LAWYERS COOPERATIVE PUBLISHING COMPANY, plaintiff-appellee, the loss for, as a result, the loss is always borne by the owner.

lt, the loss is always borne by the owner. Moreover, even assuming that
vs.
PERFECTO A. TABORA, defendant-appellant.
Paredes, Poblador, Cruz and Nazareno for plaintiff-appellee.
Tabora and Concon for defendant-appellant.
BAUTISTA ANGELO, J.:
On May 3, 1955, Perfecto A. Tabora bought from the Lawyers Cooperative Publishing Company
one complete set of American Jurisprudence consisting of 48 volumes with 1954 pocket parts,
plus one set of American Jurisprudence, General Index, consisting of 4 volumes, for a total price
of P1,675.50 which, in addition to the cost of freight of P6.90, makes a total of P1,682.40.
Tabora made a partial payment of P300.00, leaving a balance of P1,382.40. The books were
duly delivered and receipted for by Tabora on May 15, 1955 in his law office Ignacio Building,
Naga City.
In the midnight of the same date, however, a big fire broke out in that locality which destroyed
and burned all the buildings standing on one whole block including at the law office and library of
Tabora As a result, the books bought from the company as above stated, together with Tabora's
important documents and papers, were burned during the conflagration. This unfortunate event
was immediately reported by Tabora to the company in a letter he sent on May 20, 1955. On
May 23, the company replied and as a token of goodwill it sent to Tabora free of charge volumes
75, 76, 77 and 78 of the Philippine Reports. As Tabora failed to pay he monthly installments
agreed upon on the balance of the purchase price notwithstanding the long time that had
elapsed, the company demanded payment of the installments due, and having failed, to pay the
same, it commenced the present action before the Court of First Instance of Manila for the
recovery of the balance of the obligation. Plaintiff also prayed that defendant be ordered to pay
25% of the amount due as liquidated damages, and the cost of action.
Defendant, in his answer, pleaded force majeure as a defense. He alleged that the books
bought from the plaintiff were burned during the fire that broke out in Naga City on May 15,
1955, and since the loss was due to force majeure he cannot be held responsible for the loss.
He prayed that the complaint be dismissed and that he be awarded moral damages in the
amount of P15,000.00.
After due hearing, the court a quo rendered judgment for the plaintiff. It ordered the defendant to
pay the sum of P1,382.40, with legal interest thereon from the filing of the complaint, plus a sum
equivalent to 25% of the total amount due as liquidated damages, and the cost of action.
Defendant took the case to the Court of Appeals, but the same is now before us by virtue of a
certification issued by that Court that the case involves only questions of law.
the ownership of the books were transferred to the buyer after the perfection of the contract the
latter should not answer for the loss since the same occurred through force majeure. Here, there
is no evidence that appellant has contributed in any way to the occurrence of the
conflagration.1wph1.t
This contention cannot be sustained. While as a rule the loss of the object of the contract of sale
is borne by the owner or in case of force majeure the one under obligation to deliver the object is
exempt from liability, the application of that rule does not here obtain because the law on the
contract entered into on the matter argues against it. It is true that in the contract entered into
between the parties the seller agreed that the ownership of the books shall remain with it until
the purchase price shall have been fully paid, but such stipulation cannot make the seller liable
in case of loss not only because such was agreed merely to secure the performance by the
buyer of his obligation but in the very contract it was expressly agreed that the "loss or damage
to the books after delivery to the buyer shall be borne by the buyer." Any such stipulation is
sanctioned by Article 1504 of our Civil Code, which in part provides:
(1) Where delivery of the goods has been made to the buyer or to a bailee for the
buyer, in pursuance of the contract and the ownership in the goods has been retained
by the seller merely to secure performance by the buyer of his obligations under the
contract, the goods are at the buyer's risk from the time of such delivery.
Neither can appellant find comfort in the claim that since the books were destroyed by fire
without any fault on his part he should be relieved from the resultant obligation under the rule
that an obligor should be held exempt from liability when the loss occurs thru a fortuitous event.
This is because this rule only holds true when the obligation consists in the delivery of a
determinate thing and there is no stipulation holding him liable even in case of fortuitous event.
Here these qualifications are not present. The obligation does not refer to a determinate thing,
but is pecuniary in nature, and the obligor bound himself to assume the loss after the delivery of
the goods to him. In other words, the obligor agreed to assume any risk concerning the goods
from the time of their delivery, which is an exception to the rule provided for in Article 1262 of our
Civil Code.
Appellant likewise contends that the court a quo erred in sentencing him to pay attorney's fees.
This is merely the result of a misapprehension for what the court a quo ordered appellant to pay
is not 25% of the amount due as attorney's fees, but as liquidated damages, which is in line with
an express stipulation of the contract. We believe, however, that the appellant should not be
made to pay any damages because his denial to pay the balance of the account is not due to
bad faith.
WHEREFORE, the decision appealed from is modified by eliminating that portion which refers to
liquidated damages. No costs.

Appellant bought from appellee one set of American Jurisprudence, including one set of general
index, payable on installment plan. It was provided in the contract that "title to and ownership of
the books shall remain with the seller until the purchase price shall have been fully paid. Loss or
damage to the books after delivery to the buyer shall be borne by the buyer." The total price of
the books, including the cost of freight, amounts to P1,682.40. Appellant only made a down
payment of P300.00 thereby leaving a balance of P1,382.40. This is now the import of the
present action aside from liquidated damages.

Appellant now contends that since it was agreed that the title to and the ownership of the books
shall remain with the seller until the purchase price shall have been fully paid, and the books
were burned or destroyed immediately after the transaction, appellee should be the one to bear
PCI LEASING AND FINANCE, INC. vs GIRAFFE-X CREATIVE IMAGING, INC.
On a pure question of law involving the application of Republic Act (R.A.) No. 5980, as amended
by R.A. No. 8556 in relation to Articles 1484 and 1485 of the Civil Code, petitioner PCI Leasing
and Finance, Inc. (PCI LEASING, for short) has directly come to this Court via this petition for
review under Rule 45 of the Rules of Court to nullify and set aside the Decision and Resolution
dated December 28, 1998 and February 15, 2000, respectively, of the Regional Trial Court (RTC)
of Quezon City, Branch 227, in its Civil Case No. Q-98-34266, a suit for a sum of money and/or
personal property with prayer for a writ of replevin, thereat instituted by the petitioner against the
herein respondent, Giraffe-X Creative Imaging, Inc. (GIRAFFE, for brevity).
The facts:
On December 4, 1996, petitioner PCI LEASING and respondent GIRAFFE entered into
a Lease Agreement,[1] whereby the former leased out to the latter one (1) set of Silicon High
Impact Graphics and accessories worth P3,900,00.00 and one (1) unit of Oxberry Cinescan 6400-
10 worth P6,500,000.00. In connection with this agreement, the parties subsequently signed two
(2) separate documents, each denominated as Lease Schedule.[2] Likewise forming parts of the
basic lease agreementwere two (2) separate documents denominated Disclosure Statements of
Loan/Credit Transaction (Single Payment or Installment Plan)[3] that GIRAFFE also executed for
each of the leased equipment. These disclosure statements inter alia described GIRAFFE, vis--
vis the two aforementioned equipment, as the borrower who acknowledged the net proceeds of
the loan, the net amount to be financed, the financial charges, the total installment payments that
it must pay monthly for thirty-six (36) months, exclusive of the 36% per annum late payment
charges. Thus, for the Silicon High Impact Graphics, GIRAFFE agreed to pay P116,878.21
monthly, and for Oxberry Cinescan, P181.362.00 monthly. Hence, the total amount GIRAFFE has
to pay PCI LEASING for 36 months of the lease, exclusive of monetary penaltiesimposable, if
proper, is as indicated below:
P116,878.21 @ month (for the Silicon High
Impact Graphics) x 36 months = P 4,207,615.56
-- PLUS--
P181,362.00 @ month (for the Oxberry
Cinescan) x 36 months = P 6,529,032.00
Total Amount to be paid by GIRAFFE
(or the NET CONTRACT AMOUNT) P 10,736,647.56
By the terms, too, of the Lease Agreement, GIRAFFE undertook to remit the amount
of P3,120,000.00 by way of guaranty deposit, a sort of performance and compliance bond for the
two equipment. Furthermore, the same agreement embodied a standard acceleration clause,
operative in the event GIRAFFE fails to pay any rental and/or other accounts due.
A year into the life of the Lease Agreement, GIRAFFE defaulted in its monthly rental-
payment obligations. And following a three-month default, PCI LEASING, through one Atty.
Florecita R. Gonzales, addressed a formal pay-or-surrender-equipment type of demand
letter[4] dated February 24, 1998 to GIRAFFE.
The demand went unheeded.
Hence, on May 4, 1998, in the RTC of Quezon City, PCI LEASING instituted the instant
case against GIRAFFE. In its complaint,[5] docketed in said court as Civil Case No. 98-34266 and
raffled to Branch 227[6] thereof, PCI LEASING prayed for the issuance of a writ of replevin for the
recovery of the leased property, in addition to the following relief:
2. After trial, judgment be rendered in favor of plaintiff [PCI
LEASING] and against the defendant [GIRAFFE], as follows:
a. Declaring the plaintiff entitled to the possession of the
subject properties;
b. Ordering the defendant to pay the balance of
rental/obligation in the total amount
of P8,248,657.47 inclusive of interest and
charges thereon;
c. Ordering defendant to pay plaintiff the expenses of
litigation and cost of suit. (Words in bracket
added.)
Upon PCI LEASINGs posting of a replevin bond, the trial court issued a writ of replevin,
paving the way for PCI LEASING to secure the seizure and delivery of the equipment covered by
the basic lease agreement.
Instead of an answer, GIRAFFE, as defendant a quo, filed a Motion to Dismiss, therein
arguing that the seizure of the two (2) leased equipment stripped PCI LEASING of its cause of
action. Expounding on the point, GIRAFFE argues that, pursuant to Article 1484 of the Civil Code
on installment sales of personal property, PCI LEASING is barred from further pursuing any claim
arising from the lease agreement and the companion contract documents, adding that the
agreement between the parties is in reality a lease of movables with option to buy. The given
situation, GIRAFFE continues, squarely brings into applicable play Articles 1484 and 1485 of the
Civil Code, commonly referred to as the Recto Law. The cited articles respectively provide:
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 vendee's failure to pay cover two or
more installments;
(3) Foreclose the chattel mortgage on the thing sold, if one has
been constituted, should the vendee's failure to pay cover two or more
installments. In this case, he shall have no further action against the
purchaser to recover any unpaid balance of the price. Any agreement to
the contrary shall be void. (Emphasis added.)
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.
It is thus GIRAFFEs posture that the aforequoted Article 1484 of the Civil Code applies
to its contractual relation with PCI LEASING because the lease agreement in question, as
supplemented by the schedules documents, is really a lease with option to buy under the
companion article, Article 1485. Consequently, so GIRAFFE argues, upon the seizure of the
leased equipment pursuant to the writ of replevin, which seizure is equivalent to foreclosure, PCI
LEASING has no further recourse against it. In brief, GIRAFFE asserts in its Motion to Dismiss
that the civil complaint filed by PCI LEASING is proscribed by the application to the case of Articles
1484 and 1485, supra, of the Civil Code.

In its Opposition to the motion to dismiss, PCI LEASING maintains that its contract with
GIRAFFE is a straight lease without an option to buy. Prescinding therefrom, PCI LEASING
rejects the applicability to the suit of Article 1484 in relation to Article 1485
of the Civil Code, claiming that, under the terms and conditions of the basic agreement, the
relationship between the parties is one between an ordinary lessor and an ordinary lessee.
In a decision[7] dated December 28, 1998, the trial court granted GIRAFFEs motion to
dismiss mainly on the interplay of the following premises: 1) the lease agreement package, as
memorialized in the contract documents, is akin to the contract contemplated in Article 1485 of
the Civil Code, and 2) GIRAFFEs loss of possession of the leased equipment consequent to the
enforcement of the writ of replevin is akin to foreclosure, the condition precedent for application of
Articles 1484 and 1485 [of the Civil Code]. Accordingly, the trial court dismissed Civil Case No. Q-
98-34266, disposing as follows:
WHEREFORE, premises considered, the defendant [GIRAFFE]
having relinquished any claim to the personal properties subject of replevin
which are now in the possession of the plaintiff [PCI LEASING], plaintiff is
DEEMED fully satisfied pursuant to the provisions of Articles 1484 and 1485
of the New Civil Code. By virtue of said provisions, plaintiff is DEEMED
estopped from further action against the defendant, the plaintiff having
recovered thru (replevin) the personal property sought to be payable/leased
on installments, defendants being under protection of said RECTO LAW. In
view thereof, this case is hereby DISMISSED.
With its motion for reconsideration having been denied by the trial court in its resolution
of February 15, 2000,[8] petitioner has directly come to this Court via this petition for review raising
the sole legal issue of whether or not the underlying Lease Agreement, Lease Schedules and the
Disclosure Statements that embody the financial leasing arrangement between the parties are
covered by and subject to the consequences of Articles 1484 and 1485 of the New Civil Code.
As in the court below, petitioner contends that the financial leasing arrangement it
concluded with the respondent represents a straight lease covered by R.A. No.
5980, the Financing Company Act, as last amended by R.A. No. 8556, otherwise known
as Financing Company Act of 1998, and is outside the application and coverage of the Recto Law.
To the petitioner, R.A. No. 5980 defines and authorizes its existence and business.
The recourse is without merit.
R.A. No. 5980, in its original shape and as amended, partakes of a supervisory or
regulatory legislation, merely providing a regulatory framework for the organization, registration,
and regulation of the operations of financing companies. As couched, it does not specifically define
the rights and obligations of parties to a financial leasing arrangement. In fact, it does not go
beyond defining commercial or transactional financial leasing and other financial leasing concepts.
Thus, the relevancy of Article 18 of the Civil Code which reads:
Article 18. - In matters which are governed by special laws, their
deficiency shall be supplied by the provisions of this [Civil] Code.
Petitioner foists the argument that the Recto Law, i.e., the Civil Code provisions on
installment sales of movable property, does not apply to a financial leasing agreement because
such agreement, by definition, does not confer on the lessee the option to buy the property subject
of the financial lease. To the petitioner, the absence of an option-to-buy stipulation in a financial
leasing agreement, as understood under R.A. No. 8556, prevents the application thereto of
Articles 1484 and 1485 of the Civil Code.
We are not persuaded.
The Court can allow that the underlying lease agreement has the earmarks or made to
appear as a financial leasing,[9] a term defined in Section 3(d) of R.A. No. 8556 as -
a mode of extending credit through a non-cancelable lease
contract under which the lessor purchases or acquires, at the instance of the
lessee, machinery, equipment, office machines, and other movable or
immovable property in consideration of the periodic payment by the lessee of
a fixed amount of money sufficient to amortize at least seventy (70%) of the
purchase price or acquisition cost, including any incidental expenses and a
margin of profit over an obligatory period of not less than two (2) years during
which the lessee has the right to hold and use the leased property but with
no obligation or option on his part to purchase the leased property from the
owner-lessor at the end of the lease contract.
In its previous holdings, however, the Court, taking into account the following mix: the
imperatives of equity, the contractual stipulations in question and the actuations of parties vis--vis
their contract, treated disguised transactions technically tagged as financing lease, like here, as
creating a different contractual relationship. Notable among the Courts decisions because of its
parallelism with this case is BA Finance Corporation v. Court of Appeals[10] which involved a motor
vehicle. Thereat, the Court has treated a purported financial lease as actually a sale of a movable
property on installments and prevented recovery beyond the buyers arrearages. Wrote the Court
in BA Finance:
The transaction involved is one of a "financial
lease" or "financial leasing," where a financing company would, in
effect, initially purchase a mobile equipment and turn around to lease it
to a client who gets, in addition, an option to purchase the property at
the expiry of the lease period. xxx.
xxx xxx xxx
The pertinent provisions of [RA] 5980, thus implemented, read:
"'Financing companies,' are primarily
organized for the purpose of extending credit facilities to
consumers either by leasing of motor vehicles, and office
machines and equipment, and other movable property."
"'Credit' shall mean any loan, any contract to
sell, or sale or contract of sale of property or service,
under which part or all of the price is payable subsequent
to the making of such sale or contract; any rental-
purchase contract; .;"
The foregoing provisions indicate no less than a mere financing
scheme extended by a financing company to a client in acquiring a motor
vehicle and allowing the latter to obtain the immediate possession and use
thereof pending full payment of the financial accommodation that is given.
In the case at bench, xxx. [T]he term of the contract [over a motor
vehicle] was for thirty six (36) months at a "monthly rental" (P1,689.40), or for
a total amount of P60,821.28. The contract also contained [a] clause
[requiring the Lessee to give a guaranty deposit in the amount of P20,800.00]
xxx
After the private respondent had paid the sum of P41,670.59,
excluding the guaranty deposit of P20,800.00, he stopped further payments.
 Putting the two sums together, the financing company had in its hands the
amount of P62,470.59 as against the total agreed "rentals" of P60,821.28 or
an excess of P1,649.31.
The respondent appellate court considered it only just and
equitable for the guaranty deposit made by the private respondent to be
applied to his arrearages and thereafter to hold the contract
terminated. Adopting the ratiocination of the court a quo, the appellate court
said:
xxx In view thereof, the guaranty deposit of
P20,800.00 made by the defendant should and must be
credited in his favor, in the interest of fairness, justice
and equity. The plaintiff should not be allowed to
unduly enrich itself at the expense of the defendant.
xxx This is even more compelling in this case where
although the transaction, on its face, appear
ostensibly, to be a contract of lease, it is actually a
financing agreement, with the plaintiff financing the
purchase of defendant's automobile . The Court is
constrained, in the interest of truth and justice, to go into
this aspect of the transaction between the plaintiff and
the defendant with all the facts and circumstances
existing in this case, and which the court must consider
in deciding the case, if it is to decide the case according
to all the facts. xxx.
xxx xxx xxx
Considering the factual findings of both the court a quo and the
appellate court, the only logical conclusion is that the private respondent
did opt, as he has claimed, to acquire the motor vehicle, justifying then
the application of the guarantee deposit to the balance still due and
obligating the petitioner to recognize it as an exercise of the option by
the private respondent. The result would thereby entitle said
respondent to the ownership and possession of the vehicle as the buyer
thereof. We, therefore, see no reversible error in the ultimate judgment of the
appellate court.[11] (Italics in the original; underscoring supplied and words in
bracket added.)
In Cebu Contractors Consortium Co. v. Court of Appeals,[12] the Court viewed and thus
declared a financial lease agreement as having been simulated to disguise a simple loan with
security, it appearing that the financing company purchased equipment already owned by a
capital-strapped client, with the intention of leasing it back to the latter.
In the present case, petitioner acquired the office equipment in question for their
subsequent lease to the respondent, with the latter undertaking to pay a monthly fixed rental
therefor in the total amount of P292,531.00, or a total of P10,531,116.00 for the whole 36 months.
As a measure of good faith, respondent made an up-front guarantee deposit in the amount
of P3,120,000.00. The basic agreement provides that in the event the respondent fails to pay any
rental due or is in a default situation, then the petitioner shall have cumulative remedies, such as,
but not limited to, the following:[13]
1. Obtain possession of the property/equipment;
2. Retain all amounts paid to it. In addition, the guaranty deposit
may be applied towards the payment of liquidated damages;
3. Recover all accrued and unpaid rentals;
4. Recover all rentals for the remaining term of the lease had
it not been cancelled, as additional penalty;
5. Recovery of any and all amounts advanced by PCI
LEASING for GIRAFFEs account xxx;
6. Recover all expenses incurred in repossessing, removing,
repairing and storing the property; and,
7. Recover all damages suffered by PCI LEASING by reason of
the default.
In addition, Sec. 6.1 of the Lease Agreement states that the guaranty deposit shall be
forfeited in the event the respondent, for any reason, returns the equipmentbefore the expiration
of the lease.
At bottom, respondent had paid the equivalent of about a years lease rentals, or a total
of P3,510,372.00, more or less. Throw in the guaranty deposit(P3,120,000.00) and the
respondent had made a total cash outlay of P6,630,372.00 in favor of the petitioner. The replevin-
seized leased equipment had, as alleged in the complaint, an estimated residual
value of P6,900.000.00 at the time Civil Case No. Q-98-34266 was instituted on May 4, 1998.
Adding all cash advances thus made to the residual value of the equipment, the total value which
the petitioner had actually obtained by virtue of its lease agreement with the respondent amounts
to P13,530,372.00 (P3,510,372.00 + P3,120,000.00 + P6,900.000.00 = P13,530,372.00).
The acquisition cost for both the Silicon High Impact Graphics equipment and the
Oxberry Cinescan was, as stated in no less than the petitioners letter to the respondent dated
November 11, 1996[14] approving in the latters favor a lease facility,
was P8,100,000.00. Subtracting the acquisition cost of P8,100,000.00 from the total
amount, i.e., P13,530,372.00, creditable to the respondent, it would clearly appear that petitioner
realized a gross income of P5,430,372.00 from its lease transaction with the respondent. The
amount of P5,430,372.00 is not yet a final figure as it does not include the rentals in arrears,
penalties thereon, and interest earned by the guaranty deposit.
As may be noted, petitioners demand letter[15] fixed the amount of P8,248,657.47 as
representing the respondents rental balance which became due and demandable consequent to
the application of the acceleration and other clauses of the lease agreement. Assuming, then, that
the respondent may be compelled to pay P8,248,657.47, then it would end up paying a total
of P21,779,029.47 (P13,530,372.00 + P8,248,657.47 = P21,779,029.47) for its use - for a year
and two months at the most - of the equipment. All in all, for an investment of P8,100,000.00, the
petitioner stands to make in a years time, out of the transaction, a total of P21,779,029.47, or a
net of P13,679,029.47, if we are to believe its outlandish legal submission that the PCI LEASING-
GIRAFFE Lease Agreement was an honest-to-goodness straight lease.
A financing arrangement has a purpose which is at once practical and salutary. R.A.
No. 8556 was, in fact, precisely enacted to regulate financing companies operations with the end
in view of strengthening their critical role in providing credit and services to small and
medium enterprises and to curtail acts and practices prejudicial to the public interest, in general,
and to their clienteles, in particular.[16] As a regulated activity, financing arrangements are not
meant to quench only the thirst for profit. They serve a higher purpose, and R.A. No. 8556 has
made that abundantly clear.
We stress, however, that there is nothing in R.A. No. 8556 which defines the rights and
obligations, as between each other, of the financial lessor and the lessee. In determining the
respective responsibilities of the parties to the agreement, courts, therefore, must train a keen eye
on the attendant facts and circumstances of the case in order to ascertain the intention of the
parties, in relation to the law and the written agreement. Likewise, the public interest and policy
involved should be considered. It may not be amiss to state that, normally, financing contracts
come in a standard prepared form, unilaterally thought up and written by the financing companies
requiring only the personal circumstances and signature of the borrower or lessee; the rates and
other important covenants in these agreements are still largely imposed unilaterally by the
financing companies. In other words, these agreements are usually one-sided in favor of such
companies. A perusal of the lease agreement in question exposes the many remedies available
to the petitioner, while there are only the standard contractual prohibitions against the respondent.
This is characteristic of standard printed form contracts.
There is more. In the adverted February 24, 1998 demand letter[17] sent to the
respondent, petitioner fashioned its claim in the alternative: payment of the full amount
of P8,248,657.47, representing the unpaid balance for the entire 36-month lease
period or the surrender of the financed asset under pain of legal action. To quote the letter:
Demand is hereby made upon you to pay in full your outstanding
balance in the amount of P8,248,657.47 on or before March 04, 1998 OR to
surrender to us the one (1) set Silicon High Impact Graphics and one (1) unit
Oxberry Cinescan 6400-10
We trust you will give this matter your serious and preferential
attention. (Emphasis added).
Evidently, the letter did not make a demand for the payment of
the P8,248,657.47 AND the return of the equipment; only either one of the two was required. The
demand letter was prepared and signed by Atty. Florecita R. Gonzales, presumably petitioners
counsel. As such, the use of or instead of and in the letter could hardly be treated as a simple
typographical error, bearing in mind the nature of the demand, the amount involved, and the fact
that it was made by a lawyer. Certainly Atty. Gonzales would have known that a world of difference
exists between and and or in the manner that the word was employed in the letter.
A rule in statutory construction is that the word "or" is a disjunctive
term signifying dissociation and independence of one thing from other things
enumerated unless the context requires a different interpretation.[18]
In its elementary sense, "or", as used in a statute, is a disjunctive
article indicating an alternative. It often connects a series of words or
propositions indicating a choice of either. When "or" is used, the various
members of the enumeration are to be taken separately.[19]
The word "or" is a disjunctive term signifying disassociation and
independence of one thing from each of the other things enumerated. [20]
The demand could only be that the respondent need not return the equipment if it paid
the P8,248,657.47 outstanding balance, ineluctably suggesting that the respondent can keep
possession of the equipment if it exercises its option to acquire the same by paying the unpaid
balance of the purchase price. Stated otherwise, if the respondent was not minded to exercise its
option of acquiring the equipment by returning them, then it need not pay the outstanding balance.
This is the logical import of the letter: that the transaction in this case is a lease in name only. The
so-called monthly rentals are in truth monthly amortizations of the price of the leased office
equipment.
On the whole, then, we rule, as did the trial court, that the PCI LEASING- GIRAFFE
lease agreement is in reality a lease with an option to purchase the equipment. This has been
made manifest by the actions of the petitioner itself, foremost of which is the declarations made in
its demand letter to the respondent. There could be no other explanation than that if the
respondent paid the balance, then it could keep the equipment for its own; if not, then it should
return them. This is clearly an option to purchase given to the respondent. Being so, Article 1485
of the Civil Code should apply.
The present case reflects a situation where the financing company can withhold and
conceal - up to the last moment - its intention to sell the property subject of the finance lease, in
order that the provisions of the Recto Law may be circumvented. It may be, as petitioner pointed
out, that the basic lease agreement does not contain a purchase option clause. The absence,
however, does not necessarily argue against the idea that what the parties are into is not a straight
lease, but a lease with option to purchase. This Court has, to be sure, 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:[21]
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 another old but still relevant case of U.S. Commercial v. Halili,[22] a lease agreement
was declared to be in fact a sale of personal property by installments. Said the Court:
. . . 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]. xxx
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.
In choosing, through replevin, to deprive the respondent of possession of the leased
equipment, the petitioner waived its right to bring an action to recover unpaid rentals on the said
leased items. Paragraph (3), Article 1484 in relation to Article 1485 of the Civil Code, which we
are hereunder re-reproducing, cannot be any clearer.
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:
xxx xxx xxx
(3) Foreclose the chattel mortgage on the thing sold, if one has
been constituted, should the vendee's failure to pay cover two or more
installments. In this case, he shall have no further action against the
 purchaser to recover any unpaid balance of the price. Any agreement to the
contrary shall be void.

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.

As we articulated in Elisco Tool Manufacturing Corp. v. Court of Appeals,[23] the

remedies provided for in Article 1484 of the Civil Code are alternative, not cumulative. The
exercise of one bars the exercise of the others. This limitation applies to contracts purporting to
be leases of personal property with option to buy by virtue of the same Article 1485. The condition
that the lessor has deprived the lessee of possession or enjoyment of the thing for the purpose of
applying Article 1485 was fulfilled in this case by the filing by petitioner of the complaint for a sum
of money with prayer for replevin to recover possession of the office equipment.[24] By virtue of the
writ of seizure issued by the trial court, the petitioner has effectively deprived respondent of their
use, a situation which, by force of the Recto Law, in turn precludes the former from maintaining
an action for recovery of accrued rentals or the recovery of the balance of the purchase price plus
interest. [25]

The imperatives of honest dealings given prominence in the Civil Code under the
heading: Human Relations, provide another reason why we must hold the petitioner to its word as
embodied in its demand letter. Else, we would witness a situation where even if the respondent
surrendered the equipment voluntarily, the petitioner can still sue upon its claim. This would be
most unfair for the respondent. We cannot allow the petitioner to renege on its word. Yet more
than that, the very word or as used in the letter conveys distinctly its intention not to claim both the
unpaid balance and the equipment. It is not difficult to discern why: if we add up the amounts paid
by the respondent, the residual value of the property recovered, and the amount claimed by the
petitioner as sued upon herein (for a total of P21,779,029.47), then it would end up making an
instant killing out of the transaction at the expense of its client, the respondent. The Recto Law was
precisely enacted to prevent this kind of aberration. Moreover, due to
considerations of equity, public policy and justice, we cannot allow this to

happen. Not only to the respondent, but those similarly situated who may fall prey to a similar
scheme.

WHEREFORE, the instant petition is DENIED and the trial courts decision
is AFFIRMED.

Costs against petitioner.

SO ORDERED.
ADELFA PROPERTIES, INC., petitioner,
vs.
COURT OF APPEALS, ROSARIO JIMENEZ-CASTAEDA and SALUD
JIMENEZ, respondents.
REGALADO, J.:
The main issues presented for resolution in this petition for review on certiorari of the judgment
of respondent Court of appeals, dated April 6, 1993, in CA-G.R. CV No. 347671 are (1) whether
of not the "Exclusive Option to Purchase" executed between petitioner Adelfa Properties, Inc.
and private respondents Rosario Jimenez-Castaeda and Salud Jimenez is an option contract;
and (2) whether or not there was a valid suspension of payment of the purchase price by said
petitioner, and the legal effects thereof on the contractual relations of the parties.
The records disclose the following antecedent facts which culminated in the present appellate
review, to wit:
1. Herein private respondents and their brothers, Jose and Dominador Jimenez, were the
registered co-owners of a parcel of land consisting of 17,710 square meters, covered by
Transfer Certificate of Title (TCT) No. 309773,2situated in Barrio Culasi, Las Pias, Metro
Manila.
2. On July 28, 1988, Jose and Dominador Jimenez sold their share consisting of one-half of said
parcel of land, specifically the eastern portion thereof, to herein petitioner pursuant to a
"Kasulatan sa Bilihan ng Lupa."3Subsequently, a "Confirmatory Extrajudicial Partition
Agreement"4 was executed by the Jimenezes, wherein the eastern portion of the subject lot, with
an area of 8,855 square meters was adjudicated to Jose and Dominador Jimenez, while the
western portion was allocated to herein private respondents.
3. Thereafter, herein petitioner expressed interest in buying the western portion of the property
from private respondents. Accordingly, on November 25, 1989, an "Exclusive Option to
Purchase"5 was executed between petitioner and private respondents, under the following terms
and conditions:
1. The selling price of said 8,655 square meters of the subject property is
TWO MILLION EIGHT HUNDRED FIFTY SIX THOUSAND ONE
HUNDRED FIFTY PESOS ONLY (P2,856,150.00)
2. The sum of P50,000.00 which we received from ADELFA PROPERTIES,
INC. as an option money shall be credited as partial payment upon the
consummation of the sale and the balance in the sum of TWO MILLION
EIGHT HUNDRED SIX THOUSAND ONE HUNDRED FIFTY PESOS
(P2,806,150.00) to be paid on or before November 30, 1989;
3. In case of default on the part of ADELFA PROPERTIES, INC. to pay said
balance in accordance with paragraph 2 hereof, this option shall be
cancelled and 50% of the option money to be forfeited in our favor and we
will refund the remaining 50% of said money upon the sale of said property
to a third party;
4. All expenses including the corresponding capital gains tax, cost of
documentary stamps are for the account of the VENDORS, and expenses
for the registration of the deed of sale in the Registry of Deeds are for the
account of ADELFA PROPERTIES, INC.
Considering, however, that the owner's copy of the certificate of title issued to respondent Salud
Jimenez had been lost, a petition for the re-issuance of a new owner's copy of said certificate of
title was filed in court through Atty. Bayani L. Bernardo, who acted as private respondents'
counsel. Eventually, a new owner's copy of the certificate of title was issued but it remained in
the possession of Atty. Bernardo until he turned it over to petitioner Adelfa Properties, Inc.
4. Before petitioner could make payment, it received summons6 on November 29, 1989, together
with a copy of a complaint filed by the nephews and nieces of private respondents against the
latter, Jose and Dominador Jimenez, and herein petitioner in the Regional Trial Court of Makati,
docketed as Civil Case No. 89-5541, for annulment of the deed of sale in favor of Household
Corporation and recovery of ownership of the property covered by TCT No. 309773. 7
5. As a consequence, in a letter dated November 29, 1989, petitioner informed private
respondents that it would hold payment of the full purchase price and suggested that private
respondents settle the case with their nephews and nieces, adding that ". . . if possible, although
November 30, 1989 is a holiday, we will be waiting for you and said plaintiffs at our office up to
7:00 p.m."8 Another letter of the same tenor and of even date was sent by petitioner to Jose and
Dominador Jimenez.9 Respondent Salud Jimenez refused to heed the suggestion of petitioner
and attributed the suspension of payment of the purchase price to "lack of word of honor."
6. On December 7, 1989, petitioner caused to be annotated on the title of the lot its option
contract with private respondents, and its contract of sale with Jose and Dominador Jimenez, as
Entry No. 1437-4 and entry No. 1438-4, respectively.
7. On December 14, 1989, private respondents sent Francisca Jimenez to see Atty. Bernardo, in
his capacity as petitioner's counsel, and to inform the latter that they were cancelling the
transaction. In turn, Atty. Bernardo offered to pay the purchase price provided that P500,000.00
be deducted therefrom for the settlement of the civil case. This was rejected by private
respondents. On December 22, 1989, Atty. Bernardo wrote private respondents on the same
matter but this time reducing the amount from P500,000.00 to P300,000.00, and this was also
rejected by the latter.
8. On February 23, 1990, the Regional Trial Court of Makati dismissed Civil Case No. 89-5541.
Thus, on February 28, 1990, petitioner caused to be annotated anew on TCT No. 309773 the
exclusive option to purchase as Entry No. 4442-4.
9. On the same day, February 28, 1990, private respondents executed a Deed of Conditional
Sale 10 in favor of Emylene Chua over the same parcel of land for P3,029,250, of which
P1,500,000.00 was paid to private respondents on said date, with the balance to be paid upon
the transfer of title to the specified one-half portion.
10. On April 16, 1990, Atty. Bernardo wrote private respondents informing the latter that in view
of the dismissal of the case against them, petitioner was willing to pay the purchase price, and
he requested that the corresponding deed of absolute sale be executed. 11 This was ignored by
private respondents.
11. On July 27, 1990, private respondents' counsel sent a letter to petitioner enclosing therein a
check for P25,000.00 representing the refund of fifty percent of the option money paid under the
exclusive option to purchase. Private respondents then requested petitioner to return the
owner's duplicate copy of the certificate of title of respondent Salud Jimenez. 12 Petitioner failed
to surrender the certificate of title, hence private respondents filed Civil Case No. 7532 in the
Regional Trial Court of Pasay City, Branch 113, for annulment of contract with damages,
praying, among others, that the exclusive option to purchase be declared null and void; that
defendant, herein petitioner, be ordered to return the owner's duplicate certificate of title; and
that the annotation of the option contract on TCT No. 309773 be cancelled. Emylene Chua, the
subsequent purchaser of the lot, filed a complaint in intervention.
12. The trial court rendered judgment 13 therein on September 5, 1991 holding that the
agreement entered into by the parties was merely an option contract, and declaring that the
suspension of payment by herein petitioner constituted a counter-offer which, therefore, was
tantamount to a rejection of the option. It likewise ruled that herein petitioner could not validly
suspend payment in favor of private respondents on the ground that the vindicatory action filed
by the latter's kin did not involve the western portion of the land covered by the contract between
petitioner and private respondents, but the eastern portion thereof which was the subject of the
sale between petitioner and the brothers Jose and Dominador Jimenez. The trial court then
directed the cancellation of the exclusive option to purchase, declared the sale to intervenor
Emylene Chua as valid and binding, and ordered petitioner to pay damages and attorney's fees
to private respondents, with costs.
13. On appeal, respondent Court of appeals affirmed in toto the decision of the court a quo and
held that the failure of petitioner to pay the purchase price within the period agreed upon was
tantamount to an election by petitioner not to buy the property; that the suspension of payment
constituted an imposition of a condition which was actually a counter-offer amounting to a
rejection of the option; and that Article 1590 of the Civil Code on suspension of payments
applies only to a contract of sale or a contract to sell, but not to an option contract which it
opined was the nature of the document subject of the case at bar. Said appellate court similarly
upheld the validity of the deed of conditional sale executed by private respondents in favor of
intervenor Emylene Chua.
In the present petition, the following assignment of errors are raised:
1. Respondent court of appeals acted with grave abuse of discretion in making its finding that
the agreement entered into by petitioner and private respondents was strictly an option contract;
2. Granting arguendo that the agreement was an option contract, respondent court of Appeals
acted with grave abuse of discretion in grievously failing to consider that while the option period
had not lapsed, private respondents could not unilaterally and prematurely terminate the option
period;
3. Respondent Court of Appeals acted with grave abuse of discretion in failing to appreciate fully
the attendant facts and circumstances when it made the conclusion of law that Article 1590 does
not apply; and
4. Respondent Court of Appeals acted with grave abuse of discretion in conforming with the sale
in favor of appellee Ma. Emylene Chua and the award of damages and attorney's fees which are
not only excessive, but also without in fact and in law. 14
An analysis of the facts obtaining in this case, as well as the evidence presented by the parties,
irresistibly leads to the conclusion that the agreement between the parties is a contract to sell,
and not an option contract or a contract of sale.
I to sell. On this particular point, therefore, we reject the position and ratiocination of respondent
1. In view of the extended disquisition thereon by respondent court, it would be worthwhile at this
juncture to briefly discourse on the rationale behind our treatment of the alleged option contract
as a contract to sell, rather than a contract of sale. The distinction between the two is important
for in contract of sale, the title passes to the vendee upon the delivery of the thing sold; whereas
in a contract to sell, by agreement the ownership is reserved in the vendor and is not to pass
until the full payment of the price. In a contract of sale, the vendor has lost and cannot recover
ownership until and unless the contract is resolved or rescinded; whereas in a contract to sell,
title is retained by the vendor until the full payment of the price, such payment being a positive
suspensive condition and failure of which is not a breach but an event that prevents the
obligation of the vendor to convey title from becoming effective. Thus, a deed of sale is
considered absolute in nature where there is neither a stipulation in the deed that title to the
property sold is reserved in the seller until the full payment of the price, nor one giving the
vendor the right to unilaterally resolve the contract the moment the buyer fails to pay within a
fixed period. 15
There are two features which convince us that the parties never intended to transfer ownership
to petitioner except upon the full payment of the purchase price. Firstly, the exclusive option to
purchase, although it provided for automatic rescission of the contract and partial forfeiture of the
amount already paid in case of default, does not mention that petitioner is obliged to return
possession or ownership of the property as a consequence of non-payment. There is no
stipulation anent reversion or reconveyance of the property to herein private respondents in the
event that petitioner does not comply with its obligation. With the absence of such a stipulation,
although there is a provision on the remedies available to the parties in case of breach, it may
legally be inferred that the parties never intended to transfer ownership to the petitioner to
completion of payment of the purchase price.
In effect, there was an implied agreement that ownership shall not pass to the purchaser until he
had fully paid the price. Article 1478 of the civil code does not require that such a stipulation be
expressly made. Consequently, an implied stipulation to that effect is considered valid and,
therefore, binding and enforceable between the parties. It should be noted that under the law
and jurisprudence, a contract which contains this kind of stipulation is considered a contract to
sell.
Moreover, that the parties really intended to execute a contract to sell, and not a contract of sale,
is bolstered by the fact that the deed of absolute sale would have been issued only upon the
payment of the balance of the purchase price, as may be gleaned from petitioner's letter dated
April 16, 1990 16 wherein it informed private respondents that it "is now ready and willing to pay
you simultaneously with the execution of the corresponding deed of absolute sale."
Secondly, it has not been shown there was delivery of the property, actual or constructive, made
to herein petitioner. The exclusive option to purchase is not contained in a public instrument the
execution of which would have been considered equivalent to delivery. 17 Neither did petitioner
take actual, physical possession of the property at any given time. It is true that after the
reconstitution of private respondents' certificate of title, it remained in the possession of
petitioner's counsel, Atty. Bayani L. Bernardo, who thereafter delivered the same to herein
petitioner. Normally, under the law, such possession by the vendee is to be understood as a
delivery.18 However, private respondents explained that there was really no intention on their
part to deliver the title to herein petitioner with the purpose of transferring ownership to it. They
claim that Atty. Bernardo had possession of the title only because he was their counsel in the
petition for reconstitution. We have no reason not to believe this explanation of private
respondents, aside from the fact that such contention was never refuted or contradicted by
petitioner.
2. Irrefragably, the controverted document should legally be considered as a perfected contract
Court of Appeals which, while awarding the correct relief to private respondents, categorized the
instrument as "strictly an option contract."
The important task in contract interpretation is always the ascertainment of the intention of the
contracting parties and that task is, of course, 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. 19 Moreover, judging from the subsequent acts of the
parties which will hereinafter be discussed, it is undeniable that the intention of the parties was
to enter into a contract to sell. 20 In addition, the title of a contract does not necessarily determine
its true nature. 21 Hence, the fact that the document under discussion is entitled "Exclusive
Option to Purchase" is not controlling where the text thereof shows that it is a contract to sell.
An option, as used in the law on 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 certain time, 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. 22 It is not a sale of property but a sale of property but a sale of the right to purchase. 23 It is
simply a contract by which the owner of property agrees with another person that he shall have
the right to buy his property at a fixed price within a certain time. He does not sell his land; he
does not then agree to sell it; but he does sell something, that it is, the right or privilege to buy at
the election or option of the other party. 24 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 property gives the optionee the right or privilege of accepting the offer and
buying the property on certain terms. 25
On the other hand, a contract, like a contract to sell, involves a meeting of minds two persons
whereby one binds himself, with respect to the other, to give something or to render some
service. 26 Contracts, in general, are perfected by mere consent, 27 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. 28
The distinction between an "option" and a contract of sale is that an option is an unaccepted
offer. It states the terms and conditions on which the owner is willing to sell the land, if the holder
elects to accept them within the time limited. If the holder does so elect, he must give notice to
the other party, and the accepted offer thereupon becomes a valid and binding contract. If an
acceptance is not made within the time fixed, the owner is no longer bound by his offer, and the
option is at an end. A contract of sale, on the other hand, fixes definitely the relative rights and
obligations of both parties at the time of its execution. The offer and the acceptance are
concurrent, since the minds of the contracting parties meet in the terms of the agreement. 29
A perusal of the contract in this case, as well as the oral and documentary evidence presented
by the parties, readily shows that there is indeed a concurrence of petitioner's offer to buy and
private respondents' acceptance thereof. The rule is that except where a formal acceptance is
so required, although the acceptance must be affirmatively and clearly made and must be
evidenced by some acts or conduct communicated to the offeror, it may be made either in a
formal or an informal manner, and may be shown by acts, conduct, or words of the accepting
party that clearly manifest a present intention or determination to accept the offer to buy or sell.
Thus, acceptance may be shown by the acts, conduct, or words of a party recognizing the
existence of the contract of sale. 30
The records also show that private respondents accepted the offer of petitioner to buy their
property under the terms of their contract. At the time petitioner made its offer, private
respondents suggested that their transfer certificate of title be first reconstituted, to which
petitioner agreed. As a matter of fact, it was petitioner's counsel, Atty. Bayani L. Bernardo, who
assisted private respondents in filing a petition for reconstitution. After the title was reconstituted,
the parties agreed that petitioner would pay either in cash or manager's check the amount of
P2,856,150.00 for the lot. Petitioner was supposed to pay the same on November 25, 1989, but
it later offered to make a down payment of P50,000.00, with the balance of P2,806,150.00 to be
paid on or before November 30, 1989. Private respondents agreed to the counter-offer made by
petitioner. 31 As a result, the so-called exclusive option to purchase was prepared by petitioner
and was subsequently signed by private respondents, thereby creating a perfected contract to
sell between them.
It cannot be gainsaid that the offer to buy a specific piece of land was definite and certain, while
the acceptance thereof was absolute and without any condition or qualification. The agreement
as to the object, the price of the property, and the terms of payment was clear and well-defined.
No other significance could be given to such acts that than they were meant to finalize and
perfect the transaction. The parties even went beyond the basic requirements of the law by
stipulating that "all expenses including the corresponding capital gains tax, cost of documentary
stamps are for the account of the vendors, and expenses for the registration of the deed of sale
in the Registry of Deeds are for the account of Adelfa properties, Inc." Hence, there was nothing
left to be done except the performance of the respective obligations of the parties.
We do not subscribe to private respondents' submission, which was upheld by both the trial
court and respondent court of appeals, that the offer of petitioner to deduct P500,000.00, (later
reduced to P300,000.00) from the purchase price for the settlement of the civil case was
tantamount to a counter-offer. It must be stressed that there already existed a perfected contract
between the parties at the time the alleged counter-offer was made. Thus, any new offer by a
party becomes binding only when it is accepted by the other. In the case of private respondents,
they actually refused to concur in said offer of petitioner, by reason of which the original terms of
the contract continued to be enforceable.
At any rate, the same cannot be considered a counter-offer for the simple reason that
petitioner's sole purpose was to settle the civil case in order that it could already comply with its
obligation. In fact, it was even indicative of a desire by petitioner to immediately comply
therewith, except that it was being prevented from doing so because of the filing of the civil case
which, it believed in good faith, rendered compliance improbable at that time. In addition, no
inference can be drawn from that suggestion given by petitioner that it was totally abandoning
the original contract.
More importantly, it will be noted that the failure of petitioner to pay the balance of the purchase
price within the agreed period was attributed by private respondents to "lack of word of honor"
on the part of the former. The reason of "lack of word of honor" is to us a clear indication that
private respondents considered petitioner already bound by its obligation to pay the balance of
the consideration. In effect, private respondents were demanding or exacting fulfillment of the
obligation from herein petitioner. with the arrival of the period agreed upon by the parties,
petitioner was supposed to comply with the obligation incumbent upon it to perform, not merely
to exercise an option or a right to buy the property.
The obligation of petitioner on November 30, 1993 consisted of an obligation to give something,
that is, the payment of the purchase price. The contract did not simply give petitioner the
discretion to pay for the property. 32 It will be noted that there is nothing in the said contract to
show that petitioner was merely given a certain period within which to exercise its privilege to
buy. The agreed period was intended to give time to herein petitioner within which to fulfill and
comply with its obligation, that is, to pay the balance of the purchase price. No evidence was
presented by private respondents to prove otherwise.
The test in determining whether a contract is a "contract of sale or purchase" or a mere "option"
is whether or not the agreement could be specifically enforced. 33 There is no doubt that the
obligation of petitioner to pay the purchase price is specific, definite and certain, and
consequently binding and enforceable. Had private respondents chosen to enforce the contract,
they could have specifically compelled petitioner to pay the balance of P2,806,150.00. This is
distinctly made manifest in the contract itself as an integral stipulation, compliance with which
could legally and definitely be demanded from petitioner as a consequence.
This is not a case where no right is as yet created nor an obligation declared, as where
something further remains to be done before the buyer and seller obligate themselves. 34 An
agreement is only an "option" when no obligation rests on the party to make any payment except
such as may be agreed on between the parties as consideration to support the option until he
has made up his mind within the time specified. 35 An option, and not a contract to purchase, is
effected by an agreement to sell real estate for payments to be made within specified time and
providing forfeiture of money paid upon failure to make payment, where the purchaser does not
agree to purchase, to make payment, or to bind himself in any way other than the forfeiture of
the payments made. 36 As hereinbefore discussed, this is not the situation obtaining in the case
at bar.
While there is jurisprudence to the effect that a contract which provides that the initial payment
shall be totally forfeited in case of default in payment is to be considered as an option
contract, 37 still we are not inclined to conform with the findings of respondent court and the
court a quo that the contract executed between the parties is an option contract, for the reason
that the parties were already contemplating the payment of the balance of the purchase price,
and were not merely quoting an agreed value for the property. The term "balance," connotes a
remainder or something remaining from the original total sum already agreed upon.
In other words, the alleged option money of P50,000.00 was actually earnest money which was
intended to form part of the purchase price. The amount of P50,000.00 was not distinct from the
cause or consideration for the sale of the property, but was itself a part thereof. It is a statutory
rule that whenever earnest money is given in a contract of sale, it shall be considered as part of
the price and as proof of the perfection of the contract. 38 It constitutes an advance payment and
must, therefore, be deducted from the total price. Also, earnest money is given by the buyer to
the seller to bind the bargain.
There are clear distinctions between earnest money and option money, viz.: (a) earnest money
is part of the purchase price, while option money ids 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. 39
The aforequoted characteristics of earnest money are apparent in the so-called option contract
under review, even though it was called "option money" by the parties. In addition, private
respondents failed to show that the payment of the balance of the purchase price was only a
condition precedent to the acceptance of the offer or to the exercise of the right to buy. On the
contrary, it has been sufficiently established that such payment was but an element of the
performance of petitioner's obligation under the contract to sell. 40
II
1. This brings us to the second issue as to whether or not there was valid suspension of
payment of the purchase price by petitioner and the legal consequences thereof. To justify its
failure to pay the purchase price within the agreed period, petitioner invokes Article 1590 of the
civil Code which provides:
Art. 1590. Should the vendee be disturbed in the possession or ownership
of the thing acquired, or should he have reasonable grounds to fear such
disturbance, by a vindicatory action or a foreclosure of mortgage, he may
suspend the payment of the price until the vendor has caused the
disturbance or danger to cease, unless the latter gives security for the return
of the price in a proper case, or it has been stipulated that, notwithstanding
any such contingency, the vendee shall be bound to make the payment. A
mere act of trespass shall not authorize the suspension of the payment of
the price.
Respondent court refused to apply the aforequoted provision of law on the erroneous
assumption that the true agreement between the parties was a contract of option. As we have
hereinbefore discussed, it was not an option contract but a perfected contract to sell. Verily,
therefore, Article 1590 would properly apply.
Both lower courts, however, are in accord that since Civil Case No. 89-5541 filed against the
parties herein involved only the eastern half of the land subject of the deed of sale between
petitioner and the Jimenez brothers, it did not, therefore, have any adverse effect on private
respondents' title and ownership over the western half of the land which is covered by the
contract subject of the present case. We have gone over the complaint for recovery of ownership
filed in said case 41 and we are not persuaded by the factual findings made by said courts. At a
glance, it is easily discernible that, although the complaint prayed for the annulment only of the
contract of sale executed between petitioner and the Jimenez brothers, the same likewise
prayed for the recovery of therein plaintiffs' share in that parcel of land specifically covered by
TCT No. 309773. In other words, the plaintiffs therein were claiming to be co-owners of the
entire parcel of land described in TCT No. 309773, and not only of a portion thereof nor, as
incorrectly interpreted by the lower courts, did their claim pertain exclusively to the eastern half
adjudicated to the Jimenez brothers.
Such being the case, petitioner was justified in suspending payment of the balance of the
purchase price by reason of the aforesaid vindicatory action filed against it. The assurance made
by private respondents that petitioner did not have to worry about the case because it was pure
and simple harassment 42 is not the kind of guaranty contemplated under the exceptive clause in
Article 1590 wherein the vendor is bound to make payment even with the existence of a
vindicatory action if the vendee should give a security for the return of the price.
2. Be that as it may, and the validity of the suspension of payment notwithstanding, we find and
hold that private respondents may no longer be compelled to sell and deliver the subject
property to petitioner for two reasons, that is, petitioner's failure to duly effect the consignation of
the purchase price after the disturbance had ceased; and, secondarily, the fact that the contract
to sell had been validly rescinded by private respondents.
The records of this case reveal that as early as February 28, 1990 when petitioner caused its
exclusive option to be annotated anew on the certificate of title, it already knew of the dismissal
of civil Case No. 89-5541. However, it was only on April 16, 1990 that petitioner, through its
counsel, wrote private respondents expressing its willingness to pay the balance of the purchase
price upon the execution of the corresponding deed of absolute sale. At most, that was merely a
notice to pay. There was no proper tender of payment nor consignation in this case as required
by law.
The mere sending of a letter by the vendee expressing the intention to
pay, without the accompanying payment, is not considered a valid tender of
payment. 43 Besides, a mere tender of payment is not sufficient to compel private respondents to
deliver the property and execute the deed of absolute sale. It is consignation which is essential
in order to extinguish petitioner's obligation to pay the balance of the purchase price. 44 The rule
is different in case of an option contract 45 or in legal redemption or in a sale with right to
repurchase, 46 wherein consignation is not necessary because these cases involve an exercise
of a right or privilege (to buy, redeem or repurchase) rather than the discharge of an obligation,
hence tender of payment would be sufficient to preserve the right or privilege. This is because
the provisions on consignation are not applicable when there is no obligation to pay. 47 A
contract to sell, as in the case before us, involves the performance of an obligation, not merely
the exercise of a privilege of a right. consequently, performance or payment may be effected not
by tender of payment alone but by both tender and consignation.
Furthermore, petitioner no longer had the right to suspend payment after the disturbance ceased
with the dismissal of the civil case filed against it. Necessarily, therefore, its obligation to pay the
balance again arose and resumed after it received notice of such dismissal. Unfortunately,
petitioner failed to seasonably make payment, as in fact it has deposit the money with the trial
court when this case was originally filed therein.
By reason of petitioner's failure to comply with its obligation, private respondents elected to
resort to and did announce the rescission of the contract through its letter to petitioner dated July
27, 1990. That written notice of rescission is deemed sufficient under the circumstances. Article
1592 of the Civil Code which requires rescission either by judicial action or notarial act is not
applicable to a contract to sell. 48 Furthermore, judicial action for rescission of a contract is not
necessary where the contract provides for automatic rescission in case of breach, 49 as in the
contract involved in the present controversy.
We are not unaware of the ruling in University of the Philippines vs. De los Angeles, etc. 50 that
the right to rescind is not absolute, being ever subject to scrutiny and review by the proper court.
It is our considered view, however, that this rule applies to a situation where the extrajudicial
rescission is contested by the defaulting party. In other words, resolution of reciprocal contracts
may be made extrajudicially unless successfully impugned in court. If the debtor impugns the
declaration, it shall be subject to judicial determination51 otherwise, if said party does not oppose
it, the extrajudicial rescission shall have legal effect. 52
In the case at bar, it has been shown that although petitioner was duly furnished and did receive
a written notice of rescission which specified the grounds therefore, it failed to reply thereto or
protest against it. Its silence thereon suggests an admission of the veracity and validity of private
respondents' claim. 53 Furthermore, the initiative of instituting suit was transferred from the
rescinder to the defaulter by virtue of the automatic rescission clause in the contract. 54 But then,
the records bear out the fact that aside from the lackadaisical manner with which petitioner
treated private respondents' latter of cancellation, it utterly failed to seriously seek redress from
the court for the enforcement of its alleged rights under the contract. If private respondents had
not taken the initiative of filing Civil Case No. 7532, evidently petitioner had no intention to take
any legal action to compel specific performance from the former. By such cavalier disregard, it
has been effectively estopped from seeking the affirmative relief it now desires but which it had
theretofore disdained.
WHEREFORE, on the foregoing modificatory premises, and considering that the same result
has been reached by respondent Court of Appeals with respect to the relief awarded to private
respondents by the court a quo which we find to be correct, its assailed judgment in CA-G.R. CV
No. 34767 is hereby AFFIRMED.
SO ORDERED.
UNIVERSITY OF THE PHILIPPINES, petitioner,
vs.
WALFRIDO DE LOS ANGELES, in his capacity as JUDGE of the COURT OF FIRST
INSTANCE IN QUEZON CITY, et al., respondents.
Office of the Solicitor General Antonio P. Barredo, Solicitor Augusto M. Amores and Special
Counsel Perfecto V. Fernandez for petitioner.
Norberto J. Quisumbing for private respondents.
REYES, J.B.L., J.:
Three (3) orders of the Court of First Instance of Rizal (Quezon City), issued in its Civil Case No.
9435, are sought to be annulled in this petition for certiorari and prohibition, filed by herein
petitioner University of the Philippines (or UP) against the above-named respondent judge and
the Associated Lumber Manufacturing Company, Inc. (or ALUMCO). The first order, dated 25
February 1966, enjoined UP from awarding logging rights over its timber concession (or Land
Grant), situated at the Lubayat areas in the provinces of Laguna and Quezon; the second order,
dated 14 January 1967, adjudged UP in contempt of court, and directed Sta. Clara Lumber
Company, Inc. to refrain from exercising logging rights or conducting logging operations on the
concession; and the third order, dated 12 December 1967, denied reconsideration of the order of
contempt.
As prayed for in the petition, a writ of preliminary injunction against the enforcement or
implementation of the three (3) questioned orders was issued by this Court, per its resolution on
9 February 1968.
The petition alleged the following:
That the above-mentioned Land Grant was segregated from the public domain and given as an
endowment to UP, an institution of higher learning, to be operated and developed for the
purpose of raising additional income for its support, pursuant to Act 3608;
That on or about 2 November 1960, UP and ALUMCO entered into a logging agreement under
which the latter was granted exclusive authority, for a period starting from the date of the
agreement to 31 December 1965, extendible for a further period of five (5) years by mutual
agreement, to cut, collect and remove timber from the Land Grant, in consideration of payment
to UP of royalties, forest fees, etc.; that ALUMCO cut and removed timber therefrom but, as of 8
December 1964, it had incurred an unpaid account of P219,362.94, which, despite repeated
demands, it had failed to pay; that after it had received notice that UP would rescind or terminate
the logging agreement, ALUMCO executed an instrument, entitled "Acknowledgment of Debt
and Proposed Manner of Payments," dated 9 December 1964, which was approved by the
president of UP, and which stipulated the following:
3. In the event that the payments called for in Nos. 1 and 2 of this paragraph
are not sufficient to liquidate the foregoing indebtedness of the DEBTOR in
favor of the CREDITOR, the balance outstanding after the said payments
have been applied shall be paid by the DEBTOR in full no later than June
30, 1965;
xxx xxx xxx
5. In the event that the DEBTOR fails to comply with any of its promises or
undertakings in this document, the DEBTOR agrees without reservation that
the CREDITOR shall have the right and the power to consider the Logging
Agreement dated December 2, 1960 as rescinded without the necessity of
 any judicial suit, and the CREDITOR shall be entitled as a matter of right to
Fifty Thousand Pesos (P50,000.00) by way of and for liquidated damages;
ALUMCO continued its logging operations, but again incurred an unpaid account, for the period
from 9 December 1964 to 15 July 1965, in the amount of P61,133.74, in addition to the
indebtedness that it had previously acknowledged.
That on 19 July 1965, petitioner UP informed respondent ALUMCO that it had, as of that date,
considered as rescinded and of no further legal effect the logging agreement that they had
entered in 1960; and on 7 September 1965, UP filed a complaint against ALUMCO, which was
docketed as Civil Case No. 9435 of the Court of First Instance of Rizal (Quezon City), for the
collection or payment of the herein before stated sums of money and alleging the facts
hereinbefore specified, together with other allegations; it prayed for and obtained an order, dated
30 September 1965, for preliminary attachment and preliminary injunction restraining ALUMCO
from continuing its logging operations in the Land Grant.
That before the issuance of the aforesaid preliminary injunction UP had taken steps to have
another concessionaire take over the logging operation, by advertising an invitation to bid; that
bidding was conducted, and the concession was awarded to Sta. Clara Lumber Company, Inc.;
the logging contract was signed on 16 February 1966.
That, meantime, ALUMCO had filed several motions to discharge the writs of attachment and
preliminary injunction but were denied by the court;
That on 12 November 1965, ALUMCO filed a petition to enjoin petitioner University from
conducting the bidding; on 27 November 1965, it filed a second petition for preliminary
injunction; and, on 25 February 1966, respondent judge issued the first of the questioned orders,
enjoining UP from awarding logging rights over the concession to any other party.
That UP received the order of 25 February 1966 after it had concluded its contract with Sta.
Clara Lumber Company, Inc., and said company had started logging operations.
That, on motion dated 12 April 1966 by ALUMCO and one Jose Rico, the court, in an order
dated 14 January 1967, declared petitioner UP in contempt of court and, in the same order,
directed Sta. Clara Lumber Company, Inc., to refrain from exercising logging rights or conducting
logging operations in the concession.
The UP moved for reconsideration of the aforesaid order, but the motion was denied on 12
December 1967.
Except that it denied knowledge of the purpose of the Land Grant, which purpose, anyway, is
embodied in Act 3608 and, therefore, conclusively known, respondent ALUMCO did not deny
the foregoing allegations in the petition. In its answer, respondent corrected itself by stating that
the period of the logging agreement is five (5) years - not seven (7) years, as it had alleged in its
second amended answer to the complaint in Civil Case No. 9435. It reiterated, however, its
defenses in the court below, which maybe boiled down to: blaming its former general manager,
Cesar Guy, in not turning over management of ALUMCO, thereby rendering it unable to pay the
sum of P219,382.94; that it failed to pursue the manner of payments, as stipulated in the
"Acknowledgment of Debt and Proposed Manner of Payments" because the logs that it had cut
turned out to be rotten and could not be sold to Sta. Clara Lumber Company, Inc., under its
contract "to buy and sell" with said firm, and which contract was referred and annexed to the
"Acknowledgment of Debt and Proposed Manner of Payments"; that UP's unilateral rescission of
the logging contract, without a court order, was invalid; that petitioner's supervisor refused to
allow respondent to cut new logs unless the logs previously cut during the management of Cesar
Guy be first sold; that respondent was permitted to cut logs in the middle of June 1965 but
petitioner's supervisor stopped all logging operations on 15 July 1965; that it had made several
offers to petitioner for respondent to resume logging operations but respondent received no
reply.
The basic issue in this case is whether petitioner U.P. can treat its contract with ALUMCO
rescinded, and may disregard the same before any judicial pronouncement to that effect.
Respondent ALUMCO contended, and the lower court, in issuing the injunction order of 25
February 1966, apparently sustained it (although the order expresses no specific findings in this
regard), that it is only after a final court decree declaring the contract rescinded for violation of its
terms that U.P. could disregard ALUMCO's rights under the contract and treat the agreement as
breached and of no force or effect.
We find that position untenable.
In the first place, UP and ALUMCO had expressly stipulated in the "Acknowledgment of Debt
and Proposed Manner of Payments" that, upon default by the debtor ALUMCO, the creditor (UP)
has "the right and the power to consider, the Logging Agreement dated 2 December 1960 as
rescinded without the necessity of any judicial suit." As to such special stipulation, and in
connection with Article 1191 of the Civil Code, this Court stated in Froilan vs. Pan Oriental
Shipping Co., et al., L-11897, 31 October 1964, 12 SCRA 276:
there is nothing in the law that prohibits the parties from entering into
agreement that violation of the terms of the contract would cause
cancellation thereof, even without court intervention. In other words, it is not
always necessary for the injured party to resort to court for rescission of the
contract.
Of course, it must be understood that the act of party in treating a contract as cancelled or
resolved on account of infractions by the other contracting party must be made known to the
other and is always provisional, being ever subject to scrutiny and review by the proper court. If
the other party denies that rescission is justified, it is free to resort to judicial action in its own
behalf, and bring the matter to court. Then, should the court, after due hearing, decide that the
resolution of the contract was not warranted, the responsible party will be sentenced to
damages; in the contrary case, the resolution will be affirmed, and the consequent indemnity
awarded to the party prejudiced.
In other words, the party who deems the contract violated may consider it resolved or rescinded,
and act accordingly, without previous court action, but it proceeds at its own risk. For it is only
the final judgment of the corresponding court that will conclusively and finally settle whether the
action taken was or was not correct in law. But the law definitely does not require that the
contracting party who believes itself injured must first file suit and wait for a judgment before
taking extrajudicial steps to protect its interest. Otherwise, the party injured by the other's breach
will have to passively sit and watch its damages accumulate during the pendency of the suit until
the final judgment of rescission is rendered when the law itself requires that he should exercise
due diligence to minimize its own damages (Civil Code, Article 2203).
We see no conflict between this ruling and the previous jurisprudence of this Court invoked by
respondent declaring that judicial action is necessary for the resolution of a reciprocal
obligation,1 since in every case where the extrajudicial resolution is contested only the final
award of the court of competent jurisdiction can conclusively settle whether the resolution was
proper or not. It is in this sense that judicial action will be necessary, as without it, the
extrajudicial resolution will remain contestable and subject to judicial invalidation, unless attack
thereon should become barred by acquiescence, estoppel or prescription.
Fears have been expressed that a stipulation providing for a unilateral rescission in case of
breach of contract may render nugatory the general rule requiring judicial action (v. Footnote,
Padilla, Civil Law, Civil Code Anno., 1967 ed. Vol. IV, page 140) but, as already observed, in
case of abuse or error by the rescinder the other party is not barred from questioning in court
such abuse or error, the practical effect of the stipulation being merely to transfer to the defaulter
the initiative of instituting suit, instead of the rescinder.
that whatever prejudice may be suffered by respondent ALUMCO is susceptibility of
compensation in damages, it becomes plain that the acts of the court a quo in enjoining
petitioner's measures to protect its interest without first receiving evidence on the issues
tendered by the parties, and in subsequently refusing to dissolve the injunction, were in grave
abuse of discretion, correctible by certiorari, since appeal was not available or adequate. Such
injunction, therefore, must be set aside.

In fact, even without express provision conferring the power of cancellation upon one contracting
party, the Supreme Court of Spain, in construing the effect of Article 1124 of the Spanish Civil
Code (of which Article 1191 of our own Civil; Code is practically a reproduction), has repeatedly
held that, a resolution of reciprocal or synallagmatic contracts may be made extrajudicially
unless successfully impugned in court.
El articulo 1124 del Codigo Civil establece la facultad de resolver las
obligaciones reciprocas para el caso de que uno de los obligados no
cumpliese lo que le incumbe, facultad que, segun jurisprudencia de este
Tribunal, surge immediatamente despuesque la otra parte incumplio su
deber, sin necesidad de una declaracion previa de los Tribunales. (Sent. of
the Tr. Sup. of Spain, of 10 April 1929; 106 Jur. Civ. 897).
For the reason that the order finding the petitioner UP in contempt of court has open appealed to
the Court of Appeals, and the case is pending therein, this Court abstains from making any
pronouncement thereon.
WHEREFORE, the writ of certiorari applied for is granted, and the order of the respondent court
of 25 February 1966, granting the Associated Lumber Company's petition for injunction, is
hereby set aside. Let the records be remanded for further proceedings conformably to this
opinion.
Dizon, Makalintal, Zaldivar, Castro, Fernando, Teehankee, Barredo, Villamor and Makasiar, JJ.,
concur.

Segun reiterada doctrina de esta Sala, el Art. 1124 regula la

resolucioncomo una "facultad" atribuida a la parte perjudicada por el
incumplimiento del contrato, la cual tiene derecho do opcion entre exigir el
cumplimientoo la resolucion de lo convenido, que puede ejercitarse, ya en
la via judicial, ya fuera de ella, por declaracion del acreedor, a reserva, claro
es, que si la declaracion de resolucion hecha por una de las partes se
impugna por la otra, queda aquella sometida el examen y sancion de los
Tribunale, que habran de declarar, en definitiva, bien hecha la resolucion o
por el contrario, no ajustada a Derecho. (Sent. TS of Spain, 16 November
1956; Jurisp. Aranzadi, 3, 447).

La resolucion de los contratos sinalagmaticos, fundada en el incumplimiento

por una de las partes de su respectiva prestacion, puedetener lugar con
eficacia" 1. o Por la declaracion de voluntad de la otra hecha
extraprocesalmente, si no es impugnada en juicio luego con exito. y
2. 0 Por la demanda de la perjudicada, cuando no opta por el
cumplimientocon la indemnizacion de danos y perjuicios realmente
causados, siempre quese acredite, ademas, una actitud o conducta
persistente y rebelde de laadversa o la satisfaccion de lo pactado, a un
hecho obstativo que de un modoabsoluto, definitivo o irreformable lo
impida, segun el art. 1.124, interpretado por la jurisprudencia de esta Sala,
contenida en las Ss. de 12 mayo 1955 y 16 Nov. 1956, entre otras,
inspiradas por el principio del Derecho intermedio, recogido del Canonico,
por el cual fragenti fidem, fides non est servanda. (Ss. de 4 Nov. 1958 y 22
Jun. 1959.) (Emphasis supplied).

In the light of the foregoing principles, and considering that the complaint of petitioner University
made out a prima facie case of breach of contract and defaults in payment by respondent
ALUMCO, to the extent that the court below issued a writ of preliminary injunction stopping
ALUMCO's logging operations, and repeatedly denied its motions to lift the injunction; that it is
not denied that the respondent company had profited from its operations previous to the
agreement of 5 December 1964 ("Acknowledgment of Debt and Proposed Manner of Payment");
that the excuses offered in the second amended answer, such as the misconduct of its former
manager Cesar Guy, and the rotten condition of the logs in private respondent's pond, which
said respondent was in a better position to know when it executed the acknowledgment of
indebtedness, do not constitute on their face sufficient excuse for non-payment; and considering
NUTRIMIX FEEDS CORPORATION, petitioner, vs. COURT OF APPEALS and SPOUSES her account. The petitioner made several demands for the respondents to settle their unpaid
EFREN AND MAURA EVANGELISTA, respondents. obligation, but the latter failed and refused to pay their remaining balance with the petitioner.

DECISION On December 15, 1993, the petitioner filed with the Regional Trial Court of Malolos, Bulacan,
a complaint, docketed as Civil Case No. 1026-M-93, against the respondents for sum of money
CALLEJO, SR., J.: and damages with a prayer for issuance of writ of preliminary attachment. In their answer with
counterclaim, the respondents admitted their unpaid obligation but impugned their liability to the
For review on certiorari is the Decision[1] of the Court of Appeals in CA-G.R. CV No. 59615 petitioner. They asserted that the nine checks issued by respondent Maura Evangelista were
modifying, on appeal, the Joint Decision[2] of the Regional Trial Court of Malolos, Bulacan, Branch made to guarantee the payment of the purchases, which was previously determined to be
9, in Civil Case No. 1026-M-93[3] for sum of money and damages with prayer for issuance of writ procured from the expected proceeds in the sale of their broilers and hogs. They contended that
of preliminary attachment, and Civil Case No. 49-M-94[4] for damages. The trial court dismissed inasmuch as the sudden and massive death of their animals was caused by the contaminated
the complaint of the respondents, ordering them to pay the petitioner the unpaid value of the products of the petitioner, the nonpayment of their obligation was based on a just and legal ground.
assorted animal feeds delivered to the former by the latter, with legal interest thereon from the On January 19, 1994, the respondents also lodged a complaint for damages against the
filing of the complaint, including attorneys fees. petitioner, docketed as Civil Case No. 49-M-94, for the untimely and unforeseen death of their
The Factual Antecedents animals supposedly effected by the adulterated animal feeds the petitioner sold to them. Within
the period to file an answer, the petitioner moved to dismiss the respondents complaint on the
ground of litis pendentia. The trial court denied the same in a Resolution[5] dated April 26, 1994,
and ordered the consolidation of the case with Civil Case No. 1026-M-93. On May 13, 1994, the
On April 5, 1993, the Spouses Efren and Maura Evangelista, the respondents herein, started petitioner filed its Answer with Counterclaim, alleging that the death of the respondents animals
to directly procure various kinds of animal feeds from petitioner Nutrimix Feeds Corporation. The was due to the widespread pestilence in their farm. The petitioner, likewise, maintained that it
petitioner gave the respondents a credit period of thirty to forty-five days to postdate checks to be received information that the respondents were in an unstable financial condition and even sold
issued in payment for the delivery of the feeds. The accommodation was made apparently their animals to settle their obligations from other enraged and insistent creditors. It, moreover,
because of the company presidents close friendship with Eugenio Evangelista, the brother of theorized that it was the respondents who mixed poison to its feeds to make it appear that the
respondent Efren Evangelista. The various animal feeds were paid and covered by checks with feeds were contaminated.
due dates from July 1993 to September 1993. Initially, the respondents were good paying
customers. In some instances, however, they failed to issue checks despite the deliveries of A joint trial thereafter ensued.
animal feeds which were appropriately covered by sales invoices. Consequently, the respondents
incurred an aggregate unsettled account with the petitioner in the amount of P766,151.00. The During the hearing, the petitioner presented Rufino Arenas, Nutrimix Assistant Manager, as
breakdown of the unpaid obligation is as follows: its lone witness. He testified that on the first week of August 1993, Nutrimix President Efren
Bartolome met the respondents to discuss the possible settlement of their unpaid account. The
Sales Invoice Number Date Amount said respondents still pleaded to the petitioner to continue to supply them with animal feeds
21334 June 23, 1993 P 7,260.00 because their livestock were supposedly suffering from a disease. [6]
21420 June 26, 1993 6,990.00
21437 June 28, 1993 41,510.00 For her part, respondent Maura Evangelista testified that as direct buyers of animal feeds
21722 July 12, 1993 45,185.00 from the petitioner, Mr. Bartolome, the company president, gave them a discount of P12.00 per
22048 July 26, 1993 44,540.00 bag and a credit term of forty-five to seventy-five days.[7] For the operation of the respondents
22054 July 27, 1993 45,246.00 poultry and piggery farm, the assorted animal feeds sold by the petitioner were delivered in their
22186 August 2, 1993 84,900.00 residence and stored in an adjacent bodega made of concrete wall and galvanized iron sheet
Total: P275,631.00 roofing with monolithic flooring.[8]
=========
Bank Check Number Due Date Amount It appears that in the morning of July 26, 1993, three various kinds of animal feeds,
United Coconut numbering 130 bags, were delivered to the residence of the respondents in Sta. Rosa, Marilao,
Planters Bank BTS052084 July 30, 1993 P 47,760.00 Bulacan. The deliveries came at about 10:00 a.m. and were fed to the animals at approximately
-do- BTS052087 July 30, 1993 131,340.00 1:30 p.m. at the respondents farm in Balasing, Sta. Maria, Bulacan. At about 8:30 p.m., respondent
-do- BTS052091 July 30, 1993 59,700.00 Maura Evangelista received a radio message from a worker in her farm, warning her that the
-do- BTS062721 August 4, 1993 47,860.00 chickens were dying at rapid intervals. When the respondents arrived at their farm, they witnessed
-do- BTS062720 August 5, 1993 43,780.00 the death of 18,000 broilers, averaging 1.7 kilos in weight, approximately forty-one to forty-five
-do- BTS062774 August 6, 1993 15,000.00 days old. The broilers then had a prevailing market price of P46.00 per kilo.[9]
-do- BTS062748 September 11, 1993 47,180.00 On July 27, 1993, the respondents received another delivery of 160 bags of animal feeds
-do- BTS062763 September 11, 1993 48,440.00 from the petitioner, some of which were distributed to the contract growers of the respondents. At
-do- BTS062766 September 18, 1993 49,460.00
that time, respondent Maura Evangelista requested the representative of the petitioner to notify
Total: P490,520.00 Mr. Bartolome of the fact that their broilers died after having been fed with the animal feeds
=== delivered by the petitioner the previous day. She, likewise, asked that a technician or veterinarian
===
be sent to oversee the untoward occurrence. Nevertheless, the various feeds delivered on that
=== day were still fed to the animals. On July 27, 1993, the witness recounted that all of the chickens
When the above-mentioned checks were deposited at the petitioners depository bank, the and hogs died.[10] Efren Evangelista suffered from a heart attack and was hospitalized as a
same were, consequently, dishonored because respondent Maura Evangelista had already closed
consequence of the massive death of their animals in the farm. On August 2, 1993, another set of
animal feeds were delivered to the respondents, but the same were not returned as the latter were
not yet cognizant of the fact that the cause of the death of their animals was the polluted feeds of
the petitioner.[11]
When respondent Maura Evangelista eventually met with Mr. Bartolome on an undisclosed
date, she attributed the improbable incident to the animal feeds supplied by the petitioner, and
asked Mr. Bartolome for indemnity for the massive death of her livestock. Mr. Bartolome
disavowed liability thereon and, thereafter, filed a case against the respondents. [12]
After the meeting with Mr. Bartolome, respondent Maura Evangelista requested Dr. Rolando
Sanchez, a veterinarian, to conduct an inspection in the respondents poultry. On October 20,
1993, the respondents took ample amounts remaining from the feeds sold by the petitioner and
furnished the same to various government agencies for laboratory examination.
Dr. Juliana G. Garcia, a doctor of veterinary medicine and the Supervising Agriculturist of
the Bureau of Animal Industry, testified that on October 20, 1993, sample feeds for chickens
contained in a pail were presented to her for examination by respondent Efren Evangelista and a
certain veterinarian.[13] The Clinical Laboratory Report revealed that the feeds were negative of
salmonella[14] and that the very high aflatoxin level[15] found therein would not cause instantaneous
death if taken orally by birds.
Dr. Rodrigo Diaz, the veterinarian who accompanied Efren at the Bureau of Animal Industry,
testified that sometime in October 1993, Efren sought for his advice regarding the death of the
respondents chickens. He suggested that the remaining feeds from their warehouse be brought
to a laboratory for examination. The witness claimed that the feeds brought to the laboratory came
from one bag of sealed Nutrimix feeds which was covered with a sack.
Dr. Florencio Isagani S. Medina III, Chief Scientist Research Specialist of the Philippine
Nuclear Research Institute, informed the trial court that respondent Maura Evangelista and Dr.
Garcia brought sample feeds and four live and healthy chickens to him for laboratory examination.
In his Cytogenetic Analysis,[16] Dr. Medina reported that he divided the chickens into two
categories, which he separately fed at 6:00 a.m. with the animal feeds of a different commercial
brand and with the sample feeds supposedly supplied by the petitioner. At noon of the same day,
one of the chickens which had been fed with the Nutrimix feeds died, and a second chicken died
at 5:45 p.m. of the same day. Samples of blood and bone marrow were taken for chromosome
analysis, which showed pulverized chromosomes both from bone marrow and blood
chromosomes. On cross-examination, the witness admitted that the feeds brought to him were
merely placed in a small unmarked plastic bag and that he had no way of ascertaining whether
the feeds were indeed manufactured by the petitioner.
Another witness for the respondents, Aida Viloria Magsipoc, Forensic Chemist III of the
Forensic Chemist Division of the National Bureau of Investigation, affirmed that she performed a
chemical analysis[17] of the animal feeds, submitted to her by respondent Maura Evangelista and
Dr. Garcia in a sealed plastic bag, to determine the presence of poison in the said specimen. The
witness verified that the sample feeds yielded positive results to the tests for COUMATETRALYL
Compound,[18] the active component of RACUMIN, a brand name for a commercially known rat
poison.[19] According to the witness, the presence of the compound in the chicken feeds would be
fatal to internal organs of the chickens, as it would give a delayed blood clotting effect and
eventually lead to internal hemorrhage, culminating in their inevitable death.
Paz Austria, the Chief of the Pesticide Analytical Section of the Bureau of Plants Industry,
conducted a laboratory examination to determine the presence of pesticide residue in the animal
feeds submitted by respondent Maura Evangelista and Dr. Garcia. The tests disclosed that no
pesticide residue was detected in the samples received[20] but it was discovered that the animal
feeds were positive for Warfarin, a rodenticide (anticoagulant), which is the chemical family of
Coumarin.[21]
After due consideration of the evidence presented, the trial court ruled in favor of the
petitioner. The dispositive portion of the decision reads:
WHEREFORE, in light of the evidence on record and the laws/jurisprudence applicable thereon,
judgment is hereby rendered:
1) in Civil Case No. 1026-M-93, ordering defendant spouses Efren and Maura
Evangelista to pay unto plaintiff Nutrimix Feeds Corporation the amount
of P766,151.00 representing the unpaid value of assorted animal feeds delivered
by the latter to and received by the former, with legal interest thereon from the
filing of the complaint on December 15, 1993 until the same shall have been paid
in full, and the amount of P50,000.00 as attorneys fees. Costs against the
aforenamed defendants; and
2) dismissing the complaint as well as counterclaims in Civil Case No. 49-M-94 for
inadequacy of evidence to sustain the same. No pronouncement as to costs.
SO ORDERED.[22]
In finding for the petitioner, the trial court ratiocinated as follows:
On the strength of the foregoing disquisition, the Court cannot sustain the Evangelistas
contention that Nutrimix is liable under Articles 1561 and 1566 of the Civil Code governing
hidden defects of commodities sold. As already explained, the Court is predisposed to believe
that the subject feeds were contaminated sometime between their storage at the bodega of the
Evangelistas and their consumption by the poultry and hogs fed therewith, and that the
contamination was perpetrated by unidentified or unidentifiable ill-meaning mischief-maker(s)
over whom Nutrimix had no control in whichever way.
All told, the Court finds and so holds that for inadequacy of proof to the contrary, Nutrimix was
not responsible at all for the contamination or poisoning of the feeds supplied by it to the
Evangelistas which precipitated the mass death of the latters chickens and hogs. By no means
and under no circumstance, therefore, may Nutrimix be held liable for the sundry damages
prayed for by the Evangelistas in their complaint in Civil Case No. 49-M-94 and answer in Civil
Case No. 1026-M-93. In fine, Civil Case No. 49-M-94 deserves dismissal.
Parenthetically, vis--vis the fulminations of the Evangelistas in this specific regard, the Court
does not perceive any act or omission on the part of Nutrimix constitutive of abuse of rights as
would render said corporation liable for damages under Arts. 19 and 21 of the Civil Code. The
alleged callous attitude and lack of concern of Nutrimix have not been established with more
definitiveness.
As regards Civil Case No. 1026-M-93, on the other hand, the Court is perfectly convinced that
the deliveries of animal feeds by Nutrimix to the Evangelistas constituted a simple contract of
sale, albeit on a continuing basis and on terms or installment payments.[23]
Undaunted, the respondents sought a review of the trial courts decision to the Court of
Appeals (CA), principally arguing that the trial court erred in holding that they failed to prove that
their broilers and hogs died as a result of consuming the petitioners feeds.
On February 12, 2002, the CA modified the decision of the trial court. The fallo of the
decision reads:
WHEREFORE, premises considered, the appealed decision is hereby MODIFIED such that the
complaint in Civil Case No. 1026-M-93 is DISMISSED for lack of merit.
SO ORDERED.[24]
 In dismissing the complaint in Civil Case No. 1026-M-93, the CA ruled that the respondents
were not obligated to pay their outstanding obligation to the petitioner in view of its breach of
warranty against hidden defects. The CA gave much credence to the testimony of Dr. Rodrigo
Diaz, who attested that the sample feeds distributed to the various governmental agencies for
laboratory examination were taken from a sealed sack bearing the brand name Nutrimix. The CA
further argued that the declarations of Dr. Diaz were not effectively impugned during cross-
examination, nor was there any contrary evidence adduced to destroy his damning allegations.
On March 7, 2002, the petitioner filed with this Court the instant petition for review on the
sole ground that
THE HONORABLE COURT OF APPEALS ERRED IN CONCLUDING THAT THE CLAIMS OF
HEREIN PETITIONER FOR COLLECTION OF SUM OF MONEY AGAINST PRIVATE
RESPONDENTS MUST BE DENIED BECAUSE OF HIDDEN DEFECTS.
The Present Petition
The petitioner resolutely avers that the testimony of Dr. Diaz can hardly be considered as
conclusive evidence of hidden defects that can be attributed to the petitioner. Parenthetically, the
petitioner asserts, assuming that the sample feeds were taken from a sealed sack bearing the
brand name Nutrimix, it cannot decisively be presumed that these were the same feeds brought
to the respondents farm and given to their chickens and hogs for consumption.
It is the contention of the respondents that the appellate court correctly ordered the dismissal
of the complaint in Civil Case No. 1026-M-93. They further add that there was sufficient basis for
the CA to hold the petitioner guilty of breach of warranty thereby releasing the respondents from
paying their outstanding obligation.
The Ruling of the Court
Oft repeated is the rule that the Supreme Court reviews only errors of law in petitions for
review on certiorari under Rule 45. However, this rule is not absolute. The Court may review the
factual findings of the CA should they be contrary to those of the trial court. Conformably, this
Court may review findings of facts when the judgment of the CA is premised on a misapprehension
of facts.[25]
The threshold issue is whether or not there is sufficient evidence to hold the petitioner guilty
of breach of warranty due to hidden defects.
The petition is meritorious.
The provisions on warranty against hidden defects are found in Articles 1561 and 1566 of
the New Civil Code of the Philippines, which read as follows:
Art. 1561. The vendor shall be responsible for warranty against hidden defects which the thing
sold may have, should they render it unfit for the use for which it is intended, or should they
diminish its fitness for such use to such an extent that, had the vendee been aware thereof, he
would not have acquired it or would have given a lower price for it; but said vendor shall not be
answerable for patent defects or those which may be visible, or for those which are not visible if
the vendee is an expert who, by reason of his trade or profession, should have known them.
Art. 1566. The vendor is responsible to the vendee for any hidden faults or defects in the thing
sold, even though he was not aware thereof.
This provision shall not apply if the contrary has been stipulated, and the vendor was not aware
of the hidden faults or defects in the thing sold.
A hidden defect is one which is unknown or could not have been known to the
vendee.[26] Under the law, the requisites to recover on account of hidden defects are as follows:
(a) the defect must be hidden;
(b) the defect must exist at the time the sale was made;
(c) the defect must ordinarily have been excluded from the contract;
(d) the defect, must be important (renders thing UNFIT or considerably decreases
FITNESS);
(e) the action must be instituted within the statute of limitations. [27]
In the sale of animal feeds, there is an implied warranty that it is reasonably fit and suitable
to be used for the purpose which both parties contemplated.[28] To be able to prove liability on the
basis of breach of implied warranty, three things must be established by the respondents.
The first is that they sustained injury because of the product; the second is that the injury occurred
because the product was defective or unreasonably unsafe; and finally, the defect existed when
the product left the hands of the petitioner.[29] A manufacturer or seller of a product cannot be
held liable for any damage allegedly caused by the product in the absence of any proof that the
product in question was defective.[30]The defect must be present upon the delivery or manufacture
of the product;[31] or when the product left the sellers or manufacturers control; [32] or when the
product was sold to the purchaser;[33] or the product must have reached the user or consumer
without substantial change in the condition it was sold. Tracing the defect to the petitioner requires
some evidence that there was no tampering with, or changing of the animal feeds. The nature of
the animal feeds makes it necessarily difficult for the respondents to prove that the defect was
existing when the product left the premises of the petitioner.
A review of the facts of the case would reveal that the petitioner delivered the animal feeds,
allegedly containing rat poison, on July 26, 1993; but it is astonishing that the respondents had
the animal feeds examined only on October 20, 1993, or barely three months after their broilers
and hogs had died. On cross-examination, respondent Maura Evangelista testified in this manner:
Atty. Cruz:
Q Madam Witness, you said in the last hearing that believing that the 250 bags of
feeds delivered to (sic) the Nutrimix Feeds Corporation on August 2, 1993
were poison (sic), allegedly your husband Efren Evangelista burned the same
with the chicken[s], is that right?
A Yes, Sir. Some, Sir.
Q And is it not a fact, Madam Witness, that you did not, as according to you, used
(sic) any of these deliveries made on August 2, 1993?
A We were able to feed (sic) some of those deliveries because we did not know yet
during that time that it is the cause of the death of our chicks (sic), Sir.
Q But according to you, the previous deliveries were not used by you because you
believe (sic) that they were poison (sic)?
A Which previous deliveries, Sir[?]
Q Those delivered on July 26 and 22 (sic), 1993?
A Those were fed to the chickens, Sir. This is the cause of the death of the
chickens.
Q And you stated that this last delivery on August 2 were poison (sic) also and you
did not use them, is that right?
Atty. Roxas:
That is misleading.
 Atty. Cruz:
She stated that.
Atty. Roxas:
She said some were fed because they did not know yet of the poisoning.
Court:
And when the chickens died, they stopped naturally feeding it to the chickens.
Atty. Cruz:
Q You mean to say, Madam Witness, that although you believe (sic) that the
chickens were allegedly poisoned, you used the same for feeding your
animals?
A We did not know yet during that time that the feeds contained poison, only during
that time when we learned about the same after the analysis.
Q Therefore you have known only of the alleged poison in the Nutrimix Feeds only
after you have caused the analysis of the same?
A Yes, Sir.
Q When was that, Madam Witness?
A I cannot be sure about the exact time but it is within the months of October to
November, Sir.
Q So, before this analysis of about October and November, you were not aware that
the feeds of Nutrimix Feeds Corporation were, according to you, with poison?
A We did not know yet that it contained poison but we were sure that the feeds were
the cause of the death of our animals.[34]
We find it difficult to believe that the feeds delivered on July 26 and 27, 1993 and fed to the
broilers and hogs contained poison at the time they reached the respondents. A difference of
approximately three months enfeebles the respondents theory that the petitioner is guilty of breach
of warranty by virtue of hidden defects. In a span of three months, the feeds could have already
been contaminated by outside factors and subjected to many conditions unquestionably beyond
the control of the petitioner. In fact, Dr. Garcia, one of the witnesses for the respondents, testified
that the animal feeds submitted to her for laboratory examination contained very high level of
aflatoxin, possibly caused by mold (aspergillus flavus).[35] We agree with the contention of the
petitioner that there is no evidence on record to prove that the animal feeds taken to the various
governmental agencies for laboratory examination were the same animal feeds given to the
respondents broilers and hogs for their consumption. Moreover, Dr. Diaz even admitted that the
feeds that were submitted for analysis came from a sealed bag. There is simply no evidence to
show that the feeds given to the animals on July 26 and 27, 1993 were identical to those
submitted to the expert witnesses in October 1993.
It bears stressing, too, that the chickens brought to the Philippine Nuclear Research Institute
for laboratory tests were healthy animals, and were not the ones that were ostensibly poisoned.
There was even no attempt to have the dead fowls examined. Neither was there any analysis of
the stomach of the dead chickens to determine whether the petitioners feeds really caused their
sudden death. Mere sickness and death of the chickens is not satisfactory evidence in itself to
establish a prima facie case of breach of warranty.[36]
Likewise, there was evidence tending to show that the respondents combined different kinds
of animal feeds and that the mixture was given to the animals. Respondent Maura Evangelista
testified that it was common practice among chicken and hog raisers to mix animal feeds. The
testimonies of respondent Maura Evangelista may be thus summarized:
Cross-Examination
Atty. Cruz:
Q Because, Madam Witness, you ordered chicken booster mash from Nutrimix
Feeds Corporation because in July 1993 you were taking care of many
chickens, as a matter of fact, majority of the chickens you were taking care [of]
were chicks and not chickens which are marketable?
A What I can remember was that I ordered chicken booster mash on that month of
July 1993 because we have some chicks which have to be fed with chicken
booster mash and I now remember that on the particular month of July 1993
we ordered several bags of chicken booster mash for the consumption also of
our chicken in our other poultry and at the same time they were also used to
be mixed with the feeds that were given to the hogs.
Q You mean to say [that], as a practice, you are mixing chicken booster mash which
is specifically made for chick feeds you are feeding the same to the hogs, is
that what you want the Court to believe?
A Yes, Sir, because when you mix chicken booster mash in the feeds of hogs
there is a better result, Sir, in raising hogs.[37]
Re-Direct Examination
Atty. Roxas:
Q Now, you mentioned that shortly before July 26 and 27, 1993, various types of
Nutrimix feeds were delivered to you like chicks booster mash, broiler starter
mash and hog finisher or hog grower mash. What is the reason for
simultaneous deliveries of various types of feeds?
A Because we used to mix all those together in one feeding, Sir.
Q And what is the reason for mixing the chick booster mash with broiler starter
mash?
A So that the chickens will get fat, Sir.
Re-Cross Examination
Atty. Cruz:
Q Madam Witness, is it not a fact that the mixing of these feeds by you is your own
concuction (sic) and without the advice of a veterinarian expert to do so?
A That is common practice among raisers to mix two feeds, Sir.
Q By yourself, Madam Witness, who advised you to do the mixing of these two
types of feeds for feeding your chickens?
A That is common practice of chicken raisers, Sir.[38]
Even more surprising is the fact that during the meeting with Nutrimix President Mr.
Bartolome, the respondents claimed that their animals were plagued by disease, and that they
needed more time to settle their obligations with the petitioner. It was only after a few months that
the respondents changed their justification for not paying their unsettled accounts, claiming anew
that their animals were poisoned with the animal feeds supplied by the petitioner. The volte-face of
the respondents deserves scant consideration for having been conjured as a mere afterthought.
 In essence, we hold that the respondents failed to prove that the petitioner is guilty of breach
of warranty due to hidden defects. It is, likewise, rudimentary that common law places upon the
buyer of the product the burden of proving that the seller of the product breached its
warranty.[39] The bevy of expert evidence adduced by the respondents is too shaky and utterly
insufficient to prove that the Nutrimix feeds caused the death of their animals. For these reasons,
the expert testimonies lack probative weight. The respondents case of breach of implied warranty
was fundamentally based upon the circumstantial evidence that the chickens and hogs sickened,
stunted, and died after eating Nutrimix feeds; but this was not enough to raise a reasonable
supposition that the unwholesome feeds were the proximate cause of the death with that degree
of certainty and probability required.[40] The rule is well-settled that if there be no evidence, or if
evidence be so slight as not reasonably to warrant inference of the fact in issue or furnish more
than materials for a mere conjecture, the court will not hesitate to strike down the evidence and
rule in favor of the other party.[41] This rule is both fair and sound. Any other interpretation of the
law would unloose the courts to meander aimlessly in the arena of speculation. [42]

It must be stressed, however, that the remedy against violations of warranty against hidden
defects is either to withdraw from the contract (accion redhibitoria) or to demand a proportionate
reduction of the price (accion quanti minoris), with damages in either case.[43] In any case, the
respondents have already admitted, both in their testimonies and pleadings submitted, that they
are indeed indebted to the petitioner for the unpaid animal feeds delivered to them. For this reason
alone, they should be held liable for their unsettled obligations to the petitioner.

WHEREFORE, in light of all the foregoing, the petition is GRANTED. The assailed Decision
of the Court of Appeals, dated February 12, 2002, is REVERSED and SET ASIDE. The Decision
of the Regional Trial Court of Malolos, Bulacan, Branch 9, dated January 12, 1998, is
REINSTATED. No costs.

SO ORDERED.
AMELIA S. ROBERTS, Petitioner,
vs.
MARTIN B. PAPIO, Respondent.
DECISION
CALLEJO, SR., J.:
Assailed in this petition for review on certiorari is the Decision1 of the Court of Appeals (CA), in
CA-G.R. CV No. 69034 which reversed and set aside the Decision2 of the Regional Trial Court
(RTC), Branch 150, Makati City, in Civil Case No. 01-431. The RTC ruling had affirmed with
modification the Decision3 of the Metropolitan Trial Court (MeTC), Branch 64, Makati City in Civil
Case No. 66847. The petition likewise assails the Resolution of the CA denying the motion for
reconsideration of its decision.
The Antecedents
The spouses Martin and Lucina Papio were the owners of a 274-square-meter residential lot
located in Makati (now Makati City) and covered by Transfer Certificate of Title (TCT) No. S-
44980.4 In order to secure a 59,000.00 loan from the Amparo Investments Corporation, they
executed a real estate mortgage on the property. Upon Papios failure to pay the loan, the
corporation filed a petition for the extrajudicial foreclosure of the mortgage.
Since the couple needed money to redeem the property and to prevent the foreclosure of the
real estate mortgage, they executed a Deed of Absolute Sale over the property on April 13, 1982
in favor of Martin Papios cousin, Amelia Roberts. Of the 85,000.00 purchase price, 59,000.00
was paid to the Amparo Investments Corporation, while the 26,000.00 difference was retained
by the spouses.5 As soon as the spouses had settled their obligation, the corporation returned
the owners duplicate of TCT No. S-44980, which was then delivered to Amelia Roberts.
Thereafter, the parties (Amelia Roberts as lessor and Martin Papio as lessee) executed a two-
year contract of lease dated April 15, 1982, effective May 1, 1982. The contract was subject to
renewal or extension for a like period at the option of the lessor, the lessee waiving thereby the
benefits of an implied new lease. The lessee was obliged to pay monthly rentals of 800.00 to
be deposited in the lessors account at the Bank of America, Makati City branch. 6
On July 6, 1982, TCT No. S-44980 was cancelled, and TCT No. 114478 was issued in the name
of Amelia Roberts as owner.7
Martin Papio paid the rentals from May 1, 1982 to May 1, 1984, and thereafter, for another
year.8 He then failed to pay rentals, but he and his family nevertheless remained in possession
of the property for a period of almost thirteen (13) years.
In a letter dated June 3, 1998, Amelia Roberts, through counsel, reminded Papio that he failed to
pay the monthly rental of 2,500.00 from January 1, 1986 to December 31, 1997, and
10,000.00 from January 1, 1998 to May 31, 1998; thus, his total liability was 410,000.00. She
demanded that Papio vacate the property within 15 days from receipt of the letter in case he
failed to settle the amount.9 Because he refused to pay, Papio received another letter from
Roberts on April 22, 1999, demanding, for the last time, that he and his family vacate the
property.10 Again, Papio refused to leave the premises.
On June 28, 1999, Amelia Roberts, through her attorney-in-fact, Matilde Aguilar, filed a
Complaint11 for unlawful detainer and damages against Martin Papio before the MeTC, Branch
64, Makati City. She alleged the following in her complaint:
Sometime in 1982 she purchased from defendant a 274-sq-m residential house and lot situated
at No. 1046 Teresa St., Brgy. Valenzuela, Makati City.12 Upon Papios pleas to continue staying
in the property, they executed a two-year lease contract13 which commenced on May 1, 1982.
The monthly rental was 800.00. Thereafter, TCT No. 11447814 was issued in her favor and she
paid all the realty taxes due on the property. When the term of the lease expired, she still
allowed Papio and his family to continue leasing the property. However, he took advantage of
her absence and stopped payment beginning January 1986, and refused to pay despite
repeated demands. In June 1998, she sent a demand letter15 through counsel requiring Papio to
pay rentals from January 1986 up to May 1998 and to vacate the leased property. The
accumulated arrears in rental are as follows: (a) 360,000.00 from January 1, 1986 to
December 31, 1997 at 2,500.00 per month; and (b) 50,000.00, from January 1, 1998 to May
31, 1998 at 10,000.00 per month.16 She came to the Philippines but all efforts at an amicable
settlement proved futile. Thus, in April 1999, she sent the final demand letter to defendant
directing him and his family to pay and immediately vacate the leased premises.17
Roberts appended to her complaint copies of the April 13, 1982 Deed of Absolute Sale, the April
15, 1982 Contract of Lease, and TCT No. 114478.
In his Answer with counterclaim, Papio alleged the following:
He executed the April 13, 1982 deed of absolute sale and the contract of lease. Roberts, his
cousin who is a resident of California, United States of America (USA), arrived in the Philippines
and offered to redeem the property. Believing that she had made the offer for the purpose of
retaining his ownership over the property, he accepted. She then remitted 59,000.00 to the
mortgagor for his account, after which the mortgagee cancelled the real estate mortgage.
However, he was alarmed when the plaintiff had a deed of absolute sale over the property
prepared (for 83,000.00 as consideration) and asked him to sign the same. She also
demanded that the defendant turn over the owners duplicate of TCT No. S-44980. The
defendant was in a quandary. He then believed that if he signed the deed of absolute sale,
Roberts would acquire ownership over the property. He asked her to allow him to redeem or
reacquire the property at any time for a reasonable amount.18 When Roberts agreed, Papio
signed the deed of absolute sale.
Pursuant to the right to redeem/repurchase given him by Roberts, Papio purchased the property
for 250,000.00. In July 1985, since Roberts was by then already in the USA, he remitted to her
authorized representative, Perlita Ventura, the amount of 150,000.00 as partial payment for the
property.19 On June 16, 1986, she again remitted 100,000.00, through Ventura. Both payments
were evidenced by receipts signed by Ventura.20 Roberts then declared that she would execute
a deed of absolute sale and surrender the title to the property. However, Ventura had apparently
misappropriated 39,000.00 out of the 250,000.00 that she had received; Roberts then
demanded that she pay the amount misappropriated before executing the deed of absolute sale.
Thus, the sole reason why Roberts refused to abide by her promise was the failure of her
authorized representative to remit the full amount of 250,000.00. Despite Papios demands,
Roberts refused to execute a deed of absolute sale. Accordingly, defendant posited that plaintiff
had no cause of action to demand payment of rental and eject him from the property.
Papio appended to his Answer the following: (1) the letter dated July 18, 1986 of Perlita Ventura
to the plaintiff wherein the former admitted having used the money of the plaintiff to defray the
plane fares of Perlitas parents to the USA, and pleaded that she be allowed to repay the amount
within one year; (b) the letter of Eugene Roberts (plaintiffs husband) to Perlita Ventura dated
July 25, 1986 where he accused Ventura of stealing the money of plaintiff Amelia (thus
preventing the latter from paying her loan on her house and effect the cancellation of the
mortgage), and demanded that she deposit the balance;21 and (c) plaintiffs letter to defendant
Papio dated July 25, 1986 requesting the latter to convince Ventura to remit the balance of
39,000.00 so that the plaintiff could transfer the title of the property to the defendant. 22
Papio asserted that the letters of Roberts and her husband are in themselves admissions or
declarations against interest, hence, admissible to prove that he had reacquired the property
although the title was still in her possession.
In her Affidavit and Position Paper,23 Roberts averred that she had paid the real estate taxes on
the property after she had purchased it; Papios initial right to occupy the property was
terminated when the original lease period expired; and his continued possession was only by
mere tolerance. She further alleged that the Deed of Sale states on its face that the conveyance
of the property was absolute and unconditional. She also claimed that any right to repurchase
the property must appear in a public document pursuant to Article 1358, Paragraph 1, of the Civil
Code of the Phililppines.24 Since no such document exists, defendants supposed real interest
over the property could not be enforced without violating the Statute of Frauds. 25 She stressed
that her Torrens title to the property was an "absolute and indefeasible evidence of her
ownership of the property which is binding and conclusive upon the whole world."
Roberts admitted that she demanded 39,000.00 from the defendant in her letter dated July 25,
1986. However, she averred that the amount represented his back rentals on the property. 26 She
declared that she neither authorized Ventura to sell the property nor to receive the purchase
price therefor. She merely authorized her to receive the rentals from defendant and to deposit
them in her account. She did not know that Ventura had received 250,000.00 from Papio in
July 1985 and on June 16, 1986, and had signed receipts therefor. It was only on February 11,
1998 that she became aware of the receipts when she received defendant Papios letter to
which were appended the said receipts. She and her husband offered to sell the property to the
defendant in 1984 for US$15,000.00 on a "take it or leave it" basis when they arrived in the
Philippines in May 1984.27 However, defendant refused to accept the offer. The spouses then
offered to sell the property anew on December 20, 1997, for 670,000.00 inclusive of back
rentals.28 However, defendant offered to settle his account with the spouses.29Again, the offer
came on January 11, 1998, but it was rejected. The defendant insisted that he had already
purchased the property in July 1985 for 250,000.00.
Roberts insisted that Papios claim of the right to repurchase the property, as well as his claim of
payment therefor, is belied by his own letter in which he offered to settle plaintiffs claim for back
rentals. Even assuming that the purchase price of the property had been paid through Ventura,
Papio did not adduce any proof to show that Ventura had been authorized to sell the property or
to accept any payment thereon. Any payment to Ventura could have no binding effect on her
since she was not privy to the transaction; if at all, such agreement would be binding only on
Papio and Ventura.
She further alleged that defendants own inaction belies his claim of ownership over the
property: first, he failed to cause any notice or annotation to be made on the Register of Deeds
copy of TCT No. 114478 in order to protect his supposed adverse claim; second, he did not
institute any action against Roberts to compel the execution of the necessary deed of transfer of
title in his favor; and third, the defense of ownership over the property was raised only after
Roberts demanded him to vacate the property.
Based solely on the parties pleadings, the MeTC rendered its January 18, 2001 Decision in 30
favor of Roberts. The fallo of the decision reads:
WHEREFORE, premises considered, finding this case for the plaintiff, the defendant is hereby
ordered to:
1. Vacate the leased premises known as 1046 Teresa St., Valenzuela, Makati City;
2. Pay plaintiff the reasonable rentals accrual for the period January 1, 1996 to
December 13, 1997 at the rate equivalent to Php2,500.00 per month and thereafter,
Php10,000.00 from January 1998 until he actually vacates the premises;
3. Pay the plaintiff attorneys fees as Php20,000.00; and
4. Pay the costs
SO ORDERED.31
The MeTC held that Roberts merely tolerated the stay of Papio in the property after the
expiration of the contract of lease on May 1, 1984; hence, she had a cause of action against him
since the only elements in an unlawful detainer action are the fact of lease and the expiration of
its term. The defendant as tenant cannot controvert the title of the plaintiff or assert any right
adverse thereto or set up any inconsistent right to change the existing relation between them.
The plaintiff need not prove her ownership over the property inasmuch as evidence of ownership
can be admitted only for the purpose of determining the character and extent of possession, and
the amount of damages arising from the detention.
The court further ruled that Papio made no denials as to the existence and authenticity of
Roberts title to the property. It declared that "the certificate of title is indefeasible in favor of the
person whose name appears therein and incontrovertible upon the expiration of the one-year
period from the date of issue," and that a Torrens title, "which enjoys a strong presumption of
regularity and validity, is generally a conclusive evidence of ownership of the land referred to
therein."
As to Papios claim that the transfer of the property was one with right of repurchase, the MeTC
held it to be bereft of merit since the Deed of Sale is termed as "absolute and unconditional."
The court ruled that the right to repurchase is not a right granted to the seller by the buyer in a
subsequent instrument but rather, a right reserved in the same contract of sale. Once the deed
of absolute sale is executed, the seller can no longer reserve the right to repurchase; any right
thereafter granted in a separate document cannot be a right of repurchase but some other right.
As to the receipts of payment signed by Ventura, the court gave credence to Robertss
declaration in her Affidavit that she authorized Ventura only to collect rentals from Papio, and not
to receive the repurchase price. Papios letter of January 31, 1998, which called her attention to
the fact that she had been sending people without written authority to collect money since 1985,
bolstered the courts finding that the payment, if at all intended for the supposed repurchase,
never redounded to the benefit of the spouses Roberts.
Papio appealed the decision to the RTC, alleging the following:
I.
THE LOWER COURT GRAVELY ERRED IN NOT DISMISSING THE CASE FOR EJECTMENT
OUTRIGHT ON THE GROUND OF LACK OF CAUSE OF ACTION.
II.
THE LOWER COURT GRAVELY ERRED IN NOT CONSIDERING THE DOCUMENTARY
EVIDENCE ADDUCED BY DEFENDANT-APPELLANT WHICH ESTABLISHED THAT A
REPURCHASE TRANSACTION EXISTED BETWEEN THE PARTIES ONLY THAT PLAINTIFF-
APPELLEE WITHHELD THE EXECUTION OF THE ABSOLUTE DEED OF SALE AND THE
TRANSFER OF TITLE OF THE SAME IN DEFENDANT-APPELLANTS NAME.
III.
THE LOWER COURT GRAVELY ERRED IN NOT CONSIDERING THAT THE LETTERS OF
PLAINTIFF-[APPELLEE] AND OF HER HUSBAND ADDRESSED TO DEFENDANT-
APPELLANT AND HIS WIFE ARE IN THEMSELVES ADMISSION AND/OR DECLARATION OF
THE FACT THAT DEFENDANT-APPELLANT HAD DULY PAID PLAINTIFF-APPELLEE OF
THE PURCHASE AMOUNT COVERING THE SUBJECT PROPERTY.
IV.
THE LOWER COURT GRAVELY ERRED IN NOT DISMISSING THE CASE FOR EJECTMENT
OUTRIGHT CONSIDERING THAT PLAINTIFF-APPELLEE WHO IS [AN] AMERICAN CITIZEN
AND RESIDENT THEREIN HAD NOT APPEARED IN COURT ONCE, NEITHER WAS HER
ALLEGED ATTORNEY-IN-FACT, MATILDE AGUILAR NOR [DID] THE LATTER EVER
[FURNISH] THE LOWER COURT A SPECIAL POWER OF ATTORNEY AUTHORIZING HER
TO APPEAR IN COURT IN BEHALF OF HER PRINCIPAL.32
Papio maintained that Roberts had no cause of action for eviction because she had already
ceded her right thereto when she allowed him to redeem and reacquire the property upon
payment of 250,000.00 to Ventura, her duly authorized representative. He also contended that
Robertss claim that the authority of Ventura is limited only to the collection of the rentals and not
of the purchase price was a mere afterthought, since her appended Affidavit was executed
sometime in October 1999 when the proceedings in the MeTC had already started.
On March 26, 2001, Roberts filed a Motion for Issuance of Writ of Execution. 33 The court granted
the motion in an Order34 dated June 19, 2001. Subsequently, a Writ of Execution35 pending
appeal was issued on September 28, 2001. On October 29, 2001, Sheriff Melvin M. Alidon
enforced the writ and placed Roberts in possession of the property.
Meanwhile, Papio filed a complaint with the RTC of Makati City, for specific performance with
damages against Roberts. Papio, as plaintiff, claimed that he entered into a contract of sale with
pacto de retro with Roberts, and prayed that the latter be ordered to execute a Deed of Sale
over `the property in his favor and transfer the title over the property to and in his name. The
case was docketed as Civil Case No. 01-851.
On October 24, 2001, the RTC rendered judgment affirming the appealed decision of the MeTC.
The fallo of the decision reads:36
Being in accordance with law and the circumstances attendant to the instant case, the court
finds merit in plaintiff-appellees claim. Wherefore, the challenged decision dated January 18,
2001 is hereby affirmed in toto.
37
SO ORDERED.
Both parties filed their respective motions for reconsideration.38 In an Order39 dated February 26,
2002, the court denied the motion of Papio but modified its decision declaring that the
computation of the accrued rentals should commence from January 1986, not January 1996.
The decretal portion of the decision reads:
Wherefore, the challenged decision dated January 18, 2001 is hereby affirmed with modification
that defendant pay plaintiff the reasonable rentals accrued for the period January 1, 1986 to
December [31, 1997] per month and thereafter and 10,000.00 [per month] from January 1998
to October 28, 2001 when defendant-appellant actually vacated the subject leased premises.
SO ORDERED.40
On February 28, 2002, Papio filed a petition for review41 in the CA, alleging that the RTC erred in
not finding that he had reacquired the property from Roberts for 250,000.00, but the latter
refused to execute a deed of absolute sale and transfer the title in his favor. He insisted that the
MeTC and the RTC erred in giving credence to petitioners claim that she did not authorize
Ventura to receive his payments for the purchase price of the property, citing Roberts letter
dated July 25, 1986 and the letter of Eugene Roberts to Ventura of even date. He also averred
that the MeTC and the RTC erred in not considering his documentary evidence in deciding the
case.
On August 31, 2004, the CA rendered judgment granting the petition. The appellate court set
aside the decision of the RTC and ordered the RTC to dismiss the complaint. The decretal
portion of the Decision42 reads:
WHEREFORE, the judgment appealed from is hereby REVERSED and SET ASIDE and a new
one entered: (1) rendering an initial determination that the "Deed of Absolute Sale" dated April
13, 1982 is in fact an equitable mortgage under Article 1603 of the New Civil Code; and (2)
resolving therefore that petitioner Martin B. Papio is entitled to possession of the property
subject of this action; (3) But such determination of ownership and equitable mortgage are not
clothed with finality and will not constitute a binding and conclusive adjudication on the merits
with respect to the issue of ownership and such judgment shall not bar an action between the
same parties respecting title to the land, nor shall it be held conclusive of the facts therein found
in the case between the same parties upon a different cause of action not involving possession.
All other counterclaims for damages are hereby dismissed. Cost against the respondent.
SO ORDERED.43
According to the appellate court, although the MeTC and RTC were correct in holding that the
MeTC had jurisdiction over the complaint for unlawful detainer, they erred in ignoring Papios
defense of equitable mortgage, and in not finding that the transaction covered by the deed of
absolute sale by and between the parties was one of equitable mortgage under Article 1602 of
the New Civil Code. The appellate court ruled that Papio retained the ownership of the property
and its peaceful possession; hence, the MeTC should have dismissed the complaint without
prejudice to the outcome of Civil Case No. 01-851 relative to his claim of ownership over the
property.
Roberts filed a motion for reconsideration of the decision on the following grounds:
I. Petitioner did not allege in his Answer the defense of equitable mortgage; hence, the
lower courts [should] not have discussed the same;
II. Even assuming that Petitioner alleged the defense of equitable mortgage, the
MeTC could not have ruled upon the said defense,
 III. The M[e]TC and the RTC were not remiss in the exercise of their jurisdiction. 44
The CA denied the motion.
In this petition for review, Amelia Salvador-Roberts, as petitioner, avers that:
I. THE HONORABLE COURT OF APPEALS GRIEVEOUSLY (SIC) ERRED IN
DECLARING THAT THE M[e]TC AN(D) THE RTC WERE REMISS IN THE
EXERCISE OF THAT JURISDICTION ACQUIRED BECAUSE IT DID NOT
CONSIDER ALL PETITIONERS DEFENSE OF EQUITABLE MORTGAGE.
II. THE HONORABLE COURT OF APPEALS GRIEVEOUSLY (SIC) ERRED IN
REQUIRING THE M[e]TC AND RTC TO RULE ON A DEFENSE WHICH WAS
NEVER AVAILED OF BY RESPONDENT.45
Petitioner argues that respondent is barred from raising the issue of equitable mortgage because
his defense in the MeTC and RTC was that he had repurchased the property from the petitioner;
by such representation, he had impliedly admitted the existence and validity of the deed of
absolute sale whereby ownership of the property was transferred to petitioner but reverted to
him upon the exercise of said right. The respondent even filed a complaint for specific
performance with damages, which is now pending in the RTC of Makati City, docketed as Civil
Case No. 01-851 entitled "Martin B. Papio vs. Amelia Salvador-Roberts." In that case,
respondent claimed that his transaction with the petitioner was a sale with pacto de retro.
Petitioner posits that Article 1602 of the Civil Code applies only when the defendant specifically
alleges this defense. Consequently, the appellate court was proscribed from finding that
petitioner and respondent had entered into an equitable mortgage under the deed of absolute
sale.
Petitioner further avers that respondent was ably represented by counsel and was aware of the
difference between a pacto de retro sale and an equitable mortgage; thus, he could not have
been mistaken in declaring that he repurchased the property from her.
As to whether a sale is in fact an equitable mortgage, petitioner claims that the issue should be
properly addressed and resolved by the RTC in an action to enforce ownership, not in an
ejectment case before the MeTC where the main issue involved is possession de facto.
According to her, the obvious import of the CA Decision is that, in resolving an ejectment case,
the lower court must pass upon the issue of ownership (in this case, by applying the
presumptions under Art. 1602) which, in effect, would use the same yardstick as though it is the
main action. The procedure will not only promote multiplicity of suits but also place the new
owner in the absurd position of having to first seek the declaration of ownership before filing an
ejectment suit.
Respondent counters that the defense of equitable mortgage need not be particularly stated to
apprise petitioner of the nature and character of the repurchase agreement. He contends that he
had amply discussed in his pleadings before the trial and appellate courts all the surrounding
circumstances of the case, such as the relative situation of the parties at the time; their attitude,
acts, conduct, and declarations; and the negotiations between them that led to the repurchase
agreement. Thus, he argues that the CA correctly ruled that the contract was one of equitable
mortgage. He insists that petitioner allowed him to redeem and reacquire the property, and
accepted his full payment of the property through Ventura, the authorized representative, as
shown by the signed receipts.
The threshold issues are the following: (1) whether the MeTC had jurisdiction in an action for
unlawful detainer to resolve the issue of who between petitioner and respondent is the owner of
the property and entitled to the de facto possession thereof; (2) whether the transaction entered
into between the parties under the Deed of Absolute Sale and the Contract of Lease is an
equitable mortgage over the property; and (3) whether the petitioner is entitled to the material or
de facto possession of the property.
The Ruling of the Court
On the first issue, the CA ruling (which upheld the jurisdiction of the MeTC to resolve the issue of
who between petitioner or respondent is the lawful owner of the property, and is thus entitled to
the material or de facto possession thereof) is correct. Section 18, Rule 70 of the Rules of Court
provides that when the defendant raises the defense of ownership in his pleadings and the
question of possession cannot be resolved without deciding the issue of ownership, the issue of
ownership shall be resolved only to determine the issue of possession. The judgment rendered
in an action for unlawful detainer shall be conclusive with respect to the possession only and
shall in no wise bind the title or affect the ownership of the land or building. Such judgment
would not bar an action between the same parties respecting title to the land or building.46
The summary nature of the action is not changed by the claim of ownership of the property of
the defendant.47 The MeTC is not divested of its jurisdiction over the unlawful detainer action
simply because the defendant asserts ownership over the property.
The sole issue for resolution in an action for unlawful detainer is material or de facto possession
of the property. Even if the defendant claims juridical possession or ownership over the property
based on a claim that his transaction with the plaintiff relative to the property is merely an
equitable mortgage, or that he had repurchased the property from the plaintiff, the MeTC may
still delve into and take cognizance of the case and make an initial or provisional determination
of who between the plaintiff and the defendant is the owner and, in the process, resolve the
issue of who is entitled to the possession. The MeTC, in unlawful detainer case, decides the
question of ownership only if it is intertwined with and necessary to resolve the issue of
possession.48 The resolution of the MeTC on the ownership of the property is merely provisional
or interlocutory. Any question involving the issue of ownership should be raised and resolved in
a separate action brought specifically to settle the question with finality, in this case, Civil Case
No. 01-851 which respondent filed before the RTC.
The ruling of the CA, that the contract between petitioner and respondent was an equitable
mortgage, is incorrect. The fact of the matter is that the respondent intransigently alleged in his
answer, and even in his affidavit and position paper, that petitioner had granted him the right to
redeem or repurchase the property at any time and for a reasonable amount; and that, he had,
in fact, repurchased the property in July 1985 for 250,000.00 which he remitted to petitioner
through an authorized representative who signed receipts therefor; he had reacquired ownership
and juridical possession of the property after his repurchase thereof in 1985; and consequently,
petitioner was obliged to execute a deed of absolute sale over the property in his favor.
Notably, respondent alleged that, as stated in his letter to petitioner, he was given the right to
reacquire the property in 1982 within two years upon the payment of 53,000.00, plus
petitioners airfare for her trip to the Philippines from the USA and back; petitioner promised to
sign the deed
of absolute sale. He even filed a complaint against the petitioner in the RTC, docketed as Civil
Case No. 01-851, for specific performance with damages to compel petitioner to execute the
said deed of absolute sale over the property presumably on the strength of Articles 1357 and
1358 of the New Civil Code. Certainly then, his claim that petitioner had given him the right to
repurchase the property is antithetical to an equitable mortgage.
An equitable mortgage is one that, although lacking in some formality, form or words, or other
requisites demanded by a statute, nevertheless reveals the intention of the parties to change a
real property as security for a debt and contain nothing impossible or contrary to law. 49 A
contract between the parties is an equitable mortgage if the following requisites are present: (a)
the parties entered into a contract denominated as a contract of sale; and (b) the intention was
to secure an existing debt by way of mortgage.50 The decisive factor is the intention of the
parties.
In an equitable mortgage, the mortgagor retains ownership over the property but subject to
foreclosure and sale at public auction upon failure of the mortgagor to pay his obligation.51 In
contrast, in a pacto de retro sale, ownership of the property sold is immediately transferred to the
vendee a retro subject only to the right of the vendor a retro to repurchase the property upon
compliance with legal requirements for the repurchase. The failure of the vendor a retro to
exercise the right to repurchase within the agreed time vests upon the vendee a retro, by
operation of law, absolute title over the property.52
One repurchases only what one has previously sold. The right to repurchase presupposes a
valid contract of sale between the same parties.53 By insisting that he had repurchased the
property, respondent thereby admitted that the deed of absolute sale executed by him and
petitioner on April 13, 1982 was, in fact and in law, a deed of absolute sale and not an equitable
mortgage; hence, he had acquired ownership over the property based on said deed.
Respondent is, thus, estopped from asserting that the contract under the deed of absolute sale
is an equitable mortgage unless there is allegation and evidence of palpable mistake on the part
of respondent;54 or a fraud on the part of petitioner. Respondent made no such allegation in his
pleadings and affidavit. On the contrary, he maintained that petitioner had sold the property to
him in July 1985 and acknowledged receipt of the purchase price thereof except the amount of
39,000.00 retained by Perlita Ventura. Respondent is thus bound by his admission of
petitioners ownership of the property and is barred from claiming otherwise. 55
Respondents admission that petitioner acquired ownership over the property under the April 13,
1982 deed of absolute sale is buttressed by his admission in the Contract of Lease dated April
15, 1982 that petitioner was the owner of the property, and that he had paid the rentals for the
duration of the contract of lease and even until 1985 upon its extension. Respondent was
obliged to prove his defense that petitioner had given him the right to repurchase, and that
petitioner obliged herself to resell the property for 250,000.00 when they executed the April 13,
1982 deed of absolute sale.
We have carefully reviewed the case and find that respondent failed to adduce competent and
credible evidence to prove his claim.
As gleaned from the April 13, 1982 deed, the right of respondent to repurchase the property is
not incorporated therein. The contract is one of absolute sale and not one with right to
repurchase. The law states that if the terms of a contract are clear and leave no doubt upon the
intention of the contracting parties, the literal meaning of its stipulations shall control. 56 When the
language of the contract is explicit, leaving no doubt as to the intention of the drafters, the courts
may not read into it any other intention that would contradict its plain import. 57 The clear terms of
the contract should never be the subject matter of interpretation. Neither abstract justice nor the
rule of liberal interpretation justifies the creation of a contract for the parties which they did not
make themselves, or the imposition upon one party to a contract or obligation to assume simply
or merely to avoid seeming hardships.58 Their true meaning must be enforced, as it is to be
presumed that the contracting parties know their scope and effects.59 As the Court held in
Villarica, et al. v. Court of Appeals:60
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 no
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.61
In Ramos v. Icasiano,62 we also held that an agreement to repurchase becomes a promise to
sell when made after the sale because when the sale is made without such 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. An option to
buy or a promise to sell is different and distinct from the right of repurchase that must be
reserved by means of stipulations to that effect in the contract of sale.63
There is no evidence on record that, on or before July 1985, petitioner agreed to sell her
property to the respondent for 250,000.00. Neither is there any documentary evidence showing
that Ventura was authorized to offer for sale or sell the property for and in behalf of petitioner for
250,000.00, or to receive the said amount from respondent as purchase price of the property.
The rule is that when a sale of a piece of land or any interest therein is through an agent, the
authority of the latter shall be in writing; otherwise, the sale shall be void64 and cannot produce
any legal effect as to transfer the property from its lawful owner. 65 Being inexistent and void from
the very beginning, said contract cannot be ratified.66 Any contract entered into by Ventura for
and in behalf of petitioner relative to the sale of the property is void and cannot be ratified by the
latter. A void contract produces no effect either against or in favor of anyone. 67
Respondent also failed to prove that the negotiations between him and petitioner has culminated
in his offer to buy the property for 250,000.00, and that they later on agreed to the sale of the
property for the same amount. He likewise failed to prove that he purchased and reacquired the
property in July 1985. The evidence on record shows that petitioner had offered to sell the
property for US$15,000 on a "take it or leave it" basis in May 1984 upon the expiration of the
Contract of Lease68 an offer that was rejected by respondentwhich is why on December 30,
1997, petitioner and her husband offered again to sell the property to respondent for
670,000.00 inclusive of back rentals and the purchase price of the property under the April 13,
1982 Deed of absolute Sale.69 The offer was again rejected by respondent. The final offer
appears to have been made on January 11, 199870 but again, like the previous negotiations, no
contract was perfected between the parties.
A contract is a meeting of minds between two persons whereby one binds himself, with respect
to the other, to give something or to render some service. 71 Under Article 1318 of the New Civil
Code, there is no contract unless the following requisites concur:
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established.
Contracts are perfected by mere consent manifested by the meeting of the offer and the
acceptance upon the thing and the cause which are to constitute the contract. 72 Once perfected,
they bind the contracting parties and the obligations arising therefrom have the form of law
between the parties which must be complied with in good faith. The parties are bound not only to
the fulfillment of what has been expressly stipulated but also to the consequences which,
according to their nature, may be in keeping with good faith, usage and law.73
There was no contract of sale entered into by the parties based on the Receipts dated July 1985
and June 16, 1986, signed by Perlita Ventura and the letter of petitioner to respondent dated
July 25, 1986.
By the contract of sale, one of the contracting parties obligates himself to transfer the ownership It is incredible that Ventura was able to remit to petitioner 211,000.00 before July 25, 1986
of and deliver a determinate thing and the other, to pay therefor a price certain in money or its when only a week earlier, she was pleading to petitioner for a period of one year within which to
equivalent.74 The absence of any of the essential elements will negate the existence of a refund the 39,000.00 to petitioner.
perfected contract of sale. As the Court ruled in Boston Bank of the Philippines v. Manalo: 75
It would have bolstered his cause if respondent had submitted an affidavit of Ventura stating that
A definite agreement as to the price is an essential element of a binding agreement to sell she had remitted 211,000.00 out of the 250,000.00 she received from respondent in July
personal or real property because it seriously affects the rights and obligations of the parties. 1985 and June 20, 1986.
Price is an essential element in the formation of a binding and enforceable contract of sale. The
fixing of the price can never be left to the decision of one of the contracting parties. But a price
IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The assailed Decision of the
fixed by one of the contracting parties, if accepted by the other, gives rise to a perfected sale. 76
Court of Appeals in CA-G.R. CV No. 69034 is REVERSED and SET ASIDE. The Decision of the
Metropolitan Trial Court, affirmed with modification by the Regional Trial Court, is AFFIRMED.
A contract of sale is consensual in nature and is perfected upon mere meeting of the minds.
When there is merely an offer by one party without acceptance of the other, there is no
SO ORDERED.
contract.77 When the contract of sale is not perfected, it cannot, as an independent source of
obligation, serve as a binding juridical relation between the parties.78

Respondents reliance on petitioners letter to him dated July 25, 1986 is misplaced. The letter
reads in full:

7-25-86

Dear Martin & Ising,

Enclosed for your information is the letter written by my husband to Perlita. I hope that you will
be able to convince your cousin that its to her best interest to deposit the balance of your
payment to me of 39,000.00 in my bank acct. per our agreement and send me my bank book
right away so that we can transfer the title of the property.

Regards,

Amie 79

We have carefully considered the letter of Perlita Ventura, dated July 18, 1986, and the letter of
Eugene Roberts, dated July 25, 1986, where Ventura admitted having used the money of
petitioner amounting to 39,000.00 without the latters knowledge for the plane fare of Venturas
parents. Ventura promised to refund the amount of 39,000.00, inclusive of interests, within one
year.80 Eugene Roberts berated Ventura and called her a thief for stealing his and petitioners
money and that of respondents wife, Ising, who allegedly told petitioner that she, Ising, loaned
the money to her parents for their plane fare to the USA. Neither Ventura nor Eugene Roberts
declared in their letters that Ventura had used the 250,000.00 which respondent gave to her.

Petitioner in her letter to respondent did not admit, either expressly or impliedly, having received
211,000.00 from Ventura. Moreover, in her letter to petitioner, only a week earlier, or on July
18, 1986, Ventura admitted having spent the 39,000.00 and pleaded that she be allowed to
refund the amount within one (1) year, including interests.

Naririto ang total ng pera mo sa bankbook mo, 55,000.00 pati na yong deposit na sarili mo at
bale ang nagalaw ko diyan ay 39,000.00. Huwag kang mag-alala ibabalik ko rin sa iyo sa loob
ng isang taon pati interest.

Ate Per81 1awphi1.net

LUIS S. MISTERIO, GABRIEL S. MISTERIO, FRANCIS S. MISTERIO, THELMA S. MISTERIO
and ESTELLA S. MISTERIO-TAGIMACRUZ, petitioners, vs. CEBU STATE
COLLEGE OF SCIENCE AND TECHNOLOGY (CSCST), duly represented by its
President, DR. JOSE SAL TAN, respondent.
DECISION
CALLEJO, SR., J.:
This is a petition for review on certiorari to annul the Decision[1] dated July 31, 2000 of the
Court of Appeals (CA) in CA-G.R. CV No. 53592, as well as its Resolution[2]denying the motion
for reconsideration. The CA reversed and set aside the Decision[3] of the Regional Trial Court
(RTC) of Cebu City, Branch 18, in Civil Case No. CEB-15267.
The Antecedents
Sudlon Agricultural High School (SAHS) was established in Cebu Province on August 2,
1948. The administrative and supervisory control of the school was handled by the Division of
Schools of the same province. The original site of the school was in Sudlon, about 33 kilometers
from Cebu City via the Tabunak-Talisay Highway.
In 1952, the Provincial Board of Cebu granted the usufruct of 41 parcels of land, covering
104.5441 hectares of the Banilad Friar Lands Estate to the SAHS. Pursuant to Republic Act No.
948, SAHS was nationalized on June 20, 1953.
On December 31, 1956, Asuncion Sadaya-Misterio executed a Deed of Sale of a parcel of
land denominated as Lot No. 1064 of the Banilad Friar Lands Estate, in favor of the SAHS. The
property had an area of 4,563 square meters and was situated at Lahug, Cebu City, covered by
Transfer Certificate of Title (TCT) No. 13086 of the Registry of Deeds of the province of Cebu.
The sale was subject to the right of the vendor to repurchase the property after the high school
shall have ceased to exist, or shall have transferred its site elsewhere.
Consequently, on May 22, 1957, TCT No. 13086 was cancelled and in lieu thereof, TCT No.
15959 was issued by the Registry of Deeds of Cebu City in the name of SAHS. [4]The right of the
vendor to repurchase the property was annotated at the dorsal portion thereof.
On March 18, 1960, the Provincial Board of Cebu, through Resolution No. 491, donated the
aforementioned 41 lots to SAHS, subject to two (2) conditions: (1) that if the SAHS ceases to
operate, the ownership of the lots would automatically revert to the province, and (2) that the
SAHS could not alienate, lease or encumber the properties.
On June 10, 1983, Batas Pambansa (B.P.) Blg. 412, entitled An Act Converting the Cebu
School of Arts and Trades in Cebu City into a Chartered College to be Known as the Cebu State
College of Science and Technology, Expanding its Jurisdiction and Curricular Programs took
effect. The law incorporated and consolidated as one school system certain vocational schools in
the province of Cebu, including the SAHS, and which became an extension of the Cebu State
College of Science and Technology (CSCST).
In the meantime, the province of Cebu decided to recover the 41 lots it had earlier donated
to SAHS on the ground that the said deed was void. The province of Cebu opined that based on
the initial report of its provincial attorney, the SAHS had no personality to accept the donation.
In the meantime, Asuncion died intestate. When her heirs learned that the province of Cebu
was trying to recover the property it had earlier donated to SAHS, they went to the province of
Cebu on August 19, 1998, informing it of their intention to exercise their right to repurchase the
property as stipulated in the aforecited deed of sale executed by their predecessor-in-interest.
On February 1, 1989, the province of Cebu (represented by then Governor Emilio M. R.
Osmea), and the CSCST (represented by then DECS Secretary Lourdes R. Quisumbing), entered
into a Memorandum of Agreement over the 40 parcels of land, allocating 53 hectares to the
province of Cebu, and 51 hectares for the SAHS. The agreement was ratified by the Sangguniang
Panlalawigan and the SAHS Board of Trustees.
In a Letter[5] dated March 13, 1990, the heirs of the late Asuncion Sadaya-Misterio, through
their counsel, Atty. Ricardo G. Padilla, informed CSCST of the heirs intention to exercise the option
to repurchase Lot No. 1064 granted to them under the deed of sale, as the SAHS had ceased to
exist.
In response thereto, Jesus T. Bonilla, as Vocational School Superintendent II of CSCST,
wrote Atty. Padilla on March 29, 1990, informing the latter that the SAHS still existed and [i]n fact,
from a purely secondary school it is now offering collegiate courses. He explained that what has
been changed is only the name of the school [to CSCST] which does not imply the loss of its
existence.[6]
On December 23, 1993, Luis, Gabriel, Francis, Thelma, all surnamed Misterio, and Estella
S. Misterio-Tagimacruz, the legitimate heirs of the late Asuncion Sadaya-Misterio and herein
petitioners, filed a Complaint[7] before the RTC of Cebu City, Branch 18, for Nullity of Sale and/or
Redemption. Named party-defendants were the CSCST, Armand Fabella as CSCST Chairman,
and Dr. Mussolini C. Barillo as CSCST President, herein respondents. Docketed as Civil Case
No. 66-15267, the complaint alleged in part as follows:
FIRST CAUSE OF ACTION
12. Sudlon Agricultural High School at the time of the execution of the contract of sale with the
late Asuncion Sadaya sometime on December 31, 1956 had no juridical personality of its (sic)
own. Hence, it cannot acquire and possess any property, including the parcel of land subject of
this action.
13. The Contract of Sale executed was, therefore, null and void and therefore non-existent.
Thus, the land subject of the sale should be reconveyed to the legitimate heirs of Asuncion
Sadaya.
SECOND CAUSE OF ACTION
14. On June 10, 1983, Batas Pambansa Blg. 412 was enacted, abolishing the then Sudlon
Agricultural College and converting it to become part of the Cebu State College for Science and
Technology (CSCST).
15. The said law also transferred all the personnel, properties, including buildings, sites, and
improvements, records, obligations, monies and appropriation of Sudlon to the CSCST.
16. The abolition of Sudhon and its (sic) merger or consolidation as part of CSCST had rendered
operative the condition in the Deed of Sale granting the vendor and her heirs, Asuncion Sadaya,
the right to redeem Lot No. 1064.
17. By the legislative act of merging or consolidating Sudlon Agricultural College with other
colleges, the separate existence of the constituent schools including Sudlon Agricultural College
has ceased to exist as a legal consequence of merger or consolidation.
18. CSCST, as transferee of the land subject of sale, is the actual possessor of the land and is
the proper party-defendant for redemption.[8]
The petitioners prayed that, after due proceeding, judgment be rendered in their favor, thus
WHEREFORE, the foregoing premises considered, it is most respectfully prayed of this
Honorable Court to render a decision in favor of the plaintiffs to the following effect:
1. Declare the Contract of Sale between the late Asuncion Sadaya and Sudlon Agricultural High
School as null and void for the latter has no legal personality and cannot own a real property.
As a consequence, to order the actual possessor of the land CSCST to deliver and reconvey the
land to plaintiffs and the latter is willing to return the money received.
2. In the alternative, declare that Sudlon Agricultural High School has ceased to exist and allow
the plaintiffs to redeem Lot 1064 in the amount stipulated in the contract.
3. Other reliefs just and equitable under the premises are prayed for.[9]
In their answer to the complaint, the respondents alleged that:
11. Complainants in their complaint failed to state sufficient cause of action which may be
considered enough ground to dismiss this instant case;
12. The complainants are estopped from contesting the juridical capacity of Sudlon to own or
acquire this property which is the subject of this case, after a long period of silence or inaction
from the transfer of the title in favor of Sudlon Agricultural School;
13. The contract of sale having been mutually and freely entered into by the parties is valid and
binding between the vendor and the vendee, including their successors-in-interest; hence,
reconveyance is not proper;
14. The enactment of B.P. 412, which is the Charter of the College has not caused the abolition
of Sudlon Agricultural School. In fact, the school has now grown into a higher status, because it
has now admitted collegiate students, in addition to its secondary students;
15. The instruction of the Sudlon Agricultural School is actually carried out right on the same site
which complainants claim have ceased to exist not the site of the school transferred somewhere
else. Therefore, the conditions in the deed of sale have not rendered operative the right of the
vendor to exercise the same.[10]
After the preliminary conference on May 23, 1994, the trial court issued a pre-trial order
defining the issues as follows:
(1) whether Sudlon Agricultural School has still retained its personality as such school or it had
ceased to exist, and (2) whether the plaintiffs have the right to exercise the right of redemption
over the property.
Upon the order of the RTC, the Clerk of Court conducted an ocular inspection on Lot No.
1064. The court-appointed commissioner submitted his report[11] on June 10, 1994.
On November 29, 1995, the RTC rendered judgment, the dispositive portion of which reads:
WHEREFORE, in view of all the foregoing considerations, JUDGMENT is hereby rendered in
favor of the plaintiffs and against the defendants declaring the Deed of Sale entered into by and
between Asuncion Sadaya and Sudlon Agricultural High School as null and void for the latters
lack of juridical personality to acquire real property or to enter into such transaction or having
ceased to exist and ordering the Cebu State College of Science and Technology being the
actual possessor of the land, Lot 1064, to deliver and reconvey the same to plaintiffs upon
payment of the aforementioned purchased price.
No pronouncement as to costs.
SO ORDERED.[12]
The RTC ruled that the donation was void ab initio as the SAHS, in the first place, did not
have the personality to be a donee of real property. Moreover, with the enactment of B.P. Blg.
412, the SAHS ceased to exist and to operate as such. The RTC declared that, under the
Corporation Code, the constituent corporations (SAHS and CSCST) became one through the
merger or consolidation, with CSCST as the surviving entity. Whether Lot No. 1064 was still being
used for school purposes was of no moment, and to say that [SAHS] still exists but is now forming
part of CSCST is stretching the interpretation of the contract too far. It concluded that no
prescription lay as against an inexistent contract.
The CSCST, through the Office of Solicitor General (OSG), appealed the decision to the
CA, and outlined the following assignment of errors:
I
THE TRIAL COURT ERRED IN NOT STICKING TO THE ISSUES DEFINED BY THE PARTIES
DURING PRE-TRIAL.
II
THE TRIAL COURT ERRED IN NOT HOLDING THAT APPELLEES ARE ESTOPPED FROM
QUESTIONING THE PERSONALITY OF THE SUDLON AGRICULTURAL HIGH SCHOOL.
III
THE TRIAL COURT ERRED IN GIVING WEIGHT TO INADMISSIBLE AND SELF-SERVING
EVIDENCE.
IV
THE TRIAL COURT ERRED IN NOT HOLDING THAT APPELLEES ACTION IS BARRED BY
PRESCRIPTION.
V
THE TRIAL COURT ERRED IN NOT HOLDING THAT THE DEED OF SALE IS A
CONSENSUAL CONTRACT FREELY ENTERED INTO BY THE PARTIES AND NOT A
CONTRACT OF ADHESION.
VI
THE TRIAL COURT ERRED IN NOT HOLDING THAT THE DEED OF SALE IS NOT
AMBIGUOUS.
VII
THE TRIAL COURT ERRED IN NOT HOLDING THAT THE LOT SUBJECT OF THE SALE IS
STILL BEING USED FOR SCHOOL PURPOSES AS ORIGINALLY INTENDED BY THE
PARTIES.
 VIII
THE TRIAL COURT ERRED IN NOT HOLDING THAT B.P. [BLG.] 412 DID NOT DISSOLVE
OR EXTINGUISH SUDLON AGRICULTURAL HIGH SCHOOL BUT MERELY SUBJECTED
THE SAME TO THE SUPERVISION AND ADMINISTRATION OF CSCST.
IX
THE TRIAL COURT ERRED IN NOT HOLDING THAT THE SUDLON AGRICULTURAL HIGH
SCHOOL AND/OR CSCST IS/ARE NOT CORPORATIONS GOVERNED BY THE
COPORATION CODE.
On October 3, 1997, the CSCST and the province of Cebu executed a Deed for Reversion,
in which the CSCST deeded to the province of Cebu the property covered by TCT No. 15959.
Based on the said deed, TCT No. 146351 was issued by the Register of Deeds on November 12,
1997 in the name of the province of Cebu.[13] Annotated at the dorsal portion thereof was the notice
of the pending cases before the RTC and the CA.
On July 31, 2000, the CA rendered its decision reversing the RTCs decision. The fallo of
the decision reads:
WHEREFORE, the appealed decision is REVERSED and SET ASIDE, and a new one issued,
DISMISSING the instant complaint for lack of merit.
SO ORDERED.[14]
The appellate court held that the lower court should have confined itself to the issues defined
by the parties during pre-trial, namely, (1) whether Sudlon Agricultural School still retained its
personality as such school or was still in existence; and (2) whether the petitioners had the right
to exercise the right to repurchase the property. The CA declared that the trial of the case should
have been limited to these two issues.
While it affirmed the RTC ruling that the SAHS had ceased to exist when B.P. Blg. 412 took
effect, the appellate court ruled that the period for the petitioners to repurchase the property
expired on June 1987, four years after the enactment of B.P. Blg. 412. It held that the period within
which the property was to be repurchased must be restrictively applied in order to settle ownership
and title at the soonest possible time, and not to leave such title to the subject property uncertain.
The petitioners filed a motion for the reconsideration of the decision, which the CA denied
in a Resolution dated January 25, 2002.
The petitioners filed the present petition for review on certiorari, contending that the CA
erred in (a) resolving the appeal of the respondents based on prescription, although the issue was
never raised during the trial; and (b) resolving that their action had already prescribed.
The petition is without merit.
The petitioners fault the CA for holding that their right to repurchase Lot No. 1064 had long
since prescribed. Citing Article 1606(3) of the New Civil Code, they argue that [p]rescription should
start to run from the time it is legally feasible for the party to redeem the land, which is the time
when the action to redeem has accrued. The petitioners argue that this is so since the issue of
whether the SAHS had ceased to exist had still yet to be resolved. The petitioners posit that unless
and until judgment would be rendered stating that the SAHS has ceased to exist, the period to
repurchase the property would not start to run. It is only from the finality of the said judgment that
the right to repurchase the property may be exercised; hence, they still had thirty (30) days from
the date of the promulgation of the CA decision within which to repurchase the property. The
petitioners further aver that since the lien, their right to repurchase the property, was annotated
on the title of the land, the right to exercise the same is imprescriptible. They argue that they had
been vigilant of their right to repurchase the property, as far back as 1973. In fact, they made
tender of payment in March 1990, well within the ten-year prescriptive period. They point out that
the CSCST had abandoned its defense of prescription by contending that the condition for
repurchase had not yet become operational.
The OSG, for its part, contends that the petitioners reliance on Article 1606(3) of the New
Civil Code is misplaced, because the law applies only to sales where the right to repurchase is
not expressly agreed upon by the parties. Here, the right to repurchase is unquestionable. The
OSG, likewise, argues that the annotation of the right of redemption has no bearing on the issue
of prescription. It posits that the Torrens System has absolutely nothing to do with the period of
prescription of ones right to repurchase, as in the instant case. The OSG concludes that whatever
right the petitioners had on the property had already prescribed by the mere lapse of time, by
reason of negligence.
Central to the issue is the following provision in the deed of sale executed by Asuncion
Sadaya-Misterio in favor of the SAHS:
That the Vendee herein, the SUDLON AGRICULTURAL HIGH SCHOOL, hereby obligates itself
to use the aforementioned Lot No. 1064 for school purposes only, and it is a condition attached
to this contract that the aforementioned vendee obligates itself to give the Vendor herein, the
right to repurchase the said lot by paying to the Vendee herein the aforementioned consideration
of P9,130.00 only, after the aforementioned SUDLON AGRICULTURAL HIGH SCHOOL shall
ceased (sic) to exist or shall have transferred its school site elsewhere. [15]
The essence of a pacto de retro sale is that title and ownership of the property sold is
immediately rested in the vendee a retro, subject to the restrictive condition of repurchase by the
vendor a retro within the period provided in Article 1606 of the New Civil Code, to wit:
Art. 1606. The right referred to in Article 1601, in the absence of an express agreement, shall
last four years from the date of the contract.
Should there be an agreement, the period cannot exceed ten years.
However, the vendor may still exercise the right to repurchase within thirty days from the time
final judgment was rendered in a civil action on the basis that the contract was a true sale with
right to repurchase.
The failure of the vendee a retro to repurchase the property vests upon the latter by
operation of law the absolute title and ownership over the property sold.[16]
Pending the repurchase of the property, the vendee a retro may alienate, mortgage or
encumber the same, but such alienation or encumbrance is as revocable as is his right. If the
vendor a retro repurchases the property, the right of the vendee a retro is resolved, because he
has to return the property free from all damages and encumbrances imposed by him. [17] The
vendor a retro may also register his right to repurchase under the Land Registration Act and may
be enforced against any person deriving title from the vendee a retro.[18]
In this case, the vendor a retro and the vendee a retro did not agree on any period for the
exercise of the right to repurchase the property. Hence, the vendor a retro may extend the said
right within four days from the happening of the allocated condition contained in the deed: (a) the
cessation of the existence of the SAHS, or (b) the transfer of the school to other site.
We note that, as gleaned from the petitioners complaint before the trial court, they alleged
that the SAHS ceased to exist on June 10, 1983, when B.P. Blg. 412 took effect, abolishing therein
the SAHS which, in the meantime, had been converted into the Sudlon Agricultural College. The
CA found the position of the petitioners to be correct, and declared that conformably to the
condition in the deed of sale, and under Article 1606 of the New Civil Code, the right of the
petitioners as successors-in-interest of the vendee a retro commenced to run on June 10, 1983.
Hence, they had until June 10, 1987 within which to repurchase the property; however, they failed third parties of the petitioners right to repurchase the property under the terms of the deed of sale,
to do so. and the law.

It is true that respondent CSCST, through counsel, was of the view that despite the effectivity IN LIGHT OF ALL THE FOREGOING, the petition is DENIED DUE COURSE. Costs against
of B.P. Blg. 412, the structure and facilities of the SAHS remained in the property and, as such, it the petitioners.
cannot be said that the said school had ceased to exist. It argued that the phrase SAHS ceased
to exist in the deed meant that the structure and facilities of the school would be destroyed or SO ORDERED.
dismantled, and had no relation whatsoever to the abolition of the school and its integration into
the Cebu State College for Science and Technology. However, the CA rejected the position of the
respondent CSCST, as well as that of the OSG, and affirmed that of the petitioners.

The four-year period for the petitioners to repurchase the property was not suspended
merely and solely because there was a divergence of opinion between the petitioners, on the one
hand, and the respondent, on the other, as to the precise meaning of the phrase after the SAHS
shall cease to exist in the deed of sale. The existence of the petitioners right to repurchase the
property was not dependent upon the prior final interpretation by the court of the said phrase.
Indeed, the petitioners specifically alleged in the complaint that:

FIRST CAUSE OF ACTION

12. Sudlon Agricultural High School at the time of the execution of the contract of sale with the
late Asuncion Sadaya sometime on December 31, 1956 had no juridical personality of its own.
Hence, it cannot acquire and possess any property, including the parcel of land subject of this
action.

13. The Contract of Sale executed was therefore null and void and therefore non-existent. Thus,
the land subject of sale should be reconveyed to the legitimate heirs of Asuncion Sadaya.

SECOND CAUSE OF ACTION

14. On June 10, 1983, Batas Pambansa Blg. 412 was enacted abolishing the then Sudlon
Agricultural College and converting it to become part of the Cebu State College for Science and
Technology (CSCST).

15. The said law also transferred all the personnel, properties, including buildings, sites, and
improvements, records, obligations, monies and appropriations of Sudlon to the CSCST.

16. The abolition of Sudlon and its merger or consolidation as part of CSCST had rendered
operative the condition in the Deed of Sale granting the vendor and her heirs, Asuncion Sadaya,
the right to redeem Lot No. 1064.

17. By the legislative act of merging or consolidating Sudlon Agricultural College with other
colleges, the separate existence of the constituent schools including Sudlon Agricultural College
has ceased to exist as a legal consequence of merger or consolidation.

18. CSCST, as transferee of the land subject of sale, is the actual possessor of the land and is
the proper party defendant for redemption.[19]

The petitioners are estopped from changing on appeal their theory of the case in the trial
court and in the CA.[20]

We agree with the contention of the OSG that the annotation of the petitioners right to
repurchase the property at the dorsal side of TCT No. 15959 has no relation whatsoever to the
issue as to when such right had prescribed. The annotation was only for the purpose of notifying
ADALIA B. FRANCISCO, petitioner, vs. ZENAIDA F. BOISER, respondent.
DECISION
MENDOZA, J.:
This is a petition for review of the decision of the Court of Appeals in CA-G.R. CV No. 55518
which affirmed in toto the decision of the Regional Trial Court, Branch 122, Caloocan City,
dismissing petitioners complaint for redemption of property against respondent. Sdaad
The facts are as follows:
Petitioner Adalia B. Francisco and three of her sisters, Ester, Elizabeth and Adeluisa, were co-
owners of four parcels of registered lands[1] on which stands the Ten Commandments Building at
689 Rizal Avenue Extension, Caloocan City. On August 6, 1979, they sold 1/5 of their undivided
share in the subject parcels of land to their mother, Adela Blas, for P10,000.00, thus making the
latter a co-owner of said real property to the extent of the share sold. Sdaamiso
On August 8, 1986, without the knowledge of the other co-owners, Adela Blas sold her 1/5 share
for P10,000.00 to respondent Zenaida Boiser who is another sister of petitioner.
On August 5, 1992, petitioner received summons, with a copy of the complaint in Civil Case No.
15510, filed by respondent demanding her share in the rentals being collected by petitioner from
the tenants of the building. Petitioner then informed respondent that she was exercising her right
of redemption as a co-owner of the subject property. On August 12, 1992, she deposited the
amount of P10,000.00 as redemption price with the Clerk of Court. This move to redeem the
property was interposed as a permissive counterclaim in Civil Case No. 15510. However, said
case was dismissed after respondent was declared non-suited with the result that petitioners
counterclaim was likewise dismissed. Scncm
On September 14, 1995, petitioner instituted Civil Case No. C-17055 before the Regional Trial
Court in Caloocan City. She alleged that the 30-day period for redemption under Art. 1623 of the
Civil Code had not begun to run against her since the vendor, Adela Blas, never informed her
and the other owners about the sale to respondent. She learned about the sale only on August
5, 1992, after she received the summons in Civil Case No. 15510, together with the
complaint. Ncmmis
Respondent, on the other hand, contended that petitioner knew about the sale as early as May
30, 1992, because, on that date, she wrote petitioner a letter[2] informing the latter about the
sale, with a demand that the rentals corresponding to her 1/5 share of the subject property be
remitted to her. Said letter was sent with a copy of the Deed of Sale[3]between respondent and
Adela Blas. On the same date, letters[4] were likewise sent by respondent to the tenants of the
building, namely, Seiko Service Center and Glitters Corporation, informing them of the sale and
requesting that, thenceforth, they pay 1/5 of the monthly rentals to respondent. That petitioner
received these letters is proved by the fact that on June 8, 1992, she wrote[5] the buildings
tenants advising them to disregard respondents request and continue paying full rentals directly
to her. Ncm
On August 19, 1996, the trial court dismissed petitioners complaint for legal redemption. It ruled
that Art. 1623 does not prescribe any particular form of notifying co-owners about a sale of
property owned in common to enable them to exercise their right of legal redemption.[6] While no
written notice was given by the vendor, Adela Blas, to petitioner or the other owners, petitioner
herself admitted that she had received respondents letter of May 30, 1992 and was in fact
furnished a copy of the deed evidencing such sale.[7] The trial court considered the letter sent by
respondent to petitioner with a copy of the deed of sale as substantial compliance with the
required written notice under Art. 1623 of the New Civil Code. [8] Consequently, the 30-day period
of redemption should be counted not from August 5, 1992, when petitioner received summons in
Civil Case No. 15510, but at the latest, from June 8, 1992, the date petitioner wrote the tenants
of the building advising them to continue paying rentals in full to her. Petitioner failed to redeem
the property within that period.
Petitioner brought the matter to the Court of Appeals, which, on October 26, 1998, affirmed the
decision of the Regional Trial Court. She moved for reconsideration, but her motion was denied
by the appellate court on February 16, 1999. Hence, this petition.
The sole issue presented in this appeal is whether the letter of May 30, 1992 sent by respondent
to petitioner notifying her of the sale on August 8, 1986 of Adela Blas 1/5 share of the property to
respondent, containing a copy of the deed evidencing such sale, can be considered sufficient as
compliance with the notice requirement of Art. 1623 for the purpose of legal redemption. The trial
court and the Court of Appeals relied on the ruling in Distrito v. Court of Appeals[9] that Art. 1623
does not prescribe any particular form of written notice, nor any distinctive method for notifying
the redemptioner. They also invoked the rulings in De Conejero v. Court of
Appeals[10] and Badillo v. Ferrer[11] that furnishing the redemptioner with a copy of the deed of
sale is equivalent to giving him the written notice required by law. Oldmiso
On the other hand, petitioner points out that the cited cases are not relevant because the
present case does not concern the particular form in which notice must be given. Rather, the
issue here is whether a notice sent by the vendee may be given in lieu of that required to be
given by the vendor or prospective vendor.[12]
Art. 1623 of the Civil Code provides:
The right of legal pre-emption or redemption shall not be exercised except
within thirty days from the notice in writing by the prospective vendor, or by
the vendor, as the case maybe. The deed of sale shall not be recorded in
the Registry of Property, unless accompanied by an affidavit of the vendor
that he has given written notice thereof to all possible redemptioners.
The right of redemption of co-owners excludes that of adjoining owners.
In ruling that the notice given by the vendee was sufficient, the appellate court cited the case
of Etcuban v. Court of Appeals[13] in which it was held:
Petitioner contends that vendors (his co-heirs) should be the ones to give
him written notice and not the vendees (defendants or private respondent
herein) citing the case of Butte vs. Manuel Uy & Sons, Inc., 4 SCRA 526.
Such contention is of no moment. While it is true that written notice is
required by the law (Art. 1623), it is equally true that the same "Art. 1623
does not prescribe any particular form of notice, nor any distinctive method
for notifying the redemptioner." So long, therefore, as the latter is informed
in writing of the sale and the particulars thereof, the 30 days for redemption
start running, and the redemptioner has no real cause to complain. (De
Conejero et al v. Court of Appeals, et al., 16 SCRA 775). In the Conejero
case, we ruled that the furnishing of a copy of the disputed deed of sale to
the redemptioner was equivalent to the giving of written notice required by
law in "a more authentic manner than any other writing could have done,"
and that We cannot adopt a stand of having to sacrifice substance to
 technicality. More so in the case at bar, where the vendors or co-owners of
petitioner stated under oath in the deeds of sale that notice of sale had been
given to prospective redemptioners in accordance with Art. 1623 of the Civil
Code. "A sworn statement or clause in a deed of sale to the effect that a
written notice of sale was given to possible redemptioners or co-owners
might be used to determine whether an offer to redeem was made on or out
of time, or whether there was substantial compliance with the requirement of
said Art. 1623."[14]
In Etcuban, notice to the co-owners of the sale of the share of one of them was given by the
vendees through their counterclaim in the action for legal redemption. Despite the apparent
meaning of Art. 1623, it was held in that case that it was "of no moment" that the notice of sale
was given not by the vendor but by the vendees. "So long as the [co-owner] is informed in
writing of the sale and the particulars thereof, the 30 days for redemption start running, and the
redemptioner has no cause to complain," so it was held. The contrary doctrine of Butte v.
Manuel Uy and Sons, Inc.[15] was thus overruled sub silencio.
However, in the later case of Salatandol v. Retes,[16] decided a year after the Etcuban case, the
Court expressly affirmed the ruling in Butte that the notice required by Art. 1623 must be given
by the vendor. In Salatandol, the notice given to the redemptioner by the Register of Deeds of
the province where the subject land was situated was held to be insuffucient. Resolving the
issue of whether such notice was equivalent to the notice from the vendor required under Art.
1623, this Court stated:
The appeal is impressed with merit. In Butte vs. Manuel Uy and Sons,
Inc., the Court ruled that Art. 1623 of the Civil Code clearly and expressly
prescribes that the thirty (30) days for making the pre-emption or
redemption are to be counted from notice in writing by the vendor. The
Court said:
" x x x The test of Article 1623 clearly and expressly prescribes that the
thirty days for making the redemption are to be counted from notice in
writing by the vendor. Under the old law (Civil Code of 1889, Art. 1524), it
was immaterial who gave the notice; so long as the redeeming co-owner
learned of the alienation in favor of the stranger, the redemption period
began to run. It is thus apparent that the Philippine legislature in Article
1623 deliberately selected a particular method of giving notice, and that
method must be deemed exclusive (39 Am. Jur., 237; Payne vs. State, 12
S.W. (2d) (528). As ruled in Wampher vs. Lecompte, 150 Atl. 458 (affd. in
75 Law Ed. [U.S.] 275)
"The reasons for requiring that the notice should be given by the seller, and
not by the buyer, are easily divined. The seller of an undivided interest is in
the best position to know who are his co-owners that under the law must be
notified of the sale. Also, the notice by the seller removes all doubts as to
fact of the sale, its perfection, and its validity, the notice being a
reaffirmation thereof; so that that party notified need not entertain doubt that
the seller may still contest the alienation. This assurance would not exist if
the notice should be given by the buyer."
In the case at bar, the plaintiffs have not been furnished any written notice
of sale or a copy thereof by Eufemia Omole, the vendor. Said plaintiffs right
to exercise the legal right of preemption or redemption, given to a co-owner
when any one of the other co-owners sells his share in the thing owned in
common to a third person, as provided for in Article 1623 of the Civil Code,
has not yet accrued.
There was thus a return to the doctrine laid down in Butte. That ruling is sound. In the first place,
reversion to the ruling in Butte is proper. Art. 1623 of the Civil Code is clear in requiring that the
written notification should come from the vendor or prospective vendor, not from any other
person. There is, therefore, no room for construction. Indeed, the principal difference between
Art. 1524 of the former Civil Code and Art. 1623 of the present one is that the former did not
specify who must give the notice, whereas the present one expressly says the notice must be
given by the vendor. Effect must be given to this change in statutory language. Manikan
In the second place, it makes sense to require that the notice required in Art. 1623 be given by
the vendor and by nobody else. As explained by this Court through Justice J.B.L. Reyes
in Butte, the vendor of an undivided interest is in the best position to know who are his co-
owners who under the law must be notified of the sale. It is likewise the notification from the
seller, not from anyone else, which can remove all doubts as to the fact of the sale, its
perfection, and its validity, for in a contract of sale, the seller is in the best position to confirm
whether consent to the essential obligation of selling the property and transferring ownership
thereof to the vendee has been given. Maniks
Now, it is clear that by not immediately notifying the co-owner, a vendor can delay or even
effectively prevent the meaningful exercise of the right of redemption. In the present case, for
instance, the sale took place in 1986, but it was kept secret until 1992 when vendee (herein
respondent) needed to notify petitioner about the sale to demand 1/5 rentals from the property
sold. Compared to serious prejudice to petitioners right of legal redemption, the only adverse
effect to vendor Adela Blas and respondent-vendee is that the sale could not be registered. It is
non-binding, only insofar as third persons are concerned.[17] It is, therefore, unjust when the
subject sale has already been established before both lower courts and now, before this Court,
to further delay petitioners exercise of her right of legal redemption by requiring that notice be
given by the vendor before petitioner can exercise her right. For this reason, we rule that the
receipt by petitioner of summons in Civil Case No. 15510 on August 5, 1992 constitutes actual
knowledge on the basis of which petitioner may now exercise her right of redemption within 30
days from finality of this decision. Manikx
Our ruling is not without precedent. In Alonzo v. Intermediate Appellate Court,[18] we dispensed
with the need for written notification considering that the redemptioners lived on the same lot on
which the purchaser lived and were thus deemed to have actual knowledge of the sales. We
stated that the 30-day period of redemption started, not from the date of the sales in 1963 and
1964, but sometime between those years and 1976, when the first complaint for redemption was
actually filed. For 13 years, however, none of the co-heirs moved to redeem the property. We
thus ruled that the right of redemption had already been extinguished because the period for its
exercise had already expired. Nexold
In the present case, as previously discussed, receipt by petitioner of summons in Civil Case No.
15510 on August 5, 1992 amounted to actual knowledge of the sale from which the 30-day
period of redemption commenced to run. Petitioner had until September 4, 1992 within which to
exercise her right of legal redemption, but on August 12, 1992 she deposited the P10,000.00
redemption price. As petitioners exercise of said right was timely, the same should be given
effect. Miso
WHEREFORE, in view of the foregoing, the petition is GRANTED and the decision of the Court
of Appeals is REVERSED and the Regional Trial Court, Branch 122, Caloocan City is ordered to
effect petitioners exercise of her right of legal redemption in Civil Case No. C-17055. Sppedjo
SO ORDERED.