1
1. G.R. No. 172446 October 10, 2007 The trial court observed that there was no basis for the payment
ALEXANDER "ALEX" MACASAET, petitioner,
vs.
R. TRANSPORT CORPORATION, respondent.
DECI SION
TINGA, J.:
This petition seeks the reversal of the Decision1 of the Court of
Appeals dated 5 October 2005 in CA G.R. CV No. 70585, as well
as its Resolution2 dated 28 March 2006 denying petitioner's
motion for reconsideration.
First, the factual background.
On 3 January 1996, a Complaint for Recovery of Possession and
Damages3 was filed by herein respondent R. Transport
Corporation against herein petitioner Alexander Macasaet
before the Regional Trial Court (RTC) of Makati, Branch 147. The
complaint alleged that R. Transport was a holder of Certificates
of Public Convenience (CPC) to operate a public utility bus
service within Metro Manila and the provinces whereas New
Mindoro Transport Classic (NMTC), represented by petitioner,
operates a transportation company in Oriental Mindoro. On 11
October 1995, and Macasaet entered into a "Deed of Sale with
Assumption of Mortgage" (deed of sale)4 over four (4) passenger
buses5 whereby Macasaet undertook to pay the consideration
of twelve million pesos (P12,000,000.00) and assume the existing
mortgage obligation on the said buses in favor of Phil. Hino Sales
Corporation. Accordingly, R. Transport delivered to Macasaet
two (2) passenger buses.
Despite repeated demands, however, Macasaet failed to pay
the stipulated purchase price. This prompted R. Transport to file a
complaint seeking the issuance of a writ of replevin, praying for
judgment declaring R. Transport as the lawful owner and
possessor of the passenger buses and ordering Macasaet to
remit the amount of P660,000.00 representing the income
generated by the two buses from 16 October 1995 to 2 January
1996.6
Prior to the execution of the contract, "Special Trip Contract" was
entered into by the parties on 8 October 1995.7 This contract
stipulated that R. Transport would lease the four buses subject of
the deed of sale to Macasaet for the sum of P10,000.00 a day
per bus or a total of P280,000.00 for the duration of one week,
from 15-22 October 1995.8 Respondent's finance officer testified
that the purpose of the contract was to support the delivery of
the first two buses pending formal execution of the deed of
sale.9
On 8 January 1996, on R. Transport's motion, the trial court issued
a writ of seizure10 ordering the sheriff to take possession of the
two buses in NMTC subject to R. Transport's filing of a bond in the
amount of P12,000,000.00. The sheriff recovered the two buses
and delivered them to R. Transport on 16 January 1996.11
For his defense, petitioner alleged that he had paid respondent
the full consideration of P12,000,000.00 and had agreed to
assume the mortgage obligation in favor of Phil. Hino Sales
Corporation. He claimed ownership over the four passenger
buses, including the two buses already delivered to him. He
further contended that he had already remitted P120,000.00 to
respondent as partial payment of the mortgage obligation.
Petitioner admitted that he had been earning at least P7,000.00
per day on each of the buses.12 For his counterclaim, he prayed
for the return of the bus units seized and the immediate delivery
of the other two units, as well as for payment of damages.13
In its Decision14 dated 15 February 2001, the RTC upheld the
right of respondent to possess the two buses but dismissed its
claim for recovery of unpaid rentals for the use of the two buses.
The dispositive portion of the decision reads as follows:
WHEREFORE, in view of the foregoing, the Court hereby renders
judgment in favor of the defendant and against plaintiff,
dismissing the Complaint as regards the claim for recovery of the
unpaid rentals of the two (2) passenger buses which were used
by the defendant from October 16, 1995 until January 16, 1996
for lack of evidence.
SO ORDERED. 15
of unpaid rentals because respondent failed to formally offer in
evidence the records of operational expenses incurred by the
buses delivered to petitioner and marked as Exhibits "W," "W-1" to
"W-3."16 The trial court did not bother to give a definitive ruling
on the issues related to the counterclaim for specific
performance of the deed of sale on the ground that the
issuance of a writ of replevin effectively disposed of the cause of
action in the principal complaint, which is recovery of
possession. The trial court was likewise silent with respect to the
status of the deed of sale.17
Dissatisfied with the RTC's refusal to award rentals, respondent
filed a petition for review before the Court of Appeals asserting
its right as an owner to the fruits of the two passenger buses, over
the fruits thereof, i.e., the income derived from their use. The
Court of Appeals, in its Decision dated 5 October 2005, sustained
the trial court's finding that ownership over the passenger buses
remained with respondent.
Unlike the RTC, the Court of Appeals ruled that the deed of sale
was not perfected, thus, respondent retained ownership over
the buses. It further ordered petitioner to remit the income from
the passenger buses in the amount of P7,000.00 per day for the
period between 16 October 1995 and 16 January 1996,
deducting therefrom the amount of P120,000.00 which had
already been remitted to respondent.18
Macasaet filed a motion for reconsideration which the appellate
court denied.
Hence, the instant petition raising this sole issue: Is Section 34 of
Rule 132 of the Rules of Court which states that "the court shall
consider no evidence which has not been formally offered"
applicable in the case at bar?19 However, other interrelated
issues have to be looked into to resolve the controversy.
Petitioner argues in the main that there was no legal and factual
basis for the Court of Appeals to order the remittance of income.
He harps on the fact that there was no lease agreement alleged
in respondent's complaint to support its claim for unpaid rentals.
He reiterates the trial court's finding that the exhibits tending to
prove the rentals were not formally offered in evidence.
Moreover, no other competent evidence was presented to
substantiate its claim for unpaid rentals.20 Respondent, in its
comment, merely parrots the ruling of the Court of Appeals,
petitioner notes.21
Crucial to the resolution of the case is the continuing efficacy of
the deed of sale, which in turn is the basis in determining the
ownership of the buses. Respondent, on the other hand, claims
that the contract was never consummated for lack of
consideration and because of the subsequent disapproval of
the security finance needed for petitioner to assume the
mortgage obligation. On the other hand, petitioner asserts
ownership over the subject buses by virtue of payment of the
stipulated consideration for the sale.
The appellate court declared that the non-perfection of the
deed of sale precluded petitioner from possessing and enjoying
the buses, including the income thereof. Explained the appellate
court:
True, the plaintiff-appellant and the defendant-appellee have
no agreement as to the payment of rentals for the subject
passenger buses, since what was actually agreed upon by the
parties herein, was not the lease, but the sale of the subject
buses to the defendant-appellee in the amount of
P12,000,000.00, with assumption of mortgage, as evidenced by
the Deed of Sale with Assumption of Mortgage.
It was pursuant to this Deed of Sale with Assumption of Mortgage
that the subject two passenger buses were delivered by the
plaintiff-appellant to the defendant-appellee in October,[sic]
1995. The said contract was the basis of the defendant-
appellee's possession and enjoyment of the subject property,
which includes entitlement to the income thereof.
However, the aforementioned contract of sale has never been
perfected.
Firstly, the court a quo found that no payment has been made
by the defendant-appellee, for otherwise, it could not have
upheld the plaintiff-appellant's possession over the subject
buses.22

The Court of Appeals erred in stating that the deed of sale was
not perfected, for it was. There was no consummation, though.
However, the rescission or resolution of the deed of sale is in
order.
The essential requisites of a contract under Article 1318 of the
New Civil Code are: (1) consent of the contracting parties; (2)
object certain which is the subject matter of the contract; and
(3) cause of the obligation which is established. Thus, contracts,
other than real contracts are perfected by mere consent which
is manifested by the meeting of the offer and the acceptance
upon the thing and the cause which are to constitute the
contract. Once perfected, they bind other contracting parties
and the obligations arising therefrom have the force of law
between the parties and should be complied with in good faith.
The parties are bound not only to the fulfillment of what has
been expressly stipulated but also to the consequences which,
according to their nature, may be in keeping with good faith,
usage and law.23
Being a consensual contract, sale is perfected at the moment
there is a meeting of minds upon the thing which is the object of
the contract and upon the price. From that moment, the parties
may reciprocally demand performance, subject to the provisions
of the law governing the form of contracts.24 A perfected
contract of sale imposes reciprocal obligations on the parties
whereby the vendor obligates himself to transfer the ownership
of and to deliver a determinate thing to the buyer who, in turn, is
obligated to pay a price certain in money or its equivalent.25
Failure of either party to comply with his obligation entitles the
other to rescission as the power to rescind is implied in reciprocal
obligations.26
Applying these legal precepts to the case at bar, we hold that
respondent has the right to rescind or cancel the deed of sale in
view of petitioner's failure to pay the stipulated consideration.
Montecillo v. Reynes,27 cited by the appellate court, is
particularly instructive in distinguishing the legal effects of "failure
to pay consideration" and "lack of consideration:"
x x x Failure to pay the consideration is different from lack of
consideration. The former results in a right to demand the
fulfillment or cancellation of the obligation under an existing
contract, while the latter prevents the existence of a valid
contract.
Where the deed of sale states that the purchase price has been
paid but in fact has never been paid, the deed of sale is null and
void ab initio for lack of consideration. x x x 28
The Court of Appeals however failed to consider that in the
instant case, there was failure on the part of petitioner to pay the
purchase price and to complete the assumption of mortgage.
The latter argued before the lower court that payment was in
fact made and counterclaimed for the immediate delivery of
the two other passenger buses and payment of damages.29
However, this claim remained a claim and was not
substantiated.
While the Court of Appeals relied on the text of the deed of sale
which adverts to payment of the purchase price,30 the non-
payment of the purchase price was no longer an issue at the
appellate level. Respondent presented strong evidence that
petitioner did not pay the purchase price, and that paved the
way for the issuance of a writ of replevin. Petitioner did not
challenge the finding of the trial court before the Court of
Appeals and this Court. He did not also controvert the non-
consummation of the assumption of mortgage at any level of
the proceedings.
Non-payment of the purchase price of property constitutes a
very good reason to rescind a sale for it violates the very essence
of the contract of sale.31 While it is preferable that respondent
instead should have filed an action to resolve or cancel the
deed as the right to do so must be invoked judicially,32 this
shortcoming was cured when the complaint itself made out a
case for rescission or resolution for failure of petitioner to comply
with his obligation to pay the full purchase price. The complaint
relevantly alleged:
xxxx
3. (a) That on October 11, 1995, the plaintiff and the defendant
entered into and executed a Deed of Sale with Assumption of
2
Mortgage with plaintiff as Vendor and the defendant as Vendee
covering four (4) units of passenger airconditioned buses. x x x
3. (b) That the plaintiff and the defendant in said Deed of Sale
with Assumption of Mortgage x x x hereof agreed that the price
of the sale of the above-described motor vehicles is in the sum
of PESOS TWELVE MILLION (P12,000,000.00), Philippine Currency,
with the stipulation that the defendant as Vendee will assume
the existing mortgage of the above-described motor vehicle
with PHIL. HINO SALES CORPORATION and consequently, will
assume the balance of the remaining obligation due to PHIL.
HINO SALES CORPORATION as agreed upon in the said Deed of
Sale with Assumption of Mortgage;
3. (c) That pursuant to said Deed of Sale with Assumption of
Mortgage, the plaintiff delivered to the defendant at Calapan,
Oriental Mindoro, the first two (2) motor vehicles x x x withholding
the other two (2) passenger buses pending the payment by the
defendant to the plaintiff of the purchase price of the sale of
PESOS TWELVE MILLION (P12,000,000.00), Philippine currency and
assumption of mortgage by said defendant obligating himself to
pay the remaining balance of the obligation due to the PHIL.
HINO SALES CORPORATION constituted over the above-
described motor vehicles;
3. (d) That inspite of repeated demands made by the plaintiff to
the defendant to pay the purchase price of the sale x x x the
defendant, in evident bad faith, refused and failed and
continue to refuse and fail to pay the plaintiff the purchase price
of the said vehicles;
xxxx
4. b.) That the plaintiff-applicant is the owner of the two (2) buses
claimed as above-described and is entitled to the rightful
possession thereof x x x
4. c.) That the above-described two (2) units of passenger buses
are wrongfully detained by the defendant pretending that he is
the owner under the Deed of Sale with Assumption of Mortgage
which pretension is false because the defendant has not paid
the plaintiff any single centavo out of the PESOS TWELVE MILLION
(P12,000,000.00), Philippine currency, the purchase price of the
sale of the four (4) passenger buses,33
xxxx
As previously noted, petitioner did not pay the full purchase
price as stipulated in the contract whereas respondent
complied with its obligation when it delivered the two buses to
petitioner.
A necessary consequence of rescission is restitution with
payment of damages. Article 1191 provides:
xxxx
The injured party may choose between the fulfillment and the
rescission of the obligation, with the payment of damages in
either case. He may also seek rescission, even after he has
chosen fulfillment, if the latter should become impossible.
xxxx
Also, corollary to the rescission of the contract of sale is the
recovery of possession of the object thereof. Thus, petitioner's
possession over the passenger buses became unlawful when
upon demand for return, he wrongfully retained possession over
the same.
In ordering petitioner to remit to respondent the income derived
from the passenger buses, the appellate court ratiocinated thus:
Although the parties herein did not agree on the rentals for the
use of the property, the fact that the defendant-appellee was
able to use the two passenger buses for the months of October,
[sic] 1995 to January, [sic] 1996, and has derived income
therefrom, was acknowledged by the court a quo and the
defendant-appellee himself.
Under such circumstances, it is but fair that the defendant-
appellee be made to pay reasonable rentals for the use of the
two passenger buses from the time that they were delivered,
until they were seized from him. It would be against the
equitable proscription against unjust enrichment for the

defendant-appellee to keep the income from a property over
which he has no legal right. It would be unfair to excuse the
defendant-appellee from the payment of reasonable rentals
because he enjoyed and made use of the subject passenger
buses. It is a basic rule in law that no one shall unjustly enrich
himself at the expense of another. Niguno non deue
enriquecerse tortizamente condaño de otro.
Thus, a modification of the decision of the court a quo is in order.
In view of the plaintiff-appellant's failure to substantiate its claim
for the unpaid rentals amounting to P660,000.00, we could not
grant the same.
However, we deem it just for the defendant-appellee to remit
the plaintiff-appellant the income he derived from the subject
passenger buses in the amount of P7,000.00 per day within the
period that they were in the defendant-appellant's possession,
that is from October 16, 1997 to January 16, 1995, minus the
amount of P120,000.00 which the defendant-appellee already
remitted to the plaintiff-appellant.34
It can be inferred from this decision that the appellate court did
not consider petitioner liable for the unpaid rentals when it noted
that respondent had failed to support its claim over it. Instead, it
concluded that he was liable to respondent for damages, in the
form of reasonable rentals for the use of the passenger buses.
However, with respect to the amount of damages, we differ
from the award of the appellate court. Settled is the rule that
actual damages must be proved with reasonable degree of
certainty. A party is entitled only up to such compensation for
the pecuniary loss that he has duly proven. It cannot be
presumed. Absent proof of the amount of actual damages
sustained, the court cannot rely on speculations, conjectures, or
guesswork as to the fact and amount of damages, but must
depend upon competent proof that they have been suffered by
the injured party and on the best obtainable evidence of the
actual amount thereof.35
The appellate court arrived at the amount of P7,000.00 per day
as income for the use of the two passenger buses due to
respondent on the basis of the allegations in the answer of
petitioner.36 The award cannot be sustained because no
evidence was produced to support this averment made by
petitioner. Petitioner did not present any record or journal that
would have evidenced the earnings of the passenger buses for
said period. Bare allegations would not suffice.
Since the amount of damages awarded by the Court of
Appeals was founded merely on speculations, we turn to the
provisions of the Special Trip Contract. In said contract, the rental
is fixed at P10,000.00 per day for each bus. This duly executed
contract was presented, marked and formally offered in
evidence. The fact that Macasaet voluntarily signed the
contract evinced his acquiescence to its terms, particularly the
amount of rentals. Therefore, the amount of P1,460,000.00 is
deemed reasonable compensation for the use of the passenger
buses, computed as follows:
Amt of rentals per bus:
x No. of buses:
P10,000.00
2 November 1981, his surviving heirs executed a notarized
Amt of rentals per day:
x No. of days (16 Oct-2 Jan)
P 20,000.00
79
P1,580,000.00
- Payment by Macasaet
120,000.00
TOTAL
P1,460,000.00
Since the amount awarded as damages in the form of
reasonable rentals is more than the amount of rentals specified
in the complaint, additional filing fees corresponding to the
3
difference between the amount prayed for in the complaint
and the award based on the evidence should be assessed as a
lien on the judgment, as mandated by Section 2, Rule 141 of the
Rules of Court, to wit:
SEC. 2. Fees in lien. — Where the court in its final judgment
awards a claim not alleged, or a relief different from, or more
than that claimed in the pleading, the party concerned shall
pay the additional fees which shall constitute a lien on the
judgment in satisfaction of said lien. The clerk of court shall assess
and collect the corresponding fees.37
WHEREFORE, the petition is DENIED. However, the decision of the
Court of Appeals is MODIFIED in that petitioner is ORDERED to
pay respondent damages in the form of reasonable rentals in
the amount of P1,460,000.00 with interest at 12% per annum from
the finality of this decision, with a lien thereon corresponding to
the additional filing fees adverted to above. The Clerk of Court
of the Regional Trial Court of Makati is directed to assess and
collect the additional filing fees.
SO ORDERED.
2. G.R. No. 118114 December 7, 1995
TEODORO ACAP, petitioner,
vs.
COURT OF APPEALS and EDY DE LOS REYES, respondents.
PADILLA, J.:
This is a petition for review on certiorari of the decision1 of the
Court of Appeals, 2nd Division, in CA-G.R. No. 36177, which
affirmed the decision2 of the Regional Trial Court of
Himamaylan, Negros Occidental holding that private
respondent Edy de los Reyes had acquired ownership of Lot No.
1130 of the Cadastral Survey of Hinigaran, Negros Occidental
based on a document entitled "Declaration of Heirship and
Waiver of Rights", and ordering the dispossession of petitioner as
leasehold tenant of the land for failure to pay rentals.
The facts of the case are as follows:
The title to Lot No. 1130 of the Cadastral Survey of Hinigaran,
Negros Occidental was evidenced by OCT No. R-12179. The lot
has an area of 13,720 sq. meters. The title was issued and is
registered in the name of spouses Santiago Vasquez and
Lorenza Oruma. After both spouses died, their only son Felixberto
inherited the lot. In 1975, Felixberto executed a duly notarized
document entitled "Declaration of Heirship and Deed of
Absolute Sale" in favor of Cosme Pido.
The evidence before the court a quo established that since
1960, petitioner Teodoro Acap had been the tenant of a portion
of the said land, covering an area of nine thousand five hundred
(9,500) meters. When ownership was transferred in 1975 by
Felixberto to Cosme Pido, Acap continued to be the registered
tenant thereof and religiously paid his leasehold rentals to Pido
and thereafter, upon Pido's death, to his widow Laurenciana.
The controversy began when Pido died intestate and on 27
document denominated as "Declaration of Heirship and Waiver
of Rights of Lot No. 1130 Hinigaran Cadastre," wherein they
declared; to quote its pertinent portions, that:
. . . Cosme Pido died in the Municipality of Hinigaran, Negros
Occidental, he died intestate and without any known debts and
obligations which the said parcel of land is (sic) held liable.
That Cosme Pido was survived by his/her legitimate heirs,
namely: LAURENCIANA PIDO, wife, ELY, ERVIN, ELMER, and
ELECHOR all surnamed PIDO; children;
That invoking the provision of Section 1, Rule 74 of the Rules of
Court, the above-mentioned heirs do hereby declare unto [sic]
ourselves the only heirs of the late Cosme Pido and that we
hereby adjudicate unto ourselves the above-mentioned parcel
of land in equal shares.
Now, therefore, We LAURENCIANA3 , ELY, ELMER, ERVIN and
ELECHOR all surnamed PIDO, do hereby waive, quitclaim all our

rights, interests and participation over the said parcel of land in
favor of EDY DE LOS REYES, of legal age, (f)ilipino, married to
VIRGINIA DE LOS REYES, and resident of Hinigaran, Negros
Occidental, Philippines. . . .4 (Emphasis supplied)
The document was signed by all of Pido's heirs. Private
respondent Edy de los Reyes did not sign said document.
It will be noted that at the time of Cosme Pido's death, title to
the property continued to be registered in the name of the
Vasquez spouses. Upon obtaining the Declaration of Heirship
with Waiver of Rights in his favor, private respondent Edy de los
Reyes filed the same with the Registry of Deeds as part of a
notice of an adverse claim against the original certificate of title.
Thereafter, private respondent sought for petitioner (Acap) to
personally inform him that he (Edy) had become the new owner
of the land and that the lease rentals thereon should be paid to
him. Private respondent further alleged that he and petitioner
entered into an oral lease agreement wherein petitioner agreed
to pay ten (10) cavans of palay per annum as lease rental. In
1982, petitioner allegedly complied with said obligation. In 1983,
however, petitioner refused to pay any further lease rentals on
the land, prompting private respondent to seek the assistance of
the then Ministry of Agrarian Reform (MAR) in Hinigaran, Negros
Occidental. The MAR invited petitioner to a conference
scheduled on 13 October 1983. Petitioner did not attend the
conference but sent his wife instead to the conference. During
the meeting, an officer of the Ministry informed Acap's wife
about private respondent's ownership of the said land but she
stated that she and her husband (Teodoro) did not recognize
private respondent's claim of ownership over the land.
On 28 April 1988, after the lapse of four (4) years, private
respondent filed a complaint for recovery of possession and
damages against petitioner, alleging in the main that as his
leasehold tenant, petitioner refused and failed to pay the
agreed annual rental of ten (10) cavans of palay despite
repeated demands.
During the trial before the court a quo, petitioner reiterated his
refusal to recognize private respondent's ownership over the
subject land. He averred that he continues to recognize Cosme
Pido as the owner of the said land, and having been a
registered tenant therein since 1960, he never reneged on his
rental obligations. When Pido died, he continued to pay rentals
to Pido's widow. When the latter left for abroad, she instructed
him to stay in the landholding and to pay the accumulated
rentals upon her demand or return from abroad.
Petitioner further claimed before the trial court that he had no
knowledge about any transfer or sale of the lot to private
respondent in 1981 and even the following year after
Laurenciana's departure for abroad. He denied having entered
into a verbal lease tenancy contract with private respondent
and that assuming that the said lot was indeed sold to private
respondent without his knowledge, R.A. 3844, as amended,
grants him the right to redeem the same at a reasonable price.
Petitioner also bewailed private respondent's ejectment action
as a violation of his right to security of tenure under P.D. 27.
On 20 August 1991, the lower court rendered a decision in favor
of private respondent, the dispositive part of which reads:
WHEREFORE, premises considered, the Court renders judgment in
favor of the plaintiff, Edy de los Reyes, and against the
defendant, Teodoro Acap, ordering the following, to wit:
1. Declaring forfeiture of defendant's preferred right to
issuance of a Certificate of Land Transfer under Presidential
Decree No. 27 and his farmholdings;
2. Ordering the defendant Teodoro Acap to deliver
possession of said farm to plaintiff, and;
3. Ordering the defendant to pay P5,000.00 as attorney's
fees, the sum of P1,000.00 as expenses of litigation and the
amount of P10,000.00 as actual damages.5
In arriving at the above-mentioned judgment, the trial court
stated that the evidence had established that the subject land
was "sold" by the heirs of Cosme Pido to private respondent. This
is clear from the following disquisitions contained in the trial
court's six (6) page decision:
4
There is no doubt that defendant is a registered tenant of Cosme
Pido. However, when the latter died their tenancy relations
changed since ownership of said land was passed on to his heirs
who, by executing a Deed of Sale, which defendant admitted in
his affidavit, likewise passed on their ownership of Lot 1130 to
herein plaintiff (private respondent). As owner hereof, plaintiff
has the right to demand payment of rental and the tenant is
obligated to pay rentals due from the time demand is made. . .
.6
xxx xxx xxx
Certainly, the sale of the Pido family of Lot 1130 to herein plaintiff
does not of itself extinguish the relationship. There was only a
change of the personality of the lessor in the person of herein
plaintiff Edy de los Reyes who being the purchaser or transferee,
assumes the rights and obligations of the former landowner to
the tenant Teodoro Acap, herein defendant.7
Aggrieved, petitioner appealed to the Court of Appeals,
imputing error to the lower court when it ruled that private
respondent acquired ownership of Lot No. 1130 and that he, as
tenant, should pay rentals to private respondent and that failing
to pay the same from 1983 to 1987, his right to a certificate of
land transfer under P.D. 27 was deemed forfeited.
The Court of Appeals brushed aside petitioner's argument that
the Declaration of Heirship and Waiver of Rights (Exhibit "D"), the
document relied upon by private respondent to prove his
ownership to the lot, was excluded by the lower court in its order
dated 27 August 1990. The order indeed noted that the
document was not identified by Cosme Pido's heirs and was not
registered with the Registry of Deeds of Negros Occidental.
According to respondent court, however, since the Declaration
of Heirship and Waiver of Rights appears to have been duly
notarized, no further proof of its due execution was necessary.
Like the trial court, respondent court was also convinced that
the said document stands as prima facie proof of appellee's
(private respondent's) ownership of the land in dispute.
With respect to its non-registration, respondent court noted that
petitioner had actual knowledge of the subject sale of the land
in dispute to private respondent because as early as 1983, he
(petitioner) already knew of private respondent's claim over the
said land but which he thereafter denied, and that in 1982, he
(petitioner) actually paid rent to private respondent. Otherwise
stated, respondent court considered this fact of rental payment
in 1982 as estoppel on petitioner's part to thereafter refute
private respondent's claim of ownership over the said land.
Under these circumstances, respondent court ruled that indeed
there was deliberate refusal by petitioner to pay rent for a
continued period of five years that merited forfeiture of his
otherwise preferred right to the issuance of a certificate of land
transfer.
In the present petition, petitioner impugns the decision of the
Court of Appeals as not in accord with the law and evidence
when it rules that private respondent acquired ownership of Lot
No. 1130 through the aforementioned Declaration of Heirship
and Waiver of Rights.
Hence, the issues to be resolved presently are the following:
1. WHETHER OR NOT THE SUBJECT DECLARATION OF
HEIRSHIP AND WAIVER OF RIGHTS IS A RECOGNIZED MODE OF
ACQUIRING OWNERSHIP BY PRIVATE RESPONDENT OVER THE LOT
IN QUESTION.
2. WHETHER OR NOT THE SAID DOCUMENT CAN BE
CONSIDERED A DEED OF SALE IN FAVOR OF PRIVATE
RESPONDENT OF THE LOT IN QUESTION.
Petitioner argues that the Regional Trial Court, in its order dated 7
August 1990, explicitly excluded the document marked as Exhibit
"D" (Declaration of Heirship, etc.) as private respondent's
evidence because it was not registered with the Registry of
Deeds and was not identified by anyone of the heirs of Cosme
Pido. The Court of Appeals, however, held the same to be
admissible, it being a notarized document, hence, a prima facie
proof of private respondents' ownership of the lot to which it
refers.
Petitioner points out that the Declaration of Heirship and Waiver
of Rights is not one of the recognized modes of acquiring
ownership under Article 712 of the Civil Code. Neither can the

same be considered a deed of sale so as to transfer ownership
of the land to private respondent because no consideration is
stated in the contract (assuming it is a contract or deed of sale).
Private respondent defends the decision of respondent Court of
Appeals as in accord with the evidence and the law. He posits
that while it may indeed be true that the trial court excluded his
Exhibit "D" which is the Declaration of Heirship and Waiver of
Rights as part of his evidence, the trial court declared him
nonetheless owner of the subject lot based on other evidence
adduced during the trial, namely, the notice of adverse claim
(Exhibit "E") duly registered by him with the Registry of Deeds,
which contains the questioned Declaration of Heirship and
Waiver of Rights as an integral part thereof.
We find the petition impressed with merit.
In the first place, an asserted right or claim to ownership or a real
right over a thing arising from a juridical act, however justified, is
not per se sufficient to give rise to ownership over the res. That
right or title must be completed by fulfilling certain conditions
imposed by law. Hence, ownership and real rights are acquired
only pursuant to a legal mode or process. While title is the
juridical justification, mode is the actual process of acquisition or
transfer of ownership over a thing in question.8
Under Article 712 of the Civil Code, the modes of acquiring
ownership are generally classified into two (2) classes, namely,
the original mode (i.e., through occupation, acquisitive
prescription, law or intellectual creation) and the derivative
mode (i.e., through succession mortis causa or tradition as a
result of certain contracts, such as sale, barter, donation,
assignment or mutuum).
In the case at bench, the trial court was obviously confused as to
the nature and effect of the Declaration of Heirship and Waiver
of Rights, equating the same with a contract (deed) of sale. They
are not the same.
In a Contract of Sale, one of the contracting parties obligates
himself to transfer the ownership of and to deliver a determinate
thing, and the other party to pay a price certain in money or its
equivalent.9
Upon the other hand, a declaration of heirship and waiver of
rights operates as a public instrument when filed with the Registry
of Deeds whereby the intestate heirs adjudicate and divide the
estate left by the decedent among themselves as they see fit. It
is in effect an extrajudicial settlement between the heirs under
Rule 74 of the Rules of Court.10
Hence, there is a marked difference between a sale of
hereditary rights and a waiver of hereditary rights. The first
presumes the existence of a contract or deed of sale between
the parties.11 The second is, technically speaking, a mode of
extinction of ownership where there is an abdication or
intentional relinquishment of a known right with knowledge of its
existence and intention to relinquish it, in favor of other persons
who are co-heirs in the succession.12 Private respondent, being
then a stranger to the succession of Cosme Pido, cannot
conclusively claim ownership over the subject lot on the sole
basis of the waiver document which neither recites the elements
of either a sale,13 or a donation,14 or any other derivative mode
of acquiring ownership.
Quite surprisingly, both the trial court and public respondent
Court of Appeals concluded that a "sale" transpired between
Cosme Pido's heirs and private respondent and that petitioner
acquired actual knowledge of said sale when he was
summoned by the Ministry of Agrarian Reform to discuss private
respondent's claim over the lot in question. This conclusion has
no basis both in fact and in law.
On record, Exhibit "D", which is the "Declaration of Heirship and
Waiver of Rights" was excluded by the trial court in its order
dated 27 August 1990 because the document was neither
registered with the Registry of Deeds nor identified by the heirs of
Cosme Pido. There is no showing that private respondent had
the same document attached to or made part of the record.
What the trial court admitted was Annex "E", a notice of adverse
claim filed with the Registry of Deeds which contained the
Declaration of Heirship with Waiver of rights and was annotated
at the back of the Original Certificate of Title to the land in
question.
5
A notice of adverse claim, by its nature, does not however prove
private respondent's ownership over the tenanted lot. "A notice
of adverse claim is nothing but a notice of a claim adverse to
the registered owner, the validity of which is yet to be
established in court at some future date, and is no better than a
notice of lis pendens which is a notice of a case already
pending in court."15
It is to be noted that while the existence of said adverse claim
was duly proven, there is no evidence whatsoever that a deed
of sale was executed between Cosme Pido's heirs and private
respondent transferring the rights of Pido's heirs to the land in
favor of private respondent. Private respondent's right or interest
therefore in the tenanted lot remains an adverse claim which
cannot by itself be sufficient to cancel the OCT to the land and
title the same in private respondent's name.
Consequently, while the transaction between Pido's heirs and
private respondent may be binding on both parties, the right of
petitioner as a registered tenant to the land cannot be
perfunctorily forfeited on a mere allegation of private
respondent's ownership without the corresponding proof thereof.
Petitioner had been a registered tenant in the subject land since
1960 and religiously paid lease rentals thereon. In his mind, he
continued to be the registered tenant of Cosme Pido and his
family (after Pido's death), even if in 1982, private respondent
allegedly informed petitioner that he had become the new
owner of the land.
Under the circumstances, petitioner may have, in good faith,
assumed such statement of private respondent to be true and
may have in fact delivered 10 cavans of palay as annual rental
for 1982 to private respondent. But in 1983, it is clear that
petitioner had misgivings over private respondent's claim of
ownership over the said land because in the October 1983 MAR
conference, his wife Laurenciana categorically denied all of
private respondent's allegations. In fact, petitioner even secured
a certificate from the MAR dated 9 May 1988 to the effect that
he continued to be the registered tenant of Cosme Pido and not
of private respondent. The reason is that private respondent
never registered the Declaration of Heirship with Waiver of Rights
with the Registry of Deeds or with the MAR. Instead, he (private
respondent) sought to do indirectly what could not be done
directly, i.e., file a notice of adverse claim on the said lot to
establish ownership thereover.
It stands to reason, therefore, to hold that there was no
unjustified or deliberate refusal by petitioner to pay the lease
rentals or amortizations to the landowner/agricultural lessor
which, in this case, private respondent failed to establish in his
favor by clear and convincing evidence.16
Consequently, the sanction of forfeiture of his preferred right to
be issued a Certificate of Land Transfer under P.D. 27 and to the
possession of his farmholdings should not be applied against
petitioners, since private respondent has not established a cause
of action for recovery of possession against petitioner.
WHEREFORE, premises considered, the Court hereby GRANTS the
petition and the decision of the Court of Appeals dated 1 May
1994 which affirmed the decision of the RTC of Himamaylan,
Negros Occidental dated 20 August 1991 is hereby SET ASIDE.
The private respondent's complaint for recovery of possession
and damages against petitioner Acap is hereby DISMISSED for
failure to properly state a cause of action, without prejudice to
private respondent taking the proper legal steps to establish the
legal mode by which he claims to have acquired ownership of
the land in question.
SO ORDERED.
3. G.R. No. 103577 October 7, 1996
ROMULO A. CORONEL, ALARICO A. CORONEL, ANNETTE A.
CORONEL, ANNABELLE C. GONZALES (for herself and on behalf of
Florida C. Tupper, as attorney-in-fact), CIELITO A. CORONEL,
FLORAIDA A. ALMONTE, and CATALINA BALAIS MABANAG,
petitioners,
vs.
THE COURT OF APPEALS, CONCEPCION D. ALCARAZ, and
RAMONA PATRICIA ALCARAZ, assisted by GLORIA F. NOEL as
attorney-in-fact, respondents.

MELO, J.:p
The petition before us has its roots in a complaint for specific
performance to compel herein petitioners (except the last
named, Catalina Balais Mabanag) to consummate the sale of a
parcel of land with its improvements located along Roosevelt
Avenue in Quezon City entered into by the parties sometime in
January 1985 for the price of P1,240,000.00.
The undisputed facts of the case were summarized by
respondent court in this wise:
On January 19, 1985, defendants-appellants Romulo Coronel, et
al. (hereinafter referred to as Coronels) executed a document
entitled "Receipt of Down Payment" (Exh. "A") in favor of plaintiff
Ramona Patricia Alcaraz (hereinafter referred to as Ramona)
which is reproduced hereunder:
RECEIPT OF DOWN PAYMENT
P1,240,000.00 — Total amount
50,000 — Down payment
———————————
P1,190,000.00 — Balance
Received from Miss Ramona Patricia Alcaraz of 146 Timog,
Quezon City, the sum of Fifty Thousand Pesos purchase price of
our inherited house and lot, covered by TCT No. 119627 of the
Registry of Deeds of Quezon City, in the total amount of
P1,240,000.00.
We bind ourselves to effect the transfer in our names from our
deceased father, Constancio P. Coronel, the transfer certificate
of title immediately upon receipt of the down payment above-
stated.
On our presentation of the TCT already in or name, We will
immediately execute the deed of absolute sale of said property
and Miss Ramona Patricia Alcaraz shall immediately pay the
balance of the P1,190,000.00.
Clearly, the conditions appurtenant to the sale are the following:
1. Ramona will make a down payment of Fifty Thousand
(P50,000.00) Pesos upon execution of the document aforestated;
2. The Coronels will cause the transfer in their names of
the title of the property registered in the name of their deceased
father upon receipt of the Fifty Thousand (P50,000.00) Pesos
down payment;
3. Upon the transfer in their names of the subject property,
the Coronels will execute the deed of absolute sale in favor of
Ramona and the latter will pay the former the whole balance of
One Million One Hundred Ninety Thousand (P1,190,000.00) Pesos.
On the same date (January 15, 1985), plaintiff-appellee
Concepcion D. Alcaraz (hereinafter referred to as Concepcion),
mother of Ramona, paid the down payment of Fifty Thousand
(P50,000.00) Pesos (Exh. "B", Exh. "2").
On February 6, 1985, the property originally registered in the
name of the Coronels' father was transferred in their names
under TCT
No. 327043 (Exh. "D"; Exh. "4")
On February 18, 1985, the Coronels sold the property covered by
TCT No. 327043 to intervenor-appellant Catalina B. Mabanag
(hereinafter referred to as Catalina) for One Million Five Hundred
Eighty Thousand (P1,580,000.00) Pesos after the latter has paid
Three Hundred Thousand (P300,000.00) Pesos (Exhs. "F-3"; Exh. "6-
C")
For this reason, Coronels canceled and rescinded the contract
(Exh. "A") with Ramona by depositing the down payment paid
by Concepcion in the bank in trust for Ramona Patricia Alcaraz.
On February 22, 1985, Concepcion, et al., filed a complaint for
specific performance against the Coronels and caused the
annotation of a notice of lis pendens at the back of TCT No.
327403 (Exh. "E"; Exh. "5").
6
On April 2, 1985, Catalina caused the annotation of a notice of
adverse claim covering the same property with the Registry of
Deeds of Quezon City (Exh. "F"; Exh. "6").
On April 25, 1985, the Coronels executed a Deed of Absolute
Sale over the subject property in favor of Catalina (Exh. "G"; Exh.
"7").
On June 5, 1985, a new title over the subject property was issued
in the name of Catalina under TCT No. 351582 (Exh. "H"; Exh. "8").
(Rollo, pp. 134-136)
In the course of the proceedings before the trial court (Branch
83, RTC, Quezon City) the parties agreed to submit the case for
decision solely on the basis of documentary exhibits. Thus,
plaintiffs therein (now private respondents) proffered their
documentary evidence accordingly marked as Exhibits "A"
through "J", inclusive of their corresponding submarkings.
Adopting these same exhibits as their own, then defendants
(now petitioners) accordingly offered and marked them as
Exhibits "1" through "10", likewise inclusive of their corresponding
submarkings. Upon motion of the parties, the trial court gave
them thirty (30) days within which to simultaneously submit their
respective memoranda, and an additional 15 days within which
to submit their corresponding comment or reply thereof, after
which, the case would be deemed submitted for resolution.
On April 14, 1988, the case was submitted for resolution before
Judge Reynaldo Roura, who was then temporarily detailed to
preside over Branch 82 of the RTC of Quezon City. On March 1,
1989, judgment was handed down by Judge Roura from his
regular bench at Macabebe, Pampanga for the Quezon City
branch, disposing as follows:
WHEREFORE, judgment for specific performance is hereby
rendered ordering defendant to execute in favor of plaintiffs a
deed of absolute sale covering that parcel of land embraced in
and covered by Transfer Certificate of Title No. 327403 (now TCT
No. 331582) of the Registry of Deeds for Quezon City, together
with all the improvements existing thereon free from all liens and
encumbrances, and once accomplished, to immediately deliver
the said document of sale to plaintiffs and upon receipt thereof,
the said document of sale to plaintiffs and upon receipt thereof,
the plaintiffs are ordered to pay defendants the whole balance
of the purchase price amounting to P1,190,000.00 in cash.
Transfer Certificate of Title No. 331582 of the Registry of Deeds for
Quezon City in the name of intervenor is hereby canceled and
declared to be without force and effect. Defendants and
intervenor and all other persons claiming under them are hereby
ordered to vacate the subject property and deliver possession
thereof to plaintiffs. Plaintiffs' claim for damages and attorney's
fees, as well as the counterclaims of defendants and intervenors
are hereby dismissed.
No pronouncement as to costs.
So Ordered.
Macabebe, Pampanga for Quezon City, March 1, 1989.
(Rollo, p. 106)
A motion for reconsideration was filed by petitioner before the
new presiding judge of the Quezon City RTC but the same was
denied by Judge Estrella T. Estrada, thusly:
The prayer contained in the instant motion, i.e., to annul the
decision and to render anew decision by the undersigned
Presiding Judge should be denied for the following reasons: (1)
The instant case became submitted for decision as of April 14,
1988 when the parties terminated the presentation of their
respective documentary evidence and when the Presiding
Judge at that time was Judge Reynaldo Roura. The fact that
they were allowed to file memoranda at some future date did
not change the fact that the hearing of the case was
terminated before Judge Roura and therefore the same should
be submitted to him for decision; (2) When the defendants and
intervenor did not object to the authority of Judge Reynaldo
Roura to decide the case prior to the rendition of the decision,
when they met for the first time before the undersigned Presiding
Judge at the hearing of a pending incident in Civil Case No. Q-
46145 on November 11, 1988, they were deemed to have
acquiesced thereto and they are now estopped from
questioning said authority of Judge Roura after they received

the decision in question which happens to be adverse to them;
(3) While it is true that Judge Reynaldo Roura was merely a
Judge-on-detail at this Branch of the Court, he was in all respects
the Presiding Judge with full authority to act on any pending
incident submitted before this Court during his incumbency.
When he returned to his Official Station at Macabebe,
Pampanga, he did not lose his authority to decide or resolve
such cases submitted to him for decision or resolution because
he continued as Judge of the Regional Trial Court and is of co-
equal rank with the undersigned Presiding Judge. The standing
rule and supported by jurisprudence is that a Judge to whom a
case is submitted for decision has the authority to decide the
case notwithstanding his transfer to another branch or region of
the same court (Sec. 9, Rule 135, Rule of Court).
Coming now to the twin prayer for reconsideration of the
Decision dated March 1, 1989 rendered in the instant case,
resolution of which now pertains to the undersigned Presiding
Judge, after a meticulous examination of the documentary
evidence presented by the parties, she is convinced that the
Decision of March 1, 1989 is supported by evidence and,
therefore, should not be disturbed.
IN VIEW OF THE FOREGOING, the "Motion for Reconsideration
and/or to Annul Decision and Render Anew Decision by the
Incumbent Presiding Judge" dated March 20, 1989 is hereby
DENIED.
SO ORDERED.
Quezon City, Philippines, July 12, 1989.
(Rollo, pp. 108-109)
Petitioners thereupon interposed an appeal, but on December
16, 1991, the Court of Appeals (Buena, Gonzaga-Reyes, Abad
Santos (P), JJ.) rendered its decision fully agreeing with the trial
court.
Hence, the instant petition which was filed on March 5, 1992. The
last pleading, private respondents' Reply Memorandum, was
filed on September 15, 1993. The case was, however, re-raffled
to undersigned ponente only on August 28, 1996, due to the
voluntary inhibition of the Justice to whom the case was last
assigned.
While we deem it necessary to introduce certain refinements in
the disquisition of respondent court in the affirmance of the trial
court's decision, we definitely find the instant petition bereft of
merit.
The heart of the controversy which is the ultimate key in the
resolution of the other issues in the case at bar is the precise
determination of the legal significance of the document entitled
"Receipt of Down Payment" which was offered in evidence by
both parties. There is no dispute as to the fact that said
document embodied the binding contract between Ramona
Patricia Alcaraz on the one hand, and the heirs of Constancio P.
Coronel on the other, pertaining to a particular house and lot
covered by TCT No. 119627, as defined in Article 1305 of the Civil
Code of the Philippines which reads as follows:
Art. 1305. A contract is a meeting of minds between two persons
whereby one binds himself, with respect to the other, to give
something or to render some service.
While, it is the position of private respondents that the "Receipt of
Down Payment" embodied a perfected contract of sale, which
perforce, they seek to enforce by means of an action for
specific performance, petitioners on their part insist that what the
document signified was a mere executory contract to sell,
subject to certain suspensive conditions, and because of the
absence of Ramona P. Alcaraz, who left for the United States of
America, said contract could not possibly ripen into a contract
absolute sale.
Plainly, such variance in the contending parties' contentions is
brought about by the way each interprets the terms and/or
conditions set forth in said private instrument. Withal, based on
whatever relevant and admissible evidence may be available
on record, this, Court, as were the courts below, is now called
upon to adjudge what the real intent of the parties was at the
time the said document was executed.
The Civil Code defines a contract of sale, thus:
7
Art. 1458. By the contract of sale one of the contracting parties
obligates himself to transfer the ownership of and to deliver a
determinate thing, and the other to pay therefor a price certain
in money or its equivalent.
Sale, by its very nature, is a consensual contract because it is
perfected by mere consent. The essential elements of a contract
of sale are the following:
a) Consent or meeting of the minds, that is, consent to
transfer ownership in exchange for the price;
b) Determinate subject matter; and
c) Price certain in money or its equivalent.
Under this definition, a Contract to Sell may not be considered as
a Contract of Sale because the first essential element is lacking.
In a contract to sell, the prospective seller explicity reserves the
transfer of title to the prospective buyer, meaning, the
prospective seller does not as yet agree or consent to transfer
ownership of the property subject of the contract to sell until the
happening of an event, which for present purposes we shall take
as the full payment of the purchase price. What the seller agrees
or obliges himself to do is to fulfill is promise to sell the subject
property when the entire amount of the purchase price is
delivered to him. In other words 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,
ownership is retained by the prospective seller without further
remedies by the prospective buyer. In Roque vs. Lapuz (96 SCRA
741 [1980]), this Court had occasion to rule:
Hence, We hold that the contract between the petitioner and
the respondent was a contract to sell where the ownership or
title is retained by the seller and is not to pass until the full
payment of the price, such payment being a positive suspensive
condition and failure of which is not a breach, casual or serious,
but simply an event that prevented the obligation of the vendor
to convey title from acquiring binding force.
Stated positively, upon the fulfillment of the suspensive condition
which is the full payment of the purchase price, the prospective
seller's obligation to sell the subject property by entering into a
contract of sale with the prospective buyer becomes
demandable as provided in Article 1479 of the Civil Code which
states:
Art. 1479. A promise to buy and sell a determinate thing for a
price certain is reciprocally demandable.
An accepted unilateral promise to buy or to sell a determinate
thing for a price certain is binding upon the promissor if the
promise is supported by a consideration distinct from the price.
A contract to sell may thus be defined as 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 upon, that is, full payment of the purchase
price.
A contract to sell as defined hereinabove, may not even be
considered as a conditional contract of sale where the seller
may likewise reserve title to the property subject of the sale until
the fulfillment of a suspensive condition, because in a
conditional contract of sale, the first element of consent is
present, although it is conditioned upon the happening of a
contingent event which may or may not occur. If the suspensive
condition is not fulfilled, the perfection of the contract of sale is
completely abated (cf. Homesite and housing Corp. vs. Court of
Appeals, 133 SCRA 777 [1984]). However, if the suspensive
condition is fulfilled, the contract of sale is thereby perfected,
such that if there had already been previous delivery of the
property subject of the sale to the buyer, ownership thereto
automatically transfers to the buyer by operation of law without
any further act having to be performed by the seller.
In a contract to sell, upon the fulfillment of the suspensive
condition which is the full payment of the purchase price,
ownership will not automatically transfer to the buyer although
the property may have been previously delivered to him. The

prospective seller still has to convey title to the prospective buyer
by entering into a contract of absolute sale.
It is essential to distinguish between a contract to sell and a
conditional contract of sale specially in cases where the subject
property is sold by the owner not to the party the seller
contracted with, but to a third person, as in the case at bench.
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 in the owner-seller's title per se, but the latter,
of course, may be used for damages by the intending buyer.
In a conditional contract of sale, however, upon the fulfillment of
the suspensive condition, the sale becomes absolute and this will
definitely affect the seller's title thereto. In fact, if there had been
previous delivery of the subject property, the seller's ownership or
title to the property is automatically transferred to the buyer such
that, the seller will no longer have any title to transfer to any third
person. Applying Article 1544 of the Civil Code, such second
buyer of the property who may have had actual or constructive
knowledge of such defect in the seller's title, or at least was
charged with the obligation to discover such defect, cannot be
a registrant in good faith. Such second buyer cannot defeat the
first buyer's title. In case a title is issued to the second buyer, the
first buyer may seek reconveyance of the property subject of the
sale.
With the above postulates as guidelines, we now proceed to the
task of deciphering the real nature of the contract entered into
by petitioners and private respondents.
It is a canon in the interpretation of contracts that the words
used therein should be given their natural and ordinary meaning
unless a technical meaning was intended (Tan vs. Court of
Appeals, 212 SCRA 586 [1992]). Thus, when petitioners declared
in the said "Receipt of Down Payment" that they —
Received from Miss Ramona Patricia Alcaraz of 146 Timog,
Quezon City, the sum of Fifty Thousand Pesos purchase price of
our inherited house and lot, covered by TCT No. 1199627 of the
Registry of Deeds of Quezon City, in the total amount of
P1,240,000.00.
without any reservation of title until full payment of the entire
purchase price, the natural and ordinary idea conveyed is that
they sold their property.
When the "Receipt of Down Payment" is considered in its entirety,
it becomes more manifest that there was a clear intent on the
part of petitioners to transfer title to the buyer, but since the
transfer certificate of title was still in the name of petitioner's
father, they could not fully effect such transfer although the
buyer was then willing and able to immediately pay the
purchase price. Therefore, petitioners-sellers undertook upon
receipt of the down payment from private respondent Ramona
P. Alcaraz, to cause the issuance of a new certificate of title in
their names from that of their father, after which, they promised
to present said title, now in their names, to the latter and to
execute the deed of absolute sale whereupon, the latter shall, in
turn, pay the entire balance of the purchase price.
The agreement could not have been a contract to sell because
the sellers herein made no express reservation of ownership or
title to the subject parcel of land. Furthermore, the circumstance
which prevented the parties from entering into an absolute
contract of sale pertained to the sellers themselves (the
certificate of title was not in their names) and not the full
payment of the purchase price. Under the established facts and
circumstances of the case, the Court may safely presume that,
had the certificate of title been in the names of petitioners-sellers
at that time, there would have been no reason why an absolute
contract of sale could not have been executed and
consummated right there and then.
Moreover, unlike in a contract to sell, petitioners in the case at
bar did not merely promise to sell the properly to private
respondent upon the fulfillment of the suspensive condition. On
the contrary, having already agreed to sell the subject property,
they undertook to have the certificate of title changed to their
8
names and immediately thereafter, to execute the written deed
of absolute sale.
Thus, the parties did not merely enter into a contract to sell
where the sellers, after compliance by the buyer with certain
terms and conditions, promised to sell the property to the latter.
What may be perceived from the respective undertakings of the
parties to the contract is that petitioners had already agreed to
sell the house and lot they inherited from their father, completely
willing to transfer full ownership of the subject house and lot to
the buyer if the documents were then in order. It just happened,
however, that the transfer certificate of title was then still in the
name of their father. It was more expedient to first effect the
change in the certificate of title so as to bear their names. That is
why they undertook to cause the issuance of a new transfer of
the certificate of title in their names upon receipt of the down
payment in the amount of P50,000.00. As soon as the new
certificate of title is issued in their names, petitioners were
committed to immediately execute the deed of absolute sale.
Only then will the obligation of the buyer to pay the remainder of
the purchase price arise.
There is no doubt that unlike in a contract to sell which is most
commonly entered into so as to protect the seller against a
buyer who intends to buy the property in installment by
withholding ownership over the property until the buyer effects
full payment therefor, in the contract entered into in the case at
bar, the sellers were the one who were unable to enter into a
contract of absolute sale by reason of the fact that the
certificate of title to the property was still in the name of their
father. It was the sellers in this case who, as it were, had the
impediment which prevented, so to speak, the execution of an
contract of absolute sale.
What is clearly established by the plain language of the subject
document is that when the said "Receipt of Down Payment" was
prepared and signed by petitioners Romeo A. Coronel, et al.,
the parties had agreed to a conditional contract of sale,
consummation of which is subject only to the successful transfer
of the certificate of title from the name of petitioners' father,
Constancio P. Coronel, to their names.
The Court significantly notes this suspensive condition was, in
fact, fulfilled on February 6, 1985 (Exh. "D"; Exh. "4"). Thus, on said
date, the conditional contract of sale between petitioners and
private respondent Ramona P. Alcaraz became obligatory, the
only act required for the consummation thereof being the
delivery of the property by means of the execution of the deed
of absolute sale in a public instrument, which petitioners
unequivocally committed themselves to do as evidenced by the
"Receipt of Down Payment."
Article 1475, in correlation with Article 1181, both of the Civil
Code, plainly applies to the case at bench. Thus,
Art. 1475. The contract of sale is perfected at the moment there is
a meeting of minds upon the thing which is the object of the
contract and upon the price.
From the moment, the parties may reciprocally demand
performance, subject to the provisions of the law governing the
form of contracts.
Art. 1181. In conditional obligations, the acquisition of rights, as
well as the extinguishment or loss of those already acquired, shall
depend upon the happening of the event which constitutes the
condition.
Since the condition contemplated by the parties which is the
issuance of a certificate of title in petitioners' names was fulfilled
on February 6, 1985, the respective obligations of the parties
under the contract of sale became mutually demandable, that
is, petitioners, as sellers, were obliged to present the transfer
certificate of title already in their names to private respondent
Ramona P. Alcaraz, the buyer, and to immediately execute the
deed of absolute sale, while the buyer on her part, was obliged
to forthwith pay the balance of the purchase price amounting
to P1,190,000.00.
It is also significant to note that in the first paragraph in page 9 of
their petition, petitioners conclusively admitted that:
3. The petitioners-sellers Coronel bound themselves "to
effect the transfer in our names from our deceased father
Constancio P. Coronel, the transfer certificate of title

immediately upon receipt of the downpayment above-stated".
The sale was still subject to this suspensive condition. (Emphasis
supplied.)
(Rollo, p. 16)
Petitioners themselves recognized that they entered into a
contract of sale subject to a suspensive condition. Only, they
contend, continuing in the same paragraph, that:
. . . Had petitioners-sellers not complied with this condition of first
transferring the title to the property under their names, there
could be no perfected contract of sale. (Emphasis supplied.)
(Ibid.)
not aware that they set their own trap for themselves, for Article
1186 of the Civil Code expressly provides that:
Art. 1186. The condition shall be deemed fulfilled when the
obligor voluntarily prevents its fulfillment.
Besides, it should be stressed and emphasized that what is more
controlling than these mere hypothetical arguments is the fact
that the condition herein referred to was actually and
indisputably fulfilled on February 6, 1985, when a new title was
issued in the names of petitioners as evidenced by TCT No.
327403 (Exh. "D"; Exh. "4").
The inevitable conclusion is that on January 19, 1985, as
evidenced by the document denominated as "Receipt of Down
Payment" (Exh. "A"; Exh. "1"), the parties entered into a contract
of sale subject only to the suspensive condition that the sellers
shall effect the issuance of new certificate title from that of their
father's name to their names and that, on February 6, 1985, this
condition was fulfilled (Exh. "D"; Exh. "4").
We, therefore, hold that, in accordance with Article 1187 which
pertinently provides —
Art. 1187. The effects of conditional obligation to give, once the
condition has been fulfilled, shall retroact to the day of the
constitution of the obligation . . .
In obligation to do or not to do, the courts shall determine, in
each case, the retroactive effect of the condition that has been
complied with.
the rights and obligations of the parties with respect to the
perfected contract of sale became mutually due and
demandable as of the time of fulfillment or occurrence of the
suspensive condition on February 6, 1985. As of that point in time,
reciprocal obligations of both seller and buyer arose.
Petitioners also argue there could been no perfected contract
on January 19, 1985 because they were then not yet the
absolute owners of the inherited property.
We cannot sustain this argument.
Article 774 of the Civil Code defines Succession as a mode of
transferring ownership as follows:
Art. 774. Succession is a mode of acquisition by virtue of which
the property, rights and obligations to be extent and value of the
inheritance of a person are transmitted through his death to
another or others by his will or by operation of law.
Petitioners-sellers in the case at bar being the sons and
daughters of the decedent Constancio P. Coronel are
compulsory heirs who were called to succession by operation of
law. Thus, at the point their father drew his last breath, petitioners
stepped into his shoes insofar as the subject property is
concerned, such that any rights or obligations pertaining thereto
became binding and enforceable upon them. It is expressly
provided that rights to the succession are transmitted from the
moment of death of the decedent (Article 777, Civil Code;
Cuison vs. Villanueva, 90 Phil. 850 [1952]).
Be it also noted that petitioners' claim that succession may not
be declared unless the creditors have been paid is rendered
moot by the fact that they were able to effect the transfer of the
title to the property from the decedent's name to their names on
February 6, 1985.
9
Aside from this, petitioners are precluded from raising their
supposed lack of capacity to enter into an agreement at that
time and they cannot be allowed to now take a posture
contrary to that which they took when they entered into the
agreement with private respondent Ramona P. Alcaraz. The Civil
Code expressly states that:
Art. 1431. Through estoppel an admission or representation is
rendered conclusive upon the person making it, and cannot be
denied or disproved as against the person relying thereon.
Having represented themselves as the true owners of the subject
property at the time of sale, petitioners cannot claim now that
they were not yet the absolute owners thereof at that time.
Petitioners also contend that although there was in fact a
perfected contract of sale between them and Ramona P.
Alcaraz, the latter breached her reciprocal obligation when she
rendered impossible the consummation thereof by going to the
United States of America, without leaving her address, telephone
number, and Special Power of Attorney (Paragraphs 14 and 15,
Answer with Compulsory Counterclaim to the Amended
Complaint, p. 2; Rollo, p. 43), for which reason, so petitioners
conclude, they were correct in unilaterally rescinding rescinding
the contract of sale.
We do not agree with petitioners that there was a valid rescission
of the contract of sale in the instant case. We note that these
supposed grounds for petitioners' rescission, are mere allegations
found only in their responsive pleadings, which by express
provision of the rules, are deemed controverted even if no reply
is filed by the plaintiffs (Sec. 11, Rule 6, Revised Rules of Court).
The records are absolutely bereft of any supporting evidence to
substantiate petitioners' allegations. We have stressed time and
again that allegations must be proven by sufficient evidence
(Ng Cho Cio vs. Ng Diong, 110 Phil. 882 [1961]; Recaro vs.
Embisan, 2 SCRA 598 [1961]. Mere allegation is not an evidence
(Lagasca vs. De Vera, 79 Phil. 376 [1947]).
Even assuming arguendo that Ramona P. Alcaraz was in the
United States of America on February 6, 1985, we cannot justify
petitioner-sellers' act of unilaterally and extradicially rescinding
the contract of sale, there being no express stipulation
authorizing the sellers to extarjudicially rescind the contract of
sale. (cf. Dignos vs. CA, 158 SCRA 375 [1988]; Taguba vs. Vda. de
Leon, 132 SCRA 722 [1984])
Moreover, petitioners are estopped from raising the alleged
absence of Ramona P. Alcaraz because although the evidence
on record shows that the sale was in the name of Ramona P.
Alcaraz as the buyer, the sellers had been dealing with
Concepcion D. Alcaraz, Ramona's mother, who had acted for
and in behalf of her daughter, if not also in her own behalf.
Indeed, the down payment was made by Concepcion D.
Alcaraz with her own personal check (Exh. "B"; Exh. "2") for and in
behalf of Ramona P. Alcaraz. There is no evidence showing that
petitioners ever questioned Concepcion's authority to represent
Ramona P. Alcaraz when they accepted her personal check.
Neither did they raise any objection as regards payment being
effected by a third person. Accordingly, as far as petitioners are
concerned, the physical absence of Ramona P. Alcaraz is not a
ground to rescind the contract of sale.
Corollarily, Ramona P. Alcaraz cannot even be deemed to be in
default, insofar as her obligation to pay the full purchase price is
concerned. Petitioners who are precluded from setting up the
defense of the physical absence of Ramona P. Alcaraz as
above-explained offered no proof whatsoever to show that they
actually presented the new transfer certificate of title in their
names and signified their willingness and readiness to execute
the deed of absolute sale in accordance with their agreement.
Ramona's corresponding obligation to pay the balance of the
purchase price in the amount of P1,190,000.00 (as buyer) never
became due and demandable and, therefore, she cannot be
deemed to have been in default.
Article 1169 of the Civil Code defines when a party in a contract
involving reciprocal obligations may be considered in default, to
wit:
Art. 1169. Those obliged to deliver or to do something, incur in
delay from the time the obligee judicially or extrajudicially
demands from them the fulfillment of their obligation.
xxx xxx xxx

In reciprocal obligations, neither party incurs in delay if the other
does not comply or is not ready to comply in a proper manner
with what is incumbent upon him. From the moment one of the
parties fulfill his obligation, delay by the other begins. (Emphasis
supplied.)
There is thus neither factual nor legal basis to rescind the
contract of sale between petitioners and respondents.
With the foregoing conclusions, the sale to the other petitioner,
Catalina B. Mabanag, gave rise to a case of double sale where
Article 1544 of the Civil Code will apply, to wit:
Art. 1544. If the same thing should have been sold to different
vendees, the ownership shall be transferred to the person who
may have first taken possession thereof in good faith, if it should
be movable property.
Should if be immovable property, the ownership shall belong to
the person acquiring it who in good faith first recorded it in
Registry of Property.
Should there be no inscription, the ownership shall pertain to the
person who in good faith was first in the possession; and, in the
absence thereof to the person who presents the oldest title,
provided there is good faith.
The record of the case shows that the Deed of Absolute Sale
dated April 25, 1985 as proof of the second contract of sale was
registered with the Registry of Deeds of Quezon City giving rise to
the issuance of a new certificate of title in the name of Catalina
B. Mabanag on June 5, 1985. Thus, the second paragraph of
Article 1544 shall apply.
The above-cited provision on double sale presumes title or
ownership to pass to the first buyer, the exceptions being: (a)
when the second buyer, in good faith, registers the sale ahead
of the first buyer, and (b) should there be no inscription by either
of the two buyers, when the second buyer, in good faith,
acquires possession of the property ahead of the first buyer.
Unless, the second buyer satisfies these requirements, title or
ownership will not transfer to him to the prejudice of the first
buyer.
In his commentaries on the Civil Code, an accepted authority
on the subject, now a distinguished member of the Court, Justice
Jose C. Vitug, explains:
The governing principle is prius tempore, potior jure (first in time,
stronger in right). Knowledge by the first buyer of the second sale
cannot defeat the first buyer's rights except when the second
buyer first registers in good faith the second sale (Olivares vs.
Gonzales, 159 SCRA 33). Conversely, knowledge gained by the
second buyer of the first sale defeats his rights even if he is first to
register, since knowledge taints his registration with bad faith
(see also Astorga vs. Court of Appeals, G.R. No. 58530, 26
December 1984). In Cruz vs. Cabana (G.R. No. 56232, 22 June
1984, 129 SCRA 656), it has held that it is essential, to merit the
protection of Art. 1544, second paragraph, that the second
realty buyer must act in good faith in registering his deed of sale
(citing Carbonell vs. Court of Appeals, 69 SCRA 99, Crisostomo
vs. CA, G.R. No. 95843, 02 September 1992).
(J. Vitug Compendium of Civil Law and Jurisprudence, 1993
Edition, p. 604).
Petitioner point out that the notice of lis pendens in the case at
bar was annoted on the title of the subject property only on
February 22, 1985, whereas, the second sale between petitioners
Coronels and petitioner Mabanag was supposedly perfected
prior thereto or on February 18, 1985. The idea conveyed is that
at the time petitioner Mabanag, the second buyer, bought the
property under a clean title, she was unaware of any adverse
claim or previous sale, for which reason she is buyer in good
faith.
We are not persuaded by such argument.
In a case of double sale, what finds relevance and materiality is
not whether or not the second buyer was a buyer in good faith
but whether or not said second buyer registers such second sale
in good faith, that is, without knowledge of any defect in the title
of the property sold.
10
As clearly borne out by the evidence in this case, petitioner
Mabanag could not have in good faith, registered the sale
entered into on February 18, 1985 because as early as February
22, 1985, a notice of lis pendens had been annotated on the
transfer certificate of title in the names of petitioners, whereas
petitioner Mabanag registered the said sale sometime in April,
1985. At the time of registration, therefore, petitioner Mabanag
knew that the same property had already been previously sold
to private respondents, or, at least, she was charged with
knowledge that a previous buyer is claiming title to the same
property. Petitioner Mabanag cannot close her eyes to the
defect in petitioners' title to the property at the time of the
registration of the property.
This Court had occasions to rule that:
If a vendee in a double sale registers that sale after he has
acquired knowledge that there was a previous sale of the same
property to a third party or that another person claims said
property in a pervious sale, the registration will constitute a
registration in bad faith and will not confer upon him any right.
(Salvoro vs. Tanega, 87 SCRA 349 [1978]; citing Palarca vs.
Director of Land, 43 Phil. 146; Cagaoan vs. Cagaoan, 43 Phil.
554; Fernandez vs. Mercader, 43 Phil. 581.)
Thus, the sale of the subject parcel of land between petitioners
and Ramona P. Alcaraz, perfected on February 6, 1985, prior to
that between petitioners and Catalina B. Mabanag on February
18, 1985, was correctly upheld by both the courts below.
Although there may be ample indications that there was in fact
an agency between Ramona as principal and Concepcion, her
mother, as agent insofar as the subject contract of sale is
concerned, the issue of whether or not Concepcion was also
acting in her own behalf as a co-buyer is not squarely raised in
the instant petition, nor in such assumption disputed between
mother and daughter. Thus, We will not touch this issue and no
longer disturb the lower courts' ruling on this point.
WHEREFORE, premises considered, the instant petition is hereby
DISMISSED and the appealed judgment AFFIRMED.
SO ORDERED.
4. G.R. No. L-21489 and L-21628 May 19, 1966
MIGUEL MAPALO, ET AL., petitioners,
vs.
MAXIMO MAPALO, ET AL., respondents.
Pedro P. Tuason for petitioners.
Primicias and Del Castillo for respondents.
BENGZON, J.P., J.:
The spouses Miguel Mapalo and Candida Quiba, simple illiterate
farmers, were registered owners, with Torrens title certificate
O.C.T. No. 46503, of a 1,635-square-meter residential land in
Manaoag, Pangasinan. Said spouses-owners, out of love and
affection for Maximo Mapalo — a brother of Miguel who was
about to get married — decided to donate the eastern half of
the land to him. O.C.T. No. 46503 was delivered. As a result,
however, they were deceived into signing, on October 15, 1936,
a deed of absolute sale over the entire land in his favor. Their
signatures thereto were procured by fraud, that is, they were
made to believe by Maximo Mapalo and by the attorney who
acted as notary public who "translated" the document, that the
same was a deed of donation in Maximo's favor covering one-
half (the eastern half) of their land. Although the document of
sale stated a consideration of Five Hundred (P500.00) Pesos, the
aforesaid spouses did not receive anything of value for the land.
The attorney's misbehaviour was the subject of an investigation
but its result does not appear on record. However we took note
of the fact that during the hearing of these cases said notary
public was present but did not take the witness stand to rebut
the plaintiffs' testimony supporting the allegation of fraud in the
preparation of the document.
Following the execution of the afore-stated document, the
spouses Miguel Mapalo and Candida Quiba immediately built a
fence of permanent structure in the middle of their land
segregating the eastern portion from its western portion. Said
fence still exists. The spouses have always been in continued
possession over the western half of the land up to the present.

Not known to them, meanwhile, Maximo Mapalo, on March 15,
1938, registered the deed of sale in his favor and obtained in his
name Transfer Certificate of Title No. 12829 over the entire land.
Thirteen years later on October 20, 1951, he sold for P2,500.00
said entire land in favor of Evaristo, Petronila Pacifico and Miguel
all surnamed Narciso. The sale to the Narcisos was in turn
registered on November 5, 1951 and Transfer Certificate of Title
No. 11350 was issued for the whole land in their names.
The Narcisos took possession only of the eastern portion of the
land in 1951, after the sale in their favor was made. On February
7, 1952 they filed suit in the Court of First Instance of Pangasinan
(Civil Case No. 1191) to be declared owners of the entire land,
for possession of its western portion; for damages; and for rentals.
It was brought against the Mapalo spouses as well as against
Floro Guieb and Rosalia Mapalo Guieb who had a house on the
western part of the land with the consent of the spouses Mapalo
and Quiba.
The Mapalo spouses filed their answer with a counterclaim on
March 17, 1965, seeking cancellation of the Transfer Certificate
of Title of the Narcisos as to the western half of the land, on the
grounds that their (Mapalo spouses) signatures to the deed of
sale of 1936 was procured by fraud and that the Narcisos were
buyers in bad faith. They asked for reconveyance to them of the
western portion of the land and issuance of a Transfer Certificate
of Title in their names as to said portion.
In addition, the Mapalo spouses filed on December 16, 1957 their
own complaint in the Court of First Instance of Pangasinan (Civil
Case No. U-133) against the aforestated Narcisos and Maximo
Mapalo. They asked that the deeds of sale of 1936 and of 1951
over the land in question be declared null and void as to the
western half of said land.
Judge Amado Santiago of the Court of First Instance of
Pangasinan located in the municipality of Urdaneta tried the
two cases jointly. Said court rendered judgment on January 18,
1961, as follows:
WHEREFORE, judgment is hereby rendered as follows, to wit:
(a) dismissing the complaint in Civil Case No. 11991;
(b) declaring Exhibit A, plaintiffs in Case No. 11991 and Exhibit 1,
defendants in Case No. U-133 as a donation only over the
eastern half portion of the above-described land, and as null
and void with respect to the western half portion thereof;
(c) declaring as null and void and without legal force and effect
Transfer Certificate of Title No. 12829 issued in favor of Maximo
Mapalo as regards the western half portion of the land covered
therein;
(d) declaring as null and void Transfer Certificate of Title No.
11350 in the names of the Narcisos insofar as the western half
portion of the land covered therein is concerned;
(e) ordering the spouses Mapalo and Quiba and the Narcisos to
have the above-described land be subdivided by a competent
land surveyor and that the expenses incident thereto be borne
out by said parties pro rata;
(f) ordering the Register of Deeds of Pangasinan to issue in lieu of
Transfer Certificate of Title No. 11350 two new titles upon
completion of the subdivision plan, one in favor of the spouses
Miguel Mapalo and Candida Quiba covering the western half
portion and another for the Narcisos covering the eastern half
portion of the said land, upon payment of the legal fees;
meanwhile the right of the spouses Mapalo and Quiba is hereby
ordered to be annotated on the back of Transfer Certificate of
Title No. 11350; and
(g) sentencing Maximo Mapalo and the Narcisos to pay the
costs.
IT IS SO ORDERED.
The Narcisos appealed to the Court of Appeals. In its decision on
May 28, 1963, the Court of Appeals reversed the judgment of the
Court of First Instance, solely on the ground that the consent of
the Mapalo spouses to the deed of sale of 1936 having been
obtained by fraud, the same was voidable, not void ab initio,
and, therefore, the action to annul the same, within four years
11
from notice of the fraud, had long prescribed. It reckoned said
notice of the fraud from the date of registration of the sale on
March 15, 1938. The Court of First Instance and the Court of
Appeals are therefore unanimous that the spouses Mapalo and
Quiba were definitely the victims of fraud. It was only on
prescription that they lost in the Court of Appeals.
From said decision of the Court of Appeals, the Mapalo spouses
appealed to this Court.
And here appellants press the contention that the document
dated October 15, 1936, purporting to sell the entire land in favor
of Maximo Mapalo, is void, not merely voidable, as to the
western portion of the land for being absolutely simulated or
fictitious.
Starting with fundamentals, under the Civil Code, either the old
or the new, for a contract to exist at all, three essential requisites
must concur: (1) consent, (2) object, and (3) cause or
consideration.1 The Court of Appeals is right in that the element
of consent is present as to the deed of sale of October 15, 1936.
For consent was admittedly given, albeit obtained by fraud.
Accordingly, said consent, although defective, did exist. In such
case, the defect in the consent would provide a ground for
annulment of a voidable contract, not a reason for nullity ab
initio.
The parties are agreed that the second element of object is
likewise present in the deed of October 15, 1936, namely, the
parcel of land subject matter of the same.
Not so, however, as to the third element of cause or
consideration. And on this point the decision of the Court of
Appeals is silent.
As regards the eastern portion of the land, the Mapalo spouses
are not claiming the same, it being their stand that they have
donated and freely given said half of their land to Maximo
Mapalo. And since they did not appeal from the decision of the
trial court finding that there was a valid and effective donation
of the eastern portion of their land in favor of Maximo Mapalo,
the same pronouncement has become final as to them,
rendering it no longer proper herein to examine the existence,
validity efficacy of said donation as to said eastern
portion.1äwphï1.ñët
Now, as to the western portion, however, the fact not disputed
herein is that no donation by the Mapalo spouses obtained as to
said portion. Accordingly, we start with the fact that liberality as
a cause or consideration does not exist as regards the western
portion of the land in relation to the deed of 1936; that there was
no donation with respect to the same.
It is reduced, then, to the question whether there was an
onerous conveyance of ownership, that is, a sale, by virtue of
said deed of October 15, 1936, with respect to said western
portion. Specifically, was there a cause or consideration to
support the existence of a contrary of sale?
The rule under the Civil Code, again be it the old or the new, is
that contracts without a cause or consideration produce no
effect whatsoever.2 Nonetheless, under the Old Civil Code, the
statement of a false consideration renders the contract
voidable, unless it is proven that it is supported by another real
and licit consideration.3 And it is further provided by the Old Civil
Code that the action for annulment of a contract on the ground
of falsity of consideration shall last four years, the term to run from
the date of the consummation of the contract.4
Accordingly, since the deed of sale of 1936 is governed by the
Old Civil Code, it should be asked whether its case is one
wherein there is no consideration, or one with a statement of a
false consideration. If the former, it is void and inexistent; if the
latter, only voidable, under the Old Civil Code. As observed
earlier, the deed of sale of 1936 stated that it had for its
consideration Five Hundred (P500.00) Pesos. In fact, however,
said consideration was totally absent. The problem, therefore, is
whether a deed which states a consideration that in fact did not
exist, is a contract without consideration, and therefore void ab
initio, or a contract with a false consideration, and therefore, at
least under the Old Civil Code, voidable.
According to Manresa, what is meant by a contract that states
a false consideration is one that has in fact a real consideration

but the same is not the one stated in the document. Thus he
says:
En primer lugar, nor interesa recordar la diferencia entre
simulacion y el contrato con proposito fraudulento. Este aunque
ilicito es real; mas el primero es falso en realidad, aunque se le
presente como verdadero. (Manresa, Codigo Civil, Tomo VIII,
Vol. II, p. 354.)
And citing a decision of the Supreme Court of Spain on the
matter, Manresa further clarifies the difference of false cause
and no cause, thus:
Insiste en el distingo con mas detenida descripcion la sentencia
de 25 de mayo de 1944, en la que se argumenta:
Si bien es elemento fundamental de todo negocio, la
declaracion de voluntad substracto de una voluntad efectiva, y
la existencia de una causa que leconfiera significado juridico
señalando la finalidad que con este se persigue, no ha de
deducirse de esta doctrina, fundamentalmente recogida en el
articulo 1.261 y concordantes del Codigo civil, que cualquier
falta de adecuacion entre cualquier incongruencia entre la
causa expresada y la verdadera, y, en general, entre la
estructuracion y la finalidad economica; hayan de producir la
ineficacia del negocio, pues por el contrario, puede este ser
valido y producir sus efectos tanto en el caso de la mera
disonancia entre el medio juridico adoptado y el fin practico
perseguido, por utilizacion de una via oblicua o combinacion
de formas juridicas entrelazadas que permita la obtencion de
un resultado no previsto en los cuadros de la ley — negocios
indirectos y negocios fiduciarlos, validos cuando no envuelven
fraude de ley, como en el caso de la verdadera disconformidad
entre la apariencia del acto y su real contenido, preparada
deliberadamente por las partes — negocio simulado — , ya que,
cuando esta divergencia implica no una ausencia total de
voluntad y de acto real, sino mera ocultacion de un negocio
verdadero bajo la falsa apariencia de un negocio fingido
"sirulacion relativa", la ineficacia de la forma externa simulada,
no es obstaculo para la posible validez del negocio disimulado
que contiene, en tanto este ultimo sea licito y reuna no solo los
requisitos generales, sino tambien los que corresponden a su
naturaleza especial, doctrina, en obligada aplicacion de los
preceptos de nuestra Ley civil, especialmente en su art. 1.276,
que, al establecer el principio de nulidad de los contratos en los
que se hace expresion de una causa falsa, deja a salvo el caso
de que esten fundados en otra verdadera y licita. (Manresa,
Codigo Civil, Tomo VIII, Vol. II pp. 357-358)
Sanchez Roman says:
Ya hemos dicho que la intervencion de causa en los contratos
es necesaria, y que sin ellos son nulos; solo se concibe que un
hombre perturbado en su razon pueda contratar sin causa. ...
Por la misma razon de la necesidad de la intervencion de causa
en el contrato, es preciso que esta sea verdadera y no
supuesta, aparente o figurada. Que la falsedad de la causa
vicia el consentimiento y anula el contrato, es, no solo doctrina
indudable de Derecho Cientifico sino tambien de antiguo
Derecho de Castilla, que en multitud de leyes asi lo declararon.
(Sanchez Roman, Derecho Civil, Tomo IV, p. 206.).
In a clearer exposition of the above distinction, Castan states:
2.º. La causa ha de ser verdadera. La causa falsa puede ser
erronea o simulada. Es erronea como dice Giorgi, la causa que
tiene por base la credulidad en un hecho no existente; y
simulada la que tiene lugar cuando se hace aparecer
artificiosamente una distinta de la verdadera. La erronea
produce siempre la inexistencia del contrato; la simulada no
siempre produce este efecto, porque puede suceder que la
causa oculta, pero verdadera, baste para sostener el contrato.
De acuerdo con esta doctrina, dice el art. 1.276 de nuestro
Codigo que "la expresion de una causa falsa en los contratos
dara lugar a la nulidad, si no se probase que estaban fundados
en otra verdadera y licita". (Castan Derecho Civil Español, Tomo
II, pp. 618-619)
From the foregoing it can be seen that where, as in this case,
there was in fact no consideration, the statement of one in the
deed will not suffice to bring it under the rule of Article 1276 of
the Old Civil Code as stating a false consideration. Returning to
Manresa:
12
Figurando en nuestro Derecho positivo la causa, como un
elemento esential del contrato, es consecuencia ineludible, se
reputar simulada la entrega del precio en la compraventa de
autos, el que haya que declararla nula por inexistente
haciendose aplicacion indebida de art. 1.276 por el Tribunal
sentenciador al cohonestar la falta de precio admitiendo se
pueda tratar de una donacion, ya que la recta aplicacion del
citado precepto exige que los negocios simulados, o sea con
causa falsa, se justifique la verdadera y licita en que se funda el
acto que las partes han querido ocultar y el cumplimiento de las
formalidades impuestas por la Ley y, cual dice la sentencia de 3
de marzo de 1932, esta rigurosa doctrina ha de ser
especialmente impuesta en la donaciones puras y simples; de
los que deduce que la sentencia recurrida al no decretar la
nulidad instada por falta de causa, incide en la infraccion de los
articulos 1.261, 1.274, 1.275 y 1.276 del Codigo Civil. (Sentencia
de 22 de febrero de 1940). (Manresa, Codigo Civil, Tomo VIII,
Vol. II, p. 356)
In our view, therefore, the ruling of this Court in Ocejo, Perez &
Co. vs. Flores, 40 Phil. 921, is squarely applicable herein. In that
case we ruled that a contract of purchase and sale is null and
void and produces no effect whatsoever where the same is
without cause or consideration in that the purchase price which
appears thereon as paid has in fact never been paid by the
purchaser to the vendor.
Needless to add, the inexistence of a contract is permanent and
incurable and cannot be the subject of prescription. In the
words of Castan: "La inexistencia es perpetua e insubsanable no
pudiendo ser objecto de confirmacion ni prescripcion (Op. cit.,
p. 644.) In Eugenio v. Perdido, 97 Phil. 41, 42-43, involving a sale
dated 1932, this Court, speaking through Justice Cesar Bengzon,
now Chief Justice, stated:
Under the existing classification, such contract would be
"inexisting" and "the action or defense for declaration" of such
inexistence "does not prescribe". (Art. 1410, New Civil Code).
While it is true that this is a new provision of the New Civil Code, it
is nevertheless a principle recognized since Tipton vs. Velasco, 6
Phil. 67 that "mere lapse of time cannot give efficacy to
contracts that are null and void".
Anent the matter of whether the Narcisos were purchasers in
good faith, the trial court in its decision resolved this issue, thus:
With regard to the second issue, the Narcisos contend that they
are the owners of the above-described property by virtue of the
deed of sale (Exh. B, plaintiffs in 11991 and Exh. 2, defendants in
U-133) executed in their favor by Maximo Mapalo, and further
claim that they are purchasers for value and in good faith. This
court, however, cannot also give weight and credit on this
theory of the Narcisos on the following reasons: Firstly, it has been
positively shown by the undisputed testimony of Candida Quiba
that Pacifico Narciso and Evaristo Narciso stayed for some days
on the western side (the portion in question) of the above-
described land until their house was removed in 1940 by the
spouses Mapalo and Quiba; secondly, Pacifica Narciso
admitted in his testimony in chief that when they bought the
property, Miguel Mapalo was still in the premises in question
(western part) which he is occupying and his house is still
standing thereon; and thirdly, said Pacifico Narciso when
presented as a rebuttal and sub-rebuttal witness categorically
declared that before buying the land in question he went to the
house of Miguel Mapalo and Candida Quiba and asked them if
they will permit their elder brother Maximo to sell the property.
Aside from the fact that all the parties in these cases are
neighbors, except Maximo Mapalo the foregoing facts are
explicit enough and sufficiently reveal that the Narcisos were
aware of the nature and extent of the interest of Maximo
Mapalo their vendor, over the above-described land before and
at the time the deed of sale in their favor was executed.
Upon the aforestated declaration of Pacifico Narciso the
following question arises: What was the necessity, purpose and
reason of Pacifico Narciso in still going to the spouses Mapalo
and asked them to permit their brother Maximo to dispose of the
above-described land? To this question it is safe to state that this
act of Pacifico Narciso is a conclusive manifestation that they
(the Narcisos) did not only have prior knowledge of the
ownership of said spouses over the western half portion in
question but that they also have recognized said ownership. It
also conclusively shows their prior knowledge of the want of
dominion on the part of their vendor Maximo Mapalo over the

whole land and also of the flaw of his title thereto. Under this
situation, the Narcisos may be considered purchasers in value
but certainly not as purchasers in good faith. ... (pp. 97-98,
Record on Appeal.)
And said finding — which is one of fact — is found by us not a bit
disturbed by the Court of Appeals. Said the Court of Appeals:
In view of the conclusion thus reached, it becomes unnecessary
to pass on the other errors assigned. Suffice it to say that, on the
merits the appealed decision could have been upheld under
Article 1332 of the new Civil Code and the following authorities:
Ayola vs. Valderrama Lumber Manufacturers Co., Inc., 49 O.G.
980, 982; Trasporte vs. Beltran, 51 O.G. 1434, 1435; Cortez vs.
Cortez, CA-G.R. No. 18451-R, August 8, 1961; Castillo vs.
Laberinto, CA-G.R. No. 18118-R, December 20, 1961; and 13 C.J.
372-373, as well as the several facts and circumstances
appreciated by the trial court as supporting appellees' case.
thereby in effect sustaining — barring only its ruling on
prescription — the judgment and findings of the trial court,
including that of bad faith on the part of the Narcisos in
purchasing the land in question. We therefore see no need to
further remand this case to the Court of Appeals for a ruling on
this point, as appellees request in their brief in the event we hold
the contract of 1936 to be inexistent as regards the western
portion of the land.
In view of defendants' bad faith under the circumstances we
deem it just and equitable to award, in plaintiffs' favor, attorneys'
fees on appeal, in the amount of P1,000.00 as prayed for in the
counterclaim.
Wherefore, the decision of the Court of Appeals is hereby
reversed and set aside, and another one is hereby rendered
affirming in toto the judgment of the Court of First Instance a
quo, with attorney's fees on appeal in favor of appellants in the
amount of P1,000.00, plus the costs, both against the private
appellees. So ordered.
Bengzon, C.J., Bautista Angelo, Concepcion, Reyes, J.B.L.,
Barrera, Dizon, Regala, Makalintal, Zaldivar and Sanchez, JJ.,
concur.
Footnotes
5. G.R. No. 115349 April 18, 1997
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
THE COURT OF APPEALS, THE COURT OF TAX APPEALS and ATENEO
DE MANILA UNIVERSITY, respondents.
PANGANIBAN, J.:
In conducting researches and studies of social organizations and
cultural values thru its Institute of Philippine Culture, is the Ateneo
de Manila University performing the work of an independent
contractor and thus taxable within the purview of then Section
205 of the National Internal Revenue Code levying a three
percent contractor's tax? This question is answer by the Court in
the negative as it resolves this petition assailing the Decision 1 of
the Respondent Court of Appeals 2 in CA-G.R. SP No. 31790
promulgated on April 27, 1994 affirming that of the Court of Tax
Appeals. 3
The Antecedent Facts
The antecedents as found by the Court of Appeals are
reproduced hereinbelow, the same being largely undisputed by
the parties.
Private respondent is a non-stock, non-profit educational
institution with auxiliary units and branches all over the
Philippines. One such auxiliary unit is the Institute of Philippine
Culture (IPC), which has no legal personality separate and
distinct from that of private respondent. The IPC is a Philippine
unit engaged in social science studies of Philippine society and
culture. Occasionally, it accepts sponsorships for its research
activities from international organizations, private foundations
and government agencies.
On July 8, 1983, private respondent received from petitioner
Commissioner of Internal Revenue a demand letter dated June
13
3, 1983, assessing private respondent the sum of P174,043.97 for
alleged deficiency contractor's tax, and an assessment dated
June 27, 1983 in the sum of P1,141,837 for alleged deficiency
income tax, both for the fiscal year ended March 31, 1978.
Denying said tax liabilities, private respondent sent petitioner a
letter-protest and subsequently filed with the latter a
memorandum contesting the validity of the assessments.
On March 17, 1988, petitioner rendered a letter-decision
canceling the assessment for deficiency income tax but
modifying the assessment for deficiency contractor's tax by
increasing the amount due to P193,475.55. Unsatisfied, private
respondent requested for a reconsideration or reinvestigation of
the modified assessment. At the same time, it filed in the
respondent court a petition for review of the said letter-decision
of the petitioner. While the petition was pending before the
respondent court, petitioner issued a final decision dated August
3, 1988 reducing the assessment for deficiency contractor's tax
from P193,475.55 to P46,516.41, exclusive of surcharge and
interest.
On July 12, 1993, the respondent court rendered the questioned
decision which dispositively reads:
WHEREFORE, in view of the foregoing, respondent's decision is SET
ASIDE. The deficiency contractor's tax assessment in the amount
of P46,516.41 exclusive of surcharge and interest for the fiscal
year ended March 31, 1978 is hereby CANCELED. No
pronouncement as to cost.
SO ORDERED.
Not in accord with said decision, petitioner has come to this
Court via the present petition for review raising the following
issues:
1) WHETHER OR NOT PRIVATE RESPONDENT FALLS UNDER
THE PURVIEW OF INDEPENDENT CONTRACTOR PURSUANT TO
SECTION 205 OF THE TAX CODE; and
2) WHETHER OR NOT PRIVATE RESPONDENT IS SUBJECT TO
3% CONTRACTOR'S TAX UNDER SECTION 205 OF THE TAX CODE.
The pertinent portions of Section 205 of the National Internal
Revenue Code, as amended, provide:
Sec. 205. Contractor, proprietors or operators of dockyards, and
others. — A contractor's tax of three per centum of the gross
receipts is hereby imposed on the following:
xxx xxx xxx
(16) Business agents and other independent contractors
except persons, associations and corporations under contract
for embroidery and apparel for export, as well as their agents
and contractors and except gross receipts of or from a pioneer
industry registered with the Board of Investments under Republic
Act No. 5186:
xxx xxx xxx
The term "independent contractors" include persons (juridical or
natural) not enumerated above (but not including individuals
subject to the occupation tax under Section 12 of the Local Tax
Code) whose activity consists essentially of the sale of all kinds of
services for a fee regardless of whether or not the performance
of the service calls for the exercise or use of the physical or
mental faculties of such contractors or their employees.
xxx xxx xxx
Petitioner contends that the respondent court erred in holding
that private respondent is not an "independent contractor"
within the purview of Section 205 of the Tax Code. To petitioner,
the term "independent contractor", as defined by the Code,
encompasses all kinds of services rendered for a fee and that
the only exceptions are the following:
a. Persons, association and corporations under contract
for embroidery and apparel for export and gross receipts of or
from pioneer industry registered with the Board of Investment
under R.A. No. 5186;

b. Individuals occupation tax under Section 12 of the
Local Tax Code (under the old Section 182 [b] of the Tax Code);
and
c. Regional or area headquarters established in the
Philippines by multinational corporations, including their alien
executives, and which headquarters do not earn or derive
income from the Philippines and which act as supervisory,
communication and coordinating centers for their affiliates,
subsidiaries or branches in the Asia Pacific Region (Section 205 of
the Tax Code).
Petitioner thus submits that since private respondent falls under
the definition of an "independent contractor" and is not among
the aforementioned exceptions, private respondent is therefore
subject to the 3% contractor's tax imposed under the same
Code. 4
The Court of Appeals disagreed with the Petitioner Commissioner
of Internal Revenue and affirmed the assailed decision of the
Court of Tax Appeals. Unfazed, petitioner now asks us to reverse
the CA through this petition for review.
The Issues
Petitioner submits before us the following issues:
1) Whether or not private respondent falls under the
purview of independent contractor pursuant to Section 205 of
the Tax Code.
2) Whether or not private respondent is subject to 3%
contractor's tax under Section 205 of the Tax Code. 5
In fine, these may be reduced to a single issue: Is Ateneo de
Manila University, through its auxiliary unit or branch — the
Institute of Philippine Culture — performing the work of an
independent contractor and, thus, subject to the three percent
contractor's tax levied by then Section 205 of the National
Internal Revenue Code?
The Court's Ruling
The petition is unmeritorious.
Interpretation of Tax Laws
The parts of then Section 205 of the National Internal Revenue
Code germane to the case before us read:
Sec. 205. Contractors, proprietors or operators of dockyards, and
others. — A contractor's tax of three per centum of the gross
receipts is hereby imposed on the following:
xxx xxx xxx
(16) Business agents and other independent contractors,
except persons, associations and corporations under contract
for embroidery and apparel for export, as well as their agents
and contractors, and except gross receipts of or from a pioneer
industry registered with the Board of Investments under the
provisions of Republic Act No. 5186;
xxx xxx xxx
The term "independent contractors" include persons (juridical or
natural) not enumerated above (but not including individuals
subject to the occupation tax under Section 12 of the Local Tax
Code) whose activity consists essentially of the sale of all kinds of
services for a fee regardless of whether or not the performance
of the service calls for the exercise or use of the physical or
mental faculties of such contractors or their employees.
The term "independent contractor" shall not include regional or
area headquarters established in the Philippines by multinational
corporations, including their alien executives, and which
headquarters do not earn or derive income from the Philippines
and which act as supervisory, communications and coordinating
centers for their affiliates, subsidiaries or branches in the Asia-
Pacific Region.
The term "gross receipts" means all amounts received by the
prime or principal contractor as the total contract price,
undiminished by amount paid to the subcontractor, shall be
excluded from the taxable gross receipts of the subcontractor.
14
Petitioner Commissioner of Internal Revenue contends that
Private Respondent Ateneo de Manila University "falls within the
definition" of an independent contractor and "is not one of those
mentioned as excepted"; hence, it is properly a subject of the
three percent contractor's tax levied by the foregoing provision
of law. 6 Petitioner states that the "term 'independent contractor'
is not specifically defined so as to delimit the scope thereof, so
much so that any person who . . . renders physical and mental
service for a fee, is now indubitably considered an independent
contractor liable to 3% contractor's tax." 7 According to
petitioner, Ateneo has the burden of proof to show its exemption
from the coverage of the law.
We disagree. Petitioner Commissioner of Internal Revenue erred
in applying the principles of tax exemption without first applying
the well-settled doctrine of strict interpretation in the imposition
of taxes. It is obviously both illogical and impractical to
determine who are exempted without first determining who are
covered by the aforesaid provision. The Commissioner should
have determined first if private respondent was covered by
Section 205, applying the rule of strict interpretation of laws
imposing taxes and other burdens on the populace, before
asking Ateneo to prove its exemption therefrom. The Court takes
this occasion to reiterate the hornbook doctrine in the
interpretation of tax laws that "(a) statute will not be construed
as imposing a tax unless it does so clearly, expressly, and
unambiguously . . . (A) tax cannot be imposed without clear and
express words for that purpose. Accordingly, the general rule of
requiring adherence to the letter in construing statutes applies
with peculiar strictness to tax laws and the provisions of a taxing
act are not to be extended by implication." 8 Parenthetically, in
answering the question of who is subject to tax statutes, it is basic
that "in case of doubt, such statutes are to be construed most
strongly against the government and in favor of the subjects or
citizens because burdens are not to be imposed nor presumed
to be imposed beyond what statutes expressly and clearly
import." 9
To fall under its coverage, Section 205 of the National Internal
Revenue Code requires that the independent contractor be
engaged in the business of selling its services. Hence, to impose
the three percent contractor's tax on Ateneo's Institute of
Philippine Culture, it should be sufficiently proven that the private
respondent is indeed selling its services for a fee in pursuit of an
independent business. And it is only after private respondent has
been found clearly to be subject to the provisions of Sec. 205
that the question of exemption therefrom would arise. Only after
such coverage is shown does the rule of construction — that tax
exemptions are to be strictly construed against the taxpayer —
come into play, contrary to petitioner's position. This is the main
line of reasoning of the Court of Tax Appeals in its decision, 10
which was affirmed by the CA.
The Ateneo de Manila University Did Not Contract
for the Sale of the Service of its Institute of Philippine Culture
After reviewing the records of this case, we find no evidence
that Ateneo's Institute of Philippine Culture ever sold its services
for a fee to anyone or was ever engaged in a business apart
from and independently of the academic purposes of the
university.
Stressing that "it is not the Ateneo de Manila University per se
which is being taxed," Petitioner Commissioner of Internal
Revenue contends that "the tax is due on its activity of
conducting researches for a fee. The tax is due on the gross
receipts made in favor of IPC pursuant to the contracts the latter
entered to conduct researches for the benefit primarily of its
clients. The tax is imposed on the exercise of a taxable activity. . .
. [T]he sale of services of private respondent is made under a
contract and the various contracts entered into between
private respondent and its clients are almost of the same terms,
showing, among others, the compensation and terms of
payment." 11 (Emphasis supplied.)
In theory, the Commissioner of Internal Revenue may be correct.
However, the records do not show that Ateneo's IPC in fact
contracted to sell its research services for a fee. Clearly then, as
found by the Court of Appeals and the Court of Tax Appeals,
petitioner's theory is inapplicable to the established factual
milieu obtaining in the instant case.
In the first place, the petitioner has presented no evidence to
prove its bare contention that, indeed, contracts for sale of

services were ever entered into by the private respondent. As
appropriately pointed out by the latter:
An examination of the Commissioner's Written Formal Offer of
Evidence in the Court of Tax Appeals shows that only the
following documentary evidence was presented:
Exhibit 1 BIR letter of authority no. 331844
2 Examiner's Field Audit Report
3 Adjustments to Sales/Receipts
4 Letter-decision of BIR Commissioner Bienvenido A. Tan
Jr.
None of the foregoing evidence even comes close to purport to
be contracts between private respondent and third parties. 12
Moreover, the Court of Tax Appeals accurately and correctly
declared that the " funds received by the Ateneo de Manila
University are technically not a fee. They may however fall as
gifts or donations which are tax-exempt" as shown by private
respondent's compliance with the requirement of Section 123 of
the National Internal Revenue Code providing for the exemption
of such gifts to an educational institution. 13
Respondent Court of Appeals elucidated on the ruling of the
Court of Tax Appeals:
To our mind, private respondent hardly fits into the definition of
an "independent contractor".
For one, the established facts show that IPC, as a unit of the
private respondent, is not engaged in business. Undisputedly,
private respondent is mandated by law to undertake research
activities to maintain its university status. In fact, the research
activities being carried out by the IPC is focused not on business
or profit but on social sciences studies of Philippine society and
culture. Since it can only finance a limited number of IPC's
research projects, private respondent occasionally accepts
sponsorship for unfunded IPC research projects from
international organizations, private foundations and
governmental agencies. However, such sponsorships are subject
to private respondent's terms and conditions, among which are,
that the research is confined to topics consistent with the private
respondent's academic agenda; that no proprietary or
commercial purpose research is done; and that private
respondent retains not only the absolute right to publish but also
the ownership of the results of the research conducted by the
IPC. Quite clearly, the aforementioned terms and conditions
belie the allegation that private respondent is a contractor or is
engaged in business.
For another, it bears stressing that private respondent is a non-
stock, non-profit educational corporation. The fact that it
accepted sponsorship for IPC's unfunded projects is merely
incidental. For, the main function of the IPC is to undertake
research projects under the academic agenda of the private
respondent. Moreover the records do not show that in
accepting sponsorship of research work, IPC realized profits from
such work. On the contrary, the evidence shows that for about
30 years, IPC had continuously operated at a loss, which means
that sponsored funds are less than actual expenses for its
research projects. That IPC has been operating at a loss loudly
bespeaks of the fact that education and not profit is the motive
for undertaking the research projects.
Then, too, granting arguendo that IPC made profits from the
sponsored research projects, the fact still remains that there is no
proof that part of such earnings or profits was ever distributed as
dividends to any stockholder, as in fact none was so distributed
because they accrued to the benefit of the private respondent
which is a non-profit educational institution. 14
Therefore, it is clear that the funds received by Ateneo's Institute
of Philippine Culture are not given in the concept of a fee or
price in exchange for the performance of a service or delivery of
an object. Rather, the amounts are in the nature of an
endowment or donation given by IPC's benefactors solely for the
purpose of sponsoring or funding the research with no strings
attached. As found by the two courts below, such sponsorships
are subject to IPC's terms and conditions. No proprietary or
commercial research is done, and IPC retains the ownership of
the results of the research, including the absolute right to publish
15
the same. The copyrights over the results of the research are
owned by
Ateneo and, consequently, no portion thereof may be
reproduced without its permission. 15 The amounts given to IPC,
therefore, may not be deemed, it bears stressing as fees or gross
receipts that can be subjected to the three percent contractor's
tax.
It is also well to stress that the questioned transactions of
Ateneo's Institute of Philippine Culture cannot be deemed either
as a contract of sale or a contract of a piece of work. "By the
contract of sale, one of the contracting parties obligates himself
to transfer the ownership of and to deliver a determinate thing,
and the other to pay therefor a price certain in money or its
equivalent." 16 By its very nature, a contract of sale requires a
transfer of ownership. Thus, Article 1458 of the Civil Code
"expressly makes the obligation to transfer ownership as an
essential element of the contract of sale, following modern
codes, such as the German and the Swiss. Even in the absence
of this express requirement, however, most writers, including
Sanchez Roman, Gayoso, Valverde, Ruggiero, Colin and
Capitant, have considered such transfer of ownership as the
primary purpose of sale. Perez and Alguer follow the same view,
stating that the delivery of the thing does not mean a mere
physical transfer, but is a means of transmitting ownership.
Transfer of title or an agreement to transfer it for a price paid or
promised to be paid is the essence of sale." 17 In the case of a
contract for a piece of work, "the contractor binds himself to
execute a piece of work for the employer, in consideration of a
certain price or compensation. . . . If the contractor agrees to
produce the work from materials furnished by him, he shall
deliver the thing produced to the employer and transfer
dominion over the thing, . . ." 18 Ineludably, whether the contract
be one of sale or one for a piece of work, a transfer of ownership
is involved and a party necessarily walks away with an object. 19
In the case at bench, it is clear from the evidence on record that
there was no sale either of objects or services because, as
adverted to earlier, there was no transfer of ownership over the
research data obtained or the results of research projects
undertaken by the Institute of Philippine Culture.
Furthermore, it is clear that the research activity of the Institute of
Philippine Culture is done in pursuance of maintaining Ateneo's
university status and not in the course of an independent
business of selling such research with profit in mind. This is clear
from a reading of the regulations governing universities:
31. In addition to the legal requisites an institution must
meet, among others, the following requirements before an
application for university status shall be considered:
xxx xxx xxx
(e) The institution must undertake research and operate
with a competent qualified staff at least three graduate
departments in accordance with the rules and standards for
graduate education. One of the departments shall be science
and technology. The competence of the staff shall be judged by
their effective teaching, scholarly publications and research
activities published in its school journal as well as their leadership
activities in the profession.
(f) The institution must show evidence of adequate and
stable financial resources and support, a reasonable portion of
which should be devoted to institutional development and
research. (emphasis supplied)
xxx xxx xxx
32. University status may be withdrawn, after due notice
and hearing, for failure to maintain satisfactorily the standards
and requirements therefor. 20
Petitioner's contention that it is the Institute of Philippine Culture
that is being taxed and not the Ateneo is patently erroneous
because the former is not an independent juridical entity that is
separate and distinct form the latter.
Factual Findings and Conclusions of the Court of Tax Appeals
Affirmed by the Court of Appeals Generally Conclusive
In addition, we reiterate that the "Court of Tax Appeals is a highly
specialized body specifically created for the purpose of
reviewing tax cases. Through its expertise, it is undeniably
competent to determine the issue of whether" 21 Ateneo de

Manila University may be deemed a subject of the three percent
contractor's tax "through the evidence presented before it."
Consequently, "as a matter of principle, this Court will not set
aside the conclusion reached by . . . the Court of Tax Appeals
which is, by the very nature of its function, dedicated exclusively
to the study and consideration of tax problems and has
necessarily developed an expertise on the subject unless there
has been an abuse or improvident exercise of authority . . ." 22
This point becomes more evident in the case before us where
the findings and conclusions of both the Court of Tax Appeals
and the Court of Appeals appear untainted by any abuse of
authority, much less grave abuse of discretion. Thus, we find the
decision of the latter affirming that of the former free from any
palpable error.
Public Service, Not Profit, is the Motive
The records show that the Institute of Philippine Culture
conducted its research activities at a huge deficit of
P1,624,014.00 as shown in its statements of fund and
disbursements for the period 1972 to 1985. 23 In fact, it was
Ateneo de Manila University itself that had funded the research
projects of the institute, and it was only when Ateneo could no
longer produce the needed funds that the institute sought
funding from outside. The testimony of Ateneo's Director for
Accounting Services, Ms. Leonor Wijangco, provides significant
insight on the academic and nonprofit nature of the institute's
research activities done in furtherance of the university's
purposes, as follows:
Q Now it was testified to earlier by Miss Thelma Padero
(Office Manager of the Institute of Philippine Culture) that as far
as grants from sponsored research it is possible that the grant
sometimes is less than the actual cost. Will you please tell us in
this case when the actual cost is a lot less than the grant who
shoulders the additional cost?
A The University.
Q Now, why is this done by the University?
A Because of our faculty development program as a
university, because a university has to have its own research
institute. 24
So, why is it that Ateneo continues to operate and conduct
researches through its Institute of Philippine Culture when it
undisputedly loses not an insignificant amount in the process?
The plain and simple answer is that private respondent is not a
contractor selling its services for a fee but an academic
institution conducting these researches pursuant to its
commitments to education and, ultimately, to public service. For
the institute to have tenaciously continued operating for so long
despite its accumulation of significant losses, we can only agree
with both the Court of Tax Appeals and the Court of Appeals
that "education and not profit is [IPC's] motive for undertaking
the research
projects." 25
WHEREFORE, premises considered, the petition is DENIED and the
assailed Decision of the Court of Appeals is hereby AFFIRMED in
full.
SO ORDERED.
Narvasa, C.J., Davide, Jr., Melo and Francisco JJ., concur.
Footnotes
6. G.R. No. L-6584 October 16, 1911
INCHAUSTI AND CO., plaintiff-appellant,
vs.
ELLIS CROMWELL, Collector of Internal Revenue, defendant-
appellee.
Haussermann, Cohn & Fisher, for appellant.
Acting Attorney-General Harvey, for appellee.
MORELAND, J.:
16
This is an appeal by the plaintiff from a judgment of the Court of
First Instance of the city of Manila, the Hon. Simplicio del Rosario
presiding, dismissing the complaint upon the merits after trial,
without costs.
The facts presented to this court are agreed upon by both
parties, consisting, in so far as they are material to a decision of
the case, in the following:
III. That the plaintiff firm for many years past has been and now is
engaged in the business of buying and selling at wholesale
hemp, both for its own account and on commission.
IV. That it is customary to sell hemp in bales which are made by
compressing the loose fiber by means of presses, covering two
sides of the bale with matting, and fastening it by means of strips
of rattan; that the operation of bailing hemp is designated
among merchants by the word "prensaje."
V. That in all sales of hemp by the plaintiff firm, whether for its
own account or on commission for others, the price is quoted to
the buyer at so much per picul, no mention being made of
bailing; but with the tacit understanding, unless otherwise
expressly agreed, that the hemp will be delivered in bales and
that, according to the custom prevailing among hemp
merchants and dealers in the Philippine Islands, a charge, the
amount of which depends upon the then prevailing rate, is to be
made against the buyer under the denomination of "prensaje."
That this charge is made in the same manner in all cases, even
when the operation of bailing was performed by the plaintiff or
by its principal long before the contract of sale was made. Two
specimens of the ordinary form of account used in these
operations are hereunto appended, marked Exhibits A and B,
respectively, and made a part hereof.
VI. That the amount of the charge made against hemp buyers
by the plaintiff firm and other sellers of hemp under the
denomination of "prensaje" during the period involved in this
litigation was P1.75 per bale; that the average cost of the rattan
and matting used on each bale of hemp is fifteen (15) centavos
and that the average total cost of bailing hemp is one (1) peso
per bale.
VII. That insurance companies in the Philippine Islands, in
estimating the insurable value of hemp always add to the
quoted price of same the charge made by the seller under the
denomination of "prensaje."
VII. That the average weight of a bale of hemp is two (2) piculs
(126.5 kilograms).
IX. That between the first day of January, 1905, and the 31st day
of March, 1910, the plaintiff firm, in accordance with the custom
mentioned in paragraph V hereof, collected and received,
under the denomination of "prensaje," from purchasers of hemp
sold by the said firm for its own account, in addition to the price
expressly agreed upon for the said hemp, sums aggregating
P380,124.35; and between the 1st day of October, 1908, and the
1st day of March, 1910, collected for the account of the owners
of hemp sold by the plaintiff firm in Manila on commission, and
under the said denomination of "prensaje," in addition to the
price expressly agreed upon the said hemp, sums aggregating
P31,080.
X. That the plaintiff firm in estimating the amount due it as
commissions on sales of hemp made by it for its principals has
always based the said amount on the total sum collected from
the purchasers of the hemp, including the charge made in each
case under the denomination of "prensaje."
XI. That the plaintiff has always paid to the defendant or to his
predecessor in the office of the Collector of Internal Revenue the
tax collectible under the provisions of section 139 of Act No. 1189
upon the selling price expressly agreed upon for all hemp sold by
the plaintiff firm both for its own account and on commission, but
has not, until compelled to do so as hereinafter stated, paid the
said tax upon sums received from the purchaser of such hemp
under the denomination of "prensaje."
XII. That of the 29th day of April, 1910, the defendant, acting in
his official capacity as Collector of Internal Revenue of the
Philippine Islands, made demand in writing upon the plaintiff firm
for the payment within the period of five (5) days of the sum of
P1,370.68 as a tax of one third of one per cent on the sums of
money mentioned in Paragraph IX hereof, and which the said

defendant claimed to be entitled to receive, under the
provisions of the said section 139 of Act No. 1189, upon the said
sums of money so collected from purchasers of hemp under the
denomination of "prensaje."
XIII. That on the 4th day of May, 1910, the plaintiff firm paid to the
defendant under protest the said sum of P1,370.69, and on the
same date appealed to the defendant as Collector of Internal
Revenue, against the ruling by which the plaintiff firm was
required to make said payment, but defendant overruled said
protest and adversely decided said appeal, and refused and still
refuses to return to plaintiff the said sum of P1,370.68 or any part
thereof.1awphil.net
XIV. Upon the facts above set forth t is contended by the plaintiff
that the tax of P1,370.68 assessed by the defendant upon the
aggregate sum of said charges made against said purchasers of
hemp by the plaintiff during the period in question, under the
denomination of "prensaje" as aforesaid, namely, P411,204.35, is
illegal upon the ground that the said charge does not constitute
a part of the selling price of the hemp, but is a charge made for
the service of baling the hemp, and that the plaintiff firm is
therefore entitled to recover of the defendant the said sum of
P1,370.68 paid to him under protest, together with all interest
thereon at the legal rate since payment, and the costs of this
action.
Upon the facts above stated it is the contention of the
defendant that the said charge made under the denomination
of "prensaje" is in truth and in fact a part of the gross value of the
hemp sold and of its actual selling price, and that therefore the
tax imposed by section 139 of Act No. 1189 lawfully accrued on
said sums, that the collection thereof was lawfully and properly
made and that therefore the plaintiff is not entitled to recover
back said sum or any part thereof; and that the defendant
should have judgment against plaintiff for his costs.
Under these facts we are of the opinion that the judgment of the
court below was right. It is one of the stipulations in the statement
of facts that it is customary to sell hemp in bales, and that the
price quoted in the market for hemp per picul is the price for the
hemp baled. The fact is that among large dealers like the
plaintiff in this case it is practically impossible to handle hemp
without its being baled, and it is admitted by the statement of
facts, as well as demonstrated by the documentary proof
introduced in the case, that if the plaintiff sold a quality of hemp
it would be the under standing, without words, that such hemp
would be delivered in bales, and that the purchase price would
include the cost and expense of baling. In other words, it is the
fact as stipulated, as well as it would be the fact of necessity,
that in all dealings in hemp in the general market the selling
price consists of the value of the hemp loose plus the cost and
expense of putting it into marketable form. In the sales made by
the plaintiff, which are the basis of the controversy here, there
were n services performed by him for his vendee. There was
agreement that services should be performed. Indeed, at the
time of such sales it was not known by the vendee whether the
hemp was then actually baled or not. All that he knew and all
that concerned him was that the hemp should be delivered to
him baled. He did not ask the plaintiff to perform services for him,
nor did the plaintiff agree to do so. The contract was single and
consisted solely in the sale and purchase of hemp. The
purchaser contracted for nothing else and the vendor agreed to
deliver nothing else.
The word "price" signifies the sum stipulated as the equivalent of
the thing sold and also every incident taken into consideration
for the fixing of the price, put to the debit of the vendee and
agreed to by him. It is quite possible that the plaintiff, in this case
in connection with the hemp which he sold, had himself already
paid the additional expense of baling as a part of the purchase
price which he paid and that he himself had received the hemp
baled from his vendor. It is quite possible also that such vendor of
the plaintiff may have received the same hemp from his vendor
in baled form, that he paid the additions cost of baling as a part
of the purchase price which he paid. In such case the plaintiff
performed no service whatever for his vendee, nor did the
plaintiff's vendor perform any service for him.
The distinction between a contract of sale and one for work,
labor, and materials is tested by the inquiry whether the thing
transferred is one no in existence and which never would have
existed but for the order of the party desiring to acquire it, or a
thing which would have existed and been the subject of sale to
some other person, even if the order had not been given.
17
(Groves vs. Buck, 3 Maule & S., 178; Towers vs. Osborne, 1
Strange, 506; Benjamin on Sales, 90.) It is clear that in the case at
bar the hemp was in existence in baled form before the
agreements of sale were made, or, at least, would have been in
existence even if none of the individual sales here in question
had been consummated. It would have been baled,
nevertheless, for sale to someone else, since, according to the
agreed statement of facts, it is customary to sell hemp in bales.
When a person stipulates for the future sale of articles which he is
habitually making, and which at the time are not made or
finished, it is essentially a contract of sale and not a contract for
labor. It is otherwise when the article is made pursuant to
agreement. (Lamb vs. Crafts, 12 Met., 353; Smith vs. N.Y.C. Ry.
Co., 4 Keyes, 180; Benjamin on Sales, 98.) Where labor is
employed on the materials of the seller he can not maintain an
action for work and labor. (Atkinson vs. Bell, 8 Barn. & C., 277; Lee
vs. Griffin, 30 L.J.N. S.Q.B., 252; Prescott vs. Locke, 51 N.H., 94.) If
the article ordered by the purchaser is exactly such as the
plaintiff makes and keeps on hand for sale to anyone, and no
change or modification of it is made at the defendant's request,
it is a contract of sale, even though it may be entirely made
after, and in consequence of, the defendant's order for it.
(Garbutt s. Watson, 5 Barn. & Ald., 613; Gardner vs. Joy, 9 Met.,
177; Lamb vs. Crafts, 12 Met., 353; Waterman vs. Meigs, 4 Cush.,
497., Clark vs. Nichols, 107 Mass., 547; May vs. Ward, 134 Mass.,
127; Abbott vs. Gilchrist, 38 Me., 260; Crocket vs. Scribner, 64 Me.,
105; Pitkin vs. Noyes, 48 N. H., 294; Prescott vs. Locke, 51 N. H., 94;
Ellison vs. Brigham, 38 Vt., 64.) It has been held in Massachusetts
that a contract to make is a contract of sale if the article
ordered is already substantially in existence at the time of the
order and merely requires some alteration, modification, or
adoption to the buyer's wishes or purposes. (Mixer vs. Howarth,
21 Pick., 205.) It is also held in that state that a contract for the
sale 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 for
the sale of goods to which the statute of frauds applies. But if the
goods are to be manufactured especially for the purchaser and
upon his special order, and not for the general market, the case
is not within the statute. (Goddard vs. Binney, 115 Mass., 450.)
It is clear to our minds that in the case at bar the baling was
performed for the general market and was not something done
by plaintiff which was a result of any peculiar wording of the
particular contract between him and his vendee. It is undoubted
that the plaintiff prepared his hemp for the general market. This
would be necessary. One whose exposes goods for sale in the
market must have them in marketable form. The hemp in
question would not have been in that condition if it had not
been baled. the baling, therefore, was nothing peculiar to the
contract between the plaintiff and his vendee. It was precisely
the same contract that was made by every other seller of hemp,
engaged as was the plaintiff, and resulted simply in the transfer
of title to goods already prepared for the general market. The
method of bookkeeping and form of the account rendered is
not controlling as to the nature of the contract made. It is
conceded in the case tat a separate entry and charge would
have been made for the baling even if the plaintiff had not
been the one who baled the hemp but, instead, had received it
already baled from his vendor. This indicates of necessity tat the
mere fact of entering a separate item for the baling of the hemp
is formal rather than essential and in no sense indicates in this
case the real transaction between the parties. It is undisputable
that, if the plaintiff had brought the hemp in question already
baled, and that was the hemp the sale which formed the
subject of this controversy, then the plaintiff would have
performed no service for his vendee and could not, therefore,
lawfully charge for the rendition of such service. It is,
nevertheless, admitted that in spite of that fact he would still
have made the double entry in his invoice of sale to such
vendee. This demonstrates the nature of the transaction and
discloses, as we have already said, that the entry of a separate
charge for baling does not accurately describe the transaction
between the parties.
Section 139 [Act No. 1189] of the Internal Revenue Law provides
that:
There shall be paid by each merchant and manufacturer a tax
at the rate of one-third of one per centum on the gross value in
money of all goods, wares and merchandise sold, bartered or
exchanged in the Philippine Islands, and that this tax shall be
assessed on the actual selling price at which every such
merchant or manufacturer disposes of his commodities.

The operation of baling undoubtedly augments the value of the
goods. We agree that there can be no question that, if the value
of the hemp were not augmented to the amount of P1.75 per
bale by said operation, the purchaser would not pay that sum. If
one buys a bale of hemp at a stipulated price of P20, well
knowing that there is an agreement on his part, express or
implied, to pay an additional amount of P1.75 for that bale, he
considers the bale of hemp worth P21. 75. It is agreed, as we
have before stated, that hemp is sold in bales. Therefore, baling
is performed before the sale. The purchaser of hemp owes to the
seller nothing whatever by reason of their contract except the
value of the hemp delivered. That value, that sum which the
purchaser pays to the vendee, is the true selling price of the
hemp, and every item which enters into such price is a part of
such selling price. By force of the custom prevailing among
hemp dealers in the Philippine Islands, a purchaser of hemp in
the market, unless he expressly stipulates that it shall be delivered
to him in loose form, obligates himself to purchase and pay for
baled hemp. Wheher or not such agreement is express or
implied, whether it is actual or tacit, it has the same force. After
such an agreement has once been made by the purchaser, he
has no right to insists thereafter that the seller shall furnish him
with unbaled hemp. It is undoubted that the vendees, in the
sales referred to in the case at bar, would have no right, after
having made their contracts, to insists on the delivery of loose
hemp with the purpose in view themselves to perform the baling
and thus save 75 centavos per bale. It is unquestioned that the
seller, the plaintiff, would have stood upon his original contract
of sale, that is, the obligation to deliver baled hemp, and would
have forced his vendees to accept baled hemp, he himself
retaining among his own profits those which accrued from the
proceed of baling.
We are of the opinion that the judgment appealed from must be
affirmed, without special finding as to costs, and it is so ordered.
7. G.R. No. L-8506 August 31, 1956
CELESTINO CO & COMPANY, petitioner,
vs.
COLLECTOR OF INTERNAL REVENUE, respondent.
Office of the Solicitor General Ambrosio Padilla, Fisrt Assistant
Solicitor General Guillermo E. Torres and Solicitor Federico V. Sian
for respondent.
BENGZON, J.:
Appeal from a decision of the Court of Tax Appeals.
Celestino Co & Company is a duly registered general
copartnership doing business under the trade name of "Oriental
Sash Factory". From 1946 to 1951 it paid percentage taxes of 7
per cent on the gross receipts of its sash, door and window
factory, in accordance with section one hundred eighty-six of
the National Revenue Code imposing taxes on sale of
manufactured articles. However in 1952 it began to claim liability
only to the contractor's 3 per cent tax (instead of 7 per cent)
under section 191 of the same Code; and having failed to
convince the Bureau of Internal Revenue, it brought the matter
to the Court of Tax Appeals, where it also failed. Said the Court:
To support his contention that his client is an ordinary contractor .
. . counsel presented . . . duplicate copies of letters, sketches of
doors and windows and price quotations supposedly sent by the
manager of the Oriental Sash Factory to four customers who
allegedly made special orders to doors and window from the
said factory. The conclusion that counsel would like us to
deduce from these few exhibits is that the Oriental Sash Factory
does not manufacture ready-made doors, sash and windows for
the public but only upon special order of its select customers. . . .
I cannot believe that petitioner company would take, as in fact
it has taken, all the trouble and expense of registering a special
trade name for its sash business and then orders company
stationery carrying the bold print "Oriental Sash Factory
(Celestino Co & Company, Prop.) 926 Raon St. Quiapo, Manila,
Tel. No. 33076, Manufacturers of all kinds of doors, windows,
sashes, furniture, etc. used season-dried and kiln-dried lumber, of
the best quality workmanships" solely for the purpose of
supplying the needs for doors, windows and sash of its special
and limited customers. One ill note that petitioner has chosen for
its tradename and has offered itself to the public as a "Factory",
which means it is out to do business, in its chosen lines on a big
scale. As a general rule, sash factories receive orders for doors
and windows of special design only in particular cases but the
18
bulk of their sales is derived from a ready-made doors and
windows of standard sizes for the average home. Moreover, as
shown from the investigation of petitioner's book of accounts,
during the period from January 1, 1952 to September 30, 1952, it
sold sash, doors and windows worth P188,754.69. I find it difficult
to believe that this amount which runs to six figures was derived
by petitioner entirely from its few customers who made special
orders for these items.
Even if we were to believe petitioner's claim that it does not
manufacture ready-made sash, doors and windows for the
public and that it makes these articles only special order of its
customers, that does not make it a contractor within the purview
of section 191 of the national Internal Revenue Code. there are
no less than fifty occupations enumerated in the aforesaid
section of the national Internal Revenue Code subject to
percentage tax and after reading carefully each and every one
of them, we cannot find under which the business of
manufacturing sash, doors and windows upon special order of
customers fall under the category of "road, building, navigation,
artesian well, water workers and other construction work
contractors" are those who alter or repair buildings, structures,
streets, highways, sewers, street railways railroads logging roads,
electric lines or power lines, and includes any other work for the
construction, altering or repairing for which machinery driven by
mechanical power is used. (Payton vs. City of Anadardo 64 P. 2d
878, 880, 179 Okl. 68).
Having thus eliminated the feasibility off taxing petitioner as a
contractor under 191 of the national Internal Revenue Code, this
leaves us to decide the remaining issue whether or not petitioner
could be taxed with lesser strain and more accuracy as seller of
its manufactured articles under section 186 of the same code, as
the respondent Collector of Internal Revenue has in fact been
doing the Oriental Sash Factory was established in 1946.
The percentage tax imposed in section 191 of our Tax Code is
generally a tax on the sales of services, in contradiction with the
tax imposed in section 186 of the same Code which is a tax on
the original sales of articles by the manufacturer, producer or
importer. (Formilleza's Commentaries and Jurisprudence on the
National Internal Revenue Code, Vol. II, p. 744). The fact that the
articles sold are manufactured by the seller does not exchange
the contract from the purview of section 186 of the National
Internal Revenue Code as a sale of articles.
There was a strong dissent; but upon careful consideration of the
whole matter are inclines to accept the above statement of the
facts and the law. The important thing to remember is that
Celestino Co & Company habitually makes sash, windows and
doors, as it has represented in its stationery and advertisements
to the public. That it "manufactures" the same is practically
admitted by appellant itself. The fact that windows and doors
are made by it only when customers place their orders, does not
alter the nature of the establishment, for it is obvious that it only
accepted such orders as called for the employment of such
material-moulding, frames, panels-as it ordinarily manufactured
or was in a position habitually to manufacture.
Perhaps the following paragraph represents in brief the
appellant's position in this Court:
Since the petitioner, by clear proof of facts not disputed by the
respondent, manufacturers sash, windows and doors only for
special customers and upon their special orders and in
accordance with the desired specifications of the persons
ordering the same and not for the general market: since the
doors ordered by Don Toribio Teodoro & Sons, Inc., for instance,
are not in existence and which never would have existed but for
the order of the party desiring it; and since petitioner's
contractual relation with his customers is that of a contract for a
piece of work or since petitioner is engaged in the sale of
services, it follows that the petitioner should be taxed under
section 191 of the Tax Code and NOT under section 185 of the
same Code." (Appellant's brief, p. 11-12).
But the argument rests on a false foundation. Any builder or
homeowner, with sufficient money, may order windows or doors
of the kind manufactured by this appellant. Therefore it is not
true that it serves special customers only or confines its services to
them alone. And anyone who sees, and likes, the doors ordered
by Don Toribio Teodoro & Sons Inc. may purchase from appellant
doors of the same kind, provided he pays the price. Surely, the
appellant will not refuse, for it can easily duplicate or even mass-
produce the same doors-it is mechanically equipped to do so.

That the doors and windows must meet desired specifications is
neither here nor there. If these specifications do not happen to
be of the kind habitually manufactured by appellant — special
forms for sash, mouldings of panels — it would not accept the
order — and no sale is made. If they do, the transaction would
be no different from a purchasers of manufactured goods held is
stock for sale; they are bought because they meet the
specifications desired by the purchaser.
Nobody will say that when a sawmill cuts lumber in accordance
with the peculiar specifications of a customer-sizes not previously
held in stock for sale to the public-it thereby becomes an
employee or servant of the customer,1 not the seller of lumber.
The same consideration applies to this sash manufacturer.
The Oriental Sash Factory does nothing more than sell the goods
that it mass-produces or habitually makes; sash, panels,
mouldings, frames, cutting them to such sizes and combining
them in such forms as its customers may desire.
On the other hand, petitioner's idea of being a contractor doing
construction jobs is untenable. Nobody would regard the doing
of two window panels a construction work in common
parlance.2
Appellant invokes Article 1467 of the New Civil Code to bolster its
contention that in filing orders for windows and doors according
to specifications, it did not sell, but merely contracted for
particular pieces of work or "merely sold its services".
Said article reads as follows:
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 contract for a piece of
work.
It is at once apparent that the Oriental Sash Factory did not
merely sell its services to Don Toribio Teodoro & Co. (To take one
instance) because it also sold the materials. The truth of the
matter is that it sold materials ordinarily manufactured by it —
sash, panels, mouldings — to Teodoro & Co., although in such
form or combination as suited the fancy of the purchaser. Such
new form does not divest the Oriental Sash Factory of its
character 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, in the ordinary course
of its business, manufacture and keep on stock doors of the kind
sold to Teodoro, it could stock and/or probably had in stock the
sash, mouldings and panels it used therefor (some of them at
least).
In our opinion when this Factory accepts a job that requires the
use of extraordinary or additional equipment, or involves services
not generally performed by it-it thereby contracts for a piece of
work — filing special orders within the meaning of Article 1467.
The orders herein exhibited were not shown to be special. They
were merely orders for work — nothing is shown to call them
special requiring extraordinary service of the factory.
The thought occurs to us that if, as alleged-all the work of
appellant is only to fill orders previously made, such orders should
not be called special work, but regular work. Would a factory do
business performing only special, extraordinary or peculiar
merchandise?
Anyway, supposing for the moment that the transactions were
not sales, they were neither lease of services nor contract jobs by
a contractor. But as the doors and windows had been
admittedly "manufactured" by the Oriental Sash Factory, such
transactions could be, and should be taxed as "transfers" thereof
under section 186 of the National Revenue Code.
The appealed decision is consequently affirmed. So ordered.
19
8. G.R. No. 153033 June 23, 2005
DEL MONTE PHILIPPINES, INC., petitioner,
vs.
NAPOLEON N. ARAGONES, respondent.
DECISION
CARPIO-MORALES, J.:
The decision in the present Petition for Review on Certiorari
hinges on the nature of the contract denominated "Supply
Agreement"1 which was forged between Dynablock Enterprises,
represented by its Manager herein respondent Napoleon N.
Aragones (Aragones) and Mega-Engineering Services in joint
venture with WAFF Construction System Corporation (MEGA-
WAFF) — whether it was one of sale or for a piece of work.
On September 18, 1988, herein petitioner Del Monte Philippines
Inc. (DMPI) entered into an "Agreement"2 with MEGA-WAFF,
represented by "Managing Principal" Edilberto Garcia (Garcia),
whereby the latter undertook "the supply and installation of
modular pavement" at DMPI’s condiments warehouse at
Cagayan de Oro City within 60 calendar days from signing of
the agreement.
To source its supply of concrete blocks to be installed on the
pavement of the DMPI warehouse, MEGA-WAFF, as
CONTRACTOR represented by Garcia, entered into a "Supply
Agreement" with Dynablock Enterprises, represented by herein
respondent Aragones, as SUPPLIER, under the following terms:
1. ITEMS TO BE SUPPLIED
The SUPPLIER at its own expense shall provide the CONTRACTOR
with labor and all materials, equipment, tools and supplies
necessary and incident thereto, the required concrete blocks at
the contractor’s specified casting site, all in accordance with the
terms and conditions of this agreement, as well as the
requirements of the project specifications and provisions with
respect to the fabrication of concrete blocks.
2. PRICE
The CONTRACTOR will pay the supplier in consideration for the
full and total performance of the above undertaking, inclusive of
all applicable taxes, the unit price of ₱7.00 per supplied and
accepted piece. This price is based on the assumption that the
cost per bag of premium cement is ₱54.00 and aggregate at
₱95.00 per cu. m. Any increase of the above raw materials shall
be to the account of the contractor. All taxes shall be for the
account of the contractor.
3. PLANT/EQUIPMENT
3.1 - The machines for the fabrication/casting of the concrete
blocks, including all necessary equipment and accessories, shall
be provided by the SUPPLIER. The machines and equipment shall
be mobilized and made operational at the specified casting
location/stockpiling yard designated and provided by the
CONTRACTOR.
3.2 - The SUPPLIER shall ensure that all plant facilities/equipment
must, at all times, be accessible for inspection by the
representatives of the CONTRACTOR.
3.3 - The SUPPLIER shall ensure that the plant/casting machines
actual operating capacities shall not be lower than 75,000
pieces every month. If at any time within the life of this
agreement the plant/casting machines are proven to be
operating below the required minimum capacity as aforesaid,
the SUPPLIER shall be obliged to take the necessary actions to
upgrade the plant/casting machines and/or make the
necessary rehabilitation to increase the capacity to the required
level.
4. QUALITY OF MATERIALS
4.1 – The SUPPLIER guarantees that all materials supplied to the
CONTRACTOR shall meet the approved specifications (Attached
Annex "A") at 5,000 pci.
In this connection, the CONTRACTOR shall assign an inspector at
the casting site to ensure that all items supplied shall conform
with the approved standards.

4.2 – The CONTRACTOR may reject any finished product or
materials which do not pass the approved standards.
4.3 – There shall be a system of sampling the output of the plant
and/or each casting machine for testing in accordance with the
quality standards specified. Result of such sampling tests shall be
the basis for acceptance or rejection of the finished materials.
4.4 – Where the CONTRACTOR has provided materials to the
SUPPLIER to be incorporated into the SUPPLIER’s production, as in
the case of cement and aggregates, the cost of such materials
which becomes part of the rejected products due to faulty
batching/mixing/curing shall be for the account of the SUPPLIER.
5. MATERIALS AND OTHER PROVISIONS SUPPLIED BY THE
CONTRACTOR
5.1 - All the materials are for the account of the SUPPLIER. The
CONTRACTOR shall, however, provide all the cement and
aggregates requirement for the fabrication of the concrete
blocks, in which the corresponding cost shall be deducted from
the periodical proceeds due to the SUPPLIER.
5.2- The CONTRACTOR shall provide and make available to the
SUPPLIER the following provisions/facilities free of charge:
a) Casting/Fabrication Area
b) Stockpile Area
c) Warehouse for Cement
d) An all-weather working shed for workers
e) Night Watchers
5.3 – The CONTRACTOR shall arrange for the installation of
electrical and water facilities for the work in which the cost of
electricity and water actually consumed shall be borne by the
SUPPLIER.
5.4 – The SUPPLIER shall be responsible for all materials already
turned over by the CONTRACTOR at the casting area. The
responsibility, however, of the SUPPLIER on the finished products
ceases upon loading of the same to the CONTRACTOR’s truck
on way to the project site.
6. OBLIGATIONS OF SUPPLIER
6.1 – To fabricate and provide the required block machines in
such number adequate to cope up with time schedule.
6.2 – To provide concrete mixers: one (1) unit of two-bagger, and
two (2) units of one-bagger.
6.3 – To provide drying racks, measuring boxes, wheel borrows
and other necessary hand tools.
6.4 – To supervise and provide the required manpower for the
operation and production of concrete blocks.
6.5 – To undertake the following:
a) mixing and formulation of proper mix.
b) to consolidate, form and compress the blocks.
c) to unload the formed blocks into the drying racks.
d) after initial setting of blocks, to unload and arrange them to
wooden pallets.
e) curing of blocks as per approved standards.
7. OTHER OBLIGATIONS OF CONTRACTOR
7.1 - To provide tarpaulin or canvas or plastic sheets to cover
blocks during the seasoning stage.
7.2 - To provide forklift and wooden pallets.
8. EXCLUSIVITY OF PRODUCTION
20
8.1 - Effective upon the execution of this agreement, the
SUPPLIER binds itself to devote the entire plant/casting machines
and its accessories for the CONTRACTOR’s exclusive use and full
operation and production of the required concrete blocks for
the intended project.
8.2 – The SUPPLIER or his agents or representatives shall not,
directly or indirectly, enter into any contract, agreement,
concessions or transactions of whatever nature or kind with the
project owner or of its representative which will affect the rights,
interest or participation of the CONTRACTOR in regard to the
execution and accomplishment of the project.
8.3 – In case of violation of this exclusivity clause, utmost fidelity
and good faith being of the essence, the CONTRACTOR shall
have the right to demand reasonable amount of damages or
terminate this agreement upon due notice.
9. CONDITIONS OF PAYMENT
9.1 – Upon mobilization of the casting machines, equipments
accessories and making some operational at the casting area
by the SUPPLIER, the CONTRACTOR shall advance to the supplier
a downpayment or mobilization fund of TEN THOUSAND
(₱10,000.00) PESOS per machine. Said mobilization fee shall be
deducted from the proceeds of the SUPPLIER at two (2) equal
installments beginning at the first billing.
9.2 - The SUPPLIER shall present its billing every fifteen days based
on the below indicated payment schedule:
a) Billing from 1st/day/month to 15th day payable after fifteen
days from the date the billing is submitted.
b) Billing from the 16th day of the month to the 31st day of the
month, payable after fifteen days from the date the billing is
submitted.
10. EFFECTIVITY OF CONTRACT
This agreement shall be co-terminus with the terms of the
contract for the project and/or upon completion of all
requirements therefor; PROVIDED, However, that if for some
reason or another the production of the concrete blocks is
temporarily suspended, this agreement shall remain in force and
effective for a period of fifteen (15) days from the date of the
cessation of production. In case the said grace period expires
without the production having resumed, the CONTRACTOR shall
be obliged to pay reasonable compensation for the period of
suspension counted from the expiration of the said grace period.
11. PERFORMANCE BOND
The SUPPLIER shall post a SURETY/PERFORMANCE BOND in such
sums which may be deemed adequate to secure its faithful
compliance of the terms and conditions of this agreement.
12. PENALTY CLAUSE
In the event the SUPPLIER fails to meet the requirements
demanded in this agreement or when the SUPPLIER is in delay in
the performance of its obligation to the prejudice of the
CONTRACTOR, the SUPPLIER shall answer for the corresponding
damages equivalent to one-tenth (1/10) of the rated monthly
production capacity. (Emphasis and underscoring supplied).3
Aragones thereupon started assembling the machines for the
fabrication/casting of the concrete blocks which MEGA-WAFF
specified to be hexagonal shaped. MEGA-WAFF, through
Garcia, later directed Aragones to instead fabricate machines
for S shaped blocks.
As stated in the "Agreement" between DMPI and MEGA-WAFF,
the deadline for the installation of the pavement of the
warehouse was November 18, 1988, but it was not met. As
extended, the installation was finished on or about February 28,
1989, but MEGA-WAFF was, in accordance with its agreement
with DMPI, penalized for the delay, albeit at a reduced amount.
Aragones, having in the meantime gotten wind of MEGA-WAFF
& DMPI’s "Agreement," more particularly the imposition of a
penalty by DMPI for the delay in the completion of the
installation of the warehouse pavement, appealed to DMPI, by
letter of March 4, 1989,4 for leniency in the imposition of the
penalty which "would affect [him] also although [he] was not a

direct party to the contract," he inviting attention to the
"intricacy and enormity of the job involved."
Aragones later failed to collect from MEGA-WAFF the full
payment of the concrete blocks. He thus sent DMPI a letter
dated March 10, 1989,5 received by the latter on March 13,
1989,6 advising it of MEGA-WAFF’s unpaid obligation and
requesting it to earmark and withhold the amount of ₱188,652.65
"from [MEGA-WAFF’s] billing" to be paid directly to him "[l]est
Garcia collects and fails to pay [him]."
DMPI, in the meantime, verbally advised Aragones to secure a
court order directing it to withhold payment of the amount due
MEGA-WAFF for, in the absence of such court order, DMPI was
under its agreement with MEGA-WAFF obliged to release full
payment within 30 days from acceptance of the completed
work.
It appears that Aragones reiterated his request to DMPI for direct
payment to him, by letter of March 28, 1989.7 This was followed
by another letter dated April 6, 19898 which was received on
April 8, 19899 by DMPI, copy of which it referred to Garcia, by
letter of April 27, 1989,10 for his comment.
By letter of May 3, 198911 addressed to DMPI, Garcia,
commenting on Aragones’ April 6, 1989 letter, stated:
xxx
If there is somebody who have (sic) justifiable ground to
complain, it is MEGA-WAFF against Atty. Aragones for all the
miseries and embarrassment we had suffered due to the factors
attributable to Atty. Aragones Dynablock Enterprises.
For proper evaluation of things and to give both parties a fair
chance, we enclosed (sic) pertinent papers for your perusal.
As contractor and businessman, it is our firm policy not to take
advantage of other people and definitely not to renegade (sic)
from commitments/obligations.
We are willing to pay Atty. Aragones but based on the actual
accomplishment and amount only due to him as per
reconciliation furnished to him. (attached)
We sincerely hope that the facts we had presented will suffice,
and please accept our apology for whatever inconvenience it
has caused you and we pray that this matter of payments be
settled soon for the general benefit of all concerned.
x x x (Underscoring supplied).
It turned out that DMPI had, on or about April 6, 1989, released to
MEGA-WAFF a check dated April 4, 1989 in the amount of
₱157,863.77 representing DMPI’s balance of its obligation to
MEGA-WAFF.
Aragones was thus prompted to file on May 25, 1989 a
complaint12 for sum of money (₱188,652.65) with damages
against Garcia and/or MEGA-WAFF and DMPI before the
Regional Trial Court (RTC) of Lanao del Norte which was raffled
to Branch 5 thereof.
Aragones impleaded DMPI on the strength of Articles 1729 and
1467 of the Civil Code, he contending that it was liable to him
who put labor upon or furnished materials for a piece of work.
By his July 14, 1989 Answer,13 Garcia, without disputing the
amount being collected by Aragones, justified his "refusal to
satisfy [Aragones’] demand" by claiming that Aragones
defaulted in his obligation under the "Supply Agreement".
DMPI, by its Answer14 of June 25, 1989, pleaded that Aragones
had no cause of action against it as it had no privity of contract
with him; that it had already paid MEGA-WAFF the full amount
due it; and that it had not committed any actionable wrong
against Aragones.
Aragones later filed an Amended Complaint,15 with leave of
court, "to cure certain formal defects in the original complaint as
to the designation of parties . . ."
DMPI also later filed a Motion for Leave to File an Amended
Answer with Cross-Claim against Garcia and WAFF President
Francisco Castro16 which the trial court granted. In the
21
Amended Answer with Cross Claim,17 DMPI alleged, inter alia,
that "[i]n the event [Aragones] succeeds in obtaining a
judgment [against] DMPI, that said judgment should be charged
to and paid by the cross-defendants who have collected the full
contract price of the Agreement wherein [Aragones] claims the
rights of a subcontractor, plus consequential damages"
(underscoring in the original).
The trial court, upon the following issues:
a. Whether or not [Aragones] has still a collectible amount of
₱188,652.65 from defendants Garcia and Castro;
b. Whether or not defendant DMPI may also be held
accountable for this unpaid obligation of defendant
Garcia/MEGA-WAFF;
c. Whether or not the remaining balance of defendant DMPI
account payable is ₱188,652.65 insisted by defendant
Garcia/MEGA-WAFF or only ₱157,863.77 insisted by defendant
DMPI;
d. Whether or not the parties are entitled to damages pleaded;
e. Whether or not there was delay in the performance of the
respective obligations of either party or both;
f. Assuming that defendant DMPI is liable to plaintiff, whether or
not cross defendant Garcia/MEGA-WAFF shall be liable to DMPI
for reimbursement.18,
found for the plaintiff Aragones in light of the following
considerations:
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. However, the following shall not
prejudice the laborers, employees and furnishers of materials:
(1) Payments made by the owner of the contractor before they
are due;
(2) Renunciation by the contractor of any amount due him from
the owner.
This article is subject to the provisions of special laws (1597a)
(Article 1729, New Civil Code, [emphasis supplied]).
In interpreting the foregoing provision, the Supreme Court made
the following pertinent pronouncement:
"Article 1729 is promulgated to protect the laborers and the
materialmen from being taken advantage of by unscrupulous
contractors and from possible connivance between owners and
contractors." (Velasco vs. C.A. 95 Phils. (sic) (616-641).
"The legal issue that arises is whether or not GSIS is liable to the
petitioners for the cost of the materials and labor furnished by
them in construction of the 63 houses now owned by the GSIS
and for the construction of which no payment has been made
on the balance due to petitioners. Our considered view is and
we so hold that even in equity alone, GSIS should pay the
petitioners, without prejudice to its securing indemnity from Laigo
Realty Corp." (Velaso vs. C.A., 95 Phils. (sic) 616-641 [emphasis
and underscoring supplied]).
Moreover, anent this matter another decisional rule, says:
"Although there was no privity of contract between plaintiff and
defendant Joven, Inc., there is sufficient evidence showing that
he had really supplied stones and sands to said defendant and
also removed dirt and soil from its construction site. And it is this
main point which calls for resolution in the light of the provisions
of Art. 1729 of the New Civil Code, to determine whether or not
defendant corporation is liable for materials supplied and
services rendered by the plaintiff. It is quite clear that the owner
of the building, Joven Inc. is liable for materials and labor
furnished to the contractor "up to the amount owing from the
latter to the contractor" and to enforce such liability, the law
allows the person furnishing labor or materials to bring his right of
action directly against the owner." (Flores vs. Ruelo, CA 52 OG
850, [emphasis and underscoring supplied]).

Of course, while defendant DMPI is indeed directly liable to pay
plaintiff the cost of the construction material (modular paving
blocks) sought to be collected, this defendant has also a right of
recourse against cross defendant Garcia/MEGA-WAFF for
reimbursement of whatever amount it will be required here to
pay plaintiff, otherwise it would result in making defendant
Garcia/MEGA-WAFF enrich itself at the expense of defendant
DMPI. Additionally since the evidence on record shows that
plaintiff was compelled to litigate this matter if only to collect a
just and demandable obligation, the refusal of these defendants
to pay their obligation upon demand could not be justified in
law, thus both defendants should be condemned to pay
exemplary damages in the amount of ₱20,000.00 each and
attorney’s fees in the amount of ₱10,000.00 each, including the
cost of this suit. (Underscoring supplied)19
The trial court accordingly rendered judgment in favor of
Aragones by decision20 of September 11, 1992, the dispositive
portion of which reads:
WHEREFORE, the foregoing premises considered, the Court finds
that there is ample reason in law and preponderant evidence
on record to sustain the cause of action of plaintiff asserted
against both defendants, thus judgment is now rendered
granting the following relief:
a. That the defendants Garcia/MEGA-WAFF and DMPI shall be
liable to jointly and severally pay plaintiff the unpaid cost of the
modular paving blocks construction material which he delivered
to defendant DMPI priced at ₱188,652.65 and in the event that
defendant DMPI will be made to pay the full amount of this
particular obligation, the defendant Garcia MEGA-WAFF must
reimburse said defendant such amount;
b. That this unpaid obligation sought to be collected must bear
legal interest of 12% per annum from the time there was an
extrajudicial demand made by plaintiff last March 01, 1989; and
c. Lastly, these defendants are condemned that each pay
plaintiff ₱20,000.00 for exemplary damages and ₱10,000.00 for
attorney’s fees, including the cost of this suit.
SO ORDERED. (Emphasis and underscoring supplied).21
On appeal to the Court of Appeals (CA) by only DMPI, upon the
following assigned errors:
I obligation to defendant Garcia however, the former’s payment
THE TRIAL COURT ERRED IN HOLDING THAT PLAINTIFF DID NOT
INCUR DELAY AND VIOLATE ITS SUPPLY AGREEMENT WITH
DEFENDANT MEGA-WAFF;
II
THE TRIAL COURT ERRED IN HOLDING THAT DEFENDANT MEGA-
WAFF’S LIABILITY TO PLAINTIFF IS ₱188,652.65 BECAUSE AS
STIPULATED IN THE SUPPLY AGREEMENT, THE CEMENT AND
AGGREGATES USED IN THE MANUFACTURE OF THE BLOCKS WERE
ADVANCED BY MEGA-WAFF, THE COST OF WHICH WILL BE
DEDUCED FROM PLAINTIFF’S BILLINGS;
III.
THE TRIAL COURT ERRED IN HOLDING THAT DEFENDANT DMPI IS
ALSO LIABLE TO PLAINTIFF FOR ANY LIABILITY OF MEGA-WAFF
UNDER THE SUPPLY AGREEMENT;
IV.
ASSUMING EX GRATIA ARGUMENTI THAT DMPI IS LIABLE TO
PLAINTIFF'S AID LIABILITY CANNOT EXCEED THE SUM OF
₱157,863.77 BALANCE OF THE CONTRACT PRICE BETWEEN DMPI
AND MEGA-WAFF, LESS AGREED PENALTY FOR LATE DELIVERY AS
LIQUIDATED DAMAGES;
V.
THE TRIAL COURT ERRED IN HOLDING DEFENDANT DMPI LIABLE TO
PLAINTIFF FOR ATTORNEY’S FEES AND COSTS OF COLLECTION
CONSIDERING THAT IT HAD THE RIGHT TO RESIST PAYMENT
BECAUSE IT HAS NO PRIVITY OF CONTRACT BETWEEN PLAINTIFF
AND DEFENDANT MEGA-WAFF, (Underscoring supplied),22
22
the CA, by decision of September 19, 200123 subject of the
petition at bar, affirmed the trial court’s decision in this wise:
At this juncture it is well to note that the Supply Agreement was in
the nature of a contract for a piece of work. The distinction
between a contract of sale and one for work, labor and
materials is tested by inquiry whether the thing transferred is one
not in existence and which never would have existed but for the
order of the party desiring to acquire it, or a thing which would
have existed but has been the subject of sale to some other
persons even if the order had not been given. If the article
ordered by the purchaser is exactly such as the seller makes and
keeps on hand for sale to anyone, and no change or
modification of it is made at purchaser’s request, it is a contract
of sale even though it may be entirely made after, and in
consequence of the purchaser’s order for it. [Commissioner of
Internal Revenue vs. Engineering Equipment and Supply
Company, G.R. No. L-27044, June 30, 1975]
In the case at bench, the modular paving blocks are not exactly
what the plaintiff-appellee makes and keeps on hand for sale to
anyone, but with a modification that the same be "S" in shape.
Hence, the agreement falls within the ambit of Article 1467
making Article 1729 likewise applicable in the instant case.
As regard the issue of privity of contracts, We need to add only
that Article 1311 of the New Civil Code which DMPI invokes is not
applicable where the situation contemplated in Article 1729
obtains. The intention of the latter provision is to protect the
laborers and the 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 this provision, by way of
exception to the principle underlying Article 1311 between the
owner, on the one hand, and those who furnish labor and/or
materials, on the other. [Velasco vs. Court of Appeals, G.R. No. L-
47544, January 28, 1980]
As a matter of fact, insofar as the laborers are concerned, by a
special law, Act no. 3959, otherwise known as "An Act making it
obligatory for any person, company, firm or corporation owning
any work of any kind executed by contract to require the
contractor to furnish a bond guaranteeing the payment of the
laborers." they are given added protection by requiring
contractors to file bonds guaranteeing payment to them.
It is true that defendant-appellant had already fully paid its
to the latter does not extinguish its legal obligation to plaintiff-
appellee because such payment was irregular. The former
should have taken care not to pay to such contractor the full
amount which he is entitled to receive by virtue of the contract,
until he shall have shown that he first paid the wages of the
laborer employed in said work, by means of an affidavit made
and subscribed by said contractor before a notary public or
other officer authorized by law to administer oaths. There is no
showing that defendant appellant DMPI, as owner of the
building, complied with this requirement paid down in Act No.
3959. Hence, under Section 2 of said law, said defendant-
appellant is responsible, jointly and severally with the general
contractor, for the payment to plaintiff-appellee as sub-
contractor.
In this connection, while, indeed, Article 1729 refers to the
laborers and materialmen themselves, under the peculiar
circumstances of this case, it is but fair and just that plaintiff-
appellee be deemed as suing for the reimbursement of what
they have already paid the laborers and materialmen, as
otherwise he would be unduly prejudiced while either
defendant-appellant DMPI or defendant Garcia would enrich
themselves at plaintiff-appellee’s expense.
Be that as it may, We so hold that plaintiff-appellee has a lawful
claim against defendant-appellant DMPI, owner of the
constructed warehouse since it disregarded the notice of claim
of plaintiff-appellee, at a time when the amounts owing from
defendant-appellant DMPI to defendant GARCIA were more
than sufficient to pay for plaintiff-appellee’s claim. The least that
defendant-appellant should have done was to withhold
payment of the balance still owing to defendant Garcia as until
the claim of plaintiff-appellee was clarified. (Italics in the original;
emphasis and underscoring supplied).24

Its Motion for Reconsideration having been denied by the CA,
DMPI (hereinafter referred to as petitioner) lodged the present
Petition for Review on Certiorari, faulting the CA:
I.
. . . IN FINDING THAT DMPI WAS LIABLE TO RESPONDENT
ARAGONES FOR THE UNPAID PRICE OF THE CONCRETE PAVING
BLOCKS OWED BY MEGA-WAFF TO THE LATTER.
A. …IN FINDING THAT THE CONTRACT FOR THE SUPPLY OF THE
CONCRETE PAVING BLOCKS WAS NOT A SALE BUT ONE FOR A
PIECE OF WORK.
B. …IN HOLDING DMPI LIABLE BASED UPON THE PROVISIONS OF
ARTICLE 1729 OF THE CIVIL CODE AND ACT 3959, WHICH ARE
INAPPLICABLE.
II.
. . . IN FAILING TO AWARD MORAL DAMAGES, ATTORNEY’S FEES,
AND LITIGATION EXPENSES TO DMPI ON ITS COUNTERCLAIM.25
As reflected above, only petitioner appealed the trial court’s
decision. MEGA-WAFF did not appeal. The decision as to it then
is final and executory.
Petitioner, in the main, contends that while the CA correctly
stated the test in determining whether a transfer is a sale or one
for a piece of work, it failed to properly apply the same.
Applying the "nature of the object" test, petitioner insists that the
concrete block to be produced by Aragones under the "Supply
Agreement" represented by Garcia clearly shows that the
contract was one of sale, advancing the following reasons:
1.4.1 First, the concrete paving blocks were . . . capable of being
mass-produced
1.4.2 Second, save for the shape, there was here no
consideration of any special needs or requirements of DMPI
taken into account in the design or manufacture of the
concrete paving blocks.26
Petitioner cites the following ruling in Commissioner of Internal
Revenue v. Arnoldus Carpentry Shop, Inc.:27
x x x As can be clearly seen from the wordings of Art. 1467, what
determines whether the contract is one of work or of sale is
whether the thing has been "manufactured specially for the
customer and upon his special order." Thus, if the thing is
specially done on the order of another, this is a contract for a
piece of work. If, on the other hand, the thing is manufactured or
procured for the general market in the ordinary course of one’s
business, it is a contract of sale." (Italics and emphasis in the
original; underscoring supplied),28
and argues that "given habituality of business and the ability to
mass-produce the article ordered, that customers requires (sic)
certain specifications is of no moment, the transaction remains
one of sale."
Petitioner further cites, among other authorities, the following
ruling in Celestino Co. v. Collector of Internal Revenue:29
x x x The important thing to remember is that Celestino & Co.
habitually makes sash, windows and doors, as it has represented
in its stationery and advertisements to the public. That it
"manufactures" the same is practically admitted by appellant
itself. The fact that windows and doors are made by it only when
customers place their orders, does not alter the nature of the
establishment of such materials-moulding, frames, panels – as it
ordinarily manufactured or was in a position habitually to
manufacture.
xxx
That the doors and windows must meet desired specifications is
neither here nor there. If these specifications do not happen to
be of the kind habitually manufactured by appellant – special
forms of sash, mouldings, panels – it would not accept the order
– and no sale is made. If they do, the transaction would be no
different from purchaser of manufactured goods held in stock for
23
sale; they are bought because they meet specifications desired
by the purchaser.
Nobody will say that when a sawmill cuts lumber in accordance
with the peculiar specifications of a customer – sizes not
previously held in stock for sale to the public – it thereby
becomes an employee or servant of the customer, not the seller
of lumber. The same consideration applies to this sash
manufacturer.
The Oriental Sash Factory does nothing more than sell the goods
that it mass-produces or habitually makes – sash, panels,
mouldings, frames – cutting them to such sizes and combining
them in such forms as its customers may desire.
xxx
x x x Such new form does not divest the Oriental Sash Factory of
its character 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, in the
ordinary course of its business, manufacture and keep on stock
doors of the kind sold to Teodoro, it could and/or probably had
in stock the sash, mouldings and panels it used therefor (some of
them at least). (Emphasis in the original; underscoring supplied).
Petitioner concludes that as the "Supply Agreement" between
Aragones and MEGA-WAFF was one of sale to which it
(petitioner) was not privy, it cannot be held liable for any
obligation arising therefrom.
Dodging liability for the damages ("exemplary and . . . attorney’s
fees including the cost of this suit") awarded to Aragones,
petitioner claims that it was in fact the one which was injured by
Aragones’ filing in bad faith of a complaint bereft of cause of
action and "at best, [one] barred by full payment of the amount
due to MEGA-WAFF," on account of which it is entitled to moral
damages in the amount of ₱50,000.00 pursuant to Article 2217 of
the Civil Code, and to attorney’s fees and expenses of litigation
in the amount of at least ₱30,000.00 plus ₱2,500.00 per hearing
pursuant to Article 2208 of the Civil Code.
The petition fails.
The authorities petitioner cited in fact show that the nature of the
"Supply Agreement" between Aragones and MEGA-WAFF was
one for a piece of work.
Contrary to petitioner’s claim that "save for the shape, there was
no consideration of any special needs or requirements of DMPI
taken into account in the design or manufacture of the
concrete paving blocks," the "Supply Agreement" is replete with
specifications, terms or conditions showing that it was one for a
piece of work.
As reflected in the highlighted and underscored above-quoted
provisions of the "Supply Agreement," as well as other evidence
on record, the machines Aragones was obliged to fabricate
were those for casting the concrete blocks specified by Garcia.
Aragones did not have those kind of machines in his usual
business, hence, the special order.
While initially Garcia specified that the machines to be
fabricated should be for hexagon shaped blocks, he later asked
Aragones to instead fabricate machines for casting S shaped
blocks.
In accordance with the "Supply Agreement," Garcia furnished
the cement and aggregates for the fabrication of the blocks
and Aragones fabricated three (3) machines for S shaped blocks
which were delivered at the casting site on different dates. And
the "entire plant/casting machines and . . . . accessories" were,
as dictated under the "Supply Agreement," devoted by
Aragones "for [MEGA-WAFF]’s exclusive use.
There can be no gainsaying that the specifications/conditions in
the "Supply Agreement" and the admitted subsequent directive
of Garcia for Aragones to fabricate machines for casting S
shaped, instead of hexagon shaped blocks, show that the
concrete blocks were "manufactured specifically for, and upon
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 petitioner’s 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. x x x
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. CA30 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 this
provision, by way of exception to the principle underlying Article
1311 between the owner, on the one hand, and those who
furnish labor and/or materials, on the other.
In fine, a constructive vinculum or contractual privity was
created between petitioner and Aragones.
Respecting petitioner’s disclaimer of liability for damages and its
claim for moral damages, attorney’s fees and expenses of
litigation, the trial court’s disposition thereof, to wit:
. . . since the evidence on record shows that [Aragones] was
compelled to litigate this matter if only to collect a just and
demandable obligation, the refusal of [DMPI and MEGA-WAFF]
to pay their obligation upon demand could not be justified by
law, thus both… should be condemned to pay exemplary
damages in the amount of ₱20,000.00 each and attorney’s fees
in the amount of ₱10,000.00 each including… costs of this suit"
(underscoring supplied),
merits this Court’s approval.
Why should not petitioner be liable for damages. Aragones’
request, based on a provision of law, to petitioner for it to pay
directly to him his account receivable from MEGA-WAFF/Garcia
out of petitioner’s account payable to MEGA-WAFF was made
before petitioner’s obligation to it was due. Yet petitioner settled
such obligation to MEGA-WAFF on or about April 6, 1989 when it
released to it its check-payment. For petitioner to harp on its
undertaking under its "Agreement" with MEGA-WAFF to pay its full
obligation thereunder within 30 days from complete installation
of the pavement by MEGA-WAFF unless a court injunction could
be produced by Aragones is too shallow, under the facts and
circumstances surrounding the case, to merit consideration.
Petitioner’s referral for comment of Garcia, by letter of April 27,
1989, on Aragones’ April 6, 1989 reiterative letter for the
withholding of the release of so much amount to MEGA-WAFF
even after it (petitioner) had already released on or about April
6, 1989 its check-full payment to MEGA-WAFF reflects a futile
attempt to cover-up the apparent "connivance" between it and
contractor MEGA-WAFF to the prejudice of Aragones, leaving
him no option but to litigate.
24
As for the assailed citation by the appellate court of Act No.
3959 (which requires a person or firm owning any work of any
kind executed by contract to put up a bond guaranteeing the
payment of the laborers) as additional justification to hold
petitioner liable to Aragones, indeed, said Act had been
repealed in 1974 by P.D. No. 442 (The Labor Code of the
Philippines).
WHEREFORE, in light of the foregoing discussions, the petition is
hereby DENIED.
Costs against petitioner.
SO ORDERED.
9. G.R. No. 190375 February 8, 2012
TAN SHUY, Petitioner,
vs.
Spouses GUILLERMO MAULAWIN and PARING CARIÑO-
MAULAWIN, Respondents.
DECISION
SERENO, J.:
Before the Court is a Petition for Review on Certiorari filed under
Rule 45 of the Rules of Court, assailing the 31 July 2009 Decision
and 13 November 2009 Resolution of the Court of Appeals
(CA).1
Facts
Petitioner Tan Shuy is engaged in the business of buying copra
and corn in the Fourth District of Quezon Province. According to
Vicente Tan (Vicente), son of petitioner, whenever they would
buy copra or corn from crop sellers, they would prepare and
issue a pesada in their favor. A pesada is a document
containing details of the transaction, including the date of sale,
the weight of the crop delivered, the trucking cost, and the net
price of the crop. He then explained that when a pesada
contained the annotation "pd" on the total amount of the
purchase price, it meant that the crop delivered had already
been paid for by petitioner.2
Guillermo Maulawin (Guillermo), respondent in this case, is a
farmer-businessman engaged in the buying and selling of copra
and corn. On 10 July 1997, Tan Shuy extended a loan to
Guillermo in the amount of ₱ 420,000. In consideration thereof,
Guillermo obligated himself to pay the loan and to sell lucad or
copra to petitioner. Below is a reproduction of the contract:3
No2567 Lopez, Quezon July 10, 1997
Tinanggap ko kay G. TAN SHUY ang halagang
……………………………………………………………. (P420,000.00)
salaping Filipino. Inaako ko na isusulit sa kanya ang aking LUCAD
at babayaran ko ang nasabing halaga. Kung hindi ako
makasulit ng LUCAD o makabayad bago sumapit ang
……………………., 19 …… maaari niya akong ibigay sa may
kapangyarihan. Kung ang pagsisingilan ay makakarating sa
Juzgado ay sinasagutan ko ang lahat ng kaniyang gugol.
P………………………................ [Sgd. by respondent]
…………………………………….
Lagda
Most of the transactions involving Tan Shuy and Guillermo were
coursed through Elena Tan, daughter of petitioner. She served as
cashier in the business of Tan Shuy, who primarily prepared and
issued the pesada. In case of her absence, Vicente would issue
the pesada. He also helped his father in buying copra and
granting loans to customers (copra sellers). According to
Vicente, part of their agreement with Guillermo was that they
would put the annotation "sulong" on the pesada when partial
payment for the loan was made.
Petitioner alleged that despite repeated demands, Guillermo
remitted only ₱ 23,000 in August 1998 and ₱ 5,500 in October
1998, or a total of ₱ 28,500.4 He claimed that respondent had an
outstanding balance of ₱ 391,500. Thus, convinced that
Guillermo no longer had the intention to pay the loan, petitioner
brought the controversy to the Lupon Tagapamayapa. When no
settlement was reached, petitioner filed a Complaint before the
Regional Trial Court (RTC).

Respondent Guillermo countered that he had already paid the
subject loan in full. According to him, he continuously delivered
and sold copra to petitioner from April 1998 to April 1999.
Respondent said they had an oral arrangement that the net
proceeds thereof shall be applied as installment payments for
the loan. He alleged that his deliveries amounted to ₱ 420,537.68
worth of copra. To bolster his claim, he presented copies of
pesadas issued by Elena and Vicente. He pointed out that the
pesadas did not contain the notation "pd," which meant that
actual payment of the net proceeds from copra deliveries was
not given to him, but was instead applied as loan payment. He
averred that Tan Shuy filed a case against him, because
petitioner got mad at him for selling copra to other copra
buyers.
On 27 July 2007, the trial court issued a Decision, ruling that the
net proceeds from Guillermo’s copra deliveries – represented in
the pesadas, which did not bear the notation "pd" – should be
applied as installment payments for the loan. It gave weight and
credence to the pesadas, as their due execution and
authenticity was established by Elena and Vicente, children of
petitioner.5 However, the court did not credit the net proceeds
from 12 pesadas, as they were deliveries for corn and not copra.
According to the RTC, Guillermo himself testified that it was the
net proceeds from the copra deliveries that were to be applied
as installment payments for the loan. Thus, it ruled that the total
amount of ₱ 41,585.25, which corresponded to the net proceeds
from corn deliveries, should be deducted from the amount of ₱
420,537.68 claimed by Guillermo to be the total value of his
copra deliveries. Accordingly, the trial court found that
respondent had not made a full payment for the loan, as the
total creditable copra deliveries merely amounted to ₱
378,952.43, leaving a balance of ₱ 41,047.57 in his loan.6
On 31 July 2009, the CA issued its assailed Decision, which
affirmed the finding of the trial court. According to the appellate
court, petitioner could have easily belied the existence of the
pesadas and the purpose for which they were offered in
evidence by presenting his daughter Elena as witness; however,
he failed to do so. Thus, it gave credence to the testimony of
respondent Guillermo in that the net proceeds from the copra
deliveries were applied as installment payments for the loan.7
On 13 November 2009, the CA issued its assailed Resolution,
which denied the Motion for Reconsideration of petitioner.
Petitioner now assails before this Court the aforementioned
Decision and Resolution of the CA and presents the following
issues:
Issues
1. Whether the pesadas require authentication before they can
be admitted in evidence, and
2. Whether the delivery of copra amounted to installment
payments for the loan obtained by respondents from petitioner.
Discussion
As regards the first issue, petitioner asserts that the pesadas
should not have been admitted in evidence, since they were
private documents that were not duly authenticated.8 He
further contends that the pesadas were fabricated in order to
show that the goods delivered were copra and not corn. Finally,
he argues that five of the pesadas mentioned in the Formal Offer
of Evidence of respondent were not actually offered.9
With regard to the second issue, petitioner argues that
respondent undertook two separate obligations – (1) to pay for
the loan in cash and (2) to sell the latter’s lucad or copra. Since
their written agreement did not specifically provide for the
application of the net proceeds from the deliveries of copra for
the loan, petitioner contends that he cannot be compelled to
accept copra as payment for the loan. He emphasizes that the
pesadas did not specifically indicate that the net proceeds from
the copra deliveries were to be used as installment payments for
the loan. He also claims that respondent’s copra deliveries were
duly paid for in cash, and that the pesadas were in fact
documentary receipts for those payments.
We reiterate our ruling in a line of cases that the jurisdiction of this
Court, in cases brought before it from the CA, is limited to
reviewing or revising errors of law.10 Factual findings of courts,
when adopted and confirmed by the CA, are final and
conclusive on this Court except if unsupported by the evidence
25
on record.11 There is a question of fact when doubt arises as to
the truth or falsehood of facts; or when there is a need to
calibrate the whole evidence, considering mainly the credibility
of the witnesses and the probative weight thereof, the existence
and relevancy of specific surrounding circumstances, as well as
their relation to one another and to the whole, and the
probability of the situation.12
Here, a finding of fact is required in the ascertainment of the due
execution and authenticity of the pesadas, as well as the
determination of the true intention behind the parties’ oral
agreement on the application of the net proceeds from the
copra deliveries as installment payments for the loan.13 This
function was already exercised by the trial court and affirmed by
the CA. Below is a reproduction of the relevant portion of the
trial court’s Decision:
x x x The defendant further averred that if in the receipts or
"pesadas" issued by the plaintiff to those who delivered copras to
them there is a notation "pd" on the total amount of purchase
price of the copras, it means that said amount was actually paid
or given by the plaintiff or his daughter Elena Tan Shuy to the
seller of the copras. To prove his averments the defendant
presented as evidence two (2) receipts or pesadas issued by the
plaintiff to a certain "Cariño" (Exhibits "1" and "2" – defendant)
showing the notation "pd" on the total amount of the purchase
price for the copras. Such claim of the defendant was further
bolstered by the testimony of Apolinario Cariño which affirmed
that he also sell copras to the plaintiff Tan Shuy. He also added
that he incurred indebtedness to the plaintiff and whenever he
delivered copras the amount of the copras sold were applied as
payments to his loan. The witness also pointed out that the
plaintiff did not give any official receipts to those who transact
business with him (plaintiff). This Court gave weight and
credence to the documents receipts (pesadas) (Exhibits "3" to
"64") offered as evidence by the defendant which does not bear
the notation "pd" or paid on the total amount of the purchase
price of copras appearing therein. Although said "pesadas" were
private instrument their execution and authenticity were
established by the plaintiff’s daughter Elena Tan and sometimes
by plaintiff’s son Vicente Tan. x x x.14 (Emphasis supplied)
In affirming the finding of the RTC, the CA reasoned thus:
In his last assigned error, plaintiff-appellant herein impugns the
conclusion arrived at by the trial court, particularly with respect
to the giving of evidentiary value to Exhs. "3" to "64" by the latter
in order to prove the claim of defendant-appellee Guillermo
that he had fully paid the subject loan already.
The foregoing deserves scant consideration.
Here, plaintiff-appellant could have easily belied the existence
of Exhs. "3" to "64", the pesadas or receipts, and the purposes for
which they were offered in evidence by simply presenting his
daughter, Elena Tan Shuy, but no effort to do so was actually
done by the former given that scenario.15 (Emphasis supplied)
We found no clear showing that the trial court and the CA
committed reversible errors of law in giving credence and
according weight to the pesadas presented by respondents.
According to Rule 132, Section 20 of the Rules of Court, there are
two ways of proving the due execution and authenticity of a
private document, to wit:
SEC. 20. Proof of private document. – Before any private
document offered as authentic is received in evidence, its due
execution and authenticity must be proved either:
(a) By anyone who saw the document executed or written; or
(b) By evidence of the genuineness of the signature or
handwriting of the maker.
Any other private document need only be identified as that
which it is claimed to be. (21a)
As reproduced above, the trial court found that the due
execution and authenticity of the pesadas were "established by
the plaintiff’s daughter Elena Tan and sometimes by plaintiff’s
son Vicente Tan."16 The RTC said:
On cross-examination, [Vicente] reiterated that he and her [sic]
sister Elena Tan who acted as their cashier are helping their
father in their business of buying copras and mais. That witness

agreed that in the business of buying copra and mais of their
father, if a seller is selling copra, a pesada is being issued by his
sister. The pesada that she is preparing consists of the date when
the copra is being sold to the seller. Being familiar with the
penmanship of Elena Tan, the witness was shown a sample of
the pesada issued by his sister Elena Tan. x x x
xxx xxx xxx
x x x. He clarified that in the "pesada" (Exh. "1") prepared by
Elena and also in Exh "2", there appears on the lower right hand
portion of the said pesadas the letter "pd", the meaning of which
is to the effect that the seller of the copra has already been paid
during that day. He also confirmed the penmanship and
handwriting of his sister Ate Elena who acted as a cashier in the
pesada being shown to him. He was even made to compare
the xerox copies of the pesadas with the original copies
presented to him and affirmed that they are faithful
reproduction of the originals.17 (Emphasis supplied)
In any event, petitioner is already estopped from questioning the
due execution and authenticity of the pesadas.1âwphi1 As
found by the CA, Tan Shuy "could have easily belied the
existence of x x x the pesadas or receipts, and the purposes for
which they were offered in evidence by simply presenting his
daughter, Elena Tan Shuy, but no effort to do so was actually
done by the former given that scenario." The pesadas having
been admitted in evidence, with petitioner failing to timely
object thereto, these documents are already deemed sufficient
proof of the facts contained therein.18 We hereby uphold the
factual findings of the RTC, as affirmed by the CA, in that the
pesadas served as proof that the net proceeds from the copra
deliveries were used as installment payments for the debts of
respondents.19
Indeed, pursuant to Article 1232 of the Civil Code, an obligation
is extinguished by payment or performance. There is payment
when there is delivery of money or performance of an
obligation.20 Article 1245 of the Civil Code provides for a special
mode of payment called dation in payment (dación en pago).
There is dation in payment when property is alienated to the
creditor in satisfaction of a debt in money.21 Here, the debtor
delivers and transmits to the creditor the former’s ownership over
a thing as an accepted equivalent of the payment or
performance of an outstanding debt.22 In such cases, Article
1245 provides that the law on sales shall apply, since the
undertaking really partakes – in one sense – of the nature of sale;
that is, the creditor is really buying the thing or property of the
debtor, the payment for which is to be charged against the
debtor’s obligation.23 Dation in payment extinguishes the
obligation to the extent of the value of the thing delivered, either
as agreed upon by the parties or as may be proved, unless the
parties by agreement – express or implied, or by their silence –
consider the thing as equivalent to the obligation, in which case
the obligation is totally extinguished.24
The trial court found thus:
x x x [T]he preponderance of evidence is on the side of the
defendant. x x x The defendant explained that for the receipts
(pesadas) from April 1998 to April 1999 he only gets the
payments for trucking while the total amount which represent
the total purchase price for the copras that he delivered to the
plaintiff were all given to Elena Tan Shuy as installments for the
loan he owed to plaintiff. The defendant further averred that if in
the receipts or "pesadas" issued by the plaintiff to those who
delivered copras to them there is a notation "pd" on the total
amount of purchase price of the copras, it means that said
amount was actually paid or given by the plaintiff or his
daughter Elena Tan Shuy to the seller of the copras. To prove his
averments the defendant presented as evidence two (2)
receipts or pesadas issued by the plaintiff to a certain "Cariño"
(Exhibits "1" and "2" – defendant) showing the notation "pd" on
the total amount of the purchase price for the copras. Such
claim of the defendant was further bolstered by the testimony of
Apolinario Cariño which affirmed that he also sell [sic] copras to
the plaintiff Tan Shuy. He also added that he incurred
indebtedness to the plaintiff and whenever he delivered copras
the amount of the copras sold were applied as payments to his
loan. The witness also pointed out that the plaintiff did not give
any official receipts to those who transact business with him
(plaintiff). x x x
Be that it may, this Court cannot however subscribe to the
averments of the defendant that he has fully paid the amount of
26
his loan to the plaintiff from the proceeds of the copras he
delivered to the plaintiff as shown in the "pesadas" (Exhibits "3" to
"64"). Defendant claimed that based on the said "pesadas" he
has paid the total amount of P420,537.68 to the plaintiff.
However, this Court keenly noted that some of the "pesadas"
offered in evidence by the defendant were not for copras that
he delivered to the plaintiff but for "mais" (corn). The said
pesadas for mais or corn were the following, to wit:
xxx xxx xxx
To the mind of this Court the aforestated amount (P41,585.25)
which the above listed pesadas show as payment for mais or
corn delivered by the defendant to the plaintiff cannot be
claimed by the defendant to have been applied also as
payment to his loan with the plaintiff because he does not testify
on such fact. He even stressed during his testimony that it was
the proceeds from the copras that he delivered to the plaintiff
which will be applied as payments to his loan. x x x Thus, equity
dictates that the total amount of P41,585.25 which corresponds
to the payment for "mais" (corn) delivered by the plaintiff shall be
deducted from the total amount of P420,537.68 which
according to the defendant based on the pesadas (Exhibits "3"
to "64") that he presented as evidence, is the total amount of the
payment that he made for his loan to the plaintiff. x x x
xxx xxx xxx
Clearly from the foregoing, since the total amount of
defendant’s loan to the plaintiff is P420,000.00 and the evidence
on record shows that the actual amount of payment made by
the defendant from the proceeds of the copras he delivered to
the plaintiff is P378,952.43, the defendant is still indebted to the
plaintiff in the amount of P41,047.53 (sic) (P420,000.00-
P378,952.43).25 (Emphasis supplied)
In affirming this finding of fact by the trial court, the CA cited the
above-quoted portion of the RTC’s Decision and stated the
following:
In fact, as borne by the records on hand, herein defendant-
appellee Guillermo was able to describe and spell out the
contents of Exhs. "3" to "64" which were then prepared by Elena
Tan Shuy or sometimes by witness Vicente Tan. Herein
defendant-appellee Guillermo professed that since the release
of the subject loan was subject to the condition that he shall sell
his copras to the plaintiff-appellant, the former did not already
receive any money for the copras he delivered to the latter
starting April 1998 to April 1999. Hence, this Court can only
express its approval to the apt observation of the trial court on
this matter[.]
xxx xxx xxx
Notwithstanding the above, however, this Court fully agrees with
the pronouncement of the trial court that not all amounts
indicated in Exhs. "3" to "64" should be applied as payments to
the subject loan since several of which clearly indicated "mais"
deliveries on the part of defendant-appellee Guillermo instead
of "copras"[.]26 (Emphasis supplied)
The subsequent arrangement between Tan Shuy and Guillermo
can thus be considered as one in the nature of dation in
payment. There was partial payment every time Guillermo
delivered copra to petitioner, chose not to collect the net
proceeds of his copra deliveries, and instead applied the
collectible as installment payments for his loan from Tan Shuy.
We therefore uphold the findings of the trial court, as affirmed by
the CA, that the net proceeds from Guillermo’s copra deliveries
amounted to ₱ 378,952.43. With this partial payment, respondent
remains liable for the balance totaling ₱ 41,047.57.27
WHEREFORE the Petition is DENIED. The 31 July 2009 Decision and
13 November 2009 Resolution of the Court of Appeals in CA-G.R.
CV No. 90070 are hereby AFFIRMED.
SO ORDERED.

10. G.R. No. 175952 April 30, 2008
SOCIAL SECURITY SYSTEM, petitioner,
vs.
ATLANTIC GULF AND PACIFIC COMPANY OF MANILA, INC. and
SEMIRARA COAL CORPORATION, respondents.
DECISION
TINGA, J.:
In this Petition for Review on Certiorari1 under Rule 45 of the 1997
Rules of Civil Procedure, petitioner Republic of the Philippines
represented by the Social Security System (SSS) assails the
Decision2
dated 31 August 2006 of the Eleventh Division of the Court of
Appeals and its Resolution3 dated 19 December 2006 denying
petitioner’s Motion for Reconsideration.
Following are the antecedents culled from the decision of the
Court of Appeals:
On 13 February 2004, Atlantic Gulf and Pacific Company of
Manila, Inc. (AG & P) and Semirara Coal Corporation
(SEMIRARA) (collectively referred to as private respondents) filed
a complaint for specific performance and damages against SSS
before the Regional Trial Court of Batangas City, Branch 3,
docketed as Civil Case No. 7441. The complaint alleged that:
xxx
3. Sometime in 2000, plaintiff informed the SSS in writing of its
premiums and loan amortization delinquencies covering the
period from January 2000 to May 2000 amounting to P7.3 Million.
AG&P proposed to pay its said arrears by end of 2000, but
requested for the condonation of all penalties;
4. In turn, the defendant suggested two (2) options to AG&P,
either to pay by installment or through "dacion en pago";
5. AG&P chose to settle its obligation with the SSS under the
second option, that is through dacion en pago of its 5,999 sq. m.
property situated in Baguio City covered by TCT No. 3941 with an
appraised value of about P80.0 Million. SSS proposes to carve-
out from the said property an area sufficient to cover plaintiffs’
delinquencies. AG&P, however, is not amenable to subdivide its
Baguio property;
6. AG&P then made another proposal to SSS. This time, offering
as payment a portion of its 58,153 square meter-lot, situated in
F.S. Sebastian, Sto. Niño, San Pascual, Batangas. In addition, SSS
informed AG&P of its decision to include other companies within
the umbrella of DMCI group with arrearages with the SSS. In the
process of elimination of the companies belonging to the DMCI
group with possible outstanding obligation with the SSS, it was
only SEMIRARA which was left with outstanding delinquencies
with the SSS. Thus, SEMIRARA’s inclusion in the proposed
settlement through dacion en pago;
7. AG&P was, thereafter, directed by the defendant to submit
certain documents, such as Transfer Certificate of Title, Tax
Declaration covering the subject lot, and the proposed
subdivision plan, which requirements AG&P immediately
complied;
8. On April 4, 2001, SSS, in its Resolution No. 270, finally approved
AG&P’s proposal to settle its and SEMIRARA’s delinquencies
through dacion en pago, which as of March 31, 2001 amounted
to P29,261,902.45. Approval of AG&P’s proposal was
communicated to it by Ms. Aurora E.L. Ortega, Vice-President,
NCR-Group of the SSS in a letter dated April 23, 2001. … ;
9. As a result of the approval of the dacion en pago, posting of
contributions and loan amortization to individual member
accounts, both for AG&P and SEMIRARA employees, was
effected immediately thereafter. Thus, the benefits of the
member-employees of both companies were restored;
10. From the time of the approval of AG&P’s proposal up to the
present, AG&P is (sic) religiously remitting the premium
contributions and loan amortization of its member-employees to
the defendant;
27
11. To effect the property transfer, a Deed of Assignment has to
be executed between the plaintiffs and the defendant. Because
of SSS failure to come up with the required Deed of Assignment
to effect said transfer, AG&P prepared the draft and submitted it
to the Office of the Vice-President – NCR thru SSS Baclaran
Branch in July 2001. Unfortunately, the defendant failed to take
any action on said Deed of Assignment causing AG&P to re-
submit it to the same office of the Vice-President – NCR in
December 2001. From its original submission of the Deed of
Assignment in July 2001 to its re-submission in December 2001,
and SSS returning of the revised draft in February 28, 2003 AG&P
was consistent in its regular follow ups with SSS as to the status of
its submitted Deed of Assignment;
12. On February 28, 2003, or more than a year after the approval
of AG&P’s proposal, defendant sent the revised copy of the
Deed of Assignment to AG&P. However, the amount of the
plaintiffs’ obligation appearing in the approved Deed of
Assignment has ballooned from P29,261,902.45 to P40,846,610.64
allegedly because of the additional interests and penalty
charges assessed on plaintiffs’ outstanding obligation from April
2001, the date of approval of the proposal, up to January 2003;
13. AG&P demanded for the waiver and deletion of the
additional interests on the ground that delay in the approval of
the deed and the subsequent delay in conveyance of the
property in defendant’s name was solely attributable to the
defendant; hence, to charge plaintiffs with additional interests
and penalties amounting to more than P10,000,000.00, would be
unreasonable….;
14. AG&P and SEMIRARA maintain their willingness to settle their
alleged obligation of P29,261,902.45 to SSS. Defendant, however,
refused to accept the payment through dacion en pago, unless
plaintiffs also pay the additional interests and penalties being
charged;
xxx
Instead of filing an answer, SSS moved for the dismissal of the
complaint for lack of jurisdiction and non-exhaustion of
administrative remedies. In an order dated 28 July 2004, the trial
court granted SSS’s motion and dismissed private respondents’
complaint. The pertinent portions of the assailed order are as
follows:
Clearly, the motion is triggered on the issue of the court’s
jurisdiction over the subject matter and the nature of the instant
complaint. The length and breadth of the complaint as perused,
boils down to the questions of premium and loan amortization
delinquencies of the plaintiff, the option taken for the payment
of the same in favor of the defendant and the disagreement
between the parties as to the amount of the unpaid
contributions and salary loan repayments. In other words, said
questions are directly related to the collection of contributions
due the defendant. Republic Act No. 1161 as amended by R.A.
No. 8282, specifically provides that any dispute arising under the
said Act shall be cognizable by the Commission and any case
filed with respect thereto shall be heard by the Commission.
Hence, a procedural process mandated by a special law.
Observingly, the running dispute between plaintiffs and
defendant originated from the disagreement as to the amount
of unpaid contributions and the amount of the penalties
imposed appurtenant thereto. The alleged dacion en pago is
crystal clear manifestation of offering a special form of payment
which to the mind of the court will produce effect only upon
acceptance by the offeree and the observance and
compliance of the required formalities by the parties. No matter
in what form it may be, still the court believes that the subject
matter is the payment of contributions and the corresponding
penalties which are within the ambit of Sec. 5 (a) of R.A. No.
1161, as amended by R.A. No. 8282.
WHEREFORE, the Court having no jurisdiction over the subject
matter of the instant complaint, the motion is granted and this
case is hereby ordered DISMISSED.
SO ORDERED.4
Private respondents moved for the reconsideration of the order
but the same was denied in an Order dated 15 September 2004.
Consequently, private respondents filed an appeal before the
Court of Appeals alleging that the trial court erred in its

pronouncement that it had no jurisdiction over the subject
matter of the complaint and in granting the motion to dismiss.
The Court of Appeals reversed and set aside the trial court’s
challenged order, granted private respondents’ appeal and
ordered the trial court to proceed with the civil case with
dispatch. From the averments in their complaint, the appellate
court observed that private respondents are seeking to
implement the Deed of Assignment which they had drafted and
submitted to SSS sometime in July 2001, pursuant to SSS’s letter
addressed to AG& P dated 23 April 2001 approving AG&P and
SEMIRARA’S delinquencies through dacion en pago, which as of
31 March 2001, amounted to P29,261,902.45. The appellate court
thus held that the subject of the complaint is no longer the
payment of the premium and loan amortization delinquencies,
as well as the penalties appurtenant thereto, but the
enforcement of the dacion en pago pursuant to SSS Resolution
No. 270. The action then is one for specific performance which
case law holds is an action incapable of pecuniary estimation
falling under the jurisdiction of the Regional Trial Court.5
SSS filed a motion for reconsideration of the appellate court’s
decision but the same was denied in a Resolution dated 19
December 2006.
Now before the Court, SSS insists on the Social Security
Commission’s (the Commission) jurisdiction over the complaint
pursuant to Section 5 (a) of Republic Act (R.A.) No. 8282. SSS
maintains the Commission’s jurisdiction over all disputes arising
from the provisions of R.A. No. 1161, amended by R.A. No. 8282
to the exclusion of trial courts.6
The main issue in this case pertains to which body has jurisdiction
to entertain a controversy arising from the non-implementation
of a dacion en pago agreed upon by the parties as a means of
settlement of private respondents’ liabilities.
At the outset, it is well to restate the rule that what determines
the nature of the action as well as the tribunal or body which has
jurisdiction over the case are the allegations in the complaint.7
The pertinent provision of law detailing the jurisdiction of the
Commission is Section 5(a) of R.A. No. 1161, as amended by R.A.
No. 8282, otherwise known as the Social Security Act of 1997, to
wit:
SEC. 5. Settlement of Disputes.– (a) Any dispute arising under this
Act with respect to coverage, benefits, contributions and
penalties thereon or any other matter related thereto, shall be
cognizable by the Commission, and any case filed with respect
thereto shall be heard by the Commission, or any of its members,
or by hearing officers duly authorized by the Commission and
decided within the mandatory period of twenty (20) days after
the submission of the evidence. The filing, determination and
settlement of disputes shall be governed by the rules and
regulations promulgated by the Commission.
The law clearly vests upon the Commission jurisdiction over
"disputes arising under this Act with respect to coverage,
benefits, contributions and penalties thereon or any matter
related thereto..." Dispute is defined as "a conflict or
controversy."8
From the allegations of respondents’ complaint, it readily
appears that there is no longer any dispute with respect to
respondents’ accountability to the SSS. Respondents had, in
fact, admitted their delinquency and offered to settle them by
way of dacion en pago subsequently approved by the SSS in
Resolution No. 270-s. 2001. SSS stated in said resolution that "the
dacion en pago proposal of AG&P Co. of Manila and Semirara
Coals Corporation to pay their liabilities in the total amount of
P30,652,710.71 as of 31 March 2001 by offering their 5.8 ha.
property located in San Pascual, Batangas, be, as it is hereby,
approved.."9 This statement unequivocally evinces its consent to
the dacion en pago. In Vda. de Jayme v. Court of Appeals,10
the Court ruled significantly as follows:
Dacion en pago is the delivery and transmission of ownership of
a thing by the debtor to the creditor as an accepted equivalent
of the performance of the obligation. It is a special mode of
payment where the debtor offers another thing to the creditor
who accepts it as equivalent of payment of an outstanding
debt. The undertaking really partakes in one sense of the nature
of sale, that is the creditor is really buying the thing or property of
the debtor, payment for which is to be charged against the
28
debtor’s debt. As such, the essential elements of a contract of
sale, namely, consent, object certain, and cause or
consideration must be present. In its modern concept, what
actually takes place in dacion en pago is an objective novation
of the obligation where the thing offered as an accepted
equivalent of the performance of an obligation is considered as
the object of the contract of sale, while the debt is considered
as the purchase price. In any case, common consent is an
essential prerequisite, be it sale or novation, to have the effect of
totally extinguishing the debt or obligation.11
The controversy, instead, lies in the non-implementation of the
approved and agreed dacion en pago on the part of the SSS.
As such, respondents filed a suit to obtain its enforcement which
is, doubtless, a suit for specific performance and one incapable
of pecuniary estimation beyond the competence of the
Commission.12 Pertinently, the Court ruled in Singson v. Isabela
Sawmill,13 as follows:
In determining whether an action is one the subject matter of
which is not capable of pecuniary estimation this Court has
adopted the criterion of first ascertaining the nature of the
principal action or remedy sought. If it is primarily for the
recovery of a sum of money, the claim is considered capable of
pecuniary estimation, and whether jurisdiction in the municipal
courts or in the courts of first instance would depend on the
amount of the claim. However, where the basic issue is
something other than the right to recover a sum of money,
where the money claim is purely incidental to, or a
consequence of, the principal relief sought, this Court has
considered such actions as cases where the subject of the
litigation may not be estimated in terms of money, and are
cognizable exclusively by courts of first instance (now Regional
Trial Courts).14
In fine, the Court finds the decision of the Court of Appeals in
accord with law and jurisprudence.
WHEREFORE, the petition is DENIED. The Decision dated 31
August 2006 of the Court of Appeals Eleventh Division in CA-G.R.
CV No. 83775 AFFIRMED.
Let the case be remanded to the trial court for further
proceedings.
SO ORDERED.
11. G.R. No. 178902 April 21, 2010
MANUEL O. FUENTES and LETICIA L. FUENTES, Petitioners,
vs.
CONRADO G. ROCA, ANNABELLE R. JOSON, ROSE MARIE R.
CRISTOBAL and PILAR MALCAMPO, Respondents.
DECISION
ABAD, J.:
This case is about a husband’s sale of conjugal real property,
employing a challenged affidavit of consent from an estranged
wife. The buyers claim valid consent, loss of right to declare
nullity of sale, and prescription.
The Facts and the Case
Sabina Tarroza owned a titled 358-square meter lot in Canelar,
Zamboanga City. On October 11, 1982 she sold it to her son,
Tarciano T. Roca (Tarciano) under a deed of absolute sale.1 But
Tarciano did not for the meantime have the registered title
transferred to his name.
Six years later in 1988, Tarciano offered to sell the lot to
petitioners Manuel and Leticia Fuentes (the Fuentes spouses).
They arranged to meet at the office of Atty. Romulo D. Plagata
whom they asked to prepare the documents of sale. They later
signed an agreement to sell that Atty. Plagata prepared2 dated
April 29, 1988, which agreement expressly stated that it was to
take effect in six months.
The agreement required the Fuentes spouses to pay Tarciano a
down payment of ₱60,000.00 for the transfer of the lot’s title to
him. And, within six months, Tarciano was to clear the lot of
structures and occupants and secure the consent of his
estranged wife, Rosario Gabriel Roca (Rosario), to the sale. Upon

Tarciano’s compliance with these conditions, the Fuentes
spouses were to take possession of the lot and pay him an
additional ₱140,000.00 or ₱160,000.00, depending on whether or
not he succeeded in demolishing the house standing on it. If
Tarciano was unable to comply with these conditions, the
Fuentes spouses would become owners of the lot without any
further formality and payment.
The parties left their signed agreement with Atty. Plagata who
then worked on the other requirements of the sale. According to
the lawyer, he went to see Rosario in one of his trips to Manila
and had her sign an affidavit of consent.3 As soon as Tarciano
met the other conditions, Atty. Plagata notarized Rosario’s
affidavit in Zamboanga City. On January 11, 1989 Tarciano
executed a deed of absolute sale4 in favor of the Fuentes
spouses. They then paid him the additional ₱140,000.00
mentioned in their agreement. A new title was issued in the
name of the spouses5 who immediately constructed a building
on the lot. On January 28, 1990 Tarciano passed away, followed
by his wife Rosario who died nine months afterwards.
Eight years later in 1997, the children of Tarciano and Rosario,
namely, respondents Conrado G. Roca, Annabelle R. Joson, and
Rose Marie R. Cristobal, together with Tarciano’s sister, Pilar R.
Malcampo, represented by her son, John Paul M. Trinidad
(collectively, the Rocas), filed an action for annulment of sale
and reconveyance of the land against the Fuentes spouses
before the Regional Trial Court (RTC) of Zamboanga City in Civil
Case 4707. The Rocas claimed that the sale to the spouses was
void since Tarciano’s wife, Rosario, did not give her consent to it.
Her signature on the affidavit of consent had been forged. They
thus prayed that the property be reconveyed to them upon
reimbursement of the price that the Fuentes spouses paid
Tarciano.6
The spouses denied the Rocas’ allegations. They presented Atty.
Plagata who testified that he personally saw Rosario sign the
affidavit at her residence in Paco, Manila, on September 15,
1988. He admitted, however, that he notarized the document in
Zamboanga City four months later on January 11, 1989.7 All the
same, the Fuentes spouses pointed out that the claim of forgery
was personal to Rosario and she alone could invoke it. Besides,
the four-year prescriptive period for nullifying the sale on ground
of fraud had already lapsed.
Both the Rocas and the Fuentes spouses presented handwriting
experts at the trial. Comparing Rosario’s standard signature on
the affidavit with those on various documents she signed, the
Rocas’ expert testified that the signatures were not written by the
same person. Making the same comparison, the spouses’ expert
concluded that they were.8
On February 1, 2005 the RTC rendered judgment, dismissing the
case. It ruled that the action had already prescribed since the
ground cited by the Rocas for annulling the sale, forgery or
fraud, already prescribed under Article 1391 of the Civil Code
four years after its discovery. In this case, the Rocas may be
deemed to have notice of the fraud from the date the deed of
sale was registered with the Registry of Deeds and the new title
was issued. Here, the Rocas filed their action in 1997, almost nine
years after the title was issued to the Fuentes spouses on January
18, 1989.9
Moreover, the Rocas failed to present clear and convincing
evidence of the fraud. Mere variance in the signatures of Rosario
was not conclusive proof of forgery.10 The RTC ruled that,
although the Rocas presented a handwriting expert, the trial
court could not be bound by his opinion since the opposing
expert witness contradicted the same. Atty. Plagata’s testimony
remained technically unrebutted.11
Finally, the RTC noted that Atty. Plagata’s defective notarization
of the affidavit of consent did not invalidate the sale. The law
does not require spousal consent to be on the deed of sale to
be valid. Neither does the irregularity vitiate Rosario’s consent.
She personally signed the affidavit in the presence of Atty.
Plagata.12
On appeal, the Court of Appeals (CA) reversed the RTC
decision. The CA found sufficient evidence of forgery and did
not give credence to Atty. Plagata’s testimony that he saw
Rosario sign the document in Quezon City. Its jurat said
differently. Also, upon comparing the questioned signature with
the specimen signatures, the CA noted significant variance
between them. That Tarciano and Rosario had been living
29
separately for 30 years since 1958 also reinforced the conclusion
that her signature had been forged.
Since Tarciano and Rosario were married in 1950, the CA
concluded that their property relations were governed by the
Civil Code under which an action for annulment of sale on the
ground of lack of spousal consent may be brought by the wife
during the marriage within 10 years from the transaction.
Consequently, the action that the Rocas, her heirs, brought in
1997 fell within 10 years of the January 11, 1989 sale.
Considering, however, that the sale between the Fuentes
spouses and Tarciano was merely voidable, the CA held that its
annulment entitled the spouses to reimbursement of what they
paid him plus legal interest computed from the filing of the
complaint until actual payment. Since the Fuentes spouses were
also builders in good faith, they were entitled under Article 448 of
the Civil Code to payment of the value of the improvements
they introduced on the lot. The CA did not award damages in
favor of the Rocas and deleted the award of attorney’s fees to
the Fuentes spouses.13
Unsatisfied with the CA decision, the Fuentes spouses came to
this court by petition for review.14
The Issues Presented
The case presents the following issues:
1. Whether or not Rosario’s signature on the document of
consent to her husband Tarciano’s sale of their conjugal land to
the Fuentes spouses was forged;
2. Whether or not the Rocas’ action for the declaration of nullity
of that sale to the spouses already prescribed; and
3. Whether or not only Rosario, the wife whose consent was not
had, could bring the action to annul that sale.
The Court’s Rulings
First. The key issue in this case is whether or not Rosario’s signature
on the document of consent had been forged. For, if the
signature were genuine, the fact that she gave her consent to
her husband’s sale of the conjugal land would render the other
issues merely academic.
The CA found that Rosario’s signature had been forged. The CA
observed a marked difference between her signature on the
affidavit of consent15 and her specimen signatures.16 The CA
gave no weight to Atty. Plagata’s testimony that he saw Rosario
sign the document in Manila on September 15, 1988 since this
clashed with his declaration in the jurat that Rosario signed the
affidavit in Zamboanga City on January 11, 1989.
The Court agrees with the CA’s observation that Rosario’s
signature strokes on the affidavit appears heavy, deliberate, and
forced. Her specimen signatures, on the other hand, are
consistently of a lighter stroke and more fluid. The way the letters
"R" and "s" were written is also remarkably different. The variance
is obvious even to the untrained eye.
Significantly, Rosario’s specimen signatures were made at about
the time that she signed the supposed affidavit of consent. They
were, therefore, reliable standards for comparison. The Fuentes
spouses presented no evidence that Rosario suffered from any
illness or disease that accounted for the variance in her
signature when she signed the affidavit of consent. Notably,
Rosario had been living separately from Tarciano for 30 years
since 1958. And she resided so far away in Manila. It would have
been quite tempting for Tarciano to just forge her signature and
avoid the risk that she would not give her consent to the sale or
demand a stiff price for it.
What is more, Atty. Plagata admittedly falsified the jurat of the
affidavit of consent. That jurat declared that Rosario swore to the
document and signed it in Zamboanga City on January 11, 1989
when, as Atty. Plagata testified, she supposedly signed it about
four months earlier at her residence in Paco, Manila on
September 15, 1988. While a defective notarization will merely
strip the document of its public character and reduce it to a
private instrument, that falsified jurat, taken together with the
marks of forgery in the signature, dooms such document as proof
of Rosario’s consent to the sale of the land. That the Fuentes
spouses honestly relied on the notarized affidavit as proof of

Rosario’s consent does not matter. The sale is still void without an
authentic consent.
Second. Contrary to the ruling of the Court of Appeals, the law
that applies to this case is the Family Code, not the Civil Code.
Although Tarciano and Rosario got married in 1950, Tarciano sold
the conjugal property to the Fuentes spouses on January 11,
1989, a few months after the Family Code took effect on August
3, 1988.
When Tarciano married Rosario, the Civil Code put in place the
system of conjugal partnership of gains on their property
relations. While its Article 165 made Tarciano the sole
administrator of the conjugal partnership, Article 16617
prohibited him from selling commonly owned real property
without his wife’s consent. Still, if he sold the same without his
wife’s consent, the sale is not void but merely voidable. Article
173 gave Rosario the right to have the sale annulled during the
marriage within ten years from the date of the sale. Failing in
that, she or her heirs may demand, after dissolution of the
marriage, only the value of the property that Tarciano
fraudulently sold. Thus:
Art. 173. The wife may, during the marriage, and within ten years
from the transaction questioned, ask the courts for the
annulment of any contract of the husband entered into without
her consent, when such consent is required, or any act or
contract of the husband which tends to defraud her or impair
her interest in the conjugal partnership property. Should the wife
fail to exercise this right, she or her heirs, after the dissolution of
the marriage, may demand the value of property fraudulently
alienated by the husband.
But, as already stated, the Family Code took effect on August 3,
1988. Its Chapter 4 on Conjugal Partnership of Gains expressly
superseded Title VI, Book I of the Civil Code on Property Relations
Between Husband and Wife.18 Further, the Family Code
provisions were also made to apply to already existing conjugal
partnerships without prejudice to vested rights.19 Thus:
Art. 105. x x x The provisions of this Chapter shall also apply to
conjugal partnerships of gains already established between
spouses before the effectivity of this Code, without prejudice to
vested rights already acquired in accordance with the Civil
Code or other laws, as provided in Article 256. (n)
Consequently, when Tarciano sold the conjugal lot to the
Fuentes spouses on January 11, 1989, the law that governed the
disposal of that lot was already the Family Code.
In contrast to Article 173 of the Civil Code, Article 124 of the
Family Code does not provide a period within which the wife
who gave no consent may assail her husband’s sale of the real
property. It simply provides that without the other spouse’s
written consent or a court order allowing the sale, the same
would be void. Article 124 thus provides:
Art. 124. x x x In the event that one spouse is incapacitated or
otherwise unable to participate in the administration of the
conjugal properties, the other spouse may assume sole powers
of administration. These powers do not include the powers of
disposition or encumbrance which must have the authority of
the court or the written consent of the other spouse. In the
absence of such authority or consent, the disposition or
encumbrance shall be void. x x x
Under the provisions of the Civil Code governing contracts, a
void or inexistent contract has no force and effect from the very
beginning. And this rule applies to contracts that are declared
void by positive provision of law,20 as in the case of a sale of
conjugal property without the other spouse’s written consent. A
void contract is equivalent to nothing and is absolutely wanting
in civil effects. It cannot be validated either by ratification or
prescription.21
But, although a void contract has no legal effects even if no
action is taken to set it aside, when any of its terms have been
performed, an action to declare its inexistence is necessary to
allow restitution of what has been given under it.22 This action,
according to Article 1410 of the Civil Code does not prescribe.
Thus:
Art. 1410. The action or defense for the declaration of the
inexistence of a contract does not prescribe.
30
Here, the Rocas filed an action against the Fuentes spouses in
1997 for annulment of sale and reconveyance of the real
property that Tarciano sold without their mother’s (his wife’s)
written consent. The passage of time did not erode the right to
bring such an action.
Besides, even assuming that it is the Civil Code that applies to
the transaction as the CA held, Article 173 provides that the wife
may bring an action for annulment of sale on the ground of lack
of spousal consent during the marriage within 10 years from the
transaction. Consequently, the action that the Rocas, her heirs,
brought in 1997 fell within 10 years of the January 11, 1989 sale. It
did not yet prescribe.
The Fuentes spouses of course argue that the RTC nullified the
sale to them based on fraud and that, therefore, the applicable
prescriptive period should be that which applies to fraudulent
transactions, namely, four years from its discovery. Since notice
of the sale may be deemed given to the Rocas when it was
registered with the Registry of Deeds in 1989, their right of action
already prescribed in 1993.
But, if there had been a victim of fraud in this case, it would be
the Fuentes spouses in that they appeared to have agreed to
buy the property upon an honest belief that Rosario’s written
consent to the sale was genuine. They had four years then from
the time they learned that her signature had been forged within
which to file an action to annul the sale and get back their
money plus damages. They never exercised the right.
If, on the other hand, Rosario had agreed to sign the document
of consent upon a false representation that the property would
go to their children, not to strangers, and it turned out that this
was not the case, then she would have four years from the time
she discovered the fraud within which to file an action to
declare the sale void. But that is not the case here. Rosario was
not a victim of fraud or misrepresentation. Her consent was
simply not obtained at all. She lost nothing since the sale without
her written consent was void. Ultimately, the Rocas ground for
annulment is not forgery but the lack of written consent of their
mother to the sale. The forgery is merely evidence of lack of
consent.
Third. The Fuentes spouses point out that it was to Rosario, whose
consent was not obtained, that the law gave the right to bring
an action to declare void her husband’s sale of conjugal land.
But here, Rosario died in 1990, the year after the sale. Does this
mean that the right to have the sale declared void is forever
lost?
The answer is no. As stated above, that sale was void from the
beginning. Consequently, the land remained the property of
Tarciano and Rosario despite that sale. When the two died, they
passed on the ownership of the property to their heirs, namely,
the Rocas.23 As lawful owners, the Rocas had the right, under
Article 429 of the Civil Code, to exclude any person from its
enjoyment and disposal.1avvphi1
In fairness to the Fuentes spouses, however, they should be
entitled, among other things, to recover from Tarciano’s heirs,
the Rocas, the ₱200,000.00 that they paid him, with legal interest
until fully paid, chargeable against his estate.
Further, the Fuentes spouses appear to have acted in good faith
in entering the land and building improvements on it. Atty.
Plagata, whom the parties mutually entrusted with closing and
documenting the transaction, represented that he got Rosario’s
signature on the affidavit of consent. The Fuentes spouses had
no reason to believe that the lawyer had violated his commission
and his oath. They had no way of knowing that Rosario did not
come to Zamboanga to give her consent. There is no evidence
that they had a premonition that the requirement of consent
presented some difficulty. Indeed, they willingly made a 30
percent down payment on the selling price months earlier on
the assurance that it was forthcoming.
Further, the notarized document appears to have comforted the
Fuentes spouses that everything was already in order when
Tarciano executed a deed of absolute sale in their favor on
January 11, 1989. In fact, they paid the balance due him. And,
acting on the documents submitted to it, the Register of Deeds
of Zamboanga City issued a new title in the names of the
Fuentes spouses. It was only after all these had passed that the
spouses entered the property and built on it. He is deemed a
possessor in good faith, said Article 526 of the Civil Code, who is

not aware that there exists in his title or mode of acquisition any
flaw which invalidates it.
As possessor in good faith, the Fuentes spouses were under no
obligation to pay for their stay on the property prior to its legal
interruption by a final judgment against them.24 What is more,
they are entitled under Article 448 to indemnity for the
improvements they introduced into the property with a right of
retention until the reimbursement is made. Thus:
Art. 448. The owner of the land on which anything has been built,
sown or planted in good faith, shall have the right to appropriate
as his own the works, sowing or planting, after payment of the
indemnity provided for in Articles 546 and 548, or to oblige the
one who built or planted to pay the price of the land, and the
one who sowed, the proper rent. However, the builder or planter
cannot be obliged to buy the land if its value is considerably
more than that of the building or trees. In such case, he shall pay
reasonable rent, if the owner of the land does not choose to
appropriate the building or trees after proper indemnity. The
parties shall agree upon the terms of the lease and in case of
disagreement, the court shall fix the terms thereof. (361a)
The Rocas shall of course have the option, pursuant to Article 546
of the Civil Code,25 of indemnifying the Fuentes spouses for the
costs of the improvements or paying the increase in value which
the property may have acquired by reason of such
improvements.
WHEREFORE, the Court DENIES the petition and AFFIRMS WITH
MODIFICATION the decision of the Court of Appeals in CA-G.R.
CV 00531 dated February 27, 2007 as follows:
1. The deed of sale dated January 11, 1989 that Tarciano T. Roca
executed in favor of Manuel O. Fuentes, married to Leticia L.
Fuentes, as well as the Transfer Certificate of Title T-90,981 that
the Register of Deeds of Zamboanga City issued in the names of
the latter spouses pursuant to that deed of sale are DECLARED
void;
2. The Register of Deeds of Zamboanga City is DIRECTED to
reinstate Transfer Certificate of Title 3533 in the name of Tarciano
T. Roca, married to Rosario Gabriel;
3. Respondents Gonzalo G. Roca, Annabelle R. Joson, Rose
Marie R. Cristobal, and Pilar Malcampo are ORDERED to pay
petitioner spouses Manuel and Leticia Fuentes the ₱200,000.00
that the latter paid Tarciano T. Roca, with legal interest from
January 11, 1989 until fully paid, chargeable against his estate;
4. Respondents Gonzalo G. Roca, Annabelle R. Joson, Rose
Marie R. Cristobal, and Pilar Malcampo are further ORDERED, at
their option, to indemnify petitioner spouses Manuel and Leticia
Fuentes with their expenses for introducing useful improvements
on the subject land or pay the increase in value which it may
have acquired by reason of those improvements, with the
spouses entitled to the right of retention of the land until the
indemnity is made; and
5. The RTC of Zamboanga City from which this case originated is
DIRECTED to receive evidence and determine the amount of
indemnity to which petitioner spouses Manuel and Leticia
Fuentes are entitled.
SO ORDERED.
12. CONCEPCION R. AINZA, substituted by her legal heirs,
DR. NATIVIDAD A. TULIAO, CORAZON A. JALECO and
LILIA A. OLAYON, Petitioners, v. SPOUSES ANTONIO
PADUA and EUGENIA PADUA, Respondents.
DECISION
YNARES-SANTIAGO, J.:
This Petition for Review on Certiorari assails the February 24, 2004
decision of the Court of Appeals in CA-G.R. CV No. 70239,1 and
its September 28, 2004 resolution, denying reconsideration
thereof.2
In her complaint for partition of real property, annulment of titles
with damages,3 Concepcion Ainza (Concepcion) alleged that
respondent-spouses Eugenia (Eugenia) and Antonio Padua
(Antonio) owned a 216.40 sq. m. lot with an unfinished residential
house located at No. 85-A Durian corner Pajo Sts., Barangay
31
Quirino 2-C, Project 2, Quezon City, covered by Transfer
Certificate of Title No. 271935. Sometime in April 1987, she bought
one-half of an undivided portion of the property from her
daughter, Eugenia and the latter's husband, Antonio, for One
Hundred Thousand Pesos (P100,000.00).
No Deed of Absolute Sale was executed to evidence the
transaction, but cash payment was received by the
respondents, and ownership was transferred to Concepcion
through physical delivery to her attorney-in-fact and daughter,
Natividad Tuliao (Natividad). Concepcion authorized Natividad
and the latter's husband, Ceferino Tuliao (Ceferino) to occupy
the premises, and make improvements on the unfinished
building.
Thereafter, Concepcion alleged that without her consent,
respondents caused the subdivision of the property into three
portions and registered it in their names under TCT Nos. N-155122,
N-155123 and N-155124 in violation of the restrictions annotated
at the back of the title.
On the other hand, Antonio averred that he bought the property
in 1980 and introduced improvements thereon. Between 1989
and 1990, he and his wife, Eugenia, allowed Natividad and
Ceferino to occupy the premises temporarily. In 1994, they
caused the subdivision of the property and three (3) separate
titles were issued.
Thereafter, Antonio requested Natividad to vacate the premises
but the latter refused and claimed that Concepcion owned the
property. Antonio thus filed an ejectment suit on April 1, 1999.
Concepcion, represented by Natividad, also filed on May 4,
1999 a civil case for partition of real property and annulment of
titles with damages.
Antonio claimed that his wife, Eugenia, admitted that
Concepcion offered to buy one third (1/3) of the property who
gave her small amounts over several years which totaled
P100,000.00 by 1987 and for which she signed a receipt.
On January 9, 2001, the Regional Trial Court of Quezon City,
Branch 85, rendered judgment4 in favor of Concepcion, the
dispositive portion of which states:
WHEREFORE, premises considered, judgment is hereby rendered
in favor of the plaintiff and against the defendants and ordering:
1. the subdivision of the subject property between the said
plaintiff and defendants in equal shares with one-half of the
property, including the portion occupied by the spouses
Severino and Natividad Tuliao to be awarded to the plaintiff;
2. the cancellation of Transfer Certificates of Title Nos. N-155122,
N-155123, N-155124 of the Registry of Deeds of Quezon City;
3. the defendants to pay to the plaintiff P50,000.00 as attorney's
fees.
SO ORDERED.5
The trial court upheld the sale between Eugenia and
Concepcion. It ruled that the sale was consummated when both
contracting parties complied with their respective obligations.
Eugenia transferred possession by delivering the property to
Concepcion who in turn paid the purchase price. It also
declared that the transfer of the property did not violate the
Statute of Frauds because a fully executed contract does not fall
within its coverage.
On appeal by the respondents, the Court of Appeals reversed
the decision of the trial court, and declared the sale null and
void. Applying Article 124 of the Family Code, the Court of
Appeals ruled that since the subject property is conjugal, the
written consent of Antonio must be obtained for the sale to be
valid. It also ordered the spouses Padua to return the amount of
P100,000.00 to petitioners plus interest.6
The sole issue for resolution in this Petition for Review is whether
there was a valid contract of sale between Eugenia and
Concepcion.
A contract of sale is perfected by mere consent, upon a
meeting of the minds on the offer and the acceptance thereof
based on subject matter, price and terms of payment.7

In this case, there was a perfected contract of sale between
Eugenia and Concepcion. The records show that Eugenia
offered to sell a portion of the property to Concepcion, who
accepted the offer and agreed to pay P100,000.00 as
consideration. The contract of sale was consummated when
both parties fully complied with their respective obligations.
Eugenia delivered the property to Concepcion, who in turn,
paid Eugenia the price of One Hundred Thousand Pesos
(P100,000.00), as evidenced by the receipt which reads:
RECEIPT
Received the amount of ONE HUNDRED THOUSAND PESOS
(P100,000.00) as payment for the lot on 85-A Durian St., Project 2,
Quezon City, from Mrs. Concepcion R. Ainza, on April, 1987.
_______(Sgd.)______
Mrs.. Eugenia A. Padua8
The verbal contract of sale between Eugenia and Concepcion
did not violate the provisions of the Statute of Frauds that a
contract for the sale of real property shall be unenforceable
unless the contract or some note or memorandum of the sale is
in writing and subscribed by the party charged or his agent.9
When a verbal contract has been completed, executed or
partially consummated, as in this case, its enforceability will not
be barred by the Statute of Frauds, which applies only to an
executory agreement.10 Thus, where one party has performed
his obligation, oral evidence will be admitted to prove the
agreement.11
In the instant case, the oral contract of sale between Eugenia
and Concepcion was evidenced by a receipt signed by
Eugenia. Antonio also stated that his wife admitted to him that
she sold the property to Concepcion.
It is undisputed that the subject property was conjugal and sold
by Eugenia in April 1987 or prior to the effectivity of the Family
Code on August 3, 1988, Article 254 of which repealed Title V,
Book I of the Civil Code provisions on the property relations
between husband and wife. However, Article 256 thereof limited
its retroactive effect only to cases where it would not prejudice
or impair vested or acquired rights in accordance with the Civil
Code or other laws. In the case at bar, vested rights of
Concepcion will be impaired or prejudiced by the application of
the Family Code; hence, the provisions of the Civil Code should
be applied.
In Felipe v. Heirs of Aldon, et al.,12 the legal effect of a sale of
conjugal properties by the wife without the consent of the
husband was clarified, to wit:
The legal ground which deserves attention is the legal effect of a
sale of lands belonging to the conjugal partnership made by the
wife without the consent of the husband.
It is useful at this point to re-state some elementary rules: The
husband is the administrator of the conjugal partnership. (Art.
165, Civil Code) Subject to certain exceptions, the husband
cannot alienate or encumber any real property of the conjugal
partnership without the wife's consent. (Art. 166, Idem.) And the
wife cannot bind the conjugal partnership without the husband's
consent, except in cases provided by law. (Art. 172, Idem.).
In the instant case, Gimena, the wife, sold lands belonging to the
conjugal partnership without the consent of the husband and
the sale is not covered by the phrase "except in cases provided
by law." The Court of Appeals described the sale as "invalid" - a
term which is imprecise when used in relation to contracts
because the Civil Code uses specific names in designating
defective contracts, namely: rescissible (Arts. 1380 et seq.),
voidable (Arts. 1390 et seq.), unenforceable (Arts. 1403, et seq.),
and void or inexistent (Arts. 1409 et seq.).ςηαñrοblεš νιr†υαl lαω
lιbrαrÿ
The sale made by Gimena is certainly a defective contract but
of what category? The answer: it is a voidable contract.
According to Art. 1390 of the Civil Code, among the voidable
contracts are "[T]hose where one of the parties is incapable of
giving consent to the contract." (Par. 1.) In the instant case
Gimena had no capacity to give consent to the contract of
sale. The capacity to give consent belonged not even to the
husband alone but to both spouses.
32
The view that the contract made by Gimena is a voidable
contract is supported by the legal provision that contracts
entered by the husband without the consent of the wife when
such consent is required, are annullable at her instance during
the marriage and within ten years from the transaction
questioned. (Art. 173, Civil Code).
Gimena's contract is not rescissible for in such a contract all the
essential elements are untainted but Gimena's consent was
tainted. Neither can the contract be classified as unenforceable
because it does not fit any of those described in Art. 1403 of the
Civil Code. And finally, the contract cannot be void or inexistent
because it is not one of those mentioned in Art. 1409 of the Civil
Code. By process of elimination, it must perforce be a voidable
contract.
The voidable contract of Gimena was subject to annulment by
her husband only during the marriage because he was the
victim who had an interest in the contract. Gimena, who was the
party responsible for the defect, could not ask for its annulment.
Their children could not likewise seek the annulment of the
contract while the marriage subsisted because they merely had
an inchoate right to the lands sold. (Emphasis
supplied)ςrαlαωlιbrαrÿ
The consent of both Eugenia and Antonio is necessary for the
sale of the conjugal property to be valid. Antonio's consent
cannot be presumed.13 Except for the self-serving testimony of
petitioner Natividad, there is no evidence that Antonio
participated or consented to the sale of the conjugal property.
Eugenia alone is incapable of giving consent to the contract.
Therefore, in the absence of Antonio's consent, the disposition
made by Eugenia is voidable.14
The contract of sale between Eugenia and Concepcion being
an oral contract, the action to annul the same must be
commenced within six years from the time the right of action
accrued.15 Eugenia sold the property in April 1987 hence
Antonio should have asked the courts to annul the sale on or
before April 1993. No action was commenced by Antonio to
annul the sale, hence his right to seek its annulment was
extinguished by prescription.
Even assuming that the ten (10)-year prescriptive period under
Art. 173 should apply, Antonio is still barred from instituting an
action to annul the sale because since April 1987, more than ten
(10) years had already lapsed without any such action being
filed.
In sum, the sale of the conjugal property by Eugenia without the
consent of her husband is voidable. It is binding unless annulled.
Antonio failed to exercise his right to ask for the annulment within
the prescribed period, hence, he is now barred from questioning
the validity of the sale between his wife and Concepcion.
WHEREFORE, the petition is GRANTED. The decision dated
February 24, 2004 of the Court of Appeals in CA-G.R. CV No.
70239 and its resolution dated September 28, 2004 are REVERSED
and SET ASIDE. The decision dated January 9, 2001 of the
Regional Trial Court of Quezon City, Branch 85, in Civil Case No.
Q-99-37529, is REINSTATED.
SO ORDERED.
13. G.R. No. L-26107 November 27, 1981
THE HEIRS OF PEDRO MEDINA, represented by MARGARITA
MEDINA, petitioners vs. THE HON. COURT OF APPEALS, * RESTITUTA
ZURBITO VDA. DE MEDINA and ANDRES NAVARRO, JR.,
Respondents.
TEEHANKEE, Acting C.J.:chanrobles virtual law library
The Court upholds the decision of the Court of Appeals which
dismissed petitioners' complaint to recover from private
respondents a parcel of land situated in Oac, Milagros,
Masbate, together with the Spanish title (Titulo Real No. 349581)
covering it. The Court of Appeals correctly found that petitioners
failed to prove their claim that respondents were holding the
property on the basis of an express trust, the existence of which,
according to law and to established jurisprudence, cannot be
proven by mere parol evidence and cannot rest on vague and
uncertain evidence or on loose, equivocal or indefinite
declarations. Thus, assuming that there existed a constructive
trust in petitioners' favor, petitioners' action to recover the

property had been lost by both extinctive and acquisitive
prescription by virtue of respondents' continuous, uninterrupted
and unchallenged possession and occupancy of the premises
adversely and in the concept of owner-buyer for thirty-three
years, counted from the execution in 1924 of the deed of sale in
respondents' favor to the filing of the action in
1957.chanroblesvirtualawlibrary chanrobles virtual law library
The late Francisco Medina had eight children, namely, Gregorio,
Sotero, Narciso, Victorina, Simona, Carmen, Pedro and Hospicia,
all of whom are deceased. Petitioner Margarita Medina, who
filed the complaint on behalf of the heirs of Pedro Medina in the
Court of First Instance of Masbate, is the daughter of Pedro
Medina 1 who predeceased his father Francisco Medina.
Restituta Zurbito Vda. de Medina, herein private respondent,
and defendant in the trial court, is the widow of Sotero Medina
(brother of Pedro Medina); and Andres Navarro, Jr., her herein
co-respondent and co-defendant in the trial court, is her
grandson.chanroblesvirtualawlibrary chanrobles virtual law
library
On March 6, 1957, herein petitioners filed the complaint in the
trial court seeking to recover from herein respondents a parcel of
land situated in the sitio of Oac, municipality of Milagros,
province of Masbate, containing an area of 321.1156 hectares
and praying that respondents be ordered to deliver to them
possession and ownership thereof with accounting, damages
and costs and litigation expenses.chanroblesvirtualawlibrary
chanrobles virtual law library
Among others, the complaint alleged that petitioner Margarita
Medina as plaintiff inherited with her sister Ana Medina the said
parcel of land from their father Pedro Medina; that upon their
father's death, she and her sister Ana Medina being then minors
were placed under the care and custody of the spouses Sotero
Medina and Restituta Zurbito, as guardians of their persons and
property; that the land in dispute was placed under the
management of Sotero Medina as administrator thereof, and
upon Sotero's death under the management of his widow,
Restituta Zurbito; that she later discovered that the land in
question was surreptitiously declared for taxation purposes in the
name of Andres Navarro, Jr., grandson of Restituta Zurbito; that
said respondents as defendants had without color of title denied
petitioners' ownership and instead had claimed ownership
thereof since the year 1948 and exercised acts of possession and
ownership thereon to the exclusion of petitioners; that petitioners
had demanded that respondents vacate the premises and
deliver possession and ownership thereof, but the latter failed
and refused to do so; that respondent Andres Navarro, Jr. had
excavated soil from the land in question and sold the same to
the Provincial Government of Masbate without the knowledge
and consent of petitioners and appropriated the proceeds
thereof to his personal benefit to the damage and prejudice of
the plaintiff; and that respondent Restituta Zurbito Vda. de
Medina never rendered an accounting of the income of the
property in question in spite of their repeated demands and
instead appropriated all the income therefrom to her personal
use and benefit.chanroblesvirtualawlibrary chanrobles virtual law
library
Respondents as defendants alleged on the other hand that
petitioner Margarita and her deceased sister Ana were but
illegitimate children of Pedro Medina and for that reason did not
enjoy the status of recognized natural children, such that when
Pedro died intestate, Francisco Medina, Pedro's father who was
still living, succeeded to his properties; that upon the death of
Francisco, his children succeeded to his properties and the land
in dispute was adjudicated to Gregorio, Sotero, and Narciso
Medina; that in a deed of extrajudicial partition the land was
later adjudicated solely to Narciso Medina; that Narciso Medina
having become sole and exclusive owner of the land in question
by virtue of said partition sold the same to Restituta and her
husband Sotero Medina on June 29, 1924, as evidenced by a
deed of sale; that from that day, respondents had actually
possessed the land in question in the concept of owners,
publicly, openly and continuously and adversely against the
whole world so that whatever right, interest, title or participation
petitioners had or might have had in the property had been lost
by extinctive prescription and by virtue of the 33 years of
exclusive actual possession in the concept of owner of the
spouses Sotero and Restituta Medina who had thereby acquired
title thereto by acquisitive prescription, even granting arguendo
that petitioners had some title, right or interest over the
land.chanroblesvirtualawlibrary chanrobles virtual law library
33
After trial, judgment was rendered declaring petitioner Margarita
Medina with her co-heirs as the lawful owners of the land in
question; ordering respondents to deliver unto them the "titulo
real No. 349581 " and to restore to them the actual possession
thereof; and ordering respondents to pay them certain amounts
representing the produce of the land and attorneys' fees and
costs of litigation.chanroblesvirtualawlibrary chanrobles virtual
law library
Upon appeal, respondent Court of Appeals reversed the trial
court's decision and sustaining respondents' defenses of
prescription of action and acquisitive prescription, ordered the
dismissal of the complaint.chanroblesvirtualawlibrary chanrobles
virtual law library
Petitioners twice moved in vain to reconsider the appellate
court's adverse decision. Hence, this petition for review, which
we find to be without merit.chanroblesvirtualawlibrary
chanrobles virtual law library
At the outset, it should be mentioned that the avowed status of
petitioner Margarita Medina and her deceased sister Ana
Medina as "legitimate daughters" of Pedro Medina, which
assertion had been vigorously objected both in the trial and
appellate courts by respondents (who challenged the trial
court's admission of petitioners' amended reply asserting their
status as "legitimate children," changing and amending the
statement in their original reply that they were "acknowledged
natural daughters" of their father Pedro Medina and recognized
by their "deceased natural grandparents" 2), was determined
positively in favor of petitioners by the Court of Appeals which
ruled that there was sufficient 'evidence upholding the trial
court's finding on their legitimate filiation based on the
testimonies of witnesses who testified on the fact of the marriage
of their parents Pedro Medina and Rosario Ramirez. Said findings
of fact may no longer be disturbed in these proceedings, and at
any rate do not affect the disposition of the
case.chanroblesvirtualawlibrary chanrobles virtual law library
The decisive issue at bar, bearing in mind the legitimate filiation
of petitioners, and thus the would be validity of their claim to the
land, is simply whether or not petitioners' action for recovery
thereof has been barred by
prescription.chanroblesvirtualawlibrary chanrobles virtual law
library
The validity of respondents' defense of prescription in turn rests
upon whether or not an express trust over the property in
litigation has been constituted by petitioners' father Pedro
Medina (who predeceased his father Francisco Medina) upon
his brother Sotero and Sotero's wife Restituta Zurbito for the
benefit of his children, petitioner Margarita Medina and her
deceased sister Ana Medina and the latter's
heirs.chanroblesvirtualawlibrary chanrobles virtual law library
As provided by our Civil Code, "Trusts are either express or
implied. Express trusts are created by the intention of the trusts
are of the parties. Implied trusts come into being by operation of
law." (Art. 1441) "No express trusts concerning an immovable or
any interest therein may be proven by parol evidence." (Art.
1443) "An implied trust may be proven by oral evidence." (Art.
1457) 3chanrobles virtual law library
Applied to the case at bar, if an express trust had been
constituted upon the occupancy of the property by respondents
in favor of the petitioners, prescription of action would not lie, the
basis of the rule being that the possession of the trustee is not
adverse to the beneficiary. But if there were merely a
constructive or implied trust, the action to recover may be
barred by prescription of action or by acquisitive prescription by
virtue of respondents' continuous and adverse possession of the
property in the concept of owner-buyer for thirty-three
years.chanroblesvirtualawlibrary chanrobles virtual law library
The appellate court correctly held that the facts and evidence
of record do not support petitioners' claim of the creation of an
express trust and imprescriptibility of their claim, ruling squarely
that "the facts do not warrant the conclusion that an express
trust was created over the land in dispute. Although no
particular words are required for the creation of an express trust,
a clear intention to create a trust must be shown (Article 1444,
Civil Code of the Philippines); and the proof of fiduciary
relationship must be clear and convincing g (Quiogue vs.
Arambulo, 45 O. G. 305; Espinosa vs. Tumulak, CA-G. R. No.
30075-R, June 26, 1964). Express trusts are those intentionally

created by the direct and positive act of the trustor, by some
writing, deed or win, or oral declaration (54 Am. Jur. 33-34). The
creation of an express trust must be manifested with reasonable
certainty and cannot be inferred from loose and vague
declarations or from ambiguous circumstances susceptible of
other interpretations (54 Am. Jur. 48-49). Nowhere in the record is
there any evidence, and the plaintiffs do not even raise the
pretention, that the original owner of the property Pedro
Medina, father of plaintiff Margarita Medina, appointed,
designated or constituted Sotero Medina (the husband of
defendant Restituta Zurbito Medina) as the trustee of the land in
dispute. Plaintiffs' contention that there was an express trust must,
therefore, fail." 4chanrobles virtual law library
Concretely, petitioners anchor their claim of an express trust on
the following circumstances: (1) respondents' possession of the
titulo real covering the land; (2) the deed of partition of the
estate of the common predecessor Francisco Medina dated
February 3, 1924, adjudicating the land solely to his son Narciso
Medina; (3) the deed of sale of the land dated June 29, 1924,
executed by Narciso Medina in favor of his brother Sotero
Medina; and (4) the testimony of respondent Restituta Zurbito
Vda. de Medina (Sotero's wife) to the effect that her husband
used to "administer" and then later on, she herself "administered"
the land.chanroblesvirtualawlibrary chanrobles virtual law library
These circumstances do not make out the creation of an express
trust. Respondents' possession of the Spanish title issued in the
late Pedro Medina's name may just be the consequence of the
sale of the land by Narciso (to whom it had been adjudicated in
the partition) to the spouses Sotero Medina and Restituta Zurbito
on June 29, 1924 and is by no means an evidence of an express
trust created for the benefit of petitioners. Spanish titles are
defeasible, and "although evidences of ownership . ... may be
lost through prescription." 5 Neither is the deed of partition
(which apparently excluded Pedro Medina) entered into earlier
any indication of an express creation of a trust. In fact, these
documents are adverse to petitioners' cause, and are evidences
of transfer of ownership of the land from one owner/owners to
another or others and they in fact negate the creation or
existence of an express trust.chanroblesvirtualawlibrary
chanrobles virtual law library
Neither does the testimony of Sotero's widow, Restituta Zurbito, to
the effect that her husband and then later she herself
"administered" the land support petitioners' claim of an express
trust. There is no showing that the term "administration" as used
by said respondent in her testimony is by reason of an
appointment as such on behalf of another owner or beneficiary,
such as to support the existence of an express trust. On the
contrary, it appears clear from the context of her testimony that
her use of the term "administer" was in the concept of an owner-
buyer "administering" and managing his/her property,
chanrobles virtual law library
Thus, petitioner cite her following testimony:
Q. In what manner did you possess this property from the
time you bought it from Narciso Medina? - A. First my husband
was the one who administered the property and then later on, I
administered there. (T.s.n., Dec. 4, 1963, p. 119.)
But continuing her testimony, she clearly declared, as follows:
Q. How did you hold the property? In what manner?
chanrobles virtual law library
A. Because I bought it, I was the one possessing
it.chanroblesvirtualawlibrary chanrobles virtual law library
Q. From the date of this document which is June 1924,
(Exhibit 2) has there been anybody who disturbed you in your
possession of your property? chanrobles virtual law library
A. No sir, we were not disturbed there. 6
The appellate court thus likewise correctly held, absent the
existence of an express trust, that "The legal construction most
favorable to (petitioners) that can be impressed upon the facts
of the case is that a constructive or implied trust was created by
operation of law upon the property in question," 7 but petitioners'
cause of action had prescribed upon the lapse of the ten-year
period of acquisitive prescription provided by the then
applicable statute (section 41 of Act 190) 8for unregistered lands
34
such as the land herein involved.chanroblesvirtualawlibrary
chanrobles virtual law library
As found by the Court of Appeals, the land was sold to Sotero
Medina on June 29, 1924 from which date Sotero and his wife
took open, public, continuous and adverse possession of the
land in the concept of owner. In 1957 when the present action
was filed, thirty-three (33) years, much more than the 10-year
statutory period for acquisitive prescription, had already
elapsed.chanroblesvirtualawlibrary chanrobles virtual law library
In addition, the appellate court further held that petitioners'
action to recover was likewise time-barred, pointing out that "the
ten-year period under the statute of limitation within which
plaintiffs could file an action for recovery of real property
commenced to run, in 1933 when plaintiff Margarita Medina was
informed that the land in dispute belonged to her father Pedro
Medina, for in that year she could have brought an action for
reconveyance. The period of prescription commences to run
from the day the action may be brought (Article 1150, Civil
Code of the Philippines), and in an action based on fraud, as is
the basis of the present action, the period of prescription begins
from the discovery of the fraud (IV Tolentino's Civil Code of the
Philippines 40, citing Anuran vs. Aquino, 38 Phil. 29 and Solatorio
vs. Solatorio, 52 Phil. 444); the reasons a party might have had for
not immediately taking judicial action is immaterial and does not
stop the running of the period (Lamko vs. Dioso No. L-6923,
October 31, 1955)." 9Respondent court had referred to such non-
action as "perhaps in deference to the defendants who had
raised and clothed her." 10chanrobles virtual law library
The similar case of Cuaycong vs. Cuaycong, 11where the Court,
after finding the non-existence of an express trust applying
Article 1443 of the Civil Code which bars parol evidence in
proving the alleged creation of an express trust over
immovables, held that "even assuming the alleged trust to be an
implied one, the right alleged by plaintiffs would have already
prescribed since starting in 1936 when the trustor died, plaintiffs
had already been allegedly refused by the aforesaid
defendants in their demands over the land, and the compliance
filed only in 1961 more than the 1 year period of prescription for
the enforcement of such rights under the trust. It is settled that
the right to enforce an implied trust in one's favor prescribes in.
ten (10) years. And even under the Code of Civil Procedure,
action to recover real property such as lands prescribes in ten
years (Sec. 40, Act 190)," fully supports the correctness of the
decision under review.chanroblesvirtualawlibrary chanrobles
virtual law library
ACCORDINGLY, the appealed decision is hereby affirmed.
14. G.R. No. 109355 October 29, 1999
SERAFIN MODINA, petitioner,
vs.
COURT OF APPEALS AND ERNESTO HONTARCIEGO, PAUL
FIGUEROA, TEODORO HIPALLA AND RAMON CHIANG, MERLINDA
CHIANG, respondents.
PURISIMA, J.:
At bar is a Petition for Review on Certiorari assailing the decision
of the Court of Appeals in CA G.R. CV No. 26051 affirming the
decision of the trial court in the case, entitled "Serafin Modina vs.
Ernesto Hontarciego, Paulino Figueroa and Ramon Chiang vs.
Merlinda Plana Chiang, intervenors", which declared as void and
inexistent the deed of definite sale dated December 17, 1975 as
well as the Certificates of Title Nos. T-86912, T-86913, T-86914 in
the name of Ramon Chiang.1âwphi1.nêt
The facts that matter are as follows:
The parcels of land in question are those under the name of
Ramon Chiang (hereinafter referred to as CHIANG) covered by
TCT Nos. T-86912, T-86913, and T-86914. He theorized that subject
properties were sold to him by his wife, Merlinda Plana Chiang
(hereinafter referred to as MERLINDA), as evidenced by a Deed
of Absolute Sale dated December 17, 1975, 1 and were
subsequently sold by CHIANG to the petitioner Serafin Modina
(MODINA), as shown by the Deeds of Sale, dated August 3, 1979
and August 24, 1979, respectively.
MODINA brought a Complaint for Recovery of Possession with
Damages against the private respondents, Ernesto Hontarciego,

Paul Figueroa and Teodoro Hipalla, docketed as Civil Case No.
13935 before the Regional Trial Court of Iloilo City.
Upon learning the institution of the said case, MERLINDA
presented a Complaint-in-intervention, seeking the declaration
of nullity of the Deed of Sale between her husband and MODINA
on the ground that the titles of the parcels of land in dispute
were never legally transferred to her husband. Fraudulent acts
were allegedly employed by him to obtain a Torrens Title in his
favor. However, she confirmed the validity of the lease contracts
with the other private respondents.
MERLINDA also admitted that the said parcels of land were those
ordered sold by Branch 2 of the then Court of First Instance of
Iloilo in Special Proceeding No. 2469 in "Intestate Estate of Nelson
Plana" where she was appointed as the administratix, being the
widow of the deceased, her first husband. An Authority to Sell
was issued by the said Probate Court for the sale of the same
properties. 2
After due hearing, the Trial Court decided in favor of MERLINDA,
disposing thus:
WHEREFORE, judgment is hereby rendered (1) declaring as void
and inexistent the sale of Lots 10063, 10088, 10085 and 10089 of
the Cadastral Survey of Sta. Barbara by Merlinda Plana in favor
of Ramon Chiang as evidenced by the deed of definite sale
dated December 17, 1975 (Exhibits "H"; "3"-Chiang; "9" Intervenor)
as well as the Certificates of Title Nos. T-86912, T-86913, T-86914
and T-86915 in the name of Ramon Chiang; (2) declaring as void
and inexistent the sale of the same properties by Ramon Chiang
in favor of Serafin Modina as evidenced by the deeds of sale
(Exhibits "A", "B", "6" — Chiang and "7" — Chiang) dated August 3,
and 24, 1979, as well as Certificates of Title Nos. T-102631, 102630,
102632 and 102890 in the name of Serafin Modina; (3) ordering
the Register of Deeds of Iloilo to cancel said certificates of title in
the names of Ramon Chiang and Serafin Modina and to
reinstate the Certificates of Title Nos. T-57960, T-57962, T-57963
and T-57864 in the name of Nelson Plana; (4) ordering Serafin
Modina to vacate and restore possession of the lots in question
to Merlinda Plana Chiang; (5) ordering Ramon Chiang to
restitute and pay to Serafin Modina the sum of P145,800.00 and;
(6) ordering Serafin Modina to pay Ernesto Hontarciego the sum
of P44,500.00 as actual and compensatory damages plus the
sum of P5,000.00, for and as attorney's fees, with costs in favor of
said defendants against the plaintiff.
On appeal; the Court of Appeals affirmed the aforesaid decision
in toto.
Dissatisfied therewith, petitioner found his way to this Court via
the present Petition for Review under the Rule 45 seeking to set
aside the assailed decision of the Court of Appeals.
Raised for resolution here are: (1) whether the sale of subject lots
should be nullified, (2) whether petitioner was not a purchaser in
good faith, (3) whether the decision of the trial court was tainted
with excess of jurisdiction; and (4) whether or not only three-
fourths of subject lots should be returned to the private
respondent.
Anent the first issue, petitioner theorizes that the sale in question
is null and void for being violative of Article 1490 3 of the New
Civil Code prohibiting sales between spouses. Consequently,
what is applicable is Article 1412 4 supra on the principle of in
pari delicto, which leaves both guilty parties where they are, and
keeps undisturbed the rights of third persons to whom the lots
involved were sold; petitioner stressed.1âwphi1.nêt
Petitioner anchors his submission on the following statements of
the Trial Court which the Court of Appeals upheld, to wit:
Furthermore, under Art. 1490, husband and wife are prohibited to
sell properties to each other. And where, as in this case, the sale
is inexistent for lack of consideration, the principle of in pari
delicto non oritur actio does not apply. (Vasquez vs. Porta, 98
Phil 490), (Emphasis ours) Thus, Art. 1490 provides:
Art. 1490. The husband and the wife cannot sell property to each
other, except:
(1) when a separation of propety was agreed upon in the
marriage settlements; or
35
(2) when there has been a judicial separation of property
under Art. 191.
The exception to the rule laid down in Art. 1490 of the New Civil
Code not having existed with respect to the property relations of
Ramon Chiang and Merlinda Plana Chiang, the sale by the
latter in favor of the former of the properties in question is invalid
for being prohibited by law. Not being the owner of subject
properties, Ramon Chiang could not have validly sold the same
to plaintiff Serafin Modina. The sale by Ramon Chiang in favor of
Serafin Modina is, likewise, void and inexistent.
xxx xxx xxx
The Court of Appeals, on the other hand, adopted the following
findings a quo: that there is no sufficient evidence establishing
fault on the part of MERLINDA, and therefore, the principle of in
pari delicto is inapplicable and the sale was void for want of
consideration. In effect, MERLINDA can recover the lots sold by
her husband to petitioner MODINA. However, the Court of
Appeals ruled that the sale was void for violating Article 1490 of
the Civil Code, which prohibits sales between spouses.
The principle of in pari delicto non oritur actio 6 denies all
recovery to the guilty parties inter se. It applies to cases where
the nullity arises from the illegality of the consideration or the
purpose of the contract. 7 When two persons are equally at
fault, the law does not relieve them. The exception to this
general rule is when the principle is invoked with respect to
inexistent contracts. 8
In the petition under consideration, the Trial Court found that
subject Deed of Sale was a nullity for lack of any consideration. 9
This finding duly supported by evidence was affirmed by the
Court of Appeals. Well-settled is the rule that this Court will not
disturb such finding absent any evidence to the contrary. 10
Under Article 1409 11 of the New Civil Code, enumerating void
contracts, a contract without consideration is one such void
contract. One of the characteristics of a void or inexistent
contract is that it produces no effect. So also, inexistent
contracts can be invoked by any person whenever juridical
effects founded thereon are asserted against him. A transferor
can recover the object of such contract by accion
reivindicatoria and any possessor may refuse to deliver it to the
transferee, who cannot enforce the transfer. 12
Thus, petitioner's insistence that MERLINDA cannot attack subject
contract of sale as she was a guilty party thereto is equally
unavailing.
But the pivot of inquiry here is whether MERLINDA is barred by the
principle of in pari delicto from questioning subject Deed of Sale.
It bears emphasizing that as the contracts under controversy are
inexistent contracts within legal contemplation. Articles 1411 and
1412 of the New Civil Code are inapplicable. In pari delicto
doctrine applies only to contracts with illegal consideration or
subject matter, whether the attendant facts constitute an
offense or misdemeanor or whether the consideration involved is
merely rendered illegal. 13
The statement below that it is likewise null and void for being
violative of Article 1490 should just be treated as a surplusage or
an obiter dictum on the part of the Trial Court as the issue of
whether the parcels of land in dispute are conjugal in nature or
they fall under the exceptions provided for by law, was neither
raised nor litigated upon before the lower Court. Whether the
said lots were ganancial properties was never brought to the
fore by the parties and it is too late to do so now.
Furthermore, if this line of argument be followed, the Trial Court
could not have declared subject contract as null and void
because only the heirs and the creditors can question its nullity
and not the spouses themselves who executed the contract with
full knowledge of the prohibition. 14
Records show that in the complaint-in-intervention of MERLINDA,
she did not aver the same as a ground to nullify subject Deed of
Sale. In fact, she denied the existence of the Deed of Sale in
favor of her husband. In the said Complaint, her allegations
referred to the want of consideration of such Deed of Sale. She
did not put up the defense under Article 1490, to nullify her sale
to her husband CHIANG because such a defense would be
inconsistent with her claim that the same sale was

inexistent.1âwphi1.nêt
The Trial Court debunked petitioner's theory that MERLINDA
intentionally gave away the bulk of her and her late husband's
estate to defendant CHIANG as his exclusive property, for want
of evidentiary anchor. They insist on the Deed of Sale wherein
MERLINIDA made the misrepresentation that she was a widow
and CHIANG was single, when at the time of execution thereof,
they were in fact already married. Petitioner insists that this
document conclusively established bad faith on the part of
MERLINDA and therefore, the principle of in pari delicto should
have been applied.
These issues are factual in nature and it is not for this Court to
appreciate and evaluate the pieces of evidence introduced
below. An appellate court defers to the factual findings of the
Trial Court, unless petitioner can show a glaring mistake in the
appreciation of relevant evidence.
Since one of the characteristics of a void or inexistent contract is
that it does not produce any effect, MERLINDA can recover the
property from petitioner who never acquired title thereover.
As to the second issue, petitioner stresses that his title should
have been respected since he is a purchaser in good faith and
for value. The Court of Appeals, however, opined that he
(petitioner) is not a purchaser in good faith. It found that there
were circumstances known to MODINA which rendered their
transaction fraudulent under the attendant circumstances.
As a general rule, in a sale under the Torrens system, a void title
cannot give rise to a valid title. The exception is when the sale of
a person with a void title is to a third person who purchased it for
value and in good faith.
A purchaser in good faith is one who buys the property of
another without notice that some other person has a right to or
interest in such property and pays a full and fair price at the time
of the purchase or before he has notice of the claim or interest
of some other person in the property.
In the case under scrutiny, petitioner cannot claim that he was a
purchaser in good faith. There are circumstances which are
indicia of bad faith on his part, to wit: (1) He asked his nephew,
Placido Matta, to investigate the origin of the property and the
latter learned that the same formed part of the properties of
MERLINDA's first husband; (2) that the said sale was between the
spouses; (3) that when the property was inspected, MODINA met
all the lessees who informed that subject lands belong to
MERLINDA and they had no knowledge that the same lots were
sold to the husband.
It is a well-settled rule that a purchaser cannot close his eyes to
facts which would put a reasonable man upon his guard to
make the necessary inquiries, and then claim that he acted in
good faith. His mere refusal to believe that such defect exists, or
his wilful closing of his eyes to the possibility of the existence of a
defect in his vendor's title, will not make him an innocent
purchaser for value, if it afterwards develops that the title was in
fact defective, and it appears that he had such notice of the
defect as would have led to its discovery had he acted with that
measure of precaution which may reasonably be required of a
prudent man in a like situation. 15
Thus, petitioner cannot claim that the sale between him and
MODINA falls under the exception provided for by law.
With regard to the third issue posed by petitioner — whether the
Trial Court's decision allowing recovery on the part of Merlinda
Chiang of subject properties was void — petitioner's contention
is untennable. It is theorized that as the sale by MERLINDA was by
virtue of an Order to Sell issued in the Intestate Estate
Proceedings of her late husband, Nelson Plana — to allow
recovery will defeat the said order of the Probate Court.
Petitioner equated the aforesaid Order to Sell as a judgment,
which another court in a regular proceeding has no jurisdiction
to reverse.
Petitioner is under the mistaken impression that as the Order to
Sell had become a judgment in itself as to the validity of the sale
of the properties involved, any question as to its nullity should
have been brought before the Court of Appeals on appeal
when the said Order was issued.
36
It is a well-settled rule that a Court of First Instance (now Regional
Trial Court) has jurisdiction over a case brought to rescind a sale
made upon prior authority of a Probate Court. This does not
constitute an interference or review of the order of a co-equal
Court since the Probate Court has no jurisdiction over the
question of title to subject properties. Consequently, a separate
action may be brought to determine the question of ownership.
16
Lastly, on the issue of whether only three-fourths of the property
in question should have been returned to MERLINDA, petitioner's
stance is equally unsustainable. It is a settled doctrine that an
issue which was neither averred in the Complaint nor raised
during the trial before the lower court cannot be raised for the
first time on appeal, as such a recourse would be offensive to
the basic rules of fair play, justice, and due process. 17
The issue of whether only three-fourths of subject property will be
returned was never an issue before the lower court and
therefore, the petitioner cannot do it now. A final word. In a
Petition for Review, only questions of law may be raised. It is
perceived by the Court that what petitioner is trying to, albeit
subtly, is for the Court to examine the probative value or
evidentiary weight of the evidence presented below 18. The
Court cannot do that unless the appreciation of the pieces of
evidence on hand is glaringly erroneous. But this is where
petitioner utterly failed.1âwphi1.nêt
WHEREFORE, the Petition is DENIED and the decision of the Court
of Appeals, dated September 30, 1992, in CA-G.R. CV No. 26051
AFFIRMED. No pronouncement as to costs.
SO ORDERED.
15. YUN KWAN BYUNG, Petitioner,
vs.
PHILIPPINE AMUSEMENT AND GAMING CORPORATION,
Respondent.
DECISION
CARPIO, J.:
The Case
Yun Kwan Byung (petitioner) filed this Petition for Review1
assailing the Court of Appeals’ Decision2 dated 27 May 2003 in
CA-G.R. CV No. 65699 as well as the Resolution3 dated 7 May
2004 denying the Motion for Reconsideration. In the assailed
decision, the Court of Appeals (CA) affirmed the Regional Trial
Court’s Decision4 dated 6 May 1999. The Regional Trial Court of
Manila, Branch 13 (trial court), dismissed petitioner’s demand
against respondent Philippine Amusement and Gaming
Corporation (PAGCOR) for the redemption of gambling chips.
The Facts
PAGCOR is a government-owned and controlled corporation
tasked to establish and operate gambling clubs and casinos as
a means to promote tourism and generate sources of revenue
for the government. To achieve these objectives, PAGCOR is
vested with the power to enter into contracts of every kind and
for any lawful purpose that pertains to its business. Pursuant to
this authority, PAGCOR launched its Foreign Highroller Marketing
Program (Program). The Program aims to invite patrons from
foreign countries to play at the dollar pit of designated
PAGCOR-operated casinos under specified terms and
conditions and in accordance with industry practice.5
The Korean-based ABS Corporation was one of the international
groups that availed of the Program. In a letter-agreement dated
25 April 1996 (Junket Agreement), ABS Corporation agreed to
bring in foreign players to play at the five designated gaming
tables of the Casino Filipino Silahis at the Grand Boulevard Hotel
in Manila (Casino Filipino). The relevant stipulations of the Junket
Agreement state:
1. PAGCOR will provide ABS Corporation with separate junket
chips. The junket chips will be distinguished from the chips being
used by other players in the gaming tables.
ABS Corporation will distribute these junket chips to its players
and at the end of the playing period, ABS Corporation will
collect the junket chips from its players and make an accounting
to the casino treasury.

2. ABS Corporation will assume sole responsibility to pay the
winnings of its foreign players and settle the collectibles from
losing players.
3. ABS Corporation shall hold PAGCOR absolutely free and
harmless from any damage, claim or liability which may arise
from any cause in connection with the Junket Agreement.
5. In providing the gaming facilities and services to these foreign
players, PAGCOR is entitled to receive from ABS Corporation a
12.5% share in the gross winnings of ABS Corporation or 1.5 million
US dollars, whichever is higher, over a playing period of 6 months.
PAGCOR has the option to extend the period.6
Petitioner, a Korean national, alleges that from November 1996
to March 1997, he came to the Philippines four times to play for
high stakes at the Casino Filipino.7 Petitioner claims that in the
course of the games, he was able to accumulate gambling
chips worth US$2.1 million. Petitioner presented as evidence
during the trial gambling chips with a face value of US$1.1
million. Petitioner contends that when he presented the
gambling chips for encashment with PAGCOR’s employees or
agents, PAGCOR refused to redeem them.8
Petitioner brought an action against PAGCOR seeking the
redemption of gambling chips valued at US$2.1 million. Petitioner
claims that he won the gambling chips at the Casino Filipino,
playing continuously day and night. Petitioner alleges that every
time he would come to Manila, PAGCOR would extend to him
amenities deserving of a high roller. A PAGCOR official who
meets him at the airport would bring him to Casino Filipino, a
casino managed and operated by PAGCOR. The card dealers
were all PAGCOR employees, the gambling chips, equipment
and furnitures belonged to PAGCOR, and PAGCOR enforced all
the regulations dealing with the operation of foreign exchange
gambling pits. Petitioner states that he was able to redeem his
gambling chips with the cashier during his first few winning trips.
But later on, the casino cashier refused to encash his gambling
chips so he had no recourse but to deposit his gambling chips at
the Grand Boulevard Hotel’s deposit box, every time he
departed from Manila.9
PAGCOR claims that petitioner, who was brought into the
Philippines by ABS Corporation, is a junket player who played in
the dollar pit exclusively leased by ABS Corporation for its junket
players. PAGCOR alleges that it provided ABS Corporation with
distinct junket chips. ABS Corporation distributed these chips to its
junket players. At the end of each playing period, the junket
players would surrender the chips to ABS Corporation. Only ABS
Corporation would make an accounting of these chips to
PAGCOR’s casino treasury.10
As additional information for the junket players playing in the
gaming room leased to ABS Corporation, PAGCOR posted a
notice written in English and Korean languages which reads:
NOTICE
This GAMING ROOM is exclusively operated by ABS under
arrangement with PAGCOR, the former is solely accountable for
all PLAYING CHIPS wagered on the tables. Any financial
ARRANGEMENT/TRANSACTION between PLAYERS and ABS shall
only be binding upon said PLAYERS and ABS.11
PAGCOR claims that this notice is a standard precautionary
measure12 to avoid confusion between junket players of ABS
Corporation and PAGCOR’s players.
PAGCOR argues that petitioner is not a PAGCOR player
because under PAGCOR’s gaming rules, gambling chips cannot
be brought outside the casino. The gambling chips must be
converted to cash at the end of every gaming period as they
are inventoried every shift. Under PAGCOR’s rules, it is impossible
for PAGCOR players to accumulate two million dollars worth of
gambling chips and to bring the chips out of the casino
premises.13
Since PAGCOR disclaimed liability for the winnings of players
recruited by ABS Corporation and refused to encash the
gambling chips, petitioner filed a complaint for a sum of money
before the trial court.14 PAGCOR filed a counterclaim against
petitioner. Then, trial ensued.
37
On 6 May 1999, the trial court dismissed the complaint and
counterclaim. Petitioner appealed the trial court’s decision to
the CA. On 27 May 2003, the CA affirmed the appealed
decision. On 27 June 2003, petitioner moved for reconsideration
which was denied on 7 May 2004.
Aggrieved by the CA’s decision and resolution, petitioner
elevated the case before this Court.
The Ruling of the Trial Court
The trial court ruled that based on PAGCOR’s charter,15
PAGCOR has no authority to lease any portion of the gambling
tables to a private party like ABS Corporation. Section 13 of
Presidential Decree No. 1869 or the PAGCOR’s charter states:
Sec. 13. Exemptions -
xxx
(4) Utilization of Foreign Currencies – The Corporation shall have
the right and authority, solely and exclusively in connection with
the operations of the casino(s), to purchase, receive, exchange
and disburse foreign exchange, subject to the following terms
and conditions:
(a) A specific area in the casino(s) or gaming pit shall be put up
solely and exclusively for players and patrons utilizing foreign
currencies;
(b) The Corporation shall appoint and designate a duly
accredited commercial bank agent of the Central Bank, to
handle, administer and manage the use of foreign currencies in
the casino(s);
(c) The Corporation shall provide an office at casino(s)
exclusively for the employees of the designated bank, agent of
the Central Bank, where the Corporation shall maintain a dollar
account which will be utilized exclusively for the above purpose
and the casino dollar treasury employees;
(d) Only persons with foreign passports or certificates of identity
(for Hong Kong patron only) duly issued by the government or
country of their residence will be allowed to play in the foreign
exchange gaming pit;
(e) Only foreign exchange prescribed to form part of the
Philippine International Reserve and the following foreign
exchange currencies: Australian Dollar, Singapore Dollar, Hong
Kong Dollar, shall be used in this gaming pit;
(f) The disbursement, administration, management and
recording of foreign exchange currencies used in the casino(s)
shall be carried out in accordance with existing foreign
exchange regulations, and periodical reports of the transactions
in such foreign exchange currencies by the Corporation shall be
duly recorded and reported to the Central Bank thru the
designated Agent Bank; and
(g) The Corporation shall issue the necessary rules and
regulations for the guidance and information of players qualified
to participate in the foreign exchange gaming pit, in order to
make certain that the terms and conditions as above set forth
are strictly complied with.
The trial court held that only PAGCOR could use foreign currency
in its gaming tables. When PAGCOR accepted only a fixed
portion of the dollar earnings of ABS Corporation in the concept
of a lease of facilities, PAGCOR shared its franchise with ABS
Corporation in violation of the PAGCOR’s charter. Hence, the
Junket Agreement is void. Since the Junket Agreement is not
permitted by PAGCOR’s charter, the mutual rights and
obligations of the parties to this case would be resolved based
on agency and estoppel.16
The trial court found that the petitioner wanted to redeem
gambling chips that were specifically used by ABS Corporation
at its gaming tables. The gambling chips come in distinctive
orange or yellow colors with stickers bearing denominations of
10,000 or 1,000. The 1,000 gambling chips are smaller in size and
the words "no cash value" marked on them. The 10,000 gambling
chips do not reflect the "no cash value" sign. The senior treasury
head of PAGCOR testified that these were the gambling chips
used by the previous junket operators and PAGCOR merely

continued using them. However, the gambling chips used in the
regular casino games were of a different quality.17
The trial court pointed out that PAGCOR had taken steps to
warn players brought in by all junket operators, including ABS
Corporation, that they were playing under special rules. Apart
from the different kinds of gambling chips used, the junket
players were confined to certain gaming rooms. In these rooms,
notices were posted that gambling chips could only be
encashed there and nowhere else. A photograph of one such
notice, printed in Korean and English, stated that the gaming
room was exclusively operated by ABS Corporation and that ABS
Corporation was solely accountable for all the chips wagered
on the gaming tables. Although petitioner denied seeing this
notice, this disclaimer has the effect of a negative evidence that
can hardly prevail against the positive assertions of PAGCOR
officials whose credibility is also not open to doubt. The trial court
concluded that petitioner had been alerted to the existence of
these special gambling rules, and the mere fact that he
continued to play under the same restrictions over a period of
several months confirms his acquiescence to them. Otherwise,
petitioner could have simply chose to stop gambling.18
In dismissing petitioner’s complaint, the trial court concluded
that petitioner’s demand against PAGCOR for the redemption of
the gambling chips could not stand. The trial court stated that
petitioner, a stranger to the agreement between PAGCOR and
ABS Corporation, could not under principles of equity be
charged with notice other than of the apparent authority with
which PAGCOR had clothed its employees and agents in
dealing with petitioner. Since petitioner was made aware of the
special rules by which he was playing at the Casino Filipino,
petitioner could not now claim that he was not bound by them.
The trial court explained that in an unlawful transaction, the
courts will extend equitable relief only to a party who was
unaware of all its dimensions and whose ignorance of them
exposed him to the risk of being exploited by the other. Where
the parties enter into such a relationship with the opportunity to
know all of its ramifications, as in this case, there is no room for
equitable considerations to come to the rescue of any party. The
trial court ruled that it would leave the parties where they are.19
The Ruling of the Court of Appeals
In dismissing the appeal, the appellate court addressed the four
errors assigned by petitioner.
First, petitioner maintains that he was never a junket player of
ABS Corporation. Petitioner also denies seeing a notice that
certain gaming rooms were exclusively operated by entities
under special agreement.20
The CA ruled that the records do not support petitioner’s theory.
Petitioner’s own testimony reveals that he enjoyed special
accommodations at the Grand Boulevard Hotel. This similar
accommodation was extended to players brought in by ABS
Corporation and other junket operators. Petitioner cannot
disassociate himself from ABS Corporation for it is unlikely that an
unknown high roller would be accorded choice
accommodations by the hotel unless the accommodation was
facilitated by a junket operator who enjoyed such privilege.21
The CA added that the testimonies of PAGCOR’s employees
affirming that notices were posted in English and Korean in the
gaming areas are credible in the absence of any convincing
proof of ill motive. Further, the specified gaming areas used only
special chips that could be bought and exchanged at certain
cashier booths in that area.22
Second, petitioner attacks the validity of the contents of the
notice. Since the Junket Agreement is void, the notice, which
was issued pursuant to the Junket Agreement, is also void and
cannot affect petitioner.23
The CA reasoned that the trial court never declared the notice
valid and neither did it enforce the contents thereof. The CA
emphasized that it was the act of cautioning and alerting the
players that was upheld. The trial court ruled that signs and
warnings were in place to inform the public, petitioner included,
that special rules applied to certain gaming areas even if the
very agreement giving rise to these rules is void.24
Third, petitioner takes the position that an implied agency
existed between PAGCOR and ABS Corporation.25
38
The CA disagreed with petitioner’s view. A void contract has no
force and effect from the very beginning. It produces no effect
either against or in favor of anyone. Neither can it create, modify
or extinguish the juridical relation to which it refers. Necessarily,
the Junket Agreement, being void from the beginning, cannot
give rise to an implied agency. The CA explained that it cannot
see how the principle of implied agency can be applied to this
case. Article 188326 of the Civil Code applies only to a situation
where the agent is authorized by the principal to enter into a
particular transaction, but instead of contracting on behalf of
the principal, the agent acts in his own name.27
The CA concluded that no such legal fiction existed between
PAGCOR and ABS Corporation. PAGCOR entered into a Junket
Agreement to lease to ABS Corporation certain gaming areas. It
was never PAGCOR’s intention to deal with the junket players.
Neither did PAGCOR intend ABS Corporation to represent
PAGCOR in dealing with the junket players. Representation is the
basis of agency but unfortunately for petitioner none is found in
this case.28
The CA added that the special gaming chips, while belonging to
PAGCOR, are mere accessories in the void Junket Agreement
with ABS Corporation. In Article 1883, the phrase "things
belonging to the principal" refers only to those things or
properties subject of a particular transaction authorized by the
principal to be entered into by its purported agent. Necessarily,
the gambling chips being mere incidents to the void lease
agreement cannot fall under this category.29
The CA ruled that Article 215230 of the Civil Code is also not
applicable. The circumstances relating to negotiorum gestio are
non-existent to warrant an officious manager to take over the
management and administration of PAGCOR.31
Fourth, petitioner asks for equitable relief.32
The CA explained that although petitioner was never a party to
the void Junket Agreement, petitioner cannot deny or feign
blindness to the signs and warnings all around him. The notices,
the special gambling chips, and the separate gaming areas
were more than enough to alert him that he was playing under
different terms. Petitioner persisted and continued to play in the
casino. Petitioner also enjoyed the perks extended to junket
players of ABS Corporation. For failing to heed these signs and
warnings, petitioner can no longer be permitted to claim
equitable relief. When parties do not come to court with clean
hands, they cannot be allowed to profit from their own wrong
doing.33
The Issues
Petitioners raise three issues in this petition:
1. Whether the CA erred in holding that PAGCOR is not liable to
petitioner, disregarding the doctrine of implied agency, or
agency by estoppel;
2. Whether the CA erred in using intent of the contracting parties
as the test for creation of agency, when such is not relevant
since the instant case involves liability of the presumed principal
in implied agency to a third party; and
3. Whether the CA erred in failing to consider that PAGCOR
ratified, or at least adopted, the acts of the agent, ABS
Corporation.34
The Ruling of the Court
The petition lacks merit.
Courts will not enforce debts arising from illegal gambling
Gambling is prohibited by the laws of the Philippines as
specifically provided in Articles 195 to 199 of the Revised Penal
Code, as amended. Gambling is an act beyond the pale of
good morals,35 and is thus prohibited and punished to repress
an evil that undermines the social, moral, and economic growth
of the nation.36 Presidential Decree No. 1602 (PD 1602),37 which
modified Articles 195-199 of the Revised Penal Code and
repealed inconsistent provisions,38 prescribed stiffer penalties on
illegal gambling.39
As a rule, all forms of gambling are illegal. The only form of
gambling allowed by law is that stipulated under Presidential

Decree No. 1869, which gave PAGCOR its franchise to maintain
and operate gambling casinos. The issue then turns on whether
PAGCOR can validly share its franchise with junket operators to
operate gambling casinos in the country. Section 3(h) of
PAGCOR’s charter states:
Section 3. Corporate Powers. - The Corporation shall have the
following powers and functions, among others:
xxx
h) to enter into, make, perform, and carry out contracts of every
kind and for any lawful purpose pertaining to the business of the
Corporation, or in any manner incident thereto, as principal,
agent or otherwise, with any person, firm, association, or
corporation.
xxx
The Junket Agreement would be valid if under Section 3(h) of
PAGCOR’s charter, PAGCOR could share its gambling franchise
with another entity. In Senator Jaworski v. Phil. Amusement and
Gaming Corp.,40 the Court discussed the extent of the grant of
the legislative franchise to PAGCOR on its authority to operate
gambling casinos:
A legislative franchise is a special privilege granted by the state
to corporations. It is a privilege of public concern which cannot
be exercised at will and pleasure, but should be reserved for
public control and administration, either by the government
directly, or by public agents, under such conditions and
regulations as the government may impose on them in the
interest of the public. It is Congress that prescribes the conditions
on which the grant of the franchise may be made. Thus the
manner of granting the franchise, to whom it may be granted,
the mode of conducting the business, the charter and the
quality of the service to be rendered and the duty of the
grantee to the public in exercising the franchise are almost
always defined in clear and unequivocal language.
After a circumspect consideration of the foregoing discussion
and the contending positions of the parties, we hold that
PAGCOR has acted beyond the limits of its authority when it
passed on or shared its franchise to SAGE.
In the Del Mar case where a similar issue was raised when
PAGCOR entered into a joint venture agreement with two other
entities in the operation and management of jai alai games, the
Court, in an En Banc Resolution dated 24 August 2001, partially
granted the motions for clarification filed by respondents therein
insofar as it prayed that PAGCOR has a valid franchise, but only
by itself (i.e. not in association with any other person or entity), to
operate, maintain and/or manage the game of jai-alai.
In the case at bar, PAGCOR executed an agreement with SAGE
whereby the former grants the latter the authority to operate
and maintain sports betting stations and Internet gaming
operations. In essence, the grant of authority gives SAGE the
privilege to actively participate, partake and share PAGCOR’s
franchise to operate a gambling activity. The grant of franchise is
a special privilege that constitutes a right and a duty to be
performed by the grantee. The grantee must not perform its
activities arbitrarily and whimsically but must abide by the limits
set by its franchise and strictly adhere to its terms and
conditionalities. A corporation as a creature of the State is
presumed to exist for the common good. Hence, the special
privileges and franchises it receives are subject to the laws of the
State and the limitations of its charter. There is therefore a
reserved right of the State to inquire how these privileges had
been employed, and whether they have been abused.
(Emphasis supplied)
Thus, PAGCOR has the sole and exclusive authority to operate a
gambling activity. While PAGCOR is allowed under its charter to
enter into operator’s or management contracts, PAGCOR is not
allowed under the same charter to relinquish or share its
franchise. PAGCOR cannot delegate its power in view of the
legal principle of delegata potestas delegare non potest,
inasmuch as there is nothing in the charter to show that it has
been expressly authorized to do so.41
Similarly, in this case, PAGCOR, by taking only a percentage of
the earnings of ABS Corporation from its foreign currency
collection, allowed ABS Corporation to operate gaming tables in
39
the dollar pit. The Junket Agreement is in direct violation of
PAGCOR’s charter and is therefore void.
Since the Junket Agreement violates PAGCOR’s charter,
gambling between the junket player and the junket operator
under such agreement is illegal and may not be enforced by the
courts. Article 201442 of the Civil Code, which refers to illegal
gambling, states that no action can be maintained by the
winner for the collection of what he has won in a game of
chance.
Although not raised as an issue by petitioner, we deem it
necessary to discuss the applicability of Republic Act No. 948743
(RA 9487) to the present case.
RA 9487 amended the PAGCOR charter, granting PAGCOR the
power to enter into special agreement with third parties to share
the privileges under its franchise for the operation of gambling
casinos:
Section 1. The Philippine Amusement and Gaming Corporation
(PAGCOR) franchise granted under Presidential Decree No. 1869
otherwise known as the PAGCOR Charter, is hereby further
amended to read as follows:
xxx
(2) Section 3(h) is hereby amended to read as follows:
"SEC. 3. Corporate Powers. -
"x x x
"(h) to enter into, make, conclude, perform, and carry out
contracts of every kind and nature and for any lawful purpose
which are necessary, appropriate, proper or incidental to any
business or purpose of the PAGCOR, including but not limited to
investment agreements, joint venture agreements, management
agreements, agency agreements, whether as principal or as an
agent, manpower supply agreements, or any other similar
agreements or arrangements with any person, firm, association
or corporation." (Boldfacing supplied)
PAGCOR sought the amendment of its charter precisely to
address and remedy the legal impediment raised in Senator
Jaworski v. Phil. Amusement and Gaming Corp.
Unfortunately for petitioner, RA 9487 cannot be applied to the
present case. The Junket Agreement was entered into between
PAGCOR and ABS Corporation on 25 April 1996 when the
PAGCOR charter then prevailing (PD 1869) prohibited PAGCOR
from entering into any arrangement with a third party that would
allow such party to actively participate in the casino operations.
It is a basic principle that laws should only be applied
prospectively unless the legislative intent to give them
retroactive effect is expressly declared or is necessarily implied
from the language used.44 RA 9487 does not provide for any
retroactivity of its provisions. All laws operate prospectively
absent a clear contrary language in the text,45 and that in every
case of doubt, the doubt will be resolved against the retroactive
operation of laws.46
Thus, petitioner cannot avail of the provisions of RA 9487 as this
was not the law when the acts giving rise to the claimed liabilities
took place. This makes the gambling activity participated in by
petitioner illegal. Petitioner cannot sue PAGCOR to redeem the
cash value of the gambling chips or recover damages arising
from an illegal activity for two reasons. First, petitioner engaged
in gambling with ABS Corporation and not with PAGCOR.
Second, the court cannot assist petitioner in enforcing an illegal
act. Moreover, for a court to grant petitioner’s prayer would
mean enforcing the Junket Agreement, which is void.
Now, to address the issues raised by petitioner in his petition,
petitioner claims that he is a third party proceeding against the
liability of a presumed principal and claims relief, alternatively,
on the basis of implied agency or agency by estoppel.
Article 1869 of the Civil Code states that implied agency is
derived from the acts of the principal, from his silence or lack of
action, or his failure to repudiate the agency, knowing that
another person is acting on his behalf without authority. Implied
agency, being an actual agency, is a fact to be proved by
deductions or inferences from other facts.47
 40

We disagree. The Court of Appeals correctly used the intent of

On the other hand, apparent authority is based on estoppel and
can arise from two instances. First, the principal may knowingly
permit the agent to hold himself out as having such authority,
and the principal becomes estopped to claim that the agent
does not have such authority. Second, the principal may clothe
the agent with the indicia of authority as to lead a reasonably
prudent person to believe that the agent actually has such
authority.48 In an agency by estoppel, there is no agency at all,
but the one assuming to act as agent has apparent or
ostensible, although not real, authority to represent another.49
The law makes no presumption of agency and proving its
existence, nature and extent is incumbent upon the person
alleging it.50 Whether or not an agency has been created is a
question to be determined by the fact that one represents and is
acting for another. 51
Acts and conduct of PAGCOR negates the existence of an
implied agency or an agency by estoppel
Petitioner alleges that there is an implied agency. Alternatively,
petitioner claims that even assuming that no actual agency
existed between PAGCOR and ABS Corporation, there is still an
agency by estoppel based on the acts and conduct of
PAGCOR showing apparent authority in favor of ABS
Corporation. Petitioner states that one factor which distinguishes
agency from other legal precepts is control and the following
undisputed facts show a relationship of implied agency:
the contracting parties in determining whether an agency by
estoppel existed in this case. An agency by estoppel, which is
similar to the doctrine of apparent authority requires proof of
reliance upon the representations, and that, in turn, needs proof
that the representations predated the action taken in
reliance.62
There can be no apparent authority of an agent without acts or
conduct on the part of the principal and such acts or conduct
of the principal must have been known and relied upon in good
faith and as a result of the exercise of reasonable prudence by a
third person as claimant, and such must have produced a
change of position to its detriment.63 Such proof is lacking in this
case.
In the entire duration that petitioner played in Casino Filipino, he
was dealing only with ABS Corporation, and availing of the
privileges extended only to players brought in by ABS
Corporation. The facts that he enjoyed special treatment upon
his arrival in Manila and special accommodations in Grand
Boulevard Hotel, and that he was playing in special gaming
rooms are all indications that petitioner cannot claim good faith
that he believed he was dealing with PAGCOR. Petitioner
cannot be considered as an innocent third party and he cannot
claim entitlement to equitable relief as well.
For his third and final assigned error, petitioner asserts that
PAGCOR ratified the acts of ABS Corporation.

1. Three floors of the Grand Boulevard Hotel52 were leased to
PAGCOR for conducting gambling operations;53
2. Of the three floors, PAGCOR allowed ABS Corporation to use
one whole floor for foreign exchange gambling, conducted by
PAGCOR dealers using PAGCOR facilities, operated by PAGCOR
employees and using PAGCOR chips bearing the PAGCOR
logo;54
3. PAGCOR controlled the release, withdrawal and return of all
the gambling chips given to ABS Corporation in that part of the
casino and at the end of the day, PAGCOR conducted an
inventory of the gambling chips;55
The trial court has declared, and we affirm, that the Junket
Agreement is void. A void or inexistent contract is one which has
no force and effect from the very beginning. Hence, it is as if it
has never been entered into and cannot be validated either by
the passage of time or by ratification.64 Article 1409 of the Civil
Code provides that contracts expressly prohibited or declared
void by law, such as gambling contracts, "cannot be ratified."65
WHEREFORE, we DENY the petition. We AFFIRM the Court of
Appeals’ Decision dated 27 May 2003 as well as the Resolution
dated 7 May 2004 as modified by this Decision.
SO ORDERED.

4. ABS Corporation accounted for all gambling chips with the

Commission on Audit (COA), the official auditor of PAGCOR;56

5. PAGCOR enforced, through its own manager, all the rules and
regulations on the operation of the gambling pit used by ABS
Corporation.57

Petitioner’s argument is clearly misplaced. The basis for agency is

representation,58 that is, the agent acts for and on behalf of the
principal on matters within the scope of his authority and said
acts have the same legal effect as if they were personally
executed by the principal.59 On the part of the principal, there
must be an actual intention to appoint or an intention naturally
inferable from his words or actions, while on the part of the
agent, there must be an intention to accept the appointment
and act on it.60 Absent such mutual intent, there is generally no
agency.61

There is no implied agency in this case because PAGCOR did

not hold out to the public as the principal of ABS Corporation.
PAGCOR’s actions did not mislead the public into believing that
an agency can be implied from the arrangement with the junket
operators, nor did it hold out ABS Corporation with any apparent
authority to represent it in any capacity. The Junket Agreement
was merely a contract of lease of facilities and services.

The players brought in by ABS Corporation were covered by a

different set of rules in acquiring and encashing chips. The
players used a different kind of chip than what was used in the
regular gaming areas of PAGCOR, and that such junket players
played specifically only in the third floor area and did not mingle
with the regular patrons of PAGCOR. Furthermore, PAGCOR, in
posting notices stating that the players are playing under special
rules, exercised the necessary precaution to warn the gaming
public that no agency relationship exists.1avvphi1

For the second assigned error, petitioner claims that the intention
of the parties cannot apply to him as he is not a party to the
contract.