G.R. No.

L-11491

August 23, 1918

ANDRES QUIROGA, plaintiff-appellant, vs.PARSONS HARDWARE CO., defendantappellee. AVANCEA, J.: On January 24, 1911, in this city of manila, a contract in the following tenor was entered into by and between the plaintiff, as party of the first part, and J. Parsons (to whose rights and obligations the present defendant later subrogated itself), as party of the second part: CONTRACT EXECUTED BY AND BETWEEN ANDRES QUIROGA AND J. PARSONS, BOTH MERCHANTS ESTABLISHED IN MANILA, FOR THE EXCLUSIVE SALE OF "QUIROGA" BEDS IN THE VISAYAN ISLANDS. ARTICLE 1. Don Andres Quiroga grants the exclusive right to sell his beds in the Visayan Islands to J. Parsons under the following conditions: (A) Mr. Quiroga shall furnish beds of his manufacture to Mr. Parsons for the latter's establishment in Iloilo, and shall invoice them at the same price he has fixed for sales, in Manila, and, in the invoices, shall make and allowance of a discount of 25 per cent of the invoiced prices, as commission on the sale; and Mr. Parsons shall order the beds by the dozen, whether of the same or of different styles. (B) Mr. Parsons binds himself to pay Mr. Quiroga for the beds received, within a period of sixty days from the date of their shipment. (C) The expenses for transportation and shipment shall be borne by M. Quiroga, and the freight, insurance, and cost of unloading from the vessel at the point where the beds are received, shall be paid by Mr. Parsons. (D) If, before an invoice falls due, Mr. Quiroga should request its payment, said payment when made shall be considered as a prompt payment, and as such a deduction of 2 per cent shall be made from the amount of the invoice. The same discount shall be made on the amount of any invoice which Mr. Parsons may deem convenient to pay in cash. (E) Mr. Quiroga binds himself to give notice at least fifteen days before hand of any alteration in price which he may plan to make in respect to his beds, and agrees that if on the date when such alteration takes effect he should have any order pending to be served to Mr. Parsons, such order shall enjoy the advantage of the alteration if the price thereby be lowered, but shall not be affected by said

alteration if the price thereby be increased, for, in this latter case, Mr. Quiroga assumed the obligation to invoice the beds at the price at which the order was given. (F) Mr. Parsons binds himself not to sell any other kind except the "Quiroga" beds. ART. 2. In compensation for the expenses of advertisement which, for the benefit of both contracting parties, Mr. Parsons may find himself obliged to make, Mr. Quiroga assumes the obligation to offer and give the preference to Mr. Parsons in case anyone should apply for the exclusive agency for any island not comprised with the Visayan group. ART. 3. Mr. Parsons may sell, or establish branches of his agency for the sale of "Quiroga" beds in all the towns of the Archipelago where there are no exclusive agents, and shall immediately report such action to Mr. Quiroga for his approval. ART. 4. This contract is made for an unlimited period, and may be terminated by either of the contracting parties on a previous notice of ninety days to the other party. Of the three causes of action alleged by the plaintiff in his complaint, only two of them constitute the subject matter of this appeal and both substantially amount to the averment that the defendant violated the following obligations: not to sell the beds at higher prices than those of the invoices; to have an open establishment in Iloilo; itself to conduct the agency; to keep the beds on public exhibition, and to pay for the advertisement expenses for the same; and to order the beds by the dozen and in no other manner. As may be seen, with the exception of the obligation on the part of the defendant to order the beds by the dozen and in no other manner, none of the obligations imputed to the defendant in the two causes of action are expressly set forth in the contract. But the plaintiff alleged that the defendant was his agent for the sale of his beds in Iloilo, and that said obligations are implied in a contract of commercial agency. The whole question, therefore, reduced itself to a determination as to whether the defendant, by reason of the contract hereinbefore transcribed, was a purchaser or an agent of the plaintiff for the sale of his beds. In order to classify a contract, due regard must be given to its essential clauses. In the contract in question, what was essential, as constituting its cause and subject matter, is that the plaintiff was to furnish the defendant with the beds which the latter might order, at the price stipulated, and that the defendant was to pay the price in the manner stipulated. The price agreed upon was the one determined by the plaintiff for the sale of these beds in Manila, with a discount of from 20 to 25 per cent, according to their class. Payment was to be made at the end of sixty days, or before, at the plaintiff's request, or in cash, if the defendant so preferred, and in these last two cases an additional discount was to be allowed for prompt payment. These are precisely the essential features of a contract of purchase and sale. There was the obligation on the part of the plaintiff to

supply the beds, and, on the part of the defendant, to pay their price. These features exclude the legal conception of an agency or order to sell whereby the mandatory or agent received the thing to sell it, and does not pay its price, but delivers to the principal the price he obtains from the sale of the thing to a third person, and if he does not succeed in selling it, he returns it. By virtue of the contract between the plaintiff and the defendant, the latter, on receiving the beds, was necessarily obliged to pay their price within the term fixed, without any other consideration and regardless as to whether he had or had not sold the beds. It would be enough to hold, as we do, that the contract by and between the defendant and the plaintiff is one of purchase and sale, in order to show that it was not one made on the basis of a commission on sales, as the plaintiff claims it was, for these contracts are incompatible with each other. But, besides, examining the clauses of this contract, none of them is found that substantially supports the plaintiff's contention. Not a single one of these clauses necessarily conveys the idea of an agency. The words commission on sales used in clause (A) of article 1 mean nothing else, as stated in the contract itself, than a mere discount on the invoice price. The word agency, also used in articles 2 and 3, only expresses that the defendant was the only one that could sell the plaintiff's beds in the Visayan Islands. With regard to the remaining clauses, the least that can be said is that they are not incompatible with the contract of purchase and sale. The plaintiff calls attention to the testimony of Ernesto Vidal, a former vice-president of the defendant corporation and who established and managed the latter's business in Iloilo. It appears that this witness, prior to the time of his testimony, had serious trouble with the defendant, had maintained a civil suit against it, and had even accused one of its partners, Guillermo Parsons, of falsification. He testified that it was he who drafted the contract Exhibit A, and, when questioned as to what was his purpose in contracting with the plaintiff, replied that it was to be an agent for his beds and to collect a commission on sales. However, according to the defendant's evidence, it was Mariano Lopez Santos, a director of the corporation, who prepared Exhibit A. But, even supposing that Ernesto Vidal has stated the truth, his statement as to what was his idea in contracting with the plaintiff is of no importance, inasmuch as the agreements contained in Exhibit A which he claims to have drafted, constitute, as we have said, a contract of purchase and sale, and not one of commercial agency. This only means that Ernesto Vidal was mistaken in his classification of the contract. But it must be understood that a contract is what the law defines it to be, and not what it is called by the contracting parties. The plaintiff also endeavored to prove that the defendant had returned beds that it could not sell; that, without previous notice, it forwarded to the defendant the beds that it wanted; and that the defendant received its commission for the beds sold by the plaintiff directly to persons in Iloilo. But all this, at the most only shows that, on the part of both of them, there was mutual tolerance in the performance of the contract in disregard of its terms; and it gives no right to have the contract considered, not as the parties stipulated it, but as they performed it. Only the acts of the contracting parties,

subsequent to, and in connection with, the execution of the contract, must be considered for the purpose of interpreting the contract, when such interpretation is necessary, but not when, as in the instant case, its essential agreements are clearly set forth and plainly show that the contract belongs to a certain kind and not to another. Furthermore, the return made was of certain brass beds, and was not effected in exchange for the price paid for them, but was for other beds of another kind; and for the letter Exhibit L-1, requested the plaintiff's prior consent with respect to said beds, which shows that it was not considered that the defendant had a right, by virtue of the contract, to make this return. As regards the shipment of beds without previous notice, it is insinuated in the record that these brass beds were precisely the ones so shipped, and that, for this very reason, the plaintiff agreed to their return. And with respect to the so-called commissions, we have said that they merely constituted a discount on the invoice price, and the reason for applying this benefit to the beds sold directly by the plaintiff to persons in Iloilo was because, as the defendant obligated itself in the contract to incur the expenses of advertisement of the plaintiff's beds, such sales were to be considered as a result of that advertisement. In respect to the defendant's obligation to order by the dozen, the only one expressly imposed by the contract, the effect of its breach would only entitle the plaintiff to disregard the orders which the defendant might place under other conditions; but if the plaintiff consents to fill them, he waives his right and cannot complain for having acted thus at his own free will. For the foregoing reasons, we are of opinion that the contract by and between the plaintiff and the defendant was one of purchase and sale, and that the obligations the breach of which is alleged as a cause of action are not imposed upon the defendant, either by agreement or by law. The judgment appealed from is affirmed, with costs against the appellant. So ordered. G.R. No. L-47538 June 20, 1941

GONZALO PUYAT & SONS, INC., petitioner, vs.ARCO AMUSEMENT COMPANY (formerly known as Teatro Arco), respondent. LAUREL, J.: This is a petition for the issuance of a writ of certiorari to the Court of Appeals for the purpose of reviewing its Amusement Company (formerly known as Teatro Arco), plaintiff-appellant, vs. Gonzalo Puyat and Sons. Inc., defendant-appellee." It appears that the respondent herein brought an action against the herein petitioner in the Court of First Instance of Manila to secure a reimbursement of certain amounts allegedly overpaid by it on account of the purchase price of sound reproducing equipment and machinery ordered by the petitioner from the Starr Piano Company of

Richmond, Indiana, U.S.A. The facts of the case as found by the trial court and confirmed by the appellate court, which are admitted by the respondent, are as follows: In the year 1929, the "Teatro Arco", a corporation duly organized under the laws of the Philippine Islands, with its office in Manila, was engaged in the business of operating cinematographs. In 1930, its name was changed to Arco Amusement Company. C. S. Salmon was the president, while A. B. Coulette was the business manager. About the same time, Gonzalo Puyat & Sons, Inc., another corporation doing business in the Philippine Islands, with office in Manila, in addition to its other business, was acting as exclusive agents in the Philippines for the Starr Piano Company of Richmond, Indiana, U.S. A. It would seem that this last company dealt in cinematographer equipment and machinery, and the Arco Amusement Company desiring to equipt its cinematograph with sound reproducing devices, approached Gonzalo Puyat & Sons, Inc., thru its then president and acting manager, Gil Puyat, and an employee named Santos. After some negotiations, it was agreed between the parties, that is to say, Salmon and Coulette on one side, representing the plaintiff, and Gil Puyat on the other, representing the defendant, that the latter would, on behalf of the plaintiff, order sound reproducing equipment from the Starr Piano Company and that the plaintiff would pay the defendant, in addition to the price of the equipment, a 10 per cent commission, plus all expenses, such as, freight, insurance, banking charges, cables, etc. At the expense of the plaintiff, the defendant sent a cable, Exhibit "3", to the Starr Piano Company, inquiring about the equipment desired and making the said company to quote its price without discount. A reply was received by Gonzalo Puyat & Sons, Inc., with the price, evidently the list price of $1,700 f.o.b. factory Richmond, Indiana. The defendant did not show the plaintiff the cable of inquiry nor the reply but merely informed the plaintiff of the price of $1,700. Being agreeable to this price, the plaintiff, by means of Exhibit "1", which is a letter signed by C. S. Salmon dated November 19, 1929, formally authorized the order. The equipment arrived about the end of the year 1929, and upon delivery of the same to the plaintiff and the presentation of necessary papers, the price of $1.700, plus the 10 per cent commission agreed upon and plus all the expenses and charges, was duly paid by the plaintiff to the defendant. Sometime the following year, and after some negotiations between the same parties, plaintiff and defendants, another order for sound reproducing equipment was placed by the plaintiff with the defendant, on the same terms as the first order. This agreement or order was confirmed by the plaintiff by its letter Exhibit "2", without date, that is to say, that the plaintiff would pay for the equipment the amount of $1,600, which was supposed to be the price quoted by the Starr Piano Company, plus 10 per cent commission, plus all expenses incurred. The equipment under the second order arrived in due time, and the defendant was duly paid the price of $1,600 with its 10 per cent commission, and $160, for all expenses and charges. This amount of $160 does not represent actual out-ofpocket expenses paid by the defendant, but a mere flat charge and rough

estimate made by the defendant equivalent to 10 per cent of the price of $1,600 of the equipment. About three years later, in connection with a civil case in Vigan, filed by one Fidel Reyes against the defendant herein Gonzalo Puyat & Sons, Inc., the officials of the Arco Amusement Company discovered that the price quoted to them by the defendant with regard to their two orders mentioned was not the net price but rather the list price, and that the defendants had obtained a discount from the Starr Piano Company. Moreover, by reading reviews and literature on prices of machinery and cinematograph equipment, said officials of the plaintiff were convinced that the prices charged them by the defendant were much too high including the charges for out-of-pocket expense. For these reasons, they sought to obtain a reduction from the defendant or rather a reimbursement, and failing in this they brought the present action. The trial court held that the contract between the petitioner and the respondent was one of outright purchase and sale, and absolved that petitioner from the complaint. The appellate court, however, by a division of four, with one justice dissenting held that the relation between petitioner and respondent was that of agent and principal, the petitioner acting as agent of the respondent in the purchase of the equipment in question, and sentenced the petitioner to pay the respondent alleged overpayments in the total sum of $1,335.52 or P2,671.04, together with legal interest thereon from the date of the filing of the complaint until said amount is fully paid, as well as to pay the costs of the suit in both instances. The appellate court further argued that even if the contract between the petitioner and the respondent was one of purchase and sale, the petitioner was guilty of fraud in concealing the true price and hence would still be liable to reimburse the respondent for the overpayments made by the latter. The petitioner now claims that the following errors have been incurred by the appellate court: I. El Tribunal de Apelaciones incurrio en error de derecho al declarar que, segun hechos, entre la recurrente y la recurrida existia una relacion implicita de mandataria a mandante en la transaccion de que se trata, en vez de la de vendedora a compradora como ha declarado el Juzgado de Primera Instncia de Manila, presidido entonces por el hoy Magistrado Honorable Marcelino Montemayor. II. El Tribunal de Apelaciones incurrio en error de derecho al declarar que, suponiendo que dicha relacion fuerra de vendedora a compradora, la recurrente obtuvo, mediante dolo, el consentimiento de la recurrida en cuanto al precio de $1,700 y $1,600 de las maquinarias y equipos en cuestion, y condenar a la recurrente ha obtenido de la Starr Piano Company of Richmond, Indiana.

We sustain the theory of the trial court that the contract between the petitioner and the respondent was one of purchase and sale, and not one of agency, for the reasons now to be stated. In the first place, the contract is the law between the parties and should include all the things they are supposed to have been agreed upon. What does not appear on the face of the contract should be regarded merely as "dealer's" or "trader's talk", which can not bind either party. (Nolbrook v. Conner, 56 So., 576, 11 Am. Rep., 212; Bank v. Brosscell, 120 III., 161; Bank v. Palmer, 47 III., 92; Hosser v. Copper, 8 Allen, 334; Doles v. Merrill, 173 Mass., 411.) The letters, Exhibits 1 and 2, by which the respondent accepted the prices of $1,700 and $1,600, respectively, for the sound reproducing equipment subject of its contract with the petitioner, are clear in their terms and admit no other interpretation that the respondent in question at the prices indicated which are fixed and determinate. The respondent admitted in its complaint filed with the Court of First Instance of Manila that the petitioner agreed to sell to it the first sound reproducing equipment and machinery. The third paragraph of the respondent's cause of action states: 3. That on or about November 19, 1929, the herein plaintiff (respondent) and defendant (petitioner) entered into an agreement, under and by virtue of which the herein defendant was to secure from the United States, and sell and deliver to the herein plaintiff, certain sound reproducing equipment and machinery, for which the said defendant, under and by virtue of said agreement, was to receive the actual cost price plus ten per cent (10%), and was also to be reimbursed for all out of pocket expenses in connection with the purchase and delivery of such equipment, such as costs of telegrams, freight, and similar expenses. (Emphasis ours.) We agree with the trial judge that "whatever unforseen events might have taken place unfavorable to the defendant (petitioner), such as change in prices, mistake in their quotation, loss of the goods not covered by insurance or failure of the Starr Piano Company to properly fill the orders as per specifications, the plaintiff (respondent) might still legally hold the defendant (petitioner) to the prices fixed of $1,700 and $1,600." This is incompatible with the pretended relation of agency between the petitioner and the respondent, because in agency, the agent is exempted from all liability in the discharge of his commission provided he acts in accordance with the instructions received from his principal (section 254, Code of Commerce), and the principal must indemnify the agent for all damages which the latter may incur in carrying out the agency without fault or imprudence on his part (article 1729, Civil Code). While the latters, Exhibits 1 and 2, state that the petitioner was to receive ten per cent (10%) commission, this does not necessarily make the petitioner an agent of the respondent, as this provision is only an additional price which the respondent bound itself to pay, and which stipulation is not incompatible with the contract of purchase and sale. (See Quiroga vs. Parsons Hardware Co., 38 Phil., 501.)

In the second place, to hold the petitioner an agent of the respondent in the purchase of equipment and machinery from the Starr Piano Company of Richmond, Indiana, is incompatible with the admitted fact that the petitioner is the exclusive agent of the same company in the Philippines. It is out of the ordinary for one to be the agent of both the vendor and the purchaser. The facts and circumstances indicated do not point to anything but plain ordinary transaction where the respondent enters into a contract of purchase and sale with the petitioner, the latter as exclusive agent of the Starr Piano Company in the United States. It follows that the petitioner as vendor is not bound to reimburse the respondent as vendee for any difference between the cost price and the sales price which represents the profit realized by the vendor out of the transaction. This is the very essence of commerce without which merchants or middleman would not exist. The respondents contends that it merely agreed to pay the cost price as distinguished from the list price, plus ten per cent (10%) commission and all out-of-pocket expenses incurred by the petitioner. The distinction which the respondents seeks to draw between the cost price and the list price we consider to be spacious. It is to be observed that the twenty-five per cent (25%) discount granted by the Starr piano Company to the petitioner is available only to the latter as the former's exclusive agent in the Philippines. The respondent could not have secured this discount from the Starr Piano Company and neither was the petitioner willing to waive that discount in favor of the respondent. As a matter of fact, no reason is advanced by the respondent why the petitioner should waive the 25 per cent discount granted it by the Starr Piano Company in exchange for the 10 percent commission offered by the respondent. Moreover, the petitioner was not duty bound to reveal the private arrangement it had with the Starr Piano Company relative to such discount to its prospective customers, and the respondent was not even aware of such an arrangement. The respondent, therefore, could not have offered to pay a 10 per cent commission to the petitioner provided it was given the benefit of the 25 per cent discount enjoyed by the petitioner. It is well known that local dealers acting as agents of foreign manufacturers, aside from obtaining a discount from the home office, sometimes add to the list price when they resell to local purchasers. It was apparently to guard against an exhorbitant additional price that the respondent sought to limit it to 10 per cent, and the respondent is estopped from questioning that additional price. If the respondent later on discovers itself at the short end of a bad bargain, it alone must bear the blame, and it cannot rescind the contract, much less compel a reimbursement of the excess price, on that ground alone. The respondent could not secure equipment and machinery manufactured by the Starr Piano Company except from the petitioner alone; it willingly paid the price quoted; it received the equipment and machinery as represented; and that was the end of the matter as far as the respondent was concerned. The fact that the petitioner obtained more or less profit than the respondent calculated before entering into the contract or reducing the price agreed upon between the petitioner and the respondent. Not every concealment is fraud; and short of fraud, it were better that, within certain limits, business acumen permit of the loosening of the sleeves and of the sharpening of the intellect of men and women in the business world.

The writ of certiorari should be, as it is hereby, granted. The decision of the appellate court is accordingly reversed and the petitioner is absolved from the respondent's complaint in G. R. No. 1023, entitled "Arco Amusement Company (formerly known as Teatro Arco), plaintiff-appellant, vs. Gonzalo Puyat & Sons, Inc., defendants-appellee," without pronouncement regarding costs. So ordered. G.R. No. L-20871 April 30, 1971 KER & CO., LTD., petitioner, vs.JOSE B. LINGAD, as Acting Commissioner of Internal Revenue, respondent. FERNANDO, J.: Petitioner Ker & Co., Ltd. would have us reverse a decision of the Court of Tax Appeals, holding it liable as a commercial broker under Section 194 (t) of the National Internal Revenue Code. Its plea, notwithstanding the vigorous effort of its counsel, is not sufficiently persuasive. An obstacle, well-nigh insuperable stands in the way. The decision under review conforms to and is in accordance with the controlling doctrine announced in the recent case of Commissioner of Internal Revenue v. Constantino. 1 The decisive test, as therein set forth, is the retention of the ownership of the goods delivered to the possession of the dealer, like herein petitioner, for resale to customers, the price and terms remaining subject to the control of the firm consigning such goods. The facts, as found by respondent Court, to which we defer, unmistakably indicate that such a situation does exist. The juridical consequences must inevitably follow. We affirm. It was shown that petitioner was assessed by the then Commissioner of Internal Revenue Melecio R. Domingo the sum of P20,272.33 as the commercial broker's percentage tax, surcharge, and compromise penalty for the period from July 1, 1949 to December 31, 1953. There was a request on the part of petitioner for the cancellation of such assessment, which request was turned down. As a result, it filed a petition for review with the Court of Tax Appeals. In its answer, the then Commissioner Domingo maintained his stand that petitioner should be taxed in such amount as a commercial broker. In the decision now under review, promulgated on October 19, 1962, the Court of Tax Appeals held petitioner taxable except as to the compromise penalty of P500.00, the amount due from it being fixed at P19,772.33. Such liability arose from a contract of petitioner with the United States Rubber International, the former being referred to as the Distributor and the latter specifically designated as the Company. The contract was to apply to transactions between the former and petitioner, as Distributor, from July 1, 1948 to continue in force until terminated by either party giving to the other sixty days' notice. 2 The shipments would cover products "for consumption in Cebu, Bohol, Leyte, Samar, Jolo, Negros Oriental, and Mindanao except [the] province of Davao", petitioner, as Distributor, being precluded from disposing such products elsewhere than in the above places unless written consent would first be obtained from the Company. 3 Petitioner, as Distributor, is

required to exert every effort to have the shipment of the products in the maximum quantity and to promote in every way the sale thereof. 4 The prices, discounts, terms of payment, terms of delivery and other conditions of sale were subject to change in the discretion of the Company. 5 Then came this crucial stipulation: "The Company shall from time to time consign to the Distributor and the Distributor will receive, accept and/or hold upon consignment the products specified under the terms of this agreement in such quantities as in the judgment of the Company may be necessary for the successful solicitation and maintenance of business in the territory, and the Distributor agrees that responsibility for the final sole of all goods delivered shall rest with him. All goods on consignment shall remain the property of the Company until sold by the Distributor to the purchaser or purchasers, but all sales made by the Distributor shall be in his name, in which the sale price of all goods sold less the discount given to the Distributor by the Company in accordance with the provision of paragraph 13 of this agreement, whether or not such sale price shall have been collected by the Distributor from the purchaser or purchasers, shall immediately be paid and remitted by the Distributor to the Company. It is further agreed that this agreement does not constitute Distributor the agent or legal representative 4 of the Company for any purpose whatsoever. Distributor is not granted any right or authority to assume or to create any obligation or responsibility, express or implied, in behalf of or in the name of the Company, or to bind the Company in any manner or thing whatsoever." 6 All specifications for the goods ordered were subject to acceptance by the Company with petitioner, as Distributor, required to accept such goods shipped as well as to clear the same through customs and to arrange for delivery in its warehouse in Cebu City. Moreover, orders are to be filled in whole or in part from the stocks carried by the Company's neighboring branches, subsidiaries or other sources of Company's brands. 7 Shipments were to be invoiced at prices to be agreed upon, with the customs duties being paid by petitioner, as Distributor, for account of the Company. 8 Moreover, all resale prices, lists, discounts and general terms and conditions of local resale were to be subject to the approval of the Company and to change from time to time in its discretion. 9 The dealer, as Distributor, is allowed a discount of ten percent on the net amount of sales of merchandise made under such agreement. 10 On a date to be determined by the Company, the petitioner, as Distributor, was required to report to it data showing in detail all sales during the month immediately preceding, specifying therein the quantities, sizes and types together with such information as may be required for accounting purposes, with the Company rendering an invoice on sales as described to be dated as of the date of inventory and sales report. As Distributor, petitioner had to make payment on such invoice or invoices on due date with the Company being privileged at its option to terminate and cancel the agreement forthwith upon the failure to comply with this obligation. 11 The Company, at its own expense, was to keep the consigned stock fully insured against loss or damage by fire or as a result of fire, the policy of such insurance to be payable to it in the event of loss. Petitioner, as Distributor, assumed full responsibility with reference to the stock and its safety at all times; and upon request of the Company at any time, it was to render inventory of the

existing stock which could be subject to change. 12 There was furthermore this equally tell-tale covenant: "Upon the termination or any cancellation of this agreement all goods held on consignment shall be held by the Distributor for the account of the Company, without expense to the Company, until such time as provision can be made by the Company for disposition." 13 The issue with the Court of Tax Appeals, as with us now, is whether the relationship thus created is one of vendor and vendee or of broker and principal. Not that there would have been the slightest doubt were it not for the categorical denial in the contract that petitioner was not constituted as "the agent or legal representative of the Company for any purpose whatsoever." It would be, however, to impart to such an express disclaimer a meaning it should not possess to ignore what is manifestly the role assigned to petitioner considering the instrument as a whole. That would be to lose sight altogether of what has been agreed upon. The Court of Tax Appeals was not misled in the language of the decision now on appeal: "That the petitioner Ker & Co., Ltd. is, by contractual stipulation, an agent of U.S. Rubber International is borne out by the facts that petitioner can dispose of the products of the Company only to certain persons or entities and within stipulated limits, unless excepted by the contract or by the Rubber Company (Par. 2); that it merely receives, accepts and/or holds upon consignment the products, which remain properties of the latter company (Par. 8); that every effort shall be made by petitioner to promote in every way the sale of the products (Par. 3); that sales made by petitioner are subject to approval by the company (Par. 12); that on dates determined by the rubber company, petitioner shall render a detailed report showing sales during the month (Par. 14); that the rubber company shall invoice the sales as of the dates of inventory and sales report (Par. 14); that the rubber company agrees to keep the consigned goods fully insured under insurance policies payable to it in case of loss (Par. 15); that upon request of the rubber company at any time, petitioner shall render an inventory of the existing stock which may be checked by an authorized representative of the former (Par. 15); and that upon termination or cancellation of the Agreement, all goods held on consignment shall be held by petitioner for the account of the rubber company until their disposition is provided for by the latter (Par. 19). All these circumstances are irreconcilably antagonistic to the idea of an independent merchant." 14 Hence its conclusion: "However, upon analysis of the contract, as a whole, together with the actual conduct of the parties in respect thereto, we have arrived at the conclusion that the relationship between them is one of brokerage or agency." 15 We find ourselves in agreement, notwithstanding the able brief filed on behalf of petitioner by its counsel. As noted at the outset, we cannot heed petitioner's plea for reversal. 1. According to the National Internal Revenue Code, a commercial broker "includes all persons, other than importers, manufacturers, producers, or bona fide employees, who, for compensation or profit, sell or bring about sales or purchases of merchandise for other persons or bring proposed buyers and sellers together, or negotiate freights or other business for owners of vessels or other means of transportation, or for the shippers, or consignors or consignees of freight carried by vessels or other means of transportation. The term includes commission merchants." 16 The controlling decision as

to the test to be followed as to who falls within the above definition of a commercial broker is that of Commissioner of Internal Revenue v. Constantino. 17 In the language of Justice J. B. L. Reyes, who penned the opinion: "Since the company retained ownership of the goods, even as it delivered possession unto the dealer for resale to customers, the price and terms of which were subject to the company's control, the relationship between the company and the dealer is one of agency, ... ." 18 An excerpt from Salisbury v. Brooks 19 cited in support of such a view follows: " 'The difficulty in distinguishing between contracts of sale and the creation of an agency to sell has led to the establishment of rules by the application of which this difficulty may be solved. The decisions say the transfer of title or agreement to transfer it for a price paid or promised is the essence of sale. If such transfer puts the transferee in the attitude or position of an owner and makes him liable to the transferor as a debtor for the agreed price, and not merely as an agent who must account for the proceeds of a resale, the transaction is a sale; while the essence of an agency to sell is the delivery to an agent, not as his property, but as the property of the principal, who remains the owner and has the right to control sales, fix the price, and terms, demand and receive the proceeds less the agent's commission upon sales made.' "20 The opinion relied on the work of Mechem on Sales as well as Mechem on Agency. Williston and Tiedman both of whom wrote treatises on Sales, were likewise referred to. Equally relevant is this portion of the Salisbury opinion: "It is difficult to understand or appreciate the necessity or presence of these mutual requirements and obligations on any theory other than that of a contract of agency. Salisbury was to furnish the mill and put the timber owned by him into a marketable condition in the form of lumber; Brooks was to furnish the funds necessary for that purpose, sell the manufactured product, and account therefor to Salisbury upon the specific terms of the agreement, less the compensation fixed by the parties in lieu of interest on the money advanced and for services as agent. These requirements and stipulations are in tent with any other conception of the contract. If it constitutes an agreement to sell, they are meaningless. But they cannot be ignored. They were placed there for some purpose, doubtless as the result of definite antecedent negotiations therefore, consummated by the final written expression of the agreement." 21 Hence the Constantino opinion could categorically affirm that the mere disclaimer in a contract that an entity like petitioner is not "the agent or legal representative for any purpose whatsoever" does not suffice to yield the conclusion that it is an independent merchant if the control over the goods for resale of the goods consigned is pervasive in character. The Court of Tax Appeals decision now under review pays fealty to such an applicable doctrine. 2. No merit therefore attaches to the first error imputed by petitioner to the Court of Tax Appeals. Neither did such Court fail to appreciate in its true significance the act and conduct pursued in the implementation of the contract by both the United States Rubber International and petitioner, as was contended in the second assignment of error. Petitioner ought to have been aware that there was no need for such an inquiry. The terms of the contract, as noted, speak quite clearly. There is lacking that degree of ambiguity sufficient to give rise to serious doubt as to what was contemplated by the parties. A reading thereof discloses that the relationship arising therefrom was not one

of seller and purchaser. If it were thus intended, then it would not have included covenants which in their totality would negate the concept of a firm acquiring as vendee goods from another. Instead, the stipulations were so worded as to lead to no other conclusion than that the control by the United States Rubber International over the goods in question is, in the language of the Constantino opinion, "pervasive". The insistence on a relationship opposed to that apparent from the language employed might even yield the impression that such a mode of construction was resorted to in order that the applicability of a taxing statute might be rendered nugatory. Certainly, such a result is to be avoided. Nor is it to be lost sight of that on a matter left to the discretion of the Court of Tax Appeals which has developed an expertise in view of its function being limited solely to the interpretation of revenue laws, this Court is not prepared to substitute its own judgment unless a grave abuse of discretion is manifest. It would be to frustrate the objective for which administrative tribunals are created if the judiciary, absent such a showing, is to ignore their appraisal on a matter that forms the staple of their specialized competence. While it is to be admitted that counsel for petitioner did scrutinize with care the decision under review with a view to exposing what was considered its flaws, it cannot be said that there was such a failure to apply what the law commands as to call for its reversal. Instead, what cannot be denied is that the Court of Tax Appeals reached a result to which the Court in the recent Constantino decision gave the imprimatur of its approval. WHEREFORE, the Court of Tax Appeals decision of October 19, 1962 is affirmed. With costs against petitioner. G.R. No. 75198 October 18, 1988 SCHMID & OBERLY, INC., petitioner, vs. CORPORATION, respondent. CORTES, J.: Petitioner seeks reversal of the decision and the resolution of the Court of Appeals, ordering Schmid & Oberly Inc. (hereafter to be referred to simply as "SCHMID") to refund the purchase price paid by RJL Martinez Fishing Corporation (hereafter to be referred to simply as "RJL MARTINEZ") to D. Nagata Co., Ltd. of Japan (hereafter to be referred to simply as NAGATA CO.") for twelve (12) defective "Nagata"-brand generators, plus consequential damages, and attorneys fees. The facts as found by the Court of Appeals, are as follows: The findings of facts by the trial court (Decision, pp. 21-28, Record on Appeal) shows: that the plaintiff RJL Martinez Fishing Corporation is engaged in deep-sea fishing, and in the course of its business, needed electrical generators for the operation of its business; that the defendant RJL MARTINEZ FISHING

sells electrical generators with the brand of "Nagata", a Japanese product; that the supplier is the manufacturer, the D. Nagata Co. Ltd., of Japan, that the defendant Schmid & Oberly Inc. advertised the 12 Nagata generators for sale; that the plaintiff purchased 12 brand new Nagata generators, as advertised by herein defendant; that through an irrevocable line of credit, the D. Nagata Co., Ltd., shipped to the plaintiff 12 electric generators, and the latter paid the amount of the purchase price; that the 12 generators were found to be factory defective; that the plaintiff informed the defendant herein that it shall return the 12 generators as in fact three of the 12 were actually returned to the defendant; that the plaintiff sued the defendant on the warranty; asking for rescission of the contract; that the defendant be ordered to accept the generators and be ordered to pay back the purchase money; and that the plaintiff asked for damages. (Record on Appeal, pp. 27-28) [CA Decision, pp. 34; Rollo, pp. 47-48.] On the basis thereof, the Court of Appeals affirmed the decision of the trial court ordering petitioner to refund to private respondent the purchase price for the twelve (12) generators and to accept delivery of the same and to pay s and attorney's fees, with a slight modification as to the amount to be refunded. In its resolution of the motion for reconsideration, the Court of Appeals further modified the trial courts decision as to the award of consequential damages. Ordinarily, the Court will not disturb the findings of fact of the Court of Appeals in petitions to review the latter's decisions under Rule 45 of the Revised Rules of Court, the scope of the Court's inquiry being limited to a review of the imputed errors of law [Chan v. Court of Appeals, G.R. No. L-27488, June 30, 1970, 33 SCRA 77; Tiongco v. De la Merced, G.R. No. L-24426, July 25, 1974, 58 SCRA 89; Corona v. Court of Appeals, G.R. No. 62482, April 28, 1983, 121 SCRA 865; Baniqued v. Court of Appeals, G.R. No. L-47531, January 30, 1984, 127 SCRA 596.] However, when, as in this case, it is the petitioner's position that the appealed judgment is premised on a misapprehension of facts, * the Court is compelled to review the Court of Appeal's factual findings [De la Cruz v. Sosing, 94 Phil. 26 (1953); Castillo v. Court of Appeals, G.R. No. I,48290, September 29, 1983, 124 SCRA 808.] Considering the sketchiness of the respondent court's narration of facts, whether or not the Court of Appeals indeed misapprehended the facts could not be determined without a thorough review of the records. Thus, after a careful scrutiny of the records, the Court has found the appellate court's narration of facts incomplete. It failed to include certain material facts. The facts are actually as follows: RJL MARTINEZ is engaged in the business of deep-sea fishing. As RJL MARTINEZ needed electric generators for some of its boats and SCHMIID sold electric generators

of different brands, negotiations between them for the acquisition thereof took place. The parties had two separate transactions over "Nagata"-brand generators. The first transaction was the sale of three (3) generators. In this transaction, it is not disputed that SCHMID was the vendor of the generators. The company supplied the generators from its stockroom; it was also SCHMID which invoiced the sale. The second transaction, which gave rise to the present controversy, involves twelve (12) "Nagata"-brand generators. 'These are the facts surrounding this particular transaction: As RJL MARTINEZ was canvassing for generators, SC gave RJL MARTINEZ its Quotation dated August 19, 1975 [Exhibit 'A"] for twelve (12) "Nagata'-brand generators with the following specifications: "NAGATA" Single phase AC Alternators, 110/220 V, 60 cycles, 1800 rpm, unity power factor, rectifier type and radio suppressor,, 5KVA (5KW) $546.75 @ It was stipulated that payment would be made by confirming an irrevocable letter of credit in favor of NAGATA CO. Furthermore, among the General Conditions of Sale appearing on the dorsal side of the Quotation is the following: Buyer will, upon request, promptly open irrevocable Letter of Credit in favor of seller, in the amount stated on the face of this memorandum, specifying shipment from any Foreign port to Manila or any safe Philippine port, permitting partial shipments and providing that in the event the shippers are unable to ship within the specified period due to strikes, lack of shipping space or other circumstances beyond their reasonable control, Buyer agrees to extend the said Letter of Credit for later shipment. The Letter of Credit shall otherwise be subject to the conditions stated in this memorandum of contract. [Emphasis supplied.] Agreeing with the terms of the Quotation, RJL MARTINEZ opened a letter of credit in favor of NAGATA CO. Accordingly, on November 20,1975, SCHMID transmitted to NAGATA CO. an order [Exhibit "4"] for the twelve (12) generators to be shipped directly to RJL MARTINEZ. NAGATA CO. thereafter sent RJL MARTINEZ the bill of lading and its own invoice (Exhibit "B") and, in accordance with the order, shipped the generators directly to RJL MARTINEZ. The invoice states that "one (1) case of 'NAGATA' AC Generators" consisting of twelve sets wasbought by order and for account risk of Messrs. RJL Martinez Fishing Corporation. For its efforts, SCHMID received from NAGATA CO. a commission of $1,752.00 for the sale of the twelve generators to RJL MARTINEZ. [Exhibits "9", "9-A", "9-B" and "9-C".]

All fifteen (15) generators subject of the two transactions burned out after continuous use. RJL MARTINEZ informed SCHMID about this development. In turn, SCHMID brought the matter to the attention of NAGATA CO. In July 1976, NAGATA CO. sent two technical representatives who made an ocular inspection and conducted tests on some of the burned out generators, which by then had been delivered to the premises of SCHMID. The tests revealed that the generators were overrated. As indicated both in the quotation and in the invoice, the capacity of a generator was supposed to be 5 KVA (kilovolt amperes). However, it turned out that the actual capacity was only 4 KVA. SCHMID replaced the three (3) generators subject of the first sale with generators of a different brand. As for the twelve (12) generators subject of the second transaction, the Japanese technicians advised RJL MARTINEZ to ship three (3) generators to Japan, which the company did. These three (3) generators were repaired by NAGATA CO. itself and thereafter returned to RJL MARTINEZ; the remaining nine (9) were neither repaired nor replaced. NAGATA CO., however, wrote SCHMID suggesting that the latter check the generators, request for spare parts for replacement free of charge, and send to NAGATA CO. SCHMID's warranty claim including the labor cost for repairs [Exhibit "I".] In its reply letter, SCHMID indicated that it was not agreeable to these terms [Exhibit "10".] As not all of the generators were replaced or repaired, RJL MARTINEZ formally demanded that it be refunded the cost of the generators and paid damages. SCHMID in its reply maintained that it was not the seller of the twelve (12) generators and thus refused to refund the purchase price therefor. Hence, on February 14, 1977, RJL MARTINEZ brought suit against SCHMID on the theory that the latter was the vendor of the twelve (12) generators and, as such vendor, was liable under its warranty against hidden defects. Both the trial court and the Court of Appeals upheld the contention of RJL MARTINEZ that SCHMID was the vendor in the second transaction and was liable under its warranty. Accordingly, the courts a quo rendered judgment in favor of RJL MARTINEZ. Hence, the instant recourse to this Court. In this petition for review, SCHMID seeks reversal on the following grounds: (i) Schmid was merely the indentor in the sale [of the twelve (12) generators] between Nagata Co., the exporter and RJL Martinez, the importer; (ii) as mere indentor, Schmid is not liable for the seller's implied warranty against hidden defects, Schmid not having personally assumed any such warranty.

(iii) in any event, conformably with Article 1563 of the Civil Code, there was no implied warranty against hidden defects in the sale of these twelve (12) generators because these were sold under their trade name "Nagata"; and (iv) Schmid, accordingly, is not liable for the reimbursement claimed by RJL Martinez nor for the latter's unsubstantiated claim of PI 10.33 operational losses a day nor for exemplary damages, attorney's fees and costs. [Petition, p. 6.] 1. As may be expected, the basic issue confronting this Court is whether the second transaction between the parties was a sale or an indent transaction. SCHMID maintains that it was the latter; RJL MARTINEZ claims that it was a sale. At the outset, it must be understood that a contract is what the law defines it to be, considering its essential elements, and not what it is caged by the contracting parties [Quiroga v. Parsons Hardware Co., 38 Phil. 501 (1918).] The Civil Code defines a contract of sale, thus: ART. 458. 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. It has been said that the essence of the contract of sale is transfer of title or agreement to transfer it for a price paid or promised [Commissioner of Internal Revenue v. Constantino, G.R. No. L-25926, February 27, 1970, 31 SCRA 779, 785, citing Salisbury v. Brooks, 94 SE 117,118-19.] "If such transfer puts the transferee in the attitude or position of an owner and makes him liable to the transferor as a debtor for the agreed price, and not merely as an agent who must account for the proceeds of a resale, the transaction is, a sale." [Ibid.] On the other hand, there is no statutory definition of "indent" in this jurisdiction. However, the Rules and Regulations to Implement Presidential Decree No. 1789 (the Omnibus Investments Code) lumps "indentors" together with "commercial brokers" and "commission merchants" in this manner: ... A foreign firm which does business through the middlemen acting in their own names, such asindentors, commercial brokers or commission merchants, shall not be deemed doing business in the Philippines. But such indentors, commercial brokers or commission merchants shall be the ones deemed to be doing business in the Philippines [Part I, Rule I, Section 1, par. g (1).]

Therefore, an indentor is a middlemen in the same class as commercial brokers and commission merchants. To get an Idea of what an indentor is, a look at the definition of those in his class may prove helpful. A broker is generally defined as one who is engaged, for others, on a commission, negotiating contracts relative to property with the custody of which he has no concern; the negotiator between other parties, never acting in his own name but in the name of those who employed him; he is strictly a middleman and for some purpose the agent of both parties. (1 9 Cyc 186; Henderson vs. The State, 50 Ind., 234; Black's Law Dictionary.) A broker is one whose occupation it is to bring parties together to bargain, or to bargain for them, in matters of trade, commerce or navigation. Mechem on Agency, sec. 13; Wharton on Agency, sec. 695.) Judge Storey, in his work on Agency, defines a broker as an agent employed to make bargains and contracts between other persons, in matters of trade, commerce or navigation, for compensation commonly called brokerage. (Storey on Agency, sec. 28.) [Behn Meyer and Co., Ltd. v. Nolting and Garcia, 35 Phil. 274, 279-80 (1916).] A commission merchant is one engaged in the purchase or sale for another of personal property which, for this purpose, is placed in his possession and at his disposal. He maintains a relation not only with his principal and the purchasers or vendors, but also with the property which is subject matter of the transaction. [Pacific Commercial Co. v. Yatco, 68 Phil. 398, 401 (1939).] Thus, the chief feature of a commercial broker and a commercial merchant is that in effecting a sale, they are merely intermediaries or middle-men, and act in a certain sense as the agent of both parties to the transaction. Webster defines an indent as "a purchase order for goods especially when sent from a foreign country." [Webster's Ninth New Collegiate Dictionary 612 (1986).] It would appear that there are three parties to an indent transaction, namely, the buyer, the indentor, and the supplier who is usually a non-resident manufacturer residing in the country where the goods are to be bought [Commissioner of Internal Revenue v. Cadwallader Pacific Company, G.R. No. L-20343, September 29, 1976, 73 SCRA 59.] An indentor may therefore be best described as one who, for compensation, acts as a middleman in bringing about a purchase and sale of goods between a foreign supplier and a local purchaser. Coming now to the case at bar, the admissions of the parties and the facts appearing on record more than suffice to warrant the conclusion that SCHMID was not a vendor, but was merely an indentor, in the second transaction. In its complaint, RJL MARTINEZ admitted that the generators were purchased "through indent order" [Record on Appeal, p. 6.] In the same vein, it admitted in its demand letter

previously sent to SCHMID that twelve (12) of en (15) Nagata-brand generators "were purchased through your company (SCHMID), by indent order and three (3) by direct purchase." [Exhibit "D".] The evidence also show that RJL MARTINEZ paid directly NAGATA CO, for the generators, and that the latter company itself invoiced the sale [Exhibit "B"], and shipped the generators directly to the former. The only participation of SCHMID was to act as an intermediary or middleman between NAGATA CO. and RJL MARTINEZ, by procuring an order from RJL MARTINEZ and forwarding the same to NAGATA CO. for which the company received a commission from NAGATA CO. [Exhibits "9", "9-A", "9-B" and "9-C".] The above transaction is significantly different from the first transaction wherein SCHMID delivered the goods from its own stock (which it had itself imported from NAGATA CO.), issued its own invoice, and collected payment directly from the purchaser. These facts notwithstanding, RJL MARTINEZ insists that SCHMID was the vendor of the twelve generators on the following grounds: First, it is contended that the Quotation and the General Conditions of Sale on the dorsal side thereof do not necessarily lead to the conclusion that NAGATA CO., and not SCHMID, was the real seller in the case of the twelve (12) generators in that: (i) the signing of the quotation, which was under SCHMID's letter-head, perfected the contract of sale (impliedly, as between the signatories theretoi.e., RJL MARTINEZ and SCHMID); (ii) the qualification that the letter of credit shall be in favor of NAGATA CO. constituted simply the manner of payment requested by SCHMID (implying that SCHMID, as seller, merely chose to waive direct payment, stipulating delivery of payment instead to NAGATA CO. as supplier); Second, it is asserted that the acts of SCHMID after it was informed of the defect in the generators were indicative of its awareness that it was the vendor and acknowledgment of its liability as such vendor. Attention is called to these facts: When RJL MARTINEZ complained to SCHMID that the generators were defective, SCHMID immediately asked RJL MARTINEZ to send the defective generators to its shop to determine what was wrong. SCHMID likewise informed NAGATA CO. about the complaint of RJL MARTINEZ. When the Japanese technicians arrived, SCHMID made available its technicians, its shop and its testing equipment. After the generators were found to have factory defects, SCHMID facilitated the shipment of three (3) generators to Japan and, after their repair, back to the Philippines [Memorandum for the Respondent, p. 8.] Third, it is argued that the contents of the letter from NAGATA CO. to SCHMID regarding the repair of the generators indicated that the latter was "within the purview of a seller." [Ibid.]

Fourth, it is argued that if SCHMID is considered as a mere agent of NAGATA CO., a foreign corporation not licensed to do business in the Philippines, then the officers and employees of the former may be penalized for violation of the old Corporation Law which provided: Sec. 69 ... Any officer or agent of the corporation or any person transacting business for any foreign corporation not having the license prescribed shall be punished by imprisonment for not less than six months nor more than two years or by a fine 'of not less than two hundred pesos nor more than one thousand pesos or both such imprisonment and fine, in the discretion of the Court. The facts do not bear out these contentions. The first contention disregards the circumstances surrounding the second transaction as distinguished from those surrounding the first transaction, as noted above. Neither does the solicitous manner by which SCHMID responded to RJL MARTINEZ's complaint prove that the former was the seller of the generators. As aptly stated by counsel, no indentor will just fold its hands when a client complains about the goods it has bought upon the indentor's mediation. In its desire to promote the product of the seller and to retain the goodwill of the buyer, a prudent indentor desirous of maintaining his business would have to act considerably. towards his clients. Note that in contrast to its act of replacing the three (3) generators subject of the first transaction, SCHMID did not replace any of the twelve (12) generators, but merely rendered assistance to both RJL TINES and NAGATA CO. so that the latter could repair the defective generators. The proposal of NAGATA CO. rejected by SCHMID that the latter undertake the repair of the nine (9) other defective generators, with the former supplying the replacement parts free of charge and subsequently reimbursing the latter for labor costs [Exhibit "I"], cannot support the conclusion that SCHMID is vendor of the generators of the second transaction or was acting "within the purview of a seller." Finally, the afore-quoted penal provision in the Corporation Law finds no application to SCHMID and its officers and employees relative to the transactions in the instant case. What the law seeks to prevent, through said provision, is the circumvention by foreign corporations of licensing requirements through the device of employing local representatives. An indentor, acting in his own name, is not, however, covered by the above-quoted provision. In fact, the provision of the Rules and Regulations implementing the Omnibus Investments Code quoted above, which was copied from the Rules implementing Republic Act No. 5455, recognizes the distinct role of an indentor, such that when a foreign corporation does business through such indentor, the foreign corporation is not deemed doing business in the Philippines.

In view of the above considerations, this Court rules that SCHMID was merely acting as an indentor in the purchase and sale of the twelve (12) generators subject of the second transaction. Not being the vendor, SCHMID cannot be held liable for the implied warranty for hidden defects under the Civil Code [Art. 1561, et seq.] 2. However, even as SCHMID was merely an indentor, there was nothing to prevent it from voluntarily warranting that twelve (12) generators subject of the second transaction are free from any hidden defects. In other words, SCHMID may be held answerable for some other contractual obligation, if indeed it had so bound itself. As stated above, an indentor is to some extent an agent of both the vendor and the vendee. As such agent, therefore, he may expressly obligate himself to undertake the obligations of his principal (See Art. 1897, Civil Code.) The Court's inquiry, therefore, shifts to a determination of whether or not SCHMID expressly bound itself to warrant that the twelve (12) generators are free of any hidden defects. Again, we consider the facts. The Quotation (Exhibit A is in writing. It is the repository of the contract between RJL MARTINEZ and SCHMID. Notably, nowhere is it stated therein that SCHMID did bind itself to answer for the defects of the things sold. There being no allegation nor any proof that the Quotation does not express the true intent and agreement of the contracting parties, extrinsic parol evidence of warranty will be to no avail [See Rule 123, Sec. 22.] The trial court, however, relied on the testimony of Patrocinio Balagtas, the head of the Electrical Department of RJL MARTINEZ, to support the finding that SCHMID did warrant the twelve (12) generators against defects. Upon careful examination of Balagtas' testimony, what is at once apparent is that Balagtas failed to disclose the nature or terms and conditions of the warranty allegedly given by SC Was it a warranty that the generators would be fit for the fishing business of the buyer? Was it a warranty that the generators to be delivered would meet the specifications indicated in the Quotation? Considering the different kinds of warranties that may be contracted, unless the nature or terms and conditions of the warranty are known, it would not be possible to determine whether there has been a breach thereof. Moreover, a closer examination of the statements allegedly made by the representative of SCHMID reveals that they merely constituted an expression of opinion which cannot by any means be construed as a warranty [See Art. 1546, Civil Code.] We quote from Balagtas' testimony: Atty. CATRAL:

Q Did you not say at the start of your cross examination, Mr. Balagtas, that the only participation you had in the acquisition of those twelve (12) units [of] generators was your having issued a purchase order to your own company for the purchase of the units? ATTY. AQUINO: Misleading, your Honor. Atty. CATRAL: I am asking the witness. COURT: He has the right to ask that question because he is on cross. Moreover, if I remember, he mentioned something like that. Witness may answer. A Yes, sir. Before I submitted that, we negotiated with Schmid and Oberly the beat generators they can recommend because we are looking for generators. The representative of Schmid and Oberly said that Nagata is very good. That is why I recommended that to the management. [t.s.n., October 14, 1977, pp. 23-25.] At any rate, when asked where SCHMID's warranty was contained, Balagtas testified initially that it was in the receipts covering the sale. (At this point, it may be stated that the invoice [Exhibit "B-l"] was issued by NAGATA CO. and nowhere is it stated therein that SCHMID warranted the generators against defects.) When confronted with a copy of the invoice issued by NAGATA CO., he changed his assertion and claimed that what he meant was that the date of the commencement of the period of SCHMID's warranty would be based on the date of the invoice. On further examination, he again changed his mind and asserted that the warranty was given verbally [TSN, October 14, 1977, pp. 19-22.] But then again, as stated earlier, the witness failed to disclose the nature or terms and conditions of the warranty allegedly given by SCHMID. On the other hand, Hernan Adad SCHMID's General Manager, was categorical that the company does not warrant goods bought on indent and that the company warrants only the goods bought directly from it, like the three generators earlier bought by RJL MARTINEZ itself [TSN, December 19, 1977, pp. 63-64.] It must be recalled that SCHMID readily replaced the three generators from its own stock. In the face of these conflicting testimonies, this Court is of the view that RJL has failed to prove that SCHMID had given a warranty on the twelve (12) generators subject of the second transaction. Even assuming that a warranty was given, there is no way to determine

whether there has been a breach thereof, considering that its nature or terms and conditions have not been shown. 3. In view of the foregoing, it becomes unnecessary to pass upon the other issues. WHEREFORE, finding the Court of Appeals to have committed a reversible error, the petition is GRANTED and the appealed Decision and Resolution of the Court of Appeals are REVERSED. The complaint of RJL Martinez Fishing Corporation is hereby DISMISSED. No costs. SO ORDERED. G.R. No. 117356 June 19, 2000 OF APPEALS and

VICTORIAS MILLING CO., INC., petitioner,vs. COURT CONSOLIDATED SUGAR CORPORATION, respondents. DECISION QUISUMBING, J.:

Before us is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the decision of the Court of Appeals dated February 24, 1994, in CA-G.R. CV No. 31717, as well as the respondent court's resolution of September 30, 1994 modifying said decision. Both decision and resolution amended the judgment dated February 13, 1991, of the Regional Trial Court of Makati City, Branch 147, in Civil Case No. 90-118. The facts of this case as found by both the trial and appellate courts are as follows: St. Therese Merchandising (hereafter STM) regularly bought sugar from petitioner Victorias Milling Co., Inc., (VMC). In the course of their dealings, petitioner issued several Shipping List/Delivery Receipts (SLDRs) to STM as proof of purchases. Among these was SLDR No. 1214M, which gave rise to the instant case. Dated October 16, 1989, SLDR No. 1214M covers 25,000 bags of sugar. Each bag contained 50 kilograms and priced at P638.00 per bag as "per sales order VMC Marketing No. 042 dated October 16, 1989."1 The transaction it covered was a "direct sale."2 The SLDR also contains an additional note which reads: "subject for (sic) availability of a (sic) stock at NAWACO (warehouse)."3 On October 25, 1989, STM sold to private respondent Consolidated Sugar Corporation (CSC) its rights in SLDR No. 1214M for P 14,750,000.00. CSC issued one check dated October 25, 1989 and three checks postdated November 13, 1989 in payment. That same day, CSC wrote petitioner that it had been authorized by STM to withdraw the sugar covered by SLDR No. 1214M. Enclosed in the letter were a copy of SLDR No. 1214M and a letter of authority from STM authorizing CSC "to withdraw for and in our

behalf the refined sugar covered by Shipping List/Delivery Receipt-Refined Sugar (SDR) No. 1214 dated October 16, 1989 in the total quantity of 25,000 bags."4 On October 27, 1989, STM issued 16 checks in the total amount of P31,900,000.00 with petitioner as payee. The latter, in turn, issued Official Receipt No. 33743 dated October 27, 1989 acknowledging receipt of the said checks in payment of 50,000 bags. Aside from SLDR No. 1214M, said checks also covered SLDR No. 1213. Private respondent CSC surrendered SLDR No. 1214M to the petitioner's NAWACO warehouse and was allowed to withdraw sugar. However, after 2,000 bags had been released, petitioner refused to allow further withdrawals of sugar against SLDR No. 1214M. CSC then sent petitioner a letter dated January 23, 1990 informing it that SLDR No. 1214M had been "sold and endorsed" to it but that it had been refused further withdrawals of sugar from petitioner's warehouse despite the fact that only 2,000 bags had been withdrawn.5 CSC thus inquired when it would be allowed to withdraw the remaining 23,000 bags. On January 31, 1990, petitioner replied that it could not allow any further withdrawals of sugar against SLDR No. 1214M because STM had already dwithdrawn all the sugar covered by the cleared checks.6 On March 2, 1990, CSC sent petitioner a letter demanding the release of the balance of 23,000 bags. Seven days later, petitioner reiterated that all the sugar corresponding to the amount of STM's cleared checks had been fully withdrawn and hence, there would be no more deliveries of the commodity to STM's account. Petitioner also noted that CSC had represented itself to be STM's agent as it had withdrawn the 2,000 bags against SLDR No. 1214M "for and in behalf" of STM. On April 27, 1990, CSC filed a complaint for specific performance, docketed as Civil Case No. 90-1118. Defendants were Teresita Ng Sy (doing business under the name of St. Therese Merchandising) and herein petitioner. Since the former could not be served with summons, the case proceeded only against the latter. During the trial, it was discovered that Teresita Ng Go who testified for CSC was the same Teresita Ng Sy who could not be reached through summons.7 CSC, however, did not bother to pursue its case against her, but instead used her as its witness. CSC's complaint alleged that STM had fully paid petitioner for the sugar covered by SLDR No. 1214M. Therefore, the latter had no justification for refusing delivery of the sugar. CSC prayed that petitioner be ordered to deliver the 23,000 bags covered by SLDR No. 1214M and sought the award of P1,104,000.00 in unrealized profits, P3,000,000.00 as exemplary damages, P2,200,000.00 as attorney's fees and litigation expenses.

Petitioner's primary defense a quo was that it was an unpaid seller for the 23,000 bags.8 Since STM had already drawn in full all the sugar corresponding to the amount of its cleared checks, it could no longer authorize further delivery of sugar to CSC. Petitioner also contended that it had no privity of contract with CSC. Petitioner explained that the SLDRs, which it had issued, were not documents of title, but mere delivery receipts issued pursuant to a series of transactions entered into between it and STM. The SLDRs prescribed delivery of the sugar to the party specified therein and did not authorize the transfer of said party's rights and interests. Petitioner also alleged that CSC did not pay for the SLDR and was actually STM's coconspirator to defraud it through a misrepresentation that CSC was an innocent purchaser for value and in good faith. Petitioner then prayed that CSC be ordered to pay it the following sums: P10,000,000.00 as moral damages; P10,000,000.00 as exemplary damages; and P1,500,000.00 as attorney's fees. Petitioner also prayed that cross-defendant STM be ordered to pay it P10,000,000.00 in exemplary damages, and P1,500,000.00 as attorney's fees. Since no settlement was reached at pre-trial, the trial court heard the case on the merits. As earlier stated, the trial court rendered its judgment favoring private respondent CSC, as follows: "WHEREFORE, in view of the foregoing, the Court hereby renders judgment in favor of the plaintiff and against defendant Victorias Milling Company: "1) Ordering defendant Victorias Milling Company to deliver to the plaintiff 23,000 bags of refined sugar due under SLDR No. 1214; "2) Ordering defendant Victorias Milling Company to pay the amount of P920,000.00 as unrealized profits, the amount of P800,000.00 as exemplary damages and the amount of P1,357,000.00, which is 10% of the acquisition value of the undelivered bags of refined sugar in the amount of P13,570,000.00, as attorney's fees, plus the costs. "SO ORDERED."9 It made the following observations: "[T]he testimony of plaintiff's witness Teresita Ng Go, that she had fully paid the purchase price of P15,950,000.00 of the 25,000 bags of sugar bought by her covered by SLDR No. 1214 as well as the purchase price of P15,950,000.00 for the 25,000 bags of sugar bought by her covered by SLDR No. 1213 on the same date, October 16, 1989 (date of the two SLDRs) is duly supported by Exhibits C to C-15 inclusive which are post-dated checks dated October 27, 1989 issued by St. Therese Merchandising in

favor of Victorias Milling Company at the time it purchased the 50,000 bags of sugar covered by SLDR No. 1213 and 1214. Said checks appear to have been honored and duly credited to the account of Victorias Milling Company because on October 27, 1989 Victorias Milling Company issued official receipt no. 34734 in favor of St. Therese Merchandising for the amount of P31,900,000.00 (Exhibits B and B-1). The testimony of Teresita Ng Go is further supported by Exhibit F, which is a computer printout of defendant Victorias Milling Company showing the quantity and value of the purchases made by St. Therese Merchandising, the SLDR no. issued to cover the purchase, the official reciept no. and the status of payment. It is clear in Exhibit 'F' that with respect to the sugar covered by SLDR No. 1214 the same has been fully paid as indicated by the word 'cleared' appearing under the column of 'status of payment.' "On the other hand, the claim of defendant Victorias Milling Company that the purchase price of the 25,000 bags of sugar purchased by St. Therese Merchandising covered by SLDR No. 1214 has not been fully paid is supported only by the testimony of Arnulfo Caintic, witness for defendant Victorias Milling Company. The Court notes that the testimony of Arnulfo Caintic is merely a sweeping barren assertion that the purchase price has not been fully paid and is not corroborated by any positive evidence. There is an insinuation by Arnulfo Caintic in his testimony that the postdated checks issued by the buyer in payment of the purchased price were dishonored. However, said witness failed to present in Court any dishonored check or any replacement check. Said witness likewise failed to present any bank record showing that the checks issued by the buyer, Teresita Ng Go, in payment of the purchase price of the sugar covered by SLDR No. 1214 were dishonored."10 Petitioner appealed the trial courts decision to the Court of Appeals. On appeal, petitioner averred that the dealings between it and STM were part of a series of transactions involving only one account or one general contract of sale. Pursuant to this contract, STM or any of its authorized agents could withdraw bags of sugar only against cleared checks of STM. SLDR No. 21214M was only one of 22 SLDRs issued to STM and since the latter had already withdrawn its full quota of sugar under the said SLDR, CSC was already precluded from seeking delivery of the 23,000 bags of sugar. Private respondent CSC countered that the sugar purchases involving SLDR No. 1214M were separate and independent transactions and that the details of the series of purchases were contained in a single statement with a consolidated summary of cleared check payments and sugar stock withdrawals because this a more convenient system than issuing separate statements for each purchase. The appellate court considered the following issues: (a) Whether or not the transaction between petitioner and STM involving SLDR No. 1214M was a separate, independent, and single transaction; (b) Whether or not CSC had the capacity to sue on its own on SLDR No. 1214M; and (c) Whether or not CSC as buyer from STM of the rights to

25,000 bags of sugar covered by SLDR No. 1214M could compel petitioner to deliver 23,000 bagsallegedly unwithdrawn. On February 24, 1994, the Court of Appeals rendered its decision modifying the trial court's judgment, to wit: "WHEREFORE, the Court hereby MODIFIES the assailed judgment and orders defendant-appellant to: "1) Deliver to plaintiff-appellee 12,586 bags of sugar covered by SLDR No. 1214M; "2) Pay to plaintiff-appellee P792,918.00 which is 10% of the value of the undelivered bags of refined sugar, as attorneys fees; "3) Pay the costs of suit. "SO ORDERED."11 Both parties then seasonably filed separate motions for reconsideration. In its resolution dated September 30, 1994, the appellate court modified its decision to read: "WHEREFORE, the Court hereby modifies the assailed judgment and orders defendantappellant to: "(1) Deliver to plaintiff-appellee 23,000 bags of refined sugar under SLDR No. 1214M; "(2) Pay costs of suit. "SO ORDERED."12 The appellate court explained the rationale for the modification as follows: "There is merit in plaintiff-appellee's position. "Exhibit F' We relied upon in fixing the number of bags of sugar which remained undelivered as 12,586 cannot be made the basis for such a finding. The rule is explicit that courts should consider the evidence only for the purpose for which it was offered. (People v. Abalos, et al, 1 CA Rep 783). The rationale for this is to afford the party against whom the evidence is presented to object thereto if he deems it necessary. Plaintiff-appellee is, therefore, correct in its argument that Exhibit F' which was offered to prove that checks in the total amount of P15,950,000.00 had been

cleared. (Formal Offer of Evidence for Plaintiff, Records p. 58) cannot be used to prove the proposition that 12,586 bags of sugar remained undelivered. "Testimonial evidence (Testimonies of Teresita Ng [TSN, 10 October 1990, p. 33] and Marianito L. Santos [TSN, 17 October 1990, pp. 16, 18, and 36]) presented by plaintiffappellee was to the effect that it had withdrawn only 2,000 bags of sugar from SLDR after which it was not allowed to withdraw anymore. Documentary evidence (Exhibit I, Id., p. 78, Exhibit K, Id., p. 80) show that plaintiff-appellee had sent demand letters to defendant-appellant asking the latter to allow it to withdraw the remaining 23,000 bags of sugar from SLDR 1214M. Defendant-appellant, on the other hand, alleged that sugar delivery to the STM corresponded only to the value of cleared checks; and that all sugar corresponded to cleared checks had been withdrawn. Defendant-appellant did not rebut plaintiff-appellee's assertions. It did not present evidence to show how many bags of sugar had been withdrawn against SLDR No. 1214M, precisely because of its theory that all sales in question were a series of one single transaction and withdrawal of sugar depended on the clearing of checks paid therefor. "After a second look at the evidence, We see no reason to overturn the findings of the trial court on this point."13 Hence, the instant petition, positing the following errors as grounds for review: "1. The Court of Appeals erred in not holding that STM's and private respondent's specially informing petitioner that respondent was authorized by buyer STM to withdraw sugar against SLDR No. 1214M "for and in our (STM) behalf," (emphasis in the original) private respondent's withdrawing 2,000 bags of sugar for STM, and STM's empowering other persons as its agents to withdraw sugar against the same SLDR No. 1214M, rendered respondent like the other persons, an agent of STM as held in Rallos v. Felix Go Chan & Realty Corp., 81 SCRA 252, and precluded it from subsequently claiming and proving being an assignee of SLDR No. 1214M and from suing by itself for its enforcement because it was conclusively presumed to be an agent (Sec. 2, Rule 131, Rules of Court) and estopped from doing so. (Art. 1431, Civil Code). "2. The Court of Appeals erred in manifestly and arbitrarily ignoring and disregarding certain relevant and undisputed facts which, had they been considered, would have shown that petitioner was not liable, except for 69 bags of sugar, and which would justify review of its conclusion of facts by this Honorable Court. "3. The Court of Appeals misapplied the law on compensation under Arts. 1279, 1285 and 1626 of the Civil Code when it ruled that compensation applied only to credits from one SLDR or contract and not to those from two or more distinct contracts between the same parties; and erred in denying petitioner's right to setoff all its credits arising prior to notice of assignment from other sales or SLDRs against private respondent's claim as assignee under SLDR No. 1214M,

so as to extinguish or reduce its liability to 69 bags, because the law on compensation applies precisely to two or more distinct contracts between the same parties (emphasis in the original). "4. The Court of Appeals erred in concluding that the settlement or liquidation of accounts in Exh. F between petitioner and STM, respondent's admission of its balance, and STM's acquiescence thereto by silence for almost one year did not render Exh. `F' an account stated and its balance binding. "5. The Court of Appeals erred in not holding that the conditions of the assigned SLDR No. 1214, namely, (a) its subject matter being generic, and (b) the sale of sugar being subject to its availability at the Nawaco warehouse, made the sale conditional and prevented STM or private respondent from acquiring title to the sugar; and the non-availability of sugar freed petitioner from further obligation. "6. The Court of Appeals erred in not holding that the "clean hands" doctrine precluded respondent from seeking judicial reliefs (sic) from petitioner, its only remedy being against its assignor."14 Simply stated, the issues now to be resolved are: (1)....Whether or not the Court of Appeals erred in not ruling that CSC was an agent of STM and hence, estopped to sue upon SLDR No. 1214M as an assignee. (2)....Whether or not the Court of Appeals erred in applying the law on compensation to the transaction under SLDR No. 1214M so as to preclude petitioner from offsetting its credits on the other SLDRs. (3)....Whether or not the Court of Appeals erred in not ruling that the sale of sugar under SLDR No. 1214M was a conditional sale or a contract to sell and hence freed petitioner from further obligations. (4)....Whether or not the Court of Appeals committed an error of law in not applying the "clean hands doctrine" to preclude CSC from seeking judicial relief. The issues will be discussed in seriatim. Anent the first issue, we find from the records that petitioner raised this issue for the first time on appeal. It is settled that an issue which was not raised during the trial in the court below could not be raised for the first time on appeal as to do so would be offensive to the basic rules of fair play, justice, and due process.15 Nonetheless, the Court of Appeals opted to address this issue, hence, now a matter for our consideration.
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Petitioner heavily relies upon STM's letter of authority allowing CSC to withdraw sugar against SLDR No. 1214M to show that the latter was STM's agent. The pertinent portion of said letter reads: "This is to authorize Consolidated Sugar Corporation or its representative to withdraw for and in our behalf (stress supplied) the refined sugar covered by Shipping List/Delivery Receipt = Refined Sugar (SDR) No. 1214 dated October 16, 1989 in the total quantity of 25, 000 bags."16 The Civil Code defines a contract of agency as follows: "Art. 1868. By the contract of agency a person binds himself to render some service or to do something in representation or on behalf of another, with the consent or authority of the latter." It is clear from Article 1868 that the basis of agency is representation. 17 On the part of the principal, there must be an actual intention to appoint 18 or an intention naturally inferable from his words or actions;19 and on the part of the agent, there must be an intention to accept the appointment and act on it,20 and in the absence of such intent, there is generally no agency.21 One factor which most clearly distinguishes agency from other legal concepts is control; one person - the agent - agrees to act under the control or direction of another - the principal. Indeed, the very word "agency" has come to connote control by the principal.22 The control factor, more than any other, has caused the courts to put contracts between principal and agent in a separate category. 23 The Court of Appeals, in finding that CSC, was not an agent of STM, opined: "This Court has ruled that where the relation of agency is dependent upon the acts of the parties, the law makes no presumption of agency, and it is always a fact to be proved, with the burden of proof resting upon the persons alleging the agency, to show not only the fact of its existence, but also its nature and extent (Antonio vs. Enriquez[CA], 51 O.G. 3536]. Here, defendant-appellant failed to sufficiently establish the existence of an agency relation between plaintiff-appellee and STM. The fact alone that it (STM) had authorized withdrawal of sugar by plaintiff-appellee "for and in our (STM's) behalf" should not be eyed as pointing to the existence of an agency relation ...It should be viewed in the context of all the circumstances obtaining. Although it would seem STM represented plaintiff-appellee as being its agent by the use of the phrase "for and in our (STM's) behalf" the matter was cleared when on 23 January 1990, plaintiffappellee informed defendant-appellant that SLDFR No. 1214M had been "sold and endorsed" to it by STM (Exhibit I, Records, p. 78). Further, plaintiff-appellee has shown that the 25, 000 bags of sugar covered by the SLDR No. 1214M were sold and transferred by STM to it ...A conclusion that there was a valid sale and transfer to plaintiff-appellee may, therefore, be made thus capacitating plaintiff-appellee to sue in its own name, without need of joining its imputed principal STM as co-plaintiff."24 In the instant case, it appears plain to us that private respondent CSC was a buyer of the SLDFR form, and not an agent of STM. Private respondent CSC was not subject to

STM's control. The question of whether a contract is one of sale or agency depends on the intention of the parties as gathered from the whole scope and effect of the language employed.25 That the authorization given to CSC contained the phrase "for and in our (STM's) behalf" did not establish an agency. Ultimately, what is decisive is the intention of the parties.26 That no agency was meant to be established by the CSC and STM is clearly shown by CSC's communication to petitioner that SLDR No. 1214M had been "sold and endorsed" to it.27 The use of the words "sold and endorsed" means that STM and CSC intended a contract of sale, and not an agency. Hence, on this score, no error was committed by the respondent appellate court when it held that CSC was not STM's agent and could independently sue petitioner. On the second issue, proceeding from the theory that the transactions entered into between petitioner and STM are but serial parts of one account, petitioner insists that its debt has been offset by its claim for STM's unpaid purchases, pursuant to Article 1279 of the Civil Code.28 However, the trial court found, and the Court of Appeals concurred, that the purchase of sugar covered by SLDR No. 1214M was a separate and independent transaction; it was not a serial part of a single transaction or of one account contrary to petitioner's insistence. Evidence on record shows, without being rebutted, that petitioner had been paid for the sugar purchased under SLDR No. 1214M. Petitioner clearly had the obligation to deliver said commodity to STM or its assignee. Since said sugar had been fully paid for, petitioner and CSC, as assignee of STM, were not mutually creditors and debtors of each other. No reversible error could thereby be imputed to respondent appellate court when, it refused to apply Article 1279 of the Civil Code to the present case. Regarding the third issue, petitioner contends that the sale of sugar under SLDR No. 1214M is a conditional sale or a contract to sell, with title to the sugar still remaining with the vendor. Noteworthy, SLDR No. 1214M contains the following terms and conditions: "It is understood and agreed that by payment by buyer/trader of refined sugar and/or receipt of this document by the buyer/trader personally or through a representative, title to refined sugar is transferred to buyer/trader and delivery to him/it is deemed effected and completed (stress supplied) and buyer/trader assumes full responsibility therefore"29 The aforequoted terms and conditions clearly show that petitioner transferred title to the sugar to the buyer or his assignee upon payment of the purchase price. Said terms clearly establish a contract of sale, not a contract to sell. Petitioner is now estopped from alleging the contrary. The contract is the law between the contracting parties. 30 And where the terms and conditions so stipulated are not contrary to law, morals, good customs, public policy or public order, the contract is valid and must be upheld.31 Having transferred title to the sugar in question, petitioner is now obliged to deliver it to the purchaser or its assignee. As to the fourth issue, petitioner submits that STM and private respondent CSC have entered into a conspiracy to defraud it of its sugar. This conspiracy is allegedly

evidenced by: (a) the fact that STM's selling price to CSC was below its purchasing price; (b) CSC's refusal to pursue its case against Teresita Ng Go; and (c) the authority given by the latter to other persons to withdraw sugar against SLDR No. 1214M after she had sold her rights under said SLDR to CSC. Petitioner prays that the doctrine of "clean hands" should be applied to preclude CSC from seeking judicial relief. However, despite careful scrutiny, we find here the records bare of convincing evidence whatsoever to support the petitioner's allegations of fraud. We are now constrained to deem this matter purely speculative, bereft of concrete proof. WHEREFORE, the instant petition is DENIED for lack of merit. Costs against petitioner. SO ORDERED. G.R. No. 149420 October 8, 2003

SONNY LO, petitioner, vs. KJS ECO-FORMWORK SYSTEM PHIL., INC., respondent. DECISION YNARES-SANTIAGO, J.: Respondent KJS ECO-FORMWORK System Phil., Inc. is a corporation engaged in the sale of steel scaffoldings, while petitioner Sonny L. Lo, doing business under the name and style Sans Enterprises, is a building contractor. On February 22, 1990, petitioner ordered scaffolding equipments from respondent worth P540,425.80.1 He paid a downpayment in the amount of P150,000.00. The balance was made payable in ten monthly installments. Respondent delivered the scaffoldings to petitioner.2 Petitioner was able to pay the first two monthly installments. His business, however, encountered financial difficulties and he was unable to settle his obligation to respondent despite oral and written demands made against him.3
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On October 11, 1990, petitioner and respondent executed a Deed of Assignment,4 whereby petitioner assigned to respondent his receivables in the amount of P335,462.14 from Jomero Realty Corporation. Pertinent portions of the Deed provide: WHEREAS, the ASSIGNOR is the contractor for the construction of a residential house located at Greenmeadow Avenue, Quezon City owned by Jomero Realty Corporation; WHEREAS, in the construction of the aforementioned residential house, the ASSIGNOR purchased on account scaffolding equipments from the ASSIGNEE payable to the latter;

WHEREAS, up to the present the ASSIGNOR has an obligation to the ASSIGNEE for the purchase of the aforementioned scaffoldings now in the amount of Three Hundred Thirty Five Thousand Four Hundred Sixty Two and 14/100 Pesos (P335,462.14); NOW, THEREFORE, for and in consideration of the sum of Three Hundred Thirty Five Thousand Four Hundred Sixty Two and 14/100 Pesos (P335,462.14), Philippine Currency which represents part of the ASSIGNORs collectible from Jomero Realty Corp., said ASSIGNOR hereby assigns, transfers and sets over unto the ASSIGNEE all collectibles amounting to the said amount of P335, 462.14; And the ASSIGNOR does hereby grant the ASSIGNEE, its successors and assigns, the full power and authority to demand, collect, receive, compound, compromise and give acquittance for the same or any part thereof, and in the name and stead of the said ASSIGNOR; And the ASSIGNOR does hereby agree and stipulate to and with said ASSIGNEE, its successors and assigns that said debt is justly owing and due to the ASSIGNOR for Jomero Realty Corporation and that said ASSIGNOR has not done and will not cause anything to be done to diminish or discharge said debt, or delay or to prevent the ASSIGNEE, its successors or assigns, from collecting the same; And the ASSIGNOR further agrees and stipulates as aforesaid that the said ASSIGNOR, his heirs, executors, administrators, or assigns, shall and will at times hereafter, at the request of said ASSIGNEE, its successors or assigns, at his cost and expense, execute and do all such further acts and deeds as shall be reasonably necessary to effectually enable said ASSIGNEE to recover whatever collectibles said ASSIGNOR has in accordance with the true intent and meaning of these presents. xxx5 (Italics supplied) However, when respondent tried to collect the said credit from Jomero Realty Corporation, the latter refused to honor the Deed of Assignment because it claimed that petitioner was also indebted to it.6 On November 26, 1990, respondent sent a letter7 to petitioner demanding payment of his obligation, but petitioner refused to pay claiming that his obligation had been extinguished when they executed the Deed of Assignment. Consequently, on January 10, 1991, respondent filed an action for recovery of a sum of money against the petitioner before the Regional Trial Court of Makati, Branch 147, which was docketed as Civil Case No. 91-074.8 During the trial, petitioner argued that his obligation was extinguished with the execution of the Deed of Assignment of credit. Respondent, for its part, presented the testimony of its employee, Almeda Baaga, who testified that Jomero Realty refused to honor the assignment of credit because it claimed that petitioner had an outstanding indebtedness to it.

On August 25, 1994, the trial court rendered a decision 9 dismissing the complaint on the ground that the assignment of credit extinguished the obligation. The decretal portion thereof provides: WHEREFORE, in view of the foregoing, the Court hereby renders judgment in favor of the defendant and against the plaintiff, dismissing the complaint and ordering the plaintiff to pay the defendant attorneys fees in the amount of P25,000.00.
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Respondent appealed the decision to the Court of Appeals. On April 19, 2001, the appellate court rendered a decision,10 the dispositive portion of which reads: WHEREFORE, finding merit in this appeal, the court REVERSES the appealed Decision and enters judgment ordering defendant-appellee Sonny Lo to pay the plaintiffappellant KJS ECO-FORMWORK SYSTEM PHILIPPINES, INC. Three Hundred Thirty Five Thousand Four Hundred Sixty-Two and 14/100 (P335,462.14) with legal interest of 6% per annum from January 10, 1991 (filing of the Complaint) until fully paid and attorneys fees equivalent to 10% of the amount due and costs of the suit. SO ORDERED.11 In finding that the Deed of Assignment did not extinguish the obligation of the petitioner to the respondent, the Court of Appeals held that (1) petitioner failed to comply with his warranty under the Deed; (2) the object of the Deed did not exist at the time of the transaction, rendering it void pursuant to Article 1409 of the Civil Code; and (3) petitioner violated the terms of the Deed of Assignment when he failed to execute and do all acts and deeds as shall be necessary to effectually enable the respondent to recover the collectibles.12 Petitioner filed a motion for reconsideration of the said decision, which was denied by the Court of Appeals.13 In this petition for review, petitioner assigns the following errors: I THE HONORABLE COURT OF APPEALS COMMITTED A GRAVE ERROR IN DECLARING THE DEED OF ASSIGNMENT (EXH. "4") AS NULL AND VOID FOR LACK OF OBJECT ON THE BASIS OF A MERE HEARSAY CLAIM. II THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE DEED OF ASSIGNMENT (EXH. "4") DID NOT EXTINGUISH PETITIONERS OBLIGATION ON THE WRONG NOTION THAT PETITIONER FAILED TO COMPLY WITH HIS WARRANTY THEREUNDER.

III THE HONORABLE COURT OF APPEALS ERRED IN REVERSING THE DECISION OF THE TRIAL COURT AND IN ORDERING PAYMENT OF INTERESTS AND ATTORNEYS FEES.14 The petition is without merit. An assignment of credit is an agreement by virtue of which the owner of a credit, known as the assignor, by a legal cause, such as sale, dacion en pago, exchange or donation, and without the consent of the debtor, transfers his credit and accessory rights to another, known as the assignee, who acquires the power to enforce it to the same extent as the assignor could enforce it against the debtor.15 Corollary thereto, in dacion en pago, as a special mode of payment, the debtor offers another thing to the creditor who accepts it as equivalent of payment of an outstanding debt.16 In order that there be a valid dation in payment, the following are the requisites: (1) There must be the performance of the prestation in lieu of payment (animo solvendi) which may consist in the delivery of a corporeal thing or a real right or a credit against the third person; (2) There must be some difference between the prestation due and that which is given in substitution (aliud pro alio); (3) There must be an agreement between the creditor and debtor that the obligation is immediately extinguished by reason of the performance of a prestation different from that due.17 The undertaking really partakes in one sense of the nature of sale, that is, the creditor is really buying the thing or property of the debtor, payment for which is to be charged against the debtors debt. As such, the vendor in good faith shall be responsible, for the existence and legality of the credit at the time of the sale but not for the solvency of the debtor, in specified circumstances.18 Hence, it may well be that the assignment of credit, which is in the nature of a sale of personal property,19produced the effects of a dation in payment which may extinguish the obligation.20 However, as in any other contract of sale, the vendor or assignor is bound by certain warranties. More specifically, the first paragraph of Article 1628 of the Civil Code provides: The vendor in good faith shall be responsible for the existence and legality of the credit at the time of the sale, unless it should have been sold as doubtful; but not for the solvency of the debtor, unless it has been so expressly stipulated or unless the insolvency was prior to the sale and of common knowledge. From the above provision, petitioner, as vendor or assignor, is bound to warrant the existence and legality of the credit at the time of the sale or assignment. When Jomero claimed that it was no longer indebted to petitioner since the latter also had an unpaid obligation to it, it essentially meant that its obligation to petitioner has been extinguished by compensation.21 In other words, respondent alleged the non-existence of the credit

and asserted its claim to petitioners warranty under the assignment. Therefore, it behooved on petitioner to make good its warranty and paid the obligation. Furthermore, we find that petitioner breached his obligation under the Deed of Assignment, to wit: And the ASSIGNOR further agrees and stipulates as aforesaid that the said ASSIGNOR, his heirs, executors, administrators, or assigns, shall and will at times hereafter, at the request of said ASSIGNEE, its successors or assigns, at his cost and expense, execute and do all such further acts and deeds as shall be reasonably necessary to effectually enable said ASSIGNEE to recover whatever collectibles said ASSIGNOR has in accordance with the true intent and meaning of these presents.22 (underscoring ours) Indeed, by warranting the existence of the credit, petitioner should be deemed to have ensured the performance thereof in case the same is later found to be inexistent. He should be held liable to pay to respondent the amount of his indebtedness. Hence, we affirm the decision of the Court of Appeals ordering petitioner to pay respondent the sum of P335,462.14 with legal interest thereon. However, we find that the award by the Court of Appeals of attorneys fees is without factual basis. No evidence or testimony was presented to substantiate this claim. Attorneys fees, being in the nature of actual damages, must be duly substantiated by competent proof. WHEREFORE, in view of the foregoing, the Decision of the Court of Appeals dated April 19, 2001 in CA-G.R. CV No. 47713, ordering petitioner to pay respondent the sum of P335,462.14 with legal interest of 6% per annum from January 10, 1991 until fully paid is AFFIRMED with MODIFICATION. Upon finality of this Decision, the rate of legal interest shall be 12% per annum, inasmuch as the obligation shall thereafter become equivalent to a forbearance of credit.23 The award of attorneys fees is DELETED for lack of evidentiary basis. SO ORDERED. G.R. No. L-46658 May 13, 1991 PHILIPPINE NATIONAL BANK, petitioner,vs.HON. GREGORIO G. PINEDA, in his capacity as Presiding Judge of the Court of First Instance of Rizal, Branch XXI and TAYABAS CEMENT COMPANY, INC., respondents. FERNAN, C.J.:p In this petition for certiorari, petitioner Philippine National Bank (PNB) seeks to annul and set aside the orders dated March 4, 1977 and May 31, 1977 rendered in Civil Case No. 24422 1 of the Court of First Instance of Rizal, Branch XXI, respectively granting private respondent Tayabas Cement Company, Inc.'s application for a writ of

preliminary injunction to enjoin the foreclosure sale of certain properties in Quezon City and Negros Occidental and denying petitioner's motion for reconsideration thereof. In 1963, Ignacio Arroyo, married to Lourdes Tuason Arroyo (the Arroyo Spouses), obtained a loan of P580,000.00 from petitioner bank to purchase 60% of the subscribed capital stock, and thereby acquire the controlling interest of private respondent Tayabas Cement Company, Inc. (TCC). 2 As security for said loan, the spouses Arroyo executed a real estate mortgage over a parcel of land covered by Transfer Certificate of Title No. 55323 of the Register of Deeds of Quezon City known as the La Vista property. Thereafter, TCC filed with petitioner bank an application and agreement for the establishment of an eight (8) year deferred letter of credit (L/C) for $7,000,000.00 in favor of Toyo Menka Kaisha, Ltd. of Tokyo, Japan, to cover the importation of a cement plant machinery and equipment. Upon approval of said application and opening of an L/C by PNB in favor of Toyo Menka Kaisha, Ltd. for the account of TCC, the Arroyo spouses executed the following documents to secure this loan accommodation: Surety Agreement dated August 5, 1964 3 and Covenant dated August 6, 1964. 4 The imported cement plant machinery and equipment arrived from Japan and were released to TCC under a trust receipt agreement. Subsequently, Toyo Menka Kaisha, Ltd. made the corresponding drawings against the L/C as scheduled. TCC, however, failed to remit and/or pay the corresponding amount covered by the drawings. Thus, on May 19, 1968, pursuant to the trust receipt agreement, PNB notified TCC of its intention to repossess, as it later did, the imported machinery and equipment for failure of TCC to settle its obligations under the L/C. 5 In the meantime, the personal accounts of the spouses Arroyo, which included another loan of P160,000.00 secured by a real estate mortgage over parcels of agricultural land known as Hacienda Bacon located in Isabela, Negros Occidental, had likewise become due. The spouses Arroyo having failed to satisfy their obligations with PNB, the latter decided to foreclose the real estate mortgages executed by the spouses Arroyo in its favor. On July 18, 1975, PNB filed with the City Sheriff of Quezon City a petition for extrajudicial foreclosure under Act 3138, as amended by Act 4118 and under Presidential Decree No. 385 of the real estate mortgage over the properties known as the La Vista property covered by TCT No. 55323. 6 PNB likewise filed a similar petition with the City Sheriff of Bacolod, Negros Occidental with respect to the mortgaged properties located at Isabela, Negros Occidental and covered by OCT No. RT 1615. The foreclosure sale of the La Vista property was scheduled on August 11, 1975. At the auction sale, PNB was the highest bidder with a bid price of P1,000,001.00. However, when said property was about to be awarded to PNB, the representative of the mortgagor-spouses objected and demanded from the PNB the difference between the

bid price of P1,000,001.00 and the indebtedness of P499,060.25 of the Arroyo spouses on their personal account. It was the contention of the spouses Arroyo's representative that the foreclosure proceedings referred only to the personal account of the mortgagor spouses without reference to the account of TCC. To remedy the situation, PNB filed a supplemental petition on August 13, 1975 requesting the Sheriff's Office to proceed with the sale of the subject real properties to satisfy not only the amount of P499,060.25 owed by the spouses Arroyos on their personal account but also the amount of P35,019,901.49 exclusive of interest, commission charges and other expenses owed by said spouses as sureties of TCC. 7 Said petition was opposed by the spouses Arroyo and the other bidder, Jose L. Araneta. On September 12, 1975, Acting Clerk of Court and Ex-Officio Sheriff Diana L. Dungca issued a resolution finding that the questions raised by the parties required the reception and evaluation of evidence, hence, proper for adjudication by the courts of law. Since said questions were prejudicial to the holding of the foreclosure sale, she ruled that her "Office, therefore, cannot properly proceed with the foreclosure sale unless and until there be a court ruling on the aforementioned issues." 8 Thus, in May, 1976, PNB filed with the Court of First Instance of Quezon City, Branch V a petition for mandamus 9against said Diana Dungca in her capacity as City Sheriff of Quezon City to compel her to proceed with the foreclosure sale of the mortgaged properties covered by TCT No. 55323 in order to satisfy both the personal obligation of the spouses Arroyo as well as their liabilities as sureties of TCC. 10 On September 6, 1976, the petition was granted and Dungca was directed to proceed with the foreclosure sale of the mortgaged properties covered by TCT No. 55323 pursuant to Act No. 3135 and to issue the corresponding Sheriff's Certificate of Sale. 11 Before the decision could attain finality, TCC filed on September 14, 1976 before the Court of First Instance of Rizal, Pasig, Branch XXI a complaint 12 against PNB, Dungca, and the Provincial Sheriff of Negros Occidental and Ex-Officio Sheriff of Bacolod City seeking, inter alia, the issuance of a writ of preliminary injunction to restrain the foreclosure of the mortgages over the La Vista property and Hacienda Bacon as well as a declaration that its obligation with PNB had been fully paid by reason of the latter's repossession of the imported machinery and equipment. 13 On October 5, 1976, the CFI, thru respondent Judge Gregorio Pineda, issued a restraining order 14 and on March 4, 1977, granted a writ of preliminary injunction. 15 PNB's motion for reconsideration was denied, hence this petition. Petitioner PNB advances four grounds for the setting aside of the writ of preliminary injunction, namely: a) that it contravenes P.D. No. 385 which prohibits the issuance of a restraining order against a government financial institution in any action taken by such institution in compliance with the mandatory foreclosure provided in Section 1 thereof;

b) that the writ countermands a final decision of a co-equal and coordinate court; c) that the writ seeks to prohibit the performance of acts beyond the court's territorial jurisdiction; and, d) private respondent TCC has not shown any clear legal right or necessity to the relief of preliminary injunction. Private respondent TCC counters with the argument that P.D. No. 385 does not apply to the case at bar, firstly because no foreclosure proceedings have been instituted against it by PNB and secondly, because its account under the L/C has been fully satisfied with the repossession of the imported machinery and equipment by PNB. The resolution of the instant controversy lies primarily on the question of whether or not TCC's liability has been extinguished by the repossession of PNB of the imported cement plant machinery and equipment. We rule for the petitioner PNB. It must be remembered that PNB took possession of the imported cement plant machinery and equipment pursuant to the trust receipt agreement executed by and between PNB and TCC giving the former the unqualified right to the possession and disposal of all property shipped under the Letter of Credit until such time as all the liabilities and obligations under said letter had been discharged. 16 In the case of Vintola vs. Insular Bank of Asia and America 17 wherein the same argument was advanced by the Vintolas as entrustees of imported seashells under a trust receipt transaction, we said: Further, the VINTOLAS take the position that their obligation to IBAA has been extinguished inasmuch as, through no fault of their own, they were unable to dispose of the seashells, and that they have relinquished possession thereof to the IBAA, as owner of the goods, by depositing them with the Court. The foregoing submission overlooks the nature and mercantile usage of the transaction involved. A letter of credit-trust receipt arrangement is endowed with its own distinctive features and characteristics. Under that set-up, a bank extends a loan covered by the Letter of Credit, with the trust receipt as a security for the loan. In other words, the transaction involves a loan feature represented by the letter of credit, and a security feature which is in the covering trust receipt. xxx xxx xxx A trust receipt, therefore, is a security agreement, pursuant to which a bank acquires a "security interest" in the goods. It secures an indebtedness and there can be no such thing as security interest that secures no obligation. As defined in our laws: (h) "Security interest" means a property interest in goods, documents or instruments to secure performance of some

obligations of the entrustee or of some third persons to the entruster and includes title, whether or not expressed to be absolute, whenever such title is in substance taken or retained for security only. xxx xxx xxx Contrary to the allegation of the VINTOLAS, IBAA did not become the real owner of the goods. It was merely the holder of a security title for the advances it had made to the VINTOLAS. The goods the VINTOLAS had purchased through IBAA financing remain their own property and they hold it at their own risk. The trust receipt arrangement did not convert the IBAA into an investor; the latter remained a lender and creditor. xxx xxx xxx Since the IBAA is not the factual owner of the goods, the VINTOLAS cannot justifiably claim that because they have surrendered the goods to IBAA and subsequently deposited them in the custody of the court, they are absolutely relieved of their obligation to pay their loan because of their inability to dispose of the goods. The fact that they were unable to sell the seashells in question does not affect IBAA's right to recover the advances it had made under the Letter of Credit. PNB's possession of the subject machinery and equipment being precisely as a form of security for the advances given to TCC under the Letter of Credit, said possession by itself cannot be considered payment of the loan secured thereby. Payment would legally result only after PNB had foreclosed on said securities, sold the same and applied the proceeds thereof to TCC's loan obligation. Mere possession does not amount to foreclosure for foreclosure denotes the procedure adopted by the mortgagee to terminate the rights of the mortgagor on the property and includes the sale itself. 18 Neither can said repossession amount to dacion en pago. Dation in payment takes place when property is alienated to the creditor in satisfaction of a debt in money and the same is governed by sales. 19 Dation in payment is the delivery and transmission of ownership of a thing by the debtor to the creditor as an accepted equivalent of the performance of the obligation. 20 As aforesaid, the repossession of the machinery and equipment in question was merely to secure the payment of TCC's loan obligation and not for the purpose of transferring ownership thereof to PNB in satisfaction of said loan. Thus, no dacion en pago was ever accomplished. Proceeding from this finding, PNB has the right to foreclose the mortgages executed by the spouses Arroyo as sureties of TCC. A surety is considered in law as being the same party as the debtor in relation to whatever is adjudged touching the obligation of the latter, and their liabilities are interwoven as to be inseparable. 21 As sureties, the Arroyo

spouses are primarily liable as original promissors and are bound immediately to pay the creditor the amount outstanding. 22 Under Presidential Decree No. 385 which took effect on January 31, 1974, government financial institutions like herein petitioner PNB are required to foreclose on the collaterals and/or securities for any loan, credit or accommodation whenever the arrearages on such account amount to at least twenty percent (20%) of the total outstanding obligations, including interests and charges, as appearing in the books of account of the financial institution concerned. 23 It is further provided therein that "no restraining order, temporary or permanent injunction shall be issued by the court against any government financial institution in any action taken by such institution in compliance with the mandatory foreclosure provided in Section 1 hereof, whether such restraining order, temporary or permanent injunction is sought by the borrower(s) or any third party or parties . . ." 24 It is not disputed that the foreclosure proceedings instituted by PNB against the Arroyo spouses were in compliance with the mandate of P.D. 385. This being the case, the respondent judge acted in excess of his jurisdiction in issuing the injunction specifically proscribed under said decree. Another reason for striking down the writ of preliminary injunction complained of is that it interfered with the order of a co-equal and coordinate court. Since Branch V of the CFI of Rizal had already acquired jurisdiction over the question of foreclosure of mortgage over the La Vista property and rendered judgment in relation thereto, then it retained jurisdiction to the exclusion of all other coordinate courts over its judgment, including all incidents relative to the control and conduct of its ministerial officers, namely the sheriff thereof. 25 The foreclosure sale having been ordered by Branch V of the CFI of Rizal, TCC should not have filed injunction proceedings with Branch XXI of the same CFI, but instead should have first sought relief by proper motion and application from the former court which had exclusive jurisdiction over the foreclosure proceeding. 26 This doctrine of non-interference is premised on the principle that a judgment of a court of competent jurisdiction may not be opened, modified or vacated by any court of concurrent jurisdiction. 27 Furthermore, we find the issuance of the preliminary injunction directed against the Provincial Sheriff of Negros Occidental and ex-officio Sheriff of Bacolod City a jurisdictional faux pas as the Courts of First Instance, now Regional Trial Courts, can only enforce their writs of injunction within their respective designated territories. 28 WHEREFORE, the instant petition is hereby granted. The assailed orders are hereby set aside. Costs against private respondent.

G.R. No. 175952

April 30, 2008

SOCIAL SECURITY SYSTEM, petitioner, vs.ATLANTIC GULF AND PACIFIC COMPANY OF MANILA, INC. and SEMIRARA COAL CORPORATION, respondents. TINGA, J.: In this Petition for Review on Certiorari1 under Rule 45 of the 1997 Rules of Civil Procedure, petitioner Republic of the Philippines represented by the Social Security System (SSS) assails the Decision2 dated 31 August 2006 of the Eleventh Division of the Court of Appeals and its Resolution3 dated 19 December 2006 denying petitioners Motion for Reconsideration. Following are the antecedents culled from the decision of the Court of Appeals: On 13 February 2004, Atlantic Gulf and Pacific Company of Manila, Inc. (AG & P) and Semirara Coal Corporation (SEMIRARA) (collectively referred to as private respondents) filed a complaint for specific performance and damages against SSS before the Regional Trial Court of Batangas City, Branch 3, docketed as Civil Case No. 7441. The complaint alleged that: xxx 3. Sometime in 2000, plaintiff informed the SSS in writing of its premiums and loan amortization delinquencies covering the period from January 2000 to May 2000 amounting to P7.3 Million. AG&P proposed to pay its said arrears by end of 2000, but requested for the condonation of all penalties; 4. In turn, the defendant suggested two (2) options to AG&P, either to pay by installment or through "dacion en pago"; 5. AG&P chose to settle its obligation with the SSS under the second option, that is through dacion en pago of its 5,999 sq. m. property situated in Baguio City covered by TCT No. 3941 with an appraised value of about P80.0 Million. SSS proposes to carve-out from the said property an area sufficient to cover plaintiffs delinquencies. AG&P, however, is not amenable to subdivide its Baguio property; 6. AG&P then made another proposal to SSS. This time, offering as payment a portion of its 58,153 square meter-lot, situated in F.S. Sebastian, Sto. Nio, San Pascual, Batangas. In addition, SSS informed AG&P of its decision to include other companies within the umbrella of DMCI group with arrearages with the SSS. In the process of elimination of the companies belonging to the DMCI group with possible outstanding obligation with the SSS, it was only SEMIRARA which

was left with outstanding delinquencies with the SSS. Thus, SEMIRARAs inclusion in the proposed settlement through dacion en pago; 7. AG&P was, thereafter, directed by the defendant to submit certain documents, such as Transfer Certificate of Title, Tax Declaration covering the subject lot, and the proposed subdivision plan, which requirements AG&P immediately complied; 8. On April 4, 2001, SSS, in its Resolution No. 270, finally approved AG&Ps proposal to settle its and SEMIRARAs delinquencies through dacion en pago, which as of March 31, 2001 amounted to P29,261,902.45. Approval of AG&Ps proposal was communicated to it by Ms. Aurora E.L. Ortega, Vice-President, NCR-Group of the SSS in a letter dated April 23, 2001. ; 9. As a result of the approval of the dacion en pago, posting of contributions and loan amortization to individual member accounts, both for AG&P and SEMIRARA employees, was effected immediately thereafter. Thus, the benefits of the member-employees of both companies were restored; 10. From the time of the approval of AG&Ps proposal up to the present, AG&P is (sic) religiously remitting the premium contributions and loan amortization of its member-employees to the defendant; 11. To effect the property transfer, a Deed of Assignment has to be executed between the plaintiffs and the defendant. Because of SSS failure to come up with the required Deed of Assignment to effect said transfer, AG&P prepared the draft and submitted it to the Office of the Vice-President NCR thru SSS Baclaran Branch in July 2001. Unfortunately, the defendant failed to take any action on said Deed of Assignment causing AG&P to re-submit it to the same office of the Vice-President NCR in December 2001. From its original submission of the Deed of Assignment in July 2001 to its re-submission in December 2001, and SSS returning of the revised draft in February 28, 2003 AG&P was consistent in its regular follow ups with SSS as to the status of its submitted Deed of Assignment; 12. On February 28, 2003, or more than a year after the approval of AG&Ps proposal, defendant sent the revised copy of the Deed of Assignment to AG&P. However, the amount of the plaintiffs obligation appearing in the approved Deed of Assignment has ballooned from P29,261,902.45 to P40,846,610.64 allegedly because of the additional interests and penalty charges assessed on plaintiffs outstanding obligation from April 2001, the date of approval of the proposal, up to January 2003; 13. AG&P demanded for the waiver and deletion of the additional interests on the ground that delay in the approval of the deed and the subsequent delay in conveyance of the property in defendants name was solely attributable to the

defendant; hence, to charge plaintiffs with additional interests and penalties amounting to more than P10,000,000.00, would be unreasonable.; 14. AG&P and SEMIRARA maintain their willingness to settle their alleged obligation of P29,261,902.45 to SSS. Defendant, however, refused to accept the payment through dacion en pago, unless plaintiffs also pay the additional interests and penalties being charged; xxx Instead of filing an answer, SSS moved for the dismissal of the complaint for lack of jurisdiction and non-exhaustion of administrative remedies. In an order dated 28 July 2004, the trial court granted SSSs motion and dismissed private respondents complaint. The pertinent portions of the assailed order are as follows: Clearly, the motion is triggered on the issue of the courts jurisdiction over the subject matter and the nature of the instant complaint. The length and breadth of the complaint as perused, boils down to the questions of premium and loan amortization delinquencies of the plaintiff, the option taken for the payment of the same in favor of the defendant and the disagreement between the parties as to the amount of the unpaid contributions and salary loan repayments. In other words, said questions are directly related to the collection of contributions due the defendant. Republic Act No. 1161 as amended by R.A. No. 8282, specifically provides that any dispute arising under the said Act shall be cognizable by the Commission and any case filed with respect thereto shall be heard by the Commission. Hence, a procedural process mandated by a special law. Observingly, the running dispute between plaintiffs and defendant originated from the disagreement as to the amount of unpaid contributions and the amount of the penalties imposed appurtenant thereto. The alleged dacion en pago is crystal clear manifestation of offering a special form of payment which to the mind of the court will produce effect only upon acceptance by the offeree and the observance and compliance of the required formalities by the parties. No matter in what form it may be, still the court believes that the subject matter is the payment of contributions and the corresponding penalties which are within the ambit of Sec. 5 (a) of R.A. No. 1161, as amended by R.A. No. 8282. WHEREFORE, the Court having no jurisdiction over the subject matter of the instant complaint, the motion is granted and this case is hereby ordered DISMISSED. SO ORDERED.4 Private respondents moved for the reconsideration of the order but the same was denied in an Order dated 15 September 2004.

Consequently, private respondents filed an appeal before the Court of Appeals alleging that the trial court erred in its pronouncement that it had no jurisdiction over the subject matter of the complaint and in granting the motion to dismiss. The Court of Appeals reversed and set aside the trial courts challenged order, granted private respondents appeal and ordered the trial court to proceed with the civil case with dispatch. From the averments in their complaint, the appellate court observed that private respondents are seeking to implement the Deed of Assignment which they had drafted and submitted to SSS sometime in July 2001, pursuant to SSSs letter addressed to AG& P dated 23 April 2001 approving AG&P and SEMIRARAS delinquencies through dacion en pago, which as of 31 March 2001, amounted to P29,261,902.45. The appellate court thus held that the subject of the complaint is no longer the payment of the premium and loan amortization delinquencies, as well as the penalties appurtenant thereto, but the enforcement of thedacion en pago pursuant to SSS Resolution No. 270. The action then is one for specific performance which case law holds is an action incapable of pecuniary estimation falling under the jurisdiction of the Regional Trial Court.5 SSS filed a motion for reconsideration of the appellate courts decision but the same was denied in a Resolution dated 19 December 2006. Now before the Court, SSS insists on the Social Security Commissions (the Commission) jurisdiction over the complaint pursuant to Section 5 (a) of Republic Act (R.A.) No. 8282. SSS maintains the Commissions jurisdiction over all disputes arising from the provisions of R.A. No. 1161, amended by R.A. No. 8282 to the exclusion of trial courts.6 The main issue in this case pertains to which body has jurisdiction to entertain a controversy arising from the non-implementation of a dacion en pago agreed upon by the parties as a means of settlement of private respondents liabilities. At the outset, it is well to restate the rule that what determines the nature of the action as well as the tribunal or body which has jurisdiction over the case are the allegations in the complaint.7 The pertinent provision of law detailing the jurisdiction of the Commission is Section 5(a) of R.A. No. 1161, as amended by R.A. No. 8282, otherwise known as the Social Security Act of 1997, to wit: SEC. 5. Settlement of Disputes. (a) Any dispute arising under this Act with respect to coverage, benefits, contributions and penalties thereon or any other matter related thereto, shall be cognizable by the Commission, and any case filed with respect thereto shall be heard by the Commission, or any of its members, or by hearing officers duly authorized by the Commission and decided within the mandatory period of twenty (20) days after the submission of the

evidence. The filing, determination and settlement of disputes shall be governed by the rules and regulations promulgated by the Commission. The law clearly vests upon the Commission jurisdiction over "disputes arising under this Act with respect to coverage, benefits, contributions and penalties thereon or any matter related thereto..." Dispute is defined as "a conflict or controversy."8 From the allegations of respondents complaint, it readily appears that there is no longer any dispute with respect to respondents accountability to the SSS. Respondents had, in fact, admitted their delinquency and offered to settle them by way of dacion en pagosubsequently approved by the SSS in Resolution No. 270-s. 2001. SSS stated in said resolution that "the dacion en pago proposal of AG&P Co. of Manila and Semirara Coals Corporation to pay their liabilities in the total amount of P30,652,710.71 as of 31 March 2001 by offering their 5.8 ha. property located in San Pascual, Batangas, be, as it is hereby, approved.."9 This statement unequivocally evinces its consent to the dacion en pago. In Vda. de Jayme v. Court of Appeals,10 the Court ruled significantly as follows: Dacion en pago is the delivery and transmission of ownership of a thing by the debtor to the creditor as an accepted equivalent of the performance of the obligation. It is a special mode of payment where the debtor offers another thing to the creditor who accepts it as equivalent of payment of an outstanding debt. The undertaking really partakes in one sense of the nature of sale, that is the creditor is really buying the thing or property of the debtor, payment for which is to be charged against the debtors debt. As such, the essential elements of a contract of sale, namely, consent, object certain, and cause or consideration must be present. In its modern concept, what actually takes place in dacion en pago is an objective novation of the obligation where the thing offered as an accepted equivalent of the performance of an obligation is considered as the object of the contract of sale, while the debt is considered as the purchase price. In any case, common consent is an essential prerequisite, be it sale or novation, to have the effect of totally extinguishing the debt or obligation.11 The controversy, instead, lies in the non-implementation of the approved and agreed dacion en pago on the part of the SSS. As such, respondents filed a suit to obtain its enforcement which is, doubtless, a suit for specific performance and one incapable of pecuniary estimation beyond the competence of the 12 13 Commission. Pertinently, the Court ruled in Singson v. Isabela Sawmill, as follows: In determining whether an action is one the subject matter of which is not capable of pecuniary estimation this Court has adopted the criterion of first ascertaining the nature of the principal action or remedy sought. If it is primarily for the recovery of a sum of money, the claim is considered capable of pecuniary estimation, and whether jurisdiction in the municipal courts or in the courts of first instance would depend on the amount of the claim. However, where the basic issue is something other than the right to recover a sum of money, where the money claim is purely incidental to, or a consequence of, the principal relief

sought, this Court has considered such actions as cases where the subject of the litigation may not be estimated in terms of money, and are cognizable exclusively by courts of first instance (now Regional Trial Courts).14 In fine, the Court finds the decision of the Court of Appeals in accord with law and jurisprudence. WHEREFORE, the petition is DENIED. The Decision dated 31 August 2006 of the Court of Appeals Eleventh Division in CA-G.R. CV No. 83775 AFFIRMED. Let the case be remanded to the trial court for further proceedings. SO ORDERED. A.C. No. 6955 July 27, 2006

MAR YUSON, complainant, vs.ATTY. JEREMIAS R. VITAN, respondent. PANGANIBAN, C.J.: Once again this Court exhorts members of the bar to live up to the strictures of the Lawyers' Oath, the Code of Professional Responsibility, and the Canons of Professional Ethics. Otherwise, they shall be sanctioned by this Court. The Case Before us is a Letter-Complaint1 for the disbarment of Atty. Jeremias R. Vitan, filed by Mar Yuson with the Commission on Bar Discipline (CBD) of the Integrated Bar of the Philippines (IBP). Respondent was accused of taking advantage of complainant's generosity and credulity. On August 5, 2004, IBP-CBD directed Atty. Vitan to submit his Answer within 15 days from receipt of the Order;2otherwise, he would be considered in default and the case heard ex parte. Because respondent failed to submit his Answer within the given period, the CBD considered his failure and non-appearance as a waiver of his right to participate in the proceedings.3 Thus, the hearing scheduled for August 11, 2005, pushed through, with the original copies of the checks he had issued presented by complainant as evidence. Afterwards, the CBD issued an Order submitting the case for Resolution. 4 On August 23, 2005, Commissioner Milagros V. San Juan rendered her Report and Recommendation.5 Respondent denied having received a copy of the Complaint against him and alleged that it was only on August 24, 2005, that he received the Order submitting the case for

resolution. Thus, he filed an Urgent Motion to Revive/Re-open and with Leave to Admit Attached Answer.6 In its Resolution No. XVII-2005-101 dated October 22, 2005, the IBP Board of Directors adopted and approved, with modification, the investigating commissioner's Report and Recommendation. Upon respondent was imposed the penalty of suspension from the practice of law for two years, after the board found that he had taken advantage of complainant through deceit and dishonesty. The lawyer was further ordered to give back the money he had received from complainant. The Facts Complainant Mar Yuson was a taxi driver with eight children. In October 2002, he received a sum of money by way of inheritance. According to him, he and his wife intended to use the money to purchase a taxi, repair their dilapidated house, and hold a debut party for their daughter.7 They were able to purchase a secondhand taxi, and Atty. Vitan helped him with all the legal matters concerning this purchase. Regrettably, their other plans were put on hold, because the lawyer borrowed P100,000 from them in December 2002. It was agreed that the loan would be repaid before the end of the following year, 8 in time for the debut on November 24, 2003.9 To guarantee payment, respondent executed in favor of complainant several postdated checks to cover the loaned amount. Those checks, however, turned out to be worthless, because they had been drawn against the lawyer's closed account in the Bank of Commerce in Escolta, Manila. The six dishonored checks were presented during the hearing before the IBP commissioner.10 Complainant maintained that he had repeatedly tried to recover the debt, only to be turned away empty-handed each time. He conceded, though, that respondent had given an undisclosed amount covered by the checks dated January and February 2003. 11 The amounts covered by the dishonored checks remained unpaid. This development prompted complainant to seek the aid of the IBP National Committee on Legal Aid (NCLA) in obtaining payment. On November 14, 2003, the IBP-NCLA, through Deputy Director Rosalie J. de la Cruz, sent him a letter.12 It informed him of the impending administrative case and advised him to confer with complainant, presumably to settle the matter. Upon receipt13 of the letter, he again gave assurances that he would pay the loan in time for the debut.14 When the date passed without any payment, complainant demanded a collateral to secure the loan. Thus, in his favor, Atty. Vitan executed a document denominated as a Deed of Absolute Sale, covering the latter's parcel of land located in Sta. Maria, Bulacan. According to complainant, their intention was to transfer the title of the property to him temporarily, so that he could either sell or mortgage15 it. It was further

agreed that, if it was mortgaged, respondent would redeem it as partial or full payment of the loan.16 Curiously, however, the parties executed a second Deed of Absolute Sale,17 this time in favor of Atty. Vitan, with complainant as vendor. The purpose of this particular document was not explained by either party. On April 12, 2004, complainant was able to mortgage18 the property for P30,000.19 Contrary to their earlier agreement, respondent did not redeem it from the mortgagee and, instead, simply sent complainant a letter 20dated July 7, 2004, promising to pay on or before July 12, 2004. As this promise was not fulfilled, the mortgagee demanded payment from complainant and thereby allegedly exposed the latter to shame and ridicule.21 On July 19, 2004, IBP-NCLA sent another letter22 on behalf of complainant. Respondent was informed that an administrative case would be filed against him, unless he settled his obligations by July 30, 2004, the date given by complainant. On August 30, 2004, the IBP-NCLA received the reply 23 dated July 30, 2004, submitted by Atty. Vitan who explained that he had already settled his obligation. He maintained that he had in fact executed, in complainant's favor, a Deed of Absolute Sale over his 203-square-meter residential property in Sta. Maria, Bulacan. He clarified that "[their] understanding was that [complainant] ha[d] the option to use, mortgage or sell [the property] andreturn to me the excess of the proceeds after obtaining his money represented by my six (6) dishonored checks." 24 Interestingly, respondent attached the Deed of Absolute Sale in which he was the vendee and complainant the vendor. 25 It appears that this was the second Deed of Absolute Sale, also referred to in the Complaint.26 Only after the IBP investigating commissioner had rendered her Report and Recommendation27 did Atty. Vitan submit his Answer to the Letter-Complaint. He called the second document a "Counter Deed of Sale," executed as a "sort of collateral/security for the account of [his] liaison officer [Evelyn Estur]."28 He admitted having given several postdated checks amounting to P100,000, supposedly to guarantee the indebtedness of Estur to complainant. Atty. Vitan argued for the first time that it was she who had incurred the debts, and that he had acted only as a "character reference and/or guarantor."29 He maintained that he had given in to the one-sided transactions, because he was "completely spellbound by complainant's seeming sincerity and kindness."30 To corroborate his statements, he attached Estur's Affidavit.31 Report of the Investigating Commissioner In her Report and Recommendation, Commissioner San Juan recommended that Atty. Vitan be suspended until his restitution of the amount he had borrowed. She held that respondent, having taken advantage of complainant and thus shown dishonesty and untrustworthiness, did not deserve to retain his membership in the bar.

On November 24, 2005, the Supreme Court received the IBP Resolution adopting, with modification, the Report and Recommendation of the investigating commissioner. The Court's Ruling We agree with the findings of the IBP Board of Governors, but reduce the period of suspension to six months. Respondent's Administrative Liability Lawyers are instruments for the administration of justice. They are expected to maintain not only legal proficiency but also a high standard of ethics, honesty, integrity and fair dealing. In this way, the people's faith and confidence in the judicial system is ensured.32 In the present case, Atty. Vitan undoubtedly owed money to complainant. In a letter 33 to IBP Deputy Director de la Cruz, respondent admitted having incurred the P100,000 loan. It was only in his Answer34 that the lawyer suddenly denied that he had personally incurred this obligation. This time, he pointed to his employee, Estur, as the true debtor. We find his version of the facts implausible. First, the story involving a certain Evelyn Estur was clearly a mere afterthought, conjured simply to escape his liability. If it were true that it was she who owed the money, he should have mentioned this alleged fact in his letter to the IBP NCLA deputy director. Instead, respondent was completely silent about Estur and merely asserted that he had already settled his debt with complainant. Second, the promise of Atty. Vitan to settle his obligations on particular dates is contained in two handwritten notes signed by him and worded as follows: "I undertake to settle the financial obligations of P100,000 plus before the end of the year."35 "Mar: "We will settle on July 12, 2004, on or before said date."36 The wordings of these promissory notes disclose that he had a personal obligation to complainant, without any mention of Estur at all. If it were true that Atty. Vitan had executed those notes for the account of his liaison officer, he should have used words to that effect. As a lawyer, he was aware that the preparation of promissory notes was not a "mere formality;" it had legal consequences. It is quite far-fetched for a lawyer to assume the role of guarantor, without saying so in the notes. A lawyer may be disciplined for evading the payment of a debt validly incurred. 37 In this case, the failure of Atty. Vitan to pay his debt for over three years despite repeated demands puts in question his standing as a member of the bar. Worse, he made

several promises to pay his debt promptly, but reneged on all of them. He even started to hide from complainant according to the latter .38 Failure to honor just debts, particularly from clients, constitutes dishonest conduct that does not speak well of a member of the bar. 39 It is vital that a lawyer's conduct be kept beyond reproach and above suspicion at all times. Rule 1.01 of the Code of Professional Responsibility clearly provides that lawyers must not engage in unlawful, immoral or deceitful conduct. They must comport themselves in a manner that will secure and preserve the respect and confidence of the public for the legal profession.40 Atty. Vitan contends that his obligation was already extinguished, because he had allegedly sold his Bulacan property to complainant.41 Basically, respondent is asserting that what had transpired was a dation in payment. Governed by the law on sales, it is a transaction that takes place when a piece of property is alienated to the creditor in satisfaction of a debt in money.42 It involves delivery and transmission of ownership of a thing -- by the debtor to the creditor -- as an accepted equivalent of the performance of the obligation.43 Going over the records of this case, we find the contention of Atty. Vitan undeserving of credence. The records reveal that he did not really intend to sell and relinquish ownership over his property in Sta. Maria, Bulacan, notwithstanding the execution of a Deed of Absolute Sale in favor of complainant. The second Deed of Absolute Sale, which reconveyed the property to respondent, is proof that he had no such intention. This second Deed, which he referred to as his "safety net," 44 betrays his intention to counteract the effects of the first one . In a manner of speaking, Atty. Vitan was taking back with his right hand what he had given with his left. The second Deed of Absolute Sale returned the parties right back where they started, as if there were no sale in favor of complainant to begin with. In effect, on the basis of the second Deed of Sale, respondent took back and asserted his ownership over the property despite having allegedly sold it. Thus, he fails to convince us that there was a bona fide dation in payment or sale that took place between the parties; that is, that there was an extinguishment of obligation. It appears that the true intention of the parties was to use the Bulacan property to facilitate payment. They only made it appear that the title had been transferred to complainant to authorize him to sell or mortgage the property.45 Atty. Vitan himself admitted in his letter dated July 30, 2004, that their intention was to convert the property into cash, so that payment could be obtained by complainant and the excess returned to respondent.46The records, however, do not show that the proceeds derived were sufficient to discharge the obligation of the lawyer fully; thus, he is still liable to the extent of the deficiency. We hasten to add, however, that this administrative case is not the proper venue for us to determine the extent of the remaining liability. This Court will not act as a collection

agency from faltering debtors, when the amount of the indebtedness is indefinite and disputed.47 Nevertheless, the records satisfactorily reveal the failure of respondent to live up to his duties as a lawyer in consonance with the strictures of the Lawyer's Oath, the Code of Professional Responsibility, and the Canons of Professional Ethics, thereby degrading not only his person but his profession as well. So far, we find that his lack of sincerity in fulfilling his obligations is revealed by his acts of issuing promissory notes and reneging on them; executing a simulated Deed of Absolute Sale; and breaking his promise to redeem the property from the mortgagee. The repeated failure of Atty. Vitan to fulfill his promise puts in question his integrity and character. Indeed, not only his integrity as an individual but, more important, his stature as a member of the bar is affected by his acts of welching on his promises and misleading complainant. Canon 1 and Rule 1.01 of the Code of Professional Responsibility explicitly state thus: "CANON 1 A lawyer shall uphold the constitution, obey the laws of the land and promote respect for law and legal processes. "Rule 1.01 A lawyer shall not engage in unlawful, dishonest, immoral or deceitful conduct." Any wrongdoing, whether professional or nonprofessional, indicating unfitness for the profession justifies disciplinary action.48 There is yet another reason to find Atty. Vitan administratively liable. In his letter of July 30, 2004, was an admission that the personal checks he issued in favor of complainant had all been dishonored.49 Whether those checks were issued for the account of respondent or of Estur is not important. The fact remains that the lawyer knowingly issued worthless checks and thus revealed his disposition to defraud complainant. The act of a lawyer in issuing a check without sufficient funds to cover them -- or, worse, drawn against a closed account --constitutes such willful dishonesty and unethical conduct as to undermine the public confidence in the law and in lawyers. 50 The act also manifests a low regard for the Oath taken by the lawyer upon joining the profession, whose image should be held in high esteem, not seriously and irreparably tarnished.51 Moreover, the inimical effect of the issuance of worthless checks has been recognized by this Court in an earlier case, from which we quote: "[T]he effect [of issuance of worthless checks] transcends the private interests of the parties directly involved in the transaction and touches the interests of the community at large. The mischief it creates is not only a wrong to the payee or holder, but also an injury to the public since the circulation of valueless commercial papers can very well pollute the channels of trade and commerce,

injure the banking system and eventually hurt the welfare of society and the public interest."52 We have also held that the deliberate failure to pay just debts and the issuance of worthless checks constitute gross misconduct,53 for which a lawyer may be sanctioned with one year's suspension from the practice of law,54or a suspension of six months upon partial payment of the obligation.55 In the instant case, complainant himself admits that respondent had already paid the amounts covered by the January and February checks.56 Thus, there has been a partial payment that justifies a modification of IBP's recommended penalty. WHEREFORE, Atty. Jeremias R. Vitan is hereby found guilty of gross misconduct and SUSPENDED from the practice of law for six (6) months, effective upon his receipt of this Decision, with the warning that a repetition of the same or any other misconduct will be dealt with more severely. Let a copy of this Decision be entered in respondent's record as a member of the Bar, and notice served on the Integrated Bar of the Philippines and on the Office of the Court Administrator for circulation to all courts in the country. SO ORDERED. G.R. No. 166704 December 20, 2006 SPOUSES FELICIDAD AND RICO

AGRIFINA AQUINTEY, petitioner, vs. TIBONG, respondents. CALLEJO, SR., J.:

Before us is a petition for review under Rule 45 of the Revised Rules on Civil Procedure of the Decision1 of the Court of Appeals in CA-G.R. CV No. 78075, which affirmed with modification the Decision2 of the Regional Trial Court (RTC), Branch 61, Baguio City, and the Resolution3 of the appellate court denying reconsideration thereof. The Antecedents On May 6, 1999, petitioner Agrifina Aquintey filed before the RTC of Baguio City, a complaint for sum of money and damages against the respondents, spouses Felicidad and Rico Tibong. Agrifina alleged that Felicidad had secured loans from her on several occasions, at monthly interest rates of 6% to 7%. Despite demands, the spouses Tibong failed to pay their outstanding loan, amounting to P773,000.00 exclusive of interests. The complaint contained the following prayer:

WHEREFORE, premises considered, it is most respectfully prayed of this Honorable Court, after due notice and hearing, to render judgment ordering defendants to pay plaintiff the following: a). SEVEN HUNDRED SEVENTY-THREE THOUSAND PESOS (P773,000.00) representing the principal obligation of the defendants with the stipulated interests of six (6%) percent per month from May 11, 1999 to date and or those that are stipulated on the contracts as mentioned from paragraph two (2) of the complaint. b). FIFTEEN PERCENT (15%) of the total accumulated obligations as attorney's fees. c). Actual expenses representing the filing fee and other charges and expenses to be incurred during the prosecution of this case. Further prays for such other relief and remedies just and equitable under the premises.4 Agrifina appended a copy of the Counter-Affidavit executed by Felicidad in I.S. No. 93334, as well as copies of the promissory notes and acknowledgment receipts executed by Felicidad covering the loaned amounts.5 In their Answer with Counterclaim,6 spouses Tibong admitted that they had secured loans from Agrifina. The proceeds of the loan were then re-lent to other borrowers at higher interest rates. They, likewise, alleged that they had executed deeds of assignment in favor of Agrifina, and that their debtors had executed promissory notes in Agrifina's favor. According to the spouses Tibong, this resulted in a novation of the original obligation to Agrifina. They insisted that by virtue of these documents, Agrifina became the new collector of their debtors; and the obligation to pay the balance of their loans had been extinguished. The spouses Tibong specifically denied the material averments in paragraphs 2 and 2.1 of the complaint. While they did not state the total amount of their loans, they declared that they did not receive anything from Agrifina without any written receipt. 7 They prayed for that the complaint be dismissed. In their Pre-Trial Brief, the spouses Tibong maintained that they have never obtained any loan from Agrifina without the benefit of a written document.8 On August 17, 2000, the trial court issued a Pre-Trial Order where the following issues of the case were defined: Whether or not plaintiff is entitled to her claim of P773,000.00;

Whether or not plaintiff is entitled to stipulated interests in the promissory notes; and Whether or not the parties are entitled to their claim for damages.9 The Case for Petitioner Agrifina and Felicidad were classmates at the University of Pangasinan. Felicidad's husband, Rico, also happened to be a distant relative of Agrifina. Upon Felicidad's prodding, Agrifina agreed to lend money to Felicidad. According to Felicidad, Agrifina would be earning interests higher than those given by the bank for her money. Felicidad told Agrifina that since she (Felicidad) was engaged in the sale of dry goods at the GP Shopping Arcade, she would use the money to buy bonnels and thread.10 Thus, Agrifina lent a total sum of P773,000.00 to Felicidad, and each loan transaction was covered by either a promissory note or an acknowledgment receipt. 11Agrifina stated that she had lost the receipts signed by Felicidad for the following amounts: P100,000.00,P34,000.00 and P2,000.00.12 The particulars of the transactions are as follows: Amount Date Obtained Interest Per Due Date Mo. P 100,000.00 May 11, 1989 6% August 11, 1989 4,000.00 June 8, 1989 50,000.00 June 13, 1989 6% On demand 60,000.00 Aug. 16, 1989 7% January 1990 205,000.00 Oct. 13, 1989 7% January 1990 128,000.00 Oct. 19, 1989 7% January 1990 2,000.00 Nov. 12, 1989 6% April 28, 1990 10,000.00 June 13, 1990 80,000.00 Jan. 4, 1990 34,000.00 6% October 19, 1989 100,000.00 July 14, 1989 5% October 198913 According to Agrifina, Felicidad was able to pay only her loans amounting to P122,600.00.14 In July 1990, Felicidad gave to Agrifina City Trust Bank Check No. 126804 dated August 25, 1990 in the amount ofP50,000.00 as partial payment.15 However, the check was dishonored for having been drawn against insufficient funds. 16 Agrifina then filed a criminal case against Felicidad in the Office of the City Prosecutor. An Information for violation of Batas Pambansa Bilang 22 was filed against Felicidad, docketed as Criminal Case No. 11181-R. After trial, the court ordered Felicidad to pay P50,000.00. Felicidad complied and paid the face value of the check.17

In the meantime, Agrifina learned that Felicidad had re-loaned the amounts to other borrowers.18 Agrifina sought the assistance of Atty. Torres G. A-ayo who advised her to require Felicidad to execute deeds of assignment over Felicidad's debtors. The lawyer also suggested that Felicidad's debtors execute promissory notes in Agrifina's favor, to "turn over" their loans from Felicidad. This arrangement would facilitate collection of Felicidad's account. Agrifina agreed to the proposal.19 Agrifina, Felicidad, and the latter's debtors had a conference20 where Atty. A-ayo explained that Agrifina could apply her collections as payments of Felicidad's account.21 From August 7, 1990 to October, 1990, Felicidad executed deeds of assignment of credits (obligations)22 duly notarized by Atty. A-ayo, in which Felicidad transferred and assigned to Agrifina the total amount of P546,459.00 due from her debtors.23 In the said deeds, Felicidad confirmed that her debtors were no longer indebted to her for their respective loans. For her part, Agrifina conformed to the deeds of assignment relative to the loans of Virginia Morada and Corazon Dalisay. 24 She was furnished copies of the deeds as well as the promissory notes.25 The following debtors of Felicidad executed promissory notes where they obliged themselves to pay directly to Agrifina: Debtors Account Juliet & Tommy P50,000.00 Tibong Corazon Dalisay 8,000.00 Rita Chomacog 4,480.00 Antoinette Manuel 12,000.00 Rosemarie Bandas 8,000.00 Fely Cirilo 63,600.00 Virginia Morada Carmelita Casuga Merlinda Gelacio Total 62,379.00 59,000.00 17,200.00 P284,659.00 Date of Instrument Date Payable August 7, 1990 November 4, 1990 February 4, 1991 August 7, 1990 No date August 8, 1990 September 23, 1990 October 19, 1990 March 30, 1991 August 8, 1990 February 3, 1991 September 13, No date 1990 August 9, 1990 February 9, 1991 August 28, 1990 February 28, 1991 August 29, 1990 November 29, 199026

and

Agrifina narrated that Felicidad showed to her the way to the debtors' houses to enable her to collect from them. One of the debtors, Helen Cabang, did not execute any promissory note but conformed to the Deed of Assignment of Credit which Felicidad executed in favor of Agrifina.27 Eliza Abance conformed to the deed of assignment for and in behalf of her sister, Fely Cirilo. 28 Edna Papat-iw was not able to affix her signature on the deed of assignment nor sign the promissory note because she was in Taipei, Taiwan.29 Following the execution of the deeds of assignment and promissory notes, Agrifina was able to collect the total amount of P301,000.00 from Felicidad's debtors.30 In April 1990, she tried to collect the balance of Felicidad's account, but the latter told her to wait until

her debtors had money.31 When Felicidad reneged on her promise, Agrifina filed a complaint in the Office of the Barangay Captain for the collection of P773,000.00. However, no settlement was arrived at.32 The Case for Respondents Felicidad testified that she and her friend Agrifina had been engaged in the moneylending business.33 Agrifina would lend her money with monthly interest, 34 and she, in turn, would re-lend the money to borrowers at a higher interest rate. Their business relationship turned sour when Agrifina started complaining that she (Felicidad) was actually earning more than Agrifina.35 Before the respective maturity dates of her debtors' loans, Agrifina asked her to pay her account since Agrifina needed money to buy a house and lot in Manila. However, she told Agrifina that she could not pay yet, as her debtors' loan payments were not yet due. 36 Agrifina then came to her store every afternoon to collect from her, and persuaded her to go to Atty. Torres G. A-ayo for legal advice.37 The lawyer suggested that she indorse the accounts of her debtors to Agrifina so that the latter would be the one to collect from her debtors and she would no longer have any obligation to Agrifina.38 She then executed deeds of assignment in favor of Agrifina covering the sums of money due from her debtors. She signed the deeds prepared by Atty. A-ayo in the presence of Agrifina.39 Some of the debtors signed the promissory notes which were likewise prepared by the lawyer. Thereafter, Agrifina personally collected from Felicidad's debtors.40 Felicidad further narrated that she received P250,000.00 from one of her debtors, Rey Rivera, and remitted the payment to Agrifina.41 Agrifina testified, on rebuttal, that she did not enter into a re-lending business with Felicidad. When she asked Felicidad to consolidate her loans in one document, the latter told her to seek the assistance of Atty. A-ayo.42 The lawyer suggested that Felicidad assign her credits in order to help her collect her loans.43 She agreed to the deeds of assignment to help Felicidad collect from the debtors.44 On January 20, 2003, the trial court rendered its Decision45 in favor of Agrifina. The fallo of the decision reads: WHEREFORE, judgment is rendered in favor of the plaintiff and against the defendants ordering the latter to pay the plaintiffs (sic) the following amounts: 1. P472,000 as actual obligation with the stipulated interest of 6% per month from May 11, 1999 until the said obligation is fully paid. However, the amount of P50,000 shall be deducted from the total accumulated interest for the same was already paid by the defendant as admitted by the plaintiff in her complaint, 2. P25,000 as attorney's fees, 3. [T]o pay the costs.

SO ORDERED.46 The trial court ruled that Felicidad's obligation had not been novated by the deeds of assignment and the promissory notes executed by Felicidad's borrowers. It explained that the documents did not contain any express agreement to novate and extinguish Felicidad's obligation. It declared that the deeds and notes were separate contracts which could stand alone from the original indebtedness of Felicidad. Considering, however, Agrifina's admission that she was able to collect from Felicidad's debtors the total amount of P301,000.00, this should be deducted from the latter's accountability.47 Hence, the balance, exclusive of interests, amounted to P472,000.00. On appeal, the CA affirmed with modification the decision of the RTC and stated that, based on the promissory notes and acknowledgment receipts signed by Felicidad, the appellants secured loans from the appellee in the total principal amount of only P637,000.00, not P773,000.00 as declared by the trial court. The CA found that, other than Agrifina's bare testimony that she had lost the promissory notes and acknowledgment receipts, she failed to present competent documentary evidence to substantiate her claim that Felicidad had, likewise, borrowed the amounts of P100,000.00, P34,000.00, and P2,000.00. Of the P637,000.00 total account, P585,659.00 was covered by the deeds of assignment and promissory notes; hence, the balance of Felicidad's account amounted to only P51,341.00. The fallo of the decision reads: WHEREFORE, in view of the foregoing, the decision dated January 20, 2003 of the RTC, Baguio City, Branch 61 in Civil Case No. 4370-R is hereby MODIFIED. Defendants-appellants are hereby ordered to pay the balance of the total indebtedness in the amount of P51,341.00 plus the stipulated interest of 6% per month from May 11, 1999 until the finality of this decision. SO ORDERED.48 The appellate court sustained the trial court's ruling that Felicidad's obligation to Agrifina had not been novated by the deeds of assignment and promissory notes executed in the latter's favor. Although Agrifina was subrogated as a new creditor in lieu of Felicidad, Felicidad's obligation to Agrifina under the loan transaction remained; there was no intention on their part to novate the original obligation. Nonetheless, the appellate court held that the legal effects of the deeds of assignment could not be totally disregarded. The assignments of credits were onerous, hence, had the effect of payment, pro tanto, of the outstanding obligation. The fact that Agrifina never repudiated or rescinded such assignments only shows that she had accepted and conformed to it. Consequently, she cannot collect both from Felicidad and her individual debtors without running afoul to the principle of unjust enrichment. Agrifina's primary recourse then is against Felicidad's individual debtors on the basis of the deeds of assignment and promissory notes.

The CA further declared that the deeds of assignment executed by Felicidad had the effect of payment of her outstanding obligation to Agrifina in the amount of P585,659.00. It ruled that, since an assignment of credit is in the nature of a sale, the assignors remained liable for the warranties as they are responsible for the existence and legality of the credit at the time of the assignment. Both parties moved to have the decision reconsidered, 49 but the appellate court denied both motions on December 21, 2004.50 Agrifina, now petitioner, filed the instant petition, contending that 1. The Honorable Court of Appeals erred in ruling that the deeds of assignment in favor of petitioner has the effect of payment of the original obligation even as it ruled out that the original obligation and the assigned credit are distinct and separate and can stand independently from each other; 2. The Honorable Court of Appeals erred in passing upon issues raised for the first time on appeal; and 3. The Honorable Court of Appeals erred in resolving fact not in issue.51 Petitioner avers that the appellate court erred in ruling that respondents' original obligation amounted to onlyP637,000.00 (instead of P773,000.00) simply because she lost the promissory notes/receipts which evidenced the loans executed by respondent Felicidad Tibong. She insists that the issue of whether Felicidad owed her less thanP773,000.00 was not raised by respondents during pre-trial and in their appellate brief; the appellate court was thus proscribed from taking cognizance of the issue. Petitioner avers that respondents failed to deny, in their verified answer, that they had secured the P773,000.00 loan; hence, respondents are deemed to have admitted the allegation in the complaint that the loans secured by respondent from her amounted to P773,000.00. As gleaned from the trial court's pre-trial order, the main issue is whether or not she should be made to pay this amount. Petitioner further maintains that the CA erred in deducting the total amount of P585,659.00 covered by the deeds of assignment executed by Felicidad and the promissory notes executed by the latter's debtors, and that the balance of respondents' account was only P51,341.00. Moreover, the appellate court's ruling that there was no novation runs counter to its holding that the primary recourse was against Felicidad's debtors. Petitioner avers that of the 11 deeds of assignment and promissory notes, only two bore her signature.52 She insists that she is not bound by the deeds which she did not sign. By assigning the obligation to pay petitioner their loan accounts, Felicidad's debtors merely assumed the latter's obligation and became co-debtors to petitioner. Respondents were not released from their obligation under their loan transactions, and she had the option to demand payment from them or their debtors. Citing the ruling of this Court in Magdalena Estates, Inc. v. Rodriguez,53 petitioner insists that the first

debtor is not released from responsibility upon reaching an agreement with the creditor. The payment by a third person of the first debtor's obligation does not constitute novation, and the creditor can still enforce the obligation against the original debtor. Petitioner also cites the ruling of this Court in Guerrero v. Court of Appeals.54 In their Comment on the petition, respondents aver that by virtue of respondent Felicidad's execution of the deeds of assignment, and the original debtors' execution of the promissory notes (along with their conformity to the deeds of assignment with petitioner's consent), their loan accounts with petitioner amounting to P585,659.00 had been effectively extinguished. Respondents point out that this is in accordance with Article 1291, paragraph 2, of the Civil Code. Thus, the original debtors of respondents had been substituted as petitioner's new debtors. Respondents counter that petitioner had been subrogated to their right to collect the loan accounts of their debtors. In fact, petitioner, as the new creditor of respondents' former debtors had been able to collect the latter's loan accounts which amounted to P301,000.00. The sums received by respondents' debtors were the same loans which they obliged to pay to petitioner under the promissory notes executed in petitioner's favor. Respondents aver that their obligation to petitioner cannot stand or exist separately from the original debtors' obligation to petitioner as the new creditor. If allowed to collect from them as well as from their original debtors, petitioner would be enriching herself at the expense of respondents. Thus, despite the fact that petitioner had collected P172,600.00 from respondents and P301,000.00 from the original debtors, petitioner still sought to collect P773,000.00 from them in the RTC. Under the deeds of assignment executed by Felicidad and the original debtors' promissory notes, the original debtors' accounts were assigned to petitioner who would be the new creditor. In fine, respondents are no longer liable to petitioner for the balance of their loan account inclusive of interests. Respondents also insist that petitioner failed to prove that she (petitioner) was merely authorized to collect the accounts of the original debtors so as to to facilitate the payment of respondents' loan obligation. The Issues The threshold issues are: (1) whether respondent Felicidad Tibong borrowed P773,000.00 from petitioner; and (2) whether the obligation of respondents to pay the balance of their loans, including interest, was partially extinguished by the execution of the deeds of assignment in favor of petitioner, relative to the loans of Edna Papat-iw, Helen Cabang, Antoinette Manuel, and Fely Cirilo in the total amount of P371,000.00. The Ruling of the Court We have carefully reviewed the brief of respondents as appellants in the CA, and find that, indeed, they had raised the issue of whether they received P773,000.00 by way of

loans from petitioner. They averred that, as gleaned from the documentary evidence of petitioner in the RTC, the total amount they borrowed was onlyP673,000.00. They asserted that petitioner failed to adduce concrete evidence that they received P773,000.00 from her.55 We agree, however, with petitioner that the appellate court erred in reversing the finding of the RTC simply because petitioner failed to present any document or receipt signed by Felicidad. Section 10, Rule 8 of the Rules of Civil Procedure requires a defendant to "specify each material allegation of fact the truth of which he does not admit and, whenever practicable, x x x set forth the substance of the matters upon which he relies to support his denial.56 Section 11, Rule 8 of the same Rules provides that allegations of the complaint not specifically denied are deemed admitted.57 The purpose of requiring the defendant to make a specific denial is to make him disclose the matters alleged in the complaint which he succinctly intends to disprove at the trial, together with the matter which he relied upon to support the denial. The parties are compelled to lay their cards on the table.58 A denial is not made specific simply because it is so qualified by the defendant. A general denial does not become specific by the use of the word "specifically." When matters of whether the defendant alleges having no knowledge or information sufficient to form a belief are plainly and necessarily within the defendant's knowledge, an alleged "ignorance or lack of information" will not be considered as a specific denial. Section 11, Rule 8 of the Rules also provides that material averments in the complaint other than those as to the amount of unliquidated damages shall be deemed admitted when not specifically denied.59 Thus, the answer should be so definite and certain in its allegations that the pleader's adversary should not be left in doubt as to what is admitted, what is denied, and what is covered by denials of knowledge as sufficient to form a belief.60 In the present case, petitioner alleged the following in her complaint: 2. That defendants are indebted to the plaintiff in the principal amount of SEVEN HUNDRED SEVENTY-THREE THOUSAND PESOS (P773,000.00) Philippine Currency with a stipulated interest which are broken down as follows. The said principal amounts was admitted by the defendants in their counter-affidavit submitted before the court. Such affidavit is hereby attached as Annex "A;"61 xxxx H) The sum of THIRTY FOUR THOUSAND PESOS (P34,000.00) with interest at six (6%) per cent per month and payable on October 19, 1989, however[,] the receipt for the meantime cannot be recovered as it was misplaced by the plaintiff

but the letter of defendant FELICIDAD TIBONG is hereby attached as Annex "H" for the appreciation of the Honorable court; I) The sum of ONE HUNDRED THOUSAND PESOS (P100,000.00) with interest at five (5%) percent per month, obtained on July 14, 1989 and payable on October 14, 1989. Such receipt was lost but admitted by the defendants in their counter-affidavit as attached [to] this complaint and marked as Annex "A" mentioned in paragraph one (1); x x x62 In their Answer, respondents admitted that they had secured loans from petitioner. While the allegations in paragraph 2 of the complaint were specifically denied, respondents merely averred that petitioner and respondent Felicidad entered into an agreement for the lending of money to interested borrowers at a higher interest rate. Respondents failed to declare the exact amount of the loans they had secured from petitioner. They also failed to deny the allegation in paragraph 2 of the complaint that respondent Felicidad signed and submitted a counter-affidavit in I.S. No. 93-334 where she admitted having secured loans from petitioner in the amount of P773,000.00. Respondents, likewise, failed to deny the allegation in paragraph 2(h) of the complaint that respondents had secured a P34,000.00 loan payable on October 19, 1989, evidenced by a receipt which petitioner had misplaced. Although respondents specifically denied in paragraph 2.11 of their Answer the allegations in paragraph 2(I) of the complaint, they merely alleged that "they have not received sums of money from the plaintiff without any receipt therefor." Respondents, likewise, failed to specifically deny another allegation in the complaint that they had secured aP100,000.00 loan from petitioner on July 14, 1989; that the loan was payable on October 14, 1989; and evidenced by a receipt which petitioner claimed to have lost. Neither did respondents deny the allegation that respondents admitted their loan of P100,000.00 in the counter-affidavit of respondent Felicidad, which was appended to the complaint as Annex "A." In fine, respondents had admitted the existence of their P773,000.00 loan from petitioner. We agree with the finding of the CA that petitioner had no right to collect from respondents the total amount ofP301,000.00, which includes more than P178,980.00 which respondent Felicidad collected from Tibong, Dalisay, Morada, Chomacog, Cabang, Casuga, Gelacio, and Manuel. Petitioner cannot again collect the same amount from respondents; otherwise, she would be enriching herself at their expense. Neither can petitioner collect from respondents more than P103,500.00 which she had already collected from Nimo, Cantas, Rivera, Donguis, Fernandez and Ramirez. There is no longer a need for the Court to still resolve the issue of whether respondents' obligation to pay the balance of their loan account to petitioner was partially extinguished by the promissory notes executed by Juliet Tibong, Corazon Dalisay, Rita Chomacog, Carmelita Casuga, Merlinda Gelacio and Antoinette Manuel because, as admitted by petitioner, she was able to collect the amounts under the notes from said debtors and applied them to respondents' accounts.

Under Article 1231(b) of the New Civil Code, novation is enumerated as one of the ways by which obligations are extinguished. Obligations may be modified by changing their object or principal creditor or by substituting the person of the debtor.63 The burden to prove the defense that an obligation has been extinguished by novation falls on the debtor.64 The nature of novation was extensively explained in Iloilo Traders Finance, Inc. v. Heirs of Sps. Oscar Soriano, Jr.,65 as follows: Novation may either be extinctive or modificatory, much being dependent on the nature of the change and the intention of the parties. Extinctive novation is never presumed; there must be an express intention to novate; in cases where it is implied, the acts of the parties must clearly demonstrate their intent to dissolve the old obligation as the moving consideration for the emergence of the new one. Implied novation necessitates that the incompatibility between the old and new obligation be total on every point such that the old obligation is completely superseded by the new one. The test of incompatibility is whether they can stand together, each one having an independent existence; if they cannot and are irreconciliable, the subsequent obligation would also extinguish the first. An extinctive novation would thus have the twin effects of, first, extinguishing an existing obligation and, second, creating a new one in its stead. This kind of novation presupposes a confluence of four essential requisites: (1) a previous valid obligation; (2) an agreement of all parties concerned to a new contract; (3) the extinguishment of the old obligation; and (4) the birth of a valid new obligation. Novation is merely modificatory where the change brought about by any subsequent agreement is merely incidental to the main obligation (e.g., a change in interest rates or an extension of time to pay); in this instance, the new agreement will not have the effect of extinguishing the first but would merely supplement it or supplant some but not all of its provisions.66 (Citations Omitted) Novation which consists in substituting a new debtor (delegado) in the place of the original one (delegante) may be made even without the knowledge or against the will of the latter but not without the consent of the creditor. Substitution of the person of the debtor may be effected by delegacion, meaning, the debtor offers, and the creditor (delegatario), accepts a third person who consents to the substitution and assumes the obligation. Thus, the consent of those three persons is necessary. 67 In this kind of novation, it is not enough to extend the juridical relation to a third person; it is necessary that the old debtor be released from the obligation, and the third person or new debtor take his place in the relation.68 Without such release, there is no novation; the third person who has assumed the obligation of the debtor merely becomes a co-debtor or a surety. If there is no agreement as to solidarity, the first and the new debtor are considered obligated jointly.69 In Di Franco v. Steinbaum,70 the appellate court ruled that as to the consideration necessary to support a contract of novation, the rule is the same as in other contracts. The consideration need not be pecuniary or even beneficial to the person promising. It is sufficient if it be a loss of an inconvenience, such as the relinquishment of a right or

the discharge of a debt, the postponement of a remedy, the discontinuance of a suit, or forbearance to sue. In City National Bank of Huron, S.D. v. Fuller,71 the Circuit Court of Appeals ruled that the theory of novation is that the new debtor contracts with the old debtor that he will pay the debt, and also to the same effect with the creditor, while the latter agrees to accept the new debtor for the old. A novation is not made by showing that the substituted debtor agreed to pay the debt; it must appear that he agreed with the creditor to do so. Moreover, the agreement must be based on the consideration of the creditor's agreement to look to the new debtor instead of the old. It is not essential that acceptance of the terms of the novation and release of the debtor be shown by express agreement. Facts and circumstances surrounding the transaction and the subsequent conduct of the parties may show acceptance as clearly as an express agreement, albeit implied.72 We find in this case that the CA correctly found that respondents' obligation to pay the balance of their account with petitioner was extinguished, pro tanto, by the deeds of assignment of credit executed by respondent Felicidad in favor of petitioner. An assignment of credit is an agreement by virtue of which the owner of a credit, known as the assignor, by a legal cause, such as sale, dation in payment, exchange or donation, and without the consent of the debtor, transfers his credit and accessory rights to another, known as the assignee, who acquires the power to enforce it to the same extent as the assignor could enforce it against the debtor. 73 It may be in the form of sale, but at times it may constitute a dation in payment, such as when a debtor, in order to obtain a release from his debt, assigns to his creditor a credit he has against a third person.74 In Vda. de Jayme v. Court of Appeals,75 the Court held that dacion en pago is the delivery and transmission of ownership of a thing by the debtor to the creditor as an accepted equivalent of the performance of the obligation. It is a special mode of payment where the debtor offers another thing to the creditor who accepts it as equivalent of payment of an outstanding debt. The undertaking really partakes in one sense of the nature of sale, that is, the creditor is really buying the thing or property of the debtor, payment for which is to be charged against the debtor's obligation. As such, the essential elements of a contract of sale, namely, consent, object certain, and cause or consideration must be present. In its modern concept, what actually takes place in dacion en pago is an objective novation of the obligation where the thing offered as an accepted equivalent of the performance of an obligation is considered as the object of the contract of sale, while the debt is considered as the purchase price. In any case, common consent is an essential prerequisite, be it sale or novation, to have the effect of totally extinguishing the debt or obligation.76 The requisites for dacion en pago are: (1) there must be a performance of the prestation in lieu of payment (animo solvendi) which may consist in the delivery of a corporeal thing or a real right or a credit against the third person; (2) there must be some

difference between the prestation due and that which is given in substitution (aliud pro alio); and (3) there must be an agreement between the creditor and debtor that the obligation is immediately extinguished by reason of the performance of a prestation different from that due.77 All the requisites for a valid dation in payment are present in this case. As gleaned from the deeds, respondent Felicidad assigned to petitioner her credits "to make good" the balance of her obligation. Felicidad testified that she executed the deeds to enable her to make partial payments of her account, since she could not comply with petitioner's frenetic demands to pay the account in cash. Petitioner and respondent Felicidad agreed to relieve the latter of her obligation to pay the balance of her account, and for petitioner to collect the same from respondent's debtors. Admittedly, some of respondents' debtors, like Edna Papat-iw, were not able to affix their conformity to the deeds. In an assignment of credit, however, the consent of the debtor is not essential for its perfection; the knowledge thereof or lack of it affecting only the efficaciousness or inefficaciousness of any payment that might have been made. The assignment binds the debtor upon acquiring knowledge of the assignment but he is entitled, even then, to raise against the assignee the same defenses he could set up against the assignor78 necessary in order that assignment may fully produce legal effects. Thus, the duty to pay does not depend on the consent of the debtor. The purpose of the notice is only to inform that debtor from the date of the assignment. Payment should be made to the assignee and not to the original creditor. The transfer of rights takes place upon perfection of the contract, and ownership of the right, including all appurtenant accessory rights, is acquired by the assignee79 who steps into the shoes of the original creditor as subrogee of the latter80 from that amount, the ownership of the right is acquired by the assignee. The law does not require any formal notice to bind the debtor to the assignee, all that the law requires is knowledge of the assignment. Even if the debtor had not been notified, but came to know of the assignment by whatever means, the debtor is bound by it. If the document of assignment is public, it is evidence even against a third person of the facts which gave rise to its execution and of the date of the latter. The transfer of the credit must therefore be held valid and effective from the moment it is made to appear in such instrument, and third persons must recognize it as such, in view of the authenticity of the document, which precludes all suspicion of fraud with respect to the date of the transfer or assignment of the credit.81 As gleaned from the deeds executed by respondent Felicidad relative to the accounts of her other debtors, petitioner was authorized to collect the amounts of P6,000.00 from Cabang, and P63,600.00 from Cirilo. They obliged themselves to pay petitioner. Respondent Felicidad, likewise, unequivocably declared that Cabang and Cirilo no longer had any obligation to her. Equally significant is the fact that, since 1990, when respondent Felicidad executed the deeds, petitioner no longer attempted to collect from respondents the balance of their

accounts. It was only in 1999, or after nine (9) years had elapsed that petitioner attempted to collect from respondents. In the meantime, petitioner had collected from respondents' debtors the amount of P301,000.00. While it is true that respondent Felicidad likewise authorized petitioner in the deeds to collect the debtors' accounts, and for the latter to pay the same directly, it cannot thereby be considered that respondent merely authorized petitioner to collect the accounts of respondents' debtors and for her to apply her collections in partial payments of their accounts. It bears stressing that petitioner, as assignee, acquired all the rights and remedies passed by Felicidad, as assignee, at the time of the assignment. 82 Such rights and remedies include the right to collect her debtors' obligations to her. Petitioner cannot find solace in the Court's ruling in Magdalena Estates. In that case, the Court ruled that the mere fact that novation does not follow as a matter of course when the creditor receives a guaranty or accepts payments from a third person who has agreed to assume the obligation when there is no agreement that the first debtor would be released from responsibility. Thus, the creditor can still enforce the obligation against the original debtor. In the present case, petitioner and respondent Felicidad agreed that the amounts due from respondents' debtors were intended to "make good in part" the account of respondents. Case law is that, an assignment will, ordinarily, be interpreted or construed in accordance with the rules of construction governing contracts generally, the primary object being always to ascertain and carry out the intention of the parties. This intention is to be derived from a consideration of the whole instrument, all parts of which should be given effect, and is to be sought in the words and language employed.83 Indeed, the Court must not go beyond the rational scope of the words used in construing an assignment, words should be construed according to their ordinary meaning, unless something in the assignment indicates that they are being used in a special sense. So, if the words are free from ambiguity and expressed plainly the purpose of the instrument, there is no occasion for interpretation; but where necessary, words must be interpreted in the light of the particular subject matter. 84 And surrounding circumstances may be considered in order to understand more perfectly the intention of the parties. Thus, the object to be accomplished through the assignment, and the relations and conduct of the parties may be considered in construing the document. Although it has been said that an ambiguous or uncertain assignment should be construed most strictly against the assignor, the general rule is that any ambiguity or uncertainty in the meaning of an assignment will be resolved against the party who prepared it; hence, if the assignment was prepared by the assignee, it will be construed most strictly against him or her.85 One who chooses the words by which a right is given ought to be held to the strict interpretation of them, rather than the other who only accepts them.86

Considering all the foregoing, we find that respondents still have a balance on their account to petitioner in the principal amount of P33,841.00, the difference between their loan of P773,000.00 less P585,659.00, the payment of respondents' other debtors amounting to P103,500.00, and the P50,000.00 payment made by respondents. IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The Decision and Resolution of the Court of Appeals are AFFIRMED with MODIFICATION in that the balance of the principal account of the respondents to the petitioner is P33,841.00. No costs. SO ORDERED. G.R. No. L-50449 January 30, 1982 FILINVEST CREDIT CORPORATION, plaintiff-appellee, vs.PHILIPPINE ACETYLENE, CO., INC., defendant-appellant. DE CASTRO, J.: This case is certified to Us by the Court of Appeals in its Resolution 1 dated March 22, 1979 on the ground that it involves purely questions of law, as raised in the appeal of the decision of the Court of First Instance of Manila, Branch XII in Civil Case No. 91932, the dispositive portion of which reads as follows: In view of the foregoing consideration, the court hereby renders judgment l) directing defendant to pay plaintiff: a) the sum of P22,227.81 which is the outstanding unpaid obligation of the defendant under the assigned credit, with 12 %interest from the date of the firing of the complaint in this suit until the same is fully paid; b) the sum equivalent to l5% of P22,227.81 as and for attorney's fees; and 2) directing plaintiff to deliver to, and defendant to accept, the motor vehicle, subject of the chattel may have been changed by the result of ordinary wear and tear of the vehicle. Defendant to pay the cost of suit. SO ORDERED. The facts, as found in the decision 2 subject of the instant appeal, are undisputed.

On October 30, 1971, the Philippine Acetylene Co., Inc., defendant-appellant herein, purchased from one Alexander Lim, as evidenced by a Deed of Sale marked as Exhibit G, a motor vehicle described as Chevorlet, 1969 model with Serial No. 136699Z303652 for P55,247.80 with a down payment of P20,000.00 and the balance of P35,247.80 payable, under the terms and conditions of the promissory note (Exh. B), at a monthly installment of P1,036.70 for thirty-four (34) months, due and payable on the first day of each month starting December 1971 through and inclusive September 1, 1974 with 12 % interest per annum on each unpaid installment, and attorney's fees in the amount equivalent to 25% of the total of the outstanding unpaid amount. As security for the payment of said promissory note, the appellant executed a chattel mortgage (Exh. C) over the same motor vehicle in favor of said Alexander Lim. Subsequently, on November 2, 1971. Alexander Lim assigned to the Filinvest Finance Corporation all his rights, title, and interests in the promissory note and chattel mortgage by virtue of a Deed of Assignment (Exh. D). Thereafter, the Filinvest Finance Corporation, as a consequence of its merger with the Credit and Development Corporation assigned to the new corporation, the herein plaintiff-appellee Filinvest Credit Corporation, all its rights, title, and interests on the aforesaid promissory note and chattel mortgage (Exh. A) which, in effect, the payment of the unpaid balance owed by defendant-appellant to Alexander Lim was financed by plaintiff-appellee such that Lim became fully paid. Appellant failed to comply with the terms and conditions set forth in the promissory note and chattel mortgage since it had defaulted in the payment of nine successive installments. Appellee then sent a demand letter (Exh. 1) whereby its counsel demanded "that you (appellant) remit the aforesaid amount in full in addition to stipulated interest and charges or return the mortgaged property to my client at its office at 2133 Taft Avenue, Malate, Manila within five (5) days from date of this letter during office hours. " Replying thereto, appellant, thru its assistant general- manager, wrote back (Exh. 2) advising appellee of its decision to "return the mortgaged property, which return shall be in full satisfaction of its indebtedness pursuant to Article 1484 of the New Civil Code." Accordingly, the mortgaged vehicle was returned to the appellee together with the document "Voluntary Surrender with Special Power of Attorney To Sell" 3 executed by appellant on March 12, 1973 and confirmed to by appellee's vicepresident. On April 4, 1973, appellee wrote a letter (Exh. H) to appellant informing the latter that appellee cannot sell the motor vehicle as there were unpaid taxes on the said vehicle in the sum of P70,122.00. On the last portion of the said letter, appellee requested the appellant to update its account by paying the installments in arrears and accruing interest in the amount of P4,232.21 on or before April 9, 1973. On May 8, 1973, appellee, in a letter (Exh. 1), offered to deliver back the motor vehicle to the appellant but the latter refused to accept it, so appellee instituted an action for

collection of a sum of money with damages in the Court of First Instance of Manila on September 14, 1973. In its answer, appellant, while admitting the material allegations of the appellee's complaint, avers that appellee has no cause of action against it since its obligation towards the appellee was extinguished when in compliance with the appellee's demand letter, it returned the mortgaged property to the appellee, and that assuming arguendo that the return of the property did not extinguish its obligation, it was nonetheless justified in refusing payment since the appellee is not entitled to recover the same due to the breach of warranty committed by the original vendor-assignor Alexander Lim. After the case was submitted for decision, the Court of First Instance of Manila, Branch XII rendered its decision dated February 25, 1974 which is the subject of the instant appeal in this Court. Appellant's five assignment of errors may be reduced to, or said to revolve around two issues: first, whether or not the return of the mortgaged motor vehicle to the appellee by virtue of its voluntary surrender by the appellant totally extinguished and/or cancelled its obligation to the appellee; second, whether or not the warranty for the unpaid taxes on the mortgaged motor vehicle may be properly raised and imputed to or passed over to the appellee. Consistent with its stand in the court a quo, appellant now reiterates its main contention that appellee, after giving appellant an option either to remit payment in full plus stipulated interests and charges or return the mortgaged motor vehicle, had elected the alternative remedy of exacting fulfillment of the obligation, thus, precluding the exercise of any other remedy provided for under Article 1484 of the Civil Code of the Philippines which reads: Article 1484. Civil Code. - In a contract of sale of personal property the price of which is payable in installments, the vendor may exercise any of the following remedies: 1) Exact fulfillment of the obligation, should the vendee fail to pay; 2) Cancel the sale, should the vendee's failure to pay cover two or more installments; 3) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the vendee's failure to pay cover two or more installments. In this case, he shall have no further action against the purchaser to recover any unpaid balance of the price. Any agreement to the contrary shall be void. In support of the above contention, appellant maintains that when it opted to return, as in fact it did return, the mortgaged motor vehicle to the appellee, said return necessarily

had the effect of extinguishing appellant's obligation for the unpaid price to the appellee, construing the return to and acceptance by the appellee of the mortgaged motor vehicle as a mode of payment, specifically, dation in payment or dacion en pago which according to appellant, virtually made appellee the owner of the mortgaged motor vehicle by the mere delivery thereof, citing Articles 1232, 1245, and 1497 of the Civil Code, to wit: Article 1232. Payment means not only the delivery of money but also the performance, in any manner, of an obligation. xxx xxx xxx Article 1245. Dation in payment, whereby property is alienated to the creditor in satisfaction of a debt in money, shall be governed by the law of sales. xxx xxx xxx Article 1497. The thing sold shall be understood as delivered, when it is placed in the control and possession of the vendee. Passing at once on the relevant issue raised in this appeal, We find appellant's contention devoid of persuasive force. The mere return of the mortgaged motor vehicle by the mortgagor, the herein appellant, to the mortgagee, the herein appellee, does not constitute dation in payment or dacion en pago in the absence, express or implied of the true intention of the parties. Dacion en pago, according to Manresa, is the transmission of the ownership of a thing by the debtor to the creditor as an accepted equivalent of the performance of obligation. 4 In dacion en pago, as a special mode of payment, the debtor offers another thing to the creditor who accepts it as equivalent of payment of an outstanding debt. The undertaking really partakes in one sense of the nature of sale, that is, the creditor is really buying the thing or property of the debtor, payment for which is to be charged against the debtor's debt. As such, the essential elements of a contract of sale, namely, consent, object certain, and cause or consideration must be present. In its modern concept, what actually takes place in dacion en pago is an objective novation of the obligation where the thing offered as an accepted equivalent of the performance of an obligation is considered as the object of the contract of sale, while the debt is considered as the purchase price. 5 In any case, common consent is an essential prerequisite, be it sale or innovation to have the effect of totally extinguishing the debt or obligation. The evidence on the record fails to show that the mortgagee, the herein appellee, consented, or at least intended, that the mere delivery to, and acceptance by him, of the mortgaged motor vehicle be construed as actual payment, more specifically dation in payment or dacion en pago. The fact that the mortgaged motor vehicle was delivered to him does not necessarily mean that ownership thereof, as juridically contemplated by dacion en pago, was transferred from appellant to appellee. In the absence of clear

consent of appellee to the proferred special mode of payment, there can be no transfer of ownership of the mortgaged motor vehicle from appellant to appellee. If at all, only transfer of possession of the mortgaged motor vehicle took place, for it is quite possible that appellee, as mortgagee, merely wanted to secure possession to forestall the loss, destruction, fraudulent transfer of the vehicle to third persons, or its being rendered valueless if left in the hands of the appellant. A more solid basis of the true intention of the parties is furnished by the document executed by appellant captioned "Voluntary Surrender with Special Power of Attorney To Sell" dated March 12, 1973, attached as Annex "C" of the appellant's answer to the complaint. An examination of the language of the document reveals that the possession of the mortgaged motor vehicle was voluntarily surrendered by the appellant to the appellee authorizing the latter to look for a buyer and sell the vehicle in behalf of the appellant who retains ownership thereof, and to apply the proceeds of the sale to the mortgage indebtedness, with the undertaking of the appellant to pay the difference, if any, between the selling price and the mortgage obligation. With the stipulated conditions as stated, the appellee, in essence was constituted as a mere agent to sell the motor vehicle which was delivered to the appellee, not as its property, for if it were, he would have full power of disposition of the property, not only to sell it as is the limited authority given him in the special power of attorney. Had appellee intended to completely release appellant of its mortgage obligation, there would be no necessity of executing the document captioned "Voluntary Surrender with Special Power of Attorney To Sell." Nowhere in the said document can We find that the mere surrender of the mortgaged motor vehicle to the appellee extinguished appellant's obligation for the unpaid price. Appellant would also argue that by accepting the delivery of the mortgaged motor vehicle, appellee is estopped from demanding payment of the unpaid obligation. Estoppel would not he since, as clearly set forth above, appellee never accepted the mortgaged motor vehicle in full satisfaction of the mortgaged debt. Under the law, the delivery of possession of the mortgaged property to the mortgagee, the herein appellee, can only operate to extinguish appellant's liability if the appellee had actually caused the foreclosure sale of the mortgaged property when it recovered possession thereof. 6 It is worth noting that it is the fact of foreclosure and actual sale of the mortgaged chattel that bar the recovery by the vendor of any balance of the purchaser's outstanding obligation not satisfied by the sale. 7 As held by this Court, if the vendor desisted, on his own initiative, from consummating the auction sale, such desistance was a timely disavowal of the remedy of foreclosure, and the vendor can still sue for specific performance. 8 This is exactly what happened in the instant case. On the second issue, there is no dispute that there is an unpaid taxes of P70,122.00 due on the mortgaged motor vehicle which, according to appellant, liability for the breach of warranty under the Deed of Sale is shifted to the appellee who merely stepped into the shoes of the assignor Alexander Lim by virtue of the Deed of Assignment in favor of appellee. The Deed of Sale between Alexander Lim and

appellant and the Deed of Assignment between Alexander Lim and appellee are very clear on this point. There is a specific provision in the Deed of Sale that the seller Alexander Lim warrants the sale of the motor vehicle to the buyer, the herein appellant, to be free from liens and encumbrances. When appellee accepted the assignment of credit from the seller Alexander Lim, there is a specific agreement that Lim continued to be bound by the warranties he had given to the buyer, the herein appellant, and that if it appears subsequently that "there are such counterclaims, offsets or defenses that may be interposed by the debtor at the time of the assignment, such counterclaims, offsets or defenses shall not prejudice the FILINVEST FINANCE CORPORATION and I (Alexander Lim) further warrant and hold the said corporation free and harmless from any such claims, offsets, or defenses that may be availed of." 9 It must be noted that the unpaid taxes on the motor vehicle is a burden on the property. Since as earlier shown, the ownership of the mortgaged property never left the mortgagor, the herein appellant, the burden of the unpaid taxes should be home by him, who, in any case, may not be said to be without remedy under the law, but definitely not against appellee to whom were transferred only rights, title and interest, as such is the essence of assignment of credit. 10 WHEREFORE, the judgment appealed from is hereby affirmed in toto with costs against defendant-appellant. SO ORDERED. G.R. No. 82508 September 29, 1989 FILINVEST CREDIT CORPORATION, petitioner, vs.THE COURT OF APPEALS, JOSE SY BANG and ILUMINADA TAN SY BANG,*respondents. SARMIENTO, J.: This is a petition for review on certiorari of the decision, 1 dated March 17, 1988, of the Court of Appeals which affirmed with modification the decision 2 of the Regional Trial Court of Quezon, Branch LIX, Lucena City. The controversy stemmed from the following facts: The private respondents, the spouses Jose Sy Bang and Iluminada Tan, were engaged in the sale of gravel produced from crushed rocks and used for construction purposes. In order to increase their production, they engaged the services of Mr. Ruben Mercurio, the proprietor of Gemini Motor Sales in Lucena City, to look for a rock crusher which they could buy. Mr. Mercurio referred the private respondents to the Rizal Consolidated Corporation which then had for sale one such machinery described as: ONE UNIT LIPPMAN (RECONDITIONED) [sic] PORTABLE CRUSHING PLANT

JAW CRUSHER-10xl6 DOUBLE ROLL CRUSHER 16x16

3 UNITS PRODUCT CONVEYOR 75 HP ELECTRIC MOTOR

8 PCS. BRAND NEW TIRES CHASSIS NO. 19696 GOOD RUNNING CONDITION 3

Oscar Sy Bang, a brother of private respondent Jose Sy Bang, went to inspect the machine at the Rizal Consolidated's plant site. Apparently satisfied with the machine, the private respondents signified their intent to purchase the same. They were however confronted with a problem-the rock crusher carried a cash price tag of P 550,000.00. Bent on acquiring the machinery, the private respondents applied for financial assistance from the petitioner, Filinvest Credit Corporation. The petitioner agreed to extend to the private respondents financial aid on the following conditions: that the machinery be purchased in the petitioner's name; that it be leased (with option to purchase upon the termination of the lease period) to the private respondents; and that the private respondents execute a real estate mortgage in favor of the petitioner as security for the amount advanced by the latter. Accordingly, on May 18,1981, a contract of lease of machinery (with option to purchase) was entered into by the parties whereby the private respondents agreed to lease from the petitioner the rock crusher for two years starting from July 5, 1 981 payable as follows: P10,000.00 - first 3 months 23,000.00 - next 6 months 24,800.00 - next 15 months The contract likewise stipulated that at the end of the two-year period, the machine would be owned by the private respondents. Thus, the private respondents issued in favor of the petitioner a check for P150,550.00, as initial rental (or guaranty deposit), and twenty-four (24) postdated checks corresponding to the 24 monthly rentals. In addition, to guarantee their compliance with the lease contract, the private respondents executed a real estate mortgage over two parcels of land in favor of the petitioner. The rock crusher was delivered to the private respondents on June 9, 1981. Three months from the date of delivery, or on September 7, 1981, however, the private respondents, claiming that they had only tested the machine that month, sent a letter-complaint to the petitioner, alleging that contrary to the 20 to 40 tons per hour capacity of the machine as stated in the lease contract, the machine could only process 5 tons of rocks and stones per hour. They then demanded that the petitioner make good the stipulation in the lease contract. They followed that up with similar written complaints to the petitioner, but the latter did not, however, act on them. Subsequently, the private respondents stopped payment on the remaining checks they had issued to the petitioner. 5 As a consequence of the non-payment by the private respondents of the rentals on the rock crusher as they fell due despite the repeated written demands, the petitioner extrajudicially foreclosed the real estate mortgage. 6 On April 18, 1983, the private

respondents received a Sheriff s Notice of Auction Sale informing them that their mortgaged properties were going to be sold at a public auction on May 25, 1983 at 10:00 o'clock in the morning at the Office of the Provincial Sheriff in Lucena City to satisfy their indebtedness to the petitioner. 7 To thwart the impending auction of their properties, the private respondents filed before the Regional Trial Court of Quezon, on May 4, 1983, 8 a complaint against the petitioner, for the rescission of the contract of lease, annullment of the real estate mortgage, and for injunction and damages, with prayer for the issuance of a writ of preliminary injunction. 9On May 23, 1983, three days before the scheduled auction sale, the trial court issued a temporary restraining order commanding the Provincial Sheriff of Quezon, and the petitioner, to refrain and desist from proceeding with the public auction. 10 Two years later, on September 4, 1985, the trial court rendered a decision in favor of the private respondents, the dispositive portion of which reads: WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered: 1. making the injunction permanent; 2. rescinding the contract of lease of the machinery and equipment and ordering the plaintiffs to return to the defendant corporation the machinery subject of the lease contract, and the defendant corporation to return to plaintiffs the sum of P470,950.00 it received from the latter as guaranty deposit and rentals with legal interest thereon until the amount is fully restituted; 3. annulling the real estate mortgage constituted over the properties of the plaintiffs covered by Transfer Certificate of Title Nos. T32480 and T-5779 of the Registry of Deeds of Lucena City; 4. ordering the defendant corporation to pay plaintiffs P30,000.00 as attorney's fees and the costs of the suit. SO ORDERED. 11 Dissatisfied with the trial court's decision, the petitioner elevated the case to the respondent Court of Appeals. On March 17, 1988, the appellate court, finding no error in the appealed judgment, affirmed the same in toto. 12Hence, this petition. Before us, the petitioner reasserts that the private respondents' cause of action is not against it (the petitioner), but against either the Rizal Consolidated Corporation, the original owner-seller of the subject rock crusher, or Gemini Motors Sales which served as a conduit facilitator of the purchase of the said machine. The petitioner argues that it is a financing institution engaged in quasi-banking activities, primarily the lending of money to entrepreneurs such as the private respondents and the general public, but

certainly not the leasing or selling of heavy machineries like the subject rock crusher. The petitioner denies being the seller of the rock crusher and only admits having financed its acquisition by the private respondents. Further, the petitioner absolves itself of any liability arising out of the lease contract it signed with the private respondents due to the waiver of warranty made by the latter. The petitioner likewise maintains that the private respondents being presumed to be knowledgeable about machineries, should be held responsible for the detection of defects in the machine they had acquired, and on account of that, they are estopped from claiming any breach of warranty. Finally, the petitioner interposed the defense of prescription, invoking Article 1571 of the Civil Code, which provides: Art. 1571. Actions arising from the provisions of the preceding ten articles shall be barred after six months, from the delivery of the thing sold. We find the petitioner's first contention untenable. While it is accepted that the petitioner is a financing institution, it is not, however, immune from any recourse by the private respondents. Notwithstanding the testimony of private respondent Jose Sy Bang that he did not purchase the rock crusher from the petitioner, the fact that the rock crusher was purchased from Rizal Consolidated Corporation in the name and with the funds of the petitioner proves beyond doubt that the ownership thereof was effectively transferred to it. It is precisely this ownership which enabled the petitioner to enter into the "Contract of Lease of Machinery and Equipment" with the private respondents. Be that as it may, the real intention of the parties should prevail. The nomenclature of the agreement cannot change its true essence, i.e., a sale on installments. It is basic that a contract is what the law defines it and the parties intend it to be, not what it is called by the parties. 13 It is apparent here thatthe intent of the parties to the subject contract is for the so-called rentals to be the installment payments. Upon the completion of the payments, then the rock crusher, subject matter of the contract, would become the property of the private respondents. This form of agreement has been criticized as a lease only in name. Thus in Vda. de Jose v. Barrueco 14 we stated: Sellers desirous of making conditional sales of their goods, but who do not wish openly to make a bargain in that form, for one reason or another, have frequently resorted to the device of making contracts in the form of leases either with options to the buyer to purchase for a small consideration at the end of term, provided the so-called rent has been duly paid, or with stipulations that if the rent throughout the term is paid, title shall thereupon vest in the lessee. It is obvious that such transactions are leases only in name. The so-called rent must necessarily be regarded as payment of the price in installments since the due payment of the agreed amount results, by the terms of bargain, in the transfer of title to the lessee. 15 The importance of the criticism is heightened in the light of Article 1484 of the new Civil Code which provides for the remedies of an unpaid seller of movables on installment basis.

Article 1484. In a contract of sale of personal property the price of which is payable in installments, the vendor may exercise any of the following remedies: (1) Exact fulfillment of the obligation, should the vendee fail to pay; (2) Cancel the sale, should the vendee's failure to pay cover two or more installments; (3) Foreclose the chattel mortgage or the thing sold, if one has been constituted, should the vendee's failure to pay cover two or more installments. In this case, he shall have no further action against the purchaser to recover any unpaid balance of the price. Any agreement to the contrary shall be void. Under the aforequoted provision, the seller of movables in installments, in case the buyer fails to pay two or more installments may elect to pursue either of the following remedies: (1) exact fulfillment by the purchaser of the obligation; (2) cancel the sale; or (3) foreclose the mortgage on the purchased property if one was constituted thereon. It is now settled that the said remedies are alternative and not cumulative and therefore, the exercise of one bars the exercise of the others. Indubitably, the device contract of lease with option to buy is at times resorted to as a means to circumvent Article 1484, particularly paragraph (3) thereof.Through the set-up, the vendor, by retaining ownership over the property in the guise of being the lessor, retains, likewise, the right to repossess the same, without going through the process of foreclosure, in the event the vendee-lessee defaults in the payment of the installments. There arises therefore no need to constitute a chattel mortgage over the movable sold. More important, the vendor, after repossessing the property and, in effect, canceling the contract of sale, gets to keep all the installments-cum-rentals already paid. It is thus for these reasons that Article 1485 of the new Civil Code provides that: Article 1485. The preceding article shall be applied to contracts purporting to be leases of personal property with option to buy, when the lessor has deprived the lessee of possession or enjoyment of the thing. (Emphasis ours.) Unfortunately, even with the foregoing findings, we however fail to find any reason to hold the petitioner liable for the rock crusher's failure to produce in accordance with its described capacity. According to the petitioner, it was the private respondents who chose, inspected, and tested the subject machinery. It was only after they had inspected and tested the machine, and found it to their satisfaction, that the private respondents sought financial aid from the petitioner. These allegations of the petitioner had never been rebutted by the private respondents. In fact, they were even admitted by the private respondents in the contract they signed. Thus:

LESSEE'S SELECTION, INSPECTION AND VERIFICATION.-The LESSEE hereby confirms and acknowledges that he has independently inspected and verified the leased property and has selected and received the same from the Dealer of his own choosing in good order and excellent running and operating condition and on the basis of such verification, etc. the LESSEE has agreed to enter into this Contract." 16 Moreover, considering that between the parties, it is the private respondents, by reason of their business, who are presumed to be more knowledgeable, if not experts, on the machinery subject of the contract, they should not therefore be heard now to complain of any alleged deficiency of the said machinery. It is their failure or neglect to exercise the caution and prudence of an expert, or, at least, of a prudent man, in the selection, testing, and inspection of the rock crusher that gave rise to their difficulty and to this conflict. A well- established principle in law is that between two parties, he, who by his negligence caused the loss, shall bear the same. At any rate, even if the private respondents could not be adjudged as negligent, they still are precluded from imputing any liability on the petitioner. One of the stipulations in the contract they entered into with the petitioner is an express waiver of warranties in favor of the latter. By so signing the agreement, the private respondents absolved the petitioner from any liability arising from any defect or deficiency of the machinery they bought. The stipulation on the machine's production capacity being "typewritten" and that of the waiver being "printed" does not militate against the latter's effectivity. As such, whether "a capacity of 20 to 40 tons per hour" is a condition or a description is of no moment. What stands is that the private respondents had expressly exempted the petitioner from any warranty whatsoever. Their Contract of Lease Of Machinery And Equipment states: WARRANTY-LESSEE absolutely releases the lessor from any liability whatsoever as to any and all matters in relation to warranty in accordance with the provisions hereinafter stipulated. 17 Taking into account that due to the nature of its business and its mode of providing financial assistance to clients, the petitioner deals in goods over which it has no sufficient know-how or expertise, and the selection of a particular item is left to the client concerned, the latter, therefore, shoulders the responsibility of protecting himself against product defects. This is where the waiver of warranties is of paramount importance. Common sense dictates that a buyer inspects a product before purchasing it (under the principle of caveat emptor or "buyer beware") and does not return it for defects discovered later on, particularly if the return of the product is not covered by or stipulated in a contract or warranty. In the case at bar, to declare the waiver as noneffective, as the lower courts did, would impair the obligation of contracts. Certainly, the waiver in question could not be considered a mere surplusage in the contract between the parties. Moreover, nowhere is it shown in the records of the case that the private respondent has argued for its nullity or illegality. In any event, we find no ambiguity in the language of the waiver or the release of warranty. There is therefore no room for any interpretation as to its effect or applicability vis-a- vis the deficient output of the rock

crusher. Suffice it to say that the private respondents have validly excused the petitioner from any warranty on the rock crusher. Hence, they should bear the loss for any defect found therein. WHEREFORE, the Petition is GRANTED; the Decision of the Court of Appeals dated March 17, 1988 is hereby REVERSED AND SET ASIDE, and another one rendered DISMISSING the complaint. Costs against the private respondents. SO ORDERED. G.R. No. 139173 February 28, 2007 AMPARO HERRERA, Petitioners

SPOUSES ONNIE SERRANO AND vs. GODOFREDO CAGUIAT, Respondent. SANDOVAL-GUTIERREZ, J.:

Before us is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as amended, assailing the Decision1 of the Court of Appeals dated January 29, 1999 and its Resolution dated July 14, 1999 in CA-G.R. CV No. 48824. Spouses Onnie and Amparo Herrera, petitioners, are the registered owners of a lot located in Las Pias, Metro Manila covered by Transfer Certificate of Title No. T-9905. Sometime in March 1990, Godofredo Caguiat, respondent, offered to buy the lot. Petitioners agreed to sell it atP1,500.00 per square meter. Respondent then gave petitioners P100,000.00 as partial payment. In turn, petitioners gave respondent the corresponding receipt stating that respondent promised to pay the balance of the purchase price on or before March 23, 1990, thus: Las Pias, Metro Manila March 19, 1990 RECEIPT FOR PARTIAL PAYMENT OF LOT NO. 23 COVERED BY TCT NO. T-9905, LAS PIAS, METRO MANILA RECEIVED FROM MR. GODOFREDO CAGUIAT THE AMOUNT OF ONE HUNDRED THOUSAND PESOS (P100,000.00) AS PARTIAL PAYMENT OF OUR LOT SITUATED IN LAS PIAS, M.M. COVERED BY TCT NO. T-9905 AND WITH AN AREA OF 439 SQUARE METERS. MR. CAGUIAT PROMISED TO PAY THE BALANCE OF THE PURCHASE PRICE ON OR BEFORE MARCH 23, 1990, AND THAT WE WILL EXECUTE AND SIGN THE FINAL DEED OF SALE ON THIS DATE.

SIGNED THIS 19th DAY OF MARCH, 1990 AT LAS PIAS, M.M. (SGD) AMPARO HERRERA (SGD) ONNIE SERRANO"2

On March 28, 1990, respondent, through his counsel Atty. Ponciano Espiritu, wrote petitioners informing them of his readiness to pay the balance of the contract price and requesting them to prepare the final deed of sale.3 On April 4, 1990, petitioners, through Atty. Ruben V. Lopez, sent a letter 4 to respondent stating that petitioner Amparo Herrera is leaving for abroad on or before April 15, 1990 and that they are canceling the transaction. Petitioners also informed respondent that he can recover the earnest money of P100,000.00 anytime. Again, on April 6, 1990,5 petitioners wrote respondent stating that they delivered to his counsel Philippine National Bank Managers Check No. 790537 dated April 6, 1990 in the amount of P100,000.00 payable to him. In view of the cancellation of the contract by petitioners, respondent filed with the Regional Trial Court, Branch 63, Makati City a complaint against them for specific performance and damages, docketed as Civil Case No. 90-1067.6 On June 27, 1994, after hearing, the trial court rendered its Decision 7 finding there was a perfected contract of sale between the parties and ordering petitioners to execute a final deed of sale in favor of respondent. The trial court held: xxx In the evaluation of the evidence presented by the parties as to the issue as to who was ready to comply with his obligation on the verbal agreement to sell on March 23, 1990, shows that plaintiffs position deserves more weight and credibility. First, the P100,000.00 that plaintiff paid whether as downpayment or earnest money showed that there was already a perfected contract. Art. 1482 of the Civil Code of the Philippines, reads as follows, to wit: Art. 1482. 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. Second, plaintiff was the first to react to show his eagerness to push through with the sale by sending defendants the letter dated March 25, 1990. (Exh. D) and reiterated the same intent to pursue the sale in a letter dated April 6, 1990. Third, plaintiff had the balance of the purchase price ready for payment (Exh. C). Defendants mere allegation that it was plaintiff who did not appear on March 23, 1990 is unavailing. Defendants letters (Exhs. 2 and 5) appear to be mere afterthought. On appeal, the Court of Appeals, in its assailed Decision of January 29, 1999, affirmed the trial courts judgment.

Forthwith, petitioners filed their motion for reconsideration but it was denied by the appellate court in its Resolution8 dated July 14, 1999. Hence, the present recourse. The basic issue to be resolved is whether the document entitled "Receipt for Partial Payment" signed by both parties earlier mentioned is a contract to sell or a contract of sale. Petitioners contend that the Receipt is not a perfected contract of sale as provided for in Article 14589 in relation to Article 147510 of the Civil Code. The delivery to them of P100,000.00 as down payment cannot be considered as proof of the perfection of a contract of sale under Article 148211 of the same Code since there was no clear agreement between the parties as to the amount of consideration. Generally, the findings of fact of the lower courts are entitled to great weight and should not be disturbed except for cogent reasons.14 Indeed, they should not be changed on appeal in the absence of a clear showing that the trial court overlooked, disregarded, or misinterpreted some facts of weight and significance, which if considered would have altered the result of the case. 12 In the present case, we find that both the trial court and the Court of Appeals interpreted some significant facts resulting in an erroneous resolution of the issue involved.
1awphi1. net

In holding that there is a perfected contract of sale, both courts mainly relied on the earnest money given by respondent to petitioners. They invoked Article 1482 of the Civil Code which provides 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." We are not convinced. In San Miguel Properties Philippines, Inc. v. Spouses Huang,13 we held that the stages of a contract of sale are: (1) negotiation, covering the period from the time the prospective contracting parties indicate interest in the contract to the time the contract is perfected; (2) perfection, which takes place upon the concurrence of the essential elements of the sale, which is the meeting of the minds of the parties as to the object of the contract and upon the price; and (3) consummation, which begins when the parties perform their respective undertakings under the contract of sale, culminating in the extinguishment thereof. With the above postulates as guidelines, we now proceed to determine the real nature of the contract entered into by the parties. 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.14 Thus, when petitioners declared in the said "Receipt for Partial Payment" that they

RECEIVED FROM MR. GODOFREDO CAGUIAT THE AMOUNT OF ONE HUNDRED THOUSAND PESOS (P100,000.00) AS PARTIAL PAYMENT OF OUR LOT SITUATED IN LAS PIAS, M.M. COVERED BY TCT NO. T-9905 AND WITH AN AREA OF 439 SQUARE METERS. MR. CAGUIAT PROMISED TO PAY THE BALANCE OF THE PURCHASE PRICE ON OR BEFORE MARCH 23, 1990, AND THAT WE WILL EXECUTE AND SIGN THE FINAL DEED OF SALE ON THIS DATE. there can be no other interpretation than that they agreed to a conditional contract of sale, consummation of which is subject only to the full payment of the purchase price. A contract to sell is akin to a conditional sale where the efficacy or obligatory force of the vendor's obligation to transfer title is subordinated to the happening of a future and uncertain event, so that if the suspensive condition does not take place, the parties would stand as if the conditional obligation had never existed. The suspensive condition is commonly full payment of the purchase price.15 The differences between a contract to sell and a contract of sale are well-settled in jurisprudence. As early as 1951, in Sing Yee v. Santos,16 we held that: x x x [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 x x x 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. In other words, in a contract to sell, ownership is retained by the seller and is not to pass to the buyer until full payment of the price.17 In this case, the "Receipt for Partial Payment" shows that the true agreement between the parties is a contract to sell. First, ownership over the property was retained by petitioners and was not to pass to respondent until full payment of the purchase price. Thus, petitioners need not push through with the sale should respondent fail to remit the balance of the purchase price before the deadline on March 23, 1990. In effect, petitioners have the right to rescind unilaterally the contract the moment respondent fails to pay within the fixed period.18

Second, the agreement between the parties was not embodied in a deed of sale. The absence of a formal deed of conveyance is a strong indication that the parties did not intend immediate transfer of ownership, but only a transfer after full payment of the purchase price.19 Third, petitioners retained possession of the certificate of title of the lot. This is an additional indication that the agreement did not transfer to respondent, either by actual or constructive delivery, ownership of the property.20 It is true that Article 1482 of the Civil Code provides that "Whenever earnest money is given in a contract of sale, it shall be considered as part of the price and proof of the perfection of the contract." However, this article speaks ofearnest money given in a contract of sale. In this case, the earnest money was given in a contract to sell. The earnest money forms part of the consideration only if the sale is consummated upon full payment of the purchase price.21 Now, since the earnest money was given in a contract to sell, Article 1482, which speaks of a contract of sale, does not apply. As previously discussed, the suspensive condition (payment of the balance by respondent) did not take place. Clearly, respondent cannot compel petitioners to transfer ownership of the property to him. WHEREFORE, we GRANT the instant Petition for Review. The challenged Decision of the Court of Appeals isREVERSED and respondents complaint is DISMISSED. SO ORDERED.