Republic of the Philippines Defendants, record pp. 331-386).
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 137552 June 16, 2000
ROBERTO Z. LAFORTEZA, GONZALO Z. LAFORTEZA,
MICHAEL Z. LAFORTEZA, DENNIS Z. LAFORTEZA,
and LEA Z. LAFORTEZA, petitioners,
vs.
ALONZO MACHUCA, respondent.
GONZAGA-REYES, J.:
This Petition for Review on Certiorari seeks the reversal of the
Decision of the Court of Appeals 1 in CA G.R. CV No. 147457
entitled "ALONZO MACHUCA versus ROBERTO Z.
LAFORTEZA, GONZALO Z. LAFORTEZA, LEA ZULUETA-
LAFORTEZA, MICHAEL Z. LAFORTEZA, and DENNIS Z.
LAFORTEZA".
The following facts as found by the Court of Appeals are
undisputed:
The property involved consists of a house and lot located at No.
7757 Sherwood Street, Marcelo Green Village, Paraaque,
Metro Manila, covered by Transfer Certificate of Title (TCT)
No. (220656) 8941 of the Registered of Deeds of Paraaque
(Exhibit "D", Plaintiff, record, pp. 331-332). The subject
property is registered in the name of the late Francisco Q.
Laforteza, although it is conjugal in nature (Exhibit "8",
1
On August 2, 1988, defendant Lea Zulueta-Laforteza executed a
Special Power of Attorney in favor of defendants Roberto Z.
Laforteza and Gonzalo Z. Laforteza, Jr., appointing both as her
Attorney-in-fact authorizing them jointly to sell the subject
property and sign any document for the settlement of the estate
of the late Francisco Q. Laforteza (Exh. "A", Plaintiff, record,
pp. 323-325).
Likewise on the same day, defendant Michael Z. Laforteza
executed a Special Power of Attorney in favor of defendants
Roberto Z. Laforteza and Gonzalo Laforteza, Jr., likewise,
granting the same authority (Exh. "B", record, pp. 326-328) Both
agency instruments contained a provision that in any document
or paper to exercise authority granted, the signature of both
attorneys- in-fact must be affixed.
On October 27, 1988, defendant Dennis Z. Laforteza executed a
Special Power of Attorney in favor of defendant Roberto Z.
Laforteza for the purpose of selling the subject property (Exh.
"C", Plaintiff, record, pp. 329-330). A year later, on October 30,
1989, Dennis Z. Laforteza executed another Special Power of
Attorney in favor of defendants Roberto Z. Laforteza and
Gonzalo Laforteza, Jr. naming both attorneys-in-fact for the
purpose of selling the subject property and signing any
document for the settlement of the estate of the late Francisco Q.
Laforteza. The subsequent agency instrument (Exh, "2", record,
pp. 371-373) contained similar provisions that both attorneys-in-
fact should sign any document or paper executed in the exercise
of their authority.1wphi1.nt
In the exercise of the above authority, on January 20, 1989, the
heirs of the late Francisco Q. Laforteza represented by Roberto
Z. Laforteza and Gonzalo Z. Laforteza, Jr. entered into a
Memorandum of Agreement (Contract to Sell) with the plaintiff
2
over the subject property for the sum of SIX HUNDRED
THIRTY THOUSAND PESOS (P630,000.00) payable as
follows:
(a) P30,000.00 as earnest money, to be forfeited in favor of the
defendants if the sale is not effected due to the fault of the
plaintiff;
(b) P600,000.00 upon issuance of the new certificate of title in
the name of the late Francisco Q. Laforteza and upon execution
of an extra-judicial settlement of the decedent's estate with sale
in favor of the plaintiff (Par. 2, Exh. "E", record, pp. 335-336).
Significantly, the fourth paragraph of the Memorandum of
Agreement (Contract to Sell) dated January 20, 1989 (Exh. "E",
supra.) contained a provision as follows:
. . . . Upon issuance by the proper Court of the new title, the
BUYER-LESSEE shall be notified in writing and said BUYER-
LESSEE shall have thirty (30) days to produce the balance of
P600,000.00 which shall be paid to the SELLER-LESSORS
upon the execution of the Extrajudicial Settlement with sale.
On January 20, 1989, plaintiff paid the earnest money of
THIRTY THOUSAND PESOS (P30,000.00), plus rentals for the
subject property (Exh. "F", Plaintiff, record, p. 339).
On September 18, 1998 3, defendant heirs, through their counsel
wrote a letter (Exh. 1, Defendants, record, p. 370) to the plaintiff
furnishing the latter a copy of the reconstituted title to the
2
subject property, advising him that he had thirty (3) days to
produce the balance of SIX HUNDRED PESOS (sic)
(P600,000.00) under the Memorandum of Agreement which
plaintiff received on the same date.
On October 18, 1989, plaintiff sent the defendant heirs a letter
requesting for an extension of the THIRTY (30) DAYS deadline
up to November 15, 1989 within which to produce the balance
of SIX HUNDRED THOUSAND PESOS (P600,000.00) (Exh.
"G", Plaintiff, record, pp. 341-342). Defendant Roberto Z.
Laforteza, assisted by his counsel Atty. Romeo L. Gutierrez,
signed his conformity to the plaintiff's letter request (Exh. "G-1
and "G-2", Plaintiff, record, p. 342). The extension, however,
does not appear to have been approved by Gonzalo Z. Laforteza,
the second attorney-in-fact as his conformity does not appear to
have been secured.
On November 15, 1989, plaintiff informed the defendant heirs,
through defendant Roberto Z. Laforteza, that he already had the
balance of SIX HUNDRED THOUSAND PESOS
(P600,000.00) covered by United Coconut Planters Bank
Manager's Check No. 000814 dated November 15, 1989 (TSN,
August 25, 1992, p. 11; Exhs. "H", record, pp. 343-344; "M",
records p. 350; and "N", record, p. 351). However, the
defendants, refused to accept the balance (TSN, August 24,
1992, p. 14; Exhs. "M-1", Plaintiff, record, p. 350; and "N-1",
Plaintiff, record, p. 351). Defendant Roberto Z. Laforteza had
told him that the subject property was no longer for sale (TSN,
October 20, 1992, p. 19; Exh. "J", record, p. 347).
On November 20, 1998 4, defendants informed plaintiff that they
were canceling the Memorandum of Agreement (Contract to
Sell) in view of the plaintiff's failure to comply with his
contractual obligations (Exh. "3").
Thereafter, plaintiff reiterated his request to tender payment of
the balance of SIX HUNDRED THOUSAND PESOS
(P600,000.00). Defendants, however, insisted on the rescission
of the Memorandum of Agreement. Thereafter, plaintiff filed the
instant action for specific performance. The lower court rendered
judgment on July 6, 1994 in favor of the plaintiff, the dispositive
portion of which reads:
WHEREFORE, judgment is hereby rendered in favor of plaintiff
Alonzo Machuca and against the defendant heirs of the late
Francisco Q. Laforteza, ordering the said defendants.
(a) To accept the balance of P600,000.00 as full payment of the
consideration for the purchase of the house and lot located at No.
7757 Sherwood Street, Marcelo Green Village, Paraaque,
Metro Manila, covered by Transfer Certificate of Title No.
(220656) 8941 of the Registry of Deeds of Rizal Paraaque,
Branch;
(b) To execute a registrable deed of absolute sale over the
subject property in favor of the plaintiff;
(c) Jointly and severally to pay the plaintiff the sum of
P20,000.00 as attorney's fees plus cost of suit.
SO ORDERED. (Rollo, pp. 74-75). 5
Petitioners appealed to the Court of Appeals, which affirmed
with modification the decision of the lower court; the dispositive
portion of the Decision reads:
3
WHEREFORE, the questioned decision of the lower court is
hereby AFFIRMED with the MODIFICATION that defendant
heirs Lea Zulueta-Laforteza, Michael Z. Laforteza, Dennis Z.
Laforteza and Roberto Z. Laforteza including Gonzalo Z.
Laforteza, Jr. are hereby ordered to pay jointly and severally the
sum of FIFTY THOUSAND PESOS (P50,000.00) as moral
damages.
SO ORDERED. 6
Motion for Reconsideration was denied but the Decision was
modified so as to absolve Gonzalo Z. Laforteza, Jr. from liability
for the payment of moral damages. 7 Hence this petition wherein
the petitioners raise the following issues:
I. WHETHER THE TRIAL AND APPELLATE COURTS
CORRECTLY CONSTRUED THE MEMORANDUM OF
AGREEMENT AS IMPOSING RECIPROCAL
OBLIGATIONS.
II. WHETHER THE COURTS A QUO CORRECTLY RULED
THAT RESCISSION WILL NOT LIE IN THE INSTANT
CASE.
III. WHETHER THE RESPONDENT IS UNDER ESTOPPEL
FROM RAISING THE ALLEGED DEFECT IN THE SPECIAL
POWER OF ATTORNEY DATED 30 OCTOBER 1989
EXECUTED BY DENNIS LAFORTEZA.
IV. SUPPOSING EX GRATIA ARGUMENTI THE
MEMORANDUM OF AGREEMENT IMPOSES
RECIPROCAL OBLIGATIONS, WHETHER THE
PETITIONERS MAY BE COMPELLED TO SELL THE
SUBJECT PROPERTY WHEN THE RESPONDENT FAILED
TO MAKE A JUDICIAL CONSIGNATION OF THE
PURCHASE PRICE?
V. WHETHER THE PETITIONERS ARE IN BAD FAITH SO
TO AS MAKE THEM LIABLE FOR MORAL DAMAGES? 8
The petitioners contend that the Memorandum of Agreement is
merely a lease agreement with "option to purchase". As it was
merely an option, it only gave the respondent a right to purchase
the subject property within a limited period without imposing
upon them any obligation to purchase it. Since the respondent's
tender of payment was made after the lapse of the option
agreement, his tender did not give rise to the perfection of a
contract of sale.
It is further maintained by the petitioners that the Court of
Appeals erred in ruling that rescission of the contract was
already out of the question. Rescission implies that a contract of
sale was perfected unlike the Memorandum of Agreement in
question which as previously stated is allegedly only an option
contract.
Petitioner adds that at most, the Memorandum of Agreement
(Contract to Sell) is a mere contract to sell, as indicated in its
title. The obligation of the petitioners to sell the property to the
respondent was conditioned upon the issuance of a new
certificate of title and the execution of the extrajudicial partition
with sale and payment of the P600,000.00. This is why
possession of the subject property was not delivered to the
respondent as the owner of the property but only as the lessee
thereof. And the failure of the respondent to pay the purchase
price in full prevented the petitioners' obligation to convey title
4
from acquiring obligatory force.
Petitioners also allege that assuming for the sake of argument
that a contract of sale was indeed perfected, the Court of Appeals
still erred in holding that respondent's failure to pay the purchase
price of P600,000.00 was only a "slight or casual breach".
The petitioners also claim that the Court of Appeals erred in
ruling that they were not ready to comply with their obligation to
execute the extrajudicial settlement. The Power of Attorney to
execute a Deed of Sale made by Dennis Z. Laforteza was
sufficient and necessarily included the power to execute an
extrajudicial settlement. At any rate, the respondent is estopped
from claiming that the petitioners were not ready to comply with
their obligation for he acknowledged the petitioners' ability to do
so when he requested for an extension of time within which to
pay the purchase price. Had he truly believed that the petitioners
were not ready, he would not have needed to ask for said
extension.
Finally, the petitioners allege that the respondent's
uncorroborated testimony that third persons offered a higher
price for the property is hearsay and should not be given any
evidentiary weight. Thus, the order of the lower court awarding
moral damages was without any legal basis.
The appeal is bereft of merit.
A perusal of the Memorandum Agreement shows that the
transaction between the petitioners and the respondent was one
of sale and lease. The terms of the agreement read:
1. For and in consideration of the sum of PESOS: SIX
HUNDRED THIRTY THOUSAND (P630,000.00) payable in a
manner herein below indicated, SELLER-LESSOR hereby agree
to sell unto BUYER-LESSEE the property described in the first
WHEREAS of this Agreement within six (6) months from the
execution date hereof, or upon issuance by the Court of a new
owner's certificate of title and the execution of extrajudicial
partition with sale of the estate of Francisco Laforteza,
whichever is earlier;
2. The above-mentioned sum of PESOS: SIX HUNDRED
THIRTY THOUSAND (P630,000.00) shall be paid in the
following manner:
P30,000.00 as earnest money and as consideration for this
Agreement, which amount shall be forfeited in favor of
SELLER-LESSORS if the sale is not effected because of the
fault or option of BUYER-LESSEE;
P600,000.00 upon the issuance of the new certificate of title
in the name of the late Francisco Laforteza and upon the
execution of an Extrajudicial Settlement of his estate with sale in
favor of BUYER-LESSEE free from lien or any encumbrances.
3. Parties reasonably estimate that the issuance of a new title in
place of the lost one, as well as the execution of extrajudicial
settlement of estate with sale to herein BUYER-LESSEE will be
completed within six (6) months from the execution of this
Agreement. It is therefore agreed that during the six months
period, BUYER-LESSEE will be leasing the subject property for
six months period at the monthly rate of PESOS: THREE
THOUSAND FIVE HUNDRED (P3,500.00). Provided
however, that if the issuance of new title and the execution of
Extrajudicial Partition is completed prior to the expiration of the
5
six months period, BUYER-LESSEE shall only be liable for
rentals for the corresponding period commencing from his
occupancy of the premises to the execution and completion of
the Extrajudicial Settlement of the estate, provided further that if
after the expiration of six (6) months, the lost title is not yet
replaced and the extra judicial partition is not executed,
BUYER-LESSEE shall no longer be required to pay rentals and
shall continue to occupy, and use the premises until subject
condition is complied by SELLER-LESSOR;
4. It is hereby agreed that within reasonable time from the
execution of this Agreement and the payment by BUYER-
LESSEE of the amount of P30,000.00 as herein above provided,
SELLER-LESSORS shall immediately file the corresponding
petition for the issuance of a new title in lieu of the lost one in
the proper Courts. Upon issuance by the proper Courts of the
new title, the BUYER-LESSEE shall have thirty (30) days to
produce the balance of P600,000.00 which shall be paid to the
SELLER-LESSORS upon the execution of the Extrajudicial
Settlement with sale. 9
A contract of sale is a consensual contract and is perfected at the
moment there is a meeting of the minds upon the thing which is
the object of the contract and upon the price. 10 From that
moment the parties may reciprocally demand performance
subject to the provisions of the law governing the form of
contracts. 11The elements of a valid contract of sale under Article
1458 of the Civil Code are (1) consent or meeting of the minds;
(2) determinate subject matter and (3) price certain money or its
equivalent. 12
In the case at bench, there was a perfected agreement between
the petitioners and the respondent whereby the petitioners
obligated themselves to transfer the ownership of and deliver the
house and lot located at 7757 Sherwood St., Marcelo Green
Village, Paraaque and the respondent to pay the price
amounting to six hundred thousand pesos (P600,000.00). All the
elements of a contract of sale were thus present. However, the
balance of the purchase price was to be paid only upon the
issuance of the new certificate of title in lieu of the one in the
name of the late Francisco Laforteza and upon the execution of
an extrajudicial settlement of his estate. Prior to the issuance of
the "reconstituted" title, the respondent was already placed in
possession of the house and lot as lessee thereof for six months
at a monthly rate of three thousand five hundred pesos
(P3,500.00). It was stipulated that should the issuance of the new
title and the execution of the extrajudicial settlement be
completed prior to expiration of the six-month period, the
respondent would be liable only for the rentals pertaining to the
period commencing from the date of the execution of the
agreement up to the execution of the extrajudicial settlement. It
was also expressly stipulated that if after the expiration of the six
month period, the lost title was not yet replaced and the
extrajudicial partition was not yet executed, the respondent
would no longer be required to pay rentals and would continue
to occupy and use the premises until the subject condition was
complied with the petitioners.
The six-month period during which the respondent would be in
possession of the property as lessee, was clearly not a period
within which to exercise an option. An option is a contract
granting a privilege to buy or sell within an agreed time and at a
determined price. An option contract is a separate and distinct
contract from that which the parties may enter into upon the
consummation of the option. 13 An option must be supported by
consideration.14 An option contract is governed by the second
6
paragraph of Article 1479 of the Civil Code 15, which reads:
Art. 1479. . . .
An accepted unilateral promise to buy or to sell a determinate
thing for a price certain is binding upon the promissor if the
promise is supported by a consideration distinct from the price.
In the present case, the six-month period merely delayed the
demandability of the contract of sale and did not determine its
perfection for after the expiration of the six-month period, there
was an absolute obligation on the part of the petitioners and the
respondent to comply with the terms of the sale. The parties
made a "reasonable estimate" that the reconstitution the lost title
of the house and lot would take approximately six months and
thus presumed that after six months, both parties would be able
to comply with what was reciprocally incumbent upon them.
The fact that after the expiration of the six-month period, the
respondent would retain possession of the house and lot without
need of paying rentals for the use therefor, clearly indicated that
the parties contemplated that ownership over the property would
already be transferred by that time.
The issuance of the new certificate of title in the name of the late
Francisco Laforteza and the execution of an extrajudicial
settlement of his estate was not a condition which determined
the perfection of the contract of sale. Petitioners' contention that
since the condition was not met, they no longer had an
obligation to proceed with the sale of the house and lot is
unconvincing. The petitioners fail to distinguish between a
condition imposed upon the perfection of the contract and a
condition imposed on the performance of an obligation. Failure
to comply with the first condition results in the failure of a
contract, while the failure to comply with the second condition
only gives the other party the option either to refuse to proceed
with the sale or to waive the condition. Thus, Art. 1545 of the
Civil Code states:
Art. 1545. Where the obligation of either party to a contract of
sale is subject to any condition which is not performed, such
party may refuse to proceed with the contract or he may waive
performance of the condition. If the other party has promised
that the condition should happen or be performed, such first
mentioned party may also treat the nonperformance of the
condition as a breach of warranty.
Where the ownership in the things has not passed, the buyer may
treat the fulfillment by the seller of his obligation to deliver the
same as described and as warranted expressly or by implication
in the contract of sale as a condition of the obligation of the
buyer to perform his promise to accept and pay for the thing. 16
In the case at bar, there was already a perfected contract. The
condition was imposed only on the performance of the
obligations contained therein. Considering however that the title
was eventually "reconstituted" and that the petitioners admit
their ability to execute the extrajudicial settlement of their
father's estate, the respondent had a right to demand fulfillment
of the petitioners' obligation to deliver and transfer ownership of
the house and lot.
What further militates against petitioners' argument that they did
not enter into a contract or sale is the fact that the respondent
paid thirty thousand pesos (P30,000.00) as earnest money.
Earnest money is something of value to show that the buyer was
really in earnest, and given to the seller to bind the bargain. 17
7
Whenever earnest money is given in a contract of sale, it is
considered as part of the purchase price and proof of the
perfection of the contract. 18
We do not subscribe to the petitioners' view that the
Memorandum Agreement was a contract to sell. There is nothing
contained in the Memorandum Agreement from which it can
reasonably be deduced that the parties intended to enter into a
contract to sell, i.e. one whereby the prospective seller would
explicitly reserve the transfer of title to the prospective buyer,
meaning, the prospective seller does not as yet agree or consent
to transfer ownership of the property subject of the contract to
sell until the full payment of the price, such payment being a
positive suspensive condition, the failure of which is not
considered a breach, casual or serious, but simply an event
which prevented the obligation from acquiring any obligatory
force. 19 There is clearly no express reservation of title made by
the petitioners over the property, or any provision which would
impose non-payment of the price as a condition for the contract's
entering into force. Although the memorandum agreement was
also denominated as a "Contract to Sell", we hold that the parties
contemplated a contract of sale. A deed of sale is absolute in
nature although denominated a conditional sale in the absence of
a stipulation reserving title in the petitioners until full payment
of the purchase price. 20 In such cases, ownership of the thing
sold passes to the vendee upon actual or constructive delivery
thereof. 21 The mere fact that the obligation of the respondent to
pay the balance of the purchase price was made subject to the
condition that the petitioners first deliver the reconstituted title
of the house and lot does not make the contract a contract to sell
for such condition is not inconsistent with a contract of sale. 22
The next issue to be addressed is whether the failure of the
respondent to pay the balance of the purchase price within the
period allowed is fatal to his right to enforce the agreement.
We rule in the negative.
Admittedly, the failure of the respondent to pay the balance of
the purchase price was a breach of the contract and was a ground
for rescission thereof. The extension of thirty (30) days allegedly
granted to the respondent by Roberto Z. Laforteza (assisted by
his counsel Attorney Romeo Gutierrez) was correctly found by
the Court of Appeals to be ineffective inasmuch as the signature
of Gonzalo Z. Laforteza did not appear thereon as required by
the Special Powers of Attorney. 23 However, the evidence reveals
that after the expiration of the six-month period provided for in
the contract, the petitioners were not ready to comply with what
was incumbent upon them,i.e. the delivery of the reconstituted
title of the house and lot. It was only on September 18, 1989 or
nearly eight months after the execution of the Memorandum of
Agreement when the petitioners informed the respondent that
they already had a copy of the reconstituted title and demanded
the payment of the balance of the purchase price. The respondent
could not therefore be considered in delay for in reciprocal
obligations, neither party incurs in delay if the other party does
not comply or is not ready to comply in a proper manner with
what was incumbent upon him. 24
Even assuming for the sake of argument that the petitioners were
ready to comply with their obligation, we find that rescission of
the contract will still not prosper. The rescission of a sale of an
immovable property is specifically governed by Article 1592 of
the New Civil Code, which reads:
In the sale of immovable property, even though it may have been
8
stipulated that upon failure to pay the price at the time agreed
upon the rescission of the contract shall of right take place, the
vendee may pay, even after the expiration of the period, as long
as no demand for rescission of the contract has been made upon
him either judicially or by a notarial act. After the demand, the
court may not grant him a new term. 25
It is not disputed that the petitioners did not make a judicial or
notarial demand for rescission.1avvphi1 The November 20, 1989
letter of the petitioners informing the respondent of the
automatic rescission of the agreement did not amount to a
demand for rescission, as it was not notarized. 26 It was also
made five days after the respondent's attempt to make the
payment of the purchase price. This offer to pay prior to the
demand for rescission is sufficient to defeat the petitioners' right
under article 1592 of the Civil Code. 27 Besides, the
Memorandum Agreement between the parties did not contain a
clause expressly authorizing the automatic cancellation of the
contract without court intervention in the event that the terms
thereof were violated. A seller cannot unilaterally and
extrajudicially rescind a contract or sale where there is no
express stipulation authorizing him to extrajudicially rescind. 28
Neither was there a judicial demand for the rescission thereof.
Thus, when the respondent filed his complaint for specific
performance, the agreement was still in force inasmuch as the
contract was not yet rescinded. At any rate, considering that the
six-month period was merely an approximation of the time if
would take to reconstitute the lost title and was not a condition
imposed on the perfection of the contract and considering further
that the delay in payment was only thirty days which was caused
by the respondents justified but mistaken belief that an extension
to pay was granted to him, we agree with the Court of Appeals
that the delay of one month in payment was a mere casual
breach that would not entitle the respondents to rescind the G.R. CV No. 47457 is AFFIRMED and the instant petition is
contract. Rescission of a contract will not be permitted for a hereby DENIED.
slight or casual breach, but only such substantial and
fundamental breach as would defeat the very object of the No pronouncement as to costs.
parties in making the agreemant. 29
SO ORDERED.
Petitioners' insistence that the respondent should have
consignated the amount is not determinative of whether Melo, Panganiban and Purisima, JJ., concur.
respondent's action for specific performance will lie. Petitioners Vitug, J., abroad on official business.
themselves point out that the effect of cansignation is to
extinguish the obligation. It releases the debtor from
responsibility therefor. 30 The failure of the respondent to
consignate the P600,000.00 is not tantamount to a breach of the
contract for by the fact of tendering payment, he was willing and
able to comply with his obligation.

The Court of Appeals correctly found the petitioners guilty of

bad faith and awarded moral damages to the respondent. As
found by the said Court, the petitioners refused to comply with,
their obligation for the reason that they were offered a higher
price therefor and the respondent was even offered P100,000.00
by the petitioners' lawyer, Attorney Gutierrez, to relinquish his
rights over the property. The award of moral damages is in
accordance with Article 1191 31 of the Civil Code pursuant to
Article 2220 which provides that moral damages may be
awarded in case of breach of contract where the defendant acted
in bad faith. The amount awarded depends on the discretion of
the court based on the circumstances of each
case. 32 Under the circumstances, the award given by the Court
of Appeals amounting to P50,000.00 appears to us to be fair and
reasonable.

ACCORDINGLY, the decision of the Court of Appeals in CA

9

Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 119777 October 23, 1997
THE HEIRS OF PEDRO ESCANLAR, FRANCISCO
HOLGADO and the SPOUSES DR. EDWIN A. JAYME and
ELISA TAN-JAYME, petitioners,
vs.
THE HON. COURT OF APPEALS, GENEROSA
MARTINEZ, CARMEN CARI-AN, RODOLFO CARI-AN,
NELLY CHUA CARI-AN, for herself and as guardian ad
litem of her minor son, LEONELL C. CARI-AN,
FREDISMINDA CARI-AN, the SPOUSES PAQUITO
CHUA and NEY SARROSA-CHUA and THE REGISTER
OF DEEDS OF NEGROS OCCIDENTAL, respondents.
G.R. No. 120690 October 23, 1997
FRANCISCO HOLGADO and HRS. OF PEDRO
ESCANLAR, namely BERNARDO, FELY, SONIA, LILY,
DYESEBEL and NOEMI all surnamed ESCANLAR,
10
petitioners,
vs.
HON. COURT OF APPEALS, GENEROSA MARTINEZ,
CARMEN CARI-AN, RODOLFO CARI-AN, NELLY
CHUA CARI-AN, for herself and as guardian ad litem of her
minor son, LEONELL C. CARI-AN, and SP. PAQUITO
CHUA and NEY SARROSA CHUA and REGISTER OF
DEEDS OF NEGROS OCCIDENTAL, respondents.
ROMERO, J.:
Before us are consolidated petitions for review of the decision of
the Court of Appeals in CA-G.R. CV No. 39975 which affirmed
the trial court's pronouncement that the deed of sale of rights,
interests and participation in favor of petitioners is null and void.
The case arose from the following facts:
Spouses Guillermo Nombre and Victoriana Cari-an died without
issue in 1924 and 1938, respectively. Nombre's heirs include his
nephews and grandnephews. Victoriana Cari-an was succeeded
by her late brother's son, Gregorio Cari-an. The latter was
declared as Victoriana's heir in the estate proceedings for
Nombre and his wife (Special Proceeding No. 7-7279). 1 After
Gregorio died in 1971, his wife, Generosa Martinez, and
children, Rodolfo, Carmen, Leonardo and Fredisminda, all
surnamed Cari-an, were also adjudged as heirs by representation
to Victoriana's estate. 2 Leonardo Cari-an passed away, leaving
his widow, Nelly Chua vda. de Cari-an and minor son Leonell,
as his heirs.
Two parcels of land, denominated as Lot No. 1616 and 1617 of
the Kabankalan Cadastre with an area of 29,350 square meters
and 460,948 square meters, respectively, formed part of the
estate of Nombre and Cari-an.
On September 15, 1978, Gregorio Cari-an's heirs, herein
collectively referred to as private respondents Cari-an, executed
the Deed of Sale of Rights, Interests and Participation worded as
follows:
NOW, THEREFORE, for and in consideration of the sum of
TWO HUNDRED SEVENTY-FIVE THOUSAND
(P275,000.00) Pesos, Philippine Currency, to be paid by the
VENDEES to the VENDORS, except the share of the minor
child of Leonardo Cari-an, which should be deposited with the
Municipal Treasurer of Himamaylan, Province of Negros
Occidental, by the order of the Court of First Instance of Negros
Occidental, Branch VI, Himamaylan, by those presents, do
hereby SELL, CEDE, TRANSFER and CONVEY by way of
ABSOLUTE SALE, all the RIGHTS, INTERESTS and
PARTICIPATION of the Vendors as to the one-half (1/2) portion
pro-indiviso of Lots Nos. 1616 and 1617 (Fishpond), of the
Kabankalan Cadastre, pertaining to the one-half (1/2) portion
pro-indiviso of late Victoriana Cari-an unto and in favor of the
Vendees, their heirs, successors and assigns;
xxx xxx xxx
That this Contract of Sale of rights, interests and participations
shall become effective only upon the approval by the Honorable
Court of First Instance of Negros Occidental, Branch VI-
Himamayla. (Emphasis supplied.)
Pedro Escanlar and Francisco Holgado, the vendees, were
concurrently the lessees of the lots referred to above.3 They
11
stipulated that the balance of the purchase price (P225,000.00)
shall be paid on or before May 1979 in a Deed of Agreement
executed by the parties on the same day:
WHEREAS, at the time of the signing of the Contract,
VENDEES has (sic) only FIFTY THOUSAND (P50,000.00)
Pesos available thereof, and was not able to secure the entire
amount;
WHEREAS, the Vendors and one of the Vendees by the name of
Pedro Escanlar are relatives, and absolute faith and trust exist
between them, wherein during economic crisis, has not failed to
give monetary succor to the Vendors;
WHEREAS, Vendors herein understood the present scarcity of
securing available each (sic) in the amount stated in the contract;
NOW THEREFORE, for and in consideration of the sum of
FIFTY THOUSAND (P50,000.00) Pesos, Philippine Currency,
the balance of TWO HUNDRED TWENTY FIVE THOUSAND
(P25,000.00) Pesos to be paid by the Vendees on or before May,
1979, the Vendors herein, by these Presents, do hereby
CONFIRM and AFFIRM the Deed of Sale of the Rights,
Interests and Participation dated September 15, 1978, over Lots
Nos. 1616 and 1617 (fishpond) of the Kabankalan Cadastre in
favor of the VENDEES, their heirs and assigns.
That pending the complete payment thereof, Vendees shall not
assign, sell, lease, nor mortgage the lights, interests and
participation thereof;
That in the event the Vendees fail and/or omit to pay the balance
of said purchase price on May 31, 1979 and the cancellation of
said Contract of Sale is made thereby, the sum of FIFTY
THOUSAND (P50,000.00) Pesos shall be deemed as damages
thereof to Vendors. (Emphasis supplied). 4
Petitioners were unable to pay the Cari-an heirs' individual
shares, amounting to P55,000.00 each, by the due date.
However, said heirs received at least 12 installments from
petitioners after May 1979. 5 Rodolfo Cari-an was fully paid by
June 21, 1979. Generosa Martinez, Carmen Cari-an and
Fredisminda Cari-an were likewise fully compensated for their
individual shares, per receipts given in evidence. 6 The minor
Leonell's share was deposited with the Regional Trial Court on
September 7, 1982. 7
Being former lessees, petitioners continued in possession of Lot
Nos. 1616 and 1617. Interestingly, they continued to pay rent
based on their lease contract. On September 10, 1981, petitioners
moved to intervene in the probate proceedings of Nombre and
Cari-an as the buyers of private respondent Cari-an's share in Lot
Nos. 1616 and 1617. Petitioners' motion for approval of the
September 15, 1978 sale before the same court, filed on
November 10, 1981, was opposed by private respondents Cari-
an on January 5, 1982. 8
On September 16, 1982, the probate court approved a motion
filed by the heirs of Cari-an and Nombre to sell their respective
shares in the estate. On September 21, 1982, private respondents
Cari-an, in addition to some heirs of Guillermo Nombre, 9 sold
their shares in eight parcels of land including Lot Nos. 1616 and
1617 to the spouses Ney Sarrosa Chua and Paquito Chua for
P1,850,000.00. One week later, the vendor-heirs, including
private respondents Cari-an, filed a motion for approval of sale
of hereditary rights, i.e. the sale made on September 21, 1982 to
12
the Chuas.
Private respondents Cari-an instituted this case for cancellation
of sale against petitioners (Escanlar and Holgado) on November
3, 1982. 10 They complained of petitioners' failure to pay the
balance of the purchase price by May 31, 1979 and alleged that
they only received a total of P132,551.00 in cash and goods.
Petitioners replied that the Cari-ans, having been paid, had no
right to resell the subject lots; that the Chuas were purchasers in
bad faith; and that the court approval of the sale to the Chuas
was subject to their existing claim over said properties.
On April 20, 1983, petitioners also sold their rights and interests
in the subject parcels of land (Lot Nos. 1616 and 1617) to Edwin
Jayme for P735,000.00 11 and turned over possession of both lots
to the latter. The Jaymes in turn, were included in the civil case
as fourth-party defendants.
On December 3, 1984, the probate court approved the
September 21, 1982 sale "without prejudice to whatever rights,
claims and interests over any of those properties of the estate
which cannot be properly and legally ventilated and resolved by
the court in the same intestate proceedings." 12 The certificates of
title over the eight lots sold by the heirs of Nombre and Cari-an
were later issued in the name of respondents Ney Sarrosa Chua
and Paquito Chua.
The trial court allowed a third-party complaint against the third-
party defendants Paquito and Ney Chua on January 7, 1986
where Escanlar and Holgado alleged that the Cari-ans conspired
with the Chuas when they executed the second sale on
September 21, 1982 and that the latter sale is illegal and of no
effect. Respondents Chua countered that they did not know of
the earlier sale of one-half portion of the subject lots to Escanlar
and Holgado. Both parties claimed damages. 13
On April 28, 1988, the trial court approved the Chuas' motion to
file a fourth-party complaint against the spouses Jayme.
Respondents Chua alleged that the Jaymes refused to vacate said
lots despite repeated demands; and that by reason of the illegal
occupation of Lot Nos. 1616 and 1617 by the Jaymes, they
suffered materially from uncollected rentals.
Meanwhile, the Regional Trial Court of Himamaylan which took
cognizance of Special Proceeding No. 7-7279 (Intestate Estate
of Guillermo Nombre and Victoriana Cari-an) had rendered its
decision on October 30,
1987. 14 The probate court concluded that since all the properties
of the estate were disposed of or sold by the declared heirs of
both spouses, the case is considered terminated and the intestate
estate of Guillermo Nombre and Victoriana Cari-an is closed.
The court held:
As regards the various incidents of this case, the Court finds no
cogent reason to resolve them since the very object of the
various incidents in this case is no longer m existence, that is to
say, the properties of the estate of Guillermo Nombre and
Victoriana Cari-an had long been disposed of by the rightful
heirs of Guillermo Nombre and Victoriana Cari-an. In this
respect, there is no need to resolve the Motion for Subrogation
of Movants Pedro Escanlar and Francisco Holgado to be
subrogated to the rights of the heirs of Victoriana Cari-an since
all the properties of the estate had been transferred and titled to
in the name of spouses Ney S. Chua and Dr. Paquito Chua.
Since the nature of the proceedings in this case is summary, this
Court, being a Probate Court, has no jurisdiction to pass upon
13
the validity or invalidity of the sale of rights of the declared
heirs of Guillermo Nombre and Victoriana Cari-an to third
Parties. This issue must be raised in another action where it can
be properly ventilated and resolved. . . . Having determined,
after exhausted (sic) and lengthy hearings, the rightful heirs of
Guillermo Nombre and Victoriana Cari-an, the Court found out
that the second issue has become moot and academic
considering that there are no more properties left to be
partitioned among the declared heirs as that had long ago been
disposed of by the declared heirs . . . . (Emphasis supplied).
The seminal case at bar was resolved by the trial court on
December 18, 1991 in favor of cancellation of the September 15,
1978 sale. Said transaction was nullified because it was not
approved by the probate court as required by the contested deed
of sale of rights, interests and participation and because the Cari-
ans were not fully paid. Consequently, the Deed of Sale executed
by the heirs of Nombre and Cari-an in favor of Paquito and Ney
Chua, which was approved by the probate court, was upheld.
The dispositive portion of the lower court's decision reads:
WHEREFORE, premises considered, judgment is hereby
rendered as follows:
1) Declaring the following contracts null and void and of no
effect:
a) The Deed of Sale, dated Sept. 15, 1978, executed by the
plaintiffs in favor of the defendants Pedro Escanlar and
Francisco Holgado (Exh. "A," Plaintiffs)
b) The Deed of Agreement, dated Sept. 15, 1978, executed by
the plaintiffs in favor of the defendants, Pedro Escanlar and
Francisco Holgado (Exh. "A," Plaintiffs)
c) The Deed of Sale, dated April 20, 1983, executed by the
defendants in favor of the fourth-party defendants, Dr. Edwin
Jayme and Elisa Tan Jayme
d) The sale of leasehold rights executed by the defendants in
favor of the fourth-party defendants
2) Declaring the amount of Fifty Thousand Pesos (P50,000.00)
paid by the defendants to the plaintiffs in connection with the
Sept. 15, 1978 deed of sale, as forfeited in favor of the plaintiffs,
but ordering the plaintiffs to return to the defendants whatever
amounts they have received from the latter after May 3, 1979
and the amount of Thirty Five Thousand Two Hundred Eighteen
& 75/100 (P35,218.75) 15 deposited with the Treasurer of
Himamaylan, Negros Occidental, for the minor Leonell C. Cari-
an
3) Declaring the deed of sale, dated September 23, 1982,
executed by Lasaro Nombre, Victorio Madalag, Domingo
Campillanos, Sofronio Campillanos, Generosa Vda. de
Martinez, Carmen Cari-an, Rodolfo Cari-an, Nelly Chua Vda. de
Cari-an, for herself and as guardian ad litem of the minor
Leonell C. Cari-an, and Fredisminda Cari-an in favor of the
third-party defendants and fourth-party plaintiffs, spouses Dr.
Paquito Chua and Ney Sarrosa Chua (Exh. "2"-Chua) as legal,
valid and enforceable provided that the properties covered by the
said deed of sale are subject of the burdens of the estate, if the
same have not been paid yet.
4) Ordering the defendants Francisco Holgado and Pedro
Escanlar and the fourth-party defendants, spouses Dr. Edwin
14
Jayme and Elisa Tan Jayme, to pay jointly and severally the
amount of One Hundred Thousand Pesos (P100,000.00 as moral
damages and the further sum of Thirty Thousand Pesos
(P30,000.00) as attorney's fees to the third-party defendant
spouses, Dr. Paquito Chua and Ney Sarrosa-Chua.
5) Ordering the fourth-party defendant spouses, Dr. Edwin
Jayme and Elisa Tan Jayme, to pay to the third-party defendants
and fourth-party plaintiffs, spouses Dr. Paquito Chua and Ney
Sarrosa-Chua, the sum of One Hundred Fifty Seven Thousand
Pesos (P157,000.00) as rentals for the riceland and Three
Million Two Hundred Thousand Pesos (P3,200,000.00) as
rentals for the fishpond from October, 1985 to July 24, 1989 plus
the rentals from the latter date until the property shall have been
delivered to the spouses Dr. Paquito Chua and Ney Sarrosa-
Chua;
6) Ordering the defendants and the fourth-party defendants to
immediately vacate Lots Nos. 1616 and 1617, Kabankalan
Cadastre;
7) Ordering the defendants and the fourth-party defendants to
pay costs.
SO ORDERED. 16
Petitioners raised the case to the Court of Appeals. 17 Respondent
court affirmed the decision of the trial court on February 17,
1995 and held that the questioned deed of sale of rights, interests
and participation is a contract to sell because it shall become
effective only upon approval by the probate court and upon full
payment of the purchase price. 18
Petitioners' motion for reconsideration was denied by respondent
court on April 3, 1995. 19 Hence, these petitions.20
1. We disagree with the Court of Appeals' conclusion that the
September 15, 1978 Deed of Sale of Rights, Interests and
Participation is a contract to sell and not one of sale.
The distinction between contracts of sale and contracts to sell
with reserved title has been recognized by this Court in repeated
decisions, according to Justice J.B.L. Reyes in Luzon Brokerage
Co. Inc. v. Maritime Building Co., Inc., 21 upholding the power
of promisors under contracts to sell in case of failure of the other
party to complete payment, to extrajudicially terminate the
operation of the contract, refuse the conveyance, and retain the
sums of installments already received where such rights are
expressly provided for.
In contracts to sell, ownership is retained by the seller and is not
to pass until the full payment of the price. Such payment is a
positive suspensive condition, the failure of which is not a
breach of contract but simply an event that prevented the
obligation of the vendor to convey title from acquiring binding
force. 22 To illustrate, although a deed of conditional sale is
denominated as such, absent a proviso that title to the property
sold is reserved in the vendor until full payment of the purchase
price nor a stipulation giving the vendor the right to unilaterally
rescind the contract the moment the vendee fails to pay within a
fixed period, by its nature, it shall be declared a deed of absolute
sale. 23
The September 15, 1978 sale of rights, interests and
participation as to 1/2 portion pro indiviso of the two subject lots
is a contract of sale for the following reasons: First, private
15
respondents as sellers did not reserve unto themselves the
ownership of the property until full payment of the unpaid
balance of P225,000.00. Second, there is no stipulation giving
the sellers the right to unilaterally rescind the contract the
moment the buyer fails to pay within the fixed period. 24 Prior to
the sale, petitioners were in possession of the subject property as
lessees. Upon sale to them of the rights, interests and
participation as to the 1/2 portion pro indiviso, they remained in
possession, not in concept of lessees anymore but as owners now
through symbolic delivery known as traditio brevi manu. 25
Under Article 1477 of the Civil Code, the ownership of the thing
sold is acquired by the vendee upon actual or constructive
delivery thereof. 26
In a contract of sale, the non-payment of the price is a resolutory
condition which extinguishes the transaction that, for a time,
existed and discharges the obligations created thereunder. The
remedy of an unpaid seller in a contract of sale is to seek either
specific performance or rescission. 27
2. Next to be discussed is the stipulation in the disputed
September 15, 1978 Deed of Sale of Rights, Interests and
Participation which reads: "(t)his Contract of Sale of rights,
interests and participations shall become effective only upon the
approval by the Honorable Court of First Instance of Negros
Occidental, Branch VI-Himamaylan." Notably, the trial court
and the Court of Appeals both held that the deed of sale is null
and void for not having been approved by the probate court.
There has arisen here a confusion in the concepts of validity and
the efficacy of a contract. Under Art. 1318 of the Civil Code, the
essential requisites of a contract are: consent of the contracting
parties; object certain which is the subject matter of the contract
and cause of the obligation which is established. Absent one of
the above, no contract can arise. Conversely, where all are
present, the result is a valid contract. However, some parties
introduce various kinds of restrictions or modalities, the lack of
which will not, however, affect the validity of the contract.
In the instant case, the Deed of Sale, complying as it does with
the essential requisites, is a valid one. However, it did not bear
the stamp of approval of the court. This notwithstanding, the
contract's validity was not affected for in the words of the
stipulation, " . . . this Contract of Sale of rights, interests and
participations shall become effectiveonly upon the approval by
the Honorable Court . . ." In other words, only the effectivity and
not the validity of the contract is affected.
Then, too, petitioners are correct in saying that the need for
approval by the probate court exists only where specific
properties of the estate are sold and not when only ideal and
indivisible shares of an heir are disposed of.
In the case of Dillena v. Court of Appeals, 28 the Court declared
that it is within the jurisdiction of the probate court to approve
the sale of properties of a deceased person by his prospective
heirs before final adjudication. 29 It is settled that court approval
is necessary for the validity of any disposition of the decedent's
estate. However, reference to judicial approval cannot adversely
affect the substantive rights of the heirs to dispose of their ideal
share in the co-heirship and/or co-ownership among the heirs. 30
It must be recalled that during the period of indivision of a
decedent's estate, each heir, being a co-owner, has full ownership
of his part and may therefore alienate it. 31 But the effect of the
alienation with respect to the co-owners shall be limited to the
portion which may be allotted to him in the division upon the
16
termination of the
co-ownership. 32
From the foregoing, it is clear that hereditary rights in an estate
can be validly sold without need of court approval and that when
private respondents Cari-an sold their rights, interests and
participation in Lot Nos. 1616 and 1617, they could legally sell
the same without the approval of the probate court.
As a general rule, the pertinent contractual stipulation (requiring
court approval) should be considered as the law between the
parties. However, the presence of two factors militate against
this conclusion. First, the evident intention of the parties appears
to be contrary to the mandatory character of said stipulation. 33
Whoever crafted the document of conveyance, must have been
of the belief that the controversial stipulation was a legal
requirement for the validity of the sale. But the
contemporaneous and subsequent acts of the parties reveal that
the original objective of the parties was to give effect to the deed
of sale even without court approval. 34 Receipt and acceptance of
the numerous installments on the balance of the purchase price
by the Cari-ans and leaving petitioners in possession of Lot Nos.
1616 and 1617 reveal their intention to effect the mutual
transmission of rights and obligations. It was only after private
respondents Cari-an sold their shares in the subject lots again to
the spouses Chua, in September 1982, that these same heirs filed
the case at bar for the cancellation of the September 1978
conveyance. Worth considering too is the fact that although the
period to pay the balance of the purchase price expired in May
1979, the heirs continued to accept payments until late 1979 and
did not seek judicial relief until late 1982 or three years later.
Second, we hold that the requisite approval was virtually
rendered impossible by the Cari-ans because they opposed the
motion for approval of the sale filed by petitioners 35 and sued
the latter for the cancellation of that sale. The probate court
explained:
(e) While it is true that Escanlar and Holgado filed a similar
motion for the approval of Deed of Sale executed by some of the
heirs in their favor concerning the one-half (1/2) portions of Lots
1616 and 1617 as early as November 10, 1981, yet the Court
could not have favorably acted upon it, because there exists a
pending case for the rescission of that contract, instituted by the
vendors therein against Pedro Escanlar and Francisco Holgado
and filed before another branch of this Court. Until now, this
case, which attacks the very source of whatever rights or
interests Holgado and Escanlar may have acquired over one-half
(1/2) portions of Lots Nos. 1616 and 1617, is pending resolution
by another court. Otherwise, if this Court meddles on these
issues raised in that ordinary civil action seeking for the
rescission of an existing contract, then, the act of this Court
would be totally ineffective, as the same would be in excess of
its jurisdiction. 36
Having provided the obstacle and the justification for the
stipulated approval not to be granted, private respondents Cari-
an should not be allowed to cancel their first transaction with
petitioners because of lack of approval by the probate court,
which lack is of their own making.
3. With respect to rescission of a sale of real property, Article
1592 of the Civil Code governs:
In the sale of immovable property, even though it may have been
stipulated that upon failure to pay the price at the time agreed
17
upon the rescission of the contract shall of right take place, the
vendee may pay, even after the expiration of the period, as long
as no demand for rescission of the contract has been made upon
him either judicially or by a notarial act. After the demand, the
court may not grant him a new term. (Emphasis added)
In the instant case, the sellers gave the buyers until May 1979 to
pay the balance of the purchase price. After the latter failed to
pay installments due, the former made no judicial demand for
rescission of the contract nor did they execute any notarial act
demanding the same, as required under Article 1592.
Consequently, the buyers could lawfully make payments even
after the May 1979 deadline, as in fact they paid several
installments to the sellers which the latter accepted. Thus, upon
the expiration of the period to pay, the sellers made no move to
rescind but continued accepting late payments, an act which
cannot but be construed as a waiver of the right to rescind. When
the sellers, instead of availing of their right to rescind, accepted
and received delayed payments of installments beyond the
period stipulated, and the buyers were in arrears, the sellers in
effect waived and are now estopped from exercising said right to
rescind. 37
4. The matter of full payment is another issue taken up by
petitioners. An exhaustive review of the records of this case
impels us to arrive at a conclusion at variance with that of both
the trial and the appellate courts.
The sole witness in the cancellation of sale case was private
respondent herein Fredisminda Cari-an Bustamante. She initially
testified that after several installments, she signed a receipt for
the full payment of her share in December 1979 but denied
having actually received the P5,000.00 intended to complete her
share. She claims that Escanlar and Holgado made her sign the
receipt late in the afternoon and promised to give the money to
her the following morning when the banks opened. She also
claimed that while her brother Rodolfo
Cari-an's share had already been fully paid, her mother Generosa
Martinez only received P28,334.00 and her sister-in-law Nelly
Chua vda. de Cari-an received only P11,334.00. Fredisminda
also summed up all the installments and came up with the total
of P132,551.00 from the long list on a sheet of a calendar which
was transferred from a small brown notebook. She later admitted
that her list may not have been complete for she gave the
receipts for installments to petitioners Escanlar and Holgado.
She thus claimed that they were defrauded because petitioners
are wealthy and private respondents are poor.
However, despite all her claims, Fredisminda's testimony fails to
convince this Court that they were not fully compensated by
petitioners. Fredisminda admits that her mother and her sister
signed their individual receipts of full payment on their own and
not in her presence. 38 The receipts presented in evidence show
that Generosa Martinez was paid P45,625.00; Carmen Cari-an ,
P45,625.00; Rodolfo Cari-an , P47,500.00 on June 21, 1979;
Nelly Chua vda. de Cari-an, P11,334.00 and the sum of
P34,218.00 was consigned in court for the minor Leonell Cari-
an. 39 Fredisminda insists that she signed a receipt for full
payment without receiving the money therefor and admits that
she did not object to the computation. We find it incredible that a
mature woman like Fredisminda Cari-an, would sign a receipt
for money she did not receive. Furthermore, her claims
regarding the actual amount of the installments paid to her and
her kin are quite vague and unsupported by competent evidence.
She even admits that all the receipts were taken by petitioner
Escanlar. 40 Worth noting too is the absence of supporting
18
testimony from her co-heirs and siblings Carmen Cari-an,
Rodolfo Cari-an and Nelly Chua vda. de Cari-an.
The trial court reasoned out that petitioners, in continuing to pay
the rent for the parcels of land they allegedly bought, admit not
having fully paid the Cari-ans. Petitioners' response, that they
paid rent until 1986 in compliance with their lease contract, only
proves that they respected this contract and did not take undue
advantage of the heirs of Nombre and Cari-an who benefited
from the lease. Moreover, it is to be stressed that petitioners
purchased the hereditary shares solely of the Cari-ans and not
the entire lot.
The foregoing discussion ineluctably leads us to conclude that
the
Cari-ans were indeed paid the balance of the purchase price,
despite having accepted installments therefor belatedly. There is
thus no ground to rescind the contract of sale because of non-
payment.
5. Recapitulating, we have held that the September 15, 1978
deed of sale of rights, interests and participations is valid and
that the sellers-private respondents Cari-an were fully paid the
contract price. However, it must be emphasized that what was
sold only the Cari-an's hereditary shares in Lot Nos. 1616 and
1617 being held pro indiviso by them and is thus a valid
conveyance only of said ideal shares. Specific or designated
portions of land were not involved.
Consequently, the subsequent sale of 8 parcels of land, including
Lot Nos. 1616 and 1617, to the spouses Chua is valid except to
the extent of what was sold to petitioners in the September 15,
1978 conveyance. It must be noted however, that the probate
court in Special Proceeding No. 7-7279 desisted from awarding
the individual shares of each heir because all the properties
belonging to the estate had already been sold. 41 Thus it is not
certain how much private respondents Cari-an were entitled to
with respect to the two lots, or if they were even going to be
awarded shares in said lots.
The proceedings surrounding the estate of Nombre and Cari-an
having attained finality for nearly a decade now, the same cannot
be re-opened. The protracted proceedings which have
undoubtedly left the property under a cloud and the parties
involved in a state of uncertainty compels us to resolve it
definitively.
The decision of the probate court declares private respondents
Cari-an as the sole heirs by representation of Victoriana Cari-an
who was indisputably entitled to half of the estate. 42 There being
no exact apportionment of the shares of each heir and no
competent proof that the heirs received unequal shares in the
disposition of the estate, it can be assumed that the heirs of
Victoriana Cari-an collectively are entitled to half of each
property in the estate. More particularly, private respondents
Cari-an are entitled to half of Lot Nos. 1616 and 1617, i.e.
14,675 square meters of Lot No. 1616 and 230,474 square
meters of Lot No. 1617. Consequently, petitioners, as their
successors-in-interest, own said half of the subject lots and ought
to deliver the possession of the other half, as well as pay rents
thereon, to the private respondents Ney Sarrosa Chua and
Paquito Chua but only if the former (petitioners) remained in
possession thereof.
The rate of rental payments to be made were given in evidence
by Ney Sarrosa Chua in her unrebutted testimony on July 24,
19
1989: For the fishpond (Lot No. 1617) From 1982 up to
1986, rental payment of P3,000.00 per hectare; from 1986-1989
(and succeeding years), rental payment of P10,000.00 per
hectare. For the riceland (Lot No. 1616) 15 cavans per
hectare per year; from 1982 to 1986, P125.00 per cavan; 1987-
1988, P175.00 per cavan; and 1989 and succeeding years,
P200.00 per cavan. 43
WHEREFORE, the petitions are hereby GRANTED. The
decision of the Court of Appeals under review is hereby
REVERSED AND SET ASIDE. The case is REMANDED to the
Regional Trial Court of Negros Occidental, Branch 61 for
petitioners and private respondents Cari-an or their successors-
in-interest to determine exactly which 1/2 portion of Lot Nos.
1616 and 1617 will be owned by each party, at the option of
petitioners. The trial court is DIRECTED to order the issuance
of the corresponding certificates of title in the name of the
respective parties and to resolve the matter of rental payments of
the land not delivered to the Chua spouses subject to the rates
specified above with legal interest from date of demand.
SO ORDERED.
Melo, Francisco and Panganiban, JJ., concur.
Narvasa, C.J., is on leave.
 Republic of the Philippines
SUPREME COURT

SECOND DIVISION

G.R. No. 162822 August 25, 2005

JAIME GUINHAWA, Petitioners,

vs.
PEOPLE OF THE PHILIPPINES, Respondent.

DECISION

CALLEJO, SR., J.:

Jaime Guinhawa was engaged in the business of selling brand

new motor vehicles, including Mitsubishi vans, under the
business name of Guinrox Motor Sales. His office and display
room for cars were located along Panganiban Avenue, Naga
City. He employed Gil Azotea as his sales manager.

On March 17, 1995, Guinhawa purchased a brand new

Mitsubishi L-300 Versa Van with Motor No. 4D56A-C8929 and
Serial No. L069WQZJL-07970 from the Union Motors
Corporation (UMC) in Paco, Manila. The van bore Plate No.
DLK 406. Guinhawas driver, Leopoldo Olayan, drove the van
from Manila to Naga City. However, while the van was traveling
along the highway in Labo, Daet, Camarines Norte, Olayan

20
suffered a heart attack. The van went out of control, traversed
the highway onto the opposite lane, and was ditched into the
canal parallel to the highway.1 The van was damaged, and the
left front tire had to be replaced.
The incident was reported to the local police authorities and was
recorded in the police blotter.2 The van was repaired and later
offered for sale in Guinhawas showroom.3
Sometime in October 1995, the spouses Ralph and Josephine
Silo wanted to buy a new van for their garment business; they
purchased items in Manila and sold them in Naga City.4 They
went to Guinhawas office, and were shown the L-300 Versa Van
which was on display. The couple inspected its interior portion
and found it beautiful. They no longer inspected the under
chassis since they presumed that the vehicle was brand new. 5
Unaware that the van had been damaged and repaired on account
of the accident in Daet, the couple decided to purchase the van
for P591,000.00. Azotea suggested that the couple make a
downpayment of P118,200.00, and pay the balance of the
purchase price by installments via a loan from the United
Coconut Planters Bank (UCPB), Naga Branch, with the L-300
Versa Van as collateral. Azotea offered to make the necessary
arrangements with the UCPB for the consummation of the loan
transaction. The couple agreed. On November 10, 1995, the
spouses executed a Promissory Note6 for the amount of
P692,676.00 as payment of the balance on the purchase price,
and as evidence of the chattel mortgage over the van in favor of
UCPB.
On October 11, 1995, the couple arrived in Guinhawas office to
take delivery of the van. Guinhawa executed the deed of sale,
and the couple paid the P161,470.00 downpayment, for which
21
they were issued Receipt No. 0309. 7They were furnished a
Service Manual8 which contained the warranty terms and
conditions. Azotea instructed the couple on how to start the van
and to operate its radio. Ralph Silo no longer conducted a test
drive; he and his wife assumed that there were no defects in the
van as it was brand new.9
On October 12, 1995, Josephine Silo, accompanied by Glenda
Pingol, went to Manila on board the L-300 Versa Van, with
Glendas husband, Bayani Pingol III, as the driver. Their trip to
Manila was uneventful. However, on the return trip to Naga
from Manila on October 15 or 16, 1995, Bayani Pingol heard a
squeaking sound which seemed to be coming from underneath
the van. They were in Calauag, Quezon, where there were no
humps along the road.10 Pingol stopped the van in Daet,
Camarines Norte, and examined the van underneath, but found
no abnormalities or defects.11 But as he drove the van to Naga
City, the squeaking sound persisted.
Believing that the van merely needed grease, Pingol stopped at a
Shell gasoline station where it was examined. The mechanic
discovered that some parts underneath the van had been welded.
When Pingol complained to Guinhawa, the latter told him that
the defects were mere factory defects. As the defects persisted,
the spouses Silo requested that Guinhawa change the van with
two Charade-Daihatsu vehicles within a week or two, with the
additional costs to be taken from their downpayment.
Meanwhile, the couple stopped paying the monthly amortization
on their loan, pending the replacement of the van. Guinhawa
initially agreed to the couples proposal, but later changed his
mind and told them that he had to sell the van first. The spouses
then brought the vehicle to the Rx Auto Clinic in Naga City for
examination. Jesus Rex Raquitico, Jr., the mechanic, examined
the van and discovered that it was the left front stabilizer that
was producing the annoying sound, and that it had been
repaired.12 Raquitico prepared a Job Order containing the
following notations and recommendations:
1. CHECK UP SUSPENSION (FRONT)
2. REPLACE THE ROD END
3. REPLACE BUSHING
NOTE: FRONT STEP BOARD HAS BEEN ALREADY
DAMAGED AND REPAIRED.
NOTE: FRONT LEFT SUSPENSION MOUNTING IS NOT
ON SPECIFIED ALIGNMENT/MEASUREMENT13
Josephine Silo filed a complaint for the rescission of the sale and
the refund of their money before the Department of Trade and
Industry (DTI). During the confrontation between her and
Guinhawa, Josephine learned that Guinhawa had bought the van
from UMC before it was sold to them, and after it was damaged
in Daet. Subsequently, the spouses Silo withdrew their complaint
from the DTI.
On February 14, 1996, Josephine Silo filed a criminal complaint
for violation of paragraph 1, Article 318 of the Revised Penal
Code against Guinhawa in the Office of the City Prosecutor of
Naga City. After the requisite investigation, an Information was
filed against Guinhawa in the Municipal Trial Court (MTC) of
Naga City. The inculpatory portion reads:
The undersigned Assistant Prosecutor of Naga City accuses
22
Jaime Guinhawa of the crime of OTHER DECEITS defined and
penalized under Art. 318, par. 1 of the Revised Penal Code,
committed as follows:
"That on or about October 11, 1995, in the City of Naga,
Philippines, and within the jurisdiction of this Honorable Court,
the said accused, being a motor vehicle dealer using the trade
name of Guinhawa Motor Sales at Panganiban Avenue, Naga
City, and a dealer of brand new cars, by means of false pretenses
and fraudulent acts, did then and there willfully, unlawfully and
feloniously defraud private complainant, JOSEPHINE P. SILO,
as follows: said accused by means of false manifestations and
fraudulent representations, sold to said private complainant, as
brand new, an automobile with trade name L-300 Versa Van
colored beige and the latter paid for the same in the amount of
P591,000.00, when, in truth and in fact, the same was not brand
new because it was discovered less than a month after it was
sold to said Josephine P. Silo that said L-300 Versa Van had
defects in the underchassis and stepboard and repairs had
already been done thereat even before said sale, as was found
upon check-up by an auto mechanic; that private complainant
returned said L-300 Versa Van to the accused and demanded its
replacement with a new one or the return of its purchase price
from said accused but despite follow-up demands no
replacement was made nor was the purchase price returned to
private complainant up to the present to her damage and
prejudice in the amount of P591,000.00, Philippine Currency,
plus other damages that may be proven in court."14
Guinhawa testified that he was a dealer of brand new Toyota,
Mazda, Honda and Mitsubishi cars, under the business name
Guinrox Motor Sales. He purchased Toyota cars from Toyota
Philippines, and Mitsubishi cars from UMC in Paco, Manila.15
He bought the van from the UMC in March 1995, but did not
use it; he merely had it displayed in his showroom in Naga
City.16 He insisted that the van was a brand new unit when he
sold it to the couple.17 The spouses Silo bought the van and took
delivery only after inspecting and taking it for a road tests. 18His
sales manager, Azotea, informed him sometime in November
1995 that the spouses Silo had complained about the defects
under the left front portion of the van. By then, the van had a
kilometer reading of 4,000 kilometers.19 He insisted that he did
not make any false statement or fraudulent misrepresentation to
the couple about the van, either before or simultaneous with its
purchase. He posited that the defects noticed by the couple were
not major ones, and could be repaired. However, the couple
refused to have the van repaired and insisted on a refund of their
payment for the van which he could not allow. He then had the
defects repaired by the UMC.20 He claimed that the van was
never involved in any accident, and denied that his driver,
Olayan, met an accident and sustained physical injuries when he
drove the van from Manila to Naga City.21 He even denied
meeting Bayani Pingol.
The accused claimed that the couple filed a Complaint22 against
him with the DTI on January 25, 1996, only to withdraw it
later.23 The couple then failed to pay the amortizations for the
van, which caused the UCPB to file a petition for the foreclosure
of the chattel mortgage and the sale of the van at public
auction.24
Azotea testified that he had been a car salesman for 16 years and
that he sold brand new vans.25 Before the couple took delivery of
the vehicle, Pingol inspected its exterior, interior, and underside,
and even drove it for the couple.26 He was present when the van
was brought to the Rx Auto Clinic, where he noticed the dent on
23
its front side.27 He claimed that the van never figured in any
vehicular accident in Labo, Daet, Camarines Norte on March 17,
1995.28 In fact, he declared, he found no police record of a
vehicular accident involving the van on the said date.29 He
admitted that Olayan was their driver, and was in charge of
taking delivery of cars purchased from the manufacturer in
Manila.30
On November 6, 2001, the trial court rendered judgment
convicting Guinhawa. The fallo of the decision reads:
WHEREFORE, premises considered, judgment is hereby
rendered declaring the accused, JAIME GUINHAWA, guilty of
the crime of Other Deceits defined and penalized under Art.
318(1) of the Revised Penal Code, the prosecution having
proven the guilt of the accused beyond reasonable doubt and
hereby imposes upon him the penalty of imprisonment from 2
months and 1 day to 4 months of Arresto Mayor and a fine of
One Hundred Eighty Thousand Seven Hundred and Eleven
Pesos (P180,711.00) the total amount of the actual damages
caused to private complainant.
As to the civil aspect of this case which have been deemed
instituted with this criminal case, Articles 2201 and 2202 of the
Civil Code provides:
"Art. 2201. In contracts and quasi-contracts, the damages for
which the obligor who acted in good faith is liable shall be those
that are the natural and probable consequences of the breach of
the obligation, and which the parties have foreseen or could have
reasonably foreseen at the time the obligation was constituted.
"In case of fraud, malice or wanton attitude, the obligor shall be
responsible for all damages which may be reasonably attributed
to the non-performance of the obligation."
"Art. 2202. In crimes and quasi-delicts, the defendant shall be
liable for all damages which are the natural and probable
consequences of the act or omission complained of. It is not
necessary that such damages have been foreseen or could have
reasonably been foreseen by the defendant."
Thus, accused is condemned to pay actual damages in the
amount of One Hundred Eighty Thousand Seven Hundred and
Eleven Pesos (Php180,711.00), which represents the 20%
downpayment and other miscellaneous expenses paid by the
complainant plus the amount of Nineteen Thousand Two
Hundred Forty-One (Php19,241.00) Pesos, representing the 1st
installment payment made by the private complainant to the
bank. Accused is, likewise, ordered to pay moral damages in the
amount of One Hundred Thousand Pesos (Php100,000.00) in
view of the moral pain suffered by the complainant; for
exemplary damages in the amount of Two Hundred Thousand
Pesos (Php200,000.00) to serve as deterrent for those
businessmen similarly inclined to take undue advantage over the
publics innocence. As for attorneys fees, the reasonable amount
of One Hundred Thousand Pesos (Php100,000.00) is hereby
awarded.
SO ORDERED.31
The trial court declared that the accused made false pretenses or
misrepresentations that the van was a brand new one when, in
fact, it had figured in an accident in Labo, Daet, Camarines
Norte, and sustained serious damages before it was sold to the
private complainant.
24
Guinhawa appealed the decision to the Regional Trial Court
(RTC) of Naga City, Branch 19, in which he alleged that:
1. The lower court erred in its finding that the repair works on
the left front portion and underchassis of the van was the result
of the accident in Labo, Camarines Norte, where its driver
suffered an attack of hypertension.
2. The lower court erred in its four (4) findings of fact that
accused-appellant made misrepresentation or false pretenses
"that the van was a brand new car," which constituted deceit as
defined in Article 318, paragraph 1 of the Revised Penal Code.
3. The lower court erred in finding accused-appellant civilly
liable to complainant Josephine Silo. But, even if there be such
liability, the action therefor has already prescribed and the
amount awarded was exhorbitant, excessive and
unconscionable.32
Guinhawa insisted that he never talked to the couple about the
sale of the van; hence, could not have made any false pretense or
misrepresentation.
On August 1, 2002, the RTC affirmed the appealed judgment.33
Guinhawa filed a petition for review with the Court of Appeals
(CA), where he averred that:
I
THE COURT A QUO ERRED IN CONVICTING
PETITIONER OF THE CRIME OF OTHER DECEITS AND
SENTENCING HIM TO SUFFER IMPRISONMENT OF TWO
MONTHS AND ONE DAY TO FOUR MONTHS OFARRESTO
MAYOR AND TO PAY FINE IN THE AMOUNT OF
P180,711.00.
II
THE COURT A QUO ERRED IN ORDERING PETITIONER
TO PAY PRIVATE COMPLAINANT P180,711.00 AS
DOWNPAYMENT, P19,241.00 AS FIRST INSTALLMENT
WITH UCPB NAGA, P100,000.00 AS MORAL DAMAGES,
P200,000.00 AS EXEMPLARY DAMAGES AND P100,000.00
AS ATTORNEYS FEES.34
On January 5, 2004, the CA rendered judgment affirming with
modification the decision of the RTC. The fallo of the decision
reads:
WHEREFORE, premises considered, the instant petition is
hereby partially granted insofar as the following are concerned:
a) the award of moral damages is hereby REDUCED to
P10,000.00 and b) the award of attorneys fees and exemplary
damages are hereby DELETED for lack of factual basis. In all
other respects, We affirm the decision under review.
Costs against petitioner.
SO ORDERED.35
The CA ruled that the private complainant had the right to
25
assume that the van was brand new because Guinhawa held
himself out as a dealer of brand new vans. According to the
appellate court, the act of displaying the van in the showroom
without notice to any would-be buyer that it was not a brand new
unit was tantamount to deceit. Thus, in concealing the vans true
condition from the buyer, Guinhawa committed deceit.
The appellate court denied Guinhawas motion for
reconsideration, prompting him to file the present petition for
review on certiorari, where he contends:
I
THE COURT A QUO ERRED IN NOT HOLDING THAT THE
INFORMATION CHARGED AGAINST PETITIONER DID
NOT INFORM HIM OF A CHARGE OF OTHER DECEITS.
II
THE COURT A QUO ERRED IN HOLDING THAT
PETITIONER EMPLOYED FRAUD OR DECEIT AS
DEFINED UNDER ARTICLE 318, REVISED PENAL CODE.
III
THE COURT A QUO ERRED IN NOT CONSIDERING THE
CIRCUMSTANCES POINTING TO THE INNOCENCE OF
THE PETITIONER.36
The issues for resolution are (1) whether, under the Information,
the petitioner was charged of other deceits under paragraph 1,
Article 318 of the Revised Penal Code; and (2) whether the
respondent adduced proof beyond reasonable doubt of the
petitioners guilt for the crime charged.
The petitioner asserts that based on the allegations in the
Information, he was charged with estafa through false pretenses
under paragraph 2, Article 315 of the Revised Penal Code.
Considering the allegation that the private complainant was
defrauded of P591,000.00, it is the RTC, not the MTC, which
has exclusive jurisdiction over the case. The petitioner maintains
that he is not estopped from assailing this matter because the
trial courts lack of jurisdiction can be assailed at any time, even
on appeal, which defect cannot even be cured by the evidence
adduced during the trial. The petitioner further avers that he was
convicted of other deceits under paragraph 1, Article 318 of the
Revised Penal Code, a crime for which he was not charged;
hence, he was deprived of his constitutional right to be informed
of the nature of the charge against him. And in any case, even if
he had been charged of other deceits under paragraph 1 of
Article 318, the CA erred in finding him guilty. He insists that
the private complainant merely assumed that the van was brand
new, and that he did not make any misrepresentation to that
effect. He avers that deceit cannot be committed by
concealment, the absence of any notice to the public that the van
was not brand new does not amount to deceit. He posits that
based on the principle of caveat emptor, if the private
complainant purchased the van without first inspecting it, she
must suffer the consequences. Moreover, he did not attend to the
private complainant when they examined the van; thus, he could
not have deceived them.
The petitioner maintains that, absent evidence of conspiracy, he
is not criminally liable for any representation Azotea may have
made to the private complainant, that the van was brand new. He
26
insists that the respondent was estopped from adducing evidence
that the vehicle was involved in an accident in Daet, Camarines
Norte on March 17, 1995, because such fact was not alleged in
the Information.
In its comment on the petition, the Office of the Solicitor
General avers that, as gleaned from the material averments of the
Information, the petitioner was charged with other deceits under
paragraph 1, Article 318 of the Revised Penal Code, a felony
within the exclusive jurisdiction of the MTC. The petitioner was
correctly charged and convicted, since he falsely claimed that
the vehicle was brand new when he sold the same to the private
complainant. The petitioners concealment of the fact that the
van sustained serious damages as an aftermath of the accident in
Daet, Camarines Norte constituted deceit within the meaning of
paragraph 1 of Article 318.
The Information filed against the petitioner reads:
That on or about October 11, 1995, in the City of Naga,
Philippines, and within the jurisdiction of this Honorable Court,
the said accused, being a motor vehicle dealer using the trade
name of Guinhawa Motor Sales at Panganiban Avenue, Naga
City, and dealer of brand new cars, by means of false pretenses
and fraudulent acts, did then and there, willfully, unlawfully and
feloniously defraud private complainant, JOSEPHINE P. SILO,
as follows: said accused by means of false manifestations and
fraudulent representations, sold to said private complainant, as
brand new, an automobile with trade name L-300 Versa Van
colored beige and the latter paid for the same in the amount of
P591,000.00, when, in truth and in fact, the same was not brand
new because it was discovered less than a month after it was
sold to said Josephine P. Silo that said L-300 Versa Van had
defects in the underchassis and stepboard and repairs have
already been done thereat even before said sale, as was found
upon check-up by an auto mechanic; that private complainant
returned said L-300 Versa Van to the accused and demanded its
replacement with a new one or the return of its purchase price
from said accused but despite follow-up demands no
replacement was made nor was the purchase price returned to
private complainant up to the present to her damage and
prejudice in the amount of P591,000.00, Philippine Currency,
plus other damages that may be proven in court.
CONTRARY TO LAW.37
Section 6, Rule 110 of the Rules of Criminal Procedure requires
that the Information must allege the acts or omissions
complained of as constituting the offense:
SEC. 6. Sufficiency of complaint or information. A complaint
or information is sufficient if it states the name of the accused;
the designation of the offense given by the statute; the acts or
omissions complained of as constituting the offense; the name of
the offended party; the approximate date of the commission of
the offense; and the place where the offense was committed.
When an offense is committed by more than one person, all of
them shall be included in the complaint or information.
The real nature of the offense charged is to be ascertained by the
facts alleged in the body of the Information and the punishment
provided by law, not by the designation or title or caption given
by the Prosecutor in the Information.38 The Information must
allege clearly and accurately the elements of the crime charged.39
27
As can be gleaned from its averments, the Information alleged
the essential elements of the crime under paragraph 1, Article
318 of the Revised Penal Code.
The false or fraudulent representation by a seller that what he
offers for sale is brand new (when, in fact, it is not) is one of
those deceitful acts envisaged in paragraph 1, Article 318 of the
Revised Penal Code. The provision reads:
Art. 318. Other deceits. The penalty of arresto mayor and a
fine of not less than the amount of the damage caused and not
more than twice such amount shall be imposed upon any person
who shall defraud or damage another by any other deceit not
mentioned in the preceding articles of this chapter.
This provision was taken from Article 554 of the Spanish Penal
Code which provides:
El que defraudare o perjudicare a otro, usando de cualquier
engao que no se halle expresado en los artculos anteriores de
esta seccin, ser castigado con una multa del tanto al duplo
del perjuicio que irrogare; y en caso de reincidencia, con la del
duplo y arresto mayor en su grado medio al mximo.
For one to be liable for "other deceits" under the law, it is
required that the prosecution must prove the following essential
elements: (a) false pretense, fraudulent act or pretense other than
those in the preceding articles;
(b) such false pretense, fraudulent act or pretense must be made
or executed prior to or simultaneously with the commission of
the fraud; and (c) as a result, the offended party suffered damage
or prejudice.40 It is essential that such false statement or
fraudulent representation constitutes the very cause or the only
motive for the private complainant to part with her property.
The provision includes any kind of conceivable deceit other than
those enumerated in Articles 315 to 317 of the Revised Penal
Code.41 It is intended as the catchall provision for that purpose
with its broad scope and intendment.42
Thus, the petitioners reliance on paragraph 2(a), Article 315 of
the Revised Penal Code is misplaced. The said provision reads:
2. By means of any of the following false pretenses or fraudulent
acts executed prior to or simultaneously with the commission of
the fraud:
(a) By using fictitious name, or falsely pretending to possess
power, influence, qualifications, property, credit, agency,
business or imaginary transactions; or by means of other similar
deceits.
The fraudulent representation of the seller, in this case, that the
van to be sold is brand new, is not the deceit contemplated in the
law. Under the principle of ejusdem generis, where a statement
ascribes things of a particular class or kind accompanied by
words of a generic character, the generic words will usually be
limited to things of a similar nature with those particularly
enumerated unless there be something in the context to the
contrary.43
Jurisdiction is conferred by the Constitution or by law. It cannot
be conferred by the will of the parties, nor diminished or waived
by them. The jurisdiction of the court is determined by the
averments of the complaint or Information, in relation to the law
prevailing at the time of the filing of the criminal complaint or
28
Information, and the penalty provided by law for the crime
charged at the time of its commission.
Section 32 of Batas Pambansa Blg. 129, as amended by
Republic Act No. 7691, provides that the MTC has exclusive
jurisdiction over offenses punishable with imprisonment not
exceeding six years, irrespective of the amount of the fine:
Sec. 32. Jurisdiction of Metropolitan Trial Courts, Municipal
Trial Courts and Municipal Circuit Trial Courts in Criminal
Cases. Except in cases falling within the exclusive original
jurisdiction of Regional Trial Courts and of the Sandiganbayan,
the Metropolitan Trial Courts, Municipal Trial Courts, and
Municipal Circuit Trial Courts shall exercise:
(1) Exclusive original jurisdiction over all violations of city or
municipal ordinances committed within their respective
territorial jurisdiction; and
(2) Exclusive original jurisdiction over all offenses punishable
with imprisonment not exceeding six (6) years irrespective of
the amount of fine, and regardless of other imposable accessory
or other penalties, including the civil liability arising from such
offenses or predicated thereon, irrespective of kind, nature, value
or amount thereof: Provided, however, That in offenses
involving damage to property through criminal negligence, they
shall have exclusive original jurisdiction thereof.
Since the felony of other deceits is punishable by arresto mayor,
the MTC had exclusive jurisdiction over the offense lodged
against the petitioner.
On the merits of the petition, the Court agrees with the
petitioners contention that there is no evidence on record that he
made direct and positive representations or assertions to the
private complainant that the van was brand new. The record
shows that the private complainant and her husband Ralph Silo
were, in fact, attended to by Azotea. However, it bears stressing
that the representation may be in the form of words, or conduct
resorted to by an individual to serve as an advantage over
another. Indeed, as declared by the CA based on the evidence on
record:
Petitioner cannot barefacedly claim that he made no personal
representation that the herein subject van was brand new for the
simple reason that nowhere in the records did he ever refute the
allegation in the complaint, which held him out as a dealer of
brand new cars. It has thus become admitted that the petitioner
was dealing with brand new vehicles a fact which, up to now,
petitioner has not categorically denied. Therefore, when private
complainant went to petitioners showroom, the former had
every right to assume that she was being sold brand new
vehicles there being nothing to indicate otherwise. But as it
turned out, not only did private complainant get a defective and
used van, the vehicle had also earlier figured in a road accident
when driven by no less than petitioners own driver.44
Indeed, the petitioner and Azotea obdurately insisted in the trial
court that the van was brand new, and that it had never figured in
vehicular accident. This representation was accentuated by the
fact that the petitioner gave the Service Manual to the private
complainant, which manual
contained the warranty terms and conditions, signifying that the
van was "brand new." Believing this good faith, the private
complainant decided to purchase the van for her buy-and-sell
and garment business, and even made a downpayment of the
29
purchase price.
As supported by the evidence on record, the van was defective
when the petitioner sold it to the private complainant. It had
ditched onto the shoulder of the highway in Daet, Camarines
Norte on its way from Manila to Naga City. The van was
damaged and had to be repaired; the rod end and bushing had to
be replaced, while the left front stabilizer which gave out a
persistent annoying sound was repaired. Some parts underneath
the van were even welded together. Azotea and the petitioner
deliberately concealed these facts from the private complainant
when she bought the van, obviously so as not to derail the sale
and the profit from the transaction.
The CA is correct in ruling that fraud or deceit may be
committed by omission. As the Court held in People v. Balasa:45
Fraud, in its general sense, is deemed to comprise anything
calculated to deceive, including all acts, omissions, and
concealment involving a breach of legal or equitable duty, trust,
or confidence justly reposed, resulting in damage to another, or
by which an undue and unconscientious advantage is taken of
another. It is a generic term embracing all multifarious means
which human ingenuity can device, and which are resorted to by
one individual to secure an advantage over another by false
suggestions or by suppression of truth and includes all surprise,
trick, cunning, dissembling and any unfair way by which another
is cheated. On the other hand, deceit is the false representation
of a matter of fact whether by words or conduct, by false or
misleading allegations, or by concealment of that which should
have been disclosed which deceives or is intended to deceive
another so that he shall act upon it to his legal injury.46
It is true that mere silence is not in itself concealment.
Concealment which the law denounces as fraudulent implies a
purpose or design to hide facts which the other party sought to
know.47 Failure to reveal a fact which the seller is, in good faith,
bound to disclose may generally be classified as a deceptive act
due to its inherent capacity to deceive. 48 Suppression of a
material fact which a party is bound in good faith to disclose is
equivalent to a false representation.49 Moreover, a representation
is not confined to words or positive assertions; it may consist as
well of deeds, acts or artifacts of a nature calculated to mislead
another and thus allow the fraud-feasor to obtain an undue
advantage.50
Fraudulent nondisclosure and fraudulent concealment are of the
same genre. Fraudulent concealment presupposes a duty to
disclose the truth and that disclosure was not made when
opportunity to speak and inform was presented, and that the
party to whom the duty of disclosure, as to a material fact was
due, was induced thereby to act to his injury.51
Article 1389 of the New Civil Code provides that failure to
disclose facts when there is a duty to reveal them constitutes
fraud. In a contract of sale, a buyer and seller do not deal from
equal bargaining positions when the latter has knowledge, a
material fact which, if communicated to the buyer, would render
the grounds unacceptable or, at least, substantially less
desirable.52 If, in a contract of sale, the vendor knowingly
allowed the vendee to be deceived as to the thing sold in a
material matter by failing to disclose an intrinsic circumstance
that is vital to the contract, knowing that the vendee is acting
upon the presumption that no such fact exists, deceit is
accomplished by the suppression of the truth.53
30
In the present case, the petitioner and Azotea knew that the van
had figured in an accident, was damaged and had to be repaired.
Nevertheless, the van was placed in the showroom, thus making
it appear to the public that it was a brand new unit. The
petitioner was mandated to reveal the foregoing facts to the
private complainant. But the petitioner and Azotea even
obdurately declared when they testified in the court a quo that
the vehicle did not figure in an accident, nor had it been
repaired; they maintained that the van was brand new, knowing
that the private complainant was going to use it for her garment
business. Thus, the private complainant bought the van,
believing it was brand new.
Significantly, even when the petitioner was apprised that the
private complainant had discovered the vans defects, the
petitioner agreed to replace the van, but changed his mind and
insisted that it must be first sold.
The petitioner is not relieved of his criminal liability for
deceitful concealment of material facts, even if the private
complainant made a visual inspection of the vans interior and
exterior before she agreed to buy it and
failed to inspect its under chassis. Case law has it that where the
vendee made only a partial investigation and relies, in part, upon
the representation of the vendee, and is deceived by such
representation to his injury, he may maintain an action for such
deceit.54 The seller cannot be heard to say that the vendee should
not have relied upon the fraudulent concealment; that
negligence, on the part of the vendee, should not be a defense in
order to prevent the vendor from unjustifiably escaping with the
fruits of the fraud.
In one case,55 the defendant who repainted an automobile,
worked it over to resemble a new one and delivered it to the
plaintiff was found to have warranted and represented that the
automobile being sold was new. This was found to be "a false
representation of an existing fact; and, if it was material and
induced the plaintiff to accept something entirely different from
that which he had contracted for, it clearly was a fraud which,
upon its discovery and a tender of the property back to the seller,
[it] entitled the plaintiff to rescind the trade and recover the
purchase money."56
On the petitioners insistence that the private complainant was
proscribed from charging him with estafa based on the principle
of caveat emptor, case law has it that this rule only requires the
purchaser to exercise such care and attention as is usually
exercised by ordinarily prudent men in like business affairs, and
only applies to defects which are open and patent to the service
of one exercising such care.57 In an avuncular case, it was held
that:
The rule of caveat emptor, like the rule of sweet charity, has
often been invoked to cover a multitude of sins; but we think its
protecting mantle has never been stretched to this extent. It can
only be applied where it is shown or conceded that the parties to
the contract stand on equal footing and have equal knowledge or
equal means of knowledge and there is no relation of trust or
confidence between them. But, where one party undertakes to
sell to another property situated at a distance and of which he
has or claims to have personal knowledge and of which the
buyer knows nothing except as he is informed by the seller, the
buyer may rightfully rely on the truth of the sellers
representations as to its kind, quality, and value made in the
course of negotiation for the purpose of inducing the purchase.
If, in such case, the representations prove to be false, neither law
31
nor equity will permit the seller to escape responsibility by the
plea that the buyer ought not to have believed him or ought to
have applied to other sources to ascertain the facts. 58
It bears stressing that Azotea and the petitioner had every
opportunity to reveal to the private complainant that the van was
defective. They resolved to maintain their silence, to the
prejudice of the private complainant, who was a garment
merchant and who had no special knowledge of parts of motor
vehicles. Based on the surrounding circumstances, she relied on
her belief that the van was brand new. In fine, she was the
innocent victim of the petitioners fraudulent nondisclosure or
concealment.
The petitioner cannot pin criminal liability for his fraudulent
omission on his general manager, Azotea. The two are equally
liable for their collective fraudulent silence. Case law has it that
wherever the doing of a
certain act or the transaction of a given affair, or the performance
of certain business is confided to an agent, the authority to so act
will, in accordance with a general rule often referred to, carry
with it by implication the authority to do all of the collateral acts
which are the natural and ordinary incidents of the main act or
business authorized.59
The MTC sentenced the petitioner to suffer imprisonment of
from two months and one day, as minimum, to four months of
arresto mayor, as maximum. The CA affirmed the penalty
imposed by the trial court. This is erroneous. Section 2 of Act
4103, as amended, otherwise known as the Indeterminate
Sentence Law, provides that the law will not apply if the
maximum term of imprisonment does not exceed one year:
SEC. 2. This Act shall not apply to persons convicted of offenses 38 of the Revised Penal Code, the petitioner shall suffer
punished with death penalty or life-imprisonment; to those subsidiary imprisonment if he has no property with which to pay
convicted of treason, conspiracy or proposal to commit treason; the penalty of fine.
to those convicted of misprision of treason, rebellion, sedition or
espionage; to those convicted of piracy; to those who are IN LIGHT OF ALL THE FOREGOING, the petition is
habitual delinquents; to those who shall have escaped from DENIED. The assailed Decision and Resolution
confinement or evaded sentence; to those who having been areAFFIRMED WITH MODIFICATION. Considering the
granted conditional pardon by the Chief Executive shall have surrounding circumstances of the case, the petitioner is hereby
violated the terms thereof; to those whose maximum term of sentenced to suffer a straight penalty of six (6) months
imprisonment does not exceed one year, not to those already imprisonment. The petitioner shall suffer subsidiary
sentenced by final judgment at the time of approval of this Act, imprisonment in case of insolvency.
except as provided in Section 5 hereof. (As amended by Act No.
4225.) Costs against the petitioner.

In this case, the maximum term of imprisonment imposed on the SO ORDERED.

petitioner was four months and one day ofarresto mayor. Hence,
the MTC was proscribed from imposing an indeterminate ROMEO J. CALLEJO, SR.
penalty on the petitioner. An indeterminate penalty may be
imposed if the minimum of the penalty is
Associate Justice
one year or less, and the maximum exceeds one year. For
example, the trial court may impose an indeterminate penalty of
six months of arresto mayor, as minimum, to two years and four
months of prision correccional, as maximum, since the
maximum term of imprisonment it imposed exceeds one year. If
the trial court opts to impose a penalty of imprisonment of one
year or less, it should not impose an indeterminate penalty, but a
straight penalty of one year or less instead. Thus, the petitioner
may be sentenced to a straight penalty of one year, or a straight
penalty of less than one year, i.e., ten months or eleven months.
We believe that considering the attendant circumstances, a
straight penalty of imprisonment of six months is reasonable.

Conformably with Article 39 in relation to paragraph 3, Article

32
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 152219 October 25, 2004

NUTRIMIX FEEDS CORPORATION, petitioner,

vs.
COURT OF APPEALS and SPOUSES EFREN AND
MAURA EVANGELISTA, respondents.

DECISION

CALLEJO, SR., J.:

For review on certiorari is the Decision1 of the Court of Appeals

in CA-G.R. CV No. 59615 modifying, on appeal, the Joint
Decision2 of the Regional Trial Court of Malolos, Bulacan,
Branch 9, in Civil Case No. 1026-M-93 3 for sum of money and
damages with prayer for issuance of writ of preliminary
attachment, and Civil Case No. 49-M-944 for damages. The trial
court dismissed the complaint of the respondents, ordering them
to pay the petitioner the unpaid value of the assorted animal
feeds delivered to the former by the latter, with legal interest
thereon from the filing of the complaint, including attorneys
fees.

The Factual Antecedents

On April 5, 1993, the Spouses Efren and Maura Evangelista, the

33
respondents herein, started to directly procure various kinds of Check
animal feeds from petitioner Nutrimix Feeds Corporation. The Bank Due Date Amount
Number
petitioner gave the respondents a credit period of thirty to forty-
five days to postdate checks to be issued in payment for the United Coconut BTS0520
July 30, 1993 P 47,760.00
delivery of the feeds. The accommodation was made apparently Planters Bank 84
because of the company presidents close friendship with
BTS0520
Eugenio Evangelista, the brother of respondent Efren -do- July 30, 1993 131,340.00
87
Evangelista. The various animal feeds were paid and covered by
checks with due dates from July 1993 to September 1993. BTS0520
-do- July 30, 1993 59,700.00
Initially, the respondents were good paying customers. In some 91
instances, however, they failed to issue checks despite the
deliveries of animal feeds which were appropriately covered by BTS0627 August 4,
-do- 47,860.00
sales invoices. Consequently, the 21 1993
BTS0627 August 5,
-do- 43,780.00
Sales Invoice Number Date Amount 20 1993

21334 June 23, 1993 P 7,260.00 BTS0627 August 6,

-do- 15,000.00
74 1993
21420 June 26, 1993 6,990.00
BTS0627 September 11,
21437 June 28, 1993 41,510.00 -do- 47,180.00
48 1993
21722 July 12, 1993 45,185.00 BTS0627 September 11,
-do- 48,440.00
22048 July 26, 1993 44,540.00 63 1993

22054 July 27, 1993 45,246.00 BTS0627 September 18,

-do- 49,460.00
66 1993
22186 August 2, 1993 84,900.00
P490,520.00
Total:
P275,631.00 ==========
Total:
===========
respondents incurred an aggregate unsettled account with the When the above-mentioned checks were deposited at the
petitioner in the amount of P766,151.00. The breakdown of the petitioners depository bank, the same were, consequently,
unpaid obligation is as follows: dishonored because respondent Maura Evangelista had already
closed her account. The petitioner made several demands for the

34
respondents to settle their unpaid obligation, but the latter failed
and refused to pay their remaining balance with the petitioner.
On December 15, 1993, the petitioner filed with the Regional
Trial Court of Malolos, Bulacan, a complaint, docketed as Civil
Case No. 1026-M-93, against the respondents for sum of money
and damages with a prayer for issuance of writ of preliminary
attachment. In their answer with counterclaim, the respondents
admitted their unpaid obligation but impugned their liability to
the petitioner. They asserted that the nine checks issued by
respondent Maura Evangelista were made to guarantee the
payment of the purchases, which was previously determined to
be procured from the expected proceeds in the sale of their
broilers and hogs. They contended that inasmuch as the sudden
and massive death of their animals was caused by the
contaminated products of the petitioner, the nonpayment of their
obligation was based on a just and legal ground.
On January 19, 1994, the respondents also lodged a complaint
for damages against the petitioner, docketed as Civil Case No.
49-M-94, for the untimely and unforeseen death of their animals
supposedly effected by the adulterated animal feeds the
petitioner sold to them. Within the period to file an answer, the
petitioner moved to dismiss the respondents complaint on the
ground of litis pendentia. The trial court denied the same in a
Resolution5 dated April 26, 1994, and ordered the consolidation
of the case with Civil Case No. 1026-M-93. On May 13, 1994,
the petitioner filed its Answer with Counterclaim, alleging that
the death of the respondents animals was due to the widespread
pestilence in their farm. The petitioner, likewise, maintained that
it received information that the respondents were in an unstable
financial condition and even sold their animals to settle their
obligations from other enraged and insistent creditors. It,
35
moreover, theorized that it was the respondents who mixed
poison to its feeds to make it appear that the feeds were
contaminated.
A joint trial thereafter ensued.
During the hearing, the petitioner presented Rufino Arenas,
Nutrimix Assistant Manager, as its lone witness. He testified that
on the first week of August 1993, Nutrimix President Efren
Bartolome met the respondents to discuss the possible settlement
of their unpaid account. The said respondents still pleaded to the
petitioner to continue to supply them with animal feeds because
their livestock were supposedly suffering from a disease.6
For her part, respondent Maura Evangelista testified that as
direct buyers of animal feeds from the petitioner, Mr. Bartolome,
the company president, gave them a discount of P12.00 per bag
and a credit term of forty-five to seventy-five days. 7 For the
operation of the respondents poultry and piggery farm, the
assorted animal feeds sold by the petitioner were delivered in
their residence and stored in an adjacent bodega made of
concrete wall and galvanized iron sheet roofing with monolithic
flooring.8
It appears that in the morning of July 26, 1993, three various
kinds of animal feeds, numbering 130 bags, were delivered to
the residence of the respondents in Sta. Rosa, Marilao, Bulacan.
The deliveries came at about 10:00 a.m. and were fed to the
animals at approximately 1:30 p.m. at the respondents farm in
Balasing, Sta. Maria, Bulacan. At about 8:30 p.m., respondent
Maura Evangelista received a radio message from a worker in
her farm, warning her that the chickens were dying at rapid
intervals. When the respondents arrived at their farm, they
witnessed the death of 18,000 broilers, averaging 1.7 kilos in
weight, approximately forty-one to forty-five days old. The
broilers then had a prevailing market price of P46.00 per kilo.9
On July 27, 1993, the respondents received another delivery of
160 bags of animal feeds from the petitioner, some of which
were distributed to the contract growers of the respondents. At
that time, respondent Maura Evangelista requested the
representative of the petitioner to notify Mr. Bartolome of the
fact that their broilers died after having been fed with the animal
feeds delivered by the petitioner the previous day. She, likewise,
asked that a technician or veterinarian be sent to oversee the
untoward occurrence. Nevertheless, the various feeds delivered
on that day were still fed to the animals. On July 27, 1993, the
witness recounted that all of the chickens and hogs died. 10 Efren
Evangelista suffered from a heart attack and was hospitalized as
a consequence of the massive death of their animals in the farm.
On August 2, 1993, another set of animal feeds were delivered to
the respondents, but the same were not returned as the latter
were not yet cognizant of the fact that the cause of the death of
their animals was the polluted feeds of the petitioner.11
When respondent Maura Evangelista eventually met with Mr.
Bartolome on an undisclosed date, she attributed the improbable
incident to the animal feeds supplied by the petitioner, and asked
Mr. Bartolome for indemnity for the massive death of her
livestock. Mr. Bartolome disavowed liability thereon and,
thereafter, filed a case against the respondents.12
After the meeting with Mr. Bartolome, respondent Maura
Evangelista requested Dr. Rolando Sanchez, a veterinarian, to
conduct an inspection in the respondents poultry. On October
20, 1993, the respondents took ample amounts remaining from
36
the feeds sold by the petitioner and furnished the same to various
government agencies for laboratory examination.
Dr. Juliana G. Garcia, a doctor of veterinary medicine and the
Supervising Agriculturist of the Bureau of Animal Industry,
testified that on October 20, 1993, sample feeds for chickens
contained in a pail were presented to her for examination by
respondent Efren Evangelista and a certain veterinarian. 13 The
Clinical Laboratory Report revealed that the feeds were negative
of salmonella14 and that the very high aflatoxin level15 found
therein would not cause instantaneous death if taken orally by
birds.
Dr. Rodrigo Diaz, the veterinarian who accompanied Efren at
the Bureau of Animal Industry, testified that sometime in
October 1993, Efren sought for his advice regarding the death of
the respondents chickens. He suggested that the remaining feeds
from their warehouse be brought to a laboratory for examination.
The witness claimed that the feeds brought to the laboratory
came from one bag of sealed Nutrimix feeds which was covered
with a sack.
Dr. Florencio Isagani S. Medina III, Chief Scientist Research
Specialist of the Philippine Nuclear Research Institute, informed
the trial court that respondent Maura Evangelista and Dr. Garcia
brought sample feeds and four live and healthy chickens to him
for laboratory examination. In his Cytogenetic Analysis, 16 Dr.
Medina reported that he divided the chickens into two
categories, which he separately fed at 6:00 a.m. with the animal
feeds of a different commercial brand and with the sample feeds
supposedly supplied by the petitioner. At noon of the same day,
one of the chickens which had been fed with the Nutrimix feeds
died, and a second chicken died at 5:45 p.m. of the same day.
Samples of blood and bone marrow were taken for chromosome
analysis, which showed pulverized chromosomes both from
bone marrow and blood chromosomes. On cross-examination,
the witness admitted that the feeds brought to him were merely
placed in a small unmarked plastic bag and that he had no way
of ascertaining whether the feeds were indeed manufactured by
the petitioner.
Another witness for the respondents, Aida Viloria Magsipoc,
Forensic Chemist III of the Forensic Chemist Division of the
National Bureau of Investigation, affirmed that she performed a
chemical analysis17 of the animal feeds, submitted to her by
respondent Maura Evangelista and Dr. Garcia in a sealed plastic
bag, to determine the presence of poison in the said specimen.
The witness verified that the sample feeds yielded positive
results to the tests for COUMATETRALYL Compound,18 the
active component of RACUMIN, a brand name for a
commercially known rat poison.19 According to the witness, the
presence of the compound in the chicken feeds would be fatal to
internal organs of the chickens, as it would give a delayed blood
clotting effect and eventually lead to internal hemorrhage,
culminating in their inevitable death.
Paz Austria, the Chief of the Pesticide Analytical Section of the
Bureau of Plants Industry, conducted a laboratory examination to
determine the presence of pesticide residue in the animal feeds
submitted by respondent Maura Evangelista and Dr. Garcia. The
tests disclosed that no pesticide residue was detected in the
samples received20but it was discovered that the animal feeds
were positive for Warfarin, a rodenticide (anticoagulant), which
is the chemical family of Coumarin.21
After due consideration of the evidence presented, the trial court
37
ruled in favor of the petitioner. The dispositive portion of the
decision reads:
WHEREFORE, in light of the evidence on record and the
laws/jurisprudence applicable thereon, judgment is hereby
rendered:
1) in Civil Case No. 1026-M-93, ordering defendant spouses
Efren and Maura Evangelista to pay unto plaintiff Nutrimix
Feeds Corporation the amount of P766,151.00 representing the
unpaid value of assorted animal feeds delivered by the latter to
and received by the former, with legal interest thereon from the
filing of the complaint on December 15, 1993 until the same
shall have been paid in full, and the amount of P50,000.00 as
attorneys fees. Costs against the aforenamed defendants; and
2) dismissing the complaint as well as counterclaims in Civil
Case No. 49-M-94 for inadequacy of evidence to sustain the
same. No pronouncement as to costs.
SO ORDERED.22
In finding for the petitioner, the trial court ratiocinated as
follows:
On the strength of the foregoing disquisition, the Court cannot
sustain the Evangelistas contention that Nutrimix is liable under
Articles 1561 and 1566 of the Civil Code governing "hidden
defects" of commodities sold. As already explained, the Court is
predisposed to believe that the subject feeds were contaminated
sometime between their storage at the bodega of the
Evangelistas and their consumption by the poultry and hogs fed
therewith, and that the contamination was perpetrated by
unidentified or unidentifiable ill-meaning mischief-maker(s)
over whom Nutrimix had no control in whichever way.
All told, the Court finds and so holds that for inadequacy of
proof to the contrary, Nutrimix was not responsible at all for the
contamination or poisoning of the feeds supplied by it to the
Evangelistas which precipitated the mass death of the latters
chickens and hogs. By no means and under no circumstance,
therefore, may Nutrimix be held liable for the sundry damages
prayed for by the Evangelistas in their complaint in Civil Case
No. 49-M-94 and answer in Civil Case No. 1026-M-93. In fine,
Civil Case No. 49-M-94 deserves dismissal.
Parenthetically, vis--vis the fulminations of the Evangelistas in
this specific regard, the Court does not perceive any act or
omission on the part of Nutrimix constitutive of "abuse of
rights" as would render said corporation liable for damages
under Arts. 19 and 21 of the Civil Code. The alleged "callous
attitude and lack of concern of Nutrimix" have not been
established with more definitiveness.
As regards Civil Case No. 1026-M-93, on the other hand, the
Court is perfectly convinced that the deliveries of animal feeds
by Nutrimix to the Evangelistas constituted a simple contract of
sale, albeit on a continuing basis and on terms or installment
payments.23
Undaunted, the respondents sought a review of the trial courts
decision to the Court of Appeals (CA), principally arguing that
the trial court erred in holding that they failed to prove that their
broilers and hogs died as a result of consuming the petitioners
feeds.
38
On February 12, 2002, the CA modified the decision of the trial
court. The fallo of the decision reads:
WHEREFORE, premises considered, the appealed decision is
hereby MODIFIED such that the complaint in Civil Case No.
1026-M-93 is dismissed for lack of merit.
So ordered.24
In dismissing the complaint in Civil Case No. 1026-M-93, the
CA ruled that the respondents were not obligated to pay their
outstanding obligation to the petitioner in view of its breach of
warranty against hidden defects. The CA gave much credence to
the testimony of Dr. Rodrigo Diaz, who attested that the sample
feeds distributed to the various governmental agencies for
laboratory examination were taken from a sealed sack bearing
the brand name Nutrimix. The CA further argued that the
declarations of Dr. Diaz were not effectively impugned during
cross-examination, nor was there any contrary evidence adduced
to destroy his damning allegations.
On March 7, 2002, the petitioner filed with this Court the instant
petition for review on the sole ground that
THE HONORABLE COURT OF APPEALS ERRED IN
CONCLUDING THAT THE CLAIMS OF HEREIN
PETITIONER FOR COLLECTION OF SUM OF MONEY
AGAINST PRIVATE RESPONDENTS MUST BE DENIED
BECAUSE OF HIDDEN DEFECTS.
The Present Petition
The petitioner resolutely avers that the testimony of Dr. Diaz can
hardly be considered as conclusive evidence of hidden defects
that can be attributed to the petitioner. Parenthetically, the
petitioner asserts, assuming that the sample feeds were taken
from a sealed sack bearing the brand name Nutrimix, it cannot
decisively be presumed that these were the same feeds brought
to the respondents farm and given to their chickens and hogs for
consumption.
It is the contention of the respondents that the appellate court
correctly ordered the dismissal of the complaint in Civil Case
No. 1026-M-93. They further add that there was sufficient basis
for the CA to hold the petitioner guilty of breach of warranty
thereby releasing the respondents from paying their outstanding
obligation.
The Ruling of the Court
Oft repeated is the rule that the Supreme Court reviews only
errors of law in petitions for review on certiorari under Rule 45.
However, this rule is not absolute. The Court may review the
factual findings of the CA should they be contrary to those of the
trial court. Conformably, this Court may review findings of facts
when the judgment of the CA is premised on a misapprehension
of facts.25
The threshold issue is whether or not there is sufficient evidence
to hold the petitioner guilty of breach of warranty due to hidden
defects.
The petition is meritorious.
The provisions on warranty against hidden defects are found in
Articles 1561 and 1566 of the New Civil Code of the
39
Philippines, which read as follows:
Art. 1561. The vendor shall be responsible for warranty against
hidden defects which the thing sold may have, should they
render it unfit for the use for which it is intended, or should they
diminish its fitness for such use to such an extent that, had the
vendee been aware thereof, he would not have acquired it or
would have given a lower price for it; but said vendor shall not
be answerable for patent defects or those which may be visible,
or for those which are not visible if the vendee is an expert who,
by reason of his trade or profession, should have known them.
Art. 1566. The vendor is responsible to the vendee for any
hidden faults or defects in the thing sold, even though he was not
aware thereof.
This provision shall not apply if the contrary has been stipulated,
and the vendor was not aware of the hidden faults or defects in
the thing sold.
A hidden defect is one which is unknown or could not have been
known to the vendee.26 Under the law, the requisites to recover
on account of hidden defects are as follows:
(a) the defect must be hidden;
(b) the defect must exist at the time the sale was made;
(c) the defect must ordinarily have been excluded from the
contract;
(d) the defect, must be important (renders thing UNFIT or
considerably decreases FITNESS);
(e) the action must be instituted within the statute of
limitations.27
In the sale of animal feeds, there is an implied warranty that it is
reasonably fit and suitable to be used for the purpose which both
parties contemplated.28 To be able to prove liability on the basis
of breach of implied warranty, three things must be established
by the respondents. The first is that they sustained injury because
of the product; the second is that the injury occurred because the
product was defective or unreasonably unsafe; and finally, the
defect existed when the product left the hands of the petitioner. 29
A manufacturer or seller of a product cannot be held liable for
any damage allegedly caused by the product in the absence of
any proof that the product in question was defective. 30 The
defect must be present upon the delivery or manufacture of the
product;31 or when the product left the sellers or manufacturers
control;32 or when the product was sold to the purchaser;33 or the
product must have reached the user or consumer without
substantial change in the condition it was sold. Tracing the
defect to the petitioner requires some evidence that there was no
tampering with, or changing of the animal feeds. The nature of
the animal feeds makes it necessarily difficult for the
respondents to prove that the defect was existing when the
product left the premises of the petitioner.
A review of the facts of the case would reveal that the petitioner
delivered the animal feeds, allegedly containing rat poison, on
July 26, 1993; but it is astonishing that the respondents had the
animal feeds examined only on October 20, 1993, or barely three
months after their broilers and hogs had died. On cross-
examination, respondent Maura Evangelista testified in this
40
manner:
Atty. Cruz:
Q Madam Witness, you said in the last hearing that believing
that the 250 bags of feeds delivered to (sic) the Nutrimix Feeds
Corporation on August 2, 1993 were poison (sic), allegedly your
husband Efren Evangelista burned the same with the chicken[s],
is that right?
A Yes, Sir. Some, Sir.
Q And is it not a fact, Madam Witness, that you did not, as
according to you, used (sic) any of these deliveries made on
August 2, 1993?
A We were able to feed (sic) some of those deliveries because
we did not know yet during that time that it is the cause of the
death of our chicks (sic), Sir.
Q But according to you, the previous deliveries were not used by
you because you believe (sic) that they were poison (sic)?
A Which previous deliveries, Sir[?]
Q Those delivered on July 26 and 22 (sic), 1993?
A Those were fed to the chickens, Sir. This is the cause of the
death of the chickens.
Q And you stated that this last delivery on August 2 were poison
(sic) also and you did not use them, is that right?
Atty. Roxas: A Yes, Sir.

That is misleading. Q When was that, Madam Witness?

Atty. Cruz: A I cannot be sure about the exact time but it is within the
months of October to November, Sir.
She stated that.
Q So, before this analysis of about October and November, you
Atty. Roxas: were not aware that the feeds of Nutrimix Feeds Corporation
were, according to you, with poison?
She said some were fed because they did not know yet of the
poisoning. A We did not know yet that it contained poison but we were sure
that the feeds were the cause of the death of our animals.34
Court:
We find it difficult to believe that the feeds delivered on July 26
And when the chickens died, they stopped naturally feeding it to and 27, 1993 and fed to the broilers and hogs contained poison
the chickens. at the time they reached the respondents. A difference of
approximately three months enfeebles the respondents theory
Atty. Cruz: that the petitioner is guilty of breach of warranty by virtue of
hidden defects. In a span of three months, the feeds could have
already been contaminated by outside factors and subjected to
Q You mean to say, Madam Witness, that although you believe
many conditions unquestionably beyond the control of the
(sic) that the chickens were allegedly poisoned, you used the
petitioner. In fact, Dr. Garcia, one of the witnesses for the
same for feeding your animals?
respondents, testified that the animal feeds submitted to her for
laboratory examination contained very high level of aflatoxin,
A We did not know yet during that time that the feeds contained possibly caused by mold (aspergillus flavus).35 We agree with the
poison, only during that time when we learned about the same contention of the petitioner that there is no evidence on record to
after the analysis. prove that the animal feeds taken to the various governmental
agencies for laboratory examination were the same animal feeds
Q Therefore you have known only of the alleged poison in the given to the respondents broilers and hogs for their
Nutrimix Feeds only after you have caused the analysis of the consumption. Moreover, Dr. Diaz even admitted that the feeds
same? that were submitted for analysis came from a sealed bag. There
is simply no evidence to show that the feeds given to the animals

41
on July 26 and 27, 1993 were identical to those submitted to the
expert witnesses in October 1993.
It bears stressing, too, that the chickens brought to the Philippine
Nuclear Research Institute for laboratory tests were healthy
animals, and were not the ones that were ostensibly poisoned.
There was even no attempt to have the dead fowls examined.
Neither was there any analysis of the stomach of the dead
chickens to determine whether the petitioners feeds really
caused their sudden death. Mere sickness and death of the
chickens is not satisfactory evidence in itself to establish a prima
facie case of breach of warranty.36
Likewise, there was evidence tending to show that the
respondents combined different kinds of animal feeds and that
the mixture was given to the animals. Respondent Maura
Evangelista testified that it was common practice among chicken
and hog raisers to mix animal feeds. The testimonies of
respondent Maura Evangelista may be thus summarized:
Cross-Examination
Atty. Cruz:
Q Because, Madam Witness, you ordered chicken booster mash
from Nutrimix Feeds Corporation because in July 1993 you
were taking care of many chickens, as a matter of fact, majority
of the chickens you were taking care [of] were chicks and not
chickens which are marketable?
A What I can remember was that I ordered chicken booster mash
on that month of July 1993 because we have some chicks which
have to be fed with chicken booster mash and I now remember
42
that on the particular month of July 1993 we ordered several
bags of chicken booster mash for the consumption also of our
chicken in our other poultry and at the same time they were also
used to be mixed with the feeds that were given to the hogs.
Q You mean to say [that], as a practice, you are mixing chicken
booster mash which is specifically made for chick feeds you are
feeding the same to the hogs, is that what you want the Court to
believe?
A Yes, Sir, because when you mix chicken booster mash in the
feeds of hogs there is a better result, Sir, in raising hogs.37
Re-Direct Examination
Atty. Roxas:
Q Now, you mentioned that shortly before July 26 and 27, 1993,
various types of Nutrimix feeds were delivered to you like
chicks booster mash, broiler starter mash and hog finisher or hog
grower mash. What is the reason for simultaneous deliveries of
various types of feeds?
A Because we used to mix all those together in one feeding, Sir.
Q And what is the reason for mixing the chick booster mash with
broiler starter mash?
A So that the chickens will get fat, Sir.
Re-Cross Examination
Atty. Cruz:
Q Madam Witness, is it not a fact that the mixing of these feeds
by you is your own concuction (sic) and without the advice of a
veterinarian expert to do so?
A That is common practice among raisers to mix two feeds, Sir.
Q By yourself, Madam Witness, who advised you to do the
mixing of these two types of feeds for feeding your chickens?
A That is common practice of chicken raisers, Sir.38
Even more surprising is the fact that during the meeting with
Nutrimix President Mr. Bartolome, the respondents claimed that
their animals were plagued by disease, and that they needed
more time to settle their obligations with the petitioner. It was
only after a few months that the respondents changed their
justification for not paying their unsettled accounts, claiming
anew that their animals were poisoned with the animal feeds
supplied by the petitioner. The volte-face of the respondents
deserves scant consideration for having been conjured as a mere
afterthought.
In essence, we hold that the respondents failed to prove that the
petitioner is guilty of breach of warranty due to hidden defects.
It is, likewise, rudimentary that common law places upon the
buyer of the product the burden of proving that the seller of the
product breached its warranty.39 The bevy of expert evidence
adduced by the respondents is too shaky and utterly insufficient
to prove that the Nutrimix feeds caused the death of their
animals. For these reasons, the expert testimonies lack probative
weight. The respondents case of breach of implied warranty was
43
fundamentally based upon the circumstantial evidence that the
chickens and hogs sickened, stunted, and died after eating
Nutrimix feeds; but this was not enough to raise a reasonable
supposition that the unwholesome feeds were the proximate
cause of the death with that degree of certainty and probability
required.40 The rule is well-settled that if there be no evidence, or
if evidence be so slight as not reasonably to warrant inference of
the fact in issue or furnish more than materials for a mere
conjecture, the court will not hesitate to strike down the
evidence and rule in favor of the other party.41 This rule is both
fair and sound. Any other interpretation of the law would
unloose the courts to meander aimlessly in the arena of
speculation.42
It must be stressed, however, that the remedy against violations
of warranty against hidden defects is either to withdraw from the
contract (accion redhibitoria) or to demand a proportionate
reduction of the price (accion quanti minoris), with damages in
either case.43 In any case, the respondents have already admitted,
both in their testimonies and pleadings submitted, that they are
indeed indebted to the petitioner for the unpaid animal feeds
delivered to them. For this reason alone, they should be held
liable for their unsettled obligations to the petitioner.
WHEREFORE, in light of all the foregoing, the petition is
GRANTED. The assailed Decision of the Court of Appeals,
dated February 12, 2002, is REVERSED and SET ASIDE. The
Decision of the Regional Trial Court of Malolos, Bulacan,
Branch 9, dated January 12, 1998, is REINSTATED. No costs.
SO ORDERED.
Puno, Austria-Martinez, Tinga, and Chico-Nazario, JJ., concur.
 Solid Homes six (6) parcels of land in Quezon City and
Marikina, with an area of 704,443 sq.m., for a total selling price
of P10,211,075.00 payable (in accordance with paragraph 1
thereof), as follows:

a) P100,000.00, Philippine Currency, as part down payment

Republic of the Philippines
upon signing and execution of this contract receipt of which in
SUPREME COURT
full is hereby acknowledged;
Manila
b) P2,042,215.00, Philippine Currency, as down payment
THIRD DIVISION
payable on the following dates:
1 July 22, 1977 P400,000.00
G.R. No. 97255 August 12, 1994 2 October 22, 1977 711,107.50
3 January 22, 1978 711,107.50
SOLID HOMES, INC., petitioner,
vs. It is hereby agreed that the above down payment included the
HON. COURT OF APPEALS, INVESTCO, INC., ANGELA first down payment of P199,000.00. Should the FIRST PARTY
PEREZ STALEY, and ANTONIO PEREZ, respondents. obtain titles to the properties above-described after July 22,
1977, the due dates of the down payment and all subsequent
Rene A. Diokno for petitioner. payments on the balance shall be adjusted accordingly.

RE S O LUTI ON c) The balance of P8,188,860.00 shall be payable in ten (10)

VITUG, J.:
An action for collection of sums of money, damages and
attorney's fees was filed with the Regional Trial Court (Civil
Case No. 40615) of Pasig by private respondents Investco,
Angela Perez Staley and Antonio Perez Jr. against petitioner
Solid Homes, Inc.
Private respondents averred that, on 07 September 1976, they
sold, under an agreement entitled "contract to sell and to buy," to
semi-annual installments for a period of five (5) years and shall
earn interest at the rate of twelve (12%) per annum, the first
installment to be due on July 22, 1978. The installment due
together with the Schedule of Payments attached hereto as
Schedule "A" and made an integral part of this contract (Exh. A).
1
The second paragraph of Exhibit "A" stipulated that should Solid
Homes fail to pay any of the installments on their respective due
dates, an interest of one percent (1%) per month on the defaulted
amount would be paid for up to two months or pro-rata thereof;

44
thereafter, should the installment due, as well as the interest
thereon, still remain unpaid, the entire balance of the purchase
price would then become immediately due and demandable.
Such due and demandable sum would be payable within thirty
(30) days, counted from the expiration of the 2-month period,
without further need for judicial action.
Private respondents asserted that Solid Homes violated the terms
of the agreement by refusing to pay the balance of
P4,800,282.91 and by failing to negotiate a settlement with the
tenants and squatters of the property despite its receipt from
Investco of P350,000.00 for that specific purpose.
The trial court rendered judgment on 14 February 1985; the
dispositive portion read:
WHEREFORE, judgment is hereby rendered ordering the
defendant to pay the plaintiffs:
1) The amount of P4,800,282.91 with interest thereof at the rate
of one percent per month from February 23, 1981, until fully
paid;
2) The amount of P99,559.00 representing cost of science and
transfer taxes which defendant credited to its account with
interest at the legal rate from the filing of the complaint;
3) The amount of P250,000.00 to cover attorney's fees and
litigation expenses. 2
On appeal, the Court of Appeals (CA-G.R. CV No. 13400),
modified the trial court's judgment and rendered its own
decision, dated 21 January 1991, resolving thusly:
45
PREMISES CONSIDERED, the judgment of the trial court is
hereby modified by ordering defendant-appellant to pay plaintiff
the amount of P4,800,282.91 with interest thereon at the rate of
one percent per month from March 22, 1982. The amount of
attorney's fees is hereby reduced from P250,000.00 to
P50,000.00. The decision is AFFIRMED in all other aspects. 3
In the instant petition for review, petitioner Solid Homes argues
(a) that the Court of Appeals should not have awarded attorney's
fees, there being an absence of any special finding of fact to
justify such award, and (b) that it erred in declaring due and
demandable the entire unpaid balance still owing to private
respondents.
The Second Division of this Court required respondents to
comment on the petition in its Resolution of 22 April 1991.
Meanwhile, Atty. Alejandro Barin withdrew as counsel for
respondents Investco, Inc., Angela Perez Staley and Antonio
Perez, Jr. 4 We required private respondents to submit the name
and address of their new counsel; to this day, no compliance has
yet been made. In our resolution, dated 01 December 1993, we
required the parties to move in the premises and to advise the
Court whether "supervening events may have rendered this case
moot and academic." 5
Petitioner submitted its compliance and manifested thusly:
In the meantime, on April 15, 1985 before judgment was
rendered by the RTC in Civil Case No. 40615 Investco, Inc.
(respondent herein) sold the very same parcels of land involved
in said case, in favor of Armed Forces of the Philippines Mutual
Benefit Association, Inc. (AFPMBAI)
Solid Homes, Inc. (herein petitioner) filed Civil Case No. Q-
46570 RTC Quezon City entitled 'Solid Homes, Inc., plaintiff
versus AFPMBAI, Investco, Inc. and the Register of Deeds of
Quezon City covering titles registered in Quezon City and Civil
Case No. 52999 Solid Homes, Inc., plaintiff versus AFPMBAI,
Investco, Inc., and Register of Deeds for Pasig covering titles
registered in Pasig, Metro Manila, both for nullification of the
said second deed of sale over the same properties involved in the
instant case.
Quezon City RTC Civil Case No. 46570 was decided in favor of
plaintiffs, Solid Homes, Inc.; on appeal, the Court of Appeals
(CA G.R. No. 22365) reversed the decision; same was elevated
to the Supreme Court where it is pending in SC G.R. No.
100437.
Pasig RTC, Civil Case No. 52999 was decided in favor of
plaintiff Solid Homes, Inc.; defendants appealed to the Court of
Appeals (CA G.R. No. 27398), which affirmed the RTC
Decision; on the main cause of action Petition for Review by
this to this Honorable Court is pending under G.R. No. 104769.
Under the circumstances, herein petitioner, in compliance with
the Resolution dated December 1, 1993, hereby manifests that
supervening events since the Petition herein was filed has not
rendered this case as moot and academic, considering that the
issue involved is the amount to be paid in SOLID HOMES, INC.
as balance on the consideration of the original sale by Investco,
Inc. to it and the concomitant transfer of titles to the latter upon
payment thereof, whereas in G.R. No. 100437 and G.R. No.
104769, the issue is whether the second buyer AFPMBAI had
actual or constructive notice of the prior sale by Investco, Inc. to
herein Petitioner, Solid Homes, Inc.
46
As of this late date, the Court has yet to hear from private
respondents. Given the premises, and in order to permit this case
to be finally resolved and terminated, the required comment on
the petition for review should now be, as it is hereby, dispensed
with.
Article 2208 of the Civil Code allows attorney's fees to be
awarded by a court when its claimant is compelled to litigate
with third persons or to incur expenses to protect his interest by
reason of an unjustified act or omission of the party from whom
it is sought. While judicial discretion is here extant, an award
thereof demands, nevertheless, a factual, legal or equitable
justification. The matter cannot and should not be left to
speculation and conjecture (Mirasol vs. De la Cruz, 84 SCRA
337; Stronghold Insurance Company Inc. vs. Court of Appeals,
173 SCRA 619).
In the case at bench, the records do not show enough basis for
sustaining the award for attorney's fees and to adjudge its
payment by petitioner. On the contrary, the appellate court itself
has found that petitioner's act of withholding payment could not
be said to be all that unjustified. The disagreement of the parties
on the demandability of the amount still due and the accrual date
of interest has persisted largely because of supervening
circumstances and the perceived inexplicitness of the contract
itself. The decision of the appellate court, has, in fact, reversed
that of the trial court on the imposition of interest from 23
February 1981, thus upholding, which we similarly find to be in
order, the position of petitioner that the accrual dated should
instead start only on 28 March 1982.
Relative to the demandability of the entire unpaid balance, we
agree with, and so adopt as our own that of respondent court;
viz: Feb. 16 to Feb. 19, 1981 115,000.00

The amount actually paid on account of the contract to buy and P731,853.12
sell (Exh. A or 1) is not an area of controversy in the first cause
of action. The sum of P2,042,215.00 corresponding to the down Thereafter, no further payment was made by appellant
payment, as well as P4,084,430.00 with respect to the first four contending that under the provisions of paragraph 1(b) of the
semi-annual installments and a portion of the fifth installment, contract, the payment schedule should be adjusted. The said
had been received making a total of P6,126,645.00. It is provisions states as follows:
conceded that a balance of P4,800,282.91 is left unpaid. The
dispute is with respect to the period when defendant had Par. 1, sub-par. (b)
defaulted and, consequently, when payment of interest shall
begin. The plaintiffs claim that said period should start on Should the FIRST PARTY (plaintiff Investco) obtain titles to the
February 23, 1981; while the defendant contends that the period properties above-described after July 22, 1977, the due dates of
must be adjusted should the titles be obtained by the plaintiff the downpayment and the subsequent payments on the balance
corporation after July 22, 1977, as provided in Par. 1(b) of the shall be adjusted accordingly.'
contract to sell and to buy. Considering that titles were actually
transferred to Investco, Inc. between March 21 to March 28, Admittedly, the subject titles were obtained during the period of
1979, the defendant avers that the original schedule of payment March 21, to March 28, 1979, or after July 22, 1977 (Exhs. D to
must not be followed and the 5th installment shall only be due 1 and Exhs. 2 to 10). Thus, implementing par. 1(b) of the
on March 22, 1982. Contract, the due dates of payments should have been adjusted
as follows:
xxx xxx xxx
Due Dates
It is undisputed that appellant Solid Homes had made a total Per Contract Installment Adjusted
payment of P6,126,645.00 leaving a balance of P4,800,282.91, Schedule A Number Due Dates
which refers to the 6th to the 10th installments. Of the 5th Downpayment
installment due on July 22, 1980, the following payments were July 22, 1977 March 28, 1979
made by appellant: October 22, 1977 June 08, 1979
January 22, 1978 September 28, 1979
Oct. 30, 1980 to Nov. 10, 1980 P150,000.00 Balance
Nov. 18, 1980 to Dec. 10, 1980 270,000.00 July 22, 1978 No. 1 March 08, 1980
Dec. 18, 1980 to Jan. 14, 1981 101,853.12 January 22, 1979 No. 2 September 28, 1980
Jan. 20 to Feb. 12, 1981 95,000.00 July 22, 1979 No. 3 March 28, 1981

47
January 22, 1981 No. 4 September 28, 1981 AFFIRMED. No costs.
July 22, 1980 No. 5 March 28, 1982
January 22, 1981 No. 6 September 28, 1982 SO ORDERED.
July 22, 1981 No. 7 March 28, 1983
January 22, 1982 No. 8 September 28, 1983 Bidin, Romero and Melo, JJ., concur.
July 22, 1982 No. 9 March 28, 1984
January 22, 1983 No. 10 September 28, 1984 Feliciano, J. concurs in the result.

In view of the adjustment of due dates in accordance with par.

1(b) of the Contract payments made should correspond to the
adjusted dates. Thus, the payment on the 4th installment which
is supposed to have been made on January 22, 1980, should be
credited on September 28, 1981, and the next payment on the
5th installment which should have been made on July 22, 1981
under the contract would have to be credited on March 28, 1981,
the adjusted due date. 7

It is but proper, therefore, to indeed declare 28 March 1982 to be

the due date for the payment of the 5th installment. The total
amount of P731,853.12, representing payments for the 5th
installment made by petitioner, should rightly be credited on 28
March 1982, the adjusted due date. Since no payment appears to
have been made after 1981, petitioner should thereby be likewise
held in default in the payment of the 6th to the 10th installments.
Under the terms of the contract, hereinbefore recited, petitioner's
default has effectively activated the acceleration clause of the
contract, and we see no error on the part of the appellate court in
ordering petitioner to pay the entire unpaid balance of
P4,800,282.91 with interest thereon at the rate of 1% per month
to be computed from 22 March 1982.

WHEREFORE, except on the award of attorney's fees which is

hereby DELETED, the decision of the Court of Appeals is

48
 This resolves the Motion for Reconsideration filed by
respondents of our Decision dated January 17, 2002 which
granted the instant petition and reversed the Order dated January
14, 2001 of the Regional Trial Court of Dumaguete City, Branch
41 in Civil Case No. 8148.

The Motion for Reconsideration raises the following grounds:

A. WITH DUE RESPECT, THIS HONORABLE HIGHEST

COURT ERRED IN NOT AFFIRMING THE ORDER OF THE
REGIONAL TRIAL COURT, BRANCH 41, DUMAGUETE
CITY, IN CIVIL CASE NO. 8148 WHICH GRANTED
RESPONDENT SPOUSES GOBONSENG THE RIGHT TO
REPURCHASE THE SEVENTEEN (17) LOTS SUBJECT OF
THE PACTO DE RETRO SALE WITHIN THIRTY (30) DAYS
Republic of the Philippines FROM THE FINALITY OF THE ORDER.
SUPREME COURT
Manila B. WITH DUE RESPECT, THIS HONORABLE HIGHEST
COURT ERRED IN NOT APPLYING TO THE INSTANT
SPECIAL FIRST DIVISION CASE THE THIRD PARAGRAPH OF ARTICLE 1606 OF
THE NEW CIVIL CODE, HENCE, THE PERIOD TO
G.R. No. 146651 August 6, 2002 REPURCHASE ON THE PART OF RESPONDENTS HAS
NOT YET EXPIRED.1wphi1.nt
RONALDO P. ABILLA and GERALDA A. DIZON,
petitioners, C. WITH DUE RESPECT, THIS HONORABLE HIGHEST
vs. COURT ERRED IN APPLYING TO THE CASE AT BAR THE
CARLOS ANG GOBONSENG, JR. and THERESITA CASE OF VDA. DE MACOY VS. COURT OF APPEALS (206
MIMIE ONG, respondents. SCRA 244) CITING THE CASE OF FELICEN, SR. VS.
ORIAS (156 SCRA 586).1
RE S O LUTI ON
In compliance with our resolution,2 petitioners filed their
YNARES-SANTIAGO, J.: Comment to the motion for reconsideration, arguing that
respondents failed to seasonably exercise their right of

49
redemption; and that this Court was correct in its application of
the case of Vda. de Macoy v. Court of Appeals, which held that
Article 1606, third paragraph, of the Civil Code does not apply
to cases where the parties intended their contract of sale not as
an equitable mortgage but a true sale involving transfer of
ownership.3
It may be helpful to restate the undisputed facts. Respondent
contracted a loan from petitioner in the sum of P550,000.00,
secured by a real estate mortgage over two parcels of land,
covered by TCT Nos. 13607 and 13535. Respondent defaulted in
the payment of the loan, which had reached the amount of
P700,000.00. He sought a renewal of the loan and issued two
postdated checks, one for P10,000.00 and the other for
P690,000.00, representing the full amount of his obligation.
The second check was dishonored by the drawee bank.
Respondent promised to pay petitioner the sum of P690,000.00
upon approval of his pending loan application with the State
Investment House, Inc. However, the said lending institution
required a collateral before approving and releasing the loan, for
which reason respondent borrowed from petitioner the two titles,
TCT Nos. 13607 and 13535, so he can mortgage the same. Thus,
petitioner cancelled the mortgage in his favor and delivered the
two titles to respondent.
Despite approval of the loan, respondent failed to make good on
his promise to pay his outstanding obligation to petitioner.
Hence, the latter threatened to sue him for Estafa. Respondent
thus executed a deed of absolute sale over his seventeen lots in
Dumaguete City in favor of petitioner. On the same day, the
parties executed an Option to Buy whereby respondent was
allowed to repurchase the lots within a period of six months.
50
Respondent failed to repurchase the seventeen lots within the
stipulated period of six months. Consequently, petitioners
instituted an action for specific performance, praying that
respondent be made to pay the capital gains tax and registration
expenses for the transfer of title to the said lots, pursuant to the
deed of absolute sale. In his answer, respondent interposed the
defense that the transaction was in reality an equitable mortgage.
On October 29, 1990, the Regional Trial Court of Dumaguete
City, Branch 42, rendered judgment in favor of petitioner and
ruled that the Option to Buy was rendered null and void by
respondent's failure to exercise the option within the period of
six months.4 On appeal, the Court of Appeals affirmed the
decision of the trial court, but further declared that "the deed of
sale and option to buy actually constitute a pacto de retro
sale."5Respondent's motion for reconsideration was denied,6 and
the petition filed with this Court was dismissed.7Hence, the
decision became final on February 8, 1999 and was duly entered
in the Book of Entries of Judgments.8
On February 27, 1999, respondent filed with the court of origin a
motion to repurchase the lots with tender of payment, which was
denied.9 Subsequently, the trial court issued an Order granting
respondent's motion for reconsideration and allowing him to
repurchase the lots within thirty days from finality thereof.10
Thus, petitioner brought the instant petition for review.
On January 17, 2002, we rendered the assailed Decision
reversing the Order of the Regional Trial Court of Dumaguete
City, in effect denying respondent the right to repurchase the
subject lots.
Respondent's claim of the right to repurchase the lots is anchored
on the third paragraph of Article 1606 of the Civil Code, which
states:
However, the vendor may still exercise the right to repurchase
within thirty days from the time final judgment was rendered in
a civil action on the basis that the contract was a true sale with
right to repurchase.
The above-quoted provision applies only where the nature and
character of the transaction whether as a pacto de retro sale or
as an equitable mortgage was put in issue before the court. 11 In
other words, it applies in a situation where, in a case, one of the
contending parties claims that the transaction was a sale with
right to repurchase and the other counters that the same was an
equitable mortgage, and the court declares in a final judgment
that the transaction was really a sale with pacto de retro.
In our Decision, we ruled that Article 1606 of the Civil Code
does not apply to the case at bar because the transaction between
the parties was a pacto de retro sale, citing the case of Vda. de
Macoy v. Court of Appeals.12However, upon a careful review and
analysis of the antecedent facts, we are convinced that the right
granted under the third paragraph of Article 1606 may be
invoked by respondent.
In Vda. de Macoy,13 citing the earlier ruling in Felicen, Sr. v.
Orias,14 we held:
The application of the third paragraph of Article 1606 is
predicated upon the bona fides of the vendor a retro. It must
appear that there was a belief on his part, founded on facts
attendant upon the execution of the sale with pacto de retro,
51
honestly and sincerely entertained, that the agreement was in
reality a mortgage, one not intended to affect the title to the
property ostensibly sold, but merely to give it as security for a
loan or other obligation. In that event, if the matter of the real
nature of the contract is submitted for judicial resolution, the
application of the rule is meet and proper; that the vendor a retro
be allowed to repurchase the property sold within 30 days from
rendition of final judgment declaring the contract to be a true
sale with right to repurchase. Conversely, if it should appear that
the parties' agreement was really one of sale transferring
ownership to the vendee, but accompanied by a reservation to
the vendor of the right to repurchase the property and there
are no circumstances that may reasonably be accepted as
generating some honest doubt as to the parties' intention, the
proviso is inapplicable. The reason is quite obvious. If the rule
were otherwise, it would be within the power of every vendor a
retro to set at naught apacto de retro, or resurrect an expired
right of repurchase, by simply instituting an action to reform the
contract known to him to be in truth a sale with pacto de
retro into an equitable mortgage. xxx xxx xxx. (Underscoring
ours)
Therefore, the applicability of Article 1606 rests on the bona
fide intent of the vendor a retro, i.e., respondent in this case. If
he honestly believed that the transaction was an equitable
mortgage, the said article applies and he can still repurchase the
property within thirty days from finality of the judgment
declaring the transaction as a sale with pacto de retro.
Parenthetically, it matters not what the vendee intended the
transaction to be.
As we stated above, we analyzed the peculiar factual
background of this case in order to determine the true intent of
respondent. We noted that his contractual relations with
petitioner commenced with a loan secured by a real estate
mortgage over two parcels of registered land. Said mortgage was
cancelled by petitioner when respondent borrowed the titles to
the properties so that he can mortgage the same to the State
Investment House, Inc. Respondent applied for a loan with the
said lending institution precisely to settle his unpaid obligation
to petitioner. However, respondent still failed to settle his
obligation to petitioner.
When petitioner lent the two titles to respondent, the loan he
extended to respondent became unsecured. Naturally, there was
a need to secure respondent's obligation after he reneged on his
promise to pay the same out of the loan proceeds from State
Investment House. Thus, it may well be that the deed of sale,
together with the option to buy executed on the same day, was
meant to serve as security for the indebtedness of respondent
which had become long overdue. Said obligation would have
been satisfied had respondent exercised the option to buy within
the stipulated period.
These circumstances, peculiar to the case at bar, make this case
fall squarely within the situation contemplated in the above-
quoted doctrine that there was a belief on the part of the
vendor a retro, founded on facts attendant upon the execution of
the sale with pacto de retro, honestly and sincerely entertained,
that the agreement was in reality a mortgage, one not intended to
affect the title to the property ostensibly sold, but merely to give
it as security for a loan or other obligation. Consistently
therewith, respondent has maintained throughout the
proceedings that transaction between him and petitioner was
really an equitable mortgage. As such, respondent may avail of
the third paragraph of Article 1606 of the Civil Code and
52
repurchase the lots affected by the deed of absolute sale and
option to buy.
The trial court, however, erred in holding that respondent shall
be allowed to repurchase the subject lots within thirty days from
finality of its Order dated January 14, 2001. Pursuant to Article
1606, third paragraph, of the Civil Code, the thirty-day period
shall be counted from the date of finality of the decision
declaring the transaction to be a pacto de retro sale, i.e.,
February 8, 1999.15 Consequently, the urgent motion to
repurchase the lots with tender of payment which respondent
filed on February 27, 1999 was on time. Petitioners should,
therefore, be ordered to accept the tendered payment for the lots
and to execute the necessary deed of sale conveying the same to
respondents.1wphi1.nt
WHEREFORE, in view of the foregoing, the Decision dated
January 17, 2002 is SET ASIDE. The instant petition
isDENIED. Petitioners are ORDERED to accept the payment
tendered by respondents and to execute the necessary deed of
sale conveying the subject lots to respondents.
SO ORDERED.
Puno, and Kapunan, JJ., concur.
Davide, Jr., C.J., i vote to deny the motion for reconsideration.
Our decision of 17 January 2002 is correct.
 Trial Court of Makati, Branch 145 in Civil Case No. 96-1211.

The facts of the case, as stated in the Decision of the Court o

Appeals dated February 10, 2000, are as follows:

"The Anglo-Asean Bank and Trust Limited (Anglo-Asean, for

brevity), is a private bank registered and organized to do
business under the laws of the Republic of Vanuatu but not in the
Philippines. Its business consists primarily in receiving fund
placements by way of deposits from institutions and individuals
investors from different parts of the world and thereafter
investing such deposits in money market placements and
potentially profitable capital ventures in Hongkong, Europe and
Republic of the Philippines
the United States for the purpose of maximizing the returns on
SUPREME COURT
those investments.
Manila
Enticed by the lucrative prospects of doing business with Anglo-
SECOND DIVISION
Asean, Abelardo Licaros, a Filipino businessman, decided to
make a fund placement with said bank sometime in the 1980's.
G.R. No. 142838 August 9, 2001 As it turned out, the grim outcome of Licaros' foray in overseas
fund investment was not exactly what he envisioned it to be.
ABELARDO B. LICAROS, petitioner, More particularly, Licaros, after having invested in Anglo-
vs. Asean, encountered tremendous and unexplained difficulties in
ANTONIO P. GATMAITAN, respondent. retrieving, not only the interest or profits, but even the very
investments he had put in Anglo-Asean.1wphi1.nt
GONZAGA-REYES, J.:
Confronted with the dire prospect of not getting back any of his
This is a petition for review on certiorari under Rule 45 of the investments, Licaros then decide to seek the counsel of Antonio
Rules of Court. The petition seeks to reverse and set aside the P. Gatmaitan, a reputable banker and investment manager who
Decision1 dated February 10, 2000 of the Court of Appeals and had been extending managerial, financial and investment
its Resolution2 dated April 7, 2000 denying petitioner's Motion consultancy services to various firms and corporations both here
for Reconsideration thereto. The appellate court decision and abroad. To Licaros' relief, Gatmaitan was only too willing
reversed the Decision3dated November 11, 1997 of the Regional enough to help. Gatmaitan voluntarily offered to assume the

53
payment of Anglo-Asean's indebtedness to Licaros subject to
certain terms and conditions. In order to effectuate and formalize
the parties' respective commitments, the two executed a
notarized MEMORANDUM OF AGREEMENT on July 29,
1988 (Exh. "B"); also Exhibit "1"), the full text of which reads:
Memorandum of Agreement
KNOW ALL MEN BY THESE PRESENTS:
This MEMORANDUM OF AGREEMENT made and executed
this 29th day of July 1988, at Makati by and between:
ABELARDO B. LICAROS, Filipino, of legal age and holding
office at Concepcion Building, Intramuros, Manila hereinafter
referred to as THE PARTY OF THE FIRST PART,
and
ANTONIO P. GATMAITAN, Filipino, of legal age and residing
at 7 Mangyan St., La vista, hereinafter referred to as the PARTY
OF THE SECOND PART,
WITNESSETH THAT:
WHEREAS, ANGLO-ASEAN BANK & TRUST, a company
incorporated by the Republic of Vanuatu, hereinafter referred to
as the OFFSHORE BANK, is indebted to the PARTY OF THE
FIRST PART in the amount of US dollars; ONE HUNDRED
FIFTY THOUSAND ONLY (US$150,000) which debt is now
due and demandable.
54
WHEREAS, the PARTY OF THE FIRST PART has encountered
difficulties in securing full settlement of the said indebtedness
from the OFFSHORE BANK and has sought a business
arrangement with the PARTY OF THE SECOND PART
regarding his claims;
WHEREAS, the PARTY OF THE SECOND PART, with his
own resources and due to his association with the OFFSHORE
BANK, has offered to the PARTY OF THE FIRST PART to
assume the payment of the aforesaid indebtedness, upon certain
terms and conditions, which offer, the PARTY OF THE FIRST
PART has accepted;
WHREAS, the parties herein have come to an agreement on the
nature, form and extent of their mutual prestations which they
now record herein with the express conformity of the third
parties concerned;
NOW, THEREFORE, for and in consideration of the foregoing
and the mutual covenants stipulated herein, the PARTY OF THE
FIRST PART and the PARTY OF THE SECOND PART have
agreed, as they do hereby agree, as follows:
1. The PARTY OF THE SECOND PART hereby undertakes to
pay the PARTY OF THE FIRST PART the amount of US
DOLLARS ONE HOUNDRED FIFTY THOUSAND
(US$150,000) payable in Philippine Currency at the fixed
exchange rate of Philippine Pesos 21 to US$1 without interest on
or before July 15, 1993.
For this purpose, the PARTY OF THE SECOND PART shall
execute and deliver a non negotiable promissory note, bearing
the aforesaid material consideration in favor of the PARTY OF
THE FIRST PART upon execution of this MEMORANDUM OF intent and meaning of the arrangements herein.
AGREEMENT, which promissory note shall form part as
ANNEX A hereof. IN WITNESS WHEREOF, the parties have caused this
MEMORANDUM OF AGREEMENT to be signed on the date
2. For and in consideration of the obligation of the PARTY OF and place first written above.
THE SECOND PART, the PARTY OF THE FIRST does hereby;
Sgd. Sgd.
a. Sell, assign, transfer and set over unto the PARTY OF THE
SECOND PART that certain debt now due and owing to the ABELARDO B. LICAROS ANTONIO P. GATMAITAN
PARTY OF THE FIRST PART by the OFFSHORE BANK, to
the amount of US Dollars One Hundred Fifty Thousand plus PARTY OF THE FIRST PART PARTY OF THE FIRST ART
interest due and accruing thereon;
WITH OUR CONFORME:
b. Grant the PART OF THE SECOND PART the full power and
authority, for his own use and benefit, but at his own cost and
expense, to demand, collect, receive, compound, compromise ANGLO-ASEAN BANK
and give acquittance for the same or any part thereof, and in the & TRUST
name of the PARTY OF THE FIRST PART, to prosecute, and
withdraw any suit or proceedings therefor; BY: (Unsigned)

SIGNED IN THE PRESENCE

c. Agree and stipulate that the debt assigned herein is justly
owing and due to the PARTY OF THE FIRST PART from the
said OFFSHORE BANK, and that the PARTY OF THE FIRST
PART has not done and will not cause anything to be done to
diminish or discharge said debt, or to delay or prevent the
PARTY OF THE SECOND PART from collecting the same;
and;
d. At the request of the PARTY OF SECOND PART and the
latter's own cost and expense, to execute and do all such further
acts and deeds as shall be reasonably necessary for proving said
debt and to more effectually enable the PARTY OF THE
SECOND PART to recover the same in accordance with the true
OF:
__________________________ ________________________
__ __
Conformably with his undertaking under paragraph 1 of the
aforequoted agreement, Gatmaitan executed in favor of Licaros a
NON-NEGOTIABLE PROMISSORY NOTE WITH
ASSIGNMENT OF CASH DIVIDENDS (Exhs. "A"; Also
Exh. "2"), which promissory note, appended as Annex "A" to the
same Memorandum of Agreement, states in full, thus

55
"NON-NEGOTIABLE PROMISSORY NOTE WITH outstanding, I hereby give Mr. Abelardo B. Licaros the first
ASSIGNMENT OF CASH DIVIDENDS option to buy the said shares.

This promissory note is Annex A of the Memorandum of Manila, Philippines

Agreement executed between Abelardo B. Licaros and Antonio
P. Gatmaitan, on ______ 1988 at Makati, Philippines and is an
integral part of said Memorandum of Agreement.
P3,150.00.
On or before July 15, 1993, I promise to pay to Abelardo B.
Licaros the sum of Philippine Pesos 3,150,000 (P3,150,000)
without interest as material consideration for the full settlement
of his money claims from ANGLO-ASEAN BANK, referred to
in the Memorandum of Agreement as the 'OFFSHORE BANK".
As security for the payment of this of Promissory Note. I hereby
ASSIGN, CEDE and TRANSFER, Seventy Percent (70%) of
ALL CASH DIVIDENDS, that may be due or owing to me as
the registered owner of __________________
(______________) shares of stock in the Prudential Life Realty,
Inc.
This assignment shall likewise include SEVENTY PERCENT
(70%) of cash dividends that may be declared by Prudential Life
Realty, Inc. and due or owing to Prudential Life Plan, Inc., of
which I am a stockholder, to the extent of or in proportion to my
aforesaid shareholding in Prudential Life Plan, Inc, the latter
being the holding company of Prudential Life Realty, Inc.
In the event that I decide to sell or transfer my aforesaid shares
in either or both the Prudential Life Plan, Inc. or Prudential Life
Realty, Inc. and the Promissory Note remains unpaid or
July ______, 1988
(SGD.)
ANTONIO P. GATMAITAN
7 Mangyan St., La Vista QC
SIGNED IN THE PRESENCE OF:
(SGD.)
________________________
________________________
Francisco A. Alba
President, Prudential Life Plan, Inc."
Thereafter, Gatmaitan presented to Anglo-Asean the
Memorandum of Agreement earlier executed by him and Licaros
for the purpose of collecting the latter's placement thereat of
U.S. $150,000.00. Albeit the officers of Anglo-Asean allegedly
committed themselves to "look into [this matter]", no formal
response was ever made by said bank to either Licaros or
Gatmaitan. To date, Anglo-Asean has not acted on Gatmaitan's
monetary claims.
Evidently, because of his inability to collect from Anglo-Asean,
Gatmaitan did not bother anymore to make good his promise to
pay Licaros the amount stated in his promissory note (Exh. "A";

56
also Exh. 2"). Licaros, however, thought differently. He felt that
he had a right to collect on the basis of the promissory note
regardless of the outcome of Gatmaitan's recovery efforts. Thus,
in July, 1996, Licaros, thru counsel, addressed successive
demand letters to Gatmaitan (Exhs. "C" and "D"), demanding
payment of the later's obligations under the promissory note.
Gatmaitan, however, did not accede to these demands.
Hence, on August 1, 1996, in the Regional Trial Court at Makati,
Licaros filed the complaint in this case. In his complaint,
docketed in the court below as Civil case No. 96-1211, Licaros
prayed for a judgment ordering Gatmaitan to pay him the
following:
'a) Principal Obligation in the amount of Three Million Five
Hundred Thousand Pesos (P3,500,000.00);
b) Legal interest thereon at the rate of six (6%) percent per
annum from July 16, 1993 when the amount became due until
the obligation is fully paid;
b) Twenty percent (20%) of the amount due as reasonable
attorney's fees;
d) Costs of the suit.'" 4 transferring the right of the assignor to the assignee who would
After trial on the merits, the court a quo rendered judgment in
favor of petitioner Licaros and found respondent Gatmaitan
liable under the Memorandum of Agreement and Promissory
Note for P3,150,000.00 plus 12% interest per annum from July
16, 1993 until the amount is fully paid. Respondent was likewise
ordered to pay attorney's fees of P200,000.00.5
57
Respondent Gatmaitan appealed the trial court's decision to the
Court of Appeals. In a decision promulgated on February 10,
2000, the appellate court reversed the decision of the trial court
and held that respondent Gatmaitan did not at any point become
obligated to pay to petitioner Licaros the amount stated in the
promissory note. In a Resolution dated April 7, 2000 the Court
of Appeals denied petitioner's Motion for Reconsideration of its
February 10, 2000 Decision.
Hence this petition for review on certiorari where petitioner
prays for the reversal of the February 10, 2000 Decision of the
Court of Appeals and the reinstatement of the November 11,
1997 decision of the Regional Trial Court.
The threshold issue for the determination of this Court is
whether the Memorandum of Agreement between petitioner and
respondent is one of assignment of credit or one of conventional
subrogation. This matter is determinative of whether or not
respondent became liable to petitioner under the promissory note
considering that its efficacy is dependent on the Memorandum of
Agreement, the note being merely an annex to the said
memorandum.6
An assignment of credit has been defined as the process of
then have the right to proceed against the debtor. The assignment
may be done gratuitously or onerously, in which case, the
assignment has an effect similar to that of a sale.7
On the other hand, subrogation has been defined as the transfer
of all the rights of the creditor to a third person, who substitutes
him in all his rights. It may either be legal or convention. Legal
subrogation is that which takes place without agreement but by
operation of law because of certain acts. Conventional
subrogation is that which takes place by agreement of parties.8
The general tenor of the foregoing definitions of the terms
"subrogation" and "assignment of credit" may make it seem that
they are one and the same which they are not. A noted expert in
civil law notes their distinctions thus:
"Under our Code, however, conventional subrogation is not
identical to assignment of credit. In the former, the debtor's
consent is necessary; in the latter it is not required. Subrogation
extinguishes the obligation and gives rise to a new one;
assignment refers to the same right which passes from one
person to another. The nullity of an old obligation may be cured
by subrogation, such that a new obligation will be perfectly
valid; but the nullity of an obligation is not remedied by the
assignment of the creditor's right to another."9
For our purposes, the crucial distinction deals with the necessity
of the consent of the debtor in the original transaction. In an
assignment of credit, the consent of the debtor is not necessary
in order that the assignment may fully produce legal effects.10
What the law requires in an assignment of credit is not the
consent of the debtor but merely notice to him as the
assignments takes effect only from the time he has knowledge
thereof.11 A creditor may, therefore, validly assign his credit and
its accessories without the debtor's consent.12 On the other hand,
conventional subrogation requires an agreement among the three
parties concerned the original creditor, the debtor, and the new
creditor. It is a new contractual relation based on the mutual
agreement among all the necessary parties. Thus, Article 1301 of
the Civil Code explicitly states that "(C)onventional subrogation
of a third person requires the consent of the original parties and
58
of the third person."
The trial court, in finding for the petitioner, ruled that the
Memorandum of Agreement was in the nature of an assignment
of credit. As such, the court a quo held respondent liable for the
amount stated in the said agreement even if the parties thereto
failed to obtain the consent of Anglo-Asean Bank. On the other
hand, the appellate court held that the agreement was one of
conventional subrogation which necessarily requires the
agreement of all the parties concerned. The Court of Appeals
thus ruled that the Memorandum of Agreement never came into
effect due to the failure of the parties to get the consent of
Anglo-Asean Bank to the agreement and, as such, respondent
never became liable for the amount stipulated.
We agree with the finding of the Court of Appeals that the
Memorandum of Agreement dated July 29, 1988 was in the
nature of a conventional subrogation which requires the consent
of the debtor, Anglo-Asean Bank, for its validity. We note with
approval the following pronouncement of the Court of Appeals:
"Immediately discernible from above is the common feature of
contracts involving conventional subrogation, namely, the
approval of the debtor to the subrogation of a third person in
place of the creditor. That Gatmaitan and Licaros had intended to
treat their agreement as one of conventional subrogation is
plainly borne by a stipulation in their Memorandum of
Agreement, to wit:
"WHEREAS, the parties herein have come to an agreement on
the nature, form and extent of their mutual prestations which hey
now record herein with the express conformity of the third
parties concerned" (emphasis supplied), which third party is
admittedly Anglo-Asean Bank.
Had the intention been merely to confer on appellant the status
of a mere "assignee" of appellee's credit, there is simply no sense
for them to have stipulated in their agreement that the same is
conditioned on the "express conformity" thereto of Anglo-Asean
Bank. That they did so only accentuates their intention to treat
the agreement as one of conventional subrogation. And it is
basic in the interpretation of contracts that the intention of the
parties must be the one pursued (Rule 130, Section 12, Rules of
Court).
Given our finding that the Memorandum of Agreement (Exh.
"B"; also Exh. "1"), is not one of "assignment of credit" but is
actually a "conventional subrogation", the next question that
comes to mind is whether such agreement was ever perfected at
all. Needless to state, the perfection or non-perfection of the
subject agreement is of utmost relevance at this point. For, if the
same Memorandum of Agreement was actually perfected, then it
cannot be denied that Gatmaitan still has a subsisting
commitment to pay Licaros on the basis of his promissory note.
If not, Licaros' suit for collection must necessarily fail.
Here, it bears stressing that the subject Memorandum of
Agreement expressly requires the consent of Anglo-Asean to the
subrogation. Upon whom the task of securing such consent
devolves, be it on Licaros or Gatmaitan, is of no significance.
What counts most is the hard reality that there has been an abject
failure to get Anglo-Asean's nod of approval over Gatmaitan's
being subrogated in the place of Licaros. Doubtless, the absence
of such conformity on the part of Anglo-Asean, which is thereby
made a party to the same Memorandum of Agreement, prevented
the agreement from becoming effective, much less from being a
59
source of any cause of action for the signatories thereto"13
Aside for the "whereas clause" cited by the appellate court in its
decision, we likewise note that on the signature page, right under
the place reserve for the signatures of petitioner and respondent,
there is, typewritten, the words "WITH OUR CONFORME."
Under this notation, the words "ANGLO-ASEAN BANK AND
TRUST" were written by hand.14 To our mind, this provision
which contemplates the signed conformity of Anglo-Asean
Bank, taken together with the aforementioned preambulatory
clause leads to the conclusion that both parties intended that
Anglo-Asean Bank should signify its agreement and conformity
to the contractual arrangement between petitioner and
respondent. The fact that Anglo-Asean Bank did not give such
consent rendered the agreement inoperative considering that, as
previously discussed, the consent of the debtor is needed in the
subrogation of a third person to the rights of a creditor.
In this petition, petitioner assails the ruling of the Court of
Appeals that what was entered into by the parties was a
conventional subrogation of petitioner's rights as creditor of the
Anglo-Asean Bank which necessary requires the consent of the
latter. In support, petitioner alleges that: (1) the Memorandum of
Agreement did not create a new obligation and, as such, the
same cannot be a conventional subrogation; (2) the consent of
Anglo-Asean Bank was not necessary for the validity of the
Memorandum of Agreement; (3) assuming that such consent was
necessary, respondent failed to secure the same as was
incumbent upon him; and (4) respondent himself admitted that
the transaction was one of assignment of credit.
Petitioner argues that the parties to the Memorandum of
Agreement could not have intended the same to be a
conventional subrogation considering that no new obligation
was created. According to petitioner, the obligation of Anglo-
Asean Bank to pay under Contract No. 00193 was not
extinguished and in fact, it was the basic intention of the parties
to the Memorandum of Agreement to enforce the same
obligation of Anglo-Asean Bank under its contract with
petitioner. Considering that the old obligation of Anglo-Asean
Bank under Contract No. 00193 was never extinguished under
the Memorandum of Agreement, it is contended that the same
could not be considered as a conventional subrogation.
We are not persuaded.
It is true that conventional subrogation has the effect of
extinguishing the old obligation and giving rise to a new one.
However, the extinguishment of the old obligation is the effect
of the establishment of a contract for conventional subrogation.
It is not a requisite without which a contract for conventional
subrogation may not be created. As such, it is not determinative
of whether or not a contract of conventional subrogation was
constituted.
Moreover, it is of no moment that the subject of the
Memorandum of Agreement was the collection of the obligation
of Anglo-Asean Bank to petitioner Licaros under Contract No.
00193. Precisely, if conventional subrogation had taken place
with the consent of Anglo-Asian Bank to effect a change in the
person of its creditor, there is necessarily created a new
obligation whereby Anglo-Asean Bank must now give payment
to its new creditor, herein respondent.
Petitioner next argues that the consent or conformity of Anglo-
Asean Bank is not necessary to the validity of the Memorandum
60
of Agreement as the evidence on record allegedly shows that it
was never the intention of the parties thereto to treat the same as
one of conventional subrogation. He claims that the
preambulatory clause requiring the express conformity of third
parties, which admittedly was Anglo-Asean Bank, is a mere
surplusage which is not necessary to the validity of the
agreement.
As previously discussed, the intention of the parties to treat the
Memorandum of Agreement as embodying a conventional
subrogation is shown not only by the "whereas clause" but also
by the signature space captioned "WITH OUR CONFORME"
reserved for the signature of a representative of Anglo-Asean
Bank. These provisions in the aforementioned Memorandum of
Agreement may not simply be disregarded or dismissed as
superfluous.
It is a basic rule in the interpretation of contracts that "(t)he
various stipulations of a contract shall be interpreted together,
attributing to the doubtful ones that sense which may result from
all of them taken jointly."15 Moreover, under our Rules of Court,
it is mandated that "(I)n the construction of an instrument where
there are several provisions or particulars, such a construction is,
if possible, to be adopted as will give effect to all." 16 Further,
jurisprudence has laid down the rule that contracts should be so
construed as to harmonize and give effect to the different
provisions thereof.17
In the case at bench, the Memorandum of Agreement embodies
certain provisions that are consistent with either a conventional
subrogation or assignment of credit. It has not been shown that
any clause or provision in the Memorandum of Agreement is
inconsistent or incompatible with a conventional subrogation.
On the other hand, the two cited provisions requiring consent of
the debtor to the memorandum is inconsistent with a contract of
assignment of credit. Thus, if we were to interpret the same as
one of assignment of credit, then the aforementioned stipulations
regarding the consent of Anglo-Asean Bank would be rendered
inutile and useless considering that, as previously discussed, the
consent of the debtor is not necessary in an assignment of credit.
Petitioner next argues that assuming that the conformity of
Anglo-Asean was necessary to the validity of the Memorandum
of Agreement, respondently only had himself to blame for the
failure to secure such conformity as was, allegedly, incumbent
upon him under the memorandum.
As to this argument regarding the party responsible for securing
the conformity of Anglo-Asean Bank, we fail to see how this
question would have any relevance on the outcome of this case.
Having ruled that the consent of Anglo-Asean was necessary for
the validity of the Memorandum of Agreement, the
determinative fact is that such consent was not secured by either
petitioner or respondent which consequently resulted in the
invalidity of the said memorandum.
With respect to the argument of petitioner that respondent
himself allegedly admitted in open court that an assignment of
credit was intended, it is enough to say that respondent
apparently used the word "assignment" in his testimony in the
general sense. Respondent is not a lawyer and as such, he is no
so well versed in law that he would be able to distinguish
between the concepts of conventional subrogation and of
assignment of credit. Moreover, even assuming that there was an
admission on his part, such admission is not conclusive on this
court as the nature and interpretation of the Memorandum of
61
Agreement is a question of law which may not be the subject of
stipulations and admission.18
Considering the foregoing, it cannot then be said that the consent
of the debtor Anglo-Asean Bank is not necessary to the validity
of the Memorandum of Agreement. As above stated, the
Memorandum of Agreement embodies a contract for
conventional subrogation and in such a case, the consent of the
original parties and the third person is required.19 The absence of
such conformity by Anglo-Asean Bank prevented the
Memorandum of Agreement from becoming valid and effective.
Accordingly, the Court of Appeals did not err when it ruled that
the Memorandum of Agreement was never perfected.
Having arrived at the above conclusion, the Court finds no need
to discuss the other issues raised by petitioner.
WHEREFORE, the instant petition is DENIED and the Decision
of the Court of Appeals dated February 10, 2000 and its
Resolution dated April 7, 2000 are hereby
AFFIRMED.1wphi1.nt
Melo, Vitug, and Panganiban, JJ., concur.
Sandoval-Gutierrez, J. On leave.
62