Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. L-61623 December 26, 1984

PEOPLE'S HOMESITE & HOUSING CORPORATION, petitioner-appellant,

vs.
COURT OF APPEALS, RIZALINO L. MENDOZA and ADELAIDA R. MENDOZA, respondents-
appellees.

Manuel M. Lazaro, Pilipinas Arenas Laborte and Antonio M. Brillantes for petitioner PHHC.

Tolentino, Cruz, Reyes, Lava and Manuel for private respondents.

AQUINO, J.:

The question in this case is whether the People's Homesite & Housing Corporation bound itself to
sell to the Mendoza spouses Lot 4 (Road) Pcs- 4564 of the revised consolidation subdivision plan
with an area of 2,6,08.7 (2,503.7) square meters located at Diliman, Quezon City.

The PHHC board of directors on February 18, 1960 passed Resolution No. 513 wherein it stated
"that subject to the approval of the Quezon City Council of the above-mentioned Consolidation
Subdivision Plan, Lot 4. containing 4,182.2 square meters be, as it is hereby awarded to Spouses
Rizalino Mendoza and Adelaida Mendoza, at a price of twenty-one pesos (P21.00) per square
meter" and "that this award shall be subject to the approval of the OEC (PHHC) Valuation
Committee and higher authorities".

The city council disapproved the proposed consolidation subdivision plan on August 20, 1961 (Exh.
2). The said spouses were advised by registered mail of the disapproval of the plan (Exh. 2-PHHC).
Another subdivision plan was prepared and submitted to the city council for approval. The revised
plan, which included Lot 4, with a reduced area of 2,608.7, was approved by the city council on
February 25, 1964 (Exh. H).

On April 26, 1965 the PHHC board of directors passed a resolution recalling all awards of lots to
persons who failed to pay the deposit or down payment for the lots awarded to them (Exh. 5). The
Mendozas never paid the price of the lot nor made the 20% initial deposit.

On October 18, 1965 the PHHC board of directors passed Resolution No. 218, withdrawing the
tentative award of Lot 4 to the Mendoza -spouses under Resolution No. 513 and re-awarding said lot
jointly and in equal shares to Miguela Sto. Domingo, Enrique Esteban, Virgilio Pinzon, Leonardo
Redublo and Jose Fernandez, subject to existing PHHC rules and regulations. The prices would be
the same as those of the adjoining lots. The awardees were required to deposit an amount
equivalent to 20% of the total selling price (Exh. F).
The five awardees made the initial deposit. The corresponding deeds of sale were executed in their
favor. The subdivision of Lot 4 into five lots was approved by the city council and the Bureau of
Lands.

On March 16, 1966 the Mendoza spouses asked for reconsideration of the withdrawal of the
previous award to them of Lot 4 and for the cancellation of the re-award of said lot to Sto. Domingo
and four others. Before the request could be acted upon, the spouses filed the instant action for
specific performance and damages.

The trial court sustained the withdrawal of the award. The Mendozas appealed. The Appellate Court
reversed that decision and declared void the re-award of Lot 4 and the deeds of sale and directed
the PHHC to sell to the Mendozas Lot 4 with an area of 2,603.7 square meters at P21 a square
meter and pay to them P4,000 as attorney's fees and litigation expenses. The PHHC appealed to
this Court.

The issue is whether there was a perfected sale of Lot 4, with the reduced area, to the Mendozas
which they can enforce against the PHHC by an action for specific performance.

We hold that there was no perfected sale of Lot 4. It was conditionally or contingently awarded to the
Mendozas subject to the approval by the city council of the proposed consolidation subdivision plan
and the approval of the award by the valuation committee and higher authorities.

The city council did not approve the subdivision plan. The Mendozas were advised in 1961 of the
disapproval. In 1964, when the plan with the area of Lot 4 reduced to 2,608.7 square meters was
approved, the Mendozas should have manifested in writing their acceptance of the award for the
purchase of Lot 4 just to show that they were still interested in its purchase although the area was
reduced and to obviate ally doubt on the matter. They did not do so. The PHHC board of directors
acted within its rights in withdrawing the tentative award.

"The contract of sale is perfected at the moment there is a meeting of minds upon the thing which is
the object of the contract and upon the price. From that moment, the parties may reciprocally
demand performance, subject to the law governing the form of contracts." (Art. 1475, Civil Code).

"Son, sin embargo, excepcion a esta regla los casos en que por virtud de la voluntad de las partes o
de la ley, se celebra la venta bajo una condicion suspensiva, y en los cuales no se perfecciona la
venta hasta el cumplimiento de la condicion" (4 Castan Tobenas, Derecho Civil Español 8th ed. p.
81).

"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. (Art.
1181, Civil Code). "Se llama suspensive la condicion de la que depende la perfeccion, o sea el
principio del contrato". (9 Giorgi, Teoria de las Obligaciones, p. 57).

Under the facts of this case, we cannot say there was a meeting of minds on the purchase of Lot 4
with an area of 2,608.7 square meters at P21 a square meter.

The case of Lapinig vs. Court of Appeals, 115 SCRA 213 is not in point because the awardee in that
case applied for the purchase of the lot, paid the 10% deposit and a conditional contract to sell was
executed in his favor. The PHHC could not re-award that lot to another person.
WHEREFORE, the decision of the Appellate Court is reversed and set aside and the judgment of the
trial court is affirmed. No costs.

SO ORDERED.

Makasiar (Chairman), Concepcion, Jr., Abad Santos, Escolin and Cuevas, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. L-55665 February 8, 1989

DELTA MOTOR CORPORATION, petitioner,

vs.
EDUARDA SAMSON GENUINO, JACINTO S. GENUINO, Jr., VICTOR S. GENUINO, HECTOR S.
GENUINO, EVELYN S. GENUINO, and The COURT OF APPEALS, respondents.

Alcasid, Villanueva & Associates for petitioner.

Luna, Puruganan, Sison & Ongkiko for respondents.

CORTES, J.:

Petitioner, through this petition for review by certiorari, appeals from the decision of respondent
appellate court in CA-G.R. No. 59848-R entitled "Eduarda Samson Genuino, et al. v. Delta Motor
Corporation" promulgated on October 27, 1980.

The facts are as follows:

Petitioner Delta Motor Corporation (hereinafter referred to as Delta) is a corporation duly organized
and existing under Philippine laws.

On the other hand, private respondents are the owners of an iceplant and cold storage located at
1879 E. Rodriguez Sr. Avenue, Quezon City doing business under the name "España Extension
Iceplant and Cold Storage."

In July 1972, two letter-quotations were submitted by Delta to Hector Genuino offering to sell black
iron pipes. T

The letter dated July 3, 1972 quoted Delta's selling price for 1,200 length of black iron pipes
schedule 40, 2" x 20' including delivery at P66,000.00 with the following terms of payment:

a. 20% of the net contract price or P13,200.00 will be due and payable upon signing
of the contract papers.
 b. 20% of the net contract price or P13,200.00 will be due and payable before
commencement of delivery.

c. The balance of 60% of the net contract price or P39,600.00 with 8% financing
charge per annum will be covered by a Promissory Note bearing interest at the rate
of 14% per annum and payable in TWELVE (12) equal monthly installment (sic), the
first of which will become due thirty (30) days after the completion of delivery.
Additional 14% will be charged for all delayed payments. [Exh. "A"; Exh. 1.]

The second letter-quotation dated July 18, 1972 provides for the selling price of 150 lengths of black
iron pipes schedule 40, 1 1/4" x 20' including delivery at P5,400.00 with the following terms of
payment:

a. 50% of the net contract price or P 2,700.00 will be due and payable upon signing
of the contract papers.

b. 50% of the net contract price or P 2,700.00 will be due and payable before
commencement of delivery. [Exh. "C"; Exh. "2".]

Both letter-quotations also contain the following stipulations as to delivery and price offer:

DELIVERY

Ex-stock subject to prior sales.

xxx xxx xxx

Our price offer indicated herein shall remain firm within a period of thirty (30) days
from the date hereof. Any order placed after said period will be subject to our review
and confirmation. [Exh. "A" and "C"; Exhs. "l" and "2".]

Hector Genuino was agreeable to the offers of Delta hence, he manifested his conformity thereto by
signing his name in the space provided on July 17, 1972 and July 24, 1972 for the first and second
letter-quotations, respectively.

It is undisputed that private respondents made initial payments on both contracts — for the first
contract, P13,200.00 and, for the second, P2,700.00 — for a total sum of P15,900.00 on July 28,
1972 (Exhs. "B" and "D"].

Likewise unquestionable are the following. the non-delivery of the iron pipes by Delta; the non-
payment of the subsequent installments by the Genuinos; and the non-execution by the Genuinos of
the promissory note called for by the first contract.

The evidence presented in the trial court also showed that sometime in July 1972 Delta offered to
deliver the iron pipes but the Genuinos did not accept the offer because the construction of the ice
plant building where the pipes were to be installed was not yet finished.

Almost three years later, on April 15, 1975, Hector Genuino, in behalf of España Extension Ice Plant
and Cold Storage, asked Delta to deliver the iron pipes within thirty (30) days from its receipt of the
request. At the same time private respondents manifested their preparedness to pay the second
installment on both contracts upon notice of Delta's readiness to deliver.
Delta countered that the black iron pipes cannot be delivered on the prices quoted as of July 1972.
The company called the attention of the Genuinos to the stipulation in their two (2) contracts that the
quoted prices were good only within thirty (30) days from date of offer. Whereupon Delta sent new
price quotations to the Genuinos based on its current price of black iron pipes, as follows:

P241,800.00 for 1,200 lengths of black iron pjpes schedule 40, 2" x 20' [Exh. "G-1".]

P17,550.00 for 150 lengths of black iron pipes schedule 40, 1 1/4" x 20' [Exh. "G-2".]

The Genuinos rejected the new quoted prices and instead filed a complaint for specific performance
with damages seeking to compel Delta to deliver the pipes. Delta, in its answer prayed for rescission
of the contracts pursuant to Art. 1191 of the New Civil Code. The case was docketed as Civil Case
No. Q-20120 of the then Court of First Instance of Rizal, Branch XVIII, Quezon City.

After trial the Court of First Instance ruled in favor of Delta,the dispositive portion of its decision
reading as follows:

WHEREFORE, premises considered, judgment is rendered:

1. Declaring the contracts, Annexes "A" and "C" of the complaint rescinded;

2. Ordering defendant to refund to plaintiffs the sum of P15,900.00 delivered by the

latter as downpayments on the aforesaid contracts;

3. Ordering plaintiffs to pay defendant the sum of P10,000.00 as attorney's fees; and,

4. To pay the costs of suit. [CFI Decision, pp. 13-14; Rollo, pp. 53-54.]

On appeal, the Court of Appeals reversed and ordered private respondents to make the payments
specified in "Terms of Payment — (b)" of the contracts and to execute the promissory note required
in the first contract and thereafter, Delta should immediately commence delivery of the black iron
pipes.* [CA Decision, p. 20; Rollo, p. 75.]

The Court of Appeals cited two main reasons why it reversed the trial court, namely:

1. As Delta was the one who prepared the contracts and admittedly, it had
knowledge of the fact that the black iron pipes would be used by the Genuinos in
their cold storage plant which was then undergoing construction and therefore, would
require sometime before the Genuinos would require delivery, Delta should have
included in said contracts a deadline for delivery but it did not. As a matter of fact
neither did it insist on delivery when the Genuinos refused to accept its offer of
delivery. [CA Decision, pp. 16-17; Rollo, pp. 71-72.]

2. Delta's refusal to make delivery in 1975 unless the Genuinos pay a price very
much higher than the prices it previously quoted would mean an amendment of the
contracts. It would be too unfair for the plaintiffs if they will be made to bear the
increase in prices of the black iron pipes when they had already paid quite an
amount for said items and defendant had made use of the advance payments. That
would be unjust enrichment on the part of the defendant at the expense of the
plaintiffs and is considered an abominable business practice. [CA Decision, pp. 18-
19; Rollo, pp. 73-74.]
Respondent court denied Delta's motion for reconsideration hence this petition for review praying for
the reversal of the Court of Appeals decision and affirmance of that of the trial court.

Petitioner argues that its obligation to deliver the goods under both contracts is subject to conditions
required of private respondents as vendees. These conditions are: payment of 20% of the net
contract price or P13,200.00 and execution of a promissory note called for by the first contract; and
payment of 50% of the net contract price or P2,700.00 under the second contract. These, Delta
posits, are suspensive conditions and only upon their performance or compliance would its
obligation to deliver the pipes arise [Petition, pp. 9-12; Rollo, pp. 1720.] Thus, when private
respondents did not perform their obligations; when they refused to accept petitioner's offer to deliver
the goods; and, when it took them three (3) long years before they demanded delivery of the iron
pipes that in the meantime, great and sudden fluctuation in market prices have occurred; Delta is
entitled to rescind the two (2) contracts.

Delta relies on the following provision of law on rescission:

Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one
of the obligors should not comply with what is incumbent upon him.

The injured party may choose between the fulfillment and the rescission of the
obligation, with the payment of damages in either case. He may also seek rescission,
even after he has chosen fulfillment, if the latter should become impossible.

The court shall decree the rescission claimed, unless there be just cause authorizing
the fixing of a period.

This is understood to be without prejudice to the rights of third persons who have
acquired the thing, in accordance with articles 1385 and 1388 and the Mortgage Law.

In construing Art. 1191, the Supreme Court has stated that, "[r]escission will be ordered only where
the breach complained of is substantial as to defeat the object of the parties in entering into the
agreement. It will not be granted where the breach is slight or casual." [Phil. Amusement
Enterprises, Inc. v. Natividad, G.R. No. L-21876, September 29, 1967, 21 SCRA 284, 290.] Further,
"[t]he question of whether a breach of a contract is substantial depends upon the attendant
circumstances." [Universal Food Corporation v. Court of Appeals, G. R. No. L-29155, May
13,1970,33 SCRA 1, 18].

In the case at bar, the conduct of Delta indicates that the Genuinos' non-performance of its
obligations was not a substantial breach, let alone a breach of contract, as would warrant rescission.

Firstly, it is undisputed that a month after the execution of the two (2) contracts, Delta's offer to
deliver the black iron pipes was rejected by the Genuinos who were "not ready to accept delivery
because the cold storage rooms have not been constructed yet. Plaintiffs (private respondents
herein) were short-funded, and did not have the space to accommodate the pipes they ordered" [CFI
Decision, p. 9; Rollo, p. 49].

Given this answer to its offer, Delta did not do anything. As testified by Crispin Villanueva, manager
of the Technical Service department of petitioner:

Q You stated that you sent a certain Evangelista to the España

Extension and Cold Storage to offer the delivery subject matter of the
 contract and then you said that Mr. Evangelista reported (sic) to you
that plaintiff would not accept delivery, is that correct, as a summary
of your statement?

A A Yes, sir.

Q Now, what did you do in the premises (sic)?

A Yes, well, we take the word of Mr. Evangelista. We could not

deliver the said black iron pipes, because as per information the Ice
Plant is not yet finished.

Q Did you not report that fact to ... any other defendant-officials of the
Delta Motor Corporation?

A No.

Q And you did not do anything after that?

A Because taking the word of my Engineer we did not do anything.

[TSN, December 8, 1975, pp. 18-19.]

xxx xxx xxx

And secondly, three (3) years later when the Genuinos offered to make payment Delta did not raise
any argument but merely demanded that the quoted prices be increased. Thus, in its answer to
private respondents' request for delivery of the pipes, Delta countered:

Thank you for your letter dated April 15, 1975, requesting for delivery of Black Iron
pipes;.

We regret to say, however, that we cannot base our price on our proposals dated
July 3 and July 18, 1972 as per the following paragraph quoted on said proposal:

Our price offer indicated herein shall remain firm within a period of
thirty (30) days from the date hereof. Any order placed after said
period will be subject to our review and confirmation.

We are, therefore, enclosing our re-quoted proposal based on our current price.
[Exh. "G".]

Moreover, the power to rescind under Art. 1191 is not absolute. "[T]he act of a party in treating a
contract as cancelled or resolved on account of infractions by the other contracting party must be
made known to the other and is always provisional, being ever subject to scrutiny and review by the
proper court." [University of the Phils. v. De los Angeles, G. R. No. L-28602, September 29, 1970, 35
SCRA 102, 107; Emphasis supplied.]

In the instant case, Delta made no manifestation whatsoever that it had opted to rescind its contracts
with f-he Genuinos. It only raised rescission as a defense when it was sued for specific performance
by private respondents.
Further, it would be highly inequitable for petitioner Delta to rescind the two (2) contracts considering
the fact that not only does it have in its possession and ownership the black iron pipes, but also the
P15,900.00 down payments private respondents have paid. And if petitioner Delta claims the right to
rescission, at the very least, it should have offered to return the P15,900.00 down payments [See
Art. 1385, Civil Code and Hodges v. Granada, 59 Phil. 429 (1934)].

It is for these same reasons that while there is merit in Delta's claim that the sale is subject to
suspensive conditions, the Court finds that it has, nevertheless, waived performance of these
conditions and opted to go on with the contracts although at a much higher price. Art. 1545 of the
Civil Code provides:

Art. 1545. Where the obligation of either party to a contract of sale is subject to any
condition which is not performed, such party may refuse to proceed with the contract
or he may waived performance of the condition. . . . [Emphasis supplied.]

Finally, Delta cannot ask for increased prices based on the price offer stipulation in the contracts and
in the increase in the cost of goods. Reliance by Delta on the price offer stipulation is misplaced.
Said stipulation makes reference to Delta's price offer as remaining firm for thirty (30) days and
thereafter, will be subject to its review and confirmation. The offers of Delta, however, were accepted
by the private respondents within the thirty (30)-day period. And as stipulated in the two (2) letter-
quotations, acceptance of the offer gives rise to a contract between the parties:

In the event that this proposal is acceptable to you, please indicate your conformity
by signing the space provided herein below which also serves as a contract of this
proposal. [Exhs. "A" and "C"; Exhs. "1" and "2".]

And as further provided by the Civil Code:

Art. 1319. Consent is manifested by the meeting of the offer and the acceptance
upon the thing and the cause which are to constitute the contract.

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

Thus, the moment private respondents accepted the offer of Delta, the contract of sale between
them was perfected and neither party could change the terms thereof.

Neither could petitioner Delta rely on the fluctuation in the market price of goods to support its claim
for rescission. As testified to by petitioner's Vice-President of Marketing for the Electronics,
Airconditioning and Refrigeration division, Marcelino Caja, the stipulation in the two (2) contracts as
to delivery, ex-stock subject to prior sales, means that "the goods have not been delivered and
that there are no prior commitments other than the sale covered by the contracts.. . once the offer is
accepted, the company has no more option to change the price." [CFI Decision, p. 5; Rollo, p. 45;
Emphasis supplied.] Thus, petitioner cannot claim for higher prices for the black iron pipes due to the
increase in the cost of goods. Based on the foregoing, petitioner Delta and private respondents
Genuinos should comply with the original terms of their contracts.

WHEREFORE, the decision of the Court of Appeals is hereby AFFIRMED.

SO ORDERED.
Fernan, C.J., Gutierrez, Jr., Feliciano and Bidin, JJ., concur.

Footnotes

* The Court of Appeals decision was penned by Justice German. Justice de la

Fuente wrote a separate concurring opinion. Justice Cenzon concurred both with
Justice German's decision and Justice de la Fuente's opinion. Justice Gancayco,
however, wrote a separate dissenting opinion to which Justice Patajo concurred.

Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. L-59266 February 29, 1988

SILVESTRE DIGNOS and ISABEL LUMUNGSOD, petitioners,

vs.
HON. COURT OF APPEALS and ATILANO G. JABIL, respondents.

BIDIN, J.:

This is a petition for review on certiorari seeking the reversal of the: (1) Decision * of the 9th Division, Court of Appeals dated July 31,1981,
affirming with modification the Decision, dated August 25, 1972 of the Court of First Instance ** of Cebu in civil Case No. 23-L entitled Atilano
G. Jabil vs. Silvestre T. Dignos and Isabela Lumungsod de Dignos and Panfilo Jabalde, as Attorney-in-Fact of Luciano Cabigas and Jovita L.
de Cabigas; and (2) its Resolution dated December 16, 1981, denying defendant-appellant's (Petitioner's) motion for reconsideration, for lack
of merit.

The undisputed facts as found by the Court of Appeals are as follows:

The Dignos spouses were owners of a parcel of land, known as Lot No. 3453, of the
cadastral survey of Opon, Lapu-Lapu City. On June 7, 1965, appellants (petitioners)
Dignos spouses sold the said parcel of land to plaintiff-appellant (respondent Atilano
J. Jabil) for the sum of P28,000.00, payable in two installments, with an assumption
of indebtedness with the First Insular Bank of Cebu in the sum of P12,000.00, which
was paid and acknowledged by the vendors in the deed of sale (Exh. C) executed in
favor of plaintiff-appellant, and the next installment in the sum of P4,000.00 to be
paid on or before September 15, 1965.

On November 25, 1965, the Dignos spouses sold the same land in favor of
defendants spouses, Luciano Cabigas and Jovita L. De Cabigas, who were then U.S.
citizens, for the price of P35,000.00. A deed of absolute sale (Exh. J, also marked
Exh. 3) was executed by the Dignos spouses in favor of the Cabigas spouses, and
which was registered in the Office of the Register of Deeds pursuant to the
provisions of Act No. 3344.
 As the Dignos spouses refused to accept from plaintiff-appellant the balance of the
purchase price of the land, and as plaintiff- appellant discovered the second sale
made by defendants-appellants to the Cabigas spouses, plaintiff-appellant brought
the present suit. (Rollo, pp. 27-28)

After due trial, the Court of first Instance of Cebu rendered its Decision on August 25,1972, the
decretal portion of which reads:

WHEREFORE, the Court hereby declares the deed of sale executed on November
25, 1965 by defendant Isabela L. de Dignos in favor of defendant Luciano Cabigas, a
citizen of the United States of America, null and void ab initio, and the deed of sale
executed by defendants Silvestre T. Dignos and Isabela Lumungsod de Dignos not
rescinded. Consequently, the plaintiff Atilano G. Jabil is hereby ordered to pay the
sum, of Sixteen Thousand Pesos (P16,000.00) to the defendants-spouses upon the
execution of the Deed of absolute Sale of Lot No. 3453, Opon Cadastre and when
the decision of this case becomes final and executory.

The plaintiff Atilano G. Jabil is ordered to reimburse the defendants Luciano Cabigas
and Jovita L. de Cabigas, through their attorney-in-fact, Panfilo Jabalde, reasonable
amount corresponding to the expenses or costs of the hollow block fence, so far
constructed.

It is further ordered that defendants-spouses Silvestre T. Dignos and Isabela

Lumungsod de Dignos should return to defendants-spouses Luciano Cabigas and
Jovita L. de Cabigas the sum of P35,000.00, as equity demands that nobody shall
enrich himself at the expense of another.

The writ of preliminary injunction issued on September 23, 1966, automatically

becomes permanent in virtue of this decision.

With costs against the defendants.

From the foregoing, the plaintiff (respondent herein) and defendants-spouss (petitioners herein)
appealed to the Court of Appeals, which appeal was docketed therein as CA-G.R. No. 54393-R,
"Atilano G. Jabil v. Silvestre T. Dignos, et al."

On July 31, 1981, the Court of Appeals affirmed the decision of the lower court except as to the
portion ordering Jabil to pay for the expenses incurred by the Cabigas spouses for the building of a
fence upon the land in question. The disposive portion of said decision of the Court of Appeals
reads:

IN VIEW OF THE FOREGOING CONSIDERATIONS, except as to the modification

of the judgment as pertains to plaintiff-appellant above indicated, the judgment
appealed from is hereby AFFIRMED in all other respects.

With costs against defendants-appellants.

SO ORDERED.

Judgment MODIFIED.
A motion for reconsideration of said decision was filed by the defendants- appellants (petitioners)
Dignos spouses, but on December 16, 1981, a resolution was issued by the Court of Appeals
denying the motion for lack of merit.

Hence, this petition.

In the resolution of February 10, 1982, the Second Division of this Court denied the petition for lack
of merit. A motion for reconsideration of said resolution was filed on March 16, 1982. In the
resolution dated April 26,1982, respondents were required to comment thereon, which comment was
filed on May 11, 1982 and a reply thereto was filed on July 26, 1982 in compliance with the
resolution of June 16,1 982. On August 9,1982, acting on the motion for reconsideration and on all
subsequent pleadings filed, this Court resolved to reconsider its resolution of February 10, 1982 and
to give due course to the instant petition. On September 6, 1982, respondents filed a rejoinder to
reply of petitioners which was noted on the resolution of September 20, 1982.

Petitioners raised the following assignment of errors:

THE COURT OF APPEALS COMMITTED A GRAVE ERROR OF LAW IN GROSSLY,

INCORRECTLY INTERPRETING THE TERMS OF THE CONTRACT, EXHIBIT C, HOLDING IT AS
AN ABSOLUTE SALE, EFFECTIVE TO TRANSFER OWNERSHIP OVER THE PROPERTY IN
QUESTION TO THE RESPONDENT AND NOT MERELY A CONTRACT TO SELL OR PROMISE
TO SELL; THE COURT ALSO ERRED IN MISAPPLYING ARTICLE 1371 AS WARRANTING
READING OF THE AGREEMENT, EXHIBIT C, AS ONE OF ABSOLUTE SALE, DESPITE THE
CLARITY OF THE TERMS THEREOF SHOWING IT IS A CONTRACT OF PROMISE TO SELL.

II

THE COURT OF APPEALS COMMITTED AN ERROR OF LAW IN INCORRECTLY APPLYING

AND OR IN MISAPPLYING ARTICLE 1592 OF THE NEW CIVIL CODE AS WARRANTING THE
ERRONEOUS CONCLUSION THAT THE NOTICE OF RESCISSION, EXHIBIT G, IS INEFFECTIVE
SINCE IT HAS NOT BEEN JUDICIALLY DEMANDED NOR IS IT A NOTARIAL ACT.

III

THE COURT OF APPEALS COMMITTED AN ERROR OF LAW IN REJECTING THE

APPLICABILITY OF ARTICLES 2208,2217 and 2219 OF THE NEW CIVIL CODE AND
ESTABLISHED JURISPRUDENCE AS TO WARRANT THE AWARD OF DAMAGES AND
ATTORNEY'S FEES TO PETITIONERS.

IV

PLAINTIFF'S COMPLAINT FOR SPECIFIC PERFORMANCE SHOULD HAVE BEEN DISMISSED,

HE HAVING COME TO COURT WITH UNCLEAN HANDS.

BY AND LARGE, THE COURT OF APPEALS COMMITTED AN ERROR IN AFFIRMING WITH

MODIFICATION THE DECISION OF THE TRIAL COURT DUE TO GRAVE MISINTERPRETATION,
MISAPPLICATION AND MISAPPREHENSION OF THE TERMS OF THE QUESTIONED
CONTRACT AND THE LAW APPLICABLE THERETO.

The foregoing assignment of errors may be synthesized into two main issues, to wit:

I. Whether or not subject contract is a deed of absolute sale or a contract Lot sell.

II. Whether or not there was a valid rescission thereof.

There is no merit in this petition.

It is significant to note that this petition was denied by the Second Division of this Court in its
Resolution dated February 1 0, 1 982 for lack of merit, but on motion for reconsideration and on the
basis of all subsequent pleadings filed, the petition was given due course.

I.

The contract in question (Exhibit C) is a Deed of Sale, with the following conditions:

1. That Atilano G..Jabilis to pay the amount of Twelve Thousand Pesos P12,000.00)
Phil. Philippine Currency as advance payment;

2. That Atilano G. Jabil is to assume the balance of Twelve Thousand Pesos

(P12,000.00) Loan from the First Insular Bank of Cebu;

3. That Atilano G. Jabil is to pay the said spouses the balance of Four. Thousand
Pesos (P4,000.00) on or before September 15,1965;

4. That the said spouses agrees to defend the said Atilano G. Jabil from other claims
on the said property;

5. That the spouses agrees to sign a final deed of absolute sale in favor of Atilano G.
Jabil over the above-mentioned property upon the payment of the balance of Four
Thousand Pesos. (Original Record, pp. 10-11)

In their motion for reconsideration, petitioners reiterated their contention that the Deed of Sale
(Exhibit "C") is a mere contract to sell and not an absolute sale; that the same is subject to two (2)
positive suspensive conditions, namely: the payment of the balance of P4,000.00 on or before
September 15,1965 and the immediate assumption of the mortgage of P12,000.00 with the First
Insular Bank of Cebu. It is further contended that in said contract, title or ownership over the property
was expressly reserved in the vendor, the Dignos spouses until the suspensive condition of full and
punctual payment of the balance of the purchase price shall have been met. So that there is no
actual sale until full payment is made (Rollo, pp. 51-52).

In bolstering their contention that Exhibit "C" is merely a contract to sell, petitioners aver that there is
absolutely nothing in Exhibit "C" that indicates that the vendors thereby sell, convey or transfer their
ownership to the alleged vendee. Petitioners insist that Exhibit "C" (or 6) is a private instrument and
the absence of a formal deed of conveyance is a very strong indication that the parties did not intend
"transfer of ownership and title but only a transfer after full payment" (Rollo, p. 52). Moreover,
petitioners anchored their contention on the very terms and conditions of the contract, more
particularly paragraph four which reads, "that said spouses has agreed to sell the herein mentioned
property to Atilano G. Jabil ..." and condition number five which reads, "that the spouses agrees to
sign a final deed of absolute sale over the mentioned property upon the payment of the balance of
four thousand pesos."

Such contention is untenable.

By and large, the issues in this case have already been settled by this Court in analogous cases.

Thus, it has been held that a deed of sale is absolute in nature although denominated as a "Deed of
Conditional Sale" where nowhere in the contract in question is a proviso or stipulation to the effect
that title to the property sold is reserved in the vendor until full payment of the purchase price, nor is
there a stipulation giving the vendor the right to unilaterally rescind the contract the moment the
vendee fails to pay within a fixed period Taguba v. Vda. de Leon, 132 SCRA 722; Luzon Brokerage
Co., Inc. v. Maritime Building Co., Inc., 86 SCRA 305).

A careful examination of the contract shows that there is no such stipulation reserving the title of the
property on the vendors nor does it give them the right to unilaterally rescind the contract upon non-
payment of the balance thereof within a fixed period.

On the contrary, all the elements of a valid contract of sale under Article 1458 of the Civil Code, are
present, such as: (1) consent or meeting of the minds; (2) determinate subject matter; and (3) price
certain in money or its equivalent. In addition, Article 1477 of the same Code provides that "The
ownership of the thing sold shall be transferred to the vendee upon actual or constructive delivery
thereof." As applied in the case of Froilan v. Pan Oriental Shipping Co., et al. (12 SCRA 276), this
Court held that in the absence of stipulation to the contrary, the ownership of the thing sold passes
to the vendee upon actual or constructive delivery thereof.

While it may be conceded that there was no constructive delivery of the land sold in the case at bar,
as subject Deed of Sale is a private instrument, it is beyond question that there was actual delivery
thereof. As found by the trial court, the Dignos spouses delivered the possession of the land in
question to Jabil as early as March 27,1965 so that the latter constructed thereon Sally's Beach
Resort also known as Jabil's Beach Resort in March, 1965; Mactan White Beach Resort on January
15,1966 and Bevirlyn's Beach Resort on September 1, 1965. Such facts were admitted by petitioner
spouses (Decision, Civil Case No. 23-L; Record on Appeal, p. 108).

Moreover, the Court of Appeals in its resolution dated December 16,1981 found that the acts of
petitioners, contemporaneous with the contract, clearly show that an absolute deed of sale was
intended by the parties and not a contract to sell.

Be that as it may, it is evident that when petitioners sold said land to the Cabigas spouses, they were
no longer owners of the same and the sale is null and void.

II.

Petitioners claim that when they sold the land to the Cabigas spouses, the contract of sale was
already rescinded.

Applying the rationale of the case of Taguba v. Vda. de Leon (supra) which is on all fours with the
case at bar, the contract of sale being absolute in nature is governed by Article 1592 of the Civil
Code. It is undisputed that petitioners never notified private respondents Jabil by notarial act that
they were rescinding the contract, and neither did they file a suit in court to rescind the sale. The
most that they were able to show is a letter of Cipriano Amistad who, claiming to be an emissary of
Jabil, informed the Dignos spouses not to go to the house of Jabil because the latter had no money
and further advised petitioners to sell the land in litigation to another party (Record on Appeal, p. 23).
As correctly found by the Court of Appeals, there is no showing that Amistad was properly
authorized by Jabil to make such extra-judicial rescission for the latter who, on the contrary,
vigorously denied having sent Amistad to tell petitioners that he was already waiving his rights to the
land in question. Under Article 1358 of the Civil Code, it is required that acts and contracts which
have for their object the extinguishment of real rights over immovable property must appear in a
public document.

Petitioners laid considerable emphasis on the fact that private respondent Jabil had no money on the
stipulated date of payment on September 15,1965 and was able to raise the necessary amount only
by mid-October 1965.

It has been ruled, however, that "where time is not of the essence of the agreement, a slight delay
on the part of one party in the performance of his obligation is not a sufficient ground for the
rescission of the agreement" (Taguba v. Vda. de Leon, supra). Considering that private respondent
has only a balance of P4,000.00 and was delayed in payment only for one month, equity and justice
mandate as in the aforecited case that Jabil be given an additional period within which to complete
payment of the purchase price.

WHEREFORE, the petition filed is hereby Dismissed for lack of merit and the assailed decision of
the Court of Appeals is Affirmed in toto.

SO ORDERED.

Fernan (Chairman), Gutierrez, Jr., Feliciano and Cortes, JJ., concur.

Footnotes

* Penned by Justice Elias B. Asuncion and concurred by Justices Porfirio V. Sison

and Vicente V. Mendoza.

** Penned by Judge Ramon E. Nazareno.

Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 107207 November 23, 1995

VIRGILIO R. ROMERO, petitioner,
vs.
HON. COURT OF APPEALS and ENRIQUETA CHUA VDA. DE ONGSIONG, respondents.
VITUG, J.:

The parties pose this question: May the vendor demand the rescission of a contract for the sale of a
parcel of land for a cause traceable to his own failure to have the squatters on the subject property
evicted within the contractually-stipulated period?

Petitioner Virgilio R. Romero, a civil engineer, was engaged in the business of production,
manufacture and exportation of perlite filter aids, permalite insulation and processed perlite ore. In
1988, petitioner and his foreign partners decided to put up a central warehouse in Metro Manila on a
land area of approximately 2,000 square meters. The project was made known to several freelance
real estate brokers.

A day or so after the announcement, Alfonso Flores and his wife, accompanied by a broker, offered
a parcel of land measuring 1,952 square meters. Located in Barangay San Dionisio, Parañaque,
Metro Manila, the lot was covered by TCT No. 361402 in the name of private respondent Enriqueta
Chua vda. de Ongsiong. Petitioner visited the property and, except for the presence of squatters in
the area, he found the place suitable for a central warehouse.

Later, the Flores spouses called on petitioner with a proposal that should he advance the amount of
P50,000.00 which could be used in taking up an ejectment case against the squatters, private
respondent would agree to sell the property for only P800.00 per square meter. Petitioner expressed
his concurrence. On 09 June 1988, a contract, denominated "Deed of Conditional Sale," was
executed between petitioner and private respondent. The simply-drawn contract read:

DEED OF CONDITIONAL SALE

KNOW ALL MEN BY THESE PRESENTS:

This Contract, made and executed in the Municipality of Makati, Philippines this 9th
day of June, 1988 by and between:

ENRIQUETA CHUA VDA. DE ONGSIONG, of legal age, widow,

Filipino and residing at 105 Simoun St., Quezon City, Metro Manila,
hereinafter referred to as the VENDOR;

-and-

VIRGILIO R. ROMERO, married to Severina L. Lat, of Legal age,

Filipino, and residing at 110 San Miguel St., Plainview Subd.,
Mandaluyong Metro Manila, hereinafter referred to as the VENDEE:

W I T N E S S E T H : That

WHEREAS, the VENDOR is the owner of One (1) parcel of land with a total area of
ONE THOUSAND NINE HUNDRED FIFTY TWO (1,952) SQUARE METERS, more
or less, located in Barrio San Dionisio, Municipality of Parañaque, Province of Rizal,
covered by TCT No. 361402 issued by the Registry of Deeds of Pasig and more
particularly described as follows:
 xxx xxx xxx

WHEREAS, the VENDEE, for (sic) has offered to buy a parcel of land and the
VENDOR has accepted the offer, subject to the terms and conditions hereinafter
stipulated:

NOW, THEREFORE, for and in consideration of the sum of ONE MILLION FIVE
HUNDRED SIXTY ONE THOUSAND SIX HUNDRED PESOS (P1,561,600.00)
ONLY, Philippine Currency, payable by VENDEE to in to (sic) manner set forth, the
VENDOR agrees to sell to the VENDEE, their heirs, successors, administrators,
executors, assign, all her rights, titles and interest in and to the property mentioned in
the FIRST WHEREAS CLAUSE, subject to the following terms and conditions:

1. That the sum of FIFTY THOUSAND PESOS (P50,000.00) ONLY

Philippine Currency, is to be paid upon signing and execution of this
instrument.

2. The balance of the purchase price in the amount of ONE MILLION

FIVE HUNDRED ELEVEN THOUSAND SIX HUNDRED PESOS
(P1,511,600.00) ONLY shall be paid 45 days after the removal of all
squatters from the above described property.

3. Upon full payment of the overall purchase price as aforesaid,

VENDOR without necessity of demand shall immediately sign,
execute, acknowledged (sic) and deliver the corresponding deed of
absolute sale in favor of the VENDEE free from all liens and
encumbrances and all Real Estate taxes are all paid and updated.

It is hereby agreed, covenanted and stipulated by and between the parties hereto
that if after 60 days from the date of the signing of this contract the VENDOR shall
not be able to remove the squatters from the property being purchased, the
downpayment made by the buyer shall be returned/reimbursed by the VENDOR to
the VENDEE.

That in the event that the VENDEE shall not be able to pay the VENDOR the balance
of the purchase price of ONE MILLION FIVE HUNDRED ELEVEN THOUSAND SIX
HUNDRED PESOS (P1,511,600.00) ONLY after 45 days from written notification to
the VENDEE of the removal of the squatters from the property being purchased, the
FIFTY THOUSAND PESOS (P50,000.00) previously paid as downpayment shall be
forfeited in favor of the VENDOR.

Expenses for the registration such as registration fees, documentary stamp, transfer
fee, assurances and such other fees and expenses as may be necessary to transfer
the title to the name of the VENDEE shall be for the account of the VENDEE while
capital gains tax shall be paid by the VENDOR.

IN WITNESS WHEREOF, the parties hereunto signed those (sic) presents in the City
of Makati MM, Philippines on this 9th day of June, 1988.

(Sgd.) (Sgd.)
 VIRGILIO R. ROMERO ENRIQUETA CHUA VDA.

DE ONGSIONG

Vendee Vendor

SIGNED IN THE PRESENCE OF:

(Sgd.) (Sgd.)

Rowena C. Ongsiong Jack M. Cruz 1

Alfonso Flores, in behalf of private respondent, forthwith received and acknowledged a

check for P50,000.00  from petitioner.
2 3

Pursuant to the agreement, private respondent filed a complaint for ejectment (Civil Case No. 7579)
against Melchor Musa and 29 other squatter families with the Metropolitan Trial Court of Parañaque.
A few months later, or on 21 February 1989, judgment was rendered ordering the defendants to
vacate the premises. The decision was handed down beyond the 60-day period (expiring 09 August
1988) stipulated in the contract. The writ of execution of the judgment was issued, still later, on 30
March 1989.

In a letter, dated 07 April 1989, private respondent sought to return the P50,000.00 she received
from petitioner since, she said, she could not "get rid of the squatters" on the lot. Atty. Sergio A.F.
Apostol, counsel for petitioner, in his reply of 17 April 1989, refused the tender and stated:.

Our client believes that with the exercise of reasonable diligence considering the
favorable decision rendered by the Court and the writ of execution issued pursuant
thereto, it is now possible to eject the squatters from the premises of the subject
property, for which reason, he proposes that he shall take it upon himself to eject the
squatters, provided, that expenses which shall be incurred by reason thereof shall be
chargeable to the purchase price of the land. 4

Meanwhile, the Presidential Commission for the Urban Poor ("PCUD"), through its Regional Director
for Luzon, Farley O. Viloria, asked the Metropolitan Trial Court of Parañaque for a grace period of 45
days from 21 April 1989 within which to relocate and transfer the squatter families. Acting favorably
on the request, the court suspended the enforcement of the writ of execution accordingly.

On 08 June 1989, Atty. Apostol reminded private respondent on the expiry of the 45-day grace
period and his client's willingness to "underwrite the expenses for the execution of the judgment and
ejectment of the occupants." 5

In his letter of 19 June 1989, Atty. Joaquin Yuseco, Jr., counsel for private respondent, advised Atty.
Apostol that the Deed of Conditional Sale had been rendered null and void by virtue of his client's
failure to evict the squatters from the premises within the agreed 60-day period. He added that
private respondent had "decided to retain the property." 6

On 23 June 1989, Atty. Apostol wrote back to explain:

The contract of sale between the parties was perfected from the very moment that
there was a meeting of the minds of the parties upon the subject lot and the price in
 the amount of P1,561,600.00. Moreover, the contract had already been partially
fulfilled and executed upon receipt of the downpayment of your client. Ms. Ongsiong
is precluded from rejecting its binding effects relying upon her inability to eject the
squatters from the premises of subject property during the agreed period. Suffice it to
state that, the provision of the Deed of Conditional Sale do not grant her the option or
prerogative to rescind the contract and to retain the property should she fail to
comply with the obligation she has assumed under the contract. In fact, a perusal of
the terms and conditions of the contract clearly shows that the right to rescind the
contract and to demand the return/reimbursement of the downpayment is granted to
our client for his protection.

Instead, however, of availing himself of the power to rescind the contract and
demand the return, reimbursement of the downpayment, our client had opted to take
it upon himself to eject the squatters from the premises. Precisely, we refer you to
our letters addressed to your client dated April 17, 1989 and June 8, 1989.

Moreover, it is basic under the law on contracts that the power to rescind is given to
the injured party. Undoubtedly, under the circumstances, our client is the injured
party.

Furthermore, your client has not complied with her obligation under their contract in
good faith. It is undeniable that Ms. Ongsiong deliberately refused to exert efforts to
eject the squatters from the premises of the subject property and her decision to
retain the property was brought about by the sudden increase in the value of realties
in the surrounding areas.

Please consider this letter as a tender of payment to your client and a demand to
execute the absolute Deed of Sale. 7

A few days later (or on 27 June 1989), private respondent, prompted by petitioner's continued
refusal to accept the return of the P50,000.00 advance payment, filed with the Regional Trial Court
of Makati, Branch 133, Civil Case No. 89-4394 for rescission of the deed of "conditional" sale, plus
damages, and for the consignation of P50,000.00 cash.

Meanwhile, on 25 August 1989, the Metropolitan Trial Court issued an alias writ of execution in Civil
Case No. 7579 on motion of private respondent but the squatters apparently still stayed on.

Back to Civil Case No. 89-4394, on 26 June 1990, the Regional Trial Court of Makati  rendered
8

decision holding that private respondent had no right to rescind the contract since it was she who
"violated her obligation to eject the squatters from the subject property" and that petitioner, being the
injured party, was the party who could, under Article 1191 of the Civil Code, rescind the agreement.
The court ruled that the provisions in the contract relating to (a) the return/reimbursement of the
P50,000.00 if the vendor were to fail in her obligation to free the property from squatters within the
stipulated period or (b), upon the other hand, the sum's forfeiture by the vendor if the vendee were to
fail in paying the agreed purchase price, amounted to "penalty clauses". The court added:

This Court is not convinced of the ground relied upon by the plaintiff in seeking the
rescission, namely: (1) he (sic) is afraid of the squatters; and (2) she has spent so
much to eject them from the premises (p. 6, tsn, ses. Jan. 3, 1990). Militating against
her profession of good faith is plaintiffs conduct which is not in accord with the rules
of fair play and justice. Notably, she caused the issuance of an alias writ of execution
on August 25, 1989 (Exh. 6) in the ejectment suit which was almost two months after
 she filed the complaint before this Court on June 27, 1989. If she were really afraid of
the squatters, then she should not have pursued the issuance of an alias writ of
execution. Besides, she did not even report to the police the alleged phone threats
from the squatters. To the mind of the Court, the so-called squatter factor is simply
factuitous (sic).
9

The lower court, accordingly, dismissed the complaint and ordered, instead, private
respondent to eject or cause the ejectment of the squatters from the property and to execute
the absolute deed of conveyance upon payment of the full purchase price by petitioner.

Private respondent appealed to the Court of Appeals. On 29 May 1992, the appellate court rendered
its decision.   It opined that the contract entered into by the parties was subject to a resolutory
10

condition, i.e., the ejectment of the squatters from the land, the non-occurrence of which resulted in
the failure of the object of the contract; that private respondent substantially complied with her
obligation to evict the squatters; that it was petitioner who was not ready to pay the purchase price
and fulfill his part of the contract, and that the provision requiring a mandatory return/reimbursement
of the P50,000.00 in case private respondent would fail to eject the squatters within the 60-day
period was not a penal clause. Thus, it concluded.

WHEREFORE, the decision appealed from is REVERSED and SET ASIDE, and a
new one entered declaring the contract of conditional sale dated June 9, 1988
cancelled and ordering the defendant-appellee to accept the return of the
downpayment in the amount of P50,000.00 which was deposited in the court below.
No pronouncement as to costs. 11

Failing to obtain a reconsideration, petitioner filed this petition for review on certiorari raising issues
that, in fine, center on the nature of the contract adverted to and the P50,000.00 remittance made by
petitioner.

A perfected contract of sale may either be absolute or conditional  depending on whether the
12

agreement is devoid of, or subject to, any condition imposed on the passing of title of the thing to be
conveyed or on the obligation of a party thereto. When ownership is retained until the fulfillment of a
positive condition the breach of the condition will simply prevent the duty to convey title from
acquiring an obligatory force. If the condition is imposed on an obligation of a party which is not
complied with, the other party may either refuse to proceed or waive said condition (Art. 1545, Civil
Code). Where, of course, the condition is imposed upon the perfection of the contract itself, the
failure of such condition would prevent the juridical relation itself from coming into existence. 13

In determining the real character of the contract, the title given to it by the parties is not as much
significant as its substance. For example, a deed of sale, although denominated as a deed of
conditional sale, may be treated as absolute in nature, if title to the property sold is not reserved in
the vendor or if the vendor is not granted the right to unilaterally rescind the contract predicated
on the fulfillment or non-fulfillment, as the case may be, of the prescribed condition. 14

The term "condition" in the context of a perfected contract of sale pertains, in reality, to the
compliance by one party of an undertaking the fulfillment of which would beckon, in turn, the
demandability of the reciprocal prestation of the other party. The reciprocal obligations referred to
would normally be, in the case of vendee, the payment of the agreed purchase price and, in the case
of the vendor, the fulfillment of certain express warranties (which, in the case at bench is the timely
eviction of the squatters on the property).
It would be futile to challenge the agreement here in question as not being a duly perfected contract.
A sale is at once perfected when a person (the seller) obligates himself, for a price certain, to deliver
and to transfer ownership of a specified thing or right to another (the buyer) over which the latter
agrees. 15

The object of the sale, in the case before us, was specifically identified to be a 1,952-square meter
lot in San Dionisio, Parañaque, Rizal, covered by Transfer Certificate of Title No. 361402 of the
Registry of Deeds for Pasig and therein technically described. The purchase price was fixed at
P1,561,600.00, of which P50,000.00 was to be paid upon the execution of the document of sale and
the balance of P1,511,600.00 payable "45 days after the removal of all squatters from the above
described property."

From the moment the contract is perfected, the parties are bound not only to the fulfillment of what
has been expressly stipulated but also to all the consequences which, according to their nature, may
be in keeping with good faith, usage and law. Under the agreement, private respondent is obligated
to evict the squatters on the property. The ejectment of the squatters is a condition the operative act
of which sets into motion the period of compliance by petitioner of his own obligation, i.e., to pay the
balance of the purchase price. Private respondent's failure "to remove the squatters from the
property" within the stipulated period gives petitioner the right to either refuse to proceed with the
agreement or waive that condition in consonance with Article 1545 of the Civil Code.  This option
16

clearly belongs to petitioner and not to private respondent.

We share the opinion of the appellate court that the undertaking required of private respondent does
not constitute a "potestative condition dependent solely on his will" that might, otherwise, be void in
accordance with Article 1182 of the Civil Code  but a "mixed" condition "dependent not on the will of
17

the vendor alone but also of third persons like the squatters and government agencies and
personnel concerned."  We must hasten to add, however, that where the so-called "potestative
18

condition" is imposed not on the birth of the obligation but on its fulfillment, only the obligation is
avoided, leaving unaffected the obligation itself. 19

In contracts of sale particularly, Article 1545 of the Civil Code, aforementioned, allows the obligee to
choose between proceeding with the agreement or waiving the performance of the condition. It is
this provision which is the pertinent rule in the case at bench. Here, evidently, petitioner has waived
the performance of the condition imposed on private respondent to free the property from squatters. 20

In any case, private respondent's action for rescission is not warranted. She is not the injured
party.  The right of resolution of a party to an obligation under Article 1191 of the Civil Code is
21

predicated on a breach of faith by the other party that violates the reciprocity between them.  It is
22

private respondent who has failed in her obligation under the contract. Petitioner did not breach the
agreement. He has agreed, in fact, to shoulder the expenses of the execution of the judgment in the
ejectment case and to make arrangements with the sheriff to effect such execution. In his letter of 23
June 1989, counsel for petitioner has tendered payment and demanded forthwith the execution of
the deed of absolute sale. Parenthetically, this offer to pay, having been made prior to the demand
for rescission, assuming for the sake of argument that such a demand is proper under Article
1592  of the Civil Code, would likewise suffice to defeat private respondent's prerogative to rescind
23

thereunder.

There is no need to still belabor the question of whether the P50,000.00 advance payment is
reimbursable to petitioner or forfeitable by private respondent, since, on the basis of our foregoing
conclusions, the matter has ceased to be an issue. Suffice it to say that petitioner having opted to
proceed with the sale, neither may petitioner demand its reimbursement from private respondent nor
may private respondent subject it to forfeiture.
WHEREFORE, the questioned decision of the Court of Appeals is hereby REVERSED AND SET
ASIDE, and another is entered ordering petitioner to pay private respondent the balance of the
purchase price and the latter to execute the deed of absolute sale in favor of petitioner. No costs.

SO ORDERED.

Feliciano, Romero, Melo and Panganiban, JJ., concur.

Footnotes

1 Records, pp. 60-61.

2 Exh. 9.

3 Exh. 2.

4 Records, p. 116.

5 Exh. 8-B.

6 Exh. D.

7 Records, pp. 74-75.

8 Presided by Judge Buenaventura J. Guerrero.

9 Records, p. 205.

10 Penned by Associate Justice Fermin A. Martin, Jr. and concurred in by Associate

Justices Emeterio C. Cui and Cezar D. Francisco.

11 Rollo, p. 46.

12 Art. 1458, second paragraph, Civil Code of the Philippines.

13 See Ang Yu Asuncion, et al., vs. Court of Appeals, 238 SCRA 602.

14 Ibid., Vol. V, p. 3 citing Dignos v. Court of Appeals, No. L-59266, February 29,

1988, 158 SCRA 375.

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

From that moment, the parties may reciprocally demand performance, subject to the
provisions of the law governing the form of contracts.

16 Art. 1545. Where the obligation of either party to a contract of sale is subject to
any condition which is not performed, such party may refuse to proceed with the
contract or he may waive performance of the condition. If the other party has
 promised that the condition should happen or be performed, such first mentioned
party may also treat the nonperformance of the condition as a breach of warranty.

Where the ownership in the thing has not passed, the buyer may treat the fulfillment
by the seller of his obligation to deliver the same as described and as warranted
expressly or by implication in the contract of sale as a condition of the obligation of
the buyer to perform his promise to accept and pay for the thing.

17 Art. 1182. When the fulfillment of the condition depends upon the sole will of the
debtor, the conditional obligation shall be void. If it depends upon chance or upon the
will of a third person, the obligation shall take effect in conformity with the provisions
of this Code.

18 Decision, p. 17.

19 See Osmeña vs. Rama, 14 Phil. 99.

20 See: Intestate Estate of the Late Ricardo P. Presbitero, Sr. v. Court of Appeals,
217 SCRA 372.

21 In Boysaw v. Interphil. Promotions, Inc. (148 SCRA 635, 643), the Court has said:
"The power to rescind is given to the injured party. 'Where the plaintiff is the party
who did not perform the undertaking which he was bound by the terms of the
agreement to perform, he is not entitled to insist upon the performance of the
contract by the defendant, or recover damages by reason of his own breach.'"

22 Deiparine, Jr. v. Court of Appeals, 221 SCRA 503, 513 citing Universal Food

Corporation v. Court of Appeals, 33 SCRA 1.

23 See Ocampo v. Court of Appeals, supra. Art. 1592 states: "In the sale of

immovable property, even though it may have been stipulated that upon failure to
pay the price at the time agreed upon the rescission of the contract shall of right take
place, the vendee may pay, even after the expiration of the period, as long as no
demand for rescission of the contract has been made upon him either judicially or by
a notarial act. After the demand, the court may not grant him a new term."

Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

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").

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:

 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 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.

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.

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.
Narvasa, C.J., Davide, Jr. and Francisco, JJ., concur.

Panganiban, J., took no part.

THIRD DIVISION

G.R. No. 167213             October 31, 2006

DARREL CORDERO, EGMEDIO BAUTISTA, ROSEMAY BAUTISTA, MARION BAUTISTA,

DANNY BOY CORDERO, LADYLYN CORDERO and BELEN CORDERO, petitioners,
vs.
F.S. MANAGEMENT & DEVELOPMENT CORPORATION, respondent.

DECISION

CARPIO MORALES, J.:

Assailed via petition for review are issuances of the Court of Appeals in CA-G.R. CV No. 66198,
Decision1 dated April 29, 2004 which set aside the decision of Branch 260 of the Regional Trial Court
(RTC) of Parañaque in Civil Case No. 97-067, and Resolution dated February 21, 2005 denying
petitioners’ motion for reconsideration.

On or about October 27, 1994, 2 petitioner Belen Cordero (Belen), in her own behalf and as attorney-
in-fact of her co-petitioners Darrel Cordero, Egmedio Bautista, Rosemay Bautista, Marion Bautista,
Danny Boy Cordero and Ladylyn Cordero, entered into a contract to sell 3 with respondent, F.S.
Management and Development Corporation, through its chairman Roberto P. Tolentino over five (5)
parcels of land located in Nasugbu, Batangas described in and covered by TCT Nos. 62692, 62693,
62694, 62695 and 20987. The contract to sell contained the following terms and conditions:

1. That the BUYER will buy the whole lots above described from the OWNER consisting of
50 hectares more or less at P25/sq.m. or with a total price of P12,500,000.00;

2. That the BUYER will pay the OWNER the sum of P500,000.00 as earnest money which
will entitle the latter to enter the property and relocate the same, construct the necessary
paths and roads with the help of the necessary parties in the area;

3. The BUYER will pay the OWNER the sum of THREE MILLION FIVE HUNDRED
THOUSAND PESOS ONLY (P3,500,000.00) on or before April 30, 1995 and the remaining
balance will be paid within 18 mons. (sic) from the date of payment of P3.5 Million pesos in 6
equal quarterly payments or P1,411,000.00 every quarter;

4. The title will be transferred by the OWNER to the BUYER upon complete payment of the
agreed purchase price. Provided that any obligation by the OWNER brought about by
encumbrance or mortgage with any bank shall be settled by the OWNER or by the BUYER
which shall be deducted the total purchase price;
 5. Provided, the OWNER shall transfer the titles to the BUYER even before the complete
payment if the BUYER can provide post dated checks which shall be in accordance with the
time frame of payments as above stated and which shall be guaranteed by a reputable bank;

6. Upon the payment of the earnest money and the down payment of 3.5 Million pesos the
BUYER can occupy and introduce improvements in the properties as owner while owner is
guaranteeing that the properties will have no tenants or squatters in the properties and
cooperate in the development of any project or exercise of ownerships by the BUYER;

7. Delay in the payment by the BUYER in the agreed due date will entitle the SELLER for the
legal interest.4

Pursuant to the terms and conditions of the contract to sell, respondent paid earnest money in the
amount of P500,000 on October 27, 1994. 5 She likewise paid P1,000,000 on June 30, 1995 and
another P1,000,000 on July 6, 1995. No further payments were made thereafter. 6

Petitioners thus sent respondent a demand letter dated November 28, 1996 7 informing her that they
were revoking/canceling the contract to sell and were treating the payments already made as
payment for damages suffered as a result of the breach of contract, and demanding the payment of
the amount of P10 Million Pesos for actual damages suffered due to loss of income by reason
thereof. Respondent ignored the demand, however.

Hence, on February 21, 1997, petitioner Belen, in her own behalf and as attorney-in-fact of her co-
petitioners, filed before the RTC of Parañaque a complaint for rescission of contract with
damages8 alleging that respondent failed to comply with its obligations under the contract to sell,
specifically its obligation to pay the downpayment of P3.5 Million by April 30, 1995, and the balance
within 18 months thereafter; and that consequently petitioners are entitled to rescind the contract to
sell as well as demand the payment of damages.

In its Answer,9 respondent alleged that petitioners have no cause of action considering that they
were the first to violate the contract to sell by preventing access to the properties despite payment of
P2.5 Million Pesos; petitioners prevented it from complying with its obligation to pay in full by
refusing to execute the final contract of sale unless additional payment of legal interest is made; and
petitioners’ refusal to execute the final contract of sale was due to the willingness of another buyer to
pay a higher price.

In its Pre-trial Order10 of June 9, 1997, the trial court set the pre-trial conference on July 8, 1997
during which neither respondent’s representative nor its counsel failed to appear. And respondent
did not submit a pre-trial brief, hence, it was declared as in default by the trial court which allowed
the presentation of evidence ex parte by petitioners.11

Petitioners presented as witnesses petitioner Belen and one Ma. Cristina Cleofe. Belen testified on
the execution of the contract to sell; the failure of respondent to make the necessary payments in
compliance with the contract; the actual and moral damages sustained by petitioners as a result of
the breach, including the lost opportunity to sell the properties for a higher price to another buyer,
Ma. Cristina Cleofe; and the attorney’s fees incurred by petitioners as a result of the suit. 12 Ma.
Cristina Cleofe, on the other hand, testified on the offer she made to petitioners to buy the properties
at P35.00/sq.m.13 which was, however, turned down in light of the contract to sell executed by
petitioners in favor of the respondent.14
Respondent filed a motion to set aside the order of default 15 which was denied by the trial court by
Order dated September 12, 1997. 16 Via petition for certiorari, respondent challenged the said order,
but it was denied by the Court of Appeals.17

Meanwhile, the trial court issued its decision18 on November 18, 1997, finding for petitioners and
ordering respondent to pay damages and attorney’s fees. The dispositive portion of the decision
reads:

WHEREFORE, premises considered, the contract to sell between the Plaintiffs and the
Defendant is hereby declared as rescinded and the defendant is likewise ordered to pay the
plaintiff:

(1) P4,500,000.00 computed as follows: P5,000,000.00 in actual damages and

P2,000,000.00 in moral and exemplary damages, less defendant’s previous payment of
P2,500,000.00 under the contract to sell; and

(2) P800,000.00 by way of attorney’s fees as well as the costs of suit.

SO ORDERED. (Underscoring supplied)

Before the Court of Appeals to which respondent appealed the trial court’s decision, it raised the
following errors:

3.01. The Regional Trial Court erred when it awarded plaintiffs-appellees Five Million Pesos
(P5,000,000.00) as actual damages. Corollary thereto, the Regional Trial Court erred in
declaring defendant-appellant to have acted in wanton disregard of its obligations under the
Contract to Sell.

3.02. The Regional Trial Court erred when it awarded plaintiffs-appellees Two Million Pesos
(P2,000,000.00) as moral and exemplary damages.

3.03. The Regional Trial Court erred when it awarded plaintiffs-appellees Eight Hundred
Thousand Pesos (P800,000.00) as attorney’s fees. 19

In the assailed decision,20 the Court of Appeals set aside the contract to sell, it finding that
petitioners’ obligation thereunder did not arise for failure of respondent to pay the full purchase price.
It also set aside the award to petitioners of damages for not being duly proven. And it ordered
petitioners to return "the amount received from [respondent]." Thus the dispositive portion of the
appellate court’s decision reads:

WHEREFORE, the Decision dated 18 November 1997 of the Regional Trial Court, Branch
260 of Parañaque City in Civil Case No. 97-067 is hereby VACATED. A NEW DECISION is
ENTERED ordering the SETTING-ASIDE of the Contract to Sell WITHOUT payment of
damages. Plaintiffs-appellees are further ORDERED TO RETURN THE AMOUNTS
RECEIVED from defendant-appellant. (Underscoring supplied)

SO ORDERED.

Their motion for reconsideration having been denied, petitioners filed the present petition for review
which raises the following issues:
 1. Whether the Court of Appeals erred in ruling on the nature of the contract despite the fact
that it was not raised on appeal.

2. Whether or not a contract to sell may be subject to rescission under Article 1191 of the
Civil Code.

3. Whether or not the Court of Appeals erred in setting aside the award of damages.

Petitioners contend that the Court of Appeals erred in ruling on the nature of the contract to sell and
the propriety of the remedy of rescission under Article 1191 of the Civil Code, these matters not
having been raised by respondents in the assigned errors. In any event, petitioners claim that the
contract to sell involves reciprocal obligations, hence, it falls within the ambit of Article 1191. 21

While a party is required to indicate in his brief an assignment of errors and only those assigned
shall be considered by the appellate court in deciding the case, appellate courts have ample
authority to rule on matters not assigned as errors in an appeal if these are indispensable or
necessary to the just resolution of the pleaded issues. 22 Thus this Court has allowed the
consideration of other grounds or matters not raised or assigned as errors, to wit: 1) grounds
affecting jurisdiction over the subject matter; 2) matters which are evidently plain or clerical errors
within the contemplation of the law; 3) matters the consideration of which is necessary in arriving at
a just decision and complete resolution of the case or to serve the interest of justice or to avoid
dispensing piecemeal justice; 4) matters of record which were raised in the trial court and which
have some bearing on the issue submitted which the parties failed to raise or which the lower court
ignored; 5) matters closely related to an error assigned; and 6) matters upon which the
determination of a question properly assigned is dependent. 23

In the present case, the nature as well as the characteristics of a contract to sell is determinative of
the propriety of the remedy of rescission and the award of damages. As will be discussed shortly,
the trial court committed manifest error in applying Article 1191 of the Civil Code to the present case,
a fundamental error which "lies at the base and foundation of the proceeding, affecting the judgment
necessarily," or, as otherwise expressed, "such manifest error as when removed destroys the
foundation of the judgment."24 Hence, the Court of Appeals correctly ruled on these matters even if
they were not raised in the appeal briefs.

Under a contract to sell, the seller retains title to the thing to be sold until the purchaser fully pays the
agreed purchase price. The full payment is a positive suspensive condition, the non-fulfillment of
which is not a breach of contract but merely an event that prevents the seller from conveying title to
the purchaser. The non-payment of the purchase price renders the contract to sell ineffective and
without force and effect.25

Since the obligation of petitioners did not arise because of the failure of respondent to fully pay the
purchase price, Article 1191 of the Civil Code would have no application.

Rayos v. Court of Appeals26 explained:

Construing the contracts together, it is evident that the parties executed a contract to sell and
not a contract of sale. The petitioners retained ownership without further remedies by the
respondents until the payment of the purchase price of the property in full. Such payment is
a positive suspensive condition, failure of which is not really a breach, serious or
otherwise, but an event that prevents the obligations of the petitioners to convey title
from arising, in accordance with Article 1184 of the Civil Code. x x x
 The non-fulfillment by the respondent of his obligation to pay, which is a suspensive
condition to the obligation of the petitioners to sell and deliver the title to the property,
rendered the contract to sell ineffective and without force and effect. The parties stand
as if the conditional obligation had never existed. Article 1191 of the New Civil Code will
not apply because it presupposes an obligation already extant. There can be no
rescission of an obligation that is still non-existing, the suspensive condition not
having happened. [Emphasis and underscoring supplied; citations omitted]

The subject contract to sell clearly states that "title will be transferred by the owner (petitioners) to
the buyer (respondent) upon complete payment of the agreed purchase price." 27 Since respondent
failed to fully pay the purchase price, petitioners’ obligation to convey title to the properties did not
arise. While rescission does not apply in this case, petitioners may nevertheless cancel the contract
to sell, their obligation not having arisen.28 This brings this Court to Republic Act No. 6552 (THE
REALTY INSTALLMENT BUYER PROTECTION ACT). In Ramos v. Heruela29 this Court held:

Articles 1191 and 1592 of the Civil Code are applicable to contracts of sale. In contracts to
sell, RA 6552 applies. In Rillo v. Court of Appeals,30 the Court declared:

x x x Known as the Maceda Law, R.A. No. 6552 recognizes in conditional sales of all
kinds of real estate (industrial, commercial, residential) the right of the seller to cancel
the contract upon non-payment of an installment by the buyer, which is simply an
event that prevents the obligation of the vendor to convey title from acquiring binding
force. It also provides the right of the buyer on installments in case he defaults in the
payment of succeeding installments x x x. [Emphasis supplied]

The properties subject of the contract having been intended for commercial, and not for residential,
purposes,31 petitioners are entitled to retain the payments already made by respondent. RA 6552
expressly recognizes the vendor’s right to cancel contracts to sell on installment basis industrial and
commercial properties with full retention of previous payments. 32 But even assuming that the
properties were not intended for commercial or industrial purpose, since respondent paid less than
two years of installments, it is not entitled to any refund. 33 It is on this score that a modification of the
challenged issuances of the appellate court is in order.

Respecting petitioners’ claim for damages, failure to make full payment of the purchase price in a
contract to sell is not really a breach, serious or otherwise, but, as priorly stated, an event that
prevents the obligation of the vendor to convey title to the property from arising. 34 Consequently, the
award of damages is not warranted in this case.

With regard to attorney’s fees, Article 2208 35 of the Civil Code provides that subject to certain
exceptions, attorney’s fees and expenses of litigation, other than judicial costs, cannot be recovered
in the absence of stipulation. None of the enumerated exceptions in Article 2208 is present in this
case. It bears stressing that the policy of the law is to put no premium on the right to litigate. 36

WHEREFORE, the assailed Court of Appeals Decision dated April 29, 2004 and the Resolution
dated February 21, 2005 in CA-G.R. CV No. 66198 are AFFIRMED with the MODIFICATION that
petitioners are entitled to retain the payments already received from respondent.

SO ORDERED.

Quisumbing, J., Chairperson, Carpio, and Velasco, Jr., JJ., concur.

Tinga, J., on leave.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

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

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

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

Crossfield & O'Brien for appellee.

AVANCEÑA, J.:

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

CONTRACT EXECUTED BY AND BETWEEN ANDRES QUIROGA AND J.

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

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

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

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

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

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

The same discount shall be made on the amount of any invoice which Mr. Parsons may
deem convenient to pay in cash.

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

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

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

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

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

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

In order to classify a contract, due regard must be given to its essential clauses. In the contract in
question, what was essential, as constituting its cause and subject matter, is that the plaintiff was to
furnish the defendant with the beds which the latter might order, at the price stipulated, and that the
defendant was to pay the price in the manner stipulated. The price agreed upon was the one
determined by the plaintiff for the sale of these beds in Manila, with a discount of from 20 to 25 per
cent, according to their class. Payment was to be made at the end of sixty days, or before, at the
plaintiff's request, or in cash, if the defendant so preferred, and in these last two cases an additional
discount was to be allowed for prompt payment. These are precisely the essential features of a
contract of purchase and sale. There was the obligation on the part of the plaintiff to supply the beds,
and, on the part of the defendant, to pay their price. These features exclude the legal conception of
an agency or order to sell whereby the mandatory or agent received the thing to sell it, and does not
pay its price, but delivers to the principal the price he obtains from the sale of the thing to a third
person, and if he does not succeed in selling it, he returns it. By virtue of the contract between the
plaintiff and the defendant, the latter, on receiving the beds, was necessarily obliged to pay their
price within the term fixed, without any other consideration and regardless as to whether he had or
had not sold the beds.

It would be enough to hold, as we do, that the contract by and between the defendant and the
plaintiff is one of purchase and sale, in order to show that it was not one made on the basis of a
commission on sales, as the plaintiff claims it was, for these contracts are incompatible with each
other. But, besides, examining the clauses of this contract, none of them is found that substantially
supports the plaintiff's contention. Not a single one of these clauses necessarily conveys the idea of
an agency. The words commission on sales used in clause (A) of article 1 mean nothing else, as
stated in the contract itself, than a mere discount on the invoice price. The word agency, also used in
articles 2 and 3, only expresses that the defendant was the only one that could sell the plaintiff's
beds in the Visayan Islands. With regard to the remaining clauses, the least that can be said is that
they are not incompatible with the contract of purchase and sale.

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

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

In respect to the defendant's obligation to order by the dozen, the only one expressly imposed by the
contract, the effect of its breach would only entitle the plaintiff to disregard the orders which the
defendant might place under other conditions; but if the plaintiff consents to fill them, he waives his
right and cannot complain for having acted thus at his own free will.

For the foregoing reasons, we are of opinion that the contract by and between the plaintiff and the
defendant was one of purchase and sale, and that the obligations the breach of which is alleged as a
cause of action are not imposed upon the defendant, either by agreement or by law.
The judgment appealed from is affirmed, with costs against the appellant. So ordered.

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

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-20871 April 30, 1971

KER & CO., LTD., petitioner,

vs.
JOSE B. LINGAD, as Acting Commissioner of Internal Revenue, respondent.

Ross, Selph and Carrascoso for petitioner.

Office of the Solicitor General Arturo A. Alafriz, Solicitor Alejandro B. Afurong and Special Atty.
Balbino Gatdula, Jr. for respondent.

FERNANDO, J.:

Petitioner Ker & Co., Ltd. would have us reverse a decision of the Court of Tax Appeals, holding it
liable as a commercial broker under Section 194 (t) of the National Internal Revenue Code. Its plea,
notwithstanding the vigorous effort of its counsel, is not sufficiently persuasive. An obstacle, well-
nigh insuperable stands in the way. The decision under review conforms to and is in accordance
with the controlling doctrine announced in the recent case of Commissioner of Internal Revenue v.
Constantino.  The decisive test, as therein set forth, is the retention of the ownership of the goods
1

delivered to the possession of the dealer, like herein petitioner, for resale to customers, the price and
terms remaining subject to the control of the firm consigning such goods. The facts, as found by
respondent Court, to which we defer, unmistakably indicate that such a situation does exist. The
juridical consequences must inevitably follow. We affirm.

It was shown that petitioner was assessed by the then Commissioner of Internal Revenue Melecio
R. Domingo the sum of P20,272.33 as the commercial broker's percentage tax, surcharge, and
compromise penalty for the period from July 1, 1949 to December 31, 1953. There was a request on
the part of petitioner for the cancellation of such assessment, which request was turned down. As a
result, it filed a petition for review with the Court of Tax Appeals. In its answer, the then
Commissioner Domingo maintained his stand that petitioner should be taxed in such amount as a
commercial broker. In the decision now under review, promulgated on October 19, 1962, the Court
of Tax Appeals held petitioner taxable except as to the compromise penalty of P500.00, the amount
due from it being fixed at P19,772.33.

Such liability arose from a contract of petitioner with the United States Rubber International, the
former being referred to as the Distributor and the latter specifically designated as the Company.
The contract was to apply to transactions between the former and petitioner, as Distributor, from July
1, 1948 to continue in force until terminated by either party giving to the other sixty days' notice.  The
2

shipments would cover products "for consumption in Cebu, Bohol, Leyte, Samar, Jolo, Negros
Oriental, and Mindanao except [the] province of Davao", petitioner, as Distributor, being precluded
from disposing such products elsewhere than in the above places unless written consent would first
be obtained from the Company.  Petitioner, as Distributor, is required to exert every effort to have the
3

shipment of the products in the maximum quantity and to promote in every way the sale
thereof.  The prices, discounts, terms of payment, terms of delivery and other conditions of sale were
4

subject to change in the discretion of the Company. 5

Then came this crucial stipulation: "The Company shall from time to time consign to the Distributor
and the Distributor will receive, accept and/or hold upon consignment the products specified under
the terms of this agreement in such quantities as in the judgment of the Company may be necessary
for the successful solicitation and maintenance of business in the territory, and the Distributor agrees
that responsibility for the final sole of all goods delivered shall rest with him. All goods on
consignment shall remain the property of the Company until sold by the Distributor to the purchaser
or purchasers, but all sales made by the Distributor shall be in his name, in which the sale price of all
goods sold less the discount given to the Distributor by the Company in accordance with the
provision of paragraph 13 of this agreement, whether or not such sale price shall have been
collected by the Distributor from the purchaser or purchasers, shall immediately be paid and remitted
by the Distributor to the Company. It is further agreed that this agreement does not constitute
Distributor the agent or legal representative 4 of the Company for any purpose whatsoever.
Distributor is not granted any right or authority to assume or to create any obligation or responsibility,
express or implied, in behalf of or in the name of the Company, or to bind the Company in any
manner or thing whatsoever." 6

All specifications for the goods ordered were subject to acceptance by the Company with petitioner,
as Distributor, required to accept such goods shipped as well as to clear the same through customs
and to arrange for delivery in its warehouse in Cebu City. Moreover, orders are to be filled in whole
or in part from the stocks carried by the Company's neighboring branches, subsidiaries or other
sources of Company's brands.  Shipments were to be invoiced at prices to be agreed upon, with the
7

customs duties being paid by petitioner, as Distributor, for account of the Company.  Moreover, all
8

resale prices, lists, discounts and general terms and conditions of local resale were to be subject to
the approval of the Company and to change from time to time in its discretion.  The dealer, as
9

Distributor, is allowed a discount of ten percent on the net amount of sales of merchandise made
under such agreement.   On a date to be determined by the Company, the petitioner, as Distributor,
10

was required to report to it data showing in detail all sales during the month immediately preceding,
specifying therein the quantities, sizes and types together with such information as may be required
for accounting purposes, with the Company rendering an invoice on sales as described to be dated
as of the date of inventory and sales report. As Distributor, petitioner had to make payment on such
invoice or invoices on due date with the Company being privileged at its option to terminate and
cancel the agreement forthwith upon the failure to comply with this obligation.   The Company, at its
11

own expense, was to keep the consigned stock fully insured against loss or damage by fire or as a
result of fire, the policy of such insurance to be payable to it in the event of loss. Petitioner, as
Distributor, assumed full responsibility with reference to the stock and its safety at all times; and
upon request of the Company at any time, it was to render inventory of the existing stock which
could be subject to change.   There was furthermore this equally tell-tale covenant: "Upon the
12

termination or any cancellation of this agreement all goods held on consignment shall be held by the
Distributor for the account of the Company, without expense to the Company, until such time as
provision can be made by the Company for disposition."  13

The issue with the Court of Tax Appeals, as with us now, is whether the relationship thus created is
one of vendor and vendee or of broker and principal. Not that there would have been the slightest
doubt were it not for the categorical denial in the contract that petitioner was not constituted as "the
agent or legal representative of the Company for any purpose whatsoever." It would be, however, to
impart to such an express disclaimer a meaning it should not possess to ignore what is manifestly
the role assigned to petitioner considering the instrument as a whole. That would be to lose sight
altogether of what has been agreed upon. The Court of Tax Appeals was not misled in the language
of the decision now on appeal: "That the petitioner Ker & Co., Ltd. is, by contractual stipulation, an
agent of U.S. Rubber International is borne out by the facts that petitioner can dispose of the
products of the Company only to certain persons or entities and within stipulated limits, unless
excepted by the contract or by the Rubber Company (Par. 2); that it merely receives, accepts and/or
holds upon consignment the products, which remain properties of the latter company (Par. 8); that
every effort shall be made by petitioner to promote in every way the sale of the products (Par. 3);
that sales made by petitioner are subject to approval by the company (Par. 12); that on dates
determined by the rubber company, petitioner shall render a detailed report showing sales during the
month (Par. 14); that the rubber company shall invoice the sales as of the dates of inventory and
sales report (Par. 14); that the rubber company agrees to keep the consigned goods fully insured
under insurance policies payable to it in case of loss (Par. 15); that upon request of the rubber
company at any time, petitioner shall render an inventory of the existing stock which may be
checked by an authorized representative of the former (Par. 15); and that upon termination or
cancellation of the Agreement, all goods held on consignment shall be held by petitioner for the
account of the rubber company until their disposition is provided for by the latter (Par. 19). All these
circumstances are irreconcilably antagonistic to the idea of an independent merchant."   Hence its
14

conclusion: "However, upon analysis of the contract, as a whole, together with the actual conduct of
the parties in respect thereto, we have arrived at the conclusion that the relationship between them
is one of brokerage or agency."   We find ourselves in agreement, notwithstanding the able brief
15

filed on behalf of petitioner by its counsel. As noted at the outset, we cannot heed petitioner's plea
for reversal.

1. According to the National Internal Revenue Code, a commercial broker "includes all persons,
other than importers, manufacturers, producers, or bona fide employees, who, for compensation or
profit, sell or bring about sales or purchases of merchandise for other persons or bring proposed
buyers and sellers together, or negotiate freights or other business for owners of vessels or other
means of transportation, or for the shippers, or consignors or consignees of freight carried by
vessels or other means of transportation. The term includes commission merchants."   The 16

controlling decision as to the test to be followed as to who falls within the above definition of a
commercial broker is that of Commissioner of Internal Revenue v. Constantino.   In the language of
17

Justice J. B. L. Reyes, who penned the opinion: "Since the company retained ownership of the
goods, even as it delivered possession unto the dealer for resale to customers, the price and terms
of which were subject to the company's control, the relationship between the company and the
dealer is one of agency, ... ."   An excerpt from Salisbury v. Brooks   cited in support of such a view
18 19

follows: " 'The difficulty in distinguishing between contracts of sale and the creation of an agency to
sell has led to the establishment of rules by the application of which this difficulty may be solved. The
decisions say the transfer of title or agreement to transfer it for a price paid or promised is the
essence of sale. If such transfer puts the transferee in the attitude or position of an owner and
makes him liable to the transferor as a debtor for the agreed price, and not merely as an agent who
must account for the proceeds of a resale, the transaction is a sale; while the essence of an agency
to sell is the delivery to an agent, not as his property, but as the property of the principal, who
remains the owner and has the right to control sales, fix the price, and terms, demand and receive
the proceeds less the agent's commission upon sales made.' "   The opinion relied on the work of
20

Mechem on Sales as well as Mechem on Agency. Williston and Tiedman both of whom wrote
treatises on Sales, were likewise referred to.

Equally relevant is this portion of the Salisbury opinion: "It is difficult to understand or appreciate the
necessity or presence of these mutual requirements and obligations on any theory other than that of
a contract of agency. Salisbury was to furnish the mill and put the timber owned by him into a
marketable condition in the form of lumber; Brooks was to furnish the funds necessary for that
purpose, sell the manufactured product, and account therefor to Salisbury upon the specific terms of
the agreement, less the compensation fixed by the parties in lieu of interest on the money advanced
and for services as agent. These requirements and stipulations are in tent with any other conception
of the contract. If it constitutes an agreement to sell, they are meaningless. But they cannot be
ignored. They were placed there for some purpose, doubtless as the result of definite antecedent
negotiations therefore, consummated by the final written expression of the agreement."   Hence the
21

Constantino opinion could categorically affirm that the mere disclaimer in a contract that an entity
like petitioner is not "the agent or legal representative for any purpose whatsoever" does not suffice
to yield the conclusion that it is an independent merchant if the control over the goods for resale of
the goods consigned is pervasive in character. The Court of Tax Appeals decision now under review
pays fealty to such an applicable doctrine.

2. No merit therefore attaches to the first error imputed by petitioner to the Court of Tax Appeals.
Neither did such Court fail to appreciate in its true significance the act and conduct pursued in the
implementation of the contract by both the United States Rubber International and petitioner, as was
contended in the second assignment of error. Petitioner ought to have been aware that there was no
need for such an inquiry. The terms of the contract, as noted, speak quite clearly. There is lacking
that degree of ambiguity sufficient to give rise to serious doubt as to what was contemplated by the
parties. A reading thereof discloses that the relationship arising therefrom was not one of seller and
purchaser. If it were thus intended, then it would not have included covenants which in their totality
would negate the concept of a firm acquiring as vendee goods from another. Instead, the stipulations
were so worded as to lead to no other conclusion than that the control by the United States Rubber
International over the goods in question is, in the language of the Constantino opinion, "pervasive".
The insistence on a relationship opposed to that apparent from the language employed might even
yield the impression that such a mode of construction was resorted to in order that the applicability of
a taxing statute might be rendered nugatory. Certainly, such a result is to be avoided.

Nor is it to be lost sight of that on a matter left to the discretion of the Court of Tax Appeals which
has developed an expertise in view of its function being limited solely to the interpretation of revenue
laws, this Court is not prepared to substitute its own judgment unless a grave abuse of discretion is
manifest. It would be to frustrate the objective for which administrative tribunals are created if the
judiciary, absent such a showing, is to ignore their appraisal on a matter that forms the staple of their
specialized competence. While it is to be admitted that counsel for petitioner did scrutinize with care
the decision under review with a view to exposing what was considered its flaws, it cannot be said
that there was such a failure to apply what the law commands as to call for its reversal. Instead,
what cannot be denied is that the Court of Tax Appeals reached a result to which the Court in the
recent Constantino decision gave the imprimatur of its approval.

WHEREFORE, the Court of Tax Appeals decision of October 19, 1962 is affirmed. With costs
against petitioner.

Concepcion C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Castro, Teehankee, Barredo, Villamor
and Makasiar, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
 SECOND DIVISION

G.R. No. 188288               January 16, 2012

SPOUSES FERNANDO and LOURDES VILORIA, Petitioners,

vs.
CONTINENTAL AIRLINES, INC.,

DECISION

REYES, J.:

This is a petition for review under Rule 45 of the Rules of Court from the January 30, 2009
Decision of the Special Thirteenth Division of the Court of Appeals (CA) in CA-G.R. CV No. 88586
1 

entitled "Spouses Fernando and Lourdes Viloria v. Continental Airlines, Inc.," the dispositive portion
of which states:

WHEREFORE, the Decision of the Regional Trial Court, Branch 74, dated 03 April 2006, awarding
US$800.00 or its peso equivalent at the time of payment, plus legal rate of interest from 21 July
1997 until fully paid, [₱]100,000.00 as moral damages, [₱]50,000.00 as exemplary damages,
[₱]40,000.00 as attorney’s fees and costs of suit to plaintiffs-appellees is
hereby REVERSED and SET ASIDE.

Defendant-appellant’s counterclaim is DENIED.

Costs against plaintiffs-appellees.

SO ORDERED. 2

On April 3, 2006, the Regional Trial Court of Antipolo City, Branch 74 (RTC) rendered a Decision,
giving due course to the complaint for sum of money and damages filed by petitioners Fernando
Viloria (Fernando) and Lourdes Viloria (Lourdes), collectively called Spouses Viloria, against
respondent Continental Airlines, Inc. (CAI). As culled from the records, below are the facts giving
rise to such complaint.

On or about July 21, 1997 and while in the United States, Fernando purchased for himself and his
wife, Lourdes, two (2) round trip airline tickets from San Diego, California to Newark, New Jersey on
board Continental Airlines. Fernando purchased the tickets at US$400.00 each from a travel agency
called "Holiday Travel" and was attended to by a certain Margaret Mager (Mager). According to
Spouses Viloria, Fernando agreed to buy the said tickets after Mager informed them that there were
no available seats at Amtrak, an intercity passenger train service provider in the United States. Per
the tickets, Spouses Viloria were scheduled to leave for Newark on August 13, 1997 and return to
San Diego on August 21, 1997.

Subsequently, Fernando requested Mager to reschedule their flight to Newark to an earlier date or
August 6, 1997. Mager informed him that flights to Newark via Continental Airlines were already fully
booked and offered the alternative of a round trip flight via Frontier Air. Since flying with Frontier Air
called for a higher fare of US$526.00 per passenger and would mean traveling by night, Fernando
opted to request for a refund. Mager, however, denied his request as the subject tickets are non-
refundable and the only option that Continental Airlines can offer is the re-issuance of new tickets
within one (1) year from the date the subject tickets were issued. Fernando decided to reserve two
(2) seats with Frontier Air.

As he was having second thoughts on traveling via Frontier Air, Fernando went to the Greyhound
Station where he saw an Amtrak station nearby. Fernando made inquiries and was told that there
are seats available and he can travel on Amtrak anytime and any day he pleased. Fernando then
purchased two (2) tickets for Washington, D.C.

From Amtrak, Fernando went to Holiday Travel and confronted Mager with the Amtrak tickets, telling
her that she had misled them into buying the Continental Airlines tickets by misrepresenting that
Amtrak was already fully booked. Fernando reiterated his demand for a refund but Mager was firm in
her position that the subject tickets are non-refundable.

Upon returning to the Philippines, Fernando sent a letter to CAI on February 11, 1998, demanding a
refund and alleging that Mager had deluded them into purchasing the subject tickets. 3

In a letter dated February 24, 1998, Continental Micronesia informed Fernando that his complaint
had been referred to the Customer Refund Services of Continental Airlines at Houston, Texas. 4

In a letter dated March 24, 1998, Continental Micronesia denied Fernando’s request for a refund and
advised him that he may take the subject tickets to any Continental ticketing location for the re-
issuance of new tickets within two (2) years from the date they were issued. Continental Micronesia
informed Fernando that the subject tickets may be used as a form of payment for the purchase of
another Continental ticket, albeit with a re-issuance fee.
5

On June 17, 1999, Fernando went to Continental’s ticketing office at Ayala Avenue, Makati City to
have the subject tickets replaced by a single round trip ticket to Los Angeles, California under his
name. Therein, Fernando was informed that Lourdes’ ticket was non-transferable, thus, cannot be
used for the purchase of a ticket in his favor. He was also informed that a round trip ticket to Los
Angeles was US$1,867.40 so he would have to pay what will not be covered by the value of his San
Diego to Newark round trip ticket.

In a letter dated June 21, 1999, Fernando demanded for the refund of the subject tickets as he no
longer wished to have them replaced. In addition to the dubious circumstances under which the
subject tickets were issued, Fernando claimed that CAI’s act of charging him with US$1,867.40 for a
round trip ticket to Los Angeles, which other airlines priced at US$856.00, and refusal to allow him to
use Lourdes’ ticket, breached its undertaking under its March 24, 1998 letter.6

On September 8, 2000, Spouses Viloria filed a complaint against CAI, praying that CAI be ordered to
refund the money they used in the purchase of the subject tickets with legal interest from July 21,
1997 and to pay ₱1,000,000.00 as moral damages, ₱500,000.00 as exemplary damages and
₱250,000.00 as attorney’s fees. 7

CAI interposed the following defenses: (a) Spouses Viloria have no right to ask for a refund as the
subject tickets are non-refundable; (b) Fernando cannot insist on using the ticket in Lourdes’ name
for the purchase of a round trip ticket to Los Angeles since the same is non-transferable; (c) as
Mager is not a CAI employee, CAI is not liable for any of her acts; (d) CAI, its employees and agents
did not act in bad faith as to entitle Spouses Viloria to moral and exemplary damages and attorney’s
fees. CAI also invoked the following clause printed on the subject tickets:
3. To the extent not in conflict with the foregoing carriage and other services performed by each
carrier are subject to: (i) provisions contained in this ticket, (ii) applicable tariffs, (iii) carrier’s
conditions of carriage and related regulations which are made part hereof (and are available on
application at the offices of carrier), except in transportation between a place in the United States or
Canada and any place outside thereof to which tariffs in force in those countries apply. 8

According to CAI, one of the conditions attached to their contract of carriage is the non-transferability
and non-refundability of the subject tickets.

The RTC’s Ruling

Following a full-blown trial, the RTC rendered its April 3, 2006 Decision, holding that Spouses Viloria
are entitled to a refund in view of Mager’s misrepresentation in obtaining their consent in the
purchase of the subject tickets. The relevant portion of the April 3, 2006 Decision states:
9 

Continental Airlines agent Ms. Mager was in bad faith when she was less candid and diligent in
presenting to plaintiffs spouses their booking options. Plaintiff Fernando clearly wanted to travel via
AMTRAK, but defendant’s agent misled him into purchasing Continental Airlines tickets instead on
the fraudulent misrepresentation that Amtrak was fully booked. In fact, defendant Airline did not
specifically denied (sic) this allegation.

Plainly, plaintiffs spouses, particularly plaintiff Fernando, were tricked into buying Continental Airline
tickets on Ms. Mager’s misleading misrepresentations. Continental Airlines agent Ms. Mager further
relied on and exploited plaintiff Fernando’s need and told him that they must book a flight
immediately or risk not being able to travel at all on the couple’s preferred date. Unfortunately,
plaintiffs spouses fell prey to the airline’s and its agent’s unethical tactics for baiting trusting
customers." 10

Citing Articles 1868 and 1869 of the Civil Code, the RTC ruled that Mager is CAI’s agent, hence,
bound by her bad faith and misrepresentation. As far as the RTC is concerned, there is no issue as
to whether Mager was CAI’s agent in view of CAI’s implied recognition of her status as such in its
March 24, 1998 letter.

The act of a travel agent or agency being involved here, the following are the pertinent New Civil
Code provisions on agency:

Art. 1868. By the contract of agency a person binds himself to render some service or to do
something in representation or on behalf of another, with the consent or authority of the latter.

Art. 1869. Agency may be express, or implied 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.

Agency may be oral, unless the law requires a specific form.

As its very name implies, a travel agency binds itself to render some service or to do something in
representation or on behalf of another, with the consent or authority of the latter. This court takes
judicial notice of the common services rendered by travel agencies that represent themselves as
such, specifically the reservation and booking of local and foreign tours as well as the issuance of
airline tickets for a commission or fee.
The services rendered by Ms. Mager of Holiday Travel agency to the plaintiff spouses on July 21,
1997 were no different from those offered in any other travel agency. Defendant airline impliedly if
not expressly acknowledged its principal-agent relationship with Ms. Mager by its offer in the letter
dated March 24, 1998 – an obvious attempt to assuage plaintiffs spouses’ hurt feelings. 11

Furthermore, the RTC ruled that CAI acted in bad faith in reneging on its undertaking to replace the
subject tickets within two (2) years from their date of issue when it charged Fernando with the
amount of US$1,867.40 for a round trip ticket to Los Angeles and when it refused to allow Fernando
to use Lourdes’ ticket. Specifically:

Tickets may be reissued for up to two years from the original date of issue. When defendant airline
still charged plaintiffs spouses US$1,867.40 or more than double the then going rate of US$856.00
for the unused tickets when the same were presented within two (2) years from date of issue,
defendant airline exhibited callous treatment of passengers. 12

The Appellate Court’s Ruling

On appeal, the CA reversed the RTC’s April 3, 2006 Decision, holding that CAI cannot be held liable
for Mager’s act in the absence of any proof that a principal-agent relationship existed between CAI
and Holiday Travel. According to the CA, Spouses Viloria, who have the burden of proof to establish
the fact of agency, failed to present evidence demonstrating that Holiday Travel is CAI’s agent.
Furthermore, contrary to Spouses Viloria’s claim, the contractual relationship between Holiday
Travel and CAI is not an agency but that of a sale.

Plaintiffs-appellees assert that Mager was a sub-agent of Holiday Travel who was in turn a ticketing
agent of Holiday Travel who was in turn a ticketing agent of Continental Airlines. Proceeding from
this premise, they contend that Continental Airlines should be held liable for the acts of Mager. The
trial court held the same view.

We do not agree. By the contract of agency, a person binds him/herself to render some service or to
do something in representation or on behalf of another, with the consent or authority of the latter.
The elements of agency are: (1) consent, express or implied, of the parties to establish the
relationship; (2) the object is the execution of a juridical act in relation to a third person; (3) the agent
acts as a representative and not for him/herself; and (4) the agent acts within the scope of his/her
authority. As the basis of agency is representation, there must be, on the part of the principal, an
actual intention to appoint, an intention naturally inferable from the principal’s words or actions. In
the same manner, there must be an intention on the part of the agent to accept the appointment and
act upon it. Absent such mutual intent, there is generally no agency. It is likewise a settled rule that
persons dealing with an assumed agent are bound at their peril, if they would hold the principal
liable, to ascertain not only the fact of agency but also the nature and extent of authority, and in case
either is controverted, the burden of proof is upon them to establish it. Agency is never presumed,
neither is it created by the mere use of the word in a trade or business name. We have perused the
evidence and documents so far presented. We find nothing except bare allegations of plaintiffs-
appellees that Mager/Holiday Travel was acting in behalf of Continental Airlines. From all sides of
legal prism, the transaction in issue was simply a contract of sale, wherein Holiday Travel buys
airline tickets from Continental Airlines and then, through its employees, Mager included, sells it at a
premium to clients. 13

The CA also ruled that refund is not available to Spouses Viloria as the word "non-refundable" was
clearly printed on the face of the subject tickets, which constitute their contract with CAI. Therefore,
the grant of their prayer for a refund would violate the proscription against impairment of contracts.
Finally, the CA held that CAI did not act in bad faith when they charged Spouses Viloria with the
higher amount of US$1,867.40 for a round trip ticket to Los Angeles. According to the CA, there is
no compulsion for CAI to charge the lower amount of US$856.00, which Spouses Viloria claim to be
the fee charged by other airlines. The matter of fixing the prices for its services is CAI’s prerogative,
which Spouses Viloria cannot intervene. In particular:

It is within the respective rights of persons owning and/or operating business entities to peg the
premium of the services and items which they provide at a price which they deem fit, no matter how
expensive or exhorbitant said price may seem vis-à-vis those of the competing companies. The
Spouses Viloria may not intervene with the business judgment of Continental Airlines. 14

The Petitioners’ Case

In this Petition, this Court is being asked to review the findings and conclusions of the CA, as the
latter’s reversal of the RTC’s April 3, 2006 Decision allegedly lacks factual and legal bases. Spouses
Viloria claim that CAI acted in bad faith when it required them to pay a higher amount for a round trip
ticket to Los Angeles considering CAI’s undertaking to re-issue new tickets to them within the period
stated in their March 24, 1998 letter. CAI likewise acted in bad faith when it disallowed Fernando to
use Lourdes’ ticket to purchase a round trip to Los Angeles given that there is nothing in Lourdes’
ticket indicating that it is non-transferable. As a common carrier, it is CAI’s duty to inform its
passengers of the terms and conditions of their contract and passengers cannot be bound by such
terms and conditions which they are not made aware of. Also, the subject contract of carriage is a
contract of adhesion; therefore, any ambiguities should be construed against CAI. Notably, the
petitioners are no longer questioning the validity of the subject contracts and limited its claim for a
refund on CAI’s alleged breach of its undertaking in its March 24, 1998 letter.

The Respondent’s Case

In its Comment, CAI claimed that Spouses Viloria’s allegation of bad faith is negated by its
willingness to issue new tickets to them and to credit the value of the subject tickets against the
value of the new ticket Fernando requested. CAI argued that Spouses Viloria’s sole basis to claim
that the price at which CAI was willing to issue the new tickets is unconscionable is a piece of
hearsay evidence – an advertisement appearing on a newspaper stating that airfares from Manila to
Los Angeles or San Francisco cost US$818.00. Also, the advertisement pertains to airfares in
15 

September 2000 and not to airfares prevailing in June 1999, the time when Fernando asked CAI to
apply the value of the subject tickets for the purchase of a new one. CAI likewise argued that it did
16 

not undertake to protect Spouses Viloria from any changes or fluctuations in the prices of airline
tickets and its only obligation was to apply the value of the subject tickets to the purchase of the
newly issued tickets.

With respect to Spouses Viloria’s claim that they are not aware of CAI’s restrictions on the subject
tickets and that the terms and conditions that are printed on them are ambiguous, CAI denies any
ambiguity and alleged that its representative informed Fernando that the subject tickets are non-
transferable when he applied for the issuance of a new ticket. On the other hand, the word "non-
refundable" clearly appears on the face of the subject tickets.

CAI also denies that it is bound by the acts of Holiday Travel and Mager and that no principal-
agency relationship exists between them. As an independent contractor, Holiday Travel was without
capacity to bind CAI.

Issues
To determine the propriety of disturbing the CA’s January 30, 2009 Decision and whether Spouses
Viloria have the right to the reliefs they prayed for, this Court deems it necessary to resolve the
following issues:

a. Does a principal-agent relationship exist between CAI and Holiday Travel?

b. Assuming that an agency relationship exists between CAI and Holiday Travel, is CAI
bound by the acts of Holiday Travel’s agents and employees such as Mager?

c. Assuming that CAI is bound by the acts of Holiday Travel’s agents and employees, can
the representation of Mager as to unavailability of seats at Amtrak be considered fraudulent
as to vitiate the consent of Spouse Viloria in the purchase of the subject tickets?

d. Is CAI justified in insisting that the subject tickets are non-transferable and non-
refundable?

e. Is CAI justified in pegging a different price for the round trip ticket to Los Angeles
requested by Fernando?

f. Alternatively, did CAI act in bad faith or renege its obligation to Spouses Viloria to apply the
value of the subject tickets in the purchase of new ones when it refused to allow Fernando to
use Lourdes’ ticket and in charging a higher price for a round trip ticket to Los Angeles?

This Court’s Ruling

I. A principal-agent relationship exists between CAI and Holiday Travel.

With respect to the first issue, which is a question of fact that would require this Court to review and
re-examine the evidence presented by the parties below, this Court takes exception to the general
rule that the CA’s findings of fact are conclusive upon Us and our jurisdiction is limited to the review
of questions of law. It is well-settled to the point of being axiomatic that this Court is authorized to
resolve questions of fact if confronted with contrasting factual findings of the trial court and appellate
court and if the findings of the CA are contradicted by the evidence on record. 17

According to the CA, agency is never presumed and that he who alleges that it exists has the burden
of proof. Spouses Viloria, on whose shoulders such burden rests, presented evidence that fell short
of indubitably demonstrating the existence of such agency.

We disagree. The CA failed to consider undisputed facts, discrediting CAI’s denial that Holiday
Travel is one of its agents. Furthermore, in erroneously characterizing the contractual relationship
between CAI and Holiday Travel as a contract of sale, the CA failed to apply the fundamental civil
law principles governing agency and differentiating it from sale.

In Rallos v. Felix Go Chan & Sons Realty Corporation, this Court explained the nature of an agency
18 

and spelled out the essential elements thereof:

Out of the above given principles, sprung the creation and acceptance of the relationship of
agency whereby one party, called the principal (mandante), authorizes another, called the agent
(mandatario), to act for and in his behalf in transactions with third persons. The essential elements of
agency are: (1) there is consent, express or implied of the parties to establish the relationship; (2)
the object is the execution of a juridical act in relation to a third person; (3) the agent acts as a
representative and not for himself, and (4) the agent acts within the scope of his authority. 1avvphi1

Agency is basically personal, representative, and derivative in nature. The authority of the agent to

act emanates from the powers granted to him by his principal; his act is the act of the principal if
done within the scope of the authority. Qui facit per alium facit se. "He who acts through another acts
himself."19

Contrary to the findings of the CA, all the elements of an agency exist in this case. The first and
second elements are present as CAI does not deny that it concluded an agreement with Holiday
Travel, whereby Holiday Travel would enter into contracts of carriage with third persons on CAI’s
behalf. The third element is also present as it is undisputed that Holiday Travel merely acted in a
representative capacity and it is CAI and not Holiday Travel who is bound by the contracts of
carriage entered into by Holiday Travel on its behalf. The fourth element is also present considering
that CAI has not made any allegation that Holiday Travel exceeded the authority that was granted to
it. In fact, CAI consistently maintains the validity of the contracts of carriage that Holiday Travel
executed with Spouses Viloria and that Mager was not guilty of any fraudulent misrepresentation.
That CAI admits the authority of Holiday Travel to enter into contracts of carriage on its behalf is
easily discernible from its February 24, 1998 and March 24, 1998 letters, where it impliedly
recognized the validity of the contracts entered into by Holiday Travel with Spouses Viloria. When
Fernando informed CAI that it was Holiday Travel who issued to them the subject tickets, CAI did not
deny that Holiday Travel is its authorized agent.

Prior to Spouses Viloria’s filing of a complaint against it, CAI never refuted that it gave Holiday Travel
the power and authority to conclude contracts of carriage on its behalf. As clearly extant from the
records, CAI recognized the validity of the contracts of carriage that Holiday Travel entered into with
Spouses Viloria and considered itself bound with Spouses Viloria by the terms and conditions
thereof; and this constitutes an unequivocal testament to Holiday Travel’s authority to act as its
agent. This Court cannot therefore allow CAI to take an altogether different position and deny that
Holiday Travel is its agent without condoning or giving imprimatur to whatever damage or prejudice
that may result from such denial or retraction to Spouses Viloria, who relied on good faith on CAI’s
acts in recognition of Holiday Travel’s authority. Estoppel is primarily based on the doctrine of good
faith and the avoidance of harm that will befall an innocent party due to its injurious reliance, the
failure to apply it in this case would result in gross travesty of justice. Estoppel bars CAI from
20 

making such denial.

As categorically provided under Article 1869 of the Civil Code, "[a]gency may be express, or implied
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."

Considering that the fundamental hallmarks of an agency are present, this Court finds it rather
peculiar that the CA had branded the contractual relationship between CAI and Holiday Travel as
one of sale. The distinctions between a sale and an agency are not difficult to discern and this Court,
as early as 1970, had already formulated the guidelines that would aid in differentiating the two (2)
contracts. In Commissioner of Internal Revenue v. Constantino, this Court extrapolated that the
21 

primordial differentiating consideration between the two (2) contracts is the transfer of ownership or
title over the property subject of the contract. In an agency, the principal retains ownership and
control over the property and the agent merely acts on the principal’s behalf and under his
instructions in furtherance of the objectives for which the agency was established. On the other
hand, the contract is clearly a sale if the parties intended that the delivery of the property will effect a
relinquishment of title, control and ownership in such a way that the recipient may do with the
property as he pleases.
Since the company retained ownership of the goods, even as it delivered possession unto the dealer
for resale to customers, the price and terms of which were subject to the company's control, the
relationship between the company and the dealer is one of agency, tested under the following
criterion:

"The difficulty in distinguishing between contracts of sale and the creation of an agency to sell has
led to the establishment of rules by the application of which this difficulty may be solved. The
decisions say the transfer of title or agreement to transfer it for a price paid or promised is the
essence of sale. If such transfer puts the transferee in the attitude or position of an owner and
makes him liable to the transferor as a debtor for the agreed price, and not merely as an agent who
must account for the proceeds of a resale, the transaction is a sale; while the essence of an agency
to sell is the delivery to an agent, not as his property, but as the property of the principal, who
remains the owner and has the right to control sales, fix the price, and terms, demand and receive
the proceeds less the agent's commission upon sales made. 1 Mechem on Sales, Sec. 43; 1
Mechem on Agency, Sec. 48; Williston on Sales, 1; Tiedeman on Sales, 1." (Salisbury v. Brooks, 94
SE 117, 118-119) 22

As to how the CA have arrived at the conclusion that the contract between CAI and Holiday Travel is
a sale is certainly confounding, considering that CAI is the one bound by the contracts of carriage
embodied by the tickets being sold by Holiday Travel on its behalf. It is undisputed that CAI and not
Holiday Travel who is the party to the contracts of carriage executed by Holiday Travel with third
persons who desire to travel via Continental Airlines, and this conclusively indicates the existence of
a principal-agent relationship. That the principal is bound by all the obligations contracted by the
agent within the scope of the authority granted to him is clearly provided under Article 1910 of the
Civil Code and this constitutes the very notion of agency.

II. In actions based on quasi-delict, a principal can only be held liable for the tort committed
by its agent’s employees if it has been established by preponderance of evidence that the
principal was also at fault or negligent or that the principal exercise control and supervision
over them.

Considering that Holiday Travel is CAI’s agent, does it necessarily follow that CAI is liable for the
fault or negligence of Holiday Travel’s employees? Citing China Air Lines, Ltd. v. Court of Appeals,
et al., CAI argues that it cannot be held liable for the actions of the employee of its ticketing agent in
23 

the absence of an employer-employee relationship.

An examination of this Court’s pronouncements in China Air Lines will reveal that an airline company
is not completely exonerated from any liability for the tort committed by its agent’s employees. A
prior determination of the nature of the passenger’s cause of action is necessary. If the passenger’s
cause of action against the airline company is premised on culpa aquiliana or quasi-delict for a tort
committed by the employee of the airline company’s agent, there must be an independent showing
that the airline company was at fault or negligent or has contributed to the negligence or tortuous
conduct committed by the employee of its agent. The mere fact that the employee of the airline
company’s agent has committed a tort is not sufficient to hold the airline company liable. There is
no vinculum juris between the airline company and its agent’s employees and the contractual
relationship between the airline company and its agent does not operate to create a juridical tie
between the airline company and its agent’s employees. Article 2180 of the Civil Code does not
make the principal vicariously liable for the tort committed by its agent’s employees and the
principal-agency relationship per se does not make the principal a party to such tort; hence, the need
to prove the principal’s own fault or negligence.
On the other hand, if the passenger’s cause of action for damages against the airline company is
based on contractual breach or culpa contractual, it is not necessary that there be evidence of the
airline company’s fault or negligence. As this Court previously stated in China Air Lines and
reiterated in Air France vs. Gillego, "in an action based on a breach of contract of carriage, the
24 

aggrieved party does not have to prove that the common carrier was at fault or was negligent. All
that he has to prove is the existence of the contract and the fact of its non-performance by the
carrier."

Spouses Viloria’s cause of action on the basis of Mager’s alleged fraudulent misrepresentation is
clearly one of tort or quasi-delict, there being no pre-existing contractual relationship between them.
Therefore, it was incumbent upon Spouses Viloria to prove that CAI was equally at fault.

However, the records are devoid of any evidence by which CAI’s alleged liability can be
substantiated. Apart from their claim that CAI must be held liable for Mager’s supposed fraud
because Holiday Travel is CAI’s agent, Spouses Viloria did not present evidence that CAI was a
party or had contributed to Mager’s complained act either by instructing or authorizing Holiday Travel
and Mager to issue the said misrepresentation.

It may seem unjust at first glance that CAI would consider Spouses Viloria bound by the terms and
conditions of the subject contracts, which Mager entered into with them on CAI’s behalf, in order to
deny Spouses Viloria’s request for a refund or Fernando’s use of Lourdes’ ticket for the re-issuance
of a new one, and simultaneously claim that they are not bound by Mager’s supposed
misrepresentation for purposes of avoiding Spouses Viloria’s claim for damages and maintaining the
validity of the subject contracts. It may likewise be argued that CAI cannot deny liability as it
benefited from Mager’s acts, which were performed in compliance with Holiday Travel’s obligations
as CAI’s agent.

However, a person’s vicarious liability is anchored on his possession of control, whether absolute or
limited, on the tortfeasor. Without such control, there is nothing which could justify extending the
liability to a person other than the one who committed the tort. As this Court explained in Cangco v.
Manila Railroad Co.: 25

With respect to extra-contractual obligation arising from negligence, whether of act or

omission, it is competent for the legislature to elect — and our Legislature has so elected — to limit
such liability to cases in which the person upon whom such an obligation is imposed is morally
culpable or, on the contrary, for reasons of public policy, to extend that liability, without regard
to the lack of moral culpability, so as to include responsibility for the negligence of those
persons whose acts or omissions are imputable, by a legal fiction, to others who are in a
position to exercise an absolute or limited control over them. The legislature which adopted our
Civil Code has elected to limit extra-contractual liability — with certain well-defined exceptions — to
cases in which moral culpability can be directly imputed to the persons to be charged. This moral
responsibility may consist in having failed to exercise due care in one's own acts, or in having failed
to exercise due care in the selection and control of one's agent or servants, or in the control of
persons who, by reasons of their status, occupy a position of dependency with respect to the person
made liable for their conduct. (emphasis supplied)
26 

It is incumbent upon Spouses Viloria to prove that CAI exercised control or supervision over Mager
by preponderant evidence. The existence of control or supervision cannot be presumed and CAI is
under no obligation to prove its denial or nugatory assertion. Citing Belen v. Belen, this Court ruled
27 

in Jayme v. Apostol, that:

28 
In Belen v. Belen, this Court ruled that it was enough for defendant to deny an alleged employment
relationship. The defendant is under no obligation to prove the negative averment. This Court said:

"It is an old and well-settled rule of the courts that the burden of proving the action is upon the
plaintiff, and that if he fails satisfactorily to show the facts upon which he bases his claim, the
defendant is under no obligation to prove his exceptions. This [rule] is in harmony with the provisions
of Section 297 of the Code of Civil Procedure holding that each party must prove his own affirmative
allegations, etc." (citations omitted)
29 

Therefore, without a modicum of evidence that CAI exercised control over Holiday Travel’s
employees or that CAI was equally at fault, no liability can be imposed on CAI for Mager’s supposed
misrepresentation.

III. Even on the assumption that CAI may be held liable for the acts of Mager, still, Spouses
Viloria are not entitled to a refund. Mager’s statement cannot be considered a causal fraud
that would justify the annulment of the subject contracts that would oblige CAI to indemnify
Spouses Viloria and return the money they paid for the subject tickets.

Article 1390, in relation to Article 1391 of the Civil Code, provides that if the consent of the
contracting parties was obtained through fraud, the contract is considered voidable and may be
annulled within four (4) years from the time of the discovery of the fraud. Once a contract is annulled,
the parties are obliged under Article 1398 of the same Code to restore to each other the things
subject matter of the contract, including their fruits and interest.

On the basis of the foregoing and given the allegation of Spouses Viloria that Fernando’s consent to
the subject contracts was supposedly secured by Mager through fraudulent means, it is plainly
apparent that their demand for a refund is tantamount to seeking for an annulment of the subject
contracts on the ground of vitiated consent.

Whether the subject contracts are annullable, this Court is required to determine whether Mager’s
alleged misrepresentation constitutes causal fraud. Similar to the dispute on the existence of an
agency, whether fraud attended the execution of a contract is factual in nature and this Court, as
discussed above, may scrutinize the records if the findings of the CA are contrary to those of the
RTC.

Under Article 1338 of the Civil Code, there is fraud when, through insidious words or machinations of
one of the contracting parties, the other is induced to enter into a contract which, without them, he
would not have agreed to. In order that fraud may vitiate consent, it must be the causal (dolo
causante), not merely the incidental (dolo incidente), inducement to the making of the
contract. In Samson v. Court of Appeals, causal fraud was defined as "a deception employed by
30  31 

one party prior to or simultaneous to the contract in order to secure the consent of the other."
32

Also, fraud must be serious and its existence must be established by clear and convincing evidence.
As ruled by this Court in Sierra v. Hon. Court of Appeals, et al., mere preponderance of evidence is
33 

not adequate:

Fraud must also be discounted, for according to the Civil Code:

Art. 1338. There is fraud when, through insidious words or machinations of one of the contracting
parties, the other is induced to enter into a contract which without them, he would not have agreed
to.
Art. 1344. In order that fraud may make a contract voidable, it should be serious and should not
have been employed by both contracting parties.

To quote Tolentino again, the "misrepresentation constituting the fraud must be established by full,
clear, and convincing evidence, and not merely by a preponderance thereof. The deceit must be
serious. The fraud is serious when it is sufficient to impress, or to lead an ordinarily prudent person
into error; that which cannot deceive a prudent person cannot be a ground for nullity. The
circumstances of each case should be considered, taking into account the personal conditions of the
victim."
34

After meticulously poring over the records, this Court finds that the fraud alleged by Spouses Viloria
has not been satisfactorily established as causal in nature to warrant the annulment of the subject
contracts. In fact, Spouses Viloria failed to prove by clear and convincing evidence that Mager’s
statement was fraudulent. Specifically, Spouses Viloria failed to prove that (a) there were indeed
available seats at Amtrak for a trip to New Jersey on August 13, 1997 at the time they spoke with
Mager on July 21, 1997; (b) Mager knew about this; and (c) that she purposely informed them
otherwise.

This Court finds the only proof of Mager’s alleged fraud, which is Fernando’s testimony that an
Amtrak had assured him of the perennial availability of seats at Amtrak, to be wanting. As CAI
correctly pointed out and as Fernando admitted, it was possible that during the intervening period of
three (3) weeks from the time Fernando purchased the subject tickets to the time he talked to said
Amtrak employee, other passengers may have cancelled their bookings and reservations with
Amtrak, making it possible for Amtrak to accommodate them. Indeed, the existence of fraud cannot
be proved by mere speculations and conjectures. Fraud is never lightly inferred; it is good faith that
is. Under the Rules of Court, it is presumed that "a person is innocent of crime or wrong" and that
"private transactions have been fair and regular." Spouses Viloria failed to overcome this
35 

presumption.

IV. Assuming the contrary, Spouses Viloria are nevertheless deemed to have ratified the
subject contracts.

Even assuming that Mager’s representation is causal fraud, the subject contracts have been
impliedly ratified when Spouses Viloria decided to exercise their right to use the subject tickets for
the purchase of new ones. Under Article 1392 of the Civil Code, "ratification extinguishes the action
to annul a voidable contract."

Ratification of a voidable contract is defined under Article 1393 of the Civil Code as follows:

Art. 1393. Ratification may be effected expressly or tacitly. It is understood that there is a tacit
ratification if, with knowledge of the reason which renders the contract voidable and such reason
having ceased, the person who has a right to invoke it should execute an act which necessarily
implies an intention to waive his right.

Implied ratification may take diverse forms, such as by silence or acquiescence; by acts showing
approval or adoption of the contract; or by acceptance and retention of benefits flowing therefrom. 36

Simultaneous with their demand for a refund on the ground of Fernando’s vitiated consent, Spouses
Viloria likewise asked for a refund based on CAI’s supposed bad faith in reneging on its undertaking
to replace the subject tickets with a round trip ticket from Manila to Los Angeles.
In doing so, Spouses Viloria are actually asking for a rescission of the subject contracts based on
contractual breach. Resolution, the action referred to in Article 1191, is based on the defendant’s
breach of faith, a violation of the reciprocity between the parties and in Solar Harvest, Inc. v. Davao
37 

Corrugated Carton Corporation, this Court ruled that a claim for a reimbursement in view of the
38 

other party’s failure to comply with his obligations under the contract is one for rescission or
resolution.

However, annulment under Article 1390 of the Civil Code and rescission under Article 1191 are two
(2) inconsistent remedies. In resolution, all the elements to make the contract valid are present; in
annulment, one of the essential elements to a formation of a contract, which is consent, is absent. In
resolution, the defect is in the consummation stage of the contract when the parties are in the
process of performing their respective obligations; in annulment, the defect is already present at the
time of the negotiation and perfection stages of the contract. Accordingly, by pursuing the remedy of
rescission under Article 1191, the Vilorias had impliedly admitted the validity of the subject contracts,
forfeiting their right to demand their annulment. A party cannot rely on the contract and claim rights
or obligations under it and at the same time impugn its existence or validity. Indeed, litigants are
enjoined from taking inconsistent positions. 39

V. Contracts cannot be rescinded for a slight or casual breach.

CAI cannot insist on the non-transferability of the subject tickets.

Considering that the subject contracts are not annullable on the ground of vitiated consent, the next
question is: "Do Spouses Viloria have the right to rescind the contract on the ground of CAI’s
supposed breach of its undertaking to issue new tickets upon surrender of the subject tickets?"

Article 1191, as presently worded, states:

The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not
comply with what is incumbent upon him.

The injured party may choose between the fulfilment and the rescission of the obligation, with the
payment of damages in either case. He may also seek rescission, even after he has chosen
fulfillment, if the latter should become impossible.

The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a
period.

This is understood to be without prejudice to the rights of third persons who have acquired the thing,
in accordance with articles 1385 and 1388 and the Mortgage Law.

According to Spouses Viloria, CAI acted in bad faith and breached the subject contracts when it
refused to apply the value of Lourdes’ ticket for Fernando’s purchase of a round trip ticket to Los
Angeles and in requiring him to pay an amount higher than the price fixed by other airline
companies.

In its March 24, 1998 letter, CAI stated that "non-refundable tickets may be used as a form of
payment toward the purchase of another Continental ticket for $75.00, per ticket, reissue fee
($50.00, per ticket, for tickets purchased prior to October 30, 1997)."
Clearly, there is nothing in the above-quoted section of CAI’s letter from which the restriction on the
non-transferability of the subject tickets can be inferred. In fact, the words used by CAI in its letter
supports the position of Spouses Viloria, that each of them can use the ticket under their name for
the purchase of new tickets whether for themselves or for some other person.

Moreover, as CAI admitted, it was only when Fernando had expressed his interest to use the subject
tickets for the purchase of a round trip ticket between Manila and Los Angeles that he was informed
that he cannot use the ticket in Lourdes’ name as payment.

Contrary to CAI’s claim, that the subject tickets are non-transferable cannot be implied from a plain
reading of the provision printed on the subject tickets stating that "[t]o the extent not in conflict with
the foregoing carriage and other services performed by each carrier are subject to: (a) provisions
contained in this ticket, x x x (iii) carrier’s conditions of carriage and related regulations which are
made part hereof (and are available on application at the offices of carrier) x x x." As a common
carrier whose business is imbued with public interest, the exercise of extraordinary diligence
requires CAI to inform Spouses Viloria, or all of its passengers for that matter, of all the terms and
conditions governing their contract of carriage. CAI is proscribed from taking advantage of any
ambiguity in the contract of carriage to impute knowledge on its passengers of and demand
compliance with a certain condition or undertaking that is not clearly stipulated. Since the prohibition
on transferability is not written on the face of the subject tickets and CAI failed to inform Spouses
Viloria thereof, CAI cannot refuse to apply the value of Lourdes’ ticket as payment for Fernando’s
purchase of a new ticket.

CAI’s refusal to accept Lourdes’ ticket for the purchase of a new ticket for Fernando is only a
casual breach.

Nonetheless, the right to rescind a contract for non-performance of its stipulations is not absolute.
The general rule is that rescission of a contract will not be permitted for a slight or casual breach, but
only for such substantial and fundamental violations as would defeat the very object of the parties in
making the agreement. Whether a breach is substantial is largely determined by the attendant
40 

circumstances. 41

While CAI’s refusal to allow Fernando to use the value of Lourdes’ ticket as payment for the
purchase of a new ticket is unjustified as the non-transferability of the subject tickets was not clearly
stipulated, it cannot, however be considered substantial. The endorsability of the subject tickets is
not an essential part of the underlying contracts and CAI’s failure to comply is not essential to its
fulfillment of its undertaking to issue new tickets upon Spouses Viloria’s surrender of the subject
tickets. This Court takes note of CAI’s willingness to perform its principal obligation and this is to
apply the price of the ticket in Fernando’s name to the price of the round trip ticket between Manila
and Los Angeles. CAI was likewise willing to accept the ticket in Lourdes’ name as full or partial
payment as the case may be for the purchase of any ticket, albeit under her name and for her
exclusive use. In other words, CAI’s willingness to comply with its undertaking under its March 24,
1998 cannot be doubted, albeit tainted with its erroneous insistence that Lourdes’ ticket is non-
transferable.

Moreover, Spouses Viloria’s demand for rescission cannot prosper as CAI cannot be solely faulted
for the fact that their agreement failed to consummate and no new ticket was issued to Fernando.
Spouses Viloria have no right to insist that a single round trip ticket between Manila and Los Angeles
should be priced at around $856.00 and refuse to pay the difference between the price of the subject
tickets and the amount fixed by CAI. The petitioners failed to allege, much less prove, that CAI had
obliged itself to issue to them tickets for any flight anywhere in the world upon their surrender of the
subject tickets. In its March 24, 1998 letter, it was clearly stated that "[n]on-refundable tickets may be
used as a form of payment toward the purchase of another Continental ticket" and there is nothing
42 

in it suggesting that CAI had obliged itself to protect Spouses Viloria from any fluctuation in the
prices of tickets or that the surrender of the subject tickets will be considered as full payment for any
ticket that the petitioners intend to buy regardless of actual price and destination. The CA was
correct in holding that it is CAI’s right and exclusive prerogative to fix the prices for its services and it
may not be compelled to observe and maintain the prices of other airline companies. 43

The conflict as to the endorsability of the subject tickets is an altogether different matter, which does
not preclude CAI from fixing the price of a round trip ticket between Manila and Los Angeles in an
amount it deems proper and which does not provide Spouses Viloria an excuse not to pay such
price, albeit subject to a reduction coming from the value of the subject tickets. It cannot be denied
that Spouses Viloria had the concomitant obligation to pay whatever is not covered by the value of
the subject tickets whether or not the subject tickets are transferable or not. 1avvphi1

There is also no showing that Spouses Viloria were discriminated against in bad faith by being
charged with a higher rate. The only evidence the petitioners presented to prove that the price of a
round trip ticket between Manila and Los Angeles at that time was only $856.00 is a newspaper
advertisement for another airline company, which is inadmissible for being "hearsay evidence, twice
removed." Newspaper clippings are hearsay if they were offered for the purpose of proving the truth
of the matter alleged. As ruled in Feria v. Court of Appeals,: 44

[N]ewspaper articles amount to "hearsay evidence, twice removed" and are therefore not only
inadmissible but without any probative value at all whether objected to or not, unless offered for a
purpose other than proving the truth of the matter asserted. In this case, the news article is
admissible only as evidence that such publication does exist with the tenor of the news therein
stated. (citations omitted)
45 

The records of this case demonstrate that both parties were equally in default; hence, none of them
can seek judicial redress for the cancellation or resolution of the subject contracts and they are
therefore bound to their respective obligations thereunder. As the 1st sentence of Article 1192
provides:

Art. 1192. In case both parties have committed a breach of the obligation, the liability of the
first infractor shall be equitably tempered by the courts. If it cannot be determined which of the
parties first violated the contract, the same shall be deemed extinguished, and each shall bear his
own damages. (emphasis supplied)

Therefore, CAI’s liability for damages for its refusal to accept Lourdes’ ticket for the purchase of
Fernando’s round trip ticket is offset by Spouses Viloria’s liability for their refusal to pay the amount,
which is not covered by the subject tickets. Moreover, the contract between them remains, hence,
CAI is duty bound to issue new tickets for a destination chosen by Spouses Viloria upon their
surrender of the subject tickets and Spouses Viloria are obliged to pay whatever amount is not
covered by the value of the subject tickets.

This Court made a similar ruling in Central Bank of the Philippines v. Court of Appeals. Thus: 46 

Since both parties were in default in the performance of their respective reciprocal obligations, that
is, Island Savings Bank failed to comply with its obligation to furnish the entire loan and Sulpicio M.
Tolentino failed to comply with his obligation to pay his ₱17,000.00 debt within 3 years as stipulated,
they are both liable for damages.
Article 1192 of the Civil Code provides that in case both parties have committed a breach of their
reciprocal obligations, the liability of the first infractor shall be equitably tempered by the courts. WE
rule that the liability of Island Savings Bank for damages in not furnishing the entire loan is offset by
the liability of Sulpicio M. Tolentino for damages, in the form of penalties and surcharges, for not
paying his overdue ₱17,000.00 debt. x x x. 47

Another consideration that militates against the propriety of holding CAI liable for moral damages is
the absence of a showing that the latter acted fraudulently and in bad faith. Article 2220 of the Civil
Code requires evidence of bad faith and fraud and moral damages are generally not recoverable
in culpa contractual except when bad faith had been proven. The award of exemplary damages is
48 

likewise not warranted. Apart from the requirement that the defendant acted in a wanton, oppressive
and malevolent manner, the claimant must prove his entitlement to moral damages. 49

WHEREFORE, premises considered, the instant Petition is DENIED.

SO ORDERED.

BIENVENIDO L. REYES
Associate Justice

WE CONCUR:

ANTONIO T. CARPIO
Associate Justice

JOSE PORTUGAL PEREZ MARIA LOURDES P. A. SERENO

Associate Justice Associate Justice

ESTELA M. PERLAS-BERNABE
Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Court’s Division.

ANTONIO T. CARPIO
Associate Justice
Chairperson, Second Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson's Attestation, I
certify that the conclusions in the above Decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Court’s Division.

RENATO C. CORONA
Chief Justice
 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-27044 June 30, 1975

THE COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
ENGINEERING EQUIPMENT AND SUPPLY COMPANY AND THE COURT OF TAX
APPEALS, respondents.

G.R. No. L-27452 June 30, 1975

ENGINEERING EQUIPMENT AND SUPPLY COMPANY, petitioner,

vs.
THE COMMISSIONER OF INTERNAL REVENUE AND THE COURT OF TAX
APPEALS, respondent.

Office of the Solicitor General Antonio P. Barredo, Assistant Solicitor General Felicisimo R.
Rosete, Solicitor Lolita O. Gal-lang, and Special Attorney Gemaliel H. Montalino for
Commissioner of Internal Revenue, etc.

Melquides C. Gutierrez, Jose U. Ong, Juan G. Collas, Jr., Luis Ma. Guerrero and J.R.
Balonkita for Engineering and Supply Company.

ESGUERRA, J.:

Petition for review on certiorari of the decision of the Court of Tax Appeals in CTA Case No.
681, dated November 29, 1966, assessing a compensating tax of P174,441.62 on the
Engineering Equipment and Supply Company.

As found by the Court of Tax Appeals, and as established by the evidence on record, the
facts of this case are as follows:

Engineering Equipment and Supply Co. (Engineering for short), a domestic corporation, is an
engineering and machinery firm. As operator of an integrated engineering shop, it is
engaged, among others, in the design and installation of central type air conditioning system,
pumping plants and steel fabrications. (Vol. I pp. 12-16 T.S.N. August 23, 1960)

On July 27, 1956, one Juan de la Cruz, wrote the then Collector, now Commissioner, of
Internal Revenue denouncing Engineering for tax evasion by misdeclaring its imported
articles and failing to pay the correct percentage taxes due thereon in connivance with its
foreign suppliers (Exh. "2" p. 1 BIR record Vol. I). Engineering was likewise denounced to the
Central Bank (CB) for alleged fraud in obtaining its dollar allocations. Acting on these
denunciations, a raid and search was conducted by a joint team of Central Bank, (CB),
National Bureau of Investigation (NBI) and Bureau of Internal Revenue (BIR) agents on
September 27, 1956, on which occasion voluminous records of the firm were seized and
confiscated. (pp. 173-177 T.S.N.)

On September 30, 1957, revenue examiners Quesada and Catudan reported and
recommended to the then Collector, now Commissioner, of Internal Revenue (hereinafter
referred to as Commissioner) that Engineering be assessed for P480,912.01 as deficiency
advance sales tax on the theory that it misdeclared its importation of air conditioning units
and parts and accessories thereof which are subject to tax under Section 185(m)  of the Tax
1

Code, instead of Section 186 of the same Code. (Exh. "3" pp. 59-63 BIR rec. Vol. I) This assessment
was revised on January 23, 1959, in line with the observation of the Chief, BIR Law Division, and
was raised to P916,362.56 representing deficiency advance sales tax and manufacturers sales tax,
inclusive of the 25% and 50% surcharges. (pp. 72-80 BIR rec. Vol. I)

On March 3, 1959. the Commissioner assessed against, and demanded upon, Engineering payment
of the increased amount and suggested that P10,000 be paid as compromise in extrajudicial
settlement of Engineering's penal liability for violation of the Tax Code. The firm, however, contested
the tax assessment and requested that it be furnished with the details and particulars of the
Commissioner's assessment. (Exh. "B" and "15", pp. 86-88 BIR rec. Vol. I) The Commissioner
replied that the assessment was in accordance with law and the facts of the case.

On July 30, 1959, Engineering appealed the case to the Court of Tax Appeals and during the
pendency of the case the investigating revenue examiners reduced Engineering's deficiency tax
liabilities from P916,362.65 to P740,587.86 (Exhs. "R" and "9" pp. 162-170, BIR rec.), based on
findings after conferences had with Engineering's Accountant and Auditor.

On November 29, 1966, the Court of Tax Appeals rendered its decision, the dispositive portion of
which reads as follows:

For ALL THE FOREGOING CONSIDERATIONS, the decision of respondent

appealed from is hereby modified, and petitioner, as a contractor, is declared exempt
from the deficiency manufacturers sales tax covering the period from June 1, 1948.
to September 2, 1956. However, petitioner is ordered to pay respondent, or his duly
authorized collection agent, the sum of P174,141.62 as compensating tax and 25%
surcharge for the period from 1953 to September 1956. With costs against petitioner.

The Commissioner, not satisfied with the decision of the Court of Tax Appeals, appealed to this
Court on January 18, 1967, (G.R. No. L-27044). On the other hand, Engineering, on January 4,
1967, filed with the Court of Tax Appeals a motion for reconsideration of the decision
abovementioned. This was denied on April 6, 1967, prompting Engineering to file also with this Court
its appeal, docketed as G.R. No. L-27452.

Since the two cases, G.R. No. L-27044 and G.R. No. L-27452, involve the same parties and issues,
We have decided to consolidate and jointly decide them.

Engineering in its Petition claims that the Court of Tax Appeals committed the following errors:

1. That the Court of Tax Appeals erred in holding Engineering Equipment & Supply
Company liable to the 30% compensating tax on its importations of equipment and
ordinary articles used in the central type air conditioning systems it designed,
fabricated, constructed and installed in the buildings and premises of its customers,
rather than to the compensating tax of only 7%;
 2. That the Court of Tax Appeals erred in holding Engineering Equipment & Supply
Company guilty of fraud in effecting the said importations on the basis of incomplete
quotations from the contents of alleged photostat copies of documents seized
illegally from Engineering Equipment and Supply Company which should not have
been admitted in evidence;

3. That the Court of Tax Appeals erred in holding Engineering Equipment & Supply
Company liable to the 25% surcharge prescribed in Section 190 of the Tax Code;

4. That the Court of Tax Appeals erred in holding the assessment as not having
prescribed;

5. That the Court of Tax Appeals erred in holding Engineering Equipment & Supply
Company liable for the sum of P174,141.62 as 30% compensating tax and 25%
surcharge instead of completely absolving it from the deficiency assessment of the
Commissioner.

The Commissioner on the other hand claims that the Court of Tax Appeals erred:

1. In holding that the respondent company is a contractor and not a manufacturer.

2. In holding respondent company liable to the 3% contractor's tax imposed by

Section 191 of the Tax Code instead of the 30% sales tax prescribed in Section
185(m) in relation to Section 194(x) both of the same Code;

3. In holding that the respondent company is subject only to the 30% compensating
tax under Section 190 of the Tax Code and not to the 30% advance sales tax
imposed by section 183 (b), in relation to section 185(m) both of the same Code, on
its importations of parts and accessories of air conditioning units;

4. In not holding the company liable to the 50% fraud surcharge under Section 183 of
the Tax Code on its importations of parts and accessories of air conditioning units,
notwithstanding the finding of said court that the respondent company fraudulently
misdeclared the said importations;

5. In holding the respondent company liable for P174,141.62 as compensating tax

and 25% surcharge instead of P740,587.86 as deficiency advance sales tax,
deficiency manufacturers tax and 25% and 50% surcharge for the period from June
1, 1948 to December 31, 1956.

The main issue revolves on the question of whether or not Engineering is a manufacturer of air
conditioning units under Section 185(m), supra, in relation to Sections 183(b) and 194 of the Code,
or a contractor under Section 191 of the same Code.

The Commissioner contends that Engineering is a manufacturer and seller of air conditioning units
and parts or accessories thereof and, therefore, it is subject to the 30% advance sales tax
prescribed by Section 185(m) of the Tax Code, in relation to Section 194 of the same, which defines
a manufacturer as follows:

Section 194. — Words and Phrases Defined. — In applying the provisions of this
Title, words and phrases shall be taken in the sense and extension indicated below:
 xxx xxx xxx

(x) "Manufacturer" includes every person who by physical or chemical process alters
the exterior texture or form or inner substance of any raw material or manufactured
or partially manufactured products in such manner as to prepare it for a special use
or uses to which it could not have been put in its original condition, or who by any
such process alters the quality of any such material or manufactured or partially
manufactured product so as to reduce it to marketable shape, or prepare it for any of
the uses of industry, or who by any such process combines any such raw material or
manufactured or partially manufactured products with other materials or products of
the same or of different kinds and in such manner that the finished product of such
process of manufacture can be put to special use or uses to which such raw material
or manufactured or partially manufactured products in their original condition could
not have been put, and who in addition alters such raw material or manufactured or
partially manufactured products, or combines the same to produce such finished
products for the purpose of their sale or distribution to others and not for his own use
or consumption.

In answer to the above contention, Engineering claims that it is not a manufacturer and setter of air-
conditioning units and spare parts or accessories thereof subject to tax under Section 185(m) of the
Tax Code, but a contractor engaged in the design, supply and installation of the central type of air-
conditioning system subject to the 3% tax imposed by Section 191 of the same Code, which is
essentially a tax on the sale of services or labor of a contractor rather than on the sale of articles
subject to the tax referred to in Sections 184, 185 and 186 of the Code.

The arguments of both the Engineering and the Commissioner call for a clarification of the term
contractor as well as the distinction between a contract of sale and contract for furnishing services,
labor and materials. The distinction between a contract of sale and one for work, labor and materials
is tested by the inquiry whether the thing transferred is one not in existence and which never would
have existed but for the order of the party desiring to acquire it, or a thing which would have existed
and has been the subject of sale to some other persons even if the order had not been given.  If the
2

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 defendant's request, it is a contract of sale,
even though it may be entirely made after, and in consequence of, the defendants order for it. 3

Our New Civil Code, likewise distinguishes a contract of sale from a contract for a piece of work
thus:

Art. 1467. A contract for the delivery at a certain price of an article which the vendor
in the ordinary course of his business manufactures or procures for the general
market, whether the same is on hand at the time or not, is a contract of sale, but if
the goods are to be manufactured specially for the customer and upon his special
order and not for the general market, it is a contract for a piece of work.

The word "contractor" has come to be used with special reference to a person who, in the pursuit of
the independent business, undertakes to do a specific job or piece of work for other persons, using
his own means and methods without submitting himself to control as to the petty details. (Arañas,
Annotations and Jurisprudence on the National Internal Revenue Code, p. 318, par. 191 (2), 1970
Ed.) The true test of a contractor as was held in the cases of Luzon Stevedoring Co., vs.
Trinidad, 43, Phil. 803, 807-808, and La Carlota Sugar Central vs. Trinidad, 43, Phil. 816, 819,
would seem to be that he renders service in the course of an independent occupation, representing
the will of his employer only as to the result of his work, and not as to the means by which it is
accomplished.

With the foregoing criteria as guideposts, We shall now examine whether Engineering really did
"manufacture" and sell, as alleged by the Commissioner to hold it liable to the advance sales tax
under Section 185(m), or it only had its services "contracted" for installation purposes to hold it liable
under section 198 of the Tax Code.

After going over the three volumes of stenographic notes and the voluminous record of the BIR and
the CTA as well as the exhibits submitted by both parties, We find that Engineering did not
manufacture air conditioning units for sale to the general public, but imported some items (as
refrigeration compressors in complete set, heat exchangers or coils, t.s.n. p. 39) which were used in
executing contracts entered into by it. Engineering, therefore, undertook negotiations and execution
of individual contracts for the design, supply and installation of air conditioning units of the central
type (t.s.n. pp. 20-36; Exhs. "F", "G", "H", "I", "J", "K", "L", and "M"), taking into consideration in the
process such factors as the area of the space to be air conditioned; the number of persons
occupying or would be occupying the premises; the purpose for which the various air conditioning
areas are to be used; and the sources of heat gain or cooling load on the plant such as sun load,
lighting, and other electrical appliances which are or may be in the plan. (t.s.n. p. 34, Vol. I)
Engineering also testified during the hearing in the Court of Tax Appeals that relative to the
installation of air conditioning system, Engineering designed and engineered complete each
particular plant and that no two plants were identical but each had to be engineered separately.

As found by the lower court, which finding  We adopt —

4

Engineering, in a nutshell, fabricates, assembles, supplies and installs in the

buildings of its various customers the central type air conditioning system; prepares
the plans and specifications therefor which are distinct and different from each other;
the air conditioning units and spare parts or accessories thereof used by petitioner
are not the window type of air conditioner which are manufactured, assembled and
produced locally for sale to the general market; and the imported air conditioning
units and spare parts or accessories thereof are supplied and installed by petitioner
upon previous orders of its customers conformably with their needs and
requirements.

The facts and circumstances aforequoted support the theory that Engineering is a contractor rather
than a manufacturer.

The Commissioner in his Brief argues that "it is more in accord with reason and sound business
management to say that anyone who desires to have air conditioning units installed in his premises
and who is in a position and willing to pay the price can order the same from the company
(Engineering) and, therefore, Engineering could have mass produced and stockpiled air conditioning
units for sale to the public or to any customer with enough money to buy the same." This is
untenable in the light of the fact that air conditioning units, packaged, or what we know as self-
contained air conditioning units, are distinct from the central system which Engineering dealt in. To
Our mind, the distinction as explained by Engineering, in its Brief, quoting from books, is not an idle
play of words as claimed by the Commissioner, but a significant fact which We just cannot ignore. As
quoted by Engineering Equipment & Supply Co., from an Engineering handbook by L.C. Morrow,
and which We reproduce hereunder for easy reference:
 ... there is a great variety of equipment in use to do this job (of air conditioning).
Some devices are designed to serve a specific type of space; others to perform a
specific function; and still others as components to be assembled into a tailor-made
system to fit a particular building. Generally, however, they may be grouped into two
classifications — unitary and central system.

The unitary equipment classification includes those designs such as room air
conditioner, where all of the functional components are included in one or two
packages, and installation involves only making service connection such as
electricity, water and drains. Central-station systems, often referred to as applied or
built-up systems, require the installation of components at different points in a
building and their interconnection.

The room air conditioner is a unitary equipment designed specifically for a room or
similar small space. It is unique among air conditioning equipment in two respects: It
is in the electrical appliance classification, and it is made by a great number of
manufacturers.

There is also the testimony of one Carlos Navarro, a licensed Mechanical and Electrical Engineer,
who was once the Chairman of the Board of Examiners for Mechanical Engineers and who was
allegedly responsible for the preparation of the refrigeration and air conditioning code of the City of
Manila, who said that "the central type air conditioning system is an engineering job that requires
planning and meticulous layout due to the fact that usually architects assign definite space and
usually the spaces they assign are very small and of various sizes. Continuing further, he testified:

I don't think I have seen central type of air conditioning machinery room that are
exactly alike because all our buildings here are designed by architects dissimilar to
existing buildings, and usually they don't coordinate and get the advice of air
conditioning and refrigerating engineers so much so that when we come to design,
we have to make use of the available space that they are assigning to us so that we
have to design the different component parts of the air conditioning system in such a
way that will be accommodated in the space assigned and afterwards the system
may be considered as a definite portion of the building. ...

Definitely there is quite a big difference in the operation because the window type air
conditioner is a sort of compromise. In fact it cannot control humidity to the desired
level; rather the manufacturers, by hit and miss, were able to satisfy themselves that
the desired comfort within a room could be made by a definite setting of the machine
as it comes from the factory; whereas the central type system definitely requires an
intelligent operator. (t.s.n. pp. 301-305, Vol. II)

The point, therefore, is this — Engineering definitely did not and was not engaged in the
manufacture of air conditioning units but had its services contracted for the installation of a central
system. The cases cited by the Commissioner (Advertising Associates, Inc. vs. Collector of
Customs, 97, Phil. 636; Celestino Co & Co. vs. Collector of Internal Revenue, 99 Phil. 841 and
Manila Trading & Supply Co. vs. City of Manila, 56 O.G. 3629), are not in point. Neither are they
applicable because the facts in all the cases cited are entirely different. Take for instance the case of
Celestino Co where this Court held the taxpayer to be a manufacturer rather than a contractor of
sash, doors and windows manufactured in its factory. Indeed, from the very start, Celestino Co
intended itself to be a manufacturer of doors, windows, sashes etc. as it did register a special trade
name for its sash business and ordered company stationery carrying the bold print "ORIENTAL
SASH FACTORY (CELESTINO CO AND COMPANY, PROP.) 926 Raon St., Quiapo, Manila, Tel.
No. etc., Manufacturers of All Kinds of Doors, Windows ... ." Likewise, Celestino Co never put up a
contractor's bond as required by Article 1729 of the Civil Code. Also, as a general rule, sash
factories receive orders for doors and windows of special design only in particular cases, but the
bulk of their sales is derived from ready-made doors and windows of standard sizes for the average
home, which "sales" were reflected in their books of accounts totalling P118,754.69 for the period
from January, 1952 to September 30, 1952, or for a period of only nine (9) months. This Court found
said sum difficult to have been derived from its few customers who placed special orders for these
items. Applying the abovestated facts to the case at bar, We found them to he inapposite.
Engineering advertised itself as Engineering Equipment and Supply Company, Machinery
Mechanical Supplies, Engineers, Contractors, 174 Marques de Comillas, Manila (Exh. "B" and "15"
BIR rec. p. 186), and not as manufacturers. It likewise paid the contractors tax on all the contracts
for the design and construction of central system as testified to by Mr. Rey Parker, its President and
General Manager. (t.s.n. p. 102, 103) Similarly, Engineering did not have ready-made air
conditioning units for sale but as per testimony of Mr. Parker upon inquiry of Judge Luciano of the
CTA —

Q — Aside from the general components, which go into air

conditioning plant or system of the central type which your company
undertakes, and the procedure followed by you in obtaining and
executing contracts which you have already testified to in previous
hearing, would you say that the covering contracts for these different
projects listed ... referred to in the list, Exh. "F" are identical in every
respect? I mean every plan or system covered by these different
contracts are identical in standard in every respect, so that you can
reproduce them?

A — No, sir. They are not all standard. On the contrary, none of them
are the same. Each one must be designed and constructed to meet
the particular requirements, whether the application is to be operated.
(t.s.n. pp. 101-102)

What We consider as on all fours with the case at bar is the case of S.M. Lawrence Co. vs.
McFarland, Commissioner of Internal Revenue of the State of Tennessee and McCanless, 355 SW
2d, 100, 101, "where the cause presents the question of whether one engaged in the business of
contracting for the establishment of air conditioning system in buildings, which work requires, in
addition to the furnishing of a cooling unit, the connection of such unit with electrical and plumbing
facilities and the installation of ducts within and through walls, ceilings and floors to convey cool air
to various parts of the building, is liable for sale or use tax as a contractor rather than a retailer of
tangible personal property. Appellee took the Position that appellant was not engaged in the
business of selling air conditioning equipment as such but in the furnishing to its customers of
completed air conditioning systems pursuant to contract, was a contractor engaged in the
construction or improvement of real property, and as such was liable for sales or use tax as the
consumer of materials and equipment used in the consummation of contracts, irrespective of the tax
status of its contractors. To transmit the warm or cool air over the buildings, the appellant installed
system of ducts running from the basic units through walls, ceilings and floors to registers. The
contract called for completed air conditioning systems which became permanent part of the buildings
and improvements to the realty." The Court held the appellant a contractor which used the materials
and the equipment upon the value of which the tax herein imposed was levied in the performance of
its contracts with its customers, and that the customers did not purchase the equipment and have
the same installed.
Applying the facts of the aforementioned case to the present case, We see that the supply of air
conditioning units to Engineer's various customers, whether the said machineries were in hand or
not, was especially made for each customer and installed in his building upon his special order. The
air conditioning units installed in a central type of air conditioning system would not have existed but
for the order of the party desiring to acquire it and if it existed without the special order of
Engineering's customer, the said air conditioning units were not intended for sale to the general
public. Therefore, We have but to affirm the conclusion of the Court of Tax Appeals that Engineering
is a contractor rather than a manufacturer, subject to the contractors tax prescribed by Section 191
of the Code and not to the advance sales tax imposed by Section 185(m) in relation to Section 194
of the same Code. Since it has been proved to Our satisfaction that Engineering imported air
conditioning units, parts or accessories thereof for use in its construction business and these items
were never sold, resold, bartered or exchanged, Engineering should be held liable to pay taxes
prescribed under Section 190  of the Code. This compensating tax is not a tax on the importation of
5

goods but a tax on the use of imported goods not subject to sales tax. Engineering, therefore, should
be held liable to the payment of 30% compensating tax in accordance with Section 190 of the Tax
Code in relation to Section 185(m) of the same, but without the 50% mark up provided in Section
183(b).

II

We take up next the issue of fraud. The Commissioner charged Engineering with misdeclaration of
the imported air conditioning units and parts or accessories thereof so as to make them subject to a
lower rate of percentage tax (7%) under Section 186 of the Tax Code, when they are allegedly
subject to a higher rate of tax (30%) under its Section 185(m). This charge of fraud was denied by
Engineering but the Court of Tax Appeals in its decision found adversely and said"

... We are amply convinced from the evidence presented by respondent that
petitioner deliberately and purposely misdeclared its importations. This evidence
consists of letters written by petitioner to its foreign suppliers, instructing them on
how to invoice and describe the air conditioning units ordered by petitioner. ... (p. 218
CTA rec.)

Despite the above findings, however, the Court of Tax Appeals absolved Engineering from paying
the 50% surcharge prescribe by Section 183(a) of the Tax Code by reasoning out as follows:

The imposition of the 50% surcharge prescribed by Section 183(a) of the Tax Code
is based on willful neglect to file the monthly return within 20 days after the end of
each month or in case a false or fraudulent return is willfully made, it can readily be
seen, that petitioner cannot legally be held subject to the 50% surcharge imposed by
Section 183(a) of the Tax Code. Neither can petitioner be held subject to the 50%
surcharge under Section 190 of the Tax Code dealing on compensating tax because
the provisions thereof do not include the 50% surcharge. Where a particular
provision of the Tax Code does not impose the 50% surcharge as fraud penalty we
cannot enforce a non-existing provision of law notwithstanding the assessment of
respondent to the contrary. Instances of the exclusion in the Tax Code of the 50%
surcharge are those dealing on tax on banks, taxes on receipts of insurance
companies, and franchise tax. However, if the Tax Code imposes the 50% surcharge
as fraud penalty, it expressly so provides as in the cases of income tax, estate and
inheritance taxes, gift taxes, mining tax, amusement tax and the monthly percentage
taxes. Accordingly, we hold that petitioner is not subject to the 50% surcharge
despite the existence of fraud in the absence of legal basis to support the importation
thereof. (p. 228 CTA rec.)
We have gone over the exhibits submitted by the Commissioner evidencing fraud committed by
Engineering and We reproduce some of them hereunder for clarity.

As early as March 18, 1953, Engineering in a letter of even date wrote to Trane Co. (Exh. "3-K" pp.
152-155, BIR rec.) viz:

Your invoices should be made in the name of Madrigal & Co., Inc., Manila,
Philippines, c/o Engineering Equipment & Supply Co., Manila, Philippines —
forwarding all correspondence and shipping papers concerning this order to us only
and not to the customer.

When invoicing, your invoices should be exactly as detailed in the customer's Letter
Order dated March 14th, 1953 attached. This is in accordance with the Philippine
import licenses granted to Madrigal & Co., Inc. and such details must only be shown
on all papers and shipping documents for this shipment. No mention of words air
conditioning equipment should be made on any shipping documents as well as on
the cases. Please give this matter your careful attention, otherwise great difficulties
will be encountered with the Philippine Bureau of Customs when clearing the
shipment on its arrival in Manila. All invoices and cases should be marked "THIS
EQUIPMENT FOR RIZAL CEMENT CO."

The same instruction was made to Acme Industries, Inc., San Francisco, California in a letter dated
March 19, 1953 (Exh. "3-J-1" pp. 150-151, BIR rec.)

On April 6, 1953, Engineering wrote to Owens-Corning Fiberglass Corp., New York, U.S.A. (Exh. "3-
1" pp. 147-149, BIR rec.) also enjoining the latter from mentioning or referring to the term 'air
conditioning' and to describe the goods on order as Fiberglass pipe and pipe fitting insulation
instead. Likewise on April 30, 1953, Engineering threatened to discontinue the forwarding service of
Universal Transcontinental Corporation when it wrote Trane Co. (Exh. "3-H" p. 146, BIR rec.):

It will be noted that the Universal Transcontinental Corporation is not following

through on the instructions which have been covered by the above correspondence,
and which indicates the necessity of discontinuing the use of the term "Air
conditioning Machinery or Air Coolers". Our instructions concerning this general
situation have been sent to you in ample time to have avoided this error in
terminology, and we will ask that on receipt of this letter that you again write to
Universal Transcontinental Corp. and inform them that, if in the future, they are
unable to cooperate with us on this requirement, we will thereafter be unable to
utilize their forwarding service. Please inform them that we will not tolerate another
failure to follow our requirements.

And on July 17, 1953 (Exh- "3-g" p. 145, BIR rec.) Engineering wrote Trane Co. another letter, viz:

In the past, we have always paid the air conditioning tax on climate changers and
that mark is recognized in the Philippines, as air conditioning equipment. This matter
of avoiding any tie-in on air conditioning is very important to us, and we are asking
that from hereon that whoever takes care of the processing of our orders be carefully
instructed so as to avoid again using the term "Climate changers" or in any way
referring to the equipment as "air conditioning."

And in response to the aforequoted letter, Trane Co. wrote on July 30, 1953, suggesting a
solution, viz:
 We feel that we can probably solve all the problems by following the procedure
outlined in your letter of March 25, 1953 wherein you stated that in all future jobs you
would enclose photostatic copies of your import license so that we might make up
two sets of invoices: one set describing equipment ordered simply according to the
way that they are listed on the import license and another according to our ordinary
regular methods of order write-up. We would then include the set made up according
to the import license in the shipping boxes themselves and use those items as our
actual shipping documents and invoices, and we will send the other regular invoice to
you, by separate correspondence. (Exh- No. "3-F-1", p. 144 BIR rec.)

Another interesting letter of Engineering is one dated August 27, 1955 (Exh. "3-C" p. 141 BIR rec.)

In the process of clearing the shipment from the piers, one of the Customs inspectors
requested to see the packing list. Upon presenting the packing list, it was discovered
that the same was prepared on a copy of your letterhead which indicated that the
Trane Co. manufactured air conditioning, heating and heat transfer equipment.
Accordingly, the inspectors insisted that this equipment was being imported for air
conditioning purposes. To date, we have not been able to clear the shipment and it is
possible that we will be required to pay heavy taxes on equipment.

The purpose of this letter is to request that in the future, no documents of any kind
should be sent with the order that indicate in any way that the equipment could
possibly be used for air conditioning.

It is realized that this a broad request and fairly difficult to accomplish and administer,
but we believe with proper caution it can be executed. Your cooperation and close
supervision concerning these matters will be appreciated. (Emphasis supplied)

The aforequoted communications are strongly indicative of the fraudulent intent of Engineering to
misdeclare its importation of air conditioning units and spare parts or accessories thereof to evade
payment of the 30% tax. And since the commission of fraud is altogether too glaring, We cannot
agree with the Court of Tax Appeals in absolving Engineering from the 50% fraud surcharge,
otherwise We will be giving premium to a plainly intolerable act of tax evasion. As aptly stated by
then Solicitor General, now Justice, Antonio P. Barredo: 'this circumstance will not free it from the
50% surcharge because in any case whether it is subject to advance sales tax or compensating tax,
it is required by law to truly declare its importation in the import entries and internal revenue
declarations before the importations maybe released from customs custody. The said entries are the
very documents where the nature, quantity and value of the imported goods declared and where the
customs duties, internal revenue taxes, and other fees or charges incident to the importation are
computed. These entries, therefore, serve the same purpose as the returns required by Section
183(a) of the Code.'

Anent the 25% delinquency surcharge, We fully agree to the ruling made by the Court of Tax
Appeals and hold Engineering liable for the same. As held by the lower court:

At first blush it would seem that the contention of petitioner that it is not subject to the
delinquency, surcharge of 25% is sound, valid and tenable. However, a serious study
and critical analysis of the historical provisions of Section 190 of the Tax Code
dealing on compensating tax in relation to Section 183(a) of the same Code, will
show that the contention of petitioner is without merit. The original text of Section 190
of Commonwealth Act 466, otherwise known as the National Internal Revenue Code,
as amended by Commonwealth Act No. 503, effective on October 1, 1939, does not
 provide for the filing of a compensation tax return and payment of the 25 %
surcharge for late payment thereof. Under the original text of Section 190 of the Tax
Code as amended by Commonwealth Act No. 503, the contention of the petitioner
that it is not subject to the 25% surcharge appears to be legally tenable. However,
Section 190 of the Tax Code was subsequently amended by the Republic Acts Nos.
253, 361, 1511 and 1612 effective October 1, 1946, July 1, 1948, June 9, 1949, June
16, 1956 and August 24, 1956 respectively, which invariably provides among others,
the following:

... If any article withdrawn from the customhouse or the post office
without payment of the compensating tax is subsequently used by the
importer for other purposes, corresponding entry should be made in
the books of accounts if any are kept or a written notice thereof sent
to the Collector of Internal Revenue and payment of the
corresponding compensating tax made within 30 days from the date
of such entry or notice and if tax is not paid within such period the
amount of the tax shall be increased by 25% the increment to be a
part of the tax.

Since the imported air conditioning units-and spare parts or accessories thereof are subject to the
compensating tax of 30% as the same were used in the construction business of Engineering, it is
incumbent upon the latter to comply with the aforequoted requirement of Section 190 of the Code, by
posting in its books of accounts or notifying the Collector of Internal Revenue that the imported
articles were used for other purposes within 30 days. ... Consequently; as the 30% compensating tax
was not paid by petitioner within the time prescribed by Section 190 of the Tax Code as amended, it
is therefore subject to the 25% surcharge for delinquency in the payment of the said tax. (pp. 224-
226 CTA rec.)

III

Lastly the question of prescription of the tax assessment has been put in issue. Engineering
contends that it was not guilty of tax fraud in effecting the importations and, therefore, Section 332(a)
prescribing ten years is inapplicable, claiming that the pertinent prescriptive period is five years from
the date the questioned importations were made. A review of the record however reveals that
Engineering did file a tax return or declaration with the Bureau of Customs before it paid the advance
sales tax of 7%. And the declaration filed reveals that it did in fact misdeclare its importations.
Section 332 of the Tax Code which provides:

Section 332. — Exceptions as to period of limitation of assessment and collection of

taxes. —

(a) In the case of a false or fraudulent return with intent to evade tax or of a failure to
file a return, the tax may be assessed, or a proceeding in court for the collection of
such tax may be begun without assessment at any time within ten years after the
discovery of the falsity, fraud or omission.

is applicable, considering the preponderance of evidence of fraud with the intent to evade the higher
rate of percentage tax due from Engineering. The, tax assessment was made within the period
prescribed by law and prescription had not set in against the Government.

WHEREFORE, the decision appealed from is affirmed with the modification that Engineering is
hereby also made liable to pay the 50% fraud surcharge.
SO ORDERED.

Makalintal, C.J., Castro, Makasiar and Martin, JJ., concur.

FIRST DIVISION

G.R. No. 159723             September 9, 2004

ANTONIO S. LIM, JR., represented by his attorney-in-fact, PAZ S. LIM, petitioner,

vs.
VICTOR K. SAN and ELINDO LO, respondents.

DECISION

YNARES-SANTIAGO, J.:

This is a petition for review on certiorari of the decision 1 and the resolution2 of the Court of Appeals in
CA-G.R. CV No. 61948 promulgated on May 7, 2003 and August 13, 2003, respectively, which
affirmed the July 27, 2003 decision3 of the Regional Trial Court of Davao City, Branch 12 dismissing
the complaint filed by petitioner.

Petitioner Antonio S. Lim, Jr., represented by his mother, Paz S. Lim, as attorney-in-fact, filed a
complaint4 before the Regional Trial Court of Davao City seeking the annulment of a Deed of
Absolute Sale5 involving a parcel of land purportedly executed by Paz S. Lim in favor of her brother,
respondent Victor K. San.

In the second amended complaint dated May 27, 1993, petitioner alleged the following:

xxx     xxx     xxx

4. That plaintiff is an owner of a parcel of land situated at Bajada, Davao City, containing an
area of 1,763 square meters, more or less, covered by Transfer Certificate of Title No. T-
11072 of the Registry of Deeds of Davao City, x x x;

4.A. That constructed on the afore-cited parcel of land is a fourteen (14) doors commercial
building, and that defendant is paying an annual lease of ONE HUNDRED THOUSAND
(P100,000.00) PESOS to the herein plaintiff.

5. On May 29, 1991, the herein defendant taking undue advantage of the depressed mental
state of plaintiff’s Attorney-in-Fact, brought about by the demise of her late husband, Dr.
 Antonio A. Lim Sr., caused some papers for her to sign, which later turn (sic) out to be an
Absolute Deed of Sale, x x x;

6. That the signature of the Attorney-in-Fact in the aforecited Deed of Absolute Sale was
obtained through fraud and trickery employed by the herein defendant and that she never
appeared before the Notary Public, who notarized the said deed;

7. That no consideration was ever paid, much less received by the plaintiff or by his Attorney-
in-Fact. Simply put, the Deed of Absolute Sale was void ab initio for "lack of consideration"
and for "lack of a valid consent";

8. After the signing of the aforecited Deed of Sale with its attendant legal flaws and
infirmities, plaintiff’s Title was transferred in the name of the defendant, Victor K. San, x x x;

9. Knowing that he is holding an infirmed Title, defendant, Victor K. San is now in the
process of selling the aforecited property including the commercial building erected thereon
to any third person; and that the defendant had already caused the cancellation of the
Mother Title No. T-165010 by subdividing the same into eight (8) lots with eight (8) different
titles, as follows:

TCT NO. T-191255, T-191256, T-191257, T-191258, T-191259, T-191260, T-

191261, T-191262,

x x x           x x x           x x x.6

Respondent Victor K. San denied all the allegations of the petitioner. He alleged that the parcel of
land covered by TCT No. T-165010 of the Registry of Deeds of Davao City and registered in his
name was validly and regularly issued. He further claimed that he does not have any lease contract
with the petitioner with respect to the contested property and does not pay any monthly rental over
the same. Moreover, respondent claimed that there was full payment of the consideration of
P264,450.00 for the subject property.

Respondent Elindo Lo was impleaded as a co-defendant on account of his purchase of one lot
covered by TCT No. T-191262,7 notwithstanding the Notice of Adverse Claim and Lis Pendens
annotated on the title of the said parcel of land.

On July 27, 1998, after trial on the merits, the Regional Trial Court of Davao City rendered a decision
dismissing the complaint.8

Petitioner appealed to the Court of Appeals which affirmed the judgment of the trial court in toto.
Petitioner’s motion for reconsideration9 was denied in a Resolution10 dated August 13, 2003.

Hence the present petition based on the following grounds:

a) that the Court of Appeals erred in affirming the trial court’s judgment declaring that the
petitioner failed to prove by clear and convincing evidence that the signature of his attorney-
in-fact was obtained through fraud and trickery and that no consideration was ever paid.

b) that the Court of Appeals erred in declaring that the medical certificates issued by foreign
medical institutions to prove Paz S. Lim (sic) severe mental state of depression cannot be
 given evidentiary weight considering that its due execution and authenticity were not properly
established.11

Petitioner contends that the deed of sale should be declared void because his consent to the same
was vitiated by intimidation and that no consideration was paid for the subject property.
Respondents, on the other hand, maintain that the parties to the deed of sale validly entered into the
same; that Paz S. Lim freely and voluntarily gave her consent to the sale; and that she received the
consideration agreed upon by the parties.

After a careful review of the records of this case, we find no cogent reason to deviate from the
rulings of the court a quo and the Court of Appeals.

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. 12 It has three essential elements, or those
without which there can be no contract – consent, subject matter and cause. 13 A knowledge of these
essential elements is material because the perfection stage or the birth of the contract only occurs
when the parties to a contract agree upon the essential elements of the same. 14

A contract of sale is consensual,15 as such it is perfected by mere consent.16 Consent is essential for

the existence of a contract, and where it is wanting, the contract is non-existent. 17 Consent in
contracts presupposes the following requisites: (1) it should be intelligent or with an exact notion of
the matter to which it refers; (2) it should be free; and (3) it should be spontaneous. Intelligence in
consent is vitiated by error; freedom by violence, intimidation or undue influence; and spontaneity by
fraud.18 Thus, a contract where consent is given through mistake, violence, intimidation, undue
influence or fraud is voidable.19

Contrary to the allegations of the petitioner that the consent of his attorney-in-fact to the deed of sale
was vitiated, a perusal of the records of this case showed that the petitioner failed to establish that
violence, intimidation and undue influence vitiated the consent of Paz S. Lim to the deed of sale
pertaining to the subject property. In determining whether consent is vitiated by the circumstances
provided for in Article 1330 of the Civil Code of the Philippines, courts are given a wide latitude in
weighing the facts or circumstances in a given case and in deciding in favor of what they believe to
have actually occurred, considering the age, physical infirmity, intelligence, relationship and the
conduct of the parties at the time of making the contract and subsequent thereto, irrespective of
whether the contract is in a public or private writing. 20

While it is true that upon the death of her husband, Dr. Antonio T. Lim, Sr., on May 18, 1990, 21 Paz
S. Lim returned to the Philippines and subsequently stayed at the house of the respondent, such
fact per se is not sufficient to establish that the latter employed intimidation, violence or undue
influence upon the former. Defect or lack of valid consent, in order to make the contract voidable,
must be established by full, clear and convincing evidence, and not merely by a preponderance
thereof.22 Petitioner’s mere allegations that respondent threatened his mother with harm if she will
not sign the contract failed to measure up to the yardstick of evidence required, not only to prove
vitiation of consent, but also to overturn the presumption that private transactions have been fair and
regular.23

Paz S. Lim’s behavior belies the allegation that respondent threatened to harm her. The following
testimony is enlightening:

Q You claim that your brother, the defendant Victor K. San threatened to kill you if you will
not cooperate you recall having mentioned that on direct?
 A When?

Q Is it not that you mentioned on the direct that you were threatened by your brother Victor
San?

A Yes, many times he will not let me leave.

Q That was at the time you were then staying with your brother, the defendant in this case?

A Yes, sir.

Q When did you leave your brother in his residence?

A One day when he was out I think in 1991, I sneaked out of the gate and I saw my cousin
Lucila, she said that we live near each other and that I did not know that from then on my
relatives just lived across the fence.

Q Let me be clarified, you left your brother’s house in late 1991?

A Yes, sir.

Q After leaving your brother’s house late in 1991, where did you live?

A With my nephew William.

Q What is the complete name of this William?

A William Tom.

Q Up to the present you are staying with him?

A Yes, Marlene Babao was living downstairs.

Q After leaving your brother’s house, did you ever report this incident wherein you were
threatened by your brother to the police?

A No, I just told my cousin and my nephew, I am afraid to stay there longer.

Q Did you ever file a criminal case against your brother for grave threats, he having allegedly
threatened to kill you?

A I am the big sister, how can I do that to my own brother, I am a Christian.

Q In other words, you did not report this treatment by your brother to the police nor filed any
criminal case against him in Court even up to the present?

A Yes, sir.24

Well-settled is the rule that the findings of facts and assessment of credibility of witnesses is a matter
best left to the trial court because of its unique position of having observed that elusive and
incommunicable evidence of the witnesses deportment on the stand while testifying, which
opportunity is denied to the appellate courts. Only the trial judge can observe the furtive glance,
blush of conscious shame, hesitation, flippant or sneering tone, calmness, sigh or the scant or full
realization of an oath – all of which are useful for an accurate determination of a witness’ honesty
and sincerity.25

WHEREFORE, based on the foregoing, the petition is DENIED. The Decision dated May 7, 2003
and the Resolution dated August 13, 2003 of the Court of Appeals affirming the dismissal of Civil
Case No. 21,924-93 before the Regional Trial Court of Davao City, Branch 12, is AFFIRMED in toto.

SO ORDERED.

Davide, Jr., Quisumbing, Carpio, and Azcuna, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 174286               June 5, 2009

TRADERS ROYAL BANK, Petitioner,

vs.
CUISON LUMBER CO., INC., and JOSEFA JERODIAS VDA. DE CUISON, Respondents.

DECISION

BRION, J.:

We review in this petition for review on certiorari 1 the decision2 and resolution3 of the Court of
Appeals (CA) in CA-G.R. CV No. 49900. The CA affirmed with modifications the decision 4 of the
Regional Trial Court (RTC), Davao City, Branch 13. The RTC ruled in favor of respondents Cuison
Lumber Co., Inc. (CLCI) and Josefa Vda. De Cuison (Mrs. Cuison), collectively referred to as
respondents, in the action they commenced for breach of contract, specific performance, damages,
and attorney’s fees, with prayer for the issuance of a writ of preliminary injunction against petitioner
Traders Royal Bank (bank).

THE BACKGROUND FACTS

On July 14, 1978 and December 9, 1979, respectively, CLCI, through its then president, Roman
Cuison Sr., obtained two loans from the bank. The loans were secured by a real estate mortgage
over a parcel of land covered by Transfer Certificate of Title No. 10282 (subject property). CLCI
failed to pay the loan, prompting the bank to extrajudicially foreclose the mortgage on the subject
property. The bank was declared the highest bidder at the public auction that followed, conducted on
August 1, 1985. A Certificate of Sale and a Sheriff’s Final Certificate of Sale were subsequently
issued in the bank’s favor.

In a series of written communications between CLCI and the bank, CLCI manifested its intention to
restructure its loan obligations and to repurchase the subject property. On July 31, 1986, Mrs.
Cuison, the widow and administratrix of the estate of Roman Cuison Sr., wrote the bank’s Officer-in-
Charge, Remedios Calaguas, a letter indicating her offered terms of repurchase. She stated:

1. That I will pay the interest of ₱115,538.66, plus the additional expenses of
₱17,293.69, the total amount of which is ₱132,832.35 on August 8, 1986;

2. That I will pay 20% of the bid price of ₱949,632.84, plus whatever interest
accruing within sixty (60) days from August 8, 1986;

3. That whatever remaining balance after the above two (2) payments shall be
amortized for five (5) years on equal monthly installments including whatever interest
accruing lease on diminishing balance.5

CLCI paid the bank ₱50,000.00 (on August 8, 1986) and ₱85,000.00 (on September 3, 1986). The
bank received and regarded these amounts as "earnest money" for the repurchase of the subject
property. On October 20, 1986, the bank sent Atty. Roman Cuison, Jr. (Atty. Cuison), as the
president and general manager of CLCI, a letter informing CLCI of the bank’s board of directors’
resolution of October 10, 1986 (TRB Repurchase Agreement), laying down the conditions for the
repurchase of the subject property:

This is to formally inform you that our Board of Directors, in its regular meeting held on October 10,
1986, passed a resolution for the repurchase of your property acquired by the bank, subject to the
following terms and conditions, viz:

1. That the repurchase price shall be at total bank’s claim as of the date of
implementation;

2. That client shall initially pay ₱132,000.00 within fifteen (15) days from the
expiration of the redemption period (August 8, 1986) and further payment of
₱200,632.84, representing 20% of the bid price, to be remitted on or before October
31, 1986;

3. That the balance of ₱749,000.00 to be paid in three (3) years in twelve (12)
quarterly amortizations, with interest rate at 26% computed on diminishing balance;

4. That all the interest and other charges starting from August 8, 1986 to date of
approval shall be paid first before implementation of the request; interest as of
October 31, 1986 is ₱65,669.53;

5. Possession of the property shall be deemed transferred after signing of the

Contract to Sell. However, title to the property shall be delivered only upon full
payment of the repurchase price via Deed of Absolute Sale;

6. Registration fees, documentary stamps, transfer taxes at the date of sale and
other similar government impost shall be for the exclusive account of the buyer;

7. The improvement of the property shall at all times be covered by insurance against
loss with a policy to be obtained from a reputable company which designates the
bank as beneficiary but premiums shall be paid by the client;
 8. That the sale is good for thirty (30) days from the buyer’s receipt of notice of
approval of the offer; otherwise, sale is automatically cancelled;

9. Effective upon signing of the Contract to Sell, all realty taxes which will become
due on the property shall be for the account of the buyer;

10. That the first quarterly installment shall be due within ninety (90) days of approval
hereof, and the succeeding installment shall be due every three (3) months
thereafter;

11. Upon default of the buyer to pay two (2) successive quarterly installments,
contract is automatically cancelled at the Bank’s option and all payments already
made shall be treated as rentals or as liquidated damages; and

12. Other terms and conditions that the bank may further impose to protect its
interest.

Should you agree with the above terms and conditions please sign under "Conforme" on the space
provided below.

We attach herewith your Statement of Account 6 as of October 31, 1986, for your reference.

Thank you.

Very truly yours,

(Signed)

Conforme: (Not signed)7

CLCI failed to comply with the above terms notwithstanding the extensions of time given by the
bank. Nevertheless, CLCI tendered, on February 3, 1987, a check for ₱135,091.57 to cover fifty
percent (50%) of the twenty percent (20%) bid price. The check, however, was returned for
"insufficiency of funds." On May 13, 1987, CLCI tendered an additional ₱50,000.00. 8 On May 29,
1987, the bank sent Atty. Cuison a letter informing him that the ₱185,000.00 CLCI paid was not a
deposit, but formed part of the earnest money under the TRB Repurchase Agreement. On August
28, 1987, Atty. Cuison, by letter, requested that CLCI’s outstanding obligation of ₱1,221,075.61 (as
of July 31, 1987) be reduced to ₱1 million, and the amount of ₱221,075.61 be condoned by the
bank. To show its commitment to the request, CLCI paid the bank ₱100,000.00 and ₱200,000.00 on
August 28, 1987. The bank credited both payments as earnest money.

A year later, CLCI inquired about the status of its request. The bank responded that the request was
still under consideration by the bank’s Manila office. On September 30, 1988, the bank informed
CLCI that it would resell the subject property at an offered price of ₱3 million, and gave CLCI 15
days to make a formal offer; otherwise, the bank would sell the subject property to third parties. On
October 26, 1988, CLCI offered to repurchase the subject property for ₱1.5 million, given that it had
already tendered the amount of ₱400,000.00 as earnest money.

CLCI subsequently claimed that the bank breached the terms of repurchase, as it had wrongly
considered its payments (in the amounts of ₱140,485.18, ₱200,000.00 and ₱100,000.00) as earnest
money, instead of applying them to the purchase price. Through its counsel, CLCI demanded that
the bank rectify the repurchase agreement to reflect the true consideration agreed upon for which
the earnest money had been given. The bank did not act on the demand. Instead, it informed CLCI
that the amounts it received were not earnest money, and that the bank was willing to return these
sums, less the amounts forfeited to answer for the unremitted rentals on the subject property.

In view of these developments, CLCI and Mrs. Cuison, on February 10, 1989, filed with the RTC a
complaint for breach of contract, specific performance, damages, and attorney’s fees against the
bank. On April 20, 1989, the bank filed its Answer alleging that the TRB repurchase agreement was
already cancelled given CLCI’s failure to comply with its provisions; by way of counterclaim, the bank
also demanded the payment of the accrued rentals in the subject property as of January 31, 1989,
and the award of moral damages and exemplary damages as well as attorney’s fees and litigation
expenses for the unfounded suit instituted against the bank by CLCI. 9 After trial on the merits, the
RTC ruled in respondents’ favor. The dispositive portion of its November 4, 1994 Decision states:

WHEREFORE, premises considered, judgment is hereby rendered in favor of plaintiffs and against
the defendant bank, ordering said defendant bank to:

1. Execute and consummate a Contract to Sell which is reflective of the true consideration
indicated in the Resolution of the Board of Directors of Traders Royal Bank held on October
10, 1986 (Exhibit "F" and Exhibit "13"), duly accrediting the amount of ₱435,000 as earnest
money to be part of the price, the mode of payment being on quarterly installment, but the
period within which the first quarterly payment being on quarterly payment shall be made to
commence upon the execution of said Contract to Sell;

2. Pay to plaintiffs the amounts of ₱50,000.00 in concept of moral damages, ₱20,000.00 as

exemplary damages;

3. Pay attorney’s fees of ₱20,000.00; and

4. Pay litigation expenses in the amount of ₱2,000.00.

The counterclaim of defendant bank is hereby dismissed.

SO ORDERED.

On appeal to the CA, the bank pointed out the misappreciation of facts the RTC committed and
argued that: first, the repurchase agreement did not ripen into a perfected contract; and second,
even assuming that there was a perfected repurchase agreement, the bank had the right to revoke it
and apply the payments already made to the rentals due for the use of the subject property, or as
liquidated damages under paragraph 11 of the TRB Repurchase Agreement, since CLCI violated its
terms and conditions. Further, the bank contended that CLCI had abandoned the TRB Repurchase
Agreement in its letters dated August 28, 1987 and October 26, 1988 when it proposed to
repurchase the subject property for ₱1 million and ₱1.5 million, respectively. Lastly, the bank
objected to the award of damages in the plaintiffs’ favor.

THE CA DECISION

On March 31, 2006, the CA issued the challenged Decision and affirmed the RTC’s factual findings
and legal conclusions. Although it deleted the awards of attorney’s fees, moral and exemplary
damages, the CA ruled that there was a perfected contract to repurchase the subject property given
the bank’s acceptance (as stated in the letter dated October 20, 1986) of CLCI’s proposal contained
in Mrs. Cuison’s letter of July 31, 1986. The CA distinguished between a condition imposed on the
perfection of the contract and a condition imposed on the performance of an obligation, and declared
that the conditions laid down in the letter dated October 20, 1986 merely relate to the manner the
obligation is to be performed and implemented; failure to comply with the latter obligation does not
result in the failure of the contract and only gives the other party the options and/or remedies to
protect its interest. The CA held that the same conclusion obtains even if the letter of October 20,
1986 is considered a counter-offer by the bank; CLCI’s payment of ₱135,000.00 operated as an
implied acceptance of the bank’s counter-offer, notwithstanding CLCI’s failure to expressly manifest
its conforme. In light of these findings, the CA went on to acknowledge the validity of the terms of
paragraph 11 of the TRB Repurchase Agreement, but nonetheless held that CLCI has not yet
violated its terms given the bank’s previous acts (i.e., the grant of extensions to pay), which showed
that it had waived the agreement’s original terms of payment.

The CA rejected the theory that CLCI had abandoned the terms of the TRB Repurchase Agreement
and found no incompatibility between the agreement and the contents of the August 28, 1987 and
October 26, 1988 letters which did not show an implied abandonment by CLCI, nor the latter’s
expressed intent to cancel or abandon the perfected repurchase agreement. In the same manner,
the CA struck down the bank’s position that CLCI’s payments were "deposits" rather than earnest
money. The appellate court reasoned that while the amounts tendered cannot be strictly considered
as earnest money under Article 1482 of the New Civil Code, 10 they were nevertheless within the
concept of earnest money under this Court’s ruling in Spouses Doromal, Sr. v. CA, 11 since they were
paid as a guarantee so that the buyer would not back out of the contract.

The CA however ruled that the award of moral and exemplary damages, attorney’s fees and
litigation expenses lacked factual and legal support. The CA found that the bank acted in good faith
and based its actions on the erroneous belief that CLCI had already abandoned the repurchase
agreement. Likewise, the award of moral damages was not in order as there was no showing that
CLCI’s reputation was debased or besmirched by the bank’s action of applying the previous
payments made to the interest and rentals due on the subject property; neither is Mrs. Cuison
entitled to moral damages without any evidence to justify this award. The CA also ruled that there
was nothing in the records to warrant the awards of exemplary damages and attorney’s fees.

The bank subsequently moved but failed to secure a reconsideration of the CA decision. The bank
thus came to us with the following –

ISSUES

I.

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN APPREHENDING THE

SIGNIFICATION (SIC) OF THE TERM "OFFER" ON THE ONE HAND AND "ACCEPTANCE" ON
THE OTHER HAND IN SALES CONTRACT WHICH ERROR LED IT TO ARRIVE AT A WRONG
CONCLUSION OF LAW.

II.

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN ITS INTERPRETATION OF THE

STIPULATIONS AND TERMS AND CONDITIONS EMBODIED IN THE PROPOSED
REPURCHASE AGREEMENT xxx WHICH LED IT TO ERRONEOUSLY CONCLUDE THAT THERE
WAS A "PERFECTED" REPURCHASE AGREEMENT BETWEEN RESPONDENTS AND
PETITIONER AND WHICH INTERPRETATION IS NOT IN ACCORDANCE WITH THE
APPLICABLE LAW AND ESTABLISHED JURISPRUDENCE.
Reduced to the most basic, the main issue posed is whether or not a perfected contract of
repurchase existed and can be enforced between the parties.

THE COURT’S RULING

We GRANT the petition.

The case presents to us as threshold issue the presence or absence of consent as a requisite for a
perfected contract to repurchase the subject property. The RTC ruled that a perfected contract
existed based mainly on the following facts: first, the existence of the TRB Repurchase Agreement
which "clearly depicts the repurchase agreement of the subject property under the terms therein
embodied"; and second, the payment of earnest money in the total amount of ₱435,000.00 which
forms part of the price and, as initial payment, is proof of the perfection of the contract. 12 In
concurring with the foregoing findings on appeal, the CA, in turn, declared that there was a meeting
of the minds between the parties on the offer and acceptance for the repurchase of the subject
property under the following quoted facts:

It may be recalled that it was Mrs. Cuison, through her letter of July 31, 1986, who proposed to
repurchase the foreclosed property. She in fact had tendered right away an amount of ₱50,000.00
as partial payment of the ₱132,000.00 she had promised to pay as initial payment. In response, TRB
sent a letter dated October 20, 1986 to Atty. Cuison informing him of the resolution passed by the
Board of Directors of TRB acknowledging the proposal of Ms. Cuison to repurchase the property.
Under the circumstance, the proposal made by Ms. Cuison constituted the "offer" contemplated by
law, and the reply of TRB was the corresponding "acceptance" of the proposal-offer.

xxx

Conceding arguendo that TRB’s letter-response October 20, 1986 constituted a counter-offer or
politacion, CLCI’s ensuing remittance of ₱135,000.00 as initial payment of the price, operates
effectively as an implied acceptance of TRB’s counter-offer. The absence of a signature to signify
plaintiff’s conforme to the repurchase agreement is of no moment. While the conforme portion of the
subject repurchase agreement indeed bears no signature at all, this fact, however, does not detract
from the accomplished fact that plaintiffs had acquiesced or assented to the standing "conditional
counter-offer" of TRB. Plaintiffs’ "conforme" would at best be a mere formality considering that the
repurchase agreement had already been perfected, if impliedly. 13

Based on these findings, the crucial points that the lower courts apparently considered were Mrs.
Cuison’s letter of July 31, 1986 to the bank; the bank’s letter of October 20, 1986 to CLCI; and the
parties’ subsequent conduct showing their acknowledgement of the existence of their agreement,
specifically, the respondents’ payments (designated as earnest money) and the bank’s acceptance
of these payments. However, unlike the RTC’s conclusion that relied on CLCI’s payment and the
bank’s acceptance of the payment as "earnest money," the CA concluded that there was a perfected
contract, either because of the bank’s acceptance of CLCI’s offer (made through Mrs. Cuison’s letter
of July 31, 1986), or by CLCI’s implied acceptance indicated by its initial payments in compliance
with the terms of the TRB Repurchase Agreement.

The petitioner bank, of course, argues differently and concludes that the undisputed facts of the case
show that there was no meeting of the minds between the parties given CLCI’s failure to give its
consent and conformity to the bank’s letter of October 20, 1986, confirmed by the testimony of Atty.
Cuison, no less, when he denied that CLCI consented to the agreement’s terms of implementation.
Our task in this petition for review on certiorari is not to review the factual findings of the CA and the
RTC, but to determine whether or not, on the basis of the said findings, the conclusions of law
reached by the said courts are correct.

Under the law, a contract is perfected by mere consent, that is, from the moment that there is a
meeting of the offer and the acceptance upon the thing and the cause that constitute the
contract.14 The law requires that the offer must be certain and the acceptance absolute and
unqualified.15 An acceptance of an offer may be express and implied; a qualified offer constitutes a
counter-offer.16 Case law holds that an offer, to be considered certain, must be definite, 17 while an
acceptance is considered absolute and unqualified when it is identical in all respects with that of the
offer so as to produce consent or a meeting of the minds. 18 We have also previously held that the
ascertainment of whether there is a meeting of minds on the offer and acceptance depends on the
circumstances surrounding the case.19

In Villonco Realty Co. v. Bormacheco, 20 the Court found a perfected contract of sale between the
parties after considering the parties’ written communications showing the offer (counter-offer) and
acceptance by the seller who formally manifested his conformity with the offer in the buyer’s letter.
We took note of the acts of the parties – the payment of the buyer of an amount representing the
partial payment under the contract; the acceptance of the partial payment by the seller; the
allowance of the buyer for the seller to encash the check containing the partial payment; the
subsequent return of the amount representing the partial payment by the buyer with the
corresponding interest stated in the buyer’s letter (offer) – and considered them evidence of the
perfection of the sale. Under these circumstances, we also declared that a change in a phrase in the
offer to purchase, that does not essentially change the terms of the offer, does not amount to a
rejection of the offer and the tender of a counter-offer.

In Schuback & Sons Philippine Trading Corp. v. CA,21 we declared a meeting of minds between the
vendor and the vendee even though the quantity of goods purchased had not been fully determined.
We noted that the vendee, after expressing his intention to purchase the merchandise,
simultaneously enclosed a purchase order whose receipt prompted the vendor to immediately order
the merchandise. We also took into account the act of the vendee in requesting for a discount as
proof of his acceptance of the quoted price.

Yuviengco v. Dacuycuy22 yielded a different result, as we considered that the letter and telegrams
sent by the parties to each other showed that there was no meeting of minds in the absence of an
unconditional acceptance to the terms of the contract of sale; otherwise, the buyers would not have
included the phrase "to negotiate details" when they agreed to the property that was subject of the
proposed contract.

Similarly, in Philippine National Bank v. CA,23 we ruled that there was no perfected contract of sale
because the specified terms and conditions imposed under the facts of the case constituted counter-
offers against each other that were not accepted by either of the parties. This case involved a first
contract, involving the same property, which the parties mutually cancelled; we said that the terms of
this earlier contract cannot be considered in determining the acceptance and compliance with the
terms of a proposed second contract – a distinct and separate contract from the one earlier aborted.

The incomplete details of the agreement led us to conclude in Insular Life Assurance Co. Ltd. v.
Assets Builders Corp.24 that no perfected contract existed; there were "other matters or details – in
addition to the subject matter and the consideration – [that] would be stipulated and agreed." We
likewise considered the subsequent acts between the parties and the existence of a second
proposal which belied the perfection of any initial contract.
The recent Navarra v. Planters Development Bank25 is another case where we saw no perfected
contract, as the offer was incomplete for lack of agreed details on the manner of paying the
purchase price; there was also no acceptance as the letter of Planters Development Bank indicated
the need to discuss other details of the transaction.1awphil

All these cases illustrate the rule that the concurrence of the offer and acceptance is vital to the birth
and the perfection of a contract. The clear and neat principle is that the offer must be certain and
definite with respect to the cause or consideration and object of the proposed contract, while the
acceptance of this offer – express or implied – must be unmistakable, unqualified, and identical in all
respects to the offer. The required concurrence, however, may not always be immediately clear and
may have to be read from the attendant circumstances; in fact, a binding contract may exist between
the parties whose minds have met, although they did not affix their signatures to any written
document.26

The facts of the present case, although ambivalent in some respects, point on the whole to the
conclusion that both parties agreed to the repurchase of the subject property.

A reading of the petitioner’s letter of October 20, 1986 informing CLCI that the bank’s board of
directors "passed a resolution for the repurchase of [your] property" shows that the tenor of
acceptance, except for the repurchase price, was subject to conditions not identical in all respects
with the CLCI’s letter-offer of July 31, 1986. In this sense, the bank’s October 20, 1986 letter was
effectively a counter-offer that CLCI must be shown to have accepted absolutely and unqualifiedly in
order to give birth to a perfected contract. Evidence exists showing that CLCI did not sign any
document to show its conformity with the bank’s counter-offer. Testimony also exists explaining why
CLCI did not sign; Atty. Cuison testified that CLCI did not agree with the implementation of the
repurchase transaction since the bank made a wrong computation. 27

These indicators notwithstanding, we find that CLCI accepted the terms of the TRC Repurchase
Agreement and thus unqualifiedly accepted the bank’s counter-offer under the TRB Repurchase
Agreement and, in fact, partially executed the agreement, as shown from the following undisputed
evidence:

(a) The letter-reply dated November 29, 1986 of Atty. Cuison, as president and general
manager of CLCI, to the bank (in response to the bank’s demand letter dated November 27,
1986 to pay 20% of the bid price); CLCI requested an extension of time, until the end of
December 1986, to pay its due obligation; 28

(b) Mrs. Cuison’s letter-reply of February 3, 1987 (to the bank’s letter of January 13, 1987)
showed that she acknowledged CLCI’s failure to comply with its requested extension and
proposed a new payment scheme that would be reasonable given CLCI’s critical economic
difficulties; Mrs. Cuizon tendered a check for ₱135,091.57, which represented 50% of the
20% bid price;29

(c) The CLCI’s continuous payments of the repurchase price after their receipt of the bank’s
letter of October 20, 1986;

(d) CLCI’s possession of the subject property pursuant to paragraph 5 of the TRB
Repurchase Agreement, notwithstanding the absence of a signed contract to sell between
the parties;

xxx
We counted the following facts, too, as indicators leading to the conclusion that a perfected contract
existed: CLCI did not raise any objection to the terms and conditions of the TRB Repurchase
Agreement, and instead, unconditionally paid without protests or objections 30 ; CLCI’s
acknowledgment of their obligations under the TRB Repurchase Agreement (as shown by Atty.
Cuison’s letter of November 29, 1986); and Atty. Cuison’s admission that the TRB Repurchase
Agreement was already a negotiated agreement between CLCI and the bank, as shown by the
following testimony:

Q When you received this document, this Exh. "F" from the defendant bank, did you already
consider this as an agreement?

A We consider that as a negotiated agreement pending the documentation of the formal contract to
sell which is stated under the repurchase agreement.

Q In other words, at the time you received this document Exh. "F," which was on October 23, 1986
date of receipt, was there already a meeting of the minds between the parties?

A That is precisely we put [sic] the earnest money because we were of the opinion that the bank is
already agreeable to the implementation of the repurchase agreement.

xxx

COURT

Q Insofar as Exh. "F" is concerned?

A There was initially, that is precisely we [sic] deposited in consideration of the repurchase
agreement.31

The bank, for its part, showed its recognition of the existence of a repurchase agreement between
itself and CLCI by the following acts:

(a) The letter dated November 27, 1986 of the bank, reminding CLCI that it was remiss in its
commitments to pay 20% of the bid price under the terms of the TRB Repurchase
Agreement;

(b) In the same letter, the bank gave CLCI an extension of time (until November 30, 1986) to
comply with its past due obligations under the agreement;

(c) The bank’s acceptance of CLCI’s payments as earnest money for the repurchase of the
property;

(d) CLCI’s continued possession of the subject property with the bank’s consent;

(e) The bank’s grant of extensions to CLCI for the payment of its obligations under the
contract;

(f) The Statement of Account dated July 31, 1987 showing that the bank applied CLCI’s
payments according to the terms of the TRB Repurchase Agreement;
 (g) The letter of January 26, 1989 of the bank’s counsel, Atty. Abarquez, addressed to
CLCI’s counsel, showing the bank’s recognition that there was an agreement between the
bank and CLCI, which the latter failed to honor; and

(h) The testimonies of the bank’s witnesses – Mr. Eulogio Giramis 32 and Ms. Arlene
Aportadera,33 the bank’s employees who handled the CLCI transactions – who admitted the
existence of the repurchase agreement with CLCI and the latter’s failure to comply with the
agreement’s terms.

Admittedly, some evidence on record may be argued to point to the absence of a meeting of the
minds (more particularly, the previous offers made by CLCI to change the payment scheme of the
repurchase of the subject property which was not accepted; the bank’s expressed intent to offer the
subject property for sale to third persons at a higher price; and the unaccepted counter-offer by the
respondents after the bank increased the purchase price). 34 These incidents, however, were the
results of CLCI’s failure to comply with its obligations to pay the amounts due on the stipulated time
and were made after the parties’ minds had met on the terms of the contract. The seemingly
contrary indications, therefore, do not go into and affect the perfection of the contract; they came
after the contract had been perfected and, as discussed below, were indicative of the bank’s
cancellation of the repurchase agreement.

In light of this conclusion, we now determine the consequential rights, obligations and liabilities of the
parties. It is at this point that we diverge from the conclusions of the CA and the RTC, as we
conclude that while there was a perfected contract between the parties, the bank effectively
cancelled the contract when it communicated with CLCI that it would sell the subject property at a
higher price to third parties, giving CLCI 15 days to make a formal offer, and disregarding CLCI’s
counter-offer to buy the subject property for ₱1.5 million. We arrive at this conclusion after
considering the following reasons:

First, the bank communicated its intent not to proceed with the repurchase as above outlined and
formally cancelled the TRB Repurchase Agreement in its letters dated January 11 and 30, 1989 to
CLCI.35 Thus, CLCI’s rights acquired under the TRB Repurchase Agreement to repurchase the
subject property have been defeated by its own failure to comply with its obligations under the
agreement. The right to cancel for breach is provided under paragraph 11 of the TRB Repurchase
Agreement, as follows:

11. Upon default of the buyer to pay two (2) successive quarterly installments, contract is
automatically cancelled at the Bank’s option and all payments already made shall be treated as
rentals or as liquidated damages;

We note, additionally, that the TRB Repurchase Agreement is in the nature of a contract to sell
where the title to the subject property remains in the bank’s name, as the vendor, and shall only
pass to the respondents, as vendees, upon the full payment of the repurchase price. 36 The settled
rule for contracts to sell is that the full payment of the purchase price is a positive suspensive
condition; the failure to pay in full is not to be considered a breach, casual or serious, but simply an
event that prevents the obligation of the vendor to convey title from acquiring any obligatory
force.37 Viewed in this light, the bank cannot be compelled to perform its obligations under the TRB
Repurchase Agreement that has been rendered ineffective by the respondents’ non-performance of
their own obligations.

Second, the respondents violated the terms and conditions of the TRB Repurchase Agreement
when they failed to pay their obligations under the agreement as these obligations fell due.
Paragraphs 2 and 10 of the TRB Repurchase Agreement are clear on the respondents’ obligation to
pay the bid price and the quarterly installments. Paragraphs 2 and 10 state:

2. That client shall initially pay ₱132,000.00 within fifteen (15) days from the expiration of the
redemption period (August 8, 1986) and further payment of ₱200,632.84 representing 20% of the bid
price to be remitted on or before October 31, 1986;

xxx xxx xxx

10. That the first quarterly installment shall be due within ninety (90) days of approval hereof, and
the succeeding installment shall be due every three (3) months thereafter;

The approval referred to under paragraph 10 is the approval by the bank of the repurchase of the
subject property, as indicated in the bank’s letter of October 20, 1986 which states, "This is to
formally inform you that our Board of Directors in its regular meeting held on October 10, 1986,
passed a resolution for the repurchase of your property acquired by the bank…." It was on the basis
of this approval and the quoted terms of the agreement that the bank issued its Statement of
Account dated July 31, 1987 indicating that the respondents were already in default, not only with
respect to the 20% of the bid price, but also with the three quarterly installments.
lavvphi1

Third, the respondents themselves claim that the bank violated the agreement when it applied the
respondents’ payments to the interest and penalties due without the respondents’ consent, instead
of applying these to the repurchase price for the subject property. 38 An examination of the provisions
of the TRB Repurchase Agreement reveals that the bank is allowed to apply the respondents’
payments first to the amounts due as interests and other charges, before applying any payment to
the repurchase price. Paragraph 4 of the agreement provides:

4. That all the interest and other charges starting from August 8, 1986 to date of approval shall be
paid first before implementation of the request; interest as of October 31, 1986 is ₱65,669.53;

Under these terms, the bank cannot be faulted for the application of payments it made. Likewise, the
bank cannot be faulted for the application of other amounts paid as rentals as this is allowed under
paragraph 11, quoted above, of the agreement.

Fourth, the petitioner bank cannot be said, as the CA ruled, to have already waived the terms of the
TRB Repurchase Agreement by extending the time to pay and subsequently accepting late
payments. The CA’s conclusion lacks factual and legal basis taking into account that the Statement
of Account of July 31, 1987, heretofore cited, which shows that the bank considered the respondents
already in default. At this point, Atty. Cuison, by letter, requested that part of its outstanding
obligation be condoned by the bank, paying ₱300,000.00 as of August 31, 1987, which amount the
bank accepted as earnest money. For one whole year thereafter, neither party moved. Significantly,
the respondents, who had continuing payments to make and who had the burden of complying with
the terms of the agreement, failed to act except to ask the bank for the status of its requested
condonation. Under these facts, a continuing breach of the agreement took place, even granting that
a waiver had intervened as of August 31, 1987. Thus, the bank was well within its right to consider
the agreement cancelled when, in September 1988, it changed the repurchase terms to ₱3.0 million.
We find it significant that the respondents, instead of asserting its rights under the TRB Repurchase
Agreement, counter-offered ₱1.5 million with the ₱400,000.00 already paid as part of the purchase
price. At that point, it was clear that even the respondents themselves considered the TRB
Repurchase Agreement cancelled.
Lastly, the perfected repurchase agreement itself provides for the respondents’ possession of the
subject property; in fact, the respondents have been in continuous possession of the subject
property since October 1986, despite the absence of a contract to sell apparently with the bank’s
consent. The agreement also provides under its paragraph 11 that upon the respondents’ default
and the cancellation of the agreement, all payments already made shall be treated as rentals or as
liquidated damages.

The undisputed facts show that the bank has been deprived of the use and benefit of its property
that has been in the possession of the respondents for the latter’s use and benefit without paying
any rentals thereon. The records reveal that until now, the respondents are still in possession of the
subject property.39

We note that subsequent to the bank’s counterclaim for the payment of rentals due as of January 31,
1989, the bank also seeks to recover the rentals that accrued after January 31, 1989, which as of
August 8, 1993 amounted to ₱1,123,500.00 as shown by the evidence presented by the bank before
the RTC and in the pleadings it had filed before the RTC, CA, and the Court. 40 Although this claim
was not alleged in the bank’s Answer being an after-acquired claim which was only raised during the
trial proper through the testimony dated August 17, 1993 of Ms. Arlene Aportadera, 41 the bank is not
barred from recovering these rentals. As we explained in Banco de Oro Universal Bank v. CA, 42 a
party is not barred from setting up a claim even after the filing of the answer if the claim did not exist
or had not matured at the time said party filed its answer. Moreover, we note that the respondents
did not object to the presentation of this evidence, hence, the issue of rentals from August 8, 1993
and onwards was tried with the implied consent of the parties; applying Section 5, Rule 10 of the
1997 Rules of Civil Procedure, 43 the issue should be treated in all respects as if it had been raised in
the pleadings.44 Given the implied consent, judgment may be validly rendered on this issue even if
no motion had been filed and no amendment had been ordered. 45

In National Power Corporation v. CA,46 we held that where there is a variance in the defendant’s
pleadings and the evidence adduced by it at the trial, the Court may treat the pleading as amended
to conform to the evidence.

Additionally, the respondents are also liable to pay interest by way of damages for their failure to pay
the rentals due for the use of the subject property. In Eastern Shipping Lines v. CA, 47 we laid down
the following guidelines with respect to the award and the computation of legal interest, as follows:

II. With regard particularly to an award of interest in the concept of actual and compensatory
damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a
loan or forbearance of money, the interest due should be that which may have been
stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time
it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per
annum to be computed from default, i.e., from judicial or extrajudicial demand under and
subject to the provisions of Article 1169 of the Civil Code.

2. When an obligation, not constituting a loan or forbearance of money, is breached, an

interest on the amount of damages awarded may be imposed at the discretion of the court at
the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or
damages except when or until the demand can be established with reasonable certainty.
Accordingly, where the demand is established with reasonable certainty, the interest shall
begin to run from the time the claim is made judicially or extrajudicially (Art. 1169 Civil Code)
but when such certainty cannot be so reasonably established at the time the demand is
 made, the interest shall begin to run only from the date the judgment of the court is made (at
which time quantification of damages may be deemed to have been reasonably
ascertained). The actual base for the computation of legal interest shall, in any case, be on
the amount finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and executory,
the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above,
shall be 12% per annum from such finality until its satisfaction, this interim period being
deemed to be by then an equivalent to a forbearance of credit. [Emphasis supplied]

The records are unclear on when the bank made a demand outside of the judicial proceedings for
the rentals on the subject property.48 However, the records show that the bank made a counterclaim
for the payments of the rentals due as of January 31, 1989 in its Answer and subsequently, a claim
for the after-acquired rentals was made by the bank through the testimony of Ms. Arlene Aportadera.
Applying Eastern Shipping Lines, the payment of interest for the rentals shall be reckoned from the
date the judicial demand was made by the bank or on April 20, 1989 when the bank set up its
counterclaim for rentals in the subject property.

Under the circumstances, we can impose a 6% interest on the rentals from April 20, 1989 up to the
finality of this decision. Thereafter, the interest shall be computed at 12% per annum from such
finality up to full satisfaction.

We find no basis for the award of exemplary damages. Article 2232 of the Civil Code declares:

Article 2232. In contracts and quasi-contracts, the court may award exemplary damages if the
defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner.

Considering the factual circumstances we have discussed above, we can hardly characterize
respondents’ act of insisting on the enforcement of the repurchase agreement as wanton, fraudulent,
reckless, oppressive, or malevolent.

As there is no basis for an award of exemplary damages, the awards of attorney’s fees and litigation
expenses to the bank are not justified under Article 2208 of the Civil Code.

WHEREFORE, premises considered, we hereby GRANT the petition. The Decision dated March 31,
2006 and Resolution dated August 11, 2006 of the Court of Appeals in CA-G.R. CV No. 49900 are
hereby REVERSED and SET ASIDE.

The complaint in Civil Case No. 19416-89 for breach of contract, specific performance, damages,
and attorney’s fees, with preliminary injunction filed by Cuison Lumber Co., Inc. and Mrs. Cuison
against Traders Royal Bank is hereby DISMISSED. The respondents are ordered to vacate the
subject property and to restore its possession to the petitioner bank.

The respondents are further ordered to pay reasonable compensation, for the use and occupation of
the subject property in the amount of ₱1,123,500.00, representing the accrued rentals as of August
8, 1993, less the amount of ₱485,000.00 representing deposits paid by the respondents. In
additiodn, respondents are also ordered to pay the amount of ₱13,700.00 a month by way of rentals
starting from August 8, 1993 until they vacate the subject property. The rentals shall earn a
corresponding legal interest of six percent (6%) per annum to be computed from April 20, 1989 until
the finality of this decision. After this decision becomes final and executory, the rate of legal interest
shall be computed at twelve percent (12%) per annum from such finality until its satisfaction.
Costs against the respondents.

SO ORDERED.

ARTURO D. BRION
Associate Justice

WE CONCUR:

LEONARDO A. QUISUMBING
Associate Justice
Chairperson

CONSUELO YNARES-SANTIAGO* PRESBITERO J. VELASCO, JR.

Associate Justice Associate Justice

TERESITA J. LEONARDO-DE CASTRO**

Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Court’s Division.

LEONARDO A. QUISUMBING
Associate Justice
Chairperson

CERTIFICATION

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

REYNATO S. PUNO
Chief Justice

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-2412            April 11, 1906

PEDRO ROMAN, plaintiff-appellant,
vs.
ANDRES GRIMALT, defendant-appellee.
Alberto Barretto, for appellant.
Chicote, Miranda and Sierra, for appellee.

TORRES, J.:

On July 2, 1904, counsel for Pedro Roman filed a complaint in the Court of First Instance of this city
against Andres Grimalt, praying that judgment be entered in his favor and against the defendant (1)
for the purchase price of the schooner Santa Marina, to wit, 1,500 pesos or its equivalent in
Philippine currency, payable by installments in the manner stipulated; (2) for legal interest on the
installments due on the dates set forth in the complaint; (3) for costs of proceedings; and (4) for such
other and further remedy as might be considered just and equitable.

On October 24 of the same year the court made an order sustaining the demurer filed by defendant
to the complaint and allowing plaintiff ten days within which to amend his complaint. To this order the
plaintiff duly excepted.

Counsel for plaintiff on November 5 amended his complaint and alleged that between the 13th and
the 23rd day of June, 1904, both parties, through one Fernando Agustin Pastor, verbally agreed
upon the sale of the said schooner; that the defendant in a letter dated June 23 had agreed to
purchase the said schooner and of offered to pay therefor in three installment of 500 pesos each, to
wit, on July 15, September 15, and November 15, adding in his letter that if the plaintiff accepted the
plan of payment suggested by him the sale would become effective on the following day; that plaintiff
on or about the 24th of the same month had notified the defendant through Agustin Pastor that he
accepted the plan of payment suggested by him and that from that date the vessel was at his
disposal, and offered to deliver the same at once to defendant if he so desired; that the contract
having been closed and the vessel being ready for delivery to the purchaser, it was sunk about 3
o'clock p. m., June 25, in the harbor of Manila and is a total loss, as a result of a severe storm; and
that on the 30th of the same month demand was made upon the defendant for the payment of the
purchase price of the vessel in the manner stipulated and defendant failed to pay. Plaintiff finally
prayed that judgment be rendered in accordance with the prayer of his previous complaint.

Defendant in his answer asked that the complaint be dismissed with costs to the plaintiff, alleging
that on or about June 13 both parties met in a public establishment of this city and the plaintiff
personally proposed to the defendant the sale of the said vessel, the plaintiff stating that the vessel
belonged to him and that it was then in a sea worthy condition; that defendant accepted the offer of
sale on condition that the title papers were found to be satisfactory, also that the vessel was in a
seaworthy condition; that both parties then called on Calixto Reyes, a notary public, who, after
examining the documents, informed them that they were insufficient to show the ownership of the
vessel and to transfer title thereto; that plaintiff then promised to perfect his title and about June 23
called on defendant to close the sale, and the defendant believing that plaintiff had perfected his title,
wrote to him on the 23d of June and set the following day for the execution of the contract, but, upon
being informed that plaintiff had done nothing to perfect his title, he insisted that he would buy the
vessel only when the title papers were perfected and the vessel duly inspected.

Defendant also denied the other allegations of the complaint inconsistent with his own allegations
and further denied the statement contained in paragraph 4 of the complaint to the effect that the
contract was completed as to the vessel; that the purchase price and method of payment had been
agreed upon; that the vessel was ready for delivery to the purchaser and that an attempt had been
made to deliver the same, but admitted, however, the allegations contained in the last part of the
said paragraph.
The court below found that the parties had not arrived at a definite understanding. We think that this
finding is supported by the evidence introduced at the trial.

A sale shall be considered perfected and binding as between vendor and vendee when they have
agreed as to the thing which is the object of the contract and as to the price, even though neither has
been actually delivered. (Art. 1450 of the Civil Code.)

Ownership is not considered transmitted until the property is actually delivered and the purchaser
has taken possession of the value and paid the price agreed upon, in which case the sale is
considered perfected.

When the sale is made by means of a public instrument the execution thereof shall be equivalent to
the delivery of the thing which is the object of the contract. (Art. 1462 of the Civil Code.)

Pedro Roman, the owner, and Andres Grimalt, the purchaser, had been for several days negotiating
for the purchase of the schooner Santa Marina — from the 13th to the 23d of June, 1904. They
agreed upon the sale of the vessel for the sum of 1,500 pesos, payable in three installments,
provided the title papers to the vessel were in proper form. It is so stated in the letter written by the
purchaser to the owner on the 23rd of June.

The sale of the schooner was not perfected and the purchaser did not consent to the execution of
the deed of transfer for the reason that the title of the vessel was in the name of one Paulina Giron
and not in the name of Pedro Roman, the alleged owner. Roman promised, however, to perfect his
title to the vessel, but he failed to do so. The papers presented by him did not show that he was the
owner of the vessel.

If no contract of sale was actually executed by the parties the loss of the vessel must be borne by its
owner and not by a party who only intended to purchase it and who was unable to do so on account
of failure on the part of the owner to show proper title to the vessel and thus enable them to draw up
the contract of sale.

The vessel was sunk in the bay on the afternoon of the 25th of June, 1904, during a severe storm
and before the owner had complied with the condition exacted by the proposed purchaser, to wit, the
production of the proper papers showing that the plaintiff was in fact the owner of the vessel in
question.

The defendant was under no obligation to pay the price of the vessel, the purchase of which had not
been concluded. The conversations had between the parties and the letter written by defendant to
plaintiff did not establish a contract sufficient in itself to create reciprocal rights between the parties.

It follows, therefore, that article 1452 of the Civil Code relative to the injury or benefit of the thing sold
after a contract has been perfected and articles 1096 and 1182 of the same code relative to the
obligation to deliver a specified thing and the extinction of such obligation when the thing is either
lost or destroyed, are not applicable to the case at bar.

The first paragraph of article 1460 of the Civil Code and section 335 of the Code of Civil Procedure
are not applicable. These provisions contemplate the existence of a perfected contract which can
not, however, be enforced on account of the entire loss of the thing or made the basis of an action in
court through failure to conform to the requisites provided by law.
The judgment of the court below is affirmed and the complaint is dismissed with costs against the
plaintiff. After the expiration of twenty days from the date hereof let judgment be entered in
accordance herewith and ten days thereafter let the case be remanded to the Court of First Instance
for proper action. So ordered.

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

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-23351             March 13, 1968

CIRILO PAREDES, plaintiff-appellant,
vs.
JOSE L. ESPINO, defendant-appellee.

Simeon Capule for plaintiff-appellant.

Iñigo R. Peña for defendant-appellee.

REYES, J.B.L., Actg. C.J.:

          Appeal from an order of the Court of First Instance of Palawan in its Civil Case No. 453,
granting a motion to dismiss the complaint.

          Appellant Cirilo Parades had filed an action to compel defendant-appellee Jose L. Espino to
execute a deed of sale and to pay damages. The complaint alleged that the defendant "had entered
into the sale" to plaintiff of Lot No. 67 of the Puerto Princesa Cadastre at P4.00 a square meter; that
the deal had been "closed by letter and telegram" but the actual execution of the deed of sale and
payment of the price were deferred to the arrival of defendant at Puerto Princesa; that defendant
upon arrival had refused to execute the deed of sale altho plaintiff was able and willing to pay the
price, and continued to refuse despite written demands of plaintiff; that as a result, plaintiff had lost
expected profits from a resale of the property, and caused plaintiff mental anguish and suffering, for
which reason the complaint prayed for specific performance and damages.

          Defendant filed a motion to dismiss upon the ground that the complaint stated no cause of
action, and that the plaintiff's claim upon which the action was founded was unenforceable under the
Statute of Frauds.

          Plaintiff opposed in writing the motion to dismiss and annexed to his opposition a copy of a
letter purportedly signed by defendant (Annex "A"), wherein it was stated (Record on Appeal, pp. 19-
20) —

106 GonzagaSt.
Tuguegarao,Cagayan
May18,1964
Mr.CiriloParedes
Pto.Princesa,Palawan
 Dear Mr. Paredes:

          So far I received two letters from you, one dated April 17 and the other April
29, both 1964. In reply thereto, please be informed that after consulting with my wife,
we both decided to accept your last offer of Four (P4.00) pesos per square meter of
the lot which contains 1826 square meters and on cash basis.

          In order that we can facilitate the transaction of the sale in question, we (Mrs.
Espino and I), are going there (Puerto Princess, Pal.) to be there during the last week
of the month, May. I will send you a telegram, as per your request, when I will reach
Manila before taking the boat for Pto. Princess. As it is now, there is no schedule yet
of the boats plying between Manila and Pto. Princess for next week.

          Plaintiff also appended as Annex "A-1", a telegram apparently from defendant advising plaintiff
of his arrival by boat about the last week of May 1964 (Annex "A-1" Record on Appeal, p. 21), as
well as a previous letter of defendant (Appendix B, Record on Appeal, p. 35) referring to the lot as
the one covered by Certificate of Title No. 62.

          These allegations and documents notwithstanding, the Court below dismissed the complaint
on the ground that there being no written contract, under Article 1403 of the Civil Code of the
Philippines —

          Although the contract is valid in itself, the same can not be enforced by virtue of the
Statute of Frauds. (Record on Appeal, p. 37). 1äwphï1.ñët

          Plaintiff duly appealed to this Court.

          The sole issue here is whether enforcement of the contract pleaded in the complaint is barred
by the Statute of Frauds; and the Court a quo plainly erred in holding that it was unenforceable.

          The Statute of Frauds, embodied in Article 1403 of the Civil Code of the Philippines, does not
require that the contract itself be in writing. The plain text of Article 1403, paragraph (2) is clear that
a written note or memorandum, embodying the essentials of the contract and signed by the party
charged, or his agent, suffices to make the verbal agreement enforceable, taking it out of the
operation of the statute.

          Art. 1403. — The following contracts are unenforceable, unless they are ratified:

(1) . . .

(2) Those that do not comply with the Statute of Frauds as set forth in this number. In the
following cases an agreement hereafter made shall be unenforceable by action, unless the
same, or some note or memorandum thereof, be in writing, and subscribed by the party
charged, or by his agent; evidence, therefore, of the agreement cannot be received without
the writing, or a secondary evidence of its contents:

xxx     xxx     xxx
 (e) An agreement for the leasing for a longer period than one year, or for the sale of
real property or of an interest therein. 1äwphï1.ñët

xxx     xxx     xxx

          In the case at bar, the complaint in its paragraph 3 pleads that the deal had been closed by
letter and telegram" (Record on Appeal, p. 2), and the letter referred to was evidently the one copy of
which was appended as Exhibit A to plaintiff's opposition to the motion dismiss. This letter,
transcribed above in part, together with that one marked as Appendix B, constitute an adequate
memorandum of the transaction. They are signed by the defendant-appellee; refer to the property
sold as a lot in Puerto Princesa, Palawan, covered, by TCT No. 62; give its area as 1826 square
meters and the purchase price of four (P4.00) pesos per square meter payable in cash. We have in
them therefore, all the essential terms of the contract, and they satisfy the requirements of the
Statute of Frauds. We have ruled in Berg vs. Magdalena Estate, Inc., 92 Phil. 110, 115, that a
sufficient memorandum may be contained in two or more documents.

          Defendant-appellee argues that the authenticity of the letters has not been established. That is
not necessary for the purpose of showing prima facie that the contract is enforceable. For as ruled
by us in Shaffer vs. Palma, L-24115, March 1, 1968, whether the agreement is in writing or not, is a
question of evidence; and the authenticity of the writing need not be established until the trial is held.
The plaintiff having alleged that the contract is backed by letter and telegram, and the same being a
sufficient memorandum, his cause of action is thereby established, especially since the defendant
has not denied the letters in question. At any rate, if the Court below entertained any doubts about
the existence of the written memorandum, it should have called for a preliminary hearing on that
point, and not dismissed the complaint.

          WHEREFORE, the appealed order is hereby set aside, and the case remanded to the Court of
origin for trial and decision. Costs against defendant-appellee Jose L. Espino. So ordered.

Dizon, Makalintal, Bengzon, J.P., Zaldivar, Sanchez, Castro, Angeles and Fernando, JJ., concur.

1äwphï1.ñët Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 122544 January 28, 1999

REGINA P. DIZON, AMPARO D. BARTOLOME, FIDELINA D. BLAZA, ESTER ABAD DIZON and
JOSEPH ANTHONY DIZON, RAYMUND A. DIZON, GERARD A. DIZON, and JOSE A. DIZON,
JR., petitioners,
vs.
COURT OF APPEALS and OVERLAND EXPRESS LINES, INC., respondents.

G.R. No. 124741 January 28, 1999

REGINA P. DIZON, AMPARO D. BARTOLOME, FIDELINA D. BALZA, ESTER ABAD DIZON and
JOSEPH ANTHONY DIZON, RAYMUND A. DIZON, GERARD A. DIZON, and Jose A. DIZON,
JR., petitioners,
vs.
COURT OF APPEALS, HON. MAXIMIANO C. ASUNCION, and OVERLAND EXPRESS LINES,
INC., respondents.

MARTINEZ, J.:

Two consolidated petitions were filed before us seeking to set aside and annul the decisions and
resolutions of respondent Court of Appeals. What seemed to be a simple ejectment suit was
juxtaposed with procedural intricacies which finally found its way to this Court.

G.R. No. 122544:

On May 23, 1974, private respondent Overland Express Lines, Inc. (lessee) entered into a Contract
of Lease with Option to Buy with petitioners  (lessors) involving a 1,755.80 square meter parcel of
1

land situated at corner MacArthur Highway and South "H" Street, Diliman, Quezon City. The term of
the lease was for one (1) year commencing from May 16, 1974 up to May 15, 1975. During this
period, private respondent was granted an option to purchase for the amount of P3,000.00 per
square meter. Thereafter, the lease shall be on a per month basis with a monthly rental of
P3,000.00.

For failure of private respondent to pay the increased rental of P8,000.00 per month effective June
1976, petitioners filed an action for ejectment (Civil Case No. VIII-29155) on November 10, 1976
before the then City Court (now Metropolitan Trial Court) of Quezon City, Branch VIII. On November
22, 1982, the City Court rendered judgment   ordering private respondent to vacate the leased
2

premises and to pay the sum of P624,000.00 representing rentals in arrears and/or as damages in
the form of reasonable compensation for the use and occupation of the premises during the period
of illegal detainer from June 1976 to November 1982 at the monthly rental of P8,000.00, less
payments made, plus 12% interest per annum from November 18, 1976, the date of filing of the
complaint, until fully paid, the sum of P8,000.00 a month starting December 1982, until private
respondent fully vacates the premises, and to pay P20,000.00 as and by way of attorney's fees.

Private respondent filed a certiorari petition praying for the issuance of a restraining order enjoining
the enforcement of said judgment and dismissal of the case for lack of jurisdiction of the City Court.

On September 26, 1984, the then Intermidiate Appellate Court   (now Court of Appeals) rendered a
3

decision   stating that:

4

. . ., the alleged question of whether petitioner was granted an extension of the option
to buy the property; whether such option, if any, extended the lease or whether
petitioner actually paid the alleged P300,000.00 to Fidela Dizon, as representative of
private respondents in consideration of the option and, whether petitioner thereafter
offered to pay the balance of the supposed purchase price, are all merely incidental
and do not remove the unlawful detainer case from the jurisdiction or respondent
court. In consonance with the ruling in the case of Teodoro, Jr. vs. Mirasol (supra),
the above matters may be raised and decided in the unlawful detainer suit as, to rule
otherwise, would be a violation of the principle prohibiting multiplicity of suits.
(Original Records, pp. 38-39).
The motion for reconsideration was denied. On review, this Court dismissed the petition in a
resolution dated June 19, 1985 and likewise denied private respondent's subsequent motion for
reconsideration in a resolution dated September 9, 1985.  5

On October 7, 1985, private respondent filed before the Regional Trial Court (RTC) of Quezon City
(Civil Case No. Q-45541) an action for Specific Performance and Fixing of Period for Obligation with
prayer for the issuance of a restraining order pending hearing on the prayer for a writ of preliminary
injunction. It sought to compel the execution of a deed of sale pursuant to the option to purchase and
the receipt of the partial payment, and to fix the period to pay the balance. In an Order dated
October 25, 1985, the trial court denied the issuance of a writ of preliminary injunction on the ground
that the decision of the then City Court for the ejectment of the private respondent, having been
affirmed by the then Intermediate Appellate Court and the Supreme Court, has become final and
executory.

Unable to secure an injunction, private respondent also filed before the RTC of Quezon City, Branch
102 (Civil Case No. Q-46487) on November 15, 1985 a complaint for Annulment of and Relief from
Judgment with injunction and damages. In its decision   dated May 12, 1986, the trial court
6

dismissed the complaint for annulment on the ground of res judicata, and the writ of preliminary
injunction previously issued was dissolved. It also ordered private respondent to pay P3,000.00 as
attorney's fees. As a consequence of private respondent's motion for reconsideration, the
preliminary injunction was reinstated, thereby restraining the execution of the City Court's judgment
on the ejectment case.

The two cases were the after consolidated before the RTC of Quezon City, Branch 77. On April 28,
1989, a decision   was rendered dismissing private respondent's complaint in Civil Case No. Q-
7

45541 (specific performance case) and denying its motion for reconsideration in Civil Case No.
46487 (annulment of the ejectment case). The motion for reconsideration of said decision was
likewise denied.

On appeal,   respondent Court of Appeals rendered a decision   upholding the jurisdiction of the City
8 9

Court of Quezon City in the ejectment case. It also concluded that there was a perfected contract of
sale between the parties on the leased premises and that pursuant to the option to buy agreement,
private respondent had acquired the rights of a vendee in a contract of sale. It opined that the
payment by private respondent of P300,000.00 on June 20, 1975 as partial payment for the leased
property, which petitioners accepted (through Alice A. Dizon) and for which an official receipt was
issued, was the operative act that gave rise to a perfected contract of sale, and that for failure of
petitioners to deny receipt thereof, private respondent can therefore assume that Alice A. Dizon,
acting as agent of petitioners, was authorized by them to receive the money in their behalf. The
Court of Appeals went further by stating that in fact, what was entered into was a "conditional
contract of sale" wherein ownership over the leased property shall not pass to the private respondent
until it has fully paid the purchase price. Since private respondent did not consign to the court the
balance of the purchase price and continued to occupy the subject premises, it had the obligation to
pay the amount of P1,700.00 in monthly rentals until full payment of the purchase price. The
dispositive portion of said decision reads:

WHEREFORE, the appealed decision in Case No. 46387 is AFFIRMED. The

appealed decision in Case No. 45541 is, on the other hand, ANNULLED and SET
ASIDE. The defendants-appellees are ordered to execute the deed of absolute sale
of the property in question, free from any lien or encumbrance whatsoever, in favor of
the plaintiff-appellant, and to deliver to the latter the said deed of sale, as well as the
owner's duplicate of the certificate of title to said property upon payment of the
balance of the purchase price by the plaintiff-appellant. The plaintiff-appellant is
 ordered to pay P1,700.00 per month from June 1976, plus 6% interest per annum,
until payment of the balance of the purchase price, as previously agreed upon by the
parties.

SO ORDERED.

Upon denial of the motion for partil reconsideration (Civil Case No. Q-45541) by respondent Court of
Appeals,   petitioners elevated the case via petition for certiorari questioning the authority of Alice A.
10

Dizon as agent of petitioners in receiving private respondent's partial payment amounting to

P300,000.00 pursuant to the Contract of Lease with Option to Buy. Petitioner also assail the
propriety of private respondent's exercise of the option when it tendered the said amount on June
20, 1975 which purportedly resulted in a perfected contract of sale.

G.R. No. 124741:

Petitioners filed with respondent Court of Appeals a motion to remand the records of Civil Case No.
38-29155 (ejectment case) to the Metropolitan Trial Court (MTC), then City Court of Quezon City,
Branch 38, for execution of the judgment   dated November 22, 1982 which was granted in a
11

resolution dated June 29, 1992. Private respondent filed a motion to reconsider said resolution which
was denied.

Aggrieved, private respondent filed a petition for certiorari, prohibition with preliminary injunction
and/or restraining order with this Court (G.R. Nos. 106750-51) which was dismissed in a resolution
dated September 16, 1992 on the ground that the same was a refiled case previously dismissed for
lack of merit. On November 26, 1992, entry of judgment was issued by this Court.

On July 14, 1993, petitioners filed an urgent ex-parte motion for execution of the decision in Civil
Case No. 38-29155 with the MTC of Quezon City, Branch 38. On September 13, 1993, the trial court
ordered the issuance of a third alias writ of execution. In denying private respondent's motion for
reconsideration, it ordered the immediate implementation of the third writ of execution without delay.

On December 22, 1993, private respondent filed with the Regional Trial Court (RTC) of Quezon City,
Branch 104 a petition for certiorari and prohibition with preliminary injunction/restraining order (SP.
PROC. No. 93-18722) challenging the enforceability and validity of the MTC judgment as well as the
order for its execution.

On January 11, 1994, RTC of Quezon City, Branch 104 issued an

order  granting the issuance of a writ of preliminary injunction upon private respondent's' posting of
12

an injunction bond of P50,000.00.

Assailing the aforequoted order after denial of their motion for partial reconsideration, petitioners
filed a petition   for certiorari and prohibition with a prayer for a temporary restraining order and/or
13

preliminary injunction with the Court of Appeals. In its decision,   the Court of Appeals dismissed the
14

petition and ruled that:

The avowed purpose of this petition is to enjoin the public respondent from
restraining the ejectment of the private respondent. To grant the petition would be to
allow the ejectment of the private respondent. We cannot do that now in view of the
decision of this Court in CA-G.R. CV Nos. 25153-54. Petitioners' alleged right to eject
private respondent has been demonstrated to be without basis in the said civil case.
 The petitioners have been shown, after all, to have no right to eject private
respondents.

WHEREFORE, the petition is DENIED due course and is accordingly DISMISSED.

SO ORDERED.  15

Petitioners' motion for reconsideration was denied in a resolution   by the Court of Appeals stating
16

that:

This court in its decision in CA-G.R. CV Nos. 25153-54 declared that the plaintiff-
appellant (private respondent herein) acquired the rights of a vendee in a contract of
sale, in effect, recognizing the right of the private respondent to possess the subject
premises. Considering said decision, we should not allow ejectment; to do so would
disturb the status quo of the parties since the petitioners are not in possession of the
subject property. It would be unfair and unjust to deprive the private respondent of its
possession of the subject property after its rights have been established in a
subsequent ruling.

WHEREFORE, the motion for reconsideration is DENIED for lack of merit.

SO ORDERED.  17

Hence, this instant petition.

We find both petitions impressed with merit.

First. Petitioners have established a right to evict private respondent from the subject premises for
non-payment of rentals. The term of the Contract of Lease with Option to Buy was for a period of
one (1) year (May 16, 1974 to May 15, 1975) during which the private respondent was given an
option to purchase said property at P3,000.00 square meter. After the expiration thereof, the lease
was for P3,000.00 per month.

Admittedly, no definite period beyond the one-year term of lease was agreed upon by petitioners and
private respondent. However, since the rent was paid on a monthly basis, the period of lease is
considered to be from month to month in accordance with Article 1687 of the New Civil
Code.  Where the rentals are paid monthly, the lease, even if verbal may be deemed to be on a
18

monthly basis, expiring at the end of every month pursuant to Article 1687, in relation to Article 1673
of the Civil Code.   In such case, a demand to vacate is not even necessary for judicial action after
19

the expiration of every month.  20

When private respondent failed to pay the increased rental of P8,000.00 per month in June 1976,
the petitioners had a cause of action to institute an ejectment suit against the former with the then
City Court. In this regard, the City Court (now MTC) had exclusive jurisdiction over the ejectment
suit. The filing by private respondent of a suit with the Regional Trial Court for specific performance
to enforce the option to purchase did not divest the then City Court of its jurisdiction to take
cognizance over the ejectment case. Of note is the fact that the decision of the City Court was
affirmed by both the Intermediate Appellate Court and this Court.

Second. Having failed to exercise the option within the stipulated one-year period, private
respondent cannot enforce its option to purchase anymore. Moreover, even assuming arguendo that
the right to exercise the option still subsists at the time private respondent tendered the amount on
June 20, 1975, the suit for specific performance to enforce the option to purchase was filed only on
October 7, 1985 or more than ten (10) years after accrual of the cause of action as provided under
Article 1144 of the New Civil Code. 21

In this case, there was a contract of lease for one (1) year with option to purchase. The contract of
lease expired without the private respondent, as lessee, purchasing the property but remained in
possession thereof. Hence, there was an implicit renewal of the contract of lease on a monthly basis.
The other terms of the original contract of lease which are revived in the implied new lease under
Article 1670 of the New Civil Code   are only those terms which are germane to the lessee's right of
22

continued enjoyment of the property leased.   Therefore, an implied new lease does not ipso
23

facto carry with it any implied revival of private respondent's option to purchase (as lessee thereof)
the leased premises. The provision entitling the lessee the option to purchase the leased premises is
not deemed incorporated in the impliedly renewed contract because it is alien to the possession of
the lessee. Private respondent's right to exercise the option to purchase expired with the termination
of the original contract of lease for one year. The rationale of this Court is that:

This is a reasonable construction of the provision, which is based on the presumption

that when the lessor allows the lessee to continue enjoying possession of the
property for fifteen days after the expiration of the contract he is willing that such
enjoyment shall be for the entire period corresponding to the rent which is
customarily paid — in this case up to the end of the month because the rent was paid
monthly. Necessarily, if the presumed will of the parties refers to the enjoyment of
possession the presumption covers the other terms of the contract related to such
possession, such as the amount of rental, the date when it must be paid, the care of
the property, the responsibility for repairs, etc. But no such presumption may be
indulged in with respect to special agreements which by nature are foreign to the
right of occupancy or enjoyment inherent in a contract of lease.  24

Third. There was no perfected contract of sale between petitioners and private respondent. Private
respondent argued that it delivered the check of P300,000.00 to Alice A. Dizon who acted as agent
of petitioners pursuant to the supposed authority given by petitioner Fidela Dizon, the payee thereof.
Private respondent further contended that petitioners' filing of the ejectment case against it based on
the contract of lease with option to buy holds petitioners in estoppel to question the authority of
petitioner Fidela Dizon. It insisted that the payment of P300,000.00 as partial payment of the
purchase price constituted a valid exercise of the option to buy.

Under Article 1475 of the New Civil Code, "the contract of sale is perfected at the moment there is a
meeting of minds upon the thing which is the object of the contract and upon the price. From that
moment, the parties may reciprocally demand performance, subject to the provisions of the law
governing the form of contracts." Thus, the elements of a contract of sale are consent, object, and
price in money or its equivalent. It bears stressing that the absence of any of these essential
elements negates the existence of a perfected contract of sale. Sale is a consensual contract and he
who alleges it must show its existence by competent proof.  25

In an attempt to resurrect the lapsed option, private respondent gave P300,000.00 to petitioners
(thru Alice A. Dizon) on the erroneous presumption that the said amount tendered would constitute a
perfected contract of sale pursuant to the contract of lease with option to buy. There was no valid
consent by the petitioners (as co-owners of the leased premises) on the supposed sale entered into
by Alice A. Dizon, as petitioners' alleged agent, and private respondent. The basis for agency is
representation and a person dealing with an agent is put upon inquiry and must discover upon his
peril the authority of the agent.   As provided in Article 1868 of the New Civil Code,   there was no
26 27
showing that petitioners consented to the act of Alice A. Dizon nor authorized her to act on their
behalf with regard to her transaction with private respondent. The most prudent thing private
respondent should have done was to ascertain the extent of the authority of Alice A. Dizon. Being
negligent in this regard, private respondent cannot seek relief on the basis of a supposed agency.

In Bacaltos Coal Mines vs. Court of Appeals,   we explained the rule in dealing with an agent:
28

Every person dealing with an agent is put upon inquiry and must discover upon his
peril the authority of the agent. If he does not make such inquiry, he is chargeable
with knowledge of the agent's authority, and his ignorance of that authority will not be
any excuse. Persons dealing with an assumed agency, whether the assumed agency
be a general or special one, are bound at their peril, if they would hold the principal,
to ascertain not only the fact of the agency but also the nature and extent of the
authority, and in case either is controverted, the burden of proof is upon them to
establish it.

For the long years that private respondent was able to thwart the execution of the ejectment suit
rendered in favor of petitioners, we now write finis to this controversy and shun further delay so as to
ensure that this case would really attain finality.

WHEREFORE, in view of the foregoing, both petitions are GRANTED. The decision dated March 29,
1994 and the resolution dated October 19, 1995 in CA-G.R. CV No. 25153-54, as well as the
decision dated December 11, 1995 and the resolution dated April 23, 1997 in CA-G.R. SP No.
33113 of the Court of Appeals are hereby REVERSED and SET ASIDE.

Let the records of this case be remanded to the trial court for immediate execution of the judgment
dated November 22, 1982 in Civil Case No. VIII-29155 of the then City Court (now Metropolitan Trial
Court) of Quezon City, Branch VIII as affirmed in the decision dated September 26, 1984 of the then
Intermediate Appellate Court (now Court of Appeals) and in the resolution dated June 19, 1985 of
this Court.

However, petitioners are ordered to REFUND to private respondent the amount of P300,000.00
which they received through Alice A. Dizon on June 20, 1975. 1âwphi1.nêt

SO ORDERED.

Davide, Jr., C.J., Melo, Kapunan and Pardo, JJ., concur.

FIRST DIVISION

G.R. No. 125838            June 10, 2003

DEVELOPMENT BANK OF THE PHILIPPINES, petitioner,
vs.
COURT OF APPEALS and EMERALD RESORT HOTEL CORPORATION, respondents.

CARPIO, J.:

The Case

This petition for review on certiorari1 seeks to reverse the Joint Decision2 of the Court of Appeals in
CA-G.R. CV Nos. 38569 and 38604 dated 31 January 1996 and the Resolution dated 30 July 1996
denying the motion for reconsideration. The Court of Appeals affirmed the Decision 3 of the Regional
Trial Court of Iriga City, Branch 36, declaring the foreclosure of the mortgaged properties void for
failure to comply with the statutory requisites.

The Facts

Private respondent Emerald Resort Hotel Corporation ("ERHC") obtained a loan from petitioner
Development Bank of the Philippines ("DBP"). DBP released the loan of P3,500,000.00 in three
installments: P2,000,000.00 on 27 September 1975, P1,000,000.00 on 14 June 1976 and
P500,000.00 on 14 September 1976. To secure the loan, ERHC mortgaged its personal and real
properties to DBP.

On 18 March 1981, DBP approved a restructuring of ERHC’s loan subject to certain conditions. 4 On
25 August 1981, DBP allegedly cancelled the restructuring agreement for ERHC’s failure to comply
with some of the material conditions5 of the agreement.

Subsequently, ERHC delivered to DBP three stock certificates of ERHC aggregating 3,477,052
shares with a par value of P1.00 per share. ERHC first delivered to DBP on 20 October 1981 Stock
Certificate No. 30 covering 1,862,148 shares. Then ERHC delivered on 3 November 1981 Stock
Certificate No. 31 covering 691,052 shares, and on 27 November 1981 Stock Certificate No. 32
covering 923,852 shares.

On 5 June 1986, alleging that ERHC failed to pay its loan, DBP filed with the Office of the Sheriff,
Regional Trial Court of Iriga City, an Application for Extra-judicial Foreclosure of Real Estate and
Chattel Mortgages.

Deputy Provincial Sheriffs Abel Ramos and Ruperto Galeon issued the required notices of public
auction sale of the personal and real properties. However, Sheriffs Ramos and Galeon failed to
execute the corresponding certificates of posting of the notices. On 10 July 1986, the auction sale of
the personal properties proceeded.

The Office of the Sheriff scheduled on 12 August 1986 the public auction sale of the real properties.
The Bicol Tribune published on 18 July 1986, 25 July 1986 and 1 August 1986 the notice of auction
sale of the real properties. However, the Office of the Sheriff postponed the auction sale on 12
August 1986 to 11 September 1986 at the request of ERHC. DBP did not republish the notice of the
rescheduled auction sale because DBP and ERHC signed an agreement to postpone the 12 August
1986 auction sale.6 ERHC, however, disputes the authority of Jaime Nuevas who signed the
agreement for ERHC.

In a letter dated 24 November 1986, ERHC informed DBP of its intention to lease the foreclosed
properties.7
On 22 December 1986, ERHC filed with the Regional Trial Court of Iriga City a complaint for
annulment of the foreclosure sale of the personal and real properties. Subsequently, ERHC filed a
Supplemental Complaint. ERHC alleged that the foreclosure was void mainly because (1) DBP failed
to comply with the procedural requirements prescribed by law; and (2) the foreclosure was
premature. ERHC maintained that the loan was not yet due and demandable because the DBP had
restructured the loan.

DBP moved to dismiss the complaint because it stated no cause of action and ERHC had waived
the alleged procedural defenses. The trial court denied the motion to dismiss. Consequently, DBP
filed its answer, claiming that it complied with the legal requirements for a valid foreclosure. DBP
further claimed that it cancelled the conditional restructuring of ERHC’s loan because ERHC failed to
comply with some material conditions of the restructuring agreement.

Meanwhile, acting on ERHC’s application for the issuance of a writ of preliminary injunction, the trial
court granted the writ on 20 August 1990. Accordingly, the trial court enjoined DBP from enforcing
the legal effects of the foreclosure of both the chattel and real estate mortgages.

Thereafter, trial on the merits ensued. After the parties presented their evidence, the trial court
rendered a Decision8 dated 28 January 1992, the dispositive portion of which reads:

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

corporation and against the defendants:

1. Declaring as null and void the foreclosure and auction sale of the personal properties of
plaintiff corporation held on July 10, 1986;

2. Declaring as null and void the foreclosure and auction sale of the real properties of plaintiff
corporation covered by TCT No. RT-1075 (19980); TCT No. RT-1076 (19981); TCT No. RT-
1077 (22367) and TCT No. 10244 of the Register of Deeds of Camarines Sur (now Iriga City)
in the auction sale thereof held on September 11, 1986, and all the improvements therein;

3. Ordering the Register of Deeds of Camarines Sur (now Iriga City) to cancel the
annotations of the Sheriff’s Certificate of Sale on the aforestated titles as null and void and
without any legal effect;

4. Ordering the defendant Development Bank of the Philippines to comply with the
restructuring of plaintiff corporation’s loans retroactively as though the foreclosure had not
taken place in the interest of justice and equity; and

5. Ordering the defendant DBP to pay plaintiff corporation moral damages in the amount of
P500,000.00 for initiating what was a clearly illegal foreclosure and causing the said plaintiff
corporation to suffer needlessly anguish, opprobrium and disrepute as a consequence
thereto.

SO ORDERED.

Both ERHC and DBP appealed the trial court’s decision to the Court of Appeals. ERHC anchored its
appeal on the insufficiency of the moral damages awarded by the trial court and the absence of any
award of temperate, nominal or exemplary damages. DBP’s appeal, on the other hand, assailed the
decision as well as the order dismissing its petition for a writ of possession.
The Court of Appeals, which consolidated the appeals, affirmed the decision of the trial court. 9 DBP
filed a Motion for Reconsideration which the Court of Appeals denied. 10

Hence, this petition.

The Ruling of the Court of Appeals

The Court of Appeals sustained the trial court’s ruling that the foreclosure was void. The Court of
Appeals affirmed the trial court’s finding that DBP failed to comply with the posting and publication
requirements under the applicable laws. The Court of Appeals held that the non-execution of the
certificate of posting of the notices of auction sale and the non-republication of the notice of the
rescheduled 11 September 1986 auction sale invalidated the foreclosure.

The Court of Appeals also found that the parties perfected the restructuring agreement and that
ERHC substantially complied with its conditions based on the following "circumstances":

(a) The transmittal letter dated October 20, 1981 which relates to the progress of the
restructuring of the mortgage account of Emerald Resort Hotel Corporation and that the
same has been approved by the SEC (Exh. "D")

(b) The transfer of shares of stocks to appellant DBP, the value of which are broken as
follows:

1. Stock certificate No. 30 for 1,862,148 shares worth P1,862,148.00 (Exhs. "D" and
"D-1");

2. Stock certificate No. 32 for 932,852 shares worth P953,852.00 (Exhs. "F" and "F-
1");

3. Stock certificate No. 031, for 691,052 shares worth P691,052.00 (Exhs. "M" and
"M-5").

(c) The acceptance of the foregoing by the DBP without raising the fact of delay as embodied
in condition no. 7 of Exh. "B".

(d) No rejection was made by the defendant-appellant DBP at the time the shares of stocks
were being held by the latter.

(e) The belated rejection of the shares of stocks was interposed only at the time the instant
suit was filed which was long after the expiration of the 90-day period extended by DBP to
Emerald.

(f) No rejection was also made when plaintiff corporation did not avail of the additional loan
which was allegedly part of the package accommodation. 11

The Court of Appeals also affirmed the trial court’s award of moral damages but denied ERHC’s
claim for temperate and exemplary damages. The Court of Appeals found that DBP’s intrusion,
assisted by sheriffs and several armed men, into Hotel Ibalon and the sheriffs’ inventory of the
hotel’s furniture and fixtures caused fear and anxiety to the hotel owner, staff and guests. These
acts, according to the Court of Appeals, debased the hotel’s goodwill and undermined its viability
warranting the award of moral damages.
Finding the foreclosure void, the Court of Appeals also denied DBP’s petition for a deficiency claim
and a writ of possession.

The Issues

DBP presents the following issues for resolution:

1. Whether DBP complied with the posting and publication requirements under applicable
laws for a valid foreclosure.

2. Whether the restructuring agreement between DBP and ERHC was perfected and
implemented by the parties before the foreclosure.

3. Whether ERHC’s offer to lease the foreclosed properties constitutes a waiver of its right to
question the validity of the foreclosure.

4. Whether the award of moral damages to ERHC, a juridical person, is proper.

The Court’s Ruling

The petition is partly meritorious.

First Issue:
Compliance with the posting and publication requirements under applicable laws

Posting requirement under Acts Nos. 3135 and 1508

In alleging that the foreclosure was valid, DBP maintains that it complied with the mandatory posting
requirement under applicable laws.12 DBP insists that the non-execution of the certificate of posting
of the auction sale notices did not invalidate the foreclosure.

We agree.

This Court ruled in Cristobal v. Court of Appeals13 that a certificate of posting is not required, much
less considered indispensable for the validity of an extrajudicial foreclosure sale of real property
under Act No. 3135. Cristobal merely reiterated the doctrine laid down in Bohanan v. Court of
Appeals.14 In the present case, the foreclosing sheriffs failed to execute the certificate of posting of
the auction sale notices. However, this fact alone does not prove that the sheriffs failed to post the
required notices. As held in Bohanan, "the fact alone that there is no certificate of posting attached
to the sheriff's records is not sufficient to prove the lack of posting." 15

Based on the records, DBP presented sufficient evidence to prove that the sheriffs posted the
notices of the extrajudicial sale. The trial and appellate courts glaringly erred and gravely abused its
discretion in disregarding the sheriffs’ partial report and the sheriffs’ certificate of sale executed after
the auction sale. A careful examination of these two documents clearly shows that the foreclosing
sheriffs posted the required notices of sale.

The partial report dated 10 July 1986 signed by both Sheriff Abel Ramos and Deputy Sheriff Ruperto
Galeon states in part:
 That on July 1, 1986, the undersigned sheriffs posted the notice of public auction sale
of chattel mortgage in the conspicuous places, and at the Iriga City Hall Bulletin Board,
including Ibalon Hotel, Iriga City xxx.16 (Emphasis supplied)

Similarly, the certificate of sale of the real properties signed by both Sheriff Ramos and Deputy
Sheriff Galeon on 11 September 1986 states in part:

I, FURTHERMORE CERTIFY that the Notice of Sale was published in BICOL TRIBUNE, a
newspaper of general circulation in the province of Camarines Sur, for three (3) consecutive
weeks and three (3) copies of the notices of sale were posted in three (3) public
places of the City where the properties are located for no less than twenty (20) days before
the sale. 17 (Emphasis supplied)

Deputy Sheriff Galeon also testified that he, together with Sheriff Ramos, 18 actually posted the
notices of sale.19 Indisputably, there is clear and convincing evidence of the posting of the notices of
sale. What the law requires is the posting of the notice of sale, which is present in this case, and not
the execution of the certificate of posting.

Moreover, ERHC bore the burden of presenting evidence that the sheriffs failed to post the notices
of sale.20 In the absence of contrary evidence, as in this case, the presumption prevails that the
sheriffs performed their official duty of posting the notices of sale. Consequently, we hold that the
non-execution of the certificate of posting cannot nullify the foreclosure of the chattel and real estate
mortgages in the instant case.

Publication requirement under Act No. 3135

Having shown that there was posting of the notices of auction sale, we shall now resolve whether
there was publication of the notice of sale of the real properties in compliance with Act No. 3135. 21

There is no question that DBP published the notice of auction sale scheduled on 12 August 1986.
However, no auction sale took place on 12 August 1986 because DBP, at the instance of ERHC,
agreed to postpone the same to 11 September 1986. DBP contends that the agreement to postpone
dispensed with the need to publish again the notice of auction sale. Thus, DBP did not anymore
publish the notice of the 11 September 1986 auction sale. DBP insists that the law does not require
republication of the notice of a rescheduled auction sale. Consequently, DBP argues vigorously that
the extrajudicial foreclosure of the real estate mortgage is valid.

We do not agree.

The Court held recently in Ouano v. Court of Appeals22 that republication in the manner prescribed
by Act No. 3135 is necessary for the validity of a postponed extrajudicial foreclosure sale. Another
publication is required in case the auction sale is rescheduled, and the absence of such
republication invalidates the foreclosure sale.

The Court also ruled in Ouano that the parties have no right to waive the publication requirement in
Act No. 3135. The Court declared thus:

Petitioner further contends that republication may be waived voluntarily by the parties.

This argument has no basis in law. The issue of whether republication may be waived is not
novel, as we have passed upon the same query in Philippine National Bank v. Nepomuceno
 Productions Inc. Petitioner therein sought extrajudicial foreclosure of respondent’s
mortgaged properties with the Sheriff’s Office of Pasig, Rizal. Initially scheduled on August
12, 1976, the auction sale was rescheduled several times without republication of the notice
of sale, as stipulated in their Agreements to Postpone Sale. Finally, the auction sale
proceeded on December 20, 1976, with petitioner as the highest bidder. Aggrieved,
respondents sued to nullify the foreclosure sale. The trial court declared the sale void for
non-compliance with Act No. 3135. This decision was affirmed in toto by the Court of
Appeals. Upholding the conclusions of the trial and appellate courts, we held:

Petitioner and respondents have absolutely no right to waive the posting and
publication requirements of Act No. 3135.

xxx

Publication, therefore, is required to give the foreclosure sale a reasonably wide publicity
such that those interested might attend the public sale. To allow the parties to waive this
jurisdictional requirement would result in converting into a private sale what ought to be a
public auction.

DBP further asserts that Section 24, Rule 39 of the Rules of Court, which allows adjournment of
execution sales by agreement of the parties, applies to the present case. Section 24 of Rule 39
provides:

Sec. 24. Adjournment of Sale – By written consent of debtor and creditor, the officer may
adjourn any sale upon execution to any date agreed upon in writing by the parties. Without
such agreement, he may adjourn the sale from day to day, if it becomes necessary to do so
for lack of time to complete the sale on the day fixed in the notice.

The Court ruled in Ouano that Section 24 of Rule 39 does not apply to extrajudicial foreclosure
sales, thus:

Petitioner submits that the language of the abovecited provision 23 implies that the written
request of the parties suffices to authorize the sheriff to reset the sale without republication
or reposting.

At the outset, distinction should be made of the three different kinds of sales under the law,
namely: an ordinary execution sale, a judicial foreclosure sale, and an extrajudicial
foreclosure sale. An ordinary execution sale is governed by the pertinent provisions of Rule
39 of the Rules of Court. Rule 68 of the Rules of Court applies in cases of judicial foreclosure
sale. On the other hand, Act No. 3135, as amended by Act No. 4118 otherwise known as
"An Act to Regulate the Sale of Property under Special Powers Inserted in or Annexed to
Real Estate Mortgages" applies in cases of extrajudicial foreclosure sale. A different set of
law applies to each class of sale mentioned. The cited provision in the Rules of Court
hence does not apply to an extrajudicial foreclosure sale. (Emphasis supplied)

DBP also maintains that ERHC’s act of requesting postponement of the 12 August 1986 auction sale
estops ERHC from challenging the absence of publication of the notice of the rescheduled auction
sale.

We do not agree.
ERHC indeed requested postponement of the auction sale scheduled on 12 August
1986.24 However, the records are bereft of any evidence that ERHC requested the
postponement without need of republication of the notice of sale. In Philippine National Bank v.
Nepomuceno Productions Inc.,25 the Court held that:

x x x To request postponement of the sale is one thing; to request it without need of

compliance with the statutory requirements is another. Respondents, therefore, did not
commit any act that would have estopped them from questioning the validity of the
foreclosure sale for non-compliance with Act No. 3135. x x x

The form of the notice of extrajudicial sale is now prescribed in Circular No. 7-2002 26 issued by the
Office of the Court Administrator on 22 January 2002. Section 4(a) of Circular No. 7-2002 provides
that:

Sec. 4. The Sheriff to whom the application for extra-judicial foreclosure of mortgage was
raffled shall do the following:

a. Prepare a Notice of Extra-judicial Sale using the following form:

"NOTICE OF EXTRA-JUDICIAL SALE"

"Upon extra-judicial petition for sale under Act 3135/1508 filed _________ against (name
and address of Mortgagor/s) to satisfy the mortgage indebtedness which as of ___________
amounts to P __________ excluding penalties, charges, attorney’s fees and expenses of
foreclosure, the undersigned or his duly authorized deputy will sell at public auction on (date
of sale) ________ at 10:00 A.M. or soon thereafter at the main entrance of the ________
(place of sale) to the highest bidder, for cash or manager’s check and in Philippine Currency,
the following property with all its improvements, to wit:

"(Description of Property")

"All sealed bids must be submitted to the undersigned on the above stated time and date."

"In the event the public auction should not take place on the said date, it shall be held
on ___________,______ without further notice."

__________ (date)

"SHERIFF" (Emphasis supplied)

The last paragraph of the prescribed notice of sale allows the holding of a rescheduled auction sale
without reposting or republication of the notice. However, the rescheduled auction sale will only be
valid if the rescheduled date of auction is clearly specified in the prior notice of sale. The absence of
this information in the prior notice of sale will render the rescheduled auction sale void for lack of
reposting or republication. If the notice of auction sale contains this particular information, whether or
not the parties agreed to such rescheduled date, there is no more need for the reposting or
republication of the notice of the rescheduled auction sale.

The Office of the Court Administrator issued Circular No. 7-2002 pursuant to the 14 December 1999
Resolution of this Court in A.M. No. 99-10-05-0, as amended by the Resolutions of 30 January 2001
and 7 August 2001. The Court issued these Resolutions for two reasons.
First, the Court seeks to minimize the expenses which the mortgagee incurs in publishing the notice
of extrajudicial sale. With the added information in the notice of sale, the mortgagee need not cause
the reposting and republication of the notice of the rescheduled auction sale. There is no violation of
the notice requirements under Acts Nos. 3135 and 1508 precisely because the interested parties as
well as the public are informed of the schedule of the next auction sale, if the first auction sale does
not proceed. Therefore, the purpose of a notice of sale, which is to notify the mortgagor and the
public of the foreclosure sale, is satisfied.

Second, the Court hopes to deter the practice of some mortgagors in requesting postponement of
the auction sale of real properties, then later attacking the validity of the foreclosure for lack of
republication. This practice will only force mortgagees to deny outright requests for postponement by
mortgagors since it will only mean added publication expense on the part of mortgagees. Such
development will eventually work against mortgagors because mortgagees will hesitate to grant
postponements to mortgagors.

In the instant case, there is no information in the notice of auction sale of any date of a rescheduled
auction sale. Even if such information were stated in the notice of sale, the reposting and
republication of the notice of sale would still be necessary because Circular No. 7-2002 took effect
only on 22 April 2002. There were no such guidelines in effect during the questioned foreclosure.

Clearly, DBP failed to comply with the publication requirement under Act No. 3135. There was no
publication of the notice of the rescheduled auction sale of the real properties. Therefore, the
extrajudicial foreclosure of the real estate mortgage is void.

DBP, however, complied with the mandatory posting of the notices of the auction sale of the
personal properties. Under the Chattel Mortgage Law, 27 the only requirement is posting of the notice
of auction sale. There was no postponement of the auction sale of the personal properties and the
foreclosure took place as scheduled. Thus, the extrajudicial foreclosure of the chattel mortgage in
the instant case suffers from no procedural infirmity.

Second Issue:
Perfection and implementation of the restructuring agreement between DBP and ERHC

ERHC consistently argues that its restructuring agreement with DBP was perfected and even
implemented by the parties. ERHC maintains that the delivery of its certificates of stocks to DBP was
part of its compliance with the conditions of the restructuring agreement.

We do not agree.

Contrary to ERHC’s allegations and the Court of Appeals’ findings, the restructuring agreement was
never perfected. ERHC failed to comply with the material conditions for the perfection of the
restructuring agreement. As specified in DBP Resolution No. 956 dated 19 March 1981 28 approving
the restructuring agreement, the following are the conditions for the restructuring agreement:

RESOLUTION NO. 956. Emerald Resort Hotel Corporation (Hotel Ibalon) – Conversion Into
Common and/or Preferred Shares of P2,786,000.00 Representing 40% of the Total
Outstanding Obligations; a Third Additional Loan of P679,000.00 and Restructuring of the
Account.

xxx
 In view thereof and as favorably recommended by the Manager of the Industrial Projects
Department III in her memorandum dated February 24, 1981, the Board, upon motion made
and duly seconded, APPROVED in favor of Emerald Resort Hotel Corporation (Hotel Ibalon)
the following:

1. Immediate conversion into common and/or preferred shares at borrower’s

option, of P2,786,000.00 representing 40% of the total outstanding obligation
as of May 15, 1980, in the reduced amount of P6,965,000.00 composed of
outstanding principal balance of P3,500,000.00 and total arrearages on interest and
other charges of P3,465,000.00, the conversion price to be equal to the par value of
the shares;

2. A third additional loan of Six Hundred Seventy-Nine Thousand Pesos

(P679,000.00), payable quarterly under the same restructured terms of the original
and two (2) additional loans, at 18% interest per annum; and

3. Restructuring of the firm’s total outstanding principal obligation of P3,500,000.00 in

the form of extension of grace period on principal repayment from two (2) years to
nine (9) years to make a maximum loan term of nineteen (19) years, regular
amortizations to commence three (3) months after the end of the extended grace
period on October 31, 1985 and payable quarterly at the following interest rates:

Original Loan - P1,425,800 at 16% interest per

annum
- 574,200 at 18% interest per annum
1st Additional Loan - 1,000,000 at 18% interest per
annum
-       500,000 at 18% interest per
annum
      Total - P3,500,000

subject to the following terms and conditions:

A. For the P679,000.00 Additional Loan

a. That subject-firm shall first pay the amount of P473.00 to reduce its total
arrearages on interest and other charges of P3,465,473.00 as of May 15, 1980 to
P3,465,000.00; and

b. That the proceeds of this additional loan shall be applied to subject-firm’s

accrued interest and other charges due DBP as of May 15, 1980 not otherwise
covered by the proposed equity conversion of P2,786,000.00.

B. For Both Additional Loan and Restructuring

a. That a quasi-reorganization shall first be undertaken for the purpose of

eliminating existing deficits, which should be formally authorized by the
stockholders of the corporation, should comply with legal requirements, and should
be approved by the Securities and Exchange Commission which sees to it that the
rights of creditors are not prejudiced.
 xxx

e. That subject-firm shall apply with SEC for an amendment of its authorized
capitalization to include preferred shares in case immediate conversion into equity of
40% of the total outstanding obligation as of May 15, 1980 will include preferred
shares.

xxx (Emphasis supplied)

A careful review of the facts and the evidence presented by the parties discloses that ERHC failed to
comply with the terms and conditions set forth in DBP Resolution No. 956.

First, ERHC failed to comply with the important condition of converting into equity 40 percent of its
outstanding debt to DBP. ERHC did not present any evidence to show that it complied with this
particular requirement. While it is true that ERHC delivered to DBP certificates of stocks, it was to
comply with ERHC’s commitment under the original mortgage contracts.29 ERHC committed to
pledge or assign to DBP at least 67 percent of its outstanding shares to secure the original loan
accommodation. The original mortgage contracts contain the following condition:

xxx

c. By an assignment to the Mortgagee of not less than 67% of the total subscribed and
outstanding voting shares of the company. The said percentages of shares assigned shall be
maintained at all times and the said assignment to subsist for as long as the Assignee may
deem necessary during the existence of the Mortgagee’s approved accommodation. xxx 30

On 17 April 1985, DBP informed ERHC that it had not complied with the condition in the original
mortgage contract on the assignment of 67 percent of its outstanding shares to DBP. The letter of
DBP states in part:

2. The condition requiring ERHC to assign in favor of DBP at least 67% of the
subscribed and outstanding voting shares of company has not been met.

Of the 4,917,500 outstanding voting shares as of December 31, 1982, only 911,800 shares
have been assigned instead of 3,294,725 (67% of 4,917,000), more of the outstanding voting
shares have increased. 31

The deficiency of 2,382,925 shares (3,294,725 - 911,800) may however be covered by the
2,786,000 shares you transferred in the name of DBP as an alternative compliance with 65%
requirement. (Emphasis supplied)

In its reply letter dated 11 June 1985 to DBP, ERHC signified its readiness to assign 67 percent of its
outstanding shares to DBP. Thus, ERHC’s reply letter, signed by its President Atty. Jose C. Reyes,
states in part:

With reference to your letter dated 17 April 1985 which could not be seasonably acted upon
on account of my absence from the country for medical reasons, I am pleased to inform your
goodself of the action taken on the various items thereon enumerated, to wit:

1. x x x
 2. Assignment of 67% of outstanding voting shares.

We are ready to bring up the assigned shares in favor of DBP to 67% of the corporation’s
outstanding voting shares of 4,917,500 as of December 31, 1982 or total of 3,294,725
shares.

The corporation will maintain its previous assignment of 911,800 shares.

Moreover, the corporation is agreeable that Stock Certificate No. 030 for 1,862,148 shares
which had been transferred to DBP be considered as an alternative compliance to the raising
of DBP’s assigned shares to the full 67% or 3,294,725 shares. Your formal conformity to this
arrangement is likewise requested.

Finally, the corporation will further assign to DBP another 520,777 shares in exchange of
Stock Certificate No. 032 for 923,852 shares which was transferred to DBP conditionally.
This Stock Certificate has to be surrendered to the corporation for cancellation before we can
issue by way of further assignment the 520,777 shares. In short, the 3 blocks of shares
mentioned above would result as follows:

1.     911,800 shares
2. 1,862,148 shares
3.     520,777 shares
Total – 3,294,725 shares of 67% outstanding voting
shares

x x x. 32

Clearly, when ERHC delivered the certificates of stocks, it was to comply with ERHC’s commitment
under the original mortgage contracts, not the restructuring agreement.

Besides, there is a vast difference between an assignment of shares to DBP by existing

stockholders and conversion of DBP’s loan into equity of ERHC. In the first, the paid-up capital of
ERHC remains the same. In the latter, the paid-up capital of ERHC, as well as its liabilities, changes
in that the liabilities are transferred to the capital account to the extent of the conversion. The latter
case, which is the conversion of debt into equity required under the restructuring agreement, never
happened. The delivery to DBP of stock certificates representing 3,294,725 ERHC shares did not
reduce the liabilities of ERHC. The reason for the requirement to convert P2,786,000.00 in liabilities
of ERHC into equity was to reduce ERHC’s debt to equity ratio, which the assignment and delivery
of the stock certificates did not and could not have achieved.

Second, ERHC did not avail of the P679,000.00 additional loan, despite this being a material
condition of the restructuring agreement. ERHC could not simply refuse to avail of the additional loan
because the proceeds of this loan were to pay the balance of ERHC’s accrued interest and other
charges due DBP as of 15 May 1980. Clearly, ERHC’s refusal to avail of the additional loan,
intended to up-date ERHC’s loan account, prevented the perfection of the restructuring agreement.

Lastly, ERHC failed to comply with the quasi-reorganization requirement, as clearly admitted in

ERHC’s letter dated 3 November 1982 to DBP, thus:
 3. On July 31, 1981, we once more communicated with your Naga Branch advising of the
Emerald Resort Hotel Corporation’s Stockholders Resolution approving the quasi-
reorganization and the Petition filed with the Securities and Exchange Commission
requesting approval of the corporation’s resolution on quasi-reorganization and the transfer
of 1,862,148 shares in favor of the DBP, copy whereof is attached as Annex "C";

4. On September 7, 1981, we received by personal delivery a letter from Manager Mario C.

Leaño, copy whereof is attached as Annex "D". In our conversation had on this occasion, I
reiterated our request in our letter dated 19 June 1981 that in view of the circumstances
affecting our papers in the Securities and Exchange Commission there was need to extend
our period of compliance.

xxx

It will thus be noted from the foregoing communications that we have exerted our
utmost best to comply with the conditions for the re-structuring of our loan accounts
and all have been complied, with the exception of the quasi-reorganization, for reasons
beyond our legal control since it is the SEC that passes upon the question as to whether or
not we meet the SEC guidelines for a quasi-reorganization. Unfortunately, for the reasons
stated in Annex "H" and the enclosures thereto, the SEC felt that ERHC was not within their
guidelines for a quasi-reorganization. 33 (Emphasis supplied)

The quasi-reorganization is required specifically to eliminate ERHC’s existing deficits. However, the
SEC must first approve the quasi-reorganization which approval ERHC admittedly failed to secure.
Through no fault of DBP, SEC disapproved ERHC’s application for quasi-reorganization.

Considering that ERHC failed to comply with the material conditions of the restructuring agreement,
the agreement was never implemented or even perfected. The perfection and implementation of the
restructuring agreement were expressly subject to the following conditions embodied in DBP
Resolution No. 956 and in DBP’s notice of approval to ERHC, respectively:

t. x x x Implementation of the restructuring scheme as approved shall take effect upon

compliance with the terms and conditions and with all the legal and documentation
requirements;34

x x x           x x x           x x x

7. All documents for this loan approval shall be executed and perfected within 90 days from
the date of this notice; otherwise, this accommodation shall be automatically cancelled. 35

The trial and appellate courts gravely misapprehended the facts and made manifestly mistaken
inferences in finding that the parties had perfected the restructuring agreement. Consequently, when
DBP filed the application for extrajudicial foreclosure of the chattel and real estate mortgages, ERHC
was already in default in paying its debt to DBP.

Third Issue:
ERHC’s offer to lease the foreclosed properties

ERHC offered to lease from DBP the foreclosed properties after the auction sale. DBP argues that
when ERHC offered to lease from DBP the foreclosed properties, ERHC waived its right to question
the validity of the foreclosure.
We do not agree.

To constitute a waiver, the intent to waive must be shown clearly and convincingly. 36 A mere offer to
lease the foreclosed properties cannot constitute a waiver of ERHC’s right to contest the validity of
the foreclosure on the ground of non-compliance with the statutory requisites. ERHC’s offer to lease
does not relinquish ERHC’s right to challenge the validity of the foreclosure. The offer to lease the
foreclosed properties cannot validate or ratify a void foreclosure. ERHC’s intention to lease the
foreclosed properties cannot simply outweigh DBP’s failure to comply with the statutory requisite for
a valid extrajudicial foreclosure. As the Court of Appeals correctly ruled, "there can be no waiver of
the posting and publication requirements in foreclosure proceedings because the same is contrary to
law and public order."

Fourth Issue:
Award of moral damages

DBP maintains that ERHC, a juridical person, is not entitled to moral damages. ERHC counters that
its reputation was debased when the sheriffs and several armed men intruded into Hotel Ibalon’s
premises and inventoried the furniture and fixtures in the hotel.

The Court of Appeals erred in awarding moral damages to ERHC. The Court of Appeals’ sole basis
for its ruling is a quoted portion of the testimony of ERHC’s President, Atty. Jose Reyes. The
testimony was not even offered to prove the justification and amount of damages which ERHC
claims against DBP. In other words, ERHC failed to present evidence to warrant the award of moral
damages. In a long line of decisions, this Court has held that the claimant for moral damages must
present concrete proof to justify its award, thus:

xxx while no proof of pecuniary loss is necessary in order that moral damages may be
awarded, the amount of indemnity being left to the discretion of the court (Art. 2216), it is,
nevertheless, essential that the claimant satisfactorily prove the existence of the factual
basis of the damage (Art. 2217) and its causal relation to defendant’s acts. This is so
because moral damages, though incapable of pecuniary estimation, are in the category of an
award designed to compensate the claimant for actual injury suffered and not to impose a
penalty on the wrongdoer.37 (Emphasis supplied)

In the body of its decision, the trial court gave no basis to justify the award of moral damages. The
trial court simply awarded moral damages in the dispositive portion of its decision. 38

Moreover, as a general rule, moral damages are not awarded to a corporation, thus:

The award of moral damages cannot be granted in favor of a corporation because, being an
artificial person and having existence only in legal contemplation, it has no feelings, no
emotions, no senses. It cannot, therefore, experience physical suffering and mental anguish,
which can be experienced only be one having a nervous system. The statement in People v.
Manero and Mambulao Lumber Co. v. PNB that a corporation may recover moral damages if
it "has a good reputation that is debased, resulting in social humiliation" is an obiter dictum.
On this score alone the award for damages must be set aside, since RBS is a corporation. 39

WHEREFORE, the Joint Decision of the Court of Appeals in CA-G.R. CV Nos. 38569 and 38604
is AFFIRMED with MODIFICATION. The extrajudicial foreclosure of the chattel mortgage is valid
whereas the extrajudicial foreclosure of the real estate mortgage is void. The award of moral
damages is deleted for lack of basis. No costs.
SO ORDERED.

Davide, Jr., C.J., Vitug, Ynares-Santiago, and Azcuna, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-35272 August 26, 1977

FLORENCIA CRONICO, substituted by LUCILLE E. VENTURANZA, petitioner-appellant,

vs.
J. M. TUASON & CO., INC., and CLAUDIO R. RAMIREZ, respondents-appellees.

Antonio B. Alcera for appellant.

Araneta, Mendoza & Papa for appellee J. M. Tuason & Co., Inc.

Leonardo Abola for appellee Caludio R. Ramirez.

FERNANDEZ, J:

In Civil Case No. Q-6363 entitled "Florencia Cronies, substituted by Lucille E. Venturanza, plaintiff,
versus J. M. Tuason & Co., Inc., represented by Gregorio Araneta, Inc., and Claudio Ramirez,
defendants," the Court of First Instance of Rizal, Branch IV, Quezon City, rendered its decision dated
January 25, 1969, the dispositive part of which reads:

IN VIEW OF THE FOREGOING, judgment is hereby rendered in favor of the plaintiff

and against the defendants, as follows:

a) Declaring the Contract to Sell No. 10879 Exhibit 3-company, executed by

defendant corporation in favor of its co- defendant Ramirez on April 2,1962, as NULL
and VOID;

b) Ordering the defendant-corporations to execute a Contract to Sell in favor of the

substituted plaintiff Dr. Lucille E. Venturanza over Lot 22, Block 461 of the Sta. Mesa
Heights Subdivision, under the same terms and conditions of their offer to the
plaintiffs as contained in the letter of Gregorio Araneta, Inc., representative of J. M.
Tuason & Co., Inc., to Florencia Cronico of March 20, 1962 (Exh. H) or under the
same terms given to defendant Ramirez;

c) Declaring as cancelled any and all transfer certificates of title that might have been
issued in favor of defendant Ramirez over said Lot No. 22;

d) Ordering the defendants, jointly and severally, to pay the plaintiff (Dr. Lucille E.
Venturanza) the sum of P160,000.00, as damages representing the rents derived
from the property in question up to December 2, 1968, plus the sum of P2,000.00
 every month thereafter until the lot in question is sold and delivered to plaintiff (Dr.
Venturanza);

e) Ordering defendants, jointly and severally, to pay plaintiff (Dr. Lucille E.

Venturanza) the sum of P10,000.00, as attorney's fees;

f) To pay the costs.

IT IS SO ORDERED Quezon City, Philippines, January 25, 1969.

s/t WALFRIDO DE LOS ANGELES J u d g e

(Rollo, p. 69, Joint Record on Appeal, pp. 49-50)

The defendants J. M. Tuason & Co., Inc. and Claudio R. Ramirez appealed to the Court of Appeals
which promulgated its decision on April 21, 1972 reversing the judgment appealed from and
dismissing the complaint with costs against the plaintiff-appellee. (Rollo, p. 31, Decision in CA-G. R.
No. 44479R, p. 19)

The plaintiff, Florencia Cronico substituted by Lucille E. Venturanza, filed with this Court a petition for
certiorari to review the decision of the Court of Appeals * assigning the following errors:

THE HONORABLE COURT OF APPEALS ERRED IN- HOLDING THAT

FLORENCIA CRONICO OBTAINED. THE DEFENDANT COMPANY'S LETTER-
OFFER TO HER DATED MARCH 20, 1962 BY MEANS OF IRREGULAR AND
PREMATURE DELIVERY.

II

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE

RECORDS DO NOT SHOW THAT DEFENDANT COMPANY'S LETTER-OFFER OR
UNILATERAL PROMISE TO SELL W AS SUPPORTED BY A CONSIDERATION
OTHER THAN THE SELLING PRICE.

III

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT PLAINTIFF

CRONICO IS NOT PRINCIPALLY NOR SUBSIDIARILY OBLIGED UNDER THE
CONTRACT TO SELL (EXH. 3-Company) AND HENCE MAY NOT BRING SUIT TO
ANNUL THE SAME.

IV

THE HONORABLE COURT OF APPEALS ERRED IN REVERSING THE TRIAL

COURT AND DISMISSING THE COMPLAINT.

(Rollo, p.74, Petitioner's Brief, pp. 1-2)

The facts, as found by the Court of Appeals, are:

Appellant J. M. Tuason & Co. Inc. hereinafter referred to as appellant company was
the registered owner of Lot No. 22, Block 461, Sta. Mesa Heights Subdivision,
located at the Northwestern corner of Quezon Boulevard and Gregorio Araneta,
Quezon City and embraced by Transfer Certificate of Title No. 49235 of the registry
of Deeds of said city. In March, 1962, plaintiff Florencia Cronico offered to buy the lot
from the appellant company with the help of Mary E. Venturanza. They personally
talked to Benjamin F. Bautista, Manager of the Real Estate Department of Gregorio
Araneta, Inc. the appellant company's attorney-in-fact, proposing to buy Lot No. 22.
She was required to present proofs to show her rights to the lot. On March 8, 1962,
Florencia Cronico exhibited certain documents showing her priority rights to buy the
lot.

In the first week of March, 1962, defendant-appellant Claudio Ramirez also learned
that the lot in question was being sold by the appellant company. The occupants
thereof who also had priority rights to buy the land informed Claudio Ramirez, about
the intended sale. Juanita Semilla and Pedro Fernandez, who were the occupants of
the said Lot No. 22 expressed their willingness to waive their rights although-Pedro
Fernandez reserved a condition that a small portion of the land whereon his house
stands be sold to him. In the same month, March, 1962, plaintiff Cronico and
defendant- appellant Ramirez sent separate individual letters to appellant company
wherein they expressed their desire to purchase the land and requested information
concerning the area, the price and other terms and conditions of the contract to sell.
Two others intimated their desire to buying the lot. They were Bonifacio Chung and
Angeles Henson. Both, however, subsequently lost their interest in said lot. On
March 20, 1962, the appellant company sent separate reply letters to prospective
buyers including plaintiff Cronies and defendant-appellant Ramirez. They were
dropped in the Manila Post Office at 11:00 in the morning of March 21, 1962 by
registered mail. It so happened that plaintiff Cronico went to the appellant company's
office on March 21, 1962, and she was informed that the reply letter of the appellant
company to prospective buyers of the same lot had been mailed. With this
information, plaintiff Cronies and Mary E. Venturanza went to the post office in
Manila and she was able to get the letter at about 3:30 in the afternoon of the same
date. After she got the letter, plaintiff Cronies and Mary E. Venturanza went directly
to the office of Gregorio Araneta Inc., Escolta, Manila, and presented the letter to
Benjamin Bautista, Head of the Real Estate Department of said company. Since she
had no money, plaintiff Cronies requested Mary E. Venturanza to issue a check in
the amount of P33,572.00 to cover the down payment for the lot. However, Benjamin
Bautista did not accept the cheek. He advised plaintiff Cronies that it is Gregorio
Araneta II who would decide whose offer to buy may be accepts after the appellant
company receives the registry return cards attached to the registered letters sent to
the offerors.

On March 22, 1962, between 10:00 and 11:00 a.m., appellant Ramirez received from
the post office at San Francisco del Monte, Quezon City, the reply letter of the
appellant company dated March 20, 1962, wherein it stated that Lot 22, Block 461,
Sta. Mesa Heights Subdivision, was available for sale under the conditions therein
set forth and that the said lot was being offered for sale on a first come first serve
basis. Appellant Ramirez proceeded to the office of Benjamin Bautista in the same
morning stating that he accepted the conditions stated in the appellant company's
letter. Benjamin Bautista advised appellant Ramirez to wait for the decision of
Gregorio Araneta II. The next day, March 23, 1962, appellant Ramirez presented his
 letter to the appellant company confirming his verbal acceptance of the terms and
conditions in connection with the sale. On March 31, 1962, Atty. Jose E. Patangco in
behalf of appellant Ramirez wrote the appellant company requesting the early
execution of the proper contract to sell over Lot No. 22. A check in the amount of
P33,572 was enclosed in the letter to cover the down payment for said lot. The
request was favorably considered.

On April 2, 1962, the J. M. Tuason & Co. Inc., and Claudio R. Ramirez executed a
contract to sell whereby the appellant company agreed to sell to appellant Ramirez
the lot in question for a total price of P167,896.00 subject to the terms and conditions
therein set forth.

Meanwhile, on March 27, 1962, the appellant company received a letter from Atty.
Godofredo Asuncion in behalf of Florencia Cronies requesting that the lot subject of
litigation be 'sold to her. She tendered a check to cover the down payment which
was, however, returned. On April 4, 1962, the appellant company sent a letter to the
plaintiff-appellee informing her that it had decided to sell the lot in question to
appellant Ramirez. This triggered the instant suit.

On April 28,1962, plaintiff Florencia Cronico lodged in the Court of First Instance of
Rizal (Quezon City Branch) a complaint against the defendants-appellants J. M.
Tuason & Co., Inc. and Claudio Ramirez. The main purpose of the said suit is to
annul and set aside the contract to sell executed by and between appellant company
and appellant Ramirez. On May 30, 1962, Gregorio Araneta, representing J. M.
Tuason & Co. Inc., filed its answer to the complaint with cross claim against its co-
defendant Claudio Ramirez and Luisa Patangco. On the part of defendant Claudio
Ramirez, he filed a motion to dismiss on the ground that the complaint states no
cause of action against him. He contends that the action for the annulment of
contract may only be instituted by those who are parties thereto or those who are
thereby obliged principally or subsidiarily. According to Claudio Ramirez such action
to annul a deed of sale can not prosper against third persons as they are not
principally or subsidiarily obligated thereby. The motion to dismiss was denied. So
Claudio Ramirez filed his answer reiterating in his affirmative defenses that since the
plaintiff-appellee is not a party to the contract to sell executed by him and the
defendant company, plaintiff Florencia Cronico has no right whatsoever to demand
the annulment of said contract.

On November 19, 1968, plaintiff together with Dr. Lucille E. Venturanza filed a motion
for substitution for party plaintiff whereby plaintiff Florencia Cronico expressed her
willingness to be substituted by Dr. Lucille E. Venturanza as the former had
transferred to the latter whatever rights and interests which she may have over Lot
22, Block 261, Sta. Mesa Heights Subdivision by virtue of a deed of assignment she
executed on July 5, 1968. The court granted the substitution of the party plaintiff by
Dr. Lucille E. Venturanza. (Rollo, p. 31, Decision of Court of Appeals, pp. 1- 71)

Anent the first error assigned, the petitioner contends that "No less than the chief of the general
service section of the Manila post office, Gaspar Bautista, speaking on the regularity of plaintiff
Cronico's receipt of the letter, testified before the trial court that the means by which plaintiff Cronico
received her letter is very regular." (Rollo, p. 74, Petitioner's Brief, p. 18). And that "Anyway, the
manner by which the offerees were to receive their letters was not announced by the offeror to the
contestant such that they could not be bound thereby. Hence, the rule of the fittest and without
lawlessness should govern, and that was Cronies who proved her diligence and resourcefullness
over Claudio Ramirez." (Rollo, p. 74, Petitioner's Brief, p. 21)

The petitioner also averred that the capability of the plaintiff, Florencia Cronico to purchase the land
in question was not raised as an issue in the answer of the defendant company and was developed
as an afterthought during the trial.

It is a fact that the petitioner, Florencia Cronico upon being tipped by Benjamin Bautista, head of the
Real Estate Department of Gregorio Araneta Inc., that the reply letters of the appellant company
were already placed in the mails on March 21, 1962 at 11:00 o'clock in the morning, immediately
went to the Manila post office and claimed the registered letter addressed to her without waiting for
the ordinary course for registered mails to be delivered. The petitioner took delivery of the registered
letter addressed to her at the entry section of the Manila post office. While this procedure may be
tolerated by the postal authorities, the act of the petitioner in taking delivery of her letter at the entry
section of the Manila post office without waiting for said letter to be delivered to her in due course of
mail is a violation of the "first come first served" condition imposed by the respondent J. M. Tuason &
Co. Inc., acting through Gregorio Araneta Inc.

The respondent, Claudio R. Ramirez, received on March 22, 1962 in the morning the reply letter of
the respondent company dated March 20, 1962 stating that Lot 22, Block 461, Sta. Mesa Heights
Subdivision was available for sale under the conditions set forth on the basis of "first come first
served". The respondent, Claudio R. Ramirez, proceeded to the office of Benjamin Bautista on the
same date and manifested that he was accepting the conditions stated in the respondent company's
letter. On March 23, 1962, respondent Ramirez presented his letter to the respondent company
confirming his verbal acceptance of the terms and conditions in connection with the sale.

It was only on March 27, 1962 that the respondent company received a letter from Atty. Godofredo
Asuncion in behalf of petitioner, Florencia Cronies, requesting that the lot subject of litigation be sold
to her. The enclosed cheek to cover the down payment was returned to petitioner Cronico and on
April 4, 1962, the respondent company wrote said petitioner that it had decided to sell the lot in
question to the respondent Ramirez.

In view of the foregoing circumstances, we concur in the finding of the Court of Appeals that
"Viewing the case from the standpoint of regularity of notice, plaintiff-appellee falls short of the
yardstick." (Rollo, p. 42, Decision of the Court of Appeal p.12)

The Court of Appeals entertained serious doubts as to the financial capability of petitioner Florencia
Cronico to purchase the property because she was receiving only the amount of P150.00 a month
as her salary from her employment and there was no showing that she had sources of income other
than her job. In fact, when petitioner Cronico tried to pay the down payment for the purchase of the
land, it was Mary E. Venturanza who drew the check in the amount of P33,572.00 which was
rejected by the respondent company. It is also to be noted that in the trial court, Florencia cronico
was substituted by her assignee Lucille E. Venturanza, daughter of Mary E. Venturanza. It is
apparent that petitioner, Florencia Cronico, did not have the capability to pay and that she acted only
as a mere front of the Venturanzas. As correctly pointed out by the Court of Appeals, realtors are
given the right to choose their buyers so as to avoid delinquent payments of monthly installments
which may result in costly court litigations.

The contention of petitioner. Florencia Cronico that the promise to sell is supported by a
consideration as to her because she had established her link as successor of Gregorio Venturanza
who bought the lot from Juan Ramos who in turn acquired said lot from Pedro Deudor. The petitioner
then argues that since Clause Seventh of the Compromise Agreement between the respondent
company and the Deudors, et al. obligated the respondent company to sell to the buyers of the
Deudors 'listed in Annex B thereof, Exhibit R-1, and Juan Ramos was the purchaser of the lot from
Pedro Deudor with such right to buy from the defendant company under a new contract with the
latter, the said petitioner had established the onerous cause or consideration apart from the selling
price of the lot. Granting, arguendo, that Clause Seventh of the Compromise Agreement constitutes
a valid consideration of the promise to sell apart from the selling price, it appears that the
Compromise Agreement upon which the petitioner Cronico predicates her right to buy the lot in
question has been rescinded and set aside. (Deudor vs. J.M. Tuason & Co., Inc., 2 SCRA 129 and
J. M. Tuason & Co., Inc. vs. Sanvictores 4 SCRA 123, 126) Hence, the promise of the respondent
company to sell the lot in question to the petitioner, Florencia Cronico has no consideration separate
from the selling price of said lot.

In order that a unilateral promise may be binding upon the promisor, Article 1479, Civil Code of the
Philippines, requires the concurrence of the condition that the promise be "supported by a
consideration distinct from the price. Accordingly, the promisee can not compel the promisor to
comply with the promise, unless the former establishes the existence of said distinct consideration.
The promisee has the burden of proving such consideration. (Sanchez vs. Rigos, 45 SCRA 368,
372-373) The petitioner, Florencia Cronies, has not established the existence of a consideration
distinct from the price of the lot in question.

The petitioner cannot claim that she had accepted the promise before it was withdrawn because, as
stated above, she had violated the condition of "first, come, first served" Moreover, it was only on
March 27, 1962 that the respondent company received a letter from counsel of the petitioner
requesting that the lot subject of this litigation be sold to her. The respondent, Claudio R. Ramirez,
had on March 23, 1962, confirmed in writing his verbal acceptance of the terms and conditions of the
sale of the lot in question.

The petitioner maintains that the contract to sell (Exhibit 3) executed by the respondent company in
favor of the respondent, Claudio R. Ramirez, contains a stipulation for her benefit, which reads:

b) that the buyer Claudio Ramirez has been fully informed by the company of all the
circumstances relative to the offer of Florencia Cronico to buy said lot and that he
agrees and binds himself to hold the company absolutely free and harmless from all
claims and damages to said Florencia Cronico in connection with this sale of the lot
to him. (Rollo, p. 74, Petitioner's Brief, pp. 31-32)

The foregoing clause cannot ' by any stretch of the imagination be considered as a clause "pour
autrui" or for the benefit of the petitioner. The stipulation does not confer any right arising from the
contract that may be enforced by the petitioner against any of the parties thereto. Neither does it
impose any obligation arising from the contract that may be enforced by any of the parties thereto
against the petitioner. The petitioner is not "obliged principally or subsidiarily" by the contract to sell
executed between the respondent company and the respondent Claudio R. Ramirez. The said
stipulation is for the benefit of the respondent company.

The contention of the petitioner that she has become the obligee or creditor of the respondent
company because she was the first to comply with the terms of the letter-offer has no merit. Her so-
called acceptance has no effect because she violated the condition of "first come, first served" by
taking delivery of the reply letter of the respondent company in the entry section of the Manila post
office and of the fact that her formal letter of acceptance was only received by the respondent
company on March 27, 1962.
In view of all the foregoing, we find that the Court of Appeals has not committed any of the errors
assigned in the brief of the petitioner.

WHEREFORE, the decision of the Court of Appeals in CA-G.R. No. 44479-R is hereby affirmed,
without pronouncement as to costs.

SO ORDERED.

Makasiar, Martin and Guerrero, JJ., concur.

Teehankee (Chairman), concurs in the result.

Muñ;oz Palma, J., took no part.

Footnotes

* Special First Division composed of Presiding Justice Salvador Esguerra, Chairman,

and Justice Edilberto Soriano and Mme. Justice Cecilia Munoz Palma, members.

Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 73573             May 23, 1991

SPOUSES TRINIDAD AND EPIFANIO NATINO, petitioners,

vs.
THE INTERMEDIATE APPELLATE COURT, THE RURAL BANK OF AGUILAR, INC. AND THE
PROVINCIAL SHERIFF EX-OFFICIO OF PANGASINAN, respondents.

Jose P. Villamor for petitioners.

Oscar A. Benzon for private respondents.
Bitty G. Viliran for Rural Bank of Aguilar, Inc.

DAVIDE, JR., J.:

Unsatisfied with the decision of 4 June 1985 and the resolution of 23 December 1985 of the then
Intermediate Appellate Court (IAC) in A.C.-G.R. CV No. 69539  which, respectively, reversed the
1

decision of the then Court of First Instance of Pangasinan, Branch II, of 1 December 1981 in Civil
Case No. 15573, and denied the motion for the reconsideration of the 4 June 1985 decision,
petitioners filed with this Court the instant petition to seek reversal thereof. They submit one principal
issue: whether or not the conclusion drawn by the Intermediate Appellate Court from proven facts is
correct.2

The following facts are not disputed:

On 12 October 1970 petitioners executed a real estate mortgage in favor of respondent bank as
security for a loan of P2,000.00. Petitioners failed to pay the loan on due date. The bank applied for
the extrajudicial foreclosure of the mortgage. At the foreclosure sale on 11 December 1974 the
respondent bank was the highest and winning bidder with a bid of P2,945.11. A certificate of sale
was executed in its favor by the sheriff and the same was registered with the Office of the Register
of Deeds on 29 January 1975. The certificate of sale, a copy of which was furnished the petitioners
by registered mail, expressly provided that the redemption period shall be two years from the
registration thereof.

Since no redemption was made by petitioners within the two-year period, which expired on 29
January 1977, the sheriff issued a Final Deed of Sale on 15 February 1977.

Petitioners, however, claimed that they were granted by respondent bank an extension of the
redemption period; but the latter denied it.

On 22 November 1979 respondent bank file a petition for a writ of possession, which petitioners later
opposed on the ground that they had consigned the redemption money of P4,000.00 on 12
December 1979. The court rejected the opposition and issued the writ of possession. However, to
prevent its execution, petitioners instituted with the then Court of First Instance of Pangasinan a
complaint against respondent bank and the Ex-Officio Provincial Sheriff for the annulment of the
aforementioned final deed of sale and for the issuance of a writ of preliminary injunction. The case
was docketed as Civil Case No. 15573 which was raffled to Branch II thereof. In their complaint
petitioners alleged that the final deed of sale was prematurely issued since they were granted an
extension of time to redeem the property.

In resolving the issue of extension of the redemption period, the trial court, in its Decision of 1
December 1981, made the following findings and conclusion:

x x x           x x x          x x x

From the bank's evidence, it is difficult to believe that the plaintiffs who are personally known
to the president and manager herself, and from whom she had to hire trucks, would not have
made any move or offer to redeem the property within the redemption period. The
presumption is that they exercised ordinary care of their concerns (Sc. 5 (d), Rule 131, Rules
of Court, Cabigao vs. Lim 50 Phil. 844). If indeed, the plaintiffs made no such offer during the
redemption period, the defendant bank should have presented evidence rebutting the
plaintiffs' evidence. But it did not. While the plaintiff testified that the tender was made to Mr.
Salgado, loan clerk, and Mr. Madrid, Acting Manager of the Bank and also board members
Dr. Jing Zarate and Mr. Rosario, none of them were presented to rebut plaintiffs' evidence.
Hence, the presumption that if their testimony were produced, it would be adverse to the
defendant bank under Sec. 5(e) Rule 131 of the Rules of Court, would apply.

Furthermore, the very evidence of the defendant bank shows that there was indeed an
extension of the period to redeem the property. The statutory period of redemption granted
the mortgagor in the certificate of sale registered on January 29, 1975 was 2 years. The
period should have terminated on January 29, 1977. However, the Sheriff's Certificate of
Final sale was only executed on February 15, 1977 and registered only on November 14,
1979 which registration date is the effective date of the confirmation of the sale which cuts off
redemption. Such extension of nearly 3 years strengthens the plaintiffs' claim that indeed,
there was an agreement to extend the redemption date.
 The plaintiffs' evidence has shown that there was an agreement between them and the
defendant bank through its personnel and its president and manager, acting as its agents to
extend the period for redemption for the plaintiffs. However, the plaintiffs were not given a
specific time to pay and redeem but were given by the President and Manager of the bank
such time when their means permit them to do so. This created an obligation with a period
under Art. 1180 of the Civil Code of the Philippines, which provides:

Art. 1180. When the debtor binds himself to pay when his means permit him to do so,
the obligation shall be deemed to be one with a period, subject to the provisions of
Article 1197.

This does not mean that the condition was exclusively dependent of the will of the plaintiffs,
for they had already promised payment. If therefore became necessary, under Article 1197
for the Court to fix the term in order that the condition may be fulfilled. Any action to recover
before this is done is considered premature (Patents vs. Omega, 93 Phil. 218).

That agreement or contract entered into between the President and Manager of the bank
was not in writing is of no moment since under Article 1315 of the Civil Code, "contracts are
perfected by mere consent, and from that moment the parties are bound not only to the
fulfillment of what has been expressly stipulated but also to all the consequences which
according to their nature, may be in keeping with good faith, usage and law." The
defendant's claim that the agreement must be in writing citing the ruling in the case
of Pornellosa vs. Land Tenure Administration, 1 SCRA 375, only applies to executory
contracts, not to those either totally or partially performed, (Inigo vs. Estate of Maloto, 21
SCRA 246). In this case, the bank had already partially performed its obligation thereunder
by extending the period redemption from January 29, 1977 to November 14, 1979.

The agreement does not novate the original contract of mortgage but only changes one of its
conditions, that which concerns the period of redemption. The period of redemption may be
extended by the parties under special circumstances (Lichauco vs. Olegario, 43 Phil. 540,
542). This the parties may do, since the right of the mortgagee to demand compliance within
the 2 year period of redemption maybe waived, unless the waiver is contrary to the public
order, public policy, morals or good customs or prejudicial to a third person with a right
recognized by law." None of the inhibitions enumerated are present in this case.

Hence, the action of the defendant bank in securing the Sheriffs Final Sale prior to the fixing
of the period within which the plaintiffs had to pay was not in order by reason of the
extension of the period of redemption without a term. Not being in order, the period for
redemption by the plaintiffs still exists but has to be set.
3

and on the basis thereof, decreed to (a) annul the Sheriffs Final Deed of Sale, dated 15 February
1977 and its registration of 17 March 1979, (b) fix the period of redemption to ninety (90) days from
receipt of the decision by petitioners, (c) order petitioners to pay the respondent bank, within ninety
(90) days from receipt of the decision the amount of P2,945.11, the purchase price, with 1% interest
per month from 11 December 1974 to 14 December 1979, together with any amount representing
assessment or taxes which the bank may have paid after 11 December 1974, with interest thereon
at 1% per month up to 14 December 1979, (d) order the Bank to receive and credit the petitioners
with such amounts, restore petitioners to the property and to deliver to them a certificate of
redemption, and to pay petitioners the sum of P2,000.00 as attorney's fees and the costs. 4

Respondent bank appealed from said Decision to the then Intermediate Appellate Court which
docketed the appeal as C.A.-G.R. CV No. 69539.
In support of its appeal, respondent bank assigned the following errors:

-I-

THE LOWER COURT ERRED IN NOT HOLDING THAT THE OFFERS BY THE
APPELLEES TO THE APPELLANTS WERE MADE AFTER THE PERIOD OF
REDEMPTION HAD ALREADY EXPIRED AND AS A MATTER OF FACT, WERE MADE
ONLY AFTER THE EXECUTION OF THE DEED OF FINAL SALE BY THE SHERIFF.

-II-

THE LOWER COURT ERRED IN HOLDING THAT THE APPELLANTS GRANTED THE
APPELLEES AN EXTENSION OF THE PERIOD FOR THE REDEMPTION OF THE
PROPERTY WHICH WAS SOLD DURING THE FORECLOSURE SALE.

-III-

THE LOWER COURT ERRED IN HOLDING THAT THE PREPONDERANCE OF

EVIDENCE FAVORS THE APPELLEES DESPITE THE FACT THAT THE ONLY EVIDENCE
PRESENTED BY THEM IS THE SOLE TESTIMONY OF EPIFANIO NATINO, WHICH IS
NOT ONLY UNCORROBORATED, BUT IS EVEN CONTRARY TO THE IMPORT OF HIS
DECLARATIONS AND ADMISSIONS MADE IN OPEN COURT; AS AGAINST THE
TESTIMONY OF THE APPELLANTS' WITNESS WHICH IS CORROBORATED, NOT ONLY
BY DOCUMENTARY EVIDENCE, BUT EVEN BY THE IMPORT OF PLAINTIFF-
APPELLEES' TESTIMONY.

-IV-

THE LOWER COURT ERRED IN NOT REJECTING THE TESTIMONY OF PLAINTIFF-

APPELLEE WHICH DID NOT PROVE AN OFFER TO REDEEM WITHIN THE
REGLEMENTARY PERIOD IN AN AUTHENTIC MANNER AS REQUIRED BY THE LAW,
RULES AND JURISPRUDENCE.

-V-

THE LOWER COURT ERRED IN NOT REJECTING THE TESTIMONY OF PLAINTIFF-

APPELLEE ON THE ALLEGED EXTENSION OF THE REDEMPTION PERIOD INASMUCH
AS IT IS NOT IN A PUBLIC DOCUMENT OR AT LEAST IN AN AUTHENTIC WRITING.

-VI-

THE LOWER COURT ERRED IN APPLYING ARTICLES 1180 AND 1197 OF THE CIVIL
CODE, BOTH OF WHICH HAS NO RELEVANCE OR MATERIALITY TO THE CASE AT
BAR.

-VII-

ASSUMING ARGUENDO THAT SOME OFFICERS OR EMPLOYEES OF THE APPELLANT

BANK MANIFESTED TO THE PLAINTIFF-APPELLEE THAT THEY CAN RECOVER THE
LAND IN QUESTION, AS TESTIFIED BY THE PLAINTIFF-APPELLEE, THE LOWER
 COURT ERRED IN HOLDING THAT SUCH OFFICERS ACTED AS AGENTS OF THE
APPELLANT-BANK.

CONSEQUENTLY, THE LOWER COURT ERRED IN NOT HOLDING THAT ONLY THE
ACTION BY THE BOARD OF DIRECTORS OF THE BANK CAN BIND THE LATTER.

-VIII-

THE LOWER COURT ERRED IN HOLDING THAT THE EXECUTION OF THE DEED OF
FINAL SALE WAS NOT IN ORDER AND IN HOLDING THAT THE APPELLEES MAY STILL
REDEEM THE PROPERTY BY PAYING THE PURCHASE PRICE PLUS 1% INTEREST
PER MONTH, DESPITE THE LAPSE OF THE PERIOD OF REDEMPTION.

-IX-

THE LOWER COURT ERRED IN NOT DECIDING THE CASE IN FAVOR OF THE
APPELLANTS AND CONSEQUENTLY ERRED IN NOT AWARDING DAMAGES TO THE
APPELLANTS HEREIN. 5

Herein petitioners, as appellees, did not file their Brief.

In its Decision of 4 June 1985, the Intermediate Appellate Court disposed of the assigned errors as
follows:

x x x           x x x          x x x

The bank has assigned eight (8) errors in the decision but the determinants are the first and
the second. But before going into their merits We must take note of the failure of the
appellees to file their brief. Appellees did not file any motion for reconsideration. It has to be
stated there that, generally, appellee's failure to file brief is considered as equivalent to a
confession of error, warranting, although not necessarily requiring a reversal, but any doubt
entertained by the appellate court as to what disposition should be made of the case will be
resolved against the appellee (4 CJS 1832, cited in Francisco, the Revised Rules of Court
Civil Procedure, Vol. III, p. 638)

Re the first error—

THE LOWER COURT ERRED IN NOT HOLDING THAT THE OFFERS BY THE
APPELLEES TO THE APPELLANTS WERE MADE AFTER THE PERIOD OF
REDEMPTION HAD ALREADY EXPIRED AND AS A MATTER OF FACT, WERE
MADE ONLY AFTER THE EXECUTION OF THE DEED OF FINAL SALE BY THE
SHERIFF.

It will take better proofs than appellees' mere declaration for the Court to believe that they
had tendered the redemption money within the redemption period which was refused by the
bank. There would have been no valid reason for a refusal; it is an obligation imposed by law
on every purchaser at public auction that admits of redemption, to accept tender of
redemption money. And should there be refusal, the correlative duty of the mortgagor is
clear: he must deposit the money with the sheriff. The evidence does not show that
appellees complied with this duty.
 All that was shown by way of compliance was the deposit made with the Clerk of Court of the
sum of P4,000.00. This deposit is a belated and last ditch attempt to exercise a right that had
long expired. It was made only on December 12, 1979, or after the redemption period of two
(2) years from January 29, 1977 when the sheriffs certificate of sale was registered and after
sheriff's final sale which was registered on November 14, 1979. And, it is clear that the late
deposit was utilized to defeat the bank's vested right which it sought to enforce by its petition
for a writ of possession. The lower court correctly ruled against any validity to it.

The right to redeem becomes functus officio on the date of its expiry, and its exercise after
the period is not really one of redemption but a repurchase. Distinction must be made
because redemption is by force of law; the purchaser at public auction is bound to accept
redemption. Repurchase however of foreclosed property, after redemption period, imposes
no such obligation. After expiry, the purchaser may or may not re-sell the property but no law
will compel him to do so, And, he is not bound by the bid price; it is entirely within his
discretion to set a higher price, for after all, the property already belongs to him as owner.

This brings Us to the second error—

THE LOWER COURT ERRED IN HOLDING THAT THE APPELLANTS GRANTED

THE APPELLEES AN EXTENSION OF THE PERIOD FOR THE REDEMPTION OF
THE PROPERTY WHICH WAS SOLD DURING THE FORECLOSURE SALE.

Appellees' main premise is the alleged assurances of the bank's officers that they could
redeem the property.  From the testimony of Epifanio Natino, however, it is clear that these
1âwphi1

assurances were given before expiry of redemption (tsn, pp. 15 & 16). Such assurances
were not at all necessary since the right to redeem was still in existence. Those assurances
however could not and did not extend beyond the redemption period.

It seems clear from testimony elicited on cross-examination of the president and manager of
the bank that the latter offered to re-sell the property for P30,000.00 but after the petition for
a writ of possession had already been filed, and well after expiry of the period to redeem.
Appellants failed to accept the offer; they deposited only P4,000.00. There was therefore no
meeting of the minds, and accordingly, appellants may no longer be heard. 6

and in the light thereof, REVERSED and SET ASIDE the appealed decision.  Their motion to
1âwphi1

reconsider the same having been denied in the resolution of 23 December 1985,  petitioners have
7

come to Us on appeal by certiorari raising the sole issue stated in the beginning of this decision.

We find the petition to be devoid of merit. Petitioners have failed to demonstrate that the conclusion
made by the respondent Intermediate Appellate Court from the proven facts is wrong. We agree with
said Court, and, therefore, set aside the contrary conclusion of the trial court, that the attempts to
redeem the property were done after the expiration of the redemption period and that no extension
of that period was granted to petitioners.

The contrary conclusion made by the trial court is drawn from inferences which are not supported by
adequate or sufficient facts or is based on erroneous assumptions. We note that its decision is
remarkably silent as to the dates when petitioner Epifanio Natino went to the respondent bank to talk
with a bank personnel to offer to pay the loan. If indeed the offer was made within the redemption
period, but the Bank refused to accept the redemption money, petitioners should have made the
tender to the sheriff who made the sale and who then had the duty to accept the tender and execute
the certificate of redemption. (Enage vs. Vda. de Hijos de Escano, 38 Phil. 657, cited in II MORAN,
Comments on the Rules of Court, 1979 Ed., pp. 326-327).
There was no such tender to the Sheriff.

Again, if indeed this occurred during the redemption period, then, as correctly pointed out by
respondent IAC, it was not necessary to ask for extension of the period to redeem.

In respect to the alleged assurance given by Mrs. Brodeth, the President and Manager of the Bank,
sometime in May of 1978 to the effect that petitioners can redeem the property as soon as they have
the money, it is obvious that this took place after the expiration of the redemption period. As correctly
pointed out by the respondent IAC, this could only relate to the matter of resale of the property, not
redemption.

Furthermore, even assuming for the sake of argument that Mrs. Brodeth gave the assurance, the
same could bind the bank only if its Board of Directors approved or ratified it. No evidence was
offered to prove such action by the Board. Moreover, Mrs. Brodeth denied that during that meeting in
May 1978 she made the assurance; according to her petitioner Epifanio neither mentioned the loan
nor offered to redeem, although earlier he was told that to 'redeem" the property he should pay
P30,000.00. The latter statement supports the conclusion of respondent IAC that this was the Bank's
offer for the re-sell (not redemption of the property), which, logically took place after the expiration of
the redemption period.

Even if Mrs. Brodeth is to be understood to have promised to allow the petitioners to buy the
property at any time they have the money, the Bank was not bound by the promise not only because
it was not approved or ratified by the Board of Directors but also because, and more decisively, it
was a promise unsupported by a consideration distinct from the re-purchase price.

The second paragraph of Article 1479 of the Civil Code expressly provides:

x x x           x x x          x x x

An accepted unilateral. promise to buy or to sell a determinate thing for a price certain is
binding upon the promissory if the promise is supported by a consideration distinct from the
price.

Thus in Rural Bank of Parañaque Inc. vs. Remolado, et al.,  a commitment by the bank to resell a
8

property, within a specified period, although accepted by the party in whose favor it was made, was
considered an option not supported by a consideration distinct from the price and, therefore, not
binding upon the promissor. Pursuant to Southwestern Sugar and Molasses Co. vs. Atlantic Gulf
and Pacific Company,  it was void.
9

WHEREFORE, the instant petition is DISMISSED, with costs against the Petitioners.

SO ORDERED.

Fernan C.J., Gutierrez, Jr., Feliciano and Bidin, JJ., concur,

Republic of the Philippines

SUPREME COURT
Manila

EN BANC
G.R. No. L-7382             June 29, 1955

SOUTHWESTERN SUGAR AND MOLASSES COMPANY, plaintiff-appellee,

vs.
ATLANTIC GULF & PACIFIC COMPANY, defendant-appellant.

Arturo A. Alafriz and A. B. Alcera for appellant.

Mariano Agoncillo for appellee.

BAUTISTA ANGELO, J.:

This is an action for specific performance.

On March 24, 19 53, the Atlantic Gulf & Pacific Company of Manila, hereafter called Atlantic Gulf for
short, granted an option to Southwestern Sugar & Molasses Co. (Far East) Inc., hereafter called
Southwestern Company, to buy its barge No. 10 for the sum of P30,000 to be exercised within a
period of ninety days.

On May 11, 1953, the Southwestern Company wrote to Atlantic Gulf advising the latter that it wanted
"to exercise our option at your earliest convenience" and requested that it be notified as soon as the
barge was available.

On May 12, 1953, the Atlantic Gulf replied stating that their understanding was that the "offer of
option" is to be a cash transaction and to be effected "at the time the lighter is available", and, on
June 25, 1953, reiterating the unavailability of the barge, it further advised the Southwestern
Company that since there is still further work for it, and as this situation still applies" the barge could
not be turned over to the latter company.

On June 27, 1953, in view if such vacillating attitude, the Southwestern Company instituted the
present action to compel the Atlantic Gulf to sell the barge in line with the option, depositing with the
court a check covering the sum of P30,000. This check however was later withdrawn with the
approval of the court.

On June 29, 1953, the Atlantic Gulf withdraw its "offer of option" with due notices to the
Southwestern Company stating as reason therefor that the option was granted merely as a favor.
The Atlantic Gulf set up as a defense the option to sell made by it to the Southwestern Company is
null and void because it is not supported by any consideration.

After due trial, the lower court rendered judgment granting plaintiff's prayer for specific performance.
It further ordered the defendant to pay damages in an amount equivalent to 6 per centum per annum
on the sum of P30,000 from the date of the filing of the complaint, and to pay the sum of P600 as
attorney's fees, plus the costs of action.

The case before us on the assertion that the only issue involved is one of law.

The option granted by appellant to appellee is contained in a letter dated March 24, 1953 which
reads as follows:

March 24, 1953

 Southwestern Sugar & Molasses Co. Far East, Inc.
145 Muelle de Binondo
Manila, Philippines
Gentlemen:

This is to confirm our conversion of today whereby we offer you our Barge No. 10, which is
120' 00" long by 44"-0 wide and 9'-0" deep, for the sum of of P30,000. Barge to cleaned of
creosote and fuel oil.

This option is to be good for ninety (90) days, or until June 30, 1953.

Yours very truly,

ATLANTIC, GULF & PACIFIC CO. OF

MANILA
(Sgd.) W. H. SCHOENING

The main contention of appellant is that the option granted to appellee to sell to it barge No. 10 for
the sum of P30,000 under the terms stated above has no legal effect because it is not supported by
any consideration and in support thereof it invokes article 1479 of the new Civil Code. This article
provides:

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 sell a determinate thing for a price certain is binding
upon the promisor if the promise is supported by a consideration distinct from the price.

On the other hand, appellee contends that, even granting that the "offer of option" is not supported
by any consideration, that option became binding on appellant when the appellee gave notice to its
acceptance, and that having accepted it within the period of option, the offer can no longer be
withdrawn and in any event such withdrawal is ineffective. In support of this contention, appellee
invokes article 1324 of the Civil Code which provides:

ART. 1324. When the offerer has allowed the offeree a certain period to accept, the offer
may be withdrawn at any time before acceptance by communicating such withdrawal, except
when the option is founded upon consideration, as something paid or promised.

There is no question that under article 1479 of the new Civil Code "an option to sell", or a "promise
to buy or to sell", as used in said article, to be valid must be "supported by a consideration distinct
from the price." This is clearly inferred from the context of said article that a unilateral promise to buy
or sell, even if accepted, is only binding if supported by a consideration. In other words, "an accepted
unilateral promise" can only have a binding effect if supported by a consideration, which means that
the option can still be withdrawn, even if accepted, if the same is not supported by any
consideration. Here it is not disputed that the option is without consideration. It can therefore be
withdrawn notwithstanding the acceptance made of it by appellee.

It is true that under article 1324 of the new Civil Code, the general rule regarding offer and
acceptance is that, when the offerer gives to the offeree a certain period to accept, "the offer may be
withdrawn at any time before acceptance" except when the option is founded upon consideration,
but this general rule must be interpreted as modified by the provision of article 1479 above referred
to, which applies to "a promise to buy and sell" specifically. As already stated, this rule requires that
a promise to sell to be valid must be supported by a consideration distinct from the price.

We are not oblivious of the existence of American authorities which hold that an offer, once
accepted, cannot be withdrawn, regardless of whether it is supported or not by a consideration (12
Am. Jur. 528). These authorities, we note, uphold the general rule applicable to offer and
acceptance as contained in our new Civil Code. But we are prevented from applying them in view of
the specific provision embodied in article 1479. While under the "offer of option" in question
appellant has assumed a clear obligation to sell its barge to appellee and the option has been
exercised in accordance with its terms, and there appears to be no valid or justifiable reason for
appellant to withdraw its offer, this Court cannot adopt a different attitude because the law on the
matter is clear. Our imperative duty is to apply it unless modified by Congress.

Wherefore, the decision appealed from is reversed, without pronouncement as to costs.

Bengzon, Acting C.J., Padilla, Montemayor, Reyes, A., Jugo, Labrador, Concepcion, and Reyes,
J.B.L., JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. L-62051 March 18, 1985

RURAL BANK OF PARARAQUE, INC., petitioner,

vs.
ISIDRA REMOLADO and COURT OF APPEALS, respondents.

AQUINO, J.:

This case is about the repurchase of mortgage property after the period of redemption and had
expired. Isidra Remolado, 64, a widow, and resident of Makati, Rizal, owned a lot with an area of
308 square meters, with a bungalow thereon, which was leased to Beatriz Cabagnot (86-7, record
on Appeal).

The lot is located at 41 Molave Street, United Parañaque, Rizal. In 1966 she mortgaged it to the
Rural Bank of Parañaque, Inc. as security for a loan of P15,000. She paid the loan.

On April 17, 1971 she mortgaged it again to the bank. She eventually secured loans totalling
P18,000 (Exh. At D). the loans become overdue. The bank foreclosed the mortagage on July 21,
1972 and bought the property at the foreclosure sale for P22,192.70. The one-year period of
redemption was to expire on August 21, 1973.

On August 8, 1973 the bank advised Remolado that she had until August 23 to redeem the property
(Exh. U or 6; 53, Record on Appeal). On August 9, 1973 or 14 days before the expiration of the one-
year redemption period, the bank gave her a statement showing that she should pay P25,491.96 for
the redemption of the property on August 23 (Exh. F). No redemption was made on that date.

On September 3, 1973 the bank consolidated its ownership over the property (Exh. H). Remolado's
title was cancelled. A new title, TCT No. 418737, was issued to the bank on September 5 (Exh. 0).

On September 24, 1973, the bank gave Remolado up to ten o'clock in the morning of October 31,
1973, or 37 days, within which to repurchase (not redeem since the period of redemption had
expired) the property (Exh. I-1; 32, Record on Appeal). The bank did not specify the price.

On October 26, 1973 Remolado and her daughter, Patrocinio Gomez, promised to pay the bank
P33,000 on October 31 for the repurchase of the property (Exh. X or 9; 64, Record on Appeal).

Exhibits 1-1 and X do not evidence any perfected repurchase agreemi6nt. Even if it is assumed that
the bank's commitment to resell the property was accepted by Remolado, that option was
not supported by a consideration distinct from the price (Art. 1479, Civil Code). Lacking such
consideration, the option is void (Southwestern Sugar & Molasses Co. vs. Atlantic Gulf & Pacific
Company, 97 Phil. 249).

Contrary to her promise, Remolado did not repurchase the property on October 31, Five days later,
or on November 5, Remolado and her daughter delivered P33,000 rash to the bank's assistant
manager as repurchase price. The amount was returned to them the next day, November 6, 1973
(Exh. V, W and 11). The assistant manager had no intention of receiving the money. It was just left
with her by Remolado (Exh. 10; 42, Record on Appeal). At that time, the bank was no longer willing
to allow the repurchase.

On that day, November 6, Remolado filed an action to compel the bank to reconvey the property to
her for P25,491.96 plus interest and other charges and to pay P35,000 as damages. The repurchase
price was not consigned. A notice of lis pendens was registered.

On November 15, the bank sold the property to Pilar Aysip for P50,000. A new title was issued to
Aysip with an annotation of lis pendens (Exh. P and 12; 649, Record on Appeal).

The trial court ordered the bank to return the property to Remolado upon payment of the redemption
price of P25,491.96 plus interest and other bank charges and to pay her P15,000 as damages. The
Appellate Court affirmed the judgment. The bank appealed to this Court. It contends that Remolado
had no more right of redemption and, therefore, no cause of action against the bank.

We hold that the trial court and the Appellate Court erred in ordering the reconveyance of the
property, There was no binding agreement for its repurchase. Even on the assumption that the bank
should be bound by its commitment to allow repurchase on or before October 31, 1973, still
Remolado had no cause of action because she did not repurchase the property on that date.

Justice is done according to law. As a rule, equity follows the law. There may be a moral obligation,
often regarded as an equitable consideration (meaning compassion), but if there is no enforceable
legal duty, the action must fail although the disadvantaged party deserves commiseration or
sympathy.

The choice between what is legally just and what is morally just, when these two options do not
coincide, is explained by Justice Moreland in Vales vs. Villa, 35 Phfl. 769, 788 where he said:
 Courts operate not because one person has been defeated or overcome by another,
but because he has been defeated or overcome illegally. Men may do foolish things,
make ridiculous contracts, use miserable judgment, and lose money by them-indeed,
all they have in the world; but not for that alone can the law intervene and restore.
There must be, in addition, a violation of law, the commission of what the law knows
as an actionable wrong before the courts are authorized to lay hold of the situation
and remedy it.

In the instant case, the bank acted within its legal rights when it refused to give Remolado any
extension to repurchase after October 31, 1973. It had given her about two years to liquidate her
obligation. She failed to do so.

WHEREFORE, the Appellate Court's judgment is reversed and set aside. The complaint and
counterclaim are dismissed. The notice of lis pendens is cancelled. No costs.

SO ORDERED.

Concepcion, Jr., Abad Santos, Escolin and Cuevas, JJ., concur.

Makasiar (Chairman), J., took no part.

The Lawphil Project - Arellano Law Foundation

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-32873 August 18, 1972

AQUILINO NIETES, petitioner,
vs.
HON. COURT OF APPEALS & DR. PABLO C. GARCIA, respondents.

Conrado V. del Rosario for petitioner.

Romeo D. Magat for private respondent.

CONCEPCION, C.J.:p

Petitioner Aquilino Nietes seeks a review on certiorari of a decision of the Court of Appeals.

It appears that, on October 19, 1959, said petitioner and respondent Dr. Pablo C. Garcia entered
into a "Contract of Lease with Option to Buy," pursuant to the terms and conditions set forth in the
deed Exhibits A and A-1, (also, marked as Exhibit 2) namely:
 That the LESSOR is an owner of the ANGELES EDUCATIONAL INSTITUTE
situated at Angeles, Pampanga, a school which is duly recognized by the
Government;

That the lessor agrees to lease the above stated school to the LESSEE under the
following terms and conditions:

1. That the term will be for a period of five (5) years;

2. That the price of the rent is FIVE THOUSAND PESOS (P5,000) per year payable
in the following manners:

a. That the amount of FIVE THOUSAND FIVE HUNDRED PESOS

(P5,500) will be paid upon the execution of this Contract of Lease;

b. That the amount of FOUR THOUSAND FIVE HUNDRED PESOS

(P4,500) is payable on or before the 30th day of October, 1959;

c. That the remaining balance of FIFTEEN THOUSAND PESOS

(P15,000) will be paid on or before March 30, 1960;

3. That all improvements made during the lease by the LESSEE will be owned by the
LESSOR after the expiration of the term of this Contract of Lease;

4. That the LESSOR agrees to give the LESSEE an option to buy the land and the
school building, for a price of ONE HUNDRED THOUSAND PESOS (P100,000)
within the period of the Contract of Lease;

5. That should the LESSEE buy the lot, land and the school building within the
stipulated period, the unused payment for the Contract of Lease will be considered
as part payment for the sale of the land and school;

6. That an inventory of all properties in the school will be made on March 31, 1960;

6A. That the term of this Contract will commence in June 1960 and will terminate in
June 1965;

7. That the LESSEE will be given full control and responsibilities over all the
properties of the school and over all the supervisions and administrations of the
school;

8. That the LESSEE agrees to help the LESSOR to collect the back accounts of
students incurred before the execution of this contract.

Instead of paying the lessor in the manner set forth in paragraph 2 of said contract, Nietes had, as of
August 4, 1961, made payments as follows:

October 6,1960 ....................................... P18,957.00 (Exh. D)

November 23, 1960 ................................. 300.00 (Exh. E)

 December 21, 1960 ................................. 200.00 (Exh. F)

January 14, 1961 ..................................... 500.00 (Exh. G)

February 16, 1961 ................................... 3,000.00 (Exh. H)

March 12, 1961 ....................................... 1,000.00 (Exh. I)

March 13, 1961 ....................................... 700.00 (Exh. J)

August 4, 1961 ........................................ 100.00 (Exh. K) _________

TOTAL ..................................... P24,757.00

Moreover, Nietes maintains that, on September 4, 1961, and December 13, 1962, he paid Garcia
the additional sums of P3,000 and P2,200, respectively, for which Garcia issued receipts Exhibit B
and C, reading:

Received the amount of (P3,000.00) Three Thousand Pesos from Mrs. Nietes as per
advance pay for the school, the contract of lease being paid.

(Sgd.) PABLO GARCIA (Exh. B)

To Whom it May Concern:

This is to certify that I received the sum of Two Thousand Two Hundred Pesos,
Philippine Currency, from Mrs. Catherine R. Nietes as the partial payment on the
purchase of the property as specified on the original contract of "Contract of Lease
with the First Option to Buy" originally contracted and duly signed.

(Sgd.) DR. PABLO GARCIA (Exh. C)

On or about July 31, 1964, Dr. Garcia's counsel wrote to Nietes the letter Exhibit 1 (also Exhibit V)
stating:

The Director
Philippine Institute of Electronics
Angeles, Pampanga

Sir:

I regret to inform you that our client, Dr. Pablo Garcia, desires to rescind your
contract, dated 19 October 1959 because of the following:

1. That you had not maintained the building, subject of the lease contract in good
condition.

2. That you had not been using the original name of the school — Angeles Institute,
thereby extinguishing its existence in the eyes of the public and injuring its prestige.
3. That through your fault, no inventory has been made of all properties of the school.

4. That up to this time, you had not collected or much less helped in the collection of
back accounts of former students.

This is to remind you that the foregoing obligations had been one, if not, the principal
moving factors which had induced the lessor in agreeing with the terms embodied in
your contract of lease, without which fulfillment, said contract could not have come
into existence. It is not simply one of those reminders that we make mention, that our
client under the circumstances, is not only entitled to a rescission of the contract. He
is likewise entitled to damages — actual, compensatory and exemplary.

In view of the serious nature of the breach which warrant and sanction drastic legal
remedies against you, we earnestly request you to please see the undersigned at the
above-named address two days from receipt hereof. Otherwise, if we shall not hear
from you, the foregoing will serve notice on your part to vacate the premises within
five (5) days to be counted from date of notice.

Very truly yours,

(Sgd.) VICTOR T. LLAMAS, JR.

to which counsel for Nietes replied in the following language:

Atty. Victor T. Llamas, Jr.

Victor Llamas Law Office
Corner Rivera-Zamora Streets
Dagupan City

Dear Sir:

Your letter dated July 31, 1964 addressed to my client, the Director of the Philippine
Institute of Electronics, Angeles City, has been referred to me and in reply, please,
be informed that my client has not violated any provision of the CONTRACT OF
LEASE WITH OPTION TO BUY, executed by him as LESSEE and Dr. Pablo Garcia
as LESSOR. For this reason, there is no basis for rescission of the contract nor of
the demands contained in your letter.

In this connection, I am also serving this formal notice upon your client Dr. Pablo
Garcia, thru you, that my client Mr. AQUILINO T. NIETES will exercise his OPTION
to buy the land and building subject matter of the lease and that my said client is
ready to pay the balance of the purchase price in accordance with the contract.
Please, inform Dr. Pablo Garcia to make available the land title and execute the
corresponding Deed of Sale pursuant to this notice, and that if he fails to do so within
fifteen (15) days from the receipt of this letter, we shall take the corresponding action
to enforce the agreement.

Truly yours,

(Sgd.) CONRADO V. DEL ROSARIO

Counsel for Mr. Aquilino T. Nietes
Angeles City
On July 26, 1965, Nietes deposited with the branch office of the Agro-Industrial Bank in Angeles City
checks amounting to P84,860.50, as balance of the purchase price of the property, but he withdrew
said sum of P84,860.50 on August 12, 1965, after the checks had been cleared. On August 2, 1965,
he commenced the present action, in the Court of First Instance of Pampanga, for specific
performance of Dr. Garcia's alleged obligation to execute in his (Nietes') favor a deed of absolute
sale of the leased property, free from any lien or encumbrance whatsoever, he having meanwhile
mortgaged it to the People's Bank and Trust Company, and to compel him (Garcia) to accept
whatever balance of the purchase price is due him, as well as to recover from him the aggregate
sum of P90,000 by way of damages, apart from attorney's fees and the costs.

Dr. Garcia filed an answer admitting some allegations of the complaint and denying other allegations
thereof, as well as setting up a counterclaim for damages in the sum of P150,000.

After due trial, said court rendered its decision, the dispositive part of which reads:

WHEREFORE, in view of the preponderance of evidence in favor of the plaintiff and

against the defendant, judgment is hereby rendered ordering the latter to execute the
Deed of Absolute Sale of property originally leased together with the school building
and other improvements thereon which are covered by the contract, Annex "A", upon
payment of the former of the balance (whatever be the amount) of the stipulated
purchase price; to free the said property from any mortgage or encumbrance and
deliver the title thereto to the plaintiff free from any lien or encumbrance, and should
said defendant fail to do so, the proceeds from the purchase price be applied to the
payment of the encumbrance so that the title may be conveyed to the plaintiff; to pay
the plaintiff the sum of P1,000.00 as attorney's fees, and the cost of this suit.

Both parties appealed to the Court of Appeals, Dr. Garcia insofar as the trial court had neither
dismissed the complaint nor upheld his counterclaim and failed to order Nietes to vacate the
property in question, and Nietes insofar as the trial court had granted him no more than nominal
damages in the sum of P1,000, as attorney's fees.

After appropriate proceedings, a special division of Court of Appeals rendered its decision, on
October 18, 1969, affirming, in effect, that of the trial court, except as regards said attorney's fees,
which were eliminated. The dispositive part of said decision of the Court of Appeals reads:

WHEREFORE, with the modification that the attorney's fees awarded by the trial court in favor of the
plaintiff is eliminated, the appealed judgment is hereby affirmed in all other respects, and the
defendant is ordered to execute the corresponding deed of sale for the school building and lot in
question in favor of the plaintiff upon the latter's full payment of the balance of the purchase price.
The costs of this proceedings shall be taxed against the defendant-appellant.

On motion for reconsideration of defendant Garcia, said special division set aside its aforementioned
decision and rendered another one, promulgated on March 10, 1970 reversing the appealed
decision of the court of first instance, and dismissing the complaint of Nietes, with costs again him.
Hence, the present petition of Nietes for review certiorari of the second decision of the Court of
Appeals, dated March 10, 1970, to which petition We gave due course.

Said decision of the Court of Appeals, reversing that of the Court of First Instance, is mainly
predicated upon the theory that, under the contract between the parties, "the full purchase price
must be paid before the option counsel be exercised," because "there was no need nor sense
providing that "the unused payment for the Contract Lease will be considered as part payment for
the sale the land and school'" inasmuch as "otherwise there is substantial amount from which such
unused rental could be deducted"; that the statement in the letter, Exhibit L, of Nietes, dated August
7, 1964, to the effect that he "will exercise his OPTION to buy the land and building," indication that
he did not consider the receipts, Exhibits B and for P3,000 and P2,200, respectively, "as an effective
exercise of his option to buy"; that the checks for P84,860.50 deposited by Nietes with the Agro-
Industrial Development Bank, did not constitute a proper tender of payment, which, at any rate, was
"made beyond the stipulated 5-year period"; that such deposit "was not seriously made, because on
August 12, 1965, the same was withdrawn from the Bank and ostensibly remains in the lessee's
hand"; and that "the fact that such deposit was made by the lessee shows that he himself believed
that he should have paid the entire amount of the purchase price before he could avail of the option
to buy, otherwise, the deposit was a senseless gesture ... ."

Dr. Garcia, in turn, maintained in his answer "that the sums paid" to him "were part of the price of the
contract of lease between the parties which were paid late and not within the periods and/or
schedules fixed by the contract (Annex A.)." What is more, on the witness stand, Garcia claimed that
he did "not know" whether the signatures on Exhibits B and C — the receipt for P3,000 and P2,200,
respectively — were his, and even said that he was "doubtful" about it.

This testimony is manifestly incredible, for a man of his intelligence — a Doctor of Medicine and the
owner of an educational institution — could not possibly "not know" or entertain doubts as to whether
or not the aforementioned signatures are his and the payments therein acknowledged had been
received by him. His dubious veracity becomes even more apparent when we consider the
allegations in paragraph (4) of his answer — referring to paragraphs 5 and 6 of the complaint
alleging, inter alia, the aforementioned partial payments of P3,000 and P2,200, on account of the
stipulated sale price — to the effect that said sums " paid to the herein defendant were part of the
price of the contract of lease." In other words, payment of said sums of P3,000 and P2,200
is admitted in said answer. Besides, the rentals for the whole period of the lease aggregated
P25,000 only, whereas said sums of P3,000 and P2,200, when added to the payments previously
made by Nietes, give a grand total of P29,957.00, or P4,957 in excess of the agreed rentals for the
entire period of five years. Thus, Dr. Garcia was less than truthful when he tried to cast doubt upon
the fact of payment of said sums of P3,000 and P2,200, as well as when he claimed that the same
were part of the rentals collectible by him.

We, likewise, find ourselves unable to share the view taken by the Court of Appeals. Neither the
tenor of the contract Exhibits A and A-1 (also Exhibit 2) nor the behaviour of Dr. Garcia — as
reflected in the receipts Exhibits B and C — justifies such view. The contract does not say that
Nietes had to pay the stipulated price of P100,000 before exercising his option to buy the property in
question. Accordingly, said option is governed by the general principles on obligations, pursuants to
which:

In reciprocal obligations, neither party incurs in delay if the other does not comply or
is not ready to comply in a proper manner with what is incumbent upon him. From
the moment one of the parties fulfills his obligation, delay by the other begins.1

In the case of an option to buy, the creditor may validly and effectively exercise his right by merely
advising the debtor of the former's decision to buy and expressing his readiness to pay the stipulated
price, provided that the same is available and actually delivered to the debtor upon execution and
delivery by him of the corresponding deed of sale. Unless and until the debtor shall have done this
the creditor is not and cannot be in default in the discharge of his obligation to pay.  In other words,
2

notice of the creditor's decision to exercise his option to buy need not be coupled with actual
payment of the price, so long as this is delivered to the owner of the property upon performance of
his part of the agreement. Nietes need not have deposited, therefore, with the Agro-Industrial Bank
checks amounting altogether to P84,860.50 on July 26, 1965, and the withdrawal thereof soon after
does not and cannot affect his cause of action in the present case. In making such deposit, he may
have had the intent to show his ability to pay the balance of the sum due to Dr. Garcia as the sale
price of his property. In short, said deposit and its subsequent withdrawal cannot affect the result of
the present case.

Nietes was entitled to exercise his option to buy "within the period of the Contract of Lease," which
— pursuant to paragraph 6-A of said contract — commenced "in June 1960" and was to "terminate
in June 1965." As early as September 4, 1961, or well "within the period of the Contract of Lease,"
Nietes had paid Dr. Garcia the following sums:

October 6, 1960 ............................ P18,957.00 (Exh. D)

November 23, 1960 ....................... 300.00 (Exh E)

December 21, 1960 ....................... 200.00 (Exh. F)

January 14, 1961 ........................... 500.00 (Exh. G)

February 16, 1961 ......................... 3,000.00 (Exh. H)

March 12, 1961 ............................. 1,000.00 (Exh. I)

March 13, 1961 ............................. 700.00 (Exh. J)

August 4, 1961 ............................... 100.00 (Exh. K)

September 4, 1961 ......................... 3,000.00 (Exh. B)

________

TOTAL ............................... P27,757.00

It is true that Nietes was bound, under the contract, to pay P5,500 on October 19, 1959, P4,500 on
or before October 30, 1959, and P15,000 on or before March 30, 1960, or the total sum of P25,000,
from October 19, 1959 to March 30, 1960, whereas his first payment was not made until October 10,
1960, when he delivered the sum of P18,957 to Dr. Garcia, and the latter had by August 4, 1961,
received from the former the aggregate sum of P24,757. This is, however, P243.00 only less than
the P25,000 due as of March 30, 1960, so that Nietes may be considered as having complied
substantially with the terms agreed upon. Indeed, Dr. Garcia seems to have either agreed thereto or
not considered that Nietes had thereby violated the contract, because the letter of the former, dated
July 31, 1964, demanding rescission of the contract, did not mention said acts or omissions of Nietes
among his alleged violations thereof enumerated in said communication. In fact, when, on
September 4, 1961, Mrs. Nietes turned over the sum of P3,000 to Dr. Garcia, he issued the receipt
Exhibit B, stating that said payment had been made "as per advance pay for the school, the
Contract of Lease being paid" — in other words, in accordance or conformity with said contract.
Besides, when, on December 13, 1962, Mrs. Nietes delivered the additional sum of P2,200, Dr.
Garcia issued a receipt accepting said amount "as the partial payment on the purchase price of the
property as specified on the original contract," thus further indicating that the payment, in his
opinion, conformed with said contract, and that, accordingly, the same was in full force and effect.

In any event, it is undisputed that, as of September 4, 1961, Dr. Garcia had received the total sum of
P27,757, or P2,757 in excess of the P25,000 representing the rentals for the entire period of the
lease, and over P21,200 in excess of the rentals for the unexpired portion of the lease, from
September 4, 1961 to June 1965. This circumstance indicates clearly that Nietes had, on September
4, 1961, chosen to exercise and did exercise then his option to buy. What is more, this is borne out
by the receipt issued by Dr. Garcia for the payment of P2,200, on December 13, 1962, to which he
referred therein as a "partial payment on the purchase of the property as specified on the original
contract of 'Contract of Lease with the First Option to Buy' ... ."

Further confirmation is furnished by the letter of Nietes, Exhibit L, of August 1964 — also, within the
period of the lease — stating that he "will exercise his OPTION to buy the land and building subject
matter of the lease." It is not correct to construe this expression — as did the appealed decision —
as implying that the option had not been or was not yet being exercised, or as a mere
announcement of the intent to avail of it at some future time. This interpretation takes said
expression out of the context of Exhibit L, which positively states, also, that Nietes "is ready to pay
the balance of the purchase price in accordance with the contract," and requests counsel for Dr.
Garcia to inform or advise him "to make available the land title and execute the corresponding Deed
of Sale pursuant to this notice, and that if he fails to do so within fifteen (15) days ... we shall take
the corresponding action to enforce the agreement." Such demand and said readiness to pay the
balance of the purchase price leave no room for doubt that, as stated in Exhibit L, the same is "a
formal notice" that Nietes had exercised his option, and expected Dr. Garcia to comply, within fifteen
(15) days, with his part of the bargain. Surely, there would have been no point for said demand and
readiness to pay, if Nietes had not yet exercised his option to buy.

The provision in paragraph 5 of the Contract, to the effect that "should the LESSEE" choose to make
use of his option to buy "the unused payment for the Contract of Lease will be considered as
payment for the sale of the land and school, "simply means that the rental paid for the unused
portion of the lease shall be applied to and deducted from the sale price of P100,000 to be paid by
Nietes at the proper time — in other words, simultaneously with the delivery to him of the
corresponding deed of sale, duly executed by Dr. Garcia.

It is, consequently, Our considered opinion that Nietes had validly and effectively exercised his
option to buy the property of Dr. Garcia, at least, on December 13, 1962, when he acknowledged
receipt from Mrs. Nietes of the sum of P2,200 then delivered by her "in partial payment on the
purchase of the property" described in the "Contract of Lease with Option to Buy"; that from the
aggregate sum of P29,957.00 paid to him up to that time, the sum of P12,708.33 should be
deducted as rental for the period from June 1960 to December 13, 1962, or roughly thirty (30)
months and a half, thereby leaving a balance of P17,248.67, consisting of P12,291.67, representing
the rentals for the unused period of the lease, plus P4,957.00 paid in excess of said rental and
advanced solely on account of the purchase price; that deducting said sum of P17,248.67 from the
agreed price of P100,000.00, there results a balance of P82,751.33 which should be paid by Nietes
to Dr. Garcia, upon execution by the latter of the corresponding deed of absolute sale of the property
in question, free from any lien or encumbrance whatsoever, in favor of Nietes, and the delivery to
him of said deed of sale, as well as of the owner's duplicate of the certificate of title to said property;
and that Dr. Garcia should indemnify Nietes in the sum of P2,500 as and for attorney's fees.

Thus modified, the decision of the Court of First Instance of Pampanga is hereby affirmed in all other
respects, and that of the Court of Appeals reversed, with costs against respondent herein, Dr. Pablo
C. Garcia. It is so ordered.

Reyes, J.B.L., Makalintal, Zaldivar, Fernando, Teehankee, Barredo, Makasiar Antonio and
Esguerra, JJ., concur.

Castro, J., took no part.

 

Footnotes

1 Last Paragraph of Art. 1169, New Civil Code.

2 Abesamis v. Woodcraft Works, Ltd., L-18916, Nov. 28, 1969; Causing v. Bencer,
37 Phil. 417, 419-420.

FIRST DIVISION

[G.R. No. L-31018. June 29, 1973.]

LORENZO VELASCO and SOCORRO J. VELASCO, Petitioners, v. HONORABLE

COURT OF APPEALS and MAGDALENA ESTATE, INC., Respondents.

Napoleon G. Rama, for Petitioners.

Dominador L. Reyes for Private Respondent.

DECISION

CASTRO, J.:

This is a petition for certiorari and mandamus filed by Lorenzo Velasco and Socorro J.

Velasco (hereinafter referred to as the petitioners) against the resolution of the Court of
Appeals dated June 28, 1969 in CA-G.R. 42376, which ordered the dismissal of the
appeal interposed by the petitioners from a decision of the Court of First Instance of
Quezon City on the ground that they had failed seasonably to file their printed record
on appeal.

Under date of November 3, 1968, the Court of First Instance of Quezon City, after
hearing on the merits, rendered a decision in civil case 7761, dismissing the complaint
filed by the petitioners against the Magdalena Estate, Inc. (hereinafter referred to as
the respondent) for the purpose of compelling specific performance by the respondent
of an alleged deed of sale of a parcel of residential land in favor of the petitioners. The
basis for the dismissal of the complaint was that the alleged purchase and sale
agreement "was not perfected." cralaw virtua1aw library

On November 18, 1968, after the perfection of their appeal to the Court of Appeals, the
petitioners received a notice from the said court requiring them to file their printed
record on appeal within sixty (60) days from receipt of said notice. This 60-day term
was to expire on January 17, 1969.

Allegedly under date of January 15, 1969, the petitioners allegedly sent to the Court of
Appeals and to counsel for the respondent, by registered mail allegedly deposited
personally by its mailing clerk, one Juanito D. Quiachon, at the Makati Post Office, a
"Motion For Extension of Time To File Printed Record on Appeal." The extension of time
was sought on the ground "of mechanical failures of the printing machines, and the
voluminous printing job now pending with the Vera Printing Press . . ." cralaw virtua1aw library

On February 10, 1969, the petitioners filed their printed record on appeal in the Court
of Appeals. Thereafter, the petitioners received from the respondent a motion filed on
February 8, 1969 praying for the dismissal of the appeal on the ground that the
petitioners had filed to file their printed record on appeal on time. Acting on the said
motion to dismiss the appeal, the Court of Appeals, on February 25 1969, issued the
following resolution: jgc:chanrobles.com.ph

"Upon consideration of the motion of counsel for defendant-appellee praying on the

grounds therein stated that the appeal be dismissed in accordance with Rule 50, Rules
of Court, and of the opposition thereto filed by counsel for plaintiffs-appellants, the
Court RESOLVED to DENY the said motion to dismiss.

"Upon consideration of the registry-mailed motion of counsel for plaintiffs appellants

praying on the grounds therein stated for an extension of 30 days from January 15,
1969 within which to file the printed record on appeal, the Court RESOLVED to GRANT
the said motion and the printed record on appeal which has already been filed is
ADMITTED." cralaw virtua1aw library

On March 11, 1969, the respondent prayed for a reconsideration of the above-
mentioned resolution, averring that the Court of Appeals had been misled by the
petitioners’ "deceitful allegation that they filed the printed record on appeal within the
reglementary period," because according to a certification issued by the postmaster of
Makati, Rizal, the records of the said post office failed to reveal that on January 15,
1969 — the date when their motion for extension of time to file the printed record on
appeal was supposedly mailed by the petitioners — there was any letter deposited there
by the petitioners’ counsel. The petitioners opposed the motion for reconsideration.
They submitted to the appellate court the registry receipts (numbered 0215 and 0216),
both stamped January 15, 1969, which were issued by the receiving clerk of the
registry section of the Makati Post Office covering the mails for the disputed motion for
extension of time to file their printed record on appeal and the affidavit of its mailing
clerk Juanito D. Quiachon, to prove that their motion for extension was timely filed and
served on the Court of Appeals and the respondent, respectively. After several other
pleadings and manifestations were filed by the parties relative to the issue raised by the
respondent’s above-mentioned motion for reconsideration, the Court of Appeals
promulgated on June 28, 1969, its questioned resolution, the dispositive portion of
which reads as follows: jgc:chanrobles.com.ph

"WHEREFORE, the motion for reconsideration filed on March 11, 1969 is granted and
the appeal interposed by plaintiffs-appellants from the judgment of the court below is
hereby dismissed for their failure to file their printed Record on Appeal within the period
authorized by this Court. Atty. Patrocinio R. Corpuz [counsel of the petitioners] is
required to show cause within ten (10) days from notice why he should not be
suspended from the practice of his profession for deceit, falsehood and violation of his
sworn duty to the Court. The Provincial Fiscal of Rizal is directed to conduct the
necessary investigation against Juanito D. Quiachon of the Salonga, Ordoñez, Yap, Sicat
& Associates Law Office, Suite 319 337 Rufino Building, Ayala Avenue, Makati, Rizal,
and Flaviano O. Malindog, a letter carrier at the Makati Post Office, to file the
appropriate criminal action against them as may he warranted in the premises, and to
report to this Court within thirty (30) days the action he has taken thereon." cralaw virtua1aw library

The foregoing disposition was based on the following findings of the Court of Appeals: jgc:chanrobles.com.ph

"An examination of the Rollo of this case, particularly the letter envelope on page 26
thereof, reveals that on January 15, 1969, plaintiffs supposedly mailed via registered
mail from the Post Office of Makati, Rizal their motion for extension of 30 days from
that date to file their printed Record on Appeal, under registered letter No. 0216.
However, in an official certification, the Postmaster of Makati states that the records of
his office disclose: (a) that there were no registered letters Nos. 0215 and 0216 from
the Salonga, Ordoñez, Yap, Sicat & Associates addressed to Atty. Abraham F.
Sarmiento, 202 Magdalena Building, España Ext., Quezon City, and to the Court of
Appeals, Manila, respectively, that were posted in the Post Office of Makati, Rizal, on
January 15, 1969; (b) that there is a registered letter numbered 215 but that the same
was posted on January 3, 1969 by Enriqueta Amada of 7 Angel, Pasillo F-2, Cartimar,
Pasay City, as sender, and Giral Amasan of Barrio Cabuniga-an, Sto. Niño, Samar, as
addressee; and that there is also a registered letter numbered 216; but that the same
was likewise posted on January 3, 1969 with E.B.A. Construction of 1049 Belbar
Building, Metropolitan, Pasong Tamo, Makati, as sender, and Pres. R. Nakaya of the
United Pacific Trading Co., Ltd., 79, 6 Chamo, Nakatu, Yokohari, Japan, as addressee;
(c) that on January 15, 1969, the registered letters posted at the Makati Post Office
were numbered consecutively from 1001-2225, inclusive, and none of these letters was
addressed to Atty. Abraham F. Sarmiento or to the Court of Appeals; (d) that in
Registry Bill Book No. 30 for Quezon City as well as that for Manila, corresponding to
February 7, 1969, there are entries covering registered letters Nos. 0215 and 0216 for
dispatch to Quezon City and Manila, respectively; however, such registry book for
February 7, 1969 shows no registered letters with such numbers posted on the said
date.

"The Acting Postmaster of the Commercial Center Post Office of Makati, Rizal, further
certifies that ‘Registry Receipts Nos. 0215 and 0216 addressed to Atty. Abraham F.
Sarmiento of the Magdalena Estate, Quezon City and the Honorable Court of Appeals,
respectively, does not appear in our Registry Record Book which was allegedly posted
at this office on January 15, 1969.’

"From the foregoing, it is immediately apparent that the motion for extension of time to
file their printed Record on Appeal supposedly mailed to the plaintiffs on January 15,
1969 was not really mailed on that date but evidently on a date much later than
January 15, 1969. This is further confirmed by the affidavit of Flaviano Malindog, a
letter carrier of the Makati Post Office, which defendant attached as Annex 1 to its
supplemental reply to plaintiffs’ opposition to the motion for reconsideration. In his said
affidavit, Malindog swore among others: jgc:chanrobles.com.ph

"‘That on February 7, 1969, between 12:00 o’clock noon and 1:00 o’clock in the
afternoon, JUANITO D. QUIACHON approached me at the Makati Post Office and talked
to me about certain letters which his employer had asked him to mail and that I should
help him do something about the matter; but I asked him what they were all about,
and he told me that they were letters for the Court of Appeals and for Atty. Abraham
Sarmiento and that his purpose was to show that they were posted on January 15,
1969; that I inquired further, and he said that the letters were not so important and
that his only concern was to have them postmarked January 15, 1969;

"‘That believing the word of JUANITO QUIACHON that the letters were not really
important I agreed to his request; whereupon I got two (2) registry receipts from an
old registry receipt booklet which is no longer being used and I numbered them 0215
for the letter addressed to Atty. Abraham Sarmiento in Quezon City and 0216 for the
letter addressed to the Court of Appeals, Manila; that I placed the same numbering on
the respective envelopes containing the letters; and that I also postmarked them
January 15, 1969;

"‘That to the best of my recollection I wrote the correct date of posting, February 7,
1969 on the back of one or both of the registry receipts above mentions;

"‘That the correct date of posting, February 7, 1969 also appears in the Registry Bill
Books for Quezon City and Manila where I entered the subject registered letters;’

"Of course, plaintiffs’ counsel denies the sworn statement of Malindog and even
presented the counter-affidavit of one of his clerks by the name of Juanito D. Quiachon.
But between Malindog, whose sworn statement is manifestly a declaration against
interest since he can be criminally prosecuted for falsification on the basis thereof, and
that of Quiachon, whose statement is self-serving, we are very much inclined to give
greater weight and credit to the former. Besides, plaintiffs have not refuted the facts
disclosed in the two (2) official certifications above mentioned by the Postmasters of
Makati, Rizal. These two (2) certifications alone, even without the affidavit of Malindog,
already carries more than enough weight to move this Court to reconsider its resolution
of February 25, 1969 and order the dismissal of this appeal." cralaw virtua1aw library

On September 5, 1969, after the rendition of the foregoing resolution, the Court of
Appeals promulgated another, denying the motion for reconsideration of the petitioners,
but, at the same time, accepting as satisfactory the explanation of Atty. Patrocinio R.
Corpuz why he should not be suspended from the practice of the legal profession.

On September 20, 1969, the First Assistant Fiscal of Rizal notified the Court of Appeals
that he had found a prima facie case against Flaviano C. Malindog and would file the
corresponding information for falsification of public documents against him. The said
fiscal, however, dismissed the complaint against Quiachon for lack of sufficient
evidence. The information :subsequently filed against Malindog by the First Assistant
Fiscal of Rizal reads as follows:
jgc:chanrobles.com.ph

"That on or about the 7th day of February 1969, in the municipality of Makati, province
of Rizal, and a place within the jurisdiction of this Honorable Court, the above-named
accused, conspiring and confederating together and mutually helping and aiding with
John Doe, whose true identity and present whereabout is still unknown, did then and
there willfully, unlawfully and feloniously falsify two registry receipts which are public
documents by reason of the fact that said registry receipts are printed in accordance
with the standard forms prescribed by the Bureau of Posts, committed as follows: the
above-named accused John Doe, on the date above mentioned approached and induced
the accused Malindog, a letter-carrier at the Makati Post Office, to postmark on January
15, 1969 two sealed envelopes, one addressed to Atty. Abraham Sarmiento in Quezon
City, and the other to the Court of Appeals, Manila, and the accused Malindog, acceding
to the inducement of, and in conspiracy with, his co-accused John Doe, did then and
there willfully, unlawfully and feloniously falsify said registry receipts of the Makati Post
Office by writing on the first registry receipts number 0215 corresponding to the
envelope addressed to Atty. Abraham Sarmiento in Quezon City, and number 0216
addressed to the Court of Appeals, Manila, after which the accused postmarked both
registry receipts and the two corresponding envelopes with the date January 15, 1969,
thereby making it appear that the said sealed envelopes addressed to Atty. Sarmiento
and the Court of Appeals were actually posted at the Makati Post Office on January 15,
1969, when in truth and in fact the same were posted only on February 7, 1969, thus
the accused altered the true date when the said mail matters were actually posted, and
causing it to appear that the Postmaster of Makati participated therein by posting said
mail matters on January 15, 1969, when in truth and in fact he did not so participate."
library
cralaw virtua1aw

The petitioners contend that in promulgating its questioned resolution, the Court of
Appeals acted without or in excess of jurisdiction, or with such whimsical and grave
abuse of discretion as to amount to lack of jurisdiction, because (a) it declared that the
motion for extension of time to file the printed record on appeal was not mailed on
January 15, 1969, when, in fact, it was mailed on the said date as evidenced by the
registry receipts and the post office stamp of the Makati Post Office; (b) it declared that
the record on appeal was filed only on February 10, 1969, beyond the time authorized
by the appellate court, when the truth is that the said date of filing was within the 30-
day extension granted by it; (c) the adverse conclusions of the appellate court were not
supported by the records of the case, because the said court ignored the affidavit of the
mailing clerk of the petitioners’ counsel, the registry receipts and postmarked envelopes
(citing Henning v. Western Equipment, 62 Phil. 579, and Caltex Phil., Inc. v. Katipunan
Labor Union, 52 O.G. 6209), and, instead, chose to rely upon the affidavit of the mail
carrier Malindog, which affidavit was prepared by counsel for the respondent at the
affiant himself so declared at the preliminary investigation at the Fiscal’s office which
absolved the petitioners’ counsel mailing clerk Quiachon from any criminal liability; (d)
section 1, Rule 50 of the Rules of Court, which enumerates the grounds upon which the
Court of Appeals may dismiss an appeal, does not include as a ground the failure to file
a printed record on appeal; (e) the said section does not state either that the
mismailing of a motion to extend the time to file the printed record on appeal,
assuming this to be the case, may be a basis for the dismissal of the appeal; (f) the
Court of Appeals has no jurisdiction to revoke the extension of time to file the printed
record on appeal it had granted to the petitioners based on a ground not specified in
section 1, Rule 50 of the Rules of Court; and (g) the objection to an appeal may be
waived as when the appellee has allowed the record on appeal to be printed and
approved (citing Moran, Vol. II, p. 519).

Some of the objections raised by the petitioners to the questioned resolution of the
Court of Appeals are obviously matters involving the correct construction of our rules of
procedure and, consequently, are proper subjects of an appeal by way
of certiorari under Rule 45 of the Rules of Court, rather than a special civil action
for certiorari under Rule 65. The petitioners, however, have correctly appreciated the
nature of its objections and have asked this Court to treat the instant petition as an
appeal by way of certiorari under Rule 45 "in the event . . . that this Honorable
Supreme Court should deem that an appeal is an adequate remedy . . ." The nature of
the case at bar permits, in our view, a disquisition of both types of assignments.

We do not share the view of the petitioners that the Court of Appeals acted without or
in excess of jurisdiction or gravely abused its discretion in promulgating the questioned
resolution.

While it is true that stamped on the registry receipts 0215 and 0216 as well as on the
envelopes covering the mails in question is the date "January 15, 1969," this, by itself,
does not establish an unrebuttable presumption of the fact or date of mailing. Henning
and Caltex, cited by the petitioners, are not in point because the specific adjective issue
resolved in those cases was whether or not the date of mailing a pleading is to be
considered as the date of its filing, The issue in the case at bar is whether or not the
motion of the petitioners for extension of time to file the printed record on appeal was,
in point of fact, mailed (and, therefore, filed) on January 15, 1969.

In resolving this issue in favor of the respondent, this Court finds, after a careful study
and appraisal of the pleadings, admissions and denials respectively adduced and made
by the parties, that the Court of Appeals did not gravely abuse its discretion and did not
act without or in excess of its jurisdiction. We share the view of the appellate court that
the certifications issued by the two postmasters of Makati, Rizal and the sworn
declaration of the mail carrier Malindog describing how the said registry receipts came
to be issued, are worthy of belief. It will be observed that the said certifications explain
clearly and in detail how it was improbable that the registry receipts in question could
have been issued to the petitioners’ counsel in the ordinary course of official business,
while Malindog’s sworn statement, which constitutes a very grave admission against his
own interest, provides ample basis for a finding that where official duty was not
performed it was at the behest of a person interested in the petitioners’ side of the
action below. That at the preliminary investigation at the Fiscal’s office, Malindog failed
to identify Quiachon as the person who induced him to issue falsified receipts, contrary
to what he declared in his affidavit, is of no moment since the findings of the inquest
fiscal as reflected in the information for falsification filed against Malindog indicate that
someone did induce Malindog to make and issue false registry receipts to the counsel
for the petitioners.

This Court held in Bello v. Fernando 1 that the right to appeal is not a natural right nor
a part of due process; it is merely a statutory privilege. and may he exercised only in
the manner provided by law. In this connection, the Rules of Court expressly makes it
the duty of an appellant to file a printed record on appeal with the Court of Appeals
within sixty (60) days from receipt of notice from the clerk of that court that the record
on appeal approved by the trial court has already been received by the said court.
Thus, section 5 of Rule 46 states: jgc:chanrobles.com.ph

"Sec. 5. Duty of appellant upon receipt of notice. — It shall be the duty of the appellant
within fifteen (15) days from the date of the notice referred to in the preceding section,
to pay the clerk of the Court of Appeals the fee for the docketing of the appeal, and
within sixty (60) days from such notice to submit to the court forty (40) printed copies
of the record on appeal, together with proof of service of fifteen (15) printed copies
thereof upon the appellee." cralaw virtua1aw library

As the petitioners failed to comply with the abovementioned duty which the Rules of
Court enjoins, and considering that, as found by the Court of Appeals, there was a
deliberate effort on their part to mislead the said Court in granting them an extension
of time within which to file their printed record on appeal, it stands to reason that the
appellate court cannot be said to have abused its discretion or to have acted without or
in excess of its jurisdiction in ordering the dismissal of their appeal.

Our jurisprudence is replete with cases in which this Court dismissed an appeal on
grounds not mentioned specifically in Section 1, Rule 50 of the Rules of Court. (See, for
example, De la Cruz v. Blanco, 73 Phil. 596 (1942); Government of the Philippines v.
Court of Appeals. 108 Phil. 86 (1960); Ferinion v. Sta. Romana, L-25521, February 28,
66, 16 SCRA 370, 375).

It will likewise be noted that inasmuch as the petitioners’ motion for extension of the
period to file the printed record on appeal was belatedly filed, then, it is as though the
same were non-existent, since as this Court has already stated in Baquiran v. Court of
Appeals, 2 "The motion for extension of the period for filing pleadings and papers in
court must be made before the expiration of the period to be extended." The soundness
of this dictum in matters of procedure is self-evident. For, were the doctrine otherwise,
the uncertainties that would follow when litigants are left to determine and redetermine
for themselves whether to seek further redress in court forthwith or take their own
sweet time will result in litigations becoming more unbearable than the very grievances
they are intended to redress.

The argument raised by the petitioner — that the objection to an appeal may be
waived, as when the appellee allows the record on appeal to be printed and approved —
is likewise not meritorious considering that the respondent did file a motion in the Court
of Appeals on February 8, 1969 praying for the dismissal of the appeal below of the
petitioners on the ground that up to the said date the petitioners had not yet filed their
record on appeal and, therefore, must be considered to have abandoned their appeal.

In further assailing the questioned resolution of the Court of Appeals, the petitioners
also point out that on the merits the equities of the instant case are in their favor. A
reading of the record, however, persuades us that the judgment a quo is substantially
correct and morally just.

The appealed decision of the court a quo narrates both the alleged and proven facts of
the dispute between the petitioners and the respondent, as follows: jgc:chanrobles.com.ph

"This is a suit for specific performance filed by Lorenzo Velasco against the Magdalena
Estate, Inc. on the allegation that on November 29, 1962 the plaintiff and the
defendant had entered into a contract of sale (Annex A of the complaint) by virtue of
which the defendant offered to sell the plaintiff and the plaintiff in torn agreed to buy a
parcel of land with an area of 2,059 square meters more particularly described as Lot
15, Block 7, Psd-6129, located at No. 39 corner 6th Street and Pacific Avenue, New
Manila, this City, for the total purchase price of P100,000.00.

"It is alleged by the plaintiff that the agreement was that the plaintiff was to give a
down payment of P10,000.00 to be followed by P20,000.00 and the balance of
P70,000.00 would be paid in installments, the equal monthly amortization of which was
to be determined as soon as the P30,000.00 down payment had been completed. It is
further alleged that the plaintiff paid the down payment of P10,000.00 on November
29, 1962 as per receipt No. 207848 (Exh.’A’) and that when on January 8, 1964 he
tendered to the defendant the payment of the additional P20,000.00 to complete the
P30,000.00 the defendant refused to accept and that eventually it likewise refused to
execute a formal deed of sale obviously agreed upon. The plaintiff demands P25,000.00
exemplary damages, P2,000.00 actual damages and P7,000.00 attorney’s fees.

"The defendant, in its Answer, denies that it has had any direct-dealings, much less,
contractual relations with the plaintiff regarding the property in question, and contends
that the alleged contract described in the document attached to the complaint as Annex
A is entirely unenforceable under the Statute of Frauds; that the truth of the matter is
that a portion of the property in question was being leased by a certain Socorro Velasco
who, on November 29, 1962, went to the office of the defendant indicated her desire to
purchase the lot; that the defendant indicated its willingness to sell the property to her
at the price of P100,000.00 under the condition that a down payment of P30,000.00 be
made, P20,000.00 of which was to be paid on November 31, 1962, and that the
balance of P70,000.00 including interest at 9% per annum was to be paid on
installments for a period of ten years at the rate of P5,381.32 on June 30 and
December of every year until the same shall have been fully paid; that on November
29, 1962 Socorro Velasco offered to pay P10,000.00 as initial payment instead of the
agreed P20,000.00 but because the amount was short of the alleged P20,000.00 the
same was accepted merely as deposit and upon request of Socorro Velasco the receipt
was made in the name of her brother-in-law the plaintiff herein; that Socorro Velasco
failed to complete the down payment of P30,000.00 and neither has she paid any
installments on the balance of P70,000.00 up to the present time; that it was only on
January 8, 1964 that Socorro Velasco tendered payment of P20,000.00, which offer the
defendant refused to accept because it had considered the offer to sell rescinded on
account of her failure to complete the down payment on or before December 31, 1962.

"The lone witness for the plaintiff is Lorenzo Velasco, who exhibits the receipt, Exhibit
A, issued in his favor by the Magdalena Estate, Inc., in the sum of P10,000.00 dated
November 29, 1962. He also identifies a letter (Exh. B) of the Magdalena Estate, Inc.
addressed to him and his reply thereto. He testifies that Socorro Velasco is his sister-in-
law and that he had requested her to make the necessary contacts with the defendant
referring to the purchase of the property in question. Because he does not understand
English well, he had authorized her to negotiate with the defendant in her own name.
But even so, he had always accompanied her whenever she went to the office of the
defendant, and as a matter of fact, the receipt for the P10,000.00 down payment was
issued in his favor. The plaintiff also depends on Exhibit A to prove that there was a
perfected contract to sell calling attention to the annotations therein as follows:
‘Earnest money for the purchase of Lot 15, Block 7, Psd-6129, Area 2,059 square
meters including improvements thereon — P10,000.00.’ At the bottom of Exhibit A the
following appears: ‘Agreed price: P100,000.00, P30,000.00 down payment, bal. in 10
years.’

‘To prove that the Magdalena Estate, Inc. had been dealing all along with him and not
with his sister-in-law and that the Magdalena Estate, Inc. knew very well that he was
the person interested in the lot in question and not his sister-in-law, the plaintiff offers
in evidence five checks all drawn by him in favor of Magdalena Estate, Inc. for payment
of the lease of the properly. . .

"There does not seem to be any dispute regarding the fact that the Velasco family was
leasing this property from the Magdalena Estate, Inc. since December 29, 1961; that
the Velasco family sometime in 1962 offered to purchase the lot as a result of which
Lorenzo Velasco thru Socorro Velasco made the P10,000.00 deposit or, in the language
of the defendant ‘earnest money or down payment’ as evidenced by Exhibit A. The only
matter that remains to be decided is whether the talks between the Magdalena Estate,
Inc. and Lorenzo Velasco either directly or thru his sister-in-law Socorro Velasco ever
ripened into a consummated sale. It is the position of the defendant (1) that the sale
was never consummated and (2) that the contract is unenforceable under the Statute
of Frauds.

The court a quo agreed with the respondent’s (defendant therein) contention that no
contract of sale was perfected because the minds of the parties did not meet "in regard
to the manner of payment." The court a quo’s appraisal of this aspect of the action
below is correct. The material averments contained in the petitioners’ complaint
themselves disclose a lack of complete "agreement in regard to the manner of
payment" of the lot in question. The complaint states pertinently: jgc:chanrobles.com.ph

"4. That plaintiff and defendant further agreed that the total down payment shall be
P30,000.00, including the P10,000.00 partial payment mentioned in paragraph 3
hereof, and that upon completion of the said down payment of P30,000.00, the balance
of P70,000.00 shall be paid by the plaintiff to the defendant in 10 years from November
29, 1962;

"5. That the time within which the full down payment of the P30,000.00 was to be
completed was not specified by the parties but the defendant was duly compensated
during the said time prior to completion of the down payment of P30,000.00 by way of
lease rentals on the house existing thereon which was earlier leased by defendant to
the plaintiff’s sister-in-law, Socorro J. Velasco, and which were duly paid to the
defendant by checks drawn by plaintiff." cralaw virtua1aw library

It is not difficult to glean from the aforequoted averments that the petitioners
themselves admit that they and the respondent still had to meet and agree on how and
when the down-payment and the installment payments were to be paid. Such being the
situation, it cannot, therefore, be said that a definite and firm sales agreement between
the parties had been perfected over the lot in question. Indeed, this Court has already
ruled before that a definite agreement on the manner of payment of the purchase price
is an essential element in the formation of a binding and enforceable contract of sale. 3
The fact, therefore, that the petitioners delivered to the respondent the sum of P10,000
as part of the down-payment that they had to pay cannot be considered as sufficient
proof of the perfection of any purchase and sale agreement between the parties herein
under article 1482 of the new Civil Code, as the petitioners themselves admit that some
essential matter — the terms of payment — still had to be mutually covenanted.

ACCORDINGLY, the instant petition i9 hereby denied. No pronouncement as to costs.

Makalintal, Actg. C.J., Makasiar and Esguerra, JJ., concur.

Zaldivar, J., concurs in the dissenting opinion of Mr. Justice Teehankee.

Fernando, J., did not take part.

Barredo, J.: The petitioners having clearly and without sufficient justification failed to
prosecute their appeal within the period allowed by the rules, I vote to deny the
petition, and consistently with my view already expressed on previous occasions, any
discussion of the merits of the appeal is unwarranted, particularly, in instances like the
present, wherein the same does not appear to me, upon cursory examination to be
beyond doubt.

Antonio, J., concurs on the basis of the first ground but reserved his opinion on the
merits of the appeal.

Separate Opinions

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

I dissent from the main opinion penned by Mr. Justice Castro affirming the appellate
court’s dismissal of petitioners’ pending appeal before it because of late submittal of the
printed record on appeal (by 24 days), on the ground that such late submittal of the
printed record on appeal — when the appeal was indisputably timely perfected — does
not call for the imposition of the capital penalty of dismissal of the appeal.

As in my separate opinion in Sison v. Gatchalian 1 promulgated just a few weeks

earlier, I must note with gratification the special pains taken in the main opinion to
discuss nevertheless the substance and merit of the aborted appeal and to record the
Court’s conclusion that the judgment sought to be appealed is substantially correct — in
line with the Court’s policy in such cases (of dismissal of appeals timely perfected for
failure to comply with certain requirements of the Rules) of invariably satisfying itself
that justice is not sacrificed to technicality and that there is "a rational basis for the
result reached by the trial court" 2 in the judgment sought to be reviewed by the lost
appeal.

In the case at bar, however, I believe that the merits and equities invoked by
petitioner-appellants in support of their action for specific performance of their
agreement with respondent for the purchase of the parcel of land described in the
complaint for the "agreed price (of): P100,000.00, P30,000.00 down payment, bal. in
10 years" (which is a matter of mathematical computation), with petitioners having
admittedly made a down payment of P10,000.00 as "earnest money" which was
accepted by respondent and continuing to pay respondent lease rentals for the property
occupied by them under lease to compensate for the time taken to complete the full
down payment pending formalization of their contract, deserve a full-dress
consideration of the appeal and of the respective contentions of the parties in their
briefs and legal principles involved with a decision on the merits of the case itself.

Since two other members of the Court, viz, Justices Barredo and Antonio, have
reserved their opinions on the merits of the appeal, as stated in their respective
concurrences, I further consider this to be a case where the paramount considerations
of substantial justice must take precedence over the lateness (by 24 days) in the
submittal of the printed record on appeal — which in no way can be claimed to have
prejudiced the substantial rights of respondent or delayed the cause of the
administration of justice — and that accordingly, such a technical transgression on
counsel’s part should not result in the drastic forfeiture of petitioners’ right of appeal
and of securing a possible reversal of the adverse verdict of the lower court.

As stated by Chief Justice Concepcion for the Court in Concepcion v. Payatas Estate
Improvement Co., Inc., 3 "After all, pleadings, as well as remedial laws, should be
construed literally, in order that litigants may have ample opportunity to prove their
respective claims, and that a possible denial of substantial justice, due to legal
technicalities, may be avoided." This is but the very mandate of the Rules of Court: that
they be "liberally construed in order to promote their object and to assist the parties in
obtaining just, speedy and inexpensive determination of every action and proceeding" 4
and that "All pleadings shall be liberally construed so as to do substantial justice." 5

Here, the 60-day period for petitioners appellants "to submit . . . forty (40) printed
copies of the record on appeal" from notice on November 18, 1968 of receipt of the
original typewritten record on appeal" from notice on November 18, 1968 of receipt of
the original typewritten record on appeal in the appellate court 6 was to expire on
January 17, 1969. Petitioners submitted their printed record on appeal on the 24th day
after such expiry date, viz, on February 10, 1969.

The appellate court admitted the printed record on appeal as per its original resolution
of February 25, 1969 denying respondent’s motion to dismiss the appeal, wherein it
granted the registry-mailed motion of petitioners’ counsel for a 30-day extension from
January 15, 1969 within which to submit the same. Counsel’s ground for such extension
was mechanical failures of the printing machines and voluminous printing jobs of the
Vera Printing Press, which they had contracted to do the printing job.

Upon complaint or respondent, however, that petitioners’ counsel, through its mailing
clerk Juanito D. Quiachon, had deceived the appellate court into believing that their
motion for extension had been registry mailed January 16, 1969 when actually it was so
mailed late only on February 7, 1969, as borne out by the affidavit of Flaviano
Malindog, a Makati post office letter-carrier as supported by the records of said post
office — which the appellate court believed as against Quiachon’s counter-affidavit to
the contrary — the said court as per its resolution of June 28, 1969 granted
respondent’s motion for reconsideration and ordered the dismissal of petitioners’ appeal
"for their failure to file their printed record on appeal within the period authorized by
this court."
cralaw virtua1aw library

In the same resolution, Atty. Patrocinio R. Corpus, as petitioners’ counsel, was required
to show cause "why he should not be suspended from the practice of his profession for
deceit, falsehood and violation of his sworn duty to the Court," but subsequently, the
appellate court as per its resolution of September 5, 1969 accepted as satisfactory said
counsel’s explanation and disclaimer of any wrongdoing.

Acting upon the appellate court’s directive to investigate the incident for the filing of
appropriate criminal action against Quiachon and Malindog, the Rizal provincial fiscal
found a prima facie case against Malindog (the letter-carrier) and charged him in the
corresponding information for falsification of public documents but dismissed the
complaint against Quiachon (the mailing clerk of petitioners’ counsel) for lack of
sufficient evidence since Malindog could not identify Quiachon as the person who
induced him to issue falsified registry receipts.

I concur with the main opinion in its ruling upholding the appellate court’s factual
findings, which I don’t consider to be reviewable by this Court, grounded as they are on
substantial evidence. Hence, for purposes of this review, such factual findings must be
postulated, to wit, that the printed record on appeal was submitted 24 days late on
February 10, 1969, that there was a deliberate effort on the part of an unknown person
(John Doe in the information) — not petitioners nor their counsel nor Quiachon, the
mailing clerk — to induce Malindog to make and issue false registry receipts that
showed that petitioners’ counsel motion for a 30-day extension to submit the printed
record on appeal was filed timely on January 15, 1969 rather than late (by 21 days) on
February 7, 1969.

The general issue of law that confronts us then is this: is the 60-day period for
submitting the printed record on appeal mandatory and jurisdictional or is this merely a
procedural period such that a late submittal (by 24 days) of the printed record on
appeal (owing to a valid reason of mechanical failures and pressure of work of the
printer) regardless of whether a motion for extension of time to submit the printed
record on appeal was in fact filed or filed out of time after expiration of the original 60-
day period, may in the appellate court’s sound discretion in the interest of justice and
equity be nevertheless allowed and appeal heard and decided on its merits?

The 60-day period for submitting the printed record on appeal is obviously imposed as
a procedural rule, under Rule 46, section 5, like many other time limitations imposed by
the Rules of Court as indispensable to the prevention of needless delays and necessary
to the orderly and speedy discharge of judicial business.’ 7

But this 60-day period for submitting the printed record on appeal is to be distinguished
from say, the mandatory 30-day period for perfecting an appeal from a court of first
instance judgment under Rule 41, section 3, where failure to file the necessary notice,
bond and record on appeal within the said 30-day period, if not duly extended, is fatal
and calls for dismissal of the unperfected appeal under Rule 41, section 13.

Here, the appeal had been long and timely duly perfected by petitioners. What is
merely involved here is a late filing (by 24 days) of the printed copies of the record on
appeal, which this Court has held in Ever Ice Drop Factory v. Court of Appeals 8 as "not
indispensable to the jurisdiction of the appellate courts, the sole purpose of such
printing being convenience in the handling, keeping and reading of the record on
appeal."cralaw virtua1aw library

In the cited case of Ever, the Court applied the salutary rule of overlooking procedural
deficiencies in the interest of substantial justice and set aside the appellate court’s
dismissal of the appeal (for non-inclusion in the joint record on appeal of the appellants’
notice of appeal and date of receipt of the appealed decision although such data as well
as the official receipt of payment of the appeal bond could be found "sewed to the
original record on appeal"), ruling that "Inasmuch as Rule 41 is in that portion of the
rules pertaining to the stage of the appeal process taking place in the trial court, it is
but logical that the frame of reference, when the completeness of a record on appeal,
as therein provided, is in question, must be the contents of said record as filed with
said court, and not necessarily those of the printed one filed with the appellate court."
library
cralaw virtua1aw

As applied to the case at bar, therefore, I vote for the granting of the petition and to
remand the appeal to the appellate court for disposition and decision of the merits, for
the following considerations, in addition to those stated above and in my separate
opinion in Sison, supra: —

— Since the use of the false registry receipts appears in no way to be of the making of
petitioners’ counsel, much less of petitioners themselves, who as clients may be
presumed to be entirely unaware of the procedural requirements and of their counsel’s
action or inaction in complying therewith, the imposition of the capital penalty of
dismissal of petitioners’ appeal is unduly severe;

— Such a harsh penalty appears to be in derogation of the interest and purpose of the
Rules of Court — the proper and just determination of a litigation. No substantial right
of respondent has been prejudiced by the late submittal of the printed record, whereas
petitioners’ appeal would be forfeited through no fault or negligence on their part;

— While clients are generally bound by the actions or mistakes of their counsels, here
no fault or wrongdoing has been attributed to either petitioners or their counsel. Their
counsel’s late submittal of the brief and of the corresponding motions for extension (by
less than a month’s time) is not rank failure to comply with the rule’s requirements;

— The specific rule (Rule 46, section 5) does not provide for dismissal of the appeal for
failure to submit the printed record on appeal, whereas section 7 of the rule prohibits
"alterations, omissions or additions to the printed record" and does provide that "a
violation of this prohibition shall be a ground for dismissal of the appeal."
cralaw virtua1aw library

— Even Rule 50, section 1 which provides that the appellate court may dismiss a
pending appeal for certain specific infractions of the rules, e.g. failure to pay the
docketing fee or to file appellant’s brief on time or "unauthorized alterations, omissions
or additions in the printed record on appeal" (paragraph (e)) or want of specific
assignment of errors or of page references to the record in appellant’s brief, merely
confers a power, not a duty, upon the appellate court to dismiss the appeal. It is merely
directory, not mandatory, upon the said court to exercise its power to dismiss an appeal
and dismissal has been ordered sparingly and only in extreme cases warranting
dismissal;

— Withal, this Court may dismiss an appeal even on grounds not specifically mentioned
in Rule 50, section 1, as where the wanton or inexcusable conduct of appellant in not
complying with the rules warrants such dismissal. 9 But the Rules certainly do not
authorize dismissal of a duly perfected appeal for mere failure to file the printed record
on appeal within the original 60-day period, such failure not being wanton or
inexcusable. Yet such failure to file the printed record on appeal within the 60-day
period (which was filed late by 24 days and had already been admitted) was the only
ground stated by the appellate court for its peremptory dismissal of the appeal;

— Thus, the appellate court did not sustain respondent’s contention that petitioners
through counsel had deceived it through knowing use of the false registry receipts,
since it exonerated counsel of any complicity. One gets the impression that the
unnamed person had perhaps induced Malindog to issue the false receipts to cover up
some neglect or fault on Quiachon’s part in not having timely mailed counsel’s
extension motion, but neither the appellate court nor the fiscal made any such finding
against Quiachon. Assuming for the nonce that Quiachon was responsible for the
deception, it does not seem fair to penalize petitioners with dismissal of their appeal;

— The appellate court thus disregarded the harmless error rule as provided in Rule 51,
section 5 that "no error or defect in any ruling or order . . . [such as its first order
admitting the printed record on appeal in the belief that petitioners’ motion for
extension had been timely filed] . . . is ground . . . for setting aside, modifying or
otherwise disturbing a judgment or order, unless refusal to take such action appears to
the court inconsistent with substantial justice. The court at every stage of the
proceeding must disregard any error or defect which does not affect the substantial
rights of the parties;" 10

— Since the enactment as of September 9, 1968 of Republic Act 5440 providing that in
most cases as specified therein, 11 review by this Court of final judgments and decrees
of inferior courts shall be by petition for writ of certiorari — and no longer by record on
appeal — some parties-appellants aggrieved by adverse court of first instance
judgments have to the present continued to submit their appeals to this Court by
means of records on appeal as approved by the lower court, contrary to the act’s
mandate that they should be presented by means of "petitions . . . filed and served in
the form required for petitions for review by certiorari of decisions of the Court of
Appeals." 12 Strictly speaking, such an error although abetted by the trial court’s act of
approving a record on appeal that is not required by the Act, could be considered fatal
to the appeal. But following paramount considerations of substantial justice in
preference to transgressions of form, as stressed in Sonora v. Tongoy, 13 "the Court
has been liberal in the implementation of Republic Act 5440 and instead of dismissing
appeals coming up to Us by record on appeal, We have allowed the appellants to file
the corresponding petition (for review by certiorari) provided the appeal by record on
appeal has been duly perfected within the reglementary period. 14

— This is but to stress that even though the provision of Republic Act 5440 that such
appeals shall be only on petitions for review by certiorari and no longer as a matter of
right by record on appeal is of a mandatory character, this Court has nevertheless
adopted a liberal construction and chosen to apply the principle of substantial justice in
favor of one whose appeal was actually perfected on time rather than to sacrifice
substance to form. In the language of Sonora, vis the case at bar, "it is less than fair
for respondents to attempt to cut off (petitioners’) right to appeal by invoking the literal
meaning of the language of the rules, disregarding their wise and practical construction
already laid down by the Supreme Court." 15
— In sensu contrario, applying the same principles of substantial justice the Court has
in many cases seeking mandamus or reinstatement of disallowed appeals (although
timely made) looked at the "substantive merits" of the proposed appeal and where
"there is hardly any prospect of its being ultimately successful," denied mandamus,
ruling as in Espiritu v. CFI of Cavite 16 that "this Court has already ruled on several
occasions, since as early as De la Cruz v. Blanco, 73 Phil. 596 that mandamus to
compel approval and certification of an appeal, even if otherwise well grounded,
procedurally speaking, has to be denied where it is evident that there is no merit in the
appeal itself, and ‘it would serve no useful purpose to reinstate’ the same." Lucas v.
Mariano 17 was to the same effect, with the Court sustaining therein petitioner’s
submittal "that from the point of view of the time of the taking of the appeal,
petitioners are right in contending that the same was well within the reglementary
period" but that "after a review of the whole record and giving due consideration to all
the points and issues raised by the petitioners, We are sufficiently convinced that their
claim of title has no chance of being sustained even if other and further proceedings
were to be held in the court below;" and

— Finally, adherence to a liberal construction of the procedural rules in order to attain

their objective of substantial justice and of avoiding possible denials of substantial
justice due to procedural technicalities does not mean non-enforcement of the Rules of
Court which are universally recognized to be necessary to the orderly and speedy
discharge of judicial business with the least delay. Compliance with the rules, which are
not of mandatory character (such as the period for perfecting appeals, failure to
observe which results in the automatic penalty of loss of the right to appeal) but of
directory character to provide time tables and prevent needless delay in readying a duly
perfected appeal for consideration and decision (such as the 60-day period for submittal
of the printed record on appeal involved here, periods for filing of briefs and transcripts,
etc.) has invariably been rigorously enforced by the Court through the imposition of
appropriate disciplinary measures upon offending counsel, ranging from an admonition
or reprimand, a fine or declaring him in contempt to even more drastic measures of
administrative proceedings for disbarment against him, depending upon the gravity of
the offense.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-36083 September 5, 1975

Spouses RAMON DOROMAL, SR., and ROSARIO SALAS, and Spouses RAMON DOROMAL,
JR., and GAUDELIA VEGA, petitioners,
vs.
HON. COURT OF APPEALS and FILOMENA JAVELLANA, respondents.
Salonga, Ordonez, Yap, Parlade and Associates and Marvin J. Mirasol for petitioners. Arturo H.
Villanueva, Jr. for private respondent.

BARREDO, J.:

Petition for review of the decision of the Court of Appeals in CA-G.R. No.
47945-R entitled Filomena Javellana vs. Spouses Ramon Doromal, Sr., et al. which reversed the
decision of the Court of First Instance of Iloilo that had in turn dismissed herein private respondent
Filomena Javellana's action for redemption of a certain property sold by her co-owners to herein
petitioners for having been made out of time.

The factual background found by the Court of Appeals and which is binding on this Court, the same
not being assailed by petitioners as being capricious, is as follows:

IT RESULTING: That the facts are quite simple; Lot 3504 of the cadastral survey of
Iloilo, situated in the poblacion of La Paz, one of its districts, with an area of a little
more than 2-½ hectares was originally decreed in the name of the late Justice
Antonio Horilleno, in 1916, under Original Certificate of Title No. 1314, Exh. A; but
before he died, on a date not particularized in the record, he executed a last will and
testament attesting to the fact that it was a co-ownership between himself and his
brothers and sisters, Exh. C; so that the truth was that the owners or better stated,
the co-owners were; beside Justice Horilleno,

"Luis, Soledad, Fe, Rosita, Carlos and Esperanza,"

all surnamed Horilleno, and since Esperanza had already died, she was succeeded
by her only daughter and heir herein plaintiff. Filomena Javellana, in the proportion of
1/7 undivided ownership each; now then, even though their right had not as yet been
annotated in the title, the co-owners led by Carlos, and as to deceased Justice
Antonio Horilleno, his daughter Mary, sometime since early 1967, had wanted to sell
their shares, or if possible if Filomena Javellana were agreeable, to sell the entire
property, and they hired an acquaintance Cresencia Harder, to look for buyers, and
the latter came to interest defendants, the father and son, named Ramon Doromal,
Sr. and Jr., and in preparation for the execution of the sale, since the brothers and
sisters Horilleno were scattered in various parts of the country, Carlos in Ilocos Sur,
Mary in Baguio, Soledad and Fe, in Mandaluyong, Rizal, and Rosita in Basilan City,
they all executed various powers of attorney in favor of their niece, Mary H. Jimenez
Exh. 1-8, they also caused preparation of a power of attorney of identical tenor for
signature by plaintiff, Filomena Javellana, Exh. M, and sent it with a letter of Carlos,
Exh. 7 dated 18 January, 1968 unto her thru Mrs. Harder, and here, Carlos informed
her that the price was P4.00 a square meter, — although it now turns out according
to Exh. 3 that as early as 22 October, 1967, Carlos had received in check as earnest
money from defendant Ramon Doromal, Jr., the sum of P5,000.00 and the price
therein agreed upon was five (P5.00) pesos a square meter as indeed in another
letter also of Carlos to Plaintiff in 5 November, 1967, Exh. 6, he had told her that the
Doromals had given the earnest money of P5,000.00 at P5.00 a square meter, — at
any rate, plaintiff not being agreeable, did not sign the power of attorney, and the rest
of the co-owners went ahead with their sale of their 6/7, Carlos first seeing to it that
the deed of sale by their common attorney in fact, Mary H. Jimenez be signed and
ratified as it was signed and ratified in Candon, Ilocos Sur, on 15 January, 1968, Exh.
 2, then brought to Iloilo by Carlos in the same month, and because the Register of
Deeds of Iloilo refused to register right away, since the original registered owner,
Justice Antonio Horilleno was already dead, Carlos had to ask as he did, hire Atty.
Teotimo Arandela to file a petition within the cadastral case, on 26 February, 1968,
for the purpose, Exh. C, after which Carlos returned to Luzon, and after compliance
with the requisites of publication, hearing and notice, the petition was approved, and
we now see that on 29 April, 1968, Carlos already back in Iloilo went to the Register
of Deeds and caused the registration of the order of the cadastral court approving the
issuance of a new title in the name of the co-owners, as well as of the deed of sale to
the Doromals, as a result of which on that same date, a new title was issued TCT No.
23152, in the name of the Horillenos to 6/7 and plaintiff Filomena Javellana to 1/7,
Exh. D, only to be cancelled on the same day under TCT No. 23153, Exh. 2, already
in the names of the vendees Doromals for 6/7 and to herein plaintiff, Filomena
Javellana, 1/7, and the next day 30 April, 1968, the Doromals paid unto Carlos by
check, the sum of P97,000.00 Exh. 1, of Chartered Bank which was later substituted
by check of Phil. National Bank, because there was no Chartered Bank Branch in
Ilocos Sur, but besides this amount paid in check, the Doromals according to their
evidence still paid an additional amount in cash of P18,250.00 since the agreed price
was P5.00 a square meter; and thus was consummated the transaction, but it is here
where complications set in,

On 10 June, 1968, there came to the residence of the Doromals in Dumangas, Iloilo, plaintiff's
lawyer, Atty. Arturo H. Villanueva, bringing with him her letter of that date, reading,

"P.O.
Box
189,
Bacolo
d City
June
10,
1968

Mr. & Mrs. Ramon Doromal, Sr.

and Mr. and Mrs. Ramon Doromal, Jr.

"Dumangas Iloilo

Dear Mr. and Mrs. Doromal:

The bearer of this letter is my nephew, Atty. Arturo H. Villanueva, Jr.,

of this City. Through him, I am making a formal offer to repurchase or
redeem from you the 6/7 undivided share in Lot No. 3504, of the Iloilo
Cadastre, which you bought from my erstwhile co-owners, the
Horillenos, for the sum of P30,000.00, Atty. Villanueva has with him
the sum of P30,000.00 in cash, which he will deliver to you as soon
as you execute the contract of sale in my favor.

Thank you very much for whatever favorable consideration you can give this request.

Very truly yours,

 (SIGN
ED)
Mrs.
FILOM
ENA
JAVEL
LANA"

p. 26, Exh. "J", Manual of Exhibits.

and then and there said lawyer manifested to the Doromals that he had the
P30,000.00 with him in cash, and tendered it to them, for the exercise of the legal
redemption, the Doromals were aghast, and refused. and the very next day as has
been said. 11 June, 1968, plaintiff filed this case, and in the trial, thru oral and
documentary proofs sought to show that as co-owner, she had the right to redeem at
the price stated in the deed of sale, Exh. 2, namely P30,000.00 of the but defendants
in answer, and in their evidence, oral and documentary sought to show that plaintiff
had no more right to redeem and that if ever she should have, that it should be at the
true and real price by them paid, namely, the total sum of P115,250.00, and trial
judge, after hearing the evidence, believed defendants, that plaintiff had no more
right, to redeem, because,

"Plaintiff was informed of the intended sale of the 6/7 share belonging
to the Horillenos."

and that,

"The plaintiff have every reason to be grateful to Atty. Carlos Horilleno because in
the petition for declaration of heirs of her late uncle Antonio Horilleno in whose name
only the Original Certificate of Title covering the Lot in question was issued, her uncle
Atty. Carlos Horilleno included her as one of the heirs of said Antonio Horilleno.
Instead, she filed this case to redeem the 6/7 share sold to the Doromals for the
simple reason that the consideration in the deed of sale is the sum of P30,000.00
only instead of P115,250.00 approximately which was actually paid by the
defendants to her co-owners, thus she wants to enrich herself at the expense of her
own blood relatives who are her aunts, uncles and cousins. The consideration of
P30,000.00 only was placed in the deed of sale to minimize the payment of the
registration fees, stamps, and sales tax. pp. 77-78, R.A.,

and dismiss and further condemned plaintiff to pay attorney's fees, and moral and
exemplary damages as set forth in few pages back, it is because of this that plaintiff
has come here and contends, that Lower Court erred:

"I. ... in denying plaintiff-appellant, as a co-owner of Lot No. 3504, of the Iloilo
Cadastre, the right of legal redemption under Art. 1620, of the Civil Code:

"II. ... as a consequence of the above error, in refusing to order the defendants-
appellees, the vendees of a portion of the aforesaid Lot No. 3504 which they bought
from the co-owners of the plaintiff-appellant, to reconvey the portion they purchased
to the herein plaintiff-appellant..
 "III. ... in admitting extrinsic evidence in the determination of the consideration of the
sale, instead of simply adhering to the purchase price of P30,000.00, set forth in the
pertinent Deed of Sale executed by the vendors and owners of the plaintiff-appellant
in favor of the defendants-appellees.

"IV. ... in dismissing the complaint filed in this case." pp. 1-3, Appellant's Brief,.

which can be reduced to the simple question of whether or not on tile basis of the
evidence and the law, the judgment appealed from should be maintained; (Pp. 16-22,
Record.) .

Upon these facts, the Court of Appeals reversed the trial court's decision and held that although
respondent Javellana was informed of her co-owners' proposal to sell the land in question to
petitioners she was, however, "never notified ... least of all, in writing", of the actual execution and
registration of the corresponding deed of sale, hence, said respondent's right to redeem had not yet
expired at the time she made her offer for that purpose thru her letter of June 10, 1968 delivered to
petitioners on even date. The intermediate court further held that the redemption price to be paid by
respondent should be that stated in the deed of sale which is P30,000 notwithstanding that the
preponderance of the evidence proves that the actual price paid by petitioners was P115,250. Thus,
in their brief, petitioners assign the following alleged errors:

IT IS ERROR FOR THE COURT OF APPEALS TO HOLD THAT THE NOTICE IN

WRITING OF THE SALE CONTEMPLATED IN ARTICLE 1623 OF THE CIVIL
CODE REFERS TO A NOTICE IN WRITING AFTER THE EXECUTION AND
REGISTRATION OF THE INSTRUMENT OF SALE, HENCE, OF THE DOCUMENT
OF SALE.

II

THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE INSCRIPTION

OF THE SALE IN THE REGISTRY OF PROPERTY TAKES EFFECT AS AGAINST
THIRD PERSONS INCLUDING CLAIMS OF POSSIBLE REDEMPTIONERS.

ASSUMING, ARGUENDO THAT PRIVATE RESPONDENT HAS THE RIGHT TO

REDEEM, THE COURT OF APPEALS ERRED IN HOLDING THAT THE
REDEMPTION PRICE SHOULD BE THAT STATED IN THE DEED OF SALE. (Pp.
1-2, Brief for Petitioner, page 74-Rec.)

We cannot agree with petitioners.

Petitioners do not question respondent's right to redeem, she being admittedly a 1/7 co-owner of the
property in dispute. The thrust of their first assignment of error is that for purposes of Article 1623 of
the Civil Code which provides that:

ART. 1623. The right of legal pre-emption or redemption shall not be exercised
except within thirty days from the notice in writing by the prospective vendor, or by
the vendor, as the case may be. The deed of sale shall not be recorded in the
Registry of Property, unless accompanied by an affidavit of the vendor that he has
given written notice thereof to all possible redemptioners.
 The right of redemption of co-owners excludes that of adjoining owners.

the letters sent by Carlos Horilleno to respondent and dated January 18, 1968, Exhibit 7, and
November 5, 1967, Exhibit 6, constituted the required notice in writing from which the 30-day period
fixed in said provision should be computed. But to start with, there is no showing that said letters
were in fact received by respondent and when they were actually received. Besides, petitioners do
not pinpoint which of these two letters, their dates being more than two months apart, is the required
notice. In any event, as found by the appellate court, neither of said letters referred to a
consummated sale. As may be observed, it was Carlos Horilleno alone who signed them, and as of
January 18, 1968, powers of attorney from the various co-owners were still to be secured. Indeed,
the later letter of January 18, 1968 mentioned that the price was P4.00 per square meter whereas in
the earlier letter of November 5, 1967 it was P5.00, as in fact, on that basis, as early as October 27,
1967, Carlos had already received P5,000 from petitioners supposedly as earnest money, of which,
however, mention was made by him to his niece only in the later letter of January 18, 1968, the
explanation being that "at later negotiation it was increased to P5.00 per square meter." (p. 4 of
petitioners' brief as appellees in the Court of Appeals quoting from the decision of the trial court.) In
other words, while the letters relied upon by petitioners could convey the idea that more or less
some kind of consensus had been arrived at among the other co-owners to sell the property in
dispute to petitioners, it cannot be said definitely that such a sale had even been actually perfected.
The fact alone that in the later letter of January 18, 1968 the price indicated was P4.00 per square
meter while in that of November 5, 1967, what was stated was P5.00 per square meter negatives the
possibility that a "price definite" had already been agreed upon. While P5,000 might have indeed
been paid to Carlos in October, 1967, there is nothing to show that the same was in the concept of
the earnest money contemplated in Article 1482 of the Civil Code, invoked by petitioner, as
signifying perfection of the sale. Viewed in the backdrop of the factual milieu thereof extant in the
record, We are more inclined to believe that the said P5,000 were paid in the concept of earnest
money as the term was understood under the Old Civil Code, that is, as a guarantee that the buyer
would not back out, considering that it is not clear that there was already a definite agreement as to
the price then and that petitioners were decided to buy 6/7 only of the property should respondent
Javellana refuse to agree to part with her 1/7 share.

In the light of these considerations, it cannot be said that the Court of Appeals erred in holding that
the letters aforementioned sufficed to comply with the requirement of notice of a sale by co-owners
under Article 1623 of the Civil Code. We are of the considered opinion and so hold that for purposes
of the co-owner's right of redemption granted by Article 1620 of the Civil Code, the notice in writing
which Article 1623 requires to be made to the other co-owners and from receipt of which the 30-day
period to redeem should be counted is a notice not only of a perfected sale but of the actual
execution and delivery of the deed of sale. This is implied from the latter portion of Article 1623
which requires that before a register of deeds can record a sale by a co-owner, there must be
presented to him, an affidavit to the effect that the notice of the sale had been sent in writing to the
other co-owners. A sale may not be presented to the register of deeds for registration unless it be in
the form of a duly executed public instrument. Moreover, the law prefers that all the terms and
conditions of the sale should be definite and in writing. As aptly observed by Justice Gatmaitan in the
decision under review, Article 1619 of the Civil Code bestows unto a co-owner the right to redeem
and "to be subrogated under the same terms and conditions stipulated in the contract", and to avoid
any controversy as to the terms and conditions under which the right to redeem may be exercised, it
is best that the period therefor should not be deemed to have commenced unless the notice of the
disposition is made after the formal deed of disposal has been duly executed. And it being beyond
dispute that respondent herein has never been notified in writing of the execution of the deed of sale
by which petitioners acquired the subject property, it necessarily follows that her tender to redeem
the same made on June 10, 1968 was well within the period prescribed by law. Indeed, it is
immaterial when she might have actually come to know about said deed, it appearing she has never
been shown a copy thereof through a written communication by either any of the petitioners-
purchasers or any of her co-owners-vendees. (Cornejo et al. vs. CA et al., 16 SCRA 775.)

The only other pivotal issue raised by petitioners relates to the price which respondent offered for the
redemption in question. In this connection, from the decision of the Court of Appeals, We gather that
there is "decisive preponderance of evidence" establishing "that the price paid by defendants was
not that stated in the document, Exhibit 2, of P30,000 but much more, at least P97,000, according to
the check, Exhibit 1, if not a total of P115,250.00 because another amount in cash of P18,250 was
paid afterwards."

It is, therefore, the contention of petitioners here that considering said finding of fact of the
intermediate court, it erred in holding nevertheless that "the redemption price should be that stated in
the deed of sale."

Again, petitioners' contention cannot be sustained. As stated in the decision under review, the trial
court found that "the consideration of P30,000 only was placed in the deed of sale to minimize the
payment of the registration fees, stamps and sales tax." With this undisputed fact in mind, it is
impossible for the Supreme Court to sanction petitioners' pragmatic but immoral posture. Being
patently violative of public policy and injurious to public interest, the seemingly wide practice of
understating considerations of transactions for the purpose of evading taxes and fees due to the
government must be condemned and all parties guilty thereof must be made to suffer the
consequences of their ill-advised agreement to defraud the state. Verily, the trial court fell short of its
devotion and loyalty to the Republic in officially giving its stamp of approval to the stand of
petitioners and even berating respondent Javellana as wanting to enrich herself "at the expense of
her own blood relatives who are her aunts, uncles and cousins." On the contrary, said "blood
relatives" should have been sternly told, as We here hold, that they are in pari-delicto with
petitioners in committing tax evasion and should not receive any consideration from any court in
respect to the money paid for the sale in dispute. Their situation is similar to that of parties to an
illegal contract.
1

Of course, the Court of Appeals was also eminently correct in its considerations supporting the
conclusion that the redemption in controversy should be only for the price stipulated in the deed,
regardless of what might have been actually paid by petitioners that style inimitable and all his own,
Justice Gatmaitan states those considerations thus:

CONSIDERING: As to this that the evidence has established with decisive

preponderance that the price paid by defendants was not that stated in the
document, Exh. 2 of P30,000.00 but much more, at least P97,000.00 according to
the check, Exh. 1 if not a total of P115,250.00 because another amount in cash of
P18,250.00 was paid afterwards, perhaps it would be neither correct nor just that
plaintiff should be permitted to redeem at only P30,000.00, that at first glance would
practically enrich her by the difference, on the other hand, after some reflection, this
Court can not but have to bear in mind certain definite points.

1st — According to Art. 1619

"Legal redemption is the right to be subrogated, upon the same terms and conditions
stipulated in the contract, in the place of one who acquires a thing by purchase or
dation in payment, or by any other transaction whereby ownership is transmitted by
onerous title." pp. 471-472, New Civil Code,

and note that redemptioner right is to be subrogated

 "upon the same terms and conditions stipulated in the contract."

and here, the stipulation in the public evidence of the contract, made public by both
vendors and vendees is that the price was P30,000.00;

2nd — According to Art. 1620,

"A co-owner of a thing may exercise the right of redemption in case the share of all the other co-
owners or any of them, are sold to a third person. If the price of the alienation is grossly excessive,
the redemptioner shall pay only a reasonable one. p. 472, New Civil Code, .

from which it is seen that if the price paid is 'grossly excessive' redemptioner is
required to pay only a reasonable one; not that actually paid by the vendee, going to
show that the law seeks to protect redemptioner and converts his position into one
not that of a contractually but of a legally subrogated creditor as to the right of
redemption, if the price is not 'grossly excessive', what the law had intended
redemptioner to pay can be read in Art. 1623.

The right of a legal pre-emption or redemption shall not be exercised

except within thirty (30) days from the notice in writing by the
prospective vendor, or by the vendor as the case may be. The deed
of sale shall not be recorded in the Registry of Property, unless
accompanied by an affidavit of the vendor that he has given written
notice thereof of all possible redemptioners.' p. 473, New Civil Code,

if that be so that affidavit must have been intended by the lawmakers for a definite
purpose, to argue that this affidavit has no purpose is to go against all canons of
statutory construction, no law mandatory in character and worse, prohibitive should
be understood to have no purpose at all, that would be an absurdity, that purpose
could not but have been to give a clear and unmistakable guide to redemptioner, on
how much he should pay and when he should redeem; from this must follow that that
notice must have been intended to state the truth and if vendor and vendee should
have instead, decided to state an untruth therein, it is they who should bear the
consequences of having thereby misled the redemptioner who had the right to rely
and act thereon and on nothing else; stated otherwise, all the elements of equitable
estoppel are here since the requirement of the law is to submit the affidavit of notice
to all possible redemptioners, that affidavit to be a condition precedent to registration
of the sale therefore, the law must have intended that it be by the parties understood
that they were there asking a solemn representation to all possible redemptioners,
who upon faith of that are thus induced to act, and here worse for the parties to the
sale, they sought to avoid compliance with the law and certainly refusal to comply
cannot be rewarded with exception and acceptance of the plea that they cannot be
now estopped by their own representation, and this Court notes that in the trial and to
this appeal, plaintiff earnestly insisted and insists on their estoppel;

3rd — If therefore, here vendors had only attempted to comply with the law, they
would have been obligated to send a copy of the deed of sale unto Filomena
Javellana and from that copy, Filomena would have been notified that she should if
she had wanted to redeem, offered no more, no less, that P30,000.00, within 30
days, it would have been impossible for vendors and vendees to have inserted in the
affidavit that the price was truly P97,000.00 plus P18,250.00 or a total of
 P115,250.00; in other words, if defendants had only complied with the law, they
would have been obligated to accept the redemption money of only P30,000.00;

4th — If it be argued that foregoing solution would mean unjust enrichment for
plaintiff, it need only be remembered that plaintiff's right is not contractual, but a mere
legal one, the exercise of a right granted by the law, and the law is definite that she
can subrogate herself in place of the buyer,

"upon the same terms and conditions stipulated in the contract,"

in the words of Art. 1619, and here the price

"stipulated in the contract"

was P30,000.00, in other words, if this be possible enrichment on the part of

Filomena, it was not unjust but just enrichment because permitted by the law; if it still
be argued that plaintiff would thus be enabled to abuse her right, the answer simply
is that what she is seeking to enforce is not an abuse but a mere exercise of a right;
if it be stated that just the same, the effect of sustaining plaintiff would be to promote
not justice but injustice, the answer again simply is that this solution is not unjust
because it only binds the parties to make good their solemn representation to
possible redemptioners on the price of the sale, to what they had solemnly averred in
a public document required by the law to be the only basis for that exercise of
redemption; (Pp. 24-27, Record.)

WHEREFORE, the decision of the Court of Appeals is affirmed, with costs against petitioners..

Fernando, Makasiar, Esguerra, Aquino and Martin, JJ., concur.

Makalintal, CJ., took no part.

Muñoz Palma, J., took no part.

Antonio and Concepcion Jr., JJ., are on leave.

Separate Opinions

TEEHANKEE, J., concurring:

The legal (and moral) right of private respondent Filomena Javellana as (1/7) pro-indiviso co-owner
to exercise the right granted her by the Civil Code of legal redemption of the pro-indiviso 6/7 share of
the property which was sold by her erstwhile co-owners to the Doromals as interested third persons
for the stipulated contractual price of P30,000.00 is unassailable.

It is admitted in the record (from the Doromals' own evidence and the trial court's factual findings)
that the Doromals (buyers) and the co-owners (sellers) had criminally understated and falsified the
contractual price in the deed of sale as registered with the Register of Deeds to be P30,000.00
instead of P115,250.00 as "actually paid" by the Doromals, admittedly for the illegal and criminal
purpose "to minimize the payment of the registration fees, stamps and sales tax.  (It may be added
1

that such gross understatement of the actual price was resorted to obviously to minimize the
resultant tax liability of the co-owners for income tax or capital gains from the sale of the property as
well as to minimize, if not conceal, the sources and assets of the Doromals as buyers and make it
falsely appear that their capital outlay for the purchase was only one-fourth (¼) of the actual price —
which is a device notoriously availed of by tax evaders to willfully and criminally evade the payment
of taxes justly due to the government).

This criminal and illegal conduct in no way entitles the Doromals to claim callously as against
respondent redemptioner who is merely exercising her legal right of redemption "to be subrogated,
upon the same terms and conditions stipulated in the contract, in the place of the Doromals as third-
person buyers [Articles 1619 and 1620, Civil Code] that she may only redeem the property from
them by paying the larger amount of P115,250.00 that they had actually paid the co-owners for their
6/7 share of the property. Such criminal-tax evasion can in no way be abated if the courts and the
law would yet pay heed to the plea of the tax evaders that they had falsely understated the contract
price and that the courts should order the redemptioner to pay them — not the contract price — but
the larger amount they had actually paid but illegally understated in order to evade the taxes justly
due to the Government. A party to an illegal contract cannot come to court and ask it to help carry
out his illegal objects.
2

For the tax evaders to invoke in court their very act of tax evasion and to ask the courts to sanction
the same by declaring that the understated stipulated price was only for purposes of tax evasion but
that for the exercise of the legal right of redemption, respondent must be ordered by the courts to
pay them the larger amount they had actually paid but falsely understated in the deed would be to
put a premium on criminal conduct and frank cynicism in gross derogation of the law, morals, good
customs and public policy.

When the Doromals falsely understated the contractual price of their purchase from respondent's co-
owners, they did so at their own risk and with full knowledge of respondent's right to redeem the
property for the price stated in the contract.

By virtue of the rule of in pari delicto, they cannot even seek recourse against the co-owners to
refund to them the difference between the redemption price (of P30,000.00) and the much larger
amount (of P115,250.00) that they actually paid the co-owners.

If, say, there were no question of redemption but that they had a valid cause for rescission of their
purchase and brought suit therefor, (so that the case were strictly one between the Doromals and
their sellers), the courts would order the return of only the price as officially stated in the deed and
not the larger amount (of P115,250.00) that they had actually paid (but understated for tax evasion
purposes) — since the law will not aid either party in pari delicto but will leave the parties where it
finds them, or more accurately where they have placed themselves. Manifestly the law will not aid
the Doromals as against respondent-redemptioner who had no part in their illegal and criminal
conduct.
Finally, if such notorious tax evasion is to be effectively curbed, and the facts of record in the case at
bar are duly established in the appropriate proceedings, the Doromals and the co-owners-sellers
should be criminally charged for falsification of public documents besides being held liable by the
proper authorities for the full amount of taxes, income and capital gains, documentary stamps,
registration fees, etc., that they had admittedly willfully evaded by the false understatement of the
real and actual price in the deed of sale executed between them.

Separate Opinions

TEEHANKEE, J., concurring:

The legal (and moral) right of private respondent Filomena Javellana as (1/7) pro-indiviso co-owner
to exercise the right granted her by the Civil Code of legal redemption of the pro-indiviso 6/7 share of
the property which was sold by her erstwhile co-owners to the Doromals as interested third persons
for the stipulated contractual price of P30,000.00 is unassailable.

It is admitted in the record (from the Doromals' own evidence and the trial court's factual findings)
that the Doromals (buyers) and the co-owners (sellers) had criminally understated and falsified the
contractual price in the deed of sale as registered with the Register of Deeds to be P30,000.00
instead of P115,250.00 as "actually paid" by the Doromals, admittedly for the illegal and criminal
purpose "to minimize the payment of the registration fees, stamps and sales tax.  (It may be added
1

that such gross understatement of the actual price was resorted to obviously to minimize the
resultant tax liability of the co-owners for income tax or capital gains from the sale of the property as
well as to minimize, if not conceal, the sources and assets of the Doromals as buyers and make it
falsely appear that their capital outlay for the purchase was only one-fourth (¼) of the actual price —
which is a device notoriously availed of by tax evaders to willfully and criminally evade the payment
of taxes justly due to the government).

This criminal and illegal conduct in no way entitles the Doromals to claim callously as against
respondent redemptioner who is merely exercising her legal right of redemption "to be subrogated,
upon the same terms and conditions stipulated in the contract, in the place of the Doromals as third-
person buyers [Articles 1619 and 1620, Civil Code] that she may only redeem the property from
them by paying the larger amount of P115,250.00 that they had actually paid the co-owners for their
6/7 share of the property. Such criminal-tax evasion can in no way be abated if the courts and the
law would yet pay heed to the plea of the tax evaders that they had falsely understated the contract
price and that the courts should order the redemptioner to pay them — not the contract price — but
the larger amount they had actually paid but illegally understated in order to evade the taxes justly
due to the Government. A party to an illegal contract cannot come to court and ask it to help carry
out his illegal objects.
2

For the tax evaders to invoke in court their very act of tax evasion and to ask the courts to sanction
the same by declaring that the understated stipulated price was only for purposes of tax evasion but
that for the exercise of the legal right of redemption, respondent must be ordered by the courts to
pay them the larger amount they had actually paid but falsely understated in the deed would be to
put a premium on criminal conduct and frank cynicism in gross derogation of the law, morals, good
customs and public policy.
When the Doromals falsely understated the contractual price of their purchase from respondent's co-
owners, they did so at their own risk and with full knowledge of respondent's right to redeem the
property for the price stated in the contract.

By virtue of the rule of in pari delicto, they cannot even seek recourse against the co-owners to
refund to them the difference between the redemption price (of P30,000.00) and the much larger
amount (of P115,250.00) that they actually paid the co-owners.

If, say, there were no question of redemption but that they had a valid cause for rescission of their
purchase and brought suit therefor, (so that the case were strictly one between the Doromals and
their sellers), the courts would order the return of only the price as officially stated in the deed and
not the larger amount (of P115,250.00) that they had actually paid (but understated for tax evasion
purposes) — since the law will not aid either party in pari delicto but will leave the parties where it
finds them, or more accurately where they have placed themselves. Manifestly the law will not aid
the Doromals as against respondent-redemptioner who had no part in their illegal and criminal
conduct.

Finally, if such notorious tax evasion is to be effectively curbed, and the facts of record in the case at
bar are duly established in the appropriate proceedings, the Doromals and the co-owners-sellers
should be criminally charged for falsification of public documents besides being held liable by the
proper authorities for the full amount of taxes, income and capital gains, documentary stamps,
registration fees, etc., that they had admittedly willfully evaded by the false understatement of the
real and actual price in the deed of sale executed between them.

Footnotes

1 See Rodriguez, 20 SCRA 908, 917; Bough and Bough vs. Cantiveros and
Hanopol, 40 Phil. 209.

TEEHANKEE, concurring:

1 Decision of the CFI, Rec. on Appeal, pp. 77-78.

2 Ex dolo malo non oritur action and in pari delicto potior est condition defendentis.

FIRST DIVISION

[G.R. No. 23550. September 16, 1925. ]

P. J. SALAS RODRIGUEZ, Plaintiff-Appellant, v. MARIANO P.

LEUTERIO, Defendant-Appellee.

The appellants in this own behalf.

No appearance for Appellee.
SYLLABUS

1. CONTRACT; PURCHASE PRICE; EARNEST. — Purchase money paid as the price of

land which is the subject of a sale will not be treated as earnest money or as a mere
pledge to bind the agreement in the absence of something in the contract to show that
such was the intention of the contracting parties.

2. ID.; RESOLUTION OF CONTRACT; RETURN OF PURCHASE PRICE; INTEREST. —

Where the resolution of a contract for the sale of land is decreed on account of the
failure of the vendor to deliver possession, the purchaser is entitled to recover the
purchase price paid by him, with interest from the date when payment was made.

DECISION

STREET, J. :

On September 24, 1920, the parties to this action entered into a contract by which the
defendant agreed to sell, and the plaintiff to buy, seven thousand square meters of land
in the barrio of Tuliahan, municipality of Caloocan, Rizal, for the consideration of
P5,600, which was paid by the plaintiff in the act of transfer. At the time of this sale the
particular lots contemplated as the subject of the sale had not been segregated, but the
seller agreed to establish the lots with a specified frontage on a principal thoroughfare
as soon as the streets should be laid out in a projected new subdivision of the city. As
time passed the seller was unable to comply with this part of the agreement and was
therefore unable to place the purchaser in possession. The present action was
accordingly instituted by the purchaser in the Court of First Instance of the Province of
Rizal for the resolution (in the complaint improperly denominated rescission) of the
contract and a return of double the amount delivered to the defendant as the purchase
price of the land. The trial court decreed a rescission (properly resolution) of the
contract and ordered the defendant to return to the plaintiff the amount received, or
the sum of P5,600, with legal interest from the date of the filing of the complaint. From
this judgment the plaintiff appealed.

As no transcript of the evidence has been brought to this court, our revision of the case
is confined to the questions of law involved, which are two in number, namely, first,
whether the plaintiff is entitled to recover double the amount paid out by him as the
purchase price of the land; and, secondly, whether he is entitled to interest from the
date upon which the money was paid to the defendant, instead of from the date of the
filing of the complaint only.

As suggested by the trial judge in the appealed decision the provisions of the Civil Code
applicable to the case are found in articles 1451 and 1124. By the latter of these
articles a person prejudiced by the nonfulfillment of a contract may demand its
resolution, with indemnity for damages and payment of interest. Article 1454 of the
Civil Code is relied upon by plaintiff-appellant as authority for claiming double the
amount paid out by him. In this article it is declared that when earnest money or
pledge is given to bind a contract of purchase and sale, the contract may be rescinded
if the vendee should be willing to forfeit the earnest money or pledge or the vendor to
return double the amount. This provision is clearly not pertinent to the case, for the
reason that where the purchase price is paid in whole or in part, the payment cannot be
considered to be either earnest money or pledge. In this connection the commentator
Manresa observes that the delivery of part of the purchase price should not be
understood as constituting earnest money unless it be shown that such was the
intention of the parties. (Manresa, Commentaries on the Civ. Code, 2d., vol. 10, p. 85.)
In the case before us there is nothing to indicate that the parties intended that the cash
price by the purchaser should be treated merely as earnest money; and such could not
possibly have been their intention. The evident purpose was that said payment should
be taken as a fulfillment of the contract on the part of the purchaser.

The contention of the plaintiff-appellant with respect to interest is, we think,

meritorious. In case of the resolution of a contract of sale under article 1124, the
purchaser is declared to be entitled to indemnity for damages and payment of interest.
As pointed out by Manresa interest is here conceded in lieu of damages. (Manresa,
Commentaries on the Spanish Civil Code, 3d ed., vol. 8, p. 157); and it is familiar
doctrine that interest at the legal rate is the accepted measure of damages for the
detention of money. Moreover, as the resolution of a contract has the effect of
dissolving the obligation ab initio, it follows that interest should be allowed on the
purchase money during the entire period that the defendant has had it in his
possession, that is, in this case from the date of the contract. If the plaintiff had
possession of the land during this period, he would be entitled to no damages, and
hence to no interest. It will not escape notice that a similar provision with respect to
interest is found in article 1295 of the Civil Code, which deals with rescission, properly
so called, and in article 1303, which deals with annulment of contracts.

The judgment appealed from will be modified by giving interest at the legal rate on the
amount awarded by the trial court from September 24, 1920, until paid.

As thus modified the judgment will be affirmed, and it is so ordered, without special
pronouncement as to costs.

Avanceña, C.J., Malcolm, Villamor, Ostrand, Johns, Romualdez, and Villa-Real, JJ.,

concur.

Johnson, J., dissents.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-1720             March 4, 1950

SIA SUAN and GAW CHIAO, petitioners,

vs.
RAMON ALCANTARA, respondent.
Antonio Barredo for petitioners.
Zosimo D. Tanalega for respondents.

PARAS, J.:

On August 3, 1931, a deed of sale was executed by Rufino Alcantara and his sons Damaso
Alcantara and Ramon Alcantara conveying to Sia Suan five parcels of land. Ramon Alcantara was
then 17 years, 10 months and 22 days old. On August 27, 1931, Gaw Chiao (husband of Sia Suan)
received a letter from Francisco Alfonso, attorney of Ramon Alcantara, informing Gaw Chiao that
Ramon Alcantara was a minor and accordingly disavowing the contract. After being contacted by
Gaw Chiao, however, Ramon Alcantara executed an affidavit in the office of Jose Gomez, attorney
of Gaw Chiao, wherein Ramon Alcantara ratified the deed of sale. On said occasion Ramon
Alcantara received from Gaw Chiao the sum of P500. In the meantime, Sia Suan sold one of the lots
to Nicolas Azores from whom Antonio Azores inherited the same.

On August 8, 1940, an action was instituted by Ramon Alcantara in the Court of First Instance of
Laguna for the annulment of the deed of sale as regards his undivided share in the two parcels of
land covered by certificates of title Nos. 751 and 752 of Laguna. Said action was against Sia Suan
and her husband Gaw Chiao, Antonio, Azores, Damaso Alcantara and Rufino Alcantara (the latter
two being, respectively, the brother and father of Ramon Alcantara appealed to the Court of
Appealed which reversed the decision of the trial court, on the ground that the deed of sale is not
binding against Ramon Alcantara in view of his minority on the date of its execution, and accordingly
sentenced Sia Suan to pay to Ramon Alcantara the sum of P1,750, with legal interest from
December 17, 1931, in lieu of his share in the lot sold to Antonio Azores (who was absolved from the
complaint), and to reconvey to Ramon Alcantara an undivided one-fourth interest in the lot originally
covered by certificate of title NO. 752 of Laguna plus the cost of the suit. From this judgment Sia
Suan and Gaw Chiao have come to us on appeal by certiorari.

It is undeniable that the deed of sale signed by the appellee, Ramon Alcantara, On August 3, 1931,
showed that he, like his co-signers (father and brother), was then of legal age. It is not pretend and
there is nothing to indicate that the appellants did not believe and rely on such recital of fact. This
conclusion is decisive and very obvious in the decision of the Court of Appeals It is true that in the
resolution on the for reconsideration, the Court of Appeals remarked that "The fact that when
informed of appellant's minority, the appellees too no steps for nine years to protect their interest
beyond requiring the appellant to execute a ratification of the sale while still a minor, strongly
indicates that the appellees knew of his minority when the deed of sale was executed." But the
feeble insinuation is sufficiently negative by the following positive pronouncements of the Court of
Appeals as well in said resolution as in the decision.

As to the complaint that the defendant is guilty of laches, suffice it to say that the appellees
were informed of his minority within one (1) month after the transaction was completed.
(Resolution.)

Finally, the appellees were equally negligent in not taking any action to protect their
interest form and after August 27, 1931, when they were notified in writing of appellant's
minority. (Resolution.)

. . . The fact remains that the appellees were advised within the month that appellant was a
minor, through the letter of Attorney Alfonso (Exhibit 1) informing appellees of his client's
desire to disaffirm the contract . . . (Decision.)
 The purchaser having been apprised of incapacity of his vendor shortly after the contract
was made, the delay in bringing the action of annulment will not serve to bar it unless the
period fixed by the statute of limitations expired before the filing of the complaint. . . .
(Decision.)

In support of the contend that the deed of sale is binding on the appellee, counsel for the appellants
invokes the decision in Mercado and Mercado vs. Espiritu (37 Phil., 215), wherein this court held:

The courts, in their interpretation of the law, have laid down the rule that the sale of real
estate, made by minors who pretend to be of legal age, when it fact they are not, is valid,
and they will not be permitted to excuse themselves from the fulfillment of the obligations
contracted by them, or to have them annulled in pursuance of the provisions of Law 6 title
19, of the 6th Partida; and the judgment that holds such a sale to valid and absolves the
purchaser from the complaint filed against him does not violate the laws relative to the sale
of minors' property, nor the juridical rules established in consonance therewith. (Decisions of
the Supreme Court of Spain, of April 27, 1840, July 11, 1868, and March 1, 1875.)

The Court of Appeals has refused to apply this doctrine on the ground that the appellants did not
actually pay any amount in cash to the appellee and therefore did not suffer any detriment by reason
of the deed of sale, it being stipulated that the consideration therefore was a pre-existing
indebtedness of appellee's father, Rufino Alcantara. We are of the opinion that the Court of Appeals
erred. In the first place, in the case cited, the consideration for sale consisted in greater part of pre-
existing obligation. In the second place, under the doctrine, to bind a minor who represents himself
to be of legal age, it is not necessary for his vendee to actually part with cash, as long as the
contract is supported by a valid consideration. Since appellee's conveyance to the appellants was
admittedly for and in virtue of a pre-existing indebtedness (unquestionably a valid consideration), it
should produce its full force and effect in the absence of any other vice that may legally invalidate
the same. It is not here claimed that the deed of sale is null and void on any ground other than the
appellee's minority. Appellee's contract has become fully efficacious as a contract executed by
parties with full legal capacity.

The circumstance that, about one month after the date of the conveyance, the appellee informed the
appellants of his minority, is of no moment, because appellee's previous misrepresentation had
already estopped him from disavowing the contract. Said belated information merely leads to the
inference that the appellants in fact did not know that the appellee was a minor on the date of the
contract, and somewhat emphasizes appellee's had faith, when it is borne in mind that no sooner
had he given said information than he ratified his deed of sale upon receiving from the appellants the
sum of P500.

Counsel for the appellees argues that the appellants could not have been misled as to the real age
of the appellee because they were free to make the necessary investigation. The suggestion, while
perhaps practicable, is conspicuously unbusinesslike and beside the point, because the findings of
the Court of Appeals do not show that the appellants knew or could suspected appellee's minority.

The Court of Appeals seems to be of the opinion that the letter written by the appellee informing the
appellants of his minority constituted an effective disaffirmance of the sale, and that although the
choice to disaffirm will not by itself avoid the contract until the courts adjudge the agreement to be
invalid, said notice shielded the appellee from laches and consequent estoppel. This position is
untenable since the effect of estoppel in proper cases is unaffected by the promptness with which a
notice to disaffirm is made.
The appealed decision of the Court of Appeals is hereby reversed and the appellants absolved from
the complaint, with costs against the appellee, Ramon Alcantara. So ordered.

Ozaeta, Tuason, Montemayor and Torres, JJ., concur.

Separate Opinions

PADILLA, J., concurring:

I concur in the result not upon the grounds stated in the majority opinion but for the following
reasons: The deed of sale executed by Ramon Alcantara on 3 August 1931 conveying to Sia Suan
five parcels of land is null and void insofar as the interest, share, or participation of Ramon Alcantara
in two parcels of land is concerned, because on the date of sale he was 17 years, 10 months and 22
days old only. Consent being one of the essential requisites for the execution of a valid contract, a
minor, such as Ramon Alcantara was, could not give his consent thereof. The only
misrepresentation as to his age, if any, was the statement appearing in the instrument that he was of
age. On 27 August 1931, or 24 days after the deed was executed, Gaw Chiao, the husband of the
vendee Sia Suan, was advised by Atty. Francisco Alfonso of the fact that his client Ramon Alcantara
was a minor. The fact that the latter, for and in consideration of P500, executed an affidavit, whereby
he ratified the deed of sale, is of no moment. He was still minor. The majority opinion invokes the
rule laid down in the case of Mercado et al. vs. Espiritu, 37 Phil., 215. The rule laid down by this
Court in that case is based on three judgments rendered by the Supreme Court of Spain on 27 April
1960, 11 July 1868, and 1 March 1875. In these decisions the Supreme Court of Spain applied Law
6, Title 19, of the 6th Partida which expressly provides:

"Diziendo o ortogando el que fuese menor, que era mayor de XXV años, si ouiesse persona
que paresciesse de tal tiempo, si lo faze enganosamente, valdria el pleyto que assi fuere
fecho con el e non deue ser desatado despues, como quier que non era de edad quando lo
fizo: esto es, porque las leyes ayudan a los enganados, e non a los enganadores. . . ."
(Alcubilla, Codigos Antigous de España, p. 613.)

The contract of sale involved in the case of Mercado vs. Espiritu, supra, was executed by the minors
on 17 May 1910. The Law in force on this last-mentioned date was not Las Siete Partidas, 1 which
was the in force at the time the cases decided by the Supreme Court of Spain
referred to, but the Civil Code which took effect in the Philippines on 8
December 1889. As already stated, the Civil Code requires the consent of
both parties for the valid execution of a contract (art. 1261, Civil Code). As a
minor cannot give his consent, the contract made or executed by him has no
validity and legal effect. There is no provision in the Civil Code similar to that
of Law 6, Title 19, of the 6th Partida which is equivalent to the common law
principle of estoppel. If there be an express provision in the Civil Code similar
law 6, Title 19, of the 6th Partida, I would agree to the reasoning of the
majority. The absence of such provision in the Civil Code is fatal to the validity
of the contract executed by a minor. It would be illogical to uphold the validity
of a contract on the ground of estoppel, because if the contract executed by a
minor is null and void for lack of consent and produces no legal effect, how
could such a minor be bound by misrepresentation about his age? If he could
not be bound by a direct act, such as the execution of a deed of sale, how
could he be bound by an indirect act, such as misrepresentation as to his
age? The rule laid down in Young vs. Tecson, 39 O. G. 953, in my opinion, is
the correct one.
Nevertheless, as the action in this case was brought on 8 August 1940, the same was barred,
because it was not brought within four (4) years after the minor had become of age, pursuant to
article 1301 of the Civil Code. Ramon Alcantara became of age sometime in September 1934.

Moran, C.J. and Bengzon, J., concur.

PABLO, M., disidente:

No creo que Ramon Alcantara este en estoppel al querer recuperar su participacion en los lotes que
el cedio a Sia Suan en la escritura de 3 de Agosto de 1931. Las circunstancias que concurrieron en
su otorgamiento demostraran que es insostenible esa conclusion. La acreedora era Sia Suan, y el
deudor, Rufino Alcantara por transactiones que tuvo con ella en el negocio de copra. Al fallecimiento
de la esposa de Rufino, alguien se habra percatado de la dificultad de cobrar el credito porque
Rufino no tenia mas que tres lotes de su exclusiva propiedad y dos lotes, como bienes gananciales.
Ramon, uno de los herederos, era un menor de edad. Por eso, se procuro el otorgamiento de tal
escritura, vendiendo el padre (Rufino) y sus dos hijos (Damaso y Ramon) cinco lotes amillarados en
P19,592.85 por P2,500; que en realidad no fue mas que una dacion en pago de la deuda. Si no se
otorgaba tal escritura, la acreedora tenia necesidad de utilizar un proceso largo de abintestato para
obtener el pago de la deuda en cuanto afecte, si podia afectar, los bienes gananciales de Rufino
Alcantara y su difunta esposa, o de tutela para que alguien actue en lugar del menor Ramon. El
procedimiento mas corto y menos costoso entonces era hacer que el menos apareciera como con
edad competente para otorgar la escritura de venta. Y asi sucedio: se otorgo la escritura. El menor
no recibio ni un solo centimo. Con la herencia que habia de recibier de su difunta madre, pago la
deuda de su padre.

Despues de notificada Sia Suan de la reclamacion de nulidad del documento, por gestion de Gaw
Chiao, Ramon Alcantara siendo menor de edad aun, firmo un affidavit ratificando la venta en la
oficina del abogado de Gaw Chiao. Esta actuacion de Gar Chiao, marido de Sia Suan, denuncia que
no fue Ramon el que les hacia creer que era mayor de edad y que oficiosa y voluntariamente haya
solicitado el otorgamiento de la escritura de venta. Si Gaw Chiao, marido de Sia Suan, fue el que
gestiono el otorgamientodel affidavit de ratificacion, ?por que no debemos concluir que el fue quien
gestiono a indicacion tal vez de algun abogado, que Ramon Alcantara estampara su firma en la
escritura de 3 de agosto de 1931? Pero la firma de un menor no vale nada; debia aparecer
entonces que Ramon era de mayor edad. ¿Por que habia de interesarse el menor en otorgar una
escritura de venta de tales terrenos? ¿No es mas probable que la acreedora o su marido o algun
agente haya sido el que se intereso por que Ramon tomara parte en el otorgamiento de la
escritura?

Que beneficio obtuvo el menor en el otorgamiento de la escritura? Nada; en cambio, la acreedora

consiguio ser duena de los cinco lotes a cambio de su credito. ¿Quedaba favorecido el menor al
firmas su affidavit de ratificacion? Tampoco; con todo, Sia Suan reclama que el menor fue quien la
indujo a error. Si alguien engano al alguien, no habra sido Ramon. Tenia que ser la acreedora o
alguien que ayudaba a ella en conseguir el pago del credito; pero no fue, no podia ser el menor.

Teniendo en cuenta todas estas circunstancias, no podemos concluir que Ramon Alcantara haya
inducido a error a Sia Suan. No es aplicable, por tanto, la decision de este Tribunal en Mercado y
Mercado contra Espiritu (37 Jur. Fil., 227); ni la del Tribunal Supremo de Espana, pues en tales
casos, el menor fingio e hizo creer a los compradores que era mayor de edad: no era justo que el
que indujo a los compradores a comprar un terreno desprendiendosedel precio de compra, sea
permitido despues alegar su minoria de edad para anular la actuacion hecha por el. Eso es
verdadero estoppel; pero en el caso presente no lo hay.

Laches es el otro fundamento sobre que descansa la mayoria para revocar la decision
apelada. Laches es medida de equidad, y no es aplicable al caso presente. Solamente debe
admitirse como defensa cuando la aplicacion y hay necesidad de hacer uso de la equidad. No debe
aplicarse para fomentar una injusticia sino para minimizar sus efectos y solamente debe ser
utilizada como defensa cuando en la aplicacion de una ley se comete verdadera injusticia (30 C. J.
S., 531). En el caso presente Ramon Alcantara tiene diez anos de plazo a contar del 3 de Agosto de
1931, dentro del cual puede pedir la anulacion de la venta. Y la demanda que inicio esta causa se
presento dentro de ese plazo; no esta prescrita pues aun la accion (art. 43, Cod. Proc. Civ.).

Suponiendo que Ramon Alcantara hubiera presentado su demanda antes de la venta de un lote a
Nicolas Azores que sentencia se hubiera dictado? El otorgamiento de una escritura de traspaso de
una cuarta parte de los dos lotes; pero despues de vendido un lote, se ordenaria, como decidio el
Tribunal de Apelacion, el traspaso de la cuarta parte del lote restante y el pago de la cuarta parte
del importe en venta del lote vendido a Ramon. En uno y otro caso no se hace ningun dano a Sia
Suan, solamente se le obliga a traspasar a Ramon la parte que, en herencia de los bienes
gananciales dejados por su difunta madre, le corresponde. No hay daño desproporcionado que en
equidad autorica a Sia Suan a invocar la defensa de laches. Si Sia Suan antes de la presentacion
de la demanda, hubiera construido edificios en los lotes por valor de P3,000,000, demos por caso,
tal vez seria de equidad para Sia Suan invocar la defensa de laches, pues por el silencio de Ramon
Alcantara, ella ha hecho mejoras de mucho valor que con una decision semejante seria perjudicada.
El trasparo a Ramon Alcantara de una cuarta parte de cada uno de los dos lotes pondria a ella en la
alternativa de comprar esa cuarta parte de los lotes con precio excesivo o derribar parte de los
edificios construidos. En el caso presente no se le ha puesto en esa dificil situacion; al contrario, ella
estuvo disfrutando de esos dos lotes sin hacer mejoras extraordinarias, y despues de vendido el
segundo lote, utilizo el dinero recibido, y no hay pruebas de que se haya causado a ella dano por no
presentarse la demanda mas temprano.

Voto por la confirmacion de la decision del Tribunal de Apalacion.

Republic of the Philippines

SUPREME COURT
Baguio City

EN BANC

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 spouses 5 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 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 consent 15 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.
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.

ROBERTO A. ABAD
Associate Justice

WE CONCUR:

REYNATO S. PUNO
Chief Justice

ANTONIO T. CARPIO RENATO C. CORONA

Associate Justice Associate Justice

(On Leave)
CONCHITA CARPIO MORALES
PRESBITERO J. VELASCO, JR.
Associate Justice
Associate Justice

ANTONIO EDUARDO B. NACHURA TERESITA J. LEONARDO-DE CASTRO

Associate Justice Associate Justice

ARTURO D. BRION DIOSDADO M. PERALTA

Associate Justice Associate Justice

LUCAS P. BERSAMIN MARIANO C. DEL CASTILLO

Associate Justice Associate Justice

MARTIN S. VILLARAMA, JR. JOSE PORTUGAL PEREZ

Associate Justice Associate Justice

JOSE CATRAL MENDOZA

Associate Justice

CERTIFICATION

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

REYNATO S. PUNO
Chief Justice

Republic of the Philippines

SUPREME COURT
Manila
 SECOND DIVISION

G.R. No. 169548               March 15, 2010

TITAN CONSTRUCTION CORPORATION, Petitioner,

vs.
MANUEL A. DAVID, SR. and MARTHA S. DAVID, Respondents.

DECISION

DEL CASTILLO, J.:

The review of factual matters is not the province of this Court. 1 The Supreme Court is not a trier of
facts, and is not the proper forum for the ventilation and substantiation of factual issues. 2

This Petition for Review assails the July 20, 2004 Decision 3 of the Court of Appeals (CA) in CA-G.R.
CV No. 67090 which affirmed with modification the March 7, 2000 Decision 4 of the Regional Trial
Court (RTC) of Quezon City, Branch 80. Also assailed is the August 31, 2005 Resolution 5 of the CA
denying the motion for reconsideration.

Factual Antecedents

Manuel A. David, Sr. (Manuel) and Martha S. David (Martha) were married on March 25, 1957. In
1970, the spouses acquired a 602 square meter lot located at White Plains, Quezon City, which was
registered in the name of "MARTHA S. DAVID, of legal age, Filipino, married to Manuel A. David"
and covered by Transfer Certificate of Title (TCT) No. 156043 issued by the Register of Deeds of
Quezon City.6 In 1976, the spouses separated de facto, and no longer communicated with each
other.7

Sometime in March 1995, Manuel discovered that Martha had previously sold the property to Titan
Construction Corporation (Titan) for ₱1,500,000.00 through a Deed of Sale 8 dated April 24, 1995,
and that TCT No. 156043 had been cancelled and replaced by TCT No. 130129 in the name of
Titan.

Thus, on March 13, 1996, Manuel filed a Complaint9 for Annulment of Contract and Recovenyance
against Titan before the RTC of Quezon City. Manuel alleged that the sale executed by Martha in
favor of Titan was without his knowledge and consent, and therefore void. He prayed that the Deed
of Sale and TCT No. 130129 be invalidated, that the property be reconveyed to the spouses, and
that a new title be issued in their names.

In its Answer with Counterclaim,10 Titan claimed that it was a buyer in

good faith and for value because it relied on a Special Power of Attorney (SPA) 11 dated January 4,
1995 signed by Manuel which authorized Martha to dispose of the property on behalf of the spouses.
Titan thus prayed for the dismissal of the complaint.

In his unverified Reply,12 Manuel claimed that the SPA was spurious, and that the signature
purporting to be his was a forgery; hence, Martha was wholly without authority to sell the property.

Subsequently, Manuel filed a Motion for Leave to File Amended Complaint 13 which was granted by
the trial court. Thus, on October 15, 1996, Manuel filed an Amended Complaint 14 impleading Martha
as a co-defendant in the proceedings. However, despite personal service of summons 15 upon
Martha, she failed to file an Answer. Thus, she was declared in default. 16 Trial then ensued.

Ruling of the Regional Trial Court

On March 7, 2000, the RTC issued a Decision which (i) invalidated both the Deed of Sale and TCT
No. 130129; (ii) ordered Titan to reconvey the property to Martha and Manuel; (iii) directed the
Register of Deeds of Quezon City to issue a new title in the names of Manuel and Martha; and (iv)
ordered Titan to pay ₱200,000.00 plus ₱1,000.00 per appearance as attorney’s fees, and
₱50,000.00 as costs of suit.

The RTC found that:

1) The property was conjugal in character since it was purchased by Manuel

and Martha with conjugal funds during their marriage. The fact that TCT No. 156043 was
registered in the name of "MARTHA S. DAVID x x x married to Manuel A. David" did not
negate the property’s conjugal nature.

2) The SPA professing to authorize Martha to sell the property on behalf of the spouses was
spurious, and did not bear Manuel’s genuine signature. This was the subject of expert
testimony, which Titan failed to rebut. In addition, despite the fact that the SPA was
notarized, the genuineness and due execution of the SPA was placed in doubt since it did
not contain Manuel’s residence certificate, and was not presented for registration with the
Quezon City Register of Deeds, in violation of Section 64 of Presidential Decree No. 1529. 17

3) The circumstances surrounding the transaction with Martha should have put Titan on
notice of the SPA’s dubious veracity. The RTC noted that aside from Martha’s failure to
register the SPA with the Register of Deeds, it was doubtful that an SPA would have even
been necessary, since the SPA itself indicated that Martha and Manuel lived on the same
street in Navotas.

The dispositive portion of the trial court’s Decision reads:

Wherefore, judgment is hereby rendered:

1.) Declaring the Deed of Sale dated April 24, 1995 as void ab initio and without force and
effect.

2.) Declaring null and void TCT No. 130129 issued by the Register of Deeds of Quezon City
in the name of defendant Titan Construction Corporation.

3.) Ordering defendant Titan Construction Corporation to reconvey the subject property to
plaintiff and his spouse.

4.) Ordering the Register of Deeds of Quezon City to make and issue a new title in the name
of plaintiff Manuel David and his Spouse, Martha David.

5.) Ordering defendant to pay ₱200,000.00 plus ₱1,000.00 per appearance as attorney’s
fees and ₱50,000.00 as costs of suit.
SO ORDERED.18

Ruling of the Court of Appeals

In its Decision dated July 20, 2004, the CA affirmed the Decision of the trial court but deleted the
award of attorney’s fees and the amount of ₱50,000.00 as costs.

The dispositive portion of the Decision reads:

WHEREFORE, with the MODIFICATION by deleting the award of attorney’s fees in favor of plaintiff-
appellee Manuel A. David, Sr. and the amount of ₱50,000.00 as costs, the Decision appealed from
is AFFIRMED in all other respects, with costs against defendant-appellant Titan Construction
Corporation.19

Titan moved for reconsideration but the motion was denied on August 31, 2005.

Hence, this petition.

Issues

Titan raises the following assignment of errors:

A. THE COURT OF APPEALS PATENTLY ERRED IN DECLARING THE SUBJECT DEED OF

SALE NULL AND VOID AND FAILED TO APPLY TO THIS CASE THE PERTINENT LAW AND
JURISPRUDENCE ON THE TORRENS SYSTEM OF LAND REGISTRATION.

B. THE COURT OF APPEALS PATENTLY ERRED IN RULING THAT TITAN WAS NOT A BUYER
IN GOOD FAITH CONTRARY TO THE STANDARDS APPLIED BY THIS HONORABLE COURT IN
CASES INVOLVING SIMILAR FACTS.

C. THE COURT OF APPEALS PATENTLY ERRED BY DISCARDING THE NATURE OF A

NOTARIZED SPECIAL POWER OF ATTORNEY CONTRARY TO JURISPRUDENCE AND BY
GIVING UNDUE WEIGHT TO THE ALLEGED EXPERT TESTIMONY VIS-À-VIS THE CONTESTED
SIGNATURES AS THEY APPEAR TO THE NAKED EYE CONTRARY TO JURISPRUDENCE.

D. THE COURT OF APPEALS PATENTLY ERRED BY FAILING TO DETECT BADGES OF

CONNIVANCE BETWEEN RESPONDENTS.

E. THE COURT OF APPEALS PATENTLY ERRED BY NOT RULING THAT ASSUMING THE SPA
WAS NULL AND VOID, THE SAME IS IMMATERIAL SINCE THE RESPONDENTS SHOULD BE
CONSIDERED ESTOPPED FROM DENYING THAT THE SUBJECT PROPERTY WAS SOLELY
THAT OF RESPONDENT MARTHA S. DAVID.

F. THE COURT OF APPEALS PATENTLY ERRED BY NOT RULING THAT ASSUMING THE SALE
WAS VOID, ON GROUNDS OF EQUITY MARTHA S. DAVID SHOULD REIMBURSE PETITIONER
OF HIS PAYMENT WITH LEGAL INTEREST.20

Petitioner’s Arguments

Titan is claiming that it was a buyer in good faith and for value, that the property was Martha’s
paraphernal property, that it properly relied on the SPA presented by Martha, and that the RTC erred
in giving weight to the alleged expert testimony to the effect that Manuel’s signature on the SPA was
spurious. Titan also argues, for the first time, that the CA should have ordered Martha to reimburse
the purchase price paid by Titan.

Our Ruling

The petition is without merit.

The property is part of the spouses’ conjugal partnership.

The Civil Code of the Philippines,21 the law in force at the time of the celebration of the marriage
between Martha and Manuel in 1957, provides:

Article 160. All property of the marriage is presumed to belong to the conjugal partnership, unless it
be proved that it pertains exclusively to the husband or to the wife.

Article 153 of the Civil Code also provides:

Article 153. The following are conjugal partnership property:

(1) That which is acquired by onerous title during the marriage at the expense of the common fund,
whether the acquisition be for the partnership, or for only one of the spouses;

xxxx

These provisions were carried over to the Family Code. In particular, Article 117 thereof provides:

Art. 117. The following are conjugal partnership properties:

(1) Those acquired by onerous title during the marriage at the expense of the common fund, whether
the acquisition be for the partnership, or for only one of the spouses;

xxxx

Article 116 of the Family Code is even more unequivocal in that "[a]ll property acquired during the
marriage, whether the acquisition appears to have been made, contracted or registered in the name
of one or both spouses, is presumed to be conjugal unless the contrary is proved."

We are not persuaded by Titan’s arguments that the property was Martha’s exclusive property
because Manuel failed to present before the RTC any proof of his income in 1970, hence he could
not have had the financial capacity to contribute to the purchase of the property in 1970; and that
Manuel admitted that it was Martha who concluded the original purchase of the property. In
consonance with our ruling in Spouses Castro v. Miat,22 Manuel was not required to prove that the
property was acquired with funds of the partnership. Rather, the presumption applies even when the
manner in which the property was acquired does not appear. 23 Here, we find that Titan failed to
overturn the presumption that the property, purchased during the spouses’ marriage, was part of the
conjugal partnership.

In the absence of Manuel’s consent, the Deed of Sale is void.

Since the property was undoubtedly part of the conjugal partnership, the sale to Titan required the
consent of both spouses. Article 165 of the Civil Code expressly provides that "the husband is the
administrator of the conjugal partnership". Likewise, Article 172 of the Civil Code ordains that "(t)he
wife cannot bind the conjugal partnership without the husband’s consent, except in cases provided
by law".

Similarly, Article 124 of the Family Code requires that any disposition or encumbrance of conjugal
property must have the written consent of the other spouse, otherwise, such disposition is void.
Thus:

Art. 124. The administration and enjoyment of the conjugal partnership shall belong to both spouses
jointly. In case of disagreement, the husband's decision shall prevail, subject to recourse to the court
by the wife for proper remedy, which must be availed of within five years from the date of the
contract implementing such decision.

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 disposition or encumbrance without 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. However, the transaction shall be construed as a continuing offer on the
part of the consenting spouse and the third person, and may be perfected as a binding contract upon
the acceptance by the other spouse or authorization by the court before the offer is withdrawn by
either or both offerors.

The Special Power of Attorney purportedly signed by Manuel is spurious and void.

The RTC found that the signature of Manuel appearing on the SPA was not his genuine signature.

As to the issue of the validity or invalidity of the subject Special Power of Attorney x x x the Court
rules that the same is invalid. As aptly demonstrated by plaintiff’s evidence particularly the testimony
of expert witness Atty. Desiderio Pagui, which the defense failed to rebut and impeach, the subject
Special Power of Attorney does not bear the genuine signature of plaintiff Manuel David thus
rendering the same as without legal effect.

Moreover, the genuineness and the due execution of the Special Power of Attorney was placed in
more serious doubt as the same does not contain the Residence Certificate of the plaintiff and most
importantly, was not presented for registration with the Quezon City Register of Deeds which is a
clear violation of Sec. 64 of P.D. No. 1529.

As regards defendant Titan Construction Corporation’s assertion that plaintiff’s failure to verify his
Reply (wherein the validity of the Special Power of Attorney is put into question) is an implied
admission of its genuineness and due execution, [this] appears at first blush a logical conclusion.
However, the Court could not yield to such an argument considering that a rigid application of the
pertinent provisions of the Rules of Court will not be given premium when it would obstruct rather
than serve the broader interest of justice.24

Titan claims that the RTC gave undue weight to the testimony of Manuel’s witness, and that expert
testimony on handwriting is not conclusive.

The contention lacks merit. The RTC’s ruling was based not only on the testimony of Manuel’s
expert witness finding that there were significant differences between the standard handwriting of
Manuel and the signature found on the SPA, but also on Manuel’s categorical denial that he ever
signed any document authorizing or ratifying the Deed of Sale to Titan. 25

We also note that on October 12, 2004, Titan filed before the CA a Manifestation with Motion for Re-
Examination of Another Document/ Handwriting Expert 26 alleging that there is "an extreme
necessity"27 for a conduct of another examination of the SPA by a handwriting expert "as it will
materially affect and alter the final outcome" 28 of the case. Interestingly, however, Titan filed on
January 6, 2005 a Manifestation/Motion to Withdraw Earlier Motion for Re-Examination of PNP
Laboratory Expert29 this time praying that its motion for re-examination be withdrawn. Titan claimed
that "after a circumspect evaluation, deemed it wise not to pursue anymore said request (re-
examination) as there is a great possibility that the x x x [PNP and the NBI] might come out with two
conflicting opinions and conclusions x x x that might cause some confusion to the minds of the
Honorable Justices in resolving the issues x x x as well as the waste of material time and resources
said motion may result".30

In any event, we reiterate the well-entrenched rule that the factual findings of trial courts, when
adopted and confirmed by the CA, are binding and conclusive and will generally not be reviewed on
appeal.31 We are mandated to accord great weight to the findings of the RTC, particularly as regards
its assessment of the credibility of witnesses32 since it is the trial court judge who is in a position to
observe and examine the witnesses first hand.33 Even after a careful and independent scrutiny of the
records, we find no cogent reason to depart from the rulings of the courts below. 34

Furthermore, settled is the rule that only errors of law and not of fact are reviewable by this Court in
a petition for review on certiorari under Rule 45 of the Rules of Court. This applies with even greater
force here, since the factual findings by the CA are in full agreement with those of the trial court. 35

Indeed, we cannot help but wonder why Martha was never subpoenaed by Titan as a witness to
testify on the character of the property, or the circumstances surrounding the transaction with Titan.
Petitioner’s claim that she could not be found is belied by the RTC records, which show that she
personally received and signed for the summons at her address in Greenhills, San Juan. Titan
neither filed a cross claim nor made any adverse allegation against Martha.

On the Failure to Deny the Genuineness and Due Execution of the SPA

Titan claimed that because Manuel failed to specifically deny the genuineness and due execution of
the SPA in his Reply, he is deemed to have admitted the veracity of said document, in accordance
with Rule 8, Sections 7 and 8,36 of the Rules of Court.

On this point, we fully concur with the findings of the CA that:

It is true that the reply filed by Manuel alleging that the special power of attorney is a forgery was not
made under oath. However, the complaint, which was verified by Manuel under oath, alleged that
the sale of the subject property executed by his wife, Martha, in favor of Titan was without his
knowledge, consent, and approval, express or implied; and that there is nothing on the face of the
deed of sale that would show that he gave his consent thereto. In Toribio v. Bidin, it was held that
where the verified complaint alleged that the plaintiff never sold, transferred or disposed their share
in the inheritance left by their mother to others, the defendants were placed on adequate notice that
they would be called upon during trial to prove the genuineness or due execution of the disputed
deed of sale. While Section 8, Rule 8 is mandatory, it is a discovery procedure and must be
reasonably construed to attain its purpose, and in a way as not to effect a denial of substantial
justice. The interpretation should be one which assists the parties in obtaining a speedy,
inexpensive, and most important, a just determination of the disputed issues. 1avvphi1
Moreover, during the pre-trial, Titan requested for stipulation that the special power of attorney was
signed by Manuel authorizing his wife to sell the subject property, but Manuel refused to admit the
genuineness of said special power of attorney and stated that he is presenting an expert witness to
prove that his signature in the special power of attorney is a forgery. However, Titan did not register
any objection x x x. Furthermore, Titan did not object to the presentation of Atty. Desiderio Pagui,
who testified as an expert witness, on his Report finding that the signature on the special power of
attorney was not affixed by Manuel based on his analysis of the questioned and standard signatures
of the latter, and even cross-examined said witness. Neither did Titan object to the admission of said
Report when it was offered in evidence by Manuel on the ground that he is barred from denying his
signature on the special power of attorney. In fact, Titan admitted the existence of said Report and
objected only to the purpose for which it was offered. In Central Surety & Insurance Company v.
C.N. Hodges, it was held that where a party acted in complete disregard of or wholly overlooked
Section 8, Rule 8 and did not object to the introduction and admission of evidence questioning the
genuineness and due execution of a document, he must be deemed to have waived the benefits of
said Rule. Consequently, Titan is deemed to have waived the mantle of protection given [it] by
Section 8, Rule 8.37

It is true that a notarial document is considered evidence of the facts expressed therein. 38 A
notarized document enjoys a prima facie presumption of authenticity and due execution 39 and only
clear and convincing evidence will overcome such legal presumption. 40 However, such clear and
convincing evidence is present here.  While it is true that the SPA was notarized, it is no less true
1avvph!1

that there were defects in the notarization which mitigate against a finding that the SPA was either
genuine or duly executed. Curiously, the details of Manuel’s Community Tax Certificate are
conspicuously absent, yet Martha’s are complete. The absence of Manuel’s data supports his claim
that he did not execute the same and that his signature thereon is a forgery. Moreover, we have
Manuel’s positive testimony that he never signed the SPA, in addition to the expert testimony that
the signature appearing on the SPA was not Manuel’s true signature.

Moreover, there were circumstances which mitigate against a finding that Titan was a buyer in good
faith.

First, TCT No. 156043 was registered in the name of "MARTHA S. DAVID, of legal age, Filipino,
married to Manuel A. David" but the Deed of Sale failed to include Martha’s civil status, and only
described the vendor as "MARTHA S. DAVID, of legal age, Filipino citizen, with postal address at
247 Governor Pascual, Navotas, Rizal." And it is quite peculiar that an SPA would have even been
necessary, considering that the SPA itself indicated that Martha and Manuel lived on the same street
(379 and 247 Governor Pascual Street, respectively).

Second, Titan’s witness Valeriano Hernandez, the real estate agent who brokered the sale between
Martha and Titan, testified that Jerry Yao (Yao), Titan’s Vice President for Operations (and Titan’s
signatory to the Deed of Sale), specifically inquired why the name of Manuel did not appear on the
Deed of Sale.41 This indicates that Titan was aware that Manuel’s consent may be necessary. In
addition, Titan purportedly sent their representative to the Register of Deeds of Quezon City to verify
TCT No. 156043, so Titan would have been aware that the SPA was never registered before the
Register of Deeds.

Third, Valeriano Hernandez also testified that during the first meeting between Martha and Yao,
Martha informed Yao that the property was mortgaged to a casino for ₱500,000.00. Without even
seeing the property, the original title, or the SPA, and without securing an acknowledgment receipt
from Martha, Titan (through Yao) gave Martha ₱500,000.00 so she could redeem the property from
the casino.42 These are certainly not actions typical of a prudent buyer.
Titan cannot belatedly claim that the RTC should have ordered Martha to reimburse the purchase
price.

Titan argues that the CA erred in not ruling that, even assuming the sale was void, on grounds of
equity, Martha should reimburse petitioner its payment with legal interest. We note that this equity
argument was raised for the first time before the CA, which disposed of it in this manner:

Anent defendant-appellant’s claim that the court a quo and this Court never considered the
substantial amount of money paid by it to Martha David as consideration for the sale of the subject
property, suffice it to say that said matter is being raised for the first time in the instant motion for
reconsideration. If well-recognized jurisprudence precludes raising an issue only for the first time on
appeal proper, with more reason should such issue be disallowed or disregarded when initially
raised only in a motion for reconsideration of the decision of the appellate court.

Nonetheless, record shows that only defendant-appellant was initially sued by plaintiff-appellee in his
complaint for annulment of contract and reconveyance upon the allegation that the sale executed by
his wife, Martha David, of their conjugal property in favor of defendant-appellant was without his
knowledge and consent and, therefore, null and void. In its answer, defendant-appellant claimed that
it bought the property in good faith and for value from Martha David and prayed for the dismissal of
the complaint and the payment of his counterclaim for attorney’s fees, moral and exemplary
damages. Subsequently, plaintiff-appellee filed a motion for leave to file amended complaint by
impleading Martha David as a defendant, attaching the amended complaint thereto, copies of which
were furnished defendant-appellant, through counsel. The amended complaint was admitted by the
court a quo in an Order dated October 23, 1996. Martha David was declared in default for failure to
file an answer. The record does not show [that] a cross-claim was filed by defendant-appellant
against Martha David for the return of the amount of PhP1,500,000.00 it paid to the latter as
consideration for the sale of the subject property. x x x Thus, to hold Martha David liable to
defendant-appellant for the return of the consideration for the sale of the subject property, without
any claim therefore being filed against her by the latter, would violate her right to due process.  The
essence of due process is to be found in the reasonable opportunity to be heard and submit any
evidence one may have in support of his defense. It is elementary that before a person can be
deprived of his property, he should be first informed of the claim against him and the theory on which
such claim is premised.43 (Emphasis supplied)

While it is true that litigation is not a game of technicalities, 44 it is equally true that elementary
considerations of due process require that a party be duly apprised of a claim against him before
judgment may be rendered. Thus, we cannot, in these proceedings, order the return of the amounts
paid by Titan to Martha. However, Titan is not precluded by this Decision from instituting the
appropriate action against Martha before the proper court.

WHEREFORE, the petition is DENIED. The July 20, 2004 Decision of the Court of Appeals in CA-
G.R. CV No. 67090 which affirmed with modifications the March 7, 2000 Decision of the Regional
Trial Court of Quezon City, Branch 80, and its August 31, 2005 Resolution denying the motion for
reconsideration, are AFFIRMED, without prejudice to the recovery by petitioner Titan Construction
Corporation of the amounts it paid to Martha S. David in the appropriate action before the proper
court.

SO ORDERED.

MARIANO DEL CASTILLO

Associate Justice
WE CONCUR:

ANTONIO T. CARPIO
Associate Justice
Chairperson

ARTURO D. BRION ROBERTO A. ABAD

Associate Justice Associate Justice

JOSE PORTUGAL PEREZ

Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Court’s Division.

ANTONIO T. CARPIO
Associate Justice
Chairperson, Second Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairperson’s attestation, it
is hereby certified that the conclusions in the above Decision had been reached in consultation
before the case was assigned to the writer of the opinion of the Court’s Division.

REYNATO S. PUNO
Chief Justice

SECOND DIVISION

G.R. No. 108921             April 12, 2000

JOSEFINA VILLANUEVA-MIJARES, WALDETRUDES VILLANUEVA-NOLASCO, GODOFREDO

VILLANUEVA, EDUARDO VILLANUEVA, GERMELINA VILLANUEVA-FULGENCIO, MILAGROS
VILLANUEVA-ARQUISOLA, and CONCEPCION MACAHILAS VDA. DE
VILLANUEVA, petitioners,
vs.
THE COURT OF APPEALS, PROCERFINA VILLANUEVA, PROSPERIDAD VILLANUEVA,
RAMON VILLANUEVA, ROSA VILLANUEVA, VIRGINIA NEPOMUCENO, PAULA
NEPOMUCENO, TARCELA NEPOMUCENO, MERCEDES VILLANUEVA, ADELAIDA
VILLANUEVA, APARICION VILLANUEVA, JOSEFINA VILLANUEVA, BETTY VILLANUEVA,
BOBBY VILLANUEVA, MERLINDA VILLANUEVA, MORBINA VILLANUEVA, FLORITA
VILLANUEVA, DIONISION VILLANUEVA, and EDITHA VILLANUEVA, respondents.

QUISUMBING, J.:

This petition for review seeks the reversal of the Decision of the respondent Court of Appeals
1 

promulgated on September 28, 1992, in CA G.R. CV No. 27427, as well as of the Resolution
promulgated on February 4, 1993, which denied the petitioners' Motion for Reconsideration.

Petitioners Josefina Villanueva-Mijares, Waldetrudes Villanueva-Nolasco, Godofredo Villanueva,

Eduardo Villanueva, Germelina Villanueva-Fulgencio, and Milagros Villanueva-Arquisola are the
legitimate children of the late Leon Villanueva. Petitioner Concepcion Macahilas vda. de Villanueva
is his widow. Leon was one of eight (8) children of Felipe Villanueva, predecessor-in-interest of the
parties in the present case.

Private respondents were the plaintiffs-appellants in CA G.R. No. 27427, entitled "Procerfina
Villanueva, et al., v. Josefina Villanueva-Nolasco, et al." They are related by blood to the petitioners
as descendants of Felipe.

The pertinent facts of the case are not in dispute.

During his lifetime, Felipe, owned real property described as follows:

A parcel of land, situated at Estancia, Kalibo, Capiz. Bounded on the N. by the Provincial
Road to New Washington; on the S. by Nicanor Gonzales; on the E. by Nicanor Gonzales;
and on the W. by Leon Barrientos and Mauricio Parojinog, containing an area of fifteen
thousand three hundred thirty-six (15,336) square meters, more or less declared in the name
of Felipe Villanueva under Tax Declaration No. 3888 and assessed at Three Hundred Ten
(P310.00) Pesos. 2

Felipe begot the following legitimate children: Simplicio, Benito, Leon, Nicolasa, Eustaqio, Camila,
Fausta, and Pedro.

Upon Felipe's death, ownership of the land was passed on to his children.

In 1952, Pedro, one of the children of Felipe got his share equivalent to one-sixth (1/6) of the
property with an area of one thousand nine hundred five (1,905) square meters and had it declared
under his name pursuant to Tax Declaration No. 8085.

The remaining undivided portion of the land is described as follows:

A parcel of land situated at Estancia, Kalibo, Capiz, bounded on the N. by the National Road
to New Washington; on the S. by Nicanor Gonzales; on the E. by Pedro Villanueva and on
the W. by Leon Barrientos and Mauricio Parojinog, containing an area of eleven thousand
 nine hundred fifty-nine (11,959) square meters, more or less and declared under Tax
Declaration No. 8086 and assessed at Three Hundred Thirty-Three Pesos and Forty
Centavos (P333.40).  3

This was held in trust by Leon for his co-heirs. During Leon's lifetime, his co-heirs made several
seasonable and lawful demands upon him to subdivide and partition the property, but for one reason
or another, no subdivision took place.

After the death of Leon in August 1972, private respondents discovered that the shares of four of the
heirs of Felipe, namely, Simplicio, Nicolasa, Fausta and Maria Baltazar, spouse of Benito, was
purchased by Leon as evidenced by a Deed of Sale executed on August 25, 1946 but registered
only in 1971. It also came to light that Leon had, sometime in July 1970, executed a sale and
partition of the property in favor of his own children, herein petitioners. By virtue of such Deed of
Partition, private respondents had succeeded in obtaining Original Certificate of Title (OCT) No. C-
256. On April 25, 1975, petitioners managed to secure separate and independent titles over
their pro-indiviso shares in their respective names.

Private respondents then filed a case for partition with annulment of documents and/or
reconveyance and damages with the Regional Trial Court of Kalibo, Aklan, docketed as Civil Case
No. 2389. Private respondents contended that the sale in favor of Leon was fraudulently obtained
through machinations and false pretenses. Thus, the subsequent sale of the lot by Leon to his
children was null and void despite the OCT in his favor.

Petitioners, for their part, claimed that the sale by Simplicio, Fausta, Nicolasa, and Maria Baltazar
was a valid sale; that private respondent Procerfina even signed as an instrumental witness to the
Deed of Sale; that Maria Baltazar, widow of Benito, as administrator of her husband's estate, had the
right to sell the undivided share of Benito; that the basis for the issuance of the OCT in Land
Registration Case No. K-231 was the sale by his co-heirs to Leon; that the order of default issued in
Land Registration Case No. K-231 was against the whole world; that prescription had set in since
they had been in possession of the property in the concept of owners thereof since August 29, 1946,
up to the present; and that private respondents were estopped since no trust relationship existed
between the litigants.

After trial, the Regional Trial Court of Kalibo rendered its decision in Civil Case No. 2389, declaring
"the defendants the legal owners of the property in question in accordance with the individual titles
issued to them." 4

The trial court also declared plaintiffs' action already barred by res judicata.

Dissatisfied, herein private respondents elevated the case to the Court of Appeals. Their appeal was
docketed as CA-G.R. CV No. 27427.

On appeal, the private respondents conceded the right of Simplicio, Nicolasa, and Fausta to sell
their respective shares but disputed the authority of Maria Baltazar to convey any portion of her late
husband's estate, since the latter was his capital and did not form part of the conjugal property. 5

On September 28, 1992, respondent appellate court rendered its decision, the dispositive portion of
which reads:

WHEREFORE, the appealed judgement is REVERSED. Appellants Procerfina Villanueva,

Prosperidad Villanueva, Ramon Villanueva and Rosa Villanueva are hereby adjudged
 rightful co-owners pro indiviso of an undivided one-sixth (1/6) portion of the property litigated
upon (Lot 3789, Psc-36), as heirs of their late father, Benito Villanueva; and the appellees
are hereby ordered to execute a registerable document conveying to the said appellants
their one-sixth (1/6) portion of subject property.

Conformably, the parties concerned are required to agree on a project of partition, for the
segregation of the one-sixth (1/6) portion adjudicated to said appellants; otherwise, should
they fail to do so within a reasonable time, any interested party may seek relief from the trial
court a quo, which is hereby directed, in that eventuality, to cause the partition of the subject
property in accordance with pertinent rules, and this pronouncement. Costs against appellee.

SO ORDERED. 6

The Court of Appeals ruled that under the Old Civil Code and applicable jurisprudence, Maria
Baltazar had no authority to sell the portion of her late husband's share inherited by her then minor
children since she had not been appointed their guardian. Respondent court likewise declared that
as far as private respondents Procerfina, Prosperidad, Ramon and Rosa, were concerned, the Deed
of Sale of August 25, 1946 was "unenforceable." 7

Respondent appellate court also ruled that the prescription period had not run in favor of Leon since
private respondents had always known that Leon was the administrator of the estate. It was only in
1975 when their suspicion were aroused and they inquired about the status of the land. 8

Dissatisfied with the ruling of the respondent appellate court, herein petitioners now come before this
Court assigning the following errors:

IN NOT HOLDING THAT THE PRIVATE RESPONDENTS ARE NOT BARRED BY

LACHES, ESTOPPEL IN PAIS, AND RES JUDICATA, THE RESPONDENT, THE COURT
OF APPEALS, HAS DECIDED A QUESTION OF SUBSTANCE IN A WAY PROBABLY NOT
IN ACCORD WITH LAW OR WITH THE APPLICABLE DECISIONS OF THIS HONORABLE
COURT, AMONG THEM, TIJAM V. SIBONGHANOY, NO. L-21450, APRIL 15, 1968, 23
SCRA 29.

II

IN HOLDING THAT THE DEED OF SALE DATED AUGUST 25, 1946, EXHIBIT "I", ALSO
EXHIBIT "C", IS UNENFORCEABLE AGAINST THE PRIVATE RESPONDENTS FOR
BEING AN UNAUTHORIZED CONTRACT, THE RESPONDENT, THE COURT OF
APPEALS, HAS DECIDED A QUESTION OF SUBSTANCE IN A WAY PROBABLY NOT IN
ACCORD WITH LAW OR WITH THE APPLICABLE DECISIONS OF THIS HONORABLE
COURT, THE WEIGHT OF THE EVIDENCE BEING THAT MARIA BALTAZAR, THE
PRIVATE RESPONDENTS' MOTHER, HAD THE AUTHORITY TO CONVEY THE ONE-
SIXTHS (1/6) SHARE OF THE LATE BENITO VILLANUEVA TO THE PETITIONERS,
AND/OR THAT HER ACT WAS SUBSEQUENTLY RATIFIED BY THE PRIVATE
RESPONDENTS.

III
 IN GRANTING THE APPEAL AND CONSEQUENTLY, IN REVERSING THE COURT A
QUO, THE RESPONDENT, THE COURT OF APPEALS, HAS DECIDED A QUESTION OF
SUBSTANCE IN A WAY PROBABLY NOT IN ACCORD WITH THE LAW OR APPLICABLE
DECISIONS OF THIS HONORABLE COURT. 9

The grounds relied upon by the petitioners may be subsumed in two issues, to wit:

(1) Whether or not the appellate court erred in failing to declare action by the private
respondents to recover the property in question barred by laches, estoppel, prescription,
and res judicata; and

(2) Whether or not the appellate court erred in declaring the Deed of Sale of August 25, 1946
unenforceable against the private respondents for being an unauthorized contract.

Petitioners citing Tijam v. Sibonghanoy, 23 SCRA 29 (1968), contend that the action of the private
respondents was already barred by laches.  They argue that private respondents filed their action
10 

more than twenty-nine (29) years too late, counted from the date Maria Baltazar signed the
questioned Deed of Sale of August 26, 1948.

Laches is negligence or omission to assert a right within a reasonable time, warranting the
presumption that the party entitled to assert it has either abandoned or declined to assert it.  Its
11 

essential elements are: (1) conduct on the part of the defendant, or of one under whom he claims,
giving rise to the situation complained of; (2) delay in asserting complainant's right after he had
knowledge of the defendant's conduct and after he has an opportunity to sue; (3) lack of knowledge
or notice on the part of the defendant that the complainant would assert the right on which he bases
his suit; and (4) injury or prejudice to the defendant in the event relief is accorded to the
complainant.  12

In Chavez v. Bonto-Perez, 242 SCRA 73, 80 (1995), we said there is no absolute rule on what
constitutes laches. It is a creation of equity and applied not really to penalize neglect or sleeping
upon one's rights but rather to avoid recognizing a right when to do so would result in a clearly
inequitable situation. The question of laches, we said, is addressed to the sound discretion of the
court and each case must be decided according to its particular circumstances.

At the time of signing of the Deed of Sale of August 26, 1948, private respondents Procerfina,
Prosperidad, Ramon and Rosa were minors. They could not be faulted for their failure to file a case
to recover their inheritance from their uncle Leon, since up to the age of majority, they believed and
considered Leon their co-heir and administrator. It was only in 1975, not in 1948, that they became
aware of the actionable betrayal by their uncle. Upon learning of their uncle's actions, they filed an
action for recovery. Hence, the doctrine of stale demands formulated in Tijam cannot be applied
here. They did not sleep on their rights, contrary to petitioners' assertion. Under the circumstances of
the instant case, we do not think that respondent appellate court erred in considering private
respondents' action. The action was not too late.

Furthermore, when Felipe Villanueva died, an implied trust was created by operation of law between
Felipe's children and Leon, their uncle, as far as the 1/6 share of Felipe. Leon's fraudulent titling of
Felipe's 1/6 share was a betrayal of that implied trust.

Petitioners aver that the failure of Maria Baltazar's children to bringing their action in 1969 when they
had reached the age of majority meant that they had impliedly ratified the Deed of Sale and are now
estopped to assail the same. They erroneously relied on Asiatic Integrated Corporation v. Alikpala,
67 SCRA 60 (1975). In that case, payments made by Asiatic pursuant to the terms of the contract
accrued to the benefit of the City without protest on the part of the municipal board, such that the
Board already acquiesced to the validation of the contract. In the instant case, there is no implied
ratification, no benefit accruing to the children of Maria Baltazar.

Neither is the action barred by prescription In Vda. de Cabrera v. Court of Appeals, 267 SCRA 339,
353 (1997), and Sta. Ana, Jr. v. Court of Appeals, 281 SCRA 624, 629 (1997), we held that an
action for reconveyance of a parcel of land based on implied or constructive trust prescribes in 10
years, the point of reference being the date of registration of the deed or the date of the issuance of
the certificate of title of the property. Here the questioned Deed of Sale was registered only in 1971.
Private respondents filed their complaint in 1975, hence well within the prescriptive period.1âwphi1

Petitioners assert that the disputed property is registered. Relying on Cachero v. Marzan, 196 SCRA
601, 610 (1991), and Cureg v. Intermediate Appellate Court, 177 SCRA 313, 320 (1989), where we
held that a land registration case is an action in rem binding upon the whole world, and considering
that the private respondents failed to object to the registration of the realty in question, then res
judicata had set in. True, but notwithstanding the binding effect of the land registration case upon the
private respondents, the latter are not deprived of a remedy. While a review of the decree of
registration is no longer available after the expiration of the one-year period from entry thereof, an
equitable remedy is still available. Those wrongfully deprived of their property may initiate an action
for reconveyance of the properly.  13

As to the second issue, we find no reversible error committed by the respondent appellate court in
declaring the Deed of Sale unenforceable on the children of Maria Baltazar. As correctly pointed out
by the Court of Appeals, there was no question as to the sale of the shares of Simplicio, Nicolasa,
and Fausta, to their brother Leon. But not so with Maria Baltazar concerning the share of her late
husband, Benito, to Leon. Under the law then prevailing at the time of the demise of her spouse, her
husband's share in the common inheritance pertained to her minor children who were her late
husband's heirs and successors-in-interest.

As explained by the Court of Appeals:

Since the late Benito Villanueva, son of Felipe Villanueva, died before the effectivity of
Republic Act No. 386, otherwise known as the New Civil Code of the Philippines, the old Civil
Code governs the distribution and disposition of his intestate estate. Thereunder, the legitime
of the children and descendants consisted of two-thirds (2/3) of the hereditary estate of the
father and of the mother (first paragraph, Article 808); and the widower or widow, as the case
may be, who, at the time of death of his or her spouse, was not divorced or if divorced, due
to the fault of the deceased spouse, was entitled to a portion in usufruct equal to that which
pertains as legitime to each of the legitimate children or descendants not bettered (Article
834, 1st paragraph.) 14

In addition, under the jurisprudence prevailing at the time of Benito's death, the rule was that while
parents may be the guardians of their minor children, such guardianship did not extend to the
property of their minor children.  Parents then had no power to dispose of the property of their minor
15 

children without court authorization.  Without authority from a court, no person could make a valid
16 

contract for or on behalf of a minor or convey any interest of a minor in land.  Admittedly, Maria
17 

Baltazar showed no authorization from a court when she signed the Deed of Sale of August 26,
1948, allegedly conveying her children's realty to Leon.

While it is true that the Court of Appeals upheld the validity of the Deed of Sale, it nevertheless
correctly ruled that the sale by Maria Baltazar of her children's share was invalid. From its execution
up to the time that an action for reconveyance was instituted below by the private respondents and
to the present, the Deed of Sale of August 26, 1948, remained unenforceable as to private
respondents Procerfina, Ramon, Prosperidad, and Rosa. Article 1529 of the old Civil Code,  which 18 

was the prevailing law in 1948 and thus governed the questioned Deed of Sale, clearly provided that
a contract is unenforceable when there is an absence of authority on the part of one of the
contracting parties. Interpreting Article 1529 of the old Civil Code, the Court has ruled that the nullity
of the unenforceable contract is of a permanent nature and it will exist as long the unenforceable
contract is not duly ratified. The mere lapse of time cannot give efficacy to such a contract. The
defect is such that it cannot be cured except by the subsequent ratification of the unenforceable
contract by the person in whose name the contract was executed.  In the instant case, there is no
19 

showing of any express or implied ratification of the assailed Deed of Sale by the private
respondents Procerfina, Ramon, Prosperidad, and Rosa. Thus, the said Deed of Sale must remain
unenforceable as to them. 1âwphi1.nêt

WHEREFORE, the petition is DENIED for lack of merit, and the assailed judgment of the Court of
Appeals is AFFIRMED. Let the records of this case be remanded to the lower court for execution of
the judgment. Costs against petitioners.

SO ORDERED.

Bellosillo, Mendoza, Buena and De Leon, Jr., JJ., concur.

Footnotes

Penned by Associate Justice Fidel P. Purisima, Chairman, 8th Div., concurred in by

1 

Associate Justices Minerva P. Gonzaga-Reyes and Consuelo Ynares-Santiago.

Rollo, p. 101.
2 

Ibid.
3 

Id. at 115.
4 

Id. at 54.
5 

Id. at 61-62.
6 

Id. at 59.
7 

Id. at 61.
8 

Id. at 23-24.
9 

See for e.g., Claverias v. Quingco, 207 SCRA 66, 83 (1992), Marcelino v. Court of Appeals,
10 

210 SCRA 444, 446-447 (1992), Reyes v. Court of Appeals, 264 SCRA 35, 46 (1996),
Philgreen Trading Construction Corp. v. Court of Appeals, 271 SCRA 719, 725 (1997), and
Santiago v. Court of Appeals, 278 SCRA 98, 112 (1997).

11 
Republic v. Sandiganbayan, 255 SCRA 438, 451 (1996).

12 
Catholic Bishop of Balanga v. Court of Appeals, 264 SCRA 181, 194 (1996).
 Esquiviac v. Court of Appeals, 272 SCRA 803, 816-817 (1997); Legarda v. Court of
13 

Appeals, 280 SCRA 642, 657 (1997).

14 
Rollo, p. 58.

15 
Palet v. Aldecoa & Co., 15 Phil 232, 235 (1910).

Palarca v. Baguisi, 38 Phil. 177, 179-180 (1918); Ibañez v. Rodriguez, 47 Phil. 554, 562
16 

(1925).

17 
Ibañez v. Rodriguez, supra.

Art. 1529. A vendor in good faith shall be responsible for the existence and legality of the
18 

credit at the time of the sale, unless it should have been sold as doubtful, but he shall not be
responsible for the solvency of the debtor unless it has been so expressly stipulated, or
unless the insolvency of the latter should be prior to the sale and a matter of public
knowledge.

Even in these cases, he shall only be liable for the price received and for the
expenses mentioned in paragraph 1 of Art. 1518.

A vendor in bad faith shall always be liable for the payment of all the expenses, and
for losses and damages.

19 
Tipton v. Velasco, 6 Phil. 67, 69 (1906).