a copy of the
contract to sell.
Spouses Sadhwanis failed to pay any of the monthly amortizations in the payment plan.
On August 7, 1989, petitioners sent a letter demanding payment of the balance amounting to
P1,614,814.80, and informed the Sadhwanis that GLPI will rescind the Contract to Sell and
automatically forfeit their down payment should they fail to pay within five (5) days from receipt of
the letter in accordance with section 8 of the contract to sell. 5
On August 14, 1990, spouses Sadhwanis filed with the Housing and Land Use Regulatory Board
(hereinafter referred to as "HLURB"), a complaint for specific performance with an alternative
prayer for refund against GLPI. Spouses Sadhwanis prayed that they be furnished with a copy of the
contract to sell and allowed them to remit the balance of the consideration to GLPI and to deliver to
them the title and possession of the condominium unit, or t o be reimbursed of the amount they paid
with interest and damages. 6
On October 8, 1990, petitioners filed with the HLURB an answer to the complaint and subsequently,
the parties submitted their position papers.
On October 2, 1992, HLURB Arbiter Roberto F. Paras rendered a decision, the dispositive portion of
which provides:
"WHEREFORE, premises considered, judgment is hereby rendered:
"1. Ordering respondents Gold Loop Properties, Inc. and St. Martin to furnish
complainants with a copy of the subject Contra ct to Sell and to accept complainantǯs
payment of the agreed purchase price balance of the Condominium unit described in
the said contract to Sell;
"2. Ordering said respondents to deliver possession of and to effect the transfer of
title to the subject condominium unit in favor of the complainants after full payment
of the purchase price;
"In the event compliance with the above dispositive portion is no longer possible,
respondents instead are hereby ordered to jointly and severally reimburse
complainants the amount of Eight Hundred Seventy Eight Thousand Three Hundred
Sixty Six Pesos and Thirty Five Centavos (P878,366.35) representing complainantsǯ
reservation deposit and downpayment, with legal interest from the time of the filing
of this complaint;
"3. Ordering respondents jointly and severally to pay complainants (a) moral
damages in the amount of Ten Thousand Pesos (P10,000.00), and (b) attorney'ǯ fees
in the amount of Thirty Thousand Pesos (P30,000.00);
"4. Dismissing respondentsǯ counterclaim for lack of merit.
"IT IS SO ORDERED."7
On November 16, 1992, petitioners appealed to the HLURB Board of Commissioners, Quezon City
while private respondents interposed a partial appeal thereto.
On October 11, 1993, the HLURB Board of Commissioners rendered a decision, the dispositive
portion of which reads:
"WHEREFORE, premises considered, respondentsǯ appeal is hereby DENIED and

complainantsǯ Partial Appeal is hereby given due course and the Decision subject of this
Appeal is hereby MODIFIED by DELETING the second paragraph of order number two.
Accordingly, complainants are directed to pay the balance of the purchase price, without
interest, within 30 days from receipt hereof while respondents are ordered to accept said
payment and turn over to complainants the unit subject of said contract to sell.
"All other aspects of the decision is hereby AFFIRMED IN TOTO.
"SO ORDERED." 9
On January 7, 1994, petitioners elevated the case to the Office of the President.
On August 24, 1994, Senior Deputy Executive Secretary Leonardo A. Quisumbing 10 rendered a
decision11 dismissing petitionersǯ appeal. He also denied petitionersǯ motion for reconsideration 12
in a Resolution 13 dated December 22, 1994.
On March 22, 1995, petitioners filed with the Supreme Court a special civil action for certiorari
assailing the decision of the Senior Deputy Executive Secretary, Office of the President. In a
resolution dated April 4, 1995, the Court referred the case to the Court of Appeals for proper
disposition.13
On June 22, 1995, the Court of Appeals promulgated its decision dismissing the petition. 14 The court
ruled that the failure of petitioners to give respondents a copy of the contract to sell sued upon,
despite repeated demands therefor, and notwithstanding the payment of P878,366.35, wa s a valid
ground for private respondents to suspend their payments. And given the fact that the contract to
sell was in writing, the Sadhwanis, as buyers, were entitled to a copy. Their request for a copy
sprung from their desire to comply with what was incumbent upon them to perform thereunder.
While buyers do not need a copy of the contract to know the stipulated purchase price, the schedule
of payments and the outstanding balance, the contract to sell, being an eight pages single-spaced
document, broken down into twelve sections, spelling out the partiesǯ respective monetary and
non-monetary rights and obligations, the buyers could not be expected to recall each and every
detail of the stipulations of the contract without a copy of the contract to guide t hem.
On July 14, 1995, petitioners filed with the Court of Appeals a motion for reconsideration. 16
However, the court denied the motion. 17
Hence, this petition.18
Petitioners contend that private respondents are not entitled to suspend payment of their mon thly
amortizations because of the alleged failure of petitioners to furnish them copy of the contract to
sell and that private respondents used the alleged failure to give them copy of the contract as an
excuse for defaulting in their contractual obligation to pay the installments. Petitioners insist that
private respondents were given copy of the contract to sell. Petitioners pointed out that under the
contract, they had the right to rescind the contract in case private respondents breached the
contract.
In their Comment 19 and Memorandum, 20 private respondents alleged that they have not in fact
received a copy of the contract to sell. Private respondents likewise averred that petitionersǯ
assertion is premised on its completely wrong proposition that privat e respondents had given
petitioners a reason to rescind the contract to sell. What was really in issue was that it was
petitioners that gave them sufficient and well-founded cause to suspend payment of their monthly
amortizations on the condominium unit.
We agree with private respondents.
The core issue actually boils down to the question of whether or not respondents may suspend
payment of their monthly amortizations due to failure of petitioners to furnish them copy of the
contract to sell.
Time and again, the Court had occasion to reiterate the well-established rule that findings of fact of
the Court of Appeals are conclusive on the parties and are not generally reviewable by this Court.21
We find no compelling reason to disturb the factual findings of the Court of Appeals, in the absence
of showing that the present case falls within the exceptions to this rule. 22 When supported by
sufficient evidence, the findings of fact of the Court of Appeals affirming those of the trial court, are
not to be disturbed on appeal. The rationale behind this doctrine is that review of the findings of
fact of the Court of Appeals is not a function that the Supreme Court normally undertakes. In the
case at bar, we subscribe to the findings of fact of the Court of Appeals when it held that:
"x x x Private respondents were indeed justified in suspending payment of their monthly
amortizations. The failure of petitioners to give them a copy of the Contract to Sell sued
upon, despite repeated demands therefor, and notwithstanding t he private respondentsǯ
payment of P878,366.35 for the subject condominium unit was a valid ground for private
respondents to suspend their payments. x x x
xxx
"And contrary to petitionerǯs stance, records disclose that they were the ones who did
fraudulent acts against private respondents by entering into a Contract to Sell with the
latter and accepting their downpayment of P878,366.35, withholding a copy thereof for no
valid reason at all, and then threatening them with rescission and forfeiture, when private
respondents only suspended payment of the balance of the purchase price while waiting for
their copy of the Contract to Sell." 23
The private respondents are entitled to a copy of the contract to sell, otherwise they would not be
informed of their rights and obligations under the contract. When the Sadhwanis parted with
P878,366.35 or more than one third of the purchase price for the condominium unit, the contract to
sell, or what it represents is concrete proof of the purchase and sale of the condominium unit.
Îthe Court hereby *Ô the petition for review on certiorari, for lack of merit. The
Court Ô the decision of the Court of Appeals in CA-G. R. SP No. 36977 affirming the order for
delivery of a copy of the contract to sell to private respondents and to accept payment of the
balance of the purchase price and deliver title over the condominium unit to the private
respondents upon full payment of the balance of the purchase price. j6 j 3
No costs.
Ô**
i_ ! ® " %!! concur.
""!:
1In CA-G. R. SP No. 36977, promulgated on June 22, 1995, Purisima, J., ponente, Montoya
and Jacinto, JJ., concurring. Petition, Annex "A", Rollo, pp. 34-41.
2 Petition, Annex "C", Rollo, pp. 45-51.
3 Petition, Statement of the Facts, Rollo, pp. 12 -13.
4 Petition, Annex "D", Rollo, pp. 52-54.
5 Petition, Annex "E", Rollo, p. 55.
5 Petition, Annex "F", Rollo, p. 56.
6 Petition, Annex "G", Rollo, pp. 57-66.

7 Petition, Annex "J", Rollo, pp. 85-93.
9In HLRB Case No. REM-A-1307, Tungpalan, Comm., ponente, Mendiola and Altea, Comms.,
concurring, Original Record, pp. 330-338.
10 Now Associate Justice, Supreme Court.
11 In OP Case No. 5522, Petition, Annex "N", Rollo, pp. 145-151.
12 Petition, Annex "O", Rollo, pp. 152-159.
13 Petition, Annex "P", Rollo, p. 160.
14 G. R. No. 119389, Petition, Annex "R", Rollo, p. 184.
15 Petition, Annex "A", Rollo, pp. 34-41.
16 CA Rollo, pp. 175-184.
17 By resolution, promulgated September 5, 1995, Rollo, pp. 43 -44.
18 Petition filed on November 8, 1995, Rollo, pp. 10-33.
19 Rollo, pp. 188-202.
20 Rollo, pp. 228-253.
21Cebu Shipyard and Engineering Works, Inc. vs. William Lines, Inc., 306 SCRA 762, 775
[1999].
22(1) when the conclusion is a finding grounded entirely on speculations, surmises or

conjectures; (2) when the inference made is manifestly mistaken, absurd or impossible; (3)
when there is grave abuse of discretion; (4) when the judgment is based on a
misapprehension of facts; (5) when the findings of fact are conflicting; (6) when the Court of
Appeals, in making its findings, went beyond the issues of the case and the same is contrary
to the admissions of both appellant and appellee; (7) when the findings of the of the Court of
Appeals are contrary to those of the trial court; (8) when the findings of fact are conclusions
without citation of specific evidence on which they are based; (9) when the Court of Appeals
manifestly overlooked certain relevant facts not disputed by the parties, which, if properly
considered, would justify a different conclusion; and (10) when the findings of act of the
Court of Appeals are premised on the absence of evidence and are contradicted by the
evidence on record. (Commissioner on Internal Revenue vs. Embroidery and Garments
Industries (Phils.), Inc., 305 SCRA 70 [1999], citing Misa vs. Court of Appeals, 212 SCRA 217
[1992]; Golangco vs. Court of Appeals, 347 Phil. 771, 780-781 [1997]; Fule vs. Court of
Appeals, 286 SCRA 698, 710 [1998]; Halili vs. Court of Appeals, 287 SCRA 465, 470 [1998];
Remalante vs. Tibe, 158 SCRA 138 [1988]; Ayala Corporation vs. Ray Burton Development
Corporation, 294 SCRA 48 [1998].
23 CA Decision, Rollo, pp. 39-40.

Ô
Manila
SECOND DIVISION

/)% ../
&&(8petitioner,

vs.
&Ô)#* Ô&ÔÔ
respondents.
J.:
This is a petition for review on p of the Decision of the Court of Appeals affirming
the November 27, 1992 decision of the Regional Trial Court of Makati, Branch 150 which disposed
of Civil Case No. 8109, "Industrial Enterprises, Inc. v.Marinduque Mining and Industrial
Corporation, Geronimo Velasco (in his capasity as the then Minister of Energy) and Philippine
National Bank," an action for rescission of contract and damages, as follows:
WHEREFORE, in the light of the foregoing, and as plaintiff Industrial Enterprises,

Inc. was able to establish by preponderant evidence the allegations in its Complaint
and causes of action against defendants Marinduque Mining and Industrial
Corporation and Philippine National Bank, the Court finds both defendants civilly
liable to plaintiff and, therefore, orders them to jointly and severally:
1. pay plaintiff the sum of P31.66 Million as of July 31, 1983, for the expenses
invested by plaintiff in the property subject of this case, as computed by Sycip,
Gorres, Velayo and Company and brought to current value per SGV formula, as
agreed in the Memorandum of Agreement;
2 pay plaintiff the sum of P37,569,733.00, for the indemnification and rehabilitation
cost, plus interest at the legal rate from March 31, 1991, until fully paid;
3. pay plaintiff the sum of P120 Million for unrealized profit for five (5) years from
August, 1983, the date of defendant MMIC's takeover of the property, to October,
1988, when plaintiff was re-awarded the contract, plus interest at the legal rate,
from the date of this decision, until fully paid;
4. pay plaintiff an amount not less than ten (10) percent of the losses it incurred and
its unrealized profits as indicated in Numbers 1 to 3, for the injury done to plaintiff's
business standing and commercial credit;
5. pay plaintiff an amount not less than five (5) percent of the above obligation as
reimbursement to plaintiff for litigation expenses and attorney's fees;
6. COST OF SUIT.
And finally, the extrajudicial foreclosure sale held on August 31, 1984, in Catbalogan,
Samar, over the property of plaintiff, part of the Giporlos Coal Project, is hereby
declared NULL and VOID.
SO ORDERED.
Marinduque Mining and Industrial Corporation (MMIC) was founded by Jesus S. Cabarrus in 1949.
Four years later or in 1953, Cabarrus established J. Cabarrus, Inc. which subsequently was renamed
Industrial Enterprises, Inc. (IEI). During the period when most of the facts relevant to this case
transpired, Cabarrus and his family owned about 12% to 14% of the shares of stock in the MMIC
where he was the President. He was also the President of IEI.
On July 27, 1979, IEI entered into a coal operating contract with the Bureau of Energy Development
(BED), with Cabarrus and then Minister of Energy Geronimo Velasco as signatories. The contract
was pursuant to the Coal Development Act of 1976 (P.D. No. 972, as amended) and covered 2,000
hectares of two (2) coal blocks in Barrio Carbon, Magsaysay, Eastern Samar.
While exploring this area, IEI found the adjacent areas, comprising of three (3) coal blocks, to be
likewise coal potentials. Hence, upon confirmation by the BED that these three (3) adjacent coal
blocks were in the free area, IEI filed an application for another coal operating contract on August
12, 1981. Simultaneously, IEI applied for the conversion of its July 27, 1979 coal operating contract
from exploration to development/production. IEI also followed up its application on the three (3)
newly-discovered coal blocks. All of these coal blocks were collectively known as the Giporlos Coal
Project.
Sometime in April, 1982, Minister Velasco informed Cabarrus that IEI's application for exploration
of the three (3) coal blocks had been disapproved and that, instead, the contract would be awarded
to MMIC. Following Cabarrus' letter of May 4, 1982 requesting that the rejection of IEI's
application be made in writing, Minister Velasco wrote him a letter dated June 2, 1982, / where
Minister Velasco said:
We appreciate your desire to increase Industrial Enterprises, Inc.'s (IEI)

involvement in coal development. In line, however, with the objective of
rationalizing the country's overall coal supply-demand balance, we believe that coal
users who have the capability to go into coal production themselves should, as much
as possible, be encouraged and given the preference to do so. This ensures
maximum utilization of local coal and will be beneficial to coal producer/user in the
long run. In your area of interest, therefore, we believe that the logical coal operator
should be Marinduque Mining and Industrial Corporation (MMIC) wh ich is now
developing the Bagacay coal deposit in order to support MMIC's coal conversion
program at the Nonoc Nickel Refinery. As a member of the board of MMIC, I am fully
aware that this coal conversion program is critical to the profitability and the
survival of the Nonoc Nickel Refinery. It is, therefore, imperative that MMIC secure
its own coal supply.
Consistent with the above rationale, you are aware that MMIC Board has in fact
taken concrete steps to consolidate the Giporlos and Bagacay coal areas under MMIC
and, for this purpose, has authorized Chairman Cesar C. Zalamea to create a
committee (of which I was asked to be Chairman) to evaluate the Giporlos coal
blocks of IEI to serve as basis for their acquisition by MMIC. As President of MMIC,
you are likewise aware that the Board has recently hired the services of SGV to
make an evaluation of the proper pricing for the IEI coal interest to be paid for by
MMIC. With these developments indicating the imminent formal acquisition of
Giporlos coal areas by MMIC, it would indeed be inconsistent now for us to award
additional coal blocks in the same area to IEI. We believe that these additional coal
areas, if at all, should be applied for and awarded direct to MMIC.
In view of the foregoing, please be advised that we are denying IEI's application, and
we suggest instead that MMIC apply for the same blocks.
On March 28, 1983, Minister Velasco informed Cesar Zalamea, Chairman of the Board of the
Development Bank of the Philippines (DBP) and of the MMIC, that IEI's application for the
conversion of its coal operating contract for the Giporlos area from exploration to
development/production had been put "under advisement in the light of the ongoing discussion for
the transfer of IEI's rights and obligations" to MMIC.
Thereafter, MMIC and IEI, through Chairman Zalamea and President Cabarrus, . respectively,
entered into a Memorandum of Agreement (MOA) whereby IEI assigned to MMIC all its rights and
interests under the July 27, 1979 coal operating contract. The MOA provided as follows:
NOW, THEREFORE, the parties have agreed, as hereby they agree, one with the
other, as follows:
1. That IEI, subject and conformably with the whereas clauses hereinabove stated,
hereby assigns and transfers all its rights and interests on the Coal Operating
Contract described in the first whereas clause; and MMIC shall in consideration of
the above assignment and transfer Ȅ
(a) Undertake all the obligations required of IEI under said Coal
Operating Contract;
(b) Reimburse all costs and expenses actually incurred as of 31 July

1983 by IEI on the coal property and brought up to current values, as
shall be audited and confirmed by Sycip, Gorres and Velayo as of said
date of 31 July 1983; and
(c) Pay to IEI the total sum equivalent to P4.17 per ton of proven and
positive reserves of coal to be confirmed by an independent
geologist who shall be designated and appointed by mutual
agreement of the parties.
2. That the total sum due from MMIC to IEI under this agreement shall be paid upon
the effectivity of this agreement in the following manner Ȅ
(a) An assumption by MMIC of the outstanding loan obligation

(evidenced by Promissory Note No. 1516 for P3.3 Million and
Promissory Note No. 11098 for P5.0 Million) of IEI to Manila Banking
Corporation which as of 31 July 1983 stands at P8.3 Million.
(b) Payment in cash to IEI of the difference between the above

amount of P8.3 Million and the sum total of subparagraphs (b) and
(c) par. 1, above.
3. That this agreement shall only become binding and effective upon its approval by
the BED, which approval shall be secured jointly by MMIC and IEI.
MMIC and IEI, again through Zalamea and Cabarrus, respectively, jointly informed the BED on
August 10, 1983, that they had entered into the MOA "at the instance and suggestion of the Hon.
Minister of Energy in one of the earlier meetings of the Board of Directors of MMIC." MMIC and
IEI were informed of the approval of the MOA on August 29, 1983 by the then Acting BED Director
Wenceslao R. de la Paz.
MMIC took over possession and control of the two (2) coal blocks even before the MOA was
finalized. However, instead of continuing the exploration and development work actively pursued
by IEI, MMIC completely stopped all works and dismissed the work force thereon, leaving only a
caretaker crew.
Consequently, IEI made written demands to MMIC, pursuant to the MOA, for the reimbursement of
all costs and expenses it had incurred on the project which, as of July 31, 1983, had amounted to
P31.66 million as audited by the Sycip, Gorres and Velayo Company.
In view of MMIC's failure to comply with its obligations under the MOA, IEI filed a complaint against
MMIC and Minister Velasco on August 7, 1984, for rescission of the MOA and damages, before the
Regional Trial Court of Makati, Branch 137. Docketed as Civil Case No. 8109, the complaint alleged
that MMIC acted in gross and evident bad faith in entering into the MOA when it had no intention at
all to operate the two (2) coal blocks and of complying with any of its obligations under the said
agreement. It likewise alleged that Minister Velasco was instrumental in causing the assignment of
the coal operating contracts to MMIC when he did not act on complainant IEI's application for
conversion of its coal operating contract from exploration to development/production and in
rejecting its application for another coal operating contract for the exploration of additional three
(3) coal blocks which he had reserved for MMIC.
Meanwhile, on July 13, 1981, for various credit accommodations secured from the Philippine
National Bank (PNB), aggregating to four billion pesos (P4,000,000,000.00) excluding interest and
charges as of November 30, 1980, as well as from the DBP, amounting to two billion pesos
(P2,000,000,000.00), MMIC entered into a Mortgage Trust Agreement (MTA) whereby it
constituted a mortgage of its assets in favor of PNB and DBP. These assets are described
in the third "whereas clause" of the MTA as follows:
(1) all the MORTGAGOR'S assets described and covered under the Deed of Real
Estate and Chattel Mortgage executed by the MORTGAGOR in favor of PNB dated
October 9, 1978, acknowledged before Notary Public of Manila, Lucas R. Vidad, as
Dec. No. 1004, Page No. 94, Book No. VII, Series of 1978, as amended, which are
made integral parts of this Agreement by way of reference; and
(2) additional assets of the MORTGAGOR described and identified in the list hereto
attached as Annex "A", including assets of whatever kind, nature or description,
which the MORTGAGOR may hereafter acquire whether in substitution of, in
replenishment, or in addition thereto, (the "Mortgaged Properties").
Under the MTA, the PNB was constituted and appointed as the trustee tasked with holding in trust
the mortgaged properties "for the equal and ratable benefit of the Beneficiaries in proportion to the
amount of the obligation of the MORTGAGOR to each of them" as provided therein. One of the
conditions of the mortgage was that:
. . . Should the MORTGAGORS fail to deliver said properties, as aforestated, the

TRUSTEE, through its duly authorized representative, is authorized to take
possession of said properties and bring the same to the location of any of their
respective offices or to any, other place and the expenses of locating and bringing
said properties to such place shall be for the account of the MORTGAGOR and shall
form part of the sums secured by this mortgage; Provided, however, that
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The MTA also provided that:
For the purpose of extra-judicial foreclosure, the MORTGAGOR hereby appoints the
TRUSTEE, through its duly authorized representatives, its attorney-in-fact to sell the
mortgaged properties in accordance with the provision of Act No. 3135, as
amended, and/or Act No. 1508, as amended, and subject to the stipulations herein
set forth, to sign all documents and perform any act requisite or necessary to
accomplish said purpose and to appoint their representatives or substitutes as such
attorneys-in-fact with all the powers herein conferred. In extra-judicial foreclosure
under Act No. 3135, as amended, the auction sale shall take place in the City or
Capital of the Province where the mortgaged properties are situated. /%
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The MTA was amended on April 27, 1984 with PNB Senior Vice President Gerardo Agulto, Jr. and
MMIC Senior Vice President Jose Luis Javier as signatories. / Premised on the fact that the
mortgagor (MMIC) had "acquired additional personal and real properties, including, but not limited
to, leasehold rights on mining claims, which pursuant to the terms of the Mortgage Trust
Agreement are deemed covered by the mortgage as after-acquired assets," the MTA amended Sec.
2.01 thereof to read as follows:
As security for the prompt and full payment by the MORTGAGOR of the Secured
Obligations, the MORTGAGOR hereby establishes and constitutes in favor of the
MORTGAGEES a first lien and mortgage of the first rank in and to each and every
item of the Mortgaged Properties,

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MMIC defaulted in the payment of its loan obligation with PNB and DBP which, as of July 15, 1984
stood at P23.55 billion. As a consequence thereof, PNB and DBP simultaneously filed in the
provinces of Rizal, Samar, Negros and Surigao, joint petitions for sale on foreclosure under Act Nos.
1508 and 3135, . of the MMIC assets located at: (a) Island Cement in Antipolo, Rizal; (b) Sipalay
Copper Mine in Negros; (c) Bagacay and Giporlos Coal Projects in Samar, and (d) Nonoc Nickel
Project in Surigao. The petitions were premised on: (1) the MOA of July 13, 1984 which delineated
MMIC's mortgaged properties; (2) the April 27, 1984 amendment to the MTA in favor of DBP and
PNB which included in the mortgage MMIC's additional after-acquired assets; (3) the liabilities of
MMIC secured by the mortgage being past due, and (4) Presidential Decree No. 385 mandating PNB
and DBP to institute foreclosure proceedings when the arrearages of the borrower have exceeded
twenty percent (20%) of the principal obligation.
Deputy Sheriff Esteban G. Malindog of the Regional Trial Court in Catbalogan, Samar, Branch XXVII,
complied with the requirements of the law as to the posting and publication of the notice of sale .
Said notice, dated August 15, 1984, set for August 31, 1984 the auction sale of the various mining
equipment and other assets of MMIC, including the equipment at the Giporlos Project.
On August 15, 1984, IEI advised PNB and DBP at their respective Manila and Makati offices that the
purchase price of the Giporlos Coal Project that it had assigned to MMIC per the MOA, was still
unpaid. However, despite said notice, the foreclosure sale proceeded as scheduled and the
various machineries and equipment of MMIC were sold to PNB as the sole bidder for
P33,940,940.00.
In its letter of September 20, 1984 to PNB and DBP, IEI requested that the movable properties in
the Giporlos Coal Project which were detailed in a list attached to its August 15, 1984 letter t o said
banks, be excluded from the foreclosed assets of MMIC as the purchase price thereof under the
MOA had remained unpaid. IEI further informed PNB and DBP that a suit for rescission of the
assignment of the Giporlos Coal Project to MMIC (and damages) had been filed before the Regional
Trial Court of Makati.
On June 24, 1985, in view of the inclusion of the mining equipment and other movable properties at
the Giporlos Coal Project in the foreclosure sale of the assets of MMIC, IEI filed an amended
complaint impleading the PNB as an additional defendant. The amended complaint was admitted
by the trial court on September 23, 1985.
On April 23, 1986, the lower court rendered a decision finding that:
With respect to the plaintiff's claim against the Philippine National Bank, the
evidence on record is clear that said defendant bank is equally guilty of bad faith
because it was advised beforehand that the heavy equipment and movable property
which are part of the Giporlos Coal Project were still unpaid; however, despite that
actual knowledge or information, the said defendant bank proceeded to
extrajudicially foreclose the mortgage on the said properties; moreover, the
foreclosure proceedings were held in Catbalogan, Province of Samar, although the
said movable properties are actually found or located at Giporlos, Eastern Samar
(Exhibit "ooo"), a province, distinct and separate from, and outside the jurisdiction
of, the Province of Samar; these foreclosure proceedings in Catbalogan, Samar, are
clearly contrary to the provisions of Act 1508, as amended; likewise, the inclusion of
the movable properties which are part of the Giporlos Coal Project is contrary to the
provisions of the last paragraph of Sec. 7 of said Act No. 1508, as amended, which
provides that a chattel mortgage shall be determined to cover only the properties
described therein and not like or substituted property thereafter acquired by the
mortgagor and placed in the same depository as the property originally mortgaged,
anything in the mortgage to the contrary notwithstanding.
Noting the futility of proceeding with the trial of the case because there was "no genuine issue of
any material facts," the lower court rendered a summary judgment disposing of Civil Case No. 8109
as follows:
WHEREFORE, judgment is hereby rendered:
a Ȅ declaring the memorandum agreement, Exhibit "C" as rescinded or annulled

and without further force and effect between the parties thereto;
b Ȅ declaring and sustaining the continued efficacy and validity of the coal
operating contract, Exhibit "A" between plaintiff and defendant BED;
c Ȅ ordering the reversion or return of the two coal blocks covered by the coal
operating contract dated July 27, 1979, Exhibit "A", from the defendant MMIC to and
in favor of the plaintiff together with or including all the pieces of equipment MMIC
received by said defendant in virtue of the rescinded memorandum of agreement,
Exhibit "C";
d Ȅ ordering the defendant Bureau of Energy Development to issue its

corresponding formal written affirmation and confirmation of the coal operating
contract, Exhibit "A", and to expeditiously cause the conversion thereof from
exploration to development/production or exploitation contract in favor of the
plaintiff;
e Ȅ directing the Bureau of Energy Development and the Ministry of Energy to give
due course to plaintiff's application for a coal operating contract for the exploration
of the three additional coal blocks in the plaintiff's Giporlos Coal Project;
f Ȅ condemning the defendant MMIC to pay the plaintiff the amount of

P3,431,645.00 representing expenditures on the two coal blocks covered by Exhibit
"A" from July 31, 1983 up to May 1984 and such further amounts from said date up
to the finality of this decision to be computed in accordance with the formula
adopted in the report of Sycip, Gorres and Velayo referred to in paragraph 14 of the
Amended Complaint;
g Ȅ ordering the defendant MMIC to pay the plaintiff the sum of P6,500,000.00
representing rehabilitation expenses to be incurred by plaintiff in putting back the
two coal blocks and the pieces of equipment thereon in the same workable and
operating condition as they were at the time they were taken possession of by said
defendant MMIC and the defendant PNB shall be subsidiarily liable therefor;
h Ȅ condemning the defendants MMIC and PNB jointly and solidarily liable to pay
the plaintiff moral damages in the amount of P300,000.00, as exemplary damages of
P200,000.00 and the amount of P200,000.00 as and for attorney's fees;
i Ȅ declaring the extra-judicial foreclosure sale executed for and in behalf of the
defendant Philippine National Bank of the mining equipment and other movable
property which are enumerated in Exh. "ooo" and which are part of the Giporlos
Coal Project, as null and void and of no force and effect as against the plaintiff; in the
event of the loss or deterioration of the said mining equipment and other movable
property, the said defendants PNB and MMIC shall be held jointly and solidarily
liable to the plaintiff for the current market value thereof; and
j Ȅ ordering the defendants MMIC and PNB to pay the cost of this suit.
SO ORDERED.
PNB and IEI filed separately motions for the reconsideration of said summary judgment. / PNB
alleged that the lower court did not have jurisdiction over the subject matter and nature of the
action as the MOA between MMIC and IEI was an incident arising out of a mining claim which was
within the jurisdiction of the BED. Moreover, the validity of the extrajudicial foreclosure
proceedings which PNB effected on said properties was a genuine material issue which was not
determinable through summary judgment. Inasmuch as the merit of the case was resolved through
summary judgment, PNB was denied its constitutional right to due process. Furthermore, the
award of damages to IEI was improper as PNB was not a party to the MOA.
For its part, IEI contended that the decision failed to award consequential damages in its favor
considering the finding that MMIC and PNB acted in bad faith and that it failed to realize p rofits of
about P14.5 million on the confirmed coal reserves of 3,485,915 metric tons computed at P4.17 per
metric ton.
On the other hand, the public defendant and MMIC filed their respective notices of appeal to the
then Intermediate Appellate Court.
On July 14, 1986, IEI filed a motion for execution pending appeal . alleging that MMIC had failed
and refused to fulfill its obligations under the MOA and that it even allowed the PNB to unlawfully
foreclose the mortgage on the heavy equipment and other movable properties in the Giporlos Coal
Project. According to IEI, to allow this situation to persist would only aggravate the damages
suffered by all concerned parties. It added that the grant of the motion for execution pending appeal
would not only stop the continuing injury to the common weal but it would also hasten the day
when the coal blocks could be placed in useful production to provide gainful employment to the
people in the community. By the same token, IEI averred, granting of the motion would accelerate
realization of scarce foreign exchange savings occasioned by the local production of a substitute
energy source that would thereby contribute to the relief of an ailing economy.
This motion was opposed by the public defendant, the MMIC and the PN B. The public defendant
averred that the execution of the decision "would cause great irreparable damage and injury to
public interest" and that there were no "good reasons" of superior circumstance that demand
urgency of the execution pending appeal. MMIC opposed the motion on the ground that the court
had lost jurisdiction after the perfection of its appeal while PNB's objection was on the ground that
there were no good reasons to justify the issuance of a writ of execution and that the issuance
thereof was premature.
In its order of September 15, 1986, the lower court denied the motions for reconsideration of IEI
and PNB for lack of merit. It ordered the elevation of the records of the case to the Court of Appeals
considering that the MMIC and the public defendant had filed their notices of appeal on time. It
likewise directed the issuance of a writ of execution pending appeal to enforce the April 23, 1986
decision upon the filing of a bond in the amount of five million pesos (P5,000,000.00) conditioned
on the payment of damages the defendants might suffer should the court finally rule that the
plaintiff was not entitled to the writ.
In granting the writ of execution, the court held that "the immediate resumption of operation of the
two coal blocks in question became imperative and is of urgent necessity at this time when our
government is in dire need of capitalization to encourage the establishment of business to generate
employment and dollar-producing energy sources." In the court's perception, this was enough
reason to entitle IEI to execution pending appeal pursuant to Sec. 2, Rule 39 of the Rules of Court.
The corresponding writ having been issued on September 22, 1986, on September 26, 1986,
Pioquinto P. Villapana was appointed Special Sheriff to assist and cooperate with Deputy Sheriff
Arturo Flores in its enforcement. However, execution of the writ was curtailed.
The appeal to the Court of Appeals was docketed as CA-G.R. CV No. 12660. On October 14, 1988, IEI
filed a motion to dismiss the case against Minister Velasco on the grounds of IEI's reapplication for
the two coal blocks with the Office of Energy Affairs (OEA) and its loss of interest in pursuing the
case against Minister Velasco. The motion was favorably acted upon by the Court of Appeals
thereby effectively dropping Minister Velasco as a defendant in Civil Case No. 8109 through the
decision of May 29, 1989, where the Court of Appeals disposed of the appeal as follows:
WHEREFORE, the judgment appealed from is hereby reversed and set aside and the
appeal of plaintiff Industrial Enterprises, Inc., is DISMISSED. The complaint against
the defendants Marinduque Iron Mines Corporation and Minister of Energy is
dismissed for lack of jurisdiction. The case against defendant PNB is remanded to
the lower court for further proceedings.
Cost against appellant Industrial Enterprises, Inc.
SO ORDERED.
IEI elevated the decision to this Court through a petition for review on p under G.R. No.
88550 while the PNB filed in the Court of Appeals a motion for the reconsideration of the same
decision. On September 21, 1989, the Court of Appeals resolved the motion for reconsideration
with the following findings:
Considering, therefore, that PNB was impleaded as party defendant only in

connection with its foreclosure of the mortgages on the properties of the principal
defendant MMIC, and considering that the main action against MMIC has been
dismissed for lack of jurisdiction, there appears to be no cogent reason to continue
the case against PNB which is merely a secondary defendant. There is thus merit in
PNB's contention that since the case against MMIC has been dismissed, the case
against PNB should likewise be dismissed, considering that PNB merely stepped
into the shoes of MMIC.
Moreover, there is no privity of contract between PNB and IEI. Hence, there is no
direct cause of action by IEI against PNB independently of MMIC, it being merely a
foreclosing mortgage creditor of the latter. At any rate, the record shows that there
is an on-going litigation between MMIC stockholders and PNB before the Regional
Trial Court of Makati (Civil Case No. 9900) for the annulment of the PNB's extra-
judicial foreclosure of MMIC's mortgaged properties.
Accordingly, the Court of Appeals modified its decision of May 29, 1989 by dismissing the
case against the PNB.
Meanwhile, G.R. No. 88550 was eventually decided by this Court on April 18, 1990. In denying the
petition of IEI, the Court held:
Clearly, the doctrine of primary jurisdiction finds application in this case since the
question of what coal areas should be exploited and developed and which entity
should be granted coal operating contracts over said areas involves a technical
determination by the BED as the administrative agency in possession of the
specialized expertise to act on the matter. The Trial Court does not have the
competence to decide matters concerning activities relative to the exploration,
exploitation, development and extraction of mineral resources like coal. These
issues preclude an initial judicial determination. It behooves the courts to stand
aside even when apparently they have statutory power to proceed in recognition of
the primary jurisdiction of an administrative agency.
One thrust of the multiplication of administrative agencies is that the

interpretation of contracts and the determination of private rights
thereunder is no longer a uniquely judicial function, exercisable only
by our regular courts (Antipolo Realty Corp. v. National Housing
Authority, 153 SCRA 399, at 407).
The application of the doctrine of primary jurisdiction, however, does not call for
the dismissal of the case below. It need only be suspended until after the matters
within the competence of the BED are threshed out and determined. Thereby, the
principal purpose behind the doctrine of primary jurisdiction is salutarily served.
Pursuant to this Decision, IEI lodged a complaint against MMIC and PNB before the OEA. After due
hearing, a decision was issued by Executive Director W. R. de la Paz on January 25, 1991, with a
decretal portion which reads:
Wherefore, in the light of the foregoing, insofar as the Memorandum of Agreement is

concerned, such agreement may already be p and p
p in view of the re-award made in IEI's favor of the same coal areas subject of
this dispute. However, on the issue of the effects and consequences of the right to
claim damages for unpaid financial obligations and such other damages incidental
thereto, by one party as against the other, this matter may be referred to the regular
courts for appropriate adjudication.
Similarly, this likewise holds true insofar as the foreclosed properties involved in
this case are concerned where respondent Philippine National Bank was impleaded.
/
In accordance with this ruling of the OEA, on March 1, 1991, IEI filed in the lower court a motion to
set Civil Case No. 8109 for hearing. On June 17, 1991, PNB filed a motion to dismiss . alleging
that the issue in this case, . ., the validity of the foreclosure of MMIC's assets, was virtually the same
issue raised before the Regional Trial Court of Makati in Civil Case No. 9900, "Jesus S. Cabarrus,
Jesus Cabarrus, Jr., Jaime T. Cabarrus, Jose Miguel Cabarrus, Alejandro S. Pastor, Jr., Antonio U.
Miranda & Manuel M. Antonio v. Development Bank of the Philippines and Philippine National
Bank," a case filed by the plaintiffs as stockholders of MMIC in their behalf as well as in behalf of
other stockholders, which prayed, among others, that the foreclosures effected by DBP and PNB on
the assets of MMIC be declared null and void.
The motion to dismiss was denied by the lower court on July 10, 1991 on the ground that there was
no substantial identity in the cause of action, the relief sought and the parties in the two cases.
As aforestated, the lower court rendered the decision of November 27, 1992 finding MMIC and PNB
jointly and severally liable to IEI for damages and declaring null and void the August 31, 1994
extrajudicial foreclosure sale in Catbalogan, Samar. This was affirmed on December 20, 1994 by the
Court of Appeals under CA-G.R. CV No. 40836.
MMIC did not interpose an appeal from the Decision of the Court of Appeals but the PNB filed the
instant petition for review on p questioning the following "conclusions" of the Court of
Appeals:
(1) there was implied conspiracy or community of design among the defendants to
ruin IEI;
(2) PNB acted in bad faith in including the IEI Giporlos equipment at the
extrajudicial foreclosure sale on August 31, 1984, and
(3) PNB is liable for a %

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Petitioner PNB also contends that the Court of Appeals erred in not holding that (a) because
Minister Velasco had been dropped as party defendant, PNB was also absolved from liability
because it was solidarily liable with Minister Velasco, and (b) IEI's claim against PNB for
actual, consequential and moral damages including attorney's fees, litigation expenses and
costs of suit, has neither legal nor factual bases.
In its comment on the petition, private respondent IEI contends in the main that the issues raised
by petitioner PNB are all factual in nature and, therefore, they have no place before this Court. We
hold otherwise.
At the core of the instant petition is the legal question of ownership of the chattels involved at the
time of foreclosure. This issue appears to have been glossed over by the courts below. Equally
appropriate for determination by this Court is the legality of the foreclosure proceedings on the
assets of the MMIC. These two issues are the keys to the resolution of the instant petition.
Privity between MMIC and private respondent was established by the execution of the MOA. An
important issue then is whether or not the chattels mortgaged to petitioner were co vered by the
MOA so as to legally subject the same chattels to MMIC's ownership and, eventually, to the
foreclosure proceedings.
The MOA was an of private respondent's "rights and interests on the Coal Operating
Contract described in the first whereas clause" thereof. In its most general and comprehensive
sense, an assignment is "a transfer or making over to another of the whole of any property, real or
personal, in possession or in action, or of any estate or right therein. It includes transfers of all
kinds of property, and is peculiarly applicable to intangible personal property and, accordingly, it is
ordinarily employed to describe the transfer of non-negotiable choses in action and of rights in or
connected with property as distinguished from the particular item or property."
An assignment is a contract between the assignor and the assignee. It generally operates by way of
such contract or agreement. It is subject to the same requisites as to validity of contracts.
Whether or not a transfer of a particular right or interest is an assignment or some other
transactions depends, not on the name by which it calls itself, but on the legal effect of its
provisions. This rule applies in determining whether a particular transaction is an assignment or a
sale.
As the aforequoted portions of the MOA state, its subject is described in the "whereas clauses"
thereof as follows:
WHEREAS, IEI is the duly authorized operator over two coal blocks over an area
outlined and more particularly described in Annex "A" of the Coal Operating
Contract entered into on the 27th day of July 1979 and between the Ministry of
Energy, through the Bureau of Energy Development ("BED"), and IEI; the Coal
Operating Contract and Annex A thereof being hereto attached and made an integral
part of this contract;
Annex "A" of the coal operating contract is the technical description of the 2,000 -hectare
coal-bearing land in Carbon, Magsaysay, Eastern Samar. Therefore, as expressed in the
MOA, the subject of the assignment was only private respondent's _
p
pp covering said coal-rich land in Eastern Samar.
However, a close scrutiny of the contract reveals that the MOA includes all tangible things found in
the coal-bearing land. Unquestionably, rights may be assigned as they are intangible personal
properties. The term "interests," on the other hand, is broader and more comprehensive than the
word "title" and its definition in a narrow sense by lexicographers as any right in the nature
of property less than title, indicates that the terms are not considered synonymous. It is
practically synonymous, however, with the word "estate" which is the totality of interest which a
person has from absolute ownership down to naked possession. / An "interest" in land is the legal
concern of a person in the thing or property, or in the right to some of the benefits or uses from
which the property is inseparable.
That the MOA conveyed to MMIC more than the title to or rights over the coal operat ing contract
but also the "things" covered thereby, is manifest in the manner by which the parties, particularly
private respondent IEI, implemented the MOA. It disclosed the intention to include in the MOA the
equipment and machineries used in coal exploration. This intention is evident in the following
letters of private respondent: (1) letter of April 16, 1984 to Alfredo Velayo, President of MMIC,
where private respondent, through Cabarrus, included in the conditions for the negotiated
rescission of the MOA, the payment to private respondent of the amount of ten million pesos
(P10,000,000.00) for expenses such as those for the "recondition (of) the equipment which have
been left to the elements;" . (2) letter of May 2, 1984 to Velayo, where private respondent
mentioned a "list of probable equipment(s) that IEI would be interested to apply as part payment in
the event of rescission of contract;" (3) letter of June 4, 1984 to Zalamea as Chairman of the
Board of the MMIC, where private respondent attached an updated statement of account and the
expenses for rehabilitation of equipment, and (4) letter of August 15, 1984 to petitioner and the
DBP where private respondent enclosed a copy of "the movable properties included in said
Memorandum of Agreement" of August 1983. Notably, all these listed equipment were sold at the
foreclosure sale initiated by petitioner.
Also worth noting is the absence of proof that, like a good father of the family, private respondent
exerted some effort to take the chattels out of the premises upon the execution of the MOA. All that
private respondent proved, through the testimony of Cabarrus, was that the equipment and
machineries were _ by MMIC, piled up and left to rot that trees even grew on them.
Coupled with this is private respondents' failure to prove the presence of insurmountable force
that would have prevented it from retrieving its equipment and machineries from the Giporlos
Project area. All these show that private respondent considered these chattels as subjects of the
MOA.
Private respondent had all the right to exclude these chattels from the MOA because they were not
expressly stipulated therein. However, its sheer inaction upon the execution of the MOA and its
subsequent admissions through the aforesaid letters, conclusively show that these equipment and
machineries were subjects of the assignment of rights to MMIC. It was only when the foreclosure
sale was about to take place that private respondent lifted a finger to object thereto on the ground
that the consideration stipulated in the MOA had not yet been paid by MMIC.
Moreover, while the MOA was expressly a contract for the assignment of rights and interests, it is in
fact a contract of sale. Under Art. 1458 of the Civil Code, 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. By the MOA, private
respondent obligated itself to transfer ownership of the coal operating contract and the properties
found therein. The coal operating contract is a determinate thing as it has been particularly
designated in the MOA. The subject of the coal operating contract was physically segregated from
all other pieces of coal-rich Eastern Samar property by the technical description attached to said
contract. A list of the equipment and machineries found on the property might not have been
attached to the MOA but these were itemized with specificity in private respondent's letter of
August 15, 1984.
Private respondent delivered the properties subject of the contract to MMIC, which immediately
gained control and possession of the Giporlos Project. This is explicit in private respondent's
numerous demand letters / which are exemplified by its letter of February 7, 1984 to Zalamea
which states:
Considering that all details necessary to determine the final purchase price are in
place; p
; and
considering finally that cash payment is stipulated in the contract, demand is hereby
respectfully made for the payment of the purchase price soonest. (Emphasis
supplied.)
Another very telling letter of private respondent is that of April 16, 1984 to Mr. Alfredo
Velayo, President of MMIC, which partly reads:
After the Memorandum of Agreement was signed, BED promptly approved the
transfer from IEI to MMIC. After the price was fixed with the assistance of SGV and
BED, MMIC took over the entire project last July 1983. . . . .
For its part, MMIC never denied that it had taken possession and control over the Giporlos Project.
In its replies to private respondent's demand letters, MMIC in fact acknowledged its obligations
under the MOA while professing incapacity to fulfill the same.
If the MOA merely embodied an assignment of rights over the coal-operating contract and the
properties found in the Giporlos Project and not a sale thereof, then private respondent would not
have insisted on the payment of MMIC's obligations under the MOA by attaching a statement of
account to most of its demand letters. In assignments, a consideration is not always a requisite,
unlike in sales. Thus, an assignee may maintain an action based on his title and it is immaterial
whether or not he paid any consideration therefor. Furthermore, in an assignment, title is
transferred but possession need not be delivered. In this case, private respondent transferred
possession over the subjects of the "assignment" to MMIC.
Since the MOA was actually a contract of sale, MMIC acquired ownership over the Giporlos Project
when private respondent delivered it to MMIC. Under the Civil Code, unless the contract contains a
stipulation that ownership of the thing sold shall not pass to the purchaser until he has fully paid
the price, ownership of the thing sold shall be transferred to the vendee upon the actual or
constructive delivery thereof. In other words, payment of the purchase price is not essential to
the transfer of ownership as long as the property sold has been delivered. Such delivery (traditio)
operated to divest the vendor of title to the property which may not be regained or recovered until
and unless the contract is resolved or rescinded in accordance with law.
Consequently, the properties in the Giporlos Project were, therefore, owned by MMIC
notwithstanding its failure to pay the consideration stipulated in the MOA. Private respondent, after
such delivery and MMIC's continuous refusal to pay the consideration for the contract, correctly
opted to rescind the contract. / That private respondent did not succeed in collecting payment
prior to the filing of the complaint for rescission with damages is a fault entirely attributable to
MMIC which at the time, acted upon the orders of government authorities.
It is erroneous for private respondent and the courts below to impute bad faith on the part of
petitioner for foreclosing the properties in the Giporlos Project. Petitioner was simply acting in
accordance with its rights as mortgagee. The MTA, as amended, clearly provides that the mortgage
covers even "after-acquired" properties. Because petitioner was simply implementing this
contractual provision of the MTA, its knowledge that MMIC had not yet paid the consideration
stipulated in the MOA could not have resulted in foreclosure in bad faith. After all, petitioner was a
total stranger as regards the MOA.
Similarly, neither may petitioner be deemed to have conspired with MMIC and government
authorities in divesting private respondent of its rights over the Giporlos Project. Petitioner's
involvement consisted in its exercising its right to foreclose the mortgage only after the MOA, which
effectively wrenched the Giporlos Project from private respondent's control, had become a
pp
. A lawful act, done in a lawful way, no matter how damaging the result, never lays the
basis for a claim of fraudulent conspiracy. That a scheme to favor the financially strapped MMIC
over private respondent had been hatched and was in existence when the MOA was executed is
now beyond this Court's adjudicatory power. Suffice it to state that an action may be maintained
against persons who falsely and fraudulently recommend an insolvent person as worthy of credit,
by reason of which plaintiff is induced to trust him. .
In view of the noninvolvement of petitioner in the alleged conspiracy to strip private respondent of
the its rights over the Giporlos Project, petitioner cannot be made solidarily liable with the MMIC
for damages. However, although petitioner's rights to foreclose the mortgage and to subject the
equipment of private respondent to the foreclosure sale are unassailable, we find that the
foreclosure proceedings fell short of the requirements of the law.
The provision of the MTA vesting petitioner as trustee with the authority to choose the place where
the sale of the properties involved therein should be made is clearly in contravention of the
following provisions of Act No. 3135 as amended:
Sec. 2. Said sale cannot be made legally outside the province in which the property
sold is situated; and in case the place within said province in which the sale is to be
made is the subject of stipulation, such sale shall be made in said place or in the
municipal building of the municipality in which the property or part thereof is
situated.
The Giporlos Project is situated in Eastern Samar, a province separate and distinct from
Samar where the foreclosure sale took place. / Hence, the foreclosure sale is null and void.
Even the Chattel Mortgage Law (Act No. 1508) relied upon by private respondent in
assailing the propriety of the public auction sale in Samar, provides that the said sale should
be made "in the municipality where the mortgagor resides" or "where the property is
situated." / It has not been established that petitioner considered Catbalogan, Samar where
the foreclosure sale was conducted, as its "residence."
Moreover, the designation of a special sheriff to conduct the foreclosure sale is questionable.
According to Sheriff Malindog, he was designated as a special sheriff by the judge of the Regional
Trial Court of Samar, through the clerk of court, upon the request of petitioner's counsel, one Atty.
Aliena, even though there was a sheriff in Eastern Samar. /
Appointment of special sheriffs for the service of writs of execution or for the purpose of
conducting a foreclosure sale under Act No. 3135 is allowed only when there is no sheriff in the
area where the property involved is located or when the sheriff himself is involved in the action.
This restriction is founded on the requirement of law that sheriffs who take delivery of money or
property in trust must be duly bonded. / The said situations calling for the appointment of a special
sheriff being absent in this case, the appointment of Malindog as a special sheriff by the judge of the
Regional Trial Court of Samar is unauthorized. Such lack of authority resulted in the nullification of
the foreclosure sale conducted by Malindog.
Ordinarily, by the nullification of the foreclosure sale, the properties involved would revert to their
original status of being mortgaged. / However, the situation in this case is an exception to that rule.
The MOA, the source of MMIC's right of ownership over the properties sold at the foreclosure sale,
has been rescinded. Consequently, petitioner should exclude said properties from the MMIC's
properties which were mortgaged to the petitioner and DBP through the MTA. However,
since the foreclosed properties had been turned over to the Asset Privatization Trust, / petitioner
must reimburse private respondent the value thereof at the time of the foreclosure sale.
WHEREFORE, the Decision of the Court of Appeals is hereby REVERSED and SET ASIDE insofar as it
renders petitioner solidarily liable with Marinduque Mining and Industrial Corporation for
damages and AFFIRMED insofar as it nullifies the foreclosure sale of August 31, 1984. Petitioner
Philippine National Bank shall exclude the properties sold at the foreclosure sale from the
mortgaged properties of Marinduque Mining and Industrial Corporation and return the same to
private respondent Industrial Enterprises Inc. or, should such return be not feasible, reimburse said
private respondent the value thereof at the time of the foreclosure sale.
SO ORDERED.
c
$ @ ! !! pp
""!
1 Penned by Associate Justice Ricardo J. Francisco and concurred in by Associate

Justices Ramon A. Barcelona and Godardo A. Jacinto.
2 Penned by Judge Zeus C. Abrogar.
3 TSN, October 21, 1991, p. 28.
4 ., p. 32-34.
5 Exh. A.
6 Exh. B.
7 Exh. B-l.
8 Exh. B-2.
9 Records show that at the time of the signing of the MOA, Cabarrus was also the
President of MMIC as he retired from that position on December 31, 1983 (MMIC
Report '83, Exh. DDD-2, pp. 3 & 34).
10 Exh. C.
11 Exh. W.
12 Exh. 1-PNB.
13 Exh. 1-B.
14 Sec. 3.01 of MTA.
15 Sec. 5.08, .
16 ., Exh. l-C.
17 Exh. 2-PNB.
18 Exh. 2-A.
19 Exh. 3-PNB.
20 Exh. KKK.
21 Exh. LLL.
23 ., p. 276.
24 Presided by Judge Benigno M. Puno.
25 Decision, p. 21; RTC Record, p. 369.
26 Record, pp. 370-371.
27 ., pp. 372-376 & 387-389.
28 ., pp. 378 & 391.
29 ., pp. 414-416.
30 ., pp. 419-447.

31 ., pp. 484-486.
32 c
, p. 79.
33 Penned by Justice Nicolas P. Lapeña, Jr. and concurred in by Justices Emeterio C.

Cui and Justo P. Torres, Jr.
34 RTC Record, p. 513.
35 ., pp. 514-515.
36 The Decision was penned by Associate Justice Ameurfina A. Melencio-Herrera

and concurred in by Associate Justices Edgardo L. Paras, Teodoro R. Padilla,
Abraham F. Sarmiento and Florenz D. Regalado. It is published in 184 SCRA 426.
37 Exh ZZZ; RTC Record, pp. 520-527.
38 ., pp. 517-518.
39 ., pp. 538-540.
40 By virtue of Administrative Order No. 14 dated February 3, 1987 and the Deeds
of Transfer both dated February 27, 1987, the National Government, thru the Asset
Privatization Trust, became the assignee and transferee of all the PNB and DBP
accounts pertaining to MMIC. Pursuant to the Compromise and Arbitration
Agreement entered into by the parties in Civil Case No. 9900 and APT, said case was
dismissed by the trial court on October 14, 1992 and submitted instead to
arbitration under R.A. 876. In its decision dated November 24, 1993 the Arbitration
Committee declared invalid the foreclosure on MMIC's assets. (C.A. c
, pp. 198-
263)
41 RTC Record, p. 566.
42 Petition, p. 40.
43 MORENO'S PHILIPPINE LAW DICTIONARY, 3rd ., p. 75.
44 6A C.J.S. 593.
45 ., p. 594.
46 22 WORDS AND PHRASES 87, p In re Baldwin's Estate, 134 P. 2d 259, 263,
21 Cal. 2d 586.
47 ., p Providence Washington Ins. Co. v. Pass, for use of Nalley, 12 S.E. 2d
460, 461, 64 Ga. App. 221.
48 ., at p. 92 p Bahls v. Dean, 170 N.W. 861, 866, 222 Iowa 1291.
49 Exh. MM.
50 Exh. RR.
51 Exh. TT.
52 Exh. KKK.
53 Exh. OOO.
54 TSN, October 7, 1991, p. 12.
55 When mention of the presence of the insurgents in the area was made, Cabarrus
claimed at the witness stand that they were never a problem to him and his
company. (TSN, January 15, 1992, pp. 29-30)
56 Art. 1460 of the Civil Code states that a thing is " determinate when it is
particularly designated or physically segregated from all others of the same class."
57 Exhs. Y, Z, BB, CC, EE, GG, II, KK, MM, PP, TT and WW.
58 Exh. Z.
59 Exh. MM.
60 Exhs. CC, CC-1, KK, KK-1, PP, PP-1, TT, TT-1.
61 6A C.J.S. 781.
62 4A WORDS AND PHRASES 106 p Paramount Building & Loan Ass'n of City of
Newark v. Sacks, 152 A. 457, 458, 107 N.J. Eq. 328.
63 Art. 1478.
64 Art. 1477.
65 Sampaguita Pictures, Inc. v. Jalwindor Manufacturers, Inc., L-43059, October 11,

1979, 93 SCRA 420, 425.
66 : Pingol v. Court of Appeals, G.R. No. 102909, September 6, 1993, 226 SCRA
118, 128.
67 Ocampo v. Court Of Appeals, G.R. No. 97442, June 30, 1944, 233 SCRA 551, 560.
68 15A C.J.S. 614.
69 ., at p. 615.
70 Exhs. MMM & OOO.
71 Sec. 14.
72 TSN, July 27, 1992, p. 37.
73 Commissioner of Public Highways v. San Diego, L-30098, February 18, 1970, 31

SCRA 616, 631-632.
74 : Seven Brothers Shipping Corporation v. Court of Appeals, G.R. No. 109573,

July 13, 1995, 246 SCRA 33, 40.
75 TSN, October 21, 1991, pp. 5-6; TSN; December 21, 1991, pp. 22-23; RTC,
decision, p. 18; Records, p. 751.

Ô
Manila
**
Ô

.. .
( &*Ô
&
&
)#&*' +petitioners,
vs.
&Ô)#* Ô& respondents.
J
:
This case has been re-raffled to herein ponente pursuant to the Courtǯs Resolution in A.M. No. 00 -9-
03-SC of 27 February 2001. The petition for review on certiorari oppugns the decision of the Court
of Appeals in CA-G.R. CV No. 08582, entitled "Industrial Finance Corporation vs. Project Builders,
Inc., et al.," reversing the decision of Branch XX of the Regional Trial Court of Manila in Civil Case
No. 141774.
The antecedents of the case were capsulized by the trial court and cited by the appellate court; _:
"ǮThis collection suit was filed on July 17, 1981 by Industrial Finance Corporation (IFC for
short) against defendant Project Builders, Inc. (PBI for short), Galicano Calapatia, Jr., Pablo
Malasarte, Teodoro Banas and Leandro Enriquez, arising from an alleged deficiency of
P1,323,053.08, after the extrajudicial foreclosure of the real estate mortgage.
ǮThe defendants deny liability and in their answer they allege that plaintiff has no
cause or right of action because the obligation is already fully paid out of the
proceeds of foreclosure sale of defendantsǯ property. Further, defendants alleged
that a proper accounting of the transaction between the parties will show that it is
the plaintiff who is liable to the defendants.
ǮThe facts, which led to the filing of the case, are as follows:
ǮOn August 21, 1975, plaintiff and defendant PBI entered into an agreement (Exh.
ǮAǯ) whereby it was agreed that plaintiff would provide a maximum amount of
P2,000,000.00 against which said defendant would discount and assign to plaintiff
on a Ǯwith recourse non-collection basisǯ its (PBIǯs) accounts receivable under the
contracts to sell specified in said agreement. And on June 15, 1976, the same parties
entered into an agreement (Exh. ǮBǯ) whereby it was agreed that PBIǯs credit line
with plaintiff be increased to P5,000,000.00. It was stipulated that the credit line of
P5,000,000.00 granted includes the amount already assigned/discounted.
ǮAgainst the above-mentioned Ǯcredit line,ǯ defendant PBI discounted with plaintiff
on different dates accounts receivables with different maturity dates from different
condominium-unit buyers. And each time a certain account receivable was
discounted, the covering Contract to Sell (Exh. ǮC-1ǯ to ǮO-1ǯ) was assigned by
defendant to plaintiff.
ǮThe total amount of receivables discounted by defendant PBI is P7,986,815.38 and

consists of twenty accounts. Of such receivables amounting to P7,986,815.38
plaintiff released to defendant PBI the amount of P4,549,132.72 and the difference
of P3,437,682.66 represents the discounting fee or finance fee.
ǮTo secure compliance with the terms and conditions of the agreement dated June
15, 1976 (Exh. ǮBǯ), defendants on the same date executed a Deed of Real Estate
Mortgage (Exh. ǮQǯ) in favor of plaintiff. When defendants allegedly defaulted in the
payment of the subject account, plaintiff foreclosed the mortgage and plaintiff was
the highest bidder in the amount of P3,500,000.00.ǯ
ǮThe foreclosed property was redeemed a year later (Exh. ǮTǯ), but after application
of the redemption payment, plaintiff claims that there is still a deficiency in the
amount of P1,323,053.08, hence, this complaint .ǯ
"The terms and conditions of the Agreement dated June 15, 1976 (Exh. ǮBǯ) which are
material to the present appeal state as follows:
"ǯ1. That the Assignor assigned all its rights and interests on several Contracts to Sell
executed by Assignor and the latterǯs customers.
Ǯ2. That the Assignor requested the Assignee to increase the formerǯs credit line to
FIVE MILLION (P5,000,000.00) PESOS, Phil. Currency, which was granted by the
Assignee subject to the following terms and conditions:
Ǯa. It is hereby agreed that the credit line of P5,000,000.00 granted includes
the amount already assigned/discounted by Assignor to Assignee as stated
in paragraph 1 of this Agreement.
Ǯb. This assignment/discounting of the Contracts to Sell shall be with

recourse to Assignor and on a non-collection basis.
Ǯc. That Assignee will execute a Real Estate Mortgage on 3 lots described as
Transfer Certificate of Title Nos. 491702, 491703 and 491704 of the Registry
of Deeds of Rizal to secure the faithful performance of the terms and
conditions of this agreement and the Contracts to Sell assigned or which may
be assigned to Assignee.
Ǯd. Should there be a default on the part of the Assignor to pay Assignee or
should Assignor fail to pay Assignee the amount or amounts due to Assignee
arising from the assignment of the accounts receivables or remit to Assignee
a lesser amount, the Assignor and/or PABLO MALASARTE, ROLANDO L.
JUSTO, LEANDRO D. ENRIQUEZ, TEODORO G. BANAS, GALICANO A.
CALAPATIA, JR. shall jointly and severally in their personal capacities upon
demand by the Assignee, repurchase the Contracts to Sell or installment
papers assigned and/or discounted by Assignor in favor of Assignee and/or
pay Assignee the remaining balance of the amount of the receivables
discounted and/or assigned by Assignor to Assignee.
Ǯe. That the Performance Bond covering the condominium building ǮJovanǯ
located in Mandaluyong, Rizal shall be endorsed and delivered by Assignor
to Assignee.
Ǯf. That the Assignor shall comply with all the terms and conditions specified
on the said Contracts to Sell, executed by the assignor and its individual
purchaser or customers, and assigned/discounted to Assignee whether the
assignment is on a with or without recourse basis.
Ǯg. Should it become necessary for the assignee to take any legal action, the
Assignor shall pay to the Assignee as attorneyǯs fee allowed by the Rules of
Court in the sum equivalent to Twenty (20%) per cent of the total
indebtedness then unpaid, plus whatever legal costs incurred, and that any
legal action arising out of this agreement may be instituted in the courts of
the City of Manila.ǯ" 1
After the joinder of issues, the trial court dismissed the complaint and ruled on the counterclaim in
this wise -
"1. Ordering plaintiff to return to the defendants the amount of P3,705.91 which plaintiff
charged on the account of Dr. Ricardo Ortiz and Olympic Engineering Sales Corporation
which had already been paid;
"2. Ordering plaintiff to pay to defendants the amount of P238,052.53, representing the
amount of the promissory note which was (sic) not been compensated or applied to the
account of defendants;
"3. Ordering plaintiff to return to defendants the amount of P425,833.33, representing the
interest collected by plaintiff from defendants from foreclosure to redemption of the real
estate mortgage;
"4. Ordering plaintiff to return to defendants the amount of P344,302.18, representing the
prepaid interests collected by plaintiff, since defendants were not allowed to use the period
of such prepaid interests;
"5. Ordering plaintiff to pay attorneyǯs fees in the amount of P20,000.00.
Costs is adjudged against the plaintiff." 2
The Court of Appeals, in its decision of 14 May 1991, overturned the judgment of the trial court and
ruled thusly:
"WHEREFORE, the decision appealed from is REVERSED. Defendants are hereby ordered to
pay, jointly and severally, to the plaintiff the deficiency in the amount of P1,237,802.48 with
interest thereon at the rate of 12% per annum computed from August 13, 1981 minus the
amount of the promissory note in the sum of P238,052.53 with interest thereon at the rate
of 12% per annum computed from September 14, 1976, the respective computation of the
interest to end upon execution of this decision. No special pronouncement as to costs of
suit."3
Feeling aggrieved, Public Builders, Inc., and its officers, namely, Galicano Calapatia, Jr., Teodoro
Banas and Leandro Enriquez, have come to this Court _ a petition for review on p ,
proffering the following issues:
1.) Whether Republic Act No. 5980 (Financing Company Act) is intended for the benefit of
financing companies or for the protection of public interests;
2.) Whether or not the above-mentioned Act should be made to apply even when the design
or scheme to make it appear that there was a purchase of receivables or credit is only a
to evade Republic Act No. 3765 (Truth in Lending Act), particularly Section 4
thereof, and compound exorbitant interests under the guise of Ǯpurchase discount;ǯ
3.) Whether or not said Republic Act No. 5980 should govern the transaction between
petitioners and private respondent which in reality was bilateral, not trilateral, and
respondent financing company was not really subrogated in the place of the supposed seller
or assignor; and
4.) If said Republic Act No. 5980 should govern the transaction of the parties, should
petitioners still answer for any deficiency after the mortgage with which they guaranty the
collection of the assigned credit, had been foreclosed?"4
At the pith of the controversy lies the question of whether or not the agreement forged by
petitioners and private respondent is a simple loan or a financing transaction governed by the
provisions of Republic Act No. 5980. 5 Petitioners would have us convinced that the transaction
forged by them with private respondent is a simple loan. It is a contention difficult to accept.
Petitioner corporation, the developer-builder of Jovan Condominium Building, in obtaining a credit

line of P5,000,000.00 from private respondent, assigned twenty (20) contracts to sell with accounts
receivable from its condominium unit buyers to the latter with recourse to assignor and on a non-
collection basis.
Succinctly, private respondent is a financing company as so defined by the Financing Company Act.
(a) "Financing companies," x x x organized for the purpose of extending credit facilities to
consumers and to industrial, commercial, or agricultural enterprises, either by p
or p commercial papers or accounts receivable, or by
contracts,
leases, chattel mortgages, or other evidences of indebtedness or by
of motor
vehicles, heavy equipment and industrial machinery, business and office machines and
equipment, appliances and other movable property." 6
The assignment of the contracts to sell falls within the purview of the Act. The term credit has been
defined to -
"(c) x x x mean any loan, mortgage, deed of trust, advance, or discount; any conditional sales
contract, any contract to sell, or sale or contract of sale of property or service, either for
present or future delivery, under which, part or all of the price is payable subsequent to the
making of such sale or contract; any rental-purchase contract; any option, demand, lien,
pledge, or other claim against, or for the delivery of, property or money, any purchase, or
other acquisition of or any credit upon the security of, any obligation or claim arising out of
the foregoing; and any transaction or series of transactions having a similar purpose or
effect;"7
An assignment of credit is an act of transferring, either onerously or gratuitously, the right of an

assignor to an assignee who would then be capable of proceeding against the debtor for
enforcement or satisfaction of the credit. The transfer of rights takes place upon perfection of the
contract,8 and ownership of the right, including all appurtenant accessory rights, is thereupon
acquired by the assignee. The assignment binds the debtor only upon acquiring knowledge of the
assignment but he is entitled, even then, to raise against the assignee the same defenses he could
set up against the assignor. Where the assignment is on account of pure liberality on the part of the
assignor, the rules on donation would likewise be pertinent; where valuable consideration is
involved, the assignment partakes of the nature of a contract of sale or purchase.9
Upon an assignment of a contract to sell, the assignee is effectively subrogated in place of the
assignor and in a position to enforce the contract to sell to the same extent as the assignor could.
An insistence of petitioners that the subject transaction should be considered a simple loan since
private respondent did not communicate with the debtors, condominium unit buyers, to collect
payment from them, is untenable. In an assignment of credit, the consent of the debtor is not
essential for its perfection,10 his knowledge thereof or lack of it affecting only the efficaciousness or
inefficaciousness of any payment he might make.11 In c _
,12 the Court has
said:
"We have ruled in Sison & Sison v. Yap Tico and Avanceña, 37 Phil. 587 [1918] that
definitely, consent is not necessary in order that assignment may fully produce legal effects.
Hence, the duty to pay does not depend on the consent of the debtor. Otherw ise, all
creditors would be prevented from assigning their credits because of the possibility of the
debtorsǯ refusal to give consent.
"What the law requires in an assignment of credit is not the consent of the debtor but
merely notice to him. A creditor may, therefore, validly assign his credit and its accessories
without the debtorǯs consent (National Investment and Development Co. v. De los Angeles,
40 SCRA 489 [1971]). The purpose of the notice is only to inform the debtor that from the
date of the assignment, payment should be made to the assignee and not to the original
creditor." 13
The assignment, it might be pointed out, was "with recourse," and default in the payment of
installments had been duly established when petitioner corporation foreclosed on the mortgaged
parcels of land. The resort to foreclosure of the mortgaged properties did not preclude private
respondent from collecting interest from the assigned Contracts To Sell from the time of foreclosure
to the redemption of the foreclosed property. The imposition of interest was a mere enforcement or
exercise of the right to the ownership of the credit or receivables which the parties stipulated in the
1976 financing agreement. Thus -
"f. That the Assignor shall comply with all the terms and conditions specified on the said
Contracts to Sell, executed by the assignor and its individual purchaser or customers, and
assigned/discounted to Assignee." 14
One of the provisions in the contracts to sell, subject matter of the assignment agreement, related to
the imposition of interest in the event of default by the debtor in the payment of installments, to
wit:
"All payments shall be made on or before their respective due dates without necessity of
demand therefor, and failure to make such payments on time shall entitle the Developer to
charge interest at the rate of one percent (1%) per month without prejudice to the other
remedies available to the Developer." 15
As owner of the account receivables, private respondent was impressed with the entitlement over
such interest payment.
Petitionersǯ claim that private respondent is proscribed from imposing interest and other charges
beyond the limits set out by the Financing Company Act lacks merit. The law states:
"SEC. 5. ) p p _p . --- In the case of
assignments of credit or the buying of installment papers, accounts receivables and other
evidences of indebtedness by financing companies, the purchase discount, /p
_
p , shall be limited to fourteen (14%) per cent of the value of the
credit assigned or the value of the installment papers, accounts receivable and other
evidence of indebtedness purchased based on a period of twelve (12) months or less, and to
one and one-sixth (1 1/6%) per cent for each additional month or fraction thereof in excess
of twelve months, regardless of the terms and conditions of the assignment or purchase."
Clearly, the 14% ceiling provided for purchase discount is exclusive of interest and other charges. A
purchase discount is distinct from interest. The term purchase discount refers to the difference
between the value of the receivable purchased or credit assigned, and the net amount paid by the
finance company for such purchase or assignment, /p
_ _p p
p p / p ,16 and it is akin to "time price differential," or the
increase in price to cover the expense generally entailed by transactions on credit.17 There is thus
no impingement of the Usury Law even when the controversy might have arisen prior to the
adoption by the Central Bank Monetary Board on 03 December 1982 of its Resolution No. 224 on
interest ceilings.
WHEREFORE, the petition is DENIED. The challenged decision of the Court of Appeals reversing the
decision of the trial court is AFFIRMED. No costs.
SO ORDERED.
$
@A%c _
% !! concur.
""!
1 Rollo, pp. 57-60.
2 Rollo, p. 80.
3 Rollo, pp. 71-72.
4 Rollo, p. 29-30.
5 Also known as the Financing Company Act.
6 Sec. 3, R. A. No. 5980.
7 .
8 Art. 1624, in relation to 1475, New Civil Code.
ART. 1624. An assignment of credits and other incorporeal rights shall be perfected
in accordance with the provisions of article 1475.
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.
9Nyco Sales Corporation vs. BA Finance Corporation, 200 SCRA 637; Rodriquez vs. CA, 207
SCRA 553.
10 See Art. 1624, New Civil Code.
11Art. 1626. The debtor who, before having knowledge of the assignment, pays his creditor
shall be released from the obligation. (New Civil Code.)
12 207 SCRA 553.

13 At p. 559.
14 Rollo, p. 59.
15 Rollo, p. 66.
16 par. (d), Section 2, R. A. 5980.
17 Emata vs. Intermediate Appellate Court, 174 SCRA 465.
SECOND DIVISION
[G.R. No. 152199. June 23, 2005]
LUIS S. MISTERIO, GABRIEL S. MISTERIO, FRANCIS S. MISTERIO, THELMA S. MISTERIO and

ESTELLA S. MISTERIO-TAGIMACRUZ, _ CEBU STATE COLLEGE OF SCIENCE AND
TECHNOLOGY (CSCST), duly represented by its President, DR. JOSE SAL TAN, .
DECISION
CALLEJO, SR., !.:
This is a petition for review on p to annul the Decision[1] dated July 31, 2000 of the Court of
Appeals (CA) in CA-G.R. CV No. 53592, as well as its Resolution[2] denying the motion for
reconsideration. The CA reversed and set aside the Decision[3] of the Regional Trial Court (RTC) of
Cebu City, Branch 18, in Civil Case No. CEB-15267.
The Antecedents
Sudlon Agricultural High School (SAHS) was established in Cebu Province on August 2, 1948. The
administrative and supervisory control of the school was handled by the Division of Schools of the
same province. The original site of the school was in Sudlon, about 33 kilometers from Cebu City
_ the Tabunak-Talisay Highway.
In 1952, the Provincial Board of Cebu granted the usufruct of 41 parcels of land, covering 104.5441
hectares of the Banilad Friar Lands Estate to the SAHS. Pursuant to Republic Act No. 948, SAHS was
nationalized on June 20, 1953.
On December 31, 1956, Asuncion Sadaya-Misterio executed a Deed of Sale of a parcel of land
denominated as o Ro. 1064of the Banilad Friar Lands Estate, in favor of the SAHS. The property
had an area of 4,563 square meters and was situated at Lahug, Cebu City, covered by Transfer
Certificate of Title (TCT) No. 13086 of the Registry of Deeds of the province of Cebu. The sale was
subject to the right of the vendor to repurchase the property after the high school shall have ceased
to exist, or shall have transferred its site elsewhere.
Consequently, on May 22, 1957, TCT No. 13086 was cancelled and in lieu thereof, TCT No. 15959
was issued by the Registry of Deeds of Cebu City in the name of SAHS.[4] The right of the vendor to
repurchase the property was annotated at the dorsal portion thereof.
On March 18, 1960, the Provincial Board of Cebu, through Resolution No. 491, donated the
aforementioned 41 lots to SAHS, subject to two (2) conditions: (1) that if the SAHS ceases to
operate, the ownership of the lots would automatically revert to the province, and (2) that the SAHS
could not alienate, lease or encumber the properties.
On June 10, 1983, Batas Pambansa (B.P.) Blg. 412, entitled ǲp_ p

@
®
p p
@ p
./ !pp
ǳ took effect. The law incorporated
and consolidated as one school system certain vocational schools in the province of Cebu, including
the SAHS, and which became an extension of the Cebu State College of Science and Technology
(CSCST).
In the meantime, the province of Cebu decided to recover the 41 lots it had earlier donated to SAHS
on the ground that the said deed was void. The province of Cebu opined that based on the initial
report of its provincial attorney, the SAHS had no personality to accept the donation.
In the meantime, Asuncion died intestate. When her heirs learned that the province of Cebu was
trying to recover the property it had earlier donated to SAHS, they went to the province of Cebu on
August 19, 1998, informing it of their intention to exercise their right to repurchase the property as
stipulated in the aforecited deed of sale executed by their predecessor-in-interest.
On February 1, 1989, the province of Cebu (represented by then Governor Emilio M. R. Osmeña),
and the CSCST (represented by then DECS Secretary Lourdes R. Quisumbing), entered into a
Memorandum of Agreement over the 40 parcels of land, allocating 53 hectares to the province of
Cebu, and 51 hectares for the SAHS. The agreement was ratified by the

and the SAHS Board of Trustees.
In a Letter[5] dated March 13, 1990, the heirs of the late Asuncion Sadaya-Misterio, through their
counsel, Atty. Ricardo G. Padilla, informed CSCST of the heirsǯ intention to exercise the option to
repurchase Lot No. 1064 granted to them under the deed of sale, as the SAHS had ceased to exist.
In response thereto, Jesus T. Bonilla, as Vocational School Superintendent II of CSCST, wrote Atty.
Padilla on March 29, 1990, informing the latter that the SAHS still existed and ǲ[i]n fact, from a
purely secondary school it is now offering collegiate courses.ǳ He explained that ǲwhat has been
changed is only the name of the school [to CSCST] which does not imply the loss of its existence.ǳ [6]
On December 23, 1993, Luis, Gabriel, Francis, Thelma, all surnamed Misterio, and Estella S.
Misterio-Tagimacruz, the legitimate heirs of the late Asuncion Sadaya-Misterio and herein
petitioners, filed a Complaint[7] before the RTC of Cebu City, Branch 18, for ǲNullity of Sale and/or
Redemption.ǳ Named party-defendants were the CSCST, Armand Fabella as CSCST Chairman, and
Dr. Mussolini C. Barillo as CSCST President, herein respondents. Docketed as Civil Case No. 66-
15267, the complaint alleged in part as follows:
FIRST CAUSE OF ACTION
12. Sudlon Agricultural High School at the time of the execution of the contract of sale with the
late Asuncion Sadaya sometime on December 31, 1956 had no juridical personality of itǯs (p) own.
Hence, it cannot acquire and possess any property, including the parcel of land subject of this
action.
13. The Contract of Sale executed was, therefore, null and void and therefore non-existent. Thus,
the land subject of the sale should be reconveyed to the legitimate heirs of Asuncion Sadaya.
SECOND CAUSE OF ACTION
14. On June 10, 1983, Batas Pambansa Blg. 412 was enacted, abolishing the then Sudlon
Agricultural College and converting it to become part of the Cebu State College for Science and
Technology (CSCST).
15. The said law also transferred all the personnel, properties, including buildings, sites, and
improvements, records, obligations, monies and appropriation of Sudlon to the CSCST.
16. The abolition of Sudhon and itǯs (p) merger or consolidation as part of CSCST had rendered
operative the condition in the Deed of Sale granting the vendor and her heirs, Asuncion Sadaya, the
right to redeem Lot No. 1064.
17. By the legislative act of merging or consolidating Sudlon Agricultural College with other
colleges, the separate existence of the constituent schools including Sudlon Agricultural College has
ceased to exist as a legal consequence of merger or consolidation.
18. CSCST, as transferee of the land subject of sale, is the actual possessor of the land and is the
proper party-defendant for redemption.[8]
The petitioners prayed that, after due proceeding, judgment be rendered in their favor, thus Ȃ
WHEREFORE, the foregoing premises considered, it is most respectfully prayed of this Honorable
Court to render a decision in favor of the plaintiffs to the following effect:
1. Declare the Contract of Sale between the late Asuncion Sadaya and Sudlon Agricultural High
School as null and void for the latter has no legal personality and cannot own a real property.
As a consequence, to order the actual possessor of the land CSCST to deliver and reconvey the land
to plaintiffs and the latter is willing to return the money received.
2. In the alternative, declare that Sudlon Agricultural High School has ceased to exist and allow
the plaintiffs to redeem Lot 1064 in the amount stipulated in the contract.
3. Other reliefs just and equitable under the premises are prayed for.[9]
In their answer to the complaint, the respondents alleged that:
11. Complainants in their complaint failed to state sufficient cause of action which may be
considered enough ground to dismiss this instant case;
12. The complainants are estopped from contesting the juridical capacity of Sudlon to own or
acquire this property which is the subject of this case, after a long period of silence or inaction from
the transfer of the title in favor of Sudlon Agricultural School;
13. The contract of sale having been mutually and freely entered into by the parties is valid and
binding between the vendor and the vendee, including their successors-in-interest; hence,
reconveyance is not proper;
14. The enactment of B.P. 412, which is the Charter of the College has not caused the abolition of
Sudlon Agricultural School. In fact, the school has now grown into a higher status, because it has
now admitted collegiate students, in addition to its secondary students;
15. The instruction of the Sudlon Agricultural School is actually carried out right on the same site
which complainants claim have ceased to exist not the site of the school transferred somewhere
else. Therefore, the conditions in the deed of sale have not rendered operative the right of the
vendor to exercise the same.[10]
After the preliminary conference on May 23, 1994, the trial court issued a pre-trial order defining
the issues as follows:
ǥ (1) whether Sudlon Agricultural School has still retained its personality as such school or it had
ceased to exist, and (2) whether the plaintiffs have the right to exercise the right of redemption
over the property.
Upon the order of the RTC, the Clerk of Court conducted an ocular inspection on Lot No. 1064. The
court-appointed commissioner submitted his report [11] on June 10, 1994.
On November 29, 1995, the RTC rendered judgment, the dispositive portion of which reads:
WHEREFORE, in view of all the foregoing considerations, JUDGMENT is hereby rendered in favor of
the plaintiffs and against the defendants declaring the Deed of Sale entered into by and between
Asuncion Sadaya and Sudlon Agricultural High School as null and void for the latterǯs lack of
juridical personality to acquire real property or to enter into such transaction or having ceased to
exist and ordering the Cebu State College of Science and Technology being the actual possessor of
the land, Lot 1064, to deliver and reconvey the same to plaintiffs upon payment of the
aforementioned purchased price.
SO ORDERED.[12]
The RTC ruled that the donation was void as the SAHS, in the first place, did not have the
personality to be a donee of real property. Moreover, with the enactment of B.P. Blg. 412, the SAHS
ceased to exist and to operate as such. The RTC declared that, under the Corporation Code, the
constituent corporations (SAHS and CSCST) became one through the merger or consolidation, with
CSCST as the surviving entity. Whether Lot No. 1064 was still being used for school purposes was
of no moment, and to ǲsay that [SAHS] still exists but is now forming part of CSCST is stretching the
interpretation of the contract too far.ǳ It concluded that no prescription lay as against an inexistent
contract.
The CSCST, through the Office of Solicitor General (OSG), appealed the decision to the CA, and
outlined the following assignment of errors:
I
THE TRIAL COURT ERRED IN NOT STICKING TO THE ISSUES DEFINED BY THE PARTIES DURING
PRE-TRIAL.
II
THE TRIAL COURT ERRED IN NOT HOLDING THAT APPELLEES ARE ESTOPPED FROM
QUESTIONING THE PERSONALITY OF THE SUDLON AGRICULTURAL HIGH SCHOOL.
III
THE TRIAL COURT ERRED IN GIVING WEIGHT TO INADMISSIBLE AND SELF-SERVING EVIDENCE.
IV
THE TRIAL COURT ERRED IN NOT HOLDING THAT APPELLEESǯ ACTION IS BARRED BY
PRESCRIPTION.
THE TRIAL COURT ERRED IN NOT HOLDING THAT THE DEED OF SALE IS A CONSENSUAL
CONTRACT FREELY ENTERED INTO BY THE PARTIES AND NOT A CONTRACT OF ADHESION.
VI
THE TRIAL COURT ERRED IN NOT HOLDING THAT THE DEED OF SALE IS NOT AMBIGUOUS.
VII
THE TRIAL COURT ERRED IN NOT HOLDING THAT THE LOT SUBJECT OF THE SALE IS STILL
BEING USED FOR SCHOOL PURPOSES AS ORIGINALLY INTENDED BY THE PARTIES.
VIII
THE TRIAL COURT ERRED IN NOT HOLDING THAT B.P. [BLG.] 412 DID NOT DISSOLVE OR
EXTINGUISH SUDLON AGRICULTURAL HIGH SCHOOL BUT MERELY SUBJECTED THE SAME TO THE
SUPERVISION AND ADMINISTRATION OF CSCST.
IX
THE TRIAL COURT ERRED IN NOT HOLDING THAT THE SUDLON AGRICULTURAL HIGH SCHOOL
AND/OR CSCST IS/ARE NOT CORPORATIONS GOVERNED BY THE COPORATION CODE.
On October 3, 1997, the CSCST and the province of Cebu executed a Deed for Reversion, in which
the CSCST deeded to the province of Cebu the property covered by TCT No. 15959. Based on the
said deed, TCT No. 146351 was issued by the Register of Deeds on November 12, 1997 in the name
of the province of Cebu.[13] Annotated at the dorsal portion thereof was the notice of the pending
cases before the RTC and the CA.
On July 31, 2000, the CA rendered its decision reversing the RTCǯs decision. The
of the
decision reads:
WHEREFORE, the appealed decision is REVERSED and SET ASIDE, and a new one issued,
DISMISSING the instant complaint for lack of merit.
SO ORDERED.[14]
The appellate court held that the lower court should have confined itself to the issues defined by
the parties during pre-trial, namely, (1) whether Sudlon Agricultural School still retained its
personality as such school or was still in existence; and (2) whether the petitioners had the right to
exercise the right to repurchase the property. The CA declared that the trial of the case should have
been limited to these two issues.
While it affirmed the RTC ruling that the SAHS had ceased to exist when B.P. Blg. 412 took effect, the
appellate court ruled that the period for the petitioners to repurchase the property expired on June
1987, four years after the enactment of B.P. Blg. 412. It held that the period within which the
property was to be repurchased must be restrictively applied in order to settle ownership and title
at the soonest possible time, and not to leave such title to the subject property uncertain.
The petitioners filed a motion for the reconsideration of the decision, which the CA denied in a
Resolution dated January 25, 2002.
The petitioners filed the present petition for review on p , contending that the CA erred in
(a) resolving the appeal of the respondents based on prescription, although the issue was never
raised during the trial; and (b) resolving that their action had already prescribed.
The petition is without merit.
The petitioners fault the CA for holding that their right to repurchase Lot No. 1064 had long since
prescribed. Citing Article 1606(3) of the New Civil Code, they argue that ǲ[p]rescription should
start to run from the time it is legally feasible for the party to redeem the land, which is the time
when the action to redeem has accrued.ǳ The petitioners argue that this is so since the issue of
whether the SAHS had ceased to exist had still yet to be resolved. The petitioners posit that unless
and until judgment would be rendered stating that the SAHS has ceased to exist, the period to
repurchase the property would not start to run. It is only from the finality of the said judgment that
the right to repurchase the property may be exercised; hence, they still had thirty (30) days from
the date of the promulgation of the CA decision within which to repurchase the property. The
petitioners further aver that since the lien, their right to repurchase the property, was annotated on
the title of the land, the right to exercise the same is imprescriptible. They argue that they had been
vigilant of their right to repurchase the property, as far back as 1973. In fact, they made tender of
payment in March 1990, well within the ten-year prescriptive period. They point out that the CSCST
had abandoned its defense of prescription by contending that the condition for repurchase had not
yet become operational.
The OSG, for its part, contends that the petitionersǯ reliance on Article 1606(3) of the New Civil
Code is misplaced, because the law applies only to sales where the right to repurchase is not
expressly agreed upon by the parties. Here, the right to repurchase is unquestionable. The OSG,
likewise, argues that the annotation of the right of redemption has no bearing on the issue of
prescription. It posits that the ǲTorrens System has absolutely nothing to do with the period of
prescription of oneǯs right to repurchase, as in the instant case.ǳ The OSG concludes that whatever
right the petitioners had on the property had already prescribed by the mere lapse of time, by
reason of negligence.
Central to the issue is the following provision in the deed of sale executed by Asuncion Sadaya-
Misterio in favor of the SAHS:
That the Vendee herein, the SUDLON AGRICULTURAL HIGH SCHOOL, hereby obligates itself to use
the aforementioned Lot No. 1064 for school purposes only, and it is a condition attached to this
contract that the aforementioned vendee obligates itself to give the Vendor herein, the right to
repurchase the said lot by paying to the Vendee herein the aforementioned consideration of
P9,130.00 only, after the aforementioned SUDLON AGRICULTURAL HIGH SCHOOL shall ceased (p)
to exist or shall have transferred its school site elsewhere.[15]
The essence of a p sale is that title and ownership of the property sold is immediately
rested in the vendee , subject to the restrictive condition of repurchase by the vendor
within the period provided in Article 1606 of the New Civil Code, to wit:
Art. 1606. The right referred to in Article 1601, in the absence of an express agreement, shall last
four years from the date of the contract.
Should there be an agreement, the period cannot exceed ten years.
However, the vendor may still exercise the right to repurchase within thirty days from the time
final judgment was rendered in a civil action on the basis that the contract was a true sale with right
to repurchase.
The failure of the vendee to repurchase the property vests upon the latter by operation of
law the absolute title and ownership over the property sold.[16]
Pending the repurchase of the property, the vendee may alienate, mortgage or encumber the
same, but such alienation or encumbrance is as revocable as is his right. If the vendor
repurchases the property, the right of the vendee is resolved, because he has to return the
property free from all damages and encumbrances imposed by him.[17] The vendor may
also register his right to repurchase under the Land Registration Act and may be enforced against
any person deriving title from the vendee .[18]
In this case, the vendor and the vendee did not agree on any period for the exercise
of the right to repurchase the property. Hence, the vendor may extend the said right within
four days from the happening of the allocated condition contained in the deed: (a) the cessation of
the existence of the SAHS, or (b) the transfer of the school to other site.
We note that, as gleaned from the petitionersǯ complaint before the trial court, they alleged that the
SAHS ceased to exist on June 10, 1983, when B.P. Blg. 412 took effect, abolishing therein the SAHS
which, in the meantime, had been converted into the Sudlon Agricultural College. The CA found the
position of the petitioners to be correct, and declared that conformably to the condition in the deed
of sale, and under Article 1606 of the New Civil Code, the right of the petitioners as successors-in-
interest of the vendee commenced to run on June 10, 1983. Hence, they had until June 10,
1987 within which to repurchase the property; however, they failed to do so.
It is true that respondent CSCST, through counsel, was of the view that despite the effectivity of B.P.
Blg. 412, the structure and facilities of the SAHS remained in the property and, as such, it cannot be
said that the said school had ceased to exist. It argued that the phrase ǲSAHS ceased to existǳ in the
deed meant that the structure and facilities of the school would be destroyed or dismantled, and
had no relation whatsoever to the abolition of the school and its integration into the Cebu State
College for Science and Technology. However, the CA rejected the position of the respondent
CSCST, as well as that of the OSG, and affirmed that of the petitioners.
The four-year period for the petitioners to repurchase the property was not suspended merely and
solely because there was a divergence of opinion between the petitioners, on the one hand, and the
respondent, on the other, as to the precise meaning of the phrase ǲafter the SAHS shall cease to
existǳ in the deed of sale. The existence of the petitionersǯ right to repurchase the property was not
dependent upon the prior final interpretation by the court of the said phrase. Indeed, the
petitioners specifically alleged in the complaint that:
FIRST CAUSE OF ACTION
12. Sudlon Agricultural High School at the time of the execution of the contract of sale with the
late Asuncion Sadaya sometime on December 31, 1956 had no juridical personality of its own.
Hence, it cannot acquire and possess any property, including the parcel of land subject of this
action.
13. The Contract of Sale executed was therefore null and void and therefore non-existent. Thus,
the land subject of sale should be reconveyed to the legitimate heirs of Asuncion Sadaya.
SECOND CAUSE OF ACTION
14. On June 10, 1983, Batas Pambansa Blg. 412 was enacted abolishing the then Sudlon
Agricultural College and converting it to become part of the Cebu State College for Science and
Technology (CSCST).
15. The said law also transferred all the personnel, properties, including buildings, sites, and
improvements, records, obligations, monies and appropriations of Sudlon to the CSCST.
16. The abolition of Sudlon and its merger or consolidation as part of CSCST had rendered
operative the condition in the Deed of Sale granting the vendor and her heirs, Asuncion Sadaya, the
right to redeem Lot No. 1064.
17. By the legislative act of merging or consolidating Sudlon Agricultural College with other
colleges, the separate existence of the constituent schools including Sudlon Agricultural College has
ceased to exist as a legal consequence of merger or consolidation.
18. CSCST, as transferee of the land subject of sale, is the actual possessor of the land and is the
proper party defendant for redemption.[19]
The petitioners are estopped from changing on appeal their theory of the case in the trial court and
in the CA.[20]
We agree with the contention of the OSG that the annotation of the pe titionersǯ right to repurchase
the property at the dorsal side of TCT No. 15959 has no relation whatsoever to the issue as to when
such right had prescribed. The annotation was only for the purpose of notifying third parties of the
petitionersǯ right to repurchase the property under the terms of the deed of sale, and the law.
& && , the petition is DENIED DUE COURSE. Costs against the
petitioners.
SO ORDERED.
Puno, (Chairman), Austria-Martinez, Tinga, and Chico-Nazario, JJ., concur.
[1] Penned by Associate Justice Eloy R. Bello, Jr. (retired), with Associate Justices Delilah Vidallon-
Magtolis and Elvi John S. Asuncion, concurring.
[2] c
p. 144.
[3] . at 36.
[4] c
p. 116.
[5] c
p. 95.
[6] . at 96.
[7] c
p. 118.
[8] c
pp. 120-121.
[9] . at 122.
[10] Appellantǯs Brief, CA c
p. 18.
[11] In compliance with the Order of this Court dated May 10, 1994, the undersigned went to Cebu
State College of Science and Technology (CSCST), Lahug, Cebu City as the representative of this
Court on the ocular inspection to be conducted on the area or land in question, on May 7, 1994, a
Saturday. Atty. Romeo Reyes, counsel for the defendant, the plaintiffs and their counsel, Geodetic
Engineer Wilson Bacatan and his men and Mr. Hospicio Saniel, Officer-In-Charge of the College were
also present. Engineer Bacatan and his men then conducted a relocation survey of the property in
question and a copy of the location plan/sketch plan is now attached to the record and marked as
Annex ǲAA,ǳ by the plaintiff.
Erected inside the lot in question were the following:
1. Agricultural Research Laboratory
2. A part of the Agritech Building
3. Two (2) cottages at the back of Agritech building
4. Main entrance (gate) of the college
5. Holticultural Crope Laboratory
6. Canteen
Parties and their respective counsel including Mr. Hospicio Saniel, Officer-in-charge of the
defendant College all agreed as to the exact location of the property in litigation which is
denominated as Lot No. 1064 and under Transfer Certificate of Title No. 15959.
Respectfully submitted. (.)
[12] c
p. 50.
[13] c
p. 129.
[14] . at 68.
[15] CA c
p. 87.
[16] Cruz _. Leis G.R. No. 125233, 9 March 2000, 327 SCRA 570.
[17] Tolentino, Civil Code of the Philippines, Vol. II, 1992 ed., p. 154.
[18] .
[19] c
pp. 120-121.
[20] Manongsong _. Estimo G.R. No. 136773, 25 June 2003, 404 SCRA 683.

Ô
Manila
FIRST DIVISION

.)23
&* ** *

Ô& *(&+ *)#
*& Petitioners,
vs.
*Ô,&(81Respondent.
DECISION
(CJ:
The mere fact that a defendant is declared in default does not automatically result in the grant of
the prayers of the plaintiff. To win, the latter must still present the same quantum of evidence that
would be required if the defendant were still present. A party that defaults is not deprived of its
rights, except the right to be heard and to present evidence to the trial court. If the evidence
presented does not support a judgment for the plaintiff, the complaint should be dismissed, even if
the defendant may not have been heard or allowed to present any countervailing evidence.
3)!
Before us is a Petition for Review2 under Rule 45 of the Rules of Court, assailing the June 29, 2001
Decision3 and December 6, 2001 Resolution 4 of the Court of Appeals (CA) in CA-GR CV No. 43889.
The CA disposed as follows:
"UPON THE VIEW WE TAKE OF THIS CASE, THUS, the partial judgment appealed from, must be, as
it hereby is, VACATED and SET ASIDE, and another one entered DISMISSING the complaint at
bench. Without costs." 5
The assailed Resolution denied petitionersǯ Motion for Reconsideration 6 for lack of merit.
The Facts
The CA narrated the facts as follows:
"[Petitioners] filed a complaint before the Regional Trial Court of Quezon City, Branch 90, against
[respondent] Traders Royal Bank, the City Sheriff of Quezon City and the Register of Deeds of
Quezon City. Docketed thereat as Civil Case No. Q-41203, the complaint sought the annulm ent of the
extra-judicial foreclosure and auction sale made by [the] city sheriff of Quezon City of a parcel of
land covered by TCT No. 16711 of the Register of Deeds of Quezon City, the conventional
redemption thereof, and prayed for damages and the issuance of a writ of preliminary injunction.
"The complaint alleged that in mid 1977[, Petitioner] Danilo Chua obtained a loan from
[respondent] bank in the amount of P75,000.00 secured by a real estate mortgage over a parcel of
land covered by TCT No. 16711, and owned in common by the [petitioners]; that when the loan was
not paid, [respondent] bank commenced extra-judicial foreclosure proceedings on the property;
that the auction sale of the property was set on 10 June 1981, but was reset to 31 August 1981, o n
[Petitioner Chuaǯs] request, which, however, was made without the knowledge and conformity of
the other [petitioners]; that on the re -scheduled auction sale, [the] Sheriff of Quezon City sold the
property to the [respondent] bank, the highest bidder ther ein, for the sum of P24,911.30; that the
auction sale was tainted with irregularity because, amongst others, the bid price was shockingly or
unconscionably, low; that the other [petitioners] failed to redeem the property due to their lack of
knowledge of their right of redemption, and want of sufficient education; that, although the period
of redemption had long expired, [Petitioner] Chua offered to buy back, and [respondent] bank also
agreed to sell back, the foreclosed property, on the understanding that Chua would pay
[respondent] bank the amount of P40,135.53, representing the sum that the bank paid at the
auction sale, plus interest; that [Petitioner] Chua made an initial payment thereon in the amount of
P4,000.00, covered by Interbank Check No. 09173938, dated 16 February 1984, duly receipted by
[respondent] bank; that, in a sudden change of position, [respondent] bank wrote Chua, on 20
February 1984, asking that he could repurchase the property, but based on the current market
value thereof; and that sometime later, or on 22 March 1984, [respondent] bank wrote Chua anew,
requiring him to tender a new offer to counter the offer made thereon by another buyer.
"Traversing [petitionersǯ] complaint, [respondent] bank, upon 05 July 1984, filed its answ er with
counterclaim, thereunder asserting that the foreclosure sale of the mortgaged property was done in
accordance with law; and that the bid price was neither unconscionable, nor shockingly low; that
[petitioners] slept on their rights when they failed to redeem the property within the one year
statutory period; and that [respondent] bank, in offering to sell the property to [Petitioner] Chua on
the basis of its current market price, was acting conformably with law, and with legitimate banking
practice and regulations.
"Pre-trial having been concluded, the parties entered upon trial, which dragged/lengthened to
several months due to postponements. Upon 11 June 1988, however, a big conflagration hit the City
Hall of Quezon City, which destroyed, amongst other things, the records of the case. After the
records were reconstituted, [petitioners] discovered that the foreclosed property was sold by
[respondent] bank to the Ceroferr Realty Corporation, and that the notice of lis pendens annotated
on the certificate of title of the foreclosed property, had already been cancelled. Accordingly,
[petitioners], with leave of court, amended their complaint, but the Trial Court dismissed the case
Ǯwithout prejudiceǯ due to [petitionersǯ] failure to pay additional filing fees.
"So, upon 11 June 1990, [petitioners] re-filed the complaint with the same Court, whereat it was
docketed as Civil Case No. 90-5749, and assigned to Branch 98: the amended complaint
substantially reproduced the allegations of the original complaint. But [petitioners] this time
impleaded as additional defendants the Ceroferr Realty Corporation and/or Cesar Roque, and
Lorna Roque, and included an additional cause of action, to wit: that said new defendants conspired
with [respondent] bank in [canceling ] the notice of lis pendens by falsifying a letter sent to and filed
with the office of the Register of Deeds of Quezon City, purportedly for the cancellation of said
notice.
"Summons was served on [respondent] bank on 26 September 1990, per Sheriffǯs Return dated 08
October 1990. Supposing that all the defendants had filed their answer, [petitioners] filed, on 23
October 1991, a motion to set case for pre-trial, which motion was, however, denied by the Trial
Court in its Order of 25 October 1991, on the ground that [respondent] bank has not yet filed its
answer. On 13 November 1991[, petitioners] filed a motion for reconsideration, thereunder alleging
that they received by registered mail, on 19 October 1990, a copy of [respondent] bankǯs answer
with counterclaim, dated 04 October 1990, which copy was attached to the motion. In its Order of
14 November 1991, the trial Court denied for lack of merit, the motion for reconsideration, therein
holding that the answer with counterclaim filed by [respondent] bank r eferred to another civil case
pending before Branch 90 of the same Court.
"For this reason, [petitioners] filed on 02 December 1991 a motion to declare [respondent] bank in
default, thereunder alleging that no answer has been filed despite the service of summons on it on
26 September 1990.
"On 13 December 1991, the Trial Court declared the motion submitted for resolution upon
submission by [petitioners] of proof of service of the motion on [respondent] bank.
"Thus, on 16 January 1992, upon proof that [petit ioners] had indeed served [respondent] bank with
a copy of said motion, the Trial Court issued an Order of default against [respondent] bank.
"Upon 01 December 1992, on [petitionersǯ] motion, they were by the Court allowed to present
evidence ex parte on 07 January 1993, insofar as [respondent] bank was concerned.
"Thereafter, or on 08 February 1993, the Trial Court rendered the new questioned partial decision. 7
"Aggrieved, [respondent] bank filed a motion to set aside [the] partial decision by default against
Traders Royal Bank and admit [respondent] Traders Royal Bankǯs x x x Answer with counterclaim:
thereunder it averred, amongst others, that the erroneous filing of said answer was due to an
honest mistake of the typist and inadvertence of its counsel.
"The [trial court] thumbed down the motion in its Order of 26 July 1993." 8
Respondent bank appealed the Partial Decision 9 to the CA. During the pendency of that appeal,
Ceroferr Realty Corporation and/or Cesar and/or Lorna Roque filed a Manifestation with Motion10
asking the CA to discharge them as parties, because the case against them had already been
dismissed on the basis of their Compromise Agreement11 with petitioners. On May 14, 1996, the CA
issued a Resolution12 granting Ceroferr et al.ǯs Manifestation with Motion to discharge movants as
parties to the appeal. The Court, though, deferred resolution of the matters raised in the Comment 13
of respondent bank. The latter contended that the Partial Decision had been novated by the
Compromise Agreement, whose effect of res judicata had rendered that Decision functus officio.
The CA ruled in favor of respondent bank. Deemed, however, to have rested on shaky ground was
the latterǯs "Motion to Set Aside Partial Decision by Default Against Traders Royal Bank and Admit
Defendant Traders Royal Bankǯs Answer."14 The reasons offered by the bank for failing to file an
answer were considered by the appellate court to be "at once specious, shallow and sophistical and
can hardly be dignified as a Ǯmistakeǯ or Ǯexcusable negligence,ǯ which ordinary prudence could not
have guarded against."15
In particular, the CA ruled that the erroneous docket number placed on the Answer filed before the
trial court was not an excusable negligence by the bankǯs counsel. The latter had a bounden duty to
be scrupulously careful in reviewing pleadings. Also, there were several opportunities to discover
and rectify the mistake, but these were not taken. Moreover, the bankǯs Motion to Set Aside the
Partial Decision and to Admit [the] Answer was not accompanied by an affidavit of merit. These
mistakes and the inexcusable negligence committed by respondentǯs lawyer were binding on the
bank.
On the issue of whether petitioners had convincingly established their right to relief, the appellate
court held that there was no ground to invalidate the foreclosure sale of the mortgaged property.
First, under Section 3 of Act No. 3135, an extrajudicial foreclosure sale did not require personal
notice to the mortgagor. Second, there was no allegation or proof of noncompliance with the
publication requirement and the public posting of the notice of sale, provided under Act No. 3135,
as amended. Third, there was no showing of inadequacy of price as no competent evidence was
presented to show the real market value of the land sold or the readiness of another buyer to offer a
price higher than that at which the property had been sold.
Moreover, petitioners failed to prove that the bank had agreed to sell the property back to them.
After pointing out that the redemption period had long expired, respondentǯs written
communications to Petitioner Chua only showed, at most, that the former had made a proposal for
the latter to buy back the property at the current market price; and that Petitioner Chua was
requested to make an offer to repurchase the property, because another buyer had already made an
offer to buy it. On the other hand, respondent noted that the Inte rbank check for P4,000 was for
"deposit only." Thus, there was no showing that the check had been issued to cover part of the
repurchase price.
The appellate court also held that the Compromise Agreement had not resulted in the novation of
the Partial Decision, because the two were not incompatible. In fact, the bank was not even a party
to the Agreement. Petitionersǯ recognition of Ceroferrǯs title to the mortgaged property was
intended to preclude future litigation against it.
Hence this Petition.16
Issues
In their Memorandum, petitioners raise the following issues:
"1. Whether or not the Respondent Court of Appeals erred in failing to apply the provisions of
Section 3, Rule 9 of the 1997 Rules of Civil Procedure [and in applying instead] the rule on
preponderance of evidence under Section 1, Rule 133 of the Rules of Court.
"2. Whether or not the respondent appellate court failed to apply the conventional redemption rule
provided for under Article 1601 of the New Civil Code.
"3. Whether or not this Honorable Court can exercise its judicial prerogative to evaluate the
findings of facts."17
The first issue is one of law and may be taken up by the Court without hindrance, pursuant to
Section 1 of Rule 45 of the Rules of Court.18 The second and the third issues, however, would entail
an evaluation of the factual findings of the appellate court, a function ordinarily not assumed by this
Court, unless in some excepted cases. The Court will thus rule on the first issue before addressing
the second and the third issues jointly.
The Courtǯs Ruling

The Petition has no merit.
First Issue:
Quantum of Proof
Petitioners challenge the CA Decision for applying Section 3 of Rule 9 of the Rules of Court, rather
than Section 1 of Rule 133 of the same Rules. In essence, petitioners argue that the quantum of
evidence for judgments flowing from a default order under Section 3 of Rule 9 is not the same as
that provided for in Section 1 of Rule 133.
For ease of discussion, these two rules will be reproduced below, starting with Section 3 of Rule 9 of
the Rules of Court:
"Sec. 3. Default; declaration of. Ȃ If the defending party fails to answer within the time allowed
therefor, the court shall, upon motion of the claiming party with notice to the defe nding party, and
proof of such failure, declare the defending party in default. Thereupon, the court shall proceed to
render judgment granting the claimant such relief as his pleading may warrant, unless the court in
its discretion requires the claimant to submit evidence. Such reception of evidence may be
delegated to the clerk of court.
"(a) . p

. Ȃ A party in default shall be entitled to notice of subsequent
proceedings but not to take part in the trial.
"(b) c

. Ȃ A party declared in default may at any time after notice
thereof and before judgment file a motion under oath to set aside the order of default upon
proper showing that his failure to answer was due to fraud, accident, mistake or excusable
negligence and that he has a meritorious defense. In such case, the order of default may be
set aside on such terms and conditions as the judge may impose in the interest of justice.
"(c) . p

. Ȃ When a pleading asserting a claim states a common cause of
action against several defending parties, some of whom answer and the others fail to do so,
the court shall try the case against all upon the answers thus filed and render judgment
upon the evidence presented.
"(d) ./

. Ȃ A judgment rendered against a party in default shall not
exceed the amount or be different in kind from that prayed for nor award unliquidated
damages.
"(e) -

. Ȃ If the defending party in an action for annulment or

declaration of nullity of marriage or for legal separation fails to answer, the court shall
order the prosecuting attorney to investigate whether or nor a collusion between the
parties exists, and if there is no collusion, to intervene for the State in order to see to it that
the evidence submitted is not fabricated."
We now quote Section 1 of Rule 133:
"SECTION 1. Preponderance of evidence, how determined. Ȃ In civil cases, the party having the
burden of proof must establish his case by a preponderance of evidence. In determining where the
preponderance or superior weight of evidence on the issues involved lies, the court may consider
all the facts and circumstances of the case, the witnessesǯ manner of testifying, their intelligence,
their means and opportunity of knowing the facts to which they are testifying, the nature of the
facts to which they testify, the probability or improbability of their testimony, their interest or want
of interest, and also their personal credibility so far as the same may legitimately appear upon the
trial. The court may also consider the number of witnesses, though the preponderance is not
necessarily with the greater number."
Between the two rules, there is no incompatibility that would preclude the application of either one
of them. To begin with, Section 3 of Rule 9 governs the procedure which the trial court is directed to
take when a defendant fails to file an answer. According to this provision, the court "shall proceed
to render judgment granting the claimant such relief as his pleading may warrant," subject to the
courtǯs discretion on whether to require the presentation of evidence ex parte. The same provision
also sets down guidelines on the nature and extent of the relief that may be granted. In particular,
the courtǯs judgment "shall not exceed the amount or be different in kind from that prayed for nor
award unliquidated damages."
As in other civil cases, basic is the rule that the party making allegations has the burden of proving
them by a preponderance of evidence. 19 Moreover, parties must rely on the strength of their own
evidence, not upon the weakness of the defense offered by their opponent. 20 This principle holds
true, especially when the latter has had no opportunity to present evidence because of a default
order. Needless to say, the extent of the relief that may be granted can only be as much as has been
alleged and proved21 with preponderant evidence required under Section 1 of Rule 133.
Regarding judgments by default, it was explained in Pascua v. Florendo 22 that complainants are not
automatically entitled to the relief prayed for, once the defendants are declared in default.
Favorable relief can be granted only after the court has ascertained that the relief is warranted by
the evidence offered and the facts proven by the presenting party. In p, this Court ruled that "x
x x it would be meaningless to require presentation of evidence if every time the other party is
declared in default, a decision would automatically be rendered in favor of the non-defaulting party
and exactly according to the tenor of his prayer. This is not contemplated by the Rules nor is it
sanctioned by the due process clause."23
The import of a judgment by default was further clarified in Lim Tanhu v. Ramolete. 24 The following
disquisition is most instructive:
"Unequivocal, in the literal sense, as these provisions [referring to the subject of default then under
Rule 18 of the old Rules of Civil Procedure] are, they do not readily convey the full import of what
they contemplate. To begin with, contrary to the immediate notion that can be drawn from their
language, these provisions are not to be understood as meaning that default or the failure of the
defendant to answer should Ǯbe interpreted as an admission by the said defendant that the
plaintiffǯs cause of action find support in the law or that plaintiff is entitled to the relief prayed for.ǯ
x x x.
xxxxxxxxx
"Being declared in default does not constitute a waiver of rights except that of being heard and of
presenting evidence in the trial court. x x x.
"In other words, a defaulted defendant is not actually thrown out of court. While in a sense it may
be said that by defaulting he leaves himself at the mercy of the court, the rules see to it that any
judgment against him must be in accordance with law. The evidence to support the plaintiffǯs cause
is, of course, presented in his absence, but the court is not supposed to admit that which is basically
incompetent. Although the defendant would not be in a position to object, elementary justice
requires that only legal evidence should be considered against him. If the evidence presented
should not be sufficient to justify a judgment for the plaintiff, the complaint must be dismissed. An d
if an unfavorable judgment should be justifiable, it cannot exceed in amount or be different in kind
from what is prayed for in the complaint." 25
In sum, while petitioners were allowed to present evidence ex parte under Section 3 of Rule 9, they
were not excused from establishing their claims for damages by the required quantum of proof
under Section 1 of Rule 133. Stated differently, any advantage they may have gained from the ex
parte presentation of evidence does not lower the degree of proof required. Clearly then, there is no
incompatibility between the two rules.
Second and Third Issues:

Review of the Evidence
Petitioners urge this Court to depart from the general rule that the lower courtsǯ findings of fact are
not reviewable in a petition for review.26 In support of their plea, they cite the conflicting findings of
the trial and the appellate courts, as well as the alleged conjectures and surmises made by the CA in
arriving at its Decision.
Indeed, the differences between the findings of the two courts leading to entirely disparate
dispositions, is reason enough for this Court to review the evidence in this case.27 Whether the CA
indulged in surmises and conjectures when it issued the assailed Decision will thus be determined.
At the outset, it behooves this Court to clarify the CAǯs impression that no evidence was presented
in the case which might have contributed to petitionersǯ challenge to its Decision. The appellate
courtǯs observation was based on the notation by the lower courtǯs clerk of court that there were no
separate folders for exhibits and transcripts, because "there was no actual hearing conducted in this
case." 28
True, there was pp precisely because the
latter had been declared in default, and petitioners had therefore been ordered to present their
evidence ex parte. But the absence of a hearing did not mean that no evidence was presented. The
Partial Decision dated February 8, 1993, in fact clearly enumerated the pieces of evidence adduced
by petitioners during the ex parte presentation on January 7, 1993. The documentary evidence they
presented consisted of the following:
1. A copy of respondent bankǯs Petition for the extrajudicial foreclosure and auction sale of
the mortgaged parcel of land 29
2. The Certificate of Sale that was a consequence of the foreclosure sale30
3. A Statement of Account dated February 15, 1984, showing Petitioner Chuaǯs outstanding
debt in the amount of P40,135.53 31
4. A copy of the Interbank check dated February 16, 1984, in the amount of P4,00032
5. The Official Receipt issued by the bank acknowledging the check33
6. The bankǯs letter dated February 20, 1984, advising Petitioner Chua of the sale of the
property at an extrajudicial public auction; the lapse of the period of redemption; and an
invitation to purchase the property at its current market price34
7. Another letter from the bank dated March 22, 1984, inviting Petitioner Chua to submit,
within five days, an offer to buy the same property, which another buyer had offered to
buy35
8. A copy of the Notice of ) the filing of which was done after that of the Amended
Complaint 36
9. A copy of the title showing the inscription of the Notice of ) 37
10. A copy of the Absolute Deed of Sale to Cerrofer38
11. A copy of a letter dated August 29, 1986, made and signed by petitionersǯ counsel,
requesting the cancellation of the Notice of ) 39
12. A copy of a page of the Memorandum of Encumbrance from TCT No. (314341) 7778/T-
3940
Having clarified this matter, we proceed to review the facts.
Petitioners do not deny that the one-year period for legal redemption had already lapsed when
respondent bank supposedly offered to sell the property in question. The records clearly show that
the Certificate of Sale following the extrajudicial public auction of the property was registered on
June 21, 1982, the date from which the legal redemption period was to be reckoned.41 Petitioners
insist, though, that they had the right to repurchase the property through conventional redemption,
as provided under Article 1601 of the Civil Code, worded as follows:
"ART. 1601. Conventional redemption shall take place when the vendor reserves the right to
repurchase the thing sold, with the obligation to comply with the provisions of Article 1616 and
other stipulations which may have been agreed upon."
It is true that the one-year period of redemption provided in Act No. 3135, as amended -- the law
under which the property here was sold in a foreclosure sale -- is only directory and, as such can be
extended by agreement of the parties. 42 However, it has also been held that for legal redemption to
be converted into conventional redemption, two requisites must be established: 1) voluntary
agreement of the parties to extend the redemption period; and 2) the debtorǯs commitment to pay
the redemption price on a fixed date.43 Thus, assuming that an offer was made to Petitioner Chua to
buy back the property after the lapse of the period of legal redemption, petition ers needed to show
that the parties had agreed to extend the period, and that Petitioner Chua had committed to pay the
redemption price on a fixed date.
The letters sent by the bank to Petitioner Chua on February 20 and March 22, 1984, do not
convincingly show that the parties arrived at a firm agreement for the repurchase of the property.
What can be gleaned from the February 20 letter is that Petitioner Chua proposed to pay the
redemption price for the property, but that the bank refused to accede to his request, because the
one-year redemption period had already lapsed.44 The bank, though, had offered to sell back the
property to him at the current market value. Indeed, an examination of his earlier letter of February
17, 1984, readily reveals that he expressed willingness to settle his account with the bank, but that
his "present financial situation precludes [him] from effecting an immediate settlement x x x." 45
On the other hand, the letter dated March 22, 1984, clearly states that "x x x the Bank rejected [his]
request to redeem said property due to [the] lapse of [the] one (1) year legal redemption period." 46
Nonetheless, he was "[invited] to submit an offer to buy the same property in five (5) days from
receipt [of the letter]."47 Petitioner Chua was also informed that the bank had received an offer to
purchase the foreclosed property. As to the P4,000 check enclosed in his proposal dated February
17, 1984, as a token of his good faith, he was advised that the amount was still outstanding in the
books of the bank and could be claimed by him if he thought the invitation was not feasible.
More important, there was no showing that petiti oners had committed to pay the redemption price
on a fixed date. True, Petitioner Chua had attempted to establish a previous agreement to
repurchase the property for less than its fair market value. He had submitted in evidence a
Statement of Account 48 dated February 15, 1984, showing a balance of P40,135.53; the Interbank
check dated February 16, 1984 , for P4,000, which was deposited to the account of responden t
bank;49 and the Official Receipt for the check.50
Granting that these documents evinced an agreement, petitioners were still unable to establish a
firm commitment on their part to pay the redemption price on a fixed date. On the contrary, the
February 17 letter of Petitioner Chua to the bank clearly manifested that he was not capable of
paying the account immediately. For this reason, he proposed to pay in "three or four installments"
without a specification of dates for the payments, but with a plea for a reduction of the interest
charges. That proposal was rejected.
Indeed, other than the Interbank check marked "for deposit" by respondent bank, no other
evidence was presented to establish that petitioners had offered to pay the alleged redemption
price of P40,135.53 on a fixed date. For that matter, petitioners have not shown that they tendered
payment of the balance and/or consigned the payment to the court, in order to fulfill their part of
the purported agreement. These remedies are available to an aggrieved debtor under Article 1256
of the Civil Code,51 when the creditor unjustly refuses to accept the payment of an obligation.
The next question that presents itself for resolution is the propriety of the CAǯs ruling vacating the
Partial Decision of the regional trial court (RTC) and dismissing the case. To recall, the RTC had
resolved to withhold a ruling on petitionersǯ right to redeem conventionally and/or order the
reconveyance of the property in question, pending a determination of the validity of the sale to
Cerrofer Realty Corporation and Spouses Cesar and Lorna Roque. The trial court, however, granted
the prayer for damages against respondent bank. The RTC ruled as follows:
"The evidence presented by [petitioners] in so far as the cause of action against [respondent]
Traders Royal Bank is concerned are preponderant to support the claims of the [petitioners].
However, in view of the fact that the property subject matter of this case has already been conveyed
to defendant Cerrofer Realty Corporation thus the issue as to whether or not the said conveyance or
sale is valid is sill pending between the [petitioners] and [respondents] Cerrofer Realty Corporation
and Cesar Roque and Lorna Roque. Hence, this Court resolves to grant the prayer for damages
against Traders Royal Bank.
"The claims of the [petitioners] as against [respondent] Traders Royal Bank having been
established and proved by evidence, judgment is hereby rendered ordering [respondent] Traders
Royal Bank to pay [petitioners] actual damage or the market value of the land in question in the
sum of P500,000.00; the sum of P70,000.00 as compensatory damages; the sum of P200,000.00 to
the heirs of [petitioner] Danilo Chua; and attorneyǯs fees in the sum of P30,000.00." 52
In the light of the pending issue as to the validity of the sale of the property to the third parties
(Cerrofer Realty Corporation and Spouses Roque), the trial court properly withheld judgment on
the matter and thus left the prayer for damages as the sole issue for resolution.
To adjudge damages, paragraph (d) of Section 3 of Rule 9 of the Rules of Court provides that a
judgment against a party in default "shall not exceed the amount or be different in kind from that
prayed for nor award unliquidated damages." The proscription against the award of unliquidated
damages is significant, because it means that the damages to be awarded must be proved
convincingly, in accordance with the quantum of evidence required in civil cases.
Unfortunately for petitioners, the grant of damages was not sufficiently supported by the evidence
for the following reasons.
First, petitioners were not deprived of their property without cause. As correctly pointed out by the
CA, Act No. 3135, as amended, does not require personal notice to the mortgagor. 53 In the present
case, there has been no allegation -- much less, proof -- of noncompliance with the requirement of
publication and public posting of the notice of sale, as required by Áct No. 3135. Neither has there
been competent evidence to show that the price paid at the foreclosure sale was inadequate. 54 To
be sure, there was no ground to invalidate the sale.
Second, as previously stated, petitioners have not convincingly established their right to damages
on the basis of the purported agreement to repurchase. Without reiterating our prior discussion on
this point, we stress that entitlement to actual and compensatory damages must be proved even
under Section 3 of Rule 9 of the Rules of Court. The same is true with regard to awards for moral
damages and attorneyǯs fees, which were also granted by the trial court.
In sum, petitioners have failed to convince this Court of the cogency of their position,
notwithstanding the advantage they enjoyed in presenting their evidence ex parte. Not in every
case of default by the defendant is the complainant entitled to win autom atically.
WHEREFORE, this Petition is hereby DENIED and the assailed Decision and Resolution AFFIRMED.
Costs against petitioners.
SO ORDERED.

(
Chief Justice
Chairman, First Division
WE CONCUR:
Ô &,Ô-Ô

& Ô-+

&&Ô

-+
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above
Decision were reached in consultation before the case was assigned to the writer of the opinion of
the Courtǯs Division.

(
Chief Justice
""!
1The Court of Appeals was included in the Petition as a respondent. However, the CA was
omitted by this Court from the title of the case, because it need not be impleaded in
petitions for review, under Section 4 of Rule 45 of the Rules of Court.
2 Rollo, pp. 9-27.
3 Penned by Justice Renato C. Dacudao and concurred in by Justices Romeo J. Callejo Sr.
(then chairperson of the Special Thirteenth Division and now a member of this Court) and
Alicia L. Santos (acting member). Id., pp. 29-39.
4 Id., p. 41.
5 CA Decision, p. 11; id., p. 39.
6 CA rollo, pp. 145-152.
7 The dispositive portion of the Partial Decision reads as follows:
"The claims of the [petitioners] as against [Respondent] Traders Royal Bank having
been established and proved by evidence, judgment is hereby rendered ordering
[Respondent] Traders Royal Bank to pay [petitioners] actual damage or the market
value of the land in question in the sum of P500,000.00; the sum of P70,000.00 as
compensatory damages; the sum of P200,000.00 to the heirs of [Petitioner] Danilo
Chua; and attorneyǯs fees in the sum of P30,000.00." (Partial Decision dated
February 8, 1993, p. 2; records, p. 173).
8 CA Decision, pp. 2-5; rollo, pp. 30-33.
9 Records, pp. 172-173.
10 CA rollo, pp. 37-41.
11 Contained in the RTC Decision dated October 28, 1993; records, pp. 263-264.
12 CA Rollo, pp. 84-87.
14 Id., pp. 176-183.
15 CA Decision, p. 7; rollo, p. 35.
16The Petition was deemed submitted for decision on March 29, 2005, upon the Courtǯs
receipt of respondentǯs 4-page Memorandum, signed by Atty. Diosdado B. Jimenez of
Gonzales Sinense Jimenez & Associates. Petitionersǯ Memorandum, signed by Atty. Sergio F.
Angeles of Angeles & Associates, was received by the Court on May 15, 2003.
17 Petitionersǯ Memorandum, pp. 10-17; rollo, pp. 98-105.
18Section 1 of Rule 45 of the Rules of Court provides that "x x x. The petition shall raise only
questions of law which must be distinctly set forth."
19Saguid v. Court of Appeals, 451 Phil. 825, June 10, 2003; Ocampo v. Ocampo, 427 SCRA
545, April 14, 2004; Catapusan v. Court of Appeals, 332 Phil. 586, November 21, 1996.
Section 1 of Rule 131 of the Rules of Court provides:
"SECTION 1. & . Ȃ Burden of proof is the duty of a party to present
evidence on the facts in issue necessary to establish his claim or defense by the
amount of evidence required by law."
20 Saguid v. CA, ibid. (citing Heirs of Anastacio Fabela v. CA, 362 SCRA 531, August 9, 2001).
21Regalado, Remedial Law Compendium, Vol. 1, 7th rev. ed. (1999), p. 169. See also @
_ , 221 SCRA 19, 25, April 6, 1993.
22220 Phil. 588, April 30, 1985 cited in Luxuria Homes, Inc. v. CA, 361 Phil. 989, January 28,
1999.
23 p_ ¢
supra, pp. 595-596, per Gutierrez, Jr., !.
24 66 SCRA 425, August 29, 1975. See also Heirs of Anastacio Fabela v. CA, supra at note 20.
25 Id., pp. 452-453, per Barredo, !
26Vibram Manufacturing Corporation v. Manila Electric Company, 466 SCRA 178, August 9,
2005; Rubiato v. Heirs of Jovito Rubiato, 464 SCRA 296, July 28, 2005; Republic v. CA, 328
Phil. 238, July 12, 1996; Baricuatro Jr. v. Court of Appeals, 382 Phil. 15, 24, February 9, 2000.
27 $
& _
_ , 466 SCRA 438, August 11, 2005; "_ p449
SCRA 458, January 28, 2005; $ p_ _ @ ! 449 SCRA 380, January 26, 2005.
28 CA Decision, p. 9; rollo, p. 37.
30 Id., pp. 13-14.
31 Id., p. 15.
32 Id., p. 16.
33 Id., p. 17.
34 Id., p. 18.
35 Id., p. 19.
36 Id., pp. 20-21.
37 Id., pp. 22-23.
38 Id., pp. 24-26.
39 Id., p. 27.
40 Id., p. 28.
41Union Bank of the Philippines v. CA, 412 Phil. 64, June 25, 2001; Castro v. Bague, 359
SCRA 28, June 20, 2001; Ysmael v. CA, 376 Phil. 323, November 16, 1999. Section 28 of Rule
39 of the Rules of Court provides that legal redemption should be made "at any time within
one (1) year from the date of the registration of the certificate of sale x x x."
Ibaan Rural Bank, Inc. v. Court of Appeals, 378 Phil. 707, 713, December 17, 1999; )_
42
c
p (p p , 31 SCRA 329, January 30, 1970.
43 Landrito v. Court of Appeals, 466 SCRA 107, August 9, 2005 (citing )_ c
p
(p p , supra); Ibaan Rural Bank, Inc. v. Court of Appeals, supra.
44 Records, p. 18.
45 Id., p. 195.
46 Id., p. 19.
47 Ibid.
48 Id., p. 15.
49 Id., p. 16.
50 Id., p. 17.
51"ART. 1256. If the creditor to whom tender of payment has been made refuses without
just cause to accept it, the debtor shall be released from responsibility by the consignation
of the thing or sum due. x x x."
52 Partial Decision, p. 2; records, p. 173.
53 Section 3 of Act No. 3135, as amended, provides as follows:
"Notice shall be given by posting notices of the sale for not less than twenty days in
at least three public places of the municipality or city where the property is situated,
and if such property is worth more than four hundred pesos, such notice shall also
be published once a week for at least three consecutive weeks in a newspaper of
general circulation in the municipality or city." (See also Ardiente v. Provincial
Sheriff, 436 SCRA 655, August 17, 2004)
54This fact would have been shown by presenting evidence that another bidder had offered
to pay a higher price for the property during the bidding.

Ô
Manila
FIRST DIVISION

/.. ../
, *
*4!$!"0""#$%Î&&,**
&***Ô*)#&,*petitioners,
vs.
&Ô)#&*&respondents.
ÔÔ
J.:
This is a petition for the review of the Amended Decision of the Court of Appeals affirming the
judgment of the Regional Trial Court which dismissed the complaint for "annulment of deed of
sale" filed by petitioner Raymundo M. Dapiton, now deceased and substituted in the instant case by
his heirs.
Although petitioners and private respondent disagree on the question as to what transaction was
actually entered into by the latter and the late Dapiton on May 6, 1967, the parties agree that the
written document covering that transaction purports to be a deed of sale over the late Dapiton's
house and lot in Almeria, Leyte. More significantly, both petitioners and private respondent
depicted said deed of sale to have an annotation on the left hand margin of the said deed of sale,
which reads, :
This is to certify that Raymundo Dapiton has one year to repurchase the property
subject of this contract.
M
e
l
j
o
h
n
d
e
l
a
P
e
ñ
a
and another annotation at the back of the same deed, which reads, :
This is to inform anyone that Raymundo Dapiton will have one (1) year to
repurchase the land subject matter of this sale.
M
e
l
j
o
h
n
d
e
l
a
P
e
ñ
a

The antecedent facts of the case, according to petitioners, are as follows:
The gravamen of petitioner's complaint before the trial court can be gleaned from
paragraphs II to VII of the complaint filed with the lower court, to wit:
That sometime before May 5, 1967, . . . [Raymundo Dapiton] who

was then needing money, approached the . . . [private respondent]
and requested for a loan of P400.00 offering to place as security of
said loan his residential house and lot located at Almeria, Leyte . . . .
xxx xxx xxx
That the fair market value of the same is not less than P3,000.00
more or less; it is the house where . . . [Dapiton] has been living for
thirty (30) years up to the present.
That the . . . [private respondent] agreed to the request of . . .

[Dapiton] and thereafter said . . . [private respondent] prepared the
corresponding document and . . . [Dapiton] was made to sign the
same on the 5th day of May, 1967, before Notary Public, Dionisio R.
dela Peña, father of herein defendant.
Thus, the petitioners contend that the transaction between

Raymundo Dapiton and the private respondent was one of loan of
P400.00 to be paid within one years (p) time with the property
subject of the questioned deed as security for the payment of the
said loan.
Private respondent, however, maintains that the transaction between him and the deceased
Dapiton was one of absolute sale. Private respondent's version of the antecedent facts in the instant
case, is as follows:
The case has its source in the execution of the Deed of Absolute Sale .
. . by the . . . [deceased Dapiton] as vendor and . . . [private
respondent] as vendee on May 6, 1967. Two days later, or on May 8,
1967, . . . [private respondent] at the instant of the . . . [deceased
Dapiton], and without any consideration, made an annotation on the
left-hand margin and at the back of the Deed of Absolute Sale to the
effect that the . . . [deceased Dapiton] was given an option to
repurchase the land within one (1) year from the date of the
notations. This is the source of the controversy. . . . [Petitioners
claim] that the true intention of the parties was one of _ p
p pwhile the . . . [private respondent] claims that their
true intention was one of absolute sale and that the annotation was
void for lack of consideration and, more importantly, because from
the beginning the parties did not intend it to be complied with but
only to appease the children of . . . [deceased Dapiton] who objected
to the sale of the land by . . . [their late father]./
Against the backdrop of conflicting factual claims of Petitioner and Private Respondent, the
following facts are not disputed by both parties:
1. The deed of sale subject of the case involves both the house and the lot of deceased Dapiton, said
deed having stated that the sale of the lot included all improvements thereon.
2. The purchase price of the house and lot, as indicated in the deed of sale, is P400.00.
3. Dapiton, now deceased, turned over to private respondent Tax Declaration No. 2555 covering the
subject house and lot as well as Official Receipt No. 211444 dated May 7, 1953, and Official Receipt
No. 559150 dated May 30, 1952 involving tax payments made by Dapiton.
4. Private respondents caused the cancellation of Tax Declaration No. 2555 in the name of Dapiton
and obtained Tax Declaration No. 4101 in his name.
5. Private respondent paid realty taxed on the subject house and lot as evid enced by Official Receipt
No. 155719 dated May 8, 1968 and Official Receipt No. 2041208 dated October 1, 1969, both
receipts of which are in the name of private respondent.
6. Dapiton sent a letter dated May 3, 1968 to private respondent and enclosed there with two (2)
money orders worth P400.00 as final and full satisfaction and/or redemption of the subject house
and lot.
7. Private respondent's wife, Lolita de la Peña, received the aforesaid letter and money orders on
May 4, 1968.
8. In a letter dated May 9, 1968, private respondent rejected the redemption of Dapiton of the
subject house and lot on the ground that the sale they executed was an absolute sale.
9. Dapiton had also entered into similar transactions in the past involving the same house and lot
with one Leodegario Alabarca in 1962 and one Manuel delos Reyes in 1964. On each of the two
occasions, Dapiton was given P400.00.
10. On April 7, 1968, Dapiton again entered into the same arrangement involving his house and lot.
This time, it was with one Sinforosa Jaguros, but the amount involved remained the same, . .,
P400.00.
11. The deceased Dapiton, up to the time of his death, occupied the property. His heirs, herein
petitioners, remain in possession up to the present.
The court , confronted with all the aforementioned facts and herein parties' respective claims,
rendered judgment in favor of private respondent and accordingly dismissed the complaint for
annulment of deed of sale filed by Dapiton, petitioner's deceased father. The court mainly
found that the price of P400.00 was adequate and conscionable and that the deed of sale in question
is one of an absolute nature. At any rate, the court postulated that the redemption made by
Dapiton was undertake out of time and without complian ce with Articles 1601 and 1616 of the Civil
Code.
Aggrieved, petitioners appealed from the decision of the court and asked the respondent
Court of Appeals to reverse the same. In a decision dated December 10, 1991, petitioners were
granted the relief they sought. The dispositive portion of that decision reads as follows:
CONFORMABLY TO THE FOREGOING, the decision appealed from is hereby

REVERSED AND SET ASIDE, and a new one is rendered in lieu thereof, ordering
defendant-appellee to accept the P400.00 deposited by plaintiff-appellant with the
Municipal Court of Almeria, Leyte, and to execute a deed of sale of the subject parcel
of land in favor of plaintiffs-appellants.
SO ORDERED.
With that, petitioners had thought that they had finally won back their land. Their triumph,
however, was short-lived. Private respondent filed his Motion for Reconsideration on April
15, 1992. Respondent Court of Appeals found merit in private respondent's Motion for
Reconsideration and granted the same. Thus, respondent appellate court rendered an
Amended Decision in favor of private respondent the entirety of which reads:
On December 10, 1991, a decision was rendered by this Division in Civil Case No.
23256, reversing and setting aside the decision of Branch 16, Regional Trial Court of
Biliran, Leyte, which decision dismissed the complaint and counterclaims. In
reversing the trial court's decision and deciding in favor of the . . . [petitioner] When
quote the pertinent portion of the decision:
What We thus have is a contract of absolute sale between the parties.

We need not look at extraneous circumstances, such as . . .
[Dapiton's] motive into entering a contract of conveyance, as the
terms and conditions thereof are clear and explicit, and leave no
doubt upon the intention of the contracting parties. Therefore, the
literal meaning of its stipulations should control (Article 1370, Civil
Code of the Philippines). . . . [Petitioner's] cannot deny the "Deed of
Absolute Sale" executed by . . . [Dapiton] in favor of private
respondent on May 6, 1967.
However, the subject annotation made on May 8, 1967, does not also
escape Us. The same raises an issue of whether or not it novated the
deed of absolute sale into one of sale with a right to repurchase.
It did not. In conventional redemption, the right to redeem must be

reversed or stipulated at the moment of the perfection of the
contract, and not afterwards (Article 1601, Civil Code of the
Philippines). An agreement granting such right to redeem
subsequent to the perfection of the contract of sale is a mere promise
to sell (5 Ambrosio Padilla, Civil Law, Civil Code Annotated, p. 275
[1968] citing 10 Manresa 311). (Decision, pp. 7-8; c
, pp. 73-74).
In the light of the above holding We feel constrained to reconsider Our conclusion
that "the subject annotation is a contract to buy and sell" and "is not an accepted
unilateral promise to sell" for the following reasons:
1) There is no allegation or proof that . . . [Dapiton] promised to buy or repurchase

the land subject of this suit, for a specific price; neither is there proof that the . . .
[private respondent] promise [p] to sell the same at a specific price agreed upon.
2) The agreement between the parties which was entered into on May 8, 1967 was
not a "promise to sell for a certain price" but a mere option give to . . . [Dapiton] to
repurchase the property within one year. It was clearly a mere option for . . .
[Dapiton] to buy back the property, subject to (1) an exercise by the . . . [Dapiton] of
the option; and (2) subject also to an agreement as to the price. The option maybe
withdrawn by the . . . [private respondent] in case of disagreement as to the price
and?/or failure of the . . . [Dapiton] to exercise the option. There was no clear
indication of the . . . [Dapiton's] promise to buy or accept the option to repurchase.
This was clearly indicated when . . . [private respondent] wrote . . . [Dapiton] a letter
on May 9, 1968 refusing . . . [his] offer to buy. Article 1479 of the Civil Code
provisions that "a promise to buy and sell a determinate thing for a price certain is
reciprocally demandable" is not applicable because there was no agreement as to
price so that the price was not certain and refusal by . . . [private respondent] is a
clear manifestation of this fact.
A promise to buy and sell a determinate thing for a price certain is

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

a period certain is binding upon the promissory if the promise is
supported by a consideration distinct from the price.
There is nothing on record to show that the parties had agreed on a consideration
distinct from the price of the sale, which is construed as a separate consideration to
support the unilateral promise to sell.
For reasons above stated and in the light of the applicable law and jurisprudence on
the matter, the Motion for Reconsideration is GRANTED. Our decision dated
December 10, 1991 is reversed and set aside and the judgment of the trial court is
AFFIRMED, without pronouncement as to costs.
SO ORDERED..
Essentially, respondent appellate court declared that the transaction entered into by Dapiton and
private respondent was an absolute sale of the former's house and lot to the latter, and that the two
annotations regarding Dapiton's right to repurchase the subject house and lot constituted a mere
promise to sell which is null and void, because there was no determinate purchase price indicated
and there was no consideration therefor.
Unable to accept the ultimate conclusion of respondent appellate court, petitioners resorted to the
instant petition to obtain a reversal of the aforegoing Court of Appeals decision. Petitioners now
exhort us to declare the transaction between their deceased father, Raymundo Dapiton, and private
respondent, to be either a loan, as claimed by Dapiton in the complaint for amendment of deed of
sale which he filed in the court , or in the alternative, an equitable mortgage, in application of
legal the presumption under Article 1602 of the Civil Code.
We rule in favor of the petitioners.
Article 1602 of the New Civil Code provides for the instances when an equitable mortgage may be
presumed:
Art. 1602 Ȅ The contract shall be presumed to be an equitable mortgage, in any of

the following cases:
(1) When the price of a sale with right to repurchase is usually inadequate;
(2) When the vendor remains in possession as lessee or otherwise;
(3) When upon or after the expiration of the right to repurchase another instrument
extending the period of redemption or granting a new period is executed;
(4) When the purchaser retains for himself a part of the purchase price;
(5) When the vendor binds himself to pay the taxes on the thing sold;
(6) In any other case where it may be fairly inferred that the real intention of the
parties is that the transaction shall secure the payment of a debt or the performance
of any other obligation.
In any of the foregoing cases, any money, fruits or other benefit to be received by the
vendee as rent or otherwise shall be considered as interest which shall be subject to
the usury law.
Closely examining the facts of this case, we find that, contrary to the findings of the Court of
Appeals, there are numerous indications that the contract effected between the parties is actually
an equitable mortgage and not an absolute deed of sale.
Firstly, it is without dispute that private respondent Dela Peña made two (2) annotations on the
deed of sale, one at the left hand margin and another at the back of the page. These annotations
grant Raymundo Dapiton the right to repurchase his property within one year. This right of
repurchase is a clear contravention of private respondent's claim that the deed of sale was meant to
be absolute.
Secondly, it has been established that the deceased Dapiton habitually borrowed money from
numerous acquaintances, using the said property as security for the loan. The amount borrowed,
amounting to Four Hundred Pesos (P400.00), invariably remained the same. Although these loans
were constantly denoted as "sale with right of repurchase," the deceased Dapiton continuously
remained in possession of the property despite a succession of such loan transactions. Evidently, all
these transactions were equitable mortgages.
Thirdly, we find it difficult to believe that the private respondent would tolerate the uninterrupted
occupation of the property by the Dapitons simply because he has no need for it just yet. In the light
of the fact that the private respondent has been in dispute with the Dapitons sin ce 1968, and
considering his claim of absolute ownership, it is unthinkable for private respondent to let Dapiton
and his heirs remain and make use of the property for almost thirty (30) years. In addition,
although the tax declarations for the property have been transferred to private respondent's name
and he has been continuously paying the realty taxes thereon, he has made no move to oust the
petitioners from their possession. This circumstance clearly falls within the ambit of Article 1602 as
a badge of an equitable mortgage.
Fourthly, the private respondent is a member of the bar, well-versed in the intricacies of the law.
We thus find it improbable that he would agree to add the annotations pertaining to the deceased
Dapiton's right of repurchase only to appease Dapiton's children. If, as he claims, the sale was
indeed absolute, the fact that he would place such annotations as would put in question the
absoluteness of the sale raises some doubt as to the true nature of the transaction involved. After
all, if the property is truly his by right, no amount of objections raised by the children of the elder
Dapiton would change the fact that the sale is already app
. No vendee in his right mind
would agree to any act which would weaken his absolute claim to a property sold to him without
any restraint or condition. If the sale was indeed absolute, why grant Dapiton a right to repurchase
at all?
Lastly, Article 1603 of the New Civil Code provides:
Art. 1603. In case of doubt, a contract purporting to be a sale with right to

repurchase shall be construed as an equitable mortgage.
In the case at bar, the true nature of the contract between Dapiton and dela Peña is the crux of the
issues raised in this petition. Considering the circumstances of this case, we resolve the doubt in
favor of the petitioner. The actuations of the private respondent are highly suspect, if not downright
dishonorable. AS A JUDGE and member of the bar, he is charged with the duty to act fairly and
equitably. He has not been fair, nor has he been forthright in his dealings with Raymundo Dapiton.
Consider these proven facts: the private respondent first tried to change the nature of the
transaction by preparing a contract which did not reflect the true intent of the parties. Next, caught
in his duplicitousness, he pretended to rectify his mistake by adding an annotation granting the
elder Dapiton the right of repurchase. Then, he deliberately evaded receiving payment from the
elder Dapiton so that the one year period would eventually lapse and the transfer of ownership to
him would become absolute. And as if these were not enough, he now seeks to convince this court
that the annotation granting the elder Dapiton the right of repurchase, p
, is
not valid for lack of consideration. This travesty must not be permitted to go on. We now write
to the private respondent's underhandedness.
WHEREFORE, premises considered, the petition for p is GRANTED, the amended decision of
the respondent Court of Appeals is REVERSED and SET ASIDE. Private respondent Meljohn dela
Peña is ordered to accept the P400.00 deposited by the petitioners with the Municipal Trial Court of
Almeria, Leyte, and to execute a Deed of Sale over the subject property in favor of the petitioners.
SO ORDERED.
&

® !! pp

!
_
""!
1 Dated March 25, 1992, pennedby Associate Justice Jose C. Campos and concurred
in by Associate Justices Alfredo M. Marigomen and Fortunato A. Vailoces; c
, pp.
31-34.
2 Sixth Division.
3 RTC, Eight Judicial Region, Brach 16, Naval, Subprovince of Biliran, Leyte.
4 Docketed as Civil Case No. B-0384.
5 Petition, pp. 4-5, c
, pp. 7-8; Comment, pp. 3-4, c
, pp. 53-54.
6 Petition, pp. 3-4; c
, pp. 6-7.
7 Memorandum of Private Respondent, pp. 3 -4; c
, pp. 138-139.
8 Decision of the Court of Appeals dated December 10, 1991, p. 12; c
, p. 29.
9 c
, pp. 31-33.

Ô
Manila
THIRD DIVISION

/$)%
*&petitioner-appellant,
vs.

&Ô)#Ô ÔÔ
&Ô)#Ô,
respondents-appellees.
DECISION
-&ÔJ.:
His motion for reconsideration having been denied, petitioner brought the present petition for
review on p to set aside the decision of April 30, 1996 of the Court of Appeals1 in CA-G.R. CV
No. 46107 which reversed the April 4, 1994 decision of the Regional Trial Court of Cavite, Branch
152 in Civil Case No. NC-325 in favor of petitioner.
Petitioner Pedro Molina and his siblings Felisa, Felix and Tomas Molina were co-owners of a parcel
of land in Naic, Cavite registered in their names under TCT No. T-44010 of the Registry of Deeds of
Cavite.3
On April 23, 1984, petitioner, by Deed of Absolute Sale,4 conveyed to his sister Felisa his share in
the co-owned property. The sale was not, however, registered.
The siblings subsequently entered into an agreement wherein they partitioned the property as
follows:
Lot No. 98-A-1 with an area of 92 square m. for FELIX MOLINA;
&"
.--40"3)))=.!?)<
=*&K
Lot No. 98-A-3 with an area of 92 square m. for FELISA MOLINA;
Lot No. 98-A-4 with an area of 92 square m. for TOMAS MOLINA;
Lot No. 98-A-5 with an area of 43 square m. as the RIGHT OF WAY;5
More than four years after petitioner executed the Deed of Sale conveying his share of the property
to his sister Felisa or on June 13, 1988, upon the request of Felisa, he executed another Deed of
Absolute Sale6 in lieu of the first covering the same share in favor of Felisaǯs son private respondent
Margarito Flores and his wife private respondent Nerisa Herrera. The pertinent provisions of the
second Deed are reproduced hereunder:
xxx
That the Vendor is the absolute owner in fee simple of a ¼ portion of a parcel of land, situated in
the Poblacion, Naic, Cavite, Philippines, known as and more specifically described as follows:
xxx
That for and in consideration of the sum of EIGHT THOUSAND PESOS ONLY (P8,000.00) Philippine
Currency, receipt of which in full is hereby acknowledged by the Vendor from the Vendee, the
Vendor hereby sells, transfers and conveys and by these presents have (sic) sold, transferred and
conveyed unto the above named Vendee, her (sic) heirs and assigns the (1/4) square meters (sic)
portion of the above described parcel of land, free from all kinds of liens and encumbrances
whatsoever. (Underscoring supplied).
xxx
TCT No. T-170585 7 in the name of respondent spouses covering petitionerǯs share in the co-owned
property was accordingly issued.
On September 5, 1990, petitioner filed an action for reformation of instrument and/or annulment of
document and title with reconveyance and damages before the Regional Trial Court of Cavite,
alleging that the Deed of Absolute Sale in favor of respondent spouses does not express the true will
and intention of the parties.j:9; j
Respondent spouses maintained that their acquisition of petitionerǯs share was valid, legal and
binding.8
After trial, finding for petitioner, the trial court ordered the annulment of the Deed of Absolute Sale,
disposing as follows:
Wherefore, this Court finds merit in plaintiffǯs complaint and hereby orders:
1. The annulment of the contract, Absolute Deed of Sale dated June 13, 1988 among and
between the plaintiff and the defendants which is null and void;
2. The cancellation of TCT No. 170585 of the Register of Deeds of Cavite Province at Trece
Martires City; and
3. The defendants to pay plaintiff reasonable attorneyǯs fees of P5,000.00.
Plus costs of suit.
SO ORDERED.9
Upon recourse to the Court of Appeals, the trial courtǯs decision was reversed and the complaint of
petitioner was dismissed, hence the present petition anchored on the following assigned errors:
I. RESPONDENT COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN NOT HOLDING

THAT THE DEED OF SALE DO (sic) NOT EXPRESS THE TRUE INTENT AND AGREEMENT OF
THE PARTIES;
II. RESPONDENT COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN NOT FINDING

THE TRANSACTION TO BE AN EQUITABLE MORTGAGE AND NOT A DEED OF SALE AND
THEREFORE TRANSCENDS THE CORRECT APPLICATION OF ART. 1602 OF THE CIVIL
CODE;
III. RESPONDENT COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN NOT HOLDING
THAT THE ALLEGED SALE WAS NOT A CONSUMATED (sic) CONTRACT OF SALE;
IV. RESPONDENT COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN NOT FINDING

THAT THE PETITIONER WAS DEFRAUDED BY FELISA MOLINA IN SIGNING THE
SIMULATED AND FICTITIOUS DEED OF SALE.10
Petitioner contends that he signed the Deed of Absolute Sale through the misrepresentations of his
sister Felisa who made him believe that what he was signing was only a receipt evidencing his
indebtedness to her 11 which, by his own admission, he had incurred on several occasions; that
Felisa took advantage of his lack of sufficient education and knowledge of English to defraud him
into selling his property; and that parol evidence should be admitted to prove the real nature of the
transaction which he claims was one of an equitable mortgage.j j 8
Petitioner calls attention to the consideration given for his property, P8,000.00, which he claims is
inadequate, and to his regular receipt of rentals being paid by the lessee of the premises, one
Erlinda de Guzman which circumstances are allegedly badges of equitable mortgage. Thus he cites
Articles 1602 and 1604 of the Civil Code which provide:
Art. 1602. The contract shall be presumed to be an equitable mortgage, in any of the following
cases:
(1) When the price of a sale with right to repurchase is unusually inadequate;
(2) When the vendor remains in possession as lessee or otherwise;
(3) When upon or after the expiration of the right to repurchase another instrument
extending the period of redemption or granting a new period is executed;
(4) When the purchaser retains for himself a part of the purchase price;
(5) When the vendor binds himself to pay the taxes on the thing sold;
(6) In any other case where it may be fairly inferred that the real intention of the parties is
that the transaction shall secure the payment of a debt or the performance of any other
obligation.
In any of the foregoing cases, any money, fruits, or other benefit to be received by the vendee as
rent or otherwise shall be considered as interest which shall be subject to usury laws (Emphasis
supplied).
Art. 1604. The provisions of Article 1602 shall also apply to a contract purporting to be an absolute
sale.
In issue then is whether the parties intended the Deed of Absolute Sale in favor of respondent to be
an equitable mortgage.
An equitable mortgage is defined as one which, although lacking in some formality, or form or
words, or other requisites demanded by a statute, nevertheless reveals the 0""0 of the parties
to charge real property as security for a debt, and contains nothing impossible or contrary to law.12
The intention of the parties to an agreement is shown not necessarily by the terminology used
therein but by all the surrounding circumstances, such as the relative situation of the parties at the
time, the attitude, acts, conduct, declarations of the parties, the negotiations between them leading
to the deed, and generally, all pertinent facts having a tendency to fix and determine the real nature
of their design and understanding.13
For the presumption of an equitable mortgage to arise u nder Art. 1602, two (2) requisites must
concur: (a) that the parties entered into a contract denominated as a contract of sale, and (b) that
their intention was to secure an existing debt by way of a mortgage.14
In the case at bar, the second requisite is conspicuously absent. Consider the following testimony of
petitioner himself:
Q: In connection with that issue, do you remember how much you owed your sister?
A: Yes, your Honor.
Q: How much?
A: Ten thousand (P10,000.00) pesos, your Honor.
Q: Do you have any copy of that agreement of your loan?
A: None, sir.
Q: How did you receive that amount of money?
A: Little by little, sir. Month by month (buwan buwan), sir.
Q: And how long did you receive that amount of ten thousand (P10,000.00) pesos ?
A: Ten months. Every month, I was allowed to received (sic) P1,000.00.
Q: You did not put up any collateral to your loan? Did you?
A: None, your Honor. (Emphasis and underscoring supplied).15
That the alleged loan was received in installments of P1,000.00 per month for ten months or a total
of P10,000.00 in fact indicates that the transaction was not one of a loan but of sale on installment.
The alleged inadequacy of the price harped upon by petitioner does not by itself support the
conclusion that the property was not at all sold or that the contract was one of a loan. 16
In any event, no proof was presented to show that the value of the 92 sq. m. property located in
Naic, Cavite was, at the time the Deed was executed in 1988, considerably higher than the therein
stated purchase price P8,000.00.
As for petitionerǯs continued receipt of rentals due on the property from its current lessee this
Court finds the same as did the appellate court, to be a gesture of generosity, kinship and leniency
from his relatives, he being jobless and without visible means of support.17
Petitioner argues, nevertheless, that assuming arguendo that a contract of sale was entered into, it
was not consummated as the entire purchase price was not paid.18 Assuming that to be so albeit, by
the Deed in question petitioner acknowledged receipt of the P8,000.00 purchase price, it does not
by itself bar the transfer of the ownership or possession of the property, much less dissolve the
contract of sale.19 The contract remains but the payment of the price is a resolutory condition, and
the remedy of the seller is to exact fulfillment or, in case of a substantial breach, to rescind the
contract under Article 1191 of the Civil Code 20 which provides:
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.
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.
That petitioner, prior to the execution of the impugned Deed, signed receipts identically
denominated as "Kasunduan" under which he acknowledged receiving sums of money )! )%<"
for his property, which 20 "!44##0"37)25)and could not have been
mistaken or misunderstood for anything else other than as evidence of the sale of his property,
seals the case against him. It confirms this Courtǯs earlier observation that the transaction indicated
was one of sale on installment. Thus each of the receipts Ȃ Kasunduan 21 provides:
Ako si PEDRO MOLINA, balo, may sapat na gulang, Pilipino, naninirahan sa Naik, Kabite, ay
tumanggap ng halagang one thousand (P1,000) sa aking kapatid na si FELISA S. MOLINA bilang
tanda na ipinagbibili ko sa kanya ang aking kaparte sa lupang minana naming sa aming mga
magulang, nakilala bilang Lote Numero 98-A na may titulo Numero T-44010 na nasa Kalye
ZAMORA NAIK, KABITE, x x x
Additionally, petitioner affixed his signature on the Deed after its contents were sufficiently
explained to him in the vernacular, which was witnessed by two other persons of legal age and duly
acknowledged before a notary public. Ironically, petitionerǯs own witness, Nemecio Molina, who
was likewise a witness to the execution of the Deed, belied his claim of having no knowledge of the
contents of the subject instrument when he took the witness stand:
Q: Now, before the said document was signed by the parties, do you know what was done by
the Notary Public, Mariano Villanueva?
A: Yes, sir.
Q: What was done by Notary Public Mariano Villanueva before the parties signed the
document?
A: He read the document to Pedro Molina.
Q: In what vernacular did Atty. Villanueva use the reading of the document, Tagalog or
English?
A: In English, your Honor.
Q: You mean to say that Notary Public Mariano Villanueva was reading the contents of the
sale of the document which is in English?
A: Yes, sir.
Q: And that is all what (sic) Atty. Villanueva did before he required the parties to sign?
A: He told her secretary to translate it in Tagalog.22 (Underscoring supplied).
More. Another witness to the document, Atty. Edwina Mendoza, testified that prior to the execution
of the Deed, the parties thereto approached her "to tell [her] that sometime in the future, they will
have to execute a deed of conveyance because they are entering to (sic) this kind of transaction," 23
adding that when petitioner was informed that he would actually be selling his property, the latter
readily acceded.24
In fine, this Court finds that the parties to the Deed were fully aware of its contents and meaning,
and that there were no acts done or events that occurred prior to, simultaneous to, or after the
execution of the Deed that would indicate the intention of any of the parties to have been otherwise
than to sell the property to respondent spouses.
Î, the Petition is hereby DENIED. The Decision of the Court of Appeals in CA-G.R. CV
No. 46107 dated April 30, 1996 is hereby AFFIRMED.
SO ORDERED.
Puno, (Chairman), Panganiban and Sandoval-Gutierrez, JJ., concur.
Corona, J., on leave.
""!
1 Records at 93-102.
2 at 103-109.
3 Exhibit "A," Records at 53.
4 Exhibit "2," Records at 28.
5 c
at 7.
6 Exhibit "3," Records at 29.
7 Exhibit "C," Records at 55.
8 Records at 13.
9 Records at 109.
10 c
at 6.
11 TSN, January 24, 1991 at 9.
12 $_
13 c _
339 SCRA 97, 103 (2000)
14 c 339 SCRA 104.
15 TSN, January 24, 1991 at 13.
16 p
_
208 SCRA 496, 501 (1992).
17 Records at 101.
18 c
at 17.
19 *p _

233 SCRA 551, 560 (1994).
20

_
21 Exhibits "1," "1-A" Ȃ "I" at 18-27.
22 TSN, March 20, 1991 at 9.
23 TSN, October 23, 1991 at 16.
24 Id. at 18.
Ô
Manila
THIRD DIVISION

7<$
Ô
*+ &
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*+ petitioners,
vs.
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DECISION
(J.:
The right of redemption may be exercised by a co-owner, only when part of the community
property is sold to a stranger. When the portion is sold to a co-owner, the right does not arise
because a new participant is not added to the co-ownership.
The Case
The Petition for Review on Certiorari before us challenges the July 7, 2000 Decision of the Court of
Appeals (CA)1 in CA-GR CV No. 55264, which reversed the Regional Trial Court (RTC) of Dagupan
City (Branch 44) in Civil Case No. D-3815.2 The assailed Decision disposed as follows:
"WHEREFORE, the appealed decision is REVERSED and a NEW ONE is entered:
"1. Ordering the partition of Lot 2991 in the proportion stated in Transfer Certificate of Title
No. 24440, that is: Angel Fernandez, married to Corazon Cabal Ȃ 7,114.46 sqm; spouses
Carlos Tarun and Narcisa Zareno Ȃ 1094.54 sqm.
"The costs of the subdivision shall be equitably shared by plaintiffs-appellants and

defendants-appellees.
"2. Ordering the Register of Deeds of Dagupan City to issue a separate transfer certificate of
title each to plaintiffs-appellants and defendants-appellees corresponding to their
respective shares upon completion of the partition."3
The Facts
The antecedent facts of the case are narrated in the assailed CA Decision as follows:
"An 8,209-square meter fishpond situated at Arellano-Bani, Dagupan City is disputed by

[Respondents] Carlos Tarun and Narcisa Zareno, and [Petitioners] Corazon Cabal vda. de Fernandez
and her children Oscar, Gil and Armando, all surnamed Fernandez.
"The property is known as Lot No. 2991 of the Cadastral Survey of Dagupan. It was originally
covered by OCT No. 43099, subsequently cancelled by TCT No. 24440. The brothers Antonio,
Santiago, Demetria and Angel Fernandez, together with their uncle Armando, co-owned this
property to the extent of 1/6 thereof. 4 It was subsequently increased to 1/5 on account of the 1/6
share of Armando, who died single and without issue, which accrued in favor of the five remaining
co-owners.
"On June 4, 1967, Antonio Fernandez sold his share of about 547.27 square meters to [the Spouses]
Tarun (Exh. I).5 On June 18, 1967, Demetria Fernandez, also sold her share on the same fishpond
consisting of 547.27 square meters to [respondents]. 6 Thus, the total area sold to [respondents] is
1094.54 square meters, more or less. The two sales were registered and annotated on OCT No.
43099.
"On November 14, 1969, the co-owners of the subject fishpond and another fishpond covered by
TCT No. 10944 executed a Deed of Extrajudicial Partition of two parcels of registered land with
exchange of shares. Among the parties to the deed are Antonio, Santiago, Demetria and Angel, all
surnamed Fernandez.
"It was stipulated in the deed that the parties recognize and respect the sale of a portion of Lot
2991 consisting of 1094.54 square meters previously sold by Antonio and Demetria Fernandez in
favor of [respondents]. This portion was excluded in the partition.
"Likewise, by virtue of the Deed of Extrajudicial Partition, Angel B. Fernandez exchanged his share
on the other fishpond covered by TCT No. 10944 to the shares of his co-owners on the remaining
portion of [L]ot No. 2991 covered by TCT No. 10945, making Angel B. Fernandez and [respondents]
as co-owners of Lot No. 2991.
"By virtue of the terms and conditions set forth in the Deed, TCT No. 24440 of the Registry of
Deed[s] of Dagupan City, (Exh. ǮAǯ) was issued in favor of Angel B. Fernandez and [respondents].
From the time the latter bought the 1094.54 -square meter portion of the fishpond, they had been
paying the realty taxes thereon. However, it was Angel B. Fernandez and later on his heirs,
[petitioners], who remained in possession of the entire fishpond.
"When Angel B. Fernandez was still alive, [respondents] sought the partition of the property and
their share of its income. Angel Fernandez refused to heed their demand. After the death of Angel
Fernandez, [respondents] wrote [petitioners] of their desire for partition but this was rejected by
[petitioners]. Hence, this suit for partition and damages." 7
Ruling of the RTC
On August 1, 1996, the RTC rendered judgment in favor of petitioners, ruling that, under Articles
1620 and 1621 of the Civil Code, they were entitled to redeem the property that they had sold to
respondents. It further held that the sale was highly iniquitous and void for respondentǯs failure to
comply with Article 1623 of the same code.
Reversing the RTC, the CA held that petitioners were not entitled to redeem the controversial
property for several reasons. First, it was Angel Fernandez who was its co-owner at the time of the
sale; hence, he was the one entitled to receive notice and to redeem the property, but he did not
choose to exercise that right. Second, the execution of the Deed of Extrajudicial Partition was a
substantial compliance with the notice requirement under that law. Finally, it was too late in t he
day to declare the exchange highly iniquitous, when Angel Fernandez had not complained about it.
As his successors-in-interest, petitioners were bound by the terms of the agreement.
Hence, this Petition.8
Issues
In their Memorandum, 9 petitioners raise the following issues:
"1. Whether or not petitioners are entitled to exercise their right of legal redemption.
"2. Whether or not the transaction is one of equitable mortgage.
"3. Whether or not the deed of extra-judicial partition is void and inefficacious.
"4. Whether or not petitioners are entitled to damages, attorneyǯs fees and costs.
"5. Whether or not the lower court committed grave abuse of discretion amounting to lack
of jurisdiction when it substituted it surmises, conjectures and guesswork in place of the
trial courtǯs findings of fact borne by the evidence on record."10
This Courtǯs Ruling
The Petition is not meritorious.
First Issue:
Entitlement to Legal Redemption
Petitioners aver that the sale to respondents is void, because it did not comply with the
requirements of the Civil Code. According to them, they were not notified of the sale, but learned
about it only when they received the summons for the partition case. They claim their right to
redeem the property under the following provisions of the Civil Code:
"Article 1620. A co-owner of a thing may exercise the right of redemption in case the shares of all
the other co-owners or of any of them, are sold to a third person. If the price of the alienation is
grossly excessive, the redemptioner shall pay only a reasonable one.
"Should two or more co-owners desire to exercise the right of redemption, they may only do so in
proportion to the share they may respectively have in the thing owned in common."
"Article 1621. The owners of adjoining lands shall also have the right of redemption when a piece of
rural land, the area of which does not exceed one hectare, is alienated, unless the grantee does not
own any rural land.
"The right is not applicable to adjacent lands which are separated by brooks, drains, ravines, roads
and other apparent servitudes for the benefit of other estates.
"If two or more adjoining owners desire to exercise the right of redemption at the same time, the
owner of the adjoining land of smaller area shall be preferred; and should both lands have the same
area, the one who first requested the redemption."
xxx xxx xxx
"Article 1623. The right of legal pre-emption or redemption shall not be exercised except within
thirty days from the notice in writing by the prospective vendor, or by the vendor, as the case may
be. The deed of sale shall not be recorded in the Registry of Property, unless accompanied by an
affidavit of the vendor that he has given written notice thereof to all possible redemptioners.
"The right of redemption of co-owners excludes that of adjoining owners."
We disagree with petitioners. True, the right to redeem is granted not only to the original co-
owners, but also to all those who subsequently acquire their respective shares while the
community subsists.11 However, it must be stressed that this right of redemption is available only
when part of the co-owned property is sold to a third person. Otherwise put, the right to redeem
referred to in Article 1620 applies only when a portion is sold to a non-co-owner.
In this case, it is quite clear that respondents are petitionersǯ co-owners. The sale of the contested
property to Spouses Tarun had long been consummated before petitioners succeeded their
predecessor, Angel Fernandez. By the time petitioners entered into the co-ownership, respondents
were no longer "third persons," but had already become co-owners of the whole property. A third
person, within the meaning of Article 1620, is anyone who is not a co-owner.12
In Basa v. Aguilar,13 this Court has unequivocally ruled that the right of redemption may be availed
of by a co-owner, only when the shares of the other owners are sold to a third person. " Legal
redemption is in the nature of a privilege created by law partly for reasons of public policy and
partly for the benefit and convenience of the redemptioner, to afford him a way out of what might
be a disagreeable or [an] inconvenient association into which he has been thrust. (10 Manresa, 4th.
Ed., 317.) It is intended to minimize co-ownership. The law grants a co-owner the exercise of the
said right of redemption when the shares of the other owners are sold to a Ǯthird person."ǯ14 There
is no legal redemption, either in case of a mere lease15 and if the purchaser is also a tenant.16
Equally unavailing is petitionersǯ contention that the sale was void, because the vendor had not sent
any notice in writing to the other co-owners as required under Article 1625 of the Code. Indeed, the
Code merely provides that a deed of sale shall not be recorded in the Registry of Property, unless
accompanied by an affidavit that a written notice has been given to all possible redemptioners.
However, it does not state that, by reason of such lack of notice, the sale shall become void.
Jurisprudence affirms the need for notice, but its form has been the subject of varying
interpretations. Conejero v. Court of Appeals 17 held that a written notice was still required, even if
the redemptioner had actual prior knowledge of the sale. However, in Distrito v. Court of Appeals,18
the Court ruled that written notice was not necessary, if the co-owner was actually aware of the
sale. While the law requires that the notice must be in writing, it does not prescribe any particular
form, so long as the reasons for a written notice are satisfied otherwise.19 Thus, in a civil case for
collection of a share in the rentals by an alleged buyer of a co-owned property, the receipt of a
summons by a co-owner has been held to constitute actual knowledge of the sale. On that basis, the
co-owner may exercise the right of redemption within 30 days from the finality of the decision.20
Applying the presently prevailing principles discussed above, petitionersǯ predecessor -- Angel
Fernandez -- is deemed to have been given notice of the sale to respondents by the execution and
signing of the Deed of Extrajudicial Partition and Exchange of Shares. As correctly held by the CA,
the law does not require any specific form of written notice to the redemptioner. 21 From such time,
he had 30 days within which to redeem the property sold under Article 1623. The Deed was
executed November 4, 1969; hence, the period to redeem expired on December 4, 1969.
Consequently, the right to redeem was deemed waived, and petitioners are bound by such inaction
of their predecessor. The former cannot now be allowed to exercise the right and adopt a stance
contrary to that taken by the latter. Otherwise stated, the right to redeem had long expired during
the lifetime of the predecessor and may no longer be exercised by petitioners who are his
successors-in-interest.
Second Issue:
Sale or Equitable Mortgage?
Petitioners contend that the sale was only an equitable mortgage because (1) the price was grossly
inadequate, and (2) the vendors remained in possession of the land and enjoyed its fruits. Since the
property is situated primely within the city proper, the price of P7,662 for 1,094.54 square meters
is supposedly unconscionable. Moreover, since June 4, 1967 up to the present, the vendees (or
herein respondents) have allegedly never been in actual possession of the land.
The contention is untenable. On its face, a document is considered a contract of equitable mortgage
when the circumstances enumerated in Article 1602 of the Civil Code are manifest, as follows: (a)
when the price of the sale with the right to repurchase is unusually inadequate,22 and (b) when the
vendor remains in possession as lessee or otherwise.23Although it is undisputed that Angel
Fernandez was in actual possession of the property, it is important to note that he did not sell it to
respondents. The sellers were his co-owners -- Antonio and Demetria Fernandez -- who, however,
are not claiming that the sale between them was an equitable mortgage. For the presumption of an
equitable mortgage to arise, one must first satisfy the requirement that the parties entered into a
contract denominated as a contract of sale, and that their intention was to secure an existing debt
by way of mortgage.24
Furthermore, mere alleged inadequacy of the price does not necessarily void a contract of sale,
although the inadequacy may indicate that there was a defect in the consent, or that the parties
really intended a donation, mortgage, or some other act or contract. 25 Finally, unless the price is
grossly inadequate or shocking to the conscience,26 a sale is not set aside. In this case, petitioners
failed to establish the fair market value of the property when it was sold in 1967. Hence, there is no
basis to conclude that the price was grossly inadequate or shocking to the conscience.
Third Issue:
Validity of the Extrajudicial Partition

Petitioners also assail the partition as lopsided and iniquitous. They argue that their predecessor
stood to lose 5,498.14 square meters under the extrajudicial partition.
We are not convinced. It is a long-established doctrine that the law will not relieve parties from the
effects of an unwise, foolish or disastrous agreement they entered into with all the required
formalities and with full awareness of what they were doing. Courts have no power to relieve them
from obligations they voluntarily assumed, simply because their contracts turn out to be disastrous
deals or unwise investments.27 Neither the law nor the courts will extricate them from an unwise or
undesirable contract which they entered into with all the required formalities and with full
knowledge of its consequences.28 On the other hand, petitioners herein are bound by the
extrajudicial partition, because contracts not only take effect between the parties, but also extend to
their assigns and heirs.29
Moreover, if petitioners intended to annul the extrajudicial partition for being "lopsided and
iniquitous," then they should have argued this in a proper action and forum. They should have filed
an action to annul the extrajudicial partition and claimed their rightful share in the estate,
impleading therein the other signatories to the Deed and not just herein respondents.
In any event, a perusal of the Deed of Extrajudicial Partition with Exchange of Shares reveals that
the partition of Lot nos. 2991 and 2924 was done equally and fairly. Indeed, 1,641.80 square meters
of Lot No. 299130 and 10,971.80 square meters of Lot No. 2924-B31 were originally given to all the
co-owners -- except Antonio, Demetria and Santiago Fernandez, who had already sold parts of their
share to third persons. However, Angel Fernandez agreed and stipulated in the same Deed that he
had traded his share in Lot No. 2924-B for the entire Lot No. 2991, except the portion already sold
to respondents.32
Taking these stipulations into consideration, we are inclined to believe that the swapping of shares
by the heirs was more favorable to the late Angel Fernandez, because his ownership became
contiguous and compact in only one fishpond, instead of being merely shared with the other co-
heirs in two different fishponds.33
Fourth Issue:
Damages and Attorneyǯs Fees
Petitionersǯ claim that they are entitled to P50,000 as attorneys fees and damages deserves scant
consideration. It has been clearly established that respondents are co-owners of the subject
property. Under Article 494 of the Civil Code, each co-owner may demand at any time the partition
of the thing owned in common. Hence, respondentsǯ action for partition was not an unfounded suit.
Verily, it was founded on a right given by law.
Fifth Issue:
Factual Findings of the CA
Petitioners insist that the CA made some factual findings that were neither in conformity with those
of the RTC nor borne by the evidence on record. They assert that the appellate court erred in ruling
that the extrajudicial partition had been freely and willfully entered into when, in fact, Angel B.
Fernandez had been shortchanged by 5,498.14 square meters. They also contend that the
registration of the two Deeds of Sale in favor of respondents was not valid, because it was not
accompanied by an affidavit that written notice had been served to all possible redemptioners.
We are not persuaded. We do not find any factual or legal basis to conclude that the extrajudicial
partition was iniquitous, and that the sale of Antonio and Demetriaǯs share in Lot no. 2991 is void.
Factual findings of the CA supported by substantial evidence are conclusive and binding,34 unless
they fall under the exceptions in Fuentes v. Court of Appeals 35 and similar cases.
Î, the Petition is DENIED and the assailed Decision AFFIRMED. Costs against
petitioners.
SO ORDERED.
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1Fifteenth Division. Penned by Justice Ruben T. Reyes (Division chairman) and concurred in
by Justices Candido V. Rivera and Jose L. Sabio Jr. (members).
2 Written by Judge Crispin C. Laron; records, pp. 298-305.
3 Rollo, pp. 32-33.
4Actually, the property was co-owned by Jose, Amando (not Armando), Miguel, Paz, Angel
and Aurelio Fernandez (records, pp. 13-14). Antonio, Demetria and Santiago are the
children of Aurelio Fernandez, while petitioners are the children of Angel Fernandez.
5 Records, p. 132.
6 Id., p. 131.
7 CA Decision, pp. 2-4; rollo, pp. 20-22.
8The case was deemed submitted for decision on November 14, 2001, upon this Courtǯs
receipt of respondentsǯ Memorandum signed by Atty. Fernando P. Cabrera.
9 Signed by Atty. Oscar C. Fernandez and received by this Court on October 15, 2001.
10 Petitionersǯ Memorandum, pp. 4-5; rollo, pp. 85-86.
11 Viola v. Tecson, 49 Phil. 808, 810, December 24, 1926.

12 Francisco v. Boiser, 332 SCRA 792, May 31, 2000; Pilapil v. Court of Appeals, 250 SCRA
566, 576, December 4, 1995.
13 117 SCRA 128, September 30, 1982.
14 Id., pp. 130-131, per Vasquez, J.
15 De la Cruz v. Marcelino, 84 Phil. 709, 712, October 12, 1949.
16 Estrada v. Reyes, 33 Phil. 31, December 24, 1915.
17 16 SCRA 775, 779-780, April 29, 1966.
18 197 SCRA 606, 610, May 28, 1991.
19 Hermoso v. Court of Appeals, 300 SCRA 516, 538, December 29, 1998.
20 Francisco v. Boiser, supra, p. 801.
21CA Decision, p. 9; rollo, p. 27, citing Cabrera v. Villanueva, 160 SCRA 672, 678, April 15,
1988.
22 Art. 1602, par. (1), Civil Code.
23 Id., par. (2), Code.
Lustan v. Court of Appeals, 266 SCRA 663, 671-672, January 27, 1997; Reyes v. Court of
24
Appeals, 339 SCRA 97, 104, August 25, 2000.
26 Abapo v. Court of Appeals, 327 SCRA 180, 187, March 2, 2000.
Esguerra v. Court of Appeals, 267 SCRA 380, 393, February 3, 1997; Sanchez v. Court of
27
Appeals, 279 SCRA 647, 683-684, September 29, 1997; Heirs of Joaquin Teves v. Court of
Appeals, 316 SCRA 632, 649, October 13, 1999.
28 Opulencia v. Court of Appeals, 293 SCRA 385, 396, July 30, 1998.
29Art. 1311, Civil Code; Smith, Bell & Co., Inc. v. Court of Appeals, 267 SCRA 530, 538-539,
February 6, 1997; Bangayan v. Court of Appeals, 278 SCRA 379, 385, August 29, 1997.
30 Annex "B," records, p. 16.
31 Ibid.
32 Id., p. 17.
33 Respondentsǯ Memorandum, rollo, p. 108.
34Bañas v. Court of Appeals, 325 SCRA 259, 271, February 10, 2000; Mari v. Court of
Appeals, 332 SCRA 475, 480-481, May 31, 2000; Heirs of Tan Eng Kee v. Court of Appeals,
341 SCRA 740, 748, October 3, 2000.
35 268 SCRA 703, 708-709, February 26, 1997.
**
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J.:
3)!
Before the Court are the consolidated cases docketed as G.R. No. 111495 and G.R. No. 122404.
The consolidated cases involve a parcel of land (ǲpropertyǳ) located at Evangelista Street, Quiapo,
Manila.
The first case, G.R. No. 111495, is a petition for review of the Decision dated 6 January
1993 and Resolution dated 17 August 1993 of the Court of Appeals in CA -G.R. CV No. 25974. The
Court of Appeals affirmed the Decision of the Regional Trial Court of Manila, Branch 2 (ǲRTC
Branch 2ǳ), declaring valid the sale of 75% undivided interest in the property to Spouses Lita Sy
and Sy Bon Su (ǲSpouses Syǳ).
The second case, G.R. No. 122404, is a petition for review of the Decision dated 25 April 199 5
and Resolution dated 27 October 1995 of the Court of Appeals in CA -G.R. CV No. 41931. The Court
of Appeals affirmed the Decision of the Regional Trial Court of Manila, Branch 45 (ǲRTC Branch
45ǳ), ordering the heirs of Atanacio Villegas to accept from Spouses Sy the redemption price for the
25% portion of the property.
3)2"!
Vicente M. Reyes, Julita R. Maylad, Lorenzo M. Reyes, Lydia R. Feliciano, Ruperta A. Reyes,
Estrellita Crisostomo, Yolanda R. Chiu, Virgilio A. Reyes, Carlito A. Reyes and Pacita R. Bautista
(ǲrespondent-heirsǳ), together with Lorenza R. Martinez, Ambrosio M. Reyes, Concepcion Reyes -
Ancheta and the heirs of Mario M. Reyes (ǲother heirsǳ), were the owners of the property located at
Evangelista Street, Quiapo, Manila. They inherited the property from their father, Dr. Lorenzo C.
Reyes, who died on 29 December 1985. The property, which has an area of 406.5 square meters,
was covered by Transfer Certificate of Title No. 182782.
Agripino Villegas, Atanacio Villegas, Rosa N. Sanchez and Corazon Sanchez (ǲpetitioner-
lesseesǳ) were the lessees of the property since 1959. Petitioner -lessees owned the building and
improvements constructed on the property.
In a letter dated 19 May 1988, the Administrativ e Committee of the heirs of Dr. Lorenzo C.
Reyes (ǲAdministrative Committeeǳ), composed of Dr. Vicente Reyes, Julita R. Maylad and Carlito A.
Reyes, informed petitioner-lessees that the heirs have decided to sell the property. The content of
the letter reads:
This is to inform you that by virtue of the Partial Compromise Agreement of
the Estate belonging to the late Lorenzo C. Reyes, as approved by Judge Perlita Tria -
Tirona, Regional Trial Judge, National Capital Judicial Regions, Quezon City Branch
No. 102, April 18, 1988, respectively, hereunder are the exclusive owners of the lot
which you are presently occupying under lease:
Heirs of the First Marriage Heirs of the Second Marriage
1. Vicente M. Reyes 1. Ruperta A. Reyes
2. Lorenza R. Martinez 2. Carlito A. Reyes
3. Ambrosio M. Reyes 3. Estrellita A. Reyes
4. Concepcion Reyes-Ancheta 4. Yolanda [R.] Chiu
5. Julita R. Maylad 5. Virgilio A. Reyes
6. Lorenzo M. Reyes, Jr. 6. Pacita R. Bautista
7. Lydia R. Feliciano
8. Heirs of Mario M. Reyes
xxxx
"30! 22"0 4 40!3 " 0=< % "3)" 4 ) !550; "3 5"
# 5)! 40"3 %
22#0;5% 4 ) ;070; % "3 "0"% "
A20! % 0;3"! = -< "0 <)# 0 40"0; 40"30 "30"% CD #)%!
20 "="30!5""
=3474#"3)= <%)=""35) !
= "3 !)0# 0# 4 !3)55 ")E 0" " <) "3)" % ) " 0"!"# "
23)!"3!$62"5"43023"3$%;07!"350$"%"==0"""3
0"!"# )"0!. (Emphasis supplied)
Petitioner-lessees replied to the Administrative Committee on 14 June 1988, requesting for an

extension of 30 days to submit their bid for the property.
On 13 July 1988, petitioner-lessees submitted their bid for the property to the Administrative
Committee under the following terms and conditions:
1. Bid Price - - - - - - - - P4,000,000.00;

"3!0;0;="3
Absolute Deed of Sale,
we will pay you 80% of the
Bid Price amounting to - - - - - - - - P3,200,000.00;
3. Upon delivery of the
Transfer Certificate of
Title to each of us, we
will pay you the 20%
balance amounting to - - - - - - - - - 800,000.00.
In a letter dated July 1988, the Administrative Committee informed petitioner-lessees of their
receipt of notice of the P4,000,000 bid price. The Administrative Committee wrote that they
requested petitioner-lessees to increase their bid for the property but the latter failed to make
another offer so the heirs have decided to sell to another buyer who offered a higher price.
Nevertheless, the Administrative Committee indicated in the letter that they would wait for a reply
within 15 days and that should the period lapse without any reply from petitioner-lessees, it would
mean that petitioner-lessees were no longer interested in buying the property.
On 2 August 1988, petitioner-lessees sent a reply, advising the Administrative Committee that
they were willing to make a nominal increase to their bid price of P4,000,000. Petitioner-lessees
requested the Administrative Committee to state in writing their asking price for the property.
On 3 August 1988, the Administrative Committee sent a letter to petitioner -lessees which
reads:
Dear Sirs:
We are sorry for the oversight of the date of our last letter. Inasmuch as you
received it on the 26 th of July, let us then consider it as the official date of the letter.
It is the customary agreement with the late Dr. Lorenzo C. Reyes that 15 years
after the improvement was put up in the property, the said improvement reverts to
the owner of the lot. Since you have put up the existing improvement in 1971, we
feel that the said improvement was already owned by the late Lorenzo C. Reyes
before his death.
As early as 1985 the said Dr. Reyes has been paying real property taxes on the
improvement; which shows that he was already the rightful owner of said
improvement.
Since the structure is not of strong materials, with the length of time of 17 yrs.,
we feel that same is now fully depreciated.
We are also desirous of your buying the property. Î 3)7 ) == =
0550 43023 4)! !$<0""# " ! 5)!" <"3
= % 25# == "3 !)<
)<"44055$7%3) %")22<#)"%.
We are sending you a xerox copy of TCT No. 49857, Tax Declaration of Real
Property and the latest tax receipts.
)%4207%LM==$=;

.
5)!$;0##
)22#0;5%. (Emphasis supplied)
In their letter-reply dated 11 August 1988, petitioner -lessees insisted that they own the
improvements on the property. Petitioner -lessees wrote that they were willing to reim burse the
realty tax paid on the improvements by the late Dr. Lorenzo C. Reyes. Petitioner -lessees requested
for a meeting with all the heirs to negotatiate the sale of the property, and informed the
Administrative Committee that their final bid price will be submitted during the meeting.
Petitioner-lessees sent their accountant, Benjamin C. Miranda (ǲMirandaǳ), to represent them

in the conference to negotiate the sale of the property. On the other hand, not all the heirs of Dr.
Lorenzo C. Reyes attended the conference. During the conference, the parties failed to agree on the
price and terms for the sale of the property.
On 18 October 1988, petitioner -lessees, excluding Rosa N. Sanchez, wrote another letter to the
Administrative Committee which reads:
The Administrative Committee
Heirs of Dr. Lorenzo C. Reyes
#22 18th Street, New Manila
Quezon City
Dear Sirs:
We waited for 68 days for your answer to our letter dated August 11, 1988 which
did not come.
Considering various economic reasons, you will be happy to hear from us (Lessees)
that 4 3)7 =0)55% )22 "# % )!E0; 02 =
for your
property located at Evangelista Street, district of Sta. Cruz, Manila covered by T.C.T.
No. 49857 issued to Dr. Lorenzo C. Reyes on September 3, 1936.
Please prepare all the necessary papers and documents to make the sale legal for all
intent and purposes.
% )0# ")A! !23 )! 02< !")" )5"% )# !202 #2)"0 =#
)# #2<")% !")< ! !3)55 $ = "3 )22" = "3 0! 025#0;
#2<")"0A !!
<! = )%<": .N !0;0; = "3 #2<"!K )#

N #507% = "3 )!=
"0=02)" = 0"5 0 "3 )< = 0"! 0#070#)5
&!!!.
A 2"0;"3)%=0)52=0<)"0!!". (Emphasis supplied)
On 3 November 1988, the Administrative Committee replied:
Mr. Atanacio M. Villegas
Mr. Agripino M. Villegas
Mrs. Corazon Sanchez
654 Evangelista, Quiapo, Manila
Dear Sirs:
This is with reference to your letter dated October 18, 1988.

Ô7)5 "0<! 0 "3 )!" "4 <"3!
)50"
%! )#
"3 $"3! )# !0!"! 3)7 0=<# % "3)" !< = "3 2-4! =
"% )" "3 )$7-;07 )##!! ) 5; );)$5 " !550;
"3 !)0# "%K 347 "3 2 -4! !"0; ) /N !3)
"3=4!"0550"!"#0!550;"30!3)!
"0!"3=7%25)
=< "3 =;0; "3)" == " !55 "3 "0 "% " % 4)!
5;==2"07.
7 == 4)! = "3 02 =

" " "3 2-
4!
, 5"" = 2"$ . 0< !! "3 2#0"0 "3)" )0#
")A!!3)55!"055$$$%!430230!)22 ")$5.
We therefore, leave it up to some of the co -owners to negotiate for the sale of

their shares with you. (Emphasis supplied)
Respondent-heirs, collectively owning 75% of the property, also sent a letter dated 3
November 1988 to petitioner-lessees:
Mr. Atanacio M. Villegas
Mr. Agripino M. Villegas
Mrs. Corazon Sanchez
654 Evangelista, Quiapo, Manila
Dear Sirs:
This is with reference to your letter dated October 18, 1988 to the
Administrative Committee of the properties owned by the heirs of Dr. Lorenzo C.
Reyes.
You will recall that in the past two months, some of us saw you and/or your
representative, Mr. Ben Miranda and explained to you that some of the co-owners of
the property at Evangelista Street, Sta. Cruz, Manila, covered by TCT No. 49857,
were no longer interested in selling the said property. On the other hand, 4 "3
#!0;# 2-4! 35#0; ) /N !3) = "3 !)0# "% 4
==0; " !55 !3)! " % )" "3 02 = /N =

/

7 "3 !)0# 02 4)! " $ " " ! "3)" 0! )55
) 502)$5")A!-2) 0")5;)0!")A#2<")%!")< ")A<020 )5")!=
")A)#;0!")"0A !!-!35#$$$%%.
It was obvious that our said offer superseded that of our Administrative
Committee, which cannot convey the property to you without the unanimous
consent of all the co-owners.
Î)0")"0;=="!55/N!3)"%

47!02
"30!)4==" 23)!"3"0 "%)"
4)
4==0;!)0#/N!3)="3 02=
""!.
=4#"3)=<%40"304E=<%20 "3=4

!3)55=5="==!)0#!3)""3$%!. (Emphasis supplied)
On 28 November 1988, respondent -heirs sold their 75% undivided interest in the property
for P3,825,000 to Lita Sy. Lita Sy also issued a check for P412,500 to Vicente M. Reyes as payment
for taxes, agentǯs commission and miscellaneous expenses. The corresponding title, Transfer
Certificate of Title No. 183718 was issued on 28 December 1988. The Administrative Committee
informed petitioner-lessees of the sale in a letter dated 7 December 1988.
On 1 February 1989, the other heirs sold the remaining 25% portion of the property to
Atanacio M. Villegas and Agripino M. Villegas (ǲVillegas brothersǳ) for P1,250,000.
!.R. Ro. 111495
On 10 February 1989, petitioner -lessees filed an action against respondent-heirs and Spouses
Sy for Annulment of Deed of Sale/Title, Specific Performance, and Consignation of Rentals with
Damages.
On 26 February 1990, the RTC Branch 2 rendered a decision, the dispositive portion of which
reads:
WHEREFORE, for all of the foregoing, judgment is hereby rendered in favor of

the defendants and against the plaintiffs:
1. Dismissing the complaint;
2. Declaring the deed of sale executed by defendants in favor of spouses Lita

Sy and Sy Bon Su and Transfer Certificate of Title No. 183718 issued as a
consequence of the deed of sale, valid;
3. Ordering the plaintiffs to vacate the premises and surrender the possession
thereof to the defendants;
4. Ordering the plaintiffs, jointly and severally, to pay the defendants the sum
of P1,000.00 as expenses of litigation; P2,000.00 as attorneyǯs fees, and to
pay the costs.
SO ORDERED.
On appeal, the Court of Appeals affirmed the decision of the RTC Branch 2.
Upon motion for reconsideration, the Court of Appeals affirmed its decision with modification.
The dispositive portion reads:
In view of the foregoing, this Courtǯs decision dated January 6, 1993, is

AFFIRMED with the modification that the record of this case is ordered remanded to
the court a quo for the parties to come into an agreement before the said court as to
what portion and physical part of the building shall be occupied by the appellants
and the appellees, in proportion to their respective shares in the property involved
and for other arrangements regarding the matter.
SO ORDERED.
!.R. Ro. 122404
On 18 May 1990, Spouses Sy filed a complaint for Specific Performance against the heirs of
Atanacio Villegas, as represented by Soledad de Ocampo, Agripino Villegas, and Ofelia R. Tungol.
On 10 May 1993, the RTC Branch 45 rend ered a decision, the dispositive portion of which
reads:
WHEREFORE, judgment is hereby rendered ordering defendants heirs of

Atanacio Villegas to:
a) accept the redemption price of P1,250,000.00, including interest thereon

from February 1, 1989 until the plaintiffs exercised their right of
redemption;
b) to pay the sum of P10,000.00 as attorneyǯs fees to the plaintiffs;
c) and to pay the costs of suit.
SO ORDERED.
On appeal, the Court of Appeals affirmed the decision of the RTC Branch 45.
In a resolution dated 9 June 1999, this Court consolidated the two cases docketed as G.R. Nos.
111495 and 122404.
3!!!
The issues in these consolidated cases can be summarized as follows:
1. Whether the contract of sale between respondent -heirs and Lita Sy violated the right of
first refusal of petitioner-lessees; and
2. Whether Lita Sy, as co-owner of the property, validly and seasonably exercised her right to
redeem the 25% undivided interest in the property, which undivided interest the other co -
owners had sold to Atanacio M. Villegas and Agripino M. Villegas.
350;="3"
Righ of Firs R fusal
A right of first refusal is a contractual grant, not of the sale of a property, but of the first
priority to buy the property in the event the owner sells the same. The exercise of the right of first
refusal is dependent not only on the ownerǯs eventual intention to sell the property but also on the
final decision of the owner as regards the terms of the sale including the price.
When a lease contains a right of first refusal, the lessor has the legal duty to the lessee not
to sell the leased property to anyone at any price until after the lessor has made an offer to sell the
property to the lessee and the lessee has failed to accept it. Only after the lessee has failed to
exercise his right of first priority could the lessor sell the pr operty to other buyers under the same
terms and conditions offered to the lessee, or under terms and conditions more favorable to the
lessor.
The records show that the heirs of Dr. Lorenzo C. Reyes did recognize the right of first refusal
of petitioner-lessees over the property. This is clear from the letter dated 19 May 1988 informing
petitioner-lessees that the property they were leasing is for sale. There was an exchange of letters
between the Administrative Committee and petitioner -lessees evidencing the offer and counter-
offer of both parties.
Petitioner-lessees insist that there was already a perfected contract of sale when they
accepted the P5,000,000 offer for the property in their letter dated 18 October 1988. Petitioner-
lessees allege that the contract of sale between respondent -heirs and Lita Sy should be annuled
since it violated the right of first refusal of petitioner-lessees.
On the other hand, respondent-heirs maintain that the P5,000,000 offer in their letter dated 3
August 1988 already lapsed because petitioner-lessees did not accept the offer within the period
granted. Instead, petitioner-lessees opted for a conference during which the parties failed to agree
on the price. There was therefore no perfected contract of sale because there was no meeting of
minds between the parties.
We agree with respondent-heirs that there was no meeting of the minds between the parties.
Where a time is stated in an offer for its acceptance, the offer is terminated at the expiration of
the time given for its acceptance. The offer may also be terminated when the person to whom the
offer is made either rejects the offer outright or makes a counter-offer of his own.
The offer of P5,000,000 in the letter dated 3 August 1988 already lapsed when petitioner -
lessees failed to accept it within the period granted. The offer was superseded by the new offer of
respondent-heirs during the conference. However, it appears from the records that no settlement
was reached between the parties during their conference. Engr. Ariel Reyes, son of Vicente M.
Reyes, who was present in the conference testified:
Q: I am showing to you here a letter dated August 11, 1988 marked as Exhibit
6, will you look at this document Mr. Witness and tell us what relation has this
letter to that which you mentioned?
A: Yes, sir, this is the letter that they were asking for a conference, sir.
Q: Now, in connection with that conference being requested by the

plaintiff, did you have a conference with the plaintiffs, Mr. Witness?
A: Yes, sir, and I was in that conference.
Q: All right, who were present in that conference, Mr. Witness?
A: Two of the administrative committee Mrs. Maylad, Mr. Carlito Reyes,

myself, the brothers and sisters of Mr. Carlito Reyes, sir. We had a meeting with
a representative of theirs.
Q: All right, were the plaintiffs present during that conference?
A: No, they were not. The plaintiffs were not present at that time.
Q: And who was present during that meeting?
A: He introduced himself as Mr. Miranda, sir.
Q: And did you ask Mr. Miranda why the plaintiffs were not around in that
conference?
A: I believe his answer was Mr. Villegas, the old Villegas was in the
hospital at that time.
COURT:
Q: All right, what was the capacity of Mr. Miranda in that conference?
A: He said he represents the Villegases and including the Sanchezes. The

other tenants of the property because there are two tenants, Villegas and Sanchez,
your honor.
COURT:
All right continue.
ATTY. DELA CRUZ:
Q: All right Mr. Witness, will you please tell this Honorable Court 43)"
")! 0##0;%<"0;40"3
(6)<00)#)O
A: Î#0!2!!#"3 02"3)"44)"#$2)!"34)!)==<23

$"" "3) 43)" "3% 4 ==0; )# 0" !<! "3)" 4 #0# " ;"
4340"3"30#0!2!!0!!0
Q: Why?
A: 3%2)"2< 40"3"3 02"3)""3"3!)==0;!0.
Q: Would you mention specifically the price Mr. Witness?
A: Î4)"#
0550="3 "%)55"=7%"30;
)0;
")55"3A !!!3)55$$$%"3$%50E2) 0")5;)0!")A
#2<")%!")< !"2")
COURT:
Q: 550;3"43)"4)!"35)!"==$="3)"2=2O

A: "30E0"4)!0550%
ATTY. DELA CRUZ:
Q: Mr. Witness. . .
COURT:
Q: !0"")=)2""3)"%<)#))50==

! 0"")=)2""3)"%
<)#)==)=""3-05500"3)<"=-0550O
A: ,!%
Q: So, before you made the offer of P5-Million 1 hundred thousand pesos,
your offer was P5-Million?
A: I believe what was in the letter was better than P5-Million, your Honor.
Q: )<)!E0;%0=%);#40"3"3 5)0"0=="3)"%<)#)=="

"3 5)0"0==! 0 "3 )<" =-0550 $=% <)#) ===

05500"3)"2=2O
A: "30E!
2)"<<$$2)!0"4)!)5;"0<)5)#%
xxxx
ATTY. DELA CRUZ:
Q: Î055 % 6!" "55 "30! )$5 "

Î0"!! 43)" 3) # "
"3)"2=243023%!)0#%3)#40"3
0)#)O
A: Î #0# " ); "3 02 )# "<! = "3 "% "3)" "3%
==#
Q: Î55 34 <23 4)! "3 02 43023 % ")5E# )$" 0 "3)"
2=2O
A: Î0=<#"3")"!"3)""34)!)"3==;07"!)#4

)0!# 02"
-0550"
"4)!==#$%)"3$%
Q: Î5# % A 5)0 " "30! )$5 " 43)"% <) $%

-
0550"O
A: "0!"="32) 0")5;)0!)#"3")A!;7<"")A!
COURT:
Q: Why did you make another offer of P5.1-Million when your former
offer of P5-Million was already accepted?
A: Can I explain to you, with due respect, your Honor. There was a letter
given to them; that there should be an acceptance on or before August 11,
1988. What they replied is not acceptance but a conference. So, since that was
not met, or since that was not accepted, meaning, we did not accept their
offer, what we said on August 11 is that, they should come up with the mo ney or
the payment of the property and we will prepare for the Deed of Sale
and documents pertaining to the sale.
xxxx
Q: All right Mr. Witness. After that conference, you had with Mr. Miranda, did you receive
any communication from the plaintiffs?
A: Yes, sir, that was the time we received that Exhibit H.
Q: All right, I am showing to you here a letter dated October 18, 1988 which
was marked as Exhibit A, will you look at this document and tell us what relation
has this document to that which you said you received after the conference?
A: Yes, sir, this is the letter, sir, that they sent.

Q: Now, what did you do after receiving this letter coming from the
plaintiffs?
A: There was a reply letter, sir.
Q: You replied to this letter?
A: Yes, sir, we replied to that letter.
Q: If that reply letter to this October 18, 1988 letter will be shown to you,
would you be able to identify the same?
A: Yes, sir.
Q: I am showing to you here a 5"" #)"# 7<$ .

previously marked as Exhibit 9, and Exhibit 10, will you look at this letter Mr.
Witness and tell us what relation has this letter to that which you mentioned?
A: Yes, sir, "30!0!"35""0=<0;"3<"3)"!<="330!3)7!5#

"30 /N !3)! " )"3 0"!"# )"% /N !3) = "3
"%5%!0
COURT:
Q: And one of the heirs composing the 75% share of the vendors
included your father?
A: Yes, your Honor.
COURT:
Q: All right, let me see Exhibit 9. (Exhibits 9 and 10 was shown to the
Court).
COURT:
Q: 55 0;3" $= "3 !)5 = "3 /N !3) #0# % 0=< "3
5)0"0==!"3)"%)!550;"3/N="3435 "%O
A: *0; "3 2=2 % $2)! #0; "3 2=2

3)"B!43%4#0#");
Q: Just answer the question.
A: Yes, your Honor, we did.
Q: Is it not a fact that you only informed the plaintiffs, thru your letter of
November 3, 1988, Exhibit 9, that the vendors sold 75%?
A: Are selling? Yes, sir.
Q: )0;"3)"43%!"A30$0"."3 "%4)!"%"!5#O
A: ,!%
(Emphasis supplied)
Even petitioner-lesseesǯ witness Miranda, who was their accountant since 1959, testified that
petitioner-lessees did not indicate their offer for the property in their letter dated 11 August 1988
but instead requested for a conference with all the heirs of Dr. Lorenzo C. Reyes. Miranda admitted
that the main reason for their request for a conference was because they knew that not all the heirs
of Dr. Lorenzo C. Reyes were interested in selling the property. Miranda testified:
ATTY. DELA CRUZ:
Q: All right, in this letter Mr. Witness, there is in the dispositive portion of this
letter the following statement and which I quote for the records: G)% 4
207#L!02M%==$=;!" .
5)!$;0##
)22#0;5%
H,)#"30! "0O
A: ,!!0
C=0;";!" .5""D
xxxx
Q: And as reply to this communication Mr. Witness, you prepared another letter
dated August 11, 1988 addressed to the Administrative Committee and
which was already marked as Exhibit G for the plaintiffs and Exhibit 6 for the
defendants? Could you look at this letter if you are familiar with this?
A: Yes, sir.
Q: # % 4055 ); 40"3 <

Î0"!! "3)" 0 % ;!" .
5""%#0#"<)E)%==)2"==43)""""3
5""="3#=#)"!-30!;!" .O
A: ,)=0;""3)<"O
Q: ,!%#0#"<"0)%O
A: #0# " <"0 "3 == $" ?!"# "3< " 3)7 ) N
)""#)2$2)!E4"3)""3 "%$0;!5#3)#) $5<
7 )<; "3 =)<05% 30! "3 0! ) $5< "3)" 0! 43% 4)"#
"3< " $ !" ! "3)" 0= 7 43 4055 $% "3 "% 4 4055
E443"35!!!!35#$ 5)2#"="3=#!$2)!
"3% ) )55 !550; "3 #!. Another thing, that is an inherited
property. I requested them to show me a copy of their estate tax because
under the internal revenue code, you cannot have a clean title unless t he
corresponding estate tax on the property is paid. That is why I made also
that request, sir.
xxxx
Q: 4 0 "30! ;!" . 5"" 43023 0! A30$0" 5)0"0==! %
!")"#"3)"%?0#2< 5")""#)2="33 0!)#%#0#
"<"0%") 02O
A: 3$0# 02
Q: Î3)"4)!%)!=#0;"3)"2< 5")""#)2O
A: (2)!4)""=0#"43"3"3=)"0"!"#0!550;

!0
Q: Î3%!)0#=)"3%"3 !"0;"34!30 ="3

NO
A: ,!!0. (Emphasis supplied)
Petitioner-lessees admit that there was an ongoing negotiation for the sale of the property.
Precisely, the P5,000,000 price for the property indicated by the Administrative Committee in the
letter dated 3 August 1988 was superseded by the subsequent offer of respondent -heirs during the
conference. Thus, the letter dated 18 October 1988 of petitioner-lessees is merely another
counter-offer for the property in their continuing negotiation for the property. The latest offer of
respondent-heirs was contained in their letter dated 3 November 1988 wherein only the 75%
undivided interest of the property was for sale at P3,825,000. Î3 "0"0-5!!! "#"
"! #""30!==! #"-30!3)#"30;3""!55"3 "%""3$%!.
Petitioner-lessees already exercised their right of first refusal when they refused to respond to
the latest offer of respondent -heirs, which amounted to a rejection of the offer. Upon petitioner -
lesseesǯ failure to respond to this latest offer of respondent-heirs, the latter could validly sell the
property to other buyers under the same terms and condi tions offered to petitioner-lessees. Thus,
when respondent-heirs sold the property to Lita Sy, respondent-heirs did not violate the right of
first refusal of petitioner-lessees. Indeed, petitioner-lessees were given more than ample
opportunity to purchase the property.
Petitioner-lessees allege that the price offered to Lita Sy was lower than the price offered to
them. The records of the case reveal otherwise.
The last price which respondent-heirs offered to petitioner-lessees was
P3,825,000 for the 75% undivided interest in the property. The price of P3,825,000 was computed
based on the price of P5,100,000 for the entire property. Moreover, capital gains tax, documentary
stamp tax, municipal transfer tax and registration expens es should be paid by petitioner -lessees.
However, petitioner-lessees were only willing to pay P5,000,000 for the entire property.
Petitioner-lessees also indicated in their letter dated 8 October 1988 that unpaid taxes such as
income, estate, realty & science education fund and documentary stamps should be borne by the
heirs of Dr. Lorenzo C. Reyes.
On the other hand, Lita Sy paid P3,825,000 for the 75% undivided interest in the property.
This is exclusive of the P412,500 which Lita Sy paid to Vicente M. Reyes for taxes, agentǯs
commission and miscellaneous expenses. Thus, Lita Sy paid a total of P4,237,500. Clearly, this
amount is not lower than the price offered to petitioner-lessees.
gal R d pion
The Villegas brothers maintain that Lita Sy failed to exercise her right of redemption within
the 30-day period prescribed under Article 1623 of the Civil Code. According to the Villegas
brothers, Lita Sy received on 17 February 1989 a copy of the Deed of Sale evidencing the sale of the
25% portion of the property to the Villegas brothers. However, it was only in a demand letter
dated 29 March 1990 that Lita Sy invoked her right of redemption.
Articles 1620 and 1623 of the Civil Code provide:
Art. 1620. A co-owner of a thing may exercise the right of redemption in case
the shares of all the other co-owners or of any of them, are sold to a third person. If
the price of the alienation is grossly excessive, the redemptioner shall pay only a
reasonable one.
Should two or more co-owners desire to exercise the right of redemption, they
may only do so in proportion to the share they may respectively have in the thing
owned in common.
Art. 1623. The right of legal pre-emption or redemption shall not be exercised
except within thirty days from the notice in writing by the prospective vendor, or by
the vendor, as the case may be. The deed of sale shall not be recorded in the Registry
of Property, unless accompanied by an affidavit of the vendor that he has given
written notice thereof to all possible redemptioners.
The right of redemption of co-owners excludes that of adjoining owners.
The records reveal that on 17 February 1989, Lita Sy received the complaint for Annulment of
Deed of Sale/Title, Specific Performance, and Consignation of Rentals with Damages filed by
petitioner-lessees. On the same date, Lita Sy also received together with the complaint the Deed of
Sale of the 25% portion of the property.
Lita Sy and the other defendants in that case filed their answer on 16 March 1989. In their
answer, Lita Sy invoked her right to redeem the property:
xxxx
13. That the Deed of Sale (Anne x ǲNǳ) in favor of the plaintiffs was based on a
Transfer Certificate of Title No. 183718 (Annex ǲMǳ) where defendant Lita Sy is
already a co-owner to the extent of 36/48 portion on the subject property, which
circumstance impliedly admits that defendants heirs have validly and legally
disposed the 75% portion to defendant Lita Sy and plaintiffs are therefore estopped
to deny it;
14. 3)")!)2-440"3"3!55!="3N "0="3!$62"

5"#=#)"&0")Ô%3)!"30;3""#<"3!3)!#0! !#$%"3"3
2-4! 0 )22#)2 40"3 "
= "3 4 0705 # )# 3$%
A20!"3!)<;
15. That the Deed of Sale (Annex ǲNǳ Ȃ Complaint) allegedly executed by the
other heirs constituting twenty five (25%) percent of the subject property cannot as
yet vest full ownership over the same until the co -owner defendant Lita Sy shall
have failed or waived her rights to redeem the aforesaid 25% of the subject
property in question;
xxxx
PRAYER
WHEREFORE, premises considered, it is respectfully prayed that after hearing

a judgment be rendered dismissing the instant complaint for lack of merit and order
the plaintiffs jointly and severally:
xxxx
e) !55 A2" ) *# = Ô)5 0 =)7 = #=#)" &0") Ô%
270; "3 <)00; N "0 = "3 !$62" "% 0 =55
A20!="30;3"=#< "0#"35)4.
xxxx
Lita Sy claims that the answer filed with the RTC Branch 2 is equivalent to a formal offer to
redeem the 25% undivided interest in the property sold to the Villegas brothers. Lita Sy also claims
that since she offered to redeem the property on 16 March 1989, which is within 30 days from her
receipt of the notice of the sale on 17 February 1989, she has complied with the condition fixed by
law and may bring an action to enforce the redemption.
We hold that there was no valid and effective offer to redeem the 25% undivided interest in
the property. Although Lita Sy invoked her right to redeem the property in the answer filed with
the RTC Branch 2, she failed to consign in court the redemption price. Well-settled is the rule that a
formal offer to redeem must be accompanied by a valid tender of the redemption price and that the
filing of a judicial action, plus the consignation of the redemption price within the period of
redemption, is equivalent to a formal offer to redeem.
As held by this Court in @

_
:
[A] formal offer to redeem, accompanied by a tender of the redemption
price, although proper, is not essential where, as in the instant case, the right to
redeem is exercised thru the filing of a judicial action, which as noted earlier was
made simultaneously with the deposit of the redemption price with the Sheriff,
within the period of redemption. The formal offer to redeem, accompanied by a
tender of the redemption price within the period of redemption prescribed by
law, is only essential to preserve the right of redemption for future enforcement
even beyond such period of redemption. The filing of the action itself, within the
period of redemption, is equivalent to a formal offer to redeem. Should the court
allow redemption, the redemptioners should then pay the amount already adverted
to.
The importance of a valid tender or consignation of the redempti on price was sufficiently
explained by Justice J.B.L. Reyes in 0 _
:
It is not difficult to discern why the redemption price should either be fully
offered in legal tender or else validly consigned in court. Only by such means can the
buyer become certain that the offer to redeem is one made seriously and in good
faith. A buyer can not be expected to entertain an offer of redemption without
attendant evidence that the redemptioner can, and is willing to, accomplish the
repurchase immediately. A different rule would leave the buyer open to
harrassment by speculators or crackpots, as well as to unnecessary prolongation of
the redemption period, contrary to the policy of the law. While consignation of the
tendered price is not always necessary because legal redemption is not made to
discharge a pre-existing debt (Asturias Sugar Central versus Cane Molasses Co., 60
Phil 253), a valid tender is indispensable, for the reasons already stated. Of course,
consignation of the price would remove all controversy as to the petitioner's ability
to pay at the proper time.
In 0 , the Court held that to effectively exercise the right of redemption, the offer to
redeem the property within the 30 -day period must be accompanied by a reasonable and valid
tender of the entire repurchase price. The Court held:
[Conejero] failed to make a valid tender of the price of the sale paid by the Raffiñans
within the period fixed by law. Conejero merely offered a check for P10,000, which
was not even legal tender and which the Raffiñans rejected, in lieu of the price of
P28,000 recited in the deed of sale. The factual finding of the Court of Appeals to this
effect is final and conclusive. Nor were the vendees obligated to accept Conejeroǯs
promise to pay the balance by means of a loan to be obtained from a bank.
& redemption necessarily imports a reasonable and valid tender of the
entire repurchase price, and this was not done. There is no cogent reason for
requiring the vendee to accept payment by installments from a redemptioner, as it
would ultimately result in an indefinite extension of the 30 -day redemption period,
when the purpose of the law in fixing a short and definite term is clearly to avoid
prolonged and anti-economic uncertainty as to ownership of the thing sold (cf
Torrijos _ Crisologo, et al., G.R. No. L-1773, Sept. 29, 1962).
In this case, Lita Sy failed to consign in court the redemption price when she invoked her right
to redeem the 25% portion of the property in the answer filed with the RTC Branch 2. The evidence
does not show that Lita Sy ever tendered the redemption price to the Villegas brothers. Even when
Lita Syǯs lawyer sent a letter dated 29 March 1990 reiterating the d emand for the Villegas brothers
to resell the 25% interest in the property, still no tender of the redemption price was made. There
is likewise no evidence that Lita Sy consigned the redemption price in court when she filed on 18
May 1990 a complaint for Specific Performance against the heirs of Atanacio Villegas, as
represented by Soledad de Ocampo, Agripino Villegas, and Ofelia R. Tungol.
Considering that there was no tender of the redemption price, nor was there consignation of
the redemption price, we hold that there was no valid exercise of the right of redemption.
Î, we *, the petition in G.R. No. 111495. We the Decision dated 6
January 1993 of the Court of Appeals in CA-G.R. CV No. 25974, as modified by its Resolution dated
17 August 1993.
We the petition in G.R. No. 122404. We ÔÔ*the Decision and Resolution of the
Court of Appeals in CA-G.R. CV No. 41931, and * a new one:
1. Upholding the right of Atanacio M. Villegas and Agripino M. Villegas over the 25%
undivided interest in the property; and
2. Denying the demand for legal redemption by Spouses Lita Sy and Sy Bon Su.
No pronouncement on costs.
Ô**.

Associate Justice
Î :
&*
' Ô (
Associate Justice
Chairperson
&Ô*

Ô(

&Ô
Associate Justice
Ô

I attest that the conclusions in the above Decision had been reached in consultation before
the case was assigned to the writer of the opinion of the Courtǯs Division.
&*
' Ô (
Associate Justice
Chairperson

Attestation, I certify that the conclusions in the above Decision had been reached in consultation

(
Chief Justice
Penned by Associate Justice Gloria C. Paras, with Associate Justices Luis L. Victor and
Fermin A. Martin, Jr., concurring.
The Deed of Absolute Sale dated 28 November 1988 states that the vendee of the 36/48 (or
75%) share of the property is Lita Sy, married to Sy Bon Su; Exh. ǲL,ǳ records (G.R. No.
111495), pp. 31-35.
Penned by Associate Justice Justo P. Torres, Jr., with Associate Justices Ruben T. R eyes and
Celia Lipana-Reyes, concurring.
Exh. ǲA,ǳ records (G.R. No. 111495), pp. 14-15.
Id. at 15.
See Exh. ǲB,ǳ records (G.R. No. 111495), p. 16.
See Exh. ǲC,ǳ id. at 17.
Exh. ǲD,ǳ id. at 18.
Exh. ǲE,ǳ id. at 19-20.
Exh. ǲF,ǳ id. at 21.
Exh. ǲG,ǳ id. at 22.
Exh. ǲH,ǳ id. at 26.
Exh. ǲI,ǳ id. at 27.
Exh. ǲJ,ǳ id. at 28-29.
See Deed of Absolute Sale, Exh. ǲL,ǳ G.R. No. 111495 records, pp. 31 -35. The Deed of Sale,
which was dated 28 November 1988, stated that the court -approved Partial Compromise
Agreement of the heirs of Lorenzo C. Reyes apportioned the property in the following
undivided shares:
Vicente M. Reyes - 3/48
Julita R. Maylad - 3/48

Lorenzo M. Reyes, Jr. - 3/48
Lydia R. Feliciano - 3/48
Ruperta A. Reyes - 4/48
Carlito A. Reyes - 4/48
Estrellita R. Crisostomo - 4/48
Yolanda R. Chiu - 4/48
Virgilio A. Reyes - 4/48
Pacita R. Bautista - 4/48
Ambrosio Reyes - 3/38
Lorenza Martinez - 3/48
Concepcion Ancheto - 3/48
Mario Reyes - 3/48
Respondent-heirs collectively own 36/48 or 75% of the property, while the other
heirs own the remaining 12/48 or 25% of the property.
Thus, the total amount paid by Lita Sy was (P3,825,000 + P412,500 =) P4,237,500. See Exhs.
ǲPǳ and ǲQ,ǳ records (G.R. No. 111495), pp. 155-156.
Exh. ǲM,ǳ records (G.R. No. 111495), pp. 36-37.
Exh. ǲK,ǳ id. at 30. The letter stated that respondent-heirs sold their 75% interest in the
property to Lita Sy on 25 November 1988. However, the date on the Deed of Absolute Sale
was 28 November 1988.
See Deed of Absolute Sale, Exh. ǲN,ǳ id. at 38-40.
c
(G.R. No. 111495), p. 72.
Id. at 181.
Soledad de Ocampo is the widow of Atanacio Villegas.
Ofelia R. Tungol is the wife of Agripino Villegas.

c
(G.R. No. 122404), pp. 66-67.
c
(G.R. No 111495), p. 262.
c pi _
_ , G.R. No. 140179, 8 March 2001, 354 SCRA 119.
See _
, G.R. No. 149734, 19 November 2004, 443 SCRA 231.
See c_ ¢

p _
, 430 Phil. 8 (2002); 1 ®.
p _
, G.R. No. 111538, 26 February 1997, 268 SCRA 727; &p

( _ & _ , G.R. No. 86150, 2 March 1992, 206 SCRA 668.
It does not appear in the records that the right of first refusal is provided in the lease
contract. Neither petitioner-lessees nor respondent-heirs allege that the right of first refusal
is expressly stipulated in the lease contract. The lease contract was not offered as evidence
by either party.
$
( ) c
_
c
$
, 119 US 149, 30 L Ed. 376 (1886).
TSN, 6 December 1989, pp. 12-15, 26-30.
TSN, 14 August 1989, pp. 31-32, 35.
c
(G.R. No. 111495), p. 27.
See )0_ )(c , 378 Phil. 145 (1999).
Records (G.R. No. 111495), pp. 47-54.
Lee Chuy Realty Corporation v. Court of Appeals, G.R. No. 104114, 4 December 1995, 250
SCRA 596.
Nos. L-50405-06, 5 August 1981, 106 SCRA 513, 526.
123 Phil. 605, 612-613 (1966).
Id. at 611.
FIRST DIVISIOR
*
&(8G.R. No. 172248
&Ô
"0"0
Present:
PUNO, ! , ,
CORONA,
-7!!- CARPIO MORALES,*
AZCUNA and
LEONARDO-DE CASTRO, !!
&& Ô
*&

*Ô
&)#Ô
)55!)<#Ô8
! #"!
Promulgated:
September 17, 2008
A---------------------------------------------------A
Ô&
J
:

This is a petition for review on certiorari of the December 14, 2005 decision and March 28,
2006 resolution of the Court of Appeals (CA) in CA-G.R. CV No. 64259.
The spouses Dionesio and Matea S. Asok owned several parcels of land. Upon their death on
September 14, 1973 and February 22, 1982, respectively, their eleven children inherited the
properties. One of the lands inherited was a lot covered by Original Certificate of Title (OCT) No. P-
4272, a free patent issued on July 19, 1967, located at Pagawan, Manticao, Misamis Oriental with an
area of 39,552 sq. m.
Pursuant to the extrajudicial settlement of the estate with quitclaim executed by the spousesǯ
children, the subject property was inherited by Denison Asok (Asok). As a result, OCT No. P-4272
was cancelled and Transfer Certificate of Title (TCT) No. T-9626 was issued and registered in his
name on November 17, 1987.
On August 31, 1989, Asok and his wife, respondent Ella Gagarani Asok, borrowed P100,000
from petitioner Development Bank of the Philippines, a government financial institution created
and operating under EO 81, as amended by RA 8523. They mortgaged the subject lot as collateral
to guarantee payment of the loan. On due date, however, they failed to pay the loan and the
mortgage was extrajudicially foreclosed pursuant to Act 3135. Petitioner emerged as the highest
bidder with a bid of P163,297.

On November 28, 1991, a certificate of sale was issued in favor of petitioner. This was
registered on December 24, 1992. On March 25, 1998, petitionerǯs ownership over the property
was consolidated and TCT No. T-27172 was issued in its name.
Meanwhile, Asok died on October 24, 1993 and was succeeded by his surviving spouse and
children (respondents).
On May 15, 1998, respondents filed a complaint for repurchase against petitioner in the
Regional Trial Court (RTC) of Initao, Misamis Oriental, Branch 44, docketed as Civil Case No. 98-68.
On July 3, 1998, they filed an amended complaint on learning that TCT No. T -9626 had been
cancelled by TCT No. T-27172 issued in the name of petitioner. They invoked their right to
repurchase the property under Sec. 119 of CA 141, as amended:
Sec. 119. Every conveyance of land acquired under the free patent or homestead
provisions, when proper, shall be subject to repurchase by the applicant, his widow,
or legal heirs, within a period of five years from date of the conveyance.
In a decision dated January 7, 1999, the RTC dismissed the complaint. Reconsideration was
denied on February 3, 1999. It ruled that the one-year period for redemption should be reckoned
from the date of sale, , November 28, 1991. Then the five-year period provided under Sec. 119 of
CA 141 should be counted from the expiration of the redemption period, , November 28, 1992.
Therefore, respondents had until November 28, 1997 to exercise their right to repurchase.
However, the complaint was filed on May 15, 1998 which was beyond the prescribed period.
Aggrieved, respondents appealed to the CA. In a decision dated December 14, 2005, the CA
reversed and set aside the RTC decision. Reconsideration was denied in a resolution dated March
28, 2006. It held that the period of redemption started from the date of registration of the
certificate of sale, , December 24, 1992, and not from the date of sale. Thus, respondents had
until December 24, 1998 to repurchase the property and the complaint was seasonably filed.
Hence this petition.
Petitioner raises the following issues: (1) whether Sec. 119 of CA 141 is applicable in this
case; (2) whether respondents are the legal heirs of the patentees and (3) whether the right to
repurchase has already prescribed.
The petition lacks merit.
Petitioner contends that respondents cannot claim the right under Sec. 119 which covers
homesteads and free patents because the free patent issued to Asokǯs parents had already been
cancelled and a new TCT had in fact been issued to him. Thus, the property mortgaged to it was no
longer covered by a free patent but by a TCT.
This contention deserves scant consideration.

The plain intent of Sec. 119 is to give the homesteader or patentee every chance to preserve
and keep in the family the land that the State has gratuitously given him as a reward for his labor in
cleaning, developing and cultivating it. Hence, the fact that the land had been inherited by the
patenteesǯ son (and a new title in his name issued) does not bring it outside the purview of Sec.
119. In fact, the policy behind the law is fulfilled because the land remains in the family of the
patentee. As we explained in ¢ _ $ :
The applicant for a homestead is to be given all the inducement that the law offers
and is entitled to its full protection. Its blessings, however, do not stop with him.
This is particularly so in this case as the appellee is the son of the deceased. There is
no question then as to his status of being a legal heir. The policy of the law is not
difficult to understand. The incentive for a pioneer to venture into developing virgin
land becomes more attractive if he is assured that his effort will not go for naught
should perchance his life be cut short. This is merely a recognition of how closely
bound parents and children are in a Filipino family. Logic, the sense of fitness and of
right, as well as pragmatic considerations thus call for continued adherence to the
policy that not the individual applicant alone but those so closely related to him as
are entitled to legal succession may take full advantage of the benefits the law
confers.
Having ruled that Sec. 119 is applicable to this case, we now go to the next issue: are
respondents the ǲlegal heirsǳ contemplated in the provision?
Petitioner argues that respondents are not the legal heirs of the patentees because
respondents are merely their daughter-in-law and grandchildren.

We disagree. In line with the rationale behind Sec. 119, we reject a restricted definition of
legal heirs. It is used in a broad sense and the law makes no distinctions. In $p _

$ p ,we held that:
The term ǲlegal heirsǳ is used in Section 119 in a generic sense. It is broad
enough to cover any person who is called to the succession either by provision of a
will or by operation of law. Thus, legal heirs include both testate and intestate heirs
depending upon whether succession is by the will of the testator or by law. Legal
heirs are not necessarily compulsory heirs but they may be so if the law reserves a
legitime for them.
xxx xxx xxx
Verily, petitioners legal heirs. Having been decreed under the rules on
intestacy as entitled to succeed to the estate of the Catain spouses due to the
absence of compulsory heirs, they now step into the shoes of the decedents. They
should be considered as among the legal heirs contempla ted by Section 119 as
entitled to redeem the homestead.
The above interpretation of "legal heirs" as contra-distinguished from the

restrictive construction given it by the lower court is more in keeping with the
salutary purpose behind the enactment of S ection 119 and the jurisprudence laid
down on the matter. Indeed, it is not far -fetched to arrive at a more liberal
conclusion if the section is analyzed in accordance with its purpose xxxx
Respondents inherited the property from Asok, their husband an d father, who in turn
inherited it from his parents. Respondent Ella Gagarani Asok, as daughter-in-law of the patentees,
can be considered as among the legal heirs who can repurchase the land in accordance with

_ . In that case, we allowed the daughter and son-in-law of the patentees to repurchase
the property because this would be ǲmore in keeping with the spirit of the law. We have time and
again said that between two statutory interpretations, that which better serves the purpose of the
law should prevail.ǳ Furthermore, the law must be liberally construed in order to carry out its
purpose.
Finally, petitioner asserts that even if respondents could be considered as being entitled to
the right under Sec. 119, this had already prescribed because the period should be counted from the
date of conveyance which means the date of sale and not the date of registration of the certificate of
sale.
This argument lacks merit.
This is far from a novel issue. It was already resolved in c

& i_p _ :
Thus, the rules on redemption in the case of an extrajudicial foreclosure of

land acquired under free patent or homestead statutes may be summarized as
follows: xxx If the land is mortgaged to parties other than rural banks, the
mortgagor may redeem the property within one (1) year from the ;0!")"0=
"32"0=02)"=!)5 pursuant to Act No. 3135. If he fails to do so, he or his heirs
may repurchase the property within five (5) years from the expiration of the
redemption period also pursuant to Section 119 of the Public Land Act.
There is no dispute that in extrajudicial foreclosures under Act 3135, the debtor or his or
her successors-in-interest may redeem the property within one year. This redemption period
should be reckoned from the date of registration of the certificate of sale. The five-year period fixed
in Sec. 119 begins to run from the expiration of the one-year redemption period. Here, the
certificate of sale was registered on December 24, 1992 and the one -year redemption period
expired on December 24, 1993. Reckoned from that day, respondents had a five -year period, or
until December 24, 1998, to exercise their right to repurchase under Sec. 119 of CA 141.
Consequently, the CA was correct in holding that the complaint filed on May 15, 1998 was on time.
Î, the petition is hereby **. Petitioner Development Bank of the

Philippines is ordered to execute a deed of reconveyance in favor of respondents upon payment by
the latter of the redemption price.
No costs.
Ô**

Associate Justice
WE CONCUR:
,Ô

Chief Justice
Chairperson
&Ô*&Ô
+
Ô
&*-*Ô
Associate Justice

C E R T I F I C A T I O R
Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the
above resolution had been reached in consultation before the case was assigned to the writer of the
opinion of the Courtǯs Division.
,Ô

Chief Justice
* As replacement of Justice Antonio T. Carpio who is on official leave per Special Order No.
515.
Under Rule 45 of the Rules of Court.
Penned by Associate Justice Myrna Dimaranan-Vidal and concurred in by Associate Justices

Romula V. Borja and Ricardo R. Rosario of the Twenty-Second Division, Mindanao Station in
Cagayan de Oro City of the Court of Appeals;
, pp. 53-62.
Id., pp. 64-65.
Id., pp. 54, 69 and 172.
Id., pp. 43 and 55.
The Revised Charter of the Development Bank of the Philippines dated December 3, 1986.
An Act to Regulate the Sale of Property under Special Powers Inserted in or Annexed to Real
Estate Mortgages.
c
, pp. 40, 55, 69 and 27.
Id., p. 55.
Id., pp. 186-187.
Id., p. 55.
Id., pp. 55-56.
Id., p. 56.
Id., p. 31.
Id., pp. 59-61.
Id., pp. 44-45.
¢
_ , 377 Phil. 382, 387 (1999).
151-A Phil. 427 (1973).
Id., p. 427.

_ , G.R. No. 78687, 31 January 1989, 169 SCRA 829, 835.
G.R. No. L-39975, 30 June 1989, 174 SCRA 599.
Id., pp. 601-603.
note 20.
Id.
c_ _ , 133 Phil. 454, 458 (1968).
G.R. No. 83992, 27 January 1993, 217 SCRA 554.
Id., p. 569. This doctrine had been reiterated in p c
& p _ , G.R. No.
97872, 1 March 1994, 230 SCRA 513, 526 and ¢
p _ , G.R. No.
119184, 21 July 1997, 275 SCRA 741, 748-749.
Petitioner cites the case of ) c

_ (G.R. No. 104114, 4 December
1995, 250 SCRA 596) wherein it was stated:
ǲUnder the free patent or homestead provisions of the Public Land Act a period of five (5)
years from the date of conveyance is provided, the five-year period to be reckoned from the
date of the sale and not from the date of registration in the office of the Register of Deed s.
The redemption of extrajudicially foreclosed properties, on the other hand, is exercisable
within one (1) year from the date of the auction sale as provided for in Act No. 3135.ǳ (Id.,
p. 602, citing Peña, Narciso, Philippine Law on Natural Resources, 1992 Revised Ed., pp. 35,
37.)
However, this was merely p because the issue in this case is whether a
judicial action to redeem coupled with consignation of the price within the redemption
period is equivalent to a formal offer to redeem u nder Art. 1623 in relation to Art. 1620 of
the Civil Code.
Another case petitioner cites is $_ (376 Phil. 525 [1999]) wherein the Court held:
ǲThe term "conveyance" imports the transfer of legal title from one person to
another. It usually takes place upon the execution of the deed purporting to transfer the
ownership of the land as the same is already valid and binding against the parties thereto
even without the act of registration. The registration is intended to protect the buyer
against claims of third parties against subsequent alienations by the vendor, and is certainly
not necessary to give effect, as between the parties, to their deed of sale. Thus, for the
purpose of reckoning the five -year period to exercise the right to repurchase, the date of
conveyance is construed to refer to the date of the execution of the deed transferring the
ownership of the land to the buyer.ǳ (Id., pp. 541-542.)
Again, this is not applicable because it did not involve an extrajudicial foreclosure sale.
&
_
, G.R. No. 73503, 30 August 1988, 165 SCRA 101, 107,
citing #&_
, G.R. L-30831 and L-31176, Nov. 21, 1979, 94 SCRA 357, 371.
Id., citing $

_ #&
, 101 Phil. 968 (1957).
THIRD DIVISION
[G.R. No. 133079. August 9, 2005]
SPS. MAXIMO LANDRITO, JR. and PACITA EDGALANI, _. THE HONORABLE COURT OF
APPEALS; SPS. BENJAMIN SAN DIEGO and CARMENCITA SAN DIEGO; The EX-OFFICIO SHERIFF and
CLERK OF COURT of the Regional Trial Court, Makati City; and the REGISTER OF DEEDS, Makati
City, .
DECISION
GARCIA, !.:
Herein petitioners, the spouses Maximo Landrito, Jr. and Pacita Landrito, have come to this Court
_this petition for review on p under Rule 45 of the Rules of Court to seek the reversal
and setting aside of the decision dated 12 December 1997[1] and resolution dated 10 March
1998[2] of the Court of Appeals in CA-G.R. CV No. 48896, affirming an earlier order of the Regional
Trial Court at Makati City which granted the motion to dismiss filed by the herein private
respondents, the spouses Benjamin San Diego and Carmencita San Diego, in its Civil Case No. 94-
2950, a complaint for annulment of extrajudicial foreclosure and auction sale, thereat commenced
by them against the San Diegos, the /%psheriff and the Register of Deeds of Makati City.
The facts:
In July 1990, petitioners obtained a loan of P350,000.00 from respondent Carmencita San Diego. To
secure payment thereof, petitioners executed on 02 August 1990 in favor of the same respondent a
deed of real estate mortgage over their parcel of land located at Bayanan, Muntinlupa, Rizal and
registered in their names under Transfer Certificate of Title No. (432281) S-21000.
After making substantial payments, petitioners again obtained and were granted by Carmencita San
Diego an additional loan of One Million Pesos (P1,000,000.00). To secure this additional loan, the
parties executed on 13 September 1991 an ǲ c
. $ ǳ, whereunder they
stipulated that the loan shall be paid within six (6) months from 16 September 1991, and if not paid
within said period, the mortgagee shall have the right to declare the mortgage due and may
immediately foreclose the same judicially or extrajudicially, in accordance with law.
It appears that petitioners defaulted in paying their loan and continuously refused to comply with
their obligation despite repeated demands therefor, prompting respondent Carmencita San Diego
to send them on 27 April 1993, a final notice of demand requiring them to settle their financial
obligation which, by then, already amounted to P1,950,000.00.
On 30 June 1993, after her efforts to collect proved futile, respondent Carmencita San Diego filed
with the Office of the Clerk of Court and Ex-Officio Sheriff of RTC-Makati, a petition for the
extrajudicial foreclosure of the mortgage.
On 06 July 1993, said office sent to the parties a Notice of Sheriffǯs Sale, therein announcing that
petitionersǯ mortgaged property will be sold in a public auction to be conducted on 11 August 1993
at 10:00 oǯclock in the morning, copies of which notice were posted in several conspicuous places
within the sheriffǯs territorial jurisdiction.
As announced, on 11 August 1993, at 10:00 oǯclock in the morning, the public auction sale was held
and the mortgaged property sold to respondent Carmencita San Diego as the highest bidder for
P2,000,000.00, as evidenced by the Sheriffǯs Certificate of Sale issued in her favor on 07 October
1993.
On 29 October 1993, respondent San Diego caused the registration of the same sheriffǯs certificate
of sale with the Office of the Register of Deeds, Makati City, and duly inscribed on the same date at
the dorsal side of the petitionersǯ TCT No. (432281) S-21000.
With the petitioners having failed to redeem their property within the 1-year redemption period
from the date of inscription of the sheriffǯs certificate of sale, as provided for in Act No. 3135, as
amended, the San Diegos caused the consolidation of title over the foreclosed property in their
names.
Then, on 09 November 1994, before the Regional Trial Court at Makati City, petitioners filed their
complaint for annulment of the extrajudicial foreclosure and auction sale, with damages. In their
complaint, thereat docketed as Civil Case No. 94-2950, petitioners alleged that (1) said foreclosure
and auction sale were null and void for failure to comply with the requirements of notice and
publication, as mandated by Act 3135, as amended; (2) the mortgaged property was illegally
foreclosed in the light of the settled rule that an action to foreclose a mortgage must be limited to
the amount mentioned in the mortgage document, in this case, P1,000,000.00, which amount was
allegedly bloated by respondent Carmencita San Diego to P1,950,000.00; and (3) the San Diegosǯ
application for consolidation of title was premature because the husband, Benjamin San Diego,
allegedly granted them an extension of the period of redemption up to 11 November 1994.
To the complaint, respondents interposed a $i, therein alleging that said complaint
failed to state a cause of action as no primary right of the petitioners had been violated since they
actually failed to exercise their right of redemption within the one-year redemption period, adding
that petitioners never took any action which may stall the running of the same period, thereby
leaving them no further right or interest in the property in question.
In an order dated 13 January 1995, the trial court granted respondentsǯ motion to dismiss and
accordingly dismissed petitionersǯ complaint, saying that the latterǯs cause of action, if any, is
already barred by laches on account of their failure or neglect for an unreasonable length of time to
do that which, by exercising due diligence, could or should have been done earlier. Further, the trial
court ruled that petitionersǯ inaction constituted a waiver on their part.
Therefrom, petitioners went on appeal to the Court of Appeals in CA-G.R. CV No. 48896.
As stated at the outset hereof, the appellate court, in its decision of 12 December 1997, dismissed
petitionersǯ appeal and affirmed the trial courtǯs order of dismissal. With their motion for
reconsideration having been denied by the same court in its resolution of 10 March 1998,[3]
petitioners are now with us _ the present recourse, faulting the Court of Appeals, as follows:
1. The Court of Appeals gravely erred in avoiding to resolve in the assailed Decision
and in the questioned Resolution the basic issue as to whether or not the extra-
judicial foreclosure and public auction sale of the subject parcel of land are valid
and lawful when the amount stated in letter-request or the petition for extra-
judicial foreclosure and in the notice of sheriff sale doubled the amount
stipulated in the Amendment of Real Estate Mortgage;
2. The Court of Appeals has similarly committed serious error in considering that
the complaint of the petitioner is a complaint for redemption when in the
caption; in the body; and in the prayer of the complaint, petitioner spouses have
sought the nullity as void ab initio the extra-judicial foreclosure and auction sale
of the subject property;
3. The respondent Appellate Court likewise incredulously erred to have resolved

the admissibility and probative value of the statement of account attached as
Annex ǲEǳ of the complaint when it was not yet presented in evidence; be cause
the stage of the case at the time the assailed dismissal order was issued, was yet
in the period of pleadings;
4. The Court of Appeals has grievously erred in affirming the assailed dismissal
order by declaring petitioner spouses to have been guilty of laches in failing to
redeem during the legal period of redemption the foreclosed parcel of land;
when the cause of the failure to redeem was the illegal increase by 100% of the
original obligation, stated in the Amendment of Real Estate Mortgage and
bloating of the redemption price from Two Million Pesos (P2,000,000.00) to
Three Million Four Hundred Ninety One Thousand Two Hundred Twenty Five &
98/100 Pesos (P3,491,225.98).
We DENY.
The records indubitably show that at the time of the foreclosure sale on 11 August 1993, petitioners
were already in default in their loan obligation to respondent Carmencita San Diego.
Much earlier, or on 27 April 1993, a final notice of demand for payment had been sent to them,
despite which they still failed to pay. Hence, respondent Carmencita San Diegoǯs resort to
extrajudicial foreclosure, provided no less in the partiesǯ ǲ c
. $ ǳ.
The rule has been, and still is, that in real estate mortgage, when the principal obligation is not paid
when due, the mortgagee has the right to foreclose on the mortgage and to have the mortgaged
property seized and sold with the view of applying the proceeds thereof to the payment of the
obligation.[4]
Here, the validity of the extrajudicial foreclosure on 11 August 1993 was virtually confirmed by the
trial court when it dismissed petitionersǯ complaint, and rightly so, what with the fact that
petitioners failed to exercise their right of redemption within the 1-year period therefor counted
from the registration of the sheriffǯs certificate of sale.
It is petitionersǯ main submission, however, that the very reason why they did not avail of their
redemption right is because Mrs. San Diego bloated their original loan of P1,000,000.00 to
P1,950,000.00, an issue supposedly not considered and/or addressed by the appellate court in the
decision under review. In this regard, petitioners argue that the Court of Appeals, in sustaining the
extrajudicial foreclosure proceedings, thereby go against the established jurisprudence that an
action for foreclosure must be limited to the amount mentioned in the mortgage document,
P1,000,000.00 in this case.
We do not take issue with petitionersǯ submission that a mortgage may be foreclosed only for the
amount appearing in the mortgage document, more so where, as here, the mortgage contract
entered into by the parties is evidently silent on the payment of interest.
However, contrary to petitionersǯ claim, the appellate court did pass upon the legal issue raised by
them,
ruling that petitioners had been barred by laches from raising the same. We quote
from the challenged decision:
[Petitioners] next argued that the mortgaged property was illegally foreclosed since it is a well
settled rule that an action to foreclose a mortgage must be limited to the amount mentioned in the
mortgage.
The argument is without merit.

It appears from the evidence on record that despite due notice and publication of the same in a
newspaper of general circulation (Exhs. ǲ5ǳ, ǲ5-Aǳ and ǲ5-Bǳ, pp. 53-55, Record), [petitioners] did
not bother to attend the foreclosure sale nor raise any question regarding the propriety of the sale.
It was only on November 9, 1994, or more than one year from the registration of the Sheriffǯs
Certificate of Sale, that [petitioners] filed the instant complaint. Clearly, [petitioners] had slept on
their rights and are therefore guilty of laches, which is defined as the failure or neglect for an
unreasonable or explained length of time to do that which, $%A20!0;##050;2, could or
should have been done earlier, failure of which gives rise to the presumption that the person
possessed of the right or privilege has abandoned or has declined to assert the same. (Words in
bracket added.)
For sure, in the very petition they filed in this case, petitioners have not offered any valid excuse
why, despite notice to them of the petition for extrajudicial foreclosure filed by the respond ents,
they failed to attend the proceedings and there voiced out what they are now claiming. Truly,
laches has worked against them.
The law on redemption of mortgaged property is clear. Republic Act No. 3135 (An Act to Regulate
the Sale of Property Under Special Powers Inserted In Or Annexed to Real Estate Mortgages), as
amended by Republic Act No. 4118, provides in Section 6 thereof, thus:
ǲSec. 6. In all cases in which an extrajudicial sale is made under the special power hereinbefore
referred to, the debtor, his successors in interest or any judicial creditor or judgment creditor of
said debtor, or any person having a lien on the property subsequent to the mortgage or deed of
trust under which the property is sold, <)%#<"3!)<)")%"0<40"30"3"<=
%)=<)#)=""3#)"="3!)5; xxxǳ (Emphasis supplied)
In a long line of cases[5], this Court has consistently ruled that the one-year redemption period
should be counted not from the date of foreclosure sale, but from the time the certificate of sale is
registered with the Register of Deeds. Here, it is not disputed that the sheriffǯs certificate of sale
was registered on 29 October 1993.
And under Article 13 of the New Civil Code[6], a year is understood to have three hundred sixty-five
(365) days each. Thus, excluding the first day and counting from 30 October 1993 (under
paragraph 3 of Article 13 of the New Civil Code), and bearing in mind that 1994 was a leap year,
petitioners had only until 29 October 1994, the 365 th day after registration of the sheriffǯs
certificate of sale on 29 October 1993, within which to redeem the foreclosed property in
accordance with law. And since 29 October 1994 fell on a Saturday, petitioners had until the
following working day, 31 October 1994, within which to exercise their right of redemption.
From the foregoing, it is clear as day that even the complaint filed by the petitioners with the trial
court on 09 November 1994 was instituted beyond the 1 -year redemption period. In fact,
petitioners no less acknowledged that their complaint for annulment of extrajudicial foreclosure
and auction sale was filed about eleven (11) days after the redemption period had already expired
on 29 October 1994[7]. They merely harp on the alleged increase in the redemption price of the
mortgaged property as the reason for their failure to redeem the same. However, and as already
pointed out herein, they chose not, despite notice, to appear during the foreclosure proceedings.
Of course, petitioners presently insist that they requested for and were granted an extension of
time within which to redeem their property, relying on a handwritten note allegedly written by
Mrs. San Diegoǯs husband on petitionersǯ statement of account, indicating therein the date
7<$ .. as the last day to pay their outstanding account in full. Even assuming, in
that they were indeed granted such an extension, the hard reality, however, is that )"
"0<)")55 did petitioners make a valid offer to redeem coupled with a tender of the redemption
price.
Even on this score, petitionersǯ case must fall.
For, in )_ c
p (p p [8], this Court has made it clear that it is only
where, by voluntary agreement of the parties, consisting of extensions of the redemption period,
=554#$%2<<0"<"$%"3#$"" )%"3#< "0 02)")=0A##)", will the
concept of legal redemption be converted into one of conventional redemption.
Here, there is no showing whatsoever that petitioners agreed to pay the redemption price on or
before 11 November 1994, as allegedly set by Mrs. San Diegoǯs husband. On the contrary, their act
of filing their complaint on 09 November 1994 to declare the nullity of the foreclosure sale is
indicative of their refusal to pay the redemption price on the alleged deadline set by the husband.
At the very least, if they so believed that their loan obligation was only for P1,000,000.00,
petitioners should have made an offer to redeem within one (1) year from the registration of the
sheriffǯs certificate of sale, together with a tender of the same amount. This, they never did.
It must be remembered that the period of redemption is not a prescriptive period but a co ndition
precedent provided by law to restrict the right of the person exercising redemption.
Correspondingly, if a person exercising the right of redemption has offered to redeem the property
within the period fixed, he is considered to have complied with the condition precedent prescribed
by law and may thereafter bring an action to enforce redemption. If, on the other hand, the period
is allowed to lapse before the right of redemption is exercised, then the action to enforce
redemption will not prosper, even if the action is brought within the ordinary prescriptive period.
Moreover, the period within which to redeem the property sold at a sheriffǯs sale is not suspended
by the institution of an action to annul the foreclosure sale.[9] It is clear, then, that petitioners have
lost any right or interest over the subject property primarily because of their failure to redeem the
same in the manner and within the period prescribed by law. Their belated attempts to question
the legality and validity of the foreclosure proceedings and public auction must accordingly fail.
Î, the instant petition is DENIED and the challenged decision and resolution of the
Court of Appeals AFFIRMED.
SO ORDERED.
Panganiban, (Chairman), Sandoval-Gutierrez, and Carpio-Morales, JJ., concur.
Corona, J., on official leave.

[1] Penned by then, now a member of this Court, Associate Justice Consuelo Ynares-Santiago, with
then Associate Justices Bernardo Ll. Salas and Demetrio G. Demetria, concurring.
[2] c
, p. 28.
[3] .
[4] _ p _

, 215 SCRA 734 [1992] citing
¢p p _ ! , 91 SCRA 57 [1979] and &p
_)p_

, 171 SCRA 630 [1989].
[5]
_
, 5 SCRA 790, [1962];
_ $ , 8 SCRA 495 [1963]; c _ #
0,
21 SCRA 1027 [1970]; ã_
#
& , 36 SCRA 26 [1970]; ) _

, 166 SCRA 87 [1988]; . p

p _

, 174 SCRA 619 [1989]; & _ c , 201 SCRA 648 [1991]; and 2&

_
, 357 SCRA 12 [2001].
[6] Article 13. When the law speaks of years, months, days or nights, it shall be understood that
years are of three hundred sixty-five days each; months, of thirty days; days, of twenty-four hours;
and nights from sunset to sunrise.
If months are designated by their name, they shall be computed by the number of days
which they respectively have.
In computing a period, the first day shall be excluded, and the last day included.
[7] Memorandum for the Petitioners dated 26 February 1999.
[8] 31 SCRA 329 [1970].
[9] Fundamentals of Redemption in Extra-Judicial Foreclosures, 140 SCRA 368 [1985], citing i
0
_
, et al., L-21812;
_ , L-13146, 30 June 1960; i

_ @p, 58 Phil 414; and _ i _
&
, 21 SCRA 1374.
THIRD DIVISION
[G.R. No. 137792. August 12, 2003]
SPOUSES RICARDO ROSALES and ERLINDA SIBUG, , _ SPOUSES ALFONSO and
LOURDES SUBA, THE CITY SHERIFF OF MANILA, .
DECISION
SANDOVAL-GUTIERREZ, !.:
Challenged in the instant petition for review on p are the Resolutions dated November 25,
1998 and February 26, 1999 of the Court of Appeals dismissing the petition for p in CA G.R.
SP No. 49634, ǲSpouses Ricardo Rosales and Erlinda Sibug vs. Alfonso and Lourdes Suba.ǳ
On June 13, 1997, the Regional Trial Court, Branch 13, Manila rendered a Decision in Civil Cases
Nos. 94-72303 and 94-72379, the dispositive portion of which reads:
ǲWHEREFORE, judgment is rendered:
(1) Declaring the Deed of Sale of Exhibit D, G and I, affecting the property in question, as an
equitable mortgage;
(2) Declaring the parties Erlinda Sibug and Ricardo Rosales, within 90 days from finality of this
Decision, to deposit with the Clerk of Court, for payment to the parties Felicisimo Macaspac and
Elena Jiao, the sum of P65,000.00, with interest at nine (9) percent per annum from September 30,
1982 until payment is made, plus the sum of P219.76 as reimbursement for real estate taxes;
(3) Directing the parties Felicisimo Macaspac and Elena Jiao, upon the deposit on their behalf of
the amounts specified in the foregoing paragraph, to execute a deed of reconveyance of the
property in question to Erlinda Sibug, married to Ricardo Rosales, and the Register of Deeds of
Manila shall cancel Transfer Certificate of Title No. 150540 in the name of the Macaspacs (Exh. E)
and issue new title in the name of Sibug;
(4) For non-compliance by Sibug and Rosales of the directive in paragraph (2) of this dispositive
portion, let the property be sold in accordance with the Rules of Court for the release of the
mortgage debt and the issuance of title to the purchaser.
ǲSO ORDERED.ǳ
The decision became final and executory. Spouses Ricardo and Erlinda Rosales, judgment debtors
and herein petitioners, failed to comply with paragraph 2 quoted above, i.e., to deposit with the
Clerk of Court, within 90 days from finality of the Decision, P65,000.00, etc., to be paid to Felicisimo
Macaspac and Elena Jiao. This prompted Macaspac, as judgment creditor, to file with the trial court
a motion for execution.
Petitioners opposed the motion for being premature, asserting that the decision has not yet
attained finality. On March 5, 1998, they filed a manifestation and motion informing th e court of
their difficulty in paying Macaspac as there is no correct computation of the judgment debt.
On February 23, 1998, Macaspac filed a supplemental motion for execution stating that the amount
due him is P243,864.08.
Petitioners failed to pay the amount. On March 25, 1998, the trial court issued a writ of execution
ordering the sale of the property subject of litigation for the satisfaction of the judgment.
On May 15, 1998, an auction sale of the property was held wherein petitioners participated.
However, the property was sold for P285,000.00 to spouses Alfonso and Lourdes Suba, herein
respondents, being the highest bidders. On July 15, 1998, the trial court issued an order confirming
the sale of the property and directing the sheriff to issue a final deed of sale in their favor.
On July 28, 1998, Macaspac filed a motion praying for the release to him of the amount of
P176,176.06 from the proceeds of the auction sale, prompting petitioners to file a motion praying
that an independent certified public accountant be appointed to settle the exact amount due to
movant Macaspac.
Meanwhile, on August 3, 1998, the Register of Deeds of Manila issued a new Transfer Certificate of
Title over the subject property in the names of respondents.
On August 18, 1998, respondents filed with the trial court a motion for a writ of possession,
contending that the confirmation of the sale ǲeffectively cut off petitionersǯ equity of redemption.ǳ
Petitioners on the other hand, filed a motion for reconsideration of the ord er dated July 15, 1998
confirming the sale of the property to respondents.
On October 19, 1998, the trial court, acting upon both motions, issued an order (1) granting
respondentsǯ prayer for a writ of possession and (2) denying petitionersǯ motion for
reconsideration. The trial court ruled that petitioners have no right to redeem the property since
the case is for judicial foreclosure of mortgage under Rule 68 of the 1997 Rules of Civil Procedure,
as amended. Hence, respondents, as purchasers of the property, are entitled to its possession as a
matter of right.
Forthwith, petitioners filed with the Court of Appeals a petition for p , docketed as CA-G.R.
SP No. 49634, alleging that the trial court committed grave abuse of discretion amounting to la ck or
excess of jurisdiction in issuing a writ of possession to respondents and in denying their motion for
reconsideration of the order dated July 15, 1998 confirming the sale of the property to said
respondents.
On November 25, 1998, the CA dismissed outright the petition for lack of merit, holding that "3
0!0;3"=#< "002)!=6#020)5=25!=<";);. Petitionersǯ motion for
reconsideration was also denied.
Hence this petition.
In the main, petitioners fault the Appellate Court in applying the rules on judicial foreclosure of
mortgage. They contend that their loan with Macaspac is unsecured, hence, its payment entails an
execution of judgment for money under Section 9 in relation to Section 25, Rule 39 of the 1997
Rules of Civil Procedure, as amended, )5540;"36#;<"#$"C D%)=<"3#)"
=;0!")"0="32"0=02)"=!)540"3043023"#<"3=25!# "%.
Respondents, upon the other hand, insist that petitioners are actually questioning the decision of
the trial court dated June 13, 1997 which has long become final and executory; and that the latter
have no right to redeem a mortgaged property which has been judicially foreclosed.
Petitionersǯ contention lacks merit. The decision of the trial court, which is final and executory,
declared the transaction between petitioners and Macaspac an equitable mortgage. In
$_
, this Court defined an equitable mortgage as ǲone which although
lacking in some formality, or form or words, or other requisites demanded by a statute,
nevertheless reveals the intention of the parties to charge real property as security for a debt, and
contains nothing impossible or contrary to law.ǳ An equitable mortgage is not different from a real
estate mortgage, and the lien created thereby ought not to be defeated by requiring compliance
with the formalities necessary to the validity of a voluntary real estate mortgage. Since the partiesǯ
transaction is an equitable mortgage and that the trial court ordered its foreclosure, execution of
judgment is governed by Sections 2 and 3, Rule 68 of the 1997 Rules of Civil Procedure, as
amended, quoted as follows:
Ô

! p

Ȃ If upon the trial in such action the court shall
find the facts set forth in the complaint to be true, it shall ascertain the amount due to the plaintiff
upon the mortgage debt or obligation, including interest and other charges as approved by the
court, and costs, and !3)55#6#;<"="3!<!=##)##"3)""3!)<
$ )0#""32"""36#;<"$50;40"30) 0#="5!!"3)"0"%C.D
#)%!<"3)3##"4"%C D#)%!=<"3"%=6#;<")#"3)"0
#=)5"=!23 )%<""3 "%!3)55$!5#)" $502)2"0"!)"0!=%"36#;<".
Ô

p Ȃ Î3"3#=#)", after being directed to do so as
provided in the next preceding section, =)05!" )%"3)<"="36#;<"40"30"3
0#! 20=0#"30"32" <"0!3)55#"3 "%"$!5# in the
manner and under the provisions of Rule 39 and other regulations governing sales of real estate
under execution. Such sale shall not effect the rights of persons holding prior encumbrances upon
the property or a part thereof, and when confirmed by an order of the court, also upon motion, 0"
!3)55 )""#07!""30;3"!0"3 "%=)55"3 )"0!""3)2"0)#"7!"
"300;3"!0"3 23)!!$62""!230;3"!=#< "0)!<)%$)554#$%5)4.
x x x.ǳ
In
c p _
we held that the right of redemption is not
recognized in a judicial foreclosure, thus:
G3righ of r d pion 05)"0")<";);P#!"#0"3!!=) ;)"07
"-)2?0<";);# "%)=";0!")"0="3=25!!)5PA0!"!5%0"3
2)!="3 xrajudicial =25!="3<";);
!230;3"0!2;0F#0)judicial
=25!A2 "5%43"3<";);0!"33050 0)"0)5$)E)$)E)
$)E0;0!"0""0
ǲWhere a mortgage is p

/0p
, Act 3135 grants to the mortgagor the right of

redemption within one (1) year from the registration of the sheriffǯs certificate of foreclosure sale.
ǲÎ3"3 for closur is judicially ff c d, 347?07)5"0;3"=#< "0

A0!"!. 35)4#25)!"3)") judicial for closur sal , Ǯwh n confir d by an ord r of h
cour, x x x shall op ra o div s h righs of all h pari s o h acion and o v s h ir
righs in h purchas r, subj c o such righs of r d pion as ay b allow d by law.ǯ Such
rights exceptionally Ǯallowed by lawǯ ( even after the confirmation by an order of the court) are
those granted by the charter of the Philippine National Bank (Act Nos. 2747 and 2938), and the
General Banking Act (R.A.337). @
p , his successors in interest or
any judgment creditor of the mortgagor, the right to redeem the property sold on foreclosure Ȃ
p p p

Dwhich right may be exercised within a period of one
(1) year, counted from the date of registration of the certificate of sale in the Registry of Property.
G("" )"!230;3"=#< "0A0!"!02)!=6#020)5=25!=)
<";);0="3<";);0!""3()$)E$)E0;0!"0""0
!23)2)!"3
=25!!)5I432=0<#$%)#="32"AAA!3)55 )""#07!""3
0;3"!=)55"3 )"0!""3)2"0)#"7!""300;3"!0"3 23)!
J3"3
A0!"!5%43)"0!E4)!"3 quiy of r d pion. This is siply h righ of h
d f ndan orgagor o xinguish h orgag and r ain own rship of h prop ry by
paying h s cur d d b wihin h 90-day p riod af r h judg n b co s final0
)22#)240"357)=""3=25!!)5$" 0"0"!2=0<)"0
xxx
ǲ30!0!"3<";);J! quiy (no righ) of r d pion 43023)!)$7!")"#<)%$

A20!#$%30<7$%#"3.-#)% 0#I=<"3#)"=!702="3#J)#
7)=""3=25!!)50"!5= 70##0"$$="3#=2=0<)"0="3
!)5
="!23#=2=0<)"0#< "02)$==2"#)%5;.ǳ (Italics
supplied)
Clearly, as a general rule, there is no right of redemption in a judicial foreclosure of mortgage. The
only exemption is when the mortgagee is the Philippine National Bank or a bank or a banking
institution. Since the mortgagee in this case is not one of those mentioned, no right of redemption
exists in favor of petitioners. They merely have an equity of redemption, which, to reiterate, is
simply their right, as mortgagor, to extinguish the mortgage and retain ownership of the property
by paying the secured debt prior to the confirmation of the foreclosure sale. However, instead of
exercising this equity of redemption, petitioners chose to delay the proceedings by filing several
manifestations with the trial court. Thus, they only have themselves to blame for the consequent
loss of their property.
Îthe petition is DENIED. The Resolutions of the Court of Appeals dated November 25,
1998 and February 26, 1999 in CA G.R. SP No. 49634 are AFFIRMED.
SO ORDERED.
Puno, (Chairman), Panganiban, Corona, and Carpio-Morales, JJ., concur.
Rollo at 24, 28; penned by Associate Justice Salvador J. Valdez, Jr. and concurred in by Justices Ma.
Alicia Austria-Martinez (now a member of this Court) and Renato C. Dacudao.
By Judge Mario Guarina III (now an Associate Justice of the Court of Appeals).
RTC Decision at 5-6; Rollo at 34-35.
Section 9. ./ p 0 p D
xxx xxx xxx
(b) p
_. Ȃ = "3 6#;<" $50; 2)" )% )55 )" = "3 $50;)"0 0
2)!3 2"0=0# $)E 232E "3 <# = )%<" )22 ")$5 " "3 6#;<" $50; "3
==02 !3)55 57% "3 "0! = "3 6#;<" $50; = 7% E0# )# )"
43)"!7 which may be disposed of for value and not otherwise exempt from execution giving
the latter the option to immediately choose which property or part thereof may be levied upon,
sufficient to satisfy the judgment. If the judgment obligor does not exercise the option, the officer
shall first levy on the personal properties, if any, and then on the real properties if the personal
properties are insufficient to answer for the judgment.
The sheriff shall sell only a sufficient portion of the personal or real property of the judgment
obligor which has been levied upon.
When there is more property of the judgment obligor than is sufficient to satisfy the judgment and
lawful fees, he must sell only so much of the personal or real property as is sufficient to satisfy the
judgment and lawful fees.
Real property, stocks, shares, debts, credits, and other personal property, or any interest in either
real or personal property, may be levied upon in like manner and with like effect as under a writ of
attachment.
Sec. 25. _ p

< p p _ p

. Ȃ Upon a sale of real property, the officer must give to the purchaser a certificate of sale
containing:
(a) A particular description of the real property sold;
(b) The price paid for each distinct lot or parcel;
(c) The whole price paid by him;
C#D !")"<" "3)" "3 0;3" = #< "0 A 0! C D %) =< "3 #)" = "3
;0!")"0 = "3 2"0=02)" = !)5.
Such certificate must be registered in the registry of deeds of the place where the property is
situated.
341 Phil. 379 (1997).
' _ ã0 74 Phil. 47 (1940).
G.R. No. 128567, September 1, 2000, 339 SCRA 534, citing ) _
,
G.R No. L-70987, September 29, 1988, 166 SCRA 87.
THIRD DIVISION
METROPOLITAN BANK AND TRUST

/.
COMPANY,
Petitioner,
Present:
YNARES-SANTIAGO, !
-_ - Chairperson,
AUSTRIA-MARTINEZ,
AZCUNA,*
CHICO-NAZARIO, and
Ô ÔÔ &Ô *
)# Ô ÔÔ && * & NACHURA, !!.
Ô
Respondents.
Promulgated:
October 17, 2008
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
*Ô
CHICO-NAZARIO, !.:
Before Us is a Petition for Review on under Rule 45 of the 1997 Rules of Civil
Procedure which seeks to set aside the Decision of the Court of Appeals dated 31 January 2007 in
CA-G.R. CV No. 86214 affirming the Decision of Branch 32 of the Regional Trial Court (RTC)
of Manila in Civil Case No. 97 -85012 and its Resolution dated 15 June 2007 denying petitionerǯs
motion for reconsideration.
The factual antecedents are as follows:
In June 1974, Ylang-Ylang Merchandising Company, a partnership between Angelita Rodriguez

and respondent Antonio Tan, obtained a loan in the amount of P250,000.00 from petitioner
Metropolitan Bank and Trust Company (Metrobank). To secure payment of the same, respondents
spouses Marcial See and Lilian Tan constituted a real estate mortgage in favor of petitioner over
their property consisting of 469.40 square meters, located in the District of Paco, Manila, covered
by Transfer Certificate of Title (TCT) No. 105233 of the Registry of Deeds of Manila. The mortgage,
dated 14 June 1974, was annotated at the back of the title.
Subsequently, after the partnership had changed its name to Ajax Marketing Company, albeit
without changing its composition, it obtained another loan in July 1976 in the amount of
P150,000.00 from Metrobank. Again, to secure the loan, spouses Marcial See and Lilian Tan
executed in favor of Metrobank a second real estate mortgage dated 26 August 1976 over the same
property. As in the first instance, the mortgage was annotated at the back of TCT No. 105233.
On 19 February 1979, the partnership (Ajax Marketing Company) was converted into a
corporation denominated as Ajax Marketing and Development Corporation (Ajax Marketing), with
the original partners (Angelita Rodriguez and Antonio Tan) as incorporators and three additional
incorporators, namely, respondent Elisa Tan, the wife of respondent Antonio Tan, and Jose San
Diego and Tessie San Diego. Ajax Marketing obtained from Metrobank a loan in the amount
P600,000.00, the payment of which was secured by another real estate mortgage executed by the
spouses Marcial See and Lilian Tan over the same property in favor of Metrobank. The third real
estate mortgage was annotated at the back of TCT No. 105233.
On 2 December 1980, the thr ee loans with an aggregate amount of P1,000,000.00 were re-
structured and consolidated into one loan and Ajax Marketing, represented by Antonio Tan as
Board Chairman/President and in his personal capacity as solidary co-obligor, and Elisa Tan as
Vice-President/Treasurer and in her personal capacity as solidary co-obligor, executed <0!!%
" CD
(*Ô-. Said loan was payable in eight (8) equal quarterly installments of
P125,000.00 starting 2 March 1981 until fully paid.
On 24 April 1984, Metrobank filed a case for sum of money before the RTC of Manila against
Ajax Marketing, Elisa Tan and Antonio Tan for another loan earlier obtained in the amount of
P970,000.00 that the latter obtained from the former for which they executed <0!!% "
CD
(*Ô-. The case was docketed as Civil Case No. 84-24065. Subsequently, the lower
court decided this case in favor of Metrobank which decision was affirmed by the Court of Appeals.
For failure of Ajax Marketing to pay its obligation contained in PN No. BDS-3605, Metrobank
foreclosed the real estate mortgage. On 19 June 1984, the mortgaged property was sold at public
auction for P1,775,040.00 to Metrobank, it having the highest and winning bid.
On 11 December 198 4, Civil Case No. 85-33933 for

p
./%

0p
¢ p

0p c * i was filed by
Ajax Marketing and spouses Marcial See and Lilian Tan, represented by their Attorney-in-Fact, Elisa
Tan, and spouses Antonio Tan and Elisa Tan (spouses Tan) against Metrobank and the Registry of
Deeds of Manila. The complaint asked that the extrajudicial foreclosure, as well as the auction sale,
be declared null and void on the ground that the real estate mortgages constituted on the property
covered by TCT No. 105233 have been extinguished or novated when PN No. BDS -3605 was
executed. The trial court upheld the validity of the extra-judicial foreclosure. On appeal to the
Court of Appeals, the appellate court affirmed the decision of the trial court. The decision was
appealed to the Supreme Court.
In a letter dated 2 February 1995, spouses Antonio Tan and Elisa Tan wrote Metrobank a
letter containing,
, the following:
To end the controversy once and for all, the undersigned spouses hereby
proposes (sic) to fully settle the obligations of the borrowers in exchange of your
release of the Real Estate Mortgage you are presently holding, to wit:
1. We propose to pay the total amount of P2MM to be paid as follows:
a) Downpayment of P600,000.00 two (2) weeks upon approval of our

proposal;
b) Balance of P1.4MM shall no longer be subject to interest and to be

liquidated in 24 months or P58,333.33 to be covered by postdated checks.
2. Attorneyǯs fees shall be separately paid by us.
On 14 September 1995, this Court rendered its Decision in Civil Case No. 85 -33933 for

p
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¢ p

0p
c * i . We ruled:
[P]etitioners argue that a novation occurred when their three (3) loans which are all
secured by the same real estate property covered by TCT No. 105233 were
consolidated into a single loan of P1 million under Promissory Note No. BDS-3605,
thereby extinguishing their monetary obligations and releasing the mortgaged
property from liability.
xxxx
The attendant facts herein do not make a case of novation. There is nothing in
the records to show the unequivocal intent of the parties to novate the three loan
agreements through the execution of PN No. BDS -3065. The provisions of PN No.
BDS-3605 yield no indication of the extinguishment of, or an incompatibility with,
the three loan agreements secured by the real estate mortgages over TCT No.
105233. x x x
xxxx
x x x [P]etitioners posit that the extra-judicial foreclosure is invalid as it

included two unsecured loans: one, the consolidated loan of P1.0 million under PN
BDS No. 3605, and two, the P970,000.00 loan under PN BDS No. 3583 subsequently
extended by Metrobank.
An action to foreclose a mortgage is usually limited to the amount mentioned

in the mortgage, but where on the four corners of the mortgage contracts, as in this
case, the intent of the contracting parties is manifest that the mortgaged property
shall also answer for future loans or advancements then the same is not improper as
it is valid and binding between the parties. For merely consolidating and
expediently making current the three previous loans, the loan of P1.0 million under
PN BDS No. 3605, secured by the real estate property, was correctly included in the
foreclosureǯs bid price. The inclusion of the unsecured loan of P970,000.00 under
PN BDS No. 3583, however, was found to be improper by public respondent which
ruling we shall not disturb for Metrobankǯs failure to appeal therefrom.
Nonetheless, the inclusion of PN BDS No. 3583 in the bid price did not invalidate the
foreclosure proceedings. As correctly pointed out by the Court of Appeals, the
proceeds of the auction sale should be applied to the obligation pertaining to PN
BDS No. 3605 only, plus interests, expenses and other charges accruing thereto. It is
Metrobankǯs duty as mortgagee to return the surplus in the selling price to the
mortgagors.
On 12 September 1997, spouses Elisa Tan and Antonio Tan and spouses Lilian Tan and
Marcial See filed a civil case for Specific Performance, Injunction and Damages before the RTC of
Manila, Branch 30, against Metrobank and Ajax Marketing (origin of the inst ant petition). They
prayed, among other things, that Metrobank be ordered to allow them (spouses Tan) to exercise
their right of redemption over the subject foreclosed property and to accept the amount of
P1,609,334.61 as the redemption price, and to orde r Ajax Marketing to reimburse them the amount
which they will pay as redemption price for the foreclosed property.
On 4 November 1997, an amended compliant was filed. They included as defendants John Doe
and Peter Doe. They made the following allegations:
Spouses See and spouses Tan alleged that the property covered by TCT No. 105233, though
registered in the names of spouses Marcial See and Lilian Tan See is, in reality, co -owned by
respondents and their other siblings. They further allege that after the foreclosure sale, they
offered to redeem the property within the one -year redemption period and they discovered that
Metrobank included in the bid price an amount covered by PN No. BDS-3583 not secured by the
mortgage over TCT No. 105233. They claim that while the tender and offer of the redemption was
seasonably made, same cannot be made because Metrobank was ambivalent with respect to the
redemption price. Redemption, they claim, was rendered doubly difficult when Metrobank filed
Civil Case No. 84-24065 with the RTC of Manila to collect on PN No. BDS -3583. On their part, they
filed Civil Case No. 85-33933 before the RTC of Manila for annulment and cancellation of the extra -
judicial foreclosure of the mortgage over TCT No. 105233 renderin g more difficult the resumption
of negotiation for redemption of the foreclosed property. On 14 September 1995, the Supreme
Court, in G.R. No. 118585, declared the extra-judicial foreclosure valid but found the inclusion of PN
No. BDS-3583 in the bid pric e to be improper but same did not invalidate the foreclosure
proceedings. After said decision, they resumed to negotiate for the redemption of the foreclosed
property and tendered and offered P1,609,334.61 which Metrobank rejected and declined. They
further alleged that Metrobank encouraged their other siblings to repurchase the foreclosed
property at a price over and above the lawful redemption price. In fact, Metrobank sold the
property to John and Peter Doe for P11,500,000.00 in complete disregard of their right of
redemption. They claim that Metrobank cannot sell the property because ownership thereof has
not been vested absolutely in its favor until they have exercised their right of redemption. The sale
of the property to their other siblings was fraudulent and therefore void. Because of the sale, they
and their other siblings were divested of their share in the property and are additionally required
by the purchasing siblings to reimburse a portion of the repurchase price (P11,500,000.00),
thereby fomenting trouble within the family. They asked, among other things, that the sale of the
property between Metrobank and defendants John and Peter Doe be declared null and void
and that Metrobank be ordered to allow them to exercise their right of redemption by accepting the
amount of P1,609,334.61 as the redemption price.
On 6 November 1997, Spouses Marcial See and Lilian Tan executed a document entitled
ǲi c c p_ p ǳ wherein it was stated that the latter (redemptione rs) paid
Metrobank on 12 September 1997 the amount of P11,500,000.00 representing the redemption
price for the reconveyance/redemption of the foreclosed property (TCT No. 105233).
On 2 February 1998, Metrobank filed a Motion to Dismiss on the ground that the claims and
demands in the amended complaint have been extinguished. Metrobank disclosed that the subject
property was not sold to John and Peter Doe, but to spouses Marcial See and Lilian Tan. As
registered owners of the property, the spouses were allowed to exercise their right of redemption
on 6 November 1997 as evidenced by the Deed of Redemption and Reconveyance. On 7 December
1998, the motion was denied.
On 3 February 1999, Metrobank filed its Answer with Counterclaim. It declared that John
and Peter Doe are none other than spouses Marcial See and Lilian Tan. It alleged that neither Ajax
Marketing nor the plaintiffs (respondents herein) were able to redeem the subject property within
the one-year period which commenced from the date (20 June 1984) the Certificate of Sale issued
by the auctioning sheriff was registered with the concerned Registry of Deeds. Respondents did not
even approach Metrobank to negotiate the redemption of said property. Instead, Ajax Marketing
and respondents instituted on 11 December 1984 an action to annul said extra -judicial foreclosure
which foreclosure was upheld by the Supreme Court in G.R. No. 118585 on 14 September 1995. It
was only in 1997 that spouses Marcial See and Lilian Tan communicated with Metrobank t heir
intention to buy back the subject property. Metrobank agreed to sell the property for the
ǲredemptionǳ price of P11,500,000.00. It further denied the allegations with respect to the actual
ownership of the subject property. It added that the sale o f the foreclosed property to spouses
Marcial See and Lilian Tan was not fraudulent and that property was redeemed at a mutually
agreed price. It explained that spouses Marcial See and Lilian Tan are the proper ǲredemptionersǳ
of the subject property being the registered owners thereof. As such, Metrobank had the right to
allow said spouses to redeem the property and to reconvey the same under mutually agreed terms.
It stressed that assuming that spouses Marcial See and Lilian Tan never redeemed the
subject property, spouses Elisa Tan and Antonio Tan offered the amount of P1,609,334.61 when
they communicated with Metrobank in 1997 which amount they believe was the redemption price
ǲ ,ǳ Metrobank had rightfully rejected the same for Act No. 3 135, as amended, requires the
payment of the redemption price equivalent to the winning bid price ( P1,775,040.00) plus interest
up to the time of redemption, together with the amount of any assessments or taxes paid by the
purchaser after the auction sale, and interest on such last-named amount at the same rate.
In its Reply to the Answer, respondents claim the ǲDeed of Redemption and Reconveyanceǳ
does not bear the true and genuine signatures of spouses Marcial See and Lilian Tan. It said that
assuming that the Deed of Redemption and Reconveyance is true, the difference between
P11,500,000.00 and P1,775,040.00 should be refunded to them.
On 10 January 2000, the pre-trial of the case was terminated. Thereafter, the case was
heard.
Respondents-spouses Elisa and Antonio Tan testified in court on their behalf, while for the
defense, only Rito A. Negado, employee of Metrobank, testified on respondentsǯ loan with
Metrobank, the execution of respondents Marcial See and Lilian Tan of the accommodati on
mortgage in favor of Metrobank, and respondentsǯ failure to pay their obligation which led
Metrobank to initiate extra-judicial foreclosure proceedings.
While the case was being heard, the presiding judge hearing the case voluntarily inhibited
himself from the case. Consequently, the case was re-raffled to Branch 32 of RTC, Manila.
On 5 May 2005, the trial court rendered its decision, the dispositive portion of which reads:
WHEREFORE, premises considered, JUDGMENT is hereby rendered

DECLARING the ǲDEED OF REDEMPTION AND RECONVEYANCEǳ between
Defendant Bank and the Sps. Marcial See and Lilian Tan NULL and VOID ab initio. It
is hereby further ADJUDGED that:
1. Plaintiffs Spouses Elisa and Antonio Tan are reinstated as

Redemptioners with the right to redeem the property foreclosed and
mortgaged as they are hereby directed to pay Defendant Bank the sum of
Php 1,609,334.61 as redemption price in accordance with the Decision
in G.R. No. 118585 and in turn, Defendant Metroba nk is ordered to
reconvey TCT No. 105233 to plaintiffs in exchange for the said
redemption price.
2. Defendant Bank is ordered to refund and pay to plaintiffs Sps. Marcial

See and Lilian Tan the sum of Php11,500,000.00 with interests at the
rate of 12% per annum beginning September 1995 until the whole
obligation is fully paid;
3. Defendant Bank is finally ordered to pay, in addition to the costs of suit,

the sum of Php50,000.00 as and for attorneyǯs fees over and above the
contingent arrangement for legal services rendered to plaintiffs Elisa
and Antonio Tan by their lawyers.
The RTC ruled that the nullification of the Deed of Redemption and Reconveyance dated 6
November 1997 is warranted. It declared that spouses Elisa and Antonio Tan, as mortgagors of the
foreclosed property, are entitled to exercise their right as redemptioners. As such, they should pay
Metrobank as redemption price the amount of Php1,609,334.61 or Php1,775,040.00, as the case
may be, the latter price being Metrobankǯs winning bid. The fact that spouses Marcial See and Lilian
Tan are the registered owners of the property foreclosed is not sufficient to entitle them to redeem
over and above the willingness of spouses Elisa and Antonio Tan to exercise their right of
redemption. Spouses Elisa and Antonio Tan have the preferential right as redemptioners of what
they have mortgaged.
The trial court ruled that spouses Elisa and Antonio Tan are fully within their right to
redeem the foreclosed property after the finality of the Decision in G.R. No. 118585. Technically, it
said, the tender and offer of redemption of spouses Elisa and Antonio Tan was within the one -year
period reckoned from the registration of the Certificate of Sale in the Registry of Deeds because the
redemption period was ǲfreezedǳ when respondents were forced to file Civil Case No. 85 -33933
(
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¢ p

0p
c * i ) on 11 December 1984 after said tender of redemption price was
refused as a result of a misunderstanding as to its amount. Respondents insisted to redeem on the
basis of their PN No. BDS-3605 while Metrobank demanded that the redemption price should
include the unsecured PN No. BDS-3583. The filing of Civil Case No. 85-33933 within the one -year
redemption period preserved spouses Elisa and Antonio Tanǯs right of redemption until said case
has been decided with finality. Citing _ p _
, &
_

and %"

c
p _
, the Court said that the
filing of the Civil Complaint has the effect of freezing the redemption period and preserves the right
of the mortgagor to redeem the property foreclosed, and that the filing of the court action to
enforce the correct redemption price is equivalent to a formal offer to redeem. The offer to redeem
in this case made sometime in 1985 was ǲfrozenǳ and remained fresh and unexpired until Civil Case
No. 85-33933 was finally decided by the Supreme Court on 14 September 1995. Thereafter, the
redemption period resumed to run anew.
Metrobank appealed said decision to the Court of Appeals. On 31 January 2007, the
appellate court affirmed the decision of the trial court. It disposed of the case as follows:
WHEREFORE, premises considered, the appeal is DISMISSED for lack of

merit and the assailed decision of the court is hereby AFFIRMED . No
costs.
The Court of Appeals said that the spouses Elisa and Antonio Tan were granted, no less by
the Supreme Court, the right to redeem the contested property. However, despite the finality of the
Supreme Court decision in G.R. No. 118585, Metrobank ignored spouses Elisa and Antonio Tanǯs
right to redeem and instead allowed spouses Marcial See and Lilian Tan to redeem the property. It
described such act of Metrobank to be contemptuous. It brushed away Metrobankǯs argument that
spouses Elisa and Antonio Tan have no more right to redeem as they failed to make a val id tender
since what they did was a mere proposal failing to actually deliver the redemption price. The
appellate court added that Metrobank has no right to demand from spouses Elisa and Antonio Tan
the actual delivery of the redemption price because it i s not legally capacitated to surrender the
possession and title of the subject property to said spouses until such time the redemption of
spouses Marcial See and Lilian Tan is declared null and void. It agreed with the trial court that the
one-year period to redeem the foreclosed property was deemed suspended.
The motion for reconsideration filed by Metrobank was denied.
Hence, this appeal _ petition for review on p .

Initially, this Court denied the petition for insufficient or defective v erification and for
failure to show that the appellate court committed reversible error as to warrant the exercise by
this Court of its discretionary appellate jurisdiction. Metrobank filed a motion for the
reconsideration. On 12 November 2007, the Court granted the motion and set aside the resolution
denying the petition, and required respondents to comment thereon within ten days from receipt of
notice. Respondents filed their Comment to which Metrobank filed a Reply.
The Court gave due course to the petition and required the parties to submit their
respective memoranda.
Metrobank makes the following assignment of errors:
WHETHER THE COURT OF APPEALS ERRED IN DECLARING THAT METROBANK

MUST BE LEGALLY CAPACITATED TO SURRENDER POSSESSION AND TITLE TO
THE SUBJECT PROPERTY IN ORDER FOR IT TO BE ABLE TO INVOKE THE LEGAL
REQUIREMENT OF THE LAW THAT THERE MUST BE AN ACTUAL TENDER OR
DELIVERY OF THE REDEMPTION PRICE FOR AN OFFER TO REDEEM TO BE
BINDING.
WHETHER THE COURT OF APPEALS ERRED WHEN IT DECLARED THAT

RESPONDENT SPOUSES ANTONIO AND ELISA TANǯS TENDER AND OFFER OF
REDEMPTION WAS WITHIN THE ONE-YEAR PERIOD STARTING FROM THE
REGISTRATION OF THE CERTIFICATE OF SALE CONSIDERING THAT THE
REDEMPTION PERIOD WAS ǲFREEZEDǳ WHEN RESPONDENTS WERE FORCED TO
FILE CIVIL CASE NO. 85-33933 ON DECEMBER 11, 1984 AFTER THEIR TENDER OF
THE REDEMPTION PRICE WAS REFUSED BY METROBANK AND THAT THE
REDEMPTION PERIOD REMAINED FRESH AND UNEXPIRED UNTIL CIVIL CASE NO.
85-33933 WAS FINALLY ADJUDICATED BY THE SUPREME COURT IN SEPTEMBER
1995.
WHETHER THE COURT OF APPEALS ERRED IN DECLARING THAT METROBANK IS
LIABLE TO PAY RESPONDENTS ATTORNEYǯS FEES.
WHETHER THE COURT OF APPEALS ERRED IN DECLARING THAT THE TRIAL

COURT WAS CORRECT IN SUBMITTING THE CASE IMMEDIATELY FOR DECISION AS
THERE WAS UNREASONABLE DELAY ON THE PART OF METROBANK IN THE
PRESENTATION OF ITS EVIDENCE.
There is no dispute that respondents were already in default in the payment of their
obligation. Thus, Metrobank had the right to foreclose any real estate mortgage executed in its
favor as security for the loans it has given to respondents. Foreclosure is valid where the debtor is
in default in the payment of his obligation. In a real estate mortgage when the principal obligation
is not paid when due, the mortgagee has the right to foreclose the mortgage and to have the
property seized and sold with the view of applying the proceeds to the payment of the obligation.
In the resolution of this case, two primary issues have to be resolved:
1. Did the filing of Civil Case No. 85 -33933 (

p
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¢ p

0pc * i ) by respondents on 11
December 1984 interrupt the running of the one-year redemption period?
2. Did spouses Elisa and Antonio Tan exercise their right of redemption within the one-year
period allowed by law?
From the records, the foreclosure sale was on 19 June 1984 and the Certificate of Sale issued
by the sheriff was registered with the Registry of Deeds of Manila on 20 June 1984. On 11
December 1984, Civil Case No. 85-33933 for
p
./%0p

¢ p

was filed by respondents. On 2 February 1995, spouses Antonio Tan and Elisa Tan
wrote Metrobank a letter proposing to redeem the subject for P2,000,000.00 payable as fol lows:
downpayment of P600,000.00 and the balance payable in 24 months ( P58,333.33/month) without
interest. Thereafter, on 14 September 1995, this Court, in G.R. No. 118585, ruled with finality that
the extrajudicial foreclosure and sale were valid.
The lower courts ruled that the filing of Civil Case No. 85 -33933 suspended the running of
the one-year redemption period for which spouses Elisa and Antonio Tan can exercise their right of
redemption. The tender and offer of redemption made by spouses Elisa and Antonio Tan was
within the one-year redemption period. On the other hand, Metrobank insists that the filing of said
case did not toll the running of said redemption period and that they failed to exercise said right
with the allowable period of one year.
The filing of Civil Case No. 85 -33933 (

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./ %0p

¢ p

A did not toll the running of the one-year redemption period. Settled is the rule that
the period within which to redeem the property sol d at a sheriffǯs sale is not suspended by the
institution of an action to annul the foreclosure sale. Thus, both lower courts erred in ruling that
the one-year redemption period was interrupted.
It is apparent from the complaint filed in Civil Case No. 85-33933 that the issue advanced by
respondents is whether the extrajudicial foreclosure, as well as the auction sale, is void because the
real estate mortgages constituted on the property covered by TCT No. 105233 have been
extinguished or novated when PN No. BDS-3605 was executed. There is nothing in the complaint
that deals with any right of redemption. Respondents wanted to have the extrajudicial foreclosure
proceedings nullified on the ground that their obligation under PN No. BDS -3605 was no longer
secured by any mortgage.
We likewise find the declaration of the Court of Appeals that the spouses Elisa and Antonio
Tan were granted by the Supreme Court the right to redeem the contested property pursuant to
G.R. No. 118585 to be without basis. There is nothing in G.R. No. 118585 that gave respondents the
right to redeem. This Court did not even determine the amount of the redemption price which, in
the first place, was not raised as an issue. What was upheld in said case was the validity of the
extrajudicial foreclosure despite the inclusion therein of an unsecured loan.
Having ruled that Civil Case No. 85 -33933 did not toll the running of the one -year
redemption period, did spouses Elisa and Antonio Tan exercise their right o redemption within t his
period? They did not.
Section 6 of Republic Act No. 3135, as amended by Republic Act No. 4118, provides:
Sec. 6. In all cases in which an extrajudicial sale is made under the special
power hereinbefore referred to, the debtor, his successors in interest or any judicial
creditor or judgment creditor of said debtor, or any person having a lien on the
property subsequent to the mortgage or deed of trust under which the property is
sold, <)%#<"3!)<)")%"0<40"30"3"<=%)=<)#
)=""3#)"="3!)5; x x x. (Emphasis supplied.)
We, however, have consistently ruled that the one-year redemption period should be
counted not from the date of foreclosure sale, but from the time the certificate of sale is registered
with the Registry of Deeds.
In the case before us, the certificate of sale was registered with the Registry of Dee ds of
Manila on 20 June 1984. Under Article 13 of the Civil Code, a year is understood to be three
hundred sixty-five (365) days. Thus excluding the first day and counting from 20 June 1984,
respondents spouses Tan had only until 20 June 1985 within whic h to redeem the foreclosed
property in accordance with law. Prior to this date, they did not exercise their right to redeem the
foreclosed property.
The only credible evidence respondents presented to show that they allegedly offered to
redeem the subject property was the letter of spouses Elisa and Antonio Tan dated 2 February 1995
where they offered the amount of two million pesos (in installment) as settlement of their
obligation and for the release of the real estate mortgages on TCT No. 105233. Other than this, we
find nothing concrete to prove that they (spouses Tan) tried to redeem within the one -year period
and even after when this Court ruled in G.R. No. 118585 on 14 September 1995. Their claims that
they tendered their offer to redeem on vario us times are all unsubstantiated and which Metrobank
has denied.
The general rule in redemption is that it is not sufficient that a person offering to redeem
manifests his/her desire to do so. The statement of intention must be accompanied by an actual
and simultaneous tender of payment. This constitutes the exercise of the right to repurchase. &
redemption necessarily implies a reasonable and valid tender of the entire purchase price,
otherwise the rule on the redemption period fixed by law ca n easily be circumvented. There is no
cogent reason for requiring the vendee to accept payment by installments from the redemptioner,
as it would ultimately result in an indefinite extension of the redemption period.
In order to effect a redemption, the judgment debtor must pay the purchaser the
redemption price composed of the following: (1) the price which the purchaser paid for the
property; (2) interest of 1% per month on the purchase price; (3) the amount of any assessment or
taxes which the purchaser may have paid on the property after the purchase; and (4) interest of 1%
per month on such assessment and taxes.
Even assuming that such offer was made by the spouses Elisa and Antonio Tan within the
one-year redemption period, we find said offer in the amount of two million pesos to be invalid and
ineffectual. It is clear from the letter that the tender was in installments. Same will not do for there
is no showing that Metrobank agreed _ such payment. By paying in installments, the redemption
period will be extended. It could be otherwise if Metrobank agreed; in such case, the concept of
legal redemption will be converted into one of conventional redemption. Moreover, though there
was an offer, there was no evidence that there was an actual and simultaneous tender of payment.
Redemption within the period allowed by law is not a matter of intent but a question of payment or
valid tender of the full redemption price within said period.
The trial court, citing _ p _
, &
_

and %"

c
p _
, declared that the filing of
the Civil Complaint has the effect of freezing the redemption period and preserves the right of the
mortgagor to redeem the property foreclosed, and that the filing of the court action to enforce the
correct redemption price is equivalent to a formal offer to redeem. Such rule has no application in
the instant case. Such rule applies only when the complaint to enforce a repurchase is =05#40"30
"3 0# = #< "0 in which case, the same will be equivalent to an offer to redeem and
have the effect of preserving the right of redemption. "3 2)! $= ! "3 2< 5)0" =
#< "0CÔ 20=02=<)2D4)!=05#$%#"3-%)#< "0 0#
Ô "<$ ../<"3)"457%)!=< .430230!"35)!"#)%=!)0#
0#
We do not consider the complaint filed by respondents on 11 December 1984, docketed as
Civil Case No. 85-33933, for Annulment and Cancellation of Extra -judicial Foreclosure Sale to be an
action for judicial redemption because its purpose was not for redemption but for nullification of
extrajudicial foreclosure sale.
In the case at bar, respondents spouses Elisa and Antonio Tan failed to show good faith on
their part. They have failed to validly tender any redemption price nor consigned any amount, in
any of the cases they have filed, which they believed was the correct amount, if only to show their
willingness and ability to pay. It is not difficult to understand why the redemption price should
either be fully offered in legal tender or else validly consigned in court. Only by such means can the
auction winner be assured that the offer to redeem is being done in good faith.
In the case before us, though the respondents spouses Marcial See and Lilian Tan signed a
document entitled ǲi c c p_ p ǳ wherein they were called the
ǲRedemptionersǳ and that they paid the amount of P11,500,000.00 for the subject property, this
Court finds that what was entered into by them and Metrobank was not a redemption, but a !)5.
Being already the absolute owner of the subject property because spouses Elisa and Antonio Tan
failed to properly exercise their right of redemption, Metrobank can sell, to a price of its liking, the
foreclosed property to interested buyers which in this case are respondents spouses Marcial See
and Lilian Tan. The price itself (P11,500,000.00) is indicative of a sale. If it were a redemption, the
price would only be the winning bid price ( P1,775,040.00) plus interest up to the time of
redemption, together with the amount of any assessments or taxes paid by the purchaser after the
auction sale, and interest on such last-named amount at the same rate.
The appellate courtǯs ruling that Metrobank had no right to demand from spouses Elisa and
Antonio Tan the actual delivery of the redemption price because it is not legally capacitated to
surrender the possession and title of t he subject property to said spouses until such time the
redemption of spouses Marcial See and Lillian Tan is declared null and void, is flawed.
Metrobank, as the highest bidder in the public auction sale, can demand from the
redemptioner, in this case spouses Elisa and Antonio Tan, the purchase price and taxes it had paid
for the property, together with interests with the one -year redemption period. If same is not paid
by the redemptioner within the time prescribed by law, the latter loses his/her right to redeem, and
the buyer of the foreclosed property becomes its absolute owner. Prior to selling the property to
spouses Marcial See and Lilian Tan _ the i c c p_ p , Metrobank
already consolidated its ownership over the foreclosed property. We will not nullify the
ǲredemptionǳ (purchase) made by spouses Marcial See and Lilian Tan so that respondents spouses
Elisa and Antonio Tan can exercise their right of redemption which has long been lost for their
failure to exercise the same in accordance with law.
The trial courtǯs ruling that respondents spouses Elisa and Antonio Tan should be allowed
to redeem the foreclosed property because Metrobank ǲallowed the execution of the i
c c p_ p to a wrong person and for wrong reasonǳ is erroneous. As explained
above, we consider the ǲredemptionǳ for P11,500,000.00 made by spouses Marcial See and Lilian
Tan to be a sale in the guise of a redemption. Such ǲredemptionǳ will not restore respondents
spouses Elisa and Antonio Tanǯs right to legally redeem the subject property which right they have
lost.
Respondents spouses Elisa and Antonio Tan were granted by the law the right of
redemption which they failed to exercise validly and effectively. Having failed to redeem the
foreclosed property in the manner and within the period prescribed by law, they have lost any right
and interest over the subject property. In so doing, Metrobank has the right to dispose of said
property as it deems fit.
Î, all the foregoing considered, the instant petition for review on certiorari is
*and the Decision of the Court of Appeals dated 31 January 2007 and its Resolution dated
15 June 2007 in CA-G.R. CV No. 86214 are hereby
Ô* and Ô Ô*. The complaint in
Civil Case No. 97-85012 before the Regional Trial Court of Manila, Branch 32, is *ÔÔÔ*.
Ô**.

-+
Associate Justice
WE CONCUR:
Ô &,Ô-Ô
Associate Justice
Chairperson

& Ô-+*&Ô
+
* *(

Associate Justice
Ô
I attest that the conclusions in the above Decision were reached in consultation before the case
Ô &,Ô-Ô
Associate Justice

,Ô

Chief Justice
* Per Special Order No. 521, dated 29 September 2008, signed by Chief Justice Reynato S.
Puno, designating Associate Justice Adolfo S. Azcuna to replace Associate Justice Ruben T.
Reyes, who is on official leave.
Penned by Associate Justice Andres B. Reyes, Jr. with Associate Justices Noel G. Tijam and
Sesinando E. Villon , concurring;
, pp. 35-48.
Id. at 33-34.
Referred to as Lillian in some documents.
Records, p. 22.
Id. at 23.
Records, p. 14.
Id. at 17-19, 101.
Exh. D, records, p. 239.
0/$ (i _
_
, G.R. No. 118585, 14 September
1995, 248 SCRA 222, 226-230.
Records, pp. 8-9.
Id. at 49-56.
Exh. E; Records, pp. 240-241.
Records, pp. 62-65.
Id. at 93.
Id. at 108-110.
Id. at 139.
Id. at 142, 144.
Id. at 364.
G.R. No. 99308, 13 November 1992, 215 SCRA 734.
G.R. No. L-73503, 30 August 1988, 165 SCRA 101.
437 Phil. 483 (2002).
c
p. 48.
Id. at 54.
Id. at 185.
Id. at 186-193.
Id. at 195-202
Id. at 262.
Id. at 299-300.
_ p _

, supra note 21 at 744.
) ! _

, G.R. No. 133079, 9 August 2005, 466 SCRA 107, 118; citing
0 _
, 123 Phil. 605, 612 (1966); i_ @p, 58 Phil. 414, 418
(1933); _ i _
&
, 129 Phil. 641, 648 (1967).
An Act to Regulate the Sale of Property Under Special Powers Inserted In or Annexed to Real
Real Estate Mortgages.
ã_
#
& , 146 Phil. 629, 636 (1970); . p

_
, G.R. No. 76733, 30 June 1989, 174 SCRA 619, 630.
Exh. D; records, p. 239.
@
_
, G.R. No. 171354, 7 March 2007, 517 SCRA 732, 744.
_ p _

&_
, G.R. No. 114418, 21 September 1995, 248 SCRA 496, 501.
)_ c
p (p p., G.R. No. L-27365, 30 January 1970, 31 SCRA 329,
340.
&¢
_& p _
, G.R. No. 141974, 9 August 2004, 436 SCRA 1, 8.
Supra note 21.
Supra note 22.
Supra note 23.
&¢
_& p _
SECOND DIVISION
[G.R. No. 143896. July 8, 2005]
BANCO FILIPINO SSAVINGS AND MORTGAGE BANK, _ COURT OF APPEALS and
SANTIAGO (Isabela) MEMORIAL PARK, INC.,
DECISION
AUSTRIA-MARTINEZ, ! +
Before us is a petition for review on p filed by petitioner seeking to annul the Decision[1] of
the Court of Appeals (CA) dated March 31, 2000 in CA-G.R. CV No. 47044, which reversed the Order
of the trial court dated May 10, 1994, dismissing private respondentǯs complaint for failure to state
a cause of action; and the Resolution dated July 3, 2000[2]
denying petitionerǯs motion for reconsideration.
On December 20, 1993, private respondent Santiago (Isabela) Memorial Park, Inc. filed a complaint
for redemption and specific performance with the Regional Trial Court of Santiago, Isabela, Branch
21, against herein petitioner Banco Filipino Savings & Mortgage Bank, the material and relevant
allegations of which read as follows:
COMPLAINT
Plaintiff, by counsel, to this Honorable Court most respectfully alleges:

1. ǥǥǥǥǥ.
2. ǥǥǥǥǥ.
3. That in February 1981, plaintiff mortgaged the above described property in favor of defendant
to secure a loan of P500,000.00 obtained by plaintiff from defendant;
4. That due to the failure of plaintiff to pay the aforementioned loan, defendant foreclosed the
mortgage and in consequence thereof Sheriff David R. Medina of this Honorable Court issued a
SHERIFFǯS CERTIFICATE OF SALE in favor of defendant which is dated October 9, 1990 and which
instrument was inscribed at the back of TCT T-128647 of Isabela on January 21, 1991;
5. That in a letter of the President of plaintiff dated August 6, 1991, plaintiff made manifest its
interest to exercise its right of redemption and made an offer of P700,000.00 as redemption to
defendant through the then Deputy Liquidator, ROSAURO NAPA; this started the negotiation for the
redemption of the above described property;
6. That in a letter of the Deputy Liquidator dated Janu ary 23, 1992, plaintiff was given up to the
end of March 1992 to negotiate and make special arrangement for any satisfactory plan of payment
for the redemption;
7. That in a letter of the Deputy Liquidator dated March 12, 1992, plaintiff was directed to remit
at least P50,000.00 to defendant which would manifest the interest and willingness of plaintiff to
redeem the property, and forthwith on March 24, 1992, plaintiff remitted the sum of P50,000.00 to
defendant which was duly receipted by the latter under Official Receipt No. 279968 A dated March
24, 1992;
8. That in a letter of the President of plaintiff dated January 20, 1993, plaintiff amended its first
offer and made an offer of P1,000,000.00 as redemption which offer included a plan of payment;
9. That between January 20, 1993 to November 1993, plaintiff exerted earnest efforts in order to
finally effect the redemption, but defendant dilly dallied on the matter.
10. That in a letter of Atty. ORLANDO O. SAMSON, Senior Vice President of defendant, dated
November 5, 1993, there is a turn-around by defendant and is now demanding P5,830,000.00 as
purchase price of the property, instead of the original agreed redemption;
11. That the delay of the defendant in the finalization of the terms of redemption did not in any
manner alter the right of plaintiff to redeem the property from defendant;
12. That plaintiff is still in actual possession of the property and intend to remain in actual
possession of the property, while defendant was never in actual possession of said property;
13. That plaintiff is ready and willing to pay the redemption money, which is the total bank claim
of P925,448.17 plus lawful interest and other allowable expenses incident to the foreclosure
proceedings:
14. That the latest actuations of defendant are indicative of the refusal of defendant to allow the
exercise of redemption by herein plaintiff, reason for which there is a need for judicial
determination of the rights and obligations of the parties to this case;
15. That on account of the unlawful actuations of defendant in refusing the redemption of the
property by plaintiff, the latter engaged the services of counsel for a fee of P30,000.00 which
defendant should pay to plaintiff.
WHEREFORE, it is respectfully prayed of this Honorable Court that, after due hearing, judgment be
rendered:
a. ordering defendant to accept from plaintiff the lawful redemption amount which shall
be determined by this Honorable Court;
b. ordering defendant to execute the necessary instrument in order to effect the

redemption of the property;
c. ordering defendant to pay to plaintiff the sum of P30,000.00 by way of attorneyǯs fees;
AND PLAINTIFF PRAYS for further reliefs just and equitable under the premises.
Petitioner filed a motion to dismiss on the ground that the complaint does not state a cause of
action. It alleges that assuming that the allegations in the complaint are true and correct, still there
was no redemption effected within one year from the date of registration of the sheriffǯs certificate
of sale with the Register of Deeds on January 21, 1991, thus private respondent had lost its right to
redeem the subject land. Petitioner claimed that the letter cited in paragraph 5 of the complaint
was a mere offer to redeem the property which was promptly answered by a letter dated August
28, 1991, which categorically denied private respondentǯs offer and stated that when it comes to
redemption, the basis of payment is the total claim of the bank at the time the property was
foreclosed plus 12% thereof and all litigation expenses attached thereto or its present appraised
value whichever is higher; that the letter mentioned in paragraph 6 of the complaint dated January
23, 1992 of the Deputy Liquidator was about ne gotiation and special arrangement and not
redemption for at that stage the period of redemption had already expired; that the letter
mentioned in paragraph 7 dated March 12, 1992 was of the postponement of the consolidation of
the subject property and not of any extension for the period of redemption; that the amount of
P50,000.00 remitted by private respondent was in consideration of the postponement of the
consolidation of the property in petitionerǯs name and as manifestation of private respondentǯs
sincerity to repurchase the foreclosed property; that when private respondent remitted
P50,000.00, the Deputy Liquidator of petitioner bank requested the legal counsel of petitioner to
defer consolidation of property in petitionerǯs name; that in a letter dated November 5, 1993,
petitionerǯs Senior Vice President declared that the subject property is available for repurchase in
the amount of P5,830,600.00 to which private respondent in another letter asked for an extension
of 30 days to make an offer.
Private respondent filed its opposition to the motion to dismiss alleging among others that the
complaint states a cause of action; that the annexes of the motion to dismiss should not be
considered in the resolution of such motion.
On May 10, 1994, the trial court rendered an Order[3] dismissing the complaint. It ratiocinated that
(1) the letter dated August 6, 1991 was an offer to redeem for P700,000.00 without any tender of
the money; (2) the reply letter of petitioner dated August 28, 1991 stated that the redemption price
is P1,146,837.81 representing the bankǯs claim of P925,448.17 plus 12% interest and expenses of
foreclosure or the appraised value which was P1,457,650.00; (3) the March 12, 1992 letter of the
petitioner categorically informed private respondent that the period for redemption had expired,
however, the bank agreed to postpone the consolidation of title of the land in the bankǯs name up to
the end of March 1992 if the plaintiff shall deposit P50,000.00 in order to avoid consolidation.
Under Section 6 of Act 3135, on redemption of foreclosed property, it is provided that a debtor may
redeem the property at anytime within one year from and after the date of sale, ., one year period
to be reckoned from the registration of the sheriffǯs certificate of sale. The registration of sheriffǯs
sale was on January 21, 1991 so that the redemption period was until January 21, 1992; that
although there was an offer to redeem the property for P700,000.00 on August 6, 1991, which was
within the redemption period, there was no tender of redemption price and the P700,000.00
offered was not the correct redemption price. It found that the complaint did not state that private
respondent tendered the correct redemption price within the redemption period as required under
Section 30 of Rule 39 of the Rules of Court. Private respondentǯs motion for reconsideration was
denied in an Order dated July 25, 1994.[4]
Private respondent filed its appeal with the CA which reversed the trial court in its assailed
decision, the dispositive portion of which reads:
WHEREFORE, the Orders of the respondent trial court dated May 10, 1994, and July 25, 1994 are
hereby REVERSED and SET ASIDE. The appellants are declared entitled to repurchase the property
in question within THIRTY (30) days from notice hereof which shall be effected upon payment of
the repurchase price of P925,448.17 less P50,000.00, which is the deposit on the redemption price,
with legal interest from March 24, 1992, the time the contract extending the period of redemption
of the property took effect until it is fully paid.[5]
The CA ruled that:
A perusal of the allegations in the complaint shows that there was sufficient basis to make out a
case against Banco Filipino. The complaint alleged that as early as August 6, 1991 or about six (6)
months before the statutory period for redemption would expire, the appellant had exerted earnest
efforts to effect the redemption of the property in question and that after an agreement had been
reached by the parties, with the corresponding deposit on the redemption price had been given by
the appellant, the appellee bank led the appellant to believe that the appellee was negotiating with
the former in good faith. However, the true intention of the appellee bank was to refuse the
redemption of the property as manifested by its act of increasing the amount of the redemption
price after the period for redemption had expired and after a deposit on the redemption price had
been duly accepted by it as evidenced by a receipt issued by the appellee.
Even assuming however that the appellant is now barred from exercising its right of redemption,
yet it can still repurchase the property in question based on a new contract entered into between
the parties extending the period within which to purchase the property as evidenced by the
appelleeǯs Deputy Liquidator Rosauro Napaǯs letter to Belen Jocson dated March 12, 1992 and the
letter addressed to Atty. German M. Balot, Legal Counsel, Banco Filipino Ȃ Santiago, Isabela dated
April 7, 1992.
...
In the case of Philippine National Bank vs. Court of Appeals, the Court held: Indeed under Article
1482 of the Civil Code, earnest money given in a sale transaction is considered part of the purchase
price and proof of the perfection of the sale. This provision, however, gives no more than a
disputable presumption that prevails in the absence of contrary or rebuttal evidence. In the instant
case, the letter-agreements themselves are the evidence of an intention on the part of herein
private parties to enter into negotiations leading to a contract of sale that is mutually acceptable as
to absolutely bind them to the performance of their obligations thereunder. The letter-agreements
are replete with substantial condition precedents, acceptance of which on the part of private
respondent must first be made in order for petitioner to proceed to the next step in the
negotiations.
. . . [6]
In compliance with the CA decision, private respondent on April 27, 2000, made a tender of
payment and consignation with the CA in the amount of P1,300,987.96 through a Philippine
National Bank check which was duly receipted by the appellate court. [7]
Hence, the herein petition for review on p filed by petitioner alleging that the appellate
court erred in holding that (1) the allegations in the complaint of private respondent against
petitioner are sufficient to constitute a cause of action for redemption and specific performance;
and (2) respondent was entitled to repurchase back from petitioner itǯs foreclosed property for
only P925,448.17.
The basic issue is whether private respondentǯs complaint for redemption and specific performance
states a cause of action against petitioner.
It is a well-settled rule that the existence of a cause of action is determined by the allegations in the
complaint.[8] In resolving a motion to dismiss based on the failure to state a cause of action, only
the facts alleged in the complaint must be considered. The test is whether the court can render a
valid judgment on the complaint based on the facts alleged and the prayer asked for.[9] Indeed, the
elementary test for failure to state a cause of action is whether the complaint alleges facts which if
true would justify the relief demanded. Only ultimate facts and not legal conclusions or evidentiary
facts, which should not be alleged in the complaint in the first place, are considered for purposes of
applying the test.[10]
Based on the allegations in the complaint, we find that private respondent has no cause of action for
redemption against petitioner.
Paragraph 4 of the complaint states:
4. That due to the failure of plaintiff to pay the aforementioned loan, defendant foreclosed the
mortgage and in consequence thereof Sheriff David R. Medina of this Honorable Court issued a
SHERIFFǯS CERTIFICATE OF SALE in favor of defendant which is dated October 9, 1990 and which
instrument was inscribed at the back of TCT T-128647 of Isabela on January 21, 1991;
The sheriffǯs certificate of sale was registered on January 21, 1991. Section 6 of Act 3135 provides
for the requisites for a valid redemption, thus:
SEC. 6. In all cases in which an extrajudicial sale is made under the special power hereinbefore
referred to, the debtor, his successors in interest or any judicial creditor or judgment creditor of
said debtor, or any person having a lien on the property subsequent to the mortgage or deed of
trust under which the property is sold, may redeem the same at any time within the term of one
year from and after the date of sale; and such redemption shall be governed by the provisions of
sections four hundred and sixty-four to four hundred and sixty-six, inclusive, of the Code of Civil
Procedure,[11] insofar as these are not inconsistent with the provisions of this Act.
However, considering that petitioner is a banking institution, the determination of the redemption
price is governed by Section 78 of the General Banking Act which provides:
In the event of foreclosure, whether judicially or extrajudicially, of any mortgage on real estate
which is security for any loan granted before the passage of this Act or under the provisions of this
Act, the mortgagor or debtor whose real property has been sold at public auction, judicially or
extrajudicially, for the full or partial payment of an obligation to any bank, banking or credit
institution, within the purview of this Act shall have the right, within one year after the sale of the
real estate as a result of the foreclosure of the respective mortgage, to redeem the property by
paying the amount fixed by the court in the order of execution, or the amount due under the
mortgage deed, as the case may be, with interest thereon at the rate specified in the mortgage, and
all the costs, and judicial and other expenses incurred by the bank or institution concerned by
reason of the execution and sale and as a result of the custody of said property less the income
received from the property.
Clearly, the right of redemption should be exercised within the specified time limit, which is one
year from the date of registration of the certificate of sale. The redemptioner should make an actual
tender in good faithof the full amount of the purchase price as provided above, ., the amount
fixed by the court in the order of execution or the amount due under the mortgage deed, as the case
may be, with interest thereon at the rate specified in the mortgage, and all the costs, and judicial
and other expenses incurred by the bank or institution concerned by reason of the execution and
sale and as a result of the custody of said property less the income received from the property.
In case of disagreement over the redemption price, the redemptioner may preserve his right of
redemption through judicial action which in every case must be filed within the one-year period of
redemption.[12] The filing of the court action to enforce redemption, being equivalent to a formal
offer to redeem, would have the effect of preserving his redemptive rights and ǲfreezingǳ the
expiration of the one-year period. In this case, the period of redemption expired on January 21,
1992. The complaint was filed on December 20, 1992.
Moreover, while the complaint alleges that private respondent made an offer to redeem the subject
property on August 6, 1991, which was within the period of redemption, it is not alleged in the
complaint that there was an actual tender of payment of the redemption price as required by the
rules. It was alleged that private respondent merely made an offer of P700,000.00 as redemption
price, which however, as stated under paragraph 13 of the same complaint, the redemption money
was the total bank claim of P925,448.17 plus lawful interest and other allowable expenses incident
to the foreclosure proceedings. Thus, the offer was even very much lower than the price paid by
petitioner as the highest bidder in the auction sale.
In &¢
_& p _
,[13] we held:
The general rule in redemption is that it is not sufficient that a person offering to redeem manifests
his desire to do so. The statement of intention must be accompanied by an actual and simultaneous
tender of payment. This constitutes the exercise of the right to repurchase.
...
Whether or not respondents were diligent in asserting their willingness to pay is irrelevant.
Redemption within the period allowed by law is not a matter of intent but a question of payment or
valid tender of the full redemption price within said period.
Although the letter dated January 23, 1992 gave private respondent up to the end of March 1992, to
negotiate and make special arrangement for a satisfactory plan of payment for the redemption,
there was no categorical allegation in the complaint that the original period of redemption had been
extended. Assuming arguendo that the period f or redemption had been extended, , up to end of
March 1992, still private respondent failed to exercise its right within said period. This is shown by
private respondentǯs allegation under paragraph 8 of its complaint that in a letter dated January 20,
1993, private respondentǯs President amended his first offer and made an offer of P1 million as
redemption price. Notably, such offer was made beyond the end of the March 1992 alleged
extended period. Thus, private respondent has no more right to seek redemption by force of law
which petitioner was bound to accept.
We find that the CA also erred in stating that assuming appellant is now barred from exercising its
right of redemption, it can still repurchase the property in question based on a new contract
entered into between the parties extending the period within which to purchase the property.
The allegations in the complaint do not show that a new contract was entered into between the
parties. The March 12, 1992 letter referred to by the CA as well as in the complaint only directed
private respondent to remit at least P50,000.00 to petitioner as a manifestation of the formerǯs
interest and willingness to redeem the property. Thus, the P50,000.00 remitted by private
respondent was only the first step to show its interest in redeeming the property. In no way did it
establish that a contract of sale, as found by the CA, had been perfected and that the P50,000.00
remitted by private respondent is considered as earnest money.
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.
There was no showing in the complaint that private respondent and petitioner had already agreed
on the purchase price of the foreclosed property. In fact, the allegations in paragraphs 8 to 10 of the
complaint show otherwise, thus:
8. That in a letter of the President of plaintiff dated January 20, 1993, plaintiff amended
its first offer and made an offer of P1,000,000.00 as redemption which offer included a plan of
payment;
9. That between January 20, 1993 to November 1993, plaintiff exerted earnest efforts in
order to finally effect the redemption, but defendant dilly dallied on the matter.
10. That in a letter of Atty. ORLANDO O. SAMSON, Senior Vice President of defendant,
dated November 5, 1993, there is a turn-around by defendant and is now demanding
P5,830,000.00 as purchase price of the property, instead of the original agreed redemption;
The complaint does not allege that there was already a meeting of the minds of the parties.
Based on the foregoing, there is no basis for the order of the CA to allow private respondent to
repurchase the foreclosed property in the amount of P925,448.17 plus the expenses incurred in the
sale of the property, including the necessary and useful expenses made on the thing sold.
Î, the decision of the Court of Appeals dated March 31, 2000 is hereby REVERSED and
SET ASIDE. The Order of the Regional Trial Court of Santiago, Isabela, Branch 21, dated May 10,
1994 in Civil Case No. 2036 dismissing the complaint for redemption and specific performance is
REINSTATED and AFFIRMED.
SO ORDERED.
Puno, (Chairman), Callejo, Sr., Tinga, and Chico-Nazario, JJ., concur.
[1] Penned by Justice Eubolo G. Verzola (now deceased), concurred in by Justices Roberto A. Barrios
and Eriberto U. Rosario, Jr. (retired), c
, pp. 53-60.
[2] c
, pp. 61-62.
[3] Penned by Judge Fe Albano Madrid; c
, pp. 72-76.
[4] c
, pp. 77-78.
[5] pp. 59-60.
[6] ., pp. 57-58.
[7] , pp. 169-175.
[8] Republic _. Estanzo, No. L-35512, February 29, 1988, 158 SCRA 282, 285.
[9] Peltan Development, Inc. _. CA, G.R. No. 117029, March 19, 1997, 270 SCRA 82, 91.
[10] G & S Transport Corp. _. CA, G.R. No. 120287, May 28, 2002, 382 SCRA 262, 274.
[11] Now Section 28 of Rule 39, 1997 Rules on Civil Procedure.
SEC. 28. @

pp _ <p
_
. Ȃ The judgment obligor, or redemptioner, may redeem the property from the
purchaser, at any time within one (1) year from the date of the registration of the certificate of sale,
by paying the purchaser the amount of his purchase, with one per centum per month interest
thereon in addition, up to the time of redemption, together with the amo unt of any assessments or
taxes which the purchaser may have paid thereon after purchase, and interest on such last named
amount of the same rate; and if the purchaser be also a creditor having a prior lien to that of the
redemptioner, other than the judgm ent under which such purchase was made, the amount of such
other lien, with interest.
[12] Hi-Yield Realty, Inc. _. CA, G.R. No. 138978, September 12, 2002, 388 SCRA 655, 663.
[13] G.R. No. 141974, August 9, 2004, 436 SCRA 1, 6.

Ô
Manila
(

&-Ô "<$ .
&&Ô plaintiff-appellee,

vs.
&,)#

* defendant-appellants.
c

c
p(! _ p

p%
.
p

1. CRIMINAL LAW AND PROCEDURE; VIOLATION OF BULK SALES LAW (Act No. 3952); WHEN
PAYMENT OF INDEMNITY TO OFFENDED PARTY DOES NOT LIE. Ȅ Defendants were charged with
violation of the Bulk Sales Law in that they mortgaged all of their stock of goods, etc., without any
notice to Daido Boeki Kaisha, Ltd., one of the offended parties, to which they were indebted in the
sum of P2,568.85. They pleaded guilty and its sentenced by the Court of First Instance of Manila to
pay a fine of P100, and the costs, and to indemnify Daido Boeki Kaisha, Ltd., jointly and severally in
the sum of P2,568.85, with subsidiary imprisonment in case of insolvency.
+ That it was error
for the trial court to consider said indebtedness as a liability arising from the crime charged, and to
order defendants to indemnify Daido Boeki Kaisha, Ltd., in the sum of P2,568.85, with subsidiary
imprisonment in case of insolvency.
2. ID; ID; ID; Ȅ Inasmuch as under section 4 of the Bulk Sales Law, the mortgaged in question was
fraudulent and void, and there being no proof that the mortgaged goods have disappeared, the
same are still subject to attachment for the satisfaction of creditors' lawful claims against the
defendants. Daido Boeki Kaisha, Ltd., may still bring a separate civil action against defendants
herein for the collection of any indebtedness that may be due from defendants, and if the latter will
not pay the judgment in such civil case, the goods involved in the instant case may be seized and
sold. Therefore, the obligations of defendants to pay Daido Boeki Kaisha , Ltd., the sum of P2,568.85,
which was already existing when the mortgage was signed, was not the result of the violation of the
Bulk Sales Law, nor was it affected by said violation.

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of the decision reads:

WHEREFORE, premises considered, judgment is hereby rendered in favor of Intervenors-

1. The dismissal of the plaintiffǯs complaint with costs against them;

2. The plaintiffs to jointly pay Intervenors-counterclaimants now RTC Judge Rodolfo S.

(a) P10,000.00 for attorneyǯs fees; and

(b) P30,000.00 as moral damages;

3. The plaintiffs, as counterclaim defendants, to comply with the above-stated obligation of

The Present Petition

The petition is denied for lack of merit.

The petitionersǯ contention has no factual and legal bases.

ATTY. RODOLFO S. LAYUMAS

Dear Atty. Layumas:

Very truly yours,

Article 1458 of the New Civil Code provides:

A contract of sale may be absolute or conditional.

Thus, there are three essential elements of sale, to wit:

b) Determinate subject matter; and

c) Price certain in money or its equivalent.32

Puno, (Chairman), Austria-Martinez, Tinga, and Chico-Nazario, JJ., concur.

1Penned by Associate Justice Rosmari D. Carandang, with Associate Justices Conrado M.

2 Penned by Judge Abraham D. Caña.

3 Exhibit "L," Records, p. 253.

5 Exhibit "17," Records, p. 287.

6 Exhibit "19,"  at 289.

7 Exhibit "2,"  at 208.

8 Exhibit "10,"  at 219.

9  TSN, 19 April 1994, pp. 23-24.

10 Exhibits "1" and "10,"  at 207 and 219.

11 Exhibit "4,"  at 212.

12 Exhibit "5-A,"  at 214.

14 Exhibit "A," Records, p. 183.

20 TSN, 19 August 1994, pp. 16, 23-25.

27 Exhibits "17-A" and "17-C,." Records, p. 287.

28 Exhibits "19" and "19-A,"  at 289.

29 Exhibit "1," Records, p. 212.

30 Exhibit "N,"  at 257.

31 Art. 1458, New Civil Code.

The Lawphil Project - Arellano Law Foundation

Republic of the Philippines

I. Direct Examination of Rosalinda Cruz

Q: Now, what happened with that business transaction of yours with

A: After that and after she

 to buy two sets and changed

II. Cross-Examination of Rosalinda Cruz

III. Cross-Examination of Rosalinda Cruz

A Yes, Sir. I agreed to reduce it to Five Thousand Eight Hundred

@   ! " ¢ #_$

& !! pp 

The Lawphil Project - Arellano Law Foundation

Republic of the Philippines

 * Ô&1&    ,& Ô 

Sometime in October, 1970, Cesar Campos, a Vice-President of petitioner Industrial Textile

DATE NUMBER OF BAGS UNIT COST AMOUNT

5 January 1971 53,800 P .83 P44,654.00

). Respondent, on the other hand, remitted the amounts of P1,640.00,

WHEREFORE, judgment is hereby rendered sentencing the defendant to pay the

SO ORDERED. (p. 80, .)

 ! &i_ ! c !! pp.

[G.R. No. 151212. September 10, 2003]

The assailed Resolution denied petitioner's Motion for Reconsideration.

The facts of the case are narrated by the CA as follows:

6 Exhibit "19," at 289.

7 Exhibit "2," at 208.

8 Exhibit "10," at 219.

9 TSN, 19 April 1994, pp. 23-24.

10 Exhibits "1" and "10," at 207 and 219.

11 Exhibit "4," at 212.

12 Exhibit "5-A," at 214.

28 Exhibits "19" and "19-A," at 289.

30 Exhibit "N," at 257.

A: After that and after she

to buy two sets and changed

@ ! " ¢ #_$

& !! pp

* Ô&1& ,&Ô

SO ORDERED. (p. 80, .)

! &i_ ! c !! pp.

elucidates thus:

ǲSECTION 1. - p - Subject to the provisions of the next

* p i

., pp. 1-3 & 139-141.

! _ , supra.

., p. 373, per Sanchez, J.

! _ , supra.

., par. 6, p. 2; ibid.

., par. 7, p. 3; id, p. 22.

., par. 10, p. 3; ibid.

., par. 11, p. 3; ibid.

., p. 4; id, p. 23.

_ i ) , 367 SCRA 631, October 19, 2001; @_

_