G.R. No.

167213

October 31, 2006

DARREL CORDERO, EGMEDIO BAUTISTA, ROSEMAY BAUTISTA, MARION BAUTISTA, DANNY BOY CORDERO, LADYLYN CORDERO and BELEN CORDERO, petitioners, vs. F.S. MANAGEMENT & DEVELOPMENT CORPORATION, respondent. DECISION CARPIO MORALES, J.: Assailed via petition for review are issuances of the Court of Appeals in CA-G.R. CV No. 66198, Decision1 dated April 29, 2004 which set aside the decision of Branch 260 of the Regional Trial Court (RTC) of Paraaque in Civil Case No. 97067, and Resolution dated February 21, 2005 denying petitioners motion for reconsideration. On or about October 27, 1994,2 petitioner Belen Cordero (Belen), in her own behalf and as attorney-in-fact of her co-petitioners Darrel Cordero, Egmedio Bautista, Rosemay Bautista, Marion Bautista, Danny Boy Cordero and Ladylyn Cordero, entered into a contract to sell3 with respondent, F.S. Management and Development Corporation, through its chairman Roberto P. Tolentino over five (5) parcels of land located in Nasugbu, Batangas described in and covered by TCT Nos. 62692, 62693, 62694, 62695 and 20987. The contract to sell contained the following terms and conditions: 1. That the BUYER will buy the whole lots above described from the OWNER consisting of 50 hectares more or less at P25/sq.m. or with a total price of P12,500,000.00; 2. That the BUYER will pay the OWNER the sum of P500,000.00 as earnest money which will entitle the latter to enter the property and relocate the same, construct the necessary paths and roads with the help of the necessary parties in the area; 3. The BUYER will pay the OWNER the sum of THREE MILLION FIVE HUNDRED THOUSAND PESOS ONLY (P3,500,000.00) on or before April 30, 1995 and the remaining balance will be paid within 18 mons. (sic) from the date of payment of P3.5 Million pesos in 6 equal quarterly payments or P1,411,000.00 every quarter; 4. The title will be transferred by the OWNER to the BUYER upon complete payment of the agreed purchase price.

Provided that any obligation by the OWNER brought about by encumbrance or mortgage with any bank shall be settled by the OWNER or by the BUYER which shall be deducted the total purchase price; 5. Provided, the OWNER shall transfer the titles to the BUYER even before the complete payment if the BUYER can provide post dated checks which shall be in accordance with the time frame of payments as above stated and which shall be guaranteed by a reputable bank; 6. Upon the payment of the earnest money and the down payment of 3.5 Million pesos the BUYER can occupy and introduce improvements in the properties as owner while owner is guaranteeing that the properties will have no tenants or squatters in the properties and cooperate in the development of any project or exercise of ownerships by the BUYER; 7. Delay in the payment by the BUYER in the agreed due date will entitle the SELLER for the legal interest.4 Pursuant to the terms and conditions of the contract to sell, respondent paid earnest money in the amount of P500,000 on October 27, 1994.5 She likewise paid P1,000,000 on June 30, 1995 and another P1,000,000 on July 6, 1995. No further payments were made thereafter.6 Petitioners thus sent respondent a demand letter dated November 28, 19967 informing her that they were revoking/canceling the contract to sell and were treating the payments already made as payment for damages suffered as a result of the breach of contract, and demanding the payment of the amount of P10 Million Pesos for actual damages suffered due to loss of income by reason thereof. Respondent ignored the demand, however. Hence, on February 21, 1997, petitioner Belen, in her own behalf and as attorney-in-fact of her copetitioners, filed before the RTC of Paraaque a complaint for rescission of contract with damages8 alleging that respondent failed to comply with its obligations under the contract to sell, specifically its obligation to pay the downpayment of P3.5 Million by April 30, 1995, and the balance within 18 months thereafter; and that consequently petitioners are entitled to rescind the contract to sell as well as demand the payment of damages. In its Answer,9 respondent alleged that petitioners have no cause of action considering that they were the first to violate the contract to sell by preventing access to the properties despite payment of P2.5 Million Pesos; petitioners
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prevented it from complying with its obligation to pay in full by refusing to execute the final contract of sale unless additional payment of legal interest is made; and petitioners refusal to execute the final contract of sale was due to the willingness of another buyer to pay a higher price. In its Pre-trial Order10 of June 9, 1997, the trial court set the pre-trial conference on July 8, 1997 during which neither respondents representative nor its counsel failed to appear. And respondent did not submit a pre-trial brief, hence, it was declared as in default by the trial court which allowed the presentation of evidence ex parte by petitioners.11 Petitioners presented as witnesses petitioner Belen and one Ma. Cristina Cleofe. Belen testified on the execution of the contract to sell; the failure of respondent to make the necessary payments in compliance with the contract; the actual and moral damages sustained by petitioners as a result of the breach, including the lost opportunity to sell the properties for a higher price to another buyer, Ma. Cristina Cleofe; and the attorneys fees incurred by petitioners as a result of the suit.12 Ma. Cristina Cleofe, on the other hand, testified on the offer she made to petitioners to buy the properties at P35.00/sq.m.13 which was, however, turned down in light of the contract to sell executed by petitioners in favor of the respondent.14 Respondent filed a motion to set aside the order of default15 which was denied by the trial court by Order dated September 12, 1997.16 Via petition for certiorari, respondent challenged the said order, but it was denied by the Court of Appeals. 17 Meanwhile, the trial court issued its decision18 on November 18, 1997, finding for petitioners and ordering respondent to pay damages and attorneys fees. The dispositive portion of the decision reads: WHEREFORE, premises considered, the contract to sell between the Plaintiffs and the Defendant is hereby declared as rescinded and the defendant is likewise ordered to pay the plaintiff: (1) P4,500,000.00 computed as follows: P5,000,000.00 in actual damages and P2,000,000.00 in moral and exemplary damages, less defendants previous payment of P2,500,000.00 under the contract to sell; and (2) P800,000.00 by way of attorneys fees as well as the costs of suit. SO ORDERED. (Underscoring supplied)

Before the Court of Appeals to which respondent appealed the trial courts decision, it raised the following errors: 3.01. The Regional Trial Court erred when it awarded plaintiffs-appellees Five Million Pesos (P5,000,000.00) as actual damages. Corollary thereto, the Regional Trial Court erred in declaring defendant-appellant to have acted in wanton disregard of its obligations under the Contract to Sell. 3.02. The Regional Trial Court erred when it awarded plaintiffs-appellees Two Million Pesos (P2,000,000.00) as moral and exemplary damages. 3.03. The Regional Trial Court erred when it awarded plaintiffs-appellees Eight Hundred Thousand Pesos (P800,000.00) as attorneys fees.19 In the assailed decision,20 the Court of Appeals set aside the contract to sell, it finding that petitioners obligation thereunder did not arise for failure of respondent to pay the full purchase price. It also set aside the award to petitioners of damages for not being duly proven. And it ordered petitioners to return "the amount received from [respondent]." Thus the dispositive portion of the appellate courts decision reads: WHEREFORE, the Decision dated 18 November 1997 of the Regional Trial Court, Branch 260 of Paraaque City in Civil Case No. 97-067 is hereby VACATED. A NEW DECISION is ENTERED ordering the SETTING-ASIDE of the Contract to Sell WITHOUT payment of damages. Plaintiffsappellees are further ORDERED TO RETURN THE AMOUNTS RECEIVED from defendant-appellant. (Underscoring supplied) SO ORDERED. Their motion for reconsideration having been denied, petitioners filed the present petition for review which raises the following issues: 1. Whether the Court of Appeals erred in ruling on the nature of the contract despite the fact that it was not raised on appeal. 2. Whether or not a contract to sell may be subject to rescission under Article 1191 of the Civil Code. 3. Whether or not the Court of Appeals erred in setting aside the award of damages. Petitioners contend that the Court of Appeals erred in ruling on the nature of the contract to
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sell and the propriety of the remedy of rescission under Article 1191 of the Civil Code, these matters not having been raised by respondents in the assigned errors. In any event, petitioners claim that the contract to sell involves reciprocal obligations, hence, it falls within the ambit of Article 1191.21 While a party is required to indicate in his brief an assignment of errors and only those assigned shall be considered by the appellate court in deciding the case, appellate courts have ample authority to rule on matters not assigned as errors in an appeal if these are indispensable or necessary to the just resolution of the pleaded issues.22 Thus this Court has allowed the consideration of other grounds or matters not raised or assigned as errors, to wit: 1) grounds affecting jurisdiction over the subject matter; 2) matters which are evidently plain or clerical errors within the contemplation of the law; 3) matters the consideration of which is necessary in arriving at a just decision and complete resolution of the case or to serve the interest of justice or to avoid dispensing piecemeal justice; 4) matters of record which were raised in the trial court and which have some bearing on the issue submitted which the parties failed to raise or which the lower court ignored; 5) matters closely related to an error assigned; and 6) matters upon which the determination of a question properly assigned is dependent.23 In the present case, the nature as well as the characteristics of a contract to sell is determinative of the propriety of the remedy of rescission and the award of damages. As will be discussed shortly, the trial court committed manifest error in applying Article 1191 of the Civil Code to the present case, a fundamental error which "lies at the base and foundation of the proceeding, affecting the judgment necessarily," or, as otherwise expressed, "such manifest error as when removed destroys the foundation of the judgment."24 Hence, the Court of Appeals correctly ruled on these matters even if they were not raised in the appeal briefs. Under a contract to sell, the seller retains title to the thing to be sold until the purchaser fully pays the agreed purchase price. The full payment is a positive suspensive condition, the non-fulfillment of which is not a breach of contract but merely an event that prevents the seller from conveying title to the purchaser. The non-payment of the purchase price renders the contract to sell ineffective and without force and effect.25 Since the obligation of petitioners did not arise because of the failure of respondent to fully pay the purchase price, Article 1191 of the Civil Code would have no application.

Rayos v. Court of Appeals26 explained: Construing the contracts together, it is evident that the parties executed a contract to sell and not a contract of sale. The petitioners retained ownership without further remedies by the respondents until the payment of the purchase price of the property in full. Such payment is a positive suspensive condition, failure of which is not really a breach, serious or otherwise, but an event that prevents the obligations of the petitioners to convey title from arising, in accordance with Article 1184 of the Civil Code. x x x The non-fulfillment by the respondent of his obligation to pay, which is a suspensive condition to the obligation of the petitioners to sell and deliver the title to the property, rendered the contract to sell ineffective and without force and effect. The parties stand as if the conditional obligation had never existed. Article 1191 of the New Civil Code will not apply because it presupposes an obligation already extant. There can be no rescission of an obligation that is still non-existing, the suspensive condition not having happened. [Emphasis and underscoring supplied; citations omitted] The subject contract to sell clearly states that "title will be transferred by the owner (petitioners) to the buyer (respondent) upon complete payment of the agreed purchase price."27 Since respondent failed to fully pay the purchase price, petitioners obligation to convey title to the properties did not arise. While rescission does not apply in this case, petitioners may nevertheless cancel the contract to sell, their obligation not having arisen.28 This brings this Court to Republic Act No. 6552 (THE REALTY INSTALLMENT BUYER PROTECTION ACT). In Ramos v. Heruela29 this Court held: Articles 1191 and 1592 of the Civil Code are applicable to contracts of sale. In contracts to sell, RA 6552 applies. In Rillo v. Court of Appeals,30 the Court declared: x x x Known as the Maceda Law, R.A. No. 6552 recognizes in conditional sales of all kinds of real estate (industrial, commercial, residential) the right of the seller to cancel the contract upon non-payment of an installment by the buyer, which is simply an event that prevents the obligation of the vendor
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to convey title from acquiring binding force. It also provides the right of the buyer on installments in case he defaults in the payment of succeeding installments x x x. [Emphasis supplied] The properties subject of the contract having been intended for commercial, and not for residential, purposes,31 petitioners are entitled to retain the payments already made by respondent. RA 6552 expressly recognizes the vendors right to cancel contracts to sell on installment basis industrial and commercial properties with full retention of previous payments.32 But even assuming that the properties were not intended for commercial or industrial purpose, since respondent paid less than two years of installments, it is not entitled to any refund.33 It is on this score that a modification of the challenged issuances of the appellate court is in order. Respecting petitioners claim for damages, failure to make full payment of the purchase price in a contract to sell is not really a breach, serious or otherwise, but, as priorly stated, an event that prevents the obligation of the vendor to convey title to the property from arising.34 Consequently, the award of damages is not warranted in this case. With regard to attorneys fees, Article 220835 of the Civil Code provides that subject to certain exceptions, attorneys fees and expenses of litigation, other than judicial costs, cannot be recovered in the absence of stipulation. None of the enumerated exceptions in Article 2208 is present in this case. It bears stressing that the policy of the law is to put no premium on the right to litigate.36 WHEREFORE, the assailed Court of Appeals Decision dated April 29, 2004 and the Resolution dated February 21, 2005 in CA-G.R. CV No. 66198 are AFFIRMED with the MODIFICATION that petitioners are entitled to retain the payments already received from respondent. SO ORDERED.

G.R. No. 173856

November 20, 2008

DAO HENG BANK, INC., now BANCO DE ORO UNIVERSAL BANK, petitioner vs. SPS. LILIA and REYNALDO LAIGO, respondent. DECISION CARPIO MORALES, J.: The Spouses Lilia and Reynaldo Laigo (respondents) obtained loans from Dao Heng Bank, Inc. (Dao Heng) in the total amount of P11 Million, to secure the payment of which they forged on October 28, 1996, November 18, 1996 and April 18, 1997 three Real Estate Mortgages covering two parcels of land registered in the name of respondent "Lilia D. Laigo, . . . married to Reynaldo Laigo," one containing 569 square meters and the other containing 537 square meters. The mortgages were duly registered in the Registry of Deeds of Quezon City. The loans were payable within 12 months from the execution of the promissory notes covering the loans. As of 2000, respondents failed to settle their outstanding obligation, drawing them to verbally offer to cede to Dao Heng one of the two mortgaged lots by way of dacion en pago. To appraise the value of the mortgaged lands, Dao Heng in fact commissioned an appraiser whose fees were shouldered by it and respondents. There appears to have been no further action taken by the parties after the appraisal of the properties. Dao Heng was later to demand the settlement of respondents' obligation by letter of August 18, 20001 wherein it indicated that they had an outstanding obligation of P10,385,109.92 inclusive of interests and other charges. Respondents failed to heed the demand, however. Dao Heng thereupon filed in September 2000 an application to foreclose the real estate mortgages executed by respondents. The properties subject of the mortgage were sold for P10,776,242 at a public auction conducted on December 20, 2000 to Banco de Oro Universal Bank (hereafter petitioner) which was the highest bidder. It appears that respondents negotiated for the redemption of the mortgages for by a June 29, 2001 letter2 to them, petitioner, to which Dao Heng had been merged, through its Vice President on Property Management & Credit Services Department, advised respondent Lilia Laigo as follows:

This is to formally advise you of the bank's response to your proposal pertaining to the redemption of the two (2) foreclosed lots located in Fairview, Quezon City as has been relayed to you last June 13, 2001 as follows: 1. Redemption price shall be P11.5MM plus 12% interest based on diminishing balance payable in staggered payments up to January 2, 2002 as follows: a. P3MM - immediately upon receipt of this approval b. Balance payable in staggered payments (plus interest) up to January 2, 2002 2. Release Values for Partial Redemption: a. TCT No. 92257 (along Commonwealth) P7.500 MM* b. TCT No. N-146289 (along Regalado) P4.000 MM* * excluding 12% interest 3. Other Conditions: a. Payments shall be covered by post dated checks b. TCT No. 92257 shall be the first property to be released upon payment of the first P7.5MM plus interest c. Arrangement to be covered by an Agreement If you are agreeable to the foregoing terms and conditions, please affix your signature showing your conformity thereto at the space provided below. (Emphasis and underscoring in the original; italics supplied) Nothing was heard from respondents, hence, petitioner by its Manager, Property Management & Credit Services Department, advised her by letter of December 26, 20013 that in view of their failure to conform to the conditions set by it for the redemption of the properties, it would proceed to consolidate the titles immediately after the expiration of the redemption period on January 2, 2002. Six days before the expiration of the redemption period or on December 27, 2001, respondents filed a complaint before the Regional Trial Court (RTC) of Quezon City, for Annulment, Injunction with Prayer for Temporary Restraining Order (TRO), praying for the annulment of the foreclosure of the properties subject of the real estate mortgages and for them to be allowed "to deliver by way of dacion en pago' one of the mortgaged properties as full payment of [their]

mortgaged obligation" and to, in the meantime, issue a TRO directing the defendant-herein petitioner to desist from consolidating ownership over their properties. By respondents' claim, Dao Heng verbally agreed to enter into a dacion en pago. In its Opposition to respondents' Application for a TRO,4 petitioner claimed that there was no meeting of the minds between the parties on the settlement of respondents' loan via dacion en pago. A hearing on the application for a TRO was conducted by Branch 215 of the RTC of Quezon City following which it denied the same. Petitioner thereupon filed a Motion to Dismiss the complaint on the ground that the claim on which respondents' action is founded is unenforceable under the Statute of Frauds and the complaint states no cause of action. Respondents opposed the motion, contending that their delivery of the titles to the mortgaged properties constituted partial performance of their obligation under the dacion en pago to take it out from the coverage of the Statute of Frauds. The trial court granted petitioner's Motion to Dismiss in this wise: [P]laintiffs' claim must be based on a document or writing evidencing the alleged dacion en pago, otherwise, the same cannot be enforced in an action in court. The Court is not persuaded by plaintiffs' contention that their case is an exception to the operation of the rule on statute of frauds because of their partial performance of the obligation in the dacion en pago consisting of the delivery of the titles of the properties to the defendants. As correctly pointed out by the defendants, the titles were not delivered to them pursuant to the dacion en pago but by reason of the execution of the mortgage loan agreement. If indeed a dacion en pago agreement was entered into between the parties, it is inconceivable that a written document would not be drafted considering the magnitude of the amount involved.5 (Emphasis and underscoring supplied) Respondents assailed the dismissal of their complaint via Petition for Review before this Court which referred it to the Court of Appeals for disposition. Reversing the trial court's dismissal of the complaint, the appellate court, by Decision of
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January 26, 2006,6 reinstated respondents' complaint.7 In ordering the reinstatement of respondents' complaint, the appellate court held that the complaint states a cause of action, respondents having alleged that there was partial performance of the agreement to settle their obligation via dacion en pago when they agreed to have the properties appraised to thus place their agreement within the exceptions provided under Article 14038 of the Civil Code on Statute of Frauds. Thus the appellate court ratiocinated: Particularly, in seeking exception to the application of the Statute of Frauds, petitioners[-herein respondents] averred partial performance of the supposed verbal dacion en pago. In paragraph 5 of their complaint, they stated: "As part of the agreement, defendant Dao Heng Bank had the mortgaged property appraised to determine which of the two shall be delivered as full payment of the mortgage obligation; Also as part of the deal, plaintiffs for their part paid P5,000.00 for the appraisal expense. As reported by the appraiser commissioned by Defendant Dao Heng, the appraised value of the mortgaged properties were as follows: x x x" Having done so, petitioners are at least entitled to a reasonable opportunity to prove their case in the course of a full trial, to which the respondents may equally present their evidence in refutation of the formers' case. (Underscoring supplied) Petitioner's Motion for Reconsideration having been denied by the appellate court by Resolution of July 19, 2006, the present petition was filed faulting the appellate court in ruling: I. . . . THAT THE COMPLAINT ALLEGED A SUFFICIENT CAUSE OF ACTION DESPITE THE ALLEGATIONS, AS WELL AS ADMISSIONS FROM THE RESPONDENTS, THAT THERE WAS NO PERFECTED DACION EN PAGO CONTRACT; II. . . . THAT THE ALLEGED DACION EN PAGO IS NOT UNENFORCEABLE UNDER THE STATUTE OF FRAUDS, DESPITE THE ABSENCE OF A WRITTEN & BINDING CONTRACT; III. . . . THAT THE COMPLAINT SUFFICIENTLY STATED A CAUSE OF ACTION.9

Generally, the presence of a cause of action is determined from the facts alleged in the complaint. In their complaint, respondents alleged: xxxx 4. Sometime in the middle of the year 2000, defendant Dao Heng Bank as the creditor bank agreed to the full settlement of plaintiffs' mortgage obligation of P9 Million through the assignment of one of the two (2) mortgaged properties; [5] As part of the agreement, defendant Dao Heng Bank had the mortgaged properties appraised to determine which of the two (2) mortgaged properties shall be delivered as full payment of the mortgage obligation; Also as part of the deal, plaintiffs for their part paid P5,000.00 for the appraisal expense; As reported by the appraiser commissioned by defendant Dao Heng, the appraised value of the mortgaged properties were as follows: (a) Property No. 1 - T.C.T. No. 92257: P12,518,000.00 L2A Blk 12 Don Mariano Marcos Ave., Fairview, QC (b) Property No. 2 - T.C.T. No. 146289: P8,055,000.00 L36 Blk 87 Regalado Ave. Cor. Ipil St., Neopolitan, QC [6] Sometime in December, year 2000, the protest of plaintiffs notwithstanding and in blatant breach of the agreed "Dacion en pago" as the mode of full payment of plaintiffs' mortgage obligation, defendant Dao Heng Bank proceeded to foreclose the mortgaged properties above-described and sold said properties which were aggregately valued at more than P20 Million for only P10,776,242.00, an unconscionably very low price; (Underscoring supplied) Even if a complaint states a cause of action, however, a motion to dismiss for insufficiency of cause of action may be granted if the evidence discloses facts sufficient to defeat the claim and enables the court to go beyond the disclosures in the complaint. In such instances, the court can dismiss a complaint on this ground, even without a hearing, by taking into account the discussions in said motion to dismiss and the disposition thereto.10 In its Opposition to respondents' application for the issuance of a TRO,11 petitioner, responding to
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respondents' allegation that it agreed to the settlement of their obligation via the assignment of one of the two mortgaged properties, alleged that there was no meeting of the minds thereon: 4. Plaintiffs' claim that defendant Dao Heng Bank[s] foreclosure sale of the mortgaged properties was improper because there was an agreement to dacion one of the two (2) mortgaged properties as full settlement of the loan obligation and that defendant Dao Heng Bank and Banco de Oro were already negotiating and colluding for the latter's acquisition of the mortgaged [properties] for the unsconscionably low price of P10,776.242.00 are clearly WITHOUT BASIS. Quite to the contrary, there was no meeting of the minds between defendant Dao Heng Bank and the plaintiffs to dacion any of the mortgaged properties as full settlement of the loan. Although there was a PROPOSAL and NEGOTIATIONS to settle the loan by way of dacion, nothing came out of said proposal, much less did the negotiations mature into the execution of a dacion en pago instrument. Defendant Dao Heng Bank found the offer to settle by way of dacion not acceptable and thus, it opted to foreclose on the mortgage. The law clearly provides that "the debtor of a thing cannot compel the creditor to receive a different one, although the latter may be of the same value, or more valuable than that which is due" (Article 1244, New Civil Code). "The oblige is entitled to demand fulfillment of the obligation or performance as stipulated" (Palmares v. Court of Appeals, 288 SCRA 422 at p. 444 [1998]). "The power to decide whether or not to foreclose on the mortgage is the sole prerogative of the mortgagee" (Rural Bank of San Mateo, Inc. vs. Intermediate Appellate Court, 146 SCRA 205, at 213 [1986]) Defendant Dao Heng Bank merely opted to exercise such prerogative.12 (Emphasis in the original; capitalization and underscoring supplied) Dacion en pago as a mode of extinguishing an existing obligation partakes of the nature of sale whereby property is alienated to the creditor in satisfaction of a debt in money.13 It is an objective novation of the obligation, hence, common consent of the parties is required in order to extinguish the obligation. . . . 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 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 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."14 (Emphasis, italics and underscoring supplied; citation omitted) Being likened to that of a contract of sale, dacion en pago is governed by the law on sales.15 The partial execution of a contract of sale takes the transaction out of the provisions of the Statute of Frauds so long as the essential requisites of consent of the contracting parties, object and cause of the obligation concur and are clearly established to be present.16 Respondents claim that petitioner's commissioning of an appraiser to appraise the value of the mortgaged properties, his services for which they and petitioner paid, and their delivery to petitioner of the titles to the properties constitute partial performance of their agreement to take the case out of the provisions on the Statute of Frauds. There is no concrete showing, however, that after the appraisal of the properties, petitioner approved respondents' proposal to settle their obligation via dacion en pago. The delivery to petitioner of the titles to the properties is a usual condition sine qua non to the execution of the mortgage, both for security and registration purposes. For if the title to a property is not delivered to the mortgagee, what will prevent the mortgagor from again encumbering it also by mortgage or even by sale to a third party. Finally, that respondents did not deny proposing to redeem the mortgages,17 as reflected in petitioner's June 29, 2001 letter to them, dooms their claim of the existence of a perfected dacion en pago. WHEREFORE, the Court of Appeals Decision of January 26, 2006 is REVERSED and SET ASIDE. The Resolution of July 2, 2002 of the Regional Trial Court of Quezon City, Branch 215 dismissing respondents' complaint is REINSTATED. SO ORDERED.
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Article 1403. The following contracts are unenforceable unless they are ratified: x x x (2) Those that do not comply with the Statute of Frauds as set forth in this number. In the following cases an agreement hereafter made shall be unenforceable by action, unless the same, or some note or memorandum thereof be in writing, and subscribed by the party charged, or by his agent; evidence, therefore, of the agreement cannot be received without the writing, or a secondary evidence of its contents: x x x (e) An agreement for the leasing for a longer period than one year, or for the sale of real property or of an interest therein; x x x

G.R. No. 118342 January 5, 1998 DEVELOPMENT BANK OF THE PHILIPPINES, petitioner, vs. COURT OF APPEALS and LYDIA CUBA, respondents. G.R. No. 118367 January 5, 1998 LYDIA P. CUBA, petitioner, vs. COURT OF APPEALS, DEVELOPMENT BANK OF THE PHILIPPINES and AGRIPINA P. CAPERAL, respondents. DAVIDE, JR., J.: These two consolidated cases stemmed from a complaint 1 filed against the Development Bank of the Philippines (hereafter DBP) and Agripina Caperal filed by Lydia Cuba (hereafter CUBA) on 21 May 1985 with the Regional Trial Court of Pangasinan, Branch 54. The said complaint sought (1) the declaration of nullity of DBP's appropriation of CUBA's rights, title, and interests over a 44-hectares fishpond located in Bolinao, Pangasinan, for being violative of Article 2088 of the Civil Code; (2) the annulment of the Deed of Conditional Sale executed in her favor by DBP; (3) the annulment of DBP's sale of the subject fishpond to Caperal; (4) the restoration of her rights, title, and interests over the fishpond; and (5) the recovery of damages, attorney's fees, and expenses of litigation. After the joinder of issues following the filing by the parties of their respective pleadings, the trial court conducted a pre-trial where CUBA and DBP agreed on the following facts, which were embodied in the pre-trial order: 2 1. Plaintiff Lydia P. Cuba is a grantee of a Fishpond Lease Agreement No. 2083 (new) dated May 13, 1974 from the Government; 2. Plaintiff Lydia P. Cuba obtained loans from the Development Bank of the Philippines in the amounts of P109,000.00; P109,000.00; and P98,700.00 under the terms stated in the Promissory Notes dated September 6, 1974; August 11, 1975; and April 4, 1977; 3. As security for said loans, plaintiff Lydia P. Cuba executed two Deeds of Assignment of her Leasehold Rights;

4. Plaintiff failed to pay her loan on the scheduled dates thereof in accordance with the terms of the Promissory Notes; 5. Without foreclosure proceedings, whether judicial or extra-judicial, defendant DBP appropriated the Leasehold Rights of plaintiff Lydia Cuba over the fishpond in question; 6. After defendant DBP has appropriated the Leasehold Rights of plaintiff Lydia Cuba over the fishpond in question, defendant DBP, in turn, executed a Deed of Conditional Sale of the Leasehold Rights in favor of plaintiff Lydia Cuba over the same fishpond in question; 7. In the negotiation for repurchase, plaintiff Lydia Cuba addressed two letters to the Manager DBP, Dagupan City dated November 6, 1979 and December 20, 1979. DBP thereafter accepted the offer to repurchase in a letter addressed to plaintiff dated February 1, 1982; 8. After the Deed of Conditional Sale was executed in favor of plaintiff Lydia Cuba, a new Fishpond Lease Agreement No. 2083-A dated March 24, 1980 was issued by the Ministry of Agriculture and Food in favor of plaintiff Lydia Cuba only, excluding her husband; 9. Plaintiff Lydia Cuba failed to pay the amortizations stipulated in the Deed of Conditional Sale; 10. After plaintiff Lydia Cuba failed to pay the amortization as stated in Deed of Conditional Sale, she entered with the DBP a temporary arrangement whereby in consideration for the deferment of the Notarial Rescission of Deed of Conditional Sale, plaintiff Lydia Cuba promised to make certain payments as stated in temporary Arrangement dated February 23, 1982; 11. Defendant DBP thereafter sent a Notice of Rescission thru Notarial Act dated March 13, 1984, and which was received by plaintiff Lydia Cuba;

12. After the Notice of Rescission, defendant DBP took possession of the Leasehold Rights of the fishpond in question; 13. That after defendant DBP took possession of the Leasehold Rights over the fishpond in question, DBP advertised in the SUNDAY PUNCH the public bidding dated June 24, 1984, to dispose of the property; 14. That the DBP thereafter executed a Deed of Conditional Sale in favor of defendant Agripina Caperal on August 16, 1984; 15. Thereafter, defendant Caperal was awarded Fishpond Lease Agreement No. 2083-A on December 28, 1984 by the Ministry of Agriculture and Food. Defendant Caperal admitted only the facts stated in paragraphs 14 and 15 of the pre-trial order. 3 Trial was thereafter had on other matters. The principal issue presented was whether the act of DBP in appropriating to itself CUBA's leasehold rights over the fishpond in question without foreclosure proceedings was contrary to Article 2088 of the Civil Code and, therefore, invalid. CUBA insisted on an affirmative resolution. DBP stressed that it merely exercised its contractual right under the Assignments of Leasehold Rights, which was not a contract of mortgage. Defendant Caperal sided with DBP. The trial court resolved the issue in favor of CUBA by declaring that DBP's taking possession and ownership of the property without foreclosure was plainly violative of Article 2088 of the Civil Code which provides as follows: Art. 2088. The creditor cannot appropriate the things given by way of pledge or mortgage, or dispose of them. Any stipulation to the contrary is null and void. It disagreed with DBP's stand that the Assignments of Leasehold Rights were not contracts of mortgage because (1) they were given as security for loans, (2) although the "fishpond land" in question is still a public land, CUBA's leasehold rights and interest thereon are alienable rights which can be the proper subject of a mortgage; and (3) the intention of the contracting parties to treat the Assignment of Leasehold Rights as a mortgage was obvious and unmistakable; hence, upon CUBA's default, DBP's only right was to foreclose the Assignment in accordance with law.
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The trial court also declared invalid condition no. 12 of the Assignment of Leasehold Rights for being a clear case of pactum commissorium expressly prohibited and declared null and void by Article 2088 of the Civil Code. It then concluded that since DBP never acquired lawful ownership of CUBA's leasehold rights, all acts of ownership and possession by the said bank were void. Accordingly, the Deed of Conditional Sale in favor of CUBA, the notarial rescission of such sale, and the Deed of Conditional Sale in favor of defendant Caperal, as well as the Assignment of Leasehold Rights executed by Caperal in favor of DBP, were also void and ineffective. As to damages, the trial court found "ample evidence on record" that in 1984 the representatives of DBP ejected CUBA and her caretakers not only from the fishpond area but also from the adjoining big house; and that when CUBA's son and caretaker went there on 15 September 1985, they found the said house unoccupied and destroyed and CUBA's personal belongings, machineries, equipment, tools, and other articles used in fishpond operation which were kept in the house were missing. The missing items were valued at about P550,000. It further found that when CUBA and her men were ejected by DBP for the first time in 1979, CUBA had stocked the fishpond with 250,000 pieces of bangus fish (milkfish), all of which died because the DBP representatives prevented CUBA's men from feeding the fish. At the conservative price of P3.00 per fish, the gross value would have been P690,000, and after deducting 25% of said value as reasonable allowance for the cost of feeds, CUBA suffered a loss of P517,500. It then set the aggregate of the actual damages sustained by CUBA at P1,067,500. The trial court further found that DBP was guilty of gross bad faith in falsely representing to the Bureau of Fisheries that it had foreclosed its mortgage on CUBA's leasehold rights. Such representation induced the said Bureau to terminate CUBA's leasehold rights and to approve the Deed of Conditional Sale in favor of CUBA. And considering that by reason of her unlawful ejectment by DBP, CUBA "suffered moral shock, degradation, social humiliation, and serious anxieties for which she became sick and had to be hospitalized" the trial court found her entitled to moral and exemplary damages. The trial court also held that CUBA was entitled to P100,000 attorney's fees in view of the considerable expenses she incurred for lawyers' fees and in view of the finding that she was entitled to exemplary damages. In its decision of 31 January 1990, 4 the trial court disposed as follows:

WHEREFORE, judgment is hereby rendered in favor of plaintiff: 1. DECLARING null and void and without any legal effect the act of defendant Development Bank of the Philippines in appropriating for its own interest, without any judicial or extra-judicial foreclosure, plaintiff's leasehold rights and interest over the fishpond land in question under her Fishpond Lease Agreement No. 2083 (new); 2. DECLARING the Deed of Conditional Sale dated February 21, 1980 by and between the defendant Development Bank of the Philippines and plaintiff (Exh. E and Exh. 1) and the acts of notarial rescission of the Development Bank of the Philippines relative to said sale (Exhs. 16 and 26) as void and ineffective; 3. DECLARING the Deed of Conditional Sale dated August 16, 1984 by and between the Development Bank of the Philippines and defendant Agripina Caperal (Exh. F and Exh. 21), the Fishpond Lease Agreement No. 2083-A dated December 28, 1984 of defendant Agripina Caperal (Exh. 23) and the Assignment of Leasehold Rights dated February 12, 1985 executed by defendant Agripina Caperal in favor of the defendant Development Bank of the Philippines (Exh. 24) as void ab initio; 4. ORDERING defendant Development Bank of the Philippines and defendant Agripina Caperal, jointly and severally, to restore to plaintiff the latter's leasehold rights and interests and right of possession over the fishpond land in question, without prejudice to the right of defendant Development Bank of the Philippines to foreclose the securities given by plaintiff; 5. ORDERING defendant Development Bank of the Philippines to pay to plaintiff the following amounts: a) The sum of ONE MILLION SIXTYSEVEN THOUSAND
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FIVE HUNDRED PESOS (P1,067,500.00), as and for actual damages; b) The sum of ONE HUNDRED THOUSAND (P100,000.00) PESOS as moral damages; c) The sum of FIFTY THOUSAND (P50,000.00) PESOS, as and for exemplary damages; d) And the sum of ONE HUNDRED THOUSAND (P100,000.00) PESOS, as and for attorney's fees; 6. And ORDERING defendant Development Bank of the Philippines to reimburse and pay to defendant Agripina Caperal the sum of ONE MILLION FIVE HUNDRED THIRTY-TWO THOUSAND SIX HUNDRED TEN PESOS AND SEVENTY-FIVE CENTAVOS (P1,532,610.75) representing the amounts paid by defendant Agripina Caperal to defendant Development Bank of the Philippines under their Deed of Conditional Sale. CUBA and DBP interposed separate appeals from the decision to the Court of Appeals. The former sought an increase in the amount of damages, while the latter questioned the findings of fact and law of the lower court. In its decision 5 of 25 May 1994, the Court of Appeals ruled that (1) the trial court erred in declaring that the deed of assignment was null and void and that defendant Caperal could not validly acquire the leasehold rights from DBP; (2) contrary to the claim of DBP, the assignment was not a cession under Article 1255 of the Civil Code because DBP appeared to be the sole creditor to CUBA cession presupposes plurality of debts and creditors; (3) the deeds of assignment represented the voluntary act of CUBA in assigning her property rights in payment of her debts, which amounted to a novation of the promissory notes executed by CUBA in favor of DBP; (4) CUBA was estopped from questioning the assignment of the leasehold rights, since she agreed to repurchase the said rights under a

deed of conditional sale; and (5) condition no. 12 of the deed of assignment was an express authority from CUBA for DBP to sell whatever right she had over the fishpond. It also ruled that CUBA was not entitled to loss of profits for lack of evidence, but agreed with the trial court as to the actual damages of P1,067,500. It, however, deleted the amount of exemplary damages and reduced the award of moral damages from P100,000 to P50,000 and attorney's fees, from P100,000 to P50,000. The Court of Appeals thus declared as valid the following: (1) the act of DBP in appropriating Cuba's leasehold rights and interest under Fishpond Lease Agreement No. 2083; (2) the deeds of assignment executed by Cuba in favor of DBP; (3) the deed of conditional sale between CUBA and DBP; and (4) the deed of conditional sale between DBP and Caperal, the Fishpond Lease Agreement in favor of Caperal, and the assignment of leasehold rights executed by Caperal in favor of DBP. It then ordered DBP to turn over possession of the property to Caperal as lawful holder of the leasehold rights and to pay CUBA the following amounts: (a) P1,067,500 as actual damages; P50,000 as moral damages; and P50,000 as attorney's fees. Since their motions for reconsideration were denied, 6 DBP and CUBA filed separate petitions for review. In its petition (G.R. No. 118342), DBP assails the award of actual and moral damages and attorney's fees in favor of CUBA. Upon the other hand, in her petition (G.R. No. 118367), CUBA contends that the Court of Appeals erred (1) in not holding that the questioned deed of assignment was a pactum commissorium contrary to Article 2088 of the Civil Code; (b) in holding that the deed of assignment effected a novation of the promissory notes; (c) in holding that CUBA was estopped from questioning the validity of the deed of assignment when she agreed to repurchase her leasehold rights under a deed of conditional sale; and (d) in reducing the amounts of moral damages and attorney's fees, in deleting the award of exemplary damages, and in not increasing the amount of damages. We agree with CUBA that the assignment of leasehold rights was a mortgage contract. It is undisputed that CUBA obtained from DBP three separate loans totalling P335,000, each of which was covered by a promissory note. In all of these notes, there was a provision that: "In the event of foreclosure of the mortgage securing this notes, I/We further bind myself/ourselves,
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jointly and severally, to pay the deficiency, if any." 7 Simultaneous with the execution of the notes was the execution of "Assignments of Leasehold Rights" 8 where CUBA assigned her leasehold rights and interest on a 44-hectare fishpond, together with the improvements thereon. As pointed out by CUBA, the deeds of assignment constantly referred to the assignor (CUBA) as "borrower"; the assigned rights, as mortgaged properties; and the instrument itself, as mortgage contract. Moreover, under condition no. 22 of the deed, it was provided that "failure to comply with the terms and condition of any of the loans shall cause all other loans to become due and demandable and all mortgages shall be foreclosed." And, condition no. 33 provided that if "foreclosure is actually accomplished, the usual 10% attorney's fees and 10% liquidated damages of the total obligation shall be imposed." There is, therefore, no shred of doubt that a mortgage was intended. Besides, in their stipulation of facts the parties admitted that the assignment was by way of security for the payment of the loans; thus: 3. As security for said loans, plaintiff Lydia P. Cuba executed two Deeds of Assignment of her Leasehold Rights. In People's Bank & Trust Co. vs. Odom, 9 this Court had the occasion to rule that an assignment to guarantee an obligation is in effect a mortgage. We find no merit in DBP's contention that the assignment novated the promissory notes in that the obligation to pay a sum of money the loans (under the promissory notes) was substituted by the assignment of the rights over the fishpond (under the deed of assignment). As correctly pointed out by CUBA, the said assignment merely complemented or supplemented the notes; both could stand together. The former was only an accessory to the latter. Contrary to DBP's submission, the obligation to pay a sum of money remained, and the assignment merely served as security for the loans covered by the promissory notes. Significantly, both the deeds of assignment and the promissory notes were executed on the same dates the loans were granted. Also, the last paragraph of the assignment stated: "The assignor further reiterates and states all terms, covenants, and conditions stipulated in the promissory note or notes covering the proceeds of this loan, making said promissory note or notes, to all intent and purposes, an integral part hereof."

Neither did the assignment amount to payment by cession under Article 1255 of the Civil Code for the plain and simple reason that there was only one creditor, the DBP. Article 1255 contemplates the existence of two or more creditors and involves the assignment of all the debtor's property. Nor did the assignment constitute dation in payment under Article 1245 of the civil Code, which reads: "Dation in payment, whereby property is alienated to the creditor in satisfaction of a debt in money, shall be governed by the law on sales." It bears stressing that the assignment, being in its essence a mortgage, was but a security and not a satisfaction of indebtedness. 10 We do not, however, buy CUBA's argument that condition no. 12 of the deed of assignment constituted pactum commissorium. Said condition reads: 12. That effective upon the breach of any condition of this assignment, the Assignor hereby appoints the Assignee his Attorney-in-fact with full power and authority to take actual possession of the property above-described, together with all improvements thereon, subject to the approval of the Secretary of Agriculture and Natural Resources, to lease the same or any portion thereof and collect rentals, to make repairs or improvements thereon and pay the same, to sell or otherwise dispose of whatever rights the Assignor has or might have over said property and/or its improvements and perform any other act which the Assignee may deem convenient to protect its interest. All expenses advanced by the Assignee in connection with purpose above indicated which shall bear the same rate of interest aforementioned are also guaranteed by this Assignment. Any amount received from rents, administration, sale or disposal of said property may be supplied by the Assignee to the payment of repairs, improvements, taxes, assessments and other incidental expenses and obligations and the balance, if any, to the payment of interest and then on the capital of the indebtedness secured hereby. If after disposal or sale of said property and upon application of total amounts received there shall
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remain a deficiency, said Assignor hereby binds himself to pay the same to the Assignee upon demand, together with all interest thereon until fully paid. The power herein granted shall not be revoked as long as the Assignor is indebted to the Assignee and all acts that may be executed by the Assignee by virtue of said power are hereby ratified. The elements of pactum commissorium are as follows: (1) there should be a property mortgaged by way of security for the payment of the principal obligation, and (2) there should be a stipulation for automatic appropriation by the creditor of the thing mortgaged in case of nonpayment of the principal obligation within the stipulated period. 11 Condition no. 12 did not provide that the ownership over the leasehold rights would automatically pass to DBP upon CUBA's failure to pay the loan on time. It merely provided for the appointment of DBP as attorney-in-fact with authority, among other things, to sell or otherwise dispose of the said real rights, in case of default by CUBA, and to apply the proceeds to the payment of the loan. This provision is a standard condition in mortgage contracts and is in conformity with Article 2087 of the Civil Code, which authorizes the mortgagee to foreclose the mortgage and alienate the mortgaged property for the payment of the principal obligation. DBP, however, exceeded the authority vested by condition no. 12 of the deed of assignment. As admitted by it during the pre-trial, it had "[w]ithout foreclosure proceedings, whether judicial or extrajudicial, . . . appropriated the [l]easehold [r]ights of plaintiff Lydia Cuba over the fishpond in question." Its contention that it limited itself to mere administration by posting caretakers is further belied by the deed of conditional sale it executed in favor of CUBA. The deed stated: WHEREAS, the Vendor [DBP] by virtue of a deed of assignment executed in its favor by the herein vendees [Cuba spouses] the former acquired all the right and interest of the latter over the abovedescribed property; xxx xxx xxx The title to the real estate property [sic] and all improvements thereon shall remain in the name of the Vendor until after the purchase price, advances and interest shall

have been fully paid. (Emphasis supplied). It is obvious from the above-quoted paragraphs that DBP had appropriated and taken ownership of CUBA's leasehold rights merely on the strength of the deed of assignment. DBP cannot take refuge in condition no. 12 of the deed of assignment to justify its act of appropriating the leasehold rights. As stated earlier, condition no. 12 did not provide that CUBA's default would operate to vest in DBP ownership of the said rights. Besides, an assignment to guarantee an obligation, as in the present case, is virtually a mortgage and not an absolute conveyance of title which confers ownership on the assignee. 12 At any rate, DBP's act of appropriating CUBA's leasehold rights was violative of Article 2088 of the Civil Code, which forbids a credit or from appropriating, or disposing of, the thing given as security for the payment of a debt. The fact that CUBA offered and agreed to repurchase her leasehold rights from DBP did not estop her from questioning DBP's act of appropriation. Estoppel is unavailing in this case. As held by this Court in some cases, 13 estoppel cannot give validity to an act that is prohibited by law or against public policy. Hence, the appropriation of the leasehold rights, being contrary to Article 2088 of the Civil Code and to public policy, cannot be deemed validated by estoppel. Instead of taking ownership of the questioned real rights upon default by CUBA, DBP should have foreclosed the mortgage, as has been stipulated in condition no. 22 of the deed of assignment. But, as admitted by DBP, there was no such foreclosure. Yet, in its letter dated 26 October 1979, addressed to the Minister of Agriculture and Natural Resources and coursed through the Director of the Bureau of Fisheries and Aquatic Resources, DBP declared that it "had foreclosed the mortgage and enforced the assignment of leasehold rights on March 21, 1979 for failure of said spouses [Cuba spouces] to pay their loan amortizations." 14 This only goes to show that DBP was aware of the necessity of foreclosure proceedings. In view of the false representation of DBP that it had already foreclosed the mortgage, the Bureau of Fisheries cancelled CUBA's original lease permit, approved the deed of conditional sale, and issued a new permit in favor of CUBA. Said acts which were predicated on such false representation, as well as the subsequent acts emanating from DBP's appropriation of the leasehold rights, should therefore be set aside. To
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validate these acts would open the floodgates to circumvention of Article 2088 of the Civil Code. Even in cases where foreclosure proceedings were had, this Court had not hesitated to nullify the consequent auction sale for failure to comply with the requirements laid down by law, such as Act No. 3135, as amended. 15 With more reason that the sale of property given as security for the payment of a debt be set aside if there was no prior fore closure proceeding. Hence, DBP should render an accounting of the income derived from the operation of the fishpond in question and apply the said income in accordance with condition no. 12 of the deed of assignment which provided: "Any amount received from rents, administration, . . . may be applied to the payment of repairs, improvements, taxes, assessment, and other incidental expenses and obligations and the balance, if any, to the payment of interest and then on the capital of the indebtedness. . ." We shall now take up the issue of damages. Article 2199 provides: Except as provided by law or by stipulation, one is entitled to an adequate compensation only for such pecuniary loss suffered by him as he has duly proved. Such compensation is referred to as actual or compensatory damages. Actual or compensatory damages cannot be presumed, but must be proved with reasonable degree of certainty. 16 A court cannot rely on speculations, conjectures, or guesswork as to the fact and amount of damages, but must depend upon competent proof that they have been suffered by the injured party and on the best obtainable evidence of the actual amount thereof. 17 It must point out specific facts which could afford a basis for measuring whatever compensatory or actual damages are borne. 18 In the present case, the trial court awarded in favor of CUBA P1,067,500 as actual damages consisting of P550,000 which represented the value of the alleged lost articles of CUBA and P517,500 which represented the value of the 230,000 pieces of bangus allegedly stocked in 1979 when DBP first ejected CUBA from the fishpond and the adjoining house. This award was affirmed by the Court of Appeals. We find that the alleged loss of personal belongings and equipment was not proved by clear evidence. Other than the testimony of CUBA and her caretaker, there was no proof as to the existence of those items before DBP took over the fishpond in question. As pointed out by DBP,

there was not "inventory of the alleged lost items before the loss which is normal in a project which sometimes, if not most often, is left to the care of other persons." Neither was a single receipt or record of acquisition presented. Curiously, in her complaint dated 17 May 1985, CUBA included "losses of property" as among the damages resulting from DBP's take-over of the fishpond. Yet, it was only in September 1985 when her son and a caretaker went to the fishpond and the adjoining house that she came to know of the alleged loss of several articles. Such claim for "losses of property," having been made before knowledge of the alleged actual loss, was therefore speculative. The alleged loss could have been a mere afterthought or subterfuge to justify her claim for actual damages. With regard to the award of P517,000 representing the value of the alleged 230,000 pieces of bangus which died when DBP took possession of the fishpond in March 1979, the same was not called for. Such loss was not duly proved; besides, the claim therefor was delayed unreasonably. From 1979 until after the filing of her complaint in court in May 1985, CUBA did not bring to the attention of DBP the alleged loss. In fact, in her letter dated 24 October 1979, 19 she declared: 1. That from February to May 1978, I was then seriously ill in Manila and within the same period I neglected the management and supervision of the cultivation and harvest of the produce of the aforesaid fishpond thereby resulting to the irreparable loss in the produce of the same in the amount of about P500,000.00 to my great damage and prejudice due to fraudulent acts of some of my fishpond workers. Nowhere in the said letter, which was written seven months after DBP took possession of the fishpond, did CUBA intimate that upon DBP's take-over there was a total of 230,000 pieces of bangus, but all of which died because of DBP's representatives prevented her men from feeding the fish. The award of actual damages should, therefore, be struck down for lack of sufficient basis. In view, however, of DBP's act of appropriating CUBA's leasehold rights which was contrary to law and public policy, as well as its false representation to the then Ministry of Agriculture and Natural Resources that it had "foreclosed the mortgage," an award of moral damages in the
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amount of P50,000 is in order conformably with Article 2219(10), in relation to Article 21, of the Civil Code. Exemplary or corrective damages in the amount of P25,000 should likewise be awarded by way of example or correction for the public good. 20 There being an award of exemplary damages, attorney's fees are also recoverable. 21 WHEREFORE, the 25 May 1994 Decision of the Court of Appeals in CA-G.R. CV No. 26535 is hereby REVERSED, except as to the award of P50,000 as moral damages, which is hereby sustained. The 31 January 1990 Decision of the Regional Trial Court of Pangasinan, Branch 54, in Civil Case No. A-1574 is MODIFIED setting aside the finding that condition no. 12 of the deed of assignment constituted pactum commissorium and the award of actual damages; and by reducing the amounts of moral damages from P100,000 to P50,000; the exemplary damages, from P50,000 to P25,000; and the attorney's fees, from P100,000 to P20,000. The Development Bank of the Philippines is hereby ordered to render an accounting of the income derived from the operation of the fishpond in question. Let this case be REMANDED to the trial court for the reception of the income statement of DBP, as well as the statement of the account of Lydia P. Cuba, and for the determination of each party's financial obligation to one another. SO ORDERED.

G.R. No. L-11491

August 23, 1918

ANDRES QUIROGA, plaintiff-appellant, vs. PARSONS HARDWARE CO., defendantappellee. Alfredo Chicote, Jose Arnaiz and Pascual B. Azanza for appellant. Crossfield & O'Brien for appellee. 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.
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(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
16

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.

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G.R. No. L-20871 April 30, 1971 KER & CO., LTD., petitioner, vs. JOSE B. LINGAD, as Acting Commissioner of Internal Revenue, respondent. Ross, Selph and Carrascoso for petitioner. Office of the Solicitor General Arturo A. Alafriz, Solicitor Alejandro B. Afurong and Special Atty. Balbino Gatdula, Jr. for 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
18

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
19

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.

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G.R. No. L-34338 November 21, 1984 LOURDES VALERIO LIM, petitioner, vs. PEOPLE OF THE PHILIPPINES, respondent. RELOVA, J.: Petitioner Lourdes Valerio Lim was found guilty of the crime of estafa and was sentenced "to suffer an imprisonment of four (4) months and one (1) day as minimum to two (2) years and four (4) months as maximum, to indemnify the offended party in the amount of P559.50, with subsidize imprisonment in case of insolvency, and to pay the costs." (p. 14, Rollo) From this judgment, appeal was taken to the then Court of Appeals which affirmed the decision of the lower court but modified the penalty imposed by sentencing her "to suffer an indeterminate penalty of one (1) month and one (1) day of arresto mayor as minimum to one (1) year and one (1) day of prision correccional as maximum, to indemnify the complainant in the amount of P550.50 without subsidiary imprisonment, and to pay the costs of suit." (p. 24, Rollo) The question involved in this case is whether the receipt, Exhibit "A", is a contract of agency to sell or a contract of sale of the subject tobacco between petitioner and the complainant, Maria de Guzman Vda. de Ayroso, thereby precluding criminal liability of petitioner for the crime charged. The findings of facts of the appellate court are as follows: ... The appellant is a businesswoman. On January 10, 1966, the appellant went to the house of Maria Ayroso and proposed to sell Ayroso's tobacco. Ayroso agreed to the proposition of the appellant to sell her tobacco consisting of 615 kilos at P1.30 a kilo. The appellant was to receive the overprice for which she could sell the tobacco. This agreement was made in the presence of plaintiff's sister, Salud G. Bantug. Salvador Bantug drew the document, Exh. A, dated January 10, 1966, which reads: To Whom It May Concern: This is to certify that I have received from Mrs. Maria de Guzman Vda. de Ayroso. of Gapan, Nueva Ecija, six

hundred fifteen kilos of leaf tobacco to be sold at Pl.30 per kilo. The proceed in the amount of Seven Hundred Ninety Nine Pesos and 50/100 (P 799.50) will be given to her as soon as it was sold. This was signed by the appellant and witnessed by the complainant's sister, Salud Bantug, and the latter's maid, Genoveva Ruiz. The appellant at that time was bringing a jeep, and the tobacco was loaded in the jeep and brought by the appellant. Of the total value of P799.50, the appellant had paid to Ayroso only P240.00, and this was paid on three different times. Demands for the payment of the balance of the value of the tobacco were made upon the appellant by Ayroso, and particularly by her sister, Salud Bantug. Salud Bantug further testified that she had gone to the house of the appellant several times, but the appellant often eluded her; and that the "camarin" the appellant was empty. Although the appellant denied that demands for payment were made upon her, it is a fact that on October 19, 1966, she wrote a letter to Salud Bantug which reads as follows: Dear Salud, Hindi ako nakapunta dian noon a 17 nitong nakaraan, dahil kokonte pa ang nasisingil kong pera, magintay ka hanggang dito sa linggo ito at tiak na ako ay magdadala sa iyo. Gosto ko Salud ay makapagbigay man lang ako ng marami para hindi masiadong kahiyahiya sa iyo. Ngayon kung gosto mo ay kahit konte muna ay bibigyan kita. Pupunta lang kami ni Mina sa Maynila ngayon.
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Salud kung talagang kailangan mo ay bukas ay dadalhan kita ng pera. Medio mahirap ang maningil sa palengke ng Cabanatuan dahil nagsisilipat ang mga suki ko ng puesto. Huwag kang mabahala at tiyak na babayaran kita. Patnubayan tayo ng mahal na panginoon Dios. (Exh. B). Ludy Pursuant to this letter, the appellant sent a money order for P100.00 on October 24, 1967, Exh. 4, and another for P50.00 on March 8, 1967; and she paid P90.00 on April 18, 1967 as evidenced by the receipt Exh. 2, dated April 18, 1967, or a total of P240.00. As no further amount was paid, the complainant filed a complaint against the appellant for estafa. (pp. 14, 15, 16, Rollo) In this petition for review by certiorari, Lourdes Valerio Lim poses the following questions of law, to wit: 1. Whether or not the Honorable Court of Appeals was legally right in holding that the foregoing document (Exhibit "A") "fixed a period" and "the obligation was therefore, immediately demandable as soon as the tobacco was sold" (Decision, p. 6) as against the theory of the petitioner that the obligation does not fix a period, but from its nature and the circumstances it can be inferred that a period was intended in which case the only action that can be maintained is a petition to ask the court to fix the duration thereof; 2. Whether or not the Honorable Court of Appeals was legally right in holding that "Art. 1197 of the New Civil Code does not apply" as against the alternative theory of the petitioner that the fore. going receipt (Exhibit "A") gives rise to an obligation wherein the duration of the period depends upon the will of

the debtor in which case the only action that can be maintained is a petition to ask the court to fix the duration of the period; and 3. Whether or not the honorable Court of Appeals was legally right in holding that the foregoing receipt is a contract of agency to sell as against the theory of the petitioner that it is a contract of sale. (pp. 3-4, Rollo) It is clear in the agreement, Exhibit "A", that the proceeds of the sale of the tobacco should be turned over to the complainant as soon as the same was sold, or, that the obligation was immediately demandable as soon as the tobacco was disposed of. Hence, Article 1197 of the New Civil Code, which provides that the courts may fix the duration of the obligation if it does not fix a period, does not apply. Anent the argument that petitioner was not an agent because Exhibit "A" does not say that she would be paid the commission if the goods were sold, the Court of Appeals correctly resolved the matter as follows: ... Aside from the fact that Maria Ayroso testified that the appellant asked her to be her agent in selling Ayroso's tobacco, the appellant herself admitted that there was an agreement that upon the sale of the tobacco she would be given something. The appellant is a businesswoman, and it is unbelievable that she would go to the extent of going to Ayroso's house and take the tobacco with a jeep which she had brought if she did not intend to make a profit out of the transaction. Certainly, if she was doing a favor to Maria Ayroso and it was Ayroso who had requested her to sell her tobacco, it would not have been the appellant who would have gone to the house of Ayroso, but it would have been Ayroso who would have gone to the house of the appellant and deliver the tobacco to the appellant. (p. 19, Rollo) The fact that appellant received the tobacco to be sold at P1.30 per kilo and the proceeds to be given to complainant as soon as it was sold, strongly negates transfer of ownership of the goods to the petitioner. The agreement (Exhibit "A') constituted her as an agent with the obligation to return the tobacco if the same was not sold.
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ACCORDINGLY, the petition for review on certiorari is dismissed for lack of merit. With costs. SO ORDERED.

G.R. No. L-8506

August 31, 1956

CELESTINO CO & COMPANY, petitioner, vs. COLLECTOR OF INTERNAL REVENUE, respondent. Office of the Solicitor General Ambrosio Padilla, Fisrt Assistant Solicitor General Guillermo E. Torres and Solicitor Federico V. Sian for respondent. BENGZON, J.: Appeal from a decision of the Court of Tax Appeals. Celestino Co & Company is a duly registered general copartnership doing business under the trade name of "Oriental Sash Factory". From 1946 to 1951 it paid percentage taxes of 7 per cent on the gross receipts of its sash, door and window factory, in accordance with section one hundred eighty-six of the National Revenue Code imposing taxes on sale of manufactured articles. However in 1952 it began to claim liability only to the contractor's 3 per cent tax (instead of 7 per cent) under section 191 of the same Code; and having failed to convince the Bureau of Internal Revenue, it brought the matter to the Court of Tax Appeals, where it also failed. Said the Court: To support his contention that his client is an ordinary contractor . . . counsel presented . . . duplicate copies of letters, sketches of doors and windows and price quotations supposedly sent by the manager of the Oriental Sash Factory to four customers who allegedly made special orders to doors and window from the said factory. The conclusion that counsel would like us to deduce from these few exhibits is that the Oriental Sash Factory does not manufacture readymade doors, sash and windows for the public but only upon special order of its select customers. . . . I cannot believe that petitioner company would take, as in fact it has taken, all the trouble and expense of registering a special trade name for its sash business and then orders company stationery carrying the bold print "Oriental Sash Factory (Celestino Co & Company, Prop.) 926 Raon St. Quiapo, Manila, Tel. No. 33076, Manufacturers of all kinds of doors, windows, sashes, furniture, etc. used season-dried and kiln-dried lumber, of the best quality workmanships" solely for the purpose of supplying the needs for doors, windows and sash of its special and limited customers. One ill note that petitioner has chosen for its tradename and has offered itself to the public as a
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"Factory", which means it is out to do business, in its chosen lines on a big scale. As a general rule, sash factories receive orders for doors and windows of special design only in particular cases but the bulk of their sales is derived from a readymade doors and windows of standard sizes for the average home. Moreover, as shown from the investigation of petitioner's book of accounts, during the period from January 1, 1952 to September 30, 1952, it sold sash, doors and windows worth P188,754.69. I find it difficult to believe that this amount which runs to six figures was derived by petitioner entirely from its few customers who made special orders for these items. Even if we were to believe petitioner's claim that it does not manufacture readymade sash, doors and windows for the public and that it makes these articles only special order of its customers, that does not make it a contractor within the purview of section 191 of the national Internal Revenue Code. there are no less than fifty occupations enumerated in the aforesaid section of the national Internal Revenue Code subject to percentage tax and after reading carefully each and every one of them, we cannot find under which the business of manufacturing sash, doors and windows upon special order of customers fall under the category of "road, building, navigation, artesian well, water workers and other construction work contractors" are those who alter or repair buildings, structures, streets, highways, sewers, street railways railroads logging roads, electric lines or power lines, and includes any other work for the construction, altering or repairing for which machinery driven by mechanical power is used. (Payton vs. City of Anadardo 64 P. 2d 878, 880, 179 Okl. 68). Having thus eliminated the feasibility off taxing petitioner as a contractor under 191 of the national Internal Revenue Code, this leaves us to decide the remaining issue whether or not petitioner could be taxed with lesser strain and more accuracy as seller of its manufactured articles under section 186 of the same code, as the respondent Collector of Internal Revenue has in fact been doing the Oriental Sash Factory was established in 1946. The percentage tax imposed in section 191 of our Tax Code is generally a tax on the sales of services, in contradiction with

the tax imposed in section 186 of the same Code which is a tax on the original sales of articles by the manufacturer, producer or importer. (Formilleza's Commentaries and Jurisprudence on the National Internal Revenue Code, Vol. II, p. 744). The fact that the articles sold are manufactured by the seller does not exchange the contract from the purview of section 186 of the National Internal Revenue Code as a sale of articles. There was a strong dissent; but upon careful consideration of the whole matter are inclines to accept the above statement of the facts and the law. The important thing to remember is that Celestino Co & Company habitually makes sash, windows and doors, as it has represented in its stationery and advertisements to the public. That it "manufactures" the same is practically admitted by appellant itself. The fact that windows and doors are made by it only when customers place their orders, does not alter the nature of the establishment, for it is obvious that it only accepted such orders as called for the employment of such material-moulding, frames, panels-as it ordinarily manufactured or was in a position habitually to manufacture. Perhaps the following paragraph represents in brief the appellant's position in this Court: Since the petitioner, by clear proof of facts not disputed by the respondent, manufacturers sash, windows and doors only for special customers and upon their special orders and in accordance with the desired specifications of the persons ordering the same and not for the general market: since the doors ordered by Don Toribio Teodoro & Sons, Inc., for instance, are not in existence and which never would have existed but for the order of the party desiring it; and since petitioner's contractual relation with his customers is that of a contract for a piece of work or since petitioner is engaged in the sale of services, it follows that the petitioner should be taxed under section 191 of the Tax Code and NOT under section 185 of the same Code." (Appellant's brief, p. 1112). But the argument rests on a false foundation. Any builder or homeowner, with sufficient money, may order windows or doors of the kind manufactured by this appellant. Therefore it is not true that it serves special customers only or confines its services to them alone. And anyone who sees, and likes, the doors ordered by Don Toribio Teodoro & Sons Inc. may purchase from appellant doors of the same kind, provided he
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pays the price. Surely, the appellant will not refuse, for it can easily duplicate or even massproduce the same doors-it is mechanically equipped to do so. That the doors and windows must meet desired specifications is neither here nor there. If these specifications do not happen to be of the kind habitually manufactured by appellant special forms for sash, mouldings of panels it would not accept the order and no sale is made. If they do, the transaction would be no different from a purchasers of manufactured goods held is stock for sale; they are bought because they meet the specifications desired by the purchaser. Nobody will say that when a sawmill cuts lumber in accordance with the peculiar specifications of a customer-sizes not previously held in stock for sale to the public-it thereby becomes an employee or servant of the customer,1 not the seller of lumber. The same consideration applies to this sash manufacturer. The Oriental Sash Factory does nothing more than sell the goods that it mass-produces or habitually makes; sash, panels, mouldings, frames, cutting them to such sizes and combining them in such forms as its customers may desire. On the other hand, petitioner's idea of being a contractor doing construction jobs is untenable. Nobody would regard the doing of two window panels a construction work in common parlance. 2 Appellant invokes Article 1467 of the New Civil Code to bolster its contention that in filing orders for windows and doors according to specifications, it did not sell, but merely contracted for particular pieces of work or "merely sold its services". Said article reads as follows: A contract for the delivery at a certain price of an article which the vendor in the ordinary course of his business manufactures or procures for the general market, whether the same is on hand at the time or not, is a contract of sale, but if the goods are to be manufactured specially for the customer and upon his special order, and not for the general market, it is contract for a piece of work. It is at once apparent that the Oriental Sash Factory did not merely sell its services to Don Toribio Teodoro & Co. (To take one instance) because it also sold the materials. The truth of the matter is that it sold materials ordinarily manufactured by it sash, panels, mouldings to Teodoro & Co., although in such form or combination as suited the fancy of the purchaser. Such new form does not divest the Oriental Sash

Factory of its character as manufacturer. Neither does it take the transaction out of the category of sales under Article 1467 above quoted, because although the Factory does not, in the ordinary course of its business, manufacture and keep on stock doors of the kind sold to Teodoro, it could stock and/or probably had in stock the sash, mouldings and panels it used therefor (some of them at least). In our opinion when this Factory accepts a job that requires the use of extraordinary or additional equipment, or involves services not generally performed by it-it thereby contracts for a piece of work filing special orders within the meaning of Article 1467. The orders herein exhibited were not shown to be special. They were merely orders for work nothing is shown to call them special requiring extraordinary service of the factory. The thought occurs to us that if, as alleged-all the work of appellant is only to fill orders previously made, such orders should not be called special work, but regular work. Would a factory do business performing only special, extraordinary or peculiar merchandise? Anyway, supposing for the moment that the transactions were not sales, they were neither lease of services nor contract jobs by a contractor. But as the doors and windows had been admittedly "manufactured" by the Oriental Sash Factory, such transactions could be, and should be taxed as "transfers" thereof under section 186 of the National Revenue Code. The appealed decision is consequently affirmed. So ordered.

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G.R. No. L-27044 June 30, 1975 THE COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. ENGINEERING EQUIPMENT AND SUPPLY COMPANY AND THE COURT OF TAX APPEALS, respondents. G.R. No. L-27452 June 30, 1975 ENGINEERING EQUIPMENT AND SUPPLY COMPANY, petitioner, vs. THE COMMISSIONER OF INTERNAL REVENUE AND THE COURT OF TAX APPEALS, respondent. Office of the Solicitor General Antonio P. Barredo, Assistant Solicitor General Felicisimo R. Rosete, Solicitor Lolita O. Gal-lang, and Special Attorney Gemaliel H. Montalino for Commissioner of Internal Revenue, etc. Melquides C. Gutierrez, Jose U. Ong, Juan G. Collas, Jr., Luis Ma. Guerrero and J.R. Balonkita for Engineering and Supply Company. ESGUERRA, J.: Petition for review on certiorari of the decision of the Court of Tax Appeals in CTA Case No. 681, dated November 29, 1966, assessing a compensating tax of P174,441.62 on the Engineering Equipment and Supply Company. As found by the Court of Tax Appeals, and as established by the evidence on record, the facts of this case are as follows: Engineering Equipment and Supply Co. (Engineering for short), a domestic corporation, is an engineering and machinery firm. As operator of an integrated engineering shop, it is engaged, among others, in the design and installation of central type air conditioning system, pumping plants and steel fabrications. (Vol. I pp. 12-16 T.S.N. August 23, 1960) On July 27, 1956, one Juan de la Cruz, wrote the then Collector, now Commissioner, of Internal Revenue denouncing Engineering for tax evasion by misdeclaring its imported articles and failing to pay the correct percentage taxes due thereon in connivance with its foreign suppliers (Exh. "2" p. 1 BIR record Vol. I). Engineering was likewise denounced to the Central Bank (CB) for alleged fraud in obtaining its dollar allocations. Acting on these denunciations, a raid and search was conducted by a joint team of Central Bank, (CB), National Bureau of Investigation (NBI) and Bureau of Internal Revenue (BIR) agents on September 27, 1956, on which occasion voluminous records

of the firm were seized and confiscated. (pp. 173177 T.S.N.) On September 30, 1957, revenue examiners Quesada and Catudan reported and recommended to the then Collector, now Commissioner, of Internal Revenue (hereinafter referred to as Commissioner) that Engineering be assessed for P480,912.01 as deficiency advance sales tax on the theory that it misdeclared its importation of air conditioning units and parts and accessories thereof which are subject to tax under Section 185(m) 1 of the Tax Code, instead of Section 186 of the same Code. (Exh. "3" pp. 59-63 BIR rec. Vol. I) This assessment was revised on January 23, 1959, in line with the observation of the Chief, BIR Law Division, and was raised to P916,362.56 representing deficiency advance sales tax and manufacturers sales tax, inclusive of the 25% and 50% surcharges. (pp. 72-80 BIR rec. Vol. I) On March 3, 1959. the Commissioner assessed against, and demanded upon, Engineering payment of the increased amount and suggested that P10,000 be paid as compromise in extrajudicial settlement of Engineering's penal liability for violation of the Tax Code. The firm, however, contested the tax assessment and requested that it be furnished with the details and particulars of the Commissioner's assessment. (Exh. "B" and "15", pp. 86-88 BIR rec. Vol. I) The Commissioner replied that the assessment was in accordance with law and the facts of the case. On July 30, 1959, Engineering appealed the case to the Court of Tax Appeals and during the pendency of the case the investigating revenue examiners reduced Engineering's deficiency tax liabilities from P916,362.65 to P740,587.86 (Exhs. "R" and "9" pp. 162-170, BIR rec.), based on findings after conferences had with Engineering's Accountant and Auditor. On November 29, 1966, the Court of Tax Appeals rendered its decision, the dispositive portion of which reads as follows: For ALL THE FOREGOING CONSIDERATIONS, the decision of respondent appealed from is hereby modified, and petitioner, as a contractor, is declared exempt from the deficiency manufacturers sales tax covering the period from June 1, 1948. to September 2, 1956. However, petitioner is ordered to pay respondent, or his duly authorized collection agent, the sum of P174,141.62 as compensating tax and 25% surcharge for the period from 1953
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to September 1956. With costs against petitioner. The Commissioner, not satisfied with the decision of the Court of Tax Appeals, appealed to this Court on January 18, 1967, (G.R. No. L-27044). On the other hand, Engineering, on January 4, 1967, filed with the Court of Tax Appeals a motion for reconsideration of the decision abovementioned. This was denied on April 6, 1967, prompting Engineering to file also with this Court its appeal, docketed as G.R. No. L-27452. Since the two cases, G.R. No. L-27044 and G.R. No. L-27452, involve the same parties and issues, We have decided to consolidate and jointly decide them. Engineering in its Petition claims that the Court of Tax Appeals committed the following errors: 1. That the Court of Tax Appeals erred in holding Engineering Equipment & Supply Company liable to the 30% compensating tax on its importations of equipment and ordinary articles used in the central type air conditioning systems it designed, fabricated, constructed and installed in the buildings and premises of its customers, rather than to the compensating tax of only 7%; 2. That the Court of Tax Appeals erred in holding Engineering Equipment & Supply Company guilty of fraud in effecting the said importations on the basis of incomplete quotations from the contents of alleged photostat copies of documents seized illegally from Engineering Equipment and Supply Company which should not have been admitted in evidence; 3. That the Court of Tax Appeals erred in holding Engineering Equipment & Supply Company liable to the 25% surcharge prescribed in Section 190 of the Tax Code; 4. That the Court of Tax Appeals erred in holding the assessment as not having prescribed; 5. That the Court of Tax Appeals erred in holding Engineering Equipment & Supply Company liable for the sum of P174,141.62 as 30% compensating tax and 25% surcharge instead of completely

absolving it from the deficiency assessment of the Commissioner. The Commissioner on the other hand claims that the Court of Tax Appeals erred: 1. In holding that the respondent company is a contractor and not a manufacturer. 2. In holding respondent company liable to the 3% contractor's tax imposed by Section 191 of the Tax Code instead of the 30% sales tax prescribed in Section 185(m) in relation to Section 194(x) both of the same Code; 3. In holding that the respondent company is subject only to the 30% compensating tax under Section 190 of the Tax Code and not to the 30% advance sales tax imposed by section 183 (b), in relation to section 185(m) both of the same Code, on its importations of parts and accessories of air conditioning units; 4. In not holding the company liable to the 50% fraud surcharge under Section 183 of the Tax Code on its importations of parts and accessories of air conditioning units, notwithstanding the finding of said court that the respondent company fraudulently misdeclared the said importations; 5. In holding the respondent company liable for P174,141.62 as compensating tax and 25% surcharge instead of P740,587.86 as deficiency advance sales tax, deficiency manufacturers tax and 25% and 50% surcharge for the period from June 1, 1948 to December 31, 1956. The main issue revolves on the question of whether or not Engineering is a manufacturer of air conditioning units under Section 185(m), supra, in relation to Sections 183(b) and 194 of the Code, or a contractor under Section 191 of the same Code. The Commissioner contends that Engineering is a manufacturer and seller of air conditioning units and parts or accessories thereof and, therefore, it is subject to the 30% advance sales tax prescribed by Section 185(m) of the Tax Code, in relation to Section 194 of the same, which defines a manufacturer as follows:
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Section 194. Words and Phrases Defined. In applying the provisions of this Title, words and phrases shall be taken in the sense and extension indicated below: xxx xxx xxx (x) "Manufacturer" includes every person who by physical or chemical process alters the exterior texture or form or inner substance of any raw material or manufactured or partially manufactured products in such manner as to prepare it for a special use or uses to which it could not have been put in its original condition, or who by any such process alters the quality of any such material or manufactured or partially manufactured product so as to reduce it to marketable shape, or prepare it for any of the uses of industry, or who by any such process combines any such raw material or manufactured or partially manufactured products with other materials or products of the same or of different kinds and in such manner that the finished product of such process of manufacture can be put to special use or uses to which such raw material or manufactured or partially manufactured products in their original condition could not have been put, and who in addition alters such raw material or manufactured or partially manufactured products, or combines the same to produce such finished products for the purpose of their sale or distribution to others and not for his own use or consumption. In answer to the above contention, Engineering claims that it is not a manufacturer and setter of air-conditioning units and spare parts or accessories thereof subject to tax under Section 185(m) of the Tax Code, but a contractor engaged in the design, supply and installation of the central type of air-conditioning system subject to the 3% tax imposed by Section 191 of the same Code, which is essentially a tax on the sale of services or labor of a contractor rather than on the sale of articles subject to the tax referred to in Sections 184, 185 and 186 of the Code. The arguments of both the Engineering and the Commissioner call for a clarification of the term

contractor as well as the distinction between a contract of sale and contract for furnishing services, labor and materials. The distinction between a contract of sale and one for work, labor and materials is tested by the inquiry whether the thing transferred is one not in existence and which never would have existed but for the order of the party desiring to acquire it, or a thing which would have existed and has been the subject of sale to some other persons even if the order had not been given. 2 If the article ordered by the purchaser is exactly such as the plaintiff makes and keeps on hand for sale to anyone, and no change or modification of it is made at defendant's request, it is a contract of sale, even though it may be entirely made after, and in consequence of, the defendants order for it. 3 Our New Civil Code, likewise distinguishes a contract of sale from a contract for a piece of work thus: Art. 1467. A contract for the delivery at a certain price of an article which the vendor in the ordinary course of his business manufactures or procures for the general market, whether the same is on hand at the time or not, is a contract of sale, but if the goods are to be manufactured specially for the customer and upon his special order and not for the general market, it is a contract for a piece of work. The word "contractor" has come to be used with special reference to a person who, in the pursuit of the independent business, undertakes to do a specific job or piece of work for other persons, using his own means and methods without submitting himself to control as to the petty details. (Araas, Annotations and Jurisprudence on the National Internal Revenue Code, p. 318, par. 191 (2), 1970 Ed.) The true test of a contractor as was held in the cases of Luzon Stevedoring Co., vs. Trinidad, 43, Phil. 803, 807808, and La Carlota Sugar Central vs. Trinidad, 43, Phil. 816, 819, would seem to be that he renders service in the course of an independent occupation, representing the will of his employer only as to the result of his work, and not as to the means by which it is accomplished. With the foregoing criteria as guideposts, We shall now examine whether Engineering really did "manufacture" and sell, as alleged by the Commissioner to hold it liable to the advance sales tax under Section 185(m), or it only had its services "contracted" for installation purposes to hold it liable under section 198 of the Tax Code.
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I After going over the three volumes of stenographic notes and the voluminous record of the BIR and the CTA as well as the exhibits submitted by both parties, We find that Engineering did not manufacture air conditioning units for sale to the general public, but imported some items (as refrigeration compressors in complete set, heat exchangers or coils, t.s.n. p. 39) which were used in executing contracts entered into by it. Engineering, therefore, undertook negotiations and execution of individual contracts for the design, supply and installation of air conditioning units of the central type (t.s.n. pp. 20-36; Exhs. "F", "G", "H", "I", "J", "K", "L", and "M"), taking into consideration in the process such factors as the area of the space to be air conditioned; the number of persons occupying or would be occupying the premises; the purpose for which the various air conditioning areas are to be used; and the sources of heat gain or cooling load on the plant such as sun load, lighting, and other electrical appliances which are or may be in the plan. (t.s.n. p. 34, Vol. I) Engineering also testified during the hearing in the Court of Tax Appeals that relative to the installation of air conditioning system, Engineering designed and engineered complete each particular plant and that no two plants were identical but each had to be engineered separately. As found by the lower court, which finding 4 We adopt Engineering, in a nutshell, fabricates, assembles, supplies and installs in the buildings of its various customers the central type air conditioning system; prepares the plans and specifications therefor which are distinct and different from each other; the air conditioning units and spare parts or accessories thereof used by petitioner are not the window type of air conditioner which are manufactured, assembled and produced locally for sale to the general market; and the imported air conditioning units and spare parts or accessories thereof are supplied and installed by petitioner upon previous orders of its customers conformably with their needs and requirements. The facts and circumstances aforequoted support the theory that Engineering is a contractor rather than a manufacturer.

The Commissioner in his Brief argues that "it is more in accord with reason and sound business management to say that anyone who desires to have air conditioning units installed in his premises and who is in a position and willing to pay the price can order the same from the company (Engineering) and, therefore, Engineering could have mass produced and stockpiled air conditioning units for sale to the public or to any customer with enough money to buy the same." This is untenable in the light of the fact that air conditioning units, packaged, or what we know as self-contained air conditioning units, are distinct from the central system which Engineering dealt in. To Our mind, the distinction as explained by Engineering, in its Brief, quoting from books, is not an idle play of words as claimed by the Commissioner, but a significant fact which We just cannot ignore. As quoted by Engineering Equipment & Supply Co., from an Engineering handbook by L.C. Morrow, and which We reproduce hereunder for easy reference: ... there is a great variety of equipment in use to do this job (of air conditioning). Some devices are designed to serve a specific type of space; others to perform a specific function; and still others as components to be assembled into a tailor-made system to fit a particular building. Generally, however, they may be grouped into two classifications unitary and central system. The unitary equipment classification includes those designs such as room air conditioner, where all of the functional components are included in one or two packages, and installation involves only making service connection such as electricity, water and drains. Central-station systems, often referred to as applied or built-up systems, require the installation of components at different points in a building and their interconnection. The room air conditioner is a unitary equipment designed specifically for a room or similar small space. It is unique among air conditioning equipment in two respects: It is in the electrical appliance classification, and it is made by a great number of manufacturers.
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There is also the testimony of one Carlos Navarro, a licensed Mechanical and Electrical Engineer, who was once the Chairman of the Board of Examiners for Mechanical Engineers and who was allegedly responsible for the preparation of the refrigeration and air conditioning code of the City of Manila, who said that "the central type air conditioning system is an engineering job that requires planning and meticulous layout due to the fact that usually architects assign definite space and usually the spaces they assign are very small and of various sizes. Continuing further, he testified: I don't think I have seen central type of air conditioning machinery room that are exactly alike because all our buildings here are designed by architects dissimilar to existing buildings, and usually they don't coordinate and get the advice of air conditioning and refrigerating engineers so much so that when we come to design, we have to make use of the available space that they are assigning to us so that we have to design the different component parts of the air conditioning system in such a way that will be accommodated in the space assigned and afterwards the system may be considered as a definite portion of the building. ... Definitely there is quite a big difference in the operation because the window type air conditioner is a sort of compromise. In fact it cannot control humidity to the desired level; rather the manufacturers, by hit and miss, were able to satisfy themselves that the desired comfort within a room could be made by a definite setting of the machine as it comes from the factory; whereas the central type system definitely requires an intelligent operator. (t.s.n. pp. 301-305, Vol. II) The point, therefore, is this Engineering definitely did not and was not engaged in the manufacture of air conditioning units but had its services contracted for the installation of a central system. The cases cited by the Commissioner (Advertising Associates, Inc. vs. Collector of Customs, 97, Phil. 636; Celestino Co & Co. vs. Collector of Internal Revenue, 99 Phil. 841 and Manila Trading & Supply Co. vs. City of Manila, 56 O.G. 3629), are not in point. Neither are they applicable because the facts in all the cases cited are entirely different. Take for

instance the case of Celestino Co where this Court held the taxpayer to be a manufacturer rather than a contractor of sash, doors and windows manufactured in its factory. Indeed, from the very start, Celestino Co intended itself to be a manufacturer of doors, windows, sashes etc. as it did register a special trade name for its sash business and ordered company stationery carrying the bold print "ORIENTAL SASH FACTORY (CELESTINO CO AND COMPANY, PROP.) 926 Raon St., Quiapo, Manila, Tel. No. etc., Manufacturers of All Kinds of Doors, Windows ... ." Likewise, Celestino Co never put up a contractor's bond as required by Article 1729 of the Civil Code. Also, as a general rule, sash factories receive orders for doors and windows of special design only in particular cases, but the bulk of their sales is derived from ready-made doors and windows of standard sizes for the average home, which "sales" were reflected in their books of accounts totalling P118,754.69 for the period from January, 1952 to September 30, 1952, or for a period of only nine (9) months. This Court found said sum difficult to have been derived from its few customers who placed special orders for these items. Applying the abovestated facts to the case at bar, We found them to he inapposite. Engineering advertised itself as Engineering Equipment and Supply Company, Machinery Mechanical Supplies, Engineers, Contractors, 174 Marques de Comillas, Manila (Exh. "B" and "15" BIR rec. p. 186), and not as manufacturers. It likewise paid the contractors tax on all the contracts for the design and construction of central system as testified to by Mr. Rey Parker, its President and General Manager. (t.s.n. p. 102, 103) Similarly, Engineering did not have readymade air conditioning units for sale but as per testimony of Mr. Parker upon inquiry of Judge Luciano of the CTA Q Aside from the general components, which go into air conditioning plant or system of the central type which your company undertakes, and the procedure followed by you in obtaining and executing contracts which you have already testified to in previous hearing, would you say that the covering contracts for these different projects listed ... referred to
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in the list, Exh. "F" are identical in every respect? I mean every plan or system covered by these different contracts are identical in standard in every respect, so that you can reproduce them? A No, sir. They are not all standard. On the contrary, none of them are the same. Each one must be designed and constructed to meet the particular requirements, whether the application is to be operated. (t.s.n. pp. 101-102) What We consider as on all fours with the case at bar is the case of S.M. Lawrence Co. vs. McFarland, Commissioner of Internal Revenue of the State of Tennessee and McCanless, 355 SW 2d, 100, 101, "where the cause presents the question of whether one engaged in the business of contracting for the establishment of air conditioning system in buildings, which work requires, in addition to the furnishing of a cooling unit, the connection of such unit with electrical and plumbing facilities and the installation of ducts within and through walls, ceilings and floors to convey cool air to various parts of the building, is liable for sale or use tax as a contractor rather than a retailer of tangible personal property. Appellee took the Position that appellant was not engaged in the business of selling air conditioning equipment as such but in the furnishing to its customers of completed air conditioning systems pursuant to contract, was a contractor engaged in the construction or improvement of real property, and as such was liable for sales or use tax as the consumer of materials and equipment used in the consummation of contracts, irrespective of the tax status of its contractors. To transmit the warm or cool air over the buildings, the appellant installed system of ducts running from the basic units through walls, ceilings and floors to registers. The contract called for completed air conditioning systems which became permanent part of the buildings and improvements to the realty." The Court held the appellant a contractor which used the materials and the equipment upon the value of which the tax herein imposed was levied in the performance of its contracts with its customers,

and that the customers did not purchase the equipment and have the same installed. Applying the facts of the aforementioned case to the present case, We see that the supply of air conditioning units to Engineer's various customers, whether the said machineries were in hand or not, was especially made for each customer and installed in his building upon his special order. The air conditioning units installed in a central type of air conditioning system would not have existed but for the order of the party desiring to acquire it and if it existed without the special order of Engineering's customer, the said air conditioning units were not intended for sale to the general public. Therefore, We have but to affirm the conclusion of the Court of Tax Appeals that Engineering is a contractor rather than a manufacturer, subject to the contractors tax prescribed by Section 191 of the Code and not to the advance sales tax imposed by Section 185(m) in relation to Section 194 of the same Code. Since it has been proved to Our satisfaction that Engineering imported air conditioning units, parts or accessories thereof for use in its construction business and these items were never sold, resold, bartered or exchanged, Engineering should be held liable to pay taxes prescribed under Section 190 5 of the Code. This compensating tax is not a tax on the importation of goods but a tax on the use of imported goods not subject to sales tax. Engineering, therefore, should be held liable to the payment of 30% compensating tax in accordance with Section 190 of the Tax Code in relation to Section 185(m) of the same, but without the 50% mark up provided in Section 183(b). II We take up next the issue of fraud. The Commissioner charged Engineering with misdeclaration of the imported air conditioning units and parts or accessories thereof so as to make them subject to a lower rate of percentage tax (7%) under Section 186 of the Tax Code, when they are allegedly subject to a higher rate of tax (30%) under its Section 185(m). This charge of fraud was denied by Engineering but the Court of Tax Appeals in its decision found adversely and said" ... We are amply convinced from the evidence presented by respondent that petitioner deliberately and purposely misdeclared its importations. This evidence consists of letters written by petitioner to its foreign suppliers, instructing them on how to invoice and describe the air
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conditioning units ordered by petitioner. ... (p. 218 CTA rec.) Despite the above findings, however, the Court of Tax Appeals absolved Engineering from paying the 50% surcharge prescribe by Section 183(a) of the Tax Code by reasoning out as follows: The imposition of the 50% surcharge prescribed by Section 183(a) of the Tax Code is based on willful neglect to file the monthly return within 20 days after the end of each month or in case a false or fraudulent return is willfully made, it can readily be seen, that petitioner cannot legally be held subject to the 50% surcharge imposed by Section 183(a) of the Tax Code. Neither can petitioner be held subject to the 50% surcharge under Section 190 of the Tax Code dealing on compensating tax because the provisions thereof do not include the 50% surcharge. Where a particular provision of the Tax Code does not impose the 50% surcharge as fraud penalty we cannot enforce a non-existing provision of law notwithstanding the assessment of respondent to the contrary. Instances of the exclusion in the Tax Code of the 50% surcharge are those dealing on tax on banks, taxes on receipts of insurance companies, and franchise tax. However, if the Tax Code imposes the 50% surcharge as fraud penalty, it expressly so provides as in the cases of income tax, estate and inheritance taxes, gift taxes, mining tax, amusement tax and the monthly percentage taxes. Accordingly, we hold that petitioner is not subject to the 50% surcharge despite the existence of fraud in the absence of legal basis to support the importation thereof. (p. 228 CTA rec.) We have gone over the exhibits submitted by the Commissioner evidencing fraud committed by Engineering and We reproduce some of them hereunder for clarity. As early as March 18, 1953, Engineering in a letter of even date wrote to Trane Co. (Exh. "3-K" pp. 152-155, BIR rec.) viz: Your invoices should be made in the name of Madrigal & Co., Inc., Manila, Philippines, c/o Engineering Equipment & Supply Co., Manila,

Philippines forwarding all correspondence and shipping papers concerning this order to us only and not to the customer. When invoicing, your invoices should be exactly as detailed in the customer's Letter Order dated March 14th, 1953 attached. This is in accordance with the Philippine import licenses granted to Madrigal & Co., Inc. and such details must only be shown on all papers and shipping documents for this shipment. No mention of words air conditioning equipment should be made on any shipping documents as well as on the cases. Please give this matter your careful attention, otherwise great difficulties will be encountered with the Philippine Bureau of Customs when clearing the shipment on its arrival in Manila. All invoices and cases should be marked "THIS EQUIPMENT FOR RIZAL CEMENT CO." The same instruction was made to Acme Industries, Inc., San Francisco, California in a letter dated March 19, 1953 (Exh. "3-J-1" pp. 150151, BIR rec.) On April 6, 1953, Engineering wrote to OwensCorning Fiberglass Corp., New York, U.S.A. (Exh. "3-1" pp. 147-149, BIR rec.) also enjoining the latter from mentioning or referring to the term 'air conditioning' and to describe the goods on order as Fiberglass pipe and pipe fitting insulation instead. Likewise on April 30, 1953, Engineering threatened to discontinue the forwarding service of Universal Transcontinental Corporation when it wrote Trane Co. (Exh. "3-H" p. 146, BIR rec.): It will be noted that the Universal Transcontinental Corporation is not following through on the instructions which have been covered by the above correspondence, and which indicates the necessity of discontinuing the use of the term "Air conditioning Machinery or Air Coolers". Our instructions concerning this general situation have been sent to you in ample time to have avoided this error in terminology, and we will ask that on receipt of this letter that you again write to Universal Transcontinental Corp. and inform them that, if in the future, they are
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unable to cooperate with us on this requirement, we will thereafter be unable to utilize their forwarding service. Please inform them that we will not tolerate another failure to follow our requirements. And on July 17, 1953 (Exh- "3-g" p. 145, BIR rec.) Engineering wrote Trane Co. another letter, viz: In the past, we have always paid the air conditioning tax on climate changers and that mark is recognized in the Philippines, as air conditioning equipment. This matter of avoiding any tie-in on air conditioning is very important to us, and we are asking that from hereon that whoever takes care of the processing of our orders be carefully instructed so as to avoid again using the term "Climate changers" or in any way referring to the equipment as "air conditioning." And in response to the aforequoted letter, Trane Co. wrote on July 30, 1953, suggesting a solution, viz: We feel that we can probably solve all the problems by following the procedure outlined in your letter of March 25, 1953 wherein you stated that in all future jobs you would enclose photostatic copies of your import license so that we might make up two sets of invoices: one set describing equipment ordered simply according to the way that they are listed on the import license and another according to our ordinary regular methods of order write-up. We would then include the set made up according to the import license in the shipping boxes themselves and use those items as our actual shipping documents and invoices, and we will send the other regular invoice to you, by separate correspondence. (Exh- No. "3-F-1", p. 144 BIR rec.) Another interesting letter of Engineering is one dated August 27, 1955 (Exh. "3-C" p. 141 BIR rec.) In the process of clearing the shipment from the piers, one of the Customs inspectors requested to see the packing list. Upon presenting the packing list, it was

discovered that the same was prepared on a copy of your letterhead which indicated that the Trane Co. manufactured air conditioning, heating and heat transfer equipment. Accordingly, the inspectors insisted that this equipment was being imported for air conditioning purposes. To date, we have not been able to clear the shipment and it is possible that we will be required to pay heavy taxes on equipment. The purpose of this letter is to request that in the future, no documents of any kind should be sent with the order that indicate in any way that the equipment could possibly be used for air conditioning. It is realized that this a broad request and fairly difficult to accomplish and administer, but we believe with proper caution it can be executed. Your cooperation and close supervision concerning these matters will be appreciated. (Emphasis supplied) The aforequoted communications are strongly indicative of the fraudulent intent of Engineering to misdeclare its importation of air conditioning units and spare parts or accessories thereof to evade payment of the 30% tax. And since the commission of fraud is altogether too glaring, We cannot agree with the Court of Tax Appeals in absolving Engineering from the 50% fraud surcharge, otherwise We will be giving premium to a plainly intolerable act of tax evasion. As aptly stated by then Solicitor General, now Justice, Antonio P. Barredo: 'this circumstance will not free it from the 50% surcharge because in any case whether it is subject to advance sales tax or compensating tax, it is required by law to truly declare its importation in the import entries and internal revenue declarations before the importations maybe released from customs custody. The said entries are the very documents where the nature, quantity and value of the imported goods declared and where the customs duties, internal revenue taxes, and other fees or charges incident to the importation are computed. These entries, therefore, serve the same purpose as the returns required by Section 183(a) of the Code.' Anent the 25% delinquency surcharge, We fully agree to the ruling made by the Court of Tax Appeals and hold Engineering liable for the same. As held by the lower court:
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At first blush it would seem that the contention of petitioner that it is not subject to the delinquency, surcharge of 25% is sound, valid and tenable. However, a serious study and critical analysis of the historical provisions of Section 190 of the Tax Code dealing on compensating tax in relation to Section 183(a) of the same Code, will show that the contention of petitioner is without merit. The original text of Section 190 of Commonwealth Act 466, otherwise known as the National Internal Revenue Code, as amended by Commonwealth Act No. 503, effective on October 1, 1939, does not provide for the filing of a compensation tax return and payment of the 25 % surcharge for late payment thereof. Under the original text of Section 190 of the Tax Code as amended by Commonwealth Act No. 503, the contention of the petitioner that it is not subject to the 25% surcharge appears to be legally tenable. However, Section 190 of the Tax Code was subsequently amended by the Republic Acts Nos. 253, 361, 1511 and 1612 effective October 1, 1946, July 1, 1948, June 9, 1949, June 16, 1956 and August 24, 1956 respectively, which invariably provides among others, the following: ... If any article withdrawn from the customhouse or the post office without payment of the compensating tax is subsequently used by the importer for other purposes, corresponding entry should be made in the books of accounts if any are kept or a written notice thereof sent to the Collector of Internal Revenue and payment of the corresponding compensating tax made within 30 days from the date of such entry or notice

and if tax is not paid within such period the amount of the tax shall be increased by 25% the increment to be a part of the tax. Since the imported air conditioning units-and spare parts or accessories thereof are subject to the compensating tax of 30% as the same were used in the construction business of Engineering, it is incumbent upon the latter to comply with the aforequoted requirement of Section 190 of the Code, by posting in its books of accounts or notifying the Collector of Internal Revenue that the imported articles were used for other purposes within 30 days. ... Consequently; as the 30% compensating tax was not paid by petitioner within the time prescribed by Section 190 of the Tax Code as amended, it is therefore subject to the 25% surcharge for delinquency in the payment of the said tax. (pp. 224-226 CTA rec.) III Lastly the question of prescription of the tax assessment has been put in issue. Engineering contends that it was not guilty of tax fraud in effecting the importations and, therefore, Section 332(a) prescribing ten years is inapplicable, claiming that the pertinent prescriptive period is five years from the date the questioned importations were made. A review of the record however reveals that Engineering did file a tax return or declaration with the Bureau of Customs before it paid the advance sales tax of 7%. And the declaration filed reveals that it did in fact misdeclare its importations. Section 332 of the Tax Code which provides: Section 332. Exceptions as to period of limitation of assessment and collection of taxes. (a) In the case of a false or fraudulent return with intent to evade tax or of a failure to file a return, the tax may be assessed, or a proceeding in court for the collection of such tax may be begun without assessment at any time within ten years after the discovery of the falsity, fraud or omission. is applicable, considering the preponderance of evidence of fraud with the intent to evade the higher rate of percentage tax due from Engineering. The, tax assessment was made within the period prescribed by law and prescription had not set in against the Government.
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WHEREFORE, the decision appealed from is affirmed with the modification that Engineering is hereby also made liable to pay the 50% fraud surcharge. SO ORDERED.

G.R. No. 159723

September 9, 2004

ANTONIO S. LIM, JR., represented by his attorney-in-fact, PAZ S. LIM, petitioner, vs. VICTOR K. SAN and ELINDO LO, respondents. DECISION YNARES-SANTIAGO, J.: This is a petition for review on certiorari of the decision1 and the resolution2 of the Court of Appeals in CA-G.R. CV No. 61948 promulgated on May 7, 2003 and August 13, 2003, respectively, which affirmed the July 27, 2003 decision3 of the Regional Trial Court of Davao City, Branch 12 dismissing the complaint filed by petitioner. Petitioner Antonio S. Lim, Jr., represented by his mother, Paz S. Lim, as attorney-in-fact, filed a complaint4 before the Regional Trial Court of Davao City seeking the annulment of a Deed of Absolute Sale5 involving a parcel of land purportedly executed by Paz S. Lim in favor of her brother, respondent Victor K. San. In the second amended complaint dated May 27, 1993, petitioner alleged the following: xxx xxx xxx 4. That plaintiff is an owner of a parcel of land situated at Bajada, Davao City, containing an area of 1,763 square meters, more or less, covered by Transfer Certificate of Title No. T-11072 of the Registry of Deeds of Davao City, x x x; 4.A. That constructed on the afore-cited parcel of land is a fourteen (14) doors commercial building, and that defendant is paying an annual lease of ONE HUNDRED THOUSAND (P100,000.00) PESOS to the herein plaintiff. 5. On May 29, 1991, the herein defendant taking undue advantage of the depressed mental state of plaintiffs Attorney-in-Fact, brought about by the demise of her late husband, Dr. Antonio A. Lim Sr., caused some papers for her to sign, which later turn (sic) out to be an Absolute Deed of Sale, x x x; 6. That the signature of the Attorney-inFact in the aforecited Deed of Absolute Sale was obtained through fraud and trickery employed by the herein defendant and that she never appeared before the Notary Public, who notarized the said deed; 7. That no consideration was ever paid, much less received by the plaintiff or by his Attorney-in-Fact. Simply put, the Deed
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of Absolute Sale was void ab initio for "lack of consideration" and for "lack of a valid consent"; 8. After the signing of the aforecited Deed of Sale with its attendant legal flaws and infirmities, plaintiffs Title was transferred in the name of the defendant, Victor K. San, x x x; 9. Knowing that he is holding an infirmed Title, defendant, Victor K. San is now in the process of selling the aforecited property including the commercial building erected thereon to any third person; and that the defendant had already caused the cancellation of the Mother Title No. T-165010 by subdividing the same into eight (8) lots with eight (8) different titles, as follows: TCT NO. T-191255, T-191256, T191257, T-191258, T-191259, T191260, T-191261, T-191262, xxx xxx x x x.6 Respondent Victor K. San denied all the allegations of the petitioner. He alleged that the parcel of land covered by TCT No. T-165010 of the Registry of Deeds of Davao City and registered in his name was validly and regularly issued. He further claimed that he does not have any lease contract with the petitioner with respect to the contested property and does not pay any monthly rental over the same. Moreover, respondent claimed that there was full payment of the consideration of P264,450.00 for the subject property. Respondent Elindo Lo was impleaded as a codefendant on account of his purchase of one lot covered by TCT No. T-191262,7 notwithstanding the Notice of Adverse Claim and Lis Pendens annotated on the title of the said parcel of land. On July 27, 1998, after trial on the merits, the Regional Trial Court of Davao City rendered a decision dismissing the complaint.8 Petitioner appealed to the Court of Appeals which affirmed the judgment of the trial court in toto. Petitioners motion for reconsideration9 was denied in a Resolution10 dated August 13, 2003. Hence the present petition based on the following grounds: a) that the Court of Appeals erred in affirming the trial courts judgment declaring that the petitioner failed to prove by clear and convincing evidence that the signature of his attorney-in-fact was obtained through fraud and trickery and that no consideration was ever paid.

b) that the Court of Appeals erred in declaring that the medical certificates issued by foreign medical institutions to prove Paz S. Lim (sic) severe mental state of depression cannot be given evidentiary weight considering that its due execution and authenticity were not properly established.11 Petitioner contends that the deed of sale should be declared void because his consent to the same was vitiated by intimidation and that no consideration was paid for the subject property. Respondents, on the other hand, maintain that the parties to the deed of sale validly entered into the same; that Paz S. Lim freely and voluntarily gave her consent to the sale; and that she received the consideration agreed upon by the parties. After a careful review of the records of this case, we find no cogent reason to deviate from the rulings of the court a quo and the Court of Appeals. A contract is a meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service.12 It has three essential elements, or those without which there can be no contract consent, subject matter and cause.13 A knowledge of these essential elements is material because the perfection stage or the birth of the contract only occurs when the parties to a contract agree upon the essential elements of the same.14 A contract of sale is consensual,15 as such it is perfected by mere consent.16 Consent is essential for the existence of a contract, and where it is wanting, the contract is non-existent.17 Consent in contracts presupposes the following requisites: (1) it should be intelligent or with an exact notion of the matter to which it refers; (2) it should be free; and (3) it should be spontaneous. Intelligence in consent is vitiated by error; freedom by violence, intimidation or undue influence; and spontaneity by fraud. 18 Thus, a contract where consent is given through mistake, violence, intimidation, undue influence or fraud is voidable.19 Contrary to the allegations of the petitioner that the consent of his attorney-in-fact to the deed of sale was vitiated, a perusal of the records of this case showed that the petitioner failed to establish that violence, intimidation and undue influence vitiated the consent of Paz S. Lim to the deed of sale pertaining to the subject property. In determining whether consent is vitiated by the circumstances provided for in Article 1330 of the Civil Code of the Philippines, courts are given a wide latitude in weighing the facts or circumstances in a given case and in deciding in
36

favor of what they believe to have actually occurred, considering the age, physical infirmity, intelligence, relationship and the conduct of the parties at the time of making the contract and subsequent thereto, irrespective of whether the contract is in a public or private writing. 20 While it is true that upon the death of her husband, Dr. Antonio T. Lim, Sr., on May 18, 1990,21 Paz S. Lim returned to the Philippines and subsequently stayed at the house of the respondent, such fact per se is not sufficient to establish that the latter employed intimidation, violence or undue influence upon the former. Defect or lack of valid consent, in order to make the contract voidable, must be established by full, clear and convincing evidence, and not merely by a preponderance thereof.22 Petitioners mere allegations that respondent threatened his mother with harm if she will not sign the contract failed to measure up to the yardstick of evidence required, not only to prove vitiation of consent, but also to overturn the presumption that private transactions have been fair and regular.23 Paz S. Lims behavior belies the allegation that respondent threatened to harm her. The following testimony is enlightening: Q You claim that your brother, the defendant Victor K. San threatened to kill you if you will not cooperate you recall having mentioned that on direct? A When? Q Is it not that you mentioned on the direct that you were threatened by your brother Victor San? A Yes, many times he will not let me leave. Q That was at the time you were then staying with your brother, the defendant in this case? A Yes, sir. Q When did you leave your brother in his residence? A One day when he was out I think in 1991, I sneaked out of the gate and I saw my cousin Lucila, she said that we live near each other and that I did not know that from then on my relatives just lived across the fence. Q Let me be clarified, you left your brothers house in late 1991? A Yes, sir. Q After leaving your brothers house late in 1991, where did you live?

A With my nephew William. Q What is the complete name of this William? A William Tom. Q Up to the present you are staying with him? A Yes, Marlene Babao was living downstairs. Q After leaving your brothers house, did you ever report this incident wherein you were threatened by your brother to the police? A No, I just told my cousin and my nephew, I am afraid to stay there longer. Q Did you ever file a criminal case against your brother for grave threats, he having allegedly threatened to kill you? A I am the big sister, how can I do that to my own brother, I am a Christian. Q In other words, you did not report this treatment by your brother to the police nor filed any criminal case against him in Court even up to the present? A Yes, sir.24 Well-settled is the rule that the findings of facts and assessment of credibility of witnesses is a matter best left to the trial court because of its unique position of having observed that elusive and incommunicable evidence of the witnesses deportment on the stand while testifying, which opportunity is denied to the appellate courts. Only the trial judge can observe the furtive glance, blush of conscious shame, hesitation, flippant or sneering tone, calmness, sigh or the scant or full realization of an oath all of which are useful for an accurate determination of a witness honesty and sincerity.25 WHEREFORE, based on the foregoing, the petition is DENIED. The Decision dated May 7, 2003 and the Resolution dated August 13, 2003 of the Court of Appeals affirming the dismissal of Civil Case No. 21,924-93 before the Regional Trial Court of Davao City, Branch 12, is AFFIRMED in toto. SO ORDERED.

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G.R. No. 128120

October 20, 2004

SWEDISH MATCH, AB, JUAN ENRIQUEZ, RENE DIZON, FRANCISCO RAPACON, FIEL SANTOS, BETH FLORES, LAMBRTO DE LA EVA, GLORIA REYES, RODRIGO ORTIZ, NICANOR ESCALANTE, PETER HODGSON, SAMUEL PARTOSA, HERMINDA ASUNCION, JUANITO HERRERA, JACOBUS NICOLAAS, JOSEPH PEKELHARING (now Representing himself without court sanction as "JOOST PEKELHARING)," MASSIMO ROSSI and ED ENRIQUEZ, petitioners, vs. COURT OF APPEALS, ALS MANAGEMENT & DEVELOPMENT CORPORATION and ANTONIO K. LITONJUA, respondents. DECISION TINGA, J.: Petitioners seek a reversal of the twin Orders1 of the Court of Appeals dated 15 November 19962 and 31 January 1997,3 in CA-G.R. CV No. 35886, entitled "ALS Management et al., v. Swedish Match, AB et al." The appellate court overturned the trial courts Order4 dismissing the respondents complaint for specific performance and remanded the case to the trial court for further proceedings. Swedish Match AB (hereinafter SMAB) is a corporation organized under the laws of Sweden not doing business in the Philippines. SMAB, however, had three subsidiary corporations in the Philippines, all organized under Philippine laws, to wit: Phimco Industries, Inc. (Phimco), Provident Tree Farms, Inc., and OTT/Louie (Phils.), Inc. Sometime in 1988, STORA, the then parent company of SMAB, decided to sell SMAB of Sweden and the latters worldwide match, lighter and shaving products operation to Eemland Management Services, now known as Swedish Match NV of Netherlands, (SMNV), a corporation organized and existing under the laws of Netherlands. STORA, however, retained for itself the packaging business. SMNV initiated steps to sell the worldwide match and lighter businesses while retaining for itself the shaving business. SMNV adopted a twopronged strategy, the first being to sell its shares in Phimco Industries, Inc. and a match company in Brazil, which proposed sale would stave-off defaults in the loan covenants of SMNV with its syndicate of lenders. The other move was to sell at once or in one package all the SMNV companies worldwide which were engaged in match and lighter operations thru a global deal (hereinafter, global deal).

Ed Enriquez (Enriquez), Vice-President of Swedish Match Sociedad Anonimas (SMSA)the management company of the Swedish Match groupwas commissioned and granted full powers to negotiate by SMNV, with the resulting transaction, however, made subject to final approval by the board. Enriquez was held under strict instructions that the sale of Phimco shares should be executed on or before 30 June 1990, in view of the tight loan covenants of SMNV. Enriquez came to the Philippines in November 1989 and informed the Philippine financial and business circles that the Phimco shares were for sale. Several interested parties tendered offers to acquire the Phimco shares, among whom were the AFP Retirement and Separation Benefits System, herein respondent ALS Management & Development Corporation and respondent Antonio Litonjua (Litonjua), the president and general manager of ALS. In his letter dated 3 November 1989, Litonjua submitted to SMAB a firm offer to buy all of the latters shares in Phimco and all of Phimcos shares in Provident Tree Farm, Inc. and OTT/Louie (Phils.), Inc. for the sum of P750,000,000.00.5 Through its Chief Executive Officer, Massimo Rossi (Rossi), SMAB, in its letter dated 1 December 1989, thanked respondents for their interest in the Phimco shares. Rossi informed respondents that their price offer was below their expectations but urged them to undertake a comprehensive review and analysis of the value and profit potentials of the Phimco shares, with the assurance that respondents would enjoy a certain priority although several parties had indicated their interest to buy the shares.6 Thereafter, an exchange of correspondence ensued between petitioners and respondents regarding the projected sale of the Phimco shares. In his letter dated 21 May 1990, Litonjua offered to buy the disputed shares, excluding the lighter division for US$30.6 million, which per another letter of the same date was increased to US$36 million.7 Litonjua stressed that the bid amount could be adjusted subject to availability of additional information and audit verification of the company finances. Responding to Litonjuas offer, Rossi sent his letter dated 11 June 1990, informing the former that ALS should undertake a due diligence process or pre-acquisition audit and review of the draft contract for the Match and Forestry activities of Phimco at ALS convenience. However, Rossi made it clear that at the completion of the due diligence process, ALS should submit its final offer in US dollar terms not later than 30 June 1990, for the shares of SMAB
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corresponding to ninety-six percent (96%) of the Match and Forestry activities of Phimco. Rossi added that in case the "global deal" presently under negotiation for the Swedish Match Lights Group would materialize, SMAB would reimburse up to US$20,000.00 of ALS costs related to the due diligence process.8 Litonjua in a letter dated 18 June 1990, expressed disappointment at the apparent change in SMABs approach to the bidding process. He pointed out that in their 4 June 1990 meeting, he was advised that one final bidder would be selected from among the four contending groups as of that date and that the decision would be made by 6 June 1990. He criticized SMABs decision to accept a new bidder who was not among those who participated in the 25 May 1990 bidding. He informed Rossi that it may not be possible for them to submit their final bid on 30 June 1990, citing the advice to him of the auditing firm that the financial statements would not be completed until the end of July. Litonjua added that he would indicate in their final offer more specific details of the payment mechanics and consider the possibility of signing a conditional sale at that time.9 Two days prior to the deadline for submission of the final bid, Litonjua again advised Rossi that they would be unable to submit the final offer by 30 June 1990, considering that the acquisition audit of Phimco and the review of the draft agreements had not yet been completed. He said, however, that they would be able to finalize their bid on 17 July 1990 and that in case their bid would turn out better than any other proponent, they would remit payment within ten (10) days from the execution of the contracts. 10 Enriquez sent notice to Litonjua that they would be constrained to entertain bids from other parties in view of Litonjuas failure to make a firm commitment for the shares of Swedish Match in Phimco by 30 June 1990.11 In a letter dated 3 July 1990, Rossi informed Litonjua that on 2 July 1990, they signed a conditional contract with a local group for the disposal of Phimco. He told Litonjua that his bid would no longer be considered unless the local group would fail to consummate the transaction on or before 15 September1990.12 Apparently irked by SMABs decision to junk his bid, Litonjua promptly responded by letter dated 4 July 1990. Contrary to his prior manifestations, he asserted that, for all intents and purposes, the US$36 million bid which he submitted on 21 May 1990 was their final bid based on the financial statements for the year 1989. He pointed out that they submitted the best bid and they were already finalizing the terms of the sale. He

stressed that they were firmly committed to their bid of US$36 million and if ever there would be adjustments in the bid amount, the adjustments were brought about by SMABs subsequent disclosures and validated accounts, such as the aspect that only ninety-six percent (96%) of Phimco shares was actually being sold and not one-hundred percent (100%).13 More than two months from receipt of Litonjuas last letter, Enriquez sent a fax communication to the former, advising him that the proposed sale of SMABs shares in Phimco with local buyers did not materialize. Enriquez then invited Litonjua to resume negotiations with SMAB for the sale of Phimco shares. He indicated that SMAB would be prepared to negotiate with ALS on an exclusive basis for a period of fifteen (15) days from 26 September 1990 subject to the terms contained in the letter. Additionally, Enriquez clarified that if the sale would not be completed at the end of the fifteen (15)-day period, SMAB would enter into negotiations with other buyers.14 Shortly thereafter, Litonjua sent a letter expressing his objections to the totally new set of terms and conditions for the sale of the Phimco shares. He emphasized that the new offer constituted an attempt to reopen the already perfected contract of sale of the shares in his favor. He intimated that he could not accept the new terms and conditions contained therein. 15 On 14 December 1990, respondents, as plaintiffs, filed before the Regional Trial Court (RTC) of Pasig a complaint for specific performance with damages, with a prayer for the issuance of a writ of preliminary injunction, against defendants, now petitioners. The individual defendants were sued in their respective capacities as officers of the corporations or entities involved in the aborted transaction. Aside from the averments related to their principal cause of action for specific performance, respondents alleged that the Phimco management, in utter bad faith, induced SMAB to violate its contract with respondents. They contended that the Phimco management took an interest in acquiring for itself the Phimco shares and that petitioners conspired to thwart the closing of such sale by interposing various obstacles to the completion of the acquisition audit.16 Respondents claimed that the Phimco management maliciously and deliberately delayed the delivery of documents to Laya Manabat Salgado & Co. which prevented them from completing the acquisition audit in time for the deadline on 30 June 1990 set by petitioners.17 Respondents added that SMABs refusal to consummate the perfected sale of the Phimco shares amounted to an abuse of right and
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constituted conduct which is contrary to law, morals, good customs and public policy.18 Respondents prayed that petitioners be enjoined from selling or transferring the Phimco shares, or otherwise implementing the sale or transfer thereof, in favor of any person or entity other than respondents, and that any such sale to third parties be annulled and set aside. Respondents also asked that petitioners be ordered to execute all documents or instruments and perform all acts necessary to consummate the sales agreement in their favor. Traversing the complaint, petitioners alleged that respondents have no cause of action, contending that no perfected contract, whether verbal or written, existed between them. Petitioners added that respondents cause of action, if any, was barred by the Statute of Frauds since there was no written instrument or document evidencing the alleged sale of the Phimco shares to respondents. Petitioners filed a motion for a preliminary hearing of their defense of bar by the Statute of Frauds, which the trial court granted. Both parties agreed to adopt as their evidence in support of or against the motion to dismiss, as the case may be, the evidence which they adduced in support of their respective positions on the writ of preliminary injunction incident. In its Order dated 17 April 1991, the RTC dismissed respondents complaint.19 It ruled that there was no perfected contract of sale between petitioners and respondents. The court a quo said that the letter dated 11 June 1990, relied upon by respondents, showed that petitioners did not accept the bid offer of respondents as the letter was a mere invitation for respondents to conduct a due diligence process or pre-acquisition audit of Phimcos match and forestry operations to enable them to submit their final offer on 30 June 1990. Assuming that respondents bid was favored by an oral acceptance made in private by officers of SMAB, the trial court noted, such acceptance was merely preparatory to a formal acceptance by the SMABthe acceptance that would eventually lead to the execution and signing of the contract of sale. Moreover, the court noted that respondents failed to submit their final bid on the deadline set by petitioners. Respondents appealed to the Court of Appeals, assigning the following errors: A. THE TRIAL COURT EXCEEDED ITS AUTHORITY AND JURISDICTION WHEN IT ERRED PROCEDURALLY IN MOTU PROPIO (sic) DISMISSING THE COMPLAINT IN ITS ENTIRETY FOR "LACK OF A VALID CAUSE OF ACTION" WITHOUT THE BENEFIT OF A

FULL-BLOWN TRIAL AND ON THE MERE MOTION TO DISMISS. B. THE TRIAL COURT ERRED IN IGNORING PLAINTIFF-APPELLANTS CAUSE OF ACTION BASED ON TORT WHICH, HAVING BEEN SUFFICIENTLY PLEADED, INDEPENDENTLY WARRANTED A FULL-BLOWN TRIAL. C. THE TRIAL COURT ERRED IN IGNORING PLAINTIFFS-APPELLANTS CAUSE OF ACTION BASED ON PROMISSORY ESTOPPEL WHICH, HAVING BEEN SUFFICIENTLY PLEADED, WARRANTED A FULL-BLOWN TRIAL, INDEPENDENTLY FOR THE OTHER CAUSES OF ACTION. D. THE TRIAL COURT JUDGE ERRED IN FORSWEARING JUDICIAL OBJECTIVITY TO FAVOR DEFENDANTS-APPELLEES BY MAKING UNFOUNDED FINDINGS, ALL IN VIOLATION OF PLAINTIFFS-APPELLANTS RIGHT TO DUE PROCESS.20 After assessing the respective arguments of the parties, the Court of Appeals reversed the trial courts decision. It ruled that the series of written communications between petitioners and respondents collectively constitute a sufficient memorandum of their agreement under Article 1403 of the Civil Code; thus, respondents complaint should not have been dismissed on the ground that it was unenforceable under the Statute of Frauds. The appellate court opined that any document or writing, whether formal or informal, written either for the purpose of furnishing evidence of the contract or for another purpose which satisfies all the Statutes requirements as to contents and signature would be sufficient; and, that two or more writings properly connected could be considered together. The appellate court concluded that the letters exchanged by and between the parties, taken together, were sufficient to establish that an agreement to sell the disputed shares to respondents was reached. The Court of Appeals clarified, however, that by reversing the appealed decision it was not thereby declaring that respondents are entitled to the reliefs prayed for in their complaint, but only that the case should not have been dismissed on the ground of unenforceability under the Statute of Frauds. It ordered the remand of the case to the trial court for further proceedings. Hence, this petition. Petitioners argue that the Court of Appeals erred in failing to consider that the Statute of Frauds requires not just the existence of any note or memorandum but that such note or
40

memorandum should evidence an agreement to sell; and, that in this case, there was no word, phrase, or statement in the letters exchanged between the two parties to show or even imply that an agreement had been reached for the sale of the shares to respondent. Petitioners stress that respondent Litonjua made it clear in his letters that the quoted prices were merely tentative and still subject to further negotiations between him and the seller. They point out that there was no meeting of the minds on the essential terms and conditions of the sale because SMAB did not accept respondents offer that consideration would be paid in Philippine pesos. Moreover, Litonjua signified their inability to submit their final bid on 30 June 1990, at the same time stating that the broad terms and conditions described in their meeting were inadequate for them to make a response at that time so much so that he would have to await the corresponding specifics. Petitioners argue that the foregoing circumstances prove that they failed to reach an agreement on the sale of the Phimco shares. In their Comment, respondents maintain that the Court of Appeals correctly ruled that the Statute of Frauds does not apply to the instant case. Respondents assert that the sale of the subject shares to them was perfected as shown by the following circumstances, namely: petitioners assured them that should they increase their bid, the sale would be awarded to them and that they did in fact increase their previous bid of US$30.6 million to US$36 million; petitioners orally accepted their revised offer and the acceptance was relayed to them by Rene Dizon; petitioners directed them to proceed with the acquisition audit and to submit a comfort letter from the United Coconut Planters Bank (UCPB); petitioner corporation confirmed its previous verbal acceptance of their offer in a letter dated 11 June 1990; with the prior approval of petitioners, respondents engaged the services of Laya, Manabat, Salgado & Co., an independent auditing firm, to immediately proceed with the acquisition audit; and, petitioner corporation reiterated its commitment to be bound by the result of the acquisition audit and promised to reimburse respondents cost to the extent of US$20,000.00. All these incidents, according to respondents, overwhelmingly prove that the contract of sale of the Phimco shares was perfected. Further, respondents argued that there was partial performance of the perfected contract on their part. They alleged that with the prior approval of petitioners, they engaged the services of Laya, Manabat, Salgado & Co. to

conduct the acquisition audit. They averred that petitioners agreed to be bound by the results of the audit and offered to reimburse the costs thereof to the extent of US$20,000.00. Respondents added that in compliance with their obligations under the contract, they have submitted a comfort letter from UCPB to show petitioners that the bank was willing to finance the acquisition of the Phimco shares.21 The basic issues to be resolved are: (1) whether the appellate court erred in reversing the trial courts decision dismissing the complaint for being unenforceable under the Statute of Frauds; and (2) whether there was a perfected contract of sale between petitioners and respondents with respect to the Phimco shares. The Statute of Frauds embodied in Article 1403, paragraph (2), of the Civil Code22 requires certain contracts enumerated therein to be evidenced by some note or memorandum in order to be enforceable. The term "Statute of Frauds" is descriptive of statutes which require certain classes of contracts to be in writing. The Statute does not deprive the parties of the right to contract with respect to the matters therein involved, but merely regulates the formalities of the contract necessary to render it enforceable.23 Evidence of the agreement cannot be received without the writing or a secondary evidence of its contents. The Statute, however, simply provides the method by which the contracts enumerated therein may be proved but does not declare them invalid because they are not reduced to writing. By law, contracts are obligatory in whatever form they may have been entered into, provided all the essential requisites for their validity are present. However, when the law requires that a contract be in some form in order that it may be valid or enforceable, or that a contract be proved in a certain way, that requirement is absolute and indispensable.24 Consequently, the effect of noncompliance with the requirement of the Statute is simply that no action can be enforced unless the requirement is complied with.25 Clearly, the form required is for evidentiary purposes only. Hence, if the parties permit a contract to be proved, without any objection, it is then just as binding as if the Statute has been complied with.26 The purpose of the Statute is to prevent fraud and perjury in the enforcement of obligations depending for their evidence on the unassisted memory of witnesses, by requiring certain enumerated contracts and transactions to be evidenced by a writing signed by the party to be charged.27
41

However, for a note or memorandum to satisfy the Statute, it must be complete in itself and cannot rest partly in writing and partly in parol. The note or memorandum must contain the names of the parties, the terms and conditions of the contract, and a description of the property sufficient to render it capable of identification. 28 Such note or memorandum must contain the essential elements of the contract expressed with certainty that may be ascertained from the note or memorandum itself, or some other writing to which it refers or within which it is connected, without resorting to parol evidence.29 Contrary to the Court of Appeals conclusion, the exchange of correspondence between the parties hardly constitutes the note or memorandum within the context of Article 1403 of the Civil Code. Rossis letter dated 11 June 1990, heavily relied upon by respondents, is not complete in itself. First, it does not indicate at what price the shares were being sold. In paragraph (5) of the letter, respondents were supposed to submit their final offer in U.S. dollar terms, at that after the completion of the due diligence process. The paragraph undoubtedly proves that there was as yet no definite agreement as to the price. Second, the letter does not state the mode of payment of the price. In fact, Litonjua was supposed to indicate in his final offer how and where payment for the shares was planned to be made.30 Evidently, the trial courts dismissal of the complaint on the ground of unenforceability under the Statute of Frauds is warranted.31 Even if we were to consider the letters between the parties as a sufficient memorandum for purposes of taking the case out of the operation of the Statute the action for specific performance would still fail. A contract is defined as a juridical convention manifested in legal form, by virtue of which one or more persons bind themselves in favor of another, or others, or reciprocally, to the fulfillment of a prestation to give, to do, or not to do.32 There can be no contract unless the following requisites concur: (a) consent of the contracting parties; (b) object certain which is the subject matter of the contract; (c) cause of the obligation which is established.33 Contracts are perfected by mere consent, which is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract.34 Specifically, in the case of a contract of sale, required is the concurrence of three elements, to wit: (a) consent or meeting of the minds, that is, consent to transfer ownership in exchange for the price; (b) determinate subject matter, and (c)

price certain in money or its equivalent.35 Such contract is born from the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price.36 In general, contracts undergo three distinct stages, to wit: negotiation; perfection or birth; and consummation. Negotiation begins from the time the prospective contracting parties manifest their interest in the contract and ends at the moment of agreement of the parties. Perfection or birth of the contract takes place when the parties agree upon the essential elements of the contract. Consummation occurs when the parties fulfill or perform the terms agreed upon in the contract, culminating in the extinguishment thereof.37 A negotiation is formally initiated by an offer. A perfected promise merely tends to insure and pave the way for the celebration of a future contract. An imperfect promise (policitacion), on the other hand, is a mere unaccepted offer.38 Public advertisements or solicitations and the like are ordinarily construed as mere invitations to make offers or only as proposals. At any time prior to the perfection of the contract, either negotiating party may stop the negotiation.39 The offer, at this stage, may be withdrawn; the withdrawal is effective immediately after its manifestation, such as by its mailing and not necessarily when the offeree learns of the withdrawal.40 An offer would require, among other things, a clear certainty on both the object and the cause or consideration of the envisioned contract. Consent in a contract of sale should be manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. The offer must be certain and the acceptance absolute. A qualified acceptance constitutes a counter-offer.41 Quite obviously, Litonjuas letter dated 21 May 1990, proposing the acquisition of the Phimco shares for US$36 million was merely an offer. This offer, however, in Litonjuas own words, "is understood to be subject to adjustment on the basis of an audit of the assets, liabilities and net worth of Phimco and its subsidiaries and on the final negotiation between ourselves."42 Was the offer certain enough to satisfy the requirements of the Statute of Frauds? Definitely not. Litonjua repeatedly stressed in his letters that they would not be able to submit their final bid by 30 June 1990.43 With indubitable inconsistency, respondents later claimed that for all intents and purposes, the US$36 million was their final bid. If this were so, it would be inane for Litonjua to
42

state, as he did, in his letter dated 28 June 1990 that they would be in a position to submit their final bid only on 17 July 1990. The lack of a definite offer on the part of respondents could not possibly serve as the basis of their claim that the sale of the Phimco shares in their favor was perfected, for one essential element of a contract of sale was obviously wantingthe price certain in money or its equivalent. The price must be certain, otherwise there is no true consent between the parties.44 There can be no sale without a price.45 Quite recently, this Court reiterated the long-standing doctrine that the manner of payment of the purchase price is an essential element before a valid and binding contract of sale can exist since the agreement on the manner of payment goes into the price such that a disagreement on the manner of payment is tantamount to a failure to agree on the price.46 Granting arguendo, that the amount of US$36 million was a definite offer, it would remain as a mere offer in the absence of evidence of its acceptance. To produce a contract, there must be acceptance, which may be express or implied, but it must not qualify the terms of the offer.47 The acceptance of an offer must be unqualified and absolute to perfect the contract.48 In other words, it must be identical in all respects with that of the offer so as to produce consent or meeting of the minds.49 Respondents attempt to prove the alleged verbal acceptance of their US$36 million bid becomes futile in the face of the overwhelming evidence on record that there was in the first place no meeting of the minds with respect to the price. It is dramatically clear that the US$36 million was not the actual price agreed upon but merely a preliminary offer which was subject to adjustment after the conclusion of the audit of the company finances. Respondents failure to submit their final bid on the deadline set by petitioners prevented the perfection of the contract of sale. It was not perfected due to the absence of one essential element which was the price certain in money or its equivalent. At any rate, from the procedural stand point, the continuing objections raised by petitioners to the admission of parol evidence50 on the alleged verbal acceptance of the offer rendered any evidence of acceptance inadmissible. Respondents plea of partial performance should likewise fail. The acquisition audit and submission of a comfort letter, even if considered together, failed to prove the perfection of the contract. Quite the contrary, they indicated that the sale was far from concluded. Respondents conducted the audit as part of the due diligence process to

help them arrive at and make their final offer. On the other hand, the submission of the comfort letter was merely a guarantee that respondents had the financial capacity to pay the price in the event that their bid was accepted by petitioners. The Statute of Frauds is applicable only to contracts which are executory and not to those which have been consummated either totally or partially.51 If a contract has been totally or partially performed, the exclusion of parol evidence would promote fraud or bad faith, for it would enable the defendant to keep the benefits already derived by him from the transaction in litigation, and at the same time, evade the obligations, responsibilities or liabilities assumed or contracted by him thereby.52 This rule, however, is predicated on the fact of ratification of the contract within the meaning of Article 1405 of the Civil Code either (1) by failure to object to the presentation of oral evidence to prove the same, or (2) by the acceptance of benefits under them. In the instant case, respondents failed to prove that there was partial performance of the contract within the purview of the Statute. Respondents insist that even on the assumption that the Statute of Frauds is applicable in this case, the trial court erred in dismissing the complaint altogether. They point out that the complaint presents several causes of action. A close examination of the complaint reveals that it alleges two distinct causes of action, the first is for specific performance53 premised on the existence of the contract of sale, while the other is solely for damages, predicated on the purported dilatory maneuvers executed by the Phimco management.54 With respect to the first cause of action for specific performance, apart from petitioners alleged refusal to honor the contract of sale which has never been perfected in the first place respondents made a number of averments in their complaint all in support of said cause of action. Respondents claimed that petitioners were guilty of promissory estoppel,55 warranty breaches56 and tortious conduct57 in refusing to honor the alleged contract of sale. These averments are predicated on or at least interwoven with the existence or perfection of the contract of sale. As there was no such perfected contract, the trial court properly rejected the averments in conjunction with the dismissal of the complaint for specific performance. However, respondents second cause of action due to the alleged malicious and deliberate delay of the Phimco management in the delivery of documents necessary for the completion of the
43

audit on time, not being based on the existence of the contract of sale, could stand independently of the action for specific performance and should not be deemed barred by the dismissal of the cause of action predicated on the failed contract. If substantiated, this cause of action would entitle respondents to the recovery of damages against the officers of the corporation responsible for the acts complained of. Thus, the Court cannot forthwith order dismissal of the complaint without affording respondents an opportunity to substantiate their allegations with respect to its cause of action for damages against the officers of Phimco based on the latters alleged self-serving dilatory maneuvers. WHEREFORE, the petition is in part GRANTED. The appealed Decision is hereby MODIFIED insofar as it declared the agreement between the parties enforceable under the Statute of Frauds. The complaint before the trial court is ordered DISMISSED insofar as the cause of action for specific performance is concerned. The case is ordered REMANDED to the trial court for further proceedings with respect to the cause of action for damages as above specified. SO ORDERED.
22

accept and receive part of such goods and chattels, or the evidences, or some of them, of such things in action, or pay at the time some part of the purchase money; but when a sale is made by auction and entry is made by the auctioneer in his sales book, at the time of the sale, of the amount and kind of property sold, terms of sale, price, names of the purchasers and person on whose account the sale is made, it is a sufficient memorandum; (e) An agreement for the leasing for a longer period than one year, or for the sale of real property or of an interest therein; (f) A representation as to the credit of a third person.

Art. 1403. The following contracts are unenforceable, unless they are ratified: xxx (2) Those that do not comply with the Statute of Frauds as set forth in this number. In the following cases an agreement hereafter made shall be unenforceable by action, unless the same, or some note or memorandum thereof, be in writing, and subscribed by the party charged, or by his agent; evidence, therefore, of the agreement cannot be received without the writing, or a secondary evidence of its contents: (a) An agreement that by its terms is not to be performed within a year from the making thereof; (b) A special promise to answer for the debt, default, or miscarriage of another; (c) An agreement made in consideration of marriage, other than a mutual promise to marry; (d) An agreement for the sale of goods, chattels or things in action, at a price not less than five hundred pesos, unless the buyer
44

G.R. No. 166862

December 20, 2006

MANILA METAL CONTAINER CORPORATION, petitioner, REYNALDO C. TOLENTINO, intervenor, vs. PHILIPPINE NATIONAL BANK, respondent, DMCI-PROJECT DEVELOPERS, INC., intervenor. DECISION CALLEJO, SR., J.: Before us is a petition for review on certiorari of the Decision1 of the Court of Appeals (CA) in CAG.R. No. 46153 which affirmed the decision2 of the Regional Trial Court (RTC), Branch 71, Pasig City, in Civil Case No. 58551, and its Resolution 3 denying the motion for reconsideration filed by petitioner Manila Metal Container Corporation (MMCC). The Antecedents Petitioner was the owner of a 8,015 square meter parcel of land located in Mandaluyong (now a City), Metro Manila. The property was covered by Transfer Certificate of Title (TCT) No. 332098 of the Registry of Deeds of Rizal. To secure a P900,000.00 loan it had obtained from respondent Philippine National Bank (PNB), petitioner executed a real estate mortgage over the lot. Respondent PNB later granted petitioner a new credit accommodation of P1,000,000.00; and, on November 16, 1973, petitioner executed an Amendment4 of Real Estate Mortgage over its property. On March 31, 1981, petitioner secured another loan of P653,000.00 from respondent PNB, payable in quarterly installments of P32,650.00, plus interests and other charges. 5 On August 5, 1982, respondent PNB filed a petition for extrajudicial foreclosure of the real estate mortgage and sought to have the property sold at public auction for P911,532.21, petitioner's outstanding obligation to respondent PNB as of June 30, 1982,6 plus interests and attorney's fees. After due notice and publication, the property was sold at public auction on September 28, 1982 where respondent PNB was declared the winning bidder for P1,000,000.00. The Certificate of Sale7 issued in its favor was registered with the Office of the Register of Deeds of Rizal, and was annotated at the dorsal portion of the title on February 17, 1983. Thus, the period to redeem the property was to expire on February 17, 1984. Petitioner sent a letter dated August 25, 1983 to respondent PNB, requesting that it be granted an

extension of time to redeem/repurchase the property.8 In its reply dated August 30, 1983, respondent PNB informed petitioner that the request had been referred to its Pasay City Branch for appropriate action and recommendation.9 In a letter10 dated February 10, 1984, petitioner reiterated its request for a one year extension from February 17, 1984 within which to redeem/repurchase the property on installment basis. It reiterated its request to repurchase the property on installment.11 Meanwhile, some PNB Pasay City Branch personnel informed petitioner that as a matter of policy, the bank does not accept "partial redemption."12 Since petitioner failed to redeem the property, the Register of Deeds cancelled TCT No. 32098 on June 1, 1984, and issued a new title in favor of respondent PNB.13 Petitioner's offers had not yet been acted upon by respondent PNB. Meanwhile, the Special Assets Management Department (SAMD) had prepared a statement of account, and as of June 25, 1984 petitioner's obligation amounted to P1,574,560.47. This included the bid price of P1,056,924.50, interest, advances of insurance premiums, advances on realty taxes, registration expenses, miscellaneous expenses and publication cost.14 When apprised of the statement of account, petitioner remitted P725,000.00 to respondent PNB as "deposit to repurchase," and Official Receipt No. 978191 was issued to it.15 In the meantime, the SAMD recommended to the management of respondent PNB that petitioner be allowed to repurchase the property for P1,574,560.00. In a letter dated November 14, 1984, the PNB management informed petitioner that it was rejecting the offer and the recommendation of the SAMD. It was suggested that petitioner purchase the property for P2,660,000.00, its minimum market value. Respondent PNB gave petitioner until December 15, 1984 to act on the proposal; otherwise, its P725,000.00 deposit would be returned and the property would be sold to other interested buyers.16 Petitioner, however, did not agree to respondent PNB's proposal. Instead, it wrote another letter dated December 12, 1984 requesting for a reconsideration. Respondent PNB replied in a letter dated December 28, 1984, wherein it reiterated its proposal that petitioner purchase the property for P2,660,000.00. PNB again informed petitioner that it would return the deposit should petitioner desire to withdraw its offer to purchase the property.17 On February 25, 1985, petitioner, through counsel, requested that PNB reconsider its letter dated December 28,
45

1984. Petitioner declared that it had already agreed to the SAMD's offer to purchase the property for P1,574,560.47, and that was why it had paid P725,000.00. Petitioner warned respondent PNB that it would seek judicial recourse should PNB insist on the position. 18 On June 4, 1985, respondent PNB informed petitioner that the PNB Board of Directors had accepted petitioner's offer to purchase the property, but for P1,931,389.53 in cash less the P725,000.00 already deposited with it.19 On page two of the letter was a space above the typewritten name of petitioner's President, Pablo Gabriel, where he was to affix his signature. However, Pablo Gabriel did not conform to the letter but merely indicated therein that he had received it.20 Petitioner did not respond, so PNB requested petitioner in a letter dated June 30, 1988 to submit an amended offer to repurchase. Petitioner rejected respondent's proposal in a letter dated July 14, 1988. It maintained that respondent PNB had agreed to sell the property for P1,574,560.47, and that since its P725,000.00 downpayment had been accepted, respondent PNB was proscribed from increasing the purchase price of the property.21 Petitioner averred that it had a net balance payable in the amount of P643,452.34. Respondent PNB, however, rejected petitioner's offer to pay the balance of P643,452.34 in a letter dated August 1, 1989.22 On August 28, 1989, petitioner filed a complaint against respondent PNB for "Annulment of Mortgage and Mortgage Foreclosure, Delivery of Title, or Specific Performance with Damages." To support its cause of action for specific performance, it alleged the following: 34. As early as June 25, 1984, PNB had accepted the down payment from Manila Metal in the substantial amount of P725,000.00 for the redemption/repurchase price of P1,574,560.47 as approved by its SMAD and considering the reliance made by Manila Metal and the long time that has elapsed, the approval of the higher management of the Bank to confirm the agreement of its SMAD is clearly a potestative condition which cannot legally prejudice Manila Metal which has acted and relied on the approval of SMAD. The Bank cannot take advantage of a condition which is entirely dependent upon its own will after accepting and benefiting from the substantial payment made by Manila Metal. 35. PNB approved the repurchase price of P1,574,560.47 for which it accepted P725,000.00 from Manila Metal. PNB

cannot take advantage of its own delay and long inaction in demanding a higher amount based on unilateral computation of interest rate without the consent of Manila Metal. Petitioner later filed an amended complaint and supported its claim for damages with the following arguments: 36. That in order to protect itself against the wrongful and malicious acts of the defendant Bank, plaintiff is constrained to engage the services of counsel at an agreed fee of P50,000.00 and to incur litigation expenses of at least P30,000.00, which the defendant PNB should be condemned to pay the plaintiff Manila Metal. 37. That by reason of the wrongful and malicious actuations of defendant PNB, plaintiff Manila Metal suffered besmirched reputation for which defendant PNB is liable for moral damages of at least P50,000.00. 38. That for the wrongful and malicious act of defendant PNB which are highly reprehensible, exemplary damages should be awarded in favor of the plaintiff by way of example or correction for the public good of at least P30,000.00.23 Petitioner prayed that, after due proceedings, judgment be rendered in its favor, thus: a) Declaring the Amended Real Estate Mortgage (Annex "A") null and void and without any legal force and effect. b) Declaring defendant's acts of extrajudicially foreclosing the mortgage over plaintiff's property and setting it for auction sale null and void. c) Ordering the defendant Register of Deeds to cancel the new title issued in the name of PNB (TCT NO. 43792) covering the property described in paragraph 4 of the Complaint, to reinstate TCT No. 37025 in the name of Manila Metal and to cancel the annotation of the mortgage in question at the back of the TCT No. 37025 described in paragraph 4 of this Complaint. d) Ordering the defendant PNB to return and/or deliver physical possession of the TCT No. 37025 described in paragraph 4 of this Complaint to the plaintiff Manila Metal. e) Ordering the defendant PNB to pay the plaintiff Manila Metal's actual damages,
46

moral and exemplary damages in the aggregate amount of not less than P80,000.00 as may be warranted by the evidence and fixed by this Honorable Court in the exercise of its sound discretion, and attorney's fees of P50,000.00 and litigation expenses of at least P30,000.00 as may be proved during the trial, and costs of suit. Plaintiff likewise prays for such further reliefs which may be deemed just and equitable in the premises.24 In its Answer to the complaint, respondent PNB averred, as a special and affirmative defense, that it had acquired ownership over the property after the period to redeem had elapsed. It claimed that no contract of sale was perfected between it and petitioner after the period to redeem the property had expired. During pre-trial, the parties agreed to submit the case for decision, based on their stipulation of facts.25 The parties agreed to limit the issues to the following: 1. Whether or not the June 4, 1985 letter of the defendant approving/accepting plaintiff's offer to purchase the property is still valid and legally enforceable. 2. Whether or not the plaintiff has waived its right to purchase the property when it failed to conform with the conditions set forth by the defendant in its letter dated June 4, 1985. 3. Whether or not there is a perfected contract of sale between the parties.26 While the case was pending, respondent PNB demanded, on September 20, 1989, that petitioner vacate the property within 15 days from notice,27 but petitioners refused to do so. On March 18, 1993, petitioner offered to repurchase the property for P3,500,000.00.28 The offer was however rejected by respondent PNB, in a letter dated April 13, 1993. According to it, the prevailing market value of the property was approximately P30,000,000.00, and as a matter of policy, it could not sell the property for less than its market value.29 On June 21, 1993, petitioner offered to purchase the property for P4,250,000.00 in cash.30 The offer was again rejected by respondent PNB on September 13, 1993.31 On May 31, 1994, the trial court rendered judgment dismissing the amended complaint and respondent PNB's counterclaim. It ordered respondent PNB to refund the P725,000.00 deposit petitioner had made.32 The trial court

ruled that there was no perfected contract of sale between the parties; hence, petitioner had no cause of action for specific performance against respondent. The trial court declared that respondent had rejected petitioner's offer to repurchase the property. Petitioner, in turn, rejected the terms and conditions contained in the June 4, 1985 letter of the SAMD. While petitioner had offered to repurchase the property per its letter of July 14, 1988, the amount of P643,422.34 was way below the P1,206,389.53 which respondent PNB had demanded. It further declared that the P725,000.00 remitted by petitioner to respondent PNB on June 4, 1985 was a "deposit," and not a downpayment or earnest money. On appeal to the CA, petitioner made the following allegations: I THE LOWER COURT ERRED IN RULING THAT DEFENDANT-APPELLEE'S LETTER DATED 4 JUNE 1985 APPROVING/ACCEPTING PLAINTIFFAPPELLANT'S OFFER TO PURCHASE THE SUBJECT PROPERTY IS NOT VALID AND ENFORCEABLE. II THE LOWER COURT ERRED IN RULING THAT THERE WAS NO PERFECTED CONTRACT OF SALE BETWEEN PLAINTIFFAPPELLANT AND DEFENDANT-APPELLEE. III THE LOWER COURT ERRED IN RULING THAT PLAINTIFF-APPELLLANT WAIVED ITS RIGHT TO PURCHASE THE SUBJECT PROPERTY WHEN IT FAILED TO CONFORM WITH CONDITIONS SET FORTH BY DEFENDANT-APPELLEE IN ITS LETTER DATED 4 JUNE 1985. IV THE LOWER COURT ERRED IN DISREGARDING THE FACT THAT IT WAS THE DEFENDANT-APPELLEE WHICH RENDERED IT DIFFICULT IF NOT IMPOSSIBLE FOR PLAINTIFF-APPELLANT TO COMPLETE THE BALANCE OF THEIR PURCHASE PRICE. V THE LOWER COURT ERRED IN DISREGARDING THE FACT THAT THERE WAS NO VALID RESCISSION OR CANCELLATION OF SUBJECT CONTRACT OF REPURCHASE. VI
47

THE LOWER COURT ERRED IN DECLARING THAT PLAINTIFF FAILED AND REFUSED TO SUBMIT THE AMENDED REPURCHASE OFFER. VII THE LOWER COURT ERRED IN DISMISSING THE AMENDED COMPLAINT OF PLAINTIFFAPPELLANT. VIII THE LOWER COURT ERRED IN NOT AWARDING PLAINTIFF-APPELLANT ACTUAL, MORAL AND EXEMPLARY DAMAGES, ATTOTRNEY'S FEES AND LITIGATION EXPENSES.33 Meanwhile, on June 17, 1993, petitioner's Board of Directors approved Resolution No. 3-004, where it waived, assigned and transferred its rights over the property covered by TCT No. 33099 and TCT No. 37025 in favor of Bayani Gabriel, one of its Directors.34 Thereafter, Bayani Gabriel executed a Deed of Assignment over 51% of the ownership and management of the property in favor of Reynaldo Tolentino, who later moved for leave to intervene as plaintiffappellant. On July 14, 1993, the CA issued a resolution granting the motion,35 and likewise granted the motion of Reynaldo Tolentino substituting petitioner MMCC, as plaintiffappellant, and his motion to withdraw as intervenor.36 The CA rendered judgment on May 11, 2000 affirming the decision of the RTC.37 It declared that petitioner obviously never agreed to the selling price proposed by respondent PNB (P1,931,389.53) since petitioner had kept on insisting that the selling price should be lowered to P1,574,560.47. Clearly therefore, there was no meeting of the minds between the parties as to the price or consideration of the sale. The CA ratiocinated that petitioner's original offer to purchase the subject property had not been accepted by respondent PNB. In fact, it made a counter-offer through its June 4, 1985 letter specifically on the selling price; petitioner did not agree to the counter-offer; and the negotiations did not prosper. Moreover, petitioner did not pay the balance of the purchase price within the sixty-day period set in the June 4, 1985 letter of respondent PNB. Consequently, there was no perfected contract of sale, and as such, there was no contract to rescind. According to the appellate court, the claim for damages and the counterclaim were correctly dismissed by the court a quo for no evidence was presented to support it. Respondent PNB's letter dated June 30, 1988 cannot revive the failed

negotiations between the parties. Respondent PNB merely asked petitioner to submit an amended offer to repurchase. While petitioner reiterated its request for a lower selling price and that the balance of the repurchase be reduced, however, respondent rejected the proposal in a letter dated August 1, 1989. Petitioner filed a motion for reconsideration, which the CA likewise denied. Thus, petitioner filed the instant petition for review on certiorari, alleging that: I. THE COURT OF APPEALS ERRED ON A QUESTION OF LAW WHEN IT RULED THAT THERE IS NO PERFECTED CONTRACT OF SALE BETWEEN THE PETITIONER AND RESPONDENT. II. THE COURT OF APPEALS ERRED ON A QUESTION OF LAW WHEN IT RULED THAT THE AMOUNT OF PHP725,000.00 PAID BY THE PETITIONER IS NOT AN EARNEST MONEY. III. THE COURT OF APPEALS ERRED ON A QUESTION OF LAW WHEN IT RULED THAT THE FAILURE OF THE PETITIONERAPPELLANT TO SIGNIFY ITS CONFORMITY TO THE TERMS CONTAINED IN PNB'S JUNE 4, 1985 LETTER MEANS THAT THERE WAS NO VALID AND LEGALLY ENFORCEABLE CONTRACT OF SALE BETWEEN THE PARTIES. IV. THE COURT OF APPEALS ERRED ON A QUESTION OF LAW THAT NON-PAYMENT OF THE PETITIONER-APPELLANT OF THE BALANCE OF THE OFFERED PRICE IN THE LETTER OF PNB DATED JUNE 4, 1985, WITHIN SIXTY (60) DAYS FROM NOTICE OF APPROVAL CONSTITUTES NO VALID AND LEGALLY ENFORCEABLE CONTRACT OF SALE BETWEEN THE PARTIES. V. THE COURT OF APPEALS SERIOUSLY ERRED WHEN IT HELD THAT THE LETTERS OF PETITIONER-APPELLANT DATED MARCH 18, 1993 AND JUNE 21, 1993, OFFERING TO BUY THE SUBJECT PROPERTY AT DIFFERENT AMOUNT WERE PROOF THAT THERE IS NO PERFECTED CONTRACT OF SALE.38 The threshold issue is whether or not petitioner and respondent PNB had entered into a perfected contract for petitioner to repurchase the property from respondent. Petitioner maintains that it had accepted respondent's offer made through the SAMD, to sell the property for P1,574,560.00. When the acceptance was made in its letter dated June 25,
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1984; it then deposited P725,000.00 with the SAMD as partial payment, evidenced by Receipt No. 978194 which respondent had issued. Petitioner avers that the SAMD's acceptance of the deposit amounted to an acceptance of its offer to repurchase. Moreover, as gleaned from the letter of SAMD dated June 4, 1985, the PNB Board of Directors had approved petitioner's offer to purchase the property. It claims that this was the suspensive condition, the fulfillment of which gave rise to the contract. Respondent could no longer unilaterally withdraw its offer to sell the property for P1,574,560.47, since the acceptance of the offer resulted in a perfected contract of sale; it was obliged to remit to respondent the balance of the original purchase price of P1,574,560.47, while respondent was obliged to transfer ownership and deliver the property to petitioner, conformably with Article 1159 of the New Civil Code. Petitioner posits that respondent was proscribed from increasing the interest rate after it had accepted respondent's offer to sell the property for P1,574,560.00. Consequently, respondent could no longer validly make a counter-offer of P1,931,789.88 for the purchase of the property. It likewise maintains that, although the P725,000.00 was considered as "deposit for the repurchase of the property" in the receipt issued by the SAMD, the amount constitutes earnest money as contemplated in Article 1482 of the New Civil Code. Petitioner cites the rulings of this Court in Villonco v. Bormaheco39 and Topacio v. Court of Appeals.40 Petitioner avers that its failure to append its conformity to the June 4, 1984 letter of respondent and its failure to pay the balance of the price as fixed by respondent within the 60day period from notice was to protest respondent's breach of its obligation to petitioner. It did not amount to a rejection of respondent's offer to sell the property since respondent was merely seeking to enforce its right to pay the balance of P1,570,564.47. In any event, respondent had the option either to accept the balance of the offered price or to cause the rescission of the contract. Petitioner's letters dated March 18, 1993 and June 21, 1993 to respondent during the pendency of the case in the RTC were merely to compromise the pending lawsuit, they did not constitute separate offers to repurchase the property. Such offer to compromise should not be taken against it, in accordance with Section 27, Rule 130 of the Revised Rules of Court. For its part, respondent contends that the parties never graduated from the "negotiation stage" as they could not agree on the amount of the

repurchase price of the property. All that transpired was an exchange of proposals and counter-proposals, nothing more. It insists that a definite agreement on the amount and manner of payment of the price are essential elements in the formation of a binding and enforceable contract of sale. There was no such agreement in this case. Primarily, the concept of "suspensive condition" signifies a future and uncertain event upon the fulfillment of which the obligation becomes effective. It clearly presupposes the existence of a valid and binding agreement, the effectivity of which is subordinated to its fulfillment. Since there is no perfected contract in the first place, there is no basis for the application of the principles governing "suspensive conditions." According to respondent, the Statement of Account prepared by SAMD as of June 25, 1984 cannot be classified as a counter-offer; it is simply a recital of its total monetary claims against petitioner. Moreover, the amount stated therein could not likewise be considered as the counter-offer since as admitted by petitioner, it was only recommendation which was subject to approval of the PNB Board of Directors. Neither can the receipt by the SAMD of P725,000.00 be regarded as evidence of a perfected sale contract. As gleaned from the parties' Stipulation of Facts during the proceedings in the court a quo, the amount is merely an acknowledgment of the receipt of P725,000.00 as deposit to repurchase the property. The deposit of P725,000.00 was accepted by respondent on the condition that the purchase price would still be approved by its Board of Directors. Respondent maintains that its acceptance of the amount was qualified by that condition, thus not absolute. Pending such approval, it cannot be legally claimed that respondent is already bound by any contract of sale with petitioner. According to respondent, petitioner knew that the SAMD has no capacity to bind respondent and that its authority is limited to administering, managing and preserving the properties and other special assets of PNB. The SAMD does not have the power to sell, encumber, dispose of, or otherwise alienate the assets, since the power to do so must emanate from its Board of Directors. The SAMD was not authorized by respondent's Board to enter into contracts of sale with third persons involving corporate assets. There is absolutely nothing on record that respondent authorized the SAMD, or made it appear to petitioner that it represented itself as having such authority.
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Respondent reiterates that SAMD had informed petitioner that its offer to repurchase had been approved by the Board subject to the condition, among others, "that the selling price shall be the total bank's claim as of documentation date x x x payable in cash (P725,000.00 already deposited) within 60 days from notice of approval." A new Statement of Account was attached therein indicating the total bank's claim to be P1,931,389.53 less deposit of P725,000.00, or P1,206,389.00. Furthermore, while respondent's Board of Directors accepted petitioner's offer to repurchase the property, the acceptance was qualified, in that it required a higher sale price and subject to specified terms and conditions enumerated therein. This qualified acceptance was in effect a counter-offer, necessitating petitioner's acceptance in return. The Ruling of the Court The ruling of the appellate court that there was no perfected contract of sale between the parties on June 4, 1985 is correct. A contract is a meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service.41 Under Article 1318 of the New Civil Code, there is no contract unless the following requisites concur: (1) Consent of the contracting parties; (2) Object certain which is the subject matter of the contract; (3) Cause of the obligation which is established. Contracts are perfected by mere consent which is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract.42 Once perfected, they bind other contracting parties and the obligations arising therefrom have the form of law between the parties and should be complied with in good faith. The parties are bound not only to the fulfillment of what has been expressly stipulated but also to the consequences which, according to their nature, may be in keeping with good faith, usage and law.43 By the contract of sale, one of the contracting parties obligates himself to transfer the ownership of and deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent.44 The absence of any of the essential elements will negate the existence of a perfected contract of sale. As the Court ruled in Boston Bank of the Philippines v. Manalo:45 A definite agreement as to the price is an essential element of a binding agreement

to sell personal or real property because it seriously affects the rights and obligations of the parties. Price is an essential element in the formation of a binding and enforceable contract of sale. The fixing of the price can never be left to the decision of one of the contracting parties. But a price fixed by one of the contracting parties, if accepted by the other, gives rise to a perfected sale.46 A contract of sale is consensual in nature and is perfected upon mere meeting of the minds. When there is merely an offer by one party without acceptance of the other, there is no contract. 47 When the contract of sale is not perfected, it cannot, as an independent source of obligation, serve as a binding juridical relation between the parties.48 In San Miguel Properties Philippines, Inc. v. Huang,49 the Court ruled that the stages of a contract of sale are as follows: (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 are 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. A negotiation is formally initiated by an offer, which, however, must be certain.50 At any time prior to the perfection of the contract, either negotiating party may stop the negotiation. At this stage, the offer may be withdrawn; the withdrawal is effective immediately after its manifestation. To convert the offer into a contract, the acceptance must be absolute and must not qualify the terms of the offer; it must be plain, unequivocal, unconditional and without variance of any sort from the proposal. In Adelfa Properties, Inc. v. Court of Appeals,51 the Court ruled that: x x x The rule is that except where a formal acceptance is so required, although the acceptance must be affirmatively and clearly made and must be evidenced by some acts or conduct communicated to the offeror, it may be shown by acts, conduct, or words of the accepting party that clearly manifest a present intention or determination to accept the offer to buy or sell. Thus, acceptance may be shown by the acts, conduct, or words of a party recognizing the existence of the contract of sale.52
50

A qualified acceptance or one that involves a new proposal constitutes a counter-offer and a rejection of the original offer. A counter-offer is considered in law, a rejection of the original offer and an attempt to end the negotiation between the parties on a different basis.53 Consequently, when something is desired which is not exactly what is proposed in the offer, such acceptance is not sufficient to guarantee consent because any modification or variation from the terms of the offer annuls the offer.54 The acceptance must be identical in all respects with that of the offer so as to produce consent or meeting of the minds. In this case, petitioner had until February 17, 1984 within which to redeem the property. However, since it lacked the resources, it requested for more time to redeem/repurchase the property under such terms and conditions agreed upon by the parties.55 The request, which was made through a letter dated August 25, 1983, was referred to the respondent's main branch for appropriate action.56 Before respondent could act on the request, petitioner again wrote respondent as follows: 1. Upon approval of our request, we will pay your goodselves ONE HUNDRED & FIFTY THOUSAND PESOS (P150,000.00); 2. Within six months from date of approval of our request, we will pay another FOUR HUNDRED FIFTY THOUSAND PESOS (P450,000.00); and 3. The remaining balance together with the interest and other expenses that will be incurred will be paid within the last six months of the one year grave period requested for.57 When the petitioner was told that respondent did not allow "partial redemption,"58 it sent a letter to respondent's President reiterating its offer to purchase the property.59 There was no response to petitioner's letters dated February 10 and 15, 1984. The statement of account prepared by the SAMD stating that the net claim of respondent as of June 25, 1984 was P1,574,560.47 cannot be considered an unqualified acceptance to petitioner's offer to purchase the property. The statement is but a computation of the amount which petitioner was obliged to pay in case respondent would later agree to sell the property, including interests, advances on insurance premium, advances on realty taxes, publication cost, registration expenses and miscellaneous expenses. There is no evidence that the SAMD was authorized by respondent's Board of Directors to accept petitioner's offer and sell the property for

P1,574,560.47. Any acceptance by the SAMD of petitioner's offer would not bind respondent. As this Court ruled in AF Realty Development, Inc. vs. Diesehuan Freight Services, Inc.:60 Section 23 of the Corporation Code expressly provides that the corporate powers of all corporations shall be exercised by the board of directors. Just as a natural person may authorize another to do certain acts in his behalf, so may the board of directors of a corporation validly delegate some of its functions to individual officers or agents appointed by it. Thus, contracts or acts of a corporation must be made either by the board of directors or by a corporate agent duly authorized by the board. Absent such valid delegation/authorization, the rule is that the declarations of an individual director relating to the affairs of the corporation, but not in the course of, or connected with the performance of authorized duties of such director, are held not binding on the corporation. Thus, a corporation can only execute its powers and transact its business through its Board of Directors and through its officers and agents when authorized by a board resolution or its bylaws.61 It appears that the SAMD had prepared a recommendation for respondent to accept petitioner's offer to repurchase the property even beyond the one-year period; it recommended that petitioner be allowed to redeem the property and pay P1,574,560.00 as the purchase price. Respondent later approved the recommendation that the property be sold to petitioner. But instead of the P1,574,560.47 recommended by the SAMD and to which petitioner had previously conformed, respondent set the purchase price at P2,660,000.00. In fine, respondent's acceptance of petitioner's offer was qualified, hence can be at most considered as a counter-offer. If petitioner had accepted this counter-offer, a perfected contract of sale would have arisen; as it turns out, however, petitioner merely sought to have the counter-offer reconsidered. This request for reconsideration would later be rejected by respondent. We do not agree with petitioner's contention that the P725,000.00 it had remitted to respondent was "earnest money" which could be considered as proof of the perfection of a contract of sale under Article 1482 of the New Civil Code. The provision reads: ART. 1482. Whenever earnest money is given in a contract of sale, it shall be
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considered as part of the price and as proof of the perfection of the contract. This contention is likewise negated by the stipulation of facts which the parties entered into in the trial court: 8. On June 8, 1984, the Special Assets Management Department (SAMD) of PNB prepared an updated Statement of Account showing MMCC's total liability to PNB as of June 25, 1984 to be P1,574,560.47 and recommended this amount as the repurchase price of the subject property. 9. On June 25, 1984, MMCC paid P725,000.00 to PNB as deposit to repurchase the property. The deposit of P725,000 was accepted by PNB on the condition that the purchase price is still subject to the approval of the PNB Board.62 Thus, the P725,000.00 was merely a deposit to be applied as part of the purchase price of the property, in the event that respondent would approve the recommendation of SAMD for respondent to accept petitioner's offer to purchase the property for P1,574,560.47. Unless and until the respondent accepted the offer on these terms, no perfected contract of sale would arise. Absent proof of the concurrence of all the essential elements of a contract of sale, the giving of earnest money cannot establish the existence of a perfected contract of sale.63 It appears that, per its letter to petitioner dated June 4, 1985, the respondent had decided to accept the offer to purchase the property for P1,931,389.53. However, this amounted to an amendment of respondent's qualified acceptance, or an amended counter-offer, because while the respondent lowered the purchase price, it still declared that its acceptance was subject to the following terms and conditions: 1. That the selling price shall be the total Bank's claim as of documentation date (pls. see attached statement of account as of 5-31-85), payable in cash (P725,000.00 already deposited) within sixty (60) days from notice of approval; 2. The Bank sells only whatever rights, interests and participation it may have in the property and you are charged with full knowledge of the nature and extent of said rights, interests and participation and waive your right to warranty against eviction.

3. All taxes and other government imposts due or to become due on the property, as well as expenses including costs of documents and science stamps, transfer fees, etc., to be incurred in connection with the execution and registration of all covering documents shall be borne by you; 4. That you shall undertake at your own expense and account the ejectment of the occupants of the property subject of the sale, if there are any; 5. That upon your failure to pay the balance of the purchase price within sixty (60) days from receipt of advice accepting your offer, your deposit shall be forfeited and the Bank is thenceforth authorized to sell the property to other interested parties. 6. That the sale shall be subject to such other terms and conditions that the Legal Department may impose to protect the interest of the Bank.64 It appears that although respondent requested petitioner to conform to its amended counteroffer, petitioner refused and instead requested respondent to reconsider its amended counteroffer. Petitioner's request was ultimately rejected and respondent offered to refund its P725,000.00 deposit. In sum, then, there was no perfected contract of sale between petitioner and respondent over the subject property. IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The assailed decision is AFFIRMED. Costs against petitioner Manila Metal Container Corporation. SO ORDERED.

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G.R. No. 174286

June 5, 2009

TRADERS ROYAL BANK, Petitioner, vs. CUISON LUMBER CO., INC., and JOSEFA JERODIAS VDA. DE CUISON, Respondents. DECISION BRION, J.: We review in this petition for review on certiorari1 the decision2 and resolution3 of the Court of Appeals (CA) in CA-G.R. CV No. 49900. The CA affirmed with modifications the decision4 of the Regional Trial Court (RTC), Davao City, Branch 13. The RTC ruled in favor of respondents Cuison Lumber Co., Inc. (CLCI) and Josefa Vda. De Cuison (Mrs. Cuison), collectively referred to as respondents, in the action they commenced for breach of contract, specific performance, damages, and attorneys fees, with prayer for the issuance of a writ of preliminary injunction against petitioner Traders Royal Bank (bank). THE BACKGROUND FACTS On July 14, 1978 and December 9, 1979, respectively, CLCI, through its then president, Roman Cuison Sr., obtained two loans from the bank. The loans were secured by a real estate mortgage over a parcel of land covered by Transfer Certificate of Title No. 10282 (subject property). CLCI failed to pay the loan, prompting the bank to extrajudicially foreclose the mortgage on the subject property. The bank was declared the highest bidder at the public auction that followed, conducted on August 1, 1985. A Certificate of Sale and a Sheriffs Final Certificate of Sale were subsequently issued in the banks favor. In a series of written communications between CLCI and the bank, CLCI manifested its intention to restructure its loan obligations and to repurchase the subject property. On July 31, 1986, Mrs. Cuison, the widow and administratrix of the estate of Roman Cuison Sr., wrote the banks Officer-in-Charge, Remedios Calaguas, a letter indicating her offered terms of repurchase. She stated: 1. That I will pay the interest of P115,538.66, plus the additional expenses of P17,293.69, the total amount of which is P132,832.35 on August 8, 1986; 2. That I will pay 20% of the bid price of P949,632.84, plus whatever interest accruing within sixty (60) days from August 8, 1986; 3. That whatever remaining balance after the above two (2) payments shall be amortized for five (5) years on equal

monthly installments including whatever interest accruing lease on diminishing balance.5 CLCI paid the bank P50,000.00 (on August 8, 1986) and P85,000.00 (on September 3, 1986). The bank received and regarded these amounts as "earnest money" for the repurchase of the subject property. On October 20, 1986, the bank sent Atty. Roman Cuison, Jr. (Atty. Cuison), as the president and general manager of CLCI, a letter informing CLCI of the banks board of directors resolution of October 10, 1986 (TRB Repurchase Agreement), laying down the conditions for the repurchase of the subject property: This is to formally inform you that our Board of Directors, in its regular meeting held on October 10, 1986, passed a resolution for the repurchase of your property acquired by the bank, subject to the following terms and conditions, viz: 1. That the repurchase price shall be at total banks claim as of the date of implementation; 2. That client shall initially pay P132,000.00 within fifteen (15) days from the expiration of the redemption period (August 8, 1986) and further payment of P200,632.84, representing 20% of the bid price, to be remitted on or before October 31, 1986; 3. That the balance of P749,000.00 to be paid in three (3) years in twelve (12) quarterly amortizations, with interest rate at 26% computed on diminishing balance; 4. That all the interest and other charges starting from August 8, 1986 to date of approval shall be paid first before implementation of the request; interest as of October 31, 1986 is P65,669.53; 5. Possession of the property shall be deemed transferred after signing of the Contract to Sell. However, title to the property shall be delivered only upon full payment of the repurchase price via Deed of Absolute Sale; 6. Registration fees, documentary stamps, transfer taxes at the date of sale and other similar government impost shall be for the exclusive account of the buyer; 7. The improvement of the property shall at all times be covered by insurance against loss with a policy to be obtained from a reputable company which designates the bank as beneficiary but premiums shall be paid by the client;
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8. That the sale is good for thirty (30) days from the buyers receipt of notice of approval of the offer; otherwise, sale is automatically cancelled; 9. Effective upon signing of the Contract to Sell, all realty taxes which will become due on the property shall be for the account of the buyer; 10. That the first quarterly installment shall be due within ninety (90) days of approval hereof, and the succeeding installment shall be due every three (3) months thereafter; 11. Upon default of the buyer to pay two (2) successive quarterly installments, contract is automatically cancelled at the Banks option and all payments already made shall be treated as rentals or as liquidated damages; and 12. Other terms and conditions that the bank may further impose to protect its interest. Should you agree with the above terms and conditions please sign under "Conforme" on the space provided below. We attach herewith your Statement of Account6 as of October 31, 1986, for your reference. Thank you. Very truly yours, (Signed) Conforme: (Not signed)7 CLCI failed to comply with the above terms notwithstanding the extensions of time given by the bank. Nevertheless, CLCI tendered, on February 3, 1987, a check for P135,091.57 to cover fifty percent (50%) of the twenty percent (20%) bid price. The check, however, was returned for "insufficiency of funds." On May 13, 1987, CLCI tendered an additional P50,000.00.8 On May 29, 1987, the bank sent Atty. Cuison a letter informing him that the P185,000.00 CLCI paid was not a deposit, but formed part of the earnest money under the TRB Repurchase Agreement. On August 28, 1987, Atty. Cuison, by letter, requested that CLCIs outstanding obligation of P1,221,075.61 (as of July 31, 1987) be reduced to P1 million, and the amount of P221,075.61 be condoned by the bank. To show its commitment to the request, CLCI paid the bank P100,000.00 and P200,000.00 on August 28, 1987. The bank credited both payments as earnest money. A year later, CLCI inquired about the status of its request. The bank responded that the request

was still under consideration by the banks Manila office. On September 30, 1988, the bank informed CLCI that it would resell the subject property at an offered price of P3 million, and gave CLCI 15 days to make a formal offer; otherwise, the bank would sell the subject property to third parties. On October 26, 1988, CLCI offered to repurchase the subject property for P1.5 million, given that it had already tendered the amount of P400,000.00 as earnest money. CLCI subsequently claimed that the bank breached the terms of repurchase, as it had wrongly considered its payments (in the amounts of P140,485.18, P200,000.00 and P100,000.00) as earnest money, instead of applying them to the purchase price. Through its counsel, CLCI demanded that the bank rectify the repurchase agreement to reflect the true consideration agreed upon for which the earnest money had been given. The bank did not act on the demand. Instead, it informed CLCI that the amounts it received were not earnest money, and that the bank was willing to return these sums, less the amounts forfeited to answer for the unremitted rentals on the subject property. In view of these developments, CLCI and Mrs. Cuison, on February 10, 1989, filed with the RTC a complaint for breach of contract, specific performance, damages, and attorneys fees against the bank. On April 20, 1989, the bank filed its Answer alleging that the TRB repurchase agreement was already cancelled given CLCIs failure to comply with its provisions; by way of counterclaim, the bank also demanded the payment of the accrued rentals in the subject property as of January 31, 1989, and the award of moral damages and exemplary damages as well as attorneys fees and litigation expenses for the unfounded suit instituted against the bank by CLCI.9 After trial on the merits, the RTC ruled in respondents favor. The dispositive portion of its November 4, 1994 Decision states: WHEREFORE, premises considered, judgment is hereby rendered in favor of plaintiffs and against the defendant bank, ordering said defendant bank to: 1. Execute and consummate a Contract to Sell which is reflective of the true consideration indicated in the Resolution of the Board of Directors of Traders Royal Bank held on October 10, 1986 (Exhibit "F" and Exhibit "13"), duly accrediting the amount of P435,000 as earnest money to be part of the price, the mode of payment being on quarterly installment, but the period within which the first quarterly payment being on quarterly payment shall
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be made to commence upon the execution of said Contract to Sell; 2. Pay to plaintiffs the amounts of P50,000.00 in concept of moral damages, P20,000.00 as exemplary damages; 3. Pay attorneys fees of P20,000.00; and 4. Pay litigation expenses in the amount of P2,000.00. The counterclaim of defendant bank is hereby dismissed. SO ORDERED. On appeal to the CA, the bank pointed out the misappreciation of facts the RTC committed and argued that: first, the repurchase agreement did not ripen into a perfected contract; and second, even assuming that there was a perfected repurchase agreement, the bank had the right to revoke it and apply the payments already made to the rentals due for the use of the subject property, or as liquidated damages under paragraph 11 of the TRB Repurchase Agreement, since CLCI violated its terms and conditions. Further, the bank contended that CLCI had abandoned the TRB Repurchase Agreement in its letters dated August 28, 1987 and October 26, 1988 when it proposed to repurchase the subject property for P1 million and P1.5 million, respectively. Lastly, the bank objected to the award of damages in the plaintiffs favor. THE CA DECISION On March 31, 2006, the CA issued the challenged Decision and affirmed the RTCs factual findings and legal conclusions. Although it deleted the awards of attorneys fees, moral and exemplary damages, the CA ruled that there was a perfected contract to repurchase the subject property given the banks acceptance (as stated in the letter dated October 20, 1986) of CLCIs proposal contained in Mrs. Cuisons letter of July 31, 1986. The CA distinguished between a condition imposed on the perfection of the contract and a condition imposed on the performance of an obligation, and declared that the conditions laid down in the letter dated October 20, 1986 merely relate to the manner the obligation is to be performed and implemented; failure to comply with the latter obligation does not result in the failure of the contract and only gives the other party the options and/or remedies to protect its interest. The CA held that the same conclusion obtains even if the letter of October 20, 1986 is considered a counter-offer by the bank; CLCIs payment of P135,000.00 operated as an implied acceptance of the banks counter-offer, notwithstanding CLCIs failure to expressly manifest its conforme. In light of these findings,

the CA went on to acknowledge the validity of the terms of paragraph 11 of the TRB Repurchase Agreement, but nonetheless held that CLCI has not yet violated its terms given the banks previous acts (i.e., the grant of extensions to pay), which showed that it had waived the agreements original terms of payment. The CA rejected the theory that CLCI had abandoned the terms of the TRB Repurchase Agreement and found no incompatibility between the agreement and the contents of the August 28, 1987 and October 26, 1988 letters which did not show an implied abandonment by CLCI, nor the latters expressed intent to cancel or abandon the perfected repurchase agreement. In the same manner, the CA struck down the banks position that CLCIs payments were "deposits" rather than earnest money. The appellate court reasoned that while the amounts tendered cannot be strictly considered as earnest money under Article 1482 of the New Civil Code,10 they were nevertheless within the concept of earnest money under this Courts ruling in Spouses Doromal, Sr. v. CA,11 since they were paid as a guarantee so that the buyer would not back out of the contract. The CA however ruled that the award of moral and exemplary damages, attorneys fees and litigation expenses lacked factual and legal support. The CA found that the bank acted in good faith and based its actions on the erroneous belief that CLCI had already abandoned the repurchase agreement. Likewise, the award of moral damages was not in order as there was no showing that CLCIs reputation was debased or besmirched by the banks action of applying the previous payments made to the interest and rentals due on the subject property; neither is Mrs. Cuison entitled to moral damages without any evidence to justify this award. The CA also ruled that there was nothing in the records to warrant the awards of exemplary damages and attorneys fees. The bank subsequently moved but failed to secure a reconsideration of the CA decision. The bank thus came to us with the following ISSUES I. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN APPREHENDING THE SIGNIFICATION (SIC) OF THE TERM "OFFER" ON THE ONE HAND AND "ACCEPTANCE" ON THE OTHER HAND IN SALES CONTRACT WHICH ERROR LED IT TO ARRIVE AT A WRONG CONCLUSION OF LAW. II.
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THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN ITS INTERPRETATION OF THE STIPULATIONS AND TERMS AND CONDITIONS EMBODIED IN THE PROPOSED REPURCHASE AGREEMENT xxx WHICH LED IT TO ERRONEOUSLY CONCLUDE THAT THERE WAS A "PERFECTED" REPURCHASE AGREEMENT BETWEEN RESPONDENTS AND PETITIONER AND WHICH INTERPRETATION IS NOT IN ACCORDANCE WITH THE APPLICABLE LAW AND ESTABLISHED JURISPRUDENCE. Reduced to the most basic, the main issue posed is whether or not a perfected contract of repurchase existed and can be enforced between the parties. THE COURTS RULING We GRANT the petition. The case presents to us as threshold issue the presence or absence of consent as a requisite for a perfected contract to repurchase the subject property. The RTC ruled that a perfected contract existed based mainly on the following facts: first, the existence of the TRB Repurchase Agreement which "clearly depicts the repurchase agreement of the subject property under the terms therein embodied"; and second, the payment of earnest money in the total amount of P435,000.00 which forms part of the price and, as initial payment, is proof of the perfection of the contract.12 In concurring with the foregoing findings on appeal, the CA, in turn, declared that there was a meeting of the minds between the parties on the offer and acceptance for the repurchase of the subject property under the following quoted facts: It may be recalled that it was Mrs. Cuison, through her letter of July 31, 1986, who proposed to repurchase the foreclosed property. She in fact had tendered right away an amount of P50,000.00 as partial payment of the P132,000.00 she had promised to pay as initial payment. In response, TRB sent a letter dated October 20, 1986 to Atty. Cuison informing him of the resolution passed by the Board of Directors of TRB acknowledging the proposal of Ms. Cuison to repurchase the property. Under the circumstance, the proposal made by Ms. Cuison constituted the "offer" contemplated by law, and the reply of TRB was the corresponding "acceptance" of the proposal-offer. xxx Conceding arguendo that TRBs letter-response October 20, 1986 constituted a counter-offer or politacion, CLCIs ensuing remittance of P135,000.00 as initial payment of the price, operates effectively as an implied acceptance of TRBs counter-offer. The absence of a signature to signify plaintiffs conforme to the repurchase

agreement is of no moment. While the conforme portion of the subject repurchase agreement indeed bears no signature at all, this fact, however, does not detract from the accomplished fact that plaintiffs had acquiesced or assented to the standing "conditional counter-offer" of TRB. Plaintiffs "conforme" would at best be a mere formality considering that the repurchase agreement had already been perfected, if impliedly.13 Based on these findings, the crucial points that the lower courts apparently considered were Mrs. Cuisons letter of July 31, 1986 to the bank; the banks letter of October 20, 1986 to CLCI; and the parties subsequent conduct showing their acknowledgement of the existence of their agreement, specifically, the respondents payments (designated as earnest money) and the banks acceptance of these payments. However, unlike the RTCs conclusion that relied on CLCIs payment and the banks acceptance of the payment as "earnest money," the CA concluded that there was a perfected contract, either because of the banks acceptance of CLCIs offer (made through Mrs. Cuisons letter of July 31, 1986), or by CLCIs implied acceptance indicated by its initial payments in compliance with the terms of the TRB Repurchase Agreement. The petitioner bank, of course, argues differently and concludes that the undisputed facts of the case show that there was no meeting of the minds between the parties given CLCIs failure to give its consent and conformity to the banks letter of October 20, 1986, confirmed by the testimony of Atty. Cuison, no less, when he denied that CLCI consented to the agreements terms of implementation. Our task in this petition for review on certiorari is not to review the factual findings of the CA and the RTC, but to determine whether or not, on the basis of the said findings, the conclusions of law reached by the said courts are correct. Under the law, a contract is perfected by mere consent, that is, from the moment that there is a meeting of the offer and the acceptance upon the thing and the cause that constitute the contract. 14 The law requires that the offer must be certain and the acceptance absolute and unqualified.15 An acceptance of an offer may be express and implied; a qualified offer constitutes a counteroffer.16 Case law holds that an offer, to be considered certain, must be definite,17 while an acceptance is considered absolute and unqualified when it is identical in all respects with that of the offer so as to produce consent or a meeting of the minds.18 We have also previously held that the ascertainment of whether there is a meeting of minds on the offer and acceptance
56

depends on the circumstances surrounding the case.19 In Villonco Realty Co. v. Bormacheco, 20 the Court found a perfected contract of sale between the parties after considering the parties written communications showing the offer (counter-offer) and acceptance by the seller who formally manifested his conformity with the offer in the buyers letter. We took note of the acts of the parties the payment of the buyer of an amount representing the partial payment under the contract; the acceptance of the partial payment by the seller; the allowance of the buyer for the seller to encash the check containing the partial payment; the subsequent return of the amount representing the partial payment by the buyer with the corresponding interest stated in the buyers letter (offer) and considered them evidence of the perfection of the sale. Under these circumstances, we also declared that a change in a phrase in the offer to purchase, that does not essentially change the terms of the offer, does not amount to a rejection of the offer and the tender of a counter-offer. In Schuback & Sons Philippine Trading Corp. v. CA,21 we declared a meeting of minds between the vendor and the vendee even though the quantity of goods purchased had not been fully determined. We noted that the vendee, after expressing his intention to purchase the merchandise, simultaneously enclosed a purchase order whose receipt prompted the vendor to immediately order the merchandise. We also took into account the act of the vendee in requesting for a discount as proof of his acceptance of the quoted price. Yuviengco v. Dacuycuy22 yielded a different result, as we considered that the letter and telegrams sent by the parties to each other showed that there was no meeting of minds in the absence of an unconditional acceptance to the terms of the contract of sale; otherwise, the buyers would not have included the phrase "to negotiate details" when they agreed to the property that was subject of the proposed contract. Similarly, in Philippine National Bank v. CA,23 we ruled that there was no perfected contract of sale because the specified terms and conditions imposed under the facts of the case constituted counter-offers against each other that were not accepted by either of the parties. This case involved a first contract, involving the same property, which the parties mutually cancelled; we said that the terms of this earlier contract cannot be considered in determining the acceptance and compliance with the terms of a

proposed second contract a distinct and separate contract from the one earlier aborted. The incomplete details of the agreement led us to conclude in Insular Life Assurance Co. Ltd. v. Assets Builders Corp.24 that no perfected contract existed; there were "other matters or details in addition to the subject matter and the consideration [that] would be stipulated and agreed." We likewise considered the subsequent acts between the parties and the existence of a second proposal which belied the perfection of any initial contract. The recent Navarra v. Planters Development Bank25 is another case where we saw no perfected contract, as the offer was incomplete for lack of agreed details on the manner of paying the purchase price; there was also no acceptance as the letter of Planters Development Bank indicated the need to discuss other details of the transaction.1awphil All these cases illustrate the rule that the concurrence of the offer and acceptance is vital to the birth and the perfection of a contract. The clear and neat principle is that the offer must be certain and definite with respect to the cause or consideration and object of the proposed contract, while the acceptance of this offer express or implied must be unmistakable, unqualified, and identical in all respects to the offer. The required concurrence, however, may not always be immediately clear and may have to be read from the attendant circumstances; in fact, a binding contract may exist between the parties whose minds have met, although they did not affix their signatures to any written document.26 The facts of the present case, although ambivalent in some respects, point on the whole to the conclusion that both parties agreed to the repurchase of the subject property. A reading of the petitioners letter of October 20, 1986 informing CLCI that the banks board of directors "passed a resolution for the repurchase of [your] property" shows that the tenor of acceptance, except for the repurchase price, was subject to conditions not identical in all respects with the CLCIs letter-offer of July 31, 1986. In this sense, the banks October 20, 1986 letter was effectively a counter-offer that CLCI must be shown to have accepted absolutely and unqualifiedly in order to give birth to a perfected contract. Evidence exists showing that CLCI did not sign any document to show its conformity with the banks counter-offer. Testimony also exists explaining why CLCI did not sign; Atty. Cuison testified that CLCI did not agree with the implementation of the repurchase transaction since the bank made a wrong computation.27
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These indicators notwithstanding, we find that CLCI accepted the terms of the TRC Repurchase Agreement and thus unqualifiedly accepted the banks counter-offer under the TRB Repurchase Agreement and, in fact, partially executed the agreement, as shown from the following undisputed evidence: (a) The letter-reply dated November 29, 1986 of Atty. Cuison, as president and general manager of CLCI, to the bank (in response to the banks demand letter dated November 27, 1986 to pay 20% of the bid price); CLCI requested an extension of time, until the end of December 1986, to pay its due obligation;28 (b) Mrs. Cuisons letter-reply of February 3, 1987 (to the banks letter of January 13, 1987) showed that she acknowledged CLCIs failure to comply with its requested extension and proposed a new payment scheme that would be reasonable given CLCIs critical economic difficulties; Mrs. Cuizon tendered a check for P135,091.57, which represented 50% of the 20% bid price;29 (c) The CLCIs continuous payments of the repurchase price after their receipt of the banks letter of October 20, 1986; (d) CLCIs possession of the subject property pursuant to paragraph 5 of the TRB Repurchase Agreement, notwithstanding the absence of a signed contract to sell between the parties; xxx We counted the following facts, too, as indicators leading to the conclusion that a perfected contract existed: CLCI did not raise any objection to the terms and conditions of the TRB Repurchase Agreement, and instead, unconditionally paid without protests or objections30 ; CLCIs acknowledgment of their obligations under the TRB Repurchase Agreement (as shown by Atty. Cuisons letter of November 29, 1986); and Atty. Cuisons admission that the TRB Repurchase Agreement was already a negotiated agreement between CLCI and the bank, as shown by the following testimony: Q When you received this document, this Exh. "F" from the defendant bank, did you already consider this as an agreement? A We consider that as a negotiated agreement pending the documentation of the formal contract to sell which is stated under the repurchase agreement.

Q In other words, at the time you received this document Exh. "F," which was on October 23, 1986 date of receipt, was there already a meeting of the minds between the parties? A That is precisely we put [sic] the earnest money because we were of the opinion that the bank is already agreeable to the implementation of the repurchase agreement. xxx COURT Q Insofar as Exh. "F" is concerned? A There was initially, that is precisely we [sic] deposited in consideration of the repurchase agreement.31 The bank, for its part, showed its recognition of the existence of a repurchase agreement between itself and CLCI by the following acts: (a) The letter dated November 27, 1986 of the bank, reminding CLCI that it was remiss in its commitments to pay 20% of the bid price under the terms of the TRB Repurchase Agreement; (b) In the same letter, the bank gave CLCI an extension of time (until November 30, 1986) to comply with its past due obligations under the agreement; (c) The banks acceptance of CLCIs payments as earnest money for the repurchase of the property; (d) CLCIs continued possession of the subject property with the banks consent; (e) The banks grant of extensions to CLCI for the payment of its obligations under the contract; (f) The Statement of Account dated July 31, 1987 showing that the bank applied CLCIs payments according to the terms of the TRB Repurchase Agreement; (g) The letter of January 26, 1989 of the banks counsel, Atty. Abarquez, addressed to CLCIs counsel, showing the banks recognition that there was an agreement between the bank and CLCI, which the latter failed to honor; and (h) The testimonies of the banks witnesses Mr. Eulogio Giramis32 and Ms. Arlene Aportadera,33 the banks employees who handled the CLCI transactions who admitted the existence of the repurchase agreement with CLCI and the latters failure to comply with the agreements terms.
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Admittedly, some evidence on record may be argued to point to the absence of a meeting of the minds (more particularly, the previous offers made by CLCI to change the payment scheme of the repurchase of the subject property which was not accepted; the banks expressed intent to offer the subject property for sale to third persons at a higher price; and the unaccepted counter-offer by the respondents after the bank increased the purchase price).34 These incidents, however, were the results of CLCIs failure to comply with its obligations to pay the amounts due on the stipulated time and were made after the parties minds had met on the terms of the contract. The seemingly contrary indications, therefore, do not go into and affect the perfection of the contract; they came after the contract had been perfected and, as discussed below, were indicative of the banks cancellation of the repurchase agreement. In light of this conclusion, we now determine the consequential rights, obligations and liabilities of the parties. It is at this point that we diverge from the conclusions of the CA and the RTC, as we conclude that while there was a perfected contract between the parties, the bank effectively cancelled the contract when it communicated with CLCI that it would sell the subject property at a higher price to third parties, giving CLCI 15 days to make a formal offer, and disregarding CLCIs counter-offer to buy the subject property for P1.5 million. We arrive at this conclusion after considering the following reasons: First, the bank communicated its intent not to proceed with the repurchase as above outlined and formally cancelled the TRB Repurchase Agreement in its letters dated January 11 and 30, 1989 to CLCI.35 Thus, CLCIs rights acquired under the TRB Repurchase Agreement to repurchase the subject property have been defeated by its own failure to comply with its obligations under the agreement. The right to cancel for breach is provided under paragraph 11 of the TRB Repurchase Agreement, as follows: 11. Upon default of the buyer to pay two (2) successive quarterly installments, contract is automatically cancelled at the Banks option and all payments already made shall be treated as rentals or as liquidated damages; We note, additionally, that the TRB Repurchase Agreement is in the nature of a contract to sell where the title to the subject property remains in the banks name, as the vendor, and shall only pass to the respondents, as vendees, upon the full payment of the repurchase price.36 The settled rule for contracts to sell is that the full payment of the purchase price is a positive suspensive condition; the failure to pay in full is not to be considered a breach, casual or serious,

but simply an event that prevents the obligation of the vendor to convey title from acquiring any obligatory force.37 Viewed in this light, the bank cannot be compelled to perform its obligations under the TRB Repurchase Agreement that has been rendered ineffective by the respondents non-performance of their own obligations. Second, the respondents violated the terms and conditions of the TRB Repurchase Agreement when they failed to pay their obligations under the agreement as these obligations fell due. Paragraphs 2 and 10 of the TRB Repurchase Agreement are clear on the respondents obligation to pay the bid price and the quarterly installments. Paragraphs 2 and 10 state: 2. That client shall initially pay P132,000.00 within fifteen (15) days from the expiration of the redemption period (August 8, 1986) and further payment of P200,632.84 representing 20% of the bid price to be remitted on or before October 31, 1986; xxx xxx xxx 10. That the first quarterly installment shall be due within ninety (90) days of approval hereof, and the succeeding installment shall be due every three (3) months thereafter; The approval referred to under paragraph 10 is the approval by the bank of the repurchase of the subject property, as indicated in the banks letter of October 20, 1986 which states, "This is to formally inform you that our Board of Directors in its regular meeting held on October 10, 1986, passed a resolution for the repurchase of your property acquired by the bank." It was on the basis of this approval and the quoted terms of the agreement that the bank issued its Statement of Account dated July 31, 1987 indicating that the respondents were already in default, not only with respect to the 20% of the bid price, but also with the three quarterly installments.lavvphi1 Third, the respondents themselves claim that the bank violated the agreement when it applied the respondents payments to the interest and penalties due without the respondents consent, instead of applying these to the repurchase price for the subject property.38 An examination of the provisions of the TRB Repurchase Agreement reveals that the bank is allowed to apply the respondents payments first to the amounts due as interests and other charges, before applying any payment to the repurchase price. Paragraph 4 of the agreement provides: 4. That all the interest and other charges starting from August 8, 1986 to date of approval shall be paid first before implementation of the request; interest as of October 31, 1986 is P65,669.53;
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Under these terms, the bank cannot be faulted for the application of payments it made. Likewise, the bank cannot be faulted for the application of other amounts paid as rentals as this is allowed under paragraph 11, quoted above, of the agreement. Fourth, the petitioner bank cannot be said, as the CA ruled, to have already waived the terms of the TRB Repurchase Agreement by extending the time to pay and subsequently accepting late payments. The CAs conclusion lacks factual and legal basis taking into account that the Statement of Account of July 31, 1987, heretofore cited, which shows that the bank considered the respondents already in default. At this point, Atty. Cuison, by letter, requested that part of its outstanding obligation be condoned by the bank, paying P300,000.00 as of August 31, 1987, which amount the bank accepted as earnest money. For one whole year thereafter, neither party moved. Significantly, the respondents, who had continuing payments to make and who had the burden of complying with the terms of the agreement, failed to act except to ask the bank for the status of its requested condonation. Under these facts, a continuing breach of the agreement took place, even granting that a waiver had intervened as of August 31, 1987. Thus, the bank was well within its right to consider the agreement cancelled when, in September 1988, it changed the repurchase terms to P3.0 million. We find it significant that the respondents, instead of asserting its rights under the TRB Repurchase Agreement, counteroffered P1.5 million with the P400,000.00 already paid as part of the purchase price. At that point, it was clear that even the respondents themselves considered the TRB Repurchase Agreement cancelled. Lastly, the perfected repurchase agreement itself provides for the respondents possession of the subject property; in fact, the respondents have been in continuous possession of the subject property since October 1986, despite the absence of a contract to sell apparently with the banks consent. The agreement also provides under its paragraph 11 that upon the respondents default and the cancellation of the agreement, all payments already made shall be treated as rentals or as liquidated damages. The undisputed facts show that the bank has been deprived of the use and benefit of its property that has been in the possession of the respondents for the latters use and benefit without paying any rentals thereon. The records reveal that until now, the respondents are still in possession of the subject property.39

We note that subsequent to the banks counterclaim for the payment of rentals due as of January 31, 1989, the bank also seeks to recover the rentals that accrued after January 31, 1989, which as of August 8, 1993 amounted to P1,123,500.00 as shown by the evidence presented by the bank before the RTC and in the pleadings it had filed before the RTC, CA, and the Court.40 Although this claim was not alleged in the banks Answer being an after-acquired claim which was only raised during the trial proper through the testimony dated August 17, 1993 of Ms. Arlene Aportadera,41 the bank is not barred from recovering these rentals. As we explained in Banco de Oro Universal Bank v. CA,42 a party is not barred from setting up a claim even after the filing of the answer if the claim did not exist or had not matured at the time said party filed its answer. Moreover, we note that the respondents did not object to the presentation of this evidence, hence, the issue of rentals from August 8, 1993 and onwards was tried with the implied consent of the parties; applying Section 5, Rule 10 of the 1997 Rules of Civil Procedure, 43 the issue should be treated in all respects as if it had been raised in the pleadings. 44 Given the implied consent, judgment may be validly rendered on this issue even if no motion had been filed and no amendment had been ordered.45 In National Power Corporation v. CA,46 we held that where there is a variance in the defendants pleadings and the evidence adduced by it at the trial, the Court may treat the pleading as amended to conform to the evidence. Additionally, the respondents are also liable to pay interest by way of damages for their failure to pay the rentals due for the use of the subject property. In Eastern Shipping Lines v. CA,47 we laid down the following guidelines with respect to the award and the computation of legal interest, as follows: II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as well as the accrual thereof, is imposed, as follows: 1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to
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the provisions of Article 1169 of the Civil Code. 2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169 Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged. 3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit. [Emphasis supplied] The records are unclear on when the bank made a demand outside of the judicial proceedings for the rentals on the subject property.48 However, the records show that the bank made a counterclaim for the payments of the rentals due as of January 31, 1989 in its Answer and subsequently, a claim for the after-acquired rentals was made by the bank through the testimony of Ms. Arlene Aportadera. Applying Eastern Shipping Lines, the payment of interest for the rentals shall be reckoned from the date the judicial demand was made by the bank or on April 20, 1989 when the bank set up its counterclaim for rentals in the subject property. Under the circumstances, we can impose a 6% interest on the rentals from April 20, 1989 up to the finality of this decision. Thereafter, the interest shall be computed at 12% per annum from such finality up to full satisfaction. We find no basis for the award of exemplary damages. Article 2232 of the Civil Code declares:

Article 2232. In contracts and quasi-contracts, the court may award exemplary damages if the defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner. Considering the factual circumstances we have discussed above, we can hardly characterize respondents act of insisting on the enforcement of the repurchase agreement as wanton, fraudulent, reckless, oppressive, or malevolent. As there is no basis for an award of exemplary damages, the awards of attorneys fees and litigation expenses to the bank are not justified under Article 2208 of the Civil Code. WHEREFORE, premises considered, we hereby GRANT the petition. The Decision dated March 31, 2006 and Resolution dated August 11, 2006 of the Court of Appeals in CA-G.R. CV No. 49900 are hereby REVERSED and SET ASIDE. The complaint in Civil Case No. 19416-89 for breach of contract, specific performance, damages, and attorneys fees, with preliminary injunction filed by Cuison Lumber Co., Inc. and Mrs. Cuison against Traders Royal Bank is hereby DISMISSED. The respondents are ordered to vacate the subject property and to restore its possession to the petitioner bank. The respondents are further ordered to pay reasonable compensation, for the use and occupation of the subject property in the amount of P1,123,500.00, representing the accrued rentals as of August 8, 1993, less the amount of P485,000.00 representing deposits paid by the respondents. In additiodn, respondents are also ordered to pay the amount of P13,700.00 a month by way of rentals starting from August 8, 1993 until they vacate the subject property. The rentals shall earn a corresponding legal interest of six percent (6%) per annum to be computed from April 20, 1989 until the finality of this decision. After this decision becomes final and executory, the rate of legal interest shall be computed at twelve percent (12%) per annum from such finality until its satisfaction. Costs against the respondents. SO ORDERED.

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G.R. No. 125838

June 10, 2003

DEVELOPMENT BANK OF THE PHILIPPINES, petitioner, vs. COURT OF APPEALS and EMERALD RESORT HOTEL CORPORATION, respondents. CARPIO, J.: The Case This petition for review on certiorari1 seeks to reverse the Joint Decision2 of the Court of Appeals in CA-G.R. CV Nos. 38569 and 38604 dated 31 January 1996 and the Resolution dated 30 July 1996 denying the motion for reconsideration. The Court of Appeals affirmed the Decision3 of the Regional Trial Court of Iriga City, Branch 36, declaring the foreclosure of the mortgaged properties void for failure to comply with the statutory requisites. The Facts Private respondent Emerald Resort Hotel Corporation ("ERHC") obtained a loan from petitioner Development Bank of the Philippines ("DBP"). DBP released the loan of P3,500,000.00 in three installments: P2,000,000.00 on 27 September 1975, P1,000,000.00 on 14 June 1976 and P500,000.00 on 14 September 1976. To secure the loan, ERHC mortgaged its personal and real properties to DBP. On 18 March 1981, DBP approved a restructuring of ERHCs loan subject to certain conditions. 4 On 25 August 1981, DBP allegedly cancelled the restructuring agreement for ERHCs failure to comply with some of the material conditions5 of the agreement. Subsequently, ERHC delivered to DBP three stock certificates of ERHC aggregating 3,477,052 shares with a par value of P1.00 per share. ERHC first delivered to DBP on 20 October 1981 Stock Certificate No. 30 covering 1,862,148 shares. Then ERHC delivered on 3 November 1981 Stock Certificate No. 31 covering 691,052 shares, and on 27 November 1981 Stock Certificate No. 32 covering 923,852 shares. On 5 June 1986, alleging that ERHC failed to pay its loan, DBP filed with the Office of the Sheriff, Regional Trial Court of Iriga City, an Application for Extra-judicial Foreclosure of Real Estate and Chattel Mortgages. Deputy Provincial Sheriffs Abel Ramos and Ruperto Galeon issued the required notices of public auction sale of the personal and real properties. However, Sheriffs Ramos and Galeon failed to execute the corresponding certificates of posting of the notices. On 10 July 1986, the

auction sale of the personal properties proceeded. The Office of the Sheriff scheduled on 12 August 1986 the public auction sale of the real properties. The Bicol Tribune published on 18 July 1986, 25 July 1986 and 1 August 1986 the notice of auction sale of the real properties. However, the Office of the Sheriff postponed the auction sale on 12 August 1986 to 11 September 1986 at the request of ERHC. DBP did not republish the notice of the rescheduled auction sale because DBP and ERHC signed an agreement to postpone the 12 August 1986 auction sale.6 ERHC, however, disputes the authority of Jaime Nuevas who signed the agreement for ERHC. In a letter dated 24 November 1986, ERHC informed DBP of its intention to lease the foreclosed properties.7 On 22 December 1986, ERHC filed with the Regional Trial Court of Iriga City a complaint for annulment of the foreclosure sale of the personal and real properties. Subsequently, ERHC filed a Supplemental Complaint. ERHC alleged that the foreclosure was void mainly because (1) DBP failed to comply with the procedural requirements prescribed by law; and (2) the foreclosure was premature. ERHC maintained that the loan was not yet due and demandable because the DBP had restructured the loan. DBP moved to dismiss the complaint because it stated no cause of action and ERHC had waived the alleged procedural defenses. The trial court denied the motion to dismiss. Consequently, DBP filed its answer, claiming that it complied with the legal requirements for a valid foreclosure. DBP further claimed that it cancelled the conditional restructuring of ERHCs loan because ERHC failed to comply with some material conditions of the restructuring agreement. Meanwhile, acting on ERHCs application for the issuance of a writ of preliminary injunction, the trial court granted the writ on 20 August 1990. Accordingly, the trial court enjoined DBP from enforcing the legal effects of the foreclosure of both the chattel and real estate mortgages. Thereafter, trial on the merits ensued. After the parties presented their evidence, the trial court rendered a Decision8 dated 28 January 1992, the dispositive portion of which reads: WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff corporation and against the defendants: 1. Declaring as null and void the foreclosure and auction sale of the
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personal properties of plaintiff corporation held on July 10, 1986; 2. Declaring as null and void the foreclosure and auction sale of the real properties of plaintiff corporation covered by TCT No. RT-1075 (19980); TCT No. RT1076 (19981); TCT No. RT-1077 (22367) and TCT No. 10244 of the Register of Deeds of Camarines Sur (now Iriga City) in the auction sale thereof held on September 11, 1986, and all the improvements therein; 3. Ordering the Register of Deeds of Camarines Sur (now Iriga City) to cancel the annotations of the Sheriffs Certificate of Sale on the aforestated titles as null and void and without any legal effect; 4. Ordering the defendant Development Bank of the Philippines to comply with the restructuring of plaintiff corporations loans retroactively as though the foreclosure had not taken place in the interest of justice and equity; and 5. Ordering the defendant DBP to pay plaintiff corporation moral damages in the amount of P500,000.00 for initiating what was a clearly illegal foreclosure and causing the said plaintiff corporation to suffer needlessly anguish, opprobrium and disrepute as a consequence thereto. SO ORDERED. Both ERHC and DBP appealed the trial courts decision to the Court of Appeals. ERHC anchored its appeal on the insufficiency of the moral damages awarded by the trial court and the absence of any award of temperate, nominal or exemplary damages. DBPs appeal, on the other hand, assailed the decision as well as the order dismissing its petition for a writ of possession. The Court of Appeals, which consolidated the appeals, affirmed the decision of the trial court. 9 DBP filed a Motion for Reconsideration which the Court of Appeals denied.10 Hence, this petition. The Ruling of the Court of Appeals The Court of Appeals sustained the trial courts ruling that the foreclosure was void. The Court of Appeals affirmed the trial courts finding that DBP failed to comply with the posting and publication requirements under the applicable laws. The Court of Appeals held that the non-execution of the certificate of posting of the notices of auction sale and the non-republication of the notice of the rescheduled 11 September 1986 auction sale invalidated the foreclosure.

The Court of Appeals also found that the parties perfected the restructuring agreement and that ERHC substantially complied with its conditions based on the following "circumstances": (a) The transmittal letter dated October 20, 1981 which relates to the progress of the restructuring of the mortgage account of Emerald Resort Hotel Corporation and that the same has been approved by the SEC (Exh. "D") (b) The transfer of shares of stocks to appellant DBP, the value of which are broken as follows: 1. Stock certificate No. 30 for 1,862,148 shares worth P1,862,148.00 (Exhs. "D" and "D1"); 2. Stock certificate No. 32 for 932,852 shares worth P953,852.00 (Exhs. "F" and "F-1"); 3. Stock certificate No. 031, for 691,052 shares worth P691,052.00 (Exhs. "M" and "M-5"). (c) The acceptance of the foregoing by the DBP without raising the fact of delay as embodied in condition no. 7 of Exh. "B". (d) No rejection was made by the defendant-appellant DBP at the time the shares of stocks were being held by the latter. (e) The belated rejection of the shares of stocks was interposed only at the time the instant suit was filed which was long after the expiration of the 90-day period extended by DBP to Emerald. (f) No rejection was also made when plaintiff corporation did not avail of the additional loan which was allegedly part of the package accommodation.11 The Court of Appeals also affirmed the trial courts award of moral damages but denied ERHCs claim for temperate and exemplary damages. The Court of Appeals found that DBPs intrusion, assisted by sheriffs and several armed men, into Hotel Ibalon and the sheriffs inventory of the hotels furniture and fixtures caused fear and anxiety to the hotel owner, staff and guests. These acts, according to the Court of Appeals, debased the hotels goodwill and undermined its viability warranting the award of moral damages. Finding the foreclosure void, the Court of Appeals also denied DBPs petition for a deficiency claim and a writ of possession. The Issues
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DBP presents the following issues for resolution: 1. Whether DBP complied with the posting and publication requirements under applicable laws for a valid foreclosure. 2. Whether the restructuring agreement between DBP and ERHC was perfected and implemented by the parties before the foreclosure. 3. Whether ERHCs offer to lease the foreclosed properties constitutes a waiver of its right to question the validity of the foreclosure. 4. Whether the award of moral damages to ERHC, a juridical person, is proper. The Courts Ruling The petition is partly meritorious. First Issue: Compliance with the posting and publication requirements under applicable laws Posting requirement under Acts Nos. 3135 and 1508 In alleging that the foreclosure was valid, DBP maintains that it complied with the mandatory posting requirement under applicable laws.12 DBP insists that the non-execution of the certificate of posting of the auction sale notices did not invalidate the foreclosure. We agree. This Court ruled in Cristobal v. Court of Appeals13 that a certificate of posting is not required, much less considered indispensable for the validity of an extrajudicial foreclosure sale of real property under Act No. 3135. Cristobal merely reiterated the doctrine laid down in Bohanan v. Court of Appeals.14 In the present case, the foreclosing sheriffs failed to execute the certificate of posting of the auction sale notices. However, this fact alone does not prove that the sheriffs failed to post the required notices. As held in Bohanan, "the fact alone that there is no certificate of posting attached to the sheriff's records is not sufficient to prove the lack of posting."15 Based on the records, DBP presented sufficient evidence to prove that the sheriffs posted the notices of the extrajudicial sale. The trial and appellate courts glaringly erred and gravely abused its discretion in disregarding the sheriffs partial report and the sheriffs certificate of sale executed after the auction sale. A careful examination of these two documents clearly shows that the foreclosing sheriffs posted the required notices of sale.

The partial report dated 10 July 1986 signed by both Sheriff Abel Ramos and Deputy Sheriff Ruperto Galeon states in part: That on July 1, 1986, the undersigned sheriffs posted the notice of public auction sale of chattel mortgage in the conspicuous places, and at the Iriga City Hall Bulletin Board, including Ibalon Hotel, Iriga City xxx.16 (Emphasis supplied) Similarly, the certificate of sale of the real properties signed by both Sheriff Ramos and Deputy Sheriff Galeon on 11 September 1986 states in part: I, FURTHERMORE CERTIFY that the Notice of Sale was published in BICOL TRIBUNE, a newspaper of general circulation in the province of Camarines Sur, for three (3) consecutive weeks and three (3) copies of the notices of sale were posted in three (3) public places of the City where the properties are located for no less than twenty (20) days before the sale. 17 (Emphasis supplied) Deputy Sheriff Galeon also testified that he, together with Sheriff Ramos,18 actually posted the notices of sale.19 Indisputably, there is clear and convincing evidence of the posting of the notices of sale. What the law requires is the posting of the notice of sale, which is present in this case, and not the execution of the certificate of posting. Moreover, ERHC bore the burden of presenting evidence that the sheriffs failed to post the notices of sale.20 In the absence of contrary evidence, as in this case, the presumption prevails that the sheriffs performed their official duty of posting the notices of sale. Consequently, we hold that the non-execution of the certificate of posting cannot nullify the foreclosure of the chattel and real estate mortgages in the instant case. Publication requirement under Act No. 3135 Having shown that there was posting of the notices of auction sale, we shall now resolve whether there was publication of the notice of sale of the real properties in compliance with Act No. 3135.21 There is no question that DBP published the notice of auction sale scheduled on 12 August 1986. However, no auction sale took place on 12 August 1986 because DBP, at the instance of ERHC, agreed to postpone the same to 11 September 1986. DBP contends that the agreement to postpone dispensed with the need to publish again the notice of auction sale. Thus, DBP did not anymore publish the notice of the 11
64

September 1986 auction sale. DBP insists that the law does not require republication of the notice of a rescheduled auction sale. Consequently, DBP argues vigorously that the extrajudicial foreclosure of the real estate mortgage is valid. We do not agree. The Court held recently in Ouano v. Court of Appeals22 that republication in the manner prescribed by Act No. 3135 is necessary for the validity of a postponed extrajudicial foreclosure sale. Another publication is required in case the auction sale is rescheduled, and the absence of such republication invalidates the foreclosure sale. The Court also ruled in Ouano that the parties have no right to waive the publication requirement in Act No. 3135. The Court declared thus: Petitioner further contends that republication may be waived voluntarily by the parties. This argument has no basis in law. The issue of whether republication may be waived is not novel, as we have passed upon the same query in Philippine National Bank v. Nepomuceno Productions Inc. Petitioner therein sought extrajudicial foreclosure of respondents mortgaged properties with the Sheriffs Office of Pasig, Rizal. Initially scheduled on August 12, 1976, the auction sale was rescheduled several times without republication of the notice of sale, as stipulated in their Agreements to Postpone Sale. Finally, the auction sale proceeded on December 20, 1976, with petitioner as the highest bidder. Aggrieved, respondents sued to nullify the foreclosure sale. The trial court declared the sale void for non-compliance with Act No. 3135. This decision was affirmed in toto by the Court of Appeals. Upholding the conclusions of the trial and appellate courts, we held: Petitioner and respondents have absolutely no right to waive the posting and publication requirements of Act No. 3135. xxx Publication, therefore, is required to give the foreclosure sale a reasonably wide publicity such that those interested might attend the public sale. To allow the parties to waive this jurisdictional requirement would result in converting into a private sale what ought to be a public auction.

DBP further asserts that Section 24, Rule 39 of the Rules of Court, which allows adjournment of execution sales by agreement of the parties, applies to the present case. Section 24 of Rule 39 provides: Sec. 24. Adjournment of Sale By written consent of debtor and creditor, the officer may adjourn any sale upon execution to any date agreed upon in writing by the parties. Without such agreement, he may adjourn the sale from day to day, if it becomes necessary to do so for lack of time to complete the sale on the day fixed in the notice. The Court ruled in Ouano that Section 24 of Rule 39 does not apply to extrajudicial foreclosure sales, thus: Petitioner submits that the language of the abovecited provision23 implies that the written request of the parties suffices to authorize the sheriff to reset the sale without republication or reposting. At the outset, distinction should be made of the three different kinds of sales under the law, namely: an ordinary execution sale, a judicial foreclosure sale, and an extrajudicial foreclosure sale. An ordinary execution sale is governed by the pertinent provisions of Rule 39 of the Rules of Court. Rule 68 of the Rules of Court applies in cases of judicial foreclosure sale. On the other hand, Act No. 3135, as amended by Act No. 4118 otherwise known as "An Act to Regulate the Sale of Property under Special Powers Inserted in or Annexed to Real Estate Mortgages" applies in cases of extrajudicial foreclosure sale. A different set of law applies to each class of sale mentioned. The cited provision in the Rules of Court hence does not apply to an extrajudicial foreclosure sale. (Emphasis supplied) DBP also maintains that ERHCs act of requesting postponement of the 12 August 1986 auction sale estops ERHC from challenging the absence of publication of the notice of the rescheduled auction sale. We do not agree. ERHC indeed requested postponement of the auction sale scheduled on 12 August 1986.24 However, the records are bereft of any evidence that ERHC requested the postponement without need of republication of the notice of sale. In Philippine National Bank v. Nepomuceno Productions Inc.,25 the Court held that:
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x x x To request postponement of the sale is one thing; to request it without need of compliance with the statutory requirements is another. Respondents, therefore, did not commit any act that would have estopped them from questioning the validity of the foreclosure sale for non-compliance with Act No. 3135. xxx The form of the notice of extrajudicial sale is now prescribed in Circular No. 7-200226 issued by the Office of the Court Administrator on 22 January 2002. Section 4(a) of Circular No. 7-2002 provides that: Sec. 4. The Sheriff to whom the application for extra-judicial foreclosure of mortgage was raffled shall do the following: a. Prepare a Notice of Extra-judicial Sale using the following form: "NOTICE OF EXTRA-JUDICIAL SALE" "Upon extra-judicial petition for sale under Act 3135/1508 filed _________ against (name and address of Mortgagor/s) to satisfy the mortgage indebtedness which as of ___________ amounts to P __________ excluding penalties, charges, attorneys fees and expenses of foreclosure, the undersigned or his duly authorized deputy will sell at public auction on (date of sale) ________ at 10:00 A.M. or soon thereafter at the main entrance of the ________ (place of sale) to the highest bidder, for cash or managers check and in Philippine Currency, the following property with all its improvements, to wit: "(Description of Property") "All sealed bids must be submitted to the undersigned on the above stated time and date." "In the event the public auction should not take place on the said date, it shall be held on ___________,______ without further notice." __________ (date) "SHERIFF" (Emphasis supplied) The last paragraph of the prescribed notice of sale allows the holding of a rescheduled auction sale without reposting or republication of the notice. However, the rescheduled auction sale will only be valid if the rescheduled date of auction is clearly specified in the prior notice of sale. The absence of this information in the prior notice of sale will render the rescheduled auction

sale void for lack of reposting or republication. If the notice of auction sale contains this particular information, whether or not the parties agreed to such rescheduled date, there is no more need for the reposting or republication of the notice of the rescheduled auction sale. The Office of the Court Administrator issued Circular No. 7-2002 pursuant to the 14 December 1999 Resolution of this Court in A.M. No. 99-1005-0, as amended by the Resolutions of 30 January 2001 and 7 August 2001. The Court issued these Resolutions for two reasons. First, the Court seeks to minimize the expenses which the mortgagee incurs in publishing the notice of extrajudicial sale. With the added information in the notice of sale, the mortgagee need not cause the reposting and republication of the notice of the rescheduled auction sale. There is no violation of the notice requirements under Acts Nos. 3135 and 1508 precisely because the interested parties as well as the public are informed of the schedule of the next auction sale, if the first auction sale does not proceed. Therefore, the purpose of a notice of sale, which is to notify the mortgagor and the public of the foreclosure sale, is satisfied. Second, the Court hopes to deter the practice of some mortgagors in requesting postponement of the auction sale of real properties, then later attacking the validity of the foreclosure for lack of republication. This practice will only force mortgagees to deny outright requests for postponement by mortgagors since it will only mean added publication expense on the part of mortgagees. Such development will eventually work against mortgagors because mortgagees will hesitate to grant postponements to mortgagors. In the instant case, there is no information in the notice of auction sale of any date of a rescheduled auction sale. Even if such information were stated in the notice of sale, the reposting and republication of the notice of sale would still be necessary because Circular No. 72002 took effect only on 22 April 2002. There were no such guidelines in effect during the questioned foreclosure. Clearly, DBP failed to comply with the publication requirement under Act No. 3135. There was no publication of the notice of the rescheduled auction sale of the real properties. Therefore, the extrajudicial foreclosure of the real estate mortgage is void. DBP, however, complied with the mandatory posting of the notices of the auction sale of the personal properties. Under the Chattel Mortgage Law,27 the only requirement is posting of the
66

notice of auction sale. There was no postponement of the auction sale of the personal properties and the foreclosure took place as scheduled. Thus, the extrajudicial foreclosure of the chattel mortgage in the instant case suffers from no procedural infirmity. Second Issue: Perfection and implementation of the restructuring agreement between DBP and ERHC ERHC consistently argues that its restructuring agreement with DBP was perfected and even implemented by the parties. ERHC maintains that the delivery of its certificates of stocks to DBP was part of its compliance with the conditions of the restructuring agreement. We do not agree. Contrary to ERHCs allegations and the Court of Appeals findings, the restructuring agreement was never perfected. ERHC failed to comply with the material conditions for the perfection of the restructuring agreement. As specified in DBP Resolution No. 956 dated 19 March 198128 approving the restructuring agreement, the following are the conditions for the restructuring agreement: RESOLUTION NO. 956. Emerald Resort Hotel Corporation (Hotel Ibalon) Conversion Into Common and/or Preferred Shares of P2,786,000.00 Representing 40% of the Total Outstanding Obligations; a Third Additional Loan of P679,000.00 and Restructuring of the Account. xxx In view thereof and as favorably recommended by the Manager of the Industrial Projects Department III in her memorandum dated February 24, 1981, the Board, upon motion made and duly seconded, APPROVED in favor of Emerald Resort Hotel Corporation (Hotel Ibalon) the following: 1. Immediate conversion into common and/or preferred shares at borrowers option, of P2,786,000.00 representing 40% of the total outstanding obligation as of May 15, 1980, in the reduced amount of P6,965,000.00 composed of outstanding principal balance of P3,500,000.00 and total arrearages on interest and other charges of P3,465,000.00, the conversion price to be equal to the par value of the shares;

2. A third additional loan of Six Hundred Seventy-Nine Thousand Pesos (P679,000.00), payable quarterly under the same restructured terms of the original and two (2) additional loans, at 18% interest per annum; and 3. Restructuring of the firms total outstanding principal obligation of P3,500,000.00 in the form of extension of grace period on principal repayment from two (2) years to nine (9) years to make a maximum loan term of nineteen (19) years, regular amortizations to commence three (3) months after the end of the extended grace period on October 31, 1985 and payable quarterly at the following interest rates: Original Loan 1st Additional Loan Total P1,425,800 at 16% interest per annum 574,200 at 18% interest per annum 1,000,000 at 18% interest per annum 500,000 at 18% interest per annum P3,500,0 00

subject to the following terms and conditions: A. For the P679,000.00 Additional Loan a. That subject-firm shall first pay the amount of P473.00 to reduce its total arrearages on interest and other charges of P3,465,473.00 as of May 15, 1980 to P3,465,000.00; and b. That the proceeds of this additional loan shall be applied to subject-firms accrued interest and other charges due DBP as of May 15, 1980 not otherwise covered by the proposed equity conversion of P2,786,000.00. B. For Both Additional Loan and Restructuring a. That a quasi-reorganization shall first be undertaken for the purpose of eliminating existing deficits, which should be
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formally authorized by the stockholders of the corporation, should comply with legal requirements, and should be approved by the Securities and Exchange Commission which sees to it that the rights of creditors are not prejudiced. xxx e. That subject-firm shall apply with SEC for an amendment of its authorized capitalization to include preferred shares in case immediate conversion into equity of 40% of the total outstanding obligation as of May 15, 1980 will include preferred shares. xxx (Emphasis supplied) A careful review of the facts and the evidence presented by the parties discloses that ERHC failed to comply with the terms and conditions set forth in DBP Resolution No. 956. First, ERHC failed to comply with the important condition of converting into equity 40 percent of its outstanding debt to DBP. ERHC did not present any evidence to show that it complied with this particular requirement. While it is true that ERHC delivered to DBP certificates of stocks, it was to comply with ERHCs commitment under the original mortgage contracts.29 ERHC committed to pledge or assign to DBP at least 67 percent of its outstanding shares to secure the original loan accommodation. The original mortgage contracts contain the following condition: xxx c. By an assignment to the Mortgagee of not less than 67% of the total subscribed and outstanding voting shares of the company. The said percentages of shares assigned shall be maintained at all times and the said assignment to subsist for as long as the Assignee may deem necessary during the existence of the Mortgagees approved accommodation. xxx30 On 17 April 1985, DBP informed ERHC that it had not complied with the condition in the original mortgage contract on the assignment of 67 percent of its outstanding shares to DBP. The letter of DBP states in part: 2. The condition requiring ERHC to assign in favor of DBP at least 67% of the subscribed and outstanding voting shares of company has not been met.

Of the 4,917,500 outstanding voting shares as of December 31, 1982, only 911,800 shares have been assigned instead of 3,294,725 (67% of 4,917,000), more of the outstanding voting shares have increased. 31 The deficiency of 2,382,925 shares (3,294,725 - 911,800) may however be covered by the 2,786,000 shares you transferred in the name of DBP as an alternative compliance with 65% requirement. (Emphasis supplied) In its reply letter dated 11 June 1985 to DBP, ERHC signified its readiness to assign 67 percent of its outstanding shares to DBP. Thus, ERHCs reply letter, signed by its President Atty. Jose C. Reyes, states in part: With reference to your letter dated 17 April 1985 which could not be seasonably acted upon on account of my absence from the country for medical reasons, I am pleased to inform your goodself of the action taken on the various items thereon enumerated, to wit: 1. x x x 2. Assignment of 67% of outstanding voting shares. We are ready to bring up the assigned shares in favor of DBP to 67% of the corporations outstanding voting shares of 4,917,500 as of December 31, 1982 or total of 3,294,725 shares. The corporation will maintain its previous assignment of 911,800 shares. Moreover, the corporation is agreeable that Stock Certificate No. 030 for 1,862,148 shares which had been transferred to DBP be considered as an alternative compliance to the raising of DBPs assigned shares to the full 67% or 3,294,725 shares. Your formal conformity to this arrangement is likewise requested. Finally, the corporation will further assign to DBP another 520,777 shares in exchange of Stock Certificate No. 032 for 923,852 shares which was transferred to DBP conditionally. This Stock Certificate has to be surrendered to the corporation for cancellation before we can issue by way of further assignment the 520,777 shares. In short, the 3 blocks of shares mentioned above would result as follows: 1. 2. 911,800 shares 1,862,148 shares
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3. Total

520,777 shares 3,294,725 shares of 67% outstanding voting shares

32

x x x.

Clearly, when ERHC delivered the certificates of stocks, it was to comply with ERHCs commitment under the original mortgage contracts, not the restructuring agreement. Besides, there is a vast difference between an assignment of shares to DBP by existing stockholders and conversion of DBPs loan into equity of ERHC. In the first, the paid-up capital of ERHC remains the same. In the latter, the paid-up capital of ERHC, as well as its liabilities, changes in that the liabilities are transferred to the capital account to the extent of the conversion. The latter case, which is the conversion of debt into equity required under the restructuring agreement, never happened. The delivery to DBP of stock certificates representing 3,294,725 ERHC shares did not reduce the liabilities of ERHC. The reason for the requirement to convert P2,786,000.00 in liabilities of ERHC into equity was to reduce ERHCs debt to equity ratio, which the assignment and delivery of the stock certificates did not and could not have achieved. Second, ERHC did not avail of the P679,000.00 additional loan, despite this being a material condition of the restructuring agreement. ERHC could not simply refuse to avail of the additional loan because the proceeds of this loan were to pay the balance of ERHCs accrued interest and other charges due DBP as of 15 May 1980. Clearly, ERHCs refusal to avail of the additional loan, intended to up-date ERHCs loan account, prevented the perfection of the restructuring agreement. Lastly, ERHC failed to comply with the quasireorganization requirement, as clearly admitted in ERHCs letter dated 3 November 1982 to DBP, thus: 3. On July 31, 1981, we once more communicated with your Naga Branch advising of the Emerald Resort Hotel Corporations Stockholders Resolution approving the quasi-reorganization and the Petition filed with the Securities and Exchange Commission requesting approval of the corporations resolution on quasi-reorganization and the transfer of 1,862,148 shares in favor of the DBP, copy whereof is attached as Annex "C";

4. On September 7, 1981, we received by personal delivery a letter from Manager Mario C. Leao, copy whereof is attached as Annex "D". In our conversation had on this occasion, I reiterated our request in our letter dated 19 June 1981 that in view of the circumstances affecting our papers in the Securities and Exchange Commission there was need to extend our period of compliance. xxx It will thus be noted from the foregoing communications that we have exerted our utmost best to comply with the conditions for the restructuring of our loan accounts and all have been complied, with the exception of the quasireorganization, for reasons beyond our legal control since it is the SEC that passes upon the question as to whether or not we meet the SEC guidelines for a quasireorganization. Unfortunately, for the reasons stated in Annex "H" and the enclosures thereto, the SEC felt that ERHC was not within their guidelines for a quasireorganization.33 (Emphasis supplied) The quasi-reorganization is required specifically to eliminate ERHCs existing deficits. However, the SEC must first approve the quasireorganization which approval ERHC admittedly failed to secure. Through no fault of DBP, SEC disapproved ERHCs application for quasireorganization. Considering that ERHC failed to comply with the material conditions of the restructuring agreement, the agreement was never implemented or even perfected. The perfection and implementation of the restructuring agreement were expressly subject to the following conditions embodied in DBP Resolution No. 956 and in DBPs notice of approval to ERHC, respectively: t. x x x Implementation of the restructuring scheme as approved shall take effect upon compliance with the terms and conditions and with all the legal and documentation requirements;34 xxx xxx xxx 7. All documents for this loan approval shall be executed and perfected within 90 days from the date of this notice; otherwise, this accommodation shall be automatically cancelled.35 The trial and appellate courts gravely misapprehended the facts and made manifestly
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mistaken inferences in finding that the parties had perfected the restructuring agreement. Consequently, when DBP filed the application for extrajudicial foreclosure of the chattel and real estate mortgages, ERHC was already in default in paying its debt to DBP. Third Issue: ERHCs offer to lease the foreclosed properties ERHC offered to lease from DBP the foreclosed properties after the auction sale. DBP argues that when ERHC offered to lease from DBP the foreclosed properties, ERHC waived its right to question the validity of the foreclosure. We do not agree. To constitute a waiver, the intent to waive must be shown clearly and convincingly.36 A mere offer to lease the foreclosed properties cannot constitute a waiver of ERHCs right to contest the validity of the foreclosure on the ground of noncompliance with the statutory requisites. ERHCs offer to lease does not relinquish ERHCs right to challenge the validity of the foreclosure. The offer to lease the foreclosed properties cannot validate or ratify a void foreclosure. ERHCs intention to lease the foreclosed properties cannot simply outweigh DBPs failure to comply with the statutory requisite for a valid extrajudicial foreclosure. As the Court of Appeals correctly ruled, "there can be no waiver of the posting and publication requirements in foreclosure proceedings because the same is contrary to law and public order." Fourth Issue: Award of moral damages DBP maintains that ERHC, a juridical person, is not entitled to moral damages. ERHC counters that its reputation was debased when the sheriffs and several armed men intruded into Hotel Ibalons premises and inventoried the furniture and fixtures in the hotel. The Court of Appeals erred in awarding moral damages to ERHC. The Court of Appeals sole basis for its ruling is a quoted portion of the testimony of ERHCs President, Atty. Jose Reyes. The testimony was not even offered to prove the justification and amount of damages which ERHC claims against DBP. In other words, ERHC failed to present evidence to warrant the award of moral damages. In a long line of decisions, this Court has held that the claimant for moral damages must present concrete proof to justify its award, thus: xxx while no proof of pecuniary loss is necessary in order that moral damages may be awarded, the amount of indemnity

being left to the discretion of the court (Art. 2216), it is, nevertheless, essential that the claimant satisfactorily prove the existence of the factual basis of the damage (Art. 2217) and its causal relation to defendants acts. This is so because moral damages, though incapable of pecuniary estimation, are in the category of an award designed to compensate the claimant for actual injury suffered and not to impose a penalty on the wrongdoer.37 (Emphasis supplied) In the body of its decision, the trial court gave no basis to justify the award of moral damages. The trial court simply awarded moral damages in the dispositive portion of its decision.38 Moreover, as a general rule, moral damages are not awarded to a corporation, thus: The award of moral damages cannot be granted in favor of a corporation because, being an artificial person and having existence only in legal contemplation, it has no feelings, no emotions, no senses. It cannot, therefore, experience physical suffering and mental anguish, which can be experienced only be one having a nervous system. The statement in People v. Manero and Mambulao Lumber Co. v. PNB that a corporation may recover moral damages if it "has a good reputation that is debased, resulting in social humiliation" is an obiter dictum. On this score alone the award for damages must be set aside, since RBS is a corporation.39 WHEREFORE, the Joint Decision of the Court of Appeals in CA-G.R. CV Nos. 38569 and 38604 is AFFIRMED with MODIFICATION. The extrajudicial foreclosure of the chattel mortgage is valid whereas the extrajudicial foreclosure of the real estate mortgage is void. The award of moral damages is deleted for lack of basis. No costs. SO ORDERED.

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G.R. No. L-8988

March 30, 1916

HARTFORD BEAUMONT, assignee of W. Borck, plaintiff-appellee, vs. MAURO PRIETO, BENITO LEGARDA, JR., and BENITO VALDES as administrator of the estate of Benito Legarda, deceased, and BENITO VALDES, defendants and appellants. (See U.S. Supreme Court decision in this same case., p. 985, post.) Hausserman, Cohn & Fisher (and subsequently) Gilbert, Cohn & Fisher, and Escaler & Salas and Ledesma, Lim & Irurreta Goyena for appellants Legarda and Valdes. No appearance for the other appellants. Beaumont & Tenney and Aitken & DeSelms for appellee. ARAULLO, J.: Negotiations having been had, prior to December 4, 1911, between W. Borck and Benito Valdes, relative to the purchase, at first, of a part of the Nagtajan Hacienda, situated in the district of Sampaloc of this city of Manila and belonging to Benito Legarda, and later on, of the entire hacienda, said Benito Valdes, on the date abovementioned, addressed to said Borck the following letter (Exhibit E): MANILA, December 4, 1911. Mr. W. BORCK, Real Estate Agent, Manila, P.I. SIR: In compliance with your request I herewith give you an option for three months to buy the property of Mr. Benito Legarda known as the Nagtahan Hacienda, situated in the district of Sampaloc, Manila, and consisting of about, 1,993,000 sq. meters of land, for the price of its assessed government valuation. B. VALDES. Subsequent to the said date, W. Borck addressed to Benito Valdes several letters relative to the purchase and sale of the hacienda, and as he did not obtain what he expected or believe he was entitled to obtain from Valdes, he filed the complaint that originated these proceedings, which was amended on the 10th of the following month, April, by bringing his action not only against Benito Valdes but also against Benito Legarda, referred to in the letter above quoted. In said amended complaint it is alleged that the defendant Benito Legarda was the owners of fee simple of the Nagtajan Hacienda, and that Benito

Valdes was his attorney in fact and had acted as such on the occasions reffered to in the complaint by virtue of a power of attorney duly executed under notarial seal and presented in the office of the register of deeds, a copy of which, marked as Exhibit A, was attached to the complaint; that on or above December 4, 1911, the defendant Benito Valdez gave to the plaintiff the document written and signed by him, Valdes, quoted at the beginning of this decision, to wit, the letter aforementioned, which document is inserted in the amendment to the complaint; that on January 19, 1912, while the offer or option mentioned in said document still stood, the plaintiff in writing accepted the terms of said offer and requested of Valdes to be allowed to inspect the property, titles and other documents pertaining to the property, and offered to pay to the defendant, immediately and in cash as soon as a reasonable examination could be made of said property titles and other documents, the price stipulated in the contract for said hacienda which is also described in the complaint, as well as its value and the revenue annually obtainable therefrom; that, in spite of the frequent demands made by the plaintiff, the defendants ha persistently refused to deliver to him the property titles and other documents relative to said property and to execute any instrument of conveyance thereof in his favor; that the plaintiff, on account of said refusal on the part of the defendant Valdes, based on instructions from the defendant Legarda, had suffered damages in the amount of P760,000, and, by the tardiness, failure and refusal of the defend to comply with his obligation, the plaintiff had incurred great expense and suffered great losses, whereby he was prejudiced in the mount of P80,000; that the plaintiff was and had been, on all occasions, willing to comply with the obligation imposed upon him to pay to the defendants the full stipulated price. The plaintiff concluded by praying: (1) That the defendant Valdes be ordered to execute the necessary formal document as proof of the contract or obligation before referred to, and to incorporate the same in a public instrument, and that the defendant Legarda be ordered to convey in absolute sale to the plaintiff, either directly or through the defendant Valdes, by a property deed, the said Nagtajan Hacienda, described in the complaint; (2) that both defendants and each of them be ordered and required to render an account to the plaintiff of such rents and profits as they may have collected from the said property from the 19th of January, 1912, until the date of the execution of the judgment that may be rendered in these proceedings, together with legal interest on the amounts thereof; (3) that, in case it can shown that specific performance of the contract
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is impossible, that the defendant be ordered to pay the plaintiff damages in the sum of P760,000; and finally, that the plaintiff have recovered the interests and the costs in these proceedings. While this complaint was not yet amended, the defendant Valdes filed a demurer, on the grounds that there was a misjoinder of parties on account of the erroneous inclusion therein of the defendant Valdes, that the complaint did not set forth fact that constituted a cause of action against said defendant, and that it was ambiguous, unintelligible and vague. This demurrer was overruled on April 11, 1912. The defendant Benito Legarda also interposed a demurrer to the amended complaint on the grounds that the facts therein set forth did not constitute a right of action against him. This demurrer was likewise overruled on June 26, 1912. On the 22nd of the same month of June, the court, ruling on a petition made in voluntary insolvency proceedings brought on May 10, 1912, by the plaintiff W. Borck, and in view of the agreement entered into in said proceedings by all of the latter's creditors, ordered that the plaintiff Borck be substituted in the instant proceedings by Hartford Beaumont, as the trustee appointed therein and representative of the said plaintiff's creditors, the assignee of his rights, in said proceedings. The defendant Benito Valdes, answering the complaint as amended, denied each and all of the allegations thereof from paragraph 4, except those which the admitted in the special defense, in which he alleged: (1) That the option given by him to the plaintiff was an option without consideration and subject to the approval of the defendant Legarda; (2) that, as the defendant Legarda has not approved said option, it had no value whatever, according to the understanding and agreement between himself and the plaintiff; (3) that the option offered by him to the plaintiff had not been accepted by the latter within a reasonable period of time nor during the time it was in force, in accordance with the conditions agreed upon between the parties; (4) that he sighed the letter of December 4, in which he tendered to the plaintiff the option which has given rise to this suit, through deceit employed by the plaintiff with respect to its contents, for the plaintiff had stated to him that it was written in accordance with what had been agreed upon by both parties, without which statement he would not have signed it; (5) that the plaintiff, on the prior to January 19, 1912, was insolvent, and had neither proven his solvency nor offered to pay the price in cash, as he had agreed to do; and (6) that he, Valdes, was merely a general

attorney in fact of the defendant Benito Legarda and had no interest whatever in the subjectmatter of the suit, nor in the litigation, and in all his acts had carried out the instructions of the said Legarda. He finally prayed that the complaint be dismissed with costs against the plaintiff. The defendant Benito Legarda, answering the complaint, denied each and all of the allegations thereof, from paragraph 3, except such as he expressly admitted and were contained in the special defense inserted in said answer, in which he alleged: (1) That his codefendant Benito Valdes, though his attorney-in-fact, had instructions not to give any option on the hacienda in question without Legarda's previous knowledge and consent; (2) that on and before December 4, 1911, the plaintiff had knowledge of the scope and limitations of the powers conferred upon the defendant Valdes; (3) that the latter gave the option, alleged by the plaintiff, without his (Legarda's) knowledge or consent, thus violating the instructions he had given to the said Valdes; (4) that he had disapproved and rejected the option in question as soon as he had learned of it; (5) that he had been informed, and therefore alleged as true, that the option said to have been executed in behalf of the plaintiff had been obtained by the latter by a false and malicious interruption of the letter of December 4, 1911, and that the plaintiff, availing himself of such interpretation, induced the defendant Valdes to sign the said option; (6) that the option said to have been tendered to the plaintiff had not been legally accepted; and (7) that on the subsequently to January 19, 1912, the date on which, according to the plaintiff, a tender of payment of the price of the Nagtajan Hacienda, in accordance with its assessed value, was made to his codefendant Valdes, as well as to the date of the answer, the plaintiff was insolvent. After the hearing, in which the respective parties presented their evidence, the Court of First Instance of this city of Manila, on February 12, 1912, rendered judgment in which he found; (1) That the instrument Exhibit E that is, the letter of December 4, 1911, quoted at the beginning of this decision), as supported by Exhibit A (the power of attorney, a copy of which accompanied the complaint) and as confirmed by Exhibit G (the letter of January 19, 1912, addressed by the plaintiff Borck to the defendant Valdes, presented in evidence at the trial and of which mention will be made elsewhere herein), constituted a contract by which the principal defendant undertook to convey to the plaintiff the property therein described; (2) that the plaintiff made a sufficient tender of performance, of his part, of the contract, in accordance with section 347 of the Code of Civil Procedure; (3) that the
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defendants had failed to execute such conveyance in accordance with said contract, and that the plaintiff was entitled to the specific performance thereof, and to the net income, if any, obtained from the land since January 19, 1912, but that he had not shown sufficient loss which entitle him to additional damage unless it subsequently should appear that a conveyance could not be made. The court accordingly decreed: (1) That upon the payment by the plaintiff to the principal defendant, Benito Legarda, or to the clerk of the court, of the sum of P307,000, the said defendant, or his codefendant and attorney-in-fact, should execute and deliver to the plaintiff good and sufficient conveyance, free of all incumbrance, of the property described in Exhibits B and C, attached to the plaintiffs complaint, so far as the same was included within the terms of Exhibit G; (2) that upon the said defendants' failure to execute such conveyance within a reasonable time after such payment, the clear of the court should execute one, and the same together with the decree, should constitute a true conveyance; (3) that if for any sufficient reason such conveyance could not then be made, the plaintiff should have and recover from the defendant Legarda, as alternative damages, the sum of P73,000, with interest thereon at 6 per cent per annum from March 13, 1912; and (4) that the defendants should render an accounting, within thirty days, of the income and profits derived from said property since January 19, 1912, and pay the costs of the proceedings. The parties having being notified of this judgment, the defendant Benito Legarda and Benito Valdes excepted thereto and at the same time prayed that it be se aside and that they be granted a new trial on the grounds that the judgment was not sufficiently supported by the evidence and was contrary to law, and that the findings of fact therein contained were manifestly and openly contrary to the weight of the evidence. Their prayer having been denied by a ruling to which they also excepted, they have brought these proceedings on appeal to the Supreme Court by the proper bill of exceptions, and have specified in their respective briefs several errors which they allege the lower court committed. Some of these errors consist in that the trial judge overruled the demurrer filed to the complaint; others, in that he admitted certain evidence and excluded others, this being the alleged cause of the erroneous consideration of the instrument Exhibit E and of the rights and obligations derived from it, both with respect to the plaintiff and the two defendants' and still others refer to the various statements in the judgment resulting from those findings and on

which the conclusions arrived at, have been founded. The defendant Benito Legarda also alleged, among the said errors, as especially affecting his rights, that the court held that Benito Valdes was his agent, empowered to execute contracts in his (Legarda's) name in respect to real property; that the court admitted in evidence the document Exhibit A, introduced by the plaintiff, to wit, the copy of the power of attorney attached to the complaint, which never was offered as such; and that he based one of his findings thereon. The defendant Benito Valdes specified, also particularly with reference to himself, other errors consisting in the court having held that he voluntarily executed the option in question, instead of holding that it was obtained through fraud; and likewise in holding that the document Exhibit E was a contract of option and not an offer to sell, and in not holding that said option was an offer subject to the approval of the defendant Legarda. Inasmuch as it does not appear from the bill of exceptions that the defendants recorded the exceptions to the overruling of the demurrer respectively filed to the complaint by both defendants, the assignment of error relative to the said ruling cannot be taken into consideration by this Supreme Court. The plaintiff's action is based on the failure of the defendant Valdes, as the agent or attorney in fact of the other defendant Benito Legarda, to perform the obligation contracted by the Benito Valdes to sell to the plaintiff the property belonging to the said Legarda, mentioned in the letter of December 4, 1911 (Exhibit E), within the period and for the price specified therein; and the object or purpose of these proceedings is to require fulfillment of the said obligation and to secure the payment of a proper indemnity for damages to the plaintiff because of its not having been duly and timely complied with. Inasmuch as it was set forth in the document Exhibit E that the property known as the Nagtajan Hacienda, (an option to buy which was given by the defendant Valdes to the plaintiff Borck) belonged to Benito Legarda; as negotiations had been undertaken prior to the execution of the said document, between the plaintiff Borck and the defendant Valdes with respect to the maters set forth in that document, by virtue of which Borck knew that Valdes was Legarda's agent or attorney-in-fact, although it appears in said instrument that the agent Valdes acted in his own name; and, further, as the plaintiff in the complaint made the necessary allegations to explain the relations that existed between the principal Legarda and the agent Valdez with
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regard to the said document Exhibit E and the failure alleged by the plaintiff, to fulfill the stipulations therein contained; therefore, the facts alleged in the complaint did constitute a right of action against either or both defendants, and the lower court did not err in so holding, for, though the person who contracts with an agent has no action against the principal, pursuant to article 1717 of the Civil Code, when the agent acts in his own name, as in such a case the agent would be directly liable to the person with whom he contracted as if it were a personal matter of the agent's yet this does not occur when the acts performed by the agent involved the principal's own things, and in the document Exhibit E, which was inserted in the complaint when the latter was amended, it appears that the defendant Valdes, who signed the said document, stated that the property, the option to buy which he gave to the plaintiff, Borck, belonged to Legarda. And as it is unquestionable that, pursuant to the above-cited provision of law, the action was properly brought against Benito Legarda as Valdes' principal, it is also unquestionable that Valdes was properly included in the complaint as one of the defendant, for said article 1717, in providing that in cases like the one here in question the person who contracted with the agent has an action against the principal, does not say that such person does not have, and cannot bring an action against the agent also, and the silence of the statute on this point should not be construed in that sense, when the rights and obligations, the matter brought into discussion by means of the action prosecuted, cannot be legally and juridically determined without hearing both the principal and the agent. Section 114 of the Code of Civil Procedure in force, treating of the parties who should be included in an action as defendants, includes any person who has or claims an interest in the controversy or the subject-mater thereof adverse to the plaintiff, or who is a necessary party to a complete determination or settlement of the questions involved therein; and there can be no doubt whatever, and the record itself shows, that the agent Benito Valdes was and in a necessary party in these proceedings for the complete and proper determination of the matter involved. As one of the allegations of the complaint was that the defendant Benito Valdes was the attorney in fact of Benito Legarda, the owner of the Nagtajan Hacienda, the option to buy which was granted by the said defendant Valdes to the plaintiff Borck, in the letter of December 4, 1911, Exhibit E, there was attached to the complaint a copy of the power of attorney marked Exhibit A, by virtue of which, as therein also set forth, the defendant Benito Valdes, the attorney-in-fact of

Benito Legarda, in giving to the plaintiff the option to buy the said hacienda, had acted according to the aforesaid document Exhibit F, which was likewise inserted in the amended complaint as a part thereof. Inasmuch as the relation which, according to the plaintiff, existed between Benito Legarda and Benito Valdes as to the obligation contracted by means of Exhibit E, and the fulfillment thereof was established by means of the said allegations, supported, as it appeared, by the power of attorney Exhibit A, and by the letter or document Exhibit E (which were made by the plaintiff a part of the complaint), the joining of the copy of the power of attorney to the complaint cannot be considered to have been done merely for the purpose of attesting the personality of either of the defendants, but to show the legal status of each of them in the obligation referred to, in view of the terms of the document Exhibit E, the authority under which the defendant Valdes acted in executing this document, as well as the fact of hi having been granted such authority by the defendant Legarda, by means of said power of attorney. So that as said two documents, to wit, Exhibit A or the power of attorney executed by Legarda in favor of Valdes, authorizing him to perform various acts, among them, that of selling, exchanging, ceding, admitting in payment or by way of compensation or in any other manner acquiring or conveying all kinds of real property for such prices and on such conditions he might deem proper, and the document Exhibit E, or the letter setting forth the option given to the plaintiff Valdes to buy the said Nagtajan Hacienda belonging to Legarda, cannot be considered separately, in view of the allegations of the complaint and the action brought thereon against the two defendants; and as said two documents, each of complement of the other, constituted the basis of the action brought in the complaint, and as their genuineness and due execution were not denied under oath by either of the two defendants, as they might have done, pursuant to section 103 of the Code of Civil Procedure, the plaintiff was not obliged to present at the trial, as proof, the aforementioned power of attorney to prove its existence and the fact of Valdes being his attorney in fact, vested with the powers specified in this instrument, notwithstanding the general denial made by the defendant Legarda in his answer of the allegations contained in the complaint from its third paragraph on, in which paragraph that averment is made, supported by the copy of the said power of attorney attached to the complaint. On the contrary, as the said document Exhibit A constitutes prima facie proof of the fact that Benito Valdes is the attorney-in-fact of Benito
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Legarda, and that he is vested with the powers specified therein, on account of Legarda's not having denied under oath the genuiness and due execution of the said document, it was therefore incumbent upon Legarda himself to prove that he had not executed the said power of attorney in Valdes' favor and that he had not conferred upon him, by virtue thereof, the powers therein mentioned. (Merchant vs. International Banking Corporation, 6 Phil., 314; Papa vs. Martinez, 12 Phil., 613; Chinese Chamber of Commerce vs. Pua Te Ching, 14 Phil., 222; Banco Espanol-Filipino vs. McKay & Zoeller, 27 Phil., 183; Knight vs. Whitmore, 125 Cal., 198; McCormick Harvesting Machine Co., vs. Doucette, 61 Minn., 40.) The lower court, therefore, did not err in holding that Benito Valdes was the agent of Benito Legarda, vested with powers to execute contracts for the sale of real estate in the latter's name; nor in considering as proof the power of attorney, the plaintiff's Exhibit A, and making it the basis of one of the conclusions of the judgment, notwithstand that it was not offered as such proof by the plaintiff. Consequently, the court likewise did not err in admitting the evidence introduced by the plaintiff himself to show the existence of the contractual obligation on the part of the defendant Legarda, as principal of the other defendant, Valdes, and which was contended by the plaintiff to be one of the grounds of the action brought in this complaint against the two defendants. It is unquestionable that, by means of the document Exhibit E, to wit, the letter of December 4, 1911, quoted at the beginning of this decision, the defendant Valdes granted to the plaintiff Borck the right to purchase the Nagtajan Hacienda belonging to Benito Legarda, during the period of three months and for its assessed valuation, a grant which necessarily implied the offer or obligation on the part of the defendant Valdes to sell to Borck the said hacienda during the period and for the price mentioned, and as the grant made by Valdes to Borck in the said letter was made as a result of the requests of Borck himself, as stated in the letter, and of the negotiations previously entered into between the latter and Valdes with respect to the purchase of the hacienda, as shown in the letter of the 2d of the same month of December, that is, the letter which two days before was addressed by Borck to Valdes, Exhibit C, the terms of the said document Exhibit E appear to be of the nature of an option contract between Valdes and Borck, inasmuch as, by means of said document, the former finally accepted the propositions of the latter with respect to the granting of that right to Borck. There was, therefore a meeting of minds on the part of the one and the other, with regard to the

stipulations made in the said document. But it is not shown that there was any cause or consideration for that agreement, and this omission is a bar which precludes our holding that the stipulations contained in Exhibit E is a contract of option, for, pursuant to article 121 of the Civil Code, there can be no contract without the requisite, among others, of the cause for the obligation to be established. In his Law Dictionary, edition of 1897, Bouvier defines an option as a contract, in the following language: A contract by virtue of which A, in consideration of the payment of a certain sum to B, acquires the privilege of buying from, or selling to, B certain securities or properties within a limited time at a specified price. (Story vs. Salamon, 71 N.Y., 420.) From vol. 6, page 5001, of the work "Words and Phrases," citing the case of Ide vs. Leiser (24 Pac., 695; 10 Mont., 5; 24 Am. St. Rep., 17) the following quotation has been taken: An agreement in writing to give a person the `option' to purchase lands within a given time at a named price is neither a sale nor an agreement to sell. It is simply a contract by which the owner of property agrees with another person that he shall have the right to buy his property at a fixed price within a certain time. He does not sell his land; he does not then agree to sell it; but he does sell something; that is, the right or privilege to buy at the election or option of the other party. The second party gets in praesenti, not lands, nor an agreement that he shall have lands, but he does get something of value; that is, the right to call for the receive lands if he elects. The owner parts with his right to sell his lands, except to the second party, for a limited period. The second party receives this right, or, rather, from his point of view, he receives the right to elect to buy. But the two definitions above cited refer to the contract of option, or, what amounts to the same thing, to the case where there was cause or consideration for the obligation, the subject of the agreement made by the parties; while in the case at bar there was no such cause or consideration. The lower court in the judgment appealed from said: There is some discussion in the briefs as to whether this instrument constitutes a mere offer to sell or an actual contract of option. In terms it purports to be the latter
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and in fact recites the acceptance of a "request" or offer, by the plaintiff. But viewing the instrument as in itself no more than an offer, it was at least a continuing one, "for three months," and as it is not claimed to have been withdrawn during that period, nor afterward, the plaintiff could at any time enter into an actual contract, if it were not such already, by mere acceptance. So the, the lower court did not insist that, by the said document Exhibit E, a real contract of option was executed. He stated that it was at least a continuing offer for three months an offer which it was neither alleged nor proven to have been withdrawn during that period and held that but the plaintiff's mere acceptance at any time during the course of said period, the terms of the said document became a contract, if such it were not already. There is therefor no foundation for the third assignment of error made by the defendant Valdes, to wit, that the lower court erred in holding that the document Exhibit E was a contract of option and not an offer to sell. A certainly this document Exhibit E contains an offer or promise on the part of the defendant Valdes, who signed it, to sell the hacienda in question to the plaintiff Borck, at its assessed valuation, to whom was granted three months within which to make use of his right to purchase the property. In order that such an offer, or proposal, or promise on the part of Valdes, to sell the said hacienda might be converted into a binding contract for him and for Borck, it was necessary that the latter should have accepted the offer, by making use of the right thereby granted him, within the period stipulated, and paying the price agreed upon in that document. Referring particularly to the sale of real estate, there is in fact practically no difference between a contract of option to purchase land and an offer or promise to sell it. In both cases the purchaser has the right to decide whether he will buy the land, and that right becomes a contract when it is exercised, or, what amounts to the same thing, when use is made of the option, or when the offer or promise to sell the property is accepted in conformity with the terms and conditions specified in such option, offer, or promise. An option for the purchase of a real estate is merely a right of election to purchase which when exercised, by comes a contract. (Hopwood vs. McCausland, 120 Iowa, 218.) So that in the case at bar it is immaterial whether the contents of the document be considered as

an option granted by the defendant Valdes to the plaintiff to purchase the Nagtajan Hacienda, or as an offer or promise on the part of the former to sell the estate to the latter within the period and for the price specified in Exhibit E. In the defendants' answer no concrete allegation was made that either of them had withdrawn said offer to sell, but the defendant Valdes introduced evidence to prove that the withdrawal of the offer was made before the plaintiff had accepted it, that is, before January 17, 1912, and for this purpose presented a letter from the defendant Legarda (p. 103, part 1 of the record), dated November 13, 1911, and addressed from Paris to Mauro Prieto, also one of Legarda's attorneys in fact. In this letter Legarda stated to Prieto, among other things, that, with reference to the steps taken by Borck for the purchase of the Nagtajan Hacienda, the addressee might say to Borck that the writer was not very anxious to sell the property except for a price greater than P400,000 in cash. The defendant Valdes testified that the contents of this letter were communicated by him to Borck, though he did not state positively on what date. Valdes also presented the witnesses Alejandro Roces and Jose E. Alemany. The first testified that sometime during the second half of January, on an occasion when he was in Dr. Valdes' office, he heard the latter and Borck speaking, and that Borck said something to Dr. Valdes about P300,000, and that it would be difficult to find a purchaser for cash; and that he also heard them talk about P400,000. The second witness, Dr. Jose E. Alemany, also testified that about the 12th or 15th of January, at a time when he was in Dr. Valdes' office, he heard a conversation between Valdes and Borck in which the former said to the latter that what Borck wanted was impossible, and that the latter replied to Valdes that it was very dear, that he did not want it, that he did not have the money. On this occasion, this witness also heard them talking about P400,000. As the record does not show positively that the defendant Valdes, on the occasion above referred to, told the plaintiff Borck that he (Valdes) withdrew the offer of sale contained in the document Exhibit E, for here merely communicated to Borck the contents of the said letter from Legarda to Prieto, as the date when he did this does not appear; and as the statements made by the witnesses with regard to the conversation they heard between Valdes and Borck are vague and as it cannot be deduced therefrom that such statements referred expressly to the fact that Valdes withdrew the offer on that occasion, it must be concluded that there is no proof on this point. But, though it had been proven that the withdrawal of the offer was
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made in the month of December, 1911, or before January 17, 1912, as stated by Valdes' counsel in his brief, such a fact could not be a bar to, or annul the acceptance by the plaintiff Borck, of said offer on any date prior to the expiration of the three months fixed in the document Exhibit E, to wit, March 4, 1912, because the offer or promise to sell therein contained was not made without period or limitation whatever (in which case Valdes might have withdrawn it and the latter have accepted it at nay time until it was withdrawn) but for three months, that is, for a specific period of time; and, as the plaintiff Borck had a right to accept the offer during that period, it was Valdes' corresponding duty not to withdraw the offer during the same period. Therefore the withdrawal of the offer claimed to have been made by this defendant was null and void. Consequently, the lower court did not err in holding that the offer and not been withdrawn during the three months mentioned and that it could be converted into a real contract by the plaintiff Borck's mere acceptance within the same period. One of the allegations made by the plaintiff in the complaint, as we have seen, is that on January 19, 1912, while the said offer was still open, the plaintiff accepted it in writing, in conformity with its terms, and requested permission of the defendant Valdes to inspect the property titles and other documents pertaining to the estate, and offered to pay the defendant Valdes as soon as a reasonable examination could be made of the said property titles and other documents, immediately and in cash the price stipulated and agreed upon in the contract for the said stipulated and agreed upon in the contract for the said hacienda. To prove this allegation, the plaintiff presented the document Exhibit G, which reads as follows: MANILA, January 19, 1912. DR. BENITO VALDES, 195 San Sebastian, City. SIR: I hereby advise you that I am ready to purchase the Hacienda Nagtahan, situated in the district of Sampaloc and Nagtahan, Manila, and in the Province of Rizal, consisting of about 1,993,000, square meters of land, property of Mr. Benito Legarda, for the sum of three hundred and seven thousand (307,000) pesos Ph. c. the price quoted in the option given my by you. Full payment will be made on or before the third day of March 1912, provided all

documents in connection with the Hacienda Nagtahan, as Torrens title deed, contracts of leases and other matters be immediately placed at my disposal for inspection and if such papers have been found in good order. Very truly yours, W. BORCK. In the preceding letter that plaintiff in fact did state that he accepted the offer made to him or the option given to him by the defendant Valdes in the document or letter of December 4, 1911, Exhibit E, for, even though it was not stated therein what option it was that was mentioned in the said letter it is unquestionable that it could refer to no other than to the option or offer mentioned in the said Exhibit E, as no other was then pending between the plaintiff and this defendant. But aside from the fact that the complete payment of the P307,000 mentioned in the said letter was made to depend on the condition that all the documents relative to the Nagtahan Hacienda, such as the Torrens title, etc., be immediately placed at the plaintiff's disposal for his inspection, and be found satisfactory, the said tender of payment was offered to be made on or before March 3, 1912. A simple statement of the last part of the letter is enough to convince that the plaintiff did not offer to pay, immediately and in cash to the defendant Valdes as he alleged in his complaint, the price stipulated and agreed upon between themselves in the said document Exhibit E. Of court, it is undeniable that the plaintiff Borck had a right to examine the title deed and all the documents relative to the Nagtajan Hacienda, before the sale of the property should be consummated by means of the execution of the proper deed of conveyance in his favor by the defendant Valdes as the attorney-in-fact of the other defendant Legarda, and, consequently, the plaintiff Borck was also entitled to refrain from making payment as long as he should not find the documents relative to the said property complete and satisfactory, an indispensable condition in order that the said deed of conveyance might be executed in his favor. But at the very moment this instrument was executed and signed by the vendor, the payment of the stipulated price should have been made in order that it might be an immediate cash payment. Pursuant to the language of that part of the document or letter Exhibit G to which we now refer in respect to the payment, it cannot be understood that the plaintiff tendered payment to the defendant immediately and in cash, for the simple reason
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that if the documents had been placed by the defendant at the plaintiff's disposal for his inspection, for example, on January 20th, the day following the date of the letter Exhibit G, and the plaintiff had examined and found them satisfactory, and the defendant Valdes had executed in the plaintiff's favor the proper deed of conveyance or sale of the hacienda on the 25th of the same month of January, according to the exact terms of the letter of acceptance of the offer, Exhibit G, dated January 19, 1912, the plaintiff, that is, the purchaser Borck, could have made full payment to the defendant Valdes, of the P307,000, the price of the property, on the 3d of March, 1912, or on any date on which the deed of conveyance was issued, from the 25th of January up to the said 3d day of March, for nothing else can be understood by, and no other meaning and scope can attach to, the words "full payment will be made on or before the third day of March 1912." In short, by the way the part of said document Exhibit G relative to the offer of payment in the example above given is drawn, the purchaser Borck might pay the stipulated price of the property, or have the period from the 25th of January to the 3d of March within which to pay it, and meanwhile the ownership of the estate would already have been conveyed, by means of the proper deed, to the purchaser Borck, and he could not have been obliged to pay the said price until the very day of March 3, 1912, by reason of the contents of the said letter, Exhibit G. In connection with the allegation we have just been discussing, to wit, that the plaintiff Borck made a tender of payment to the defendant Valdes "immediately and in cash" of the price of the hacienda fixed in the instrument Exhibit G, the plaintiff also presented as proof, in relation to the allegation as to the presentation of the letter of January 19, 1912, Exhibit G, another letter written by himself, and also addressed to the defendant Valdes, under date of the 23rd of the same month of January This document is marked Exhibit J and is of the following tenor: January 23, 1912. DR. BENITO VALDES, 195 Calle San Sebastian, City. SIR. I have the pleasure to inform you that I can improve the conditions of payment for the Hacienda Nagtahan in so far as to agree to pay the whole amount of purchase price, three hundred and seven thousand (307,000) pesos, Ph., c., ten days after the Torrens title deeds and all papers in connection with the hacienda

have been placed at my disposal for inspection and these documents and papers have been found in good order. Respectfully yours, As may be seen by the language in which the preceding letter is couched, the plaintiff virtually recognized, just as he had done in the letter of January 19th, that is, the one written four days before, Exhibit G, that the tender of payment to the defendant Valdes, of the price of the hacienda, could not be understood to have been a tender of "immediate and cash" payment, as alleged in the complaint, but that payment might be made on any date prior to March 3, or on this same date, even though he may have found satisfactory all the documents that the defendant might have placed at his disposal to be examined, and consequently, although the proper deed of conveyance of the property should have been executed in his favor. Nothing else is meant by the statement made by the plaintiff Borck to the defendant Valdes in the letter of January 23, Exhibit J, that he had the pleasure to inform him that he could improve the conditions of payment for the Hacienda Nagtajan in so far as to agree to pay the whole amount of purchase price, P307,000, ten days after the Torrens title deeds and all papers in connection with the hacienda should have been placed at his disposal for inspection and should have been found satisfactory, for the payment which Borck offered to make to Valdes, of the price of the property, in said letter Exhibit J, was not indeed to be effected on the third of March or prior thereto, but within the limited period of ten days after the documents-relative to the property should have been delivered to the plaintiff for his inspection and been found satisfactory. And were they any doubt that the meaning or the sense; of said offer was not as just above stated, it would be removed by a mere perusal of the statement made therein by the plaintiff telling the defendant Valdes that he, the former, had the pleasure to inform he latter that he, Borck, could improve the conditions of payment for the hacienda, to wit, those mentioned in the letter written' four days before, that is, on January 19th, Exhibit G, in the manner aforementioned by paying the whole amount of the purchase price ten days after the documents should have been delivered to the plaintiff and he should have found them satisfactory. But, the letter of January 23, Exhibit J, is drawn up_in such a way that it also does not contain any tender of "immediate and cash" payment by the plaintiff Borck to the defendant Valdes. Indeed, as said letter makes the total payment of the price of the property depend on the delivery
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by the defendant Valdes to the plaintiff Borck of all the documents relative to the hacienda, and of the further condition that, the latter should find such documents in good order and satisfactory, and as a period of ten days was fixed for the said payment, counting from the date of the delivery of the documents, and on the condition that Borck should find them satisfactory, the date of payment cannot be-understood to have been fixed for any certain day after those ten days, or for the eleventh day, for the simple reason that, for example, if the documents were delivered to Borck on February 1 for his inspection, and after the lapse of ten days thereafter he had not finished examining them and had kept them in his possession for this purpose for ten days longer, that is, until February 20, and then had found them satisfactory, the result would be that the payment would have had to be made, not ten days, but twenty days, after the delivery of the said documents, and this would have been authorized by the ambiguous terms in which the tender of payment are couched. But supposing that as appears to be the case, it had been the purpose of the plaintiff Borck, in fixing those ten days in the letter Exhibit J, for the payment, that there should be an interval of said ten days between the delivery and inspection of the said titles and the determination of whether they were satisfactory or not, it might also have happened that on the third day after the delivery of the titles, these might have been found by the purchaser to be satisfactory, and that the vendor might immediately have executed the proper deed of conveyance of the property in the purchaser's favor. In that event, according to the terms of said letter Exhibit J, the purchaser Borck would not be obliged to make payment to the vendor Valdes until seven days after the execution of the deed of conveyance and the transfer of the property to the former that is, not until the expiration of the period of ten days counting from the date of the delivery of the documents tothe purchaser; and it is evident that such a payment would not be in cash, pursuant to the provisions of article 1462, in connection with article 1500, of the Civil Code. Furthermore: The plaintiff Borck also presented another letter in connection with his aforementioned allegation made in the complaint, and related to the other two previous letters, Exhibit G and J, to prove what he had intended to accomplish by means of the latter, to wit, that the tender of payment made by him to the defendant was made in accordance with the said allegation, "immediately and in cash." This letter (Exhibit K) bears the date of February 28,t1912, and reads as follows:

MANILA, P.I., February 28, 1912. DR. BENITO VALDES, Attorney-in-fact for Benito Legarda Manila. DEAR SIR: To prevent any misunderstanding, I wish to advise you that the purchase price of the Hacienda Nagtahan is ready to be paid over to you, and I request you to notify me whenever it is convenient for you to place at my disposal for inspection the title deed and papers in connection with said estate. Very respectfully, W. BORCK. As may also be seen by the very terms employed by the-plaintiff in this letter, he virtually admits, clearly acknowledges, that in the two previous letters, Exhibits G and J, he had made the tender of payment of the price for the Nagtajan Hacienda in such a manner that it could not be understood to have been in accordance with the agreement entered into between himself and Valdes, that is, that the payment should be in cash. The letter Exhibit K in fact begins with these words: "To prevent any misunderstanding." and then says: I wish to advise you that the purchase price for the Hacienda Nagtahan is ready to be paid over to you, and request you to notify me whenever it is convenient for you to place at my disposal for inspection the title deed and papers in connection with said estate. The first words of the letter of course indicate that the plaintiff Borck himself, in writing them, feared, at least the was not sure, that, in accepting, in the letter of January 19th, Exhibit G, the offer of the sale of the hacienda to him by Valdes, and in making therein the tender of payment band in renewing this tender in the letter, Exhibit J, of the 23 of the same month, he, the plaintiff, had not conformed to the terms of the offer of sale or of the option to buy, given to him by Valdes by means of the document Exhibit E, for in the said last letter, Exhibit K, he takes it for granted that there was or might be some misunderstanding between himself and the defendant Valdes with)respect to the tender made by him of the price of the estate. According to the admission of the plaintiff Borck in his complaint, this price was to be paid "at one and in cash." In the said letter Exhibit K, to avoid that misunderstanding, the plaintiff Borck stated to
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the defendant Valdes that the purchase price for the hacienda was ready to be paid over to hi, and requested to be notified by Valdes when it would be convenient for him to place at the plaintiff's disposal for inspection the title deed and papers in connection with said estate. The notification contained in this letter written by Borck to Valdes, that the purchase price of the estate was ready to be paid over to the latter, and the mention made in this same letter, immediately after the notification, of the inspection which the plaintiff wished to make of the titles which he desired should be delivered to him for this purpose, show that this last letter, Exhibit K, relates to the one that preceded it, dated January 23, Exhibit J, or, what amounts to the same thing, is a result of it, for it is virtually said therein that the price of P307,000 (which according to his previous letter, he had agreed to pay for the hacienda, ten days after the delivery to him of the documents relative to the estate and their having been found by him to be satisfactory) was already held in readiness by the plaintiff for delivery to the defendant, but this delivery of the price was subordinated to the delivery requested by the plaintiff to those titles and other documents,and to the plaintiff's finding such documents satisfactory, and the delivery of the price was also subordinate to the period of the ten days, mentioned in the said letter Exhibit J. The letter Exhibit K can have no meaningwhatever in that part thereof where reference is made tothe offer of payment of the price of the hacienda, or to the payment itself, except in connection with the previous Exhibit J, inasmuch as the letter Exhibit K does not state when Borck was to deliver to Valdes the price which, according to this same letter, the plaintiff already had in readiness for that purpose. So that neither in the letter Exhibit K is any specific offer of payment made by the plaintiff Borck to the defendant Valdes, of the price stipulated in the document Exhibit E to be paid "at open and in cash," notwithstanding its being said therein that the plaintiff had the money ready to be turned over to the defendant. Upon the plaintiff Borck's testifying at the trial as witness, said documents Exhibits E, G., J, and K, and also others marked from A to M, including the four just referred to, were presented in evidence. Among these documents is found Exhibit F, which reads as follows: MANILA, January 17, 1912. DR. BENITO VALDES, 194 San Sebastian, City.

SIR: In reference to our negotiations regarding the Hacienda Nagtahan at Manila, property of Mr. Benito Legarda, consisting of about 1,993,000 sq. meters of land, I offer to purchase said property for the sum of three hundred and seven thousand (307,000) pesos P. c., cash, net to you, payable the first day of May 1912 or before and with delivery of a Torrens title free of all encumbrances as taxes and other debts. Respectfully, YOURS, On said documents being presented in evidence at the trial, the defendants objected to their admission; the court reserved his decision thereon and in the judgment appealed from made no mention as to the contents of said documentExhibit F, and in ruling on the defendants' motion for a new trial, in which motion they signed as one of the error of the said judgment the fact that no notice whatever had been taken therein of the said Exhibit F, which defendants claimed to be one of the their most important proofs, the court stated as a reason for the omission that this Exhibit F was unsigned, unidentified and was not attested by anyone, besides the fact that no conclusion, either in favorof or against the plaintiff, could be based on its because, although the said letter, that is, Exhibit F, might have been actually delivered, no right whatever could be predicated thereon, nor any liability, and it was, therefore, inadmissible. The record shows that when Exhibit F and Exhibits G, J, K, L, and M, were shown to the defendant Valdes by the plaintiff's counsel Beaumont, for their identification and in order that Valdes might state to the court whether he had received the originals and, if so, where they were, defendant merely said in reply that he had received three originals from Borck and two originals from Beaumont (p. 14 of the transcription of the stenographic notes), and exhibited the originals of Exhibits C, M. L., K, and G, but not that ofExhibit F. The plaintiff Borck having been presented as a witness, after he had been asked the first four questions by Attorney Hartford Beaumont, the latter made the following statement: "I would like to interrupt the witness at this moment in order to present all the Exhibits A to M, which were identified by the previous witness." Counsel for the defendant Legarda objected to the admission of the said documents on the ground that they were incompetent, immaterial and irrelevant. The same objection was also made by counsel for the defendant Valdes in behalf of his client, and the court said
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that he would reserve his decision (pp. 24 and 25 of the record). During the examination of plaintiff Borck, in which Attorney Beaumont plied him with questions in regard to the aforementioned documents, beginning with Exhibit A and showed him the documents themselves, on coming to Exhibit F, after having given attention to other exhibits among which was Exhibit O, which we shall mention later on, the plaintiff answered the questions put to him with respect to Exhibit F in the following manner as found in the transcription of the stenographic notes in English(p. 61 on the record): Q. Now I will show you Exhibit F, and call you attention to the fact that it has the same date, January 17, as Exhibit O, and ask you to state the circumstances under which Exhibit O was signed A. This is may acceptance of the option of Dr. Valdes. Q. How does it happen that it has the same date as Exhibit O? A. Because I don't believe in hanging back with my business. I conclude it as soon as possible. As soon as I got the offer, I made my acceptance to Dr. Valdes. The document Exhibit F, as has been seen, is unsigned but the document Exhibit J, to wit, the aforementioned letter of January 23, 1912, is in the same condition. It is true that although the document Exhibit J is unsigned because it is a copy of the letter addressed on that same date to Valdes by Borck, Valdes kept the original in his possession and he did not present the original of Exhibit Fibut only the other letters before mentioned, although he stated with reference to the letter he had received from Borck, that as he was not a business man and was not acquainted with that kind of business, he sometimes read the letters and, after taking notes of their contents, transmitted their substance to Mr. Legarda, and at other times sent to him the letters themselves, from which testimony of Valdes it is concluded that he was not in the habit of keeping the originals he received from Borck. However, as has already been seen, notwithstanding that Exhibit F was not identified by Valdes, the plaintiff Borck, However, as has already been seen, notwithstanding that Exhibit F was not identified by Valdes, the plaintiff Borck, referring to the said document on its being shown to him by his attorney, who called his attention to the fact that it has the same date, January 17, as Exhibit O, and asked him to state the circumstances under which Exhibit O was signed, said that Exhibit F was his acceptance of Dr. Valdes' option; and in

answering the next question, explained the reason why Exhibit F bore the same date as Exhibit O, saying that "he did not believe in hangingback with his business;" that he "concluded it as soon as possible;" and that "as soon as he got the offer, he made his acceptance to Dr. Valdes." Exhibit O is as follows: MANILA, January 17, 1912. W. BORCK, Esq., Manila. DEAR SIR: Referring to our recent conversation regarding_the proposed purchase by clients of ours of the property known as the Hacienda Nagtajan, I beg to advise you that our clients, after investigation of the physical conditions of the property, are prepared to make an offer for the purchase of the same at the price named by you, to wit, P380,000, cash, provided that there is good titled to the property, that it contains substantially and area represented, namely, 1,993,000 square meters, and that the existing leases upon certain portions of the said property are found to be in proper form. It is the desire of our clients to have an opportunity to investigate the legality of_the title and leases at the earliest practicable moment, and they have authorized us to say that if the conditions are satisfactory with regard to these matters, they are prepared to make you a firm offer of the amount above named, and to make a deposit of a reasonable amount as an evidence of good faith. Very truly yours, BRUCE LAWRENCE, ROSS, AND BLOCK, "JAMES ROSS." Connecting the contents of this document Exhibit O with those of the previous Exhibit F, and taking into account the testimony given by Borck, as above quoted, in answering the questions put to him by his own attorney, relative to the said exhibits, it is clearly understood that on Borck's receiving the letter of January 17m 1912, from the law firm of Bruce, Lawrence, Ross and Block, and signed by James Ross, Exhibit O, in which these gentlemen stated that they were prepared to make an offer for the purchase of the Hacienda Nagtajan at the price of P380,000 cash, he wrote on the same date, January 17, to Dr. Valdes the letter, a copy of which is Exhibit F, in which, referring to the negotiations between them regarding the said Nagtajan Hacienda, he offered
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to purchase this property for P307,000, cash and net, payable on or before the first day of May, 1912, delivery to be made to him to a Torrens title free of all encumbrance, such as taxes and other debts. For this reason the plaintiff Borck stated in his testimony that the said letter Exhibit F was his acceptance of Dr. Valdes option, for, not believing in hanging back with his business and desiring to conclude it as soon as possible, as soon as he received the officer, contained in the letter Exhibit O, from the said law firm, he transmitted or made known his acceptance to Dr. Valdes. We do not think there could be a better identification of the letter Exhibit F than that made by it sown writer, the plaintiff Borck, for he admitted in his testimony that he wrote this letter, and although the defendant Valdes did not present the original of the said letter Exhibit F, perhaps because it was one of those which he did not keep in his possession, there can be no doubt whatever that the original of the said Exhibit F was transmitted to Valdes by the plaintiff Borck, of the latter explicitly said so in stating that letter was his acceptance of Dr. Valdes' option, the plaintiff explaining why he had written said letter, on referring to the relation between said Exhibit F and the Exhibit C, on account of the same date both letters bore, on making further explanations in the matter, hand saying: "As soon as I got the offer, I made my acceptance to Dr. Valdes." Furthermore, if there were still any doubt whatever about this, it would disappear after a consideration of the following quotation taken from the plaintiff's written brief file before the lower court rendered judgment, in which mention is made of the said brief and of the questions discussed therein said brief is found on pages 190 to 206 of the record and is signed, by the plaintiff's attorneys, Aitken and Beaumont. On page 195 thereof, appears the following: 3. THE ACCEPTANCE. On the 17th of January, 1912, Mr. Borck received a written offer (Exhibit O) for the property from Mr. James Ross of this city for the price of P380,000 and thereupon on the same day wrote Dr. Valdes the letter which appears as Exhibit T (pp. 56, 169 of the record). No question arises as to the validity of this acceptance for reasons which will presently appear. . . . As may be seen, in the paragraph of that brief signed by the plaintiff's attorney there is a restatement of what the plaintiff had said in his testimony, to with, that as soon as he received, on January 17, 1912, a written offer Exhibit O, from Mr. James Ross of this city for the property in question and for the price of P380,000, he

wrote on the same day the letter of Dr. Valdes that appears as Exhibit T (pp. 56, 169, of the record). In this same brief the statement was also made that no question had arisen as to the validity of this acceptance, for the reasons which would presently appear. It is to be noted that Exhibit T, mentioned in the preceding paragraph transcribed from the brief, is the same Exhibit F, which was erroneously marked with the letter T in the said paragraph, as shown by the fact that in this paragraph Exhibit T is referred to as being found on page 56 of the record, which page containes Exhibit F, and on page 169 of the record, which contains a copy of the same Exhibit F,_the date of this latter exhibit, January 17, being also that of the Exhibit O, mentioned in the said brief. The trial court therefore erred in not admitting in evidencesaid document Exhibit F and, consequently, in not taking it into consideration in the judgment appealed from. This rejection cannot be warranted by the fact that the defendants themselves opposed its admission, for the latter also opposed the admission of all the documents presented by the plaintiff, on the understanding that, as they were not bound by the documents Exhibits A and E, the one as principal and the other as agent, such documents were immaterial, incompetent and irrelevant, nevertheless the trial court admitted some of those documents and considered them for the purpose of drawing his conclusions in the judgment rendered. It is hardly necessary now to show that said letter of January 17, 1912 (Exhibit F) was Borck's acceptance of the option or offer of sale made to him by the defendant Valdes in his letter of December 4, 1911 (Exhibit E), for the plaintiff Borck himself admitted in his testimony at the trial that the letter Exhibit F was his acceptance of said option. In fact, the plaintiff Borck, referring in the letter, Exhibit F, to the negotiations between himself and Valdes regarding the Nagtajan Hacienda belonging to Benito Legarda, offers to purchase said property for the sum of P307,000, cash and net, payable the first day of May 1912, or before, the plaintiff to be furnished with a Torrens title free of all encumbrances, such as taxes and other debts. The offer of sale or option of purchase contained in the document Exhibit E, was for the period of three months, from December 4, 1911, for the assessed valuation of the property, understood to be P307,000, though subsequently at the trial it was fixed by agreement of the parties at P306,954 and payment was to be made in cash, for, even though this was not stated in the document, that failure itself so to state
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created the understanding that the price was to be paid in cash when delivery of the property was made, in accordance with the provisions of article 1462, in connection with article 1500, of the Civil Code. The plaintiff Borck recognized this in his complaint, in making the allegation we considered at the beginning of this decision, to with, that he accepted in writing the said offer in conformity with its terms and offered to pay to the said Valdes, "immediately and in cash" the price stipulated; and he also so testified atthe trial, saying, in reference to the conditions of the payment of the purchase price, that "the conditions were not discussed, because the payment was to be made in cash on exhibition of the documents." Now then, in the document Exhibit F, that is, the letter of January 17, 1912, it is stated that payment of the net amount would be made in cash on_the first day of May, 1912, or before. So that it may be said with all the more reason that in relation to the other offers of payment contained in the documents F, G, J, and K, that in the letter, Exhibit F, the plaintiff Borck, in accepting the offer of sale, did not make an offer to pay the price "immediately and in cash," as stated in his allegation set forth in the complaint, for, by virtue of the said documents, he reserved to himself the right to make the payment on the first day of May, 1912, or on any date prior thereto, as might suit him, that i, two months after the termination of the option or of the offer, which would be, on or before March 4, 1912, although the deed of conveyance of the property in his favor should have been executed by the defendant Valdes on any date within the period of the option, that is, within the three months which ended on the said 4th day of March, 1912, whereby the plaintiff virtually gave himself five months from the date of the offer of sale or option of purchase, to effect the said payment. This is evidently not an offer to pay "immediately and in cash," nor is it a payment in cash, as the law provides, nor such a payment as the plaintiff Borck himself understood it to be, when he stated in his testimony that the payment was to be made in cash upon exhibition of the documents. Duly considering the documents Exhibits F, G, J, andk, that is, the statements made by the plaintiff Borck in the letter of January 17, 19 and 23, 1912, and February 28th of the same year, addressed by him to the defendant Valdes, in accepting the option that the latter had granted him for the purchase of the Nagtajan Hacienda, or the offer of sale of the said hacienda defendant made to the plaintiff, with respect to the payment of the price therof, it is seen that in the said documents the plaintiff Borck offered to pay to the defendant Valdes the said price, first within the period of five months from December 4,

1911, afterwards within the terms of three months from the same date of December 4, and, finally, within a period which could as well be ten days as twenty or thirty of more days from the time Valdes should put at the plaintiff's disposal to be inspected, the titles and other documents relative to the said hacienda, and the plaintiff should find them satisfactory and the proper deed of conveyance should, in consequence thereof, be executed in his favor by Valdes; and this evidently is an offer of payment in installments, and not an "immediate and cash" payment. The lower court in the judgment appealed from says that as the document Exhibit E, dated December 4, 1911, gave the plaintiff a three months' option for the purchase of the property, a period which expired, therefore, on March 4, 1912, this necessarily allowed the plaintiff them for the payment until this last date, and as in the letter Exhibit G, of the date of January 19, 1912, the plaintiff said that he would pay before the expiration of the said period, in no manner could this have modified the option, rather, on the contrary, it coincided with it, the court adding, moreover, that a payment made on or before the 4th of March would have been a payment in cash, if this was required by Exhibit E. It is true that the period granted by the defendant Valdes to the plaintiff for purchasing the property, was three months from December 4, 1912, but not because this period expired on March 4, 1912, that is, the last day of the said three months, may it be understood that the defendant granted to the plaintiff the period for payment until the very last day, March 4, 1912, for the simple reason that, the period for the purchase being three months, that is,the time during which the plaintiff Borck could make use of the power or the right granted by him by Valdes to arrange for the purchase of, and to purchase in fact, the said property, if Borck purchased it on any date prior to March 4, 1912 (on January 19, 1912, for example) the result would be that the proper deed of sale being consequently executed in his favor on the said date of January 19, and the time that payment would be made not having been fixed in the said document Exhibit E, such payment wouldhave to be made at the time of the delivery of the thing sold, pursuant to article 1500 of the Civil Code; but as, in accordance with article 1462 of the same code, the execution of the deed of sale is equivalent to the delivery of the thing which is the object of the contract, the payment would not be in cash if it were not made on the same 19th day of January, 1912, and were postponed until some other later day, or until March 4, 1912. In short, it is impossible to confound the period of the option granted to the
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plaintiff Borck for the purchase of the Nagtajan Hacienda, with the period for the payment of it price, had he purchased it. The plaintiff Borck had three months, from December 4, 1911, within which to make the purchase; to make the payment he did not have a single day after the date on which the proper deed of sale would have been executed in his favor; he was to pay the price at the very moment the said deed was executed, because, by this means, the property would have been delivered to his, although there still might have been lacking one or two months of the three months' period of the said option. This is the payment in cash to which the law refers in the sale of real estate in cases where the time for making payment has not been fixed, and the plaintiff himself, Borck, so understood when he stated in his testimony, as we have before said, that, as the conditions for the payment had notbeen discussed, payment was to be made in cash on exhibition of the documents, or, what amounts to the same thing, on the execution of the proper deed of sale of the property in his favor. It is therefore evident was not fixed therein, the document Exhibit E, dated December 4, 1911, required the payment to be made in cash, and the lower court erred in holding that the plaintiff Borck's letter, Exhibit G, of the date of January 19, 1912, in stating that the payment would be made on or before March 4, 1912, in no manner modified the option or offer of sale contained in the document Exhibit E, but that on the contrary it coincided therewith; also in holding that a payment made on or before March 4, 1912, would have been a cash payment. The letter of December 4, 1911, Exhibit E, contained, as aforesaid, an offer of sale or a proposal of sale on the partof the defendant Valdes to the plaintiff Borck, of the Nagtajan Hacienda, for the assessed valuation of the same, effective during the period of three months counting from the said date. Such proposal or offer was an expression of the will only of the defendant Valdes, manifested to the plaintiff Borck. In order that such a proposal might have the force of a contract, it was necessary that the plaintiff Borck's will should have been expressed in harmony with all the terms of the said proposal. Consent is shown by the concurrence of the offer and the acceptance of the thing and the cause which are to constitute the contract. (Art. 1262, Civil Code.) There is no contract unless, among other requisites, there is consent of the contracting parties. (Art. 1261, par. 1, of the same code.)

Contracts are perfected by mere consent, and from that time they are binding, not only with regard to the fulfillment of what has been expressly stipulated, but also with regard to all the consequences which, according to their character, are in accordance with good faith, use, and law. (Art. 1258, Civil Code.) Promises are binding in just so far as they are accepted in the explicit terms in which they are made; it not being lawful to alter, against the will of the promisor, the conditions imposed by him (Decision of the supreme court of Spain, of November 25, 1858); for only thus may the indispensable consent of the parties exist for the perfection of the contract. (Decision of the same court, of September 26, 1871.) An option is an unaccepted offer. It states the terms and conditions on which the owner is willing to sell or lease his land, if the holder elects to accept them within the time limited. If the holder does so elect, he must give notice to the other party, and the accepted offer thereupon becomes a valid and binding contract. If an acceptance is not made within the time fixed, the owner is no longer bound by his offer, and the option is at an end. (words and Phrases, vol. 6, p. 5000, citing McMillan vs. Philadelphia Co., 28 Atl., 220; 159 Pa., 142.) An offer of a bargain by one person to another, imposes no obligation upon the former, unless it be accepted by the latter, according to the terms in which the offer was made. Any qualification or, or departure from, those terms, invalidates the offer, unless the same be agreed to by the person who made it. (Eliason et al. vs. Henshaw, 4 Wheaton, 225.) In order that an acceptance of proposition may be operative it must be unequivocal, unconditional, and without variance of any sort between it and the proposal, . . . . An absolute acceptance of a proposal, coupled with any qualification or condition, will not be regarded as a complete contract, because there at no time exists the requisite mutual assent to the same thing in the same senses. (Bruner et al. vs. Wheaton, 46 Mo., 363.) As already seen while we were considering the documents Exhibits F, G, J, and K, the plaintiff Borck accepted the offer of sale made to hi, or the option of purchase given him in document Exhibit E by the defendant Valdes, of the
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Nagtajan Hacienda, for the assessed valuation of the same, but his acceptance was not in accordance with the condition with regard to the payment of the price of the property, under which the offer or the option was made for, while this payment was to be paid in cash, as the plaintiff Borck himself admitted and the defendant Valdes positively stated in his testimony, and also a provided by law, for the reason that the time was not fixed in said offer or option when the payment should be made in the aforesaid four documents Exhibits F, G, J, and K, the plaintiff Borck made the offer to pay the said price, in the first of them, within the period of five months from December 14, 1911; in the second, within the period of three months from the same date, and, finally, in the other two documents, within an indefinite period which could as well be ten days as twenty or thirty or more, counting from the date when the muniments of title relative to the said hacienda should have been placed at his disposal to be inspected and he should have found them satisfactory and, in consequence thereof, the deed of conveyance should have been executed in his favor by the defendant Valdes. So that there was no concurrence of the offer and the acceptance as to one of the conditions related to the cause of the contract, to wit, the form in which the payment should be made. The expression of Borck's will was not in accordance with all the terms of Valdes' proposal, or, what amounts to the same thing, the latter's promise was not accepted by the former in the specific terms, in which it was made, and finally, the acceptance of the said proposal on Borck's part was not unequivocal and without variance of any sort between it and the proposal, because, in view of the terms in which the payment was offered by Borck in his said letters of January 17, 19 and 23, Exhibits F, G, J, and K, there was variance from the moment in which according to said terms, in the first two letters, the payment of the price should be made on or before the 1st of May and on or before the 3d of March, 1912, respectively, that is, within a period limited in those letters, and the offer of payment was equivocal inasmuch as, by the last two letters, it was made to depend on certain acts as a basis for fixing the period in which the said payment should have to be made; finally, there was no mutual conformity between the person who made the proposal or offer, Valdes, and the person who accepted it, Borck, in the same sense with respect to the form of payment, and Borck deviated from the terms of the proposition with regard to the form of payment and the record does not show that Valdes assented to such variance.

It is, therefore, evident that, in accordance with the provision of law and the principles laid down in the decisions above cited, the proposal or offer of sale made by the defendant Valdes to the plaintiff Borck, or the option of purchase granted by the former to the latter, with respect to the Nagtajan Hacienda, in the document Exhibit E, was not converted into a perfect and binding contract for the, and that as Valdes did not assent to the modification introduced by Borck in the offer of sale made by this defendant in regard to one of its terms, to with, the form of payment, the said offer became null and void, and, consequently, Borck has no right to demand of the defendant Valdes and of the latter's principal, the other defendant, Legarda, or of the administrators of the estate left by Legarda at his death which occurred during the course of these proceedings, and whose names appear at the beginning of this decision, the fulfillment of that offer, nor, therefore, any indemnity whatever for such nonfulfillment. The lower court erred, than, in finding otherwise in the three conclusions of law contained in the judgment appealed from which were mentioned at the beginning of this decision and on which, in short, the pronouncement made in that judgment was founded. As the power of attorney conferred by Benito Legarda upon Benito Valdes was explicit and positive, according to the document Exhibit A, a copy of which was attached to the complaint, to sell and convey all kinds of real estate at such prices and on such conditions as Valdes might deem proper, and also as the terms of the option granted by Valdes to Borck, or of the offer of sale made by the former to the latter in the document Exhibit E, of the Nagtajan Hacienda belonging to Benito Legarda, are clear; and, furthermore, as the plaintiff made the said documents an integral part of the complaint as the grounds thereof, the testimony introduced by the defendant Valdes to prove that said offer of sale made by him to Borck was subject to the approval of his, Valdes', principal was improper (sections 103 and 285, Code Civ. Proc.) and the lower court did not err in not taking that testimony into consideration in his judgment. Likewise the evidence presented by the defendant Valdes in an endeavor to prove that said offer of sale was obtained from him by the plaintiff Borck by means of fraud and deceit, was improper. Consequently the trial court did not err by making no finding in the judgment on those two points. In conclusion, as the offer of sale of the Nagtajan Hacienda, made by Valdes to Borck, or the option of purchase thereof granted by the former to the latter by the letter of December 4, 1911, Exhibit E, did not constitute a perfect contract and,
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consequently, was not binding upon the defendants Valdes and Legarda or the plaintiff Borck, by reason of the lack of the mutual assent of the parties concerned therein, which is wholly in accordance with the terms of the said offer, there can be no obligation demandable in law by virtue of the stipulations contained in said document, and the action prosecuted by the plaintiff for that purpose in these proceedings in improper. For the foregoing reasons the judgment appealed from is reversed and we absolve the defendants from the complaint. The costs of the first instance shall be imposed upon the plaintiff. No special finding is made with respect to those of this second instance. So ordered.

G.R. No. L-35272 August 26, 1977 FLORENCIA CRONICO, substituted by LUCILLE E. VENTURANZA, petitioner-appellant, vs. J. M. TUASON & CO., INC., and CLAUDIO R. RAMIREZ, respondents-appellees. Antonio B. Alcera for appellant. Araneta, Mendoza & Papa for appellee J. M. Tuason & Co., Inc. Leonardo Abola for appellee Caludio R. Ramirez. FERNANDEZ, J: In Civil Case No. Q-6363 entitled "Florencia Cronies, substituted by Lucille E. Venturanza, plaintiff, versus J. M. Tuason & Co., Inc., represented by Gregorio Araneta, Inc., and Claudio Ramirez, defendants," the Court of First Instance of Rizal, Branch IV, Quezon City, rendered its decision dated January 25, 1969, the dispositive part of which reads: IN VIEW OF THE FOREGOING, judgment is hereby rendered in favor of the plaintiff and against the defendants, as follows: a) Declaring the Contract to Sell No. 10879 Exhibit 3-company, executed by defendant corporation in favor of its co- defendant Ramirez on April 2,1962, as NULL and VOID; b) Ordering the defendantcorporations to execute a Contract to Sell in favor of the substituted plaintiff Dr. Lucille E. Venturanza over Lot 22, Block 461 of the Sta. Mesa Heights Subdivision, under the same terms and conditions of their offer to the plaintiffs as contained in the letter of Gregorio Araneta, Inc., representative of J. M. Tuason & Co., Inc., to Florencia Cronico of March 20, 1962 (Exh. H) or under the same terms given to defendant Ramirez; c) Declaring as cancelled any and all transfer certificates of title that might have been issued in favor of defendant Ramirez over said Lot No. 22; d) Ordering the defendants, jointly and severally, to pay the plaintiff (Dr. Lucille E. Venturanza) the sum of P160,000.00, as damages
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representing the rents derived from the property in question up to December 2, 1968, plus the sum of P2,000.00 every month thereafter until the lot in question is sold and delivered to plaintiff (Dr. Venturanza); e) Ordering defendants, jointly and severally, to pay plaintiff (Dr. Lucille E. Venturanza) the sum of P10,000.00, as attorney's fees; f) To pay the costs. IT IS SO ORDERED Quezon City, Philippines, January 25, 1969. s/t WALFRIDO DE LOS ANGELES J u dge (Rollo, p. 69, Joint Record on Appeal, pp. 49-50) The defendants J. M. Tuason & Co., Inc. and Claudio R. Ramirez appealed to the Court of Appeals which promulgated its decision on April 21, 1972 reversing the judgment appealed from and dismissing the complaint with costs against the plaintiff-appellee. (Rollo, p. 31, Decision in CA-G. R. No. 44479R, p. 19) The plaintiff, Florencia Cronico substituted by Lucille E. Venturanza, filed with this Court a petition for certiorari to review the decision of the Court of Appeals * assigning the following errors: I THE HONORABLE COURT OF APPEALS ERRED IN- HOLDING THAT FLORENCIA CRONICO OBTAINED. THE DEFENDANT COMPANY'S LETTER-OFFER TO HER DATED MARCH 20, 1962 BY MEANS OF IRREGULAR AND PREMATURE DELIVERY. II THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE RECORDS DO NOT SHOW THAT DEFENDANT COMPANY'S LETTER-OFFER OR UNILATERAL PROMISE TO SELL W AS SUPPORTED BY A CONSIDERATION OTHER THAN THE SELLING PRICE. III THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT PLAINTIFF CRONICO IS NOT PRINCIPALLY NOR SUBSIDIARILY OBLIGED UNDER THE CONTRACT

TO SELL (EXH. 3-Company) AND HENCE MAY NOT BRING SUIT TO ANNUL THE SAME. IV THE HONORABLE COURT OF APPEALS ERRED IN REVERSING THE TRIAL COURT AND DISMISSING THE COMPLAINT. (Rollo, p.74, Petitioner's Brief, pp. 1-2) The facts, as found by the Court of Appeals, are: Appellant J. M. Tuason & Co. Inc. hereinafter referred to as appellant company was the registered owner of Lot No. 22, Block 461, Sta. Mesa Heights Subdivision, located at the Northwestern corner of Quezon Boulevard and Gregorio Araneta, Quezon City and embraced by Transfer Certificate of Title No. 49235 of the registry of Deeds of said city. In March, 1962, plaintiff Florencia Cronico offered to buy the lot from the appellant company with the help of Mary E. Venturanza. They personally talked to Benjamin F. Bautista, Manager of the Real Estate Department of Gregorio Araneta, Inc. the appellant company's attorney-infact, proposing to buy Lot No. 22. She was required to present proofs to show her rights to the lot. On March 8, 1962, Florencia Cronico exhibited certain documents showing her priority rights to buy the lot. In the first week of March, 1962, defendant-appellant Claudio Ramirez also learned that the lot in question was being sold by the appellant company. The occupants thereof who also had priority rights to buy the land informed Claudio Ramirez, about the intended sale. Juanita Semilla and Pedro Fernandez, who were the occupants of the said Lot No. 22 expressed their willingness to waive their rights although-Pedro Fernandez reserved a condition that a small portion of the land whereon his house stands be sold to him. In the same month, March, 1962, plaintiff Cronico and defendant- appellant Ramirez sent separate individual letters to
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appellant company wherein they expressed their desire to purchase the land and requested information concerning the area, the price and other terms and conditions of the contract to sell. Two others intimated their desire to buying the lot. They were Bonifacio Chung and Angeles Henson. Both, however, subsequently lost their interest in said lot. On March 20, 1962, the appellant company sent separate reply letters to prospective buyers including plaintiff Cronies and defendant-appellant Ramirez. They were dropped in the Manila Post Office at 11:00 in the morning of March 21, 1962 by registered mail. It so happened that plaintiff Cronico went to the appellant company's office on March 21, 1962, and she was informed that the reply letter of the appellant company to prospective buyers of the same lot had been mailed. With this information, plaintiff Cronies and Mary E. Venturanza went to the post office in Manila and she was able to get the letter at about 3:30 in the afternoon of the same date. After she got the letter, plaintiff Cronies and Mary E. Venturanza went directly to the office of Gregorio Araneta Inc., Escolta, Manila, and presented the letter to Benjamin Bautista, Head of the Real Estate Department of said company. Since she had no money, plaintiff Cronies requested Mary E. Venturanza to issue a check in the amount of P33,572.00 to cover the down payment for the lot. However, Benjamin Bautista did not accept the cheek. He advised plaintiff Cronies that it is Gregorio Araneta II who would decide whose offer to buy may be accepts after the appellant company receives the registry return cards attached to the registered letters sent to the offerors. On March 22, 1962, between 10:00 and 11:00 a.m., appellant Ramirez received from the post office at San Francisco del Monte, Quezon City, the reply letter of the appellant company dated March 20, 1962, wherein it stated that Lot 22, Block 461, Sta. Mesa Heights Subdivision, was available for sale

under the conditions therein set forth and that the said lot was being offered for sale on a first come first serve basis. Appellant Ramirez proceeded to the office of Benjamin Bautista in the same morning stating that he accepted the conditions stated in the appellant company's letter. Benjamin Bautista advised appellant Ramirez to wait for the decision of Gregorio Araneta II. The next day, March 23, 1962, appellant Ramirez presented his letter to the appellant company confirming his verbal acceptance of the terms and conditions in connection with the sale. On March 31, 1962, Atty. Jose E. Patangco in behalf of appellant Ramirez wrote the appellant company requesting the early execution of the proper contract to sell over Lot No. 22. A check in the amount of P33,572 was enclosed in the letter to cover the down payment for said lot. The request was favorably considered. On April 2, 1962, the J. M. Tuason & Co. Inc., and Claudio R. Ramirez executed a contract to sell whereby the appellant company agreed to sell to appellant Ramirez the lot in question for a total price of P167,896.00 subject to the terms and conditions therein set forth. Meanwhile, on March 27, 1962, the appellant company received a letter from Atty. Godofredo Asuncion in behalf of Florencia Cronies requesting that the lot subject of litigation be 'sold to her. She tendered a check to cover the down payment which was, however, returned. On April 4, 1962, the appellant company sent a letter to the plaintiff-appellee informing her that it had decided to sell the lot in question to appellant Ramirez. This triggered the instant suit. On April 28,1962, plaintiff Florencia Cronico lodged in the Court of First Instance of Rizal (Quezon City Branch) a complaint against the defendants-appellants J. M. Tuason & Co., Inc. and Claudio Ramirez. The main purpose of the said suit is to annul and set aside the contract
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to sell executed by and between appellant company and appellant Ramirez. On May 30, 1962, Gregorio Araneta, representing J. M. Tuason & Co. Inc., filed its answer to the complaint with cross claim against its co-defendant Claudio Ramirez and Luisa Patangco. On the part of defendant Claudio Ramirez, he filed a motion to dismiss on the ground that the complaint states no cause of action against him. He contends that the action for the annulment of contract may only be instituted by those who are parties thereto or those who are thereby obliged principally or subsidiarily. According to Claudio Ramirez such action to annul a deed of sale can not prosper against third persons as they are not principally or subsidiarily obligated thereby. The motion to dismiss was denied. So Claudio Ramirez filed his answer reiterating in his affirmative defenses that since the plaintiffappellee is not a party to the contract to sell executed by him and the defendant company, plaintiff Florencia Cronico has no right whatsoever to demand the annulment of said contract. On November 19, 1968, plaintiff together with Dr. Lucille E. Venturanza filed a motion for substitution for party plaintiff whereby plaintiff Florencia Cronico expressed her willingness to be substituted by Dr. Lucille E. Venturanza as the former had transferred to the latter whatever rights and interests which she may have over Lot 22, Block 261, Sta. Mesa Heights Subdivision by virtue of a deed of assignment she executed on July 5, 1968. The court granted the substitution of the party plaintiff by Dr. Lucille E. Venturanza. (Rollo, p. 31, Decision of Court of Appeals, pp. 1- 71) Anent the first error assigned, the petitioner contends that "No less than the chief of the general service section of the Manila post office, Gaspar Bautista, speaking on the regularity of plaintiff Cronico's receipt of the letter, testified before the trial court that the means by which plaintiff Cronico received her letter is very regular." (Rollo, p. 74, Petitioner's Brief, p. 18).

And that "Anyway, the manner by which the offerees were to receive their letters was not announced by the offeror to the contestant such that they could not be bound thereby. Hence, the rule of the fittest and without lawlessness should govern, and that was Cronies who proved her diligence and resourcefullness over Claudio Ramirez." (Rollo, p. 74, Petitioner's Brief, p. 21) The petitioner also averred that the capability of the plaintiff, Florencia Cronico to purchase the land in question was not raised as an issue in the answer of the defendant company and was developed as an afterthought during the trial. It is a fact that the petitioner, Florencia Cronico upon being tipped by Benjamin Bautista, head of the Real Estate Department of Gregorio Araneta Inc., that the reply letters of the appellant company were already placed in the mails on March 21, 1962 at 11:00 o'clock in the morning, immediately went to the Manila post office and claimed the registered letter addressed to her without waiting for the ordinary course for registered mails to be delivered. The petitioner took delivery of the registered letter addressed to her at the entry section of the Manila post office. While this procedure may be tolerated by the postal authorities, the act of the petitioner in taking delivery of her letter at the entry section of the Manila post office without waiting for said letter to be delivered to her in due course of mail is a violation of the "first come first served" condition imposed by the respondent J. M. Tuason & Co. Inc., acting through Gregorio Araneta Inc. The respondent, Claudio R. Ramirez, received on March 22, 1962 in the morning the reply letter of the respondent company dated March 20, 1962 stating that Lot 22, Block 461, Sta. Mesa Heights Subdivision was available for sale under the conditions set forth on the basis of "first come first served". The respondent, Claudio R. Ramirez, proceeded to the office of Benjamin Bautista on the same date and manifested that he was accepting the conditions stated in the respondent company's letter. On March 23, 1962, respondent Ramirez presented his letter to the respondent company confirming his verbal acceptance of the terms and conditions in connection with the sale. It was only on March 27, 1962 that the respondent company received a letter from Atty. Godofredo Asuncion in behalf of petitioner, Florencia Cronies, requesting that the lot subject of litigation be sold to her. The enclosed cheek to cover the down payment was returned to petitioner Cronico and on April 4, 1962, the respondent company wrote said petitioner that it had decided to sell the lot in question to the respondent Ramirez.
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In view of the foregoing circumstances, we concur in the finding of the Court of Appeals that "Viewing the case from the standpoint of regularity of notice, plaintiff-appellee falls short of the yardstick." (Rollo, p. 42, Decision of the Court of Appeal p.12) The Court of Appeals entertained serious doubts as to the financial capability of petitioner Florencia Cronico to purchase the property because she was receiving only the amount of P150.00 a month as her salary from her employment and there was no showing that she had sources of income other than her job. In fact, when petitioner Cronico tried to pay the down payment for the purchase of the land, it was Mary E. Venturanza who drew the check in the amount of P33,572.00 which was rejected by the respondent company. It is also to be noted that in the trial court, Florencia cronico was substituted by her assignee Lucille E. Venturanza, daughter of Mary E. Venturanza. It is apparent that petitioner, Florencia Cronico, did not have the capability to pay and that she acted only as a mere front of the Venturanzas. As correctly pointed out by the Court of Appeals, realtors are given the right to choose their buyers so as to avoid delinquent payments of monthly installments which may result in costly court litigations. The contention of petitioner. Florencia Cronico that the promise to sell is supported by a consideration as to her because she had established her link as successor of Gregorio Venturanza who bought the lot from Juan Ramos who in turn acquired said lot from Pedro Deudor. The petitioner then argues that since Clause Seventh of the Compromise Agreement between the respondent company and the Deudors, et al. obligated the respondent company to sell to the buyers of the Deudors 'listed in Annex B thereof, Exhibit R-1, and Juan Ramos was the purchaser of the lot from Pedro Deudor with such right to buy from the defendant company under a new contract with the latter, the said petitioner had established the onerous cause or consideration apart from the selling price of the lot. Granting, arguendo, that Clause Seventh of the Compromise Agreement constitutes a valid consideration of the promise to sell apart from the selling price, it appears that the Compromise Agreement upon which the petitioner Cronico predicates her right to buy the lot in question has been rescinded and set aside. (Deudor vs. J.M. Tuason & Co., Inc., 2 SCRA 129 and J. M. Tuason & Co., Inc. vs. Sanvictores 4 SCRA 123, 126) Hence, the promise of the respondent company to sell the lot in question to the petitioner, Florencia Cronico has no consideration separate from the selling price of said lot.

In order that a unilateral promise may be binding upon the promisor, Article 1479, Civil Code of the Philippines, requires the concurrence of the condition that the promise be "supported by a consideration distinct from the price. Accordingly, the promisee can not compel the promisor to comply with the promise, unless the former establishes the existence of said distinct consideration. The promisee has the burden of proving such consideration. (Sanchez vs. Rigos, 45 SCRA 368, 372-373) The petitioner, Florencia Cronies, has not established the existence of a consideration distinct from the price of the lot in question. The petitioner cannot claim that she had accepted the promise before it was withdrawn because, as stated above, she had violated the condition of "first, come, first served" Moreover, it was only on March 27, 1962 that the respondent company received a letter from counsel of the petitioner requesting that the lot subject of this litigation be sold to her. The respondent, Claudio R. Ramirez, had on March 23, 1962, confirmed in writing his verbal acceptance of the terms and conditions of the sale of the lot in question. The petitioner maintains that the contract to sell (Exhibit 3) executed by the respondent company in favor of the respondent, Claudio R. Ramirez, contains a stipulation for her benefit, which reads: b) that the buyer Claudio Ramirez has been fully informed by the company of all the circumstances relative to the offer of Florencia Cronico to buy said lot and that he agrees and binds himself to hold the company absolutely free and harmless from all claims and damages to said Florencia Cronico in connection with this sale of the lot to him. (Rollo, p. 74, Petitioner's Brief, pp. 31-32) The foregoing clause cannot ' by any stretch of the imagination be considered as a clause "pour autrui" or for the benefit of the petitioner. The stipulation does not confer any right arising from the contract that may be enforced by the petitioner against any of the parties thereto. Neither does it impose any obligation arising from the contract that may be enforced by any of the parties thereto against the petitioner. The petitioner is not "obliged principally or subsidiarily" by the contract to sell executed between the respondent company and the respondent Claudio R. Ramirez. The said stipulation is for the benefit of the respondent company. The contention of the petitioner that she has become the obligee or creditor of the respondent company because she was the first to comply
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with the terms of the letter-offer has no merit. Her so-called acceptance has no effect because she violated the condition of "first come, first served" by taking delivery of the reply letter of the respondent company in the entry section of the Manila post office and of the fact that her formal letter of acceptance was only received by the respondent company on March 27, 1962. In view of all the foregoing, we find that the Court of Appeals has not committed any of the errors assigned in the brief of the petitioner. WHEREFORE, the decision of the Court of Appeals in CA-G.R. No. 44479-R is hereby affirmed, without pronouncement as to costs. SO ORDERED.

G.R. No. 73573 May 23, 1991 SPOUSES TRINIDAD AND EPIFANIO NATINO, petitioners, vs. THE INTERMEDIATE APPELLATE COURT, THE RURAL BANK OF AGUILAR, INC. AND THE PROVINCIAL SHERIFF EX-OFFICIO OF PANGASINAN, respondents. Jose P. Villamor for petitioners. Oscar A. Benzon for private respondents. Bitty G. Viliran for Rural Bank of Aguilar, Inc. DAVIDE, JR., J.:p Unsatisfied with the decision of 4 June 1985 and the resolution of 23 December 1985 of the then Intermediate Appellate Court (IAC) in A.C.-G.R. CV No. 69539 1 which, respectively, reversed the decision of the then Court of First Instance of Pangasinan, Branch II, of 1 December 1981 in Civil Case No. 15573, and denied the motion for the reconsideration of the 4 June 1985 decision, petitioners filed with this Court the instant petition to seek reversal thereof. They submit one principal issue: whether or not the conclusion drawn by the Intermediate Appellate Court from proven facts is correct. 2 The following facts are not disputed: On 12 October 1970 petitioners executed a real estate mortgage in favor of respondent bank as security for a loan of P2,000.00. Petitioners failed to pay the loan on due date. The bank applied for the extrajudicial foreclosure of the mortgage. At the foreclosure sale on 11 December 1974 the respondent bank was the highest and winning bidder with a bid of P2,945.11. A certificate of sale was executed in its favor by the sheriff and the same was registered with the Office of the Register of Deeds on 29 January 1975. The certificate of sale, a copy of which was furnished the petitioners by registered mail, expressly provided that the redemption period shall be two years from the registration thereof. Since no redemption was made by petitioners within the two-year period, which expired on 29 January 1977, the sheriff issued a Final Deed of Sale on 15 February 1977. Petitioners, however, claimed that they were granted by respondent bank an extension of the redemption period; but the latter denied it. On 22 November 1979 respondent bank file a petition for a writ of possession, which petitioners later opposed on the ground that they had consigned the redemption money of P4,000.00 on 12 December 1979. The court rejected the
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opposition and issued the writ of possession. However, to prevent its execution, petitioners instituted with the then Court of First Instance of Pangasinan a complaint against respondent bank and the Ex-Officio Provincial Sheriff for the annulment of the aforementioned final deed of sale and for the issuance of a writ of preliminary injunction. The case was docketed as Civil Case No. 15573 which was raffled to Branch II thereof. In their complaint petitioners alleged that the final deed of sale was prematurely issued since they were granted an extension of time to redeem the property. In resolving the issue of extension of the redemption period, the trial court, in its Decision of 1 December 1981, made the following findings and conclusion: xxx xxx xxx From the bank's evidence, it is difficult to believe that the plaintiffs who are personally known to the president and manager herself, and from whom she had to hire trucks, would not have made any move or offer to redeem the property within the redemption period. The presumption is that they exercised ordinary care of their concerns (Sc. 5 (d), Rule 131, Rules of Court, Cabigao vs. Lim 50 Phil. 844). If indeed, the plaintiffs made no such offer during the redemption period, the defendant bank should have presented evidence rebutting the plaintiffs' evidence. But it did not. While the plaintiff testified that the tender was made to Mr. Salgado, loan clerk, and Mr. Madrid, Acting Manager of the Bank and also board members Dr. Jing Zarate and Mr. Rosario, none of them were presented to rebut plaintiffs' evidence. Hence, the presumption that if their testimony were produced, it would be adverse to the defendant bank under Sec. 5(e) Rule 131 of the Rules of Court, would apply. Furthermore, the very evidence of the defendant bank shows that there was indeed an extension of the period to redeem the property. The statutory period of redemption granted the mortgagor in the certificate of sale registered on January 29, 1975 was 2 years. The period should have terminated on

January 29, 1977. However, the Sheriff's Certificate of Final sale was only executed on February 15, 1977 and registered only on November 14, 1979 which registration date is the effective date of the confirmation of the sale which cuts off redemption. Such extension of nearly 3 years strengthens the plaintiffs' claim that indeed, there was an agreement to extend the redemption date. The plaintiffs' evidence has shown that there was an agreement between them and the defendant bank through its personnel and its president and manager, acting as its agents to extend the period for redemption for the plaintiffs. However, the plaintiffs were not given a specific time to pay and redeem but were given by the President and Manager of the bank such time when their means permit them to do so. This created an obligation with a period under Art. 1180 of the Civil Code of the Philippines, which provides: Art. 1180. When the debtor binds himself to pay when his means permit him to do so, the obligation shall be deemed to be one with a period, subject to the provisions of Article 1197. This does not mean that the condition was exclusively dependent of the will of the plaintiffs, for they had already promised payment. If therefore became necessary, under Article 1197 for the Court to fix the term in order that the condition may be fulfilled. Any action to recover before this is done is considered premature (Patents vs. Omega, 93 Phil. 218). That agreement or contract entered into between the President and Manager of the bank was not in writing is of no moment since under Article 1315 of the Civil Code, "contracts are perfected by mere consent, and from that
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moment the parties are bound not only to the fulfillment of what has been expressly stipulated but also to all the consequences which according to their nature, may be in keeping with good faith, usage and law." The defendant's claim that the agreement must be in writing citing the ruling in the case of Pornellosa vs. Land Tenure Administration, 1 SCRA 375, only applies to executory contracts, not to those either totally or partially performed, (Inigo vs. Estate of Maloto, 21 SCRA 246). In this case, the bank had already partially performed its obligation thereunder by extending the period redemption from January 29, 1977 to November 14, 1979. The agreement does not novate the original contract of mortgage but only changes one of its conditions, that which concerns the period of redemption. The period of redemption may be extended by the parties under special circumstances (Lichauco vs. Olegario, 43 Phil. 540, 542). This the parties may do, since the right of the mortgagee to demand compliance within the 2 year period of redemption maybe waived, unless the waiver is contrary to the public order, public policy, morals or good customs or prejudicial to a third person with a right recognized by law." None of the inhibitions enumerated are present in this case. Hence, the action of the defendant bank in securing the Sheriffs Final Sale prior to the fixing of the period within which the plaintiffs had to pay was not in order by reason of the extension of the period of redemption without a term. Not being in order, the period for redemption by the plaintiffs still exists but has to be set. 3 and on the basis thereof, decreed to (a) annul the Sheriffs Final Deed of Sale, dated 15 February 1977 and its registration of 17 March 1979, (b) fix the period of redemption to ninety (90) days from receipt of the decision by petitioners, (c) order petitioners to pay the respondent bank, within ninety (90) days from receipt of the decision the amount of P2,945.11,

the purchase price, with 1% interest per month from 11 December 1974 to 14 December 1979, together with any amount representing assessment or taxes which the bank may have paid after 11 December 1974, with interest thereon at 1% per month up to 14 December 1979, (d) order the Bank to receive and credit the petitioners with such amounts, restore petitioners to the property and to deliver to them a certificate of redemption, and to pay petitioners the sum of P2,000.00 as attorney's fees and the costs. 4 Respondent bank appealed from said Decision to the then Intermediate Appellate Court which docketed the appeal as C.A.-G.R. CV No. 69539. In support of its appeal, respondent bank assigned the following errors: -ITHE LOWER COURT ERRED IN NOT HOLDING THAT THE OFFERS BY THE APPELLEES TO THE APPELLANTS WERE MADE AFTER THE PERIOD OF REDEMPTION HAD ALREADY EXPIRED AND AS A MATTER OF FACT, WERE MADE ONLY AFTER THE EXECUTION OF THE DEED OF FINAL SALE BY THE SHERIFF. -IITHE LOWER COURT ERRED IN HOLDING THAT THE APPELLANTS GRANTED THE APPELLEES AN EXTENSION OF THE PERIOD FOR THE REDEMPTION OF THE PROPERTY WHICH WAS SOLD DURING THE FORECLOSURE SALE. -IIITHE LOWER COURT ERRED IN HOLDING THAT THE PREPONDERANCE OF EVIDENCE FAVORS THE APPELLEES DESPITE THE FACT THAT THE ONLY EVIDENCE PRESENTED BY THEM IS THE SOLE TESTIMONY OF EPIFANIO NATINO, WHICH IS NOT ONLY UNCORROBORATED, BUT IS EVEN CONTRARY TO THE IMPORT OF HIS DECLARATIONS AND ADMISSIONS MADE IN OPEN COURT; AS AGAINST THE TESTIMONY OF THE APPELLANTS' WITNESS WHICH IS CORROBORATED, NOT ONLY BY DOCUMENTARY EVIDENCE, BUT EVEN BY THE IMPORT OF PLAINTIFF-APPELLEES' TESTIMONY.
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-IVTHE LOWER COURT ERRED IN NOT REJECTING THE TESTIMONY OF PLAINTIFF-APPELLEE WHICH DID NOT PROVE AN OFFER TO REDEEM WITHIN THE REGLEMENTARY PERIOD IN AN AUTHENTIC MANNER AS REQUIRED BY THE LAW, RULES AND JURISPRUDENCE. -VTHE LOWER COURT ERRED IN NOT REJECTING THE TESTIMONY OF PLAINTIFF-APPELLEE ON THE ALLEGED EXTENSION OF THE REDEMPTION PERIOD INASMUCH AS IT IS NOT IN A PUBLIC DOCUMENT OR AT LEAST IN AN AUTHENTIC WRITING. -VITHE LOWER COURT ERRED IN APPLYING ARTICLES 1180 AND 1197 OF THE CIVIL CODE, BOTH OF WHICH HAS NO RELEVANCE OR MATERIALITY TO THE CASE AT BAR. -VIIASSUMING ARGUENDO THAT SOME OFFICERS OR EMPLOYEES OF THE APPELLANT BANK MANIFESTED TO THE PLAINTIFF-APPELLEE THAT THEY CAN RECOVER THE LAND IN QUESTION, AS TESTIFIED BY THE PLAINTIFF-APPELLEE, THE LOWER COURT ERRED IN HOLDING THAT SUCH OFFICERS ACTED AS AGENTS OF THE APPELLANT-BANK. CONSEQUENTLY, THE LOWER COURT ERRED IN NOT HOLDING THAT ONLY THE ACTION BY THE BOARD OF DIRECTORS OF THE BANK CAN BIND THE LATTER. -VIIITHE LOWER COURT ERRED IN HOLDING THAT THE EXECUTION OF THE DEED OF FINAL SALE WAS NOT IN ORDER AND IN HOLDING THAT THE APPELLEES MAY STILL REDEEM THE PROPERTY BY PAYING THE PURCHASE PRICE PLUS 1% INTEREST PER MONTH, DESPITE THE LAPSE OF THE PERIOD OF REDEMPTION. -IXTHE LOWER COURT ERRED IN NOT DECIDING THE CASE IN FAVOR OF

THE APPELLANTS AND CONSEQUENTLY ERRED IN NOT AWARDING DAMAGES TO THE APPELLANTS HEREIN. 5 Herein petitioners, as appellees, did not file their Brief. In its Decision of 4 June 1985, the Intermediate Appellate Court disposed of the assigned errors as follows: xxx xxx xxx The bank has assigned eight (8) errors in the decision but the determinants are the first and the second. But before going into their merits We must take note of the failure of the appellees to file their brief. Appellees did not file any motion for reconsideration. It has to be stated there that, generally, appellee's failure to file brief is considered as equivalent to a confession of error, warranting, although not necessarily requiring a reversal, but any doubt entertained by the appellate court as to what disposition should be made of the case will be resolved against the appellee (4 CJS 1832, cited in Francisco, the Revised Rules of Court Civil Procedure, Vol. III, p. 638) Re the first error THE LOWER COURT ERRED IN NOT HOLDING THAT THE OFFERS BY THE APPELLEES TO THE APPELLANTS WERE MADE AFTER THE PERIOD OF REDEMPTION HAD ALREADY EXPIRED AND AS A MATTER OF FACT, WERE MADE ONLY AFTER THE EXECUTION OF THE DEED OF FINAL SALE BY THE SHERIFF. It will take better proofs than appellees' mere declaration for the Court to believe that they had tendered the redemption money within the redemption period which was refused by the bank. There would have been no valid reason for a refusal; it is an obligation
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imposed by law on every purchaser at public auction that admits of redemption, to accept tender of redemption money. And should there be refusal, the correlative duty of the mortgagor is clear: he must deposit the money with the sheriff. The evidence does not show that appellees complied with this duty. All that was shown by way of compliance was the deposit made with the Clerk of Court of the sum of P4,000.00. This deposit is a belated and last ditch attempt to exercise a right that had long expired. It was made only on December 12, 1979, or after the redemption period of two (2) years from January 29, 1977 when the sheriffs certificate of sale was registered and after sheriff's final sale which was registered on November 14, 1979. And, it is clear that the late deposit was utilized to defeat the bank's vested right which it sought to enforce by its petition for a writ of possession. The lower court correctly ruled against any validity to it. The right to redeem becomes functus officio on the date of its expiry, and its exercise after the period is not really one of redemption but a repurchase. Distinction must be made because redemption is by force of law; the purchaser at public auction is bound to accept redemption. Repurchase however of foreclosed property, after redemption period, imposes no such obligation. After expiry, the purchaser may or may not re-sell the property but no law will compel him to do so, And, he is not bound by the bid price; it is entirely within his discretion to set a higher price, for after all, the property already belongs to him as owner. This brings Us to the second error THE LOWER COURT ERRED IN HOLDING THAT THE APPELLANTS GRANTED THE APPELLEES AN EXTENSION OF THE

PERIOD FOR THE REDEMPTION OF THE PROPERTY WHICH WAS SOLD DURING THE FORECLOSURE SALE. Appellees' main premise is the alleged assurances of the bank's officers that they could redeem the property. From the testimony of Epifanio Natino, however, it is clear that these assurances were given before expiry of redemption (tsn, pp. 15 & 16). Such assurances were not at all necessary since the right to redeem was still in existence. Those assurances however could not and did not extend beyond the redemption period. It seems clear from testimony elicited on cross-examination of the president and manager of the bank that the latter offered to re-sell the property for P30,000.00 but after the petition for a writ of possession had already been filed, and well after expiry of the period to redeem. Appellants failed to accept the offer; they deposited only P4,000.00. There was therefore no meeting of the minds, and accordingly, appellants may no longer be heard. 6 and in the light thereof, REVERSED and SET ASIDE the appealed decision. Their motion to reconsider the same having been denied in the resolution of 23 December 1985, 7 petitioners have come to Us on appeal by certiorari raising the sole issue stated in the beginning of this decision. We find the petition to be devoid of merit. Petitioners have failed to demonstrate that the conclusion made by the respondent Intermediate Appellate Court from the proven facts is wrong. We agree with said Court, and, therefore, set aside the contrary conclusion of the trial court, that the attempts to redeem the property were done after the expiration of the redemption period and that no extension of that period was granted to petitioners. The contrary conclusion made by the trial court is drawn from inferences which are not supported by adequate or sufficient facts or is based on erroneous assumptions. We note that its decision is remarkably silent as to the dates when petitioner Epifanio Natino went to the respondent
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bank to talk with a bank personnel to offer to pay the loan. If indeed the offer was made within the redemption period, but the Bank refused to accept the redemption money, petitioners should have made the tender to the sheriff who made the sale and who then had the duty to accept the tender and execute the certificate of redemption. (Enage vs. Vda. de Hijos de Escano, 38 Phil. 657, cited in II MORAN, Comments on the Rules of Court, 1979 Ed., pp. 326-327). There was no such tender to the Sheriff. Again, if indeed this occurred during the redemption period, then, as correctly pointed out by respondent IAC, it was not necessary to ask for extension of the period to redeem. In respect to the alleged assurance given by Mrs. Brodeth, the President and Manager of the Bank, sometime in May of 1978 to the effect that petitioners can redeem the property as soon as they have the money, it is obvious that this took place after the expiration of the redemption period. As correctly pointed out by the respondent IAC, this could only relate to the matter of resale of the property, not redemption. Furthermore, even assuming for the sake of argument that Mrs. Brodeth gave the assurance, the same could bind the bank only if its Board of Directors approved or ratified it. No evidence was offered to prove such action by the Board. Moreover, Mrs. Brodeth denied that during that meeting in May 1978 she made the assurance; according to her petitioner Epifanio neither mentioned the loan nor offered to redeem, although earlier he was told that to 'redeem" the property he should pay P30,000.00. The latter statement supports the conclusion of respondent IAC that this was the Bank's offer for the re-sell (not redemption of the property), which, logically took place after the expiration of the redemption period. Even if Mrs. Brodeth is to be understood to have promised to allow the petitioners to buy the property at any time they have the money, the Bank was not bound by the promise not only because it was not approved or ratified by the Board of Directors but also because, and more decisively, it was a promise unsupported by a consideration distinct from the re-purchase price. The second paragraph of Article 1479 of the Civil Code expressly provides: xxx xxx xxx An accepted unilateral. promise to buy or to sell a determinate thing for a price certain is binding upon the promissory if the promise is

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

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G.R. No. L-9871

January 31, 1958

ATKINS, KROLL and CO., INC., petitioner, vs. B. CUA HIAN TEK, respondent. Ross Selph, Carrascoso and Janda for petitioner. Ponciano T. Castro for respondent. BENGZON, J.: Review of a Court of Appeals' decision. For its failure to deliver one thousand cartons of sardines, which it had sold to B. Cua Hian Tek, petitioner was sued, and after trial was ordered by the Manila court of first instance to Pay damages, which on appeal was reduced by the Court of Appeals to P3,240.15 representing unrealized profits. There was no such contract of sale, says petitioner, but only an option to buy, which was not enforceable for lack of consideration because in accordance with Art. 1479 of the New Civil Code "an accepted unilatateral promise to buy or to sell a determinate thing for a price certain is binding upon the promisor if the promise is supported by a consideration distinct from the price. Simple are the facts of this case: Dated September 13, 1951, petitioner sent to respondent a letter of the following tenor: Sir (s) /Madam: We are pleased to make you herewith the following firm offer, subject to reply by September 23, 1951: Quantity and Commodity: 400 Ctns. Luneta brand Sardines in Tomato Sauce 48/15-oz. Ovals at $8.25 Ctn. 300 Ctns. Luntea brand Sardines Natural 48/15 oz. talls at $6.25 Ct. 300 Ctns. Luneta brand Sardines in Tomato Sauce 100/5-oz. talls at $7.48 Ct. Price(s): All prices C ad F Manila Cosular Fees of $6.00 to be added. Shipmet: Durig September/October from US Ports. Supplier: Atkins, Kroll & Co., Sa Frasisco, Cal. U.S.A. We are looking forward to receive your valued order and remain . Very truly yours,

The Court of first instance and the Court of Appeals1 found that B. Cua Hian Tek accepted the offer unconditionally and delivered his letter of acceptance Exh. B on September 21, 1951. However, due to shortage of catch of sardines by the packers in California, Atkins Kroll & Co., failed to deliver the commodities it had offered for sale. There are other details to which reference shall not be made, as they touch the question whether the acceptance had been handed on time; and on that issue of Court of Appeals definitely found for plaintiff. Ayway, in presenting its case before this Court petitioner does not dispute such timely acceptance. It merely raises the point that the acceptance only created an option, which, lacking consideration, had no obligatory force. The offer Exh. A, petitioner argues, "was a promise to sell a determinate thing for a price certain. Upon its acceptance by respondent, the offer became an accepted unilateral promise to sell a determinate thing for price certain. Inasmuch as there was no consideration to support the promise to sell distinct from the price, it follows that under Art. 1479 aforequoted, the promise is not binding on the petitioner even if it was accepted by respondent." (p. 12 brief of petitioner.). The argument, maifestly assumes that only a unilateral promise arose when the offeree accepted. Such assumption is a mistake, because a bilateral cotract to sell and to buy was created upon acceptance. So much so that B. Cua Hian Tek could be sued, he had backed out after accepting, by refusing to get the sardines and/or to pay for their price. Indeed, the word "option" is found neither in the offer nor in the acceptance. On the copntrary Exh. B accepted "the firm offer for the sale" and adds, "the undersigned buyer has immediately filed an application for import license . . ." (Emphasis Ours.). Petitioner, however, insists the offer was a mere offer of option, because the "firm offer" Exh. A. was a continuing offer to sell until September 23, "an option is nothing more than a continuing offer" for a specified time. In our opinion implies more than that: it implies the legal obligation to keep open for the time specified.2 Yet the letter Exh. A did not by itself produce the legal obligation of keeping the offer open up ot Septmber 23. It could be withdrawn before acceptance, because it is admitted, there was no consideration for it. ART. 1324. When the offerer has showed the offeree a certain period to accept, the offer may be withdrawn at any time before acceptance by communicating such withdrawal, except when the option is
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founded upon a consideration, as somnething paid or promissed. (n) (New Civil Code.). Ordinarily an offer to buy or sell may be withdrawn or countermanded before accepatnce, even though the offer provides that it will not be withdrawn or countermanded, or allows the offeree a certain time within which to accept it, unless such provision or agreement is supported by an independent consideration. . . (77 Corpus Juris Secundum p. 636.). Furthermore, an option is unilateral: a promise to sell3 at the price fixed whenever the offeree should decide to exercise his option within the specified time. After accepting the promise and before he exercises his option, the holder of the option is not bound to buy. He is free either to buy or not to later. In this case, however, upon accepeting herein petitioner's offer a bilateral promise to sell and to buy ensued, and the respondent ipso facto assumed the obligations of a purchaser. He did not just get the right subsequently to buy or not to buy. It was not a mere option then; it was bilalteral contract of sale. Lastly, even supposing that Exh. A granted an option which is not binding for lack of consideration, the authorities hold that . If the option is given without a consideration, it is a mere offer of a contract of sale, which is not binding until accepted. If, however, acceptance is made before a withdrawal, it constitutes a binding contract of sale, even though the option was not supported by a sufficient consideration. . . (77 Corpus Juris Secundum p. 652. See also 27 Ruling Case Law 339 and cases cited.). It can be taken for granted, as contended by the defendants, that the option contract was not valid for lack of consideration. But it was, at least, an offer to sell, which was accepted by letter, and of this acceptance the offerer had knowledge before said offer was withdrawn. The concurrence of both actsthe offer and the acceptancecould at all events have generated a contract, if none there was before (atrs. 1254 and 1262 of the Civil Code). (Zayco vs. Serra, 44 Phil. 331.). One additional observation should be made before the closing this opinion. The defense in the court of first instance rested on the proposition or propositions that the offer had not been precedent had not been fulfilled. This optionwithout-consideration idea was never mentioned in the answer. A Change of theory in the appellate courts is not permitted.

In order that a question may be raised on appeal, it is essential that it be within the issues made by the parties in their pleadings. Consequently, when a party deliberately adopts a certain theory, and the case is tried and decided upon that theory in the court below, he will not be permitted to change his theory on appeal because, to permit him to do so, would be unfair to the adverse party. (Rules of Court by Moran1957 Ed. Vol. I p.715 citing Agoncillo vs. Javier, 38 Phil. 424; American Express Company vs. Natividad, 46 Phil. 207; San Agustin vs. Barrios, 68 Phil. 465, 480; Toribio vs. Dacasa, 55 Phil. 461.) . We must therefore hold, as the lower courts have held that there was a contract of sale between the parties. And as no legal excuse has been proven, the seller's failure to comply therewith gave around to an award for damages, which has been fixed by the Court of Appeals at P3,240.15amount which petitioner does not dispute in this final instance. Consequently, the decision under review should be, and it is hereby affirmed, with cost against petitioner.

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