G.R. No.

L-41847 December 12, 1986

CATALINO LEABRES, petitioner,
vs.
COURT OF APPEALS and MANOTOK REALTY, INC., respondents.

No. 10808, no adverse claim or interest over the subdivision or any portion thereof was ever
presented by any person, and in the sale that followed, the Manotok Realty, Inc. emerged the
successful bidder at the price of P840,000.00. By order of the Probate Court, the Philippine Trust
Co. executed the Deed of Absolute Sale of the subdivision dated January 7, 1959 in favor of the
Manotok Realty, Inc. which deed was judicially approved on March 20, 1959, and recorded
immediately in the proper Register of Deeds which issued the corresponding Certificates of Title
to the Manotok Realty, Inc., the defendant appellee herein.

Magtanggol C. Gunigundo for petitioner.

Marcelo de Guzman for respondents.

PARAS, J.:
Before Us is a Petition for certiorari to review the decision of the Court of Appeals which is
quoted hereunder:
In Civil Case No. 64434, the Court of First Instance of Manila made the following quoted
decision:
(1) Upon defendant's counterclaim, ordering plaintiff Catalino Leabres to vacate and/or
surrender possession to defendant Manotok Realty, Inc. the parcel of land subject
matter of the complaint described in paragraph 3 thereof and described in the Bill of
Particulars dated March 4, 1966;
(2) To pay defendant the sum of P81.00 per month from March 20, 1959, up to the
time he actually vacates and/or surrenders possession of the said parcel of land to the
defendant Manotok Realty, Inc., and
(3) To pay attorney's fees to the defendant in the amount of P700.00 and pay the
costs. (Decision, R.A., pp. 54-55).
The facts of this case may be briefly stated as follows:
Clara Tambunting de Legarda died testate on April 22, 1950. Among the properties left by the
deceased is the "Legarda Tambunting Subdivision" located on Rizal Avenue Extension, City of
Manila, containing an area of 80,238.90 sq. m., covered by Transfer Certificates of Title No.
62042; 45142; 45149; 49578; 40957 and 59585. Shortly after the death of said deceased,
plaintiff Catalino Leabres bought, on a partial payment of Pl,000.00 a portion (No. VIII, Lot No. 1)
of the Subdivision from surviving husband Vicente J. Legarda who acted as special
administrator, the deed or receipt of said sale appearing to be dated May 2, 1950 (Annex "A").
Upon petition of Vicente L. Legarda, who later was appointed a regular administrator together
with Pacifica Price and Augusto Tambunting on August 28, 1950, the Probate Court of Manila in
the Special Proceedings No. 10808) over the testate estate of said Clara Tambunting, authorized
through its order of November 21, 1951 the sale of the property.
In the meantime, Vicente L. Legarda was relieved as a regular Administrator and the Philippine
Trust Co. which took over as such administrator advertised the sale of the subdivision which
includes the lot subject matter herein, in the issues of August 26 and 27, September 2 and 3,
and 15 and 17, 1956 of the Manila Times and Daily Mirror. In the aforesaid Special Proceedings

A complaint dated February 8, 1966, was filed by herein plaintiff, which seeks, among other
things, for the quieting of title over the lot subject matter herein, for continuing possession
thereof, and for damages. In the scheduled hearing of the case, plaintiff Catalino Leabres failed
to appear although he was duly notified, and so the trial Court, in its order dated September 14,
1967, dismissed the complaint (Annex "E").<re||an1w> In another order of dismissal was
amended as to make the same refer only to plaintiff's complaint and the counter claim of the
defendant was reinstated and as the evidence thereof was already adduced when defendant
presented its evidence in three other cases pending in the same Court, said counterclaim was
also considered submitted for resolution. The motion for reconsideration dated January 22, 1968
(Annex " I "), was filed by plaintiff, and an opposition thereto dated January 25, 1968, was
likewise filed by defendant but the Court a quo dismissed said motion in its order dated January
12, 1970 (Annex "K"), "for lack of merits" (pp. 71-72, Record on Appeal).
Appealing the decision of the lower Court, plaintiff-appellant advances the following assignment
of errors:
I
THE LOWER COURT ERRED IN DENYING THE MOTION FOR
RECONSIDERATION, DATED OCTOBER 9, 1967, THUS DEPRIVING THE
PLAINTIFF-APPELLANT HIS DAY IN COURT.
II
THE LOWER COURT ERRED IN ORDERING THE PLAINTIFF-APPELLANT
CATALINO LEABRES TO VACATE AND/OR SURRENDER THE POSSESSION OF
THE LOT SUBJECT MATTER OF THE COMPLAINT TO DEFENDANT-APPELLEE.
III
THE LOWER COURT ERRED IN ORDERING THE PLAINTIFF-APPELLANT TO PAY
DEFENDANT-APPELLEE THE SUM OF P 81.00 PER MONTH FROM MARCH 20,
1969, UP TO THE TIME HE ACTUALLY VACATE THE PARCEL OF LAND.
(Appellant's Brief, p. 7)
In the First Assigned Error, it is contended that the denial of his Motion for Reconsideration
dated October 9, 1967, the plaintiff-appellant was not accorded his day in Court.
The rule governing dismissal of actions for failure to prosecute is provided for in Section 3, Rule
17 of the Rules of Court, as follows:
If the plaintiff fails to appear at the time of the trial, or to prosecute his action for an unreasonable
length of time, or to comply with these rules or any order of the Court, the action may be

dismissed upon motion of the defendant or upon the Court's own motion. This dismissal shall
have the effect of an adjudication upon the merits, unless otherwise provided by the Court.
Under the afore-cited section, it is discretionary on the part of the Court to dismiss an action for
failure to prosecute, and its action will not be reversed upon appeal in the absence of abuse.
The burden of showing abuse of this discretion is upon the appellant since every presumption is
toward the correctness of the Court's action (Smith, Bell & Co., et al vs. American Pres. Lines,
Ltd., and Manila Terminal Co., No. L-5304, April 30, 1954; Adorable vs. Bonifacio, G. R. No. L0698, April 22, 1959); Flores vs. Phil. Alien Property Administration, G.R. No. L-12741, April 27,
1960). By the doctrine laid down in these cases, and by the provisions of Section 5, Rules 131 of
the Rules of Court, particularly paragraphs (m) and (o) which respectively presume the regularity
of official performance and the passing upon by the Court over all issues within a case, it matters
not if the Court dismissing the action for failure to prosecute assigns any special reason for its
action or not. We take note of the fact that the Order declaring appellant in default was handed
down on September 14, 1967. Appellant took no steps to have this Order set aside. It was only
on January 22, 1968, after he was furnished a copy of the Court's decision dated December 9,
1967 or about four months later that he attached this Order and the decision of the Court.
Appellant slept on his rights-if he had any. He had a chance to have his day in Court but he
passed it off. Four months later he alleges that sudden illness had prevented him. We feel
appellant took a long time too-long in fact-to inform the Court of his sudden illness. This sudden
illness that according to him prevented him from coming to Court, and the time it took him to tell
the Court about it, is familiar to the forum as an oft repeated excuse to justify indifference on the
part of litigants or outright negligence of those who represent them which subserves the
interests of justice. In the instant case, not only did the appellant wantonly pass off his chance to
have a day in Court but he has also failed to give a convincing, just and valid reason for the new
hearing he seeks. The trial court found it so; We find it so. The trial Court in refusing to give
appellant a new trial does not appear to have abused his discretion as to justify our intervention.
The Second and Third Assignments of Error are hereby jointly treated in our discussion since the
third is but a consequence of the second.
It is argued that had the trial Court reconsidered its order dated September 14, 1967 dismissing
the complaint for failure to prosecute, plaintiff-appellant might have proved that he owns the lot
subjectmatter of the case, citing the receipt (Annex A) in his favor; that he has introduced
improvements and erected a house thereon made of strong materials; that appellee's adverse
interest over the property was secured in bad faith since he had prior knowledge and notice of
appellant's physical possession or acquisition of the same; that due to said bad faith appellant
has suffered damages, and that for all the foregoing, the judgment should be reversed and
equitable relief be given in his favor.
As above stated, the Legarda-Tambunting Subdivision which includes the lot subject matter of
the instant case, is covered by Torrens Certificates of Title. Appellant anchors his claim on the
receipt (Annex "A") dated May 2, 1950, which he claims as evidence of the sale of said lot in his
favor. Admittedly, however, Catalino Leabres has not registered his supposed interest over the
lot in the records of the Register of Deeds, nor did he present his claim for probate in the testate
proceedings over the estate of the owner of said subdivision, in spite of the notices advertised in
the papers. (Saldana vs. Phil. Trust Co., et al.; Manotok Realty, Inc., supra).
On the other hand, defendant-appellee, Manotok Realty, Inc., bought the whole subdivision
which includes the subject matter herein by order and with approval of the Probate Court and
upon said approval, the Deed of Absolute Sale in favor of appellee was immediately registered
with the proper Register of Deeds. Manotok Realty, Inc. has therefore the better right over the lot
in question because in cases of lands registered under the Torrens Law, adverse interests not
therein annotated which are without the previous knowledge by third parties do not bind the
latter. As to the improvement which appellant claims to have introduced on the lot, purchase of
registered lands for value and in good faith hold the same free from all liens and encumbrances

except those noted on the titles of said land and those burdens imposed by law. (Sec. 39, Act.
496).<re||an1w> An occupant of a land, or a purchaser thereof from a person other than the
registered owner, cannot claim good faith so as to be entitled to retention of the parcels
occupied by him until reimbursement of the value of the improvements he introduced thereon,
because he is charged with notice of the existence of the owner's certificate of title (J.M. Tuason
& Co. vs. Lecardo, et al., CA-G.R. No. 25477-R, July 24, 1962; J.M. Tuason & Co., Inc. vs.
Manuel Abundo, CA-G.R. No. 29701-R, November 18, 1968).
Appellant has not convinced the trial Court that appellee acted in bad faith in the acquisition of
the property due to the latter's knowledge of a previous acquisition by the former, and neither are
we impressed by the claim. The purchaser of a registered land has to rely on the certificate of
title thereof. The good faith of appellee coming from the knowledge that the certificate of title
covering the entire subdivision contain no notation as to appellant's interest, and the fact that the
records of these eases like Probate Proceedings Case No. 10808, do not show the existence of
appellant's claim, strongly support the correctness of the lower Court's decision
WHEREFORE, in view of the foregoing, we find no reason to amend or set aside the decision
appealed from, as regards to plaintiff-appellant Catalino Leabres. We therefore affirm the same,
with costs against appellant. (pp. 33-38, Rollo)
Petitioner now comes to us with the following issues:
(1) Whether or not the petitioner was denied his day in court and deprived of due
process of law.
(2) Whether or not the petitioner had to submit his receipt to the probate court in order
that his right over the parcel of land in dispute could be recognized valid and binding
and conclusive against the Manotok Realty, Inc.
(3) Whether or not the petitioner could be considered as a possessor in good faith and
in the concept of owner. (p. 11, Rollo)
Petitioner's contention that he was denied his day in court holds no water. Petitioner does not
deny the fact that he failed to appear on the date set for hearing on September 14, 1967 and as
a consequence of his non-appearance, the order of dismissal was issued, as provided for by
Section 3, Rule 17 of the Revised Rules of Court.
Moreover, as pointed out by private respondent in its brief, the hearing on June 11, 1967 was
not ex parte. Petitioner was represented by his counsel on said date, and therefore, petitioner
was given his day in Court.
The main objection of the petition in the lower court's proceeding is the reception of respondent's
evidence without declaring petitioner in default. We find that there was no necessity to declare
petitioner in default since he had filed his answer to the counterclaim of respondent.
Petitioner anchors his main arguments on the receipt (Exh. 1) dated May 2, 1950, as a basis of
a valid sale. An examination of the receipt reveals that the same can neither be regarded as a
contract of sale or a promise to sell. There was merely an acknowledgment of the sum of One
Thousand Pesos (P1,000.00). There was no agreement as to the total purchase price of the land
nor to the monthly installment to be paid by the petitioner. The requisites of a valid Contract of
Sale namely 1) consent or meeting of the minds of the parties; 2) determinate subject matter; 3)
price certain in money or its equivalent-are lacking in said receipt and therefore the "sale" is not
valid nor enforceable. Furthermore, it is a fact that Dona Clara Tambunting died on April 22,

1950. Her estate was thereafter under custodia legis of the Probate Court which appointed Don
Vicente Legarda as Special Administrator on August 28, 1950. Don Vicente Legarda entered into
said sale in his own personal-capacity and without court approval, consequently, said sale
cannot bind the estate of Clara Tambunting. Petitioner should have submitted the receipt of
alleged sale to the Probate Court for its approval of the transactions. Thus, the respondent Court
did not err in holding that the petitioner should have submitted his receipt to the probate court in
order that his right over the subject land could be recognized-assuming of course that the receipt
could be regarded as sufficient proof.
Anent his possession of the land, petitioner cannot be deemed a possessor in good faith in view
of the registration of the ownership of the land. To consider petitioner in good faith would be to
put a premium on his own gross negligence. The Court resolved to DENY the petition for lack of
merit and to AFFIRM the assailed judgment.
Feria (Chairman), Fernan, Alampay and Gutierrez, Jr., JJ., concur.

G.R. No. L-8506

August 31, 1956

CELESTINO CO & COMPANY, petitioner,

vs.
COLLECTOR OF INTERNAL REVENUE, respondent.
Office of the Solicitor General Ambrosio Padilla, Fisrt Assistant Solicitor General Guillermo E.
Torres and Solicitor Federico V. Sian for respondent.
BENGZON, J.:
Appeal from a decision of the Court of Tax Appeals.
Celestino Co & Company is a duly registered general copartnership doing business under the
trade name of "Oriental Sash Factory". From 1946 to 1951 it paid percentage taxes of 7 per cent
on the gross receipts of its sash, door and window factory, in accordance with section one
hundred eighty-six of the National Revenue Code imposing taxes on sale of manufactured
articles. However in 1952 it began to claim liability only to the contractor's 3 per cent tax (instead
of 7 per cent) under section 191 of the same Code; and having failed to convince the Bureau of
Internal Revenue, it brought the matter to the Court of Tax Appeals, where it also failed. Said the
Court:
To support his contention that his client is an ordinary contractor . . . counsel
presented . . . duplicate copies of letters, sketches of doors and windows and price
quotations supposedly sent by the manager of the Oriental Sash Factory to four
customers who allegedly made special orders to doors and window from the said
factory. The conclusion that counsel would like us to deduce from these few exhibits is
that the Oriental Sash Factory does not manufacture ready-made doors, sash and
windows for the public but only upon special order of its select customers. . . . I cannot
believe that petitioner company would take, as in fact it has taken, all the trouble and
expense of registering a special trade name for its sash business and then orders
company stationery carrying the bold print "Oriental Sash Factory (Celestino Co &
Company, Prop.) 926 Raon St. Quiapo, Manila, Tel. No. 33076, Manufacturers of all
kinds of doors, windows, sashes, furniture, etc. used season-dried and kiln-dried
lumber, of the best quality workmanships" solely for the purpose of supplying the
needs for doors, windows and sash of its special and limited customers. One ill note
that petitioner has chosen for its tradename and has offered itself to the public as a
"Factory", which means it is out to do business, in its chosen lines on a big scale. As a
general rule, sash factories receive orders for doors and windows of special design
only in particular cases but the bulk of their sales is derived from a ready-made doors
and windows of standard sizes for the average home. Moreover, as shown from the
investigation of petitioner's book of accounts, during the period from January 1, 1952
to September 30, 1952, it sold sash, doors and windows worth P188,754.69. I find it
difficult to believe that this amount which runs to six figures was derived by petitioner
entirely from its few customers who made special orders for these items.
Even if we were to believe petitioner's claim that it does not manufacture ready-made
sash, doors and windows for the public and that it makes these articles only special
order of its customers, that does not make it a contractor within the purview of section
191 of the national Internal Revenue Code. there are no less than fifty occupations
enumerated in the aforesaid section of the national Internal Revenue Code subject to

percentage tax and after reading carefully each and every one of them, we cannot find
under which the business of manufacturing sash, doors and windows upon special
order of customers fall under the category of "road, building, navigation, artesian well,
water workers and other construction work contractors" are those who alter or repair
buildings, structures, streets, highways, sewers, street railways railroads logging
roads, electric lines or power lines, and includes any other work for the construction,
altering or repairing for which machinery driven by mechanical power is used. (Payton
vs. City of Anadardo 64 P. 2d 878, 880, 179 Okl. 68).
Having thus eliminated the feasibility off taxing petitioner as a contractor under 191 of
the national Internal Revenue Code, this leaves us to decide the remaining issue
whether or not petitioner could be taxed with lesser strain and more accuracy as seller
of its manufactured articles under section 186 of the same code, as the respondent
Collector of Internal Revenue has in fact been doing the Oriental Sash Factory was
established in 1946.
The percentage tax imposed in section 191 of our Tax Code is generally a tax on the
sales of services, in contradiction with the tax imposed in section 186 of the same
Code which is a tax on the original sales of articles by the manufacturer, producer or
importer. (Formilleza's Commentaries and Jurisprudence on the National Internal
Revenue Code, Vol. II, p. 744). The fact that the articles sold are manufactured by the
seller does not exchange the contract from the purview of section 186 of the National
Internal Revenue Code as a sale of articles.
There was a strong dissent; but upon careful consideration of the whole matter are inclines to
accept the above statement of the facts and the law. The important thing to remember is that
Celestino Co & Company habitually makes sash, windows and doors, as it has represented in its
stationery and advertisements to the public. That it "manufactures" the same is practically
admitted by appellant itself. The fact that windows and doors are made by it only when
customers place their orders, does not alter the nature of the establishment, for it is obvious that
it only accepted such orders as called for the employment of such material-moulding, frames,
panels-as it ordinarily manufactured or was in a position habitually to manufacture.
Perhaps the following paragraph represents in brief the appellant's position in this Court:
Since the petitioner, by clear proof of facts not disputed by the respondent,
manufacturers sash, windows and doors only for special customers and upon their
special orders and in accordance with the desired specifications of the persons
ordering the same and not for the general market: since the doors ordered by Don
Toribio Teodoro & Sons, Inc., for instance, are not in existence and which never would
have existed but for the order of the party desiring it; and since petitioner's contractual
relation with his customers is that of a contract for a piece of work or since petitioner is
engaged in the sale of services, it follows that the petitioner should be taxed under
section 191 of the Tax Code and NOT under section 185 of the same Code."
(Appellant's brief, p. 11-12).
But the argument rests on a false foundation. Any builder or homeowner, with sufficient money,
may order windows or doors of the kind manufactured by this appellant. Therefore it is not true
that it serves special customers only or confines its services to them alone. And anyone who
sees, and likes, the doors ordered by Don Toribio Teodoro & Sons Inc. may purchase from
appellant doors of the same kind, provided he pays the price. Surely, the appellant will not

refuse, for it can easily duplicate or even mass-produce the same doors-it is mechanically
equipped to do so.
That the doors and windows must meet desired specifications is neither here nor there. If these
specifications do not happen to be of the kind habitually manufactured by appellant special
forms for sash, mouldings of panels it would not accept the order and no sale is made. If
they do, the transaction would be no different from a purchasers of manufactured goods held is
stock for sale; they are bought because they meet the specifications desired by the purchaser.
Nobody will say that when a sawmill cuts lumber in accordance with the peculiar specifications
of a customer-sizes not previously held in stock for sale to the public-it thereby becomes an
employee or servant of the customer,1 not the seller of lumber. The same consideration applies
to this sash manufacturer.
The Oriental Sash Factory does nothing more than sell the goods that it mass-produces or
habitually makes; sash, panels, mouldings, frames, cutting them to such sizes and combining
them in such forms as its customers may desire.
On the other hand, petitioner's idea of being a contractor doing construction jobs is untenable.
Nobody would regard the doing of two window panels a construction work in common parlance.2
Appellant invokes Article 1467 of the New Civil Code to bolster its contention that in filing orders
for windows and doors according to specifications, it did not sell, but merely contracted for
particular pieces of work or "merely sold its services".
Said article reads as follows:
A contract for the delivery at a certain price of an article which the vendor in the
ordinary course of his business manufactures or procures for the general market,
whether the same is on hand at the time or not, is a contract of sale, but if the goods
are to be manufactured specially for the customer and upon his special order, and not
for the general market, it is contract for a piece of work.
It is at once apparent that the Oriental Sash Factory did not merely sell its services to Don
Toribio Teodoro & Co. (To take one instance) because it also sold the materials. The truth of the
matter is that it sold materials ordinarily manufactured by it sash, panels, mouldings to
Teodoro & Co., although in such form or combination as suited the fancy of the purchaser. Such
new form does not divest the Oriental Sash Factory of its character as manufacturer. Neither
does it take the transaction out of the category of sales under Article 1467 above quoted,
because although the Factory does not, in the ordinary course of its business, manufacture and
keep on stockdoors of the kind sold to Teodoro, it could stock and/or probably had in stock the
sash, mouldings and panels it used therefor (some of them at least).
In our opinion when this Factory accepts a job that requires the use of extraordinary or additional
equipment, or involves services not generally performed by it-it thereby contracts for a piece of
work filing special orders within the meaning of Article 1467. The orders herein exhibited were
not shown to be special. They were merely orders for work nothing is shown to call them
special requiring extraordinary service of the factory.

The thought occurs to us that if, as alleged-all the work of appellant is only to fill orders
previously made, such orders should not be called special work, but regular work. Would a
factory do business performing only special, extraordinary or peculiar merchandise?
Anyway, supposing for the moment that the transactions were not sales, they were neither lease
of services nor contract jobs by a contractor. But as the doors and windows had been admittedly
"manufactured" by the Oriental Sash Factory, such transactions could be, and should be taxed
as "transfers" thereof under section 186 of the National Revenue Code.
The appealed decision is consequently affirmed. So ordered.

G.R. No. 71122 March 25, 1988

COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
ARNOLDUS CARPENTRY SHOP, INC. and COURT OF TAX APPEALS, respondents.
The Solicitor General for petitioner.
Generoso Jacinto for respondents.

CORTES, J.:
Assailed in this petition is the decision of the Court of Tax Appeals in CTA case No. 3357 entitled
"ARNOLDUS CARPENTRY SHOP, INC. v. COMMISSIONER OF INTERNAL REVENUE."
The facts are simple.
Arnoldus Carpentry Shop, Inc. (private respondent herein) is a domestic corporation which has
been in existence since 1960. It has for its secondary purpose the "preparing, processing,
buying, selling, exporting, importing, manufacturing, trading and dealing in cabinet shop
products, wood and metal home and office furniture, cabinets, doors, windows, etc., including
their component parts and materials, of any and all nature and description" (Rollo, pp. 160-161).
These furniture, cabinets and other woodwork were sold locally and exported abroad.
For this business venture, private respondent kept samples or models of its woodwork on
display from where its customers may refer to when placing their orders.
Sometime in March 1979, the examiners of the petitioner Commissioner of Internal Revenue
conducted an investigation of the business tax liabilities of private respondent pursuant to Letter
of Authority No. 08307 NA dated November 23, 1978. As per the examination, the total gross
sales of private respondent for the year 1977 from both its local and foreign dealings amounted
to P5,162,787.59 (Rollo. p. 60). From this amount, private respondent reported in its quarterly
percentage tax returns P2,471,981.62 for its gross local sales. The balance of P2,690,805.97,
which is 52% of the total gross sales, was considered as its gross export sales (CTA Decision, p.
12).
Based on such an examination, BIR examiners Honesto A. Vergel de Dios and Voltaire Trinidad
made a report to the Commissioner classifying private respondent as an "other independent
contractor" under Sec. 205 (16) [now Sec. 169 (q)] of the Tax Code. The relevant portion of the
report reads:
Examination of the records show that per purchase orders, which are
hereby attached, of the taxpayer's customers during the period under
review, subject corporation should be considered a contractor and not a
manufacturer. The corporation 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,

(Luzon Stevedoring Co. v. Trinidad, 43 Phil. 803). Hence, in the computation

of the percentage tax, the 3% contractor's tax should be imposed instead of
the 7% manufacturer's tax. [Rollo, p. 591 (Emphasis supplied.)
xxx xxx xxx
As a result thereof, the examiners assessed private respondent for deficiency tax in the amount
of EIGHTY EIGHT THOUSAND NINE HUNDRED SEVENTY TWO PESOS AND TWENTY
THREE CENTAVOS ( P88,972.23 ). Later, on January 31, 1981, private respondent received a
letter/notice of tax deficiency assessment inclusive of charges and interest for the year 1977 in
the amount of ONE HUNDRED EIGHT THOUSAND SEVEN HUNDRED TWENTY PESOS AND
NINETY TWO CENTAVOS ( P 108,720.92 ). This tax deficiency was a consequence of the 3%
tax imposed on private respondent's gross export sales which, in turn, resulted from the
examiners' finding that categorized private respondent as a contractor (CTA decision, p.2).
Against this assessment, private respondent filed on February 19, 1981 a protest with the
petitioner Commissioner of Internal Revenue. In the protest letter, private respondent's manager
maintained that the carpentry shop is a manufacturer and therefor entitled to tax exemption on
its gross export sales under Section 202 (e) of the National Internal Revenue Code. He
explained that it was the 7% tax exemption on export sales which prompted private respondent
to exploit the foreign market which resulted in the increase of its foreign sales to at least 52% of
its total gross sales in 1977 (CTA decision, pp. 1213).
On June 23, 1981, private respondent received the final decision of the petitioner stating:
It is the stand of this Office that you are considered a contractor an not a
manufacturer. Records show that you manufacture woodworks only upon
previous order from supposed manufacturers and only in accordance with
the latter's own design, model number, color, etc. [Rollo p. 64] (Emphasis
supplied.)
On July 22, 1981, private respondent appealed to the Court of Tax Appeals alleging that the
decision of the Commissioner was contrary to law and the facts of the case.
On April 22, 1985, respondent Court of Tax Appeals rendered the questioned decision holding
that private respondent was a manufacturer thereby reversing the decision of the petitioner.
Hence, this petition for review wherein petitioner raises the sole issue of. Whether or not the
Court of Tax Appeals erred in holding that private respondent is a manufacturer and not a
contractor and therefore not liable for the amount of P108,720.92, as deficiency contractor's tax,
inclusive of surcharge and interest, for the year 1977.
The petition is without merit.
1. Private respondent is a "manufacturer" as defined in the Tax Code and not a "contractor"
under Section 205(e) of the Tax Code as petitioner would have this Court decide.
(a) Section 205 (16) [now Sec. 170 (q)] of the Tax Code defines
"independent contractors" as:

... persons (juridical and natural) not enumerated above (but not including
individuals subject to the occupation tax under Section 12 of the Local Tax
Code) whose activity consists essentially of the sale of all kinds of
services for a fee regardless of whether or not the performance of the
service calls for the exercise or use of the physical or mental faculties of
such contractors or their employees. (Emphasis supplied.)
Private respondent's business does not fall under this definition.
Petitioner contends that the fact that private respondent "designs and makes samples or models
that are 'displayed' or presented or 'submitted' to prospective buyers who 'might choose'
therefrom" signifies that what private respondent is selling is a kind of service its shop is capable
of rendering in terms of woodwork skills and craftsmanship (Brief for Petitioner, p. 6). He further
stresses the point that if there are no orders placed for goods as represented by the sample or
model, the shop does not produce anything; on the other hand, if there are orders placed, the
shop goes into fall production to fill up the quantity ordered (Petitioner's Brief, p. 7).
The facts of the case do not support petitioner's claim. Petitioner is ignoring the fact that private
respondent sells goods which it keeps in stock and not services. As the respondent Tax Court
had found:
xxx xxx xxx
Petitioner [private respondent herein] claims, and the records bear petitioner
out, that it had a ready stock of its shop products for sale to its foreign and
local buyers. As a matter of fact, the purchase orders from its foreign buyers
showed that they ordered by referring to the models designated by
petitioner. Even purchases by local buyers for television cabinets (Exhs. '2
to13', pp. 1-13, BIR records) were by orders for existing models except only
for some adjustments in sizes and accessories utilized.
With regard to the television cabinets, petitioner presented three witnesses
its bookkeeper, production manager and manager who testified that
samples of television cabinets were designed and made by petitioner, from
which models the television companies such as Hitachi National and others
might choose, then specified whatever innovations they desired. If found to
be saleable, some television cabinets were manufactured for display and
sold to the general public. These cabinets were not exported but only sold
locally. (t.s.n., pp. 2235, February 18,1982; t.s.n., pp. 7-10, March 25, 1982;
t.s.n., pp. 3-6, August 10, 1983.)
xxx xxx xxx
In the case of petitioner's other woodwork products such as barometer
cases, knife racks, church furniture, school furniture, knock down chairs,
etc., petitioner's above-mentioned witnesses testified that these were
manufactured without previous orders. Samples were displayed, and if in
stock, were available for immediate sale to local and foreign customers.
Such testimony was not contradicted by respondent (petitioner herein). And
in all the purchase orders presented as exhibits, whether from foreign or

local buyers, reference was made to the model number of the product being
ordered or to the sample submitted by petitioner.
Respondent's examiners, in their memorandum to the Commissioner of
Internal Revenue, stated that petitioner manufactured only upon previous
orders from customers and "only in accordance with the latter's own design,
model number, color, etc." (Exh. '1', p. 27, BIR records.) Their bare
statement that the model numbers and designs were the customers' own,
unaccompanied by adequate evidence, is difficult to believe. It ignores
commonly accepted and recognized business practices that it is not the
customer but the manufacturer who furnishes the samples or models from
which the customers select when placing their orders, The evidence
adduced by petitioner to prove that the model numbers and designs were its
own is more convincing [CTA decision, pp. 6-8.] (Emphasis supplied)
xxx xxx xxx
This Court finds no reason to disagree with the Tax Court's finding of fact. It has been
consistently held that while the decisions of the Court of Tax Appeals are appealable to the
Supreme Court, the former's finding of fact are entitled to the highest respect. The factual
findings can only be disturbed on the part of the tax court [Collector of Intern. al Revenue v.
Henderson, L-12954, February 28, 1961, 1 SCRA 649; Aznar v. Court of Tax Appeals, L-20569,
Aug. 23, 1974, 58 SCRA 519; Raymundo v. de Joya, L-27733, Dec. 3, 1980, 101 SCRA 495;
Industrial Textiles Manufacturing Co. of the Phils. , Inc. v. Commissioner of Internal Revenue, L27718 and L-27768, May 27,1985,136 SCRA 549.]
(b) Neither can Article 1467 of the New Civil Code help petitioner's cause. Article 1467 states:
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.
Petitioner alleged that what exists prior to any order is but the sample model only, nothing more,
nothing less and the ordered quantity would never have come into existence but for the
particular order as represented by the sample or model [Brief for Petitioner, pp. 9-101.]
Petitioner wants to impress upon this Court that under Article 1467, the true test of whether or
not the contract is a piece of work (and thus classifying private respondent as a contractor) or a
contract of sale (which would classify private respondent as a manufacturer) is the mere
existence of the product at the time of the perfection of the contract such that if the thing already
exists, the contract is of sale, if not, it is work.
This is not the test followed in this jurisdiction. As can be clearly seen from the wordings of Art.
1467, what determines whether the contract is one of work or of sale is whether the thing has
been manufactured specially for the customer and upon his special order." Thus, if the thing is
specially done at the order of another, this is a contract for a piece of work. If, on the other hand,
the thing is manufactured or procured for the general market in the ordinary course of one's
business, it is a b contract of sale.

Jurisprudence has followed this criterion. As held in Commissioner of Internal Revenue v.

Engineering Equipment and Supply Co. (L-27044 and L-27452, June 30, 1975, 64 SCRA 590,
597), "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."
(Emphasis supplied.) And in a BIR ruling, which as per Sec. 326 (now Sec. 277) of the Tax Court
the Commissioner has the power to make and which, as per settled jurisprudence is entitled to
the greatest weight as an administrative view [National Federation of Sugar Workers (NFSW) v.
Ovejera, G.R. No. 59743, May 31, 1982, 114 SCRA 354, 391; Sierra Madre Trust v. Hon. Sec. of
Agriculture and Natural Resources, Nos. 32370 and 32767, April 20, 1983,121 SCRA 384;
Espanol v. Chairman and Members of the Board of Administrators, Phil. Veterans Administration,
L-44616, June 29, 1985, 137 SCRA 3141, "one who has ready for the sale to the general public
finished furniture is a manufacturer, and the mere fact that he did not have on hand a particular
piece or pieces of furniture ordered does not make him a contractor only" (BIR Ruling No. 33-1,
series of 1960). Likewise,
xxx xxx xxx
When the vendor enters into a contract for the delivery of an article which in
the ordinary course of his business he manufactures or procures for the
general market at a price certain (Art. 1458) such contract is one of
sale even if at the time of contracting he may not have such article on hand.
Such articles fall within the meaning of "future goods" mentioned in Art.
1462, par. 1. [5 Padilla, Civil Law: Civil Code Annotated 139 (1974)
xxx xxx xxx
These considerations were what precisely moved the respondent Court of Tax Appeals to rule
that 'the fact that [private respondent] kept models of its products... indicate that these products
were for sale to the general public and not for special orders,' citing Celestino Co and Co. v.
Collector of Internal Revenue [99 Phil, 841 (1956)]. (CTA Decision, pp. 8-9.)
Petitioner alleges that the error of the respondent Tax Court was due to the 'heavy albeit
misplaced and indiscriminate reliance on the case of Celestino Co and Co. v. Collector of
Internal Revenue [99 Phil. 841, 842 (1956)] which is not a case in point' 1 Brief for Petitioner, pp.
14-15). The Commissioner of Internal Revenue made capital of the difference between the kinds
of business establishments involved a FACTORY in the Celestino Co case and a CARPENTRY
SHOP in this case (Brief for Petitioner, pp. 14-18). Petitioner seems to have missed the whole
point in the former case.
True, the former case did mention the fact of the business concern being a FACTORY, Thus:

the best quality workmanship" solely for the purpose of supplying the need
for doors, windows and sash of its special and limited customers. One will
note that petitioner has chosen for its trade name and has offered itself to
the public as a FACTORY, which means it is out to do business in its chosen
lines on a big scale. As a general rule, sash factories receive orders for
doors and windows of special design only in particular cases but the bulk of
their sales is derived from ready-made doors and windows of standard sizes
for the average home. [Emphasis supplied.]
xxx xxx xxx
However, these findings were merely attendant facts to show what the Court was really driving
at thehabituality of the production of the goods involved for the general public.
In the instant case, it may be that what is involved is a CARPENTRY SHOP. But, in the same
vein, there are also attendant facts herein to show habituality of the production for the general
public.
In this wise, it is noteworthy to again cite the findings of fact of the respondent Tax Court:
xxx xxx xxx
Petitioner [private respondent herein] claims, and the records bear petitioner
out, that it had a ready stock of its shop products for sale to its foreign and
local buyers. As a matter of fact, the purchase orders from its foreign buyers
showed that they ordered by referring to the models designed by petitioner.
Even purchases by local buyers for television cabinets... were by orders for
existing models. ...
With regard to the television cabinets, petitioner presented three
witnesses... who testified that samples of television cabinets were designed
and made by petitioner, from which models the television companies ...
might choose, then specified whatever innovations they desired. If found to
be saleable, some television cabinets were manufactured for display and
sold to the general public.
xxx xxx xxx
In the case of petitioner's other woodwork products... these were
manufactured without previous orders. Samples were displayed, and if in
stock, were available for immediate sale to local and foreign
customers. (CTA decision, pp. 6-8.1 [Emphasis supplied.]

xxx xxx xxx

... I cannot believe that petitioner company would take, as in fact it has
taken, all the trouble and expense of registering a special trade name for its
sash business and then orders company stationery carrying the bold print
"Oriental Sash Factory (Celestino Co and Company, Prop.) 926 Raon St.,
Quiapo, Manila, Tel. No. 33076, Manufacturers of all kinds of doors,
windows, sashes furniture, etc. used season dried and kiln-dried lumber, of

(c) The private respondent not being a "contractor" as defined by the Tax Code or of the New
Civil Code, is it a 'manufacturer' as countered by the carpentry shop?
Sec. 187 (x) [now Sec. 157 (x)] of the Tax Code defines a manufacturer' as follows:

"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 product in such manner as to
prepare it for a special use or uses to which it could not have been in its
original condition, or who by any such process alters the quality or any such
raw 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 different kinds and in such manner that the finished product of such
process or manufacture can be put to a special use or uses to which such
raw material or manufactured or partially manufactured products in their
original condition would 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.
It is a basic rule in statutory construction that when the language of the law is clear and
unequivocal, the law must be taken to mean exactly what it says [Banawa et al. v. Mirano et al.,
L-24750, May 16, 1980, 97 SCRA 517, 533].
The term "manufacturer" had been considered in its ordinary and general usage. The term has
been construed broadly to include such processes as buying and converting duck eggs to salted
eggs ('balut") [Ngo Shiek v. Collector of Internal Revenue, 100 Phil. 60 (1956)1; the processing
of unhusked kapok into clean kapok fiber [Oriental Kapok Industries v. Commissioner of Internal
Revenue, L-17837, Jan. 31, 1963, 7 SCRA 132]; or making charcoal out of firewood Bermejo v.
Collector of Internal Revenue, 87 Phil. 96 (1950)].
2. As the Court of Tax Appeals did not err in holding that private respondent is a "manufacturer,"
then private respondent is entitled to the tax exemption under See. 202 (d) and (e) mow Sec.
167 (d) and (e)] of the Tax Code which states:
Sec. 202. Articles not subject to percentage tax on sales. The following shall
be exempt from the percentage taxes imposed in Sections 194, 195, 196,
197, 198, 199, and 201:
xxx xxx xxx
(d) Articles shipped or exported by the manufacturer or producer,
irrespective of any shipping arrangement that may be agreed upon which
may influence or determine the transfer of ownership of the articles so
exported.
(e) Articles sold by "registered export producers" to (1) other" registered
export producers" (2) "registered export traders' or (3) foreign tourists or
travelers, which are considered as "export sales."
The law is clear on this point. It is conceded that as a rule, as argued by petitioner, any claim for
tax exemption from tax statutes is strictly construed against the taxpayer and it is contingent
upon private respondent as taxpayer to establish a clear right to tax exemption [Brief for
Petitioners, p. 181. Tax exemptions are strictly construed against the grantee and generally in

favor of the taxing authority [City of Baguio v. Busuego, L-29772, Sept. 18, 1980, 100 SCRA
1161; they are looked upon with disfavor [Western Minolco Corp. v. Commissioner Internal
Revenue, G.R. No. 61632, Aug. 16,1983,124 1211. They are held strictly against the taxpayer
and if expressly mentioned in the law, must at least be within its purview by clear legislative
intent [Commissioner of Customs v. Phil., Acetylene Co., L-22443, May 29, 1971, 39 SCRA 70,
Light and Power Co. v. Commissioner of Customs, G.R. L-28739 and L-28902, March 29, 1972,
44 SCRA 122].
Conversely therefore, if there is an express mention or if the taxpayer falls within the purview of
the exemption by clear legislative intent, then the rule on strict construction will not apply. In the
present case the respondent Tax Court did not err in classifying private respondent as a
"manufacturer". Clearly, the 'latter falls with the term 'manufacturer' mentioned in Art. 202 (d) and
(e) of the Tax Code. As the only question raised by petitioner in relation to this tax exemption
claim by private respondent is the classification of the latter as a manufacturer, this Court affirms
the holding of respondent Tax Court that private respondent is entitled to the percentage tax
exemption on its export sales.
There is nothing illegal in taking advantage of tax exemptions. When the private respondent was
still exporting less and producing locally more, the petitioner did not question its classification as
a manufacturer. But when in 1977 the private respondent produced locally less and exported
more, petitioner did a turnabout and imposed the contractor's tax. By classifying the private
respondent as a contractor, petitioner would likewise take away the tax exemptions granted
under Sec. 202 for manufacturers. Petitioner's action finds no support in the applicable law.
WHEREFORE, the Court hereby DENIES the Petition for lack of merit and AFFIRMS the Court
of Tax Appeals decision in CTA Case No. 3357.
SO ORDERED.

G.R. No. L-11491

August 23, 1918

ANDRES QUIROGA, plaintiff-appellant,

vs.
PARSONS HARDWARE CO., defendant-appellee.
Alfredo Chicote, Jose Arnaiz and Pascual B. Azanza for appellant.
Crossfield & O'Brien for appellee.

(F) Mr. Parsons binds himself not to sell any other kind except the "Quiroga" beds.
ART. 2. In compensation for the expenses of advertisement which, for the benefit of
both contracting parties, Mr. Parsons may find himself obliged to make, Mr. Quiroga
assumes the obligation to offer and give the preference to Mr. Parsons in case anyone
should apply for the exclusive agency for any island not comprised with the Visayan
group.
ART. 3. Mr. Parsons may sell, or establish branches of his agency for the sale of
"Quiroga" beds in all the towns of the Archipelago where there are no exclusive
agents, and shall immediately report such action to Mr. Quiroga for his approval.

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

ART. 4. This contract is made for an unlimited period, and may be terminated by either
of the contracting parties on a previous notice of ninety days to the other party.
Of the three causes of action alleged by the plaintiff in his complaint, only two of them constitute
the subject matter of this appeal and both substantially amount to the averment that the
defendant violated the following obligations: not to sell the beds at higher prices than those of
the invoices; to have an open establishment in Iloilo; itself to conduct the agency; to keep the
beds on public exhibition, and to pay for the advertisement expenses for the same; and to order
the beds by the dozen and in no other manner. As may be seen, with the exception of the
obligation on the part of the defendant to order the beds by the dozen and in no other manner,
none of the obligations imputed to the defendant in the two causes of action are expressly set
forth in the contract. But the plaintiff alleged that the defendant was his agent for the sale of his
beds in Iloilo, and that said obligations are implied in a contract of commercial agency. The
whole question, therefore, reduced itself to a determination as to whether the defendant, by
reason of the contract hereinbefore transcribed, was a purchaser or an agent of the plaintiff for
the sale of his beds.
In order to classify a contract, due regard must be given to its essential clauses. In the contract
in question, what was essential, as constituting its cause and subject matter, is that the plaintiff
was to furnish the defendant with the beds which the latter might order, at the price stipulated,
and that the defendant was to pay the price in the manner stipulated. The price agreed upon
was the one determined by the plaintiff for the sale of these beds in Manila, with a discount of
from 20 to 25 per cent, according to their class. Payment was to be made at the end of sixty
days, or before, at the plaintiff's request, or in cash, if the defendant so preferred, and in these
last two cases an additional discount was to be allowed for prompt payment. These are precisely
the essential features of a contract of purchase and sale. There was the obligation on the part of
the plaintiff to supply the beds, and, on the part of the defendant, to pay their price. These
features exclude the legal conception of an agency or order to sell whereby the mandatory or
agent received the thing to sell it, and does not pay its price, but delivers to the principal the
price he obtains from the sale of the thing to a third person, and if he does not succeed in selling
it, he returns it. By virtue of the contract between the plaintiff and the defendant, the latter, on
receiving the beds, was necessarily obliged to pay their price within the term fixed, without any
other consideration and regardless as to whether he had or had not sold the beds.
It would be enough to hold, as we do, that the contract by and between the defendant and the
plaintiff is one of purchase and sale, in order to show that it was not one made on the basis of a
commission on sales, as the plaintiff claims it was, for these contracts are incompatible with
each other. But, besides, examining the clauses of this contract, none of them is found that
substantially supports the plaintiff's contention. Not a single one of these clauses necessarily
conveys the idea of an agency. The words commission on sales used in clause (A) of article 1

mean nothing else, as stated in the contract itself, than a mere discount on the invoice price. The
word agency, also used in articles 2 and 3, only expresses that the defendant was the only one
that could sell the plaintiff's beds in the Visayan Islands. With regard to the remaining clauses,
the least that can be said is that they are not incompatible with the contract of purchase and
sale.
The plaintiff calls attention to the testimony of Ernesto Vidal, a former vice-president of the
defendant corporation and who established and managed the latter's business in Iloilo. It
appears that this witness, prior to the time of his testimony, had serious trouble with the
defendant, had maintained a civil suit against it, and had even accused one of its partners,
Guillermo Parsons, of falsification. He testified that it was he who drafted the contract Exhibit A,
and, when questioned as to what was his purpose in contracting with the plaintiff, replied that it
was to be an agent for his beds and to collect a commission on sales. However, according to the
defendant's evidence, it was Mariano Lopez Santos, a director of the corporation, who prepared
Exhibit A. But, even supposing that Ernesto Vidal has stated the truth, his statement as to what
was his idea in contracting with the plaintiff is of no importance, inasmuch as the agreements
contained in Exhibit A which he claims to have drafted, constitute, as we have said, a contract of
purchase and sale, and not one of commercial agency. This only means that Ernesto Vidal was
mistaken in his classification of the contract. But it must be understood that a contract is what
the law defines it to be, and not what it is called by the contracting parties.
The plaintiff also endeavored to prove that the defendant had returned beds that it could not sell;
that, without previous notice, it forwarded to the defendant the beds that it wanted; and that the
defendant received its commission for the beds sold by the plaintiff directly to persons in Iloilo.
But all this, at the most only shows that, on the part of both of them, there was mutual tolerance
in the performance of the contract in disregard of its terms; and it gives no right to have the
contract considered, not as the parties stipulated it, but as they performed it. Only the acts of the
contracting parties, subsequent to, and in connection with, the execution of the contract, must be
considered for the purpose of interpreting the contract, when such interpretation is necessary,
but not when, as in the instant case, its essential agreements are clearly set forth and plainly
show that the contract belongs to a certain kind and not to another. Furthermore, the return
made was of certain brass beds, and was not effected in exchange for the price paid for them,
but was for other beds of another kind; and for the letter Exhibit L-1, requested the plaintiff's prior
consent with respect to said beds, which shows that it was not considered that the defendant
had a right, by virtue of the contract, to make this return. As regards the shipment of beds
without previous notice, it is insinuated in the record that these brass beds were precisely the
ones so shipped, and that, for this very reason, the plaintiff agreed to their return. And with
respect to the so-called commissions, we have said that they merely constituted a discount on
the invoice price, and the reason for applying this benefit to the beds sold directly by the plaintiff
to persons in Iloilo was because, as the defendant obligated itself in the contract to incur the
expenses of advertisement of the plaintiff's beds, such sales were to be considered as a result of
that advertisement.
In respect to the defendant's obligation to order by the dozen, the only one expressly imposed
by the contract, the effect of its breach would only entitle the plaintiff to disregard the orders
which the defendant might place under other conditions; but if the plaintiff consents to fill them,
he waives his right and cannot complain for having acted thus at his own free will.
For the foregoing reasons, we are of opinion that the contract by and between the plaintiff and
the defendant was one of purchase and sale, and that the obligations the breach of which is
alleged as a cause of action are not imposed upon the defendant, either by agreement or by law.

The judgment appealed from is affirmed, with costs against the appellant. So ordered.

G.R. No. L-47538

June 20, 1941

GONZALO PUYAT & SONS, INC., petitioner,

vs.
ARCO AMUSEMENT COMPANY (formerly known as Teatro Arco), respondent.
Feria & Lao for petitioner.
J. W. Ferrier and Daniel Me. Gomez for respondent.
LAUREL, J.:
This is a petition for the issuance of a writ of certiorari to the Court of Appeals for the purpose of
reviewing its Amusement Company (formerly known as Teatro Arco), plaintiff-appellant, vs.
Gonzalo Puyat and Sons. Inc., defendant-appellee."
It appears that the respondent herein brought an action against the herein petitioner in the Court
of First Instance of Manila to secure a reimbursement of certain amounts allegedly overpaid by it
on account of the purchase price of sound reproducing equipment and machinery ordered by the
petitioner from the Starr Piano Company of Richmond, Indiana, U.S.A. The facts of the case as
found by the trial court and confirmed by the appellate court, which are admitted by the
respondent, are as follows:
In the year 1929, the "Teatro Arco", a corporation duly organized under the laws of the
Philippine Islands, with its office in Manila, was engaged in the business of operating
cinematographs. In 1930, its name was changed to Arco Amusement Company. C. S.
Salmon was the president, while A. B. Coulette was the business manager. About the
same time, Gonzalo Puyat & Sons, Inc., another corporation doing business in the
Philippine Islands, with office in Manila, in addition to its other business, was acting as
exclusive agents in the Philippines for the Starr Piano Company of Richmond, Indiana,
U.S. A. It would seem that this last company dealt in cinematographer equipment and
machinery, and the Arco Amusement Company desiring to equipt its cinematograph
with sound reproducing devices, approached Gonzalo Puyat & Sons, Inc., thru its then
president and acting manager, Gil Puyat, and an employee named Santos. After some
negotiations, it was agreed between the parties, that is to say, Salmon and Coulette
on one side, representing the plaintiff, and Gil Puyat on the other, representing the
defendant, that the latter would, on behalf of the plaintiff, order sound reproducing
equipment from the Starr Piano Company and that the plaintiff would pay the
defendant, in addition to the price of the equipment, a 10 per cent commission, plus all
expenses, such as, freight, insurance, banking charges, cables, etc. At the expense of
the plaintiff, the defendant sent a cable, Exhibit "3", to the Starr Piano Company,
inquiring about the equipment desired and making the said company to quote its price
without discount. A reply was received by Gonzalo Puyat & Sons, Inc., with the price,
evidently the list price of $1,700 f.o.b. factory Richmond, Indiana. The defendant did
not show the plaintiff the cable of inquiry nor the reply but merely informed the plaintiff
of the price of $1,700. Being agreeable to this price, the plaintiff, by means of Exhibit
"1", which is a letter signed by C. S. Salmon dated November 19, 1929, formally
authorized the order. The equipment arrived about the end of the year 1929, and upon
delivery of the same to the plaintiff and the presentation of necessary papers, the price
of $1.700, plus the 10 per cent commission agreed upon and plus all the expenses
and charges, was duly paid by the plaintiff to the defendant.
Sometime the following year, and after some negotiations between the same parties,
plaintiff and defendants, another order for sound reproducing equipment was placed

by the plaintiff with the defendant, on the same terms as the first order. This
agreement or order was confirmed by the plaintiff by its letter Exhibit "2", without date,
that is to say, that the plaintiff would pay for the equipment the amount of $1,600,
which was supposed to be the price quoted by the Starr Piano Company, plus 10 per
cent commission, plus all expenses incurred. The equipment under the second order
arrived in due time, and the defendant was duly paid the price of $1,600 with its 10 per
cent commission, and $160, for all expenses and charges. This amount of $160 does
not represent actual out-of-pocket expenses paid by the defendant, but a mere flat
charge and rough estimate made by the defendant equivalent to 10 per cent of the
price of $1,600 of the equipment.
About three years later, in connection with a civil case in Vigan, filed by one Fidel
Reyes against the defendant herein Gonzalo Puyat & Sons, Inc., the officials of the
Arco Amusement Company discovered that the price quoted to them by the defendant
with regard to their two orders mentioned was not the net price but rather the list price,
and that the defendants had obtained a discount from the Starr Piano Company.
Moreover, by reading reviews and literature on prices of machinery and
cinematograph equipment, said officials of the plaintiff were convinced that the prices
charged them by the defendant were much too high including the charges for out-ofpocket expense. For these reasons, they sought to obtain a reduction from the
defendant or rather a reimbursement, and failing in this they brought the present
action.
The trial court held that the contract between the petitioner and the respondent was one of
outright purchase and sale, and absolved that petitioner from the complaint. The appellate court,
however, by a division of four, with one justice dissenting held that the relation between
petitioner and respondent was that of agent and principal, the petitioner acting as agent of the
respondent in the purchase of the equipment in question, and sentenced the petitioner to pay
the respondent alleged overpayments in the total sum of $1,335.52 or P2,671.04, together with
legal interest thereon from the date of the filing of the complaint until said amount is fully paid, as
well as to pay the costs of the suit in both instances. The appellate court further argued that
even if the contract between the petitioner and the respondent was one of purchase and sale,
the petitioner was guilty of fraud in concealing the true price and hence would still be liable to
reimburse the respondent for the overpayments made by the latter.
The petitioner now claims that the following errors have been incurred by the appellate court:
I. El Tribunal de Apelaciones incurrio en error de derecho al declarar que, segun
hechos, entre la recurrente y la recurrida existia una relacion implicita de mandataria
a mandante en la transaccion de que se trata, en vez de la de vendedora a
compradora como ha declarado el Juzgado de Primera Instncia de Manila, presidido
entonces por el hoy Magistrado Honorable Marcelino Montemayor.
II. El Tribunal de Apelaciones incurrio en error de derecho al declarar que, suponiendo
que dicha relacion fuerra de vendedora a compradora, la recurrente obtuvo, mediante
dolo, el consentimiento de la recurrida en cuanto al precio de $1,700 y $1,600 de las
maquinarias y equipos en cuestion, y condenar a la recurrente ha obtenido de la Starr
Piano Company of Richmond, Indiana.
We sustain the theory of the trial court that the contract between the petitioner and the
respondent was one of purchase and sale, and not one of agency, for the reasons now to be
stated.

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

list price we consider to be spacious. It is to be observed that the twenty-five per cent (25%)
discount granted by the Starr piano Company to the petitioner is available only to the latter as
the former's exclusive agent in the Philippines. The respondent could not have secured this
discount from the Starr Piano Company and neither was the petitioner willing to waive that
discount in favor of the respondent. As a matter of fact, no reason is advanced by the
respondent why the petitioner should waive the 25 per cent discount granted it by the Starr
Piano Company in exchange for the 10 percent commission offered by the respondent.
Moreover, the petitioner was not duty bound to reveal the private arrangement it had with the
Starr Piano Company relative to such discount to its prospective customers, and the respondent
was not even aware of such an arrangement. The respondent, therefore, could not have offered
to pay a 10 per cent commission to the petitioner provided it was given the benefit of the 25 per
cent discount enjoyed by the petitioner. It is well known that local dealers acting as agents of
foreign manufacturers, aside from obtaining a discount from the home office, sometimes add to
the list price when they resell to local purchasers. It was apparently to guard against an
exhorbitant additional price that the respondent sought to limit it to 10 per cent, and the
respondent is estopped from questioning that additional price. If the respondent later on
discovers itself at the short end of a bad bargain, it alone must bear the blame, and it cannot
rescind the contract, much less compel a reimbursement of the excess price, on that ground
alone. The respondent could not secure equipment and machinery manufactured by the Starr
Piano Company except from the petitioner alone; it willingly paid the price quoted; it received the
equipment and machinery as represented; and that was the end of the matter as far as the
respondent was concerned. The fact that the petitioner obtained more or less profit than the
respondent calculated before entering into the contract or reducing the price agreed upon
between the petitioner and the respondent. Not every concealment is fraud; and short of fraud, it
were better that, within certain limits, business acumen permit of the loosening of the sleeves
and of the sharpening of the intellect of men and women in the business world.
The writ of certiorari should be, as it is hereby, granted. The decision of the appellate court is
accordingly reversed and the petitioner is absolved from the respondent's complaint in G. R. No.
1023, entitled "Arco Amusement Company (formerly known as Teatro Arco), plaintiff-appellant,
vs.

G.R. No. L-59266 February 29, 1988

Pesos (P16,000.00) to the defendants-spouses upon the execution of the

Deed of absolute Sale of Lot No. 3453, Opon Cadastre and when the
decision of this case becomes final and executory.

SILVESTRE DIGNOS and ISABEL LUMUNGSOD, petitioners,

vs.
HON. COURT OF APPEALS and ATILANO G. JABIL, respondents.

The plaintiff Atilano G. Jabil is ordered to reimburse the defendants Luciano

Cabigas and Jovita L. de Cabigas, through their attorney-in-fact, Panfilo
Jabalde, reasonable amount corresponding to the expenses or costs of the
hollow block fence, so far constructed.

BIDIN, J.:

It is further ordered that defendants-spouses Silvestre T. Dignos and Isabela

Lumungsod de Dignos should return to defendants-spouses Luciano
Cabigas and Jovita L. de Cabigas the sum of P35,000.00, as equity
demands that nobody shall enrich himself at the expense of another.

This is a petition for review on certiorari seeking the reversal of the: (1) Decision * of the 9th
Division, Court of Appeals dated July 31,1981, affirming with modification the Decision, dated
August 25, 1972 of the Court of First Instance ** of Cebu in civil Case No. 23-L entitled Atilano
G. Jabil vs. Silvestre T. Dignos and Isabela Lumungsod de Dignos and Panfilo Jabalde, as
Attorney-in-Fact of Luciano Cabigas and Jovita L. de Cabigas; and (2) its Resolution dated
December 16, 1981, denying defendant-appellant's (Petitioner's) motion for reconsideration, for
lack of merit.

The writ of preliminary injunction issued on September 23, 1966,

automatically becomes permanent in virtue of this decision.
With costs against the defendants.

The undisputed facts as found by the Court of Appeals are as follows:

The Dignos spouses were owners of a parcel of land, known as Lot No.
3453, of the cadastral survey of Opon, Lapu-Lapu City. On June 7, 1965,
appellants (petitioners) Dignos spouses sold the said parcel of land to
plaintiff-appellant (respondent Atilano J. Jabil) for the sum of P28,000.00,
payable in two installments, with an assumption of indebtedness with the
First Insular Bank of Cebu in the sum of P12,000.00, which was paid and
acknowledged by the vendors in the deed of sale (Exh. C) executed in favor
of plaintiff-appellant, and the next installment in the sum of P4,000.00 to be
paid on or before September 15, 1965.

From the foregoing, the plaintiff (respondent herein) and defendants-spouss (petitioners herein)
appealed to the Court of Appeals, which appeal was docketed therein as CA-G.R. No. 54393-R,
"Atilano G. Jabil v. Silvestre T. Dignos, et al."
On July 31, 1981, the Court of Appeals affirmed the decision of the lower court except as to the
portion ordering Jabil to pay for the expenses incurred by the Cabigas spouses for the building
of a fence upon the land in question. The disposive portion of said decision of the Court of
Appeals reads:
IN VIEW OF THE FOREGOING CONSIDERATIONS, except as to the
modification of the judgment as pertains to plaintiff-appellant above
indicated, the judgment appealed from is hereby AFFIRMED in all other
respects.

On November 25, 1965, the Dignos spouses sold the same land in favor of
defendants spouses, Luciano Cabigas and Jovita L. De Cabigas, who were
then U.S. citizens, for the price of P35,000.00. A deed of absolute sale (Exh.
J, also marked Exh. 3) was executed by the Dignos spouses in favor of the
Cabigas spouses, and which was registered in the Office of the Register of
Deeds pursuant to the provisions of Act No. 3344.

With costs against defendants-appellants.

SO ORDERED.

As the Dignos spouses refused to accept from plaintiff-appellant the balance

of the purchase price of the land, and as plaintiff- appellant discovered the
second sale made by defendants-appellants to the Cabigas spouses,
plaintiff-appellant brought the present suit. (Rollo, pp. 27-28)
After due trial, the Court of first Instance of Cebu rendered its Decision on August 25,1972, the
decretal portion of which reads:
WHEREFORE, the Court hereby declares the deed of sale executed on
November 25, 1965 by defendant Isabela L. de Dignos in favor of defendant
Luciano Cabigas, a citizen of the United States of America, null and void ab
initio, and the deed of sale executed by defendants Silvestre T. Dignos and
Isabela Lumungsod de Dignos not rescinded. Consequently, the plaintiff
Atilano G. Jabil is hereby ordered to pay the sum, of Sixteen Thousand

Judgment MODIFIED.
A motion for reconsideration of said decision was filed by the defendants- appellants
(petitioners) Dignos spouses, but on December 16, 1981, a resolution was issued by the Court
of Appeals denying the motion for lack of merit.
Hence, this petition.
In the resolution of February 10, 1982, the Second Division of this Court denied the petition for
lack of merit. A motion for reconsideration of said resolution was filed on March 16, 1982. In the
resolution dated April 26,1982, respondents were required to comment thereon, which comment
was filed on May 11, 1982 and a reply thereto was filed on July 26, 1982 in compliance with the
resolution of June 16,1 982. On August 9,1982, acting on the motion for reconsideration and on

all subsequent pleadings filed, this Court resolved to reconsider its resolution of February 10,
1982 and to give due course to the instant petition. On September 6, 1982, respondents filed a
rejoinder to reply of petitioners which was noted on the resolution of September 20, 1982.

There is no merit in this petition.

Petitioners raised the following assignment of errors:

It is significant to note that this petition was denied by the Second Division of this Court in its
Resolution dated February 1 0, 1 982 for lack of merit, but on motion for reconsideration and on
the basis of all subsequent pleadings filed, the petition was given due course.

I.

THE COURT OF APPEALS COMMITTED A GRAVE ERROR OF LAW IN GROSSLY,

INCORRECTLY INTERPRETING THE TERMS OF THE CONTRACT, EXHIBIT C, HOLDING IT
AS AN ABSOLUTE SALE, EFFECTIVE TO TRANSFER OWNERSHIP OVER THE PROPERTY
IN QUESTION TO THE RESPONDENT AND NOT MERELY A CONTRACT TO SELL OR
PROMISE TO SELL; THE COURT ALSO ERRED IN MISAPPLYING ARTICLE 1371 AS
WARRANTING READING OF THE AGREEMENT, EXHIBIT C, AS ONE OF ABSOLUTE SALE,
DESPITE THE CLARITY OF THE TERMS THEREOF SHOWING IT IS A CONTRACT OF
PROMISE TO SELL.

The contract in question (Exhibit C) is a Deed of Sale, with the following conditions:

II

1. That Atilano G..Jabilis to pay the amount of Twelve Thousand Pesos

P12,000.00) Phil. Philippine Currency as advance payment;
2. That Atilano G. Jabil is to assume the balance of Twelve Thousand Pesos
(P12,000.00) Loan from the First Insular Bank of Cebu;
3. That Atilano G. Jabil is to pay the said spouses the balance of Four.
Thousand Pesos (P4,000.00) on or before September 15,1965;

THE COURT OF APPEALS COMMITTED AN ERROR OF LAW IN INCORRECTLY APPLYING

AND OR IN MISAPPLYING ARTICLE 1592 OF THE NEW CIVIL CODE AS WARRANTING THE
ERRONEOUS CONCLUSION THAT THE NOTICE OF RESCISSION, EXHIBIT G, IS
INEFFECTIVE SINCE IT HAS NOT BEEN JUDICIALLY DEMANDED NOR IS IT A NOTARIAL
ACT.
III
THE COURT OF APPEALS COMMITTED AN ERROR OF LAW IN REJECTING THE
APPLICABILITY OF ARTICLES 2208,2217 and 2219 OF THE NEW CIVIL CODE AND
ESTABLISHED JURISPRUDENCE AS TO WARRANT THE AWARD OF DAMAGES AND
ATTORNEY'S FEES TO PETITIONERS.
IV
PLAINTIFF'S COMPLAINT FOR SPECIFIC PERFORMANCE SHOULD HAVE BEEN
DISMISSED, HE HAVING COME TO COURT WITH UNCLEAN HANDS.
V
BY AND LARGE, THE COURT OF APPEALS COMMITTED AN ERROR IN AFFIRMING WITH
MODIFICATION THE DECISION OF THE TRIAL COURT DUE TO GRAVE
MISINTERPRETATION, MISAPPLICATION AND MISAPPREHENSION OF THE TERMS OF
THE QUESTIONED CONTRACT AND THE LAW APPLICABLE THERETO.

4. That the said spouses agrees to defend the said Atilano G. Jabil from
other claims on the said property;
5. That the spouses agrees to sign a final deed of absolute sale in favor of
Atilano G. Jabil over the above-mentioned property upon the payment of the
balance of Four Thousand Pesos. (Original Record, pp. 10-11)
In their motion for reconsideration, petitioners reiterated their contention that the Deed of Sale
(Exhibit "C") is a mere contract to sell and not an absolute sale; that the same is subject to two
(2) positive suspensive conditions, namely: the payment of the balance of P4,000.00 on or
before September 15,1965 and the immediate assumption of the mortgage of P12,000.00 with
the First Insular Bank of Cebu. It is further contended that in said contract, title or ownership
over the property was expressly reserved in the vendor, the Dignos spouses until the suspensive
condition of full and punctual payment of the balance of the purchase price shall have been met.
So that there is no actual sale until full payment is made (Rollo, pp. 51-52).
In bolstering their contention that Exhibit "C" is merely a contract to sell, petitioners aver that
there is absolutely nothing in Exhibit "C" that indicates that the vendors thereby sell, convey or
transfer their ownership to the alleged vendee. Petitioners insist that Exhibit "C" (or 6) is a
private instrument and the absence of a formal deed of conveyance is a very strong indication
that the parties did not intend "transfer of ownership and title but only a transfer after full
payment" (Rollo, p. 52). Moreover, petitioners anchored their contention on the very terms and
conditions of the contract, more particularly paragraph four which reads, "that said spouses has
agreed to sell the herein mentioned property to Atilano G. Jabil ..." and condition number five
which reads, "that the spouses agrees to sign a final deed of absolute sale over the mentioned
property upon the payment of the balance of four thousand pesos."

The foregoing assignment of errors may be synthesized into two main issues, to wit:
Such contention is untenable.
I. Whether or not subject contract is a deed of absolute sale or a contract
Lot sell.
II. Whether or not there was a valid rescission thereof.

By and large, the issues in this case have already been settled by this Court in analogous cases.

Thus, it has been held that a deed of sale is absolute in nature although denominated as a
"Deed of Conditional Sale" where nowhere in the contract in question is a proviso or stipulation
to the effect that title to the property sold is reserved in the vendor until full payment of the
purchase price, nor is there a stipulation giving the vendor the right to unilaterally rescind the
contract the moment the vendee fails to pay within a fixed period Taguba v. Vda. de Leon, 132
SCRA 722; Luzon Brokerage Co., Inc. v. Maritime Building Co., Inc., 86 SCRA 305).
A careful examination of the contract shows that there is no such stipulation reserving the title of
the property on the vendors nor does it give them the right to unilaterally rescind the contract
upon non-payment of the balance thereof within a fixed period.
On the contrary, all the elements of a valid contract of sale under Article 1458 of the Civil Code,
are present, such as: (1) consent or meeting of the minds; (2) determinate subject matter; and
(3) price certain in money or its equivalent. In addition, Article 1477 of the same Code provides
that "The ownership of the thing sold shall be transferred to the vendee upon actual or
constructive delivery thereof." As applied in the case of Froilan v. Pan Oriental Shipping Co., et
al. (12 SCRA 276), this Court held that in the absence of stipulation to the contrary, the
ownership of the thing sold passes to the vendee upon actual or constructive delivery thereof.
While it may be conceded that there was no constructive delivery of the land sold in the case at
bar, as subject Deed of Sale is a private instrument, it is beyond question that there was actual
delivery thereof. As found by the trial court, the Dignos spouses delivered the possession of the
land in question to Jabil as early as March 27,1965 so that the latter constructed thereon Sally's
Beach Resort also known as Jabil's Beach Resort in March, 1965; Mactan White Beach Resort
on January 15,1966 and Bevirlyn's Beach Resort on September 1, 1965. Such facts were
admitted by petitioner spouses (Decision, Civil Case No. 23-L; Record on Appeal, p. 108).
Moreover, the Court of Appeals in its resolution dated December 16,1981 found that the acts of
petitioners, contemporaneous with the contract, clearly show that an absolute deed of sale was
intended by the parties and not a contract to sell.
Be that as it may, it is evident that when petitioners sold said land to the Cabigas spouses, they
were no longer owners of the same and the sale is null and void.
II.
Petitioners claim that when they sold the land to the Cabigas spouses, the contract of sale was
already rescinded.
Applying the rationale of the case of Taguba v. Vda. de Leon (supra) which is on all fours with
the case at bar, the contract of sale being absolute in nature is governed by Article 1592 of the
Civil Code. It is undisputed that petitioners never notified private respondents Jabil by notarial
act that they were rescinding the contract, and neither did they file a suit in court to rescind the
sale. The most that they were able to show is a letter of Cipriano Amistad who, claiming to be an
emissary of Jabil, informed the Dignos spouses not to go to the house of Jabil because the latter
had no money and further advised petitioners to sell the land in litigation to another party
(Record on Appeal, p. 23). As correctly found by the Court of Appeals, there is no showing that
Amistad was properly authorized by Jabil to make such extra-judicial rescission for the latter
who, on the contrary, vigorously denied having sent Amistad to tell petitioners that he was
already waiving his rights to the land in question. Under Article 1358 of the Civil Code, it is
required that acts and contracts which have for their object the extinguishment of real rights over
immovable property must appear in a public document.

Petitioners laid considerable emphasis on the fact that private respondent Jabil had no money
on the stipulated date of payment on September 15,1965 and was able to raise the necessary
amount only by mid-October 1965.
It has been ruled, however, that "where time is not of the essence of the agreement, a slight
delay on the part of one party in the performance of his obligation is not a sufficient ground for
the rescission of the agreement" (Taguba v. Vda. de Leon, supra). Considering that private
respondent has only a balance of P4,000.00 and was delayed in payment only for one month,
equity and justice mandate as in the aforecited case that Jabil be given an additional period
within which to complete payment of the purchase price.
WHEREFORE, the petition filed is hereby Dismissed for lack of merit and the assailed decision
of the Court of Appeals is Affirmed in toto.
SO ORDERED.

G.R. No. 169079

August 28, 2007

FRANCISCO RAYOS, Petitioner,

vs.
ATTY. PONCIANO G. HERNANDEZ, Respondent.
RESOLUTION

In several administrative cases, the Court has refrained from imposing the actual penalties in the
presence of mitigating factors. Factors such as the respondents length of service, the
respondents acknowledgement of his or her infractions and feeling of remorse, family
circumstances, humanitarian and equitable considerations, respondents advanced age, among
other things, have had varying significance in the Courts determination of the imposable
penalty.31avvphi1
Applying the rationale in the aforesaid catena of cases, it is appropriate for this Court, in the
case at bar, to consider the following circumstances, to wit:

CHICO-NAZARIO, J.:
Before Us is a Motion for Reconsideration dated 16 March 2007 filed by respondent Atty.
Ponciano G. Hernandez, seeking a modification of the Decision dated 12 February 2007.

a) respondent had spent 15 years in defending petitioners cause from the trial court to
the Supreme Court;

The dispositive portion of the Decision states:

b) his efforts at defending their cause were palpably real, complete, and total, with
utmost devotion and zealousness;

WHEREFORE the Court Resolves that:

c) respondents advanced age;

1. Respondent is guilty of violation of the attorneys oath and of serious professional

misconduct and shall be SUSPENDED from the practice of law for six (6) months and
WARNED that repetition of the same or similar offense will be dealt with more
severely;
2. Respondent is entitled to attorneys fees in the amount equivalent to thirty-five
percent (35%) of the total amount awarded1 to petitioner in Civil Case No. SM-951;
and
3. Respondent is to return the amount of Two Hundred Ninety Thousand One Hundred
Nine Pesos and Twenty-One Centavos (P290,109.21),2 which he retained in excess of
what we herein declared as fair and reasonable attorneys fees, plus legal interest
from date of finality of this judgment until full payment thereof.
Let copies of this Decision be entered in the personal record of respondent as member of the
Bar and furnished the Office of the Bar Confidant, the IBP, and the Court Administrator for
circulation to all courts of the country.
Respondent received a copy of the Decision on 5 March 2007. Hence, the Motion for
Reconsideration was filed within the reglementary period provided under the Rules.
Respondent begs the compassionate understanding and magnanimity of the Honorable Court
for some leniency regarding his unintentional transgression and prays that the penalty of
suspension of six months imposed upon him be reduced to a fine, invoking his almost 15 years
of patient, devoted, complete and successful professional services rendered to petitioner; for the
bad faith of the latter in dismissing him as counsel without justifiable cause; and his good faith in
retaining the money "contingently" with the view of winning petitioners cause.
In light of respondents sincere plea for compassion from the Court, we take a second look at the
penalty imposed.

d) this is the first time that respondent has been found administratively liable per
available record; and
e) respondents good faith in retaining what he sincerely believed to be his contingent
fee. As can be gleaned from the facts, petitioner and respondent entered into a
contingent fee arrangement whereby the latter, as counsel, will be paid for the legal
services only if he secures a judgment favorable for his client. When respondent
retained the amount of P557,961.21 and P159,120.00 out of the P1,219,920.00, he
did so believing in good faith that it was a reasonable payment for the contingent fees
which he was entitled to retain. It cannot be ignored that respondent indeed
successfully defended petitioners case in Civil Case No. SM-951.
We are persuaded to exhibit a degree of leniency towards the respondent. We, thus, maintain a
more compassionate approach.
WHEREFORE, the respondents Motion for Reconsideration is partly GRANTED. The Decision
dated 12 February 2007 is MODIFIED in that the suspension of six months is DELETED, and in
lieu thereof a fine of P20,000.00 is IMPOSED, effective from date of receipt of herein Resolution,
with warning that repetition of the same or similar acts will be dealt with more severely. The said
Decision is AFFIRMED in all other respects.
SO ORDERED.

G.R. No. 137845

September 9, 2004

ANGEL CLEMENO, JR., MALYN CLEMENO, and NILUS SACRAMENTO, petitioners,

vs.
ROMEO R. LOBREGAT, respondent.
DECISION
CALLEJO, SR., J.:
This is a petition for review of the Decision1 of the Court of Appeals in CA-G.R. CV No. 53655
reversing the decision of the Regional Trial Court of Quezon City, Branch 224, in Civil Case Nos.
92-12620 and 93-17268.
The Antecedents
The Spouses Nilus and Teresita Sacramento were the owners of a parcel of land covered by
Transfer Certificate of Title (TCT) No. 158728 and the house constructed thereon located at No.
68 Madaling Araw Street, Teresa Heights Subdivision, Novaliches, Quezon City. The Spouses
Sacramento mortgaged the property with the Social Security System (SSS) as security for their
housing loan and, likewise, surrendered the owners and duplicate copies of the certificate of
title. On September 2, 1980, the spouses executed a Deed of Sale with Assumption of Mortgage
in favor of Maria Linda Clemeno and her husband Angel C. Clemeno, Jr., with the conformity of
the SSS.2 On March 6, 1981, the Register of Deeds issued TCT No. 277244 over the property in
the name of the vendees,3 who, in turn, executed a Real Estate Mortgage Contract over the
property in favor of the SSS to secure the payment of the amount of P22,900.00, the balance of
the loan.4 The Spouses Clemeno also surrendered the owners duplicate copy of the said title to
the SSS. However, per the records of the SSS Loans Department, the vendors (the Spouses
Sacramento) remained to be the debtors.
On July 1, 1992, respondent Romeo R. Lobregat, a lawyer and an Election Registrar in the
Commission on Elections, filed a Complaint against the petitioners, the Spouses Clemeno, and
Nilus Sacramento for breach of contract, specific performance with damages with the RTC of
Quezon City. The case was docketed as Civil Case No. 92-12620 and raffled to Branch 100. On
May 7, 1993, the trial court dismissed the case without prejudice for lack of interest on the part
of the plaintiff to prosecute.5 The petitioners, for their part, filed a Complaint against the
respondent for recovery of possession of property with damages, docketed as Civil Case No.
93-17268 and raffled to Branch 93 of the court. In the meantime, the RTC, Branch 100 set aside
its Order in Civil Case No. 92-12620 and reinstated the case. The two (2) cases were then
consolidated in the RTC, Branch 100.
The Evidence of The Respondent
On June 4, 1987, the respondent and petitioner Angel Clemeno, Jr., relatives by consanguinity,
entered into a verbal contract of sale over the property covered by TCT No. 277244 under the
following terms and conditions: (a) the respondent would pay the purchase price of the property
in the amount of P270,000.00, inclusive of the balance of the loan of the petitioners, the
Spouses Clemeno with the SSS6 within two years from June 4, 1987;7(b) the respondent would
pay the monthly amortizations of the vendors loan with the SSS; and (c) upon the payment of
the purchase price of the property, the Spouses Clemeno would execute a deed of sale in favor
of the respondent.8 The respondent made a down payment of P25,000.00 for which petitioner
Clemeno, Jr. issued a receipt dated June 4, 1987.9 He then made a partial payment

of P5,000.00 to petitioner Clemeno, Jr. on July 8, 1987,10 and another partial payment
of P50,000.00 on February 9, 1988.11 The respondent paid the realty taxes due on the property
for 1987 and 1988.12
In the meantime, petitioner Clemeno, Jr. read a press release from the SSS in the newspapers
allowing delinquent borrowers to restructure the balance of their loans as of March 31, 1988 with
no arrearages on the balance of their account under certain terms and conditions.13 On February
26, 1988, he paid the amount ofP6,692.63 to the SSS, in partial payment of his loan
account.14 He also made a written request to the SSS for a restructuring of his loan.15 Thereafter,
the SSS Loans Collection Department issued on March 15, 1988, addressed to the borrower on
record, that effective March 15, 1988, the monthly amortization on the loan
wasP841.84.16 Petitioner Clemeno, Jr., as mortgagor, affixed his conformity thereto.17 He then
wrote a letter authorizing the respondent to pay the balance of his restructured loan with the
SSS, which payments would be considered as partial payment of the house and
lot.18 Conformably, the respondent remitted to the SSS the monthly amortization payments for
the account of petitioner Clemeno, Jr. However, the receipts issued by the SSS were in the
name of petitioners Nilus Sacramento or Clemeno, Jr.19
The respondent made additional partial payments for the sale of the property to petitioner
Clemeno, Jr. on January 17, 1989, and, March 20, 1989, in the total amount of P10,000.00.20 He
also continued remitting to the SSS the monthly amortizations due for the account of petitioner
Clemeno, Jr.21
The respondent was able to secure a loan of P160,000.00 on April 1, 1989, which was more
than sufficient to cover his balance of the purchase of the property. He then offered to pay the
said balance to petitioner Clemeno, Jr.,22 but the latter told him to keep the money because the
owners duplicate copy of the title was still with the SSS and to instead continue paying the
monthly amortizations due. The respondent did so and made payments until March 1990.23 He
no longer paid after this date because the SSS informed him that petitioner Clemeno, Jr. had
already paid the balance of his account in full on March 23, 1990. Indeed, on May 9, 1990, the
SSS had executed a Release of Real Estate Mortgage in favor of petitioner Clemeno, Jr. and
released the owners duplicate of TCT No. 277244.24
The respondent offered to pay the balance of the purchase price of the property to petitioner
Clemeno, Jr. and asked the latter to execute the deed of sale over the property and deliver the
title over the property under his name, but petitioner Clemeno, Jr. refused to do so unless the
respondent agreed to buy the property at the price prevailing in 1992. The respondent refused.
On June 12, 1992, the respondents counsel wrote petitioner Clemeno, Jr., informing the latter
that he (the respondent) had already paid P113,049.96 of the purchase price of the property and
that he was ready to pay the balance thereof in the amount of P156,970.04. He demanded that
petitioner Clemeno, Jr. execute a deed of absolute sale over the property and deliver the title
thereto in his name upon his receipt of the amount ofP156,970.04.25
In his reply-letter, petitioner Clemeno, Jr. stated that he never sold the property to the
respondent; that he merely tolerated the respondents possession of the property for one year or
until 1987, after which the latter offered to buy the property, which offer was rejected; and that he
instead consented to lease the property to the respondent. The petitioner also declared in the
said letter that even if the respondent wanted to buy the property, the same was unenforceable
as there was no document executed by them to evince the sale.26

In their Answer to the complaint, the petitioners alleged that they entered into a verbal leasepurchase agreement over the house and lot with the respondent under the following terms and
conditions:
(a) The purchase price will be P270,000.00 to be paid in full not later than June 1,
1988;
(b) The rental is P1,500.00 a month, for the whole period from June 1987 to June 1,
1988;
(c) If the whole purchase price is not paid on the agreed date, the total amount
equivalent to one-year rental shall be deducted from the amount already paid by the
plaintiff, who shall peacefully vacate the premises and surrender possession of the
house and lot to the defendants.
(d) The purchase price of P270,000.00 shall be payable: P90,000.00 upon taking
possession of the property, P90,000.00 payable within six (6) months thereafter,
and P90,000.00 not later than June 1, 1988.27
The petitioners further alleged that despite the respondents failure to comply with the conditions
of their agreement, the latter was still granted an extension of until September 1989 to pay the
purchase price of the property, but managed to pay only P113,049.96, including the monthly
amortizations of their loan account with the SSS and realty tax payments. The petitioners further
alleged that the respondent even failed to pay any rental for the property from June 1987 to
June 1, 1988. They posited that the contract between the parties was unenforceable under
Article 1403(2) of the New Civil Code, and prayed that judgment be rendered in their favor as
prayed for by them in their complaint in Civil Case No. 93-17268, thus:
WHEREFORE, it is most respectfully prayed that after due hearing, a decision in favor
of plaintiff be rendered, ordering Defendant
(a) And all other persons claiming under him to vacate the premises located
at 86 Madaling Araw St., Teresa Heights Subdivision, Novaliches, Quezon
City;
(b) To pay plaintiff a balance of P64,349.14 for the use and occupancy of
the premises until May 31, 1993, and at the rate of P3,628.80 a month from
June 1, 1993 until the premises shall have been finally vacated;
(c) To pay P50,000.00 plus P2,000.00 per appearance as and for attorneys
fees; and
(d) To pay the costs of suit.
Plaintiff further prays for such other relief reasonable and conscionable in the
premises.28
The Evidence for the Petitioners
Petitioner Clemeno, Jr. and the respondent were townmates. Sometime in June 1987, petitioner
Clemeno, Jr. agreed to sell the property for P270,000.00 payable in three (3) installments:

(a) P90,000.00 upon the respondents taking possession of the property; (b) P90,000.00 payable
within six (6) months thereafter; and (c)P90,000.00 not later than June 1, 1988. The respondent
assured petitioner Clemeno, Jr. that there would be nothing to worry about the documentation of
the sale; being a lawyer, he would take care of everything. However, the respondent failed to
pay the balance of the purchase price of the property in the amount of P156,970.04 despite
promises to do so.
On September 16, 1989, petitioner Clemeno, Jr. went to the respondents house to talk to him
anew, but the latter was nowhere to be found. He made a typewritten letter to the respondent,
stating that the latter had been given more than enough time to exercise the option to buy the
property but failed to do so; hence, the offer was deemed cancelled. The petitioner left the letter
with the respondents daughter, Michelle Lobregat.
The trial court rendered judgment in favor of the petitioners, as follows:
Accordingly, therefore, the Court hereby renders judgment in favor of Angel Clemeno,
[Jr.] as against Romeo Lobregat and orders the latter and other persons claiming
under him to:
1. Vacate the premises located at No. 86 Madaling Araw Street, Teresa
Heights Subdivision, Novaliches, Quezon City;
2. Pay Angel Clemeno, Jr. the amount of P64,349.14 for the use and
occupancy of the premises until May 31, 1993 and at the rate of P3,628.80
a month from June 1, 1993 until the premises have been finally vacated;
3. Pay the amount of P50,000.00 as attorneys fees and other legal
expenses, and
4. To pay the costs of suit.
IT IS SO ORDERED.29
The trial court ruled that since both the sale and lease agreements were not reduced to writing,
both contracts were unenforceable under Article 1403(2) of the New Civil Code, and had
decided the case based on justice and equity.
The respondent appealed the decision to the Court of Appeals and raised the following
assignment of errors:
1. THE LOWER COURT, AFTER THE COMPLETE, MERITORIOUS AND
WRITTEN PIECES OF EVIDENCE SUBMITTED BY PLAINTIFFAPPELLANT LOBREGAT, FAILED/REFUSED TO CONSIDER THE SAME.
INSTEAD, DECIDED ONLY THE CASE OF ACCION PUBLICIANAFILED
BY DEFENDANT-APPELLEE A. CLEMENO, JR.
2. THE LOWER COURT FAILED TO CONSIDER THAT RECEIPTS ARE
NOT CONTRACT OF SALE BUT EVIDENCE FOR CONTRACT OF SALE
AS EVEN NOTED BY THE LOWER COURT.

3. THAT THE LOWER COURT FAILED TO CONSIDER THAT THE PIECES

OF EVIDENCE OF LOBREGAT CLEARLY SHOW THAT [THE] SALE WAS
THE TRANSACTION BETWEEN HEREIN PARTIES AS ADMITTED BY
DEFENDANT-APPELLEE A. CLEMENO, JR. (T.S.N., p. 16, Nov. 20, 1995)
(T.S.N., pp. 26 & 27, April 19, 1996)
3. THAT THE HONORABLE LOWER COURT DISREGARDED ITS OWN
RULING AS TO THE APPELLEES INTENTIONAL FAILURE TO
FOLLOW/COMPLY WITH ITS ORDER DATED MAY 31, 1996.

The Honorable Court of Appeals grossly erred in holding that the contract entered by
the parties is a contract of sale and not a contract to sell.32
II
The Court of Appeals erred seriously when it held that "Under Article 1356 of the Civil
Code, contract shall be obligatory, in whatever form they may have been entered into,
provided all the essential requisites for their validity are present and that the contract
of sale of a piece of land may be proved orally, totally ignoring the positive mandate of
Article 1358 of the Civil Code, "33

4. THAT THE LOWER COURT FAILED TO CONSIDER THE DELIBERATE

OMISSION OF DEFENDANTS-APPELLEES TO OBSERVE THE NONFORUM SHOPPING REQUIREMENT.
5. THAT THE LOWER COURT MISAPPLIED THE PRINCIPLE OF
STATUTE OF FRAUDS.30
On February 23, 1999, the Court of Appeals rendered judgment reversing the decision of the
trial court. The fallo of the decision reads:
WHEREFORE, the decision appealed from is REVERSED, and judgment is hereby
rendered:
1. In Civil Case No. Q-92-12620
(a) Ordering defendants-appellees to accept the remaining
balance of the purchase price of the house and lot subject of sale
in the amount of P156,109.00 and, thereafter, execute in favor of
plaintiff-appellant the corresponding deed of sale or proper mode
of conveyance; and
(b) Ordering defendants-appellees to pay, jointly and severally,
plaintiff-appellant P50,000.00 by way of moral
damages, P25,000.00 by way of exemplary damages,
and P15,000.00 as attorneys fees.
2. In Civil Case No. Q-93-17268 dismissing the complaint therein.
Costs against defendants-appellees.
SO ORDERED.31
The Court of Appeals ruled that the contract entered into between the parties was a contract of
sale, not a contract to sell. The appellate court also ruled that Article 1403(2) was not applicable
because the contract was already partly performed, since partial payments had been made by
the respondent as evidenced by receipts signed by the petitioners.
The petitioners now come to this Court, contending that:

III
The Honorable Court of Appeals erred in holding that the Statute of Frauds cannot be
raised as a defense against specific performance, there being partial performance of
the down-payment and subsequent installments, even if short of the full price and after
the expiry of the agreed dates of payment.34
The Court shall resolve these issues simultaneously as they are interrelated.
The petitioners posit that the respondent failed to prove the essential elements of a contract of
sale over the subject property. They contend that the receipts wherein they acknowledged the
receipt of the amounts therein specified do not conform to the legal requirements of a contract of
sale, and cited the ruling of this Court in Manotok Realty, Inc. vs. Court of Appeal.35 They also
posit that even by his own admission, the respondent defaulted in the payment of the purchase
price of the property; hence, they are not obliged to execute a deed of absolute sale over the
property and deliver the title to him. The petitioners assert that even if they had entered into an
agreement with the respondent, such agreement was a mere contract to sell, not a contract of
sale. They further assert that even if, indeed, the parties had entered into a contract of sale, the
same is unenforceable under paragraph 2, Article 1403 of the New Civil Code, which provides
that such contract must be in writing; and Article 1358 of the New Civil Code which requires that
such contract must appear in a public document.
On the other hand, the appellate court held that the petitioners and the respondent entered into
a verbal contract of sale and not a contract to sell over the subject property, thus:
In the case at bench, Clemeno had agreed to sell his house and lot to Lobregat for a
total consideration ofP270,000.00 payable in installments within a period of two (2)
years. The receipt, Exhibit "A", is self-explanatory: it speaks of the receipt by Clemeno
of the sum of P25,000.00 from Lobregat as advance payment of the subject house
and lot, the total purchase price of which is P270,000.00. Significantly, upon his
receipt of the advance payment, Clemeno delivered the possession of the premises to
Lobregat who is now the present possessor thereof. Subsequent payments were
made by Lobregat on the purchase price, all of which were duly receipted for by
Clemeno. The receipts Exhibits "A-1", "A-2" and "A-3", for example, speak uniformly of
"additional part payment" for the house and lot subject of this case. Moreover, as
suggested by Clemeno himself, Lobregat had been religiously remitting the monthly
payments on Clemenos loan obligation with the SSS. Note, for instance, Exhibit "A-4"
one of the many receipts of payment to SSS where it is indicated that the real
estate loan is in the name of Angel C. Clemeno, Jr., as borrower, but bears the name
of Romeo Lobregat, as payor, on behalf of Clemeno. It is as clear as sunlight that the
parties had entered into a contract of sale and not merely a contract to sell. 36

I
The petition has no merit.

We find and so hold that the contract between the parties was a perfected verbal contract of
sale, not a contract to sell over the subject property, with the petitioner as vendor and the
respondent as vendee. Sale is a consensual contract and is perfected by mere consent, which is
manifested by a meeting of the minds as to the offer and acceptance thereof on three elements:
subject matter, price and terms of payment of the price.37 The petitioners sold their property to
the respondent for P270,000.00, payable on installments, and upon the payment of the
purchase price thereof, the petitioners were bound to execute a deed of sale in favor of the
respondent and deliver to him the certificate of title over the property in his name. The parties
later agreed for the respondent to assume the payment of the petitioners loan amortization to
the SSS, which payments formed part of the purchase price of the property. The evidence shows
that upon the payment made by the respondent of the amount of P27,000.00 on June 4, 1987,
the petitioners vacated their house and delivered possession thereof to the respondent.
Conformably to Article 1477 of the New Civil Code, the ownership of the property was
transferred to the respondent upon such delivery. The petitioners cannot re-acquire ownership
and recover possession thereof unless the contract is rescinded in accordance with law.38 The
failure of the respondent to complete the payment of the purchase price of the property within
the stipulated period merely accorded the petitioners the option to rescind the contract of sale as
provided for in Article 1592 of the New Civil Code.39
The contract entered into by the parties was not a contract to sell because there was no
agreement for the petitioners to retain ownership over the property until after the respondent
shall have paid the purchase price in full, nor an agreement reserving to the petitioners the right
to unilaterally resolve the contract upon the buyers failure to pay within a fixed period. 40 Unlike in
a contract of sale, the payment of the price is a positive suspensive condition in a contract to
sell, failure of which is not a breach but an event that prevents the obligation of the vendor to
convey the title from becoming effective.41
The fact that the receipts issued by the SSS evidencing the respondents remittances of the
monthly amortization payments of the petitioners loan, and that the receipts issued to the
respondent for the payment of realty taxes for 1987 and 1988 were in the name of Nilus
Sacramento and/or the petitioner Clemeno, Jr., does not negate the fact of the transfer of the
ownership over the property to the respondent on June 4, 1987. Moreover, the deed of sale over
the property in favor of the respondent had not yet been executed by the petitioners. The
Spouses Sacramento and later, the petitioners, were the borrowers, as per the records of the
SSS.
The contract of sale of the parties is enforceable notwithstanding the fact that it was an oral
agreement and not reduced in writing as required by Article 1403(2) of the New Civil Code,
which reads:
Art. 1403. The following contracts are unenforceable, unless they are ratified:

"(2) Those that do not comply with the Statute of Frauds as set forth in this
number. In the following cases, an agreement hereafter made shall be
unenforceable by action, unless the same, or some note or memorandum
thereof, be in writing, and subscribed by the parties charged, or by his
agent; evidence, therefore, of the agreement cannot be received without the
writing, or a secondary evidence of its contents:

(d) An agreement for the sale of goods, chattels or things in

action, at a price not less than five hundred pesos, unless the
buyer accepts and receives part of such goods and chattels, or
the evidences, or some of them, of such things in action, or pay at
the time some part of the purchase money: but when a sale is
made by auction and entry is made by the auctioneer in his sales
book, at the time of the sale, of the amount and kind of property
sold, terms of sale, price, names of the purchasers and person on
whose account the sale is made, it is a sufficient memorandum;
"
This is so because the provision applies only to executory, and not to completed, executed or
partially executed contracts.42 In this case, the contract of sale had been partially executed by
the parties, with the transfer of the possession of the property to the respondent and the partial
payments made by the latter of the purchase price thereof.
We agree with the petitioners contention that the respondent did not pay the total purchase
price of the property within the stipulated period. Moreover, the respondent did not pay the
balance of the purchase price of the property. However, such failure to pay on the part of the
respondent was not because he could not pay, but because petitioner Angel Clemeno, Jr. told
him not to do so. The latter instructed the respondent to continue paying the monthly
amortizations due to the SSS on the loan. Unknown to the respondent, petitioner Angel
Clemeno, Jr. wanted to increase the purchase price of the property at the prevailing market
value in 1992, and not its value in 1987 when the contract of sale was perfected.
The petitioners failed to prove their claim that a lease purchase agreement over the property
was entered into. Except for their bare claim, they failed to adduce a morsel of documentary
evidence to prove the same. On the other hand, all the receipts issued by them on the partial
payments made by the respondent were for the purchase price of the property, and not as
rentals thereof.
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of merit. Costs against the
petitioners.
SO ORDERED.

G.R. No. 75111 November 21, 1991

MARGARITO ALMENDRA, DELIA ALMENDRA, BERNARDINA OJEDA and MELECIA
CENO, petitioners,
vs.
THE HON. INTERMEDIATE APPELLATE COURT, ANGELES ALMENDRA, ROMAN
ALMENDRA and MAGDALENO CENO, respondents.
Custodio P. Canete for petitioners.
Serafin P. Ramento and Leon T. Tumandao for private respondents.

4. Declaring said defendant also as owner and entitled to the possession of

Lot No. 6352 as described in the sketch, subject to whatever may be the
rights thereto of her son Magdaleno Ceno who is said to be presently in
China.
No special pronouncement as to costs, except that the fees of the
commissioner shall be proportionately borne by the parties.
SO ORDERED.
Meanwhile, Aleja married Santiago Almendra with whom she had four children named Margarito,
Angeles, Roman and Delia. During said marriage Aleja and Santiago acquired a 59,196-squaremeter parcel of land in Cagbolo, Abuyog, Leyte. Original Certificate of Title No. 10094 was
issued therefor in the name of Santiago Almendra married to Aleja Ceno and it was declared for
tax purposes in his name. 5

FERNAN, C.J.:p
This is a petition for review on certiorari of the then Intermediate Appellate Court's decision and
resolution denying the motion for reconsideration of said decision which upheld the validity of
three (3) deeds of sale of real properties by a mother in favor of two of her children in total
reversal of the decision the lower court.
The mother, Aleja Ceno, was first married to Juanso Yu Book with whom she had three children
named Magdaleno, Melecia and Bernardina, all surnamed Ceno. Sometime in the 1920's,
Juanso Yu Book took his family to China where he eventually died. Aleja and her daughter
Bernardina later returned to the Philippines.
During said marriage, Aleja acquired a parcel of land which she declared in her name under Tax
Declaration No. 11500. 1 After Juanso Yu Book's death, Bernardina filed against her mother a
case for the partition of the said property in the then Court of First Instance of Leyte. 2 On
August 17, 1970, the lower court 3 rendered a "supplemental decision" 4 finding that the said
property had been subdivided into Lots Nos. 6354 (13,788 square meters), 6353 (16,604 square
meters), 6352 (23,868 square meters) and 6366 (71,656 square meters). The dispositive portion
of said decision reads:
IN VIEW OF THE FOREGOING, the Court hereby renders judgment:
1. Declaring plaintiff Bernardina C. Ojeda as owner and entitled to the
possession of Lot No. 6354 as described in the sketch found on page 44 of
the record;
2. Declaring said plaintiff as owner and entitled to the possession of Lot
6353 as described in the sketch, without prejudice to whatever may be the
rights thereto of her sister Melecia Ceno who is said to be presently in
China;
3. Declaring defendant Aleja C. Almendra as owner and entitled to the
possession of Lot No. 6366 as described in the sketch found on page 44 of
the record;

In addition to said properties, Aleja inherited from her father, Juan Ceno, a 16,000-square-meter
parcel of land also in Cagbolo. 6 For his part, her husband Santiago inherited from his mother
Nicolasa Alvero, a 164-square-meter parcel of residential land located in Nalibunan, Abuyog,
Leyte. 7
While Santiago was alive, he apportioned all these properties among Aleja's children in the
Philippines, including Bernardina, who, in turn, shared the produce of the properties with their
parents. After Santiago's death, Aleja sold to her daughter, Angeles Almendra, for P2,000 two
parcels of land more particularly described in the deed of sale dated August 10, 1973, 8 as
follows:
1. Half-portion, which pertains to me as my conjugal share, with my late
husband Santiago Almendra of the land located at Bo. Cagbolo, under T/D
No. 22234, covered by OCT No. P-10094 in name of Santiago Almendra;
having an area of 5.9196 hectares; with boundaries specifically designated
at the technical descriptions of the title thereof; and hence the half portion
subject of sale shall have an area of more or less 2.9598 hectares;
specifically designated in the sketch below marked as X: the hilly portion.
2. Half-portion of a parcel of land located at Bo. Cagbolo, Abuyog, Leyte
under T/D No. 27190 in the name of Aleja Ceno; having an area of 1.6000
hectares bounded as follows to wit: N. Cagbolo creek; E. Leon Elmido; S.
Magno Elmido and W., Higasan River, which portion shall have an area of
more or less 8000 hec. (sic), and designated as X in the sketch below: 9
On December 26, 1973, Aleja sold to her son, Roman Almendra, also for P2,000 a parcel of land
described in the deed of sale as located in Cagbulo (sic), Abuyog, Leyte "under T/D No. 11500
which cancelled T/D No. 9635; having an area of 6.6181 hec., assessed at P1,580.00 . . ." 10
On the same day, Aleja sold to Angeles and Roman again for P2,000 yet another parcel of land
described in the deed of sale 11 as follows:
A parcel of land designated as Lot No. 6352 in the name of Melicia Ceno,
under Project PLS-645, Abuyog, Leyte, which had been treated in the CIVIL
CASE No. 4387, For PARTITION OF REAL PROPERTY, CFI-Leyte,

Tacloban City, Branch 11; Bernardina Ojeda, Plaintiff, -vs.- Aleja C.

Almendra, defendant, wherein said SUPPLEMENTAL DECISION, dated
August 17th, 1970, in said case by Judge Jesus N. Borromeo:
PART OF THE DECISION, COMMISSIONER'S
REPORT:
Par. 3) That the partition, plaintiff and defendant agreed
to exchange the names or owners of Lot No. 6353
which is in the name of Magdaleno Ceno with Lot No.
6352 in the name of Melecia Ceno as appearing in the
sketch, copy of the Public Land Subdivision of Abuyog,
Leyte, under Project PLS-645 . . . .
DISPOSITIVE PORTION OF SAID DECISION:
Par. 4) Declaring said defendant (Aleja C. Almendra)
also as owner and entitled to the possession of Lot No.
6352 as described in the sketch, subject to whatever
may be the rights thereto of her son Magdaleno Ceno
who is said to be presently in China.
Aleja died on May 7, 1975. On January 21, 1977 Margarito, Delia and Bernardina filed a
complaint against Angeles and Roman for the annulment of the deeds of sale in their favor,
partition of the properties subjects therein and accounting of their produce. 12 From China, their
sister Melecia signed a special power of attorney in favor of Bernardina. Magdaleno, who was
still in China, was impleaded as a defendant in the case and summons by publication was made
on him. Later, the plaintiffs informed the court that they had received a document in Chinese
characters which purportedly showed that Magdaleno had died. Said document, however, was
not produced in court. Thereafter, Magdaleno was considered as in default without prejudice to
the provisions of Section 4, Rule 18 of the Rules of Court which allows the court to decide a
case wherein there several defendants upon the evidence submitted only by the answering
defendants.
On April 30, 1981, the lower court rendered a decision 13 the dispositive portion of which states:
WHEREFORE, judgment is hereby rendered declaring the deeds of sale
herein (Exhs."E", "F"and"H") to be simulated and therefore null and void;
ordering the partition of the estate of the deceased Aleja Ceno among her
heirs and assigns; appointing the Acting Clerk of Court, Atty. Cristina T.
Pontejos, as commissioner, for the purpose of said partition, who is
expected to proceed accordingly upon receipt of a copy of this decision; and
to render her report on or before 30 days from said receipt. The expenses of
the commissioner shall be borne proportionately by the parties herein.
SO ORDERED.
The defendants appealed to the then Intermediate Appellate Court which, on February 20, 1986
rendered a decision 14 finding that, in nullifying the deeds of sale in question, the lower court
totally disregarded the testimony of the notary public confirming the authenticity of the signatures
of Aleja on said deeds and the fact that Angeles and Roman actually paid their mother the
amounts stipulated in the contracts. The appellate court also stated that the uniformity in the
prices of the sale could not have nullified the sale because it had been duly proven that there
was consideration and that Angeles and Roman could afford to pay the same. Hence, it upheld

validity of the deeds of sale and ordered the partition of the "undisposed" properties left by Aleja
and Santiago Almendra and, if an extrajudicial partition can be had, that it be made within a
reasonable period of time after receipt of its decision.
The plaintiffs' motion for reconsideration having been denied, they filed the instant petition for
review on certioraricontending principally that the appellate court erred in having sanctioned the
sale of particular portions of yet undivided real properties.
While petitioners' contention is basically correct, we agree with the appellate court that there is
no valid, legal and convincing reason for nullifying the questioned deeds of sale. Petitioner had
not presented any strong, complete and conclusive proof to override the evidentiary value of the
duly notarized deeds of sale. 15 Moreover, the testimony of the lawyer who notarized the deeds
of sale that he saw not only Aleja signing and affixing her thumbmark on the questioned deeds
but also Angeles and Aleja "counting money between
them," 16 deserves more credence than the self-serving allegations of the petitioners. Such
testimony is admissible as evidence without further proof of the due execution of the deeds in
question and is conclusive as to the truthfulness of their contents in the absence of clear and
convincing evidence to the contrary. 17
The petitioners' allegations that the deeds of sale were "obtained through fraud, undue influence
and misrepresentation," and that there was a defect in the consent of Aleja in the execution of
the documents because she was then residing with Angeles, 18 had not been fully
substantiated. They failed to show that the uniform price of P2,000 in all the sales was grossly
inadequate. It should be emphasized that the sales were effected between a mother and two of
her children in which case filial love must be taken into account. 19
On the other hand, private respondents Angeles and Roman amply proved that they had the
means to purchase the properties. Petitioner Margarito Almendra himself admitted that Angeles
had a sari-sari store and was engaged in the business of buying and selling logs. 20 Roman was
a policeman before he became an auto mechanic and his wife was a school teacher 21
The unquestionability of the due execution of the deeds of sale notwithstanding, the Court may
not put an imprimatur on the intrinsic validity of all the sales. The August 10, 1973 sale to
Angeles of one-half portion of the conjugal property covered by OCT No. P-10094 may only be
considered valid as a sale of Aleja's one-half interesttherein. Aleja could not have sold particular
hilly portion specified in the deed of sale in absence of proof that the conjugal partnership
property had been partitioned after the death of Santiago. Before such partition, Aleja could not
claim title to any definite portion of the property for all she had was an ideal or abstract quota or
proportionate share in the entire property. 22
However, the sale of the one-half portion of the parcel of land covered by Tax Declaration No.
27190 is valid because the said property is paraphernal being Aleja's inheritance from her own
father. 23
As regards the sale of the property covered by Tax Declaration No. 11500, we hold that, since
the property had been found in Civil Case No. 4387 to have been subdivided, Aleja could not
have intended the sale of the whole property covered by said tax declaration. She could
exercise her right of ownership only over Lot No. 6366 which was unconditionally adjudicated to
her in said case.
Lot No. 6352 was given to Aleja in Civil Case No. 4387 "subject to whatever may be the rights
thereto of her son Magdaleno Ceno." A reading of the deed of Sale 24 covering parcel of land
would show that the sale is subject to the condition stated above; hence, the rights
of Magdaleno Ceno are amply protected. The rule on caveat emptor applies.
WHEREFORE, the decision of the then Intermediate Appellate Court is hereby affirmed subject

to the modifications herein stated. The lower court is directed to facilitate with dispatch the

preparation and approval of a project of partition of the properties considered unsold under this
decision. No costs.