SECOND DIVISION vendee fail to pay; (2) cancel the sale upon the vendees failure to pay two
or more installments; (3) foreclose the chattel mortgage, if one has been
[G.R. No. 61043. September 2, 1992.]
DELTA MOTOR SALES CORPORATION, Plaintiff-Appellee, v. NIU
KIM DUAN and CHAN FUE ENG, Defendants-Appellants.
Francisco C. Bonoan for Plaintiff-Appellee.
Agapito M. Joaquin, for Defendants-Appellants.
SYLLABUS
1. CIVIL LAW; SALES; TREATMENT OF THE INSTALLMENT
PAYMENTS AS RENTALS; STIPULATION IN A CONTRACT THAT
THE INSTALLMENTS PAID SHALL NOT BE RETURNED TO THE
VENDEE HELD VALID PROVIDED IT IS NOT UNCONSCIONABLE.
Defendants-appellants cannot complain that their downpayment of
P774.00 and installment payments of P5,655.92 were treated as rentals
even though the total amount of P6,429,92 which they had paid,
approximates one-third (1/3) of the cost of the three (3) air-conditioners.
A stipulation in a contract that the installments paid shall not be returned
to the vendee is valid insofar as the same may not be unconscionable
under the circumstances is sanctioned by Article 1486 of the New Civil
Code. The monthly installment payable by defendants-appellants was
P774.00. The P5,655.92 installment payments correspond only to seven
(7) monthly installments. Since they admit having used the air-
conditioners for twenty-two (22) months, this means that they did not pay
fifteen (15) monthly installments on the said air-conditioners and were
thus using the same FREE for said period to the prejudice of plaintiff-
appellee. Under the circumstances, the treatment of the installment
payments as rentals cannot be said to be unconscionable.
2. REMEDIES OF THE VENDOR IN A SALE OF PERSONAL
PROPERTY PAYABLE IN INSTALLMENTS; REMEDIES ARE
ALTERNATIVE AND NOT CUMULATIVE. The vendor in a sale of
personal property payable in installments may exercise one of three
remedies, namely, (1) exact the fulfillment of the obligation, should the
1
constituted on the property sold, upon the vendees failure to pay two or
more installments. The third option or remedy, however, is subject to the
limitation that the vendor cannot recover any unpaid balance of the price
and any agreement to the contrary is void (Art. 1484) The three (3)
remedies are alternative and NOT cumulative. If the creditor chooses one
remedy, he cannot avail himself of the other two.
DECISION
NOCON, J.:
Elevated to this Court by the Court of Appeals, in its Resolution of May
20, 1982, on a pure question of law, 1 is the appeal therein by defendants-
appellants, Niu Kim Duan and Chan Fue Eng assailing the trial courts
decision promulgated on October 11, 1977, 2 which ordered them to pay
plaintiff-appellee, Delta Motor Sales Corporation, the amount of
P6,188.29 with a 14% per annum interest which was due on the three (3)
"Daikin" air-conditioners defendants-appellants purchased from plaintiff-
appellee under a Deed of Conditional Sale, after the same was declared
rescinded by the trial court. They were likewise ordered to pay plaintiff-
appellee P1,000.00 for and as attorneys fees.
The events which led to the filing of the case in the lower court were
summarized by the Court of Appeals, as follows:
"On July 5, 1975, the defendants purchased from the plaintiff three (3)
units of DAIKIN air-conditioner all valued at P19,350.00 as evidenced
by the Deed of Conditional Sale, Exhibit A; that the aforesaid deed of sale
had the following terms and conditions:
(a) the defendants shall pay a down payment of P774.00 and the balance
of P18,576.00 shall [be] paid by them in twenty four (24) installments; (b)
the title to the properties purchased shall remain with the plaintiff until the
purchase price thereof is fully paid; (c) if any two installments are not
paid by the defendants on their due dates, the whole of the principal sum
remaining unpaid shall become due, with interest at the rate of 14% per
annum: and (d) in case of a suit, the defendants shall pay an amount
equivalent to 25% of the remaining unpaid obligation as damages, penalty
and attorneys fees; that to secure the payment of the balance of
P18,576.00 the defendants jointly and severally executed in favor of the
plaintiff a promissory note, Exhibit C; that the three (3) air-conditioners
were delivered to and received by the defendants as shown by the delivery
receipt, Exhibit B; that after paying the amount of P6,966.00, the
defendants failed to pay at least two (2) monthly installments; that as of
January 6, 1977, the remaining unpaid obligation of the defendants
amounted to P12,920.08; that statements of accounts were sent to the
defendants and the plaintiffs collectors personally went to the former to
effect collections but they failed to do so; that because of the unjustified
refusal of the defendants to pay their outstanding account and their
wrongful detention of the properties in question, the plaintiff tried to
recover the said properties extra-judicially but it failed to do so; that the
matter was later referred by the plaintiff to its legal counsel for legal
action; that in its verified complaint dated January 28, 1977, the plaintiff
prayed for the issuance of a writ of replevin, which the Court granted in
its Order dated February 28, 1977, after the plaintiff posted the requisite
bond; that on April 11, 1977, the plaintiff, by virtue of the aforesaid writ,
succeeded in retrieving the properties in question: that as of October 3,
1977, the outstanding account of the defendants is only in the amount of
P6,188.29 as shown by the computation, Exhibit F, after deducting the
interests in arrears, cover charges, replevin bond premiums, the value of
the units repossessed and the like; and, that in view of the failure of the
defendants to pay their obligations, the amount of P6,966.00 which had
been paid by way of installments were treated as rentals for the units in
question for two (2) years pursuant to the provisions of paragraph 5 of the
Deed of Conditional Sale, Exhibit A. (pp. 5-7, Record; pp. 4-6,
Appellants Brief)."
As above-stated, the trial court ruled in favor of Plaintiff-Appellee.
Defendants-appellants assail the Deed of Conditional Sale under which
they purchased the three (3) Daikin air-conditioners from plaintiff-
appellee as being contrary to law, morals, good custom, public order or
public policy. In particular, they point to the contracts paragraphs 5 and 7
as iniquitous, which paragraphs state that:
2
"5. Should BUYER fail to pay any of the monthly installments when due,
or otherwise fail to comply with any of the terms and conditions herein
stipulated, this contract shall automatically become null and void and all
sums so paid by BUYER by reason thereof shall be considered as rental
and the SELLER shall then and there be free to take possession thereof
without liability for trespass or responsibility for any article left in or
attached to the PROPERTY:
x x x
"7. Should SELLER rescind this contract for any of the reasons stipulated
in the preceding paragraph, the BUYER, by these presents obligates
himself to peacefully deliver the PROPERTY to the SELLER in case of
rescission, and should a suit be brought in court by the SELLER to seek
judicial declaration of rescission and take possession of the PROPERTY,
the BUYER hereby obligates himself to pay all the expenses to be
incurred by reason of such suit and in addition to pay the sum equivalent
to 25% of the remaining unpaid obligation as damages, penalty and
attorneys fees;" 3
Defendants-appellants claim that for the use of the plaintiff-appellees
three air-conditioners, from July 5, 1975 4 to April 11, 1977, 5 or for a
period of about 22 months, they, in effect, paid rentals in the amount of
P6,429,92, 6 or roughly one-third (1/3) of the entire price of said air-
conditioners which was P19,350.00. They also complain that for the said
period the trial court is ordering them to pay P6,188.29 as the balance due
for the three air-conditioners repossessed. Defendants-appellants were
likewise ordered to pay P1,000.00 as attorneys fees when plaintiff-
appellee never sought for attorneys fees in its complaint. They satirically
pointed out that by putting "a few touches here and there, the same units
can be sold again to the next imprudent customer" 7 by plaintiff-appellee.
Thus, enforcement of the Deed of Conditional Sale will unjustly enrich
plaintiff-appellee at the expense of defendants-appellants.
I
Defendants-appellants cannot complain that their downpayment of
P774.00 and installment payments of P5,655.92 8 were treated as rentals
 even though the total amount of P6,429,92 which they had paid,
approximates one-third (1/3) of the cost of the three (3) air-conditioners.
A stipulation in a contract that the installments paid shall not be returned
to the vendee is valid insofar as the same may not be unconscionable
under the circumstances is sanctioned by Article 1486 of the New Civil
Code. 9 The monthly installment payable by defendants-appellants was
P774.00. 10 The P5,655.92 installment payments correspond only to
seven (7) monthly installments. Since they admit having used the air-
conditioners for twenty-two (22) months, this means that they did not pay
fifteen (15) monthly installments on the said air-conditioners and were
thus using the same FREE for said period to the prejudice of plaintiff-
appellee. Under the circumstances, the treatment of the installment
payments as rentals cannot be said to be unconscionable.
Clearly, plaintiff-appellee chose the second remedy of Article 1484 in
seeking enforcement of its contract with defendants-appellants. This is
shown from the fact that its Exhibit "F" which showed the computation of
the outstanding account of defendants-appellants as of October 3, 1977
took into account " the value of the units repossessed. " Having done so,
it is barred from exacting payment from defendants-appellants of the
balance of the price of the three air-conditioning units which it had
already repossessed. It cannot have its cake and eat it too.
WHEREFORE, the judgment of the trial court in Civil Case No. 25578 is
hereby SET ASIDE and the complaint filed by plaintiff-appellee Delta
Motor Sales Corporation is hereby DISMISSED. No costs.

II SO ORDERED.

The vendor in a sale of personal property payable in installments may Narvasa, C.J., Padilla, Regalado and Melo, JJ., concur.
exercise one of three remedies, namely, (1) exact the fulfillment of the
obligation, should the vendee fail to pay; (2) cancel the sale upon the
vendees failure to pay two or more installments; (3) foreclose the chattel
mortgage, if one has been constituted on the property sold, upon the
vendees failure to pay two or more installments. The third option or
remedy, however, is subject to the limitation that the vendor cannot
recover any unpaid balance of the price and any agreement to the contrary
is void (Art. 1484)

The three (3) remedies are alternative and NOT cumulative. If the creditor
chooses one remedy, he cannot avail himself of the other two.

It is not disputed that the plaintiff-appellee had taken possession of the

three air-conditioners, through a writ of replevin when defendants-
appellants refused to extra-judicially surrender the same. This was done
pursuant to paragraphs 5 and 7 of its Deed of Conditional Sale when
defendants-appellants failed to pay at least two (2) monthly installments,
so much so that as of January 6, 1977, the total amount they owed
plaintiff-appellee, inclusive of interest, was P12,920.08. 12 The case
plaintiff-appellee filed was to seek a judicial declaration that it had validly
rescinded the Deed of Conditional Sale.

3
 stipulated that if default be made in the payment of interest or of any
installment, then the total principal sum still unpaid with interest shall at
once become demandable etc. The spouse failed to meet any installment.
Wherefore, they were sued, in the above Civil Case No. 2942, for the
amount of the promissory note. 1 The spouses defaulted, and the court,
after listening to the Southern Motors' evidence entered Judgment for it in
the total sum of P24,755.75 together with interest at 12 per cent, plus 10
per cent of the total amount due as attorney's fees and costs of collection.

Republic of the Philippines Carrying out the order of execution, the sheriff levied on the same
SUPREME COURT machineries and farm implements which had been bought by the spouses;
Manila and later sold them at public auction to the highest bidder which turned
EN BANC out to be the Southern Motors itself for the total sum of P10,000.

G.R. No. L-10789 May 28, 1957 As its judgment called for much more, the Southern Motors subsequently
asked and obtained, an alias writ of execution; and pursuant thereto, the
AMADOR TAJANLANGIT, ET AL., plaintiff-appellants, provincial sheriff levied attachment on the Tajanlangits' rights and
vs. interests in certain real properties with a view to another sale on
SOUTHERN MOTORS, INC., ET AL., defendants-appellees. execution.

Almacen and Almacen for appellants. To prevent such sale, the Tajanlangits instituted this action in the Iloilo
Diosdado Garingalao for appellees. court of first instance for the purpose among others, of annulling the alias
writ of execution and all proceedings subsequent thereto. Their two main
BENGZON, J.: theories: (1) They had returned the machineries and farm implements to
the Southern Motors Inc., the latter accepted them, and had thereby settled
their accounts; for that reason, said spouses did not contest the action in
The case. Appellants seek to reverse the order of Hon. Pantaleon Pelayo,
Civil Case No. 2942; and (2) as the Southern Motors Inc. had repossessed
Judge of the Iloilo court of first instance refusing to interfere with the
the machines purchased on installment (and mortgaged) the buyers were
alias writ of execution issued in Civil Case No. 2942 pending in another
thereby relieved from further responsibility, in view of the Recto Law,
sala of the same court.
now article 1484 of the New Civil Code.

The facts. In April 1953 Amador Tajanlangit and his wife Angeles,
For answer, the company denied the alleged "settlement and
residents of Iloilo, bought, from the Southern Motors Inc. of Iloilo two
understanding" during the pendency of civil case No. 2949. It also denied
tractors and a thresher. In payment for the same, they executed the
having repossessed the machineries, the truth being that they were
promissory note Annex A whereby they undertook to satisfy the total
attached by the sheriff and then deposited by the latter in its shop for
purchase price of P24,755.75 in several installments (with interest)
safekeeping, before the sale at public auction.
payable on stated dates from May 18, 1953 December 10, 1955. The note

4
The case was submitted for decision mostly upon a stipulation of facts.
Additional testimony was offered together with documentary evidence.
Everything considered the court entered judgment, saying in part;
The proceedings in Civil Case No. 2942 above referred to, were had in
the Court of First Instance (Branch 1) of the Province and of the City of
Iloilo. While this court (Branch IV) sympathizes with plaintiffs, it cannot
grant, in this action, the relief prayed for the complaint because courts of
similar jurisdiction cannot invalidate the judgments and orders of each
other. Plaintiffs have not pursued the proper remedy. This court is without
authority and jurisdiction to declare null and void the order directing the
issuance of aliaswrit of execution because it was made by another court
of equal rank and category (see Cabiao and Izquierdo vs. Del Rosario and
Lim, 44 Phil., 82-186).
WHEREFORE, judgement is hereby rendered dismissing the complaint
with costs against plaintiffs costs against plaintiffs. Let the writ of
preliminiary injunction issued on August 26, 1954, be lifted.
The plaintiffs reasonably brought the matter to the Court of Appeals, but
the latter forwarded the expediente, being of the opinion that the appeal
involved questions of jurisdiction and/or law
Discussion. Appellants' brief elaborately explains in the nine errors
assigned, their original two theories although their "settlement" idea
appears to be somewhat modified.
"What is being sought in this present action" say appellants "is to prohibit
and forbid the appellee Sheriff of Iloilo from attaching and selling at
public auction sale the real properties of appellants because that is now
forbidden by our law after the chattels that have been purchased and duly
mortgagee had already been repossessed by the same vendor-mortgagee
and later on sold at public auction sale and purchased by the same at such
meager sum of P10,000."
"Our law" provides,
5
ART. 1484. In a contract of sale of personal property the price of which is
payable in installments, the vendor may exercise 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. (New Civil Code.)
Appellants would invoke the last paragraph. But there has been no
foreclosure of the chattel mortgage nor a foreclosure sale. Therefore the
prohibition against further collection does not apply.
At any rate it is the actual sale of the mortgaged chattel in accordance
with section 14 Act No. 1508 that would bar the creditor (who chooses to
foreclose) from recovering any unpaid balance. (Pacific Com. Co.vs. De
la Rama, 72 Phil. 380.) (Manila Motor Co. vs. Fernandez, 99 Phil., 782.).
It is true that there was a chattel mortgage on the goods sold. But the
Southern Motors elected to sue on the note exclusively, i.e. to exact
fulfillment of the obligation to pay. It had a right to select among the three
remedies established in Article 1484. In choosing to sue on the note, it
was not thereby limited to the proceeds of the sale, on execution, of the
mortgaged good.2
In Southern Motors Inc. vs. Magbanua, (100 Phil., 155) a similar situation
arose in connection with the purchase on installment of a Chevrolet truck
by Magbanua. Upon the latter's default, suit on the note was filed, and the
truck levied on together with other properties of the debtor. Contending
that the seller was limited to the truck, the debtor obtained a discharge of
the other properties. This court said:
By praying that the defendant be ordered to pay the sum of P4,690
together with the stipulated interest at 12% per annum from 17 March
1954 until fully paid, plus 10 per cent of the total amount due as attorney's
fees and cost of collection, the plaintiff acted to exact the fulfillment of
the obligation and not to foreclosethe mortgage on the truck. . . .
There are other points involved in the case, such as the authority of the
judge of one branch of a court of first instance to enjoin proceedings in
another branch of the same court. As stated, Judge Pelayo refused to
interfere on that ground. Appellants insist this was error on several counts.
We deem it unnecessary to deal with this procedural aspect, inasmuch as
we find that, on the merits, plaintiffs are not entitled to the relief
demanded.

As the plaintiff has chosen to exact the fulfillment of the defendant's Judgment. The decision dismissing the complaint, is affirmed, with costs
obligation, the former may enforce execution of the judgement rendered against appellants. So ordered.
in its favor on the personal and real properties of the latter not exempt
from execution sufficient to satisfy the judgment. That part of the Padilla, Montemayor, Reyes, A., Bautista Angelo, Labrador, Concepcion,
judgement depriving the plaintiff of its right to enforce judgment against Reyes, J.B.L. and Endencia, JJ., concur.
the properties of the defendant except the mortgaged truck and
discharging the writ of attachment on his other properties is erroneous.
(Emphasis ours.)

Concerning their second theory, settlement or cancellation

appellants allege that the very implements sold "were duly returned" by
them, and "were duly received and accepted by the said vendor-
mortgagee". Therefore they argue, "upon the return of the same chattels
and due acceptance of the same by the vendor-mortgagee, the conditional
sale is ipso facto cancelled, with the right of the vendor-mortgagee to
appropriate whatever downpayment and posterior monthly installments
made by the purchaser as it did happen in the present case at bar."

The trouble with the argument is that it assumes that acceptance of the
goods by the Southern Motors Co, with a view to "cancellation" of the
sale. The company denies such acceptance and cancellation, asserting the
goods, were deposited in its shop when the sheriff attached them in
pursuance of the execution. Its assertion is backed up by the sheriff, of
whose credibility there is no reason to doubt. Anyway this cancellation or
settlement theory may not be heeded now, because it would contravene
the decision in Civil Case No. 2942 above-mentioned it would show
the Tajanlangits owned nothing to Southern Motors Inc. Such decision is
binding upon them, unless and until they manage to set it aside in a proper
proceeding and this is not it.

6
 vs.
THE HONORABLE INTERMEDIATE APPELLATE COURT and
INVESTOR'S FINANCE CORPORATIONrespondents.

ESCOLIN, J.:

The issue posed in this petition for review of the decision of the
respondent appellate court is whether a vendor, or his assignee, who had
cancelled the sale of a motor vehicle for failure of the buyer to pay two or
more of the stipulated installments, may also demand payment of the
balance of the purchase price.

The pertinent facts are summarized by the respondent appellate court as

follows:

On June 28, 1976, defendant spouses Restituto Nonato and Ester Nonato
purchased one (1) unit of Volkswagen Sakbayan from the People's Car,
Inc., on installment basis. To secure complete payment, the defendants
executed a promissory note (Exh. A or 1) and a chattel mortgage in favor
of People's Car, Inc, (Exh. B or 2). People's Car, Inc., assigned its rights
and interests over the note and mortgage in favor of plaintiff Investor's
Finance Corporation (FNCB) Finance). For failure of defendants to pay
two or more installments, despite demands, the car was repossessed by
plaintiff on March 20, 1978 (Exh. E or 4).

Despite repossession, plaintiff demanded from defendants that they pay

Republic of the Philippines the balance of the price of the car (Exhs. F and C). Finally, on June 9,
SUPREME COURT 1978, plaintiff filed before the Court of First Instance of Negros
Manila Occidental the present complaint against defendants for the latter to pay
the balance of the price of the car, with damages and attorney's fees.
SECOND DIVISION (Records, pp. 36-37)

G.R. No. L-67181 November 22, 1985
SPOUSES RESTITUTO NONATO and ESTER NONATO,
petitioners,
In their answer, the spouses Nonato alleged by way of defense that when
the company repossessed the vehicle, it had, by that act, effectively
cancelled the sale of the vehicle. It is therefore barred from exacting
recovery of the unpaid balance of the purchase price, as mandated by the

7
provisions of Article 1484 of the Civil Code.
After due hearing, the trial court rendered a decision in favor of the IFC
and against the Nonatos, as follows:
PREMISES CONSIDERED, the Court hereby renders judgment ordering
the defendant to pay to the plaintiff the amount of P 17,537.60 with
interest at the rate of 14% per annum from July 28, 1976 until fully paid,
10% of the amount due as attorney's fees, litigation expenses in the
amount of P 133.05 plus the costs of this suit. No pronouncement as to
other charges and damages, the same not having been proven to the
satisfaction of the Court. 1
On appeal, the respondent appellate court affirmed the j judgment.
Hence, this petition for review on certiorari.
The applicable law in the case at bar, involving as it does a sale of
personal property on installment, is Article 1484 of the Civil Code which
provides:
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.
8
The meaning of the aforequoted provision has been repeatedly enunciated
in a long line of cases. Thus: "Should the vendee or purchaser of a
personal property default in the payment of two or more of the agreed
installments, the vendor or seller has the option to avail of any of these
three remedies-either 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. These remedies have
been recognized as alternative, not cumulative, that the exercise of one
would bar the exercise of the others. 2
It is not disputed that the respondent company had taken possession of the
car purchased by the Nonatos on installments. But while the Nonatos
maintain that the company had, by that act, exercised its option to cancel
the contract of sale, the company contends that the repossession of the
vehicle was only for the purpose of appraising its value and for storage
and safekeeping pending full payment by the Nonatos of the purchasing
price. The company thus denies having exercised its right to cancel the
sale of the repossessed car. The records show otherwise.
The receipt issued by the respondent company to the Nonatos when it
took possession of the vehicle states that the vehicle could be redeemed
within fifteen [151 days. 3 This could only mean that should petitioners
fail to redeem the car within the aforesaid period by paying the balance of
the purchase price, the company would retain permanent possession of the
vehicle, as it did in fact. This was confirmed by Mr. Ernesto Carmona, the
company's witness, who testified, to wit:
ATTY. PAMPLONA:
So that Mr. Witness, it is clear now that, per your receipt and your answer,
the company will not return the unit without paying a sum of money,
more particularly the balance of the account?
WITNESS: Yes, sir. 4
Respondent corporation further asserts that it repossessed the vehicle
merely for the purpose of appraising its current value. The allegation is
untenable, for even after it had notified the Nonatos that the value of the
car was not sufficient to cover the balance of the purchase price, there was
no attempt at all on the part of the company to return the repossessed car,

Indeed, the acts performed by the corporation are wholly consistent with
the conclusion that it had opted to cancel the contract of sale of the
vehicle. It is thus barred from exacting payment from petitioners of the
balance of the price of the vehicle which it had already repossessed. It
cannot have its cake and eat it too. Republic of the Philippines
SUPREME COURT
WHEREFORE, the judgment of the appellate court in CA-G.R. No. Manila
69276-R is hereby set aside and the complaint filed by respondent
Investors Finance Corporation against petitioner in Civil Case No. 13852 SECOND DIVISION
should be, as it is hereby, dismissed. No costs.
G.R. No. L-39806 January 27, 1983
SO ORDERED.
LUIS RIDAD and LOURDES RIDAD, plaintiffs-appellees,
Concepcion, Jr. (Chairman), Abad Santos, Cuevas and Alampay, JJ., vs.
concur. FILIPINAS INVESTMENT and FINANCE CORPORATION, JOSE
D. SEBASTIAN and JOSE SAN AGUSTIN, in his capacity as Sheriff,
defendants-appellants.

Osmundo Victoriano for plaintiffs-appellees.

Wilhelmina V. Joven for defendant-appellants.

DE CASTRO, J:

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.

9
The materials facts of the case appearing on record may be stated as
follows: On April 14, 1964, plaintiffs purchased from the Supreme Sales
arid 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 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 extra-judicially, 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 P8,000 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
10
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.1wph1.t 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).
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 bringing an action against the vendee for the purpose of recovering
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 y 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
11
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
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 present case, the remedy availed of was foreclosure of the chattel
and distinct from those which were sold on installment. This would mortgage.
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 foregoing disposition renders superfluous a determination of the
the thing sold. 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
In the case of Cruz v. Filipinos Investment & Finance Corporation, 23 admittedly held without any notice to the plaintiffs.
SCRA 791, this Court ruled that the vendor of personal property sold on
the installment basis is precluded, after foreclosing the chattel mortgage IN VIEW HEREOF, the judgment appealed from is hereby affirmed, with
on the thing sold from having a recourse against the additional security costs against the appellants.
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 SO ORDERED.
purchase price, said guarantor will in turn be entitled to recover what he
has paid from the debtor-vendee, and ultimately it will be the latter who Makasiar (Chairman), Aquino, Concepcion, Jr., Guerrero, Abad Santos
will be made to bear the payment of the of the balance of the price, and Escolin, JJ., concur.
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 then is actually no
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 Republic of the Philippines
ultimately fall on the vendee himself is concerned. SUPREME COURT
Manila
Reliance on the ruling in Southern Motors, inc. v. Moscoso, 2 SCRA 168,
that in sales on installments, where the action instituted is for and the FIRST DIVISION
mortgaged property is subsequently attached and sold, the sales thereof
does not amount to a foreclosure of the mortgage, hence, the seller G.R. No. L-30583 October 23, 1982
creditor is entitled to a deficiency judgment, does not for the stand of the
appellants for that case is entirely different from the case at bar. In that EUTROPIO ZAYAS, JR., petitioner,
case, the vendor has availed of the first remedy provided by Article 1484 vs.
of the Civil Code, i.e., to exact fulfillment of the obligation whereas in the

12
LUNETA MOTOR COMPANY and HONORABLE JUAN O.
REYES, Presiding Judge of the Court of First Instance of Manila,
Branch XXI, respondents. Payable in 24 months at 12% interest per P7,920.00
annum
Pantaleon Z. Salcedo for petitioner.

Leandro B. Fernandez for respondents.

GUTIERREZ, JR., J.:
Eutropio Zayas, Jr., filed this petition for review by certiorari to secure a
reversal of the respondent court's orders which remanded Civil Case No.
74381 for further proceedings instead of affirming the city court's order of
dismissal,
The petitioner Eutropio Zayas, Jr, purchased on installment basis a motor
vehicle described as ONE (1) UNIT FORD THAMES FREIGHTER
W/PUJ BODY with Engine No. 400E-127738 and Chassis No. 400E-
127738 from Mr. Roque Escao of the Escao Enterprises in Cagayan de
Oro City, dealer of respondent Luneta Motor Company, under the
following terms and conditions:
Selling price P7,500.00
Financing charge P1,426.82
The motor vehicle was delivered to the petitioner who 1) paid the initial
payment in the amount of P1,006.82; and 2) executed a promissory note
in the amount of P7,920.00, the balance of the total selling price, in favor
of respondent Luneta Motor Company. The promissory note stated the
amounts and dates of payment of twenty-six installments covering the
P7,920.00 debt. Simultaneously with the execution of the promissory note
and to secure its payment, the petitioner executed a chattel mortgage on
the subject motor vehicle in favor of the respondent. After paying a total
amount of P3,148.00, the petitioner was unable to pay further monthly
installments prompting the respondent Luneta Motor Company to extra-
judicially foreclose the chattel mortgage (Annex "A" to Answer, Original
Record, p. 10, supra). The motor vehicle was sold at public auction with
the respondent Luneta Motor Company represented by Atty. Leandro B.
Fernandez as the highest bidder in the amount of P5,000.00 (Annex "B"
to Answer, Original Record, p. 11, supra). Since the payments made by
petitioner Eutropio Zayas, Jr. plus the P5,000.00 realized from the
foreclosure of the chattel mortgage could not cover the total amount of the
promissory note executed by the petitioner in favor of the respondent
Luneta Motor Company, the latter filed Civil Case No. 165263 with the
City Court of Manila for the recovery of the balance of P1,551.74 plus
interests.

Luneta Motor Company alleged in its complaint that defendant Eutropio

Zayas, Jr. executed a promissory note in the amount of P7,920.00 in its
Total Selling Price P8,926.82 favor; that out of the P7,920.00, Eutropio Zayas, Jr. had paid only
P6,368.26 plus interest up to the date of the sale at public auction of the
motor vehicle; that the balance of P1,551.74 plus interest of 12% thereon
from that date had already become due and payable but despite repeated
Payable on Delivery P1,006.82
demands to pay the same, Eutropio Zayas, Jr., refused and failed to pay.

13
In his answer with affirmative defenses and counterclaim, Eutropio Zayas,
Jr. admitted having executed the promissory note for the monthly
payments, on a Ford Thames vehicle bearing Engine No. 400E-127738
which he purchased from the Luneta Motor Company but he denied his
alleged outstanding liability of P1,551.74 plus interest thereon ... the said
obligation if there was any, had already been discharged either by
payment or by sale in public auction of the said motor vehicle as
evidenced by a Notice of Sale marked as Annex "A" and Certificate of
Sale marked as Annex "B"; (Answer, p. 7, Original Record). He alleged as
affirmative defenses, among others: 1) that the plaintiff has no cause of
action against him; and 2) that pursuant to Article 1484 of the New Civil
Code and the case of Pacific Commercial Co. v. De La Rama, (72 Phil.
380) his obligation per the promissory note was extinguished by the sale
at public auction of the motor vehicle, the subject of the chattel mortgage
which was executed by him in favor of the plaintiff as security for the
payment of said promissory note. (Answer, p. 8, Original Record)
In its Reply, Luneta Motor Company denied the applicability of Article
1484 of the Civil Code ... for the simple reason that the contract involved
between the parties is not one for a sale on installment" (Reply, p. 13,
Original Record).
After several postponements, the case was set for hearing. As a result of
the non- appearance of the plaintiff and its counsel on the date set for
hearing, defendant Zayas, Jr. moved to have the case dismissed for lack of
interest on the part of the plaintiff. He also asked the court to allow him to
discuss the merits of his affirmative defense as if a motion to dismiss had
been filed. The issue raised and argued by the defendant was whether or
not a deficiency amount after the motor vehicle, subject of the chattel
mortgage, has been sold at public auction could still be recovered. Zayas
cited the case of Ruperto Cruz v. Filipinas Investment (23 SCRA
791).<re||an1w>
Acting on the motion, the city court issued an Order:
On Petition of counsel for the defendant for the dismissal of this case on
the ground that the defendant is no longer liable for the deficiency
14
judgment inas much as the chattel mortgage has been foreclosed, with the
plaintiff as the highest bidder thereof, citing the case of Ruperto G. Cruz
v. Filipinas Investmentdecided on May 27, 1968, G.R. No. L-24772 in
connection with Article 1484 of the Civil Code, and finding the same well
taken.
Let this case be dismissed without pronouncement as to costs.
Luneta Motor Company filed an "Urgent Motion for Reconsideration"
reiterating its stand that Article 1484 of the New Civil Code on sale of
personal property by installment was not applicable and that the contract
involving the parties was a mere case of an ordinary loan secured by
chattel mortgage. According to the plaintiff, the defendant executed the
promissory note and chattel mortgage to secure the plaintiff's interest for
having financed the purchase of the motor vehicle by the defendant from
the Escao Enterprises of Cagayan de Oro City, an entity entirely different
and distinct from the plaintiff corporation (p. 33, Original Record).
The court denied the motion for reconsideration for lack of merit.
Luneta Motor Company appealed the case to the Court of First Instance of
Manila where it was docketed as Civil Case No. 74381.
After various incidents, the respondent court issued an order which, in
part, reads:
This is an appeal taken by plaintiff from the order of the City Court of
Manila, dismissing its complaint on the ground that the defendant is no
longer liable for the deficiency judgment inasmuch as the chattel
mortgage has been foreclosed, with the plaintiff as the highest bidder
thereof, in line with the ruling of the Supreme Court in the case of
Ruperto G. Cruz v. Filipinas Investment (G.R. No. L24772) in connection
with Article 1484 of the Civil Code.
xxx xxx xxx
After going over the pleadings in this case, more particularly the
complaint and the answer to the complaint filed with the City Court of
Manila, this Court is of the impression that the case at bar may not be
decided merely, as the City Court had done, on the question of law since
the presentation of evidence is necessary to adjudicate the questions
involved. WHEREFORE, this case is hereby remanded to the court of
origin for further proceedings. (pp. 82-83, Original Record)
Hence, this petition.
Petitioner Eutropio Zayas, Jr. now maintains::
That Respondent Court of First Instance erred:
1. IN HOLDING THAT THE QUESTION OF LAW CANNOT BE
DECIDED SINCE PRESENTATION OF EVIDENCE IS NECESSARY-
REGARDING THE QUESTION OF RECOVERY OF THE
DEFICIENCY AMOUNT IN A CHATTEL MORTGAGE AFTER
SELLING IT IN A PUBLIC AUCTION;
petitioner Eutropio Zayas, Jr. In short, respondent Luneta Motor Company
maintains that the contract between the company and the petitioner was
only an ordinary loan removed from the coverage of Article 1484 of the
New Civil Code.
The respondent's arguments have no merit.
The Escao Enterprises of Cagayan de Oro City was an agent of Luneta
Motor Company. A very significant evidence which proves the nature of
the relationship between Luneta Motor Company and Escao Enterprises
is Annex "A. of the petitioner's OPPOSITION TO URGENT MOTION
FOR RECONSIDERATION. (Original Record, p. 36) Annex "A" is a
Certification from the cashier of Escano Enterprises on the monthly
installments paid by Mr. Eutropio Zayas, Jr. In the certification, the
promissory note in favor of Luneta Motor Company was specifically
mentioned. There was only one promissory note executed by Eutropio
Zayas, Jr. in connection with the purchase of the motor vehicle. The
promissory note mentioned in the certification refers to the promissory
note executed by Eutropio Zayas, Jr. in favor of respondent Luneta Motor
Company. Thus:

2. IN ORDERING THE REMAND OF THE CASE TO THE CITY C E RT I F I CATI O N

COURT FOR FURTHER PROCEEDINGS TAKEN BY THE
RESPONDENT FROM THE CITY COURT TO THE COURT OF FIRST
INSTANCE, BRANCH XXI, MANILA; and This is to certify that Mr. EUTROPIO ZAYAS, JR. has paid from us the
following, of his FORD THAMES BEARING Engine No. 400E-127738,
promissory note dated October 6, 1966. Viz:
3. IN NOT DISMISSING THE APPEAL TAKEN BY THE PRIVATE
RESPONDENT FROM THE CITY COURT TO THE COURT OF FIRST
INSTANCE. ESCAO O.R No. DATE RECEIVED AMOUNT
09998 October 5, 1966 P1,000.00
The main defense of respondent Luneta Motor Company is that Escano
Enterprises, Cagayan de Oro City from which petitioner Eutropio Zayas, 10064 October 20, 1966 242.00
Jr. purchased the subject motor vehicle was a distinct and different entity;
10188 November 8, 1966 166.00
that the role of Luneta Motor Company in the said transaction was only to
finance the purchase price of the motor vehicle; and that in order to 10355 December 12,1966 400.00
protect its interest as regards the promissory note executed in its favor, a
chattel mortgage covering the same motor vehicle was also executed by LMC C.R. #40031 January 19, 1967 270.00

15
 10536 February 1, 1967 60.00 ART. 1484. In a contract of sale of personal property the price of which is
10645 February 27, 1967 100.00 payable in installments, the vendor may exercise any of the following
10704 March 13,1967 100.00 remedies:
10749 March 22, 1967 60.00
10132 March 30,1967 100.00 xxx xxx xxx

10788 April 8, 1967 100.00

xxx xxx xxx
10795 April 11, 1967 100.00
10827 April 18, 1967 100.00 (3) Foreclose the chattel ;mortgage on the thing sold, if one has been
10934 May 10, 1967 100.00 constituted, should the vendee's failure to pay cover two or more
installments. In this case, he shall have no further action against the
10991 May 26,1967 100.00
11105 June 19,1967 150.00 purchaser to recover any unpaid balance of the price. Any agreement to
P 3,148.00 the contrary shall be void.
ESCAO ENTERPRISES
(SGD.) EMELITA H. BACULIO xxx xxx xxx
Cashier
... the established rule is to the effect that the foreclosure and actual sale
Escano Enterprises, a dealer of respondent Luneta Motor Company, was of a mortgaged chattel bars further recovery by the vendor of any balance
merely a collecting-agent as far as the purchase of the subject motor on the purchaser's outstanding obligation not so satisfied by the sale. And
vehicle was concerned. The principal and agent relationship is clear. the reason for this doctrine was aptly stated in the case of Bachrach
Motor Co. vs. Millan, supra, thus:
But even assuming that the "distinct and independent entity" theory of the
private respondent is valid, the nature of the transaction as a sale of Undoubtedly the principal object of the above amendment was to remedy
personal property on installment basis remains. When, therefore, Escao the abuses committed in connection with the foreclosure of chattel
Enterprises, assigned its rights vis-a-vis the sale to respondent Luneta mortgages. This amendment prevents mortgagees from seizing the
Motor Company, the nature of the transaction involving Escano mortgaged property, buying it at foreclosure sale for a low price and then
Enterprises and Eutropio Zayas, Jr. did not change at all. As assignee, bringing suit against the mortgagor for a deficiency judgment. The almost
respondent Luneta Motor Company had no better rights than assignor invariable result of this procedure was that the mortgagor found himself
Escao Enterprises under the same transaction. The transaction would still minus the property and still owing practically the full amount of his
be a sale of personal property in installments covered by Article 1484 of original indebtedness. Under this amendment the vendor of personal
the New Civil Code. To rule otherwise would pave the way for subverting property, the purchase price of which is payable in installments, has the
the policy underlying Article 1484 of the New Civil Code, on the right to cancel the sale or foreclose the mortgage if one has been given on
foreclosure of chattel mortgages over personal property sold on the property. Whichever right the vendor elects he need not return to the
installment basis. purchaser the amount of the installments already paid, "if there be an
agreement to that effect". Furthermore, if the vendor avails himself of the

16
right to foreclose the mortgage this amendment prohibits him from
bringing an action against the purchaser for the unpaid balance. (Cruz v.
Filipinas Investment & Finance Corporation, 23 SCRA 791)

Our findings and conclusions are borne out by the records available to the
respondent court. There was no necessity for the remand of records to the
city court for the presentation of evidence on the issue raised in the case.

WHEREFORE, the instant petition is hereby granted. The orders

remanding the case to the court of origin and denying the motion for
reconsideration of the Court of First Instance of Manila, Branch XXI
issued in Civil Case No. 74381 are annulled. Accordingly, the Court of
First Instance of Manila, Branch XXI is directed to dismiss the appeal in
Civil Case No. 74381. The Order of the City Court of Manila dismissing
the complaint in Civil Case No. 165263 is affirmed.

SO ORDERED.

Teehankee (Chairman), Melencio-Herrera, Plana, Vasquez and Relova,

JJ., concur.

17
 Court of First Instance of Manila, Branch XXII, in its Civil Case No.
66199, ordering the plaintiff to pay defendant Casiano Sapinoso the sum
of P1,250.00.

The facts of this case are as follows:

On June 4, 1965, Casiano Sapinoso purchased from Northern Motors, Inc.

an Opel Kadett car for the price of P12,171.00, making a down payment
and executing a promissory note for the balance of P10,540.00 payable in
installments with interest at 12% per annum, as follows: P361.00 on July
5, 1965, and P351.00 on the 5th day of each month beginning August,
1965, up to and including December, 1967. To secure the payment of the
promissory note, Sapinoso executed in favor of Northern Motors, Inc. a
chattel mortgage on the car. The mortgage contract provided, among
Republic of the Philippines others, that upon default by the mortgagor in the payment of any part of
SUPREME COURT the principal or interest due, the mortgagee may elect any of the following
Manila remedies: (a) sale of the car by the mortgagee; (b) cancellation of the
contract of sale; (c) extrajudicial foreclosure; (d) judicial foreclosure; (e)
EN BANC ordinary civil action to exact fulfillment of the mortgage contract. It was
further stipulated that "[w]hichever remedy is elected by the mortgagee,
the mortgagor expressly waives his right to reimbursement by the
mortgagee of any and all amounts on the principal and interest already
paid by him."
G.R. No. L-28074 May 29, 1970
Sapinoso failed to pay the first installment of P361.00 due on July 5,
NORTHERN MOTORS, INC., plaintiff-appellant, 1965, and the second, third, fourth and fifth installments of P351.00 each
vs. due on the 5th day of August, September, October and November, 1965,
CASIANO SAPINOSO and "JOHN DOE", defendants-appellees. respectively. Several payments were, however, made by Sapinoso, to wit:
P530.52 on November 21, 1965, P480.00 on December 21, 1965, and
Sycip, Salazar, Luna, Manalo & Feliciano for plaintiff-appellant. P400.00 on April 30, 1966. The first and third payments aforesaid were
applied to accrued interest up to April 17, 1966, while the second payment
David F. Barrera for defendants-appellees. was applied partly (P158.10) to interest, and partly (P321.90) to the
principal, thereby reducing the balance unpaid to P10,218.10.
VILLAMOR, J.:
The vendee-mortgagor having failed to make further payments, Northern
Motors, Inc. filed the present complaint on July 22, 1966, against
Direct appeal on questions of law from the portion of the judgment of the Sapinoso and a certain person whose name, identity and address were still

18
unknown to the plaintiff, hence denominated in the complaint as "John
Doe." In its complaint, Northern Motors, Inc. stated that it was availing
itself of the option given it under the mortgage contract of extrajudicially
foreclosing the mortgage, and prayed that a writ of replevin be issued
upon its filing of a bond for the seizure of the car and for its delivery to it;
that after hearing, the plaintiff be adjudged to have the rightful possession
and ownership of the car; that in default of delivery, the defendants be
ordered to pay the plaintiff the sum of P10,218.10 with interest, at 12%
per annum from April 18, 1966, until full payment of the said sum, as
well as an amount equivalent to 25% of the sum due as and for attorney's
fees and expenses of collection, and the costs of the suit. Plaintiff also
prayed for such other remedy as might be deemed just and equitable in
the premises.
Subsequent to the commencement of the action, but before the filing of
his answer, defendant Sapinoso made two payments on the promissory
note, the first on August 22, 1966, for P500.00, and the second on
September 27, 1966, for P750.00. In the meantime, on August 9, 1966,
upon the plaintiff's filing of a bond, a writ of replevin was issued by the
court. On October 20, 1966, copies of the summons, complaint and
annexes thereto were served on defendant Sapinoso by the sheriff who
executed the seizure warrant by seizing the car from defendant Sapinoso
on the same date, and turning over its possession to the plaintiff on
October 25, 1966.
On November 12, 1966, defendant Sapinoso filed an answer admitting the
allegations in the complaint with respect to the sale to him of the car, the
terms thereof, the execution of the promissory note and of the chattel
mortgage contract, and the options open to the plaintiff under the said
contract. He alleged, however, that he had paid the total sum of
P4,230.52, leaving a balance of only P5,987.58; that upon demand he
immediately surrendered the possession of the car to the plaintiff's
representative; and that the value of the car was only about P5,000.00,
and not P10,000.00 as alleged in the complaint. As special defenses the
said defendant alleged that he failed to pay the installments due because
the car was defective, and the plaintiff failed to have it fixed although he
had repeatedly called the plaintiff's attention thereto, hence, the defendant
had to procrastinate in his payments in order to move the plaintiff to
19
repair the car; and that although the car could not be used, he paid
P700.00 to the plaintiff upon the latter's assurance that the car would be
fixed, but that instead of having the car fixed, the plaintiff, in bad faith,
filed the present complaint. The defendant prayed that the complaint be
dismissed and that the plaintiff be ordered to return the car to him. He
stated in his prayer that he would be very much willing to pay the car in a
compromise agreement between him and the plaintiff.
After trial, the court a quo, in its decision dated April 4, 1967, held that
defendant Sapinoso having failed to pay more than two (2) installments,
plaintiff-mortgagee acquired the right to foreclose the chattel mortgage,
which it could avail of as it has done in the present case by filing an
action of replevin to secure possession of the mortgaged car as a
preliminary step to the foreclosure sale contemplated in the Chattel
Mortgage Law; and that the foreclosure of the chattel mortgage and the
recovery of the unpaid balance of the price are alternative remedies which
may not be pursued conjunctively, so that in availing itself of its right to
foreclose the chattel mortgage, the plaintiff thereby renounced whatever
claim it may have had on the promissory note, and, therefore, the plaintiff
has no more right to the collection of the attorney's fees stipulated in the
promissory note, and should return to defendant Sapinoso the sum of
P1,250.00 which the plaintiff had received from the latter after having
filed the present case on July 22, 1966, and elected to foreclose the chattel
mortgage. The dispositive portion of the decision reads:
WHEREFORE, the Court finds that the plaintiff has the right to the
possession of the OPEL KADETT two-door station wagon Model 3464-
91.5, with engine No.
10-0354333, and the delivery thereof to the plaintiff is hereby ratified and
confirmed but said party is sentenced to pay to the defendant the sum of
P1,250, with legal interest on P500 from August 22, 1966 and or P750
from September 27, 1966, until fully paid, without any pronouncement as
to costs.
In this appeal plaintiff-appellant claims that the court a quo erred in
ordering it to reimburse to defendant-appellee Sapinoso the sum of
P1,250.00 which the latter had paid. It contends that under Article 1484 of
the Civil Code it is the exercise, not the mere election, of the remedy of foreclosure sale resulting in a deficiency. The payment of the sum of
foreclosure that bars the creditor from recovering the unpaid balance of P1,250.00 by defendant-appellee Sapinoso was a voluntary act on his part
the debt; that what the said Article 1484 prohibits is "further action" to and did not result from a "further action" instituted by plaintiff-appellant.
collect payment of the deficiency after the creditor has foreclosed the If the mortgage creditor, before the actual foreclosure sale, is not
mortgage; and that in paying plaintiff-appellant the sum of P1,250.00 precluded from recovering the unpaid balance of the price although he has
before defendant-appellee Sapinoso filed his answer, and in not filing a filed an action of replevin for the purpose of extrajudicial foreclosure, or
counterclaim for the recovery thereof, the said defendant-appellee in if a mortgage creditor who has elected to foreclose but who subsequently
effect renounced whatever right he might have had to recover the said desists from proceeding with the auction sale, without gaining any
amount. advantage or benefit, and without causing any disadvantage or harm to the
vendee-mortgagor, is not barred from suing on the unpaid account
The appeal is meritorious. (Radiowealth, Inc. vs. Lavin, et al., G.R. No. L-18563, April 27, 1963 [7
SCRA 804, 807]), there is no reason why a mortgage creditor should be
barred from accepting, before a foreclosure sale, payments voluntarily
In issuing a writ of replevin, and, after trial, in upholding plaintiff- tendered by the debtor-mortgagor who admits a subsisting indebtedness.
appellant's right to the possession of the car, and ratifying and confirming
its delivery to the said plaintiff-appellant, the court below correctly
considered the action as one of replevin to secure possession of the PREMISES CONSIDERED, the judgment appealed from is modified by
mortgaged vehicle as a preliminary step to this foreclosure sale setting aside the portion thereof which orders plaintiff-appellant to pay
contemplated in Section 14 of Act No. 1508 (Bachrach Motor Co. vs. defendant-appellee Sapinoso the sum of P1,250.00, with costs in this
Summers, 42 Phil., 3; Seo vs. Pestolante, G.R. No. L-11755, April 23, instance against the said defendant-appellee.
1958). The said court however erred in concluding that the legal effect of
the filing of the action was to bar plaintiff-appellant from accepting Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Fernando
further payments on the promissory note. That the ultimate object of the and Teehankee, JJ., concur.
action is the foreclosure of the chattel mortgage, is of no moment, for it is
the fact of foreclosure and actual sale of the mortgaged chattel that bar Barredo, J., concurs in the result.
further recovery by the vendor of any balance on the purchaser's
outstanding obligation not satisfied by the sale. (Manila Motor Co., Inc.
vs. Fernandez, 99 Phil., 782, 786; Bachrach Motor Co. vs. Millan, 61 Castro, J., is on leave.
Phil., 409; Manila Trading & Supply Co. vs. Reyes, 62 Phil. 461, 471;
Cruz et al. vs. Filipinas Investment & Finance Corporation, G.R. No. L-
24772, May 27, 1968 [23 SCRA 791, 796].) In any event, what Article
1484(3) prohibits is "further action against the purchaser to recover any
unpaid balance of the price;" and although this Court has construed the
word "action" in said Article 1484 to mean "any judicial or extrajudicial
proceeding by virtue of which the vendor may lawfully be enabled to
exact recovery of the supposed unsatisfied balance of the purchase price
from the purchaser or his privy" (Cruz, et al. vs. Filipinas Investment &
Finance Corporation, supra), there is no occasion at this stage to apply the
restrictive provision of the said article, because there has not yet been a

20
 RUPERTO G. CRUZ, ET AL., plaintiffs-appellees,
vs.
FILIPINAS INVESTMENT and FINANCE CORPORATION,
defendant-appellant.

Villareal, Almacen, Navarra and Associates for plaintiffs-appellees.

Sycip, Salazar, Luna, Manalo and Feliciano for defendant-appellant.

REYES, J.B.L., J.:

Appeal interposed by Filipinas Investment & Finance Corporation from

the decision of the Court of First Instance of Rizal (Quezon City) in Civil
Case No. Q-7949.1vvphi1.nt

In the action commenced by Ruperto G. Cruz and Felicidad V. Vda. de

Reyes in the Court of First Instance of Rizal (Civil Case No. Q-7949), for
cancellation of the real estate mortgage constituted on the land of the
latter 1 in favor of defendant Filipinas Investment & Finance Corporation
(as assignee of the Far East Motor Corporation), the parties submitted the
case for decision on the following stipulation of facts:

1. Their personal circumstances and legal capacities to sue and be sued;

2. That on July 15, 1963, plaintiff Ruperto G. Cruz purchased on

installments, from the Far East Motor Corporation, one (1) unit of Isuzu
Diesel Bus, described in the complaint, for P44,616.24, Philippine
Currency, payable in installments of P1,487.20 per month for thirty (30)
Republic of the Philippines months, beginning October 22, 1963, with 12 % interest per annum, until
SUPREME COURT fully paid. As evidence of said indebtedness, plaintiff Cruz executed and
Manila delivered to the Far East Motor Corporation a negotiable promissory note
in the sum of P44,616.24, ...;
EN BANC
3. That to secure the payment of the promissory note, Annex "A", Cruz
executed in favor of the seller, Far East Motor Corporation, a chattel
G.R. No. L-24772 May 27, 1968 mortgage over the aforesaid motor vehicle...;

21
4. That as no down payment was made by Cruz, the seller, Far East Motor
Corporation, on the very improvements thereon, in San Miguel,
Bulacan...; same date, July 15, 1963, required and Cruz agreed to give,
additional security for his obligation besides the chattel mortgage, Annex
"B"; that said additional security was given by plaintiff Felicidad Vda. de
Reyes in the form of SECOND MORTGAGE on a parcel of land owned
by her, together with the building and
5. That said land has an area of 68,902 square meters, more or less, and
covered by Transfer Certificate of Title No. 36480 of the Registry of
Deeds of Bulacan in the name of plaintiff Mrs. Reyes; and that it was at
the time mortgaged to the Development Bank of the Philippines to secure
a loan of P2,600.00 obtained by Mrs. Reyes from that bank;
6. That also on July 15, 1963, the Far East Motor Corporation for value
received indorsed the promissory note and assigned all its rights and
interest in the Deeds of Chattel Mortgage and in the Deed of Real Estate
Mortgage (Annexes "A", "B" and "B-l") to the defendant, Filipinas
Investment & Finance Corporation, with due notice of such assignment to
the plaintiffs...;
7. That plaintiff Cruz defaulted in the payment of the promisory note
(Annex "A") ; that the only sum ever paid to the defendant was Five
Hundred Pesos (P500.00) on October 2, 1963, which was applied as
partial payment of interests on his principal obligation; that,
notwithstanding defendant's demands, Cruz made no payment on any of
the installments stipulated in the promissory note;
8. That by reason of Cruz's default, defendant took steps to foreclose the
chattel mortgage on the bus; that said vehicle had been damaged in an
accident while in the possession of plaintiff Cruz;
9. That at the foreclosure sale held on January 31, 1964 by the Sheriff of
Manila, the defendant was the highest bidder, defendant's bid being for
Fifteen Thousand Pesos (P15,000.00)...;
22
10. That the proceeds of the sale of the bus were not sufficient to cover
the expenses of sale, the principal obligation, interests, and attorney's fees,
i.e., they were not sufficient to discharge fully the indebtedness of
plaintiff Cruz to the defendant;
11. That on February 12, 1964, preparatory to foreclosing its real estate
mortgage on Mrs. Reyes' land, defendant paid the mortgage indebtedness
of Mrs. Reyes to the Development Bank of the Philippines, in the sum of
P2,148.07, the unpaid balance of said obligation...;
12. That pursuant to a provision in the real estate mortgage contract,
authorizing the mortgagee to foreclose the mortgage judicially or extra-
judicially, defendant on February 29, 1964 requested the Provincial
Sheriff of Bulacan to take possession of, and sell, the land subject of the
Real Estate Mortgage, Annex "B-1", to satisfy the sum of P43,318.92, the
total outstanding obligation of the plaintiffs to the defendant, as itemized
in the Statement of Account, which is made a part hereof as Annex "F"...;
13. That notices of sale were duly posted and served to the Mortgagor,
Mrs. Reyes, pursuant to and in compliance with the requirements of Act
3135...;
14. That on March 20, 1964, plaintiff Reyes through counsel, wrote a
letter to the defendant asking for the cancellation of the real estate
mortgage on her land, but defendant did not comply with such demand as
it was of the belief that plaintiff's request was without any legal basis;
15. That at the request of the plaintiffs, the provincial Sheriff of Bulacan
held in abeyance the sale of the mortgaged real estate pending the result
of this action.
Passing upon the issues which, by agreement of the parties, were limited
to (1) "Whether defendant, which has already extrajudicially
foreclosed the chattel mortgage executed by the buyer, plaintiff Cruz, on
the bus sold to him on installments, may also extrajudicially foreclose the
real estate mortgage constituted by plaintiff Mrs. Reyes on her own land,
as additional security, for the payment of the balance of Cruz' Obligation,
still remaining unpaid"; and (2) whether or not the contending parties are
entitled to attorney's fees the court below, in its decision of April 21,
1965, sustained the plaintiffs' stand and declared that the extrajudicial
foreclosure of the chattel mortgage on the bus barred further action
against the additional security put up by plaintiff Reyes. Consequently,
the real estate mortgage constituted on the land of said plaintiff was
ordered cancelled and defendant was directed to pay the plaintiffs
attorney's fees in the sum of P200.00. Defendant filed the present appeal
raising the same questions presented in the lower court.
There is no controversy that, involving as it does a sale of personal
property on installments, the pertinent legal provision in this case is
Article 1484 of the Civil Code of the Philippines, 2 which reads:
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.
The aforequoted provision is clear and simple: should the vendee or
purchaser of a personal property default in the payment of two or more of
the agreed installments, the vendor or seller has the option to avail of any
one of these three remedies either 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. These remedies have
23
been recognized as alternative, not cumulative, 3 that the exercise of one
would bar the exercise of the others. 4 It may also be stated that the
established rule is to the effect that the foreclosure and actual sale of a
mortgaged chattel bars further recovery by the vendor of any balance on
the purchaser's outstanding obligation not so satisfied by the sale. 5 And
the reason for this doctrine was aptly stated in the case of Bachrach
Motor Co. vs. Millan, supra, thus:
Undoubtedly the principal object of the above amendment 6 was to
remedy the abuses committed in connection with the foreclosure of
chattel mortgages. This amendment prevents 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. The almost
invariable result of this procedure was that the mortgagor found himself
minus the property and still owing practically the full amount of his
original indebtedness. Under this amendment the vendor of personal
property, the purchase price of which is payable in installments, has the
right to cancel the sale or foreclose the mortgage if one has been given on
the property. Whichever right the vendor elects he need not return to the
purchaser the amount of the installments already paid, "if there be in
agreement to that effect". Furthermore, if the vendor avails himself of the
right to foreclose the mortgage the amendment prohibits him from
bringing an action against the purchaser for the unpaid balance.
It is here agreed that plaintiff Cruz failed to pay several installments as
provided in the contract; that there was extrajudicial foreclosure of the
chattel mortgage on the said motor vehicle; and that defendant-appellant
itself bought it at the public auction duly held thereafter, for a sum less
than the purchaser's outstanding obligation. Defendant-appellant,
however, sought to collect the supported deficiency by going against the
real estate mortgage which was admittedly constituted on the land of
plaintiff Reyes as additional security to guarantee the performance of
Cruz' obligation, claiming that what is being withheld from the vendor, by
the proviso of Article 1484 of the Civil Code, is only the right to recover
"against the purchaser", and not a recourse to the additional security put
up, not by the purchaser himself, but by a third person.
There is no merit in this contention. To 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.
Neither is there validity to appellant's allegation that, since the law speaks
of "action", the restriction should be confined only to the bringing of
judicial suits or proceedings in court.
The word "action" is without a definite or exclusive meaning. It has been
invariably defined as
... the legal demand of one's right, or rights; the lawful demand of one's
rights in the form given by law; a demand of a right in a court of justice;
the lawful demand of one's right in a court of justice; the legal and formal
demand of ones rights from another person or party, made and insisted on
in a court of justice; a claim made before a tribunal; an assertion in a court
of justice of a right given by law; a demand or legal proceeding in a court
of justice to secure one's rights; the prosecution of some demand in a
court of justice; the means by which men litigate with each other; the
means that the law has provided to put the cause of action into effect;....
(Gutierrez Hermanos vs. De la Riva, 46 Phil. 827, 834-835).
of attorney's fees to the plaintiff's in the sum of P200.00 is reasonable and
in order.
However, we find merit in appellant's complaint against the trial court's
failure to order the reimbursement by appellee Vda. de Reyes of the
amount which the former paid to the Development Bank of the
Philippines, for the release of the first mortgage on the land of said
appellee. To the extent that she was benefited by such payment, plaintiff-
appellee Vda. de Reyes should have been required to reimburse the
appellant.
WHEREFORE, the decision appealed from is modified, by ordering
plaintiff-appellee Felicidad Vda. de Reyes to reimburse to defendant-
appellant Filipinas Investment & Finance Corporation the sum of
P2,148.07, with legal interest thereon from the finality of this decision
until it is fully paid. In all other respects, the judgment of the court below
is affirmed, with costs against the defendant-appellant.
Concepcion, C.J., Dizon, Makalintal, Zaldivar, Sanchez, Castro and
Angeles, JJ., concur.
Fernando, J., is on leave.

Considering the purpose for which the prohibition contained in Article

1484 was intended, the word "action" used therein may be construed as
referring to any judicial or extrajudicial proceeding by virtue of which the
vendor may lawfully be enabled to exact recovery of the supposed
unsatisfied balance of the purchase price from the purchaser or his privy.
Certainly, an extrajudicial foreclosure of a real estate mortgage is one
such proceeding.

The provision of law and jurisprudence on the matter being explicit, so

that this litigation could have been avoided, the award by the lower court

24
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. L-57552 October 10, 1986

LUISA F. MCLAUGHLIN, petitioner,

vs.
THE COURT OF APPEALS AND RAMON FLORES, respondents.

R.C. Domingo Jr. & Associates for private respondent.

FERIA, Actg. C.J.

This is an appeal by certiorari from the decision of the Court of Appeals,

the dispositive part of which reads as follows:

IN VIEW OF THE FOREGOING PREMISES, the petition for certiorari

and mandamus is hereby GRANTED and the Orders of respondent court
dated November 21 and 27 both 1980 are hereby nullified and set aside
and respondent Judge is ordered to order private respondent to accept
petitioner's Pacific Banking Corporation certified manager's Check No.
MC-A-000311 dated November 17, 1980 in the amount of P76,059.71 in
full settlement of petitioner's obligation, or another check of equivalent

25
kind and value, the earlier check having become stale.
On February 28, 1977, petitioner Luisa F. McLaughlin and private
respondent Ramon Flores entered into a contract of conditional sale of
real property. Paragraph one of the deed of conditional sale fixed the total
purchase price of P140,000.00 payable as follows: a) P26,550.00 upon the
execution of the deed; and b) the balance of P113,450.00 to be paid not
later than May 31, 1977. The parties also agreed that the balance shall
bear interest at the rate of 1% per month to commence from December 1,
1976, until the full purchase price was paid.
On June 19, 1979, petitioner filed a complaint in the then Court of First
Instance of Rizal (Civil Case No. 33573) for the rescission of the deed of
conditional sale due to the failure of private respondent to pay the balance
due on May 31, 1977.
On December 27, 1979, the parties submitted a Compromise Agreement
on the basis of which the court rendered a decision on January 22, 1980.
In said compromise agreement, private respondent acknowledged his
indebtedness to petitioner under the deed of conditional sale in the
amount of P119,050.71, and the parties agreed that said amount would be
payable as follows: a) P50,000.00 upon signing of the agreement; and b)
the balance of P69,059.71 in two equal installments on June 30, 1980 and
December 31, 1980.
As agreed upon, private respondent paid P50,000.00 upon the signing of
the agreement and in addition he also paid an "escalation cost" of
P25,000.00.
Under paragraph 3 of the Compromise Agreement, private respondent
agreed to pay one thousand (P l,000.00) pesos monthly rental beginning
December 5, 1979 until the obligation is duly paid, for the use of the
property subject matter of the deed of conditional sale.
Paragraphs 6 and 7 of the Compromise Agreement further state:
26
That the parties are agreed that in the event the defendant (private
respondent) fails to comply with his obligations herein provided, the
plaintiff (petitioner) will be entitled to the issuance of a writ of execution
rescinding the Deed of Conditional Sale of Real Property. In such
eventuality, defendant (private respondent) hereby waives his right to
appeal to (from) the Order of Rescission and the Writ of Execution which
the Court shall render in accordance with the stipulations herein provided
for.
That in the event of execution all payments made by defendant (private
respondent) will be forfeited in favor of the plaintiff (petitioner) as
liquidated damages.
On October 15, 1980, petitioner wrote to private respondent demanding
that the latter pay the balance of P69,059.71 on or before October 31,
1980. This demand included not only the installment due on June 30,
1980 but also the installment due on December 31, 1980.
On October 30, 1980, private respondent sent a letter to petitioner
signifying his willingness and intention to pay the full balance of
P69,059.71, and at the same time demanding to see the certificate of title
of the property and the tax payment receipts.
Private respondent states on page 14 of his brief that on November 3,
1980, the first working day of said month, he tendered payment to
petitioner but this was refused acceptance by petitioner. However, this
does not appear in the decision of the Court of Appeals.
On November 7, 1980, petitioner filed a Motion for Writ of Execution
alleging that private respondent failed to pay the installment due on June
1980 and that since June 1980 he had failed to pay the monthly rental of P
l,000.00. Petitioner prayed that a) the deed of conditional sale of real
property be declared rescinded with forfeiture of all payments as
liquidated damages; and b) the court order the payment of Pl,000.00 back
rentals since June 1980 and the eviction of private respondent.
On November 14, 1980, the trial court granted the motion for writ of
execution.
On November 17, 1980, private respondent filed a motion for
reconsideration tendering at the same time a Pacific Banking Corporation
certified manager's check in the amount of P76,059.71, payable to the
order of petitioner and covering the entire obligation including the
installment due on December 31, 1980. However, the trial court denied
the motion for reconsideration in an order dated November 21, 1980 and
issued the writ of execution on November 25, 1980.
In an order dated November 27, 1980, the trial court granted petitioner's
ex-parte motion for clarification of the order of execution rescinding the
deed of conditional sale of real property.
On November 28, 1980, private respondent filed with the Court of
Appeals a petition for certiorari and prohibition assailing the orders dated
November 21 and 27, 1980.
As initially stated above, the appellate court nullified and set aside the
disputed orders of the lower court. In its decision, the appellate court
ruled in part as follows:
The issue here is whether respondent court committed a grave abuse of
discretion in issuing the orders dated November 21, 1980 and November
27,1980.
The general rule is that rescission will not be permitted for a slight or
casual breach of the contract, but only for such breaches as are substantial
and fundamental as to defeat the object of the parties in making the
agreement. (Song Fo & Co. vs. Hawaiian-Philippine Co., 47 Phil. 821)
In aforesaid case, it was held that a delay in payment for a small quantity
of molasses, for some twenty days is not such a violation of an essential
condition of the contract as warrants rescission for non-performance.
27
In Universal Food Corp. vs. Court of Appeals, 33 SCRA 1, the Song Fo
ruling was reaffirmed.
In the case at bar, McLaughlin wrote Flores on October 15, 1980
demanding that Flores pay the balance of P69,059.71 on or before
October 31, 1980. Thus it is undeniable that despite Flores' failure to
make the payment which was due on June 1980, McLaughlin waived
whatever right she had under the compromise agreement as incorporated
in the decision of respondent court, to demand rescission.
xxx xxx xxx
It is significant to note that on November 17, 1980, or just seventeen (17)
days after October 31, 1980, the deadline set by McLaughlin, Flores
tendered the certified manager's check. We hold that the Song Fo ruling is
applicable herein considering that in the latter case, there was a 20-day
delay in the payment of the obligation as compared to a 17-day delay in
the instant case.
Furthermore, as held in the recent case of New Pacific Timber & Supply
Co., Inc. vs. Hon. Alberto Seneris, L-41764, December 19, 1980, it is the
accepted practice in business to consider a cashier's or manager's check as
cash and that upon certification of a check, it is equivalent to its
acceptance (Section 187, Negotiable Instrument Law) and the funds are
thereby transferred to the credit of the creditor (Araneta v. Tuason, 49
O.G. p. 59).
In the New Pacific Timber & Supply Co., Inc. case, the Supreme Court
further held that the object of certifying a check is to enable the holder
thereof to use it as money, citing the ruling in PNB vs. National City Bank
of New York, 63 Phil. 711.
In the New Pacific Timber case, it was also ruled that the exception in
Section 63 of the Central Bank Act that the clearing of a check and the
subsequent crediting of the amount thereof to the account of the creditor
is equivalent to delivery of cash, is applicable to a payment through a
certified check.
Considering that Flores had already paid P101,550.00 under the contract
to sell, excluding the monthly rentals paid, certainly it would be the height
of inequity to have this amount forfeited in favor McLaughlin. Under the
questioned orders, McLaughlin would get back the property and still keep
P101,550.00.
Petitioner contends that the appellate court erred in not observing the
provisions of Article No. 1306 of the Civil Code of the Philippines and in
having arbitrarily abused its judicial discretion by disregarding the penal
clause stipulated by the parties in the compromise agreement which was
the basis of the decision of the lower court.
We agree with the appellate court that it would be inequitable to cancel
the contract of conditional sale and to have the amount of P101,550.00 (P
l48,126.97 according to private respondent in his brief) already paid by
him under said contract, excluding the monthly rentals paid, forfeited in
favor of petitioner, particularly after private respondent had tendered the
amount of P76,059.71 in full payment of his obligation.
In the analogous case of De Guzman vs. Court of Appeals, this Court
sustained the order of the respondent judge denying the petitioners'
motion for execution on the ground that the private respondent had
substantially complied with the terms and conditions of the compromise
agreement, and directing the petitioners to immediately execute the
necessary documents transferring to the private respondent the title to the
properties (July 23, 1985, 137 SCRA 730). In the case at bar, there was
also substantial compliance with the compromise agreement.
Petitioner invokes the ruling of the Court in its Resolution of November
16, 1978 in the case of Luzon Brokerage Co., Inc. vs. Maritime Building
Co., Inc., to the effect that Republic Act 6552 (the Maceda Law)
"recognizes and reaffirms the vendor's right to cancel the contract to sell
upon breach and non-payment of the stipulated installments but requires a
grace period after at least two years of regular installment payments ... . "
(86 SCRA 305, 329)
28
On the other hand, private respondent also invokes said law as an
expression of public policy to protect buyers of real estate on installments
against onerous and oppressive conditions (Section 2 of Republic Act No.
6552).
Section 4 of Republic Act No. 6552 which took effect on September 14,
1972 provides as follows:
In case where less than two years of installments were paid, the seller
shall give the buyer a grace period of not less than sixty days from the
date the installment became due. If the buyer fails to pay the installments
due at the expiration of the grace period, the seller may cancel the
contract after thirty days from receipt by the buyer of the notice of the
cancellation or the demand for rescission of the contract by a notarial act.
Section 7 of said law provides as follows:
Any stipulation in any contract hereafter entered into contrary to the
provisions of Sections 3, 4, 5 and 6, shall be null and void.
The spirit of these provisions further supports the decision of the appellate
court. The record does not contain the complete text of the compromise
agreement dated December 20, 1979 and the decision approving it.
However, assuming that under the terms of said agreement the December
31, 1980 installment was due and payable when on October 15, 1980,
petitioner demanded payment of the balance of P69,059.71 on or before
October 31, 1980, petitioner could cancel the contract after thirty days
from receipt by private respondent of the notice of cancellation.
Considering petitioner's motion for execution filed on November 7, 1980
as a notice of cancellation, petitioner could cancel the contract of
conditional sale after thirty days from receipt by private respondent of
said motion. Private respondent's tender of payment of the amount of
P76,059.71 together with his motion for reconsideration on November 17,
1980 was, therefore, well within the thirty-day period grants by law..
The tender made by private respondent of a certified bank manager's
check payable to petitioner was a valid tender of payment. The certified
check covered not only the balance of the purchase price in the amount of
P69,059.71, but also the arrears in the rental payments from June to
December, 1980 in the amount of P7,000.00, or a total of P76,059.71. On
this point the appellate court correctly applied the ruling in the case of
New Pacific Timber & Supply Co., Inc. vs. Seneris (101 SCRA 686, 692-
694) to the case at bar.
Moreover, Section 49, Rule 130 of the Revised Rules of Court provides
that:
An offer in writing to pay a particular sum of money or to deliver a
written instrument or specific property is, if rejected, equivalent to the
actual production and tender of the money, instrument, or property.
However, although private respondent had made a valid tender of
payment which preserved his rights as a vendee in the contract of
conditional sale of real property, he did not follow it with a consignation
or deposit of the sum due with the court. As this Court has held:
The rule regarding payment of redemption prices is invoked. True that
consignation of the redemption price is not necessary in order that the
vendor may compel the vendee to allow the repurchase within the time
provided by law or by contract. (Rosales vs. Reyes and Ordoveza, 25 Phil.
495.) We have held that in such cases a mere tender of payment is enough,
if made on time, as a basis for action against the vendee to compel him to
resell. But that tender does not in itself relieve the vendor from his
obligation to pay the price when redemption is allowed by the court. In
other words, tender of payment is sufficient to compel redemption but is
not in itself a payment that relieves the vendor from his liability to pay the
redemption price. " (Paez vs. Magno, 83 Phil. 403, 405)
On September 1, 1986, the Court issued the following resolution
Considering the allegation in petitioner's reply brief that the Manager's
Check tendered by private respondent on November 17, 1980 was
29
subsequently cancelled and converted into cash, the Court RESOLVED to
REQUIRE the parties within ten (10) days from notice to inform the
Court whether or not the amount thereof was deposited in court and
whether or not private respondent continued paying the monthly rental of
P1,000.00 stipulated in the Compromise Agreement.
In compliance with this resolution, both parties submitted their respective
manifestations which confirm that the Manager's Check in question was
subsequently withdrawn and replaced by cash, but the cash was not
deposited with the court.
According to Article 1256 of the Civil Code of the Philippines, if the
creditor to whom tender of payment has been made refuses without just
cause to accept it, the debtor shall be released from responsibility by the
consignation of the thing or sum due, and that consignation alone shall
produce the same effect in the five cases enumerated therein; Article 1257
provides that in order that the consignation of the thing (or sum) due may
release the obligor, it must first be announced to the persons interested in
the fulfillment of the obligation; and Article 1258 provides that
consignation shall be made by depositing the thing (or sum) due at the
disposal of the judicial authority and that the interested parties shall also
be notified thereof.
As the Court held in the case of Soco vs. Militante, promulgated on June
28, 1983, after examining the above-cited provisions of the law and the
jurisprudence on the matter:
Tender of payment must be distinguished from consignation. Tender is the
antecedent of consignation, that is, an act preparatory to the consignation,
which is the principal, and from which are derived the immediate
consequences which the debtor desires or seeks to obtain. Tender of
payment may be extrajudicial, while consignation is necessarily judicial,
and the priority of the first is the attempt to make a private settlement
before proceeding to the solemnities of consignation. (8 Manresa 325).
(123 SCRA 160,173)
In the above-cited case of De Guzman vs. Court of Appeals (137 SCRA
730), the vendee was released from responsibility because he had
deposited with the court the balance of the purchase price. Similarly, in
the above-cited case of New Pacific Timber & Supply Co., Inc. vs. Seneris
(101 SCRA 686), the judgment debtor was released from responsibility by
depositing with the court the amount of the judgment obligation.
In the case at bar, although as above stated private respondent had
preserved his rights as a vendee in the contract of conditional sale of real
property by a timely valid tender of payment of the balance of his
obligation which was not accepted by petitioner, he remains liable for the
payment of his obligation because of his failure to deposit the amount due
with the court.
(a) Petitioner is ordered to accept from private respondent the Metrobank
Cashier's Check No. CC 004233 in her favor in the amount of P76,059.71
or another certified check of a reputable bank drawn in her favor in the
same amount;
(b) Private respondent is ordered to pay petitioner, within sixty (60) days
from the finality of this decision, the rentals in arrears of P l,000.00 a
month from January 1, 1981 until full payment thereof; and
(c) Petitioner is ordered to execute a deed of absolute sale in favor of
private respondent over the real property in question upon full payment of
the amounts as provided in paragraphs (a) and (b) above. No costs.

In his manifestation dated September 19, 1986, private respondent states SO ORDERED.
that on September 16, 1980, he purchased a Metrobank Cashier's Check
No. CC 004233 in favor of petitioner Luisa F. McLaughlin in the amount
of P76,059.71, a photocopy of which was enclosed and marked as Annex Fernan, Alampay, Gutierrez, Jr. and Paras, JJ., concur.
"A- 1;" but that he did not continue paying the monthly rental of
Pl,000.00 because, pursuant to the decision of the appellate court,
petitioner herein was ordered to accept the aforesaid amount in full
payment of herein respondent's obligation under the contract subject
matter thereof.

However, inasmuch as petitioner did not accept the aforesaid amount, it

was incumbent on private respondent to deposit the same with the court in
order to be released from responsibility. Since private respondent did not
deposit said amount with the court, his obligation was not paid and he is
liable in addition for the payment of the monthly rental of Pl,000.00 from
January 1, 1981 until said obligation is duly paid, in accordance with
paragraph 3 of the Compromise Agreement. Upon full payment of the
amount of P76,059.71 and the rentals in arrears, private respondent shall
be entitled to a deed of absolute sale in his favor of the real property in
question.

WHEREFORE, the decision of the Court of Appeals is AFFIRMED with

the following modifications:

30

Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 111238 January 25, 1995
ADELFA PROPERTIES, INC.,petitioner,
vs.
COURT OF APPEALS, ROSARIO JIMENEZ-CASTAEDA and
SALUD JIMENEZ,respondents.
REGALADO, J.:
The main issues presented for resolution in this petition for review on
certiorari of the judgment of respondent Court of appeals, dated April 6,
1993, in CA-G.R. CV No. 347671 are (1) whether of not the "Exclusive
Option to Purchase" executed between petitioner Adelfa Properties, Inc.
and private respondents Rosario Jimenez-Castaeda and Salud Jimenez is
an option contract; and (2) whether or not there was a valid suspension of
payment of the purchase price by said petitioner, and the legal effects
thereof on the contractual relations of the parties.
The records disclose the following antecedent facts which culminated in
the present appellate review, to wit:
1. Herein private respondents and their brothers, Jose and Dominador
Jimenez, were the registered co-owners of a parcel of land consisting of
31
17,710 square meters, covered by Transfer Certificate of Title (TCT) No.
309773,2 situated in Barrio Culasi, Las Pias, Metro Manila.
2. On July 28, 1988, Jose and Dominador Jimenez sold their share
consisting of one-half of said parcel of land, specifically the eastern
portion thereof, to herein petitioner pursuant to a "Kasulatan sa Bilihan
ng Lupa."3 Subsequently, a "Confirmatory Extrajudicial Partition
Agreement"4 was executed by the Jimenezes, wherein the eastern portion
of the subject lot, with an area of 8,855 square meters was adjudicated to
Jose and Dominador Jimenez, while the western portion was allocated to
herein private respondents.
3. Thereafter, herein petitioner expressed interest in buying the western
portion of the property from private respondents. Accordingly, on
November 25, 1989, an "Exclusive Option to Purchase" 5 was executed
between petitioner and private respondents, under the following terms and
conditions:
1. The selling price of said 8,655 square meters of the subject property is
TWO MILLION EIGHT HUNDRED FIFTY SIX THOUSAND ONE
HUNDRED FIFTY PESOS ONLY (P2,856,150.00)
2. The sum of P50,000.00 which we received from ADELFA
PROPERTIES, INC. as an option money shall be credited as partial
payment upon the consummation of the sale and the balance in the sum of
TWO MILLION EIGHT HUNDRED SIX THOUSAND ONE
HUNDRED FIFTY PESOS (P2,806,150.00) to be paid on or before
November 30, 1989;
3. In case of default on the part of ADELFA PROPERTIES, INC. to pay
said balance in accordance with paragraph 2 hereof, this option shall be
cancelled and 50% of the option money to be forfeited in our favor and
we will refund the remaining 50% of said money upon the sale of said
property to a third party;
4. All expenses including the corresponding capital gains tax, cost of
documentary stamps are for the account of the VENDORS, and expenses
for the registration of the deed of sale in the Registry of Deeds are for the
account of ADELFA PROPERTIES, INC.
Considering, however, that the owner's copy of the certificate of title
issued to respondent Salud Jimenez had been lost, a petition for the re-
issuance of a new owner's copy of said certificate of title was filed in
court through Atty. Bayani L. Bernardo, who acted as private respondents'
counsel. Eventually, a new owner's copy of the certificate of title was
issued but it remained in the possession of Atty. Bernardo until he turned
it over to petitioner Adelfa Properties, Inc.
4. Before petitioner could make payment, it received summons 6 on
November 29, 1989, together with a copy of a complaint filed by the
nephews and nieces of private respondents against the latter, Jose and
Dominador Jimenez, and herein petitioner in the Regional Trial Court of
Makati, docketed as Civil Case No. 89-5541, for annulment of the deed of
sale in favor of Household Corporation and recovery of ownership of the
property covered by TCT No. 309773.7
5. As a consequence, in a letter dated November 29, 1989, petitioner
informed private respondents that it would hold payment of the full
purchase price and suggested that private respondents settle the case with
their nephews and nieces, adding that ". . . if possible, although November
30, 1989 is a holiday, we will be waiting for you and said plaintiffs at our
office up to 7:00 p.m."8 Another letter of the same tenor and of even date
was sent by petitioner to Jose and Dominador Jimenez. 9 Respondent
Salud Jimenez refused to heed the suggestion of petitioner and attributed
the suspension of payment of the purchase price to "lack of word of
honor."
6. On December 7, 1989, petitioner caused to be annotated on the title of
the lot its option contract with private respondents, and its contract of sale
with Jose and Dominador Jimenez, as Entry No. 1437-4 and entry No.
1438-4, respectively.
7. On December 14, 1989, private respondents sent Francisca Jimenez to
32
see Atty. Bernardo, in his capacity as petitioner's counsel, and to inform
the latter that they were cancelling the transaction. In turn, Atty. Bernardo
offered to pay the purchase price provided that P500,000.00 be deducted
therefrom for the settlement of the civil case. This was rejected by private
respondents. On December 22, 1989, Atty. Bernardo wrote private
respondents on the same matter but this time reducing the amount from
P500,000.00 to P300,000.00, and this was also rejected by the latter.
8. On February 23, 1990, the Regional Trial Court of Makati dismissed
Civil Case No. 89-5541. Thus, on February 28, 1990, petitioner caused to
be annotated anew on TCT No. 309773 the exclusive option to purchase
as Entry No. 4442-4.
9. On the same day, February 28, 1990, private respondents executed a
Deed of Conditional Sale 10 in favor of Emylene Chua over the same
parcel of land for P3,029,250, of which P1,500,000.00 was paid to private
respondents on said date, with the balance to be paid upon the transfer of
title to the specified one-half portion.
10. On April 16, 1990, Atty. Bernardo wrote private respondents
informing the latter that in view of the dismissal of the case against them,
petitioner was willing to pay the purchase price, and he requested that the
corresponding deed of absolute sale be executed. 11 This was ignored by
private respondents.
11. On July 27, 1990, private respondents' counsel sent a letter to
petitioner enclosing therein a check for P25,000.00 representing the
refund of fifty percent of the option money paid under the exclusive
option to purchase. Private respondents then requested petitioner to return
the owner's duplicate copy of the certificate of title of respondent Salud
Jimenez. 12 Petitioner failed to surrender the certificate of title, hence
private respondents filed Civil Case No. 7532 in the Regional Trial Court
of Pasay City, Branch 113, for annulment of contract with damages,
praying, among others, that the exclusive option to purchase be declared
null and void; that defendant, herein petitioner, be ordered to return the
owner's duplicate certificate of title; and that the annotation of the option
contract on TCT No. 309773 be cancelled. Emylene Chua, the subsequent
purchaser of the lot, filed a complaint in intervention.
12. The trial court rendered judgment 13 therein on September 5, 1991
holding that the agreement entered into by the parties was merely an
option contract, and declaring that the suspension of payment by herein
petitioner constituted a counter-offer which, therefore, was tantamount to
a rejection of the option. It likewise ruled that herein petitioner could not
validly suspend payment in favor of private respondents on the ground
that the vindicatory action filed by the latter's kin did not involve the
western portion of the land covered by the contract between petitioner and
private respondents, but the eastern portion thereof which was the subject
of the sale between petitioner and the brothers Jose and Dominador
Jimenez. The trial court then directed the cancellation of the exclusive
option to purchase, declared the sale to intervenor Emylene Chua as valid
and binding, and ordered petitioner to pay damages and attorney's fees to
private respondents, with costs.
13. On appeal, respondent Court of appeals affirmed in totothe decision of
the court a quoand held that the failure of petitioner to pay the purchase
price within the period agreed upon was tantamount to an election by
petitioner not to buy the property; that the suspension of payment
constituted an imposition of a condition which was actually a counter-
offer amounting to a rejection of the option; and that Article 1590 of the
Civil Code on suspension of payments applies only to a contract of sale or
a contract to sell, but not to an option contract which it opined was the
nature of the document subject of the case at bar. Said appellate court
similarly upheld the validity of the deed of conditional sale executed by
private respondents in favor of intervenor Emylene Chua.
In the present petition, the following assignment of errors are raised:
1. Respondent court of appeals acted with grave abuse of discretion in
making its finding that the agreement entered into by petitioner and
private respondents was strictly an option contract;
2. Granting arguendothat the agreement was an option contract,
respondent court of Appeals acted with grave abuse of discretion in
33
grievously failing to consider that while the option period had not lapsed,
private respondents could not unilaterally and prematurely terminate the
option period;
3. Respondent Court of Appeals acted with grave abuse of discretion in
failing to appreciate fully the attendant facts and circumstances when it
made the conclusion of law that Article 1590 does not apply; and
4. Respondent Court of Appeals acted with grave abuse of discretion in
conforming with the sale in favor of appellee Ma. Emylene Chua and the
award of damages and attorney's fees which are not only excessive, but
also without in fact and in law. 14
An analysis of the facts obtaining in this case, as well as the evidence
presented by the parties, irresistibly leads to the conclusion that the
agreement between the parties is a contract to sell, and not an option
contract or a contract of sale.
I
1. In view of the extended disquisition thereon by respondent court, it
would be worthwhile at this juncture to briefly discourse on the rationale
behind our treatment of the alleged option contract as a contract to sell,
rather than a contract of sale. The distinction between the two is important
for in contract of sale, the title passes to the vendee upon the delivery of
the thing sold; whereas in a contract to sell, by agreement the ownership
is reserved in the vendor and is not to pass until the full payment of the
price. In a contract of sale, the vendor has lost and cannot recover
ownership until and unless the contract is resolved or rescinded; whereas
in a contract to sell, title is retained by the vendor until the full payment of
the price, such payment being a positive suspensive condition and failure
of which is not a breach but an event that prevents the obligation of the
vendor to convey title from becoming effective. Thus, a deed of sale is
considered absolute in nature where there is neither a stipulation in the
deed that title to the property sold is reserved in the seller until the full
payment of the price, nor one giving the vendor the right to unilaterally
resolve the contract the moment the buyer fails to pay within a fixed
period. 15
There are two features which convince us that the parties never intended
to transfer ownership to petitioner except upon the full payment of the
purchase price. Firstly, the exclusive option to purchase, although it
provided for automatic rescission of the contract and partial forfeiture of
the amount already paid in case of default, does not mention that
petitioner is obliged to return possession or ownership of the property as a
consequence of non-payment. There is no stipulation anent reversion or
reconveyance of the property to herein private respondents in the event
that petitioner does not comply with its obligation. With the absence of
such a stipulation, although there is a provision on the remedies available
to the parties in case of breach, it may legally be inferred that the parties
never intended to transfer ownership to the petitioner to completion of
payment of the purchase price.
In effect, there was an implied agreement that ownership shall not pass to
the purchaser until he had fully paid the price. Article 1478 of the civil
code does not require that such a stipulation be expressly made.
Consequently, an implied stipulation to that effect is considered valid and,
therefore, binding and enforceable between the parties. It should be noted
that under the law and jurisprudence, a contract which contains this kind
of stipulation is considered a contract to sell.
Moreover, that the parties really intended to execute a contract to sell, and
not a contract of sale, is bolstered by the fact that the deed of absolute sale
would have been issued only upon the payment of the balance of the
purchase price, as may be gleaned from petitioner's letter dated April 16,
1990 16 wherein it informed private respondents that it "is now ready and
willing to pay you simultaneously with the execution of the corresponding
deed of absolute sale."
Secondly, it has not been shown there was delivery of the property, actual
or constructive, made to herein petitioner. The exclusive option to
purchase is not contained in a public instrument the execution of which
would have been considered equivalent to delivery. 17 Neither did
petitioner take actual, physical possession of the property at any given
34
time. It is true that after the reconstitution of private respondents'
certificate of title, it remained in the possession of petitioner's counsel,
Atty. Bayani L. Bernardo, who thereafter delivered the same to herein
petitioner. Normally, under the law, such possession by the vendee is to be
understood as a delivery.18 However, private respondents explained that
there was really no intention on their part to deliver the title to herein
petitioner with the purpose of transferring ownership to it. They claim that
Atty. Bernardo had possession of the title only because he was their
counsel in the petition for reconstitution. We have no reason not to believe
this explanation of private respondents, aside from the fact that such
contention was never refuted or contradicted by petitioner.
2. Irrefragably, the controverted document should legally be considered as
a perfected contract to sell. On this particular point, therefore, we reject
the position and ratiocination of respondent Court of Appeals which,
while awarding the correct relief to private respondents, categorized the
instrument as "strictly an option contract."
The important task in contract interpretation is always the ascertainment
of the intention of the contracting parties and that task is, of course, to be
discharged by looking to the words they used to project that intention in
their contract, all the words not just a particular word or two, and words in
context not words standing alone. 19 Moreover, judging from the
subsequent acts of the parties which will hereinafter be discussed, it is
undeniable that the intention of the parties was to enter into a contract to
sell. 20 In addition, the title of a contract does not necessarily determine its
true nature. 21 Hence, the fact that the document under discussion is
entitled "Exclusive Option to Purchase" is not controlling where the text
thereof shows that it is a contract to sell.
An option, as used in the law on sales, is a continuing offer or contract by
which the owner stipulates with another that the latter shall have the right
to buy the property at a fixed price within a certain time, or under, or in
compliance with, certain terms and conditions, or which gives to the
owner of the property the right to sell or demand a sale. It is also
sometimes called an "unaccepted offer." An option is not of itself a
purchase, but merely secures the privilege to buy. 22 It is not a sale of
property but a sale of property but a sale of the right to purchase. 23 It is
simply a contract by which the owner of property agrees with another
person that he shall have the right to buy his property at a fixed price
within a certain time. He does not sell his land; he does not then agree to
sell it; but he does sell something, that it is, the right or privilege to buy at
the election or option of the other party. 24 Its distinguishing characteristic
is that it imposes no binding obligation on the person holding the option,
aside from the consideration for the offer. Until acceptance, it is not,
properly speaking, a contract, and does not vest, transfer, or agree to
transfer, any title to, or any interest or right in the subject matter, but is
merely a contract by which the owner of property gives the optionee the
right or privilege of accepting the offer and buying the property on certain
terms. 25
On the other hand, a contract, like a contract to sell, involves a meeting of
minds two persons whereby one binds himself, with respect to the other,
to give something or to render some service. 26 Contracts, in general, are
perfected by mere consent, 27 which is manifested by the meeting of the
offer and the acceptance upon the thing and the cause which are to
constitute the contract. The offer must be certain and the acceptance
absolute. 28
The distinction between an "option" and a contract of sale is that an
option is an unaccepted offer. It states the terms and conditions on which
the owner is willing to sell the land, if the holder elects to accept them
within the time limited. If the holder does so elect, he must give notice to
the other party, and the accepted offer thereupon becomes a valid and
binding contract. If an acceptance is not made within the time fixed, the
owner is no longer bound by his offer, and the option is at an end. A
contract of sale, on the other hand, fixes definitely the relative rights and
obligations of both parties at the time of its execution. The offer and the
acceptance are concurrent, since the minds of the contracting parties meet
in the terms of the agreement. 29
A perusal of the contract in this case, as well as the oral and documentary
evidence presented by the parties, readily shows that there is indeed a
concurrence of petitioner's offer to buy and private respondents'
35
acceptance thereof. The rule is that except where a formal acceptance is
so required, although the acceptance must be affirmatively and clearly
made and must be evidenced by some acts or conduct communicated to
the offeror, it may be made either in a formal or an informal manner, and
may be shown by acts, conduct, or words of the accepting party that
clearly manifest a present intention or determination to accept the offer to
buy or sell. Thus, acceptance may be shown by the acts, conduct, or
words of a party recognizing the existence of the contract of sale. 30
The records also show that private respondents accepted the offer of
petitioner to buy their property under the terms of their contract. At the
time petitioner made its offer, private respondents suggested that their
transfer certificate of title be first reconstituted, to which petitioner
agreed. As a matter of fact, it was petitioner's counsel, Atty. Bayani L.
Bernardo, who assisted private respondents in filing a petition for
reconstitution. After the title was reconstituted, the parties agreed that
petitioner would pay either in cash or manager's check the amount of
P2,856,150.00 for the lot. Petitioner was supposed to pay the same on
November 25, 1989, but it later offered to make a down payment of
P50,000.00, with the balance of P2,806,150.00 to be paid on or before
November 30, 1989. Private respondents agreed to the counter-offer made
by petitioner. 31 As a result, the so-called exclusive option to purchase was
prepared by petitioner and was subsequently signed by private
respondents, thereby creating a perfected contract to sell between them.
It cannot be gainsaid that the offer to buy a specific piece of land was
definite and certain, while the acceptance thereof was absolute and
without any condition or qualification. The agreement as to the object, the
price of the property, and the terms of payment was clear and well-
defined. No other significance could be given to such acts that than they
were meant to finalize and perfect the transaction. The parties even went
beyond the basic requirements of the law by stipulating that "all expenses
including the corresponding capital gains tax, cost of documentary stamps
are for the account of the vendors, and expenses for the registration of the
deed of sale in the Registry of Deeds are for the account of Adelfa
properties, Inc." Hence, there was nothing left to be done except the
performance of the respective obligations of the parties.
We do not subscribe to private respondents' submission, which was
upheld by both the trial court and respondent court of appeals, that the
offer of petitioner to deduct P500,000.00, (later reduced to P300,000.00)
from the purchase price for the settlement of the civil case was
tantamount to a counter-offer. It must be stressed that there already
existed a perfected contract between the parties at the time the alleged
counter-offer was made. Thus, any new offer by a party becomes binding
only when it is accepted by the other. In the case of private respondents,
they actually refused to concur in said offer of petitioner, by reason of
which the original terms of the contract continued to be enforceable.
At any rate, the same cannot be considered a counter-offer for the simple
reason that petitioner's sole purpose was to settle the civil case in order
that it could already comply with its obligation. In fact, it was even
indicative of a desire by petitioner to immediately comply therewith,
except that it was being prevented from doing so because of the filing of
the civil case which, it believed in good faith, rendered compliance
improbable at that time. In addition, no inference can be drawn from that
suggestion given by petitioner that it was totally abandoning the original
contract.
More importantly, it will be noted that the failure of petitioner to pay the
balance of the purchase price within the agreed period was attributed by
private respondents to "lack of word of honor" on the part of the former.
The reason of "lack of word of honor" is to us a clear indication that
private respondents considered petitioner already bound by its obligation
to pay the balance of the consideration. In effect, private respondents were
demanding or exacting fulfillment of the obligation from herein petitioner.
with the arrival of the period agreed upon by the parties, petitioner was
supposed to comply with the obligation incumbent upon it to perform, not
merely to exercise an option or a right to buy the property.
The obligation of petitioner on November 30, 1993 consisted of an
obligation to give something, that is, the payment of the purchase price.
The contract did not simply give petitioner the discretion to pay for the
property. 32 It will be noted that there is nothing in the said contract to
show that petitioner was merely given a certain period within which to
36
exercise its privilege to buy. The agreed period was intended to give time
to herein petitioner within which to fulfill and comply with its obligation,
that is, to pay the balance of the purchase price. No evidence was
presented by private respondents to prove otherwise.
The test in determining whether a contract is a "contract of sale or
purchase" or a mere "option" is whether or not the agreement could be
specifically enforced. 33 There is no doubt that the obligation of petitioner
to pay the purchase price is specific, definite and certain, and
consequently binding and enforceable. Had private respondents chosen to
enforce the contract, they could have specifically compelled petitioner to
pay the balance of P2,806,150.00. This is distinctly made manifest in the
contract itself as an integral stipulation, compliance with which could
legally and definitely be demanded from petitioner as a consequence.
This is not a case where no right is as yet created nor an obligation
declared, as where something further remains to be done before the buyer
and seller obligate themselves. 34 An agreement is only an "option" when
no obligation rests on the party to make any payment except such as may
be agreed on between the parties as consideration to support the option
until he has made up his mind within the time specified. 35 An option, and
not a contract to purchase, is effected by an agreement to sell real estate
for payments to be made within specified time and providing forfeiture of
money paid upon failure to make payment, where the purchaser does not
agree to purchase, to make payment, or to bind himself in any way other
than the forfeiture of the payments made. 36 As hereinbefore discussed,
this is not the situation obtaining in the case at bar.
While there is jurisprudence to the effect that a contract which provides
that the initial payment shall be totally forfeited in case of default in
payment is to be considered as an option contract, 37 still we are not
inclined to conform with the findings of respondent court and the court a
quothat the contract executed between the parties is an option contract, for
the reason that the parties were already contemplating the payment of the
balance of the purchase price, and were not merely quoting an agreed
value for the property. The term "balance," connotes a remainder or
something remaining from the original total sum already agreed upon.
In other words, the alleged option money of P50,000.00 was actually
earnest money which was intended to form part of the purchase price. The
amount of P50,000.00 was not distinct from the cause or consideration for
the sale of the property, but was itself a part thereof. It is a statutory rule
that whenever earnest money is given in a contract of sale, it shall be
considered as part of the price and as proof of the perfection of the
contract. 38 It constitutes an advance payment and must, therefore, be
deducted from the total price. Also, earnest money is given by the buyer
to the seller to bind the bargain.
There are clear distinctions between earnest money and option money,
viz.: (a) earnest money is part of the purchase price, while option money
ids the money given as a distinct consideration for an option contract; (b)
earnest money is given only where there is already a sale, while option
money applies to a sale not yet perfected; and (c) when earnest money is
given, the buyer is bound to pay the balance, while when the would-be
buyer gives option money, he is not required to buy. 39
The aforequoted characteristics of earnest money are apparent in the so-
called option contract under review, even though it was called "option
money" by the parties. In addition, private respondents failed to show that
the payment of the balance of the purchase price was only a condition
precedent to the acceptance of the offer or to the exercise of the right to
buy. On the contrary, it has been sufficiently established that such
payment was but an element of the performance of petitioner's obligation
under the contract to sell. 40
II
1. This brings us to the second issue as to whether or not there was valid
suspension of payment of the purchase price by petitioner and the legal
consequences thereof. To justify its failure to pay the purchase price
within the agreed period, petitioner invokes Article 1590 of the civil Code
which provides:
37
Art. 1590. Should the vendee be disturbed in the possession or ownership
of the thing acquired, or should he have reasonable grounds to fear such
disturbance, by a vindicatory action or a foreclosure of mortgage, he may
suspend the payment of the price until the vendor has caused the
disturbance or danger to cease, unless the latter gives security for the
return of the price in a proper case, or it has been stipulated that,
notwithstanding any such contingency, the vendee shall be bound to make
the payment. A mere act of trespass shall not authorize the suspension of
the payment of the price.
Respondent court refused to apply the aforequoted provision of law on the
erroneous assumption that the true agreement between the parties was a
contract of option. As we have hereinbefore discussed, it was not an
option contract but a perfected contract to sell. Verily, therefore, Article
1590 would properly apply.
Both lower courts, however, are in accord that since Civil Case No. 89-
5541 filed against the parties herein involved only the eastern half of the
land subject of the deed of sale between petitioner and the Jimenez
brothers, it did not, therefore, have any adverse effect on private
respondents' title and ownership over the western half of the land which is
covered by the contract subject of the present case. We have gone over the
complaint for recovery of ownership filed in said case 41 and we are not
persuaded by the factual findings made by said courts. At a glance, it is
easily discernible that, although the complaint prayed for the annulment
only of the contract of sale executed between petitioner and the Jimenez
brothers, the same likewise prayed for the recovery of therein plaintiffs'
share in that parcel of land specifically covered by TCT No. 309773. In
other words, the plaintiffs therein were claiming to be co-owners of the
entire parcel of land described in TCT No. 309773, and not only of a
portion thereof nor, as incorrectly interpreted by the lower courts, did
their claim pertain exclusively to the eastern half adjudicated to the
Jimenez brothers.
Such being the case, petitioner was justified in suspending payment of the
balance of the purchase price by reason of the aforesaid vindicatory action
filed against it. The assurance made by private respondents that petitioner
did not have to worry about the case because it was pure and simple
harassment 42 is not the kind of guaranty contemplated under the
exceptive clause in Article 1590 wherein the vendor is bound to make
payment even with the existence of a vindicatory action if the vendee
should give a security for the return of the price.
2. Be that as it may, and the validity of the suspension of payment
notwithstanding, we find and hold that private respondents may no longer
be compelled to sell and deliver the subject property to petitioner for two
reasons, that is, petitioner's failure to duly effect the consignation of the
purchase price after the disturbance had ceased; and, secondarily, the fact
that the contract to sell had been validly rescinded by private respondents.
The records of this case reveal that as early as February 28, 1990 when
petitioner caused its exclusive option to be annotated anew on the
certificate of title, it already knew of the dismissal of civil Case No. 89-
5541. However, it was only on April 16, 1990 that petitioner, through its
counsel, wrote private respondents expressing its willingness to pay the
balance of the purchase price upon the execution of the corresponding
deed of absolute sale. At most, that was merely a notice to pay. There was
no proper tender of payment nor consignation in this case as required by
law.
The mere sending of a letter by the vendee expressing the intention to
pay, without the accompanying payment, is not considered a valid tender
of payment. 43 Besides, a mere tender of payment is not sufficient to
compel private respondents to deliver the property and execute the deed
of absolute sale. It is consignation which is essential in order to extinguish
petitioner's obligation to pay the balance of the purchase price. 44 The rule
is different in case of an option contract 45 or in legal redemption or in a
sale with right to repurchase, 46 wherein consignation is not necessary
because these cases involve an exercise of a right or privilege (to buy,
redeem or repurchase) rather than the discharge of an obligation, hence
tender of payment would be sufficient to preserve the right or privilege.
This is because the provisions on consignation are not applicable when
there is no obligation to pay. 47 A contract to sell, as in the case before us,
involves the performance of an obligation, not merely the exercise of a
38
privilege of a right. consequently, performance or payment may be
effected not by tender of payment alone but by both tender and
consignation.
Furthermore, petitioner no longer had the right to suspend payment after
the disturbance ceased with the dismissal of the civil case filed against it.
Necessarily, therefore, its obligation to pay the balance again arose and
resumed after it received notice of such dismissal. Unfortunately,
petitioner failed to seasonably make payment, as in fact it has deposit the
money with the trial court when this case was originally filed therein.
By reason of petitioner's failure to comply with its obligation, private
respondents elected to resort to and did announce the rescission of the
contract through its letter to petitioner dated July 27, 1990. That written
notice of rescission is deemed sufficient under the circumstances. Article
1592 of the Civil Code which requires rescission either by judicial action
or notarial act is not applicable to a contract to sell. 48 Furthermore,
judicial action for rescission of a contract is not necessary where the
contract provides for automatic rescission in case of breach, 49 as in the
contract involved in the present controversy.
We are not unaware of the ruling in University of the Philippines vs. De
los Angeles, etc. 50 that the right to rescind is not absolute, being ever
subject to scrutiny and review by the proper court. It is our considered
view, however, that this rule applies to a situation where the extrajudicial
rescission is contested by the defaulting party. In other words, resolution
of reciprocal contracts may be made extrajudicially unless successfully
impugned in court. If the debtor impugns the declaration, it shall be
subject to judicial determination51 otherwise, if said party does not oppose
it, the extrajudicial rescission shall have legal effect. 52
In the case at bar, it has been shown that although petitioner was duly
furnished and did receive a written notice of rescission which specified
the grounds therefore, it failed to reply thereto or protest against it. Its
silence thereon suggests an admission of the veracity and validity of
private respondents' claim. 53 Furthermore, the initiative of instituting suit
was transferred from the rescinder to the defaulter by virtue of the
automatic rescission clause in the contract. 54 But then, the records bear
out the fact that aside from the lackadaisical manner with which petitioner
treated private respondents' latter of cancellation, it utterly failed to
seriously seek redress from the court for the enforcement of its alleged
rights under the contract. If private respondents had not taken the
initiative of filing Civil Case No. 7532, evidently petitioner had no
intention to take any legal action to compel specific performance from the
former. By such cavalier disregard, it has been effectively estopped from
seeking the affirmative relief it now desires but which it had theretofore
disdained.
WHEREFORE, on the foregoing modificatory premises, and considering
that the same result has been reached by respondent Court of Appeals
with respect to the relief awarded to private respondents by the court a
quowhich we find to be correct, its assailed judgment in CA-G.R. CV No.
34767 is hereby AFFIRMED.
SO ORDERED.
Narvasa, C.J., Puno and Mendoza, JJ., concur.
39
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 103577 October 7, 1996
ROMULO A. CORONEL, ALARICO A. CORONEL, ANNETTE A.
CORONEL, ANNABELLE C. GONZALES (for herself and on
behalf of Florida C. Tupper, as attorney-in-fact), CIELITO A.
CORONEL, FLORAIDA A. ALMONTE, and CATALINA BALAIS
MABANAG,petitioners,
vs.
THE COURT OF APPEALS, CONCEPCION D. ALCARAZ, and
RAMONA PATRICIA ALCARAZ, assisted by GLORIA F. NOEL as
attorney-in-fact,respondents.
MELO, J.:p
The petition before us has its roots in a complaint for specific
performance to compel herein petitioners (except the last named, Catalina
Balais Mabanag) to consummate the sale of a parcel of land with its
improvements located along Roosevelt Avenue in Quezon City entered
into by the parties sometime in January 1985 for the price of
P1,240,000.00.
The undisputed facts of the case were summarized by respondent court in
this wise:
On January 19, 1985, defendants-appellants Romulo Coronel, et al.
(hereinafter referred to as Coronels) executed a document entitled
"Receipt of Down Payment" (Exh. "A") in favor of plaintiff Ramona
Patricia Alcaraz (hereinafter referred to as Ramona) which is reproduced
hereunder:
RECEIPT OF DOWN PAYMENT
P1,240,000.00 Total amount
50,000 Down payment
Coronels' father was transferred in their names under TCT
P1,190,000.00 Balance
Received from Miss Ramona Patricia Alcaraz of 146 Timog, Quezon City,
the sum of Fifty Thousand Pesos purchase price of our inherited house
and lot, covered by TCT No. 119627 of the Registry of Deeds of Quezon
City, in the total amount of P1,240,000.00.
We bind ourselves to effect the transfer in our names from our deceased
father, Constancio P. Coronel, the transfer certificate of title immediately
upon receipt of the down payment above-stated.
On our presentation of the TCT already in or name, We will immediately
execute the deed of absolute sale of said property and Miss Ramona
Patricia Alcaraz shall immediately pay the balance of the P1,190,000.00.
Clearly, the conditions appurtenant to the sale are the following:
1. Ramona will make a down payment of Fifty Thousand (P50,000.00)
Pesos upon execution of the document aforestated;
2. The Coronels will cause the transfer in their names of the title of the
property registered in the name of their deceased father upon receipt of
the Fifty Thousand (P50,000.00) Pesos down payment;
3. Upon the transfer in their names of the subject property, the Coronels
will execute the deed of absolute sale in favor of Ramona and the latter
will pay the former the whole balance of One Million One Hundred
Ninety Thousand (P1,190,000.00) Pesos.
On the same date (January 15, 1985), plaintiff-appellee Concepcion D.
40
Alcaraz (hereinafter referred to as Concepcion), mother of Ramona, paid
the down payment of Fifty Thousand (P50,000.00) Pesos (Exh. "B", Exh.
"2").
On February 6, 1985, the property originally registered in the name of the
No. 327043 (Exh. "D"; Exh. "4")
On February 18, 1985, the Coronels sold the property covered by TCT
No. 327043 to intervenor-appellant Catalina B. Mabanag (hereinafter
referred to as Catalina) for One Million Five Hundred Eighty Thousand
(P1,580,000.00) Pesos after the latter has paid Three Hundred Thousand
(P300,000.00) Pesos (Exhs. "F-3"; Exh. "6-C")
For this reason, Coronels canceled and rescinded the contract (Exh. "A")
with Ramona by depositing the down payment paid by Concepcion in the
bank in trust for Ramona Patricia Alcaraz.
On February 22, 1985, Concepcion, et al., filed a complaint for specific
performance against the Coronels and caused the annotation of a notice of
lis pendensat the back of TCT No. 327403 (Exh. "E"; Exh. "5").
On April 2, 1985, Catalina caused the annotation of a notice of adverse
claim covering the same property with the Registry of Deeds of Quezon
City (Exh. "F"; Exh. "6").
On April 25, 1985, the Coronels executed a Deed of Absolute Sale over
the subject property in favor of Catalina (Exh. "G"; Exh. "7").
On June 5, 1985, a new title over the subject property was issued in the
name of Catalina under TCT No. 351582 (Exh. "H"; Exh. "8").
(Rollo, pp. 134-136)
In the course of the proceedings before the trial court (Branch 83, RTC,
Quezon City) the parties agreed to submit the case for decision solely on
the basis of documentary exhibits. Thus, plaintiffs therein (now private
respondents) proffered their documentary evidence accordingly marked as
Exhibits "A" through "J", inclusive of their corresponding submarkings.
Adopting these same exhibits as their own, then defendants (now
petitioners) accordingly offered and marked them as Exhibits "1" through
"10", likewise inclusive of their corresponding submarkings. Upon
motion of the parties, the trial court gave them thirty (30) days within
which to simultaneously submit their respective memoranda, and an
additional 15 days within which to submit their corresponding comment
or reply thereof, after which, the case would be deemed submitted for
resolution.
On April 14, 1988, the case was submitted for resolution before Judge
Reynaldo Roura, who was then temporarily detailed to preside over
Branch 82 of the RTC of Quezon City. On March 1, 1989, judgment was
handed down by Judge Roura from his regular bench at Macabebe,
Pampanga for the Quezon City branch, disposing as follows:
WHEREFORE, judgment for specific performance is hereby rendered
ordering defendant to execute in favor of plaintiffs a deed of absolute sale
covering that parcel of land embraced in and covered by Transfer
Certificate of Title No. 327403 (now TCT No. 331582) of the Registry of
Deeds for Quezon City, together with all the improvements existing
thereon free from all liens and encumbrances, and once accomplished, to
immediately deliver the said document of sale to plaintiffs and upon
receipt thereof, the said document of sale to plaintiffs and upon receipt
thereof, the plaintiffs are ordered to pay defendants the whole balance of
the purchase price amounting to P1,190,000.00 in cash. Transfer
Certificate of Title No. 331582 of the Registry of Deeds for Quezon City
in the name of intervenor is hereby canceled and declared to be without
force and effect. Defendants and intervenor and all other persons claiming
under them are hereby ordered to vacate the subject property and deliver
possession thereof to plaintiffs. Plaintiffs' claim for damages and
attorney's fees, as well as the counterclaims of defendants and intervenors
are hereby dismissed.
No pronouncement as to costs.
41
So Ordered.
Macabebe, Pampanga for Quezon City, March 1, 1989.
(Rollo, p. 106)
A motion for reconsideration was filed by petitioner before the new
presiding judge of the Quezon City RTC but the same was denied by
Judge Estrella T. Estrada, thusly:
The prayer contained in the instant motion, i.e., to annul the decision and
to render anew decision by the undersigned Presiding Judge should be
denied for the following reasons: (1) The instant case became submitted
for decision as of April 14, 1988 when the parties terminated the
presentation of their respective documentary evidence and when the
Presiding Judge at that time was Judge Reynaldo Roura. The fact that they
were allowed to file memoranda at some future date did not change the
fact that the hearing of the case was terminated before Judge Roura and
therefore the same should be submitted to him for decision; (2) When the
defendants and intervenor did not object to the authority of Judge
Reynaldo Roura to decide the case prior to the rendition of the decision,
when they met for the first time before the undersigned Presiding Judge at
the hearing of a pending incident in Civil Case No. Q-46145 on
November 11, 1988, they were deemed to have acquiesced thereto and
they are now estopped from questioning said authority of Judge Roura
after they received the decision in question which happens to be adverse
to them; (3) While it is true that Judge Reynaldo Roura was merely a
Judge-on-detail at this Branch of the Court, he was in all respects the
Presiding Judge with full authority to act on any pending incident
submitted before this Court during his incumbency. When he returned to
his Official Station at Macabebe, Pampanga, he did not lose his authority
to decide or resolve such cases submitted to him for decision or resolution
because he continued as Judge of the Regional Trial Court and is of co-
equal rank with the undersigned Presiding Judge. The standing rule and
supported by jurisprudence is that a Judge to whom a case is submitted
for decision has the authority to decide the case notwithstanding his
transfer to another branch or region of the same court (Sec. 9, Rule 135,
Rule of Court).
Coming now to the twin prayer for reconsideration of the Decision dated
March 1, 1989 rendered in the instant case, resolution of which now
pertains to the undersigned Presiding Judge, after a meticulous
examination of the documentary evidence presented by the parties, she is
convinced that the Decision of March 1, 1989 is supported by evidence
and, therefore, should not be disturbed.
IN VIEW OF THE FOREGOING, the "Motion for Reconsideration
and/or to Annul Decision and Render Anew Decision by the Incumbent
Presiding Judge" dated March 20, 1989 is hereby DENIED.
SO ORDERED.
Quezon City, Philippines, July 12, 1989.
(Rollo, pp. 108-109)
Petitioners thereupon interposed an appeal, but on December 16, 1991,
the Court of Appeals (Buena, Gonzaga-Reyes, Abad Santos (P), JJ.)
rendered its decision fully agreeing with the trial court.
Hence, the instant petition which was filed on March 5, 1992. The last
pleading, private respondents' Reply Memorandum, was filed on
September 15, 1993. The case was, however, re-raffled to undersigned
ponenteonly on August 28, 1996, due to the voluntary inhibition of the
Justice to whom the case was last assigned.
While we deem it necessary to introduce certain refinements in the
disquisition of respondent court in the affirmance of the trial court's
decision, we definitely find the instant petition bereft of merit.
The heart of the controversy which is the ultimate key in the resolution of
the other issues in the case at bar is the precise determination of the legal
significance of the document entitled "Receipt of Down Payment" which
42
was offered in evidence by both parties. There is no dispute as to the fact
that said document embodied the binding contract between Ramona
Patricia Alcaraz on the one hand, and the heirs of Constancio P. Coronel
on the other, pertaining to a particular house and lot covered by TCT No.
119627, as defined in Article 1305 of the Civil Code of the Philippines
which reads as follows:
Art. 1305. A contract is a meeting of minds between two persons whereby
one binds himself, with respect to the other, to give something or to
render some service.
While, it is the position of private respondents that the "Receipt of Down
Payment" embodied a perfected contract of sale, which perforce, they
seek to enforce by means of an action for specific performance,
petitioners on their part insist that what the document signified was a
mere executory contract to sell, subject to certain suspensive conditions,
and because of the absence of Ramona P. Alcaraz, who left for the United
States of America, said contract could not possibly ripen into a contract
absolute sale.
Plainly, such variance in the contending parties' contentions is brought
about by the way each interprets the terms and/or conditions set forth in
said private instrument. Withal, based on whatever relevant and
admissible evidence may be available on record, this, Court, as were the
courts below, is now called upon to adjudge what the real intent of the
parties was at the time the said document was executed.
The Civil Code defines a contract of sale, thus:
Art. 1458. By the contract of sale one of the contracting parties obligates
himself to transfer the ownership of and to deliver a determinate thing,
and the other to pay therefor a price certain in money or its equivalent.
Sale, by its very nature, is a consensual contract because it is perfected by
mere consent. The essential elements of a contract of sale are the
following:
a) Consent or meeting of the minds, that is, consent to transfer ownership
in exchange for the price;
b) Determinate subject matter; and
c) Price certain in money or its equivalent.
Under this definition, a Contract toSell may not be considered as a
Contract ofSale because the first essential element is lacking. In a contract
to sell, the prospective seller explicity reserves the transfer of title to the
prospective buyer, meaning, the prospective seller does not as yet agree or
consent to transfer ownership of the property subject of the contract to sell
until the happening of an event, which for present purposes we shall take
as the full payment of the purchase price. What the seller agrees or
obliges himself to do is to fulfill is promise to sell the subject property
when the entire amount of the purchase price is delivered to him. In other
words the full payment of the purchase price partakes of a suspensive
condition, the non-fulfillment of which prevents the obligation to sell
from arising and thus, ownership is retained by the prospective seller
without further remedies by the prospective buyer. In Roque vs. Lapuz(96
SCRA 741 [1980]), this Court had occasion to rule:
Hence, We hold that the contract between the petitioner and the
respondent was a contract to sell where the ownership or title is retained
by the seller and is not to pass until the full payment of the price, such
payment being a positive suspensive condition and failure of which is not
a breach, casual or serious, but simply an event that prevented the
obligation of the vendor to convey title from acquiring binding force.
Stated positively, upon the fulfillment of the suspensive condition which
is the full payment of the purchase price, the prospective seller's
obligation to sell the subject property by entering into a contract of sale
with the prospective buyer becomes demandable as provided in Article
1479 of the Civil Code which states:
Art. 1479. A promise to buy and sell a determinate thing for a price
43
certain is reciprocally demandable.
An accepted unilateral promise to buy or to sell a determinate thing for a
price certain is binding upon the promissor if the promise is supported by
a consideration distinct from the price.
A contract to sell may thus be defined as a bilateral contract whereby the
prospective seller, while expressly reserving the ownership of the subject
property despite delivery thereof to the prospective buyer, binds himself
to sell the said property exclusively to the prospective buyer upon
fulfillment of the condition agreed upon, that is, full payment of the
purchase price.
A contract to sell as defined hereinabove, may not even be considered as a
conditional contract of sale where the seller may likewise reserve title to
the property subject of the sale until the fulfillment of a suspensive
condition, because in a conditional contract of sale, the first element of
consent is present, although it is conditioned upon the happening of a
contingent event which may or may not occur. If the suspensive condition
is not fulfilled, the perfection of the contract of sale is completely abated
(cf.Homesite and housing Corp. vs. Court of Appeals, 133 SCRA 777
[1984]). However, if the suspensive condition is fulfilled, the contract of
sale is thereby perfected, such that if there had already been previous
delivery of the property subject of the sale to the buyer, ownership thereto
automatically transfers to the buyer by operation of law without any
further act having to be performed by the seller.
In a contract to sell, upon the fulfillment of the suspensive condition
which is the full payment of the purchase price, ownership will not
automatically transfer to the buyer although the property may have been
previously delivered to him. The prospective seller still has to convey title
to the prospective buyer by entering into a contract of absolute sale.
It is essential to distinguish between a contract to sell and a conditional
contract of sale specially in cases where the subject property is sold by the
owner not to the party the seller contracted with, but to a third person, as
in the case at bench. In a contract to sell, there being no previous sale of
the property, a third person buying such property despite the fulfillment of
the suspensive condition such as the full payment of the purchase price,
for instance, cannot be deemed a buyer in bad faith and the prospective
buyer cannot seek the relief of reconveyance of the property. There is no
double sale in such case. Title to the property will transfer to the buyer
after registration because there is no defect in the owner-seller's title per
se, but the latter, of course, may be used for damages by the intending
buyer.
In a conditional contract of sale, however, upon the fulfillment of the
suspensive condition, the sale becomes absolute and this will definitely
affect the seller's title thereto. In fact, if there had been previous delivery
of the subject property, the seller's ownership or title to the property is
automatically transferred to the buyer such that, the seller will no longer
have any title to transfer to any third person. Applying Article 1544 of the
Civil Code, such second buyer of the property who may have had actual
or constructive knowledge of such defect in the seller's title, or at least
was charged with the obligation to discover such defect, cannot be a
registrant in good faith. Such second buyer cannot defeat the first buyer's
title. In case a title is issued to the second buyer, the first buyer may seek
reconveyance of the property subject of the sale.
With the above postulates as guidelines, we now proceed to the task of
deciphering the real nature of the contract entered into by petitioners and
private respondents.
It is a canon in the interpretation of contracts that the words used therein
should be given their natural and ordinary meaning unless a technical
meaning was intended (Tan vs. Court of Appeals,212 SCRA 586 [1992]).
Thus, when petitioners declared in the said "Receipt of Down Payment"
that they
Received from Miss Ramona Patricia Alcaraz of 146 Timog, Quezon City,
the sum of Fifty Thousand Pesos purchase price of our inherited house
and lot, covered by TCT No. 1199627 of the Registry of Deeds of Quezon
City, in the total amount of P1,240,000.00.
44
without any reservation of title until full payment of the entire purchase
price, the natural and ordinary idea conveyed is that they sold their
property.
When the "Receipt of Down Payment" is considered in its entirety, it
becomes more manifest that there was a clear intent on the part of
petitioners to transfer title to the buyer, but since the transfer certificate of
title was still in the name of petitioner's father, they could not fully effect
such transfer although the buyer was then willing and able to immediately
pay the purchase price. Therefore, petitioners-sellers undertook upon
receipt of the down payment from private respondent Ramona P. Alcaraz,
to cause the issuance of a new certificate of title in their names from that
of their father, after which, they promised to present said title, now in
their names, to the latter and to execute the deed of absolute sale
whereupon, the latter shall, in turn, pay the entire balance of the purchase
price.
The agreement could not have been a contract to sell because the sellers
herein made no express reservation of ownership or title to the subject
parcel of land. Furthermore, the circumstance which prevented the parties
from entering into an absolute contract of sale pertained to the sellers
themselves (the certificate of title was not in their names) and not the full
payment of the purchase price. Under the established facts and
circumstances of the case, the Court may safely presume that, had the
certificate of title been in the names of petitioners-sellers at that time,
there would have been no reason why an absolute contract of sale could
not have been executed and consummated right there and then.
Moreover, unlike in a contract to sell, petitioners in the case at bar did not
merely promise to sell the properly to private respondent upon the
fulfillment of the suspensive condition. On the contrary, having already
agreed to sell the subject property, they undertook to have the certificate
of title changed to their names and immediately thereafter, to execute the
written deed of absolute sale.
Thus, the parties did not merely enter into a contract to sell where the
sellers, after compliance by the buyer with certain terms and conditions,
promised to sell the property to the latter. What may be perceived from
the respective undertakings of the parties to the contract is that petitioners
had already agreed to sell the house and lot they inherited from their
father, completely willing to transfer full ownership of the subject house
and lot to the buyer if the documents were then in order. It just happened,
however, that the transfer certificate of title was then still in the name of
their father. It was more expedient to first effect the change in the
certificate of title so as to bear their names. That is why they undertook to
cause the issuance of a new transfer of the certificate of title in their
names upon receipt of the down payment in the amount of P50,000.00. As
soon as the new certificate of title is issued in their names, petitioners
were committed to immediately execute the deed of absolute sale. Only
then will the obligation of the buyer to pay the remainder of the purchase
price arise.
There is no doubt that unlike in a contract to sell which is most commonly
entered into so as to protect the seller against a buyer who intends to buy
the property in installment by withholding ownership over the property
until the buyer effects full payment therefor, in the contract entered into in
the case at bar, the sellers were the one who were unable to enter into a
contract of absolute sale by reason of the fact that the certificate of title to
the property was still in the name of their father. It was the sellers in this
case who, as it were, had the impediment which prevented, so to speak,
the execution of an contract of absolute sale.
What is clearly established by the plain language of the subject document
is that when the said "Receipt of Down Payment" was prepared and
signed by petitioners Romeo A. Coronel, et al., the parties had agreed to a
conditional contract of sale, consummation of which is subject only to the
successful transfer of the certificate of title from the name of petitioners'
father, Constancio P. Coronel, to their names.
The Court significantly notes this suspensive condition was, in fact,
fulfilled on February 6, 1985 (Exh. "D"; Exh. "4"). Thus, on said date, the
conditional contract of sale between petitioners and private respondent
Ramona P. Alcaraz became obligatory, the only act required for the
consummation thereof being the delivery of the property by means of the
45
execution of the deed of absolute sale in a public instrument, which
petitioners unequivocally committed themselves to do as evidenced by the
"Receipt of Down Payment."
Article 1475, in correlation with Article 1181, both of the Civil Code,
plainly applies to the case at bench. Thus,
Art. 1475. The contract of sale is perfected at the moment there is a
meeting of minds upon the thing which is the object of the contract and
upon the price.
From the moment, the parties may reciprocally demand performance,
subject to the provisions of the law governing the form of contracts.
Art. 1181. In conditional obligations, the acquisition of rights, as well as
the extinguishment or loss of those already acquired, shall depend upon
the happening of the event which constitutes the condition.
Since the condition contemplated by the parties which is the issuance of a
certificate of title in petitioners' names was fulfilled on February 6, 1985,
the respective obligations of the parties under the contract of sale became
mutually demandable, that is, petitioners, as sellers, were obliged to
present the transfer certificate of title already in their names to private
respondent Ramona P. Alcaraz, the buyer, and to immediately execute the
deed of absolute sale, while the buyer on her part, was obliged to
forthwith pay the balance of the purchase price amounting to
P1,190,000.00.
It is also significant to note that in the first paragraph in page 9 of their
petition, petitioners conclusively admitted that:
3. The petitioners-sellers Coronel bound themselves "to effect the transfer
in our names from our deceased father Constancio P. Coronel, the transfer
certificate of title immediately upon receipt of the downpayment above-
stated". The sale was still subject to this suspensive condition. (Emphasis
supplied.)
 (Rollo, p. 16)
Petitioners themselves recognized that they entered into a contract of sale
subject to a suspensive condition. Only, they contend, continuing in the
same paragraph, that:
. . . Had petitioners-sellers not compliedwith this condition of first
transferring the title to the property under their names, there could be no
perfected contract of sale. (Emphasis supplied.)
(Ibid.)
not aware that they set their own trap for themselves, for Article 1186 of
the Civil Code expressly provides that:
Art. 1186. The condition shall be deemed fulfilled when the obligor
voluntarily prevents its fulfillment.
Besides, it should be stressed and emphasized that what is more
controlling than these mere hypothetical arguments is the fact that the
condition herein referred to was actually and indisputably fulfilled on
February 6, 1985, when a new title was issued in the names of petitioners
as evidenced by TCT No. 327403 (Exh. "D"; Exh. "4").
The inevitable conclusion is that on January 19, 1985, as evidenced by the
document denominated as "Receipt of Down Payment" (Exh. "A"; Exh.
"1"), the parties entered into a contract of sale subject only to the
suspensive condition that the sellers shall effect the issuance of new
certificate title from that of their father's name to their names and that, on
February 6, 1985, this condition was fulfilled (Exh. "D"; Exh. "4").
We, therefore, hold that, in accordance with Article 1187 which
pertinently provides
Art. 1187. The effects of conditional obligation to give, once the condition
has been fulfilled, shall retroact to the day of the constitution of the
46
obligation . . .
In obligation to do or not to do, the courts shall determine, in each case,
the retroactive effect of the condition that has been complied with.
the rights and obligations of the parties with respect to the perfected
contract of sale became mutually due and demandable as of the time of
fulfillment or occurrence of the suspensive condition on February 6, 1985.
As of that point in time, reciprocal obligations of both seller and buyer
arose.
Petitioners also argue there could been no perfected contract on January
19, 1985 because they were then not yet the absolute owners of the
inherited property.
We cannot sustain this argument.
Article 774 of the Civil Code defines Succession as a mode of transferring
ownership as follows:
Art. 774. Succession is a mode of acquisition by virtue of which the
property, rights and obligations to be extent and value of the inheritance
of a person are transmitted through his death to another or others by his
will or by operation of law.
Petitioners-sellers in the case at bar being the sons and daughters of the
decedent Constancio P. Coronel are compulsory heirs who were called to
succession by operation of law. Thus, at the point their father drew his last
breath, petitioners stepped into his shoes insofar as the subject property is
concerned, such that any rights or obligations pertaining thereto became
binding and enforceable upon them. It is expressly provided that rights to
the succession are transmitted from the moment of death of the decedent
(Article 777, Civil Code; Cuison vs. Villanueva, 90 Phil. 850 [1952]).
Be it also noted that petitioners' claim that succession may not be declared
unless the creditors have been paid is rendered moot by the fact that they
were able to effect the transfer of the title to the property from the
decedent's name to their names on February 6, 1985.
Aside from this, petitioners are precluded from raising their supposed lack
of capacity to enter into an agreement at that time and they cannot be
allowed to now take a posture contrary to that which they took when they
entered into the agreement with private respondent Ramona P. Alcaraz.
The Civil Code expressly states that:
Art. 1431. Through estoppel an admission or representation is rendered
conclusive upon the person making it, and cannot be denied or disproved
as against the person relying thereon.
Having represented themselves as the true owners of the subject property
at the time of sale, petitioners cannot claim now that they were not yet the
absolute owners thereof at that time.
Petitioners also contend that although there was in fact a perfected
contract of sale between them and Ramona P. Alcaraz, the latter breached
her reciprocal obligation when she rendered impossible the consummation
thereof by going to the United States of America, without leaving her
address, telephone number, and Special Power of Attorney (Paragraphs 14
and 15, Answer with Compulsory Counterclaim to the Amended
Complaint, p. 2; Rollo, p. 43), for which reason, so petitioners conclude,
they were correct in unilaterally rescinding rescinding the contract of sale.
We do not agree with petitioners that there was a valid rescission of the
contract of sale in the instant case. We note that these supposed grounds
for petitioners' rescission, are mere allegations found only in their
responsive pleadings, which by express provision of the rules, are deemed
controverted even if no reply is filed by the plaintiffs (Sec. 11, Rule 6,
Revised Rules of Court). The records are absolutely bereft of any
supporting evidence to substantiate petitioners' allegations. We have
stressed time and again that allegations must be proven by sufficient
evidence (Ng Cho Cio vs. Ng Diong, 110 Phil. 882 [1961]; Recaro vs.
Embisan, 2 SCRA 598 [1961]. Mere allegation is not an evidence
(Lagasca vs. De Vera, 79 Phil. 376 [1947]).
47
Even assuming arguendothat Ramona P. Alcaraz was in the United States
of America on February 6, 1985, we cannot justify petitioner-sellers' act
of unilaterally and extradicially rescinding the contract of sale, there being
no express stipulation authorizing the sellers to extarjudicially rescind the
contract of sale. (cf. Dignos vs. CA, 158 SCRA 375 [1988]; Taguba vs.
Vda. de Leon, 132 SCRA 722 [1984])
Moreover, petitioners are estopped from raising the alleged absence of
Ramona P. Alcaraz because although the evidence on record shows that
the sale was in the name of Ramona P. Alcaraz as the buyer, the sellers
had been dealing with Concepcion D. Alcaraz, Ramona's mother, who had
acted for and in behalf of her daughter, if not also in her own behalf.
Indeed, the down payment was made by Concepcion D. Alcaraz with her
own personal check (Exh. "B"; Exh. "2") for and in behalf of Ramona P.
Alcaraz. There is no evidence showing that petitioners ever questioned
Concepcion's authority to represent Ramona P. Alcaraz when they
accepted her personal check. Neither did they raise any objection as
regards payment being effected by a third person. Accordingly, as far as
petitioners are concerned, the physical absence of Ramona P. Alcaraz is
not a ground to rescind the contract of sale.
Corollarily, Ramona P. Alcaraz cannot even be deemed to be in default,
insofar as her obligation to pay the full purchase price is concerned.
Petitioners who are precluded from setting up the defense of the physical
absence of Ramona P. Alcaraz as above-explained offered no proof
whatsoever to show that they actually presented the new transfer
certificate of title in their names and signified their willingness and
readiness to execute the deed of absolute sale in accordance with their
agreement. Ramona's corresponding obligation to pay the balance of the
purchase price in the amount of P1,190,000.00 (as buyer) never became
due and demandable and, therefore, she cannot be deemed to have been in
default.
Article 1169 of the Civil Code defines when a party in a contract
involving reciprocal obligations may be considered in default, to wit:
Art. 1169. Those obliged to deliver or to do something, incur in delay
from the time the obligee judicially or extrajudicially demands from them
the fulfillment of their obligation.
xxx xxx xxx
In reciprocal obligations, neither party incurs in delay if the other does
not comply or is not ready to comply in a proper manner with what is
incumbent upon him. From the moment one of the parties fulfill his
obligation, delay by the other begins. (Emphasis supplied.)
There is thus neither factual nor legal basis to rescind the contract of sale
between petitioners and respondents.
With the foregoing conclusions, the sale to the other petitioner, Catalina
B. Mabanag, gave rise to a case of double sale where Article 1544 of the
Civil Code will apply, to wit:
Art. 1544. If the same thing should have been sold to different vendees,
the ownership shall be transferred to the person who may have first taken
possession thereof in good faith, if it should be movable property.
Should if be immovable property, the ownership shall belong to the
person acquiring it who in good faith first recorded it in Registry of
Property.
Should there be no inscription, the ownership shall pertain to the person
who in good faith was first in the possession; and, in the absence thereof
to the person who presents the oldest title, provided there is good faith.
The record of the case shows that the Deed of Absolute Sale dated April
25, 1985 as proof of the second contract of sale was registered with the
Registry of Deeds of Quezon City giving rise to the issuance of a new
certificate of title in the name of Catalina B. Mabanag on June 5, 1985.
Thus, the second paragraph of Article 1544 shall apply.
The above-cited provision on double sale presumes title or ownership to
48
pass to the first buyer, the exceptions being: (a) when the second buyer, in
good faith, registers the sale ahead of the first buyer, and (b) should there
be no inscription by either of the two buyers, when the second buyer, in
good faith, acquires possession of the property ahead of the first buyer.
Unless, the second buyer satisfies these requirements, title or ownership
will not transfer to him to the prejudice of the first buyer.
In his commentaries on the Civil Code, an accepted authority on the
subject, now a distinguished member of the Court, Justice Jose C. Vitug,
explains:
The governing principle is prius tempore, potior jure(first in time,
stronger in right). Knowledge by the first buyer of the second sale cannot
defeat the first buyer's rights except when the second buyer first registers
in good faith the second sale (Olivares vs. Gonzales, 159 SCRA 33).
Conversely, knowledge gained by the second buyer of the first sale
defeats his rights even if he is first to register, since knowledge taints his
registration with bad faith (see also Astorga vs. Court of Appeals, G.R.
No. 58530, 26 December 1984). In Cruz vs. Cabana(G.R. No. 56232, 22
June 1984, 129 SCRA 656), it has held that it is essential, to merit the
protection of Art. 1544, second paragraph, that the second realty buyer
must act in good faith in registering his deed of sale (citing Carbonell vs.
Court of Appeals, 69 SCRA 99, Crisostomo vs. CA, G.R. No. 95843, 02
September 1992).
(J. Vitug Compendium of Civil Law and Jurisprudence, 1993 Edition, p.
604).
Petitioner point out that the notice of lis pendensin the case at bar was
annoted on the title of the subject property only on February 22, 1985,
whereas, the second sale between petitioners Coronels and petitioner
Mabanag was supposedly perfected prior thereto or on February 18, 1985.
The idea conveyed is that at the time petitioner Mabanag, the second
buyer, bought the property under a clean title, she was unaware of any
adverse claim or previous sale, for which reason she is buyer in good
faith.
We are not persuaded by such argument.
In a case of double sale, what finds relevance and materiality is not between mother and daughter. Thus, We will not touch this issue and no
whether or not the second buyer was a buyer in good faith but whether or longer disturb the lower courts' ruling on this point.
not said second buyer registers such second sale in good faith, that is,
without knowledge of any defect in the title of the property sold. WHEREFORE, premises considered, the instant petition is hereby
DISMISSED and the appealed judgment AFFIRMED.
As clearly borne out by the evidence in this case, petitioner Mabanag
could not have in good faith, registered the sale entered into on February SO ORDERED.
18, 1985 because as early as February 22, 1985, a notice of lis
pendenshad been annotated on the transfer certificate of title in the names
of petitioners, whereas petitioner Mabanag registered the said sale Narvasa, C.J., Davide, Jr. and Francisco, JJ., concur.
sometime in April, 1985. At the time of registration, therefore, petitioner
Mabanag knew that the same property had already been previously sold to Panganiban, J., took no part.
private respondents, or, at least, she was charged with knowledge that a
previous buyer is claiming title to the same property. Petitioner Mabanag
cannot close her eyes to the defect in petitioners' title to the property at the
time of the registration of the property.

This Court had occasions to rule that:

If a vendee in a double sale registers that sale after he has acquired

knowledge that there was a previous sale of the same property to a third
party or that another person claims said property in a pervious sale, the
registration will constitute a registration in bad faith and will not confer
upon him any right. (Salvoro vs. Tanega, 87 SCRA 349 [1978]; citing
Palarca vs. Director of Land, 43 Phil. 146; Cagaoan vs. Cagaoan, 43 Phil.
554; Fernandez vs. Mercader, 43 Phil. 581.)

Thus, the sale of the subject parcel of land between petitioners and
Ramona P. Alcaraz, perfected on February 6, 1985, prior to that between
petitioners and Catalina B. Mabanag on February 18, 1985, was correctly
upheld by both the courts below.

Although there may be ample indications that there was in fact an agency
between Ramona as principal and Concepcion, her mother, as agent
insofar as the subject contract of sale is concerned, the issue of whether or
not Concepcion was also acting in her own behalf as a co-buyer is not
squarely raised in the instant petition, nor in such assumption disputed

49
 issued in its Civil Case No. 9435, are sought to be annulled in this petition
for certiorari and prohibition, filed by herein petitioner University of the
Philippines (or UP) against the above-named respondent judge and the
Associated Lumber Manufacturing Company, Inc. (or ALUMCO). The
first order, dated 25 February 1966, enjoined UP from awarding logging
rights over its timber concession (or Land Grant), situated at the Lubayat
areas in the provinces of Laguna and Quezon; the second order, dated 14
January 1967, adjudged UP in contempt of court, and directed Sta. Clara
Lumber Company, Inc. to refrain from exercising logging rights or
conducting logging operations on the concession; and the third order,
dated 12 December 1967, denied reconsideration of the order of
contempt.

As prayed for in the petition, a writ of preliminary injunction against the

Republic of the Philippines enforcement or implementation of the three (3) questioned orders was
SUPREME COURT issued by this Court, per its resolution on 9 February 1968.
Manila
The petition alleged the following:
EN BANC
That the above-mentioned Land Grant was segregated from the public
G.R. No. L-28602 September 29, 1970 domain and given as an endowment to UP, an institution of higher
learning, to be operated and developed for the purpose of raising
additional income for its support, pursuant to Act 3608;
UNIVERSITY OF THE PHILIPPINES,petitioner,
vs.
WALFRIDO DE LOS ANGELES, in his capacity as JUDGE of the That on or about 2 November 1960, UP and ALUMCO entered into a
COURT OF FIRST INSTANCE IN QUEZON CITY, et logging agreement under which the latter was granted exclusive authority,
al.,respondents. for a period starting from the date of the agreement to 31 December 1965,
extendible for a further period of five (5) years by mutual agreement, to
cut, collect and remove timber from the Land Grant, in consideration of
Office of the Solicitor General Antonio P. Barredo, Solicitor Augusto M.
payment to UP of royalties, forest fees, etc.; that ALUMCO cut and
Amores and Special Counsel Perfecto V. Fernandez for petitioner.
removed timber therefrom but, as of 8 December 1964, it had incurred an
unpaid account of P219,362.94, which, despite repeated demands, it had
Norberto J. Quisumbing for private respondents. failed to pay; that after it had received notice that UP would rescind or
terminate the logging agreement, ALUMCO executed an instrument,
REYES, J.B.L., J.: entitled "Acknowledgment of Debt and Proposed Manner of Payments,"
dated 9 December 1964, which was approved by the president of UP, and
Three (3) orders of the Court of First Instance of Rizal (Quezon City), which stipulated the following:

50
3. In the event that the payments called for in Nos. 1 and 2 of this
paragraph are not sufficient to liquidate the foregoing indebtedness of the
DEBTOR in favor of the CREDITOR, the balance outstanding after the
said payments have been applied shall be paid by the DEBTOR in full no
later than June 30, 1965;
xxx xxx xxx
5. In the event that the DEBTOR fails to comply with any of its promises
or undertakings in this document, the DEBTOR agrees without
reservation that the CREDITOR shall have the right and the power to
consider the Logging Agreement dated December 2, 1960 as rescinded
without the necessity of any judicial suit, and the CREDITOR shall be
entitled as a matter of right to Fifty Thousand Pesos (P50,000.00) by way
of and for liquidated damages;
ALUMCO continued its logging operations, but again incurred an unpaid
account, for the period from 9 December 1964 to 15 July 1965, in the
amount of P61,133.74, in addition to the indebtedness that it had
previously acknowledged.
That on 19 July 1965, petitioner UP informed respondent ALUMCO that
it had, as of that date, considered as rescinded and of no further legal
effect the logging agreement that they had entered in 1960; and on 7
September 1965, UP filed a complaint against ALUMCO, which was
docketed as Civil Case No. 9435 of the Court of First Instance of Rizal
(Quezon City), for the collection or payment of the herein before stated
sums of money and alleging the facts hereinbefore specified, together
with other allegations; it prayed for and obtained an order, dated 30
September 1965, for preliminary attachment and preliminary injunction
restraining ALUMCO from continuing its logging operations in the Land
Grant.
That before the issuance of the aforesaid preliminary injunction UP had
taken steps to have another concessionaire take over the logging
operation, by advertising an invitation to bid; that bidding was conducted,
and the concession was awarded to Sta. Clara Lumber Company, Inc.; the
51
logging contract was signed on 16 February 1966.
That, meantime, ALUMCO had filed several motions to discharge the
writs of attachment and preliminary injunction but were denied by the
court;
That on 12 November 1965, ALUMCO filed a petition to enjoin petitioner
University from conducting the bidding; on 27 November 1965, it filed a
second petition for preliminary injunction; and, on 25 February 1966,
respondent judge issued the first of the questioned orders, enjoining UP
from awarding logging rights over the concession to any other party.
That UP received the order of 25 February 1966 after it had concluded its
contract with Sta. Clara Lumber Company, Inc., and said company had
started logging operations.
That, on motion dated 12 April 1966 by ALUMCO and one Jose Rico, the
court, in an order dated 14 January 1967, declared petitioner UP in
contempt of court and, in the same order, directed Sta. Clara Lumber
Company, Inc., to refrain from exercising logging rights or conducting
logging operations in the concession.
The UP moved for reconsideration of the aforesaid order, but the motion
was denied on 12 December 1967.
Except that it denied knowledge of the purpose of the Land Grant, which
purpose, anyway, is embodied in Act 3608 and, therefore, conclusively
known, respondent ALUMCO did not deny the foregoing allegations in
the petition. In its answer, respondent corrected itself by stating that the
period of the logging agreement is five (5) years - not seven (7) years, as
it had alleged in its second amended answer to the complaint in Civil Case
No. 9435. It reiterated, however, its defenses in the court below, which
maybe boiled down to: blaming its former general manager, Cesar Guy, in
not turning over management of ALUMCO, thereby rendering it unable to
pay the sum of P219,382.94; that it failed to pursue the manner of
payments, as stipulated in the "Acknowledgment of Debt and Proposed
Manner of Payments" because the logs that it had cut turned out to be
rotten and could not be sold to Sta. Clara Lumber Company, Inc., under
its contract "to buy and sell" with said firm, and which contract was
referred and annexed to the "Acknowledgment of Debt and Proposed
Manner of Payments"; that UP's unilateral rescission of the logging
contract, without a court order, was invalid; that petitioner's supervisor
refused to allow respondent to cut new logs unless the logs previously cut
during the management of Cesar Guy be first sold; that respondent was
permitted to cut logs in the middle of June 1965 but petitioner's supervisor
stopped all logging operations on 15 July 1965; that it had made several
offers to petitioner for respondent to resume logging operations but
respondent received no reply.
The basic issue in this case is whether petitioner U.P. can treat its contract
with ALUMCO rescinded, and may disregard the same before any
judicial pronouncement to that effect. Respondent ALUMCO contended,
and the lower court, in issuing the injunction order of 25 February 1966,
apparently sustained it (although the order expresses no specific findings
in this regard), that it is only after a final court decree declaring the
contract rescinded for violation of its terms that U.P. could disregard
ALUMCO's rights under the contract and treat the agreement as breached
and of no force or effect.
We find that position untenable.
In the first place, UP and ALUMCO had expressly stipulated in the
"Acknowledgment of Debt and Proposed Manner of Payments" that, upon
default by the debtor ALUMCO, the creditor (UP) has "the right and the
power to consider, the Logging Agreement dated 2 December 1960 as
rescinded without the necessity of any judicial suit." As to such special
stipulation, and in connection with Article 1191 of the Civil Code, this
Court stated in Froilan vs. Pan Oriental Shipping Co., et al.,L-11897, 31
October 1964, 12 SCRA 276:
there is nothing in the law that prohibits the parties from entering into
agreement that violation of the terms of the contract would cause
cancellation thereof, even without court intervention. In other words, it is
52
not always necessary for the injured party to resort to court for rescission
of the contract.
Of course, it must be understood that the act of party in treating a contract
as cancelled or resolved on account of infractions by the other contracting
party must be made known to the other and is always provisional, being
ever subject to scrutiny and review by the proper court. If the other party
denies that rescission is justified, it is free to resort to judicial action in its
own behalf, and bring the matter to court. Then, should the court, after
due hearing, decide that the resolution of the contract was not warranted,
the responsible party will be sentenced to damages; in the contrary case,
the resolution will be affirmed, and the consequent indemnity awarded to
the party prejudiced.
In other words, the party who deems the contract violated may consider it
resolved or rescinded, and act accordingly, without previous court action,
but it proceeds at its own risk. For it is only the final judgment of the
corresponding court that will conclusively and finally settle whether the
action taken was or was not correct in law. But the law definitely does not
require that the contracting party who believes itself injured must first file
suit and wait for a judgment before taking extrajudicial steps to protect its
interest. Otherwise, the party injured by the other's breach will have to
passively sit and watch its damages accumulate during the pendency of
the suit until the final judgment of rescission is rendered when the law
itself requires that he should exercise due diligence to minimize its own
damages (Civil Code, Article 2203).
We see no conflict between this ruling and the previous jurisprudence of
this Court invoked by respondent declaring that judicial action is
necessary for the resolution of a reciprocal obligation, 1 since in every case
where the extrajudicial resolution is contested only the final award of the
court of competent jurisdiction can conclusively settle whether the
resolution was proper or not. It is in this sense that judicial action will be
necessary, as without it, the extrajudicial resolution will remain
contestable and subject to judicial invalidation, unless attack thereon
should become barred by acquiescence, estoppel or prescription.
Fears have been expressed that a stipulation providing for a unilateral
rescission in case of breach of contract may render nugatory the general
rule requiring judicial action (v. Footnote, Padilla, Civil Law, Civil Code
Anno., 1967 ed. Vol. IV, page 140) but, as already observed, in case of
abuse or error by the rescinder the other party is not barred from
questioning in court such abuse or error, the practical effect of the
stipulation being merely to transfer to the defaulter the initiative of
instituting suit, instead of the rescinder.
In fact, even without express provision conferring the power of
cancellation upon one contracting party, the Supreme Court of Spain, in
construing the effect of Article 1124 of the Spanish Civil Code (of which
Article 1191 of our own Civil; Code is practically a reproduction), has
repeatedly held that, a resolution of reciprocal or synallagmatic contracts
may be made extrajudicially unless successfully impugned in court.
El articulo 1124 del Codigo Civil establece la facultad de resolver las
obligaciones reciprocas para el caso de que uno de los obligados no
cumpliese lo que le incumbe, facultad que, segun jurisprudencia de este
Tribunal, surge immediatamentedespuesque la otra parte incumplio su
deber, sin necesidad de una declaracion previa de los Tribunales. (Sent.
of the Tr. Sup. of Spain, of 10 April 1929; 106 Jur. Civ. 897).
Segun reiterada doctrinade esta Sala, el Art. 1124 regula la
resolucioncomo una "facultad" atribuida a la parte perjudicada por el
incumplimiento del contrato, la cual tiene derecho do opcion entre exigir
el cumplimientoo la resolucion de lo convenido, que puede ejercitarse, ya
en la via judicial, ya fuera de ella, por declaracion del acreedor, a
reserva, claro es, que si la declaracion de resolucion hecha por una de las
partes se impugna por la otra, queda aquella sometida el examen y
sancion de los Tribunale, que habran de declarar, en definitiva, bien hecha
la resolucion o por el contrario, no ajustada a Derecho. (Sent. TS of Spain,
16 November 1956; Jurisp. Aranzadi, 3, 447).
La resolucion de los contratos sinalagmaticos, fundada en el
incumplimiento por una de las partes de su respectiva prestacion,
puedetener lugar con eficacia" 1. o Por la declaracion de voluntad de la
53
otra hecha extraprocesalmente, si no es impugnada en juicio luego con
exito. y 2. 0 Por la demanda de la perjudicada, cuando no opta por el
cumplimientocon la indemnizacion de danos y perjuicios realmente
causados, siempre quese acredite, ademas, una actitud o conducta
persistente y rebelde de laadversa o la satisfaccion de lo pactado, a un
hecho obstativo que de un modoabsoluto, definitivo o irreformable lo
impida, segun el art. 1.124, interpretado por la jurisprudencia de esta Sala,
contenida en las Ss. de 12 mayo 1955 y 16 Nov. 1956, entre otras,
inspiradas por el principio del Derecho intermedio, recogido del
Canonico, por el cual fragenti fidem, fides non est servanda. (Ss. de 4
Nov. 1958 y 22 Jun. 1959.) (Emphasis supplied).
In the light of the foregoing principles, and considering that the complaint
of petitioner University made out a prima faciecase of breach of contract
and defaults in payment by respondent ALUMCO, to the extent that the
court below issued a writ of preliminary injunction stopping ALUMCO's
logging operations, and repeatedly denied its motions to lift the
injunction; that it is not denied that the respondent company had profited
from its operations previous to the agreement of 5 December 1964
("Acknowledgment of Debt and Proposed Manner of Payment"); that the
excuses offered in the second amended answer, such as the misconduct of
its former manager Cesar Guy, and the rotten condition of the logs in
private respondent's pond, which said respondent was in a better position
to know when it executed the acknowledgment of indebtedness, do not
constitute on their face sufficient excuse for non-payment; and
considering that whatever prejudice may be suffered by respondent
ALUMCO is susceptibility of compensation in damages, it becomes plain
that the acts of the court a quo in enjoining petitioner's measures to
protect its interest without first receiving evidence on the issues tendered
by the parties, and in subsequently refusing to dissolve the injunction,
were in grave abuse of discretion, correctible by certiorari, since appeal
was not available or adequate. Such injunction, therefore, must be set
aside.
For the reason that the order finding the petitioner UP in contempt of
court has open appealed to the Court of Appeals, and the case is pending
therein, this Court abstains from making any pronouncement thereon.
WHEREFORE, the writ of certiorariapplied for is granted, and the order
of the respondent court of 25 February 1966, granting the Associated
Lumber Company's petition for injunction, is hereby set aside. Let the
records be remanded for further proceedings conformably to this opinion.
Dizon, Makalintal, Zaldivar, Castro, Fernando, Teehankee, Barredo,
Villamor and Makasiar, JJ., concur.
Reyes, J.B.L., Actg. C.J., is on leave.
FIRST DIVISION
G.R. No. L-56076 September 21, 1983
PALAY, INC. and ALBERT ONSTOTT,petitioner,
vs.
JACOBO C. CLAVE, Presidential Executive Assistant NATIONAL
HOUSING AUTHORITY and NAZARIO DUMPITrespondents.
Santos, Calcetas-Santos & Geronimo Law Office for petitioner.

Wilfredo E. Dizon for private respondent.

MELENCIO-HERRERA, J.:

The Resolution, dated May 2, 1980, issued by Presidential Executive

Assistant Jacobo Clave in O.P. Case No. 1459, directing petitioners Palay,
Inc. and Alberto Onstott jointly and severally, to refund to private
respondent, Nazario Dumpit, the amount of P13,722.50 with 12% interest
per annum, as resolved by the National Housing Authority in its
Resolution of July 10, 1979 in Case No. 2167, as well as the Resolution
of October 28, 1980 denying petitioners' Motion for Reconsideration of
said Resolution of May 2, 1980, are being assailed in this petition.

On March 28, 1965, petitioner Palay, Inc., through its President, Albert
Onstott executed in favor of private respondent, Nazario Dumpit, a
Contract to Sell a parcel of Land (Lot No. 8, Block IV) of the Crestview
Heights Subdivision in Antipolo, Rizal, with an area of 1,165 square
meters, - covered by TCT No. 90454, and owned by said corporation. The
sale price was P23,300.00 with 9% interest per annum, payable with a
downpayment of P4,660.00 and monthly installments of P246.42 until
fully paid. Paragraph 6 of the contract provided for automatic
Republic of the Philippines extrajudicial rescission upon default in payment of any monthly
SUPREME COURT installment after the lapse of 90 days from the expiration of the grace
Manila period of one month, without need of notice and with forfeiture of all
installments paid.

54
Respondent Dumpit paid the downpayment and several installments
amounting to P13,722.50. The last payment was made on December 5,
1967 for installments up to September 1967.
On May 10, 1973, or almost six (6) years later, private respondent wrote
petitioner offering to update all his overdue accounts with interest, and
seeking its written consent to the assignment of his rights to a certain
Lourdes Dizon. He followed this up with another letter dated June 20,
1973 reiterating the same request. Replying petitioners informed
respondent that his Contract to Sell had long been rescinded pursuant to
paragraph 6 of the contract, and that the lot had already been resold.
Questioning the validity of the rescission of the contract, respondent filed
a letter complaint with the National Housing Authority (NHA) for
reconveyance with an altenative prayer for refund (Case No. 2167). In a
Resolution, dated July 10, 1979, the NHA, finding the rescission void in
the absence of either judicial or notarial demand, ordered Palay, Inc. and
Alberto Onstott in his capacity as President of the corporation, jointly and
severally, to refund immediately to Nazario Dumpit the amount of
P13,722.50 with 12% interest from the filing of the complaint on
November 8, 1974. Petitioners' Motion for Reconsideration of said
Resolution was denied by the NHA in its Order dated October 23, 1979. 1
On appeal to the Office of the President, upon the allegation that the NHA
Resolution was contrary to law (O.P. Case No. 1459), respondent
Presidential Executive Assistant, on May 2, 1980, affirmed the Resolution
of the NHA. Reconsideration sought by petitioners was denied for lack of
merit. Thus, the present petition wherein the following issues are raised:
I of grace within which to make the payment of the t in arrears together
Whether notice or demand is not mandatory under the circumstances and,
therefore, may be dispensed with by stipulation in a contract to sell.
II
55
Whether petitioners may be held liable for the refund of the installment
payments made by respondent Nazario M. Dumpit.
III
Whether the doctrine of piercing the veil of corporate fiction has
application to the case at bar.
IV
Whether respondent Presidential Executive Assistant committed grave
abuse of discretion in upholding the decision of respondent NHA holding
petitioners solidarily liable for the refund of the installment payments
made by respondent Nazario M. Dumpit thereby denying substantial
justice to the petitioners, particularly petitioner Onstott
We issued a Temporary Restraining Order on Feb 11, 1981 enjoining the
enforcement of the questioned Resolutions and of the Writ of Execution
that had been issued on December 2, 1980. On October 28, 1981, we
dismissed the petition but upon petitioners' motion, reconsidered the
dismissal and gave due course to the petition on March 15, 1982.
On the first issue, petitioners maintain that it was justified in cancelling
the contract to sell without prior notice or demand upon respondent in
view of paragraph 6 thereof which provides-
6. That in case the BUYER falls to satisfy any monthly installment or any
other payments herein agreed upon, the BUYER shall be granted a month
with the one corresponding to the said month of grace. -It shall be
understood, however, that should the month of grace herein granted to the
BUYER expire, without the payment & corresponding to both months
having been satisfied, an interest of ten (10%) per cent per annum shall be
charged on the amounts the BUYER should have paid; it is understood
further, that should a period of NINETY (90) DAYS elapse to begin from
the expiration of the month of grace hereinbefore mentioned, and the
BUYER shall not have paid all the amounts that the BUYER should have
paid with the corresponding interest up to the date, the SELLER shall
have the right to declare this contract cancelled and of no effect without
notice, and as a consequence thereof, the SELLER may dispose of the
lot/lots covered by this Contract in favor of other persons, as if this
contract had never been entered into. In case of such cancellation of this
Contract, all the amounts which may have been paid by the BUYER in
accordance with the agreement, together with all the improvements made
on the premises, shall be considered as rents paid for the use and
occupation of the above mentioned premises and for liquidated damages
suffered by virtue of the failure of the BUYER to fulfill his part of this
agreement : and the BUYER hereby renounces his right to demand or
reclaim the return of the same and further obligates peacefully to vacate
the premises and deliver the same to the SELLER.
Well settled is the rule, as held in previous jurisprudence, 2 that judicial
action for the rescission of a contract is not necessary where the contract
provides that it may be revoked and cancelled for violation of any of its
terms and conditions. However, even in the cited cases, there was at least
a written notice sent to the defaulter informing him of the rescission. As
stressed in University of the Philippines vs. Walfrido de los Angeles 3 the
act of a party in treating a contract as cancelled should be made known to
the other. We quote the pertinent excerpt:
Of course, it must be understood that the act of a party in treating a
contract as cancelled or resolved in account of infractions by the other
contracting party must be made known to the other and is always
provisional being ever subject to scrutiny and review by the proper court.
If the other party denies that rescission is justified it is free to resort to
judicial action in its own behalf, and bring the matter to court. Then,
should the court, after due hearing, decide that the resolution of the
contract was not warranted, the responsible party will be sentenced to
damages; in the contrary case, the resolution will be affirmed, and the
consequent indemnity awarded to the party prejudiced.
In other words, the party who deems the contract violated may consider it
resolved or rescinded, and act accordingly, without previous court action,
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but it proceeds at its own risk.For it is only the final judgment of the
corresponding court that will conclusively and finally settle whether the
action taken was or was not correct in law. But the law definitely does not
require that the contracting party who believes itself injured must first file
suit and wait for a judgment before taking extrajudicial steps to protect its
interest. Otherwise, the party injured by the other's breach will have to
passively sit and watch its damages accumulate during the pendency of
the suit until the final judgment of rescission is rendered when the law
itself requires that he should exercise due diligence to minimize its own
damages (Civil Code, Article 2203).
We see no conflict between this ruling and the previous jurisprudence of
this Court invoked by respondent declaring that judicial action is
necessary for the resolution of a reciprocal obligation (Ocejo Perez & Co.,
vs. International Banking Corp., 37 Phil. 631; Republic vs. Hospital de
San Juan De Dios, et al., 84 Phil 820) since in every case where the
extrajudicial resolution is contested only the final award of the court of
competent jurisdiction can conclusively settle whether the resolution was
proper or not. It is in this sense that judicial action win be necessary, as
without it, the extrajudicial resolution will remain contestable and subject
to judicial invalidation unless attack thereon should become barred by
acquiescense, estoppel or prescription.
Fears have been expressed that a stipulation providing for a unilateral
rescission in case of breach of contract may render nugatory the general
rule requiring judicial action (v. Footnote, Padilla Civil Law, Civil Code
Anno., 1967 ed. Vol. IV, page 140) but, as already observed, in case of
abuse or error by the rescinder the other party is not barred from
questioning in court such abuse or error, the practical effect of the
stipulation being merely to transfer to the defaulter the initiative of
instituting suit, instead of the rescinder(Emphasis supplied).
Of similar import is the ruling in Nera vs. Vacante 4, reading:
A stipulation entitling one party to take possession of the land and
building if the other party violates the contract does not ex propio
vigoreconfer upon the former the right to take possession thereof if
objected to without judicial intervention and determination.
This was reiterated in Zulueta vs. Mariano5 where we held that
extrajudicial rescission has legal effect where the other party does not
oppose it.6 Where it is objected to, a judicial determination of the issue is
still necessary.
In other words, resolution of reciprocal contracts may be made
extrajudicially unless successfully impugned in Court. If the debtor
impugns the declaration, it shall be subject to judicial determination. 7
In this case, private respondent has denied that rescission is justified and
has resorted to judicial action. It is now for the Court to determine
whether resolution of the contract by petitioners was warranted.
We hold that resolution by petitioners of the contract was ineffective and
inoperative against private respondent for lack of notice of resolution, as
held in the U.P. vs. Angeles case, supra
Petitioner relies on Torralba vs. De los Angeles8 where it was held that
"there was no contract to rescind in court because from the moment the
petitioner defaulted in the timely payment of the installments, the contract
between the parties was deemed ipso facto rescinded." However, it should
be noted that even in that case notice in writing was made to the vendee
of the cancellation and annulment of the contract although the contract
entitled the seller to immediate repossessing of the land upon default by
the buyer.
The indispensability of notice of cancellation to the buyer was to be later
underscored in Republic Act No. 6551 entitled "An Act to Provide
Protection to Buyers of Real Estate on Installment Payments." which took
effect on September 14, 1972, when it specifically provided:
Sec. 3(b) ... 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
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payment of the cash surrender value to the buyer. (Emphasis supplied).
The contention that private respondent had waived his right to be notified
under paragraph 6 of the contract is neither meritorious because it was a
contract of adhesion, a standard form of petitioner corporation, and
private respondent had no freedom to stipulate. A waiver must be certain
and unequivocal, and intelligently made; such waiver follows only where
liberty of choice has been fully accorded. 9 Moreover, it is a matter of
public policy to protect buyers of real estate on installment payments
against onerous and oppressive conditions. Waiver of notice is one such
onerous and oppressive condition to buyers of real estate on installment
payments.
Regarding the second issue on refund of the installment payments made
by private respondent. Article 1385 of the Civil Code provides:
ART. 1385. Rescission creates the obligation to return the things which
were the object of the contract, together with their fruits, and the price
with its interest; consequently, it can be carried out only when he who
demands rescission can return whatever he may be obliged to restore.
Neither sham rescission take place when the things which are the object
of the contract are legally in the possession of third persons who did not
act in bad faith.
In this case, indemnity for damages may be demanded from the person
causing the loss.
As a consequence of the resolution by petitioners, rights to the lot should
be restored to private respondent or the same should be replaced by
another acceptable lot. However, considering that the property had
already been sold to a third person and there is no evidence on record that
other lots are still available, private respondent is entitled to the refund of
installments paid plus interest at the legal rate of 12% computed from the
date of the institution of the action. 10 It would be most inequitable if
petitioners were to be allowed to retain private respondent's payments and
at the same time appropriate the proceeds of the second sale to another. interest at twelve (12%) percent per annum from November 8, 1974, the
date of the filing of the Complaint. The temporary Restraining Order
We come now to the third and fourth issues regarding the personal heretofore issued is hereby lifted.
liability of petitioner Onstott who was made jointly and severally liable
with petitioner corporation for refund to private respondent of the total No costs.
amount the latter had paid to petitioner company. It is basic that a
corporation is invested by law with a personality separate and distinct SO ORDERED.
from those of the persons composing it as wen as from that of any other
legal entity to which it may be related. 11 As a general rule, a corporation
may not be made to answer for acts or liabilities of its stockholders or Plana, Relova and Gutierrez, Jr., JJ., concur.
those of the legal entities to which it may be connected and vice versa.
However, the veil of corporate fiction may be pierced when it is used as a Teehankee, J., concurs in the result.
shield to further an end subversive of justice 12 ; or for purposes that could
not have been intended by the law that created it 13 ; or to defeat public
convenience, justify wrong, protect fraud, or defend crime. 14 ; or to
perpetuate fraud or confuse legitimate issues 15 ; or to circumvent the law
or perpetuate deception 16 ; or as an alter ego, adjunct or business conduit
for the sole benefit of the stockholders. 17

We find no badges of fraud on petitioners' part. They had literally relied,

albeit mistakenly, on paragraph 6 (supra) of its contract with private
respondent when it rescinded the contract to sell extrajudicially and had
sold it to a third person.

In this case, petitioner Onstott was made liable because he was then the
President of the corporation and he a to be the controlling stockholder. No
sufficient proof exists on record that said petitioner used the corporation
to defraud private respondent. He cannot, therefore, be made personally
liable just because he "appears to be the controlling stockholder". Mere
ownership by a single stockholder or by another corporation is not of
itself sufficient ground for disregarding the separate corporate personality.
18
In this respect then, a modification of the Resolution under review is
called for.

WHEREFORE, the questioned Resolution of respondent public official,

dated May 2, 1980, is hereby modified. Petitioner Palay, Inc. is directed to
refund to respondent Nazario M. Dumpit the amount of P13,722.50, with

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