G.R. No.

166862             December 20, 2006 outstanding obligation to respondent PNB as of June 30,
1982,6 plus interests and attorney's fees.
MANILA METAL CONTAINER CORPORATION, petitioner,
REYNALDO C. TOLENTINO, intervenor, After due notice and publication, the property was sold at public
vs. auction on September 28, 1982 where respondent PNB was
PHILIPPINE NATIONAL BANK, respondent, declared the winning bidder for P1,000,000.00. The Certificate of
DMCI-PROJECT DEVELOPERS, INC., intervenor. Sale7 issued in its favor was registered with the Office of the
Register of Deeds of Rizal, and was annotated at the dorsal portion
of the title on February 17, 1983. Thus, the period to redeem the
property was to expire on February 17, 1984.
DECISION Petitioner sent a letter dated August 25, 1983 to respondent PNB,
requesting that it be granted an extension of time to
redeem/repurchase the property.8 In its reply dated August 30,
1983, respondent PNB informed petitioner that the request had
CALLEJO, SR., J.: been referred to its Pasay City Branch for appropriate action and
recommendation.9
Before us is a petition for review on certiorari of the Decision1 of
the Court of Appeals (CA) in CA-G.R. No. 46153 which affirmed the In a letter10 dated February 10, 1984, petitioner reiterated its
decision2 of the Regional Trial Court (RTC), Branch 71, Pasig City, request for a one year extension from February 17, 1984 within
in Civil Case No. 58551, and its Resolution3 denying the motion for which to redeem/repurchase the property on installment basis. It
reconsideration filed by petitioner Manila Metal Container reiterated its request to repurchase the property on
Corporation (MMCC). installment.11 Meanwhile, some PNB Pasay City Branch personnel
informed petitioner that as a matter of policy, the bank does not
The Antecedents accept "partial redemption."12
Petitioner was the owner of a 8,015 square meter parcel of land Since petitioner failed to redeem the property, the Register of
located in Mandaluyong (now a City), Metro Manila. The property Deeds cancelled TCT No. 32098 on June 1, 1984, and issued a new
was covered by Transfer Certificate of Title (TCT) No. 332098 of title in favor of respondent PNB.13 Petitioner's offers had not yet
the Registry of Deeds of Rizal. To secure a P900,000.00 loan it had been acted upon by respondent PNB.
obtained from respondent Philippine National Bank (PNB),
petitioner executed a real estate mortgage over the lot. Meanwhile, the Special Assets Management Department (SAMD)
Respondent PNB later granted petitioner a new credit had prepared a statement of account, and as of June 25, 1984
accommodation of P1,000,000.00; and, on November 16, 1973, petitioner's obligation amounted to P1,574,560.47. This included
petitioner executed an Amendment4 of Real Estate Mortgage over the bid price of P1,056,924.50, interest, advances of insurance
its property. On March 31, 1981, petitioner secured another loan premiums, advances on realty taxes, registration expenses,
of P653,000.00 from respondent PNB, payable in quarterly miscellaneous expenses and publication cost.14 When apprised of
installments of P32,650.00, plus interests and other charges.5 the statement of account, petitioner remitted P725,000.00 to
respondent PNB as "deposit to repurchase," and Official Receipt No.
On August 5, 1982, respondent PNB filed a petition for extrajudicial 978191 was issued to it.15
foreclosure of the real estate mortgage and sought to have the
property sold at public auction for P911,532.21, petitioner's In the meantime, the SAMD recommended to the management of
respondent PNB that petitioner be allowed to repurchase the
property for P1,574,560.00. In a letter dated November 14, 1984, offer to pay the balance of P643,452.34 in a letter dated August 1,
the PNB management informed petitioner that it was rejecting the 1989.22
offer and the recommendation of the SAMD. It was suggested that
On August 28, 1989, petitioner filed a complaint against
petitioner purchase the property for P2,660,000.00, its minimum
respondent PNB for "Annulment of Mortgage and Mortgage
market value. Respondent PNB gave petitioner until December 15,
Foreclosure, Delivery of Title, or Specific Performance with
1984 to act on the proposal; otherwise, its P725,000.00 deposit
Damages." To support its cause of action for specific performance,
would be returned and the property would be sold to other
it alleged the following:
interested buyers.16
34. As early as June 25, 1984, PNB had accepted the down
Petitioner, however, did not agree to respondent PNB's proposal.
payment from Manila Metal in the substantial amount
Instead, it wrote another letter dated December 12, 1984
of P725,000.00 for the redemption/repurchase price
requesting for a reconsideration. Respondent PNB replied in a letter
of P1,574,560.47 as approved by its SMAD and considering the
dated December 28, 1984, wherein it reiterated its proposal that
reliance made by Manila Metal and the long time that has elapsed,
petitioner purchase the property for P2,660,000.00. PNB again
the approval of the higher management of the Bank to confirm the
informed petitioner that it would return the deposit should
agreement of its SMAD is clearly a potestative condition which
petitioner desire to withdraw its offer to purchase the
cannot legally prejudice Manila Metal which has acted and relied on
property.17 On February 25, 1985, petitioner, through counsel,
the approval of SMAD. The Bank cannot take advantage of a
requested that PNB reconsider its letter dated December 28, 1984.
condition which is entirely dependent upon its own will after
Petitioner declared that it had already agreed to the SAMD's offer
accepting and benefiting from the substantial payment made by
to purchase the property for P1,574,560.47, and that was why it
Manila Metal.
had paid P725,000.00. Petitioner warned respondent PNB that it
would seek judicial recourse should PNB insist on the position. 18 35. PNB approved the repurchase price of P1,574,560.47 for which
it accepted P725,000.00 from Manila Metal. PNB cannot take
On June 4, 1985, respondent PNB informed petitioner that the PNB
advantage of its own delay and long inaction in demanding a
Board of Directors had accepted petitioner's offer to purchase the
higher amount based on unilateral computation of interest rate
property, but for P1,931,389.53 in cash less the P725,000.00
without the consent of Manila Metal.
already deposited with it.19 On page two of the letter was a space
above the typewritten name of petitioner's President, Pablo Petitioner later filed an amended complaint and supported its claim
Gabriel, where he was to affix his signature. However, Pablo for damages with the following arguments:
Gabriel did not conform to the letter but merely indicated therein
that he had received it.20 Petitioner did not respond, so PNB 36. That in order to protect itself against the wrongful and
requested petitioner in a letter dated June 30, 1988 to submit an malicious acts of the defendant Bank, plaintiff is constrained to
amended offer to repurchase. engage the services of counsel at an agreed fee of P50,000.00 and
to incur litigation expenses of at least P30,000.00, which the
Petitioner rejected respondent's proposal in a letter dated July 14, defendant PNB should be condemned to pay the plaintiff Manila
1988. It maintained that respondent PNB had agreed to sell the Metal.
property for P1,574,560.47, and that since its P725,000.00
downpayment had been accepted, respondent PNB was proscribed 37. That by reason of the wrongful and malicious actuations of
from increasing the purchase price of the property.21 Petitioner defendant PNB, plaintiff Manila Metal suffered besmirched
averred that it had a net balance payable in the amount reputation for which defendant PNB is liable for moral damages of
of P643,452.34. Respondent PNB, however, rejected petitioner's at least P50,000.00.
38. That for the wrongful and malicious act of defendant PNB which During pre-trial, the parties agreed to submit the case for decision,
are highly reprehensible, exemplary damages should be awarded in based on their stipulation of facts.25 The parties agreed to limit the
favor of the plaintiff by way of example or correction for the public issues to the following:
good of at least P30,000.00.23
1. Whether or not the June 4, 1985 letter of the defendant
Petitioner prayed that, after due proceedings, judgment be approving/accepting plaintiff's offer to purchase the property is still
rendered in its favor, thus: valid and legally enforceable.

a) Declaring the Amended Real Estate Mortgage (Annex "A") null 2. Whether or not the plaintiff has waived its right to purchase the
and void and without any legal force and effect. property when it failed to conform with the conditions set forth by
the defendant in its letter dated June 4, 1985.
b) Declaring defendant's acts of extra-judicially foreclosing the
mortgage over plaintiff's property and setting it for auction sale 3. Whether or not there is a perfected contract of sale between the
null and void. parties.26

c) Ordering the defendant Register of Deeds to cancel the new title While the case was pending, respondent PNB demanded, on
issued in the name of PNB (TCT NO. 43792) covering the property September 20, 1989, that petitioner vacate the property within 15
described in paragraph 4 of the Complaint, to reinstate TCT days from notice,27 but petitioners refused to do so.
No. 37025 in the name of Manila Metal and to cancel the
On March 18, 1993, petitioner offered to repurchase the property
annotation of the mortgage in question at the back of the TCT
for P3,500,000.00.28 The offer was however rejected by respondent
No. 37025 described in paragraph 4 of this Complaint.
PNB, in a letter dated April 13, 1993. According to it, the prevailing
d) Ordering the defendant PNB to return and/or deliver physical market value of the property was approximately P30,000,000.00,
possession of the TCT No. 37025 described in paragraph 4 of this and as a matter of policy, it could not sell the property for less than
Complaint to the plaintiff Manila Metal. its market value.29 On June 21, 1993, petitioner offered to
purchase the property for P4,250,000.00 in cash.30 The offer was
e) Ordering the defendant PNB to pay the plaintiff Manila Metal's
again rejected by respondent PNB on September 13, 1993.31
actual damages, moral and exemplary damages in the aggregate
amount of not less than P80,000.00 as may be warranted by the On May 31, 1994, the trial court rendered judgment dismissing the
evidence and fixed by this Honorable Court in the exercise of its amended complaint and respondent PNB's counterclaim. It ordered
sound discretion, and attorney's fees of P50,000.00 and litigation respondent PNB to refund the P725,000.00 deposit petitioner had
expenses of at least P30,000.00 as may be proved during the trial, made.32 The trial court ruled that there was no perfected contract
and costs of suit. of sale between the parties; hence, petitioner had no cause of
action for specific performance against respondent. The trial court
Plaintiff likewise prays for such further reliefs which may be
declared that respondent had rejected petitioner's offer to
deemed just and equitable in the premises.24
repurchase the property. Petitioner, in turn, rejected the terms and
In its Answer to the complaint, respondent PNB averred, as a conditions contained in the June 4, 1985 letter of the SAMD. While
special and affirmative defense, that it had acquired ownership petitioner had offered to repurchase the property per its letter of
over the property after the period to redeem had elapsed. It July 14, 1988, the amount of P643,422.34 was way below
claimed that no contract of sale was perfected between it and the P1,206,389.53 which respondent PNB had demanded. It further
petitioner after the period to redeem the property had expired. declared that the P725,000.00 remitted by petitioner to respondent
PNB on June 4, 1985 was a "deposit," and not a downpayment or
earnest money.
On appeal to the CA, petitioner made the following allegations: THE LOWER COURT ERRED IN NOT AWARDING PLAINTIFF-
APPELLANT ACTUAL, MORAL AND EXEMPLARY DAMAGES,
I
ATTOTRNEY'S FEES AND LITIGATION EXPENSES. 33
THE LOWER COURT ERRED IN RULING THAT DEFENDANT-
Meanwhile, on June 17, 1993, petitioner's Board of Directors
APPELLEE'S LETTER DATED 4 JUNE 1985 APPROVING/ACCEPTING
approved Resolution No. 3-004, where it waived, assigned and
PLAINTIFF-APPELLANT'S OFFER TO PURCHASE THE SUBJECT
transferred its rights over the property covered by TCT No. 33099
PROPERTY IS NOT VALID AND ENFORCEABLE.
and TCT No. 37025 in favor of Bayani Gabriel, one of its
II Directors.34 Thereafter, Bayani Gabriel executed a Deed of
Assignment over 51% of the ownership and management of the
THE LOWER COURT ERRED IN RULING THAT THERE WAS NO property in favor of Reynaldo Tolentino, who later moved for leave
PERFECTED CONTRACT OF SALE BETWEEN PLAINTIFF-APPELLANT to intervene as plaintiff-appellant. On July 14, 1993, the CA issued
AND DEFENDANT-APPELLEE. a resolution granting the motion,35 and likewise granted the motion
of Reynaldo Tolentino substituting petitioner MMCC, as plaintiff-
III
appellant, and his motion to withdraw as intervenor.36
THE LOWER COURT ERRED IN RULING THAT PLAINTIFF-
The CA rendered judgment on May 11, 2000 affirming the decision
APPELLLANT WAIVED ITS RIGHT TO PURCHASE THE SUBJECT
of the RTC.37 It declared that petitioner obviously never agreed to
PROPERTY WHEN IT FAILED TO CONFORM WITH CONDITIONS SET
the selling price proposed by respondent PNB (P1,931,389.53)
FORTH BY DEFENDANT-APPELLEE IN ITS LETTER DATED 4 JUNE
since petitioner had kept on insisting that the selling price should
1985.
be lowered to P1,574,560.47. Clearly therefore, there was no
IV meeting of the minds between the parties as to the price or
consideration of the sale.
THE LOWER COURT ERRED IN DISREGARDING THE FACT THAT IT
WAS THE DEFENDANT-APPELLEE WHICH RENDERED IT DIFFICULT The CA ratiocinated that petitioner's original offer to purchase the
IF NOT IMPOSSIBLE FOR PLAINTIFF-APPELLANT TO COMPLETE THE subject property had not been accepted by respondent PNB. In
BALANCE OF THEIR PURCHASE PRICE. fact, it made a counter-offer through its June 4, 1985 letter
specifically on the selling price; petitioner did not agree to the
V counter-offer; and the negotiations did not prosper. Moreover,
THE LOWER COURT ERRED IN DISREGARDING THE FACT THAT petitioner did not pay the balance of the purchase price within the
THERE WAS NO VALID RESCISSION OR CANCELLATION OF sixty-day period set in the June 4, 1985 letter of respondent PNB.
SUBJECT CONTRACT OF REPURCHASE. Consequently, there was no perfected contract of sale, and as
such, there was no contract to rescind.
VI
According to the appellate court, the claim for damages and the
THE LOWER COURT ERRED IN DECLARING THAT PLAINTIFF FAILED counterclaim were correctly dismissed by the court a quo for no
AND REFUSED TO SUBMIT THE AMENDED REPURCHASE OFFER. evidence was presented to support it. Respondent PNB's letter
dated June 30, 1988 cannot revive the failed negotiations between
VII
the parties. Respondent PNB merely asked petitioner to submit an
THE LOWER COURT ERRED IN DISMISSING THE AMENDED amended offer to repurchase. While petitioner reiterated its
COMPLAINT OF PLAINTIFF-APPELLANT. request for a lower selling price and that the balance of the

VIII
repurchase be reduced, however, respondent rejected the proposal deposited P725,000.00 with the SAMD as partial payment,
in a letter dated August 1, 1989. evidenced by Receipt No. 978194 which respondent had issued.
Petitioner avers that the SAMD's acceptance of the deposit
Petitioner filed a motion for reconsideration, which the CA likewise
amounted to an acceptance of its offer to repurchase. Moreover, as
denied.
gleaned from the letter of SAMD dated June 4, 1985, the PNB
Thus, petitioner filed the instant petition for review on certiorari, Board of Directors had approved petitioner's offer to purchase the
alleging that: property. It claims that this was the suspensive condition, the
fulfillment of which gave rise to the contract. Respondent could no
I. THE COURT OF APPEALS ERRED ON A QUESTION OF LAW WHEN longer unilaterally withdraw its offer to sell the property
IT RULED THAT THERE IS NO PERFECTED CONTRACT OF SALE for P1,574,560.47, since the acceptance of the offer resulted in a
BETWEEN THE PETITIONER AND RESPONDENT. perfected contract of sale; it was obliged to remit to respondent
the balance of the original purchase price of P1,574,560.47, while
II. THE COURT OF APPEALS ERRED ON A QUESTION OF LAW WHEN
respondent was obliged to transfer ownership and deliver the
IT RULED THAT THE AMOUNT OF PHP725,000.00 PAID BY THE
property to petitioner, conformably with Article 1159 of the New
PETITIONER IS NOT AN EARNEST MONEY.
Civil Code.
III. THE COURT OF APPEALS ERRED ON A QUESTION OF LAW
Petitioner posits that respondent was proscribed from increasing
WHEN IT RULED THAT THE FAILURE OF THE PETITIONER-
the interest rate after it had accepted respondent's offer to sell the
APPELLANT TO SIGNIFY ITS CONFORMITY TO THE TERMS
property for P1,574,560.00. Consequently, respondent could no
CONTAINED IN PNB'S JUNE 4, 1985 LETTER MEANS THAT THERE
longer validly make a counter-offer of P1,931,789.88 for the
WAS NO VALID AND LEGALLY ENFORCEABLE CONTRACT OF SALE
purchase of the property. It likewise maintains that, although
BETWEEN THE PARTIES.
the P725,000.00 was considered as "deposit for the repurchase of
IV. THE COURT OF APPEALS ERRED ON A QUESTION OF LAW THAT the property" in the receipt issued by the SAMD, the amount
NON-PAYMENT OF THE PETITIONER-APPELLANT OF THE BALANCE constitutes earnest money as contemplated in Article 1482 of the
OF THE OFFERED PRICE IN THE LETTER OF PNB DATED JUNE 4, New Civil Code. Petitioner cites the rulings of this Court in Villonco
1985, WITHIN SIXTY (60) DAYS FROM NOTICE OF APPROVAL v. Bormaheco39 and Topacio v. Court of Appeals.40
CONSTITUTES NO VALID AND LEGALLY ENFORCEABLE CONTRACT
Petitioner avers that its failure to append its conformity to the June
OF SALE BETWEEN THE PARTIES.
4, 1984 letter of respondent and its failure to pay the balance of
V. THE COURT OF APPEALS SERIOUSLY ERRED WHEN IT HELD the price as fixed by respondent within the 60-day period from
THAT THE LETTERS OF PETITIONER-APPELLANT DATED MARCH 18, notice was to protest respondent's breach of its obligation to
1993 AND JUNE 21, 1993, OFFERING TO BUY THE SUBJECT petitioner. It did not amount to a rejection of respondent's offer to
PROPERTY AT DIFFERENT AMOUNT WERE PROOF THAT THERE IS sell the property since respondent was merely seeking to enforce
NO PERFECTED CONTRACT OF SALE.38 its right to pay the balance of P1,570,564.47. In any event,
respondent had the option either to accept the balance of the
The threshold issue is whether or not petitioner and respondent offered price or to cause the rescission of the contract.
PNB had entered into a perfected contract for petitioner to
repurchase the property from respondent. Petitioner's letters dated March 18, 1993 and June 21, 1993 to
respondent during the pendency of the case in the RTC were
Petitioner maintains that it had accepted respondent's offer made merely to compromise the pending lawsuit, they did not constitute
through the SAMD, to sell the property for P1,574,560.00. When separate offers to repurchase the property. Such offer to
the acceptance was made in its letter dated June 25, 1984; it then
compromise should not be taken against it, in accordance with encumber, dispose of, or otherwise alienate the assets, since the
Section 27, Rule 130 of the Revised Rules of Court. power to do so must emanate from its Board of Directors. The
SAMD was not authorized by respondent's Board to enter into
For its part, respondent contends that the parties never graduated
contracts of sale with third persons involving corporate assets.
from the "negotiation stage" as they could not agree on the
There is absolutely nothing on record that respondent authorized
amount of the repurchase price of the property. All that transpired
the SAMD, or made it appear to petitioner that it represented itself
was an exchange of proposals and counter-proposals, nothing
as having such authority.
more. It insists that a definite agreement on the amount and
manner of payment of the price are essential elements in the Respondent reiterates that SAMD had informed petitioner that its
formation of a binding and enforceable contract of sale. There was offer to repurchase had been approved by the Board subject to the
no such agreement in this case. Primarily, the concept of condition, among others, "that the selling price shall be the total
"suspensive condition" signifies a future and uncertain event upon bank's claim as of documentation date x x x payable in cash
the fulfillment of which the obligation becomes effective. It clearly (P725,000.00 already deposited)
presupposes the existence of a valid and binding agreement, the
within 60 days from notice of approval." A new Statement of
effectivity of which is subordinated to its fulfillment. Since there is
Account was attached therein indicating the total bank's claim to
no perfected contract in the first place, there is no basis for the
be P1,931,389.53 less deposit of P725,000.00, or P1,206,389.00.
application of the principles governing "suspensive conditions."
Furthermore, while respondent's Board of Directors accepted
According to respondent, the Statement of Account prepared by petitioner's offer to repurchase the property, the acceptance was
SAMD as of June 25, 1984 cannot be classified as a counter-offer; qualified, in that it required a higher sale price and subject to
it is simply a recital of its total monetary claims against petitioner. specified terms and conditions enumerated therein. This qualified
Moreover, the amount stated therein could not likewise be acceptance was in effect a counter-offer, necessitating petitioner's
considered as the counter-offer since as admitted by petitioner, it acceptance in return.
was only recommendation which was subject to approval of the
The Ruling of the Court
PNB Board of Directors.
The ruling of the appellate court that there was no perfected
Neither can the receipt by the SAMD of P725,000.00 be regarded
contract of sale between the parties on June 4, 1985 is correct.
as evidence of a perfected sale contract. As gleaned from the
parties' Stipulation of Facts during the proceedings in the court a A contract is a meeting of minds between two persons whereby
quo, the amount is merely an acknowledgment of the receipt one binds himself, with respect to the other, to give something or
of P725,000.00 as deposit to repurchase the property. The deposit to render some service.41 Under Article 1318 of the New Civil Code,
of P725,000.00 was accepted by respondent on the condition that there is no contract unless the following requisites concur:
the purchase price would still be approved by its Board of
Directors. Respondent maintains that its acceptance of the amount (1) Consent of the contracting parties;
was qualified by that condition, thus not absolute. Pending such
(2) Object certain which is the subject matter of the contract;
approval, it cannot be legally claimed that respondent is already
bound by any contract of sale with petitioner. (3) Cause of the obligation which is established.

According to respondent, petitioner knew that the SAMD has no Contracts are perfected by mere consent which is manifested by
capacity to bind respondent and that its authority is limited to the meeting of the offer and the acceptance upon the thing and the
administering, managing and preserving the properties and other cause which are to constitute the contract.42 Once perfected, they
special assets of PNB. The SAMD does not have the power to sell, bind other contracting parties and the obligations arising therefrom
have the form of law between the parties and should be complied stage, the offer may be withdrawn; the withdrawal is effective
with in good faith. The parties are bound not only to the fulfillment immediately after its manifestation. To convert the offer into a
of what has been expressly stipulated but also to the consequences contract, the acceptance must be absolute and must not qualify the
which, according to their nature, may be in keeping with good terms of the offer; it must be plain, unequivocal, unconditional and
faith, usage and law.43 without variance of any sort from the proposal. In Adelfa
Properties, Inc. v. Court of Appeals,51 the Court ruled that:
By the contract of sale, one of the contracting parties obligates
himself to transfer the ownership of and deliver a determinate x x x The rule is that except where a formal acceptance is so
thing, and the other to pay therefor a price certain in money or its required, although the acceptance must be affirmatively and clearly
equivalent.44 The absence of any of the essential elements will made and must be evidenced by some acts or conduct
negate the existence of a perfected contract of sale. As the Court communicated to the offeror, it may be shown by acts, conduct, or
ruled in Boston Bank of the Philippines v. Manalo:45 words of the accepting party that clearly manifest a present
intention or determination to accept the offer to buy or sell. Thus,
A definite agreement as to the price is an essential element of a
acceptance may be shown by the acts, conduct, or words of a party
binding agreement to sell personal or real property because it
recognizing the existence of the contract of sale.52
seriously affects the rights and obligations of the parties. Price is
an essential element in the formation of a binding and enforceable A qualified acceptance or one that involves a new proposal
contract of sale. The fixing of the price can never be left to the constitutes a counter-offer and a rejection of the original offer. A
decision of one of the contracting parties. But a price fixed by one counter-offer is considered in law, a rejection of the original offer
of the contracting parties, if accepted by the other, gives rise to a and an attempt to end the negotiation between the parties on a
perfected sale.46 different basis.53 Consequently, when something is desired which is
not exactly what is proposed in the offer, such acceptance is not
A contract of sale is consensual in nature and is perfected upon
sufficient to guarantee consent because any modification or
mere meeting of the minds. When there is merely an offer by one
variation from the terms of the offer annuls the offer.54 The
party without acceptance of the other, there is no contract.47 When
acceptance must be identical in all respects with that of the offer so
the contract of sale is not perfected, it cannot, as an independent
as to produce consent or meeting of the minds.
source of obligation, serve as a binding juridical relation between
the parties.48 In this case, petitioner had until February 17, 1984 within which to
redeem the property. However, since it lacked the resources, it
In San Miguel Properties Philippines, Inc. v. Huang,49 the Court
requested for more time to redeem/repurchase the property under
ruled that the stages of a contract of sale are as follows: (1)
such terms and conditions agreed upon by the parties.55 The
negotiation, covering the period from the time the prospective
request, which was made through a letter dated August 25, 1983,
contracting parties indicate interest in the contract to the time the
was referred to the respondent's main branch for appropriate
contract is perfected; (2) perfection, which takes place upon the
action.56 Before respondent could act on the request, petitioner
concurrence of the essential elements of the sale which are the
again wrote respondent as follows:
meeting of the minds of the parties as to the object of the contract
and upon the price; and (3) consummation, which begins when the 1. Upon approval of our request, we will pay your goodselves ONE
parties perform their respective undertakings under the contract of HUNDRED & FIFTY THOUSAND PESOS (P150,000.00);
sale, culminating in the extinguishment thereof.
2. Within six months from date of approval of our request, we will
A negotiation is formally initiated by an offer, which, however, pay another FOUR HUNDRED FIFTY THOUSAND PESOS
must be certain.50 At any time prior to the perfection of the (P450,000.00); and
contract, either negotiating party may stop the negotiation. At this
3. The remaining balance together with the interest and other It appears that the SAMD had prepared a recommendation for
expenses that will be incurred will be paid within the last six respondent to accept petitioner's offer to repurchase the property
months of the one year grave period requested for.57 even beyond the one-year period; it recommended that petitioner
be allowed to redeem the property and pay P1,574,560.00 as the
When the petitioner was told that respondent did not allow "partial
purchase price. Respondent later approved the recommendation
redemption,"58 it sent a letter to respondent's President reiterating
that the property be sold to petitioner. But instead of
its offer to purchase the property.59 There was no response to
the P1,574,560.47 recommended by the SAMD and to which
petitioner's letters dated February 10 and 15, 1984.
petitioner had previously conformed, respondent set the purchase
The statement of account prepared by the SAMD stating that the price at P2,660,000.00. In fine, respondent's acceptance of
net claim of respondent as of June 25, 1984 was P1,574,560.47 petitioner's offer was qualified, hence can be at most considered as
cannot be considered an unqualified acceptance to petitioner's offer a counter-offer. If petitioner had accepted this counter-offer, a
to purchase the property. The statement is but a computation of perfected contract of sale would have arisen; as it turns out,
the amount which petitioner was obliged to pay in case respondent however, petitioner merely sought to have the counter-offer
would later agree to sell the property, including interests, advances reconsidered. This request for reconsideration would later be
on insurance premium, advances on realty taxes, publication cost, rejected by respondent.
registration expenses and miscellaneous expenses.
We do not agree with petitioner's contention that the P725,000.00
There is no evidence that the SAMD was authorized by it had remitted to respondent was "earnest money" which could be
respondent's Board of Directors to accept petitioner's offer and sell considered as proof of the perfection of a contract of sale under
the property for P1,574,560.47. Any acceptance by the SAMD of Article 1482 of the New Civil Code. The provision reads:
petitioner's offer would not bind respondent. As this Court ruled
ART. 1482. Whenever earnest money is given in a contract of sale,
in AF Realty Development, Inc. vs. Diesehuan Freight Services,
it shall be considered as part of the price and as proof of the
Inc.:60
perfection of the contract.
Section 23 of the Corporation Code expressly provides that the
This contention is likewise negated by the stipulation of facts which
corporate powers of all corporations shall be exercised by the
the parties entered into in the trial court:
board of directors. Just as a natural person may authorize another
to do certain acts in his behalf, so may the board of directors of a 8. On June 8, 1984, the Special Assets Management Department
corporation validly delegate some of its functions to individual (SAMD) of PNB prepared an updated Statement of Account
officers or agents appointed by it. Thus, contracts or acts of a showing MMCC's total liability to PNB as of June 25, 1984 to be
corporation must be made either by the board of directors or by a P1,574,560.47 and recommended this amount as the repurchase
corporate agent duly authorized by the board. Absent such valid price of the subject property.
delegation/authorization, the rule is that the declarations of an
9. On June 25, 1984, MMCC paid P725,000.00 to PNB as deposit to
individual director relating to the affairs of the corporation, but not
repurchase the property. The deposit of P725,000 was accepted by
in the course of, or connected with the performance of authorized
PNB on the condition that the purchase price is still subject to the
duties of such director, are held not binding on the corporation.
approval of the PNB Board.62
Thus, a corporation can only execute its powers and transact its
Thus, the P725,000.00 was merely a deposit to be applied as part
business through its Board of Directors and through its officers and
of the purchase price of the property, in the event that respondent
agents when authorized by a board resolution or its by-laws.61
would approve the recommendation of SAMD for respondent to
accept petitioner's offer to purchase the property
for P1,574,560.47. Unless and until the respondent accepted the It appears that although respondent requested petitioner to
offer on these terms, no perfected contract of sale would arise. conform to its amended counter-offer, petitioner refused and
Absent proof of the concurrence of all the essential elements of a instead requested respondent to reconsider its amended counter-
contract of sale, the giving of earnest money cannot establish the offer. Petitioner's request was ultimately rejected and respondent
existence of a perfected contract of sale.63 offered to refund its P725,000.00 deposit.

It appears that, per its letter to petitioner dated June 4, 1985, the In sum, then, there was no perfected contract of sale between
respondent had decided to accept the offer to purchase the petitioner and respondent over the subject property.
property for P1,931,389.53. However, this amounted to an
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED.
amendment of respondent's qualified acceptance, or an amended
counter-offer, because while the respondent lowered the purchase The assailed decision is AFFIRMED. Costs against petitioner Manila
price, it still declared that its acceptance was subject to the Metal Container Corporation.
following terms and conditions:
SO ORDERED.
1. That the selling price shall be the total Bank's claim as of
documentation date (pls. see attached statement of account as of
5-31-85), payable in cash (P725,000.00 already deposited) within
sixty (60) days from notice of approval;

2. The Bank sells only whatever rights, interests and participation it

may have in the property and you are charged with full knowledge
of the nature and extent of said rights, interests and participation
and waive your right to warranty against eviction.

3. All taxes and other government imposts due or to become due

on the property, as well as expenses including costs of documents
and science stamps, transfer fees, etc., to be incurred in
connection with the execution and registration of all covering
documents shall be borne by you;

4. That you shall undertake at your own expense and account the
ejectment of the occupants of the property subject of the sale, if
there are any;

5. That upon your failure to pay the balance of the purchase price
within sixty (60) days from receipt of advice accepting your offer,
your deposit shall be forfeited and the Bank is thenceforth
authorized to sell the property to other interested parties.

6. That the sale shall be subject to such other terms and conditions
that the Legal Department may impose to protect the interest of
the Bank.64
Consensual

G.R. No. 137552. June 16, 2000 On October 27, 1988, defendant Dennis Z. Laforteza executed a
Special Power of Attorney in favor of defendant Roberto Z.
Laforteza for the purpose of selling the subject property (Exh. "C",
ROBERTO Z. LAFORTEZA, GONZALO Z. LAFORTEZA, MICHAEL Z. Plaintiff, record, pp. 329-330). A year later, on October 30, 1989,
LAFORTEZA, DENNIS Z. LAFORTEZA, and LEA Z. LAFORTEZA, Dennis Z. Laforteza executed another Special Power of Attorney in
Petitioners, v. ALONZO MACHUCA, Respondent. favor of defendants Roberto Z. Laforteza and Gonzalo Laforteza, Jr.
naming both attorneys-in-fact for the purpose of selling the subject
DECISION property and signing any document for the settlement of the estate
of the late Francisco Q. Laforteza. The subsequent agency
GONZAGA_REYES, J.: instrument (Exh. "2", record, pp. 371-373) contained similar
This Petition for Review on Certiorari seeks the reversal of the provisions that both attorneys-in-fact should sign any document or
Decision of the Court of Appeals1 in CA G.R. CV No. 47457 entitled paper executed in the exercise of their authority.
"ALONZO MACHUCA versus ROBERTO Z. LAFORTEZA, GONZALO Z. In the exercise of the above authority, on January 20, 1989, the
LAFORTEZA, LEA ZULUETA-LAFORTEZA MICHAEL Z. LAFORTEZA, heirs of the late Francisco Q. Laforteza represented by Roberto Z.
and DENNIS Z. LAFORTEZA". Laforteza and Gonzalo Z. Laforteza, Jr. entered into a
The following facts as found by the Court of Appeals are Memorandum of Agreement (Contract to Sell) with the plaintiff2
undisputed: over the subject property for the sum of SIX HUNDRED THIRTY
THOUSAND PESOS (P630,000.00) payable as follows:
"The property involved consists of a house and lot located at No.
7757 Sherwood Street, Marcelo Green Village, Paraaque, Metro (a) P30,000.00 as earnest money, to be forfeited in favor of the
Manila, covered by Transfer Certificate of Title (TCT) No. (220656) defendants if the sale is not effected due to the fault of the
8941 of the Registered of Deeds of Paraaque (Exhibit "D", Plaintiff, plaintiff;
record, pp. 331-332). The subject property is registered in the (b) P600,000.00 upon issuance of the new certificate of title in the
name of the late Francisco Q. Laforteza, although it is conjugal in name of the late Francisco Q. Laforteza and upon execution of an
nature (Exhibit "8", Defendants, record pp. 331-386). extra-judicial settlement of the decedents estate with sale in favor
On August 2, 1988, defendant Lea Zulueta-Laforteza executed a of the plaintiff (Par. 2, Exh. "E", record, pp. 335-336).
Special Power of Attorney in favor of defendants Roberto Z. Significantly, the fourth paragraph of the Memorandum of
Laforteza and Gonzalo Z. Laforteza, Jr., appointing both as her Agreement (Contract to Sell) dated January 20, 1989 (Exh. "E",
Attorney-in-fact authorizing them jointly to sell the subject supra.) contained a provision as follows:
property and sign any document for the settlement of the estate of
the late Francisco Q. Laforteza (Exh. "A", Plaintiff, record, pp. 323- xxx. Upon issuance by the proper Court of the new title, the
325). BUYER-LESSEE shall be notified in writing and said BUYER-LESSEE
shall have thirty (30) days to produce the balance of P600,000.00
which shall be paid to the SELLER-LESSORS upon the execution of
Likewise on the same day, defendant Michael Z. Laforteza executed the Extrajudicial Settlement with sale.
a Special Power of Attorney in favor of defendants Roberto Z. On January 20, 1989, plaintiff paid the earnest money of THIRTY
Laforteza and Gonzalo Laforteza, Jr., likewise, granting the same THOUSAND PESOS (P30,000.00), plus rentals for the subject
authority (Exh. "B", record, pp. 326-328). Both agency instruments property (Exh. "F", Plaintiff, record, p. 339).
contained a provision that in any document or paper to exercise
authority granted, the signature of both attorneys-in-fact must be On September 18, 19983 , defendant heirs, through their counsel
affixed. wrote a letter (Exh. 1, Defendants, record, p. 370) to the plaintiff
furnishing the latter a copy of the reconstituted title to the subject on July 6, 1994 in favor of the plaintiff, the dispositive portion of
property, advising him that he had thirty (3) days to produce the which reads:
balance of SIX HUNDRED PESOS (sic) (P600,000.00) under the
Memorandum of Agreement which plaintiff received on the same
date. WHEREFORE, judgment is hereby rendered in favor of plaintiff
On October 18, 1989, plaintiff sent the defendant heirs a letter Alonzo Machuca and against the defendant heirs of the late
requesting for an extension of the THIRTY (30) DAYS deadline up Francisco Q. Laforteza, ordering the said defendants.
to November 15, 1989 within which to produce the balance of SIX
HUNDRED THOUSAND PESOS (P600,000.00) (Exh. "G", Plaintiff,
record, pp. 341-342). Defendant Roberto Z. Laforteza, assisted by (a) To accept the balance of P600,000.00 as full payment of the
his counsel Atty. Romeo L. Gutierrez, signed his conformity to the consideration for the purchase of the house and lot located at No.
plaintiffs letter request (Exh. "G-1 and "G-2", Plaintiff, record, p. 7757 Sherwood Street, Marcelo Green Village, Paraaque, Metro
342). The extension, however, does not appear to have been Manila, covered by Transfer Certificate of Title No. (220656) 8941
approved by Gonzalo Z. Laforteza, the second attorney-in-fact as of the Registry of Deeds of Rizal Paraaque, Branch;
his conformity does not appear to have been secured.

(b) To execute a registrable deed of absolute sale over the subject

On November 15, 1989, plaintiff informed the defendant heirs, property in favor of the plaintiff;
through defendant Roberto Z. Laforteza, that he already had the
balance of SIX HUNDRED THOUSAND PESOS (P600,000.00)
covered by United Coconut Planters Bank Managers Check No. (c) Jointly and severally to pay the plaintiff the sum of P20,000.00
000814 dated November 15, 1989 (TSN, August 25, 1992, p. 11; as attorneys fees plus cost of suit.
Exhs. "H", record, pp. 343-344; "M", records p. 350; and "N",
record, p. 351). However, the defendants, refused to accept the
balance (TSN, August 24, 1992, p. 14; Exhs. "M-1", Plaintiff,
record, p. 350; and "N-1", Plaintiff, record, p. 351). Defendant SO ORDERED. (Rollo, pp. 74-75)."5cräläwvirtualibräry
Roberto Z. Laforteza had told him that the subject property was no
longer for sale (TSN, October 20, 1992, p. 19; Exh. "J", record, p.
347). Petitioners appealed to the Court of Appeals, which affirmed with
modification the decision of the lower court; the dispositive portion
of the Decision reads:
On November 20, 19984 , defendants informed the plaintiff that
they were canceling the Memorandum of Agreement (Contract to
Sell) in view of the plaintiffs failure to comply with his contractual "WHEREFORE, the questioned decision of the lower court is hereby
obligations (Exh. "3"). AFFIRMED with the MODIFICATION that defendant heirs Lea
Zulueta-Laforteza, Michael Z. Laforteza, Dennis Z. Laforteza and
Roberto Z. Laforteza including Gonzalo Z. Laforteza, Jr. are hereby
Thereafter, plaintiff reiterated his request to tender payment of the ordered to pay jointly and severally the sum of FIFTY THOUSAND
balance of SIX HUNDRED THOUSAND PESOS (P600,000.00). PESOS (P50,000.00) as moral damages.
Defendants, however, insisted on the rescission of the
Memorandum of Agreement. Thereafter, plaintiff filed the instant
action for specific performance. The lower court rendered judgment SO ORDERED."6cräläwvirtualibräry
 respondent was conditioned upon the issuance of a new certificate
of title and the execution of the extrajudicial partition with sale and
Motion for Reconsideration was denied but the Decision was payment of the P600,000.00. This is why possession of the subject
modified so as to absolve Gonzalo Z. Laforteza, Jr. from liability for property was not delivered to the respondent as the owner of the
the payment of moral damages.7 Hence this petition wherein the property but only as the lessee thereof. And the failure of the
petitioners raise the following issues: respondent to pay the purchase price in full prevented the
"I. WHETHER THE TRIAL AND APPELLATE COURTS CORRECTLY petitioners obligation to convey title from acquiring obligatory
CONSTRUED THE MEMORANDUM OF AGREEMENT AS IMPOSING force.
RECIPROCAL OBLIGATIONS. Petitioners also allege that assuming for the sake of argument that
II. WHETHER THE COURTS A QUO CORRECTLY RULED THAT a contract of sale was indeed perfected, the Court of Appeals still
RESCISSION WILL NOT LIE IN THE INSTANT CASE. erred in holding that respondents failure to pay the purchase price
of P600,000.00 was only a "slight or casual breach".
III. WHETHER THE RESPONDENT IS UNDER ESTOPPEL FROM
RAISING THE ALLEGED DEFECT IN THE SPECIAL POWER OF The petitioners also claim that the Court of Appeals erred in ruling
ATTORNEY DATED 30 OCTOBER 1989 EXECUTED BY DENNIS that they were not ready to comply with their obligation to execute
LAFORTEZA. the extrajudicial settlement. The Power of Attorney to execute a
Deed of Sale made by Dennis Z. Laforteza was sufficient and
IV. SUPPOSING EX GRATIA ARGUMENTI THE MEMORANDUM OF necessarily included the power to execute an extrajudicial
AGREEMENT IMPOSES RECIPROCAL OBLIGATIONS, WHETHER THE settlement. At any rate, the respondent is estopped from claiming
PETITIONERS MAY BE COMPELLED TO SELL THE SUBJECT that the petitioners were not ready to comply with their obligation
PROPERTY WHEN THE RESPONDENT FAILED TO MAKE A JUDICIAL for he acknowledged the petitioners ability to do so when he
CONSIGNATION OF THE PURCHASE PRICE? requested for an extension of time within which to pay the
purchase price. Had he truly believed that the petitioners were not
V. WHETHER THE PETITIONERS ARE IN BAD FAITH SO TO AS ready, he would not have needed to ask for said extension.
MAKE THEM LIABLE FOR MORAL DAMAGES?"8cräläwvirtualibräry
Finally, the petitioners allege that the respondents uncorroborated
The petitioners contend that the Memorandum of Agreement is testimony that third persons offered a higher price for the property
merely a lease agreement with "option to purchase". As it was is hearsay and should not be given any evidentiary weight. Thus,
merely an option, it only gave the respondent a right to purchase the order of the lower court awarding moral damages was without
the subject property within a limited period without imposing upon any legal basis.
them any obligation to purchase it. Since the respondents tender of
payment was made after the lapse of the option agreement, his The appeal is bereft of merit.
tender did not give rise to the perfection of a contract of sale.
A perusal of the Memorandum Agreement shows that the
transaction between the petitioners and the respondent was one of
sale and lease. The terms of the agreement read:
It is further maintained by the petitioners that the Court of Appeals
erred in ruling that rescission of the contract was already out of the "1. For and in consideration of the sum of PESOS: SIX HUNDRED
question. Rescission implies that a contract of sale was perfected THIRTY THOUSAND (P630,000.00) payable in a manner herein
unlike the Memorandum of Agreement in question which as below indicated, SELLER-LESSOR hereby agree to sell unto BUYER-
previously stated is allegedly only an option contract. LESSEE the property described in the first WHEREAS of this
Agreement within six (6) months from the execution date hereof,
Petitioner adds that at most, the Memorandum of Agreement or upon issuance by the Court of a new owners certificate of title
(Contract to Sell) is a mere contract to sell, as indicated in its title. and the execution of extrajudicial partition with sale of the estate
The obligation of the petitioners to sell the property to the of Francisco Laforteza, whichever is earlier;
2. The above-mentioned sum of PESOS: SIX HUNDRED THIRTY A contract of sale is a consensual contract and is perfected at the
THOUSAND (P630,000.00) shall be paid in the following manner: moment there is a meeting of the minds upon the thing which is
the object of the contract and upon the price.10 From that moment
P 30,000.00- as earnest money and as consideration for this the parties may reciprocally demand performance subject to the
Agreement, which amount shall be forfeited in favor of SELLER- provisions of the law governing the form of contracts.11 The
LESSORS if the sale is not effected because of the fault or option of elements of a valid contract of sale under Article 1458 of the Civil
BUYER-LESSEE; Code are (1) consent or meeting of the minds; (2) determinate
P 600,000.00- upon the issuance of the new certificate of title in subject matter and (3) price certain in money or its
the name of the late Francisco Laforteza and upon the ex ecution equivalent.12cräläwvirtualibräry
of an Extrajudicial Settlement of his estate with sale in favor of In the case at bench, there was a perfected agreement between
BUYER-LESSEE free from lien or any encumbrances. the petitioners and the respondent whereby the petitioners
3. Parties reasonably estimate that the issuance of a new title in obligated themselves to transfer the ownership of and deliver the
place of the lost one, as well as the execution of extrajudicial house and lot located at 7757 Sherwood St., Marcelo Green Village,
settlement of estate with sale to herein BUYER-LESSEE will be Paraaque and the respondent to pay the price amounting to six
completed within six (6) months from the execution of this hundred thousand pesos (P600,000.00). All the elements of a
Agreement. It is therefore agreed that during the six months contract of sale were thus present. However, the balance of the
period, BUYER-LESSEE will be leasing the subject property for six purchase price was to be paid only upon the issuance of the new
months period at the monthly rate of PESOS: THREE THOUSAND certificate of title in lieu of the one in the name of the late
FIVE HUNDRED (P3,500.00). Provided however, that if the issuance Francisco Laforteza and upon the execution of an extrajudicial
of new title and the execution of Extrajudicial Partition is completed settlement of his estate. Prior to the issuance of the "reconstituted"
prior to the expiration of the six months period, BUYER-LESSEE title, the respondent was already placed in possession of the house
shall only be liable for rentals for the corresponding period and lot as lessee thereof for six months at a monthly rate of three
commencing from his occupancy of the premises to the execution thousand five hundred pesos (P3,500.00). It was stipulated that
and completion of the Extrajudicial Settlement of the estate, should the issuance of the new title and the execution of the
provided further that if after the expiration of six (6) months, the extrajudicial settlement be completed prior to expiration of the six-
lost title is not yet replaced and the extra judicial partition is not month period, the respondent would be liable only for the rentals
executed, BUYER-LESSEE shall no longer be required to pay rentals pertaining to the period commencing from the date of the
and shall continue to occupy, and use the premises until subject execution of the agreement up to the execution of the extrajudicial
condition is complied by SELLER-LESSOR; settlement. It was also expressly stipulated that if after the
expiration of the six month period, the lost title was not yet
replaced and the extrajudicial partition was not yet executed, the
respondent would no longer be required to pay rentals and would
4. It is hereby agreed that within reasonable time from the continue to occupy and use the premises until the subject condition
execution of this Agreement and the payment by BUYER-LESSEE of was complied with by the petitioners.
the amount of P30,000.00 as herein above provided, SELLER-
LESSORS shall immediately file the corresponding petition for the
issuance of a new title in lieu of the lost one in the proper Courts.
Upon issuance by the proper Courts of the new title, the BUYER- The six-month period during which the respondent would be in
LESSEE shall have thirty (30) days to produce the balance of possession of the property as lessee, was clearly not a period
P600,000.00 which shall be paid to the SELLER-LESSORS upon the within which to exercise an option. An option is a contract granting
execution of the Extrajudicial Settlement with a privilege to buy or sell within an agreed time and at a determined
sale."9cräläwvirtualibräry price. An option contract is a separate and distinct contract from
that which the parties may enter into upon the consummation of
the option.13 An option must be supported by consideration.14 An
option contract is governed by the second paragraph of Article "Art. 1545. Where the obligation of either party to a contract of
1479 of the Civil Code15 , which reads: 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
"Article 1479. xxx the condition should happen or be performed, such first mentioned
party may also treat the nonperformance of the condition as a
breach of warranty.
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." Where the ownership in the things 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
In the present case, the six-month period merely delayed the perform his promise to accept and pay for the
demandability of the contract of sale and did not determine its thing."16cräläwvirtualibräry
perfection for after the expiration of the six-month period, there
was an absolute obligation on the part of the petitioners and the
respondent to comply with the terms of the sale. The parties made
a "reasonable estimate" that the reconstitution of the lost title of In the case at bar, there was already a perfected contract. The
the house and lot would take approximately six months and thus condition was imposed only on the performance of the obligations
presumed that after six months, both parties would be able to contained therein. Considering however that the title was
comply with what was reciprocally incumbent upon them. The fact eventually "reconstituted" and that the petitioners admit their
that after the expiration of the six-month period, the respondent ability to execute the extrajudicial settlement of their fathers
would retain possession of the house and lot without need of estate, the respondent had a right to demand fulfillment of the
paying rentals for the use therefor, clearly indicated that the petitioners obligation to deliver and transfer ownership of the
parties contemplated that ownership over the property would house and lot.
already be transferred by that time.

What further militates against petitioners argument that they did

The issuance of the new certificate of title in the name of the late not enter into a contract of sale is the fact that the respondent paid
Francisco Laforteza and the execution of an extrajudicial settlement thirty thousand pesos (P30,000.00) as earnest money. Earnest
of his estate was not a condition which determined the perfection money is something of value to show that the buyer was really in
of the contract of sale. Petitioners contention that since the earnest, and given to the seller to bind the bargain.17 Whenever
condition was not met, they no longer had an obligation to proceed earnest money is given in a contract of sale, it is considered as
with the sale of the house and lot is unconvincing. The petitioners part of the purchase price and proof of the perfection of the
fail to distinguish between a condition imposed upon the perfection contract.18cräläwvirtualibräry
of the contract and a condition imposed on the performance of an
obligation. Failure to comply with the first condition results in the
failure of a contract, while the failure to comply with the second We do not subscribe to the petitioners view that the Memorandum
condition only gives the other party the option either to refuse to Agreement was a contract to sell. There is nothing contained in the
proceed with the sale or to waive the condition. Thus, Art. 1545 of Memorandum Agreement from which it can reasonably be deduced
the Civil Code states: that the parties intended to enter into a contract to sell, i.e. one
whereby the prospective seller would explicitly reserve the transfer
of title to the prospective buyer, meaning, the prospective seller
does not as yet agree or consent to transfer ownership of the eight months after the execution of the Memorandum of
property subject of the contract to sell until the full payment of the Agreement when the petitioners informed the respondent that they
price, such payment being a positive suspensive condition, the already had a copy of the reconstituted title and demanded the
failure of which is not considered a breach, casual or serious, but payment of the balance of the purchase price. The respondent
simply an event which prevented the obligation from acquiring any could not therefore be considered in delay for in reciprocal
obligatory force.19 There is clearly no express reservation of title obligations, neither party incurs in delay if the other party does not
made by the petitioners over the property, or any provision which comply or is not ready to comply in a proper manner with what
would impose non-payment of the price as a condition for the was incumbent upon him.24cräläwvirtualibräry
contracts entering into force. Although the memorandum
agreement was also denominated as a "Contract to Sell", we hold
that the parties contemplated a contract of sale. A deed of sale is Even assuming for the sake of argument that the petitioners were
absolute in nature although denominated a conditional sale in the ready to comply with their obligation, we find that rescission of the
absence of a stipulation reserving title in the petitioners until full contract will still not prosper. The rescission of a sale of an
payment of the purchase price.20 In such cases, ownership of the immovable property is specifically governed by Article 1592 of the
thing sold passes to the vendee upon actual or constructive New Civil Code, which reads:
delivery thereof.21 The mere fact that the obligation of the
respondent to pay the balance of the purchase price was made
subject to the condition that the petitioners first deliver the
reconstituted title of the house and lot does not make the contract "In the sale of immovable property, even though it may have been
a contract to sell for such condition is not inconsistent with a stipulated that upon failure to pay the price at the time agreed
contract of sale.22cräläwvirtualibräry 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
The next issue to be addressed is whether the failure of the may not grant him a new term."25cräläwvirtualibräry
respondent to pay the balance of the purchase price within the
period allowed is fatal to his right to enforce the agreement.
It is not disputed that the petitioners did not make a judicial or
notarial demand for rescission. The November 20, 1989 letter of
We rule in the negative. the petitioners informing the respondent of the automatic
rescission of the agreement did not amount to a demand for
rescission, as it was not notarized.26 It was also made five days
Admittedly, the failure of the respondent to pay the balance of the after the respondents attempt to make the payment of the
purchase price was a breach of the contract and was a ground for purchase price. This offer to pay prior to the demand for rescission
rescission thereof. The extension of thirty (30) days allegedly is sufficient to defeat the petitioners right under article 1592 of the
granted to the respondent by Roberto Z. Laforteza (assisted by his Civil Code.27 Besides, the Memorandum Agreement between the
counsel Attorney Romeo Gutierrez) was correctly found by the parties did not contain a clause expressly authorizing the automatic
Court of Appeals to be ineffective inasmuch as the signature of cancellation of the contract without court intervention in the event
Gonzalo Z. Laforteza did not appear thereon as required by the that the terms thereof were violated. A seller cannot unilaterally
Special Powers of Attorney.23 However, the evidence reveals that and extrajudicially rescind a contract of sale where there is no
after the expiration of the six-month period provided for in the express stipulation authorizing him to extrajudicially rescind.28
contract, the petitioners were not ready to comply with what was Neither was there a judicial demand for the rescission thereof.
incumbent upon them, i.e. the delivery of the reconstituted title of Thus, when the respondent filed his complaint for specific
the house and lot. It was only on September 18, 1989 or nearly performance, the agreement was still in force inasmuch as the
contract was not yet rescinded. At any rate, considering that the
six-month period was merely an approximation of the time it would
take to reconstitute the lost title and was not a condition imposed No pronouncement as to costs.
on the perfection of the contract and considering further that the
delay in payment was only thirty days which was caused by the
respondents justified but mistaken belief that an extension to pay SO ORDERED.
was granted to him, we agree with the Court of Appeals that the
delay of one month in payment was a mere casual breach that
would not entitle the respondents to rescind the contract.
Rescission of a contract will not be permitted for a slight or casual
breach, but only such substantial and fundamental breach as would
defeat the very object of the parties in making the
agreement.29cräläwvirtualibräry

Petitioners insistence that the respondent should have consignated

the amount is not determinative of whether respondents action for
specific performance will lie. Petitioners themselves point out that
the effect of consignation is to extinguish the obligation. It releases
the debtor from responsibility therefor.30 The failure of the
respondent to consignate the P600,000.00 is not tantamount to a
breach of the contract for by the fact of tendering payment, he was
willing and able to comply with his obligation.

The Court of Appeals correctly found the petitioners guilty of bad

faith and awarded moral damages to the respondent. As found by
the said Court, the petitioners refused to comply with their
obligation for the reason that they were offered a higher price
therefor and the respondent was even offered P100,000.00 by the
petitioners lawyer, Attorney Gutierrez, to relinquish his rights over
the property. The award of moral damages is in accordance with
Article 119131 of the Civil Code pursuant to Article 2220 which
provides that moral damages may be awarded in case of a breach
of contract where the defendant acted in bad faith. The amount
awarded depends on the discretion of the court based on the
circumstances of each case.32 Under the circumstances, the award
given by the Court of Appeals amounting to P50,000.00 appears to
us to be fair and reasonable.

ACCORDINGLY , the decision of the Court of Appeals in CA G.R. CV

No. 47457 is AFFIRMED and the instant petition is hereby DENIED.
Bilateral and Reciprocal 4. All expense for the registration of this document with the
Register of Deeds concerned, including the transfer tax, shall be
G.R. No. 126083             July 12, 2006
divided equally between the Vendor and the Vendee. Payment of
ANTONIO R. CORTES (in his capacity as Administrator of the the capital gains shall be exclusively for the account of the Vendor;
estate of Claro S. Cortes), petitioner, 5% commission of Marcosa Sanchez to be deducted upon signing
vs. of sale.4
HON. COURT OF APPEALS and VILLA ESPERANZA
Said Deed was retained by Cortes for notarization.
DEVELOPMENT CORPORATION, respondents.
On January 14, 1985, the Corporation filed the instant case5 for
DECISION
specific performance seeking to compel Cortes to deliver the TCTs
YNARES-SANTIAGO, J.: and the original copy of the Deed of Absolute Sale. According to
the Corporation, despite its readiness and ability to pay the
The instant petition for review seeks the reversal of the June 13, purchase price, Cortes refused delivery of the sought documents. It
1996 Decision1 of the Court of Appeals in CA-G.R. CV No. 47856, thus prayed for the award of damages, attorney's fees and
setting aside the June 24, 1993 Decision2 of the Regional Trial litigation expenses arising from Cortes' refusal to deliver the same
Court of Makati, Branch 138, which rescinded the contract of sale documents.
entered into by petitioner Antonio Cortes (Cortes) and private
respondent Villa Esperanza Development Corporation In his Answer with counterclaim,6 Cortes claimed that the owner's
(Corporation). duplicate copy of the three TCTs were surrendered to the
Corporation and it is the latter which refused to pay in full the
The antecedents show that for the purchase price of agreed down payment. He added that portion of the subject
P3,700,000.00, the Corporation as buyer, and Cortes as seller, property is occupied by his lessee who agreed to vacate the
entered into a contract of sale over the lots covered by Transfer premises upon payment of disturbance fee. However, due to the
Certificate of Title (TCT) No. 31113-A, TCT No. 31913-A and TCT Corporation's failure to pay in full the sum of P2,200,000.00, he in
No. 32013-A, located at Baclaran, Parañaque, Metro Manila. On turn failed to fully pay the disturbance fee of the lessee who now
various dates in 1983, the Corporation advanced to Cortes the total refused to pay monthly rentals. He thus prayed that the
sum of P1,213,000.00. Sometime in September 1983, the parties Corporation be ordered to pay the outstanding balance plus
executed a deed of absolute sale containing the following terms:3 interest and in the alternative, to cancel the sale and forfeit the
1. Upon execution of this instrument, the Vendee shall pay unto P1,213,000.00 partial down payment, with damages in either case.
the Vendor sum of TWO MILLION AND TWO HUNDRED THOUSAND On June 24, 1993, the trial court rendered a decision rescinding
(P2,200,000.00) PESOS, Philippine Currency, less all advances paid the sale and directed Cortes to return to the Corporation the
by the Vendee to the Vendor in connection with the sale; amount of P1,213,000.00, plus interest. It ruled that pursuant to
2. The balance of ONE MILLION AND FIVE HUNDRED THOUSAND the contract of the parties, the Corporation should have fully paid
[P1,500,000.00] PESOS, Phil. Currency shall be payable within ONE the amount of P2,200,000.00 upon the execution of the contract. It
(1) YEAR from date of execution of this instrument, payment of stressed that such is the law between the parties because the
which shall be secured by an irrevocable standby letter of credit to Corporation failed to present evidence that there was another
be issued by any reputable local banking institution acceptable to agreement that modified the terms of payment as stated in the
the Vendor. contract. And, having failed to pay in full the amount of
P2,200,000.00 despite Cortes' delivery of the Deed of Absolute
xxxx Sale and the TCTs, rescission of the contract is proper.
In its motion for reconsideration, the Corporation contended that duplicate copies of TCT Nos. 31113-A, 31931-A and 32013-A of the
the trial court failed to consider their agreement that it would pay Registry of Deeds for the Province of Rizal, Metro Manila, District
the balance of the down payment when Cortes delivers the TCTs. IV, [the Corporation] shall pay [Cortes] the balance of the
The motion was, however, denied by the trial court holding that the purchase price of P2,487,000.00. As agreed upon in paragraph 4 of
rescission should stand because the Corporation did not act on the the Deed of Absolute Sale, Exhibit D, under terms and conditions,
offer of Cortes' counsel to deliver the TCTs upon payment of the "All expenses for the registration of this document (the deed of
balance of the down payment. Thus: sale) with the Register of Deeds concerned, including the transfer
tax, shall be divided equally between [Cortes and the Corporation].
The Court finds no merit in the [Corporation's] Motion for
Payment of the capital gains shall be exclusively for the account of
Reconsideration. As stated in the decision sought to be
the Vendor; 5% commission of Marcosa Sanchez to be deducted
reconsidered, [Cortes'] counsel at the pre-trial of this case,
upon signing of sale." There is no pronouncement as to costs.
proposed that if [the Corporation] completes the down payment
agreed upon and make arrangement for the payment of the SO ORDERED.8
balances of the purchase price, [Cortes] would sign the Deed of
Cortes filed the instant petition praying that the decision of the trial
Sale and turn over the certificate of title to the [Corporation]. [The
court rescinding the sale be reinstated.
Corporation] did nothing to comply with its undertaking under the
agreement between the parties. There is no doubt that the contract of sale in question gave rise to
a reciprocal obligation of the parties. Reciprocal obligations are
WHEREFORE, in view of the foregoing considerations, the Motion
those which arise from the same cause, and which each party is a
for Reconsideration is hereby DENIED.
debtor and a creditor of the other, such that the obligation of one
SO ORDERED.7 is dependent upon the obligation of the other. They are to be
performed simultaneously, so that the performance of one is
On appeal, the Court of Appeals reversed the decision of the trial
conditioned upon the simultaneous fulfillment of the other.9
court and directed Cortes to execute a Deed of Absolute Sale
conveying the properties and to deliver the same to the Article 1191 of the Civil Code, states:
Corporation together with the TCTs, simultaneous with the
ART. 1191. The power to rescind obligations is implied in reciprocal
Corporation's payment of the balance of the purchase price of
ones, in case one of the obligors should not comply with what is
P2,487,000.00. It found that the parties agreed that the
incumbent upon him.
Corporation will fully pay the balance of the down payment upon
Cortes' delivery of the three TCTs to the Corporation. The records xxxx
show that no such delivery was made, hence, the Corporation was
not remiss in the performance of its obligation and therefore As to when said failure or delay in performance arise, Article 1169
justified in not paying the balance. The decretal portion thereof, of the same Code provides that –
provides:
ART. 1169
WHEREFORE, premises considered, [the Corporation's] appeal is
xxxx
GRANTED. The decision appealed from is hereby REVERSED and
SET ASIDE and a new judgment rendered ordering [Cortes] to In reciprocal obligations, neither party incurs in delay if the other
execute a deed of absolute sale conveying to [the Corporation] the does not comply or is not ready to comply in a proper manner with
parcels of land subject of and described in the deed of absolute what is incumbent upon him. From the moment one of the
sale, Exhibit D. Simultaneously with the execution of the deed of parties fulfills his obligation, delay by the other begins.
absolute sale and the delivery of the corresponding owner's (Emphasis supplied)
The issue therefore is whether there is delay in the performance of Q Of course, you have it transferred in the name of the plaintiff,
the parties' obligation that would justify the rescission of the the title?
contract of sale. To resolve this issue, we must first determine the
A Upon full payment.
true agreement of the parties.
xxxx
The settled rule is that the decisive factor in evaluating an
agreement is the intention of the parties, as shown not necessarily ATTY. SARTE
by the terminology used in the contract but by their conduct,
words, actions and deeds prior to, during and immediately after Q When you said upon full payment, are you referring to the
executing the agreement. As such, therefore, documentary and agreed down payment of P2,200,000.00?
parol evidence may be submitted and admitted to prove such
A Yes, sir.13
intention.10
By agreeing to transfer title upon full payment of P2,200,000.00,
In the case at bar, the stipulation in the Deed of Absolute Sale was
Cortes' impliedly agreed to deliver the TCTs to the Corporation in
that the Corporation shall pay in full the P2,200,000.00 down
order to effect said transfer. Hence, the phrase "execution of this
payment upon execution of the contract. However, as correctly
instrument" 14 as appearing in the Deed of Absolute Sale, and
noted by the Court of Appeals, the transcript of stenographic notes
which event would give rise to the Corporation's obligation to pay
reveal Cortes' admission that he agreed that the Corporation's full
in full the amount of P2,200,000.00, can not be construed as
payment of the sum of P2,200,000.00 would depend upon his
referring solely to the signing of the deed. The meaning of
delivery of the TCTs of the three lots. In fact, his main defense in
"execution" in the instant case is not limited to the signing of a
the Answer is that, he performed what is incumbent upon him by
contract but includes as well the performance or implementation or
delivering to the Corporation the TCTs and the carbon duplicate of
accomplishment of the parties' agreement.15 With the transfer of
the Deed of Absolute Sale, but the latter refused to pay in full the
titles as the corresponding reciprocal obligation of payment, Cortes'
down payment.11 Pertinent portion of the transcript, reads:
obligation is not only to affix his signature in the Deed, but to set
[Q] Now, why did you deliver these three titles to the plaintiff into motion the process that would facilitate the transfer of title of
despite the fact that it has not been paid in full the agreed down the lots, i.e., to have the Deed notarized and to surrender the
payment? original copy thereof to the Corporation together with the TCTs.

A Well, the broker told me that the down payment will be given if I Having established the true agreement of the parties, the Court
surrender the titles. must now determine whether Cortes delivered the TCTs and the
original Deed to the Corporation. The Court of Appeals found that
Q Do you mean to say that the plaintiff agreed to pay in full the Cortes never surrendered said documents to the Corporation.
down payment of P2,200,000.00 provided you surrender or entrust Cortes testified that he delivered the same to Manny Sanchez, the
to the plaintiff the titles? son of the broker, and that Manny told him that her mother,
Marcosa Sanchez, delivered the same to the Corporation.
A Yes, sir.12
Q Do you have any proof to show that you have indeed
What further confirmed the agreement to deliver the TCTs is the
surrendered these titles to the plaintiff?
testimony of Cortes that the title of the lots will be transferred in
the name of the Corporation upon full payment of the A Yes, sir.
P2,200,000.00 down payment. Thus –
Q I am showing to you a receipt dated October 29, 1983, what
ATTY. ANTARAN relation has this receipt with that receipt that you have mentioned?
A That is the receipt of the real estate broker when she received Q So, therefore, you are not sure whether the title has been
the titles. delivered to the plaintiff or not. It is only upon the allegation of the
broker?
Q On top of the printed name is Manny Sanchez, there is a
signature, do you know who is that Manny Sanchez? A Yes, sir.18

A That is the son of the broker. However, Marcosa Sanchez's unrebutted testimony is that, she did
not receive the TCTs. She also denied knowledge of delivery
xxxx
thereof to her son, Manny, thus:
Q May we know the full name of the real estate broker?
Q The defendant, Antonio Cortes testified during the hearing on
A Marcosa Sanchez March 11, 1986 that he allegedly gave you the title to the property
in question, is it true?
xxxx
A I did not receive the title.
Q Do you know if the broker or Marcosa Sanchez indeed delivered
the titles to the plaintiff? Q He likewise said that the title was delivered to your son, do you
know about that?
A That is what [s]he told me. She gave them to the plaintiff.
A I do not know anything about that.19
x x x x.16
What further strengthened the findings of the Court of Appeals that
ATTY. ANTARAN Cortes did not surrender the subject documents was the offer of
Cortes' counsel at the pre-trial to deliver the TCTs and the Deed of
Q Are you really sure that the title is in the hands of the plaintiff?
Absolute Sale if the Corporation will pay the balance of the down
xxxx payment. Indeed, if the said documents were already in the hands
of the Corporation, there was no need for Cortes' counsel to make
Q It is in the hands of the broker but there is no showing that it is such offer.
in the hands of the plaintiff?
Since Cortes did not perform his obligation to have the Deed
A Yes, sir. notarized and to surrender the same together with the TCTs, the
COURT trial court erred in concluding that he performed his part in the
contract of sale and that it is the Corporation alone that was remiss
Q How do you know that it was delivered to the plaintiff by the son in the performance of its obligation. Actually, both parties were in
of the broker? delay. Considering that their obligation was reciprocal,
performance thereof must be simultaneous. The mutual inaction of
A The broker told me that she delivered the title to the plaintiff.
Cortes and the Corporation therefore gave rise to a compensation
ATTY. ANTARAN morae or default on the part of both parties because neither has
completed their part in their reciprocal obligation.20 Cortes is yet to
Q Did she not show you any receipt that she delivered to [Mr.] deliver the original copy of the notarized Deed and the TCTs, while
Dragon17 the title without any receipt? the Corporation is yet to pay in full the agreed down payment of
A I have not seen any receipt. P2,200,000.00. This mutual delay of the parties cancels out the
effects of default,21 such that it is as if no one is guilty of delay.22
We find no merit in Cortes' contention that the failure of the
Corporation to act on the proposed settlement at the pre-trial must
be construed against the latter. Cortes argued that with his
counsel's offer to surrender the original Deed and the TCTs, the
Corporation should have consigned the balance of the down
payment. This argument would have been correct if Cortes actually
surrendered the Deed and the TCTs to the Corporation. With such
delivery, the Corporation would have been placed in default if it
chose not to pay in full the required down payment. Under Article
1169 of the Civil Code, from the moment one of the parties fulfills
his obligation, delay by the other begins. Since Cortes did not
perform his part, the provision of the contract requiring the
Corporation to pay in full the down payment never acquired
obligatory force. Moreover, the Corporation could not be faulted for
not automatically heeding to the offer of Cortes. For one, its
complaint has a prayer for damages which it may not want to
waive by agreeing to the offer of Cortes' counsel. For another, the
previous representation of Cortes that the TCTs were already
delivered to the Corporation when no such delivery was in fact
made, is enough reason for the Corporation to be more cautious in
dealing with him.

The Court of Appeals therefore correctly ordered the parties to

perform their respective obligation in the contract of sale, i.e., for
Cortes to, among others, deliver the necessary documents to the
Corporation and for the latter to pay in full, not only the down
payment, but the entire purchase price. And since the Corporation
did not question the Court of Appeal's decision and even prayed for
its affirmance, its payment should rightfully consist not only of the
amount of P987,000.00, representing the balance of the
P2,200,000.00 down payment, but the total amount of
P2,487,000.00, the remaining balance in the P3,700,000.00
purchase price.

WHEREFORE, the petition is DENIED and the June 13, 1996

Decision of the Court of Appeals in CA-G.R. CV No. 47856,
is AFFIRMED.

SO ORDERED.
Onerous 1954 (Exhibit "A"),wherein Gaite transferred to Fonacier, for the
consideration of P20,000.00, plus 10% of the royalties that
G.R. No. L-11827             July 31, 1961 Fonacier would receive from the mining claims, all his rights and
FERNANDO A. GAITE, plaintiff-appellee, interests on all the roads, improvements, and facilities in or outside
vs. said claims, the right to use the business name "Larap Iron Mines"
ISABELO FONACIER, GEORGE KRAKOWER, LARAP MINES & and its goodwill, and all the records and documents relative to the
SMELTING CO., INC., SEGUNDINA VIVAS, FRNACISCO DANTE, mines. In the same document, Gaite transferred to Fonacier all his
PACIFICO ESCANDOR and FERNANDO TY, defendants-appellants. rights and interests over the "24,000 tons of iron ore, more or
less" that the former had already extracted from the mineral
Alejo Mabanag for plaintiff-appellee. claims, in consideration of the sum of P75,000.00, P10,000.00 of
Simplicio U. Tapia, Antonio Barredo and Pedro Guevarra for which was paid upon the signing of the agreement, and
defendants-appellants.
b. The balance of SIXTY-FIVE THOUSAND PESOS (P65,000.00) will
REYES, J.B.L., J.: be paid from and out of the first letter of credit covering the first
shipment of iron ores and of the first amount derived from the local
This appeal comes to us directly from the Court of First Instance sale of iron ore made by the Larap Mines & Smelting Co. Inc., its
because the claims involved aggregate more than P200,000.00. assigns, administrators, or successors in interests.
Defendant-appellant Isabelo Fonacier was the owner and/or holder, To secure the payment of the said balance of P65,000.00, Fonacier
either by himself or in a representative capacity, of 11 iron lode promised to execute in favor of Gaite a surety bond, and pursuant
mineral claims, known as the Dawahan Group, situated in the to the promise, Fonacier delivered to Gaite a surety bond dated
municipality of Jose Panganiban, province of Camarines Norte. December 8, 1954 with himself (Fonacier) as principal and the
By a "Deed of Assignment" dated September 29, 1952(Exhibit "3"), Larap Mines and Smelting Co. and its stockholders George
Fonacier constituted and appointed plaintiff-appellee Fernando A. Krakower, Segundina Vivas, Pacifico Escandor, Francisco Dante,
Gaite as his true and lawful attorney-in-fact to enter into a contract and Fernando Ty as sureties (Exhibit "A-1"). Gaite testified,
with any individual or juridical person for the exploration and however, that when this bond was presented to him by Fonacier
development of the mining claims aforementioned on a royalty together with the "Revocation of Power of Attorney and Contract",
basis of not less than P0.50 per ton of ore that might be extracted Exhibit "A", on December 8, 1954, he refused to sign said Exhibit
therefrom. On March 19, 1954, Gaite in turn executed a general "A" unless another bond under written by a bonding company was
assignment (Record on Appeal, pp. 17-19) conveying the put up by defendants to secure the payment of the P65,000.00
development and exploitation of said mining claims into the Larap balance of their price of the iron ore in the stockpiles in the mining
Iron Mines, a single proprietorship owned solely by and belonging claims. Hence, a second bond, also dated December 8, 1954
to him, on the same royalty basis provided for in Exhibit "3". (Exhibit "B"),was executed by the same parties to the first bond
Thereafter, Gaite embarked upon the development and exploitation Exhibit "A-1", with the Far Eastern Surety and Insurance Co. as
of the mining claims in question, opening and paving roads within additional surety, but it provided that the liability of the surety
and outside their boundaries, making other improvements and company would attach only when there had been an actual sale of
installing facilities therein for use in the development of the mines, iron ore by the Larap Mines & Smelting Co. for an amount of not
and in time extracted therefrom what he claim and estimated to be less then P65,000.00, and that, furthermore, the liability of said
approximately 24,000 metric tons of iron ore. surety company would automatically expire on December 8, 1955.
Both bonds were attached to the "Revocation of Power of Attorney
For some reason or another, Isabelo Fonacier decided to revoke and Contract", Exhibit "A", and made integral parts thereof.
the authority granted by him to Gaite to exploit and develop the
mining claims in question, and Gaite assented thereto subject to On the same day that Fonacier revoked the power of attorney he
certain conditions. As a result, a document entitled "Revocation of gave to Gaite and the two executed and signed the "Revocation of
Power of Attorney and Contract" was executed on December 8, Power of Attorney and Contract", Exhibit "A", Fonacier entered into
a "Contract of Mining Operation", ceding, transferring, and defendants failed to renew the surety bond underwritten by the Far
conveying unto the Larap Mines and Smelting Co., Inc. the right to Eastern Surety and Insurance Co., Inc. (Exhibit "B"), which expired
develop, exploit, and explore the mining claims in question, on December 8, 1955; and
together with the improvements therein and the use of the name
"Larap Iron Mines" and its good will, in consideration of certain (2) Whether the estimated 24,000 tons of iron ore sold by plaintiff
royalties. Fonacier likewise transferred, in the same document, the Gaite to defendant Fonacier were actually in existence in the
complete title to the approximately 24,000 tons of iron ore which mining claims when these parties executed the "Revocation of
he acquired from Gaite, to the Larap & Smelting Co., in Power of Attorney and Contract", Exhibit "A."
consideration for the signing by the company and its stockholders On the first question, the lower court held that the obligation of the
of the surety bonds delivered by Fonacier to Gaite (Record on defendants to pay plaintiff the P65,000.00 balance of the price of
Appeal, pp. 82-94). the approximately 24,000 tons of iron ore was one with a term:
Up to December 8, 1955, when the bond Exhibit "B" expired with i.e., that it would be paid upon the sale of sufficient iron ore by
respect to the Far Eastern Surety and Insurance Company, no sale defendants, such sale to be effected within one year or before
of the approximately 24,000 tons of iron ore had been made by the December 8, 1955; that the giving of security was a condition
Larap Mines & Smelting Co., Inc., nor had the P65,000.00 balance precedent to Gait's giving of credit to defendants; and that as the
of the price of said ore been paid to Gaite by Fonacier and his latter failed to put up a good and sufficient security in lieu of the
sureties payment of said amount, on the theory that they had lost Far Eastern Surety bond (Exhibit "B") which expired on December
right to make use of the period given them when their bond, 8, 1955, the obligation became due and demandable under Article
Exhibit "B" automatically expired (Exhibits "C" to "C-24"). And 1198 of the New Civil Code.
when Fonacier and his sureties failed to pay as demanded by Gaite, As to the second question, the lower court found that plaintiff Gaite
the latter filed the present complaint against them in the Court of did have approximately 24,000 tons of iron ore at the mining
First Instance of Manila (Civil Case No. 29310) for the payment of claims in question at the time of the execution of the contract
the P65,000.00 balance of the price of the ore, consequential Exhibit "A."
damages, and attorney's fees.
Judgment was, accordingly, rendered in favor of plaintiff Gaite
All the defendants except Francisco Dante set up the uniform ordering defendants to pay him, jointly and severally, P65,000.00
defense that the obligation sued upon by Gaite was subject to a with interest at 6% per annum from December 9, 1955 until
condition that the amount of P65,000.00 would be payable out of payment, plus costs. From this judgment, defendants jointly
the first letter of credit covering the first shipment of iron ore appealed to this Court.
and/or the first amount derived from the local sale of the iron ore
by the Larap Mines & Smelting Co., Inc.; that up to the time of the During the pendency of this appeal, several incidental motions
filing of the complaint, no sale of the iron ore had been made, were presented for resolution: a motion to declare the appellants
hence the condition had not yet been fulfilled; and that Larap Mines & Smelting Co., Inc. and George Krakower in
consequently, the obligation was not yet due and demandable. contempt, filed by appellant Fonacier, and two motions to dismiss
Defendant Fonacier also contended that only 7,573 tons of the the appeal as having become academic and a motion for new trial
estimated 24,000 tons of iron ore sold to him by Gaite was actually and/or to take judicial notice of certain documents, filed by
delivered, and counterclaimed for more than P200,000.00 appellee Gaite. The motion for contempt is unmeritorious because
damages. the main allegation therein that the appellants Larap Mines &
Smelting Co., Inc. and Krakower had sold the iron ore here in
At the trial of the case, the parties agreed to limit the presentation question, which allegedly is "property in litigation", has not been
of evidence to two issues: substantiated; and even if true, does not make these appellants
(1) Whether or not the obligation of Fonacier and his sureties to guilty of contempt, because what is under litigation in this appeal is
pay Gaite P65,000.00 become due and demandable when the appellee Gaite's right to the payment of the balance of the price of
the ore, and not the iron ore itself. As for the several motions
presented by appellee Gaite, it is unnecessary to resolve these 1) The words of the contract express no contingency in the buyer's
motions in view of the results that we have reached in this case, obligation to pay: "The balance of Sixty-Five Thousand Pesos
which we shall hereafter discuss. (P65,000.00) will be paid out of the first letter of credit covering
the first shipment of iron ores . . ." etc. There is no uncertainty
The main issues presented by appellants in this appeal are: that the payment will have to be made sooner or later; what is
(1) that the lower court erred in holding that the obligation of undetermined is merely the exact date at which it will be made. By
appellant Fonacier to pay appellee Gaite the P65,000.00 (balance the very terms of the contract, therefore, the existence of the
of the price of the iron ore in question)is one with a period or term obligation to pay is recognized; only
and not one with a suspensive condition, and that the term expired its maturity or demandability is deferred.
on December 8, 1955; and 2) A contract of sale is normally commutative and onerous: not
(2) that the lower court erred in not holding that there were only only does each one of the parties assume a correlative obligation
10,954.5 tons in the stockpiles of iron ore sold by appellee Gaite to (the seller to deliver and transfer ownership of the thing sold and
appellant Fonacier. the buyer to pay the price),but each party anticipates performance
by the other from the very start. While in a sale the obligation of
The first issue involves an interpretation of the following provision one party can be lawfully subordinated to an uncertain event, so
in the contract Exhibit "A": that the other understands that he assumes the risk of receiving
nothing for what he gives (as in the case of a sale of hopes or
7. That Fernando Gaite or Larap Iron Mines hereby transfers to expectations, emptio spei), it is not in the usual course of business
Isabelo F. Fonacier all his rights and interests over the 24,000 tons to do so; hence, the contingent character of the obligation must
of iron ore, more or less, above-referred to together with all his clearly appear. Nothing is found in the record to evidence that
rights and interests to operate the mine in consideration of the Gaite desired or assumed to run the risk of losing his right over the
sum of SEVENTY-FIVE THOUSAND PESOS (P75,000.00) which the ore without getting paid for it, or that Fonacier understood that
latter binds to pay as follows: Gaite assumed any such risk. This is proved by the fact that Gaite
a. TEN THOUSAND PESOS (P10,000.00) will be paid upon the insisted on a bond a to guarantee payment of the P65,000.00, an
signing of this agreement. not only upon a bond by Fonacier, the Larap Mines & Smelting Co.,
and the company's stockholders, but also on one by a surety
b. The balance of SIXTY-FIVE THOUSAND PESOS (P65,000.00)will company; and the fact that appellants did put up such bonds
be paid from and out of the first letter of credit covering the first indicates that they admitted the definite existence of their
shipment of iron ore made by the Larap Mines & Smelting Co., obligation to pay the balance of P65,000.00.
Inc., its assigns, administrators, or successors in interest.
3) To subordinate the obligation to pay the remaining P65,000.00
We find the court below to be legally correct in holding that the to the sale or shipment of the ore as a condition precedent, would
shipment or local sale of the iron ore is not a condition precedent be tantamount to leaving the payment at the discretion of the
(or suspensive) to the payment of the balance of P65,000.00, but debtor, for the sale or shipment could not be made unless the
was only a suspensive period or term. What characterizes a appellants took steps to sell the ore. Appellants would thus be able
conditional obligation is the fact that its efficacy or obligatory force to postpone payment indefinitely. The desireability of avoiding such
(as distinguished from its demandability) is subordinated to the a construction of the contract Exhibit "A" needs no stressing.
happening of a future and uncertain event; so that if the
suspensive condition does not take place, the parties would stand 4) Assuming that there could be doubt whether by the wording of
as if the conditional obligation had never existed. That the parties the contract the parties indented a suspensive condition or a
to the contract Exhibit "A" did not intend any such state of things suspensive period (dies ad quem) for the payment of the
to prevail is supported by several circumstances: P65,000.00, the rules of interpretation would incline the scales in
favor of "the greater reciprocity of interests", since sale is
essentially onerous. The Civil Code of the Philippines, Article 1378, (3) When by his own acts he has impaired said guaranties or
paragraph 1, in fine, provides: securities after their establishment, and when through fortuitous
event they disappear, unless he immediately gives new ones
If the contract is onerous, the doubt shall be settled in favor of the equally satisfactory.
greatest reciprocity of interests.
Appellants' failure to renew or extend the surety company's bond
and there can be no question that greater reciprocity obtains if the upon its expiration plainly impaired the securities given to the
buyer' obligation is deemed to be actually existing, with only its creditor (appellee Gaite), unless immediately renewed or replaced.
maturity (due date) postponed or deferred, that if such obligation
were viewed as non-existent or not binding until the ore was sold. There is no merit in appellants' argument that Gaite's acceptance
of the surety company's bond with full knowledge that on its face it
The only rational view that can be taken is that the sale of the ore would automatically expire within one year was a waiver of its
to Fonacier was a sale on credit, and not an aleatory contract renewal after the expiration date. No such waiver could have been
where the transferor, Gaite, would assume the risk of not being intended, for Gaite stood to lose and had nothing to gain barely;
paid at all; and that the previous sale or shipment of the ore was and if there was any, it could be rationally explained only if the
not a suspensive condition for the payment of the balance of the appellants had agreed to sell the ore and pay Gaite before the
agreed price, but was intended merely to fix the future date of the surety company's bond expired on December 8, 1955. But in the
payment. latter case the defendants-appellants' obligation to pay became
This issue settled, the next point of inquiry is whether appellants, absolute after one year from the transfer of the ore to Fonacier by
Fonacier and his sureties, still have the right to insist that Gaite virtue of the deed Exhibit "A.".
should wait for the sale or shipment of the ore before receiving All the alternatives, therefore, lead to the same result: that Gaite
payment; or, in other words, whether or not they are entitled to acted within his rights in demanding payment and instituting this
take full advantage of the period granted them for making the action one year from and after the contract (Exhibit "A") was
payment. executed, either because the appellant debtors had impaired the
We agree with the court below that the appellant have forfeited the securities originally given and thereby forfeited any further time
right court below that the appellants have forfeited the right to within which to pay; or because the term of payment was originally
compel Gaite to wait for the sale of the ore before receiving of no more than one year, and the balance of P65,000.00 became
payment of the balance of P65,000.00, because of their failure to due and payable thereafter.
renew the bond of the Far Eastern Surety Company or else replace Coming now to the second issue in this appeal, which is whether
it with an equivalent guarantee. The expiration of the bonding there were really 24,000 tons of iron ore in the stockpiles sold by
company's undertaking on December 8, 1955 substantially reduced appellee Gaite to appellant Fonacier, and whether, if there had
the security of the vendor's rights as creditor for the unpaid been a short-delivery as claimed by appellants, they are entitled to
P65,000.00, a security that Gaite considered essential and upon the payment of damages, we must, at the outset, stress two
which he had insisted when he executed the deed of sale of the ore things: first, that this is a case of a sale of a specific mass of
to Fonacier (Exhibit "A"). The case squarely comes under fungible goods for a single price or a lump sum, the quantity of
paragraphs 2 and 3 of Article 1198 of the Civil Code of the "24,000 tons of iron ore, more or less," stated in the contract
Philippines: Exhibit "A," being a mere estimate by the parties of the total
"ART. 1198. The debtor shall lose every right to make use of the tonnage weight of the mass; and second, that the evidence shows
period: that neither of the parties had actually measured of weighed the
mass, so that they both tried to arrive at the total quantity by
(1) . . . making an estimate of the volume thereof in cubic meters and then
multiplying it by the estimated weight per ton of each cubic meter.
(2) When he does not furnish to the creditor the guaranties or
securities which he has promised.
The sale between the parties is a sale of a specific mass or iron ore Nevada and California, with almost 22 years of experience in the
because no provision was made in their contract for the measuring Bureau of Mines. This witness placed the tonnage factor of every
or weighing of the ore sold in order to complete or perfect the sale, cubic meter of iron ore at between 3 metric tons as minimum to 5
nor was the price of P75,000,00 agreed upon by the parties based metric tons as maximum. This estimate, in turn, closely
upon any such measurement.(see Art. 1480, second par., New Civil corresponds to the average tonnage factor of 3.3 adopted in his
Code). The subject matter of the sale is, therefore, a determinate corrected report (Exhibits "FF" and FF-1") by engineer Nemesio
object, the mass, and not the actual number of units or tons Gamatero, who was sent by the Bureau of Mines to the mining
contained therein, so that all that was required of the seller Gaite claims involved at the request of appellant Krakower, precisely to
was to deliver in good faith to his buyer all of the ore found in the make an official estimate of the amount of iron ore in Gaite's
mass, notwithstanding that the quantity delivered is less than the stockpiles after the dispute arose.
amount estimated by them (Mobile Machinery & Supply Co., Inc.
vs. York Oilfield Salvage Co., Inc. 171 So. 872, applying art. 2459 Even granting, then, that the estimate of 6,609 cubic meters of ore
of the Louisiana Civil Code). There is no charge in this case that in the stockpiles made by appellant's witness Cipriano Manlañgit is
Gaite did not deliver to appellants all the ore found in the correct, if we multiply it by the average tonnage factor of 3.3 tons
stockpiles in the mining claims in questions; Gaite had, therefore, to a cubic meter, the product is 21,809.7 tons, which is not very
complied with his promise to deliver, and appellants in turn are far from the estimate of 24,000 tons made by appellee Gaite,
bound to pay the lump price. considering that actual weighing of each unit of the mass was
practically impossible, so that a reasonable percentage of error
But assuming that plaintiff Gaite undertook to sell and appellants should be allowed anyone making an estimate of the exact quantity
undertook to buy, not a definite mass, but approximately 24,000 in tons found in the mass. It must not be forgotten that the
tons of ore, so that any substantial difference in this quantity contract Exhibit "A" expressly stated the amount to be 24,000
delivered would entitle the buyers to recover damages for the tons, more or less. (ch. Pine River Logging & Improvement Co. vs
short-delivery, was there really a short-delivery in this case? U.S., 279, 46 L. Ed. 1164).

We think not. As already stated, neither of the parties had actually There was, consequently, no short-delivery in this case as would
measured or weighed the whole mass of ore cubic meter by cubic entitle appellants to the payment of damages, nor could Gaite have
meter, or ton by ton. Both parties predicate their respective claims been guilty of any fraud in making any misrepresentation to
only upon an estimated number of cubic meters of ore multiplied appellants as to the total quantity of ore in the stockpiles of the
by the average tonnage factor per cubic meter. mining claims in question, as charged by appellants, since Gaite's
estimate appears to be substantially correct.
Now, appellee Gaite asserts that there was a total of 7,375 cubic
meters in the stockpiles of ore that he sold to Fonacier, while WHEREFORE, finding no error in the decision appealed from, we
appellants contend that by actual measurement, their witness hereby affirm the same, with costs against appellants.
Cirpriano Manlañgit found the total volume of ore in the stockpiles
to be only 6.609 cubic meters. As to the average weight in tons per
cubic meter, the parties are again in disagreement, with appellants
claiming the correct tonnage factor to be 2.18 tons to a cubic
meter, while appellee Gaite claims that the correct tonnage factor
is about 3.7.

In the face of the conflict of evidence, we take as the most reliable

estimate of the tonnage factor of iron ore in this case to be that
made by Leopoldo F. Abad, chief of the Mines and Metallurgical
Division of the Bureau of Mines, a government pensionado to the
States and a mining engineering graduate of the Universities of
Commutative 1. Deed of Absolute Sale covering Lot 168-C-7 of subdivision plan
(LRC) Psd-256395 executed on 11 July 1978, in favor of defendant
G.R. No. 126376 : November 20, 2003 Felicitas Joaquin, for a consideration of P6,000.00 (Exh. C),
SPOUSES BERNARDO BUENAVENTURA and CONSOLACION pursuant to which TCT No. [36113/T-172] was issued in her name
JOAQUIN, SPOUSES JUANITO EDRA and NORA JOAQUIN, (Exh. C-1);
SPOUSES RUFINO VALDOZ and EMMA JOAQUIN, and 2. Deed of Absolute Sale covering Lot 168-I-3 of subdivision plan
NATIVIDAD JOAQUIN, petitioners, vs. COURT OF APPEALS, (LRC) Psd-256394 executed on 7 June 1979, in favor of defendant
SPOUSES LEONARDO JOAQUIN and FELICIANA LANDRITO, Clarita Joaquin, for a consideration of P1[2],000.00 (Exh. D),
SPOUSES FIDEL JOAQUIN and CONCHITA BERNARDO, pursuant to which TCT No. S-109772 was issued in her name (Exh.
SPOUSES TOMAS JOAQUIN and SOLEDAD ALCORAN, D-1);
SPOUSES ARTEMIO JOAQUIN and SOCORRO ANGELES,
SPOUSES ALEXANDER MENDOZA and CLARITA JOAQUIN, 3 Deed of Absolute Sale covering Lot 168-I-1 of subdivision plan
SPOUSES TELESFORO CARREON and FELICITAS JOAQUIN, (LRC) Psd-256394 executed on 12 May 1988, in favor of defendant
SPOUSES DANILO VALDOZ and FE JOAQUIN, and SPOUSES spouses Fidel Joaquin and Conchita Bernardo, for a consideration
GAVINO JOAQUIN and LEA ASIS, respondents. of P54,[3]00.00 (Exh. E), pursuant to which TCT No. 155329 was
issued to them (Exh. E-1);
DECISION
4. Deed of Absolute Sale covering Lot 168-I-2 of subdivision plan
CARPIO, J.: (LRC) Psd-256394 executed on 12 May 1988, in favor of defendant
The Case spouses Artemio Joaquin and Socorro Angeles, for a consideration
of P[54,3]00.00 (Exh. F), pursuant to which TCT No. 155330 was
This is a petition for review on certiorari1 to annul the issued to them (Exh. F-1); and
Decision2 dated 26 June 1996 of the Court of Appeals in CA-G.R.
CV No. 41996. The Court of Appeals affirmed the 5. Absolute Sale of Real Property covering Lot 168-C-4 of
Decision3 dated 18 February 1993 rendered by Branch 65 of the subdivision plan (LRC) Psd-256395 executed on 9 September
Regional Trial Court of Makati (trial court) in Civil Case No. 89- 1988, in favor of Tomas Joaquin, for a consideration of P20,000.00
5174. The trial court dismissed the case after it found that the (Exh. G), pursuant to which TCT No. 157203 was issued in her
parties executed the Deeds of Sale for valid consideration and that name (Exh. G-1).
the plaintiffs did not have a cause of action against the defendants. [6. Deed of Absolute Sale covering Lot 168-C-1 of subdivision plan
The Facts (LRC) Psd-256395 executed on 7 October 1988, in favor of Gavino
Joaquin, for a consideration of P25,000.00 (Exh. K), pursuant to
The Court of Appeals summarized the facts of the case as follows: which TCT No. 157779 was issued in his name (Exh. K-1).]
Defendant spouses Leonardo Joaquin and Feliciana Landrito are the In seeking the declaration of nullity of the aforesaid deeds of sale
parents of plaintiffs Consolacion, Nora, Emma and Natividad as well and certificates of title, plaintiffs, in their complaint, aver:
as of defendants Fidel, Tomas, Artemio, Clarita, Felicitas, Fe, and
Gavino, all surnamed JOAQUIN. The married Joaquin children are - XX-
joined in this action by their respective spouses. The deeds of sale, Annexes C, D, E, F, and G, [and K] are
Sought to be declared null and void ab initio are certain deeds of simulated as they are, are NULL AND VOID AB INITIO because
sale of real property executed by defendant parents Leonardo a) Firstly, there was no actual valid consideration for the deeds of
Joaquin and Feliciana Landrito in favor of their co-defendant sale xxx over the properties in litis;
children and the corresponding certificates of title issued in their
names, to wit:
b) Secondly, assuming that there was consideration in the sums And then there is the argument that plaintiffs do not have a valid
reflected in the questioned deeds, the properties are more than cause of action against defendants since there can be no legitime
three-fold times more valuable than the measly sums appearing to speak of prior to the death of their parents. The court finds this
therein; contention tenable. In determining the legitime, the value of the
property left at the death of the testator shall be considered (Art.
c) Thirdly, the deeds of sale do not reflect and express the true 908 of the New Civil Code). Hence, the legitime of a compulsory
intent of the parties (vendors and vendees); and heir is computed as of the time of the death of the decedent.
d) Fourthly, the purported sale of the properties in litis was the Plaintiffs therefore cannot claim an impairment of their legitime
result of a deliberate conspiracy designed to unjustly deprive the while their parents live.
rest of the compulsory heirs (plaintiffs herein) of their legitime. All the foregoing considered, this case is DISMISSED.
- XXI - In order to preserve whatever is left of the ties that should bind
Necessarily, and as an inevitable consequence, Transfer families together, the counterclaim is likewise DISMISSED.
Certificates of Title Nos. 36113/T-172, S-109772, 155329, 155330, No costs.
157203 [and 157779] issued by the Registrar of Deeds over the
properties in litis xxx are NULL AND VOID AB INITIO. SO ORDERED.8

Defendants, on the other hand aver (1) that plaintiffs do not have The Ruling of the Court of Appeals
a cause of action against them as well as the requisite standing
and interest to assail their titles over the properties in litis; (2) that The Court of Appeals affirmed the decision of the trial court. The
the sales were with sufficient considerations and made by appellate court ruled:
defendants parents voluntarily, in good faith, and with full To the mind of the Court, appellants are skirting the real and
knowledge of the consequences of their deeds of sale; and (3) that decisive issue in this case, which is, whether xxx they have a cause
the certificates of title were issued with sufficient factual and legal of action against appellees.
basis.4 (Emphasis in the original)
Upon this point, there is no question that plaintiffs-appellants, like
The Ruling of the Trial Court their defendant brothers and sisters, are compulsory heirs of
Before the trial, the trial court ordered the dismissal of the case defendant spouses, Leonardo Joaquin and Feliciana Landrito, who
against defendant spouses Gavino Joaquin and Lea Asis.5 Instead are their parents. However, their right to the properties of their
of filing an Answer with their co-defendants, Gavino Joaquin and defendant parents, as compulsory heirs, is merely inchoate and
Lea Asis filed a Motion to Dismiss.6 In granting the dismissal to vests only upon the latters death. While still alive, defendant
Gavino Joaquin and Lea Asis, the trial court noted that compulsory parents are free to dispose of their properties, provided that such
heirs have the right to a legitime but such right is contingent since dispositions are not made in fraud of creditors.
said right commences only from the moment of death of the Plaintiffs-appellants are definitely not parties to the deeds of sale in
decedent pursuant to Article 777 of the Civil Code of the question. Neither do they claim to be creditors of their defendant
Philippines.7cräläwvirtualibräry parents. Consequently, they cannot be considered as real parties in
After trial, the trial court ruled in favor of the defendants and interest to assail the validity of said deeds either for gross
dismissed the complaint. The trial court stated: inadequacy or lack of consideration or for failure to express the
true intent of the parties. In point is the ruling of the Supreme
In the first place, the testimony of the defendants, particularly that Court in Velarde, et al. vs. Paez, et al., 101 SCRA 376, thus:
of the xxx father will show that the Deeds of Sale were all executed
for valuable consideration. This assertion must prevail over the
negative allegation of plaintiffs.
The plaintiffs are not parties to the alleged deed of sale and are not We find the petition without merit.
principally or subsidiarily bound thereby; hence, they have no legal
capacity to challenge their validity. We will discuss petitioners legal interest over the properties subject
of the Deeds of Sale before discussing the issues on the purported
Plaintiffs-appellants anchor their action on the supposed lack of consideration and gross inadequacy of the prices of the
impairment of their legitime by the dispositions made by their Deeds of Sale.
defendant parents in favor of their defendant brothers and sisters.
But, as correctly held by the court a quo, the legitime of a Whether Petitioners have a legal interest
compulsory heir is computed as of the time of the death of the over the properties subject of the Deeds of Sale
decedent. Plaintiffs therefore cannot claim an impairment of their
legitime while their parents live. Petitioners Complaint betrays their motive for filing this case. In
their Complaint, petitioners asserted that the purported sale of the
With this posture taken by the Court, consideration of the errors properties in litis was the result of a deliberate conspiracy designed
assigned by plaintiffs-appellants is inconsequential. to unjustly deprive the rest of the compulsory heirs (plaintiffs
WHEREFORE, the decision appealed from is hereby AFFIRMED, with herein) of their legitime. Petitioners strategy was to have the
costs against plaintiffs-appellants. Deeds of Sale declared void so that ownership of the lots would
eventually revert to their respondent parents. If their parents die
SO ORDERED.9cräläwvirtualibräry still owning the lots, petitioners and their respondent siblings will
then co-own their parents estate by hereditary
Hence, the instant petition. succession.11cräläwvirtualibräry
Issues It is evident from the records that petitioners are interested in the
Petitioners assign the following as errors of the Court of Appeals: properties subject of the Deeds of Sale, but they have failed to
show any legal right to the properties. The trial and appellate
1. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE courts should have dismissed the action for this reason alone. An
CONVEYANCE IN QUESTION HAD NO VALID CONSIDERATION. action must be prosecuted in the name of the real party-in-
interest.12cräläwvirtualibräry
2. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT EVEN
ASSUMING THAT THERE WAS A CONSIDERATION, THE SAME IS [T]he question as to real party-in-interest is whether he is the
GROSSLY INADEQUATE. party who would be benefitted or injured by the judgment, or the
party entitled to the avails of the suit.
3. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE
DEEDS OF SALE DO NOT EXPRESS THE TRUE INTENT OF THE xxx
PARTIES.
In actions for the annulment of contracts, such as this action, the
4. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE real parties are those who are parties to the agreement or are
CONVEYANCE WAS PART AND PARCEL OF A CONSPIRACY AIMED bound either principally or subsidiarily or are prejudiced in their
AT UNJUSTLY DEPRIVING THE REST OF THE CHILDREN OF THE rights with respect to one of the contracting parties and can show
SPOUSES LEONARDO JOAQUIN AND FELICIANA LANDRITO OF the detriment which would positively result to them from the
THEIR INTEREST OVER THE SUBJECT PROPERTIES. contract even though they did not intervene in it (Ibaez v.
Hongkong & Shanghai Bank, 22 Phil. 572 [1912]) xxx.
5. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT
PETITIONERS HAVE A GOOD, SUFFICIENT AND VALID CAUSE OF These are parties with a present substantial interest, as
ACTION AGAINST THE PRIVATE RESPONDENTS.10 distinguished from a mere expectancy or future, contingent,
subordinate, or consequential interest. The phrase present
The Ruling of the Court substantial interest more concretely is meant such interest of a
party in the subject matter of the action as will entitle him, under Petitioners failed to show that the prices in the Deeds of Sale were
the substantive law, to recover if the evidence is sufficient, or that absolutely simulated. To prove simulation, petitioners presented
he has the legal title to demand and the defendant will be Emma Joaquin Valdozs testimony stating that their father,
protected in a payment to or recovery by him.13cräläwvirtualibräry respondent Leonardo Joaquin, told her that he would transfer a lot
to her through a deed of sale without need for her payment of the
Petitioners do not have any legal interest over the properties purchase price.16 The trial court did not find the allegation of
subject of the Deeds of Sale. As the appellate court stated, absolute simulation of price credible. Petitioners failure to prove
petitioners right to their parents properties is merely inchoate and absolute simulation of price is magnified by their lack of knowledge
vests only upon their parents death. While still living, the parents of their respondent siblings financial capacity to buy the questioned
of petitioners are free to dispose of their properties. In their lots.17 On the other hand, the Deeds of Sale which petitioners
overzealousness to safeguard their future legitime, petitioners presented as evidence plainly showed the cost of each lot sold. Not
forget that theoretically, the sale of the lots to their siblings does only did respondents minds meet as to the purchase price, but the
not affect the value of their parents estate. While the sale of the real price was also stated in the Deeds of Sale. As of the filing of
lots reduced the estate, cash of equivalent value replaced the lots the complaint, respondent siblings have also fully paid the price to
taken from the estate. their respondent father.18
Whether the Deeds of Sale are void Whether the Deeds of Sale are void
for lack of consideration for gross inadequacy of price
Petitioners assert that their respondent siblings did not actually pay Petitioners ask that assuming that there is consideration, the same
the prices stated in the Deeds of Sale to their respondent father. is grossly inadequate as to invalidate the Deeds of Sale.
Thus, petitioners ask the court to declare the Deeds of Sale void.
Articles 1355 of the Civil Code states:
A contract of sale is not a real contract, but a consensual contract.
As a consensual contract, a contract of sale becomes a binding and Art. 1355. Except in cases specified by law, lesion or inadequacy
valid contract upon the meeting of the minds as to price. If there is of cause shall not invalidate a contract, unless there has been
a meeting of the minds of the parties as to the price, the contract fraud, mistake or undue influence. (Emphasis supplied)
of sale is valid, despite the manner of payment, or even the breach
of that manner of payment. If the real price is not stated in the Article 1470 of the Civil Code further provides:
contract, then the contract of sale is valid but subject to Art. 1470. Gross inadequacy of price does not affect a
reformation. If there is no meeting of the minds of the parties as to contract of sale, except as may indicate a defect in the consent,
the price, because the price stipulated in the contract is simulated, or that the parties really intended a donation or some other act or
then the contract is void.14 Article 1471 of the Civil Code states that contract. (Emphasis supplied)
if the price in a contract of sale is simulated, the sale is void.
Petitioners failed to prove any of the instances mentioned in
It is not the act of payment of price that determines the validity of Articles 1355 and 1470 of the Civil Code which would invalidate, or
a contract of sale. Payment of the price has nothing to do with the even affect, the Deeds of Sale. Indeed, there is no requirement
perfection of the contract. Payment of the price goes into the that the price be equal to the exact value of the subject matter of
performance of the contract. Failure to pay the consideration is sale. All the respondents believed that they received the
different from lack of consideration. The former results in a right to commutative value of what they gave. As we stated in Vales v.
demand the fulfillment or cancellation of the obligation under an Villa:19cräläwvirtualibräry
existing valid contract while the latter prevents the existence of a
valid contract.15cräläwvirtualibräry Courts cannot follow one every step of his life and extricate him
from bad bargains, protect him from unwise investments, relieve
him from one-sided contracts, or annul the effects of foolish acts.
Courts cannot constitute themselves guardians of persons who are
not legally incompetent. 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 the 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. (Emphasis in the original)

Moreover, the factual findings of the appellate court are conclusive

on the parties and carry greater weight when they coincide with
the factual findings of the trial court. This Court will not weigh the
evidence all over again unless there has been a showing that the
findings of the lower court are totally devoid of support or are
clearly erroneous so as to constitute serious abuse of
discretion.20 In the instant case, the trial court found that the lots
were sold for a valid consideration, and that the defendant children
actually paid the purchase price stipulated in their respective
Deeds of Sale. Actual payment of the purchase price by the buyer
to the seller is a factual finding that is now conclusive upon us.

WHEREFORE, we AFFIRM the decision of the Court of Appeals in

toto.

SO ORDERED.
Sale is Title Not Mode respondents herein, the Spouses Lu. Babasanta alleged that the
lands covered by TCT No. T - 39022 and T-39023 had been sold to
[G.R. NO. 124242 - January 21, 2005] him by the spouses at fifteen pesos (P15.00) per square meter.
SAN LORENZO DEVELOPMENT Despite his repeated demands for the execution of a final deed of
CORPORATION, Petitioner, v. COURT OF APPEALS, PABLO S. sale in his favor, respondents allegedly refused.
BABASANTA, SPS. MIGUEL LU and PACITA ZAVALLA In their Answer,2 the Spouses Lu alleged that Pacita Lu obtained
LU, Respondents. loans from Babasanta and when the total advances of Pacita
DECISION reached fifty thousand pesos (P50,000.00), the latter and
Babasanta, without the knowledge and consent of Miguel Lu, had
TINGA, J.: verbally agreed to transform the transaction into a contract to sell
the two parcels of land to Babasanta with the fifty thousand pesos
From a coaptation of the records of this case, it appears that (P50,000.00) to be considered as the downpayment for the
respondents Miguel Lu and Pacita Zavalla, (hereinafter, the property and the balance to be paid on or before 31 December
Spouses Lu) owned two (2) parcels of land situated in Sta. Rosa, 1987. Respondents Lu added that as of November 1987, total
Laguna covered by TCT No. T-39022 and TCT No. T-39023 both payments made by Babasanta amounted to only two hundred
measuring 15,808 square meters or a total of 3.1616 hectares. thousand pesos (P200,000.00) and the latter allegedly failed to pay
On 20 August 1986, the Spouses Lu purportedly sold the two the balance of two hundred sixty thousand pesos (P260,000.00)
parcels of land to respondent Pablo Babasanta, (hereinafter, despite repeated demands. Babasanta had purportedly asked
Babasanta) for the price of fifteen pesos (P15.00) per square Pacita for a reduction of the price from fifteen pesos (P15.00) to
meter. Babasanta made a downpayment of fifty thousand pesos twelve pesos (P12.00) per square meter and when the Spouses Lu
(P50,000.00) as evidenced by a memorandum receipt issued by refused to grant Babasanta's request, the latter rescinded the
Pacita Lu of the same date. Several other payments totaling two contract to sell and declared that the original loan transaction just
hundred thousand pesos (P200,000.00) were made by Babasanta. be carried out in that the spouses would be indebted to him in the
amount of two hundred thousand pesos (P200,000.00).
Sometime in May 1989, Babasanta wrote a letter to Pacita Lu to Accordingly, on 6 July 1989, they purchased Interbank Manager's
demand the execution of a final deed of sale in his favor so that he Check No. 05020269 in the amount of two hundred thousand pesos
could effect full payment of the purchase price. In the same letter, (P200,000.00) in the name of Babasanta to show that she was able
Babasanta notified the spouses about having received information and willing to pay the balance of her loan obligation.
that the spouses sold the same property to another without his
knowledge and consent. He demanded that the second sale be Babasanta later filed an Amended Complaint dated 17 January
cancelled and that a final deed of sale be issued in his favor. 19903 wherein he prayed for the issuance of a writ of preliminary
injunction with temporary restraining order and the inclusion of the
In response, Pacita Lu wrote a letter to Babasanta wherein she Register of Deeds of Calamba, Laguna as party defendant. He
acknowledged having agreed to sell the property to him at fifteen contended that the issuance of a preliminary injunction was
pesos (P15.00) per square meter. She, however, reminded necessary to restrain the transfer or conveyance by the Spouses Lu
Babasanta that when the balance of the purchase price became of the subject property to other persons.
due, he requested for a reduction of the price and when she
refused, Babasanta backed out of the sale. Pacita added that she The Spouses Lu filed their Opposition4 to the amended complaint
returned the sum of fifty thousand pesos (P50,000.00) to contending that it raised new matters which seriously affect their
Babasanta through Eugenio Oya. substantive rights under the original complaint. However, the trial
court in its Order dated 17 January 19905 admitted the amended
On 2 June 1989, respondent Babasanta, as plaintiff, filed before complaint.
the Regional Trial Court (RTC), Branch 31, of San Pedro, Laguna,
a Complaint for Specific Performance and Damages1 against his co-
On 19 January 1990, herein petitioner San Lorenzo Development After a protracted trial, the RTC rendered its Decision on 30 July
Corporation (SLDC) filed a Motion for Intervention6 before the trial 1993 upholding the sale of the property to SLDC. It ordered the
court. SLDC alleged that it had legal interest in the subject matter Spouses Lu to pay Babasanta the sum of two hundred thousand
under litigation because on 3 May 1989, the two parcels of land pesos (P200,000.00) with legal interest plus the further sum of
involved, namely Lot 1764-A and 1764-B, had been sold to it in a fifty thousand pesos (P50,000.00) as and for attorney's fees. On
Deed of Absolute Sale with Mortgage.7 It alleged that it was a the complaint-in-intervention, the trial court ordered the Register
buyer in good faith and for value and therefore it had a better right of Deeds of Laguna, Calamba Branch to cancel the notice of lis
over the property in litigation. pendens annotated on the original of the TCT No. T-39022 (T-
7218) and No. T-39023 (T-7219).
In his Opposition to SLDC's motion for intervention, 8 respondent
Babasanta demurred and argued that the latter had no legal Applying Article 1544 of the Civil Code, the trial court ruled that
interest in the case because the two parcels of land involved herein since both Babasanta and SLDC did not register the respective
had already been conveyed to him by the Spouses Lu and hence, sales in their favor, ownership of the property should pertain to the
the vendors were without legal capacity to transfer or dispose of buyer who first acquired possession of the property. The trial court
the two parcels of land to the intervenor. equated the execution of a public instrument in favor of SLDC as
sufficient delivery of the property to the latter. It concluded that
Meanwhile, the trial court in its Order dated 21 March 1990 allowed symbolic possession could be considered to have been first
SLDC to intervene. SLDC filed its Complaint-in-Intervention on 19 transferred to SLDC and consequently ownership of the property
April 1990.9 Respondent Babasanta's motion for the issuance of a pertained to SLDC who purchased the property in good faith.
preliminary injunction was likewise granted by the trial court in
its Order dated 11 January 199110 conditioned upon his filing of a Respondent Babasanta appealed the trial court's decision to the
bond in the amount of fifty thousand pesos (P50,000.00). Court of Appeals alleging in the main that the trial court erred in
concluding that SLDC is a purchaser in good faith and in upholding
SLDC in its Complaint-in-Intervention alleged that on 11 February the validity of the sale made by the Spouses Lu in favor of SLDC.
1989, the Spouses Lu executed in its favor an Option to Buy the
lots subject of the complaint. Accordingly, it paid an option money Respondent spouses likewise filed an appeal to the Court of
in the amount of three hundred sixteen thousand one hundred Appeals. They contended that the trial court erred in failing to
sixty pesos (P316,160.00) out of the total consideration for the consider that the contract to sell between them and Babasanta had
purchase of the two lots of one million two hundred sixty-four been novated when the latter abandoned the verbal contract of
thousand six hundred forty pesos (P1,264,640.00). After the sale and declared that the original loan transaction just be carried
Spouses Lu received a total amount of six hundred thirty-two out. The Spouses Lu argued that since the properties involved were
thousand three hundred twenty pesos (P632,320.00) they conjugal, the trial court should have declared the verbal contract to
executed on 3 May 1989 a Deed of Absolute Sale with Mortgage in sell between Pacita Lu and Pablo Babasanta null and void ab
its favor. SLDC added that the certificates of title over the property initio for lack of knowledge and consent of Miguel Lu. They further
were delivered to it by the spouses clean and free from any averred that the trial court erred in not dismissing the complaint
adverse claims and/or notice of lis pendens. SLDC further alleged filed by Babasanta; in awarding damages in his favor and in
that it only learned of the filing of the complaint sometime in the refusing to grant the reliefs prayed for in their answer.
early part of January 1990 which prompted it to file the motion to
intervene without delay. Claiming that it was a buyer in good faith, On 4 October 1995, the Court of Appeals rendered
SLDC argued that it had no obligation to look beyond the titles its Decision11 which set aside the judgment of the trial court. It
submitted to it by the Spouses Lu particularly because Babasanta's declared that the sale between Babasanta and the Spouses Lu was
claims were not annotated on the certificates of title at the time valid and subsisting and ordered the spouses to execute the
the lands were sold to it. necessary deed of conveyance in favor of Babasanta, and the latter
to pay the balance of the purchase price in the amount of two
hundred sixty thousand pesos (P260,000.00). The appellate court
ruled that the Absolute Deed of Sale with Mortgage in favor of DECISION OF THE TRIAL COURT UPHOLDING THE TITLE OF SAN
SLDC was null and void on the ground that SLDC was a purchaser LORENZO AS A BUYER AND FIRST POSSESSOR IN GOOD FAITH.15
in bad faith. The Spouses Lu were further ordered to return all
payments made by SLDC with legal interest and to pay attorney's SLDC contended that the appellate court erred in concluding that it
fees to Babasanta. had prior notice of Babasanta's claim over the property merely on
the basis of its having advanced the amount of two hundred
SLDC and the Spouses Lu filed separate motions for thousand pesos (P200,000.00) to Pacita Lu upon the latter's
reconsideration with the appellate court.12 However, in representation that she needed the money to pay her obligation to
a Manifestation dated 20 December 1995,13 the Spouses Lu Babasanta. It argued that it had no reason to suspect that Pacita
informed the appellate court that they are no longer contesting the was not telling the truth that the money would be used to pay her
decision dated 4 October 1995. indebtedness to Babasanta. At any rate, SLDC averred that the
amount of two hundred thousand pesos (P200,000.00) which it
In its Resolution dated 11 March 1996,14 the appellate court advanced to Pacita Lu would be deducted from the balance of the
considered as withdrawn the motion for reconsideration filed by the purchase price still due from it and should not be construed as
Spouses Lu in view of their manifestation of 20 December 1995. notice of the prior sale of the land to Babasanta. It added that at
The appellate court denied SLDC's motion for reconsideration on no instance did Pacita Lu inform it that the lands had been
the ground that no new or substantial arguments were raised previously sold to Babasanta.
therein which would warrant modification or reversal of the court's
decision dated 4 October 1995. Moreover, SLDC stressed that after the execution of the sale in its
favor it immediately took possession of the property and asserted
Hence, this petition. its rights as new owner as opposed to Babasanta who has never
SLDC assigns the following errors allegedly committed by the exercised acts of ownership. Since the titles bore no adverse claim,
appellate court: encumbrance, or lien at the time it was sold to it, SLDC argued
that it had every reason to rely on the correctness of the certificate
THE COURT OF APPEALS ERRED IN HOLDING THAT SAN LORENZO of title and it was not obliged to go beyond the certificate to
WAS NOT A BUYER IN GOOD FAITH BECAUSE WHEN THE SELLER determine the condition of the property. Invoking the presumption
PACITA ZAVALLA LU OBTAINED FROM IT THE CASH ADVANCE of good faith, it added that the burden rests on Babasanta to prove
OF P200,000.00, SAN LORENZO WAS PUT ON INQUIRY OF A PRIOR that it was aware of the prior sale to him but the latter failed to do
TRANSACTION ON THE PROPERTY. so. SLDC pointed out that the notice of lis pendens was annotated
only on 2 June 1989 long after the sale of the property to it was
THE COURT OF APPEALS ERRED IN FAILING TO APPRECIATE THE consummated on 3 May 1989.ςηαñrοblεš νιr†υαl lαω lιbrαrÿ
ESTABLISHED FACT THAT THE ALLEGED FIRST BUYER,
RESPONDENT BABASANTA, WAS NOT IN POSSESSION OF THE Meanwhile, in an Urgent Ex-Parte Manifestation dated 27 August
DISPUTED PROPERTY WHEN SAN LORENZO BOUGHT AND TOOK 1999, the Spouses Lu informed the Court that due to financial
POSSESSION OF THE PROPERTY AND NO ADVERSE CLAIM, LIEN, constraints they have no more interest to pursue their rights in the
ENCUMBRANCE OR LIS PENDENS WAS ANNOTATED ON THE instant case and submit themselves to the decision of the Court of
TITLES. Appeals.16
THE COURT OF APPEALS ERRED IN FAILING TO APPRECIATE THE On the other hand, respondent Babasanta argued that SLDC could
FACT THAT RESPONDENT BABASANTA HAS SUBMITTED NO not have acquired ownership of the property because it failed to
EVIDENCE SHOWING THAT SAN LORENZO WAS AWARE OF HIS comply with the requirement of registration of the sale in good
RIGHTS OR INTERESTS IN THE DISPUTED PROPERTY. faith. He emphasized that at the time SLDC registered the sale in
its favor on 30 June 1990, there was already a notice of lis
THE COURT OF APPEALS ERRED IN HOLDING THAT pendens annotated on the titles of the property made as early as 2
NOTWITHSTANDING ITS FULL CONCURRENCE ON THE FINDINGS June 1989. Hence, petitioner's registration of the sale did not
OF FACT OF THE TRIAL COURT, IT REVERSED AND SET ASIDE THE
confer upon it any right. Babasanta further asserted that final deed of sale in his favor so that he could effect full payment of
petitioner's bad faith in the acquisition of the property is evident the price, Pacita Lu allegedly refused to do so. In effect, Babasanta
from the fact that it failed to make necessary inquiry regarding the himself recognized that ownership of the property would not be
purpose of the issuance of the two hundred thousand pesos transferred to him until such time as he shall have effected full
(P200,000.00) manager's check in his favor. payment of the price. Moreover, had the sellers intended to
transfer title, they could have easily executed the document of sale
The core issue presented for resolution in the instant petition is in its required form simultaneously with their acceptance of the
who between SLDC and Babasanta has a better right over the two partial payment, but they did not. Doubtlessly, the receipt signed
parcels of land subject of the instant case in view of the successive by Pacita Lu should legally be considered as a perfected contract to
transactions executed by the Spouses Lu. sell.
To prove the perfection of the contract of sale in his favor, The distinction between a contract to sell and a contract of sale is
Babasanta presented a document signed by Pacita Lu quite germane. In a contract of sale, title passes to the vendee
acknowledging receipt of the sum of fifty thousand pesos upon the delivery of the thing sold; whereas in a contract to sell,
(P50,000.00) as partial payment for 3.6 hectares of farm lot by agreement the ownership is reserved in the vendor and is not to
situated at Barangay Pulong, Sta. Cruz, Sta. Rosa, Laguna. 17 While pass until the full payment of the price.22 In a contract of sale, the
the receipt signed by Pacita did not mention the price for which the vendor has lost and cannot recover ownership until and unless the
property was being sold, this deficiency was supplied by Pacita Lu's contract is resolved or rescinded; whereas in a contract to sell, title
letter dated 29 May 198918 wherein she admitted that she agreed is retained by the vendor until the full payment of the price, such
to sell the 3.6 hectares of land to Babasanta for fifteen pesos payment being a positive suspensive condition and failure of which
(P15.00) per square meter. is not a breach but an event that prevents the obligation of the
An analysis of the facts obtaining in this case, as well as the vendor to convey title from becoming effective.23
evidence presented by the parties, irresistibly leads to the The perfected contract to sell imposed upon Babasanta the
conclusion that the agreement between Babasanta and the obligation to pay the balance of the purchase price. There being an
Spouses Lu is a contract to sell and not a contract of sale. obligation to pay the price, Babasanta should have made the
Contracts, in general, are perfected by mere consent,19 which is proper tender of payment and consignation of the price in court as
manifested by the meeting of the offer and the acceptance upon required by law. Mere sending of a letter by the vendee expressing
the thing which are to constitute the contract. The offer must be the intention to pay without the accompanying payment is not
certain and the acceptance absolute.20 Moreover, contracts shall be considered a valid tender of payment.24 Consignation of the
obligatory in whatever form they may have been entered into, amounts due in court is essential in order to extinguish
provided all the essential requisites for their validity are present. 21 Babasanta's obligation to pay the balance of the purchase price.
Glaringly absent from the records is any indication that Babasanta
The receipt signed by Pacita Lu merely states that she accepted the even attempted to make the proper consignation of the amounts
sum of fifty thousand pesos (P50,000.00) from Babasanta as due, thus, the obligation on the part of the sellers to convey title
partial payment of 3.6 hectares of farm lot situated in Sta. Rosa, never acquired obligatory force.
Laguna. While there is no stipulation that the seller reserves the
ownership of the property until full payment of the price which is a On the assumption that the transaction between the parties is a
distinguishing feature of a contract to sell, the subsequent acts of contract of sale and not a contract to sell, Babasanta's claim of
the parties convince us that the Spouses Lu never intended to ownership should nevertheless fail.
transfer ownership to Babasanta except upon full payment of the Sale, being a consensual contract, is perfected by mere
purchase price. consent25 and from that moment, the parties may reciprocally
Babasanta's letter dated 22 May 1989 was quite telling. He stated demand performance.26 The essential elements of a contract of
therein that despite his repeated requests for the execution of the sale, to wit: (1) consent or meeting of the minds, that is, to
transfer ownership in exchange for the price; (2) object certain one, the agreement between Babasanta and the Spouses Lu,
which is the subject matter of the contract; (3) cause of the though valid, was not embodied in a public instrument. Hence, no
obligation which is established.27 constructive delivery of the lands could have been effected. For
another, Babasanta had not taken possession of the property at
The perfection of a contract of sale should not, however, be any time after the perfection of the sale in his favor or exercised
confused with its consummation. In relation to the acquisition and acts of dominion over it despite his assertions that he was the
transfer of ownership, it should be noted that sale is not a mode, rightful owner of the lands. Simply stated, there was no delivery to
but merely a title. A mode is the legal means by which dominion or Babasanta, whether actual or constructive, which is essential to
ownership is created, transferred or destroyed, but title is only the transfer ownership of the property. Thus, even on the assumption
legal basis by which to affect dominion or ownership.28 Under that the perfected contract between the parties was a sale,
Article 712 of the Civil Code, "ownership and other real rights over ownership could not have passed to Babasanta in the absence of
property are acquired and transmitted by law, by donation, by delivery, since in a contract of sale ownership is transferred to the
testate and intestate succession, and in consequence of certain vendee only upon the delivery of the thing sold.37
contracts, by tradition." Contracts only constitute titles or rights to
the transfer or acquisition of ownership, while delivery or tradition However, it must be stressed that the juridical relationship
is the mode of accomplishing the same.29 Therefore, sale by itself between the parties in a double sale is primarily governed by
does not transfer or affect ownership; the most that sale does is to Article 1544 which lays down the rules of preference between the
create the obligation to transfer ownership. It is tradition or two purchasers of the same property. It provides:
delivery, as a consequence of sale, that actually transfers
ownership. Art. 1544. If the same thing should have been sold to different
vendees, the ownership shall be transferred to the person who may
Explicitly, the law provides that the ownership of the thing sold is have first taken possession thereof in good faith, if it should be
acquired by the vendee from the moment it is delivered to him in movable property.
any of the ways specified in Article 1497 to 1501.30 The word
"delivered" should not be taken restrictively to mean transfer of Should it be immovable property, the ownership shall belong to the
actual physical possession of the property. The law recognizes two person acquiring it who in good faith first recorded it in the
principal modes of delivery, to wit: (1) actual delivery; and (2) Registry of Property.
legal or constructive delivery. Should there be no inscription, the ownership shall pertain to the
Actual delivery consists in placing the thing sold in the control and person who in good faith was first in the possession; and, in the
possession of the vendee.31 Legal or constructive delivery, on the absence thereof, to the person who presents the oldest title,
other hand, may be had through any of the following ways: the provided there is good faith.
execution of a public instrument evidencing the sale;32 symbolical The principle of primus tempore, potior jure (first in time, stronger
tradition such as the delivery of the keys of the place where the in right) gains greater significance in case of double sale of
movable sold is being kept;33 traditio longa manu or by mere immovable property. When the thing sold twice is an immovable,
consent or agreement if the movable sold cannot yet be the one who acquires it and first records it in the Registry of
transferred to the possession of the buyer at the time of the Property, both made in good faith, shall be deemed the
sale;34 traditio brevi manu if the buyer already had possession of owner.38 Verily, the act of registration must be coupled with good
the object even before the sale;35 and traditio constitutum faith' that is, the registrant must have no knowledge of the defect
possessorium, where the seller remains in possession of the or lack of title of his vendor or must not have been aware of facts
property in a different capacity.36 which should have put him upon such inquiry and investigation as
Following the above disquisition, respondent Babasanta did not might be necessary to acquaint him with the defects in the title of
acquire ownership by the mere execution of the receipt by Pacita his vendor.39
Lu acknowledging receipt of partial payment for the property. For
Admittedly, SLDC registered the sale with the Registry of Deeds of title as he is charged with notice of burdens on the property
after it had acquired knowledge of Babasanta's claim. Babasanta, which are noted on the face of the register or on the certificate of
however, strongly argues that the registration of the sale by SLDC title.41 In assailing knowledge of the transaction between him and
was not sufficient to confer upon the latter any title to the property the Spouses Lu, Babasanta apparently relies on the principle of
since the registration was attended by bad faith. Specifically, he constructive notice incorporated in Section 52 of the Property
points out that at the time SLDC registered the sale on 30 June Registration Decree (P.D. No. 1529) which reads, thus:
1990, there was already a notice of lis pendens on the file with the
Register of Deeds, the same having been filed one year before on 2 Sec. 52. Constructive notice upon registration. 'Every conveyance,
June 1989. mortgage, lease, lien, attachment, order, judgment, instrument or
entry affecting registered land shall, if registered, filed, or entered
Did the registration of the sale after the annotation of the notice in the office of the Register of Deeds for the province or city where
of lis pendens obliterate the effects of delivery and possession in the land to which it relates lies, be constructive notice to all
good faith which admittedly had occurred prior to SLDC's persons from the time of such registering, filing, or entering.
knowledge of the transaction in favor of Babasanta?
chanroblesvirtualawlibrary However, the constructive notice operates as such by the express
wording of Section 52 from the time of the registration of the
We do not hold so. notice of lis pendens which in this case was effected only on 2 June
1989, at which time the sale in favor of SLDC had long been
It must be stressed that as early as 11 February 1989, the Spouses consummated insofar as the obligation of the Spouses Lu to
Lu executed the Option to Buy in favor of SLDC upon transfer ownership over the property to SLDC is concerned.
receiving P316,160.00 as option money from SLDC. After SLDC
had paid more than one half of the agreed purchase price More fundamentally, given the superiority of the right of SLDC to
of P1,264,640.00, the Spouses Lu subsequently executed on 3 May the claim of Babasanta the annotation of the notice of lis
1989 a Deed of Absolute Sale in favor or SLDC. At the time both pendens cannot help Babasanta's position a bit and it is irrelevant
deeds were executed, SLDC had no knowledge of the prior to the good or bad faith characterization of SLDC as a purchaser. A
transaction of the Spouses Lu with Babasanta. Simply stated, from notice of lis pendens, as the Court held in Nataño v.
the time of execution of the first deed up to the moment of transfer Esteban,42 serves as a warning to a prospective purchaser or
and delivery of possession of the lands to SLDC, it had acted in incumbrancer that the particular property is in litigation; and that
good faith and the subsequent annotation of lis pendens has no he should keep his hands off the same, unless he intends to
effect at all on the consummated sale between SLDC and the gamble on the results of the litigation." Precisely, in this case SLDC
Spouses Lu. has intervened in the pending litigation to protect its rights.
Obviously, SLDC's faith in the merit of its cause has been
A purchaser in good faith is one who buys property of vindicated with the Court's present decision which is the ultimate
another without notice that some other person has a right to, or denouement on the controversy.
interest in, such property and pays a full and fair price for the
same at the time of such purchase, or before he has notice of the The Court of Appeals has made capital43 of SLDC's averment in
claim or interest of some other person in the property.40 Following its Complaint-in-Intervention44 that at the instance of Pacita Lu it
the foregoing definition, we rule that SLDC qualifies as a buyer in issued a check for P200,000.00 payable to Babasanta and the
good faith since there is no evidence extant in the records that it confirmatory testimony of Pacita Lu herself on cross-
had knowledge of the prior transaction in favor of Babasanta. At examination.45 However, there is nothing in the said pleading and
the time of the sale of the property to SLDC, the vendors were still the testimony which explicitly relates the amount to the transaction
the registered owners of the property and were in fact in between the Spouses Lu and Babasanta for what they attest to is
possession of the lands.ςηαñrοblεš νιr†υαl lαω lιbrαrÿ that the amount was supposed to pay off the advances made by
Babasanta to Pacita Lu. In any event, the incident took place after
Time and again, this Court has ruled that a person dealing with the the Spouses Lu had already executed the Deed of Absolute Sale
owner of registered land is not bound to go beyond the certificate
with Mortgage in favor of SLDC and therefore, as previously actual assignment of the right to repurchase the same land.
explained, it has no effect on the legal position of SLDC. Accordingly, there was no double sale of the same land in that
case.
Assuming ex gratia argumenti that SLDC's registration of the sale
had been tainted by the prior notice of lis pendens and assuming WHEREFORE, the instant petition is hereby GRANTED. The
further for the same nonce that this is a case of double sale, still decision of the Court of Appeals appealed from is REVERSED and
Babasanta's claim could not prevail over that of SLDC's. SET ASIDE and the decision of the Regional Trial Court, Branch 31,
In Abarquez v. Court of Appeals,46 this Court had the occasion to of San Pedro, Laguna is REINSTATED. No costs.
rule that if a vendee in a double sale registers the sale after he has
acquired knowledge of a previous sale, the registration constitutes SO ORDERED.
a registration in bad faith and does not confer upon him any right.
If the registration is done in bad faith, it is as if there is no
registration at all, and the buyer who has taken possession first of
the property in good faith shall be preferred.

In Abarquez, the first sale to the spouses Israel was notarized and

registered only after the second vendee, Abarquez, registered their
deed of sale with the Registry of Deeds, but the Israels were first in
possession. This Court awarded the property to the Israels because
registration of the property by Abarquez lacked the element of
good faith. While the facts in the instant case substantially differ
from that in Abarquez, we would not hesitate to rule in favor of
SLDC on the basis of its prior possession of the property in good
faith. Be it noted that delivery of the property to SLDC was
immediately effected after the execution of the deed in its favor, at
which time SLDC had no knowledge at all of the prior transaction
by the Spouses Lu in favor of
Babasanta.ςηαñrοblεš νιr†υαl lαω lιbrαrÿ

The law speaks not only of one criterion. The first criterion is
priority of entry in the registry of property; there being no priority
of such entry, the second is priority of possession; and, in the
absence of the two priorities, the third priority is of the date of
title, with good faith as the common critical element. Since SLDC
acquired possession of the property in good faith in contrast to
Babasanta, who neither registered nor possessed the property at
any time, SLDC's right is definitely superior to that of Babasanta's.

At any rate, the above discussion on the rules on double sale would
be purely academic for as earlier stated in this decision, the
contract between Babasanta and the Spouses Lu is not a contract
of sale but merely a contract to sell. In Dichoso v. Roxas,47 we had
the occasion to rule that Article 1544 does not apply to a case
where there was a sale to one party of the land itself while the
other contract was a mere promise to sell the land or at most an
[G.R. No. 133879. November 21, 2001.] hereby DISMISSED." 3

EQUATORIAL REALTY DEVELOPMENT, Inc., Petitioner, v. Also questioned is the May 29, 1998 RTC Order 4 denying
MAYFAIR THEATER, Inc., Respondent. petitioner’s Motion for Reconsideration.

DECISION The Facts

The main factual antecedents of the present Petition are matters of

PANGANIBAN, J.: record, because it arose out of an earlier case decided by this
Court on November 21, 1996, entitled Equatorial Realty
Development, Inc. v. Mayfair Theater, Inc. 5 (henceforth referred
to as the "mother case"), docketed as G.R No. 106063.chanrob1es
virtua1 1aw 1ibrary
General propositions do not decide specific cases. Rather, laws are
interpreted in the context of the peculiar factual situation of each
Carmelo & Bauermann, Inc. ("Camelo") used to own a parcel of
proceeding. Each case has its own flesh and blood and cannot be
land, together with two 2-storey buildings constructed thereon,
ruled upon on the basis of isolated clinical classroom
located at Claro M. Recto Avenue, Manila, and covered by TCT No.
principles.chanrob1es virtua1 1aw 1ibrary
18529 issued in its name by the Register of Deeds of Manila.
While we agree with the general proposition that a contract of sale
On June 1, 1967, Carmelo entered into a Contract of Lease with
is valid until rescinded, it is equally true that ownership of the thing
Mayfair Theater Inc. ("Mayfair") for a period of 20 years. The lease
sold is not acquired by mere agreement, but by tradition or
covered a portion of the second floor and mezzanine of a two-
delivery. The peculiar facts of the present controversy as found by
storey building with about 1,610 square meters of floor area, which
this Court in an earlier relevant Decision show that delivery was
respondent used as a movie house known as Maxim Theater.
not actually effected; in fact, it was prevented by a legally effective
impediment. Not having been the owner, petitioner cannot be
Two years later, on March 31, 1969, Mayfair entered into a second
entitled to the civil fruits of ownership like rentals of the thing sold.
Contract of Lease with Carmelo for the lease of another portion of
Furthermore, petitioner’s bad faith, as again demonstrated by the
the latter’s property — namely, a part of the second floor of the
specific factual milieu of said Decision, bars the grant of such
two-storey building, with a floor area of about 1,064 square
benefits. Otherwise, bad faith would be rewarded instead of
meters; and two store spaces on the ground floor and the
punished.
mezzanine, with a combined floor area of about 300 square
The Case meters. In that space, Mayfair put up another movie house known
as Miramar Theater. The Contract of Lease was likewise for a
period of 20 years.

Filed before this Court is a Petition for Review 1 under Rule 45 of Both leases contained a provision granting Mayfair a right of first
the Rules of Court, challenging the March 11, 1998 Order 2 of the refusal to purchase the subject properties. However, on July 30,
Regional Trial Court of Manila (RTC), Branch 8, in Civil Case No. 1978 — within the 20-year-lease term — the subject properties
97-85141. The dispositive portion of the assailed Order reads as were sold by Carmelo to Equatorial Realty Development, Inc.
follows:jgc:chanrobles.com.ph ("Equatorial") for the total sum of P11,300,000, without their first
being offered to Mayfair.chanrob1es virtua1 1aw 1ibrary
"WHEREFORE, the motion to dismiss filed by defendant Mayfair is
hereby GRANTED, and the complaint filed by plaintiff Equatorial is As a result of the sale of the subject properties to Equatorial,
Mayfair filed a Complaint before the Regional Trial Court of Manila the P847,000 as withholding tax. Since Carmelo could no longer be
(Branch 7) for (a) the annulment of the Deed of Absolute Sale located, the appellate court ordered Mayfair to deposit the said
between Carmelo and Equatorial, (b) specific performance, and (c) sum with the Office of the Clerk of Court, Manila, to complete the
damages. After trial on the merits, the lower court rendered a full amount of P11,300,000 to be turned over to Equatorial.
Decision in favor of Carmelo and Equatorial. This case, entitled
"Mayfair" Theater, Inc. v. Carmelo and Bauermann, Inc., Et Al.," Equatorial questioned the legality of the above CA ruling before this
was docketed as Civil Case No. 118019. Court in G.R No. 136221 entitled "Equatorial Realty Development,
Inc. v. Mayfair Theater, Inc." In a Decision promulgated on May
On appeal (docketed as CA-GR CV No. 32918), the Court of 12, 2000, 8 this Court directed the trial court to follow strictly the
Appeals (CA) completely reversed and set aside the judgment of Decision in GR. No. 106063, the mother case. It explained its
the lower court. ruling in these words:jgc:chanrobles.com.ph

The controversy reached this Court via G.R No. 106063. In this "We agree that Carmelo and Bauermann is obliged to return the
mother case, it denied the Petition for Review in this entire amount of eleven million three hundred thousand pesos
wise:jgc:chanrobles.com.ph (P11,300,000.00) to Equatorial. On the other hand, Mayfair may
not deduct from the purchase price the amount of eight hundred
"WHEREFORE, the petition for review of the decision of the Court of forty-seven thousand pesos (P847,000.00) as withholding tax. The
Appeals, dated June 23, 1992, in CA-G.R. CV No. 32918, is duty to withhold taxes due, if any, is imposed on the seller Carmelo
HEREBY DENIED. The Deed of Absolute Sale between petitioners and Bauermann, Inc." 9
Equatorial Realty Development, Inc. and Carmelo & Bauermann,
Inc. is hereby deemed rescinded; Carmelo & Bauermann is ordered Meanwhile, on September 18, 1997 — barely five months after
to return to petitioner Equatorial Realty Development the purchase Mayfair had submitted its Motion for Execution before the RTC of
price. The latter is directed to execute the deeds and documents Manila, Branch 7 — Equatorial filed with the Regional Trial Court of
necessary to return ownership to Carmelo & Bauermann of the Manila, Branch 8, an action for the collection of a sum of money
disputed lots. Carmelo & Bauermann is ordered to allow Mayfair against Mayfair, claiming payment of rentals or reasonable
Theater, Inc. to buy the aforesaid lots for P11,300,000.00." 6 compensation for the defendant’s use of the subject premises after
its lease contracts had expired. This action was the progenitor of
The foregoing Decision of this Court became final and executory on the present case.chanrob1es virtua1 1aw 1ibrary
March 17, 1997. On April 25, 1997, Mayfair filed a Motion for
Execution, which the trial court granted. In its Complaint, Equatorial alleged among other things that the
Lease Contract covering the premises occupied by Maxim Theater
However, Carmelo could no longer be located. Thus, following the expired on May 31, 1987, while the Lease Contract covering the
order of execution of the trial court, Mayfair deposited with the premises occupied by Miramar Theater lapsed on March 31, 1989.
clerk of court a quo its payment to Carmelo in the sum of 10 Representing itself as the owner of the subject premises by
P11,300,000 less; P847,000 as withholding tax. The lower court reason of the Contract of Sale on July 30, 1978, it claimed rentals
issued a Deed of Reconveyance in favor of Carmelo and a Deed of arising from Mayfair’s occupation thereof.
Sale in favor of Mayfair. On the basis of these documents, the
Registry of Deeds of Manila canceled Equatorial’s titles and issued Ruling of the RTC Manila, Branch 8
new Certificates of Title 7 in the name of Mayfair.chanrob1es
virtua1 1aw 1ibrary As earlier stated, the trial court dismissed the Complaint via the
herein assailed Order and denied the Motion for Reconsideration
Ruling on Equatorial’s Petition for Certiorari and Petition contesting filed by Equatorial. 11
the foregoing manner of execution, the CA in its Resolution of
November 20, 1998, explained that Mayfair had no right to deduct The lower court debunked the claim of petitioner for unpaid back
rentals, holding that the rescission of the Deed of Absolute Sale in
the mother case did not confer on Equatorial any vested or residual Hence, the present recourse. 14
proprietary rights, even in expectancy.
Issues
In granting the Motion to Dismiss, the court a quo held that the
critical issue was whether Equatorial was the owner of the subject
property and could thus enjoy the fruits or rentals therefrom. It Petitioner submits, for the consideration of this Court, the following
declared the rescinded Deed of Absolute Sale as avoid at its issues: 15
inception as though it did not happen." chanrob1es virtua1 1aw
1ibrary "A

The trial court ratiocinated as follows:jgc:chanrobles.com.ph The basis of the dismissal of the Complaint by the Regional Trial
Court not only disregards basic concepts and principles in the law
"The meaning of rescind in the aforequoted decision is to set aside. on contracts and in civil law, especially those on rescission and its
In the case of Ocampo v. Court of Appeals, G.R. No. 97442, June corresponding legal effects, but also ignores the dispositive portion
30, 1994, the Supreme Court held that, ‘to rescind is to declare a of the Decision of the Supreme Court in G.R. No. 106063 entitled
contract void in its inception and to put an end as though it never ‘Equatorial Realty Development, Inc. & Carmelo & Bauermann, Inc.
were. It is not merely to terminate it and release parties from v. Mayfair Theater, Inc.’chanrob1es virtua1 1aw 1ibrary
further obligations to each other but to abrogate it from the
beginning and restore parties to relative positions which they would "B.
have occupied had no contract ever been made.’
The Regional Trial Court erred in holding that the Deed of Absolute
"Relative to the foregoing definition, the Deed of Absolute Sale Sale in favor of petitioner by Carmelo & Bauermann, Inc., dated
between Equatorial and Carmelo dated July 31, 1978 is void at its July 31, 1978, over the premises used and occupied by
inception as though it did not happen. respondent, having been ‘deemed rescinded’ by the Supreme Court
in G.R. No. 106063, is ‘void at its inception as though it did not
"The argument of Equatorial that this complaint for back rentals as happen.’
‘reasonable compensation for use of the subject property after
expiration of the lease contracts presumes that the Deed of "C.
Absolute Sale dated July 30, 1978 from whence the fountain of
Equatorial’s all rights flows is still valid and existing. The Regional Trial Court likewise erred in holding that the aforesaid
x       x       x Deed of Absolute Sale, dated July 31, 1978, having been ‘deemed
rescinded’ by the Supreme Court in G.R. No. 106063, petitioner ‘is
not the owner and does not have any right to demand backrentals
from the subject property,’ and that the rescission of the Deed of
"The subject Deed of Absolute Sale having been rescinded by the Absolute Sale by the Supreme Court does not confer to petitioner
Supreme Court, Equatorial is not the owner and does not have any ‘any vested right nor any residual proprietary rights even in
right to demand backrentals from the subject property. . . 12 expectancy.’

The trial court added: "The Supreme Court in the Equatorial case, "D.
G.R No. 106063, has categorically stated that the Deed of Absolute
Sale dated July 31, 1978 has been rescinded subjecting the The issue upon which the Regional Trial Court dismissed the civil
present complaint to res judicata." 13 case, as stated in its Order of March 11, 1998, was not raised by
respondent in its Motion to Dismiss.chanrob1es virtua1 1aw 1ibrary
 himself to transfer ownership of and to deliver a determinate thing
"E. and the other to pay therefor a price certain in money or its
equivalent." 19
The sole ground upon which the Regional Trial Court dismissed Civil
Case No. 97-85141 is not one of the grounds of a Motion to Ownership of the thing sold is a real right, 20 which the buyer
Dismiss under Sec. 1 of Rule 16 of the 1997 Rules of Civil acquires only upon delivery of the thing to him "in any of the ways
Procedure."cralaw virtua1aw library specified in articles 1497 to 1501, or in any other manner
signifying an agreement that the possession is transferred from the
Basically, the issues can be summarized into two: (1) the vendor to the vendee." 21 This right is transferred, not merely by
substantive issue of whether Equatorial is entitled to back rentals; contract, but also by tradition or delivery. 22 Non nudis pactis sed
and (2) the procedural issue of whether the court a quo’s dismissal traditione dominia rerum transferantur. And there is said to be
of Civil Case No. 97-85141 was based on one of the grounds raised delivery if and when the thing sold "is placed in the control and
by respondent in its Motion to Dismiss and covered by Rule 16 of possession of the vendee." 23 Thus, it has been held that while the
the Rules of Court. execution of a public instrument of sale is recognized by law as
equivalent to the delivery of the thing sold, 24 such constructive or
This Court’s Ruling symbolic delivery, being merely presumptive, is deemed negated
by the failure of the vendee to take actual possession of the land
sold.25cralaw:red
The Petition is not meritorious.
Delivery has been described as a composite act, a thing in which
First Issue:chanrob1es virtual 1aw library both parties must join and the minds of both parties concur. It is
an act by which one party parts with the title to and the possession
Ownership of Subject Properties of the property, and the other acquires the right to and the
possession of the same. In its natural sense, delivery means
We hold that under the peculiar facts and circumstances of the something in addition to the delivery of property or title; it means
case at bar, as found by this Court en banc in its Decision transfer of possession. 26 In the Law on Sales, delivery may be
promulgated in 1996 in the mother case, no right of ownership was either actual or constructive, but both forms of delivery
transferred from Carmelo to Equatorial in view of a patent failure contemplate "the absolute giving up of the control and custody of
to deliver the property to the buyer.chanrob1es virtua1 1aw the property on the part of the vendor, and the assumption of the
1ibrary same by the vendee." 27

Rental — a Civil Possession Never

Fruit of Ownership Acquired by Petitioner

To better understand the peculiarity of the instant case, let us Let us now apply the foregoing discussion to the present issue.
begin with some basic parameters. Rent is a civil fruit 16 that From the peculiar facts of this case, it is clear that petitioner never
belongs to the owner of the property producing it 17 by right of took actual control and possession of the property sold, in view of
accession. 18 Consequently and ordinarily, the rentals that fell due respondent’s timely objection to the sale and the continued actual
from the time of the perfection of the sale to petitioner until its possession of the property. The objection took the form of a court
rescission by final judgment should belong to the owner of the action impugning the sale which, as we know, was rescinded by a
property during that period. judgment rendered by this Court in the mother case. It has been
held that the execution of a contract of sale as a form of
By a contract of sale, "one of the contracting parties obligates constructive delivery is a legal fiction. It holds true only when there
is no impediment that may prevent the passing of the property delivery was not effected, because a third person was actually in
from the hands of the vendor into those of the vendee. 28 When possession of the thing. In the latter case, the sale cannot be
there is such impediment, "fiction yields to reality — the delivery considered consummated.chanrob1es virtua1 law library
has not been effected." 29
However, the point may be raised that under Article 1164 of the
Hence, respondent’s opposition to the transfer of the property by Civil Code, Equatorial as buyer acquired a right to the fruits of the
way of sale to Equatorial was a legally sufficient impediment that thing sold from the time the obligation to deliver the property to
effectively prevented the passing of the property into the latter’s petitioner arose. 32 That time arose upon the perfection of the
hands.chanrob1es virtua1 1aw 1ibrary Contract of Sale on July 30, 1978, from which moment the laws
provide that the parties to a sale may reciprocally demand
This was the same impediment contemplated in Vda. de Sarmiento performance. 33 Does this mean that despite the judgment
v. Lesaca, 30 in which the Court held as rescinding the sale, the right to the fruits 34 belonged to, and
follows:jgc:chanrobles.com.ph remained enforceable by, Equatorial?

"The question that now arises is: Is there any stipulation in the Article 1385 of the Civil Code answers this question in the
sale in question from which we can infer that the vendor did not negative, because" [r]escission creates the obligation to return the
intend to deliver outright the possession of the lands to the things which were the object of the contract, together with their
vendee? We find none. On the contrary, it can be clearly seen fruits, and the price with its interest; . . ." Not only the land and
therein that the vendor intended to place the vendee in actual building sold, but also the rental payments paid, if any, had to be
possession of the lands immediately as can be inferred from the returned by the buyer.
stipulation that the vendee ‘takes actual possession thereof . . .
with full rights to dispose, enjoy and make use thereof in such Another point. The Decision in the mother case stated that
manner and form as would be most advantageous to herself.’ The "Equatorial . . . has received rents" from Mayfair "during all the
possession referred to in the contract evidently refers to actual years that this controversy has been litigated." The Separate
possession and not merely symbolical inferable from the mere Opinion of Justice Teodoro Padilla in the mother case also said that
execution of the document.chanrob1es virtua1 1aw 1ibrary Equatorial was "deriving rental income" from the disputed
property. Even herein ponente’s Separate Concurring Opinion in
"Has the vendor complied with this express commitment? she did the mother case recognized these rentals. The question now is: Do
not. As provided in Article 1462, the thing sold shall be deemed all these statements concede actual delivery?chanrob1es virtua1
delivered when the vendee is placed in the control and possession 1aw 1ibrary
thereof, which situation does not here obtain because from the
execution of the sale up to the present the vendee was never able The answer is "No." The fact that Mayfair paid rentals to Equatorial
to take possession of the lands due to the insistent refusal of during the litigation should not be interpreted to mean either actual
Martin Deloso to surrender them claiming ownership thereof. And delivery or ipso facto recognition of Equatorial’s title.
although it is postulated in the same article that the execution of a
public document is equivalent to delivery, this legal fiction only The CA Records of the mother case 35 show that Equatorial — as
holds true when there is no impediment that may prevent the alleged buyer of the disputed properties and as alleged successor-
passing of the property from the hands of the vendor into those of in-interest of Carmelo’s rights as lessor — submitted two ejectment
the vendee. . ." 31 suits against Mayfair. Filed in the Metropolitan Trial Court of Manila,
the first was docketed as Civil Case No. 121570 on July 9, 1987;
The execution of a public instrument gives rise, therefore, only to a and the second, as Civil Case No. 131944 on May 28, 1990.
prima facie presumption of delivery. Such presumption is destroyed Mayfair eventually won them both. However, to be able to maintain
when the instrument itself expresses or implies that delivery was physical possession of the premises while awaiting the outcome of
not intended; or when by other means it is shown that such the mother case, it had no choice but to pay the rentals.
 "First and foremost is that the petitioners acted in bad faith to
The rental payments made by Mayfair should not be construed as a render Paragraph 8 ‘inutile.’
recognition of Equatorial as the new owner. They were made
merely to avoid imminent eviction. It is in this context that one x       x       x
should understand the aforequoted factual statements in the
ponencia in the mother case, as well as the Separate Opinion of
Mr. Justice Padilla and the Separate Concurring Opinion of the "Since Equatorial is a buyer in bad faith, this finding renders the
herein ponente. sale to it of the property in question rescissible. We agree with
respondent Appellate Court that the records bear out the fact that
At bottom, it may be conceded that, theoretically, a rescissible Equatorial was aware of the lease contracts because its lawyers
contract is valid until rescinded. However, this general principle is had, prior to the sale, studied the said contracts. As such,
not decisive to the issue of whether Equatorial ever acquired the Equatorial cannot tenably claim to be a purchaser in good faith,
right to collect rentals. What is decisive is the civil law rule that and, therefore, rescission lies.
ownership is acquired, not by mere agreement, but by tradition or
delivery. Under the factual environment of this controversy as x       x       x
found by this Court in the mother case, Equatorial was never put in
actual and effective control or possession of the property because
of Mayfair’s timely objection.
"As also earlier emphasized, the contract of sale between
As pointed out by Justice Holmes, general propositions do not Equatorial and Carmelo is characterized by bad faith, since it was
decide specific cases. Rather, "laws are interpreted in the context knowingly entered into in violation of the rights of and to the
of the peculiar factual situation of each case. Each case has its own prejudice of Mayfair. In fact, as correctly observed by the Court of
flesh and blood and cannot be decided on the basis of isolated Appeals, Equatorial admitted that its lawyers had studied the
clinical classroom principles." 36 contract of lease prior to the sale. Equatorial’s knowledge of the
stipulations therein should have cautioned it to look further into the
In short, the sale to Equatorial may have been valid from agreement to determine if it involved stipulations that would
inception, but it was judicially rescinded before it could be prejudice its own interests.chanrob1es virtua1 1aw 1ibrary
consummated. Petitioner never acquired ownership, not because x       x       x
the sale was void, as erroneously claimed by the trial court, but
because the sale was not consummated by a legally effective
delivery of the property sold.
"On the part of Equatorial, it cannot be a buyer in good faith
Benefits Precluded by because it bought the property with notice and full knowledge that
Mayfair had a right to or interest in the property superior to its
Petitioner’s Bad Faith own. Carmelo and Equatorial took unconscientious advantage of
Mayfair." 37 (Emphasis supplied)
Furthermore, assuming for the sake of argument that there was
valid delivery, petitioner is not entitled to any benefits from the Thus, petitioner was and still is entitled solely to the return of the
"rescinded" Deed of Absolute Sale because of its bad faith. This purchase price it paid to Carmelo; no more, no less. This Court has
being the law of the mother case decided in 1996, it may no longer firmly ruled in the mother case that neither of them is entitled to
be changed because it has long become final and executory. any consideration of equity, as both "took unconscientious
Petitioner’s bad faith is set forth in the following pertinent portions advantage of Mayfair." 38
of the mother case:jgc:chanrobles.com.ph
In the mother case, this Court categorically denied the payment of
interest, a fruit of ownership. By the same token, rentals, another hold, nonetheless, that petitioner’s cause of action is indeed barred
fruit of ownership, cannot be granted without mocking this Court’s by a prior judgment of this Court. As already discussed, our
en banc Decision, which has long become final.chanrob1es virtua1 Decision in G.R No. 106063 shows that petitioner is not entitled to
1aw 1ibrary back rentals, because it never became the owner of the disputed
properties due to a failure of delivery. And even assuming
Petitioner’s claim of reasonable compensation for respondent’s use arguendo that there was a valid delivery, petitioner’s bad faith
and occupation of the subject property from the time the lease negates its entitlement to the civil fruits of ownership, like interest
expired cannot be countenanced. If it suffered any loss, petitioner and rentals.
must bear it in silence, since it had wrought that loss upon itself.
Otherwise, bad faith would be rewarded instead of punished. Under the doctrine of res judicata or bar by prior judgment, a
matter that has been adjudicated by a court of competent
We uphold the trial court’s disposition, not for the reason it gave, jurisdiction must be deemed to have been finally and conclusively
but for (a) the patent failure to deliver the property and (b) settled if it arises in any subsequent litigation between the same
petitioner’s bad faith, as above discussed. parties and for the same cause. 40 Thus," [a] final judgment on
the merits rendered by a court of competent jurisdiction is
Second Issue:chanrob1es virtual 1aw library conclusive as to the rights of the parties and their privies and
constitutes an absolute bar to subsequent actions involving the
Ground in Motion to Dismiss same claim, demand, or cause of action." 41 Res judicata is based
on the ground that the "party to be affected, or some other with
Procedurally, petitioner claims that the trial court deviated from the whom he is in privity, has litigated the same matter in a former
accepted and usual course of judicial proceedings when it action in a court of competent jurisdiction, and should not be
dismissed Civil Case No. 97-85141 on a ground not raised in permitted to litigate it again. 42
respondent’s Motion to Dismiss. Worse, it allegedly based its
dismissal on a ground not provided for in a motion to dismiss as It frees the parties from undergoing all over again the rigors of
enunciated in the Rules of Court.cralawred unnecessary suits and repetitive trials. At the same time, it
prevents the clogging of court dockets. Equally important, it
We are not convinced A review of respondent’s Motion to Dismiss stabilizes rights and promotes the rule of law.
Civil Case No. 97-85141 shows that there were two grounds
invoked, as follows:jgc:chanrobles.com.ph We find no need to repeat the foregoing disquisitions on the first
issue to show satisfaction of the elements of res judicata. Suffice it
"(A) to say that, clearly, our ruling in the mother case bars petitioner
from claiming back rentals from Respondent. Although the court a
Plaintiff is guilty of forum-shopping. quo erred when it declared "void from inception" the Deed of
Absolute Sale between Carmelo and petitioner, our foregoing
"(B) discussion supports the grant of the Motion to Dismiss on the
ground that our prior judgment in G.R No. 106063 has already
Plaintiff’s cause of action, if any, is barred by prior judgment." 39 resolved the issue of back rentals.chanrob1es virtua1 1aw 1ibrary

The court a quo ruled, inter alia, that the cause of action of On the basis of the evidence presented during the hearing of
petitioner plaintiff in the case below) had been barred by a prior Mayfair’s Motion to Dismiss, the trial court found that the issue of
judgment of this Court in G.R No. 106063, the mother case. ownership of the subject property has been decided by this Court
in favor of Mayfair. We quote the RTC:jgc:chanrobles.com.ph
Although it erred in its interpretation of the said Decision when it
argued that the rescinded Deed of Absolute Sale was avoid," we "The Supreme Court in the Equatorial case, G.R. No. 106063 has
categorically stated that the Deed of Absolute Sale dated July 31,
1978 has been rescinded subjecting the present complaint to res
judicata." 43 (Emphasis in the original)

Hence, the trial court decided the Motion to Dismiss on the basis of
res judicata, even if it erred in interpreting the meaning of
"rescinded" as equivalent to "void" In short, it ruled on the ground
raised; namely, bar by prior judgment. By granting the Motion, it
disposed correctly, even if its legal reason for nullifying the sale
was wrong. The correct reasons are given in this Decision.

WHEREFORE, the Petition is hereby DENIED. Costs against

petitioner.chanrob1es virtua1 1aw 1ibrary

SO ORDERED.
Onerous the buyer at so much per picul, no mention being made of bailing;
but with the tacit understanding, unless otherwise expressly
III DISTINGUISH FROM OTHER TRANSACTIONS/ CONTRACT agreed, that the hemp will be delivered in bales and that,
according to the custom prevailing among hemp merchants and
1. Barter
dealers in the Philippine Islands, a charge, the amount of which
2. Donation depends upon the then prevailing rate, is to be made against the
3. Contract for Piece of Work buyer under the denomination of "prensaje." That this charge is
made in the same manner in all cases, even when the operation
G.R. No. L-6584             October 16, 1911 of bailing was performed by the plaintiff or by its principal long
before the contract of sale was made. Two specimens of the
INCHAUSTI AND CO., plaintiff-appellant, ordinary form of account used in these operations are hereunto
vs. appended, marked Exhibits A and B, respectively, and made a
ELLIS CROMWELL, Collector of Internal Revenue, defendant- part hereof.
appellee.
VI. That the amount of the charge made against hemp buyers by
Haussermann, Cohn & Fisher, for appellant. the plaintiff firm and other sellers of hemp under the denomination
Acting Attorney-General Harvey, for appellee. of "prensaje" during the period involved in this litigation was
P1.75 per bale; that the average cost of the rattan and matting
used on each bale of hemp is fifteen (15) centavos and that the
average total cost of bailing hemp is one (1) peso per bale.

MORELAND, J.: VII. That insurance companies in the Philippine Islands, in

estimating the insurable value of hemp always add to the quoted
price of same the charge made by the seller under the
This is an appeal by the plaintiff from a judgment of the Court of First
denomination of "prensaje."
Instance of the city of Manila, the Hon. Simplicio del Rosario presiding,
dismissing the complaint upon the merits after trial, without costs.
VII. That the average weight of a bale of hemp is two (2) piculs
(126.5 kilograms).
The facts presented to this court are agreed upon by both parties,
consisting, in so far as they are material to a decision of the case, in the
following: IX. That between the first day of January, 1905, and the 31st day
of March, 1910, the plaintiff firm, in accordance with the custom
mentioned in paragraph V hereof, collected and received, under
III. That the plaintiff firm for many years past has been and now is
the denomination of "prensaje," from purchasers of hemp sold by
engaged in the business of buying and selling at wholesale hemp,
the said firm for its own account, in addition to the price expressly
both for its own account and on commission.
agreed upon for the said hemp, sums aggregating P380,124.35;
and between the 1st day of October, 1908, and the 1st day of
IV. That it is customary to sell hemp in bales which are made by March, 1910, collected for the account of the owners of hemp
compressing the loose fiber by means of presses, covering two sold by the plaintiff firm in Manila on commission, and under the
sides of the bale with matting, and fastening it by means of strips said denomination of "prensaje," in addition to the price expressly
of rattan; that the operation of bailing hemp is designated among agreed upon the said hemp, sums aggregating P31,080.
merchants by the word "prensaje."
X. That the plaintiff firm in estimating the amount due it as
V. That in all sales of hemp by the plaintiff firm, whether for its commissions on sales of hemp made by it for its principals has
own account or on commission for others, the price is quoted to
always based the said amount on the total sum collected from the Upon the facts above stated it is the contention of the defendant
purchasers of the hemp, including the charge made in each case that the said charge made under the denomination of "prensaje"
under the denomination of "prensaje." is in truth and in fact a part of the gross value of the hemp sold
and of its actual selling price, and that therefore the tax imposed
XI. That the plaintiff has always paid to the defendant or to his by section 139 of Act No. 1189 lawfully accrued on said sums,
predecessor in the office of the Collector of Internal Revenue the that the collection thereof was lawfully and properly made and
tax collectible under the provisions of section 139 of Act No. 1189 that therefore the plaintiff is not entitled to recover back said sum
upon the selling price expressly agreed upon for all hemp sold by or any part thereof; and that the defendant should have judgment
the plaintiff firm both for its own account and on commission, but against plaintiff for his costs.
has not, until compelled to do so as hereinafter stated, paid the
said tax upon sums received from the purchaser of such hemp Under these facts we are of the opinion that the judgment of the court
under the denomination of "prensaje." below was right. It is one of the stipulations in the statement of facts that
it is customary to sell hemp in bales, and that the price quoted in the
XII. That of the 29th day of April, 1910, the defendant, acting in market for hemp per picul is the price for the hemp baled. The fact is that
his official capacity as Collector of Internal Revenue of the among large dealers like the plaintiff in this case it is practically
Philippine Islands, made demand in writing upon the plaintiff firm impossible to handle hemp without its being baled, and it is admitted by
for the payment within the period of five (5) days of the sum of the statement of facts, as well as demonstrated by the documentary proof
P1,370.68 as a tax of one third of one per cent on the sums of introduced in the case, that if the plaintiff sold a quality of hemp it would
money mentioned in Paragraph IX hereof, and which the said be the under standing, without words, that such hemp would be delivered
defendant claimed to be entitled to receive, under the provisions in bales, and that the purchase price would include the cost and expense
of the said section 139 of Act No. 1189, upon the said sums of of baling. In other words, it is the fact as stipulated, as well as it would be
money so collected from purchasers of hemp under the the fact of necessity, that in all dealings in hemp in the general market
denomination of "prensaje." the selling price consists of the value of the hemp loose plus the cost and
expense of putting it into marketable form. In the sales made by the
XIII. That on the 4th day of May, 1910, the plaintiff firm paid to the plaintiff, which are the basis of the controversy here, there were n
defendant under protest the said sum of P1,370.69, and on the services performed by him for his vendee. There was agreement that
same date appealed to the defendant as Collector of Internal services should be performed. Indeed, at the time of such sales it was
Revenue, against the ruling by which the plaintiff firm was not known by the vendee whether the hemp was then actually baled or
required to make said payment, but defendant overruled said not. All that he knew and all that concerned him was that the hemp
protest and adversely decided said appeal, and refused and still should be delivered to him baled. He did not ask the plaintiff to perform
refuses to return to plaintiff the said sum of P1,370.68 or any part services for him, nor did the plaintiff agree to do so. The contract was
thereof. single and consisted solely in the sale and purchase of hemp. The
purchaser contracted for nothing else and the vendor agreed to deliver
1awphil.net

nothing else.
XIV. Upon the facts above set forth t is contended by the plaintiff
that the tax of P1,370.68 assessed by the defendant upon the
aggregate sum of said charges made against said purchasers of The word "price" signifies the sum stipulated as the equivalent of the
hemp by the plaintiff during the period in question, under the thing sold and also every incident taken into consideration for the fixing of
denomination of "prensaje" as aforesaid, namely, P411,204.35, is the price, put to the debit of the vendee and agreed to by him. It is quite
illegal upon the ground that the said charge does not constitute a possible that the plaintiff, in this case in connection with the hemp which
part of the selling price of the hemp, but is a charge made for the he sold, had himself already paid the additional expense of baling as a
service of baling the hemp, and that the plaintiff firm is therefore part of the purchase price which he paid and that he himself had received
entitled to recover of the defendant the said sum of P1,370.68 the hemp baled from his vendor. It is quite possible also that such vendor
paid to him under protest, together with all interest thereon at the of the plaintiff may have received the same hemp from his vendor in
legal rate since payment, and the costs of this action. baled form, that he paid the additions cost of baling as a part of the
purchase price which he paid. In such case the plaintiff performed no and not for the general market, the case is not within the statute.
service whatever for his vendee, nor did the plaintiff's vendor perform any (Goddard vs. Binney, 115 Mass., 450.)
service for him.
It is clear to our minds that in the case at bar the baling was performed
The distinction between a contract of sale and one for work, labor, and for the general market and was not something done by plaintiff which was
materials is tested by the inquiry whether the thing transferred is one no a result of any peculiar wording of the particular contract between him
in existence and which never would have existed but for the order of the and his vendee. It is undoubted that the plaintiff prepared his hemp for
party desiring to acquire it, or a thing which would have existed and been the general market. This would be necessary. One whose exposes goods
the subject of sale to some other person, even if the order had not been for sale in the market must have them in marketable form. The hemp in
given. (Groves vs. Buck, 3 Maule & S., 178; Towers vs. Osborne, 1 question would not have been in that condition if it had not been baled.
Strange, 506; Benjamin on Sales, 90.) It is clear that in the case at bar the baling, therefore, was nothing peculiar to the contract between the
the hemp was in existence in baled form before the agreements of sale plaintiff and his vendee. It was precisely the same contract that was
were made, or, at least, would have been in existence even if none of the made by every other seller of hemp, engaged as was the plaintiff, and
individual sales here in question had been consummated. It would have resulted simply in the transfer of title to goods already prepared for the
been baled, nevertheless, for sale to someone else, since, according to general market. The method of bookkeeping and form of the account
the agreed statement of facts, it is customary to sell hemp in bales. When rendered is not controlling as to the nature of the contract made. It is
a person stipulates for the future sale of articles which he is habitually conceded in the case tat a separate entry and charge would have been
making, and which at the time are not made or finished, it is essentially a made for the baling even if the plaintiff had not been the one who baled
contract of sale and not a contract for labor. It is otherwise when the the hemp but, instead, had received it already baled from his vendor.
article is made pursuant to agreement. (Lamb vs. Crafts, 12 Met., 353; This indicates of necessity tat the mere fact of entering a separate item
Smith vs. N.Y.C. Ry. Co., 4 Keyes, 180; Benjamin on Sales, 98.) Where for the baling of the hemp is formal rather than essential and in no sense
labor is employed on the materials of the seller he can not maintain an indicates in this case the real transaction between the parties. It is
action for work and labor. (Atkinson vs. Bell, 8 Barn. & C., 277; undisputable that, if the plaintiff had brought the hemp in question already
Lee vs. Griffin, 30 L.J.N. S.Q.B., 252; Prescott vs. Locke, 51 N.H., 94.) If baled, and that was the hemp the sale which formed the subject of this
the article ordered by the purchaser is exactly such as the plaintiff makes controversy, then the plaintiff would have performed no service for his
and keeps on hand for sale to anyone, and no change or modification of vendee and could not, therefore, lawfully charge for the rendition of such
it is made at the defendant's request, it is a contract of sale, even though service. It is, nevertheless, admitted that in spite of that fact he would still
it may be entirely made after, and in consequence of, the defendant's have made the double entry in his invoice of sale to such vendee. This
order for it. (Garbutt s. Watson, 5 Barn. & Ald., 613; Gardner vs. Joy, 9 demonstrates the nature of the transaction and discloses, as we have
Met., 177; Lamb vs. Crafts, 12 Met., 353; Waterman vs. Meigs, 4 Cush., already said, that the entry of a separate charge for baling does not
497., Clark vs. Nichols, 107 Mass., 547; May vs. Ward, 134 Mass., 127; accurately describe the transaction between the parties.
Abbott vs. Gilchrist, 38 Me., 260; Crocket vs. Scribner, 64 Me., 105;
Pitkin vs. Noyes, 48 N. H., 294; Prescott vs. Locke, 51 N. H., 94; Section 139 [Act No. 1189] of the Internal Revenue Law provides that:
Ellison vs. Brigham, 38 Vt., 64.) It has been held in Massachusetts that a
contract to make is a contract of sale if the article ordered is already There shall be paid by each merchant and manufacturer a tax at
substantially in existence at the time of the order and merely requires the rate of one-third of one per centum on the gross value in
some alteration, modification, or adoption to the buyer's wishes or money of all goods, wares and merchandise sold, bartered or
purposes. (Mixer vs. Howarth, 21 Pick., 205.) It is also held in that state exchanged in the Philippine Islands, and that this tax shall be
that a contract for the sale of an article which the vendor in the ordinary assessed on the actual selling price at which every such
course of his business manufactures or procures for the general market, merchant or manufacturer disposes of his commodities.
whether the same is on hand at the time or not, is a contract for the sale
of goods to which the statute of frauds applies. But if the goods are to be
The operation of baling undoubtedly augments the value of the goods.
manufactured especially for the purchaser and upon his special order,
We agree that there can be no question that, if the value of the hemp
were not augmented to the amount of P1.75 per bale by said operation,
the purchaser would not pay that sum. If one buys a bale of hemp at a
stipulated price of P20, well knowing that there is an agreement on his
part, express or implied, to pay an additional amount of P1.75 for that
bale, he considers the bale of hemp worth P21. 75. It is agreed, as we
have before stated, that hemp is sold in bales. Therefore, baling is
performed before the sale. The purchaser of hemp owes to the seller
nothing whatever by reason of their contract except the value of the
hemp delivered. That value, that sum which the purchaser pays to the
vendee, is the true selling price of the hemp, and every item which enters
into such price is a part of such selling price. By force of the custom
prevailing among hemp dealers in the Philippine Islands, a purchaser of
hemp in the market, unless he expressly stipulates that it shall be
delivered to him in loose form, obligates himself to purchase and pay for
baled hemp. Wheher or not such agreement is express or implied,
whether it is actual or tacit, it has the same force. After such an
agreement has once been made by the purchaser, he has no right to
insists thereafter that the seller shall furnish him with unbaled hemp. It is
undoubted that the vendees, in the sales referred to in the case at bar,
would have no right, after having made their contracts, to insists on the
delivery of loose hemp with the purpose in view themselves to perform
the baling and thus save 75 centavos per bale. It is unquestioned that the
seller, the plaintiff, would have stood upon his original contract of sale,
that is, the obligation to deliver baled hemp, and would have forced his
vendees to accept baled hemp, he himself retaining among his own
profits those which accrued from the proceed of baling.

We are of the opinion that the judgment appealed from must be affirmed,
without special finding as to costs, and it is so ordered.
G.R. No. L-8506             August 31, 1956 tradename and has offered itself to the public as a "Factory", which
means it is out to do business, in its chosen lines on a big scale. As a
CELESTINO CO & COMPANY, petitioner, general rule, sash factories receive orders for doors and windows of
vs. special design only in particular cases but the bulk of their sales is
COLLECTOR OF INTERNAL REVENUE, respondent. derived from a ready-made doors and windows of standard sizes for the
average home. Moreover, as shown from the investigation of petitioner's
Office of the Solicitor General Ambrosio Padilla, Fisrt Assistant Solicitor book of accounts, during the period from January 1, 1952 to September
General Guillermo E. Torres and Solicitor Federico V. Sian for 30, 1952, it sold sash, doors and windows worth P188,754.69. I find it
respondent. difficult to believe that this amount which runs to six figures was derived
by petitioner entirely from its few customers who made special orders for
these items.
BENGZON, J.:
Even if we were to believe petitioner's claim that it does not manufacture
Appeal from a decision of the Court of Tax Appeals.
ready-made sash, doors and windows for the public and that it makes
these articles only special order of its customers, that does not make it a
Celestino Co & Company is a duly registered general copartnership contractor within the purview of section 191 of the national Internal
doing business under the trade name of "Oriental Sash Factory". From Revenue Code. there are no less than fifty occupations enumerated in
1946 to 1951 it paid percentage taxes of 7 per cent on the gross receipts the aforesaid section of the national Internal Revenue Code subject to
of its sash, door and window factory, in accordance with section one percentage tax and after reading carefully each and every one of them,
hundred eighty-six of the National Revenue Code imposing taxes on sale we cannot find under which the business of manufacturing sash, doors
of manufactured articles. However in 1952 it began to claim liability only and windows upon special order of customers fall under the category of
to the contractor's 3 per cent tax (instead of 7 per cent) under section 191 "road, building, navigation, artesian well, water workers and other
of the same Code; and having failed to convince the Bureau of Internal construction work contractors" are those who alter or repair buildings,
Revenue, it brought the matter to the Court of Tax Appeals, where it also structures, streets, highways, sewers, street railways railroads logging
failed. Said the Court: roads, electric lines or power lines, and includes any other work for the
construction, altering or repairing for which machinery driven by
To support his contention that his client is an ordinary contractor . . . mechanical power is used. (Payton vs. City of Anadardo 64 P. 2d 878,
counsel presented . . . duplicate copies of letters, sketches of doors and 880, 179 Okl. 68).
windows and price quotations supposedly sent by the manager of the
Oriental Sash Factory to four customers who allegedly made special Having thus eliminated the feasibility off taxing petitioner as a contractor
orders to doors and window from the said factory. The conclusion that under 191 of the national Internal Revenue Code, this leaves us to
counsel would like us to deduce from these few exhibits is that the decide the remaining issue whether or not petitioner could be taxed with
Oriental Sash Factory does not manufacture ready-made doors, sash lesser strain and more accuracy as seller of its manufactured articles
and windows for the public but only upon special order of its select under section 186 of the same code, as the respondent Collector of
customers. . . . I cannot believe that petitioner company would take, as in Internal Revenue has in fact been doing the Oriental Sash Factory was
fact it has taken, all the trouble and expense of registering a special trade established in 1946.
name for its sash business and then orders company stationery carrying
the bold print "Oriental Sash Factory (Celestino Co & Company, Prop.)
The percentage tax imposed in section 191 of our Tax Code is generally
926 Raon St. Quiapo, Manila, Tel. No. 33076, Manufacturers of all kinds
a tax on the sales of services, in contradiction with the tax imposed in
of doors, windows, sashes, furniture, etc. used season-dried and kiln-
section 186 of the same Code which is a tax on the original sales of
dried lumber, of the best quality workmanships" solely for the purpose of
articles by the manufacturer, producer or importer. (Formilleza's
supplying the needs for doors, windows and sash of its special and
Commentaries and Jurisprudence on the National Internal Revenue
limited customers. One ill note that petitioner has chosen for its
Code, Vol. II, p. 744). The fact that the articles sold are manufactured by
the seller does not exchange the contract from the purview of section 186 mouldings of panels — it would not accept the order — and no sale is
of the National Internal Revenue Code as a sale of articles. made. If they do, the transaction would be no different from a purchasers
of manufactured goods held is stock for sale; they are bought because
There was a strong dissent; but upon careful consideration of the whole they meet the specifications desired by the purchaser.
matter are inclines to accept the above statement of the facts and the
law. The important thing to remember is that Celestino Co & Nobody will say that when a sawmill cuts lumber in accordance with the
Company habitually makes sash, windows and doors, as it has peculiar specifications of a customer-sizes not previously held in stock for
represented in its stationery and advertisements to the public. That it sale to the public-it thereby becomes an employee or servant of the
"manufactures" the same is practically admitted by appellant itself. The customer,1 not the seller of lumber. The same consideration applies to
fact that windows and doors are made by it only when customers place this sash manufacturer.
their orders, does not alter the nature of the establishment, for it is
obvious that it only accepted such orders as called for the employment of The Oriental Sash Factory does nothing more than sell the goods that it
such material-moulding, frames, panels-as it ordinarily manufactured or mass-produces or habitually makes; sash, panels, mouldings, frames,
was in a position habitually to manufacture. cutting them to such sizes and combining them in such forms as its
customers may desire.
Perhaps the following paragraph represents in brief the appellant's
position in this Court: On the other hand, petitioner's idea of being a contractor doing
construction jobs is untenable. Nobody would regard the doing of two
Since the petitioner, by clear proof of facts not disputed by the window panels a construction work in common parlance.2
respondent, manufacturers sash, windows and doors only for special
customers and upon their special orders and in accordance with the Appellant invokes Article 1467 of the New Civil Code to bolster its
desired specifications of the persons ordering the same and not for the contention that in filing orders for windows and doors according to
general market: since the doors ordered by Don Toribio Teodoro & Sons, specifications, it did not sell, but merely contracted for particular pieces of
Inc., for instance, are not in existence and which never would have work or "merely sold its services".
existed but for the order of the party desiring it; and since petitioner's
contractual relation with his customers is that of a contract for a piece of Said article reads as follows:
work or since petitioner is engaged in the sale of services, it follows that
the petitioner should be taxed under section 191 of the Tax Code and
A contract for the delivery at a certain price of an article which the vendor
NOT under section 185 of the same Code." (Appellant's brief, p. 11-12).
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
But the argument rests on a false foundation. Any builder or homeowner, contract of sale, but if the goods are to be manufactured specially for the
with sufficient money, may order windows or doors of the kind customer and upon his special order, and not for the general market, it is
manufactured by this appellant. Therefore it is not true that it serves contract for a piece of work.
special customers only or confines its services to them alone. And
anyone who sees, and likes, the doors ordered by Don Toribio Teodoro &
It is at once apparent that the Oriental Sash Factory did not merely
Sons Inc. may purchase from appellant doors of the same kind, provided
sell its services to Don Toribio Teodoro & Co. (To take one instance)
he pays the price. Surely, the appellant will not refuse, for it can easily
because it also sold the materials. The truth of the matter is that it sold
duplicate or even mass-produce the same doors-it is mechanically
materials ordinarily manufactured by it — sash, panels, mouldings — to
equipped to do so.
Teodoro & Co., although in such form or combination as suited the fancy
of the purchaser. Such new form does not divest the Oriental Sash
That the doors and windows must meet desired specifications is neither Factory of its character as manufacturer. Neither does it take the
here nor there. If these specifications do not happen to be of the kind transaction out of the category of sales under Article 1467 above quoted,
habitually manufactured by appellant — special forms for sash, because although the Factory does not, in the ordinary course of its
business, manufacture and keep on stock doors of the kind sold to
Teodoro, it could stock and/or probably had in stock the sash, mouldings
and panels it used therefor (some of them at least).

In our opinion when this Factory accepts a job that requires the use of
extraordinary or additional equipment, or involves services not generally
performed by it-it thereby contracts for a piece of work — filing special
orders within the meaning of Article 1467. The orders herein exhibited
were not shown to be special. They were merely orders for work —
nothing is shown to call them special requiring extraordinary service of
the factory.

The thought occurs to us that if, as alleged-all the work of appellant is

only to fill orders previously made, such orders should not be
called special work, but regular work. Would a factory do business
performing only special, extraordinary or peculiar merchandise?

Anyway, supposing for the moment that the transactions were not sales,
they were neither lease of services nor contract jobs by a contractor. But
as the doors and windows had been admittedly "manufactured" by the
Oriental Sash Factory, such transactions could be, and should be taxed
as "transfers" thereof under section 186 of the National Revenue Code.

The appealed decision is consequently affirmed. So ordered.

G.R. No. 52267             January 24, 1996 On September 2, 1965, private respondent sold the building to the
National Investment and Development Corporation (NIDC). The latter
ENGINEERING & MACHINERY CORPORATION, petitioner, took possession of the building but on account of NIDC's noncompliance
vs. with the terms and conditions of the deed of sale, private respondent was
COURT OF APPEALS and PONCIANO L. ALMEDA, respondent. able to secure judicial rescission thereof. The ownership of the building
having been decreed back to private respondent, he re-acquired
DECISION possession sometime in 1971. It was then that he learned from some
NIDC, employees of the defects of the air-conditioning system of the
building.
PANGANIBAN, J.:
Acting on this information, private respondent commissioned Engineer
Is a contract for the fabrication and installation of a central air-
David R. Sapico to render a technical evaluation of the system in relation
conditioning system in a building, one of "sale" or "for a piece of work"?
to the contract with petitioner. In his report, Sapico enumerated the
What is the prescriptive period for filing actions for breach of the terms of
defects of the system and concluded that it was "not capable of
such contract?
maintaining the desired room temperature of 76ºF - 2ºF (Exhibit C)"5 .
These are the legal questions brought before this Court in this Petition for
On the basis of this report, private respondent filed on May 8, 1971 an
review on certiorari under Rule 45 of the Rules of Court, to set aside the
action for damages against petitioner with the then Court of First Instance
Decision1 of the Court of Appeals2 in CA-G.R. No. 58276-R promulgated
of Rizal (Civil Case No. 14712). The complaint alleged that the air-
on November 28, 1978 (affirming in toto the decision3 dated April 15,
conditioning system installed by petitioner did not comply with the agreed
1974 of the then Court of First Instance of Rizal, Branch II4 , in Civil Case
plans and specifications. Hence, private respondent prayed for the
No. 14712, which ordered petitioner to pay private respondent the
amount of P210,000.00 representing the rectification cost, P100,000.00
amount needed to rectify the faults and deficiencies of the air-
as damages and P15,000.00 as attorney's fees.
conditioning system installed by petitioner in private respondent's
building, plus damages, attorney's fees and costs).
Petitioner moved to dismiss the complaint, alleging that the prescriptive
period of six months had set in pursuant to Articles 1566 and 1567, in
By a resolution of the First Division of this Court dated November 13,
relation to Article 1571 of the Civil Code, regarding the responsibility of a
1995, this case was transferred to the Third. After deliberating on the
vendor for any hidden faults or defects in the thing sold.
various submissions of the parties, including the petition, record on
appeal, private respondent's comment and briefs for the petitioner and
the private respondent, the Court assigned the writing of this Decision to Private respondent countered that the contract dated September 10,
the undersigned, who took his oath as a member of the Court on October 1962 was not a contract for sale but a contract for a piece of work under
10, 1995. Article 1713 of the Civil Code. Thus, in accordance with Article 1144 (1)
of the same Code, the complaint was timely brought within the ten-year
prescriptive period.
The Facts
In its reply, petitioner argued that Article 1571 of the Civil Code providing
Pursuant to the contract dated September 10, 1962 between petitioner
for a six-month prescriptive period is applicable to a contract for a piece
and private respondent, the former undertook to fabricate, furnish and
of work by virtue of Article 1714, which provides that such a contract shall
install the air-conditioning system in the latter's building along Buendia
be governed by the pertinent provisions on warranty of title and against
Avenue, Makati in consideration of P210,000.00. Petitioner was to furnish
hidden defects and the payment of price in a contract of sale6 .
the materials, labor, tools and all services required in order to so fabricate
and install said system. The system was completed in 1963 and
accepted by private respondent, who paid in full the contract price.
The trial court denied the motion to dismiss. In its answer to the the time of delivery and acceptance of the work considering that private
complaint, petitioner reiterated its claim of prescription as an affirmative respondent was not an expert who could recognize such defects. Third, it
defense. It alleged that whatever defects might have been discovered in insisted that, assuming arguendo that there were indeed hidden defects,
the air-conditioning system could have been caused by a variety of private respondent's complaint was barred by prescription under Article
factors, including ordinary wear and tear and lack of proper and regular 1571 of the Civil Code, which provides for a six-month prescriptive
maintenance. It pointed out that during the one-year period that private period.
respondent withheld final payment, the system was subjected to "very
rigid inspection and testing and corrections or modifications effected" by Private respondent, on the other hand, averred that the issues raised by
petitioner. It interposed a compulsory counterclaim suggesting that the petitioner, like the question of whether there was an acceptance of the
complaint was filed "to offset the adverse effects" of the judgment in Civil work by the owner and whether the hidden defects in the installation
Case No. 71494, Court of First Instance of Manila, involving the same could have been discovered by simple inspection, involve questions of
parties, wherein private respondent was adjudged to pay petitioner the fact which have been passed upon by the appellate court.
balance of the unpaid contract price for the air-conditioning system
installed in another building of private respondent, amounting to The Court's Ruling
P138,482.25.
The Supreme Court reviews only errors of law in petitions for review
Thereafter, private respondent filed an ex-parte motion for preliminary on certiorari under Rule 45. It is not the function of this Court to re-
attachment on the strength of petitioner's own statement to the effect that examine the findings of fact of the appellate court unless said findings are
it had sold its business and was no longer doing business in Manila. The not supported by the evidence on record or the judgment is based on a
trial court granted the motion and, upon private respondent's posting of a misapprehension of facts7 of Appeals erred when it held that the defects
bond of F'50,000.00, ordered the issuance of a writ of attachment. in the installation were not apparent at the time of delivery and
acceptance of the work considering that private respondent was not an
In due course, the trial court rendered a decision finding that petitioner expert who could recognize such defects. Third. it insisted that,
failed to install certain parts and accessories called for by the contract, assuming arguendo that there were indeed hidden defects, private
and deviated from the plans of the system, thus reducing its operational respondent's complaint was barred by prescription under Article 1571 of
effectiveness to the extent that 35 window-type units had to be installed the Civil Code, which provides for a six-month prescriptive period.
in the building to achieve a fairly desirable room temperature. On the
question of prescription, the trial court ruled that the complaint was filed Private respondent, on the other hand, averred that the issues raised by
within the ten-year court prescriptive period although the contract was petitioner, like the question of whether here was an acceptance of the
one for a piece of work, because it involved the "installation of an air- work by the owner and whether the hidden defects in the installation
conditioning system which the defendant itself manufactured, fabricated, could have been discovered by simple inspection, involve questions of
designed and installed." fact which have been passed upon by the appellate court.

Petitioner appealed to the Court of Appeals, which affirmed the decision The Court has consistently held that the factual findings of the trial court,
of the trial court. Hence, it instituted the instant petition. as well as the Court of Appeals, are final and conclusive and may not be
reviewed on appeal. Among the exceptional circumstances where a
The Submissions of the Parties reassessment of facts found by the lower courts is allowed are when the
conclusion is a finding grounded entirely on speculation, surmises or
In the instant Petition, petitioner raised three issues. First, it contended conjectures; when the inference made is manifestly absurd, mistaken or
that private respondent's acceptance of the work and his payment of the impossible; when there is grave abuse of discretion in the appreciation of
contract price extinguished any liability with respect to the defects in the facts; when the judgment is premised on a misapprehension of facts;
air-conditioning system. Second, it claimed that the Court of Appeals when the findings went beyond the issues of the case and the same are
erred when it held that the defects in the installation were not apparent at contrary to the admissions of both appellant and appellee. After a careful
study of the case at bench, we find none of the above grounds present to argue against the imposition of the sales tax if such articles are ordinarily
justify the re-evaluation of the findings of fact made by the courts below.8 manufactured by the taxpayer for sale to the public (Celestino Co. vs.
Collector, 99 Phil. 841).
We see no valid reason to discard the factual conclusions of the
appellate court. . . . (I)t is not the function of this Court to assess and To Tolentino, the distinction between the two contracts depends on the
evaluate all over again the evidence, testimonial and documentary, intention of the parties. Thus, if the parties intended that at some future
adduced by the parties, particularly where, such as here, the findings of date an object has to be delivered, without considering the work or labor
both the trial court and the appellate court on the matter of the party bound to deliver, the contract is one of sale. But if one of the
coincide.9 (Emphasis supplied) parties accepts the undertaking on the basis of some plan, taking into
account the work he will employ personally or through another, there is a
Hence, the first two issues will not be resolved as they raise questions of contract for a piece of work13 .
fact.
Clearly, the contract in question is one for a piece of work. It is not
Thus, the only question left to be resolved is that of prescription. In their petitioner's line of business to manufacture air-conditioning systems to be
submissions, the parties argued lengthily on the nature of the contract sold "off-the-shelf." Its business and particular field of expertise is the
entered into by them, viz., whether it was one of sale or for a piece of fabrication and installation of such systems as ordered by customers and
work. in accordance with the particular plans and specifications provided by the
customers. Naturally, the price or compensation for the system
Article 1713 of the Civil Code defines a contract for a piece of work thus: manufactured and installed will depend greatly on the particular plans
and specifications agreed upon with the customers.
By the contract for a piece of work the contractor binds himself to execute
a piece of work for the employer, in consideration of a certain price or The obligations of a contractor for a piece of work are set forth in Articles
compensation. The contractor may either employ only his labor or skill, or 1714 and 1715 of the Civil Code, which provide:
also furnish the material.
Art. 1714. If the contractor agrees to produce the work from material
A contract for a piece of work, labor and materials may be distinguished furnished by him, he shall deliver the thing produced to the employer and
from a contract of sale by the inquiry as to whether the thing transferred transfer dominion over the thing. This contract shall be governed by the
is one not in existence and which would never have existed but for the following articles as well as by the pertinent provisions on warranty of title
order, of the person desiring it10 . In such case, the contract is one for a and against hidden defects and the payment of price in a contract of sale.
piece of work, not a sale. On the other hand, if the thing subject of the
contract would have existed and been the subject of a sale to some other Art. 1715. The contractor shall execute the work in such a manner that it
person even if the order had not been given, then the contract is one of has the qualities agreed upon and has no defects which destroy or
sale11 . lessen its value or fitness for its ordinary or stipulated use. Should the
work be not of such quality, the employer may require that the contractor
Thus, Mr. Justice Vitug12 explains that - remove the defect or execute another work. If the contractor fails or
refuses to comply with this obligation, the employer may have the defect
removed or another work executed, at the contractor's cost.
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 The provisions on warranty against hidden defects, referred to in Art.
contract of sale, but if the goods are to be manufactured specially for the 1714 above-quoted, are found in Articles 1561 and 1566, which read as
customer and upon his special order, and not for the general market, it is follows:
a contract for a piece of work (Art. 1467, Civil Code). The mere fact alone
that certain articles are made upon previous orders of customers will not
Art. 1561. The vendor shall be responsible for warranty against the agreement between the parties, "and an evaluation of the air-conditioning
hidden defects which the thing sold may have, should they render it unfit system as installed by the defendant showed the following defects and
for the use for which it is intended, or should they diminish its fitness for violations of the specifications of the agreement, to wit:
such use to such an extent that, had the vendee been aware thereof, he
would not have acquired it or would have given a lower price for it; but GROUND FLOOR:
said vendor shall not be answerable for patent defects or those which
may be visible, or for those which are not visible if the vendee is an "A. RIGHT WING:
expert who, by reason of his trade or profession, should have known
them.
Equipped with Worthington Compressor, Model 2VC4 directly driven by
an Hp Elin electric motor 1750 rmp, 3 phase, 60 cycles, 220 volts,
xxx       xxx       xxx complete with starter evaporative condenser, circulating water pump, air
handling unit air ducts.
Art. 1566. The vendor is responsible to the vendee for any hidden faults
or defects in the thing sold, even though he was not aware thereof. Defects Noted:

This provision shall not apply if the contrary has been stipulated, and the 1. Deteriorated evaporative condenser panels, coils are full of scales and
vendor was not aware of the hidden faults or defects in the thing sold. heavy corrosion is very evident.

The remedy against violations of the warranty against hidden defects is 2. Defective gauges of compressors;
either to withdraw from the contract (redhibitory action) or to demand a
proportionate reduction of the price (accion quanti manoris), with
3. No belt guard on motor;
damages in either case14 .
4. Main switch has no cover;
In Villostas vs. Court of Appeals15 , we held that, "while it is true that
Article 1571 of the Civil Code provides for a prescriptive period of six
months for a redhibitory action, a cursory reading of the ten preceding 5. Desired room temperature not attained;
articles to which it refers will reveal that said rule may be applied only in
case of implied warranties"; and where there is an express warranty in Aside from the above defects, the following were noted not installed
the contract, as in the case at bench, the prescriptive period is the one although provided in the specifications.
specified in the express warranty, and in the absence of such period, "the
general rule on rescission of contract, which is four years (Article 1389, 1. Face by-pass damper of G.I. sheets No. 16. This damper regulates the
Civil Code) shall apply"16 . flow of cooled air depending on room condition.

Consistent with the above discussion, it would appear that this suit is 2. No fresh air intake provision were provided which is very necessary for
barred by prescription because the complaint was filed more than four efficient comfort cooling..
years after the execution of the contract and the completion of the air-
conditioning system. 3. No motor to regulate the face and by-pass damper.

However, a close scrutiny of the complaint filed in the trial court reveals 4. Liquid level indicator for refrigerant not provided.
that the original action is not really for enforcement of the warranties
against hidden defects, but one for breach of the contract itself. It 5. Suitable heat exchanger is not installed. This is an important
alleged17 that the petitioner, "in the installation of the air conditioning component to increase refrigeration efficiency.
system did not comply with the specifications provided" in the written
6. Modulating thermostat not provided. Defects Noted are similar to ground floor.

7. Water treatment device for evaporative condenser was not provided. GENERAL REMARKS:

8. Liquid receiver not provided by sight glass. Under Section III, Design conditions of specification for air conditioning
work, and taking into account "A" & "B" same, the present systems are
B. LEFT WING: not capable of maintaining the desired temperature of 76 = 2ºF (sic).

Worthington Compressor Model 2VC4 is installed complete with 15 Hp The present tenant have installed 35 window type air conditioning units
electric motor, 3 phase, 220 volts 60 cycles with starter. distributed among the different floor levels. Temperature measurements
conducted on March 29. 1971, revealed that 78ºF room (sic) is only
Defects Noted: maintained due to the additional window type units.

Same as right wing. except No. 4, All other defects on right wing are The trial court, after evaluating the evidence presented, held that, indeed,
common to the left wing. petitioner failed to install items and parts required in the contract and
substituted some other items which were not in accordance with the
specifications18 , thus:
SECOND FLOOR: (Common up to EIGHT FLOORS)
From all of the foregoing, the Court is persuaded to believe the plaintiff
Compressors installed are MELCO with 7.5 Hp V-belt driven by 1800
that not only had the defendant failed to install items and parts provided
RPM, -220 volts, 60 cycles, 3 phase, Thrige electric motor with starters.
for in the specifications of the air-conditioning system be installed, like
face and by-pass dampers and modulating thermostat and many others,
As stated in the specifications under, Section No. IV, the MELCO but also that there are items, parts and accessories which were used and
compressors do not satisfy the conditions stated therein due to the installed on the air-conditioning system which were not in full accord with
following: contract specifications. These omissions to install the equipments, parts
and accessories called for in the specifications of the contract, as well as
1. MELCO Compressors are not provided with automatic capacity the deviations made in putting into the air-conditioning system
unloader. equipments, parts and accessories not in full accord with the contract
specification naturally resulted to adversely affect the operational
2. Not provided with oil pressure safety control. effectiveness of the air-conditioning system which necessitated the
installation of thirty-five window type of air-conditioning units distributed
3. Particular compressors do not have provision for renewal sleeves. among the different floor levels in order to be able to obtain a fairly
desirable room temperature for the tenants and actual occupants of the
Out of the total 15 MELCO compressors installed to serve the 2nd floor building. The Court opines and so holds that the failure of the defendant
up to 8th floors, only six (6) units are in operation and the rest were to follow the contract specifications and said omissions and deviations
already replaced. Of the remaining six (6) units, several of them have having resulted in the operational ineffectiveness of the system installed
been replaced with bigger crankshafts. makes the defendant liable to the plaintiff in the amount necessary to
rectify to put the air conditioning system in its proper operational
NINTH FLOOR: condition to make it serve the purpose for which the plaintiff entered into
the contract with the defendant.
Two (2) Worthington 2VC4 driven by 15 Hp, 3 phase, 220 volts, 60
cycles, 1750 rpm, Higgs motors with starters. The respondent Court affirmed the trial court's decision thereby making
the latter's findings also its own.
Having concluded that the original complaint is one for damages arising
from breach of a written contract - and not a suit to enforce warranties
against hidden defects - we here - with declare that the governing law is
Article 1715 (supra). However, inasmuch as this provision does not
contain a specific prescriptive period, the general law on prescription,
which is Article 1144 of the Civil Code, will apply. Said provision
states, inter alia, that actions "upon a written contract" prescribe in ten
(10) years. Since the governing contract was executed on September 10,
1962 and the complaint was filed on May 8, 1971, it is clear that the
action has not prescribed.

What about petitioner's contention that "acceptance of the work by the

employer relieves the contractor of liability for any defect in the work"?
This was answered by respondent Court19 as follows:

As the breach of contract which gave rise to the instant case consisted in
appellant's omission to install the equipments (sic), parts and accessories
not in accordance with the plan and specifications provided for in the
contract and the deviations made in putting into the air conditioning
system parts and accessories not in accordance with the contract
specifications, it is evident that the defect in the installation was not
apparent at the time of the delivery and acceptance of the work,
considering further that plaintiff is not an expert to recognize the same.
From the very nature of things, it is impossible to determine by the simple
inspection of air conditioning system installed in an 8-floor building
whether it has been furnished and installed as per agreed specifications.

Verily, the mere fact that the private respondent accepted the work does
not, ipso facto, relieve the petitioner from liability for deviations from and
violations of the written contract, as the law gives him ten (10) years
within which to file an action based on breach thereof.

WHEREFORE, the petition is hereby DENIED and the assailed Decision

is AFFIRMED. No costs.

SO ORDERED.
G.R. No. 113564. June 20, 2001 dates: the initial one on December 12, 1988 consisting of 1,720
pieces, 6 the second on January 11, 1989, 7 and the last on January 17,
INOCENCIA YU DINO and her HUSBAND doing business under the 1989. 8cräläwvirtualibräry
trade name "CANDY CLAIRE FASHION GARMENTS", petitioners,
vs. COURT OF APPEALS and ROMAN SIO, doing business under Petitioners then demanded from the respondent a refund of the purchase
the name "UNIVERSAL TOY MASTER price of the returned goods in the amount of P208,404.00. As respondent
MANUFACTURING", Respondents. Sio refused to pay, 9 petitioners filed on July 24, 1989 an action for
collection of a sum of money in the Regional Trial Court of Manila,
D E C I S I O N* Branch 38.

PUNO, J.: The trial court ruled in favor of the petitioners, viz:

Though people say, "better late than never", the law frowns upon those "WHEREFORE, judgment is hereby rendered in favor of the plaintiffs
who assert their rights past the eleventh hour. For failing to timely Vicente and Inocencia Dino and against defendant Toy Master
institute their action, the petitioners are forever barred from claiming a Manufacturing, Inc. ordering the latter to pay the former:
sum of money from the respondent.
1. The amount of Two Hundred Eight Thousand Four Hundred Four
This is a petition for review on certiorari to annul and set aside the (P208,404.00) Pesos with legal interest thereon from July 5, 1989, until
amended decision of the respondent court dated January 24, 1994 fully paid; and
reversing its April 30, 1993 decision and dismissing the plaintiff-
petitioners' Complaint on the ground of prescription. 2. The amount of Twenty Thousand (P20,000.00) Pesos as attorney's
fees and the costs of this suit.
The following undisputed facts gave rise to the case at bar:
The counterclaim on the other hand is hereby dismissed for lack of
Petitioners spouses Dino, doing business under the trade name "Candy merit."10cräläwvirtualibräry
Claire Fashion Garment" are engaged in the business of manufacturing
and selling shirts. 1 Respondent Sio is part owner and general manager Respondent Sio sought recourse in the Court of Appeals. In its April 30,
of a manufacturing corporation doing business under the trade name 1993 decision, the appellate court affirmed the trial court decision.
"Universal Toy Master Manufacturing." 2cräläwvirtualibräry Respondent then filed a Motion for Reconsideration and a Supplemental
Motion for Reconsideration alleging therein that the petitioners' action for
Petitioners and respondent Sio entered into a contract whereby the latter collection of sum of money based on a breach of warranty had already
would manufacture for the petitioners 20,000 pieces of vinyl frogs and prescribed. On January 24, 1994, the respondent court reversed its
20,000 pieces of vinyl mooseheads at P7.00 per piece in accordance decision and dismissed petitioners' Complaint for having been filed
with the sample approved by the petitioners. These frogs and beyond the prescriptive period. The amended decision read in part, viz:
mooseheads were to be attached to the shirts petitioners would
manufacture and sell. 3cräläwvirtualibräry "Even if there is failure to raise the affirmative defense of prescription in a
motion to dismiss or in an appropriate pleading (answer, amended or
Respondent Sio delivered in several installments the 40,000 pieces of supplemental answer) and an amendment would no longer be feasible,
frogs and mooseheads. The last delivery was made on September 28, still prescription, if apparent on the face of the complaint may be
1988. Petitioner fully paid the agreed price. 4 Subsequently, petitioners favorably considered (Spouses Matias B. Aznar, III, et al. vs. Hon.
returned to respondent 29,772 pieces of frogs and mooseheads for failing Juanito A. Bernad, etc., supra, G.R. 81190, May 9, 1988). The rule in
to comply with the approved sample. 5 The return was made on different
Gicano vs. Gegato (supra) was reiterated in Severo v. Court of Appeals, certain price or compensation. The contractor may either employ only his
(G.R. No. 84051, May 19, 1989). labor or skill, or also furnish the material."

WHEREFORE the Motion For Reconsideration is granted. The judgment As this Court ruled in Engineering & Machinery Corporation v. Court
of this Court is set aside and judgment is hereby rendered REVERSING of Appeals, et al., 12 "a contract for a piece of work, labor and materials
the judgment of the trial court and dismissing plaintiff's may be distinguished from a contract of sale by the inquiry as to whether
complaint."11cräläwvirtualibräry the thing transferred is one not in existence and which would never have
existed but for the order of the person desiring it. In such case, the
Hence, this petition with the following assignment of errors: contract is one for a piece of work, not a sale. On the other hand, if the
thing subject of the contract would have existed and been the subject of a
I. sale to some other person even if the order had not been given then the
contract is one of sale." 13 The contract between the petitioners and
respondent stipulated that respondent would manufacture upon order of
The respondent Court of Appeals seriously erred in dismissing the
the petitioners 20,000 pieces of vinyl frogs and 20,000 pieces of vinyl
complaint of the Petitioners on the ground that the action had prescribed.
mooseheads according to the samples specified and approved by the
petitioners. Respondent Sio did not ordinarily manufacture these
II. products, but only upon order of the petitioners and at the price agreed
upon. 14 Clearly, the contract executed by and between the petitioners
The respondent Court of Appeals seriously erred in holding that the and the respondent was a contract for a piece of work. At any rate,
defense of prescription would still be considered despite the fact that it whether the agreement between the parties was one of a contract of sale
was not raised in the answer, if apparent on the face of the complaint. or a piece of work, the provisions on warranty of title against hidden
defects in a contract of sale apply to the case at bar, viz:
We first determine the nature of the action filed in the trial court to resolve
the issue of prescription. Petitioners claim that the Complaint they filed in "Art. 1714. If the contractor agrees to produce the work from material
the trial court on July 24, 1989 was one for the collection of a sum of furnished by him, he shall deliver the thing produced to the employer and
money. Respondent contends that it was an action for breach of warranty transfer dominion over the thing. This contract shall be governed by the
as the sum of money petitioners sought to collect was actually a refund of following articles as well as by the pertinent provisions on warranty of title
the purchase price they paid for the alleged defective goods they bought and against hidden defects and the payment of price in a contract of
from the respondent. sale."

We uphold the respondent's contention. "Art. 1561. The vendor shall be responsible for warranty against the
hidden defects which the thing sold may have, should they render it unfit
The following provisions of the New Civil Code are apropos: for the use for which it is intended, or should they diminish its fitness for
such use to such an extent that, had the vendee been aware thereof, he
"Art. 1467. A contract for the delivery at a certain price of an article which would not have acquired it or would have given a lower price for it; but
the vendor in the ordinary course of his business manufactures or said vendor shall not be answerable for patent defects or those which
procures for the general market, whether the same is on hand at the time may be visible, or for those which are not visible if the vendee is an
or not, is a contract of sale, but if the goods are to be manufactured expert who, by reason of his trade or profession, should have known
specially for the customer and upon his special order, and not for the them."
general market, it is a contract for a piece of work."
Petitioners aver that they discovered the defects in respondent's products
"Art. 1713. By the contract for a piece of work the contractor binds when customers in their (petitioners') shirt business came back to them
himself to execute a piece of work for the employer, in consideration of a complaining that the frog and moosehead figures attached to the shirts
they bought were torn. Petitioners allege that they did not readily see
these hidden defects upon their acceptance. A hidden defect is one and cannot be raised for the first time on appeal in a motion for
which is unknown or could not have been known to the reconsideration of the appellate court's decision.
vendee. 15 Petitioners then returned to the respondent 29,772 defective
pieces of vinyl products and demanded a refund of their purchase price in As a rule, the defense of prescription cannot be raised for the first time on
the amount of P208,404.00. Having failed to collect this amount, they appeal. Thus, we held in Ramos v. Osorio, 18 viz:
filed an action for collection of a sum of money.
"It is settled law in this jurisdiction that the defense of prescription is
Article 1567 provides for the remedies available to the vendee in case of waivable, and that if it was not raised as a defense in the trial court, it
hidden defects, viz: cannot be considered on appeal, the general rule being that the appellate
court is not authorized to consider and resolve any question not properly
"Art. 1567. In the cases of Articles 1561, 1562, 1564, 1565 and 1566, the raised in the lower court (Subido vs. Lacson, 55 O.G. 8281, 8285; Moran,
vendee may elect between withdrawing from the contract and demanding Comments on the Rules of Court, Vol. I, p. 784, 1947 Edition)."
a proportionate reduction of the price, with damages in either case."
However, this is not a hard and fast rule. In Gicano v. Gegato, 19 we
By returning the 29,772 pieces of vinyl products to respondent and held:
asking for a return of their purchase price, petitioners were in effect
"withdrawing from the contract" as provided in Art. 1567. The prescriptive ". . .(T)rial courts have authority and discretion to dimiss an action on the
period for this kind of action is provided in Art. 1571 of the New Civil ground of prescription when the parties' pleadings or other facts on
Code, viz: record show it to be indeed time-barred; (Francisco v. Robles, Feb, 15,
1954; Sison v. McQuaid, 50 O.G. 97; Bambao v. Lednicky, Jan. 28, 1961;
"Art. 1571. Actions arising from the provisions of the preceding ten Cordova v. Cordova, Jan. 14, 1958; Convets, Inc. v. NDC, Feb. 28, 1958;
articles shall be barred after six months from the delivery of the thing 32 SCRA 529; Sinaon v. Sorongan, 136 SCRA 408); and it may do so on
sold." (Emphasis supplied) the basis of a motion to dismiss (Sec. 1,f, Rule 16, Rules of Court), or an
answer which sets up such ground as an affirmative defense (Sec. 5,
There is no dispute that respondent made the last delivery of the vinyl Rule 16), or even if the ground is alleged after judgment on the
products to petitioners on September 28, 1988. It is also settled that the merits, as in a motion for reconsideration (Ferrer v. Ericta, 84 SCRA
action to recover the purchase price of the goods petitioners returned to 705); or even if the defense has not been asserted at all, as where
the respondent was filed on July 24, 1989, 16 more than nine months from no statement thereof is found in the pleadings (Garcia v. Mathis, 100
the date of last delivery. Petitioners having filed the action three months SCRA 250; PNB v. Pacific Commission House, 27 SCRA 766; Chua
after the six-month period for filing actions for breach of warranty against Lamco v. Dioso, et al., 97 Phil. 821); or where a defendant has been
hidden defects stated in Art. 1571, 17 the appellate court dismissed the declared in default (PNB v. Perez, 16 SCRA 270). What is essential
action. only, to repeat, is that the facts demonstrating the lapse of the
prescriptive period be otherwise sufficiently and satisfactorily
Petitioners fault the ruling on the ground that it was too late in the day for apparent on the record; either in the averments of the plaintiff's
respondent to raise the defense of prescription. The law then applicable complaint, or otherwise established by the evidence." (emphasis
to the case at bar, Rule 9, Sec. 2 of the Rules of Court, provides: supplied)

"Defenses and objections not pleaded either in a motion to dismiss or in In Aldovino, et al. v. Alunan, et al., 20 the Court en banc reiterated
the answer are deemed waived; except the failure to state a cause of the Garcia v. Mathis doctrine cited in the Gicano case that when the
action . . . " plaintiff's own complaint shows clearly that the action has prescribed, the
action may be dismissed even if the defense of prescription was not
invoked by the defendant.
Thus, they claim that since the respondent failed to raise the defense of
prescription in a motion to dismiss or in its answer, it is deemed waived
It is apparent in the records that respondent made the last delivery of WHEREFORE , the petition is DENIED and the impugned decision of the
vinyl products to the petitioners on September 28, 1988. Petitioners admit Court of Appeals dated January 24, 1994 is AFFIRMED. No costs.
this in their Memorandum submitted to the trial court and reiterate it in
their Petition for Review. 21 It is also apparent in the Complaint that SO ORDERED.
petitioners instituted their action on July 24, 1989. The issue for
resolution is whether or not the respondent Court of Appeals could
dismiss the petitioners' action if the defense of prescription was raised for
the first time on appeal but is apparent in the records.

Following the Gicano doctrine that allows dismissal of an action on the

ground of prescription even after judgment on the merits, or even if the
defense was not raised at all so long as the relevant dates are clear on
the record, we rule that the action filed by the petitioners has prescribed.
The dates of delivery and institution of the action are undisputed. There
are no new issues of fact arising in connection with the question of
prescription, thus carving out the case at bar as an exception from the
general rule that prescription if not impleaded in the answer is deemed
waived. 22cräläwvirtualibräry

Even if the defense of prescription was raised for the first time on appeal
in respondent's Supplemental Motion for Reconsideration of the appellate
court's decision, this does not militate against the due process right of the
petitioners. On appeal, there was no new issue of fact that arose in
connection with the question of prescription, thus it cannot be said that
petitioners were not given the opportunity to present evidence in the trial
court to meet a factual issue. Equally important, petitioners had the
opportunity to oppose the defense of prescription in their Opposition to
the Supplemental Motion for Reconsideration filed in the appellate court
and in their Petition for Review in this Court.

This Court's application of the Osorio and Gicano doctrines to the case at

bar is confirmed and now enshrined in Rule 9, Sec. 1 of the 1997 Rules
of Civil Procedure, viz:

"Section 1. Defense and objections not pleaded. - Defenses and

objections not pleaded whether in a motion to dismiss or in the answer
are deemed waived. However, when it appears from the pleadings that
the court has no jurisdiction over the subject matter, that there is another
action pending between the same parties for the same cause, or that the
action is barred by a prior judgment or by statute of limitations, the
court shall dismiss the claim." (Emphasis supplied)
G.R. No. 115349 April 18, 1997 respondent sent petitioner a letter-protest and subsequently filed with the
latter a memorandum contesting the validity of the assessments.
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs. On March 17, 1988, petitioner rendered a letter-decision canceling the
THE COURT OF APPEALS, THE COURT OF TAX APPEALS and assessment for deficiency income tax but modifying the assessment for
ATENEO DE MANILA UNIVERSITY, respondents. deficiency contractor's tax by increasing the amount due to P193,475.55.
Unsatisfied, private respondent requested for a reconsideration or
reinvestigation of the modified assessment. At the same time, it filed in
the respondent court a petition for review of the said letter-decision of the
PANGANIBAN, J.: petitioner. While the petition was pending before the respondent court,
petitioner issued a final decision dated August 3, 1988 reducing the
assessment for deficiency contractor's tax from P193,475.55 to
In conducting researches and studies of social organizations and cultural
P46,516.41, exclusive of surcharge and interest.
values thru its Institute of Philippine Culture, is the Ateneo de Manila
University performing the work of an independent contractor and thus
taxable within the purview of then Section 205 of the National Internal On July 12, 1993, the respondent court rendered the questioned decision
Revenue Code levying a three percent contractor's tax? This question is which dispositively reads:
answer by the Court in the negative as it resolves this petition assailing
the Decision 1 of the Respondent Court of Appeals 2 in CA-G.R. SP No. WHEREFORE, in view of the foregoing, respondent's decision is SET
31790 promulgated on April 27, 1994 affirming that of the Court of Tax ASIDE. The deficiency contractor's tax assessment in the amount of
Appeals. 3 P46,516.41 exclusive of surcharge and interest for the fiscal year ended
March 31, 1978 is hereby CANCELED. No pronouncement as to cost.
The Antecedent Facts
SO ORDERED.
The antecedents as found by the Court of Appeals are reproduced
hereinbelow, the same being largely undisputed by the parties. Not in accord with said decision, petitioner has come to this Court via the
present petition for review raising the following issues:
Private respondent is a non-stock, non-profit educational institution with
auxiliary units and branches all over the Philippines. One such auxiliary 1) WHETHER OR NOT PRIVATE RESPONDENT FALLS UNDER THE
unit is the Institute of Philippine Culture (IPC), which has no legal PURVIEW OF INDEPENDENT CONTRACTOR PURSUANT TO
personality separate and distinct from that of private respondent. The IPC SECTION 205 OF THE TAX CODE; and
is a Philippine unit engaged in social science studies of Philippine society
and culture. Occasionally, it accepts sponsorships for its research 2) WHETHER OR NOT PRIVATE RESPONDENT IS SUBJECT TO 3%
activities from international organizations, private foundations and CONTRACTOR'S TAX UNDER SECTION 205 OF THE TAX CODE.
government agencies.
The pertinent portions of Section 205 of the National Internal Revenue
On July 8, 1983, private respondent received from petitioner Code, as amended, provide:
Commissioner of Internal Revenue a demand letter dated June 3, 1983,
assessing private respondent the sum of P174,043.97 for alleged Sec. 205. Contractor, proprietors or operators of dockyards, and others.
deficiency contractor's tax, and an assessment dated June 27, 1983 in — A contractor's tax of three per centum of the gross receipts is hereby
the sum of P1,141,837 for alleged deficiency income tax, both for the imposed on the following:
fiscal year ended March 31, 1978. Denying said tax liabilities, private
x x x           x x x          x x x aforementioned exceptions, private respondent is therefore subject to the
3% contractor's tax imposed under the same Code. 4
(16) Business agents and other independent contractors except persons,
associations and corporations under contract for embroidery and apparel The Court of Appeals disagreed with the Petitioner Commissioner of
for export, as well as their agents and contractors and except gross Internal Revenue and affirmed the assailed decision of the Court of Tax
receipts of or from a pioneer industry registered with the Board of Appeals. Unfazed, petitioner now asks us to reverse the CA through this
Investments under Republic Act No. 5186: petition for review.

x x x           x x x          x x x The Issues

The term "independent contractors" include persons (juridical or natural) Petitioner submits before us the following issues:
not enumerated above (but not including individuals subject to the
occupation tax under Section 12 of the Local Tax Code) whose activity 1) Whether or not private respondent falls under the purview of
consists essentially of the sale of all kinds of services for a fee regardless independent contractor pursuant to Section 205 of the Tax Code.
of whether or not the performance of the service calls for the exercise or
use of the physical or mental faculties of such contractors or their 2) Whether or not private respondent is subject to 3% contractor's tax
employees. under Section 205 of the Tax Code. 5

xxx xxx xxx In fine, these may be reduced to a single issue: Is Ateneo de Manila
University, through its auxiliary unit or branch — the Institute of Philippine
Petitioner contends that the respondent court erred in holding that private Culture — performing the work of an independent contractor and, thus,
respondent is not an "independent contractor" within the purview of subject to the three percent contractor's tax levied by then Section 205 of
Section 205 of the Tax Code. To petitioner, the term "independent the National Internal Revenue Code?
contractor", as defined by the Code, encompasses all kinds of services
rendered for a fee and that the only exceptions are the following: The Court's Ruling

a. Persons, association and corporations under contract for embroidery The petition is unmeritorious.
and apparel for export and gross receipts of or from pioneer industry
registered with the Board of Investment under R.A. No. 5186;
Interpretation of Tax Laws
b. Individuals occupation tax under Section 12 of the Local Tax Code
The parts of then Section 205 of the National Internal Revenue Code
(under the old Section 182 [b] of the Tax Code); and
germane to the case before us read:
c. Regional or area headquarters established in the Philippines by
Sec. 205. Contractors, proprietors or operators of dockyards, and others.
multinational corporations, including their alien executives, and which
— A contractor's tax of three per centum of the gross receipts is hereby
headquarters do not earn or derive income from the Philippines and
imposed on the following:
which act as supervisory, communication and coordinating centers for
their affiliates, subsidiaries or branches in the Asia Pacific Region
(Section 205 of the Tax Code). xxx xxx xxx

Petitioner thus submits that since private respondent falls under the (16) Business agents and other independent contractors, except persons,
definition of an "independent contractor" and is not among the associations and corporations under contract for embroidery and apparel
for export, as well as their agents and contractors, and except gross
receipts of or from a pioneer industry registered with the Board of covered by Section 205, applying the rule of strict interpretation of laws
Investments under the provisions of Republic Act No. 5186; imposing taxes and other burdens on the populace, before asking Ateneo
to prove its exemption therefrom. The Court takes this occasion to
xxx xxx xxx reiterate the hornbook doctrine in the interpretation of tax laws that "(a)
statute will not be construed as imposing a tax unless it does so clearly,
The term "independent contractors" include persons (juridical or natural) expressly, and unambiguously . . . (A) tax cannot be imposed without
not enumerated above (but not including individuals subject to the clear and express words for that purpose. Accordingly, the general rule of
occupation tax under Section 12 of the Local Tax Code) whose activity requiring adherence to the letter in construing statutes applies with
consists essentially of the sale of all kinds of services for a fee regardless peculiar strictness to tax laws and the provisions of a taxing act are not to
of whether or not the performance of the service calls for the exercise or be extended by implication." 8 Parenthetically, in answering the question
use of the physical or mental faculties of such contractors or their of who is subject to tax statutes, it is basic that "in case of doubt, such
employees. statutes are to be construed most strongly against the government and in
favor of the subjects or citizens because burdens are not to be imposed
nor presumed to be imposed beyond what statutes expressly and clearly
The term "independent contractor" shall not include regional or area
import." 9
headquarters established in the Philippines by multinational corporations,
including their alien executives, and which headquarters do not earn or
derive income from the Philippines and which act as supervisory, To fall under its coverage, Section 205 of the National Internal Revenue
communications and coordinating centers for their affiliates, subsidiaries Code requires that the independent contractor be engaged in the
or branches in the Asia-Pacific Region. business of selling its services. Hence, to impose the three percent
contractor's tax on Ateneo's Institute of Philippine Culture, it should be
sufficiently proven that the private respondent is indeed selling its
The term "gross receipts" means all amounts received by the prime or
services for a fee in pursuit of an independent business. And it is only
principal contractor as the total contract price, undiminished by amount
after private respondent has been found clearly to be subject to the
paid to the subcontractor, shall be excluded from the taxable gross
provisions of Sec. 205 that the question of exemption therefrom would
receipts of the subcontractor.
arise. Only after such coverage is shown does the rule of construction —
that tax exemptions are to be strictly construed against the taxpayer —
Petitioner Commissioner of Internal Revenue contends that Private come into play, contrary to petitioner's position. This is the main line of
Respondent Ateneo de Manila University "falls within the definition" of an reasoning of the Court of Tax Appeals in its decision, 10 which was
independent contractor and "is not one of those mentioned as excepted"; affirmed by the CA.
hence, it is properly a subject of the three percent contractor's tax levied
by the foregoing provision of law. 6 Petitioner states that the "term
The Ateneo de Manila University Did Not Contract
'independent contractor' is not specifically defined so as to delimit the
for the Sale of the Service of its Institute of Philippine Culture
scope thereof, so much so that any person who . . . renders physical and
mental service for a fee, is now indubitably considered an independent
contractor liable to 3% contractor's tax." 7 According to petitioner, Ateneo After reviewing the records of this case, we find no evidence that
has the burden of proof to show its exemption from the coverage of the Ateneo's Institute of Philippine Culture ever sold its services for a fee to
law. anyone or was ever engaged in a business apart from and independently
of the academic purposes of the university.
We disagree. Petitioner Commissioner of Internal Revenue erred in
applying the principles of tax exemption without first applying the well- Stressing that "it is not the Ateneo de Manila University per se which is
settled doctrine of strict interpretation in the imposition of taxes. It is being taxed," Petitioner Commissioner of Internal Revenue contends that
obviously both illogical and impractical to determine who are exempted "the tax is due on its activity of conducting researches for a fee. The tax
without first determining who are covered by the aforesaid provision. The is due on the gross receipts made in favor of IPC pursuant to the
Commissioner should have determined first if private respondent was contracts the latter entered to conduct researches for the benefit primarily
of its clients. The tax is imposed on the exercise of a taxable activity. . . .
[T]he sale of services of private respondent is made under a contract and To our mind, private respondent hardly fits into the definition of an
the various contracts entered into between private respondent and its "independent contractor".
clients are almost of the same terms, showing, among others, the
compensation and terms of payment." 11 (Emphasis supplied.) For one, the established facts show that IPC, as a unit of the private
respondent, is not engaged in business. Undisputedly, private
In theory, the Commissioner of Internal Revenue may be correct. respondent is mandated by law to undertake research activities to
However, the records do not show that Ateneo's IPC in fact contracted to maintain its university status. In fact, the research activities being carried
sell its research services for a fee. Clearly then, as found by the Court of out by the IPC is focused not on business or profit but on social sciences
Appeals and the Court of Tax Appeals, petitioner's theory is inapplicable studies of Philippine society and culture. Since it can only finance a
to the established factual milieu obtaining in the instant case. limited number of IPC's research projects, private respondent
occasionally accepts sponsorship for unfunded IPC research projects
In the first place, the petitioner has presented no evidence to prove its from international organizations, private foundations and governmental
bare contention that, indeed, contracts for sale of services were ever agencies. However, such sponsorships are subject to private
entered into by the private respondent. As appropriately pointed out by respondent's terms and conditions, among which are, that the research is
the latter: confined to topics consistent with the private respondent's academic
agenda; that no proprietary or commercial purpose research is
An examination of the Commissioner's Written Formal Offer of Evidence done; and that private respondent retains not only the absolute right to
in the Court of Tax Appeals shows that only the following documentary publish but also the ownership of the results of the research conducted
evidence was presented: by the IPC. Quite clearly, the aforementioned terms and conditions belie
the allegation that private respondent is a contractor or is engaged in
business.
Exhibit 1 BIR letter of authority no. 331844
For another, it bears stressing that private respondent is a non-stock,
2 Examiner's Field Audit Report
non-profit educational corporation. The fact that it accepted sponsorship
for IPC's unfunded projects is merely incidental. For, the main function of
3 Adjustments to Sales/Receipts the IPC is to undertake research projects under the academic agenda of
the private respondent. Moreover the records do not show that in
4 Letter-decision of BIR Commissioner Bienvenido A. Tan Jr. accepting sponsorship of research work, IPC realized profits from such
work. On the contrary, the evidence shows that for about 30 years, IPC
None of the foregoing evidence even comes close to purport to be had continuously operated at a loss, which means that sponsored funds
contracts between private respondent and third parties. 12 are less than actual expenses for its research projects. That IPC has
been operating at a loss loudly bespeaks of the fact that education and
Moreover, the Court of Tax Appeals accurately and correctly declared not profit is the motive for undertaking the research projects.
that the " funds received by the Ateneo de Manila University are
technically not a fee. They may however fall as gifts or donations which Then, too, granting arguendo that IPC made profits from the sponsored
are tax-exempt" as shown by private respondent's compliance with the research projects, the fact still remains that there is no proof that part of
requirement of Section 123 of the National Internal Revenue Code such earnings or profits was ever distributed as dividends to any
providing for the exemption of such gifts to an educational institution. 13 stockholder, as in fact none was so distributed because they accrued to
the benefit of the private respondent which is a non-profit educational
Respondent Court of Appeals elucidated on the ruling of the Court of Tax institution. 14
Appeals:
Therefore, it is clear that the funds received by Ateneo's Institute of
Philippine Culture are not given in the concept of a fee or price in
exchange for the performance of a service or delivery of an object.
Rather, the amounts are in the nature of an endowment or donation given status and not in the course of an independent business of selling such
by IPC's benefactors solely for the purpose of sponsoring or funding the research with profit in mind. This is clear from a reading of the regulations
research with no strings attached. As found by the two courts below, governing universities:
such sponsorships are subject to IPC's terms and conditions. No
proprietary or commercial research is done, and IPC retains the 31. In addition to the legal requisites an institution must meet, among
ownership of the results of the research, including the absolute right to others, the following requirements before an application for university
publish the same. The copyrights over the results of the research are status shall be considered:
owned by
Ateneo and, consequently, no portion thereof may be reproduced without xxx xxx xxx
its permission. 15 The amounts given to IPC, therefore, may not be
deemed, it bears stressing as fees or gross receipts that can be
(e) The institution must undertake research and operate with a
subjected to the three percent contractor's tax.
competent qualified staff at least three graduate departments in
accordance with the rules and standards for graduate education. One of
It is also well to stress that the questioned transactions of Ateneo's the departments shall be science and technology. The competence of the
Institute of Philippine Culture cannot be deemed either as a contract of staff shall be judged by their effective teaching, scholarly publications
sale or a contract of a piece of work. "By the contract of sale, one of the and research activities published in its school journal as well as their
contracting parties obligates himself to transfer the ownership of and to leadership activities in the profession.
deliver a determinate thing, and the other to pay therefor a price certain
in money or its equivalent." 16 By its very nature, a contract of sale
(f) The institution must show evidence of adequate and stable financial
requires a transfer of ownership. Thus, Article 1458 of the Civil Code
resources and support, a reasonable portion of which should be devoted
"expressly makes the obligation to transfer ownership as an essential
to institutional development and research. (emphasis supplied)
element of the contract of sale, following modern codes, such as the
German and the Swiss. Even in the absence of this express requirement,
however, most writers, including Sanchez Roman, Gayoso, Valverde, xxx xxx xxx
Ruggiero, Colin and Capitant, have considered such transfer of
ownership as the primary purpose of sale. Perez and Alguer follow the 32. University status may be withdrawn, after due notice and hearing, for
same view, stating that the delivery of the thing does not mean a mere failure to maintain satisfactorily the standards and requirements
physical transfer, but is a means of transmitting ownership. Transfer of therefor. 20
title or an agreement to transfer it for a price paid or promised to be paid
is the essence of sale." 17 In the case of a contract for a piece of work, Petitioner's contention that it is the Institute of Philippine Culture that is
"the contractor binds himself to execute a piece of work for the employer, being taxed and not the Ateneo is patently erroneous because the former
in consideration of a certain price or compensation. . . . If the contractor is not an independent juridical entity that is separate and distinct form the
agrees to produce the work from materials furnished by him, he shall latter.
deliver the thing produced to the employer and transfer dominion over the
thing, . . ." 18 Ineludably, whether the contract be one of sale or one for a Factual Findings and Conclusions of the Court of Tax Appeals Affirmed
piece of work, a transfer of ownership is involved and a party necessarily by the Court of Appeals Generally Conclusive
walks away with an object. 19 In the case at bench, it is clear from the
evidence on record that there was no sale either of objects or services In addition, we reiterate that the "Court of Tax Appeals is a highly
because, as adverted to earlier, there was no transfer of ownership over specialized body specifically created for the purpose of reviewing tax
the research data obtained or the results of research projects undertaken cases. Through its expertise, it is undeniably competent to determine the
by the Institute of Philippine Culture. issue of whether" 21 Ateneo de Manila University may be deemed a
subject of the three percent contractor's tax "through the evidence
Furthermore, it is clear that the research activity of the Institute of presented before it." Consequently, "as a matter of principle, this Court
Philippine Culture is done in pursuance of maintaining Ateneo's university will not set aside the conclusion reached by . . . the Court of Tax Appeals
which is, by the very nature of its function, dedicated exclusively to the accumulation of significant losses, we can only agree with both the Court
study and consideration of tax problems and has necessarily developed of Tax Appeals and the Court of Appeals that "education and not profit is
an expertise on the subject unless there has been an abuse or [IPC's] motive for undertaking the research
improvident exercise of authority . . ." 22 This point becomes more evident projects." 25
in the case before us where the findings and conclusions of both the
Court of Tax Appeals and the Court of Appeals appear untainted by any WHEREFORE, premises considered, the petition is DENIED and the
abuse of authority, much less grave abuse of discretion. Thus, we find assailed Decision of the Court of Appeals is hereby AFFIRMED in full.
the decision of the latter affirming that of the former free from any
palpable error. SO ORDERED

Public Service, Not Profit, is the Motive

The records show that the Institute of Philippine Culture conducted its
research activities at a huge deficit of P1,624,014.00 as shown in its
statements of fund and disbursements for the period 1972 to 1985. 23 In
fact, it was Ateneo de Manila University itself that had funded the
research projects of the institute, and it was only when Ateneo could no
longer produce the needed funds that the institute sought funding from
outside. The testimony of Ateneo's Director for Accounting Services, Ms.
Leonor Wijangco, provides significant insight on the academic and
nonprofit nature of the institute's research activities done in furtherance of
the university's purposes, as follows:

Q Now it was testified to earlier by Miss Thelma Padero (Office Manager

of the Institute of Philippine Culture) that as far as grants from sponsored
research it is possible that the grant sometimes is less than the actual
cost. Will you please tell us in this case when the actual cost is a lot less
than the grant who shoulders the additional cost?

A The University.

Q Now, why is this done by the University?

A Because of our faculty development program as a university, because

a university has to have its own research institute. 24

So, why is it that Ateneo continues to operate and conduct researches

through its Institute of Philippine Culture when it undisputedly loses not
an insignificant amount in the process? The plain and simple answer is
that private respondent is not a contractor selling its services for a fee but
an academic institution conducting these researches pursuant to its
commitments to education and, ultimately, to public service. For the
institute to have tenaciously continued operating for so long despite its
Distinguish from Contract to sell the time of the execution of the Kasunduan, petitioners allegedly
informed respondent that TCT No. RT-1076 was in the possession
[G.R. No. 115966. March 20, 2003.] of their cousin, Conchalina Alibudbud, who having bought Vicente
de Guzman’s ½ share, owned the bigger portion of Lot 1642. This
JUANA ALMIRA, RENATO GARCIA, ROGELIO GARCIA, notwithstanding, respondent willingly entered into the Kasunduan
RODOLFO GARCIA, ROSITA GARCIA, RHODORA GARCIA, provided that the full payment of the purchase price will be made
ROSALINDA GARCIA, ROLANDO GARCIA And RAFAEL upon delivery to him of the title. 3
GARCIA Represented in this suit by EDGARDO
ALVAREZ, Petitioners, v. COURT OF APPEALS AND FEDERICO The Kasunduan provides:chanrob1es virtual 1aw library
BRIONES, Respondents.
Na ang UNANG BAHAGI ay siyang magkakamayari (co-owners),
DECISION bilang tagapagmana ng yumaong Julio Garcia sa isang lagay na
lupang taniman ng palay, matatagpuan sa nayon ng Caingin, Santa
Rosa, Laguna, may buong lawak na 21,460 metrong parisukat,
AZCUNA, J.: humigi’t kumulang, na lalong makikilala sa mga katangiang
inilalahad sa pahayag ng Buwis Bilang 3472 na ganito ang
natutunguhan: Mga kahanggan: Hilaga-1641-Nazario Lauriles;
Before us is a petition for review on certiorari assailing the decision Timog-Barique Hemedez; Silangan-Vicente de Guzman; at
rendered by the Court of Appeals in C.A. G.R. CV No. 40954 1 Kanluran-Francisco Alibudbod; hinalagahan para sa pagbabayad ng
which reversed the decision of the Regional Trial Court, Branch 32, Buwis pampamahalaan ng P12,720.00; at kasalukuyang may
of San Pedro, Laguna that rescinded the Kasunduan ng nabibinbing kahilingan sa hukuman upang magkaroon ng sariling
Pagbibilihan 2 entered into between petitioners and private titulo; nalilibot ng batong mohon na nagsisilbing hanganan sa
respondent over a portion of a parcel of land situated in Sta. Rosa, bawa’t sulok.
Laguna.chanrob1es virtua1 1aw 1ibrary
Na ang UNANG BAHAGI ay inialok sa IKALAWANG BAHAGI upang
The facts of the case are as follows:chanrob1es virtual 1aw library bilihin ang lupang nabanggit sa kabuuang halagang ISANG DAAN
AT LIMAMPUNG LIBONG (P150,000.00) PISO, Salaping Pilipino, at
Petitioners are the wife and the children of the late Julio Garcia ang IKALAWANG BAHAGI ay sumangayon na bilhin ang naulit na
who inherited from his mother, Maria Alibudbud, a portion of a lupa batay sa sumusunod na mga pasubali at
90,655 square-meter property denominated as Lot 1642 of the kasunduan:chanrob1es virtual 1aw library
Sta. Rosa Estate in Barangay Caingin, Sta. Rosa, Laguna and
covered by TCT No. RT-1076. Lot 1642 was co-owned and (1) Na pinatutunayan ng UNANG BAHAGI na tinanggap nila sa
registered in the names of three persons with the following shares: buong kasiyahan ng kalooban buhat sa IKALAWANG BAHAGI ang
Vicente de Guzman (½), Enrique Hemedes (¼), and Francisco halagang ANIMNAPU AT LIMANG LIBONG (P65,000.00) PISO,
Alibudbud, the father of Maria Alibudbud (¼). Although there was salaping Pilipino, bilang paunang bayad, at ang nalalabing
no separate title in the name of Julio Garcia, there were tax WALUMPU AT LIMANG LIBONG (85,000.00) PISO, ay babayaran ng
declarations in his name to the extent of his grandfather’s share IKALAWANG BAHAGI sa UNANG BAHAGI sa loob ng anim na buwan
covering an area of 21,460 square meters. On July 5, simula sa takda ng kasulatang ito, sa pasubali na ang kaukulang
1984, Petitioners, as heirs of Julio Garcia, and respondent Federico titulo sa lupang nabanggit ay maipagkakaloob ng UNANG BAHAGI;
Briones entered into a Kasunduan ng Pagbibilihan (Kasunduan for
brevity) over the 21,460 square-meter portion for the sum of (2) Na ang UNANG BAHAGI ang siyang mananagot tungkol sa
P150,000.00. Respondent paid P65,000.00 upon execution of the anumang kasulatang inihanda ukol sa pagbibilihang ito, gayundin
contract while the balance of P85,000.00 was made payable within sa gastos sa, notaryo publiko, capital gains tax at pagpapatala ng
six (6) months from the date of the execution of the instrument. At kasulatan sa lalawigan ng Laguna;
 In its decision, the trial court noted that proceedings for the
(3) Na ang UNANG BAHAGI ay lalagda sa isang "Kasulatan ng issuance of a separate title covering the property subject of sale
Bilihang Tuluyan" matapos na mabayarang lahat ng IKALAWANG entail time and the parties could not have intended delivery by
BAHAGI ang kaukulang kaukuang halaga ng lupang nabanggit. petitioners to respondent of a separate title in the name of Julio
Garcia as a condition for respondent’s payment of the full purchase
Respondent took possession of the property subject of the price within six months from the time of the execution of the
Kasunduan and made various payments to petitioners amounting Kasunduan. Said court observed that even if petitioners were
to P58,500.00. However, upon failure of petitioners to deliver to obliged to deliver a separate title in the name of Julio Garcia to
him a separate title to the property in the name of Julio Garcia, he respondent, the latter appeared to have insufficient funds to settle
refused to make further payments, prompting petitioners to file a his obligation as indicated by the fact that his payments amounting
civil action before the Regional Trial Court of San Pedro, Laguna, to P58,500.00 were made in "trickles," having been given on
Branch 32, on May 13, 1991 for (a) rescission of the Kasunduan; thirty-nine occasions within a span of two years from the time of
(b) return by respondent to petitioners of the possession of the the execution of the Kasunduan. It concluded that respondent
subject parcel of land; and (c) payment by respondent of damages refused to complete payment of the full purchase price not because
in favor of petitioners. of the failure of petitioners to deliver a separate title in the name of
Julio Garcia but because respondent simply did not have sufficient
Petitioners alleged that respondent was bound to pay the balance funds at hand.
of the purchase price within six (6) months from the date of the
execution of the Kasunduan and upon delivery to him of TCT No. The Court of Appeals, however, noting that the Kasunduan made
RT-1076. Petitioners claimed that they approached respondent no reference to TCT No. RT-1076, reversed the decision of the trial
several times to deliver TCT No. RT-1076 but respondent told them court, and dismissed the complaint. The appellate court opined that
that he did not have money to pay the balance of the purchase the parties intended to refer to a separate title over the 21,460
price. 4 Respondent, on the other hand, filed a counterclaim for square meter lot when the Kasunduan mentioned a "kaukulang
damages and averred that he refused to make further payments titulo ng lupang nabanggit" since it was the portion which was
because of petitioners’ failure to deliver to him a separate title in covered by a separate tax declaration in the name of Julio Garcia
the name of Julio Garcia. and it was the portion that petitioners could sell. The appellate
court noted that the actuations of the parties subsequent to the
On November 26, 1992, the trial court rendered a decision, the execution of the Kasunduan confirmed respondent’s claim that a
dispositive portion of which reads:chanrob1es virtual 1aw library separate title to the property subject of the Kasunduan should be
delivered to him. Nevertheless, respondent’s counterclaim for
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs damages was dismissed on the ground that the filing of the
and against the defendant decreeing the rescission of the complaint for rescission was not attended by malice, there being an
"Kasunduan ng Pagbibilihan" dated July 5, 1984 and ordering the honest difference of opinion between the parties as to the
defendant to return and restore possession of the property subject interpretation of the Kasunduan.
of the Kasunduan ng Pagbibilihan to the plaintiffs. For paucity of
evidence, no judgment can be rendered on the other reliefs prayed Feeling aggrieved by the aforesaid decision, petitioners filed before
for in the complaint. us the instant petition for certiorari, raising issues which may
essentially be summarized as follows: (1) whether payment of the
On the other hand, plaintiffs are hereby ordered to refund to the balance of the purchase price is conditioned upon delivery of a
defendant the downpayment of P65,000.00 and the partial separate title in the name of Julio Garcia; (2) whether petitioners
payment of the balance totaling to P58,500.00 plus legal interest. are entitled to rescind the Kasunduan for failure of respondent to
Defendant’s counterclaim is hereby dismissed for lack of merit. complete payment of the purchase price; and (3) whether the
Costs against defendant. 5 Court of Appeals should have dismissed respondent’s appeal for
failure to comply with Circular 28-91.
 separate title to respondent within six (6) months from the time of
Petitioners contend that the Kasunduan never made a reference to the execution of the Kasunduan considering that issuance of the
a "title in the name of Julio Garcia" and that there was nothing in title required prior settlement of the estates of Francisco
the actuations of the parties which would indicate that full payment Alibudbud, Vicente de Guzman and Enrique Hemedes; partition of
of the purchase price is conditioned upon the delivery to Lot 1642; and segregation of the portion pertaining to the share
respondent of said title. Petitioners allege that respondent refused acquired by Julio Garcia. Respondent, for his part, insists that the
to give further payments not because of their failure to deliver a kaukulang titulo ng lupang nabanggit refers to a separate title in
separate title in the name of Julio Garcia but because he simply did the name of Julio Garcia. He argues that he only acceded to the
not have sufficient funds to complete payment of the purchase Kasunduan upon having been assured by petitioners that they
price. Petitioners ask for rescission of the Kasunduan pursuant to would be able to deliver to him a separate title in the name of Julio
Article 1191 of the Civil Code on the ground that respondent failed Garcia. Petitioners allegedly told respondent that there was a
to complete payment of the purchase price. They further aver that pending petition in the court of Biñan for the issuance of a separate
the appellate court should have dismissed respondent’s appeal in title to the subject property. 9
the first place for failure of respondent to comply with Circular No.
28-91 6 requiring parties to submit a certification of non-forum It is basic in the interpretation and construction of contracts that
shopping in petitions filed before the Supreme Court and the Court the literal meaning of the stipulations shall control if the terms of
of Appeals. Petitioners lament that although they raised the issue the contract are clear and leave no doubt on the intention of the
regarding respondent’s procedural lapse early on at the appellate contracting parties. However, if the terms of the agreement are
court, the latter still entertained respondent’s appeal. ambiguous, resort is made to contract interpretation which is the
determination of the meaning attached to written or spoken words
As a rule, our jurisdiction in cases brought before us from the that make the contract. 10 To ascertain the true intention of the
Court of Appeals under Rule 45 of the Rules of Court is limited to parties, their subsequent or contemporaneous actions must be
reviewing errors of law. Factual findings of the appellate court are principally considered.chanrob1es virtua1 1aw 1ibrary
generally binding on us. 7 However, this principle is subject to
certain exceptions such as the situation in this case where the trial The tenor of the correspondence between petitioners and
court and the appellate court arrived at diverse factual findings. 8 respondent shows that the parties intended that a separate title to
the property in the name of Julio Garcia shall be delivered to
The subject of conflicting interpretations between the parties respondent as a condition for the latter’s payment of the balance of
pertains to the provision in the Kasunduan which the purchase price. Thus, petitioner Juana Almira’s letter dated July
states:chanrob1es virtual 1aw library 24, 1986 to respondent reads:chanrob1es virtual 1aw library

(1) Na pinatutunayan ng UNANG BAHAGI na tinanggap nila sa Ang totoo po ngayon ay kailangan naming ang halagang LABING
buong kasiyahan ng kalooban buhat sa IKALAWANG BAHAGI ang LIMANG LIBO (P15,000.00) PISO, yan po ang dahilan kung bakit
halagang ANIMNAPU AT LIMANG LIBO (P65,000.00) PISO, Salaping kami ay sumulat sa inyo, sapagkat sa mga unang naghawak at
Pilipino, bilang paunang bayad, at ang nalalabing WALUMPU AT nag-ayos ng papeles ng lupang ito ay hindi nila naayos at hindi nila
LIMANG LIBONG (85,000.00) PISO ay babayaran ng IKALAWANG natapos, kaya po kami ay nakakita at malaki po ang nagastos
BAHAGI sa UNANG BAHAGI sa loob ng anim na buwan simula sa naming sa una na walang nangyari, kaya nga itong huli ay lalong
takda ng kasulatang ito, sa pasubali na ang kaukulang titulo ng lumaki
lupang nabanggit ay maipagkakaloob ng UNANG BAHAGI sa
IKALAWANG BAHAGI:" Unawain po naman ninyo kami sa halagang kailangan naming para
sa huling gumagawa ng Titulo ng lupa para naman po maayos na
Petitioners allege that the kaukulang titulo ng lupang nabanggit ito. 11
refers to TCT No. RT-1076 and not to a separate title in the name
of Julio Garcia. Petitioners stress the implausibility of delivering the Respondent signified his willingness to pay the balance of the
purchase price but reminded petitioners of their obligation to
deliver title to the property in the following reply:chanrob1es Received: P1,000.00
virtual 1aw library
By (Sgd). Rosita Garcia
Hindi lingid sa inyong kaalaman na sa ilalim ng naulit na
"Kasunduan ng Pagbibilihan" ay maliwanag ang inyong tungkulin There is thus no basis to conclude that insufficiency of funds rather
na ipagkaloob sa amin ang kaukulang titulo ng lupa sa loob ng than failure of petitioners to deliver a separate title in the name of
anim (6) na buwan simula sa takda ng nasabing kasulatan at kami Julio Garcia prevented respondent from completing payment of the
naman ay nahahandang magbayad ng lahat ng nalalabing purchase price.
kabayaran . . . at tuwing kayo ay kukuha ng pera ang lagi niyong
idinadahilan ay ang diumano ay paglalakad tungkol sa titulo. . . . That the parties agreed on delivery of a separate title in the name
12 of Julio Garcia as a condition for respondent’s payment of the
balance of the purchase price is bolstered by the fact that there
Had the parties intended that petitioners deliver TCT No. RT-1076 was already an approved subdivision plan of the 21,460 square-
instead of a separate title in the name of Julio Garcia to meter lot years before petitioners filed an action in court for
respondent, then there would have been no need for petitioners to rescission. 15 The parties evidently assumed petitioners would be
ask for partial sums on the ground that this would be used to pay able to deliver a separate title in the name of Julio Garcia to
for the processing of the title to the property. Petitioners had only respondent within six (6) months from the time of the execution of
to present the existing title, TCT No. RT-1076, to respondent and the Kasunduan since there was already a pending petition in court
demand the balance of the purchase price. This, petitioners did not for the issuance of a separate title to 21,460 square-meter lot at
do. Instead, they were content to ask small sums from respondent that time. Unfortunately, the petitioners were not able to secure a
on thirty-nine occasions for two years before filing an action in separate title in the name of Julio Garcia within the stipulated
court for rescission of the Kasunduan another five years later. It is period.
readily discernible from the tenor of various receipts 13 issued by
petitioners that the sums given by respondent on these thirty-nine Finally, we note that, as quoted earlier, the Kasunduan itself in its
occasions were made upon request of petitioners seeking opening paragraph refers to the subject property being sold as
respondent’s indulgence. A letter 14 dated October 11, 1984 and "buong lawak na 21,640 metrong parisukat, . . . at sa kasalukuyan
addressed to respondent’s father, Tata Omy, whom respondent may nabibinbing kahilingan sa hukuman upang magkaroon ng
authorized to give payments during the time he was working sariling titulo; . . .." The next paragraph of the Kasunduan,
abroad reads:chanrob1es virtual 1aw library therefore, which speaks of "ang kaukulang titulo sa lupang
nabanggit," clearly refers to the separate title being applied for,
Tata Omy, even without resort to extraneous evidence.chanrob1es virtua1
1aw 1ibrary
Ako si Rogelio A. Garcia ang sumulat nito at ang maydala ay si
Rolando Garcia na kapatid kong bunso at ito ay pinagawa ng aking Petitioners, however, insist that it was respondent’s counsel who
ina si Juana Garcia. Ang dahilan ay mayroon silang nabiling t.v. 17 prepared the Kasunduan and any ambiguity therein should be
inches at ngayon ay naririto sa amin. Kaya ako ay labis na nahihiya construed against respondent pursuant to Article 1377 of the Civil
sa inyo ni Viring ngunit ano ang magagawa ko para diyan kaya Code which states that the interpretation of obscure words or
kayo na ang bahalang magpasensiya sa amin. Ang kailangan nila stipulations in a contract shall not favor the party who caused the
ay halagang P800.00 at para mabili nila ang T.V. +P200.00 obscurity.

Ang gumagalang, We find no reason to apply Article 1377 of the Civil Code in this
case where the evident intention of the parties can be readily
(Sgd.) Rogelio Garcia discerned by their subsequent and contemporaneous acts. While it
is true that the Kasunduan was prepared by the counsel of Stated otherwise, there was a perfected contract of sale. The
respondent, there is no indication that respondent took unfair parties agreed on the sale of a determinate object, i.e., 21,460
advantage of petitioners when he had the terms of the Kasunduan square meters of Lot 1642, covered by a tax declaration in the
drawn by his counsel. Petitioners freely assented to the Kasunduan name of Julio Garcia, and the price certain therefor, without any
which is written entirely in a language spoken and understood by reservation of title on the part of petitioners. Ownership was
both parties. That petitioners were fully aware of the terms of the effectively conveyed by petitioners to respondent, who was given
Kasunduan is evidenced by their attempts to comply with their possession of the property. The delivery of a separate title in the
obligation by securing a subdivision plan and technical description name of Julio Garcia was a condition imposed on respondent’s
16 of the property subject of sale. obligation to pay the balance of the purchase price. It was not a
condition imposed on the perfection of the contract of sale. In
Having ruled that the kaukulang titulo ng lupang nabanggit refers Laforteza v. Machuca, 19 we stated that the fact that the obligation
to a separate title in the name of Julio Garcia, we proceed to the to pay the balance of the purchase price was made subject to the
issue as to whether petitioners may rescind the Kasunduan condition that the seller first deliver the reconstituted title of the
pursuant to Article 1191 of the Civil Code for failure of respondent property does not make the agreement a contract to sell for such
to give full payment of the balance of the purchase price. condition is not inconsistent with a contract of sale.

The rights of the parties are governed by the terms and the nature Addressing now the issue as to whether rescission of the
of the contract they enter into. Hence, although the nature of the Kasunduan by petitioners may prosper, we rule in the negative.
Kasunduan was never placed in dispute by both parties, it is The power to rescind is only given to the injured party. The injured
necessary to ascertain whether the Kasunduan is a contract to sell party is the party who has faithfully fulfilled his obligation or is
or a contract of sale before the issue as to whether petitioners may ready and willing to perform with his obligation. In the case at bar,
ask for rescission of the contract may be resolved. In a contract to petitioners were not ready, willing and able to comply with their
sell, ownership is, by agreement, reserved to the vendor and is not obligation to deliver a separate title in the name of Julio Garcia
to pass until full payment of the purchase price; whereas, in to Respondent. Therefore, they are not in a position to ask for
contract of sale, title to the property passes to the vendee upon rescission of the Kasunduan. Moreover, respondent’s obligation to
delivery of the thing sold. 17 Non-payment by the vendee in a pay the balance of the purchase price was made subject to delivery
contract of sale entitles the vendor to demand specific performance by petitioners of a separate title in the name of Julio Garcia within
or rescission of the contract, with damages, under Article 1191 of six (6) months from the time of the execution of the Kasunduan, a
the Civil Code. condition with which petitioners failed to comply. Failure to comply
with a condition imposed on the performance of an obligation gives
Although both parties have consistently referred to the Kasunduan the other party the option either to refuse to proceed with the sale
as a contract to sell, a careful reading of the provisions of the or to waive that condition under Article 1545 of the Civil Code. 20
Kasunduan reveals that it is a contract of sale. A deed of sale is Hence, it is the respondent who has the option either to refuse to
absolute in nature in the absence of any stipulation reserving, title proceed with the sale or to waive the performance of the condition
to the vendor until full payment of the purchase price. In such imposed on his obligation to pay the balance of the purchase price.
cases ownership of the thing sold passes to the vendee upon actual
or constructive delivery thereof. 18 There is nothing in the It follows that, not having established that they were ready, able
Kasunduan which expressly provides that petitioners retain title or and willing to comply with their obligation to deliver to respondent
ownership of the property, until full payment of the purchase price. a separate title in the name of Julio Garcia, petitioners may not ask
The absence of such stipulation in the Kasunduan coupled with the for rescission of the Kasunduan nor recover damages.chanrob1es
fact that respondent took possession of the property upon the virtua1 1aw 1ibrary
execution of the Kasunduan indicate that the parties have
contemplated a contract of absolute sale. As regards the issue that the appellate court should have dismissed
respondent’s appeal for failure of respondent to comply with
Circular No. 28-91 requiring the submission of a certificate of non-
forum shopping in petitions filed before us and the Court of
Appeals, suffice it to say that when technicality deserts its function
of being an aid to justice, the courts are justified in exempting
from its operations a particular case. 21 Procedural rules are
intended to insure the orderly conduct of litigation, because of the
higher objective they seek, which is to protect the parties’
substantive rights. 22

WHEREFORE, the petition is DENIED and the decision rendered by

the Court of Appeals in CA G.R. No. 40954 entitled, "Juana Almira,
Et Al., plaintiffs-appellees v. Federico Briones, Defendant-
Appellant" is AFFIRMED. No costs.

SO ORDERED.
G.R. No. 165168               July 9, 2010 In the early 1980s, Eugenia leased the lot to petitioner Irene
Montecalvo (Irene) for a monthly rental of ₱500.00. On January
SPS. NONILON (MANOY) and IRENE 13, 1985, Eugenia entered into an un-notarized Agreement3 with
MONTECALVO, Petitioners, Irene, where the former offered to sell the property to the latter for
vs. ₱1,000.00 per square meter. They agreed that Irene would deposit
HEIRS (Substitutes) OF EUGENIA T. PRIMERO, represented the amount of ₱40,000.00 which shall form part of the down
by their Attorney-in-Fact, ALFREDO T. PRIMERO, payment equivalent to 50% of the purchase price. They also
JR., Respondents. stipulated that during the term of negotiation of 30 to 45 days from
receipt of said deposit, Irene would pay the balance of
DECISION ₱410,000.00 on the down payment. In case Irene defaulted in the
payment of the down payment, the deposit would be returned
within 10 days from the lapse of said negotiation period and the
DEL CASTILLO, J.:
Agreement deemed terminated. However, if the negotiations
pushed through, the balance of the full value of ₱860,000.00 or the
Jurisprudence is replete with rulings that in civil cases, the party net amount of ₱410,000.00 would be paid in 10 equal monthly
who alleges a fact has the burden of proving it. Burden of proof is installments from receipt of the down payment, with interest at the
the duty of a party to present evidence on the facts in issue prevailing rate.
necessary to prove the truth of his claim or defense by the amount
of evidence required by law.11 In this case, the petitioners awfully
Irene failed to pay the full down payment within the stipulated 30-
failed to discharge their burden to prove by preponderance of
45-day negotiation period. Nonetheless, she continued to stay on
evidence that the Agreement they entered into with respondents'
the disputed property, and still made several payments with an
predecessor-in-interest is a contract of sale and not a mere
aggregate amount of ₱293,000.00. On the other hand, Eugenia did
contract to sell, or that said Agreement was novated after the
not return the ₱40,000.00 deposit to Irene, and refused to accept
latter subsequently entered into an oral contract of sale with them
further payments only in 1992.
over a determinate portion of the subject property more than a
decade ago.
Thereafter, Irene caused a survey of Lot No. 263 and the
segregation of a portion equivalent to 293 square meters in her
Petitioners filed this appeal from the Decision of the Court of
favor. However, Eugenia opposed her claim and asked her to
Appeals (CA) affirming the Regional Trial Court's (RTC's) dismissal
vacate the property. Then on May 13, 1996, Eugenia and the heirs
of their action for specific performance where they sought to
of her deceased husband Alfredo filed a complaint for unlawful
compel the respondents to convey the property subject of their
detainer against Irene and her husband, herein petitioner Nonilon
purported oral contract of sale.
Montecalvo (Nonilon) before the Municipal Trial Court (MTC) of
Iligan City. During the preliminary conference, the parties
Factual Antecedents stipulated that the issue to be resolved was whether their
Agreement had been rescinded and novated. Hence, the MTC
The property involved in this case is a portion of a parcel of land dismissed the case for lack of jurisdiction since the issue is not
known as Lot No. 263 located at Sabayle Street, Iligan City. Lot susceptible of pecuniary estimation. The MTC's Decision dismissing
No. 263 has an area of 860 square meters covered by Original the ejectment case became final as Eugenia and her children did
Certificate of Title (OCT) No. 0-2712 registered in the name of not appeal therefrom.4
Eugenia Primero (Eugenia), married to Alfredo Primero, Sr.
(Alfredo). On June 18, 1996, Irene and Nonilon retaliated by instituting Civil
Case No. II-3588 with the RTC of Lanao del Norte for specific
performance, to compel Eugenia to convey the 293-square meter tenants in subject land, which she co-owns with her mother
portion of Lot No. 263.5 Eugenia.9 She denied having sold the purported 293-square meter
portion of Lot No. 263 to the petitioners.10
Proceedings before the Regional Trial Court
As rebuttal witness, petitioners presented Engr. Ravacio, a
Trial on the merits ensued and the contending parties adduced surveyor who undertook the segregation of the 293-square meter
their respective testimonial and documentary evidence before the portion out of the subject property.11
trial court.
On October 22, 2001, the RTC rendered a Decision: 12 (1)
Irene testified that after their Agreement for the purpose of dismissing the complaint and the counterclaim for lack of legal and
negotiating the sale of Lot No. 263 failed to materialize, she and factual bases; (2) ordering petitioners to pay respondents
Eugenia entered into an oral contract of sale and agreed that the ₱2,500.00 representing rentals due, applying therefrom the
amount of ₱40,000.00 she earlier paid shall be considered as down amount deposited and paid; and (3) ordering petitioner to pay
payment. Irene claimed that she made several payments 12% legal interest from finality of decision until full payment of the
amounting to ₱293,000.00 which prompted Eugenia's daughters amount due.13
Corazon Calacat (Corazon) and Sylvia Primero (Sylvia) to ask Engr.
Antonio Ravacio (Engr. Ravacio) to conduct a segregation survey Aggrieved, petitioners appealed the Decision of the trial court to
on the subject property. Thereafter, Irene requested Eugenia to the CA.
execute the deed of sale, but the latter refused to do so because
her son, Atty. Alfredo Primero, Jr. (Atty. Primero), would not Proceedings before the Court of Appeals
agree.
Both parties filed their respective briefs before the appellate
On March 22, 1999, herein respondents filed with the court a quo a court.14 Thereafter, on November 28, 2003, the CA rendered a
"Notice of Death of the Defendant"6 manifesting that Eugenia Decision15 affirming the RTC Decision.16
passed away on February 28, 1999 and that the decedent's
surviving legal heirs agreed to appoint their co-heir Atty. Primero, Petitioners timely filed a Motion for Reconsideration. 17 However, in
to act as their representative in said case. In an Order7 dated April a Resolution18 dated June 27, 2004, the CA resolved to deny the
8, 1999, the trial court substituted the deceased defendant with same for lack of merit.19
Atty. Primero.
Issues
Respondents, on the other hand, presented the testimony of Atty.
Primero to establish that Eugenia could not have sold the disputed
Petitioners thus filed this Petition for Review on Certiorari anchored
portion of Lot No. 263 to the petitioners. According to Atty.
on the following grounds.
Primero, at the time of the signing of the Agreement on January
13, 1985, Eugenia's husband, Alfredo, was already dead. Eugenia
merely managed or administered the subject property and had no 1. WHETHER AN ORAL CONTRACT OF SALE OF A PORTION
authority to dispose of the same since it was a conjugal property. OF [A] LOT IS BINDING [UPON] THE SELLER.
In addition, respondents asserted that the deposit of ₱40,000.00
was retained as rental for the subject property. 2. WHETHER A SELLER IN AN ORAL CONTRACT OF SALE OF
A PORTION OF [A] LOT CAN BE COMPELLED TO EXECUTE
Respondents likewise presented Sylvia, who testified that the THE REQUIRED DEED OF SALE AFTER THE AGREED
receipts issued to petitioners were for the lot rentals.8 Another CONSIDERATION WAS PAID AND POSSESSION THEREOF
sister of Atty. Primero, Corazon, testified that petitioners were their DELIVERED TO AND ENJOYED BY THE BUYER.
 3. WHETHER THE BUYER HAS A RIGHT TO ENFORCE AN complied with. Petitioners conclude that since both seller and buyer
ORAL CONTRACT OF SALE AFTER THE PORTION SOLD IS failed to discharge their reciprocal obligations, being in pari delictu,
SEGREGATED BY AGREEMENT OF THE PARTIES. the seller could not repudiate their agreement to sell.

4. WHETHER THE SELLER IS BOUND BY THE HANDWRITTEN The petitioners' contention is without merit.
RECEIPTS PREPARED AND SIGNED BY HER EXPRESSLY
INDICATING PAYMENTS OF LOTS. There is no dispute as to the due execution and existence of the
Agreement. The issue thus presented is whether the said
5. WHETHER THE TRIAL COURT COULD RENDER A Agreement is a contract of sale or a contract to sell. For a better
JUDGMENT ON ISSUES NOT DEFINED IN THE PRE-TRIAL understanding and resolution of the issue at hand, it is apropos to
ORDER. reproduce herein the Agreement in haec verba:

Our Ruling A g r e e m e n t

The petition lacks merit. This Agreement, made and executed by and between:

The Agreement dated January 13, 1985 is a contract to sell. Hence, EUGENIA T. PRIMERO, a Filipino of legal age and residing in
with petitioners' non-compliance with its terms and conditions, the Camague, Iligan City (hereinafter called the OWNER)
obligation of the respondents to deliver and execute the
corresponding deed of sale never arose. - and -

The CA found that the Agreement dated January 13, 1985 is not a IRENE P. MONTECALVO, Filipino of legal age and presently residing
contract of sale but a mere contract to sell, the efficacy of which is at Sabayle St., Iligan City (hereinafter [called] the INTERESTED
dependent upon the resolutory condition that Irene pay at least PARTY);
50% of the purchase price as down payment within 30-45 days
from the day Eugenia received the ₱40,000.00 WITNESSETH:

deposit.20 Said court further found that such condition was 1. That the OWNER is the true and absolute owner of
admittedly not met.21 a parcel of land located at Sabayle St. immediately
fronting the St. Peter's College which is presently
Petitioners admit that the Agreement dated January 13, 1985 is at leased to the INTERESTED PARTY;
most, "a preliminary agreement for an eventual
contract."22 However, they argue that contrary to the findings of 2. That the property referred to contains an area of
the appellate court, it was not only the buyer, Irene, who failed to EIGHT HUNDRED SIXTY SQUARE METERS at the
meet the condition of paying the balance of the 50% down value of One Thousand Pesos (₱1,000.00) per square
payment.23 They assert that the Agreement explicitly required meters;
Eugenia to return the deposit of ₱40,000.00 within 10 days, in case
Irene failed to pay the balance of the 50% down payment within
3. That this agreement is entered into for the
the stipulated period.24 Thus, petitioners posit that for the
purpose of negotiating the sale of the above referred
cancellation clause to operate, two conditions must concur,
property between the same parties herein under the
namely, (1) buyer fails to pay the balance of the 50% down
following terms and conditions, to wit:
payment within the agreed period and (2) seller should return the
deposit of ₱40,000.00 within 10 days if the first condition was not
 a) That the term of this negotiation is for a purchase price. Otherwise stated, in a contract of sale, the seller
period of Thirty to Forty Five (30-45) days loses ownership over the property and cannot recover it until and
from receipt of a deposit; unless the contract is resolved or rescinded; whereas, in a contract
to sell, title is retained by the seller until full payment of the
b) That Forty Thousand Pesos (₱40,000.00) price.26 In the latter contract, payment of the price is a positive
shall be deposited to demonstrate the interest suspensive condition, failure of which is not a breach but an event
of the Interested Party to acquire the that prevents the obligation of the vendor to convey title from
property referred to above, which deposit becoming effective.27
shall not earn any interest;
In the Agreement, Eugenia, as owner, did not convey her title to
c) That should the contract or agreement the disputed property to Irene since the Agreement was made for
push through the deposit shall form part of the purpose of negotiating the sale of the 860-square meter
the down payment of Fifty percent (50%) of property.28
the total or full value. Otherwise the deposit
shall be returned within TEN (10) days from On this basis, we are more inclined to characterize the agreement
the lapse of the period of negotiation; as a contract to sell rather than a contract of sale. Although not by
itself controlling, the absence of a provision in the Agreement
4. That should this push through, the balance of Four transferring title from the owner to the buyer is taken as a strong
Hundred Ten Thousand on the down payment shall indication that the Agreement is a contract to sell. 29
be made upon execution of the Agreement to Sell
and the balance of the full value of Eight Hundred In a contract to sell, the prospective seller explicitly reserves the
Sixty Thousand or Four Hundred Ten Thousand Pesos transfer of title to the prospective buyer, meaning, the prospective
shall be paid in equal monthly installment within Ten seller does not as yet agree or consent to transfer ownership of the
(10) months from receipt of the down payment with property subject of the contract to sell until the happening of an
[sic] according to prevailing interest. event, which for present purposes we shall take as the full
payment of the purchase price.30 What the seller agrees or obliges
IN WITNESS WHEREOF, the parties have signed these presents in himself to do is to fulfill his promise to sell the subject property
the City of Iligan this 13th day of January 1985. when the entire amount of the purchase price is delivered to
him.31 In other words, the full payment of the purchase price
(Signed) (Signed) partakes of a suspensive condition, the non-fulfillment of which
IRENE PEPITO MONTECALVO EUGENIA TORRES PRIMERO prevents the obligation to sell from arising and thus, ownership is
retained by the prospective seller without further remedies by the
prospective buyer.32 A contract to sell is commonly entered into in
SIGNED IN THE PRESENCE OF:
order to protect the seller against a buyer who intends to buy the
property in installment by withholding ownership over the property
(Signed) (Signed) until the buyer effects full payment therefor.33

In this case, the Agreement expressly provided that it was "entered

In Salazar v. Court of Appeals,25 we distinguished a contract of sale into for the purpose of negotiating the sale of the above referred
from a contract to sell in that in a contract of sale the title to the property between the same parties herein x x x." The term of the
property passes to the buyer upon the delivery of the thing sold; in negotiation shall be for a period of 30-45 days from receipt of the
a contract to sell, ownership is, by agreement, reserved in the ₱40,000.00 deposit and the buyer has to pay the balance of the
seller and is not to pass to the buyer until full payment of the 50% down payment amounting to ₱410,000.00 within the said
period of negotiation. Thereafter, an Agreement to Sell shall be In support of their contention, petitioners presented the testimony
executed by the parties and the remainder of the purchase price of Irene, who testified that Eugenia segregated for them an area of
amounting to another ₱410,000.00 shall be paid in 10 equal 293 square meters for the agreed price of ₱1,000.00 per square
monthly installments from receipt of the down payment. The meter.35 The total purchase price allegedly agreed upon by the
assumption of both parties that the purpose of the Agreement was parties, amounting to ₱293,000.00, corresponded to the amount of
for negotiating the sale of Lot No. 263, in its entirety, for a definite payments already made by Irene.36 They likewise presented (1) 82
price, with a specific period for payment of a specified down receipts covering the period October 13, 1986 to July 10,
payment, and the execution of a subsequent contract for the sale 1994;37 (2) the testimony of the surveyor, Engr. Ravacio, to show
of the same on installment payments leads to no other conclusion that the segregation survey of the 293-square meter portion of the
than that the predecessor-in-interest of the herein respondents and property was made with the knowledge and consent of Eugenia;
the herein petitioner Irene entered into a contract to sell. and (3) the resulting subdivision plan.

As stated in the Agreement, the payment of the purchase price, in On the other hand, respondents counter that the alleged contract
installments within the period stipulated, constituted a positive of sale is contradicted by petitioners' own evidence.
suspensive condition, the failure of which is not really a breach but
an event that prevents the obligation of the seller to convey title in We cannot sustain the contention of the petitioners. The primal
accordance with Article 1184 of the Civil Code.34 Hence, for issue to be resolved is whether the parties subsequently entered
petitioners' failure to comply with the terms and conditions laid into a contract of sale over the segregated 293-square meter
down in the Agreement, the obligation of the predecessor-in- portion of Lot No. 263. It is a fundamental principle that for a
interest of the respondents to deliver and execute the contract of sale to be valid, the following elements must be
corresponding deed of sale never arose. present: (a) consent or meeting of the minds; (b) determinate
subject matter; and (3) price certain in money or its
The fact that the predecessor-in-interest of the respondents failed equivalent.38 Until the contract of sale is perfected, it cannot, as an
to return the ₱40,000.00 deposit subsequent to the expiration of independent source of obligation, serve as a binding juridical
the period of negotiation did not prevent the respondents from relation between the parties.39
repudiating the Agreement. The obligation of the respondent to
convey the property never came to pass as the petitioners did not Contrary to petitioners' allegations that the 82 receipts indicated
comply with the positive suspensive condition of full payment of that they were issued "for payment of lot (at Sabayle)",40 a cursory
the purchase price within the period as stipulated. examination thereof shows that the receipts from 1986 to 1992 do
not consistently indicate "Sabayle Lot" or "Sabayle Lot Deposit".
The alleged oral contract of sale for the 293-square meter portion More than half of the receipts presented merely indicated receipt of
of the property was not proved by preponderant evidence. Hence, differing sums of money from the petitioners. In addition, the
petitioners cannot compel the successors-in-interest of the receipts for the years 1993 to 1994 do not establish installment
deceased Eugenia to execute a deed of absolute sale in their favor. payments for the purchase of the disputed portion of Lot No. 263.
Rather, the receipts indicate that the same were issued as proof of
Petitioners alleged in their Complaint that in 1992, Eugenia refused "cash advance",41 "cash for groceries, electric bill, water bill,
to accept further payments and suggested that she will convey to telephone/long distance",42 "cash",43 "cash for mktg"44 and "x x x
petitioners 293 square meters of her 860-square meter property, cash to be paid a month after".45 These are not consistent with the
in proportion to payments already made. Thus, Eugenia caused the allegation of the petitioners that they have paid the full amount of
segregation of the area where the petitioners' building now stands, the purchase price for the 293-square meter portion of the lot by
consisting of 293 square meters.1avvphi1 1992.
Moreover, the testimony of petitioners' witness, surveyor Engr. rise in values. Moreover, the trial court can take judicial notice of
Ravacio, shows that Eugenia was neither around when the survey the general increase in rentals of real estate especially of business
was conducted nor gave her express consent to the conduct of the establishments".49 The appellate court likewise held that the
same.46 On the other hand, respondents' witness, Sylvia, testified petitioners failed to discharge their burden to show that the said
that the receipts issued to the petitioners were for the lot price was exorbitant or unconscionable.50 Hence, the CA found no
rentals.47 In addition, respondents' third witness, Corazon, testified reason to disturb the trial court's decision ordering the petitioners
that petitioners were their tenants in subject land, which she co- to pay ₱2,500.00 as monthly rentals.51 The appellate court further
owns with her mother Eugenia, and disclaimed any sale of any held that "to deprive Eugenia of the rentals due her as the owner-
portion of their lot to the petitioners.48 lessor of the subject property would result to unjust enrichment on
the part of Irene."52
Thirdly, since the surveyor himself, Engr. Ravacio, admitted that
Eugenia did not give her express consent to the conduct of the The courts below correctly took judicial notice of the nature of the
segregation plan, the resulting subdivision plan, submitted by the leased property subject of the case at bench based on its location
petitioners to the trial court to prove that Eugenia caused the and commercial viability. As described in the Agreement, the
segregation of the 293-square meter area, cannot be appreciated. property is immediately in front of St. Peter's College.53 More
significantly, it is stated in the Declaration of Real Property
Section 1 of Rule 133 of the Rules of Court provides that in civil submitted by the petitioners as evidence in the trial court, that the
cases, the party having the burden of proof must establish his case property is used predominantly for commercial purposes.54 The
by a preponderance of evidence. However, the evidence presented assessment by the trial court of the area where the property is
by the petitioners, as considered above, fails to convince this Court located is therefore fairly grounded.
that Eugenia gave her consent to the purported oral deed of sale
for the 293-square meter portion of her property. We are hence in Furthermore, the trial court also had factual basis in arriving at the
agreement with the finding of the CA that there was no contract of said conclusion, the same being based on the un-rebutted
sale between the parties. As a consequence, petitioners cannot testimony of a witness who is a real estate broker. With respect to
rightfully compel the successors-in-interest of Eugenia to execute a the prevailing valuation of the property in litigation, witness Atty.
deed of absolute sale in their favor. Primero, a licensed real estate broker testified that:

The courts below correctly modified the rental award to ₱2,500.00 x x x There is no fixed pricing for each year because it always
per month. depends on the environment so that if the price in 1986, as you
were referring to 1986, it would have risen or increased from
Lastly, petitioners argue that the courts below erred in imposing a ₱1,000.00, then it would increase to ₱3,000.00, then it would
₱2,500.00 monthly rental from 1985 onwards, since said amount is increase to ₱7,000.00 and again increase to ₱15,000.00 and right
far greater than the last agreed monthly rental (December 1984) now the current price of property in that area is ₱25,000.00 per
of ₱500.00. square meter.55

In its Decision, the CA affirmed the ruling of the RTC "that the trial The RTC rightly modified the rental award to ₱2,500.00 per month,
court had authority to fix a reasonable value for the continued use considering that it is settled jurisprudence that courts may take
and occupancy of the leased premises after the termination of the judicial notice of the general increase in rentals, particularly in
lease contract, and that it was not bound by the stipulated rental in business establishments.
the contract of lease since it is equally settled that upon
termination or expiration of the contract of lease, the rental WHEREFORE, the petition is DENIED. The November 28, 2003
stipulated therein may no longer be the reasonable value for the Decision of the Court of Appeals affirming the October 22, 2001
use and occupation of the premises as a result of the change or
Decision of the Regional Trial Court of Lanao del Norte, Branch 2, is
hereby AFFIRMED.

SO ORDERED
 On June 20, 1988, petitioner mortgaged the subject real properties
[G.R. No. 188064, June 01 : 2011] to the Farmers Savings Bank and Loan Bank, Inc. (FSL Bank) to
secure a loan of ?2,000,000.00 payable in installments. On
MILA A. REYES , PETITIONER, VS. VICTORIA T. TUPARAN, November 15, 1990, petitioner's outstanding account on the
RESPONDENT. mortgage reached ?2,278,078.13. Petitioner then decided to sell
her real properties for at least ?6,500,000.00 so she could liquidate
DECISION her bank loan and finance her businesses. As a gesture of
friendship, respondent verbally offered to conditionally buy
petitioner's real properties for ?4,200,000.00 payable on
MENDOZA, J.: installment basis without interest and to assume the bank loan. To
induce the petitioner to accept her offer, respondent offered the
following conditions/concessions:
Subject of this petition for review is the February 13, 2009 1. That the conditional sale will be cancelled if the plaintiff
Decision[1] of the Court of Appeals (CA) which affirmed with (petitioner) can find a buyer of said properties for the amount of ?
modification the February 22, 2006 Decision[2] of the Regional Trial 6,500,000.00 within the next three (3) months provided all
Court, Branch 172, Valenzuela City (RTC), in Civil Case No. 3945- amounts received by the plaintiff from the defendant (respondent)
V-92, an action for Rescission of Contract with Damages. including payments actually made by defendant to Farmers
Savings and Loan Bank would be refunded to the defendant with
On September 10, 1992, Mila A. Reyes (petitioner) filed a additional interest of six (6%) monthly;
complaint for Rescission of Contract with Damages against Victoria
T. Tuparan (respondent) before the RTC.  In her Complaint, 2. That the plaintiff would continue using the space occupied by her
petitioner alleged, among others, that she was the registered and drugstore and cosmetics store without any rentals for the
owner of a 1,274 square meter residential and commercial lot duration of the installment payments;
located in Karuhatan, Valenzuela City, and covered by TCT No. V-
4130; that on that property, she put up a three-storey commercial 3. That there will be a lease for fifteen (15) years in favor of the
building known as RBJ Building and a residential apartment plaintiff over the space for drugstore and cosmetics store at a
building; that since 1990, she had been operating a drugstore and monthly rental of only ?8,000.00 after full payment of the
cosmetics store on the ground floor of RBJ Building where she also stipulated installment payments are made by the defendant;
had been residing while the other areas of the buildings including
the sidewalks were being leased and occupied by tenants and 4. That the defendant will undertake the renewal and payment of
street vendors. the fire insurance policies on the two (2) subject buildings following
the expiration of the then existing fire insurance policy of the
In December 1989, respondent leased from petitioner a space on plaintiff up to the time that plaintiff is fully paid of the total
the ground floor of the RBJ Building for her pawnshop business for purchase price of ?4,200,000.00.[3]
a monthly rental of ?4,000.00. A close friendship developed
between the two which led to the respondent investing thousands
of pesos in petitioner's financing/lending business from February 7, After petitioner's verbal acceptance of all the
1990 to May 27, 1990, with interest at the rate of 6% a month. conditions/concessions, both parties worked together to obtain FSL
Bank's approval for respondent to assume her (petitioner's)
outstanding bank account.  The assumption would be part of commercial complex. Nonetheless, she consented because
respondent's purchase price for petitioner's mortgaged real respondent repeatedly professed friendship and assured her that
properties. FSL Bank approved their proposal on the condition that all their verbal side agreement would be honored as shown by the
petitioner would sign or remain as co-maker for the mortgage fact that since December 1990, she (respondent) had not collected
obligation assumed by respondent. any rentals from the petitioner for the space occupied by her
drugstore and cosmetics store.
On November 26, 1990, the parties and FSL Bank executed the
corresponding Deed of Conditional Sale of Real Properties with On March 19, 1992, the residential building was gutted by fire
Assumption of Mortgage. Due to their close personal friendship and which caused the petitioner to lose rental income in the amount
business relationship, both parties chose not to reduce into writing of ?8,000.00 a month since April 1992. Respondent neglected to
the other terms of their agreement mentioned in paragraph 11 of renew the fire insurance policy on the subject buildings.
the complaint. Besides, FSL Bank did not want to incorporate in the
Deed of Conditional Sale of Real Properties with Assumption of Since December 1990, respondent had taken possession of the
Mortgage any other side agreement between petitioner and subject real properties and had been continuously collecting and
respondent. receiving monthly rental income from the tenants of the buildings
and vendors of the sidewalk fronting the RBJ building without
Under the Deed of Conditional Sale of Real Properties with sharing it with petitioner.
Assumption of Mortgage, respondent was bound to pay the
petitioner a lump sum of ?1.2 million pesos without interest as part On September 2, 1992, respondent offered the amount of ?
of the purchase price in three (3) fixed installments as follows: 751,000.00 only payable on September 7, 1992, as full payment of
the purchase price of the subject real properties and demanded the
a) ?200,000.00 - due January 31, 1991
simultaneous execution of the corresponding deed of absolute sale.
b) ?200,000.00 - due June 30, 1991
c) ?800,000.00 - due December 31, 1991
Respondent's Answer

Respondent, however, defaulted in the payment of her obligations Respondent countered, among others, that the tripartite
on their due dates. Instead of paying the amounts due in lump sum agreement erroneously designated by the petitioner as a Deed of
on their respective maturity dates, respondent paid petitioner in Conditional Sale of Real Property with Assumption of Mortgage was
small amounts from time to time. To compensate for her delayed actually a pure and absolute contract of sale with a term period. It
payments, respondent agreed to pay petitioner an interest of 6% a could not be considered a conditional sale because the acquisition
month. As of August 31, 1992, respondent had only paid ? of contractual rights and the performance of the obligation therein
395,000.00, leaving a balance of ?805,000.00 as principal on the did not depend upon a future and uncertain event. Moreover, the
unpaid installments and ?466,893.25 as unpaid accumulated capital gains and documentary stamps and other miscellaneous
interest. expenses and real estate taxes up to 1990 were supposed to be
paid by petitioner but she failed to do so.
Petitioner further averred that despite her success in finding a
prospective buyer for the subject real properties within the 3- Respondent further averred that she successfully rescued the
month period agreed upon, respondent reneged on her promise to properties from a definite foreclosure by paying the assumed
allow the cancellation of their deed of conditional sale. Instead, mortgage in the amount of ?2,278,078.13 plus interest and other
respondent became interested in owning the subject real properties finance charges. Because of her payment, she was able to obtain a
and even wanted to convert the entire property into a modern deed of cancellation of mortgage and secure a release of mortgage
on the subject real properties including petitioner's ancestral more equitable to give respondent a chance to pay the balance
residential property in Sta. Maria, Bulacan. plus interest within a given period of time.

Petitioner's claim for the balance of the purchase price of the Finally, the RTC stated that there was no factual or legal basis to
subject real properties was baseless and unwarranted because the award damages and attorney's fees because there was no proof
full amount of the purchase price had already been paid, as she did that either party acted fraudulently or in bad faith.
pay more than ?4,200,000.00, the agreed purchase price of the
subject real properties, and she had even introduced Thus, the dispositive portion of the RTC Decision reads:
improvements thereon worth more than ?4,800,000.00. As the
WHEREFORE, judgment is hereby rendered as follows:
parties could no longer be restored to their original positions,
rescission could not be resorted to.
1. Allowing the defendant to pay the plaintiff within thirty (30) days
from the finality hereof the amount of ?805,000.00, representing
Respondent added that as a result of their business relationship,
the unpaid purchase price of the subject property, with interest
petitioner was able to obtain from her a loan in the amount of ?
thereon at 2% a month from January 1, 1992 until fully paid.
400,000.00 with interest and took several pieces of jewelry worth ?
Failure of the defendant to pay said amount within the said period
120,000.00. Petitioner also failed and refused to pay the monthly
shall cause the automatic rescission of the contract (Deed of
rental of ?20,000.00 since November 16, 1990 up to the present
Conditional Sale of Real Property with Assumption of Mortgage)
for the use and occupancy of the ground floor of the building on
and the plaintiff and the defendant shall be restored to their former
the subject real property, thus, accumulating arrearages in the
positions relative to the subject property with each returning to the
amount of ?470,000.00 as of October 1992.
other whatever benefits each derived from the transaction;
Ruling of the RTC
2. Directing the defendant to allow the plaintiff to continue using
the space occupied by her for drugstore and cosmetic store without
On February 22, 2006, the RTC handed down its decision finding
any rental pending payment of the aforesaid balance of the
that respondent failed to pay in full the ?4.2 million total purchase
purchase price.
price of the subject real properties leaving a balance of ?
805,000.00. It stated that the checks and receipts presented by
respondent refer to her payments of the mortgage obligation with
FSL Bank and not the payment of the balance of ?1,200,000.00. 3. Ordering the defendant, upon her full payment of the purchase
The RTC also considered the Deed of Conditional Sale of Real price together with interest, to execute a contract of lease for
Property with Assumption of Mortgage executed by and among the fifteen (15) years in favor of the plaintiff over the space for the
two parties and FSL Bank a contract to sell, and not a contract of drugstore and cosmetic store at a fixed monthly rental of ?
sale.  It was of the opinion that although the petitioner was entitled 8,000.00; and
to a rescission of the contract, it could not be permitted because
her non-payment in full of the purchase price "may not be 4. Directing the plaintiff, upon full payment to her by the defendant
considered as substantial and fundamental breach of the contract of the purchase price together with interest, to execute the
as to defeat the object of the parties in entering into the necessary deed of sale, as well as to pay the Capital Gains Tax,
contract."[4] The RTC believed that the respondent's offer stated in documentary stamps and other miscellaneous expenses necessary
her counsel's letter dated September 2, 1992 to settle what she for securing the BIR Clearance, and to pay the real estate taxes
thought was her unpaid balance of ?751,000.00 showed her due on the subject property up to 1990, all necessary to transfer
sincerity and willingness to settle her obligation. Hence, it would be ownership of the subject property to the defendant.
No pronouncement as to damages, attorney's fees and costs. After the denial of petitioner's motion for reconsideration and
respondent's motion for partial reconsideration, petitioner filed the
SO ORDERED.[5] subject petition for review praying for the reversal and setting
aside of the CA Decision anchored on the following

Ruling of the CA ASSIGNMENT OF ERRORS

On February 13, 2009, the CA rendered its decision affirming with

A. THE COURT OF APPEALS SERIOUSLY ERRED AND ABUSED
modification the RTC Decision.  The CA agreed with the RTC that
ITS DISCRETION IN DISALLOWING THE OUTRIGHT
the contract entered into by the parties is a contract to sell but
RESCISSION OF THE SUBJECT DEED OF CONDITIONAL SALE
ruled that the remedy of rescission could not apply because the
OF REAL PROPERTIES WITH ASSUMPTION OF MORTGAGE
respondent's failure to pay the petitioner the balance of the
ON THE GROUND THAT RESPONDENT TUPARAN'S FAILURE
purchase price in the total amount of ?805,000.00 was not a
TO PAY PETITIONER REYES THE BALANCE OF THE
breach of contract, but merely an event that prevented the seller
PURCHASE PRICE OF ?805,000.00 IS NOT A BREACH OF
(petitioner) from conveying title to the purchaser (respondent). It
CONTRACT DESPITE ITS OWN FINDINGS THAT PETITIONER
reasoned that out of the total purchase price of the subject
STILL RETAINS OWNERSHIP AND TITLE OVER THE SUBJECT
property in the amount of ?4,200,000.00, respondent's remaining
REAL PROPERTIES DUE TO RESPONDENT'S REFUSAL TO PAY
unpaid balance was only ?805,000.00. Since respondent had
THE BALANCE OF THE TOTAL PURCHASE PRICE OF ?
already paid a substantial amount of the purchase price, it was but
805,000.00 WHICH IS EQUAL TO 20% OF THE TOTAL
right and just to allow her to pay the unpaid balance of the
PURCHASE PRICE OF ?4,200,000.00 OR 66% OF THE
purchase price plus interest. Thus, the decretal portion of the CA
STIPULATED LAST INSTALLMENT OF ?1,200,000.00 PLUS
Decision reads:
THE INTEREST THEREON. IN EFFECT, THE COURT OF
WHEREFORE, premises considered, the Decision dated  22 APPEALS AFFIRMED AND ADOPTED THE TRIAL COURT'S
February 2006 and Order dated 22 December 2006 of the Regional CONCLUSION THAT THE RESPONDENT'S NON-PAYMENT OF
Trial Court of Valenzuela City, Branch 172 in Civil Case No. 3945- THE ?805,000.00 IS ONLY A SLIGHT OR CASUAL BREACH OF
V-92 are AFFIRMED with MODIFICATION in that defendant- CONTRACT.
appellant Victoria T. Tuparan is hereby ORDERED to pay plaintiff-
appellee/appellant Mila A. Reyes, within 30 days from finality of B. THE COURT OF APPEALS SERIOUSLY ERRED AND ABUSED
this Decision, the amount of ?805,000.00 representing the unpaid ITS DISCRETION IN DISREGARDING AS GROUND FOR THE
balance of the purchase price of the subject property, plus interest RESCISSION OF THE SUBJECT CONTRACT THE OTHER
thereon at the rate of 6% per annum from 11 September 1992 up FRAUDULENT AND MALICIOUS ACTS COMMITTED BY THE
to finality of this Decision and, thereafter, at the rate of 12% per RESPONDENT AGAINST THE PETITIONER WHICH BY
annum until full payment. The ruling of the trial court on the THEMSELVES SUFFICIENTLY JUSTIFY A DENIAL OF A GRACE
automatic rescission of the Deed of Conditional Sale with PERIOD OF THIRTY (30) DAYS TO THE RESPONDENT
Assumption of Mortgage is hereby DELETED. Subject to the WITHIN WHICH TO PAY TO THE PETITIONER THE ?
foregoing, the dispositive portion of the trial court's decision is 805,000.00 PLUS INTEREST THEREON.
AFFIRMED in all other respects.
C. EVEN ASSUMING ARGUENDO THAT PETITIONER IS NOT
SO ORDERED.[6] ENTITLED TO THE RESCISSION OF THE SUBJECT CONTRACT,
THE COURT OF APPEALS STILL SERIOUSLY ERRED AND
ABUSED ITS DISCRETION IN REDUCING THE INTEREST ON AUGUST 19, 1996 AND JANUARY 7, 2006 THEREBY
THE ?805,000.00 TO ONLY "6% PER ANNUM STARTING PERMITTING THE RESPONDENT TO UNJUSTLY ENRICH
FROM THE DATE OF FILING OF THE COMPLAINT ON HERSELF BY CONTINUOUSLY COLLECTING ALL THE
SEPTEMBER 11, 1992" DESPITE THE PERSONAL RENTALS/FRUITS OF THE SUBJECT REAL PROPERTIES
COMMITMENT OF THE RESPONDENT AND AGREEMENT WITHOUT ANY ACCOUNTING AND COURT DEPOSIT OF THE
BETWEEN THE PARTIES THAT RESPONDENT WILL PAY COLLECTED RENTALS/FRUITS AND THE PETITIONERS
INTEREST ON THE ?805,000.00 AT THE RATE OF 6% "URGENT MOTION TO DIRECT DEFENDANT VICTORIA
MONTHLY STARTING THE DATE OF DELINQUENCY ON TUPARAN TO PAY THE ACCUMULATED UNPAID REAL ESTATE
DECEMBER 31, 1991. TAXES AND SEF TAXES ON THE SUBJECT REAL PROPERTIES"
DATED JANUARY 13, 2007 THEREBY EXPOSING THE
D. THE COURT OF APPEALS SERIOUSLY ERRED AND ABUSED SUBJECT REAL PROPERTIES TO IMMINENT AUCTION SALE
ITS DISCRETION IN THE APPRECIATION AND/OR BY THE CITY TREASURER OF VALENZUELA CITY.
MISAPPRECIATION OF FACTS RESULTING INTO THE DENIAL
OF THE CLAIM OF PETITIONER REYES FOR ACTUAL G. THE COURT OF APPEALS SERIOUSLY ERRED AND ABUSED
DAMAGES WHICH CORRESPOND TO THE MILLIONS OF ITS DISCRETION IN DENYING THE PETITIONER'S CLAIM
PESOS OF RENTALS/FRUITS OF THE SUBJECT REAL FOR MORAL AND EXEMPLARY DAMAGES AND ATTORNEY'S
PROPERTIES WHICH RESPONDENT TUPARAN COLLECTED FEES AGAINST THE RESPONDENT.
CONTINUOUSLY SINCE DECEMBER 1990, EVEN WITH THE
UNPAID BALANCE OF ?805,000.00 AND DESPITE THE FACT
In sum, the crucial issue that needs to be resolved is whether or
THAT RESPONDENT DID NOT CONTROVERT SUCH CLAIM OF
not the CA was correct in ruling that there was no legal basis for
THE PETITIONER AS CONTAINED IN HER AMENDED
the rescission of the Deed of Conditional Sale with Assumption of
COMPLAINT DATED APRIL 22, 2006.
Mortgage.
E. THE COURT OF APPEALS SERIOUSLY ERRED AND ABUSED
Position of the Petitioner
ITS DISCRETION IN THE APPRECIATION OF FACTS
RESULTING INTO THE DENIAL OF THE CLAIM OF
The petitioner basically argues that the CA should have granted the
PETITIONER REYES FOR THE ?29,609.00 BACK RENTALS
rescission of the subject Deed of Conditional Sale of Real Properties
THAT WERE COLLECTED BY RESPONDENT TUPARAN FROM
with Assumption of Mortgage for the following reasons:
THE OLD TENANTS OF THE PETITIONER.
1. The subject deed of conditional sale is a reciprocal obligation
F.  THE COURT OF APPEALS SERIOUSLY ERRED AND ABUSED whose outstanding characteristic is reciprocity arising from identity
ITS DISCRETION IN DENYING THE PETITIONER'S EARLIER of cause by virtue of which one obligation is correlative of the
"URGENT MOTION FOR ISSUANCE OF A PRELIMINARY other.
MANDATORY AND PROHIBITORY INJUNCTION" DATED JULY
7, 2008 AND THE "SUPPLEMENT" THERETO DATED AUGUST 2. The petitioner was rescinding - not enforcing - the subject Deed
4, 2008 THEREBY CONDONING THE UNJUSTIFIABLE of Conditional Sale pursuant to Article 1191 of the Civil Code
FAILURE/REFUSAL OF JUDGE FLORO ALEJO TO RESOLVE because of the respondent's failure/refusal to pay the ?805,000.00
WITHIN ELEVEN (11) YEARS THE PETITIONER'S THREE (3) balance of the total purchase price of the petitioner's properties
SEPARATE "MOTIONS FOR PRELIMINARY INJUNCTION/ within the stipulated period ending December 31, 1991.
TEMPORARY RESTRAINING ORDER, ACCOUNTING AND
DEPOSIT OF RENTAL INCOME" DATED MARCH 17, 1995, 3. There was no slight or casual breach on the part of the
respondent because she (respondent) deliberately failed to comply The Court's Ruling
with her contractual obligations with the petitioner by violating the
terms or manner of payment of the ?1,200,000.00 balance and The petition lacks merit.
unjustly enriched herself at the expense of the petitioner by
collecting all rental payments for her personal benefit and The Court agrees with the ruling of the courts below that the
enjoyment. subject Deed of Conditional Sale with Assumption of Mortgage
entered into by and among the two parties and FSL Bank on
November 26, 1990 is a contract to sell and not a contract of sale. 
Furthermore, the petitioner claims that the respondent is liable to
The subject contract was correctly classified as a contract to sell
pay interest at the rate of 6% per month on her unpaid installment
based on the following pertinent stipulations:
of ?805,000.00 from the date of the delinquency, December 31,
1991, because she obligated herself to do so. 8. That the title and ownership of the subject real properties shall
remain with the First Party until the full payment of the Second
Finally, the petitioner asserts that her claim for damages or lost Party of the balance of the purchase price and liquidation of the
income as well as for the back rentals in the amount of ?29,609.00 mortgage obligation of ?2,000,000.00. Pending payment of the
has been fully substantiated and, therefore, should have been balance of the purchase price and liquidation of the mortgage
granted by the CA. Her claim for moral and exemplary damages obligation that was assumed by the Second Party, the Second
and attorney's fees has been likewise substantiated. Party shall not sell, transfer and convey and otherwise encumber
the subject real properties without the written consent of the First
Position of the Respondent and Third Party.

The respondent counters that the subject Deed of Conditional Sale 9. That upon full payment by the Second Party of the full balance
with Assumption of Mortgage entered into between the parties is a of the purchase price and the assumed mortgage obligation herein
contract to sell and not a contract of sale because the title of the mentioned the Third Party shall issue the corresponding Deed of
subject properties still remains with the petitioner as she failed to Cancellation of Mortgage and the First Party shall execute the
pay the installment payments in accordance with their agreement. corresponding Deed of Absolute Sale in favor of the Second Party.
[7]

Respondent echoes the RTC position that her inability to pay the
full balance on the purchase price may not be considered as a
Based on the above provisions, the title and ownership of the
substantial and fundamental breach of the subject contract and it
subject properties remains with the petitioner until the respondent
would be more equitable if she would be allowed to pay the
fully pays the balance of the purchase price and the assumed
balance including interest within a certain period of time. She
mortgage obligation. Thereafter, FSL Bank shall then issue the
claims that as early as 1992, she has shown her sincerity by
corresponding deed of cancellation of mortgage and the petitioner
offering to pay a certain amount which was, however, rejected by
shall execute the corresponding deed of absolute sale in favor of
the petitioner.
the respondent.
Finally, respondent states that the subject deed of conditional sale
Accordingly, the petitioner's obligation to sell the subject properties
explicitly provides that the installment payments shall not bear any
becomes demandable only upon the happening of the positive
interest. Moreover, petitioner failed to prove that she was entitled
suspensive condition, which is the respondent's full payment of the
to back rentals.
purchase price. Without respondent's full payment, there can be no
breach of contract to speak of because petitioner has no obligation
yet to turn over the title. Respondent's failure to pay in full the In other words, the full payment of the purchase price partakes of
purchase price is not the breach of contract contemplated under a suspensive condition, the non-fulfillment of which prevents the
Article 1191 of the New Civil Code but rather just an event that obligation to sell from arising and, thus, ownership is retained by
prevents the petitioner from being bound to convey title to the the prospective seller without further remedies by the prospective
respondent. The 2009 case of Nabus v.  Joaquin & Julia Pacson[8] is buyer.
enlightening:
xxx xxx  xxx
The Court holds that the contract entered into by the Spouses
Nabus and respondents was a contract to sell, not a contract of
Stated positively, upon the fulfillment of the suspensive condition
sale.
which is the full payment of the purchase price, the prospective
seller's obligation to sell the subject property by entering into a
A contract of sale is defined in Article 1458 of the Civil Code, thus:
contract of sale with the prospective buyer becomes demandable
as provided in Article 1479 of the Civil Code which states:
Art. 1458.  By the contract of sale, one of the contracting parties
obligates himself to transfer the ownership of and to deliver a
Art. 1479.  A promise to buy and sell a determinate thing for a
determinate thing, and the other to pay therefor a price certain in
price certain is reciprocally demandable.
money or its equivalent.

An accepted unilateral promise to buy or to sell a determinate thing

xxx
for a price certain is binding upon the promissor if the promise is
supported by a consideration distinct from the price.
Sale, by its very nature, is a consensual contract because it is
perfected by mere consent.  The essential elements of a contract of
A contract to sell may thus be defined as a bilateral contract
sale are the following:
whereby the prospective seller, while expressly reserving the
ownership of the subject property despite delivery thereof to the
a) Consent or meeting of the minds, that is, consent to transfer
prospective buyer, binds himself to sell the said property
ownership in exchange for the price;
exclusively to the prospective buyer upon fulfillment of the
condition agreed upon, that is, full payment of the purchase price.
b)  Determinate subject matter; and

A contract to sell as defined hereinabove, may not even be

c)  Price certain in money or its equivalent.
considered as a conditional contract of sale where the seller may
likewise reserve title to the property subject of the sale until the
Under this definition, a Contract to Sell may not be considered as a
fulfillment of a suspensive condition, because in a conditional
Contract of Sale because the first essential element is lacking. In a
contract of sale, the first element of consent is present, although it
contract to sell, the prospective seller explicitly reserves the
is conditioned upon the happening of a contingent event which may
transfer of title to the prospective buyer, meaning, the prospective
or may not occur. If the suspensive condition is not fulfilled, the
seller does not as yet agree or consent to transfer ownership of the
perfection of the contract of sale is completely abated. However, if
property subject of the contract to sell until the happening of an
the suspensive condition is fulfilled, the contract of sale  is thereby
event, which for present purposes we shall take as the full
perfected, such that if there had already been previous delivery of
payment of the purchase price. What the seller agrees or obliges
the property subject of the sale to the buyer, ownership thereto
himself to do is to fulfill his promise to sell the subject property
automatically transfers to the buyer by operation of law without
when the entire amount of the purchase price is delivered to him.
any further act having to be performed by the seller.
 sell, the obligation of the seller to sell becomes demandable only
In a contract to sell, upon the fulfillment of the suspensive upon the happening of the suspensive condition.  The full payment
condition which is the full payment of the purchase price, of the purchase price is the positive suspensive condition, the
ownership will not automatically transfer to the buyer although the failure of which is not a breach of contract, but simply an event
property may have been previously delivered to him.  The that prevented the obligation of the vendor to convey title
prospective seller still has to convey title to the prospective buyer from acquiring binding force. Thus, for its non-fulfilment, there
by entering into a contract of absolute sale. is no contract to speak of, the obligor having failed to perform the
suspensive condition which enforces a juridical relation. With this
Further, Chua v. Court of Appeals, cited this distinction between a circumstance, there can be no rescission or fulfillment of an
contract of sale and a contract to sell: obligation that is still non-existent, the suspensive condition not
having occurred as yet. Emphasis should be made that the breach
In a contract of sale, the title to the property passes to the vendee
contemplated in Article 1191 of the New Civil Code is the
upon the delivery of the thing sold; in a contract to sell, ownership
obligor's failure to comply with an obligation already extant,
is, by agreement, reserved in the vendor and is not to pass to the
not a failure of a condition to render binding that
vendee until full payment of the purchase price. Otherwise stated,
obligation. [Emphases and underscoring supplied]
in a contract of sale, the vendor loses ownership over the property
and cannot recover it until and unless the contract is resolved or
rescinded; whereas, in a contract to sell, title is retained by the Consistently, the Court handed down a similar ruling in the 2010
vendor until full payment of the price.  In the latter contract, case of Heirs of Atienza v. Espidol, [9] where it was written:
payment of the price is a positive suspensive condition, failure of
Regarding the right to cancel the contract for non-payment
which is not a breach but an event that prevents the obligation of
of an installment, there is need to initially determine if what
the vendor to convey title from becoming effective.
the parties had was a contract of sale or a contract to sell. 
In a contract of sale, the title to the property passes to the buyer
It is not the title of the contract, but its express terms or upon the delivery of the thing sold.  In a contract to sell, on the
stipulations that determine the kind of contract entered into by the other hand, the ownership is, by agreement, retained by the seller
parties. In this case, the contract entitled "Deed of Conditional and is not to pass to the vendee until full payment of the purchase
Sale"  is actually a contract to sell.  The contract stipulated that "as price.  In the contract of sale, the buyer's non-payment of the price
soon as the full consideration of the sale has been paid by the is a negative resolutory condition; in the contract to sell, the
vendee, the corresponding transfer documents shall be executed buyer's full payment of the price is a positive suspensive condition
by the vendor to the vendee for the portion sold." Where the to the coming into effect of the agreement. In the first case, the
vendor promises to execute a deed of absolute sale upon the seller has lost and cannot recover the ownership of the property
completion by the vendee of the payment of the price, the contract unless he takes action to set aside the contract of sale.  In the
is only a contract to sell." The aforecited stipulation shows that the second case, the title simply remains in the seller if the buyer does
vendors reserved title to the subject property until full payment of not comply with the condition precedent of making payment at the
the purchase price. time specified in the contract. Here, it is quite evident that the
contract involved was one of a contract to sell since the Atienzas,
xxx
as sellers, were to retain title of ownership to the land until
respondent Espidol, the buyer, has paid the agreed price. Indeed,
Unfortunately for the Spouses Pacson, since the Deed of there seems no question that the parties understood this to be the
Conditional Sale executed in their favor was merely a contract to case.
Admittedly, Espidol was unable to pay the second installment of
P1,750,000.00 that fell due in December 2002.  That payment, c) ?1,200,000.00 to be paid in installments as follows:
said both the RTC and the CA, was a positive suspensive condition
1. ?200,000.00 payable on or before January 31, 1991;
failure of which was not regarded a breach in the sense that there
can be no rescission of an obligation (to turn over title) that 2. ?200,000.00 payable on or before June 30, 1991;
did not yet exist since the suspensive condition had not
taken place.  x x x. [Emphases and underscoring supplied] 3. ?800,000.00 payable on or before December 31, 1991;

Note: All the installments shall not bear any interest.

Thus, the Court fully agrees with the CA when it resolved:
"Considering, however, that the Deed of Conditional Sale was not d) ?2,000,000.00 outstanding balance of the mortgage obligation
cancelled by Vendor Reyes (petitioner) and that out of the total as of November 15, 1990 which is hereby assumed by the Second
purchase price of the subject property in the amount of ? Party.
4,200,000.00, the remaining unpaid balance of Tuparan
xxx
(respondent) is only ?805,000.00, a substantial amount of the
purchase price has already been paid.  It is only right and just to
allow Tuparan to pay the said unpaid balance of the purchase price 3. That the Third Party hereby acknowledges receipts from the
to Reyes."[10] Second Party P278,078.13 as partial payment of the loan obligation
of First Party in order to reduce the account to only ?2,000,000.00
Granting that a rescission can be permitted under Article 1191, the as of November 15, 1990 to be assumed by the Second Party
Court still cannot allow it for the reason that, considering the effective November 15, 1990.[12]
circumstances, there was only a slight or casual breach in the
fulfillment of the obligation.
From the records, it cannot be denied that respondent paid to FSL
Unless the parties stipulated it, rescission is allowed only when the Bank petitioner's mortgage obligation in the amount of ?
breach of the contract is substantial and fundamental to the 2,278,078.13, which formed part of the purchase price of the
fulfillment of the obligation. Whether the breach is slight or subject property. Likewise, it is not disputed that respondent paid
substantial is largely determined by the attendant circumstances. directly to petitioner the amount of ?721,921.87 representing the
[11]
 In the case at bench, the subject contract stipulated the additional payment for the purchase of the subject property.
following important provisions: Clearly, out of the total price of ?4,200,000.00, respondent was
able to pay the total amount of ?3,000,000.00, leaving a balance of
2. That the purchase price of ?4,200,000.00 shall be paid as ?1,200,000.00 payable in three (3) installments.
follows:
Out of the ?1,200,000.00 remaining balance, respondent paid on
a) ?278,078.13 received in cash by the First Party but directly paid several dates the first and second installments of ?200,000.00
to the Third Party as partial payment of the mortgage obligation of each. She, however, failed to pay the third and last installment of ?
the First Party in order to reduce the amount to ?2,000,000.00 800,000.00 due on December 31, 1991. Nevertheless, on August
only as of November 15, 1990; 31, 1992, respondent, through counsel, offered to pay the amount
of ?751,000.00, which was rejected by petitioner for the reason
b) ?721,921.87 received in cash by the First Party as additional that the actual balance was ?805,000.00 excluding the interest
payment of the Second Party; charges.
Considering that out of the total purchase price of ?4,200,000.00, allowed only in addition to any of the four kinds of damages
respondent has already paid the substantial amount of ? mentioned.
3,400,000.00, more or less, leaving an unpaid balance of only ?
805,000.00, it is right and just to allow her to settle, within a
WHEREFORE, the petition is DENIED.
reasonable period of time, the balance of the unpaid purchase
price. The Court agrees with the courts below that the respondent
SO ORDERED.
showed her sincerity and willingness to comply with her obligation
when she offered to pay the petitioner the amount of ?751,000.00.

On the issue of interest, petitioner failed to substantiate her claim

that respondent made a personal commitment to pay a 6%
monthly interest on the ?805,000.00 from the date of delinquency,
December 31, 1991. As can be gleaned from the contract, there
was a stipulation stating that: "All the installments shall not bear
interest." The CA was, however, correct in imposing interest at the
rate of 6% per annum starting from the filing of the complaint on
September 11, 1992.

Finally, the Court upholds the ruling of the courts below regarding
the non-imposition of damages and attorney's fees. Aside from
petitioner's self-serving statements, there is not enough evidence
on record to prove that respondent acted fraudulently and
maliciously against the petitioner.  In the case of Heirs of Atienza
v. Espidol,[13] it was stated:

Respondents are not entitled to moral damages because contracts

are not referred to in Article 2219 of the Civil Code, which
enumerates the cases when moral damages may be recovered.
Article 2220 of the Civil Code allows the recovery of moral
damages in breaches of contract where the defendant acted
fraudulently or in bad faith. However, this case involves a contract
to sell, wherein full payment of the purchase price 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.Since there is no breach of
contract in this case, respondents are not entitled to moral
damages.

In the absence of moral, temperate, liquidated or compensatory

damages, exemplary damages cannot be granted for they are
G.R. No. 163244               June 22, 2009 Thereafter, petitioners made the following payments: ₱70,000.00
on October 20, 1994; ₱70,000.00 on November 23, 1994; and
SPOUSES JOSE T. VALENZUELA and GLORIA
₱68,000.00 on December 20, 1994, or a total of ₱208,000.00.
VALENZUELA, Petitioners,
After these payments, petitioners failed to pay the agreed monthly
vs.
installments.
KALAYAAN DEVELOPMENT & INDUSTRIAL
CORPORATION, Respondent. In a letter7 dated September 6, 1995, petitioners requested
Kalayaan that they be issued a deed of sale for the 118 sq. m.
DECISION
portion of the lot where their house was standing, considering that
PERALTA, J.: they no longer had the resources to pay the remaining balance.
They reasoned that, since they had already paid one-half of the
This is a petition for review on certiorari assailing the purchase price, or a total of ₱708,000.00 representing 118 sq. m.
Decision1 dated January 23, 2004 of the Court of Appeals in CA- of the subject property, they should be issued a deed of sale for
G.R. CV No. 69814, and its Resolution2 dated April 20, 2004, the said portion of the property.
denying petitioners’ motion for reconsideration.
In a letter8 dated December 15, 1995, Kalayaan reminded
The factual and procedural antecedents are as follows: petitioners of their unpaid balance and asked that they settle it
within the next few days. In a demand letter9 dated January 30,
Kalayaan Development and Industrial Corporation (Kalayaan) is the
1996, Kalayaan, through counsel, demanded that petitioners pay
owner of a parcel of land covered by Transfer Certificate of Title
their outstanding obligation, including the agreed penalties, within
(TCT) No. T-1330263 issued by the Register of Deeds of Metro
ten (10) days from receipt of the letter, or they would be
Manila, District III. Later, petitioners, Spouses Jose T. Valenzuela
constrained to file the necessary actions against them. Again, in a
and Gloria Valenzuela (Gloria), occupied the said property and
letter10 dated March 30, 1996, Kalayaan gave petitioners another
introduced several improvements thereon.
opportunity to settle their obligation within a period of ten (10)
When Kalayaan discovered that the lot was being illegally occupied days from receipt thereof.1avvphi1
by the petitioners, it demanded that they immediately vacate the
On June 13, 1996, petitioners wrote Atty. Atilano Huaben Lim, then
premises and surrender possession thereof. Petitioners then
counsel of Kalayaan, and requested him to intercede on their
negotiated with Kalayaan to purchase the portion of the lot they
behalf and to propose to Kalayaan that Gloria’s sister, Juliet Flores
were occupying. On August 5, 1994, the parties executed a
Giron (Juliet), was willing to assume payment of the remaining
Contract to Sell4 wherein they stipulated that petitioners would
balance for the 118 sq. m. portion of the subject property at
purchase 236 square meters of the subject property for
₱10,000.00 a month.11 Petitioners stated that they had already
₱1,416,000.00. Petitioners initially gave ₱500,000.00 upon signing
separated the said 118 sq. m. portion and had the property
the contract and agreed to pay the balance of ₱916,000.00 in
surveyed by a licensed geodetic engineer to determine the unpaid
twelve (12) equal monthly installments, or ₱76,333.75 a month
portion of the property that needed to be separated from their lot.
until fully paid.5 The parties also agreed that, in case petitioners
failed to pay any of the installments, they would be liable for On January 20, 1997, March 20, 1997, April 20, 1997, June 20,
liquidated penalty at the rate of 3% a month compounded monthly 1997, July 20, 1997, September 20, 1997, October 20, 1997, and
until fully paid. It was also stipulated that Kalayaan shall execute December 20, 1997, Juliet made payments of ₱10,000.00 per
the corresponding deed of absolute sale over the subject property month to Kalayaan, which the latter accepted for and in behalf of
only upon full payment of the total purchase price.6 her sister Gloria.12
Thereafter, Kalayaan’s in-house counsel, Atty. Reynaldo Romero, IT RULED THAT THE PRINCIPLE OF NOVATION OF AN EXISTING
demanded that petitioners pay their outstanding obligation. OBLIGATION IS NOT APPLICABLE IN THE INSTANT CASE;
However, his demands remained unheeded. Thus, on June 19,
IT RULED THAT THE PRINCIPLE OF RESCISSION IS APPLICABLE IN
1998, Kalayaan filed a Complaint for Rescission of Contract and
THE CASE AND THAT THE PLAINTIFF-APPELLEE IS ENTITLED
Damages13 against petitioners before the Regional Trial Court
THERETO VIS-À-VIS THE DEFENDANTS-APPELLANTS;
(RTC) of Caloocan City, Branch 126, which was later docketed as
Civil Case No. C-18378. IT FAILED TO RULE THAT THE PLAINTIFF-APPELLEE IS BARRED BY
ESTOPPEL FROM ASKING FOR THE RESCISSION OF THE
On September 3, 1998, petitioners filed their Answer with
CONTRACT TO SELL.
Counterclaim14 praying, among other things, that the RTC dismiss
the complaint and for Kalayaan to deliver the corresponding TCT to IT RULED THAT THE DEFENDANTS-APPELLANTS DID NOT HAVE
the subject property, so that the same may be cancelled and a new THE FINANCIAL CAPACITY TO PAY THE REMAINING BALANCE OF
one issued in the name of the petitioners. Petitioners also prayed THE OBLIGATION AND THAT, CONSEQUENTLY, COMPLIANCE WITH
for the award of exemplary damages, moral damages, attorney’s THE TERMS OF THE SAID OBLIGATION HAS BECOME IMPOSSIBLE.
fees, and cost of suit.15
IT RULED THAT THE PLAINTIFF-APPELLEE IS ENTITLED TO ITS
After filing their respective pleadings, trial on the merits ensued. CLAIM FOR ATTORNEY’S FEES AND THE COST OF SUIT.18
On August 2, 2000, the RTC rendered a Decision16 in favor of
Kalayaan, rescinding the contract between the parties; ordering On January 23, 2004, the CA rendered a Decision affirming the
the petitioners to vacate the premises; and to pay the amount of Decision of the RTC, the dispositive portion of which reads:
₱100,000.00 as attorney’s fees. The decretal portion of the
WHEREFORE, premises considered, the assailed decision dated
Decision reads:
August 2, 2000 is hereby AFFIRMED, and the present appeal is
IN VIEW OF ALL THE FOREGOING, judgment is hereby rendered hereby DISMISSED for lack of merit.
rescinding the contract between the plaintiff and the defendants
SO ORDERED. (Emphasis supplied.)19
and ordering the defendants and all persons claiming rights under
them to vacate the premises and to surrender possession thereof Petitioners filed a Motion for Reconsideration, 20 but it was denied
to the plaintiff. Moreover, defendants shall pay the amount of for lack of merit in a Resolution21 dated April 20, 2004.
₱100,000.00 as attorney’s fees.
Hence, the present petition assigning the following errors:
The counterclaim of the defendants is hereby ordered DISMISSED
for lack of merit. I. THE HONORABLE COURT OF APPEALS ERRED IN FAILING TO
APPLY THE PROVISIONS OF THE NEW CIVIL CODE REGARDING
SO ORDERED.17 SUBSTANTIAL PERFORMANCE IN THE JUST RESOLUTION OF THE
PETITIONERS’ APPEAL.
Aggrieved, petitioners sought recourse before the Court of Appeals
(CA) in their appeal docketed as CA-G.R. CV No. 163244. II. THE HONORABLE COURT OF APPEALS SHOULD HAVE APPLIED
Petitioners argued that the RTC erred when: THE APPLICABLE PROVISIONS OF THE LAW VIS-À-VIS THE
RESCISSION OF CONTRACTS TO SELL REAL PROPERTY,
IT RULED THAT THE PLAINTIFF-APPELLEE MADE A VALID FORMAL
SPECIFICALLY THE REQUIREMENT OF A PRIOR AND VALIDLY
DEMAND UPON THE DEFENDANTS-APPELANTS TO PAY THE
NOTARIZED LETTER OF DEMAND.
LATTER’S DUE AND OUTSTANDING OBLIGATION;
III. THE HONORABLE COURT OF APPEALS FAILED TO APPLY TO them, was unfounded, since the contract sought to be rescinded
THE INSTANT CASE THE PERTINENT PROVISIONS OF THE NEW was no longer in existence.
CIVIL CODE REGARDING THE PRINCIPLE OF NOVATION AS A
Finally, petitioners question the RTC’s award of attorney’s fees.
MODE OF EXTINGUISHING AN OBLIGATION.
They maintain that there was no basis for the RTC to have awarded
IV. THE AWARD, BY THE COURT OF APPEALS, OF ATTORNEY’S the same. They claim that Kalayaan was not forced, by their acts,
FEES, WAS NOT IN ACCORD WITH THE FACTS AND THE LAW. to litigate, because Juliet was offering to pay the installments, but
the offer was denied by Kalayaan. Moreover, since there were no
Petitioners maintain that they should have been entitled to get at
awards for moral and exemplary damages, the award of attorney’s
least one-half of the subject property, because payment equivalent
fees would have no basis and should be deleted.
to its value has been made to, and received by Kalayaan.
Petitioners posit that the RTC should have applied Article 123422 of The petition is devoid of merit.
the Civil Code to the present case, considering that it has been
In the present case, the nature and characteristics of a contract to
factually established that they were able to pay at least one-half of
sell is determinative of the propriety of the remedy of rescission
the total obligation in good faith.
and the award of attorney’s fees.
Petitioners contend that Kalayaan allowed Juliet to continue with
Under a contract to sell, the seller retains title to the thing to be
the payment of the other half of the property in installments of
sold until the purchaser fully pays the agreed purchase price. The
₱10,000.00 a month. They also insist that they or Juliet was not
full payment is a positive suspensive condition, the non-fulfillment
given proper demand. They maintain that the demand letters that
of which is not a breach of contract, but merely an event that
were previously sent to them were for their previous obligation
prevents the seller from conveying title to the purchaser. The non-
with Kalayaan and not for the new agreement between Juliet and
payment of the purchase price renders the contract to sell
Kalayaan to assume payment of the unpaid portion of the subject
ineffective and without force and effect.23 Unlike a contract of sale,
property. Petitioners aver that, for a demand of rescission to be
where the title to the property passes to the vendee upon the
valid, it is an absolute requirement that should be made by way of
delivery of the thing sold, in a contract to sell, ownership is, by
a duly notarized written notice.
agreement, reserved to the vendor and is not to pass to the
Petitioners likewise claim that there was a valid novation in the vendee until full payment of the purchase price. Otherwise stated,
present case. They aver that the CA failed to see that the original in a contract of sale, the vendor loses ownership over the property
contract between the petitioners and Kalayaan was altered, and cannot recover it until and unless the contract is resolved or
changed, modified and restructured, as a consequence of the rescinded; whereas, in a contract to sell, title is retained by the
change in the person of the principal debtor and the monthly vendor until full payment of the purchase price. In the latter
amortization to be paid for the subject property. When they agreed contract, payment of the price is a positive suspensive condition,
to a monthly amortization of ₱10,000.00 per month, the original failure of which is not a breach but an event that prevents the
contract was changed; and Kalayaan recognized Juliet’s capacity to obligation of the vendor to convey title from becoming effective.24
pay, as well as her designation as the new debtor. The original
Since the obligation of respondent did not arise because of the
contract was novated and the principal obligation to pay for the
failure of petitioners to fully pay the purchase price, Article
remaining half of the subject property was transferred from
119125 of the Civil Code would have no application.
petitioners to Juliet. When Kalayaan accepted the payments made
by the new debtor, Juliet, it waived its right to rescind the previous Rayos v. Court of Appeals26 elucidates:
contract. Thus, the action for rescission filed by Kalayaan against
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 Juliet was allegedly designated as the new debtor and substituted
respondents until the payment of the purchase price of the the petitioners in paying the balance of the purchase price.
property in full. Such payment is a positive suspensive condition,
Novation is the extinguishment of an obligation by the substitution
failure of which is not really a breach, serious or otherwise, but an
or change of the obligation by a subsequent one which
event that prevents the obligation of the petitioners to convey title
extinguishes or modifies the first, either by changing the object or
from arising, in accordance with Article 1184 of the Civil Code. x x
principal conditions, or by substituting another in place of the
x
debtor, or by subrogating a third person in the rights of the
xxxx creditor.29

The non-fulfillment by the respondent of his obligation to pay, Article 1292 of the Civil Code provides that "[i]n order that an
which is a suspensive condition to the obligation of the petitioners obligation may be extinguished by another which substitutes the
to sell and deliver the title to the property, rendered the contract to same, it is imperative that it be so declared in unequivocal terms,
sell ineffective and without force and effect. The parties stand as if or that the old and the new obligations be on every point
the conditional obligation had never existed. Article 1191 of the incompatible with each other." Novation is never presumed. Parties
New Civil Code will not apply because it presupposes an obligation to a contract must expressly agree that they are abrogating their
already extant. There can be no rescission of an obligation that is old contract in favor of a new one. In the absence of an express
still non-existing, the suspensive condition not having happened. agreement, novation takes place only when the old and the new
obligations are incompatible on every point.30 The test of
The parties’ contract to sell explicitly provides that Kalayaan "shall
incompatibility is whether or not the two obligations can stand
execute and deliver the corresponding deed of absolute sale over"
together, each one having its independent existence. If they
the subject property to the petitioners "upon full payment of the
cannot, they are incompatible and the latter obligation novates the
total purchase price." Since petitioners failed to fully pay the
first.31
purchase price for the entire property, Kalayaan’s obligation to
convey title to the property did not arise. Thus, Kalayaan may Thus, in order that a novation can take place, the concurrence of
validly cancel the contract to sell its land to petitioner, not because the following requisites are indispensable:
it had the power to rescind the contract, but because their
1) There must be a previous valid obligation;
obligation thereunder did not arise.
2) There must be an agreement of the parties concerned to a new
Petitioners failed to pay the balance of the purchase price. Such
contract;
payment is a positive suspensive condition, failure of which is not a
breach, serious or otherwise, but an event that prevents the 3) There must be the extinguishment of the old contract; and
obligation of the seller to convey title from arising.27 The non-
fulfillment by petitioners of their obligation to pay, which is a 4) There must be the validity of the new contract.
suspensive condition for the obligation of Kalayaan to sell and
In the instant case, none of the requisites are present. There is
deliver the title to the property, rendered the Contract to Sell
only one existing and binding contract between the parties,
ineffective and without force and effect. The parties stand as if the
because Kalayaan never agreed to the creation of a new contract
conditional obligation had never existed.28 Inasmuch as the
between them or Juliet. True, petitioners may have offered that
suspensive condition did not take place, Kalayaan cannot be
they be substituted by Juliet as the new debtor to pay for the
compelled to transfer ownership of the property to petitioners.
remaining obligation. Nonetheless, Kalayaan did not acquiesce to
As regards petitioners’ claim of novation, we do not give credence the proposal.
to petitioners’ assertion that the contract to sell was novated when
Its acceptance of several payments after it demanded that actual damages suffered by the party to whom it is awarded, as he
petitioners pay their outstanding obligation did not modify their was constrained to engage the services of a counsel to represent
original contract. Petitioners, admittedly, have been in default; and him for the protection of his interest.35 Thus, although the award of
Kalayaan’s acceptance of the late payments is, at best, an act of attorney’s fees to Kalayaan was warranted by the circumstances
tolerance on the part of Kalayaan that could not have modified the obtained in this case, we find it equitable to reduce the award from
contract. ₱100,000.00 to ₱50,000.00.

As to the partial payments made by petitioners from September WHEREFORE, premises considered, the Decision of the Regional
16, 1994 to December 20, 1997, amounting to ₱788,000.00, this Trial Court in Civil Case No. C-18378, dated August 2, 2000, is
Court resolves that the said amount be returned to the petitioners, hereby MODIFIED to the extent that the contract between the
there being no provision regarding forfeiture of payments made in parties is cancelled and the attorney’s fees is reduced to
the Contract to Sell. To rule otherwise will be unjust enrichment on ₱50,000.00. Respondent is further ordered to refund the amount
the part of Kalayaan at the expense of the petitioners. paid by the petitioners after deducting the penalty interest due. In
all other aspects, the Decision stands.
Also, the three percent (3%) penalty interest appearing in the
contract is patently iniquitous and unconscionable as to warrant Subject to the above disquisitions, the Decision dated January 23,
the exercise by this Court of its judicial discretion. Article 2227 of 2004 and the Resolution dated April 20, 2004, of the Court of
the Civil Code provides that "[l]iquidated damages, whether Appeals in CA-G.R. CV No. 69814, are AFFIRMED.
intended as an indemnity or a penalty, shall be equitably reduced if
SO ORDERED.
they are iniquitous or unconscionable." A perusal of the Contract to
Sell reveals that the three percent (3%) penalty interest on unpaid
monthly installments (per condition No. 3) would translate to a
yearly penalty interest of thirty-six percent (36%).

Although this Court on various occasions has eliminated altogether

the three percent (3%) penalty interest for being
unconscionable,32 We are not inclined to do the same in the present
case. A reduction is more consistent with fairness and equity. We
should not lose sight of the fact that Kalayaan remains an unpaid
seller and that it has suffered, one way or another, from
petitioners’ non-performance of its contractual obligations. In view
of such glaring reality, We invoke the authority granted to us by
Article 122933 of the Civil Code, and as equity dictates, the penalty
interest is accordingly reimposed at a reduced rate of one percent
(1%) interest per month, or twelve percent (12%) per annum, 34 to
be deducted from the partial payments made by the
petitioners.1avvphi1

As to the award of attorney’s fees, the undeniable source of the

present controversy is the failure of petitioners to pay the balance
of the purchase price. It is elementary that when attorney’s fees is
awarded, they are so adjudicated, because it is in the nature of
[G.R. NO. 139173 : February 28, 2007] On March 28, 1990, respondent, through his counsel Atty.
Ponciano Espiritu, wrote petitioners informing them of his readiness
SPOUSES ONNIE SERRANO AND AMPARO
to pay the balance of the contract price and requesting them to
HERRERA, Petitioners v. GODOFREDO CAGUIAT, Respondent.
prepare the final deed of sale.3
DECISION
On April 4, 1990, petitioners, through Atty. Ruben V. Lopez, sent a
SANDOVAL-GUTIERREZ, J.: letter4 to respondent stating that petitioner Amparo Herrera is
leaving for abroad on or before April 15, 1990 and that they are
Before us is a Petition for Review on Certiorari under Rule 45 of the canceling the transaction. Petitioners also informed respondent
1997 Rules of Civil Procedure, as amended, assailing the that he can recover the earnest money of P100,000.00 anytime.
Decision1 of the Court of Appeals dated January 29, 1999 and its
Resolution dated July 14, 1999 in CA-G.R. CV No. 48824. Again, on April 6, 1990,5 petitioners wrote respondent stating that
they delivered to his counsel Philippine National Bank Manager's
Spouses Onnie and Amparo Herrera, petitioners, are the registered Check No. 790537 dated April 6, 1990 in the amount
owners of a lot located in Las Piñas, Metro Manila covered by of P100,000.00 payable to him.
Transfer Certificate of Title No. T-9905.
In view of the cancellation of the contract by petitioners,
Sometime in March 1990, Godofredo Caguiat, respondent, offered respondent filed with the Regional Trial Court, Branch 63, Makati
to buy the lot. Petitioners agreed to sell it at P1,500.00 per City a complaint against them for specific performance and
square meter. Respondent then gave petitioners P100,000.00 as damages, docketed as Civil Case No. 90-1067.6
partial payment. In turn, petitioners gave respondent the
corresponding receipt stating that respondent promised to pay the On June 27, 1994, after hearing, the trial court rendered its
balance of the purchase price on or before March 23, 1990, thus: Decision7 finding there was a perfected contract of sale between
the parties and ordering petitioners to execute a final deed of sale
Las Piñas, Metro Manila in favor of respondent. The trial court held:
March 19, 1990 xxx
RECEIPT FOR PARTIAL PAYMENT OF LOT NO. 23 COVERED BY TCT In the evaluation of the evidence presented by the parties as to the
NO. T-9905, LAS PIÑAS, METRO MANILA issue as to who was ready to comply with his obligation on the
verbal agreement to sell on March 23, 1990, shows that plaintiff's
RECEIVED FROM MR. GODOFREDO CAGUIAT THE AMOUNT OF ONE
position deserves more weight and credibility. First,
HUNDRED THOUSAND PESOS (P100,000.00) AS PARTIAL
the P100,000.00 that plaintiff paid whether as downpayment or
PAYMENT OF OUR LOT SITUATED IN LAS PIÑAS, M.M. COVERED
earnest money showed that there was already a perfected
BY TCT NO. T-9905 AND WITH AN AREA OF 439 SQUARE METERS.
contract. Art. 1482 of the Civil Code of the Philippines, reads as
MR. CAGUIAT PROMISED TO PAY THE BALANCE OF THE PURCHASE follows, to wit:
PRICE ON OR BEFORE MARCH 23, 1990, AND THAT WE WILL
'Art. 1482. Whenever earnest money is given in a contract of sale,
EXECUTE AND SIGN THE FINAL DEED OF SALE ON THIS DATE.
it shall be considered as part of the price and as proof of the
SIGNED THIS 19th DAY OF MARCH, 1990 AT LAS PIÑAS, M.M. perfection of the contract.'

(SGD) AMPARO HERRERA :     (SGD) ONNIE SERRANO"2 Second, plaintiff was the first to react to show his eagerness to
push through with the sale by sending defendants the letter dated
March 25, 1990. (Exh. 'D' ) and reiterated the same intent to
pursue the sale in a letter dated April 6, 1990. Third, plaintiff had We are not convinced.
the balance of the purchase price ready for payment (Exh. 'C' ).
In San Miguel Properties Philippines, Inc. v. Spouses Huang, 13 we
Defendants' mere allegation that it was plaintiff who did not appear
held that the stages of a contract of sale are: (1) negotiation,
on March 23, 1990 is unavailing. Defendants' letters (Exhs. '2' and
covering the period from the time the prospective contracting
'5' ) appear to be mere afterthought.
parties indicate interest in the contract to the time the contract is
On appeal, the Court of Appeals, in its assailed Decision of January perfected; (2) perfection, which takes place upon the concurrence
29, 1999, affirmed the trial court's judgment. of the essential elements of the sale, which is the meeting of the
minds of the parties as to the object of the contract and upon the
Forthwith, petitioners filed their motion for reconsideration but it
price; and (3) consummation, which begins when the parties
was denied by the appellate court in its Resolution8 dated July 14,
perform their respective undertakings under the contract of sale,
1999.
culminating in the extinguishment thereof.
Hence, the present recourse.
With the above postulates as guidelines, we now proceed to
The basic issue to be resolved is whether the document entitled determine the real nature of the contract entered into by the
"Receipt for Partial Payment" signed by both parties earlier parties.
mentioned is a contract to sell or a contract of sale.
It is a canon in the interpretation of contracts that the words used
Petitioners contend that the Receipt is not a perfected contract of therein should be given their natural and ordinary meaning unless
sale as provided for in Article 14589 in relation to Article 147510 of a technical meaning was intended.14 Thus, when petitioners
the Civil Code. The delivery to them of P100,000.00 as down declared in the said "Receipt for Partial Payment" that they '
payment cannot be considered as proof of the perfection of a
RECEIVED FROM MR. GODOFREDO CAGUIAT THE AMOUNT OF ONE
contract of sale under Article 148211 of the same Code since there
HUNDRED THOUSAND PESOS (P100,000.00) AS PARTIAL
was no clear agreement between the parties as to the
PAYMENT OF OUR LOT SITUATED IN LAS PIÑAS, M.M. COVERED
amount of consideration.
BY TCT NO. T-9905 AND WITH AN AREA OF 439 SQUARE METERS.
Generally, the findings of fact of the lower courts are entitled to
MR. CAGUIAT PROMISED TO PAY THE BALANCE OF THE PURCHASE
great weight and should not be disturbed except for cogent
PRICE ON OR BEFORE MARCH 23, 1990, AND THAT WE WILL
reasons.14 Indeed, they should not be changed on appeal in the
EXECUTE AND SIGN THE FINAL DEED OF SALE ON THIS DATE.
absence of a clear showing that the trial court overlooked,
disregarded, or misinterpreted some facts of weight and there can be no other interpretation than that they agreed to a
significance, which if considered would have altered the conditional contract of sale, consummation of which is subject only
result of the case.ςηαñrοblεš νιr†υαl lαω lιbrαrÿ 12 In the present to the full payment of the purchase price.
case, we find that both the trial court and the Court of Appeals
A contract to sell is akin to a conditional sale where the efficacy or
interpreted some significant facts resulting in an erroneous
obligatory force of the vendor's obligation to transfer title is
resolution of the issue involved.
subordinated to the happening of a future and uncertain event, so
In holding that there is a perfected contract of sale, both courts that if the suspensive condition does not take place, the parties
mainly relied on the earnest money given by respondent to would stand as if the conditional obligation had never existed. The
petitioners. They invoked Article 1482 of the Civil Code which suspensive condition is commonly full payment of the
provides that "Whenever earnest money is given in a contract of purchase price.15
sale, it shall be considered as part of the price and as proof of the
perfection of the contract."
The differences between a contract to sell and a contract of sale It is true that Article 1482 of the Civil Code provides that
are well-settled in jurisprudence. As early as 1951, in Sing Yee v. "Whenever earnest money is given in a contract of sale, it shall be
Santos,16 we held that: considered as part of the price and proof of the perfection of the
contract." However, this article speaks of earnest money given in
x x x [a] distinction must be made between a contract of sale in
a contract of sale. In this case, the earnest money was given in
which title passes to the buyer upon delivery of the thing sold and
a contract to sell. The earnest money forms part of the
a contract to sell x x x where by agreement the ownership is
consideration only if the sale is consummated upon full payment of
reserved in the seller and is not to pass until the full payment, of
the purchase price.21 Now, since the earnest money was given in a
the purchase price is made. In the first case, non-payment of the
contract to sell, Article 1482, which speaks of a contract of sale,
price is a negative resolutory condition; in the second case, full
does not apply.
payment is a positive suspensive condition. Being contraries, their
effect in law cannot be identical. In the first case, the vendor has As previously discussed, the suspensive condition (payment of the
lost and cannot recover the ownership of the land sold until and balance by respondent) did not take place. Clearly, respondent
unless the contract of sale is itself resolved and set aside. In the cannot compel petitioners to transfer ownership of the property to
second case, however, the title remains in the vendor if the vendee him.
does not comply with the condition precedent of making payment
WHEREFORE, we GRANT the instant Petition for Review. The
at the time specified in the contract.
challenged Decision of the Court of Appeals is REVERSED and
In other words, in a contract to sell, ownership is retained by the respondent's complaint is DISMISSED.
seller and is not to pass to the buyer until full payment of the
SO ORDERED.
price.17

In this case, the "Receipt for Partial Payment" shows that the true
agreement between the parties is a contract to sell.

First, ownership over the property was retained by petitioners and

was not to pass to respondent until full payment of the purchase
price. Thus, petitioners need not push through with the sale should
respondent fail to remit the balance of the purchase price before
the deadline on March 23, 1990. In effect, petitioners have the
right to rescind unilaterally the contract the moment respondent
fails to pay within the fixed period.18

Second, the agreement between the parties was not embodied in a

deed of sale. The absence of a formal deed of conveyance is a
strong indication that the parties did not intend immediate transfer
of ownership, but only a transfer after full payment of the purchase
price.19

Third, petitioners retained possession of the certificate of title of

the lot. This is an additional indication that the agreement did not
transfer to respondent, either by actual or constructive delivery,
ownership of the property.20
G.R. No. 161318               November 25, 2009 a. That the sum of ₱13,000.00, more or less, on or before
February 21, 1977 and which amount will be paid directly to the
JULIE NABUS,* MICHELLE NABUS* and BETTY
PNB, La Trinidad Branch, and which will form part of the purchase
TOLERO, Petitioners,
price;
vs.
JOAQUIN PACSON and JULIA PACSON, Respondents. b. That after paying the above amount to the PNB, La Trinidad,
Benguet branch, a balance of about ₱17,500.00 remains as my
DECISION
mortgage balance and this amount will be paid by the VENDEE
PERALTA, J.: herein at the rate of not less than ₱3,000.00 a month beginning
March 1977, until the said mortgage balance is fully liquidated, and
This is a petition for review on certiorari 1 of the Decision2 of the that all payments made by the VENDEE to the PNB, La Trinidad,
Court of Appeals in CA-G.R. CV No. 44941 dated November 28, Benguet branch, shall form part of the consideration of this sale;
2003. The Court of Appeals affirmed with modification the Decision
of the Regional Trial Court of La Trinidad, Benguet, Branch 10, c. That, as soon as the mortgage obligation with the PNB as cited
ordering petitioner Betty Tolero to execute a deed of absolute sale above is fully paid, then the VENDEE herein hereby obligates
in favor of respondents, spouses Joaquin and Julia Pacson, over the himself, his heirs and assigns, to pay the amount of not less than
lots covered by Transfer Certificate of Title (TCT) Nos. T-18650 and ₱2,000.00 a month in favor of the VENDOR, his heirs and assigns,
T-18651 upon payment to her by respondents of the sum of until the full amount of ₱170,000.00 is fully covered (including the
₱57,544.[8]4 representing the balance due for the full payment of payments cited in Pars. a and b above);
the property subject of this case; and ordering petitioner Betty
THAT, as soon as the full consideration of this sale has been paid
Tolero to surrender to respondents her owner’s duplicate copy of
by the VENDEE, the corresponding transfer documents shall be
TCT Nos. T-18650 and T-18651.
executed by the VENDOR to the VENDEE for the portion sold;
The facts, as stated by the trial court,3 are as follows:
THAT, the portion sold is as shown in the simple sketch hereto
The spouses Bate and Julie Nabus were the owners of parcels of attached as Annex "A" and made part hereof;
land with a total area of 1,665 square meters, situated in Pico, La
THAT, a segregation survey for the portion sold in favor of the
Trinidad, Benguet, duly registered in their names under TCT No. T-
VENDEE and the portion remaining in favor of the VENDOR shall be
9697 of the Register of Deeds of the Province of Benguet. The
executed as soon as possible, all at the expense of the VENDEE
property was mortgaged by the Spouses Nabus to the Philippine
herein;
National Bank (PNB), La Trinidad Branch, to secure a loan in the
amount of ₱30,000.00. THAT, it is mutually understood that in as much as there is a claim
by other persons of the entire property of which the portion subject
On February 19, 1977, the Spouses Nabus executed a Deed of
of this Instrument is only a part, and that this claim is now the
Conditional Sale4 covering 1,000 square meters of the 1,665
subject of a civil case now pending before Branch III of the Court
square meters of land in favor of respondents Spouses Pacson for a
of First Instance of Baguio and Benguet, should the VENDOR herein
consideration of ₱170,000.00, which was duly notarized on
be defeated in the said civil action to the end that he is divested of
February 21, 1977. The consideration was to be paid, thus:
title over the area subject of this Instrument, then he hereby
THAT, the consideration of the amount of ₱170,000.00 will be paid warrants that he shall return any and all monies paid by the
by the VENDEE herein in my favor in the following manner: VENDEE herein whether paid to the PNB, La Trinidad, Benguet
Branch, or directly received by herein VENDOR, all such monies to
be returned upon demand by the VENDEE;
THAT, [a] portion of the parcel of land subject of this instrument is the second husband of Julie Nabus, Gereon Quan. Maxima Nabus is
presently in the possession of Mr. Marcos Tacloy, and the VENDOR the mother of Bate Nabus, while Sylvia Reyes is a niece.
agrees to cooperate and assist in any manner possible in the
The receipts showed that the total sum paid by respondents to the
ouster of said Mr. Marcos Tacloy from said possession and
Spouses Nabus was ₱112,455.16,14 leaving a balance of
occupation to the end that the VENDEE herein shall make use of
₱57,544.84. The sum of ₱30,000.00 which was the value of the
said portion as soon as is practicable;
pick-up truck allegedly sold and delivered in 1978 to the Spouses
THAT, finally, the PARTIES hereby agree that this Instrument shall Nabus, was not considered as payment because the registration
be binding upon their respective heirs, successors or assigns. 5 papers remained in the name of its owner, Dominga D. Pacson,
who is the sister of Joaquin Pacson. The vehicle was also returned
Pursuant to the Deed of Conditional Sale, respondents paid PNB
to respondents.
the amount of ₱12,038.86 on February 22, 19776 and ₱20,744.30
on July 17, 19787 for the full payment of the loan. During the last week of January 1984, Julie Nabus, accompanied
by her second husband, approached Joaquin Pacson to ask for the
At the time of the transaction, Mr. Marcos Tacloy had a basket-
full payment of the lot. Joaquin Pacson agreed to pay, but told her
making shop on the property, while the spouses Delfin and Nelita
to return after four days as his daughter, Catalina Pacson, would
Flores had a store. Tacloy and the Spouses Flores vacated the
have to go over the numerous receipts to determine the balance to
property after respondents paid them ₱4,000.00 each.
be paid. When Julie Nabus returned after four days, Joaquin sent
Thereafter, respondents took possession of the subject property. her and his daughter, Catalina, to Atty. Elizabeth Rillera for the
They constructed an 80 by 32-feet building and a steel-matting execution of the deed of absolute sale. Since Julie was a widow
fence around the property to house their truck body-building shop with a minor daughter, Atty. Rillera required Julie Nabus to return
which they called the "Emiliano Trucking Body Builder and Auto in four days with the necessary documents, such as the deed of
Repair Shop." extrajudicial settlement, the transfer certificate of title in the
names of Julie Nabus and minor Michelle Nabus, and the
On December 24, 1977, before the payment of the balance of the guardianship papers of Michelle. However, Julie Nabus did not
mortgage amount with PNB, Bate Nabus died. On August 17, 1978, return.
his surviving spouse, Julie Nabus, and their minor daughter,
Michelle Nabus, executed a Deed of Extra Judicial Settlement over Getting suspicious, Catalina Pacson went to the Register of Deeds
the registered land covered by TCT No. 9697. On the basis of the of the Province of Benguet and asked for a copy of the title of the
said document, TCT No. T- 177188 was issued on February 17, land. She found that it was still in the name of Julie and Michelle
1984 in the names of Julie Nabus and Michelle Nabus. Nabus.

Meanwhile, respondents continued paying their balance, not in After a week, Catalina Pacson heard a rumor that the lot was
installments of ₱2,000.00 as agreed upon, but in various, often already sold to petitioner Betty Tolero. Catalina Pacson and Atty.
small amounts ranging from as low as ₱10.009 to as high as Rillera went to the Register of Deeds of the Province of Benguet,
₱15,566.00,10 spanning a period of almost seven years, from March and found that Julie Nabus and her minor daughter, Michelle
9, 197711 to January 17, 1984.12 Nabus, represented by the former’s mother as appointed guardian
by a court order dated October 29, 1982, had executed a Deed of
There was a total of 364 receipts of payment,13 which receipts were Absolute Sale in favor of Betty Tolero on March 5, 1984, covering
mostly signed by Julie Nabus, who also signed as Julie Quan when the whole lot comprising 1,665 square meters.15 The property was
she remarried. The others who signed were Bate Nabus; PNB, La described in the deed of sale as comprising four lots: (1) Lot A-2-A,
Trinidad Branch; Maxima Nabus; Sylvia Reyes; Michelle Nabus and with an area of 832 square meters; (2) Lot A-2-B, 168 square
meters; (3) Lot A-2-C, 200 square meters; and (4) Lot A-2-D, 465 During the hearing on the merits, Julie Nabus testified that she
square meters. Lots A-2-A and A-2-B, with a combined area of sold the property to Betty Tolero because she was in need of
1,000 square meters, correspond to the lot previously sold to money. She stated that she was free to sell the property because
Joaquin and Julia Pacson in the Deed of Conditional Sale. the Deed of Conditional Sale executed in favor of the Spouses
Pacson was converted into a contract of lease. She claimed that at
Catalina Pacson and Atty. Rillera also found that the Certificate of
the time when the Deed of Conditional Sale was being explained to
Title over the property in the name of Julie and Michelle Nabus was
them by the notary public, Joaquin Pacson allegedly did not like the
cancelled on March 16, 1984, and four titles to the fours lots were
portion of the contract stating that there was a pending case in
issued in the name of Betty Tolero, namely: TCT No. T-1865016 for
court involving the subject property. Consequently, Joaquin Pacson
Lot A-2-A; TCT No. 1865117 for Lot A-2-B; TCT No. T-1865218 for
did not continue to sign the document; hence, the second page of
Lot A-2-C; and T-1865319 for Lot A-2-D.
the document was unsigned.27 Thereafter, it was allegedly their
On March 22, 1984, the gate to the repair shop of the Pacsons was understanding that the Pacsons would occupy the property as
padlocked. A sign was displayed on the property stating "No lessees and whatever amount paid by them would be considered
Trespassing."20 rentals.

On March 26, 1984, Catalina Pacson filed an affidavit-complaint Betty Tolero put up the defense that she was a purchaser in good
regarding the padlocking incident of their repair shop with the faith and for value. She testified that it was Julie Nabus who went
police station at La Trinidad, Benguet. to her house and offered to sell the property consisting of two lots
with a combined area of 1,000 square meters. She consulted Atty.
On March 28, 2008, respondents Joaquin and Julia Pacson filed Aurelio de Peralta before she agreed to buy the property. She and
with the Regional Trial Court of La Trinidad, Benguet (trial court) a Julie Nabus brought to Atty. De Peralta the pertinent papers such
Complaint21 for Annulment of Deeds, with damages and prayer for as TCT No. T-17718 in the names of Julie and Michelle Nabus, the
the issuance of a writ of preliminary injunction.22 They sought the guardianship papers of Michelle Nabus and the blueprint copy of
annulment of (1) the Extra-judicial Settlement of Estate, insofar as the survey plan showing the two lots. After examining the
their right to the 1,000-square-meter lot subject of the Deed of documents and finding that the title was clean, Atty. De Peralta
Conditional Sale23 was affected; (2) TCT No. T-17718 issued in the gave her the go-signal to buy the property.
names of Julie and Michelle Nabus; and (3) the Deed of Absolute
Sale24 in favor of Betty Tolero and the transfer certificates of title Tolero testified that upon payment of the agreed price of
issued pursuant thereto. They also prayed for the award of actual, ₱200,000.00, the Deed of Absolute Sale was executed and
moral and exemplary damages, as well as attorney’s fees. registered, resulting in the cancellation of the title of Julie and
Michelle Nabus and the issuance in her name of TCT Nos. T-18650
In their Answer,25 Julie and Michelle Nabus alleged that respondent and T-1865128 corresponding to the two lots. Thereafter, she asked
Joaquin Pacson did not proceed with the conditional sale of the her common-law husband, Ben Ignacio, to padlock the gate to the
subject property when he learned that there was a pending case property and hang the "No Trespassing" sign.
over the whole property. Joaquin proposed that he would rather
lease the property with a monthly rental of ₱2,000.00 and apply Tolero also testified that as the new owner, she was surprised and
the sum of ₱13,000.00 as rentals, since the amount was already shocked to receive the Complaint filed by the Spouses Pacson. She
paid to the bank and could no longer be withdrawn. Hence, he did admitted that she knew very well the Spouses Pacson, because
not affix his signature to the second page of a copy of the Deed of they used to buy vegetables regularly from her. She had been
Conditional Sale.26 Julie Nabus alleged that in March 1994, due to residing along the highway at Kilometer 4, La Trinidad, Benguet
her own economic needs and those of her minor daughter, she sold since 1971. She knew the land in question, because it was only 50
the property to Betty Tolero, with authority from the court. meters away across the highway. She also knew that the Spouses
Pacson had a shop on the property for the welding and body- expressly stated that they were made in payment of the lot. Not a
building of vehicles. She was not aware of the Deed of Conditional single receipt showed payment for rental.
Sale executed in favor of the Pacsons, and she saw the document
Further, the trial court held that Betty Tolero was not a purchaser
for the first time when Joaquin Pacson showed it to her after she
in good faith as she had actual knowledge of the Conditional Sale
had already bought the property and the title had been transferred
of the property to the Pacsons.
in her name. At the time she was buying the property, Julie Nabus
informed her that the Pacsons were merely renting the property. The trial court stated that the Deed of Conditional Sale contained
She did not bother to verify if that was true, because the Pacsons reciprocal obligations between the parties, thus:
were no longer in the property for two years before she bought it.
THAT, as soon as the full consideration of this sale has been paid
In a Decision dated September 30, 1993, the trial court ruled in by the VENDEE, the corresponding transfer documents shall be
favor of respondents. The dispositive portion of the Decision reads: executed by the VENDOR to the VENDEE for the portion sold;
WHEREFORE, premises considered, judgment is hereby rendered in xxxx
favor of the plaintiffs, ordering defendant Betty Tolero to execute a
deed of absolute sale in favor of the Spouses Joaquin and Julia THAT, finally, the PARTIES hereby agree that this Instrument shall
Pacson over the lots covered by Transfer Certificates of Title Nos. be binding upon their respective heirs, successors or assigns. 31
T-18650 and T-18651 upon payment to her by the plaintiffs of the
In other words, the trial court stated, when the vendees (the
sum of ₱57,544.[8]4 representing the balance due for the full
Spouses Pacson) were already ready to pay their balance, it was
payment of the property subject of this case. In addition to the
the corresponding obligation of the vendors (Nabuses) to execute
execution of a deed of absolute sale, defendant Betty Tolero shall
the transfer documents.
surrender to the plaintiffs her owner’s duplicate copy of Transfer
Certificates of Title Nos. T-18650 and T-18651. The trial court held that "[u]nder Article 1191 of the Civil Code, an
injured party in a reciprocal obligation, such as the Deed of
Defendants Julie Nabus, Michelle Nabus, and Betty Tolero shall also
Conditional Sale in the case at bar, may choose between the
pay the plaintiffs damages as follows: ₱50,000.00 for moral
fulfillment [or] the rescission of the obligation, with the payment of
damages; ₱20,000.00 for exemplary damages; and ₱10,000.00 for
damages in either case." It stated that in filing the case, the
attorney’s fees and expenses for litigation. 29
Spouses Pacson opted for fulfillment of the obligation, that is, the
Two issues determined by the trial court were: (1) Was the Deed of execution of the Deed of Absolute Sale in their favor upon payment
Conditional Sale between the Spouses Pacson and the Nabuses of the purchase price.
converted into a contract of lease? and (2) Was Betty Tolero a
Respondents appealed the decision of the trial court to the Court of
buyer in good faith?
Appeals.
The trial court held that the Deed of Conditional Sale was not
In the Decision dated November 28, 2003, the Court of Appeals
converted into a contract of lease because the original copy of the
affirmed the trial court’s decision, but deleted the award of
contract30 showed that all the pages were signed by all the parties
attorney’s fees. The dispositive portion of the Decision reads:
to the contract. By the presumption of regularity, all other carbon
copies must have been duly signed. The failure of Joaquin Pacson WHEREFORE, finding no reversible error in the September 30, 1993
to sign the second page of one of the carbon copies of the contract Decision of the Regional Trial Court of La Trinidad, Benguet, Branch
was by sheer inadvertence. The omission was of no consequence 10, in Civil Case No. 84-CV-0079, the instant appeal is hereby
since the signatures of the parties in all the other copies of the DISMISSED for lack of merit, and the assailed Decision is hereby
contract were complete. Moreover, all the receipts of payment
AFFIRMED and UPHELD with the modification that the award of VI
attorney’s fees is deleted.32
THE [COURT OF APPEALS] ERRED IN CONSIDERING PETITIONER
Petitioners filed this petition raising the following issues: BETTY TOLERO A BUYER IN BAD FAITH, IGNORING THE
APPLICATION OF THE DOCTRINE IN THE RULING OF THE SUPREME
I
COURT IN THE CASE OF RODOLFO ALFONSO, ET AL. VS. COURT
THE [COURT OF APPEALS] ERRED IN CONSIDERING THE OF APPEALS, G.R. NO. 63745.33
CONTRACT ENTERED INTO BETWEEN THE SPOUSES BATE NABUS
The main issues to be resolved are:
AND JULIE NABUS AND SPOUSES JOAQUIN PACSON AND JULIA
PACSON TO BE A CONTRACT OF SALE. 1) Whether or not the Deed of Conditional Sale was converted into
a contract of lease;
II
2) Whether the Deed of Conditional Sale was a contract to sell or a
THE COURT A QUO ERRED IN FINDING THAT THERE ARE ONLY
contract of sale.
TWO ISSUES IN THE CASE ON APPEAL AND THEY ARE: WHETHER
THE DEED OF CONDITIONAL SALE WAS CONVERTED INTO A As regards the first issue, the Deed of Conditional Sale entered into
CONTRACT OF LEASE; AND THAT [WHETHER] PETITIONER BETTY by the Spouses Pacson and the Spouses Nabus was not converted
TOLERO WAS A BUYER IN GOOD FAITH. into a contract of lease. The 364 receipts issued to the Spouses
Pacson contained either the phrase "as partial payment of lot
III
located in Km. 4" or "cash vale" or "cash vale (partial payment of
THAT THE TRIAL COURT ERRED IN HOLDING THAT lot located in Km. 4)," evidencing sale under the contract and not
[RESPONDENTS’] BALANCE TO THE SPOUSES NABUS UNDER THE the lease of the property. Further, as found by the trial court,
CONDITIONAL SALE IS ONLY ₱57,544.[8]4. Joaquin Pacson’s non-signing of the second page of a carbon copy
of the Deed of Conditional Sale was through sheer inadvertence,
IV since the original contract34 and the other copies of the contract
were all signed by Joaquin Pacson and the other parties to the
THAT ASSUMING WITHOUT ADMITTING THAT PETITIONER BETTY
contract.
TOLERO WAS AWARE OF THE EXISTENCE OF THE DEED OF
CONDITIONAL SALE, THE TRIAL COURT, AS WELL AS THE [COURT On the second issue, petitioners contend that the contract
OF APPEALS], ERRED IN ORDERING PETITIONER BETTY TOLERO executed by the respondents and the Spouses Nabus was a
TO EXECUTE A DEED OF ABSOLUTE SALE IN FAVOR OF THE contract to sell, not a contract of sale. They allege that the contract
[RESPONDENTS] AND TO SURRENDER THE OWNER'S DUPLICATE was subject to the suspensive condition of full payment of the
COPY OF TCT NOS. T-18650 AND T-18651, WHICH WAS NOT consideration agreed upon before ownership of the subject
PRAYED FOR IN THE PRAYER IN THE COMPLAINT. property could be transferred to the vendees. Since respondents
failed to pay the full amount of the consideration, having an unpaid
V
balance of ₱57,544.84, the obligation of the vendors to execute the
THAT THE [COURT OF APPEALS] ERRED IN FINDING BETTY Deed of Absolute Sale in favor of respondents did not arise. Thus,
TOLERO [AS] A BUYER [WHO] FAILED TO TAKE STEPS IN the subsequent Deed of Absolute Sale executed in favor of Betty
INQUIRING FROM THE [RESPONDENTS] THE STATUS OF THE Tolero, covering the same parcel of land was valid, even if Tolero
PROPERTY IN QUESTION BEFORE HER PURCHASE, CONTRARY TO was aware of the previous deed of conditional sale.
FACTS ESTABLISHED BY EVIDENCE.
Moreover, petitioners contend that respondents violated the
stipulated condition in the contract that the monthly installment to
be paid was ₱2,000.00, as respondents gave meager amounts as Coronel v. Court of Appeals37 distinguished a contract to sell from a
low as ₱10.00. contract of sale, thus:

Petitioners also assert that respondents’ allegation that Julie Nabus’ Sale, by its very nature, is a consensual contract because it is
failure to bring the pertinent documents necessary for the perfected by mere consent. The essential elements of a contract of
execution of the final deed of absolute sale, which was the reason sale are the following:
for their not having paid the balance of the purchase price, was
a) Consent or meeting of the minds, that is, consent to transfer
untenable, and a lame and shallow excuse for violation of the Deed
ownership in exchange for the price;
of Conditional Sale. Respondents could have made a valid tender of
payment of their remaining balance, as it had been due for a long b) Determinate subject matter; and
time, and upon refusal to accept payment, they could have
consigned their payment to the court as provided by law. This, c) Price certain in money or its equivalent.
respondents failed to do.
Under this definition, a Contract to Sell may not be considered as a
The Court holds that the contract entered into by the Spouses Contract of Sale because the first essential element is lacking. In a
Nabus and respondents was a contract to sell, not a contract of contract to sell, the prospective seller explicitly reserves the
sale. transfer of title to the prospective buyer, meaning, the prospective
seller does not as yet agree or consent to transfer ownership of the
A contract of sale is defined in Article 1458 of the Civil Code, thus: property subject of the contract to sell until the happening of an
event, which for present purposes we shall take as the full
Art. 1458. By the contract of sale, one of the contracting parties
payment of the purchase price. What the seller agrees or obliges
obligates himself to transfer the ownership of and to deliver a
himself to do is to fulfill his promise to sell the subject property
determinate thing, and the other to pay therefor a price certain in
when the entire amount of the purchase price is delivered to him.
money or its equivalent.
In other words, the full payment of the purchase price partakes of
A contract of sale may be absolute or conditional. a suspensive condition, the non-fulfilment of which prevents the
obligation to sell from arising and, thus, ownership is retained by
Ramos v. Heruela35 differentiates a contract of absolute sale and a
the prospective seller without further remedies by the prospective
contract of conditional sale as follows:
buyer.
Article 1458 of the Civil Code provides that a contract of sale may
xxxx
be absolute or conditional. A contract of sale is absolute when title
to the property passes to the vendee upon delivery of the thing Stated positively, upon the fulfillment of the suspensive condition
sold. A deed of sale is absolute when there is no stipulation in the which is the full payment of the purchase price, the prospective
contract that title to the property remains with the seller until full seller’s obligation to sell the subject property by entering into a
payment of the purchase price. The sale is also absolute if there is contract of sale with the prospective buyer becomes demandable
no stipulation giving the vendor the right to cancel unilaterally the as provided in Article 1479 of the Civil Code which states:
contract the moment the vendee fails to pay within a fixed period.
Art. 1479. A promise to buy and sell a determinate thing for a price
In a conditional sale, as in a contract to sell, ownership remains
certain is reciprocally demandable.
with the vendor and does not pass to the vendee until full payment
of the purchase price. The full payment of the purchase price An accepted unilateral promise to buy or to sell a determinate thing
partakes of a suspensive condition, and non-fulfillment of the for a price certain is binding upon the promissor if the promise is
condition prevents the obligation to sell from arising.36 supported by a consideration distinct from the price.
A contract to sell may thus be defined as a bilateral contract It is not the title of the contract, but its express terms or
whereby the prospective seller, while expressly reserving the stipulations that determine the kind of contract entered into by the
ownership of the subject property despite delivery thereof to the parties. In this case, the contract entitled "Deed of Conditional
prospective buyer, binds himself to sell the said property Sale" is actually a contract to sell. The contract stipulated that "as
exclusively to the prospective buyer upon fulfillment of the soon as the full consideration of the sale has been paid by the
condition agreed upon, that is, full payment of the purchase price. vendee, the corresponding transfer documents shall be executed
by the vendor to the vendee for the portion sold."41 Where the
A contract to sell as defined hereinabove, may not even be
vendor promises to execute a deed of absolute sale upon the
considered as a conditional contract of sale where the seller may
completion by the vendee of the payment of the price, the contract
likewise reserve title to the property subject of the sale until the
is only a contract to sell."42 The aforecited stipulation shows that
fulfillment of a suspensive condition, because in a conditional
the vendors reserved title to the subject property until full payment
contract of sale, the first element of consent is present, although it
of the purchase price.
is conditioned upon the happening of a contingent event which may
or may not occur. If the suspensive condition is not fulfilled, the If respondents paid the Spouses Nabus in accordance with the
perfection of the contract of sale is completely abated. However, if stipulations in the Deed of Conditional Sale, the consideration
the suspensive condition is fulfilled, the contract of sale is thereby would have been fully paid in June 1983. Thus, during the last
perfected, such that if there had already been previous delivery of week of January 1984, Julie Nabus approached Joaquin Pacson to
the property subject of the sale to the buyer, ownership thereto ask for the full payment of the lot. Joaquin Pacson agreed to pay,
automatically transfers to the buyer by operation of law without but told her to return after four days as his daughter, Catalina
any further act having to be performed by the seller. Pacson, would have to go over the numerous receipts to determine
the balance to be paid.
In a contract to sell, upon the fulfillment of the suspensive
condition which is the full payment of the purchase price, When Julie Nabus returned after four days, Joaquin Pacson sent
ownership will not automatically transfer to the buyer although the Julie Nabus and his daughter, Catalina, to Atty. Elizabeth Rillera for
property may have been previously delivered to him. The the execution of the deed of sale. Since Bate Nabus had already
prospective seller still has to convey title to the prospective buyer died, and was survived by Julie and their minor daughter, Atty.
by entering into a contract of absolute sale.38 Rillera required Julie Nabus to return in four days with the
necessary documents such as the deed of extrajudicial settlement,
Further, Chua v. Court of Appeals39 cited this distinction between a
the transfer certificate of title in the names of Julie Nabus and
contract of sale and a contract to sell:
minor Michelle Nabus, and the guardianship papers of Michelle.
In a contract of sale, the title to the property passes to the vendee However, Julie Nabus did not return.
upon the delivery of the thing sold; in a contract to sell, ownership
As vendees given possession of the subject property, the
is, by agreement, reserved in the vendor and is not to pass to the
ownership of which was still with the vendors, the Pacsons should
vendee until full payment of the purchase price. Otherwise stated,
have protected their interest and inquired from Julie Nabus why
in a contract of sale, the vendor loses ownership over the property
she did not return and then followed through with full payment of
and cannot recover it until and unless the contract is resolved or
the purchase price and the execution of the deed of absolute sale.
rescinded; whereas, in a contract to sell, title is retained by the
The Spouses Pacson had the legal remedy of consigning their
vendor until full payment of the price. In the latter contract,
payment to the court; however, they did not do so. A rumor that
payment of the price is a positive suspensive condition, failure of
the property had been sold to Betty Tolero prompted them to
which is not a breach but an event that prevents the obligation of
check the veracity of the sale with the Register of Deeds of the
the vendor to convey title from becoming effective.40
Province of Benguet. They found out that on March 5, 1984, Julie
Nabus sold the same property to Betty Tolero through a Deed of Since the contract to sell was without force and effect, Julie Nabus
Absolute Sale, and new transfer certificates of title to the property validly conveyed the subject property to another buyer, petitioner
were issued to Tolero.1avvphi1 Betty Tolero, through a contract of absolute sale, and on the
strength thereof, new transfer certificates of title over the subject
Thus, the Spouses Pacson filed this case for the annulment of the
property were duly issued to Tolero.51
contract of absolute sale executed in favor of Betty Tolero and the
transfer certificates of title issued in her name. The Spouses Pacson, however, have the right to the
reimbursement of their payments to the Nabuses, and are entitled
Unfortunately for the Spouses Pacson, since the Deed of
to the award of nominal damages. The Civil Code provides:
Conditional Sale executed in their favor was merely a contract to
sell, the obligation of the seller to sell becomes demandable only Art. 2221. Nominal damages are adjudicated in order that a right
upon the happening of the suspensive condition.43 The full payment of the plaintiff, which has been violated or invaded by the
of the purchase price is the positive suspensive condition, the defendant, may be vindicated or recognized, and not for the
failure of which is not a breach of contract, but simply an event purpose of indemnifying the plaintiff for any loss suffered by him.
that prevented the obligation of the vendor to convey title from
Art. 2222. The court may award nominal damages in every
acquiring binding force.44 Thus, for its non-fulfilment, there is no
obligation arising from any source enumerated in article 1157, or in
contract to speak of, the obligor having failed to perform the
every case where any property right has been invaded.
suspensive condition which enforces a juridical relation. 45 With this
circumstance, there can be no rescission or fulfilment of an As stated by the trial court, under the Deed of Conditional Sale,
obligation that is still non-existent, the suspensive condition not respondents had the right to demand from petitioners Julie and
having occurred as yet.46 Emphasis should be made that the breach Michelle Nabus that the latter execute in their favor a deed of
contemplated in Article 1191 of the New Civil Code is the obligor’s absolute sale when they were ready to pay the remaining balance
failure to comply with an obligation already extant, not a failure of of the purchase price. The Nabuses had the corresponding duty to
a condition to render binding that obligation. 47 respect the respondents’ right, but they violated such right, for
they could no longer execute the document since they had sold the
The trial court, therefore, erred in applying Article 1191 of the Civil
property to Betty Tolero.52 Hence, nominal damages in the amount
Code48 in this case by ordering fulfillment of the obligation, that is,
of ₱10,000.00 are awarded to respondents.
the execution of the deed of absolute sale in favor of the Spouses
Pacson upon full payment of the purchase price, which decision Respondents are not entitled to moral damages because contracts
was affirmed by the Court of Appeals. Ayala Life Insurance, Inc. v. are not referred to in Article 221953 of the Civil Code, which
Ray Burton Development Corporation49 held: enumerates the cases when moral damages may be recovered.
Article 222054 of the Civil Code allows the recovery of moral
Evidently, before the remedy of specific performance may be
damages in breaches of contract where the defendant acted
availed of, there must be a breach of the contract.
fraudulently or in bad faith. However, this case involves a contract
Under a contract to sell, the title of the thing to be sold is retained to sell, wherein full payment of the purchase price is a positive
by the seller until the purchaser makes full payment of the agreed suspensive condition, the non-fulfillment of which is not a breach
purchase price. Such payment is a positive suspensive condition, of contract, but merely an event that prevents the seller from
the non-fulfillment of which is not a breach of contract but merely conveying title to the purchaser. Since there is no breach of
an event that prevents the seller from conveying title to the contract in this case, respondents are not entitled to moral
purchaser. The non-payment of the purchase price renders the damages.
contract to sell ineffective and without force and effect. Thus, a
cause of action for specific performance does not arise.50
In the absence of moral, temperate, liquidated or compensatory
damages, exemplary damages cannot be granted for they are
allowed only in addition to any of the four kinds of damages
mentioned.55

WHEREFORE, the petition is GRANTED. The Decision of the Court of

Appeals in CA-G.R. CV No. 44941, dated November 28, 2003, is
REVERSED and SET ASIDE. Judgment is hereby rendered
upholding the validity of the sale of the subject property made by
petitioners Julie Nabus and Michelle Nabus in favor of petitioner
Betty Tolero, as well as the validity of Transfer Certificates of Title
Nos. T-18650 and T-18651 issued in the name of Betty Tolero.
Petitioners Julie Nabus and Michelle Nabus are ordered to
reimburse respondents spouses Joaquin and Julia Pacson the sum
of One Hundred Twelve Thousand Four Hundred Fifty-Five Pesos
and Sixteen Centavos (₱112,455.16), and to pay Joaquin and Julia
Pacson nominal damages in the amount of Ten Thousand Pesos
(₱10,000.00), with annual interest of twelve percent (12%) until
full payment of the amounts due to Joaquin and Julia Pacson.

No costs.

SO ORDERED.
G.R. No. 196251               July 9, 2014 June 8, 2000 1,000,000.00
OLIVAREZ REALTY CORPORATION and DR. PABLO R.
OLIVAREZ, Petitioner, July 8, 2000 500,000.00
vs.
BENJAMIN CASTILLO, Respondent. August 8, 2000 500,000.00
DECISION
September 8, 2000 500,000.00
LEONEN, J.:

Trial may be dispensed with and a summary judgment rendered if October 8, 2000 500,000.00
the case can be resolved judiciously by plain resort to the
7
pleadings, affidavits, depositions, and other papers filed by the November 8, 2000 500,000.00
parties.
As to the balance of ₱14,080,490.00, Olivarez Realty Corporation
This is a petition for review on certiorari1 of the Court of Appeals' agreed to pay in 30 equal monthly installments every eighth day of
decision2 dated July 20, 2010 and resolution3 dated March 18, 2011 the month beginning in the month that the parties would receive a
in CAG.R. CV No. 91244. decision voiding the Philippine Tourism Authority’s title to the
property.8 Under the deed of conditional sale, Olivarez
The facts as established from the pleadings of the parties are as
RealtyCorporation shall file the action against the Philippine
follows:
Tourism Authority "with the full assistance of
Benjamin Castillo was the registered owner of a 346,918- [Castillo]."9 Paragraph C of the deed of conditional sale provides:
squaremeter parcel of land located in Laurel, Batangas, covered by
C. [Olivarez Realty Corporation] assumes the responsibility of
Transfer Certificate of Title No. T-19972.4 The Philippine Tourism
taking necessary legal action thru Court to have the claim/title TCT
Authority allegedly claimed ownership of the sameparcel of land
T-18493 of Philippine Tourism Authority over the above-described
based on Transfer Certificate of Title No. T-18493.5 On April 5,
property be nullified and voided; with the full assistance of
2000, Castillo and Olivarez Realty Corporation, represented by Dr.
[Castillo][.]10
Pablo R. Olivarez, entered into a contract of conditional sale6 over
the property. Under the deed of conditional sale, Castillo agreed to Should the action against the Philippine Tourism Authority be
sell his property to Olivarez Realty Corporation for ₱19,080,490.00. denied, Castillo agreed to reimburse all the amounts paid by
Olivarez Realty Corporation agreed toa down payment of Olivarez Realty Corporation. Paragraph D of the deed of conditional
₱5,000,000.00, to be paid according to the following schedule: sale provides:

DATE AMOUNT D. In the event that the Court denie[s] the petition against the
Philippine Tourism Authority, all sums received by [Castillo] shall
be reimbursed to [Olivarez Realty Corporation] without interest[.] 11
April 8, 2000 500,000.00
As to the "legitimate tenants" occupying the property, Olivarez
May 8, 2000 500,000.00 Realty Corporation undertook to pay them "disturbance
compensation," while Castillo undertook to clear the land of the
May 16, 2000 500,000.00 tenants within six months from the signing of the deed of
conditional sale. Should Castillo fail to clear the land within six
months, Olivarez Realty Corporation may suspend its monthly However, the corporation only paid 2,500,000.00 ofthe purchase
down payment until the tenants vacate the property. Paragraphs E price. Contrary to the agreement, the corporation did not file any
and F of the deed of conditional sale provide: E. That [Olivarez action against the Philippine Tourism Authority to void the latter’s
Realty Corporation] shall pay the disturbance compensation to title to the property. The corporation neither cleared the land of the
legitimate agricultural tenants and fishermen occupants which in no tenants nor paid them disturbance compensation. Despite demand,
case shall exceed ONE MILLION FIVE HUNDRED THOUSAND Olivarez Realty Corporation refused to fully pay the purchase
(₱1,500,000.00) PESOS. Said amountshall not form part of the price.16
purchase price. In excess of this amount, all claims shall be for the
Arguing that Olivarez Realty Corporation committed substantial
account of [Castillo];
breach of the contract of conditional sale and that the deed of
F. That [Castillo] shall clear the land of [the] legitimate tenants conditional sale was a contract of adhesion, Castillo prayed for
within a period of six (6) months upon signing of this Contract, and rescission of contract under Article 1191 of the Civil Code of the
in case [Castillo] fails, [Olivarez Realty Corporation] shall have the Philippines. He further prayed that Olivarez Realty Corporation and
right to suspend the monthly down payment until such time that Dr. Olivarez be made solidarily liable for moral damages,
the tenants [move] out of the land[.]12 exemplary damages, attorney’s fees, and costs of suit.17

The parties agreed thatOlivarez Realty Corporation may In their answer,18 Olivarez Realty Corporation and Dr. Olivarez
immediately occupy the property upon signing of the deed of admitted that the corporation only paid ₱2,500,000.00 ofthe
conditional sale. Should the contract be cancelled, Olivarez purchase price. In their defense, defendants alleged that Castillo
RealtyCorporation agreed to return the property’s possession to failed to "fully assist"19 the corporation in filing an action against
Castillo and forfeit all the improvements it may have introduced on the Philippine Tourism Authority. Neither did Castillo clear the
the property. Paragraph I of the deed of conditional sale states: property of the tenants within six months from the signing of the
deed of conditional sale. Thus, according to defendants, the
I. Immediately upon signing thisContract, [Olivarez Realty
corporation had "all the legal right to withhold the subsequent
Corporation] shall be entitled to occupy, possess and develop the
payments to [fully pay] the purchase price."20
subject property. In case this Contract is canceled [sic], any
improvement introduced by [the corporation] on the property shall Olivarez Realty Corporation and Dr. Olivarez prayedthat Castillo’s
be forfeited in favor of [Castillo][.]13 complaint be dismissed. By way of compulsory counterclaim, they
prayed for ₱100,000.00 litigation expenses and ₱50,000.00
On September 2, 2004, Castillo filed a complaint 14 against Olivarez
attorney’s fees.21
Realty Corporation and Dr. Olivarez with the Regional Trial Court of
Tanauan City, Batangas. Castillo replied to the counterclaim,22 arguing that Olivarez Realty
Corporation and Dr. Olivarez had no right to litigation expenses
Castillo alleged that Dr. Olivarez convinced him into selling his
and attorney’s fees. According to Castillo, the deed of conditional
property to Olivarez Realty Corporation on the representation that
sale clearly states that the corporation "assume[d] the
the corporation shall be responsible in clearing the property of the
responsibility of taking necessary legal action"23 against the
tenants and in paying them disturbance compensation. He further
Philippine Tourism Authority, yet the corporation did not file any
alleged that Dr. Olivarez solely prepared the deed of conditional
case. Also, the corporation did not pay the tenants disturbance
sale and that he was made to sign the contract with its terms "not
compensation. For the corporation’s failure to fully pay the
adequately explained [to him] in Tagalog."15
purchase price, Castillo claimed that hehad "all the right to pray for
After the parties had signed the deed of conditional sale, Olivarez the rescission of the [contract],"24 and he "should not be held liable
Realty Corporation immediately took possession of the property.
. . . for any alleged damages by way of litigation expenses and 1. That the corporation failed to fully pay the purchase price for his
attorney’s fees."25 property;32

On January 10, 2005, Castillo filed a request for 2. That the corporation failed to file an action to void the Philippine
admission,26 requesting Dr. Olivarez to admit under oath the Tourism Authority’s title to his property;33 and
genuineness of the deed of conditional sale and Transfer Certificate
3. That the corporation failed to clear the property of the tenants
of Title No. T-19972. He likewise requested Dr. Olivarez to admit
and pay them disturbance compensation.34
the truth of the following factual allegations:
Should judgment on the pleadings beimproper, Castillo argued that
1. That Dr. Olivarez is the president of Olivarez Realty Corporation;
summary judgment may still be rendered asthere is no genuine
2. That Dr. Olivarez offered to purchase the parcel of land from issue as to any material fact.35 He cited Philippine National Bank v.
Castillo and that he undertook to clear the property of the tenants Noah’s Ark Sugar Refinery36 as authority.
and file the court action to void the Philippine Tourism Authority’s
Castillo attached to his motion for summary judgment and/or
title to the property;
judgment on the pleadings his affidavit37 and the affidavit of a
3. That Dr. Olivarez caused the preparation of the deed of Marissa Magsino38 attesting to the truth of the material allegations
conditional sale; of his complaint.

4. That Dr. Olivarez signed the deed of conditional sale for and on Olivarez Realty Corporation and Dr. Olivarez opposed39 the motion
behalf of Olivarez Realty Corporation; for summary judgment and/or judgment on the pleadings, arguing
that the motion was "devoid of merit."40 They reiterated their claim
5. That Dr. Olivarez and the corporation did not file any action
that the corporation withheld further payments of the purchase
against the Philippine Tourism Authority;
price because "there ha[d] been no favorable decision voiding the
6. That Dr. Olivarez and the corporation did not pay the tenants title of the Philippine Tourism Authority."41 They added that Castillo
disturbance compensation and failed to clear the property of the sold the property to another person and that the sale was allegedly
tenants; and litigated in Quezon City.42

7. That Dr. Olivarez and the corporation only paid ₱2,500,000.00 of Considering that a title adverse to that of Castillo’s existed,
the agreed purchase price.27 Olivarez Realty Corporation and Dr. Olivarez argued that the case
should proceed to trial and Castillo be required to prove that his
On January 25, 2005, Dr. Olivarez and Olivarez Realty Corporation title to the property is "not spurious or fake and that he had not
filed their objections to the request for admission,28 stating that sold his property to another person."43
they "reiterate[d] the allegations [and denials] in their [answer]." 29
In reply to the opposition to the motion for summary judgment
The trial court conducted pre-trial conference on December 17, and/or judgment on the pleadings,44 Castillo maintained that
2005. Olivarez Realty Corporation was responsible for the filing of an
action against the Philippine Tourism Authority. Thus, the
On March 8, 2006, Castillo filed a motion for summary judgment
corporation could not fault Castillo for not suing the
and/or judgment on the pleadings.30 He argued that Olivarez Realty
PhilippineTourism Authority.45 The corporation illegally withheld
Corporation and Dr. Olivarez "substantially admitted the material
payments of the purchase price.
allegations of [his] complaint,"31 specifically:
As to the claim that the case should proceed to trial because a title As to the additional issues raised in the supplemental
adverse to his title existed, Castillo argued that the Philippine memorandum, defendants argued that issues not raised and
Tourism Authority’s title covered another lot, not his property. 46 evidence not identified and premarked during pre-trial may still be
raised and presented during trial for good cause shown. Olivarez
During the hearing on August 3, 2006, Olivarez Realty Corporation
Realty Corporation and Dr. Olivarez prayed that Castillo’s complaint
and Dr. Olivarez prayed that they be given 30 days to file a
be dismissed for lack of merit.59
supplemental memorandum on Castillo’s motion for summary
judgment and/or judgment on the pleadings.47 Ruling of the trial court

The trial court granted the motion. Itgave Castillo 20 days to reply The trial court found that Olivarez Realty Corporation and Dr.
to the memorandum and the corporation and Dr. Olivarez 15 days Olivarez’s answer "substantially [admitted the material allegations
to respond to Castillo’s reply.48 of Castillo’s] complaint and [did] not . . . raise any genuine issue
[as to any material fact]."60
In their supplemental memorandum,49 Olivarez Realty Corporation
and Dr. Olivarez argued that there was "an obvious ambiguity" 50 as Defendants admitted that Castillo owned the parcel of land covered
to which should occur first — the payment of disturbance by Transfer Certificate of Title No. T-19972. They likewise admitted
compensation to the tenants or the clearing of the property of the the genuineness of the deed of conditional sale and that the
tenants.51 This ambiguity, according to defendants, is a genuine corporation only paid ₱2,500,000.00 of the agreed purchase
issue and "oughtto be threshed out in a full blown trial."52 price.61

Olivarez Realty Corporation and Dr. Olivarez added that Castillo According to the trial court, the corporation was responsible for
prayed for irreconcilable reliefs of reformation of instrument and suing the Philippine Tourism Authority and for paying the tenants
rescission of contract.53 Thus, Castillo’s complaint should be disturbance compensation. Since defendant corporation neither
dismissed. filed any case nor paid the tenants disturbance compensation, the
trial court ruled that defendant corporation had no right to withhold
Castillo replied54 to the memorandum, arguing that there was no
payments from Castillo.62
genuine issue requiring trial of the case. According to Castillo,
"common sense dictates . . . that the legitimate tenants of the As to the alleged ambiguity of paragraphs E and F of the deed of
[property] shall not vacate the premises without being paid any conditional sale, the trial court ruled that Castillo and his witness,
disturbance compensation . . ."55 Thus, the payment of disturbance Marissa Magsino, "clearly established" 63 in their affidavits that the
compensation should occur first before clearing the property of the deed of conditional sale was a contract of adhesion. The true
tenants. agreement between the parties was that the corporation would
both clear the land of the tenants and pay them disturbance
With respect to the other issuesraised in the supplemental
compensation.
memorandum, specifically, that Castillo sold the property to
another person, he argued that these issues should not be With these findings, the trial court ruled that Olivarez Realty
entertained for not having been presented during pre-trial. 56 Corporation breached the contract ofconditional sale.1âwphi1 In its
decision64 dated April 23, 2007, the trial court ordered the deed of
In their comment on the reply memorandum, 57 Olivarez Realty
conditional sale rescinded and the ₱2,500,000.00 forfeited in favor
Corporation and Dr. Olivarez reiterated their arguments that
of Castillo "as damages under Article 1191 of the Civil Code."65
certain provisions of the deed of conditional sale were ambiguous
and that the complaint prayed for irreconcilable reliefs.58 The trial court declared Olivarez Realty Corporation and Dr.
Olivarez solidarily liable to Castillo for 500,000.00 as moral
damages, ₱50,000.00 as exemplary damages, and ₱50,000.00 as court and the Court of Appeals erred in awarding damages to
costs of suit.66 Castillo. Under Section 3, Rule 35 of the 1997 Rules ofCivil
Procedure, summary judgment may be rendered except as to the
Ruling of the Court of Appeals
amountof damages. Thus, the Court of Appeals "violated the
Olivarez Realty Corporation and Dr. Olivarez appealed to the Court procedural steps in rendering summary judgment."79
of Appeals.67
Petitioners reiterate that there are genuine issues ofmaterial fact to
68
In its decision  dated July 20, 2010, the Court of Appeals affirmed be resolved in this case. Thus, a full-blown trial is required, and the
in totothe trial court’s decision. According to the appellate court, trial court prematurely decided the case through summary
the trial court "did not err in its finding that there is no genuine judgment. They cite Torres v. Olivarez Realty Corporation and Dr.
controversy as to the facts involved [in this case]."69 The trial Pablo Olivarez,80 a case decided by the Ninth Division of the Court
court, therefore, correctly rendered summary judgment.70 of Appeals.

As to the trial court’s award of damages, the appellatecourt ruled In Torres, Rosario Torres was the registeredowner of a parcel of
that a court may award damages through summary judgment "if land covered by Transfer Certificate of Title No. T-19971. Under a
the parties’ contract categorically [stipulates] the respective deed of conditional sale, she sold her property to OlivarezRealty
obligations of the parties in case of default."71 As found by the trial Corporation for ₱17,345,900.00. When the corporation failed to
court,paragraph I of the deed of conditional sale categorically fully pay the purchase price, she sued for rescission of contractwith
states that "in case [the deed of conditional sale] is cancelled, any damages. In their answer, the corporation and Dr. Olivarez argued
improvementintroduced by [Olivarez Realty Corporation] on the thatthey discontinued payment because Rosario Torres failed to
property shall be forfeited infavor of [Castillo]."72 Considering that clear the land of the tenants.
Olivarez Realty Corporation illegally retained possession of the
Similar to Castillo, Torres filed a motion for summary judgment,
property, Castillo forewent rentto the property and "lost business
which the trial court granted. On appeal, the Court of Appeals set
opportunities."73 The ₱2,500,000.00 down payment, according to
aside the trial court’s summary judgment and remanded the case
the appellate court, shouldbe forfeited in favor of Castillo. Moral
to the trial court for further proceedings. 81 The Court of Appeals
and exemplary damages and costs ofsuit were properly awarded.
ruled that the material allegations of the complaint "were directly
On August 11, 2010, Olivarez RealtyCorporation and Dr. Olivarez disputed by [the corporation and Dr. Olivarez] in their
filed their motion for reconsideration, 74 arguing that the trial court answer"82 when they argued that they refused to pay because
exceeded its authority in forfeiting the ₱2,500,000.00 down Torres failed to clear the land of the tenants.
payment and awarding ₱500,000.00 in moral damages to Castillo.
With the Court of Appeals’ decision in Torres,Olivarez Realty
They argued that Castillo only prayed for a total of ₱500,000.00 as
Corporation and Dr. Olivarez argue that this case should likewise
actual and moral damages in his complaint.75 Appellants prayed
be remanded to the trial court for further proceedings under the
that the Court of Appeals "take a second hard look"76 at the case
equipoise rule.
and reconsider its decision.
Petitioners maintain that Castillo availed himself of the
In the resolution77 dated March 18, 2011, the Court of Appeals
irreconcilable reliefs of reformation of instrument and rescission of
denied the motion for reconsideration.
contract.83 Thus, the trial court should have dismissed the case
Proceedings before this court outright.

Olivarez Realty Corporation and Dr. Olivarez filed their petition for Petitioners likewise argue that the trial court had no jurisdiction to
review on certiorari78 with this court. Petitionersargue that the trial decide the case as Castillo failed topay the correct docket
fees.84 Petitioners argue that Castillo should have paid docket fees A motion for summary judgment is filed either by the claimant or
based on the property’s fair market value since Castillo’s complaint the defending party.92 The trial court then hears the motion for
is a real action.85 summary judgment. If indeed there are no genuine issues of
material fact, the trial court shall issue summary judgment. Section
In his comment,86 Castillo maintains that there are no genuine
3, Rule 35 of the 1997 Rules of Civil Procedure provides:
issues as to any material fact inthis case. The trial court, therefore,
correctly rendered summary judgment. SEC. 3. Motion and proceedings thereon. – The motion shall be
served at least ten (10) days beforethe time specified for the
As to petitioners’ claim that the trial court had no jurisdiction to
hearing. The adverse party may serve opposing affidavits,
decide the case, Castillo argues that he prayed for rescission of
depositions, or admission at least three (3) days before the
contract in his complaint. This action is incapable of pecuniary
hearing. After the hearing, the judgment sought shall be rendered
estimation, and the Clerk of Court properly computed the docket
forthwith ifthe pleadings, supporting affidavits, depositions, and
fees based on this prayer.87 Olivarez Realty Corporation and Dr.
admissions on file, showthat, except as to the amount of damages,
Olivarez replied,88 reiterating their arguments in the petition for
there is no genuine issue as to any material fact and that the
review on certiorari.
moving party is entitled to a judgment as a matter of law.
The issues for our resolution are the following:
An issue of material fact exists if the answer or responsive pleading
I. Whether the trial court erred in rendering summary judgment; filed specifically denies the material allegations of fact set forth in
the complaint or pleading. If the issue offact "requires the
II. Whether proper docket fees were paid in this case. presentation of evidence, it is a genuine issue of fact."93 However,
if the issue "could be resolved judiciously by plain resort" 94 to the
The petition lacks merit.
pleadings, affidavits, depositions, and other paperson file, the issue
I of fact raised is sham, and the trial court may resolve the action
The trial court correctly rendered through summary judgment.
summary judgment, as there were no
A summary judgment is usually distinguished from a judgment on
genuine issues of material fact in this case the pleadings. Under Rule 34 of the 1997 Rules of Civil Procedure,
trial may likewise be dispensed with and a case decided through
Trial "is the judicial examination and determination of the issues judgment on the pleadings if the answer filed fails to tender an
between the parties to the action."89 During trial, parties "present issue or otherwise admits the material allegations of the claimant’s
their respective evidence of their claims and defenses."90 Parties to pleading.95
an action have the right "to a plenary trial of the case"91 to ensure
that they were given a right to fully present evidence on their Judgment on the pleadings is proper when the answer filed fails to
respective claims. tender any issue, or otherwise admitsthe material allegations in the
complaint.96 On the other hand, in a summary judgment, the
There are instances, however, whentrial may be dispensed with. answer filed tenders issues as specific denials and affirmative
Under Rule 35 of the 1997 Rules of Civil Procedure, a trial court defenses are pleaded, but the issues raised are sham, fictitious, or
may dispense with trial and proceed to decide a case if from the otherwise not genuine.97
pleadings, affidavits, depositions, and other papers on file, there is
no genuine issue as to any material fact. In such a case, the In this case, Olivarez Realty Corporation admitted that it did not
judgment issued is called a summary judgment. fully pay the purchase price as agreed upon inthe deed of
conditional sale. As to why it withheld payments from Castillo, it
set up the following affirmative defenses: First, Castillo did not filea
case to void the Philippine Tourism Authority’s title to the property; compensation or the clearing of the land within six months from
second,Castillo did not clear the land of the tenants; third, Castillo the signing of the deed of conditional sale. The obligations must be
allegedly sold the property to a third person, and the subsequent performed simultaneously. In this case, the parties should have
sale is currently being litigated beforea Quezon City court. coordinated to ensure that tenants on the property were paid
disturbance compensation and were made to vacate the property
Considering that Olivarez RealtyCorporation and Dr. Olivarez’s
six months after the signingof the deed of conditional sale.
answer tendered an issue, Castillo properly availed himself of a
motion for summary judgment. On one hand, pure obligations, or obligations whose performance
do not depend upon a future or uncertainevent, or upon a past
However, the issues tendered by Olivarez Realty Corporation and
event unknown to the parties, are demandable at once.102 On the
Dr. Olivarez’s answer are not genuine issues of material fact. These
other hand, obligations with a resolutory period also take effect at
are issues that can be resolved judiciously by plain resort to the
once but terminate upon arrival of the day certain.103
pleadings, affidavits, depositions, and other papers on file;
otherwise, these issues are sham, fictitious, or patently Olivarez Realty Corporation’s obligation to pay disturbance
unsubstantial. compensation is a pure obligation. The performance of the
obligation to pay disturbance compensation did not depend on any
Petitioner corporation refused to fully pay the purchase price
condition. Moreover, the deed of conditional sale did not give the
because no court case was filed to void the Philippine Tourism
corporation a period to perform the obligation. As such, the
Authority’s title on the property. However, paragraph C of the deed
obligation to pay disturbance compensation was demandable at
of conditional sale is clear that petitioner Olivarez Realty
once. Olivarez RealtyCorporation should have paid the tenants
Corporation is responsible for initiating court action against the
disturbance compensation upon execution of the deed of
Philippine Tourism Authority:
conditional sale.
C. [Olivarez Realty Corporation] assumes the responsibility of
With respect to Castillo’s obligation to clear the land of the tenants
taking necessary legal action thru Court to have the claim/title TCT
within six months from the signing of the contract, his obligation
T-18493 of Philippine Tourism Authority over the above-described
was an obligation with a resolutory period. The obligation to clear
property be nullified and voided; with the full assistance of
the land of the tenants took effect at once, specifically, upon the
[Castillo].98
parties’ signing of the deed of conditional sale. Castillo had until
Castillo’s alleged failureto "fully assist"99 the corporation in filing October 2, 2000, six months from April 5, 2000 when the parties
the case is not a defense. As the trial court said, "how can signed the deed of conditional sale, to clear the land of the tenants.
[Castillo] assist [the corporation] when [the latter] did not file the
Olivarez Realty Corporation, therefore, had no right to withhold
action [in the first place?]"100
payments of the purchase price. As the trial court ruled, Olivarez
Neither can Olivarez Realty Corporation argue that it refused to Realty Corporation "can only claim non-compliance [of the
fully pay the purchase price due to the Philippine Tourism obligation to clear the land of the tenants in] October 2000." 104 It
Authority’s adverse claim on the property. The corporation knew of said:
this adverse claim when it entered into a contract of conditional
. . . it is clear that defendant [Olivarez Realty Corporation] should
sale. It even obligated itself under paragraph C of the deed of
have paid the installments on the ₱5 million downpayment up to
conditional sale to sue the Philippine Tourism Authority. This
October 8, 2000, or a total of ₱4,500,000.00. That is the
defense, therefore, is sham.
agreement because the only time that defendant [corporation] can
Contrary to petitioners’ claim, there is no "obvious ambiguity" 101 as claim non-compliance of the condition is after October, 2000 and
to which should occur first — the payment of the disturbance so it has the clear obligation topay up to the October 2000 the
agreed installments. Since it paid only 2,500,000.00, then a suspensive condition of the buyer’s full payment of the purchase
violation of the contract has already been committed. . . .105 price.111

The claim that Castillo sold the property to another is fictitious and In a contract of conditional sale, the buyer automatically acquires
was made in bad faith to prevent the trial court from rendering title to the property upon full payment of the purchase
summary judgment. Petitioners did not elaborate on this defense price.112 This transfer of title is "by operation of law without any
and insisted on revealing the identity of the buyer only during further act having to be performed by the seller."113 In a contract to
trial.106 Even in their petition for review on certiorari, petitioners sell, transfer of title to the prospective buyer is not
never disclosed the name of this alleged buyer. Thus, as the trial automatic.114 "The prospective seller [must] convey title to the
court ruled, this defense did not tender a genuine issue of fact, property [through] a deed of conditional sale."115
with the defense "bereft of details."107
The distinction is important to determine the applicable laws and
Castillo’s alleged prayer for the irreconcilable reliefs of rescission of remedies in case a party does not fulfill his or her obligations under
contract and reformation of instrument is not a ground to dismiss the contract. In contracts of conditional sale, our laws on sales
his complaint. A plaintiff may allege two or more claims in the under the Civil Code of the Philippines apply. On the other hand,
complaint alternatively or hypothetically, either in one cause of contracts to sell are not governed by our law on sales116 but by the
action or in separate causes of action per Section 2, Rule 8 of the Civil Code provisions on conditional obligations.
1997 Rules of Civil Procedure.108 It is the filing of two
Specifically, Article 1191 of the Civil Code on the right to rescind
separatecases for each of the causes of action that is prohibited
reciprocal obligations does not apply to contracts to sell.117 As this
since the subsequently filed case may be dismissed under Section
court explained in Ong v. Court of Appeals,118 failure to fully pay
4, Rule 2 of the 1997 Rules of Civil Procedure109 on splitting causes
the purchase price in contracts to sell is not the breach of contract
of action.
under Article 1191.119 Failure to fully pay the purchase price is
As demonstrated, there are no genuineissues of material fact in "merely an event which prevents the [seller’s] obligation to convey
this case. These are issues that can be resolved judiciously by plain title from acquiring binding force."120 This is because "there can be
resort to the pleadings, affidavits, depositions, and other papers on no rescission of an obligation that is still nonexistent, the
file. As the trial court found, Olivarez Realty Corporation illegally suspensive condition not having [happened]."121
withheld payments of the purchase price. The trial court did not err
In this case, Castillo reserved his title to the property and
in rendering summary judgment.
undertook to execute a deed of absolute sale upon Olivarez Realty
II Corporation’s full payment of the purchase price.122 Since Castillo
Castillo is entitled to cancel the contract still has to execute a deed of absolute sale to Olivarez
of conditional sale RealtyCorporation upon full payment of the purchase price, the
transfer of title is notautomatic. The contract in this case is a
Since Olivarez Realty Corporation illegally withheld payments of the
contract to sell.
purchase price, Castillo is entitled to cancel his contract with
petitioner corporation. However, we properly characterize the As this case involves a contract tosell, Article 1191 of the Civil
parties’ contract as a contract to sell, not a contract of conditional Code of the Philippines does not apply. The contract to sell is
sale. instead cancelled, and the parties shall stand as if the obligation to
sell never existed.123
In both contracts to sell and contracts of conditional sale, title to
the property remains with the seller until the buyer fully pays the Olivarez Realty Corporation shall return the possession of the
purchase price.110 Both contracts are subject to the positive property to Castillo. Any improvement that Olivarez Realty
Corporation may have introduced on the property shall be forfeited We note that the trial court erred in rendering summary judgment
in favor of Castillo per paragraph I of the deed of conditional sale: on the amount of damages. Under Section 3, Rule 35 of the 1997
Rules of Civil Procedure, summary judgment may be rendered,
I. Immediately upon signing thisContract, [Olivarez Realty
except as to the amount of damages.
Corporation] shall be entitled to occupy, possess and develop the
subject property. In case this Contract is cancelled, any In this case, the trial court erred in forfeiting the ₱2,500,000.00 in
improvement introduced by [Olivarez Realty Corporation] on the favor of Castillo as damages under Article 1191 of the Civil Code of
property shall be forfeited in favor of [Castillo.]124 the Philippines. As discussed, there is nobreach of contract under
Article 1191 in this case.
As for prospective sellers, thiscourt generally orders the
reimbursement of the installments paidfor the property when The trial court likewise erred inrendering summary judgment on
setting aside contracts to sell.125 This is true especially ifthe the amount of moral and exemplary damages and attorney’s fees.
property’s possession has not been delivered to the prospective
Nonetheless, we hold that Castillois entitled to moral damages,
buyer prior to the transfer of title.
exemplary damages, and attorney’s fees.
In this case, however, Castillo delivered the possession of the
Moral damages may be awarded in case the claimant experienced
property to Olivarez Realty Corporation prior to the transfer of title.
physical suffering, mental anguish, fright, serious anxiety,
We cannot order the reimbursement of the installments paid.
besmirched reputation, wounded feelings, moral shock, social
In Gomez v. Court of Appeals,126 the City of Manila and Luisa humiliation, and similar injury.128
Gomez entered into a contract to sell over a parcel of land. The city
As for exemplary damages, they are awarded in addition to moral
delivered the property’s possession to Gomez. She fully paid the
damages by way of example or correction for the public
purchase price for the property but violated the terms of the
good.129 Specifically in contracts, exemplary damages may be
contract to sell by renting out the property to other persons. This
awarded if the defendant acted in a wanton, fraudulent,reckless,
court set aside the contract to sell for her violation of the terms of
oppressive, or malevolent manner.130
the contract to sell. It ordered the installments paid forfeited in
favor of the City of Manila "as reasonable compensation for Under the deed of conditional sale, Olivarez Realty Corporation
[Gomez’s] use of the [property]"127 for eight years. may only suspend the monthly down payment in case Castillo fails
to clear the land of the tenants six months from the signing of the
In this case, Olivarez Realty Corporation failed to fully pay the
instrument. Yet, even before the sixth month arrived, Olivarez
purchase price for the property. It only paid ₱2,500,000.00 out of
Realty Corporation withheld payments for Castillo’s property. It
the ₱19,080,490.00 agreed purchase price. Worse, petitioner
evenused as a defense the fact that no case was filed against the
corporation has been in possession of Castillo’s property for 14
PhilippineTourism Authority when, under the deed of conditional
years since May 5, 2000 and has not paid for its use of the
sale, Olivarez Realty Corporation was clearly responsible for
property.
initiating action against the Philippine Tourism Authority. These are
Similar to the ruling in Gomez, we order the ₱2,500,000.00 oppressive and malevolent acts, and we find Castillo entitled to
forfeited in favor of Castillo as reasonable compensation for ₱500,000.00 moral damages and ₱50,000.00 exemplary damages:
Olivarez Realty Corporation’s use of the property.
Plaintiff Castillo is entitled to moral damages because of the
III evident bad faith exhibited by defendants in dealing with him
Olivarez Realty Corporation is liable for regarding the sale of his lot to defendant [Olivarez Realty
moral and exemplary damages and Corporation]. He suffered much prejudice due to the failure of
attorney’s fees defendants to pay him the balance of purchase price which he
expected touse for his needs which caused him wounded feelings, Realty Corporation issolely liable for the moral and exemplary
sorrow, mental anxiety and sleepless nights for which defendants damages and attorney’s fees to Castillo.
should pay ₱500,000.00 as moral damages more than six (6) years
IV
had elapsed and defendants illegally and unfairly failed and refused
The trial court acquired jurisdiction over
to pay their legal obligations to plaintiff, unjustly taking advantage
Castillo’s action as he paid the correct
of a poor uneducated man like plaintiff causing much sorrow and
docket fees
financial difficulties. Moral damages in favor of plaintiff is clearly
justified . . . [Castillo] is also entitled to ₱50,000.00 as exemplary Olivarez Realty Corporation and Dr. Olivarez claimed that the trial
damages to serve as a deterrent to other parties to a contract to court had no jurisdiction to take cognizance of the case. In the
religiously comply with their prestations under the contract.131 reply/motion to dismiss the complaint138 they filed with the Court of
Appeals, petitioners argued that Castillo failed to pay the correct
We likewise agree that Castillo is entitled to attorney’s fees in
amount of docket fees. Stating that this action is a real action,
addition to the exemplary damages.132 Considering that Olivarez
petitioners argued that the docket fee Castillo paid should have
Realty Corporation refused to satisfy Castillo’splainly valid, just,
been based on the fair market value of the property. In this case,
and demandable claim,133 the award of ₱50,000.00 as attorney’s
Castillo only paid 4,297.00, which is insufficient "if the real nature
fees is in order. However, we find that Dr. Pablo R.Olivarez is not
of the action was admitted and the fair market value of the
solidarily liable with Olivarez Realty Corporation for the amount of
property was disclosed and made the basis of the amount of docket
damages.
fees to be paid to the court."139 Thus, according to petitioners, the
Under Article 1207 of the Civil Code of the Philippines, there is case should be dismissed for lack of jurisdiction.
solidary liability only when the obligation states it or when the law
Castillo countered that his action for rescission is an action
or the nature of the obligation requires solidarity.134 In case of
incapable of pecuniary estimation. Thus, the Clerk of Court of the
corporations, they are solely liable for their obligations. 135 The
Regional Trial Court of Tanauan City did not err in assessing the
directors or trustees and officers are not liable with the corporation
docket fees based on his prayer.
even if it is through their acts that the corporation incurred the
obligation. This is because a corporation is separate and distinct We rule for Castillo. In De Leon v. Court of Appeals, 140 this court
from the persons comprising it.136 held that an action for rescission of contract of sale of real property
is an action incapable of pecuniary estimation. In De Leon, the
As an exception to the rule, directors or trustees and corporate
action involved a real property. Nevertheless, this court held that
officers may be solidarily liable with the corporation for corporate
"it is the nature of the action as one for rescission of contract which
obligations if they acted "in bad faith or with gross negligence in
is controlling."141 Consequently, the docket fees to be paid shall be
directing the corporate affairs."137
for actions incapableof pecuniary estimation, regardless if the
In this case, we find that Castillo failed to prove with preponderant claimant may eventually recover the real property. This court said:
evidence that it was through Dr. Olivarez’s bad faith or gross
. . . the Court in Bautista v.Lim, held that an action for rescission of
negligence that Olivarez Realty Corporation failed to fully pay the
contract is one which cannot be estimated and therefore the docket
purchase price for the property. Dr. Olivarez’s alleged act of
fee for its filing should be the flat amount of ₱200.00 as then fixed
making Castillo sign the deed of conditional sale without explaining
in the former Rule 141, §141, §5(10). Said this Court:
to the latter the deed’s terms in Tagalog is not reason to hold Dr.
Olivarez solidarily liable with the corporation. Castillo had a choice We hold that Judge Dalisay did not err in considering Civil Case No.
not to sign the deed of conditional sale. He could have asked that V-144 as basically one for rescission or annulment of contract
the deed of conditional sale be written in Tagalog. Thus, Olivarez which is not susceptible of pecuniary estimation (1 Moran's
Comments on the Rules of Court, 1970 Ed, p. 55; Lapitan vs. upon in the deed of conditional sale. The principal natureof
Scandia, Inc., L-24668, July 31, 1968, 24 SCRA 479, 781-483). Castillo’s action, therefore, is incapable of pecuniary estimation.

Consequently, the fee for docketing it is ₱200, an amount already All told, there is no issue that the parties in this case entered into a
paid by plaintiff, now respondent Matilda Lim.1âwphi1 (She should contract to sell a parcel of land and that Olivarez Realty
pay also the two pesos legal research fund fee, if she has not paid Corporation failed to fully pay the installments agreed
it, as required in Section 4 of Republic Act No. 3870, the charter of upon.Consequently, Castillo is entitled to cancel the contract to
the U.P. Law Center). sell.

Thus, although eventually the result may be the recovery of land, it WHEREFORE, the petition for review on certiorari is DENIED. The
is the nature of the action as one for rescission of contract which is Court of Appeals’ decision dated July 20, 2010 and in CA-G.R. CV
controlling. The Court of Appeals correctly applied these cases to No. 91244 is AFFIRMEDwith MODIFICATION.
the present one. As it said:
The deed of conditional sale dated April 5, 2000 is declared
We would like to add the observations that since the action of CANCELLED. Petitioner Olivarez Realty Corporation shall RETURN to
petitioners [private respondents] against private respondents respondent Benjamin Castillo the possession of the property
[petitioners] is solely for annulment or rescission which is not covered by Transfer Certificate of Title No. T-19972 together with
susceptible of pecuniary estimation, the action should not be all the improvements that petitioner corporation introduced on the
confused and equated with the "value of the property" subject of property. The amount of ₱2,500,000.00 is FORFEITED in favor of
the transaction; that by the very nature of the case, the respondent Benjamin Castillo as reasonable compensation for the
allegations, and specific prayer in the complaint, sans any prayer use of petitioner Olivarez Realty Corporation of the property.
for recovery of money and/or value of the transaction, or for actual
Petitioner Olivarez Realty Corporation shall PAY respondent
or compensatory damages, the assessment and collection of the
Benjamin Castillo ₱500,000.00 as moral damages, ₱50,000.00 as
legal fees should not be intertwined with the merits of the case
exemplary damages, and ₱50,000.00 as attorney's fees with
and/or what may be its end result; and that to sustain private
interest at 6% per annum from the time this decision becomes final
respondents' [petitioners'] position on what the respondent court
and executory until petitioner
may decide after all, then the assessment should be deferred and
finally assessed only after the court had finally decided the case, corporation fully pays the amount of damages.144
which cannot be done because the rules require that filing fees
should be based on what is alleged and prayed for in the face of SO ORDERED.
the complaint and paid upon the filing of the complaint. 142

Although we discussed that there isno rescission of contract to

speak of in contracts of conditional sale, we hold that an action to
cancel a contract to sell, similar to an action for rescission of
contract of sale, is an action incapable of pecuniary estimation.
Like any action incapable of pecuniary estimation, an action to
cancel a contract to sell "demands an inquiry into other
factors"143 aside from the amount of money to be awarded to the
claimant. Specifically in this case, the trial court principally
determined whether Olivarez Realty Corporation failed to pay
installments of the property’s purchase price as the parties agreed
G.R. No. 200602               December 11, 2013 On October 29, 2001, ACE Foods accepted MTCL’s proposal and
accordingly issued Purchase Order No. 10002310 (Purchase Order)
ACE FOODS, INC., Petitioner,
for the subject products amounting to ₱646,464.00 (purchase
vs.
price). Thereafter, or on March 4, 2002, MTCL delivered the said
MICRO PACIFIC TECHNOLOGIES CO., LTD.1, Respondent.
products to ACE Foods as reflected in Invoice No. 7733 11 (Invoice
DECISION Receipt). The fine print of the invoice states, inter alia, that "[t]itle
to sold property is reserved in MICROPACIFIC TECHNOLOGIES CO.,
PERLAS-BERNABE, J.: LTD. until full compliance of the terms and conditions of above and
payment of the price"12 (title reservation stipulation). After
Assailed in this petition for review on certiorari2are the
delivery, the subject products were then installed and configured in
Decision3 dated October 21, 2011 and Resolution 4 dated February
ACE Foods’s premises. MTCL’s demands against ACE Foods to pay
8, 2012 of the Court of Appeals (CA) in CA-G.R. CV No. 89426
the purchase price, however, remained unheeded.13 Instead of
which reversed and set aside the Decision5 dated February 28,
paying the purchase price, ACE Foods sent MTCL a Letter14 dated
2007 of the Regional Trial Court of Makati, Branch 148 (RTC) in
September 19, 2002, stating that it "ha[s] been returning the
Civil Case No. 02-1248, holding petitioner ACE Foods, Inc. (ACE
[subject products] to [MTCL] thru [its] sales representative Mr.
Foods) liable to respondent Micro Pacific Technologies Co., Ltd.
Mark Anteola who has agreed to pull out the said [products] but
(MTCL) for the payment of Cisco Routers and Frame Relay Products
had failed to do so up to now."
(subject products) amounting to ₱646,464.00 pursuant to a
perfected contract of sale. Eventually, or on October 16, 2002, ACE Foods lodged a
Complaint15 against MTCL before the RTC, praying that the latter
The Facts
pull out from its premises the subject products since MTCL
ACE Foods is a domestic corporation engaged in the trading and breached its "after delivery services" obligations to it, particularly,
distribution of consumer goods in wholesale and retail bases,6 while to: (a) install and configure the subject products; (b) submit a cost
MTCL is one engaged in the supply of computer hardware and benefit study to justify the purchase of the subject products; and
equipment.7 (c) train ACE Foods’s technicians on how to use and maintain the
subject products. 16 ACE Foods likewise claimed that the subject
On September 26, 2001, MTCL sent a letter-proposal8 for the products MTCL delivered are defective and not working.17
delivery and sale of the subject products to be installed at various
offices of ACE Foods. Aside from the itemization of the products For its part, MTCL, in its Answer with Counterclaim, 18 maintained
offered for sale, the said proposal further provides for the following that it had duly complied with its obligations to ACE Foods and that
terms, viz.:9 the subject products were in good working condition when they
were delivered, installed and configured in ACE Foods’s premises.
TERMS : Thirty (30) days upon delivery Thereafter, MTCL even conducted a training course for ACE Foods’s
VALIDITY : Prices are based on current dollar rate and subject to representatives/employees; MTCL, however, alleged that there was
changes without prior notice. actually no agreement as to the purported "after delivery services."
Further, MTCL posited that ACE Foods refused and failed to pay the
DELIVERY : Immediate delivery for items on stock, otherwise thirty purchase price for the subject products despite the latter’s use of
(30) to forty-five days upon receipt of [Purchase Order] the same for a period of nine (9) months. As such, MTCL prayed
that ACE Foods be compelled to pay the purchase price, as well as
WARRANTY : One (1) year on parts and services. Accessories not
damages related to the transaction.19
included in warranty.
The RTC Ruling
On February 28, 2007, the RTC rendered a Decision, 20 directing MTCL which, in turn, delivered the subject products covered by the
MTCL to remove the subject products from ACE Foods’s premises Invoice Receipt and subsequently installed and configured them in
and pay actual damages and attorney fees in the amounts of ACE Foods’s premises.28 Thus, considering that MTCL had already
₱200,000.00 and ₱100,000.00, respectively.21 complied with its obligation, ACE Foods’s corresponding obligation
arose and was then duty bound to pay the agreed purchase price
At the outset, it observed that the agreement between ACE Foods
within thirty (30) days from March 5, 2002.29 In this light, the CA
and MTCL is in the nature of a contract to sell. Its conclusion was
concluded that it was erroneous for ACE Foods not to pay the
based on the fine print of the Invoice Receipt which expressly
purchase price therefor, despite its receipt of the subject products,
indicated that "title to sold property is reserved in MICROPACIFIC
because its refusal to pay disregards the very essence of
TECHNOLOGIES CO., LTD. until full compliance of the terms and
reciprocity in a contract of sale.30 The CA also dismissed ACE
conditions of above and payment of the price," noting further that
Foods’s claim regarding MTCL’s failure to perform its "after delivery
in a contract to sell, the prospective seller explicitly reserves the
services" obligations since the letter-proposal, Purchase Order and
transfer of title to the prospective buyer, and said transfer is
Invoice Receipt do not reflect any agreement to that effect.31
conditioned upon the full payment of the purchase price.22 Thus,
notwithstanding the execution of the Purchase Order and the Aggrieved, ACE Foods moved for reconsideration which was,
delivery and installation of the subject products at the offices of however, denied in a Resolution 32 dated February 8, 2012, hence,
ACE Foods, by express stipulation stated in the Invoice Receipt this petition.
issued by MTCL and signed by ACE Foods, i.e., the title reservation
The Issue Before the Court
stipulation, it is still the former who holds title to the products until
full payment of the purchase price therefor. In this relation, it The essential issue in this case is whether ACE Foods should pay
noted that the full payment of the price is a positive suspensive MTCL the purchase price for the subject products.
condition, the non-payment of which prevents the obligation to sell
on the part of the seller/vendor from materializing at all. 23 Since The Court’s Ruling
title remained with MTCL, the RTC therefore directed it to withdraw
The petition lacks merit.
the subject products from ACE Foods’s premises. Also, in view of
the foregoing, the RTC found it unnecessary to delve into the A contract is what the law defines it to be, taking into consideration
allegations of breach since the non-happening of the aforesaid its essential elements, and not what the contracting parties call
suspensive condition ipso jure prevented the obligation to sell from it.33 The real nature of a contract may be determined from the
arising.24 express terms of the written agreement and from the
contemporaneous and subsequent acts of the contracting parties.
Dissatisfied, MTCL elevated the matter on appeal.25
However, in the construction or interpretation of an
The CA Ruling instrument, the intention of the parties is primordial and is to
be pursued. The denomination or title given by the parties in their
In a Decision26 dated October 21, 2011, the CA reversed and set contract is not conclusive of the nature of its contents. 34
aside the RTC’s ruling, ordering ACE Foods to pay MTCL the
amount of ₱646,464.00, plus legal interest at the rate of 6% per The very essence of a contract of sale is the transfer of
annum to be computed from April 4, 2002, and attorney’s fees ownership in exchange for a price paid or promised. 35 This
amounting to ₱50,000.00.27 may be gleaned from Article 1458 of the Civil Code which defines a
contract of sale as follows:
It found that the agreement between the parties is in the nature of
a contract of sale, observing that the said contract had been Art. 1458. By the contract of sale one of the contracting parties
perfected from the time ACE Foods sent the Purchase Order to obligates himself to transfer the ownership and to deliver a
determinate thing, and the other to pay therefor a price certain Art. 1475. The contract of sale is perfected at the moment there is
in money or its equivalent. a meeting of minds upon the thing which is the object of the
contract and upon the price.
A contract of sale may be absolute or conditional. (Emphasis
supplied) From that moment, the parties may reciprocally demand
performance, subject to the provisions of the law governing the
Corollary thereto, a contract of sale is classified as a consensual
form of contracts.
contract, which means that the sale is perfected by mere consent.
No particular form is required for its validity. Upon perfection of the At this juncture, the Court must dispel the notion that the
contract, the parties may reciprocally demand performance, i.e., stipulation anent MTCL’s reservation of ownership of the subject
the vendee may compel transfer of ownership of the object of the products as reflected in the Invoice Receipt, i.e., the title
sale, and the vendor may require the vendee to pay the thing reservation stipulation, changed the complexion of the transaction
sold.36 from a contract of sale into a contract to sell. Records are bereft of
any showing that the said stipulation novated the contract of sale
In contrast, a contract to sell is defined as a bilateral contract
between the parties which, to repeat, already existed at the precise
whereby the prospective seller, while expressly reserving the
moment ACE Foods accepted MTCL’s proposal. To be sure,
ownership of the property despite delivery thereof to the
novation, in its broad concept, may either be extinctive or
prospective buyer, binds himself to sell the property exclusively to
modificatory. It is extinctive when an old obligation is terminated
the prospective buyer upon fulfillment of the condition agreed
by the creation of a new obligation that takes the place of the
upon, i.e., the full payment of the purchase price. A contract to sell
former; it is merely modificatory when the old obligation subsists
may not even be considered as a conditional contract of
to the extent it remains compatible with the amendatory
sale where the seller may likewise reserve title to the property
agreement. In either case, however, novation is never presumed,
subject of the sale until the fulfillment of a suspensive condition,
and the animus novandi, whether totally or partially, must appear
because in a conditional contract of sale, the first element of
by express agreement of the parties, or by their acts that are too
consent is present, although it is conditioned upon the happening
clear and unequivocal to be mistaken.38
of a contingent event which may or may not occur.37
In the present case, it has not been shown that the title
In this case, the Court concurs with the CA that the parties have
reservation stipulation appearing in the Invoice Receipt had been
agreed to a contract of sale and not to a contract to sell as
included or had subsequently modified or superseded the original
adjudged by the RTC. Bearing in mind its consensual nature, a
agreement of the parties. The fact that the Invoice Receipt was
contract of sale had been perfected at the precise moment ACE
signed by a representative of ACE Foods does not, by and of itself,
Foods, as evinced by its act of sending MTCL the Purchase Order,
prove animus novandi since: (a) it was not shown that the
accepted the latter’s proposal to sell the subject products in
signatory was authorized by ACE Foods (the actual party to the
consideration of the purchase price of ₱646,464.00. From that
transaction) to novate the original agreement; (b) the signature
point in time, the reciprocal obligations of the parties – i.e., on the
only proves that the Invoice Receipt was received by a
one hand, of MTCL to deliver the said products to ACE Foods, and,
representative of ACE Foods to show the fact of delivery; and (c)
on the other hand, of ACE Foods to pay the purchase price therefor
as matter of judicial notice, invoices are generally issued at the
within thirty (30) days from delivery – already arose and
consummation stage of the contract and not its perfection, and
consequently may be demanded. Article 1475 of the Civil Code
have been even treated as documents which are not actionable per
makes this clear:
se, although they may prove sufficient delivery. 39 Thus, absent any
clear indication that the title reservation stipulation was actually
agreed upon, the Court must deem the same to be a mere
unilateral imposition on the part of MTCL which has no effect on
the nature of the parties’ original agreement as a contract of sale.
Perforce, the obligations arising thereto, among others, ACE
Foods’s obligation to pay the purchase price as well as to
accept the delivery of the goods,40 remain enforceable and
subsisting.1âwphi1

As a final point, it may not be amiss to state that the return of the
subject products pursuant to a rescissory action41 is neither
warranted by ACE Foods’s claims of breach – either with respect to
MTCL’s breach of its purported "after delivery services" obligations
or the defective condition of the products - since such claims were
not adequately proven in this case. The rule is clear: each party
must prove his own affirmative allegation; one who asserts the
affirmative of the issue has the burden of presenting at the trial
such amount of evidence required by law to obtain a favorable
judgment, which in civil cases, is by preponderance of
evidence. 42 This, however, ACE Foods failed to observe as regards
its allegations of breach. Hence, the same cannot be sustained.

WHEREFORE, the petition is DENIED. Accordingly, the Decision

dated October 21, 2011 and Resolution dated February 8, 2012 of
the Court of Appeals in CA-G.R. CV No. 89426 are
hereby AFFIRMED.

SO ORDERED.
G.R. No. 225033, August 15, 2018 respondents to refer the matter to the Office of the Barangay
Chairman of Barangay Magugpo, Tagum City (OBC).9
SPOUSES ANTONIO BELTRAN AND FELISA
BELTRAN, Petitioners, v. SPOUSES APOLONIO CANGAYDA, JR.
AND LORETA E. CANGAYDA, Respondents.
Before the OBC, the parties signed an Amicable Settlement dated
DECISION
August 24, 1992, bearing the following terms:
CAGUIOA, J.:
3. That herein [petitioner Antonio] have already (sic) paid the
The Case amount of x x x P29,690.00 x x x to [respondent Apolonio, Jr.] and
[there is a] remaining balance of x x x P5,310.00 x x x;

4. That herein [petitioner Antonio] promise(s) to pay the aforesaid

This is a Petition for Review on Certiorari (Petition) filed under Rule balance to [respondent Apolonio, Jr.] [within a] one week period
45 of the Rules of Court against the Decision1 dated October 19, (sic) to start AUGUST 24, 1992 (Monday);
2015 (assailed Decision) and Resolution 2 dated May 17, 2016
(assailed Resolution) in CA-G.R. CV No. 03414-MIN rendered by 5. That herein [petitioner Antonio] is willing to pay the all (sic)
the Court of Appeals-Cagayan de Oro City (CA) Twenty-First expenses of the titling of the aforesaid lot; and
Division and Special Former Twenty-First Division, respectively.
6. That herein [respondent Apolonio, Jr.] is also willing to
The assailed Decision and Resolution stem from an appeal from the signed (sic) a deed of sale agreement after [petitioner
Decision3 dated July 15, 2013 issued by the Regional Trial Court Antonio] were (sic) able to pay the remaining balance x x x.
(RTC), 11th Judicial Region, Davao del Norte, Branch 31 in Civil
Case No. 4020, directing petitioners Antonio and Felisa Beltran Failure to comply on (sic) the said agreement[,] the [OBC] is
(collectively, petitioners) to vacate a 300-square-meter residential willing to indorse (sic) this case to the higher court for proper legal
lot situated in Barangay Magugpo, Tagum City, Davao del Norte action.10 (Emphasis supplied)
(disputed property) registered in the name of respondents
Apolonio, Jr. and Loreta Cangayda (collectively, respondents)
under TCT No. T-74907.
Petitioners failed to pay within the period set forth in the Amicable
The Facts Settlement.11

On January 14, 2009, or nearly 17 years after the expiration of

petitioners' period to pay their remaining balance, respondents
Sometime in August 1989,4 respondents verbally agreed to sell the
served upon petitioners a "Last and Final Demand" to vacate the
disputed property to petitioners for P35,000.00. After making an
disputed property within 30 days from notice. This demand was left
initial payment,5 petitioners took possession of the disputed
unheeded.12
property and built their family home thereon.6 Petitioners
subsequently made additional payments, which, together with their
RTC Proceedings
initial payment, collectively amounted to P29,690.00.7

Consequently, on March 12, 2009, respondents filed a complaint

However, despite respondents' repeated demands, petitioners
for recovery of possession and damages (Complaint) before the
failed to pay their remaining balance of P5,310.00.8 This prompted
RTC.13 Respondents alleged, among others, that petitioners had ownership of the disputed property upon its delivery.21
been occupying the disputed property without authority, and
without payment of rental fees.14 Petitioners also raised, for the first time on appeal, that the sale of
the disputed property constitutes a sale on installment covered by
In their Answer, petitioners admitted that they failed to settle their Republic Act (R.A.) No. 6552,22 otherwise known as the Maceda
unpaid balance of P5,310.00 within the period set in the Amicable Law. Corollarily, petitioners argued that respondents should not be
Settlement. However, petitioners alleged that when they later granted relief, since they failed to comply with the specific
attempted to tender payment two days after said procedure for rescission of sales of real estate on installment basis
deadline,15 respondents refused to accept their payment, set forth under the statute.23
demanding, instead, for an additional payment of P50,000.00.16
On October 19, 2015, the CA rendered the assailed Decision,
On July 15, 2013, the RTC issued a Decision, the dispositive disposing the appeal as follows:
portion of which reads:
WHEREFORE, the appeal is DISMISSED. The July 15, 2013 Decision
WHEREFORE, premises considered, [petitioners], their heirs, of the [RTC], Branch 31, 11th Judicial Region, Tagum City, Davao
successors-in-interest and/or assigns are ordered to vacate the del Norte, in Civil Case No. 4020 is AFFIRMED. 24
portion of Lot No. 11 presently occupied by them within [60 days]
from receipt of x x x this Decision.

The CA affirmed the findings of the RTC anent the nature of the
However, as there was no express agreement between the parties
contract entered into by the parties.25 In addition, it rejected
that [respondents] may retain the sum of P29,600.00 already paid
petitioners' invocation of the Maceda Law. According to the CA, to
to them by [petitioners], [respondents] are hereby ordered to
allow petitioners to seek protection under said law for the first time
return the said sum to [petitioners], likewise within [60]
on appeal would violate the tenets of due process and fair play. 26
days from receipt of this Decision.17 (Emphasis supplied)

Petitioners filed a Motion for Reconsideration which was later

denied through the assailed Resolution.
In so ruling, the RTC characterized the oral agreement between the
parties as a contract to sell. The RTC held that the consummation Thus, the present Petition now prays that the Court: (i) reverse the
of this contract to sell was averted due to petitioners' failure to pay judgment of the CA and RTC; and (ii) direct respondents to allow
the purchase price in full.18 Hence the RTC held that ownership them to settle their remaining balance of P5,310.00 and,
over the disputed property never passed to petitioners.19 subsequently, convey the disputed property in their favor.

Petitioners filed a Motion for Reconsideration, which the RTC Petitioners maintain, as they did before the CA, that the oral
denied.20 agreement they entered into with respondents is a contract of sale,
and that, as a necessary incident of such contract, ownership over
CA Proceedings the disputed property had been transferred in their favor when
they took possession and built improvements thereon.27
Aggrieved, petitioners brought the case to the CA via ordinary
appeal. Therein, petitioners argued that the oral agreement they Further, petitioners argue that respondents are not entitled to
had entered into with respondents was not a contract to sell but recover possession of the disputed property since they failed to
rather, a contract of sale which had the effect of transferring cancel their oral agreement by way of a notarial act, in accordance
with the provisions of the Maceda Law.28 purportedly confirms their intent to reserve ownership of the
disputed property until full payment of the purchase price. The CA
Finally, petitioners aver that respondents' Complaint is an action held:
upon a written agreement, as it is based on the Amicable
At trial, [respondent Loreta] testified thus —
Settlement. Thus, petitioners conclude that respondents' action
already prescribed, since it was filed more than 10 years after the
[x x x x]
lapse of petitioners' period to pay their outstanding balance.
Petitioners further argue that the Complaint is also barred by
Q: Now, if any, tell us who are in possession of the [disputed
laches, considering that respondents allowed petitioners to
property] x x x?
continue staying in the disputed property for a period of 17 years
A: [Petitioners] and their children who are also married.
after such failure to pay.29

The Issues Q: Now, if you know, how did [petitioners] and their children
occupied (sic) the land you have just mentioned?
A: I know because we have [an oral] agreement with
[petitioners] that they will buy [the disputed property].
The Petition calls on the Court to resolve the following issues:

1. Whether the CA erred when it affirmed the RTC Decision Q: Tell us what happened to the [oral] agreement of (sic)
characterizing the oral agreement between the parties as a [petitioners] if you can recall?
contract to sell; A: Our [oral] agreement with [petitioner Antonio] that
about 300 square meters lot (sic) that they will pay
2. Whether the oral agreement between the parties is covered P35,000.00 to us but [petitioner Antonio] told us that they
by the Maceda Law; and will pay the amount of P35,000.00 when [their] house will
be sold, then they will pay us.
3. Whether respondents' action for recovery of possession
should have been dismissed on the ground of prescription
Q: If you can recall, did [petitioners] comply with the [oral]
and/or laches.
agreement to pay you P35,000.00?
A: At that time, [petitioners] gave me only P15,000.00.

The Court's Ruling Q: Other than the P15,000.00 (sic) if you can recall, did they pay
you?
The Petition is meritorious. A: x x x [Petitioners] has a rattan furniture, they made us a chair
and it costs about P14,600.00.
The agreement between the parties is
an oral contract of sale. As a Q: In short, Miss witness, please tell us how much amount (sic)
consequence, ownership of the [petitioners] paid you?
disputed property passed to A: According to their total, they paid me P29,690.00
petitioners upon its delivery.
[Respondent Loreta's] testimony — that at the moment the
The CA characterized the parties' agreement as a contract to sell [oral] agreement was entered into by the parties,
primarily on the basis of respondent Loreta's testimony which [petitioners] "will buy that property" — suggests that the
contract of sale was expected to be entered into at some vendor has lost and cannot recover ownership until and
future date when a condition has been fulfilled. In this case, unless the contract is resolved or rescinded; whereas in a
that condition appears to be the full payment of the contract to sell, title is retained by the vendor until the full
purchase price. The Court notes that this testimony was not payment of the price, x x x.33 (Emphasis supplied)
controverted. In their Brief, [petitioners] merely counter with the
bare insistence that what the parties entered into verbally was a
contract of sale.30 (Emphasis supplied.)
Based on the foregoing distinctions, the Court finds, and so holds,
that the oral agreement entered into by the parties constitutes a
contract of sale and not a contract to sell.
According to the CA, the foregoing finding is further bolstered by
clause 6 of the Amicable Settlement, to which petitioner Antonio A contract of sale is consensual in nature, and is perfected upon
expressed his assent. Clause 6 reads: the concurrence of its essential requisites,34 thus:

That herein [respondent Apolonio, Jr.] is also willing to signed (sic) The essential requisites of a contract under Article 1318 of
a deed of sale agreement after [petitioner Antonio] were (sic) able the New Civil Code are: (1) consent of the contracting
to pay the remaining balance x x x.31 parties; (2) object certain which is the subject matter of the
contract; and (3) cause of the obligation which is
established. Thus, contracts, other than real contracts are
The CA's finding is erroneous.
perfected by mere consent which is manifested by the meeting of
the offer and the acceptance upon the thing and the cause which
Article 1458 of the Civil Code defines a contract of sale:
are to constitute the contract. Once perfected, they bind other
By the contract of sale one of the contracting parties obligates contracting parties and the obligations arising therefrom have the
himself to transfer the ownership of and to deliver a determinate force of law between the parties and should be complied with in
thing, and the other to pay therefor a price certain in money or its good faith. The parties are bound not only to the fulfillment of what
equivalent. has been expressly stipulated but also to the consequences which,
according to their nature, may be in keeping with good faith, usage
and law.

"[A] contract to sell, [on the other hand], is defined as a bilateral Being a consensual contract, sale is perfected at the
contract whereby the prospective seller, while expressly reserving moment there is a meeting of minds upon the thing which is
the ownership of the subject property despite its delivery to the the object of the contract and upon the price. From that
prospective buyer, commits to sell the property exclusively to the moment, the parties may reciprocally demand performance,
prospective buyer"32 upon full payment of the purchase price. subject to the provisions of the law governing the form of
contracts. A perfected contract of sale imposes reciprocal
Jurisprudence defines the distinctions between a contract of sale obligations on the parties whereby the vendor obligates himself to
and a contract to sell to be as follows: transfer the ownership of and to deliver a determinate thing to the
buyer who, in turn, is obligated to pay a price certain in money or
In a contract of sale, title passes to the vendee upon the delivery
its equivalent. Failure of either party to comply with his obligation
of the thing sold; whereas in a contract to sell, by agreement
entitles the other to rescission as the power to rescind is implied in
the ownership is reserved in the vendor and is not to pass
reciprocal obligations.35 (Emphasis supplied)
until the full payment of the price. In a contract of sale, the
 Article 1477. The ownership of the thing sold shall be transferred to
Contrary to the CA's findings, neither respondent Loreta's the vendee upon the actual or constructive delivery thereof.
testimony nor clause 6 of the Amicable Settlement supports the
conclusion that the parties' agreement is not a contract of sale, Article 1478. The parties may stipulate that ownership in the thing
but only a contract to sell — the reason being that it is not evident shall not pass to the purchaser until he has fully paid the price.
from said testimony and clause 6 that there was an express
agreement to reserve ownership despite delivery of the disputed
property.
In accordance with the cited provisions, ownership of the disputed
property passed to petitioners when its possession was transferred
A plain reading of respondent Loreta's testimony shows that the
in their favor, as no reservation to the contrary had been made.
parties' oral agreement constitutes a meeting of the minds as to
the sale of the disputed property and its purchase price.
Considering that respondents' Complaint is anchored upon their
Respondent Loreta's statements do not in any way suggest that the
alleged ownership of the disputed property, their prayer to recover
parties intended to enter into a contract of sale at a later time.
possession thereof as a consequence of such alleged ownership
Such statements only pertain to the time at which petitioners
cannot prosper.
expected, or at least hoped, to acquire the sufficient means to pay
the purchase price agreed upon. For emphasis, the Court
Slight delay is not sufficient to justify
reproduces the relevant statements relied upon by the CA:
rescission.
Our [oral] agreement with [petitioner Antonio] that about 300
square meters lot (sic) that they will pay P35,000.00 to us but Article 1191 of the Civil Code39 lays down the remedies that the
[petitioner Antonio] told us that they will pay the amount of injured party may resort to in case of breach of a reciprocal
P35,000.00 when [their] house will be sold, then they will pay obligation — fulfillment of the obligation or rescission thereof, with
us.36 (Emphasis supplied) damages in either case.

Thus, in a contract of sale, the vendor's failure to pay the price

agreed upon generally constitutes breach, and extends to the
Clause 6 of the Amicable Settlement merely states respondent
vendor the right to demand the contract's fulfillment or
Apolonio, Jr.'s commitment to formalize and reduce the oral
rescission.40
agreement of the parties into a public instrument upon payment of
petitioners' outstanding balance. It bears emphasizing that a
It is important to stress, however, that the right of rescission
formal document is not necessary for the sale transaction to
granted to the injured party under Article 1191 is predicated on a
acquire binding effect.37 Hence, the subsequent execution of a
breach of faith by the other party who violates the reciprocity
formal deed of sale does not negate the perfection of the parties'
between them.41 Stated otherwise, rescission may not be resorted
oral contract of sale which had already taken place upon the
to in the absence of breach of faith.
meeting of the parties' minds as to the subject of the transaction
and its purchase price.
In this connection, Article 1592 extends to the vendee in a sale of
immovable property the right to effect payment even after
In a contract of sale, ownership of a thing sold shall pass to the
expiration of the period agreed upon, as long as no demand for
buyer upon actual or constructive delivery thereof in the absence
rescission has been made upon him by the vendor. The provision
of any stipulation to the contrary.38 Reference to Articles 1477 and
states:
1478 of the Civil Code is in order:
Article 1592. In the sale of immovable property, even though it sale.
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 Finally, it has been ruled that "where time is not of the
place, the vendee may pay, even after the expiration of the period, essence of the agreement, a slight delay on the part of one
as long as no demand for rescission of the contract has been made party in the performance of his obligation is not a sufficient
upon him either judicially or by a notarial act. After the demand, ground for the rescission of the agreement". Considering
the court may not grant him a new term. that in the instant case, private respondent had already
actually paid the sum of P12,500.00 of the total stipulated
purchase price of P18,000.00 and had tendered payment of
the balance of P5,500.00 within the grace period of six
A reading of Article 1592 in conjunction with Article 1191 thus
months from December 31, 1972, equity and justice
suggests that in the absence of any stipulation to the contrary, the
mandate that she be given additional period within which to
vendor's failure to pay within the period agreed upon
complete payment of the purchase price.43 (Emphasis
shall not constitute a breach of faith, so long as payment is made
supplied)
before the vendor demands for rescission, either judicially, or by
notarial act.

Hence, in Taguba v. Peralta,42 (Taguba) the Court held that slight The Court applied the foregoing principles in the subsequent case
delay in the payment of the purchase price does not serve of Dignos v. Court of Appeals,44 (Dignos) where it resolved to grant
as a sufficient ground for the rescission of a sale of real respondent therein an additional period within which to settle his
property: outstanding balance of P4,000.00, considering that he "was
delayed in payment only for one month."45 It is worth noting that
Despite the denomination of the deed as a "Deed of Conditional
in Dignos, the Court granted the vendee an additional period to
Sale" a reading of the conditions x x x therein set forth reveals the
pay the balance, despite the fact that no grace period had been
contrary. Nowhere in the said contract in question could we find a
stipulated upon by the parties therein, as in Taguba.
proviso or stipulation to the effect that title to the property sold is
reserved in the vendor until full payment of the purchase price.
Here, petitioners acknowledge that they failed to settle the
There is also no stipulation giving the vendor (petitioner Taguba)
purchase price of the disputed property in full within the deadline
the right to unilaterally rescind the contract the moment the
set by the Amicable Settlement. Nevertheless, the Court does not
vendee (private respondent de Leon) fails to pay within a fixed
lose sight of the fact that petitioners have already paid more than
period x x x.
three-fourths of the purchase price agreed upon. Further,
petitioners have constituted their family home on the disputed
Considering, therefore, the nature of the transaction between
property in good faith, and have lived thereon for 17 years without
petitioner Taguba and private respondent, which We affirm and
protest.
sustain to be a contract of sale, absolute in nature the applicable
provision is Article 1592 of the New Civil Code x x x.
In addition, respondents do not dispute that petitioners offered to
settle their outstanding balance of P5,310.00 "two (2) days after
xxxx
the deadline [set by the Amicable Settlement] and a few times
thereafter,"46 which offers respondents refused to
In the case at bar, it is undisputed that petitioner Taguba never
accept.47 Respondents also do not claim to have made a demand
notified private respondent by notarial act that he was rescinding
for rescission at any time before petitioners made such offers to
the contract, and neither had he filed a suit in court to rescind the
pay, either through judicial or extra-judicial means, such as are DIRECTED to deposit the same with the RTC for the account of
through a notarial act. respondents. The sum due shall earn interest at the rate of six
percent (6%) per annum from the date of finality of this Decision
Thus, pursuant to Article 1592, and consistent with the Court's until full payment, in accordance with the Court's ruling in Nacar v.
rulings in Taguba and Dignos, the Court deems it proper to grant Gallery Frames49.
petitioners a period of 30 days from notice of this Decision to settle
their outstanding balance. Upon receipt of the foregoing sum, or the deposit of such sum with
the RTC, respondents are DIRECTED to EXECUTE a Deed of
Assuming that petitioners' failure to Absolute Sale in favor of petitioners for the purpose of formalizing
pay constitutes breach, respondents' the oral contract of sale concerning the 300-square-meter
cause of action is already barred by residential lot situated in Barangay Magugpo, Tagum City, Davao
prescription. del Norte, covered by TCT No. T-74907, and DELIVER to
petitioners the original owner's duplicate copy of TCT No. T-74907.
Respondents hinge their cause of action on petitioners' failure to In case of refusal or inability on the part of respondents to execute
pay within the period set by the Amicable Settlement. Hence, this a Deed of Absolute Sale and/or deliver said owner's duplicate copy,
would mean that respondents' action is one that proceeds from a this Decision shall be sufficient to grant the proper Registrar of
breach of a written agreement, which, under Article 1144 of the Deeds the necessary authority to cancel TCT No. T-74907 and
Civil Code, prescribes in 10 years.48 issue a new title in the name of petitioners.

Respondents' Complaint was filed 17 years after the expiration of SO ORDERED.

the payment period stipulated in the Amicable Settlement.
Assuming that petitioners' failure to pay within said period
constitutes sufficient breach which gives rise to a cause of action,
such action has clearly prescribed.

Considering the foregoing, the Court deems it unnecessary to delve

into the other issues raised in the Petition.

WHEREFORE, the Petition is GRANTED. The Decision and

Resolution respectively dated October 19, 2015 and May 17, 2016
rendered by the Court of Appeals-Cagayan de Oro City in CA-G.R.
CV No. 03414-MIN, and the Decision dated July 15, 2013 issued by
the Regional Trial Court, Branch 31, 11th Judicial Region, Davao del
Norte (RTC) in Civil Case No. 4020 are REVERSED and SET
ASIDE.

Petitioners Antonio and Felisa Beltran are ORDERED to pay

respondents Apolonio Cangayda, Jr. and Loreta E. Cangayda the
sum of P5,310.00, representing their outstanding balance, within
30 days from notice of this Decision. In case of refusal or inability
on the part of respondents to receive said amount, petitioners