G.R. No.

L-41847 December 12, 1986 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).

CATALINO LEABRES, petitioner,

Appealing the decision of the lower Court, plaintiff-appellant advances the following assignment of errors:
vs.

COURT OF APPEALS and MANOTOK REALTY, INC., respondents.

I
c

Before Us is a Petition for certiorari to review the decision of the Court of Appeals which is quoted hereunder:
THE LOWER COURT ERRED IN DENYING THE MOTION FOR RECONSIDERATION, DATED OCTOBER 9, 1967, THUS DEPRIVING THE
In Civil Case No. 64434, the Court of First Instance of Manila made the following quoted decision: PLAINTIFF-APPELLANT HIS DAY IN COURT.

(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;
II

(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 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.

(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).
III

The facts of this case may be briefly stated as follows:

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)
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 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
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 accorded his day in Court.
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.
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:

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 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.
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
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. L-0698, 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 (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
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 be recognized valid and binding and conclusive against the Manotok Realty, Inc.
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.
(3) Whether or not the petitioner could be considered as a possessor in good faith and in the concept of owner. (p. 11, Rollo)

The Second and Third Assignments of Error are hereby jointly treated in our discussion since the third is but a consequence of the second.
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,
It is argued that had the trial Court reconsidered its order dated September 14, 1967 dismissing the complaint for failure to prosecute, plaintiff- Rule 17 of the Revised Rules of Court.
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
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
damages, and that for all the foregoing, the judgment should be reversed and equitable relief be given in his favor.
on said date, and therefore, petitioner was given his day in Court.

As above stated, the Legarda-Tambunting Subdivision which includes the lot subject matter of the instant case, is covered by Torrens Certificates of
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
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.
find that there was no necessity to declare petitioner in default since he had filed his answer to the counterclaim of respondent.
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).
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
On the other hand, defendant-appellee, Manotok Realty, Inc., bought the whole subdivision which includes the subject matter herein by order and
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
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
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
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
died on April 22, 1950. Her estate was thereafter under custodia legis of the Probate Court which appointed Don Vicente Legarda as Special
Law, adverse interests not therein annotated which are without the previous knowledge by third parties do not bind the latter. As to the improvement
Administrator on August 28, 1950. Don Vicente Legarda entered into said sale in his own personal-capacity and without court approval, consequently,
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
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
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
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
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
that his right over the subject land could be recognized-assuming of course that the receipt could be regarded as sufficient proof.
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).
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.
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, Feria (Chairman), Fernan, Alampay and Gutierrez, Jr., JJ., concur.
strongly support the correctness of the lower Court's decision
G.R. No. L-11668 April 1, 1918

ANTONIO ENRIQUEZ DE LA CAVADA, plaintiff-appellee,

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 vs.
Leabres. We therefore affirm the same, with costs against appellant. (pp. 33-38, Rollo) ANTONIO DIAZ, defendant-appellant.

Ramon Diokno for appellant.

Alfredo Chicote and Jose Arnaiz for appellee.
Petitioner now comes to us with the following issues:
JOHNSON, J.:

(1) Whether or not the petitioner was denied his day in court and deprived of due process of law.
This action was instituted by the plaintiff for the purpose of requiring the defendant to comply with a certain "contract of option" to purchase a certain
piece or parcel of land described in said contract and for damages for a noncompliance with said contract. After the close of the trial the Honorable
James A. Ostrand, judge, rendered a judgment the dispositive part of which is as follows:
Wherefore, it is hereby ordered and adjudged that the defendant, within the period of thirty days from the date upon which this decision becomes
final, convey to the plaintiff a good and sufficient title in fee simple to the land described in decrees Nos. 13909 and 13919 of the Court of Land
Registration, upon payment or legal tender of payment by said plaintiff of the sum of thirty thousand pesos (P30,000) in cash, and upon said plaintiff
giving security approved by this court for the payment within the term of 6 years from the date of the conveyance for the additional sum of forty
thousand pesos (P40,000) with interest at the rate of 6 per cent per annum.
It is further ordered and adjudged that in the event of the failure of the defendant to execute the conveyance as aforesaid, the plaintiff have and
recover judgment against him, the said defendant, for the sum of twenty thousand pesos (P20,000), with interest at the rate of six per cent (6 per cent
per annum from the date upon which the conveyance should have been made). It is so ordered.
From that judgment the defendant appealed and made several assignment of error.
It appears from the record that on the 15th day of November, 1912, the defendant and the plaintiff entered into the following "contract of option:"
(EXHIBIT A.)
CONTRACT OF OPTION.
I, the undersigned, Antonio Diaz, of legal age, with personal registration certificate Number F-855949, issued at Pitogo, Tayabas, January 16, 1912,
and temporarily residing in Manila, P. I., do hereby grant an option to Antonio Enriquez to purchase my hacienda at Pitogo consisting of 100 and odd
hectares, within the period necessary for the approval and issuance of a Torrens title thereto by the Government for which he may pay me either the
sum of thirty thousand pesos (P30,000), Philippine currency, in cash, or within the period of six (6) years, beginning with the date of the purchase,
the sum of forty thousand pesos (P40,000), Philippine currency, at six per cent interest per annum, with due security for the payment of the said
P40,000 in consideration of the sale to him of my property described as follows, to wit:
About one hundred hectares of land in Pitogo, Tayabas, containing about 20,000 coconut trees and 10,000 nipa-palm trees, all belonging to me,
which I hereby sell to Antonio Enriquez de la Cavada for seventy thousand pesos, under the conditions herein specified.
I declare that Antonio Enriquez is the sole person who has, and shall have, during the period of this option, the right to purchase the property above-
mentioned.
I likewise declare that Antonio Enriquez shall be free to resell the said property at whatever price he may desire, provided that he should comply with
the stipulations covenanted with me.
In witness of my entire conformity with the foregoing, I hereunto affix my signature, in Manila, P. I., this 15th day of November, 1912.
(Sgd.) Antonio Diaz.
Signed in the presence of:
(Sgd.) J. VALDS DIAZ.
(EXHIBIT B.)
P. I., November 15, 1912.
Sr. Don ANTONIO DIAZ,
Calle Victoria, No. 125, W. C., Manila, P. I.
DEAR SIR: I have the honor to inform you that, in conformity with the letter of option in my favor of even date, I will buy your coconut plantation in
Pitogo, containing one hundred hectares, together with all the coconut and nipa-palm trees planted thereon, under the following conditions:
1. I shall send a surveyor to survey the said property, and to apply to the Government for a Torrens title therefore, and, if the expenses incurred for
the same should not exceed P1,000, I shall pay the P500 and you the other P500; Provided, however, that you shall give the surveyor all necessary
assistance during his stay at the hacienda.
2. I shall pay the purchase price to you in conformity with our letter of option of this date, and after the Torrens title shall have been officially approved.
Yours respectfully,
(Sgd.) A. ENRIQUEZ
I acknowledge receipt of, and conform with, the foregoing.
(Sgd.) ANTONIO DIAZ
It appears from the record that soon after the execution of said contract, and in part compliance with the terms thereof, the defendant presented two
petitions in the Court of Land Registration (Nos. 13909 and 13919), each for the purpose of obtaining the registration of a part of the "Hacienda de
Pitogo." Said petitions were granted, and each parcel as registered and a certificate of title was issued for each part under the Torrens system to the
defendant herein. Later, and pretending to comply with the terms of said contract, the defendant offered to transfer to the plaintiff one of said
parcels only, which was a part of said "hacienda." The plaintiff refused to accept said certificate for a part only of said "hacienda" upon the ground (a)
that it was only a part of the "Hacienda de Pitogo," and (b) under the contract (Exhibits A and B) he was entitled to a transfer to him all said "hacienda."
The theory of the defendant is that the contract of sale of said "Hacienda de Pitogo" included only 100 hectares, more or less, of said "hacienda," and
that by offering to convey to the plaintiff a portion of said "hacienda" composed of "100 hectares, more or less," he thereby complied with the terms
of the contract. The theory of the plaintiff is that he had purchased all of said "hacienda," and that the same contained, at least, 100 hectares, more
or less. The lower court sustained the contention of the plaintiff, to wit, that the sale was a sale of the "Hacienda de Pitogo" and not a sale of a part
of it, and rendered a judgment requiring the defendant to comply with the terms of the contract by transferring to the plaintiff, by proper deeds of
conveyance, all said "hacienda," or to pay in lieu thereof the sum of P20,000 damages, together with 6 per cent interest from the date upon which
said conveyance should have been made.
After issue had been joined between the plaintiff and defendant upon their pleadings, they entered into the following agreement with reference to the
method of presenting their proof:
The attorneys for the parties in this case make the following stipulations:
1. Each of the litigating parties shall present his evidence before Don Felipe Canillas, assistant clerk of the Court of First Instance of Manila, who, for
such purpose, should be appointed commissioner.
2. Said commissioner shall set a day and hour for the presentation of the evidence above-mentioned, both oral and documentary, and in the
stenographic notes shall have record entered of all objections made to the evidence by either party, in order that they may afterwards be decided by
the court.
3. The transcription of the stenographic notes, containing the record of the evidence taken, shall be paid for in equal shares by both parties.
4. At the close of the taking of the evidence, each of the parties shall file his brief in respect to such evidence, whereupon the case as it then stands
shall be submitted to the decision of the court.
The parties request the court to approve this agreement in the part thereof which refers to the proceedings in this case.
Manila, P. I., December 21, 1914.
(Sgd.) ANTONIO V. HERRERO. (Sgd.) ALFREDO CHICOTE.
Approved:
(Sgd.) GEO. R. HARVEY,
Judge.
Said agreement was approved by the lower court, and proof was taken in accordance therewith. The defendant-appellant now alleges, giving several
reasons therefor, that the proof was improperly practiced, and that the judge was without authority o decide the cause upon proof taken in the manner
agreed upon by the respective parties. The defendant-appellant makes no contention that he was not permitted to present all the proof he desired to
present. He makes no contention that he has been prejudiced in any manner whatsoever by virtue of the method agreed upon for taking the testimony.
There is nothing in the law nor in public policy which prohibits the parties in a civil litigation from making the agreement above quoted. While the law
concedes to parties litigant, generally, the right to have their proof taken in the presence of the judge, such right is a renounceable one. In a civil
action the parties litigant have a right to agree, outside of the court, upon the facts in litigation. Under certain conditions the parties litigant have a
right to take the depositions of witnesses and submit the sworn statements in that form to the court. The proof, as it was submitted to the court in the
present case, by virtue of said agreement, was, in effect, in the form of a deposition of the various witnesses presented. Having agreed to the method
of taking the proof, and the same having been taking in compliance with said agreement, it is now too late, there being no law to the contrary, for
them to deny and repudiate the effect of their agreement. (Biunas vs. Mora, R. G. No. 11464, March 11, 1918; Behr vs. Levy Hermanos, R. G. No
12211, March 19, 1918.1)
Not only is there no law prohibiting the parties from entering into an agreement to submit their proof to the court in civil actions as was done in the
present case, but it may be a method highly convenient, not only to the parties, but to busy courts. The judgment of the lower court, therefore, should
not be modified or reversed on account of the first assignment of error.
In the second assignment of error, the appellant alleges (a) that the lower court committed an error in declaring the contract (Exhibits A and B) a valid
obligation, for the reason that it not been admitted in evidence, and (b) that the same was null for a failure of consideration. Upon the first question,
an examination of the proof shows that said contract (Exhibits A and B) was offered in evidence and admitted as proof without objection. Said contract
was, therefore, properly presented to the court as proof. Not only was the contract before the court by reason of its having been presented in evidence,
but the defendant himself made said contract an integral part of his pleadings. The defendant admitted the execution and delivery of the contract,
and alleged that he made an effort to comply with its terms. His only defense is that he sold to the plaintiff a part of the "hacienda" only and that he
offered, in compliance with the terms of the contract, to convey to the plaintiff all of the land which he had promised to sell.
With reference to the second objection, to wit, that there was no consideration for said contract it may be said (a) that the contract was for the sale of
a definite parcel of land; (b) that it was reduced to writing; (c) that the defendant promised to convey to the plaintiff said parcel of land; (d) that the
plaintiff promised to pay therefor the sum of P70,000 in the manner prescribed in said contract; (e) that the defendant admitted the execution and
delivery of the contract and alleged that he made an effort to comply with the same (par. 3 of defendant's answer) and requested the plaintiff to comply
with his part of the contract; and (f) that no defense or pretension was made in the lower court that there was no consideration for his contract. Having
admitted the execution and delivery of the contract, having admitted an attempt to comply with its terms, and having failed in the court below to raise
any question whatsoever concerning the inadequacy of consideration, it is rather late, in the face of said admissions, to raise that question for the
first time in this court. The only dispute between the parties in the lower court was whether or not the defendant was obliged to convey to the
plaintiff all of said "hacienda." The plaintiff insisted that his contract entitled him to a conveyance of all of said "hacienda." The defendant contended
that he had complied with the terms of his contract by offering to convey to the plaintiff a part of the said "hacienda" only. That was the only question
presented to the lower court and that was the only question decided.
A promise made by one party, if made in accordance with the forms required by the law, may be a good consideration (causa) for a promise made
by another party. (Art. 1274, Civil Code.) In other words, the consideration (causa) need not pass from one to the other at the time the contract is
entered into. For example, A promises to sell a certain parcel of land to B for the sum of P70,000. A, by virtue of the promise of B to pay P70,000,
promises to sell said parcel of land to B for said sum, then the contract is complete, provided they have complied with the forms required by the law.
The consideration need not be paid at the time of the promise. The one promise is a consideration for the other. Of course, A cannot enforce a
compliance with the contract and require B to pay said sum until he has complied with his part of the contract. In the present case, the defendant
promised to convey the land in question to the plaintiff as soon as the same could be registered. The plaintiff promised to pay to the defendant
P70,000 therefor in accordance with the terms of their contract. The plaintiff stood ready to comply with his part of the contract. The defendant, even
though he had obtained a registered title to said parcel of land, refused to comply with his promise. All of the conditions of the contract on the part of
the defendant had been concluded, except delivering the deeds of transfer. Of course, if the defendant had been unable to obtain a registration of his
title, or if he had violated the terms of the alleged optional contract by selling the same to some other person than the plaintiff, then he might have
raised the objection that he had received nothing from the plaintiff for the option which he had conceded. That condition, of course, would have
presented a different question from the one which we have before us. The said contract (Exhibits A and B) was not, in fact, an "optional contract" as
that phrase is generally used. Reading the said contract from its four corners it is clearly as absolute promise to sell a definite parcel of land for a
fixed price upon definite conditions. The defendant promised to convey to the plaintiff the land in question as soon as the same was registered under
the Torrens system, and the plaintiff promised to pay to the defendant the sum of P70,000, under the conditions named, upon the happening of that
event. The contract was not, in fact, what is generally known as a "contract of option." It differs very essentially from a contract of option. An optional
contract is a privilege existing in one person, for which he had paid a consideration, which gives him the right to buy, for example, certain merchandise
of certain specified property, from another person, if he chooses, at any time within the agreed period, at a fixed price. The contract of option is a
separate and distinct contract from the contract which the parties may enter into upon the consummation of the option. A consideration for an optional
contract is just as important as the consideration for any other kind of contract. If there was no consideration for the contract of option, then it cannot
be entered any more than any other contract where no consideration exists. To illustrate, A offers B the sum of P100,000 for the option of buying his
property within the period of 30 days. While it is true that the conditions upon which A promises to buy the property at the end of the period mentioned
are usually fixed in the option, the consideration for the option is an entirely different consideration from the consideration of the contract with reference
to which the option exists. A contract of option is a contract by virtue of the terms of which the parties thereto promise and obligate themselves to
enter into contract at a future time, upon the happening of certain events, or the fulfillment of certain conditions.
Upon the other hand, suppose that the defendant had complied with his part of the contract and had tendered the deeds of transfer of the "Hacienda
de Pitogo" in accordance with its terms and had demanded the payments specified in the contract, and the plaintiff refused to comply what then
would have been the rights of the defendant? Might he not have successfully maintained an action for the specific performance of the contract, or for
the damages resulting from the breach of said contract? When the defendant alleged that he had complied with his part of the contract (par. 3 of
defendant's answer) and demanded that the plaintiff should immediately comply with his part of the same, he evidently was laying the foundation for
an action for damages, the nullification or a specific compliance with the contract.
The appellant contends that the contract which he made was not with the plaintiff but with Rosenstock, Elser and Co. That question was not presented
in the court below. The contract in question shows, upon its face, that the defendant made the same with the plaintiff, Not having raised the question
in the court below, and having admitted the execution and delivery of the contract in question with the plaintiff, we are of the opinion that his admission
is conclusive upon that question (par. 1 of special defense of defendant's answer) and need not be further discussed.
The appellant further contends that the action was premature, for the reason that the plaintiff had not paid nor offered to pay the price agreed upon,
under the conditions named, for the land in question. That question was not raised in the court below, which fact, ordinarily, would be a sufficient
answer to the contention of the appellant. It may be added, however, that the defendant could not demand the payment until he had offered the deeds
of conveyance, in accordance with the terms of his contract. He did not offer to comply with the terms of his contract. True it is that he offered to
comply partially with the terms of the contract, but not fully. While the payment must be simultaneous with the delivery of the deeds of conveyance,
the payment need not be made until the deed of conveyance is offered. The plaintiff stood ready and willing to perform his part of the contract
immediately upon the performance on the part of the defendant. (Arts. 1258 and 1451 of Civil Code.)
In the fifth assignment of error the appellant contends that the lower court committed an error in not declaring that the defendant was not obligated to
sell the "Hacienda de Pitogo" to the plaintiff "por incumplimiento, renuncia abandono y negligencia del mismo demandante, etc." (For nonfulfillment,
renunciation, abandonment and negligence of plaintiff himself, etc.) That question was not presented to the court below. But even though it had been
the record shows that the plaintiff, at all times, insisted upon a compliance with the terms of the contract on the part of the defendant, standing ready
to comply with his part of the same.
The appellant contends in his sixth assignment of error that the plaintiff had not suffered the damages complained of, to wit, in the sum of P20,000.
The only proof upon the question of damages suffered by the plaintiff for the noncompliance with the terms of the contract in question on the part of
the defendant is that the plaintiff, in contemplation of the compliance with the terms of the contract on the part of the defendant, entered into a contract
with a third party to sell the said "hacienda" at a profit of P30,000. That proof is not disputed. No attempt was made in the lower court to deny that
fact. The proof shows that the person with whom the plaintiff had entered into a conditional sale of the land in question had made a deposit for the
purpose of guaranteeing the final consummation of that contract. By reason of the failure of the defendant to comply with the contract here in question,
the plaintiff was obliged to return the sum deposited by said third party with a promise to pay damages. The record does not show why the plaintiff
did not ask for damages in the sum of P30,000. He asked for a judgment only in the sum of P20,000. He now asks that the judgment of the lower
court be modified and that he be given a judgment for P30,000. Considering the fact that he neither asked for a judgment for more than P20,000 nor
appealed from the judgment of the lower court, his request now cannot be granted. We find no reason for modifying the judgment of the lower court
by virtue of the sixth assignment of error.
In the seventh assignment of error the appellant contends that the contract of sale was not in effect a contract of sale. He alleges that the contract
was, in fact, a contract by virtue of which the plaintiff promised to find a buyer for the parcel of land in question; that the plaintiff was not in fact the
purchaser; that the only obligation that the plaintiff assumed was to find some third person who would purchase the land from the defendant. Again,
it would be sufficient to say, in answer to that assignment of error, that no contention of that nature was presented in the court below, and for that
reason it is improperly presented now for the first time. In addition, however, it may be added that the defendant, in his answer, admitted that he not
only sold the land in question, but offered to transfer the same to the plaintiff, in compliance with the contract. (See answer of defendant.)
In the eighth assignment of error the appellant contends that the lower court committed an error in its order requiring him to convey to the plaintiff the
"Hacienda de Pitogo," for the reason that the plaintiff had not demanded a transfer of said property, and for the additional reason that a portion of
said "hacienda" had already been sold to a third person. With reference to the first contention, the record clearly shows that the plaintiff was constantly
insisting upon a compliance with the terms of the contract, to wit, a conveyance to him of the "Hacienda de Pitogo" by the defendant. Naturally, he
refused, under the contract, to accept a conveyance of a part only of said "hacienda." With reference to the second contention, it may be said that
the mere fact that the defendant had sold a part of the "hacienda" to other persons, is no sufficient reason for not requiring a strict compliance with
the terms of his contract with the plaintiff, or to answer in damages for his failure. (Arts. 1101 and 1252 of the Civil Code.)
In view of the foregoing, and after a consideration of the facts and the law applicable thereto, we are persuaded that there is no reason given in the
record justifying a modification or reversal of the judgment of the lower court. The same is, however, hereby affirmed, with costs. So ordered.
Arellano, C.J., Torres, Street, Malcolm and Fisher, JJ., concur.
LOURDES ONG LIMSON, petitioner, vs. COURT OF APPEALS, SPOUSES LORENZO DE VERA and ASUNCION SANTOS-DE VERA, TOMAS
CUENCA, JR., and SUNVAR REALTY DEVELOPMENT CORPORATION, respondents.
DECISION
BELLOSILLO, J.:
Filed under Rule 45 of the Rules of Court this Petition for Review on Certiorari seeks to review, reverse and set aside the Decision[1] of the Court of
Appeals dated 18 May 1998 reversing that of the Regional Trial Court dated 30 June 1993. The petition likewise assails the Resolution[2] of the
appellate court of 19 October 1998 denying petitioners Motion for Reconsideration.
Petitioner Lourdes Ong Limson, in her 14 May 1979 Complaint filed before the trial court,[3] alleged that in July 1978 respondent spouses Lorenzo de
Vera and Asuncion Santos-de Vera, through their agent Marcosa Sanchez, offered to sell to petitioner a parcel of land consisting of 48,260 square
meters, more or less, situated in Barrio San Dionisio, Paraaque, Metro Manila; that respondent spouses informed her that they were the owners of
the subject property; that on 31 July 1978 she agreed to buy the property at the price of P34.00 per square meter and gave the sum of P20,000.00
to respondent spouses as "earnest money;" that respondent spouses signed a receipt therefor and gave her a 10-day option period to purchase the
property; that respondent Lorenzo de Vera then informed her that the subject property was mortgaged to Emilio Ramos and Isidro Ramos; that
respondent Lorenzo de Vera asked her to pay the balance of the purchase price to enable him and his wife to settle their obligation with the Ramoses.
Petitioner also averred that she agreed to meet respondent spouses and the Ramoses on 5 August 1978 at the Office of the Registry of Deeds of
Makati, Metro Manila, to consummate the transaction but due to the failure of respondent Asuncion Santos-de Vera and the Ramoses to appear, no
transaction was formalized. In a second meeting scheduled on 11 August 1978 she claimed that she was willing and ready to pay the balance of the
purchase price but the transaction again did not materialize as respondent spouses failed to pay the back taxes of subject property. Subsequently,
on 23 August 1978 petitioner allegedly gave respondent Lorenzo de Vera three (3) checks in the total amount of P36,170.00 for the settlement of the
back taxes of the property and for the payment of the quitclaims of the three (3) tenants of subject land. The amount was purportedly considered part
of the purchase price and respondent Lorenzo de Vera signed the receipts therefor.
Petitioner alleged that on 5 September 1978 she was surprised to learn from the agent of respondent spouses that the property was the subject of a
negotiation for the sale to respondent Sunvar Realty Development Corporation (SUNVAR) represented by respondent Tomas Cuenca, Jr. On 15
September 1978 petitioner discovered that although respondent spouses purchased the property from the Ramoses on 20 March 1970 it was only
on 15 September 1978 that TCT No. S-72946 covering the property was issued to respondent spouses. As a consequence, she filed on the same
day an Affidavit of Adverse Claim with the Office of the Registry of Deeds of Makati, Metro Manila, which was annotated on TCT No. S-72946. She
also claimed that on the same day she informed respondent Cuenca of her "contract" to purchase the property.
The Deed of Sale between respondent spouses and respondent SUNVAR was executed on 15 September 1978 and TCT No. S-72377 was issued
in favor of the latter on 26 September 1978 with the Adverse Claim of petitioner annotated thereon. Petitioner claimed that when respondent spouses
sold the property in dispute to SUNVAR, her valid and legal right to purchase it was ignored if not violated. Moreover, she maintained that SUNVAR
was in bad faith as it knew of her "contract" to purchase the subject property from respondent spouses.
Finally, for the alleged unlawful and unjust acts of respondent spouses, which caused her damage, prejudice and injury, petitioner claimed that
the Deed of Sale, should be annuled and TCT No. S-72377 in the name of respondent SUNVAR canceled and TCT No. S-72946 restored. She also
insisted that a Deed of Sale between her and respondent spouses be now executed upon her payment of the balance of the purchase price agreed
upon, plus damages and attorneys fees.
In their Answer[4] respondent spouses maintained that petitioner had no sufficient cause of action against them; that she was not the real party in
interest; that the option to buy the property had long expired; that there was no perfected contract to sell between them; and, that petitioner had no
legal capacity to sue. Additionally, respondent spouses claimed actual, moral and exemplary damages, and attorneys fees against petitioner.
On the other hand, respondents SUNVAR and Cuenca, in their Answer,[5] alleged that petitioner was not the proper party in interest and/or had no
cause of action against them. But, even assuming that petitioner was the proper party in interest, they claimed that she could only be entitled to the
return of any amount received by respondent spouses. In the alternative, they argued that petitioner had lost her option to buy the property for failure
to comply with the terms and conditions of the agreement as embodied in the receipt issued therefor. Moreover, they contended that at the time of
the execution of the Deed of Sale and the payment of consideration to respondent spouses, they "did not know nor was informed" of petitioners
interest or claim over the subject property. They claimed furthermore that it was only after the signing of the Deed of Sale and the payment of the
corresponding amounts to respondent spouses that they came to know of the claim of petitioner as it was only then that they were furnished copy of
the title to the property where the Adverse Claim of petitioner was annotated. Consequently, they also instituted a Cross-Claim against respondent
spouses for bad faith in encouraging the negotiations between them without telling them of the claim of petitioner. The same respondents maintained
that had they known of the claim of petitioner, they would not have initiated negotiations with respondent spouses for the purchase of the
property. Thus, they prayed for reimbursement of all amounts and monies received from them by respondent spouses, attorneys fees and expenses
for litigation in the event that the trial court should annul the Deed of Sale and deprive them of their ownership and possession of the subject land.
In their Answer to the Cross-Claim[6] of respondents SUNVAR and Cuenca, respondent spouses insisted that they negotiated with the former only
after the expiration of the option period given to petitioner and her failure to comply with her commitments thereunder. Respondent spouses contended
that they acted legally and validly, in all honesty and good faith. According to them, respondent SUNVAR made a verification of the title with the Office
of the Register of Deeds of Metro Manila District IV before the execution of the Deed of Absolute Sale. Also, they claimed that the Cross-Claim was
barred by a written waiver executed by respondent SUNVAR in their favor. Thus, respondent spouses prayed for actual damages for the unjustified
filing of the Cross-Claim, moral damages for the mental anguish and similar injuries they suffered by reason thereof, exemplary damages "to prevent
others from emulating the bad example" of respondents SUNVAR and Cuenca, plus attorneys fees.
After a protracted trial and reconstitution of the court records due to the fire that razed the Pasay City Hall on 18 January 1992, the Regional Trial
Court rendered its 30 June 1993 Decision[7] in favor of petitioner. It ordered (a) the annulment and rescission of the Deed of Absolute Sale executed
on 15 September 1978 by respondent spouses in favor of respondent SUNVAR; (b) the cancellation and revocation of TCT No. S-75377 of the
Registry of Deeds, Makati, Metro Manila, issued in the name of respondent Sunvar Realty Development Corporation, and the restoration or
reinstatement of TCT No. S-72946 of the same Registry issued in the name of respondent spouses; (c) respondent spouses to execute a deed of
sale conveying ownership of the property covered by TCT No. S-72946 in favor of petitioner upon her payment of the balance of the purchase price
agreed upon; and, (d) respondent spouses to pay petitioner P50,000.00 as and for attorneys fees, and to pay the costs.
On appeal, the Court of Appeals completely reversed the decision of the trial court. It ordered (a) the Register of Deeds of Makati City to lift the Adverse
Claim and such other encumbrances petitioner might have filed or caused to be annotated on TCT No. S-75377; and, (b) petitioner to pay (1)
respondent SUNVAR P50,000.00 as nominal damages, P30,000.00 as exemplary damages and P20,000 as attorneys fees; (2) respondent
spouses, P15,000.00 as nominal damages, P10,000.00 as exemplary damages and P10,000.00 as attorneys fees; and, (3) the costs.
Petitioner timely filed a Motion for Reconsideration which was denied by the Court of Appeals on 19 October 1998. Hence, this petition.
At issue for resolution by the Court is the nature of the contract entered into between petitioner Lourdes Ong Limson on one hand, and respondent
spouses Lorenzo de Vera and Asuncion Santos-de Vera on the other.
The main argument of petitioner is that there was a perfected contract to sell between her and respondent spouses. On the other hand, respondent
spouses and respondents SUNVAR and Cuenca argue that what was perfected between petitioner and respondent spouses was a mere option.
A scrutiny of the facts as well as the evidence of the parties overwhelmingly leads to the conclusion that the agreement between the parties was
a contract of option and not a contract to sell.
An option, as used in the law of sales, is a continuing offer or contract by which the owner stipulates with another that the latter shall have the right
to buy the property at a fixed price within a time certain, or under, or in compliance with, certain terms and conditions, or which gives to the owner of
the property the right to sell or demand a sale. It is also sometimes called an "unaccepted offer." An option is not of itself a purchase, but merely
secures the privilege to buy.[8] It is not a sale of property but a sale of the right to purchase.[9] It is simply a contract by which the owner of property
agrees with another person that he shall have the right to buy his property at a fixed price within a certain time. He does not sell his land; he does not
then agree to sell it; but he does sell something, i.e., the right or privilege to buy at the election or option of the other party. [10] Its distinguishing
characteristic is that it imposes no binding obligation on the person holding the option, aside from the consideration for the offer. Until acceptance, it
is not, properly speaking, a contract, and does not vest, transfer, or agree to transfer, any title to, or any interest or right in the subject matter, but is
merely a contract by which the owner of the property gives the optionee the right or privilege of accepting the offer and buying the property on certain
terms.[11]
On the other hand, a contract, like a contract to sell, involves the meeting of minds between two persons whereby one binds himself, with respect to
the other, to give something or to render some service.[12] Contracts, in general, are perfected by mere consent,[13] which is manifested by the meeting
of the offer and the acceptance upon the thing and the cause which are to constitute the contract. The offer must be certain and the acceptance
absolute.[14]
The Receipt[15] that contains the contract between petitioner and respondent spouses provides
Received from Lourdes Limson the sum of Twenty Thousand Pesos (P20,000.00) under Check No. 22391 dated July 31, 1978 as earnest money
with option to purchase a parcel of land owned by Lorenzo de Vera located at Barrio San Dionisio, Municipality of Paraaque, Province of Rizal with
an area of forty eight thousand two hundred sixty square meters more or less at the price of Thirty Four Pesos (P34.00)[16] cash subject to the condition
and stipulation that have been agreed upon by the buyer and me which will form part of the receipt. Should the transaction of the property not
materialize not on the fault of the buyer, I obligate myself to return the full amount of P20,000.00 earnest money with option to buy or forfeit on the
fault of the buyer. I guarantee to notify the buyer Lourdes Limson or her representative and get her conformity should I sell or encumber this property
to a third person. This option to buy is good within ten (10) days until the absolute deed of sale is finally signed by the parties or the failure of the
buyer to comply with the terms of the option to buy as herein attached.
In the interpretation of contracts, the ascertainment of the intention of the contracting parties is to be discharged by looking to the words they used to
project that intention in their contract, all the words, not just a particular word or two, and words in context, not words standing alone.[17] The
above Receipt readily shows that respondent spouses and petitioner only entered into a contract of option; a contract by which respondent spouses
agreed with petitioner that the latter shall have the right to buy the formers property at a fixed price of P34.00 per square meter within ten (10) days
from 31 July 1978. Respondent spouses did not sell their property; they did not also agree to sell it; but they sold something, i.e., the privilege to buy
at the election or option of petitioner. The agreement imposed no binding obligation on petitioner, aside from the consideration for the offer.
The consideration of P20,000.00 paid by petitioner to respondent spouses was referred to as "earnest money." However, a careful examination of
the words used indicates that the money is not earnest money but option money. "Earnest money" and "option money" are not the same but
distinguished thus: (a) earnest money is part of the purchase price, while option money is the money given as a distinct consideration for an option
contract; (b) earnest money is given only where there is already a sale, while option money applies to a sale not yet perfected; and, (c) when earnest
money is given, the buyer is bound to pay the balance, while when the would-be buyer gives option money, he is not required to buy,[18] but may even
forfeit it depending on the terms of the option.
There is nothing in the Receipt which indicates that the P20,000.00 was part of the purchase price. Moreover, it was not shown that there was a
perfected sale between the parties where earnest money was given.Finally, when petitioner gave the "earnest money," the Receipt did not reveal
that she was bound to pay the balance of the purchase price. In fact, she could even forfeit the money given if the terms of the option were not
met. Thus, the P20,000.00 could only be money given as consideration for the option contract. That the contract between the parties is one of option
is buttressed by the provision therein that should the transaction of the property not materialize without fault of petitioner as buyer, respondent Lorenzo
de Vera obligates himself to return the full amount of P20,000.00 "earnest money" with option to buy or forfeit the same on the fault of petitioner. It is
further bolstered by the provision therein that guarantees petitioner that she or her representative would be notified in case the subject property was
sold or encumbered to a third person. Finally, the Receipt provided for a period within which the option to buy was to be exercised, i.e., "within ten
(10) days" from 31 July 1978.
Doubtless, the agreement between respondent spouses and petitioner was an "option contract" or what is sometimes called an "unaccepted offer."
During the option period the agreement was not converted into a bilateral promise to sell and to buy where both respondent spouses and petitioner
were then reciprocally bound to comply with their respective undertakings as petitioner did not timely, affirmatively and clearly accept the offer of
respondent spouses.
The rule is that except where a formal acceptance is not required, although the acceptance must be affirmatively and clearly made and evidenced by
some acts or conduct communicated to the offeror, it may be made either in a formal or an informal manner, and may be shown by acts, conduct or
words by the accepting party that clearly manifest a present intention or determination to accept the offer to buy or sell. But there is nothing in the
acts, conduct or words of petitioner that clearly manifest a present intention or determination to accept the offer to buy the property of respondent
spouses within the 10-day option period. The only occasion within the option period when petitioner could have demonstrated her acceptance was
on 5 August 1978 when, according to her, she agreed to meet respondent spouses and the Ramoses at the Office of the Register of Deeds of
Makati. Petitioners agreement to meet with respondent spouses presupposes an invitation from the latter, which only emphasizes their persistence
in offering the property to the former. But whether that showed acceptance by petitioner of the offer is hazy and dubious.
On or before 10 August 1978, the last day of the option period, no affirmative or clear manifestation was made by petitioner to accept the
offer. Certainly, there was no concurrence of private respondent spouses offer and petitioners acceptance thereof within the option
period. Consequently, there was no perfected contract to sell between the parties.
On 11 August 1978 the option period expired and the exclusive right of petitioner to buy the property of respondent spouses ceased. The subsequent
meetings and negotiations, specifically on 11 and 23 August 1978, between the parties only showed the desire of respondent spouses to sell their
property to petitioner. Also, on 14 September 1978 when respondent spouses sent a telegram to petitioner demanding full payment of the purchase
price on even date simply demonstrated an inclination to give her preference to buy subject property. Collectively, these instances did not indicate
that petitioner still had the exclusive right to purchase subject property. Verily, the commencement of negotiations between respondent spouses and
respondent SUNVAR clearly manifested that their offer to sell subject property to petitioner was no longer exclusive to her.
We cannot subscribe to the argument of petitioner that respondent spouses extended the option period when they extended the authority of their
agent until 31 August 1978. The extension of the contract of agency could not operate to extend the option period between the parties in the instant
case. The extension must not be implied but categorical and must show the clear intention of the parties.
As to whether respondent spouses were at fault for the non-consummation of their contract with petitioner, we agree with the appellate court that they
were not to be blamed. First, within the option period, or on 4 August 1978, it was respondent spouses and not petitioner who initiated the meeting at
the Office of the Register of Deeds of Makati. Second, that the Ramoses failed to appear on 4 August 1978 was beyond the control of respondent
spouses. Third, the succeeding meetings that transpired to consummate the contract were all beyond the option period and, as declared by the Court
of Appeals, the question of who was at fault was already immaterial. Fourth, even assuming that the meetings were within the option period, the
presence of petitioner was not enough as she was not even prepared to pay the purchase price in cash as agreed upon. Finally, even without the
presence of the Ramoses, petitioner could have easily made the necessary payment in cash as the price of the property was already set at P34.00
per square meter and payment of the mortgage could very well be left to respondent spouses.
Petitioner further claims that when respondent spouses sent her a telegram demanding full payment of the purchase price on 14 September 1978 it
was an acknowledgment of their contract to sell, thus denying them the right to claim otherwise.
We do not agree. As explained above, there was no contract to sell between petitioner and respondent spouses to speak of. Verily, the telegram
could not operate to estop them from claiming that there was such contract between them and petitioner. Neither could it mean that
respondent spouses extended the option period. The telegram only showed that respondent spouses were willing to give petitioner a chance to buy
subject property even if it was no longer exclusive.
The option period having expired and acceptance was not effectively made by petitioner, the purchase of subject property by respondent SUNVAR
was perfectly valid and entered into in good faith. Petitioner claims that in August 1978 Hermigildo Sanchez, the son of respondent spouses agent,
Marcosa Sanchez, informed Marixi Prieto, a member of the Board of Directors of respondent SUNVAR, that the property was already sold to
petitioner. Also, petitioner maintains that on 5 September 1978 respondent Cuenca met with her and offered to buy the property from her at P45.00
per square meter. Petitioner contends that these incidents, including the annotation of her Adverse Claim on the title of subject property on 15
September 1978 show that respondent SUNVAR was aware of the perfected sale between her and respondent spouses, thus making respondent
SUNVAR a buyer in bad faith.
Petitioner is not correct. The dates mentioned, at least 5 and 15 September 1978, are immaterial as they were beyond the option period given to
petitioner. On the other hand, the referral to sometime in August 1978 in the testimony of Hermigildo Sanchez as emphasized by petitioner in her
petition is very vague. It could be within or beyond the option period. Clearly then, even assuming that the meeting with Marixi Prieto actually
transpired, it could not necessarily mean that she knew of the agreement between petitioner and respondent spouses for the purchase of subject
property as the meeting could have occurred beyond the option period. In which case, no bad faith could be attributed to respondent SUNVAR. If, on
the other hand, the meeting was within the option period, petitioner was remiss in her duty to prove so. Necessarily, we are left with the conclusion
that respondent SUNVAR bought subject property from respondent spouses in good faith, for value and without knowledge of any flaw or defect in
its title.
The appellate court awarded nominal and exemplary damages plus attorneys fees to respondent spouses and respondent SUNVAR. But nominal
damages are adjudicated to vindicate or recognize the right of the plaintiff that has been violated or invaded by the defendant.[19] In the instant case,
the Court recognizes the rights of all the parties and finds no violation or invasion of the rights of respondents by petitioner. Petitioner, in filing her
complaint, only seeks relief, in good faith, for what she believes she was entitled to and should not be made to suffer therefor. Neither should
exemplary damages be awarded to respondents as they are imposed only by way of example or correction for the public good and only in addition
to the moral, temperate, liquidated or compensatory damages.[20] No such kinds of damages were awarded by the Court of Appeals, only nominal,
which was not justified in this case. Finally, attorneys fees could not also be recovered as the Court does not deem it just and equitable under the
circumstances.
WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals ordering the Register of Deeds of Makati City to lift the adverse claim
and such other encumbrances petitioner Lourdes Ong Limson may have filed or caused to be annotated on TCT No. S-75377 is AFFIRMED, with
the MODIFICATION that the award of nominal and exemplary damages as well as attorneys fees is DELETED.
SO ORDERED.
Mendoza, Quisumbing and Buena JJ., concur.
De Leon, Jr., J., on leave.
G.R. No. L-25494 June 14, 1972
NICOLAS SANCHEZ, plaintiff-appellee,
vs.
SEVERINA RIGOS, defendant-appellant.
Santiago F. Bautista for plaintiff-appellee.
Jesus G. Villamar for defendant-appellant.
CONCEPCION, C.J.:p
Appeal from a decision of the Court of First Instance of Nueva Ecija to the Court of Appeals, which certified the case to Us, upon the ground that it
involves a question purely of law.
The record shows that, on April 3, 1961, plaintiff Nicolas Sanchez and defendant Severina Rigos executed an instrument entitled "Option to Purchase,"
whereby Mrs. Rigos "agreed, promised and committed ... to sell" to Sanchez the sum of P1,510.00, a parcel of land situated in the barrios of Abar
and Sibot, municipality of San Jose, province of Nueva Ecija, and more particularly described in Transfer Certificate of Title No. NT-12528 of said
province, within two (2) years from said date with the understanding that said option shall be deemed "terminated and elapsed," if "Sanchez shall fail
to exercise his right to buy the property" within the stipulated period. Inasmuch as several tenders of payment of the sum of Pl,510.00, made by
Sanchez within said period, were rejected by Mrs. Rigos, on March 12, 1963, the former deposited said amount with the Court of First Instance of
Nueva Ecija and commenced against the latter the present action, for specific performance and damages.
After the filing of defendant's answer admitting some allegations of the complaint, denying other allegations thereof, and alleging, as special
defense, that the contract between the parties "is a unilateral promise to sell, and the same being unsupported by any valuable consideration, by
force of the New Civil Code, is null and void" on February 11, 1964, both parties, assisted by their respective counsel, jointly moved for a judgment
on the pleadings. Accordingly, on February 28, 1964, the lower court rendered judgment for Sanchez, ordering Mrs. Rigos to accept the sum judicially
consigned by him and to execute, in his favor, the requisite deed of conveyance. Mrs. Rigos was, likewise, sentenced to pay P200.00, as attorney's
fees, and other costs. Hence, this appeal by Mrs. Rigos.
This case admittedly hinges on the proper application of Article 1479 of our Civil Code, which provides:
ART. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable.
An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor if the promise is supported by a
consideration distinct from the price.
In his complaint, plaintiff alleges that, by virtue of the option under consideration, "defendant agreed and committed to sell" and "the plaintiff agreed
and committed to buy" the land described in the option, copy of which was annexed to said pleading as Annex A thereof and is quoted on the
margin. 1 Hence, plaintiff maintains that the promise contained in the contract is "reciprocally demandable," pursuant to the first paragraph of said
Article 1479. Although defendant had really "agreed, promised and committed" herself to sell the land to the plaintiff, it is not true that the latter had,
in turn, "agreed and committed himself " to buy said property. Said Annex A does not bear out plaintiff's allegation to this effect. What is more, since
Annex A has been made "an integral part" of his complaint, the provisions of said instrument form part "and parcel" 2 of said pleading.
The option did not impose upon plaintiff the obligation to purchase defendant's property. Annex A is not a "contract to buy and sell." It merely granted
plaintiff an "option" to buy. And both parties so understood it, as indicated by the caption, "Option to Purchase," given by them to said instrument.
Under the provisions thereof, the defendant "agreed, promised and committed" herself to sell the land therein described to the plaintiff for P1,510.00,
but there is nothing in the contract to indicate that her aforementioned agreement, promise and undertaking is supported by a consideration "distinct
from the price" stipulated for the sale of the land.
Relying upon Article 1354 of our Civil Code, the lower court presumed the existence of said consideration, and this would seem to be the main factor
that influenced its decision in plaintiff's favor. It should be noted, however, that:
(1) Article 1354 applies to contracts in general, whereas the second paragraph of Article 1479 refers to "sales" in particular, and, more specifically, to
"an accepted unilateral promise to buy or to sell." In other words, Article 1479 is controlling in the case at bar.
(2) In order that said unilateral promise may be "binding upon the promisor, Article 1479 requires the concurrence of a condition, namely, that the
promise be "supported by a consideration distinct from the price." Accordingly, the promisee can not compel the promisor to comply with the promise,
unless the former establishes the existence of said distinct consideration. In other words, the promisee has the burden of proving such consideration.
Plaintiff herein has not even alleged the existence thereof in his complaint.
(3) Upon the other hand, defendant explicitly averred in her answer, and pleaded as a special defense, the absence of said consideration for her
promise to sell and, by joining in the petition for a judgment on the pleadings, plaintiff has impliedly admitted the truth of said averment in defendant's
answer. Indeed as early as March 14, 1908, it had been held, in Bauermann v. Casas, 3 that:
One who prays for judgment on the pleadings without offering proof as to the truth of his own allegations, and without giving the opposing party an
opportunity to introduce evidence, must be understood to admit the truth of all the material and relevant allegations of the opposing party, and to rest
his motion for judgment on those allegations taken together with such of his own as are admitted in the pleadings. (La Yebana Company vs. Sevilla,
9 Phil. 210). (Emphasis supplied.)
This view was reiterated in Evangelista v. De la Rosa 4 and Mercy's Incorporated v. Herminia Verde. 5
Squarely in point is Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific Co., 6 from which We quote:
The main contention of appellant is that the option granted to appellee to sell to it barge No. 10 for the sum of P30,000 under the terms stated above
has no legal effect because it is not supported by any consideration and in support thereof it invokes article 1479 of the new Civil Code. The article
provides:
"ART. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable.
An accepted unilateral promise to buy or sell a determinate thing for a price certain is binding upon the promisor if the promise is supported by a
consideration distinct from the price."
On the other hand, Appellee contends that, even granting that the "offer of option" is not supported by any consideration, that option became binding
on appellant when the appellee gave notice to it of its acceptance, and that having accepted it within the period of option, the offer can no longer be
withdrawn and in any event such withdrawal is ineffective. In support this contention, appellee invokes article 1324 of the Civil Code which provides:
"ART. 1324. When the offerer has allowed the offeree a certain period to accept, the offer may be withdrawn any time before acceptance by
communicating such withdrawal, except when the option is founded upon consideration as something paid or promised."
There is no question that under article 1479 of the new Civil Code "an option to sell," or "a promise to buy or to sell," as used in said article, to be
valid must be "supported by a consideration distinct from the price." This is clearly inferred from the context of said article that a unilateral promise to
buy or to sell, even if accepted, is only binding if supported by consideration. In other words, "an accepted unilateral promise can only have a binding
effect if supported by a consideration which means that the option can still be withdrawn, even if accepted, if the same is not supported by any
consideration. It is not disputed that the option is without consideration. It can therefore be withdrawn notwithstanding the acceptance of it by appellee.
It is true that under article 1324 of the new Civil Code, the general rule regarding offer and acceptance is that, when the offerer gives to the offeree a
certain period to accept, "the offer may be withdrawn at any time before acceptance" except when the option is founded upon consideration, but this
general rule must be interpreted as modified by the provision of article 1479 above referred to, which applies to "a promise to buy and sell" specifically.
As already stated, this rule requires that a promise to sell to be valid must be supported by a consideration distinct from the price.
We are not oblivious of the existence of American authorities which hold that an offer, once accepted, cannot be withdrawn, regardless of whether it
is supported or not by a consideration (12 Am. Jur. 528). These authorities, we note, uphold the general rule applicable to offer and acceptance as
contained in our new Civil Code. But we are prevented from applying them in view of the specific provision embodied in article 1479. While under the
"offer of option" in question appellant has assumed a clear obligation to sell its barge to appellee and the option has been exercised in accordance
with its terms, and there appears to be no valid or justifiable reason for appellant to withdraw its offer, this Court cannot adopt a different attitude
because the law on the matter is clear. Our imperative duty is to apply it unless modified by Congress.
However, this Court itself, in the case of Atkins, Kroll and Co., Inc. v. Cua Hian Tek, 8 decided later that Southwestern Sugar & Molasses Co. v.
Atlantic Gulf & Pacific Co., 9 saw no distinction between Articles 1324 and 1479 of the Civil Code and applied the former where a unilateral promise
to sell similar to the one sued upon here was involved, treating such promise as an option which, although not binding as a contract in itself for lack
of a separate consideration, nevertheless generated a bilateral contract of purchase and sale upon acceptance. Speaking through Associate Justice,
later Chief Justice, Cesar Bengzon, this Court said:
Furthermore, an option is unilateral: a promise to sell at the price fixed whenever the offeree should decide to exercise his option within the specified
time. After accepting the promise and before he exercises his option, the holder of the option is not bound to buy. He is free either to buy or not to
buy later. In this case, however, upon accepting herein petitioner's offer a bilateral promise to sell and to buy ensued, and the respondent ipso
facto assumed the obligation of a purchaser. He did not just get the right subsequently to buy or not to buy. It was not a mere option then; it was a
bilateral contract of sale.
Lastly, even supposing that Exh. A granted an option which is not binding for lack of consideration, the authorities hold that:
"If the option is given without a consideration, it is a mere offer of a contract of sale, which is not binding until accepted. If, however, acceptance is
made before a withdrawal, it constitutes a binding contract of sale, even though the option was not supported by a sufficient consideration. ... . (77
Corpus Juris Secundum, p. 652. See also 27 Ruling Case Law 339 and cases cited.)
"It can be taken for granted, as contended by the defendant, that the option contract was not valid for lack of consideration. But it was, at least, an
offer to sell, which was accepted by letter, and of the acceptance the offerer had knowledge before said offer was withdrawn. The concurrence of
both acts the offer and the acceptance could at all events have generated a contract, if none there was before (arts. 1254 and 1262 of the Civil
Code)." (Zayco vs. Serra, 44 Phil. 331.)
In other words, since there may be no valid contract without a cause or consideration, the promisor is not bound by his promise and may, accordingly,
withdraw it. Pending notice of its withdrawal, his accepted promise partakes, however, of the nature of an offer to sell which, if accepted, results in a
perfected contract of sale.
This view has the advantage of avoiding a conflict between Articles 1324 on the general principles on contracts and 1479 on sales of the
Civil Code, in line with the cardinal rule of statutory construction that, in construing different provisions of one and the same law or code, such
interpretation should be favored as will reconcile or harmonize said provisions and avoid a conflict between the same. Indeed, the presumption is
that, in the process of drafting the Code, its author has maintained a consistent philosophy or position. Moreover, the decision in Southwestern Sugar
& Molasses Co. v. Atlantic Gulf & Pacific Co., 10 holding that Art. 1324 is modified by Art. 1479 of the Civil Code, in effect, considers the latter as
an exception to the former, and exceptions are not favored, unless the intention to the contrary is clear, and it is not so, insofar as said two (2) articles
are concerned. What is more, the reference, in both the second paragraph of Art. 1479 and Art. 1324, to an option or promise supported by or founded
upon a consideration, strongly suggests that the two (2) provisions intended to enforce or implement the same principle.
Upon mature deliberation, the Court is of the considered opinion that it should, as it hereby reiterates the doctrine laid down in the Atkins, Kroll &
Co. case, and that, insofar as inconsistent therewith, the view adhered to in the Southwestern Sugar & Molasses Co. case should be deemed
abandoned or modified.
WHEREFORE, the decision appealed from is hereby affirmed, with costs against defendant-appellant Severina Rigos. It is so ordered.
Reyes, J.B.L., Makalintal, Zaldivar, Teehankee, Barredo and Makasiar, JJ., concur.
Castro, J., took no part.
Separate Opinions
ANTONIO, J., concurring:
I concur in the opinion of the Chief Justice.
I fully agree with the abandonment of the view previously adhered to in Southwestern Sugar & Molasses Co. vs. Atlantic Gulf and Pacific Co., 1 which
holds that an option to sell can still be withdrawn, even if accepted, if the same is not supported by any consideration, and the reaffirmance of the
doctrine in Atkins, Kroll & Co., Inc. vs. Cua Hian Tek, 2holding that "an option implies ... the legal obligation to keep the offer (to sell) open for the time
specified;" that it could be withdrawn before acceptance, if there was no consideration for the option, but once the "offer to sell" is accepted, a bilateral
promise to sell and to buy ensues, and the offeree ipso facto assumes the obligations of a purchaser. In other words, if the option is given without a
consideration, it is a mere offer to sell, which is not binding until accepted. If, however, acceptance is made before a withdrawal, it constitutes a
binding contract of sale. The concurrence of both acts the offer and the acceptance could in such event generate a contract.
While the law permits the offeror to withdraw the offer at any time before acceptance even before the period has expired, some writers hold the view,
that the offeror can not exercise this right in an arbitrary or capricious manner. This is upon the principle that an offer implies an obligation on the part
of the offeror to maintain in such length of time as to permit the offeree to decide whether to accept or not, and therefore cannot arbitrarily revoke the
offer without being liable for damages which the offeree may suffer. A contrary view would remove the stability and security of business transactions. 3
In the present case the trial court found that the "Plaintiff (Nicolas Sanchez) had offered the sum of Pl,510.00 before any withdrawal from the contract
has been made by the Defendant (Severina Rigos)." Since Rigos' offer sell was accepted by Sanchez, before she could withdraw her offer, a bilateral
reciprocal contract to sell and to buy was generated.
Separate Opinions
ANTONIO, J., concurring:
I concur in the opinion of the Chief Justice.
I fully agree with the abandonment of the view previously adhered to in Southwestern Sugar & Molasses Co. vs. Atlantic Gulf and Pacific Co., 1 which
holds that an option to sell can still be withdrawn, even if accepted, if the same is not supported by any consideration, and the reaffirmance of the
doctrine in Atkins, Kroll & Co., Inc. vs. Cua Hian Tek, 2holding that "an option implies ... the legal obligation to keep the offer (to sell) open for the time
specified;" that it could be withdrawn before acceptance, if there was no consideration for the option, but once the "offer to sell" is accepted, a bilateral
promise to sell and to buy ensues, and the offeree ipso facto assumes the obligations of a purchaser. In other words, if the option is given without a
consideration, it is a mere offer to sell, which is not binding until accepted. If, however, acceptance is made before a withdrawal, it constitutes a
binding contract of sale. The concurrence of both acts the offer and the acceptance could in such event generate a contract.
While the law permits the offeror to withdraw the offer at any time before acceptance even before the period has expired, some writers hold the view,
that the offeror can not exercise this right in an arbitrary or capricious manner. This is upon the principle that an offer implies an obligation on the part
of the offeror to maintain in such length of time as to permit the offeree to decide whether to accept or not, and therefore cannot arbitrarily revoke the
offer without being liable for damages which the offeree may suffer. A contrary view would remove the stability and security of business transactions. 3
In the present case the trial court found that the "Plaintiff (Nicolas Sanchez) had offered the sum of Pl,510.00 before any withdrawal from the contract
has been made by the Defendant (Severina Rigos)." Since Rigos' offer sell was accepted by Sanchez, before she could withdraw her offer, a bilateral
reciprocal contract to sell and to buy was generated.
CONCHITA NOOL and GAUDENCIO ALMOJERA, petitioner, vs. COURT OF APPEALS, ANACLETO NOOL and EMILIA NEBRE, respondents.
DECISION
PANGANIBAN, J.:
A contract of repurchase arising out of a contract of sale where the seller did not have any title to the property sold is not valid. Since nothing was
sold, then there is also nothing to repurchase.
Statement of the Case
This postulate is explained by this Court as it resolves this petition for review on certiorari assailing the January 20, 1993 Decision [1] of Respondent
Court of Appeals[2] in CA-G.R. CV No. 36473, affirming the decision[3] of the trial court[4] which disposed as follows:[5]
WHEREFORE, judgment is hereby rendered dismissing the complaint for no cause of action, and hereby:
1. Declaring the private writing, Exhibit C, to be an option to sell, not binding and considered validly withdrawn by the defendants for want of
consideration;
2. Ordering the plaintiffs to return to the defendants the sum of P30,000.00 plus interest thereon at the legal rate, from the time of filing of defendants
counterclaim until the same is fully paid;
3. Ordering the plaintiffs to deliver peaceful possession of the two hectares mentioned in paragraph 7 of the complaint and in paragraph 31 of
defendants answer (counterclaim);
4. Ordering the plaintiffs to pay reasonable rents on said two hectares at P5,000.00 per annum or at P2,500.00 per cropping from the time of judicial
demand mentioned in paragraph 2 of the dispositive portion of this decision, until the said two hectares shall have been delivered to the defendants;
and
5. To pay the costs.
SO ORDERED.
The Antecedent Facts
The facts, which appear undisputed by the parties, are narrated by the Court of Appeals as follows:
Two (2) parcels of land are in dispute and litigated upon here. The first has an area of 1 hectare . It was formerly owned by Victorino Nool and covered
by Transfer Certificate of Title No. T-74950. With an area of 3.0880 hectares, the other parcel was previously owned by Francisco Nool under Transfer
Certificate of Title No. T-100945. Both parcels are situated in San Manuel, Isabela. The plaintiff spouses, Conchita Nool and Gaudencio Almojera,
now the appellants, seek recovery of the aforementioned parcels of land from the defendants, Anacleto Nool, a younger brother of Conchita, and
Emilia Nebre, now the appellees.
In their complaint, plaintiff-appellants alleged inter alia that they are the owners of subject parcels of land, and they bought the same from Conchitas
other brothers, Victorino Nool and Francisco Nool; that as plaintiffs were in dire need of money, they obtained a loan from the Iligan Branch of the
Development Bank of the Philippines, in Ilagan, Isabela, secured by a real estate mortgage on said parcels of land, which were still registered in the
names of Victorino Nool and Francisco Nool, at the time, and for the failure of plaintiffs to pay the said loan, including interest and surcharges,
totaling P56,000.00, the mortgage was foreclosed; that within the period of redemption, plaintiffs contacted defendant Anacleto Nool for the latter to
redeem the foreclosed properties from DBP, which the latter did; and as a result, the titles of the two (2) parcels of land in question were transferred
to Anacleto Nool; that as part of their arrangement or understanding, Anacleto Nool agreed to buy from the plaintiff Conchita Nool the two (2) parcels
of land under controversy, for a total price of P100,000.00, P30,000.00 of which price was paid to Conchita, and upon payment of the balance
of P14,000.00, plaintiffs were to regain possession of the two (2) hectares of land, which amounts defendants failed to pay, and the same day the
said arrangement[6] was made; another covenant[7] was entered into by the parties, whereby defendants agreed to return to plaintiffs the lands in
question, at anytime the latter have the necessary amount; that plaintiffs asked the defendants to return the same but despite the intervention of the
Barangay Captain of their place, defendants refused to return the said parcels of land to plaintiffs; thereby impelling them (plaintiffs) to come to court
for relief.
In their answer defendants-appellees theorized that they acquired the lands in question from the Development Bank of the Philippines, through
negotiated sale, and were misled by plaintiffs when defendant Anacleto Nool signed the private writing agreeing to return subject lands when plaintiffs
have the money to redeem the same; defendant Anacleto having been made to believe, then, that his sister, Conchita, still had the right to redeem
the said properties.
The pivot of inquiry here, as aptly observed below, is the nature and significance of the private document, marked Exhibit D for plaintiffs, which
document has not been denied by the defendants, as defendants even averred in their Answer that they gave an advance payment of P30,000.00
therefor, and acknowledged that they had a balance of P14,000.00 to complete their payment. On this crucial issue, the lower court adjudged the
said private writing (Exhibit D) as an option to sell not binding upon and considered the same validly withdrawn by defendants for want of consideration;
and decided the case in the manner abovementioned.
There is no quibble over the fact that the two (2) parcels of land in dispute were mortgaged to the Development Bank of the Philippines, to secure a
loan obtained by plaintiffs from DBP (Ilagan Branch), Ilagan, Isabela. For the non-payment of said loan, the mortgage was foreclosed and in the
process, ownership of the mortgaged lands was consolidated in DBP (Exhibits 3 and 4 for defendants). After DBP became the absolute owner of the
two parcels of land, defendants negotiated with DBP and succeeded in buying the same. By virtue of such sale by DBP in favor of defendants, the
titles of DBP were cancelled and corresponding Transfer Certificates of Title (Annexes C and D to the complaint) issued to the dependants.[8]
It should be stressed that Manuel S. Mallorca, authorized officer of DBP, certified that the one-year redemption period was from March 16, 1982 up
to March 15, 1983 and that the Mortgagors right of redemption was not exercised within this period.[9] Hence, DBP became the absolute owner of
said parcels of land for which it was issued new certificates of title, both entered on May 23, 1983 by the Registry of Deeds for the Province of
Isabela.[10] About two years thereafter, on April 1, 1985, DBP entered into a Deed of Conditional Sale[11] involving the same parcels of land with Private
Respondent Anacleto Nool as vendee. Subsequently, the latter was issued new certificates of title on February 8, 1988.[12]
The Court of Appeals ruled:[13]
WHEREFORE, finding no reversible error infirming it, the appealed Judgment is hereby AFFIRMED in toto. No pronouncement as to costs.
The Issues
Petitioners impute to Respondent Court the following alleged errors:
1. The Honorable Court of Appeals, Second Division has misapplied the legal import or meaning of Exhibit C in a way contrary to law and existing
jurisprudence in stating that it has no binding effect between the parties and considered validly withdrawn by defendants-appellees for want of
consideration.
2. The Honorable Court of Appeals, Second Division has miserably failed to give legal significance to the actual possession and cultivation and
appropriating exclusively the palay harvest of the two (2) hectares land pending the payment of the remaining balance of fourteen thousand pesos
(P14,000.00) by defendants-appellees as indicated in Exhibit C.
3. The Honorable Court of Appeals has seriously erred in affirming the decision of the lower court by awarding the payment of rents per annum and
the return of P30,000.00 and not allowing the plaintiffs-appellants to re-acquire the four (4) hectares, more or less upon payment of one hundred
thousand pesos (P100,000.00) as shown in Exhibit D.[14]
The Courts Ruling
The petition is bereft of merit.
First Issue: Are Exhibits C and D Valid and Enforceable?
The petitioner-spouses plead for the enforcement of their agreement with private respondents as contained in Exhibits C and D, and seek damages
for the latters alleged breach thereof. In Exhibit C, which was a private handwritten document labeled by the parties as Resibo ti Katulagan or Receipt
of Agreement, the petitioners appear to have sold to private respondents the parcels of land in controversy covered by TCT No. T-74950 and TCT
No. T-100945. On the other hand, Exhibit D, which was also a private handwritten document in Ilocano and labeled as Kasuratan, private respondents
agreed that Conchita Nool can acquire back or repurchase later on said land when she has the money.[15]
In seeking to enforce her alleged right to repurchase the parcels of land, Conchita (joined by her co-petitioner-husband) invokes Article 1370 of the
Civil Code which mandates that (i)f the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal
meaning of its stipulation shall control. Hence, petitioners contend that the Court of Appeals erred in affirming the trial courts finding and conclusion
that said Exhibits C and D were not merely voidable but utterly void and inexistent.
We cannot sustain petitioners view. Article 1370 of the Civil Code is applicable only to valid and enforceable contracts. The Regional Trial Court and
the Court of Appeals ruled that the principal contract of sale contained in Exhibit C and the auxilliary contract of repurchase in Exhibit D are both
void. This conclusion of the two lower courts appears to find support in Dignos vs. Court of Appeals,[16] where the Court held:
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.
In the present case, it is clear that the sellers no longer had any title to the parcels of land at the time of sale. Since Exhibit D, the alleged contract of
repurchase, was dependent on the validity of Exhibit C, it is itself void. A void contract cannot give rise to a valid one.[17] Verily, Article 1422 of the
Civil Code provides that (a) contract which is the direct result of a previous illegal contract, is also void and inexistent.
We should however add that Dignos did not cite its basis for ruling that a sale is null and void where the sellers were no longer the owners of the
property. Such a situation (where the sellers were no longer owners) does not appear to be one of the void contracts enumerated in Article 1409 of
the Civil Code.[18] Moreover, the Civil Code[19] itself recognizes a sale where the goods are to be acquired x x x by the seller after the perfection of the
contract of sale, clearly implying that a sale is possible even if the seller was not the owner at the time of sale, provided he acquires title to the property
later on.
In the present case however, it is likewise clear that the sellers can no longer deliver the object of the sale to the buyers, as the buyers themselves
have already acquired title and delivery thereof from the rightful owner, the DBP. Thus, such contract may be deemed to be inoperative[20] and may
thus fall, by analogy, under item no. 5 of Article 1409 of the Civil Code: Those which contemplate an impossible service. Article 1459 of the Civil Code
provides that the vendor must have a right to transfer the ownership thereof [object of the sale] at the time it is delivered. Here, delivery of ownership
is no longer possible. It has become impossible.
Furthermore, Article 1505 of the Civil Code provides that where goods are sold by a person who is not the owner thereof, and who does not sell them
under authority or with consent of the owner, the buyer acquires no better title to the goods than the seller had, unless the owner of the goods is by
his conduct precluded from denying the sellers authority to sell. Here, there is no allegation at all that petitioners were authorized by DBP to sell the
property to the private respondents. Jurisprudence, on the other hand, teaches us that a person can sell only what he owns or is authorized to sell;
the buyer can as a consequence acquire no more than what the seller can legally transfer.[21] No one can give what he does not have neno dat quod
non habet. On the other hand, Exhibit D presupposes that petitioners could repurchase the property that they sold to private respondents. As
petitioners sold nothing, it follows that they can also repurchase nothing.Nothing sold, nothing to repurchase. In this light, the contract of repurchase
is also inoperative and by the same analogy, void.
Contract of Repurchase
Dependent on Validity of Sale
As borne out by the evidence on record, the private respondents bought the two parcels of land directly from DBP on April 1, 1985 after discovering
that petitioners did not own said property, the subject of Exhibits C and D executed on November 30, 1984. Petitioners, however, claim that they can
exercise their alleged right to repurchase the property, after private respondents had acquired the same from DBP.[22] We cannot accede to this, for
it clearly contravenes the intention of the parties and the nature of their agreement. Exhibit D reads:
WRITING
Nov. 30, 1984
That I, Anacleto Nool have bought from my sister Conchita Nool a land an area of four hectares (4 has.) in the value of One Hundred Thousand
(100,000.00) Pesos. It is our agreement as brother and sister that she can acquire back or repurchase later on said land when she has the money.
[Underscoring supplied]
As proof of this agreement we sign as brother and sister this written document this day of Nov. 30, 1984, at District 4, San Manuel, Isabela.
Sgd ANACLETO NOOL
Anacleto Nool
Sgd Emilio Paron
Witness
Sgd Conchita Nool
Conchita Nool[23]
One repurchases only what one has previously sold. In other words, the right to repurchase presupposes a valid contract of sale between
the same parties. Undisputedly, private respondents acquired title to the property from DBP, and not from the petitioners.
Assuming arguendo that Exhibit D is separate and distinct from Exhibit C and is not affected by the nullity of the latter, still petitioners do not thereby
acquire a right to repurchase the property.In that scenario, Exhibit D ceases to be a right to repurchase ancillary and incidental to the contract of sale;
rather, it becomes an accepted unilateral promise to sell. Article 1479 of the Civil Code, however, provides that an accepted unilateral promise to buy
or sell a determinate thing for a price certain is binding upon the promissor if the promise is supported by a consideration distinct from the price. In
the present case, the alleged written contract of repurchase contained in Exhibit D is bereft of any consideration distinct from the price. Accordingly,
as an independent contract, it cannot bind private respondents. The ruling in Diamante vs. CA[24] supports this. In that case, the Court through Mr.
Justice Hilario G. Davide, Jr. explained:
Article 1601 of the Civil Code provides:
Conventional redemption shall take place when the vendor reserves the right to repurchase the thing sold, with the obligation to comply with the
provisions of article 1616 and other stipulations which may have been agreed upon.
In Villarica, et al. Vs. Court of Appeals, et al., decided on 29 November 1968, or barely seven (7) days before the respondent Court promulgated its
decisions in this case, this Court, interpreting the above Article, held:
The right of repurchase is not a right granted the vendor by the vendee in a subsequent instrument, but is a right reserved by the vendor in the same
instrument of sale as one of the stipulations of the contract. Once the instrument of absolute sale is executed, the vendor can not longer reserve the
right to repurchase, and any right thereafter granted the vendor by the vendee in a separate instrument cannot be a right of repurchase but some
other right like the option to buy in the instant case. x x x.
In the earlier case of Ramos, et al. vs. Icasiano, et al., decided in 1927, this Court had already ruled that an agreement to repurchase becomes a
promise to sell when made after the sale, because when the sale is made without such an agreement, the purchaser acquires the thing sold absolutely,
and if he afterwards grants the vendor the right to repurchase, it is a new contract entered into by the purchaser, as absolute owner already of the
object. In that case the vendor has nor reserved to himself the right to repurchase.
In Vda. De Cruzo, et al. vs. Carriaga, et al. this Court found another occasion to apply the foregoing principle.
Hence, the Option to Repurchase executed by private respondent in the present case, was merely a promise to sell, which must be governed by
Article 1479 of the Civil Code which reads as follows:
Art. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable.
An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor if the promise is supported by a
consideration distinct from the price.
Right to Repurchase Based on
Homestead or Trust Non-Existent
Petitioners also base their alleged right to repurchase on (1) Sec. 119 of the Public Land Act[25] and (2) an implied trust relation as brother and sister.[26]
The Court notes that Victorino Nool and Francisco Nool mortgaged the land to DBP. The brothers, together with Conchita Nool and Anacleto Nool,
were all siblings and heirs qualified to repurchase the two parcels of land under Sec. 119 of the Public Land Act which provides that (e)very
conveyance of land acquired under the free patent or homestead provisions, when proper, shall be subject to repurchase by the applicant, his widow
or legal heirs, within a period of five years from the date of conveyance. Assuming the applicability of this statutory provision to the case at bar, it is
indisputable that Private Respondent Anacleto Nool already repurchased from DBP the contested properties. Hence, there was no more right of
repurchase that his sister Conchita or brothers Victorino and Francisco could exercise. The properties were already owned by an heir of the
homestead grantee and the rationale of the of the provision to keep homestead lands within the family of the grantee was thus fulfilled.[27]
The claim of a trust relation is likewise without merit. The records show that private respondents did not purchase the contested properties from DBP
in trust for petitioners. The former, as previously mentioned, in fact bought the land from DBP upon realization that the latter could not validly sell the
same. Obviously, petitioners bought it for themselves. There is no evidence at all in the records that they bought the land in trust for private
respondents. The fact that Anacleto Nool was the younger brother of Conchita Nool and that they signed a contract of repurchase, which as discussed
earlier was void, does not prove the existence of an implied trust in favor of petitioners.
Second Issue: No Estoppel in Impugning the
Validity of Void Contracts
Petitioners argue that when Anacleto Nool took the possession of the two hectares, more or less, and let the other two hectares to be occupied and
cultivated by plaintiffs-appellants, Anacleto Nool cannot later on disclaim the terms or contions (sic) agreed upon and his actuation is within the ambit
of estoppel x x x.[28] We disagree. The private respondents cannot be estopped from raising the defense of nullity of contract, specially in this case
where they acted in good faith, believing that indeed petitioners could sell the two parcels of land in question. Article 1410 of the Civil Code mandates
that (t)he action or defense for the declaration of the inexistence of a contract does not prescribe. It is well-settled doctrine that as between parties to
a contract, validity cannot be given to it by estoppel if it is prohibited by law or it is against public policy (19 Am. Jur. 802). It is not within the competence
of any citizen to barter away what public policy by law seeks to preserve.[29] Thus, it is immaterial that private respondents initially acted to implement
the contract of sale, believing in good faith that the same was valid. We stress that a contract void at inception cannot be validated by ratification or
prescription and certainly cannot be binding on or enforceable against private respondents.[30]
Third Issue: Return of P30,000.00 with Interest
and Payment of Rent
Petitioners further argue that it would be a miscarriage of justice to order them (1) to return the sum of P30,000.00 to private respondents when
allegedly it was Private Respondent Anacleto Nool who owed the former a balance of P14,000.00 and (2) to order petitioners to pay rent when they
were allowed to cultivate the said two hectares.[31]
We are not persuaded. Based on the previous discussion, the balance of P14,000.00 under the void contract of sale may not be enforced. Petitioners
are the ones who have an obligation to return what they unduly and improperly received by reason of the invalid contract of sale. Since they cannot
legally give title to what they sold, they cannot keep the money paid for the object of the sale. It is basic that (e)very person who through an act of
performance by another, or any other means, acquires or comes into possession of something at the expense of the latter without just or legal ground,
shall return the same.[32] Thus, if a void contract has already been performed, the restoration of what has been given is in order.[33] Corollarily and as
aptly ordered by respondent appellate court, interest thereon will run only from the time of private respondents demand for the return of this amount
in their counterclaim.[34] In the same vein, petitioners possession and cultivation of the two hectares are anchored on private respondents
tolerance. Clearly, the latters tolerance ceased upon their counterclaim and demand on the former to vacate. Hence, their right to possess and
cultivate the land ipso facto ceased.
WHEREFORE, the petition is DENIED and the assailed Decision of the Court of Appeals affirming that of the trial court is hereby AFFIRMED.
SO ORDERED.
Narvasa, C.J., (Chairman), Davide, Jr., Melo, and Francisco, JJ., concur.
PARAAQUE KINGS ENTERPRISES, INCORPORATED, petitioner, vs. COURT OF APPEALS, CATALINA L. SANTOS, represented by her
attorney-in-fact, LUZ B. PROTACIO, and DAVID A. RAYMUNDO, respondents.
DECISION
PANGANIBAN, J.:
Do allegations in a complaint showing violation of a contractual right of first option or priority to buy the properties subject of the lease constitute a
valid cause of action? Is the grantee of such right entitled to be offered the same terms and conditions as those given to a third party who eventually
bought such properties? In short, is such right of first refusal enforceable by an action for specific performance?
These questions are answered in the affirmative by this Court in resolving this petition for review under Rule 45 of the Rules of Court challenging the
Decision[1] of the Court of Appeals[2]promulgated on March 29, 1993, in CA-G.R. CV No. 34987 entitled Paraaque Kings Enterprises, Inc. vs. Catalina
L. Santos, et al., which affirmed the order[3] of September 2, 1991, of the Regional Trial Court of Makati, Branch 57,[4] dismissing Civil Case No. 91-
786 for lack of a valid cause of action.
Facts of the Case
On March 19, 1991, herein petitioner filed before the Regional Trial Court of Makati a complaint,[5] which is reproduced in full below:
Plaintiff, by counsel, respectfully states that:
1. Plaintiff is a private corporation organized and existing under and by virtue of the laws of the Philippines, with principal place of business of (sic)
Dr. A. Santos Avenue, Paraaque, Metro Manila, while defendant Catalina L. Santos, is of legal age, widow, with residence and postal address at 444
Plato Street, Ct., Stockton, California, USA, represented in this action by her attorney-in-fact, Luz B. Protacio, with residence and postal address at
No, 12, San Antonio Street, Magallanes Village, Makati, Metro Manila, by virtue of a general power of attorney. Defendant David A. Raymundo, is of
legal age, single, with residence and postal address at 1918 Kamias Street, Damarias Village, Makati, Metro Manila, where they (sic) may be served
with summons and other court processes. Xerox copy of the general power of attorney is hereto attached as Annex A.
2. Defendant Catalina L. Santos is the owner of eight (8) parcels of land located at (sic) Paraaque, Metro Manila with transfer certificate of title nos.
S-19637, S-19638 and S-19643 to S-19648. Xerox copies of the said title (sic) are hereto attached as Annexes B to I, respectively.
3. On November 28, 1977, a certain Frederick Chua leased the above-described property from defendant Catalina L. Santos, the said lease was
registered in the Register of Deeds. Xerox copy of the lease is hereto attached as Annex J.
4. On February 12, 1979, Frederick Chua assigned all his rights and interest and participation in the leased property to Lee Ching Bing, by virtue of
a deed of assignment and with the conformity of defendant Santos, the said assignment was also registered. Xerox copy of the deed of assignment
is hereto attached as Annex K.
5. On August 6, 1979, Lee Ching Bing also assigned all his rights and interest in the leased property to Paraaque Kings Enterprises, Incorporated by
virtue of a deed of assignment and with the conformity of defendant Santos, the same was duly registered, Xerox copy of the deed of assignment is
hereto attached as Annex L.
6. Paragraph 9 of the assigned leased (sic) contract provides among others that:
9. That in case the properties subject of the lease agreement are sold or encumbered, Lessors shall impose as a condition that the buyer or mortgagee
thereof shall recognize and be bound by all the terms and conditions of this lease agreement and shall respect this Contract of Lease as if they are
the LESSORS thereof and in case of sale, LESSEE shall have the first option or priority to buy the properties subject of the lease;
7. On September 21, 1988, defendant Santos sold the eight parcels of land subject of the lease to defendant David Raymundo for a consideration of
FIVE MILLION (P5,000,000.00) PESOS. The said sale was in contravention of the contract of lease, for the first option or priority to buy was not
offered by defendant Santos to the plaintiff. Xerox copy of the deed of sale is hereto attached as Annex M.
8. On March 5, 1989, defendant Santos wrote a letter to the plaintiff informing the same of the sale of the properties to defendant Raymundo, the said
letter was personally handed by the attorney-in-fact of defendant Santos, Xerox copy of the letter is hereto attached as Annex N.
9. Upon learning of this fact plaintiffs representative wrote a letter to defendant Santos, requesting her to rectify the error and consequently realizing
the error, she had it reconveyed to her for the same consideration of FIVE MILLION (P5,000,000.00) PESOS. Xerox copies of the letter and the deed
of reconveyance are hereto attached as Annexes O and P.
10. Subsequently the property was offered for sale to plaintiff by the defendant for the sum of FIFTEEN MILLION (P15,000,000.00) PESOS. Plaintiff
was given ten (10) days to make good of the offer, but therefore (sic) the said period expired another letter came from the counsel of defendant
Santos, containing the same tenor of (sic) the former letter. Xerox copies of the letters are hereto attached as Annexes Q and R.
11. On May 8, 1989, before the period given in the letter offering the properties for sale expired, plaintiffs counsel wrote counsel of defendant Santos
offering to buy the properties for FIVE MILLION (P5,000,000.00) PESOS. Xerox copy of the letter is hereto attached as Annex S.
12. On May 15, 1989, before they replied to the offer to purchase, another deed of sale was executed by defendant Santos (in favor of) defendant
Raymundo for a consideration of NINE MILLION (P9,000,000.00) PESOS. Xerox copy of the second deed of sale is hereto attached as Annex T.
13. Defendant Santos violated again paragraph 9 of the contract of lease by executing a second deed of sale to defendant Raymundo.
14. It was only on May 17, 1989, that defendant Santos replied to the letter of the plaintiffs offer to buy or two days after she sold her properties. In
her reply she stated among others that the period has lapsed and the plaintiff is not a privy (sic) to the contract. Xerox copy of the letter is hereto
attached as Annex U.
15. On June 28, 1989, counsel for plaintiff informed counsel of defendant Santos of the fact that plaintiff is the assignee of all rights and interest of
the former lessor. Xerox copy of the letter is hereto attached as Annex V.
16. On July 6, 1989, counsel for defendant Santos informed the plaintiff that the new owner is defendant Raymundo. Xerox copy of the letter is hereto
attached as Annex W.
17. From the preceding facts it is clear that the sale was simulated and that there was a collusion between the defendants in the sales of the leased
properties, on the ground that when plaintiff wrote a letter to defendant Santos to rectify the error, she immediately have (sic) the property reconveyed
it (sic) to her in a matter of twelve (12) days.
18. Defendants have the same counsel who represented both of them in their exchange of communication with plaintiffs counsel, a fact that led to
the conclusion that a collusion exist (sic) between the defendants.
19. When the property was still registered in the name of defendant Santos, her collector of the rental of the leased properties was her brother-in-law
David Santos and when it was transferred to defendant Raymundo the collector was still David Santos up to the month of June, 1990. Xerox copies
of cash vouchers are hereto attached as Annexes X to HH, respectively.
20. The purpose of this unholy alliance between defendants Santos and Raymundo is to mislead the plaintiff and make it appear that the price of the
leased property is much higher than its actual value of FIVE MILLION (P5,000,000.00) PESOS, so that plaintiff would purchase the properties at a
higher price.
21. Plaintiff has made considerable investments in the said leased property by erecting a two (2) storey, six (6) doors commercial building amounting
to THREE MILLION (P3,000,000.00) PESOS. This considerable improvement was made on the belief that eventually the said premises shall be sold
to the plaintiff.
22. As a consequence of this unlawful act of the defendants, plaintiff will incurr (sic) total loss of THREE MILLION (P3,000,000.00) PESOS as the
actual cost of the building and as such defendants should be charged of the same amount for actual damages.
23. As a consequence of the collusion, evil design and illegal acts of the defendants, plaintiff in the process suffered mental anguish, sleepless nights,
bismirched (sic) reputation which entitles plaintiff to moral damages in the amount of FIVE MILLION (P5,000,000.00) PESOS.
24. The defendants acted in a wanton, fraudulent, reckless, oppressive or malevolent manner and as a deterrent to the commission of similar acts,
they should be made to answer for exemplary damages, the amount left to the discretion of the Court.
25. Plaintiff demanded from the defendants to rectify their unlawful acts that they committed, but defendants refused and failed to comply with plaintiffs
just and valid and (sic) demands. Xerox copies of the demand letters are hereto attached as Annexes KK to LL, respectively.
26. Despite repeated demands, defendants failed and refused without justifiable cause to satisfy plaintiffs claim, and was constrained to engaged
(sic) the services of undersigned counsel to institute this action at a contract fee of P200,000.00, as and for attorneys fees, exclusive of cost and
expenses of litigation.
PRAYER
WHEREFORE, it is respectfully prayed, that judgment be rendered in favor of the plaintiff and against defendants and ordering that:
a. The Deed of Sale between defendants dated May 15, 1989, be annulled and the leased properties be sold to the plaintiff in the amount
of P5,000,000.00;
b. Dependants (sic) pay plaintiff the sum of P3,000,000.00 as actual damages;
c. Defendants pay the sum of P5,000,000.00 as moral damages;
d. Defendants pay exemplary damages left to the discretion of the Court;
e. Defendants pay the sum of not less than P200,000.00 as attorneys fees.
Plaintiff further prays for other just and equitable reliefs plus cost of suit.
Instead of filing their respective answers, respondents filed motions to dismiss anchored on the grounds of lack of cause of action, estoppel and
laches.
On September 2, 1991, the trial court issued the order dismissing the complaint for lack of a valid cause of action. It ratiocinated thus:
Upon the very face of the plaintiffs Complaint itself, it therefore indubitably appears that the defendant Santos had verily complied with paragraph 9
of the Lease Agreement by twice offering the properties for sale to the plaintiff for P15 M. The said offers, however, were plainly rejected by the
plaintiff which scorned the said offer as RIDICULOUS. There was therefore a definite refusal on the part of the plaintiff to accept the offer of defendant
Santos. For in acquiring the said properties back to her name, and in so making the offers to sell both by herself (attorney-in-fact) and through her
counsel, defendant Santos was indeed conscientiously complying with her obligation under paragraph 9 of the Lease Agreement. x x x
xxxxxxxxx
This is indeed one instance where a Complaint, after barely commencing to create a cause of action, neutralized itself by its subsequent averments
which erased or extinguished its earlier allegations of an impending wrong.Consequently, absent any actionable wrong in the very face of the
Complaint itself, the plaintiffs subsequent protestations of collusion is bereft or devoid of any meaning or purpose. x x x
The inescapable result of the foregoing considerations point to no other conclusion than that the Complaint actually does not contain any valid cause
of action and should therefore be as it is hereby ordered DISMISSED.The Court finds no further need to consider the other grounds of estoppel and
laches inasmuch as this resolution is sufficient to dispose the matter.[6]
Petitioners appealed to the Court of Appeals which affirmed in toto the ruling of the trial court, and further reasoned that:
x x x Appellants protestations that the P15 million price quoted by appellee Santos was reduced to P9 million when she later resold the leased
properties to Raymundo has no valid legal moorings because appellant, as a prospective buyer, cannot dictate its own price and forcibly ram it against
appellee Santos, as owner, to buy off her leased properties considering the total absence of any stipulation or agreement as to the price or as to how
the price should be computed under paragraph 9 of the lease contract, x x x[7]
Petitioner moved for reconsideration but was denied in an order dated August 20, 1993.[8]
Hence this petition. Subsequently, petitioner filed an Urgent Motion for the Issuance of Restraining Order and/or Writ of Preliminary Injunction and to
Hold Respondent David A. Raymundo in Contempt of Court.[9] The motion sought to enjoin respondent Raymundo and his counsel from pursuing the
ejectment complaint filed before the barangay captain of San Isidro, Paraaque, Metro Manila; to direct the dismissal of said ejectment complaint or
of any similar action that may have been filed; and to require respondent Raymundo to explain why he should not be held in contempt of court for
forum-shopping. The ejectment suit initiated by respondent Raymundo against petitioner arose from the expiration of the lease contract covering the
property subject of this case. The ejectment suit was decided in favor of Raymundo, and the entry of final judgment in respect thereof renders the
said motion moot and academic.
Issue
The principal legal issue presented before us for resolution is whether the aforequoted complaint alleging breach of the contractual right of first option
or priority to buy states a valid cause of action.
Petitioner contends that the trial court as well as the appellate tribunal erred in dismissing the complaint because it in fact had not just one but at least
three (3) valid causes of action, to wit: (1) breach of contract, (2) its right of first refusal founded in law, and (3) damages.
Respondents Santos and Raymundo, in their separate comments, aver that the petition should be denied for not raising a question of law as the
issue involved is purely factual -- whether respondent Santos complied with paragraph 9 of the lease agreement -- and for not having complied with
Section 2, Rule 45 of the Rules of Court, requiring the filing of twelve (12) copies of the petitioners brief. Both maintain that the complaint filed by
petitioner before the Regional Trial Court of Makati stated no valid cause of action and that petitioner failed to substantiate its claim that the lower
courts decided the same in a way not in accord with law and applicable decisions of the Supreme Court; or that the Court of Appeals has sanctioned
departure by a trial court from the accepted and usual course of judicial proceedings so as to merit the exercise by this Court of the power of review
under Rule 45 of the Rules of Court. Furthermore, they reiterate estoppel and laches as grounds for dismissal, claiming that petitioners payment of
rentals of the leased property to respondent Raymundo from June 15, 1989, to June 30, 1990, was an acknowledgment of the latters status as new
owner-lessor of said property, by virtue of which petitioner is deemed to have waived or abandoned its first option to purchase.
Private respondents likewise contend that the deed of assignment of the lease agreement did not include the assignment of the option to
purchase. Respondent Raymundo further avers that he was not privy to the contract of lease, being neither the lessor nor lessee adverted to therein,
hence he could not be held liable for violation thereof.
The Courts Ruling
Preliminary Issue: Failure to File Sufficient Copies of Brief
We first dispose of the procedural issue raised by respondents, particularly petitioners failure to file twelve (12) copies of its brief. We have ruled that
when non-compliance with the Rules was not intended for delay or did not result in prejudice to the adverse party, dismissal of appeal on mere
technicalities in cases where appeal is a matter of right -- may be stayed, in the exercise of the courts equity jurisdiction.[10] It does not appear that
respondents were unduly prejudiced by petitioners nonfeasance. Neither has it been shown that such failure was intentional.
Main Issue: Validity of Cause of Action
We do not agree with respondents contention that the issue involved is purely factual. The principal legal question, as stated earlier, is whether the
complaint filed by herein petitioner in the lower court states a valid cause of action. Since such question assumes the facts alleged in the complaint
as true, it follows that the determination thereof is one of law, and not of facts. There is a question of law in a given case when the doubt or difference
arises as to what the law is on a certain state of facts, and there is a question of fact when the doubt or difference arises as to the truth or the falsehood
of alleged facts.[11]
At the outset, petitioner concedes that when the ground for a motion to dismiss is lack of cause of action, such ground must appear on the face of
the complaint; that to determine the sufficiency of a cause of action, only the facts alleged in the complaint and no others should be considered; and
that the test of sufficiency of the facts alleged in a petition or complaint to constitute a cause of action is whether, admitting the facts alleged, the court
could render a valid judgment upon the same in accordance with the prayer of the petition or complaint.
A cause of action exists if the following elements are present: (1) a right in favor of the plaintiff by whatever means and under whatever law it arises
or is created; (2) an obligation on the part of the named defendant to respect or not to violate such right, and (3) an act or omission on the part of
such defendant violative of the right of plaintiff or constituting a breach of the obligation of defendant to the plaintiff for which the latter may maintain
an action for recovery of damages.[12]
In determining whether allegations of a complaint are sufficient to support a cause of action, it must be borne in mind that the complaint does not
have to establish or allege facts proving the existence of a cause of action at the outset; this will have to be done at the trial on the merits of the
case. To sustain a motion to dismiss for lack of cause of action, the complaint must show that the claim for relief does not exist, rather than that a
claim has been defectively stated, or is ambiguous, indefinite or uncertain.[13]
Equally important, a defendant moving to dismiss a complaint on the ground of lack of cause of action is regarded as having hypothetically admitted
all the averments thereof.[14]
A careful examination of the complaint reveals that it sufficiently alleges an actionable contractual breach on the part of private respondents. Under
paragraph 9 of the contract of lease between respondent Santos and petitioner, the latter was granted the first option or priority to purchase the
leased properties in case Santos decided to sell. If Santos never decided to sell at all, there can never be a breach, much less an enforcement of
such right. But on September 21, 1988, Santos sold said properties to Respondent Raymundo without first offering these to petitioner.Santos indeed
realized her error, since she repurchased the properties after petitioner complained. Thereafter, she offered to sell the properties to petitioner for P15
million, which petitioner, however, rejected because of the ridiculous price. But Santos again appeared to have violated the same provision of the
lease contract when she finally resold the properties to respondent Raymundo for only P9 million without first offering them to petitioner at such
price. Whether there was actual breach which entitled petitioner to damages and/or other just or equitable relief, is a question which can better be
resolved after trial on the merits where each party can present evidence to prove their respective allegations and defenses.[15]
The trial and appellate courts based their decision to sustain respondents motion to dismiss on the allegations of Paraaque Kings Enterprises that
Santos had actually offered the subject properties for sale to it prior to the final sale in favor of Raymundo, but that the offer was rejected. According
to said courts, with such offer, Santos had verily complied with her obligation to grant the right of first refusal to petitioner.
We hold, however, that in order to have full compliance with the contractual right granting petitioner the first option to purchase, the sale of the
properties for the amount of P9 million, the price for which they were finally sold to respondent Raymundo, should have likewise been first offered to
petitioner.
The Court has made an extensive and lengthy discourse on the concept of, and obligations under, a right of first refusal in the case of
Guzman, Bocaling & Co. vs. Bonnevie.[16] In that case, under a contract of lease, the lessees (Raul and Christopher Bonnevie) were given a right of
first priority to purchase the leased property in case the lessor (Reynoso) decided to sell. The selling price quoted to the Bonnevies was P600,000.00
to be fully paid in cash, less a mortgage lien of P100,000.00. On the other hand, the selling price offered by Reynoso to and accepted by Guzman
was only P400,000.00 of which P137,500.00 was to be paid in cash while the balance was to be paid only when the property was cleared of
occupants. We held that even if the Bonnevies could not buy it at the price quoted (P600,000.00), nonetheless, Reynoso could not sell it to another
for a lower price and under more favorable terms and conditions without first offering said favorable terms and price to the Bonnevies as well. Only if
the Bonnevies failed to exercise their right of first priority could Reynoso thereafter lawfully sell the subject property to others, and only under the
same terms and conditions previously offered to the Bonnevies.
Of course, under their contract, they specifically stipulated that the Bonnevies could exercise the right of first priority, all things and conditions being
equal. This Court interpreted this proviso to mean that there should be identity of terms and conditions to be offered to the Bonnevies and all other
prospective buyers, with the Bonnevies to enjoy the right of first priority. We hold that the same rule applies even without the same proviso if the right
of first refusal (or the first option to buy) is not to be rendered illusory.
From the foregoing, the basis of the right of the first refusal* must be the current offer to sell of the seller or offer to purchase of any prospective
buyer. Only after the grantee** fails to exercise its right of first priority under the same terms and within the period contemplated, could the owner
validly offer to sell the property to a third person, again, under the same terms as offered to the grantee***.
This principle was reiterated in the very recent case of Equatorial Realty vs. Mayfair Theater, Inc.[17] which was decided en banc. This Court upheld
the right of first refusal of the lessee Mayfair, and rescinded the sale of the property by the lessor Carmelo to Equatorial Realty considering that
Mayfair, which had substantial interest over the subject property, was prejudiced by its sale to Equatorial without Carmelo conferring to Mayfair every
opportunity to negotiate within the 30-day stipulated period (underscoring supplied).
In that case, two contracts of lease between Carmelo and Mayfair provided that if the LESSOR should desire to sell the leased premises, the LESSEE
shall be given 30 days exclusive option to purchase the same. Carmelo initially offered to sell the leased property to Mayfair for six to seven million
pesos. Mayfair indicated interest in purchasing the property though it invoked the 30-day period. Nothing was heard thereafter from Carmelo. Four
years later, the latter sold its entire Recto Avenue property, including the leased premises, to Equatorial for P11,300,000.00 without priorly informing
Mayfair. The Court held that both Carmelo and Equatorial acted in bad faith: Carmelo for knowingly violating the right of first refusal* of Mayfair, and
Equatorial for purchasing the property despite being aware of the contract stipulation. In addition to rescission of the contract of sale, the Court
ordered Carmelo to allow Mayfair to buy the subject property at the same price of P11,300,000.00.
No cause of action under P.D. 1517
Petitioner also invokes Presidential Decree No. 1517, or the Urban Land Reform Law, as another source of its right of first refusal. It claims to be
covered under said law, being the rightful occupant of the land and its structures since it is the lawful lessee thereof by reason of contract. Under the
lease contract, petitioner would have occupied the property for fourteen (14) years at the end of the contractual period.
Without probing into whether petitioner is rightfully a beneficiary under said law, suffice it to say that this Court has previously ruled that under Section
6[18] of P.D. 1517, the terms and conditions of the sale in the exercise of the lessees right of first refusal to purchase shall be determined by the Urban
Zone Expropriation and Land Management Committee. Hence, x x x certain prerequisites must be complied with by anyone who wishes to avail
himself of the benefits of the decree.[19] There being no allegation in its complaint that the prerequisites were complied with, it is clear that the complaint
did fail to state a cause of action on this ground.
Deed of Assignment included the option to purchase
Neither do we find merit in the contention of respondent Santos that the assignment of the lease contract to petitioner did not include the option to
purchase. The provisions of the deeds of assignment with regard to matters assigned were very clear. Under the first assignment between Frederick
Chua as assignor and Lee Ching Bing as assignee, it was expressly stated that:
x x x the ASSIGNOR hereby CEDES, TRANSFERS and ASSIGNS to herein ASSIGNEE, all his rights, interest and participation over said premises
afore-described, x x x[20] (underscoring supplied)
And under the subsequent assignment executed between Lee Ching Bing as assignor and the petitioner, represented by its Vice President Vicenta
Lo Chiong, as assignee, it was likewise expressly stipulated that:
x x x the ASSIGNOR hereby sells, transfers and assigns all his rights, interest and participation over said leased premises, x x x[21] (underscoring
supplied)
One of such rights included in the contract of lease and, therefore, in the assignments of rights was the lessees right of first option or priority to buy
the properties subject of the lease, as provided in paragraph 9 of the assigned lease contract. The deed of assignment need not be very specific as
to which rights and obligations were passed on to the assignee. It is understood in the general provision aforequoted that all specific rights and
obligations contained in the contract of lease are those referred to as being assigned. Needless to state, respondent Santos gave her unqualified
conformity to both assignments of rights.
Respondent Raymundo privy to the Contract of Lease
With respect to the contention of respondent Raymundo that he is not privy to the lease contract, not being the lessor nor the lessee referred to
therein, he could thus not have violated its provisions, but he is nevertheless a proper party. Clearly, he stepped into the shoes of the owner-lessor
of the land as, by virtue of his purchase, he assumed all the obligations of the lessor under the lease contract. Moreover, he received benefits in the
form of rental payments. Furthermore, the complaint, as well as the petition, prayed for the annulment of the sale of the properties to him.Both
pleadings also alleged collusion between him and respondent Santos which defeated the exercise by petitioner of its right of first refusal.
In order then to accord complete relief to petitioner, respondent Raymundo was a necessary, if not indispensable, party to the case.[22] A favorable
judgment for the petitioner will necessarily affect the rights of respondent Raymundo as the buyer of the property over which petitioner would like to
assert its right of first option to buy.
Having come to the conclusion that the complaint states a valid cause of action for breach of the right of first refusal and that the trial court should
thus not have dismissed the complaint, we find no more need to pass upon the question of whether the complaint states a cause of action for damages
or whether the complaint is barred by estoppel or laches. As these matters require presentation and/or determination of facts, they can be best
resolved after trial on the merits.
While the lower courts erred in dismissing the complaint, private respondents, however, cannot be denied their day in court. While, in the resolution
of a motion to dismiss, the truth of the facts alleged in the complaint are theoretically admitted, such admission is merely hypothetical and only for the
purpose of resolving the motion. In case of denial, the movant is not to be deprived of the right to submit its own case and to submit evidence to rebut
the allegations in the complaint. Neither will the grant of the motion by a trial court and the ultimate reversal thereof by an appellate court have the
effect of stifling such right.[23] So too, the trial court should be given the opportunity to evaluate the evidence, apply the law and decree the proper
remedy. Hence, we remand the instant case to the trial court to allow private respondents to have their day in court.
WHEREFORE, the petition is GRANTED. The assailed decisions of the trial court and Court of Appeals are hereby REVERSED and SET ASIDE. The
case is REMANDED to the Regional Trial Court of Makati for further proceedings.
SO ORDERED.
Narvasa, C.J., (Chairman), Davide, Jr., Melo, and Francisco, JJ., concur.
ROSENCOR DEVELOPMENT CORPORATION and RENE JOAQUIN, petitioners, vs. PATERNO INQUING, IRENE GUILLERMO, FEDERICO
BANTUGAN, FERNANDO MAGBANUA and LIZZA TIANGCO, respondents.
DECISION
GONZAGA-REYES, J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Court seeking reversal of the Decision [1] of the Court of Appeals dated June
25, 1999 in CA-G.R. CV No. 53963. The Court of Appeals decision reversed and set aside the Decision[2]dated May 13, 1996 of Branch 217 of the
Regional Trial Court of Quezon City in Civil Case No. Q-93-18582.
The case was originally filed on December 10, 1993 by Paterno Inquing, Irene Guillermo and Federico Bantugan, herein respondents, against
Rosencor Development Corporation (hereinafter Rosencor), Rene Joaquin, and Eufrocina de Leon. Originally, the complaint was one for annulment
of absolute deed of sale but was later amended to one for rescission of absolute deed of sale. A complaint-for intervention was thereafter filed by
respondents Fernando Magbanua and Danna Lizza Tiangco. The complaint-in-intervention was admitted by the trial court in an Order dated May 4,
1994.[3]
The facts of the case, as stated by the trial court and adopted by the appellate court, are as follows:
This action was originally for the annulment of the Deed of Absolute Sale dated September 4, 1990 between defendants Rosencor and Eufrocina de
Leon but later amended (sic) praying for the rescission of the deed of sale.
Plaintiffs and plaintiffs-intervenors averred that they are the lessees since 1971 of a two-story residential apartment located at No. 150 Tomas Morato
Ave., Quezon City covered by TCT No. 96161 and owned by spouses Faustino and Cresencia Tiangco. The lease was not covered by any
contract. The lessees were renting the premises then for P150.00 a month and were allegedly verbally granted by the lessors the pre-emptive right
to purchase the property if ever they decide to sell the same.
Upon the death of the spouses Tiangcos in 1975, the management of the property was adjudicated to their heirs who were represented by Eufrocina
de Leon. The lessees were allegedly promised the same pre-emptive right by the heirs of Tiangcos since the latter had knowledge that this right was
extended to the former by the late spouses Tiangcos. The lessees continued to stay in the premises and allegedly spent their own money amounting
from P50,000.00 to P100,000.00 for its upkeep. These expenses were never deducted from the rentals which already increased to P1,000.00.
In June 1990, the lessees received a letter from Atty. Erlinda Aguila demanding that they vacate the premises so that the demolition of the building
be undertaken. They refused to leave the premises. In that same month, de Leon refused to accept the lessees rental payment claiming that they
have run out of receipts and that a new collector has been assigned to receive the payments. Thereafter, they received a letter from Eufrocina de
Leon offering to sell to them the property they were leasing for P2,000,000.00. xxx.
The lessees offered to buy the property from de Leon for the amount of P1,000,000.00. De Leon told them that she will be submitting the offer to the
other heirs. Since then, no answer was given by de Leon as to their offer to buy the property. However, in November 1990, Rene Joaquin came to
the leased premises introducing himself as its new owner.
In January 1991, the lessees again received another letter from Atty. Aguila demanding that they vacate the premises. A month thereafter, the lessees
received a letter from de Leon advising them that the heirs of the late spouses Tiangcos have already sold the property to Rosencor. The following
month Atty. Aguila wrote them another letter demanding the rental payment and introducing herself as counsel for Rosencor/Rene Joaquin, the new
owners of the premises.
The lessees requested from de Leon why she had disregarded the pre-emptive right she and the late Tiangcos have promised them. They also asked
for a copy of the deed of sale between her and the new owners thereof but she refused to heed their request. In the same manner, when they asked
Rene Joaquin a copy of the deed of sale, the latter turned down their request and instead Atty. Aguila wrote them several letters demanding that they
vacate the premises. The lessees offered to tender their rental payment to de Leon but she refused to accept the same.
In April 1992 before the demolition can be undertaken by the Buiding Official, the barangay interceded between the parties herein after which Rosencor
raised the issue as to the rental payment of the premises. It was also at this instance that the lessees were furnished with a copy of the Deed of Sale
and discovered that they were deceived by de Leon since the sale between her and Rene Joaquin/Rosencor took place in September 4, 1990 while
de Leon made the offer to them only in October 1990 or after the sale with Rosencor had been consummated. The lessees also noted that the
property was sold only for P726,000.00.
The lessees offered to reimburse de Leon the selling price of P726,000.00 plus an additional P274,000.00 to complete their P1,000.000.00 earlier
offer. When their offer was refused, they filed the present action praying for the following: a) rescission of the Deed of Absolute Sale between de Leon
and Rosencor dated September 4, 1990; b) the defendants Rosencor/Rene Joaquin be ordered to reconvey the property to de Leon; and c) de Leon
be ordered to reimburse the plaintiffs for the repairs of the property, or apply the said amount as part of the price for the purchase of the property in
the sum of P100,000.00.[4]
After trial on the merits, the Regional Trial Court rendered a Decision[5] dated May 13, 1996 dismissing the complaint. The trial court held that the
right of redemption on which the complaint was based was merely an oral one and as such, is unenforceable under the law. The dispositive portion
of the May 13, 1996 Decision is as follows:
WHEREFORE, in view of the foregoing, the Court DISMISSES the instant action. Plaintiffs and plaintiffs-intervenors are hereby ordered to pay their
respective monthly rental of P1,000.00 per month reckoned from May 1990 up to the time they leave the premises. No costs.
SO ORDERED.[6]
Not satisfied with the decision of the trial court, respondents herein filed a Notice of Appeal dated June 3, 1996. On the same date, the trial court
issued an Order for the elevation of the records of the case to the Court of Appeals. On August 8, 1997, respondents filed their appellate brief before
the Court of Appeals.
On June 25, 1999, the Court of Appeals rendered its decision[7] reversing the decision of the trial court. The dispositive portion of the June 25, 1999
decision is as follows:
WHEREFORE, premises considered, the appealed decision (dated May 13, 1996) of the Regional Trial Court (Branch 217) in Quezon City in Case
No. Q-93-18582 is hereby REVERSED and SET ASIDE. In its stead, a new one is rendered ordering:
(1) The rescission of the Deed of Absolute Sale executed between the appellees on September 4, 1990;
(2) The reconveyance of the subject premises to appellee Eufrocina de Leon;
(3) The heirs of Faustino and Crescencia Tiangco, thru appellee Eufrocina de Leon, to afford the appellants thirty days within which to exercise their
right of first refusal by paying the amount of ONE MILLION PESOS (P1,000,000.00) for the subject property; and
(4) The appellants to, in turn, pay the appellees back rentals from May 1990 up to the time this decision is promulgated.
No pronouncement as to costs.
SO ORDERED.[8]
Petitioners herein filed a Motion for Reconsideration of the decision of the Court of Appeals but the same was denied in a Resolution dated October
15, 1999.[9]
Hence, this petition for review on certiorari where petitioners Rosencor Development Corporation and Rene Joaquin raise the following assignment
of errors[10]:
I.
THE COURT OF APPEALS GRAVELY ERRED WHEN IT ORDERED THE RESCISSION OF THE ABSOLUTE DEED OF SALE BETWEEN
EUFROCINA DE LEON AND PETITIONER ROSENCOR.
II.
THE COURT OF APPEALS COMMITTED MANIFEST ERROR IN MANDATING THAT EUFROCINA DE LEON AFFORD RESPONDENTS THE
OPPORTUNITY TO EXERCISE THEIR RIGHT OF FIRST REFUSAL.
III.
THE COURT OF APPEALS GRIEVOUSLY ERRED IN CONCLUDING THAT RESPONDENTS HAVE ESTABLISHED THEIR RIGHT OF FIRST
REFUSAL DESPITE PETITIONERS RELIANCE ON THEIR DEFENSE BASED ON THE STATUTE OF FRAUDS.
Eufrocina de Leon, for herself and for the heirs of the spouses Faustino and Crescencia Tiangco, did not appeal the decision of the Court of Appeals.
At the onset, we note that both the Court of Appeals and the Regional Trial Court relied on Article 1403 of the New Civil Code, more specifically the
provisions on the statute of frauds, in coming out with their respective decisions. The trial court, in denying the petition for reconveyance, held that
right of first refusal relied upon by petitioners was not reduced to writing and as such, is unenforceable by virtue of the said article. The Court of
Appeals, on the other hand, also held that the statute of frauds governs the right of first refusal claimed by respondents. However, the appellate court
ruled that respondents had duly proven the same by reason of petitioners waiver of the protection of the statute by reason of their failure to object to
the presentation of oral evidence of the said right.
Both the appellate court and the trial court failed to discuss, however, the threshold issue of whether or not a right of first refusal is indeed covered
by the provisions of the New Civil Code on the statute of frauds. The resolution of the issue on the applicability of the statute of frauds is important as
it will determine the type of evidence which may be considered by the trial court as proof of the alleged right of first refusal.
The term statute of frauds is descriptive of statutes which require certain classes of contracts to be in writing. This statute does not deprive the parties
of the right to contract with respect to the matters therein involved, but merely regulates the formalities of the contract necessary to render it
enforceable. Thus, they are included in the provisions of the New Civil Code regarding unenforceable contracts, more particularly Art. 1403, paragraph
2. Said article provides, as follows:
Art. 1403. The following contracts are unenforceable, unless they are ratified:
xxx
(2) Those that do not comply with the Statute of Frauds as set forth in this number. In the following cases an agreement hereafter made shall be
unenforceable by action, unless the same, or some note or memorandum thereof, be in writing, and subscribed by the party charged, or by his agent;
evidence, therefore, of the agreement cannot be received without the writing, or a secondary evidence of its contents:
a) An agreement that by its terms is not to be performed within a year from the making thereof;
b) A special promise to answer for the debt, default, or miscarriage of another;
c) An agreement made in consideration of marriage, other than a mutual promise to marry;
d) An agreement for the sale of goods, chattels or things in action, at a price not less than five hundred pesos, unless the buyer accept and receive
part of such goods and chattels, or the evidences, or some of them, of such things in action, or pay at the time some part of the purchase money; but
when a sale is made by auction and entry is made by the auctioneer in his sales book, at the time of the sale, of the amount and kind of property sold,
terms of sale, price, names of purchasers and person on whose account the sale is made, it is a sufficient memorandum;
e) An agreement for the leasing of a longer period than one year, or for the sale of real property or of an interest therein;
f) A representation to the credit of a third person.
The purpose of the statute is to prevent fraud and perjury in the enforcement of obligations depending for their evidence on the unassisted memory
of witnesses by requiring certain enumerated contracts and transactions to be evidenced by a writing signed by the party to be charged.[11] Moreover,
the statute of frauds refers to specific kinds of transactions and cannot apply to any other transaction that is not enumerated therein.[12] The application
of such statute presupposes the existence of a perfected contract.[13]
The question now is whether a right of first refusal is among those enumerated in the list of contracts covered by the Statute of Frauds. More
specifically, is a right of first refusal akin to an agreement for the leasing of a longer period than one year, or for the sale of real property or of an
interest therein as contemplated by Article 1403, par. 2(e) of the New Civil Code.
We have previously held that not all agreements affecting land must be put into writing to attain enforceability[14]. Thus, we have held that the setting
up of boundaries,[15] the oral partition of real property[16], and an agreement creating a right of way[17] are not covered by the provisions of the statute
of frauds. The reason simply is that these agreements are not among those enumerated in Article 1403 of the New Civil Code.
A right of first refusal is not among those listed as unenforceable under the statute of frauds. Furthermore, the application of Article 1403, par. 2(e) of
the New Civil Code presupposes the existence of a perfected, albeit unwritten, contract of sale.[18] A right of first refusal, such as the one involved in
the instant case, is not by any means a perfected contract of sale of real property. At best, it is a contractual grant, not of the sale of the real property
involved, but of the right of first refusal over the property sought to be sold[19]
It is thus evident that the statute of frauds does not contemplate cases involving a right of first refusal. As such, a right of first refusal need not be
written to be enforceable and may be proven by oral evidence.
The next question to be ascertained is whether or not respondents have satisfactorily proven their right of first refusal over the property subject of the
Deed of Absolute Sale dated September 4, 1990 between petitioner Rosencor and Eufrocina de Leon.
On this point, we agree with the factual findings of the Court of Appeals that respondents have adequately proven the existence of their right of first
refusal. Federico Bantugan, Irene Guillermo, and Paterno Inquing uniformly testified that they were promised by the late spouses Faustino and
Crescencia Tiangco and, later on, by their heirs a right of first refusal over the property they were currently leasing should they decide to sell the
same. Moreover, respondents presented a letter[20] dated October 9, 1990 where Eufrocina de Leon, the representative of the heirs of the spouses
Tiangco, informed them that they had received an offer to buy the disputed property for P2,000,000.00 and offered to sell the same to the respondents
at the same price if they were interested. Verily, if Eufrocina de Leon did not recognize respondents right of first refusal over the property they were
leasing, then she would not have bothered to offer the property for sale to the respondents.
It must be noted that petitioners did not present evidence before the trial court contradicting the existence of the right of first refusal of respondents
over the disputed property. They only presented petitioner Rene Joaquin, the vice-president of petitioner Rosencor, who admitted having no personal
knowledge of the details of the sales transaction between Rosencor and the heirs of the spouses Tiangco [21] They also dispensed with the testimony
of Eufrocina de Leon[22] who could have denied the existence or knowledge of the right of first refusal. As such, there being no evidence to the
contrary, the right of first refusal claimed by respondents was substantially proven by respondents before the lower court.
Having ruled upon the question as to the existence of respondents right of first refusal, the next issue to be answered is whether or not the Court of
Appeals erred in ordering the rescission of the Deed of Absolute Sale dated September 4, 1990 between Rosencor and Eufrocina de Leon and in
decreeing that the heirs of the spouses Tiangco should afford respondents the exercise of their right of first refusal. In other words, may a contract of
sale entered into in violation of a third partys right of first refusal be rescinded in order that such third party can exercise said right?
The issue is not one of first impression.
In Guzman, Bocaling and Co, Inc. vs. Bonnevie[23], the Court upheld the decision of a lower court ordering the rescission of a deed of sale which
violated a right of first refusal granted to one of the parties therein.The Court held:
xxx Contract of Sale was not voidable but rescissible. Under Article 1380 to 1381 (3) of the Civil Code, a contract otherwise valid may nonetheless
be subsequently rescinded by reason of injury to third persons, like creditors. The status of creditors could be validly accorded the Bonnevies for they
had substantial interests that were prejudiced by the sale of the subject property to the petitioner without recognizing their right of first priority under
the Contract of Lease.
According to Tolentino, rescission is a remedy granted by law to the contracting parties and even to third persons, to secure reparations for damages
caused to them by a contract, even if this should be valid, by means of the restoration of things to their condition at the moment prior to the celebration
of said contract. It is a relief allowed for the protection of one of the contracting parties and even third persons from all injury and damage the contract
may cause, or to protect some incompatible and preferent right created by the contract. Rescission implies a contract which, even if initially valid,
produces a lesion or pecuniary damage to someone that justifies its invalidation for reasons of equity.
It is true that the acquisition by a third person of the property subject of the contract is an obstacle to the action for its rescission where it is shown
that such third person is in lawful possession of the subject of the contract and that he did not act in bad faith. However, this rule is not applicable in
the case before us because the petitioner is not considered a third party in relation to the Contract of Sale nor may its possession of the subject
property be regarded as acquired lawfully and in good faith.
Indeed, Guzman, Bocaling and Co. was the vendee in the Contract of Sale. Moreover, the petitioner cannot be deemed a purchaser in good faith for
the record shows that it categorically admitted that it was aware of the lease in favor of the Bonnevies, who were actually occupying the subject
property at the time it was sold to it. Although the Contract of Lease was not annotated on the transfer certificate of title in the name of the late Jose
Reynoso and Africa Reynoso, the petitioner cannot deny actual knowledge of such lease which was equivalent to and indeed more binding than
presumed notice by registration.
A purchaser in good faith and for value is one who buys the property of another without notice that some other person has a right to or interest in
such property without and pays a full and fair price for the same at the time of such purchase or before he has notice of the claim or interest of some
other person in the property. Good faith connotes an honest intention to abstain from taking unconscientious advantage of another. Tested by these
principles, the petitioner cannot tenably claim to be a buyer in good faith as it had notice of the lease of the property by the Bonnevies and such
knowledge should have cautioned it to look deeper into the agreement to determine if it involved stipulations that would prejudice its own interests.
Subsequently[24] in Equatorial Realty and Development, Inc. vs. Mayfair Theater, Inc.[25], the Court, en banc, with three justices dissenting,[26] ordered
the rescission of a contract entered into in violation of a right of first refusal. Using the ruling in Guzman Bocaling & Co., Inc. vs. Bonnevie as basis,
the Court decreed that since respondent therein had a right of first refusal over the said property, it could only exercise the said right if the fraudulent
sale is first set aside or rescinded. Thus:
What Carmelo and Mayfair agreed to, by executing the two lease contracts, was that Mayfair will have the right of first refusal in the event Carmelo
sells the leased premises. It is undisputed that Carmelo did recognize this right of Mayfair, for it informed the latter of its intention to sell the said
property in 1974. There was an exchange of letters evidencing the offer and counter-offers made by both parties. Carmelo, however, did not pursue
the exercise to its logical end. While it initially recognized Mayfairs right of first refusal, Carmelo violated such right when without affording its
negotiations with Mayfair the full process to ripen to at least an interface of a definite offer and a possible corresponding acceptance within the 30-
day exclusive option time granted Mayfair, Carmelo abandoned negotiations, kept a low profile for some time, and then sold, without prior notice to
Mayfair, the entire Claro M. Recto property to Equatorial.
Since Equatorial is a buyer in bad faith, this finding renders the sale to it of the property in question, rescissible. We agree with respondent Appellate
Court that the records bear out the fact that Equatorial was aware of the lease contracts because its lawyers had, prior to the sale, studied the said
contracts. As such, Equatorial cannot tenably claim that to be a purchaser in good faith, and, therefore, rescission lies.
XXX
As also earlier emphasized, the contract of sale between Equatorial and Carmelo is characterized by bad faith, since it was knowingly entered into in
violation of the rights of and to the prejudice of Mayfair. In fact, as correctly observed by the Court of Appeals, Equatorial admitted that its lawyers
had studied the contract of lease prior to the sale. Equatorials knowledge of the stipulations therein should have cautioned it to look further into the
agreement to determine if it involved stipulations that would prejudice its own interests.
Since Mayfair had a right of first refusal, it can exercise the right only if the fraudulent sale is first set aside or rescinded. All of these matters are now
before us and so there should be no piecemeal determination of this case and leave festering sores to deteriorate into endless litigation. The facts of
the case and considerations of justice and equity require that we order rescission here and now. Rescission is a relief allowed for the protection of
one of the contracting parties and even third persons from all injury and damage the contract may cause or to protect some incompatible and preferred
right by the contract. The sale of the subject real property should now be rescinded considering that Mayfair, which had substantial interest over the
subject property, was prejudiced by the sale of the subject property to Equatorial without Carmelo conferring to Mayfair every opportunity to negotiate
within the 30-day stipulate period.[27]
In Paranaque Kings Enterprises, Inc. vs. Court of Appeals,[28] the Court held that the allegations in a complaint showing violation of a contractual right
of first option or priority to buy the properties subject of the lease constitute a valid cause of action enforceable by an action for specific
performance. Summarizing the rulings in the two previously cited cases, the Court affirmed the nature of and concomitant rights and obligations of
parties under a right of first refusal. Thus:
We hold however, that in order to have full compliance with the contractual right granting petitioner the first option to purchase, the sale of the
properties for the amount of P9,000,000.00, the price for which they were finally sold to respondent Raymundo, should have likewise been offered to
petitioner.
The Court has made an extensive and lengthy discourse on the concept of, and obligations under, a right of first refusal in the case of Guzman,
Bocaling & Co. vs. Bonnevie. In that case, under a contract of lease, the lessees (Raul and Christopher Bonnevie) were given a "right of first priority"
to purchase the leased property in case the lessor (Reynoso) decided to sell. The selling price quoted to the Bonnevies was 600,000.00 to be fully
paid in cash, less a mortgage lien of P100,000.00. On the other hand, the selling price offered by Reynoso to and accepted by Guzman was only
P400,000.00 of which P137,500.00 was to be paid in cash while the balance was to be paid only when the property was cleared of occupants. We
held that even if the Bonnevies could not buy it at the price quoted (P600,000.00), nonetheless, Reynoso could not sell it to another for a lower price
and under more favorable terms and conditions without first offering said favorable terms and price to the Bonnevies as well. Only if the Bonnevies
failed to exercise their right of first priority could Reynoso thereafter lawfully sell the subject property to others, and only under the same terms and
conditions previously offered to the Bonnevies.
XXX
This principle was reiterated in the very recent case of Equatorial Realty vs. Mayfair Theater, Inc. which was decided en banc. This Court upheld the
right of first refusal of the lessee Mayfair, and rescinded the sale of the property by the lessor Carmelo to Equatorial Realty "considering that Mayfair,
which had substantial interest over the subject property, was prejudiced by its sale to Equatorial without Carmelo conferring to Mayfair every
opportunity to negotiate within the 30-day stipulated period"
In that case, two contracts of lease between Carmelo and Mayfair provided "that if the LESSOR should desire to sell the leased premises, the LESSEE
shall be given 30 days exclusive option to purchase the same." Carmelo initially offered to sell the leased property to Mayfair for six to seven million
pesos. Mayfair indicated interest in purchasing the property though it invoked the 30-day period. Nothing was heard thereafter from Carmelo. Four
years later, the latter sold its entire Recto Avenue property, including the leased premises, to Equatorial for P11,300,000.00 without priorly informing
Mayfair. The Court held that both Carmelo and Equatorial acted in bad faith: Carmelo for knowingly violating the right of first option of Mayfair, and
Equatorial for purchasing the property despite being aware of the contract stipulation. In addition to rescission of the contract of sale, the Court
ordered Carmelo to allow Mayfair to buy the subject property at the same price of P11,300,000.00.
In the recent case of Litonjua vs. L&R Corporation,[29] the Court, also citing the case of Guzman, Bocaling & Co. vs. Bonnevie, held that the sale made
therein in violation of a right of first refusal embodied in a mortgage contract, was rescissible. Thus:
While petitioners question the validity of paragraph 8 of their mortgage contract, they appear to be silent insofar as paragraph 9 thereof is
concerned. Said paragraph 9 grants upon L&R Corporation the right of first refusal over the mortgaged property in the event the mortgagor decides
to sell the same. We see nothing wrong in this provision. The right of first refusal has long been recognized as valid in our jurisdiction. The
consideration for the loan mortgage includes the consideration for the right of first refusal. L&R Corporation is in effect stating that it consents to lend
out money to the spouses Litonjua provided that in case they decide to sell the property mortgaged to it, then L&R Corporation shall be given the
right to match the offered purchase price and to buy the property at that price. Thus, while the spouses Litonjua had every right to sell their mortgaged
property to PWHAS without securing the prior written consent of L&R Corporation, they had the obligation under paragraph 9, which is a perfectly
valid provision, to notify the latter of their intention to sell the property and give it priority over other buyers. It is only upon the failure of L&R Corporation
to exercise its right of first refusal could the spouses Litonjua validly sell the subject properties to the others, under the same terms and conditions
offered to L&R Corporation.
What then is the status of the sale made to PWHAS in violation of L & R Corporation's contractual right of first refusal? On this score, we agree with
the Amended Decision of the Court of Appeals that the sale made to PWHAS is rescissible. The case of Guzman, Bocaling & Co. v. Bonnevie is
instructive on this point.
XXX
It was then held that the Contract of Sale there, which violated the right of first refusal, was rescissible.
In the case at bar, PWHAS cannot claim ignorance of the right of first refusal granted to L & R Corporation over the subject properties since the Deed
of Real Estate Mortgage containing such a provision was duly registered with the Register of Deeds. As such, PWHAS is presumed to have been
notified thereof by registration, which equates to notice to the whole world.
XXX
All things considered, what then are the relative rights and obligations of the parties? To recapitulate: the sale between the spouses Litonjua and
PWHAS is valid, notwithstanding the absence of L & R Corporation's prior written consent thereto. Inasmuch as the sale to PWHAS was valid, its
offer to redeem and its tender of the redemption price, as successor-in-interest of the spouses Litonjua, within the one-year period should have been
accepted as valid by the L & R Corporation. However, while the sale is, indeed, valid, the same is rescissible because it ignored L & R Corporation's
right of first refusal.
Thus, the prevailing doctrine, as enunciated in the cited cases, is that a contract of sale entered into in violation of a right of first refusal of another
person, while valid, is rescissible.
There is, however, a circumstance which prevents the application of this doctrine in the case at bench. In the cases cited above, the Court ordered
the rescission of sales made in violation of a right of first refusal precisely because the vendees therein could not have acted in good faith as they
were aware or should have been aware of the right of first refusal granted to another person by the vendors therein. The rationale for this is found in
the provisions of the New Civil Code on rescissible contracts. Under Article 1381 of the New Civil Code, paragraph 3, a contract validly agreed upon
may be rescinded if it is undertaken in fraud of creditors when the latter cannot in any manner collect the claim due them. Moreover, under Article
1385, rescission shall not take place when the things which are the object of the contract are legally in the possession of third persons who did not
act in bad faith.[30]
It must be borne in mind that, unlike the cases cited above, the right of first refusal involved in the instant case was an oral one given to respondents
by the deceased spouses Tiangco and subsequently recognized by their heirs. As such, in order to hold that petitioners were in bad faith, there must
be clear and convincing proof that petitioners were made aware of the said right of first refusal either by the respondents or by the heirs of the spouses
Tiangco.
It is axiomatic that good faith is always presumed unless contrary evidence is adduced.[31] A purchaser in good faith is one who buys the property of
another without notice that some other person has a right or interest in such a property and pays a full and fair price at the time of the purchase or
before he has notice of the claim or interest of some other person in the property.[32] In this regard, the rule on constructive notice would be inapplicable
as it is undisputed that the right of first refusal was an oral one and that the same was never reduced to writing, much less registered with the Registry
of Deeds. In fact, even the lease contract by which respondents derive their right to possess the property involved was an oral one.
On this point, we hold that the evidence on record fails to show that petitioners acted in bad faith in entering into the deed of sale over the disputed
property with the heirs of the spouses Tiangco. Respondents failed to present any evidence that prior to the sale of the property on September 4,
1990, petitioners were aware or had notice of the oral right of first refusal.
Respondents point to the letter dated June 1, 1990[33] as indicative of petitioners knowledge of the said right. In this letter, a certain Atty. Erlinda Aguila
demanded that respondent Irene Guillermo vacate the structure they were occupying to make way for its demolition.
We fail to see how the letter could give rise to bad faith on the part of the petitioner. No mention is made of the right of first refusal granted to
respondents. The name of petitioner Rosencor or any of it officers did not appear on the letter and the letter did not state that Atty. Aguila was writing
in behalf of petitioner. In fact, Atty. Aguila stated during trial that she wrote the letter in behalf of the heirs of the spouses Tiangco. Moreover, even
assuming that Atty. Aguila was indeed writing in behalf of petitioner Rosencor, there is no showing that Rosencor was aware at that time that such a
right of first refusal existed.
Neither was there any showing that after receipt of this June 1, 1990 letter, respondents notified Rosencor or Atty. Aguila of their right of first refusal
over the property. Respondents did not try to communicate with Atty. Aguila and inform her about their preferential right over the disputed
property. There is even no showing that they contacted the heirs of the spouses Tiangco after they received this letter to remind them of their right
over the property.
Respondents likewise point to the letter dated October 9, 1990 of Eufrocina de Leon, where she recognized the right of first refusal of respondents,
as indicative of the bad faith of petitioners. We do not agree.Eufrocina de Leon wrote the letter on her own behalf and not on behalf of petitioners
and, as such, it only shows that Eufrocina de Leon was aware of the existence of the oral right of first refusal. It does not show that petitioners were
likewise aware of the existence of the said right. Moreover, the letter was made a month after the execution of the Deed of Absolute Sale on September
4, 1990 between petitioner Rosencor and the heirs of the spouses Tiangco. There is no showing that prior to the date of the execution of the said
Deed, petitioners were put on notice of the existence of the right of first refusal.
Clearly, if there was any indication of bad faith based on respondents evidence, it would only be on the part of Eufrocina de Leon as she was aware
of the right of first refusal of respondents yet she still sold the disputed property to Rosencor. However, bad faith on the part of Eufrocina de Leon
does not mean that petitioner Rosencor likewise acted in bad faith. There is no showing that prior to the execution of the Deed of Absolute Sale,
petitioners were made aware or put on notice of the existence of the oral right of first refusal. Thus, absent clear and convincing evidence to the
contrary, petitioner Rosencor will be presumed to have acted in good faith in entering into the Deed of Absolute Sale over the disputed property.
Considering that there is no showing of bad faith on the part of the petitioners, the Court of Appeals thus erred in ordering the rescission of the Deed
of Absolute Sale dated September 4, 1990 between petitioner Rosencor and the heirs of the spouses Tiangco. The acquisition by Rosencor of the
property subject of the right of first refusal is an obstacle to the action for its rescission where, as in this case, it was shown that Rosencor is in lawful
possession of the subject of the contract and that it did not act in bad faith.[34]
This does not mean however that respondents are left without any remedy for the unjustified violation of their right of first refusal. Their remedy
however is not an action for the rescission of the Deed of Absolute Sale but an action for damages against the heirs of the spouses Tiangco for the
unjustified disregard of their right of first refusal[35].
WHEREFORE, premises considered, the decision of the Court of Appeals dated June 25, 1999 is REVERSED and SET ASIDE. The Decision dated
May 13, 1996 of the Quezon City Regional Trial Court, Branch 217 is hereby REINSTATED insofar as it dismisses the action for rescission of the
Deed of Absolute Sale dated September 4, 1990 and orders the payment of monthly rentals of P1,000.00 per month reckoned from May 1990 up to
the time respondents leave the premises.
SO ORDERED.
Melo, (Chairman), Panganiban, and Sandoval-Gutierrez, JJ., concur.
Vitug, J., in the result; reiterated the Courts opinion in Ang Yu vs. CA (238 SCRA 602).
POLYTECHNIC UNIVERSITY OF THE PHILIPPINES, petitioner, vs. COURT OF APPEALS and FIRESTONE CERAMICS, INC., respondents.
[G.R. No. 143590. November 14, 2001]
NATIONAL DEVELOPMENT CORPORATION, petitioner, vs. FIRESTONE CERAMICS, INC., respondents.
DECISION
BELLOSILLO, J.:
A litigation is not simply a contest of litigants before the bar of public opinion; more than that, it is a pursuit of justice through legal and equitable
means. To prevent the search for justice from evolving into a competition for public approval, society invests the judiciary with complete independence
thereby insulating it from demands expressed through any medium, the press not excluded. Thus, if the court would merely reflect, and worse,
succumb to the great pressures of the day, the end result, it is feared, would be a travesty of justice.
In the early sixties, petitioner National Development Corporation (NDC), a government owned and controlled corporation created under CA 182 as
amended by CA 311 and PD No. 668, had in its disposal a ten (10)-hectare property located along Pureza St., Sta. Mesa, Manila. The estate was
popularly known as the NDC compound and covered by Transfer Certificates of Title Nos. 92885, 110301 and 145470.
Sometime in May 1965 private respondent Firestone Ceramics Inc. (FIRESTONE) manifested its desire to lease a portion of the property for its
ceramic manufacturing business. On 24 August 1965 NDC and FIRESTONE entered into a contract of lease denominated as Contract No. C-30-65
covering a portion of the property measured at 2.90118 hectares for use as a manufacturing plant for a term of ten (10) years, renewable for another
ten (10) years under the same terms and conditions.[1] In consequence of the agreement, FIRESTONE constructed on the leased premises several
warehouses and other improvements needed for the fabrication of ceramic products.
Three and a half (3-1/2) years later, or on 8 January 1969, FIRESTONE entered into a second contract of lease with NDC over the latter's four (4)-
unit pre-fabricated reparation steel warehouse stored in Daliao, Davao. FIRESTONE agreed to ship the warehouse to Manila for eventual assembly
within the NDC compound. The second contract, denominated as Contract No. C-26-68, was for similar use as a ceramic manufacturing plant and
was agreed expressly to be "co-extensive with the lease of LESSEE with LESSOR on the 2.60 hectare-lot."[2]
On 31 July 1974 the parties signed a similar contract concerning a six (6)-unit pre-fabricated steel warehouse which, as agreed upon by the parties,
would expire on 2 December 1978.[3] Prior to the expiration of the aforementioned contract, FIRESTONE wrote NDC requesting for an extension of
their lease agreement. Consequently on 29 November 1978 the Board of Directors of NDC adopted Resolution No. 11-78-117 extending the term of
the lease, subject to several conditions among which was that in the event NDC "with the approval of higher authorities, decide to dispose and sell
these properties including the lot, priority should be given to the LESSEE"[4] (underscoring supplied). On 22 December 1978, in pursuance of the
resolution, the parties entered into a new agreement for a ten-year lease of the property, renewable for another ten (10) years, expressly granting
FIRESTONE the first option to purchase the leased premises in the event that it decided "to dispose and sell these properties including the lot . . . .
"[5]
The contracts of lease conspicuously contain an identically worded provision requiring FIRESTONE to construct buildings and other improvements
within the leased premises worth several hundred thousands of pesos.[6]
The parties' lessor-lessee relationship went smoothly until early 1988 when FIRESTONE, cognizant of the impending expiration of their lease
agreement with NDC, informed the latter through several letters and telephone calls that it was renewing its lease over the property. While its letter
of 17 March 1988 was answered by Antonio A. Henson, General Manager of NDC, who promised immediate action on the matter, the rest of its
communications remained unacknowledged.[7] FIRESTONE's predicament worsened when rumors of NDC's supposed plans to dispose of the subject
property in favor of petitioner Polytechnic University of the Philippines (PUP) came to its knowledge. Forthwith, FIRESTONE served notice on NDC
conveying its desire to purchase the property in the exercise of its contractual right of first refusal.
Apprehensive that its interest in the property would be disregarded, FIRESTONE instituted an action for specific performance to compel NDC to sell
the leased property in its favor. FIRESTONE averred that it was pre-empting the impending sale of the NDC compound to petitioner PUP in violation
of its leasehold rights over the 2.60-hectare[8] property and the warehouses thereon which would expire in 1999. FIRESTONE likewise prayed for the
issuance of a writ of preliminary injunction to enjoin NDC from disposing of the property pending the settlement of the controversy.[9]
In support of its complaint, FIRESTONE adduced in evidence a letter of Antonio A. Henson dated 15 July 1988 addressed to Mr. Jake C. Lagonera,
Director and Special Assistant to Executive Secretary Catalino Macaraeg, reviewing a proposed memorandum order submitted to then President
Corazon C. Aquino transferring the whole NDC compound, including the leased property, in favor of petitioner PUP. Attached to the letter was a draft
of the proposed memorandum order as well as a summary of existing leases on the subject property. The survey listed FIRESTONE as lessee of a
portion of the property, placed at 29,000[10] square meters, whose contract with NDC was set to expire on 31 December 1989 [11] renewable for another
ten (10) years at the option of the lessee. The report expressly recognized FIRESTONE's right of first refusal to purchase the leased property "should
the lessor decide to sell the same."[12]
Meanwhile, on 21 February 1989 PUP moved to intervene and asserted its interest in the subject property, arguing that a "purchaser pendente lite of
property which is subject of a litigation is entitled to intervene in the proceedings."[13] PUP referred to Memorandum Order No. 214 issued by then
President Aquino ordering the transfer of the whole NDC compound to the National Government, which in turn would convey the aforementioned
property in favor of PUP at acquisition cost. The issuance was supposedly made in recognition of PUP's status as the "Poor Man's University" as well
as its serious need to extend its campus in order to accommodate the growing student population. The order of conveyance of the 10.31-hectare
property would automatically result in the cancellation of NDC's total obligation in favor of the National Government in the amount of P57,193,201.64.
Convinced that PUP was a necessary party to the controversy that ought to be joined as party defendant in order to avoid multiplicity of suits, the trial
court granted PUP's motion to intervene. FIRESTONE moved for reconsideration but was denied. On certiorari, the Court of Appeals affirmed the
order of the trial court. FIRESTONE came to us on review but in a Resolution dated 11 July 1990 we upheld PUP's inclusion as party-defendant in
the present controversy.
Following the denial of its petition, FIRESTONE amended its complaint to include PUP and Executive Secretary Catalino Macaraeg, Jr., as party-
defendants, and sought the annulment of Memorandum Order No. 214. FIRESTONE alleged that although Memorandum Order No. 214 was issued
"subject to such liens/leases existing [on the subject property]," PUP disregarded and violated its existing lease by increasing the rental rate
at P200,000.00 a month while demanding that it vacated the premises immediately.[14] FIRESTONE prayed that in the event Memorandum Order No.
214 was not declared unconstitutional, the property should be sold in its favor at the price for which it was sold to PUP - P554.74 per square meter
or for a total purchase price of P14,423,240.00.[15]
Petitioner PUP, in its answer to the amended complaint, argued in essence that the lease contract covering the property had expired long before the
institution of the complaint, and that further, the right of first refusal invoked by FIRESTONE applied solely to the six-unit pre-fabricated warehouse
and not the lot upon which it stood.
After trial on the merits, judgment was rendered declaring the contracts of lease executed between FIRESTONE and NDC covering the 2.60-hectare
property and the warehouses constructed thereon valid and existing until 2 June 1999. PUP was ordered and directed to sell to FIRESTONE the "2.6
hectare leased premises or as may be determined by actual verification and survey of the actual size of the leased properties where plaintiff's fire
brick factory is located" at P1,500.00 per square meter considering that, as admitted by FIRESTONE, such was the prevailing market price thereof.
The trial court ruled that the contracts of lease executed between FIRESTONE and NDC were interrelated and inseparable because "each of them
forms part of the integral system of plaintiff's brick manufacturing plant x x x if one of the leased premises will be taken apart or otherwise detached
from the two others, the purpose of the lease as well as plaintiff's business operations would be rendered useless and inoperative." [16] It thus decreed
that FIRESTONE could exercise its option to purchase the property until 2 June 1999 inasmuch as the 22 December 1978 contract embodied a
covenant to renew the lease for another ten (10) years at the option of the lessee as well as an agreement giving the lessee the right of first refusal.
The trial court also sustained the constitutionality of Memorandum Order No. 214 which was not per se hostile to FIRESTONE's property rights, but
deplored as prejudicial thereto the "very manner with which defendants NDC and PUP interpreted and applied the same, ignoring in the process that
plaintiff has existing contracts of lease protectable by express provisions in the Memorandum No. 214 itself." [17] It further explained that the questioned
memorandum was issued "subject to such liens/leases existing thereon"[18] and petitioner PUP was under express instructions "to enter, occupy and
take possession of the transferred property subject to such leases or liens and encumbrances that may be existing thereon"[19] (underscoring
supplied).
Petitioners PUP, NDC and the Executive Secretary separately filed their Notice of Appeal, but a few days thereafter, or on 3 September 1996, perhaps
realizing the groundlessness and the futility of it all, the Executive Secretary withdrew his appeal.[20]
Subsequently, the Court of Appeals affirmed the decision of the trial court ordering the sale of the property in favor of FIRESTONE but deleted the
award of attorney's fees in the amount of Three Hundred Thousand Pesos (P300,000.00). Accordingly, FIRESTONE was given a grace period of six
(6) months from finality of the court's judgment within which to purchase the property in questioned in the exercise of its right of first refusal.The Court
of Appeals observed that as there was a sale of the subject property, NDC could not excuse itself from its obligation TO OFFER THE PROPERTY
FOR SALE FIRST TO FIRESTONE BEFORE IT COULD TO OTHER PARTIES. The Court of Appeals held: "NDC cannot look to Memorandum Order
No. 214 to excuse or shield it from its contractual obligations to FIRESTONE. There is nothing therein that allows NDC to disavow or repudiate the
solemn engagement that it freely and voluntarily undertook, or agreed to undertake."[21]
PUP moved for reconsideration asserting that in ordering the sale of the property in favor of FIRESTONE the courts a quo unfairly created a contract
to sell between the parties. It argued that the "court cannot substitute or decree its mind or consent for that of the parties in determining whether or
not a contract (has been) perfected between PUP and NDC."[22] PUP further contended that since "a real property located in Sta. Mesa can readily
command a sum of P10,000.00 per square (meter)," the lower court gravely erred in ordering the sale of the property at only P1,500.00 per square
meter. PUP also advanced the theory that the enactment of Memorandum Order No. 214 amounted to a withdrawal of the option to purchase the
property granted to FIRESTONE. NDC, for its part, vigorously contended that the contracts of lease executed between the parties had expired without
being renewed by FIRESTONE; consequently, FIRESTONE was no longer entitled to any preferential right in the sale or disposition of the leased
property.
We do not see it the way PUP and NDC did. It is elementary that a party to a contract cannot unilaterally withdraw a right of first refusal that stands
upon valuable consideration. That principle was clearly upheld by the Court of Appeals when it denied on 6 June 2000 the twin motions for
reconsideration filed by PUP and NDC on the ground that the appellants failed to advance new arguments substantial enough to warrant a reversal
of the Decision sought to be reconsidered.[23] On 28 June 2000 PUP filed an urgent motion for an additional period of fifteen (15) days from 29 June
2000 or until 14 July 2000 within which to file a Petition for Review on Certiorari of the Decision of the Court of Appeals.
On the last day of the extended period PUP filed its Petition for Review on Certiorari assailing the Decision of the Court of Appeals of 6 December
1999 as well as the Resolution of 6 June 2000 denying reconsideration thereof. PUP raised two issues: (a) whether the courts a quo erred when they
"conjectured" that the transfer of the leased property from NDC to PUP amounted to a sale; and, (b) whether FIRESTONE can rightfully invoke its
right of first refusal. Petitioner posited that if we were to place our imprimatur on the decisions of the courts a quo, "public welfare or specifically the
constitutional priority accorded to education" would greatly be prejudiced.[24]
Paradoxically, our paramount interest in education does not license us, or any party for that matter, to destroy the sanctity of binding
obligations. Education may be prioritized for legislative or budgetary purposes, but we doubt if such importance can be used to confiscate private
property such as FIRESTONE's right of first refusal.
On 17 July 2000 we denied PUP's motion for extension of fifteen (15) days within which to appeal inasmuch as the aforesaid pleading lacked an
affidavit of service of copies thereof on the Court of Appeals and the adverse party, as well as written explanation for not filing and serving the pleading
personally.[25]
Accordingly, on 26 July 2000 we issued a Resolution dismissing PUP's Petition for Review for having been filed out of time. PUP moved for
reconsideration imploring a resolution or decision on the merits of its petition. Strangely, about the same time, several articles came out in the
newspapers assailing the denial of the petition. The daily papers reported that we unreasonably dismissed PUP's petition on technical grounds,
affirming in the process the decision of the trial court to sell the disputed property to the prejudice of the government in the amount
of P1,000,000,000.00.[26] Counsel for petitioner PUP, alleged that the trial court and the Court of Appeals "have decided a question of substance in a
way definitely not in accord with law or jurisprudence."[27]
At the outset, let it be noted that the amount of P1,000,000,000.00 as reported in the papers was way too exaggerated, if not fantastic. We stress that
NDC itself sold the whole 10.31-hectare property to PUP at only P57,193,201.64 which represents NDC's obligation to the national government that
was, in exchange, written off. The price offered per square meter of the property was pegged at P554.74. FIRESTONE's leased premises would
therefore be worth only P14,423,240.00. From any angle, this amount is certainly far below the ballyhooed price of P1,000,000,000.00.
On 4 October 2000 we granted PUP's Motion for Reconsideration to give it a chance to ventilate its right, if any it still had in the leased premises,
thereby paving the way for a reinstatement of its Petition for Review.[28] In its appeal, PUP took to task the courts a quo for supposedly "substituting
or decreeing its mind or consent for that of the parties (referring to NDC and PUP) in determining whether or not a contract of sale was perfected."
PUP also argued that inasmuch as "it is the parties alone whose minds must meet in reference to the subject matter and cause," it concluded that it
was error for the lower courts to have decreed the existence of a sale of the NDC compound thus allowing FIRESTONE to exercise its right of first
refusal.
On the other hand, NDC separately filed its own Petition for Review and advanced arguments which, in fine, centered on whether or not the transaction
between petitioners NDC and PUP amounted to a sale considering that ownership of the property remained with the government. [29] Petitioner NDC
introduced the novel proposition that if the parties involved are both government entities the transaction cannot be legally called a sale.
In due course both petitions were consolidated.[30]
We believe that the courts a quo did not hypothesize, much less conjure, the sale of the disputed property by NDC in favor of petitioner PUP. Aside
from the fact that the intention of NDC and PUP to enter into a contract of sale was clearly expressed in the Memorandum Order No. 214,[31] a close
perusal of the circumstances of this case strengthens the theory that the conveyance of the property from NDC to PUP was one of absolute sale, for
a valuable consideration, and not a mere paper transfer as argued by petitioners.
A contract of sale, as defined in the Civil Code, is a contract where one of the parties obligates himself to transfer the ownership of and to deliver a
determinate thing to the other or others who shall pay therefore a sum certain in money or its equivalent. [32] It is therefore a general requisite for the
existence of a valid and enforceable contract of sale that it be mutually obligatory, i.e., there should be a concurrence of the promise of the vendor to
sell a determinate thing and the promise of the vendee to receive and pay for the property so delivered and transferred. The Civil Code provision is,
in effect, a "catch-all" provision which effectively brings within its grasp a whole gamut of transfers whereby ownership of a thing is ceded for a
consideration.
Contrary to what petitioners PUP and NDC propose, there is not just one party involved in the questioned transaction. Petitioners NDC and PUP have
their respective charters and therefore each possesses a separate and distinct individual personality.[33] The inherent weakness of NDCs proposition
that there was no sale as it was only the government which was involved in the transaction thus reveals itself. Tersely put, it is not necessary to write
an extended dissertation on government owned and controlled corporations and their legal personalities. Beyond cavil, a government owned and
controlled corporation has a personality of its own, distinct and separate from that of the government. [34] The intervention in the transaction of the
Office of the President through the Executive Secretary did not change the independent existence of these entities. The involvement of the Office of
the President was limited to brokering the consequent relationship between NDC and PUP. But the withdrawal of the appeal by the Executive
Secretary is considered significant as he knew, after a review of the records, that the transaction was subject to existing liens and encumbrances,
particularly the priority to purchase the leased premises in favor of FIRESTONE.
True that there may be instances when a particular deed does not disclose the real intentions of the parties, but their action may nevertheless indicate
that a binding obligation has been undertaken. Since the conduct of the parties to a contract may be sufficient to establish the existence of an
agreement and the terms thereof, it becomes necessary for the courts to examine the contemporaneous behavior of the parties in establishing the
existence of their contract.
The preponderance of evidence shows that NDC sold to PUP the whole NDC compound, including the leased premises, without the knowledge much
less consent of private respondent FIRESTONE which had a valid and existing right of first refusal.
All three (3) essential elements of a valid sale, without which there can be no sale, were attendant in the "disposition" and "transfer" of the property
from NDC to PUP - consent of the parties, determinate subject matter, and consideration therefor.
Consent to the sale is obvious from the prefatory clauses of Memorandum Order No. 214 which explicitly states the acquiescence of the parties to
the sale of the property -
WHEREAS, PUP has expressed its willingness to acquire said NDC properties and NDC has expressed its willingness to sell the properties
to PUP (underscoring supplied).[35]
Furthermore, the cancellation of NDC's liabilities in favor of the National Government in the amount of P57,193,201.64 constituted the "consideration"
for the sale. As correctly observed by the Court of Appeals-
The defendants-appellants' interpretation that there was a mere transfer, and not a sale, apart from being specious sophistry and a mere play of
words, is too strained and hairsplitting. For it is axiomatic that every sale imposes upon the vendor the obligation to transfer ownership as an essential
element of the contract. Transfer of title or an agreement to transfer title for a price paid, or promised to be paid, is the very essence of sale (Kerr &
Co. v. Lingad, 38 SCRA 524; Schmid & Oberly, Inc., v. RJL Martinez Fishing Corp., 166 SCRA 493). At whatever legal angle we view it, therefore,
the inescapable fact remains that all the requisites of a valid sale were attendant in the transaction between co-defendants-appellants NDC and PUP
concerning the realities subject of the present suit.[36]
What is more, the conduct of petitioner PUP immediately after the transaction is in itself an admission that there was a sale of the NDC compound in
its favor. Thus, after the issuance of Memorandum Order No. 214petitioner PUP asserted its ownership over the property by posting notices within
the compound advising residents and occupants to vacate the premises.[37] In its Motion for Intervention petitioner PUP also admitted that its interest
as a "purchaser pendente lite" would be better protected if it was joined as party-defendant in the controversy thereby confessing that it
indeed purchased the property.
In light of the foregoing disquisition, we now proceed to determine whether FIRESTONE should be allowed to exercise its right of first refusal over
the property. Such right was expressly stated by NDC and FIRESTONE in par. XV of their third contract denominated as A-10-78 executed on 22
December 1978 which, as found by the courts a quo, was interrelated to and inseparable from their first contract denominated as C-30-65 executed
on 24 August 1965 and their second contract denominated as C-26-68 executed on 8 January 1969. Thus -
Should the LESSOR desire to sell the leased premises during the term of this Agreement, or any extension thereof, the LESSOR shall first give to
the LESSEE, which shall have the right of first option to purchase the leased premises subject to mutual agreement of both parties.[38]
In the instant case, the right of first refusal is an integral and indivisible part of the contract of lease and is inseparable from the whole contract. The
consideration for the right is built into the reciprocal obligations of the parties. Thus, it is not correct for petitioners to insist that there was no
consideration paid by FIRESTONE to entitle it to the exercise of the right, inasmuch as the stipulation is part and parcel of the contract of lease
making the consideration for the lease the same as that for the option.
It is a settled principle in civil law that when a lease contract contains a right of first refusal, the lessor is under a legal duty to the lessee not to sell to
anybody at any price until after he has made an offer to sell to the latter at a certain price and the lessee has failed to accept it.[39] The lessee has a
right that the lessor's first offer shall be in his favor.
The option in this case was incorporated in the contracts of lease by NDC for the benefit of FIRESTONE which, in view of the total amount of its
investments in the property, wanted to be assured that it would be given the first opportunity to buy the property at a price for which it would be
offered. Consistent with their agreement, it was then implicit for NDC to have first offered the leased premises of 2.60 hectares to FIRESTONE prior
to the sale in favor of PUP. Only if FIRESTONE failed to exercise its right of first priority could NDC lawfully sell the property to petitioner PUP.
It now becomes apropos to ask whether the courts a quo were correct in fixing the proper consideration of the sale at P1,500.00 per square meter. In
contracts of sale, the basis of the right of first refusal must be the current offer of the seller to sell or the offer to purchase of the prospective buyer. Only
after the lessee-grantee fails to exercise its right under the same terms and within the period contemplated can the owner validly offer to sell the
property to a third person, again, under the same terms as offered to the grantee.[40] It appearing that the whole NDC compound was sold to PUP
for P554.74 per square meter, it would have been more proper for the courts below to have ordered the sale of the property also at the same
price. However, since FIRESTONE never raised this as an issue, while on the other hand it admitted that the value of the property stood at P1,500.00
per square meter, then we see no compelling reason to modify the holdings of the courts a quo that the leased premises be sold at that price.
Our attention is invited by petitioners to Ang Yu Asuncion v. CA[41] in concluding that if our holding in Ang Yu would be applied to the facts of this case
then FIRESTONE's "option, if still subsisting, is not enforceable," the option being merely a preparatory contract which cannot be enforced.
The contention has no merit. At the heels of Ang Yu came Equatorial Realty Development, Inc., v. Mayfair Theater, Inc.,[42] where after much
deliberation we declared, and so we hold, that a right of first refusal is neither "amorphous nor merely preparatory" and can be enforced and executed
according to its terms. Thus, in Equatorial we ordered the rescission of the sale which was made in violation of the lessee's right of first refusal and
further ordered the sale of the leased property in favor of Mayfair Theater, as grantee of the right. Emphatically, we held that "(a right of first priority)
should be enforced according to the law on contracts instead of the panoramic and indefinite rule on human relations." We then concluded that the
execution of the right of first refusal consists in directing the grantor to comply with his obligation according to the terms at which he should have
offered the property in favor of the grantee and at that price when the offer should have been made.
One final word. Petitioner PUP should be cautioned against bidding for public sympathy by bewailing the dismissal of its petition before the
press. Such advocacy is not likely to elicit the compassion of this Court or of any court for that matter. An entreaty for a favorable disposition of a
case not made directly through pleadings and oral arguments before the courts do not persuade us, for as judges, we are ruled only by our forsworn
duty to give justice where justice is due.
WHEREFORE, the petitions in G.R. No. 143513 and G.R. No. 143590 are DENIED. Inasmuch as the first contract of lease fixed the area of the
leased premises at 2.90118 hectares while the second contract placed it at 2.60 hectares, let a ground survey of the leased premises be immediately
conducted by a duly licensed, registered surveyor at the expense of private respondent FIRESTONE CERAMICS, INC., within two (2) months from
finality of the judgment in this case. Thereafter, private respondent FIRESTONE CERAMICS, INC., shall have six (6) months from receipt of the
approved survey within which to exercise its right to purchase the leased property at P1,500.00 per square meter, and petitioner Polytechnic University
of the Philippines is ordered to reconvey the property to FIRESTONE CERAMICS, INC., in the exercise of its right of first refusal upon payment of
the purchase price thereof.
SO ORDERED.
Mendoza, Buena, and De Leon, Jr., JJ., concur.
Quisumbing, J., no part due to prior close relations.
G.R. No. 107207 November 23, 1995
VIRGILIO R. ROMERO, petitioner,
vs.
HON. COURT OF APPEALS and ENRIQUETA CHUA VDA. DE ONGSIONG, respondents.
VITUG, J.:
The parties pose this question: May the vendor demand the rescission of a contract for the sale of a parcel of land for a cause traceable to his own
failure to have the squatters on the subject property evicted within the contractually-stipulated period?
Petitioner Virgilio R. Romero, a civil engineer, was engaged in the business of production, manufacture and exportation of perlite filter aids, permalite
insulation and processed perlite ore. In 1988, petitioner and his foreign partners decided to put up a central warehouse in Metro Manila on a land
area of approximately 2,000 square meters. The project was made known to several freelance real estate brokers.
A day or so after the announcement, Alfonso Flores and his wife, accompanied by a broker, offered a parcel of land measuring 1,952 square meters.
Located in Barangay San Dionisio, Paraaque, Metro Manila, the lot was covered by TCT No. 361402 in the name of private respondent Enriqueta
Chua vda. de Ongsiong. Petitioner visited the property and, except for the presence of squatters in the area, he found the place suitable for a central
warehouse.
Later, the Flores spouses called on petitioner with a proposal that should he advance the amount of P50,000.00 which could be used in taking up an
ejectment case against the squatters, private respondent would agree to sell the property for only P800.00 per square meter. Petitioner expressed
his concurrence. On 09 June 1988, a contract, denominated "Deed of Conditional Sale," was executed between petitioner and private respondent.
The simply-drawn contract read:
DEED OF CONDITIONAL SALE
KNOW ALL MEN BY THESE PRESENTS:
This Contract, made and executed in the Municipality of Makati, Philippines this 9th day of June, 1988 by and between:
ENRIQUETA CHUA VDA. DE ONGSIONG, of legal age, widow, Filipino and residing at 105 Simoun St., Quezon City, Metro Manila, hereinafter
referred to as the VENDOR;
-and-
VIRGILIO R. ROMERO, married to Severina L. Lat, of Legal age, Filipino, and residing at 110 San Miguel St., Plainview Subd., Mandaluyong Metro
Manila, hereinafter referred to as the VENDEE:
W I T N E S S E T H : That
WHEREAS, the VENDOR is the owner of One (1) parcel of land with a total area of ONE THOUSAND NINE HUNDRED FIFTY TWO (1,952) SQUARE
METERS, more or less, located in Barrio San Dionisio, Municipality of Paraaque, Province of Rizal, covered by TCT No. 361402 issued by the
Registry of Deeds of Pasig and more particularly described as follows:
xxx xxx xxx
WHEREAS, the VENDEE, for (sic) has offered to buy a parcel of land and the VENDOR has accepted the offer, subject to the terms and conditions
hereinafter stipulated:
NOW, THEREFORE, for and in consideration of the sum of ONE MILLION FIVE HUNDRED SIXTY ONE THOUSAND SIX HUNDRED PESOS
(P1,561,600.00) ONLY, Philippine Currency, payable by VENDEE to in to (sic) manner set forth, the VENDOR agrees to sell to the VENDEE, their
heirs, successors, administrators, executors, assign, all her rights, titles and interest in and to the property mentioned in the FIRST WHEREAS
CLAUSE, subject to the following terms and conditions:
1. That the sum of FIFTY THOUSAND PESOS (P50,000.00) ONLY Philippine Currency, is to be paid upon signing and execution of this instrument.
2. The balance of the purchase price in the amount of ONE MILLION FIVE HUNDRED ELEVEN THOUSAND SIX HUNDRED PESOS (P1,511,600.00)
ONLY shall be paid 45 days after the removal of all squatters from the above described property.
3. Upon full payment of the overall purchase price as aforesaid, VENDOR without necessity of demand shall immediately sign, execute, acknowledged
(sic) and deliver the corresponding deed of absolute sale in favor of the VENDEE free from all liens and encumbrances and all Real Estate taxes are
all paid and updated.
It is hereby agreed, covenanted and stipulated by and between the parties hereto that if after 60 days from the date of the signing of this contract the
VENDOR shall not be able to remove the squatters from the property being purchased, the downpayment made by the buyer shall be
returned/reimbursed by the VENDOR to the VENDEE.
That in the event that the VENDEE shall not be able to pay the VENDOR the balance of the purchase price of ONE MILLION FIVE HUNDRED
ELEVEN THOUSAND SIX HUNDRED PESOS (P1,511,600.00) ONLY after 45 days from written notification to the VENDEE of the removal of the
squatters from the property being purchased, the FIFTY THOUSAND PESOS (P50,000.00) previously paid as downpayment shall be forfeited in
favor of the VENDOR.
Expenses for the registration such as registration fees, documentary stamp, transfer fee, assurances and such other fees and expenses as may be
necessary to transfer the title to the name of the VENDEE shall be for the account of the VENDEE while capital gains tax shall be paid by the
VENDOR.
IN WITNESS WHEREOF, the parties hereunto signed those (sic) presents in the City of Makati MM, Philippines on this 9th day of June, 1988.
(Sgd.) (Sgd.)
VIRGILIO R. ROMERO ENRIQUETA CHUA VDA.
DE ONGSIONG
Vendee Vendor
SIGNED IN THE PRESENCE OF:
(Sgd.) (Sgd.)
Rowena C. Ongsiong Jack M. Cruz 1
Alfonso Flores, in behalf of private respondent, forthwith received and acknowledged a check for P50,000.00 2 from petitioner. 3
Pursuant to the agreement, private respondent filed a complaint for ejectment (Civil Case No. 7579) against Melchor Musa and 29 other squatter
families with the Metropolitan Trial Court of Paraaque. A few months later, or on 21 February 1989, judgment was rendered ordering the defendants
to vacate the premises. The decision was handed down beyond the 60-day period (expiring 09 August 1988) stipulated in the contract. The writ of
execution of the judgment was issued, still later, on 30 March 1989.
In a letter, dated 07 April 1989, private respondent sought to return the P50,000.00 she received from petitioner since, she said, she could not "get
rid of the squatters" on the lot. Atty. Sergio A.F. Apostol, counsel for petitioner, in his reply of 17 April 1989, refused the tender and stated:.
Our client believes that with the exercise of reasonable diligence considering the favorable decision rendered by the Court and the writ of execution
issued pursuant thereto, it is now possible to eject the squatters from the premises of the subject property, for which reason, he proposes that he
shall take it upon himself to eject the squatters, provided, that expenses which shall be incurred by reason thereof shall be chargeable to the purchase
price of the land. 4
Meanwhile, the Presidential Commission for the Urban Poor ("PCUD"), through its Regional Director for Luzon, Farley O. Viloria, asked the
Metropolitan Trial Court of Paraaque for a grace period of 45 days from 21 April 1989 within which to relocate and transfer the squatter families.
Acting favorably on the request, the court suspended the enforcement of the writ of execution accordingly.
On 08 June 1989, Atty. Apostol reminded private respondent on the expiry of the 45-day grace period and his client's willingness to "underwrite the
expenses for the execution of the judgment and ejectment of the occupants."5
In his letter of 19 June 1989, Atty. Joaquin Yuseco, Jr., counsel for private respondent, advised Atty. Apostol that the Deed of Conditional Sale had
been rendered null and void by virtue of his client's failure to evict the squatters from the premises within the agreed 60-day period. He added that
private respondent had "decided to retain the property." 6
On 23 June 1989, Atty. Apostol wrote back to explain:
The contract of sale between the parties was perfected from the very moment that there was a meeting of the minds of the parties upon the subject
lot and the price in the amount of P1,561,600.00. Moreover, the contract had already been partially fulfilled and executed upon receipt of the
downpayment of your client. Ms. Ongsiong is precluded from rejecting its binding effects relying upon her inability to eject the squatters from the
premises of subject property during the agreed period. Suffice it to state that, the provision of the Deed of Conditional Sale do not grant her the option
or prerogative to rescind the contract and to retain the property should she fail to comply with the obligation she has assumed under the contract. In
fact, a perusal of the terms and conditions of the contract clearly shows that the right to rescind the contract and to demand the return/reimbursement
of the downpayment is granted to our client for his protection.
Instead, however, of availing himself of the power to rescind the contract and demand the return, reimbursement of the downpayment, our client had
opted to take it upon himself to eject the squatters from the premises. Precisely, we refer you to our letters addressed to your client dated April 17,
1989 and June 8, 1989.
Moreover, it is basic under the law on contracts that the power to rescind is given to the injured party. Undoubtedly, under the circumstances, our
client is the injured party.
Furthermore, your client has not complied with her obligation under their contract in good faith. It is undeniable that Ms. Ongsiong deliberately refused
to exert efforts to eject the squatters from the premises of the subject property and her decision to retain the property was brought about by the
sudden increase in the value of realties in the surrounding areas.
Please consider this letter as a tender of payment to your client and a demand to execute the absolute Deed of Sale. 7
A few days later (or on 27 June 1989), private respondent, prompted by petitioner's continued refusal to accept the return of the P50,000.00 advance
payment, filed with the Regional Trial Court of Makati, Branch 133, Civil Case No. 89-4394 for rescission of the deed of "conditional" sale, plus
damages, and for the consignation of P50,000.00 cash.
Meanwhile, on 25 August 1989, the Metropolitan Trial Court issued an alias writ of execution in Civil Case No. 7579 on motion of private respondent
but the squatters apparently still stayed on.
Back to Civil Case No. 89-4394, on 26 June 1990, the Regional Trial Court of Makati 8 rendered decision holding that private respondent had no right
to rescind the contract since it was she who "violated her obligation to eject the squatters from the subject property" and that petitioner, being the
injured party, was the party who could, under Article 1191 of the Civil Code, rescind the agreement. The court ruled that the provisions in the contract
relating to (a) the return/reimbursement of the P50,000.00 if the vendor were to fail in her obligation to free the property from squatters within the
stipulated period or (b), upon the other hand, the sum's forfeiture by the vendor if the vendee were to fail in paying the agreed purchase price,
amounted to "penalty clauses". The court added:
This Court is not convinced of the ground relied upon by the plaintiff in seeking the rescission, namely: (1) he (sic) is afraid of the squatters; and (2)
she has spent so much to eject them from the premises (p. 6, tsn, ses. Jan. 3, 1990). Militating against her profession of good faith is plaintiffs conduct
which is not in accord with the rules of fair play and justice. Notably, she caused the issuance of an alias writ of execution on August 25, 1989 (Exh.
6) in the ejectment suit which was almost two months after she filed the complaint before this Court on June 27, 1989. If she were really afraid of the
squatters, then she should not have pursued the issuance of an alias writ of execution. Besides, she did not even report to the police the alleged
phone threats from the squatters. To the mind of the Court, the so-called squatter factor is simply factuitous (sic). 9
The lower court, accordingly, dismissed the complaint and ordered, instead, private respondent to eject or cause the ejectment of the squatters from
the property and to execute the absolute deed of conveyance upon payment of the full purchase price by petitioner.
Private respondent appealed to the Court of Appeals. On 29 May 1992, the appellate court rendered its decision. 10 It opined that the contract entered
into by the parties was subject to a resolutory condition, i.e., the ejectment of the squatters from the land, the non-occurrence of which resulted in the
failure of the object of the contract; that private respondent substantially complied with her obligation to evict the squatters; that it was petitioner who
was not ready to pay the purchase price and fulfill his part of the contract, and that the provision requiring a mandatory return/reimbursement of the
P50,000.00 in case private respondent would fail to eject the squatters within the 60-day period was not a penal clause. Thus, it concluded.
WHEREFORE, the decision appealed from is REVERSED and SET ASIDE, and a new one entered declaring the contract of conditional sale dated
June 9, 1988 cancelled and ordering the defendant-appellee to accept the return of the downpayment in the amount of P50,000.00 which was
deposited in the court below. No pronouncement as to costs. 11
Failing to obtain a reconsideration, petitioner filed this petition for review on certiorari raising issues that, in fine, center on the nature of the contract
adverted to and the P50,000.00 remittance made by petitioner.
A perfected contract of sale may either be absolute or conditional 12 depending on whether the agreement is devoid of, or subject to, any condition
imposed on the passing of title of the thing to be conveyed or on the obligation of a party thereto. When ownership is retained until the fulfillment of a
positive condition the breach of the condition will simply prevent the duty to convey title from acquiring an obligatory force. If the condition is imposed
on an obligation of a party which is not complied with, the other party may either refuse to proceed or waive said condition (Art. 1545, Civil Code).
Where, of course, the condition is imposed upon the perfection of the contract itself, the failure of such condition would prevent the juridical relation
itself from coming into existence. 13
In determining the real character of the contract, the title given to it by the parties is not as much significant as its substance. For example, a deed of
sale, although denominated as a deed of conditional sale, may be treated as absolute in nature, if title to the property sold is not reserved in the
vendor or if the vendor is not granted the right to unilaterally rescind the contract predicated
on the fulfillment or non-fulfillment, as the case may be, of the prescribed condition. 14
The term "condition" in the context of a perfected contract of sale pertains, in reality, to the compliance by one party of an undertaking the fulfillment
of which would beckon, in turn, the demandability of the reciprocal prestation of the other party. The reciprocal obligations referred to would normally
be, in the case of vendee, the payment of the agreed purchase price and, in the case of the vendor, the fulfillment of certain express warranties
(which, in the case at bench is the timely eviction of the squatters on the property).
It would be futile to challenge the agreement here in question as not being a duly perfected contract. A sale is at once perfected when a person (the
seller) obligates himself, for a price certain, to deliver and to transfer ownership of a specified thing or right to another (the buyer) over which the latter
agrees. 15
The object of the sale, in the case before us, was specifically identified to be a 1,952-square meter lot in San Dionisio, Paraaque, Rizal, covered by
Transfer Certificate of Title No. 361402 of the Registry of Deeds for Pasig and therein technically described. The purchase price was fixed at
P1,561,600.00, of which P50,000.00 was to be paid upon the execution of the document of sale and the balance of P1,511,600.00 payable "45 days
after the removal of all squatters from the above described property."
From the moment the contract is perfected, the parties are bound not only to the fulfillment of what has been expressly stipulated but also to all the
consequences which, according to their nature, may be in keeping with good faith, usage and law. Under the agreement, private respondent is
obligated to evict the squatters on the property. The ejectment of the squatters is a condition the operative act of which sets into motion the period of
compliance by petitioner of his own obligation, i.e., to pay the balance of the purchase price. Private respondent's failure "to remove the squatters
from the property" within the stipulated period gives petitioner the right to either refuse to proceed with the agreement or waive that condition in
consonance with Article 1545 of the Civil Code. 16This option clearly belongs to petitioner and not to private respondent.
We share the opinion of the appellate court that the undertaking required of private respondent does not constitute a "potestative condition dependent
solely on his will" that might, otherwise, be void in accordance with Article 1182 of the Civil Code 17 but a "mixed" condition "dependent not on the will
of the vendor alone but also of third persons like the squatters and government agencies and personnel concerned." 18 We must hasten to add,
however, that where the so-called "potestative condition" is imposed not on the birth of the obligation but on its fulfillment, only the obligation is
avoided, leaving unaffected the obligation itself. 19
In contracts of sale particularly, Article 1545 of the Civil Code, aforementioned, allows the obligee to choose between proceeding with the agreement
or waiving the performance of the condition. It is this provision which is the pertinent rule in the case at bench. Here, evidently, petitioner has waived
the performance of the condition imposed on private respondent to free the property from squatters. 20
In any case, private respondent's action for rescission is not warranted. She is not the injured party. 21 The right of resolution of a party to an obligation
under Article 1191 of the Civil Code is predicated on a breach of faith by the other party that violates the reciprocity between them. 22 It is private
respondent who has failed in her obligation under the contract. Petitioner did not breach the agreement. He has agreed, in fact, to shoulder the
expenses of the execution of the judgment in the ejectment case and to make arrangements with the sheriff to effect such execution. In his letter of
23 June 1989, counsel for petitioner has tendered payment and demanded forthwith the execution of the deed of absolute sale. Parenthetically, this
offer to pay, having been made prior to the demand for rescission, assuming for the sake of argument that such a demand is proper under Article
1592 23 of the Civil Code, would likewise suffice to defeat private respondent's prerogative to rescind thereunder.
There is no need to still belabor the question of whether the P50,000.00 advance payment is reimbursable to petitioner or forfeitable by private
respondent, since, on the basis of our foregoing conclusions, the matter has ceased to be an issue. Suffice it to say that petitioner having opted to
proceed with the sale, neither may petitioner demand its reimbursement from private respondent nor may private respondent subject it to forfeiture.
WHEREFORE, the questioned decision of the Court of Appeals is hereby REVERSED AND SET ASIDE, and another is entered ordering petitioner
to pay private respondent the balance of the purchase price and the latter to execute the deed of absolute sale in favor of petitioner. No costs.
SO ORDERED.
Feliciano, Romero, Melo and Panganiban, JJ., concur.
G.R. No. 102606 July 3, 1992
LINO R. TOPACIO, petitioner,
vs.
HON. COURT OF APPEALS, BPI INVESTMENT CORP., respondents.
PARAS, J.:
This is an appeal by way of certiorari from the decision 1 in CA G.R. CV 23258 which reversed the decision 2 of the Regional Trial Court, Branch 98,
Quezon City in Civil Case No. 51954.
On March 9, 1988, the parties submitted the following stipulation of facts:
1. The parties admit the personal and corporate circumstances of each other as found in the complaint.
2. The spouses Juan P. de Villa, Jr. and Rosalia de Villa, parents-in-law of the plaintiff, were the former owners of Lot No. 13, Block 21-A, covered
by TCT No. 280808 of the Registry of Deeds of Quezon City. This property was previously mortgaged to the Ayala Investment and Development
Corporation to secure an obligation of P500,000.00. For failure of the said mortgagors to pay upon maturity, the mortgage was foreclosed and
consequently, defendant acquired the property as highest bidder in the auction sale, following the foreclosure. No redemption having been exercised
by the mortgagors, the defendant was able to consolidate its title over the property.
3. Plaintiff, who lives with his in-laws, negotiated to purchase the property from defendant. He first made an offer on August 9, 1985 (Annex A,
complaint) for P900,000.00 but defendant asked plaintiff to improve his offer. Subsequently, the plaintiff and Mr. Manuel Ablan, then Manager of the
Loans Adjustment and Special Asset Department of the defendant arrived at P1,250,000.00 as the purchase price, with 30% downpayment, and the
balance, payable in cash, upon execution of the Deed of Sale. Plaintiff confirmed his offer in his letter to the defendant dated November 27, 1985
(Annex B, complaint; Annex, 1, Answer), with his check payment of P375,000.00.
4. Defendant received plaintiff's initial payment of P375,000.00 on November 28, 1985, for which a receipt was issued under defendant's Official
Receipt No. 112375 (Annex C, Complaint).
5. On December 4, 1985, defendant wrote to the plaintiff, informing him of the terms and conditions of the sale, as approved by the management of
defendant, which, among other things, gives plaintiff up to January 4, 1986 within which to pay the balance of P875,000.00 (Annex D, Complaint,
Annex 2, Answer).
6. Plaintiff asked for extensions within which to pay the balance. The first was made on January 8, 1986 (Annex 3, Answer), another on April 22, 1986
(Annex 4, Answer). Defendant agreed to extend the payment up to June 30, 1986, in accordance with defendant's letter dated May 5, 1986, requiring
plaintiff, in addition, to pay interest at 24% per annum on the unpaid balance (Annex 5, Answer).
7. Plaintiff, not having been able to meet defendant's deadline (June 30, 1986), defendant wrote a letter to plaintiff dated September 6, 1986 (Annex
6, Answer) declaring itself (defendant) free to sell the property to other buyers and informing plaintiff that he could already claim his initial payment of
P375,000.00
8. In response, plaintiff, in its letter dated October 22, 1986 (Annex 7, Answer), asked for an extension of another six (6) months, within which to pay
the balance of P875,000.00. Defendant denied plaintiff's request and asked plaintiff to get back his P375,000.00, in defendant's letter to plaintiff dated
November 7, 1986 (Annex 8, Answer).
9. On January 5, 1987, defendant wrote plaintiff, reiterating its request that plaintiff get back his P375,000.00 (Annex 9, Answer) and on February 12,
1987 (Annex E, Complaint, Annex 10, Answer), defendant mailed to plaintiff a cashier's check for P375,000.00, payable to him. Plaintiff replied in
March 6, 1987 (Annex F, Complaint, Annex 11, Answer), declining acceptance of the P375,000.00 and insisting therein the defendant allow plaintiff
to pay the balance of P875,000.00.
10. Subsequently, defendant informed plaintiff that the property is being sold for P1,600.00, in its Answer. Plaintiff then wrote on April 1, 1987 to Mr.
Xavier Loinaz of defendant (Annex 13, Answer) asking that original price of P1,250,000.00 be maintained. Defendant again wrote to plaintiff on May
29, 1987 (Annex 14, Answer) reiterating its position that defendant was willing to sell at P1,600,000.00.
11. Plaintiff, in its letter to defendant dated July 21, 1987, (Annex G, Complaint, Annex 15, Answer), returned the cashier's check earlier issued by
defendant in favor of plaintiff. Defendant acknowledged receipt of said letter but declined to take back the said check as expressed in defendant's
letter of the same date (Annex 16, Answer).
12. The cashier's check of P375,000.00 payable to plaintiff remains uncashed to date and is still in the hands of the plaintiff, after defendant refused
to accept its return.
13. Plaintiff admits that Annexes 1 to 16 attached to the Answer are true and faithful copies of the originals. Defendant likewise admits that Annexes
A to G attached to the complaint are true and faithful copies of the originals. Said Annexes are hereby adopted by the parties as part of this Stipulation
of Facts and may be received in evidence without further authentication or identification. (Rollo, pp. 21-24)
On the basis of the foregoing stipulation, the trial court rendered judgment in favor of the petitioner, finding that there is a perfected contract of sale
which is still enforceable because the respondent failed to rescind either by judicial or notarial rescission.
The dispositive portion of the trial court's decision is quoted hereunder:
Samakatwid, iginagawad ng hukumang ito ang pasiya para sa nagsasakdal at ipinag-uutos sa ipinagsakdal na BPI Investment Corporation na
tanggapin mula sa nagsasakdal.
Una Ang tsekeng P375,000.00 bilang paunang bayad na tatlumpung porsiento ng buong halaga.
Pangalawa Ang hulihang P875,000.00 na may kalakip na interes na labindalawang (12%) porsiento simula sa ika-lima ng Oktubre, 1987 hanggang
mabayaran ito;
Pangatlo At isagawa ng nasasakdal na BPI Investment Corporation ang pagsasalin ng ari-arian na nabanggit sa dakong itaas sa pamamagitan
ng isang bilihan tuluyan sa kapakanan ng nasasakdal na si Lino Topacio at kanyang may-bahay.
Ang gastos ay dapat bayaran ng ipinagsasakdal.
IPINAG-UUTOS. (Rollo, p. 24)
The Court of Appeals, on appeal, reversed the trial court's decision stating that the letter dated December 4, 1985, sent by BPI to the petitioner
reveals that the contract entered into by them is a contract to sell, not a contract of sale.
The letter of December 4, 1985 is hereby quoted as follows:
We are pleased to inform you that the managament has approved for the sale for the above property to you under the following terms and conditions:
1. Selling price of P1,250,000.00 is on CASH basis;
2. Execution of a Deed of Absolute Sale;
3. All expenses relative to the sale/transfer of title shall be for the account of the buyer;
4. Eviction of tenants, if any, shall be for the account of the buyer;
5. Sale of the property is on as-is where-is basis.
If you are agreeable to the foregoing, kindly indicate your conformity by signing on the space provided below and return the copies to us together with
your balance of P875,000.00. The validity of the above approval is good up to January 4, 1986. (Rollo, pp. 7-8)
The petition is impressed with merit.
The payment by petitioner of P375,000.00 on November 28, 1991 which respondent accepted, and for which an official receipt was issued, the body
of which hereby quoted:
Partial payment for the purchase of real property, formerly owned by Juan de Villa.
P375,000.00
was the operative act that gave rise to a perfected contract of sale between the parties. Article 1482 of the Civil Code provides:
Art. 1482. Whenever earnest money is given in a contract of sale, it shall be considered as part of the price and as proof of the perfection of the
contract.
Earnest money is something of value to show that the buyer was really in earnest, and given to the seller to bind the bargain. Under the Civil Code,
earnest money is considered part of the purchase price and as proof of the perfection of the contract. The P375,000.00 given by the petitioner
representing 30% of the purchase price is earnest money.
Furthermore, Article 1475 of the Civil Code states:
Art. 1475. The contract of sale is perfected at the moment there is a meeting of the minds upon the thing which is the object of the contract and upon
the price.
From the moment, the parties may reciprocally demand performance, subject to the provisions of the law governing the form of contracts.
Based on the aforecited article, the parties have agreed on the object of the contract which is the house and lot located at No. 32 Whitefield St., White
Plains, Quezon City and even before November 27, 1985, (the date petitioner sent his letter together with the 30% downpayment), the parties have
agreed on the price which is P1,250,000.00.
Nowhere in the transaction indicates that BPI reserved its title property nor did it provide for any automatic rescission in case of default. So when
petitioner failed to pay the balance of P875,000.00 despite several extensions given by private respondent, the latter could not validly rescind the
contract without complying with the provision of Article 1592 or Article 1191 on notarial or judicial rescission respectively. The ruling in Taguba v. Vda.
de Leon, 132 SCRA 722 applies in the case at bar, to wit:
Considering, therefore the nature of the transaction between petitioner Taguba and private respondent, which We affirm and sustain to be a contract
of sale, absolute in nature the applicable provisions of Article 1592 of the New Civil Code which states:
Art. 1592. In the sale of immovable property, even though it may have been stipulated that upon failure to pay the price at the time agreed upon the
rescission of the contract shall of right take place, the vendee may pay, even after the expiration of the period, as long as no demand for rescission
of the contract has been made upon him either judicially or by notarial act. After the demand the court may not grant him a new term.
In the case at bar, it is undisputed that the petitioner Taguba never notified private respondent by notarial act that he was rescinding the contract, and
neither had he filed suit in suit court to rescind the sale.
Respondent cannot just consider the sale cancelled by simply returning the downpayment which petitioner refused to accept.
WHEREFORE, the appealed decision of the Court of Appeals is hereby REVERSED and SET ASIDE and the decision of the Regional Trial Court of
Quezon City, Branch 89, dated April 10, 1989 is AFFIRMED with costs against respondent.
SO ORDERED.
Narvasa, C.J., Regalado and Nocon, JJ., concur.
Padilla, J., took no part.
EN BANC
G.R. No. 19009 September 26, 1922
E.C. MCCULLOUGH & CO., plaintiff-appelle, vs. S. M. BERGER, Defendant-Appellant.
Fisher & DeWitt for appellant.
Perkins & Kincaid for appellee.
STATEMENT chanrobles virtual law library
For cause of action it is alleged that in the month of February, 1918, plaintiff and defendant and defendant entered into an agreement by which the
defendant was to deliver plaintiff 501 bales of tobacco of New York City in good condition. That delivery was made and the plaintiff paid the full
purchase price. That upon an examination later the tobacco was found to be in must condition, and its value was $12,000 less than it would have
been if the tobacco had been in the condition which defendant agreed that it should be, as a result of which plaintiff claims damages for P12,000,
United States currency, or P24,000, Philippine currency. That when the condition of the tobacco was discovered, plaintiff promptly notified the
defendant, who ignored the protest. Wherefore, the plaintiff prays judgment for the amount of P24,000, Philippine currency, for costs and general
relief.chanroblesvirtualawlibrary chanrobles virtual law library
For answer, the defendant denies all the material allegation of the complaint, and, as a further and separate defense, alleges that on August 15,
1918, he was advised by the plaintiff that the latter was dissatisfied with the quality of the tobacco, and he made him a formal written offer to repurchase
the tobacco at the original selling price with accrued interest, and that plaintiff rejected the offer.chanroblesvirtualawlibrary chanrobles virtual law
library
That defendant has been ready and willing at all reasonable times to accept the return of the tobacco and to return the amount of the purchase price
with legal interest, and has a repeatedly tendered to the plaintiff such purchase price in exchange for the return of the tobacco, and that plaintiff had
refused to return it. That any damages which plaintiff may have suffered have been wholly due to his willful refusal to return and redeliver the
tobacco.chanroblesvirtualawlibrary chanrobles virtual law library
Upon such issues there was a stipulation of facts, and after trial the lower court rendered judgment against the defendant and in favor of the plaintiff
for the sum of P11,867.98 or P23,735.96 with legal interest from January 6, 192, and costs, from which, after his motion for a new trial was overruled,
the defendant appeals, claiming that the court erred: First, in finding that the tobacco was not in good condition when it arrived in New York; second,
in holding that the plaintiff is entitled to maintain an action for breach of contract after having agreed with the defendant to rescind and to make
restitution of the subject-matter and the price after a violation of the agreement; third in holding that the plaintiff, having elected to rescind and notified
the defendant of such an election, may now refused it and affirm the same and recover from the alleged breach of warranty; fourth, in holding that
this action should be maintained, no claim having been made for the alleged breach of warranty of quality within the statutory period; and, fifth, in
overruling the defendant's motion for a new trial.
JOHNS, J.:
In February, 1918, the defendant met the plaintiff in the city of Manila and advised him that he had made a shipment of 501 bales of tobacco to new
York City consigned to S. Lowenthal & Sons, who had refused to honor the draft which was drawn upon them. He asked the plaintiff whether he could
use the tobacco provided it was "perfectly sound." At the plaintiff's request the defendant made and signed a writing as follows:
Referring to the shipment of 501 bales of tobacco sold you consisting of 188 200-pound bales of scrap and 313 200-pound bales of booked tobacco,
I beg to confirm my verbal conversation with you in stating that I guarantee the arrival of the tobacco in New York in good condition, subject, of course,
to conditions arising after its departure from Manila, which contingencies are covered by adequate insurance. (Stipulation par. 1.)
Upon the strength of this the plaintiff cabled his New York office to honor the defendant's draft, which was ninety days' sight for $33,109, and was the
same draft and amount which had been refused by S. Lowenthal & Sons. The draft was honored by his New York office at plaintiff's request. The
shipment consisted of 188 bales of "scrap," invoiced at 28 cents, gold, per pound, and 313 bales of "striped" and "booked" at 36 cents, gold, per
pound, and was made c.i.f. New York. Before its arrival in New York the plaintiff had found purchasers for a large portion of it with whom he had made
contracts for sale subject to examination as to condition. The tobacco arrived in two shipments. The first of 213 bales on April 26, and the second of
288 bales on May 18, 1918, and it was at once placed in warehouses by plaintiff. With the exception of four or five bales, it appeared from an
examination that the tobacco was well baled, and to all outward appearances was in good condition after the shipment. After it was placed in the
warehouse, the tobacco itself was examined as to its condition and quality by the different buyers to whom the plaintiff had contracted to sell it, and
after such physical inspection, they refused to accept it and complete their purchase because it was "musty." It appears that the plaintiff had sold 188
bales of the tobacco before its arrival in New York to a customer in Red Lion, Pennsylvania, to whom he shipped 75 bales of it after its arrival. This
customer refused to receive any of the remaining bales which he had purchased, and the plaintiff was compelled to again reship it back to New York.
Complying with his agreement, on May 21, 1918, the plaintiff paid the defendant's draft which he had previously accepted, thus completing his part
of the contract with the defendant.chanroblesvirtualawlibrary chanrobles virtual law library
On May 23, 1918, and as a result of physical inspection, the plaintiff cabled the defendant that the tobacco was unsatisfactory, and on June 13, he
again cabled that there would likely be a loss. On June 28, 1918, the plaintiff wrote a letter to the defendant in which, among other things, he says:
. . . The tobacco has a very strong ground smell and somewhat of a musty smell as though it had been mixed up with must tobacco. In other words,
it appears like this tobacco assorted from bales which were mildewed and this is that part of the bale which was not mildewed. It does not seem
possible that this odor, or musty smell, could have developed in transit as it seems perfectly clear that the tobacco was packed in that same condition.
In all the bales which we have examined, which have been considerable, the tobacco seems to be perfectly dry. In view of that I can see nothing but
every indication that the tobacco was originally a bad lot.
In this letter he also advised the defendant that he was doing everything he could to sell the tobacco, and that he did not have any prospective buyer
even at a loss of 25 per cent.chanroblesvirtualawlibrary chanrobles virtual law library
August 9, 1918, the defendant acknowledge the receipt of the letter and cables, saying that he was "not in a position to lose between seventeen and
twenty thousand pesos, and that he would consent to a reduction of four thousand pesos, if that was acceptable, and, if it was not, to have the bank
pay back the amount of the draft with interest and take charge of the tobacco until the defendant would arrive in New York." The plaintiff did not
receive this cable until August 21, when he cabled in reply that he would turn the tobacco over to the defendant, and that he "awaited telegraphic
instruction in regard to it. That at least twenty dealers had passed on the tobacco." At that time the plaintiff had sold 66 bales of scattered samples
from which, with the 75 bales sold to the Red Lion customer, he realized $9,031.71.chanroblesvirtualawlibrary chanrobles virtual law library
September 5, 1918, the defendant wrote the New York Agency of the Philippine National Bank in which he said that the plaintiff had advised him that
the tobacco on arrival was satisfactory, and that there would be a loss, and that the had assured its arrival at destination "in good condition." That he
was taking it back. That the bank should pay plaintiff $33,109 plus interest upon delivery to it of the 501 bales. That "on no account should they agree
to accept any shortage in the number of bales."chanrobles virtual law library
October 18, 1918, without any knowledge of the defendant's instruction to the bank, the plaintiff wrote him that his proposition to take the tobacco
back was satisfactory in which he said that he had not heard from the bank "at the time of writing with reference to taking back of the
tobacco."chanrobles virtual law library
October 30, 1918, the bank wrote the plaintiff that it would take back the identical 501 bales, and pay him the amount of the draft and interest. The
plaintiff then wrote the bank a complete history of the transaction, and explained why the identical 501 bales could not be returned. That he had
realized $9,031.71 from 141 bales of it which he had sold, for which he would account and return the balance of the tobacco which was then unsold
and in the New York warehouse. The $9,031.71 was more than the actual agreed purchase price of the 141 bales. This offer was cabled to the
defendant, who replied:
The instructions given you in my letter dated September 5, 1918, will not be modified.
The bank notified the plaintiff of the receipt of this cable, and in turn notified the plaintiff of the receipt of this cable, and in turn notified the plaintiff of
the receipt of this cable, and in turn notified the defendant that the plaintiff would sell the tobacco at public auction, and then sue him for the balance
of the purchase price, and later the plaintiff did sell the remainder of the tobacco upon which there was a net actual loss to him of $11,867.98, over
and above all actual charges and expenses.chanroblesvirtualawlibrary chanrobles virtual law library
Although at the time of the making of the contract between them the plaintiff and defendant were in Manila, the tobacco involved was on the high
seas in transit to New York. From necessity the plaintiff could not see or examine it and would not know anything about its grade or quality, and, for
that reason, insisted that the defendant should make and sign the writing above quoted in which he says:
I guarantee the arrival of the tobacco in New York in good condition, subject, of course to, to conditions arising after its departure from Manila, which
contingencies are covered by adequate insurance.
The trial court found and the testimony is conclusive that the tobacco did not arrive in New York "in good condition," and that , as a matter of fact, it
was not "in good condition" when it left Manila.chanroblesvirtualawlibrary chanrobles virtual law library
The plaintiff and defendant had known each other for about ten years, and had mutual confidence in each other, and were experienced business
men.chanroblesvirtualawlibrary chanrobles virtual law library
Defendant's draft of the tobacco had been dishonored. Plaintiff was willing to take the tobacco and honor the draft, with the proviso that the defendant
would guarantee its arrival "in good condition."chanrobles virtual law library
The evidence shows that in the whole transaction, the plaintiff acted in good faith and made an earnest effort to protect the defendant and minimized
his loss. Defendant knew that in the very nature of things the plaintiff bought the tobacco for the purpose of resale, and that in the ordinary course of
business, he would resell it. The record shows that he found purchasers for portions of it before its arrival in New York. The only reason why plaintiff's
sales were not consummated was because the tobacco did not stand inspection and was not "in good condition" at the time of its arrival in New York.
In other words, plaintiff bought and paid the defendant for tobacco which was not "in good condition," and bought it for the purpose of resale. In the
very nature of things, the defendant knew that the plaintiff bought the tobacco for the purpose of resale, and he also knew that , if the tobacco was
not "in good condition," it was not worth the amount of the purchase price which plaintiff paid.chanroblesvirtualawlibrary chanrobles virtual law library
The defense cites and relies upon articles 336 and 342 of the Code of Commerce which are as follows:
A purchaser who, at the time of receiving the merchandise, fully examines the vendor, alleging a defect in the quantity or quality of the
merchandise.chanroblesvirtualawlibrary chanrobles virtual law library
A purchaser shall have a right of action against a vendor for defects in the quantity or quality of merchandise receive in bales or packages, provided
he brings his action within the four days following it receipt, and that the damage is not due to accident or to natural defect of the merchandise or to
fraud.chanroblesvirtualawlibrary chanrobles virtual law library
In such cases the purchaser may choose between the rescission of the contract or its fulfillment in accordance with what has been agreed upon, but
always with the payment of the damages he may have suffered by reason of the defects or faults.chanroblesvirtualawlibrary chanrobles virtual law
library
The vendor may avoid this claim by demanding when making the delivery that the merchandise be examined by the purchaser for his satisfaction
with regard to the quantity and quality thereof.
Article 342:
A purchaser who has not made any claim based on the inherent defects in the article sold, within the thirty days following its delivery, shall lose all
rights of action against the vendor for such defects.
Whatever may be the rule as to sales which are completed within the jurisdiction of the Philippine Islands, those sections do not, and were never
intended to, apply to a case founded upon the facts shown in the record. Although it is true that the contract between the plaintiff and the defendant
was made in Manila, yet at the time it was made the tobacco was on the high seas, and under the contract, it was to be delivered "in good condition"
in the City of New York, in consideration of which the plaintiff agreed to pay the draft. That is to say, the transaction was not complete until after the
arrival of the tobacco in New York "in good condition," and the payment of the draft. It must be conceded that if, for any reason, the tobacco did not
arrive in New York, the defendant could not recover upon the draft from the plaintiff. Hence, it must follow that the delivery of the tobacco at New York
was a condition precedent which devolved upon the defendant to perform without which he would not have a cause of action against the
plaintiff.chanroblesvirtualawlibrary chanrobles virtual law library
It is true that the writing recites "the shipment of 501 bales of tobacco sold you." Yet, the fact remains that it was necessary to deliver the tobacco in
New York to complete the sale.chanroblesvirtualawlibrary chanrobles virtual law library
Contracts of this nature should be construed with reference to the surrounding conditions and the relative situation of the
parties.chanroblesvirtualawlibrary chanrobles virtual law library
At the time this contract was made both parties were in Manila, the tobacco was in transit to New York, and the defendant knew that the plaintiff
entered into the contract for the purpose of a resale. Soon after the contract was made, the plaintiff left Manila and went to New York where, relying
upon this contract with the defendant, he found purchasers for the tobacco on the assumption that it was "in good condition."chanrobles virtual law
library
Although the word "sold" is used in the written contract, the transaction shows that the sale was not complete until the arrival of the goods in New
York.chanroblesvirtualawlibrary chanrobles virtual law library
The case of Middleton vs. Ballingall (1 Cal., 446), is somewhat in point, in which the court says:
I think that the fair construction to be put upon the contract is, that on the arrival of the ship containing the goods, the defendants should deliver them,
and the plaintiffs should pay the contract price. And the authorities hold that the arrival of the goods, in such case, is a condition precedent, which
must be shown to have taken place before either party can bring suit.
In the instant case, the contract was at least executory as to the delivery of the tobacco in New York.chanroblesvirtualawlibrary chanrobles virtual law
library
Cyc., vol. 35, pp. 274, 275 and 276, says:
In order to pass the title to goods as against the seller or those claiming under him there must be a valid existing and completed contract of sale.
Under a complete contract of sale the property in the goods passes at once from the seller to the buyer, at the place where the contract becomes
complete, and for this reason the agreement is frequently called an executed contract. The sale is, however, an executory contract, if the seller merely
promises to transfer the property at some future day, or the agreement contemplates the performance of some act or condition necessary to complete
the transfer. Under such a contract until the act is performed or the condition fulfilled which is necessary to convert the executory into an executed
contract, no title passes to the buyer as against the seller or persons claiming under him. While certain terms and expressions standing alone import
an executed or executory contract, they are by no means conclusive but must be construed with reference to other provisions of the contract and
according to what appears to have been the real intention of the parties, and so a mere recital in the writing evidencing the contract that the article is
"sold" or that the buyer has "purchased" it does not necessarily make the contract executed; while on the other hand a recital that the seller "agrees
to sell" is not conclusive that the title was not intended to pass immediately.
The trial court found and the evidence sustains the finding that that plaintiff acted in good faith. The contract was made in February, 1918 the draft
was payable ninety days after date; the first shipment of 213 bales arrived on April 26, and the second of 288 bales on May 18, and the plaintiff the
draft on May 21 1918, and the transaction between the parties then became complete. On May 23, he cabled the defendant that the tobacco was
unsatisfactory. On June 13, he cabled that there would be a loss. On June 28, he wrote the letter above quoted. September 5, the defendant wrote
the New York Agency of the Philippine National Bank that he would take the tobacco back on condition that there was not any shortage in the number
of bales. During all of this time, the defendant had the use of plaintiff's money. It is true that the defendant offered to take the tobacco back and refund
the money, but this offer was not actually made to the plaintiff until October , and was upon the condition that the full amount of the 501 bales should
be returned, which was an impossible condition for the plaintiff to perform. But the plaintiff did offer to account to the defendant for the tobacco which
he had sold and to return all of the unsold tobacco which was then in his warehouse, and the defendant declined the offer. As a business man, he
knew that the plaintiff has then purchased the tobacco for the purpose of a resale, and that the tobacco had arrived at New York about five months
before the offer was made, and he also knew that the plaintiff was using every effort to sell it and convert it into money, and that he would sell the
whole or any part of it if a purchaser could be found at a reasonable price. At the time the defendant's offer was communicated to the plaintiff by the
bank the plaintiff in turn offered to account to the defendant for the entire proceeds of the 141 bales which he had already sold, and to deliver to him
all of the unsold tobacco. This was all that the plaintiff could do under the existing conditions. The fact that the defendant did not accept this offer is
strong evidence that he was seeking an undue advantage, and that his offer to plaintiff was not made in good
faith.chanroblesvirtualawlibrary chanrobles virtual law library
The second shipment arrived in New York on May 18, and the plaintiff could not be expected to take any final action until the las shipment arrived.
On learning the true condition of the tobacco, the plaintiff cabled the defendant on May 23 that it was unsatisfactory, and again on June 13, that there
would be a substantial loss, which was followed by the letter of June 28th above quoted.chanroblesvirtualawlibrary chanrobles virtual law library
The defects in the tobacco were inherent and could not be ascertained without opening the bales and making a physical examination. When this was
done, the plaintiff promptly cabled the defendant that the tobacco was not satisfactory. In the nature of things, the plaintiff could not then render the
defendant a statement of the amount of this claim. By the terms of the contract, the defendant guaranteed the arrival of the tobacco in New York "in
good condition."chanrobles virtual law library
Plaintiff's first cable sent ten days after the arrival of the tobacco advised the defendant that it was unsatisfactory, and the second, twenty-six days
after its arrival, advised him that there would be a loss.chanroblesvirtualawlibrary chanrobles virtual law library
Appellant's attorneys have submitted a very able and adroit brief in which they severely criticize the evidence on the part of the plaintiff. Upon all of
the material questions of fact, the trial court found for the plaintiff, and, in our opinion, the evidence sustains the
findings.chanroblesvirtualawlibrary chanrobles virtual law library
It must be remembered that during all these times there was about ten thousand miles of ocean between them.chanroblesvirtualawlibrary chanrobles
virtual law library
The plaintiff had parted with his money and honored the draft, expecting to sell the tobacco and get his money back with a
profit.chanroblesvirtualawlibrary chanrobles virtual law library
The testimony is conclusive that the plaintiff in good faith tried to sell the tobacco, and that he sold the 141 bales at the best obtainable price; that the
only reason why he did not sell the remainder was because the tobacco was not "in good condition;" and that when he first knew that it was not "in
good condition," he promptly cabled that defendant that it was unsatisfactory.chanroblesvirtualawlibrary chanrobles virtual law library
As we construe the record, after the tobacco was inspected, the plaintiff promptly advised the defendant that it was unsatisfactory, and that he would
have to sustain a loss, and in goo faith undertook to protect the defendant and to minimize the loss, and plaintiff's claim is not barred by the provisions
of either article 336 or 342 of the Code of Commerce.chanroblesvirtualawlibrary chanrobles virtual law library
The judgment is affirmed, with costs. So ordered.chanroblesvirtualawlibrary chanrobles virtual law library
Araullo, C.J., Johnson, Malcolm, Avancea, Villamor, Ostrand and Romualdez, JJ., concur.
Separate Opinions chanrobles virtual law library
STREET, J., concurring:chanrobles virtual law library
I concur in the conclusion reached in this case and in accord with most that is said in the opinion. But in the view I take of the case, it ought not to be
said that the sale was not complete until the arrival of the tobacco in New York.chanroblesvirtualawlibrary chanrobles virtual law library
In view of the express guaranty given by the defendant to the effect that the tobacco would arrive in good condition, barring certain contingencies,
and it having been clearly proved that the tobacco was not in good condition upon arrival there, a right of action accrued to the plaintiff to be indemnified
to the extent allowed, and this independently of article 342 of the Code of Commerce. But, even supposing this provision to be applicable, claim was
made within thirty days after complete delivery had been effected. The maneuvers of the defendant relative to taking back the tobacco - on terms
which he must have believed would be impossible of fulfillment - were ruse to gain an advantage in the impending legal controversy; and the contention
that there was a rescission, or accepted offer or rescission, is untenable
ROBERTO Z. LAFORTEZA, GONZALO Z. LAFORTEZA, MICHAEL Z. LAFORTEZA, DENNIS Z. LAFORTEZA, and LEA Z.
LAFORTEZA, petitioners, vs. ALONZO MACHUCA, respondent.
DECISION
GONZAGA_REYES, J.:
This Petition for Review on Certiorari seeks the reversal of the Decision of the Court of Appeals[1] in CA G.R. CV No. 47457 entitled "ALONZO
MACHUCA versus ROBERTO Z. LAFORTEZA, GONZALO Z. LAFORTEZA, LEA ZULUETA-LAFORTEZA MICHAEL Z. LAFORTEZA, and DENNIS
Z. LAFORTEZA".
The following facts as found by the Court of Appeals are undisputed:
"The property involved consists of a house and lot located at No. 7757 Sherwood Street, Marcelo Green Village, Paraaque, Metro Manila, covered
by Transfer Certificate of Title (TCT) No. (220656) 8941 of the Registered of Deeds of Paraaque (Exhibit "D", Plaintiff, record, pp. 331-332). The
subject property is registered in the name of the late Francisco Q. Laforteza, although it is conjugal in nature (Exhibit "8", Defendants, record pp. 331-
386).
On August 2, 1988, defendant Lea Zulueta-Laforteza executed a Special Power of Attorney in favor of defendants Roberto Z. Laforteza and Gonzalo
Z. Laforteza, Jr., appointing both as her Attorney-in-fact authorizing them jointly to sell the subject property and sign any document for the settlement
of the estate of the late Francisco Q. Laforteza (Exh. "A", Plaintiff, record, pp. 323-325).
Likewise on the same day, defendant Michael Z. Laforteza executed a Special Power of Attorney in favor of defendants Roberto Z. Laforteza and
Gonzalo Laforteza, Jr., likewise, granting the same authority (Exh. "B", record, pp. 326-328). Both agency instruments contained a provision that in
any document or paper to exercise authority granted, the signature of both attorneys-in-fact must be affixed.
On October 27, 1988, defendant Dennis Z. Laforteza executed a Special Power of Attorney in favor of defendant Roberto Z. Laforteza for the purpose
of selling the subject property (Exh. "C", Plaintiff, record, pp. 329-330). A year later, on October 30, 1989, Dennis Z. Laforteza executed another
Special Power of Attorney in favor of defendants Roberto Z. Laforteza and Gonzalo Laforteza, Jr. naming both attorneys-in-fact for the purpose of
selling the subject property and signing any document for the settlement of the estate of the late Francisco Q. Laforteza. The subsequent agency
instrument (Exh. "2", record, pp. 371-373) contained similar provisions that both attorneys-in-fact should sign any document or paper executed in the
exercise of their authority.
In the exercise of the above authority, on January 20, 1989, the heirs of the late Francisco Q. Laforteza represented by Roberto Z. Laforteza and
Gonzalo Z. Laforteza, Jr. entered into a Memorandum of Agreement (Contract to Sell) with the plaintiff[2] over the subject property for the sum of SIX
HUNDRED THIRTY THOUSAND PESOS (P630,000.00) payable as follows:
(a) P30,000.00 as earnest money, to be forfeited in favor of the defendants if the sale is not effected due to the fault of the plaintiff;
(b) P600,000.00 upon issuance of the new certificate of title in the name of the late Francisco Q. Laforteza and upon execution of an extra-judicial
settlement of the decedents estate with sale in favor of the plaintiff (Par. 2, Exh. "E", record, pp. 335-336).
Significantly, the fourth paragraph of the Memorandum of Agreement (Contract to Sell) dated January 20, 1989 (Exh. "E", supra.) contained a provision
as follows:
xxx. Upon issuance by the proper Court of the new title, the BUYER-LESSEE shall be notified in writing and said BUYER-LESSEE shall have thirty
(30) days to produce the balance of P600,000.00 which shall be paid to the SELLER-LESSORS upon the execution of the Extrajudicial Settlement
with sale.
On January 20, 1989, plaintiff paid the earnest money of THIRTY THOUSAND PESOS (P30,000.00), plus rentals for the subject property (Exh. "F",
Plaintiff, record, p. 339).
On September 18, 1998[3], defendant heirs, through their counsel wrote a letter (Exh. 1, Defendants, record, p. 370) to the plaintiff furnishing the latter
a copy of the reconstituted title to the subject property, advising him that he had thirty (3) days to produce the balance of SIX HUNDRED PESOS
(sic) (P600,000.00) under the Memorandum of Agreement which plaintiff received on the same date.
On October 18, 1989, plaintiff sent the defendant heirs a letter requesting for an extension of the THIRTY (30) DAYS deadline up to November 15,
1989 within which to produce the balance of SIX HUNDRED THOUSAND PESOS (P600,000.00) (Exh. "G", Plaintiff, record, pp. 341-342). Defendant
Roberto Z. Laforteza, assisted by his counsel Atty. Romeo L. Gutierrez, signed his conformity to the plaintiffs letter request (Exh. "G-1 and "G-2",
Plaintiff, record, p. 342). The extension, however, does not appear to have been approved by Gonzalo Z. Laforteza, the second attorney-in-fact as
his conformity does not appear to have been secured.
On November 15, 1989, plaintiff informed the defendant heirs, through defendant Roberto Z. Laforteza, that he already had the balance of SIX
HUNDRED THOUSAND PESOS (P600,000.00) covered by United Coconut Planters Bank Managers Check No. 000814 dated November 15, 1989
(TSN, August 25, 1992, p. 11; Exhs. "H", record, pp. 343-344; "M", records p. 350; and "N", record, p. 351). However, the defendants, refused to
accept the balance (TSN, August 24, 1992, p. 14; Exhs. "M-1", Plaintiff, record, p. 350; and "N-1", Plaintiff, record, p. 351). Defendant Roberto Z.
Laforteza had told him that the subject property was no longer for sale (TSN, October 20, 1992, p. 19; Exh. "J", record, p. 347).
On November 20, 1998[4], defendants informed the plaintiff that they were canceling the Memorandum of Agreement (Contract to Sell) in view of the
plaintiffs failure to comply with his contractual obligations (Exh. "3").
Thereafter, plaintiff reiterated his request to tender payment of the balance of SIX HUNDRED THOUSAND PESOS (P600,000.00). Defendants,
however, insisted on the rescission of the Memorandum of Agreement. Thereafter, plaintiff filed the instant action for specific performance. The lower
court rendered judgment on July 6, 1994 in favor of the plaintiff, the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered in favor of plaintiff Alonzo Machuca and against the defendant heirs of the late Francisco Q. Laforteza,
ordering the said defendants.
(a) To accept the balance of P600,000.00 as full payment of the consideration for the purchase of the house and lot located at No. 7757 Sherwood
Street, Marcelo Green Village, Paraaque, Metro Manila, covered by Transfer Certificate of Title No. (220656) 8941 of the Registry of Deeds of Rizal
Paraaque, Branch;
(b) To execute a registrable deed of absolute sale over the subject property in favor of the plaintiff;
(c) Jointly and severally to pay the plaintiff the sum of P20,000.00 as attorneys fees plus cost of suit.
SO ORDERED. (Rollo, pp. 74-75)."[5]
Petitioners appealed to the Court of Appeals, which affirmed with modification the decision of the lower court; the dispositive portion of the Decision
reads:
"WHEREFORE, the questioned decision of the lower court is hereby AFFIRMED with the MODIFICATION that defendant heirs Lea Zulueta-Laforteza,
Michael Z. Laforteza, Dennis Z. Laforteza and Roberto Z. Laforteza including Gonzalo Z. Laforteza, Jr. are hereby ordered to pay jointly and severally
the sum of FIFTY THOUSAND PESOS (P50,000.00) as moral damages.
SO ORDERED."[6]
Motion for Reconsideration was denied but the Decision was modified so as to absolve Gonzalo Z. Laforteza, Jr. from liability for the payment of
moral damages.[7] Hence this petition wherein the petitioners raise the following issues:
"I. WHETHER THE TRIAL AND APPELLATE COURTS CORRECTLY CONSTRUED THE MEMORANDUM OF AGREEMENT AS IMPOSING
RECIPROCAL OBLIGATIONS.
II. WHETHER THE COURTS A QUO CORRECTLY RULED THAT RESCISSION WILL NOT LIE IN THE INSTANT CASE.
III. WHETHER THE RESPONDENT IS UNDER ESTOPPEL FROM RAISING THE ALLEGED DEFECT IN THE SPECIAL POWER OF ATTORNEY
DATED 30 OCTOBER 1989 EXECUTED BY DENNIS LAFORTEZA.
IV. SUPPOSING EX GRATIA ARGUMENTI THE MEMORANDUM OF AGREEMENT IMPOSES RECIPROCAL OBLIGATIONS, WHETHER THE
PETITIONERS MAY BE COMPELLED TO SELL THE SUBJECT PROPERTY WHEN THE RESPONDENT FAILED TO MAKE A JUDICIAL
CONSIGNATION OF THE PURCHASE PRICE?
V. WHETHER THE PETITIONERS ARE IN BAD FAITH SO TO AS MAKE THEM LIABLE FOR MORAL DAMAGES?" [8]
The petitioners contend that the Memorandum of Agreement is merely a lease agreement with "option to purchase". As it was merely an option, it
only gave the respondent a right to purchase the subject property within a limited period without imposing upon them any obligation to purchase it.
Since the respondents tender of payment was made after the lapse of the option agreement, his tender did not give rise to the perfection of a contract
of sale.
It is further maintained by the petitioners that the Court of Appeals erred in ruling that rescission of the contract was already out of the question.
Rescission implies that a contract of sale was perfected unlike the Memorandum of Agreement in question which as previously stated is allegedly
only an option contract.
Petitioner adds that at most, the Memorandum of Agreement (Contract to Sell) is a mere contract to sell, as indicated in its title. The obligation of the
petitioners to sell the property to the respondent was conditioned upon the issuance of a new certificate of title and the execution of the extrajudicial
partition with sale and payment of the P600,000.00. This is why possession of the subject property was not delivered to the respondent as the owner
of the property but only as the lessee thereof. And the failure of the respondent to pay the purchase price in full prevented the petitioners obligation
to convey title from acquiring obligatory force.
Petitioners also allege that assuming for the sake of argument that a contract of sale was indeed perfected, the Court of Appeals still erred in holding
that respondents failure to pay the purchase price of P600,000.00 was only a "slight or casual breach".
The petitioners also claim that the Court of Appeals erred in ruling that they were not ready to comply with their obligation to execute the extrajudicial
settlement. The Power of Attorney to execute a Deed of Sale made by Dennis Z. Laforteza was sufficient and necessarily included the power to
execute an extrajudicial settlement. At any rate, the respondent is estopped from claiming that the petitioners were not ready to comply with their
obligation for he acknowledged the petitioners ability to do so when he requested for an extension of time within which to pay the purchase price.
Had he truly believed that the petitioners were not ready, he would not have needed to ask for said extension.
Finally, the petitioners allege that the respondents uncorroborated testimony that third persons offered a higher price for the property is hearsay and
should not be given any evidentiary weight. Thus, the order of the lower court awarding moral damages was without any legal basis.
The appeal is bereft of merit.
A perusal of the Memorandum Agreement shows that the transaction between the petitioners and the respondent was one of sale and lease. The
terms of the agreement read:
"1. For and in consideration of the sum of PESOS: SIX HUNDRED THIRTY THOUSAND (P630,000.00) payable in a manner herein below indicated,
SELLER-LESSOR hereby agree to sell unto BUYER-LESSEE the property described in the first WHEREAS of this Agreement within six (6) months
from the execution date hereof, or upon issuance by the Court of a new owners certificate of title and the execution of extrajudicial partition with sale
of the estate of Francisco Laforteza, whichever is earlier;
2. The above-mentioned sum of PESOS: SIX HUNDRED THIRTY THOUSAND (P630,000.00) shall be paid in the following manner:
P30,000.00- as earnest money and as consideration for this Agreement, which amount shall be forfeited in favor of SELLER-LESSORS if the sale is
not effected because of the fault or option of BUYER-LESSEE;
P600,000.00- upon the issuance of the new certificate of title in the name of the late Francisco Laforteza and upon the execution of an Extrajudicial
Settlement of his estate with sale in favor of BUYER-LESSEE free from lien or any encumbrances.
3. Parties reasonably estimate that the issuance of a new title in place of the lost one, as well as the execution of extrajudicial settlement of estate
with sale to herein BUYER-LESSEE will be completed within six (6) months from the execution of this Agreement. It is therefore agreed that during
the six months period, BUYER-LESSEE will be leasing the subject property for six months period at the monthly rate of PESOS: THREE THOUSAND
FIVE HUNDRED (P3,500.00). Provided however, that if the issuance of new title and the execution of Extrajudicial Partition is completed prior to the
expiration of the six months period, BUYER-LESSEE shall only be liable for rentals for the corresponding period commencing from his occupancy of
the premises to the execution and completion of the Extrajudicial Settlement of the estate, provided further that if after the expiration of six (6) months,
the lost title is not yet replaced and the extra judicial partition is not executed, BUYER-LESSEE shall no longer be required to pay rentals and shall
continue to occupy, and use the premises until subject condition is complied by SELLER-LESSOR;
4. It is hereby agreed that within reasonable time from the execution of this Agreement and the payment by BUYER-LESSEE of the amount of
P30,000.00 as herein above provided, SELLER-LESSORS shall immediately file the corresponding petition for the issuance of a new title in lieu of
the lost one in the proper Courts. Upon issuance by the proper Courts of the new title, the BUYER-LESSEE shall have thirty (30) days to produce the
balance of P600,000.00 which shall be paid to the SELLER-LESSORS upon the execution of the Extrajudicial Settlement with sale."[9]
A contract of sale is a consensual contract and is perfected at the moment there is a meeting of the minds upon the thing which is the object of the
contract and upon the price.[10] From that moment the parties may reciprocally demand performance subject to the provisions of the law governing
the form of contracts.[11] The elements of a valid contract of sale under Article 1458 of the Civil Code are (1) consent or meeting of the minds; (2)
determinate subject matter and (3) price certain in money or its equivalent.[12]
In the case at bench, there was a perfected agreement between the petitioners and the respondent whereby the petitioners obligated themselves to
transfer the ownership of and deliver the house and lot located at 7757 Sherwood St., Marcelo Green Village, Paraaque and the respondent to pay
the price amounting to six hundred thousand pesos (P600,000.00). All the elements of a contract of sale were thus present. However, the balance of
the purchase price was to be paid only upon the issuance of the new certificate of title in lieu of the one in the name of the late Francisco Laforteza
and upon the execution of an extrajudicial settlement of his estate. Prior to the issuance of the "reconstituted" title, the respondent was already placed
in possession of the house and lot as lessee thereof for six months at a monthly rate of three thousand five hundred pesos (P3,500.00). It was
stipulated that should the issuance of the new title and the execution of the extrajudicial settlement be completed prior to expiration of the six-month
period, the respondent would be liable only for the rentals pertaining to the period commencing from the date of the execution of the agreement up
to the execution of the extrajudicial settlement. It was also expressly stipulated that if after the expiration of the six month period, the lost title was not
yet replaced and the extrajudicial partition was not yet executed, the respondent would no longer be required to pay rentals and would continue to
occupy and use the premises until the subject condition was complied with by the petitioners.
The six-month period during which the respondent would be in possession of the property as lessee, was clearly not a period within which to exercise
an option. An option is a contract granting a privilege to buy or sell within an agreed time and at a determined price. An option contract is a separate
and distinct contract from that which the parties may enter into upon the consummation of the option. [13] An option must be supported by
consideration.[14] An option contract is governed by the second paragraph of Article 1479 of the Civil Code[15], which reads:
"Article 1479. xxx
An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor if the promise is supported by a
consideration distinct from the price."
In the present case, the six-month period merely delayed the demandability of the contract of sale and did not determine its perfection for after the
expiration of the six-month period, there was an absolute obligation on the part of the petitioners and the respondent to comply with the terms of the
sale. The parties made a "reasonable estimate" that the reconstitution of the lost title of the house and lot would take approximately six months and
thus presumed that after six months, both parties would be able to comply with what was reciprocally incumbent upon them. The fact that after the
expiration of the six-month period, the respondent would retain possession of the house and lot without need of paying rentals for the use therefor,
clearly indicated that the parties contemplated that ownership over the property would already be transferred by that time.
The issuance of the new certificate of title in the name of the late Francisco Laforteza and the execution of an extrajudicial settlement of his estate
was not a condition which determined the perfection of the contract of sale. Petitioners contention that since the condition was not met, they no longer
had an obligation to proceed with the sale of the house and lot is unconvincing. The petitioners fail to distinguish between a condition imposed upon
the perfection of the contract and a condition imposed on the performance of an obligation. Failure to comply with the first condition results in the
failure of a contract, while the failure to comply with the second condition only gives the other party the option either to refuse to proceed with the sale
or to waive the condition. Thus, Art. 1545 of the Civil Code states:
"Art. 1545. Where the obligation of either party to a contract of sale is subject to any condition which is not performed, such party may refuse to
proceed with the contract or he may waive performance of the condition. If the other party has promised that the condition should happen or be
performed, such first mentioned party may also treat the nonperformance of the condition as a breach of warranty.
Where the ownership in the things has not passed, the buyer may treat the fulfillment by the seller of his obligation to deliver the same as described
and as warranted expressly or by implication in the contract of sale as a condition of the obligation of the buyer to perform his promise to accept and
pay for the thing."[16]
In the case at bar, there was already a perfected contract. The condition was imposed only on the performance of the obligations contained therein.
Considering however that the title was eventually "reconstituted" and that the petitioners admit their ability to execute the extrajudicial settlement of
their fathers estate, the respondent had a right to demand fulfillment of the petitioners obligation to deliver and transfer ownership of the house and
lot.
What further militates against petitioners argument that they did not enter into a contract of sale is the fact that the respondent paid thirty thousand
pesos (P30,000.00) as earnest money. Earnest money is something of value to show that the buyer was really in earnest, and given to the seller to
bind the bargain.[17] Whenever earnest money is given in a contract of sale, it is considered as part of the purchase price and proof of the perfection
of the contract.[18]
We do not subscribe to the petitioners view that the Memorandum Agreement was a contract to sell. There is nothing contained in the Memorandum
Agreement from which it can reasonably be deduced that the parties intended to enter into a contract to sell, i.e. one whereby the prospective seller
would explicitly reserve the transfer of title to the prospective buyer, meaning, the prospective seller does not as yet agree or consent to transfer
ownership of the property subject of the contract to sell until the full payment of the price, such payment being a positive suspensive condition, the
failure of which is not considered a breach, casual or serious, but simply an event which prevented the obligation from acquiring any obligatory
force.[19] There is clearly no express reservation of title made by the petitioners over the property, or any provision which would impose non-payment
of the price as a condition for the contracts entering into force. Although the memorandum agreement was also denominated as a "Contract to Sell",
we hold that the parties contemplated a contract of sale. A deed of sale is absolute in nature although denominated a conditional sale in the absence
of a stipulation reserving title in the petitioners until full payment of the purchase price.[20] In such cases, ownership of the thing sold passes to the
vendee upon actual or constructive delivery thereof.[21] The mere fact that the obligation of the respondent to pay the balance of the purchase price
was made subject to the condition that the petitioners first deliver the reconstituted title of the house and lot does not make the contract a contract to
sell for such condition is not inconsistent with a contract of sale.[22]
The next issue to be addressed is whether the failure of the respondent to pay the balance of the purchase price within the period allowed is fatal to
his right to enforce the agreement.
We rule in the negative.
Admittedly, the failure of the respondent to pay the balance of the purchase price was a breach of the contract and was a ground for rescission
thereof. The extension of thirty (30) days allegedly granted to the respondent by Roberto Z. Laforteza (assisted by his counsel Attorney Romeo
Gutierrez) was correctly found by the Court of Appeals to be ineffective inasmuch as the signature of Gonzalo Z. Laforteza did not appear thereon as
required by the Special Powers of Attorney.[23] However, the evidence reveals that after the expiration of the six-month period provided for in the
contract, the petitioners were not ready to comply with what was incumbent upon them, i.e. the delivery of the reconstituted title of the house and lot.
It was only on September 18, 1989 or nearly eight months after the execution of the Memorandum of Agreement when the petitioners informed the
respondent that they already had a copy of the reconstituted title and demanded the payment of the balance of the purchase price. The respondent
could not therefore be considered in delay for in reciprocal obligations, neither party incurs in delay if the other party does not comply or is not ready
to comply in a proper manner with what was incumbent upon him.[24]
Even assuming for the sake of argument that the petitioners were ready to comply with their obligation, we find that rescission of the contract will still
not prosper. The rescission of a sale of an immovable property is specifically governed by Article 1592 of the New Civil Code, which reads:
"In the sale of immovable property, even though it may have been stipulated that upon failure to pay the price at the time agreed upon the rescission
of the contract shall of right take place, the vendee may pay, even after the expiration of the period, as long as no demand for rescission of the
contract has been made upon him either judicially or by a notarial act. After the demand, the court may not grant him a new term."[25]
It is not disputed that the petitioners did not make a judicial or notarial demand for rescission. The November 20, 1989 letter of the petitioners informing
the respondent of the automatic rescission of the agreement did not amount to a demand for rescission, as it was not notarized.[26] It was also made
five days after the respondents attempt to make the payment of the purchase price. This offer to pay prior to the demand for rescission is sufficient
to defeat the petitioners right under article 1592 of the Civil Code.[27] Besides, the Memorandum Agreement between the parties did not contain a
clause expressly authorizing the automatic cancellation of the contract without court intervention in the event that the terms thereof were violated. A
seller cannot unilaterally and extrajudicially rescind a contract of sale where there is no express stipulation authorizing him to extrajudicially
rescind.[28] Neither was there a judicial demand for the rescission thereof. Thus, when the respondent filed his complaint for specific performance, the
agreement was still in force inasmuch as the contract was not yet rescinded. At any rate, considering that the six-month period was merely an
approximation of the time it would take to reconstitute the lost title and was not a condition imposed on the perfection of the contract and considering
further that the delay in payment was only thirty days which was caused by the respondents justified but mistaken belief that an extension to pay was
granted to him, we agree with the Court of Appeals that the delay of one month in payment was a mere casual breach that would not entitle the
respondents to rescind the contract. Rescission of a contract will not be permitted for a slight or casual breach, but only such substantial and
fundamental breach as would defeat the very object of the parties in making the agreement.[29]
Petitioners insistence that the respondent should have consignated the amount is not determinative of whether respondents action for specific
performance will lie. Petitioners themselves point out that the effect of consignation is to extinguish the obligation. It releases the debtor from
responsibility therefor.[30] The failure of the respondent to consignate the P600,000.00 is not tantamount to a breach of the contract for by the fact of
tendering payment, he was willing and able to comply with his obligation.
The Court of Appeals correctly found the petitioners guilty of bad faith and awarded moral damages to the respondent. As found by the said Court,
the petitioners refused to comply with their obligation for the reason that they were offered a higher price therefor and the respondent was even
offered P100,000.00 by the petitioners lawyer, Attorney Gutierrez, to relinquish his rights over the property. The award of moral damages is in
accordance with Article 1191[31] of the Civil Code pursuant to Article 2220 which provides that moral damages may be awarded in case of a breach
of contract where the defendant acted in bad faith. The amount awarded depends on the discretion of the court based on the circumstances of each
case.[32] Under the circumstances, the award given by the Court of Appeals amounting to P50,000.00 appears to us to be fair and reasonable.
ACCORDINGLY, the decision of the Court of Appeals in CA G.R. CV No. 47457 is AFFIRMED and the instant petition is hereby DENIED.
No pronouncement as to costs.
SO ORDERED.
Melo, (Chairman), Panganiban, and Purisima, JJ., concur.
Vitug, J., Abroad, On Official Business.
AFP MUTUAL BENEFIT ASSOCIATION, INC., petitioner, vs. COURT OF APPEALS, SOLID HOMES, INC., INVESTCO, INC., and REGISTER
OF DEEDS OF MARIKINA, respondents.
[G.R. No. 135016. September 10, 2001]
SOLID HOMES, INC., petitioner, vs. INVESTCO, INC., substituted by ARMED FORCES OF THE PHILIPPINES MUTUAL BENEFIT
ASSOCIATION, INC., respondent.
RESOLUTION
PARDO, J.:
What is before the Court is Solid Homes, Inc.s motion for reconsideration of the decision promulgated on March 3, 2000, reversing the decision of
the Court of Appeals and ordering the Register of Deeds to cancel the notice of lis pendens on the titles issued to petitioner AFP Mutual Benefit
Association, Inc. (AFPMBAI), declaring it as buyer in good faith and for value.
We have defined a purchaser in good faith and for value as one who buys the property of another without notice that some other person has a right
to or interest in such property and pays a full and fair price for the same, at the time of such purchase, or before he has notice of the claim or interest
of some other person in the property.[1]
Solid Homes, Inc.s motion for reconsideration is based on the following grounds: (1) that the Court erred in ruling that petitioner was a purchaser in
good faith and for value; (2) that the Court erred in failing to appreciate Solid Homes, Inc.s cause of action (in Civil Case No. 52999); and (3) that the
Court erred in denying Solid Homes, Inc.s petition (in G. R. No. 135016) to set aside the trial courts order denying its motion to execute the decision
in Civil Case No. 40615.
We find the motion without merit.
1. Solid Homes, Inc.s position is anchored on the preposition that a notice of lis pendens was duly annotated on the vendors title that must be deemed
carried over to the titles issued to AFPMBAI, subjecting it to the final result of the litigation[2] as a transferee pendente lite.
However, the law is clear.[3] The Revised Rules of Court[4] allows the annotation of a notice of lis pendens in actions affecting the title or right of
possession of real property,[5] or an interest in such real property.[6] We further declared that the rule of lis pendens applied to suits brought to establish
an equitable estate, interest, or right in specific real property or to enforce any lien, charge, or encumbrance against it x x x.[7]
Pencil markings, which even Solid Homes, Inc. admits to be provisional,[8] are not an accepted form of annotating a notice of lis pendens. The Court
cannot accept the argument that such pencil annotation can be considered as a valid annotation of notice of lis pendens, and thus an effective notice
to the whole world as to the status of the title to the land. The law requires proper annotation, not provisional annotation of a notice of lis pendens.
If we allow provisional annotations as a valid form of annotation of notice of lis pendens, we would be eroding the very value of the indefeasibility of
the torrens system. If there were a valid annotation of notice of lis pendens, the same would have been carried over to the titles issued to AFPMBAI.
As it is, the transfer certificates of titles of the vendor Investco, Inc. conveyed to AFPMBAI were clean and without any encumbrance.
In the present case, there could be no valid annotation on the titles issued to AFPMBAI because the case used as basis of the annotation pending
with the trial court was an action for collection of a sum of money and did not involve the titles to, possession or ownership of the subject property or
an interest therein. This Court, in its final decision on the case categorized the action initiated by Investco, Inc. against Solid Homes, Inc. (Civil Case
No. 40615 of the Regional Trial Court, Pasig, Metro Manila) as:
An action for collection of sums of money, damages and attorneys fees was filed with the Regional Trial Court (Civil Case No. 40615) of Pasig
by private respondents Investco, Angela Perez Staley and Antonio Perez, Jr. against petitioner Solid Homes, Inc.[9]
Unquestionably, such action did not directly involve titles to, ownership or possession of the subject property, and, therefore, was not a proper subject
of a notice of lis pendens.
The Torrens System was adopted in this country because it was believed to be the most effective measure to guarantee the integrity of land titles
and to protect their indefeasibility once the claim of ownership is established and recognized. If a person purchases a piece of land on the assurance
that the sellers title thereto is valid, he should not run the risk of being told later that his acquisition was ineffectual after all. This would not only be
unfair to him. What is worse is that if this were permitted, public confidence in the system would be eroded and land transactions would be attended
by complicated and not necessarily conclusive investigations and proof of ownership. The further consequence would be that land conflicts could be
even more numerous and complex than they are now and possibly also more abrasive, if not even violent.[10]
Prevailing jurisprudence recognizes that All persons dealing with property covered by the torrens certificate of title are not required to go beyond what
appears on the face of the title.[11] The buyer is not even obligated to look beyond the certificate to investigate the titles of the seller appearing on the
face of the certificate.[12] Hence, we ruled that AFPMBAI is a buyer in good faith and for value.
Consequently, we reject movant Solid Homes, Inc.s contention that AFPMBAI is a transferee pendente lite of Investco, Inc.
2. It should be emphasized that the contractual relation between Investco, Inc. and Solid Homes, Inc., is based on an agreement executed in 1976
as a contract to sell and to buy. AFPMBAI never figured in this contract. The relationship between AFPMBAI and Investco, Inc. arose out of a contract
of absolute sale after Solid Homes, Inc. reneged or defaulted on its contract to sell, and Investco, Inc. rescinded extra-legally such contact to sell with
Solid Homes, Inc. AFPMBAI did not acquire from Solid Homes, Inc. its rights or interest over the property in question; Investco, Inc. sold the property
itself which AFPMBAI paid for in full, thus causing the transfer of titles in the name of AFPMBAI.
When the contract was entered into between Solid Homes, Inc. and Investco, Inc. in September 1976, the titles to the Quezon City and Marikina
property had not been transferred in the name of Investco, Inc. as assignee of the owners. Hence, Investco, Inc. merely agreed to sell, and Solid
Homes, Inc. to buy, the formers rights and interest in the subject property which at the time was still registered in the names of Angela Perez Staley
and Antonio Perez, Investco, Inc.s predecessors-in-interest.
Under the contract to sell and buy, the vendors bound themselves to cause the titles to the land to be transferred in the name of Investco, Inc. after
which, should Solid Homes, Inc. complete the installment payments, Investco, Inc. would execute a Deed of Absolute Sale in favor of Solid Homes,
Inc. and the latter would execute a first preferred mortgage in favor of Investco, Inc. The deed of absolute sale would replace the contract to sell. Only
then would Solid Homes, Inc. be entitled to take possession of the Quezon City and Marikina parcels of land and introduce improvements thereon.
On or about March 21, 1979, the titles to the Marikina property were issued in the name of Investco, Inc. However, Investco, Inc. did not execute a
deed of absolute sale in favor of Solid Homes, Inc. because Solid Homes, Inc. never paid in full its stipulated obligation payable in installments. In
fact, Solid Homes, Inc. did not even bother to register its contract to sell with the Register of Deeds pursuant to Presidential Decree 1529, also known
as the Property Registration Decree.
We find untenable Solid Homes, Inc.s contention that the transaction between AFPMBAI, Investco, Inc. and Solid Homes, Inc. is in the nature of a
double sale. The transaction between Investco, Inc. and Solid Homes, Inc. was a contract to sell and to buy that was not fully paid because Solid
Homes, Inc. defaulted on its payments. On the other hand, the contract between Investco, Inc. and AFPMBAI was an absolute sale that culminated
in the registration of the deeds and the issuance of certificate of titles in favor of AFPMBAI.
In Salazar v. Court of Appeals,[13] we explained the distinction between a contract to sell and a contract of sale:
In a contract of sale, the title to the property passes to the vendee upon the delivery of the thing sold; in a contract to sell, ownership is, by agreement,
reserved in the vendor and is not to pass to the vendee until full payment of the purchase price. Otherwise stated, in a contract of sale, the vendor
loses ownership over the property and cannot recover it until and unless the contract is resolved or rescinded; whereas in a contract to sell, title is
retained by the vendor until full payment of the price. In the latter contract, payment of the price is a positive suspensive condition, failure of which is
not a breach but an event that prevents the obligation of the vendor to convey title from becoming effective.[14]
Upon Solid Homes, Inc.s failure to comply with its obligation thereunder, there was no need to judicially rescind the contract to sell. Failure by one of
the parties to abide by the conditions in a contract to sell resulted in the rescission of the contract.[15] Unquestionably, Solid Homes, Inc. reneged on
its obligation to pay the installments for the purchase of the Quezon City and Marikina property of Investco, Inc. on the dates specified in the contract
to sell.
4. Movant Solid Homes, Inc. finally contends that when the decision in Civil Case No. 40615 became final, there was no one to move for execution
of the decision since Investco, Inc. had absconded, and had in fact re-sold the property in question to AFPMBAI. We find the contention without merit.
Investco, Inc. was the prevailing party which had the right to demand execution.[16] Once a judgment becomes final and executory, the prevailing
party can have it executed as a matter of right, and the issuance of a writ of execution becomes a ministerial duty of the court.[17] In fact, the prevailing
party is the one really entitled to file a motion for the issuance of a writ of execution. Yet, in this case, it was Solid Homes, Inc. that filed on June 19,
1996, a motion for execution of judgment in the court of origin (RTC Pasig, Branch 157). The trial court denied the motion.Hence, on September 11,
1998, Solid Homes, Inc. filed a petition for certiorari with this Court.[18]
Assuming that AFPMBAI was bound by the judgment in Civil Case No. 40615, and be substituted for Investco, Inc., it is clear that Investco, Inc.
prevailed in the case. It was the winning party.[19] It is the prevailing party which is entitled as a matter of right to a writ of execution in its favor.[20] It
is not an option of the losing party to file a motion for execution of judgment to compel the winning party to take the judgment. As the losing party in
Civil Case No. 40615, Solid Homes, Inc. can not now insist on the performance of the very contract on which it defaulted for more than fourteen (14) This is an appeal by the plaintiff from a judgment of the Court of First Instance of the city of Manila, the Hon. Simplicio del Rosario presiding, dismissing
years. Hence, Solid Homes, Inc. has no personality to move for execution of the final judgment in Civil Case No. 40615. The trial court correctly the complaint upon the merits after trial, without costs.
denied its motion for execution.
The facts presented to this court are agreed upon by both parties, consisting, in so far as they are material to a decision of the case, in the
It would be the height of unfairness if Solid Homes, Inc. which has failed to pay anything since 1981 and defaulted since 1982, would now get the following:jgc:chanrobles.com.ph
property by performance of the very contract which it violated. With the passage of time, more than fourteen (14) years, and appreciation in the value
of real estate, the property is now worth billions of pesos,[21] thus enriching Solid Homes, Inc. for its violation of the contract and default on its obligation. "III. That the plaintiff firm for many years past has been and now is engaged in the business of buying and selling at wholesale hemp, both for its own
account and on commission.
IN VIEW WHEREOF, we DENY Solid Homes, Inc.s motion for reconsideration, for lack of merit. The denial is final.
"IV. That it is customary to sell hemp in bales which are made by compressing the loose fiber by means of presses, covering two sides of the bale
SO ORDERED.
with matting, and fastening it by means of strips of rattan; that the operation of baling hemp is designated among merchants by the word prensaje.
Davide, Jr., C.J., (Chairman), Puno, Kapunan, and Ynares-Santiago, JJ., concur.
"V. That in all sales of hemp by the plaintiff firm, whether for its own account or on commission for others, the price is quoted to the buyer at so much
INCHAUSTI & CO., Plaintiff-Appellant, v. ELLIS CROMWELL, Collector of Internal Revenue, Defendant-Appellee. per picul, no mention being made of baling; but with the tacit understanding, unless otherwise expressly agreed, that the hemp will be delivered in
bales and that, according to the custom prevailing among hemp merchants and dealers in the Philippine Islands, a charge, the amount of which
Haussermann, Cohn & Fisher, for Appellant. depends upon the then prevailing rate, is to be made against the buyer under the denomination of prensaje. That this charge is made in the same
manner in all cases, even when the operation of baling was performed by the plaintiff or by its principal long before the contract of sale was made.
Acting Attorney-General Harvey, for Appellee. Two specimens of the ordinary form of account used in these operations are hereunto appended, marked Exhibits A and B, respectively, and made
a part hereof.
SYLLABUS
"VI. That the amount of the charge made against hemp buyers by the plaintiff firm and other sellers of hemp under the denomination of prensaje
1. TAXATION; SALE OF HEMP; TAXABLE VALUE. Where it is admitted by the parties that it is customary to sell hemp in the market baled and during the period involved in this litigation was P1.75 per bale; that the average cost of the rattan and matting used on each bale of hemp is fifteen
not loose, it will be presumed that the price at which hemp is quoted in the market is the price of baled hemp; and that prices stipulated in contracts (15) centavos and that the average total cost of baling hemp is one (1) peso per bale.
for the purchase and sale of hemp include the cost and expense of baling where the contracts are silent upon that subject.
"VII. That insurance companies in the Philippine Islands, in estimating the insurable value of hemp always add to the quoted price of same the charge
2. ID.; ID.; ID.; BALING EXPENSE PART OF PRICE. Under such conditions the cost and expense of baling the hemp is a part of the purchase made by the seller under the denomination of prensaje.
price and subject to a tax imposed by law on the gross amount of sales of the dealers, and is not a sum paid for work, labor, and materials performed
and furnished by the vendor for the vendee. "VIII. That the average weight of a bale of hemp is two (2) piculs (126.5 kilograms).

3. ID.; ID.; ID.; "PRICE" DEFINED. The word "price" signifies the sum stipulated as the equivalent of the thing sold and also every incident taken "IX. That between the first day of January, 1905, and the 31st day of March, 1910, the plaintiff firm, in accordance with the custom mentioned in
into consideration for the fixing of the price put to the debit of the vendee and agreed to by him. paragraph V hereof, collected and received, under the denomination of prensaje, from purchasers of hemp sold by the said firm for its own account,
in addition to the price expressly agreed upon for the said hemp, sums aggregating P380,124.35; and between the 1st day of October, 1908, and the
4. ID.; ID.; ID.; DISTINCTION BETWEEN SALE AND CONTRACT FOR LABOR AND MATERIALS. The distinction between a contract of sale and 1st day of March, 1910, collected for the account of the owners of hemp sold by the plaintiff firm in Manila on commission, and under the said
one for work, labor, and materials, is tested by the inquiry whether the thing transferred is one not in existence and which would never have existed denomination of prensaje, in addition to the price expressly agreed upon for said hemp, sums aggregating P31,080.
but for the order of the party desiring to acquire it, or a thing which would have existed and been the subject of sale to some other person, even if the
order had not been given. "X. That the plaintiff firm in estimating the amount due it as commissions on sales of hemp made by it for its principals has always based the said
amount on the total sum collected from the purchasers of the hemp, including the charge made in each case under the denomination of prensaje.
5. ID.; ID.; ID.; FUTURE SALES. When a person stipulates for the future sale of articles which he is habitually making, and which at the time are
not made or finished, it is essentially a contract of sale and not a contract for labor. It is otherwise where the article would not have been made but "XI. That the plaintiff has always paid to the defendant or to his predecessor in the office of the Collector of Internal Revenue the tax collectible under
for the agreement; and where the article ordered by the purchase is exactly such as the vendor makes and keeps on hand for sale to anyone, and the provisions of section 139 of Act No. 1189 upon the selling price expressly agreed upon for all hemp sold by the plaintiff firm both for its own
no change or modification of it is made at the vendees request, it is a contract of sale even though it be entirely made after and in consequence of account and on commission, but has not, until compelled to do so as hereinafter stated, paid the said tax upon sums received from the purchaser of
the vendees order for it. such hemp under the denomination of prensaje.

6. ID.; ID.; ID.; BALING FOR GENERAL MARKET. In this case the baling was done for the general market and was not something done by the "XII. That on the 29th day of April, 1910, the defendant, acting in his official capacity as Collector of Internal Revenue of the Philippine Islands, made
plaintiff as a result of the particular contract between him and his vendee. demand in writing upon the plaintiff firm for the payment within the period of five (5) days of the sum of P1,370.68 as a tax of one-third of one per cent
on the sums of money mentioned in Paragraph IX hereof, and which the said defendant claimed to be entitled to receive, under the provisions of the
said section 139 of Act No. 1189, upon the said sums of money so collected from purchasers of hemp under the denomination of prensaje.

"XIII. That on the 4th day of May, 1910, the plaintiff firm paid to the defendant under protest the said sum of P1,370.69, and on the same date appealed
DECISION
to the defendant as Collector of Internal Revenue, against the ruling by which the plaintiff firm was required to make said payment, but defendant
overruled said protest and adversely decided said appeal, and refused and still refuses to return to plaintiff the said sum of P1,370.68 or any part
thereof.

MORELAND, J.: "XIV. Upon the facts above set forth it is contended by the plaintiff that the tax of P1,370.68 assessed by the defendant upon the aggregate sum of
said charges made against said purchasers of hemp by the plaintiff during the period in question, under the denomination of prensaje as aforesaid,
namely, P411,204.35, is illegal upon the ground that the said charge does not constitute a part of the selling price of the hemp, but is a charge made
for the service of baling the hemp, and that the plaintiff firm is therefore entitled to recover of the defendant the said sum of P1,370.68 paid to him
under protest, together with all interest thereon at the legal rate since its payment. and the costs of this action. between the parties. It is indisputable that, if the plaintiff had bought the hemp in question already baled, and that that was the hemp the sale of which
formed the subject of this controversy, then the plaintiff would have performed no service for his vendee and could not, therefore, lawfully charge for
"Upon the facts above stated it is the contention of the defendant that the said charge made under the denomination of prensaje is in truth and in the rendition of such service. It is, nevertheless, admitted that in spite of that fact he would still have made the double entry in his invoice of sale to
fact a part of the gross value of the hemp sold and of its actual selling price, and that therefore the tax imposed by section 139 of Act No. 1189 lawfully such vendee. This demonstrates the nature of the transaction and discloses, as we have already said, that the entry of a separate charge for baling
accrued on said sums, that the collection thereof was lawfully and properly made and that therefore the plaintiff is not entitled to recover back said does not accurately describe the transaction between the parties.
sum or any part thereof; and that the defendant should have judgment against plaintiff for his costs."cralaw virtua1aw library
Section 139 [Act No. 1189] of the Internal Revenue Law provides that:jgc:chanrobles.com.ph
Under these facts we are of the opinion that the judgment of the court below was right. It is one of the stipulations in the statement of facts that it is
customary to sell hemp in bales, and that the price quoted in the market for hemp per picul is the price for the hemp baled. The fact is that among "There shall be paid by each merchant and manufacturer a tax at the rate of one-third of one per centum on the gross value in money of all goods,
large dealers like the plaintiff in this case it is practically impossible to handle hemp without its being baled, and it is admitted by the statement of wares and merchandise sold, bartered or exchanged in the Philippine Islands, and that this tax shall be assessed on the actual selling price at which
facts, as well as demonstrated by the documentary proof introduced in the case, that if the plaintiff sold a quantity of hemp it would be the every such merchant or manufacturer disposes of his commodities."cralaw virtua1aw library
understanding, without words, that such hemp would be delivered in bales, and that the purchase price would include the cost and expense of baling.
In other words, it is the fact as stipulated, as well as it would be the fact of necessity, that in all dealings in hemp in the general market the selling The operation of baling undoubtedly augments the value of the goods. We agree that there can be no question that, if the value of the hemp were
price consists of the value of the hemp loose plus the cost and expense of putting it into marketable form. In the sales made by the plaintiff, which not augmented to the amount of P1.75 per bale by said operation, the purchaser would not pay that sum. If one buys a bale of hemp at a stipulated
are the basis of the controversy here, there were no services performed by him for his vendee. There was agreement that services should be price of P20, well knowing that there is an agreement on his part, express or implied, to pay an additional amount of P1.75 for that bale, he considers
performed. Indeed, at the time of such sales it was not known by the vendee whether the hemp was then actually baled or not. All that he knew and the bale of hemp worth P21.75. It is agreed, as we have before stated, that hemp is sold in bales. Therefore, baling is performed before the sale. The
all that concerned him was that the hemp should be delivered to him baled. He did not ask the plaintiff to perform services for him, nor did the plaintiff purchaser of hemp owes to the seller nothing whatever by reason of their contract except the value of the hemp delivered. That value, that sum which
agree to do so. The contract was single and consisted solely in the sale and purchase of hemp. The purchaser contracted for nothing else and the the purchaser pays to the vendee, is the true selling price of the hemp, and every item which enters into such price is a part of such selling price. By
vendor agreed to deliver nothing else. force of the custom prevailing among hemp dealers in the Philippine Islands, a purchaser of hemp in the market, unless he expressly stipulates that
it shall be delivered to him in loose form, obligates himself to purchase and pay for baled hemp. Whether or not such agreement is express or implied,
The word "price" signifies the sum stipulated as the equivalent of the thing sold and also every incident taken into consideration for the fixing of the whether it is actual or tacit, it has the same force. After such an agreement has once been made by the purchaser, he has no right to insist thereafter
price, put to the debit of the vendee and agreed to by him. It is quite possible that the plaintiff, in this case in connection with the hemp which he sold, that the seller shall furnish him with unbaled hemp. It is undoubted that the vendees, in the sales referred to in the case at bar, would have had no
had himself already paid the additional expense of baling as a part of the purchase price which he paid and that he himself had received the hemp right, after having made their contracts, to insist on the delivery of loose hemp with the purpose in view themselves to perform the baling and thus
baled from his vendor. It is quite possible also that such vendor of the plaintiff may have received the same hemp from his vendor in baled form, that save 75 centavos per bale. It is unquestioned that the seller, the plaintiff, would have stood upon his original contract of sale, that is, the obligation to
he paid the additional cost of baling as a part of the purchase price which he paid. In such case the plaintiff performed no service whatever for his deliver baled hemp, and would have forced his vendees to accept baled hemp, he himself retaining among his own profits those which accrued from
vendee, nor did, the plaintiffs vendor perform any service for him. the process of baling.

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 We are of the opinion that the judgment appealed from must be affirmed, without special finding as to costs, and it is so ordered.
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 been the
subject of sale to some other person. even if the order had not been given. (Groves v. Buck, 3 Maule & S., 178; Towers v. Osborne, 1 Strange, 506; Torres, Mapa, Johnson and Carson, JJ., concur.
Benjamin on Sales, 90.) It is clear that in the case at bar the hemp was in existence in baled form before the agreements of sale were made, or, at
least, would have been in existence even if none of the individual sales here in question had been consummated. It would have been baled, G.R. No. L-8506 August 31, 1956
nevertheless, for sale to someone else, since, according to the agreed statement of facts, it is customary to sell hemp in bales. When a person
stipulates for the future sale of articles which he is habitually making, and which at the time are not made or finished, it is essentially a contract of CELESTINO CO & COMPANY, petitioner,
sale and not a contract for labor. It is otherwise when the article is made pursuant to agreement. (Lamb v. Crafts, 12 Met., 353; Smith v. N. Y. C. Ry. vs.
Co., 4 Keyes, 180; Benjamin on Sales, 98.) Where labor is employed on the materials of the seller he can not maintain an action for work and labor. COLLECTOR OF INTERNAL REVENUE, respondent.
(Atkinson v. Bell, 8 Barn. & C., 277; Lee v. Griffin, 30 L. J. N. S. Q. B., 252; Prescott v. Locke, 51 N. H., 94.) If the article ordered by the purchaser is
Office of the Solicitor General Ambrosio Padilla, Fisrt Assistant Solicitor General Guillermo E. Torres and Solicitor Federico V. Sian for respondent.
exactly such as the plaintiff makes and keeps on hand for sale to anyone, and no change or modification of it is made at the defendants request, it
is a contract of sale, even though it may be entirely made after, and in consequence of, the defendants order for it. (Garbutt v. Watson, 5 Barn. & BENGZON, J.:
Ald., 613; Gardner v. Joy, 9 Met., 177; Lamb v. Crafts, 12 Met., 353; Waterman v. Meiks, 4 Cush., 497; Clark v. Nichols, 107 Mass., 547; May v.
Ward, 134 Mass., 127; Abbott v. Gilchrist, 38 Me., 260; Crocket v. Scribner, 64 Me., 105; Pitkin v. Noyes, 48 N. H., 294; Prescott v. Locke, 51 N. H., Appeal from a decision of the Court of Tax Appeals.
94; Ellison v. Brigham, 38 Vt., 64.) It has been held in Massachusetts that a contract to make is a contract of sale if the article ordered is already
substantially in existence at the time of the order and merely requires some alteration, modification, or adaptation to the buyers wishes or purposes. Celestino Co & Company is a duly registered general copartnership doing business under the trade name of "Oriental Sash Factory". From 1946 to
(Mixer v. Howarth, 21 Pick., 205.) It is also held in that state that a contract for the sale of an article which the vendor in the ordinary course of his 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-
business manufactures or procures for the general market, whether the same is on hand at the time or not, is a contract for the sale of goods to which 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
the statute of frauds applies. But if the goods are to be manufactured especially for the purchaser and upon his special order, and not for the general 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
market, the case is not within the statute. (Goddard v. Binney, 115 Mass., 450.) the matter to the Court of Tax Appeals, where it also failed. Said the Court:

It is clear to our minds that in the case at bar the baling was performed for the general market and was not something done by plaintiff which was a
result of any peculiar wording of the particular contract between him and his vendee. It is undoubted that the plaintiff prepared his hemp for the
general market. This would be necessary One who exposes goods for sale in the market must have them in marketable form. The hemp in question
would not have been in that condition if it had not been baled. The baling, therefore, was nothing peculiar to the contract between the plaintiff and his
vendee. It was precisely the same contract that was made by every other seller of hemp, engaged as was the plaintiff, and resulted simply in the
transfer of title to goods already prepared for the general market. The method of bookkeeping and form of the account rendered is not controlling as
to the nature of the contract made. It is conceded in the case that a separate entry and charge would have been made for the baling even if the
plaintiff had not been the one who baled the hemp but, instead, had received it already baled from his vendor. This indicates of necessity that the
mere fact of entering a separate item for the baling of the hemp is formal rather than essential and in no sense indicates in this case the real transaction
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 stock doors of the kind sold to Teodoro, it could stock and/or probably had
in stock the sash, mouldings and panels it used therefor (some of them at least).
In our opinion when this Factory accepts a job that requires the use of extraordinary or additional equipment, or involves services not generally
performed by it-it thereby contracts for a piece of work filing special orders within the meaning of Article 1467. The orders herein exhibited were
not shown to be special. They were merely orders for work nothing is shown to call them special requiring extraordinary service of the factory.
The thought occurs to us that if, as alleged-all the work of appellant is only to fill orders previously made, such orders should not be called special work,
but regular work. Would a factory do business performing only special, extraordinary or peculiar merchandise?
Anyway, supposing for the moment that the transactions were not sales, they were neither lease of services nor contract jobs by a contractor. But as
the doors and windows had been admittedly "manufactured" by the Oriental Sash Factory, such transactions could be, and should be taxed as
"transfers" thereof under section 186 of the National Revenue Code.
The appealed decision is consequently affirmed. So ordered.
Paras, C. J., Padilla, Montemayor, Bautista Angelo, Concepcion, Reyes, J. B. L., and Felix, JJ., concur.
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, L-27718 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:
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 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 the habitualityof 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.]
(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.
(d) Es indudable que estos pagos son para cubrir el precio estipulado, pues el recurrido admite que la consideracion de la venta ulterior son las
mismas mensualidades, y la "arrendataria" dice que "los alquileres . . . eran a cuenta del importe total," "como pago a plazos".
(e) Los precios de los muebles fijados en las escrituras guardan armonia con la indole de venta a plazos, pues esta aumentado considerablemente.
En el mismo dia en que el asunto se vio en el Juzgado Municipal de Manila, la apelada-recurrente tomo precious en los establecimientos de muebles
identicos, y hallo que solo valen P61 en total, en vez de P190 (n. t., p. 21). Esta prueba no ha sido contradicha.

SO ORDERED. (f ) Las partes no solo se han obligado, el uno a entregar los muebles, y la otra, a pagarlos. En efecto, la cosa ha sido entregada, y parte del precio
fue pagado.
Fernan (Chairman), Gutierrez, Jr., Feliciano and Bidin, concur.
(g) La decision dice que no es venta a plazos, sino arrendamiento con opcion de compra, pero si la consideracion del arrendamiento y la de la
G.R. No. L-45955 April 5, 1939 compra es una y la misma, como ocurre en el presente caso, segun la misma decision recurrida, entonces no existe contrato doble, sino uno y
simple, de venta condicional o a plazos. Para que sea arrendamiento con opcion de compra debe haber un precio para la compra distinta del precio
TEODORICA R. VIUDA DE JOSE, petitioner, de arrendamiento, que no occurre en el presente caso.
vs.
JULIO VELOSO BARRUECO, respondent. A perusal of the record of this case shows that in Exhibit A, the amount of P70 was fixed as the cost price for the cupboard, P14 as the down payment
made at the signing of the contract and P5 as the monthly rentals of said furniture. In Exhibit B the amount of P120 was also fixed as the cost price
Ramon Diokno for petitioner. of the modern narra wardrobe, the down payment made as P24 and the monthly rental at P10. These Exhibits A and B are denominated CONTRACTS
Ignacio B. Alcuaz for respondent. OF LEASE, the monthly payments for both pieces of furniture are called rentals, and Mary Ando is mentioned as "leasee." What is the nature of these
contracts? The answer to this question is not to be found in any denomination which the parties may have given to the instruments, and not alone in
LAUREL, J.:
any particular provision it contains, disconnected from all others, but in the ruling intention of the parties, gathered from the language they have used.
The petitioner-appellant brought this case before this court thru petition for a writ of certiorari to review the decision of the Court of Appeals It is the legal effect of the whole which is to be sought for. The form of the instrument is of little account. (See Herryford vs. Davis, 26 Law. ed. [ U.
promulgated on October 30, 1937. S.], pp. 160, 162.).

Mary Ando leased from Julio Barrueco a China cabinet valued T P70. She undertook, under the lease, to pay P14 upon signing the contract and P5 We find that the parties intended to have the ownership of the furniture transferred to Mary Ando upon the latter complying with the conditions of the
monthly thereafter for a period not specified but extendible at the owner's pleasure. The contract of lease further provided that upon leasee's default, contract. (Testimony of plaintiff, p. 9, s. n.; and Mary Ando, p. 17, s. n.) Cf. Valdez vs. Sibal 1., 46 Phil., 930.)
the contract would be rescinded; that the leasee was not liberty to remove said cabinet from house No 1030 Misericordia Street where she lived, and
In H. E. Heacock Co. vs. Buntal Manufacturing Co. (G. R. No. 44471, promulgated September 26, 1938), we said:
that upon failure to comply with the terms of the lease, the owner could immediately take possession of the property leased. Under similar terms and
conditions, Mary Ando also leased from said store a narra wardrobe valued at P120, paying P24 cash and P10 monthly. A mayor abundamiento debemos decir que el hecho de haberse fijado el precio de la maquina en el contrato, hace que este no sea de arrendamiento
sino de compraventa, porque en los contratos de arrendamiento, a diferencia de los contratos de compraventa, es redunduncia injustifiable, fijar o
Unable to pay the rent of the house, Mary Ando attempted to move therefrom, taking with her the cabinet and the wardrobe. She was presented from
hacer mencion siguiera del precio de la cosa que se da en arrendamiento. (Arts. 1445, 1543, Codigo Civil.) Cuando los terminos de un contrato no
doing so by Teodorica R. Viuda de Jose, the owner of the house, who claimed to be entitled to said personal properties in lieu of rents due.
son claros o son contradictorios entre si, como lo son los del Exhibit A, debe darse efecto a la intencion de las partes (art 1281 del Codigo Civil), y la
Upon a complaint filed by Julio Veloso Barrueco to recover the properties in question from Teodorica R. Viuda de Jose, the Court of First Instance of intencion de la demandante y de los demandados en esta causa segun la vemos impresa en el contrato Exhibit A, considerando en conjunto todos
Manila held that the contracts of lease (Exhibits A and B) were fictitious, and that the real contract between the plaintiff and Mary Ando was one of sus terminos y clausulas es que el contrato por ellos celebrado fue el de compraventa a plazos, y no de arrendamiento.
sale on the installment basis, wherefore, the complaint was dismissed and defendant declared entitled to the properties in litigation. Brought to the
In Manila Gas Corporation vs. Calupitan (G.R. No. 46378, promulgated December 17, 1938), we also observed:
Court of Appeals, the judgment was reversed, and the contracts between plaintiff and Mary Ando held to be those of lease.
Por las consideraciones arriba expuestas, somos de opinion, y asi declaramos, que cuando en un contrato que se titula de arrendamiento de cosa
The case is here on petition, by defendant Teodorica R. Viuda de Jose, now petitioner, contending that the decision of the Court of Appeals is
mueble se estipula que el supuesto arrendatario pagara cierta cantidad al firmarse el contrato, y en o antes del dia 5 de cada mes, otra cantidad
erroneous for the following reasons:
determinada, en concepto de alguiler, dando al supuesto arrendatario derecho de opcion para comprar la citada cosa mueble antes de expirar el
(a) Resumiendo las condiciones de ambas escrituras de "arrendamiento," Exhibits A y B, extractadas en la parte de la decision recurrida arriba plazo del arrendamiento, que es el tiempo que se necesita para pagar dicho importe a razon de un tanto al mes, descontando los pagos hechos en
acotada, se destacan estos datos: concepto de adelanto y de supuestos alquileres mensuales, y dicho supuesto arrendatario hace el adelanto y paga varias mensualidades, haciendose
constar en su cuenta y en los recibos que se le expiden que dichos pagos son a cuenta del importe de la cosa mueble supuestamente arrendada,
dicho contrato tiene el concepto de venta a plazo y no de arrendamiento.
Exhibit Valor del mueble Primer pago Precio restante Alquiler mensual Periodo necesario de pago
Sellers desirous of making conditional sales of their goods, but who do not wish openly to make a bargain in that form, for one reason or another,
have frequently resorted to the device of making contracts in the form of leases either with options to the buyer to purchase for a small consideration
A ............. P70.00 P14.00 P56.00 P5.00 Once meses
at the end of term, provided the so-called rent has been duly paid, or with stipulations that if the rent throughout the term is paid, title shall thereupon
vest in the lessee. It is obvious that such transactions are leases only in name. The so-called rent must necessarily be regarded as payment of the
B ............. 120.00 24.00 96.00 10.00 Diez meses price in installments since the due payment of the agreed amount results, by the terms of the bargain, in the transfer of title to the lessee.

The writ of certiorari is granted, and the judgement of the Court of Appeals is reserved and that of the Court of First Instance of Manila declared in
(b) Al otorgarse la escritura hay inmediatamente pagos de P14 y P24, que no son alquileres, y que no tienen otro significado sino pagos a cuenta full force and effect. With out costs. So ordered.
del precio de los muebles. Estas candidades representan exactamente el pago anticipado del 20 por ciento, o una quinta parte del valor.
Avancea, C.J., Villa-Real, Imperial, Diaz and Concepcion, JJ., concur.
(c) Los cuatro quintos restantes del valor son pagaderos en forma de mensualidades dentro de un periodo de 10 a 11 meses. Si este alquiler no es
a cuenta del importe del mueble, el contrato sera escandalosamente inmoral, por usurario y opresivo. ELISCO TOOL MANUFACTURING CORPORATION, petitioner, vs. COURT OF APPEALS, ROLANDO LANTAN, and RINA
LANTAN, respondents
DECISION
MENDOZA, J.:
This is a petition for review of the decision[1] of the Court of Appeals which affirmed in toto the decision of the Regional Trial Court of Pasig, Branch
51, declaring respondent spouses Rolando Lantan and Rina Lantan owners of a 1979 model 2-door Colt Lancer car which they had acquired under
a car plan for top employees of the Elizalde group of companies.
The facts are as follows:
Private respondent Rolando Lantan was employed at the Elisco Tool Manufacturing Corporation as head of its cash department. On January 9, 1980,
he entered into an agreement with the company which provided as follows:[2]
That, EMPLOYER is the owner of a car Colt Lancer 2 door, Model 1979, with Serial No. 3403 under LTC Registration Certificate No. 0526558;
That, for and in consideration of a monthly rental of ONE THOUSAND TEN & 65/100 ONLY (P1,010.65) Philippine Currency, EMPLOYER desire to
lease and EMPLOYEE accept in lease the motor vehicle aforementioned for a period of FIVE (5) years;
That, the EMPLOYEE agree as he hereby agreed to pay the lease rental thru salary deduction from his monthly remuneration in the amount as above
specified for a period of FIVE (5) years;
That, for the duration of the lease contract, all expenses and costs of registration, insurance, repair and maintenance, gasoline, oil, part replacement
inclusive of all expenses necessary to maintain the vehicle in top condition shall be for the account of the EMPLOYEE;
That, at the end of FIVE (5) year period or upon payment of the 60th
monthly rental, EMPLOYEE may exercise the option to purchase the motor
vehicle from the EMPLOYER and all monthly rentals shall be applied to the payment of the full purchase price of the car and further, should
EMPLOYEE desire to exercise this option before the 5-year period lapse, he may do so upon payment of the remaining balance on the five year
rental unto the EMPLOYER, it being understood however that the option is limited to the EMPLOYEE;
That, upon failure of the EMPLOYEE to pay THREE (3) accumulated monthly rentals will vest upon the EMPLOYER the full right to lease the vehicle
to another EMPLOYEE;
That, in the event of resignation and or dismissal from the service, the EMPLOYEE shall return the subject motor vehicle to the EMPLOYER in its
compound at Kalawaan Sur, Pasig, Metro Manila in good working and body condition.
On the same day, January 9, 1980, private respondent executed a promissory note reading as follows:[3]
PROMISSORY NOTE
P60,639.00
FOR VALUE RECEIVED, we promise to pay [to] the order of ELISCO TOOL MFG. CORP. SPECIAL PROJECT, at its office at Napindan, Taguig,
Metro Manila, Philippines, the sum of ONE THOUSAND TEN & 65/100 PESOS (P1,010.65), Philippine Currency, beginning January 9, 1980, without
the necessity of notice or demand in accordance with the schedule of payment hereto attached as an integral part hereof.
In case of default in the payment of any installment on the stipulated due date, we agree to pay as liquidated damages 2% of the amount due and
unpaid for every thirty (30) days of default or fraction thereof. Where the default covers two successive installments, the entire unpaid balance shall
automatically become due and payable.
It is further agreed that if upon such default attorneys services are availed of, an additional sum equal to TWENTY (20%) percent of the total amount
due thereon, but in no case be less than P1,000.00 shall be paid to holder(s) hereof as attorneys fees in addition to the legal costs provided for by
law. We agree to submit to the jurisdiction of the proper courts of Makati, Metro Manila or the Province of Rizal, at the option of the holder(s) waiving
for this purpose any other venue.
In case extraordinary inflation or deflation of the currency stipulated should occur before this obligation is paid in full, the value of the currency at the
time of the establishment of the obligation will be the basis of payment.
Holder(s) may accept partial payment reserving his right of recourse against each and all endorsers who hereby waive DEMAND PRESENTMENT
and NOTICE.
Acceptance by the holder(s) of payment or any part thereof after due date shall not be considered as extending the time for the payment of the
aforesaid obligation or as a modification of any of the condition hereof.
After taking possession of the car, private respondent installed accessories therein worth P15,000.00.
In 1981, Elisco Tool ceased operations, as a result of which private respondent Rolando Lantan was laid off. Nonetheless, as of December 4, 1984,
private respondent was able to make payments for the car in the total amount of P61,070.94.
On June 6, 1986, petitioner filed a complaint, entitled replevin plus sum of money, against private respondent Rolando Lantan, his wife Rina, and two
other persons, identified only as John and Susan Doe, before the Regional Trial Court of Pasig, Metro Manila. Petitioner alleged that private
respondents failed to pay the monthly rentals which, as of May 1986, totalled P39,054.86; that despite demands, private respondents failed to settle
their obligation thereby entitling petitioner to the possession of the car; that petitioner was ready to post a bond in an amount double the value of the
car, which was P60,000; and that in case private respondents could not return the car, they should be held liable for the amount of P60,000 plus the
accrued monthly rentals thereof, with interest at the rate of 14% per annum, until fully paid. Petitioners complaint contained the following prayer:
WHEREFORE, plaintiffs prays that judgment be rendered as follows:
ON THE FIRST CAUSE OF ACTION
Ordering defendant Rolando Lantan to pay the plaintiff the sum of P39,054.86 plus legal interest from the date of demand until the whole obligation
is fully paid;
ON THE SECOND CAUSE OF ACTION
To forthwith issue a Writ of Replevin ordering the seizure of the motor vehicle more particularly described in paragraph 3 of the Complaint, from
defendant Rolando Lantan and/or defendants Rina Lantan, John Doe, Susan Doe and other person or persons in whose possession the said motor
vehicle may be found, complete with accessories and equipment, and direct deliver thereof to plaintiff in accordance with law, and after due hearing
to confirm said seizure and plaintiffs possession over the same;
ON THE ALTERNATIVE CAUSE OF ACTION
In the event that manual delivery of the subject motor vehicle cannot be effected for any reason, to render judgment in favor of plaintiff and against
defendant Rolando Lantan ordering the latter to pay the sum of SIXTY THOUSAND PESOS (P60,000.00) which is the estimated actual value of the
above-described motor vehicle, plus the accrued monthly rentals thereof with interests at the rate of fourteen percent (14%) per annum until fully
paid;
PRAYER COMMON TO ALL CAUSES OF ACTION
1. Ordering the defendant Rolando Lantan to pay the plaintiff an amount equivalent to twenty-five percent (25%) of his outstanding obligation, for and
as attorneys fees;
2. Ordering defendants to pay the cost or expenses of collection, repossession, bonding fees and other incidental expenses to be proved during the
trial; and
3. Ordering defendants to pay the costs of suit.
Plaintiff also prays for such further reliefs as this Honorable Court may deem just and equitable under the premises.
Upon petitioners posting a bond in the amount of P120,000, the sheriff took possession of the car in question and after five (5) days turned it over to
petitioner.[4]
In due time, private respondents filed their answer. They claimed that the agreement on which the complaint was based had not been signed by
petitioners representative, Jose Ma. S. del Gallego, although it had been signed by private respondent Rolando Lantan; that their true agreement
was to buy and sell and not lease with option to buy the car in question at a monthly amortization of P1,000; and that petitioner accepted the installment
payments made by them and, in January 1986, agreed that the balance of the purchase price would be paid on or before December 31, 1986. Private
respondents cited the provision of the agreement making respondent Rolando Lantan liable for the expenses for registration, insurance, repair and
maintenance, gasoline, oil and part replacements, inclusive of all necessary expenses, as evidence that the transaction was one of sale.Private
respondents further alleged that, in any event, petitioner had waived its rights under the agreement because of the following circumstances: (a) while
the parties agreed that payment was to be made through salary deduction, petitioner accepted payments in cash or checks; (b) although they agreed
that upon the employees resignation, the car should be returned to the employer, private respondent Rolando Lantan was not required to do so when
he resigned in September 1982; (c) petitioner did not lease the vehicle to another employee after private respondent Rolando Lantan had allegedly
failed to pay three monthly rentals; and (d) petitioner failed to enforce the manner of payment under the agreement by its acceptance of payments in
various amounts and on different dates.
In its reply, petitioner maintained that the contract between the parties was one of lease with option to purchase and that the promissory note was
merely a nominal security for the agreement. It contended that the mere acceptance of the amounts paid by private respondents and for indefinite
periods of time was not evidence that the parties agreement was one of purchase and sale. Neither was it guilty of laches because, under the law,
an action based on a written contract can be brought within ten (10) years from the time the action accrues. On August 31, 1987, the trial
court[5] rendered its decision.
The trial court sustained private respondents claim that the agreement in question was one of sale and held that the latter had fully paid the price of
the car having paid the total amount of P61,070.94 aside from installing accessories in the car worth P15,000.00. Said the trial court:
Plaintiff now comes claiming ownership of the car in question and has succeeded in repossessing the same by virtue of the writ of seizure issued in
this case on July 29, 1986. Not content with recovering possession of the said car, plaintiff still asks that defendants should pay it the sum of
P39,054.86, allegedly representing the rentals due on the car from the time of the last payment made by defendants to its repossession thereof. This
is indeed a classic case of one having his cake and eating it too! Under the Recto law (Arts. 1484 & 1485, Civil Code), the vendor who repossesses
the goods sold on installments, has no right to sue the vendee for the unpaid balance thereof.
The Court can take judicial notice of the practice wherein executives enjoy car plans in progressive companies. The agreement of January 9, 1980
between the parties is one such car plan. If defendant Rolando Lantan failed to keep up with his amortizations on the car in question, it was not
because of his own liking but rather he was pushed to it by circumstances when his employer folded up and sent him to the streets. That plaintiff was
giving all the chance to defendants to pay the value of the car and acquire full ownership thereof is shown by the delay in instituting the instant case.
...
The court likewise found that the amount of P61,070.94 included a 2% penalty for late payments for which there was no stipulation in the agreement:
. . . The agreement and defendant Rolando Lantans promissory note of January 9, 1980 do not provide even for interest on the remaining balance of
the purchase price of the car. This privilege extended by corporations to their top executives is considered additional emolument to them. And so the
reason for the lack of provision for interest, much less penalty charges. Therefore, all payments made by defendant should be applied to the principal
account. Since the principal was only P60,639.00, the defendants have made an overpayment of P431.94 which should be returned to defendant by
plaintiff.
For this reason, it ordered petitioner to pay private respondents the amount of P431.94 as excess payment, as well as rentals at the rate of P1,000 a
month for depriving private respondents of the use of their car, and moral damages for the worry, embarrassment, and mental torture suffered by
them on account of the repossession of the car.
The dispositive portion of the trial courts decision reads as follows:
WHEREFORE, judgment is hereby rendered in favor of defendants and against plaintiff, dismissing plaintiffs complaint; declaring defendants the
lawful owners of that Colt Lancer 2-door, Model 1979 with Serial No. 3403 under Registration Certificate No. 0526558; ordering plaintiff to deliver to
defendants the aforesaid motor vehicle complete with all the accessories installed therein by defendants; should for any reason plaintiff is unable to
deliver the said car to defendants, plaintiff is ordered to pay to defendants the value of said car in the sum of P60,639.00 plus P15,000.00, the value
of the accessories, plus interest of 12% on the said sums from August 6, 1986; and sentencing plaintiff to pay defendants the following sums:
a) P12,431.94 as actual damages broken down as follows:
1) P431.94 overpayment made by defendants to plaintiff; and
2) P12,000.00 rental on the car in question from August 6, 1986 to August 5, 1987, plus the sum of P1,000.00 a month beginning August 6, 1987
until the car is returned by plaintiff to, and is received by, defendant;
b) the sum of P20,000.00 as moral damages;
c) the sum of P5,000.00 as exemplary damages; and
d) the sum of P5,000.00 as attorneys fees.
Costs against the plaintiff.
SO ORDERED.
Petitioner appealed to the Court of Appeals. On the other hand, private respondents filed a motion for execution pending appeal. In its resolution of
March 9, 1989, the Court of Appeals granted private respondents motion and, upon the filing of a bond, in the amount of P70,000.00, it issued a writ
of execution, pursuant to which the car was delivered to private respondents on April 16, 1989.[6]
On August 26, 1992, the Court of Appeals rendered its decision, affirming in toto the decision of the trial court. Hence, the instant petition for review
on certiorari.
Petitioner contends that the Court of Appeals erred -
(a) in disregarding the admission in the pleadings as to what documents contain the terms of the parties agreement.
(b) in holding that the interest stipulation in respondents Promissory Note was not valid and binding.
(c) in holding that respondents had fully paid their obligations.
It further argues that -
On the assumption that the Lease Agreement with option to buy in this case may be treated as a sale on installments, the respondent Court of
Appeals nonetheless erred in not finding that the parties have validly agreed that the petitioner as seller may [i] cancel the contract upon the
respondents default on three or more installments, [ii] retake possession of the personalty, and [iii] keep the rents already paid.
First. Petitioner does not deny that private respondent Rolando Lantan acquired the vehicle in question under a car plan for executives of the Elizalde
group of companies. Under a typical car plan, the company advances the purchase price of a car to be paid back by the employee through monthly
deductions from his salary. The company retains ownership of the motor vehicle until it shall have been fully paid for. [7] However, retention of
registration of the car in the companys name is only a form of a lien on the vehicle in the event that the employee would abscond before he has fully
paid for it. There are also stipulations in car plan agreements to the effect that should the employment of the employee concerned be terminated
before all installments are fully paid, the vehicle will be taken by the employer and all installments paid shall be considered rentals per agreement.[8]
This Court has long been aware of the practice of vendors of personal property of denominating a contract of sale on installment as one of lease to
prevent the ownership of the object of the sale from passing to the vendee until and unless the price is fully paid. As this Court noted in Vda. de Jose
v. Barrueco:[9]
Sellers desirous of making conditional sales of their goods, but who do not wish openly to make a bargain in that form, for one reason or another,
have frequently resorted to the device of making contracts in the form of leases either with options to the buyer to purchase for a small consideration
at the end of term, provided the so-called rent has been duly paid, or with stipulations that if the rent throughout the term is paid, title shall thereupon
vest in the lessee. It is obvious that such transactions are leases only in name. The so-called rent must necessarily be regarded as payment of the
price in installments since the due payment of the agreed amount results, by the terms of the bargain, in the transfer of title to the lessee.
In an earlier case, Manila Gas Corporation v. Calupitan,[10] which involved a lease agreement of a stove and a water heater, the Court said:
. . . [W]e are of the opinion, and so hold, that when in a so-called contract of lease of personal property it is stipulated that the alleged lessee shall
pay a certain amount upon signing the contract, and on or before the 5th of every month, another specific amount, by way of rental, giving the alleged
lessee the right of option to buy the said personal property before the expiration of the period of lease, which is the period necessary for the payment
of the said amount at the rate of so much a month, deducting the payments made by way of advance and alleged monthly rentals, and the said
alleged lessee makes the advance payment and other monthly installments, noting in his account and in the receipts issued to him that said payments
are on account of the price of the personal property allegedly leased, said contract is one of sale on installment and not of lease.[11]
In U.S. Commercial v. Halili,[12] a lease agreement was declared to be in fact a sale of personal property by installment. Said the Court:[13]
. . . There can hardly be any question that the so-called contracts of lease on which the present action is based were veritable leases of personal
property with option to purchase, and as such come within the purview of the above article [Art. 1454-A of the old Civil Code on sale of personal
property by installment]. In fact the instruments (exhibits `A and `B) embodying the contracts bear the heading or title `Lease-Sale (Lease-Sale of
Transportation and/or Mechanical Equipment). The contracts fix the value of the vehicles conveyed to the lessee and expressly refer to the remainder
of said value after deduction of the down payment made by the lessee as `the unpaid balance of the purchase price of the leased equipment. The
contracts also provide that upon the full value (plus stipulated interest) being paid, the lease would terminate and title to the leased property would
be transferred to the lessee. Indeed, as the defendant-appellant points out, the inclusion of a clause waiving benefit of article 1454-A of the old Civil
Code is conclusive proof of the parties understanding that they were entering into a lease contract with option to purchase which come within the
purview of said article.
Being leases of personal property with option to purchase as contemplated in the above article, the contracts in question are subject to the provision
that when the lessor in such case has chosen to deprive the lessee of the enjoyment of such personal property, he shall have no further action against
the lessee for the recovery of any unpaid balance owing by the latter, agreement to the contrary being null and void.
It was held that in choosing to deprive the defendant of possession of the leased vehicles, the plaintiff waived its right to bring an action to recover
unpaid rentals on the said vehicles.
In the case at bar, although the agreement provides for the payment by private respondents of monthly rentals, the fifth paragraph thereof gives them
the option to purchase the motor vehicle at the end of the 5th year or upon payment of the 60th monthly rental when all monthly rentals shall be applied
to the payment of the full purchase price of the car. It is clear that the transaction in this case is a lease in name only. The so-called monthly rentals
are in truth monthly amortizations on the price of the car.
Second. The contract being one of sale on installment, the Court of Appeals correctly applied to it the following provisions of the Civil Code:
ART. 1484. In a contract of sale of personal property the price of which is payable in installments, the vendor may exercise any of the following
remedies:
(1) Exact fulfillment of the obligation, should the vendee fail to pay;
(2) Cancel the sale, should the vendees failure to pay cover two or more installments;
(3) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the vendees failure to pay cover two or more installments. In
this case, he shall have no further action against the purchaser to recover any unpaid balance of the price. Any agreement to the contrary shall be
void.
ART. 1485. The preceding article shall be applied to contracts purporting to be leases of personal property with option to buy, when the lessor has
deprived the lessee of the possession or enjoyment of the thing.
The remedies provided for in Art. 1484 are alternative, not cumulative. The exercise of one bars the exercise of the others.[14] This limitation applies
to contracts purporting to be leases of personal property with option to buy by virtue of Art. 1485. [15] The condition that the lessor has deprived the
lessee of possession or enjoyment of the thing for the purpose of applying Art. 1485 was fulfilled in this case by the filing by petitioner of the complaint
for replevin to recover possession of movable property. By virtue of the writ of seizure issued by the trial court, the deputy sheriff seized the vehicle
on August 6, 1986 and thereby deprived private respondents of its use.[16] The car was not returned to private respondent until April 16, 1989, after
two (2) years and eight (8) months, upon issuance by the Court of Appeals of a writ of execution.[17]
Petitioner prayed that private respondents be made to pay the sum of P39,054.86, the amount that they were supposed to pay as of May 1986, plus
interest at the legal rate.[18] At the same time, it prayed for the issuance of a writ of replevin or the delivery to it of the motor vehicle complete with
accessories and equipment.[19] In the event the car could not be delivered to petitioner, it was prayed that private respondent Rolando Lantan be
made to pay petitioner the amount of P60,000.00, the estimated actual value of the car, plus accrued monthly rentals thereof with interests at the rate
of fourteen percent (14%) per annum until fully paid.[20] This prayer of course cannot be granted, even assuming that private respondents have
defaulted in the payment of their obligation. This led the trial court to say that petitioner wanted to eat its cake and have it too.
Notwithstanding this impossibility in petitioners choice of remedy, this case should be considered as one for specific performance, pursuant to Art.
1484(1), consistent with its prayer with respect to the unpaid installments as of May 1986. In this view, the prayer for the issuance of a writ of replevin
is only for the purpose of insuring specific performance by private respondents.
Both the trial court and the Court of Appeals correctly ruled that private respondents could no longer be held liable for the amounts of P39,054.86 or
P60,000.00 because private respondents had fulfilled their part of the obligation. The agreement does not provide for the payment of interest on
unpaid monthly rentals or installments because it was entered into in pursuance of a car plan adopted by the company for the benefit of its deserving
employees. As the trial court correctly noted, the car plan was intended to give additional benefits to executives of the Elizalde group of companies.
Petitioner contends that the promissory note provides for such interest payment. However, as the Court of Appeals held:
The promissory note in which the 2% monthly interest on delayed payments appears does not form part of the contract. There is no consideration for
the promissory note. There is nothing to show that plaintiff advanced the purchase price of the vehicle for Lantan so as to make the latter indebted to
the former for the amount stated in the promissory note. Thus, as stated in the complaint: That sometime in January, 1980, defendant Rolando Lantan
entered into an agreement with the plaintiff for the lease of a motor vehicle supplied by the latter, with the option to purchase at the end of the period
of lease . . . . In other words, plaintiff did not buy the vehicle for Rolando Lantan, advancing the purchase price for that purpose. There is nothing in
the complaint or in the evidence to show such arrangement. Therefore, there was no indebtedness secured by a promissory note to speak of. There
being no consideration for the promissory note, the same, including the penalty clause contained thereon, has no binding effect.[21]
There is no evidence that private respondents received the amount of P60,639.00 indicated in the promissory note as its value. What was proven
below is the fact that private respondents received from petitioner the 2-door Colt Lancer car which was valued at P60,000 and for which private
respondent Rolando Lantan paid monthly amortizations of P1,010.65 through salary deductions.
Indeed, as already stated, private respondents default in paying installments was due to the cessation of operations of Elizalde Steel Corporation,
petitioners sister company. Petitioners acceptance of payments made by private respondents through cash and checks could have been impelled
solely by petitioners inability to deduct the amortizations from private respondent Rolando Lantans salary which he stopped receiving when his
employment was terminated in September 1982. Apparently, to minimize the adverse consequences of the termination of private respondents
employment, petitioner accepted even late payments. That petitioner accepted payments from private respondent Rolando Lantan more than two (2)
years after the latters employment had been terminated constitutes a waiver of petitioners right to collect interest upon the delayed payments. The
2% surcharge is not provided for in the agreement. Its collection by the company would in fact run counter to the purpose of providing added
emoluments to its deserving employees. Consequently, the total amount of P61,070.94 already paid to petitioner should be considered payment of
the full purchase price of the car or the total installments paid.
Third. Private respondents presented evidence that they felt bad, were worried, embarrassed and mentally tortured by the repossession of the
car.[22] This has not been rebutted by petitioner. There is thus a factual basis for the award of moral damages. In addition, petitioner acted in a wanton,
fraudulent, reckless and oppressive manner in filing the instant case, hence, the award of exemplary damages is justified.[23] The award of attorneys
fees is likewise proper considering that private respondents were compelled to incur expenses to protect their rights.[24]
WHEREFORE, the decision of the Court of Appeals is AFFIRMED with costs against petitioner.
SO ORDERED.
Bellosillo (Chairman), Puno, Quisumbing and Buena, JJ., concur.
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.
AVANCEA, J.:
On January 24, 1911, in this city of manila, a contract in the following tenor was entered into by and between the plaintiff, as party of the first part,
and J. Parsons (to whose rights and obligations the present defendant later subrogated itself), as party of the second part:
CONTRACT EXECUTED BY AND BETWEEN ANDRES QUIROGA AND J. PARSONS, BOTH MERCHANTS ESTABLISHED IN MANILA, FOR THE
EXCLUSIVE SALE OF "QUIROGA" BEDS IN THE VISAYAN ISLANDS.
ARTICLE 1. Don Andres Quiroga grants the exclusive right to sell his beds in the Visayan Islands to J. Parsons under the following conditions:
(A) Mr. Quiroga shall furnish beds of his manufacture to Mr. Parsons for the latter's establishment in Iloilo, and shall invoice them at the same price
he has fixed for sales, in Manila, and, in the invoices, shall make and allowance of a discount of 25 per cent of the invoiced prices, as commission on
the sale; and Mr. Parsons shall order the beds by the dozen, whether of the same or of different styles.
(B) Mr. Parsons binds himself to pay Mr. Quiroga for the beds received, within a period of sixty days from the date of their shipment.
(C) The expenses for transportation and shipment shall be borne by M. Quiroga, and the freight, insurance, and cost of unloading from the vessel at
the point where the beds are received, shall be paid by Mr. Parsons.
(D) If, before an invoice falls due, Mr. Quiroga should request its payment, said payment when made shall be considered as a prompt payment, and
as such a deduction of 2 per cent shall be made from the amount of the invoice.
The same discount shall be made on the amount of any invoice which Mr. Parsons may deem convenient to pay in cash.
(E) Mr. Quiroga binds himself to give notice at least fifteen days before hand of any alteration in price which he may plan to make in respect to his
beds, and agrees that if on the date when such alteration takes effect he should have any order pending to be served to Mr. Parsons, such order
shall enjoy the advantage of the alteration if the price thereby be lowered, but shall not be affected by said alteration if the price thereby be increased,
for, in this latter case, Mr. Quiroga assumed the obligation to invoice the beds at the price at which the order was given.
(F) Mr. Parsons binds himself not to sell any other kind except the "Quiroga" beds.
ART. 2. In compensation for the expenses of advertisement which, for the benefit of both contracting parties, Mr. Parsons may find himself obliged
to make, Mr. Quiroga assumes the obligation to offer and give the preference to Mr. Parsons in case anyone should apply for the exclusive agency
for any island not comprised with the Visayan group.
ART. 3. Mr. Parsons may sell, or establish branches of his agency for the sale of "Quiroga" beds in all the towns of the Archipelago where there are
no exclusive agents, and shall immediately report such action to Mr. Quiroga for his approval.
ART. 4. This contract is made for an unlimited period, and may be terminated by either of the contracting parties on a previous notice of ninety days
to the other party.
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.

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 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
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 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.
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
The judgment appealed from is affirmed, with costs against the appellant. So ordered.
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 Arellano, C.J., Torres, Johnson, Street and Malcolm, JJ., concur.
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 G.R. No. L-25926 February 27, 1970
contract hereinbefore transcribed, was a purchaser or an agent of the plaintiff for the sale of his beds.
COMMISSIONER OF INTERNAL REVENUE, petitioner,
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 vs.
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 CIRILO D. CONSTANTINO AND COURT OF TAX APPEALS, respondents.
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 Office of the Solicitor General Antonio P. Barredo, Assistant Solicitor General Felicisimo R. Rosete and Special Attorney Gamaliel H. Mantolino for
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. petitioner.
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 Ross, Salcedo, Del Rosario, Bito and Misa for respondent Cirilo D. Constantino.
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
REYES, J.B.L., J.:
not sold the beds.
Appeal from the decision of the Court of Tax Appeals, in its CTA Case No. 1016, holding that the respondent, Cirilo D. Constantino, is not a commercial
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
broker, as defined by Section 194(t) of the National Internal Revenue Code, providing as follows:
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 "Commercial broker" includes all persons, other than importers, manufacturers, producers, or bona fide employees, who, for compensation or profit,
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 sell or bring about sales or purchases of merchandise for other persons or bring proposed buyers and sellers together, or negotiate freights or other
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 business for owners of vessels or other means of transportation, or for the shippers, or consignors or consignees of freight carried by vessels or other
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 means of transportation. The term includes commission merchants.
are not incompatible with the contract of purchase and sale.
and declaring him not liable to pay the commercial broker's percentage tax.
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 Petitioner Commissioner of Internal Revenue assessed against and demanded from respondent Constantino the commercial broker's percentage tax
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 of 6% on his gross compensation for 1956, as dealer or distributor of the products of International Harvester, Macleod, Inc. (IHM for short). The tax
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 was computed as follows:
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 Total discount for 1956 P38,390.40
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 6% broker's percentage tax due thereon 2,303.4
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 25% surcharge 575.85
must be understood that a contract is what the law defines it to be, and not what it is called by the contracting parties. Compromise penalty 100.00

Total amount due and collection P2,979.25

Constantino protested the assessment on the ground that he is not a commercial broker. On his protest being overruled, he filed a petition for review
with the Court of Tax Appeals, which, after trial, found for him. Upon his reversal by the tax court, the revenue Commissioner interposed the present
appeal.
The issue here is whether the relationship between IHM and the respondent is one of principal and agent, as maintained by the Commissioner, or
one of vendor and vendee, as maintained by the respondent taxpayer.
Respondent Cirilo D. Constantino is a businessman with a business establishment in San Pablo City known as "C. C. Motor Service", where he
stores, displays and sells trucks, machineries, equipment, spare parts and accessories shipped to him by International Harvester, Macleod, Inc.,
(formerly International Harvester Company of the Philippines) in accordance with their "Dealer Sales and Service Agreement", Exhibit "A", designating
the said respondent as exclusive dealer of the products of the company within a prescribed territory. According to respondent's counsel, who is also
the legal counsel and secretary of the company, the company sells its products through its dealers for purposes of economy and that since it may not
be allowed to retail under the retail trade law, it sells by wholesale to its dealers (T.s.n., pages 49, 52-53).
In classifying himself as an independent merchant instead of a commercial broker, respondent Constantino cites the following facts: that under the
"Dealer Sales and Service Agreement" that he signed with IHM he may buy, on cash basis or credit terms, IHM products, such as trucks, tractors,
other types of machinery and equipment and spare parts and accessories for Resale to his customers within his designated territory; that under a
"Schedule of Discounts and Terms", Exhibit "B", he is granted trade discounts of 16% for trucks, tractors and other heavy equipment and 30% for
service parts; that he is also given a cash discount of 5% under certain conditions; that the terms and conditions on his credit purchases are governed
by a "Retail Financing Agreement", Exhibit "C"; that he may purchase service parts on open credit account or on a 30-day term; and that he sold
service parts to his customers on cash basis (T.s.n., pages 9-10). He states that his purchases of heavy equipment are commenced by his filing with
the company a "Dealer Order for Goods", Exhibit "G" (BIR Record, page 153, after Exhibit "B", as the numbering of pages is inverted); if on credit, he
executes a chattel mortgage in favor of IHM Exhibit "L"; and, if he sells to his customer on credit, he requires said customer to execute also a chattel
mortgage in his favor and he (respondent Constantino) then executes an "Indenture of Assignment", Exhibit "M-I," in favor of IHM.
Constantino also cites the fact that his purchases are covered by IHM's sales invoices, and when he re-sells he issues his own sales invoice; that
delivery of his purchases from IHM are accepted by him "ex-bodega" in Manila, after which he services the heavy equipment at his establishment in
San Pablo before delivery to his customer (T.s.n., page 26) ; that has credit purchases of trucks and other heavy equipment are insured by IHM and,
in case, of loss, the insurance proceeds belong to both in proportion to their interests, but the premiums are for his own account; that he insures
himself the goods that he purchases on cash basis; and that at the end of each calendar year he includes in the inventory that he submits to the
Bureau of Internal Revenue unsold stocks that he had purchased from IHM.
Without considering the forms and documents that petitioner Commissioner of Internal Revenue alluded to in his brief (forms and documents that
were only annexed to his memorandum submitted to the tax court and not formally offered in evidence) but considering the entirety of respondent
Constantino's own evidence, this Court is of the opinion that, for taxation purposes, he is not an independent merchant but an agent of IHM or a
commercial broker, as defined by the tax code, selling or bringing about sales and purchases of IHM's merchandise. A casual examination of
respondent's evidence may give the impression that this relationship with the company is that of vendor and vendee, but a closer look into the actual
legal effect of the terms and conditions embodied, rather than the names of the contracts used or the terminologies employed, in the chain of
documents 1 shows that the relation between the company and the respondent is one of principal and agent.
From his own evidence and statement of facts, if Constantino wishes to "buy" from IHM, either on "cash basis" or on credit, he files a "Dealer Order
for Goods", Exhibit "G". He failed to state or notice, however, the condition in the said order, which is in small print, that:
the title of the goods delivered under this order shall remain in International Harvester Company of the Philippines until the full purchase price shall
have been paid in cash or acceptable security. Upon receipt of the subject equipment, the undersigned agrees to execute a chattel mortgage or other
security instrument covering the goods ordered herein to secure the payment therefor, and prior to full payment of the purchase price, the
undersigned shall have no right to sell or dispose of any goods delivered under this order except in the ordinary course of retail trade for their
reasonable value, and upon the express condition that before delivery to a Purchaser, the undersigned shall secure from the Purchaser full settlement,
and the proceeds of such resale, whether in cash, property or an obligation of the Purchaser, shall be considered the property of International
Harvester Company of the Philippines, and shall be held in trust for the Company and subject to its order. (Emphasis supplied)
In plain language, the effect of the afore-quoted condition is that the title to goods sold by the Dealer to his "customer" passes directly to the latter
from IHM and that the price of such goods, even if previously shipped to the dealer upon his order, belongs to IHM not to the dealer, who merely
collects and holds the proceeds in trust. Hence, in the "Dealer Order for Goods", the dealer does not make purchase orders; he merely orders for
shipment to himself the goods specified therein. And while in the "Dealer Sales and Service Agreement" the contractual provisions on orders for
goods refer or use terms like "purchase", "obligation to sell" and "obligation to buy", the said Dealer Sales and Service Agreement expressly binds
the dealer, when ordering goods, to place his orders "upon forms furnished by the Company" (Exhibit "A", page 4), and the form furnished is the
"Dealer Order for Goods", with the clause previously quoted.
Where the transaction between Constantino and his customer is on credit, Constantino requires his customer to execute a chattel mortgage in his
favor but then he must assign in favor of IHM, by an "Indenture of Assignment", all his rights, interest and participation in the goods theretofore
mortgaged to himself for the same amount. When the goods are delivered by IHM to the dealer, the dealer does not acquire ownership of the goods
upon such delivery; and when the dealer "sells" the goods to his customer, the customer does not acquire ownership thereof upon such "sale",
because the "Dealer Order for Goods" expressly stipulates that "title of the goods delivered under this order shall remain until the purchase price shall
have been paid ... ." And the fact that the customer is made to execute a chattel mortgage does not make him the owner, because when the goods
were "sold" to him by the dealer the latter did not own the goods. That the dealer should issue his own sales invoice to the customer is neither a
means of acquiring ownership nor is it proof of ownership.
In the "Retail Financing Agreement" that the dealer enters into with the company, when he "buys" goods on credit for "resale" to customers, the dealer
does not "buy" with his own funds, as the agreement expressly prohibits him from advancing the down payment and any installment to his customer,
and when he "sells" to his customer, the "retail contract" a well as the customer's credit is subject to approval by the company (Exhibit "C", page 3,
paragraph 4). The effect of such an arrangement is that it is the very customer who buys on credit because the purchase money comes from him,
not the dealer, and the credit that is financed is the credit of the customer, not that of the dealer.
If the transaction is on "cash basis", a procedure similar to transactions on credit is followed; the dealer orders specific goods for shipment to himself
by filing the "Dealer Order for Goods"; if his order is accepted by the company, the company ships the goods and issues a delivery receipt (Exhibit
"D"), not a cash invoice, as the respondent contends in his brief. Under such a delivery receipt, the goods are termed "Sold to Mr. Cirilo D. Constantino"
for "Cash"; but the same receipt also indicates that it is for the supposed vendee's "order", obviously referring to the "Dealer Order for Goods", and
that the shipment is "Due and payable first day of month following shipment". It is, therefore, clear that even when the company ships the goods to
the dealer on a supposed "cash basis" it is payable in cash but it does not prove that cash or money was paid ... payment is not yet due cash or
money was paid payment is not yet due and that the company shipped the goods but retained ownership of the same, in accordance with the
"order."
Since the company retained ownership of the goods, even as it delivered possession unto the dealer for resale to customers, the price and terms of
which were subject to the company's control, the relationship between the company and the dealer is one of agency, tested under the following
criterion:
The difficulty in distinguishing between contracts of sale and the creation of an agency to sell has led to the establishment of rules by the application
of which this difficulty may be solved. The decisions say the transfer of title or agreement to transfer it for a price paid or promised is the essence of
sale. If such transfer puts the transferee in the attitude or position of an owner and makes him liable to the transferor as a debtor for the agreed price,
and not merely as an agent who must account for the proceeds of a resale, the transaction is a sale; while the essence of an agency to sell is the
delivery to an agent, not as his property, but as the property of the principal, who remains the owner and has the right to control sales, fix the price,
and terms, demand and receive the proceeds less the agent's commission upon sales made. 1 Mechem on Sales, Sec. 43; 1 Mechem on Agency,
Sec. 48; Williston on Sales, 1; Tiedeman on Sales, 1. (Salisbury v. Brooks, 94 SE 117, 118-119)
It is contended that the respondent is not an agent of IHM because their "Dealer Sales and Service Agreement" expressly provide that he "is not the
Company's agent in any respect ... ", but the control by the company of the resale made (or agreed upon to be made) by the dealer is so pervasive
as to exclude the idea of the latter being an independent merchant. The extent of his dependence upon and control by the company is shown in the
provisions of the "Dealer Sales, and Service Agreement":
An order for goods by the dealer "shall not be considered as accepted until written acceptance ... is given to the Dealer, or delivery has been made
to the Dealer ... ." "Prices, discounts and terms ... shall be those established by the Company ..." which are "subject to change at any time without
notice." Places of delivery "shall be those established by the Company ..." and the dealer "will accept delivery at points of delivery selected by the
Company and pay all transportation charges thereon ... ." "Prior to full payment of the purchase price to the Company, the Dealer shall have no right
to sell or dispose of any goods ... without first securing the written approval of the Company." At any reasonable time, the company may enter the
dealer's premises "to examine his books and records ... ." The dealer is bound "to provide and maintain adequate physical facilities acceptable to the
Company ... ." He it agrees to maintain accounting records", "to furnish monthly operating statements" and "a complete detailed financial statement."
He "Shall properly store and care for all goods purchased ... and protect the same from injury or damage from any cause." The quantity of goods
alloted to the dealer "shall be determined solely by the Company." "The dealer agrees, in reselling goods ... to enter into a Sales Contract with each
customer on one of the current printed blank forms furnished by the Company for that purpose and to give no different or additional allowances,
warranties or guaranties on behalf of the Company beyond those included in the Sales Contract." The agreement "may be terminated at any time by
either party without cause ..." and since "this is a personal agreement, it shall automatically terminate upon the death of the Dealer." The agreement
involves "mutual confidence and trust, and it may not be assigned by either party." Now, to insure "the faithful performance on the Dealer's part of the
conditions of this agreement," the dealer is required to put up a bond, which is in the amount of P30,000.00.
As respondent is not an independent merchant, but an agent, the discount of 16% that he receives is not a "trade discount" but a compensation or
profit for selling or bringing about sales or purchases of merchandise for the company.
The assessment made by petitioner Commissioner of Internal Revenue against respondent Constantino does not include the 30% discount that the "The COMPANY agrees to deliver to the DISTRIBUTOR twelve (12) fully assembled vehicles per month, and the DISTRIBUTOR shall pay the
respondent is entitled to or benefited from his sales of service parts; even so, the sales of or transactions on service parts is covered by stipulations COMPANY for twelve (12) vehicles per month CASH ON DELIVERY, and shall take delivery as said vehicles are assembled by the COMPANY,
between the company and the respondent different from those on heavy machineries or big items; for these reasons, it is unnecessary to pass upon should it be mutually agreed by both the DISTRIBUTOR and the COMPANY that the DISTRIBUTOR shall take deliver of more than twelve (12)
the taxability of said 30% discount. vehicles per month, such agreement in letter form shall be sufficient.

FOR THE FOREGOING REASONS, the appealed decision is hereby reversed, and another one entered affirming the assessment and ordering the xxx xxx xxx
respondent to pay the same, with costs against the respondent.
CLAUSE 7. REPAIR AND MAINTENANCE SERVICE.
Concepcion, C.J., Dizon, Makalintal, Zaldivar, Castro, Fernando, Teehankee, Barredo and Villamor, JJ., concu
It is also agreed that the COMPANY will perform any repair or maintenance service which may be required on the Hillman Minx cars and on the
G.R. No. L-16691 July 31, 1963 products of ROOTES GROUP OF COMPANIES, at charges which are fair and reasonable.

COMMISSIONER OF INTERNAL REVENUE, petitioner, xxx xxx xxx

vs.
RAMCAR, INC., respondent. CLAUSE 8. POLICY .

Office of the Solicitor General and Attorney Alicia B. Clemeno for petitioner. a.) The COMPANY reserves the option and the right to keep and dispose at his convenience one (1) Hillman Minx car for every twelve (12) assembled.
Jose Perez Cardenas for respondent.
xxx xxx xxx
BARRERA, J.:
Pursuant to the above agreement, for the period of from the first quarter of 1953 to the first quarter of 1954, RAMCAR sold to Henderson Trippe
This is an appeal by the Commissioner of Internal Revenue from the decision of the Court of Tax Appeals (in CTA Case No. 175), ordering the twenty locally assembled Hillman Minx automobiles at the wholesale price of P4,950.00 per unit. The latter, in turn, sold the said cars to third parties
withdrawal and cancellation of the deficiency percentage sales tax assessment against RAMCAR, Inc., during the period of from 1953 to the first at prices ranging from P5,670.00 to P6,300.00 per unit.
quarter of 1954, in the total sum of P19,592.93. The facts of the case may be briefly stated, thus:
For these transactions with Henderson Trippe, (RAMCAR paid tax at the rate of thirty per centum (30%)of the wholesale price of P4,950.00 per unit,
Ramcar, Inc., a domestic corporation organized for and engaged in the importation, manufacturing, selling and dealing of automobiles, trucks and in accordance with Section 184(a) of the National International Revenue Code. The Collector of Internal Revenue, however, ruling, after investigation,
spare parts, had a contract with Rootes Limited of London, wherein the former agreed to assemble and sell locally for the latter "Hillman Minx" that Henderson Trippe acted merely as agent of RAMCAR, assessed and demanded of the latter of deficiency sales tax, based on 50% of the gross
automobiles. On February 1, 1953, Ramcar, Inc., in turn entered into a contract with Henderson Trippe (Phil.) Inc., another domestic corporation, sales at from P5,670.00 to P6,300.00 per unit, the selling price paid by the ultimate buyers, in the total sum of P18,592.93 exclusive of the compromise
whereby the latter was designated the exclusive distributor of Hillman Minx automobiles in the Philippines. Pertinent provisions of said agreement are penalty of P1,000.00. RAMCAR's petition for reconsideration of said assessment having been denied, the matter was appealed to the Court of Tax
reproduced hereunder, to wit: Appeals.

AGREEMENT After due hearing, the Tax Court rendered a decision, as already stated, ordering the cancellation and withdrawal of the disputed assessment, for the
reason that the contract between RAMCAR and Henderson Trippe being one of sale, and not of agency as claimed by the Commissioner of Internal
. . . . WHEREAS, the Company (RAMCAR, Inc.) has granted to the DISTRIBUTOR (Henderson Trippe, Inc.) the exclusive distribution in the Philippines Revenue, the percentage sales tax due from said taxpayer should be based on the wholesale price given to Henderson Trippe and not on the buying
of the Hillman Minx Cars, assembled by the COMPANY in the Philippines, and whereas the DISTRIBUTOR will take delivery of all Hillman Minx cars price paid by the ultimate purchasers. It is from this decision that the Commissioner of Internal Revenue interposed this appeal by way of a petition
assembled here, and has accepted and agreed to establish and properly maintain Show Room, Sales Force, Agencies, or branches for the adequate for certiorari. Petitioner claims in this instance that the agreement between RAMCAR and Henderson Trippe, Inc., is actually one of agency and not
distribution of the said Hillman Minx cars in the Philippines. NOW IT IS HEREBY AGREED between the parties hereto as follows: of purchase and sale. To this end, he points to RAMCAR's failure to deliver a certain number of cars a month; the appointment of other distributors
in Iloilo and Baguio City; the failure of Henderson-Trippe, to maintain a show room; the fact that although in the receipts and sales invoices the cars
xxx xxx xxx appeared to have been sold by Henderson-Trippe, the same were actually delivered by respondent RAMCAR direct to the ultimate buyers; that
payments or deposits on account of the cars were made by the ultimate buyers direct to respondent RAMCAR; that the dates of the alleged sales by
CLAUSE 2. TERRITORY . respondent to Henderson-Trippe of the cars in question are the same as the dates of the alleged sales of the same cars by Henderson-Trippe to the
ultimate buyers. It is thus contended, that the percentage tax should have been imposable on the buying price of the third parties (which would be
xxx xxx xxx
50% thereof, said buying price being in excess of P5,000.00).1wph1.t
The COMPANY reserves the right to withdraw, by giving two months' notice, any part of the DISTRIBUTOR'S territory, if in their judgment the
Even considering the foregoing contentions of petitioner, it is clear that the issue in this case hinges on the determination of the nature of the contract
DISTRIBUTOR fails to maintain satisfactory representation therein, and on expiration of such notice and rights of the DISTRIBUTOR hereunder shall
or agreement between RAMCAR and Henderson-Trippe. Taking into account the terms and conditions of the aforesaid contract, reproduced at the
cease as regards the territory or the part thereof to which the notice relates.
start of this opinion, and the explanation given by respondent which was satisfactory to the Tax Court, we also find no reason to disturb the ruling
xxx xxx xxx made therein. For instance, with respect to respondent's failure to deliver 12 cars a month, this was explained to have been caused by the imposition
of controls by the Central Bank on certain importation. Non-compliance of this term of the agreement on this point was therefore due to reasons
CLAUSE 4. PRICES AND DISCOUNTS. beyond the control of the parties. As to the alleged direct deliveries of the cars made by RAMCAR to the ultimate buyers, what actually occurred was
that because of the inability of Henderson-Trippe to put up its own show-room after the execution of the distribution contract, the parties had a
The COMPANY shall invoice the vehicles to the DISTRIBUTOR at least wholesale price established from time to time and prevailing at the time of temporary arrangement by which the cars purchased by Henderson Trippe were displayed in the showroom of respondent. Consequently, the direct
delivery, and nothing in this AGREEMENT shall entitle the DISTRIBUTOR to any discount, rebate or other deduction from such price. buyers of Henderson-Trippe had to take place for only six months. Mention was made, too, of the receipt by RAMCAR of some deposits made by the
ultimate buyers. This, again, was satisfactorily explained by respondent by showing that said deposits were made in 4 of the 20 transactions involved
xxx xxx xxx herein, and effected under special circumstances, because the buyers happened to be friends of Mr. Ramon Caro. The fact that 2 other distributors
were appointed in Iloilo and Baguio City is not a violation of the contract, because it was made in the exercise of respondent's right to withdraw from
"CLAUSE 5. TERMS OF PAYMENT.
the distributor's territory any part thereof under conditions authorized by Clause 2 of the same contract hereinabove quoted. As heretofore stated,
these explanations were found satisfactory by the Tax Court and insufficient to justify the conclusion that the agreement in question which is one of
purchase and sale was a mere subterfuge to avoid payment of higher taxes. And, we find no valid reason to disturb such ruling.
WHEREFORE, the decision appealed from is hereby affirmed, without costs. So ordered. Onions canceled by supplier.
(Initialed) R. E. H.
Bengzon, C.J., Padilla, Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Paredes, Dizon, Regala and Makalintal, JJ., concur.
Total amount of order .................................................................................. $3,936
G.R. No. L-2870 September 19, 1950
Agreed and accepted:
CHUA NGO, plaintiff-appellee,
vs. (Sgd.) CHUA NGO
UNIVERSAL TRADING CO., INC., defendant-appellant.
Confirmed and approved:
Manuel O. Chan and H.B. Arandia for appellant.
Arsenio Sy Santos for appellee. (Sgd.) RALPH E. HOLMES
Sales manager
BENGZON, J.:
Universal Trading Company, Inc.
Chua Ngo delivered, in Manila, to the Universal Trading Company, Inc., a local corporation, the price 300 boxes of Sunkist oranges to be gotten from (See terms of agreement on reverse side.)
the United States. The latter ordered the said boxes from Gabuardi Company of San Francisco, and in due course, the goods were shipped from that
port to Manila "F. O. B. San Francisco." One hundred eighty boxes were lost in transit, and were never delivered to Chua Ngo. On the same date, the defendant forwarded and order to Gabuardi Company of San Francisco, U. S. A., which in part says:

This suit by Chua Ngo is to recover the corresponding price he had paid in advance. ORDER NO. 707

Universal Trading Company refused to pay, alleging it merely acted as agent of Chua Ngo in purchasing the oranges. Chua Ngo maintains he bought TO GABUARDI COMPANY OF CALIFORNIA
the oranges from Universal Trading Company, and, therefore, is entitled to the return of the price corresponding to the undelivered fruit. 258 Market Street
San Francisco, California
From a judgment for plaintiff, the defendant appealed.
Please send for our account, subject to conditions on the back of this order, the following merchandise enumerated below:
It appears that on January 14, 1946, the herein litigants signed the document Exhibit 1, which reads as follows:
Shipping instructions
UNIVERSAL TRADING COMPANY, INC. Via San Francisco, California
Far Eastern Division
R-236-238 Ayala Building Terms: F. O. B.
Juan Luna, Manila San Francisco

CONTRACT NO. 632 14 January 1946 Quantity Articles Unit Unit price Total price
300 Sunkist oranges wrapped
Agreement is hereby made between Messrs. Chua Ngo of 753 Folgueras, Manila, and the Universal Trading Company, Inc., Manila, for order as Grade No 1 ............... ............ ..........
follows and under the following terms: Navel, 220 to case ...... Case $6.00 $1,800.00.

Quantity Merchandise and description Unit Unit price Amount xxx xxx xxx
300 Sunkist oranges, wrapped
Grade No. 1 .................... .......... ................ ................. Approved:
Navel, 220 to case ............ Case $6.30 $1,890.00
300 Onions, Australian Universal Trading Company, Inc.
Browns, 90 lbs. to case Case $6.82 $2,046.00 (Sgd.) RALPH R. HOLMES
Sales Manager
We are advised by the supplier that the charges to bring these goods to Manila are:
xxx xxx xxx

Oranges......................................................... $3.06 per case On January 16 and January 19, 1946, the Universal Trading Co., Inc., wrote Chua Ngo two letters informing him that the contract for oranges (and
onions) had been confirmed by the supplier i. e., could be fulfilled and asking for deposit of 65% of the price and certain additional charges.

Onions $1.83 per case. On January 21, 1946, Chua Ngo deposited with the defendant, on account of the Sunkist oranges, the amount of P3,650, and later (March 9, 1946),
........................................................... delivered the additional sum of P2,822.43 to complete the price, as follows:

Deposit of 40% of the contract price plus the above charges to be payable immediately upon receipt of telegraphic confirmation. Balance payable 300 cases of oranges at $9.36.................................. P6,616.00
upon arrival of goods in Manila. If balance is not paid within 48 hours of notification merchandise may be resold by Universal Trading Co., Inc. and
the deposit forfeited.
Bank charges ................................................................ 196.56
NOTE:

Custom charges, etc. .................................................. 270.00
Delivery charges .......................................................... 171.00
3 percent sales tax ................................................... 218.00
P6,253.56
Less deposit R. No. 1062 ................ 3,650.00
P2,822,43
=========
The 300 cases of oranges ordered by the defendant from Gabuardi Company were loaded in good condition on board the S/S Silversandal in the
port of San Francisco, together with other oranges (totaling 6,380 cases) for other customers. They were all marked "UTC Manila" and were consigned
to defendant. The Silversandal arrived at the port of Manila on March 7, 1946. And out of the 6,380 boxes of oranges, 607 cases were short short
landed for causes beyond defendant's control. Consequently, defendant failed to deliver to Chua Ngo 180 cases of the 300 cases contracted for. The
total cost of such 180 cases (received by defendant) is admittedly P3,882.60.
The above are the main facts according to the stipulation of the parties. Uncontradicted additional evidence was introduced that the mark "UTC
Manila" written on all the boxes means "Universal Trading Company, Manila"; that the defendant paid in its own name to Gabuardi Company the
shipment of oranges, and made claims for the lost oranges to the steamship company that insured the shipment company and the insurance company
that insured the shipment; and finally, that in the transaction between plaintiff and defendant, the latter received no commission.
The crucial question is: Did Universal Trading Company merely agree to buy for and on behalf of Chua Ngo the 300 boxes of oranges, or did it agree
to sell and sold the oranges to Chua Ngo? If the first, the judgment m ust be reversed; if the latter, it should be affirmed.
In our opinion, the circumstances of record sufficiently indicate a sale. First, no commission was paid. Second, Exhibit 1 says that "if balance is not
paid within 48 hours of notification, merchandise may be resold by the Universal Trading Company and the deposit forfeited." "Resold" implies the
goods had been sold to Chua Ngo. And forfeiture of the deposit is incompatible with a contract of agency. Third, immediately after executing Exhibit
1 wherein oranges were quoted at $6.30 per box, Universal Trading placed an order for purchase of the same with Gabuardi Company at $6 per box.
If Universal Trading Gabuardi Company was agent of Chua Ngo, it could not properly do that. Inasmuch as good faith is to be presumed, we must
hold that Universal Trading acted thus because it was not acting as agent of Chua Ngo, but as independent purchaser from Gabuardi Company.
Fourth, the defendant charged the plaintiff the sum of P218.87 for 3 percent sales tax, thereby implying that their transaction was a sale. Fifth, if
the purchase of the oranges had been made on behalf of Chua Ngo, all claims for losses thereof against the insurance company and against the
shipping company should have been assigned to Chua Ngo. Instead, the defendant has been pressing such claims for itself.
In our opinion, the arrangement between the parties was this: Chua Ngo purchased from Universal Trading Company, 300 boxes of oranges at $6.30
plus. In turn, the latter purchased from Gabuardi Company at $6 plus, sufficient fruit to comply with its contract with Chua Ngo.
Unfortunately, however, part of the orange consignment from San Francisco was lost in transit. Who is to suffer that loss? Naturally, whoever was
the owner of the oranges at the time of such loss. It could not be Chua Ngo because the fruit had not been delivered to him. As between Gabuardi
and the Universal Trading, inasmuch as the goods had been sold "F. O. B. San Francisco", the loss must be borne by the latter, because under the
law, said goods had been delivered to the purchaser at San Francisco on board the vessel Silversandal.1 That is why the Universal has been trying
to recover the loss from both the steamship company and the insurer.
Now, as Chua Ngo has paid for 300 boxes and has received 120 boxes only, the price of 180 boxes undelivered must be paid back to him.
It appears that whereas in the lower court defendant sustained the theory that it acted as agent of plaintiff, in this Court the additional theory is
advanced that it acted as agent of Gabuardi Company. This obviously has no merit.
As to the contention that defendant incurred no liability because it is admitted that the oranges were lost due to causes beyond the control of the
defendant, and the oranges were shipped "F. O. B. San Francisco, the answer is that such contention is based on the assumption which we reject
that defendant merely acted as agent of plaintiff in the purchase of the oranges from Gabuardi.
In view of the foregoing, the appealed judgment for plaintiff in the sum of P3,882.60 is affirmed with costs.
Moran, C.J., Ozaeta, Paras, Pablo, Tuason, Montemayor and Reyes, JJ., concur.
[G.R. No. 112212. March 2, 1998]
GREGORIO FULE, petitioner, vs. COURT OF APPEALS, NINEVETCH CRUZ and JUAN BELARMINO, respondents.
DECISION
ROMERO, J.:
This petition for review on certiorari questions the affirmance by the Court of Appeals of the decision[1] of the Regional Trial Court of San Pablo City,
Branch 30, dismissing the complaint that prayed for the nullification of a contract of sale of a 10-hectare property in Tanay, Rizal in consideration of
the amount of P40,000.00 and a 2.5 carat emerald-cut diamond (Civil Case No. SP-2455). The lower courts decision disposed of the case as follows:
WHEREFORE, premises considered, the Court hereby renders judgment dismissing the complaint for lack of merit and ordering plaintiff to pay:
1. Defendant Dra. Ninevetch M. Cruz the sum of P300,000.00 as and for moral damages and the sum of P100,000.00 as and for exemplary damages;
2. Defendant Atty. Juan Belarmino the sum of P250,000.00 as and for moral damages and the sum of P150,000.00 as and for exemplary damages;
3. Defendant Dra. Cruz and Atty. Belarmino the sum of P25,000.00 each as and for attorneys fees and litigation expenses; and
4. The costs of suit.
SO ORDERED.
As found by the Court of Appeals and the lower court, the antecedent facts of this case are as follows:
Petitioner Gregorio Fule, a banker by profession and a jeweler at the same time, acquired a 10-hectare property in Tanay, Rizal (hereinafter Tanay
property), covered by Transfer Certificate of Title No. 320725 which used to be under the name of Fr. Antonio Jacobe. The latter had mortgaged it
earlier to the Rural Bank of Alaminos (the Bank), Laguna, Inc. to secure a loan in the amount of P10,000.00, but the mortgage was later foreclosed
and the property offered for public auction upon his default.
In July 1984, petitioner, as corporate secretary of the bank, asked Remelia Dichoso and Oliva Mendoza to look for a buyer who might be interested
in the Tanay property. The two found one in the person of herein private respondent Dr. Ninevetch Cruz. It so happened that at the time, petitioner
had shown interest in buying a pair of emerald-cut diamond earrings owned by Dr. Cruz which he had seen in January of the same year when his
mother examined and appraised them as genuine. Dr. Cruz, however, declined petitioners offer to buy the jewelry for P100,000.00.Petitioner then
made another bid to buy them for US$6,000.00 at the exchange rate of $1.00 to P25.00. At this point, petitioner inspected said jewelry at the lobby
of the Prudential Bank branch in San Pablo City and then made a sketch thereof. Having sketched the jewelry for twenty to thirty minutes, petitioner
gave them back to Dr. Cruz who again refused to sell them since the exchange rate of the peso at the time appreciated to P19.00 to a dollar.
Subsequently, however, negotiations for the barter of the jewelry and the Tanay property ensued. Dr. Cruz requested herein private respondent Atty.
Juan Belarmino to check the property who, in turn, found out that no sale or barter was feasible because the one-year period for redemption of the
said property had not yet expired at the time.
In an effort to cut through any legal impediment, petitioner executed on October 19, 1984, a deed of redemption on behalf of Fr. Jacobe purportedly
in the amount of P15,987.78, and on even date, Fr. Jacobe sold the property to petitioner for P75,000.00. The haste with which the two deeds were
executed is shown by the fact that the deed of sale was notarized ahead of the deed of redemption. As Dr. Cruz had already agreed to the proposed
barter, petitioner went to Prudential Bank once again to take a look at the jewelry.
In the afternoon of October 23, 1984, petitioner met Atty. Belarmino at the latters residence to prepare the documents of sale.[2] Dr. Cruz herself was
not around but Atty. Belarmino was aware that she and petitioner had previously agreed to exchange a pair of emerald-cut diamond earrings for the
Tanay property. Atty. Belarmino accordingly caused the preparation of a deed of absolute sale while petitioner and Dr. Cruz attended to the
safekeeping of the jewelry.
The following day, petitioner, together with Dichoso and Mendoza, arrived at the residence of Atty. Belarmino to finally execute a deed of absolute
sale. Petitioner signed the deed and gave Atty. Belarmino the amount of P13,700.00 for necessary expenses in the transfer of title over the Tanay
property. Petitioner also issued a certification to the effect that the actual consideration of the sale was P200,000.00 and not P80,000.00 as indicated
in the deed of absolute sale. The disparity between the actual contract price and the one indicated on the deed of absolute sale was purportedly
aimed at minimizing the amount of the capital gains tax that petitioner would have to shoulder. Since the jewelry was appraised only at P160,000.00,
the parties agreed that the balance of P40,000.00 would just be paid later in cash.
As pre-arranged, petitioner left Atty. Belarminos residence with Dichoso and Mendoza and headed for the bank, arriving there at past 5:00 p.m. Dr.
Cruz also arrived shortly thereafter, but the cashier who kept the other key to the deposit box had already left the bank. Dr. Cruz and Dichoso,
therefore, looked for said cashier and found him having a haircut. As soon as his haircut was finished, the cashier returned to the bank and arrived
there at 5:48 p.m., ahead of Dr. Cruz and Dichoso who arrived at 5:55 p.m. Dr. Cruz and the cashier then opened the safety deposit box, the former
retrieving a transparent plastic or cellophane bag with the jewelry inside and handing over the same to petitioner. The latter took the jewelry from the
bag, went near the electric light at the banks lobby, held the jewelry against the light and examined it for ten to fifteen minutes. After a while, Dr. Cruz
asked, Okay na ba iyan? Petitioner expressed his satisfaction by nodding his head.
For services rendered, petitioner paid the agents, Dichoso and Mendoza, the amount of US$300.00 and some pieces of jewelry. He did not, however,
give them half of the pair of earrings in question which he had earlier promised.
Later, at about 8:00 oclock in the evening of the same day, petitioner arrived at the residence of Atty. Belarmino complaining that the jewelry given to
him was fake. He then used a tester to prove the alleged fakery. Meanwhile, at 8:30 p.m., Dichoso and Mendoza went to the residence of Dr. Cruz
to borrow her car so that, with Atty. Belarmino, they could register the Tanay property.After Dr. Cruz had agreed to lend her car, Dichoso called up
Atty. Belarmino. The latter, however, instructed Dichoso to proceed immediately to his residence because petitioner was there. Believing that
petitioner had finally agreed to give them half of the pair of earrings, Dichoso went posthaste to the residence of Atty. Belarmino only to find petitioner
already demonstrating with a tester that the earrings were fake. Petitioner then accused Dichoso and Mendoza of deceiving him which they, however,
denied. They countered that petitioner could not have been fooled because he had vast experience regarding jewelry. Petitioner nonetheless took
back the US$300.00 and jewelry he had given them.
Thereafter, the group decided to go to the house of a certain Macario Dimayuga, a jeweler, to have the earrings tested. Dimayuga, after taking one
look at the earrings, immediately declared them counterfeit. At around 9:30 p.m., petitioner went to one Atty. Reynaldo Alcantara residing at Lakeside
Subdivision in San Pablo City, complaining about the fake jewelry. Upon being advised by the latter, petitioner reported the matter to the police station
where Dichoso and Mendoza likewise executed sworn statements.
On October 26, 1984, petitioner filed a complaint before the Regional Trial Court of San Pablo City against private respondents praying, among other
things, that the contract of sale over the Tanay property be declared null and void on the ground of fraud and deceit.
On October 30, 1984, the lower court issued a temporary restraining order directing the Register of Deeds of Rizal to refrain from acting on the
pertinent documents involved in the transaction. On November 20, 1984, however, the same court lifted its previous order and denied the prayer for
a writ of preliminary injunction.
After trial, the lower court rendered its decision on March 7, 1989. Confronting the issue of whether or not the genuine pair of earrings used as
consideration for the sale was delivered by Dr. Cruz to petitioner, the lower court said:
The Court finds that the answer is definitely in the affirmative. Indeed, Dra. Cruz delivered (the) subject jewelries (sic) into the hands of plaintiff who
even raised the same nearer to the lights of the lobby of the bank near the door. When asked by Dra. Cruz if everything was in order, plaintiff even
nodded his satisfaction (Hearing of Feb. 24, 1988). At that instance, plaintiff did not protest, complain or beg for additional time to examine further the
jewelries (sic). Being a professional banker and engaged in the jewelry business plaintiff is conversant and competent to detect a fake diamond from
the real thing. Plaintiff was accorded the reasonable time and opportunity to ascertain and inspect the jewelries (sic) in accordance with Article 1584
of the Civil Code. Plaintiff took delivery of the subject jewelries (sic) before 6:00 p.m. of October 24, 1984. When he went at 8:00 p.m. that same day
to the residence of Atty. Belarmino already with a tester complaining about some fake jewelries (sic), there was already undue delay because of the
lapse of a considerable length of time since he got hold of subject jewelries (sic). The lapse of two (2) hours more or less before plaintiff complained
is considered by the Court as unreasonable delay.[3]
The lower court further ruled that all the elements of a valid contract under Article 1458 of the Civil Code were present, namely: (a) consent or meeting
of the minds; (b) determinate subject matter, and (c) price certain in money or its equivalent. The same elements, according to the lower court, were
present despite the fact that the agreement between petitioner and Dr. Cruz was principally a barter contract. The lower court explained thus:
x x x. Plaintiffs ownership over the Tanay property passed unto Dra. Cruz upon the constructive delivery thereof by virtue of the Deed of Absolute
Sale (Exh. D). On the other hand, the ownership of Dra. Cruz over the subject jewelries (sic) transferred to the plaintiff upon her actual personal
delivery to him at the lobby of the Prudential Bank. It is expressly provided by law that the thing sold shall be understood as delivered, when it is
placed in the control and possession of the vendee (Art. 1497, Civil Code; Kuenzle & Straff vs. Watson & Co. 13 Phil. 26). The ownership and/or title
over the jewelries (sic) was transmitted immediately before 6:00 p.m. of October 24, 1984. Plaintiff signified his approval by nodding his head. Delivery
or tradition, is one of the modes of acquiring ownership (Art. 712, Civil Code).
Similarly, when Exhibit D was executed, it was equivalent to the delivery of the Tanay property in favor of Dra. Cruz. The execution of the public
instrument (Exh. D) operates as a formal or symbolic delivery of the Tanay property and authorizes the buyer, Dra. Cruz to use the document as
proof of ownership (Florendo v. Foz, 20 Phil. 399). More so, since Exhibit D does not contain any proviso or stipulation to the effect that title to the
property is reserved with 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. vs. Maritime
Building Co. Inc. 86 SCRA 305; Froilan v. Pan Oriental Shipping Co. et al. 12 SCRA 276).[4]
Aside from concluding that the contract of barter or sale had in fact been consummated when petitioner and Dr. Cruz parted ways at the bank, the
trial court likewise dwelt on the unexplained delay with which petitioner complained about the alleged fakery. Thus:
x x x. Verily, plaintiff is already estopped to come back after the lapse of considerable length of time to claim that what he got was fake. He is a
Business Management graduate of La Salle University, Class 1978-79, a professional banker as well as a jeweler in his own right. Two hours is more
than enough time to make a switch of a Russian diamond with the real diamond. It must be remembered that in July 1984 plaintiff made a sketch of
the subject jewelries (sic) at the Prudential Bank. Plaintiff had a tester at 8:00 p.m. at the residence of Atty. Belarmino. Why then did he not bring it
out when he was examining the subject jewelries (sic) at about 6:00 p.m. in the banks lobby? Obviously, he had no need for it after being satisfied of
the genuineness of the subject jewelries (sic). When Dra. Cruz and plaintiff left the bank both of them had fully performed their respective
prestations. Once a contract is shown to have been consummated or fully performed by the parties thereto, its existence and binding effect can no
longer be disputed. It is irrelevant and immaterial to dispute the due execution of a contract if both of them have in fact performed their obligations
thereunder and their respective signatures and those of their witnesses appear upon the face of the document (Weldon Construction v. CA G.R. No.
L-35721, Oct. 12, 1987).[5]
Finally, in awarding damages to the defendants, the lower court remarked:
The Court finds that plaintiff acted in wanton bad faith. Exhibit 2-Belarmino purports to show that the Tanay property is worth P25,000.00. However,
also on that same day it was executed, the propertys worth was magnified at P75,000.00 (Exh. 3-Belarmino). How could in less than a day (Oct. 19,
1984) the value would (sic) triple under normal circumstances? Plaintiff, with the assistance of his agents, was able to exchange the Tanay property
which his bank valued only at P25,000.00 in exchange for a genuine pair of emerald cut diamond worth P200,000.00 belonging to Dra. Cruz. He also
retrieved the US$300.00 and jewelries (sic) from his agents. But he was not satisfied in being able to get subject jewelries for a song. He had to file
a malicious and unfounded case against Dra. Cruz and Atty. Belarmino who are well known, respected and held in high esteem in San Pablo City
where everybody practically knows everybody. Plaintiff came to Court with unclean hands dragging the defendants and soiling their clean and good
name in the process. Both of them are near the twilight of their lives after maintaining and nurturing their good reputation in the community only to be
stunned with a court case. Since the filing of this case on October 26, 1984 up to the present they were living under a pall of doubt. Surely, this
affected not only their earning capacity in their practice of their respective professions, but also they suffered besmirched reputations. Dra. Cruz runs
her own hospital and defendant Belarmino is a well respected legal practitioner.
The length of time this case dragged on during which period their reputation were (sic) tarnished and their names maligned by the pendency of the
case, the Court is of the belief that some of the damages they prayed for in their answers to the complaint are reasonably proportionate to the
sufferings they underwent (Art. 2219, New Civil Code). Moreover, because of the falsity, malice and baseless nature of the complaint defendants
were compelled to litigate. Hence, the award of attorneys fees is warranted under the circumstances (Art. 2208, New Civil Code).[6]
From the trial courts adverse decision, petitioner elevated the matter to the Court of Appeals. On October 20, 1992, the Court of Appeals, however,
rendered a decision[7]affirming in toto the lower courts decision. His motion for reconsideration having been denied on October 19, 1993, petitioner
now files the instant petition alleging that:
I. THE TRIAL COURT ERRED IN DISMISSING PLAINTIFFS COMPLAINT AND IN HOLDING THAT THE PLAINTIFF ACTUALLY RECEIVED A
GENUINE PAIR OF EMERALD CUT DIAMOND EARRING(S) FROM DEFENDANT CRUZ x x x;
II. THE TRIAL COURT ERRED IN AWARDING MORAL AND EXEMPLARY DAMAGES AND ATTORNEYS FEES IN FAVOR OF DEFENDANTS
AND AGAINST THE PLAINTIFF IN THIS CASE; and
III.THE TRIAL COURT ERRED IN NOT DECLARING THE DEED OF SALE OF THE TANAY PROPERTY (EXH. `D) AS NULL AND VOID OR IN
NOT ANNULLING THE SAME, AND IN FAILING TO GRANT REASONABLE DAMAGES IN FAVOR OF THE PLAINTIFF.[8]
As to the first allegation, the Court observes that petitioner is essentially raising a factual issue as it invites us to examine and weigh anew the facts
regarding the genuineness of the earrings bartered in exchange for the Tanay property. This, of course, we cannot do without unduly transcending
the limits of our review power in petitions of this nature which are confined merely to pure questions of law. We accord, as a general rule,
conclusiveness to a lower courts findings of fact unless it is shown, inter alia, that: (1) the conclusion is a finding grounded on speculations, surmises
or conjectures; (2) the inference is manifestly mistaken, absurd and impossible; (3) when there is a grave abuse of discretion; (4) when the judgment
is based on a misapprehension of facts; (5) when the findings of fact are conflicting; and (6) when the Court of Appeals, in making its findings, went
beyond the issues of the case and the same is contrary to the admission of both parties.[9] We find nothing, however, that warrants the application of
any of these exceptions.
Consequently, this Court upholds the appellate courts findings of fact especially because these concur with those of the trial court which, upon a
thorough scrutiny of the records, are firmly grounded on evidence presented at the trial.[10] To reiterate, this Courts jurisdiction is only limited to
reviewing errors of law in the absence of any showing that the findings complained of are totally devoid of support in the record or that they are
glaringly erroneous as to constitute serious abuse of discretion.[11]
Nonetheless, this Court has to closely delve into petitioners allegation that the lower courts decision of March 7, 1989 is a ready-made one because
it was handed down a day after the last date of the trial of the case.[12] Petitioner, in this regard, finds it incredible that Judge J. Ausberto Jaramillo
was able to write a 12-page single-spaced decision, type it and release it on March 7, 1989, less than a day after the last hearing on March 6, 1989. He
stressed that Judge Jaramillo replaced Judge Salvador de Guzman and heard only his rebuttal testimony.
This allegation is obviously no more than a desperate effort on the part of petitioner to disparage the lower courts findings of fact in order to convince
this Court to review the same. It is noteworthy that Atty. Belarmino clarified that Judge Jaramillo had issued the first order in the case as early as
March 9, 1987 or two years before the rendition of the decision. In fact, Atty. Belarmino terminated presentation of evidence on October 13, 1987,
while Dr. Cruz finished hers on February 4, 1989, or more than a month prior to the rendition of the judgment. The March 6, 1989 hearing was
conducted solely for the presentation of petitioner's rebuttal testimony.[13] In other words, Judge Jaramillo had ample time to study the case and write
the decision because the rebuttal evidence would only serve to confirm or verify the facts already presented by the parties.
The Court finds nothing anomalous in the said situation. No proof has been adduced that Judge Jaramillo was motivated by a malicious or sinister
intent in disposing of the case with dispatch. Neither is there proof that someone else wrote the decision for him. The immediate rendition of the
decision was no more than Judge Jaramillos compliance with his duty as a judge to dispose of the courts business promptly and decide cases within
the required periods.[14] The two-year period within which Judge Jaramillo handled the case provided him with all the time to study it and even write
down its facts as soon as these were presented to court. In fact, this Court does not see anything wrong in the practice of writing a decision days
before the scheduled promulgation of judgment and leaving the dispositive portion for typing at a time close to the date of promulgation, provided that
no malice or any wrongful conduct attends its adoption.[15] The practice serves the dual purposes of safeguarding the confidentiality of draft decisions
and rendering decisions with promptness. Neither can Judge Jaramillo be made administratively answerable for the immediate rendition of the
decision. The acts of a judge which pertain to his judicial functions are not subject to disciplinary power unless they are committed with fraud,
dishonesty, corruption or bad faith.[16] Hence, in the absence of sufficient proof to the contrary, Judge Jaramillo is presumed to have performed his
job in accordance with law and should instead be commended for his close attention to duty.
Having disposed of petitioners first contention, we now come to the core issue of this petition which is whether the Court of Appeals erred in upholding
the validity of the contract of barter or sale under the circumstances of this case.
The Civil Code provides that contracts are perfected by mere consent. From this moment, the parties are bound not only to the fulfillment of what has
been expressly stipulated but also to all the consequences which, according to their nature, may be in keeping with good faith, usage and law.[17] A
contract of sale is perfected at the moment there is a meeting of the minds upon the thing which is the object of the contract and upon the
price.[18] Being consensual, a contract of sale has the force of law between the contracting parties and they are expected to abide in good faith by
their respective contractual commitments. Article 1358 of the Civil Code which requires the embodiment of certain contracts in a public instrument, is
only for convenience,[19] and registration of the instrument only adversely affects third parties.[20] Formal requirements are, therefore, for the benefit of
third parties. Non-compliance therewith does not adversely affect the validity of the contract nor the contractual rights and obligations of the parties
thereunder.
It is evident from the facts of the case that there was a meeting of the minds between petitioner and Dr. Cruz. As such, they are bound by the contract
unless there are reasons or circumstances that warrant its nullification. Hence, the problem that should be addressed in this case is whether or not
under the facts duly established herein, the contract can be voided in accordance with law so as to compel the parties to restore to each other the
things that have been the subject of the contract with their fruits, and the price with interest.[21]
Contracts that are voidable or annullable, even though there may have been no damage to the contracting parties are: (1) those where one of the
parties is incapable of giving consent to a contract; and (2) those where the consent is vitiated by mistake, violence, intimidation, undue influence or
fraud.[22] Accordingly, petitioner now stresses before this Court that he entered into the contract in the belief that the pair of emerald-cut diamond
earrings was genuine. On the pretext that those pieces of jewelry turned out to be counterfeit, however, petitioner subsequently sought the nullification
of said contract on the ground that it was, in fact, tainted with fraud[23] such that his consent was vitiated.
There is fraud when, through the insidious words or machinations of one of the contracting parties, the other is induced to enter into a contract which,
without them, he would not have agreed to.[24] The records, however, are bare of any evidence manifesting that private respondents employed such
insidious words or machinations to entice petitioner into entering the contract of barter.Neither is there any evidence showing that Dr. Cruz induced
petitioner to sell his Tanay property or that she cajoled him to take the earrings in exchange for said property. On the contrary, Dr. Cruz did not initially
accede to petitioners proposal to buy the said jewelry. Rather, it appears that it was petitioner, through his agents, who led Dr. Cruz to believe that
the Tanay property was worth exchanging for her jewelry as he represented that its value was P400,000.00 or more than double that of the jewelry
which was valued only at P160,000.00. If indeed petitioners property was truly worth that much, it was certainly contrary to the nature of a
businessman-banker like him to have parted with his real estate for half its price. In short, it was in fact petitioner who resorted to machinations to
convince Dr. Cruz to exchange her jewelry for the Tanay property.
Moreover, petitioner did not clearly allege mistake as a ground for nullification of the contract of sale. Even assuming that he did, petitioner cannot
successfully invoke the same. To invalidate a contract, mistake must refer to the substance of the thing that is the object of the contract, or to those
conditions which have principally moved one or both parties to enter into the contract.[25] An example of mistake as to the object of the contract is the
substitution of a specific thing contemplated by the parties with another.[26] In his allegations in the complaint, petitioner insinuated that an inferior one
or one that had only Russian diamonds was substituted for the jewelry he wanted to exchange with his 10-hectare land. He, however, failed to prove
the fact that prior to the delivery of the jewelry to him, private respondents endeavored to make such substitution.
Likewise, the facts as proven do not support the allegation that petitioner himself could be excused for the mistake. On account of his work as a
banker-jeweler, it can be rightfully assumed that he was an expert on matters regarding gems. He had the intellectual capacity and the business
acumen as a banker to take precautionary measures to avert such a mistake, considering the value of both the jewelry and his land. The fact that he
had seen the jewelry before October 24, 1984 should not have precluded him from having its genuineness tested in the presence of Dr. Cruz.Had he
done so, he could have avoided the present situation that he himself brought about. Indeed, the finger of suspicion of switching the genuine jewelry
for a fake inevitably points to him. Such a mistake caused by manifest negligence cannot invalidate a juridical act.[27] As the Civil Code provides,
(t)here is no mistake if the party alleging it knew the doubt, contingency or risk affecting the object of the contract.[28]
Furthermore, petitioner was afforded the reasonable opportunity required in Article 1584 of the Civil Code within which to examine the jewelry as he
in fact accepted them when asked by Dr. Cruz if he was satisfied with the same.[29] By taking the jewelry outside the bank, petitioner executed an act
which was more consistent with his exercise of ownership over it. This gains credence when it is borne in mind that he himself had earlier delivered
the Tanay property to Dr. Cruz by affixing his signature to the contract of sale. That after two hours he later claimed that the jewelry was not the one
he intended in exchange for his Tanay property, could not sever the juridical tie that now bound him and Dr. Cruz. The nature and value of the thing
he had taken preclude its return after that supervening period within which anything could have happened, not excluding the alteration of the jewelry
or its being switched with an inferior kind.
Both the trial and appellate courts, therefore, correctly ruled that there were no legal bases for the nullification of the contract of sale. Ownership over
the parcel of land and the pair of emerald-cut diamond earrings had been transferred to Dr. Cruz and petitioner, respectively, upon the actual and
constructive delivery thereof.[30] Said contract of sale being absolute in nature, title passed to the vendee upon delivery of the thing sold since there
was no stipulation in the contract that title to the property sold has been reserved in the seller until full payment of the price or that the vendor has the
right to unilaterally resolve the contract the moment the buyer fails to pay within a fixed period.[31] Such stipulations are not manifest in the contract of
sale.
While it is true that the amount of P40,000.00 forming part of the consideration was still payable to petitioner, its nonpayment by Dr. Cruz is not a
sufficient cause to invalidate the contract or bar the transfer of ownership and possession of the things exchanged considering the fact that their
contract is silent as to when it becomes due and demandable.[32]
Neither may such failure to pay the balance of the purchase price result in the payment of interest thereon. Article 1589 of the Civil Code prescribes
the payment of interest by the vendee for the period between the delivery of the thing and the payment of the price in the following cases:
(1) Should it have been so stipulated;
(2) Should the thing sold and delivered produce fruits or income;
(3) Should he be in default, from the time of judicial or extrajudicial demand for the payment of the price.
Not one of these cases obtains here. This case should, of course, be distinguished from De la Cruz v. Legaspi,[33] where the court held that failure to
pay the consideration after the notarization of the contract as previously promised resulted in the vendees liability for payment of interest. In the case
at bar, there is no stipulation for the payment of interest in the contract of sale nor proof that the Tanay property produced fruits or income. Neither
did petitioner demand payment of the price as in fact he filed an action to nullify the contract of sale.
All told, petitioner appears to have elevated this case to this Court for the principal reason of mitigating the amount of damages awarded to both
private respondents which petitioner considers as exorbitant. He contends that private respondents do not deserve at all the award of damages. In
fact, he pleads for the total deletion of the award as regards private respondent Belarmino whom he considers a mere nominal party because no
specific claim for damages against him was alleged in the complaint. When he filed the case, all that petitioner wanted was that Atty. Belarmino
should return to him the owners duplicate copy of TCT No. 320725, the deed of sale executed by Fr. Antonio Jacobe, the deed of redemption and
the check alloted for expenses.Petitioner alleges further that Atty. Belarmino should not have delivered all those documents to Dr. Cruz because as
the lawyer for both the seller and the buyer in the sale contract, he should have protected the rights of both parties. Moreover, petitioner asserts that
there was no firm basis for damages except for Atty. Belarminos uncorroborated testimony.[34]
Moral and exemplary damages may be awarded without proof of pecuniary loss. In awarding such damages, the court shall take into account the
circumstances obtaining in the case and assess damages according to its discretion.[35] To warrant the award of damages, it must be shown that the
person to whom these are awarded has sustained injury. He must likewise establish sufficient data upon which the court can properly base its estimate
of the amount of damages.[36] Statements of facts should establish such data rather than mere conclusions or opinions of witnesses.[37] Thus:
x x x. For moral damages to be awarded, it is essential that the claimant must have satisfactorily proved during the trial the existence of the factual
basis of the damages and its causal connection with the adverse partys acts. If the court has no proof or evidence upon which the claim for moral
damages could be based, such indemnity could not be outrightly awarded. The same holds true with respect to the award of exemplary damages
where it must be shown that the party acted in a wanton, oppressive or malevolent manner.[38]
the possibility of substituting them with fake ones, against which respondents would have a great deal of difficulty defending themselves. The truth is
that petitioner even failed to successfully prove during trial that the jewelry he received from Dr. Cruz were not genuine. Add to that the fact that he
had been shrewd enough to bloat the Tanay propertys price only a few days after he purchased it at a much lower value. Thus, it is our considered
view that if this slew of circumstances were connected, like pieces of fabric sewn into a quilt, they would sufficiently demonstrate that his acts were
not merely negligent but rather studied and deliberate.
We do not have here, therefore, a situation where petitioners complaint was simply found later to be based on an erroneous ground which, under
settled jurisprudence, would not have been a reason for awarding moral and exemplary damages.[42] Instead, the cause of action of the instant case
appears to have been contrived by petitioner himself. In other words, he was placed in a situation where he could not honestly evaluate whether his
cause of action has a semblance of merit, such that it would require the expertise of the courts to put it to a test. His insistent pursuit of such case
then coupled with circumstances showing that he himself was guilty in bringing about the supposed wrongdoing on which he anchored his cause of
action would render him answerable for all damages the defendant may suffer because of it. This is precisely what took place in the petition at bar
and we find no cogent reason to disturb the findings of the courts below that respondents in this case suffered considerable damages due to petitioners
unwarranted action.
WHEREFORE, the decision of the Court of Appeals dated October 20, 1992 is hereby AFFIRMED in toto. Dr. Cruz, however, is ordered to pay
petitioner the balance of the purchase price of P40,000.00 within ten (10) days from the finality of this decision. Costs against petitioner.
SO ORDERED.
Narvasa, CJ. (Chairman), Kapunan and Purisima, JJ., concur.

In this regard, the lower court appeared to have awarded damages on a ground analogous to malicious prosecution under Article 2219(8) of the Civil
Code[39] as shown by (1) petitioners wanton bad faith in bloating the value of the Tanay property which he exchanged for a genuine pair of emerald-
cut diamond worth P200,000.00; and (2) his filing of a malicious and unfounded case against private respondents who were well known, respected
and held in high esteem in San Pablo City where everybody practically knows everybody and whose good names in the twilight of their lives were
soiled by petitioners coming to court with unclean hands, thereby affecting their earning capacity in the exercise of their respective professions and
besmirching their reputation.

For its part, the Court of Appeals affirmed the award of damages to private respondents for these reasons:

The malice with which Fule filed this case is apparent. Having taken possession of the genuine jewelry of Dra. Cruz, Fule now wishes to return a fake
jewelry to Dra. Cruz and, more than that, get back the real property, which his bank owns. Fule has obtained a genuine jewelry which he could sell
anytime, anywhere and to anybody, without the same being traced to the original owner for practically nothing. This is plain and simple, unjust
enrichment.[40]

While, as a rule, moral damages cannot be recovered from a person who has filed a complaint against another in good faith because it is not sound
policy to place a penalty on the right to litigate,[41] the same, however, cannot apply in the case at bar. The factual findings of the courts a quo to the
effect that petitioner filed this case because he was the victim of fraud; that he could not have been such a victim because he should have examined
the jewelry in question before accepting delivery thereof, considering his exposure to the banking and jewelry businesses; and that he filed the action
for the nullification of the contract of sale with unclean hands, all deserve full faith and credit to support the conclusion that petitioner was motivated
more by ill will than a sincere attempt to protect his rights in commencing suit against respondents.

As pointed out earlier, a closer scrutiny of the chain of events immediately prior to and on October 24, 1984 itself would amply demonstrate that
petitioner was not simply negligent in failing to exercise due diligence to assure himself that what he was taking in exchange for his property were
genuine diamonds. He had rather placed himself in a situation from which it preponderantly appears that his seeming ignorance was actually just a
ruse. Indeed, he had unnecessarily dragged respondents to face the travails of litigation in speculating at the possible favorable outcome of his
complaint when he should have realized that his supposed predicament was his own making. We, therefore, see here no semblance of an honest
and sincere belief on his part that he was swindled by respondents which would entitle him to redress in court. It must be noted that before petitioner
was able to convince Dr. Cruz to exchange her jewelry for the Tanay property, petitioner took pains to thoroughly examine said jewelry, even going
to the extent of sketching their appearance. Why at the precise moment when he was about to take physical possession thereof he failed to exert
extra efforts to check their genuineness despite the large consideration involved has never been explained at all by petitioner. His acts thus failed to
accord with what an ordinary prudent man would have done in the same situation. Being an experienced banker and a businessman himself who
deliberately skirted a legal impediment in the sale of the Tanay property and to minimize the capital gains tax for its exchange, it was actually gross
recklessness for him to have merely conducted a cursory examination of the jewelry when every opportunity for doing so was not denied him.
Apparently, he carried on his person a tester which he later used to prove the alleged fakery but which he did not use at the time when it was most
needed. Furthermore, it took him two more hours of unexplained delay before he complained that the jewelry he received were counterfeit. Hence,
we stated earlier that anything could have happened during all the time that petitioner was in complete possession and control of the jewelry, including