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G.R. No.

19009 September 26, 1922 appears that the plaintiff had sold 188 bales of the tobacco before its arrival in
E.C. MCCULLOUGH & CO., vs. S. M. BERGER New York to a customer in Red Lion, Pennsylvania, to whom he shipped 75 bales
STATEMENT of it after its arrival. This customer refused to receive any of the remaining bales
For cause of action it is alleged that in the month of February, 1918, which he had purchased, and the plaintiff was compelled to again reship it back
plaintiff and defendant and defendant entered into an agreement by which the to New York. Complying with his agreement, on May 21, 1918, the plaintiff paid
defendant was to deliver plaintiff 501 bales of tobacco of New York City in good the defendant's draft which he had previously accepted, thus completing his
condition. That delivery was made and the plaintiff paid the full purchase price. part of the contract with the defendant.
That upon an examination later the tobacco was found to be in must condition, On May 23, 1918, and as a result of physical inspection, the plaintiff
and its value was $12,000 less than it would have been if the tobacco had been cabled the defendant that the tobacco was unsatisfactory, and on June 13, he
in the condition which defendant agreed that it should be, as a result of which again cabled that there would likely be a loss. On June 28, 1918, the plaintiff
plaintiff claims damages for P12,000, United States currency, or P24,000, wrote a letter to the defendant in which, among other things, he says:
Philippine currency. That when the condition of the tobacco was discovered, . . . The tobacco has a very strong ground smell and somewhat of a
plaintiff promptly notified the defendant, who ignored the protest. Wherefore, musty smell as though it had been mixed up with must tobacco. In other words,
the plaintiff prays judgment for the amount of P24,000, Philippine currency, for it appears like this tobacco assorted from bales which were mildewed and this
costs and general relief. is that part of the bale which was not mildewed. It does not seem possible that
For answer, the defendant denies all the material allegation of the this odor, or musty smell, could have developed in transit as it seems perfectly
complaint, and, as a further and separate defense, alleges that on August 15, clear that the tobacco was packed in that same condition. In all the bales which
1918, he was advised by the plaintiff that the latter was dissatisfied with the we have examined, which have been considerable, the tobacco seems to be
quality of the tobacco, and he made him a formal written offer to repurchase perfectly dry. In view of that I can see nothing but every indication that the
the tobacco at the original selling price with accrued interest, and that plaintiff tobacco was originally a bad lot.
rejected the offer. In this letter he also advised the defendant that he was doing
That defendant has been ready and willing at all reasonable times everything he could to sell the tobacco, and that he did not have any
to accept the return of the tobacco and to return the amount of the purchase prospective buyer even at a loss of 25 per cent.
price with legal interest, and has a repeatedly tendered to the plaintiff such August 9, 1918, the defendant acknowledge the receipt of the letter
purchase price in exchange for the return of the tobacco, and that plaintiff had and cables, saying that he was "not in a position to lose between seventeen and
refused to return it. That any damages which plaintiff may have suffered have twenty thousand pesos, and that he would consent to a reduction of four
been wholly due to his willful refusal to return and redeliver the tobacco. thousand pesos, if that was acceptable, and, if it was not, to have the bank pay
Upon such issues there was a stipulation of facts, and after trial the back the amount of the draft with interest and take charge of the tobacco until
lower court rendered judgment against the defendant and in favor of the the defendant would arrive in New York." The plaintiff did not receive this cable
plaintiff for the sum of P11,867.98 or P23,735.96 with legal interest from until August 21, when he cabled in reply that he would turn the tobacco over
January 6, 192, and costs, from which, after his motion for a new trial was to the defendant, and that he "awaited telegraphic instruction in regard to it.
overruled, the defendant appeals, claiming that the court erred: First, in finding That at least twenty dealers had passed on the tobacco." At that time the
that the tobacco was not in good condition when it arrived in New York; second, plaintiff had sold 66 bales of scattered samples from which, with the 75 bales
in holding that the plaintiff is entitled to maintain an action for breach of sold to the Red Lion customer, he realized $9,031.71.
contract after having agreed with the defendant to rescind and to make September 5, 1918, the defendant wrote the New York Agency of the Philippine
restitution of the subject-matter and the price after a violation of the National Bank in which he said that the plaintiff had advised him that the
agreement; third in holding that the plaintiff, having elected to rescind and tobacco on arrival was satisfactory, and that there would be a loss, and that the
notified the defendant of such an election, may now refused it and affirm the had assured its arrival at destination "in good condition." That he was taking it
same and recover from the alleged breach of warranty; fourth, in holding that back. That the bank should pay plaintiff $33,109 plus interest upon delivery to
this action should be maintained, no claim having been made for the alleged it of the 501 bales. That "on no account should they agree to accept any
breach of warranty of quality within the statutory period; and, fifth, in shortage in the number of bales."
overruling the defendant's motion for a new trial. October 18, 1918, without any knowledge of the defendant's
instruction to the bank, the plaintiff wrote him that his proposition to take the
JOHNS, J.: tobacco back was satisfactory in which he said that he had not heard from the
In February, 1918, the defendant met the plaintiff in the city of bank "at the time of writing with reference to taking back of the tobacco."
Manila and advised him that he had made a shipment of 501 bales of tobacco October 30, 1918, the bank wrote the plaintiff that it would take back the
to New York City consigned to S. Lowenthal & Sons, who had refused to honor identical 501 bales, and pay him the amount of the draft and interest. The
the draft which was drawn upon them. He asked the plaintiff whether he could plaintiff then wrote the bank a complete history of the transaction, and
use the tobacco provided it was "perfectly sound." At the plaintiff's request the explained why the identical 501 bales could not be returned. That he had
defendant made and signed a writing as follows: realized $9,031.71 from 141 bales of it which he had sold, for which he would
Referring to the shipment of 501 bales of tobacco sold you account and return the balance of the tobacco which was then unsold and in
consisting of 188 200-pound bales of scrap and 313 200-pound bales of booked the New York warehouse. The $9,031.71 was more than the actual agreed
tobacco, I beg to confirm my verbal conversation with you in stating that I purchase price of the 141 bales. This offer was cabled to the defendant, who
guarantee the arrival of the tobacco in New York in good condition, subject, of replied:
course, to conditions arising after its departure from Manila, which The instructions given you in my letter dated September
contingencies are covered by adequate insurance. (Stipulation par. 1.) 5, 1918, will not be modified.
Upon the strength of this the plaintiff cabled his New York office to The bank notified the plaintiff of the receipt of this cable, and in turn notified
honor the defendant's draft, which was ninety days' sight for $33,109, and was the plaintiff of the receipt of this cable, and in turn notified the plaintiff of the
the same draft and amount which had been refused by S. Lowenthal & Sons. receipt of this cable, and in turn notified the defendant that the plaintiff would
The draft was honored by his New York office at plaintiff's request. The sell the tobacco at public auction, and then sue him for the balance of the
shipment consisted of 188 bales of "scrap," invoiced at 28 cents, gold, per purchase price, and later the plaintiff did sell the remainder of the tobacco
pound, and 313 bales of "striped" and "booked" at 36 cents, gold, per pound, upon which there was a net actual loss to him of $11,867.98, over and above
and was made c.i.f. New York. Before its arrival in New York the plaintiff had all actual charges and expenses.
found purchasers for a large portion of it with whom he had made contracts for Although at the time of the making of the contract between them the plaintiff
sale subject to examination as to condition. The tobacco arrived in two and defendant were in Manila, the tobacco involved was on the high seas in
shipments. The first of 213 bales on April 26, and the second of 288 bales on transit to New York. From necessity the plaintiff could not see or examine it and
May 18, 1918, and it was at once placed in warehouses by plaintiff. With the would not know anything about its grade or quality, and, for that reason,
exception of four or five bales, it appeared from an examination that the insisted that the defendant should make and sign the writing above quoted in
tobacco was well baled, and to all outward appearances was in good condition which he says:
after the shipment. After it was placed in the warehouse, the tobacco itself was I guarantee the arrival of the tobacco in New York in good condition, subject,
examined as to its condition and quality by the different buyers to whom the of course to, to conditions arising after its departure from Manila, which
plaintiff had contracted to sell it, and after such physical inspection, they contingencies are covered by adequate insurance.
refused to accept it and complete their purchase because it was "musty." It
The trial court found and the testimony is conclusive that the tobacco did not the arrival of the goods, in such case, is a condition precedent, which must be
arrive in New York "in good condition," and that , as a matter of fact, it was not shown to have taken place before either party can bring suit.
"in good condition" when it left Manila. In the instant case, the contract was at least executory as to the delivery of the
The plaintiff and defendant had known each other for about ten years, and had tobacco in New York.
mutual confidence in each other, and were experienced business men. Cyc., vol. 35, pp. 274, 275 and 276, says:
Defendant's draft of the tobacco had been dishonored. Plaintiff was willing to In order to pass the title to goods as against the seller or those claiming under
take the tobacco and honor the draft, with the proviso that the defendant him there must be a valid existing and completed contract of sale. Under a
would guarantee its arrival "in good condition." complete contract of sale the property in the goods passes at once from the
The evidence shows that in the whole transaction, the plaintiff acted in good seller to the buyer, at the place where the contract becomes complete, and for
faith and made an earnest effort to protect the defendant and minimized his this reason the agreement is frequently called an executed contract. The sale
loss. Defendant knew that in the very nature of things the plaintiff bought the is, however, an executory contract, if the seller merely promises to transfer the
tobacco for the purpose of resale, and that in the ordinary course of business, property at some future day, or the agreement contemplates the performance
he would resell it. The record shows that he found purchasers for portions of it of some act or condition necessary to complete the transfer. Under such a
before its arrival in New York. The only reason why plaintiff's sales were not contract until the act is performed or the condition fulfilled which is necessary
consummated was because the tobacco did not stand inspection and was not to convert the executory into an executed contract, no title passes to the buyer
"in good condition" at the time of its arrival in New York. In other words, plaintiff as against the seller or persons claiming under him. While certain terms and
bought and paid the defendant for tobacco which was not "in good condition," expressions standing alone import an executed or executory contract, they are
and bought it for the purpose of resale. In the very nature of things, the by no means conclusive but must be construed with reference to other
defendant knew that the plaintiff bought the tobacco for the purpose of resale, provisions of the contract and according to what appears to have been the real
and he also knew that , if the tobacco was not "in good condition," it was not intention of the parties, and so a mere recital in the writing evidencing the
worth the amount of the purchase price which plaintiff paid. contract that the article is "sold" or that the buyer has "purchased" it does not
The defense cites and relies upon articles 336 and 342 of the Code of necessarily make the contract executed; while on the other hand a recital that
Commerce which are as follows: the seller "agrees to sell" is not conclusive that the title was not intended to
A purchaser who, at the time of receiving the merchandise, fully examines the pass immediately.
vendor, alleging a defect in the quantity or quality of the merchandise. The trial court found and the evidence sustains the finding that that plaintiff
A purchaser shall have a right of action against a vendor for defects in the acted in good faith. The contract was made in February, 1918 the draft was
quantity or quality of merchandise receive in bales or packages, provided he payable ninety days after date; the first shipment of 213 bales arrived on April
brings his action within the four days following it receipt, and that the damage 26, and the second of 288 bales on May 18, and the plaintiff the draft on May
is not due to accident or to natural defect of the merchandise or to fraud. 21 1918, and the transaction between the parties then became complete. On
In such cases the purchaser may choose between the rescission of the contract May 23, he cabled the defendant that the tobacco was unsatisfactory. On June
or its fulfillment in accordance with what has been agreed upon, but always 13, he cabled that there would be a loss. On June 28, he wrote the letter above
with the payment of the damages he may have suffered by reason of the quoted. September 5, the defendant wrote the New York Agency of the
defects or faults. Philippine National Bank that he would take the tobacco back on condition that
The vendor may avoid this claim by demanding when making the delivery that there was not any shortage in the number of bales. During all of this time, the
the merchandise be examined by the purchaser for his satisfaction with regard defendant had the use of plaintiff's money. It is true that the defendant offered
to the quantity and quality thereof. to take the tobacco back and refund the money, but this offer was not actually
Article 342: made to the plaintiff until October , and was upon the condition that the full
A purchaser who has not made any claim based on the inherent defects in the amount of the 501 bales should be returned, which was an impossible condition
article sold, within the thirty days following its delivery, shall lose all rights of for the plaintiff to perform. But the plaintiff did offer to account to the
action against the vendor for such defects. defendant for the tobacco which he had sold and to return all of the unsold
Whatever may be the rule as to sales which are completed within the tobacco which was then in his warehouse, and the defendant declined the
jurisdiction of the Philippine Islands, those sections do not, and were never offer. As a business man, he knew that the plaintiff has then purchased the
intended to, apply to a case founded upon the facts shown in the record. tobacco for the purpose of a resale, and that the tobacco had arrived at New
Although it is true that the contract between the plaintiff and the defendant York about five months before the offer was made, and he also knew that the
was made in Manila, yet at the time it was made the tobacco was on the high plaintiff was using every effort to sell it and convert it into money, and that he
seas, and under the contract, it was to be delivered "in good condition" in the would sell the whole or any part of it if a purchaser could be found at a
City of New York, in consideration of which the plaintiff agreed to pay the draft. reasonable price. At the time the defendant's offer was communicated to the
That is to say, the transaction was not complete until after the arrival of the plaintiff by the bank the plaintiff in turn offered to account to the defendant for
tobacco in New York "in good condition," and the payment of the draft. It must the entire proceeds of the 141 bales which he had already sold, and to deliver
be conceded that if, for any reason, the tobacco did not arrive in New York, the to him all of the unsold tobacco. This was all that the plaintiff could do under
defendant could not recover upon the draft from the plaintiff. Hence, it must the existing conditions. The fact that the defendant did not accept this offer is
follow that the delivery of the tobacco at New York was a condition precedent strong evidence that he was seeking an undue advantage, and that his offer to
which devolved upon the defendant to perform without which he would not plaintiff was not made in good faith.
have a cause of action against the plaintiff. The second shipment arrived in New York on May 18, and the plaintiff could
It is true that the writing recites "the shipment of 501 bales of tobacco sold not be expected to take any final action until the las shipment arrived. On
you." Yet, the fact remains that it was necessary to deliver the tobacco in New learning the true condition of the tobacco, the plaintiff cabled the defendant
York to complete the sale. on May 23 that it was unsatisfactory, and again on June 13, that there would
Contracts of this nature should be construed with reference to the surrounding be a substantial loss, which was followed by the letter of June 28th above
conditions and the relative situation of the parties. quoted.
At the time this contract was made both parties were in Manila, the tobacco The defects in the tobacco were inherent and could not be ascertained without
was in transit to New York, and the defendant knew that the plaintiff entered opening the bales and making a physical examination. When this was done, the
into the contract for the purpose of a resale. Soon after the contract was made, plaintiff promptly cabled the defendant that the tobacco was not satisfactory.
the plaintiff left Manila and went to New York where, relying upon this contract In the nature of things, the plaintiff could not then render the defendant a
with the defendant, he found purchasers for the tobacco on the assumption statement of the amount of this claim. By the terms of the contract, the
that it was "in good condition." defendant guaranteed the arrival of the tobacco in New York "in good
Although the word "sold" is used in the written contract, the transaction shows condition."
that the sale was not complete until the arrival of the goods in New York. Plaintiff's first cable sent ten days after the arrival of the tobacco advised the
The case of Middleton vs. Ballingall (1 Cal., 446), is somewhat in point, in which defendant that it was unsatisfactory, and the second, twenty-six days after its
the court says: arrival, advised him that there would be a loss.
I think that the fair construction to be put upon the contract is, that on the Appellant's attorneys have submitted a very able and adroit brief in which they
arrival of the ship containing the goods, the defendants should deliver them, severely criticize the evidence on the part of the plaintiff. Upon all of the
and the plaintiffs should pay the contract price. And the authorities hold that 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 December 13, 1957, appellees made representations to appellants that they
thousand miles of ocean between them. were ready to make the repurchase, as well as to Roxas for the latter to be
The plaintiff had parted with his money and honored the draft, expecting to sell ready to execute the corresponding deed of absolute sale in their favor after
the tobacco and get his money back with a profit. they had made the repurchase; that notwithstanding these demand and
The testimony is conclusive that the plaintiff in good faith tried to sell the representations, Roxas and appellants had deliberately failed to execute the
tobacco, and that he sold the 141 bales at the best obtainable price; that the corresponding deed of absolute sale and deed of resale already mentioned.
only reason why he did not sell the remainder was because the tobacco was On January 8, 1958 appellants filed a motion to dismiss the
not "in good condition;" and that when he first knew that it was not "in good complaint upon the ground that appellees had no cause of action against them
condition," he promptly cabled that defendant that it was unsatisfactory. because their contract was not them but with Laura A. Roxas. After due hearing,
As we construe the record, after the tobacco was inspected, the plaintiff lower court sustained the motion and dismissed the complaint because,
promptly advised the defendant that it was unsatisfactory, and that he would according to the same, "there exists no written contract of assignment of rights
have to sustain a loss, and in goo faith undertook to protect the defendant and executed by Laura A. Roxas in favor of the herein plaintiffs concerning property
to minimize the loss, and plaintiff's claim is not barred by the provisions of which said Laura A. Roxas sold to her co-defendants under a deed of pacto de
either article 336 or 342 of the Code of Commerce. retro sale, and that the purpose of the present action is precisely to compel
The judgment is affirmed, with costs. So ordered. Laura A. Roxas to execute the corresponding deed of assignment."
Araullo, C.J., Johnson, Malcolm, Avanceña, Villamor, Ostrand and Romualdez, However, on July 31, 1958, over appellants' objection, the lower
JJ., concur. court admitted the amended complaint previously filed by appellees. The
principal amendment introduced consisted in the allegation that on July 5,
G.R. No. L-17441 July 31, 1962 1957, for sum of P770.00, Laura A. Roxas had ceded to appellees her right to
WELGO DICHOSO, ET AL., vs. LAURA ROXAS, ET AL., repurchase the property from appellants; that on November 29, 1957, Roxas
DIZON, J.: had "ordered and author the said plaintiffs spouses to repurchase the said
Appeal from the following decision of the Court of First Instance of parcel land from the defendants vendee-a-retro after the 3 years period, which
Laguna: would terminate on December 13, 1957," and that on December 13, 1957,
WHEREFORE, the Court renders judgment ordering the plaintiffs to deposit appellees tendered to appellants the required sum with which to effect the
with the Clerk of this Court for the account of defendant Laura A. Roxas the repurchase, but that the latter refused to accept the same, thus compelling
amount of P320.00 and, upon the deposit of the said amount, defendant Laura appellees to consign the amount with the Office of Clerk, Court of First Instance
A. Roxas is ordered to execute a document transferring her rights, title and of Laguna.
interest in the land in controversy to plaintiffs Welgo Dichoso and Emilia Upon petition of appellants, the lower court on August 18, 1958,
Hernandez within five (5) days from such deposit. In the event that Laura A. ordered appellees to furnish, and the latter furnished appellants, with a copy
Roxas fails to execute the document within the aforementioned period, the of the alleged deed of assignment dated July 8, 1958, referred to in paragraph
same shall executed by the Clerk of Court in her behalf. 4 of the amended complaint, which deed reads as follows:
Defendants Celso Borja and Nelia Alanguilan are order to execute a TALASTASIN NG SINO MAN:
deed of re-sale of the land in controversy and the improvements thereon in Tinangap ko ngayong Julio 5, 1957 ang halagang Pit Dean at Pitong Pong
favor of plaintiffs Welgo Dichoso and Emilia Hernandez within five (5) days after (P770.00) peso cuartang pang kasal yan sa mag- asawa ni Welgo Dichoso at
the document transfer has been executed by or on behalf of Laura A. Roxas. If Emilia Hernandez, lang paunang bayad sa isang puesto kong lupa humigit
defendants Celso Borja and Nelia Alanguilan fail to do so, the Clerk of Court kumulang sa apat na raang tanim na niog.
shall execute the document in their behalf. At any time after the execution of Ang aming pinagkasondoan pag dating ng dalagang wang libong (P2,000.00)
the deed of re-sale, defendants Celso Borja and Nelia Alanguilan may withdraw pesong pagkakautang pate tobos walong daan at limang pong (P850.00) peso
from the People's Bank and Trust Company of San Pablo City the amount of sa pagka pag na mabibiling muli o sanla) sa magasawa ni Celso Borja Nelia
P850.00 which had been deposited by plaintiff Welgo Dichoso as repurchase Alanguilan ay mag gagawaan ng documento o kasulatan bilihang toloyan o
price and the People's Bank & Tru Company is ordered to deliver the said bintarial absoluta sa halagang dalawang libong (P2,000.00) peso na nasabe sa
amount to the aforementioned defendants. itaas nito.
The Court considers defendants Celso Borja and Nelia Alanguilan as Ang nasabing lupa ay nakatayo sa Salang lupa kung tawagin Bo. San Diego sakop
possessors in good faith and are not required account for the fruits that they ng Ciudad ng San Pablo. Sa katonayan na hinde ako sisira sa pinagusapan ay
have received from the Ian it controversy up to the time this decision becomes lumagda ako ng pangalan at apellido na kaharap ang isang testigo.
final. (Lgda.) Cosme Punto (Lgda.) Laura A. Roxas
Laura A. Roxas is ordered to return to defendants Celso Borja and A motion to dismiss the amended complaint was denied by the
Nelia Alanguilan the amount of P1,684.00 which she received as additional lower court for the reason that the grounds relied upon therein did not appear
purchase price for the land in controversy. to be indubitable and their consideration was deferred until after trial on the
All defendants are jointly and severally ordered to pay the costs. merits. Thereafter appellants filed their answer in which, after making specific
The complaint alleged, in substance, that on December 13, 1954, denial of some facts averred in the amended complaint, they alleged the
Laura A. Roxas sold to appellants for the sum of P850.00 a parcel of following affirmative defenses:
unregistered coconut land with an area of 16,965 square meters and with 393 1. That the alleged transfer of right to repurchase supposedly executed by
coconut trees, situated in Barrio San Diego, San Pablo, Laguna, subject to the defendant Laura A. Roxas in favor of plaintiffs herein is not in any manner a
condition, inter alia, that the vendor could repurchase it for the same amount transfer of right to repurchase but at most a receipt of indebtedness;
within five years, but not earlier than three years, from the date of the sale, 2. That even assuming although not admitting that there was a transfer of right
which was evidenced by a public document attached to the complaint as Annex to repurchase made by the defendant Laura A. Roxas in favor of the plaintiffs
A; that from November 26, 1955 to July 5, 1957, Roxas had received from regarding the property in question, yet said right to repurchase could not be
appellees several sums of money amounting to P770.00, their agreement being exercised by the plaintiffs considering that before December 13, 1957 arrived,
that after December 13, 1957, Roxas would sell the same property, by absolute the period within which the repurchase might be made, said land in question
sale, to appellees for the total sum of P2,000.00, the aforesaid sum of P770.00 had already become the absolute and exclusive property of the answering
to be considered as initial or advance payment on the purchase price; that out defendants herein.
of the balance of P1,230.00, appellees would use the sum of P850.00 to 3. That defendants spouses in the exercise of the rights of dominion over the
repurchase the property from appellants after December 13, 1954 but within property, had since December 13, 1957 harvested and are harvesting the fruits
the five years stipulated for the exercise of Roxas' right to repurchase; that on to date; and paid the taxes therefor; and had attended to the disposition of the
October 22, 1957, pursuant to Roxas' request made on July 23, 1957, appellees pro. proceeds therefrom;
sent her a check for the sum of P320.00 "in full payment of the P2,000.00 4. That whatever alleged agreement may have been entered into between
consideration for the deed of absolute sale" and thereafter they informed plaintiffs and defendant Laura Roxas cannot in any way affect third persons like
appellants of their readiness to repurchase the property; that on November 29, defendants spouses Celso Boria and Nelia Alanguilan, unless the same is in a
1957 Roxas sent them back the check just referred to with the request that they public document;
endorse the same to appellants when they made the repurchase, because it 5. That even assuming, although not admitting, that the Plaintiffs tendered into
appeared that, aside from the P850.00 consideration of the pacto de retro sale, the answering defendants the repurchase price of the land in question on or
Roxas had received additional sums from appellants; that again, after immediately after December 13, 1947, yet the answering defendants have all
the reasons and are justified in refusing to accept the said repurchase price 'If the same thing should have been sold to different vendees, the
considering that before said date of December 13, 1957, answering defendants ownership shall be transferred to the person who may have first taken
were already the absolute and exclusive owners of the land in question, subject possession thereof in good faith, if it should be movable property.
to no other conditions. 'Should there be no inscription, the ownership shall pertain to the person who in
As counterclaim, appellants alleged in their answer following facts: good faith was first in the possession; and, in the absence thereof, to the person
1. That the answering defendants incorporate and part hereof paragraph 1 of who presents the oldest title, provided there is good faith. (Emphasis supplied)
the plaintiffs' amended complaint; While it may be true that the defendants were in possession of the
2. That before this case was filed, plaintiffs knew f well that the property in land in controversy at the time Laura A. Roxas executed the deed of sale in favor
question is already owned absolute by answering defendants; and which of the plaintiffs, such possession was merely that of a "vendee a retro" and not
therefore, cannot be subject of repurchase anymore; as vendee in an absolute sale. It has also been held that with reference to
3. That plaintiff Welgo Dichoso was the agent who responsible for the unregistered lands, an earlier instrument, be it a sale or a mortgage, shall
consummation of the sale with right to purchase as a matter of fact he was the prevail over a later one, and the registration of any one of them is immaterial
witness to the s document; (Nisce vs. Milo, G.R. No. 42546, Jan. 1936; Nota vs. Concepcion, 56 Phil. 712,
4. That a parcel of land abutting this parcel in quest was likewise offered by cited in Noblejas, Land Titles and Deeds, 1955 ed., p. 207).
plaintiff Welgo Dichoso to defend spouses who acceded to buy the same on the The deed of confirmation of sale executed by Laura A. Roxas in favor
representation the former Dichoso that inasmuch as answering defendant are of defendants Celso Borja and Nelia Alanguilan on September 5, 1958, Exhibits
now the owners of the land in question, this smaller if united with the bigger "8", cannot in any manner prejudice the rights of the plaintiffs because the said
piece of property here in quest would not only enhance agriculture but would deed of confirmation was made more than nine (9) months after this case was
afford t greater benefits as to two parcels are adjoining to each other. filed. If the execution of the said deed of confirmation. It also proves the joint
5. Defendants spouses would not have bought the p property in question if not efforts of all the "I" executed by Laura A. Roxas in plaintiffs' favor.
for the assurance of Welgo Dichoso t co- defendant would sooner or later sell It is obvious that, in deciding the case, the lower court failed to give
same to them by of absolute sale; due weight to the private document Exhibit 7 (deed of absolute sale) executed
6. That in filing this case, plaintiffs have acted w evident bad faith, considering by Laura A. Roxas in favor of appellants on December 8, 1957 — in effect
that this case was only intended to harass answering defendants who are his superseding the pacto de retro sale mentioned heretofore for a total
first cousins a therefore ore must be required to pay answering defendants consideration of P1,684.00, of which the amount of P850.00 paid as
amount of P500.00 as exemplary damages; consideration for the pacto de retro sale was considered as a part. There is no
7. That because of the unwarranted and unjustified filing this case, the dispute at all as to the genuineness of this private deed of absolute sale nor as
answering defendants suffered damages in amount of P500.00 and will to its execution on December 8, 1957. that is, five days prior to December 13,
continue to suffer the same by of litigation expenses; and at the same time 1957, when. according to appellees themselves, they made the first attempt to
were compel to retain the services of counsel and are obliged to pay amount repurchase the property in question, and on which occasion appellants refused
of P1,000.00 in the concept of attorney's fees, to allow the repurchase "because Laura A. Roxas was not with them", according
On September 19, 1958, appellees filed a reply in which they alleged, inter alia, to the lower court. After December 8, 1957, appellants' rights were no longer
that when they offered to repurchase the property from appellants, on behalf based on the superseded pacto de retro sale but on the aforesaid deed of
of La A. Roxas, appellants had not become absolute and exclusive owners of the absolute sale — which was a perfectly valid contract as between the parties. In
property in question; that after the offer to repurchase made on December 13, plain words, after that date Laura A. Roxas no longer had any right to
1957, appellate became possessors in bad faith and were in duty bound to repurchase the property.
account for the fruits of the property; that although the agreement between Upon the other hand, appellees' contention that appellants were
appellees, on the ore hand, a Roxas, on the other, was not contained in a public aware of their agreement with Laura A. Roxas has not been sufficiently
instrument appellants were bound by it because they knew the agreement. substantiated. Appellees' own evidence shows that appellants became aware
Appellees also denied the facts alleged in the counterclaim. of their claim to the property when they tried, for the first time, to exercise the
On April 1, 1959, appellees filed a supplementary complaint right to repurchase on December 18, 1957 five days after the deed of absolute
wherein, on the claim that after July 23, 1958 the price of coconuts had sale in favor of said appellants. After a careful consideration of the issues and
considerably gone up, they prayed that the judgment for damages they sought the evidence, we believe that the lower court also erred in considering Exhibit
in the amended complaint be increased in amount accordingly. I, executed on July 5, 1957, as a deed of sale of the land in question in favor of
After trial upon the issues stated above, the lower court rendered appellees.
the appealed judgment, from which the Borja spouses appealed claiming that In the first place, the phraseology employed therein shows that the
the court committed the following errors: contract between the parties was a mere promise to sell, on the part of Roxas,
1. In not finding defendant-appellants Celso Boria and Nelia Alanguilan as the because the latter merely promised to execute a deed of absolute sale upon
true, lawful and absolute owners of the land in question, their title thereto appellees complaining payment to her of the total sum of P2,000.00, of which
being evidenced by public and private documents coupled by possession in the P850.00 to be paid to appellants for the repurchase of the property would
good faith and for value. be an integral part. This repurchase had not yet been made on July 5, 1957,
2. In not finding appellants Celso Borja and Nelia Alanguilan possessors as when this Exhibit I was executed. In the second place, an that date all that Roxas
absolute owners from December 8, 1957, the date of the execution of the deed could possibly sell or convey in relation to the property in question was her right
of absolute sale (Exh. "7") in their favor. to repurchase the same from appellants. Consequently, the best consideration
3. In not giving weight to the deed of confirmation (Exh. "8"), a public document that could be given to the private document Exhibit I is that it was an
executed to cure defects in proof only. assignment by Roxas to appellees of her right to repurchase of which —
4. In construing Exhibit "I" (a private document) as a document of sale and in according to the evidence — appellants had no knowledge until December 13,
extending its effects to third parties (appellants) who are total strangers to it. 1957 when appellees attempted to make the repurchase. Such being its
5. In not sustaining the plea of res judicata by the defendant-appellants. condition, it could not possibly give rise to the case of one and the same
The pertinent portions of the decision appealed from are the property having been sold to two different purchasers. The salt — in favor of
following: appellants was of the property itself, while the one in favor of appellees, if not
It appears from the evidence that Laura A. Roxas had sold her rights to the land a mere promise to assign, was at most an actual assignment of the right to
in controversy to two (2) different parties. The first one was on July 5, 1957, in repurchase the same property. The provisions of paragraph 3, Article 1544 of
favor of the plaintiffs Welgo Dichoso and Emilia Hernandez (Exh. "I"), and the the Civil Code of the Philippines do not, therefore, apply.
second one allegedly on December 8, 1957 in favor of defendants Celso Borja Having arrived at the above conclusions, we are constrained to hold
and Nelia Alanguilan (Exh. "7"). The principal question to be determined is that, upon the facts of the case, appellees are not entitled to the reliefs sought
which of these two documents shall prevail. Both the documents in favor of the in their amended complaint and that whatever remedy they have is exclusively
plaintiffs Exh. "I" and that in favor of the defendants Exh. "7" are private against Laura A. Roxas to recover from her, among other things, what they paid
documents same not having been acknowledged before a Notary Public. as consideration for the execution of the private document Exhibit I.
The Court is of the opinion that the document in favor of the plaintiffs being of WHEREFORE, the decision appealed from is reversed, with the result that this
an earlier date than the document in favor of the defendants shall prevail in case is dismissed, with costs, reserving to appellees, however, the right to file a
accordance with the provisions of paragraph 3 of Article 1544 of the Civil Code separate action against Laura A. Roxas to enforce whatever rights they may
of the Philippines which read as follows: have against her in consonance with this decision.
confirmation of its right to cancel the said contract. In the meantime, the
G.R. No. L-25885 January 31, 1972 contract between the Maritime Building Co., Inc. and the Luzon Brokerage Co.,
LUZON BROKERAGE CO., INC., vs. MARITIME BUILDING CO., INC., and MYERS Inc. was extended by mutual agreement for a period of four (4) more years,
BUILDING CO., INC., from April, 1964 to March 31, 1968.
The Maritime Building Co., Inc. now contends (1) that the Myers
REYES, J.B.L., J.:p Building Co., Inc. cannot cancel the contract entered into by them for the
Direct appeal (prior to the effectivity of Republic Act 5440) by Maritime Building conditional sale of the properties in question extrajudicially and (2) that it had
Co., Inc. from a decision of the Court of First Instance of Manila (in its Civil Case not failed to pay the monthly installments due under the contract and,
No. 47319), the dispositive part of which provides as follows: therefore, is not guilty of having violated the same.
FOR ALL THE FOREGOING CONSIDERATIONS, judgment is hereby It should be further elucidated that the suspension by the appellant
rendered declaring that the Myers Building Co., Inc. is entitled to receive the Maritime Building Co., Inc. (hereinafter called Maritime) of the payment of
rentals which the plaintiff has been paying, including those already deposited installments due from it to appellee Myers Building Co., Inc. (hereinafter
in Court, thereby relieving the plaintiff of any obligation to pay the same to any designated as Myers Corporation) arose from an award of backwages made by
other party, and ordering the Maritime Building Co., Inc. to pay the commission the Court of Industrial Relations in favor of members of Luzon Labor Union who
fees paid by the Myers Building Co., Inc. to the Clerk of this Court, plus the sum served the Fil-American forces in Bataan in early 1942 at the instance of the
of P3,000.00 as and for attorney's fees. employer Luzon Brokerage Co. and for which F. H. Myers, former majority
On the cross-claim by the Myers Building Co., Inc., the Maritima stockholder of the Luzon Brokerage Co., had allegedly promised to indemnify
Building Co., Inc. is hereby ordered to pay the Myers Building Co., Inc. the sum E. M. Schedler (who controlled Maritime) when the latter purchased Myers'
of P10,000.00 damages, plus the sum of P30,000.00, representing rentals stock in the Brokerage Company. Schedler contended that he was being sued
wrongfully collected by it from the plaintiff corresponding to the months of for the backpay award of some P325,000, when it was a liability of Myers, or of
March, April and May, 1961 and the costs hereof. the latter's estate upon his death. In his letter to Myers Corporation (Exhibit
The antecedents of the litigation are summarized in the appealed judgment "11", Maritime) dated 7 April 1961 (two months and ten days before the initial
thus: complaint in the case at bar), Schedler claimed the following:
This is an action for interpleading. At all times when the F. H. Myers Estate was open in the Philippine Islands and
It appears that on April 30, 1949, in the City of Manila, the defendant open in San Francisco, the Myers Estate or heirs assumed the defense of the
Myers Building Co., Inc., owner of three parcels of land in the City of Manila, Labor Union claims and led us to believe that they would indemnify us
together with the improvements thereon, entered into a contract entitled therefrom.
"Deed of Conditional Sale" in favor of Bary Building Co., Inc., later known as Recently, however, for the first time, and after both the Philippine and San
Maritime Building Co., Inc., whereby the former sold the same to the latter for Francisco F. H. Myers Estates were closed, we have been notified that the F. H.
P1,000,000.00, Philippine currency. P50,000.00 of this price was paid upon the Myers indemnity on the Labor Union case will not be honored, and in fact Mrs.
execution of the said contract and the parties agreed that the balance of Schedler and I have been sued in the Philippines by my successor in interest,
P950,000.00 was to be paid in monthly installments at the rate of P10,000.00 Mr. Wentholt, and have been put to considerable expense.
with interest of 5% per annum until the same was fully paid. You are advised that my wife and I, as the owners of the Maritime
In Par. (O), they agreed that in case of failure on the part of the vendee to pay Building Company, intend to withhold any further payments to Myers Building
any of the installments due and payable, the contract shall be annulled at the Company or Estate, in order that we can preserve those funds and assets to set
option of the vendor and all payments already made by vendee shall be off against the potential liability to which I am now exposed by the failure of
forfeited and the vendor shall have right to re-enter the property and take the Myers heirs to honor the indemnity agreement pertaining to the Labor
possession thereof. claims.
Later, the monthly installment of P10,000.00 above-stipulated with The trial court found the position of Schedler indefensible, and that
5% interest per annum was amended or decreased to P5,000.00 per month and Maritime, by its failure to pay, committed a breach of the sale contract; that
the interest was raised to 5-1/2% per annum. The monthly installments under Myers Company, from and after the breach, became entitled to terminate the
the contract was regularly paid by the Bary Building Co., Inc. and/or the contract, to forfeit the installments paid, as well as to repossess, and collect the
Maritime Co., Inc. until the end of February, 1961. It failed to pay the monthly rentals of, the building from its lessee, Luzon Brokerage Co., in view of the
installment corresponding to the month of March 1961, for which the Vice- terms of the conditional contract of sale stipulating that:
President, George Schedler, of the Maritime Building Co., Inc., wrote a letter to (d) It is hereby agreed, covenanted and stipulated by and between the parties
the President of Myers, Mr. C. Parsons, requesting for a moratorium on the hereto that the Vendor will execute and deliver to the Vendee a definite or
monthly payment of the installments until the end of the year 1961, for the absolute deed of sale upon the full payment by the vendee of the unpaid
reason that the said company was encountering difficulties in connection with balance of the purchase price hereinabove stipulated; that should the Vendee
the operation of the warehouse business. However, Mr. C. Parsons, in behalf of fail to pay any of the monthly installments, when due, or otherwise fail to
the Myers Estate, answered that the monthly payments due were not payable comply with any of the terms and conditions herein stipulated, then this Deed
to the Myers Estate but to the Myers Building Co., Inc., and that the Board of of Conditional Sale shall automatically and without any further formality,
Directors of the Myers Co., Inc. refused to grant the request for moratorium for become null and void, and all sums so paid by the Vendee by reason thereof,
suspension of payments under any condition. shall be considered as rentals and the Vendor shall then and there be free to
Notwithstanding the denial of this request for moratorium by the enter into the premises, take possession thereof or sell the properties to any
Myers Board of Directors the Maritime Building Co., Inc. failed to pay the other party.
monthly installments corresponding to the months of March, April and May, xxx xxx xxx
1961. Whereupon, on May 16, 1961, the Myers Building Co., Inc. made a (o) In case the Vendee fails to make payment or payments, or any part thereof,
demand upon the Maritime Building Co., Inc., for the payment of the as herein provided, or fails to perform any of the covenants or agreements
installments that had become due and payable, which letter, however, was hereof, this contract shall, at the option of the Vendor, be annulled and, in such
returned unclaimed. event, all payments made by the Vendee to the Vendor by virtue of this
Then, on June 5, 1961, the Myers Building Co., Inc. wrote the contract shall be forfeited and retained by the Vendor in full satisfaction of the
Maritime Building Co., Inc. another letter advising it of the cancellation of the liquidated damages by said Vendor sustained; and the said Vendor shall have
Deed of Conditional Sale entered into between them and demanding the return the right to forthwith re-enter, and take possession of, the premises subject-
of the possession of the properties and holding the Maritime Building Co., Inc. matter of this contract.
liable for use and occupation of the said properties at P10,000.00 monthly. "The remedy of forfeiture stated in the next-preceding paragraph shall not be
In the meantime, the Myers Building Co., Inc. demanded upon the Luzon exclusive of any other remedy, but the Vendor shall have every other remedy
Brokerage Co., Inc. to whom the Maritime Building Co., Inc. leased the granted it by virtue of this contract, by law, and by equity."
properties, the payment of monthly rentals of P10,000.00 and the surrender of From the judgment of the court below, the dispositive portion whereof has
the same to it. As a consequence, the Luzon Brokerage Co., Inc. found itself in been transcribed at the start of this opinion, Myers duly appealed to this Court.
a payment to the wrong party, filed this action for interpleader against the The main issue posed by appellant is that there has been no breach of contract
Maritime Building Co., Inc. by Maritime; and assuming that there was one, that the appellee Myers was
After the filing of this action, the Myers Building Co., Inc. in its not entitled to rescind or resolve the contract without recoursing to judicial
answer filed a cross-claim against the Maritime Building Co., Inc. praying for the process.
It is difficult to understand how appellant Maritime can seriously contend that until the full payment of the price, such payment, as we said, is a positive
its failure or refusal to pay the P5,000 monthly installments corresponding to suspensive condition, the failure of which is not a breach, casual or serious, but
the months of March, April and May, 1961 did not constitute a breach of simply an event that prevented the obligation of the vendor to convey title from
contract with Myers, when said agreement (transcribed in the Record on acquiring binding force, in accordance with Article 1117 of the Old Civil Code.
Appeal, pages 59-71) expressly stipulated that the balance of the purchase To argue that there was only a casual breach is to proceed from the assumption
price (P950,000) — that the contract is one of absolute sale, where non-payment is a resolutory
shall be paid at the rate of Ten Thousand Pesos (P10,000) monthly on or before condition, which is not the case.
the 10th day of each month with interest at 5% per annum, this amount to be But it is argued for Maritime that even if it had really violated the Contract of
first applied on the interest, and the balance paid to the principal thereof; and Conditional Sale with Myers, the latter could not extrajudicially rescind or
the failure to pay any installment or interest when due shall ipso factocause the resolve the contract, but must first recourse to the courts. While recognizing
whole unpaid balance of the principal and interest to be and become that paragraph (d) of the deed of conditional sale expressly provides inter
immediately due and payable. (Contract, paragraph b; Record on Appeal, page alia —
63) that should the Vendee fail to pay any of the monthly installments when due,
Contrary to appellant Maritime's averments, the default was not made in good or otherwise fail to comply with any of the terms and conditions herein
faith. The text of the letter to Myers (Exhibit "11", Maritime), heretofore stipulated, then this Deed of Conditional Sale shall automatically and without
quoted, leaves no doubt that the non-payment of the installments was the any further formality, become null and void, and all sums so paid by the Vendee
result of a deliberate course of action on the part of appellant, designed to by reason thereof shall be considered as rentals.. (Emphasis supplied)
coerce the appellee Myers Corporation into answering for an alleged promise herein appellant Maritime avers that paragraph (e) of the deed contemplates
of the late F. H. MYERS to indemnify E. W. Schedler, the controlling stock-holder that a suit should be brought in court for a judicial declaration of rescission. The
of appellant, for any payments to be made to the members of the Luzon Labor paragraph relied upon by Maritime is couched in the following, terms:
Union. This is apparent also from appellant's letter to his counsel (Exhibit "12", (e) It is also hereby agreed, covenanted and stipulated by and between the
Maritime): parties hereto that should the Vendor rescind this Deed of Conditional Sale, for
... I do not wish to deposit pesos representing the months of March, April and any of the reasons stipulated in the preceding paragraph, the Vendee by these
May, since the Myers refusal to honor the indemnity concerning the labor presents obligates itself to peacefully deliver the properties subject of this
claims has caused me to disburse (sic) roughly $10,000.00 to date in fees, cost contract to the Vendor, and in the event that the Vendee refuses to peacefully
and travel expenses. However, if the Myers people will deposit in trust with Mr. deliver the possession of the properties subject of this contract to the Vendor
C. Parsons 25,000 pesos to cover my costs to date, I will then deposit with Mr. in case of rescission, and a suit should be brought in court by the Vendor to
Parsons, in trust, 15,000 pesos for March, April and May and will also post a seek judicial declaration of rescission and take possession of the properties
monthly deposit of 5,000 pesos until the dispute is settled. The dispute won't subject of this contract, the Vendee hereby obligates itself to pay all the
be settled in my mind, unless and until: expenses to be incurred by reason of such suit and in addition obligates itself
a) The Myers people indemnify me fully the labor cases; to pay the sum of P10,000.00, in concept of damages, penalty and attorney's
b) The labor cases are terminated favorably to Luzon Brokerage and no liability fees.
exists; Correlation of this paragraph (e) with the preceding paragraph (d) of the Deed
c) The Myers people pay any judgment entered on the labor cases thereby of Conditional Sale (quoted in page 5 of this opinion) reveals no incompatibility
releasing me; or between the two; and the suit to "be brought in Court by the Vendor to seek
d) It is finally determined either in San Francisco or in the Philippines by a court judicial declaration of rescission" is provided for by paragraph(e) only in the
that the Myers heirs must honor the indemnity which Mr. F. H. Myers promised eventuality that, notwithstanding the automatic annulment of the deed under
when I purchased Luzon Brokerage Company. paragraph (d), the Vendee "refuses to peacefully deliver the possession of the
Yet appellant Maritime (assuming that it had validly acquired the claims of its properties subject of this contract". The step contemplated is logical since the
president and controlling stockholder, E. M. Schedler) could not ignore the fact Vendor can not, by himself, dispossess the Vendee manu militari, if the latter
that whatever obligation F. H. Myers or his estate had assumed in favor of should refuse to vacate despite the violation of the contract, since no party can
Schedler with respect to the Luzon Brokerage labor case was not, and could not take the law in his own hands. But the bringing of such an action in no way
have been, an obligation of appellee corporation (Myers Building Company). No contradicts or restricts the automatic termination of the contract in case the
proof exists that the board of directors of the Myers Corporation had agreed to Vendee (i.e., appellant Maritime) should not comply with the agreement.
assume responsibility for the debts (if any) that the late Myers or his heirs had Anyway, this Court has repeatedly held that —
incurred in favor of Schedler. Not only this, but it is apparent from the letters Well settled is, however, the rule that a judicial action for the rescission of a
quoted heretofore that Schedler had allowed the estate proceedings of the late contract is not necessary where the contract provides that it may be revoked
F. M. Myers to close without providing for any contingent liability in Schedler's and cancelled for violation of any of its terms and conditions" (Lopez vs.
favor; so that by offsetting the alleged debt of Myers to him, against the balance Commissioner of Customs, L-28235, 30 January 1971, 37 SCRA 327, 334,, and
of the price due under the "Deed of Conditional Sale", appellant Maritime was cases cited therein).1 (Emphasis supplied.)
in fact attempting to burden the Myers Building Company with an uncollectible Resort to judicial action for rescission is obviously not contemplated.... The
debt, since enforcement thereof against the estate of F. H. Myers was already validity of the stipulation can not be seriously disputed. It is in the nature of a
barred. facultative resolutory condition which in many cases has been upheld by this
Under the circumstances, the action of Maritime in suspending payments to Court. (Ponce Enrile vs. Court of Appeals, L-27549, 30 Sept. 1969; 29 SCRA 504).
Myers Corporation was a breach of contract tainted with fraud or malice (dolo), The obvious remedy of the party opposing the rescission for any reason being
as distinguished from mere negligence (culpa), "dolo" being succinctly defined to file the corresponding action to question the rescission and enforce the
as a "conscious and intentional design to evade the normal fulfillment of agreement, as indicated in our decision in University of the Philippines vs.
existing obligations" (Capistrano, Civil Code of the Philippines, Vol. 3, page 38), Walfrido de los Angeles, L-28602, 29 September 1970, 35 SCRA 107.
and therefore incompatible with good faith (Castan, Derecho Civil, 7th Ed., Vol. Of course, it must be understood that the act of a party in treating a contract
3, page 129; Diaz Pairo, Teoria de Obligaciones, Vol. 1, page 116). as cancelled or resolved on account of infractions by the other contracting party
Maritime having acted in bad faith, it was not entitled to ask the court to give must be made known to the other and is always provisional, being ever subject
it further time to make payment and thereby erase the default or breach that to scrutiny and review by the proper court. If the other party denies that
it had deliberately incurred. Thus the lower court committed no error in rescission is justified, it is free to resort to judicial action in its own behalf, and
refusing to extend the periods for payment. To do otherwise would be to bring the matter to court. Then, should the court, after due hearing, decide that
sanction a deliberate and reiterated infringement of the contractual obligations the resolution of the contract was not warranted, the responsible party will be
incurred by Maritime, an attitude repugnant to the stability and obligatory sentenced to damages; in the contrary case, the resolution will be affirmed, and
force of contracts. the consequent indemnity awarded to the party prejudiced.
From another point of view, it is irrelevant whether appellant Maritime's In other words, the party who deems the contract violated may consider it
infringement of its contract was casual or serious, for as pointed out by this resolved or rescinded, and act accordingly, without previous court action, but
Court in Manuel vs. Rodriguez, 109 Phil. 1, at page 10 — it proceeds at its own risk. For it is only the final judgment of the corresponding
The contention of plaintiff-appellant that Payatas Subdivision Inc. had no right court that will conclusively and finally settle whether the action taken was or
to cancel the contract as there was only a "casual breach" is likewise untenable. was not correct in law. But the law definitely does not require that the
In contracts to sell, where ownership is retained by the seller and is not to pass contracting party who believes itself injured must first file suit and wait for a
judgment before taking extrajudicial steps to protect its interest. Otherwise, rather than chance being sued by Myers, and later being compelled to proceed
the party injured by the other's breach will have to passively sit and watch its against Maritime to recoup its losses. In any event, Maritime ultimately
damages accumulate during the pendency of the suit until the final judgment confirmed the act of Luzon in suing for interpleader, by agreeing to renew
of rescission is rendered when the law itself requires that he should exercise Luzon's lease in 1963 during the pendency of the present action, and
due diligence to minimize its own damages (Civil Code, Article 2203). authorizing Luzon to continue depositing the rentals in court "until otherwise
Maritime likewise invokes Article 1592 of the Civil Code of the Philippines as directed by a court of competent jurisdiction" (Exhibit "18-Maritime"). The
entitling it to pay despite its default: procedural objection has thus become moot.
ART. 1592. In the sale of immovable property, even though it may have been PREMISES CONSIDERED, the appealed decision should be, and hereby is,
stipulated that upon failure to pay the price at the time agreed upon the affirmed, and appellant Maritime Building Co., as well as appellee Luzon
rescission of the contract shall of right take place, the vendee may pay, even Brokerage Co., are further ordered to surrender the premises to the appellee
after the expiration of the period, as long as no demand for rescission of the Myers Building Co. Costs against appellant.
contract has been made upon him either judicially or by a notarial act. After the Concepcion, C.J., Makalintal, Zaldivar, Castro, Teehankee, Barredo, Villamor and
demand, the court may not grant him a new term. Makasiar, JJ., concur.
Assuming arguendo that Article 1592 is applicable, the cross-claim filed by Fernando, J., took no part.
Myers against Maritime in the court below constituted a judicial demand for
rescission that satisfies the requirements of said article. G.R. No. 156171 April 22, 2005
But even if it were not so, appellant overlooks that its contract with appellee Spouses RICARDO and FERMA PORTIC vs ANASTACIA CRISTOBAL,
Myers is not the ordinary sale envisaged by Article 1592, transferring ownership
simultaneously with the delivery of the real property sold, but one in which the DECISION
vendor retained ownership of the immovable object of the sale, merely PANGANIBAN, J.:
undertaking to convey it provided the buyer strictly complied with the terms of An agreement in which ownership is reserved in the vendor and is not to pass
the contract (see paragraph [d], ante, page 5). In suing to recover possession of to the vendee until full payment of the purchase price is known as a contract to
the building from Maritime, appellee Myers is not after the resolution or setting sell. The absence of full payment suspends the vendors obligation to convey
aside of the contract and the restoration of the parties to the status quo ante, title. This principle holds true between the parties, even if the sale has already
as contemplated by Article 1592, but precisely enforcing the provisions of the been registered. Registration does not vest, but merely serves as evidence of,
agreement that it is no longer obligated to part with the ownership or title to a particular property. Our land registration laws do not give title holders
possession of the property because Maritime failed to comply with the any better ownership than what they actually had prior to registration.
specified condition precedent, which is to pay the installments as they fell due. The Case
The distinction between contracts of sale and contract to sell with reserved title Before us is a Petition for Review[1] under Rule 45 of the Rules of Court,
has been recognized by this Court in repeated decisions2 upholding the power challenging the January 29, 2002Decision[2] and the November 18,
of promisors under contracts to sell in case of failure of the other party to 2002 Resolution[3] of the Court of Appeals (CA) in CA-GR CV No. 66393. The
complete payment, to extrajudicially terminate the operation of the contract, assailed Decision disposed as follows:
refuse conveyance and retain the sums or installments already received, where WHEREFORE, foregoing considered, the appealed decision is hereby
such rights are expressly provided for, as in the case at bar. REVERSED and SET ASIDE. A new one is hereby entered ORDERING defendant-
Maritime's appeal that it would be iniquituous that it should be compelled to appellant to pay the unpaid balance of P55,000.00 plus legal interest of 6% per
forfeit the P973,000 already paid to Myers, as a result of its failure to make annum counted from the filing of this case. The ownership of defendant-
good a balance of only P319,300.65, payable at P5,000 monthly, becomes appellant over the subject property is hereby confirmed.
unimpressive when it is considered that while obligated to pay the price of one No pronouncement as to costs.[4]
million pesos at P5,000 monthly, plus interest, Maritime, on the other hand, In the challenged Resolution,[5] the CA denied petitioners Motion for
had leased the building to Luzon Brokerage, Inc. since 1949; and Luzon paid Partial Reconsideration.
P13,000 a month rent, from September, 1951 to August 1956, and thereafter The Facts
until 1961, at P10,000 a month, thus paying a total of around one and a half The facts were summarized by the appellate court as follows:
million pesos in rentals to Maritime. Even adding to Maritime's losses of Spouses Clodualdo Alcantara and Candelaria Edrosalam were the
P973,000 the P10,000 damages and P3,000 attorneys' fees awarded by the trial original registered owners of a parcel of land with three-door apartment,
court, it is undeniable that appellant Maritime has come out of the entire located at No. 9, 1st Street BBB, Marulas, Valenzuela City. Transfer Certificate of
transaction still at a profit to itself. Title No. T-71316 was issued in the names of spouses Clodualdo Alcantara and
There remains the procedural objection raised by appellant Maritime to this Candelaria Edrosalam.
interpleader action filed by the Luzon Brokerage Co., the lessee of the building On October 2, 1968, spouses Clodualdo Alcantara and Candelaria
conditionally sold by Myers to Maritime. It should be recalled that when Edrosalam sold the subject property in favor of [petitioners] with the condition
Maritime defaulted in its payments to Myers, and the latter notified the former that the latter shall assume the mortgage executed over the subject property
that it was cancelling the contract of conditional sale, Myers also notified Luzon by spouses Clodualdo Alcantara and Candelaria Edrosalam in favor of the Social
Brokerage, Maritime's lessee of the building, of the cancellation of the sale, and Security System.
demanded that Luzon should pay to Myers the rentals of the building beginning [Petitioners] defaulted in the payment of the monthly amortizations due
from June, 1961, under penalty of ejectment (Record on Appeal, pages 14-15). on the mortgage. The Social Security System foreclosed the mortgage and sold
In doubt as to who was entitled to the rentals, Luzon filed this action for the subject property at public auction with the Social Security System as the
interpleader against Myers and Maritime, and deposited the rentals in court as highest bidder.
they fell due. The appellant Maritime moved to dismiss on the ground that (a) On May 22, 1984, before the expiration of the redemption period,
Luzon could not entertain doubts as to whom the rentals should be paid since [petitioners] sold the subject property in favor of [respondent] in consideration
Luzon had leased the building from Maritime since 1949, renewing the contract of P200,025.89. Among others, the parties agreed that [respondent] shall pay
from time to time, and Myers had no right to cancel the lease; and (b) that the sum of P45,025.89 as down payment and the balance of P155,000.00 shall
Luzon was not a disinterested party, since it tended to favor appellee Myers. be paid on or before May 22, 1985. The parties further agreed that in case
The court below overruled Maritime's objections and We see no plausible [respondent] should fail to comply with the conditions, the sale shall be
reason to overturn the order. While Myers was not a party to the lease, its considered void and [petitioners] shall reimburse [respondent] of whatever
cancellation of the conditional sale of the premises to Maritime, Luzon's lessor, amount already paid.
could not but raise reasonable doubts as to the continuation of the lease, for On the same date, [petitioners] and [respondent] executed a Deed of Sale
the termination of the lessor's right of possession of the premises necessarily with Assumption of Mortgage whereby [petitioners] sold the subject property
ended its right to the rentals falling due thereafter. The preceding portion of in favor of [respondent] in consideration of P80,000.00, P45,000.00 thereof
our opinion is conclusive that Luzon's doubts were grounded under the law and shall be paid to the Social Security System.
the jurisprudence of this Court. On July 30, 1984, spouses Clodualdo Alcantara and Candelaria Edrosalam,
No adequate proof exists that Luzon was favoring any one of the contending the original owners of the subject property, sold the subject property in favor
parties. It was interested in being protected against prejudice deriving from the of [respondent] for P50,000.00.
result of the controversy, regardless of who should win. For the purpose it was
simpler for Luzon to compel the disputants to litigate between themselves,
On the same date, [respondent] executed a Deed of Mortgage Nature of the Action: Quieting of Title or Enforcement of a Written Contract
whereby [respondent] constituted a mortgage over the subject property to Petitioners argue that the action they filed in the RTC was for the
secure a P150,000.00 indebtedness in favor of [petitioners]. quieting of title. Respondents demand that they desist from entering into new
[Respondent] paid the indebtedness due over the subject property to the lease agreements with the tenants of the property allegedly attests to the fact
Social Security System. of their possession of the subject premises.[15] Further, they point to the
On August 6, 1984, Transfer Certificate of Title No. T-71316 in the names existence of Civil Case No. 7446, an action for unlawful detainer that
of spouses Clodualdo Alcantara and Candelaria Edrosalam was cancelled and in respondent filed against them,[16] as further proof of that fact. Being in
lieu thereof Transfer Certificate of Title No. T-113299 was issued in the name continuous possession of the property, they argue that their action for the
of [respondent]. quieting of title has not prescribed.[17]
On May 20, 1996, [petitioners] demanded from [respondent] the alleged On the other hand, respondent joins the appellate court in characterizing
unpaid balance of P55,000.00. [Respondent] refused to pay. the action petitioners filed in the RTC as one for the enforcement of the MOA.
On June 6, 1996, [petitioners] filed this instant civil case against Being based on a written instrument, such action has already prescribed,
[respondent] to remove the cloud created by the issuance of TCT No. T-113299 respondent claims.[18] She adds that petitioners could not have been in
in favor of [respondent]. [Petitioners] claimed that they sold the subject continuous possession of the subject property because, under a duly notarized
property to [respondent] on the condition that [respondent] shall pay the lease agreement, they have been paying her a monthly rental fee of P500,
balance on or before May 22, 1985; that in case of failure to pay, the sale shall which was later increased to P800.
be considered void and [petitioners] shall reimburse [respondent] of the Two questions need to be answered to resolve the present case; namely,
amounts already paid; that [respondent] failed to fully pay the purchase price (1) whether Cristobals title to the property is valid; and (2) whether the Portics
within the period; that on account of this failure, the sale of the subject are in possession of the premises, a fact that would render the action for
property by [petitioners] to [respondent] is void; that in spite of this failure, quieting of title imprescriptible.
[respondent] required [petitioners] to sign a lease contract over the apartment Validity of Title
which [petitioners] occupy; that [respondent] should be required to reconvey The CA held that the action for the quieting of title could not
back the title to the subject property to [petitioners]. prosper, because Cristobals title to the property was amply supported by
[Respondent] on her part claimed that her title over the subject property evidence.
is already indefeasible; that the true agreement of the parties is that embodied Article 476 of the Civil Code provides as follows:
in the Deed of Absolute Sale with Assumption of Mortgage; that [respondent] Whenever there is a cloud on title to real property or any interest therein, by
had fully paid the purchase price; that [respondent] is the true owner of the reason of any instrument, record, claim, encumbrance or proceeding which is
subject property; that [petitioners] claim is already barred by laches.[6] apparently valid or effective but is in truth and in fact invalid, ineffective,
After trial, the Regional Trial Court (RTC) of Valenzuela City rendered voidable, or unenforceable, and may be prejudicial to said title, an action may
this judgment in favor of petitioners: be brought to remove such cloud or to quiet the title.
WHEREFORE, premises considered, this Court hereby adjudicates An action may also be brought to prevent a cloud from being cast upon
on this case as follows: title to real property or any interest therein.
1.) The Court hereby orders the quieting of title or removal of cloud over the Suits to quiet title are characterized as proceedings quasi in
[petitioners] parcel of land and three (3) door apartment now covered by rem.[19] Technically, they are neither in rem nor in personam. In an action quasi
Transfer Certificate of Title No. T-113299 of the Registry of Deeds in rem, an individual is named as defendant.[20] However, unlike suits in rem,
for Caloocan City and Tax Declaration Nos. C-018-00235 & C-031-012077 a quasi in rem judgment is conclusive only between the parties.[21]
respectively, of Valenzuela City; Generally, the registered owner of a property is the proper party to
2.) The Court hereby orders the [respondent] to reconvey in favor of the bring an action to quiet title. However, it has been held that this remedy may
[petitioners] the parcel of land and three (3) door apartment now covered by also be availed of by a person other than the registered owner because, in the
Transfer Certificate of Title No. T-113299 of the Registry of Deeds of Caloocan Article reproduced above, title does not necessarily refer to the original or
City after reimbursement by the [petitioners] of the amount actually paid by transfer certificate of title.[22] Thus, lack of an actual certificate of title to a
the [respondent] in the total amount of P145,025.89; property does not necessarily bar an action to quiet title. As will be shown later,
3.) The Court hereby DENIES damages as claimed by both parties.[7] petitioners have not turned over and have thus retained their title to the
Ruling of the Court of Appeals property.
The Court of Appeals opined that the first Memorandum of Agreement (MOA) On the other hand, the claim of respondent cannot be sustained.
embodied the real agreement between the parties, and that the subsequent The transfer of ownership of the premises in her favor was subject to the
Deeds were executed merely to secure their respective rights over the suspensive condition stipulated by the parties in paragraph 3 of the MOA,
property.[8] The MOA stated that Cristobal had not fully paid the purchase price. which states as follows:
Although this statement might have given rise to a cause of action to annul the 3. That while the balance of P155,000.00 has not yet been fully paid the FIRST
Deed of Sale, prescription already set in because the case had been filed PARTY OWNERS shall retain the ownership of the above described parcel of
beyond the ten-year reglementary period,[9]as observed by the CA. land together with its improvements but the SECOND PARTY BUYER shall have
Nonetheless, in conformity with the principle of unjust enrichment, the the right to collect the monthly rentals due on the first door (13-A) of the said
appellate court ordered respondent to pay petitioners the remaining balance apartment;[23]
of the purchase price.[10] The above-cited provision characterizes the agreement between
In their Motion for Partial Reconsideration, petitioners contended the parties as a contract to sell, not a contract of sale. Ownership is retained by
that their action was not one for the enforcement of a written contract, but the vendors, the Portics; it will not be passed to the vendee, the Cristobals, until
one for the quieting of title -- an action that was imprescriptible as long as they the full payment of the purchase price. Such payment is a positive suspensive
remained in possession of the premises.[11] The CA held, however, that the condition, and failure to comply with it is not a breach of obligation; it is merely
agreement between the parties was valid, and that respondents title to the an event that prevents the effectivity of the obligation of the vendor to convey
property was amply supported by the evidence.[12] Therefore, their action for the title.[24] In short, until the full price is paid, the vendor retains ownership.
the quieting of title would not prosper, because they failed to show the The mere issuance of the Certificate of Title in favor of Cristobal did not
invalidity of the cloud on their title. Hence, this Petition.[13] vest ownership in her. Neither did it validate the alleged absolute purchase of
The Issue the lot. Time and time again, this Court has stressed that registration does not
In its Memorandum, petitioners raise the following issues for our vest, but merely serves as evidence of, title. Our land registration laws do not give
consideration: the holders any better title than that which they actually have prior to registration. [25]
(1) Whether or not the [petitioners] cause of action is for quieting of title. Under Article 1544 of the Civil Code, mere registration is not enough to
(2) Whether or not the [petitioners] cause of action has prescribed. acquire a new title. Good faith must concur.[26] Clearly, respondent has not yet
The main issue revolves around the characterization of the parties agreement fully paid the purchase price. Hence, as long as it remains unpaid, she cannot
and the viability of petitioners cause of action. feign good faith. She is also precluded from asserting ownership against
This Courts Ruling petitioners. The appellate courts finding that she had a valid title to the
The Petition has merit. property must, therefore, be set aside.

Main Issue: Continuous Possession


The issue of whether the Portics have been in actual, continuous On November 17, 1986, the heirs of Mascuana filed a Complaint[15] for recovery
possession of the premises is necessarily a question of fact. Well-entrenched is of possession of Lot No. 124-B and damages with a writ of preliminary
the rule that findings of fact of the Court of Appeals, when supported by injunction, alleging that they owned the subject lot by virtue of successional
substantial evidence, are final and conclusive and may not be reviewed on rights from their deceased father. They averred that Barte surreptitiously
appeal.[27] This Court finds no cogent reason to disturb the CAs findings entered the premises, fenced the area and constructed a house thereon
sustaining those of the trial court, which held that petitioners had been in without their consent. Attached as annexes to the complaint were TCT No.
continuous possession of the premises. For this reason, the action to quiet title 8986 and a certification[16] from the Office of the City Treasurer, Land Tax
has not prescribed. Division, vouching that the property in question was owned by the petitioners
and that they had paid the taxes thereon until 1992.
WHEREFORE, the Petition is GRANTED. The challenged Decision and Resolution In his answer to the complaint, Barte admitted having occupied a portion of Lot
of the Court of Appeals are REVERSED and SET ASIDE. The Decision of the RTC No. 124-B, but claimed that he secured the permission of Rodolfo Layumas, the
of Valenzuela City in Civil Case No. 4935-V-96, dated September 23, 1999, is owner of the subject property. He added that he did not fence the property,
hereby REINSTATED. No pronouncement as to costs. and that the petitioners did not use the same as a passageway in going to Broce
SO ORDERED. Street from their house. Barte raised the following special defenses: (a) the
petitioners were estopped from asserting ownership over the lot in question
[G.R. No. 158646. June 23, 2005] because they did not object when he occupied the said portion of the lot; (b)
HEIRS OF JESUS M. MASCUANA, vs. COURT OF APPEALS neither did the petitioners protest when a church was built on the property, or
DECISION when residential houses were constructed thereon; (c) the petitioners still
CALLEJO, SR., J.: asked Barte and the other occupants whether they had notified Rodolfo
This is a petition for review on certiorari of the Decision[1] of the Court of Layumas of the constructions on the property; and (d) the heirs of Mascuana,
Appeals (CA) in CA-G.R. CV No. 53117 affirming the Decision[2] of the Regional through the lawyer of Mrs. Renee M. Tedrew, even wrote a letter[17] to Rodolfo
Trial Court (RTC) of San Carlos City, Negros Occidental, which ordered the Layumas on October 1, 1985, expressing her willingness to buy the subject
dismissal of the petitioners complaint for recovery of possession and damages. property for US$1,000.00.
The Antecedents On April 8, 1991, the spouses Layumas filed a Motion for Leave to
Gertrudis Wuthrich and her six other siblings were the co-owners of a parcel of Intervene,[18] alleging therein that they had a legal interest in Lot No. 124-B-1
land identified as Lot No. 124 of the San Carlos City, Negros Occidental as its buyers from Sumilhig, who in turn purchased the same from Mascuana.
Cadastre, with an area of 1,729 square meters and covered by Transfer In their answer in intervention,[19] the spouses Layumas alleged that they were
Certificate of Title (TCT) No. 1453-R (T-29937)-38.[3] Over time, Gertrudis and the true owners of the subject property and that they had wanted to pay the
two other co-owners sold each of their one-seventh (1/7) shares, or a total area taxes thereon, but the Land Tax clerk refused to receive their payments on
of 741 square meters, to Jesus Mascuana. The latter then sold a portion of his account that the petitioners had already made such payment. The spouses
140-square-meter undivided share of the property to Diosdado Sumilhig. Layumas further maintained that the petitioners had no cause of action against
Mascuana later sold an additional 160-square-meter portion to Sumilhig on Barte, as they had authorized him to occupy a portion of Lot No. 124-B-1. The
April 7, 1961. However, the parties agreed to revoke the said deed of sale and, spouses Layumas also averred that the petitioners were estopped from denying
in lieu thereof, executed a Deed of Absolute Sale on August 12, 1961. In the their right of ownership and possession of the subject lot, as one of them had
said deed, Mascuana, as vendor, sold an undivided 469-square-meter portion even offered to repurchase a portion of Lot No. 124-B via letter. The said
of the property for P4,690.00, with P3,690.00 as down payment, and under the spouses interposed a counterclaim for damages, claiming ownership over the
following terms of payment: property, and prayed, thus:
That the balance of ONE THOUSAND PESOS (P1,000.00) shall be paid by the WHEREFORE, it is most respectfully prayed that this HONORABLE COURT
VENDEE unto the VENDOR as soon as the above-portions of Lot 124 shall have render judgment in favor of the Intervenors and the defendant Aquilino Barte,
been surveyed in the name of the VENDEE and all papers pertinent and ordering:
necessary to the issuance of a separate Certificate of Title in the name of the 1. That the complaint against Aquilino Barte be dismissed with costs against the
VENDEE shall have been prepared.[4] plaintiff;
On December 31, 1961, Mascuana and Jose G. Estabillo executed a Deed of 2. That the Intervenors spouses Judge Rodolfo S. Layumas and Corazon A.
Exchange and Absolute Sale of Real Estate,[5] in which Estabillo deeded to Layumas be declared as the legal and true owners of Lot 124-B;
Mascuana a portion of his property abutting that of Sumilhig on the southeast. 3. That the plaintiffs should deliver immediately to the Intervenors, TCT No.
In the meantime, a survey was conducted for the co-owners of Lot No. 124 on 8986 which is in their possession;
July 9, 1962. The subdivision plan of the said lot was approved by the Director 4. That the plaintiffs be made to pay to the Intervenors the sum of THIRTY
of Lands on August 2, 1962. The portion of the property deeded to Sumilhig THOUSAND (P30,000.00) PESOS moral damages; TEN THOUSAND (P10,000.00)
was identified in the said plan as Lot No. 124-B.[6] PESOS attorneys fees plus THREE HUNDRED (P300.00) PESOS as appearance fee
Meanwhile, Mascuana died intestate on April 20, 1965 and was survived by his per hearing.
heirs, Eva M. Ellisin, Renee Hewlett, Carmen Vda. de Opea, Marilou Dy and Jose Intervenors pray for such other relief and remedies as may be deemed by this
Ma. R. Mascuana. Honorable Court as just and equitable in the premises.
On April 24, 1968, Sumilhig executed a Deed of Sale of Real Property[7] on a At the trial, intervenor Rodolfo Layumas testified that he and his wife bought
portion of Lot No. 124-B with an area of 469 square meters and the the subject property in 1968, and that nobody objected to their possession of
improvements thereon, in favor of Corazon Layumas, the wife of Judge Rodolfo the land, including the petitioners. In 1970, a religious organization asked his
Layumas, for the price of P11,000.00. The spouses Layumas then had the permission to construct a chapel on the disputed lot; he allowed the
property subdivided into two lots: Lot No. 124-B-2 with an area of 71 square construction since the same would be used for the fiesta. He further declared
meters under the name of Jesus Mascuana, and Lot No. 124-B-1, with an area that part of the chapel still stood on the property. In 1985, a fire razed the
of 469 square meters under their names.[8] The spouses Layumas took towns public market, thereby dislocating numerous people. Barte was one of
possession of the property and caused the cutting of tall grasses thereon. Upon the fire victims, who also happened to be a good friend and political supporter
the plea of a religious organization, they allowed a chapel to be constructed on of Rodolfo. Out of goodwill, Barte was allowed to occupy a portion of the said
a portion of the property.[9] In January 1985, the spouses Layumas allowed lot, along with some other fire victims. Rodolfo clarified that the others were to
Aquilino Barte to stay on a portion of the property to ward off stay there only on a temporary basis, but admitted that Bartes children also
squatters.[10] Barte and his kin, Rostom Barte, then had their houses stayed in the subject property.[20]
constructed on the property. Rodolfo Layumas further narrated that in 1987, Corazon wrote one of the
On October 1, 1985, the spouses Layumas received a Letter[11] from the counsel petitioners-heirs, Pepito Mascuana, requesting that the title of the lot be
of Renee Tedrew, offering to buy their share of the property for US$1,000.00. transferred in Sumilhigs name so that they could likewise arrange for the
For her part, Corazon Layumas wrote Pepito Mascuana, offering to pay the conveyance of the title in their names. Pepito failed to claim the letter, and
amount of P1,000.00, the balance of the purchase price of the property under thereafter, filed a case of ejectment against Barte and Rodolfo Layumas
the deed of absolute sale executed by Mascuana and Sumilhig on August 12, brother-in-law, Pepito Antonio. The case, the witness added, was dismissed as
1961.[12]However, the addressee refused to receive the mail matter.[13] against the two parties. Offered in evidence were the following: a Sworn
Unknown to the spouses Layumas, TCT No. 8986[14] was issued over Lot No. Statement on the Current and Fair Market Value of the Real Property issued in
124-B in the name of Jesus Mascuana on March 17, 1986. 1973 as required by Presidential Decree No. 76, and tax receipts.[21]
Rodolfo Layumas admitted on cross-examination that at the time they bought We note that the original action of the petitioners against Aquilino Barte was
the property from Sumilhig, the title was still in the possession of the Wuthrich one for recovery of possession of Lot No. 124-B. With the intervention of the
family. He added that he filed an adverse claim before the Register of Deeds of respondents Rodolfo and Corazon Layumas who claimed ownership over the
San Carlos City, Negros Occidental, on Lot No. 124-B in January 1986, or after property, and the acquiescence of the parties, evidence was adduced to prove
the case had already been filed in court. Lastly, the witness deposed that he did who, between the petitioners (as plaintiffs) and the respondents (as
not fence the property after buying the same, but that his brother-in-law defendants-intervenors) were the lawful owners of the subject property and
constructed a coco-lumber yard thereon upon his authority.[22] entitled to its possession.
On January 30, 1996, the trial court rendered judgment in favor of Barte and The petitioners resolutely contend that the Deed of Absolute Sale dated August
the spouses Layumas. The fallo of the decision reads: 12, 1961 between their father and Sumilhig was a mere contract to sell because
WHEREFORE, premises considered, judgment is hereby rendered in favor of at the time of the said sale, the late Mascuana was not yet the registered owner
Intervenors-counterclaimants and defendant and against plaintiffs- of Lot No. 124 or any of its portions. They assert that Sumilhig could not have
counterclaim defendants ordering as follows: acquired any rights over the lot due to the fact that a person can only sell what
1. The dismissal of the plaintiffs complaint with costs against them; he owns or is authorized to sell, and the buyer can acquire no more than what
2. The plaintiffs to jointly pay Intervenors-counterclaimants now RTC Judge the seller can transfer legally. Finally, the petitioners insist that the document
Rodolfo S. Layumas and Corazon A. Layumas: in controversy was subject to a suspensive condition, not a resolutory
(a) P10,000.00 for attorneys fees; and condition, which is a typical attribute of a contract of sale.
(b) P30,000.00 as moral damages; The petition is denied for lack of merit.
3. The plaintiffs, as counterclaim defendants, to comply with the above-stated The issues raised by the petitioners in this case are factual, and under Rule 45
obligation of their late father, Mr. Jesus Mascuana, under the Deed of Absolute of the Rules of Court, only questions of law may be raised in this Court, the
Sale, Exh. 3, pp. 92-93, Exp., thru plaintiff Mr. Jose Mascuana, including the reason being that this Court is not a trier of facts. It is not to re-examine the
desegragation (sic) survey to desegregate the 469-square-meter portion of said evidence on record and to calibrate the same. Moreover, the findings and
Lot No. 124-B, San Carlos Cadastre, this province, sold to the late Diosdado conclusions of the trial court as affirmed by the CA are conclusive on the Court,
Sumilhig, if the same has not yet been done despite what has been said herein absent of any evidence that the trial court, as well as the CA ignored,
earlier to said effect, and the execution of the Final Deed of Sale in their misinterpreted and misconstrued facts and circumstances of substance which,
capacity as the heirs and successors-in-interest of the late Mr. Jesus Mascuana, if considered, would alter or reverse the outcome of the case.[26]
thru Mr. Jose Mascuana, covering the 469-square-meter desegregated portion We have reviewed the records and find no justification for a reversal or even a
of said Lot No. 124-B, within sixty (60) days counted from the finality of this modification of the assailed decision of the CA.
Decision, in favor of the Intervenors-spouses, after which the said Intervenors- Even on the merits of the petition, the Court finds that the decision of the trial
spouses shall pay them, thru Mr. Jose Mascuana, the P1,000.00 balance due to court as well as the ruling of the CA are based on the evidence on record and
them as successors-in-interest of the late Mr. Jesus Mascuana; the applicable law.
4. In case plaintiffs fail to comply with what are herein ordered for them to do, The petitioners reiterated their pose that the deed of absolute sale over the
the Clerk of Court V of this Court to do all that they were to do as herein ordered property executed by their father, Jesus Mascuana, as vendor, and Diosdado
in the text and dispositive portion hereof, at the expense of Intervenors spouses Sumilhig as vendee, was a contract to sell and not a contract of sale. They assert
to be later reimbursed by plaintiffs, including the desegragation (sic) survey of that on its face, the contract appears to be a contract to sell, because the
said 469-square-meter portion of said Lot [No.] 124-B, San Carlos Cadastre, payment of the P1,000.00 balance of the purchase price was subject to a
Negros Occidental, if the same has not yet been done and the execution of the suspensive condition: the survey of the property, the segregation of the portion
Final Deed of Sale on behalf of all the plaintiffs as heirs and successors-in- thereof subject of the sale, and the completion of the documents necessary for
interest of the late Mr. Jesus Mascuana covering the said desegregated portion the issuance of a Torrens title over the property to and in the name of Sumilhig
of 469 square meters of the aforesaid lot, in favor of Intervenors spouses, to who was the vendee. The petitioners assert that Sumilhig never paid the
the end that separate title therefor may be issued in their names, after they aforesaid amount to the vendor; hence, the obligation of the latter and his
shall have paid the P1,000.00 balance due plaintiffs under said Deed of predecessors-in-interest (herein petitioners) to execute a final deed of sale
Absolute Sale, Exh. 3. never arose. As such, they aver, title to the property remained reserved in the
SO ORDERED.[23] vendor and his heirs even after his death. There was no need for the vendor to
Forthwith, the petitioners appealed the case to the CA, raising the following rescind the deed or collect the said amount of P1,000.00 under Article 1191 of
issues of fact and law: the New Civil Code because such a remedy applies only to contracts of sale. The
a. Whether or not the contract of alienation of Lot No. 124-B in favor of petitioners insist that Sumilhig never acquired title over the property; he could
Diosdado Sumilhig in 1961 was a contract to sell or a contract of sale; not have transferred any title to the respondents. Sumilhig could not have
b. Whether or not Diosdado Sumilhig had any right to sell Lot No. 124-B in favor transferred that which he did not own.
of intervenor Corazon Layumas in 1968.[24] The petitioners contention has no factual and legal bases.
On May 5, 2003, the CA affirmed the decision of the trial court. It ruled that the The deed of absolute sale executed by Jesus Mascuana and Sumilhig, provides,
contract between the petitioners father and Sumilhig was one of sale. thus:
Foremost, the CA explained, the contract was denominated as a Deed of That the VENDOR is the true and absolute owner of a parcel of land known as
Absolute Sale. The stipulations in the contract likewise revealed the clear Lot No. 124 of the Cadastral Survey of San Carlos, situated at Broce Street and
intention on the part of the vendor (Mascuana) to alienate the property in favor is free from liens and encumbrances, and covered by O.C.T. No. T-299[3]7 (R-
of the vendee (Sumilhig). In three various documents, the late Mascuana even 1453) of Reg. of Deeds, Negros Occ.
made declarations that Sumilhig was already the owner of the disputed land. That for and in consideration of the sum of FOUR THOUSAND SIX HUNDRED
The CA added that the admission may be given in evidence against Mascuana NINETY PESOS (P4,690.00), Philippine Currency, to be paid by the VENDEE in
and his predecessors-in-interest under Section 26, Rule 130 of the Revised the manner hereinafter stated, the VENDOR does hereby sell, transfer, cede
Rules on Evidence. As to the argument that the contract between Mascuana and convey, a portion of the above-described property containing an area of
and Sumilhig was not effective because it was subject to a suspensive condition 469 square meters, the sketch of which can be found at the back of this
that did not occur, the CA ruled that the condition referred to by the petitioners document and having a frontage at Broce Street of around 14 meters, and from
refers only to the payment of the balance of the purchase price and not to the the Broce Street to the interior on its Southwest side with a length of 30.9
effectivity of the contract. meters, with a length of 24.8 meters on its Northeast side where it turned to
As to the petitioners contention that even if the contract were one of sale, the right with a length of 2.8 meters and continuing to Northwest with a length
ownership cannot be transferred to Sumilhig because Mascuana was not yet of 6.72 meters, the backyard dimension is 17.5 meters to the Northwest, unto
the owner of the lot at the time of the alleged sale, the appellate court ruled the VENDEE, his heirs and assigns, by way of Absolute Sale, upon the receipt of
that the registration of the land to be sold is not a prerequisite to a contract of the down payment of THREE THOUSAND SIX HUNDRED NINETY PESOS
sale. (P3,690.00), which is hereby acknowledged by the VENDOR as received by him.
The Present Petition That the balance of ONE THOUSAND PESOS (P1,000.00) shall be paid by the
Aggrieved, the petitioners filed the instant petition for review on certiorari with VENDEE unto the VENDOR as soon as the above-portions of Lot 124 shall have
this Court, where the following lone legal issue was raised: been surveyed in the name of the VENDEE and all papers pertinent and
WAS THE SALE OF LOT NO. 124-B MADE BY JESUS M. MASCUANA IN FAVOR OF necessary to the issuance of a separate Certificate of Title in the name of the
DIOSDADO SUMILHIG A CONTRACT TO SELL OR CONTRACT OF SALE?[25] VENDEE shall have been prepared.
The evidence on record shows that during the lifetime of vendor Jesus segregated and a separate title therefor issued in the name of the vendee, upon
Mascuana, and even after his death, his heirs, the petitioners herein, which the latter would be obliged to pay the balance of P1,000.00. There was
unequivocably declared that Diosdado Sumilhig was the owner of the property no stipulation in the deed that the title to the property remained with the
subject of this case, and that the respondents acquired title over the property, vendor, or that the right to unilaterally resolve the contract upon the buyers
having purchased the same via a deed of absolute sale from Diosdado Sumilhig. failure to pay within a fixed period was given to such vendor. Patently, the
Thus, on December 31, 1961, Jesus Mascuana and Jose Estabillo executed a contract executed by the parties is a deed of sale and not a contract to sell. As
Deed of Exchange and Absolute Sale of Real Estate, in which both parties the Court ruled in a recent case:
declared that they were co-owners of portions of Lot No. 124 abutted by the In Dignos v. Court of Appeals (158 SCRA 375), we have said that, although
property owned by Diosdado Sumilhig.[27] denominated a Deed of Conditional Sale, a sale is still absolute where the
In the subdivision plan of Lot No. 124, signed by Ricardo Quilop, Private Land contract is devoid of any proviso that title is reserved or the right to unilaterally
Surveyor, following his survey of Lot No. 124 on July 9, 1962 for and in behalf rescind is stipulated, e.g., until or unless the price is paid. Ownership will then
of Jesus Mascuana, et al., it appears that Lot No. 124-B with an area of 540 be transferred to the buyer upon actual or constructive delivery (e.g. by the
square meters belonged to Diosdado Sumilhig,[28] which is abutted by Lot No. execution of a public document) of the property sold. Where the condition is
124-C, owned by Jesus Mascuana. imposed upon the perfection of the contract itself, the failure of the condition
On October 1, 1985, long after the death of Jesus Mascuana, one of his heirs, would prevent such perfection. If the condition is imposed on the obligation of
petitioner Renee Tedrew, through counsel, wrote respondent Rodolfo Layumas a party which is not fulfilled, the other party may either waive the condition or
offering to buy the property occupied by his overseer Aquilino Barte for refuse to proceed with the sale. (Art. 1545, Civil Code)
US$1,000.00: Thus, in one case, when the sellers declared in a Receipt of Down Payment that
ATTY. RODOLFO S. LAYUMAS they received an amount as purchase price for a house and lot without any
San Carlos City reservation of title until full payment of the entire purchase price, the
Negros Occidental implication was that they sold their property. In Peoples Industrial and
Dear Atty. Layumas: Commercial Corporation v. Court of Appeals, it was stated:
This has reference to the lot located at Broce Street, portions of which are A deed of sale is considered absolute in nature where there is neither a
presently occupied by Mr. Barte. stipulation in the deed that title to the property sold is reserved in the seller
Mrs. Renee Tedrew (nee Agapuyan), who is now in the United States, would until full payment of the price, nor one giving the vendor the right to unilaterally
like to offer the amount of $1,000.00 to buy your share of the said lot. resolve the contract the moment the buyer fails to pay within a fixed period.
If you are amenable, kindly inform the undersigned for him to communicate Applying these principles to this case, it cannot be gainsaid that the contract of
[with] Mrs. Tedrew in California. sale between the parties is absolute, not conditional. There is no reservation of
Very truly yours, ownership nor a stipulation providing for a unilateral rescission by either party.
(Sgd.) In fact, the sale was consummated upon the delivery of the lot to respondent.
SAMUEL SM LEZAMA[29] Thus, Art. 1477 provides that the ownership of the thing sold shall be
It was only after the respondents rejected the proposal of petitioner Renee transferred to the vendee upon the actual or constructive delivery thereof.[33]
Tedrew that the petitioners secured title over the property on March 17, 1986 The condition in the deed that the balance of P1,000.00 shall be paid to the
in the name of Jesus Mascuana (already deceased at the time), canceling TCT vendor by the vendee as soon as the property sold shall have been surveyed in
No. 967 issued on July 6, 1962 under the name of Jesus Mascuana, who appears the name of the vendee and all papers pertinent and necessary to the issuance
to be a co-owner of Lot No. 124 with an undivided two-seventh (2/7) portion of a separate certificate of title in the name of the vendee shall have been
thereof.[30] prepared is not a condition which prevented the efficacy of the contract of sale.
While it is true that Jesus Mascuana executed the deed of absolute sale over It merely provides the manner by which the total purchase price of the property
the property on August 12, 1961 in favor of Diosdado Sumilhig for P4,690.00, is to be paid. The condition did not prevent the contract from being in full force
and that it was only on July 6, 1962 that TCT No. 967 was issued in his name as and effect:
one of the co-owners of Lot No. 124, Diosdado Sumilhig and the respondents The stipulation that the payment of the full consideration based on a survey
nevertheless acquired ownership over the property. The deed of sale executed shall be due and payable in five (5) years from the execution of a formal deed
by Jesus Mascuana in favor of Diosdado Sumilhig on August 12, 1961 was a of sale is not a condition which affects the efficacy of the contract of sale. It
perfected contract of sale over the property. It is settled that a perfected merely provides the manner by which the full consideration is to be computed
contract of sale cannot be challenged on the ground of the non-transfer of and the time within which the same is to be paid. But it does not affect in any
ownership of the property sold at that time of the perfection of the contract, manner the effectivity of the contract. [34]
since it is consummated upon delivery of the property to the vendee. It is In a contract to sell, ownership is retained by a seller and is not to be transferred
through tradition or delivery that the buyer acquires ownership of the property to the vendee until full payment of the price. Such payment is a positive
sold. As provided in Article 1458 of the New Civil Code, when the sale is made suspensive condition, the failure of which is not a breach of contract but simply
through a public instrument, the execution thereof is equivalent to the delivery an event that prevented the obligation from acquiring binding force.[35]
of the thing which is the object of the contract, unless the contrary appears or It bears stressing that in a contract of sale, the non-payment of the price is a
can be inferred. The record of the sale with the Register of Deeds and the resolutory condition which extinguishes the transaction that, for a time, existed
issuance of the certificate of title in the name of the buyer over the property and discharges the obligation created under the transaction.[36] A seller cannot
merely bind third parties to the sale. As between the seller and the buyer, the unilaterally and extrajudicially rescind a contract of sale unless there is an
transfer of ownership takes effect upon the execution of a public instrument express stipulation authorizing it. In such case, the vendor may file an action for
covering the real property.[31] Long before the petitioners secured a Torrens specific performance or judicial rescission.[37]
title over the property, the respondents had been in actual possession of the Article 1169 of the New Civil Code provides that in reciprocal obligations,
property and had designated Barte as their overseer. neither party incurs in delay if the other does not comply or is not ready to
Article 1458 of the New Civil Code provides: comply in a proper manner with what is incumbent upon him; from the
By the contract of sale, one of the contracting parties obligates himself to moment one of the parties fulfills his obligation, delay by the other begins. In
transfer the ownership of and to deliver a determinate thing, and the other to this case, the vendor (Jesus Mascuana) failed to comply with his obligation of
pay therefor a price certain in money or its equivalent. segregating Lot No. 124-B and the issuance of a Torrens title over the property
A contract of sale may be absolute or conditional. in favor of the vendee, or the latters successors-in-interest, the respondents
Thus, there are three essential elements of sale, to wit: herein. Worse, petitioner Jose Mascuana was able to secure title over the
a) Consent or meeting of the minds, that is, consent to transfer ownership in property under the name of his deceased father.
exchange for the price; IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of merit. Costs
b) Determinate subject matter; and against the petitioners.
c) Price certain in money or its equivalent.[32] SO ORDERED.
In this case, there was a meeting of the minds between the vendor and the Puno, (Chairman), Austria-Martinez, Tinga, and Chico-Nazario, JJ., concur.
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 G.R. No. 142411 October 14, 2005
payment. The vendor undertook to have the property sold, surveyed and WINIFREDA URSAL VS COURT OF APPEALS
The Monesets answered that it was Ursal who stopped paying the agreed
DECISION monthly installments in breach of their agreement.[12] The Bank, on the other
AUSTRIA-MARTINEZ, J.: hand, averred that the title of the property was in the name of Cristita Radaza
Before us is a petition for review on certiorari under Rule 45 of the Moneset married to Jesus Moneset and did not show any legal infirmity.[13]
Rules of Court seeking the reversal of the Decision[1] of the Court of Appeals
(CA) dated June 28, 1999 and the Resolution dated January 31, 2000 denying
petitioners motion for reconsideration.[2]
These are the facts:
The spouses Jesus and Cristita Moneset (Monesets) are the registered owners
of a 333-square meter land together with a house thereon situated at Sitio Bundalo, meanwhile, was not served summons because he could no longer be
Laguna, Basak, Cebu City covered by Transfer Certificate of Title No. 78374.[3] found at his given address.[14]
On January 9, 1985, they executed a Contract to Sell Lot & House in favor of
petitioner Winifreda Ursal (Ursal), with the following terms and conditions:
That the VENDOR (Cristita R. Moneset) offers to SELL and the
VENDEE accepts to BUY at the agreed lump sum price of P130,000.00 payable
on the installment basis as follows
1. That on the date of the signing of this agreement, the VENDEE will tender Trial on the merits proceeded. Thereafter, the Regional Trial Court of Cebu City,
an earnest money or downpayment of P50,000.00 to the VENDOR, and by these Branch 24, rendered its decision finding that Ursal is more credible than the
presents, the latter hereby acknowledges receipt of said amount from the Monesets and that the Monesets are liable for damages for fraud and breach
former; of the contract to sell:
2. That the balance of the selling price of P80,000.00 shall be paid by the
VENDEE to the VENDOR in equal monthly installments of P3,000.00 starting the
month of February, 1985, until said balance of the selling price shall be fully
paid;
3. That if the VENDEE shall fail or in default to pay six (6) monthly installments
to the VENDOR the herein agreement is deemed cancelled, terminated and/or The evidence of [Ursal] show that she was the first to acquire a substantial
rescinded and in such event, the VENDEE (sic) binds to refund to the VENDOR interest over the lot and house by virtue of the execution of the Contract to Sell
(sic) the deposit of P50,000.00 and with the latters (sic) obligation to pay the (Exh. A). After the execution of Exh. A plaintiff took possession of the
former (sic) as a corresponding refund for cost of improvements made in the questioned lot and houseafter she made a downpayment of P50,000.00. [S]he
premises by VENDEE; paid the installments for six (6) months without fail. [However] plaintiff
4. That on the date of receipt of the downpayment of P50,000.00 by the (stopped) paying the installment because defendant spouses failed to give her
VENDOR, it is mutually agreed for VENDEE to occupy and take physical the Transfer Certificate of Title over the lot and house despite repeated
possession of the premises as well as for the latter (VENDEE) to keep and hold demands. It is evident then that the first to violate the conditions of Exh. A were
in possession the corresponding transfer certificate of title No. ______ of the the defendants Spouses Moneset. This is the reason why plaintiff was not able
land in question which is the subject of this agreement; to annotate Exh. A on the TCT. The evidence of plaintiff show that there was no
5. That on the date of final payment by the VENDEE to the VENDOR, the intention on her part to discontinue paying the installments. In a reciprocal
latter shall execute at her expense the corresponding document of DEED OF obligation, one cannot be compelled to do if the other party fails to do his part
ABSOLUTE SALE for the former as well as the payment of realty clearances, BIR (Art. 1169, New Civil Code).
Capital Gain Tax, sales tax or transfer fees and attorneys fees; that, for the
issuance of title in VENDEEs name shall be the exclusive account of said
VENDEE. [4]

Petitioner paid the down payment and took possession of the


property. She immediately built a concrete perimeter fence and an artesian
well, and planted fruit bearing trees and flowering plants thereon which all The acts of defendant Spouses Moneset in selling again the lot and house in
amounted to P50,000.00. After paying six monthly installments, petitioner question to Dr. Canora by executing a Deed of Absolute Sale; in selling the same
stopped paying due to the Monesets failure to deliver to her the transfer on pacto de retro to defendant Bundalo; and in mortgaging the same to
certificate of title of the property as per their agreement; and because of the defendant Rural Bank of Larena are plainly and clearly fraudulent because they
failure of the Monesets to turn over said title, petitioner failed to have the were done while Exh. A was still existing and the transaction was done without
contract of sale annotated thereon.[5] notice to the plaintiff. As provided in Art. 1170 of the New Civil Code, those who
Unknown to petitioner, the Monesets executed on November 5, are guilty of fraud in the performance of their obligation --- and those who in
1985 an absolute deed of sale in favor of Dr. Rafael Canora, Jr. over the said any manner contravene the tenor thereof, are liable for damages.
property for P14,000.00.[6] On September 15, 1986, the Monesets executed
another sale, this time with pacto de retro with Restituto Bundalo.[7] On the
same day, Bundalo, as attorney-in-fact of the Monesets, executed a real estate
mortgage over said property with Rural Bank of Larena (hereafter Bank) located
in Siquijor for the amount of P100,000.00.[8] The special power of attorney
made by the Monesets in favor of Bundalo as well as the real estate mortgage
was then annotated on the title on September 16, 1986.[9] For the failure of Another ground for liability under this article is when there is fraud/deceit. In
the Monesets to pay the loan, the Bank served a notice of extrajudicial the instant case, there was fraud/deceit on the part of the defendant spouses
foreclosure dated January 27, 1988 on Bundalo.[10] Moneset when they executed the Deed of Sale to Dr. Canora; the Deed of Sale
On September 30, 1989, Ursal filed an action for declaration of non- with Pacto de Retro to Bundalo and the Special Power of Attorney for Bundalo
effectivity of mortgage and damages against the Monesets, Bundalo and the to execute for and in their behalf the Real Estate Mortgage with the Rural Bank
Bank. She claimed that the defendants committed fraud and/or bad faith in of Larena knowing fully well that the Contract to Sell house and lot, Exh. A was
mortgaging the property she earlier bought from the Monesets with a bank still existing notwithstanding their violation to the provisions thereto. It is
located in another island, Siquijor; and the Bank acted in bad faith since it therefore crystal clear that defendant spouses Moneset are liable for
granted the real estate mortgage in spite of its knowledge that the property damages.[15]
was in the possession of petitioner.[11]
As to the real estate mortgage, the trial court held that the same was valid and a.) moral damages ----------------- P30,000.00
the Bank was not under any obligation to look beyond the title, although the
present controversy could have been avoided had the Bank been more astute b.) exemplary damages ----------- P20,000.00
in ascertaining the nature of petitioners possession of the property, thus:
c.) litigation expenses------------- P 5,000.00

d.) attorneys fees ----------------- P10,000.00

The Real Estate Mortgage and the Foreclosure Proceedings cannot be e.) costs
considered null and void in the sense that per se the formalities required by law
were complied with except for the fact that behind their execution there was
fraud, deceit and bad faith on the part of defendant spouses Moneset and 3. order the defendant Rural Bank of Larena to give the plaintiff the
Bundalo. preferential right to redeem the subject house and lot.

The defendant Rural Bank of Larena for its part could have avoided this SO ORDERED.[17]
situation if the bank appraiser who made the ocular inspection of the subject
house and lot went deeper and investigated further when he learned that the
owner is not the actual occupant. He was however told by Moneset that the
actual occupant was only a lessee. Banking on this information that the actual
occupant was only a lessee with no other right over and above such, the bank Both Ursal and the Monesets appealed the decision to the CA. Ursal alleged
approved a loan of P100,000.00 in favor of Moneset through Bundalo their that the Bank was guilty of bad faith for not investigating the
attorney-in-fact.
presence of Ursal on the property in question, while the Monesets claimed that
the trial court erred in giving preferential right to Ursal to redeem the property
and in ordering them to pay damages.[18]

Likewise the Rural Bank of Larena had the right to rely on what appeared on
the certificate of title of the Monesets and it was under no obligation to look The CA affirmed in toto the decision of the trial court. It held that the Bank did
beyond the certificate and investigate the title of the mortgagor appearing on not have prior knowledge of the contract to sell the house and lot and the
the face of the certificate. Monesets acted fraudulently thus they cannot be given preferential right to
redeem the property and were therefore correctly ordered to pay
damages.[19]

The approval of the P100,000.00 loan from the Rural Bank of Larena was made
possible through the deception and bad faith of defendant spouses Moneset
and Bundalo but the pertinent documents were per se in order. The court is of
the honest belief that the case against the defendant bank be dismissed for lack
of merit. The court however believes that for reasons of equity the bank should The Monesets filed a motion for reconsideration which was denied outright for
give the plaintiff Ursal the preferential right to redeem the subject house and having been filed out of time.[20] Ursals motion for reconsideration was denied
lot.[16] by the CA on January 31, 2000 for lack of merit.[21]

The trial court then disposed of the case as follows: Hence, the present petition raising the sole error:

Wherefore premises considered, judgment is hereby rendered in favor of the


defendant Rural Bank of Larena dismissing the complaint against it for lack of
merit and against the defendant spouses Moneset ordering them to: That with grave abuse of discretion amounting to excess of jurisdiction, the
Honorable Court of Appeals erred in rendering a decision and Resolution NOT
in accordance with law and the applicable rulings of the Supreme Court.[22]

1. reimburse to plaintiff Ursal the following:

a.) downpayment of P50,000.00


Petitioner claims that: the Bank was duly informed through its appraiser that
b.) monthly installments for six months at P3,000.00 per month --- P18,000.00 the house and lot to be mortgaged by Monesets were in the possession of a
lessee; the Bank should have taken this as a cue to investigate further the
c.) expenses improvements P61, 676.52 Monesets right over the same; the case of Embrado vs. Court of Appeals (233
SCRA 335) held that where a purchaser neglects to make the necessary inquiry
and closes his eyes to facts which should put a reasonable man on his guard to
the possibility of the existence of a defect in his vendors title, he cannot claim
2. pay to plaintiff the following: that he is a purchaser in good faith; Sec. 50 of Act 496 provides that where a
party has knowledge of a prior existing interest which is unregistered at the
time he acquired the land, his knowledge of that prior unregistered interest has
the effect of registration as to him and the Torrens system cannot be used as a
shield against fraud; following Art. 2176 of the Civil Code, respondent Bank is
obliged to pay for the damage done.[23]

Respondent Bank, in its Memorandum dated July 20, 2005, reiterated the
arguments it made in its Comment that: the case cited by petitioner requiring
extra ordinary diligence is inapplicable in this case since what is involved here
Petitioner then prayed that the Deed of Real Estate Mortgage be declared as is mortgage and not sale; as mortgagee, its interest is limited only to
non-effective and non-enforceable as far as petitioner is concerned; that she determining whether the mortgagor is the registered owner of the property
be declared as the absolute owner of the house and lot in question; that the whose certificate of title showed that there were no existing encumbrances
Monesets be ordered to execute a deed of absolute sale covering the subject thereon; and even with unregistered encumbrances, the Bank has priority by
property; and that the Bank be ordered to direct the collection or payment of the registration of the loan documents.[30]
the loan of P100,000.00 plus interest from the Monesets for they were the ones
who received and enjoyed the said loan.[24]

On the other hand, respondent Bank in its Comment argues that: its interest in
the property was only that of mortgagee and not a purchaser thus its interest
is limited only to ascertaining that the mortgagor is the registered owner; the No memorandum is filed by respondent Monesets.
case cited is inapplicable at bar since it involves the purchase of real property;
Ursal was purportedly only a lessee of the property, thus as mortgagor who is
not entitled to possess the mortgaged property, they no longer considered the
lease in the processing and approval of the loan; Sec. 50 of Act No. 496 is also
inapplicable since the alleged prior existing interest was only that of a lessee;
in any case, it was the Monesets who lied to the Bank anent the real nature of The crux of petitioners contention is that the Bank failed to look beyond the
the encumbrance, thus, it is the Monesets who are guilty of fraud and not the transfer certificate of title of the property for which it must be held liable.
Bank.[25]

We agree. Banks cannot merely rely on certificates of title in ascertaining the


In her Rejoinder,[26] petitioner argued that: under the law on mortgage, the status of mortgaged properties; as their business is impressed with public
mortgagor must be the owner of the property he offers as security of his loan; interest, they are expected to exercise more care and prudence in their dealings
the mortgagee like herein Bank which neglects to verify the ownership of the than private individuals.[31] Indeed, the rule that persons dealing with
property offered as security of the loan runs the risk of his folly; the Banks registered lands can rely solely on the certificate of title does not apply to
negligence is not excusable because an adverse claim and notice of lis pendens banks.[32]
were already annotated on the certificate of title when the mortgage was
constituted or when the deed of real estate mortgage was annotated; it would
be unfair to put the blame on petitioner who was innocent of the transaction;
the trial court found that the Bank even provided its appraiser the amount of
P15,000.00 to redeem the pacto de retro sale allegedly executed in favor of Dr.
Canora; this should have aroused the Banks suspicion and prompted it to As enunciated in Cruz vs. Bancom:[33]
investigate further the property; the trial court recognized the bad faith
committed by the Monesets and ordered them to pay the sum of P126,676.52
in damages but exonerated the Bank who is equally guilty of bad faith; the
Monesets cannot pay the damages as they have no money and property thus if
the decision of the trial court as affirmed by the CA is to be enforced, they will
only be holding an empty bag while the Bank which is equally guilty will go free; Respondent is not an ordinary mortgagee; it is a mortgagee-bank. As such,
what would be fair is to let the unlike private individuals, it is expected to exercise greater care and prudence
in its dealings, including those involving registered lands. A banking institution
two respondents bear jointly and severally the consequences of their is expected to exercise due diligence before entering into a mortgage contract.
transaction and let the innocent petitioner ultimately own the house and lot in The ascertainment of the status or condition of a property offered to it as
question.[27] security for a loan must be a standard and indispensable part of its
operations.[34]

The petitioner, in her Memorandum dated July 31, 2005, raised the issues of:
(1) Whether or not the document captioned: Contract to Sell Lot and House
(Exh. A) is valid and binding so much so that the herein Petitioner who is the Our agreement with petitioner on this point of law, notwithstanding, we are
Vendee is the lawful and true owner of the lot and house in question; (2) constrained to refrain from granting the prayers of her petition, to wit: that the
Whether or not the herein respondents spouses Jesus Moneset and Cristita Deed of Real Estate Mortgage be declared as non-effective and non-
Moneset who were the vendors and/or mortgagors together with respondent enforceable as far as petitioner is concerned; that she be declared as the
Restituto Bundalo were conniving and acting in bad faith; and (3) Whether or absolute owner of the house and lot in question; that the Monesets be ordered
not respondent Rural Bank of Larena measured up to the strict requirement of to execute a deed of absolute sale covering the subject property; and that the
making a thorough investigation of the property offered as collateral before Bank be ordered to direct the collection or payment of the loan of P100,000.00
granting a loan and be considered as innocent mortgagee and entitled to the plus interest from the Monesets for they were the ones who received and
protection of the law.[28] Petitioner reiterated her arguments in support of the enjoyed the said loan.[35]
first and third issues raised in the Memorandum while she merely adopted the
CA findings in support of the second issue, i.e., when the Monesets
encumbered the Transfer Certificate of Title (TCT) to Dr. Canora and thereafter
to Bundalo, they committed bad faith or fraud since the contract to sell with
Ursal was still valid and subsisting.[29]
The reason is that, the contract between petitioner and the Monesets being
one of Contract to Sell Lot and House, petitioner, under the circumstances,
never acquired ownership over the property and her rights were limited to
demand for specific performance from the Monesets, which at this juncture
however is no longer feasible as the property had already been sold to other In this case, the parties not only titled their contract as Contract to Sell Lot and
persons. House but specified in their agreement that the vendor shall only execute a
deed of absolute sale on the date of the final payment by vendee.[42] Such
provision signifies that the parties truly intended their contract to be that of
contract to sell.[43]

A contract to sell is a bilateral contract whereby the prospective seller, while


expressly reserving the ownership of the subject property despite delivery
thereof to the prospective buyer, binds himself to sell the said property
exclusively to the prospective buyer upon fulfillment of the condition agreed Since the contract in this case is a contract to sell, the ownership of the property
upon, that is, full payment of the purchase price.[36] remained with the Monesets even after petitioner has paid the down payment
and took possession of the property. In Flancia vs. Court of Appeals,[44] where
the vendee in the contract to sell also took possession of the property, this
Court held that the subsequent mortgage constituted by the owner over said
property in favor of another person was valid since the vendee retained
absolute ownership over the property.[45] At most, the vendee in the contract
In such contract, the prospective seller expressly reserves the transfer of title to sell was entitled only to damages.[46]
to the prospective buyer, until the happening of an event, which in this case is
the full payment of the purchase price. What the seller agrees or obligates
himself to do is to fulfill his promise to sell the subject property when the entire
amount of the purchase price is delivered to him. Stated differently, the full
payment of the purchase price partakes of a suspensive condition, the non-
fulfillment of which prevents the obligation to sell from arising and thus, Petitioner attributes her decision to stop paying installments to the failure of
ownership is retained by the prospective seller without further remedies by the the Monesets to comply with their agreement to deliver the transfer certificate
prospective buyer.[37] of title after the down payment of P50,000.00. On this point, the trial court was
correct in holding that for such failure, the Monesets are liable to pay damages
pursuant to Art. 1169 of the Civil Code on reciprocal obligations.[47]

It is different from contracts of sale, since ownership in contracts to sell is


reserved by the vendor and is not to pass to the vendee until full payment of
the purchase price, while in contracts of sale, title to the property passess to The vendors breach of the contract, notwithstanding, ownership still remained
the vendee upon the delivery of the thing sold. In contracts of sale the vendor with the Monesets and petitioner cannot justify her failure to complete the
loses ownership over the property and cannot recover it unless and until the payment.
contract is resolved or rescinded, while in contracts to sell, title is retained by
the vendor until full payment of the price.[38] In contracts to sell, full payment
is a positive suspensive condition while in contracts of sale, non-payment is a
negative resolutory condition.[39]

In Pangilinan vs. Court of Appeals,[48] the vendees contended that their failure
to pay the balance of the total contract price was because the vendor reneged
on its obligation to improve the subdivision and its facilities. In said case, the
Court held that the vendees were barred by laches from asking for specific
A contract to sell may further be distinguished from a conditional contract of performance eight years from the date of last installment. The Court held that:
sale, in that, the fulfillment of the suspensive condition, which is the full
payment of the purchase price, will not automatically transfer ownership to the
buyer although the property may have been previously delivered to him. The
prospective vendor still has to convey title to the

prospective buyer by entering into a contract of absolute sale. While in a (the vendees) instead of being vigilant and diligent in asserting their rights over
conditional contract of sale, the fulfillment of the suspensive condition renders the subject property had failed to assert their rights when the law requires
the sale absolute and affects the sellers title thereto such that if there was them to act. Laches or stale demands is based upon grounds of public policy
previous delivery of the property, the sellers ownership or title to the property which requires, for the peace of society, the discouragement of stale claims and
is automatically transferred to the buyer. [40] unlike the statute of limitations, is not a mere question of time but is principally
a question of the inequity or unfairness of permitting a right or claim to be
enforced or asserted.

Indeed, in contracts to sell the obligation of the seller to sell becomes The legal adage finds application in the case at bar. Tempus enim modus
demandable only upon the happening of the suspensive condition, that is, the tollendi obligations et actiones, quia tempus currit contra desides et sui juris
full payment of the purchase price by the buyer. It is only upon the existence of contemptoresFor time is a means of dissipating obligations and actions,
the contract of sale that the seller becomes obligated to transfer the ownership because time runs against the slothful and careless of their own rights.[49]
of the thing sold to the buyer. Prior to the existence of the contract of sale, the
seller is not obligated to transfer the ownership to the buyer, even if there is a
contract to sell between them. [41]
In this case, petitioner instituted an action for Declaration of Non-Effectivity of Petitioner had lost her right to demand specific performance when the
Mortgage with Damages four years from the date of her last installment and Monesets executed a Deed of Absolute Sale in favor of Dr. Canora. Contrary to
only as a reaction to the foreclosure proceedings instituted by respondent what she claims, petitioner had no vested right over the property.
Bank. After the Monesets failed to deliver the TCT, petitioner merely stopped
paying installments and did not institute an action for specific performance,
neither did she consign payment of the remaining balance as proof of her
willingness and readiness to comply with her part of the obligation. As we held
in San Lorenzo Development Corp. vs. Court of Appeals,[50] the perfected
contract to sell imposed on the vendee the obligation to pay the balance of the Indeed, it is the Monesets who first breached their obligation towards
purchase price. There being an obligation to pay the price, the vendee should petitioner and are guilty of fraud against her. It cannot be denied however that
have made the proper tender of payment and consignation of the price in court petitioner is also not without fault. She sat on her rights and never consigned
as required by law. Consignation of the amounts due in court is essential in the full amount of the property. She therefore cannot ask to be declared the
order to extinguish the vendees obligation to pay the balance of the purchase owner of the property, this late, especially since the same has already passed
price.[51] Since there is no indication in the records that petitioner even hands several times, neither can she question the mortgage constituted on the
attempted to make the proper consignation of the amounts due, the obligation property years after title has already passed to another person by virtue of a
on the part of the Monesets to transfer ownership never acquired obligatory deed of absolute sale.
force.

At this point, let it be stated that the courts below and even this Court have no
In other words, petitioner did not acquire ownership over the subject property jurisdiction to resolve the issue whether there was bad faith among the
as she did not pay in full the equal price of the contract to sell. Further, the Monesets, Canora and Bundalo. Canora was never impleaded. Bundalo has not
Monesets breach did not entitle petitioner to any preferential treatment over been served with summons.
the property especially when such property has been sold to other persons.

WHEREFORE, the petition is DENIED. The decision of the Regional Trial Court of
As explained in Coronel vs. Court of Appeals:[52] Cebu City, Branch 24, promulgated on February 5, 1993 and the decision of the
Court of Appeals dated June 28, 1999 are hereby AFFIRMED. However, in the
higher interest of substantial justice, the Court MODIFIES the same to the effect
that the portion ordering the Rural Bank of Larena (Siquijor), Inc. to give
petitioner the preferential right to redeem the house and lot covered by
Transfer Certificate of Title No. 78374 is DELETED for lack of legal basis.
In a contract to sell, there being no previous sale of the property, a third person
buying such property despite the fulfillment of the suspensive condition such
as the full payment of the purchase price, for instance, cannot be deemed a
buyer in bad faith and the prospective buyer cannot seek the relief of
reconveyance of the property. There is no double sale in such case. Title to the
property will transfer to the buyer after registration because there is no defect No costs.
in the owner-sellers title per se, but the latter, of course, may be sued for
damages by the intending buyer.[53] (Emphasis supplied)

SO ORDERED.

In this case, the lower courts found that the property was sold to Dr. Canora THIRD DIVISION
and then to Bundalo who in turn acted as attorney-in-fact for the Monesets in
mortgaging the property to respondent Bank. The trial court and the CA erred
in giving petitioner the preferential right to redeem the property as such would
prejudice the rights of the subsequent buyers who were not parties in the FERNANDO CARRASCOSO, JR.,
proceedings below. While the matter of giving petitioner preferential right to Petitioner,
redeem the property was not put in issue before us, in the exercise of our
discretionary power to correct manifest and palpable error, we deem it proper
to delete said portion of the decision for being erroneous.[54] -versus-

THE HONORABLE COURT OF APPEALS, LAURO LEVISTE, as Director and Minority


Petitioners rights were limited to asking for specific performance and damages Stockholder and On Behalf of Other Stockholders of El Dorado Plantation, Inc.
from the Monesets. Specific performance, however, is no longer feasible at this and EL DORADO PLANTATION, INC., represented by one of its minority
point as explained above. This being the case, it follows that petitioner never stockholders, Lauro P. Leviste,
had any cause of action against respondent Bank. Having no cause of action Respondents.
against the bank and not being an owner of the subject property, petitioner is x---------------------------------------x
not entitled to redeem the subject property.
PHILIPPINE LONG DISTANCE TELEPHONE COMPANY,
Petitioner,

-versus-
1. Of the said sum of P1,800,000.00 which constitutes the full consideration of
LAURO LEVISTE, as Director and Minority Stockholder and On Behalf of Other this sale, P290,000.00 shall be paid, as it is hereby paid, to the Philippines (sic)
Stockholders of El Dorado Plantation, Inc., EL DORADO PLANTATION, INC., National Bank, thereby effecting the release and cancellation fo (sic) the
represented by Minority Stockholder, Lauro P. Leviste, and FERNANDO present mortgage over the above-described property.
CARRASCOSO, JR.
Respondents. 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
G.R. No. 123672 VENDOR.

Present: 3. The remaining balance of P1,300,000.00 plus interest thereon at the rate of
10% per annum shall be paid by the VENDEE to the VENDOR within a period of
PANGANIBAN, J., Chairman, three (3) years, as follows:
SANDOVAL-GUTIERREZ,
CORONA, (a) One (1) year from the date of the signing of this agreement, the VENDEE
CARPIO MORALES, and GARCIA, JJ. shall pay to the VENDOR the sum of FIVE HUNDRED NINETEEN THOUSAND
EIGHT HUNDRED THIRTY THREE & 33/100 (P519,833.33) PESOS.

(b) Two (2) years from the date of signing of this agreement, the VENDEE shall
pay to the VENDOR the sum of FIVE HUNDRED NINETTEN (sic) THOUSAND
EIGHT HUNDRED AND THIRTY-THREE & 33/100 (P519,833.33) PESOS.

(c) Three (3) years from the date of signing of this agreement, the VENDEE shall
pay to the VENDOR the sum of FIVE Hundred NINETEEN THOUSAND EIGHT
HUNDRED AND THIRTY-THREE & 33/100 (P519,833.33) PESOS.
G. R. No. 164489
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)
Promulgated:
From the above-quoted provisions of the Deed of Sale, Carrascoso was to pay
the full amount of the purchase price on March 23, 1975.
December 14, 2005
On even date, the Board of Directors of El Dorado passed a Resolution reading:
RESOLVED that by reason of the sale of that parcel of land covered by TCT No.
T-93 to Dr. FERNANDO O. CARRASCOSO, JR., the corporation interposes
no objection to the property being mortgage (sic) by Dr. FERNANDO O.
CARRASCOSO, JR. to any bank of his choice as long as the balance on the Deed
x----------------------------------------------x of Sale shall be recognized by Dr. FERNANDO O. CARRASCOSO, JR.;

RESOLVED, FURTHER, that the corporation authorizes the prefered (sic) claim
DECISION on the property to be subordinated to any mortgage that may be constituted
by Dr. FERNANDO O. CARRASCOSO, JR.;
CARPIO MORALES, J.:
RESOLVED, FINALLY, that in case of any mortgage on the property, the
El Dorado Plantation, Inc. (El Dorado) was the registered owner of a parcel of corporation waives the preference of any vendors lien on the
land (the property) with an area of approximately 1,825 hectares covered by property.[5] (Emphasis and underscoring supplied)
Transfer Certificate of Title (TCT) No. T-93[1] situated in Sablayan, Occidental
Mindoro.
Feliciano Leviste also executed the following affidavit on the same day:
On February 15, 1972, at a special meeting of El Dorados Board of Directors, a
Resolution[2] was passed authorizing Feliciano Leviste, then President of El 1. That by reason of the sale of that parcel of land covered by Transfer
Dorado, to negotiate the sale of the property and sign all documents and Certificate of Title T-93 as evidenced by the Deed of Sale attached hereto as
contracts bearing thereon. Annex A and made an integral part hereof, the El Dorado Plantation, Inc. has no
objection to the aforementioned property being mortgaged by Dr. Fernando O.
On March 23, 1972, by a Deed of Sale of Real Property,[3] El Dorado, through Carrascoso, Jr. to any bank of his choice, as long as the payment of the balance
Feliciano Leviste, sold the property to Fernando O. Carrascoso, Jr. (Carrascoso). due the El Dorado Plantation, Inc. under the Deed of Sale, Annex A hereof, shall
be recognized by the vendee therein, Dr. Fernando O. Carrascoso, Jr. though
The pertinent provisions of the Deed of Sale read: subordinated to the preferred claim of the mortgagee bank.

NOW, THEREFORE, for and in consideration of the sum of ONE MILLION EIGHT 2. That in case of any mortgage on the property, the vendor hereby waives the
HUNDRED THOUSAND (1,800,000.00) PESOS, Philippine Currency, the Vendor preference of any vendors lien on the property, subject matter of the deed of
hereby sells, cedes, and transfer (sic) unto the herein VENDEE, his heirs, sale.
successors and assigns, the above-described property subject to the following
terms and consitions (sic): 3. That this affidavit is being executed to avoid any question on the authority of
Dr. Fernando O. Carrascoso, Jr. to mortgage the property subject of the Deed
of Sale, Annex A hereof, where the purchase price provided therein has not advised that we would like to rescind the contract of sale of the
been fully paid. land.[19] (Underscoring supplied)

4. That this affidavit has been executed pursuant to a board resolution of El


Dorado Plantation, Inc.[6] (Emphasis and underscoring supplied) Jose Leviste, by letter[20] dated March 10, 1977, informed Lauros counsel Atty.
On the following day, March 24, 1972, Carrascoso and his wife Marlene Aquino of his (Joses) February 21, 1977 letter to Carrascoso, he lamenting that
executed a Real Estate Mortgage[7] over the property in favor of Home Savings Carrascoso has not deemed it fit to give [his] letter the courtesy of a reply and
Bank (HSB) to secure a loan in the amount of P1,000,000.00. Of this advis[ing] that some of the Directors of [El Dorado] could not see their way clear
amount, P290,000.00 was paid to Philippine National Bank to release the in complying with the demands of your client [Lauro] and have failed to reach
mortgage priorly constituted on the property and P210,000.00 was paid to El a consensus to bring the corresponding action for rescission of the contract
Dorado pursuant to above-quoted paragraph Nos. 1 and 2 of the terms and against . . . Carrascoso.[21]
conditions of the Deed of Sale.[8] 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
The March 23, 1972 Deed of Sale of Real Property was registered and Carrascoso with damages before the Court of First Instance (CFI) of Occidental
annotated on El Dorados TCT No. T-93 as Entry No. 15240[9] on April 5, 1972. Mindoro, docketed as Civil Case No. R-226.
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 Lauro and El Dorado also sought the cancellation of TCT No. T-6055 in the name
in the name of Carrascoso on which the real estate mortgage in favor of HSB of Carrascoso and the revival of TCT No. T-93 in the name of El Dorado, free
was annotated as Entry No. 15242.[11] 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
On May 18, 1972, the real estate mortgage in favor of HSB was amended to upon return to him of P500,000.00, (2) secure a discharge of the real estate
include an additional three year loan of P70,000.00 as requested by the mortgage constituted on the property from HSB, (3) submit an accounting of
spouses Carrascoso.[12] The Amendment of Real Estate Mortgage was also the fruits of the property from March 23, 1972 up to the return of possession
annotated on TCT No. T-6055 as Entry No. 15486 on May 24, 1972.[13] 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 attorneys fees and
The 3-year period for Carrascoso to fully pay for the property on March 23, other damages.[23]
1975 passed without him having complied therewith.
Also on March 15, 1977, Lauro and El Dorado caused to be annotated on TCT
In the meantime, on July 11, 1975, Carrascoso and the Philippine Long Distance No. T-6055 a Notice of Lis Pendens,inscribed as Entry No. 39737.[24]
Telephone Company (PLDT), through its President Ramon Cojuangco, executed
an Agreement to Buy and Sell[14] whereby the former agreed to sell 1,000 In the meantime, Carrascoso, as vendor and PLDT, as vendee forged on April 6,
hectares of the property to the latter at a consideration of P3,000.00 per 1977 a Deed of Absolute Sale[25] over the 1,000 hectare portion of the property
hectare or a total of P3,000,000.00. subject of their July 11, 1975 Agreement to Buy and Sell. The pertinent portions
of the Deed are as follows:
The July 11, 1975 Agreement to Buy and Sell was not registered and annotated
on Carrascosos TCT No. T-6055. 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;
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 WHEREAS, the VENDOR and the VENDEE are now decided to execute the Deed
December 27, 1976, called the attention of the Board to Carrascosos failure to of Absolute Sale referred to in the aforementioned agreement to Buy and Sell;
pay the balance of the purchase price of the property amounting
to P1,300,000.00. And Lauros lawyer manifested that: WHEREFORE, for and in consideration of the foregoing premises and the terms
hereunder stated, the VENDOR and the VENDEE have agreed as follows:
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 1. For and in consideration of the sum of THREE MILLION PESOS
the other shareholders similarly situated like him, want a rescission of the (P3,000,000.00), Philippine currency, of which ONE HUNDRED TWENTY
sale made by the El Dorado Plantation, Inc. to Mr. Carrascoso. He desires that THOUSAND PESOS P120,000.00 have (sic) already been received by the
the Board of Directors take the corresponding action for rescission.[16] 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
Lauros desire to rescind the sale was reiterated in two other subdivision survey plan xxx
letters[17] addressed to the Board dated January 20, 1977 and March 3, 1977.
2. The VENDEE shall pay to the VENDOR upon the signing of this agreement,
Jose P. Leviste, as President of El Dorado, later sent a letter of February 21, the sum of TWO MILLION FIVE HUNDRED THOUSAND PESOS (P2,500,000.00) in
1977[18] to Carrascoso informing him that in view of his failure to pay the the following manner:
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. a) The sum of TWO MILLION THREE HUNDRED THOUSAND PESOS
(P2,300,000.00) to Home Savings Bank in full payment of the VENDORs
The pertinent portions of the letter read: mortgaged obligation therewith;

xxx b) The sum of TWO HUNDRED THOUSAND PESOS (P200,000.00) to VENDOR;

I regret to inform you that the balance of P1,300,000.00 and the interest The remaining balance of the purchase price in the sum of THREE HUNDRED
thereon have long been due and payable, although you have mortgaged said EIGHTY THOUSAND PESOS (P380,000.00), less such expenses which may be
property with the Home Savings Bank for P1,000,000.00 on March 24, 1972, advanced by the VENDEE but which are for the account of the VENDOR under
which was subsequently increased to P1,070,000.00 on May 18, 1972. 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)
You very well know that the El Dorado Plantation, Inc., is a close family
corporation, owned exclusively by the members of the Leviste family and I am
one of the co-owners of the land. As nothing appears to have been done on In turn, PLDT, by Deed of Absolute Sale[27] dated May 30, 1977, conveyed the
your part after our numerous requests for payment of the said amount of aforesaid 1,000 hectare portion of the property to its subsidiary, PLDT
P1,300,000.00 and the interest of 10% per annum due thereon, please be 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 WHEREFORE, not being meritorious, PLDTs/PLDTACs appeal is hereby
Deed, and P380,000.00 to Carrascoso upon issuance of title to PLDTAC. DISMISSED and finding El Dorados appeal to be impressed with merit, We
REVERSE the appealed Decision and render the following judgment:
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 1. The Deed of Sale of Real Property (Exhibit C) is hereby rescinded and TCT No.
the prosecution of Civil Case No. R-226 of the Court of First Instance of T-12480 (Exhibit Q) is cancelled while TCT No. T-93 (Exhibit A), is reactivated.
Occidental Mindoro, entitled Lauro P. Leviste vs. Fernando Carascoso (sic), etc.
initiated by stockholder Mr. Lauro P. Leviste.[29] 2. Fernando Carrascoso, Jr. is commanded to:

In his Answer with Compulsory Counterclaim,[30] Carrascoso alleged that: (1) he 2.1. return the possession of the 825 [hectare-] remaining portion of the land
had not paid his remaining P1,300,000.00 obligation under the March 23, 1972 to El Dorado Plantation, Inc. without prejudice to the landholdings of legitimate
Deed of Sale of Real Property in view of the extensions of time to comply tenants thereon;
therewith granted him by El Dorado; (2) the complaint suffered from fatal
defects, there being no showing of compliance with the condition precedent of 2.2. return the net fruits of the land to El Dorado Plantation, Inc. from March
exhaustion of intra-corporate remedies and the requirement that a derivative 23, 1972 to July 11, 1975, and of the 825-hectare-remaining portion minus the
suit instituted by a complaining stockholder be verified under oath; (3) El tenants landholdings, from July 11, 1975 up to its delivery to El Dorado
Dorado committed a gross misrepresentation when it warranted that the Plantation, Inc. including whatever he may have received from the tenants if
property was not being cultivated by any tenant to take it out of the coverage any by way of compensation under the Operation Land Transfer or under any
of the Land Reform Code; and (4) he suffered damages due to the premature other pertinent agrarian law;
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 2.3 Pay El Dorado Plantation, Inc. an attorneys fee of P20,000.00 and litigation
Sale and the respective Articles of Incorporation of PLDT and PLDTAC were expenses of P30,000.00;
annotated on TCT No. T-6055 as Entry Nos. 24770,[31] 42774,[32] 42769[33] and
24772,[34] respectively. On even date, Carrascosos TCT No. T-6055 was 2.4 Return to Philippine Long Distance Telephone Company/PLDT Agricultural
cancelled and TCT No. T-12480[35] covering the 1,000 hectare portion of the Corporation P3,000,000.00 plus legal interest from April 6, 1977 until fully paid;
property was issued in the name of PLDTAC. The March 15, 1977 Notice of Lis
Pendens was carried over to TCT No. T-12480. 3. PLDT Agricultural Corporation is ordered to surrender the possession of the
1000-hectare Farm to El Dorado Plantation, Inc.;
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 4. El Dorado Plantation, Inc. is directed to return the P500,000.00 to Fernando
7, 1978. Carrascoso, Jr. plus legal interest from March 23, 1972 until fully paid. The
performance of this obligation will however await the full compliance by
PLDT and PLDTAC thereupon filed their Answer In Intervention with Fernando Carrascoso, Jr. of his obligation to account for and deliver the net
Compulsory Counterclaim and Crossclaim[38]against Carrascoso on November fruits of the land mentioned above to El Dorado Plantation, Inc.
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 5. To comply with paragraph 2.2 herein, Carrascoso is directed to submit in (sic)
the 1,000 hectare portion of the property or of any flaw in his title, (2) PLDT is the court a quo a full accounting of the fruits of the land during the period
a purchaser in good faith and for value; (3) when PLDT executed the May 30, mentioned above for the latters approval, after which the net fruits shall be
1977 Deed of Absolute Sale in favor of PLDTAC, they had no knowledge of any delivered to El Dorado, Plantation, Inc.
pending litigation over the property and neither were they aware that a notice 6. El Dorado Plantation, Inc. should inform Philippine Long Distance Telephone
of lis pendens had been annotated on Carrascosos title; and (4) Lauro and El Co. and PLDT Agricultural Corporation in writing within ten (10) days after
Dorado knew of the sale by Carrascoso to PLDT and PLDTs actual possession of finality of this decision regarding the exercise of its option under Art. 448 of the
the 1,000 hectare portion of the property since June 30, 1975 and of its exercise Civil Code.
of exclusive rights of ownership thereon through agricultural development.[39]
SO ORDERED.[43] (Underscoring supplied)
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 verbatim: PLDT and PLDTAC filed on February 22, 1996, a Motion for
Reconsideration[44] of the January 31, 1996 CA Decision, while Carrascoso went
WHEREFORE, in view of all the foregoing considerations, judgment is hereby up this Court by filing on March 25, 1996 a petition for review,[45] docketed as
rendered: 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
1. Dismissing the plaintiffs complaint against the defendant on the ground of respect to its finding that the acquisition of PLDT and PLDTAC of the 1,000
prematurity; hectare portion of the property was subject to the notice of lis pendens.
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 Lauro, in the meantime, died, hence, on April 16, 1996, a Motion for
for attorneys fees; provided, however, that the aforesaid amounts must first be Substitution of Party[46] was filed praying that his heirs, represented by Conrad
set off from the latters unpaid balance to the former; C. Leviste, be substituted as respondents. The Motion was granted by
Resolution[47] of July 10, 1996.
3. Dismissing the defendants-intervenors counterclaim and cross-claim; and
PLDT and PLDTAC filed their Comment[48] to Carrascosos petition and prayed
4. Ordering the plaintiffs to pay to (sic) the costs of suit. 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
SO ORDERED.[41] (Underscoring supplied) property, together with all the improvements they built thereon. Reiterating
that they were not purchasers pendente lite, they averred that El Dorado and
Lauro had actual knowledge of their interests in the said portion of the property
Carrascoso, PLDT and PLDTAC filed their respective appeals to the Court of prior to the annotation of the notice of lis pendens to thereby render said
Appeals. notice ineffective.

By Decision[42] of January 31, 1996, the appellate court reversed the decision of El Dorado and the heirs of Lauro, both represented by Conrad C. Leviste, also
the trial court, disposing as follows, quoted verbatim: filed their Comment[49] to Carrascosos 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:
AND, THEREFORE, A PRIOR REGISTRATION NOT AFFECTED BY THE LATER
6. El Dorado Plantation, Inc. should inform Philippine Long Distance Telephone NOTICE OF LIS PENDENS.[58] (Underscoring supplied)
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 Carrascoso posits that in the El Dorado Board Resolution and the Affidavit of
the former decide to keep the improvements under Article Feliciano Leviste, both dated March 23, 1972, no objection was interposed to
449.[50](Underscoring supplied) his mortgaging of the property to any bank provided that the balance of the
purchase price of the property under the March 23, 1972 Deed of Sale of Real
Property is recognized, hence, El Dorado could collect the unpaid balance
Carrascoso filed on November 13, 1996 his Reply[51] to the Comment of El of P1,300,000.00 only after the mortgage in favor of HSB is paid in full; and the
Dorado and the heirs of Lauro. 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
In the meantime, as the February 22, 1996 Motion for Reconsideration filed by evidenced by the Cancellation of Mortgage[59] signed by HSB President Gregorio
PLDT and PLDTAC of the CA decision had remained unresolved, this Court, by B. Licaros.
Resolution[52] of June 30, 2003, directed the appellate court to resolve the
same. Carrascoso further posits that extensions of the period to pay El Dorado were
verbally accorded him by El Dorados directors and officers, particularly Jose and
By Resolution[53] of July 8, 2004, the CA denied PLDT and PLDTACs Motion for Angel Leviste.
Reconsideration for lack of merit.
Article 1191 of the Civil Code provides:
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 Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case
January 31, 1996 Decision and the July 8, 2004 Resolution of the appellate one of the obligors should not comply with what is incumbent upon him.
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- The injured party may choose between the fulfillment and the rescission of the
interest be declared owners and legal possessors thereof, together with all obligation, with the payment of damages in either case. He may also seek
improvements built, sown and planted thereon. rescission, even after he has chosen fulfillment, if the latter should become
impossible.
By Resolution[56] of August 25, 2004, G.R. No. 164489 was consolidated with
G.R. No. 123672. The court shall decree the rescission claimed, unless there be just cause
authorizing the fixing of a period.
In his petition, Carrascoso faults the CA as follows:
This is understood to be without prejudice to the rights of third persons who
I have acquired the thing, in accordance with Articles 1385 and 1388 and the
Mortgage Law.
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. Reciprocal obligations are those which arise from the same cause, and in which
each party is a debtor and a creditor of the other, such that the obligation of
II 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
THE COURT OF APPEALS ACTED WITH GRAVE ABUSE OF DISCRETION AND simultaneous fulfillment of the other.[61]
COMMITTED A MISTAKE OF LAW IN DISREGARDING THE CRUCIAL
SIGNIFICANCE OF THE WARRANTY OF NON-TENANCY EXPRESSLY STIPULATED The right of rescission of a party to an obligation under Article 1191 is
IN THE CONTRACT OF SALE. predicated on a breach of faith by the other party who violates the reciprocity
between them.[62]
III
A contract of sale is a reciprocal obligation. The seller obligates itself to transfer
THE COURT OF APPEALS ACTED WITH GRAVE ABUSE OF DISCRETION IN the ownership of and deliver a determinate thing, and the buyer obligates itself
REVERSING THE DECISION OF THE TRIAL COURT.[57] (Underscoring supplied) 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
PLDT, on the other hand, faults the CA as follows: 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
I contract.[65]

THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN HOLDING THAT In the case at bar, El Dorado already performed its obligation through the
PETITIONER AND PLTAC (sic) TOOK THEIR RIGHT, INTEREST AND TITLE TO THE execution of the March 23, 1972 Deed of Sale of Real Property which effectively
FARM SUBJECT TO THE NOTICE OF LIS PENDENS, THE SAME IN DISREGARD OF transferred ownership of the property to Carrascoso. The latter, on the other
THE PROTECTION ACCORDED THEM UNDER ARTICLES 1181 AND 1187 OF THE hand, failed to perform his correlative obligation of paying in full the contract
NEW CIVIL CODE. price in the manner and within the period agreed upon.

II 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
THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN HOLDING THAT interest thereon at the rate of 10% per annum within a period of three (3) years
PETITIONER AND PLDTAC TOOK THEIR RIGHT, INTEREST AND TITLE TO THE from the signing of the contract on March 23, 1972. When Jose Leviste
FARM SUBJECT TO THE NOTICE OF LIS PENDENS, THE SAME IN DISREGARD OF informed him that El Dorado was seeking rescission of the contract by letter of
THE LEGAL PRINCIPLE THAT RESPONDENTS EL DORADO ET AL.s PRIOR, ACTUAL February 21, 1977, the period given to him within which to fully satisfy his
KNOWLEDGE OF PETITIONER PLDTS AGREEMENT TO BUY AND SELL WITH obligation had long lapsed.
RESPONDENT CARRASCOSO RESULTING IN THE DELIVERY TO, AND
POSSESSION, OCCUPATION AND DEVELOPMENT BY, SAID PETITIONER OF THE The El Dorado Board Resolution and the Affidavit of Jose Leviste interposing no
FARM, IS EQUIVALENT TO REGISTRATION OF SUCH RIGHT, INTEREST AND TITLE objection to Carrascosos 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.
Carrascoso goes on to argue that the appellate court erred in ignoring the
As the CA correctly found: 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
The adverted resolution (Exhibit 2) does not say that the obligation of weeks prior to the execution of the Deed of Sale, he discovered, while
Carrascoso to pay the balance was extended. Neither can We see in it anything inspecting the property on board a helicopter, that there were people and
that can logically infer said accommodation. 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
A partially unpaid seller can agree to the buyers mortgaging the subject of the after the execution of the Deed of Sale, upon inquiry with the Bureau of Lands
sale without changing the time fixed for the payment of the balance of the and the Bureau of Soils, he was informed that there were people claiming to be
price. The two agreements are not incompatible with each other such that tenants in certain portions of the property;[70] and he thus brought the matter
when one is to be implemented, the other has to be suspended. In the case at again to El Dorado which informed him that the occupants were not tenants
bench, there was no impediment for Carrascoso to pay the balance of the price but squatters.[71]
after mortgaging the land.
Carrascoso now alleges that as a result of what he concludes to be a breach of
Also, El Dorados subordinating its preferred claim or waiving its superior the warranty of non-tenancy committed by El Dorado, he incurred expenses in
vendors lien over the land in favor of the mortgagee of said property only the amount of P2,890,000.00 for which he should be reimbursed, his unpaid
means that in a situation where the unpaid price of the Land and loan secured obligation to El Dorado amounting to P1,300,000.00 to be deducted
by the mortgage over the Land both become due and demandable, the therefrom.[72]
mortgagee shall have precedence in going after the Land for the satisfaction of
the loan. Such accommodations do not necessarily imply the modification of The breach of an express warranty makes the seller liable for damages.[73] The
the period fixed in the contract of sale for the payment by Carrascoso of the following requisites must be established in order that there be an express
balance. 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;
The palpable purpose of El Dorado in not raising any objection to Carrascosos (2) the natural tendency of such affirmation or promise is to induce the buyer
mortgaging the land was to eliminate any legal impediment to such a contract. to purchase the thing; and (3) the buyer purchases the thing relying on such
That was so succinctly expressed in the Affidavit (Exhibit 2-A) of President affirmation or promise thereon.[74]
Feleciano (sic) Leviste. El Dorados yielding its superior lien over the land in favor
of the mortgagee was plainly intended to overcome the natural reluctance of Under the March 23, 1972 Deed of Sale of Real Property, El Dorado warranted
lending institutions to accept a land whose price has not yet been fully paid as that the property was not being cultivated by any tenant and was, and
collateral of a loan.[66] (Underscoring supplied) 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.
Respecting Carrascosos insistence that he was granted verbal extensions within
which to pay the balance of the purchase price of the property by El Dorados Carrascoso claims to have incurred expenses in relocating persons found on the
directors and officers Jose and Angel Leviste, this Court finds the same property four months after the execution of the Deed of Sale. Apart from such
unsubstantiated by the evidence on record. 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
It bears recalling that Jose Leviste wrote Carrascoso, by letter of February 21, Dorado may not be held liable for actual damages.
1977, calling his attention to his failure to comply, despite numerous requests,
with his obligation to pay the amount of P1,300,000.00 and 10% annual interest Carrascoso further argues that both the trial and appellate courts erred in
thereon, and advising him that we would like to rescind the contract of sale. holding that the sale of the 1,000 hectare portion of the property to PLDT, as
This letter reiterated the term of payment agreed upon in the March 23, 1972 well as its subsequent sale to PLDTAC, is subject to the March 15, 1977 Notice
Deed of Sale of Real Property and Carrascososs non-compliance therewith. of Lis Pendens.

Carrascoso, harping on Jose Levistes March 10, 1977 letter to Lauros counsel PLDT additionally argues that the CA incorrectly ignored the Agreement to Buy
wherein he (Jose Leviste) stated that some of the Directors of the corporation and Sell which it entered into with Carrascoso on July 11, 1975, positing that
could not see their way clear in complying with the demands of [Lauro] and the efficacy of its purchase from Carrascoso, upon his fulfillment of the
have failed to reach a consensus to bring the corresponding action for condition it imposed resulting in its decision to formalize their transaction and
rescission of the contract against Dr. Fernando Carrascoso, argues that the execute the April 6, 1977 Deed of Sale, retroacted to July 11, 1975 or before
extensions priorly given to him no doubt lead to the logical conclusion on some the annotation of the Notice of Lis Pendens.[78]
of the directors inability to file suit against him.[67] The pertinent portions of the July 11, 1975 Agreement to Buy and Sell between
PLDT and Carrascoso read:
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 2. That the VENDOR hereby agrees to sell to the VENDEE and the latter hereby
interpreted to mean that this was brought about by a prior extension of the agrees to purchase from the former, 1,000 hectares of the above-described
period to pay the balance of the purchase price of the property as such parcel of land as shown in the map hereto attached as Annex A and made an
reluctance could have been due to a myriad of reasons totally unrelated to the integral part hereof and as hereafter to be more particularly determined by the
period of payment of the balance. 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)
The bottomline however is, if El Dorado really intended to extend the period of payable in cash.
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 3. That this contract shall be considered rescinded and cancelled and of no
all the speculations of the court a quo and pretensions of Carrascoso. further force and effect, upon failure of the VENDOR to clear the
aforementioned 1,000 hectares of land of all the occupants therein located,
xxx within a period of one (1) year from the date of execution of this Agreement.
The unalterable fact here remains that on March 23, 1973, with or without However, the VENDEE shall have the option to extend the life of this Agreement
demand, the obligation of Carrascoso to pay P519,933.33 became due. The by another six months, during which period the VENDEE shall definitely inform
same was true on March 23, 1974 and on March 23, 1975 for equal amounts. the VENDOR of its decision on whether or not to finalize the deed of absolute
Since he did not perform his obligation under the contract of sale, he, therefore, sale for the aforementioned 1,000 hectares of land.
breached it. Having breached the contract, El Dorados cause of action for
rescission of that contract arose.[68] (Underscoring supplied)
The VENDOR agrees that the amount of P500.00 per family within the In ruling against PLDT and PLDTAC, the appellate court held:
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 PLDT and PLDTAC argue that in reality the Farm was bought by the former on
shall not exceed the total amount of P120,000.00, the same to be thereafter July 11, 1975 when Carrascoso and it entered into the Agreement to Buy and
deducted by the VENDEE from the aforementioned purchase price of Sell (Exhibit 15). How can an agreement to buy and sell which is a preparatory
P3,000,000.00. contract be the same as a contract of sale which is a principal contract? If PLDTs
contention is correct that it bought the Farm on July 11, 1975, why did it buy
The aforementioned advance of P120,000.00 shall be remitted by the VENDEE the same property again on April 6, 1977? There is simply no way PLDT and
to the VENDOR upon the signing of this Agreement. 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
xxx 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
It is likewise further agreed that the VENDEE shall have the right to enter into (sic) constructive notice of the lis pendens, why did it pursue and go through
any part of the aforementioned 1,000 hectares at any time within the period of with the sale if it had not been willing to gamble with the result of this
this Agreement for purposes of commencing the development of the same. case?[83] (Underscoring supplied)

xxx
5. Title to the aforementioned land shall also be cleared of all liens or Further, in its July 8, 2004 Resolution, the CA held:
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 PLDT cannot shield itself from the notice of lis pendens because all that it had
VENDOR of the purchase price shall first be applied to liquidate said mortgages, at the time of its inscription was an Agreement to Buy and Sell with
liens and/or encumbrances, such that said payments shall be made directly to CARRASCOSO, which in effect is a mere contract to sell that did not pass to it
the corresponding creditors. Thus, the balance of the purchase price will be the ownership of the property.
paid to the VENDOR after the title to the land is cleared of all such liens and xxx
encumbrances.
Ownership was retained by CARRASCOSO which EL DORADO may very well
xxx recover through its action for rescission.
7. The VENDOR agrees that, during the existence of this Agreement and without
the previous written permission from the VENDEE, he shall not sell, cede, assign xxx
and/or transfer the parcel of land subject of this Agreement.[79] PLDTs possession at the time the notice of lis pendens was registered not being
a legal possession based on ownership but a mere possession in fact and the
A notice of lis pendens is an announcement to the whole world that a particular Agreement to Buy and Sell under which it supposedly took possession not being
real property is in litigation, and serves as a warning that one who acquires an registered, it is not protected from an adverse judgment that may be rendered
interest over said property does so at his own risk, or that he gambles on the in the case subject of the notice of lis pendens.[84] (Underscoring supplied)
result of the litigation over said property.[80]

Once a notice of lis pendens has been duly registered, any cancellation or In a contract of sale, the title passes to the vendee upon the delivery of the
issuance of title over the land involved as well as any subsequent transaction thing sold; whereas in a contract to sell, ownership is not transferred upon
affecting the same would have to be subject to the outcome of the suit. In other delivery of the property but upon full payment of the purchase price.[85] In the
words, a purchaser who buys registered land with full notice of the fact that it former, the vendor has lost and cannot recover ownership until and unless the
is in litigation between the vendor and a third party stands in the shoes of his contract is resolved or rescinded; whereas in the latter, title is retained by the
vendor and his title is subject to the incidents and result of the pending vendor until the full payment of the price, such payment being a positive
litigation.[81] 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
x x x Notice of lis pendens has been conceived and, more often than not, availed effective.[86]
of, to protect the real rights of the registrant while the case involving such rights
is pending resolution or decision. With the notice of lis pendens duly recorded, PLDT argues that the July 11, 1975 Agreement to Buy and Sell is a conditional
and while it remains uncancelled, the registrant could rest secure that he would contract of sale, thus calling for the application of Articles 1181[87] and
not lose the property or any part of it during the litigation. 1187[88] of the Civil Code as held in Coronel v. Court of Appeals.[89]

The filing of a notice of lis pendens in effect (1) keeps the subject matter of The Court is not persuaded.
litigation within the power of the court until the entry of the final judgment so
as to prevent the defeat of the latter by successive alienations; and (2) binds a For in a conditional contract of sale, if the suspensive condition is fulfilled, the
purchaser of the land subject of the litigation to the judgment or decree that contract of sale is thereby perfected, such that if there had already been
will be promulgated thereon whether such a purchaser is a bona fide purchaser previous delivery of the property subject of the sale to the buyer, ownership
or not; but (3) does not create a non-existent right or lien. thereto automaticallytransfers to the buyer by operation of law without any
further act having to be performed by the seller.[90] Whereas in a contract to
The doctrine of lis pendens is founded upon reason of public policy and sell, upon fulfillment of the suspensive condition, ownership will not
necessity, the purpose of which is to keep the subject matter of the litigation automatically transfer to the buyer although the property may have been
within the power of the court until the judgment or decree shall have been previously delivered to him. The prospective seller still has to convey title to the
entered; otherwise by successive alienations pending the litigation, its prospective buyer by entering into a contract of absolute sale.[91]
judgment or decree shall be rendered abortive and impossible of execution.
The doctrine of lis pendens is based on considerations of public policy and A perusal of the contract[92] adverted to in Coronel reveals marked differences
convenience, which forbid a litigant to give rights to others, pending the from the Agreement to Buy and Sell in the case at bar. In the Coronel contract,
litigation, so as to affect the proceedings of the court then progressing to there was a clear intent on the part of the therein petitioners-sellers to transfer
enforce those rights, the rule being necessary to the administration of justice title to the therein respondent-buyer. In the July 11, 1975 Agreement to Buy
in order that decisions in pending suits may be binding and may be given full and Sell, PLDT still had to definitely inform Carrascoso of its decision on whether
effect, by keeping the subject matter in controversy within the power of the or not to finalize the deed of absolute sale for the 1,000 hectare portion of the
court until final adjudication, that there may be an end to litigation, and to property, such that in the April 6, 1977 Deed of Absolute Sale subsequently
preserve the property that the purpose of the pending suit may not be defeated executed, the parties declared that they are now decided to execute such deed,
by successive alienations and transfers of title.[82] (Italics in the original) indicating that the Agreement to Buy and Sell was, as the appellate court held,
merely a preparatory contract in the nature of a contract to sell. In fact, the
parties even had to stipulate in the said Agreement to Buy and Sell that
Carrascoso, during the existence of the Agreement, shall not sell, cede, assign
and/or transfer the parcel of land, which provision this Court has held to be a
typical characteristic of a contract to sell.[93] PLDT further argues that El Dorados prior, actual knowledge of the July 11, 1975
Agreement to Buy and Sell is equivalent to prior registration not affected by the
Being a contract to sell, what was vested by the July 11, 1975 Agreement to Buy Notice of Lis Pendens. As such, it concludes that it was not a
and Sell to PLDT was merely the beneficial title to the 1,000 hectare portion of purchaser pendente lite nor a purchaser in bad faith.
the property.
PLDT anchors its argument on the testimony of Lauro and El Dorados counsel
The right of Daniel Jovellanos to the property under the contract [to sell] with Atty. Aquino from which it infers that Atty. Aquino filed the complaint for
Philamlife was merely an inchoate and expectant right which would ripen into rescission and caused the notice of lis pendens to be annotated on Carrascosos
a vested right only upon his acquisition of ownership which, as aforestated, was title only after reading newspaper reports on the sale to PLDT of the 1,000
contingent upon his full payment of the rentals and compliance with all his hectare portion of the property.
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 The pertinent portions of Atty. Aquinos testimony are reproduced hereunder:
expectant or contingent. It is a right which is fixed, unalterable, absolute, Q: Do you know, Atty. Aquino, what you did after the filing of the complaint in
complete and unconditional to the exercise of which no obstacle exists, and the instant case of Dr. Carrascoso?
which is perfect in itself and not dependent upon a contingency. Thus, for a A: Yes, I asked my associates to go to Mamburao and had the notice of Lis
property right to be vested, there must be a transition from the potential or Pendens covering the property as a result of the filing of the instant complaint.
contingent to the actual, and the proprietary interest must have attached to a Q: Do you know the notice of Lis Pendens?
thing; it must have become fixed or established and is no longer open to doubt A: Yes, it is evidenced by a [Transfer] Certificate Copy of Title of Dr. Carrascoso
or controversy.[94] (Underscoring supplied) entitled Notice of Lis Pendens.
Q: As a consequence of the filing of the complaint which was annotated, you
have known that?
In the case at bar, the July 11, 1975 Agreement to Buy and Sell was not A: Yes.
registered, which act of registration is the operative act to convey and affect
the land. xxx
Q: After the annotation of the notice of Lis Pendens, do you know, if any further
An agreement to sell is a voluntary instrument as it is a willful act of the transaction was held on the property?
registered owner. As such voluntary instrument, Section 50 of Act No. 496 [now A: As we have read in the newspaper, that Dr. Carrascoso had sold the property
Section 51 of PD 1529] expressly provides that the act of registration shall be in favor of the PLDT, Co.
the operative act to convey and affect the land. And Section 55 of the same Act Q: And what did you do?
[now Section 53 of PD 1529] requires the presentation of the owners duplicate A: We verified the portion of the property having recorded under entry No.
certificate of title for the registration of any deed or voluntary instrument. As 24770 xxx and we also discovered that the articles incorporated (sic) and other
the agreement to sell involves an interest less than an estate in fee simple, the corporate matters had been organized and established of the PLDT, Co., and
same should have been registered by filing it with the Register of Deeds who, had been annotated.
in turn, makes a brief memorandum thereof upon the original and owners
duplicate certificate of title. The reason for requiring the production of the xxx
owners duplicate certificate in the registration of a voluntary instrument is that, Q: Do you know what happened to the property?
being a willful act of the registered owner, it is to be presumed that he is A: It was sold by the PLDT to its sub-PLDT Agitating (sic) Co. when at that time
interested in registering the instrument and would willingly surrender, present there was already notice of Lis Pendens.
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 xxx
the duplicate certificate for the annotation of the voluntary instrument, the Q: In your testimony, you mentioned that you had come cross- (sic) reading the
grantee may file with the Register of Deeds a statement setting forth his sale of the subject litigation (sic) between Dr. Fernando Carrascoso, the
adverse claim, as provided for in Section 110 of Act No. 496. defendant herein and the PLDT, one of defendants-intervenor, may I say
xxx[95] (Underscoring supplied) when?
A: I cannot remember now, but it was in the newspaper where it was informed
or mentioned of the sold property to PLDT.
In Valley Golf Club, Inc. v. Salas,[96] where a Deed of Absolute Sale covering a
parcel of land was executed prior to the annotation of a notice of lis pendens by xxx
the original owner thereof but which Deed was registered after such Q: Will you tell to the Honorable Court what newspaper was that?
annotation, this Court held: 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
The advance payment of P15,000.00 by the CLUB on October 18, 1960 to really transaction (sic) and we found out that there was in the Register of Deeds
ROMERO, and the additional payment by the CLUB of P54,887.50 as full and that was the reason why we obtained the case.
payment of the purchase price on October 26, 1960, also to ROMERO, cannot Q: Well, may I say, is there any reason, the answer is immaterial. The question
be held to be the dates of sale such as to precede the annotation of the adverse is as regard the matter of time when counsel is being able (sic) to read the
claim by the SISTERS on October 25, 1960 and the lis pendens on October 27, newspaper allegedly (interrupted)
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 xxx
CLUB until December 4, 1963, or three (3) years after it had made full payment Q: The idea of the question, your Honor, is to establish and ask further the
to ROMERO. xxx 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
xxx
As matters stand, therefore, in view of the prior annotations of the adverse A: I cannot remember.[98]
claim and lis pendens, the CLUB must be legally held to have been aware of the PLDT also relies on the following testimony of Carrascoso:
flaws in the title. By virtue of the lis pendens, its acquisition of the property was Q: You mentioned Doctor a while ago that you mentioned to the late Governor
subject to whatever judgment was to be rendered in Civil Case No. 6365. xxx Feliciano Leviste regarding your transaction with the PLDT in relation to the
The CLUBs cause of action lies, not against the SISTERS, to whom the property subject property you allegedly mention (sic) your intention to sell with the
had been adjudged by final judgment in Civil Case No. 6365, but against PLDT?
ROMERO who was found to have had no right to dispose of the A: It was Dr. Jose Leviste and Dr. Angel Leviste that was constantly in touched
land.[97] (Underscoring supplied) (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 as far as practicable in his original situation, the rescission has the effect of
Dr. Angel Leviste and Dr. Jose Leviste? abrogating the contract in all parts.[103] (Underscoring supplied)
A: Yes, sir. It was Trinidad Andaya Leviste and Assemblyman Expedito Leviste.

xxx The April 6, 1977 and May 30, 1977 Deeds of Absolute Sale being subject to the
Q: What is the position of Mrs. Trinidad Andaya Leviste with the plaintiff- notice of lis pendens, and as the Court affirms the declaration by the appellate
corporation? court of the rescission of the Deed of Sale executed by El Dorado in favor of
A: One of the stockholders and director of the plaintiff-corporation, sir. Carrascoso, possession of the 1,000 hectare portion of the property should be
Q: Will you please tell us the other officers? turned over by PLDT to El Dorado.
A: Expedito Leviste, sir.
A: Will you tell the position of Expedito Leviste? As regards the improvements introduced by PLDT on the 1,000 hectare portion
A: He was the corporate secretary, sir. of the property, a distinction should be made between those which it built prior
Q: If you know, was Dr. Jose Leviste also a director at that time? to the annotation of the notice of lis pendens and those which it introduced
A: Yes, sir.[99] subsequent thereto.
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 When a person builds in good faith on the land of another, Article 448 of the
against Carrascoso and the annotation of the notice of lis pendens on his title. Civil Code governs:
It further asserts that it always acted in good faith: 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,
xxx The contract to sell between the Petitioner [Carrascoso] and PLDT was sowing or planting, after payment of the indemnity provided for in Articles 546
executed in July 11, 1975. There is no evidence that El Dorado was notified of and 548, or to oblige the one who built or planted to pay the price of the land,
this contract. The property is located in Mindoro, El Dorado is based in Manila. and the one who sowed, the proper rent. However, the builder or planter
The land was planted to rice. This was not an unusual activity on the land, thus cannot be obliged to buy the land if its value is considerably more than that of
it could have been the Petitioner who was using the land. Not having been the building or trees. In such a case, he shall pay reasonable rent, if the owner
notified of this sale, El Dorado could not have stopped PLDT from developing of the land does not choose to appropriate the building or trees after the
the land. 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 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 The above provision covers cases in which the builders, sowers or planters
PLDTAC persisted not only in buying the land but also in putting up believe themselves to be owners of the land or, at least, to have a claim of title
improvements on the property such as buildings, roads, irrigation systems and thereto.[104] Good faith is thus identified by the belief that the land is owned; or
drainage. This was done during the pendency of this case, where PLDT and that by some title one has the right to build, plant, or sow thereon.[105]
PLDTAC actively participated as intervenors. They were not innocent
bystanders. xxx[100] The owner of the land on which anything has been built, sown or planted in
This Court finds the above-quoted testimony of Atty. Aquino to be susceptible good faith shall have the right to appropriate as his own the building, planting
of conflicting interpretations. As such, it cannot be the basis for inferring that or sowing, after payment to the builder, planter or sower of the necessary and
El Dorado knew of the July 11, 1975 Agreement to Buy and Sell prior to the useful expenses,[106] and in the proper case, expenses for pure luxury or mere
annotation of the notice of lis pendens on Carrascosos title. pleasure.[107]

Respecting Carrascosos allegation that some of the directors and officers of El The owner of the land may also oblige the builder, planter or sower to purchase
Dorado had knowledge of his dealings with PLDT, it is true that knowledge of and pay the price of the land.
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, If the owner chooses to sell his land, the builder, planter or sower must
is notice to the corporation, whether he communicates such knowledge or purchase the land, otherwise the owner may remove the improvements
not.[101] In the case at bar, however, apart from Carrascosos claim that he in fact thereon. The builder, planter or sower, however, is not obliged to purchase the
notified several of the directors about his intention to sell the 1,000 hectare land if its value is considerably more than the building, planting or sowing. In
portion of the property to PLDT, no evidence was presented to substantiate his such case, the builder, planter or sower must pay rent to the owner of the land.
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 If the parties cannot come to terms over the conditions of the lease, the court
before the annotation of the notice of lis pendens on his title. must fix the terms thereof.

PLDT is, of course, not without recourse. As held by the CA: 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
Between Carrascoso and PLDT/PLDTAC, the former acted in bad faith while the the owner of the land.[108]
latter acted in good faith. This is so because it was Carrascosos refusal to pay
his just debt to El Dorado that caused PLDT/PLDTAC to suffer pecuniary losses. On the other hand, when a person builds in bad faith on the land of another,
Therefore, Carrascoso should return to PLDT/PLDTAC the P3,000,000.00 price Articles 449 and 450 govern:
of the farm plus legal interest from receipt thereof until paid.[102](Underscoring
supplied) 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.
The appellate courts decision ordering the rescission of the March 23, 1972
Deed of Sale of Real Property between El Dorado and Carrascoso being in order, Art. 450. The owner of the land on which anything has been built, planted or
mutual restitution follows to put back the parties to their original situation prior sown in bad faith may demand the demolition of the work, or that the planting
to the consummation of the contract. 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
The exercise of the power to rescind extinguishes the obligatory relation as if it builder or planter to pay the price of the land, and the sower the proper rent.
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. 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
Where a contract is rescinded, it is the duty of the court to require both parties the execution of the July 11, 1975 Agreement to Buy and Sell with the full
to surrender that which they have respectively received and to place each other consent of Carrascoso.[109] Thus, until March 15, 1977 when the Notice of Lis
Pendens was annotated on Carrascosos TCT No. T-6055, PLDT is deemed to (D) If, before an invoice falls due, Mr. Quiroga should request its payment, said
have been in good faith in introducing improvements on the 1,000 hectare payment when made shall be considered as a prompt payment, and as such a
portion of the property. deduction of 2 per cent shall be made from the amount of the invoice.
The same discount shall be made on the amount of any invoice which Mr.
After March 15, 1977, however, PLDT could no longer invoke the rights of a Parsons may deem convenient to pay in cash.
builder in good faith. (E) Mr. Quiroga binds himself to give notice at least fifteen days before hand of
any alteration in price which he may plan to make in respect to his beds, and
Should El Dorado then opt to appropriate the improvements made by PLDT on agrees that if on the date when such alteration takes effect he should have any
the 1,000 hectare portion of the property, it should only be made to pay for order pending to be served to Mr. Parsons, such order shall enjoy the
those improvements at the time good faith existed on the part of PLDT or until advantage of the alteration if the price thereby be lowered, but shall not be
March 15, 1977,[110] to be pegged at its current fair market value.[111] affected by said alteration if the price thereby be increased, for, in this latter
case, Mr. Quiroga assumed the obligation to invoice the beds at the price at
The commencement of PLDTs payment of reasonable rent should start on which the order was given.
March 15, 1977 as well, to be paid until such time that the possession of the (F) Mr. Parsons binds himself not to sell any other kind except the "Quiroga"
1,000 hectare portion is delivered to El Dorado, subject to the reimbursement beds.
of expenses as aforestated, that is, if El Dorado opts to appropriate the ART. 2. In compensation for the expenses of advertisement which, for the
improvements.[112] benefit of both contracting parties, Mr. Parsons may find himself obliged to
make, Mr. Quiroga assumes the obligation to offer and give the preference to
If El Dorado opts for compulsory sale, however, the payment of rent should Mr. Parsons in case anyone should apply for the exclusive agency for any island
continue up to the actual transfer of ownership.[113] not comprised with the Visayan group.
ART. 3. Mr. Parsons may sell, or establish branches of his agency for the sale of
WHEREFORE, the petitions are DENIED. The Decision dated January 13, 1996 "Quiroga" beds in all the towns of the Archipelago where there are no exclusive
and Resolution dated July 8, 2004 of the Court of Appeals agents, and shall immediately report such action to Mr. Quiroga for his
are AFFIRMED with MODIFICATION in that approval.
1) the Regional Trial Court of San Jose, Occidental Mindoro, Branch 45 is further ART. 4. This contract is made for an unlimited period, and may be terminated
directed to: by either of the contracting parties on a previous notice of ninety days to the
a. determine the present fair price of the 1,000 hectare portion of the other party.
property and the amount of the expenses actually spent by PLDT for the Of the three causes of action alleged by the plaintiff in his complaint, only two
improvements thereon as of March 15, 1977; of them constitute the subject matter of this appeal and both substantially
b. include for determination the increase in value (plus value) which the amount to the averment that the defendant violated the following obligations:
1,000 hectare portion may have acquired by reason of the existence of not to sell the beds at higher prices than those of the invoices; to have an open
the improvements built by PLDT before March 15, 1977 and the current establishment in Iloilo; itself to conduct the agency; to keep the beds on public
fair market value of said improvements; exhibition, and to pay for the advertisement expenses for the same; and to
order the beds by the dozen and in no other manner. As may be seen, with the
2. El Dorado is ordered to exercise its option under the law, whether to exception of the obligation on the part of the defendant to order the beds by
appropriate the improvements, or to oblige PLDT to pay the price of the land, the dozen and in no other manner, none of the obligations imputed to the
and defendant in the two causes of action are expressly set forth in the contract.
3) PLDT shall pay El Dorado the amount of Two Thousand Pesos (P2,000.00) per But the plaintiff alleged that the defendant was his agent for the sale of his beds
month as reasonable compensation for its occupancy of the 1,000 hectare in Iloilo, and that said obligations are implied in a contract of commercial
portion of the property from the time that its good faith ceased to exist until agency. The whole question, therefore, reduced itself to a determination as to
such time that possession of the same is delivered to El Dorado, subject to the whether the defendant, by reason of the contract hereinbefore transcribed,
reimbursement of the aforesaid expenses in favor of PLDT or until such time was a purchaser or an agent of the plaintiff for the sale of his beds.
that the payment of the purchase price of the 1,000 hectare portion is made by In order to classify a contract, due regard must be given to its essential clauses.
PLDT in favor of El Dorado in case the latter opts for its compulsory sale. In the contract in question, what was essential, as constituting its cause and
subject matter, is that the plaintiff was to furnish the defendant with the beds
Costs against petitioners. which the latter might order, at the price stipulated, and that the defendant
SO ORDERED. was to pay the price in the manner stipulated. The price agreed upon was the
one determined by the plaintiff for the sale of these beds in Manila, with a
discount of from 20 to 25 per cent, according to their class. Payment was to be
G.R. No. L-11491 August 23, 1918 made at the end of sixty days, or before, at the plaintiff's request, or in cash, if
ANDRES QUIROGA, vs. PARSONS HARDWARE CO., the defendant so preferred, and in these last two cases an additional discount
was to be allowed for prompt payment. These are precisely the essential
AVANCEÑA, J.: features of a contract of purchase and sale. There was the obligation on the
On January 24, 1911, in this city of manila, a contract in the following tenor was part of the plaintiff to supply the beds, and, on the part of the defendant, to
entered into by and between the plaintiff, as party of the first part, and J. pay their price. These features exclude the legal conception of an agency or
Parsons (to whose rights and obligations the present defendant later order to sell whereby the mandatory or agent received the thing to sell it, and
subrogated itself), as party of the second part: does not pay its price, but delivers to the principal the price he obtains from
CONTRACT EXECUTED BY AND BETWEEN ANDRES QUIROGA AND J. PARSONS, the sale of the thing to a third person, and if he does not succeed in selling it,
BOTH MERCHANTS ESTABLISHED IN MANILA, FOR THE EXCLUSIVE SALE OF he returns it. By virtue of the contract between the plaintiff and the defendant,
"QUIROGA" BEDS IN THE VISAYAN ISLANDS. the latter, on receiving the beds, was necessarily obliged to pay their price
ARTICLE 1. Don Andres Quiroga grants the exclusive right to sell his beds in the within the term fixed, without any other consideration and regardless as to
Visayan Islands to J. Parsons under the following conditions: whether he had or had not sold the beds.
(A) Mr. Quiroga shall furnish beds of his manufacture to Mr. Parsons for the It would be enough to hold, as we do, that the contract by and between the
latter's establishment in Iloilo, and shall invoice them at the same price he has defendant and the plaintiff is one of purchase and sale, in order to show that it
fixed for sales, in Manila, and, in the invoices, shall make and allowance of a was not one made on the basis of a commission on sales, as the plaintiff claims
discount of 25 per cent of the invoiced prices, as commission on the sale; and it was, for these contracts are incompatible with each other. But, besides,
Mr. Parsons shall order the beds by the dozen, whether of the same or of examining the clauses of this contract, none of them is found that substantially
different styles. supports the plaintiff's contention. Not a single one of these clauses necessarily
(B) Mr. Parsons binds himself to pay Mr. Quiroga for the beds received, within conveys the idea of an agency. The words commission on sales used in clause
a period of sixty days from the date of their shipment. (A) of article 1 mean nothing else, as stated in the contract itself, than a mere
(C) The expenses for transportation and shipment shall be borne by M. Quiroga, discount on the invoice price. The word agency, also used in articles 2 and 3,
and the freight, insurance, and cost of unloading from the vessel at the point only expresses that the defendant was the only one that could sell the plaintiff's
where the beds are received, shall be paid by Mr. Parsons. beds in the Visayan Islands. With regard to the remaining clauses, the least that
can be said is that they are not incompatible with the contract of purchase and such a situation does exist. The juridical consequences must inevitably follow.
sale. We affirm.
The plaintiff calls attention to the testimony of Ernesto Vidal, a former vice- It was shown that petitioner was assessed by the then Commissioner of Internal
president of the defendant corporation and who established and managed the Revenue Melecio R. Domingo the sum of P20,272.33 as the commercial
latter's business in Iloilo. It appears that this witness, prior to the time of his broker's percentage tax, surcharge, and compromise penalty for the period
testimony, had serious trouble with the defendant, had maintained a civil suit from July 1, 1949 to December 31, 1953. There was a request on the part of
against it, and had even accused one of its partners, Guillermo Parsons, of petitioner for the cancellation of such assessment, which request was turned
falsification. He testified that it was he who drafted the contract Exhibit A, and, down. As a result, it filed a petition for review with the Court of Tax Appeals. In
when questioned as to what was his purpose in contracting with the plaintiff, its answer, the then Commissioner Domingo maintained his stand that
replied that it was to be an agent for his beds and to collect a commission on petitioner should be taxed in such amount as a commercial broker. In the
sales. However, according to the defendant's evidence, it was Mariano Lopez decision now under review, promulgated on October 19, 1962, the Court of Tax
Santos, a director of the corporation, who prepared Exhibit A. But, even Appeals held petitioner taxable except as to the compromise penalty of
supposing that Ernesto Vidal has stated the truth, his statement as to what was P500.00, the amount due from it being fixed at P19,772.33.
his idea in contracting with the plaintiff is of no importance, inasmuch as the Such liability arose from a contract of petitioner with the United States Rubber
agreements contained in Exhibit A which he claims to have drafted, constitute, International, the former being referred to as the Distributor and the latter
as we have said, a contract of purchase and sale, and not one of commercial specifically designated as the Company. The contract was to apply to
agency. This only means that Ernesto Vidal was mistaken in his classification of transactions between the former and petitioner, as Distributor, from July 1,
the contract. But it must be understood that a contract is what the law defines 1948 to continue in force until terminated by either party giving to the other
it to be, and not what it is called by the contracting parties. sixty days' notice.2 The shipments would cover products "for consumption in
The plaintiff also endeavored to prove that the defendant had returned beds Cebu, Bohol, Leyte, Samar, Jolo, Negros Oriental, and Mindanao except [the]
that it could not sell; that, without previous notice, it forwarded to the province of Davao", petitioner, as Distributor, being precluded from disposing
defendant the beds that it wanted; and that the defendant received its such products elsewhere than in the above places unless written consent would
commission for the beds sold by the plaintiff directly to persons in Iloilo. But all first be obtained from the Company.3 Petitioner, as Distributor, is required to
this, at the most only shows that, on the part of both of them, there was mutual exert every effort to have the shipment of the products in the maximum
tolerance in the performance of the contract in disregard of its terms; and it quantity and to promote in every way the sale thereof.4 The prices, discounts,
gives no right to have the contract considered, not as the parties stipulated it, terms of payment, terms of delivery and other conditions of sale were subject
but as they performed it. Only the acts of the contracting parties, subsequent to change in the discretion of the Company.5
to, and in connection with, the execution of the contract, must be considered Then came this crucial stipulation: "The Company shall from time to time
for the purpose of interpreting the contract, when such interpretation is consign to the Distributor and the Distributor will receive, accept and/or hold
necessary, but not when, as in the instant case, its essential agreements are upon consignment the products specified under the terms of this agreement in
clearly set forth and plainly show that the contract belongs to a certain kind and such quantities as in the judgment of the Company may be necessary for the
not to another. Furthermore, the return made was of certain brass beds, and successful solicitation and maintenance of business in the territory, and the
was not effected in exchange for the price paid for them, but was for other beds Distributor agrees that responsibility for the final sole of all goods delivered
of another kind; and for the letter Exhibit L-1, requested the plaintiff's prior shall rest with him. All goods on consignment shall remain the property of the
consent with respect to said beds, which shows that it was not considered that Company until sold by the Distributor to the purchaser or purchasers, but all
the defendant had a right, by virtue of the contract, to make this return. As sales made by the Distributor shall be in his name, in which the sale price of all
regards the shipment of beds without previous notice, it is insinuated in the goods sold less the discount given to the Distributor by the Company in
record that these brass beds were precisely the ones so shipped, and that, for accordance with the provision of paragraph 13 of this agreement, whether or
this very reason, the plaintiff agreed to their return. And with respect to the so- not such sale price shall have been collected by the Distributor from the
called commissions, we have said that they merely constituted a discount on purchaser or purchasers, shall immediately be paid and remitted by the
the invoice price, and the reason for applying this benefit to the beds sold Distributor to the Company. It is further agreed that this agreement does not
directly by the plaintiff to persons in Iloilo was because, as the defendant constitute Distributor the agent or legal representative 4 of the Company for
obligated itself in the contract to incur the expenses of advertisement of the any purpose whatsoever. Distributor is not granted any right or authority to
plaintiff's beds, such sales were to be considered as a result of that assume or to create any obligation or responsibility, express or implied, in
advertisement. behalf of or in the name of the Company, or to bind the Company in any manner
In respect to the defendant's obligation to order by the dozen, the only one or thing whatsoever."6
expressly imposed by the contract, the effect of its breach would only entitle All specifications for the goods ordered were subject to acceptance by the
the plaintiff to disregard the orders which the defendant might place under Company with petitioner, as Distributor, required to accept such goods shipped
other conditions; but if the plaintiff consents to fill them, he waives his right as well as to clear the same through customs and to arrange for delivery in its
and cannot complain for having acted thus at his own free will. warehouse in Cebu City. Moreover, orders are to be filled in whole or in part
For the foregoing reasons, we are of opinion that the contract by and between from the stocks carried by the Company's neighboring branches, subsidiaries or
the plaintiff and the defendant was one of purchase and sale, and that the other sources of Company's brands.7 Shipments were to be invoiced at prices
obligations the breach of which is alleged as a cause of action are not imposed to be agreed upon, with the customs duties being paid by petitioner, as
upon the defendant, either by agreement or by law. Distributor, for account of the Company.8 Moreover, all resale prices, lists,
The judgment appealed from is affirmed, with costs against the appellant. So discounts and general terms and conditions of local resale were to be subject
ordered. to the approval of the Company and to change from time to time in its
Arellano, C.J., Torres, Johnson, Street and Malcolm, JJ., concur. discretion.9 The dealer, as Distributor, is allowed a discount of ten percent on
the net amount of sales of merchandise made under such agreement. 10 On a
G.R. No. L-20871 April 30, 1971 date to be determined by the Company, the petitioner, as Distributor, was
KER & CO., LTD vs. JOSE B. LINGAD required to report to it data showing in detail all sales during the month
immediately preceding, specifying therein the quantities, sizes and types
FERNANDO, J.: together with such information as may be required for accounting purposes,
Petitioner Ker & Co., Ltd. would have us reverse a decision of the Court of Tax with the Company rendering an invoice on sales as described to be dated as of
Appeals, holding it liable as a commercial broker under Section 194 (t) of the the date of inventory and sales report. As Distributor, petitioner had to make
National Internal Revenue Code. Its plea, notwithstanding the vigorous effort payment on such invoice or invoices on due date with the Company being
of its counsel, is not sufficiently persuasive. An obstacle, well-nigh insuperable privileged at its option to terminate and cancel the agreement forthwith upon
stands in the way. The decision under review conforms to and is in accordance the failure to comply with this obligation. 11 The Company, at its own expense,
with the controlling doctrine announced in the recent case of Commissioner of was to keep the consigned stock fully insured against loss or damage by fire or
Internal Revenue v. Constantino.1 The decisive test, as therein set forth, is the as a result of fire, the policy of such insurance to be payable to it in the event
retention of the ownership of the goods delivered to the possession of the of loss. Petitioner, as Distributor, assumed full responsibility with reference to
dealer, like herein petitioner, for resale to customers, the price and terms the stock and its safety at all times; and upon request of the Company at any
remaining subject to the control of the firm consigning such goods. The facts, time, it was to render inventory of the existing stock which could be subject to
as found by respondent Court, to which we defer, unmistakably indicate that change. 12 There was furthermore this equally tell-tale covenant: "Upon the
termination or any cancellation of this agreement all goods held on necessary for that purpose, sell the manufactured product, and account
consignment shall be held by the Distributor for the account of the Company, therefor to Salisbury upon the specific terms of the agreement, less the
without expense to the Company, until such time as provision can be made by compensation fixed by the parties in lieu of interest on the money advanced
the Company for disposition." 13 and for services as agent. These requirements and stipulations are in tent with
The issue with the Court of Tax Appeals, as with us now, is whether the any other conception of the contract. If it constitutes an agreement to sell, they
relationship thus created is one of vendor and vendee or of broker and are meaningless. But they cannot be ignored. They were placed there for some
principal. Not that there would have been the slightest doubt were it not for purpose, doubtless as the result of definite antecedent negotiations therefore,
the categorical denial in the contract that petitioner was not constituted as "the consummated by the final written expression of the agreement." 21 Hence the
agent or legal representative of the Company for any purpose whatsoever." It Constantino opinion could categorically affirm that the mere disclaimer in a
would be, however, to impart to such an express disclaimer a meaning it should contract that an entity like petitioner is not "the agent or legal representative
not possess to ignore what is manifestly the role assigned to petitioner for any purpose whatsoever" does not suffice to yield the conclusion that it is
considering the instrument as a whole. That would be to lose sight altogether an independent merchant if the control over the goods for resale of the goods
of what has been agreed upon. The Court of Tax Appeals was not misled in the consigned is pervasive in character. The Court of Tax Appeals decision now
language of the decision now on appeal: "That the petitioner Ker & Co., Ltd. is, under review pays fealty to such an applicable doctrine.
by contractual stipulation, an agent of U.S. Rubber International is borne out by 2. No merit therefore attaches to the first error imputed by petitioner to the
the facts that petitioner can dispose of the products of the Company only to Court of Tax Appeals. Neither did such Court fail to appreciate in its true
certain persons or entities and within stipulated limits, unless excepted by the significance the act and conduct pursued in the implementation of the contract
contract or by the Rubber Company (Par. 2); that it merely receives, accepts by both the United States Rubber International and petitioner, as was
and/or holds upon consignment the products, which remain properties of the contended in the second assignment of error. Petitioner ought to have been
latter company (Par. 8); that every effort shall be made by petitioner to aware that there was no need for such an inquiry. The terms of the contract, as
promote in every way the sale of the products (Par. 3); that sales made by noted, speak quite clearly. There is lacking that degree of ambiguity sufficient
petitioner are subject to approval by the company (Par. 12); that on dates to give rise to serious doubt as to what was contemplated by the parties. A
determined by the rubber company, petitioner shall render a detailed report reading thereof discloses that the relationship arising therefrom was not one
showing sales during the month (Par. 14); that the rubber company shall invoice of seller and purchaser. If it were thus intended, then it would not have included
the sales as of the dates of inventory and sales report (Par. 14); that the rubber covenants which in their totality would negate the concept of a firm acquiring
company agrees to keep the consigned goods fully insured under insurance as vendee goods from another. Instead, the stipulations were so worded as to
policies payable to it in case of loss (Par. 15); that upon request of the rubber lead to no other conclusion than that the control by the United States Rubber
company at any time, petitioner shall render an inventory of the existing stock International over the goods in question is, in the language of the Constantino
which may be checked by an authorized representative of the former (Par. 15); opinion, "pervasive". The insistence on a relationship opposed to that apparent
and that upon termination or cancellation of the Agreement, all goods held on from the language employed might even yield the impression that such a mode
consignment shall be held by petitioner for the account of the rubber company of construction was resorted to in order that the applicability of a taxing statute
until their disposition is provided for by the latter (Par. 19). All these might be rendered nugatory. Certainly, such a result is to be avoided.
circumstances are irreconcilably antagonistic to the idea of an independent Nor is it to be lost sight of that on a matter left to the discretion of the Court of
merchant." 14 Hence its conclusion: "However, upon analysis of the contract, as Tax Appeals which has developed an expertise in view of its function being
a whole, together with the actual conduct of the parties in respect thereto, we limited solely to the interpretation of revenue laws, this Court is not prepared
have arrived at the conclusion that the relationship between them is one of to substitute its own judgment unless a grave abuse of discretion is manifest. It
brokerage or agency." 15 We find ourselves in agreement, notwithstanding the would be to frustrate the objective for which administrative tribunals are
able brief filed on behalf of petitioner by its counsel. As noted at the outset, we created if the judiciary, absent such a showing, is to ignore their appraisal on a
cannot heed petitioner's plea for reversal. matter that forms the staple of their specialized competence. While it is to be
1. According to the National Internal Revenue Code, a commercial broker admitted that counsel for petitioner did scrutinize with care the decision under
"includes all persons, other than importers, manufacturers, producers, or bona review with a view to exposing what was considered its flaws, it cannot be said
fide employees, who, for compensation or profit, sell or bring about sales or that there was such a failure to apply what the law commands as to call for its
purchases of merchandise for other persons or bring proposed buyers and reversal. Instead, what cannot be denied is that the Court of Tax Appeals
sellers together, or negotiate freights or other business for owners of vessels reached a result to which the Court in the recent Constantino decision gave the
or other means of transportation, or for the shippers, or consignors or imprimatur of its approval.
consignees of freight carried by vessels or other means of transportation. The WHEREFORE, the Court of Tax Appeals decision of October 19, 1962 is affirmed.
term includes commission merchants." 16 The controlling decision as to the test With costs against petitioner.
to be followed as to who falls within the above definition of a commercial Concepcion C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Castro, Teehankee,
broker is that of Commissioner of Internal Revenue v. Constantino. 17 In the Barredo, Villamor and Makasiar, JJ., concur.
language of Justice J. B. L. Reyes, who penned the opinion: "Since the company
retained ownership of the goods, even as it delivered possession unto the [G.R. No. 153033. June 23, 2005]
dealer for resale to customers, the price and terms of which were subject to DEL MONTE PHILIPPINES, INC., petitioner, vs. NAPOLEON N.ARAGONES
the company's control, the relationship between the company and the dealer DECISION
is one of agency, ... ." 18 An excerpt from Salisbury v. Brooks 19 cited in support CARPIO-MORALES, J.:
of such a view follows: " 'The difficulty in distinguishing between contracts of The decision in the present Petition for Review on Certiorari hinges on the
sale and the creation of an agency to sell has led to the establishment of rules nature of the contract denominated Supply Agreement[1]which was forged
by the application of which this difficulty may be solved. The decisions say the between Dynablock Enterprises, represented by its Manager herein
transfer of title or agreement to transfer it for a price paid or promised is the respondent Napoleon N. Aragones (Aragones) and Mega-Engineering Services
essence of sale. If such transfer puts the transferee in the attitude or position in joint venture with WAFF Construction System Corporation (MEGA-WAFF)
of an owner and makes him liable to the transferor as a debtor for the agreed whether it was one of sale or for a piece of work.
price, and not merely as an agent who must account for the proceeds of a On September 18, 1988, herein petitioner Del Monte Philippines Inc. (DMPI)
resale, the transaction is a sale; while the essence of an agency to sell is the entered into an Agreement[2] with MEGA-WAFF, represented by Managing
delivery to an agent, not as his property, but as the property of the principal, Principal Edilberto Garcia (Garcia), whereby the latter undertook the supply and
who remains the owner and has the right to control sales, fix the price, and installation of modular pavement at DMPIs condiments warehouse at Cagayan
terms, demand and receive the proceeds less the agent's commission upon de Oro City within 60 calendar days from signing of the agreement.
sales made.' " 20 The opinion relied on the work of Mechem on Sales as well as To source its supply of concrete blocks to be installed on the pavement of the
Mechem on Agency. Williston and Tiedman both of whom wrote treatises on DMPI warehouse, MEGA-WAFF, as CONTRACTOR represented by Garcia,
Sales, were likewise referred to. entered into a Supply Agreement with Dynablock Enterprises, represented by
Equally relevant is this portion of the Salisbury opinion: "It is difficult to herein respondent Aragones, as SUPPLIER, under the following terms:
understand or appreciate the necessity or presence of these mutual 1. ITEMS TO BE SUPPLIED
requirements and obligations on any theory other than that of a contract of The SUPPLIER at its own expense shall provide the CONTRACTOR with labor and
agency. Salisbury was to furnish the mill and put the timber owned by him into all materials, equipment, tools and supplies necessary and incident thereto, the
a marketable condition in the form of lumber; Brooks was to furnish the funds required concrete blocks at the contractors specified casting site, all in
accordance with the terms and conditions of this agreement, as well as d) after initial setting of blocks, to unload and arrange them to wooden pallets.
the requirements of the project specifications and provisions with respect to e) curing of blocks as per approved standards.
the fabrication of concrete blocks. 7. OTHER OBLIGATIONS OF CONTRACTOR
2. PRICE 7.1 - To provide tarpaulin or canvas or plastic sheets to cover blocks during the
The CONTRACTOR will pay the supplier in consideration for the full and total seasoning stage.
performance of the above undertaking, inclusive of all applicable taxes, the unit 7.2 - To provide forklift and wooden pallets.
price of P7.00 per supplied and accepted piece. This price is based on the 8. EXCLUSIVITY OF PRODUCTION
assumption that the cost per bag of premium cement is P54.00 and aggregate 8.1 - Effective upon the execution of this agreement, the SUPPLIER binds itself
at P95.00 per cu. m. Any increase of the above raw materials shall be to the to devote the entire plant/casting machines and its accessories for the
account of the contractor. All taxes shall be for the account of the contractor. CONTRACTORs exclusive use and full operation and production of the required
3. PLANT/EQUIPMENT concrete blocks for the intended project.
3.1 - The machines for the fabrication/casting of the concrete blocks, including 8.2 The SUPPLIER or his agents or representatives shall not, directly or
all necessary equipment and accessories, shall be provided by the SUPPLIER. indirectly, enter into any contract, agreement, concessions or transactions of
The machines and equipment shall be mobilized and made operational at the whatever nature or kind with the project owner or of its representative which
specified casting location/stockpiling yard designated and provided by the will affect the rights, interest or participation of the CONTRACTOR in regard to
CONTRACTOR. the execution and accomplishment of the project.
3.2 - The SUPPLIER shall ensure that all plant facilities/equipment must, at all 8.3 In case of violation of this exclusivity clause, utmost fidelity and good faith
times, be accessible for inspection by the representatives of the CONTRACTOR. being of the essence, the CONTRACTOR shall have the right to demand
3.3 - The SUPPLIER shall ensure that the plant/casting machines reasonable amount of damages or terminate this agreement upon due notice.
actual operating capacities shall not be lower than 75,000 pieces every month. 9. CONDITIONS OF PAYMENT
If at any time within the life of this agreement the plant/casting machines are 9.1 Upon mobilization of the casting machines, equipments accessories and
proven to be operating below the required minimum capacity as aforesaid, the making some operational at the casting area by the SUPPLIER, the
SUPPLIER shall be obliged to take the necessary actions to upgrade the CONTRACTOR shall advance to the supplier a downpayment or mobilization
plant/casting machines and/or make the necessary rehabilitation to increase fund of TEN THOUSAND (P10,000.00) PESOS per machine. Said mobilization fee
the capacity to the required level. shall be deducted from the proceeds of the SUPPLIER at two (2) equal
4. QUALITY OF MATERIALS installments beginning at the first billing.
4.1 The SUPPLIER guarantees that all materials supplied to the CONTRACTOR 9.2 - The SUPPLIER shall present its billing every fifteen days based on the below
shall meet the approved specifications (Attached Annex A) at 5,000 pci. indicated payment schedule:
In this connection, the CONTRACTOR shall assign an inspector at the casting site a) Billing from 1st/day/month to 15th day payable after fifteen days from the
to ensure that all items supplied shall conform with the approved standards. date the billing is submitted.
4.2 The CONTRACTOR may reject any finished product or materials which do b) Billing from the 16th day of the month to the 31st day of the month, payable
not pass the approved standards. after fifteen days from the date the billing is submitted.
4.3 There shall be a system of sampling the output of the plant and/or each 10. EFFECTIVITY OF CONTRACT
casting machine for testing in accordance with the quality standards specified. This agreement shall be co-terminus with the terms of the contract for the
Result of such sampling tests shall be the basis for acceptance or rejection of project and/or upon completion of all requirements therefor; PROVIDED,
the finished materials. However, that if for some reason or another the production of the concrete
4.4 Where the CONTRACTOR has provided materials to the SUPPLIER to be blocks is temporarily suspended, this agreement shall remain in force and
incorporated into the SUPPLIERs production, as in the case of cement and effective for a period of fifteen (15) days from the date of the cessation of
aggregates, the cost of such materials which becomes part of the rejected production. In case the said grace period expires without the production having
products due to faulty batching/mixing/curing shall be for the account of the resumed, the CONTRACTOR shall be obliged to pay reasonable compensation
SUPPLIER. for the period of suspension counted from the expiration of the said grace
5. MATERIALS AND OTHER PROVISIONS SUPPLIED BY THE CONTRACTOR period.
5.1 - All the materials are for the account of the SUPPLIER. The CONTRACTOR 11. PERFORMANCE BOND
shall, however, provide all the cement and aggregates requirement for the The SUPPLIER shall post a SURETY/PERFORMANCE BOND in such sums which
fabrication of the concrete blocks, in which the corresponding cost shall be may be deemed adequate to secure its faithful compliance of the terms and
deducted from the periodical proceeds due to the SUPPLIER. conditions of this agreement.
5.2- The CONTRACTOR shall provide and make available to the SUPPLIER the 12. PENALTY CLAUSE
following provisions/facilities free of charge: In the event the SUPPLIER fails to meet the requirements demanded in this
a) Casting/Fabrication Area agreement or when the SUPPLIER is in delay in the performance of its obligation
b) Stockpile Area to the prejudice of the CONTRACTOR, the SUPPLIER shall answer for the
c) Warehouse for Cement corresponding damages equivalent to one-tenth (1/10) of the rated monthly
d) An all-weather working shed for workers production capacity. (Emphasis and underscoring supplied).[3]
e) Night Watchers Aragones thereupon started assembling the machines for the
5.3 The CONTRACTOR shall arrange for the installation of electrical and water fabrication/casting of the concrete blocks which MEGA-WAFF specified to
facilities for the work in which the cost of electricity and water actually be hexagonal shaped. MEGA-WAFF, through Garcia, later directed Aragones to
consumed shall be borne by the SUPPLIER. instead fabricate machines for S shaped blocks.
5.4 The SUPPLIER shall be responsible for all materials already turned over by As stated in the Agreement between DMPI and MEGA-WAFF, the deadline for
the CONTRACTOR at the casting area. The responsibility, however, of the the installation of the pavement of the warehouse was November 18, 1988, but
SUPPLIER on the finished products ceases upon loading of the same to the it was not met. As extended, the installation was finished on or about February
CONTRACTORs truck on way to the project site. 28, 1989, but MEGA-WAFF was, in accordance with its agreement with DMPI,
6. OBLIGATIONS OF SUPPLIER penalized for the delay, albeit at a reduced amount.
6.1 To fabricate and provide the required block machines in such number Aragones, having in the meantime gotten wind of MEGA-WAFF &
adequate to cope up with time schedule. DMPIs Agreement, more particularly the imposition of a penalty by DMPI for
6.2 To provide concrete mixers: one (1) unit of two-bagger, and two (2) units of the delay in the completion of the installation of the warehouse pavement,
one-bagger. appealed to DMPI, by letter of March 4, 1989,[4]for leniency in the imposition
6.3 To provide drying racks, measuring boxes, wheel borrows and other of the penalty which would affect [him] also although [he] was not a direct party
necessary hand tools. to the contract, he inviting attention to the intricacy and enormity of the job
6.4 To supervise and provide the required manpower for the operation and involved.
production of concrete blocks. Aragones later failed to collect from MEGA-WAFF the full payment of the
6.5 To undertake the following: concrete blocks. He thus sent DMPI a letter dated March 10, 1989,[5] received
a) mixing and formulation of proper mix. by the latter on March 13, 1989,[6] advising it of MEGA-WAFFs unpaid obligation
b) to consolidate, form and compress the blocks. and requesting it to earmark and withhold the amount of P188,652.65 from
c) to unload the formed blocks into the drying racks.
[MEGA-WAFFs] billing to be paid directly to him [l]est Garcia collects and fails Those who put their labor upon or furnish materials for a piece of
to pay [him]. work undertaken by the contractor have an action against the owner up to the
DMPI, in the meantime, verbally advised Aragones to secure a court order amount owing from the latter to the contractor at the time the claim is made.
directing it to withhold payment of the amount due MEGA-WAFF for, in the However, the following shall not prejudice the laborers, employees and
absence of such court order, DMPI was under its agreement with MEGA-WAFF furnishers of materials:
obliged to release full payment within 30 days from acceptance of the (1) Payments made by the owner of the contractor before they are due;
completed work. (2) Renunciation by the contractor of any amount due him from the owner.
It appears that Aragones reiterated his request to DMPI for direct payment to This article is subject to the provisions of special laws (1597a)
him, by letter of March 28, 1989.[7] This was followed by another letter (Article 1729, New Civil Code, [emphasis supplied]).
dated April 6, 1989[8] which was received on April 8, 1989[9] by DMPI, copy of In interpreting the foregoing provision, the Supreme Court made the following
which it referred to Garcia, by letter of April 27, 1989,[10] for his comment. pertinent pronouncement:
By letter of May 3, 1989[11] addressed to DMPI, Garcia, commenting on Article 1729 is promulgated to protect the laborers and the materialmen from
Aragones April 6, 1989 letter, stated: being taken advantage of by unscrupulous contractors and from possible
xxx connivance between owners and contractors. (Velasco vs. C.A. 95 Phils. (sic)
If there is somebody who have (sic) justifiable ground to complain, it is MEGA- (616-641).
WAFF against Atty. Aragones for all the miseries and embarrassment we had The legal issue that arises is whether or not GSIS is liable to the petitioners for
suffered due to the factors attributable to Atty. Aragones Dynablock the cost of the materials and labor furnished by them in construction of the 63
Enterprises. houses now owned by the GSIS and for the construction of which no payment
For proper evaluation of things and to give both parties a fair chance, we has been made on the balance due to petitioners. Our considered view is and
enclosed (sic) pertinent papers for your perusal. we so hold that even in equity alone, GSIS should pay the petitioners, without
As contractor and businessman, it is our firm policy not to take advantage of prejudice to its securing indemnity from Laigo Realty Corp. (Velaso vs. C.A., 95
other people and definitely not to renegade (sic) from Phils. (sic) 616-641 [emphasis and underscoring supplied]).
commitments/obligations. Moreover, anent this matter another decisional rule, says:
We are willing to pay Atty. Aragones but based on the actual accomplishment Although there was no privity of contract between plaintiff and defendant
and amount only due to him as per reconciliation furnished to him. (attached) Joven, Inc., there is sufficient evidence showing that he had really supplied
We sincerely hope that the facts we had presented will suffice, and please stones and sands to said defendant and also removed dirt and soil from its
accept our apology for whatever inconvenience it has caused you and we pray construction site. And it is this main point which calls for resolution in the light
that this matter of payments be settled soon for the general benefit of all of the provisions of Art. 1729 of the New Civil Code, to determine whether or
concerned. not defendant corporation is liable for materials supplied and services rendered
x x x (Underscoring supplied). by the plaintiff. It is quite clear that the owner of the building, Joven Inc. is liable
It turned out that DMPI had, on or about April 6, 1989, released to MEGA-WAFF for materials and labor furnished to the contractorup to the amount owing
a check dated April 4, 1989 in the amount of P157,863.77 representing DMPIs from the latter to the contractor and to enforce such liability, the law allows
balance of its obligation to MEGA-WAFF. the person furnishing labor or materials to bring his right of action directly
Aragones was thus prompted to file on May 25, 1989 a complaint[12] for sum of against the owner. (Flores vs. Ruelo, CA 52 OG 850, [emphasis and underscoring
money (P188,652.65) with damages against Garcia and/or MEGA-WAFF and supplied]).
DMPI before the Regional Trial Court (RTC) of Lanao del Norte which was raffled Of course, while defendant DMPI is indeed directly liable to pay plaintiff the
to Branch 5 thereof. cost of the construction material (modular paving blocks) sought to be
Aragones impleaded DMPI on the strength of Articles 1729 and 1467 of the Civil collected, this defendant has also a right of recourse against cross defendant
Code, he contending that it was liable to him who put labor upon or furnished Garcia/MEGA-WAFF for reimbursement of whatever amount it will be required
materials for a piece of work. here to pay plaintiff, otherwise it would result in making defendant
By his July 14, 1989 Answer,[13] Garcia, without disputing the amount being Garcia/MEGA-WAFF enrich itself at the expense of defendant DMPI.
collected by Aragones, justified his refusal to satisfy [Aragones] demand by Additionally since the evidence on record shows that plaintiff was compelled to
claiming that Aragones defaulted in his obligation under the Supply Agreement. litigate this matter if only to collect a just and demandable obligation, the
DMPI, by its Answer[14] of June 25, 1989, pleaded that Aragones had no cause refusal of these defendants to pay their obligation upon demand could not be
of action against it as it had no privity of contract with him; that it had already justified in law, thus both defendants should be condemned to pay exemplary
paid MEGA-WAFF the full amount due it; and that it had not committed any damages in the amount of P20,000.00 each and attorneys fees in the amount
actionable wrong against Aragones. of P10,000.00 each, including the cost of this suit. (Underscoring supplied)[19]
Aragones later filed an Amended Complaint,[15] with leave of court, to cure The trial court accordingly rendered judgment in favor of Aragones by
certain formal defects in the original complaint as to the designation of parties decision[20] of September 11, 1992, the dispositive portion of which reads:
... WHEREFORE, the foregoing premises considered, the Court finds that there is
DMPI also later filed a Motion for Leave to File an Amended Answer with Cross- ample reason in law and preponderant evidence on record to sustain the cause
Claim against Garcia and WAFF President Francisco Castro[16] which the trial of action of plaintiff asserted against both defendants, thus judgment is now
court granted. In the Amended Answer with Cross Claim,[17] DMPI alleged, inter rendered granting the following relief:
alia, that [i]n the event [Aragones] succeeds in obtaining a judgment [against] a. That the defendants Garcia/MEGA-WAFF and DMPI shall be liable to jointly
DMPI, that said judgment should be charged to and paid by the cross- and severally pay plaintiff the unpaid cost of the modular paving blocks
defendants who have collected the full contract price of the Agreement construction material which he delivered to defendant DMPI priced
wherein [Aragones] claims the rights of a subcontractor, plus consequential at P188,652.65 and in the event that defendant DMPI will be made to pay the
damages (underscoring in the original). full amount of this particular obligation, the defendant Garcia MEGA-WAFF
The trial court, upon the following issues: must reimburse said defendant such amount;
a. Whether or not [Aragones] has still a collectible amount of P188,652.65 from b. That this unpaid obligation sought to be collected must bear legal interest of
defendants Garcia and Castro; 12% per annum from the time there was an extrajudicial demand made by
b. Whether or not defendant DMPI may also be held accountable for this plaintiff last March 01, 1989; and
unpaid obligation of defendant Garcia/MEGA-WAFF; c. Lastly, these defendants are condemned that each pay plaintiff P20,000.00
c. Whether or not the remaining balance of defendant DMPI account payable for exemplary damages and P10,000.00 for attorneys fees, including the cost
is P188,652.65 insisted by defendant Garcia/MEGA-WAFF or only P157,863.77 of this suit.
insisted by defendant DMPI; SO ORDERED. (Emphasis and underscoring supplied).[21]
d. Whether or not the parties are entitled to damages pleaded; On appeal to the Court of Appeals (CA) by only DMPI, upon the following
e. Whether or not there was delay in the performance of the respective assigned errors:
obligations of either party or both; I
f. Assuming that defendant DMPI is liable to plaintiff, whether or not cross THE TRIAL COURT ERRED IN HOLDING THAT PLAINTIFF DID NOT INCUR
defendant Garcia/MEGA-WAFF shall be liable to DMPI for reimbursement.[18], DELAY AND VIOLATE ITS SUPPLY AGREEMENT WITH DEFENDANT MEGA-WAFF;
found for the plaintiff Aragones in light of the following considerations: II
THE TRIAL COURT ERRED IN HOLDING THAT DEFENDANT MEGA-WAFFS Be that as it may, We so hold that plaintiff-appellee has a lawful claim against
LIABILITY TO PLAINTIFF IS P188,652.65 BECAUSE AS STIPULATED IN THE SUPPLY defendant-appellant DMPI, owner of the constructed warehouse since
AGREEMENT, THE CEMENT AND AGGREGATES USED IN THE MANUFACTURE OF it disregarded the notice of claim of plaintiff-appellee, at a time when the
THE BLOCKS WERE ADVANCED BY MEGA-WAFF, THE COST OF WHICH WILL BE amounts owing from defendant-appellant DMPI to defendant GARCIA were
DEDUCED FROM PLAINTIFFS BILLINGS; more than sufficient to pay for plaintiff-appellees claim. The least that
III. defendant-appellant should have done was to withhold payment of the balance
THE TRIAL COURT ERRED IN HOLDING THAT DEFENDANT DMPI IS ALSO LIABLE still owing to defendant Garcia as until the claim of plaintiff-appellee was
TO PLAINTIFF FOR ANY LIABILITY OF MEGA-WAFF UNDER THE SUPPLY clarified. (Italics in the original; emphasis and underscoring supplied).[24]
AGREEMENT; Its Motion for Reconsideration having been denied by the CA, DMPI
IV. (hereinafter referred to as petitioner) lodged the present Petition for Review
ASSUMING EX GRATIA ARGUMENTI THAT DMPI IS LIABLE TO PLAINTIFF'S on Certiorari, faulting the CA:
AID LIABILITY CANNOT EXCEED THE SUM OF P157,863.77 BALANCE OF THE I.
CONTRACT PRICE BETWEEN DMPI AND MEGA-WAFF, LESS AGREED PENALTY . . . IN FINDING THAT DMPI WAS LIABLE TO RESPONDENT ARAGONES FOR THE
FOR LATE DELIVERY AS LIQUIDATED DAMAGES; UNPAID PRICE OF THE CONCRETE PAVING BLOCKS OWED BY MEGA-WAFF TO
V. THE LATTER.
THE TRIAL COURT ERRED IN HOLDING DEFENDANT DMPI LIABLE TO PLAINTIFF A. IN FINDING THAT THE CONTRACT FOR THE SUPPLY OF THE CONCRETE
FOR ATTORNEYS FEES AND COSTS OF COLLECTION CONSIDERING THAT IT HAD PAVING BLOCKS WAS NOT A SALE BUT ONE FOR A PIECE OF WORK.
THE RIGHT TO RESIST PAYMENT BECAUSE IT HAS NO PRIVITY OF CONTRACT B. IN HOLDING DMPI LIABLE BASED UPON THE PROVISIONS OF ARTICLE 1729
BETWEEN PLAINTIFF AND DEFENDANT MEGA-WAFF, (Underscoring OF THE CIVIL CODE AND ACT 3959, WHICH ARE INAPPLICABLE.
supplied),[22] II.
the CA, by decision of September 19, 2001[23] subject of the petition at . . . IN FAILING TO AWARD MORAL DAMAGES, ATTORNEYS FEES, AND
bar, affirmed the trial courts decision in this wise: LITIGATION EXPENSES TO DMPI ON ITS COUNTERCLAIM.[25]
At this juncture it is well to note that the Supply Agreement was in the nature As reflected above, only petitioner appealed the trial courts decision. MEGA-
of a contract for a piece of work. The distinction between a contract of sale and WAFF did not appeal. The decision as to it then is final and executory.
one for work, labor and materials is tested by inquiry whether the thing Petitioner, in the main, contends that while the CA correctly stated the test in
transferred is one not in existence and which never would have existed but for determining whether a transfer is a sale or one for a piece of work, it failed to
the order of the party desiring to acquire it, or a thing which would have existed properly apply the same.
but has been the subject of sale to some other persons even if the order had Applying the nature of the object test, petitioner insists that the concrete block
not been given. If the article ordered by the purchaser is exactly such as the to be produced by Aragones under the Supply Agreement represented by
seller makes and keeps on hand for sale to anyone, and no change or Garcia clearly shows that the contract was one of sale, advancing the following
modification of it is made at purchasers request, it is a contract of sale even reasons:
though it may be entirely made after, and in consequence of the purchasers 1.4.1 First, the concrete paving blocks were . . . capable of being mass-produced
order for it. [Commissioner of Internal Revenue vs. Engineering Equipment and 1.4.2 Second, save for the shape, there was here no consideration of any special
Supply Company, G.R. No. L-27044, June 30, 1975] needs or requirements of DMPI taken into account in the design or
In the case at bench, the modular paving blocks are not exactly what the manufacture of the concrete paving blocks.[26]
plaintiff-appellee makes and keeps on hand for sale to anyone, but with Petitioner cites the following ruling in Commissioner of Internal Revenue v.
a modification that the same be S in shape. Hence, the agreement falls within Arnoldus Carpentry Shop, Inc.:[27]
the ambit of Article 1467 making Article 1729 likewise applicable in the instant x x x As can be clearly seen from the wordings of Art. 1467, what determines
case. whether the contract is one of work or of sale is whether the thing has been
As regard the issue of privity of contracts, We need to add only that Article 1311 manufactured specially for the customer and upon his special order. Thus, if the
of the New Civil Code which DMPI invokes is not applicable where the situation thing is specially done on the order of another, this is a contract for a piece of
contemplated in Article 1729 obtains. The intention of the latter provision is to work. If, on the other hand, the thing is manufactured or procured for the
protect the laborers and the materialmen from being taken advantage of by general market in the ordinary course of ones business, it is a contract of
unscrupulous contractors and from possible connivance between owners and sale. (Italics and emphasis in the original; underscoring supplied),[28]
contractors. Thus, a constructive vinculum or contractual privity is created by and argues that given habituality of business and the ability to mass-produce
this provision, by way of exception to the principle underlying Article the article ordered, that customers requires (sic) certain specifications is of no
1311 between the owner, on the one hand, and those who furnish labor and/or moment, the transaction remains one of sale.
materials, on the other. [Velasco vs. Court of Appeals, G.R. No. L-47544, January Petitioner further cites, among other authorities, the following ruling
28, 1980] in Celestino Co. v. Collector of Internal Revenue:[29]
As a matter of fact, insofar as the laborers are concerned, by a special law, Act x x x The important thing to remember is that Celestino & Co. habitually makes
no. 3959, otherwise known as An Act making it obligatory for any person, sash, windows and doors, as it has represented in its stationery and
company, firm or corporation owning any work of any kind executed by contract advertisements to the public. That it manufactures the same is practically
to require the contractor to furnish a bond guaranteeing the payment of the admitted by appellant itself. The fact that windows and doors are made by it
laborers. they are given added protection by requiring contractors to file bonds only when customers place their orders, does not alter the nature of the
guaranteeing payment to them. establishment of such materials-moulding, frames, panels as it ordinarily
It is true that defendant-appellant had already fully paid its obligation to manufactured or was in a position habitually to manufacture.
defendant Garcia however, the formers payment to the latter does not xxx
extinguish its legal obligation to plaintiff-appellee because such payment was That the doors and windows must meet desired specifications is neither here
irregular. The former should have taken care not to pay to such contractor the nor there. If these specifications do not happen to be of the kind habitually
full amount which he is entitled to receive by virtue of the contract, until he manufactured by appellant special forms of sash, mouldings, panels it would
shall have shown that he first paid the wages of the laborer employed in said not accept the order and no sale is made. If they do, the transaction would be
work, by means of an affidavit made and subscribed by said contractor before no different from purchaser of manufactured goods held in stock for sale; they
a notary public or other officer authorized by law to administer oaths. There is are bought because they meet specifications desired by the purchaser.
no showing that defendant appellant DMPI, as owner of the building, complied Nobody will say that when a sawmill cuts lumber in accordance with the
with this requirement paid down in Act No. 3959. Hence, under Section 2 of peculiar specifications of a customer sizes not previously held in stock for sale
said law, said defendant-appellant is responsible, jointly and severally with the to the public it thereby becomes an employee or servant of the customer, not
general contractor, for the payment to plaintiff-appellee as sub-contractor. the seller of lumber. The same consideration applies to this sash manufacturer.
In this connection, while, indeed, Article 1729 refers to the laborers and The Oriental Sash Factory does nothing more than sell the goods that it mass-
materialmen themselves, under the peculiar circumstances of this case, it is but produces or habitually makes sash, panels, mouldings, framescutting them to
fair and just that plaintiff-appellee be deemed as suing for the reimbursement such sizes and combining them in such forms as its customers may desire.
of what they have already paid the laborers and materialmen, as otherwise he xxx
would be unduly prejudiced while either defendant-appellant DMPI or x x x Such new form does not divest the Oriental Sash Factory of its character
defendant Garcia would enrich themselves at plaintiff-appellees expense. as manufacturer. Neither does it take the transaction out of the category of
sales under Article 1467 above quoted, because although the Factory does not, this provision, by way of exception to the principle underlying Article 1311
in the ordinary course of its business, manufacture and keep on stock doors of between the owner, on the one hand, and those who furnish labor and/or
the kind sold to Teodoro, it could and/or probably had in stock the sash, materials, on the other.
mouldings and panels it used therefor (some of them at least). (Emphasis in the In fine, a constructive vinculum or contractual privity was created between
original; underscoring supplied). petitioner and Aragones.
Petitioner concludes that as the Supply Agreement between Aragones and Respecting petitioners disclaimer of liability for damages and its claim for moral
MEGA-WAFF was one of sale to which it (petitioner) was not privy, it cannot be damages, attorneys fees and expenses of litigation, the trial courts disposition
held liable for any obligation arising therefrom. thereof, to wit:
Dodging liability for the damages (exemplary and . . . attorneys fees including . . . since the evidence on record shows that [Aragones] was compelled to
the cost of this suit) awarded to Aragones, petitioner claims that it was in fact litigate this matter if only to collect a just and demandable obligation,
the one which was injured by Aragones filing in bad faith of a complaint bereft the refusal of [DMPI and MEGA-WAFF] to pay their obligation upon demand
of cause of action and at best, [one] barred by full payment of the amount due could not be justified by law, thus both should be condemned to pay exemplary
to MEGA-WAFF, on account of which it is entitled to moral damages in the damages in the amount of P20,000.00 each and attorneys fees in the amount
amount of P50,000.00 pursuant to Article 2217 of the Civil Code, and to of P10,000.00 each including costs of this suit (underscoring supplied),
attorneys fees and expenses of litigation in the amount of at least P30,000.00 merits this Courts approval.
plus P2,500.00 per hearing pursuant to Article 2208 of the Civil Code. Why should not petitioner be liable for damages. Aragones request, based on
The petition fails. a provision of law, to petitioner for it to pay directly to him his account
The authorities petitioner cited in fact show that the nature of the Supply receivable from MEGA-WAFF/Garcia out of petitioners account payable to
Agreement between Aragones and MEGA-WAFF was one for a piece of work. MEGA-WAFF was made before petitioners obligation to it was due. Yet
Contrary to petitioners claim that save for the shape, there was no petitioner settled such obligation to MEGA-WAFF on or about April 6, 1989
consideration of any special needs or requirements of DMPI taken into account when it released to it its check-payment. For petitioner to harp on its
in the design or manufacture of the concrete paving blocks, the Supply undertaking under its Agreement with MEGA-WAFF to pay its full obligation
Agreement is replete with specifications, terms or conditions showing that it thereunder within 30 days from complete installation of the pavement by
was one for a piece of work. MEGA-WAFF unless a court injunction could be produced by Aragones is too
As reflected in the highlighted and underscored above-quoted provisions of shallow, under the facts and circumstances surrounding the case, to merit
the Supply Agreement, as well as other evidence on record, the machines consideration.
Aragones was obliged to fabricate were those for casting the concrete blocks Petitioners referral for comment of Garcia, by letter of April 27, 1989, on
specified by Garcia. Aragones did not have those kind of machines in his usual Aragones April 6, 1989 reiterative letter for the withholding of the release of so
business, hence, the special order. much amount to MEGA-WAFF even after it (petitioner) had already released on
While initially Garcia specified that the machines to be fabricated should be for or about April 6, 1989 its check-full payment to MEGA-WAFF reflects a futile
hexagon shaped blocks, he later asked Aragones to instead fabricate machines attempt to cover-up the apparent connivance between it and contractor
for casting S shaped blocks. MEGA-WAFF to the prejudice of Aragones, leaving him no option but to litigate.
In accordance with the Supply Agreement, Garcia furnished the cement and As for the assailed citation by the appellate court of Act No. 3959 (which
aggregates for the fabrication of the blocks and Aragones fabricated three (3) requires a person or firm owning any work of any kind executed by contract to
machines for S shaped blocks which were delivered at the casting site on put up a bond guaranteeing the payment of the laborers)
different dates. And the entire plant/casting machines and . . . . accessories as additional justification to hold petitioner liable to Aragones, indeed, said Act
were, as dictated under the Supply Agreement, devoted by Aragones for had been repealed in 1974 by P.D. No. 442 (The Labor Code of the Philippines).
[MEGA-WAFF]s exclusive use. WHEREFORE, in light of the foregoing discussions, the petition is hereby
There can be no gainsaying that the specifications/conditions in the Supply DENIED.
Agreement and the admitted subsequent directive of Garcia for Aragones to Costs against petitioner.
fabricate machines for casting S shaped, instead of hexagon shaped blocks, SO ORDERED.
show that the concrete blocks were manufactured specifically for, and upon Panganiban, (Chairman), Sandoval-Gutierrez, Corona, and Garcia, JJ., concur.
the special order of Garcia.
That Garcia supplied the cement and aggregates and that the entire made-to-
order casting machines and accessories used in the manufacture of those
unusual shaped blocks were agreed upon to be devoted only for the exclusive
use of MEGA-WAFF should belie petitioners contention that the concrete
blocks were mass-produced and catered to the general market in the ordinary
course of Aragones business.
Under Art. 1467 then of the Civil Code which provides:
ART. 1467. A contract for the delivery at a certain price of an article which the
vendor in the ordinary course of his business manufactures or procures for the
general market, whether the same is on hand at the time or not, is a contract
of sale, but if the goods are to be manufactured specially for the customer
and upon his special order, and not for the general market, it is a contract for a
piece of work. (Emphasis and underscoring supplied),
the Supply Agreement was decidedly a contract for a piece of work.
Following Art. 1729 of the Civil Code which provides:
ART. 1729. Those who put their labor upon or furnish materials for a piece of
work undertaken by the contractor have an action against the owner up to the
amount owing from the latter to the contractor at the time the claim is made.
xxx
x x x (Underscoring supplied),
Aragones having specially fabricated three casting machines and furnished
some materials for the production of the concrete blocks specially ordered and
specified by MEGA-WAFF which were to be and indeed they were for
the exclusive use of MEGA-WAFF, he has a cause of action upon petitioner up
to the amount it owed MEGA-WAFF at the time Aragones made his claim to
petitioner.
As Velasco v. CA[30] explains, the intention of Art. 1729 is
to protect the laborers and materialmen from being taken advantage of by
unscrupulous contractors and from possible connivance between owners and
contractors. Thus, a constructive vinculum or contractual privity is created by