FIRST DIVISION [G.R. No. 2412. April 11, 1906.] PEDRO ROMAN, plaintiff-appellant, vs. ANDRES GRIMALT, defendant-appellee.

Alberto Barretto, for appellant. Chicote, Miranda & Sierra, for appellee. SYLLABUS 1.CONTRACT, VALIDITY OF. The provision contained in article 1278 of the Civil Code to the effect that a contract shall be considered binding whatever may be the form in which it was executed if it complies with the essential conditions and circumstances attending each particular contract and the nature of the proof required to establish its existence. 2.ID.; ID.; PARTIES TO CONTRACT; CONSENT. No contract shall be considered valid and binding which does not contain the essential elements prescribed in article 1261 of the Civil Code, the consent of the parties being the first such elements. 3.ID.; PARTIES; PROPOSAL, CONSENT; CONSIDERATION. When there is no proof that parties have agreed as to the thing should be the subject of the contract and that one has accepted the terms propose by the other, it can not be said that the contracting parties have given their mutual consent as to the consideration of the contract. 4.ID.; SALE. Where no valid contract of sale exists it create no mutual rights or obligations by between the alleged purchaser and seller, nor any label relation legal relation binding upon them. 5.ID.; ID.; LOST PROPERTY. The disapperance or loss of property which the owner intended or attempted to sell can only interest the owner, who should suffer the loss, and not a third

party who has acquired no rights nor incurred any liability with respect thereto.

DECISION

TORRES, J p: On July 2, 1904, counsel for Pedro Roman filed a complaint in the Court of First Instance of this city against Andres Grimalt, praying that judgment be entered in his favor and against the defendant (1) for the purchase price of the schooner Santa Marina, to wit, 1,500 pesos or its equivalent in Philippine currency, payable by installments in the manner stipulated; (2) for legal interest on the installments due on the dates set forth in the complaint; (3) for costs of proceedings; and (4) for such other and further remedy as might be considered just and equitable. On October 24 of the same year the court made an order sustaining the demurer filed by defendant to the complaint and allowing plaintiff ten days within which to amend his complaint. To this order the plaintiff duly excepted. Counsel for plaintiff on November 5 amended his complaint and alleged that between the 13th and the 23rd day of June, 1904, both parties, through one Fernando Agustin Pastor, verbally agreed upon the sale of the said schooner; that the defendant in a letter dated June 23 had agreed to purchase the said schooner and of offered to pay therefor in three installment of 500 pesos each, to wit, on July 15, September 15, and November 15, adding in his letter that if the plaintiff accepted the plan of payment suggested by him the sale would become effective on the following day; that plaintiff on or about the 24th of the same month had notified the defendant through Agustin Pastor that he accepted the plan of payment suggested by him and that from that date the vessel was at his disposal, and offered to deliver the same at once to defendant if he so desired; that the contract having been closed and the vessel being ready for delivery to the purchaser, it was sunk about 3 o'clock p. m., June 25, in the harbor of Manila and is a total loss, as a result of a severe storm; and that on the 30th of the same month demand was made upon the defendant for the payment of the purchase price of the vessel in the manner stipulated and defendant failed to pay. Plaintiff finally prayed that

judgment be rendered in accordance with the prayer of his previous complaint. Defendant in his answer asked that the complaint be dismissed with costs to the plaintiff, alleging that on or about June 13 both parties met in a public establishment of this city and the plaintiff personally proposed to the defendant the sale of the said vessel, the plaintiff stating that the vessel belonged to him and that it was then in a sea worthy condition; that defendant accepted the offer of sale on condition that the title papers were found to be satisfactory, also that the vessel was in a seaworthy condition; that both parties then called on Calixto Reyes, a notary public, who, after examining the documents, informed them that they were insufficient to show the ownership of the vessel and to transfer title thereto; that plaintiff then promised to perfect his title and about June 23 called on defendant to close the sale, and the defendant believing that plaintiff had perfected his title, wrote to him on the 23d of June and set the following day for the execution of the contract, but, upon being informed that plaintiff had done nothing to perfect his title, he insisted that he would buy the vessel only when the title papers were perfected and the vessel duly inspected. Defendant also denied the other allegations of the complaint inconsistent with his own allegations and further denied the statement contained in paragraph 4 of the complaint to the effect that the contract was completed as to the vessel; that the purchase price and method of payment had been agreed upon; that the vessel was ready for delivery to the purchaser and that an attempt had been made to deliver the same, but admitted, however, the allegations contained in the last part of the said paragraph. The court below found that the parties had not arrived at a definite understanding. We think that this finding is supported by the evidence introduced at the trial. A sale shall be considered perfected and binding as between vendor and vendee when they have agreed as to the thing which is the object of the contract and as to the price, even though neither has been actually delivered. (Art. 1450 of the Civil Code.) Ownership is not considered transmitted until the property is actually delivered and the purchaser has taken possession of

the value and paid the price agreed upon, in which case the sale is considered perfected. When the sale is made by means of a public instrument the execution thereof shall be equivalent to the delivery of the thing which is the object of the contract. (Art. 1462 of the Civil Code.) Pedro Roman, the owner, and Andres Grimalt, the purchaser, had been for several days negotiating for the purchase of the schooner Santa Marina from the 13th to the 23d of June, 1904. They agreed upon the sale of the vessel for the sum of 1,500 pesos, payable in three installments, provided the title papers to the vessel were in proper form. It is so stated in the letter written by the purchaser to the owner on the 23rd of June. The sale of the schooner was not perfected and the purchaser did not consent to the execution of the deed of transfer for the reason that the title of the vessel was in the name of one Paulina Giron and not in the name of Pedro Roman, the alleged owner. Roman promised, however, to perfect his title to the vessel, but he failed to do so. The papers presented by him did not show that he was the owner of the vessel. If no contract of sale was actually executed by the parties the loss of the vessel must be borne by its owner and not by a party who only intended to purchase it and who was unable to do so on account of failure on the part of the owner to show proper title to the vessel and thus enable them to draw up the contract of sale. The vessel was sunk in the bay on the afternoon of the 25th of June, 1904, during a severe storm and before the owner had complied with the condition exacted by the proposed purchaser, to wit, the production of the proper papers showing that the plaintiff was in fact the owner of the vessel in question. The defendant was under no obligation to pay the price of the vessel, the purchase of which had not been concluded. The conversations had between the parties and the letter written by defendant to plaintiff did not establish a contract sufficient in itself to create reciprocal rights between the parties. It follows, therefore, that article 1452 of the Civil Code relative to the injury or benefit of the thing sold after a contract has been perfected and articles 1096 and 1182 of the same code

relative to the obligation to deliver a specified thing and the extinction of such obligation when the thing is either lost or destroyed, are not applicable to the case at bar. The first paragraph of article 1460 of the Civil Code and section 335 of the Code of Civil Procedure are not applicable. These provisions contemplate the existence of a perfected contract which can not, however, be enforced on account of the entire loss of the thing or made the basis of an action in court through failure to conform to the requisites provided by law. The judgment of the court below is affirmed and the complaint is dismissed with costs against the plaintiff. After the expiration of twenty days from the date hereof let judgment be entered in accordance herewith and ten days thereafter let the case be remanded to the Court of First Instance for proper action. So ordered. Arellano, C. J., Mapa, Johnson, Carson and Willard, JJ., concur.

Subject of this petition for review is the decision of the Court of Appeals (Seventeenth Division) in CA-G.R. No. 09149, affirming with modification the judgment of the Regional Trial Court, Sixth (6th) Judicial Region, Branch LVI. Himamaylan, Negros Occidental, in Civil Case No. 1272, which was private respondent Alberto Nepales' action for specific performance of a contract of sale with damages against petitioner Norkis Distributors, Inc. The facts borne out by the record are as follows: Petitioner Norkis Distributors, Inc. (Norkis for brevity), is the distributor of Yamaha motorcycles in Negros Occidental with office in Bacolod City with Avelino Labajo as its Branch Manager. On September 20, 1979, private respondent Alberto Nepales bought from the Norkis-Bacolod branch a brand new Yamaha Wonderbike motorcycle Model YL2DX with Engine No. L2-329401K, Frame No. NL20329401, Color Maroon, then displayed in the Norkis showroom. The price of P7,500.00 was payable by means of a Letter of Guaranty from the Development Bank of the Philippines (DBP), Kabankalan Branch, which Norkis' Branch Manager Labajo agreed to accept. Hence, credit was extended to Nepales for the price of the motorcycle payable by DBP upon release of his motorcycle loan. As security for the loan, Nepales would execute a chattel mortgage on the motorcycle in favor of DBP. Branch Manager Labajo issued Norkis Sales Invoice No. 0120 (Exh. 1) showing that the contract of sale of the motorcycle had been perfected. Nepales signed the sales invoice to signify his conformity with the terms of the sale. In the meantime, however, the motorcycle remained in Norkis' possession. On November 6, 1979, the motorcycle was registered in the Land Transportation Commission in the name of Alberto Nepales. A registration certificate (Exh. 2) in his name was issued by the Land Transportation Commission on November 6, 1979 (Exh. 2-b). The registration fees were paid by him, evidenced by an official receipt, Exhibit 3. On January 22, 1980, the motorcycle was delivered to a certain Julian Nepales who was allegedly the agent of Alberto Nepales but the latter denies it (p. 15, t.s.n., August 2, 1984). The record shows that Alberto and Julian Nepales presented the unit to DBP's Appraiser-Investigator Ernesto Arriesta at the DBP offices in Kabankalan, Negros Occidental Branch (p. 12, Rollo). The motorcycle met an accident on February 3, 1980 at Binalbagan, Negros Occidental. An investigation conducted by the DBP revealed that the unit was being driven by a certain Zacarias Payba at the time of the accident (p. 33, Rollo). The unit was a total

FIRST DIVISION [G.R. No. 91029. February 7, 1991.] NORKIS DISTRIBUTORS, INC., petitioner, vs. THE COURT OF APPEALS & ALBERTO NEPALES, respondents. Jose D. Palma for petitioner. Public Attorney's Office for private respondent.

DECISION

GRIO-AQUINO, J p:

wreck (p. 36, t.s.n., August 2, 1984; p. 13, Rollo), was returned, and stored inside Norkis' warehouse. prLL On March 20, 1980, DBP released the proceeds of private respondent's motorcycle loan to Norkis in the total sum of P7,500. As the price of the motorcycle later increased to P7,828 in March, 1980, Nepales paid the difference of P328 (p. 13, Rollo) and demanded the delivery of the motorcycle. When Norkis could not deliver, he filed an action for specific performance with damages against Norkis in the Regional Trial Court of Himamaylan, Negros Occidental, Sixth (6th) Judicial Region, Branch LVI, where it was docketed as Civil Case No. 1272. He alleged that Norkis failed to deliver the motorcycle which he purchased, thereby causing him damages. Norkis answered that the motorcycle had already been delivered to private respondent before the accident, hence, the risk of loss or damage had to be borne by him as owner of the unit. After trial on the merits, the lower court rendered a decision dated August 27, 1985 ruling in favor of private respondent (p. 28, Rollo) thus: "WHEREFORE, judgment is rendered in favor of the plaintiff and against the defendants. The defendants are ordered to pay solidarily to the plaintiff the present value of the motorcycle which was totally destroyed, plus interest equivalent to what the Kabankalan Sub-Branch of the Development Bank of the Philippines will have to charge the plaintiff on his account, plus P50.00 per day from February 3, 1980 until full payment of the said present value of the motorcycle, plus P1,000.00 as exemplary damages, and costs of the litigation. In lieu of paying the present value of the motorcycle, the defendants can deliver to the plaintiff a brand-new motorcycle of the same brand, kind, and quality as the one which was totally destroyed in their possession last February 3, 1980." (pp. 28-29, Rollo.) On appeal, the Court of Appeals affirmed the appealed judgment on August 21, 1989, but deleted the award of damages "in the amount of Fifty (P50.00) Pesos a day from February 3, 1980 until payment of the present value of the damaged vehicle" (p. 35, Rollo). The Court of Appeals denied Norkis' motion for reconsideration. Hence, this Petition for Review.

The principal issue in this case is who should bear the loss of the motorcycle. The answer to this question would depend on whether there had already been a transfer of ownership of the motorcycle to private respondent at the time it was destroyed. Norkis' theory is that: ". . . After the contract of sale has been perfected (Art. 1475) and even before delivery, that is, even before the ownership is transferred to the vendee, the risk of loss is shifted from the vendor to the vendee. Under Art. 1262, the obligation of the vendor to deliver a determinate thing becomes extinguished if the thing is lost by fortuitous event (Art. 1174), that is, without the fault or fraud of the vendor and before he has incurred delay (Art. 1165, par. 3). If the thing sold is generic, the loss or destruction does not extinguish the obligation (Art. 1263). A thing is determinate when it is particularly designated or physically segregated from all others of the same class (Art. 1460). Thus, the vendor becomes released from his obligation to deliver the determinate thing sold while the vendee's obligation to pay that price subsists. If the vendee had paid the price in advance the vendor may retain the same. The legal effect, therefore, is that the vendee assumes the risk of loss by fortuitous event (Art. 1262) after the perfection of the contract to the time of delivery." (Civil Code of the Philippines, Ambrosio Padilla, Vol. 5, 1987 Ed., p. 87.) Norkis concedes that there was no "actual" delivery of the vehicle. However, it insists that there was constructive delivery of the unit upon: (1) the issuance of the Sales Invoice No. 0120 (Exh. 1) in the name of the private respondent and the affixing of his signature thereon; (2) the registration of the vehicle on November 6, 1979 with the Land Transportation Commission in private respondent's name (Exh. 2); and (3) the issuance of official receipt (Exh. 3) for payment of registration fees (p. 33, Rollo). That argument is not well taken. As pointed out by the private respondent, the issuance of a sales invoice does not prove transfer of ownership of the thing sold to the buyer. An invoice is nothing more than a detailed statement of the nature, quantity and cost of the thing sold and has been considered not a bill of sale (Am. Jur. 2nd Ed., Vol. 67, p. 378). cdphil

In all forms of delivery, it is necessary that the act of delivery whether constructive or actual, be coupled with the intention of delivering the thing. The act, without the intention, is insufficient (De Leon, Comments and Cases on Sales, 1978 Ed., citing Manresa, p. 94). When the motorcycle was registered by Norkis in the name of private respondent, Norkis did not intend yet to transfer the title or ownership to Nepales, but only to facilitate the execution of a chattel mortgage in favor of the DBP for the release of the buyer's motorcycle loan. The Letter of Guarantee (Exh. 5) issued by the DBP, reveals that the execution in its favor of a chattel mortgage over the purchased vehicle is a pre-requisite for the approval of the buyer's loan. If Norkis would not accede to that arrangement, DBP would not approve private respondent's loan application and, consequently, there would be no sale. In other words, the critical factor in the different modes of effecting delivery, which gives legal effect to the act, is the actual intention of the vendor to deliver, and its acceptance by the vendee. Without that intention, there is no tradition (Abuan vs. Garcia, 14 SCRA 759). In the case of Addison vs. Felix and Tioco (38 Phil. 404, 408), this Court held: "The Code imposes upon the vendor the obligation to deliver the thing sold. The thing is considered to be delivered when it is 'placed in the hands and possession of the vendee.' (Civil Code, Art. 1462). It is true that the same article declares that the execution of a public instrument is equivalent to the delivery of the thing which is the object of the contract, but, in order that this symbolic delivery may produce the effect of tradition, it is necessary that the vendor shall have had such control over the thing sold that, at the moment of the sale, its material delivery could have been made. It is not enough to confer upon the purchaser the ownership and the right of possession. The thing sold must be placed in his control . When there is no impediment whatever to prevent the thing sold passing into the tenancy of the purchaser by the sole will of the vendor, symbolic delivery through the execution of a public instrument is sufficient. But if, notwithstanding the execution of the instrument, the purchaser cannot have the enjoyment and material tenancy of the thing and make use of it himself or through another in his name, because such tenancy

and enjoyment are opposed by the interposition of another will, then fiction yields to reality the delivery has not been effected." (Emphasis supplied.)

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

EN BANC [G.R. No. L-14475. May 30, 1961.] SOUTHERN MOTORS, INC., plaintiff-appellee, vs. ANGEL MOSCOSO, defendant-appellant. Diosdado Garingalao for plaintiff-appellee. Calixto Zaldivar for defendant-appellant. SYLLABUS 1.SALE ON INSTALLMENTS; ACTION FILED IS FOR SPECIFIC PERFORMANCE; MORTGAGED PROPERTY ATTACHED; SALE OF MORTGAGED PROPERTY NOT TANTAMOUNT TO FORECLOSURE OF MORTGAGED; DEFICIENCY JUDGMENT. In sales on installments, where the action instituted is for specific performance and the mortgaged property is subsequently attached and sold, the sale thereof does not amount to a foreclosure of the mortgaged; hence, the seller-creditor is entitled to deficiency judgment.

The defendant failed to pay 3 installments on the balance of the purchase price. On November 4, 1957, the plaintiff filed a complaint against the defendant, to recover the unpaid balance of the promissory note. Upon plaintiff's petition, embodied in the complaint, a writ of attachment was issued by the lower court on the properties of the defendant. Pursuant thereto, the said Chevrolet truck, and a house and lot belonging to defendant, were attached by the Sheriff of San Jose, Antique, where defendant was residing on November 25, 1957, and said truck was brought to the plaintiff's compound in Iloilo City, for safe keeping. After attachment and before the trial of the case on the merits, acting upon the plaintiff's motion dated December 23, 1957, for the immediate sale of the mortgaged truck, the Provincial Sheriff of Iloilo on January 2, 1958, sold the said truck at public auction in which plaintiff itself was the only bidder for P1,000.00. The case had not been set for hearing then. The trial court on March 27, 1958, condemned the defendant to pay the plaintiff the amount of P4,475.00 with interest at the rate of 12% per annum from August 16, 1957, until fully paid, plus 10% thereof as attorney's fees and costs, against which defendant interposed the present appeal, contending that the trial court erred (1)In not finding that the attachment caused to be levied on the truck and its immediate sale at public auction, was tantamount to the foreclosure of the chattel mortgage on said truck; and (2)In rendering judgment in favor of the plaintiffappellee. Both parties agreed that the case is governed by Article 1484 of the new Civil Code, which provides: "ART. 1484.In a contract of sale of personal property the price of which is payable in installments, the vendor may exercise any of the following remedies: (1)Exact fulfillment of the obligation, should the vendee fail to pay;

DECISION

PAREDES, J p: The case was submitted on agreed statement of facts. On June 6, 1957, plaintiff-appellee, Southern Motors, Inc. sold to defendant-appellant Angel Moscoso one Chevrolet truck, on installment basis, for P6,445.00. Upon making a down payment, the defendant executed a promissory note for the sum of P4,915.00, representing the unpaid balance of the purchase price (Annex A, complaint), to secure the payment of which, a chattel mortgage was constituted on the truck in favor of the plaintiff (Annex B). Of said account of P4,915.00, the defendant had paid a total of P550.00, which P110.00 was applied to the interest up to August 15, 1957, and P400.00 to the principal, thus leaving an unpaid balance of P4,475.00.

(2)Cancel the sale, should the vendee's failure to pay cover two or more installments; (3)Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the vendee's failure to pay cover two or more installments. In this case, he shall have no further action against the purchaser to recover any unpaid balance of the price. Any agreement to the contrary shall be void." While the appellee claims that in filing the complaint, demanding payment of the unpaid balance of the purchase price, it has availed of the first remedy provided in said article i.e. to exact fulfillment of the obligation (specific performance); the appellant, on the other hand, contends that appellee had availed itself of the third remedy viz, the foreclosure of the chattel mortgage on the truck. The appellant argues that considering the history of the law, the circumstances leading to its enactment, the evil that the law was intended to correct and the remedy afforded (Art. 1454-A of the old Civ. Code; Act No. 4122; Bachrach Motor Co. vs. Reyes 62 Phil., 461, 466-469); that the appellee did not content itself by waiting for the judgment on the complaint and then execute the judgment which might be rendered in its favor, against the properties of the appellant; that the appellee obtained a preliminary attachment on the subject of the chattel mortgage itself and caused said truck to be sold at public auction, in which he was the bidder for P1,000.00; the result of which, was similar to what would have happened, had it foreclosed the mortgage pursuant to the provisions of sec. 14 of Act No. 1508 (Chattel Mortgage Law); the said appellee had availed itself of the third remedy aforequoted. In other words, appellant submits that the matter should be looked at, not by the allegations in the complaint, but by the very effect and result of the procedural steps taken and that appellee tried to camouflage its acts by filing a complaint purportedly to exact the fulfillment of an obligation, in an attempt to circumvent the provisions of article 1484 of the new Civil Code. Appellant concludes that under his theory, a deficiency judgment would be without legal basis. We do not share the views of the appellant on this matter. Manifestly, the appellee had chosen the first remedy. The complaint is an ordinary civil action for recovery of the remaining unpaid balance due on the promissory note. The plaintiff had not adopted the procedure or methods outlined by sec. 14 of the Chattel Mortgage Law but those prescribed for ordinary civil actions, under the Rules of Court. Had appellee elected the foreclosure, it would not have instituted this

case, in court; it would not have caused the chattel to be attached under rule 59, and had it sold at public auction, in the manner prescribed by Rule 39. That the herein appellee did not intend to foreclose the mortgage truck, is further evinced by the fact that it had also attached the house and lot of the appellant at San Jose, Antique. In the case of Southern Motors, Inc. vs. Magbanua, G.R. No. L-8578, Oct. 29, 1956, we held: "By praying that the defendant be ordered to pay it the sum of P4,690.00 together with the stipulated interest at 14% per annum from 17 March 1954 until fully paid, plus 10% of the total amount due as attorney's fees and costs of collection, the plaintiff elected to exact the fulfillment of the obligation and not to foreclose the mortgage on the truck. Otherwise, it would not have gone to court to collect the amount as prayed for in the complaint. Had it elected to foreclose the mortgage on the truck, all the plaintiff had to do was to cause the truck to be sold at public auction pursuant to section 14 of the Chattel Mortgage Law. The fact that aside from the mortgaged truck, another Chevrolet truck and two parcels of land belonging to the defendant were attached, shows that the plaintiff did not intend to foreclose the mortgage. "As the plaintiff has chosen to exact the fulfillment of the defendant's obligation, the former may enforce execution of the judgment rendered in its favor on the personal and real property of the latter not exempt from execution sufficient to satisfy the judgment. That part of the judgment against the properties of the defendant except the mortgaged truck and discharging the writ of attachment on his other properties is erroneous." We perceive nothing unlawful or irregular in appellee's act of attaching the mortgaged truck itself. Since herein appellee has chosen to exact the fulfillment of the appellant's obligation, it may enforce execution of the judgment that may be favorably rendered hereon, on all personal and real properties of the latter not exempt from execution sufficient to satisfy such judgment. It should be noted that a house and lot at San Jose, Antique were also attached. No one can successfully contest that the attachment was merely an incident to an ordinary civil action. (Sections 1 & 11, Rule 59; sec. 16 Rule 39.) The mortgage creditor may recover judgment on the mortgage debt

and cause an execution on the mortgaged property and may cause an attachment to be issued and levied on such property, upon beginning his civil action (Tizon vs. Valdez, 48 Phil., 910-911). IN VIEW HEREOF, the judgment appealed from hereby is affirmed, with cots against the defendant-appellant. Bengzon, C.J., Bautista Angelo, Labrador, Concepcion, Dizon, De Leon and Natividad, JJ., concur. Separate Opinions REYES, J.B.L., J., concurring: I fully concur in the opinion, and would only add that appellant's argument ignores a substantial difference between the effect of foreclosing the chattel mortgage and attaching the mortgaged chattel. The variance lies in the ability of the debtor to retain possession of the property attached by giving a counterbond and thereby discharging the attachment. This remedy the debtor does not have in the event of foreclosure. FIRST DIVISION [G.R. No. L-27862. November 20, 1974.] LORENZO PASCUAL and LEONILA plaintiffs-appellees, vs. UNIVERSAL CORPORATION, defendant-appellant. Cesar C. Peralejo for plaintiffs-appellees. Francisco Carreon & Renato E. Taada for defendant-appellant. TORRES, MOTORS

In the lower court the parties entered into the following stipulation of facts: "1.That the plaintiffs executed the real estate mortgage subject matter of this complaint on December 14, 1960 to secure the payment of the indebtedness of PDP Transit, Inc. for the purchase of five (5) units of Mercedez Benz trucks under invoices Nos. 2836, 2837, 2838, 2839 and 2840 with a total purchase price or principal obligation of P152,506.50 but plaintiffs' guarantee is not to exceed P50,000.00 which is the value of the mortgage. 2.That the principal obligation of P152,506.50 was to bear interest at 1% a month from December 14, 1960. 3.That as of April 5, 1961 with reference to the two units mentioned above and as of May 22, 1961 with reference to the three units, PDP Transit, Inc., plaintiffs' principal, had paid to the defendant Universal Motors Corporation the sum of P92,964.91, thus leaving a balance of P68,641.69 including interest due as of February 8, 1965. 4.That the aforementioned obligation guaranteed by the plaintiffs under the Real Estate Mortgage, subject of this action, is further secured by separate deeds of chattel mortgages on the Mercedez Benz units covered by the aforementioned invoices in favor of the defendant Universal Motors Corporation. 5.That on March 19, 1965, the defendant Universal Motors Corporation filed a complaint against PDP Transit, Inc. before the Court of First Instance of Manila docketed as Civil Case No. 60201 with a petition for a writ of Replevin, to collect the balance due under the Chattel Mortgages and to repossess all the units sold to plaintiffs' principal PDP Transit, Inc. including the five (5) units guaranteed under the subject Real (Estate) Mortgage." In addition to the foregoing the Universal Motors Corporation admitted during the hearing that in its suit (C.C. No. 60201) against the PDP Transit, Inc. it was able to repossess all the units sold to the latter, including the five (5) units guaranteed by the subject real estate

DECISION

MAKALINTAL, J p:

mortgage, and to foreclose all the chattel mortgages constituted thereon, resulting in the sale of the trucks at public auction. With the foregoing background, the spouses Lorenzo Pascual and Leonila Torres, the real estate mortgagors, filed an action in the Court of First Instance of Quezon City (Civil Case No. 8189) for the cancellation of the mortgage they constituted on two (2) parcels of land 1 in favor of the Universal Motors Corporation to guarantee the obligation of PDP Transit, Inc. to the extent of P50,000. The court rendered judgment for the plaintiffs, ordered the cancellation of the mortgage, and directed the defendant Universal Motors Corporation to pay attorney's fees to the plaintiffs in the sum of P500.00. Unsatisfied with the decision, defendant interposed the present appeal. In rendering judgment for the plaintiffs the lower court said in part: ". . . there does not seem to be any doubt that Art. 1484 2 of the New Civil Code may be applied in relation to a chattel mortgage constituted upon personal property on the installment basis (as in the present case) precluding the mortgagee to maintain any further action against the debtor for the purpose of recovering whatever balance of the debt secured, and even adding that any agreement to the contrary shall be null and void." The appellant now disputes the applicability of Article 1484 Civil Code to the case at bar on the ground that there is no evidence on record that the purchase by PDP Transit, Inc. of the five (5) trucks, the payment of the price of which was partly guaranteed by the real estate mortgage in question, was payable in installments and that the purchaser had failed to pay two or more installments. The appellant also contends that in any event what article 1484 prohibits is for the vendor to recover from the purchaser the unpaid balance of the price after he has foreclosed the chattel mortgage on the thing sold, but not a recourse against the security put up by a third party. Both arguments are without merit. The first involves an issue of fact: whether or not the sale was one on installments; and on this issue the lower court found that it was, and that there was failure to pay two or more installments. This finding is not subject to review by this Court. The appellant's bare allegation to the contrary cannot be considered at this stage of the case. The next contention is that what article 1484 withholds from the vendor is the right to recover any deficiency from the purchaser after the foreclosure of the chattel mortgage and not a recourse to the additional security put up by a third party to guarantee the purchaser's performance of his obligation. A similar argument has

been answered by this Court in this wise "(T)o sustain appellant's argument is to overlook the fact that if the guarantor should be compelled to pay the balance of the purchase price, the guarantor will in turn be entitled to recover what she has paid from the debtor vendee (Art. 2066, Civil Code); so that ultimately, it will be the vendee who will be made to bear the payment of the balance of the price, despite the earlier foreclosure of the chattel mortgage given by him. Thus, the protection given by Article 1484 would be indirectly subverted, and public policy overturned." (Cruz vs. Filipinas Investment & Finance Corporation, L-24772, May 27, 1968; 23 SCRA 791). The decision appealed from is affirmed, with costs against the defendant-appellant. Castro, Makasiar, Esguerra and Muoz Palma, JJ., concur. Teehankee, J., did not take part. Footnotes 1.Situated in Quezon City and covered by Transfer Certificates of Title Nos. 77639 and 3005. 2.Article 1484 of the Civil Code provides: "ART. 1484.In a contract of sale of personal property the price of which is payable in installments, the vendor may exercise any of the following remedies: (1)Exact fulfillment of the obligation, should the vendee fail to pay; (2)Cancel the sale, should the vendee's failure to pay cover two or more installments; (3)Foreclosure the chattel mortgage on the thing sold, if one has been constituted, should the vendee's failure to pay cover two or more installments. In this case, he shall have no further action against the purchaser to recover any unpaid balance of the price. Any agreement to the contrary shall be void."

SECOND DIVISION [G.R. No. 82508. September 29, 1989.] FILINVEST CREDIT CORPORATION, petitioner, vs. THE COURT OF APPEALS, JOSE SY BANG and ILUMINADA TAN-SY BANG, * respondents. Labaquis, Loyola, Angara and Associates for petitioner. Alfredo I. Raya for private respondents. SYLLABUS 1.CIVIL LAW; OWNERSHIP; FINANCING INSTITUTION AS OWNER IS NOT IMMUNE FRAOM ANY RECOURSE FROM BUYER; CASE AT BAR. Bent on acquiring a rock crusher, the private respondents applied for financial assistance from the petitioner, FILINVEST Credit Corporation. The petitioner agreed to extend to the private respondents financial aid on the following conditions: that the machinery be purchased in the petitioner's name; that it be leased (with option to purchase upon the termination of the lease period) to the private respondents; and that the private respondents execute a real estate mortgage in favor of the petitioner as security for the amount advanced by the latter. Held: While it is accepted that the petitioner is a financing institution, it is not, however, immune from any recourse by the private respondents. Notwithstanding the testimony of private respondent Jose Sy Bang that he did not purchase the rock crusher from the petitioner, the fact that the rock crusher was purchased from Rizal Consolidated Corporation in the name and with the funds of the petitioner proves beyond doubt that the ownership thereof was effectively transferred to it. It is precisely this ownership which enabled the petitioner to enter into the "Contract of Lease of Machinery and Equipment" with the private respondents. 2.ID.; CONTRACTS; INTERPRETATION; A CONTRACT IS WHAT THE LAW DEFINES IT AND THE PARTIES INTEND IT TO BE, NOT WHAT IF IS CALLED BY THE PARTIES. The real intention of the parties should prevail. The nomenclature of the agreement cannot change its true essence, i.e., a sale on installments. It is basic that a contract is what the law defines it and the parties intend it to be, not what it is called by the parties. It is apparent here that the intent of the parties to the subject contract is for the so-called rentals to be the installment

payments. Upon the completion of the payments, then the rock crusher, subject matter of the contract, would become the property of the private respondents. This form of agreement has been criticized as a lease only in name. 3.ID.; SPECIAL CONTRACTS; SALES; REMEDIES OF SELLER OF MOVABLES PAYABLE IN INSTALLMENTS WHERE BUYER FAILS TO PAY TWO OR MORE INSTALLMENTS; REMEDIES ARE ALTERNATIVE NOT CUMULATIVE. Under Article 1484 of the New Civil Code, the seller of movables in installments, in case the buyer fails to pay two or more installments, may elect to pursue either of the following remedies: (1) exact fulfillment by the purchaser of the obligation; (2) cancel the sale; or (3) foreclose the mortgage on the purchased property if one was constituted thereon. It is now settled that the said remedies are alternative and not cumulative and therefore, the exercise of one bars the exercise of the others. 4.ID.; ID.; ID.; CONTRACT OF LEASE WITH OPTION TO BUY, RESORTED TO AS A MEANS OF CIRCUMVENT ARTICLE 1484 OF NEW CIVIL CODE. Indubitably, the device contract of lease with option to buy is at times resorted to as a means to circumvent Article 1484, particularly paragraph (3) thereof. Through the set-up, the vendor, by retaining ownership over the property in the guise of being the lessor, retains, likewise, the right to repossess the same, without going through the process of foreclosure, in the event the vendee-lessee defaults in the payment of the installments. There arises therefore no need to constitute a chattel mortgage over the movable sold. More important, the vendor, after repossessing the property and, in effect, canceling the contract of sale, gets to keep all the installments-cumrentals already paid. 5.ID.; QUASI-DELICTS, NEGLIGENCE; BETWEEN TWO PARTIES, HE WHO BY HIS NEGLIGENCE CAUSED THE LOSS, SHALL BEAR THE SAME. Considering that between the parties, it is the private respondents, by reason of their business, who are presumed to be more knowledgeable, if not experts, on the machinery subject of the contract, they should not therefore be heard now to complain of any alleged deficiency of the said machinery. It is their failure or neglect to exercise the caution and prudence of an expert, or, at least, of a prudent man, in the selection, testing, and inspection of the rock crusher that gave rise to their difficulty and to this conflict. A wellestablished principle in law is that between two parties, he, who by his negligence caused the loss, shall bear the same. 6.ID.; SPECIAL CONTRACTS; SALES; WARRANTY; EXPRESS WAIVER OF WARRANTIES ABSOLVED SELLER FROM ANY LIABILITY ARISING FROM

ANY DEFECT OR DEFICIENCY OF MACHINERY; CASE AT BAR. At any rate, even if the private respondents could not be adjudged as negligent, they still are precluded from imputing any liability on the petitioner. One of the stipulations in the contract they entered into with the petitioner is an express waiver of warranties in favor of the latter. By so signing the agreement, the private respondents absolved the petitioner from any liability arising from any defect or deficiency of the machinery they bought. The stipulation on the machine's production capacity being "typewritten" and that of the waiver being "printed" does not militate against the latter's effectivity. As such, whether "a capacity of 20 to 40 tons per hour" is a condition or a description is of no moment. What stands is that the private respondents had expressly exempted the petitioner from any warranty whatsoever. 7.ID.; ID.; ID.; ID.; BUYER SHOULD INSPECT A PRODUCT BEFORE PURCHASE AND NOT RETURN IT FOR DEFECTS DISCOVERED LATER ON. Taking into account that due to the nature of its business and its mode of providing financial assistance to clients, the petitioner deals in goods over which it has no sufficient know-how or expertise, and the selection of a particular item is left to the client concerned, the latter, therefore, shoulders the responsibility of protecting himself against product defects. This is where the waiver of warranties is of paramount importance. Common sense dictates that a buyer inspects a product before purchasing it (under the principle of caveat emptor or "buyer beware") and does not return it for defects discovered later on, particularly if the return of the product is not covered by or stipulated in a contract or warranty. 8.ID.; ID.; ID.; ID.; WAIVER NOT CONSIDERED A MERE SUPRLUSAGE IN CONTRACT. to declare the waiver as non-effective, as the lower courts did, would impair the obligation of contracts. Certainly, the waiver in question could not be considered a mere surplusage in the contract between the parties. Moreover, nowhere is it shown in the records of the case that the private respondent has argued for its nullity or illegality. In any event, we find no ambiguity in the language of the waiver or the release of warranty. There is therefore no room for any interpretation as to its effect or applicability vis-a-vis the deficient output of the rock crusher. Suffice it to say that the private respondents have validly excused the petitioner from any warranty on the rock crusher. Hence, they should bear the loss for any defect found therein.

SARMIENTO, J p: This is a petition for review on certiorari of the decision, 1 dated March 17, 1988, of the Court of Appeals which affirmed with modification the decision 2 of the Regional Trial Court of Quezon, Branch LIX, Lucena City. LLjur The controversy stemmed from the following facts: The private respondents, the spouses Jose Sy Bang and Iluminada Tan, were engaged in the sale of gravel produced from crushed rocks and used for construction purposes. In order to increase their production, they engaged the services of Mr. Ruben Mercurio, the proprietor of Gemini Motor Sales in Lucena City, to look for a rock crusher which they could buy. Mr. Mercurio referred the private respondents to the Rizal Consolidated Corporation which then had for sale one such machinery described as: ONE UNIT LIPPMAN PORTABLE CRUSHING PLANT (RECONDITIONED) [sic] JAW CRUSHER 10 x 16 DOUBLE ROLL CRUSHER 16x16 3 UNITS PRODUCT CONVEYOR 75 HP ELECTRIC MOTOR 8 PCS. BRAND NEW TIRES CHASSIS NO. 19696 GOOD RUNNING CONDITION 3 Oscar Sy Bang, a brother of private respondent Jose Sy Bang, went to inspect the machine at the Rizal Consolidated's plant site. Apparently satisfied with the machine, the private respondents signified their intent to purchase the same. They were however confronted with a problem the rock crusher carried a cash price tag of P550,000.00. Bent on acquiring the machinery, the private respondents applied for financial assistance from the petitioner, FILINVEST Credit Corporation. The petitioner agreed to extend to the private respondents financial aid on the following conditions: that the machinery be purchased in the petitioner's name; that it be leased (with option to purchase upon the termination of the lease period) to the private respondents; and that the private respondents execute a real estate mortgage in favor of the petitioner as security for the amount advanced by the latter.

DECISION

Accordingly, on May 18, 1981, a contract of lease of machinery (with option to purchase) was entered into by the parties whereby the private respondents agreed to lease from the petitioner the rock crusher for two years starting from July 5, 1981 payable as follows: P10,000.00 first 3 23,000.00 next 6 24,800.00 next 15 months 4 months months

issuance of a writ of preliminary injunction. 9 On May 23, 1983, three days before the scheduled auction sale, the trial court issued a temporary restraining order commanding the Provincial Sheriff of Quezon, and the petitioner, to refrain and desist from proceeding with the public auction. 10 Two years later, on September 4, 1985, the trial court rendered a decision in favor of the private respondents, the dispositive portion of which reads: WHEREFORE, PREMISES CONSIDERED, Judgment is hereby rendered: 1.making the injunction permanent; 2.rescinding the contract of lease of the machinery and equipment and ordering the plaintiffs to return to the defendant corporation the machinery subject of the lease contract, and the defendant corporation to return to plaintiffs the sum of P470,950.00 it received from the latter as guaranty deposit and rentals with legal interest thereon until the amount is fully restituted; 3.annulling the real estate mortgage constituted over the properties of the plaintiffs covered by Transfer Certificate of Title Nos. T-32480 and T-5779 of the Registry of Deeds of Lucena City; 4.ordering the defendant corporation to pay plaintiffs P30,000.00 as attorney's fees and the costs of the suit. SO ORDERED. 11 Dissatisfied with the trial court's decision, the petitioner elevated the case to the respondent Court of Appeals. On March 17, 1988, the appellate court, finding no error in the appealed judgment, affirmed the same in toto. 12 Hence, this petition. Before us, the petitioner reasserts that the private respondents' cause of action is not against it (the petitioner), but against either the Rizal Consolidated Corporation, the original owner-seller of the subject rock crusher, or Gemini Motors Sales which served as a conduit-facilitator of the purchase of the said machine. The petitioner argues that it is a financing institution engaged in quasi-banking activities, primarily the

The contract likewise stipulated that at the end of the two-year period, the machine would be owned by the private respondents. Thus, the private respondents issued in favor of the petitioner a check for P150,550.00, as initial rental (or guaranty deposit), and twentyfour (24) postdated checks corresponding to the 24 monthly rentals. In addition, to guarantee their compliance with the lease contract, the private respondents executed a real estate mortgage over two parcels of land in favor of the petitioner. The rock crusher was delivered to the private respondents on June 9, 1981.

Three months from the date of delivery, or on September 7, 1981, however, the private respondents, claiming that they had only tested the machine that month, sent a letter-complaint to the petitioner, alleging that contrary to the 20 to 40 tons per hour capacity of the machine as stated in the lease contract, the machine could only process 5 tons of rocks and stones per hour. They then demanded that the petitioner make good the stipulation in the lease contract. They followed that up with similar written complaints to the petitioner, but the latter did not, however, act on them. Subsequently, the private respondents stopped payment on the remaining checks they had issued to the petitioner. 5 As a consequence of the non-payment by the private respondents of the rentals on the rock crusher as they fell due despite the repeated written demands, the petitioner extrajudicially foreclosed the real estate mortgage. 6 On April 18, 1983, the private respondents received a Sheriff s Notice of Auction Sale informing them that their mortgaged properties were going to be sold at a public auction on May 25, 1983 at 10:00 o'clock in the morning at the Office of the Provincial Sheriff in Lucena City to satisfy their indebtedness to the petitioner. 7 To thwart the impending auction of their properties, the private respondents filed before the Regional Trial Court of Quezon, on May 4, 1983, 8 a complaint against the petitioner, for the rescission of the contract of lease, annulment of the real estate mortgage, and for injunction and damages, with prayer for the

lending of money to entrepreneurs such as the private respondents and the general public, but certainly not the leasing or selling of heavy machineries like the subject rock crusher. The petitioner denies being the seller of the rock crusher and only admits having financed its acquisition by the private respondents. Further, the petitioner absolves itself of any liability arising out of the lease contract it signed with the private respondents due to the waiver of warranty made by the latter. The petitioner likewise maintains that the private respondents being presumed to be knowledgeable about machineries, should be held responsible for the detection of defects in the machine they had acquired, and on account of that, they are estopped from claiming any breach of warranty. Finally, the petitioner interposed the defense of prescription, invoking Article 1571 of the Civil Code, which provides: Art. 1571.Actions arising from the provisions of the preceding ten articles shall be barred after six months, from the delivery of the thing sold. We find the petitioner's first contention untenable. While it is accepted that the petitioner is a financing institution, it is not, however, immune from any recourse by the private respondents. Notwithstanding the testimony of private respondent Jose Sy Bang that he did not purchase the rock crusher from the petitioner, the fact that the rock crusher was purchased from Rizal Consolidated Corporation in the name and with the funds of the petitioner proves beyond doubt that the ownership thereof was effectively transferred to it. It is precisely this ownership which enabled the petitioner to enter into the "Contract of Lease of Machinery and Equipment" with the private respondents. LLphil Be that as it may, the real intention of the parties should prevail. The nomenclature of the agreement cannot change its true essence, i.e., a sale on installments. It is basic that a contract is what the law defines it and the parties intend it to be, not what it is called by the parties. 13 It is apparent here that the intent of the parties to the subject contract is for the so-called rentals to be the installment payments. Upon the completion of the payments, then the rock crusher, subject matter of the contract, would become the property of the private respondents. This form of agreement has been criticized as a lease only in name. Thus in Vda. de Jose v. Barrueco, 14 we stated: Sellers desirous of making conditional sales of their goods, but who do not wish openly to make a bargain in that form, for one reason or another, have frequently resorted to the device of making contracts

in the form of leases either with options to the buyer to purchase for a small consideration at the end of term, provided the so-called rent has been duly paid, or with stipulations that if the rent throughout the term is paid, title shall thereupon vest in the lessee. It is obvious that such transactions are leases only in name. The so-called rent must necessarily be regarded as payment of the price in installments since the due payment of the agreed amount results, by the terms of bargain, in the transfer of title to the lessee. 15 The importance of the criticism is heightened in the light of Article 1484 of the new Civil Code which provides for the remedies of an unpaid seller of movables in installment basis. Article 1484.In a contract of sale of personal property the price of which is payable in installments, the vendor may exercise any of the following remedies: (1)Exact fulfillment of the obligation, should the vendee fail to pay; (2)Cancel the sale, should the vendee's failure to pay cover two or more installments; (3)Foreclose the chattel mortgage or the thing sold, if one has been constituted, should the vendee's failure to pay cover two or more installments. In this case, he shall have no further action against the purchaser to recover any unpaid balance of the price. Any agreement to the contrary shall be void. Under the aforequoted provision, the seller of movables in installments, in case the buyer fails to pay two or more installments, may elect to pursue either of the following remedies: (1) exact fulfillment by the purchaser of the obligation; (2) cancel the sale; or (3) foreclose the mortgage on the purchased property if one was constituted thereon. It is now settled that the said remedies are alternative and not cumulative and therefore, the exercise of one bars the exercise of the others. Indubitably, the device contract of lease with option to buy is at times resorted to as a means to circumvent Article 1484, particularly paragraph (3) thereof. Through the set-up, the vendor, by retaining

ownership over the property in the guise of being the lessor, retains, likewise, the right to repossess the same, without going through the process of foreclosure, in the event the vendee-lessee defaults in the payment of the installments. There arises therefore no need to constitute a chattel mortgage over the movable sold. More important, the vendor, after repossessing the property and, in effect, canceling the contract of sale, gets to keep all the installments-cum-rentals already paid. It is thus for these reasons that Article 1485 of the new Civil Code provides that: Article 1485.The preceding article shall be applied to contracts purporting to be leases of personal property with option to buy, when the lessor has deprived the lessee of possession or enjoyment of the thing. (Emphasis ours.) Unfortunately, even with the foregoing findings, we however fail to find any reason to hold the petitioner liable for the rock crusher's failure to produce in accordance with its described capacity. According to the petitioner, it was the private respondents who chose, inspected, and tested the subject machinery. It was only after they had inspected and tested the machine, and found it to their satisfaction, that the private respondents sought financial aid from the petitioner. These allegations of the petitioner had never been rebutted by the private respondents. In fact, they were even admitted by the private respondents in the contract they signed. Thus: LESSEE'S SELECTION, INSPECTION AND VERIFICATION. The LESSEE hereby confirms and acknowledges that he has independently inspected and verified the leased property and has selected and received the same from the Dealer of his own choosing in good order and excellent running and operating condition and on the basis of such verification, etc. the LESSEE has agreed to enter into this Contract." 16

conflict. A well-established principle in law is that between two parties, he, who by his negligence caused the loss, shall bear the same. At any rate, even if the private respondents could not be adjudged as negligent, they still are precluded from imputing any liability on the petitioner. One of the stipulations in the contract they entered into with the petitioner is an express waiver of warranties in favor of the latter. By so signing the agreement, the private respondents absolved the petitioner from any liability arising from any defect or deficiency of the machinery they bought. The stipulation on the machine's production capacity being "typewritten" and that of the waiver being "printed" does not militate against the latter's effectivity. As such, whether "a capacity of 20 to 40 tons per hour" is a condition or a description is of no moment. What stands is that the private respondents had expressly exempted the petitioner from any warranty whatsoever. Their Contract of Lease Of Machinery And Equipment states: WARRANTY LESSEE absolutely releases the lessor from any liability whatsoever as to any and all matters in relation to warranty in accordance with the provisions hereinafter stipulated. 17 Taking into account that due to the nature of its business and its mode of providing financial assistance to clients, the petitioner deals in goods over which it has no sufficient know-how or expertise, and the selection of a particular item is left to the client concerned, the latter, therefore, shoulders the responsibility of protecting himself against product defects. This is where the waiver of warranties is of paramount importance. Common sense dictates that a buyer inspects a product before purchasing it (under the principle of caveat emptor or "buyer beware") and does not return it for defects discovered later on, particularly if the return of the product is not covered by or stipulated in a contract or warranty. In the case at bar, to declare the waiver as non-effective, as the lower courts did, would impair the obligation of contracts. Certainly, the waiver in question could not be considered a mere surplusage in the contract between the parties. Moreover, nowhere is it shown in the records of the case that the private respondent has argued for its nullity or illegality. In any event, we find no ambiguity in the language of the waiver or the release of warranty. There is therefore no room for any interpretation as to its effect or applicability vis-a-vis the deficient output of the rock crusher. Suffice it to say that the private respondents have validly excused the petitioner from any warranty on the rock crusher. Hence, they should bear the loss for any defect found therein. prLL

Moreover, considering that between the parties, it is the private respondents, by reason of their business, who are presumed to be more knowledgeable, if not experts, on the machinery subject of the contract, they should not therefore be heard now to complain of any alleged deficiency of the said machinery. It is their failure or neglect to exercise the caution and prudence of an expert, or, at least, of a prudent man, in the selection, testing, and inspection of the rock crusher that gave rise to their difficulty and to this

WHEREFORE, the Petition is GRANTED; the Decision of the Court of Appeals dated March 17, 1988 is hereby REVERSED AND SET ASIDE, and another one rendered DISMISSING the complaint. Costs against the private respondents. SO ORDERED. Melencio-Herrera, Paras and Regalado, JJ., concur. Padilla, J., No part, former counsel of petitioner-corporation. FIRST DIVISION [G.R. No. 75364. November 23, 1988.] ANTONIO LAYUG, petitioner, vs. INTERMEDIATE APPELLATE COURT and RODRIGO GABUYA, respondents. Francisco Ma. Garcia for petitioner. Moises F . Dalisay, Sr. for private respondent. SYLLABUS 1.REMEDIAL LAW; CIVIL PROCEDURE; APPEAL. Findings of fact of the Court of Appeals are conclusive and generally binding even on the Supreme Court. 2.CIVIL LAW; CIVIL CODE; CONTRACTS; INTERPRETATION. Under Article 1374 of the Civil Code, the stipulations of a contract shall be interpreted together "attributing to the doubtful ones that sense which may result from all of them taken jointly." 3.ID.; ID.; EQUITY; NOT APPLICABLE WHERE THERE IS A STATUTE IN FORCE AND APPLICABLE. The principle of equity and the general provisions of the Civil Code may not be applied in the resolution of the controversy where there is an adequate remedy at law available to the parties.

4.ID.; ID.; ID.; SALES OF REAL ESTATE ON INSTALLMENT. Republic Act 6552 governs sales of real estate on installments. It recognizes the vendor's right to cancel such contracts upon failure of the vendee to comply with the terms of the sale, but at the same time gives the buyer, subject to conditions provided by law, a one month grace period for every year of installment payment made and if the contract is cancelled, a refund of cash surrender value.

DECISION

NARVASA, J p: Involved in the appellate proceedings at bar is a contract for the purchase on installments by Antonio Layug of twelve (120 lots owned by Rodrigo Gabuya, situated at Barrio Bara-as, Iligan City. The contract, entered into on October 4, 1978, set the price for the lots at P120,000.00 payable in three (3) yearly installments, viz: "1.P40,000.00, Philippine Currency, upon the signing of this agreement/contract. "2.Another P40,000.00 after twelve (12) months or one year from the signing of the contract/agreement. "3.The balance of P40,000.00 after 24 months or two years from the signing of the contract/agreement." The contract also provided for the automatic cancellation of the contract and forfeiture of all installments thus far paid, which would be considered as rentals for the use of the lots, to wit: ". . . (S)hould the vendee fail to pay any of the yearly installments when due or otherwise fail to comply with any of the terms and conditions herein stipulated, then this deed of conditional sale shall automatically and without any further formality, become null and void, and all sums so paid by the vendee by reason thereof, shall be considered as rentals and the vendor shall then and there be free to enter into the premises, take possession thereof or sell the properties to any other party." 1

Layug paid the first two annual installments, totalling P80,000.00. But he failed to pay the last installment of P40,000.00, which fell due on October 5, 1980. Gabuya made several informal demands for payment; and when all these proved unavailing, he made a formal written demand therefor under date of April 18, 1981 which was sent to and received by Layug by registered mail. When this, too, went unheeded, Gabuya finally brought suit in the Court of First Instance of Lanao del Norte for the annulment of his contract with Layug and for the recovery of damages. 2 The Trial Court's judgment went against Layug. It declared the contract of conditional sale cancelled, and forfeited in Gabuya's favor all payments made by Layug, considering them as rentals for the 12 lots for the period from the perfection of the contract in 1978 to June 11, 1981, besides requiring him to pay attorney's fees. 3 The judgment was, on appeal, affirmed by the Court of Appeals, except that it made the application of the forfeited payments, as rentals, extend up to the date of its decision: August 30, 1985. 4 The Appellate Court overruled Layug's claim that the contract had not fixed the date for the payment of the third and last installment and consequently, he could not be considered to have defaulted in the payment thereof. A reading of the contract immediately makes possible the determination of the due dates of each yearly installment intended by the parties; the first, on October 4, 1978, the date of execution of the contract; the second, after 12 months or 1 year "from the signing of the contract/agreement," or on October 5, 1979, and the third, or last, after "24 months from . . . (such) signing," or on October 5, 1980." That it was so understood by Layug is established by the evidence. As observed by the Court of Appeals, when Layug 'paid the first (second, actually) yearly installment of P40,000.00 on January 24, 1980, or three (3) months and twenty (20) days beyond October 4, 1979, he paid an additional amount of P800.00 as interest. If he did not agree that the first (second) installment was due on October 4, 1979, it puzzles Us why he had to pay an additional amount of P800.00 which was included in the receipt, Exhibit '6'." 5 Correctly overruled, too, was Layug's other claim that there was some doubt as to the amount of the balance of his obligation by his computation he only owed P30,000.00, since there was an advance payment of P10,000.00 made by him for which he should be credited and this had to be first resolved before his obligation to pay the last installment could be exigible. The Court of Appeals declared this to be but a lame excuse for his delinquency; the P10,000.00 was in truth part payment of the first installment of P40,000.00; for had it been otherwise, the document of sale would have reflected it as a separate

and distinct payment from the first installment of P40,000.00 paid upon the signing of the agreement; but Layug subscribed to the contract without asking for its revision. According to the Court of Appeals, "If the theory of the defendant-appellant that the P10,000.00 was separate and distinct from the down payment of P40,000.00, then the balance as set forth in subpars. 2 and 3 quoted above should have been (correspondingly amended, e.g.,) P35,000.00 each, or a total of P70,000.00 for both installments, instead of P40,000.00 per installment, or a total Of P80,000.00." 6 Prescinding from the well established and oft applied doctrine that the findings of fact of the Court of Appeals are conclusive and generally binding even on this Court, 7 nothing in the record has been brought to our attention to justify modification, much less reversal, of those findings. Petitioner adverts to the stipulation in his contract (a) granting him, as vendee, a "30 days grace period within which to pay" any yearly installment not paid within the time fixed therefor, and (b) declaring him liable, in the event of his failure to pay within the grace period, "for interest at the legal rate." He argues that the stipulation indicates that rescission was not envisioned as a remedy against a failure to pay installments; such failure was not ground for abrogating the contract but merely generated liability for interest at the legal rate. The argument is unimpressive. It would negate the explicit provision that the failure to pay any of the yearly installments when due (or to comply with any other covenant) would automatically render the contract null and void. The stipulations of a contract shall be interpreted together, the law says, 8 attributing to the doubtful ones that sense which may result from all of them taken jointly. The grace period clause should be read conjointly with the stipulation on rescission, and in such a manner as to give both full effect. It is apparent that there is no such inconsistency between the two as would support a hypothesis that one cannot be given effect without making the other a dead letter. The patent and logical import of both provisions, taken together, is that when the vendee fails to pay any installment on its due date, he becomes entitled to a grace period of 30 days to cure that default by paying the amount of the installment plus interest; but that if he should still fail to pay within the grace period, then rescission of the contract takes place. It was for the judicial affirmation of this plain proposition that the private respondent instituted the original action for annulment which has given rise to this appeal. Layug posits that, at the very least, he is entitled to a conveyance of at least 8 of the 12 lots subject of the conditional sale, on the theory

that since the total price of the 12 lots was P120,000.00, each lot then had a value of P10,000.00 and, therefore, with his P80,000.00, he had paid in full the price for 8 lots. In support, he invokes our earlier rulings in Legarda Hermanos v. Saldaa 9 and Calasanz v. Angeles. 10 The cited precedents are however inapplicable. In Legarda Hermanos, the contract of sale provided for payment of the price of two (2) subdivision lots at P1,500.00 each, exclusive of interest, in 120 monthly installments, and at time of default, the buyer had already paid P3,582.00, inclusive of interest; and in Calasanz, the agreement fixed a price of P3,720.00 with interest at 7% per annum, and at time of default, the buyer had paid installments totaling P4,533.38, inclusive of interest. Upon considerations of justice and equity and in light of the general provisions of the civil law, we resolved in Legarda Hermanos to direct the conveyance of one of the lots to the buyer since he had already paid more than the value thereof, and in Calasanz, to disallow cancellation by the seller and direct transfer of title to the buyer upon his payment of the few installments yet unpaid. In both said cases, we strove to equitably allocate the benefits and losses between the parties to preclude undue enrichment by one at the expense of the other; and by this norm, Layug cannot be permitted to claim that all his payments should be credited to him in their entirety, without regard whatever to the damages his default might have caused to Gabuya.

latter's protection, certain conditions thereon. We have had occasion to rule that "even in residential properties," the Act "recognizes and reaffirms the vendor's right to cancel the contract to sell upon breach and non-payment of the stipulated installments . . ." 13 The law provides inter alia 14 that "in all transactions or contracts involving the sale or financing of real estate on installment payments, including residential condominium apartments , . . ., 15 where the buyer has paid at least two years of installments , the buyer is entitled to the following rights in case he defaults in the payment of succeeding installments: [Grace Period] "(a)To pay, without additional interest, the unpaid installments due within the total grace period earned by him which is hereby fixed at the rate of one month grace period for every year of installment payments made: Provided, That this right shall be exercised by the buyer only once in every five years of the life of the contract and its extensions, if any; [Refund of "Cash Surrender Value"] "(b)If the contract is cancelled, the seller shall refund to the buyer the cash surrender value of the payments on the property equivalent to fifty percent of the total payments made and, after five years of installments, an additional five percent every year but not to exceed ninety per cent of the total payments made; Provided, That the actual cancellation of the contract shall take place after thirty days from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act and upon full payment of the cash surrender value to the buyer." In the case at bar, Layug had paid two (2) annual installments of P40,000.00 each. He is deemed therefore, in the words of the law, to have " paid at least two years of installments ." He therefore had a grace period of "one month . . . for every year of installment payments made," or two (2) months (corresponding to the two years of installments paid) from October 5, 1980 within which to pay the final installment. That he made no payment within this grace period is plain from the evidence. He has thus been left only with the right to a

It is not however possible, in any event, to apply the rulings in Legarda Hermanos and Calasanz to the case at bar; i.e., to resort to principles of equity and the general provisions of the Civil Code in resolution of the controversy. That was done in the cited cases because there was at then no statute specifically governing the situation. It was not so as regards the instant case. At the time of the execution of the contract in question, and the breach thereof, there was a statute already in force and applicable thereto, Republic Act No. 6552. 11 This statute makes unnecessary if not indeed improper, a resort to analogous provisions of the Civil Code. It also precludes a resort to principles of equity it being axiomatic that where there is an adequate remedy at law available to the parties, equity should not come into play. 12 And it allows a mitigation of the impact of the stringent contractual provisions on Layug and makes possible the grant of some measure of relief to him under the circumstances of the case. R.A. 6552 governs sales of real estate on installments. It recognizes the vendor's right to cancel such contracts upon failure of the vendee to comply with the terms of the sale, but imposes, chiefly for the

refund of the "cash surrender value of the payments on the property equivalent to fifty percent of the total payments made ," or P40,000.00 (i.e., 1/2 of the total payments of P80,000.00). Such refund will be the operative act to make effective the cancellation of the contract by Gabuya, conformably with the terms of the law. The additional formality of a demand on Gabuya's part for rescission by notarial act would appear, in the premises, to be merely circuitous and consequently superfluous. WHEREFORE, the decision of the Court of Appeals is AFFIRMED particularly in so far as it authorizes and sanctions the cancellation by private respondent Gabuya of his contract of sale with petitioner Layug, but is MODIFIED only in the sense that such cancellation shall become effective and fully operative only upon payment to the latter's satisfaction of the "cash surrender value" of his payments, in the sum of P40,000.00. No costs. Cruz, Gancayco, Grio-Aquino and Medialdea, JJ ., concur.

DECISION

FERNAN, C.J p: In this petition for review on certiorari, petitioners spouses Dionisio Fiestan and Juanita Arconada, owners of a parcel of land (Lot No. 2-B) situated in Ilocos Sur covered by TCT T-13218 which they mortgaged to the Development Bank of the Philippines (DBP) as security for their P22,400.00 loan, seek the reversal of the decision of the Court of Appeals 1 dated June 5, 1987 affirming the dismissal of their complaint filed against the Development Bank of the Philippines, Laoag City Branch, Philippine National Bank, Vigan Branch, Ilocos Sur, Francisco Peria and the Register of Deeds of Ilocos Sur, for annulment of sale, mortgage, and cancellation of transfer certificates of title. llcd Records show that Lot No. 2-B was acquired by the DBP as the highest bidder at a public auction sale on August 6, 1979 after it was extrajudicially foreclosed by the DBP in accordance with Act No. 3135, as amended by Act No. 4118, for failure of petitioners to pay their mortgage indebtedness. A certificate of sale was subsequently issued by the Provincial Sheriff of Ilocos Sur on the same day and the same was registered on September 28, 1979 in the Office of the Register of Deeds of Ilocos Sur. Earlier, or on September 26, 1979, petitioners executed a Deed of Sale in favor of DBP which was likewise registered on September 28, 1979. Upon failure of petitioners to redeem the property within the one (1) year period which expired on September 28, 1980, petitioners' TCT T-13218 over Lot No. 2-B was cancelled by the Register of Deeds and in lieu thereof TCT T-19077 was issued to the DBP upon presentation of a duly executed affidavit of consolidation of ownership. On April 13, 1982, the DBP sold the lot to Francisco Peria in a Deed of Absolute Sale and the same was registered on April 15, 1982 in the Office of the Register of Deeds of Ilocos Sur. Subsequently, the DBP's title over the lot was cancelled and in lieu thereof TCT T-19229 was issued to Francisco Peria. After title over said lot was issued in his name, Francisco Peria secured a tax declaration for said lot and accordingly paid the taxes due thereon. He thereafter mortgaged said lot to the PNB-Vigan Branch as security for his loan of P115,000.00 as

THIRD DIVISION [G.R. No. 81552. May 28, 1990.] DIONISIO FIESTAN and JUANITA ARCONADO, petitioners, vs. COURT OF APPEALS; DEVELOPMENT BANK OF THE PHILIPPINES, LAOAG CITY BRANCH; PHILIPPINE NATIONAL BANK, VIGAN BRANCH, ILOCOS SUR; FRANCISCO PERIA; and REGISTER OF DEEDS OF ILOCOS SUR, respondents. Pedro Singson Reyes for petitioners. The Chief Legal Counsel for PNB. Public Assistance Office for Francisco Feria. Ruben O. Fruto, Bonifacio M. Abad and David C. Frez for DBP Laoag Branch.

required by the bank to increase his original loan from P49,000.00 to P66,000.00 until it finally reached the approved amount of P115,000.00. Since petitioners were still in possession of Lot No. 2-B, the Provincial Sheriff ordered them to vacate the premises. On the other hand, petitioners filed on August 23, 1982 a complaint for annulment of sale, mortgage and cancellation of transfer certificates of title against the DBP-Laoag City, PNB-Vigan Branch, Ilocos Sur, Francisco Peria and the Register of Deeds of Ilocos Sur, docketed as Civil Case No. 3447-V before the Regional Trial Court of Vigan, Ilocos Sur. After trial, the RTC of Vigan, Ilocos Sur, Branch 20, rendered its decision 2 on November 14, 1983 dismissing the complaint, declaring therein, as valid the extrajudicial foreclosure sale of the mortgaged property in favor of the DBP as highest bidder in the public auction sale held on August 6, 1979, and its subsequent sale by DBP to Francisco Peria as well as the real estate mortgage constituted thereon in favor of PNB-Vigan as security for the P115,000.00 loan of Francisco Peria. The Court of Appeals affirmed the decision of the RTC of Vigan, Ilocos Sur on June 20, 1987. prLL The motion for reconsideration having been denied 3 on January 19, 1988, petitioners filed the instant petition for review on certiorari with this Court. Petitioners seek to annul the extrajudicial foreclosure sale of the mortgaged property on August 6, 1979 in favor of the Development Bank of the Philippines (DBP) on the ground that it was conducted by the Provincial Sheriff of Ilocos Sur without first effecting a levy on said property before selling the same at the public auction sale. Petitioners thus maintained that the extrajudicial foreclosure sale being null and void by virtue of lack of a valid levy, the certificate of sale issued by the Provincial Sheriff cannot transfer ownership over the lot in question to the DBP and consequently the deed of sale executed by the DBP in favor of Francisco Peria and the real estate mortgage constituted thereon by the latter in favor of PNB-Vigan Branch are likewise null and void. The Court finds these contentions untenable.

The formalities of a levy, as an essential requisite of a valid execution sale under Section 15 of Rule 39 and a valid attachment lien under Rule 57 of the Rules of Court, are not basic requirements before an extrajudicially foreclosed property can be sold at public auction. At the outset, distinction should be made of the three different kinds of sales under the law, namely: an ordinary execution sale, a judicial foreclosure sale, and an extrajudicial foreclosure sale, because a different set of law applies to each class of sale mentioned. An ordinary execution sale is governed by the pertinent provisions of Rule 39 of the Rules of Court. Rule 68 of the Rules of Court applies in cases of judicial foreclosure sale. On the other hand, Act No. 3135, as amended by Act No. 4118 otherwise known as "An Act to Regulate the Sale of Property under Special Powers Inserted in or Annexed to Real Estate Mortgages" applies in cases of extrajudicial foreclosure sale. prcd The case at bar, as the facts disclose, involves am extrajudicial foreclosure sale. The public auction sale conducted on August 6, 1979 by the Provincial Sheriff of Ilocos Sur refers to the "sale" mentioned in Section 1 of Act No. 3135, as amended, which was made pursuant to a special power inserted in or attached to a real estate mortgage made as security for the payment of money or the fulfillment of any other obligation. It must be noted that in the mortgage contract, petitioners, as mortgagor, had appointed private respondent DBP, for the purpose of extrajudicial foreclosure, "as his attorney-in-fact to sell the property mortgaged under Act No. 3135, as amended, to sign all documents and perform any act requisite and necessary to accomplish said purpose . . . . In case of foreclosure, the Mortgagor hereby consents to the appointment of the mortgagee or any of its employees as receiver, without any bond, to take charge of the mortgaged property at once, and to hold possession of the same . . . ." 4 There is no justifiable basis, therefore, to apply by analogy the provisions of Rule 39 of the Rules of Court on ordinary execution sale, particularly Section 15 thereof as well as the jurisprudence under said provision, to an extrajudicial foreclosure sale conducted under the provisions of Act No. 3135, as amended. Act No. 3135, as amended, being a special law governing extrajudicial foreclosure proceedings, the same must govern as against the provisions on ordinary execution sale under Rule 39 of the Rules of Court.

In that sense, the case of Aparri v. Court of Appeals, 13 SCRA 611 (1965), cited by petitioners, must be distinguished from the instant case. On the question of what should be done in the event the highest bid made for the property at the extrajudicial foreclosure sale is in excess of the mortgage debt, this Court applied the rule and practice in a judicial foreclosure sale to an extrajudicial foreclosure sale in a similar case considering that the governing provisions of law as mandated by Section 6 of Act No. 3135, as amended, specifically Sections 29, 30 and 34 of Rule 39 of the Rules of Court (previously Sections 464, 465 and 466 of the Code of Civil Procedure) are silent on the matter. The said ruling cannot, however, be construed as the legal basis for applying the requirement of a levy under Section 15 of Rule 39 of the Rules of Court before an extrajudicially foreclosed property can be sold at public auction when none is expressly required under Act No. 3135, as amended. Levy, as understood under Section 15, Rule 39 of the Rules of Court in relation to execution of money judgments, has been defined by this Court as the act whereby a sheriff sets apart or appropriates for the purpose of satisfying the command of the writ, a part or the whole of the judgment-debtor's property. 5 In extrajudicial foreclosure of mortgage, the property sought to be foreclosed need not be identified or set apart by the sheriff from the whole mass of property of the mortgagor for the purpose of satisfying the mortgage indebtedness. For, the essence of a contract of mortgage indebtedness is that a property has been identified or set apart from the mass of the property of the debtor-mortgagor as security for the payment of money or the fulfillment of an obligation to answer the amount of indebtedness, in case of default of payment. By virtue of the special power inserted or attached to the mortgage contract, the mortgagor has authorized the mortgagee-creditor or any other person authorized to act for him to sell said property in accordance with the formalities required under Act No. 3135, as amended. The Court finds that the formalities prescribed under Sections 2, 3 and 4 of Act No. 3135, as amended, were substantially complied with in the instant case. Records show that the notices of sale were posted by the Provincial Sheriff of Ilocos Sur and the same were published in Ilocos Times, a newspaper of general circulation in the province of Ilocos Sur, setting the date of the auction sale on August 6, 1979 at 10:00 a.m. in the Office of the Sheriff, Vigan, Ilocos Sur. 6

The nullity of the extrajudicial foreclosure sale in the instant case is further sought by petitioners on the ground that the DBP cannot acquire by purchase the mortgaged property at the public auction sale by virtue of par. (2) of Article 1491 and par. (7) of Article 1409 of the Civil Code which prohibits agents from acquiring by purchase, even at a public or judicial auction either in person or through the mediation of another, the property whose administration or sale may have been entrusted to them unless the consent of the principal has been given. prLL The contention is erroneous. The prohibition mandated by par. (2) of Article 1491 in relation to Article 1409 of the Civil Code does not apply in the instant case where the sale of the property in dispute was made under a special power inserted in or attached to the real estate mortgage pursuant to Act No. 3135, as amended. It is a familiar rule of statutory construction that, as between a specific statute and general statute, the former must prevail since it evinces the legislative intent more clearly than a general statute does. 7 The Civil Code (R.A. 386) is of general character while Act No. 3135 as amended, is a special enactment and therefore the latter must prevail. 8 Under Act No. 3135, as amended, a mortgagee-creditor is allowed to participate in the bidding and purchase under the same conditions as any other bidder, as in the case at bar, thus: "Section 5.At any sale, the creditor, trustee, or other person authorized to act for the creditor, may participate in the bidding and purchase under the same conditions as any other bidder, unless the contrary has been expressly provided in the mortgage or trust deed under which the sale is made." In other words, Section 5 of Act No. 3135, as amended, creates and is designed to create an exception to the general rule that a mortgagee or trustee in a mortgage or deed of trust which contains a power of sale on default may not become the purchaser, either directly or through the agency of a third person, at a sale which he himself makes under the power. Under such an exception, the title of the mortgagee-creditor over the property

cannot be impeached or defeated on the ground that the mortgagee cannot be a purchaser at his own sale. Needless to state, the power to foreclose is not an ordinary agency that contemplates exclusively the representation of the principal by the agent but is primarily an authority conferred upon the mortgagee for the latter's own protection. It is an ancillary stipulation supported by the same cause or consideration for the mortgage and forms an essential and inseparable part of that bilateral agreement. 9 Even in the absence of statutory provision, there is authority to hold that a mortgagee may purchase at a sale under his mortgage to protect his own interest or to avoid a loss to himself by a sale to a third person at a price below the mortgage debt. 10 The express mandate of Section 5 of Act No. 3135, as amended, amply protects the interest of the mortgagee in this jurisdiction. WHEREFORE, in view of the foregoing, the petition is DENIED for lack of merit and the decision of the Court of Appeals dated June 20, 1987 is hereby AFFIRMED. No cost. cdrep SO ORDERED. Gutierrez, Jr., Feliciono, Bidin and Cortes, JJ., concur.

This is an action for specific performance. On March 24, 19 53, the Atlantic Gulf & Pacific Company of Manila, hereafter called Atlantic Gulf for short, granted an option to Southwestern Sugar & Molasses Co. (Far East) Inc., hereafter called Southwestern Company, to buy its barge No. 10 for the sum of P30,000 to be exercised within a period of ninety days. On May 11, 1953, the Southwestern Company wrote to Atlantic Gulf advising the latter that it wanted "to exercise our option at your earliest convenience" and requested that it be notified as soon as the barge was available. On May 12, 1953, the Atlantic Gulf replied stating that their understanding was that the "offer of option" is to be a cash transaction and to be effected "at the time the lighter is available", and, on June 25, 1953, reiterating the unavailability of the barge, it further advised the Southwestern Company that since there is still further work for it, and as this situation still applies" the barge could not be turned over to the latter company. On June 27, 1953, in view if such vacillating attitude, the Southwestern Company instituted the present action to compel the Atlantic Gulf to sell the barge in line with the option, depositing with the court a check covering the sum of P30,000. This check however was later withdrawn with the approval of the court. On June 29, 1953, the Atlantic Gulf withdraw its "offer of option" with due notices to the Southwestern Company stating as reason therefor that the option was granted merely as a favor. The Atlantic Gulf set up as a defense the option to sell made by it to the Southwestern Company is null and void because it is not supported by any consideration. After due trial, the lower court rendered judgment granting plaintiff's prayer for specific performance. It further ordered the defendant to pay damages in an amount equivalent to 6 per centum per annum on the sum of P30,000 from the date of the filing of the complaint, and to pay the sum of P600 as attorney's fees, plus the costs of action. The case before us on the assertion that the only issue involved is one of law. The option granted by appellant to appellee is contained in a letter dated March 24, 1953 which reads as follows:

Republic SUPREME Manila EN BANC G.R. No. L-7382

of

the

Philippines COURT

June 29, 1955

SOUTHWESTERN SUGAR AND MOLASSES COMPANY, plaintiffappellee, vs. ATLANTIC GULF & PACIFIC COMPANY, defendant-appellant. Arturo A. Alafriz and Mariano Agoncillo for appellee. BAUTISTA ANGELO, J.: A. B. Alcera for appellant.

March 24, 1953 Southwestern 145 Manila, Gentlemen: Sugar & Muelle Molasses Co. de Far East, Inc. Binondo Philippines

before acceptance by communicating such withdrawal, except when the option is founded upon consideration, as something paid or promised. There is no question that under article 1479 of the new Civil Code "an option to sell", or a "promise to buy or to sell", as used in said article, to be valid must be "supported by a consideration distinct from the price." This is clearly inferred from the context of said article that a unilateral promise to buy or sell, even if accepted, is only binding if supported by a consideration. In other words, "an accepted unilateral promise" can only have a binding effect if supported by a consideration, which means that the option can still be withdrawn, even if accepted, if the same is not supported by any consideration. Here it is not disputed that the option is without consideration. It can therefore be withdrawn notwithstanding the acceptance made of it by appellee. It is true that under article 1324 of the new Civil Code, the general rule regarding offer and acceptance is that, when the offerer gives to the offeree a certain period to accept, "the offer may be withdrawn at any time before acceptance" except when the option is founded upon consideration, but this general rule must be interpreted as modified by the provision of article 1479 above referred to, which applies to "a promise to buy and sell" specifically. As already stated, this rule requires that a promise to sell to be valid must be supported by a consideration distinct from the price. We are not oblivious of the existence of American authorities which hold that an offer, once accepted, cannot be withdrawn, regardless of whether it is supported or not by a consideration (12 Am. Jur. 528). These authorities, we note, uphold the general rule applicable to offer and acceptance as contained in our new Civil Code. But we are prevented from applying them in view of the specific provision embodied in article 1479. While under the "offer of option" in question appellant has assumed a clear obligation to sell its barge to appellee and the option has been exercised in accordance with its terms, and there appears to be no valid or justifiable reason for appellant to withdraw its offer, this Court cannot adopt a different attitude because the law on the matter is clear. Our imperative duty is to apply it unless modified by Congress. Wherefore, the decision appealed pronouncement as to costs. from is reversed, without

This is to confirm our conversion of today whereby we offer you our Barge No. 10, which is 120' 00" long by 44"-0 wide and 9'-0" deep, for the sum of of P30,000. Barge to cleaned of creosote and fuel oil. This option is to be good for ninety (90) days, or until June 30, 1953. Yours very truly, ATLANTIC, GULF & PACIFIC CO. OF MANILA (Sgd.) W. H. SCHOENING The main contention of appellant is that the option granted to appellee to sell to it barge No. 10 for the sum of P30,000 under the terms stated above has no legal effect because it is not supported by any consideration and in support thereof it invokes article 1479 of the new Civil Code. This article provides: ART. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable. An accepted unilateral promise to buy or sell a determinate thing for a price certain is binding upon the promisor if the promise is supported by a consideration distinct from the price. On the other hand, appellee contends that, even granting that the "offer of option" is not supported by any consideration, that option became binding on appellant when the appellee gave notice to its acceptance, and that having accepted it within the period of option, the offer can no longer be withdrawn and in any event such withdrawal is ineffective. In support of this contention, appellee invokes article 1324 of the Civil Code which provides: ART. 1324. When the offerer has allowed the offeree a certain period to accept, the offer may be withdrawn at any time

Bengzon, Acting C.J., Padilla, Montemayor, Reyes, A., Jugo, Labrador, Concepcion, and Reyes, J.B.L., JJ., concur. FIRST DIVISION [G.R. No. L-9871. January 31, 1958.] ATKINS, KROLL & CO., INC., petitioner, vs. B. CUA HIAN TEK, respondent. Ross, Selph, Carrascoso & Janda for petitioner. Ponciano T. Castro for respondent. SYLLABUS 1.OBLIGATION AND CONTRACTS; SALES; OFFER TO SELL A DETERMINATE THING FOR A PRICE CERTAIN; ACCEPTANCE OF OFFER; EFFECT OF; LIABILITY OF THE OFFEROR AND OFFEREE. The acceptance of an offer to sell a determinate thing for a price certain creates a bilateral contract to sell and to but. The offeree, upon acceptance, ipso facto assumes the obligations of a purchaser. On the other hand, the offeror would be liable for damages if he fails to deliver the thing he had offered for sale. 2.ID.; ID.; ID.; ID.; OPTION WITHOUT CONSIDERATION. If an option is given without, it is mere offer of contract of sale, which is not binding until accepted. If, however, acceptance is made before a withdrawal, it constitute a binding contract of sale, even though the option was not supported by a sufficient consideration. 3.PLEADING AND PRACTICE; APPEAL; CHANGE OF THEORY ON APPEAL NOT PERMITTED. Where. a deliberately adopts a certain theory, and the case is tried and decided upon that theory in the court below, he will not be permitted to change his theory on appeal.

BENGZON, J p: Review of a Court of Appeals' decision. For its failure to deliver one thousand cartons of sardines, which it had sold to B. Cua Hian Tek, petitioner was sued, and after trial was ordered by the Manila court of first instance to pay damages, which on appeal was reduced by the Court of Appeals to P3,240.15 representing unrealized profits. There was no such contract of sale, says petitioner, but only an option to buy, which was not enforceable for lack of consideration because in accordance with Art. 1479 of the New Civil Code "an accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promisor if the promise is supported by a consideration distinct from the price." Simple are the facts of this case: Dated September 13, 1951, petitioner sent to respondent a letter of the following tenor: "Sir(s)/Madam: We are pleased to make you herewith the following firm offer, subject to reply by September 23, 1951: Quantity and Commodity: 400 Ctns. Luneta brand Sardines in Tomato Sauce 48/15-oz. Ovals at $8.25 Ctn. 300 Ctns. Luneta brand Sardines Natural 48/15 oz. talls at $6.25 Ctn. 300 Ctns. Luneta brand Sardines in Tomato Sauce 100/5-oz. talls at $7.48 Ctn. Price(s):

DECISION

All prices are C and F Manila Consular Fees of $6.00 to be added. Shipment: During September/October from US Ports. Supplier: Atkins, Kroll & Co., San Francisco, Cal. U.S.A. We are looking forward to receive your valued order and remain Very truly yours," The court of first instance and the Court of Appeals 1 found that B. Cua Hian Tek accepted the offer unconditionally and delivered his letter of acceptance Exh. B on September 21, 1951. However, due to shortage of catch of sardines by the packers in California, Atkins, Kroll & Co., Inc., failed to deliver the commodities it had offered for sale. There are other details to which reference shall not be made, as they touch the question whether the acceptance had been handed on time; and on that issue the Court of Appeals definitely found for plaintiff. Anyway, in presenting its case before this Court petitioner does not dispute such timely acceptance. It merely raises the point that the acceptance only created an option, which, lacking consideration, had no obligatory force. The offer Exh. A, petitioner argues, "was a promise to sell a determinate thing for a price certain. Upon its acceptance by respondent, the offer became an accepted unilateral promise to sell a determinate thing for a price certain. Inasmuch as there was no consideration to support the promise to sell distinct from the price, it follows that under Art. 1479 aforequoted, the promise is not binding on the petitioner even if it was accepted by respondent." (p. 12 brief of petitioner.) The argument, manifestly assumes promise arose when the offeree accepted. mistake, because a bilateral contract to created upon acceptance. So much so that that only a unilateral Such assumption is a sell and to buy was B. Cua Hian Tek could

be sued, had he backed out after accepting, by refusing to get the sardines and/or to pay for their price. Indeed, the word "option" is found neither in the offer nor in the acceptance. On the contrary Exh. B accepted "the firm offer for the sale" and adds, "the undersigned buyer has immediately filed an application for import license . . . ." (Italics Ours.) Petitioner, however, insists the offer was a mere offer of option, because the "firm offer" Exh. A was a continuing offer to sell until September 23, and "an option is nothing more than a continuing offer" for a specified time. In our opinion, an option implies more than that: it implies the legal obligation to keep the offer open for the time specified. 2 Yet the letter Exh. A did not by itself produce the legal obligation of keeping the offer open up to September 23. It could be withdrawn before acceptance, because it is admitted, there was no consideration for it. "ART. 1324.When the offerer has allowed the offeree a certain period to accept, the offer may be withdrawn at any time before acceptance by communicating such withdrawal, except when the option is founded upon a consideration, as something paid or promised." (n) (New Civil Code.) "Ordinarily an offer to buy or sell may be withdrawn or countermanded before acceptance, even though the offer provides that it will not be withdrawn or countermanded, or allows the offeree a certain time within which to accept it, unless such provision or agreement in supported by an independent consideration. . . ." (77 Corpus Juris Secundum p. 636.) Furthermore, an option is unilateral: a promise to sell 3 at the price fixed whenever the offeree should decide to exercise his option within the specified time. After accepting the promise and before he exercises his option, the holder of the option is not bound to buy. He is free either to buy or not to buy later. In this case, however, upon accepting herein petitioner's offer a bilateral promise to sell and to buy ensued, and the respondent ipso facto assumed the obligations of a purchaser. He did not just get the right subsequently to buy or not to buy. It was not a mere option then; it was bilateral contract of sale. Lastly, even supposing that Exh. A granted an option which is not binding for lack of consideration, the authorities hold that

"If the option is given without a consideration, it is a mere offer of a contract of sale, which is not binding until accepted. If, however, acceptance is made before a withdrawal, it constitutes a binding contract of sale, even though the option was not supported by a sufficient consideration. . . .." (77 Corpus Juris Secundum p. 652. See also 27 Ruling Case Law 339 and cases cited.) "It can be taken for granted, as contended by the defendants, that the option contract was not valid for lack of consideration. But it was, at least, an offer to sell, which was accepted by letter, and of this acceptance the offerer had knowledge before said offer was withdrawn. The concurrence of both acts the offer and the acceptancecould at all events have generated a contract, if none there was before (arts. 1254 and 1262 of the Civil Code)." (Zayco vs. Serra, 44 Phil. 331.) One additional observation should be made before closing this opinion. The defense in the court of first instance rested on the proposition or propositions that the offer had not been accepted in due time, and/or that certain conditions precedent had not been fulfilled. This option-without-consideration idea was never mentioned in the answer. A change of theory in the appellate courts is not permitted. "In order that a question may be raised on appeal, it is essential that it be within the issues made by the parties in their pleadings. Consequently, when a party deliberately adopts a certain theory, and the case is tried and decided upon that theory in the court below, he will not be permitted to change his theory on appeal because, to permit him to, do so, would be unfair to the adverse party." (Rules of Court by Moran' 1957 Ed. Vol. I p. 715 citing Agoncillo vs. Javier, 38 Phil. 424; American Express Company vs. Natividad, 46 Phil. 207; San Agustin vs. Barrios, 68 Phil. 475, 480; Toribio vs. Dacasa, 55 Phil. 461.) We must therefore hold, as the lower courts have held that there was a contract of sale between the parties. And as no legal excuse has been proven, the seller's failure to comply therewith

gave ground to an award for damages, which has been fixed by the Court of Appeals at P3,240.15 amount which petitioner does not dispute in this final instance. Consequently, the decision under review should be, and it is hereby affirmed, with costs against petitioner. Paras, C. J., Padilla, Montemayor, Reyes, A., Concepcion, Reyes, J. B. L., Endencia and Felix, JJ., concur. Bautista Angelo, J., concurs in the result. EN BANC [G.R. No. L-25494. June 14, 1972.] NICOLAS SANCHEZ, plaintiff-appellee, SEVERINA RIGOS, defendant-appellant. Santiago F . Bautista for plaintiff-appellee. Jesus G. Villamar for defendant-appellee. SYLLABUS 1.CIVIL LAW; CONTRACTS; CONTRACT TO BUY AND SELL; OPTION WITHOUT CONSIDERATION; CASE AT BAR. Where both parties indicated in the instrument in the caption, as an "Option to Purchase," and under the provisions thereof, the defendant "agreed, promised and committed" herself to sell the land therein described to the plaintiff for P1,510.00, but there is nothing in the contract to indicate that her aforementioned agreement, promise and undertaking is supported by a consideration "distinct from the price" stipulated for the sale of the land, it is not a "contract to buy and sell." It merely granted plaintiff an "option" to buy. 2.ID.; ID.; ID.; ID.; ARTICLES 1354 AND 1479, NEW CIVIL CODE; APPLICABILITY. It should be noted that: Article 1354 applies to contracts in general, whereas the second paragraph of Article 1479 refers to "sales" in particular, and, more specifically, to "an accepted unilateral promise to buy or to sell." vs.

3.ID.; ID.; REQUISITE OF A UNILATERAL PROMISE IN ORDER TO BIND PROMISOR; BURDEN OF PROOF REST UPON PROMISEE. In order that a unilateral promise may be "binding" upon the promisor, Article 1479 requires the concurrence of a condition namely, that the promise be "supported by a consideration distinct from the price." Accordingly, the promisee can not compel the promisor to comply with the promise, unless the former establishes the existence of said distinct consideration. In other words, the promisee has the burden of proving such consideration. 4.ID.; ID.; WHERE A UNILATERAL PROMISE TO SELL GENERATED TO A BILATERAL CONTRACT OF PURCHASE AND SALE; ARTICLES 1324 AND 1479, NCC., NO DISTINCTION. This Court itself, in the case of Atkins, Kroll & Co., Inc. vs. Cua Hian Tek (102 Phil., 948), decided later than Southwestern Sugar & Molasses Co. vs. Atlantic & Pacific Co., 97 Phil., 249, saw no distinction between Articles 1324 and 1479 of the Civil Code and applied the former where a unilateral promise to sell similar to the one sued upon was involved, treating such promise as an option which, although not binding as a contract in itself for lack of a separate consideration, nevertheless generated a bilateral contract of purchase and sale upon acceptance. In other words, since there may be no valid contract without a cause or consideration promisor is not bound by his promise and may, accordingly withdraw it. Pending notice of its withdrawal, his accepted promise partakes, however, of the nature of an offer to sell which, if accepted, results in a perfected contract of sale. 5.REMEDIAL LAW; PLEADINGS AND PRACTICE; JUDGMENT ON THE PLEADINGS; IMPLIED ADMISSION. Defendant explicitly averred in her answer, and pleaded as a special defense, the absence of said consideration for her promise to sell and, by joining in the petition for a judgment on the pleadings, plaintiff has impliedly admitted the truth of said averment in defendant's answer. 6.STATUTORY CONSTRUCTION; INTERPRETATION OF PROVISIONS OF SAME LAW; CARDINAL RULE. The view that an option to sell can still be withdrawn, even if accepted, if the same is not supported by any consideration, has the advantage of avoiding a conflict between Article 1324 on the general principles on contracts and 1479 on sales of the Civil Code, in line with the cardinal rule of statutory construction that, in construing different provisions of one and the same law or code, such interpretation should be favored as will reconcile or harmonize said provisions and avoid a conflict between the same. Indeed, the presumption is that, in the process of drafting the Code, its author has maintained a consistent philosophy or position. Moreover, the decision in Southwestern Sugar & Molasses

Co. vs. Atlantic Gulf & Pacific Co., supra, holding that Article 1324 is modified by Article 1479 of the Civil Code, in effect, considers the latter as an exception to the former, and exceptions are not favored, unless the intention to the contrary is clear, and it is not so, insofar as said two (2) articles are concerned. What is more, the reference, in both the second paragraph of Article 1479 and Article 1324, to an option or promise supported by or founded upon a consideration, strongly suggests that the two (2) provisions intended to enforce or implement the same principle. ANTONIO, J., concurring opinion: 1.CIVIL LAW; CONTRACTS; OPTION TO SELL; EFFECT OF ACCEPTANCE. I fully agree with the abandonment of the view previously adhered to in Southwestern Sugar & Molasses Co. vs. Atlantic Gulf and Pacific Co. (97 Phil., 249), which holds that an option to sell can still be withdrawn, even if accepted if the same is not supported by any consideration, and the reaffirmance of the doctrine in Atkins, Kroll & Co. Inc. vs. Cua Hian Tech (102 Phil., 948), holding that "an option implies . . . the legal obligation to keep the offer (to sell) open for the time specified"; that it could be withdrawn before acceptance, if there was no consideration for the option, but once the "offer to sell" is accepted, a bilateral promise to sell and to buy ensues, and the offeree ipso facto assumes the obligations of a purchaser. 2.ID.; ID.; ID.; OPTION WITHOUT CONSIDERATION IS A MERE OFFER TO SELL, NOT BINDING UNTIL ACCEPTED. If the option to sell is given without a consideration, it is a mere offer to sell, which is not binding until accepted. If, however, acceptance is made before a withdrawal, it constitutes a binding contract of sale. The concurrence of both acts the offer and the acceptance could in such event generate a contract. 3.ID.; ID.; ID.; WITHDRAWAL OF OFFER BEFORE ACCEPTANCE, OFFER IMPLIES AN OBLIGATION ON THE PART OF OFFEROR. While the law permits the offeror to withdraw the offer at any time before acceptance even before the period has expired, some writers hold the view, that the offeror can not exercise this right in an arbitrary or capricious manner. This is upon the principle that an offer implies an obligation on the part of the offeror to maintain it for such length of time as to permit the offeree to decide whether to accept or not, and therefore cannot arbitrarily revoke the offer without being liable for damages which the offeree may suffer. A contrary view would remove the stability and security of business transactions.

4.ID.; ID.; ID.; A BILATERAL RECIPROCAL CONTRACT; CASE AT BAR. Where, as in the present case, the trial court found that the "Plaintiff (Nicolas Sanchez) had offered the sum of P1,510.00 before any withdrawal from the contract has been made by the Defendant (Severina Rigos)," and Rigos' offer to sell was accepted by Sanchez, before she could withdraw her offer, a bilateral reciprocal contract to sell and to buy was generated.

was, likewise, sentenced to pay P200.00, as attorney's fees, and the costs. Hence, this appeal by Mrs. Rigos. This case admittedly hinges on the proper application of Article 1479 of our Civil Code, which provides: "ART. 1479.A promise to buy and sell a determinate thing for a price certain is reciprocally demandable. "An accepted unilateral promise to buy or 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." In his complaint plaintiff alleges that, by virtue of the option under consideration, "defendant agreed and committed to sell" and "the plaintiff agreed and committed to buy" the land described in the option, copy of which was annexed to said pleading as Annex A thereof and is quoted on the margin. 1 Hence, plaintiff maintains that the promise contained in the contract is "reciprocally demandable," pursuant to the first paragraph of said Article 1479. Although defendant had really "agreed, promised and committed" herself to sell the land to the plaintiff, it is not true that the latter had, in turn, "agreed and committed himself" to buy said property Said Annex A does not bear out plaintiff's allegation to this effect. What is more, since Annex A has bean made "an integral part" of his complaint, the provisions of said instrument form part "and parcel" 2 of said pleading.

DECISION

CONCEPCION, J p: Appeal from a decision of the Court of First Instance of Nueva Ecija to the Court of Appeals, which certified the case to Us, upon the ground that it involves a question purely of law. The record shows that, on April 3, 1961, plaintiff Nicolas Sanchez and defendant Severina Rigos executed an instrument, entitled "Option to Purchase," whereby Mrs. Rigos "agreed, promised and committed . . . to sell" to Sanchez, for the sum of P1,510.00, a parcel of land situated in the barrios of Abar and Sibot, municipality of San Jose, province of Nueva Ecija, and more particularly described in Transfer Certificate of Title No. NT-12528 of said province, within two (2) years from said date with the understanding that said option shall be deemed "terminated and elapsed," if "Sanchez shall fail to exercise his right to buy the property" within the stipulated period. Inasmuch as several tenders of payment of the sum of P1,510.00, made by Sanchez within said period, were rejected by Mrs. Rigos, on March 12, 1963, the former deposited said amount with the Court of First Instance of Nueva Ecija and commenced against the latter the present action, for specific performance and damages. After the filing of defendant's answer admitting some allegations of the complaint, denying other allegations thereof, and alleging, as special defense, that the contract between the parties "is a unilateral promise to sell, and the same being unsupported by any valuable consideration, by force of the New Civil Code, is null and void" on February 11, 1964, both parties, assisted by their respective counsel, jointly moved for a judgment on the pleadings. Accordingly, on February 28, 1964, the lower court rendered judgment for Sanchez, ordering Mrs. Rigos to accept the sum judicially consigned by him and to execute, in his favor, the requisite deed of conveyance. Mrs. Rigos

The option did not impose upon plaintiff the obligation to purchase defendant's property. Annex A is not a "contract to buy and sell." It merely granted plaintiff an "option" to buy. And both parties so understood it, as indicated by the caption, "Option to Purchase," given by them to said instrument. Under the provisions thereof, the defendant "agreed, promised and committed" herself to sell the land therein described to the plaintiff for P1,510.00, but there is nothing in the contract to indicate that her aforementioned agreement, promise and undertaking is supported by a consideration "distinct from the price" stipulated for the sale of the land. Relying upon Article 1354 of our Civil Code, the lower court presumed the existence of said consideration, and this would seem to be the

main factor that influenced its decision in plaintiff's favor. It should be noted, however, that: (1)Article 1354 applies to contracts in general, whereas the second paragraph of Article 1479 refers to "sales" in particular, and, more specifically, to "an accepted unilateral promise to buy or to sell." In other words, Article 1479 is controlling in the case at bar. (2)In order that said unilateral promise may be "binding" upon the promisor, Article 1479 requires the concurrence of a condition, namely, that the promise be "supported by a consideration distinct from the price." Accordingly, the promisee can not compel the promisor to comply with the promise, unless the former establishes the existence of said distinct consideration. In other words, the promisee has the burden of proving such consideration. Plaintiff herein has not even alleged the existence thereof in his complaint. (3)Upon the other hand, defendant explicitly averred in her answer, and pleaded as a special defense, the absence of said consideration for her promise to sell and, by joining in the petition for a judgment on the pleadings, plaintiff has impliedly admitted the truth of said averment in defendant's answer. Indeed, as early as March 14, 1908, it had been held, in Bauermann v. Casas, 3 that: "One who prays for judgment on the pleadings without offering proof as to the truth of hie own allegations, and without giving the opposing party an opportunity to introduce evidence, must be understood to admit the truth of all the material and relevant allegations of the opposing party , and to rest his motion for judgment on those allegations taken together with such of his own as are admitted in the pleading. (La Yebana Company vs. Sevilla, 9 Phil. 210)." (Emphasis supplied.). This view was reiterated in Evangelista V. De la Rosa 4 and Mercy's Incorporated v. Herminia Verde. 5 Squarely in point is Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific Co., 6 from which We quote: "The main contention of appellant is that the option granted to appellee to sell to it barge No. 10 for the sum of P30,000 under the terms stated above has no legal effect because it is not supported by any

consideration and in support thereof it invokes article 1479 of the new Civil Code, The article provides:. 'ART. 1479.A promise to buy and sell a determinate thing for a price certain is reciprocally demandable. 'An accepted unilateral promise to buy or sell a determinate thing for a price certain is binding upon the promisor if the promise is supported by a consideration distinct from the price.' "On the other hand, appellee contends that, even granting that the 'offer of option' is not supported by any consideration, that option became binding on appellant when the appellee gave notice to it of its acceptance, and that having accepted it within the period of option, the offer can no longer be withdrawn and in any event such withdrawal is ineffective. In support of this contention, appellee invokes article 1324 of the Civil Code which provides: 'ART. 1324.When the offerer has allowed the offeree a certain period to accept, the offer may be withdrawn at any time before acceptance by communicating such withdrawal, except when the option is founded upon consideration, as something paid or promised.' "There is no question that under article 1479 of the new Civil Code 'an option to sell,' or 'a promise to buy or to sell,' as used in said article, to be valid must be 'supported by a consideration distinct from the price.' This is clearly inferred from the context of said article that a unilateral promise to buy or to sell, even if accepted, is only binding if supported by a consideration. In other words, 'an accepted unilateral promise' can only have a binding effect if supported by a consideration, which means that the option can still be withdrawn, even if accepted, if the same is not supported by any consideration. Here it is not disputed that the option is without consideration. It can therefore be withdrawn notwithstanding the acceptance made of it by appellee.

"It is true that under article 1324 of the new Civil Code, the general rule regarding offer and acceptance is that, when the offerer gives to the offeree a certain period to accept, 'the offer may be withdrawn at any time before acceptance' except when the option is founded upon consideration, but this general rule must be interpreted as modified by the provision of article 1479 above referred to, which applies to 'a promise to buy and sell' specifically. As already stated, this rule requires that a promise to sell to be valid must be supported by a consideration distinct from the price. "We are net oblivious of the existence of American authorities which hold that an offer, once accepted, cannot be withdrawn, regardless of whether it is supported or not by a consideration (12 Am. Jur. 528). These authorities, we note, uphold the general rule applicable to offer and acceptance as contained in our new Civil Code. But we are prevented from applying them in view of the specific provision embodied in article 1479. While under the 'offer of option' in question appellant has assumed a clear obligation to sell its barge to appellee and the option has been exercised in accordance with its terms, and there appears to be no valid or justifiable reason for appellant to withdraw its offer, this Court cannot adopt a different attitude because the law on the matter is clear. Our imperative duty is to apply it unless modified by Congress." 7 However, this Court itself, in the case of Atkins, Kroll and Co., Inc. v. Cua Hian Tek, 8 decided later than Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific Co., 9 saw no distinction between Articles 1324 and 1479 of the Civil Code and applied the former where a unilateral promise to sell similar to the one sued upon here was involved, treating such promise as an option which, although not binding as a contract in itself for lack of a separate consideration, nevertheless generated a bilateral contract of purchase and sale upon acceptance. Speaking through Associate Justice, later Chief Justice, Cesar Bengzon, this Court said: "Furthermore, an option is unilateral: a promise to sell at the price fixed whenever the offeree should decide to exercise his option within the specified time. After accepting the promise and before he exercises his

option, the holder of the option is not bound to buy. He is free either to buy or not to buy later. In this case however, upon accepting herein petitioner's offer a bilateral promise to sell and to buy ensued, and the respondent ipso facto assumed the obligation of a purchaser. He did not just get the right subsequently to buy or not to buy. It was not a mere option then; it was bilateral contract of sale. "Lastly, even supposing that Exh. A granted an option which is not binding for lack of consideration, the authorities hold that. 'If the option is given without a consideration, it is a mere offer of a contract of sale, which is not binding until accepted. If, however, acceptance is made before a withdrawal, it constitutes a binding contract of sale, even though the option was not supported by a sufficient consideration. . . . ' (77 Corpus Juris Secundum p. 652. See also 27 Ruling Case Law 339 and cases cited.') 'It can be taken for granted, as contended by the defendant, that the option contract was not valid for lack of consideration. But it was, at least, an offer to sell, which was accepted by latter, and of the acceptance the offerer had knowledge before said offer was withdrawn. The concurrence of both acts the offer and the acceptance could at all events have generated a contract, if none there was before (arts. 1254 and 1262 of the Civil Code).' (Zayco vs. Serra, 44 Phil. 331.)" In other words, since there may be no valid contract without a cause or consideration, the promisor is not bound by his promise and may, accordingly, withdraw it. Pending notice of its withdrawal, his accepted promise partakes, however, of the nature of an offer to sell which, if accepted, results in a perfected contract of sale. This view has the advantage of avoiding a conflict between Articles 1324 on the general principles on contracts and 1479 on sales of the Civil Code, in line with the cardinal rule of statutory construction that, in construing different provisions of one and the same law or code, such interpretation should be favored as will reconcile or harmonize said provisions and avoid a conflict between

the same. Indeed, the presumption is that, in the process of drafting the Code, its author has maintained a consistent philosophy or position. Moreover, the decision in Southwestern Sugar & Molasses Co. v. Atlantic Gulf & pacific Co., 10 holding that Art. 1324 is modified by Art. 1479 of the Civil Code, in effect, considers the latter as an exception to the former, and exceptions are not favored, unless the intention to the contrary is clear, and it is not so, insofar as said two (2) articles are concerned. What is more, the reference, in both the second paragraph of Art. 1479 and Art. 1324, to an option or promise supported by or founded upon a consideration, strongly suggests that the two (2) provisions intended to enforce or implement the same principle.

sell and to buy ensues, and the offeree ipso facto assumes the obligations of a purchaser In other words, if the option is given without a consideration, it is a mere offer to sell, which is not binding until accepted. If, however, acceptance is made before a withdrawal, it constitutes a binding contract of sale. The concurrence of both acts the offer and the acceptance could in such event generate a contract. While the law permits the offeror to withdraw the offer at any time before acceptance even before the period has expired, some writers hold the view, that the offeror can not exercise this right in an arbitrary or capricious manner. This is upon the principle that an offer implies an obligation on the part of the offeror to maintain it for such length of time as to permit the offeree to decide whether to accept or not, and therefore cannot arbitrarily revoke the offer without being liable for damages which the offeree may suffer. A contrary view would remove the stability and security of business transactions. 3 In the present case the trial court found that the "Plaintiff (Nicolas Sanchez) had offered the sum of P1,510.00 before any withdrawal from the contract has been made by the Defendant (Severina Rigos)." Since Rigos' offer to sell was accepted by Sanchez, before she could withdraw her offer, a bilateral reciprocal contract to sell and to buy was generated. Footnotes 1."OPTION TO PURCHASE "KNOW ALL MEN BY THESE PRESENTS: "I, SEVERINA RIGOS, Filipino, of legal age, widow, with residence at San Jose, Nueva Ecija, do by these presents WITNESSETH: "That I am the owner of that property covered by Transfer Certificate of Title No. NT-12528 of the Land Records of Nueva Ecija, my ownership thereof is evidenced by a Deed of Absolute Sale in my favor known as Doc. No. 47; Page No. 12; Book No. 1; Series of 1961 of Notary Public, A. Tomas; "That I have agreed, promised and committed and do hereby agree, promise and commit to sell the property covered by the above numbered certificate of title to NICOLAS SANCHEZ,

Upon mature deliberation, the Court is of the considered opinion that it should, as it hereby reiterates the doctrine laid down in the Atkins, Kroll & Co. case, and that, insofar all inconsistent therewith, the view adhered to in the South western Sugar & Molasses Co. case should be deemed abandoned or modified. WHEREFORE, the decision appealed from is hereby affirmed, with costs against defendant-appellant Severina Rigos. It is so ordered. Reyes, J.B.L., Makalintal, Zaldivar, Fernando, Teehankee, Barredo and Makasiar, JJ., concur. Castro, J., did not take part. Separate Opinions ANTONIO, J., concurring: I concur in the opinion of the Chief Justice. I fully agree with the abandonment of the view previously adhered to in Southwestern Sugar & Molasses Co. vs. Atlantic Gulf and Pacific Co. 1 which holds that an option to sell can still be withdrawn, even if accepted, if the same is not supported by any consideration, and the reaffirmance of the doctrine in Atkins, Kroll & Co., Inc. vs. Cua Hian Tek, 2 holding that "an option implies . . . the legal obligation to keep the offer (to sell) open for the time specified;" that it could be withdrawn before acceptance, if there was no consideration for the option, but once the "offer to sell" is accepted, a bilateral promise to

Filipino, of legal age, married to Engracia Barrantes, with residence at San Jose, Nueva Ecija, within a period of two (2) years from the execution of this instrument for the amount of One Thousand Five Hundred Ten Pesos (P1,510.00) Philippine Currency; "That if within the period of two (2) years from the execution of this instrument said Nicolas Sanchez shall fail to exercise his right to buy the property under this option, then his right is deemed terminated and elapsed and that I shall no longer be compelled to sell to him the property; "That I, NICOLAS SANCHEZ, whose personal circumstances are mentioned above hereby agree and conform with all the conditions set forth in this option to purchase executed in my favor; that I bind myself with all the terms and conditions. "IN WITNESS WHEREOF, the parties have hereunto affixed their signatures below this 3rd day of April, 1961, at San Jose, Nueva Ecija. (Sgd.) NICOLAS SANCHEZ(Sgd.) SEVERINA RIGOS Res. Cert. No. A-3914416Res. Cert. Issued at San Jose, N.E.Issued at on April 3, 1961April 1, 1961 No. San A-2977240 Jose, N.E.

Oscar A. Benzon for private respondents. Bitty G. Viliran for Rural Bank of Aguilar, Inc. SYLLABUS 1.REMEDIAL LAW; APPEAL; FACTUAL FINDINGS OF INTERMEDIATE APPELLATE COURT RESPECTED. We find the petition to be devoid of merit. Petitioners have failed to demonstrate that the conclusion made by the respondent Intermediate Appellate Court from the proven facts is wrong. We agree with said Court, and, therefore, set aside the contrary conclusion of the trial court, that the attempts to redeem the property were done after the expiration of the redemption period and that no extension of that period was granted to petitioners. If indeed the offer was made within the redemption period, but the Bank refused to accept the redemption money, petitioners should have made the tender to the sheriff who made the sale and who then had the duty to accept the tender sale and execute the certificate of redemption. (Enage vs. Vda. de Hijos de Escao, 38 Phil. 657, cited in II Moran, Comments on the Rules of Court, 1979 Ed., pp. 326-327). 2.CIVIL LAW; CONTRACTS; SALE; OPTION OR PROMISE, UNSUPPORTED BY CONSIDERATION DISTINCT FROM PURCHASE PRICE NOT BINDING UPON PROMISOR. The Bank was not bound by the promise made by Mrs. Brodeth not only because it was not approved or ratified by the Board of Directors but also because, and more decisively, it was a promise unsupported by a consideration distinct from the re-purchase price. The second paragraph of Article 1479 of the Civil Code expressly provides: . . ."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." Thus in Rural Bank of Paraaque Inc. vs. Remolado, et al., a commitment by the bank to resell a property, within a specified period, although accepted by the party in whose favor it was made, was considered an option not supported by a consideration distinct from the price and, therefore, not binding upon the PROMISSOR. Pursuant to Southwestern Sugar and Molasses Co. vs. Atlantic Gulf and Pacific Company, it was void.

SIGNED IN THE PRESENCE OF: (Sgd.) F. R. Bautista (Sgd.) Hipolito Francisco" THIRD DIVISION [G.R. No. 73573. May 23, 1991.] SPOUSES TRINIDAD AND EPIFANIO NATINO, petitioners, vs. THE INTERMEDIATE APPELLATE COURT, THE RURAL BANK OF AGUILAR, INC. AND THE PROVINCIAL SHERIFF EX-OFFICIO OF PANGASINAN, respondents. Jose P. Villamor for petitioners.

DECISION

DAVIDE, JR., J p: Unsatisfied with the decision of 4 June 1985 and the resolution of 23 December 1985 of the then Intermediate Appellate Court (IAC) in A.C.G.R. CV No. 69539 1 which, respectively, reversed the decision of the then Court of First Instance of Pangasinan, Branch II, of 1 December 1981 in Civil Case No. 15573, and denied the motion for the reconsideration of the 4 June 1985 decision, petitioners filed with this Court the instant petition to seek reversal thereof. They submit one principal issue: whether or not the conclusion drawn by the Intermediate Appellate Court from proven facts is correct. 2 The following facts are not disputed: On 12 October 1970 petitioners executed a real estate mortgage in favor of respondent bark as security for a loan of P2,000.00. Petitioners failed to pay the loan on due date. The bank applied for the extrajudicial foreclosure of the mortgage. At the foreclosure sale on 11 December 1974 the respondent bank was the highest and winning bidder with a bid of P2,945.11. A certificate of sale was executed in its favor by the sheriff and the same was registered with the Office of the Register of Deeds on 29 January 1975. The certificate of sale, a copy of which was furnished the petitioners by registered mail, expressly provided that the redemption period shall be two years from the registration thereof. llcd Since no redemption was made by petitioners within the two-year period, which expired on 29 January 1977, the sheriff issued a Final Deed of Sale on 15 February 1977. Petitioners, however, claimed that they were granted by respondent bank an extension of the redemption period; but the latter denied it. On 22 November 1979 respondent bank file a petition for a writ of possession, which petitioners later opposed on the ground that they had consigned the redemption money of P4,000.00 on 12 December 1979. The court rejected the opposition and issued the writ of possession. However, to prevent its execution, petitioners instituted with the then Court of First Instance of Pangasinan a complaint against respondent bank and the Ex-Officio Provincial Sheriff for the annulment of the aforementioned final deed of sale and for the issuance of a writ of preliminary injunction. The case was docketed as Civil Case No. 15573 which was raffled to Branch II thereof In their complaint petitioners alleged that the final deed of sale was

prematurely issued since they were granted an extension of time to redeem the property. In resolving the issue of extension of the redemption period, the trial court, in its Decision of 1 December 1981, made the following findings and conclusion: xxx xxx xxx "From the bank's evidence, it is difficult to believe that the plaintiffs who are personally known to the president and manager herself, and from whom she had to hire trucks, would not have made any move or offer to redeem the property within the redemption period. The presumption is that they exercised ordinary care of their concerns (Sc. 5 (d), Rule 131, Rules of Court, Cabigao vs. Lim, 50 Phil. 844). If indeed, the plaintiffs made no such offer during the redemption period, the defendant bank should have presented evidence rebutting the plaintiffs' evidence. But it did not. While the plaintiff testified that the tender was made to Mr. Salgado, loan clerk, and Mr. Madrid, Acting Manager of the Bank and also board members Dr. Jing Zarate and Mr. Rosario, none of them were presented to rebut plaintiffs' evidence. Hence, the presumption that if their testimony were produced, it would be adverse to the defendant bank under Sec. 5(e) Rule 131 of the Rules of Court, would apply. Furthermore, the very evidence of the defendant bank shows that there was indeed an extension of the period to redeem the property. The statutory period of redemption granted the mortgagor in the certificate of sale registered on January 29, 1975 was 2 years. The period should have terminated on January 29, 1977. However, the Sheriff's Certificate of Final Sale was only executed on February 15, 1977 and registered only on November 14, 1979 which registration date is the effective date of the confirmation of the sale which cuts off redemption. Such extension of nearly 3 years strengthens the plaintiffs' claim that indeed, there was an agreement to extend the redemption date.

The plaintiffs' evidence has shown that there was an agreement between them and the defendant bank through its personnel and its president and manager, acting as its agents to extend the period for redemption for the plaintiffs. However, the plaintiffs were not given a specific time to pay and redeem but were given by the President and Manager of the bank such time when their means permit them to do so. This created an obligation with a period under Art. 1180 of the Civil Code of the Philippines, which provides: 'Art. 1180.When the debtor binds himself to pay when his means permit him to do so, the obligation shall be deemed to be one with a period, subject to the provisions of Article 1197.' This does not mean that the condition was exclusively dependent of the will of the plaintiffs, for they had already promised payment. It therefore became necessary, under Article 1197 for the Court to fix the term in order that the condition may be fulfilled. Any action to recover before this is done is considered premature (Patente vs. Omega, 93 Phil. 218). That agreement or contract entered into between the President and Manager of the bank was not in writing is of no moment since under Article 1315 of the Civil Code," contracts are perfected by mere consent, and from that moment the parties are bound not only to the fulfillment of what has been expressly stipulated but also to all the consequences which according to their nature, may be in keeping with good faith, usage and law." The defendant's claim that the agreement must be in writing citing the ruling in the case of Pornellosa vs. Land Tenure Administration, 1 SCRA 375, only applies to executory contracts, not to those either totally or partially performed, (Inigo vs. Estate of Maloto, 21 SCRA 246). In this case, the bank had already partially performed its obligation thereunder by extending the period of redemption from January 29, 1977 to November 14, 1979. The agreement does not novate the original contract of mortgage but only changes one of its conditions,

that which concerns the period of redemption. The period of redemption may be extended by the parties under special circumstances (Lichauco vs. Olegario, 43 Phil. 540, 542). This the parties may do, since the right of the mortgagee to demand compliance within the 2 year period of redemption may be waived, unless the waiver is contrary to the public order, public policy, morals or good customs or prejudicial to a third person with a right recognized by law. None of the inhibitions enumerated are present in this case. Hence, the action of the defendant bank in securing the Sheriffs Final Sale prior to the fixing of the period within which the plaintiffs had to pay was not in order by reason of the extension of the period of redemption without a term. Not being in order, the period for redemption by the plaintiffs still exists but has to be set." 3 and on the basis thereof, decreed to (a) annul the Sheriff's Final Deed of Sale, dated 15 February 1977 and its registration of 17 March 1979, (b) fix the period of redemption to ninety (90) days from receipt of the decision by petitioners, (c) order petitioners to pay the respondent bank, within ninety (90) days from receipt of the decision the amount of P2,945.11, the purchase price, with 1% interest per month from 11 December 1974 to 14 December 1979, together with any amount representing assessment or taxes which the bank may have paid after 11 December 1974, with interest thereon at 1% per month up to 14 December 1979, (d) order the Bank to receive and credit the petitioners with such amounts, restore petitioners to the property and to deliver to them a certificate of redemption, and to pay petitioners the sum of P2,000.00 as attorney's fees and the costs. 4

Respondent bank appealed from said Decision to the then Intermediate Appellate Court which docketed the appeal as C.A.-G.R. CV No. 69539. In support of its appeal, respondent bank assigned the following errors: "-I-

THE LOWER COURT ERRED IN NOT HOLDING THAT THE OFFERS BY THE APPELLEES TO THE APPELLANTS WERE MADE AFTER THE PERIOD OF REDEMPTION HAD ALREADY EXPIRED AND AS A MATTER OF FACT, WERE MADE ONLY AFTER THE EXECUTION OF THE DEED OF FINAL SALE BY THE SHERIFF. -IITHE LOWER COURT ERRED IN HOLDING THAT THE APPELLANTS GRANTED THE APPELLEES AN EXTENSION OF THE PERIOD FOR THE REDEMPTION OF THE PROPERTY WHICH WAS SOLD DURING THE FORECLOSURE SALE. -IIITHE LOWER COURT ERRED IN HOLDING THAT THE PREPONDERANCE OF EVIDENCE FAVORS THE APPELLEES DESPITE THE FACT THAT THE ONLY EVIDENCE PRESENTED BY THEM IS THE SOLE TESTIMONY OF EPIFANIO NATINO, WHICH IS NOT ONLY UNCORROBORATED, BUT IS EVEN CONTRARY TO THE IMPORT OF HIS DECLARATIONS AND ADMISSIONS MADE IN OPEN COURT; AS AGAINST THE TESTIMONY OF THE APPELLANTS' WITNESS WHICH IS CORROBORATED, NOT ONLY BY DOCUMENTARY EVIDENCE, BUT EVEN BY THE IMPORT OF PLAINTIFFAPPELLEES' TESTIMONY. -IVTHE LOWER COURT ERRED IN NOT REJECTING THE TESTIMONY OF PLAINTIFF-APPELLEE WHICH DID NOT PROVE AN OFFER TO REDEEM WITHIN THE REGLEMENTARY PERIOD IN AN AUTHENTIC MANNER AS REQUIRED BY THE LAW, RULES AND JURISPRUDENCE. -VTHE LOWER COURT ERRED IN NOT REJECTING THE TESTIMONY OF PLAINTIFF-APPELLEE ON THE ALLEGED EXTENSION OF THE REDEMPTION PERIOD INASMUCH

AS IT IS NOT IN A PUBLIC DOCUMENT OR AT LEAST IN AN AUTHENTIC WRITING. -VITHE LOWER COURT ERRED IN APPLYING ARTICLES 1180 AND 1197 OF THE CIVIL CODE, BOTH OF WHICH HAS NO RELEVANCE OR MATERIALITY TO THE CASE AT BAR. -VIIASSUMING ARGUENDO THAT SOME OFFICERS OR EMPLOYEES OF THE APPELLANT BANK MANIFESTED TO THE PLAINTIFF-APPELLEE THAT THEY CAN RECOVER THE LAND IN QUESTION, AS TESTIFIED BY THE PLAINTIFF-APPELLEE, THE LOWER COURT ERRED IN HOLDING THAT SUCH OFFICERS ACTED AS AGENTS OF THE APPELLANT-BANK. CONSEQUENTLY, THE LOWER COURT ERRED IN NOT HOLDING THAT ONLY THE ACTION BY THE BOARD OF DIRECTORS OF THE BANK CAN BIND THE LATTER. -VIIITHE LOWER COURT ERRED IN HOLDING THAT THE EXECUTION OF THE DEED OF FINAL SALE WAS NOT IN ORDER AND IN HOLDING THAT THE APPELLEES MAY STILL REDEEM THE PROPERTY BY PAYING THE PURCHASE PRICE PLUS 1% INTEREST PER MONTH, DESPITE THE LAPSE OF THE PERIOD OF REDEMPTION. -IXTHE LOWER COURT ERRED IN NOT DECIDING THE CASE IN FAVOR OF THE APPELLANTS AND CONSEQUENTLY ERRED IN NOT AWARDING DAMAGES TO THE APPELLANTS HEREIN." 5 Herein petitioners, as appellees, did not file their Brief. In its Decision of 4 June 1985, the Intermediate Appellate Court disposed of the assigned errors as follows:

xxx xxx xxx "The bank has assigned eight (8) errors in the decision but the determinants are the first and the second. But before going into their merits We must take note of the failure of the appellees to file their brief. Appellees did not file any motion for reconsideration. It has to be stated there that, generally, appellee's failure to file brief is considered as equivalent to a confession of error, warranting, although not necessarily requiring a reversal, but any doubt entertained by the appellate court as to what disposition should be made of the case will be resolved against the appellee (4 CJS 1832, cited in Francisco, the Revised Rules of Court Civil Procedure, Vol. III, p. 638). Re the first error THE LOWER COURT ERRED IN NOT HOLDING THAT THE OFFERS BY THE APPELLEES TO THE APPELLANTS WERE MADE AFTER THE PERIOD OF REDEMPTION HAD ALREADY EXPIRED AND AS A MATTER OF FACT, WERE MADE ONLY AFTER THE EXECUTION OF THE DEED OF FINAL SALE BY THE SHERIFF. It will take better proofs than appellees' mere declaration for the Court to believe that they had tendered the redemption money within the redemption period which was refused by the bank. There would have been no valid reason for a refusal; it is an obligation imposed by law on every purchaser at public auction that admits of redemption, to accept tender of redemption money. And should there be refusal, the correlative duty of the mortgagor is clear: he must deposit the money with the sheriff. The evidence does not show that appellees complied with this duty. All that was shown by way of compliance was the deposit made with the Clerk of Court of the sum of P4,000.00. This deposit is a belated and last ditch attempt to exercise a right that had long expired. It was made only on December 12, 1979, or after the redemption period of two (2) years from January 29,

1977 when the sheriff's certificate of sale was registered and after sheriff's final sale which was registered on November 14, 1979. And, it is clear that the late deposit was utilized to defeat the bank's vested right which it sought to enforce by its petition for a writ of possession. The lower court correctly ruled against any validity to it. The right to redeem becomes functus officio on the date of its expiry, and its exercise after the period is not really one of redemption but a repurchase. Distinction must be made because redemption is by force of law; the purchaser at public auction is bound to accept redemption. Repurchase however of foreclosed property, after redemption period, imposes no such obligation. After expiry, the purchaser may or may not re-sell the property but no law will compel him to do so. And, he is not bound by the bid price; it is entirely within his discretion to set a higher price, for after all, the property already belongs to him as owner. This brings Us to the second error THE LOWER COURT ERRED IN HOLDING THAT THE APPELLANTS GRANTED THE APPELLEES AN EXTENSION OF THE PERIOD FOR THE REDEMPTION OF THE PROPERTY WHICH WAS SOLD DURING THE FORECLOSURE SALE. Appellees' main premise is the alleged assurances of the bank's officers that they could redeem the property. From the testimony of Epifanio Natino, however, it is clear that these assurances were given before expiry of redemption (tsn, pp. 15 & 16). Such assurances were not at all necessary since the right to redeem was still in existence. Those assurances however could not and did not extend beyond the redemption period. It seems clear from testimony elicited on crossexamination of the president and manager of the bank that the latter offered to re-sell the property for P30,000.00 but after the petition for a writ of possession had already been filed, and well after expiry of the period to redeem . Appellants failed to

accept the offer; they deposited only P4,000.00. There was therefore no meeting of the minds, and accordingly, appellants may no longer be heard. 6 and in the light thereof, REVERSED and SET ASIDE the appealed decision. Their motion to reconsider the same having been denied in the resolution of 23 December 1985, 7 petitioners have come to Us on appeal by certiorari raising the sole issue stated in the beginning of this decision. We find the petition to be devoid of merit. Petitioners have failed to demonstrate that the conclusion made by the respondent Intermediate Appellate Court from the proven facts is wrong. We agree with said Court, and, therefore, set aside the contrary conclusion of the trial court, that the attempts to redeem the property were done after the expiration of the redemption period and that no extension of that period was granted to petitioners. The contrary conclusion made by the trial court is drawn from inferences which are not supported by adequate or sufficient facts or is based on erroneous assumptions. We note that its decision is remarkably silent as to the dates when petitioner Epifanio Natino went to the respondent bank to talk with a bank personnel to offer to pay the loan. If indeed the offer was made within the redemption period, but the Bank refused to accept the redemption money, petitioners should have made the tender to the sheriff who made the sale and who then had the duty to accept the tender and execute the certificate of redemption. (Enage vs. Vda. de Hijos de Escano, 38 Phil. 657, cited in II MORAN, Comments on the Rules of Court, 1979 Ed., pp. 326-327). There was no such tender to the Sheriff. Again, if indeed this occurred during the redemption period, then, as correctly pointed out by respondent IAC, it was not necessary to ask for extension of the period to redeem. In respect to the alleged assurance given by Mrs. Brodeth, the President and Manager of the Bank, sometime In May of 1978 to the effect that petitioners can redeem the property as soon as they have the money, it is obvious that this took place after the expiration of the redemption period. As correctly pointed out by the respondent IAC, this could only relate to the matter of resale of the property, not redemption.

Furthermore, even assuming for the sake of argument that Mrs. Brodeth gave the assurance, the same could bind the bank only if its Board of Directors approved or ratified it. No evidence was offered to prove such action by the Board. Moreover, Mrs. Brodeth denied that during that meeting in May 1978 she made the assurance; according to her petitioner Epifanio neither mentioned the loan nor offered to redeem, although earlier he was told that to "redeem" the property he should pay P30,000.00. The latter statement supports the conclusion of respondent IAC that this was the Bank's offer for the re-sell (not redemption of the property), which, logically took place after the expiration of the redemption period. Even if Mrs. Brodeth is to be understood to have promised to allow the petitioners to buy the property at any time they have the money, the Bank was not bound by the promise not only because it was not approved or ratified by the Board of Directors but also because, and more decisively, it was a promise unsupported by a consideration distinct from the re-purchase price. The second paragraph of Article 1479 of the Civil Code expressly provides:

xxx xxx xxx "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." Thus in Rural Bank of Paraaque Inc. vs. Remolado, et al., 8 a commitment by the bank to resell a property, within a specified period, although accepted by the party in whose favor it was made, was considered an option not supported by a consideration distinct from the price and, therefore, not binding upon the promissor. Pursuant to Southwestern Sugar and Molasses Co. vs. Atlantic Gulf and Pacific Company, 9 it was void. WHEREFORE, the instant petition is DISMISSED, with costs against the Petitioners. SO ORDERED. Fernan, C.J., Gutierrez, Jr., Feliciano and Bidin, JJ., concur.

SECOND DIVISION [G.R. No. 103338. January 4, 1994.] FEDERICO SERRA, petitioner, vs. THE HON. COURT OF APPEALS AND RIZAL COMMERCIAL BANKING CORPORATION, respondents. SYLLABUS 1.CIVIL LAW; CONTRACTS; CONTRACT OF ADHESION; CONSTRUED; CASE AT BAR NOT A CASE OF. A contract of adhesion is one wherein a party, usually a corporation, prepares the stipulations in the contract, while the other party merely affixes his signature or his "adhesion" thereto. These types of contracts are as binding as ordinary contracts. Because in reality, the party who adheres to the contract is free to reject it entirely. Although, this Court will not hesitate to rule out blind adherence to terms where facts and circumstances will show that it is basically one-sided. We do not find the situation in the present case to be inequitable. Petitioner is a highly educated man, who, at the time of the trial was already a CPALawyer, and when he entered into the contract, was already a CPA, holding a respectable position with the Metropolitan Manila Commission. It is evident that a man of his stature should have been more cautious in transactions he enters into, particularly where it concerns valuable properties. He is amply equipped to drive a hard bargain if he would be so minded to. 2. ID.; ID.; PROMISE TO BUY AND SELL A DETERMINATE THING FOR A PRICE; DISTINGUISHED FROM ACCEPTED UNILATERAL PROMISE TO BUY OR SELL A DETERMINATE THING FOR A PRICE. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable. An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promisor if the promise is supported by a consideration distinct from the price. (Article 1479, New Civil Code) The first is a mutual promise and each has the right to demand from the other the fulfillment of the obligation. While the second is merely an offer of one to another, which if accepted, would create an obligation to the offeror to make good his promise, provided the acceptance is supported by a consideration distinct from the price. Article 1324 of the Civil Code provides that when an offeror has allowed the offeree a certain period to accept, the offer may be withdrawn at anytime before acceptance by communicating such withdrawal, except when the option is

founded upon consideration, as something paid or promised. On the other hand, Article 1479 of the Code provides that an accepted unilateral promise to buy and sell a determinate thing for a price certain is binding upon the promisor if the promise is supported by a consideration distinct from the price . In a unilateral promise to sell, where the debtor fails to withdraw the promise before the acceptance by the creditor, the transaction becomes a bilateral contract to sell and to buy, because upon acceptance by the creditor of the offer to sell by the debtor, there is already a meeting of the minds of the parties as to the thing which is determinate and the price which is certain. In which case, the parties may then reciprocally demand performance. Jurisprudence has taught us that an optional contract is a privilege existing only in one party the buyer. For a separate consideration paid, he is given the right to decide to purchase or not, a certain merchandise or property, at any time within the agreed period, at a fixed price. This being his prerogative, he may not be compelled to exercise the option to buy before the time expires. 3. ID.; ID.; ID.; ID.; APPLICATION IN CASE AT BAR; VDA. DE QUIRINO v. PALARCA (29 SCRA 1), CITED. What may be regarded as a consideration separate from the price is discussed in the case of Vda. de Quirino v. Palarca (29 SCRA 1) wherein the facts are almost on all fours with the case at bar. The said case also involved a lease contract with option to buy where we had occasion to say that "the consideration for the lessor's obligation to sell the leased premises to the lessee, should he choose to exercise his option to purchase the same, is the obligation of the lessee to sell to the lessor the building and/or improvements constructed and/or made by the former, if he fails to exercise his option to buy said premises." In the present case, the consideration is even more onerous on the part of the lessee since it entails transferring of the building and/or improvements on the property to petitioner, should respondent bank fail to exercise its option within the period stipulated. The bugging question then is whether the price "not greater than TWO HUNDRED PESOS" is certain or definite. A price is considered certain if it is so with reference to another thing certain or when the determination thereof is left to the judgment of a specified person or persons. And generally, gross inadequacy of price does not affect a contract of sale. Contracts are to be construed according to the sense and meaning of the terms which the parties themselves have used. In the present dispute, there is evidence to show that the intention of the parties is to peg the price at P210 per square meter. Moreover, by his subsequent acts of having the land titled under the Torrens System, and in pursuing the bank manager to effect the sale immediately, means that he understood perfectly well the terms of the contract. He even had the same property mortgaged to the respondent bank sometime in 1979,

without the slightest hint of wanting to abandon his offer to sell the property at the agreed price P210 per square meter. 4. ID.; ID.; EXTRAORDINARY INFLATION; WHEN CONSIDERED. We agree with the courts a quo that there is no basis, legal or factual, in adjusting the amount of the rent. The contract is the law between the parties and if there is indeed reason to adjust the rent, the parties could by themselves negotiate for the amendment of the contract. Neither could we consider the decline of the purchasing power of the Philippine peso from 1983 to the time of the commencement of the present case in 1985, to be so great as to result in an extraordinary inflation. Extraordinary inflation exists when there is an unimaginable increase or decrease of the purchasing power of the Philippine currency, or fluctuation in the value of pesos manifestly beyond the contemplation of the parties at the time of the establishment of the obligation.

20, 1975, a contract of LEASE WITH OPTION TO BUY was instead forged by the parties, the pertinent portion of which reads: "1.The LESSOR leases unto the LESSEE, and the LESSEE hereby accepts in lease, the parcel of land described in the first WHEREAS clause, to have and to hold the same for a period of twenty-five (25) years commencing from June 1, 1975 to June 1, 2000. The LESSEE, however, shall have the option to purchase said parcel of land within a period of ten (10) years from the date of the signing of this Contract at a price not greater than TWO HUNDRED TEN PESOS (P210.00) per square meter. For this purpose, the LESSOR undertakes, within such ten-year period, to register said parcel of land under the TORRENS SYSTEM and all expenses appurtenant thereto shall be for his sole account. "If, for any reason, said parcel of land is not registered under the TORRENS SYSTEM within the aforementioned ten-year period, the LESSEE shall have the right, upon termination of the lease to be paid by the LESSOR the market value of the building and improvements constructed on said parcel of land. cdll "The LESSEE is hereby appointed attorney-in-fact for the LESSOR to register said parcel of land under the TORRENS SYSTEM in case the LESSOR, for any reason, fails to comply with his obligation to effect said registration within a reasonable time after the signing of this Agreement, and all expenses appurtenant to such registration shall be charged by the LESSEE against the rentals due to the LESSOR. "2.During the period of the lease, the LESSEE covenants to pay the LESSOR, at the latter's residence, a monthly rental of SEVEN HUNDRED PESOS (P700.00), Philippine Currency, payable in advance on or before the fifth (5th) day of every calendar month, provided that the rentals for the first four (4) months shall be paid by the LESSEE in advance upon the signing of this Contract. "3.The LESSEE is hereby authorized to construct at its sole expense a building and such other improvements

DECISION

NOCON, J p: A promise to buy and sell a determinate thing for a price certain is reciprocally demandable. An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promisor if the promise is supported by a consideration distinct from the price. (Article 1479, New Civil Code) The first is a mutual promise and each has the right to demand from the other the fulfillment of the obligation. While the second is merely an offer of one to another, which if accepted, would create an obligation to the offeror to make good his promise, provided the acceptance is supported by a consideration distinct from the price. LibLex Disputed in the present case is the efficacy of a "Contract of Lease with Option to Buy," entered into between petitioner Federico Serra and private respondent Rizal Commercial Banking Corporation. (RCBC). Petitioner is the owner of a 374 square meter parcel of land located at Quezon St., Masbate, Masbate. Sometime in 1975, respondent bank, in its desire to put up a branch in Masbate, Masbate, negotiated with petitioner for the purchase of the then unregistered property. On May

on said parcel of land, which it may need in the pursuance of its business and/or operations; provided, that if for any reason the LESSEE shall fail to exercise its option mentioned in paragraph (1) above in case the parcel of land is registered under the TORRENS SYSTEM within the ten-year period mentioned therein, said building and/or improvements, shall become the property of the LESSOR after the expiration of the 25year lease period without right of reimbursement on the part of the LESSEE. The authority herein granted does not, however, extend to the making or allowing any unlawful, improper or offensive use of the leased premises, or any use thereof, other than banking and office purposes. The maintenance and upkeep of such building, structure and improvements shall likewise be for the sole account of the LESSEE. 1

asked for an award of P50,000.00 for attorney's fees P100,000.00 as exemplary damages and the cost of the suit. 4 A special and affirmative defenses, petitioner contended: 1.That the contract having been prepared and drawn by RCBC, it took undue advantage on him when it set in lopsided terms. 2.That the option was not supported by any consideration distinct from the price and hence not binding upon him. cdphil 3.That as a condition for the validity and/or efficacy of the option, it should have been exercised within the reasonable time after the registration of the land under the Torrens System; that its delayed action on the option has forfeited whatever its claim to the same. 4.That extraordinary inflation supervened resulting in the unusual decrease in the purchasing power of the currency that could not reasonably be foreseen or was manifestly beyond the contemplation of the parties at the time of the establishment of the obligation, thus, rendering the terms of the contract unenforceable, inequitable and to the undue enrichment of RCBC. 5 and as counterclaim petitioner alleged that: 1.The rental of P700.00 has become unrealistic and unreasonable, that justice and equity will require its adjustment. 2.By the institution of the complaint he suffered moral damages which may be assessed at P100,000.00; and award of attorney's fee of P25,000.00 and exemplary damages at P100,000.00. 6 Initially, after trial on the merits, the court dismissed the complaint. Although it found the contract to be valid, the court nonetheless ruled that the option to buy is unenforceable because it lacked a consideration distinct from the price and that RCBC did not exercise

The foregoing agreement was subscribed before Notary Public Romeo F. Natividad. prcd Pursuant to said contract, a building and other improvements were constructed on the land which housed the branch office of RCBC in Masbate, Masbate. Within three years from the signing of the contract, petitioner complied with his part of the agreement by having the property registered and placed under the TORRENS SYSTEM, for which Original Certificate of Title No. 0-232 was issued by the Register of Deeds of the Province of Masbate. Petitioner alleges that as soon as he had the property registered, he kept on pursuing the manager of the branch to effect the sale of the lot as per their agreement. It was not until September 4, 1984, however, when the respondent bank decided to exercise its option and informed petitioner, through a letter, 2 of its intention to buy the property at the agreed price of not greater than P210.00 per square meter or a total of P78,430.00. But much to the surprise of the respondent, petitioner replied that he is no longer selling the property. 3 Hence, on March 14, 1985, a complaint for specific performance and damages was filed by respondent against petitioner. In the complaint, respondent alleged that during the negotiations it made clear to petitioner that it intends to stay permanently on the property once its branch office is opened unless the exigencies of the business requires otherwise. Aside from its prayer for specific performance, it likewise

its option within reasonable time. The prayer for readjustment of rental was denied, as well as that for moral and exemplary damages. 7 Nevertheless, upon motion for reconsideration of respondent, the court in the order of January 9, 1989, reversed itself, the dispositive portion reads: "WHEREFORE, the Court reconsiders its decision dated June 6, 1988, and hereby renders judgment as follows: "1.The defendant is hereby ordered to execute and deliver the proper deed of sale in favor of plaintiff selling, transferring and conveying the property covered and described in the Original Certificate of Title 0-232 of the Registry of Deeds of Masbate for the sum of Seventy Eight Thousand Five Hundred Forty Pesos (P78,540,00), Philippine Currency; LLpr "2.Defendant is ordered to pay plaintiff the sum of Five Thousand (P5,000.00) Pesos as attorney's fees; "3.The counter claim of defendant is hereby dismissed; and "4.Defendant shall pay the costs of suit." 8 In a decision promulgated on September 19, 1991, 9 the Court of Appeals affirmed the findings of the trial court that: 1.The contract is valid and that the parties perfectly understood the contents thereof; 2.The option is supported by a distinct and separate consideration as embodied in the agreement; 3.There is no basis in granting an adjustment in rental. Assailing the judgment of the appellate court, petitioner would like us to consider mainly the following:

1.The adhesion.

disputed

contract

is a

contract

of

2.There was no consideration to support the option, distinct from the price, hence the option cannot be exercised. 3.Respondent court gravely abused its discretion in not granting currency adjustment on the already eroded value of the stipulated rentals for twenty-five years. The petition is devoid of merit. There is no dispute that the contract is valid and existing between the parties, as found by both the trial court and the appellate court. Neither do we find the terms of the contract unfairly lopsided to have it ignored. A contract of adhesion is one wherein a party, usually a corporation, prepares the stipulations in the contract, while the other party merely affixes his signature or his "adhesion" thereto. These types of contracts are as binding as ordinary contracts. Because in reality, the party who adheres to the contract is free to reject it entirely. Although, this Court will not hesitate to rule out blind adherence to terms where facts and circumstances will show that it is basically onesided. 10 We do not find the situation in the present case to be inequitable. Petitioner is a highly educated man, who, at the time of the trial was already a CPA-Lawyer, and when he entered into the contract, was already a CPA, holding a respectable position with the Metropolitan Manila Commission. It is evident that a man of his stature should have been more cautious in transactions he enters into, particularly where it concerns valuable properties. He is amply equipped to drive a hard bargain if he would be so minded to. Petitioner contends that the doctrines laid down in the cases of Atkins Kroll v. Cua Hian Tek, 11 Sanchez v. Rigos, 12 and Vda. de Quirino v. Palarca 13 were misapplied in the present case, because 1) the option given to the respondent bank was not supported by a consideration distinct from the price; and 2) that the stipulated price of "not greater than P210.00 per square meter" is not certain or definite. cdrep

Article 1324 of the Civil Code provides that when an offeror has allowed the offeree a certain period to accept, the offer may be withdrawn at anytime before acceptance by communicating such withdrawal, except when the option is founded upon consideration, as something paid or promised. On the other hand, Article 1479 of the Code provides that an accepted unilateral promise to buy and sell a determinate thing for a price certain is binding upon the promisor if the promise is supported by a consideration distinct from the price. In a unilateral promise to sell, where the debtor fails to withdraw the promise before the acceptance by the creditor, the transaction becomes a bilateral contract to sell and to buy, because upon acceptance by the creditor of the offer to sell by the debtor, there is already a meeting of the minds of the parties as to the thing which is determinate and the price which is certain. 14 In which case, the parties may then reciprocally demand performance. llcd Jurisprudence has taught us that an optional contract is a privilege existing only in one party the buyer. For a separate consideration paid, he is given the right to decide to purchase or not, a certain merchandise or property, at any time within the agreed period, at a fixed price. This being his prerogative, he may not be compelled to exercise the option to buy before the time expires. 15 On the other hand, what may be regarded as a consideration separate from the price is discussed in the case of Vda. de Quirino v. Palarca 16 wherein the facts are almost on all fours with the case at bar. The said case also involved a lease contract with option to buy where we had occasion to say that "the consideration for the lessor's obligation to sell the leased premises to the lessee, should he choose to exercise his option to purchase the same, is the obligation of the lessee to sell to the lessor the building and/or improvements constructed and/or made by the former, if he fails to exercise his option to buy said premises." 17 In the present case, the consideration is even more onerous on the part of the lessee since it entails transferring of the building and/or improvements on the property to petitioner, should respondent bank fail to exercise its option within the period stipulated. 18 The bugging question then is whether the price "not greater than TWO HUNDRED PESOS" is certain or definite. A price is considered certain if it is so with reference to another thing certain or when the determination thereof is left to the judgment of a specified person or persons. 19 And generally, gross inadequacy of price does not affect a contract of sale. 20

Contracts are to be construed according to the sense and meaning of the terms which the parties themselves have used. In the present dispute, there is evidence to show that the intention of the parties is to peg the price at P210 per square meter. This was confirmed by petitioner himself in his testimony, as follows: Q.Will you please tell this Court what was the offer? A.It was an offer to buy the property that I have in Quezon City (sic). Q.And did they give you a specific amount? xxx xxx xxx A.Well, there was an offer to buy the property at P210 per square meters (sic). Q.And that was in what year?

A .1975, sir. Q.And did you accept the offer? A.Yes, sir. 21 Moreover, by his subsequent acts of having the land titled under the Torrens System, and in pursuing the bank manager to effect the sale immediately, means that he understood perfectly well the terms of the contract. He even had the same property mortgaged to the respondent bank sometime in 1979, without the slightest hint of wanting to abandon his offer to sell the property at the agreed price of P210 per square meter. 22 Finally, we agree with the courts a quo that there is no basis, legal or factual, in adjusting the amount of the rent. The contract is the law between the parties and if there is indeed reason to adjust the rent, the parties could by themselves negotiate for the amendment of the contract. Neither could we consider the decline of the purchasing power of the Philippine peso from 1983 to the time of the commencement of the present case in 1985, to be so great as to

result in an extraordinary inflation. Extraordinary inflation exists when there in an unimaginable increase or decrease of the purchasing power of the Philippine currency, or fluctuation in the value of pesos manifestly beyond the contemplation of the parties at the time of the establishment of the obligation. 23 Premises considered, we find that the contract of "LEASE WITH OPTION TO BUY" between petitioner and respondent bank is valid, effective and enforceable, the price being certain and that there was consideration distinct from the price to support the option given to the lessee. WHEREFORE, this petition is hereby DISMISSED, and the decision of the appellate court is hereby AFFIRMED. SO ORDERED. Narvasa, C.J., Padilla, Regalado and Puno, JJ., concur. SECOND DIVISION [G.R. No. L-39806. January 27, 1983.] LUIS RIDAD and LOURDES RIDAD, plaintiffsappellees, vs. FILIPINAS INVESTMENT and FINANCE CORPORATION, JOSE D. SEBASTIAN and JOSE SAN AGUSTIN, in his capacity as Sheriff, defendant-appellants. Osmundo Victoriano for plaintiffs-appellees. Wilhelmina V. Joven for defendant-appellants. SYLLABUS 1.CIVIL LAW; CONTRACTS; SALE OF PERSONAL PROPERTY ON INSTALLMENT BASIS; REMEDIES OF THE VENDOR SHOULD THE VENDEE DEFAULT; ALTERNATIVE NOT CUMULATIVE. Under Article 1484 of the Civil Code, the vendor of personal property, the purchase of which is payable in installments, has the right, should the vendee default in the payment of two or more of the agreed installments, to

exact fulfillment by the purchaser of the obligation, or to cancel the sale, or to foreclose the mortgage on the purchased personal property, if one was constituted. (Luneta Motor Co. vs. Dimagiba, 3 SCRA 884; Radiowealth, Inc. vs. Lavin, 7 SCRA 804; Industrial Finance Corporation vs. Tobias, 78 SCRA 28). Whichever right the vendor elects he cannot avail of the other, these remedies being alternative, not cumulative. (Industrial Finance Corp. vs. Tobias, Ibid; Cruz vs. Filipinas Investment and Finance Corp., 23 SCRA 791). 2.ID.; ID.; ID.; ID.; ID.; ELECTION TO FORECLOSE THE MORTGAGE ON DEFAULT PRECLUDES ACTION FOR RECOVERY OF UNPAID BALANCE; PURPOSE OF THE LAW. If the vendor avails himself of the right to foreclose his mortgage, the law prohibits him from further bringing an action against the vendee for the purpose of recovering whatever balance of the debt secured not satisfied by the foreclosure sale. (Luneta Motor Co. vs. Dimagiba, Supra; Northern Motors, Inc. vs. Sapinoso, 33 SCRA 356). The precise purpose of the law is to prevent mortgagees from seizing the mortgaged property, buying it at foreclosure sale for a low price and then bringing suit against the mortgagor for a deficiency judgment, otherwise, the mortgagor-buyer would find himself without the property and still owing practically the full amount of his original indebtedness. (Bachrach Motor Co. vs. Millan, 61 Phil. 409; Macondray & Co. vs. Benito, 62 Phil. 137; Zayas vs. Luneta Motor Co., L-30583, October 23, 1982). 3.ID.; ID.; ID.; ID.; ID.; ID.; RULING IN LEVY HERMANOS, INC. vs. PACIFIC COMMERCIAL CO., ET AL. APPLICABLE TO CASE AT BAR. Where the appellant corporation elected to foreclose its mortgage upon default by the appellee in the payment of the agreed installments and having chosen to foreclose the chattel mortgage, bought the purchased vehicles at public auction as the highest bidder, it submitted itself to the consequences of Article 1484 of the Civil Code and the lower court rightly declared the nullity of the chattel mortgage in question in so far as the taxicab franchise and the used Chevrolet car of plaintiffs are concerned, under the authority of the ruling in the case of Levy Hermanos, Inc. vs. Pacific Commercial Co., et al., 71 Phil. 587, the facts of which are similar to those in the case at bar. 4.ID.; ID.; ID.; ID.; ID.; ID.; PROHIBITION OF RECOURSE AGAINST ADDITIONAL SECURITY; WHETHER PUT UP BY A THIRD PARTY OR BY THE VENDEES THEMSELVES. The vendor of personal property sold on the installment basis is precluded, after foreclosing the chattel mortgage on the thing sold, from having a recourse against the additional security put up by a third party to guarantee the purchaser's performance of his obligation. (Cruz vs. Filipinas

Investment & Finance Corporation, 23 SCRA 791; Pascual vs. Universal Motors Corporation, 61 SCRA 121) If the vendor under such circumstance is prohibited from having a recourse against the additional security for reasons therein stated, there is no ground why such vendor should not likewise be precluded from further extrajudicially foreclosing the additional security put up by the vendees themselves, as in the instant case, it being tantamount to a further action (cf. Cruz vs. Filipinas Investment & Finance Corporation, supra) that would violate Article 1484 of the Civil Code, for there is actually no difference between an additional security put up by the vendee himself and such security put up by a third party insofar as how the burden would ultimately fall on the vendee himself is concerned. 5.ID.; ID.; ID.; ID.; SALE OF MORTGAGED PROPERTY IN AN ACTION FOR SPECIFIC PERFORMANCE; DIFFERENTIATED FROM FORECLOSURE OF CHATTEL MORTGAGE IN CASE AT BAR. In sales on installments, where the action instituted is for specific performance and the mortgaged property is subsequently attached and sold, the sale thereof does not amount to a foreclosure of the mortgage, hence, the seller-creditor is entitled to a deficiency judgment. (Southern Motors, Inc. vs. Moscoso, 2 SCRA 168). In that case, the vendor has availed of the first remedy provided by Article 1484 of the Civil Code, i.e., to exact fulfillment of the obligation; whereas in the present case, the remedy availed of was foreclosure of the chattel mortgage.

on another car (Chevrolet) and plaintiffs' franchise or certificate of public convenience granted by the defunct Public Service Commission for the operation of a taxi fleet. Then, with the conformity of the plaintiffs, the vendor assigned its rights, title and interest to the above-mentioned promissory note and chattel mortgage to defendant Filipinas Investment and Finance Corporation. Due to the failure of the plaintiffs to pay their monthly installments as per promissory note, the defendant corporation foreclosed the chattel mortgage extrajudicially, and at the public auction sale of the two Ford Consul cars, of which the plaintiffs were not notified, the defendant corporation was the highest bidder and purchaser. Another auction sale was held on November 16, 1965, involving the remaining properties subject of the deed of chattel mortgage since plaintiffs' obligation was not fully satisfied by the sale of the aforesaid vehicles, and at the public auction sale, the franchise of plaintiffs to operate five units of taxicab service was sold for P'8,000 to the highest bidder, herein defendant corporation, which subsequently sold and conveyed the same to herein defendant Jose D. Sebastian, who then filed with the Public Service Commission an application for approval of said sale in his favor. On February 21, 1966, plaintiffs filed an action for annulment of contract before the Court of First Instance of Rizal, Branch I, with Filipinas Investment and Finance Corporation, Jose D. Sebastian and Sheriff Jose San Agustin, as party-defendants. By agreement of the parties, the case was submitted for decision in the lower court on the basis of the documentary evidence adduced by the parties during the pre-trial conference. Thereafter, the lower court rendered judgment as follows: "IN VIEW OF THE ABOVE CONSIDERATIONS, this Court declares the chattel mortgage, Exhibit 'C', to be null and void in so far as the taxicab franchise and the used Chevrolet car of plaintiffs are concerned, and the sale at public auction conducted by the City Sheriff of Manila concerning said taxicab franchise, to be of no legal effect. The certificate of sale issued by the City Sheriff of Manila in favor of Filipinas Investment and Finance Corporation concerning plaintiffs' taxicab franchise for P8,000 is accordingly cancelled and set aside, and the assignment thereof made by Filipinas Investment in favor of defendant Jose Sebastian is declared void and of no legal effect." (Record on Appeal, p. 128).

DECISION

DE CASTRO, J p: Appeal from the decision of the Court of First Instance of Rizal, Branch I, in Civil Case No. 9140 for annulment of contract, originally filed with the Court of Appeals but was subsequently certified to this Court pursuant to Section 3 of Rule 50 of the Rules of Court, there being no issue of fact involved in this appeal. LLphil The materials facts of the case appearing on record may be stated as follows: On April 14, 1964, plaintiffs purchased from the Supreme Sales and Development Corporation two (2) brand new Ford Consul Sedans complete with accessories, for P26,887 payable in 24 monthly installments. To secure payment thereof, plaintiffs executed on the same date a promissory note covering the purchase price and a deed of chattel mortgage not only on the two vehicles purchased but also

From the foregoing judgment, defendants appealed to the Court of Appeals which, as earlier stated, certified the appeal to this Court, appellants imputing to the lower court five alleged errors, as follows: I "THE LOWER COURT ERRED IN DECLARING THE CHATTEL MORTGAGE, EXHIBIT 'C', NULL AND VOID. II "THE LOWER COURT ERRED IN HOLDING THAT THE SALE AT PUBLIC AUCTION CONDUCTED BY THE CITY SHERIFF OF MANILA CONCERNING THE TAXICAB FRANCHISE IS OF NO LEGAL EFFECT. III "THE LOWER COURT ERRED IN SETTING ASIDE THE CERTIFICATE OF SALE ISSUED BY THE CITY SHERIFF OF MANILA IN FAVOR OF FILIPINAS INVESTMENT AND FINANCE CORPORATION COVERING PLAINTIFFS' TAXICAB FRANCHISE. IV "THE LOWER COURT ERRED IN DECLARING VOID AND OF NO LEGAL EFFECT THE ASSIGNMENT OF THE TAXICAB FRANCHISE MADE BY FILIPINAS INVESTMENT AND FINANCE CORPORATION IN FAVOR OF DEFENDANT. V THE LOWER COURT (sic) IN NOT DECIDING THE CASE IN FAVOR OF THE DEFENDANTS." (Appellants' Brief, pp. 9 & 10) From the aforequoted assignment of errors, the decisive issue for consideration is the validity of the chattel mortgage in so far as the franchise and the subsequent sale thereof are concerned. The resolution of said issue is unquestionably governed by the provisions of Article 1484 of the Civil Code which states:

"Art. 1484.In a contract of sale of personal property the price of which is payable in installments, the vendor may exercise any of the following remedies: (1)Exact fulfillment of the obligation, should the vendee fail to pay; (2)Cancel the sale, should the vendee's failure to pay cover two or more installments; (3)Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the vendee's failure to pay cover two or more installments. In this case, he shall have no further action against the purchaser to recover any unpaid balance of the price. Any agreement to the contrary shall be void."

Under the above-quoted article of the Civil Code, the vendor of personal property the purchase price of which is payable in installments, has the right, should the vendee default in the payment of two or more of the agreed installments, to exact fulfillment by the purchaser of the obligation, or to cancel the sale, or to foreclose the mortgage on the purchased personal property, if one was constituted. 1 Whichever right the vendor elects, he cannot avail of the other, these remedies being alternative, not cumulative. 2 Furthermore, if the vendor avails himself of the right to foreclose his mortgage, the law prohibits him from further bringing an action against the vendee for the purpose of recovering whatever balance of the debt secured not satisfied by the foreclosure sale. 3 The precise purpose of the law is to prevent mortgagees from seizing the mortgaged property, buying it at foreclosure sale for a low price and then bringing suit against the mortgagor for a deficiency judgment, otherwise, the mortgagor-buyer would find himself without the property and still owing practically the full amount of his original indebtedness. 4 In the instant case, defendant corporation elected to foreclose its mortgage upon default by the plaintiffs in the payment of the agreed installments. Having chosen to foreclose the chattel mortgage, and bought the purchased vehicles at the public auction as the highest bidder, it submitted itself to the consequences of the law as specifically mentioned, by which it is deemed to have renounced any and all rights which it might otherwise have under the promissory

note and the chattel mortgage as well as the payment of the unpaid balance. Consequently, the lower court rightly declared the nullity of the chattel mortgage in question in so far as the taxicab franchise and the used Chevrolet car of plaintiffs are concerned, under the authority of the ruling in the case of Levy Hermanos, Inc. vs. Pacific Commercial Co., et al., 71 Phil. 587, the facts of which are similar to those in the case at bar. There, we have the same situation wherein the vendees offered as security for the payment of the purchase price not only the motor vehicles which were bought on installment, but also a residential lot and a house of strong materials. This Court sustained the pronouncement made by the lower court on the nullity of the mortgage in so far as it included the house and lot of the vendees, holding that under the law, should the vendor choose to foreclose the mortgage, he has to content himself with the proceeds of the sale at the public auction of the chattels which were sold on installment and mortgaged to him, and having chosen the remedy of foreclosure, he cannot nor should he be allowed to insist on the sale of the house and lot of the vendees, for to do so would be equivalent to obtaining a writ of execution against them concerning other properties which are separate and distinct from those which were sold on installment. This would indeed be contrary to public policy and the very spirit and purpose of the law, limiting the vendor's right to foreclose the chattel mortgage only on the thing sold. cdrep In the case of Cruz v. Filipinas Investment & Finance Corporation, 23 SCRA 791, this Court ruled that the vendor of personal property sold on the installment basis is precluded, after foreclosing the chattel mortgage on the thing sold, from having a recourse against the additional security put up by a third party to guarantee the purchaser's performance of his obligation on the theory that to sustain the same would overlook the fact that if the guarantor should be compelled to pay the balance of the purchase price, said guarantor will in turn be entitled to recover what he has paid from the debtorvendee, and ultimately it will be the latter who will be made to bear the payment of the balance of the price, despite the earlier foreclosure of the chattel mortgage given by him, thereby indirectly subverting the protection given the latter. Consequently, the additional mortgage was ordered cancelled. Said ruling was reiterated in the case of Pascual v. Universal Motors Corporation, 61 SCRA 121. If the vendor under such circumstance is prohibited from having a recourse against the additional security for reasons therein stated, there is no ground why such vendor should not likewise be precluded from further extrajudicially foreclosing the additional security put up by the vendees themselves, as in the instant case, it being

tantamount to a further action 5 that would violate Article 1484 of the Civil Code, for there is actually no difference between an additional security put up by the vendee himself and such security put up by a third party insofar as how the burden would ultimately fall on the vendee himself is concerned. Reliance on the ruling in Southern Motors, Inc. v. Moscoso, 2 SCRA 168, that in sales on installments, where the action instituted is for specific performance and the mortgaged property is subsequently attached and sold, the sale thereof does not amount to a foreclosure of the mortgage, hence, the seller-creditor is entitled to a deficiency judgment, does not fortify the stand of the appellants for that case is entirely different from the case at bar. In that case, the vendor has availed of the first remedy provided by Article 1484 of the Civil Code, i.e., to exact fulfillment of the obligation; whereas in the present case, the remedy availed of was foreclosure of the chattel mortgage. The foregoing disposition renders superfluous a determination of the other issue raised by the parties as to the validity of the auction sale, in so far as the franchise of plaintiffs is concerned, which sale had been admittedly held without any notice to the plaintiffs. LibLex IN VIEW HEREOF, the judgment appealed from is hereby affirmed, with costs against the appellants. SO ORDERED. Makasiar (Chairman), Aquino, Concepcion, Jr., Guerrero, Abad Santos and Escolin, JJ., concur.

EN BANC [G.R. No. 133879. November 21, 2001.] EQUATORIAL REALTY DEVELOPMENT, INC., petitioner, vs. MAYFAIR THEATER, INC., respondent. Estelito P. Mendoza for petitioner.

De Borja Medialdea Bello Guevarra & Gerodias Law Offices for private respondent. SYNOPSIS Mayfair Theater, Inc. was a lessee of portions of a building owned by Carmelo & Bauermann, Inc. Their lease contracts contained a provision granting Mayfair a right of first refusal to purchase the subject properties. However, before the contracts ended, the subject properties were sold by Carmelo to Equatorial Realty Development, Inc. which prompted Mayfair to file a case for the annulment of the Deed of Absolute Sale between Carmelo and Equatorial, specific performance and damages. In 1996, the Court ruled in favor of Mayfair. Barely five months after Mayfair had submitted its Motion for Execution, Equatorial filed an action for collection of sum of money against Mayfair claiming payment of rentals or reasonable compensation for the defendant's use of the subject premises after its lease contracts had expired. The lower court debunked the claim of Equatorial 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 propriety rights, even in expectancy. It further ruled that the Court categorically stated that the Deed of Absolute Sale had been rescinded subjecting the present complaint to res judicata. Hence, Equatorial filed the present petition. Theoretically, a rescissible contract is valid until rescinded. However, this general principle is not decisive to the issue of whether Equatorial ever acquired the right to collect rentals. What is decisive is the civil law rule that ownership is acquired, not by mere agreement, but by tradition or delivery. Under the factual environment of this controversy as 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. In the mother case, this Court categorically denied the payment of interest, a fruit of ownership. By the same token, rentals, another fruit of ownership, cannot be granted without mocking this Court's en banc Decision, which had long become final. SYLLABUS 1.CIVIL LAW; PROPERTY; CIVIL FRUIT OF OWNERSHIP; RENTALS. Rent is a civil fruit that belongs to the owner of the property producing it by right of accession. Consequently and ordinarily, the rentals that

fell due from the time of the perfection of the sale to petitioner until its rescission by final judgment should belong to the owner of the property during that period. 2.ID.; SALES; OWNERSHIP OF THE THING SOLD IS TRANSFERRED, NOT BY CONTRACT ALONE, BUT BY TRADITION OR DELIVERY. By a contract of sale, "one of the contracting parties obligates himself to transfer ownership of and to deliver a determinate thing and the other to pay therefor a price certain in money or its equivalent." Ownership of the thing sold is a real right, which the buyer acquires only upon delivery of the thing to him "in any of the ways specified in Articles 1497 to 1501, or in any other manner signifying an agreement that the possession is transferred from the vendor to the vendee." This right is transferred, not by contract alone, but by tradition or delivery. Non nudis pactis sed traditione dominia rerum transferantur . 3.ID.; ID.; ID.; THERE IS DELIVERY WHEN THE THING SOLD IS PLACED UNDER THE CONTROL AND POSSESSION OF THE VENDEE. [T]here is said to be delivery if and when the thing sold "is placed in the control and possession of the vendee." Thus, it has been held that while the execution of a public instrument of sale is recognized by law as equivalent to the delivery of the thing sold, such constructive or symbolic delivery, being merely presumptive, is deemed negated by the failure of the vendee to take actual possession of the land sold . Delivery has been described as a composite act, a thing in which 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 of the property, and the other acquires the right to and the possession of the same. In its natural sense, delivery means something in addition to the delivery of property or title; it means transfer of possession. In the Law on Sales, delivery may be either actual or constructive, but both forms of delivery contemplate "the absolute giving up of the control and custody of the property on the part of the vendor, and the assumption of the same by the vendee." aHDTAI 4.ID.; ID.; ID.; NOT PRESENT IN CASE AT BAR. [T]heoretically, a rescissible contract is valid until rescinded. However, this general principle is not decisive to the issue of whether Equatorial ever acquired the right to collect rentals. What is decisive is the civil law rule that ownership is acquired, not by mere agreement, but by tradition or delivery. Under the factual environment of this controversy as 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. 5.ID.; ID.; ID.; EXECUTION OF CONTRACT OF SALE AS FORM OF CONSTRUCTIVE DELIVERY HOLDS TRUE ONLY WHEN THERE IS NO IMPEDIMENT THAT MAY PREVENT THE PASSING OF THE PROPERTY FROM THE VENDOR TO THE VENDEE. From the peculiar facts of this case, it is clear that petitioner never took actual control and possession of the property sold, in view of respondent's timely objection to the sale and the continued actual possession of the property. The objection took the form of a court action impugning the sale which, as we know, was rescinded by a 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 constructive delivery is a legal fiction. It holds true only when there is no impediment that may prevent the passing of the property from the hands of the vendor into those of the vendee. When there is such impediment, "fiction yields to reality the delivery has not been effected." Hence, respondent's opposition to the transfer of the property by way of sale to Equatorial was a legally sufficient impediment that effectively prevented the passing of the property into the latter's hands. 6.ID.; ID.; EXECUTION OF PUBLIC INSTRUMENT GIVES RISE ONLY TO A PRIMA FACIE PRESUMPTION OF DELIVERY. The execution of a public instrument gives rise, . . . only to a prima facie presumption of delivery. Such presumption is destroyed when the instrument itself expresses or implies that delivery was not intended; or when by other means it is shown that such delivery was not effected, because a third person was actually in possession of the thing . In the latter case, the sale cannot be considered consummated. 7.ID.; OBLIGATIONS AND CONTRACTS; RESCISSIBLE CONTRACTS; NOT ONLY THE LAND AND BUILDING SOLD SHALL BE RETURNED TO THE SELLER BUT ALSO THE RENTAL PAYMENTS PAID, IF ANY. [T]he point may be raised that under Article 1164 of the Civil Code, Equatorial as buyer acquired a right to the fruits of the thing sold from the time the obligation to deliver the property to petitioner arose. That time arose upon the perfection of the Contract of Sale on July 30, 1978, from which moment the laws provide that the parties to a sale may reciprocally demand performance. Does this mean that despite the judgment rescinding the sale, the right to the fruits belonged to, and remained enforceable by, Equatorial? Article 1385 of the Civil Code answers this question in the negative, because "[r]escission creates the obligation to return the things which were the object of the contract, together with their fruits, and the price with its interest; . . . ." Not only the land and building sold, but also the rental payments paid,

if any, had to be returned by the buyer. 8.ID.; SALES; CONTRACT OF SALE; RENTAL PAYMENTS MADE SHOULD NOT BE CONSTRUED AS A RECOGNITION OF THE BUYER AS NEW ORDER BUT MERELY TO AVOID IMMINENT EVICTION; CASE AT BAR. The fact that Mayfair paid rentals to Equatorial during the litigation should not be interpreted to mean either actual delivery or ipso facto recognition of Equatorial's title. The CA Records of the mother case show that Equatorial as alleged buyer of the disputed properties and as alleged successor-in-interest of Carmelo's rights as lessor submitted two ejectment suits against Mayfair. Filed in the Metropolitan Trial Court of Manila, the first was docketed as Civil Case No. 121570 on July 9, 1987; and the second, as Civil Case No. 131944 on May 28, 1990. Mayfair eventually won them both. However, to be able to maintain physical possession of the premises while awaiting the outcome of the mother case, it had no choice but to pay the rentals. The rental payments made by Mayfair should not be construed as a recognition of Equatorial as the new owner. They were made merely to avoid imminent eviction. 9.STATUTORY CONSTRUCTION; GENERAL PROPOSITIONS DO NOT DECIDE SPECIFIC CASES. As pointed out by Justice Holmes, general propositions do not decide specific cases. Rather, "laws are interpreted in the context of the peculiar factual situation of each case. Each case has its own flesh and blood and cannot be decided on the basis of isolated clinical classroom principles." 10.CIVIL LAW; SALES; VALID FROM INCEPTION BUT JUDICIALLY RESCINDED BEFORE IT COULD BE CONSUMMATED; CASE AT BAR. [T]he sale to Equatorial may have been valid from inception, but it was judicially rescinded before it could be consummated. Petitioner never acquired ownership, not because 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. 11.ID.; ID.; BUYER IN BAD FAITH; NOT ENTITLED TO ANY BENEFIT; ENTITLED SOLELY TO THE RETURN OF THE PURCHASE PRICE; MUST BEAR ANY LOSS. [A]ssuming for the sake of argument that there was valid delivery, petitioner is not entitled to any benefits from the "rescinded" Deed of Absolute Sale because of its bad faith. This being the law of the mother case decided in 1996, it may no longer be changed because it has long become final and executory. . . . Thus, petitioner was and still is entitled solely to the return of the purchase price it paid to Carmelo; no more, no less. This Court has firmly ruled

in the mother case that neither of them is entitled to any consideration of equity, as both "took unconscientious advantage of Mayfair." In the mother case, this Court categorically denied the payment of interest, a fruit of ownership. By the same token, rentals, another fruit of ownership, cannot be granted without mocking this Court's en banc Decision, which has long become final . Petitioner's claim of reasonable compensation for respondent's use and occupation of the subject property from the time the lease expired cannot be countenanced. If it suffered any loss, petitioner must bear it in silence, since it had wrought that loss upon itself. Otherwise, bad faith would be rewarded instead of punished. ICaDHT

raised; namely, bar by prior judgment. By granting the Motion, it disposed correctly, even if its legal reason for nullifying the sale was wrong. MELO, J., concurring opinion: 1.REMEDIAL LAW; CIVIL PROCEDURE; FINAL AND EXECUTORY DECISION SHOULD BE RESPECTED. Equatorial profited from the use of the building for all the years when it had no right or, as stated in our decision, had an inferior right over the property. Mayfair, which had the superior right, continued to pay rent but it was the rate fixed in the lease contract with Carmelo. We see no reason for us to now deviate from the reasoning given in our main decision. The decision has been final and executory for five (5) years and petitioner has failed to present any valid and reasonable ground to reconsider, modify or reverse it. Let that which has been fairly adjudicated remain final. 2.CIVIL LAW; OBLIGATIONS AND CONTRACTS; RESCISSIBLE CONTRACTS; REMAINS VALID AND BINDING UPON THE PARTIES UNTIL THE SAME IS RESCINDED; NOT APPLICABLE TO A PERSON WHO IS NOT A PRIVY TO A CONTRACT. Equatorial relies on the Civil Code provision on rescissible contracts to bolster its claim. Its argument is that a rescissible contract remains valid and binding upon the parties thereto until the same is rescinded in an appropriate judicial proceeding. Equatorial conveniently fails to state that the July 31, 1978 Deed of Absolute Sale was between Equatorial and Carmelo only. Respondent Mayfair was not a party to the contract. The deed of sale was surreptitiously entered into between Carmelo and Equatorial behind the back and in violation of the rights of Mayfair. Why should the innocent and wronged party now be made to bear the consequences of an unlawful contract to which it was not privy? Insofar as Equatorial and Carmelo are concerned, their 1978 contract may have validly transferred ownership from one to the other. But not as far as Mayfair is concerned. 3.ID.; ID.; ID.; NON-EXISTENT OR VOID FROM ITS INCEPTION AS FAR AS THE INJURED THIRD PARTY IS CONCERNED. Mayfair starts its arguments with a discussion of Article 1381 of the Civil Code that contracts entered into in fraud of creditors are rescissible. There is merit in Mayfair's contention that the legal effects are not restricted to the contracting parties only. On the contrary, the rescission is for the benefit of a third party, a stranger to the contract. Mayfair correctly states that as far as the injured third party is concerned, the fraudulent contract, once rescinded, is non-existent or void from its

12.REMEDIAL LAW; CIVIL PROCEDURE; EFFECT OF FINALITY OF JUDGMENT; RES JUDICATA; ELUCIDATED. Under the doctrine of res judicata or bar by prior judgment, a matter that has been adjudicated by a court of competent jurisdiction must be deemed to have been finally and conclusively settled if it arises in any subsequent litigation between the same parties and for the same cause. Thus, "[a] final judgment on the merits rendered by a court of competent jurisdiction is conclusive as to the rights of the parties and their privies and constitutes an absolute bar to subsequent actions involving the same claim, demand, or cause of action." Res judicata is based on the ground that "the party to be affected, or some other with whom he is in privity, has litigated the same matter in a former action in a court of competent jurisdiction, and should not be permitted to litigate it again." It frees the parties from undergoing all over again the rigors of unnecessary suits and repetitive trials. At the same time, it prevents the clogging of court dockets. Equally important, it stabilizes rights and promotes the rule of law. 13.ID.; ID.; ID.; ID.; APPLICABLE IN CASE AT BAR. Suffice it to say that, clearly, our ruling in the mother case bars petitioner from claiming back rentals from respondent. Although the court a quo erred when it declared "void from inception" the Deed of Absolute Sale between Carmelo and petitioner, our foregoing discussion supports the grant of the Motion to Dismiss on the ground that our prior judgment in GR No. 106063 has already resolved the issue of back rentals. On the basis of the evidence presented during the hearing of Mayfair's Motion to Dismiss, the trial court found that the issue of ownership of the subject property has been decided by this Court in favor of Mayfair. . . . 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

inception. Hence, from Mayfair's standpoint, the deed of absolute sale which should not have been executed in the first place by reason of Mayfair's superior right to purchase the property and which deed was cancelled for that reason by this Court, is legally non-existent. There must be a restoration of things to the condition prior to the celebration of the contract[.] 4.ID.; ID.; ID.; INJURED THIRD PARTY SHOULD NOT BE GIVEN AN EMPTY OR VACUOUS VICTORY. [The] Court emphasized in the main case that the contract of sale between Equatorial and Carmelo was characterized by bad faith. The Court described the sale as "fraudulent" in its 1996 decision. It stated that the damages which Mayfair suffered are in terms of actual injury and lost opportunities, emphasizing that Mayfair should not be given an empty or vacuous victory. Moreover, altogether too many suits have been filed in this case. Four separate petitions have come before us, necessitating full length decisions in at least 3 of them. The 1996 decision stressed that the Court has always been against multiplicity of suits. TADIHE 5.ID.; ID.; ID.; BAD FAITH OF THE PRIVIES ON THE EXECUTION OF THE DEED OF SALE WAS PRESENT. There was bad faith from the execution of the deed of sale because Equatorial and Carmelo affirmatively operated with furtive design or with some motive of selfinterest or ill-will or for ulterior purposes ( Air France vs. Carrascoso, 18 SCRA 166 [1966]). There was breach of a known duty by the two parties to the unlawful contract arising from motives of interests or illwill calculated to cause damages to another ( Lopez vs. Pan American World Airways, 123 Phil. 264 [1966]). 6.ID.; ID.; ID.; ID.; PRIVIES COULD NOT AVAIL OF ANY CONSIDERATIONS BASED ON EQUITY. We ruled that because of bad faith, neither may Carmelo and Equatorial avail themselves of considerations based on equity which might warrant the grant of interests and, in this case, unconscionably increased rentals. . . . Considering the judgments in our 3 earlier decisions, Mayfair is under no obligation to pay any interests, whether based on law or equity, to Carmelo or Equatorial. Mayfair is the wronged entity, the one which has suffered injury since 1978 or for the 23 years it was deprived of the property. Equatorial has received rentals and other benefits from the use of the property during these 23 years, rents and benefits which would have accrued to Mayfair if its rights had not been violated. There is no obligation on the part of respondent Mayfair to pay any increased, additional, back or future rentals or interests of any

kind to petitioner Equatorial under the circumstances of this case. 7.ID.; ID.; ID.; ID.; NATURAL PERSON AFFECTED IS EVEN ENTITLED TO MORAL DAMAGES. [I]f Mayfair were a natural person, it could very well have asked for moral damages instead of facing a lengthy and expensive suit to pay rentals many times higher than those stipulated in the contract of lease. Under the Civil Code, Mayfair is the victim in a breach of contract where Carmelo and Equatorial acted fraudulently and in bad faith. VITUG, J., dissenting opinion: 1.CIVIL LAW; OBLIGATIONS AND CONTRACTS; CLASSIFICATION OF DEFECTIVE CONTRACTS. Civil Law, in its usual sophistication, classifies defective contracts (unlike the seemingly generic treatment in Common Law), into, first, the rescissible contracts, which are the least infirm; followed by, second, the voidable contracts; then, third, the unenforceable contracts; and, finally, fourth, the worst of all or the void contracts. 2.ID.; ID.; RESCISSIBLE CONTRACTS; VALID, BINDING AND EFFECTIVE UNTIL RESCINDED. In terms of their efficaciousness, rescissible contracts are regarded, among the four, as being the closest to perfectly executed contracts. A rescissible contract contains all the requisites of a valid contract and are considered legally binding, but by reason of injury or damage to either of the contracting parties or to third persons, such as creditors, it is susceptible to rescission at the instance of the party who may be prejudiced thereby. A rescissible contract is valid, binding and effective until it is rescinded. The proper way by which it can be assailed is by an action for rescission based on any of the causes expressly specified by law. 3.ID.; ID.; ID.; VALIDLY TRANSFERRED OWNERSHIP OF THE PROPERTY TO THE BUYER FROM THE TIME THE DEED OF SALE WAS EXECUTED. [W]hen the Court held the contract to be "deemed rescinded" in G.R. No. 106063, the Court did not mean a "declaration of nullity" of the questioned contract. The agreement between petitioner and Carmelo, being efficacious until rescinded, validly transferred ownership over the property to petitioner from the time the deed of sale was executed in a public instrument on 30 July 1978 up to the time that the decision in G.R. No. 106063 became final on 17 March 1997. It was only from the latter date that the contract had ceased to be efficacious. The fact that the subject property was in the hands of a lessee, or for that matter of any possessor with a juridical title derived from an owner,

would not preclude a conferment of ownership upon the purchaser nor be an impediment from the transfer of ownership from the seller to the buyer. 4.ID.; ID.; ID.; ID.; GOOD FAITH AND BAD FAITH PLAY NO ROLE; BUYER IS ENTITLED TO ALL INCIDENTS OF OWNERSHIP INCLUSIVE OF THE RIGHT TO THE FRUITS OF THE PROPERTY; APPLICABLE IN CASE AT BAR. Petitioner, being the owner of the property (and none other) until the judicial rescission of the sale in its favor, was entitled to all incidents of ownership inclusive of, among its other elements, the right to the fruits of the property. Rentals or rental value over that disputed property from 30 July 1978 up to 17 March 1997 should then properly pertain to petitioner. In this respect, the much abused terms of "good faith" or "bad faith" play no role; ownership, unlike other concepts, is never described as being either in good faith or in bad faith.

void and inexistent contracts is inapplicable. Until set aside in an appropriate action rescissible contracts are respected as being legally valid, binding and in force. It would be wrong to say that rescissible contracts produce no legal effects whatsoever and that no acquisition or loss of rights could meanwhile occur and be attributed to the terminated contract. The effects of the rescission, prospective in nature, can come about only upon its proper declaration as such. cHCaIE SANDOVAL-GUTIERREZ, J., dissenting opinion: 1.CIVIL LAW; SALES; OWNERSHIP IS TRANSFERRED TO THE VENDEE BY MEANS OF DELIVERY. Firmly incorporated in our Law on Sales is the principle that ownership is transferred to the vendee by means of delivery, actual or constructive. There is actual delivery when the thing sold is placed in the control and possession of the vendee. Upon the other hand, there is constructive delivery when the delivery of the thing sold is represented by other signs or acts indicative thereof. Article 1498 of the Civil Code is in point. It provides that " When the sale is made through a public instrument, the execution thereof shall be equivalent to the delivery of the thing which is the object of the contract, if from the deed the contrary does not appear or cannot clearly be inferred." 2.ID.; ID.; ID.; PRESENT IN CASE AT BAR. To say that this Court found no transfer of ownership between Equatorial and Carmelo is very inaccurate. For one, this Court, in disposing of G.R. No. 106063 explicitly ordered Equatorial to "execute the deeds and documents necessary to return ownership to Carmelo & Bauermann of the disputed lots." I suppose this Court would not have made such an order if it did not recognize the transfer of ownership from Carmelo to Equatorial under the contract of sale. For why would the Court order Equatorial to execute the deeds and documents necessary to return ownership to Carmelo if, all along, it believed that ownership remained with Carmelo? Furthermore, this Court explicitly stated in the Decision that Equatorial received rentals from Mayfair during the pendency of the case. . . . Obviously, this Court acknowledged the delivery of the property from Carmelo to Equatorial. As aptly described by Justice Panganiban himself, the sale between Carmelo and Equatorial had not only been "perfected" but also "consummated." 3.ID.; PROPERTY; RECEIVING RENTALS IS AN EXERCISE OF ACTUAL POSSESSION. That actual possession of the property was turned over by Carmelo to Equatorial is clear from the fact that the latter

5.ID.; ID.; RESCISSION OF CONTRACTS DIFFERENTIATED FROM THE RESOLUTION OF RECIPROCAL OBLIGATIONS. The remedy of rescission in the case of rescissible contracts under Article 1381 is not to be confused with the remedy of rescission, or more properly termed "resolution," of reciprocal obligations under Article 1191 of the Civil Code. While both remedies presuppose the existence of a juridical relation that, once rescinded, would require mutual restitution, it is basically, however, in this aspect alone when the two concepts coincide. Resolution under Article 1191 would totally release each of the obligors from compliance with their respective covenants. It might be worthwhile to note that in some cases, notably Ocampo vs. Court of Appeals, and Velarde vs. Court of Appeals, where the Court referred to rescission as being likened to contracts which are deemed " void at inception" the focal point is the breach of the obligation involved that would allow resolution pursuant to Article 1191 of the Civil Code. The obvious reason is that when parties are reciprocally bound, the refusal or failure of one of them to comply with his part of the bargain should allow the other party to resolve their juridical relationship rather than to leave the matter in a state of continuing uncertainty. The result of the resolution, when decreed, renders the reciprocal obligations inoperative "at inception." Upon the other hand, the rescission of a rescissible contract under Article 1381, taken in conjunction with Article 1385, is a relief which the law grants for the protection of a contracting party or a third person from injury and damage that the contract may cause, or to protect some incompatible and preferential right created by the contract. Rescissible contracts are not void ab initio, and the principle, "quod nullum est nullum producit effectum," in

received rents from Mayfair. Significantly, receiving rentals is an exercise of actual possession. Possession, as defined in the Civil Code, is the holding of a thing or the enjoyment of a right . It may either be by material occupation or by merely subjecting the thing or right to the action of our will. Possession may therefore be exercised through one's self or through another. It is not necessary that the person in possession should himself be the occupant of the property, the occupancy can be held by another in the name of the one who claims possession. In the case at bench, Equatorial exercised possession over the disputed property through Mayfair. When Mayfair paid its monthly rentals to Equatorial, the said lessee recognized the superior right of Equatorial to the possession of the property. And even if Mayfair did not recognize Equatorial's superior right over the disputed property, the fact remains that Equatorial was then enjoying the fruits of its possession. 4.ID.; ID.; DEGREES OF POSSESSION. [I]t will be of aid to lay down the degrees of possession. The first degree is the mere holding, or possession without title whatsoever, and in violation of the right of the owner. Here, both the possessor and the public know that the possession is wrongful. An example of this is the possession of a thief or a usurper of land. The second is possession with juridical title, but not that of ownership. This is possession peaceably acquired, such that of a tenant, depositary, or pledge. The third is possession with a just title, or a title sufficient to transfer ownership, but not from the true owner. An example is the possession of a vendee of a piece of land from one who pretends to be the owner but is in fact not the owner thereof. And the fourth is possession with a just title from the true owner. This is possession that springs from ownership. Undoubtedly, Mayfair's possession is by virtue of juridical title under the contract of lease, while that of Equatorial is by virtue of its right of ownership under the contract of sale. 5.ID.; SALES; TIMELY OBJECTION AND CONTINUED ACTUAL POSSESSION OF THE PROPERTY OF THE INJURED THIRD PARTY DID NOT PREVENT THE PASSING OF THE PROPERTY FROM THE SELLER TO THE BUYER; CASE AT BAR. The fact that Mayfair has remained in "actual possession of the property," after the perfection of the contract of sale between Carmelo and Equatorial up to the finality of this Court's Decision in G.R. No. 106063 (and even up to the present), could not prevent the consummation of such contract. As I have previously intimated, Mayfair's possession is not under a claim of ownership. It cannot in any way clash with the ownership accruing to Equatorial by virtue of the sale. The principle has always been that the one who possesses as a mere holder acknowledges in another a

superior right or right of ownership. A tenant possession of the thing leased as a mere holder, so does the usufructuary of the thing in usufruct; and the borrower of the thing loaned in commodatum. None of these holders asserts a claim of ownership in himself over the thing. Similarly, Mayfair does not claim ownership, but only possession as a lessee with the prior right to purchase the property. In G.R. No. 106063, Mayfair's main concern in its action for specific performance was the recognition of its right of first refusal. Hence, the most that Mayfair could secure from the institution of its suit was to be allowed to exercise its right to buy the property upon rescission of the contract of sale. Not until Mayfair actually exercised what it was allowed to do by this Court in G.R. No. 106063, specifically to buy the disputed property for P11,300,000.00, would it have any right of ownership . How then, at that early stage, could Mayfair's action be an impediment in the consummation of the contract between Carmelo and Equatorial? Pertinently, it does not always follow that, because a transaction is prohibited or illegal, title, as between the parties to the transaction, does not pass from the seller, donor, or transferor to the vendee, donee or transferee. 6.ID.; ID.; ID.; BUYER HAS THE RIGHT TO BE PAID WHATEVER MONTHLY RENTALS DURING THE EXISTENCE OF THE CONTRACT. [C]onformably to the foregoing disquisition, I maintain that Equatorial has the right to be paid whatever monthly rentals during the period that the contract of sale was in existence minus the rents already paid. In Guzman vs. Court of Appeals, this Court decreed that upon the purchase of the leased property and the proper notice by the vendee, the lessee must pay the agreed monthly rentals to the new owner since, by virtue of the sale, the vendee steps into the shoes of the original lessor to whom the lessee bound himself to pay. His belief that the subject property should have been sold to him does not justify the unilateral withholding of rental payments due to the new owner of the property. It must be stressed that under Article 1658 of the Civil Code, there are only two instances wherein the lessee may suspend payment of rent, namely: in case the lessor fails to make the necessary repairs or to maintain the lessee in peaceful and adequate enjoyment of the property leased. In this case, the fact remains that Mayfair occupied the leased property. It derived benefit from such occupation, thus it should pay the corresponding rentals due. Nemo cum alterius detrimento locupletari potest. No one shall enrich himself at the expense of another. TcHCIS 7.ID.; CONTRACTS; PRESENCE OF BAD FAITH DOES NOT PREVENT THE AWARD OF RENT. Neither should the presence of bad faith prevent the award of rent to Equatorial. While Equatorial committed bad faith

in entering into the contract with Carmelo, it has been equitably punished when this Court rendered the contract rescissible. That such bad faith was the very reason why the contract was declared rescissible is evident from the Decision itself. To utilize it again, this time, to deprive Equatorial of its entitlement to the rent corresponding to the period during which the contract was supposed to validly exist, would not only be unjust, it would also disturb the very nature of a rescissible contract.

from July 31, 1978 up to March 17, 1997.

DECISION

PANGANIBAN, J p: General propositions do not decide specific cases. Rather, laws are interpreted in the context of the peculiar factual situation of each proceeding. Each case has its own flesh and blood and cannot be ruled upon on the basis of isolated clinical classroom principles. While we agree with the general proposition that a contract of sale is valid until rescinded, it is equally true that ownership of the thing sold is not acquired by mere agreement, but by tradition or delivery. The peculiar facts of the present controversy as found by this Court in an earlier relevant Decision show that delivery was not actually effected; in fact, it was prevented by a legally effective impediment. Not having been the owner, petitioner cannot be entitled to the civil fruits of ownership like rentals of the thing sold. Furthermore, petitioner's bad faith, as again demonstrated by the specific factual milieu of said Decision, bars the grant of such benefits. Otherwise, bad faith would be rewarded instead of punished. The Case Filed before this Court is a Petition for Review 1 under Rule 45 of the Rules of Court, challenging the March 11, 1998 Order 2 of the Regional Trial Court of Manila (RTC), Branch 8, in Civil Case No. 97-85141. The dispositive portion of the assailed Order reads as follows: "WHEREFORE, the motion to dismiss filed by defendant Mayfair is hereby GRANTED, and the complaint filed by plaintiff Equatorial is hereby DISMISSED." 3 Also questioned is the May 29, 1998 RTC Order 4 denying petitioner's Motion for Reconsideration. The Facts

8.ID.; ID.; RESCISSIBLE CONTRACT AND VOID CONTRACT; DIFFERENTIATED. Articles 1380 through 1389 of the Civil Code deal with rescissible contracts. A rescissible contract is one that is validly entered into, but is subsequently terminated or rescinded for causes provided for by law. . . . Necessarily, therefore, a rescissible contract remains valid and binding upon the parties thereto until the same is rescinded in an appropriate judicial proceeding . On the other hand, a void contract, which is treated in Articles 1490 through 1422 of the Civil Code, is inexistent and produces no legal effect whatsoever. The contracting parties are not bound thereby and such contract is not subject to ratification. 9.ID.; ID.; RESCISSIBLE CONTRACT; VALIDLY TRANSFERRED OWNERSHIP OF THE SUBJECT PROPERTY TO THE BUYER. This Court did not declare the Deed of Absolute Sale between Carmelo and Equatorial void but merely rescissible. Consequently, the contract was, at inception, valid and naturally, it validly transferred ownership of the subject property to Equatorial. It bears emphasis that Equatorial was not automatically divested of its ownership. Rather, as clearly directed in the dispositive portion of our Decision, Carmelo should return the purchase price to Equatorial which, in turn, must execute such deeds and documents necessary to enable Carmelo to reacquire its ownership of the property. 10.ID.; ID.; ID.; ID.; BUYER HAS THE RIGHT TO DEMAND PAYMENT OF RENTALS FROM THE LESSEE WITH RIGHT TO REPURCHASE. I must reiterate that Equatorial purchased the subject property from Carmelo and became its owner on July 31, 1978. While the contract of sale was "deemed rescinded" by this Court in G.R. No. 106063, nevertheless the sale had remained valid and binding between the contracting parties until March 17, 1997 when the Decision in G.R. No. 106063 became final. Consequently, being the owner, Equatorial has the right to demand from Mayfair payment of rentals corresponding to the period

The main factual antecedents of the present Petition are matters of 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 GR No. 106063. IHEAcC Carmelo & Bauermann, Inc. ("Carmelo") used to own a parcel of land, together with two 2-storey buildings constructed thereon, located at Claro M. Recto Avenue, Manila, and covered by TCT No. 18529 issued in its name by the Register of Deeds of Manila. On June 1, 1967, Carmelo entered into a Contract of Lease with Mayfair Theater Inc. ("Mayfair") for a period of 20 years. The lease covered a portion of the second floor and mezzanine of a two-storey building with about 1,610 square meters of floor area, which respondent used as a movie house known as Maxim Theater. Two years later, on March 31, 1969, Mayfair entered into a second Contract of Lease with Carmelo for the lease of another portion of the latter's property namely, a part of the second floor of the two-storey building, with a floor area of about 1,064 square meters; and two store spaces on the ground floor and the mezzanine, with a combined floor area of about 300 square 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. Both leases contained a provision granting Mayfair a right of first refusal to purchase the subject properties. However, on July 30, 1978 within the 20-year-lease term the subject properties were sold by Carmelo to Equatorial Realty Development, Inc. ("Equatorial") for the total sum of P11,300,000, without their first being offered to Mayfair. As a result of the sale of the subject properties to Equatorial, Mayfair filed a Complaint before the Regional Trial Court of Manila (Branch 7) for (a) the annulment of the Deed of Absolute Sale between Carmelo and Equatorial, (b) specific performance, and (c) damages. After trial on the merits, the lower court rendered a Decision in favor of Carmelo and Equatorial. This case, entitled "Mayfair Theater, Inc. v. Carmelo and Bauermann, Inc., et al.," was docketed as Civil Case No. 118019. On appeal (docketed as CA-GR CV No. 32918), the Court of Appeals (CA) completely reversed and set aside the judgment of the lower court.

The controversy reached this Court via GR No. 106063. In this mother case, it denied the Petition for Review in this wise: "WHEREFORE, the petition for review of the decision of the Court of Appeals, dated June 23, 1992, in CA-G.R. CV No. 32918, is HEREBY DENIED. The Deed of Absolute Sale between petitioners Equatorial Realty Development, Inc. and Carmelo & Bauermann, Inc. is hereby deemed rescinded; Carmelo & Bauermann is ordered to return to petitioner Equatorial Realty Development the purchase price. The latter is directed to execute the deeds and documents necessary to return ownership to Carmelo & Bauermann of the disputed lots. Carmelo & Bauermann is ordered to allow Mayfair Theater, Inc. to buy the aforesaid lots for P11,300,000.00." 6 The foregoing Decision of this Court became final and executory on March 17, 1997. On April 25, 1997, Mayfair filed a Motion for Execution, which the trial court granted. However, Carmelo could no longer be located. Thus, following the order of execution of the trial court, Mayfair deposited with the clerk of court a quo its payment to Carmelo in the sum of P11,300,000 less P847,000 as withholding tax. The lower court issued a Deed of Reconveyance in favor of Carmelo and a Deed of Sale in favor of Mayfair. On the basis of these documents, the Registry of Deeds of Manila canceled Equatorial's titles and issued new Certificates of Title 7 in the name of Mayfair. TAIaHE Ruling on Equatorial's Petition for Certiorari and Prohibition contesting the foregoing manner of execution, the CA in its Resolution of November 20, 1998, explained that Mayfair had no right to deduct the P847,000 as withholding tax. Since Carmelo could no longer be located, the appellate court ordered Mayfair to deposit the said sum with the Office of the Clerk of Court, Manila, to complete the full amount of P11,300,000 to be turned over to Equatorial. Equatorial questioned the legality of the above CA ruling before this Court in GR No. 136221 entitled "Equatorial Realty Development, Inc. v. Mayfair Theater, Inc." In a Decision promulgated on May 12, 2000, 8 this Court directed the trial court to follow strictly the Decision in GR No. 106063, the mother case. It explained its ruling in these words:

"We agree that Carmelo and Bauermann is obliged to return the entire amount of eleven million three hundred thousand pesos (P11,300,000.00) to Equatorial. On the other hand, Mayfair may not deduct from the purchase price the amount of eight hundred forty-seven thousand pesos (P847,000.00) as withholding tax. The duty to withhold taxes due, if any, is imposed on the seller, Carmelo and Bauermann, Inc." 9 Meanwhile, on September 18, 1997 barely five months after Mayfair had submitted its Motion for Execution before the RTC of Manila, Branch 7 Equatorial filed with the Regional Trial Court of Manila, Branch 8, an action for the collection of a sum of money against Mayfair, claiming payment of rentals or reasonable compensation for the defendant's use of the subject premises after its lease contracts had expired. This action was the progenitor of the present case. In its Complaint, Equatorial alleged among other things that the Lease Contract covering the premises occupied by Maxim Theater expired on May 31, 1987, while the Lease Contract covering the premises occupied by Miramar Theater lapsed on March 31, 1989. 10 Representing itself as the owner of the subject premises by reason of the Contract of Sale on July 30, 1978, it claimed rentals arising from Mayfair's occupation thereof. Ruling of the RTC Manila, Branch 8 As earlier stated, the trial court dismissed the Complaint via the herein assailed Order and denied the Motion for Reconsideration filed by Equatorial. 11 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 proprietary rights, even in expectancy.

The trial court ratiocinated as follows: "The meaning of rescind in the aforequoted decision is to set aside. In the case of Ocampo v. Court of Appeals, G.R. No. 97442, June 30, 1994, the Supreme Court held that, 'to rescind is to declare a contract void in its inception and to put an end as though it never were. It is not merely to terminate it and release parties from further obligations to each other but to abrogate it from the beginning and restore parties to relative positions which they would have occupied had no contract ever been made.' "Relative to the foregoing definition, the Deed of Absolute Sale between Equatorial and Carmelo dated July 31, 1978 is void at its inception as though it did not happen. "The argument of Equatorial that this complaint for back rentals as 'reasonable compensation for use of the subject property after expiration of the lease contracts presumes that the Deed of Absolute Sale dated July 30, 1978 from whence the fountain of Equatorial's alleged property rights flows is still valid and existing. xxx xxx xxx "The subject Deed of Absolute Sale having been rescinded by the Supreme Court, Equatorial is not the owner and does not have any right to demand backrentals from the subject property. . . . ." 12 The trial court added: "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." 13 Hence, the present recourse. 14

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 declared the rescinded Deed of Absolute Sale as "void at its inception as though it did not happen." EScHDA

Issues Petitioner submits, for the consideration of this Court, the following

issues: 15 "A. The basis of the dismissal of the Complaint by the Regional Trial Court not only disregards basic concepts and principles in the law on contracts and in civil law, especially those on rescission and its corresponding legal effects, but also ignores the dispositive portion of the Decision of the Supreme Court in G.R. No. 106063 entitled 'Equatorial Realty Development, Inc. & Carmelo & Bauermann, Inc. vs. Mayfair Theater, Inc.' cSITDa "B. The Regional Trial Court erred in holding that the Deed of Absolute Sale in favor of petitioner by Carmelo & Bauermann, Inc., dated July 31, 1978, over the premises used and occupied by respondent, having been 'deemed rescinded' by the Supreme Court in G.R. No. 106063, is 'void at its inception as though it did not happen.' "C. The Regional Trial Court likewise erred in holding that the aforesaid 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 Absolute Sale by the Supreme Court does not confer to petitioner 'any vested right nor any residual proprietary rights even in expectancy.' "D. The issue upon which the Regional Trial Court dismissed the civil case, as stated in its Order of March 11, 1998, was not raised by respondent in its Motion to

Dismiss. "E. 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 Dismiss under Sec. 1 of Rule 16 of the 1997 Rules of Civil Procedure." Basically, the issues can be summarized into two: (1) the substantive issue of whether Equatorial is entitled to back rentals; and (2) the procedural issue of whether the court a quo's dismissal of Civil Case No. 97-85141 was based on one of the grounds raised by respondent in its Motion to Dismiss and covered by Rule 16 of the Rules of Court. This Court's Ruling The Petition is not meritorious. First Issue: Ownership of Subject Properties We hold that under the peculiar facts and circumstances of the case at bar, as found by this Court en banc in its Decision promulgated in 1996 in the mother case, no right of ownership was transferred from Carmelo to Equatorial in view of a patent failure to deliver the property to the buyer. Rental Fruit of Ownership a Civil

To better understand the peculiarity of the instant case, let us begin with some basic parameters. Rent is a civil fruit 16 that belongs to the owner of the property producing it 17 by right of accession. 18 Consequently and ordinarily, the rentals that fell due from the time of the perfection of the sale to petitioner until its rescission by final judgment should belong to the owner of the property during that period. By a contract of sale, "one of the contracting parties obligates himself to transfer ownership of and to deliver a determinate thing and the other to pay therefor a price certain in money or its equivalent." 19

Ownership of the thing sold is a real right, 20 which the buyer acquires only upon delivery of the thing to him "in any of the ways specified in articles 1497 to 1501, or in any other manner signifying an agreement that the possession is transferred from the vendor to the vendee." 21 This right is transferred, not by contract alone, but by tradition or delivery. 22 Non nudis pactis sed traditione dominia rerum transferantur. And there is said to be delivery if and when the thing sold "is placed in the control and possession of the vendee." 23 Thus, it has been held that while the execution of a public instrument of sale is recognized by law as equivalent to the delivery of the thing sold, 24 such constructive or symbolic delivery, being merely presumptive, is deemed negated by the failure of the vendee to take actual possession of the land sold. 25 Delivery has been described as a composite act, a thing in which 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 of the property, and the other acquires the right to and the possession of the same. In its natural sense, delivery means something in addition to the delivery of property or title; it means transfer of possession. 26 In the Law on Sales, delivery may be either actual or constructive, but both forms of delivery contemplate "the absolute giving up of the control and custody of the property on the part of the vendor, and the assumption of the same by the vendee." 27 Possession Acquired by Petitioner Never

effectively prevented the passing of the property into the latter's hands. IcAaSD This was the same impediment contemplated in Vda. de Sarmiento v. Lesaca, 30 in which the Court held as follows: "The question that now arises is: Is there any stipulation in the sale in question from which we can infer that the vendor did not intend to deliver outright the possession of the lands to the vendee? We find none. On the contrary, it can be clearly seen therein that the vendor intended to place the vendee in actual possession of the lands immediately as can be inferred from the stipulation that the vendee 'takes actual possession thereof . . . with full rights to dispose, enjoy and make use thereof in such manner and form as would be most advantageous to herself.' The possession referred to in the contract evidently refers to actual possession and not merely symbolical inferable from the mere execution of the document. "Has the vendor complied with this express commitment? She did not. As provided in Article 1462, the thing sold shall be deemed delivered when the vendee is placed in the control and possession thereof, which situation does not here obtain because from the execution of the sale up to the present the vendee was never able to take possession of the lands due to the insistent refusal of Martin Deloso to surrender them claiming ownership thereof. And although it is postulated in the same article that the execution of a public document is equivalent to delivery, this legal fiction only holds true when there is no impediment that may prevent the passing of the property from the hands of the vendor into those of the vendee. . . . ." 31 The execution of a public instrument gives rise, therefore, only to a prima facie presumption of delivery. Such presumption is destroyed when the instrument itself expresses or implies that delivery was not intended; or when by other means it is shown that such delivery was not effected, because a third person was actually in possession of the thing. In the latter case, the sale cannot be considered consummated. ESacHC

Let us now apply the foregoing discussion to the present issue. From the peculiar facts of this case, it is clear that petitioner never took actual control and possession of the property sold, in view of respondent's timely objection to the sale and the continued actual possession of the property. The objection took the form of a court action impugning the sale which, as we know, was rescinded by a 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 constructive delivery is a legal fiction. It holds true only when there is no impediment that may prevent the passing of the property from the hands of the vendor into those of the vendee. 28 When there is such impediment, "fiction yields to reality the delivery has not been effected." 29 Hence, respondent's opposition to the transfer of the property by way of sale to Equatorial was a legally sufficient impediment that

However, the point may be raised that under Article 1164 of the Civil Code, Equatorial as buyer acquired a right to the fruits of the thing sold from the time the obligation to deliver the property to petitioner arose. 32 That time arose upon the perfection of the Contract of Sale on July 30, 1978, from which moment the laws provide that the parties to a sale may reciprocally demand performance. 33 Does this mean that despite the judgment rescinding the sale, the right to the fruits 34 belonged to, and remained enforceable by, Equatorial?

mother case, as well as the Separate Opinion of Mr. Justice Padilla and the Separate Concurring Opinion of the herein ponente. At bottom, it may be conceded that, theoretically, a rescissible contract is valid until rescinded. However, this general principle is not decisive to the issue of whether Equatorial ever acquired the right to collect rentals. What is decisive is the civil law rule that ownership is acquired, not by mere agreement, but by tradition or delivery. Under the factual environment of this controversy as 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 pointed out by Justice Holmes, general propositions do not decide specific cases. Rather, "laws are interpreted in the context of the peculiar factual situation of each case. Each case has its own flesh and blood and cannot be decided on the basis of isolated clinical classroom principles." 36 In short, the sale to Equatorial may have been valid from inception, but it was judicially rescinded before it could be consummated. Petitioner never acquired ownership, not because 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. Benefits Petitioner's Bad Faith Precluded by

Article 1385 of the Civil Code answers this question in the negative, because "[r]escission creates the obligation to return the things which were the object of the contract, together with their fruits, and the price with its interest; . . . ." Not only the land and building sold, but also the rental payments paid, if any, had to be returned by the buyer. Another point. The Decision in the mother case stated that "Equatorial . . . has received rents" from Mayfair "during all the years that this controversy has been litigated." The Separate Opinion of Justice Teodoro Padilla in the mother case also said that Equatorial was "deriving rental income" from the disputed property. Even herein ponente's Separate Concurring Opinion in the mother case recognized these rentals. The question now is: Do all these statements concede actual delivery? EDHCSI The answer is "No." The fact that Mayfair paid rentals to Equatorial during the litigation should not be interpreted to mean either actual delivery or ipso facto recognition of Equatorial's title. The CA Records of the mother case 35 show that Equatorial as alleged buyer of the disputed properties and as alleged successor-ininterest of Carmelo's rights as lessor submitted two ejectment suits against Mayfair. Filed in the Metropolitan Trial Court of Manila, the first was docketed as Civil Case No. 121570 on July 9, 1987; and the second, as Civil Case No. 131944 on May 28, 1990. Mayfair eventually won them both. However, to be able to maintain physical possession of the premises while awaiting the outcome of the mother case, it had no choice but to pay the rentals. The rental payments made by Mayfair should not be construed as a recognition of Equatorial as the new owner. They were made merely to avoid imminent eviction. It is in this context that one should understand the aforequoted factual statements in the ponencia in the

Furthermore, assuming for the sake of argument that there was valid delivery, petitioner is not entitled to any benefits from the "rescinded" Deed of Absolute Sale because of its bad faith. This being the law of the mother case decided in 1996, it may no longer be changed because it has long become final and executory. Petitioner's bad faith is set forth in the following pertinent portions of the mother case: "First and foremost is that the petitioners acted in bad faith to render Paragraph 8 'inutile.' xxx xxx xxx "Since Equatorial is a buyer in bad faith, this finding renders the sale to it of the property in question rescissible. We agree with respondent Appellate Court that the records bear out the fact that Equatorial was

aware of the lease contracts because its lawyers had, prior to the sale, studied the said contracts. As such, Equatorial cannot tenably claim to be a purchaser in good faith, and, therefore, rescission lies. xxx xxx xxx "As also earlier emphasized, the contract of sale between Equatorial and Carmelo is characterized by bad faith, since it was knowingly entered into in violation of the rights of and to the prejudice of Mayfair. In fact, as correctly observed by the Court of Appeals, Equatorial admitted that its lawyers had studied the contract of lease prior to the sale. Equatorial's knowledge of the stipulations therein should have cautioned it to look further into the agreement to determine if it involved stipulations that would prejudice its own interests. xxx xxx xxx "On the part of Equatorial, it cannot be a buyer in good faith because it bought the property with notice and full knowledge that Mayfair had a right to or interest in the property superior to its own. Carmelo and Equatorial took unconscientious advantage of Mayfair." 37 (emphasis supplied) Thus, petitioner was and still is entitled solely to the return of the purchase price it paid to Carmelo; no more, no less. This Court has firmly ruled in the mother case that neither of them is entitled to any consideration of equity, as both "took unconscientious advantage of Mayfair." 38 In the mother case, this Court categorically denied the payment of interest, a fruit of ownership . By the same token, rentals, another fruit of ownership, cannot be granted without mocking this Court's en banc Decision, which has long become final . AEDHST Petitioner's claim of reasonable compensation for respondent's use and occupation of the subject property from the time the lease expired cannot be countenanced. If it suffered any loss, petitioner must bear it in silence, since it had wrought that loss upon itself. Otherwise, bad faith would be rewarded instead of punished.

We uphold the trial court's disposition, not for the reason it gave, but for (a) the patent failure to deliver the property and (b) petitioner's bad faith, as above discussed. Second Issue: Ground in Motion to Dismiss Procedurally, petitioner claims that the trial court deviated from the accepted and usual course of judicial proceedings when it dismissed Civil Case No. 97-85141 on a ground not raised in respondent's Motion to Dismiss. Worse, it allegedly based its dismissal on a ground not provided for in a motion to dismiss as enunciated in the Rules of Court. We are not convinced. A review of respondent's Motion to Dismiss Civil Case No. 97-85141 shows that there were two grounds invoked, as follows: "(A) Plaintiff is guilty of forum-shopping. "(B) Plaintiff's cause of action, if any, is barred by prior judgment." 39 The court a quo ruled, inter alia, that the cause of action of petitioner (plaintiff in the case below) had been barred by a prior judgment of this Court in GR No. 106063, the mother case. Although it erred in its interpretation of the said Decision when it argued that the rescinded Deed of Absolute Sale was "void," we hold, nonetheless, that petitioner's cause of action is indeed barred by a prior judgment of this Court. As already discussed, our Decision in GR No. 106063 shows that petitioner is not entitled to back rentals, because it never became the owner of the disputed properties due to a failure of delivery. And even assuming arguendo that there was a valid delivery, petitioner's bad faith negates its entitlement to the civil fruits of ownership, like interest and rentals. Under the doctrine of res judicata or bar by prior judgment, a matter that has been adjudicated by a court of competent jurisdiction must be deemed to have been finally and conclusively settled if it arises in any

subsequent litigation between the same parties and for the same cause. 40 Thus, "[a] final judgment on the merits rendered by a court of competent jurisdiction is conclusive as to the rights of the parties and their privies and constitutes an absolute bar to subsequent actions involving the 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 whom he is in privity, has litigated the same matter in a former action in a court of competent jurisdiction, and should not be permitted to litigate it again." 42 It frees the parties from undergoing all over again the rigors of unnecessary suits and repetitive trials. At the same time, it prevents the clogging of court dockets. Equally important, it stabilizes rights and promotes the rule of law. We find no need to repeat the foregoing disquisitions on the first issue to show satisfaction of the elements of res judicata. Suffice it to say that, clearly, our ruling in the mother case bars petitioner from claiming back rentals from respondent. Although the court a quo erred when it declared "void from inception" the Deed of Absolute Sale between Carmelo and petitioner, our foregoing discussion supports the grant of the Motion to Dismiss on the ground that our prior judgment in GR No. 106063 has already resolved the issue of back rentals. On the basis of the evidence presented during the hearing of Mayfair's Motion to Dismiss, the trial court found that the issue of ownership of the subject property has been decided by this Court in favor of Mayfair. We quote the RTC: "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. ADCTac SO ORDERED. Davide, Jr., C.J., Quisumbing, Pardo, Buena, Ynares-Santiago and Carpio, JJ., concur. Melo, J., please see concurring opinion. Puno and Mendoza, JJ., concur and join the concurring opinion of J. Melo. Bellosillo, J., join the dissenting opinion of J. Sandoval-Gutierrez. Vitug, J., please see dissenting opinion. Kapunan, J., I join the dissenting opinions of JJ. Vitug and SandovalGutierrez. De Leon, Jr., J., join the dissenting opinion of J. Vitug. Sandoval-Gutierrez, J., please see my dissenting opinion. Separate Opinions MELO, J., concurring opinion: While I express my conformity to the ponencia of our distinguished colleague, Mr. Justice Artemio V. Panganiban, I would just like to make the following observations: 1.The issue in this case was squarely resolved in our 1996 En Banc decision in the main case. What petitioner is asking us to do now is to reverse or modify a judgment which is accurate in every respect, conformable to law and jurisprudence, and faithful to principles of fairness and justice. 2.Petitioner's submissions are deceiving. It is trying to

collect unjustified and unbelievably increased rentals by provoking a purely academic discussion, as far as respondent is concerned, of a non-applicable provision of the Civil Code on contracts. 3.To grant the petition is to reward bad faith, for petitioner has deprived respondent of the latter's property rights for twenty-three (23) years and has forced it to defend its interests in case after case during that lengthy period. Petitioner now tries to inflict further injury in the fantastic and groundless amount of P115,947,867.00. To remand this case to the lower court in order to determine the back rentals allegedly due to petitioner Equatorial Realty Development Corporation, Inc. is to encourage continuation of crafty tactics and to allow the further dissipation of scarce judicial time and resources. The instant petition arose from a complaint for back rentals, increased rentals and interests filed by petitioner Equatorial Realty Development, Inc. (Equatorial) against respondent Mayfair Theater, Inc. (Mayfair). It has to be adjudicated in the context of three earlier petitions decided by this Court. A dispute between the two parties over the ownership of a commercial lot and building along Claro M. Recto Avenue in Manila has led to 23 years of protracted litigation, including the filing of 4 petitions with the Court, namely, G.R. No. L-106063, decided on November 21, 1996 (264 SCRA 483); G.R. No. 103311 decided on March 4, 1992; G.R. No. 136221, decided on May 12, 2000; and the present petition, G.R. No. 133879. aSECAD The case at bar is a classic illustration of how a dubious interpretation of the dispositive portion of the 1996 decision for petitioner could lead to 5 more years of bitter litigation after the initial 18 years of legal proceedings over the first case. Lease contracts over the subject property were executed on June 1, 1967 and March 31, 1969 by original owner Carmelo and Bauermann, Inc. (Carmelo) in favor of herein respondent Mayfair. The leases expired on May 31, 1987 and March 31, 1989, respectively. The lease

contracts embodied provisions giving Mayfair a right-of-first-refusal should Carmelo sell the property. In an act characterized as bad faith by this Court, the property, in violation of the right-of-first-refusal, was sold by Carmelo to herein petitioner Equatorial, on July 31, 1978 for P11,300,000.00. On September 13, 1978, Mayfair filed the first case for annulment of the contract of sale, specific performance of the right-of-first-refusal provision, and damages. The Regional Trial Court (RTC) of Manila decided the case in favor of Equatorial on February 7, 1991. Counterclaims for compensation arising from the use of the premises were awarded to Equatorial by the 1991 RTC decision. On June 23, 1992, the Court of Appeals reversed the RTC decision, thus leading to the first petition, G.R. No. 106063, filed against Mayfair by both Equatorial and Carmelo. On November 21, 1996, this Court En Banc rendered its decision (264 SCRA 483 [1996]), disposing: WHEREFORE, the petition for review of the decision of the Court of Appeals dated June 23, 1992, in CA-G.R. CV No. 32918, is HEREBY DENIED. The Deed of Absolute Sale between petitioners Equatorial Realty Development, Inc. and Carmelo & Bauermann, Inc. is hereby rescinded; petitioner Carmelo & Bauermann is ordered to return to petitioner Equatorial Realty Development the purchase price. The latter is directed to execute the deeds and documents necessary to return ownership to Carmelo & Bauermann of the disputed lots. Carmelo and Bauermann is ordered to allow Mayfair Theater, Inc. to buy the aforesaid lots for P11,300,000.00. IScaAE In the Court of Appeals decision (CA-G.R. CV No. 32918, June 23, 1992) in the main case, raised to this Court, Mayfair was ordered to directly pay P11,300,000.00 to Equatorial whereupon Equatorial would execute the deeds and documents necessary for the transfer of ownership to Mayfair and the registration of the property in its name. The execution of documents and the transfer of the property were directly between Equatorial and Mayfair. Our decision in 1996 (G.R. No. 106063) affirmed the appellate decision. However, while the 1978 deed of sale questioned by Mayfair was rescinded, we ordered Carmelo to first return to Equatorial the purchase price of the property, whereupon

Equatorial would return ownership to Carmelo, after which Mayfair would buy the lot for P11,300,000.00 from Carmelo. When the case was remanded to the RTC for execution of the decision, it was ascertained that Carmelo and Bauermann, Inc. was no longer in existence. The Sheriff could not enforce the portions of the judgment calling for acts to be performed by Carmelo. Mayfair, therefore, deposited the amount of P11,300,000.00 with the RTC for payment to Equatorial, hoping that the latter would faithfully comply with this Court's decision. In this regard, it may be mentioned that buyer Mayfair also paid P847,000.00 in taxes which the vendors should have paid. The RTC ordered the execution of deeds of transfer, the cancellation of Equatorial's titles to the property, and the issuance of new titles in favor of Mayfair. Accordingly, the property was registered in the name of Mayfair and titles issued in its favor. Equatorial, however, saw an opening for further litigation. It questioned the method employed by the RTC to execute the Court's judgment, arguing that the directives involving Carmelo's participation were ignored by the trial court. The litigation over the alleged incorrectness of the execution eventually led to the second petition earlier mentioned G.R. No. 136221. It may be mentioned at this point that on July 9, 1987, while the rightof-first-refusal and cancellation case was pending, Equatorial filed an action for ejectment against Mayfair. Because the issue of ownership was still pending in the case for rescission of deed of sale including the enforcement of the right-of-first-refusal provision, the ejectment case was dismissed. Appeals to the RTC and the Court of Appeals were denied. On March 26, 1990, still another ejectment case was filed by Equatorial. In decisions which reached all the way to this Court in G.R. No. 103311, the cases for ejectment did not prosper. Mayfair won the cases on March 4, 1992. The three cases decided by the Court in these litigations between Equatorial and Mayfair, all of them in favor of Mayfair, are antecedents of the present and fourth petition. Equatorial has been adjudged as having unlawfully and in bad faith acquired property that should have belonged to Mayfair since 1978. Ownership and title have been unquestionably transferred to Mayfair. Seemingly, Equatorial now seeks to profit from its bad faith. While the

case involving the allegedly incorrect execution of the 1996 decision on cancellation of the deed of sale in G.R. No. 106063 was being litigated, Equatorial filed on September 18, 1997 with the RTC of Manila two complaints for payment of back and increased rentals arising from the use by Mayfair of the lot, building, and other fixed improvements. From the time the property was sold by Carmelo to Equatorial, lessee Mayfair had been paying to Equatorial the rentals fixed in the 1967 and 1969 lease contracts with the original owner. This was during the pendency of the complaint for annulment of the contract of sale, specific performance of the right-of-first-refusal provision, and damages. As found in our 1998 decision in G.R. No. 106063, the disputed property should have actually belonged to Mayfair at the time. However, to avoid the ejectment cases, which Equatorial nonetheless later filed, Mayfair was forced to pay rentals to Equatorial. It paid the rentals based on the rates fixed by Carmelo in the lease contracts. Equatorial, claiming the 1967 and 1969 rentals to be inadequate, claimed increased amounts as reasonable compensation. Because the amounts fixed by the lease contract with Carmelo but paid to Equatorial were only at the rate of P17,966.21 monthly while Equatorial wanted P210,000.00 every month plus legal interests, the suit was for the payment of P115,947,867.68 as of June 19, 1997. Citing the 1996 decision in G.R. No. 106063, Mayfair contended that it owned the property under the decision. It stated that the sale by Carmelo to Equatorial had been cancelled, and, as owner, Mayfair owed no increased rentals to Equatorial based on said decision. The present case on back rentals could not be conclusively decided because the execution and finality of the issue of ownership were being contested for 5 years in the petition on the proper execution filed in G.R. No. 136221. This petition had to wait for the resolution of G.R. No. 136221. In its decision dated May 12, 2000, in G.R. No. 136221 (First Division, per Mr. Justice Pardo; Davide, Jr., C.J., Kapunan, and Ynares-Santiago, JJ., concurring), this Court reiterated the judgment in G.R. No. 106063. It emphasized that the 1996 decision awarding the property to Mayfair was clear. It stated that the decision having attained finality, there was nothing left for the parties to do but to adhere to the mandates of the decision. AISHcD

court for the account of Bauermann, Inc. to petitioner; In the dispositive portion, however, the Court ordered the trial court "to carry out the execution following strictly the terms" of the 1996 decision. However, as earlier stated, this could not be done because Carmelo had ceased to exist. There was no longer any Carmelo which could return the P11,300,000.00 consideration of the 1978 sale to Equatorial as ordered in the dispositive portion of the 1996 decision. Equatorial could not and would not also execute the deeds returning the property to Carmelo, as directed in the decision. Neither could the defunct Carmelo sell the property to Mayfair at the sale price in 1978 when the right of first refusal was violated. Mayfair had to file a motion for partial reconsideration, emphasizing that it was impossible for a corporation which has gone out of existence to obey the specific orders of this Court. A resolution was, therefore, rendered on June 25, 2001 putting an end to the controversy over the proper implementation of the 1996 judgment. This June 25, 2001 Resolution in G.R. No. 136221 validated the issuance of new titles in the name of the adjudicated owner, Mayfair. The Court ordered the direct release to Equatorial of the P11,300,000.00 deposited in court for the account of the defunct Carmelo. In the follow-up Resolution of the First Division in G.R. No. 136221 dated June 25, 2001, the Court, after describing the case as a Promethean one involving the execution of a decision which has been long final, and after calling the efforts to stave off execution as a travesty of justice, instructed the trial court: 1.To execute the Court's Decision strictly in accordance with the ruling in G.R. No. 106063 by validating the acts of the sheriff of Manila and the titles in the name of Mayfair Theater, Inc. issued by the Register of Deeds of Manila consistent therewith;

Carmelo

and

3.To devolve upon the trial court the determination of other issues that may remain unresolved among the parties, relating to the execution of this Court's final decision in G.R. No. 106063. In light of the Court's judgments in G.R. No. 106063 and G.R. No. 136221, the present petition in G.R. No. 133879 for back rentals should now be finally resolved, applying the rulings in those earlier decisions. Indubitably, the 1978 deed of sale executed by Carmelo in favor of Equatorial over the disputed property has been set aside by this Court. Equatorial was declared a buyer in bad faith. The contract was characterized as a fraudulent sale and the entirety of the indivisible property sold to Equatorial was the property we ordered to be conveyed to Mayfair for the same price paid by Equatorial to Carmelo. It is also beyond question that the method of execution of the 1996 decision by the RTC, the direct payment by Mayfair to Equatorial, bypassing and detouring the defunct Carmelo corporation, has been validated by this Court. There are no longer any procedural obstacles to the full implementation of the decision. And finally, the property sold to Equatorial in violation of Mayfair's right of first refusal is now indisputably possessed by, and owned and titled in the name of, respondent Mayfair. Parenthetically, the issue on the payment of back and increased rentals, plus interests, was actually settled in the 1996 decision in G.R. No. 106063. It could not be enforced at the time only because of the controversy unfortunately raised by Equatorial over the proper execution of the 1996 decision. DTAESI It is now time to reiterate the 1996 decision on interests and settle the dispute between Mayfair and Equatorial once and for all. Thus, we reiterate that: On the question of interest payments on the principal amount of P11,300.000.00, it must be borne in mind

2.In case of failure of Carmelo and Bauermann to accept the amount of P11,300,000.00 deposited by Mayfair Theater, Inc. with the Clerk of Court, Regional Trial Court, Manila, to authorize the Clerk of Court to RELEASE the amount of P11,300,000.00 deposited with the

that both Carmelo and Equatorial acted in bad faith. Carmelo knowingly and deliberately broke a contract entered into with Mayfair. It sold the property to Equatorial with purpose and intent to withhold any notice or knowledge of the sale coming to the attention of Mayfair. All the circumstances point to a calculated and contrived plan of non-compliance with the agreement of first refusal. On the part of Equatorial, it cannot be a buyer in good faith because it bought the property with notice and full knowledge the Mayfair had a right to or interest in the property superior to its own. Carmelo and Equatorial took unconscientious advantage of Mayfair. Neither may Carmelo and Equatorial avail of consideration based on equity which might warrant the grant of interests. The vendor received as payment from the vendee what, at the time, was a full and fair price for the property . It has used the P11,300,000.00 all these years earning income or interest from the amount . Equatorial, on the other hand, has received rents and otherwise profited from the use of the property turned over to it by Carmelo . In fact, during all the years that this controversy was being litigated. Mayfair paid rentals regularly to the buyer who had an inferior right to purchase the property. Mayfair is under no obligation to pay any interests arising from this judgment to either Carmelo or Equatorial (264 SCRA 483, pp. 511-512). Worthy quoting too is the concurring opinion in our 1996 decision of Mr. Justice Teodoro R. Padilla as follows: The equities of the case support the foregoing legal disposition. During the intervening years between 1 August 1978 and this date, Equatorial (after acquiring the C.M. Recto property for the price of P11,300,000.00) had been leasing the property and deriving rental income therefrom. In fact, one of the lessees in the property was Mayfair. Carmelo had, in turn, been using the proceeds of the sale, investmentwise and/or operation wise in its own business. cSaADC

It may appear, at first blush, that Mayfair is unduly favored by the solution submitted by this opinion, because the price of P11,300,000.00 which it has to pay Carmelo in the exercise of its right of first refusal, has been subjected to the inroads of inflation so that its purchasing power today is less than when the same amount was paid by Equatorial to Carmelo. But then it cannot be overlooked that it was Carmelo's breach of Mayfair's right of first refusal that prevented Mayfair from paying the price of P11,300,000.00 to Carmelo at about the same time the amount was paid by Equatorial to Carmelo. Moreover, it cannot be ignored that Mayfair had also incurred consequential or "opportunity" losses by reason of its failure to acquire and use the property under its right of first refusal . In fine, any loss in purchasing power of the price of P11,300,000.00 is for Carmelo to incur or absorb on account of its bad faith in breaching Mayfair's contractual right of first refusal to the subject property. (ibid., pp. 511-512). It can be seen from the above ruling that the issue of rentals and interests was fully discussed and passed upon in 1996. Equatorial profited from the use of the building for all the years when it had no right or, as stated in our decision, had an inferior right over the property. Mayfair, which had the superior right, continued to pay rent but it was the rate fixed in the lease contract with Carmelo. We see no reason for us to now deviate from the reasoning given in our main decision. The decision has been final and executory for five (5) years and petitioner has failed to present any valid and reasonable ground to reconsider, modify or reverse it. Let that which has been fairly adjudicated remain final. CTEacH My second observation relates to the clever but, to my mind, deceptive argument foisted by Equatorial on the Court. Equatorial relies on the Civil Code provision on rescissible contracts to bolster its claim. Its argument is that a rescissible contract remains valid and binding upon the parties thereto until the same is rescinded in an appropriate judicial proceeding. Equatorial conveniently fails to state that the July 31, 1978 Deed of Absolute Sale was between Equatorial and Carmelo only. Respondent Mayfair was not a party to the contract. The deed of sale was

surreptitiously entered into between Carmelo and Equatorial behind the back and in violation of the rights of Mayfair. Why should the innocent and wronged party now be made to bear the consequences of an unlawful contract to which it was not privy? Insofar as Equatorial and Carmelo are concerned, their 1978 contract may have validly transferred ownership from one to the other. But not as far as Mayfair is concerned. Mayfair starts its arguments with a discussion of Article 1381 of the Civil Code that contracts entered into in fraud of creditors are rescissible. There is merit in Mayfair's contention that the legal effects are not restricted to the contracting parties only. On the contrary, the rescission is for the benefit of a third party, a stranger to the contract. Mayfair correctly states that as far as the injured third party is concerned, the fraudulent contract, once rescinded, is non-existent or void from its inception. Hence, from Mayfair's standpoint, the deed of absolute sale which should not have been executed in the first place by reason of Mayfair's superior right to purchase the property and which deed was cancelled for that reason by this Court, is legally nonexistent. There must be a restoration of things to the condition prior to the celebration of the contract (Respondent relies on Almeda vs. J.M. & Company, 43072-R, December 16, 1975, as cited in the Philippine Law Dictionary; IV Arturo M. Tolentino, Civil Code of the Philippines , 570, 1990 Ed., citing Manresa; IV Edgardo L. Paras, Civil Code of the Philippines, 717-718, 1994 Ed.). It is hard not to agree with the explanations of Mayfair, to wit:

the plaintiff in the accion pauliana must be prior to the fraudulent alienation, the date of the judgment enforcing it is immaterial. Even if the judgment be subsequent to the alienation, it is merely declaratory, with retroactive effect to the date when the credit was constituted. . . ." (emphasis supplied) 4.24.The clear rationale behind this is to prevent conniving parties, such as Equatorial and Carmelo, from benefiting in any manner from their unlawful act of entering into a contract in fraud of innocent parties with superior rights like Mayfair. Thus, to allow Equatorial to further collect rentals from Mayfair is to allow the former to profit from its own act of bad faith. Ex dolo malo non oritur actio. (Respondent's Comment, pp. 338-339, Rollo). This brings me to my third and final observation in this case. This Court emphasized in the main case that the contract of sale between Equatorial and Carmelo was characterized by bad faith. The Court described the sale as "fraudulent" in its 1996 decision. It stated that the damages which Mayfair suffered are in terms of actual injury and lost opportunities, emphasizing that Mayfair should not be given an empty or vacuous victory. Moreover, altogether too many suits have been filed in this case. Four separate petitions have come before us, necessitating full length decisions in at least 3 of them. The 1996 decision stressed that the Court has always been against multiplicity of suits. There was bad faith from the execution of the deed of sale because Equatorial and Carmelo affirmatively operated with furtive design or with some motive of self-interest or ill-will or for ulterior purposes ( Air France vs. Carrascoso, 18 SCRA 166 [1966]). There was breach of a known duty by the two parties to the unlawful contract arising from motives of interests or ill-will calculated to cause damage to another (Lopez vs. Pan American World Airways, 123 Phil. 264 [1966]). The presence of bad faith is clear from the records. Our resolution of this issue in 1996 (G.R. 106063) is res judicata.

4.22.As a consequence of the rescission of the Deed of Absolute Sale, it was as if Equatorial never bought and became the lessor of the subject properties. Thus, the court a quo did not err in ruling that Equatorial is not the owner and does not have any right to demand back rentals from [the] subject property. 4.23.Tolentino, supra, at 577-578 further explains that the effects of rescission in an accion pauliana retroact to the date when the credit or right being enforced was acquired. "While it is necessary that the credit of

We stated: First and foremost is that the petitioners (referring to Equatorial and Carmelo) acted in bad faith to render Paragraph 8 "inutile." TcDAHS xxx xxx xxx Since Equatorial is a buyer in bad faith, this finding renders the sale to it of the property in question rescissible. We agree with respondent Appellate Court that the records bear out the fact that Equatorial was aware of the lease contracts because its lawyers had, prior to the sale, studied the said contracts. As such Equatorial cannot tenably claim to be a purchaser in good faith and, therefore, rescission lies. xxx xxx xxx As also earlier emphasized, the contract of sale between Equatorial and Carmelo is characterized by bad faith, since it was knowingly entered into in violation of the rights of and to the prejudice of Mayfair. In fact, as correctly observed by the Court of Appeals, Equatorial admitted that its lawyers had studied the contract of lease prior to the sale. Equatorial's knowledge of the stipulations therein should have cautioned it to look further into the agreement to determine if it involved stipulations that would prejudice its own interests. xxx xxx xxx On the part of Equatorial, it cannot be a buyer in good faith because it bought the property with notice and full knowledge that Mayfair had a right to or interest in the property superior to its own. Carmelo and Equatorial took unconscientious advantage of Mayfair (264 SCRA 506, 507-511). We ruled that because of bad faith, neither may Carmelo and Equatorial avail themselves of considerations based on equity which might warrant the grant of interests and, in this case, unconscionably increased rentals.

Verily, if Mayfair were a natural person it could very well have asked for moral damages instead of facing a lengthy and expensive suit to pay rentals many times higher than those stipulated in the contract of lease. Under the Civil Code, Mayfair is the victim in a breach of contract where Carmelo and Equatorial acted fraudulently and in bad faith. Considering the judgments in our 3 earlier decisions, Mayfair is under no obligation to pay any interests, whether based on law or equity, to Carmelo or Equatorial. Mayfair is the wronged entity, the one which has suffered injury since 1978 or for the 23 years it was deprived of the property. cETCID Equatorial has received rentals and other benefits from the use of the property during these 23 years, rents and benefits which would have accrued to Mayfair if its rights had not been violated. There is no obligation on the part of respondent Mayfair to pay any increased, additional, back or future rentals or interests of any kind to petitioner Equatorial under the circumstances of this case. I, therefore, concur with the majority opinion in denying due course and dismissing the petition. VITUG, J., dissenting opinion: Civil Law, in its usual sophistication, classifies defective contracts (unlike the seemingly generic treatment in Common Law), into, first, the rescissible contracts, 1 which are the least infirm; followed by, second, the voidable contracts; 2 then, third, the unenforceable contracts; 3 and, finally, fourth, the worst of all or the void contracts. 4 In terms of their efficaciousness, rescissible contracts are regarded, among the four, as being the closest to perfectly executed contracts. A rescissible contract contains all the requisites of a valid contract and are considered legally binding, but by reason of injury or damage to either of the contracting parties or to third persons, such as creditors, it is susceptible to rescission at the instance of the party who may be prejudiced thereby. A rescissible contract is valid, binding and effective until it is rescinded. The proper way by which it can be assailed is by an action for rescission based on any of the causes expressly specified by law. 5 The remedy of rescission in the case of rescissible contracts under Article 1381 is not to be confused with the remedy of rescission, or

more properly termed "resolution," of reciprocal obligations under Article 1191 of the Civil Code. While both remedies presuppose the existence of a juridical relation that, once rescinded, would require mutual restitution, it is basically, however, in this aspect alone when the two concepts coincide. Resolution under Article 1191 would totally release each of the obligors from compliance with their respective covenants. It might be worthwhile to note that in some cases, notably Ocampo vs. Court of Appeals, 6 and Velarde vs. Court of Appeals, 7 where the Court referred to rescission as being likened to contracts which are deemed "void at inception," the focal issue is the breach of the obligation involved that would allow resolution pursuant to Article 1191 of the Civil Code. The obvious reason is that when parties are reciprocally bound, the refusal or failure of one of them to comply with his part of the bargain should allow the other party to resolve their juridical relationship rather than to leave the matter in a state of continuing uncertainty. The result of the resolution, when decreed, renders the reciprocal obligations inoperative "at inception." Upon the other hand, the rescission of a rescissible contract under Article 1381, taken in conjunction with Article 1385, is a relief which the law grants for the protection of a contracting party or a third person from injury and damage that the contract may cause, or to protect some incompatible and preferent right created by the contract. 8 Rescissible contracts are not void ab initio,and the principle, "quod nullum est nullum producit effectum, " in void and inexistent contracts is inapplicable. Until set aside in an appropriate action rescissible contracts are respected as being legally valid, binding and in force. It would be wrong to say that rescissible contracts produce no legal effects whatsoever and that no acquisition or loss of rights could meanwhile occur and be attributed to the terminated contract. The effects of the rescission, prospective in nature, can come about only upon its proper declaration as such. Thus, when the Court 9 held the contract to be "deemed rescinded" in G.R. No. 106063, the Court did not mean a "declaration of nullity" of the questioned contract. The agreement between petitioner and Carmelo, being efficacious until rescinded, validly transferred ownership over the property to petitioner from the time the deed of sale was executed in a public instrument on 30 July 1978 up to the time that the decision in G.R. No. 106063 became final on 17 March 1997. It was only from the latter date that the contract had ceased to be efficacious. The fact that the subject property was in the hands of a lessee, or for that matter of any possessor with a juridical title derived

from an owner, would not preclude a conferment of ownership upon the purchaser nor be an impediment from the transfer of ownership from the seller to the buyer. Petitioner, being the owner of the property (and none other) until the judicial rescission of the sale in its favor, was entitled to all incidents of ownership inclusive of, among its other elements, the right to the fruits of the property. Rentals or rental value over that disputed property from 30 July 1978 up to 17 March 1997 should then properly pertain to petitioner. In this respect, the much abused terms of "good faith" or "bad faith" play no role; ownership, unlike other concepts, is never described as being either in good faith or in bad faith.

With all due respect, I am thus unable to join in this instance my colleagues in the majority. SANDOVAL-GUTIERREZ, J., dissenting opinion: "Stare decisis et non quieta movere follow past precedents and do not disturb what has been settled. Adherence to this principle is imperative if this Court is to maintain stability in jurisprudence. I regret that I am unable to agree with the majority opinion. The principal issue in this case is whether a rescissible contract is void and ineffective from its inception. This issue is not a novel one. Neither is it difficult to resolve as it involves the application of elementary principles in the law on contracts, specifically on rescissible contracts, as distinguished from void or inexistent contracts. The facts are simple. On June 1, 1967, respondent Mayfair Theater, Inc. (Mayfair) leased portions of the ground, mezzanine and second floors of a two storey commercial building located along C.M. Recto Avenue, Manila. The building together with the land on which it was constructed was then owned by Carmelo & Bauermann, Inc. (Carmelo). Respondent used these premises as "Maxim Theater." The lease was for a period of twenty (20) years. IEHSDA On March 31, 1969, Mayfair leased from Carmelo another portion of the second floor, as well as two (2) store spaces on the ground and

mezzanine floors of the same building. Respondent Mayfair used the premises as a movie theater known as "Miramar Theater." Both leases contained the following identical provisions: "That if the LESSOR should desire to sell the leased premises, the LESSEE shall be given 30-days exclusive option to purchase the same. In the event, however, that the leased premises is sold to someone other than the LESSEE, the LESSOR is bound and obligated, as it hereby binds and obligates itself, to stipulate in the Deed of Sale thereof that the purchaser shall recognize this lease and be bound by all the terms and conditions thereof. On July 31, 1978, Carmelo entered into a Deed of Absolute Sale whereby it sold the subject land and two-storey building to petitioner Equatorial Realty Development, Inc. (Equatorial) for P11,300,000.00. Having acquired from Carmelo ownership of the subject property, Equatorial received rents from Mayfair for sometime. cEaCTS Subsequently, Mayfair, claiming it had been denied its right to purchase the leased property in accordance with the provisions of its lease contracts with Carmelo, filed with the Regional Trial Court, Branch 7, Manila, a suit for specific performance and annulment of sale with prayer to enforce its "exclusive option to purchase" the property. The dispute between Mayfair, on the one hand, and Carmelo and Equatorial on the other, reached this Court in G.R. No. 106063, "Equatorial Realty Development, Inc. & Carmelo & Bauermann, Inc. vs. Mayfair Theater, Inc." 1 On November 21, 1996, this Court rendered a Decision, the dispositive portion of which reads: "WHEREFORE, the petition for review of the decision of the Court of Appeals, dated June 23, 1992, in CA-G.R. CV No. 32918, is HEREBY DENIED. The Deed of Absolute Sale between petitioners Equatorial Realty Development, Inc. and Carmelo & Bauermann, Inc. is hereby deemed rescinded; Carmelo & Bauermann is ordered to return to petitioner Equatorial Realty Development the purchase price. The latter is directed to execute the deeds and documents necessary to return ownership to Carmelo & Bauermann of the disputed lots. Carmelo & Bauermann is ordered to

allow Mayfair Theater, Inc. to buy the aforesaid lots for P11,300,000.00. SO ORDERED." The Decision of this Court in G.R. No. 106063 became final and executory on March 17, 1997. On April 25, 1997, Mayfair filed with the trial court a motion for execution which was granted. However, Carmelo could no longer be located. Thus, Mayfair deposited with the trial court its payment to Carmelo in the sum of P11,300,000.00 less P847,000.00 as withholding tax. The Clerk of Court of the Manila Regional Trial Court, as sheriff, executed a deed of re-conveyance in favor of Carmelo and a deed of sale in favor of Mayfair. On the basis of these documents, the Registry of Deeds of Manila cancelled Equatorial's titles and issued new Certificates of Title 2 in the name of Mayfair. In G.R. No. 136221, 3 "Equatorial Realty Development, Inc. vs. Mayfair Theater, Inc.," this Court instructed the trial court to execute strictly this Court's Decision in G.R. No. 106063. On September 18, 1997, or after the execution of this Court's Decision in G.R. No. 106063, Equatorial filed with the Regional Trial Court of Manila, Branch 8, an action for collection of a sum of money against Mayfair, docketed as Civil Case No. 97-85141. Equatorial prayed that the trial court render judgment ordering Mayfair to pay: (1)the sum of P11,548,941.76 plus legal interest, representing the total amount of unpaid monthly rentals/reasonable compensation from June 1, 1987 (Maxim Theater) and March 31, 1989 (Miramar Theater) to July 31, 1997; cACTaI (2)the sums of P849,567.12 and P458,853.44 a month, plus legal interest, as rental/reasonable compensation for the use and occupation of the subject property from August 1, 1997 to May 31, 1998 (Maxim Theater) and March 31, 1998 (Miramar Theater);

(3)the sum of P500,000.00 as and for attorney's fees, plus other expenses of litigation; and (4)the costs of the suit. 4 On October 14, 1997, before filing its answer, Mayfair filed a "Motion to Dismiss" Civil Case No. 97-85141 on the following grounds: "(A) PLAINTIFF IS GUILTY OF FORUM SHOPPING. (B) PLAINTIFF'S CAUSE OF ACTION, IF ANY, IS BARRED BY PRIOR JUDGMENT." 5 On March 11, 1998, the court a quo issued an order dismissing Civil Case No. 97-85141 on the ground that since this Court, in G.R. No. 106063, rescinded the Deed of Absolute Sale between Carmelo and Equatorial, the contract is void at its inception. 6 Correspondingly, Equatorial is not the owner of the subject property and, therefore, does not have any right to demand from Mayfair payment of rentals or reasonable compensation for its use and occupation of the premises. Equatorial filed a motion for reconsideration but was denied. Hence, the present petition. At this stage, I beg to disagree with the ruling of the majority that (1) Equatorial did not acquire ownership of the disputed property from Carmelo because of lack of delivery; and that (2) Equatorial is not entitled to the payment of rentals because of its bad faith. SHEIDC Firmly incorporated in our Law on Sales is the principle that ownership is transferred to the vendee by means of delivery, actual or constructive. 7 There is actual delivery when the thing sold is placed in the control and possession of the vendee. 8 Upon the other hand, there is constructive delivery when the delivery of the thing sold is represented by other signs or acts indicative thereof. Article 1498 of the Civil Code is in point. It provides that " When the sale is made through a public instrument, the execution thereof shall be equivalent to the delivery of the thing which is the object of the contract, if from

the deed the contrary does not appear or cannot clearly be inferred ." 9 Contrary to the majority opinion, the facts and circumstances of the instant case clearly indicate that there was indeed actual and constructive delivery of the disputed property from Carmelo to Equatorial. Let me substantiate my claim. First, I must take exception to the majority's statement that this Court found in G.R. No. 106063 10 that, "no right of ownership was transferred from Carmelo to Equatorial in view of a patent failure to deliver the property to the buyer." 11 A perusal of the Decision dated November 21, 1996 would reveal otherwise. To say that this Court found no transfer of ownership between Equatorial and Carmelo is very inaccurate. For one, this Court, in disposing of G.R. No. 106063, explicitly ordered Equatorial to "execute the deeds and documents necessary to return ownership to Carmelo & Bauermann of the disputed lots." 12 I suppose this Court would not have made such an order if it did not recognize the transfer of ownership from Carmelo to Equatorial under the contract of sale. For why would the Court order Equatorial to execute the deeds and documents necessary to return ownership to Carmelo if, all along, it believed that ownership remained with Carmelo? Furthermore, is Court explicitly stated in the Decision that Equatorial received rentals from Mayfair during the pendency of the case. Let me quote the pertinent portion of the Decision, thus: ". . . Equatorial, on the other hand, has received rents and otherwise profited from the use of the property turned over to it by Carmelo. In fact, during all the years that this controversy was being litigated, Mayfair paid rentals regularly to the buyer (Equatorial) who had an inferior right to purchase the property. Mayfair is under no obligation to pay any interests arising from this judgment to either Carmelo or Equatorial." 13 Justice Teodoro R. Padilla, in his Separate Opinion, made the following similar observations:

"The equities of the case support the foregoing legal disposition. During the intervening years between 1 August 1978 and this date, Equatorial (after acquiring the C.M. Recto property for the price of P11,300,000.00) had been leasing the property and deriving rental income therefrom. In fact, one of the lessees in the property was Mayfair. Carmelo had, in turn, been using the proceeds of the sale, investmentwise and/or operation-wise in its own business." 14 Obviously, this Court acknowledged the delivery of the property from Carmelo to Equatorial. As aptly described by Justice Panganiban himself, the sale between Carmelo and Equatorial had not only been "perfected" but also "consummated." 15 That actual possession of the property was turned over by Carmelo to Equatorial is clear from the fact that the latter received rents from Mayfair. Significantly, receiving rentals is an exercise of actual possession. Possession, as defined in the Civil Code, is the holding of a thing or the enjoyment of a right . 16 It may either be by material occupation or by merely subjecting the thing or right to the action of our will. 17 Possession may therefore be exercised through one's self or through another. 18 It is not necessary that the person in possession should himself be the occupant of the property, the occupancy can be held by another in the name of the one who claims possession. In the case at bench, Equatorial exercised possession over the disputed property through Mayfair. When Mayfair paid its monthly rentals to Equatorial, the said lessee recognized the superior right of Equatorial to the possession of the property. And even if Mayfair did not recognize Equatorial's superior right over the disputed property, the fact remains that Equatorial was then enjoying the fruits of its possession.

possession of a vendee of a piece of land from one who pretends to be the owner but is in fact not the owner thereof. And the fourth is possession with a just title from the true owner . This is possession that springs from ownership. 19 Undoubtedly, Mayfair's possession is by virtue of juridical title under the contract of lease, while that of Equatorial is by virtue of its right of ownership under the contract of sale. Second, granting arguendo that there was indeed no actual delivery, would Mayfair's alleged "timely objection to the sale and continued actual possession of the property " constitute an "impediment" that may prevent the passing of the property from Carmelo to Equatorial? 20 I believe the answer is no. The fact that Mayfair has remained in "actual possession of the property," after the perfection of the contract of sale between Carmelo and Equatorial up to the finality of this Court's Decision in G.R. No. 106063 (and even up to the present), could not prevent the consummation of such contract. As I have previously intimated, Mayfair's possession is not under a claim of ownership. It cannot in any way clash with the ownership accruing to Equatorial by virtue of the sale. The principle has always been that the one who possesses as a mere holder acknowledges in another a superior right or right of ownership. A tenant possesses the thing leased as a mere holder, so does the usufructuary of the thing in usufruct; and the borrower of the thing loaned in commodatum. None of these holders asserts a claim of ownership in himself over the thing. Similarly, Mayfair does not claim ownership, but only possession as a lessee with the prior right to purchase the property. HATICc In G.R. No. 106063, Mayfair's main concern in its action for specific performance was the recognition of its right of first refusal. Hence, the most that Mayfair could secure from the institution of its suit was to be allowed to exercise its right to buy the property upon rescission of the contract of sale. Not until Mayfair actually exercised what it was allowed to do by this Court in G.R. No. 106063, specifically to buy the disputed property for P11,300,000.00, would it have any right of ownership. How then, at that early stage, could Mayfair's action be an impediment in the consummation of the contract between Carmelo and Equatorial? Pertinently, it does not always follow that, because a transaction is

At this juncture, it will be of aid to lay down the degrees of possession. The first degree is the mere holding, or possession without title whatsoever, and in violation of the right of the owner. Here, both the possessor and the public know that the possession is wrongful. An example of this is the possession of a thief or a usurper of land. The second is possession with juridical title, but not that of ownership . This is possession peaceably acquired, such that of a tenant, depositary, or pledge. The third is possession with a just title, or a title sufficient to transfer ownership, but not from the true owner. An example is the

prohibited or illegal, title, as between the parties to the transaction, does not pass from the seller, donor, or transferor to the vendee, donee or transferee. 21 And third, conformably to the foregoing disquisition, I maintain that Equatorial has the right to be paid whatever monthly rentals during the period that the contract of sale was in existence minus the rents already paid. In Guzman v. Court of Appeals, 22 this Court decreed that upon the purchase of the leased property and proper notice by the vendee, the lessee must pay the agreed monthly rentals to the new owner since, by virtue of the sale, the vendee steps into the shoes of the original lessor to whom the lessee bound himself to pay. His belief that the subject property should have been sold to him does not justify the unilateral withholding of rental payments due to the new owner of the property. 23 It must be stressed that under Article 1658 of the Civil Code, there are only two instances wherein the lessee may suspend payment of rent, namely: in case the lessor fails to make the necessary repairs or to maintain the lessee in peaceful and adequate enjoyment of the property leased. 24 In this case, the fact remains that Mayfair occupied the leased property. It derived benefit from such occupation, thus, it should pay the corresponding rentals due. Nemo cum alterius detrimento locupletari potest . No one shall enrich himself at the expense of another. 25 Neither should the presence of bad faith prevent the award of rent to Equatorial. While Equatorial committed bad faith in entering into the contract with Carmelo, it has been equitably punished when this Court rendered the contract rescissible. That such bad faith was the very reason why the contract was declared rescissible is evident from the Decision itself. 26 To utilize it again, this time, to deprive Equatorial of its entitlement to the rent corresponding to the period during which the contract was supposed to validly exist, would not only be unjust, it would also disturb the very nature of a rescissible contract. cAEaSC Let me elucidate on the matter. Articles 1380 through 1389 of the Civil Code deal with rescissible contracts. A rescissible contract is one that is validly entered into, but is subsequently terminated or rescinded for causes provided for by law. This is the clear implication of Article 1380 of the same Code which provides:

"Art. 1380.Contracts validly agreed upon may be rescinded in the cases established by law." Rescission has been defined as follows: "Rescission is a remedy granted by law to the contracting parties and even to third persons, to secure the reparation of damages caused to them by a contract, even if this should be valid, by means of the restoration of things to their condition at the moment prior to the celebration of said contract. It is a relief for the protection of one of the contracting parties and third persons from all injury and damage the contract may cause, or to protect some incompatible and preferential right created by the contract. It implies a contract which, even if initially valid, produces a lesion or pecuniary damage to someone. It sets aside the act or contract for justifiable reasons of equity." 27 Necessarily, therefore, a rescissible contract remains valid and binding upon the parties thereto until the same is rescinded in an appropriate judicial proceeding. aCcADT On the other hand, a void contract, which is treated in Articles 1409 through 1422 of the Civil Code, is inexistent and produces no legal effect whatsoever. The contracting parties are not bound thereby and such contract is not subject to ratification. In dismissing petitioner Equatorial's complaint in Civil Case No. 9785141, the trial court was apparently of the impression that a rescissible contract has the same effect as a void contract, thus: "However, the words in the dispositive portion of the Supreme Court "is hereby deemed rescinded" does not allow any other meaning. The said Deed of Absolute Sale is void at its inception. xxx xxx xxx The subject Deed of Absolute Sale having been rescinded by the Supreme Court, Equatorial is not the owner and does not have any right to demand back rentals from subject property . The law states that only an owner can enjoy the fruits of a certain property or

jus utendi which includes the right to receive from subject property what it produces, . . ." The trial court erred. In G.R. No. 106063 (involving Mayfair's suit for specific performance), this Court clearly characterized the Deed of Absolute Sale between Carmelo and petitioner Equatorial as a rescissible contract. We stated therein that: "Since Equatorial is a buyer in bad faith, this finding renders the sale to it of the property in question rescissible. We agree with respondent Appellate Court that the records bear out the fact that Equatorial was aware of the lease contracts because its lawyers had, prior to the sale, studied the said contracts. As such, Equatorial cannot tenably claim to be a purchaser in good faith, and therefore, rescission lies." This Court did not declare the Deed of Absolute Sale between Carmelo and Equatorial void but merely rescissible. Consequently, the contract was, at inception, valid and naturally, it validly transferred ownership of the subject property to Equatorial. It bears emphasis that Equatorial was not automatically divested of its ownership. Rather, as clearly directed in the dispositive portion of our Decision, Carmelo should return the purchase price to Equatorial which, in turn, must execute such deeds and documents necessary to enable Carmelo to reacquire its ownership of the property. As mentioned earlier, Mayfair deposited with the Regional Trial Court, Branch 7, Manila, the purchase price of P10,452,000.00 (P11,300,000.00 less P847,000.00 as withholding tax). In turn, the Clerk of Court executed the deed of sale of the subject property in favor of Mayfair. In the meantime, Mayfair has continued to occupy and use the premises, the reason why Equatorial filed against it Civil Case No. 9785141 for sum of money representing rentals and reasonable compensation. At this point, I must reiterate that Equatorial purchased the subject property from Carmelo and became its owner on July 31, 1978. While the contract of sale was "deemed rescinded" by this Court in G.R. No. 106063, nevertheless the sale had remained valid and binding between the contracting parties until March 17, 1997 when the Decision in G.R. No. 106063 became final. Consequently, being the

owner, Equatorial has the right to demand from Mayfair payment of rentals corresponding to the period from July 31, 1978 up to March 17, 1997. THIcCA Records show that the rentals and reasonable compensation which Equatorial demands from Mayfair are those which accrued from the year 1987 to 1998. As earlier stated, prior thereto, Mayfair had been paying the rents to Equatorial.

In line with this Court's finding that Equatorial was the owner of the disputed property from July 31, 1978 to March 17, 1997, it is, therefore, entitled to the payment of rentals accruing to such period. Consequently, whether or not Mayfair paid Equatorial the rentals specified in the lease contracts from June 1, 1987 to March 17, 1997 is for the trial court to resolve. One last word. In effect, the majority have enunciated that: 1.A lessor, in a contract of sale, cannot transfer ownership of his property, occupied by the lessee, to the buyer because there can be no delivery of such property to the latter; and 2.Not only a possessor, but also an owner, can be in bad faith. I cannot subscribe to such doctrines. WHEREFORE, I vote to GRANT the petition. Footnotes 1.Originally assigned to the Second Division, this case was transferred to the Third Division and later on referred to the Court en banc. 2.Rollo, pp. 261-270; penned by Judge Felixberto T. Olalia Jr.

3.RTC Decision, p. 10; rollo, p. 270. 4.Rollo, pp. 310-311. 5.264 SCRA 483, November 21, 1996, per Hermosisima, J.; concurred in by Justices Padilla (with Separate Opinion), Regalado, Davide, Jr., Bellosillo, Melo, Puno, Kapunan, Mendoza, Francisco, and Panganiban (with Separate Concurring Opinion). Justice Vitug wrote a Dissenting Opinion, joined by Justice Torres, while Justice Romero filed a Concurring and Dissenting Opinion. Chief Justice Narvasa took no part. 6.Ibid., p. 512. 7.TCT Nos. 235120, 235121, 235122, and 235123. 8.332 SCRA 139, May 12, 2000; penned by Justice Bernardo T. Pardo (First Division) with the concurrence of Chief Justice Hilario G. Davide Jr. and Justices Santiago M. Kapunan and Consuelo Ynares-Santiago. Justice Reynato S. Puno took no part. 9.Ibid., p. 149. 10.Complaint, pp. 3-4; rollo, pp. 47-48. 11.Rollo, pp. 261-270 and 301-311. 12.Rollo, pp. 265-266. 13.RTC Order dated May 11, 1998, p. 9; rollo, p. 269. 14.The case was deemed submitted for decision on June 13, 2000, upon receipt by the Court of the letter of Virginia A. Bautista, officer-in-charge of RTC Manila, Branch 8, transmitting the complete records of Civil Case No. 97-85141, the progenitor of the present case. After the final deliberations on this case on November 13, 2001, the writing of this Decision was assigned to herein ponente. 15.Petition pp. 11-12, 24; rollo, pp. 24-25, 37; original in upper case. 16.Art. 442, Civil Code, provides in its third paragraph that "[c]ivil fruits are the rents of buildings, the price of leases of lands

and other property and the amount or perpetual or life annuities or other similar incomes." 17.Art. 441, par (3), provides: "To the owner belong . . . (3) [t]he civil fruits." 18.Art. 440 reads: "The ownership of the property gives the right by accession to everything produced thereby, or which is incorporated or attached thereto, either naturally or artificially." 19.Art. 1458, Civil Code. 20.See Arts. 712 and 1164, Civil Code. 21.Art. 1496, Civil Code. 22.Tolentino, Civil Code, 1992 ed., Vol. II, pp. 451-452; Roman v. Grimalt, 6 Phil. 96, April 11, 1906; Ocejo, Perez & Co. v. International Bank, 37 Phil. 631, February 14, 1918. 23.Art. 1497, Civil Code. 24.Art. 1498, Civil Code. 25.Pasagui v. Villablanca, 68 SCRA 18, November 10, 1975; Tolentino, op. cit., Vol. V, p. 54. 26.CJS, Vol. 26A, p. 165. 27.Words and Phrases, Vol. IIA, p. 522. 28.Vda. de Sarmiento v. Lesaca, 108 Phil. 900, 903, June 30, 1960. 29.Addison v. Felix, 38 Phil. 404, August 3, 1918; as cited in Vda. de Sarmiento v. Lesaca, supra, at p. 904. 30.Supra, per Bautista-Angelo, J. 31.Ibid., p. 903. 32.Art. 1164 reads: "The creditor has a right to the fruits of the thing

from the time the obligation to deliver it arises. However, he shall acquire no real right over it until the same has been delivered to him." 33.See Art. 1475, Civil Code. 34.Rentals that accrued from the execution of the Deed of Sale from July 30, 1978 until November 21, 1996. Equatorial Realty Development, Inc. v. Mayfair Theater, Inc., supra. 35.CA Records in the mother case, pp. 460 and 516. These ejectment suits are also referred to in the Petition and Comment in the present case. 36.Philippines Today v. NLRC, 267 SCRA 202, January 30, 1997, per Panganiban, J. 37.Ibid., pp. 506-512. 38.Id., p. 511. 39.Respondent's Motion to Dismiss, p. 1; rollo, p. 67; original in upper case. 40.Development Bank of the Philippines v. CA, G.R. No. 110203, May 9, 2001, citing Gosnell v. Webb, 66 CA2d 518, 521, 152 P2d 463 (1944); Poochigan v. Layne, 120 CA2d 757, 261 P2d 738 (1953). 41.Ibid., per Panganiban, J., citing Republic v. Court of Appeals, 324 SCRA 560, February 3, 2000. 42.Id., citing Watkins v. Watkins,117 CA2d 610, 256 P2d 339 (1953). 43.RTC Order dated March 11, 1978, p. 9; rollo, p. 269. VITUG, J., dissenting: 1.Article 1381-1382, Civil Code of the Philippines. 2.Article 1390.

3.Article 1403. 4.Article 1409. 5.Borja vs. Addison, 44 Phil. 895. 6.233 SCRA 551. 7.G.R. No. 108346, 11 July 2001. 8.Aquino vs. Tanedo, 39 Phil. 517. 9.Equatorial Realty Dev., Inc. vs. Mayfair Theater, Inc., 264 SCRA 483. SANDOVAL-GUTIERREZ, J., dissenting: 1.264 SCRA 483 (1996). 2.TCT Nos. 235120, 235121, 235122 and 235123. 3.332 SCRA 139 (2000) In this case, Equatorial questioned the regularity of the execution of this Court's Decision in G.R. No. 106063. 4.Complaint, Rollo, p. 45. 5.Motion to Dismiss, Rollo, p. 67. 6.Order, Rollo, p. 261, 265. 7.Article 1477 of the Civil Code of the Philippines. 8.Vitug, Compendium of Civil Law and Jurisprudence , Revised Edition, 1993, p. 592; Article 1497, Civil Code of the Philippines, La Fuerza, Inc. v. Court of Appeals, 23 SCRA 1217 (1968). 9.Tolentino, Civil Code of the Philippines, Vol. II, 1998, p. 461. 10.Equatorial Realty Development, Inc. v. Mayfair Theater, Inc. 264 SCRA 483 (1996). In this case, this Court ruled that the

contract of sale between Carmelo and Equatorial is rescissible. This Court upheld Mayfair's right of first refusal. It ordered Carmelo to return to Equatorial the purchase price. Equatorial was directed to execute the documents necessary to return ownership of the disputed property to Carmelo and the latter was ordered to allow Mayfair to buy the same. 11.Decision, p. 12. 12.Ibid., p. 512. 13.Ibid., p. 512. 14.Ibid., p. 514. 15.His Concurring Opinion in G.R. No. 106063, supra. 16.Article 523 of the Civil Code of the Philippines. 17.Tolentino, Civil Code of the Philippines, Volume II, p. 238; 4 Manresa 17. 18.Ibid., p. 239. 19.Ibid., 241-242. 20.Dissenting Opinion, p. 5. 21.O'Mara v. Detinger, 62 N.Y.S. 2d 825, 271 App. Div. 22; Rosasco Creameries, Inc. v. Cohen, 276 N.Y. 274, 278, 11 N.E. 2d 908, 909; Whitfield v. United States, 92 U.S. 165, 169, 170, 23 L. Ed. 705. 22.Guzman v. Court of Appeals, 177 SCRA 604 (1989). 23.Ibid. 24.Reyes v. Area, 15 SCRA 442 (1965). 25.Santos v. Court of Appeals, 221 SCRA 42 (1993). 26."Since Equatorial is a buyer in bad faith, this finding renders the

sale to it of the property in question rescissible . We agree with respondent Appellate Court that the records bear out the fact that Equatorial was aware of the lease contracts because its lawyers had, prior to the sale, studied the said contracts. As such, Equatorial cannot tenably claim to be a purchaser in good faith, and therefore, rescission lies." 27.IV Tolentino, Commentaries and Jurisprudence on the Civil Code of the Philippines (1997), pp. 570-571.

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