Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G.R. No.

166190 September 20, 2006

In the meantime, the Sangguniang Panglunsod approved City Ordinance No. 263, Series of 1982 and Resolution No. 10254 declaring the properties in Langub as a low density residential zone.8 On May 31, 1993, Felisa and the other heirs of Venancio (Heirs, for brevity),9 executed an Extrajudicial Settlement with Deed of Absolute Sale over Lot 23. They alleged therein that when Venancio died intestate, they had agreed to adjudicate unto themselves as heirs of the deceased the aforesaid property, as follows: TO: FELISA S. BAJENTING, One half (1/2) share of the whole of Oct. No. P-5677, as her conjugal share; and the remaining one-half (1/2) of OCT No. P-5677. TO: FELISA S. BAJENTING, MARGARITA BAJENTING, FRANCISCA BAJENTING, SILVERIO BAJENTING (Deceased) represented by his wife and children: Teresita ApasBajenting, Renato Bajenting, Gilbert Bajenting, Criselda Bejenting, Imelda Bajenting, Venancio Bajenting and Elizalde Bajenting; MAXIMA BAJENTING (Deceased) represented by her husband, Francisco Malda, and children: Lee B. Malda, Angelina B. Malda, Milagros B. Malda, Editha B. Malda and Susana B. Malda; BENEDICTINA BAJENTING, ARSENIA BAJENTING; and CELECISO BAJENTING, in equal share pro-indiviso.10 In the same deed, a 50,000 square meter portion of the property was sold to the spouses Sonia Luz Alfafara; and the 54,140 square meter portion to Engr. Romeo F. Baez. The share of Felisa was included in the portion sold to Engr. Baez.11 However, the deed was not notarized; neither was the sale approved by the Secretary of Environment and Natural Resources. In the Agreement/Receipt executed by Felisa Bajenting and Romeo Baez, the parties declared that the price of property was P500,000.00; P350,000.00 was paid by the vendees, the balance of P150,000.00 to be due and payable on or before December 31, 1993 at the residence of the vendors.12 The owner's duplicate of title was turned over to the vendees. However, the deed was not filed with the Office of the Register of Deeds. The Heirs, including Felisa, tried to repurchase the property as provided under Section 119 of Commonwealth Act No. 141, but Romeo Baez and Sonia Alfafara did not allow them to exercise their right. On May 31, 1995, the Heirs, through Venencio Bajenting, filed a Complaint for recovery of title against Romeo Baez and the spouses Alfafara in the Office of the Barangay Captain. When no settlement was reached, the Heirs filed a complaint for Quieting of Title, Repurchase of Property, Recovery of Title plus Damages with the Regional Trial Court, claiming that they had tried to repurchase

the property from the defendants and that the latter had ignored the summons from the Barangay Captain for an amicable settlement of the case. They prayed that after due proceedings, judgment be rendered in their favor: WHEREFORE, PREMISES CONSIDERED, it is prayed of this Honorable Court that after hearing, judgment be rendered in favor of plaintiffs and against herein defendants, by quieting and removing any cloud on the Original Certificate of Title No. P-5677, Free Patent No. 577244, of the Registry of Deeds of Davao City, and thereafter ordering the defendants to: a) Return the owner's duplicate copy of Original Certificate of Title No. P-5677, Free Patent No. 577244 to plaintiff forthwith; b) Vacate the premises including those who are acting for and in their behalf; and, IN THE ALTERNATIVE, should the defendants prove their superior right over the subject property (i.e., sale) as against the herein plaintiffs that they be ordered to resell back the said property to the plaintiffs consonant to the provision of Sec. 119, C.A. No. 141, and in both instances, defendants be, jointly and severally, ordered to pay plaintiffs: 1. P50,000.00 - Moral Damages; 2. P50,000.00 - Exemplary Damages; 3. P70,000.00 - Actual Damages; 4. P50,000.00 - Attorney's fees. Plaintiffs further pray for such relief just and equitable in the premises.13 On October 29, 1996, the Heirs filed an Amended Complaint, alleging the following: 5. Sometime in May 1993, the afore-described real property was sold to defendants for a consideration of Five Hundred Thousand (P500,000.00) Pesos and several months thereafter, the owner's duplicate copy Original Certificate of Title No. P-5677, Free Patent No. 577244, was handed to them and, thereafter, their representative occupied the area. x x x

HEIRS OF VENANCIO BAJENTING and FELISA S. BAJENTING, NAMELY: Teresita A. Bajenting, Ruel A. Bajenting, Gilbert A. Bajenting, Cresilda B. Puebla, Imelda B. Salac, Benedictina B. Ravina, Margarita B. Reusora, Renato A. Bajenting, Lorena A. Bajenting, Elizalde A. Bajenting, Francisco Malda, Jr., B. Selecio Bajenting, Trinidad M. Antinola, Roland B. Malda, Luisa B. Malda, Arsenia C. Ramirez, Angelina Ricarte, Editha Esteban, Lourdes M. Garcia, Nora M. Alivio, Francisca B. Espina, Francisco Malda, Sr., and Venencio A. Bajenting, represented by VENENCIO A. BAJENTING, Attorney-in-Fact, petitioners, vs. ROMEO F. BAEZ, SPOUSES JONATHAN and SONIA LUZ ALFAFARA, respondents. DECISION CALLEJO, SR., J.: This is a Petition for Review on Certiorari of the Decision1 of the Court of Appeals (CA) in CA-G.R. CV No. 76526, as well as its October 31, 2004 Resolution2 denying the Motion for Reconsideration thereof. The factual and procedural antecedents are as follows: Venancio Bajenting applied for a free patent over a parcel of land, Lot 23 (Sgs. 546 D), Davao Cadastre, located in Langub, Davao City, with an area of 104,140 square meters. The application was docketed as Free Patent Application No. IV-45340. In the meantime, Venancio planted fruit trees in the property3 such as mango, lanzones, coconut and santol. He and his wife, Felisa Bajenting, along with their children, also resided in a house which stood on the property.4 On February 18, 1974, Venancio died intestate.5 His application for a free patent was thereafter approved, and on December 18, 1975, Free Patent No. 577244 was issued in his favor. On February 6, 1976, the Register of Deeds issued Original Certificate of Title (OCT) No. P-5677 over the property in the name of "Venancio Bajenting, married to Felisa Sultan."6 Selecio Bajenting continued cultivating the land.7

6. Defendants paid only the sum of THREE HUNDRED FIFTY THOUSAND (P350,000.00) but did not pay the remaining purchase price in the amount of ONE HUNDRED FIFTY THOUSAND (P150,000.00) PESOS. x x x 7. The aforedescribed property sold to defendants, being a Free Patent, can be repurchased within five (5) years from date of conveyance (1993) by the applicant, his widow, or legal heirs pursuant to Sec. 119, Commonwealth Act No. 141, as amended, which provides that: "That every conveyance of land acquired under the free patent provisions, when proper, shall be the subject to repurchase by the applicant, his widow, or legal heirs, within a period of five (5) years from the date of the conveyance; (Underscoring supplied).14 xxxx 13. Herein Plaintiffs have tendered the amount of THREE HUNDRED FIFTY THOUSAND (P350,000.00) as repurchase price with the Office of the Clerk of Court as shown in hereto attached xerox copy of Official Receipt No. 6547953 as Annex "L."15 The Amended Complaint contained the following prayer: WHEREFORE, PREMISES CONSIDERED, it is prayed of this Honorable Court that after hearing, judgment be rendered ordering defendants to resell the property back to herein plaintiffs in accordance with the provision of Sec. 119, C.A. No. 141 and ordering defendants further to: a) Return the owner's duplicate copy of Original Certificate of Title No. P-5677, Free Patent No. 577244 to plaintiffs forthwith; b) Vacate the premises including those who are acting for and in their behalf; and c) Jointly and severally, pay plaintiffs: 1) P 50,000.00 - Moral Damages; 2) P 50,000.00 - Exemplary Damages; 3) P 70,000.00 - Actual Damages;

4) P 50,000.00 - Attorney's fees. Plaintiffs further pray for such relief just and equitable in the premises. 16 The Heirs deposited the amount of P350,000.00 with the Clerk of Court, and an official receipt was issued therefor. In their Amended Answer to the Complaint, the defendants averred, inter alia, that: (1) the plaintiffs, who did not sign the Extrajudicial Settlement and Deed of Absolute Sale, were not heirs of Venancio Bajenting; (2) it was only Venencio Bajenting, Jr. who wanted to repurchase the property for and in behalf of a "speculator" i.e., for the sole use and enjoyment of the interested buyer and not for cultivation of the heirs of the deceased homesteader; and (3) the Heirs have not tendered any amount to perfect their repurchase of the property. They alleged, by way of Compulsory Counterclaim, that: 13. The parties herein have entered into an Extrajudicial Settlement of Estate with Deed of Absolute Sale to evidence their agreement over the land in question. However, such deed has not yet been notarized. Pursuant to Art. 1357 in relation to Art. 1358 (1) of the Civil Code, defendants may require plaintiffs to deliver the proper document in the proper form to evidence the conveyance of the property subject of this case and sufficient to effect the transfer of title to the same in favor of defendants;17 The defendants prayed that, after due proceedings, judgment be rendered in their favor as follows: WHEREFORE, PREMISES CONSIDERED, it is respectfully prayed of this Honorable Court that after trial on the merits, a decision be rendered: 1. Finding that plaintiffs are not entitled to exercise their right to repurchase and confirming the right of the defendants to continue to own, possess and enjoy the subject property; 2. Ordering plaintiffs to deliver to defendants the proper document in the proper form to evidence the conveyance of the property subject of this case and sufficient to effect the transfer of title to the same in favor of defendants; 3. Finding that plaintiffs should pay defendants, jointly and severally, the sum of:

a). equivalent to 25% of the value of the property as attorney's fee and P50,000.00 as expenses of litigation; b). P100,000.00 for each defendant as moral damages; c). P50,000.00 for each defendant as exemplary damages; Defendants further pray for such other equitable and legal reliefs as may be just and proper under the premises.18 During the pre-trial on January 19, 1998, considering the possibility that the parties would amicably settle the matter (that is, they would agree to entrust the property to a receiver, later sell it to a third party and divide the proceeds among themselves), the court ordered a resetting of the case. On February 6, 1998, the plaintiffs, through counsel, filed a Manifestation with the trial court. The pertinent portion reads: 3. Plaintiffs are willing to receive the amount of FIVE MILLION (P5,000,000.00) Pesos, as an additional purchase price of their property covered by Original Certificate of Title No. P-5677 within the period of two (2) months counted from today. Should the defendant cannot (sic) pay said amount, the plaintiffs will no longer agree to the payment of P5,000,000.00. 4. Although, the plaintiffs have no intention whatsoever to sell the property, but in order to settle the case amicably, they are willing to look for interested buyers of the property, subject matter of this repurchase, to sell the same for a consideration of not less than P5,000,000.00. And out of the said purchase price, Plaintiffs are willing to give, by way of settlement to defendant, the amount equivalent to twenty percent (20%) of the proceeds; 5. Plaintiffs shall go on with the presentation of their evidence; 6. During the pendency of this case, receiver shall be appointed to take charge of the property; 7. Plaintiffs are willing to meet the defendant for the discussion of the foregoing on February 11, 1998 at 2:30 in the afternoon.19

The case was referred to the Barangay Captain and the Lupon Tagapamayapa for a possible settlement, to no avail.20 The Heirs presented Vicente Ravino, the husband of Benedicta Bajenting, one of the daughters of Venancio and Felisa. He testified that Felisa had died intestate on January 21, 1996.21 For a period of two years, he had been demanding that the vendee pay the balance of the purchase price, P150,000.00, but the latter failed to pay the amount. The Heirs authorized Venencio Bajenting22 to represent them for the purpose of repurchasing the property from the defendants. The defendants adduced evidence that the Sangguniang Panglunsod approved Ordinance No. 4042, Series of 1996, classifying the properties in Langub as part of a low density property zone.23 Such properties were primarily intended for housing development with at least 20 dwelling units per hectare density and below per hectare.24They pointed out that under Presidential Decree (P.D.) No. 957, the lots could be used as first class residential. The City Planning Office and the Regional Development Council had, likewise, recommended to the National Economic Development Authority the plan to establish an astrodome, a government center to house government agencies, as well as the construction of a circumferential road; however, no money had yet been appropriated to implement the said plans.25 Anne Reyes, a real estate agent, testified that in March 1993, Venencio Bajenting and Margarita Bajenting-Reusora, another heir, asked her to help them sell the property for P350,000.00. She agreed. To enable her to offer the property for sale, the Bajentings entrusted to her a copy of the owner's duplicate of OCT No. P-5677, Tax Declaration No. D-8-8-159, Tax Clearance dated October 22, 1991 and a Certificate from the City Assessor.26However, she failed to sell the property. In December 1995, Margarita saw her again and asked her to return the said documents because she (Margarita) wanted to sell the property for P10,000,000.00. Margarita told her that the property had been earlier sold for a cheaper price, but she was requested to accompany any prospective buyers willing to pay P10,000,000.00 to Venencio Bajenting who had a special power of attorney to sell the property in behalf of the Heirs.27 After her meeting with Margarita, nothing happened. On cross-examination, Anne admitted that she had no written authority to sell the property.28 In December 1995, she inquired from Engr. Baez if he was willing to resell the property to the heirs of Venancio Bajenting.29 In February 1996, Engr. Baez, accompanied by Atty. Susan Cariaga, saw her (Anne) and asked if the Bajentings were indeed going to repurchase the property; she answered in the affirmative and volunteered to testify.30 Ermelinda Oyco testified that during the proceedings of the case in the Office of the Barangay Captain, Margarita told her and her sister that the Bajentings were going to repurchase the property and would resell the same. She told Margarita that she had a

prospective buyer, but withheld the person's identity. Margarita told her that the Bajentings would sell the property for P10,000,000.00. Venencio Bajenting confirmed the price and told her that she would receive a 3% commission if she succeeded in selling the property.31 On cross-examination, she declared that she was invited to testify for Engr. Baez and that she agreed because she pitied him. On rebuttal, Venencio Bajenting testified and declared that he did not meet Oyco and her mother in December 1996, and that they had no interest to sell the property.32 Before she could testify, Margarita Reusora died on August 24, 1997.33 On March 1, 2002, the trial court rendered judgment in favor of the Heirs. The dispositive portion reads: FOR THE FOREGOING, judgment is hereby rendered in favor of plaintiffs and against defendants, ordering the latter to vacate subject property covered by Original Certificate of Title No. T-5677 and deliver said Certificate of Title to plaintiffs within ten (10) days from receipt hereof. Accordingly, the Clerk of Court of the Regional Trial Court, Davao City, is hereby ordered to release the amount of P350,000.00 deposited by plaintiffs in favor of defendants, representing the repurchase money of subject property, evidenced by Official Receipt No. 6547953, dated October 11, 1996. Further, the compulsory counter-claim filed by defendants against plaintiffs is hereby DISMISSED. SO ORDERED.34 The RTC ruled that while there is evidence that first-class subdivisions are being developed in the vicinity, no budget had been appropriated for the plans to construct the government center and the sports complex. However, it declared that the defendants failed to present any evidence that the plaintiffs were repurchasing the property for and in behalf of a financier. The spouses Alfafara, and Baez filed a motion for reconsideration, which the court denied. It declared that the ruling of this Court in Santana V. Marias35 is not applicable, and that it was the case of Hernaez v. Mamalio36that was controlling. The spouses Alfafara, and Baez appealed the Decision to the CA, alleging that:

FIRST ASSIGNED ERROR THE TRIAL COURT ERRED IN NOT FINDING THAT PLAINTIFFS' PURPOSE IN REPURCHASING THE PROPERTY IS ONLY TO BE ABLE TO SELL THE SAME TO ANOTHER BUYER FOR A HIGHER PRICE OR MERELY FOR SPECULATION. SECOND ASSIGNED ERROR THE TRIAL COURT ERRED IN NOT FINDING THAT THERE WAS NO PROPER BARANGAY CONCILIATION BEFORE THIS CASE WAS FILED IN THE REGIONAL TRIAL COURT AND THAT THIS DEFECT WAS NEVER CURED.37 They averred that the trial court erred in not applying the ruling of this Court in Santana v. Marias,38 reiterated inQuisumbing v. Court of Appeals39 and Lacorda v. Intermediate Appellate Court.40 They maintained that the Heirs were exercising their right to repurchase the property for commercial purposes, not for the purpose of using the property for their family home. They asserted that the property is surrounded by first-class subdivisions and is classified as a lowdensity residential zone. On February 27, 2004, the CA rendered judgment granting the appeal, and reversed the Decision of the trial court. The CA ruled that as gleaned from the evidence on record and the pleadings of the Heirs, the property was sought to be repurchased for profit, and not to preserve it for themselves and their families.41 The appellate court applied the ruling in the Santana case. The Heirs filed a motion for the reconsideration of the Decision, which the CA denied for lack of merit. Hence, the instant Petition for Review on Certiorari, where petitioners allege that the CA erred in disregarding the findings of the trial court based on the evidence on record in applying the Santana case, and in not resolving the issue of respondents' failure to pay the balance of the purchase price of the property. They insist that the factual backdrop in Santana is substantially different from that in this case. The speculative purpose ascribed to them may as well apply to respondents, who refused to resell the property to petitioner, knowing that the value of the property had considerably increased. As between the petitioners and the respondents, the law should be applied in their favor, being the heirs of the beneficiaries under Commonwealth Act 141, as amended. The petitioners aver that respondents failed to prove with clear and convincing evidence that they were exercising their right to

repurchase the property only for the purpose of reselling the same at a higher price, thereby rendering nugatory Section 119 of Commonwealth Act 141. The collective testimonies of Reyes and Oyco were hearsay and inadmissible in evidence under the dead man's statute, Margarita Reusora having died on August 24, 1997 before the witnesses had even testified. Neither Margarita nor Venencio Bajenting could have informed Reyes and Oyco that the petitioners were selling the property for P10,000,000.00 because petitioners, through Venencio Bajenting, had filed a case against the respondents in the Office of the Barangay Captain. They insist that the CA erred in declaring as self-serving the testimony of petitioner Venencio Bajenting. Worse, petitioners aver, the CA ignored the fact that respondents had not paid them the balance of the purchase price of the property worth P150,000.00; thus, they would have to file a separate suit to collect the amount. For their part, respondents aver that only petitioner Venencio Bajenting signed the verification and certification of non-forum shopping in the petition. Petitioners failed to attach any power of attorney authorizing Venencio Bajenting to sign the Verification and Certification Against Forum Shopping for and in their behalf. As found by the CA, the testimonies of Reyes and Oyco were credible and deserving of full probative weight. Indeed, their testimonies are buttressed by the trial court's Order dated January 19, 1998. They add that the findings of the CA are binding on this Court, and that the dead man's statute does not apply to the testimonies of Reyes and Oyco, being as they were, mere witnesses not parties to the case. Respondents maintain that the ruling of this Court in Santana which reiterated its ruling in Simeon v. Pea,42applies in this case. They further claim that the CA cannot be faulted for not ordering them to pay the balance ofP150,000.00 to petitioners because it was not contained in their prayer. Petitioners counter that they mentioned the non-payment by respondents of the balance of the purchase price,P150,000.00 to emphasize their point that it was unfair for the CA to reverse the decision of the RTC. The issues are as follows: (a) whether or not petitioners complied with the rule on verification and certification against forum shopping; (b) whether petitioners are entitled to repurchase the property from respondents; and (c) whether petitioners are obliged to execute a notarized deed of absolute sale over the property. The petition has no merit. On the first issue, the Court notes that, of the 23 petitioners, only petitioner Venencio Bajenting signed the Verification and

Certification of Non-Forum Shopping. Petitioners did not append to their petition a special power of attorney authorizing petitioner Venencio Bajenting to sign the Certification for and in their behalf. The rule is that the certification of non-forum shopping must be signed by all the petitioners or plaintiffs and the signing by only one of them is not sufficient. However, in Cavile v. Heirs of Clarita Cavile,43 the Court made the following pronouncement: The rule is that the certificate of non-forum shopping must be signed by all the petitioners or plaintiffs in a case and the signing by only one of them is insufficient. However, the Court has also stressed that the rules on forum shopping, which were designed to promote and facilitate the orderly administration of justice, should not be interpreted with such absolute literalness as to subvert its own ultimate and legitimate objective. The rule of substantial compliance may be availed of with respect to the contents of the certification. This is because the requirement of strict compliance with the provisions regarding the certification of non-forum shopping merely underscores its mandatory nature in that the certification cannot be altogether dispensed with or its requirements completely disregarded. It does not thereby interdict substantial compliance with its provisions under justifiable circumstance. We find that the execution by Thomas George Cavile, Sr. in behalf of all the other petitioners of the certificate of non-forum shopping constitutes substantial compliance with the Rules. All the petitioners, being relatives and co-owners of the properties in dispute, share a common interest thereon. They also share a common defense in the complaint for partition filed by the respondents. Thus, when they filed the instant petition, they filed it as a collective, raising only one argument to defend their rights over the properties in question. There is sufficient basis, therefore, for Thomas George Cavili, Sr. to speak for and in behalf of his co-petitioners that they have not filed any action or claim involving the same issues in another court or tribunal, nor is there other pending action or claim in another court or tribunal involving the same issues. Moreover, it has been held that the merits of substantive aspects of the case may be deemed as "special circumstance" for the Court to take cognizance of a petition for review although the certification against forum shopping was executed and signed by only one of the petitioners.44 In the present case, we find and so rule that petitioners substantially complied with the Rules of Court. Petitioners, as heirs of the spouses Venancio and Felisa Bajenting (the patentees), sought to exercise their right under Section 119, Act 141 to repurchase the property within the statutory period therefor.

Petitioner Venencio Bajenting was empowered to act for and in their behalf before the Barangay Captain and in the RTC for the enforcement of their right as such heirs. Petitioners have not filed any action against respondents in another court or tribunal involving the same issues and property. We note that the Secretary of Agriculture and Natural Resources had not approved the sale of the property (by the heirs of the patentee) to respondents. It bears stressing that Free Patent No. 577244 which was granted in favor of Venancio Bajenting on December 18, 1975 is subject to the following conditions therein: NOW, THEREFORE, KNOW YE, That by authority of the Constitution of the Philippines, and in conformity with the provisions thereof and of the aforecited Republic Act No. 782 and Commonwealth Act No. 141, as amended, there is hereby granted unto said VENANCIO BAJENTING, Filipino, of legal age, married to Felisa Sultan, and residing in Langub, Ma-a, Davao City the tract of land above-described. TO HAVE AND TO HOLD the said tract of land, with the appurtenances thereunto of right belonging unto the said VENANCIO BEJENTING and to his heirs and assigns forever, subject to the provisions of Sections 118, 119, 121, 122 and 124 of Commonwealth Act No. 141, as amended, which provide that except in favor of the Government or any of its branches, units, or institutions, the land hereby acquired shall be inalienable and shall not be subject to encumbrance for a period of five (5) years from the date of this patent, and shall not be liable for the satisfaction of any debt contracted prior to the expiration of said period; that every conveyance of land acquired under the free patent provisions, when proper, shall be subject to repurchase by the applicant, his widow, or legal heirs, within a period of five years from the date of the conveyance; that it shall not be encumbered, alienated, or transferred to any person, not qualified to acquire lands of the public domain under said Commonwealth Act No. 141, as amended; and that it shall not be subject to any encumbrance whatsoever in favor of any corporation, association or partnership except with the consent of the grantee and the approval of the Secretary of Natural Resources and solely for educational, religious or charitable purposes or for a right of way; and subject finally to all conditions and public easements and servitudes recognized and prescribed by law especially those mentioned in Sections 109, 110, 111, 113 and 114 of Commonwealth Act No. 141, as amended, and the right of the Government to administer and protect the timber found thereon for a term of five (5) years from the date of this patent, provided; however, that the grantee or heirs may cut

and utilize such timber as may be needed for his use or their personal use. Sections 118, 119 and 122 of Commonwealth Act No. 141, as amended, reads: SEC. 118. Except in favor of the Government or any of its branches, units, or institutions, or legally constituted banking corporations, lands acquired under free patent or homestead provisions shall not be subject to encumbrance or alienation from the date of the approval of the application and for a term of five years from and after the date of issuance of the patent or grant nor shall they become liable to the satisfaction of any debt contracted prior to the expiration of said period; but the improvements or crops on the land may be mortgaged or pledged to qualified persons, associations, or corporations. No alienation, transfer, or conveyance of any homestead after five years and before twenty-five years after issuance of title shall be valid without the approval of the Secretary of Agricultural and Natural Resources, which approval shall not be denied except on constitutional and legal grounds.45 SEC. 119. Every conveyance of land acquired under the free patent or homestead provisions, when proper, shall be subject to repurchase by the applicant, his widow, or legal heirs, within a period of five years from the date of the conveyance. SEC. 122. No land originally acquired in any manner under the provisions of this Act, nor any permanent improvement on such land, shall be encumbered, alienated, or transferred, except to persons, corporations, associations, or partnerships who may acquire lands of the public domain under this Act or to corporations organized in the Philippines authorized therefore by their charters. Except in cases of hereditary succession, no land or any portion thereof originally acquired under the free patent, homestead, or individual sale provisions of this Act, or any permanent improvement on such land, shall be transferred or assigned to any individual, nor shall such land or any permanent improvement thereon be leased to such individual, when the area of said land, added to that of his own, shall exceed one hundred and forty-four hectares. Any transfer, assignment, or lease made in violation hereof shall be null and void.46

OCT No. P-5677 was issued to and in the name of Venancio Bajenting over the property on February 6, 1976. The 25-year period provided in Section 118 of the law was to expire on February 6, 2001. However, in May 1999, Felisa Bajenting and her children sold the property to respondents without the approval of the Secretary of Environment and Natural Resources (formerly the Department of Agriculture and Natural Resources). There is no showing in the records that the Secretary of Environment and Natural Resources had approved the sale. The failure of the vendors to secure the approval of the Secretary of the DENR does not, ipso facto, make the sale void. The approval may be secured later, producing the effect of ratifying and adopting the transaction as if the sale had been previously authorized. The approval of the sale subsequent thereto would have the effect of the Secretary's ratification and adoption as if the sale had been previously authorized.47 The Secretary may disapprove the sale on legal grounds. The second issue is factual because it involves the determination of petitioners' intention to repurchase the property to enable them to amass a hefty net profit of P9,635,000.00 from its resale to a third party, and not for the purpose of preserving the same for themselves and their families' use as envisioned in Com. Act No. 141, as amended. Section 1, Rule 45 of the Rules of Court provides that only questions of law and not factual issues may be raised in this Court. Settled is the rule that the jurisdiction of this Court in cases brought before it from the CA via Rule 45 of the Rules of Court is limited to reviewing errors of law. However, while the findings of fact of the CA are conclusive on this Court, there are, likewise, recognized exceptions, to wit: (1) when the findings are grounded entirely on speculations, surmises or conjectures; (2) when the inference made is manifestly mistaken, absurd, or impossible; (3) when there is a grave abuse of discretion; (4) when the judgment is based on misappreciation of facts; (5) when the findings of fact are conflicting; (6) when in making its findings are contrary to the admissions of both appellant and appellee; (7) when the findings are contrary to those of the trial court; (8) when the findings are conclusions without citation of specific evidence on which they are based; (9) when the facts set forth in the petition as well as in the petitioner's main and reply briefs are not disputed by the respondent; and (10) when the findings of fact are premised on the supposed absence of evidence and contradicted by the evidence on record.48 In the present case, the findings and conclusions of the trial court are contrary to those of the CA. Indeed, the trial court gave no probative weight to the testimonies of Reyes and Oyco despite the absence of any factual and legal basis for it to do so. It is thus imperative for the Court to delve into and resolve this factual issue.

As elucidated by this Court, the object of the provisions of Act 141, as amended, granting rights and privileges to patentees or homesteaders is to provide a house for each citizen where his family may settle and live beyond the reach of financial misfortune and to inculcate in the individuals the feelings of independence which are essential to the maintenance of free institution. The State is called upon to ensure that the citizen shall not be divested of needs for support, and reclined to pauperism.49 The Court, likewise, emphasized that the purpose of such law is conservation of a family home in keeping with the policy of the State to foster families as the factors of society, and thus promote public welfare. The sentiment of patriotism and independence, the spirit of citizenship, the feeling of interest in public affairs, are cultivated and fostered more readily when the citizen lives permanently in his own house with a sense of its protection and durability.50 It is intended to promote the spread of small land ownership and the preservation of public land grants in the names of the underprivileged for whose benefits they are specially intended and whose welfare is a special concern of the State.51 The law is intended to commence ownership of lands acquired as homestead by the patentee or homesteader or his heirs.52 In Simeon v. Pea,53 the Court declared that the law was enacted to give the homesteader or patentee every chance to preserve for himself and his family the land that the State had gratuitously given to him as a reward for his labor in cleaning and cultivating it. In that sense, the law becomes unqualified and unconditional. Its basic objective, the Court stressed, is to promote public policy, that is, to provide home and decent living for destitutes, aimed at providing a class of independent small landholders which is the bulwark of peace and order. To ensure the attainment of said objectives, the law gives the patentee, his widow or his legal heirs the right to repurchase the property within five years from date of the sale. However, the patentee, his widow or legal heirs should not be allowed to take advantage of the salutary policy of the law to enable them to recover the land only to dispose of it again to amass a hefty profit to themselves.54 The Court cannot sustain such a transaction which would put a premium on speculation which is contrary to the philosophy behind Section 119 of Act 141, as amended. In this case, we agree with the ruling of the CA that, based on the pleadings of the parties and the evidence on record, petitioners, through Venencio Bajenting and Margarita Reusora, sought to repurchase the property only for the purpose of reselling the same for P10,000,000.00 and in the process, amass a net profit amounting toP9,650,000.00. We quote, with approval, the findings of the CA, thus: The almost conclusive effect of the findings of the trial court cannot be denied. This is anchored on the practical recognition of the vantage position of the trial judge in

observing the demeanor of the witness. However, such rule admits certain exceptions. Almost as wellrecognized as the general rule is the exception that We may nonetheless reverse the factual findings of the trial court if by the evidence on record, or lack of it, it appears that the trial court erred. We find that such exception exists in the present case. The lack of documentary evidence proving that plaintiffs constituted Reyes and Oyco as agents for the sale of the subject property merely shows that Reyes and Oyco were not constituted as agents in accordance with the specific form prescribed by law. It does not, however, render their testimonies improbable nor does it have any tendency to lessen the credibility of their testimonies respecting the fact sought to be proven. What is material and should have been considered by the trial court were the assertions of Reyes and Oyco stating that plaintiff made negotiations for them to find a buyer for the subject property since it would prove that plaintiffs want to repurchase the subject property only in order to resell it to another at a higher price. The testimony of plaintiff Venencio Bajenting denying the claim of Reyes and Oyco cannot be given much weight and credence. Being one who has a direct interest in the case, Venencio Bajenting necessarily has a motive for coloring his testimony. Besides, apart from his denials, his testimony is uncorroborated. In contrast, there is no evidence that Reyes and Oyco were actuated by any ill motive in testifying against plaintiffs. In fact, their testimonies even show that their mother is a relative of plaintiffs. The profit motivation behind the instant complaint for repurchase is further shown by plaintiffs' declaration in their Opposition to defendants' motion for reconsideration, that "the Three Hundred Fifty Thousand (P350,000.00) Pesos given for the ten-hectare land would be too small for defendant to own the property." Evidently, it is the same profit motivation that impelled plaintiffs to agree to a settlement during the early stages of the proceedings before the trial court. In the Manifestation filed by plaintiffs on February 4, 1998, plaintiffs expressed their agreement to a settlement but only if defendants pay them an additional purchase price of Five Million Pesos (PhP5,000,000.00) or if the subject property were to be sold to an interested buyer for no less than the said amount with 80% of the proceeds going to the plaintiffs and offering 20% thereof to defendant.

In fine, the trial court committed an error in not applying the doctrine laid down in the Santana case. As in the Santana case, plaintiffs' motive in filing the present complaint for repurchase is not for the purpose of preserving the subject property for themselves and their family but to dispose of it again at a much greater profit for themselves. Hence, the repurchase should not be allowed.55 We note that petitioner Venencio Bajenting is merely a mechanic. He had not explained to the trial court how he and his co-heirs were able to produce P350,000.00 in 1996 and deposit the same with the Clerk of Court when they filed their amended complaint. There is no evidence on record that petitioners were financially capable to produce the amount in 1996, considering that they had to sell the property for P500,000.00 three years earlier. The foregoing circumstances buttress the contention of respondents that petitioners, through Venencio Bajenting, sought to repurchase the property for no other purpose than to generate a hefty profit of P9,650,000.00. That petitioners had no intention of retaining the property for their and their families' use and purpose is fortified by the fact that during pre-trial, they manifested their willingness to have the property sold to a third party and, from the proceeds thereof, to receive the amount of P5,000,000.00; and that in the meantime, a receiver would be appointed by the court. Contrary to the allegations of petitioners, the collective testimonies of Reyes and Oyco are admissible in evidence despite the fact that when they testified, Margarita Reusora was already dead. Section 20(a), Rule 130 of the Revised Rules of Court reads: Section 20. Disqualification by reason of interest or relationship. The following persons cannot testify as to matters in which they are interested, directly or indirectly as herein enumerated: (a) Parties or assignors of parties to a case, or persons in whose behalf a case is prosecuted, against an executor or administrator or other representative of a deceased person, or against a person of unsound mind, upon a claim or demand against the estate of such deceased person or against such person of unsound mind, cannot testify as to any matter of fact occurring before the death of such deceased person or before such became of unsound mind. The bar under aforequoted rule applies only to parties to a case, or assignors of parties to a case or persons in whose behalf a case is prosecuted. Reyes and Oyco were mere witnesses for respondents, not parties in the courta quo, nor assignors of any of the parties in

whose behalf the case was prosecuted. Their testimonies were presented only to prove that the petitioners intended to repurchase the property for profit, and not for the purpose of preserving it for their and their families' use and enjoyment.56 We agree with the ruling of the CA that the ruling in Santana v. Marias57 applies in this case. As in Santana, the property in this case was no longer agricultural but residential and commercial, in the midst of several high-class residential subdivisions. The government had planned to construct in the vicinity a circumferential road, a government center and an astrodome. As in Santana, petitioners, through counsel, declared their willingness to settle the case for the amount of P5,000,000.00 and the sale of the property to a third party. The money which petitioners were to use to repurchase the property was not theirs, but the money of petitioner Venencio Bajenting's employer. Petitioner cannot find solace in the ruling of this Court in Hernaez v. Mamalio,58 which in part reads: In an action to enforce the right to repurchase a homestead within five (5) years from the sale thereof, it is of no consequence what exactly might be the motive of the plaintiff, and it is unnecessary for the Court to inquire before hand into his financial capacity to make the repurchase for the simple reason that such question will resolve itself should he fail to make the corresponding tender of payment within the prescribed period. First. The decision of the trial court ordering petitioner to execute a deed of sale over the property in favor of respondent is grounded on the fact that his record on appeal of petitioner, as appellant, does not contain sufficient relevant data showing that the appeal was filed on time; Second. The ruling in Hernaez has not been reiterated by this Court. On the other hand, this Court in Lacorda v. Intermediate Appellate Court,59 ruled that: While it is true that the offer to repurchase was made within the statutory period both the trial and appellate courts found as a fact that the petitioners did not really intend to derive their livelihood from it but to resell part of it for a handsome profit. It is now settled that homesteaders should not be allowed to take advantage of the salutary policy behind the Public Land Law to enable them to recover the land in question from vendees only to dispose of it again at much greater profit. (Simeon v. Pea, L-29049, Dec. 29, 1970, 36 SCRA 619 and other cases cited therein.)60

In a case of recent vintage, Fontanilla, Sr. v. Court of Appeals,61 this Court reiterated the doctrine that: The foregoing construction is merely in keeping with the purpose of Section 119 "to enable the family of the applicant or grantee to keep their homestead" for it is well settled that the law must be construed liberally in order to carry out that purpose." As we held in Ferrer v. Magente "x x x The applicant for a homestead is to be given all the inducement that the law offers and is entitled to its full protection. Its blessings, however, do not stop with him. This is particularly so in this case as the appellee is the son of the deceased. There is no question then as to his status of being a legal heir. The policy of the law is not difficult to understand. The incentive for a pioneer to venture into developing virgin land becomes more attractive if he is assured that his effort will not go for naught should perchance his life be cut short. This is merely a recognition of how closely bound parents and children are in Filipino family. Logic, the sense of fitness and of right, as well as pragmatic considerations thus call for continued adherence to the policy that not the individual applicant alone but those so closely related to him as are entitled to legal succession may take full advantage of the benefits the law confers.62 On the third issue, we agree with respondents' contention that petitioners are obliged to execute a notarized deed of absolute sale over the property upon payment of the P150,000.00 balance of the purchase price of the property. A contract of sale is a consensual contract. Upon the perfection of the contract, the parties may reciprocally demand performance. The vendee may compel transfer of ownership of the object of the sale, and the vendor may require the vendee to pay the thing sold. In this case, the balance of the purchase price of the property was due on or before December 31, 1993. IN VIEW OF ALL THE FOREGOING, the Petition is DENIED for lack of merit. The Decision of the Court of Appeals in CA-G.R. CV No. 76526 is AFFIRMED with MODIFICATION. Petitioners are ORDERED to execute in favor of respondents a Deed of Absolute Sale over the property upon payment of P150,000.00, the balance of the purchase price. This is without prejudice to any action the Secretary of the Department of Environment and Natural Resources may take on the sale of the property by the petitioners to the respondents. No costs.

SO ORDERED. Panganiban, C.J., Chairperson, Ynares-Santiago, Austria-Martinez, Chico-Nazario, J.J., concur. G.R. No. 111743 October 8, 1999 Visitacion Gabelo, Erlinda Abella, Petra Perez, Erlinda Traquena, Ben Cardinal, Eduardo Traquena, Leopoldo Traquena, Marife Tubalas, Ulysis Mateo, Jocelyn Fernandez, Alfonso Placido, Leonardo Traquena, Susan Rendon and Mateo Trinidad, petitioners, vs. Court of Appeals, Ursula Maglente, Consolacion Berja, Mercedita Ferrer, Thelma Abella, Antonio Ngo, and Philippine Realty Corporation, respondents. PURISIMA, J.: This is a Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court, of the decision of the Court of Appeals, dated April 29, 1993, in CA-G.R. CV No. 33178, affirming the decision of the Regional Trial Court of Manila, Branch 38, in Civil Case No. 89-48057, entitled "Philippine Realty Corporation vs. Ursula Maglente, et al.", declaring the defendants (herein respondents) as the rightful party to purchase the land under controversy, and ordering the plaintiff, Philippine Realty Corporation (PRC, for brevity), to execute the corresponding Contract of Sale/Contract to Sell in favor of the defendants aforenamed.1wphi1.nt The antecedent facts culminating in the filing of the present petition are as follows: On January 15, 1986, Philippine Realty Corporation, owner of a parcel of land at 400 Solana Street, Intramuros, Manila, with an area of 675.80 square meters, and covered by Transfer Certificate of Title No. 43989, entered into a Contract of Lease thereover with the herein private respondent, Ursula Maglente. The lease was for a period of three (3) years at a monthly rental of P3,000.00 during the first year, P3,189.78 per month in the second year and P3,374.00 monthly for the third year. The lease contract stipulated: 12. That the LESSOR shall have the right to sell any part of the entire leased land for any amount or consideration it deems convenient, subject to the condition, however, that the LESSEE shall be notified about it sixty (60) days in advance; that the LESSEE shall be given the first priority to buy it; and in the event that the LESSEE cannot

afford to buy, the final buyer shall respect this lease for the duration of the same, except in cases of exproriation. It also prohibited the lessee to "cede, transfer, mortgage, sublease or in any manner encumber the whole or part of the leased land and its improvements or its rights as LESSEE of the leased land, without the previous consent in writing of the LESSOR contained in a public instrument." However, after the execution of the lease agreement, respondent Maglente started leasing portions of the leased area to the herein petitioners, Visitacion Gabelo, Erlinda Abella, Petra Perez, Erlinda Traquena, Ben Cardinal, Eduardo Traquena, Leopoldo Traquena, Marife Tubalas, Ulysis Mateo, Jocelyn Fernandez, Alfonso Placido, Leonardo Traquena, Susan Rendon and Mateo Trinidad, who erected their respective houses thereon. On March 9, 1987, when the lease contract was about to expire, the Philippine Realty Corporation, through its Junior Trust and Property Officers, Mr. Leandro Buguis and Mr. Florentino B. Rosario, sent a written offer to sell subject properties to respondent Ursula Maglente. The said letter stated: We wish to inform you that the Archdiocese of Manila has now decided to open for sale the properties it own (sic) in the District of Intramuros, Manila. However, before we accept offers from other parties we are of course giving the first priority to our tenants or lessees of Intramuros lots. Responding to such written offer, Maglente wrote a letter, dated February 2, 1988, to the Roman Catholic Archbishop of Manila manifesting an intention to exercise her right of first priority to purchase the property as stipulated in the lease contract. On February 15, 1988, a Memorandum on the offer of Maglente to purchase the property was prepared and presented to Msgr. Domingo Cirilos, president of Philippine Realty Corporation, at the offered price of P1,800.00 per square meter or for a total amount of P1,216,440.00, with a downpayment of P100,000.00; the balance of the purchase price payable within ten (10) years with interest at the rate of eighteen (18%) percent per annum. Msgr. Cirilos found the offer acceptable and approved the same. On May 11, 1988, Maglente gave a partial downpayment of P25,000.00 and additional P25,000.00 on May 20, 1988. In a letter, dated January 28, 1989, Maglente informed the said corporation that there were other persons who were her co-buyers, actually

occupying the premises, namely: Consolacion Berja, Mercedita Ferrer, Thelma Abella and Antonio Ngo within their respective areas of 100, 50, 60 and 400 square meters. On January 30, 1989 Maglente paid her back rentals of P60,642.16 and P50,000.00 more, to complete her downpayment of P100,000.00. On February 1989, Philippine Realty Corporation (PRC) received copy of a letter sent by the herein petitioners to the Archbishop of Manila, Jaime Cardinal Sin, expressing their desire to purchase the portions of subject property on which they have been staying for a long time. And so, PRC met with the petitioners who apprised the corporation of their being actual occupants of the leased premises and of the impending demolition of their houses which Maglente threatened to cause. Petitioners then asked PRC to prevent the demolition of their houses which might result in trouble and violence. On February 23, 1989, in order to resolve which group has the right to purchase subject property as between the petitioners/sublessees of Maglente, and respondent Maglente, and her co-buyers, PRC brought a Complaint in Interpleader against the herein petitioners and private respondents, docketed as Civil Case No. 89-48057 before Branch 38 of the Regional Trial Court of Manila. On March 11, 1991, after trial on the merits, the lower court of origin rendered judgment in favor of respondent Maglente and her group, disposing thus: WHEREFORE, premises considered, judgment is hereby rendered as follows: 1. Declaring the defendants Ursula Maglente, Consolacion Berja, Mercedita Ferrer, Thelma Abella and Antonio Ngo as the rightful party to purchase the land in controversy; and 2. Ordering plaintiff Philippine Realty Corporation to execute the corresponding contract of sale/contract to sell in favor of the defendants aforementioned in accordance with this Decision within thirty (30) days from notice thereof. Dissatisfied with the aforesaid decision below, the Gabelo group (petitioners here) appealed to the Court of Appeals, which affirmed the disposition of the trial court appealed from.

Undaunted, petitioners found their way to this Court via the present petition, assigning as sole error the ruling of the Court of Appeals upholding the right of the private respondents, Consolacion Berja and Antonio Ngo, to purchase subject property. Petitioners theorize that they are tenants of Ursula Maglente on the land in dispute, which they are occupying, and as such actual occupants they have the preferential right to purchase the portions of land respectively occupied by them; that the private respondents, Thelma Abella and Antonio Ngo, have never been occupants of the contested lot, and that, as defined in the Pre-trial Order 1 issued below, the issue for resolution should have been limited to whether or not Berja and Ngo actually occupied the premises in question because occupation thereon is the basis of the right to purchase subject area. Petitioners' contention is untenable. There is no legal basis for the assertion by petitioners that as actual occupants of the said property, they have the right of first priority to purchase the same. As regards the freedom of contract, it signifies or implies the right to choose with whom to contract. PRC is thus free to offer its subject property for sale to any interested person. It is not duty bound to sell the same to the petitioners simply because the latter were in actual occupation of the property absent any prior agreement vesting in them as occupants the right of first priority to buy, as in the case of respondent Maglente. As a matter of fact, because it (PRC) contracted only with respondent Maglente, it could even evict the petitioners from the premises occupied by them considering that the sublease contract between petitioners and Maglente was inked without the prior consent in writing of PRC, as required under the lease contract. Thus, although the other private respondents were PRC and Maglente, the former could freely enter into a contract with them. So also, the contract of sale having been perfected, the parties thereto are already bound thereby and petitioners can no longer assert their right to buy. It is well-settled that a contract of sale is perfected the moment there is a meeting of the minds of the contracting parties upon the thing which is the object of the contract and upon the price. 2 From the time a party accepts the other party's offer to sell within the stipulated period without qualification, a contract of sale is deemed perfected. 3 In the case under consideration, the contract of sale was already perfected PRC offered the subject lot for sale to respondent Maglente and her group through its Junior Trust and Property Officers. Respondent Maglente and her group accepted such offer through a letter addressed to the Roman Catholic Archbishop of Manila, dated February 2, 1988, manifesting their intention to purchase the property as provided for under the lease contract. Thus, there was already an offer and acceptance giving rise to a valid contract. As a matter of fact, respondents have already

completed payment of their downpayment of P100,000.00. Therefore, as borne by evidence on record, the requisites under Article 1318 of the Civil Code 4 for a perfected contract have been met. Anent petitioners' submission that the sale has not been perfected because the parties have not affixed their signatures thereto, suffice it to state that under the law, the meeting of the minds between the parties gives rise to a binding contract although they have not affixed their signatures to its written form. 5 WHEREFORE, the petition is hereby DENIED for lack of merit and the decision of the Court of Appeals in CA-G.R. CV No. 33178 AFFIRMED. No pronouncement as to costs.1wphi1.nt SO ORDERED. Melo, Vitug, Panganiban and Gonzaga-Reyes, JJ., concur. G.R. No. 134712 August 13, 2004

MARIA CABOTAJE, AGUSTIN CABOTAJE, AMELIA TOMAS and DANIEL PUGAYAN, petitioners, vs. SPOUSES SOTERO PUDUNAN and MARIA RIVERA, respondents.

DECISION

CALLEJO, SR., J.: This is a petition for review on certiorari of the Decision1 of the Court of Appeals (CA) in CA-G.R. CV No. 42432 which reversed the Decision2 of the Regional Trial Court of Bayombong, Nueva Vizcaya, Branch 30, in Civil Case No. 207 for recovery of ownership and possession, and damages. The Antecedents Bonifacia Lang-ew was the owner of two parcels of land, Lot 1 of Plan Psu-776-44 with an area of 9,951 square meters; and Lot 2 of Plan Psu-776-44 with an area of 6,382 square meters. The lots were located in Lamut, Indiana, Bambang, Nueva Vizcaya, and were covered by Transfer Certificate of Title (TCT) No. T-1657.3 Lang-ew

died intestate on November 23, 1965 and was survived by her grandchildren Maria Cabotaje, Agustin Cabotaje, Amelia Tomas, the children of her daughter Josefina Bintican who died on November 21, 1952; and, her grandson Daniel Pugayan, the son of her daughter Emerenciana Bintican who also predeceased her. Maria Cabotaje, Daniel Pugayan and their close relatives Remicio Marques and Amelia Tomas, were in dire need of money. On January 4, 1966, they borrowed P1,000 from the Spouses Sotero Pudunan and Maria Rivera. They signed a private document prepared by Juan Anungos, which stated inter alia that the payment of the said amount was secured by a mortgage over Lot 1 covered by TCT No. T-1657, and that the property was redeemable within one year, extendible for another year, until the full amount of the loan was paid.4 The owners duplicate copy of TCT No. T-1657 was then delivered to the mortgagees by the mortgagors. The Spouses Pudunan took possession of the property, although under the document, the mortgagors had the right to remain in possession thereof. On the same date, January 4, 1966, Maria Cabotaje, Agustin Cabotaje, Daniel Pugayan, Amelia Tomas and her husband Pedro Tomas affixed their signatures over a deed entitled "Confirmatory Deed of Sale," in which they undertook to sell Lot 2 covered by TCT No. T-1657 to the Spouses Pudunan for the price of P2,000.00. Also in the document was a statement that part of the money was remitted to Bonifacia Lang-ew and was spent by her during her illness, and to her heirs which was used for burial expenses. The document was notarized by Judge Tomas P. Maddela, the Municipal Judge and Ex-Officio Notary Public of Bayombong, Nueva Vizcaya, and registered in his notarial register as Document No. 461, Page 96, Book V, Series of 1966.5 The property sold under the said deed is described as follows: A parcel of land Lot No. 2, Plan Psu. 77644, situated in the Barrio of Lamut, Municipality of Bambang, Province of Nueva Vizcaya; bounded on the S. by prop. of Arcadio Biag; on the W. by Aritao-Bambang Prov. Road; on the N by prop. of Crisanto Caro; on the SE. by the Acdao Brook; and on the NW. by prop. of Francisco Concepcion. Containing an area of 6,382 sq. meters, more or less. Covered by Transfer Certificate of Title No. T-1657 of the land records of Nueva Vizcaya.6 Judge Tomas Maddela retained two copies of the deed for his notarial file. However, the deed was not filed with the Registry of Deeds of Nueva Vizcaya. Subsequently, it was made to appear in the original copy of the said deed that both Lots 1 and 2, consisting of 6,382 square meters and 9,951 square meters, respectively, were sold to the Spouses Pudunan. The alterations are underscored, thus:

Two parcels of land Lot No. 1 and 2, Plan Psu. 77644, situated in the Barrio of Lamut, Municipality of Bambang, Province of Nueva Vizcaya; bounded on the S. by prop. of Arcadio Biag; on the W. by Aritao-Bambang Prov. Road; on the N by prop. of Crisanto Caro; on the SE. by the Acdao Brook; and on the NW. by prop. of Francisco Concepcion. Containing an area of 15,333 sq. meters, more or less. Covered by Transfer Certificate of Title No. T-1657 of the land records of Nueva Vizcaya.7 Such altered original copy was filed on July 18, 1966 with the Office of the Register of Deeds of Nueva Vizcaya. On the same day, TCT No. T-20808 was issued by the Register of Deeds in favor of the Spouses Pudunan. After nineteen years or so, or on February 26, 1985, petitioners Maria Cabotaje, Agustin Cabotaje, Amelia Tomas and Daniel Pugayan filed a complaint with the RTC of Bayombong, Nueva Vizcaya against the respondents, the Spouses Pudunan, for recovery of ownership and possession of Lots 1 and 2 covered by TCT No. T-1657. The petitioners alleged inter alia that in a private document they signed on January 4, 1966, it appears that they mortgaged Lot 1 to secure the payment of a P1,000-loan from the respondents. They averred, however, that they only received P660.00 and that the respondents thereafter took possession of the property. Being impoverished, they tolerated the respondents possession of the property. The petitioners further narrated that they offered to pay their loan in 1972, but that the respondents refused to accept such payment as they (the respondents) were the rightful owners of the property. The petitioners further averred that after eighteen years, or in 1984, they sought the assistance of counsel on what course of action to take, and it was only then that they discovered that by virtue of a deed of sale issued in favor of the respondents, TCT No. T-20808 covering Lots 1 and 2 had been issued in the names of the latter. The petitioners alleged, however, that no copy of the said deed could be found in the Register of Deeds, and that they never executed any deed of sale covering the said lots, much less any deed settling the estate of the deceased Bonifacia Lang-ew. The petitioners prayed that, after due proceedings, judgment be rendered in their favor, thus: WHEREFORE, it is respectfully prayed of the Honorable Court that, after notice and hearing, judgment be rendered in favor of the plaintiffs and against the defendants as follows, thus: a) Declaring as null and void Transfer Certificate of Title No. T-20808 and the deed of sale which caused the issuance thereof;

b) Declaring plaintiffs as the lawful owners of the above-described landholding, and directing the Register of Deeds to issue another title in the names of said plaintiffs; c) Ordering defendants to pay actual damages to the plaintiffs equivalent to the monetary value of 2,440 cavanes (sic) of palay at 46 kilos per cavan; d) Granting the claim for damages: moral damages of P10,000.00 each for all the plaintiffs or a total of P40,000.00 and exemplary damages of P10,000.00; and e) Reimbursing attorneys fees of P7,000.00. PLAINTIFFS further pray for such other reliefs consistent with law and equity and available in the premises.8 In their answer to the complaint, the respondents interposed the defense of prescription of action, to wit: That similarly the plaintiffs alleged cause of action to annul and cancel Transfer Certificate of Title No. T20808 covering the parcels of land in question which had long legally belong to the defendants and which certificate of title lawfully, validly and regularly issued to the herein defendants on July 18, 1966 by the Register of Deeds of Nueva Vizcaya, in the absence of any plaintiffs allegation of fraud, mistake, intimidation, violence or undue influence as alleged reasons for its nullification and cancellation, the same is very true likewise to said plaintiffs seeking the nullification of the sale in favor of defendants, has also long prescribed and barred by the statute of limitations;9 In the course of the presentation of the petitioners evidence, Cornelio Tubal from the Office of the Register of Deeds of Nueva Vizcaya testified on July 15, 1986 that TCT No. T-20808 was issued on the basis of a "Confirmatory Deed of Sale"10 covering Lots 1 and 211 which deed, on its face, contained intercalations and alterations. Subsequently, the petitioners, with prior leave of court, filed an amended complaint in which they alleged inter alia that they never received any amount by virtue of the altered "Confirmatory Deed of Sale;" that they turned over the owners duplicate copy of TCT No. T-1657 to the respondents as a sign of good faith on account of their P1,000-loan of which only P673.60 was received by them; that they discovered the existence of the altered "Confirmatory Deed of Sale" covering Lots 1 and 2 only on July 15, 1986;12 and, that they never executed any deed of sale covering Lot 1,13 nor received the amount of P2,000.00 as stated on

the said deed of sale. The petitioners concluded that as such, the altered deed was null and void. The petitioners prayed that they be granted the following reliefs: WHEREFORE, it is respectfully prayed of the Honorable Court that, after notice and hearing, judgment be rendered in favor of the plaintiffs and against the defendants as follows, thus: a) Declaring as null and void partially both Transfer Certificate of Title No. T20808 as far as Lot No. 1 covering an area of 9,951 square meters and the deed of sale which caused the issuance thereof; b) Declaring plaintiffs as the lawful owners of the above-described landholding, directing the Register of Deeds to issue a title in the names of said plaintiffs covering said parcel of land and ordering the defendants to deliver the physical possession thereof to the plaintiffs; c) Ordering defendants to pay actual damages to the plaintiffs equivalent to the monetary value of2,870 cavans of palay at 46 kilos per cavan; d) Granting the claim for damages: moral damages of P10,000.00 each for all the plaintiffs or a total of P40,000.00 and exemplary damages of P10,000.00; and e) Reimbursing attorneys fees of P7,000.00. PLAINTIFFS further pray for such other reliefs consistent with law and equity and available in the premises.14 The respondents filed a motion to dismiss the amended complaint on the grounds of acquisitive prescription under Article 1117, in relation to Article 1134 of the New Civil Code, and prescription of action. The trial court granted the motion but reinstated the case on the petitioners motion for reconsideration. At the trial, petitioner Maria Cabotaje testified that of the P1,000-loan, they received only P468.00, of which the amount of P326.60 was used for "title expenses;" P6.00 was received by "Belong," while the balance of P199.60 was divided among the petitioners.15The petitioners also presented Tubal who appeared for the Office of the Register of Deeds and testified that TCT No. T-1657 was cancelled on the basis of the altered copy of the Confirmatory Deed of Sale.

Respondent Maria Rivera testified that after the death of Lang-ew in 1965, the petitioners offered to sell Lot 1 forP2,500.00 to them and that the latter agreed. The amount of P1,000.00 was then given to the petitioners, while the remaining P1,500.00 was spent for the burial of Lang-ew. The respondents remittances were further evidenced by receipts.16 Respondent Rivera narrated that the parties to the sale arrived in the Office of Judge Maddela and requested the latter to revise the original copy of the Confirmatory Deed of Sale so as to include Lot 1 thereon. Since Judge Maddela was in a hurry, he instructed his Clerk of Court Mariano Gonzales to include Lot 1 in the deed, and the latter did as he was told. The petitioners and respondents then proceeded to the Office of the Register of Deeds where the said deed was filed. According to respondent Rivera, she was not aware if Judge Maddelas notarial copies of the deed were altered as to include Lot 1 therein, since the judge was in such a hurry.17 The petitioners presented Maria Cabotaje on rebuttal, who testified that the petitioners never sold Lot 1 to the respondents and that they learned of the insertions and intercalations in the original copy of the Confirmatory Deed of Sale only when Tubal testified.18 After trial, the court rendered judgment in favor of the petitioners, the decretal portion of which reads: WHEREFORE, by preponderance of evidence, justice and equity demand that Judgment be hereby rendered in favor of the plaintiffs and against the defendants: 1. Declaring null and void ab initio TCT No. T20808 as far as Lot No. 1 is concerned with an area of 9,951 sq. meters, and the Confirmatory Deed of Sale (Exh. "C") which caused the issuance of said title; 2. Declaring plaintiffs as the lawful owners of said Lot No. 1 and directing the Register of Deeds to issue corresponding Title to plaintiffs and Ordering the defendants to deliver the physical possession thereof to the plaintiffs; 3. Ordering defendants to deliver to the plaintiffs 2,870 cavans of palay at 46 kilos per cavan or pay its monetary equivalent computed at the then prevailing rate or cost as actual damages; 4. Ordering defendants to pay plaintiffs as damages:

a) moral Damages P2,000.00 for each plaintiff or a total of P8,000.00; b) exemplary Damages P2,000.00; c) attorneys Fees P5,000.00; and, d) The costs of suit. SO ORDERED.19 The trial court ruled that the petitioners merely mortgaged Lot 1 to the respondents and that the conveyance thereof to the latter after the death of Lang-ew was null and void because it was not made in the settlement of the estate of the deceased. According to the trial court, the action to declare the non-existence of the said deed is imprescriptible. It also ruled that the action for the cancellation of the conveyance on the ground of fraud commenced to run only when Cornelio Tubal testified, and not on July 18, 1966 upon the filing of the original copy of the deed in the Office of the Register of Deeds and the cancellation of TCT No. T-1657 in favor of TCT No. T20808 over Lots 1 and 2 which was issued under the names of the respondents. The trial court also ruled that the respondents had not acquired ownership of Lot 1 by acquisitive prescription because the possession of the said lot by the respondents was merely upon the tolerance of the petitioners. On appeal to the Court of Appeals, the petitioners did not bother to file their brief. The CA, thereafter, rendered judgment reversing the decision of the trial court, holding that the original copy of the Confirmatory Deed of Sale was voidable under Article 1391 of the New Civil Code and not void ab initio; hence, the action to annul the said deed prescribed four years from the time of the petitioners actual or presumptive knowledge thereof. The appellate court held that the cause of action of the petitioners to nullify the deed accrued on July 18, 1966 when the Confirmatory Deed of Sale was filed with the Office of the Register of Deeds, as the petitioners henceforth had presumptive knowledge of the existence of the altered Confirmatory Deed of Sale.20 Hence, the petitioners should have filed their complaint within four years from July 18, 1966 or, on or before July 19, 1970. Since the appellees filed their complaint only on February 26, 1995, their action had long prescribed and should have been dismissed by the trial court. The appellate court further ruled that there is no law requiring the heirs to execute the conveyance in the settlement of the estate of the deceased. On motion for reconsideration by the petitioners, they alleged that the respondents altered the original copy of the Confirmatory Deed of Sale after the said deed was executed by the

parties; as such, the deed was null and void, not merely voidable. However, the CA denied the said motion. In their petition at bar, the petitioners raise the following issues for resolution: WHETHER OR NOT IN RESOLVING THE APPEAL BEFORE IT, THE HONORABLE COURT OF APPEALS, SECOND DIVISION, HAS DONE SO IN ACCORD WITH LAW AND WITH THE APPLICABLE DECISIONS OF THE HONORABLE HIGHEST TRIBUNAL. SPECIFICALLY: HAS PRESCRIPTION SET IN THE INSTANT CIVIL CASE AS TO DENY THE PETITIONERS OF THEIR RIGHT TO PURSUE THEIR CAUSE/COMPLAINT TO RECOVER THEIR OWNERSHIP AND POSSESSION OF THE SUBJECT PROPERTY?21 The core issue for resolution is whether the original copy of the Confirmatory Deed of Sale wherein it appears that the petitioners also sold Lot 1 of their property to the respondents is null and void. The petitioners assert that they did not sell Lot 1 to the respondents, much less receive from them the P2,000.00 purchase price which appears in the original copy of the Confirmatory Deed of Sale. Absent their consent to the sale and the price or consideration for their property, such deed is null and void; hence, they contend that their action is imprescriptible as provided for in Article 1410 of the New Civil Code. The petitioners further contend that Article 1391 of the New Civil Code applies only in a case where fraud is committed prior to or simultaneous with the execution of a deed.22 The petitioners argue that the deed is null and void since the respondents altered the original copy of the deed after the execution and notarization thereof. For their part, the respondents contend that the original copy of the Confirmatory Deed of Sale is valid. They aver that the alterations and intercalations contained in the original copy of the deed were reflective of the fact that Lot 1 was sold by the petitioners after the execution of the said deed, and that such alterations were known and agreed to by the petitioners before the same was filed with the Register of Deeds. They aver that the petitioners even turned over to them not only the owners duplicate copy of TCT No. T-1657 so that title over the two lots could be issued in their names, but also the possession of the property after Lang-ews death on November 23, 1965. They also insist that they have been in possession of the property since then. The respondents further contend that even if the altered original copy of the Confirmatory Deed of Sale is fraudulent, the same is merely voidable; hence, the action to nullify the same is prescriptible. The respondents aver that since the petitioners filed their complaint only on February 26, 1985, their action had long

prescribed, considering that their cause of action accrued on July 18, 1966. We rule for the petitioners. The general rule is that in a petition for review on certiorari, only questions of law may be raised. However, the rule is not without exceptions, which the Court enumerated in Fuentes v. Court of Appeals23 as follows: (a) when the factual findings of the trial court and the Court of Appeals are contradictory; (b) when the inference made by the Court of Appeals is manifestly mistaken or absurd; (c) when the judgment of the Court of Appeals is premised on its misapprehension of the facts; and, (d) when the Court of Appeals failed to resolve relevant facts which, if properly considered, would justify a modification or reversal of the decision of the appellate court.24 The present case falls within the foregoing exceptions. Rule 132, Section 31 of the Revised Rules of Evidence, provides: Alterations in document, how to explain. The party producing a document as genuine which has been altered and appears to have been altered after its execution, in a part material to the question in dispute, must account for the alteration. He may show that the alteration was made by another, without his concurrence, or was made with the consent of the parties affected by it, or was otherwise properly or innocently made, or that the alteration did not change the meaning or language of the instrument. If he fails to do that, the document shall not be admissible in evidence. There is no doubt that the alterations in the assailed deed of sale are substantial and material. We have reviewed the evidence on record and we are convinced that the respondents, either by themselves or at their behest and without the knowledge of the petitioners, caused the alterations in the assailed copy of the Confirmatory Deed of Sale by making it appear therein that the petitioners sold Lot 1 as well as Lot 2 with a total area of 15,333 square meters for only P2,000.00. First. Respondent Maria Rivera admitted in court that the alteration occurred after the execution of the Confirmatory Deed of Sale.25 Second. The petitioners did not authenticate the alterations in the assailed deed by affixing their initials or signatures thereon. Third. Neither did Ex-Officio Notary Public, Judge Tomas Maddela authenticate the said alterations when he notarized the Confirmatory Deed of Sale.26

Fourth. Under the Confirmatory Deed of Sale, the petitioners sold Lot 2 for P2,000.00. In the assailed deed, the petitioners purportedly also sold Lot 1 to the respondents, but the purchase price thereof remained unchanged. Thus, under the assailed deed, the respondents paid P2,000.00 for the two lots. The respondents failed to give a satisfactory explanation why the price of the property remained at P2,000.00 Evidently, there was no price or consideration for the sale of Lot 1, as it is incredible that the petitioners would sell the property to the respondents without any price or consideration therefor. Fifth. The respondents claim that they told Judge Maddela that they were also buying Lot 1 from the petitioners, but since the judge was in a hurry to leave, he merely instructed his clerk of court to make the necessary alterations in his copies of the deed of sale. The respondents also claim that the parties to the deed left without seeing to it that the clerk of court had made the alterations in the copies of Judge Maddela: Q And when the plaintiffs, according to you, went to you for the needed amount, you allegedly went to Judge Maddela? A Yes, Sir. Q And you brought with you Exh. "E", which is the Confirmatory Deed of Sale, which Exh. "E" appears not to contain any intercalation or insertion, isnt it? A Yes, Sir. Q And when you went to Judge Maddela, according to you, you told him that you were also buying Lot 1, did I hear you right? A Yes, Sir. Q And what did he tell you? A He asked, "What about this Lot 1?" Q And what did you tell him? A We told him that the plaintiffs were willing to give us the parcel of land, Lot 1. Q And the plaintiffs were with you, is that what you mean when you went to Judge Maddela?

A Yes, Sir. Q And when you said or when you told (sic) to Judge Maddela that the plaintiffs wanted to give you Lot 1, what did he do? A As Judge Maddela was rushing up then, he just ordered his clerk to make the necessary insertion. I do not know with regards the file copy of Judge Maddela, but our copy contains the insertion. Q You said that Judge Maddela was rushing then and he just told his clerk to make the insertion, my question is, did you see the clerk bring out the file copy of Judge Maddela so that the insertion would be made on that file copy? A I do not know how to answer that but what the clerk said since they are not strangers to each other, meaning to say, the plaintiffs. Q By the way, what office or place did you go and see Judge Maddela at that time? A It is his office at Bayombong? Q Do you know that he was a Judge at that time of the Municipal Court of Bayombong? A Yes, Sir. Q Do you still remember that clerk who allegedly was told to make [the] insertion by Judge Maddela? A I cannot remember anymore because that happened long time ago. Q At the time that the plaintiffs presented their witnesses, one witness was presented, which is the Clerk of the Municipal Trial Court of Bayombong by the name of Saturnino Galapon. My question, did you see that clerk who was subpoenaed to appear here and testified before about this Exh. "E"? A Yes, Sir. Q And can you tell the Honorable Court if that clerk who have testified here before for the plaintiffs if he was the clerk whom you were referring to as the one who was

directed by Judge Maddela to make [the] insertion in Exh. "E"? A He was the one.27 The claim of the respondents is incredible because Saturnino Galapon, the Clerk of Court of the Municipal Trial Court of Bayombong, who testified for the petitioners, declared that he was appointed to the position during the incumbency of Judge Florante Tupasi: ATTY. BAGASAO: ON CROSSQ Mr. Witness, when you begin (sic) your duty as Clerk of Court, who is the Judge then? A Judge FLORANTE TUPASI, Sir. Q Meaning to say, Mr. Witness, Judge MADDELA was then out? A He transferred, Sir. Q So, you were not the Clerk of Court of MTC, Bayombong, Nueva Vizcaya, during the time of Judge Maddela? A Yes, Sir. Q And, of course, you are not aware of any side agreement? A In 1965, I had nothing to know of, Sir.28 The Clerk of Court during the incumbency of Judge Tomas Maddela was Mariano Gonzales, who was already deceased at the time Galapon testified: ATTY. CORPUZ: ON RE-DIRECT

A This is a part of the big file including the Notarial Register, Sir.29 Furthermore, Judge Maddela knew or should have known the legal implications of the alterations on the original copy of the Confirmatory Deed of Sale without making the appropriate alterations in his own copies of the deed, and could not have agreed to merely ordering the clerk of court to make the alterations himself. Aside from the fact that the copies of the deed30 retained by Judge Maddela do not contain any alterations, the respondents failed to present Judge Tomas Maddela to corroborate the testimony of respondent Maria Rivera. While it is true that a notarized deed of sale is a public document and has in its favor the presumption of regularity and that to contradict the same, there must be evidence that is clear and convincing; the evidence on record in this case is, however, so clear and convincing in support of the finding that the assailed copy of the Confirmatory Deed of Sale has been altered and is, in fact, null and void. All told then, we find and so hold that the petitioners did not consent to the sale of Lot 1 to the respondents. One of the essential requirements of a valid contract, including a contract of sale, is the consent of the owner of the property.31 Absent such consent, the contract is null and void ab initio.32 A void contract is absolutely wanting in civil effects; it is equivalent to nothing.33 It produces no effects whatsoever either against or in favor of anyone; hence, it does not create, modify, or extinguish the judicial relation to which it refers.34 In fine, the petitioners, not the respondents, are the rightful owners of Lot 1. Under Article 1410 of the New Civil Code, the action for the declaration of the non-existence of a contract does not prescribe. Thus, the action of the petitioners for the declaration of the nonexistence of the assailed deed is imprescriptible. IN LIGHT OF THE FOREGOING, the petition is GRANTED. The decision of the Court of Appeals is REVERSED and SET ASIDE. The decision of the Regional Trial Court in Civil Case No. 207 is REINSTATED. No costs. SO ORDERED.

Q Who is (sic) the Clerk of Court from whom you took over the position of Clerk of Court? A The deceased MARIANO GONZALES, Sir.

Puno, (Chairman), Austria-Martinez, Tinga, and Chico-Nazario, JJ., concur. G.R. No. L-11827 July 31, 1961

Q When you took over these 2 documents and the Notarial Register Book No. V of Judge Maddela, were they all intact in the office?

FERNANDO A. GAITE, plaintiff-appellee, vs.

ISABELO FONACIER, GEORGE KRAKOWER, LARAP MINES & SMELTING CO., INC., SEGUNDINA VIVAS, FRNACISCO DANTE, PACIFICO ESCANDOR and FERNANDO TY, defendants-appellants. Alejo Mabanag for plaintiff-appellee. Simplicio U. Tapia, Antonio Barredo and Pedro Guevarra for defendants-appellants. REYES, J.B.L., J.: This appeal comes to us directly from the Court of First Instance because the claims involved aggregate more than P200,000.00. Defendant-appellant Isabelo Fonacier was the owner and/or holder, either by himself or in a representative capacity, of 11 iron lode mineral claims, known as the Dawahan Group, situated in the municipality of Jose Panganiban, province of Camarines Norte. By a "Deed of Assignment" dated September 29, 1952(Exhibit "3"), Fonacier constituted and appointed plaintiff-appellee Fernando A. Gaite as his true and lawful attorney-in-fact to enter into a contract with any individual or juridical person for the exploration and development of the mining claims aforementioned on a royalty basis of not less than P0.50 per ton of ore that might be extracted therefrom. On March 19, 1954, Gaite in turn executed a general assignment (Record on Appeal, pp. 17-19) conveying the development and exploitation of said mining claims into the Larap Iron Mines, a single proprietorship owned solely by and belonging to him, on the same royalty basis provided for in Exhibit "3". Thereafter, Gaite embarked upon the development and exploitation of the mining claims in question, opening and paving roads within and outside their boundaries, making other improvements and installing facilities therein for use in the development of the mines, and in time extracted therefrom what he claim and estimated to be approximately 24,000 metric tons of iron ore. For some reason or another, Isabelo Fonacier decided to revoke the authority granted by him to Gaite to exploit and develop the mining claims in question, and Gaite assented thereto subject to certain conditions. As a result, a document entitled "Revocation of Power of Attorney and Contract" was executed on December 8, 1954 (Exhibit "A"),wherein Gaite transferred to Fonacier, for the consideration of P20,000.00, plus 10% of the royalties that Fonacier would receive from the mining claims, all his rights and interests on all the roads, improvements, and facilities in or outside said claims, the right to use the business name "Larap Iron Mines" and its goodwill, and all the records and documents relative to the mines. In the same document, Gaite transferred to Fonacier all his rights and interests over the "24,000 tons of iron ore, more or less" that the former had already extracted from the mineral claims, in

consideration of the sum of P75,000.00, P10,000.00 of which was paid upon the signing of the agreement, and b. The balance of SIXTY-FIVE THOUSAND PESOS (P65,000.00) will be paid from and out of the first letter of credit covering the first shipment of iron ores and of the first amount derived from the local sale of iron ore made by the Larap Mines & Smelting Co. Inc., its assigns, administrators, or successors in interests. To secure the payment of the said balance of P65,000.00, Fonacier promised to execute in favor of Gaite a surety bond, and pursuant to the promise, Fonacier delivered to Gaite a surety bond dated December 8, 1954 with himself (Fonacier) as principal and the Larap Mines and Smelting Co. and its stockholders George Krakower, Segundina Vivas, Pacifico Escandor, Francisco Dante, and Fernando Ty as sureties (Exhibit "A-1"). Gaite testified, however, that when this bond was presented to him by Fonacier together with the "Revocation of Power of Attorney and Contract", Exhibit "A", on December 8, 1954, he refused to sign said Exhibit "A" unless another bond under written by a bonding company was put up by defendants to secure the payment of the P65,000.00 balance of their price of the iron ore in the stockpiles in the mining claims. Hence, a second bond, also dated December 8, 1954 (Exhibit "B"),was executed by the same parties to the first bond Exhibit "A1", with the Far Eastern Surety and Insurance Co. as additional surety, but it provided that the liability of the surety company would attach only when there had been an actual sale of iron ore by the Larap Mines & Smelting Co. for an amount of not less then P65,000.00, and that, furthermore, the liability of said surety company would automatically expire on December 8, 1955. Both bonds were attached to the "Revocation of Power of Attorney and Contract", Exhibit "A", and made integral parts thereof. On the same day that Fonacier revoked the power of attorney he gave to Gaite and the two executed and signed the "Revocation of Power of Attorney and Contract", Exhibit "A", Fonacier entered into a "Contract of Mining Operation", ceding, transferring, and conveying unto the Larap Mines and Smelting Co., Inc. the right to develop, exploit, and explore the mining claims in question, together with the improvements therein and the use of the name "Larap Iron Mines" and its good will, in consideration of certain royalties. Fonacier likewise transferred, in the same document, the complete title to the approximately 24,000 tons of iron ore which he acquired from Gaite, to the Larap & Smelting Co., in consideration for the signing by the company and its stockholders of the surety bonds delivered by Fonacier to Gaite (Record on Appeal, pp. 82-94). Up to December 8, 1955, when the bond Exhibit "B" expired with respect to the Far Eastern Surety and Insurance Company, no sale of the approximately 24,000 tons of iron ore had been made by the Larap Mines & Smelting Co., Inc., nor had the P65,000.00 balance of

the price of said ore been paid to Gaite by Fonacier and his sureties payment of said amount, on the theory that they had lost right to make use of the period given them when their bond, Exhibit "B" automatically expired (Exhibits "C" to "C-24"). And when Fonacier and his sureties failed to pay as demanded by Gaite, the latter filed the present complaint against them in the Court of First Instance of Manila (Civil Case No. 29310) for the payment of the P65,000.00 balance of the price of the ore, consequential damages, and attorney's fees. All the defendants except Francisco Dante set up the uniform defense that the obligation sued upon by Gaite was subject to a condition that the amount of P65,000.00 would be payable out of the first letter of credit covering the first shipment of iron ore and/or the first amount derived from the local sale of the iron ore by the Larap Mines & Smelting Co., Inc.; that up to the time of the filing of the complaint, no sale of the iron ore had been made, hence the condition had not yet been fulfilled; and that consequently, the obligation was not yet due and demandable. Defendant Fonacier also contended that only 7,573 tons of the estimated 24,000 tons of iron ore sold to him by Gaite was actually delivered, and counterclaimed for more than P200,000.00 damages. At the trial of the case, the parties agreed to limit the presentation of evidence to two issues: (1) Whether or not the obligation of Fonacier and his sureties to pay Gaite P65,000.00 become due and demandable when the defendants failed to renew the surety bond underwritten by the Far Eastern Surety and Insurance Co., Inc. (Exhibit "B"), which expired on December 8, 1955; and (2) Whether the estimated 24,000 tons of iron ore sold by plaintiff Gaite to defendant Fonacier were actually in existence in the mining claims when these parties executed the "Revocation of Power of Attorney and Contract", Exhibit "A." On the first question, the lower court held that the obligation of the defendants to pay plaintiff the P65,000.00 balance of the price of the approximately 24,000 tons of iron ore was one with a term: i.e., that it would be paid upon the sale of sufficient iron ore by defendants, such sale to be effected within one year or before December 8, 1955; that the giving of security was a condition precedent to Gait's giving of credit to defendants; and that as the latter failed to put up a good and sufficient security in lieu of the Far Eastern Surety bond (Exhibit "B") which expired on December 8, 1955, the obligation became due and demandable under Article 1198 of the New Civil Code. As to the second question, the lower court found that plaintiff Gaite did have approximately 24,000 tons of iron ore at the mining

claims in question at the time of the execution of the contract Exhibit "A." Judgment was, accordingly, rendered in favor of plaintiff Gaite ordering defendants to pay him, jointly and severally, P65,000.00 with interest at 6% per annum from December 9, 1955 until payment, plus costs. From this judgment, defendants jointly appealed to this Court. During the pendency of this appeal, several incidental motions were presented for resolution: a motion to declare the appellants Larap Mines & Smelting Co., Inc. and George Krakower in contempt, filed by appellant Fonacier, and two motions to dismiss the appeal as having become academic and a motion for new trial and/or to take judicial notice of certain documents, filed by appellee Gaite. The motion for contempt is unmeritorious because the main allegation therein that the appellants Larap Mines & Smelting Co., Inc. and Krakower had sold the iron ore here in question, which allegedly is "property in litigation", has not been substantiated; and even if true, does not make these appellants guilty of contempt, because what is under litigation in this appeal is appellee Gaite's right to the payment of the balance of the price of the ore, and not the iron ore itself. As for the several motions presented by appellee Gaite, it is unnecessary to resolve these motions in view of the results that we have reached in this case, which we shall hereafter discuss. The main issues presented by appellants in this appeal are: (1) that the lower court erred in holding that the obligation of appellant Fonacier to pay appellee Gaite the P65,000.00 (balance of the price of the iron ore in question)is one with a period or term and not one with a suspensive condition, and that the term expired on December 8, 1955; and (2) that the lower court erred in not holding that there were only 10,954.5 tons in the stockpiles of iron ore sold by appellee Gaite to appellant Fonacier. The first issue involves an interpretation of the following provision in the contract Exhibit "A": 7. That Fernando Gaite or Larap Iron Mines hereby transfers to Isabelo F. Fonacier all his rights and interests over the 24,000 tons of iron ore, more or less, abovereferred to together with all his rights and interests to operate the mine in consideration of the sum of SEVENTY-FIVE THOUSAND PESOS (P75,000.00) which the latter binds to pay as follows:

a. TEN THOUSAND PESOS (P10,000.00) will be paid upon the signing of this agreement. b. The balance of SIXTY-FIVE THOUSAND PESOS (P65,000.00)will be paid from and out of the first letter of credit covering the first shipment of iron ore made by the Larap Mines & Smelting Co., Inc., its assigns, administrators, or successors in interest. We find the court below to be legally correct in holding that the shipment or local sale of the iron ore is not a condition precedent (or suspensive) to the payment of the balance of P65,000.00, but was only a suspensive period or term. What characterizes a conditional obligation is the fact that its efficacy or obligatory force (as distinguished from its demandability) is subordinated to the happening of a future and uncertain event; so that if the suspensive condition does not take place, the parties would stand as if the conditional obligation had never existed. That the parties to the contract Exhibit "A" did not intend any such state of things to prevail is supported by several circumstances: 1) The words of the contract express no contingency in the buyer's obligation to pay: "The balance of Sixty-Five Thousand Pesos (P65,000.00) will be paid out of the first letter of credit covering the first shipment of iron ores . . ." etc. There is no uncertainty that the payment will have to be made sooner or later; what is undetermined is merely the exact date at which it will be made. By the very terms of the contract, therefore, the existence of the obligation to pay is recognized; only its maturity or demandability is deferred. 2) A contract of sale is normally commutative and onerous: not only does each one of the parties assume a correlative obligation (the seller to deliver and transfer ownership of the thing sold and the buyer to pay the price),but each party anticipates performance by the other from the very start. While in a sale the obligation of one party can be lawfully subordinated to an uncertain event, so that the other understands that he assumes the risk of receiving nothing for what he gives (as in the case of a sale of hopes or expectations, emptio spei), it is not in the usual course of business to do so; hence, the contingent character of the obligation must clearly appear. Nothing is found in the record to evidence that Gaite desired or assumed to run the risk of losing his right over the ore without getting paid for it, or that Fonacier understood that Gaite assumed any such risk. This is proved by the fact that Gaite insisted on a bond a to guarantee payment of the P65,000.00, an not only upon a bond by Fonacier, the Larap Mines & Smelting Co., and the company's stockholders, but also on one by a surety company; and the fact that appellants did put up such bonds indicates that they admitted the definite existence of their obligation to pay the balance of P65,000.00.

3) To subordinate the obligation to pay the remaining P65,000.00 to the sale or shipment of the ore as a condition precedent, would be tantamount to leaving the payment at the discretion of the debtor, for the sale or shipment could not be made unless the appellants took steps to sell the ore. Appellants would thus be able to postpone payment indefinitely. The desireability of avoiding such a construction of the contract Exhibit "A" needs no stressing. 4) Assuming that there could be doubt whether by the wording of the contract the parties indented a suspensive condition or a suspensive period (dies ad quem) for the payment of the P65,000.00, the rules of interpretation would incline the scales in favor of "the greater reciprocity of interests", since sale is essentially onerous. The Civil Code of the Philippines, Article 1378, paragraph 1, in fine, provides: If the contract is onerous, the doubt shall be settled in favor of the greatest reciprocity of interests. and there can be no question that greater reciprocity obtains if the buyer' obligation is deemed to be actually existing, with only its maturity (due date) postponed or deferred, that if such obligation were viewed as non-existent or not binding until the ore was sold. The only rational view that can be taken is that the sale of the ore to Fonacier was a sale on credit, and not an aleatory contract where the transferor, Gaite, would assume the risk of not being paid at all; and that the previous sale or shipment of the ore was not a suspensive condition for the payment of the balance of the agreed price, but was intended merely to fix the future date of the payment. This issue settled, the next point of inquiry is whether appellants, Fonacier and his sureties, still have the right to insist that Gaite should wait for the sale or shipment of the ore before receiving payment; or, in other words, whether or not they are entitled to take full advantage of the period granted them for making the payment. We agree with the court below that the appellant have forfeited the right court below that the appellants have forfeited the right to compel Gaite to wait for the sale of the ore before receiving payment of the balance of P65,000.00, because of their failure to renew the bond of the Far Eastern Surety Company or else replace it with an equivalent guarantee. The expiration of the bonding company's undertaking on December 8, 1955 substantially reduced the security of the vendor's rights as creditor for the unpaid P65,000.00, a security that Gaite considered essential and upon which he had insisted when he executed the deed of sale of the ore to Fonacier (Exhibit "A"). The case squarely comes under paragraphs 2 and 3 of Article 1198 of the Civil Code of the Philippines:

"ART. 1198. The debtor shall lose every right to make use of the period: (1) . . . (2) When he does not furnish to the creditor the guaranties or securities which he has promised. (3) When by his own acts he has impaired said guaranties or securities after their establishment, and when through fortuitous event they disappear, unless he immediately gives new ones equally satisfactory. Appellants' failure to renew or extend the surety company's bond upon its expiration plainly impaired the securities given to the creditor (appellee Gaite), unless immediately renewed or replaced. There is no merit in appellants' argument that Gaite's acceptance of the surety company's bond with full knowledge that on its face it would automatically expire within one year was a waiver of its renewal after the expiration date. No such waiver could have been intended, for Gaite stood to lose and had nothing to gain barely; and if there was any, it could be rationally explained only if the appellants had agreed to sell the ore and pay Gaite before the surety company's bond expired on December 8, 1955. But in the latter case the defendants-appellants' obligation to pay became absolute after one year from the transfer of the ore to Fonacier by virtue of the deed Exhibit "A.". All the alternatives, therefore, lead to the same result: that Gaite acted within his rights in demanding payment and instituting this action one year from and after the contract (Exhibit "A") was executed, either because the appellant debtors had impaired the securities originally given and thereby forfeited any further time within which to pay; or because the term of payment was originally of no more than one year, and the balance of P65,000.00 became due and payable thereafter. Coming now to the second issue in this appeal, which is whether there were really 24,000 tons of iron ore in the stockpiles sold by appellee Gaite to appellant Fonacier, and whether, if there had been a short-delivery as claimed by appellants, they are entitled to the payment of damages, we must, at the outset, stress two things: first, that this is a case of a sale of a specific mass of fungible goods for a single price or a lump sum, the quantity of "24,000 tons of iron ore, more or less," stated in the contract Exhibit "A," being a mere estimate by the parties of the total tonnage weight of the mass; and second, that the evidence shows that neither of the parties had actually measured of weighed the mass, so that they both tried to arrive at the total quantity by making an estimate of the volume thereof in cubic meters and then multiplying it by the estimated weight per ton of each cubic meter.

The sale between the parties is a sale of a specific mass or iron ore because no provision was made in their contract for the measuring or weighing of the ore sold in order to complete or perfect the sale, nor was the price of P75,000,00 agreed upon by the parties based upon any such measurement.(see Art. 1480, second par., New Civil Code). The subject matter of the sale is, therefore, a determinate object, the mass, and not the actual number of units or tons contained therein, so that all that was required of the seller Gaite was to deliver in good faith to his buyer all of the ore found in the mass, notwithstanding that the quantity delivered is less than the amount estimated by them (Mobile Machinery & Supply Co., Inc. vs. York Oilfield Salvage Co., Inc. 171 So. 872, applying art. 2459 of the Louisiana Civil Code). There is no charge in this case that Gaite did not deliver to appellants all the ore found in the stockpiles in the mining claims in questions; Gaite had, therefore, complied with his promise to deliver, and appellants in turn are bound to pay the lump price. But assuming that plaintiff Gaite undertook to sell and appellants undertook to buy, not a definite mass, but approximately 24,000 tons of ore, so that any substantial difference in this quantity delivered would entitle the buyers to recover damages for the short-delivery, was there really a short-delivery in this case? We think not. As already stated, neither of the parties had actually measured or weighed the whole mass of ore cubic meter by cubic meter, or ton by ton. Both parties predicate their respective claims only upon an estimated number of cubic meters of ore multiplied by the average tonnage factor per cubic meter. Now, appellee Gaite asserts that there was a total of 7,375 cubic meters in the stockpiles of ore that he sold to Fonacier, while appellants contend that by actual measurement, their witness Cirpriano Manlagit found the total volume of ore in the stockpiles to be only 6.609 cubic meters. As to the average weight in tons per cubic meter, the parties are again in disagreement, with appellants claiming the correct tonnage factor to be 2.18 tons to a cubic meter, while appellee Gaite claims that the correct tonnage factor is about 3.7. In the face of the conflict of evidence, we take as the most reliable estimate of the tonnage factor of iron ore in this case to be that made by Leopoldo F. Abad, chief of the Mines and Metallurgical Division of the Bureau of Mines, a government pensionado to the States and a mining engineering graduate of the Universities of Nevada and California, with almost 22 years of experience in the Bureau of Mines. This witness placed the tonnage factor of every cubic meter of iron ore at between 3 metric tons as minimum to 5 metric tons as maximum. This estimate, in turn, closely corresponds to the average tonnage factor of 3.3 adopted in his corrected report (Exhibits "FF" and FF-1") by engineer Nemesio Gamatero, who was sent by the Bureau of Mines to the mining claims involved at the request of appellant Krakower, precisely to make an official

estimate of the amount of iron ore in Gaite's stockpiles after the dispute arose. Even granting, then, that the estimate of 6,609 cubic meters of ore in the stockpiles made by appellant's witness Cipriano Manlagit is correct, if we multiply it by the average tonnage factor of 3.3 tons to a cubic meter, the product is 21,809.7 tons, which is not very far from the estimate of 24,000 tons made by appellee Gaite, considering that actual weighing of each unit of the mass was practically impossible, so that a reasonable percentage of error should be allowed anyone making an estimate of the exact quantity in tons found in the mass. It must not be forgotten that the contract Exhibit "A" expressly stated the amount to be 24,000 tons, more or less. (ch. Pine River Logging & Improvement Co. vs U.S., 279, 46 L. Ed. 1164). There was, consequently, no short-delivery in this case as would entitle appellants to the payment of damages, nor could Gaite have been guilty of any fraud in making any misrepresentation to appellants as to the total quantity of ore in the stockpiles of the mining claims in question, as charged by appellants, since Gaite's estimate appears to be substantially correct. WHEREFORE, finding no error in the decision appealed from, we hereby affirm the same, with costs against appellants. Bengzon, C.J., Padilla, Labrador, Concepcion, Barrera, Paredes, Dizon, De Leon and Natividad, JJ., concur. G.R. No. 124242 January 21, 2005

SAN LORENZO DEVELOPMENT CORPORATION, petitioner, vs. COURT OF APPEALS, PABLO S. BABASANTA, SPS. MIGUEL LU and PACITA ZAVALLA LU, respondents. DECISION TINGA, J.: From a coaptation of the records of this case, it appears that respondents Miguel Lu and Pacita Zavalla, (hereinafter, the Spouses Lu) owned two (2) parcels of land situated in Sta. Rosa, Laguna covered by TCT No. T-39022 and TCT No. T-39023 both measuring 15,808 square meters or a total of 3.1616 hectares. On 20 August 1986, the Spouses Lu purportedly sold the two parcels of land to respondent Pablo Babasanta, (hereinafter, Babasanta) for the price of fifteen pesos (P15.00) per square meter. Babasanta made a downpayment of fifty thousand pesos

(P50,000.00) as evidenced by a memorandum receipt issued by Pacita Lu of the same date. Several other payments totaling two hundred thousand pesos (P200,000.00) were made by Babasanta. Sometime in May 1989, Babasanta wrote a letter to Pacita Lu to demand the execution of a final deed of sale in his favor so that he could effect full payment of the purchase price. In the same letter, Babasanta notified the spouses about having received information that the spouses sold the same property to another without his knowledge and consent. He demanded that the second sale be cancelled and that a final deed of sale be issued in his favor. In response, Pacita Lu wrote a letter to Babasanta wherein she acknowledged having agreed to sell the property to him at fifteen pesos (P15.00) per square meter. She, however, reminded Babasanta that when the balance of the purchase price became due, he requested for a reduction of the price and when she refused, Babasanta backed out of the sale. Pacita added that she returned the sum of fifty thousand pesos (P50,000.00) to Babasanta through Eugenio Oya. On 2 June 1989, respondent Babasanta, as plaintiff, filed before the Regional Trial Court (RTC), Branch 31, of San Pedro, Laguna, a Complaint for Specific Performance and Damages1 against his corespondents herein, the Spouses Lu. Babasanta alleged that the lands covered by TCT No. T- 39022 and T-39023 had been sold to him by the spouses at fifteen pesos (P15.00) per square meter. Despite his repeated demands for the execution of a final deed of sale in his favor, respondents allegedly refused. In their Answer,2 the Spouses Lu alleged that Pacita Lu obtained loans from Babasanta and when the total advances of Pacita reached fifty thousand pesos (P50,000.00), the latter and Babasanta, without the knowledge and consent of Miguel Lu, had verbally agreed to transform the transaction into a contract to sell the two parcels of land to Babasanta with the fifty thousand pesos (P50,000.00) to be considered as the downpayment for the property and the balance to be paid on or before 31 December 1987. Respondents Lu added that as of November 1987, total payments made by Babasanta amounted to only two hundred thousand pesos (P200,000.00) and the latter allegedly failed to pay the balance of two hundred sixty thousand pesos (P260,000.00) despite repeated demands. Babasanta had purportedly asked Pacita for a reduction of the price from fifteen pesos (P15.00) to twelve pesos (P12.00) per square meter and when the Spouses Lu refused to grant Babasantas request, the latter rescinded the contract to sell and declared that the original loan transaction just be carried out in that the spouses would be indebted to him in the amount of two hundred thousand pesos (P200,000.00). Accordingly, on 6 July 1989, they purchased Interbank Managers Check No. 05020269 in the amount of two hundred thousand pesos (P200,000.00) in the name of Babasanta to show that she was able and willing to pay the balance of her loan obligation.

Babasanta later filed an Amended Complaint dated 17 January 19903 wherein he prayed for the issuance of a writ of preliminary injunction with temporary restraining order and the inclusion of the Register of Deeds of Calamba, Laguna as party defendant. He contended that the issuance of a preliminary injunction was necessary to restrain the transfer or conveyance by the Spouses Lu of the subject property to other persons. The Spouses Lu filed their Opposition4 to the amended complaint contending that it raised new matters which seriously affect their substantive rights under the original complaint. However, the trial court in its Order dated 17 January 19905 admitted the amended complaint. On 19 January 1990, herein petitioner San Lorenzo Development Corporation (SLDC) filed a Motion for Intervention6 before the trial court. SLDC alleged that it had legal interest in the subject matter under litigation because on 3 May 1989, the two parcels of land involved, namely Lot 1764-A and 1764-B, had been sold to it in a Deed of Absolute Sale with Mortgage.7 It alleged that it was a buyer in good faith and for value and therefore it had a better right over the property in litigation. In his Opposition to SLDCs motion for intervention,8 respondent Babasanta demurred and argued that the latter had no legal interest in the case because the two parcels of land involved herein had already been conveyed to him by the Spouses Lu and hence, the vendors were without legal capacity to transfer or dispose of the two parcels of land to the intervenor. Meanwhile, the trial court in its Order dated 21 March 1990 allowed SLDC to intervene. SLDC filed its Complaint-inIntervention on 19 April 1990.9 Respondent Babasantas motion for the issuance of a preliminary injunction was likewise granted by the trial court in its Order dated 11 January 199110 conditioned upon his filing of a bond in the amount of fifty thousand pesos (P50,000.00). SLDC in its Complaint-in-Intervention alleged that on 11 February 1989, the Spouses Lu executed in its favor anOption to Buy the lots subject of the complaint. Accordingly, it paid an option money in the amount of three hundred sixteen thousand one hundred sixty pesos (P316,160.00) out of the total consideration for the purchase of the two lots of one million two hundred sixty-four thousand six hundred forty pesos (P1,264,640.00). After the Spouses Lu received a total amount of six hundred thirty-two thousand three hundred twenty pesos (P632,320.00) they executed on 3 May 1989 a Deed of Absolute Sale with Mortgage in its favor. SLDC added that the certificates of title over the property were delivered to it by the spouses clean and free from any adverse claims and/or notice of lis pendens. SLDC further alleged that it only learned of the filing of the complaint sometime in the early part of January 1990 which prompted it to file the motion to intervene without delay. Claiming that it was a buyer in good faith, SLDC argued that it had no

obligation to look beyond the titles submitted to it by the Spouses Lu particularly because Babasantas claims were not annotated on the certificates of title at the time the lands were sold to it. After a protracted trial, the RTC rendered its Decision on 30 July 1993 upholding the sale of the property to SLDC. It ordered the Spouses Lu to pay Babasanta the sum of two hundred thousand pesos (P200,000.00) with legal interest plus the further sum of fifty thousand pesos (P50,000.00) as and for attorneys fees. On the complaint-in-intervention, the trial court ordered the Register of Deeds of Laguna, Calamba Branch to cancel the notice of lis pendens annotated on the original of the TCT No. T-39022 (T-7218) and No. T-39023 (T-7219). Applying Article 1544 of the Civil Code, the trial court ruled that since both Babasanta and SLDC did not register the respective sales in their favor, ownership of the property should pertain to the buyer who first acquired possession of the property. The trial court equated the execution of a public instrument in favor of SLDC as sufficient delivery of the property to the latter. It concluded that symbolic possession could be considered to have been first transferred to SLDC and consequently ownership of the property pertained to SLDC who purchased the property in good faith. Respondent Babasanta appealed the trial courts decision to the Court of Appeals alleging in the main that the trial court erred in concluding that SLDC is a purchaser in good faith and in upholding the validity of the sale made by the Spouses Lu in favor of SLDC. Respondent spouses likewise filed an appeal to the Court of Appeals. They contended that the trial court erred in failing to consider that the contract to sell between them and Babasanta had been novated when the latter abandoned the verbal contract of sale and declared that the original loan transaction just be carried out. The Spouses Lu argued that since the properties involved were conjugal, the trial court should have declared the verbal contract to sell between Pacita Lu and Pablo Babasanta null and void ab initio for lack of knowledge and consent of Miguel Lu. They further averred that the trial court erred in not dismissing the complaint filed by Babasanta; in awarding damages in his favor and in refusing to grant the reliefs prayed for in their answer. On 4 October 1995, the Court of Appeals rendered its Decision11 which set aside the judgment of the trial court. It declared that the sale between Babasanta and the Spouses Lu was valid and subsisting and ordered the spouses to execute the necessary deed of conveyance in favor of Babasanta, and the latter to pay the balance of the purchase price in the amount of two hundred sixty thousand pesos (P260,000.00). The appellate court ruled that the Absolute Deed of Sale with Mortgage in favor of SLDC was null and void on the ground that SLDC was a purchaser in bad faith. The Spouses Lu were further ordered to return all payments

made by SLDC with legal interest and to pay attorneys fees to Babasanta. SLDC and the Spouses Lu filed separate motions for reconsideration with the appellate court.12 However, in aManifestation dated 20 December 1995,13 the Spouses Lu informed the appellate court that they are no longer contesting the decision dated 4 October 1995. In its Resolution dated 11 March 1996,14 the appellate court considered as withdrawn the motion for reconsideration filed by the Spouses Lu in view of their manifestation of 20 December 1995. The appellate court denied SLDCs motion for reconsideration on the ground that no new or substantial arguments were raised therein which would warrant modification or reversal of the courts decision dated 4 October 1995. Hence, this petition. SLDC assigns the following errors allegedly committed by the appellate court: THE COURT OF APPEALS ERRED IN HOLDING THAT SAN LORENZO WAS NOT A BUYER IN GOOD FAITH BECAUSE WHEN THE SELLER PACITA ZAVALLA LU OBTAINED FROM IT THE CASH ADVANCE OF P200,000.00, SAN LORENZO WAS PUT ON INQUIRY OF A PRIOR TRANSACTION ON THE PROPERTY. THE COURT OF APPEALS ERRED IN FAILING TO APPRECIATE THE ESTABLISHED FACT THAT THE ALLEGED FIRST BUYER, RESPONDENT BABASANTA, WAS NOT IN POSSESSION OF THE DISPUTED PROPERTY WHEN SAN LORENZO BOUGHT AND TOOK POSSESSION OF THE PROPERTY AND NO ADVERSE CLAIM, LIEN, ENCUMBRANCE OR LIS PENDENS WAS ANNOTATED ON THE TITLES. THE COURT OF APPEALS ERRED IN FAILING TO APPRECIATE THE FACT THAT RESPONDENT BABASANTA HAS SUBMITTED NO EVIDENCE SHOWING THAT SAN LORENZO WAS AWARE OF HIS RIGHTS OR INTERESTS IN THE DISPUTED PROPERTY. THE COURT OF APPEALS ERRED IN HOLDING THAT NOTWITHSTANDING ITS FULL CONCURRENCE ON THE FINDINGS OF FACT OF THE TRIAL COURT, IT REVERSED AND SET ASIDE THE DECISION OF THE TRIAL COURT UPHOLDING THE TITLE OF SAN LORENZO AS A BUYER AND FIRST POSSESSOR IN GOOD FAITH. 15 SLDC contended that the appellate court erred in concluding that it had prior notice of Babasantas claim over the property merely on the basis of its having advanced the amount of two hundred thousand pesos (P200,000.00) to Pacita Lu upon the latters representation that she needed the money to pay her obligation to Babasanta. It argued that it had no reason to suspect that Pacita

was not telling the truth that the money would be used to pay her indebtedness to Babasanta. At any rate, SLDC averred that the amount of two hundred thousand pesos (P200,000.00) which it advanced to Pacita Lu would be deducted from the balance of the purchase price still due from it and should not be construed as notice of the prior sale of the land to Babasanta. It added that at no instance did Pacita Lu inform it that the lands had been previously sold to Babasanta. Moreover, SLDC stressed that after the execution of the sale in its favor it immediately took possession of the property and asserted its rights as new owner as opposed to Babasanta who has never exercised acts of ownership. Since the titles bore no adverse claim, encumbrance, or lien at the time it was sold to it, SLDC argued that it had every reason to rely on the correctness of the certificate of title and it was not obliged to go beyond the certificate to determine the condition of the property. Invoking the presumption of good faith, it added that the burden rests on Babasanta to prove that it was aware of the prior sale to him but the latter failed to do so. SLDC pointed out that the notice of lis pendens was annotated only on 2 June 1989 long after the sale of the property to it was consummated on 3 May 1989.1awphi1.nt Meanwhile, in an Urgent Ex-Parte Manifestation dated 27 August 1999, the Spouses Lu informed the Court that due to financial constraints they have no more interest to pursue their rights in the instant case and submit themselves to the decision of the Court of Appeals.16 On the other hand, respondent Babasanta argued that SLDC could not have acquired ownership of the property because it failed to comply with the requirement of registration of the sale in good faith. He emphasized that at the time SLDC registered the sale in its favor on 30 June 1990, there was already a notice of lis pendens annotated on the titles of the property made as early as 2 June 1989. Hence, petitioners registration of the sale did not confer upon it any right. Babasanta further asserted that petitioners bad faith in the acquisition of the property is evident from the fact that it failed to make necessary inquiry regarding the purpose of the issuance of the two hundred thousand pesos (P200,000.00) managers check in his favor. The core issue presented for resolution in the instant petition is who between SLDC and Babasanta has a better right over the two parcels of land subject of the instant case in view of the successive transactions executed by the Spouses Lu. To prove the perfection of the contract of sale in his favor, Babasanta presented a document signed by Pacita Lu acknowledging receipt of the sum of fifty thousand pesos (P50,000.00) as partial payment for 3.6 hectares of farm lot situated at Barangay Pulong, Sta. Cruz, Sta. Rosa, Laguna.17 While the receipt signed by Pacita did not mention the price for which the

property was being sold, this deficiency was supplied by Pacita Lus letter dated 29 May 198918 wherein she admitted that she agreed to sell the 3.6 hectares of land to Babasanta for fifteen pesos (P15.00) per square meter. An analysis of the facts obtaining in this case, as well as the evidence presented by the parties, irresistibly leads to the conclusion that the agreement between Babasanta and the Spouses Lu is a contract to sell and not a contract of sale. Contracts, in general, are perfected by mere consent,19 which is manifested by the meeting of the offer and the acceptance upon the thing which are to constitute the contract. The offer must be certain and the acceptance absolute.20 Moreover, contracts shall be obligatory in whatever form they may have been entered into, provided all the essential requisites for their validity are present.21 The receipt signed by Pacita Lu merely states that she accepted the sum of fifty thousand pesos (P50,000.00) from Babasanta as partial payment of 3.6 hectares of farm lot situated in Sta. Rosa, Laguna. While there is no stipulation that the seller reserves the ownership of the property until full payment of the price which is a distinguishing feature of a contract to sell, the subsequent acts of the parties convince us that the Spouses Lu never intended to transfer ownership to Babasanta except upon full payment of the purchase price. Babasantas letter dated 22 May 1989 was quite telling. He stated therein that despite his repeated requests for the execution of the final deed of sale in his favor so that he could effect full payment of the price, Pacita Lu allegedly refused to do so. In effect, Babasanta himself recognized that ownership of the property would not be transferred to him until such time as he shall have effected full payment of the price. Moreover, had the sellers intended to transfer title, they could have easily executed the document of sale in its required form simultaneously with their acceptance of the partial payment, but they did not. Doubtlessly, the receipt signed by Pacita Lu should legally be considered as a perfected contract to sell. The distinction between a contract to sell and a contract of sale is quite germane. In a contract of sale, title passes to the vendee upon the delivery of the thing sold; whereas in a contract to sell, by agreement the ownership is reserved in the vendor and is not to pass until the full payment of the price.22 In a contract of sale, the vendor has lost and cannot recover ownership until and unless the contract is resolved or rescinded; whereas in a contract to sell, title is retained by the vendor until the full payment of the price, such payment being a positive suspensive condition and failure of which is not a breach but an event that prevents the obligation of the vendor to convey title from becoming effective.23

The perfected contract to sell imposed upon Babasanta the obligation to pay the balance of the purchase price. There being an obligation to pay the price, Babasanta should have made the proper tender of payment and consignation of the price in court as required by law. Mere sending of a letter by the vendee expressing the intention to pay without the accompanying payment is not considered a valid tender of payment.24 Consignation of the amounts due in court is essential in order to extinguish Babasantas obligation to pay the balance of the purchase price. Glaringly absent from the records is any indication that Babasanta even attempted to make the proper consignation of the amounts due, thus, the obligation on the part of the sellers to convey title never acquired obligatory force. On the assumption that the transaction between the parties is a contract of sale and not a contract to sell, Babasantas claim of ownership should nevertheless fail. Sale, being a consensual contract, is perfected by mere consent25 and from that moment, the parties may reciprocally demand performance.26 The essential elements of a contract of sale, to wit: (1) consent or meeting of the minds, that is, to transfer ownership in exchange for the price; (2) object certain which is the subject matter of the contract; (3) cause of the obligation which is established.27 The perfection of a contract of sale should not, however, be confused with its consummation. In relation to the acquisition and transfer of ownership, it should be noted that sale is not a mode, but merely a title. A mode is the legal means by which dominion or ownership is created, transferred or destroyed, but title is only the legal basis by which to affect dominion or ownership.28 Under Article 712 of the Civil Code, "ownership and other real rights over property are acquired and transmitted by law, by donation, by testate and intestate succession, and in consequence of certain contracts, by tradition." Contracts only constitute titles or rights to the transfer or acquisition of ownership, while delivery or tradition is the mode of accomplishing the same.29 Therefore, sale by itself does not transfer or affect ownership; the most that sale does is to create the obligation to transfer ownership. It is tradition or delivery, as a consequence of sale, that actually transfers ownership. Explicitly, the law provides that the ownership of the thing sold is acquired by the vendee from the moment it is delivered to him in any of the ways specified in Article 1497 to 1501.30 The word "delivered" should not be taken restrictively to mean transfer of actual physical possession of the property. The law recognizes two principal modes of delivery, to wit: (1) actual delivery; and (2) legal or constructive delivery. Actual delivery consists in placing the thing sold in the control and possession of the vendee.31 Legal or constructive delivery, on the

other hand, may be had through any of the following ways: the execution of a public instrument evidencing the sale;32 symbolical tradition such as the delivery of the keys of the place where the movable sold is being kept;33 traditio longa manu or by mere consent or agreement if the movable sold cannot yet be transferred to the possession of the buyer at the time of the sale;34 traditio brevi manu if the buyer already had possession of the object even before the sale;35 and traditio constitutum possessorium, where the seller remains in possession of the property in a different capacity.36 Following the above disquisition, respondent Babasanta did not acquire ownership by the mere execution of the receipt by Pacita Lu acknowledging receipt of partial payment for the property. For one, the agreement between Babasanta and the Spouses Lu, though valid, was not embodied in a public instrument. Hence, no constructive delivery of the lands could have been effected. For another, Babasanta had not taken possession of the property at any time after the perfection of the sale in his favor or exercised acts of dominion over it despite his assertions that he was the rightful owner of the lands. Simply stated, there was no delivery to Babasanta, whether actual or constructive, which is essential to transfer ownership of the property. Thus, even on the assumption that the perfected contract between the parties was a sale, ownership could not have passed to Babasanta in the absence of delivery, since in a contract of sale ownership is transferred to the vendee only upon the delivery of the thing sold.37 However, it must be stressed that the juridical relationship between the parties in a double sale is primarily governed by Article 1544 which lays down the rules of preference between the two purchasers of the same property. It provides: Art. 1544. If the same thing should have been sold to different vendees, the ownership shall be transferred to the person who may have first taken possession thereof in good faith, if it should be movable property. Should it be immovable property, the ownership shall belong to the person acquiring it who in good faith first recorded it in the Registry of Property. Should there be no inscription, the ownership shall pertain to the person who in good faith was first in the possession; and, in the absence thereof, to the person who presents the oldest title, provided there is good faith. The principle of primus tempore, potior jure (first in time, stronger in right) gains greater significance in case of double sale of immovable property. When the thing sold twice is an immovable, the one who acquires it and first records it in the Registry of Property, both made in good faith, shall be deemed the

owner.38 Verily, the act of registration must be coupled with good faith that is, the registrant must have no knowledge of the defect or lack of title of his vendor or must not have been aware of facts which should have put him upon such inquiry and investigation as might be necessary to acquaint him with the defects in the title of his vendor.39 Admittedly, SLDC registered the sale with the Registry of Deeds after it had acquired knowledge of Babasantas claim. Babasanta, however, strongly argues that the registration of the sale by SLDC was not sufficient to confer upon the latter any title to the property since the registration was attended by bad faith. Specifically, he points out that at the time SLDC registered the sale on 30 June 1990, there was already a notice of lis pendens on the file with the Register of Deeds, the same having been filed one year before on 2 June 1989. Did the registration of the sale after the annotation of the notice of lis pendens obliterate the effects of delivery and possession in good faith which admittedly had occurred prior to SLDCs knowledge of the transaction in favor of Babasanta? We do not hold so. It must be stressed that as early as 11 February 1989, the Spouses Lu executed the Option to Buy in favor of SLDC upon receiving P316,160.00 as option money from SLDC. After SLDC had paid more than one half of the agreed purchase price of P1,264,640.00, the Spouses Lu subsequently executed on 3 May 1989 a Deed of Absolute Sale in favor or SLDC. At the time both deeds were executed, SLDC had no knowledge of the prior transaction of the Spouses Lu with Babasanta. Simply stated, from the time of execution of the first deed up to the moment of transfer and delivery of possession of the lands to SLDC, it had acted in good faith and the subsequent annotation of lis pendens has no effect at all on the consummated sale between SLDC and the Spouses Lu. A purchaser in good faith is one who buys property of another without notice that some other person has a right to, or interest in, such property and pays a full and fair price for the same at the time of such purchase, or beforehe has notice of the claim or interest of some other person in the property.40 Following the foregoing definition, we rule that SLDC qualifies as a buyer in good faith since there is no evidence extant in the records that it had knowledge of the prior transaction in favor of Babasanta. At the time of the sale of the property to SLDC, the vendors were still the registered owners of the property and were in fact in possession of the lands.l^vvphi1.net Time and again, this Court has ruled that a person dealing with the owner of registered land is not bound to go beyond the certificate of title as he is charged with notice of burdens on the property which are noted on the face of the register or on the certificate of title.41 In assailing knowledge of the

transaction between him and the Spouses Lu, Babasanta apparently relies on the principle of constructive notice incorporated in Section 52 of the Property Registration Decree (P.D. No. 1529) which reads, thus: Sec. 52. Constructive notice upon registration. Every conveyance, mortgage, lease, lien, attachment, order, judgment, instrument or entry affecting registered land shall, if registered, filed, or entered in the office of the Register of Deeds for the province or city where the land to which it relates lies, be constructive notice to all persons from the time of such registering, filing, or entering. However, the constructive notice operates as suchby the express wording of Section 52from the time of the registration of the notice of lis pendens which in this case was effected only on 2 June 1989, at which time the sale in favor of SLDC had long been consummated insofar as the obligation of the Spouses Lu to transfer ownership over the property to SLDC is concerned. More fundamentally, given the superiority of the right of SLDC to the claim of Babasanta the annotation of the notice of lis pendens cannot help Babasantas position a bit and it is irrelevant to the good or bad faith characterization of SLDC as a purchaser. A notice of lis pendens, as the Court held in Natao v. Esteban,42serves as a warning to a prospective purchaser or incumbrancer that the particular property is in litigation; and that he should keep his hands off the same, unless he intends to gamble on the results of the litigation." Precisely, in this case SLDC has intervened in the pending litigation to protect its rights. Obviously, SLDCs faith in the merit of its cause has been vindicated with the Courts present decision which is the ultimate denouement on the controversy. The Court of Appeals has made capital43 of SLDCs averment in its Complaint-in-Intervention44 that at the instance of Pacita Lu it issued a check for P200,000.00 payable to Babasanta and the confirmatory testimony of Pacita Lu herself on crossexamination.45 However, there is nothing in the said pleading and the testimony which explicitly relates the amount to the transaction between the Spouses Lu and Babasanta for what they attest to is that the amount was supposed to pay off the advances made by Babasanta to Pacita Lu. In any event, the incident took place after the Spouses Lu had already executed the Deed of Absolute Sale with Mortgage in favor of SLDC and therefore, as previously explained, it has no effect on the legal position of SLDC. Assuming ex gratia argumenti that SLDCs registration of the sale had been tainted by the prior notice of lis pendens and assuming further for the same nonce that this is a case of double sale, still Babasantas claim could not prevail over that of SLDCs. In Abarquez v. Court of Appeals,46 this Court had the occasion to rule that if a vendee in a double sale registers the sale after he has acquired knowledge of a previous sale, the registration constitutes a

registration in bad faith and does not confer upon him any right. If the registration is done in bad faith, it is as if there is no registration at all, and the buyer who has taken possession first of the property in good faith shall be preferred. In Abarquez, the first sale to the spouses Israel was notarized and registered only after the second vendee, Abarquez, registered their deed of sale with the Registry of Deeds, but the Israels were first in possession. This Court awarded the property to the Israels because registration of the property by Abarquez lacked the element of good faith. While the facts in the instant case substantially differ from that in Abarquez, we would not hesitate to rule in favor of SLDC on the basis of its prior possession of the property in good faith. Be it noted that delivery of the property to SLDC was immediately effected after the execution of the deed in its favor, at which time SLDC had no knowledge at all of the prior transaction by the Spouses Lu in favor of Babasanta.1a\^/phi1.net The law speaks not only of one criterion. The first criterion is priority of entry in the registry of property; there being no priority of such entry, the second is priority of possession; and, in the absence of the two priorities, the third priority is of the date of title, with good faith as the common critical element. Since SLDC acquired possession of the property in good faith in contrast to Babasanta, who neither registered nor possessed the property at any time, SLDCs right is definitely superior to that of Babasantas. At any rate, the above discussion on the rules on double sale would be purely academic for as earlier stated in this decision, the contract between Babasanta and the Spouses Lu is not a contract of sale but merely a contract to sell. In Dichoso v. Roxas,47 we had the occasion to rule that Article 1544 does not apply to a case where there was a sale to one party of the land itself while the other contract was a mere promise to sell the land or at most an actual assignment of the right to repurchase the same land. Accordingly, there was no double sale of the same land in that case. WHEREFORE, the instant petition is hereby GRANTED. The decision of the Court of Appeals appealed from is REVERSED and SET ASIDE and the decision of the Regional Trial Court, Branch 31, of San Pedro, Laguna is REINSTATED. No costs. SO ORDERED. Puno, (Chairman), Austria-Martinez, Callejo, Sr., and Chico-Nazario, JJ., concur G.R. No. 137290 July 31, 2000

SAN MIGUEL PROPERTIES PHILIPPINES, INC., petitioner, vs. SPOUSES ALFREDO HUANG and GRACE HUANG, respondents. DECISION MENDOZA, J.: This is a petition for review of the decision,1 dated April 8, 1997, of the Court of Appeals which reversed the decision of the Regional Trial Court, Branch 153, Pasig City dismissing the complaint brought by respondents against petitioner for enforcement of a contract of sale. The facts are not in dispute. Petitioner San Miguel Properties Philippines, Inc. is a domestic corporation engaged in the purchase and sale of real properties. Part of its inventory are two parcels of land totalling 1, 738 square meters at the corner of Meralco Avenue and General Capinpin Street, Barrio Oranbo, Pasig City, which are covered by TCT Nos. PT82395 and PT-82396 of the Register of Deeds of Pasig City. On February 21, 1994, the properties were offered for sale for P52,140,000.00 in cash. The offer was made to Atty. Helena M. Dauz who was acting for respondent spouses as undisclosed principals. In a letter2 dated March 24, 1994, Atty. Dauz signified her clients interest in purchasing the properties for the amount for which they were offered by petitioner, under the following terms: the sum of P500,000.00 would be given as earnest money and the balance would be paid in eight equal monthly installments from May to December, 1994. However, petitioner refused the counteroffer. On March 29, 1994, Atty. Dauz wrote another letter3 proposing the following terms for the purchase of the properties, viz: This is to express our interest to buy your-above-mentioned property with an area of 1, 738 sq. meters. For this purpose, we are enclosing herewith the sum of P1,000,000.00 representing earnestdeposit money, subject to the following conditions. 1. We will be given the exclusive option to purchase the property within the 30 days from date of your acceptance of this offer. 2. During said period, we will negotiate on the terms and conditions of the purchase; SMPPI will secure the necessary Management and Board approvals; and we

initiate the documentation if there is mutual agreement between us. 3. In the event that we do not come to an agreement on this transaction, the said amount of P1,000,000.00 shall be refundable to us in full upon demand. . . . Isidro A. Sobrecarey, petitioners vice-president and operations manager for corporate real estate, indicated his conformity to the offer by affixing his signature to the letter and accepted the "earnest-deposit" of P1 million. Upon request of respondent spouses, Sobrecarey ordered the removal of the "FOR SALE" sign from the properties. Atty. Dauz and Sobrecarey then commenced negotiations. During their meeting on April 8, 1994, Sobrecarey informed Atty. Dauz that petitioner was willing to sell the subject properties on a 90-day term. Atty. Dauz countered with an offer of six months within which to pay. On April 14, 1994, the parties again met during which Sobrecarey informed Atty. Dauz that petitioner had not yet acted on her counter-offer. This prompted Atty. Dauz to propose a four-month period of amortization. On April 25, 1994, Atty. Dauz asked for an extension of 45 days from April 29, 1994 to June 13, 1994 within which to exercise her option to purchase the property, adding that within that period, "[we] hope to finalize [our] agreement on the matter."4 Her request was granted. On July 7, 1994, petitioner, through its president and chief executive officer, Federico Gonzales, wrote Atty. Dauz informing her that because the parties failed to agree on the terms and conditions of the sale despite the extension granted by petitioner, the latter was returning the amount of P1 million given as "earnestdeposit."5 On July 20, 1994, respondent spouses, through counsel, wrote petitioner demanding the execution within five days of a deed of sale covering the properties. Respondents attempted to return the "earnest-deposit" but petitioner refused on the ground that respondents option to purchase had already expired. On August 16, 1994, respondent spouses filed a complaint for specific performance against petitioner before the Regional Trial Court, Branch 133, Pasig City where it was docketed as Civil Case No. 64660. Within the period for filing a responsive pleading, petitioner filed a motion to dismiss the complaint alleging that (1) the alleged

"exclusive option" of respondent spouses lacked a consideration separate and distinct from the purchase price and was thus unenforceable and (2) the complaint did not allege a cause of action because there was no "meeting of the minds" between the parties and, therefore, no perfected contract of sale. The motion was opposed by respondents. On December 12, 1994, the trial court granted petitioners motion and dismissed the action. Respondents filed a motion for reconsideration, but it was denied by the trial court. They then appealed to the Court of Appeals which, on April 8, 1997, rendered a decision6 reversing the judgment of the trial court. The appellate court held that all the requisites of a perfected contract of sale had been complied with as the offer made on March 29, 1994, in connection with which the earnest money in the amount of P1 million was tendered by respondents, had already been accepted by petitioner. The court cited Art. 1482 of the Civil Code which provides that "[w]henever earnest money is given in a contract of sale, it shall be considered as part of the price and as proof of the perfection of the contract." The fact the parties had not agreed on the mode of payment did not affect the contract as such is not an essential element for its validity. In addition, the court found that Sobrecarey had authority to act in behalf of petitioner for the sale of the properties.7 Petitioner moved for reconsideration of the trial courts decision, but its motion was denied. Hence, this petition. Petitioner contends that the Court of Appeals erred in finding that there was a perfected contract of sale between the parties because the March 29, 1994 letter of respondents, which petitioner accepted, merely resulted in an option contract, albeit it was unenforceable for lack of a distinct consideration. Petitioner argues that the absence of agreement as to the mode of payment was fatal to the perfection of the contract of sale. Petitioner also disputes the appellate courts ruling that Isidro A. Sobrecarey had authority to sell the subject real properties.8 Respondents were required to comment within ten (10) days from notice. However, despite 13 extensions totalling 142 days which the Court had given to them, respondents failed to file their comment. They were thus considered to have waived the filing of a comment. The petition is meritorious. In holding that there is a perfected contract of sale, the Court of Appeals relied on the following findings: (1) earnest money was allegedly given by respondents and accepted by petitioner through its vice-president and operations manager, Isidro A. Sobrecarey; and (2) the documentary evidence in the records show that there was a perfected contract of sale.

With regard to the alleged payment and acceptance of earnest money, the Court holds that respondents did not give the P1 million as "earnest money" as provided by Art. 1482 of the Civil Code. They presented the amount merely as a deposit of what would eventually become the earnest money or downpayment should a contract of sale be made by them. The amount was thus given not as a part of the purchase price and as proof of the perfection of the contract of sale but only as a guarantee that respondents would not back out of the sale. Respondents in fact described the amount as an "earnest-deposit." In Spouses Doromal, Sr. v. Court of Appeals,9it was held: . . . While the P5,000 might have indeed been paid to Carlos in October, 1967, there is nothing to show that the same was in the concept of the earnest money contemplated in Art. 1482 of the Civil Code, invoked by petitioner, as signifying perfection of the sale. Viewed in the backdrop of the factual milieu thereof extant in the record, We are more inclined to believe that the said P5,000.00 were paid in the concept of earnest money as the term was understood under the Old Civil Code, that is, as a guarantee that the buyer would not back out, considering that it is not clear that there was already a definite agreement as to the price then and that petitioners were decided to buy 6/7 only of the property should respondent Javellana refuse to agree to part with her 1/7 share.10 In the present case, the P1 million "earnest-deposit" could not have been given as earnest money as contemplated in Art. 1482 because, at the time when petitioner accepted the terms of respondents offer of March 29, 1994, their contract had not yet been perfected. This is evident from the following conditions attached by respondents to their letter, to wit: (1) that they be given the exclusive option to purchase the property within 30 days from acceptance of the offer; (2) that during the option period, the parties would negotiate the terms and conditions of the purchase; and (3) petitioner would secure the necessary approvals while respondents would handle the documentation. The first condition for an option period of 30 days sufficiently shows that a sale was never perfected.1wphi1 As petitioner correctly points out, acceptance of this condition did not give rise to a perfected sale but merely to an option or an accepted unilateral promise on the part of respondents to buy the subject properties within 30 days from the date of acceptance of the offer. Such option giving respondents the exclusive right to buy the properties within the period agreed upon is separate and distinct from the contract of sale which the parties may enter.11 All that respondents had was just the option to buy the properties which privilege was not, however, exercised by them because there was a failure to agree on the terms of payment. No contract of sale may thus be enforced by respondents.

Furthermore, even the option secured by respondents from petitioner was fatally defective. Under the second paragraph of Art. 1479, an accepted unilateral promise to buy or sell a determinate thing for a price certain is binding upon the promisor only if the promise is supported by a distinct consideration. Consideration in an option contract may be anything of value, unlike in sale where it must be the price certain in money or its equivalent. There is no showing here of any consideration for the option. Lacking any proof of such consideration, the option is unenforceable. Equally compelling as proof of the absence of a perfected sale is the second condition that, during the option period, the parties would negotiate the terms and conditions of the purchase. 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.12 In the present case, the parties never got past the negotiation stage. The alleged "indubitable evidence"13 of a perfected sale cited by the appellate court was nothing more than offers and counter-offers which did not amount to any final arrangement containing the essential elements of a contract of sale. While the parties already agreed on the real properties which were the objects of the sale and on the purchase price, the fact remains that they failed to arrive at mutually acceptable terms of payment, despite the 45-day extension given by petitioner. The appellate court opined that the failure to agree on the terms of payment was no bar to the perfection of the sale because Art. 1475 only requires agreement by the parties as to the price of the object. This is error. InNavarro v. Sugar Producers Cooperative Marketing Association, Inc.,14 we laid down the rule that the manner of payment of the purchase price is an essential element before a valid and binding contract of sale can exist. Although the Civil Code does not expressly state that the minds of the parties must also meet on the terms or manner of payment of the price, the same is needed, otherwise there is no sale. As held in Toyota Shaw, Inc. v. Court of Appeals,15 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.16 In Velasco v. Court of Appeals,17 the parties to a proposed sale had already agreed on the object of sale and on the purchase price. By the buyers own admission, however, the parties still had to agree on how and when the downpayment and the installments were to be paid. It was held: . . . Such being the situation, it can not, therefore, be said that a definite and firm sales agreement between the parties had been

perfected over the lot in question. Indeed, this Court has already ruled before that a definite agreement on the manner of payment of the purchase price is an essential element in the formation of a binding and enforceable contract of sale. The fact, therefore, that the petitioners delivered to the respondent the sum of P10,000 as part of the down-payment that they had to pay cannot be considered as sufficient proof of the perfection of any purchase and sale agreement between the parties herein under Art. 1482 of the new Civil Code, as the petitioners themselves admit that some essential matter - the terms of the payment - still had to be mutually covenanted.18 Thus, it is not the giving of earnest money, but the proof of the concurrence of all the essential elements of the contract of sale which establishes the existence of a perfected sale. In the absence of a perfected contract of sale, it is immaterial whether Isidro A. Sobrecarey had the authority to enter into a contract of sale in behalf of petitioner. This issue, therefore, needs no further discussion. WHEREFORE, the decision of the Court of Appeals is REVERSED and respondents complaint is DISMISSED. SO ORDERED. Quisumbing, Buena, and De Leon, Jr., JJ., concur. Bellosillo, (Chairman), J., on leave. G.R. No. 75198 October 18, 1988 SCHMID & OBERLY, INC., petitioner, vs. RJL MARTINEZ FISHING CORPORATION, respondent. Sycip Salazar Hernandez & Gatmaitan Law Office for petitioner. Siguion Reyna, Montecillo & Ongsiako Law Office for respondent.

defective "Nagata"-brand generators, plus consequential damages, and attorneys fees. The facts as found by the Court of Appeals, are as follows: The findings of facts by the trial court (Decision, pp. 21-28, Record on Appeal) shows: that the plaintiff RJL Martinez Fishing Corporation is engaged in deep-sea fishing, and in the course of its business, needed electrical generators for the operation of its business; that the defendant sells electrical generators with the brand of "Nagata", a Japanese product; that the supplier is the manufacturer, the D. Nagata Co. Ltd., of Japan, that the defendant Schmid & Oberly Inc. advertised the 12 Nagata generators for sale; that the plaintiff purchased 12 brand new Nagata generators, as advertised by herein defendant; that through an irrevocable line of credit, the D. Nagata Co., Ltd., shipped to the plaintiff 12 electric generators, and the latter paid the amount of the purchase price; that the 12 generators were found to be factory defective; that the plaintiff informed the defendant herein that it shall return the 12 generators as in fact three of the 12 were actually returned to the defendant; that the plaintiff sued the defendant on the warranty; asking for rescission of the contract; that the defendant be ordered to accept the generators and be ordered to pay back the purchase money; and that the plaintiff asked for damages. (Record on Appeal, pp. 27-28) [CA Decision, pp. 34; Rollo, pp. 47-48.] On the basis thereof, the Court of Appeals affirmed the decision of the trial court ordering petitioner to refund to private respondent the purchase price for the twelve (12) generators and to accept delivery of the same and to pay s and attorney's fees, with a slight modification as to the amount to be refunded. In its resolution of the motion for reconsideration, the Court of Appeals further modified the trial courts decision as to the award of consequential damages. Ordinarily, the Court will not disturb the findings of fact of the Court of Appeals in petitions to review the latter's decisions under Rule 45 of the Revised Rules of Court, the scope of the Court's inquiry being limited to a review of the imputed errors of law [Chan v. Court of Appeals, G.R. No. L-27488, June 30, 1970, 33 SCRA 77; Tiongco v. De la Merced, G.R. No. L-24426, July 25, 1974, 58 SCRA 89; Corona v. Court of Appeals, G.R. No. 62482, April 28, 1983, 121

CORTES, J.: Petitioner seeks reversal of the decision and the resolution of the Court of Appeals, ordering Schmid & Oberly Inc. (hereafter to be referred to simply as "SCHMID") to refund the purchase price paid by RJL Martinez Fishing Corporation (hereafter to be referred to simply as "RJL MARTINEZ") to D. Nagata Co., Ltd. of Japan (hereafter to be referred to simply as NAGATA CO.") for twelve (12)

SCRA 865; Baniqued v. Court of Appeals, G.R. No. L-47531, January 30, 1984, 127 SCRA 596.] However, when, as in this case, it is the petitioner's position that the appealed judgment is premised on a misapprehension of facts, * the Court is compelled to review the Court of Appeal's factual findings [De la Cruz v. Sosing, 94 Phil. 26 (1953); Castillo v. Court of Appeals, G.R. No. I,48290, September 29, 1983, 124 SCRA 808.] Considering the sketchiness of the respondent court's narration of facts, whether or not the Court of Appeals indeed misapprehended the facts could not be determined without a thorough review of the records. Thus, after a careful scrutiny of the records, the Court has found the appellate court's narration of facts incomplete. It failed to include certain material facts. The facts are actually as follows: RJL MARTINEZ is engaged in the business of deep-sea fishing. As RJL MARTINEZ needed electric generators for some of its boats and SCHMIID sold electric generators of different brands, negotiations between them for the acquisition thereof took place. The parties had two separate transactions over "Nagata"-brand generators. The first transaction was the sale of three (3) generators. In this transaction, it is not disputed that SCHMID was the vendor of the generators. The company supplied the generators from its stockroom; it was also SCHMID which invoiced the sale. The second transaction, which gave rise to the present controversy, involves twelve (12) "Nagata"-brand generators. 'These are the facts surrounding this particular transaction: As RJL MARTINEZ was canvassing for generators, SC gave RJL MARTINEZ its Quotation dated August 19, 1975 [Exhibit 'A"] for twelve (12) "Nagata'-brand generators with the following specifications: "NAGATA" Single phase AC Alternators, 110/220 V, 60 cycles, 1800 rpm, unity power factor, rectifier type and radio suppressor,, 5KVA (5KW) $546.75 @ It was stipulated that payment would be made by confirming an irrevocable letter of credit in favor of NAGATA CO. Furthermore, among the General Conditions of Sale appearing on the dorsal side of the Quotation is the following:

Buyer will, upon request, promptly open irrevocable Letter of Credit in favor of seller, in the amount stated on the face of this memorandum, specifying shipment from any Foreign port to Manila or any safe Philippine port, permitting partial shipments and providing that in the event the shippers are unable to ship within the specified period due to strikes, lack of shipping space or other circumstances beyond their reasonable control, Buyer agrees to extend the said Letter of Credit for later shipment. The Letter of Credit shall otherwise be subject to the conditions stated in this memorandum of contract. [Emphasis supplied.] Agreeing with the terms of the Quotation, RJL MARTINEZ opened a letter of credit in favor of NAGATA CO. Accordingly, on November 20,1975, SCHMID transmitted to NAGATA CO. an order [Exhibit "4"] for the twelve (12) generators to be shipped directly to RJL MARTINEZ. NAGATA CO. thereafter sent RJL MARTINEZ the bill of lading and its own invoice (Exhibit "B") and, in accordance with the order, shipped the generators directly to RJL MARTINEZ. The invoice states that "one (1) case of 'NAGATA' AC Generators" consisting of twelve sets wasbought by order and for account risk of Messrs. RJL Martinez Fishing Corporation. For its efforts, SCHMID received from NAGATA CO. a commission of $1,752.00 for the sale of the twelve generators to RJL MARTINEZ. [Exhibits "9", "9-A", "9-B" and "9-C".] All fifteen (15) generators subject of the two transactions burned out after continuous use. RJL MARTINEZ informed SCHMID about this development. In turn, SCHMID brought the matter to the attention of NAGATA CO. In July 1976, NAGATA CO. sent two technical representatives who made an ocular inspection and conducted tests on some of the burned out generators, which by then had been delivered to the premises of SCHMID. The tests revealed that the generators were overrated. As indicated both in the quotation and in the invoice, the capacity of a generator was supposed to be 5 KVA (kilovolt amperes). However, it turned out that the actual capacity was only 4 KVA. SCHMID replaced the three (3) generators subject of the first sale with generators of a different brand. As for the twelve (12) generators subject of the second transaction, the Japanese technicians advised RJL MARTINEZ to ship three (3) generators to Japan, which the company did. These three (3) generators were repaired by NAGATA CO. itself and thereafter returned to RJL MARTINEZ; the remaining nine (9) were neither

repaired nor replaced. NAGATA CO., however, wrote SCHMID suggesting that the latter check the generators, request for spare parts for replacement free of charge, and send to NAGATA CO. SCHMID's warranty claim including the labor cost for repairs [Exhibit "I".] In its reply letter, SCHMID indicated that it was not agreeable to these terms [Exhibit "10".] As not all of the generators were replaced or repaired, RJL MARTINEZ formally demanded that it be refunded the cost of the generators and paid damages. SCHMID in its reply maintained that it was not the seller of the twelve (12) generators and thus refused to refund the purchase price therefor. Hence, on February 14, 1977, RJL MARTINEZ brought suit against SCHMID on the theory that the latter was the vendor of the twelve (12) generators and, as such vendor, was liable under its warranty against hidden defects. Both the trial court and the Court of Appeals upheld the contention of RJL MARTINEZ that SCHMID was the vendor in the second transaction and was liable under its warranty. Accordingly, the courts a quo rendered judgment in favor of RJL MARTINEZ. Hence, the instant recourse to this Court. In this petition for review, SCHMID seeks reversal on the following grounds: (i) Schmid was merely the indentor in the sale [of the twelve (12) generators] between Nagata Co., the exporter and RJL Martinez, the importer; (ii) as mere indentor, Schmid is not liable for the seller's implied warranty against hidden defects, Schmid not having personally assumed any such warranty. (iii) in any event, conformably with Article 1563 of the Civil Code, there was no implied warranty against hidden defects in the sale of these twelve (12) generators because these were sold under their trade name "Nagata"; and (iv) Schmid, accordingly, is not liable for the reimbursement claimed by RJL Martinez nor for the latter's unsubstantiated claim of PI 10.33 operational losses a day nor for exemplary damages, attorney's fees and costs. [Petition, p. 6.] 1. As may be expected, the basic issue confronting this Court is whether the second transaction between the parties was a sale or

an indent transaction. SCHMID maintains that it was the latter; RJL MARTINEZ claims that it was a sale. At the outset, it must be understood that a contract is what the law defines it to be, considering its essential elements, and not what it is caged by the contracting parties [Quiroga v. Parsons Hardware Co., 38 Phil. 501 (1918).] The Civil Code defines a contract of sale, thus: ART. 458. By the contract of sale one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent. It has been said that the essence of the contract of sale is transfer of title or agreement to transfer it for a price paid or promised [Commissioner of Internal Revenue v. Constantino, G.R. No. L25926, February 27, 1970, 31 SCRA 779, 785, citing Salisbury v. Brooks, 94 SE 117,118-19.] "If such transfer puts the transferee in the attitude or position of an owner and makes him liable to the transferor as a debtor for the agreed price, and not merely as an agent who must account for the proceeds of a resale, the transaction is, a sale." [Ibid.] On the other hand, there is no statutory definition of "indent" in this jurisdiction. However, the Rules and Regulations to Implement Presidential Decree No. 1789 (the Omnibus Investments Code) lumps "indentors" together with "commercial brokers" and "commission merchants" in this manner: ... A foreign firm which does business through the middlemen acting in their own names, such asindentors, commercial brokers or commission merchants, shall not be deemed doing business in the Philippines. But such indentors, commercial brokers or commission merchants shall be the ones deemed to be doing business in the Philippines [Part I, Rule I, Section 1, par. g (1).] Therefore, an indentor is a middlemen in the same class as commercial brokers and commission merchants. To get an Idea of what an indentor is, a look at the definition of those in his class may prove helpful. A broker is generally defined as one who is engaged, for others, on a commission,

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

conclusion that SCHMID was not a vendor, but was merely an indentor, in the second transaction. In its complaint, RJL MARTINEZ admitted that the generators were purchased "through indent order" [Record on Appeal, p. 6.] In the same vein, it admitted in its demand letter previously sent to SCHMID that twelve (12) of en (15) Nagata-brand generators "were purchased through your company (SCHMID), by indent order and three (3) by direct purchase." [Exhibit "D".] The evidence also show that RJL MARTINEZ paid directly NAGATA CO, for the generators, and that the latter company itself invoiced the sale [Exhibit "B"], and shipped the generators directly to the former. The only participation of SCHMID was to act as an intermediary or middleman between NAGATA CO. and RJL MARTINEZ, by procuring an order from RJL MARTINEZ and forwarding the same to NAGATA CO. for which the company received a commission from NAGATA CO. [Exhibits "9", "9-A", "9-B" and "9-C".] The above transaction is significantly different from the first transaction wherein SCHMID delivered the goods from its own stock (which it had itself imported from NAGATA CO.), issued its own invoice, and collected payment directly from the purchaser. These facts notwithstanding, RJL MARTINEZ insists that SCHMID was the vendor of the twelve generators on the following grounds: First, it is contended that the Quotation and the General Conditions of Sale on the dorsal side thereof do not necessarily lead to the conclusion that NAGATA CO., and not SCHMID, was the real seller in the case of the twelve (12) generators in that: (i) the signing of the quotation, which was under SCHMID's letter-head, perfected the contract of sale (impliedly, as between the signatories theretoi.e., RJL MARTINEZ and SCHMID); (ii) the qualification that the letter of credit shall be in favor of NAGATA CO. constituted simply the manner of payment requested by SCHMID (implying that SCHMID, as seller, merely chose to waive direct payment, stipulating delivery of payment instead to NAGATA CO. as supplier); Second, it is asserted that the acts of SCHMID after it was informed of the defect in the generators were indicative of its awareness that it was the vendor and acknowledgment of its liability as such vendor. Attention is called to these facts: When RJL MARTINEZ complained to SCHMID that the generators were defective, SCHMID immediately asked RJL MARTINEZ to send the defective generators to its shop to determine what was wrong. SCHMID

likewise informed NAGATA CO. about the complaint of RJL MARTINEZ. When the Japanese technicians arrived, SCHMID made available its technicians, its shop and its testing equipment. After the generators were found to have factory defects, SCHMID facilitated the shipment of three (3) generators to Japan and, after their repair, back to the Philippines [Memorandum for the Respondent, p. 8.] Third, it is argued that the contents of the letter from NAGATA CO. to SCHMID regarding the repair of the generators indicated that the latter was "within the purview of a seller." [Ibid.] Fourth, it is argued that if SCHMID is considered as a mere agent of NAGATA CO., a foreign corporation not licensed to do business in the Philippines, then the officers and employees of the former may be penalized for violation of the old Corporation Law which provided: Sec. 69 ... Any officer or agent of the corporation or any person transacting business for any foreign corporation not having the license prescribed shall be punished by imprisonment for not less than six months nor more than two years or by a fine 'of not less than two hundred pesos nor more than one thousand pesos or both such imprisonment and fine, in the discretion of the Court. The facts do not bear out these contentions. The first contention disregards the circumstances surrounding the second transaction as distinguished from those surrounding the first transaction, as noted above. Neither does the solicitous manner by which SCHMID responded to RJL MARTINEZ's complaint prove that the former was the seller of the generators. As aptly stated by counsel, no indentor will just fold its hands when a client complains about the goods it has bought upon the indentor's mediation. In its desire to promote the product of the seller and to retain the goodwill of the buyer, a prudent indentor desirous of maintaining his business would have to act considerably. towards his clients. Note that in contrast to its act of replacing the three (3) generators subject of the first transaction, SCHMID did not replace any of the twelve (12) generators, but merely rendered assistance to both RJL TINES and NAGATA CO. so that the latter could repair the defective generators.

The proposal of NAGATA CO. rejected by SCHMID that the latter undertake the repair of the nine (9) other defective generators, with the former supplying the replacement parts free of charge and subsequently reimbursing the latter for labor costs [Exhibit "I"], cannot support the conclusion that SCHMID is vendor of the generators of the second transaction or was acting "within the purview of a seller." Finally, the afore-quoted penal provision in the Corporation Law finds no application to SCHMID and its officers and employees relative to the transactions in the instant case. What the law seeks to prevent, through said provision, is the circumvention by foreign corporations of licensing requirements through the device of employing local representatives. An indentor, acting in his own name, is not, however, covered by the above-quoted provision. In fact, the provision of the Rules and Regulations implementing the Omnibus Investments Code quoted above, which was copied from the Rules implementing Republic Act No. 5455, recognizes the distinct role of an indentor, such that when a foreign corporation does business through such indentor, the foreign corporation is not deemed doing business in the Philippines. In view of the above considerations, this Court rules that SCHMID was merely acting as an indentor in the purchase and sale of the twelve (12) generators subject of the second transaction. Not being the vendor, SCHMID cannot be held liable for the implied warranty for hidden defects under the Civil Code [Art. 1561, et seq.] 2. However, even as SCHMID was merely an indentor, there was nothing to prevent it from voluntarily warranting that twelve (12) generators subject of the second transaction are free from any hidden defects. In other words, SCHMID may be held answerable for some other contractual obligation, if indeed it had so bound itself. As stated above, an indentor is to some extent an agent of both the vendor and the vendee. As such agent, therefore, he may expressly obligate himself to undertake the obligations of his principal (See Art. 1897, Civil Code.) The Court's inquiry, therefore, shifts to a determination of whether or not SCHMID expressly bound itself to warrant that the twelve (12) generators are free of any hidden defects. Again, we consider the facts. The Quotation (Exhibit A is in writing. It is the repository of the contract between RJL MARTINEZ and SCHMID. Notably, nowhere is it stated therein that SCHMID did bind itself to answer for the defects of the things sold. There being no allegation nor any proof that the Quotation does not express the true intent and agreement of the contracting parties, extrinsic parol evidence of warranty will be to no avail [See Rule 123, Sec. 22.]

The trial court, however, relied on the testimony of Patrocinio Balagtas, the head of the Electrical Department of RJL MARTINEZ, to support the finding that SCHMID did warrant the twelve (12) generators against defects. Upon careful examination of Balagtas' testimony, what is at once apparent is that Balagtas failed to disclose the nature or terms and conditions of the warranty allegedly given by SC Was it a warranty that the generators would be fit for the fishing business of the buyer? Was it a warranty that the generators to be delivered would meet the specifications indicated in the Quotation? Considering the different kinds of warranties that may be contracted, unless the nature or terms and conditions of the warranty are known, it would not be possible to determine whether there has been a breach thereof. Moreover, a closer examination of the statements allegedly made by the representative of SCHMID reveals that they merely constituted an expression of opinion which cannot by any means be construed as a warranty [See Art. 1546, Civil Code.] We quote from Balagtas' testimony: Atty. CATRAL: Q Did you not say at the start of your cross examination, Mr. Balagtas, that the only participation you had in the acquisition of those twelve (12) units [of] generators was your having issued a purchase order to your own company for the purchase of the units? ATTY. AQUINO: Misleading, your Honor. Atty. CATRAL: I am asking the witness. COURT:

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

3. In view of the foregoing, it becomes unnecessary to pass upon the other issues. WHEREFORE, finding the Court of Appeals to have committed a reversible error, the petition is GRANTED and the appealed Decision and Resolution of the Court of Appeals are REVERSED. The complaint of RJL Martinez Fishing Corporation is hereby DISMISSED. No costs. SO ORDERED. Fernan, C.J., Gutierrez, Jr. and Bidin, JJ., concur. Feliciano, J., took no part. 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.

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. 173-177 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:

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:

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 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: 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, 807-808, 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.

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. 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 ready-made 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 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 5of 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 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. 150-151, BIR rec.) On April 6, 1953, Engineering wrote to Owens-Corning 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 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: 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. 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. Makalintal, C.J., Castro, Makasiar and Martin, JJ., concur.

of P1,060,000.00. Prior to the full payment of this amount, plaintiff claims that defendants Andre Almocera and First Builders fraudulently concealed the fact that before and at the time of the perfection of the aforesaid contract to sell, the property was already mortgaged to and encumbered with the Land Bank of the Philippines (LBP). In addition, the construction of the house has long been delayed and remains unfinished. On March 13, 1999, Lot 4-a covered by TCT No. 148818, covering the unit was advertised in a local tabloid for public auction for foreclosure of mortgage. It is the assertion of the plaintiff that had it not for the fraudulent concealment of the mortgage and encumbrance by defendants, he would have not entered into the contract to sell. On the other hand, defendants assert that on March 20, 1995, First Builders Multi-purpose Coop. Inc., borrowed money in the amount of P500,000.00 from Tommy Ong, plaintiffs brother. This amount was used to finance the documentation requirements of the LBP for the funding of the Atrium Town Homes. This loan will be applied in payment of one (1) town house unit which Tommy Ong may eventually purchase from the project. When the project was under way, Tommy Ong wanted to buy another townhouse for his brother, Johnny Ong, plaintiff herein, which then, the amount of P150,000.00 was given as additional partial payment. However, the particular unit was not yet identified. It was only on January 10, 1997 that Tommy Ong identified Unit No. 4 plaintiffs chosen unit and again tendered P350,000.00 as his third partial payment. When the contract to sell for Unit 4 was being drafted, Tommy Ong requested that another contract to sell covering Unit 5 be made so as to give Johnny Ong another option to choose whichever unit he might decide to have. When the construction was already in full blast, defendants were informed by Tommy Ong that their final choice was Unit 5. It was only upon knowing that the defendants will be selling Unit 4 to some other persons for P4million that plaintiff changed his choice from Unit 5 to Unit 4.4 In trying to recover the amount he paid as down payment for the townhouse unit, respondent Johnny Ong filed a complaint for Damages before the RTC of Cebu City, docketed as Civil Case No. CEB-23687, against defendants Andre T. Almocera and FBMC alleging that defendants were guilty of fraudulent concealment and breach of contract when they sold to him a townhouse unit without divulging that the same, at the time of the perfection of their contract, was already mortgaged with the Land Bank of the Philippines (LBP), with the latter causing the foreclosure of the mortgage and the eventual sale of the townhouse unit to a third person.

In their Answer, defendants denied liability claiming that the foreclosure of the mortgage on the townhouse unit was caused by the failure of complainant Johnny Ong to pay the balance of the price of said townhouse unit. After the pre-trial conference was terminated, trial on the merits ensued. Respondent and his brother, Thomas Y. Ong, took the witness stand. For defendants, petitioner testified. In a Decision dated 20 May 2002, the RTC disposed of the case in this manner: WHEREFORE, in view of all the foregoing premises, judgment is hereby rendered in this case in favor of the plaintiff and against the defendants: (a) Ordering the defendants to solidarily pay to the plaintiff the sum of P1,060,000.00, together with a legal interest thereon at 6% per annum from April 21, 1999 until its full payment before finality of the judgment. Thereafter, if the amount adjudged remains unpaid, the interest rate shall be 12% per annum computed from the time when the judgment becomes final and executory until fully satisfied; (b) Ordering the defendants to solidarily pay to the plaintiff the sum of P100,000.00 as moral damages, the sum of P50,000.00 as attorneys fee and the sum of P15,619.80 as expenses of litigation; and (c) Ordering the defendants to pay the cost of this suit.5 The trial court ruled against defendants for not acting in good faith and for not complying with their obligations under their contract with respondent. In the Contract to Sell6 involving Unit 4 of the Atrium Townhomes, defendants agreed to sell said townhouse to respondent for P3,400,000.00. The down payment wasP1,000,000.00, while the balance of P2,400,000.00 was to be paid in full upon completion, delivery and acceptance of the townhouse. Under the contract which was signed on 10 January 1997, defendants agreed to complete and convey to respondent the unit within six months from the signing thereof. The trial court found that respondent was able to make a down payment or partial payment of P1,060,000.00 and that the defendants failed to complete the construction of, as well as deliver to respondent, the townhouse within six months from the signing of the contract. Moreover, respondent was not informed by the defendants at the time of the perfection of their contract that the subject townhouse was already mortgaged to LBP. The mortgage was foreclosed by the LBP and the townhouse was eventually sold

G.R. No. 170479

February 18, 2008

ANDRE T. ALMOCERA, petitioner, vs. JOHNNY ONG, respondent. DECISION CHICO-NAZARIO, J.: Before Us is a Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Civil Procedure which seeks to set aside the Decision1 of the Court of Appeals dated 18 July 2005 in CA-G.R. CV No. 75610 affirming in toto the Decision2 of Branch 11 of the Regional Trial Court (RTC) of Cebu City in Civil Case No. CEB-23687 and its Resolution3 dated 16 November 2005 denying petitioners motion for reconsideration. The RTC decision found petitioner Andre T. Almocera, Chairman and Chief Executive Officer of First Builder Multi-Purpose Cooperative (FBMC), solidarily liable with FMBC for damages. Stripped of non-essentials, the respective versions of the parties have been summarized by the Court of Appeals as follows: Plaintiff Johnny Ong tried to acquire from the defendants a "townhome" described as Unit No. 4 of Atrium Townhomes in Cebu City. As reflected in a Contract to Sell, the selling price of the unit was P3,400,000.00 pesos, for a lot area of eighty-eight (88) square meters with a three-storey building. Out of the purchase price, plaintiff was able to pay the amount

at public auction. It said that defendants were guilty of fraud in their dealing with respondent because the mortgage was not disclosed to respondent when the contract was perfected. There was also non-compliance with their obligations under the contract when they failed to complete and deliver the townhouse unit at the agreed time. On the part of respondent, the trial court declared he was justified in suspending further payments to the defendants and was entitled to the return of the down payment. Aggrieved, defendants appealed the decision to the Court of Appeals assigning the following as errors: 1. THE LOWER COURT ERRED IN HOLDING THAT PLAINTIFF HAS A VALID CAUSE OF ACTION FOR DAMAGES AGAINST DEFENDANT(S). 2. THE LOWER COURT ERRED IN HOLDING THAT DEFENDANT ANDRE T. ALMOCERA IS SOLIDARILY LIABLE WITH THE COOPERATIVE FOR THE DAMAGES TO THE PLAINTIFF.7 The Court of Appeals ruled that the defendants incurred delay when they failed to deliver the townhouse unit to the respondent within six months from the signing of the contract to sell. It agreed with the finding of the trial court that the nonpayment of the balance of P2.4M by respondent to defendants was proper in light of such delay and the fact that the property subject of the case was foreclosed and auctioned. It added that the trial court did not err in giving credence to respondents assertion that had he known beforehand that the unit was used as collateral with the LBP, he would not have proceeded in buying the townhouse. Like the trial court, the Court of Appeals gave no weight to defendants argument that had respondent paid the balance of the purchase price of the townhouse, the mortgage could have been released. It explained: We cannot find fault with the choice of plaintiff not to further dole out money for a property that in all events, would never be his. Moreover, defendants could, if they were really desirous of satisfying their obligation, demanded that plaintiff pay the outstanding balance based on their contract. This they had not done. We can fairly surmise that defendants could not comply with their obligation themselves, because as testified to by Mr. Almocera, they already signified to LBP that they cannot pay their outstanding loan obligations resulting to the foreclosure of the townhouse.8 Moreover, as to the issue of petitioners solidary liability, it said that this issue was belatedly raised and cannot be treated for the first time on appeal.

On 18 July 2005, the Court of Appeals denied the appeal and affirmed in toto the decision of the trial court. The dispositive portion of the decision reads: IN LIGHT OF ALL THE FOREGOING, this appeal is DENIED. The assailed decision of the Regional Trial Court, Branch 11, Cebu City in Civil Case No. CEB-23687 is AFFIRMED in toto.9 In a Resolution dated 16 November 2005, the Court of Appeals denied defendants motion for reconsideration. Petitioner is now before us pleading his case via a Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Civil Procedure. The petition raises the following issues: I. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT DEFENDANT HAS INCURRED DELAY. II. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN SUSTAINING RESPONDENTS REFUSAL TO PAY THE BALANCE OF THE PURCHASE PRICE. III. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT DEFENDANT ANDRE T. ALMOCERA IS SOLIDARILY LIABLE WITH THE DEFENDANT COOPERATIVE FOR DAMAGES TO PLAINTIFF.10 It cannot be disputed that the contract entered into by the parties was a contract to sell. The contract was denominated as such and it contained the provision that the unit shall be conveyed by way of an Absolute Deed of Sale, together with the attendant documents of Ownership the Transfer Certificate of Title and Certificate of Occupancy and that the balance of the contract price shall be paid upon the completion and delivery of the unit, as well as the acceptance thereof by respondent. All these clearly indicate that ownership of the townhouse has not passed to respondent. In Serrano v. Caguiat, 11 we explained: A contract to sell is akin to a conditional sale where the efficacy or obligatory force of the vendors obligation to transfer title is subordinated to the happening of a future and uncertain event, so that if the suspensive condition does not take place, the parties would stand as if the conditional obligation had never existed. The suspensive condition is commonly full payment of the purchase price.

The differences between a contract to sell and a contract of sale are well-settled in jurisprudence. As early as 1951, in Sing Yee v. Santos [47 O.G. 6372 (1951)], we held that: "x x x [a] distinction must be made between a contract of sale in which title passes to the buyer upon delivery of the thing sold and a contract to sell x x x where by agreement the ownership is reserved in the seller and is not to pass until the full payment of the purchase price is made. In the first case, non-payment of the price is a negative resolutory condition; in the second case, full payment is a positive suspensive condition. Being contraries, their effect in law cannot be identical. In the first case, the vendor has lost and cannot recover the ownership of the land sold until and unless the contract of sale is itself resolved and set aside. In the second case, however, the title remains in the vendor if the vendee does not comply with the condition precedent of making payment at the time specified in the contract." In other words, in a contract to sell, ownership is retained by the seller and is not to pass to the buyer until full payment of the price. The Contract to Sell entered into by the parties contains the following pertinent provisions: 4. TERMS OF PAYMENT: 4a. ONE MILLION PESOS (P1,000,000.00) is hereby acknowledged as Downpayment for the abovementioned Contract Price. 4b. The Balance, in the amount of TWO MILLION FOUR HUNDRED PESOS (P2,400,000.00) shall be paid thru financing Institution facilitated by the SELLER, preferably Landbank of the Philippines (LBP). Upon completion, delivery and acceptance of the BUYER of the Townhouse Unit, the BUYER shall have paid the Contract Price in full to the SELLER. xxxx 6. COMPLETION DATES OF THE TOWNHOUSE UNIT:

The unit shall be completed and conveyed by way of an Absolute Deed of Sale together with the attendant documents of Ownership in the name of the BUYER the Transfer Certificate of Title and Certificate of Occupancy within a period of six (6) months from the signing of Contract to Sell.12 From the foregoing provisions, it is clear that petitioner and FBMC had the obligation to complete the townhouse unit within six months from the signing of the contract. Upon compliance therewith, the obligation of respondent to pay the balance of P2,400,000.00 arises. Upon payment thereof, the townhouse shall be delivered and conveyed to respondent upon the execution of the Absolute Deed of Sale and other relevant documents. The evidence adduced shows that petitioner and FBMC failed to fulfill their obligation -- to complete and deliver the townhouse within the six-month period. With petitioner and FBMCs nonfulfillment of their obligation, respondent refused to pay the balance of the contract price. Respondent does not ask that ownership of the townhouse be transferred to him, but merely asks that the amount or down payment he had made be returned to him. Article 1169 of the Civil Code reads: Art. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation. However, the demand by the creditor shall not be necessary in order that delay may exist: (1) When the obligation or the law expressly so declares; or (2) When from the nature and the circumstances of the obligation it appears that the designation of the time when the thing is to be delivered or the service is to be rendered was a controlling motive for the establishment of the contract; or (3) When demand would be useless, as when the obligor has rendered it beyond his power to perform. In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. From the moment one of the parties fulfills his obligation, delay by the other begins.

The contract subject of this case contains reciprocal obligations which were to be fulfilled by the parties, i.e., to complete and deliver the townhouse within six months from the execution of the contract to sell on the part of petitioner and FBMC, and to pay the balance of the contract price upon completion and delivery of the townhouse on the part of the respondent. In the case at bar, the obligation of petitioner and FBMC which is to complete and deliver the townhouse unit within the prescribed period, is determinative of the respondents obligation to pay the balance of the contract price. With their failure to fulfill their obligation as stipulated in the contract, they incurred delay and are liable for damages.13They cannot insist that respondent comply with his obligation. Where one of the parties to a contract did not perform the undertaking to which he was bound by the terms of the agreement to perform, he is not entitled to insist upon the performance of the other party.14 On the first assigned error, petitioner insists there was no delay when the townhouse unit was not completed within six months from the signing of the contract inasmuch as the mere lapse of the stipulated six (6) month period is not by itself enough to constitute delay on his part and that of FBMC, since the law requires that there must either be judicial or extrajudicial demand to fulfill an obligation so that the obligor may be declared in default. He argues there was no evidence introduced showing that a prior demand was made by respondent before the original action was instituted in the trial court. We do not agree. Demand is not necessary in the instant case. Demand by the respondent would be useless because the impossibility of complying with their (petitioner and FBMC) obligation was due to their fault. If only they paid their loans with the LBP, the mortgage on the subject townhouse would not have been foreclosed and thereafter sold to a third person. Anent the second assigned error, petitioner argues that if there was any delay, the same was incurred by respondent because he refused to pay the balance of the contract price. We find his argument specious. As above-discussed, the obligation of respondent to pay the balance of the contract price was conditioned on petitioner and FBMCs performance of their obligation. Considering that the latter did not comply with their obligation to complete and deliver the townhouse unit within the period agreed upon, respondent could not have incurred delay. For failure of one party to assume and perform the obligation imposed on him, the other party does not incur delay.15

Under the circumstances obtaining in this case, we find that respondent is justified in refusing to pay the balance of the contract price. He was never in possession of the townhouse unit and he can no longer be its owner since ownership thereof has been transferred to a third person who was not a party to the proceedings below. It would simply be the height of inequity if we are to require respondent to pay the balance of the contract price. To allow this would result in the unjust enrichment of petitioner and FBMC. The fundamental doctrine of unjust enrichment is the transfer of value without just cause or consideration. The elements of this doctrine which are present in this case are: enrichment on the part of the defendant; impoverishment on the part of the plaintiff; and lack of cause. The main objective is to prevent one to enrich himself at the expense of another. It is commonly accepted that this doctrine simply means a person shall not be allowed to profit or enrich himself inequitably at another's expense.16Hence, to allow petitioner and FBMC keep the down payment made by respondent amounting to P1,060,000.00 would result in their unjust enrichment at the expense of the respondent. Thus, said amount should be returned. What is worse is the fact that petitioner and FBMC intentionally failed to inform respondent that the subject townhouse which he was going to purchase was already mortgaged to LBP at the time of the perfection of their contract. This deliberate withholding by petitioner and FBMC of the mortgage constitutes fraud and bad faith. The trial court had this say: In the light of the foregoing environmental circumstances and milieu, therefore, it appears that the defendants are guilty of fraud in dealing with the plaintiff. They performed voluntary and willful acts which prevent the normal realization of the prestation, knowing the effects which naturally and necessarily arise from such acts. Their acts import a dishonest purpose or some moral obliquity and conscious doing of a wrong. The said acts certainly gtive rise to liability for damages (8 Manresa 72; Borrell-Macia 26-27; 3 Camus 34; OLeary v. Macondray & Company, 454 Phil. 812; Heredia v. Salinas, 10 Phil. 157). Article 1170 of the New Civil Code of the Philippines provides expressly that "those who in the performance of their obligations are guilty of fraud and those who in any manner contravene the tenor thereof are liable for damages.17 On the last assigned error, petitioner contends that he should not be held solidarily liable with defendant FBMC, because the latter is a separate and distinct entity which is the seller of the subject townhouse. He claims that he, as Chairman and Chief Executive Officer of FBMC, cannot be held liable because his representing FBMC in its dealings is a corporate act for which only FBMC should be held liable.

This issue of piercing the veil of corporate fiction was never raised before the trial court. The same was raised for the first time before the Court of Appeals which ruled that it was too late in the day to raise the same. The Court of Appeals declared: In the case below, the pleadings and the evidence of the defendants are one and the same and never had it made to appear that Almocera is a person distinct and separate from the other defendant. In fine, we cannot treat this error for the first time on appeal. We cannot in good conscience, let the defendant Almocera raise the issue of piercing the veil of corporate fiction just because of the adverse decision against him. x x x.18 To allow petitioner to pursue such a defense would undermine basic considerations of due process. Points of law, theories, issues and arguments not brought to the attention of the trial court will not be and ought not to be considered by a reviewing court, as these cannot be raised for the first time on appeal. It would be unfair to the adverse party who would have no opportunity to present further evidence material to the new theory not ventilated before the trial court.19 As to the award of damages granted by the trial court, and affirmed by the Court of Appeals, we find the same to be proper and reasonable under the circumstances. WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals dated 18 July 2005 in CA-G.R. CV No. 75610 is AFFIRMED. Costs against the petitioner. SO ORDERED. G.R. No. L-69259 January 26, 1988 DELPHER TRADES CORPORATION, and DELPHIN PACHECO, petitioners, vs. INTERMEDIATE APPELLATE COURT and HYDRO PIPES PHILIPPINES, INC., respondents.

exchange for 2,500 shares of stock was actually a deed of sale which violated a right of first refusal under a lease contract. Briefly, the facts of the case are summarized as follows: In 1974, Delfin Pacheco and his sister, Pelagia Pacheco, were the owners of 27,169 square meters of real estate Identified as Lot. No. 1095, Malinta Estate, in the Municipality of Polo (now Valenzuela), Province of Bulacan (now Metro Manila) which is covered by Transfer Certificate of Title No. T-4240 of the Bulacan land registry. On April 3, 1974, the said co-owners leased to Construction Components International Inc. the same property and providing that during the existence or after the term of this lease the lessor should he decide to sell the property leased shall first offer the same to the lessee and the letter has the priority to buy under similar conditions (Exhibits A to A5) On August 3, 1974, lessee Construction Components International, Inc. assigned its rights and obligations under the contract of lease in favor of Hydro Pipes Philippines, Inc. with the signed conformity and consent of lessors Delfin Pacheco and Pelagia Pacheco (Exhs. B to B-6 inclusive) The contract of lease, as well as the assignment of lease were annotated at he back of the title, as per stipulation of the parties (Exhs. A to D-3 inclusive) On January 3, 1976, a deed of exchange was executed between lessors Delfin and Pelagia Pacheco and defendant Delpher Trades Corporation whereby the former conveyed to the latter the leased property (TCT No.T4240) together with another parcel of land also located in Malinta Estate, Valenzuela, Metro Manila (TCT No. 4273) for 2,500 shares of stock of defendant corporation with a total value of P1,500,000.00 (Exhs. C to C-5, inclusive) (pp. 44-45, Rollo) On the ground that it was not given the first option to buy the leased property pursuant to the proviso in the lease agreement, respondent Hydro Pipes Philippines, Inc., filed an amended

complaint for reconveyance of Lot. No. 1095 in its favor under conditions similar to those whereby Delpher Trades Corporation acquired the property from Pelagia Pacheco and Delphin Pacheco. After trial, the Court of First Instance of Bulacan ruled in favor of the plaintiff. The dispositive portion of the decision reads: ACCORDINGLY, the judgment is hereby rendered declaring the valid existence of the plaintiffs preferential right to acquire the subject property (right of first refusal) and ordering the defendants and all persons deriving rights therefrom to convey the said property to plaintiff who may offer to acquire the same at the rate of P14.00 per square meter, more or less, for Lot 1095 whose area is 27,169 square meters only. Without pronouncement as to attorney's fees and costs. (Appendix I; Rec., pp. 246- 247). (Appellant's Brief, pp. 1-2; p. 134, Rollo) The lower court's decision was affirmed on appeal by the Intermediate Appellate Court. The defendants-appellants, now the petitioners, filed a petition for certiorari to review the appellate court's decision. We initially denied the petition but upon motion for reconsideration, we set aside the resolution denying the petition and gave it due course. The petitioners allege that: The denial of the petition will work great injustice to the petitioners, in that: 1. Respondent Hydro Pipes Philippines, Inc, ("private respondent") will acquire from petitioners a parcel of industrial land consisting of 27,169 square meters or 2.7 hectares (located right after the Valenzuela, Bulacan exit of the toll expressway) for only P14/sq. meter, or a total of P380,366, although the prevailing value thereof is approximately P300/sq. meter or P8.1 Million; 2. Private respondent is allowed to exercise its right of first refusal even if there is no "sale" or transfer of actual ownership interests by petitioners to third parties; and

GUTIERREZ, JR., J.: The petitioners question the decision of the Intermediate Appellate Court which sustained the private respondent's contention that the deed of exchange whereby Delfin Pacheco and Pelagia Pacheco conveyed a parcel of land to Delpher Trades Corporation in

3. Assuming arguendo that there has been a transfer of actual ownership interests, private respondent will acquire the land not under "similar conditions" by which it was transferred to petitioner Delpher Trades Corporation, as provided in the same contractual provision invoked by private respondent. (pp. 251-252, Rollo) The resolution of the case hinges on whether or not the "Deed of Exchange" of the properties executed by the Pachecos on the one hand and the Delpher Trades Corporation on the other was meant to be a contract of sale which, in effect, prejudiced the private respondent's right of first refusal over the leased property included in the "deed of exchange." Eduardo Neria, a certified public accountant and son-in-law of the late Pelagia Pacheco testified that Delpher Trades Corporation is a family corporation; that the corporation was organized by the children of the two spouses (spouses Pelagia Pacheco and Benjamin Hernandez and spouses Delfin Pacheco and Pilar Angeles) who owned in common the parcel of land leased to Hydro Pipes Philippines in order to perpetuate their control over the property through the corporation and to avoid taxes; that in order to accomplish this end, two pieces of real estate, including Lot No. 1095 which had been leased to Hydro Pipes Philippines, were transferred to the corporation; that the leased property was transferred to the corporation by virtue of a deed of exchange of property; that in exchange for these properties, Pelagia and Delfin acquired 2,500 unissued no par value shares of stock which are equivalent to a 55% majority in the corporation because the other owners only owned 2,000 shares; and that at the time of incorporation, he knew all about the contract of lease of Lot. No. 1095 to Hydro Pipes Philippines. In the petitioners' motion for reconsideration, they refer to this scheme as "estate planning." (p. 252, Rollo) Under this factual backdrop, the petitioners contend that there was actually no transfer of ownership of the subject parcel of land since the Pachecos remained in control of the property. Thus, the petitioners allege: "Considering that the beneficial ownership and control of petitioner corporation remained in the hands of the original co-owners, there was no transfer of actual ownership interests over the land when the same was transferred to petitioner corporation in exchange for the latter's shares of stock. The transfer of ownership, if anything, was merely in form but not in substance. In reality, petitioner corporation is a mere alter ego or conduit of the Pacheco co-owners; hence the corporation and the co-owners should be deemed to be the same, there being in substance and in effect an Identity of interest." (p. 254, Rollo) The petitioners maintain that the Pachecos did not sell the property. They argue that there was no sale and that they

exchanged the land for shares of stocks in their own corporation. "Hence, such transfer is not within the letter, or even spirit of the contract. There is a sale when ownership is transferred for a price certain in money or its equivalent (Art. 1468, Civil Code) while there is a barter or exchange when one thing is given in consideration of another thing (Art. 1638, Civil Code)." (pp. 254-255, Rollo) On the other hand, the private respondent argues that Delpher Trades Corporation is a corporate entity separate and distinct from the Pachecos. Thus, it contends that it cannot be said that Delpher Trades Corporation is the Pacheco's same alter ego or conduit; that petitioner Delfin Pacheco, having treated Delpher Trades Corporation as such a separate and distinct corporate entity, is not a party who may allege that this separate corporate existence should be disregarded. It maintains that there was actual transfer of ownership interests over the leased property when the same was transferred to Delpher Trades Corporation in exchange for the latter's shares of stock. We rule for the petitioners. After incorporation, one becomes a stockholder of a corporation by subscription or by purchasing stock directly from the corporation or from individual owners thereof (Salmon, Dexter & Co. v. Unson, 47 Phil, 649, citing Bole v. Fulton [1912], 233 Pa., 609). In the case at bar, in exchange for their properties, the Pachecos acquired 2,500 original unissued no par value shares of stocks of the Delpher Trades Corporation. Consequently, the Pachecos became stockholders of the corporation by subscription "The essence of the stock subscription is an agreement to take and pay for original unissued shares of a corporation, formed or to be formed." (Rohrlich 243, cited in Agbayani, Commentaries and Jurisprudence on the Commercial Laws of the Philippines, Vol. III, 1980 Edition, p. 430) It is significant that the Pachecos took no par value shares in exchange for their properties. A no-par value share does not purport to represent any stated proportionate interest in the capital stock measured by value, but only an aliquot part of the whole number of such shares of the issuing corporation. The holder of no-par shares may see from the certificate itself that he is only an aliquot sharer in the assets of the corporation. But this character of proportionate interest is not hidden beneath a false appearance of a given sum in money, as in the case of par value shares. The capital stock of a corporation issuing only no-par value shares is not set forth by a stated amount of money, but instead is expressed to be divided into a stated number of shares, such as, 1,000 shares. This indicates that a shareholder of

100 such shares is an aliquot sharer in the assets of the corporation, no matter what value they may have, to the extent of 100/1,000 or 1/10. Thus, by removing the par value of shares, the attention of persons interested in the financial condition of a corporation is focused upon the value of assets and the amount of its debts. (Agbayani, Commentaries and Jurisprudence on the Commercial Laws of the Philippines, Vol. III, 1980 Edition, p. 107). Moreover, there was no attempt to state the true or current market value of the real estate. Land valued at P300.00 a square meter was turned over to the family's corporation for only P14.00 a square meter. It is to be stressed that by their ownership of the 2,500 no par shares of stock, the Pachecos have control of the corporation. Their equity capital is 55% as against 45% of the other stockholders, who also belong to the same family group. In effect, the Delpher Trades Corporation is a business conduit of the Pachecos. What they really did was to invest their properties and change the nature of their ownership from unincorporated to incorporated form by organizing Delpher Trades Corporation to take control of their properties and at the same time save on inheritance taxes. As explained by Eduardo Neria: xxx xxx xxx ATTY. LINSANGAN: Q Mr. Neria, from the point of view of taxation, is there any benefit to the spouses Hernandez and Pacheco in connection with their execution of a deed of exchange on the properties for no par value shares of the defendant corporation? A Yes, sir. COURT: Q What do you mean by "point of view"? A To take advantage for both spouses and corporation in entering in the deed of exchange. ATTY. LINSANGAN:

Q (What do you mean by "point of view"?) What are these benefits to the spouses of this deed of exchange? A Continuous control of the property, tax exemption benefits, and other inherent benefits in a corporation. Q What are these advantages to the said spouses from the point of view of taxation in entering in the deed of exchange? A Having fulfilled the conditions in the income tax law, providing for tax free exchange of property, they were able to execute the deed of exchange free from income tax and acquire a corporation. Q What provision in the income tax law are you referring to? A I refer to Section 35 of the National Internal Revenue Code under par. C-sub-par. (2) Exceptions regarding the provision which I quote: "No gain or loss shall also be recognized if a person exchanges his property for stock in a corporation of which as a result of such exchange said person alone or together with others not exceeding four persons gains control of said corporation." Q Did you explain to the spouses this benefit at the time you executed the deed of exchange? A Yes, sir Q You also, testified during the last hearing that the decision to have no par value share in the defendant corporation was for the purpose of flexibility. Can you explain flexibility in connection with the ownership of the property in question? A There is flexibility in using no par value shares as the value is determined by the board of directors in increasing capitalization. The board can fix the value of the shares equivalent to the capital requirements of the corporation. Q Now also from the point of taxation, is there any flexibility in the holding by the corporation of the property in question? A Yes, since a corporation does not die it can continue to hold on to the property indefinitely for a period of at least 50 years. On the other hand, if the property is held by the spouse the property will be tied up in succession proceedings and the consequential payments of estate and inheritance taxes when an owner dies.

Q Now what advantage is this continuity in relation to ownership by a particular person of certain properties in respect to taxation? A The property is not subjected to taxes on succession as the corporation does not die. Q So the benefit you are talking about are inheritance taxes? A Yes, sir. (pp. 3-5, tsn., December 15, 1981) The records do not point to anything wrong or objectionable about this "estate planning" scheme resorted to by the Pachecos. "The legal right of a taxpayer to decrease the amount of what otherwise could be his taxes or altogether avoid them, by means which the law permits, cannot be doubted." (Liddell & Co., Inc. v. The collector of Internal Revenue, 2 SCRA 632 citing Gregory v. Helvering, 293 U.S. 465, 7 L. ed. 596). The "Deed of Exchange" of property between the Pachecos and Delpher Trades Corporation cannot be considered a contract of sale. There was no transfer of actual ownership interests by the Pachecos to a third party. The Pacheco family merely changed their ownership from one form to another. The ownership remained in the same hands. Hence, the private respondent has no basis for its claim of a light of first refusal under the lease contract. WHEREFORE, the instant petition is hereby GRANTED, The questioned decision and resolution of the then Intermediate Appellate Court are REVERSED and SET ASIDE. The amended complaint in Civil Case No. 885-V-79 of the then Court of First Instance of Bulacan is DISMISSED. No costs. SO ORDERED. Fernan (Chairman), Bidin and Cortes, JJ., concur. Feliciano, J., took no part. G.R. No. 118114 December 7, 1995 TEODORO ACAP, petitioner, vs. COURT OF APPEALS and EDY DE LOS REYES, respondents.

This is a petition for review on certiorari of the decision 1 of the Court of Appeals, 2nd Division, in CA-G.R. No. 36177, which affirmed the decision 2 of the Regional Trial Court of Himamaylan, Negros Occidental holding that private respondent Edy de los Reyes had acquired ownership of Lot No. 1130 of the Cadastral Survey of Hinigaran, Negros Occidental based on a document entitled "Declaration of Heirship and Waiver of Rights", and ordering the dispossession of petitioner as leasehold tenant of the land for failure to pay rentals. The facts of the case are as follows: The title to Lot No. 1130 of the Cadastral Survey of Hinigaran, Negros Occidental was evidenced by OCT No. R-12179. The lot has an area of 13,720 sq. meters. The title was issued and is registered in the name of spouses Santiago Vasquez and Lorenza Oruma. After both spouses died, their only son Felixberto inherited the lot. In 1975, Felixberto executed a duly notarized document entitled "Declaration of Heirship and Deed of Absolute Sale" in favor of Cosme Pido. The evidence before the court a quo established that since 1960, petitioner Teodoro Acap had been the tenant of a portion of the said land, covering an area of nine thousand five hundred (9,500) meters. When ownership was transferred in 1975 by Felixberto to Cosme Pido, Acap continued to be the registered tenant thereof and religiously paid his leasehold rentals to Pido and thereafter, upon Pido's death, to his widow Laurenciana. The controversy began when Pido died intestate and on 27 November 1981, his surviving heirs executed a notarized document denominated as "Declaration of Heirship and Waiver of Rights of Lot No. 1130 Hinigaran Cadastre," wherein they declared; to quote its pertinent portions, that: . . . Cosme Pido died in the Municipality of Hinigaran, Negros Occidental, he died intestate and without any known debts and obligations which the said parcel of land is (sic) held liable. That Cosme Pido was survived by his/her legitimate heirs, namely: LAURENCIANA PIDO, wife, ELY, ERVIN, ELMER, and ELECHOR all surnamed PIDO; children; That invoking the provision of Section 1, Rule 74 of the Rules of Court, the abovementioned heirs do hereby declare unto [sic] ourselves the only heirs of the late Cosme Pido and that we hereby adjudicate unto

PADILLA, J.:

ourselves the above-mentioned parcel of land in equal shares. Now, therefore, We LAURENCIANA 3, ELY, ELMER, ERVIN and ELECHOR all surnamed PIDO, do hereby waive, quitclaim all our rights, interests and participation over the said parcel of land in favor of EDY DE LOS REYES, of legal age, (f)ilipino, married to VIRGINIA DE LOS REYES, and resident of Hinigaran, Negros Occidental, Philippines. . . . 4 (Emphasis supplied) The document was signed by all of Pido's heirs. Private respondent Edy de los Reyes did not sign said document. It will be noted that at the time of Cosme Pido's death, title to the property continued to be registered in the name of the Vasquez spouses. Upon obtaining the Declaration of Heirship with Waiver of Rights in his favor, private respondent Edy de los Reyes filed the same with the Registry of Deeds as part of a notice of an adverse claimagainst the original certificate of title. Thereafter, private respondent sought for petitioner (Acap) to personally inform him that he (Edy) had become the new owner of the land and that the lease rentals thereon should be paid to him. Private respondent further alleged that he and petitioner entered into an oral lease agreement wherein petitioner agreed to pay ten (10) cavans of palay per annum as lease rental. In 1982, petitioner allegedly complied with said obligation. In 1983, however, petitioner refused to pay any further lease rentals on the land, prompting private respondent to seek the assistance of the then Ministry of Agrarian Reform (MAR) in Hinigaran, Negros Occidental. The MAR invited petitioner to a conference scheduled on 13 October 1983. Petitioner did not attend the conference but sent his wife instead to the conference. During the meeting, an officer of the Ministry informed Acap's wife about private respondent's ownership of the said land but she stated that she and her husband (Teodoro) did not recognize private respondent's claim of ownership over the land. On 28 April 1988, after the lapse of four (4) years, private respondent filed a complaint for recovery of possession and damages against petitioner, alleging in the main that as his leasehold tenant, petitioner refused and failed to pay the agreed annual rental of ten (10) cavans of palay despite repeated demands. During the trial before the court a quo, petitioner reiterated his refusal to recognize private respondent's ownership over the subject land. He averred that he continues to recognize Cosme Pido as the owner of the said land, and having been a registered tenant

therein since 1960, he never reneged on his rental obligations. When Pido died, he continued to pay rentals to Pido's widow. When the latter left for abroad, she instructed him to stay in the landholding and to pay the accumulated rentals upon her demand or return from abroad. Petitioner further claimed before the trial court that he had no knowledge about any transfer or sale of the lot to private respondent in 1981 and even the following year after Laurenciana's departure for abroad. He denied having entered into a verbal lease tenancy contract with private respondent and that assuming that the said lot was indeed sold to private respondent without his knowledge, R.A. 3844, as amended, grants him the right to redeem the same at a reasonable price. Petitioner also bewailed private respondent's ejectment action as a violation of his right to security of tenure under P.D. 27. On 20 August 1991, the lower court rendered a decision in favor of private respondent, the dispositive part of which reads: WHEREFORE, premises considered, the Court renders judgment in favor of the plaintiff, Edy de los Reyes, and against the defendant, Teodoro Acap, ordering the following, to wit: 1. Declaring forfeiture of defendant's preferred right to issuance of a Certificate of Land Transfer under Presidential Decree No. 27 and his farmholdings; 2. Ordering the defendant Teodoro Acap to deliver possession of said farm to plaintiff, and; 3. Ordering the defendant to pay P5,000.00 as attorney's fees, the sum of P1,000.00 as expenses of litigation and the amount of P10,000.00 as actual damages. 5 In arriving at the above-mentioned judgment, the trial court stated that the evidence had established that the subject land was "sold" by the heirs of Cosme Pido to private respondent. This is clear from the following disquisitions contained in the trial court's six (6) page decision: There is no doubt that defendant is a registered tenant of Cosme Pido. However, when the latter died their tenancy relations changed since ownership of said land was passed on to his heirs who, by executing a Deed of Sale, which defendant admitted in

his affidavit, likewise passed on their ownership of Lot 1130 to herein plaintiff (private respondent). As owner hereof, plaintiff has the right to demand payment of rental and the tenant is obligated to pay rentals due from the time demand is made. . . .6 xxx xxx xxx Certainly, the sale of the Pido family of Lot 1130 to herein plaintiff does not of itself extinguish the relationship. There was only a change of the personality of the lessor in the person of herein plaintiff Edy de los Reyes who being the purchaser or transferee, assumes the rights and obligations of the former landowner to the tenant Teodoro Acap, herein defendant. 7 Aggrieved, petitioner appealed to the Court of Appeals, imputing error to the lower court when it ruled that private respondent acquired ownership of Lot No. 1130 and that he, as tenant, should pay rentals to private respondent and that failing to pay the same from 1983 to 1987, his right to a certificate of land transfer under P.D. 27 was deemed forfeited. The Court of Appeals brushed aside petitioner's argument that the Declaration of Heirship and Waiver of Rights (Exhibit "D"), the document relied upon by private respondent to prove his ownership to the lot, was excluded by the lower court in its order dated 27 August 1990. The order indeed noted that the document was not identified by Cosme Pido's heirs and was not registered with the Registry of Deeds of Negros Occidental. According to respondent court, however, since the Declaration of Heirship and Waiver of Rights appears to have been duly notarized, no further proof of its due execution was necessary. Like the trial court, respondent court was also convinced that the said document stands as prima facie proof of appellee's (private respondent's) ownership of the land in dispute. With respect to its non-registration, respondent court noted that petitioner had actual knowledge of the subjectsale of the land in dispute to private respondent because as early as 1983, he (petitioner) already knew of private respondent's claim over the said land but which he thereafter denied, and that in 1982, he (petitioner) actually paid rent to private respondent. Otherwise stated, respondent court considered this fact of rental payment in 1982 as estoppel on petitioner's part to thereafter refute private respondent's claim of ownership over the said land. Under these circumstances, respondent court ruled that indeed there was deliberate refusal by petitioner to pay rent for a continued period

of five years that merited forfeiture of his otherwise preferred right to the issuance of a certificate of land transfer. In the present petition, petitioner impugns the decision of the Court of Appeals as not in accord with the law and evidence when it rules that private respondent acquired ownership of Lot No. 1130 through the aforementioned Declaration of Heirship and Waiver of Rights. Hence, the issues to be resolved presently are the following: 1. WHETHER OR NOT THE SUBJECT DECLARATION OF HEIRSHIP AND WAIVER OF RIGHTS IS A RECOGNIZED MODE OF ACQUIRING OWNERSHIP BY PRIVATE RESPONDENT OVER THE LOT IN QUESTION. 2. WHETHER OR NOT THE SAID DOCUMENT CAN BE CONSIDERED A DEED OF SALE IN FAVOR OF PRIVATE RESPONDENT OF THE LOT IN QUESTION. Petitioner argues that the Regional Trial Court, in its order dated 7 August 1990, explicitly excluded the document marked as Exhibit "D" (Declaration of Heirship, etc.) as private respondent's evidence because it was not registered with the Registry of Deeds and was not identified by anyone of the heirs of Cosme Pido. The Court of Appeals, however, held the same to be admissible, it being a notarized document, hence, a prima facie proof of private respondents' ownership of the lot to which it refers. Petitioner points out that the Declaration of Heirship and Waiver of Rights is not one of the recognized modes of acquiring ownership under Article 712 of the Civil Code. Neither can the same be considered a deed of sale so as to transfer ownership of the land to private respondent because no consideration is stated in the contract (assuming it is a contract or deed of sale). Private respondent defends the decision of respondent Court of Appeals as in accord with the evidence and the law. He posits that while it may indeed be true that the trial court excluded his Exhibit "D" which is the Declaration of Heirship and Waiver of Rights as part of his evidence, the trial court declared him nonetheless owner of the subject lot based on other evidence adduced during the trial, namely, the notice of adverse claim (Exhibit "E") duly registered by him with the Registry of Deeds, which contains the questioned Declaration of Heirship and Waiver of Rights as an integral part thereof. We find the petition impressed with merit.

In the first place, an asserted right or claim to ownership or a real right over a thing arising from a juridical act, however justified, is not per se sufficient to give rise to ownership over the res. That right or title must be completed by fulfilling certain conditions imposed by law. Hence, ownership and real rights are acquired only pursuant to a legal mode or process. While title is the juridical justification, mode is the actual process of acquisition or transfer of ownership over a thing in question. 8 Under Article 712 of the Civil Code, the modes of acquiring ownership are generally classified into two (2) classes, namely, the original mode (i.e., through occupation, acquisitive prescription, law or intellectual creation) and thederivative mode (i.e., through succession mortis causa or tradition as a result of certain contracts, such as sale, barter, donation, assignment or mutuum). In the case at bench, the trial court was obviously confused as to the nature and effect of the Declaration of Heirship and Waiver of Rights, equating the same with a contract (deed) of sale. They are not the same. In a Contract of Sale, one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other party to pay a price certain in money or its equivalent. 9 Upon the other hand, a declaration of heirship and waiver of rights operates as a public instrument when filed with the Registry of Deeds whereby the intestate heirs adjudicate and divide the estate left by the decedent among themselves as they see fit. It is in effect an extrajudicial settlement between the heirs under Rule 74 of the Rules of Court. 10 Hence, there is a marked difference between a sale of hereditary rights and a waiver of hereditary rights. The first presumes the existence of a contract or deed of sale between the parties. 11 The second is, technically speaking, a mode of extinction of ownership where there is an abdication or intentional relinquishment of a known right with knowledge of its existence and intention to relinquish it, in favor of other persons who are co-heirs in the succession. 12 Private respondent, being then a stranger to the succession of Cosme Pido, cannot conclusively claim ownership over the subject lot on the sole basis of the waiver document which neither recites the elements of either a sale, 13 or a donation, 14 or any other derivative mode of acquiring ownership. Quite surprisingly, both the trial court and public respondent Court of Appeals concluded that a "sale" transpired between Cosme Pido's heirs and private respondent and that petitioner acquired actual knowledge of said sale when he was summoned by the Ministry of Agrarian Reform to discuss private respondent's claim

over the lot in question. This conclusion has no basis both in fact and in law. On record, Exhibit "D", which is the "Declaration of Heirship and Waiver of Rights" was excluded by the trial court in its order dated 27 August 1990 because the document was neither registered with the Registry of Deeds nor identified by the heirs of Cosme Pido. There is no showing that private respondent had the same document attached to or made part of the record. What the trial court admitted was Annex "E", a notice of adverse claim filed with the Registry of Deeds which contained the Declaration of Heirship with Waiver of rights and was annotated at the back of the Original Certificate of Title to the land in question. A notice of adverse claim, by its nature, does not however prove private respondent's ownership over the tenanted lot. "A notice of adverse claim is nothing but a notice of a claim adverse to the registered owner, the validity of which is yet to be established in court at some future date, and is no better than a notice of lis pendenswhich is a notice of a case already pending in court." 15 It is to be noted that while the existence of said adverse claim was duly proven, there is no evidence whatsoever that a deed of sale was executed between Cosme Pido's heirs and private respondent transferring the rights of Pido's heirs to the land in favor of private respondent. Private respondent's right or interest therefore in the tenanted lot remains an adverse claim which cannot by itself be sufficient to cancel the OCT to the land and title the same in private respondent's name. Consequently, while the transaction between Pido's heirs and private respondent may be binding on both parties, the right of petitioner as a registered tenant to the land cannot be perfunctorily forfeited on a mere allegation of private respondent's ownership without the corresponding proof thereof. Petitioner had been a registered tenant in the subject land since 1960 and religiously paid lease rentals thereon. In his mind, he continued to be the registered tenant of Cosme Pido and his family (after Pido's death), even if in 1982, private respondent allegedly informed petitioner that he had become the new owner of the land. Under the circumstances, petitioner may have, in good faith, assumed such statement of private respondent to be true and may have in fact delivered 10 cavans of palay as annual rental for 1982 to private respondent. But in 1983, it is clear that petitioner had misgivings over private respondent's claim of ownership over the said land because in the October 1983 MAR conference, his wife Laurenciana categorically denied all of private respondent's allegations. In fact, petitioner even secured a certificate from the

MAR dated 9 May 1988 to the effect that he continued to be the registered tenant of Cosme Pido and not of private respondent. The reason is that private respondent never registered the Declaration of Heirship with Waiver of Rights with the Registry of Deeds or with the MAR. Instead, he (private respondent) sought to do indirectly what could not be done directly,i.e., file a notice of adverse claim on the said lot to establish ownership thereover. It stands to reason, therefore, to hold that there was no unjustified or deliberate refusal by petitioner to pay the lease rentals or amortizations to the landowner/agricultural lessor which, in this case, private respondent failed to establish in his favor by clear and convincing evidence. 16 Consequently, the sanction of forfeiture of his preferred right to be issued a Certificate of Land Transfer under P.D. 27 and to the possession of his farmholdings should not be applied against petitioners, since private respondent has not established a cause of action for recovery of possession against petitioner. WHEREFORE, premises considered, the Court hereby GRANTS the petition and the decision of the Court of Appeals dated 1 May 1994 which affirmed the decision of the RTC of Himamaylan, Negros Occidental dated 20 August 1991 is hereby SET ASIDE. The private respondent's complaint for recovery of possession and damages against petitioner Acap is hereby DISMISSED for failure to properly state a cause of action, without prejudice to private respondent taking the proper legal steps to establish the legal mode by which he claims to have acquired ownership of the land in question. SO ORDERED. Davide, Jr., Bellosillo, Kapunan and Hermosisima, Jr., JJ., concur.