G.R. No.

L-26578 January 28, 1974

LEGARDA HERMANOS and JOSE LEGARDA, petitioners,
vs.
FELIPE SALDAA and COURT OF APPEALS (FIFTH DIVISION) *
respondents.
Manuel Y. Macias for petitioners.
Mario E. Ongkiko for private respondent.
TEEHANKEE, J.: 1wph1. t

The Court, in affirming the decision under review of the Court of

Appeals, which holds that the respondent buyer of two small
residential lots on installment contracts on a ten-year basis who has
faithfully paid for eight continuous years on the principal alone already
more than the value of one lot, besides the larger stipulated interests
on both lots, is entitled to the conveyance of one fully paid lot of his
choice, rules that the judgment is fair and just and in accordance with
law and equity.
The action originated as a complaint for delivery of two parcels of land
in Sampaloc, Manila and for execution of the corresponding deed of
conveyance after payment of the balance still due on their purchase
price. Private respondent as plaintiff had entered into two written
contracts with petitioner Legarda Hermanos as defendant subdivision
owner, whereby the latter agreed to sell to him Lots Nos. 7 and 8 of
block No. 5N of the subdivision with an area of 150 square meters each,
for the sum of P1,500.00 per lot, payable over the span of ten years
divided into 120 equal monthly installments of P19.83 with 10% interest
per annum, to commence on May 26, 1948, date of execution of the
contracts. Subsequently, Legarda Hermanos partitioned the
subdivision among the brothers and sisters, and the two lots were
among those allotted to co-petitioner Jose Legarda who was then
included as co-defendant in the action.
It is undisputed that respondent faithfully paid for eight continuous
years about 95 (of the stipulated 120) monthly installments totalling
P3,582.06 up to the month of February, 1956, which as per petitioners'
own statement of account, Exhibit "1", was applied to respondent's
account (without distinguishing the two lots), as follows:
To interests P1,889.78
To principal 1,682.28
Total P3,582.061
It is equally undisputed that after February, 1956 up to the filing of
respondent's complaint in the Manila court of first instance in 1961,
respondent did not make further payments. The account thus shows that he
owed petitioners the sum of P1,317.72 on account of the balance of the
purchase price (principal) of the two lots (in the total sum of P3,000.00),
although he had paid more than the stipulated purchase price of P1,500.00
for one lot.
Almost five years later, on February 2, 1961 just before the filing of the action,
respondent wrote petitioners stating that his desire to build a house on the
lots was prevented by their failure to introduce improvements on the
subdivision as "there is still no road to these lots," and requesting information
of the amount owing to update his account as "I intend to continue paying
the balance due on said lots."
Petitioners replied in their letter of February 11, 1961 that as respondent had
failed to complete total payment of the 120 installments by May, 1958 as
stipulated in the contracts to sell, "pursuant to the provisions of both
contracts all the amounts paid in accordance with the agreement together
with the improvements on the premises have been considered as rents paid
and as payment for damages suffered by your failure,"2 and "Said
cancellation being in order, is hereby confirmed."
From the adverse decision of July 17, 1963 of the trial court sustaining
petitioners' cancellation of the contracts and dismissing respondent's
complaint, respondent appellate court on appeal rendered its judgment of
July 27, 1966 reversing the lower court's judgment and ordering petitioners
"to deliver to the plaintiff possession of one of the two lots, at the choice of
defendants, and to execute the corresponding deed of conveyance to the
plaintiff for the said lot,"3 ruling as follows:
During the hearing, plaintiff testified that he suspended payments because
the lots were not actually delivered to him, or could not be, due to the fact
that they were completely under water; and also because the defendants-
owners failed to make improvements on the premises, such as roads, filling
of the submerged areas, etc., despite repeated promises of their
representative, the said Mr. Cenon. As regards the supposed cancellation of
the contracts, plaintiff averred that no demand has been made upon him
regarding the unpaid installments, and for this reason he could not be
declared in default so as to entitle the defendants to cancel the said
contracts.
The issue, therefore, is: Under the above facts, may defendants be
compelled, or not, to allow plaintiff to complete payment of the purchase price
of the two lots in dispute and thereafter to execute the final deeds of
conveyance thereof in his favor?
xxx xxx xxx
Whether or not plaintiffs explanation for his failure to pay the remaining
installments is true, considering the circumstances obtaining in this case, we
elect to apply the broad principles of equity and justice. In the case at bar,
we find that the plaintiff has paid the total sum of P3,582.06 including
interests, which is even more than the value of the two lots. And even if the
sum applied to the principal alone were to be considered, which was of the
total of P1,682.28, the same was already more than the value of one lot,
which is P1,500.00. The only balance due on both lots was P1,317.72, which
was even less than the value of one lot. We will consider as fully paid by the
plaintiff at least one of the two lots, at the choice of the defendants. This is
more in line with good conscience than a total denial to the plaintiff of a little
token of what he has paid the defendant Legarda Hermanos.4
Hence, the present petition for review, wherein petitioners insist on their right
of cancellation under the "plainly valid written agreements which constitute
the law between the parties" as against "the broad principles of equity and
justice" applied by the appellate court. Respondent on the other hand while
adhering to the validity of the doctrine of the Caridad Estates cases5 which
recognizes the right of a vendor of land under a contract to sell to cancel the
contract upon default, with forfeiture of the installments paid as rentals,
disputes its applicability herein contending that here petitioners-sellers were
equally in default as the lots were "completely under water" and "there is
neither evidence nor a finding that the petitioners in fact cancelled the
contracts previous to receipt of respondent's letter."6
The Court finds that the appellate court's judgment finding that of the total
sum of P3,582.06 (including interests of P1,889.78) already paid by
respondent (which was more than the value of two lots), the sum applied by
petitioners to the principal alone in the amount of P1,682.28 was already
more than the value of one lot of P1,500.00 and hence one of the two lots as
chosen by respondent would be considered as fully paid, is fair and just and
in accordance with law and equity.
As already stated, the monthly payments for eight years made by respondent
were applied to his account without specifying or distinguishing between the
two lots subject of the two agreements under petitioners' own statement of
account, Exhibit "1".7 Even considering respondent as having defaulted after
February 1956, when he suspended payments after the 95th installment, he
had as of the already paid by way of principal (P1,682.28) more than the full
value of one lot (P1,500.00). The judgment recognizing this fact and ordering
the conveyance to him of one lot of his choice while also recognizing
petitioners' right to retain the interests of P1,889.78 paid by him for eight
years on both lots, besides the cancellation of the contract for one lot which
thus reverts to petitioners, cannot be deemed to deny substantial justice to
petitioners nor to defeat their rights under the letter and spirit of the contracts
in question.
The Court's doctrine in the analogous case of J.M. Tuason & Co. Inc. vs.
Javier8 is fully applicable to the present case, with the respondent at bar
being granted lesser benefits, since no rescission of contract was therein
permitted. There, where the therein buyer-appellee identically situated as
herein respondent buyer had likewise defaulted in completing the payments
after having religiously paid the stipulated monthly installments for almost
eight years and notwithstanding that the seller-appellant had duly notified the
buyer of the rescission of the contract to sell, the Court upheld the lower
court's judgment denying judicial confirmation of the rescission and instead
granting the buyer an additional grace period of sixty days from notice of
judgment to pay all the installment payments in arrears together with the
stipulated 10% interest per annum from the date of default, apart from
reasonable attorney's fees and costs, which payments, the Court observed,
would have the plaintiff-seller "recover everything due thereto, pursuant to
its contract with the defendant, including such damages as the former may
have suffered in consequence of the latter's default."
In affirming, the Court held that "Regardless, however, of the propriety of
applying said Art. 1592 thereto, We find that plaintiff herein has not been
denied substantial justice, for, according to Art. 1234 of said Code: 'If the
obligation has been substantially performed in good faith, the obligor may
recover as though there had been a strict and complete fulfillment, less
damages suffered by the obligee,'" and "that in the interest of justice and
equity, the decision appealed from may be upheld upon the authority of
Article 1234 of the Civil Code."9
ACCORDINGLY, the appealed judgment of the appellate court is hereby
affirmed. Without pronouncement as to costs.
Makalintal, C.J., Castro, Makasiar, Esguerra and Muoz Palma, JJ., concur. 1wph1.t

SECOND DIVISION

JESTRA DEVELOPMENT AND MANAGEMENT

CORPORATION,
Petitioner,

- versus -

DANIEL PONCE PACIFICO, represented by his attorney-

in-fact Jordan M. Pizarras,
Respondent.
G.R. No. 167452

Present:

QUISUMBING, J., Chairperson,

CARPIO,
CARPIO MORALES,
TINGA, and
VELASCO, JR., JJ.

Promulgated:

January 30, 2007

x------------------------------------------
--------x

DECISION

CARPIO MORALES, J.:

 On June 5, 1996, Daniel Ponce Pacifico (Pacifico) signed
a Reservation Application[1] with Fil-Estate Marketing
Association for the purchase of a house and lot located at Lot
28, Block 3, Phase II, Jestra Villas, Barangay La Huerta,
Municipality of Paraaque, Metro Manila (the property), and
paid the reservation fee of P20,000.

Under the Reservation Application, the total purchase

price of the property was P2,500,000, and the down payment
equivalent to 30% of the purchase price or P750,000 was to be
paid interest-free in six monthly installments due every fifth of
the month starting July 1996 until December 1996. As the
P20,000 reservation fee formed part of the down payment, the
monthly installment on the down payment was fixed at
P121,666.66.
Also under the Reservation Application, upon full
payment of the 30% down payment by Pacifico, he was to sign
a contract to sell with the owner and developer of the property,
Joprest Development and Management Corporation (now Jestra
Development and Management Corporation, hereafter Jestra).
And the 70% balance on the purchase price or P1,750,000 was
to be payable in 10 years, to bear interest at 21% per annum, at
a monthly installment of P34,982.50. When the payment of the
installments on the 70% balance should commence, the
Reservation Application was silent.

Unable to comply with the schedule of payments,

Pacifico requested Jestra to allow him to make periodic
payments on the down payment in an amount that he could
afford, to which Jestra acceded provided that late payment
penalties/surcharges[2] are paid.

With still a remaining balance of P260,000 on the down

payment, Pacifico and Jestra executed on March 6, 1997,
Contract to Sell No. 83[3] over the property. The said contract
was silent on the unsettled balance on the down payment.

Under the Contract to Sell, Pacifico should have had on

November 5, 1996, or one month prior to the deadline stated
under the Reservation Application, fully paid the 30% down
payment, and that the 120 monthly installments for the 70%
balance or P1,750 should have had commenced on December 7,
1996, viz:

SECTION 2. TERMS OF PAYMENT. The PURCHASER

agrees to pay the aforecited purchase price [of
P2,500,000.00] in the following manner, namely:

2.1 The total amount of SEVEN HUNDRED FIFTY

THOUSAND PESOS ONLY (P750,000.00)
Philippine Currency as down payment on or before
November 5, 1996.
2.2 The balance of ONE MILLION SEVEN HUNDTED
FIFTY THOUSAND PESOS ONLY
(P1,750,00.00), Philippine Currency, shall be paid in
One Hundred Twenty (120) equal monthly
installments at THIRTY FOUR THOUSAND NINE
HUNDRED EIGHT THREE PESOS ONLY
(P34,983.00) Philippine Currency, to commence on
December 7, 1996, with interest at the rate of Twenty
One Percent (21%) per annum. The PURCHASER
shall issue One Hundred Twenty (120) postdated
checks in favor of the OWNER/DEVELOPER for
each of the monthly installments, which checks shall
be delivered to the latter upon signing of this
CONTRACT. The PURCHASER shall be subject to
the pre-qualification requirements of COCOLIFE for
the Mortgage Redemption Insurance (MRI) and the
Building Insurance on the UNIT. Interest re-pricing
shall be effected on the 6th Year, to commence on
December 7, 2001.

x x x x (Underscoring supplied)
 By letter[4] of November 12, 1997, Pacifico
requested Jestra that the balance be restructured in light of
the present business condition.

By November 27, 1997, Pacifico had fully paid the

30% down payment, and by December 4, 1997, he had paid
a total of P846,600, P76,600 of which Jestra applied as
penalty charges for the belated settlement of the down
payment.

By letter of December 11, 1997, Jestra, through counsel,

sent Pacifico a final demand for the payment of P444,738.88[5]
representing the total of 11 installments due on the 70% balance
of the purchase price, inclusive of 21% interest per annum and
add-on interest at the rate of P384.81 per day, counted from
January 7, 1997. Further, Jestra demanded the payment of
P73,750 representing penalties for the [belated settlement of
the] down payment. And it reminded Pacifico that as provided
in Section 5 of the said contract, [Jestra] reserves its right to
automatically cancel or rescind the same on account of [his]
failure/refusal to comply with the terms thereof.[6]

Pacifico later requested Jestra, by letter of November 12, 1997,

for a restructuring of his unsettled obligation. His request was
granted on the condition that the interest for the period from
December 1996 to November 1997 amounting to P224,396.37
would be added to the 70% balance on the purchase price; and
that Pacifico issue 12 postdated checks beginning each year to
cover his amortization payments.
 In light of the restructured scheme, the monthly
amortization on the 70% balance was from P34,982.50
increased to P39,468, to commence on January 5, 1998.

Pacifico thus issued to Jestra 12 postdated Security Bank checks

to cover his monthly amortizations from January to December
1998. The checks for January and February 1998 were,
however, dishonored due to insufficiency of funds.[7]

By letter of March 24, 1998, Pacifico informed Jestra that

due to sudden financial difficulties, he was suspending payment
of his obligation during the 10-month period, and that he wanted
to dispose of the property to recover his investment.[8] And he
requested that the postdated checks he issued be returned to him.

Jestra, by letter[9] of March 31, 1998, denied Pacificos

request to suspend payment and for the return of the postdated
checks. It, however, gave him until April 15, 1998 to sell the
property failing which it warned him that it would be
constrained to re-open it for sale.

Thereafter, Jestra sent Pacifico a notarial Notice of

Cancellation, dated May 1, 1998, notifying him that it was,
within 30 days after his receipt thereof, exercising its right to
cancel the Contract to Sell. Pacifico received the notice on May
13, 1998.

In a separate move, Jestra through its Credit and Collection

Manager sent Pacifico a letter dated May 27, 1998, demanding
payment of the total amount of P209,377.75 covering monthly
amortizations from January 30 to May 30, 1998 inclusive of
penalties. And it gave him until June 1, 1998 to settle his
account, failing which the Contract to Sell would be
automatically cancelled and it would re-open the property for
sale.[10]

On February 24, 1999, Pacifico filed a complaint before

the Housing and Land Use Regulatory Board (HLURB) against
Jestra, docketed as HLURB Case No. REM-122499-10378,
claiming that despite his full payment of the down payment,
Jestra failed to deliver to him the property within 90 days as
provided in the Contract to Sell dated March 6, 1997, and Jestra
instead sold the property to another buyer in October of
1998.[11]

Pacifico further claimed in his complaint that upon

learning of the double sale, he, through his lawyer, demanded
that Jestra deliver the property to him but it failed to do so
without just and valid cause.

Pacifico thus prayed that, among others things, judgment

be rendered declaring the second sale a nullity, ordering Jestra
to deliver the property to him and to pay him P11,000 a month
from July 1997 until delivery.

By Decision[12] of March 15, 2000, the Housing and Land Use

Arbiter held Jestra liable for failure to comply with Section 3 of
Republic Act (RA) No. 6552 (REALTY INSTALLMENT
BUYER PROTECTION ACT) requiring payment by the seller
of the cash surrender value of the buyers payments and Section
17 of Presidential Decree No. 957 (REGULATING THE SALE
OF SUBDIVISION LOTS AND CONDOMINIUMS,
PROVIDING PENALTIES FOR VIOLATIONS THEREOF)
requiring it to register the Contract to Sell in the Office of the
Register of Deeds.

The Arbiter found that while Pacifico had paid a total amount
of P846,600 which is more or less equivalent to 24 monthly
installments under the contract to sell . . . wherein the monthly
amortization is P34,983,[13] he could no longer demand the
delivery of the property, its title having already been transferred
in the name of another buyer.

Thus the Arbiter disposed:

WHEREFORE, premises considered,

judgment is hereby rendered in favor of the
complainant and ordering respondent:

1. To pay and/or reimburse to the

complainant the total payments made amounting to
Eight Hundred Forty Six Thousand Six Hundred
Pesos (P846,600.00) with interest thereon at twelve
percent (12%) per annum to be computed from the
filing of the complaint on 24 February 1999 until
fully paid; and
 2. To pay complainant the amount of Fifty
Thousand Pesos (P50,000.00) as damages and
attorneys fees plus the costs of litigation.[14]
(Underscoring supplied)

On appeal, the Board of Commissioners of the HLURB

modified the decision of the Arbiter by deleting the award of
P50,000 damages and ordering Jestra to pay P20,000 as
attorneys fees and P10,000 administrative fine for failure to
register the Contract to Sell in the Office of the Register of
Deeds.

By Resolution of January 27, 2003, the HLURB Board of

Commissioners denied[15] Jestras motion for reconsideration.

By Order[16] of December 9, 2003, the Office of the

President (OP), to which the case was elevated, adopted by
reference the findings of facts and conclusions of law contained
in the HLURB Board Resolution of January 27, 2003. And by
Order[17] dated March 18, 2004, it denied Jestras motion for
reconsideration.
 On Jestras petition for review under Rule 43 of the Rules
of Court, the Court of Appeals (CA), by Decision[18] dated
January 31, 2005, affirmed the Orders of the OP.

Its motion for reconsideration having been denied by CA

Resolution[19] of March 16, 2005, Jestra (hereafter petitioner)
comes before this Court on a petition for review, faulting the
appellate court for:

I. . . . adopting the OPs conclusion that penalty payments

should be included in computing the total number
of installment payments made by a buyer (in
relation to the payment of a cash surrender value
upon cancellation of a contract to sell) in spite of
its exclusion from the items to be included in
computing the two (2) years installment
payments as provided in RA 6552

II. . . . adopting the OPs conclusion that petitioner failed to

deliver possession of the subject property to
respondent upon his full payment of the
downpayment [sic] and that petitioners act of
canceling the contract to sell was unconscionable
despite being allowed under RA 6552.
 RA No. 6552 was enacted to protect buyers of real
estate on installment against onerous and oppressive
conditions. While the seller has under the Act the option to
cancel the contract due to non-payment of installments, he
must afford the buyer a grace period to pay them and, if at
least two years installments have already been paid, to
refund the cash surrender value of the payments. Thus
Section of the Act provides:
SECTION 3. In all transactions or contracts involving the sale or
financing of real estate on installment payments, including residential
condominium apartments but excluding industrial lots, commercial
buildings and sales to tenants under Republic Act Numbered Thirty-eight
hundred forty-four, as amended by Republic Act Numbered Sixty-three
hundred eighty-nine, where the buyer has paid at least two years of
installments, the buyer is entitled to the following rights in case he
defaults in the payment of succeeding installments:

(a) To pay, without additional interest, the unpaid

installments due within the total grace period earned
by him which is hereby fixed at the rate of one month
grace period for every one year of installment
payments made: Provided, That this right shall be
exercised by the buyer only once in every five years
of the life of the contract and its extensions, if any.
(b) If the contract is cancelled, the seller shall refund to the
buyer the cash surrender value of the payments on
the property equivalent to fifty per cent of the total
payments made, and, after five years of installments,
an additional five per cent every year but not to
exceed ninety per cent of the total payments made:
Provided, That the actual cancellation of the contract
shall take place after thirty days from receipt by the
buyer of the notice of cancellation or the demand for
rescission of the contract by a notarial act and upon
full payment of the cash surrender value to the buyer.

Down payments, deposits or options on the contract shall be

included in the computation of the total number of
installment payments made.

As the records indicate, the total payments made by

Pacifico (hereafter respondent) amounted to P846,600.
The appellate court, in concluding that respondent paid at
least two years of installments, adopted the formula used
by the HLURB by dividing the amount of P846,600 by the
monthly amortization of P34,983 to thus result to a
quotient of 24.2 months.

Petitioner contests the computation, however. It claims

that the amount of P76,600 represents penalty payment and is a
separate item to answer for its lost income as a seller due to the
delay in the payment[20] of the 30% down payment. It thus
submits that the amount of P76,600 does not form part of the
purchase price and should thus be excluded in determining the
total number of installments made.

Petitioner likewise claims that the proper divisor is not

P34,983 but P39,468 since the parties agreed to restructure the
amortizations owing to respondents inability to comply with the
schedule of payments previously agreed upon in the Contract to
Sell, and that if respondents total payments less the penalty is to
be divided by P39,468, the total installments paid would only
cover 19.5 months, hence, it was not obliged under RA No.
6552 to pay the cash surrender value of such total payments.

This Court finds that neither of the parties computations

is in order.

The total purchase price of the property is P2,500,000. As

provided in the Reservation Application, the 30% down
payment on the purchase price or P750,000 was to be paid in
six monthly installments of P121,666.66. Under the Contract to
Sell, the 70% balance of P1,750,000.00 on the purchase price
was to be paid in 10 years through monthly installments of
P34,983, which was later increased to P39,468 in accordance
with the agreement to restructure the same.
 While, under the above-quoted Section 3 of RA No.
6552, the down payment is included in computing the total
number of installment payments made, the proper divisor is
neither P34,983 nor P39,468, but P121,666.66, the monthly
installment on the down payment.

The P750,000 down payment was to be paid in six

monthly installments. If the down payment of P750,000 is to be
deducted from the total payment of P846,600, the remainder is
only P96,600. Since respondent was able to pay the down
payment in full eleven (11) months after the last monthly
installment was due, and the sum of P76,600 representing
penalty for delay of payment is deducted from the remaining
P96,600, only a balance of P20,000 remains.

As respondent failed to pay at least two years of

installments, he is not, under above-quoted Section 3 of RA No.
6552, entitled to a refund of the cash surrender value of his
payments. What applies to the case instead is Section 4 of the
same law, viz:

SECTION 4. In case where less than two years of installments

were paid, the seller shall give the buyer a grace period of not less than
sixty days from the date the installment became due.

If the buyer fails to pay the installments due at the expiration

of the grace period, the seller may cancel the contract
after thirty days from receipt by the buyer of the
 notice of cancellation or the demand for rescission of
the contract by a notarial act. (Underscoring
supplied)

In Fabrigas v. San Francisco del Monte, Inc.,[21]

this Court described the cancellation of the contract under
Section 4 as a two-step process. First, the seller should
extend the buyer a grace period of at least sixty (60) days
from the due date of the installment. Second, at the end of
the grace period, the seller shall furnish the buyer with a
notice of cancellation or demand for rescission through a
notarial act, effective thirty (30) days from the buyer's
receipt thereof.

Respondent admits that under the restructured scheme,

the first installment on the 70% balance of the purchase price
was due on January 5, 1998. While he issued checks to cover
the same, the first two were dishonored due to insufficiency of
funds.

While respondent was notified of the dishonor of the

checks, he took no action thereon, hence, the 60 days grace
period lapsed. Respondent made no further payments thereafter.
Instead, he requested for suspension of payment and for time to
dispose of the property to recover his investment.
 Respondent admits that petitioner was justified in
canceling the contract to sell via the notarial Notice of
Cancellation which he received on May 13, 1998. The contract
was deemed cancelled[22] 30 days from May 13, 1998 or on
June 12, 1998.

WHEREFORE, the petition is GRANTED. The assailed

Decision and Resolution dated January 31, 2005 and March 16,
2005 of the Court of Appeals are hereby REVERSED and SET
ASIDE. The complaint of respondent, Daniel Ponce Pacifico,
is DISMISSED.

SO ORDERED.

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

LUISA F. MCLAUGHLIN, petitioner,
vs.
THE COURT OF APPEALS AND RAMON FLORES, respondents.
R.C. Domingo Jr. & Associates for private respondent.
FERIA, Actg. C.J.
This is an appeal by certiorari from the decision of the Court of Appeals, the
dispositive part of which reads as follows:
IN VIEW OF THE FOREGOING PREMISES, the petition for certiorari and
mandamus is hereby GRANTED and the Orders of respondent court dated
November 21 and 27 both 1980 are hereby nullified and set aside and
respondent Judge is ordered to order private respondent to accept
petitioner's Pacific Banking Corporation certified manager's Check No. MC-
A-000311 dated November 17, 1980 in the amount of P76,059.71 in full
settlement of petitioner's obligation, or another check of equivalent kind and
value, the earlier check having become stale.
On February 28, 1977, petitioner Luisa F. McLaughlin and private
respondent Ramon Flores entered into a contract of conditional sale of real
property. Paragraph one of the deed of conditional sale fixed the total
purchase price of P140,000.00 payable as follows: a) P26,550.00 upon the
execution of the deed; and b) the balance of P113,450.00 to be paid not later
than May 31, 1977. The parties also agreed that the balance shall bear
interest at the rate of 1% per month to commence from December 1, 1976,
until the full purchase price was paid.
On June 19, 1979, petitioner filed a complaint in the then Court of First
Instance of Rizal (Civil Case No. 33573) for the rescission of the deed of
conditional sale due to the failure of private respondent to pay the balance
due on May 31, 1977.
On December 27, 1979, the parties submitted a Compromise Agreement on
the basis of which the court rendered a decision on January 22, 1980. In said
compromise agreement, private respondent acknowledged his indebtedness
to petitioner under the deed of conditional sale in the amount of P119,050.71,
and the parties agreed that said amount would be payable as follows: a)
P50,000.00 upon signing of the agreement; and b) the balance of
P69,059.71 in two equal installments on June 30, 1980 and December 31,
1980.
As agreed upon, private respondent paid P50,000.00 upon the signing of the
agreement and in addition he also paid an "escalation cost" of P25,000.00.
Under paragraph 3 of the Compromise Agreement, private respondent
agreed to pay one thousand (P l,000.00) pesos monthly rental beginning
December 5, 1979 until the obligation is duly paid, for the use of the property
subject matter of the deed of conditional sale.
Paragraphs 6 and 7 of the Compromise Agreement further state:
That the parties are agreed that in the event the defendant (private
respondent) fails to comply with his obligations herein provided, the plaintiff
(petitioner) will be entitled to the issuance of a writ of execution rescinding
the Deed of Conditional Sale of Real Property. In such eventuality, defendant
(private respondent) hereby waives his right to appeal to (from) the Order of
Rescission and the Writ of Execution which the Court shall render in
accordance with the stipulations herein provided for.
That in the event of execution all payments made by defendant (private
respondent) will be forfeited in favor of the plaintiff (petitioner) as liquidated
damages.
On October 15, 1980, petitioner wrote to private respondent demanding that
the latter pay the balance of P69,059.71 on or before October 31, 1980. This
demand included not only the installment due on June 30, 1980 but also the
installment due on December 31, 1980.
On October 30, 1980, private respondent sent a letter to petitioner signifying
his willingness and intention to pay the full balance of P69,059.71, and at the
same time demanding to see the certificate of title of the property and the tax
payment receipts.
Private respondent states on page 14 of his brief that on November 3, 1980,
the first working day of said month, he tendered payment to petitioner but
this was refused acceptance by petitioner. However, this does not appear in
the decision of the Court of Appeals.
On November 7, 1980, petitioner filed a Motion for Writ of Execution alleging
that private respondent failed to pay the installment due on June 1980 and
that since June 1980 he had failed to pay the monthly rental of P l,000.00.
Petitioner prayed that a) the deed of conditional sale of real property be
declared rescinded with forfeiture of all payments as liquidated damages;
and b) the court order the payment of Pl,000.00 back rentals since June 1980
and the eviction of private respondent.
On November 14, 1980, the trial court granted the motion for writ of
execution.
On November 17, 1980, private respondent filed a motion for reconsideration
tendering at the same time a Pacific Banking Corporation certified manager's
check in the amount of P76,059.71, payable to the order of petitioner and
covering the entire obligation including the installment due on December 31,
1980. However, the trial court denied the motion for reconsideration in an
order dated November 21, 1980 and issued the writ of execution on
November 25, 1980.
In an order dated November 27, 1980, the trial court granted petitioner's ex-
parte motion for clarification of the order of execution rescinding the deed of
conditional sale of real property.
On November 28, 1980, private respondent filed with the Court of Appeals a
petition for certiorari and prohibition assailing the orders dated November 21
and 27, 1980.
As initially stated above, the appellate court nullified and set aside the
disputed orders of the lower court. In its decision, the appellate court ruled in
part as follows:
The issue here is whether respondent court committed a grave abuse of
discretion in issuing the orders dated November 21, 1980 and November
27,1980.
The general rule is that rescission will not be permitted for a slight or casual
breach of the contract, but only for such breaches as are substantial and
fundamental as to defeat the object of the parties in making the agreement.
(Song Fo & Co. vs. Hawaiian-Philippine Co., 47 Phil. 821)
In aforesaid case, it was held that a delay in payment for a small quantity of
molasses, for some twenty days is not such a violation of an essential
condition of the contract as warrants rescission for non-performance.
In Universal Food Corp. vs. Court of Appeals, 33 SCRA 1, the Song Fo ruling
was reaffirmed.
In the case at bar, McLaughlin wrote Flores on October 15, 1980 demanding
that Flores pay the balance of P69,059.71 on or before October 31, 1980.
Thus it is undeniable that despite Flores' failure to make the payment which
was due on June 1980, McLaughlin waived whatever right she had under
the compromise agreement as incorporated in the decision of respondent
court, to demand rescission.
xxx xxx xxx
It is significant to note that on November 17, 1980, or just seventeen (17)
days after October 31, 1980, the deadline set by McLaughlin, Flores
tendered the certified manager's check. We hold that the Song Fo ruling is
applicable herein considering that in the latter case, there was a 20-day delay
in the payment of the obligation as compared to a 17-day delay in the instant
case.
Furthermore, as held in the recent case of New Pacific Timber & Supply Co.,
Inc. vs. Hon. Alberto Seneris, L-41764, December 19, 1980, it is the
accepted practice in business to consider a cashier's or manager's check as
cash and that upon certification of a check, it is equivalent to its acceptance
(Section 187, Negotiable Instrument Law) and the funds are thereby
transferred to the credit of the creditor (Araneta v. Tuason, 49 O.G. p. 59).
In the New Pacific Timber & Supply Co., Inc. case, the Supreme Court further
held that the object of certifying a check is to enable the holder thereof to use
it as money, citing the ruling in PNB vs. National City Bank of New York, 63
Phil. 711.
In the New Pacific Timber case, it was also ruled that the exception in Section
63 of the Central Bank Act that the clearing of a check and the subsequent
crediting of the amount thereof to the account of the creditor is equivalent to
delivery of cash, is applicable to a payment through a certified check.
Considering that Flores had already paid P101,550.00 under the contract to
sell, excluding the monthly rentals paid, certainly it would be the height of
inequity to have this amount forfeited in favor McLaughlin. Under the
questioned orders, McLaughlin would get back the property and still keep
P101,550.00.
Petitioner contends that the appellate court erred in not observing the
provisions of Article No. 1306 of the Civil Code of the Philippines and in
having arbitrarily abused its judicial discretion by disregarding the penal
clause stipulated by the parties in the compromise agreement which was the
basis of the decision of the lower court.
We agree with the appellate court that it would be inequitable to cancel the
contract of conditional sale and to have the amount of P101,550.00 (P
l48,126.97 according to private respondent in his brief) already paid by him
under said contract, excluding the monthly rentals paid, forfeited in favor of
petitioner, particularly after private respondent had tendered the amount of
P76,059.71 in full payment of his obligation.
In the analogous case of De Guzman vs. Court of Appeals, this Court
sustained the order of the respondent judge denying the petitioners' motion
for execution on the ground that the private respondent had substantially
complied with the terms and conditions of the compromise agreement, and
directing the petitioners to immediately execute the necessary documents
transferring to the private respondent the title to the properties (July 23, 1985,
137 SCRA 730). In the case at bar, there was also substantial compliance
with the compromise agreement.
Petitioner invokes the ruling of the Court in its Resolution of November 16,
1978 in the case of Luzon Brokerage Co., Inc. vs. Maritime Building Co., Inc.,
to the effect that Republic Act 6552 (the Maceda Law) "recognizes and
reaffirms the vendor's right to cancel the contract to sell upon breach and
non-payment of the stipulated installments but requires a grace period after
at least two years of regular installment payments ... . " (86 SCRA 305, 329)
On the other hand, private respondent also invokes said law as an
expression of public policy to protect buyers of real estate on installments
against onerous and oppressive conditions (Section 2 of Republic Act No.
6552).
Section 4 of Republic Act No. 6552 which took effect on September 14, 1972
provides as follows:
In case where less than two years of installments were paid, the seller shall
give the buyer a grace period of not less than sixty days from the date the
installment became due. If the buyer fails to pay the installments due at the
expiration of the grace period, the seller may cancel the contract after thirty
days from receipt by the buyer of the notice of the cancellation or the demand
for rescission of the contract by a notarial act.
Section 7 of said law provides as follows:
Any stipulation in any contract hereafter entered into contrary to the
provisions of Sections 3, 4, 5 and 6, shall be null and void.
The spirit of these provisions further supports the decision of the appellate
court. The record does not contain the complete text of the compromise
agreement dated December 20, 1979 and the decision approving it.
However, assuming that under the terms of said agreement the December
31, 1980 installment was due and payable when on October 15, 1980,
petitioner demanded payment of the balance of P69,059.71 on or before
October 31, 1980, petitioner could cancel the contract after thirty days from
receipt by private respondent of the notice of cancellation. Considering
petitioner's motion for execution filed on November 7, 1980 as a notice of
cancellation, petitioner could cancel the contract of conditional sale after
thirty days from receipt by private respondent of said motion. Private
respondent's tender of payment of the amount of P76,059.71 together with
his motion for reconsideration on November 17, 1980 was, therefore, well
within the thirty-day period grants by law..
The tender made by private respondent of a certified bank manager's check
payable to petitioner was a valid tender of payment. The certified check
covered not only the balance of the purchase price in the amount of
P69,059.71, but also the arrears in the rental payments from June to
December, 1980 in the amount of P7,000.00, or a total of P76,059.71. On
this point the appellate court correctly applied the ruling in the case of New
Pacific Timber & Supply Co., Inc. vs. Seneris (101 SCRA 686, 692-694) to
the case at bar.
Moreover, Section 49, Rule 130 of the Revised Rules of Court provides that:
An offer in writing to pay a particular sum of money or to deliver a written
instrument or specific property is, if rejected, equivalent to the actual
production and tender of the money, instrument, or property.
However, although private respondent had made a valid tender of payment
which preserved his rights as a vendee in the contract of conditional sale of
real property, he did not follow it with a consignation or deposit of the sum
due with the court. As this Court has held:
The rule regarding payment of redemption prices is invoked. True that
consignation of the redemption price is not necessary in order that the vendor
may compel the vendee to allow the repurchase within the time provided by
law or by contract. (Rosales vs. Reyes and Ordoveza, 25 Phil. 495.) We have
held that in such cases a mere tender of payment is enough, if made on time,
as a basis for action against the vendee to compel him to resell. But that
tender does not in itself relieve the vendor from his obligation to pay the price
when redemption is allowed by the court. In other words, tender of payment
is sufficient to compel redemption but is not in itself a payment that relieves
the vendor from his liability to pay the redemption price. " (Paez vs. Magno,
83 Phil. 403, 405)
On September 1, 1986, the Court issued the following resolution
Considering the allegation in petitioner's reply brief that the Manager's Check
tendered by private respondent on November 17, 1980 was subsequently
cancelled and converted into cash, the Court RESOLVED to REQUIRE the
parties within ten (10) days from notice to inform the Court whether or not
the amount thereof was deposited in court and whether or not private
respondent continued paying the monthly rental of P1,000.00 stipulated in
the Compromise Agreement.
In compliance with this resolution, both parties submitted their respective
manifestations which confirm that the Manager's Check in question was
subsequently withdrawn and replaced by cash, but the cash was not
deposited with the court.
According to Article 1256 of the Civil Code of the Philippines, if the creditor
to whom tender of payment has been made refuses without just cause to
accept it, the debtor shall be released from responsibility by the consignation
of the thing or sum due, and that consignation alone shall produce the same
effect in the five cases enumerated therein; Article 1257 provides that in
order that the consignation of the thing (or sum) due may release the obligor,
it must first be announced to the persons interested in the fulfillment of the
obligation; and Article 1258 provides that consignation shall be made by
depositing the thing (or sum) due at the disposal of the judicial authority and
that the interested parties shall also be notified thereof.
As the Court held in the case of Soco vs. Militante, promulgated on June 28,
1983, after examining the above-cited provisions of the law and the
jurisprudence on the matter:
Tender of payment must be distinguished from consignation. Tender is the
antecedent of consignation, that is, an act preparatory to the consignation,
which is the principal, and from which are derived the immediate
consequences which the debtor desires or seeks to obtain. Tender of
payment may be extrajudicial, while consignation is necessarily judicial, and
the priority of the first is the attempt to make a private settlement before
proceeding to the solemnities of consignation. (8 Manresa 325). (123 SCRA
160,173)
In the above-cited case of De Guzman vs. Court of Appeals (137 SCRA 730),
the vendee was released from responsibility because he had deposited with
the court the balance of the purchase price. Similarly, in the above-cited case
of New Pacific Timber & Supply Co., Inc. vs. Seneris (101 SCRA 686), the
judgment debtor was released from responsibility by depositing with the
court the amount of the judgment obligation.
In the case at bar, although as above stated private respondent had
preserved his rights as a vendee in the contract of conditional sale of real
property by a timely valid tender of payment of the balance of his obligation
which was not accepted by petitioner, he remains liable for the payment of
his obligation because of his failure to deposit the amount due with the court.
In his manifestation dated September 19, 1986, private respondent states
that on September 16, 1980, he purchased a Metrobank Cashier's Check
No. CC 004233 in favor of petitioner Luisa F. McLaughlin in the amount of
P76,059.71, a photocopy of which was enclosed and marked as Annex "A-
1;" but that he did not continue paying the monthly rental of Pl,000.00
because, pursuant to the decision of the appellate court, petitioner herein
was ordered to accept the aforesaid amount in full payment of herein
respondent's obligation under the contract subject matter thereof.
However, inasmuch as petitioner did not accept the aforesaid amount, it was
incumbent on private respondent to deposit the same with the court in order
to be released from responsibility. Since private respondent did not deposit
said amount with the court, his obligation was not paid and he is liable in
addition for the payment of the monthly rental of Pl,000.00 from January 1,
1981 until said obligation is duly paid, in accordance with paragraph 3 of the
Compromise Agreement. Upon full payment of the amount of P76,059.71
and the rentals in arrears, private respondent shall be entitled to a deed of
absolute sale in his favor of the real property in question.
WHEREFORE, the decision of the Court of Appeals is AFFIRMED with the
following modifications:
(a) Petitioner is ordered to accept from private respondent the Metrobank
Cashier's Check No. CC 004233 in her favor in the amount of P76,059.71 or
another certified check of a reputable bank drawn in her favor in the same
amount;
(b) Private respondent is ordered to pay petitioner, within sixty (60) days from
the finality of this decision, the rentals in arrears of P l,000.00 a month from
January 1, 1981 until full payment thereof; and
(c) Petitioner is ordered to execute a deed of absolute sale in favor of private
respondent over the real property in question upon full payment of the
amounts as provided in paragraphs (a) and (b) above. No costs.
SO ORDERED.
Fernan, Alampay, Gutierrez, Jr. and Paras, JJ., concur.

G.R. No. 111238 January 25, 1995

ADELFA PROPERTIES, INC., petitioner,
vs.
COURT OF APPEALS, ROSARIO JIMENEZ-CASTAEDA and SALUD
JIMENEZ, respondents.
REGALADO, J.:
The main issues presented for resolution in this petition for review on
certiorari of the judgment of respondent Court of appeals, dated April 6,
1993, in CA-G.R. CV No. 347671 are (1) whether of not the "Exclusive Option
to Purchase" executed between petitioner Adelfa Properties, Inc. and private
respondents Rosario Jimenez-Castaeda and Salud Jimenez is an option
contract; and (2) whether or not there was a valid suspension of payment of
the purchase price by said petitioner, and the legal effects thereof on the
contractual relations of the parties.
The records disclose the following antecedent facts which culminated in the
present appellate review, to wit:
1. Herein private respondents and their brothers, Jose and Dominador
Jimenez, were the registered co-owners of a parcel of land consisting of
17,710 square meters, covered by Transfer Certificate of Title (TCT) No.
309773,2 situated in Barrio Culasi, Las Pias, Metro Manila.
2. On July 28, 1988, Jose and Dominador Jimenez sold their share
consisting of one-half of said parcel of land, specifically the eastern portion
thereof, to herein petitioner pursuant to a "Kasulatan sa Bilihan ng Lupa."3
Subsequently, a "Confirmatory Extrajudicial Partition Agreement"4 was
executed by the Jimenezes, wherein the eastern portion of the subject lot,
with an area of 8,855 square meters was adjudicated to Jose and Dominador
Jimenez, while the western portion was allocated to herein private
respondents.
3. Thereafter, herein petitioner expressed interest in buying the western
portion of the property from private respondents. Accordingly, on November
25, 1989, an "Exclusive Option to Purchase"5 was executed between
petitioner and private respondents, under the following terms and conditions:
1. The selling price of said 8,655 square meters of the subject property is
TWO MILLION EIGHT HUNDRED FIFTY SIX THOUSAND ONE HUNDRED
FIFTY PESOS ONLY (P2,856,150.00)
2. The sum of P50,000.00 which we received from ADELFA PROPERTIES,
INC. as an option money shall be credited as partial payment upon the
consummation of the sale and the balance in the sum of TWO MILLION
EIGHT HUNDRED SIX THOUSAND ONE HUNDRED FIFTY PESOS
(P2,806,150.00) to be paid on or before November 30, 1989;
3. In case of default on the part of ADELFA PROPERTIES, INC. to pay said
balance in accordance with paragraph 2 hereof, this option shall be cancelled
and 50% of the option money to be forfeited in our favor and we will refund
the remaining 50% of said money upon the sale of said property to a third
party;
4. All expenses including the corresponding capital gains tax, cost of
documentary stamps are for the account of the VENDORS, and expenses
for the registration of the deed of sale in the Registry of Deeds are for the
account of ADELFA PROPERTIES, INC.
Considering, however, that the owner's copy of the certificate of title issued
to respondent Salud Jimenez had been lost, a petition for the re-issuance of
a new owner's copy of said certificate of title was filed in court through Atty.
Bayani L. Bernardo, who acted as private respondents' counsel. Eventually,
a new owner's copy of the certificate of title was issued but it remained in the
possession of Atty. Bernardo until he turned it over to petitioner Adelfa
Properties, Inc.
4. Before petitioner could make payment, it received summons6 on
November 29, 1989, together with a copy of a complaint filed by the nephews
and nieces of private respondents against the latter, Jose and Dominador
Jimenez, and herein petitioner in the Regional Trial Court of Makati,
docketed as Civil Case No. 89-5541, for annulment of the deed of sale in
favor of Household Corporation and recovery of ownership of the property
covered by TCT No. 309773.7
5. As a consequence, in a letter dated November 29, 1989, petitioner
informed private respondents that it would hold payment of the full purchase
price and suggested that private respondents settle the case with their
nephews and nieces, adding that ". . . if possible, although November 30,
1989 is a holiday, we will be waiting for you and said plaintiffs at our office
up to 7:00 p.m."8 Another letter of the same tenor and of even date was sent
by petitioner to Jose and Dominador Jimenez.9 Respondent Salud Jimenez
refused to heed the suggestion of petitioner and attributed the suspension of
payment of the purchase price to "lack of word of honor."
6. On December 7, 1989, petitioner caused to be annotated on the title of
the lot its option contract with private respondents, and its contract of sale
with Jose and Dominador Jimenez, as Entry No. 1437-4 and entry No. 1438-
4, respectively.
7. On December 14, 1989, private respondents sent Francisca Jimenez to
see Atty. Bernardo, in his capacity as petitioner's counsel, and to inform the
latter that they were cancelling the transaction. In turn, Atty. Bernardo offered
to pay the purchase price provided that P500,000.00 be deducted therefrom
for the settlement of the civil case. This was rejected by private respondents.
On December 22, 1989, Atty. Bernardo wrote private respondents on the
same matter but this time reducing the amount from P500,000.00 to
P300,000.00, and this was also rejected by the latter.
8. On February 23, 1990, the Regional Trial Court of Makati dismissed Civil
Case No. 89-5541. Thus, on February 28, 1990, petitioner caused to be
annotated anew on TCT No. 309773 the exclusive option to purchase as
Entry No. 4442-4.
9. On the same day, February 28, 1990, private respondents executed a
Deed of Conditional Sale 10 in favor of Emylene Chua over the same parcel
of land for P3,029,250, of which P1,500,000.00 was paid to private
respondents on said date, with the balance to be paid upon the transfer of
title to the specified one-half portion.
10. On April 16, 1990, Atty. Bernardo wrote private respondents informing
the latter that in view of the dismissal of the case against them, petitioner
was willing to pay the purchase price, and he requested that the
corresponding deed of absolute sale be executed. 11 This was ignored by
private respondents.
11. On July 27, 1990, private respondents' counsel sent a letter to petitioner
enclosing therein a check for P25,000.00 representing the refund of fifty
percent of the option money paid under the exclusive option to purchase.
Private respondents then requested petitioner to return the owner's duplicate
copy of the certificate of title of respondent Salud Jimenez. 12 Petitioner failed
to surrender the certificate of title, hence private respondents filed Civil Case
No. 7532 in the Regional Trial Court of Pasay City, Branch 113, for
annulment of contract with damages, praying, among others, that the
exclusive option to purchase be declared null and void; that defendant,
herein petitioner, be ordered to return the owner's duplicate certificate of title;
and that the annotation of the option contract on TCT No. 309773 be
cancelled. Emylene Chua, the subsequent purchaser of the lot, filed a
complaint in intervention.
12. The trial court rendered judgment 13 therein on September 5, 1991
holding that the agreement entered into by the parties was merely an option
contract, and declaring that the suspension of payment by herein petitioner
constituted a counter-offer which, therefore, was tantamount to a rejection of
the option. It likewise ruled that herein petitioner could not validly suspend
payment in favor of private respondents on the ground that the vindicatory
action filed by the latter's kin did not involve the western portion of the land
covered by the contract between petitioner and private respondents, but the
eastern portion thereof which was the subject of the sale between petitioner
and the brothers Jose and Dominador Jimenez. The trial court then directed
the cancellation of the exclusive option to purchase, declared the sale to
intervenor Emylene Chua as valid and binding, and ordered petitioner to pay
damages and attorney's fees to private respondents, with costs.
13. On appeal, respondent Court of appeals affirmed in toto the decision of
the court a quo and held that the failure of petitioner to pay the purchase
price within the period agreed upon was tantamount to an election by
petitioner not to buy the property; that the suspension of payment constituted
an imposition of a condition which was actually a counter-offer amounting to
a rejection of the option; and that Article 1590 of the Civil Code on
suspension of payments applies only to a contract of sale or a contract to
sell, but not to an option contract which it opined was the nature of the
document subject of the case at bar. Said appellate court similarly upheld
the validity of the deed of conditional sale executed by private respondents
in favor of intervenor Emylene Chua.
In the present petition, the following assignment of errors are raised:
1. Respondent court of appeals acted with grave abuse of discretion in
making its finding that the agreement entered into by petitioner and private
respondents was strictly an option contract;
2. Granting arguendo that the agreement was an option contract, respondent
court of Appeals acted with grave abuse of discretion in grievously failing to
consider that while the option period had not lapsed, private respondents
could not unilaterally and prematurely terminate the option period;
3. Respondent Court of Appeals acted with grave abuse of discretion in
failing to appreciate fully the attendant facts and circumstances when it made
the conclusion of law that Article 1590 does not apply; and
4. Respondent Court of Appeals acted with grave abuse of discretion in
conforming with the sale in favor of appellee Ma. Emylene Chua and the
award of damages and attorney's fees which are not only excessive, but also
without in fact and in law. 14
An analysis of the facts obtaining in this case, as well as the evidence
presented by the parties, irresistibly leads to the conclusion that the
agreement between the parties is a contract to sell, and not an option
contract or a contract of sale.
I
1. In view of the extended disquisition thereon by respondent court, it would
be worthwhile at this juncture to briefly discourse on the rationale behind our
treatment of the alleged option contract as a contract to sell, rather than a
contract of sale. The distinction between the two is important for in contract
of sale, the title passes to the vendee upon the delivery of the thing sold;
whereas in a contract to sell, by agreement the ownership is reserved in the
vendor and is not to pass until the full payment of the price. In a contract of
sale, the vendor has lost and cannot recover ownership until and unless the
contract is resolved or rescinded; whereas in a contract to sell, title is
retained by the vendor until the full payment of the price, such payment being
a positive suspensive condition and failure of which is not a breach but an
event that prevents the obligation of the vendor to convey title from becoming
effective. Thus, a deed of sale is considered absolute in nature where there
is neither a stipulation in the deed that title to the property sold is reserved in
the seller until the full payment of the price, nor one giving the vendor the
right to unilaterally resolve the contract the moment the buyer fails to pay
within a fixed period. 15
There are two features which convince us that the parties never intended to
transfer ownership to petitioner except upon the full payment of the purchase
price. Firstly, the exclusive option to purchase, although it provided for
automatic rescission of the contract and partial forfeiture of the amount
already paid in case of default, does not mention that petitioner is obliged to
return possession or ownership of the property as a consequence of non-
payment. There is no stipulation anent reversion or reconveyance of the
property to herein private respondents in the event that petitioner does not
comply with its obligation. With the absence of such a stipulation, although
there is a provision on the remedies available to the parties in case of breach,
it may legally be inferred that the parties never intended to transfer ownership
to the petitioner to completion of payment of the purchase price.
In effect, there was an implied agreement that ownership shall not pass to
the purchaser until he had fully paid the price. Article 1478 of the civil code
does not require that such a stipulation be expressly made. Consequently,
an implied stipulation to that effect is considered valid and, therefore, binding
and enforceable between the parties. It should be noted that under the law
and jurisprudence, a contract which contains this kind of stipulation is
considered a contract to sell.
Moreover, that the parties really intended to execute a contract to sell, and
not a contract of sale, is bolstered by the fact that the deed of absolute sale
would have been issued only upon the payment of the balance of the
purchase price, as may be gleaned from petitioner's letter dated April 16,
1990 16 wherein it informed private respondents that it "is now ready and
willing to pay you simultaneously with the execution of the corresponding
deed of absolute sale."
Secondly, it has not been shown there was delivery of the property, actual
or constructive, made to herein petitioner. The exclusive option to purchase
is not contained in a public instrument the execution of which would have
been considered equivalent to delivery. 17 Neither did petitioner take actual,
physical possession of the property at any given time. It is true that after the
reconstitution of private respondents' certificate of title, it remained in the
possession of petitioner's counsel, Atty. Bayani L. Bernardo, who thereafter
delivered the same to herein petitioner. Normally, under the law, such
possession by the vendee is to be understood as a delivery.18 However,
private respondents explained that there was really no intention on their part
to deliver the title to herein petitioner with the purpose of transferring
ownership to it. They claim that Atty. Bernardo had possession of the title
only because he was their counsel in the petition for reconstitution. We have
no reason not to believe this explanation of private respondents, aside from
the fact that such contention was never refuted or contradicted by petitioner.
2. Irrefragably, the controverted document should legally be considered as a
perfected contract to sell. On this particular point, therefore, we reject the
position and ratiocination of respondent Court of Appeals which, while
awarding the correct relief to private respondents, categorized the instrument
as "strictly an option contract."
The important task in contract interpretation is always the ascertainment of
the intention of the contracting parties and that task is, of course, to be
discharged by looking to the words they used to project that intention in their
contract, all the words not just a particular word or two, and words in context
not words standing alone. 19 Moreover, judging from the subsequent acts of
the parties which will hereinafter be discussed, it is undeniable that the
intention of the parties was to enter into a contract to sell. 20 In addition, the
title of a contract does not necessarily determine its true nature. 21 Hence,
the fact that the document under discussion is entitled "Exclusive Option to
Purchase" is not controlling where the text thereof shows that it is a contract
to sell.
An option, as used in the law on sales, is a continuing offer or contract by
which the owner stipulates with another that the latter shall have the right to
buy the property at a fixed price within a certain time, or under, or in
compliance with, certain terms and conditions, or which gives to the owner
of the property the right to sell or demand a sale. It is also sometimes called
an "unaccepted offer." An option is not of itself a purchase, but merely
secures the privilege to buy. 22 It is not a sale of property but a sale of
property but a sale of the right to purchase. 23 It is simply a contract by which
the owner of property agrees with another person that he shall have the right
to buy his property at a fixed price within a certain time. He does not sell his
land; he does not then agree to sell it; but he does sell something, that it is,
the right or privilege to buy at the election or option of the other party. 24 Its
distinguishing characteristic is that it imposes no binding obligation on the
person holding the option, aside from the consideration for the offer. Until
acceptance, it is not, properly speaking, a contract, and does not vest,
transfer, or agree to transfer, any title to, or any interest or right in the subject
matter, but is merely a contract by which the owner of property gives the
optionee the right or privilege of accepting the offer and buying the property
on certain terms. 25
On the other hand, a contract, like a contract to sell, involves a meeting of
minds two persons whereby one binds himself, with respect to the other, to
give something or to render some service. 26 Contracts, in general, are
perfected by mere consent, 27 which is manifested by the meeting of the offer
and the acceptance upon the thing and the cause which are to constitute the
contract. The offer must be certain and the acceptance absolute. 28
The distinction between an "option" and a contract of sale is that an option
is an unaccepted offer. It states the terms and conditions on which the owner
is willing to sell the land, if the holder elects to accept them within the time
limited. If the holder does so elect, he must give notice to the other party,
and the accepted offer thereupon becomes a valid and binding contract. If
an acceptance is not made within the time fixed, the owner is no longer
bound by his offer, and the option is at an end. A contract of sale, on the
other hand, fixes definitely the relative rights and obligations of both parties
at the time of its execution. The offer and the acceptance are concurrent,
since the minds of the contracting parties meet in the terms of the agreement.
29
A perusal of the contract in this case, as well as the oral and documentary
evidence presented by the parties, readily shows that there is indeed a
concurrence of petitioner's offer to buy and private respondents' acceptance
thereof. The rule is that except where a formal acceptance is so required,
although the acceptance must be affirmatively and clearly made and must
be evidenced by some acts or conduct communicated to the offeror, it may
be made either in a formal or an informal manner, and may be shown by
acts, conduct, or words of the accepting party that clearly manifest a present
intention or determination to accept the offer to buy or sell. Thus, acceptance
may be shown by the acts, conduct, or words of a party recognizing the
existence of the contract of sale. 30
The records also show that private respondents accepted the offer of
petitioner to buy their property under the terms of their contract. At the time
petitioner made its offer, private respondents suggested that their transfer
certificate of title be first reconstituted, to which petitioner agreed. As a matter
of fact, it was petitioner's counsel, Atty. Bayani L. Bernardo, who assisted
private respondents in filing a petition for reconstitution. After the title was
reconstituted, the parties agreed that petitioner would pay either in cash or
manager's check the amount of P2,856,150.00 for the lot. Petitioner was
supposed to pay the same on November 25, 1989, but it later offered to make
a down payment of P50,000.00, with the balance of P2,806,150.00 to be paid
on or before November 30, 1989. Private respondents agreed to the counter-
offer made by petitioner. 31 As a result, the so-called exclusive option to
purchase was prepared by petitioner and was subsequently signed by
private respondents, thereby creating a perfected contract to sell between
them.
It cannot be gainsaid that the offer to buy a specific piece of land was definite
and certain, while the acceptance thereof was absolute and without any
condition or qualification. The agreement as to the object, the price of the
property, and the terms of payment was clear and well-defined. No other
significance could be given to such acts that than they were meant to finalize
and perfect the transaction. The parties even went beyond the basic
requirements of the law by stipulating that "all expenses including the
corresponding capital gains tax, cost of documentary stamps are for the
account of the vendors, and expenses for the registration of the deed of sale
in the Registry of Deeds are for the account of Adelfa properties, Inc." Hence,
there was nothing left to be done except the performance of the respective
obligations of the parties.
We do not subscribe to private respondents' submission, which was upheld
by both the trial court and respondent court of appeals, that the offer of
petitioner to deduct P500,000.00, (later reduced to P300,000.00) from the
purchase price for the settlement of the civil case was tantamount to a
counter-offer. It must be stressed that there already existed a perfected
contract between the parties at the time the alleged counter-offer was made.
Thus, any new offer by a party becomes binding only when it is accepted by
the other. In the case of private respondents, they actually refused to concur
in said offer of petitioner, by reason of which the original terms of the contract
continued to be enforceable.
At any rate, the same cannot be considered a counter-offer for the simple
reason that petitioner's sole purpose was to settle the civil case in order that
it could already comply with its obligation. In fact, it was even indicative of a
desire by petitioner to immediately comply therewith, except that it was being
prevented from doing so because of the filing of the civil case which, it
believed in good faith, rendered compliance improbable at that time. In
addition, no inference can be drawn from that suggestion given by petitioner
that it was totally abandoning the original contract.
More importantly, it will be noted that the failure of petitioner to pay the
balance of the purchase price within the agreed period was attributed by
private respondents to "lack of word of honor" on the part of the former. The
reason of "lack of word of honor" is to us a clear indication that private
respondents considered petitioner already bound by its obligation to pay the
balance of the consideration. In effect, private respondents were demanding
or exacting fulfillment of the obligation from herein petitioner. with the arrival
of the period agreed upon by the parties, petitioner was supposed to comply
with the obligation incumbent upon it to perform, not merely to exercise an
option or a right to buy the property.
The obligation of petitioner on November 30, 1993 consisted of an obligation
to give something, that is, the payment of the purchase price. The contract
did not simply give petitioner the discretion to pay for the property. 32 It will
be noted that there is nothing in the said contract to show that petitioner was
merely given a certain period within which to exercise its privilege to buy.
The agreed period was intended to give time to herein petitioner within which
to fulfill and comply with its obligation, that is, to pay the balance of the
purchase price. No evidence was presented by private respondents to prove
otherwise.
The test in determining whether a contract is a "contract of sale or purchase"
or a mere "option" is whether or not the agreement could be specifically
enforced. 33 There is no doubt that the obligation of petitioner to pay the
purchase price is specific, definite and certain, and consequently binding and
enforceable. Had private respondents chosen to enforce the contract, they
could have specifically compelled petitioner to pay the balance of
P2,806,150.00. This is distinctly made manifest in the contract itself as an
integral stipulation, compliance with which could legally and definitely be
demanded from petitioner as a consequence.
This is not a case where no right is as yet created nor an obligation declared,
as where something further remains to be done before the buyer and seller
obligate themselves. 34 An agreement is only an "option" when no obligation
rests on the party to make any payment except such as may be agreed on
between the parties as consideration to support the option until he has made
up his mind within the time specified. 35 An option, and not a contract to
purchase, is effected by an agreement to sell real estate for payments to be
made within specified time and providing forfeiture of money paid upon
failure to make payment, where the purchaser does not agree to purchase,
to make payment, or to bind himself in any way other than the forfeiture of
the payments made. 36 As hereinbefore discussed, this is not the situation
obtaining in the case at bar.
While there is jurisprudence to the effect that a contract which provides that
the initial payment shall be totally forfeited in case of default in payment is to
be considered as an option contract, 37 still we are not inclined to conform
with the findings of respondent court and the court a quo that the contract
executed between the parties is an option contract, for the reason that the
parties were already contemplating the payment of the balance of the
purchase price, and were not merely quoting an agreed value for the
property. The term "balance," connotes a remainder or something remaining
from the original total sum already agreed upon.
In other words, the alleged option money of P50,000.00 was actually earnest
money which was intended to form part of the purchase price. The amount
of P50,000.00 was not distinct from the cause or consideration for the sale
of the property, but was itself a part thereof. It is a statutory rule that
whenever earnest money is given in a contract of sale, it shall be considered
as part of the price and as proof of the perfection of the contract. 38 It
constitutes an advance payment and must, therefore, be deducted from the
total price. Also, earnest money is given by the buyer to the seller to bind the
bargain.
There are clear distinctions between earnest money and option money, viz.:
(a) earnest money is part of the purchase price, while option money ids the
money given as a distinct consideration for an option contract; (b) earnest
money is given only where there is already a sale, while option money
applies to a sale not yet perfected; and (c) when earnest money is given, the
buyer is bound to pay the balance, while when the would-be buyer gives
option money, he is not required to buy. 39
The aforequoted characteristics of earnest money are apparent in the so-
called option contract under review, even though it was called "option
money" by the parties. In addition, private respondents failed to show that
the payment of the balance of the purchase price was only a condition
precedent to the acceptance of the offer or to the exercise of the right to buy.
On the contrary, it has been sufficiently established that such payment was
but an element of the performance of petitioner's obligation under the
contract to sell. 40
II
1. This brings us to the second issue as to whether or not there was valid
suspension of payment of the purchase price by petitioner and the legal
consequences thereof. To justify its failure to pay the purchase price within
the agreed period, petitioner invokes Article 1590 of the civil Code which
provides:
Art. 1590. Should the vendee be disturbed in the possession or ownership
of the thing acquired, or should he have reasonable grounds to fear such
disturbance, by a vindicatory action or a foreclosure of mortgage, he may
suspend the payment of the price until the vendor has caused the
disturbance or danger to cease, unless the latter gives security for the return
of the price in a proper case, or it has been stipulated that, notwithstanding
any such contingency, the vendee shall be bound to make the payment. A
mere act of trespass shall not authorize the suspension of the payment of
the price.
Respondent court refused to apply the aforequoted provision of law on the
erroneous assumption that the true agreement between the parties was a
contract of option. As we have hereinbefore discussed, it was not an option
contract but a perfected contract to sell. Verily, therefore, Article 1590 would
properly apply.
Both lower courts, however, are in accord that since Civil Case No. 89-5541
filed against the parties herein involved only the eastern half of the land
subject of the deed of sale between petitioner and the Jimenez brothers, it
did not, therefore, have any adverse effect on private respondents' title and
ownership over the western half of the land which is covered by the contract
subject of the present case. We have gone over the complaint for recovery
of ownership filed in said case 41 and we are not persuaded by the factual
findings made by said courts. At a glance, it is easily discernible that,
although the complaint prayed for the annulment only of the contract of sale
executed between petitioner and the Jimenez brothers, the same likewise
prayed for the recovery of therein plaintiffs' share in that parcel of land
specifically covered by TCT No. 309773. In other words, the plaintiffs therein
were claiming to be co-owners of the entire parcel of land described in TCT
No. 309773, and not only of a portion thereof nor, as incorrectly interpreted
by the lower courts, did their claim pertain exclusively to the eastern half
adjudicated to the Jimenez brothers.
Such being the case, petitioner was justified in suspending payment of the
balance of the purchase price by reason of the aforesaid vindicatory action
filed against it. The assurance made by private respondents that petitioner
did not have to worry about the case because it was pure and simple
harassment 42 is not the kind of guaranty contemplated under the exceptive
clause in Article 1590 wherein the vendor is bound to make payment even
with the existence of a vindicatory action if the vendee should give a security
for the return of the price.
2. Be that as it may, and the validity of the suspension of payment
notwithstanding, we find and hold that private respondents may no longer be
compelled to sell and deliver the subject property to petitioner for two
reasons, that is, petitioner's failure to duly effect the consignation of the
purchase price after the disturbance had ceased; and, secondarily, the fact
that the contract to sell had been validly rescinded by private respondents.
The records of this case reveal that as early as February 28, 1990 when
petitioner caused its exclusive option to be annotated anew on the certificate
of title, it already knew of the dismissal of civil Case No. 89-5541. However,
it was only on April 16, 1990 that petitioner, through its counsel, wrote private
respondents expressing its willingness to pay the balance of the purchase
price upon the execution of the corresponding deed of absolute sale. At
most, that was merely a notice to pay. There was no proper tender of
payment nor consignation in this case as required by law.
The mere sending of a letter by the vendee expressing the intention to
pay, without the accompanying payment, is not considered a valid tender of
payment. 43 Besides, a mere tender of payment is not sufficient to compel
private respondents to deliver the property and execute the deed of absolute
sale. It is consignation which is essential in order to extinguish petitioner's
obligation to pay the balance of the purchase price. 44 The rule is different in
case of an option contract 45 or in legal redemption or in a sale with right to
repurchase, 46 wherein consignation is not necessary because these cases
involve an exercise of a right or privilege (to buy, redeem or repurchase)
rather than the discharge of an obligation, hence tender of payment would
be sufficient to preserve the right or privilege. This is because the provisions
on consignation are not applicable when there is no obligation to pay. 47 A
contract to sell, as in the case before us, involves the performance of an
obligation, not merely the exercise of a privilege of a right. consequently,
performance or payment may be effected not by tender of payment alone
but by both tender and consignation.
Furthermore, petitioner no longer had the right to suspend payment after the
disturbance ceased with the dismissal of the civil case filed against it.
Necessarily, therefore, its obligation to pay the balance again arose and
resumed after it received notice of such dismissal. Unfortunately, petitioner
failed to seasonably make payment, as in fact it has deposit the money with
the trial court when this case was originally filed therein.
By reason of petitioner's failure to comply with its obligation, private
respondents elected to resort to and did announce the rescission of the
contract through its letter to petitioner dated July 27, 1990. That written notice
of rescission is deemed sufficient under the circumstances. Article 1592 of
the Civil Code which requires rescission either by judicial action or notarial
act is not applicable to a contract to sell. 48 Furthermore, judicial action for
rescission of a contract is not necessary where the contract provides for
automatic rescission in case of breach,49 as in the contract involved in the
present controversy.
We are not unaware of the ruling in University of the Philippines vs. De los
Angeles, etc. 50 that the right to rescind is not absolute, being ever subject to
scrutiny and review by the proper court. It is our considered view, however,
that this rule applies to a situation where the extrajudicial rescission is
contested by the defaulting party. In other words, resolution of reciprocal
contracts may be made extrajudicially unless successfully impugned in court.
If the debtor impugns the declaration, it shall be subject to judicial
determination51 otherwise, if said party does not oppose it, the extrajudicial
rescission shall have legal effect. 52
In the case at bar, it has been shown that although petitioner was duly
furnished and did receive a written notice of rescission which specified the
grounds therefore, it failed to reply thereto or protest against it. Its silence
thereon suggests an admission of the veracity and validity of private
respondents' claim. 53 Furthermore, the initiative of instituting suit was
transferred from the rescinder to the defaulter by virtue of the automatic
rescission clause in the contract. 54 But then, the records bear out the fact
that aside from the lackadaisical manner with which petitioner treated private
respondents' latter of cancellation, it utterly failed to seriously seek redress
from the court for the enforcement of its alleged rights under the contract. If
private respondents had not taken the initiative of filing Civil Case No. 7532,
evidently petitioner had no intention to take any legal action to compel
specific performance from the former. By such cavalier disregard, it has been
effectively estopped from seeking the affirmative relief it now desires but
which it had theretofore disdained.
WHEREFORE, on the foregoing modificatory premises, and considering that
the same result has been reached by respondent Court of Appeals with
respect to the relief awarded to private respondents by the court a quo which
we find to be correct, its assailed judgment in CA-G.R. CV No. 34767 is
hereby AFFIRMED.
SO ORDERED.
Narvasa, C.J., Puno and Mendoza, JJ., concur.

[Syllabus]
THIRD DIVISION
[G.R. No. 103577. October 7, 1996]
ROMULO A. CORONEL, ALARICO A. CORONEL,
ANNETTE A. CORONEL, ANNABELLE C. GONZALES
(for herself and on behalf of Floraida C. Tupper, as
attorney-in-fact), CIELITO A. CORONEL, FLORAIDA
A. ALMONTE, and CATALINA BALAIS MABANAG,
petitioners, vs. THE COURT OF APPEALS,
CONCEPCION D. ALCARAZ and RAMONA PATRICIA
ALCARAZ, assisted by GLORIA F. NOEL as attorney-
in-fact, respondents.
DECISION
MELO, J.:
The petition before us has its roots in a complaint for specific
performance to compel herein petitioners (except the last named,
Catalina Balais Mabanag) to consummate the sale of a parcel of
land with its improvements located along Roosevelt Avenue in
Quezon City entered into by the parties sometime in January 1985
for the price of P1,240,000.00.
The undisputed facts of the case were summarized by respondent
court in this wise:
On January 19, 1985, defendants-appellants Romulo Coronel, et. al.
(hereinafter referred to as Coronels) executed a document entitled Receipt
of Down Payment (Exh. A) in favor of plaintiff Ramona Patricia Alcaraz
(hereinafter referred to as Ramona) which is reproduced hereunder:
RECEIPT OF DOWN PAYMENT
P1,240,000.00 - Total amount
50,000.00 - Down payment
------------------------------------------
P1,190,000.00 - Balance
Received from Miss Ramona Patricia Alcaraz of 146 Timog, Quezon City,
the sum of Fifty Thousand Pesos purchase price of our inherited house
and lot, covered by TCT No. 119627 of the Registry of Deeds of Quezon
City, in the total amount of P1,240,000.00.
We bind ourselves to effect the transfer in our names from our deceased
father, Constancio P. Coronel, the transfer certificate of title immediately
upon receipt of the down payment above-stated.
On our presentation of the TCT already in or name, We will immediately
execute the deed of absolute sale of said property and Miss Ramona
Patricia Alcaraz shall immediately pay the balance of the P1,190,000.00.
Clearly, the conditions appurtenant to the sale are the following:
1. Ramona will make a down payment of Fifty Thousand (P50,000.00)
pesos upon execution of the document aforestated;
2. The Coronels will cause the transfer in their names of the title of the
property registered in the name of their deceased father upon receipt of
the Fifty Thousand (P50,000.00) Pesos down payment;
3. Upon the transfer in their names of the subject property, the Coronels
will execute the deed of absolute sale in favor of Ramona and the latter
will pay the former the whole balance of One Million One Hundred
Ninety Thousand (P1,190,000.00) Pesos.
On the same date (January 15, 1985), plaintiff-appellee Concepcion D.
Alcaraz (hereinafter referred to as Concepcion), mother of Ramona, paid
the down payment of Fifty Thousand (P50,000.00) Pesos (Exh. B, Exh.
2).
On February 6, 1985, the property originally registered in the name of the
Coronels father was transferred in their names under TCT No. 327043
(Exh. D; Exh 4)
On February 18, 1985, the Coronels sold the property covered by TCT
No. 327043 to intervenor-appellant Catalina B. Mabanag (hereinafter
referred to as Catalina) for One Million Five Hundred Eighty Thousand
(P1,580,000.00) Pesos after the latter has paid Three Hundred Thousand
(P300,000.00) Pesos (Exhs. F-3; Exh. 6-C)
For this reason, Coronels canceled and rescinded the contract (Exh. A)
with Ramona by depositing the down payment paid by Concepcion in the
bank in trust for Ramona Patricia Alcaraz.
On February 22, 1985, Concepcion, et. al., filed a complaint for a specific
performance against the Coronels and caused the annotation of a notice of
lis pendens at the back of TCT No. 327403 (Exh. E; Exh. 5).
On April 2, 1985, Catalina caused the annotation of a notice of adverse
claim covering the same property with the Registry of Deeds of Quezon
City (Exh. F; Exh. 6).
On April 25, 1985, the Coronels executed a Deed of Absolute Sale over
the subject property in favor of Catalina (Exh. G; Exh. 7).
On June 5, 1985, a new title over the subject property was issued in the
name of Catalina under TCT No. 351582 (Exh. H; Exh. 8).
(Rollo, pp. 134-136)
In the course of the proceedings before the trial court (Branch 83,
RTC, Quezon City) the parties agreed to submit the case for
decision solely on the basis of documentary exhibits. Thus,
plaintiffs therein (now private respondents) proffered their
documentary evidence accordingly marked as Exhibits A through
J, inclusive of their corresponding submarkings. Adopting these
same exhibits as their own, then defendants (now petitioners)
accordingly offered and marked them as Exhibits 1 through 10,
likewise inclusive of their corresponding submarkings. Upon
motion of the parties, the trial court gave them thirty (30) days within
which to simultaneously submit their respective memoranda, and
an additional 15 days within which to submit their corresponding
comment or reply thereto, after which, the case would be deemed
submitted for resolution.
On April 14, 1988, the case was submitted for resolution before
Judge Reynaldo Roura, who was then temporarily detailed to
preside over Branch 82 of the RTC of Quezon City. On March 1,
1989, judgment was handed down by Judge Roura from his regular
bench at Macabebe, Pampanga for the Quezon City branch,
disposing as follows:
WHEREFORE, judgment for specific performance is hereby rendered
ordering defendant to execute in favor of plaintiffs a deed of absolute sale
covering that parcel of land embraced in and covered by Transfer
Certificate of Title No. 327403 (now TCT No. 331582) of the Registry of
Deeds for Quezon City, together with all the improvements existing
thereon free from all liens and encumbrances, and once accomplished, to
immediately deliver the said document of sale to plaintiffs and upon
receipt thereof, the plaintiffs are ordered to pay defendants the whole
balance of the purchase price amounting to P1,190,000.00 in cash.
Transfer Certificate of Title No. 331582 of the Registry of Deeds for
Quezon City in the name of intervenor is hereby canceled and declared to
be without force and effect. Defendants and intervenor and all other
persons claiming under them are hereby ordered to vacate the subject
property and deliver possession thereof to plaintiffs. Plaintiffs claim for
damages and attorneys fees, as well as the counterclaims of defendants
and intervenors are hereby dismissed.
No pronouncement as to costs.
So Ordered.
Macabebe, Pampanga for Quezon City, March 1, 1989.
(Rollo, p. 106)
A motion for reconsideration was filed by petitioners before the new
presiding judge of the Quezon City RTC but the same was denied
by Judge Estrella T. Estrada, thusly:
The prayer contained in the instant motion, i.e., to annul the decision and
to render anew decision by the undersigned Presiding Judge should be
denied for the following reasons: (1) The instant case became submitted
for decision as of April 14, 1988 when the parties terminated the
presentation of their respective documentary evidence and when the
Presiding Judge at that time was Judge Reynaldo Roura. The fact that they
were allowed to file memoranda at some future date did not change the
fact that the hearing of the case was terminated before Judge Roura and
therefore the same should be submitted to him for decision; (2) When the
defendants and intervenor did not object to the authority of Judge
Reynaldo Roura to decide the case prior to the rendition of the decision,
when they met for the first time before the undersigned Presiding Judge
at the hearing of a pending incident in Civil Case No. Q-46145 on
November 11, 1988, they were deemed to have acquiesced thereto and
they are now estopped from questioning said authority of Judge Roura
after they received the decision in question which happens to be adverse
to them; (3) While it is true that Judge Reynaldo Roura was merely a
Judge-on-detail at this Branch of the Court, he was in all respects the
Presiding Judge with full authority to act on any pending incident
submitted before this Court during his incumbency. When he returned to
his Official Station at Macabebe, Pampanga, he did not lose his authority
to decide or resolve cases submitted to him for decision or resolution
because he continued as Judge of the Regional Trial Court and is of co-
equal rank with the undersigned Presiding Judge. The standing rule and
supported by jurisprudence is that a Judge to whom a case is submitted
for decision has the authority to decide the case notwithstanding his
transfer to another branch or region of the same court (Sec. 9, Rule 135,
Rule of Court).
Coming now to the twin prayer for reconsideration of the Decision dated
March 1, 1989 rendered in the instant case, resolution of which now
pertains to the undersigned Presiding Judge, after a meticulous
examination of the documentary evidence presented by the parties, she is
convinced that the Decision of March 1, 1989 is supported by evidence
and, therefore, should not be disturbed.
IN VIEW OF THE FOREGOING, the Motion for Reconsideration and/or
to Annul Decision and Render Anew Decision by the Incumbent
Presiding Judge dated March 20, 1989 is hereby DENIED.
SO ORDERED.
Quezon City, Philippines, July 12, 1989.
(Rollo, pp. 108-109)
Petitioners thereupon interposed an appeal, but on December 16,
1991, the Court of Appeals (Buena, Gonzaga-Reyes, Abad-Santos
(P), JJ.) rendered its decision fully agreeing with the trial court.
Hence, the instant petition which was filed on March 5, 1992. The
last pleading, private respondents Reply Memorandum, was filed
on September 15, 1993. The case was, however, re-raffled to
undersigned ponente only on August 28, 1996, due to the voluntary
inhibition of the Justice to whom the case was last assigned.
While we deem it necessary to introduce certain refinements in the
disquisition of respondent court in the affirmance of the trial courts
decision, we definitely find the instant petition bereft of merit.
The heart of the controversy which is the ultimate key in the
resolution of the other issues in the case at bar is the precise
determination of the legal significance of the document entitled
Receipt of Down Payment which was offered in evidence by both
parties. There is no dispute as to the fact that the said document
embodied the binding contract between Ramona Patricia Alcaraz
on the one hand, and the heirs of Constancio P. Coronel on the
other, pertaining to a particular house and lot covered by TCT No.
119627, as defined in Article 1305 of the Civil Code of the
Philippines which reads as follows:
Art. 1305. A contract is a meeting of minds between two persons whereby
one binds himself, with respect to the other, to give something or to render
some service.
While, it is the position of private respondents that the Receipt of
Down Payment embodied a perfected contract of sale, which
perforce, they seek to enforce by means of an action for specific
performance, petitioners on their part insist that what the document
signified was a mere executory contract to sell, subject to certain
suspensive conditions, and because of the absence of Ramona P.
Alcaraz, who left for the United States of America, said contract
could not possibly ripen into a contract of absolute sale.
Plainly, such variance in the contending parties contention is
brought about by the way each interprets the terms and/or
conditions set forth in said private instrument. Withal, based on
whatever relevant and admissible evidence may be available on
record, this Court, as were the courts below, is now called upon to
adjudge what the real intent of the parties was at the time the said
document was executed.
The Civil Code defines a contract of sale, thus:
Art. 1458. By the contract of sale one of the contracting parties obligates
himself to transfer the ownership of and to deliver a determinate thing,
and the other to pay therefor a price certain in money or its equivalent.
Sale, by its very nature, is a consensual contract because it is
perfected by mere consent. The essential elements of a contract of
sale are the following:
a) Consent or meeting of the minds, that is, consent to transfer ownership
in exchange for the price;
b) Determinate subject matter; and
c) Price certain in money or its equivalent.
Under this definition, a Contract to Sell may not be considered as
a Contract of Sale because the first essential element is lacking. In
a contract to sell, the prospective seller explicitly reserves the
transfer of title to the prospective buyer, meaning, the prospective
seller does not as yet agree or consent to transfer ownership of the
property subject of the contract to sell until the happening of an
event, which for present purposes we shall take as the full payment
of the purchase price. What the seller agrees or obliges himself to
do is to fulfill his promise to sell the subject property when the entire
amount of the purchase price is delivered to him. In other words
the full payment of the purchase price partakes of a suspensive
condition, the non-fulfillment of which prevents the obligation to sell
from arising and thus, ownership is retained by the prospective
seller without further remedies by the prospective buyer. In Roque
vs. Lapuz (96 SCRA 741 [1980]), this Court had occasion to rule:
Hence, We hold that the contract between the petitioner and the
respondent was a contract to sell where the ownership or title is retained
by the seller and is not to pass until the full payment of the price, such
payment being a positive suspensive condition and failure of which is not
a breach, casual or serious, but simply an event that prevented the
obligation of the vendor to convey title from acquiring binding force.
Stated positively, upon the fulfillment of the suspensive condition
which is the full payment of the purchase price, the prospective
sellers obligation to sell the subject property by entering into a
contract of sale with the prospective buyer becomes demandable
as provided in Article 1479 of the Civil Code which states:
Art. 1479. A promise to buy and sell a determinate thing for a price certain
is reciprocally demandable.
An accepted unilateral promise to buy or to sell a determinate thing for a
price certain is binding upon the promissor of the promise is supported by
a consideration distinct from the price.
A contract to sell may thus be defined as a bilateral contract
whereby the prospective seller, while expressly reserving the
ownership of the subject property despite delivery thereof to the
prospective buyer, binds himself to sell the said property
exclusively to the prospective buyer upon fulfillment of the condition
agreed upon, that is, full payment of the purchase price.
A contract to sell as defined hereinabove, may not even be
considered as a conditional contract of sale where the seller may
likewise reserve title to the property subject of the sale until the
fulfillment of a suspensive condition, because in a conditional
contract of sale, the first element of consent is present, although it
is conditioned upon the happening of a contingent event which may
or may not occur. If the suspensive condition is not fulfilled, the
perfection of the contract of sale is completely abated (cf. Homesite
and Housing Corp. vs. Court of Appeals, 133 SCRA 777 [1984]).
However, if the suspensive condition is fulfilled, the contract of sale
is thereby perfected, such that if there had already been previous
delivery of the property subject of the sale to the buyer, ownership
thereto automatically transfers to the buyer by operation of law
without any further act having to be performed by the seller.
In a contract to sell, upon the fulfillment of the suspensive condition
which is the full payment of the purchase price, ownership will not
automatically transfer to the buyer although the property may have
been previously delivered to him. The prospective seller still has to
convey title to the prospective buyer by entering into a contract of
absolute sale.
It is essential to distinguish between a contract to sell and a
conditional contract of sale specially in cases where the subject
property is sold by the owner not to the party the seller contracted
with, but to a third person, as in the case at bench. In a contract to
sell, there being no previous sale of the property, a third person
buying such property despite the fulfillment of the suspensive
condition such as the full payment of the purchase price, for
instance, cannot be deemed a buyer in bad faith and the
prospective buyer cannot seek the relief of reconveyance of the
property. There is no double sale in such case. Title to the property
will transfer to the buyer after registration because there is no
defect in the owner-sellers title per se, but the latter, of course, may
be sued for damages by the intending buyer.
In a conditional contract of sale, however, upon the fulfillment of
the suspensive condition, the sale becomes absolute and this will
definitely affect the sellers title thereto. In fact, if there had been
previous delivery of the subject property, the sellers ownership or
title to the property is automatically transferred to the buyer such
that, the seller will no longer have any title to transfer to any third
person. Applying Article 1544 of the Civil Code, such second buyer
of the property who may have had actual or constructive knowledge
of such defect in the sellers title, or at least was charged with the
obligation to discover such defect, cannot be a registrant in good
faith. Such second buyer cannot defeat the first buyers title. In case
a title is issued to the second buyer, the first buyer may seek
reconveyance of the property subject of the sale.
With the above postulates as guidelines, we now proceed to the
task of deciphering the real nature of the contract entered into by
petitioners and private respondents.
It is a canon in the interpretation of contracts that the words used
therein should be given their natural and ordinary meaning unless
a technical meaning was intended (Tan vs. Court of Appeals, 212
SCRA 586 [1992]). Thus, when petitioners declared in the said
Receipt of Down Payment that they --
Received from Miss Ramona Patricia Alcaraz of 146 Timog, Quezon
City, the sum of Fifty Thousand Pesos purchase price of our inherited
house and lot, covered by TCT No. 1199627 of the Registry of Deeds of
Quezon City, in the total amount of P1,240,000.00.
without any reservation of title until full payment of the entire
purchase price, the natural and ordinary idea conveyed is that they
sold their property.
When the Receipt of Down payment is considered in its entirety, it
becomes more manifest that there was a clear intent on the part of
petitioners to transfer title to the buyer, but since the transfer
certificate of title was still in the name of petitioners father, they
could not fully effect such transfer although the buyer was then
willing and able to immediately pay the purchase price. Therefore,
petitioners-sellers undertook upon receipt of the down payment
from private respondent Ramona P. Alcaraz, to cause the issuance
of a new certificate of title in their names from that of their father,
after which, they promised to present said title, now in their names,
to the latter and to execute the deed of absolute sale whereupon,
the latter shall, in turn, pay the entire balance of the purchase price.
The agreement could not have been a contract to sell because the
sellers herein made no express reservation of ownership or title to
the subject parcel of land. Furthermore, the circumstance which
prevented the parties from entering into an absolute contract of
sale pertained to the sellers themselves (the certificate of title was
not in their names) and not the full payment of the purchase price.
Under the established facts and circumstances of the case, the
Court may safely presume that, had the certificate of title been in
the names of petitioners-sellers at that time, there would have been
no reason why an absolute contract of sale could not have been
executed and consummated right there and then.
Moreover, unlike in a contract to sell, petitioners in the case at bar
did not merely promise to sell the property to private respondent
upon the fulfillment of the suspensive condition. On the contrary,
having already agreed to sell the subject property, they undertook
to have the certificate of title change to their names and
immediately thereafter, to execute the written deed of absolute
sale.
Thus, the parties did not merely enter into a contract to sell where
the sellers, after compliance by the buyer with certain terms and
conditions, promised to sell the property to the latter. What may be
perceived from the respective undertakings of the parties to the
contract is that petitioners had already agreed to sell the house and
lot they inherited from their father, completely willing to transfer
ownership of the subject house and lot to the buyer if the
documents were then in order. It just so happened, however, that
the transfer certificate of title was then still in the name of their
father. It was more expedient to first effect the change in the
certificate of title so as to bear their names. That is why they
undertook to cause the issuance of a new transfer of the certificate
of title in their names upon receipt of the down payment in the
amount of P50,000.00. As soon as the new certificate of title is
issued in their names, petitioners were committed to immediately
execute the deed of absolute sale. Only then will the obligation of
the buyer to pay the remainder of the purchase price arise.
There is no doubt that unlike in a contract to sell which is most
commonly entered into so as to protect the seller against a buyer
who intends to buy the property in installment by withholding
ownership over the property until the buyer effects full payment
therefor, in the contract entered into in the case at bar, the sellers
were the ones who were unable to enter into a contract of absolute
sale by reason of the fact that the certificate of title to the property
was still in the name of their father. It was the sellers in this case
who, as it were, had the impediment which prevented, so to speak,
the execution of an contract of absolute sale.
What is clearly established by the plain language of the subject
document is that when the said Receipt of Down Payment was
prepared and signed by petitioners Romulo A. Coronel, et. al., the
parties had agreed to a conditional contract of sale, consummation
of which is subject only to the successful transfer of the certificate
of title from the name of petitioners father, Constancio P. Coronel,
to their names.
The Court significantly notes that this suspensive condition was, in
fact, fulfilled on February 6, 1985 (Exh. D; Exh. 4). Thus, on said
date, the conditional contract of sale between petitioners and
private respondent Ramona P. Alcaraz became obligatory, the only
act required for the consummation thereof being the delivery of the
property by means of the execution of the deed of absolute sale in
a public instrument, which petitioners unequivocally committed
themselves to do as evidenced by the Receipt of Down Payment.
Article 1475, in correlation with Article 1181, both of the Civil Code,
plainly applies to the case at bench. Thus,
Art. 1475. The contract of sale is perfected at the moment there is a
meeting of minds upon the thing which is the object of the contract and
upon the price.
From that moment, the parties may reciprocally demand performance,
subject to the provisions of the law governing the form of contracts.
Art. 1181. In conditional obligations, the acquisition of rights, as well as
the extinguishment or loss of those already acquired, shall depend upon
the happening of the event which constitutes the condition.
Since the condition contemplated by the parties which is the
issuance of a certificate of title in petitioners names was fulfilled on
February 6, 1985, the respective obligations of the parties under
the contract of sale became mutually demandable, that is,
petitioners, as sellers, were obliged to present the transfer
certificate of title already in their names to private respondent
Ramona P. Alcaraz, the buyer, and to immediately execute the
deed of absolute sale, while the buyer on her part, was obliged to
forthwith pay the balance of the purchase price amounting to
P1,190,000.00.
It is also significant to note that in the first paragraph in page 9 of
their petition, petitioners conclusively admitted that:
3. The petitioners-sellers Coronel bound themselves to effect the transfer
in our names from our deceased father Constancio P. Coronel, the
transfer certificate of title immediately upon receipt of the downpayment
above-stated". The sale was still subject to this suspensive condition.
(Emphasis supplied.)
(Rollo, p. 16)
Petitioners themselves recognized that they entered into a contract
of sale subject to a suspensive condition. Only, they contend,
continuing in the same paragraph, that:
. . . Had petitioners-sellers not complied with this condition of first
transferring the title to the property under their names, there could be no
perfected contract of sale. (Emphasis supplied.)
(Ibid.)
not aware that they have set their own trap for themselves, for
Article 1186 of the Civil Code expressly provides that:
Art. 1186. The condition shall be deemed fulfilled when the obligor
voluntarily prevents its fulfillment.
Besides, it should be stressed and emphasized that what is more
controlling than these mere hypothetical arguments is the fact that
the condition herein referred to was actually and indisputably
fulfilled on February 6, 1985, when a new title was issued in the
names of petitioners as evidenced by TCT No. 327403 (Exh. D;
Exh. 4).
The inevitable conclusion is that on January 19, 1985, as
evidenced by the document denominated as Receipt of Down
Payment (Exh. A; Exh. 1), the parties entered into a contract of sale
subject to the suspensive condition that the sellers shall effect the
issuance of new certificate title from that of their fathers name to
their names and that, on February 6, 1985, this condition was
fulfilled (Exh. D; Exh. 4).
We, therefore, hold that, in accordance with Article 1187 which
pertinently provides -
Art. 1187. The effects of conditional obligation to give, once the
condition has been fulfilled, shall retroact to the day of the constitution of
the obligation . . .
In obligations to do or not to do, the courts shall determine, in each case,
the retroactive effect of the condition that has been complied with.
the rights and obligations of the parties with respect to the
perfected contract of sale became mutually due and demandable
as of the time of fulfillment or occurrence of the suspensive
condition on February 6, 1985. As of that point in time, reciprocal
obligations of both seller and buyer arose.
Petitioners also argue there could been no perfected contract on
January 19, 1985 because they were then not yet the absolute
owners of the inherited property.
We cannot sustain this argument.
Article 774 of the Civil Code defines Succession as a mode of
transferring ownership as follows:
Art. 774. Succession is a mode of acquisition by virtue of which the
property, rights and obligations to the extent and value of the inheritance
of a person are transmitted through his death to another or others by his
will or by operation of law.
Petitioners-sellers in the case at bar being the sons and daughters
of the decedent Constancio P. Coronel are compulsory heirs who
were called to succession by operation of law. Thus, at the point
their father drew his last breath, petitioners stepped into his shoes
insofar as the subject property is concerned, such that any rights
or obligations pertaining thereto became binding and enforceable
upon them. It is expressly provided that rights to the succession are
transmitted from the moment of death of the decedent (Article 777,
Civil Code; Cuison vs. Villanueva, 90 Phil. 850 [1952]).
Be it also noted that petitioners claim that succession may not be
declared unless the creditors have been paid is rendered moot by
the fact that they were able to effect the transfer of the title to the
property from the decedents name to their names on February 6,
1985.
Aside from this, petitioners are precluded from raising their
supposed lack of capacity to enter into an agreement at that time
and they cannot be allowed to now take a posture contrary to that
which they took when they entered into the agreement with private
respondent Ramona P. Alcaraz. The Civil Code expressly states
that:
Art. 1431. Through estoppel an admission or representation is rendered
conclusive upon the person making it, and cannot be denied or disproved
as against the person relying thereon.
Having represented themselves as the true owners of the subject
property at the time of sale, petitioners cannot claim now that they
were not yet the absolute owners thereof at that time.
Petitioners also contend that although there was in fact a perfected
contract of sale between them and Ramona P. Alcaraz, the latter
breach her reciprocal obligation when she rendered impossible the
consummation thereof by going to the United States of America,
without leaving her address, telephone number, and Special Power
of Attorney (Paragraphs 14 and 15, Answer with Compulsory
Counterclaim to the Amended Complaint, p. 2; Rollo, p. 43), for
which reason, so petitioners conclude, they were correct in
unilaterally rescinding the contract of sale.
We do not agree with petitioners that there was a valid rescission
of the contract of sale in the instant case. We note that these
supposed grounds for petitioners rescission, are mere allegations
found only in their responsive pleadings, which by express
provision of the rules, are deemed controverted even if no reply is
filed by the plaintiffs (Sec. 11, Rule 6, Revised Rules of Court). The
records are absolutely bereft of any supporting evidence to
substantiate petitioners allegations. We have stressed time and
again that allegations must be proven by sufficient evidence (Ng
Cho Cio vs. Ng Diong, 110 Phil. 882 [1961]; Recaro vs. Embisan,
2 SCRA 598 [1961]). Mere allegation is not an evidence (Lagasca
vs. De Vera, 79 Phil. 376 [1947]).
Even assuming arguendo that Ramona P. Alcaraz was in the
United States of America on February 6, 1985, we cannot justify
petitioners-sellers act of unilaterally and extrajudicially rescinding
the contract of sale, there being no express stipulation authorizing
the sellers to extrajudicially rescind the contract of sale. (cf. Dignos
vs. CA, 158 SCRA 375 [1988]; Taguba vs. Vda. De Leon, 132
SCRA 722 [1984])
Moreover, petitioners are estopped from raising the alleged
absence of Ramona P. Alcaraz because although the evidence on
record shows that the sale was in the name of Ramona P. Alcaraz
as the buyer, the sellers had been dealing with Concepcion D.
Alcaraz, Ramonas mother, who had acted for and in behalf of her
daughter, if not also in her own behalf. Indeed, the down payment
was made by Concepcion D. Alcaraz with her own personal Check
(Exh. B; Exh. 2) for and in behalf of Ramona P. Alcaraz. There is
no evidence showing that petitioners ever questioned Concepcions
authority to represent Ramona P. Alcaraz when they accepted her
personal check. Neither did they raise any objection as regards
payment being effected by a third person. Accordingly, as far as
petitioners are concerned, the physical absence of Ramona P.
Alcaraz is not a ground to rescind the contract of sale.
Corollarily, Ramona P. Alcaraz cannot even be deemed to be in
default, insofar as her obligation to pay the full purchase price is
concerned. Petitioners who are precluded from setting up the
defense of the physical absence of Ramona P. Alcaraz as above-
explained offered no proof whatsoever to show that they actually
presented the new transfer certificate of title in their names and
signified their willingness and readiness to execute the deed of
absolute sale in accordance with their agreement. Ramonas
corresponding obligation to pay the balance of the purchase price
in the amount of P1,190,000.00 (as buyer) never became due and
demandable and, therefore, she cannot be deemed to have been
in default.
Article 1169 of the Civil Code defines when a party in a contract
involving reciprocal obligations may be considered in default, to wit:
Art. 1169. Those obliged to deliver or to do something, incur in delay
from the time the obligee judicially or extrajudicially demands from them
the fulfillment of their obligation.
xxx
In reciprocal obligations, neither party incurs in delay if the other does
not comply or is not ready to comply in a proper manner with what
is incumbent upon him. From the moment one of the parties fulfill his
obligation, delay by the other begins. (Emphasis supplied.)
There is thus neither factual nor legal basis to rescind the contract
of sale between petitioners and respondents.
With the foregoing conclusions, the sale to the other petitioner,
Catalina B. Mabanag, gave rise to a case of double sale where
Article 1544 of the Civil Code will apply, to wit:
Art. 1544. If the same thing should have been sold to different vendees,
the ownership shall be transferred to the person who may have first taken
possession thereof in good faith, if it should be movable property.
Should it be immovable property, the ownership shall belong to the person
acquiring it who in good faith first recorded it in the Registry of Property.
Should there be no inscription, the ownership shall pertain to the person
who in good faith was first in the possession; and, in the absence thereof
to the person who presents the oldest title, provided there is good faith.
The record of the case shows that the Deed of Absolute Sale dated
April 25, 1985 as proof of the second contract of sale was
registered with the Registry of Deeds of Quezon City giving rise to
the issuance of a new certificate of title in the name of Catalina B.
Mabanag on June 5, 1985. Thus, the second paragraph of Article
1544 shall apply.
The above-cited provision on double sale presumes title or
ownership to pass to the buyer, the exceptions being: (a) when the
second buyer, in good faith, registers the sale ahead of the first
buyer, and (b) should there be no inscription by either of the two
buyers, when the second buyer, in good faith, acquires possession
of the property ahead of the first buyer. Unless, the second buyer
satisfies these requirements, title or ownership will not transfer to
him to the prejudice of the first buyer.
In his commentaries on the Civil Code, an accepted authority on
the subject, now a distinguished member of the Court, Justice Jose
C. Vitug, explains:
The governing principle is prius tempore, potior jure (first in time,
stronger in right). Knowledge by the first buyer of the second sale cannot
defeat the first buyers rights except when the second buyer first registers
in good faith the second sale (Olivares vs. Gonzales, 159 SCRA 33).
Conversely, knowledge gained by the second buyer of the first sale defeats
his rights even if he is first to register, since knowledge taints his
registration with bad faith (see also Astorga vs. Court of Appeals, G.R.
No. 58530, 26 December 1984). In Cruz vs. Cabana (G.R. No. 56232, 22
June 1984, 129 SCRA 656), it was held that it is essential, to merit the
protection of Art. 1544, second paragraph, that the second realty buyer
must act in good faith in registering his deed of sale (citing Carbonell vs.
Court of Appeals, 69 SCRA 99, Crisostomo vs. CA, G.R. No. 95843, 02
September 1992).
(J. Vitug, Compendium of Civil Law and Jurisprudence, 1993
Edition, p. 604).
Petitioners point out that the notice of lis pendens in the case at bar
was annotated on the title of the subject property only on February
22, 1985, whereas, the second sale between petitioners Coronels
and petitioner Mabanag was supposedly perfected prior thereto or
on February 18, 1985. The idea conveyed is that at the time
petitioner Mabanag, the second buyer, bought the property under
a clean title, she was unaware of any adverse claim or previous
sale, for which reason she is a buyer in good faith.
We are not persuaded by such argument.
In a case of double sale, what finds relevance and materiality is not
whether or not the second buyer in good faith but whether or not
said second buyer registers such second sale in good faith, that is,
without knowledge of any defect in the title of the property sold.
As clearly borne out by the evidence in this case, petitioner
Mabanag could not have in good faith, registered the sale entered
into on February 18, 1985 because as early as February 22, 1985,
a notice of lis pendens had been annotated on the transfer
certificate of title in the names of petitioners, whereas petitioner
Mabanag registered the said sale sometime in April, 1985. At the
time of registration, therefore, petitioner Mabanag knew that the
same property had already been previously sold to private
respondents, or, at least, she was charged with knowledge that a
previous buyer is claiming title to the same property. Petitioner
Mabanag cannot close her eyes to the defect in petitioners title to
the property at the time of the registration of the property.
This Court had occasions to rule that:
If a vendee in a double sale registers the sale after he has acquired
knowledge that there was a previous sale of the same property to a third
party or that another person claims said property in a previous sale, the
registration will constitute a registration in bad faith and will not confer
upon him any right. (Salvoro vs. Tanega, 87 SCRA 349 [1978]; citing
Palarca vs. Director of Land, 43 Phil. 146; Cagaoan vs. Cagaoan, 43
Phil. 554; Fernandez vs. Mercader, 43 Phil. 581.)
Thus, the sale of the subject parcel of land between petitioners and
Ramona P. Alcaraz, perfected on February 6, 1985, prior to that
between petitioners and Catalina B. Mabanag on February 18,
1985, was correctly upheld by both the courts below.
Although there may be ample indications that there was in fact an
agency between Ramona as principal and Concepcion, her
mother, as agent insofar as the subject contract of sale is
concerned, the issue of whether or not Concepcion was also acting
in her own behalf as a co-buyer is not squarely raised in the instant
petition, nor in such assumption disputed between mother and
daughter. Thus, We will not touch this issue and no longer disturb
the lower courts ruling on this point.
WHEREFORE, premises considered, the instant petition is
hereby DISMISSED and the appealed judgment AFFIRMED.
SO ORDERED.
Narvasa, C.J. (Chairman), Davide, Jr., and Francisco, JJ., concur.
Panganiban, J., no part.

[G.R. No. 124045. May 21, 1998]

SPOUSES VIVENCIO BABASA and ELENA CANTOS
BABASA, petitioners, vs. COURT OF APPEALS,
TABANGAO REALTY, INC., and SHELL GAS
PHILIPPINES, INC., respondents.
DECISION
BELLOSILLO, J.:
On 11 April 1981 a contract of Conditional Sale of Registered
Lands was executed between the spouses Vivencio and Elena
Babasa as vendors and Tabangao Realty, Inc. (TABANGAO) as a
vendee over three (3) parcels of land, Lots Nos. 17827-A, 17827-
B and 17827-C, situated in Brgy. Libjo, Batangas City. Since the
certificates of title over the lots were in the name of third persons
who had already executed deeds of reconveyance and disclaimer
in favor of the BABASAS, it was agreed that the total purchase
price of P2,121,920.00 would be paid in the following manner:
P300,000.00 upon signing of the contract, and P1,821,920.00 upon
presentation by the BABASAS of transfer certificates of titles in
their name, free from all liens and encumbrances, and delivery of
registerable documents of sale in favor of TABANGAO within
twenty (20) months from the signing of the contract. In the
meantime, the retained balance of the purchase price would earn
interest at seventeen percent (17%) per annum or P20,648.43
monthly payable to the BABASAS until 31 December 1982. It was
expressly stipulated that TABANGAO would have the absolute and
unconditional right to take immediate possession of the lots as well
as introduce any improvements thereon.
On 18 May 1981 TABANGAO leased the lots to Shell Gas
Philippines, Inc., (SHELL), which immediately started the
construction thereon of a Liquefied Petroleum Gas Terminal
Project, an approved zone export enterprise of the Export
Processing Zone. TABANGAO is the real estate arm of SHELL.
The parties substantially complied with the terms of the
contract. TABANGAO paid the first installment of P300,000.00 to
the BABASAS while the latter delivered actual possession of the
lots to the former. In addition, TABANGAO paid P379,625.00 to the
tenants of the lots as disturbance compensation and as payment
for existing crops as well as P334,700.00 to the owners of the
house standing thereon in addition to granting them residential lots
with the total area of 2,800 square meters. TABANGAO likewise
paid the stipulated monthly interest for the 20 month period
amounting to P408,580.80. Meanwhile, the BABASAS filed Civil
Case No. 519[1] and Petition No. 373[2] for the transfer of titles of
the lots in their name.
However, two (2) days prior to the expiration of the 20-month
period, specifically on 31 December 1982, the BABASAS asked
TABANGAO for an indefinite extension within which to deliver
clean title over the lots. They asked that TABANGAO continue
paying monthly interest of P20,648.43 starting January 1983 on the
ground that Civil Case no. 519 and Petition No. 373 had not been
resolved with finality in their favor. TABANGAO refused the
request. In retaliation the BABASAS executed a notarized
unilateral rescission dated 28 February 1983 to which TABANGAO
responded by reminding the BABASAS that they were the ones
who did not comply with their contractual obligation to deliver clean
titles within the stipulated 20-month period, hence, had no right to
rescind their contract. The BABASAS insisted on the unilateral
rescission and demanded the SHELL vacate the lots.
On 19 July 1983 TABANGAO instituted an action for specific
performance with damages in the Regional Trial Court of Batangas
City to compel the spouses to comply with their obligation to deliver
clean titles over the properties.[3] TABANGAO alleged that the
BABASAS were already in a position to secure clean certificates of
title and execute registerable document of sale since execution of
judgment pending appeal had already been granted in their favor
in Civil Case No. 519, while an order directing reconstitution of the
original copies of TCT Nos. T-32565, T-32566 and T-32567
covering the lots had been issued in Petition No. 373. The
BABASAS moved to dismiss the complaint on the ground that their
contract with TABANGAO became null and void with the expiration
of the 20-month period given them within which to deliver clean
certificates of title. SHELL entered the dispute as intervenor
praying that its lease over the premises be respected by the
BASABAS.
Despite the pendency of the case the BASABAS put up several
structures within the area in litigation to impede the movements of
persons and vehicles therein, laid claim to twelve (12) heads of
cattle belonging to intervenor SHELL and threatened to collect levy
from all buyers of liquefied petroleum gas (LPG) for their alleged
use of the BABASA estate in their business transactions with
intervenor SHELL. As a result, SHELL applied for and was granted
on 10 April 1990 a temporary restraining order against the Babasa
spouses and anyone acting for and in their behalf upon filing of a
P2-million bond.[4]
Eventually, judgment was rendered in favor of TABANGAO
and SHELL.[5] The court a quo ruled that the 20-month period
stipulated in the contract was never meant to be its term such that
upon its expiration the respective obligations of the parties would
be extinguished. On the contrary, the expiration thereof merely
gave rise to the right of TABANGAO to either rescind the contract
or to demand that the BABASAS comply with their contractual
obligation to deliver to it clean titles and registerable documents of
sale. The notarial rescission executed by the BABASAS was
declared void and of no legal effect
xxxx
1. The unilateral rescission of contract, dated February 28, 1983,
executed by the defendant-spouses is null and void, without any
legal force and effect on the agreement dated April 11, 1981,
executed between the plaintiff and the defendant-spouses;
2. The lease contract dated, May 18, 1981, executed by the plaintiff
in favor of the intervenor is deemed legally binding on the
defendant-spouses insofar as it affects the three lots subject of this
case;
3. The defendant-spouses Vivencio Babasa and Elena Cantos are
hereby ordered to deliver to the plaintiff Tabangao Realty, Inc.,
clean transfer certificates of title in their name and execute all the
necessary deeds and documents necessary for the Register of
Deeds of Batangas City to facilitate the issuance of Transfer
Certificates of Title in the name of plaintiff, Tabangao Realty, Inc.
In the event the defendant-spouses fail to do so, the Register of
Deeds of Batangas City is hereby directed to cancel the present
transfer certificates of title over the three lots covered by the
Conditional Sale of Registered Lands executed by and between
plaintiff, Tabangao Realty, Inc., and the defendant-spouses
Vivencio Babasa and Elena Cantos-Babasa on April 11, 1981,
upon presentation of credible proof that said defendant-spouses
have received full payment for the lots or payment thereof duly
consigned to the Court for the amount of the defendant-spouses;
4. Plaintiff Tabangao Realty, Inc., is directed to pay the defendant-
spouses Vivencio Babasa and Elena Cantos-Babasa the
remaining balance of P1,821,920.00 out of the full purchase price
for these three lots enumerated in the agreement dated April 11,
1981 plus interest thereon of 17% per annum or P 20,648.43 a
month compounded annually beginning January 1983 until fully
paid;
5. The Order dated April 10, 1990 issued in favor of the intervenor
enjoining and restraining defendant-spouses Vivencio Babasa and
Elena Cantos-Babasa and/or anyone acting for and in their behalf
from putting up any structure on the three lots or interfering in any
way in the activities of the intervenor, its employees and agents, is
made permanent, and the bond posted by the intervenor cancelled;
and,
6. Defendant-spouses Vivencio Babasa and Elena Cantos-Babasa
shall pay the costs of this proceeding as well as the premium the
intervenor may have paid in the posting of the P2,000,000.00 bond
for the issuance of the restraining order of April 10, 1990.[6]
The BABASAS appealed to the Court of Appeals[7] which on 29
February 1996 affirmed the decision of the trial court court rejecting
the contention of the BABASAS that the contract of 11 April 1981
was one of lease, not of sale;[8] and described it instead as one of
absolute sale though denominated conditional. However,
compounded interest was ordered paid from 19 July 1983 only, the
date of filing of the complaint, not from January 1983 as decreed
by the trial court.
The BABASAS now come to us reiterating their contention that
the contract of 11 April 1981 was in reality a contract of lease, not
for sale; but even assuming that it was indeed a sale, its nature was
conditional only, the efficacy of which was extinguished upon the
non-happening of the condition, i.e., non-delivery of clean
certificates of title and registerable documents of sale in favor of
TABANGAO within twenty (20) months from the signing of the
contract.
We find no merit in the petition. Respondent appellate court
has correctly concluded that the allegation of petitioners that the
contract of 11 April 1981 is one of lease, not of sale, is simply
incredible. First, the contract is replete with terms and stipulations
clearly indicative of a contract of sale. Thus, the opening whereas
clause states that the parties desire and mutually agreed on the
sale and purchase of the x x x three parcels of land; the BABASAS
were described as the vendors while TABANGAO as the vendee
from the beginning of the contract to its end; the amount of
P2,121,920.00 was stated as the purchase price of the lots;
TABANGAO, as vendee, was granted absolute and unconditional
right to take immediate possession of the premises while the
BABASAS, as vendors, warranted such peaceful possession
forever; TABANGAO was to shoulder the capital gains tax, and;
lastly, the BABASAS were expected to execute a Final Deed of
Absolute Sale in favor of TABANGAO necessary for the issuance
of transfer certificates of title the moment they were able to secure
clean certificates of title in their name. Hence, with all the foregoing,
we cannot give credence to the claim of petitioners that subject
contract was one of lease simply because the word ownership was
never mentioned therein. Besides, as correctly pointed out by
respondent court, the BABASAS did not object to the terms and
stipulations employed in the contract at the time of its execution
when they could have easily done so considering that they were
then ably assisted by their counsel, Atty. Edgardo M. Carreon,
whose legal training negates their pretended ignorance on the
matter. Hence, it is too late for petitioners to insist that the contract
is not what they intended to be.
But the BABASAS lament that they never intended to sell their
ancestral lots but were merely forced to do so when TABANGAO
dangled the threat of expropriation by the government (through the
Export Processing Zone Authority) in the event voluntary
negotiations failed. Although a cause to commiserate with
petitioners may be perceived, it is not enough to provide them with
an avenue to escape contractual obligations validly entered into.
We have already held that contracts are valid even though one of
the parties entered into it against his own wish and desire, or even
against his better judgment.[9] Besides, a threat of eminent domain
proceedings by the government cannot be legally classified as the
kind of imminent, serious and wrongful injury to a contracting party
as to vitiate his consent.[10] Private landowners ought to realize, and
eventually accept, that property rights must yield to the valid
exercise by the state of its all-important power of eminent
domain.[11]
Finally, petitioners contend that ownership over the three (3)
lots was never transferred to TABANGAO and that the contract of
11 April 1981 was rendered lifeless when the 20-month period
stipulated therein expired without them being able to deliver clean
certificates of title to TABANGAO through no fault of their own.
Consequently, their unilateral rescission dated 28 February 1983
should have been upheld as valid.
We disagree. Although denominated Conditional Sale of
Registered Lands, we hold, as did respondent court, that the
contract of 11 April 1981 between petitioners and respondent
TABANGAO is one of absolute sale. Aside from the terms and
stipulations used therein indicating such kind of sale, there is
absolutely no proviso reserving title in the BABASAS until full
payment of the purchase price, nor any stipulation giving them the
right to unilaterally rescind the contract in case of non-payment. A
deed of sale is absolute in nature although denominated a
conditional sale absent such stipulations.[12] In such cases,
ownership of the thing sold passes to the vendee upon the
constructive or actual delivery thereof.[13] In the instant case,
ownership over Lots Nos. 17827-A, 17827-B, and 17827-C passed
to TABANGAO both by constructive and actual delivery.
Constructive delivery was accomplished upon the execution of the
contract of 11 April 1981 without any reservation of title on the part
of the BABASAS while actual delivery was made when
TABANGAO took unconditional possession of the lots and leased
them to its associate company SHELL which constructed its multi-
million peso LPG Project thereon.[14]
We do not agree with petitioners that their contract with
TABANGAO lost its efficacy when the 20-month period stipulated
therein expired without petitioners being able to deliver clean
certificates of title such that TABANGAO may no longer demand
performance of their obligation. In Romero v. Court of Appeals[15]
and Lim v. Court of Appeals[16] the Court distinguished between a
condition imposed on the perfection of a contract and a condition
imposed merely on the performance of an obligation. While failure
to comply with the first condition results in the failure of a contract,
failure to comply with the second merely gives the other party the
option to either refuse to proceed with the sale or to waive the
condition.[17]
Here, a perfected contract of absolute sale exists between the
BABASAS and TABANGAO when they agreed on the sale of a
determinate subject matter, i.e., Lots no. 17827-A, 17827-B and
17827-C, and the price certain therefor without any condition or
reservation of title on the part of the BABASAS. However, the
obligation of TABANGAO as vendee to pay the full amount of the
purchase price was made subject to the condition that petitioners
first deliver the clean titles over the lots within twenty (20) months
from the signing of the contract. If petitioners succeed in delivering
the titles within the stipulated 20-month period, they would get
P1,821,920.00 representing the entire balance of the purchase
price retained by TABANGAO. Otherwise, the deed of sale itself
provides that
x x x upon the expiration of the 20-month period from the signing
of the contract the Vendee is hereby authorized to settle out of the
balance retained by the Vendee all legally valid and existing
obligations on the properties x x x and whatever balance remaining
after said settlement shall be paid to the Vendor.
Clearly then, the BABASAS act of unilaterally rescinding their
contract with TABANGAO is unwarranted. Even without the
abovequoted stipulation in the deed, the failure of petitioners to
deliver clean titles within twenty (20) months from the signing of the
contract merely gives TABANGAO the option to either refuse to
proceed with the sale of to waive the condition in consonance with
Art. 1545 of the New Civil Code.[18] Besides, it would be the height
of inequity to allow the BABASAS to rescind their contract of sale
with TABANGAO by invoking as a ground therefor their own failure
to deliver the titles over the lots within the stipulated period.
WHEREFORE , the petition is DENIED. The appealed decision of
the Court of Appeals in CA-G.R. CV No. 39554 affirming that of the
Regional Trial Court of Batangas City, Br. 4, is AFFIRMED. No
Costs.
SO ORDERED.
Davide, Jr. (Chairman), Vitug, Panganiban, and Quisumbing,
JJ., concur.

SECOND DIVISION
[G.R. No. 140715. September 24, 2004]
JOSEFINA L. VALDEZ and CARLOS L. VALDEZ, JR.,
petitioners, vs. COURT OF APPEALS and JOSE
LAGON, respondents.
DECISION
CALLEJO, SR., J.:
This is a petition for review on certiorari of the Amended Decision[1]
of the Court of Appeals in CA-G.R. CV No. 49413 affirming on
appeal the Decision of the Regional Trial Court of Isulan, Sultan
Kudarat, Branch 19, in Civil Case No. 778.
The Antecedents
Carlos Valdez, Sr. and Josefina de Leon Valdez were the owners
of a parcel of land with an area of 24,725 square meters located in
the commercial district of Isulan, Sultan Kudarat. The property was
designated as Lot No. 3 of Pls-208-D-13 and was covered by
Transfer Certificate of Title (TCT) No. T-19529 (T-1902) issued on
August 18, 1967.[2] When Carlos Valdez, Sr. died intestate on
March 26, 1966, he was survived by Josefina and their children,
including Carlos Valdez, Jr., a practicing lawyer.
On December 28, 1978, Josefina caused the subdivision survey of
the property[3] into eight (8) lots, i.e., Lots Nos. 3-A to 3-H, all
fronting the national road. To enhance the value of the property,
she decided to sell a portion thereof to Jose Lagon, a successful
businessman in Sultan Kudarat who owned a construction firm as
well as real estate and business enterprises: the Lagon Enterprises
and the Rural Bank of Isulan. He was also one of the clients of her
son, Carlos, Jr., a practicing lawyer.
On May 1, 1979, Josefina executed a Special Power of Attorney
authorizing her son, Carlos, Jr. to sell a portion of Lot No. 3-C and
Lot. No. 3-D to Lagon. The lots subject of the sale had an area of
4,094 square meters, with a frontage of 64.3 square meters. Part
of the consideration of the transaction was the condition that Lagon
cause the transfer of the Rural Bank of Isulan to the subject
property and construct a commercial building beside the bank.[4]
On May 9, 1979, Josefina, through her son and attorney-in-fact,
Carlos, Jr., executed a Deed of Absolute Sale of a portion of Lot
No. 3 with a frontage of 64.3 square meters facing the national
highway and the National Grains Authority office going towards the
Buencamino Movie House starting from the corner.[5] However, the
condition imposed by Josefina was not incorporated in the deed;
what was appended thereto was the Special Power of Attorney
executed by Josefina. It was indicated in the said deed that the
property was to be sold for P80,000 cash and that Lagon had
already paid the said amount to Carlos, Jr. In reality, however,
Lagon purchased the 4,094-square-meter property at P40.00 per
square meter, or for the amount of P163,760[6] inclusive of Carlos,
Jr.s personal account to Lagon in the amount of P73,760. Lagon
had not yet remitted to Josefina the said amount of P163,760.
On April 21, 1981, Lagon gave to Carlos, Jr. PCIB Check No.
55007805 in the amount of P8,196.00 dated April 21, 1981, and
PCIB Check No. 55007806 postdated June 15, 1981 in the amount
of P81,880.00 both checks totaling P90,076.00 in full payment of
the purchase price of the property, after deducting the account of
Carlos, Jr. amounting to P73,684.00. Josefina acknowledged the
checks, through Carlos, Jr., who signed a cash voucher for the
same.[7] Carlos, Jr. was able to encash PCIB Check No. 55007805,
but returned the other check to Lagons wife, Nenita, after the latter
paid him P20,000.00 thereby leaving a balance of P61,880.00 of
the purchase price.[8]
Carlos, Jr. prepared an Affidavit dated April 27, 1981 signed by
Lagon, where the latter undertook to transfer the Rural Bank of
Isulan to the property and construct a commercial building thereon,
to be in full operation within a period of five (5) years from May 9,
1979, the date of the deed of absolute sale, or until May 9, 1984,[9]
as part of the condition of the sale; and that if Lagon failed to do so,
the deed of absolute sale shall be declared null and void without
need of demand therefor.[10] Lagon also made it clear in the said
affidavit that the consideration of the said Deed of Absolute Sale
was not only the P80,000.00 purchase price, but also that the
subject property be commercialized.[11]
However, Lagon failed to start the construction of a commercial
building and to transfer the rural bank thereon; he, likewise, failed
to pay the balance of the purchase price amounting to P61,880.00.
Consequently, Josefina and Carlos, Jr. refused to deliver to Lagon
a torrens title over the purchased property. On September 4, 1981,
Carlos, Jr. wrote Lagon demanding the payment of P61,800.00
within ten days from notice thereof, otherwise, the sale would be
considered rescinded.[12] Still, Lagon failed to pay or even respond
to the letter. Carlos, Jr. again wrote Lagon on September 25, 1981,
and this time proposed the reduction of the area of the property
subject of the sale to correspond to the payment so far made by
Lagon in the total amount of P90,676.00.[13] There was no response
from Lagon.
In the meantime, TCT No. T-19529 was cancelled on October 9,
1981 by eight (8) titles bearing the following particulars:
TCT No. Lot No. Area
16436 3-A 2,586 sq. meters[14]
16437 3-B 2,802 sq. meters[15]
16438 3-C 2,534 sq. meters[16]
16439 3-D 3,198 sq. meters[17]
16440 3-E 3,359 sq. meters[18]
16441 3-F 2,952 sq. meters[19]
16442 3-G 3,650 sq. meters[20]
16443 3-H 3,644 sq. meters[21]
All the foregoing subdivision titles were under the name of Josefina
L. Valdez, married to Carlos Valdez, Sr.
On December 31, 1982, Josefina and her children executed a deed
of extrajudicial settlement of the estate of Carlos Valdez, Sr. in
which the heirs waived all their rights over the estate in favor of
their mother, Josefina.
On December 1, 1983, Geodetic Engineer Santiago C. Alhambra
conducted a subdivision survey of Lot No. 3-C, covered by TCT
No. 16438 into three (3) subdivision lots with the following areas:
Lot No. 3-C-1 with 449 square meters; Lot No. 3-C-2 consisting of
350 square meters; and, Lot No. 3-C-3, 1,735 square meters. Engr.
Alhambra prepared a subdivision plan on his survey which he
submitted to the Bureau of Lands on December 12, 1983. Lagon
paid for his professional services.
Porfirio L. Cubar, the Bank Manager of the Philippine Commercial
Industrial Bank (PCIB) in Isulan talked to Carlos, Jr. and offered to
buy, in behalf of the PCIB, Lot No. 3-C-2 for P100.00 per square
meter. Carlos, Jr. agreed. Josefina executed a deed of absolute
sale on May 8, 1984, over Lot No. 3-C-2 for P35,000.00 in favor of
PCIB.[22] Carlos, Jr. later learned that Lagon had been saying that
he was responsible for the sale of Lot No. 3-C-2 to the PCIB, but
the latter informed Carlos, Jr. in a Letter dated September 13, 1984
that Lagon had nothing to do with the sale.[23]
On October 3, 1984, the Register of Deeds cancelled TCT No.
16438 and issued TCT No. 18817 over Lot No. 3-C-2 in the name
of PCIB.[24] The expenses for the issuance of the said title under
the name of the bank were for the account of Josefina.[25]
On June 11, 1987, the deed of extrajudicial settlement earlier
executed by the heirs of Carlos Valdez, Sr. was filed and registered
in the Office of the Register of Deeds.[26] On June 16, 1987,
Josefina executed a Deed of Sale over Lot 3-D in favor of Engr.
Rolendo Delfin, who was issued TCT No. 20380 for the property.[27]
In the meantime, in August 1987, a question ensued in connection
with Lagons failure to pay the balance of the purchase price of the
property, to cause the construction of a commercial building and
the transfer of the Rural Bank of Isulan to Lot No. 3, as undertaken
by him in his Affidavit dated April 27, 1981. As a reminder, Carlos,
Jr. furnished Lagon with a machine copy of the said affidavit on
August 12, 1987. On August 13, 1987, Lagons counsel, Atty.
Ernesto I. Catedral, wrote Carlos, Jr., pointing out that he had
earlier sought Lagons consent for the construction of the PCIB
Branch in Lot No. 3. Catedral posited that by consenting to the sale
of the property to PCIB and the construction thereon of its branch
office, Lagon thereby substantially complied with his undertaking
under the deed of absolute sale. The lawyer asked Carlos, Jr. to
set a conference to thresh out possibilities of an amicable
settlement of the matter.[28] On September 21, 1987, Carlos, Jr.
furnished Atty. Catedral with copies of documents, including a
Special Power of Attorney, executed by Josefina in favor of Carlos,
Jr., the deed of absolute sale over Lot No. 3 in favor of Lagon and
the deed of absolute sale executed by Josefina in favor of PCIB,
among others.[29] Lagon, through his counsel, Atty. Rex G. Rico,
reiterated his request for a conference on May 23, 1988.[30]
However, Carlos, Jr. was not available on the said date.
On August 4, 1988, Josefina executed a real estate mortgage over
Lot No. 3-C-3 covered by TCT No. 18818 in favor of the
Development Bank of the Philippines (DBP) as security for a loan
of P150,000.00.[31] Josefina executed a deed of absolute sale over
Lot No. 3-C-1 in favor of her son, Carlos, Jr. on February 21, 1989.
The Register of Deeds thereafter issued TCT No. 21943 in the
latters name on February 28, 1989.[32] In the meantime, in 1984,
Carlos, Jr. had an edifice constructed on the property where he put
up his law office, a nipa hut behind the PCIB branch, the Ivy
Pharmacy, the K House and the headquarters of the Nationalista
Party.[33]
On September 24, 1990, Lagon filed a Complaint against Josefina,
and Carlos, Jr., in his capacity as attorney-in-fact of Josefina, for
specific performance and damages with a prayer for a temporary
restraining order and writ of preliminary injunction. He prayed that,
after due proceedings, judgment be rendered in his favor, thus:
WHEREFORE, it is respectfully prayed that upon the filing of this
complaint, a restraining order be issued enjoining defendants from selling,
disposing or otherwise encumbering the property subject of this case; after
due hearing, a writ of preliminary prohibitory injunction be issued in the
same tenor as that of the restraining order; and after trial on the merits,
judgment be rendered in favor of plaintiff and against the defendants:
a) Making the writ of preliminary prohibitory injunction permanent;
b) Ordering defendants to immediately and without delay, deliver to
plaintiff the possession of and the transfer certificate of title over the
remaining area of that parcel of land they sold to plaintiff;
c) Ordering defendants to pay plaintiff, jointly and severally, the
following sums:
i. P500,000.00 representing opportunity loss;
ii. P50,000.00 for and as attorneys fees;
iii. P20,000.00 for and as expenses of litigation; and
iv. P50,000.00 for and as moral, exemplary, temperate and nominal
damages.
Other reliefs, just and equitable under the premises, are likewise prayed
for.[34]
Lagon testified that Josefina failed to deliver the title to the property
he purchased from her, as well as the possession thereof; hence,
he was not certain of the metes and bounds of the property and
could not secure a building permit for the transfer and construction
of the Rural Bank of Isulan, as well as the commercial building.
Besides, Carlos, Jr. secured his permission for the construction of
the PCIB commercial building on Lot No. 3-C-2 which was sold to
him by Josefina, and even agreed to the deduction of the purchase
price thereof; hence, the balance was only P26,880. Lagon
demanded that the title to the property be turned over to him and
the occupants thereof be evicted therefrom so that he could comply
with the conditions of the sale for the construction of the
commercial building and the transfer of the Isulan Rural Bank.
However, Carlos, Jr. dilly-dallied, saying that the heirs of Carlos,
Sr. needed time to execute the extrajudicial settlement of his
estate, and thus failed to deliver said title to him. Lagon averred
that his consent to the construction by the PCIB of its branch on a
portion of the property he had purchased from Josefina constituted
substantial compliance of his undertaking under the deed of
absolute sale and the affidavit he executed in favor of Josefina. He
also alleged that he signed the affidavit prepared by Carlos, Jr.
without reading and understanding the same. He pointed out that
although Lot No. 3 had already been sold to him by Josefina, she
still sold Lot No. 3-C-3 to her son, Carlos, Jr.; Lot No. 3-D to Engr.
Rolendo Delfin; and mortgaged Lot No. 3-D to DBP which acquired
title over the property.
In their answer to the complaint, Josefina and her son, the
defendants therein, alleged that Lagon had no cause of action
against them because he failed to comply with the terms of the
deed of absolute sale, his undertaking under his affidavit, and to
pay the purchase price of the property in full. Carlos, Jr. denied
securing Lagons consent to the construction of the PCIB branch on
Lot 3-C-2, and agreeing to deduct P35,000 from the balance of
Lagons account for the purchase price of the property. Josefina
and Carlos, Jr. interposed counterclaims for damages and
attorneys fees.
Lagon withdrew his petition for the issuance of a writ of preliminary
injunction which the trial court granted, per its Order dated
February 24, 1993.
On January 20, 1995, the trial court rendered judgment in favor of
Lagon. The fallo of the decision reads:
WHEREFORE, upon all the foregoing considerations, judgment is hereby
rendered:
1. ORDERING defendant Josefina L. Valdez, by herself, or through her
duly authorized attorney-in-fact, defendant Carlos L. Valdez, Jr., to
execute the necessary registrable document of deed of absolute sale in
favor of the plaintiff over the remaining area of that parcel of land, the
defendant sold to plaintiff on May 9, 1979, particularly Lot 3-C-3, Psd-
12-005408 covered under Transfer Certificate of Title No. T-18816, in the
name of defendant Josefina de Leon Vda. de Valdez, and for the latter to
deliver to plaintiff the possession of and the transfer certificate of title
thereof, and ORDERING further the defendants to pay, jointly and
severally, plaintiff the current fair market value of the remaining area of
the land sold to the latter which defendants may not be able to deliver and
transfer ownership thereof to the plaintiff, minus the amount of
P26,880.00 representing the unpaid balance of the agreed purchase price
of the 4,094 square meter-portion of land sold to plaintiff in the total
amount of P163,760.00;
2. ORDERING defendants to pay plaintiff, jointly and severally, the sums
of:
(a) P50,000.00 representing attorneys fees for the legal services of
plaintiffs counsel, plus P5,000.00, as appearance fee for plaintiffs counsel,
per hearing, for not less than ten (10) times;
(b) P2,119.00 as filing fees (Exhibits W, W-1, W-2, and W-3) paid by
plaintiff for the filing of this case;
(c) P23,585.50 representing transportation expenses of plaintiffs counsel
through PAL flights from Manila to attend court hearings in this Court,
and in going back to Manila (Exhibits FF, FF-1, GG, HH, II, JJ, KK, LL,
and MM);
(d) P50,000.00 for and as moral and exemplary damages; and, further
ORDERING defendants, jointly and severally, to pay the costs of suit.
For lack of merit, the counterclaim interposed by defendants should be, as
it is hereby, dismissed.
IT IS SO ORDERED.[35]
Josefina and Carlos, Jr. appealed the decision to the Court of
Appeals, contending that
I. THE LOWER COURT ERRED IN NOT UPHOLDING THE
DEFENSE OF THE DEFENDANTS-APPELLANTS THAT THE
PLAINTIFF-APPELLEE HAS NO VALID CAUSE OF ACTION
AGAINST THEM CONSIDERING THAT HE FAILED TO COMPLY
WITH THE TERMS AND CONDITIONS OF HIS WRITTEN
CONTRACTS WITH THE DEFENDANTS-APPELLANTS.
II. THE COURT ERRED IN NOT UPHOLDING THAT EXHIBIT 3
WHICH IS THE AFFIDAVIT OF PLAINTIFF-APPELLEE, WAS
PART OF THE AGREEMENTS OF THE PARTIES AS IT WAS
ADMITTED BY HIM. IT MUST BE ENFORCED AND PLAINTIFF-
APPELLEE IS LIABLE FOR BREACH OF HIS CONTRACT WITH
THE DEFENDANTS-APPELLANTS.
III. THE LOWER COURT ERRED WHEN IT RULED THAT THE
TERMS AND CONDITIONS IN THE SPECIAL POWER OF
ATTORNEY (EXHIBITS 1-C AND A-1) WERE NOT PART OF THE
DEED OF ABSOLUTE SALE (EXHIBITS 1 AND A) EXECUTED BY
THE PARTIES.
IV. THE LOWER COURT ERRED IN NOT DECLARING THAT THE
ACT OF THE DEFENDANTS-APPELLANTS IN RESCINDING
THEIR CONTRACT WITH THE PLAINTIFF-APPELLEE WAS
PERFECTLY LEGAL, VALID, EFFECTIVE AND BINDING ON THE
PLAINTIFF-APPELLEE.
V. THE LOWER COURT ERRED IN NOT RENDERING JUDGMENT
IN FAVOR OF THE DEFENDANTS-APPELLANTS DESPITE THE
OVERWHELMING EVIDENCE OF THE MANIFEST INCREDULITY
AND UNWORTHINESS OF THE EVIDENCE OF THE PLAINTIFF-
APPELLEE.
VI. THE LOWER COURT ERRED IN NOT FINDING THAT THE
PLAINTIFF-APPELLEE IS GUILTY OF LACHES OR ESTOPPEL.
VII. THE COURT ERRED IN AWARDING DAMAGES TO THE
PLAINTIFF-APPELLEE AND DISMISSING THE COUNTERCLAIM
OF THE DEFENDANTS-APPELLANTS.[36]
The appellate court rendered judgment on January 28, 1998
reversing the decision of the RTC. The fallo of the decision reads:
IN VIEW WHEREOF, the Decision of the Lower Court dated January
20, 1995 is hereby REVERSED and SET ASIDE. Appellants are hereby
ordered to return to Appellee the sum of P101,880.00 together with 12%
interest per annum from the finality of this decision. The case filed in the
Court a quo is hereby ordered DISMISSED.[37]
The appellate court ruled that based on the deed of absolute sale,
the Special Power of Attorney executed by Josefina, and the
affidavit of the respondent, the parties had executed a contract to
sell. The respondent filed a motion for the reconsideration thereof.
On February 4, 1999, the Court of Appeals reversed itself and
rendered an Amended Decision, setting aside its decision and
affirming that of the RTC. This time, the appellate court held that
Josefina had, after all, executed a deed of absolute sale over the
4,094-square-meter portion of Lot No. 3. It declared that the
Special Power of Attorney executed by Josefina and the affidavit
did not form part of the deed of absolute sale. It further declared
that Lagons affidavit could not be considered part of the said deed
because it was merely an afterthought contrived by Carlos, Jr.
The appellate court also held that even if the Special Power of
Attorney and affidavit formed integral parts of the deed of absolute
sale, Lagon was justified in refusing to pay the balance of the
purchase price of the property and to comply with his undertaking
thereon, because Josefinas refusal to deliver the title to the
property made it impossible to determine the metes and bounds
thereof. According to the appellate court, under Article 1186 of the
New Civil Code, the conditions of the sale are deemed fulfilled.
Moreover, the Court of Appeals ruled, the appellants failed to
comply with the procedure under Article 1592 of the New Civil Code
in rescinding the sale.
Josefina and Carlos, Jr., now the petitioners, filed their petition for
review on certiorari wherein they raised the following issues:
I. WHETHER OR NOT THE CONTRACT OF THE PARTIES BEING
SUBJECT TO THE SUSPENSIVE CONDITIONS AGREED UPON WAS
A CONTRACT TO SELL OR A CONTRACT OF SALE?
II. WHETHER OF (SIC) NOT THE PETITIONERS HAD THE RIGHT TO
RESCIND THEIR CONTRACT WITH PRIVATE RESPONDENT?
III. WHETHER OF (SIC) NOT PRIVATE RESPONDENT IS ENTITLED
TO HIS CLAIM FOR SPECIFIC PERFORMANCE AND DAMAGES
CONSIDERING HIS FAILURE TO COMPLY WITH THE SUSPENSIVE
CONDITIONS AGREED UPON?[38]
The petitioners assert that, the contract agreed upon by the parties
was a contract to sell and not a contract of sale. The petitioners
contend that the three documents, the deed of absolute sale, the
special power of attorney executed by petitioner Josefina and the
affidavit of the respondent dated April 27, 1981, formed integral
parts containing the terms and conditions of one and the same
transaction. They emphasize that the respondent knew that his
contract with petitioner Josefina was a contract to sell because he
did not acquire a torrens title over the property nor took possession
thereof after the execution of the deed of absolute sale; the
respondent even failed to register the said deed with the Office of
the Register of Deeds and to declare the same for taxation
purposes under his name. They aver that the requirements under
Article 1592 of the New Civil Code do not apply to a contract to sell
but only to a contract of sale.
The petitioners insist that the Court of Appeals erred in declaring
that the conditions of the sale were deemed fulfilled by their failure
to deliver the torrens title to the property to the respondent, on its
finding that notwithstanding such failure, the respondent continued
making partial payments of the purchase price of the property to
the petitioners.
In his comment on the petition, the respondent reiterates that
based on the evidence on record, the admissions of the petitioners,
as well as the special power of attorney executed by petitioner
Josefina, a deed of absolute sale was executed between him and
petitioner Josefina, not merely a contract to sell of the portions of
Lots 3-C and 3-D. He alleges that under Articles 1477 and 1498 of
the New Civil Code, he acquired title and possession of the
property upon the execution of the said deed.
The Ruling of the Court
The Subject Property is the

Exclusive Property of

Josefina de Leon Valdez

Intricately interwoven with the threshold issue raised by the
petitioners is the issue of the nature of Lot No. 3 of Pls-208-D-13
covered by TCT No. T-19529 (T-1902).
In the deed of absolute sale executed by petitioner Josefina in favor
of the respondent, she declared that she was the absolute owner
of the said property.[39] However, in the deed of extrajudicial
settlement of the estate of Carlos Valdez, Sr. executed by petitioner
Josefina and her children on December 31, 1982, the subject
property was declared as part of the estate of the deceased.[40] The
Court of Appeals, under its Amended Decision, affirmed the finding
of the RTC that it was only after the execution of the said deed of
extrajudicial settlement that petitioner Josefina became the
absolute owner of the property.[41] However, we find that both the
trial and appellate courts erred in so ruling.
We note that TCT No. T-19529 (T-1902) covering the property was
issued on August 18, 1967, during the marriage of the Spouses
Carlos Valdez, Sr. and petitioner Josefina, under the name
Josefina L. Valdez married to Carlos Valdez, Sr. The issuance of
the title in the name solely of one spouse is not determinative of
the conjugal nature of the property, since there is no showing that
it was acquired during the marriage of the Spouses Carlos Valdez,
Sr. and Josefina L. Valdez.[42] The presumption under Article 160
of the New Civil Code, that property acquired during marriage is
conjugal, does not apply where there is no showing as to when the
property alleged to be conjugal was acquired. The presumption
cannot prevail when the title is in the name of only one spouse and
the rights of innocent third parties are involved.[43] Moreover, when
the property is registered in the name of only one spouse and there
is no showing as to when the property was acquired by same
spouse, this is an indication that the property belongs exclusively
to the said spouse.[44]
In this case, there is no evidence to indicate when the property was
acquired by petitioner Josefina. Thus, we agree with petitioner
Josefinas declaration in the deed of absolute sale she executed in
favor of the respondent that she was the absolute and sole owner
of the property. We are convinced that the declaration in the deed
of extrajudicial settlement of the estate of the late Carlos Valdez,
Sr., that the property formed part of his estate and that his children
waived their rights and claims over the property in favor of their
mother, was done merely to facilitate the issuance of a torrens title
over the property in petitioner Josefinas name with her marital
status as widow.
Petitioner Josefina Valdez

and the Respondent entered

into a Contract of Sale over

the Subject Property

The RTC, as well as the Court of Appeals in its Amended Decision,

held that petitioner Josefina and the respondent entered into a
contract of sale, not a contract to sell, over the subject property,
relying solely on the deed of absolute sale executed by her on May
9, 1979. Although it was expressly stated in the Affidavit executed
by the respondent on April 27, 1981 appended to the deed, the
appellate court affirmed the ruling of the RTC that such Special
Power of Attorney executed by petitioner Josefina in favor of her
son, petitioner Carlos, Jr., did not form part of the said deed. Both
tribunals ratiocinated that, indeed, under the Special Power of
Attorney, part of the consideration of the sale of the subject
property was the construction of a commercial building and the
transfer of the Isulan Rural Bank thereto within five (5) years from
the execution of the deed. However, since such condition was not
actually incorporated in the said deed, the affidavit prepared by
petitioner Carlos, Jr. and signed by the respondent was but an
afterthought contrived by petitioner Carlos, Jr., thus enabling him
to surreptitiously insert a provision or condition in the deed of
absolute sale.
We agree with the trial and appellate courts that petitioner Josefina
and the respondent entered into a contract of sale over the subject
property and not merely a contract to sell the same.
It is not disputed by the parties that petitioner Josefina executed a
Special Power of Attorney in favor of her son, petitioner Carlos, Jr.,
as her attorney-in-fact, authorizing the latter to sell the subject
property, and petitioner Josefina, through her son, executed the
deed of absolute sale over the subject property. She also
acknowledged receipt of partial payments of the purchase price of
the property on April 21, 1981 through her attorney-in-fact; the
balance of the purchase price thus stood at P61,880.00 There is,
likewise, no dispute that the respondent signed the affidavit on April
27, 1981. The parties, however, differ on the real nature of their
transaction and on whether the said affidavit formed an integral part
of the deed of absolute sale executed by petitioner Josefina in favor
of the respondent.
The real nature of a contract may be determined from the express
terms of the written agreement and from the contemporaneous and
subsequent acts of the parties thereto.[45]
In the construction or interpretation of an instrument, the intention
of the parties is primordial and is to be pursued.[46] If the terms of a
contract are clear and leave no doubt upon the intention of the
contracting parties, the literal meaning of its stipulations shall
control.[47] If the contract appears to be contrary to the evident
intentions of the parties, the latter shall prevail over the former.[48]
The denomination given by the parties in their contract is not
conclusive of the nature of the contents.[49]
The agreement of the parties may be embodied in only one
contract or in two or more separate writings. In such event, the
writings of the parties should be read and interpreted together in
such a way as to render their intention effective.[50]
A sale is at once perfected when a person (the seller) obligates
himself, for a price certain, to deliver and to transfer ownership of
a specified thing or right to another (the buyer) over which the latter
agrees.[51] From the time the contract is perfected, the parties are
bound not only to the fulfillment of what has been expressly
stipulated but also to all the consequences which, according to their
nature, may be in keeping with good faith, usage and law.[52]
In a contract of sale, the title to the property passes to the vendee
upon the constructive or actual delivery thereof, as provided for in
Article 1477 of the New Civil Code. The vendor loses ownership
over the property and cannot recover it until and unless the contract
is resolved or rescinded by a notarial deed or by judicial action as
provided for in Article 1540 of the New Civil Code. A contract is one
of sale, absent any stipulation therein reserving title over the
property to the vendee until full payment of the purchase price nor
giving the vendor the right to unilaterally rescind the contract in
case of non-payment.[53] 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.[54] In a contract to sell, ownership is, by
agreement, reserved in the vendor and is not to pass to the vendee
until full payment of the purchase price. Such payment is a positive
suspensive condition, failure of which is not a breach but an event
that prevents the obligation of the vendor to convey title from
becoming effective.[55]
In this case, the deed of absolute sale executed by petitioner
Josefina reads:
That the Vendor is the registered owner of Lot 3 Allah Valley Pls-208-D-
3, located at Isulan, Sultan Kudarat, covered by Transfer Certificate of
Title No. (T-19529) T-1902 of the Register of Deeds of Cotabato, with
eight (8) lots subdivision duly approved pursuant to R.A. 440 on March
27, 1979.
That for and in consideration of the sum of EIGHTY THOUSAND
PESOS (P80,000.00), Philippine Currency, in hand paid by the VENDEE,
receipt of which amount in Full is hereby acknowledged by the VENDOR,
to the ENTIRE and full satisfaction of the VENDOR, and who by these
presents do hereby sell, cede, deliver and convey unto the said VENDEE,
his heirs, assigns and successors in interests, a portion of the above-
mentioned lot, more particularly described as follows:
TOTAL AREA: FOUR THOUSAND AND NINETY-FOUR (4,094)
SQUARE METERS, WITH SIXTY-FOUR POINT THREE (64.3)
METERS, FRONTAGE, FACING THE NATIONAL HIGHWAY and
the NGA Office, going towards the BUENCAMINO MOVIE HOUSE,
starting from the corner.
That the Vendor hereby warrants the peaceful possession and ownership
of said vendee against any adverse claim.[56]
Irrefragably, the deed is one of sale, not a contract to sell. The deed
specifically states that the property is sold and delivered to the
respondent as vendee. Petitioner Josefina even warranted the
peaceful possession and ownership of the respondent over the
property subject of the transaction. She did not reserve the
ownership over the property, as well as any right to unilaterally
rescind the contract. There has been, by the execution of the said
deed, a constructive delivery of the property to the respondent;
hence, the latter acquired ownership over the same.[57] Upon
payment of the purchase price, petitioner Josefina was obliged to
deliver the torrens title over the property to and under the name of
the respondent as the new owner and place him, as vendee, in
actual possession thereof; otherwise, the failure or inability to do
so constitutes a breach of the contract sufficient to justify its
rescission.[58]
However, we rule that the deed of absolute sale was unenforceable
as of the date of its execution, May 9, 1979. This is so, because
under the Special Power of Attorney petitioner Josefina executed
in favor of her son, petitioner Carlos, Jr., the latter was authorized
to sell the property on cash basis only; petitioner Josefina likewise
required the construction of a commercial building and the transfer
of the Rural Bank of Isulan, as part of the consideration of the sale
to be incorporated in the said deed as part of the respondents
obligation as vendee, thus:
(a) To sell sixty four point three meters FRONTAGE and the full length of
Lot 3, ALLAH VALLEY, Pls-208-D-13 described in TCT No. T-(19529) T-
1902, somewhere in the 3rd and 4th lots of the 8 lots subdivision, located
at Poblacion, Isulan, Sultan Kudarat, registered in my name, consisting of
Four Thousand Ninety-Four (4,094) Square Meters;
(b) To RECEIVE and SIGN documents and papers necessary in the
CONTRACT OF SALE with Mr. JOSE LAGON, and to RECEIVE the full
PRICE in CASH, to be determined by my son, CARLOS L. CARLOS, JR.;
(c) To IMPOSE in the Contract that aside from the PRICE, another
consideration would be for Mr. JOSE LAGON to transfer the RURAL
BANK OF ISULAN to the above-mentioned lot and to put a commercial
building, different from the building of the Rural Bank of Isulan on the same
lot.[59]
Clearly, petitioner Carlos, Jr. acted beyond the scope of his
authority when he executed the deed of absolute sale in
contravention of petitioner Josefinas express instructions. Worse,
he falsely declared in the said deed that the purchase price was
P80,000.00 and that he had already received the said amount,
when, in fact, the property was sold for P40.00 per square meters,
or a total of P163,760.00, and that as of May 9, 1979, he had not
yet received the said amount. Under Article 1317 of the New Civil
Code, contracts executed by agents who have acted beyond their
powers are unenforceable unless ratified by the principal either
expressly or impliedly:
Art. 1317. No one may contract in the name of another without being
authorized by the latter, or unless he has by law a right to represent him.
A contract entered into in the name of another by one who has no authority
or legal representation, or who has acted beyond his powers, shall be
unenforceable, unless it is ratified, expressly or impliedly, by the person
on whose behalf it has been executed, before it is revoked by the other
contracting party.
Thus, the effectivity of the contract of sale in the case at bar
depends upon the ratification thereof by petitioner Josefina as
principal. If she ratifies the deed, the sale is validated from the
moment of its commencement, and not merely from the time of its
ratification.[60] In such case, she can no longer maintain an action
to annul the same based upon defects relating to its original
validity.[61]
We find that petitioner Josefina ratified the said deed when she
received, through her son and attorney-in-fact petitioner Carlos, Jr.,
partial payments of the purchase price of the property from the
respondent on April 21, 1981.[62] Such ratification retroacted to May
9, 1979, the date when petitioner Josefina, through her attorney-in-
fact, executed the deed of sale covering the subject property in
favor of the respondent. Moreover, we rule that the respondent
agreed on to transfer the Rural Bank of Isulan to the subject
property, and to cause the construction of a commercial building
within five (5) years reckoned from May 9, 1979 or until May 9,
1984, as evidenced by his affidavit.
We reject the findings of the RTC as affirmed by the CA that the
affidavit signed by the respondent on April 27, 1981 was merely an
afterthought contrived by petitioner Carlos, Jr., and their conclusion
that the said affidavit had no binding effect on petitioner Josefina.
The affidavit of the respondent reads:
1. That I am the Vendee of a Deed of Absolute Sale where the Vendor is
Mrs. Josefina L. Valdez, represented by CARLOS L. CARLOS, JR.,
through a Special Power of Attorney;
2. That the above-mentioned Deed of Absolute Sale is dated May 9, 1979
and the Special Power of Attorney also above-mentioned was dated May
1, 1979, both duly notarized by Notary Public Atty. Bienvenido Noveno
under Doc. No. 77; Page No. 16; Book No. XIX; Series of 1979, and Doc.
No. 73; Page No. 15; Book No. XIX; Series of 1979; respectively;
3. That the subject of the above-mentioned Deed of Absolute Sale is a lot
consisting of 4,094 square meters, covered by Transfer Certificate of Title
No. T-19529 of the Register of Deeds for the Province of Cotabato, facing
the National Highway and the Isulan NGA Office going towards the
Buencamino Movie House, starting from the corner;
4. That the consideration of the above-mentioned Deed of Absolute Sale
is EIGHTY THOUSAND PESOS (P80,000.00) and in addition thereto, I
hereby declare and manifest that the above-mentioned 4,094 square
meters be commercialized by putting up at least one (1) bank and any
other commercial building in the said 4,094 square meters within a period
of five (5) years from the time of the execution of the above-mentioned
Deed of Absolute Sale, in full operation;
5. That should I fail to commercialize the said 4,094 square meters in full
operation within a period of five (5) years as stated above, I hereby declare
and manifest that said Deed of Absolute Sale shall be declared null and
void, without need of demand addressed to me;
6. That the purpose of this Affidavit is to make it clear that the
consideration of the said Deed of Absolute Sale is not only P80,000.00
cash but also the fact that the said 4,094 square meters be
commercialized.[63]
The respondent admitted in his complaint that he undertook to
construct the said building and transfer the Rural Bank of Isulan to
the property he had purchased from petitioner Josefina.[64] The
respondent affirmed the authenticity and due execution of his
affidavit and his obligations therein, and testified, thus:
ATTY. VALDEZ:
Q Mr. Lagon, you testified that according to you the construction of the
same, the PCIB Isulan was a compliance of your obligation under your
contract with the Valdezes, do you recall having testified on that?
A Yes, Sir.
Q With in (sic) how many years, by the say (sic), were you supposed to
comply with that condition by putting up a bank or a commercial building
in that area?
A Supposed to be five years, Sir.
Q From when?
A According to the affidavit, from the time I purchased the property up to
or from May 9, 1979 to 1984, Sir.[65]
In his letter to petitioner Carlos, Jr., the respondent, through
counsel, admitted the binding effect of his affidavit as follows:
It is hereby submitted therefore that there is in effect substantial
compliance on the part of Mr. Lagon with regards to the additional
condition laid down in his affidavit herein-referred to. If you deem it that
Mr. Lagon has not satisfactorily complied with all the obligations you
imposed upon him to do thereunder, it is made to reasons not of his own
making but due to factors brought about by circumstances then prevailing,
and elaboration on the same can only be properly stated on the proper to
come.[66]
Far from being a mere affidavit, the document embodies the
unequivocal undertaking of the respondent to construct a fully
operational commercial building and to transfer the Rural Bank of
Isulan to the subject property as part of the consideration of the
sale within five (5) years from the execution of the deed of sale, or
until May 9, 1984.
The intractable refusal of the respondent to pay the balance of the
purchase price of the property despite the petitioners demands had
no legal basis. As such, petitioner Josefinas refusal to deliver the
torrens title over the subject property under the respondents name
was justified, precisely because of the respondents refusal to
comply with his obligation to pay the balance of the purchase price.
Had the respondent paid the purchase price of the property, such
failure on the part of petitioner Josefina to deliver the torrens title to
and under the name of the respondent would have warranted the
suspension of the five-year period agreed upon for the construction
of a fully operational commercial building, as well as the transfer of
the aforesaid bank to the property. This is so because absent such
torrens title under the name of the respondent, no building permit
for the construction of the buildings could be secured.
Considering all the foregoing, the failure of the respondent to cause
the construction of the commercial building and the transfer of the
bank to the property sold under the deed of sale executed between
him and petitioner Josefina was due to the respondents own fault.
There was no need for petitioner Josefina to make a notarized
demand to the respondent or file an action to rescind the deed of
absolute sale to enable her to recover the ownership of the
property. This is so because the petitioner and the respondent had
agreed that upon the latters failure to construct a new and fully
operational commercial building and to cause the transfer of the
Rural Bank of Isulan to the property on or before May 9, 1984, the
deed of absolute sale would be deemed null and void without need
of any demand from the petitioners. Such agreement is evidenced
by the affidavit executed by the respondent himself on April 27,
1981.
We do not agree with the respondents contentions that petitioner
Josefina, through her son and attorney-in-fact petitioner Carlos, Jr.,
had agreed to the sale of a portion of the property, the construction
of the PCIB branch office thereon, and the crediting of the amount
paid by the PCIB to the respondents account, and deducted from
the balance of the purchase price. In the first place, the respondent
failed to adduce a morsel of evidence that petitioner Josefina had
knowledge of the said agreement and had agreed thereto.
Furthermore, the respondent failed to adduce documentary
evidence that petitioner Josefina authorized her son and attorney-
in-fact to enter into such an agreement.
It bears stressing that petitioner Josefina specifically and
unequivocally required in the special power of attorney, as part of
the consideration of the sale of the property to the respondent, the
latters obligation to construct a new and fully operational
commercial building and transfer the Rural Bank of Isulan to the
property. Had she agreed to modify the Special Power of Attorney
she executed in favor of her son, petitioner Carlos, Jr., for sure, she
would have executed a document to that effect. She did not do so.
Petitioner Carlos, Jr. could not lawfully bind petitioner Josefina
thereon because he was not so authorized to enter into such an
agreement with the respondent; neither can such authority be
implied from the Special Power of Attorney petitioner Josefina
executed in favor of her son, petitioner Carlos, Jr.
In sum, then, the respondent had no cause for specific
performance against the petitioners. However, the petitioners are
obliged to refund to the respondent the latters partial payments for
the subject property.[67]
The petitioners failed to adduce sufficient evidence to prove their
counterclaims, and, as such, the counterclaims must forthwith be
dismissed.
IN LIGHT OF ALL THE FOREGOING, the Amended Decision
of the Court of Appeals dated February 4, 1999 is REVERSED and
SET ASIDE. The complaint of the respondent is DISMISSED. The
petitioners are directed to refund to the respondent the amount of
P101,880.00 with interest thereon at the rate of 12% per annum
from the finality of this decision. No costs.
SO ORDERED.
Puno, (Chairman), Austria-Martinez, and Tinga, JJ., concur.
Chico-Nazario, J., on leave.
G.R. No. L-59266 February 29, 1988
SILVESTRE DIGNOS and ISABEL LUMUNGSOD, petitioners,
vs.
HON. COURT OF APPEALS and ATILANO G. JABIL, respondents.

BIDIN, J.:
This is a petition for review on certiorari seeking the reversal of the: (1) Decision * of the 9th Division, Court
of Appeals dated July 31,1981, affirming with modification the Decision, dated August 25, 1972 of the Court
of First Instance ** of Cebu in civil Case No. 23-L entitled Atilano G. Jabil vs. Silvestre T. Dignos and Isabela
Lumungsod de Dignos and Panfilo Jabalde, as Attorney-in-Fact of Luciano Cabigas and Jovita L. de
Cabigas; and (2) its Resolution dated December 16, 1981, denying defendant-appellant's (Petitioner's)
motion for reconsideration, for lack of merit.
The undisputed facts as found by the Court of Appeals are as follows:
The Dignos spouses were owners of a parcel of land, known as Lot No. 3453,
of the cadastral survey of Opon, Lapu-Lapu City. On June 7, 1965,
appellants (petitioners) Dignos spouses sold the said parcel of land to
plaintiff-appellant (respondent Atilano J. Jabil) for the sum of P28,000.00,
payable in two installments, with an assumption of indebtedness with the
First Insular Bank of Cebu in the sum of P12,000.00, which was paid and
acknowledged by the vendors in the deed of sale (Exh. C) executed in favor
of plaintiff-appellant, and the next installment in the sum of P4,000.00 to be
paid on or before September 15, 1965.
On November 25, 1965, the Dignos spouses sold the same land in favor of
defendants spouses, Luciano Cabigas and Jovita L. De Cabigas, who were
then U.S. citizens, for the price of P35,000.00. A deed of absolute sale (Exh.
J, also marked Exh. 3) was executed by the Dignos spouses in favor of the
Cabigas spouses, and which was registered in the Office of the Register of
Deeds pursuant to the provisions of Act No. 3344.
As the Dignos spouses refused to accept from plaintiff-appellant the balance
of the purchase price of the land, and as plaintiff- appellant discovered the
second sale made by defendants-appellants to the Cabigas spouses,
plaintiff-appellant brought the present suit. (Rollo, pp. 27-28)
After due trial, the Court of first Instance of Cebu rendered its Decision on
August 25,1972, the decretal portion of which reads:
WHEREFORE, the Court hereby declares the deed of sale executed on
November 25, 1965 by defendant Isabela L. de Dignos in favor of defendant
Luciano Cabigas, a citizen of the United States of America, null and void ab
initio, and the deed of sale executed by defendants Silvestre T. Dignos and
Isabela Lumungsod de Dignos not rescinded. Consequently, the plaintiff
Atilano G. Jabil is hereby ordered to pay the sum, of Sixteen Thousand
Pesos (P16,000.00) to the defendants-spouses upon the execution of the
Deed of absolute Sale of Lot No. 3453, Opon Cadastre and when the
decision of this case becomes final and executory.
The plaintiff Atilano G. Jabil is ordered to reimburse the defendants Luciano
Cabigas and Jovita L. de Cabigas, through their attorney-in-fact, Panfilo
Jabalde, reasonable amount corresponding to the expenses or costs of the
hollow block fence, so far constructed.
It is further ordered that defendants-spouses Silvestre T. Dignos and Isabela
Lumungsod de Dignos should return to defendants-spouses Luciano
Cabigas and Jovita L. de Cabigas the sum of P35,000.00, as equity demands
that nobody shall enrich himself at the expense of another.
The writ of preliminary injunction issued on September 23, 1966,
automatically becomes permanent in virtue of this decision.
With costs against the defendants.
From the foregoing, the plaintiff (respondent herein) and defendants-spouss
(petitioners herein) appealed to the Court of Appeals, which appeal was
docketed therein as CA-G.R. No. 54393-R, "Atilano G. Jabil v. Silvestre T.
Dignos, et al."
On July 31, 1981, the Court of Appeals affirmed the decision of the lower
court except as to the portion ordering Jabil to pay for the expenses incurred
by the Cabigas spouses for the building of a fence upon the land in question.
The disposive portion of said decision of the Court of Appeals reads:
IN VIEW OF THE FOREGOING CONSIDERATIONS, except as to the
modification of the judgment as pertains to plaintiff-appellant above
indicated, the judgment appealed from is hereby AFFIRMED in all other
respects.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC

G.R. No. L-28602 September 29, 1970

UNIVERSITY OF THE PHILIPPINES, petitioner,
vs.
WALFRIDO DE LOS ANGELES, in his capacity as JUDGE of the COURT
OF FIRST INSTANCE IN QUEZON CITY, et al., respondents.
Office of the Solicitor General Antonio P. Barredo, Solicitor Augusto M.
Amores and Special Counsel Perfecto V. Fernandez for petitioner.
Norberto J. Quisumbing for private respondents.
REYES, J.B.L., J.:
Three (3) orders of the Court of First Instance of Rizal (Quezon City), issued
in its Civil Case No. 9435, are sought to be annulled in this petition for
certiorari and prohibition, filed by herein petitioner University of the
Philippines (or UP) against the above-named respondent judge and the
Associated Lumber Manufacturing Company, Inc. (or ALUMCO). The first
order, dated 25 February 1966, enjoined UP from awarding logging rights
over its timber concession (or Land Grant), situated at the Lubayat areas in
the provinces of Laguna and Quezon; the second order, dated 14 January
1967, adjudged UP in contempt of court, and directed Sta. Clara Lumber
Company, Inc. to refrain from exercising logging rights or conducting logging
operations on the concession; and the third order, dated 12 December 1967,
denied reconsideration of the order of contempt.
As prayed for in the petition, a writ of preliminary injunction against the
enforcement or implementation of the three (3) questioned orders was
issued by this Court, per its resolution on 9 February 1968.
The petition alleged the following:
That the above-mentioned Land Grant was segregated from the public
domain and given as an endowment to UP, an institution of higher learning,
to be operated and developed for the purpose of raising additional income
for its support, pursuant to Act 3608;
That on or about 2 November 1960, UP and ALUMCO entered into a logging
agreement under which the latter was granted exclusive authority, for a
period starting from the date of the agreement to 31 December 1965,
extendible for a further period of five (5) years by mutual agreement, to cut,
collect and remove timber from the Land Grant, in consideration of payment
to UP of royalties, forest fees, etc.; that ALUMCO cut and removed timber
therefrom but, as of 8 December 1964, it had incurred an unpaid account of
P219,362.94, which, despite repeated demands, it had failed to pay; that
after it had received notice that UP would rescind or terminate the logging
agreement, ALUMCO executed an instrument, entitled "Acknowledgment of
Debt and Proposed Manner of Payments," dated 9 December 1964, which
was approved by the president of UP, and which stipulated the following:
3. In the event that the payments called for in Nos. 1 and 2 of this paragraph
are not sufficient to liquidate the foregoing indebtedness of the DEBTOR in
favor of the CREDITOR, the balance outstanding after the said payments
have been applied shall be paid by the DEBTOR in full no later than June
30, 1965;
xxx xxx xxx
5. In the event that the DEBTOR fails to comply with any of its promises or
undertakings in this document, the DEBTOR agrees without reservation that
the CREDITOR shall have the right and the power to consider the Logging
Agreement dated December 2, 1960 as rescinded without the necessity of
any judicial suit, and the CREDITOR shall be entitled as a matter of right to
Fifty Thousand Pesos (P50,000.00) by way of and for liquidated damages;
ALUMCO continued its logging operations, but again incurred an unpaid
account, for the period from 9 December 1964 to 15 July 1965, in the amount
of P61,133.74, in addition to the indebtedness that it had previously
acknowledged.
That on 19 July 1965, petitioner UP informed respondent ALUMCO that it
had, as of that date, considered as rescinded and of no further legal effect
the logging agreement that they had entered in 1960; and on 7 September
1965, UP filed a complaint against ALUMCO, which was docketed as Civil
Case No. 9435 of the Court of First Instance of Rizal (Quezon City), for the
collection or payment of the herein before stated sums of money and alleging
the facts hereinbefore specified, together with other allegations; it prayed for
and obtained an order, dated 30 September 1965, for preliminary attachment
and preliminary injunction restraining ALUMCO from continuing its logging
operations in the Land Grant.
That before the issuance of the aforesaid preliminary injunction UP had taken
steps to have another concessionaire take over the logging operation, by
advertising an invitation to bid; that bidding was conducted, and the
concession was awarded to Sta. Clara Lumber Company, Inc.; the logging
contract was signed on 16 February 1966.
That, meantime, ALUMCO had filed several motions to discharge the writs
of attachment and preliminary injunction but were denied by the court;
That on 12 November 1965, ALUMCO filed a petition to enjoin petitioner
University from conducting the bidding; on 27 November 1965, it filed a
second petition for preliminary injunction; and, on 25 February 1966,
respondent judge issued the first of the questioned orders, enjoining UP from
awarding logging rights over the concession to any other party.
That UP received the order of 25 February 1966 after it had concluded its
contract with Sta. Clara Lumber Company, Inc., and said company had
started logging operations.
That, on motion dated 12 April 1966 by ALUMCO and one Jose Rico, the
court, in an order dated 14 January 1967, declared petitioner UP in contempt
of court and, in the same order, directed Sta. Clara Lumber Company, Inc.,
to refrain from exercising logging rights or conducting logging operations in
the concession.
The UP moved for reconsideration of the aforesaid order, but the motion was
denied on 12 December 1967.
Except that it denied knowledge of the purpose of the Land Grant, which
purpose, anyway, is embodied in Act 3608 and, therefore, conclusively
known, respondent ALUMCO did not deny the foregoing allegations in the
petition. In its answer, respondent corrected itself by stating that the period
of the logging agreement is five (5) years - not seven (7) years, as it had
alleged in its second amended answer to the complaint in Civil Case No.
9435. It reiterated, however, its defenses in the court below, which maybe
boiled down to: blaming its former general manager, Cesar Guy, in not
turning over management of ALUMCO, thereby rendering it unable to pay
the sum of P219,382.94; that it failed to pursue the manner of payments, as
stipulated in the "Acknowledgment of Debt and Proposed Manner of
Payments" because the logs that it had cut turned out to be rotten and could
not be sold to Sta. Clara Lumber Company, Inc., under its contract "to buy
and sell" with said firm, and which contract was referred and annexed to the
"Acknowledgment of Debt and Proposed Manner of Payments"; that UP's
unilateral rescission of the logging contract, without a court order, was
invalid; that petitioner's supervisor refused to allow respondent to cut new
logs unless the logs previously cut during the management of Cesar Guy be
first sold; that respondent was permitted to cut logs in the middle of June
1965 but petitioner's supervisor stopped all logging operations on 15 July
1965; that it had made several offers to petitioner for respondent to resume
logging operations but respondent received no reply.
The basic issue in this case is whether petitioner U.P. can treat its contract
with ALUMCO rescinded, and may disregard the same before any judicial
pronouncement to that effect. Respondent ALUMCO contended, and the
lower court, in issuing the injunction order of 25 February 1966, apparently
sustained it (although the order expresses no specific findings in this regard),
that it is only after a final court decree declaring the contract rescinded for
violation of its terms that U.P. could disregard ALUMCO's rights under the
contract and treat the agreement as breached and of no force or effect.
We find that position untenable.
In the first place, UP and ALUMCO had expressly stipulated in the
"Acknowledgment of Debt and Proposed Manner of Payments" that, upon
default by the debtor ALUMCO, the creditor (UP) has "the right and the power
to consider, the Logging Agreement dated 2 December 1960 as rescinded
without the necessity of any judicial suit." As to such special stipulation, and
in connection with Article 1191 of the Civil Code, this Court stated in Froilan
vs. Pan Oriental Shipping Co., et al., L-11897, 31 October 1964, 12 SCRA
276:
there is nothing in the law that prohibits the parties from entering into
agreement that violation of the terms of the contract would cause
cancellation thereof, even without court intervention. In other words, it is not
always necessary for the injured party to resort to court for rescission of the
contract.
Of course, it must be understood that the act of party in treating a contract
as cancelled or resolved on account of infractions by the other contracting
party must be made known to the other and is always provisional, being ever
subject to scrutiny and review by the proper court. If the other party denies
that rescission is justified, it is free to resort to judicial action in its own behalf,
and bring the matter to court. Then, should the court, after due hearing,
decide that the resolution of the contract was not warranted, the responsible
party will be sentenced to damages; in the contrary case, the resolution will
be affirmed, and the consequent indemnity awarded to the party prejudiced.
In other words, the party who deems the contract violated may consider it
resolved or rescinded, and act accordingly, without previous court action, but
it proceeds at its own risk. For it is only the final judgment of the
corresponding court that will conclusively and finally settle whether the action
taken was or was not correct in law. But the law definitely does not require
that the contracting party who believes itself injured must first file suit and
wait for a judgment before taking extrajudicial steps to protect its interest.
Otherwise, the party injured by the other's breach will have to passively sit
and watch its damages accumulate during the pendency of the suit until the
final judgment of rescission is rendered when the law itself requires that he
should exercise due diligence to minimize its own damages (Civil Code,
Article 2203).
We see no conflict between this ruling and the previous jurisprudence of this
Court invoked by respondent declaring that judicial action is necessary for
the resolution of a reciprocal obligation,1 since in every case where the
extrajudicial resolution is contested only the final award of the court of
competent jurisdiction can conclusively settle whether the resolution was
proper or not. It is in this sense that judicial action will be necessary, as
without it, the extrajudicial resolution will remain contestable and subject to
judicial invalidation, unless attack thereon should become barred by
acquiescence, estoppel or prescription.
Fears have been expressed that a stipulation providing for a unilateral
rescission in case of breach of contract may render nugatory the general rule
requiring judicial action (v. Footnote, Padilla, Civil Law, Civil Code Anno.,
1967 ed. Vol. IV, page 140) but, as already observed, in case of abuse or
error by the rescinder the other party is not barred from questioning in court
such abuse or error, the practical effect of the stipulation being merely to
transfer to the defaulter the initiative of instituting suit, instead of the
rescinder.
In fact, even without express provision conferring the power of cancellation
upon one contracting party, the Supreme Court of Spain, in construing the
effect of Article 1124 of the Spanish Civil Code (of which Article 1191 of our
own Civil; Code is practically a reproduction), has repeatedly held that, a
resolution of reciprocal or synallagmatic contracts may be made
extrajudicially unless successfully impugned in court.
El articulo 1124 del Codigo Civil establece la facultad de resolver las
obligaciones reciprocas para el caso de que uno de los obligados no
cumpliese lo que le incumbe, facultad que, segun jurisprudencia de este
Tribunal, surge immediatamente despuesque la otra parte incumplio su
deber, sin necesidad de una declaracion previa de los Tribunales. (Sent. of
the Tr. Sup. of Spain, of 10 April 1929; 106 Jur. Civ. 897).
Segun reiterada doctrina de esta Sala, el Art. 1124 regula la resolucioncomo
una "facultad" atribuida a la parte perjudicada por el incumplimiento del
contrato, la cual tiene derecho do opcion entre exigir el cumplimientoo la
resolucion de lo convenido, que puede ejercitarse, ya en la via judicial, ya
fuera de ella, por declaracion del acreedor, a reserva, claro es, que si la
declaracion de resolucion hecha por una de las partes se impugna por la
otra, queda aquella sometida el examen y sancion de los Tribunale, que
habran de declarar, en definitiva, bien hecha la resolucion o por el contrario,
no ajustada a Derecho. (Sent. TS of Spain, 16 November 1956; Jurisp.
Aranzadi, 3, 447).
La resolucion de los contratos sinalagmaticos, fundada en el incumplimiento
por una de las partes de su respectiva prestacion, puedetener lugar con
eficacia" 1. o Por la declaracion de voluntad de la otra hecha extraprocesalmente, si no es impugnada
en juicio luego con exito. y 2. 0 Por la demanda de la perjudicada, cuando no opta por el cumplimientocon
la indemnizacion de danos y perjuicios realmente causados, siempre quese acredite, ademas, una actitud
o conducta persistente y rebelde de laadversa o la satisfaccion de lo pactado, a un hecho obstativo que de
un modoabsoluto, definitivo o irreformable lo impida, segun el art. 1.124, interpretado por la jurisprudencia
de esta Sala, contenida en las Ss. de 12 mayo 1955 y 16 Nov. 1956, entre otras, inspiradas por el principio
del Derecho intermedio, recogido del Canonico, por el cual fragenti fidem, fides non est servanda. (Ss. de
4 Nov. 1958 y 22 Jun. 1959.) (Emphasis supplied).
In the light of the foregoing principles, and considering that the complaint of
petitioner University made out a prima facie case of breach of contract and
defaults in payment by respondent ALUMCO, to the extent that the court
below issued a writ of preliminary injunction stopping ALUMCO's logging
operations, and repeatedly denied its motions to lift the injunction; that it is
not denied that the respondent company had profited from its operations
previous to the agreement of 5 December 1964 ("Acknowledgment of Debt
and Proposed Manner of Payment"); that the excuses offered in the second
amended answer, such as the misconduct of its former manager Cesar Guy,
and the rotten condition of the logs in private respondent's pond, which said
respondent was in a better position to know when it executed the
acknowledgment of indebtedness, do not constitute on their face sufficient
excuse for non-payment; and considering that whatever prejudice may be
suffered by respondent ALUMCO is susceptibility of compensation in
damages, it becomes plain that the acts of the court a quo in enjoining
petitioner's measures to protect its interest without first receiving evidence
on the issues tendered by the parties, and in subsequently refusing to
dissolve the injunction, were in grave abuse of discretion, correctible by
certiorari, since appeal was not available or adequate. Such injunction,
therefore, must be set aside.
For the reason that the order finding the petitioner UP in contempt of court
has open appealed to the Court of Appeals, and the case is pending therein,
this Court abstains from making any pronouncement thereon.
WHEREFORE, the writ of certiorari applied for is granted, and the order of
the respondent court of 25 February 1966, granting the Associated Lumber
Company's petition for injunction, is hereby set aside. Let the records be
remanded for further proceedings conformably to this opinion.
Dizon, Makalintal, Zaldivar, Castro, Fernando, Teehankee, Barredo, Villamor
and Makasiar, JJ., concur.
Reyes, J.B.L., Actg. C.J., is on leave.

G.R. No. L-56076 September 21, 1983

PALAY, INC. and ALBERT ONSTOTT, petitioner,
vs.
JACOBO C. CLAVE, Presidential Executive Assistant NATIONAL
HOUSING AUTHORITY and NAZARIO DUMPIT respondents.
Santos, Calcetas-Santos & Geronimo Law Office for petitioner.
Wilfredo E. Dizon for private respondent.

MELENCIO-HERRERA, J.:
The Resolution, dated May 2, 1980, issued by Presidential Executive
Assistant Jacobo Clave in O.P. Case No. 1459, directing petitioners Palay,
Inc. and Alberto Onstott jointly and severally, to refund to private respondent,
Nazario Dumpit, the amount of P13,722.50 with 12% interest per annum, as
resolved by the National Housing Authority in its Resolution of July 10, 1979
in Case No. 2167, as well as the Resolution of October 28, 1980 denying
petitioners' Motion for Reconsideration of said Resolution of May 2, 1980,
are being assailed in this petition.
On March 28, 1965, petitioner Palay, Inc., through its President, Albert
Onstott executed in favor of private respondent, Nazario Dumpit, a Contract
to Sell a parcel of Land (Lot No. 8, Block IV) of the Crestview Heights
Subdivision in Antipolo, Rizal, with an area of 1,165 square meters, - covered
by TCT No. 90454, and owned by said corporation. The sale price was
P23,300.00 with 9% interest per annum, payable with a downpayment of
P4,660.00 and monthly installments of P246.42 until fully paid. Paragraph 6
of the contract provided for automatic extrajudicial rescission upon default in
payment of any monthly installment after the lapse of 90 days from the
expiration of the grace period of one month, without need of notice and with
forfeiture of all installments paid.
Respondent Dumpit paid the downpayment and several installments
amounting to P13,722.50. The last payment was made on December 5, 1967
for installments up to September 1967.
On May 10, 1973, or almost six (6) years later, private respondent wrote
petitioner offering to update all his overdue accounts with interest, and
seeking its written consent to the assignment of his rights to a certain
Lourdes Dizon. He followed this up with another letter dated June 20, 1973
reiterating the same request. Replying petitioners informed respondent that
his Contract to Sell had long been rescinded pursuant to paragraph 6 of the
contract, and that the lot had already been resold.
Questioning the validity of the rescission of the contract, respondent filed a
letter complaint with the National Housing Authority (NHA) for reconveyance
with an altenative prayer for refund (Case No. 2167). In a Resolution, dated
July 10, 1979, the NHA, finding the rescission void in the absence of either
judicial or notarial demand, ordered Palay, Inc. and Alberto Onstott in his
capacity as President of the corporation, jointly and severally, to refund
immediately to Nazario Dumpit the amount of P13,722.50 with 12% interest
from the filing of the complaint on November 8, 1974. Petitioners' Motion for
Reconsideration of said Resolution was denied by the NHA in its Order dated
October 23, 1979. 1
On appeal to the Office of the President, upon the allegation that the NHA
Resolution was contrary to law (O.P. Case No. 1459), respondent
Presidential Executive Assistant, on May 2, 1980, affirmed the Resolution of
the NHA. Reconsideration sought by petitioners was denied for lack of merit.
Thus, the present petition wherein the following issues are raised:
I
Whether notice or demand is not mandatory under the circumstances and,
therefore, may be dispensed with by stipulation in a contract to sell.
II
Whether petitioners may be held liable for the refund of the installment
payments made by respondent Nazario M. Dumpit.
III
Whether the doctrine of piercing the veil of corporate fiction has application
to the case at bar.
IV
Whether respondent Presidential Executive Assistant committed grave
abuse of discretion in upholding the decision of respondent NHA holding
petitioners solidarily liable for the refund of the installment payments made
by respondent Nazario M. Dumpit thereby denying substantial justice to the
petitioners, particularly petitioner Onstott
We issued a Temporary Restraining Order on Feb 11, 1981 enjoining the
enforcement of the questioned Resolutions and of the Writ of Execution that
had been issued on December 2, 1980. On October 28, 1981, we dismissed
the petition but upon petitioners' motion, reconsidered the dismissal and
gave due course to the petition on March 15, 1982.
On the first issue, petitioners maintain that it was justified in cancelling the
contract to sell without prior notice or demand upon respondent in view of
paragraph 6 thereof which provides-
6. That in case the BUYER falls to satisfy any monthly installment or any
other payments herein agreed upon, the BUYER shall be granted a month
of grace within which to make the payment of the t in arrears together with
the one corresponding to the said month of grace. -It shall be understood,
however, that should the month of grace herein granted to the BUYER
expire, without the payment & corresponding to both months having been
satisfied, an interest of ten (10%) per cent per annum shall be charged on
the amounts the BUYER should have paid; it is understood further, that
should a period of NINETY (90) DAYS elapse to begin from the expiration of
the month of grace hereinbefore mentioned, and the BUYER shall not have
paid all the amounts that the BUYER should have paid with the
corresponding interest up to the date, the SELLER shall have the right to
declare this contract cancelled and of no effect without notice, and as a
consequence thereof, the SELLER may dispose of the lot/lots covered by
this Contract in favor of other persons, as if this contract had never been
entered into. In case of such cancellation of this Contract, all the amounts
which may have been paid by the BUYER in accordance with the agreement,
together with all the improvements made on the premises, shall be
considered as rents paid for the use and occupation of the above mentioned
premises and for liquidated damages suffered by virtue of the failure of the
BUYER to fulfill his part of this agreement : and the BUYER hereby
renounces his right to demand or reclaim the return of the same and further
obligates peacefully to vacate the premises and deliver the same to the
SELLER.
Well settled is the rule, as held in previous jurisprudence, 2 that judicial action
for the rescission of a contract is not necessary where the contract provides
that it may be revoked and cancelled for violation of any of its terms and
conditions. However, even in the cited cases, there was at least a written
notice sent to the defaulter informing him of the rescission. As stressed in
University of the Philippines vs. Walfrido de los Angeles 3 the act of a party
in treating a contract as cancelled should be made known to the other. We
quote the pertinent excerpt:
Of course, it must be understood that the act of a party in treating a contract
as cancelled or resolved in account of infractions by the other contracting
party must be made known to the other and is always provisional being ever
subject to scrutiny and review by the proper court. If the other party denies
that rescission is justified it is free to resort to judicial action in its own behalf,
and bring the matter to court. Then, should the court, after due hearing,
decide that the resolution of the contract was not warranted, the responsible
party will be sentenced to damages; in the contrary case, the resolution will
be affirmed, and the consequent indemnity awarded to the party prejudiced.
In other words, the party who deems the contract violated may consider it
resolved or rescinded, and act accordingly, without previous court action, but
it proceeds at its own risk. For it is only the final judgment of the
corresponding court that will conclusively and finally settle whether the action
taken was or was not correct in law. But the law definitely does not require
that the contracting party who believes itself injured must first file suit and
wait for a judgment before taking extrajudicial steps to protect its interest.
Otherwise, the party injured by the other's breach will have to passively sit
and watch its damages accumulate during the pendency of the suit until the
final judgment of rescission is rendered when the law itself requires that he
should exercise due diligence to minimize its own damages (Civil Code,
Article 2203).
We see no conflict between this ruling and the previous jurisprudence of this
Court invoked by respondent declaring that judicial action is necessary for
the resolution of a reciprocal obligation (Ocejo Perez & Co., vs. International
Banking Corp., 37 Phil. 631; Republic vs. Hospital de San Juan De Dios, et
al., 84 Phil 820) since in every case where the extrajudicial resolution is
contested only the final award of the court of competent jurisdiction can
conclusively settle whether the resolution was proper or not. It is in this sense
that judicial action win be necessary, as without it, the extrajudicial resolution
will remain contestable and subject to judicial invalidation unless attack
thereon should become barred by acquiescense, estoppel or prescription.
Fears have been expressed that a stipulation providing for a unilateral
rescission in case of breach of contract may render nugatory the general rule
requiring judicial action (v. Footnote, Padilla Civil Law, Civil Code Anno.,
1967 ed. Vol. IV, page 140) but, as already observed, in case of abuse or
error by the rescinder the other party is not barred from questioning in court
such abuse or error, the practical effect of the stipulation being merely to
transfer to the defaulter the initiative of instituting suit, instead of the
rescinder (Emphasis supplied).
Of similar import is the ruling in Nera vs. Vacante 4 , reading:
A stipulation entitling one party to take possession of the land and building if
the other party violates the contract does not ex propio vigore confer upon
the former the right to take possession thereof if objected to without judicial
intervention and determination.
This was reiterated in Zulueta vs. Mariano 5 where we held that extrajudicial
rescission has legal effect where the other party does not oppose it.6 Where
it is objected to, a judicial determination of the issue is still necessary.
In other words, resolution of reciprocal contracts may be made extrajudicially
unless successfully impugned in Court. If the debtor impugns the declaration,
it shall be subject to judicial determination. 7
In this case, private respondent has denied that rescission is justified and
has resorted to judicial action. It is now for the Court to determine whether
resolution of the contract by petitioners was warranted.
We hold that resolution by petitioners of the contract was ineffective and
inoperative against private respondent for lack of notice of resolution, as held
in the U.P. vs. Angeles case, supra
Petitioner relies on Torralba vs. De los Angeles 8 where it was held that "there
was no contract to rescind in court because from the moment the petitioner
defaulted in the timely payment of the installments, the contract between the
parties was deemed ipso facto rescinded." However, it should be noted that
even in that case notice in writing was made to the vendee of the cancellation
and annulment of the contract although the contract entitled the seller to
immediate repossessing of the land upon default by the buyer.
The indispensability of notice of cancellation to the buyer was to be later
underscored in Republic Act No. 6551 entitled "An Act to Provide Protection
to Buyers of Real Estate on Installment Payments." which took effect on
September 14, 1972, when it specifically provided:
Sec. 3(b) ... the actual cancellation of the contract shall take place after thirty
days from receipt by the buyer of the notice of cancellation or the demand
for rescission of the contract by a notarial act and upon full payment of the
cash surrender value to the buyer. (Emphasis supplied).
The contention that private respondent had waived his right to be notified
under paragraph 6 of the contract is neither meritorious because it was a
contract of adhesion, a standard form of petitioner corporation, and private
respondent had no freedom to stipulate. A waiver must be certain and
unequivocal, and intelligently made; such waiver follows only where liberty
of choice has been fully accorded. 9 Moreover, it is a matter of public policy
to protect buyers of real estate on installment payments against onerous and
oppressive conditions. Waiver of notice is one such onerous and oppressive
condition to buyers of real estate on installment payments.
Regarding the second issue on refund of the installment payments made by
private respondent. Article 1385 of the Civil Code provides:
ART. 1385. Rescission creates the obligation to return the things which were
the object of the contract, together with their fruits, and the price with its
interest; consequently, it can be carried out only when he who demands
rescission can return whatever he may be obliged to restore.
Neither sham rescission take place when the things which are the object of
the contract are legally in the possession of third persons who did not act in
bad faith.
In this case, indemnity for damages may be demanded from the person
causing the loss.
As a consequence of the resolution by petitioners, rights to the lot should be
restored to private respondent or the same should be replaced by another
acceptable lot. However, considering that the property had already been sold
to a third person and there is no evidence on record that other lots are still
available, private respondent is entitled to the refund of installments paid plus
interest at the legal rate of 12% computed from the date of the institution of
the action. 10 It would be most inequitable if petitioners were to be allowed to
retain private respondent's payments and at the same time appropriate the
proceeds of the second sale to another.
We come now to the third and fourth issues regarding the personal liability
of petitioner Onstott who was made jointly and severally liable with petitioner
corporation for refund to private respondent of the total amount the latter had
paid to petitioner company. It is basic that a corporation is invested by law
with a personality separate and distinct from those of the persons composing
it as wen as from that of any other legal entity to which it may be related. 11
As a general rule, a corporation may not be made to answer for acts or
liabilities of its stockholders or those of the legal entities to which it may be
connected and vice versa. However, the veil of corporate fiction may be
pierced when it is used as a shield to further an end subversive of justice 12
; or for purposes that could not have been intended by the law that created
it 13 ; or to defeat public convenience, justify wrong, protect fraud, or defend
crime. 14 ; or to perpetuate fraud or confuse legitimate issues 15 ; or to
circumvent the law or perpetuate deception 16 ; or as an alter ego, adjunct or
business conduit for the sole benefit of the stockholders. 17
We find no badges of fraud on petitioners' part. They had literally relied, albeit
mistakenly, on paragraph 6 (supra) of its contract with private respondent
when it rescinded the contract to sell extrajudicially and had sold it to a third
person.
In this case, petitioner Onstott was made liable because he was then the
President of the corporation and he a to be the controlling stockholder. No
sufficient proof exists on record that said petitioner used the corporation to
defraud private respondent. He cannot, therefore, be made personally liable
just because he "appears to be the controlling stockholder". Mere ownership
by a single stockholder or by another corporation is not of itself sufficient
ground for disregarding the separate corporate personality. 18 In this respect
then, a modification of the Resolution under review is called for.
WHEREFORE, the questioned Resolution of respondent public official,
dated May 2, 1980, is hereby modified. Petitioner Palay, Inc. is directed to
refund to respondent Nazario M. Dumpit the amount of P13,722.50, with
interest at twelve (12%) percent per annum from November 8, 1974, the date
of the filing of the Complaint. The temporary Restraining Order heretofore
issued is hereby lifted.
No costs.
SO ORDERED.

Plana, Relova and Gutierrez, Jr., JJ., concur.

Teehankee, J., concurs in the result.
G.R. No. 85733 February 23, 1990
Sps. ENRIQUE and CONSUELO LIM, petitioners,
vs.
THE HONORABLE COURT OF APPEALS, Sps. TERESITA and OSCAR
GUEVARRA, Sps. MARCOS and ANITA ORLINO, Sps. ROMULO and
CONSUELO ORLINO and Sps. FELIX and DOLORES ORLINO,
respondents.
Salonga, Andres, Hernandez & Allado for petitioners.
Ocampo, Dizon & Domingo for private respondent Pacific Banking
Corporation.
CRUZ, J.:
The subject of this controversy is a parcel of land consisting of 1,101 square
meters and located in Diliman, Quezon City. It was originally owned by Felix,
Manuel and Maria Concepcion Orlino, who mortgaged it to the Progressive
Commercial Bank as security for a P100,000.00 loan on July 1, 1965. The
loan not having been paid, the mortgage was foreclosed and the bank
acquired the property as the highest bidder at the auction sale on March 28,
1969. The mortgagee thereafter transferred all its assets, including the said
land, to the Pacific Banking Corporation (PBC).
On May 22, 1975, the Orlinos, and their respective spouses (hereinafter
referred to as the private respondents), who had remained in possession of
the land, made a written offer to PBC to repurchase the property. In
response, the bank, through its Assistant Vice-President, sent the following
letter dated November 9, 1977, to the private respondents' counsel:
This will confirm our agreement concerning the repurchase by your clients,
Mr. and Mrs. Oscar C. Guevarra of that certain property situated at 26 Jose
Abad Santos, Heroes Hills, Quezon City with an area of 1,1 01 square
meters, more or less, under the following terms and conditions:
a) The cash consideration shall be P160,000.00 payable in full upon signing
of the Deed of Absolute Sale;
b) The additional consideration shall consist of your client's conveyance to
us of their share of 2,901.15 square meters on the property situated at
Camarin, Caloocan City.
We understand that your clients will be applying for a loan with a bank. In
this connection, we are enclosing a xerox copy of the Transfer Certificate of
Title No. 218661 Quezon City, Tax Declaration No. 3092 and Official Receipt
No. E-404723 covering payment of real estate taxes for 1977. Kindly request
your clients to expedite the loan so that we can consummate the transaction
as soon as possible.
Please request your clients to sign their conformity below and return the
duplicate thereof for our files. 1
Oscar C. Guevarra, one of the private respondents, indicated the required
conformity.
One year later, on November 2, 1978, PBC advised the private respondents
that if the transaction was not finalized within 30 days, it would consider the
offer of other buyers. 2 The record does not show any further development
until June 8, 1979, when the private respondents requested PBC to allow
them to secure a certified true copy of its Torrens certificate over the land for
purposes of its survey and partition among them preparatory to the actual
transfer of title to them. 3 PBC granted the request subject to the condition
that title would remain with it until the execution of the necessary deed of
conveyance. 4
On April 8, 1980, or two years later, PBC reminded the private respondents
of its letter of November 2, 1978, but again no action was taken to deliver to
it the stipulated consideration for the sale. Finally, on May 14, 1980, PBC
executed a deed of sale over the land in favor of the herein petitioners, the
spouses Enrique and Consuelo Lim, for the sum of P300,000.00. 5
On September 30, 1980, the private respondents filed a complaint in the
Regional Trial Court of Quezon City against the petitioners and PBC for the
annulment of the deed of sale on the ground that the subject land had been
earlier sold to them. In its judgment for the plaintiffs, the court held that both
PBC and the spouses Lim had acted in bad faith when they concluded the
sale knowing that "there was a cloud in the status of the property in question."
6 The decision was affirmed in toto by the respondent court, 7 and the
petitioners are now before us, urging reversal.
The petitioners claim they are purchasers in good faith, having relied on the
assurances of PBC as verified from the records in the Registry of Deeds of
Quezon City that the land belonged to PBC and was unencumbered. They
therefore should have preferential right to the disputed land, which they had
registered in their name under TCT No. 268623. For their part, the private
respondents insist that as they had a valid and binding earlier deed of sale
in their favor, the land could no longer be sold by PBC to the petitioners, who
were aware of their prior right.
In support of their position that it was not incumbent upon them to go beyond
the land records to check the real status of the land, the petitioners cite Seo
v. Mangubat8 where the Court said:
In order that a purchaser of land with a Torrens title may be considered as a
purchaser in good faith, it is enough that he examines the latest certificate of
title which in this case is that issued in the name of the immediate transferor.
The purchaser is not bound by the original certificate of title but only by the
certificate of title of the person from whom he has purchased the property.
xxx xxx xxx
Thus, where innocent third persons relying on the correctness of the
certificate of title issued, acquire rights over the property, the court cannot
disregard such rights and order the total cancellation of the certificate for that
would impair public confidence in the certificate of title; otherwise everyone
dealing with property registered under the torrens system would have to
inquire in every instance as to whether the title had been regularly or
irregularly issued by the court. Indeed, this is contrary to the evident purpose
of the law. Every person dealing with registered land may safely rely on the
correctness of the certificate of title issued therefore and the law will in no
way oblige him to go behind the certificate to determine the condition of the
property. Stated differently, an innocent purchaser for value relying on a
torrens title issued is protected.
And even assuming that there was an earlier valid sale of the property to the
private respondents, the petitioners add, they would still prevail under Article
1544 of the Civil Code, providing as follows:
If the same thing should have been sold to different vendees, the ownership
shall be transferred to the person who may have first taken possession
thereof in good faith, if it should be movable property.
Should it be immovable property, the ownership shall belong to the person
acquiring it who in good faith first recorded it in the Registry of Property.
Should there be no inscription, the ownership shall pertain to the person who
in good faith was first in the possession; and, in the absence thereof, to the
person who presents the oldest title, provided there is good faith.
The private respondents, however, deny that the petitioners had acted in
good faith, pointing to the evidence that Consuelo Lim had, before the
execution of the disputed deed of sale, visited the property and been
informed of their existing adverse claim thereto.9 Besides, the said deed
contained the following stipulation:
That the VENDEE is aware of the fact that the aforementioned property is
presently occupied by the former owners and that clearing of the property of
its occupants shall be for the exclusive responsibility and account of the
vendee.
And, indeed, the Court also said in Seno that:
The well-known rule in this jurisdiction is that a person dealing with a
registered land has a right to rely upon the face of the Torrens Certificate of
Title and to dispense with the need of inquiring further, except when the party
concerned has actual knowledge of facts and circumstances that would
impel a reasonably cautious man to make such inquiry. (Emphasis supplied.)
As the Court sees it, the real issue is not whether the petitioner acted in good
faith but whether there was in fact a prior sale of the same property to the
private respondents. Only if it is established that there was indeed a double
sale of the property will it be necessary to ascertain if Article 1544 is
applicable.
Stated differently, the question is: Was the transaction between private
respondents and PBC, as embodied in the letter of November 9, 1977, a
contract to sell or a contract of sale?
It is not enough to say that the contract of sale being consensual, it became
effective between the bank and the private respondents as of November 9,
1977. There is no question about that; but such agreement is like putting the
cart before the horse. Precisely, our purpose is to ascertain to what particular
undertakings the parties have given their mutual consent so we can
determine the nature of their agreement.
According to Sing Yee v. Santos: 10
... A distinction must be made between a contract of sale in which title passes
to the buyer upon delivery of the thing sold and a contract to sell (or of
exclusive right and privilege to purchase as in this case) where by agreement
the ownership is reserved in the seller and is not to pass until the full payment
of the purchase price is made. In the first case, non-payment of the price is
a negative resolutory condition; in the second case, full payment is a positive
suspensive condition. Being contraries, their effect in law cannot be Identical.
In the first case, the vendor has lost and cannot recover the ownership of the
land sold until and unless the contract of sale is itself resolved and set aside.
In the second case, however, the title remains in the vendor if the vendee
does not comply with the condition precedent of making payment at the time
specified in the contract.
Applying these distinctions, the Court finds that the agreement between PBC
and the private respondents was only a contract to sell, not a contact of sale.
And the reasons are obvious.
There was no immediate transfer of title to the private respondents as would
have happened if there had been a sale at the outset. The supposed sale
was never registered and TCT No. 218661 in favor of PBC was not replaced
with another certificate of title in favor of the private respondents. In their
letter to PBC on June 8, 1979, they acknowledged that title to the property
would remain with the bank until their transaction shall have been finalized.
In response, PBC reiterated the same condition. No less important, the
consideration agreed upon by the parties was never paid by the private
respondents, to convert the agreement into a contract of sale. In fact, PBC
reminded them twice on November 2, 1978, and on April 8, 1980 to
comply with their obligations. They did not. Their default was not, as the
respondent court described it, "a slight delay" but lasted for all of three years
and in fact continued up to the rendition of the decision in the trial court. As
payment of the consideration was a positive suspensive condition, title to the
subject property never passed to the private respondents. Hence, the
property was legally unencumbered and still belonged to PBC on May 14,
1980, when it was sold by the bank to the petitioners.
It is true that the contract to sell imposes reciprocal obligations and so cannot
be terminated unilaterally by either party. Judicial rescission is required
under Article 1191 of the Civil Code. However, this rule is not absolute. We
have held that in proper cases, a party may take it upon itself to consider the
contract rescinded and act accordingly albeit subject to judicial confirmation,
which may or may not be given. It is true that the rescinding party takes a
risk that its action may not be approved by the court. But as we said in
University of the Philippines v. De los Angeles: 11
Of course, it must be understood that the act of a party in treating a contract
as cancelled or resolved on account of infractions by the other contracting
party must be made known to the other and is always provisional, being ever
subject to scrutiny and review by the proper court. If the other party denies
that rescission is justified, it is free to resort to judicial action in its own behalf,
and bring the matter to court. Then, should the court, after due hearing,
decide that the resolution of the contract was not warranted, the responsible
party will be sentenced to damages; in the contrary case, the resolution will
be affirmed, and the consequent indemnity awarded to the party prejudiced.
In other words, the party who deems the contract violated may consider it
resolved or rescinded, and act accordingly, without previous court action, but
it proceeds at its own risk. For it is only the final judgment of the
corresponding court that will conclusively and finally settle whether the action
taken was or was not correct in law. But the law definitely does not require
that the contracting party who believes itself injured must first file suit and
wait for a judgment before taking extrajudicial steps to protect its interest.
Otherwise, the party injured by the other's breach will have to passively sit
and watch its damages accumulate during the pendency of the suit until final
judgment of rescission is rendered when the law itself requires that he should
exercise due diligence to minimize its own damages.
In the case at bar, the private respondents obligated themselves to deliver
to the bank the sum of P160,000.00 and their share of 2,901.15 square
meters on a property situated in Caloocan City. In the letter of PBC dated
November 9, 1977, they were requested to "expedite the loan (they were
negotiating for this purpose) so we can consummate the transaction as soon
as possible". That was in 1977. In 1978, they were reminded of their
obligation and asked to comply within thirty days. They did not. On April 8,
1980, they were reminded of that letter of November 2, 1978, and again
asked to comply; but again they did not. Surely, the bank could not be
required to wait for them forever, especially so since they remained in
possession of the property and there is no record that they were paying
rentals. Under the circumstances, PBC had the right to consider the contract
to sell between them terminated for non-payment of the stipulated
consideration. We hereby confirm that rescission.
Having arrived at these conclusions, the Court no longer finds it necessary
to determine if the petitioners acted in bad faith when they purchased the
subject property. The private respondents lost all legal interest in the land
when their contract to sell was rescinded by PBC for their non-compliance
with its provisions. As that contract was rito longer effective when the land
was sold by PBC to the petitioners, the private respondents had no legal
standing to assail that subsequent transaction. The deed of sale between
PBC and the petitioners must therefore be sustained.
WHEREFORE, the petition is GRANTED and the challenged decision of the
Court of Appeals is REVERSED. TCT No. 268623 in favor of the petitioners
is recognized as valid and the complaint for the annulment of the deed of
sale dated May 14, 1980, is hereby dismissed. Costs against the private
respondents.
SO ORDERED.

[G.R. No. 104769. September 10, 2001]

AFP MUTUAL BENEFIT ASSOCIATION, INC.,
petitioner, vs. COURT OF APPEALS, SOLID HOMES,
INC., INVESTCO, INC., and REGISTER OF DEEDS OF
MARIKINA, respondents.
[G.R. No. 135016. September 10, 2001]
SOLID HOMES, INC., petitioner, vs. INVESTCO, INC.,
substituted by ARMED FORCES OF THE PHILIPPINES
MUTUAL BENEFIT ASSOCIATION, INC., respondent.
RESOLUTION
PARDO, J.:
What is before the Court is Solid Homes, Inc.s motion for
reconsideration of the decision promulgated on March 3, 2000, reversing
the decision of the Court of Appeals and ordering the Register of Deeds
to cancel the notice of lis pendens on the titles issued to petitioner AFP
Mutual Benefit Association, Inc. (AFPMBAI), declaring it as buyer in
good faith and for value.
We have defined a purchaser in good faith and for value as one who
buys the property of another without notice that some other person has a
right to or interest in such property and pays a full and fair price for the
same, at the time of such purchase, or before he has notice of the claim or
interest of some other person in the property.[1]
Solid Homes, Inc.s motion for reconsideration is based on the
following grounds: (1) that the Court erred in ruling that petitioner was a
purchaser in good faith and for value; (2) that the Court erred in failing to
appreciate Solid Homes, Inc.s cause of action (in Civil Case No. 52999);
and (3) that the Court erred in denying Solid Homes, Inc.s petition (in G.
R. No. 135016) to set aside the trial courts order denying its motion to
execute the decision in Civil Case No. 40615.
We find the motion without merit.
1. Solid Homes, Inc.s position is anchored on the preposition that a
notice of lis pendens was duly annotated on the vendors title that must be
deemed carried over to the titles issued to AFPMBAI, subjecting it to the
final result of the litigation[2] as a transferee pendente lite.
However, the law is clear.[3] The Revised Rules of Court[4] allows
the annotation of a notice of lis pendens in actions affecting the title or
right of possession of real property,[5] or an interest in such real
property.[6] We further declared that the rule of lis pendens applied to
suits brought to establish an equitable estate, interest, or right in specific
real property or to enforce any lien, charge, or encumbrance against it x x
x.[7]
Pencil markings, which even Solid Homes, Inc. admits to be
provisional,[8] are not an accepted form of annotating a notice of lis
pendens. The Court cannot accept the argument that such pencil
annotation can be considered as a valid annotation of notice of lis pendens,
and thus an effective notice to the whole world as to the status of the title
to the land. The law requires proper annotation, not provisional annotation
of a notice of lis pendens.
If we allow provisional annotations as a valid form of annotation of
notice of lis pendens, we would be eroding the very value of the
indefeasibility of the torrens system. If there were a valid annotation of
notice of lis pendens, the same would have been carried over to the titles
issued to AFPMBAI. As it is, the transfer certificates of titles of the
vendor Investco, Inc. conveyed to AFPMBAI were clean and without any
encumbrance.
In the present case, there could be no valid annotation on the titles
issued to AFPMBAI because the case used as basis of the annotation
pending with the trial court was an action for collection of a sum of money
and did not involve the titles to, possession or ownership of the subject
property or an interest therein. This Court, in its final decision on the case
categorized the action initiated by Investco, Inc. against Solid Homes, Inc.
(Civil Case No. 40615 of the Regional Trial Court, Pasig, Metro Manila)
as:
An action for collection of sums of money, damages and attorneys 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.[9]
Unquestionably, such action did not directly involve titles to,
ownership or possession of the subject property, and, therefore, was not a
proper subject of a notice of lis pendens.
The Torrens System was adopted in this country because it was
believed to be the most effective measure to guarantee the integrity of land
titles and to protect their indefeasibility once the claim of ownership is
established and recognized. If a person purchases a piece of land on the
assurance that the sellers title thereto is valid, he should not run the risk
of being told later that his acquisition was ineffectual after all. This would
not only be unfair to him. What is worse is that if this were permitted,
public confidence in the system would be eroded and land transactions
would be attended by complicated and not necessarily conclusive
investigations and proof of ownership. The further consequence would be
that land conflicts could be even more numerous and complex than they
are now and possibly also more abrasive, if not even violent.[10]
Prevailing jurisprudence recognizes that All persons dealing with
property covered by the torrens certificate of title are not required to go
beyond what appears on the face of the title.[11] The buyer is not even
obligated to look beyond the certificate to investigate the titles of the seller
appearing on the face of the certificate.[12] Hence, we ruled that
AFPMBAI is a buyer in good faith and for value.
Consequently, we reject movant Solid Homes, Inc.s contention that
AFPMBAI is a transferee pendente lite of Investco, Inc.
2. It should be emphasized that the contractual relation between
Investco, Inc. and Solid Homes, Inc., is based on an agreement executed
in 1976 as a contract to sell and to buy. AFPMBAI never figured in this
contract. The relationship between AFPMBAI and Investco, Inc. arose out
of a contract of absolute sale after Solid Homes, Inc. reneged or defaulted
on its contract to sell, and Investco, Inc. rescinded extra-legally such
contact to sell with Solid Homes, Inc. AFPMBAI did not acquire from
Solid Homes, Inc. its rights or interest over the property in question;
Investco, Inc. sold the property itself which AFPMBAI paid for in full,
thus causing the transfer of titles in the name of AFPMBAI.
When the contract was entered into between Solid Homes, Inc. and
Investco, Inc. in September 1976, the titles to the Quezon City and
Marikina property had not been transferred in the name of Investco, Inc.
as assignee of the owners. Hence, Investco, Inc. merely agreed to sell, and
Solid Homes, Inc. to buy, the formers rights and interest in the subject
property which at the time was still registered in the names of Angela
Perez Staley and Antonio Perez, Investco, Inc.s predecessors-in-interest.
Under the contract to sell and buy, the vendors bound themselves to
cause the titles to the land to be transferred in the name of Investco, Inc.
after which, should Solid Homes, Inc. complete the installment payments,
Investco, Inc. would execute a Deed of Absolute Sale in favor of Solid
Homes, Inc. and the latter would execute a first preferred mortgage in
favor of Investco, Inc. The deed of absolute sale would replace the
contract to sell. Only then would Solid Homes, Inc. be entitled to take
possession of the Quezon City and Marikina parcels of land and introduce
improvements thereon.
On or about March 21, 1979, the titles to the Marikina property were
issued in the name of Investco, Inc. However, Investco, Inc. did not
execute a deed of absolute sale in favor of Solid Homes, Inc. because
Solid Homes, Inc. never paid in full its stipulated obligation payable in
installments. In fact, Solid Homes, Inc. did not even bother to register its
contract to sell with the Register of Deeds pursuant to Presidential Decree
1529, also known as the Property Registration Decree.
We find untenable Solid Homes, Inc.s contention that the transaction
between AFPMBAI, Investco, Inc. and Solid Homes, Inc. is in the nature
of a double sale. The transaction between Investco, Inc. and Solid Homes,
Inc. was a contract to sell and to buy that was not fully paid because Solid
Homes, Inc. defaulted on its payments. On the other hand, the contract
between Investco, Inc. and AFPMBAI was an absolute sale that
culminated in the registration of the deeds and the issuance of certificate
of titles in favor of AFPMBAI.
In Salazar v. Court of Appeals,[13] we explained the distinction
between a contract to sell and a contract of sale:
In a contract of sale, the title to the property passes to the vendee upon the
delivery of the thing sold; in a contract to sell, ownership is, by agreement,
reserved in the vendor and is not to pass to the vendee until full payment
of the purchase price. Otherwise stated, in a contract of sale, the vendor
loses ownership over the property and cannot recover it until and unless
the contract is resolved or rescinded; whereas in a contract to sell, title is
retained by the vendor until full payment of the price. In the latter contract,
payment of the price is a positive suspensive condition, failure of which
is not a breach but an event that prevents the obligation of the vendor to
convey title from becoming effective.[14]
 Upon Solid Homes, Inc.s failure to comply with its obligation
thereunder, there was no need to judicially rescind the contract to sell.
Failure by one of the parties to abide by the conditions in a contract to sell
resulted in the rescission of the contract.[15] Unquestionably, Solid
Homes, Inc. reneged on its obligation to pay the installments for the
purchase of the Quezon City and Marikina property of Investco, Inc. on
the dates specified in the contract to sell.
4. Movant Solid Homes, Inc. finally contends that when the decision
in Civil Case No. 40615 became final, there was no one to move for
execution of the decision since Investco, Inc. had absconded, and had in
fact re-sold the property in question to AFPMBAI. We find the contention
without merit. Investco, Inc. was the prevailing party which had the right
to demand execution.[16] Once a judgment becomes final and executory,
the prevailing party can have it executed as a matter of right, and the
issuance of a writ of execution becomes a ministerial duty of the court.[17]
In fact, the prevailing party is the one really entitled to file a motion for
the issuance of a writ of execution. Yet, in this case, it was Solid Homes,
Inc. that filed on June 19, 1996, a motion for execution of judgment in the
court of origin (RTC Pasig, Branch 157). The trial court denied the
motion. Hence, on September 11, 1998, Solid Homes, Inc. filed a petition
for certiorari with this Court.[18]
Assuming that AFPMBAI was bound by the judgment in Civil Case
No. 40615, and be substituted for Investco, Inc., it is clear that Investco,
Inc. prevailed in the case. It was the winning party.[19] It is the prevailing
party which is entitled as a matter of right to a writ of execution in its
favor.[20] It is not an option of the losing party to file a motion for
execution of judgment to compel the winning party to take the judgment.
As the losing party in Civil Case No. 40615, Solid Homes, Inc. can not
now insist on the performance of the very contract on which it defaulted
for more than fourteen (14) years. Hence, Solid Homes, Inc. has no
personality to move for execution of the final judgment in Civil Case No.
40615. The trial court correctly denied its motion for execution.
It would be the height of unfairness if Solid Homes, Inc. which has
failed to pay anything since 1981 and defaulted since 1982, would now
get the property by performance of the very contract which it violated.
With the passage of time, more than fourteen (14) years, and appreciation
in the value of real estate, the property is now worth billions of pesos,[21]
thus enriching Solid Homes, Inc. for its violation of the contract and
default on its obligation.
IN VIEW WHEREOF, we DENY Solid Homes, Inc.s motion for
reconsideration, for lack of merit. The denial is final.
SO ORDERED.

[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.
DECISION
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. 47457
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", Defendants, record pp. 331-386).
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.
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
decedents 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:
xxx. 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 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 plaintiffs 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 Managers 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 the plaintiff that
they were canceling the Memorandum of Agreement
(Contract to Sell) in view of the plaintiffs 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 attorneys 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:
"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 respondents 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 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 respondents 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 respondents 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
owners 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 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.[11] The
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 in 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 by 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 paragraph of Article
1479 of the Civil Code[15], which reads:
"Article 1479. xxx
An accepted unilateral promise to buy or to sell a determinate thing
for a price certain is binding upon the promissor if the
promise is supported by a consideration distinct from
the price."
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 of 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 fathers 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 of 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] 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
contracts entering into force. Although the memorandum
agreement was also denominated as a "Contract to Sell", we hold
that the parties contemplated a contract of sale. A deed of sale is
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
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. 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
respondents 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 of 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 it 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 contract. Rescission of a contract will
not be permitted for a slight or casual breach, but only such
substantial and fundamental breach as would defeat the very
object of the parties in making the agreement.[29]
Petitioners insistence that the respondent should have consignated
the amount is not determinative of whether respondents action for
specific performance will lie. Petitioners themselves point out that
the effect of consignation is to extinguish the obligation. It releases
the debtor from responsibility therefor.[30] The failure of the
respondent to consignate the P600,000.00 is not tantamount to a
breach of the contract for by the fact of tendering payment, he was
willing and able to comply with his obligation.
The Court of Appeals correctly found the petitioners guilty of bad
faith and awarded moral damages to the respondent. As found by
the said Court, the petitioners refused to comply with their
obligation for the reason that they were offered a higher price
therefor and the respondent was even offered P100,000.00 by the
petitioners lawyer, Attorney Gutierrez, to relinquish his rights over
the property. The award of moral damages is in accordance with
Article 1191[31] of the Civil Code pursuant to Article 2220 which
provides that moral damages may be awarded in case of a breach
of contract where the defendant acted in bad faith. The amount
awarded depends on the discretion of the court based on the
circumstances of each case.[32] Under the circumstances, the
award given by the Court of Appeals amounting to P50,000.00
appears to us to be fair and reasonable.
ACCORDINGLY, the decision of the Court of Appeals in CA G.R.
CV No. 47457 is AFFIRMED and the instant petition is hereby
DENIED.
No pronouncement as to costs.
SO ORDERED.

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,
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 FREDISMINDA CARI-AN,
and SP. PAQUITO CHUA and NEY SARROSA CHUA
and REGISTER OF DEEDS OF NEGROS
OCCIDENTAL, respondents.
D E C I S I ON
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 courts 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. Nombres heirs include his nephews and
grandnephews. Victoriana Cari-an was succeeded by her late brothers son,
Gregorio Cari-an. The latter was declared as Victorianas 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 Victorianas 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-ans 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 the late Victoriana Cari-an unto and in favor of the
Vendees, their heirs, successors and assigns;
xxxxxxxxx
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- Himamaylan. (Underscoring
supplied.)
Pedro Escanlar and Francisco Holgado, the vendees, were
concurrently the lessees of the lots referred to above.[3] They
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 (P225,000.00) 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 rights, 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. (Underscoring
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 Leonells 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-ans 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 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 in 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 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. x x x
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 x x x. (Underscoring 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 courts 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. B, 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 31, 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 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 attorneys 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 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 contracts
validity was not affected for in the words of the stipulation, . . . this
Contract of Sale of rights, interests and participations shall become
effective only 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 decedents
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 decedents
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 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 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.
(Underscoring 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-ans 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, Fredismindas 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 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 was only
the Cari-ans 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, 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.

THIRD DIVISION
[G.R. No. 119745. June 20, 1997]
POWER COMMERCIAL AND INDUSTRIAL
CORPORATION, petitioner, vs. COURT OF APPEALS,
SPOUSES REYNALDO and ANGELITA R. QUIAMBAO
and PHILIPPINE NATIONAL BANK, respondents.
DECISION
PANGANIBAN, J.:
Is the sellers failure to eject the lessees from a lot that is the subject
of a contract of sale with assumption of mortgage a ground (1) for
rescission of such contract and (2) for a return by the mortgagee of
the amortization payments made by the buyer who assumed such
mortgage?
Petitioner posits an affirmative answer to such question in this
petition for review on certiorari of the March 27, 1995 Decision[1] of
the Court of Appeals, Eighth Division, in CA-G.R. CV Case No.
32298 upholding the validity of the contract of sale with assumption
of mortgage and absolving the mortgagee from the liability of
returning the mortgage payments already made.[2]
The Facts
Petitioner Power Commercial & Industrial Development
Corporation, an industrial asbestos manufacturer, needed a bigger
office space and warehouse for its products. For this purpose, on
January 31, 1979, it entered into a contract of sale with the spouses
Reynaldo and Angelita R. Quiambao, herein private respondents.
The contract involved a 612-sq. m. parcel of land covered by
Transfer Certificate of Title No. S-6686 located at the corner of
Bagtican and St. Paul Streets, San Antonio Village, Makati City.
The parties agreed that petitioner would pay private respondents
P108,000.00 as down payment, and the balance of P295,000.00
upon the execution of the deed of transfer of the title over the
property. Further, petitioner assumed, as part of the purchase
price, the existing mortgage on the land. In full satisfaction thereof,
he paid P79,145.77 to Respondent Philippine National Bank (PNB
for brevity).
On June 1, 1979, respondent spouses mortgaged again said land
to PNB to guarantee a loan of P145,000.00, P80,000.00 of which
was paid to respondent spouses. Petitioner agreed to assume
payment of the loan.
On June 26, 1979, the parties executed a Deed of Absolute Sale
With Assumption of Mortgage which contained the following terms
and conditions:[3]
That for and in consideration of the sum of Two Hundred Ninety-Five
Thousand Pesos (P295,000.00) Philippine Currency, to us in hand paid in
cash, and which we hereby acknowledge to be payment in full and
received to our entire satisfaction, by POWER COMMERCIAL AND
INDUSTRIAL DEVELOPMENT CORPORATION, a 100% Filipino
Corporation, organized and existing under and by virtue of Philippine
Laws with offices located at 252-C Vito Cruz Extension, we hereby by
these presents SELL, TRANSFER and CONVEY by way of absolute sale
the above described property with all the improvements existing thereon
unto the said Power Commercial and Industrial Development
Corporation, its successors and assigns, free from all liens and
encumbrances.
We hereby certify that the aforesaid property is not subject to nor covered
by the provisions of the Land Reform Code -- the same having no
agricultural lessee and/or tenant.
We hereby also warrant that we are the lawful and absolute owners of the
above described property, free from any lien and/or encumbrance, and we
hereby agree and warrant to defend its title and peaceful possession
thereof in favor of the said Power Commercial and Industrial
Development Corporation, its successors and assigns, against any claims
whatsoever of any and all third persons; subject, however, to the
provisions hereunder provided to wit:
That the above described property is mortgaged to the Philippine National
Bank, Cubao, Branch, Quezon City for the amount of one hundred forty-
five thousand pesos, Philippine, evidenced by document No. 163, found
on page No. 34 of Book No. XV, Series of 1979 of Notary Public Herita
L. Altamirano registered with the Register of Deeds of Pasig (Makati),
Rizal xxx;
That the said Power Commercial and Industrial Development Corporation
assumes to pay in full the entire amount of the said mortgage above
described plus interest and bank charges, to the said mortgagee bank, thus
holding the herein vendor free from all claims by the said bank;
That both parties herein agree to seek and secure the agreement and
approval of the said Philippine National Bank to the herein sale of this
property, hereby agreeing to abide by any and all requirements of the said
bank, agreeing that failure to do so shall give to the bank first lieu (sic)
over the herein described property.
On the same date, Mrs. C.D. Constantino, then General Manager
of petitioner-corporation, submitted to PNB said deed with a formal
application for assumption of mortgage.[4]
On February 15, 1980, PNB informed respondent spouses that, for
petitioners failure to submit the papers necessary for approval
pursuant to the formers letter dated January 15, 1980, the
application for assumption of mortgage was considered withdrawn;
that the outstanding balance of P145,000.00 was deemed fully due
and demandable; and that said loan was to be paid in full within
fifteen (15) days from notice.[5]
Petitioner paid PNB P41,880.45 on June 24, 1980 and P20,283.14
on December 23, 1980, payments which were to be applied to the
outstanding loan. On December 23, 1980, PNB received a letter
from petitioner which reads:[6]
With regard to the presence of the people who are currently in physical
occupancy of the (l)ot xxx it is our desire as buyers and new owners of
this lot to make use of this lot for our own purpose, which is why it is our
desire and intention that all the people who are currently physically
present and in occupation of said lot should be removed immediately.
For this purpose we respectfully request that xxx our assumption of
mortgage be given favorable consideration, and that the mortgage and title
be transferred to our name so that we may undertake the necessary
procedures to make use of this lot ourselves.
It was our understanding that this lot was free and clear of problems of
this nature, and that the previous owner would be responsible for the
removal of the people who were there. Inasmuch as the previous owner
has not been able to keep his commitment, it will be necessary for us to
take legal possession of this lot inorder (sic) to take physical possession.
On February 19, 1982, PNB sent petitioner a letter as follows:[7]
(T)his refers to the loan granted to Mr. Reynaldo Quiambao which was
assumed by you on June 4, 1979 for P101,500.00. It was last renewed on
December 24, 1980 to mature on June 4, 1981.
A review of our records show that it has been past due from last maturity
with interest arrearages amounting to P25,826.08 as of February 19, 1982.
The last payment received by us was on December 24, 1980 for
P20,283.14. In order to place your account in current form, we request
you to remit payments to cover interest, charges, and at least part of the
principal.
On March 17, 1982, petitioner filed Civil Case No. 45217 against
respondent spouses for rescission and damages before the
Regional Trial Court of Pasig, Branch 159. Then, in its reply to
PNBs letter of February 19, 1982, petitioner demanded the return
of the payments it made on the ground that its assumption of
mortgage was never approved. On May 31, 1983,[8] while this case
was pending, the mortgage was foreclosed. The property was
subsequently bought by PNB during the public auction. Thus, an
amended complaint was filed impleading PNB as party defendant.
On July 12, 1990, the trial court[9] ruled that the failure of
respondent spouses to deliver actual possession to petitioner
entitled the latter to rescind the sale, and in view of such failure and
of the denial of the latters assumption of mortgage, PNB was
obliged to return the payments made by the latter. The dispositive
portion of said decision states:[10]
IN VIEW OF ALL THE FOREGOING, the Court hereby renders
judgment in favor of plaintiff and against defendants:
(1) Declaring the rescission of the Deed of Sale with Assumption of
Mortgage executed between plaintiff and defendants Spouses Quiambao,
dated June 26, 1979;
(2) Ordering defendants Spouses Quiambao to return to plaintiff the
amount of P187,144.77 (P108,000.00 plus P79,145.77) with legal interest
of 12% per annum from date of filing of herein complaint, that is, March
17, 1982 until the same is fully paid;
(3) Ordering defendant PNB to return to plaintiff the amount of
P62,163.59 (P41,880.45 and P20,283.14) with 12% interest thereon from
date of herein judgment until the same is fully paid.
No award of other damages and attorneys fees, the same not being
warranted under the facts and circumstances of the case.
The counterclaim of both defendants spouses Quiambao and PNB are
dismissed for lack of merit.
No pronouncement as to costs.
SO ORDERED.
On appeal by respondent-spouses and PNB, Respondent Court of
Appeals reversed the trial court. In the assailed Decision, it held
that the deed of sale between respondent spouses and petitioner
did not obligate the former to eject the lessees from the land in
question as a condition of the sale, nor was the occupation thereof
by said lessees a violation of the warranty against eviction. Hence,
there was no substantial breach to justify the rescission of said
contract or the return of the payments made. The dispositive
portion of said Decision reads:[11]
WHEREFORE, the Decision appealed from is hereby REVERSED and
the complaint filed by Power Commercial and Industrial Development
Corporation against the spouses Reynaldo and Angelita Quiambao and
the Philippine National Bank is DISMISSED. No costs.
Hence, the recourse to this Court .
Issues
Petitioner contends that: (1) there was a substantial breach of the
contract between the parties warranting rescission; and (2) there
was a mistake in payment made by petitioner, obligating PNB to
return such payments. In its Memorandum, it specifically assigns
the following errors of law on the part of Respondent Court:[12]
A. Respondent Court of Appeals gravely erred in failing to consider in its
decision that a breach of implied warranty under Article 1547 in relation
to Article 1545 of the Civil Code applies in the case-at-bar.
B. Respondent Court of Appeals gravely erred in failing to consider in its
decision that a mistake in payment giving rise to a situation where the
principle of solutio indebiti applies is obtaining in the case-at-bar.
The Courts Ruling
The petition is devoid of merit. It fails to appreciate the difference
between a condition and a warranty and the consequences of such
distinction.
Conspicuous Absence of an Imposed Condition
The alleged failure of respondent spouses to eject the lessees from
the lot in question and to deliver actual and physical possession
thereof cannot be considered a substantial breach of a condition
for two reasons: first, such failure was not stipulated as a condition
-- whether resolutory or suspensive -- in the contract; and second,
its effects and consequences were not specified either.[13]
The provision adverted to by petitioner does not impose a condition
or an obligation to eject the lessees from the lot. The deed of sale
provides in part:[14]
We hereby also warrant that we are the lawful and absolute owners of the
above described property, free from any lien and/or encumbrance, and we
hereby agree and warrant to defend its title and peaceful possession
thereof in favor of the said Power Commercial and Industrial
Development Corporation, its successors and assigns, against any claims
whatsoever of any and all third persons; subject, however, to the
provisions hereunder provided to wit:
By his own admission, Anthony Powers, General Manager of
petitioner-corporation, did not ask the corporations lawyers to
stipulate in the contract that Respondent Reynaldo was
guaranteeing the ejectment of the occupants, because there was
already a proviso in said deed of sale that the sellers were
guaranteeing the peaceful possession by the buyer of the land in
question.[15] Any obscurity in a contract, if the above-quoted
provision can be so described, must be construed against the party
who caused it.[16] Petitioner itself caused the obscurity because it
omitted this alleged condition when its lawyer drafted said contract.
If the parties intended to impose on respondent spouses the
obligation to eject the tenants from the lot sold, it should have
included in the contract a provision similar to that referred to in
Romero vs. Court of Appeals,[17] where the ejectment of the
occupants of the lot sold by private respondent was the operative
act which set into motion the period of petitioners compliance with
his own obligation, i.e., to pay the balance of the purchase price.
Failure to remove the squatters within the stipulated period gave
the other party the right to either refuse to proceed with the
agreement or to waive that condition of ejectment in consonance
with Article 1545 of the Civil Code. In the case cited, the contract
specifically stipulated that the ejectment was a condition to be
fulfilled; otherwise, the obligation to pay the balance would not
arise. This is not so in the case at bar.
Absent a stipulation therefor, we cannot say that the parties
intended to make its nonfulfillment a ground for rescission. If they
did intend this, their contract should have expressly stipulated so.
In Ang vs. C.A.,[18] rescission was sought on the ground that the
petitioners had failed to fulfill their obligation to remove and clear
the lot sold, the performance of which would have given rise to the
payment of the consideration by private respondent. Rescission
was not allowed, however, because the breach was not substantial
and fundamental to the fulfillment by the petitioners of the
obligation to sell.
As stated, the provision adverted to in the contract pertains to the
usual warranty against eviction, and not to a condition that was not
met. The terms of the contract are so clear as to leave no room for
any other interpretation.[19]
Futhermore, petitioner was well aware of the presence of the
tenants at the time it entered into the sales transaction. As testified
to by Reynaldo,[20] petitioners counsel during the sales negotiation
even undertook the job of ejecting the squatters. In fact, petitioner
actually filed suit to eject the occupants. Finally, petitioner in its
letter to PNB of December 23, 1980 admitted that it was the
buyer(s) and new owner(s) of this lot.
Effective Symbolic Delivery
The Court disagrees with petitioners allegation that the respondent
spouses failed to deliver the lot sold. Petitioner asserts that the
legal fiction of symbolic delivery yielded to the truth that, at the
execution of the deed of sale, transfer of possession of said lot was
impossible due to the presence of occupants on the lot sold. We
find this misleading.
Although most authorities consider transfer of ownership as the
primary purpose of sale, delivery remains an indispensable
requisite as our law does not admit the doctrine of transfer of
property by mere consent.[21] The Civil Code provides that delivery
can either be (1) actual (Article 1497) or (2) constructive (Articles
1498-1501). Symbolic delivery (Article 1498), as a species of
constructive delivery, effects the transfer of ownership through the
execution of a public document. Its efficacy can, however, be
prevented if the vendor does not possess control over the thing
sold,[22] in which case this legal fiction must yield to reality.
The key word is control, not possession, of the land as petitioner
would like us to believe. The Court has consistently held that:[23]
x x x (I)n order that this symbolic delivery may produce the effect of
tradition, it is necessary that the vendor shall have had such control over
the thing sold that xxx its material delivery could have been made. It is
not enough to confer upon the purchaser the ownership and the right of
possession. The thing sold must be placed in his control. When there is
no impediment whatever to prevent the thing sold passing into the tenancy
of the purchaser by the sole will of the vendor, symbolic delivery through
the execution of a public instrument is sufficient. But if, notwithstanding
the execution of the instrument, the purchaser cannot have the enjoyment
and material tenancy of the thing and make use of it himself or through
another in his name, because such tenancy and enjoyment are opposed by
the interposition of another will, then fiction yields to reality -- the
delivery has not been effected.
Considering that the deed of sale between the parties did not
stipulate or infer otherwise, delivery was effected through the
execution of said deed. The lot sold had been placed under the
control of petitioner; thus, the filing of the ejectment suit was
subsequently done. It signified that its new owner intended to
obtain for itself and to terminate said occupants actual possession
thereof. Prior physical delivery or possession is not legally required
and the execution of the deed of sale is deemed equivalent to
delivery.[24] This deed operates as a formal or symbolic delivery of
the property sold and authorizes the buyer to use the document as
proof of ownership. Nothing more is required.
Requisites of Breach of Warranty Against Eviction
Obvious to us in the ambivalent stance of petitioner is its failure to
establish any breach of the warranty against eviction. Despite its
protestation that its acquisition of the lot was to enable it to set up
a warehouse for its asbestos products and that failure to deliver
actual possession thereof defeated this purpose, still no breach of
warranty against eviction can be appreciated because the facts of
the case do not show that the requisites for such breach have been
satisfied. A breach of this warranty requires the concurrence of the
following circumstances:
(1) The purchaser has been deprived of the whole or part of the thing sold;
(2) This eviction is by a final judgment;
(3) The basis thereof is by virtue of a right prior to the sale made by the
vendor; and
(4) The vendor has been summoned and made co-defendant in the suit
for eviction at the instance of the vendee.[25]
In the absence of these requisites, a breach of the warranty against
eviction under Article 1547 cannot be declared.
Petitioner argues in its memorandum that it has not yet ejected the
occupants of said lot, and not that it has been evicted therefrom.
As correctly pointed out by Respondent Court, the presence of
lessees does not constitute an encumbrance of the land,[26] nor
does it deprive petitioner of its control thereof.
We note, however, that petitioners deprivation of ownership and
control finally occurred when it failed and/or discontinued paying
the amortizations on the mortgage, causing the lot to be foreclosed
and sold at public auction. But this deprivation is due to petitioners
fault, and not to any act attributable to the vendor-spouses.
Because petitioner failed to impugn its integrity, the contract is
presumed, under the law, to be valid and subsisting.
Absence of Mistake In Payment
Contrary to the contention of petitioner that a return of the
payments it made to PNB is warranted under Article 2154 of the
Code, solutio indebiti does not apply in this case. This doctrine
applies where: (1) a payment is made when there exists no binding
relation between the payor, who has no duty to pay, and the person
who received the payment, and (2) the payment is made through
mistake, and not through liberality or some other cause.[27]
In this case, petitioner was under obligation to pay the
amortizations on the mortgage under the contract of sale and the
deed of real estate mortgage. Under the deed of sale (Exh. 2),[28]
both parties agreed to abide by any and all the requirements of
PNB in connection with the real estate mortgage. Petitioner was
aware that the deed of mortgage (Exh. C) made it solidarily and,
therefore, primarily[29] liable for the mortgage obligation:[30]
(e) The Mortgagor shall neither lease the mortgaged property xxx nor sell
or dispose of the same in any manner, without the written consent of the
Mortgagee. However, if not withstanding this stipulation and during the
existence of this mortgage, the property herein mortgaged, or any portion
thereof, is xxx sold, it shall be the obligation of the Mortgagor to impose
as a condition of the sale, alienation or encumbrance that the vendee, or
the party in whose favor the alienation or encumbrance is to be made,
should take the property subject to the obligation of this mortgage in the
same terms and condition under which it is constituted, it being
understood that the Mortgagor is not in any manner relieved of his
obligation to the Mortgagee under this mortgage by such sale, alienation
or encumbrance; on the contrary both the vendor and the vendee, or the
party in whose favor the alienation or encumbrance is made shall be
jointly and severally liable for said mortgage obligations. xxx.
Therefore, it cannot be said that it did not have a duty to pay to
PNB the amortization on the mortgage.
Also, petitioner insists that its payment of the amortization was a
mistake because PNB disapproved its assumption of mortgage
after it failed to submit the necessary papers for the approval of
such assumption.
But even if petitioner was a third party in regard to the mortgage of
the land purchased, the payment of the loan by petitioner was a
condition clearly imposed by the contract of sale. This fact alone
disproves petitioners insistence that there was a mistake in
payment. On the contrary, such payments were necessary to
protect its interest as a the buyer(s) and new owner(s) of the lot.
The quasi-contract of solutio indebiti is one of the concrete
manifestations of the ancient principle that no one shall enrich
himself unjustly at the expense of another.[31] But as shown earlier,
the payment of the mortgage was an obligation petitioner assumed
under the contract of sale. There is no unjust enrichment where the
transaction, as in this case, is quid pro quo, value for value.
All told, respondent Court did not commit any reversible error which
would warrant the reversal of the assailed Decision.
WHEREFORE, the petition is hereby DENIED, and the
assailed Decision is AFFIRMED.
SO ORDERED.

SECOND DIVISION

JAIME GUINHAWA, G.R. No. 162822

Petitioner,
Present:

PUNO, J., Chairman,

AUSTRIA-MARTINEZ,
- versus - CALLEJO, SR.,
TINGA, and
 CHICO-
NAZARIO, JJ.

Promulgated:
PEOPLE OF THE PHILIPPINES,
Respondent. August 25, 2005
x------------------------------------------
--------x

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 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 Note[6] 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 they were issued Receipt No. 0309.[7] They were
furnished a Service Manual[8] 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/MEASUREMENT[13]

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 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.[18] His 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

Complaint[22] 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 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.

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 OF ARRESTO 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

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 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]

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 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
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]

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 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 punished
with death penalty or life-imprisonment; to those convicted of treason,
conspiracy or proposal to commit treason; to those convicted of
misprision of treason, rebellion, sedition or espionage; to those convicted
of piracy; to those who are habitual delinquents; to those who shall have
escaped from confinement or evaded sentence; to those who having been
granted conditional pardon by the Chief Executive shall have violated the
terms thereof; to those whose maximum term of imprisonment does not
exceed one year, not to those already sentenced by final judgment at the
time of approval of this Act, except as provided in Section 5 hereof. (As
amended by Act No. 4225.)

In this case, the maximum term of imprisonment imposed on

the petitioner was four months and one day of arresto mayor.
Hence, the MTC was proscribed from imposing an
indeterminate penalty on the petitioner. An indeterminate
penalty may be imposed if the minimum of the penalty is
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 38 of the Revised Penal Code, the petitioner shall suffer
subsidiary imprisonment if he has no property with which to pay
the penalty of fine.

IN LIGHT OF ALL THE FOREGOING, the petition is

DENIED. The assailed Decision and Resolution are
AFFIRMED WITH MODIFICATION. Considering the
surrounding circumstances of the case, the petitioner is hereby
sentenced to suffer a straight penalty of six (6) months
imprisonment. The petitioner shall suffer subsidiary
imprisonment in case of insolvency.

Costs against the petitioner.

SO ORDERED.
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 Decision[1] of the Court of Appeals
in CA-G.R. CV No. 59615 modifying, on appeal, the Joint
Decision[2] 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-94[4] 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
respondents herein, started to directly procure various kinds of
animal feeds from petitioner Nutrimix Feeds Corporation. The
petitioner gave the respondents a credit period of thirty to forty-five
days to postdate checks to be issued in payment for the delivery of
the feeds. The accommodation was made apparently because of
the company presidents close friendship with Eugenio Evangelista,
the brother of respondent Efren Evangelista. The various animal
feeds were paid and covered by checks with due dates from July
1993 to September 1993. Initially, the respondents were good
paying customers. In some instances, however, they failed to issue
checks despite the deliveries of animal feeds which were
appropriately covered by sales invoices. Consequently, the
respondents incurred an aggregate unsettled account with the
petitioner in the amount of P766,151.00. The breakdown of the
unpaid obligation is as follows:
Sales Invoice Number Date Amount
21334 June 23, 1993 P 7,260.00
21420 June 26, 1993 6,990.00
21437 June 28, 1993 41,510.00
21722 July 12, 1993 45,185.00
22048 July 26, 1993 44,540.00
22054 July 27, 1993 45,246.00
22186 August 2, 1993 84,900.00
Total: P275,631.00
=========
Bank Check Number Due Date Amount
United Coconut
Planters Bank BTS052084 July 30, 1993 P 47,760.00
-do- BTS052087 July 30, 1993 131,340.00
-do- BTS052091 July 30, 1993 59,700.00
-do- BTS062721 August 4, 1993 47,860.00
-do- BTS062720 August 5, 1993 43,780.00
-do- BTS062774 August 6, 1993 15,000.00
-do- BTS062748 September 11, 1993 47,180.00
-do- BTS062763 September 11, 1993 48,440.00
-do- BTS062766 September 18, 1993 49,460.00
Total: P490,520.00
=========
When the above-mentioned checks were deposited at the
petitioners depository bank, the same were, consequently,
dishonored because respondent Maura Evangelista had already
closed her account. The petitioner made several demands for the
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 Resolution[5] 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, 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 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 salmonella[14] and
that the very high aflatoxin level[15] 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 analysis[17] 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 received[20] but 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
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.
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 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 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:
That is misleading.
Atty. Cruz:
She stated that.
Atty. Roxas:
She said some were fed because they did not know yet of the poisoning.
Court:
And when the chickens died, they stopped naturally feeding it to the
chickens.
Atty. Cruz:
Q You mean to say, Madam Witness, that although you believe (sic) that
the chickens were allegedly poisoned, you used the same for feeding your
animals?
A We did not know yet during that time that the feeds contained poison,
only during that time when we learned about the same after the analysis.
Q Therefore you have known only of the alleged poison in the Nutrimix
Feeds only after you have caused the analysis of the same?
A Yes, Sir.
Q When was that, Madam Witness?
A I cannot be sure about the exact time but it is within the months of
October to November, Sir.
Q So, before this analysis of about October and November, you were not
aware that the feeds of Nutrimix Feeds Corporation were, according to
you, with poison?
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]
We find it difficult to believe that the feeds delivered on July 26 and
27, 1993 and fed to the broilers and hogs contained poison at the
time they reached the respondents. A difference of approximately
three months enfeebles the respondents theory 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 many conditions
unquestionably beyond the control of the petitioner. In fact, Dr.
Garcia, one of the witnesses for the respondents, testified that the
animal feeds submitted to her for laboratory examination contained
very high level of aflatoxin, possibly caused by mold (aspergillus
flavus).[35] We agree with the contention of the petitioner that there
is no evidence on record to prove that the animal feeds taken to
the various governmental agencies for laboratory examination
were the same animal feeds given to the respondents broilers and
hogs for their consumption. Moreover, Dr. Diaz even admitted that
the feeds that were submitted for analysis came from a sealed bag.
There is simply no evidence to show that the feeds given to the
animals 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 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 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, (Chairman), Austria-Martinez, Tinga, and Chico-Nazario,
JJ., concur.