G.R. No.

L-26578 January 28, 1974

LEGARDA HERMANOS and JOSE LEGARDA, petitioners,
vs.
FELIPE SALDAA and COURT OF APPEALS (FIFTH DIVISION) * respondents.
Manuel Y. Macias for petitioners.
Mario E. Ongkiko for private respondent.

TEEHANKEE, J.:1wph1.t
The Court, in affirming the decision under review of the Court of Appeals, which holds that the
respondent buyer of two small residential lots on installment contracts on a ten-year basis who has
faithfully paid for eight continuous years on the principal alone already more than the value of one
lot, besides the larger stipulated interests on both lots, is entitled to the conveyance of one fully
paid lot of his choice, rules that the judgment is fair and just and in accordance with law and equity.
The action originated as a complaint for delivery of two parcels of land in Sampaloc, Manila and for
execution of the corresponding deed of conveyance after payment of the balance still due on their
purchase price. Private respondent as plaintiff had entered into two written contracts with petitioner
Legarda Hermanos as defendant subdivision owner, whereby the latter agreed to sell to him Lots
Nos. 7 and 8 of block No. 5N of the subdivision with an area of 150 square meters each, for the sum
of P1,500.00 per lot, payable over the span of ten years divided into 120 equal monthly installments
of P19.83 with 10% interest per annum, to commence on May 26, 1948, date of execution of the
contracts. Subsequently, Legarda Hermanos partitioned the subdivision among the brothers and
sisters, and the two lots were among those allotted to co-petitioner Jose Legarda who was then
included as co-defendant in the action.
It is undisputed that respondent faithfully paid for eight continuous years about 95 (of the stipulated
120) monthly installments totalling P3,582.06 up to the month of February, 1956, which as per
petitioners' own statement of account, Exhibit "1", was applied to respondent's account (without
distinguishing the two lots), as follows:
To interests P1,889.78
To principal 1,682.28
Total P3,582.061
It is equally undisputed that after February, 1956 up to the filing of respondent's complaint in the Manila
court of first instance in 1961, respondent did not make further payments. The account thus shows that he
owed petitioners the sum of P1,317.72 on account of the balance of the purchase price (principal) of the
two lots (in the total sum of P3,000.00), although he had paid more than the stipulated purchase price of
P1,500.00 for one lot.
Almost five years later, on February 2, 1961 just before the filing of the action, respondent wrote petitioners
stating that his desire to build a house on the lots was prevented by their failure to introduce improvements
on the subdivision as "there is still no road to these lots," and requesting information of the amount owing
to update his account as "I intend to continue paying the balance due on said lots."
Petitioners replied in their letter of February 11, 1961 that as respondent had failed to complete total
payment of the 120 installments by May, 1958 as stipulated in the contracts to sell, "pursuant to the
provisions of both contracts all the amounts paid in accordance with the agreement together with the
improvements on the premises have been considered as rents paid and as payment for damages suffered
by your failure,"2 and "Said cancellation being in order, is hereby confirmed."
From the adverse decision of July 17, 1963 of the trial court sustaining petitioners' cancellation of the
contracts and dismissing respondent's complaint, respondent appellate court on appeal rendered its
judgment of July 27, 1966 reversing the lower court's judgment and ordering petitioners "to deliver to the
plaintiff possession of one of the two lots, at the choice of defendants, and to execute the corresponding
deed of conveyance to the plaintiff for the said lot,"3 ruling as follows:
During the hearing, plaintiff testified that he suspended payments because the lots were not actually
delivered to him, or could not be, due to the fact that they were completely under water; and also because
the defendants-owners failed to make improvements on the premises, such as roads, filling of the
submerged areas, etc., despite repeated promises of their representative, the said Mr. Cenon. As regards
the supposed cancellation of the contracts, plaintiff averred that no demand has been made upon him
regarding the unpaid installments, and for this reason he could not be declared in default so as to entitle
the defendants to cancel the said contracts.
The issue, therefore, is: Under the above facts, may defendants be compelled, or not, to allow plaintiff to Commented [1]:
complete payment of the purchase price of the two lots in dispute and thereafter to execute the final deeds
of conveyance thereof in his favor? Commented [2]:

xxx xxx xxx

Whether or not plaintiffs explanation for his failure to pay the remaining installments is true, considering the
circumstances obtaining in this case, we elect to apply the broad principles of equity and justice. In the case
at bar, we find that the plaintiff has paid the total sum of P3,582.06 including interests, which is even more Commented [3]:
than the value of the two lots. And even if the sum applied to the principal alone were to be considered,
which was of the total of P1,682.28, the same was already more than the value of one lot, which is
P1,500.00. The only balance due on both lots was P1,317.72, which was even less than the value of one
lot. We will consider as fully paid by the plaintiff at least one of the two lots, at the choice of the defendants. Commented [4]:
This is more in line with good conscience than a total denial to the plaintiff of a little token of what he has
paid the defendant Legarda Hermanos.4
Hence, the present petition for review, wherein petitioners insist on their right of cancellation under the
"plainly valid written agreements which constitute the law between the parties" as against "the broad
principles of equity and justice" applied by the appellate court. Respondent on the other hand while adhering Commented [5]:
to the validity of the doctrine of the Caridad Estates cases5 which recognizes the right of a vendor of land
under a contract to sell to cancel the contract upon default, with forfeiture of the installments paid as rentals,
disputes its applicability herein contending that here petitioners-sellers were equally in default as the lots
were "completely under water" and "there is neither evidence nor a finding that the petitioners in fact
cancelled the contracts previous to receipt of respondent's letter." Commented [6]:
The Court finds that the appellate court's judgment finding that of the total sum of P3,582.06 (including
interests of P1,889.78) already paid by respondent (which was more than the value of two lots), the sum
applied by petitioners to the principal alone in the amount of P1,682.28 was already more than the value of
one lot of P1,500.00 and hence one of the two lots as chosen by respondent would be considered as fully Commented [7]:
paid, is fair and just and in accordance with law and equity.
As already stated, the monthly payments for eight years made by respondent were applied to his account
without specifying or distinguishing between the two lots subject of the two agreements under petitioners'
own statement of account, Exhibit "1".7 Even considering respondent as having defaulted after February
1956, when he suspended payments after the 95th installment, he had as of the already paid by way of Commented [8]:
principal (P1,682.28) more than the full value of one lot (P1,500.00). The judgment recognizing this fact
and ordering the conveyance to him of one lot of his choice while also recognizing petitioners' right to retain
the interests of P1,889.78 paid by him for eight years on both lots, besides the cancellation of the contract
for one lot which thus reverts to petitioners, cannot be deemed to deny substantial justice to petitioners nor
to defeat their rights under the letter and spirit of the contracts in question.
The Court's doctrine in the analogous case of J.M. Tuason & Co. Inc. vs. Javier8 is fully applicable to the
present case, with the respondent at bar being granted lesser benefits, since no rescission of contract was
therein permitted. There, where the therein buyer-appellee identically situated as herein respondent buyer
had likewise defaulted in completing the payments after having religiously paid the stipulated monthly
installments for almost eight years and notwithstanding that the seller-appellant had duly notified the buyer
of the rescission of the contract to sell, the Court upheld the lower court's judgment denying judicial Commented [9]:
confirmation of the rescission and instead granting the buyer an additional grace period of sixty days from
notice of judgment to pay all the installment payments in arrears together with the stipulated 10% interest
per annum from the date of default, apart from reasonable attorney's fees and costs, which payments, the
Court observed, would have the plaintiff-seller "recover everything due thereto, pursuant to its contract with
the defendant, including such damages as the former may have suffered in consequence of the latter's
default."
In affirming, the Court held that "Regardless, however, of the propriety of applying said Art. 1592 thereto,
We find that plaintiff herein has not been denied substantial justice, for, according to Art. 1234 of said Code:
'If the obligation has been substantially performed in good faith, the obligor may recover as though there Commented [10]:
had been a strict and complete fulfillment, less damages suffered by the obligee,'" and "that in the interest
of justice and equity, the decision appealed from may be upheld upon the authority of Article 1234 of the
Civil Code."9
ACCORDINGLY, the appealed judgment of the appellate court is hereby affirmed. Without pronouncement
as to costs.
Makalintal, C.J., Castro, Makasiar, Esguerra and Muoz Palma, JJ., concur.1wph1.t

SECOND DIVISION

JESTRA DEVELOPMENT AND MANAGEMENT CORPORATION,

Petitioner,

- versus -

DANIEL PONCE PACIFICO, represented by his attorney-in-fact Jordan M. Pizarras,

Respondent.
G.R. No. 167452

Present:

QUISUMBING, J., Chairperson,

CARPIO,
CARPIO MORALES,
TINGA, and
VELASCO, JR., JJ.

Promulgated:

January 30, 2007

x--------------------------------------------------x

DECISION

CARPIO MORALES, J.:

On June 5, 1996, Daniel Ponce Pacifico (Pacifico) signed a Reservation Application[1] with Fil-Estate
Marketing Association for the purchase of a house and lot located at Lot 28, Block 3, Phase II, Jestra Villas, Barangay
La Huerta, Municipality of Paraaque, Metro Manila (the property), and paid the reservation fee of P20,000.

Under the Reservation Application, the total purchase price of the property was P2,500,000, and the down
payment equivalent to 30% of the purchase price or P750,000 was to be paid interest-free in six monthly installments
due every fifth of the month starting July 1996 until December 1996. As the P20,000 reservation fee formed part of
the down payment, the monthly installment on the down payment was fixed at P121,666.66.
Also under the Reservation Application, upon full payment of the 30% down payment by Pacifico, he was
to sign a contract to sell with the owner and developer of the property, Joprest Development and Management
Corporation (now Jestra Development and Management Corporation, hereafter Jestra). And the 70% balance on the
purchase price or P1,750,000 was to be payable in 10 years, to bear interest at 21% per annum, at a monthly installment
of P34,982.50. When the payment of the installments on the 70% balance should commence, the Reservation
Application was silent.

Unable to comply with the schedule of payments, Pacifico requested Jestra to allow him to make periodic
payments on the down payment in an amount that he could afford, to which Jestra acceded provided that late payment
penalties/surcharges[2] are paid.

With still a remaining balance of P260,000 on the down payment, Pacifico and Jestra executed on March 6, 1997,
Contract to Sell No. 83[3] over the property. The said contract was silent on the unsettled balance on the down
payment.

Under the Contract to Sell, Pacifico should have had on November 5, 1996, or one month prior to the
deadline stated under the Reservation Application, fully paid the 30% down payment, and that the 120 monthly
installments for the 70% balance or P1,750 should have had commenced on December 7, 1996, viz:

SECTION 2. TERMS OF PAYMENT. The PURCHASER agrees to pay the aforecited purchase
price [of P2,500,000.00] in the following manner, namely:

2.1 The total amount of SEVEN HUNDRED FIFTY THOUSAND PESOS ONLY (P750,000.00)
Philippine Currency as down payment on or before November 5, 1996.

2.2 The balance of ONE MILLION SEVEN HUNDTED FIFTY THOUSAND PESOS ONLY
(P1,750,00.00), Philippine Currency, shall be paid in One Hundred Twenty (120)
equal monthly installments at THIRTY FOUR THOUSAND NINE HUNDRED
EIGHT THREE PESOS ONLY (P34,983.00) Philippine Currency, to commence on
December 7, 1996, with interest at the rate of Twenty One Percent (21%) per annum.
The PURCHASER shall issue One Hundred Twenty (120) postdated checks in favor
of the OWNER/DEVELOPER for each of the monthly installments, which checks
shall be delivered to the latter upon signing of this CONTRACT. The PURCHASER
shall be subject to the pre-qualification requirements of COCOLIFE for the
Mortgage Redemption Insurance (MRI) and the Building Insurance on the UNIT.
Interest re-pricing shall be effected on the 6th Year, to commence on December 7,
2001.
x x x x (Underscoring supplied)

By letter[4] of November 12, 1997, Pacifico requested Jestra that the balance be restructured in
light of the present business condition.

By November 27, 1997, Pacifico had fully paid the 30% down payment, and by December 4,
1997, he had paid a total of P846,600, P76,600 of which Jestra applied as penalty charges for the belated
settlement of the down payment.

By letter of December 11, 1997, Jestra, through counsel, sent Pacifico a final demand for the payment of
P444,738.88[5] representing the total of 11 installments due on the 70% balance of the purchase price, inclusive of
21% interest per annum and add-on interest at the rate of P384.81 per day, counted from January 7, 1997. Further,
Jestra demanded the payment of P73,750 representing penalties for the [belated settlement of the] down payment. And
it reminded Pacifico that as provided in Section 5 of the said contract, [Jestra] reserves its right to automatically cancel
or rescind the same on account of [his] failure/refusal to comply with the terms thereof.[6]

Pacifico later requested Jestra, by letter of November 12, 1997, for a restructuring of his unsettled obligation. His
request was granted on the condition that the interest for the period from December 1996 to November 1997 amounting
to P224,396.37 would be added to the 70% balance on the purchase price; and that Pacifico issue 12 postdated checks
beginning each year to cover his amortization payments.

In light of the restructured scheme, the monthly amortization on the 70% balance was from P34,982.50
increased to P39,468, to commence on January 5, 1998.

Pacifico thus issued to Jestra 12 postdated Security Bank checks to cover his monthly amortizations from January to
December 1998. The checks for January and February 1998 were, however, dishonored due to insufficiency of
funds.[7]

By letter of March 24, 1998, Pacifico informed Jestra that due to sudden financial difficulties, he was
suspending payment of his obligation during the 10-month period, and that he wanted to dispose of the property to
recover his investment.[8] And he requested that the postdated checks he issued be returned to him.

Jestra, by letter[9] of March 31, 1998, denied Pacificos request to suspend payment and for the return of
the postdated checks. It, however, gave him until April 15, 1998 to sell the property failing which it warned him that
it would be constrained to re-open it for sale.

Thereafter, Jestra sent Pacifico a notarial Notice of Cancellation, dated May 1, 1998, notifying him that it
was, within 30 days after his receipt thereof, exercising its right to cancel the Contract to Sell. Pacifico received the
notice on May 13, 1998.

In a separate move, Jestra through its Credit and Collection Manager sent Pacifico a letter dated May 27, 1998,
demanding payment of the total amount of P209,377.75 covering monthly amortizations from January 30 to May 30,
1998 inclusive of penalties. And it gave him until June 1, 1998 to settle his account, failing which the Contract to Sell
would be automatically cancelled and it would re-open the property for sale.[10]
 On February 24, 1999, Pacifico filed a complaint before the Housing and Land Use Regulatory Board
(HLURB) against Jestra, docketed as HLURB Case No. REM-122499-10378, claiming that despite his full payment
of the down payment, Jestra failed to deliver to him the property within 90 days as provided in the Contract to Sell
dated March 6, 1997, and Jestra instead sold the property to another buyer in October of 1998.[11]

Pacifico further claimed in his complaint that upon learning of the double sale, he, through his lawyer,
demanded that Jestra deliver the property to him but it failed to do so without just and valid cause.

Pacifico thus prayed that, among others things, judgment be rendered declaring the second sale a nullity,
ordering Jestra to deliver the property to him and to pay him P11,000 a month from July 1997 until delivery.

By Decision[12] of March 15, 2000, the Housing and Land Use Arbiter held Jestra liable for failure to comply with
Section 3 of Republic Act (RA) No. 6552 (REALTY INSTALLMENT BUYER PROTECTION ACT) requiring
payment by the seller of the cash surrender value of the buyers payments and Section 17 of Presidential Decree No.
957 (REGULATING THE SALE OF SUBDIVISION LOTS AND CONDOMINIUMS, PROVIDING PENALTIES
FOR VIOLATIONS THEREOF) requiring it to register the Contract to Sell in the Office of the Register of Deeds.

The Arbiter found that while Pacifico had paid a total amount of P846,600 which is more or less equivalent to 24
monthly installments under the contract to sell . . . wherein the monthly amortization is P34,983,[13] he could no
longer demand the delivery of the property, its title having already been transferred in the name of another buyer.

Thus the Arbiter disposed:

WHEREFORE, premises considered, judgment is hereby rendered in

favor of the complainant and ordering respondent:

1. To pay and/or reimburse to the complainant the total payments

made amounting to Eight Hundred Forty Six Thousand Six Hundred Pesos
(P846,600.00) with interest thereon at twelve percent (12%) per annum to be
computed from the filing of the complaint on 24 February 1999 until fully paid; and

2. To pay complainant the amount of Fifty Thousand Pesos

(P50,000.00) as damages and attorneys fees plus the costs of litigation.[14]
(Underscoring supplied)
On appeal, the Board of Commissioners of the HLURB modified the decision of the Arbiter by deleting the award of
P50,000 damages and ordering Jestra to pay P20,000 as attorneys fees and P10,000 administrative fine for failure to
register the Contract to Sell in the Office of the Register of Deeds.

By Resolution of January 27, 2003, the HLURB Board of Commissioners denied[15] Jestras motion for
reconsideration.

By Order[16] of December 9, 2003, the Office of the President (OP), to which the case was elevated,
adopted by reference the findings of facts and conclusions of law contained in the HLURB Board Resolution of
January 27, 2003. And by Order[17] dated March 18, 2004, it denied Jestras motion for reconsideration.

On Jestras petition for review under Rule 43 of the Rules of Court, the Court of Appeals (CA), by
Decision[18] dated January 31, 2005, affirmed the Orders of the OP.

Its motion for reconsideration having been denied by CA Resolution[19] of March 16, 2005, Jestra
(hereafter petitioner) comes before this Court on a petition for review, faulting the appellate court for:

I. . . . adopting the OPs conclusion that penalty payments should be included in computing the
total number of installment payments made by a buyer (in relation to the
payment of a cash surrender value upon cancellation of a contract to sell) in
spite of its exclusion from the items to be included in computing the two (2)
years installment payments as provided in RA 6552

II. . . . adopting the OPs conclusion that petitioner failed to deliver possession of the subject
property to respondent upon his full payment of the downpayment [sic] and
that petitioners act of canceling the contract to sell was unconscionable despite
being allowed under RA 6552.

RA No. 6552 was enacted to protect buyers of real estate on installment against onerous and
oppressive conditions. While the seller has under the Act the option to cancel the contract due to non-payment
of installments, he must afford the buyer a grace period to pay them and, if at least two years installments
have already been paid, to refund the cash surrender value of the payments. Thus Section of the Act provides:

SECTION 3. In all transactions or contracts involving the sale or financing of real estate on installment payments,
including residential condominium apartments but excluding industrial lots, commercial buildings and sales to tenants
under Republic Act Numbered Thirty-eight hundred forty-four, as amended by Republic Act Numbered Sixty-three
hundred eighty-nine, where the buyer has paid at least two years of installments, the buyer is entitled to the following
rights in case he defaults in the payment of succeeding installments:

(a) To pay, without additional interest, the unpaid installments due within the total grace period
earned by him which is hereby fixed at the rate of one month grace period for every
one year of installment payments made: Provided, That this right shall be exercised
by the buyer only once in every five years of the life of the contract and its
extensions, if any.

(b) If the contract is cancelled, the seller shall refund to the buyer the cash surrender value of the
payments on the property equivalent to fifty per cent of the total payments made,
and, after five years of installments, an additional five per cent every year but not to
exceed ninety per cent of the total payments made: Provided, That the actual
cancellation of the contract shall take place after thirty days from receipt by the buyer
of the notice of cancellation or the demand for rescission of the contract by a notarial
act and upon full payment of the cash surrender value to the buyer.

Down payments, deposits or options on the contract shall be included in the computation of the
total number of installment payments made.

As the records indicate, the total payments made by Pacifico (hereafter respondent) amounted to
P846,600. The appellate court, in concluding that respondent paid at least two years of installments, adopted
the formula used by the HLURB by dividing the amount of P846,600 by the monthly amortization of P34,983
to thus result to a quotient of 24.2 months.
 Petitioner contests the computation, however. It claims that the amount of P76,600 represents penalty
payment and is a separate item to answer for its lost income as a seller due to the delay in the payment[20] of the 30%
down payment. It thus submits that the amount of P76,600 does not form part of the purchase price and should thus
be excluded in determining the total number of installments made.

Petitioner likewise claims that the proper divisor is not P34,983 but P39,468 since the parties agreed to
restructure the amortizations owing to respondents inability to comply with the schedule of payments previously
agreed upon in the Contract to Sell, and that if respondents total payments less the penalty is to be divided by P39,468,
the total installments paid would only cover 19.5 months, hence, it was not obliged under RA No. 6552 to pay the
cash surrender value of such total payments.

This Court finds that neither of the parties computations is in order.

The total purchase price of the property is P2,500,000. As provided in the Reservation Application, the
30% down payment on the purchase price or P750,000 was to be paid in six monthly installments of P121,666.66.
Under the Contract to Sell, the 70% balance of P1,750,000.00 on the purchase price was to be paid in 10 years through
monthly installments of P34,983, which was later increased to P39,468 in accordance with the agreement to restructure
the same.

While, under the above-quoted Section 3 of RA No. 6552, the down payment is included in computing
the total number of installment payments made, the proper divisor is neither P34,983 nor P39,468, but P121,666.66,
the monthly installment on the down payment.

The P750,000 down payment was to be paid in six monthly installments. If the down payment of P750,000
is to be deducted from the total payment of P846,600, the remainder is only P96,600. Since respondent was able to
pay the down payment in full eleven (11) months after the last monthly installment was due, and the sum of P76,600
representing penalty for delay of payment is deducted from the remaining P96,600, only a balance of P20,000 remains.

As respondent failed to pay at least two years of installments, he is not, under above-quoted Section 3 of
RA No. 6552, entitled to a refund of the cash surrender value of his payments. What applies to the case instead is
Section 4 of the same law, viz:

SECTION 4. In case where less than two years of installments were paid, the seller shall give the buyer a
grace period of not less than sixty days from the date the installment became due.

If the buyer fails to pay the installments due at the expiration of the grace period, the seller may
cancel the contract after thirty days from receipt by the buyer of the notice of
cancellation or the demand for rescission of the contract by a notarial act.
(Underscoring supplied)

In Fabrigas v. San Francisco del Monte, Inc.,[21] this Court described the cancellation of the
contract under Section 4 as a two-step process. First, the seller should extend the buyer a grace period of at
least sixty (60) days from the due date of the installment. Second, at the end of the grace period, the seller
shall furnish the buyer with a notice of cancellation or demand for rescission through a notarial act, effective
thirty (30) days from the buyer's receipt thereof.

Respondent admits that under the restructured scheme, the first installment on the 70% balance of the
purchase price was due on January 5, 1998. While he issued checks to cover the same, the first two were dishonored
due to insufficiency of funds.

While respondent was notified of the dishonor of the checks, he took no action thereon, hence, the 60 days
grace period lapsed. Respondent made no further payments thereafter. Instead, he requested for suspension of payment
and for time to dispose of the property to recover his investment.

Respondent admits that petitioner was justified in canceling the contract to sell via the notarial Notice of
Cancellation which he received on May 13, 1998. The contract was deemed cancelled[22] 30 days from May 13, 1998
or on June 12, 1998.

WHEREFORE, the petition is GRANTED. The assailed Decision and Resolution dated January 31, 2005 and March
16, 2005 of the Court of Appeals are hereby REVERSED and SET ASIDE. The complaint of respondent, Daniel
Ponce Pacifico, is DISMISSED.

SO ORDERED.

G.R. No. L-57552 October 10, 1986

LUISA F. MCLAUGHLIN, petitioner,
vs.
THE COURT OF APPEALS AND RAMON FLORES, respondents.
R.C. Domingo Jr. & Associates for private respondent.

FERIA, Actg. C.J.

This is an appeal by certiorari from the decision of the Court of Appeals, the dispositive part of which reads
as follows:
IN VIEW OF THE FOREGOING PREMISES, the petition for certiorari and mandamus is hereby GRANTED
and the Orders of respondent court dated November 21 and 27 both 1980 are hereby nullified and set aside
and respondent Judge is ordered to order private respondent to accept petitioner's Pacific Banking
Corporation certified manager's Check No. MC-A-000311 dated November 17, 1980 in the amount of
P76,059.71 in full settlement of petitioner's obligation, or another check of equivalent kind and value, the
earlier check having become stale.
On February 28, 1977, petitioner Luisa F. McLaughlin and private respondent Ramon Flores entered into
a contract of conditional sale of real property. Paragraph one of the deed of conditional sale fixed the total
purchase price of P140,000.00 payable as follows: a) P26,550.00 upon the execution of the deed; and b)
the balance of P113,450.00 to be paid not later than May 31, 1977. The parties also agreed that the balance
shall bear interest at the rate of 1% per month to commence from December 1, 1976, until the full purchase
price was paid.
On June 19, 1979, petitioner filed a complaint in the then Court of First Instance of Rizal (Civil Case No.
33573) for the rescission of the deed of conditional sale due to the failure of private respondent to pay the
balance due on May 31, 1977.
On December 27, 1979, the parties submitted a Compromise Agreement on the basis of which the court
rendered a decision on January 22, 1980. In said compromise agreement, private respondent
acknowledged his indebtedness to petitioner under the deed of conditional sale in the amount of
P119,050.71, and the parties agreed that said amount would be payable as follows: a) P50,000.00 upon
signing of the agreement; and b) the balance of P69,059.71 in two equal installments on June 30, 1980
and December 31, 1980.
As agreed upon, private respondent paid P50,000.00 upon the signing of the agreement and in addition he
also paid an "escalation cost" of P25,000.00.
Under paragraph 3 of the Compromise Agreement, private respondent agreed to pay one thousand (P
l,000.00) pesos monthly rental beginning December 5, 1979 until the obligation is duly paid, for the use of
the property subject matter of the deed of conditional sale.
Paragraphs 6 and 7 of the Compromise Agreement further state:
That the parties are agreed that in the event the defendant (private respondent) fails to comply with his
obligations herein provided, the plaintiff (petitioner) will be entitled to the issuance of a writ of execution
rescinding the Deed of Conditional Sale of Real Property. In such eventuality, defendant (private
respondent) hereby waives his right to appeal to (from) the Order of Rescission and the Writ of Execution
which the Court shall render in accordance with the stipulations herein provided for.
That in the event of execution all payments made by defendant (private respondent) will be forfeited in favor
of the plaintiff (petitioner) as liquidated damages.
On October 15, 1980, petitioner wrote to private respondent demanding that the latter pay the balance of
P69,059.71 on or before October 31, 1980. This demand included not only the installment due on June 30,
1980 but also the installment due on December 31, 1980.
On October 30, 1980, private respondent sent a letter to petitioner signifying his willingness and intention
to pay the full balance of P69,059.71, and at the same time demanding to see the certificate of title of the
property and the tax payment receipts.
Private respondent states on page 14 of his brief that on November 3, 1980, the first working day of said
month, he tendered payment to petitioner but this was refused acceptance by petitioner. However, this does
not appear in the decision of the Court of Appeals.
On November 7, 1980, petitioner filed a Motion for Writ of Execution alleging that private respondent failed
to pay the installment due on June 1980 and that since June 1980 he had failed to pay the monthly rental
of P l,000.00. Petitioner prayed that a) the deed of conditional sale of real property be declared rescinded
with forfeiture of all payments as liquidated damages; and b) the court order the payment of Pl,000.00 back
rentals since June 1980 and the eviction of private respondent.
On November 14, 1980, the trial court granted the motion for writ of execution.
On November 17, 1980, private respondent filed a motion for reconsideration tendering at the same time a
Pacific Banking Corporation certified manager's check in the amount of P76,059.71, payable to the order
of petitioner and covering the entire obligation including the installment due on December 31, 1980.
However, the trial court denied the motion for reconsideration in an order dated November 21, 1980 and
issued the writ of execution on November 25, 1980.
In an order dated November 27, 1980, the trial court granted petitioner's ex-parte motion for clarification of
the order of execution rescinding the deed of conditional sale of real property.
On November 28, 1980, private respondent filed with the Court of Appeals a petition for certiorari and
prohibition assailing the orders dated November 21 and 27, 1980.
As initially stated above, the appellate court nullified and set aside the disputed orders of the lower court.
In its decision, the appellate court ruled in part as follows:
The issue here is whether respondent court committed a grave abuse of discretion in issuing the orders
dated November 21, 1980 and November 27,1980. Commented [11]:

The general rule is that rescission will not be permitted for a slight or casual breach of the contract, but only
for such breaches as are substantial and fundamental as to defeat the object of the parties in making the
agreement. (Song Fo & Co. vs. Hawaiian-Philippine Co., 47 Phil. 821) Commented [12]:
In aforesaid case, it was held that a delay in payment for a small quantity of molasses, for some twenty
days is not such a violation of an essential condition of the contract as warrants rescission for non-
performance. Commented [13]:

In Universal Food Corp. vs. Court of Appeals, 33 SCRA 1, the Song Fo ruling was reaffirmed.
In the case at bar, McLaughlin wrote Flores on October 15, 1980 demanding that Flores pay the balance
of P69,059.71 on or before October 31, 1980. Thus it is undeniable that despite Flores' failure to make the
payment which was due on June 1980, McLaughlin waived whatever right she had under the compromise
agreement as incorporated in the decision of respondent court, to demand rescission. Commented [14]:

xxx xxx xxx

It is significant to note that on November 17, 1980, or just seventeen (17) days after October 31, 1980, the
deadline set by McLaughlin, Flores tendered the certified manager's check. We hold that the Song Fo ruling Commented [15]:
is applicable herein considering that in the latter case, there was a 20-day delay in the payment of the
obligation as compared to a 17-day delay in the instant case.
Furthermore, as held in the recent case of New Pacific Timber & Supply Co., Inc. vs. Hon. Alberto Seneris,
L-41764, December 19, 1980, it is the accepted practice in business to consider a cashier's or manager's
check as cash and that upon certification of a check, it is equivalent to its acceptance (Section 187,
Negotiable Instrument Law) and the funds are thereby transferred to the credit of the creditor (Araneta v.
Tuason, 49 O.G. p. 59).
In the New Pacific Timber & Supply Co., Inc. case, the Supreme Court further held that the object of
certifying a check is to enable the holder thereof to use it as money, citing the ruling in PNB vs. National
City Bank of New York, 63 Phil. 711.
In the New Pacific Timber case, it was also ruled that the exception in Section 63 of the Central Bank Act
that the clearing of a check and the subsequent crediting of the amount thereof to the account of the creditor
is equivalent to delivery of cash, is applicable to a payment through a certified check.
Considering that Flores had already paid P101,550.00 under the contract to sell, excluding the monthly
rentals paid, certainly it would be the height of inequity to have this amount forfeited in favor McLaughlin.
Under the questioned orders, McLaughlin would get back the property and still keep P101,550.00.
Petitioner contends that the appellate court erred in not observing the provisions of Article No. 1306 of the
Civil Code of the Philippines and in having arbitrarily abused its judicial discretion by disregarding the penal
clause stipulated by the parties in the compromise agreement which was the basis of the decision of the
lower court.

We agree with the appellate court that it would be inequitable to cancel the contract of conditional sale and
to have the amount of P101,550.00 (P l48,126.97 according to private respondent in his brief) already paid
by him under said contract, excluding the monthly rentals paid, forfeited in favor of petitioner, particularly
after private respondent had tendered the amount of P76,059.71 in full payment of his obligation. Commented [16]:

In the analogous case of De Guzman vs. Court of Appeals, this Court sustained the order of the respondent
judge denying the petitioners' motion for execution on the ground that the private respondent had
substantially complied with the terms and conditions of the compromise agreement, and directing the
petitioners to immediately execute the necessary documents transferring to the private respondent the title
to the properties (July 23, 1985, 137 SCRA 730). In the case at bar, there was also substantial compliance
with the compromise agreement. Commented [17]:

Petitioner invokes the ruling of the Court in its Resolution of November 16, 1978 in the case of Luzon
Brokerage Co., Inc. vs. Maritime Building Co., Inc., to the effect that Republic Act 6552 (the Maceda Law)
"recognizes and reaffirms the vendor's right to cancel the contract to sell upon breach and non-payment of
the stipulated installments but requires a grace period after at least two years of regular installment
payments ... . " (86 SCRA 305, 329) Commented [18]:

On the other hand, private respondent also invokes said law as an expression of public policy to protect
buyers of real estate on installments against onerous and oppressive conditions (Section 2 of Republic Act
No. 6552). Commented [19]:

Section 4 of Republic Act No. 6552 which took effect on September 14, 1972 provides as follows:
In case where less than two years of installments were paid, the seller shall give the buyer a grace period
of not less than sixty days from the date the installment became due. If the buyer fails to pay the installments
due at the expiration of the grace period, the seller may cancel the contract after thirty days from receipt by
the buyer of the notice of the cancellation or the demand for rescission of the contract by a notarial act. Commented [20]:

Section 7 of said law provides as follows:

Any stipulation in any contract hereafter entered into contrary to the provisions of Sections 3, 4, 5 and 6,
shall be null and void.
The spirit of these provisions further supports the decision of the appellate court. The record does not
contain the complete text of the compromise agreement dated December 20, 1979 and the decision
approving it. However, assuming that under the terms of said agreement the December 31, 1980 installment
was due and payable when on October 15, 1980, petitioner demanded payment of the balance of
P69,059.71 on or before October 31, 1980, petitioner could cancel the contract after thirty days from receipt
by private respondent of the notice of cancellation. Considering petitioner's motion for execution filed on Commented [21]:
November 7, 1980 as a notice of cancellation, petitioner could cancel the contract of conditional sale after
thirty days from receipt by private respondent of said motion. Private respondent's tender of payment of the Commented [22]:
amount of P76,059.71 together with his motion for reconsideration on November 17, 1980 was, therefore,
well within the thirty-day period grants by law.. Commented [23]:

The tender made by private respondent of a certified bank manager's check payable to petitioner was a
valid tender of payment. The certified check covered not only the balance of the purchase price in the
amount of P69,059.71, but also the arrears in the rental payments from June to December, 1980 in the
amount of P7,000.00, or a total of P76,059.71. On this point the appellate court correctly applied the ruling
in the case of New Pacific Timber & Supply Co., Inc. vs. Seneris (101 SCRA 686, 692-694) to the case at
bar. Commented [24]:

Moreover, Section 49, Rule 130 of the Revised Rules of Court provides that:
An offer in writing to pay a particular sum of money or to deliver a written instrument or specific property is,
if rejected, equivalent to the actual production and tender of the money, instrument, or property.
However, although private respondent had made a valid tender of payment which preserved his rights as
a vendee in the contract of conditional sale of real property, he did not follow it with a consignation or deposit
of the sum due with the court. As this Court has held:
The rule regarding payment of redemption prices is invoked. True that consignation of the redemption price
is not necessary in order that the vendor may compel the vendee to allow the repurchase within the time
provided by law or by contract. (Rosales vs. Reyes and Ordoveza, 25 Phil. 495.) We have held that in such
cases a mere tender of payment is enough, if made on time, as a basis for action against the vendee to
compel him to resell. But that tender does not in itself relieve the vendor from his obligation to pay the price
when redemption is allowed by the court. In other words, tender of payment is sufficient to compel Commented [25]:
redemption but is not in itself a payment that relieves the vendor from his liability to pay the redemption
price. " (Paez vs. Magno, 83 Phil. 403, 405)
On September 1, 1986, the Court issued the following resolution
Considering the allegation in petitioner's reply brief that the Manager's Check tendered by private
respondent on November 17, 1980 was subsequently cancelled and converted into cash, the Court
RESOLVED to REQUIRE the parties within ten (10) days from notice to inform the Court whether or not
the amount thereof was deposited in court and whether or not private respondent continued paying the
monthly rental of P1,000.00 stipulated in the Compromise Agreement.
In compliance with this resolution, both parties submitted their respective manifestations which confirm that
the Manager's Check in question was subsequently withdrawn and replaced by cash, but the cash was not
deposited with the court.

According to Article 1256 of the Civil Code of the Philippines, if the creditor to whom tender of payment has
been made refuses without just cause to accept it, the debtor shall be released from responsibility by the
consignation of the thing or sum due, and that consignation alone shall produce the same effect in the five
cases enumerated therein; Article 1257 provides that in order that the consignation of the thing (or sum) Commented [26]:
due may release the obligor, it must first be announced to the persons interested in the fulfillment of the
obligation; and Article 1258 provides that consignation shall be made by depositing the thing (or sum) due
at the disposal of the judicial authority and that the interested parties shall also be notified thereof. Commented [27]:

As the Court held in the case of Soco vs. Militante, promulgated on June 28, 1983, after examining the
above-cited provisions of the law and the jurisprudence on the matter:
Tender of payment must be distinguished from consignation. Tender is the antecedent of consignation, that
is, an act preparatory to the consignation, which is the principal, and from which are derived the immediate
consequences which the debtor desires or seeks to obtain. Tender of payment may be extrajudicial, while
consignation is necessarily judicial, and the priority of the first is the attempt to make a private settlement
before proceeding to the solemnities of consignation. (8 Manresa 325). (123 SCRA 160,173)
In the above-cited case of De Guzman vs. Court of Appeals (137 SCRA 730), the vendee was released
from responsibility because he had deposited with the court the balance of the purchase price. Similarly, in
the above-cited case of New Pacific Timber & Supply Co., Inc. vs. Seneris (101 SCRA 686), the judgment
debtor was released from responsibility by depositing with the court the amount of the judgment obligation.
In the case at bar, although as above stated private respondent had preserved his rights as a vendee in
the contract of conditional sale of real property by a timely valid tender of payment of the balance of his
obligation which was not accepted by petitioner, he remains liable for the payment of his obligation because
of his failure to deposit the amount due with the court. Commented [28]:

In his manifestation dated September 19, 1986, private respondent states that on September 16, 1980, he
purchased a Metrobank Cashier's Check No. CC 004233 in favor of petitioner Luisa F. McLaughlin in the
amount of P76,059.71, a photocopy of which was enclosed and marked as Annex "A- 1;" but that he did
not continue paying the monthly rental of Pl,000.00 because, pursuant to the decision of the appellate court,
petitioner herein was ordered to accept the aforesaid amount in full payment of herein respondent's
obligation under the contract subject matter thereof.
However, inasmuch as petitioner did not accept the aforesaid amount, it was incumbent on private
respondent to deposit the same with the court in order to be released from responsibility. Since private
respondent did not deposit said amount with the court, his obligation was not paid and he is liable in addition
for the payment of the monthly rental of Pl,000.00 from January 1, 1981 until said obligation is duly paid, in
accordance with paragraph 3 of the Compromise Agreement. Upon full payment of the amount of
P76,059.71 and the rentals in arrears, private respondent shall be entitled to a deed of absolute sale in his
favor of the real property in question. Commented [29]:

WHEREFORE, the decision of the Court of Appeals is AFFIRMED with the following modifications:
(a) Petitioner is ordered to accept from private respondent the Metrobank Cashier's Check No. CC 004233
in her favor in the amount of P76,059.71 or another certified check of a reputable bank drawn in her favor
in the same amount; Commented [30]:

(b) Private respondent is ordered to pay petitioner, within sixty (60) days from the finality of this decision,
the rentals in arrears of P l,000.00 a month from January 1, 1981 until full payment thereof; and Commented [31]:

(c) Petitioner is ordered to execute a deed of absolute sale in favor of private respondent over the real
property in question upon full payment of the amounts as provided in paragraphs (a) and (b) above. No Commented [32]:
costs.
SO ORDERED.
Fernan, Alampay, Gutierrez, Jr. and Paras, JJ., concur.

G.R. No. 111238 January 25, 1995

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 Commented [33]:
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. Commented [34]:

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. 309773,2 situated 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."3 Subsequently, 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
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 to sell. On
this particular point, therefore, we reject the position and ratiocination of respondent 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.
Narvasa, C.J., Puno and Mendoza, JJ., concur.

[Syllabus]
THIRD DIVISION
[G.R. No. 103577. October 7, 1996]
ROMULO A. CORONEL, ALARICO A. CORONEL, ANNETTE A. CORONEL, ANNABELLE C.
GONZALES (for herself and on behalf of Floraida C. Tupper, as attorney-in-fact), CIELITO A.
CORONEL, FLORAIDA A. ALMONTE, and CATALINA BALAIS MABANAG, petitioners, vs. THE
COURT OF APPEALS, CONCEPCION D. ALCARAZ and RAMONA PATRICIA ALCARAZ, assisted by
GLORIA F. NOEL as attorney-in-fact, respondents.
DECISION
MELO, J.:
The petition before us has its roots in a complaint for specific performance to compel herein petitioners
(except the last named, Catalina Balais Mabanag) to consummate the sale of a parcel of land with its
improvements located along Roosevelt Avenue in Quezon City entered into by the parties sometime in
January 1985 for the price of P1,240,000.00.
The undisputed facts of the case were summarized by respondent court in this wise:
On January 19, 1985, defendants-appellants Romulo Coronel, et. al. (hereinafter referred to as Coronels) executed a
document entitled Receipt of Down Payment (Exh. A) in favor of plaintiff Ramona Patricia Alcaraz (hereinafter
referred to as Ramona) which is reproduced hereunder:
RECEIPT OF DOWN PAYMENT
P1,240,000.00 - Total amount
50,000.00 - Down payment
------------------------------------------
P1,190,000.00 - Balance
Received from Miss Ramona Patricia Alcaraz of 146 Timog, Quezon City, the sum of Fifty Thousand Pesos purchase
price of our inherited house and lot, covered by TCT No. 119627 of the Registry of Deeds of Quezon City, in the total
amount of P1,240,000.00.
We bind ourselves to effect the transfer in our names from our deceased father, Constancio P. Coronel, the transfer
certificate of title immediately upon receipt of the down payment above-stated.
On our presentation of the TCT already in or name, We will immediately execute the deed of absolute sale of said
property and Miss Ramona Patricia Alcaraz shall immediately pay the balance of the P1,190,000.00.
Clearly, the conditions appurtenant to the sale are the following:
1. Ramona will make a down payment of Fifty Thousand (P50,000.00) pesos upon execution of the document
aforestated;
2. The Coronels will cause the transfer in their names of the title of the property registered in the name of their deceased
father upon receipt of the Fifty Thousand (P50,000.00) Pesos down payment;
3. Upon the transfer in their names of the subject property, the Coronels will execute the deed of absolute sale in favor
of Ramona and the latter will pay the former the whole balance of One Million One Hundred Ninety Thousand
(P1,190,000.00) Pesos.
On the same date (January 15, 1985), plaintiff-appellee Concepcion D. Alcaraz (hereinafter referred to as Concepcion),
mother of Ramona, paid the down payment of Fifty Thousand (P50,000.00) Pesos (Exh. B, Exh. 2).
On February 6, 1985, the property originally registered in the name of the Coronels father was transferred in their
names under TCT No. 327043 (Exh. D; Exh 4)
On February 18, 1985, the Coronels sold the property covered by TCT No. 327043 to intervenor-appellant Catalina
B. Mabanag (hereinafter referred to as Catalina) for One Million Five Hundred Eighty Thousand (P1,580,000.00)
Pesos after the latter has paid Three Hundred Thousand (P300,000.00) Pesos (Exhs. F-3; Exh. 6-C)
For this reason, Coronels canceled and rescinded the contract (Exh. A) with Ramona by depositing the down payment
paid by Concepcion in the bank in trust for Ramona Patricia Alcaraz.
On February 22, 1985, Concepcion, et. al., filed a complaint for a specific performance against the Coronels and
caused the annotation of a notice of lis pendens at the back of TCT No. 327403 (Exh. E; Exh. 5).
On April 2, 1985, Catalina caused the annotation of a notice of adverse claim covering the same property with the
Registry of Deeds of Quezon City (Exh. F; Exh. 6).
On April 25, 1985, the Coronels executed a Deed of Absolute Sale over the subject property in favor of Catalina (Exh.
G; Exh. 7).
On June 5, 1985, a new title over the subject property was issued in the name of Catalina under TCT No. 351582
(Exh. H; Exh. 8).
(Rollo, pp. 134-136)
In the course of the proceedings before the trial court (Branch 83, RTC, Quezon City) the parties agreed to
submit the case for decision solely on the basis of documentary exhibits. Thus, plaintiffs therein (now private
respondents) proffered their documentary evidence accordingly marked as Exhibits A through J, inclusive
of their corresponding submarkings. Adopting these same exhibits as their own, then defendants (now
petitioners) accordingly offered and marked them as Exhibits 1 through 10, likewise inclusive of their
corresponding submarkings. Upon motion of the parties, the trial court gave them thirty (30) days within
which to simultaneously submit their respective memoranda, and an additional 15 days within which to
submit their corresponding comment or reply thereto, after which, the case would be deemed submitted for
resolution.
On April 14, 1988, the case was submitted for resolution before Judge Reynaldo Roura, who was then
temporarily detailed to preside over Branch 82 of the RTC of Quezon City. On March 1, 1989, judgment
was handed down by Judge Roura from his regular bench at Macabebe, Pampanga for the Quezon City
branch, disposing as follows:
WHEREFORE, judgment for specific performance is hereby rendered ordering defendant to execute in favor of
plaintiffs a deed of absolute sale covering that parcel of land embraced in and covered by Transfer Certificate of Title
No. 327403 (now TCT No. 331582) of the Registry of Deeds for Quezon City, together with all the improvements
existing thereon free from all liens and encumbrances, and once accomplished, to immediately deliver the said
document of sale to plaintiffs and upon receipt thereof, the plaintiffs are ordered to pay defendants the whole balance
of the purchase price amounting to P1,190,000.00 in cash. Transfer Certificate of Title No. 331582 of the Registry of
Deeds for Quezon City in the name of intervenor is hereby canceled and declared to be without force and effect.
Defendants and intervenor and all other persons claiming under them are hereby ordered to vacate the subject property
and deliver possession thereof to plaintiffs. Plaintiffs claim for damages and attorneys fees, as well as the
counterclaims of defendants and intervenors are hereby dismissed.
No pronouncement as to costs.
So Ordered.
Macabebe, Pampanga for Quezon City, March 1, 1989.
(Rollo, p. 106)
A motion for reconsideration was filed by petitioners before the new presiding judge of the Quezon City
RTC but the same was denied by Judge Estrella T. Estrada, thusly:
The prayer contained in the instant motion, i.e., to annul the decision and to render anew decision by the undersigned
Presiding Judge should be denied for the following reasons: (1) The instant case became submitted for decision as of
April 14, 1988 when the parties terminated the presentation of their respective documentary evidence and when the
Presiding Judge at that time was Judge Reynaldo Roura. The fact that they were allowed to file memoranda at some
future date did not change the fact that the hearing of the case was terminated before Judge Roura and therefore the
same should be submitted to him for decision; (2) When the defendants and intervenor did not object to the authority
of Judge Reynaldo Roura to decide the case prior to the rendition of the decision, when they met for the first time
before the undersigned Presiding Judge at the hearing of a pending incident in Civil Case No. Q-46145 on November
11, 1988, they were deemed to have acquiesced thereto and they are now estopped from questioning said authority of
Judge Roura after they received the decision in question which happens to be adverse to them; (3) While it is true that
Judge Reynaldo Roura was merely a Judge-on-detail at this Branch of the Court, he was in all respects the Presiding
Judge with full authority to act on any pending incident submitted before this Court during his incumbency. When he
returned to his Official Station at Macabebe, Pampanga, he did not lose his authority to decide or resolve cases
submitted to him for decision or resolution because he continued as Judge of the Regional Trial Court and is of co-
equal rank with the undersigned Presiding Judge. The standing rule and supported by jurisprudence is that a Judge to
whom a case is submitted for decision has the authority to decide the case notwithstanding his transfer to another
branch or region of the same court (Sec. 9, Rule 135, Rule of Court).
Coming now to the twin prayer for reconsideration of the Decision dated March 1, 1989 rendered in the instant case,
resolution of which now pertains to the undersigned Presiding Judge, after a meticulous examination of the
documentary evidence presented by the parties, she is convinced that the Decision of March 1, 1989 is supported by
evidence and, therefore, should not be disturbed.
IN VIEW OF THE FOREGOING, the Motion for Reconsideration and/or to Annul Decision and Render Anew
Decision by the Incumbent Presiding Judge dated March 20, 1989 is hereby DENIED.
SO ORDERED.
Quezon City, Philippines, July 12, 1989.
(Rollo, pp. 108-109)
Petitioners thereupon interposed an appeal, but on December 16, 1991, the Court of Appeals (Buena,
Gonzaga-Reyes, Abad-Santos (P), JJ.) rendered its decision fully agreeing with the trial court.
Hence, the instant petition which was filed on March 5, 1992. The last pleading, private respondents Reply
Memorandum, was filed on September 15, 1993. The case was, however, re-raffled to undersigned ponente
only on August 28, 1996, due to the voluntary inhibition of the Justice to whom the case was last assigned.
While we deem it necessary to introduce certain refinements in the disquisition of respondent court in the
affirmance of the trial courts decision, we definitely find the instant petition bereft of merit.
The heart of the controversy which is the ultimate key in the resolution of the other issues in the case at bar
is the precise determination of the legal significance of the document entitled Receipt of Down Payment
which was offered in evidence by both parties. There is no dispute as to the fact that the said document
embodied the binding contract between Ramona Patricia Alcaraz on the one hand, and the heirs of
Constancio P. Coronel on the other, pertaining to a particular house and lot covered by TCT No. 119627,
as defined in Article 1305 of the Civil Code of the Philippines which reads as follows:
Art. 1305. 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.
While, it is the position of private respondents that the Receipt of Down Payment embodied a perfected
contract of sale, which perforce, they seek to enforce by means of an action for specific performance,
petitioners on their part insist that what the document signified was a mere executory contract to sell, subject
to certain suspensive conditions, and because of the absence of Ramona P. Alcaraz, who left for the United
States of America, said contract could not possibly ripen into a contract of absolute sale.
Plainly, such variance in the contending parties contention is brought about by the way each interprets the
terms and/or conditions set forth in said private instrument. Withal, based on whatever relevant and
admissible evidence may be available on record, this Court, as were the courts below, is now called upon
to adjudge what the real intent of the parties was at the time the said document was executed.
The Civil Code defines a contract of sale, thus:
Art. 1458. By the contract of sale one of the contracting parties obligates himself to transfer the ownership of and to
deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent.
Sale, by its very nature, is a consensual contract because it is perfected by mere consent. The essential
elements of a contract of sale are the following:
a) Consent or meeting of the minds, that is, consent to transfer ownership in exchange for the price;
b) Determinate subject matter; and
c) Price certain in money or its equivalent.
Under this definition, a Contract to Sell may not be considered as a Contract of Sale because the first
essential element is lacking. In a contract to sell, the prospective seller explicitly reserves the transfer of
title to the prospective buyer, meaning, the prospective seller does not as yet agree or consent to transfer
ownership of the property subject of the contract to sell until the happening of an event, which for present
purposes we shall take as the full payment of the purchase price. What the seller agrees or obliges himself
to do is to fulfill his promise to sell the subject property when the entire amount of the purchase price is
delivered to him. In other words the full payment of the purchase price partakes of a suspensive condition,
the non-fulfillment of which prevents the obligation to sell from arising and thus, ownership is retained by
the prospective seller without further remedies by the prospective buyer. In Roque vs. Lapuz (96 SCRA
741 [1980]), this Court had occasion to rule:
Hence, We hold that the contract between the petitioner and the respondent was a contract to sell where the ownership
or title is retained by the seller and is not to pass until the full payment of the price, such payment being a positive
suspensive condition and failure of which is not a breach, casual or serious, but simply an event that prevented the
obligation of the vendor to convey title from acquiring binding force.
Stated positively, upon the fulfillment of the suspensive condition which is the full payment of the purchase
price, the prospective sellers obligation to sell the subject property by entering into a contract of sale with
the prospective buyer becomes demandable as provided in Article 1479 of the Civil Code which states:
Art. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable.
An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor
of the promise is supported by a consideration distinct from the price.
A contract to sell may thus be defined as a bilateral contract whereby the prospective seller, while expressly
reserving the ownership of the subject property despite delivery thereof to the prospective buyer, binds
himself to sell the said property exclusively to the prospective buyer upon fulfillment of the condition agreed
upon, that is, full payment of the purchase price.
A contract to sell as defined hereinabove, may not even be considered as a conditional contract of sale
where the seller may likewise reserve title to the property subject of the sale until the fulfillment of a
suspensive condition, because in a conditional contract of sale, the first element of consent is present,
although it is conditioned upon the happening of a contingent event which may or may not occur. If the
suspensive condition is not fulfilled, the perfection of the contract of sale is completely abated (cf. Homesite
and Housing Corp. vs. Court of Appeals, 133 SCRA 777 [1984]). However, if the suspensive condition is
fulfilled, the contract of sale is thereby perfected, such that if there had already been previous delivery of
the property subject of the sale to the buyer, ownership thereto automatically transfers to the buyer by
operation of law without any further act having to be performed by the seller.
In a contract to sell, upon the fulfillment of the suspensive condition which is the full payment of the purchase
price, ownership will not automatically transfer to the buyer although the property may have been previously
delivered to him. The prospective seller still has to convey title to the prospective buyer by entering into a
contract of absolute sale.
It is essential to distinguish between a contract to sell and a conditional contract of sale specially in cases
where the subject property is sold by the owner not to the party the seller contracted with, but to a third
person, as in the case at bench. In a contract to sell, there being no previous sale of the property, a third
person buying such property despite the fulfillment of the suspensive condition such as the full payment of
the purchase price, for instance, cannot be deemed a buyer in bad faith and the prospective buyer cannot
seek the relief of reconveyance of the property. There is no double sale in such case. Title to the property
will transfer to the buyer after registration because there is no defect in the owner-sellers title per se, but
the latter, of course, may be sued for damages by the intending buyer.
In a conditional contract of sale, however, upon the fulfillment of the suspensive condition, the sale becomes
absolute and this will definitely affect the sellers title thereto. In fact, if there had been previous delivery of
the subject property, the sellers ownership or title to the property is automatically transferred to the buyer
such that, the seller will no longer have any title to transfer to any third person. Applying Article 1544 of the
Civil Code, such second buyer of the property who may have had actual or constructive knowledge of such
defect in the sellers title, or at least was charged with the obligation to discover such defect, cannot be a
registrant in good faith. Such second buyer cannot defeat the first buyers title. In case a title is issued to
the second buyer, the first buyer may seek reconveyance of the property subject of the sale.
With the above postulates as guidelines, we now proceed to the task of deciphering the real nature of the
contract entered into by petitioners and private respondents.
It is a canon in the interpretation of contracts that the words used therein should be given their natural and
ordinary meaning unless a technical meaning was intended (Tan vs. Court of Appeals, 212 SCRA 586
[1992]). Thus, when petitioners declared in the said Receipt of Down Payment that they --
Received from Miss Ramona Patricia Alcaraz of 146 Timog, Quezon City, the sum of Fifty Thousand Pesos purchase
price of our inherited house and lot, covered by TCT No. 1199627 of the Registry of Deeds of Quezon City, in the
total amount of P1,240,000.00.
without any reservation of title until full payment of the entire purchase price, the natural and ordinary idea
conveyed is that they sold their property.
When the Receipt of Down payment is considered in its entirety, it becomes more manifest that there was
a clear intent on the part of petitioners to transfer title to the buyer, but since the transfer certificate of title
was still in the name of petitioners father, they could not fully effect such transfer although the buyer was
then willing and able to immediately pay the purchase price. Therefore, petitioners-sellers undertook upon
receipt of the down payment from private respondent Ramona P. Alcaraz, to cause the issuance of a new
certificate of title in their names from that of their father, after which, they promised to present said title, now
in their names, to the latter and to execute the deed of absolute sale whereupon, the latter shall, in turn,
pay the entire balance of the purchase price.
The agreement could not have been a contract to sell because the sellers herein made no express
reservation of ownership or title to the subject parcel of land. Furthermore, the circumstance which
prevented the parties from entering into an absolute contract of sale pertained to the sellers themselves
(the certificate of title was not in their names) and not the full payment of the purchase price. Under the
established facts and circumstances of the case, the Court may safely presume that, had the certificate of
title been in the names of petitioners-sellers at that time, there would have been no reason why an absolute
contract of sale could not have been executed and consummated right there and then.
Moreover, unlike in a contract to sell, petitioners in the case at bar did not merely promise to sell the property
to private respondent upon the fulfillment of the suspensive condition. On the contrary, having already
agreed to sell the subject property, they undertook to have the certificate of title change to their names and
immediately thereafter, to execute the written deed of absolute sale.
Thus, the parties did not merely enter into a contract to sell where the sellers, after compliance by the buyer
with certain terms and conditions, promised to sell the property to the latter. What may be perceived from
the respective undertakings of the parties to the contract is that petitioners had already agreed to sell the
house and lot they inherited from their father, completely willing to transfer ownership of the subject house
and lot to the buyer if the documents were then in order. It just so happened, however, that the transfer
certificate of title was then still in the name of their father. It was more expedient to first effect the change
in the certificate of title so as to bear their names. That is why they undertook to cause the issuance of a
new transfer of the certificate of title in their names upon receipt of the down payment in the amount of
P50,000.00. As soon as the new certificate of title is issued in their names, petitioners were committed to
immediately execute the deed of absolute sale. Only then will the obligation of the buyer to pay the
remainder of the purchase price arise.
There is no doubt that unlike in a contract to sell which is most commonly entered into so as to protect the
seller against a buyer who intends to buy the property in installment by withholding ownership over the
property until the buyer effects full payment therefor, in the contract entered into in the case at bar, the
sellers were the ones who were unable to enter into a contract of absolute sale by reason of the fact that
the certificate of title to the property was still in the name of their father. It was the sellers in this case who,
as it were, had the impediment which prevented, so to speak, the execution of an contract of absolute sale.
What is clearly established by the plain language of the subject document is that when the said Receipt of
Down Payment was prepared and signed by petitioners Romulo A. Coronel, et. al., the parties had agreed
to a conditional contract of sale, consummation of which is subject only to the successful transfer of the
certificate of title from the name of petitioners father, Constancio P. Coronel, to their names.
The Court significantly notes that this suspensive condition was, in fact, fulfilled on February 6, 1985 (Exh.
D; Exh. 4). Thus, on said date, the conditional contract of sale between petitioners and private respondent
Ramona P. Alcaraz became obligatory, the only act required for the consummation thereof being the
delivery of the property by means of the execution of the deed of absolute sale in a public instrument, which
petitioners unequivocally committed themselves to do as evidenced by the Receipt of Down Payment.
Article 1475, in correlation with Article 1181, both of the Civil Code, plainly applies to the case at bench.
Thus,
Art. 1475. The contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the
object of the contract and upon the price.
From that moment, the parties may reciprocally demand performance, subject to the provisions of the law governing
the form of contracts.
Art. 1181. In conditional obligations, the acquisition of rights, as well as the extinguishment or loss of those already
acquired, shall depend upon the happening of the event which constitutes the condition.
Since the condition contemplated by the parties which is the issuance of a certificate of title in petitioners
names was fulfilled on February 6, 1985, the respective obligations of the parties under the contract of sale
became mutually demandable, that is, petitioners, as sellers, were obliged to present the transfer certificate
of title already in their names to private respondent Ramona P. Alcaraz, the buyer, and to immediately
execute the deed of absolute sale, while the buyer on her part, was obliged to forthwith pay the balance of
the purchase price amounting to P1,190,000.00.
It is also significant to note that in the first paragraph in page 9 of their petition, petitioners conclusively
admitted that:
3. The petitioners-sellers Coronel bound themselves to effect the transfer in our names from our deceased
father Constancio P. Coronel, the transfer certificate of title immediately upon receipt of the downpayment
above-stated". The sale was still subject to this suspensive condition. (Emphasis supplied.)
(Rollo, p. 16)
Petitioners themselves recognized that they entered into a contract of sale subject to a suspensive
condition. Only, they contend, continuing in the same paragraph, that:
. . . Had petitioners-sellers not complied with this condition of first transferring the title to the property under their
names, there could be no perfected contract of sale. (Emphasis supplied.)
(Ibid.)
not aware that they have set their own trap for themselves, for Article 1186 of the Civil Code expressly
provides that:
Art. 1186. The condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment.
Besides, it should be stressed and emphasized that what is more controlling than these mere hypothetical
arguments is the fact that the condition herein referred to was actually and indisputably fulfilled on
February 6, 1985, when a new title was issued in the names of petitioners as evidenced by TCT No. 327403
(Exh. D; Exh. 4).
The inevitable conclusion is that on January 19, 1985, as evidenced by the document denominated as
Receipt of Down Payment (Exh. A; Exh. 1), the parties entered into a contract of sale subject to the
suspensive condition that the sellers shall effect the issuance of new certificate title from that of their fathers
name to their names and that, on February 6, 1985, this condition was fulfilled (Exh. D; Exh. 4).
We, therefore, hold that, in accordance with Article 1187 which pertinently provides -
Art. 1187. The effects of conditional obligation to give, once the condition has been fulfilled, shall retroact to the day
of the constitution of the obligation . . .
In obligations to do or not to do, the courts shall determine, in each case, the retroactive effect of the condition that
has been complied with.
the rights and obligations of the parties with respect to the perfected contract of sale became mutually due
and demandable as of the time of fulfillment or occurrence of the suspensive condition on February 6, 1985.
As of that point in time, reciprocal obligations of both seller and buyer arose.
Petitioners also argue there could been no perfected contract on January 19, 1985 because they were then
not yet the absolute owners of the inherited property.
We cannot sustain this argument.
Article 774 of the Civil Code defines Succession as a mode of transferring ownership as follows:
Art. 774. Succession is a mode of acquisition by virtue of which the property, rights and obligations to the extent and
value of the inheritance of a person are transmitted through his death to another or others by his will or by operation
of law.
Petitioners-sellers in the case at bar being the sons and daughters of the decedent Constancio P. Coronel
are compulsory heirs who were called to succession by operation of law. Thus, at the point their father drew
his last breath, petitioners stepped into his shoes insofar as the subject property is concerned, such that
any rights or obligations pertaining thereto became binding and enforceable upon them. It is expressly
provided that rights to the succession are transmitted from the moment of death of the decedent (Article
777, Civil Code; Cuison vs. Villanueva, 90 Phil. 850 [1952]).
Be it also noted that petitioners claim that succession may not be declared unless the creditors have been
paid is rendered moot by the fact that they were able to effect the transfer of the title to the property from
the decedents name to their names on February 6, 1985.
Aside from this, petitioners are precluded from raising their supposed lack of capacity to enter into an
agreement at that time and they cannot be allowed to now take a posture contrary to that which they took
when they entered into the agreement with private respondent Ramona P. Alcaraz. The Civil Code
expressly states that:
Art. 1431. Through estoppel an admission or representation is rendered conclusive upon the person making it, and
cannot be denied or disproved as against the person relying thereon.
Having represented themselves as the true owners of the subject property at the time of sale, petitioners
cannot claim now that they were not yet the absolute owners thereof at that time.
Petitioners also contend that although there was in fact a perfected contract of sale between them and
Ramona P. Alcaraz, the latter breach her reciprocal obligation when she rendered impossible the
consummation thereof by going to the United States of America, without leaving her address, telephone
number, and Special Power of Attorney (Paragraphs 14 and 15, Answer with Compulsory Counterclaim to
the Amended Complaint, p. 2; Rollo, p. 43), for which reason, so petitioners conclude, they were correct in
unilaterally rescinding the contract of sale.
We do not agree with petitioners that there was a valid rescission of the contract of sale in the instant case.
We note that these supposed grounds for petitioners rescission, are mere allegations found only in their
responsive pleadings, which by express provision of the rules, are deemed controverted even if no reply is
filed by the plaintiffs (Sec. 11, Rule 6, Revised Rules of Court). The records are absolutely bereft of any
supporting evidence to substantiate petitioners allegations. We have stressed time and again that
allegations must be proven by sufficient evidence (Ng Cho Cio vs. Ng Diong, 110 Phil. 882 [1961]; Recaro
vs. Embisan, 2 SCRA 598 [1961]). Mere allegation is not an evidence (Lagasca vs. De Vera, 79 Phil. 376
[1947]).
Even assuming arguendo that Ramona P. Alcaraz was in the United States of America on February 6,
1985, we cannot justify petitioners-sellers act of unilaterally and extrajudicially rescinding the contract of
sale, there being no express stipulation authorizing the sellers to extrajudicially rescind the contract of sale.
(cf. Dignos vs. CA, 158 SCRA 375 [1988]; Taguba vs. Vda. De Leon, 132 SCRA 722 [1984])
Moreover, petitioners are estopped from raising the alleged absence of Ramona P. Alcaraz because
although the evidence on record shows that the sale was in the name of Ramona P. Alcaraz as the buyer,
the sellers had been dealing with Concepcion D. Alcaraz, Ramonas mother, who had acted for and in behalf
of her daughter, if not also in her own behalf. Indeed, the down payment was made by Concepcion D.
Alcaraz with her own personal Check (Exh. B; Exh. 2) for and in behalf of Ramona P. Alcaraz. There is no
evidence showing that petitioners ever questioned Concepcions authority to represent Ramona P. Alcaraz
when they accepted her personal check. Neither did they raise any objection as regards payment being
effected by a third person. Accordingly, as far as petitioners are concerned, the physical absence of
Ramona P. Alcaraz is not a ground to rescind the contract of sale.
Corollarily, Ramona P. Alcaraz cannot even be deemed to be in default, insofar as her obligation to pay the
full purchase price is concerned. Petitioners who are precluded from setting up the defense of the physical
absence of Ramona P. Alcaraz as above-explained offered no proof whatsoever to show that they actually
presented the new transfer certificate of title in their names and signified their willingness and readiness to
execute the deed of absolute sale in accordance with their agreement. Ramonas corresponding obligation
to pay the balance of the purchase price in the amount of P1,190,000.00 (as buyer) never became due and
demandable and, therefore, she cannot be deemed to have been in default.
Article 1169 of the Civil Code defines when a party in a contract involving reciprocal obligations may be
considered in default, to wit:
Art. 1169. Those obliged to deliver or to do something, incur in delay from the time the obligee judicially or
extrajudicially demands from them the fulfillment of their obligation.
xxx
In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a
proper manner with what is incumbent upon him. From the moment one of the parties fulfill his obligation, delay
by the other begins. (Emphasis supplied.)
There is thus neither factual nor legal basis to rescind the contract of sale between petitioners and
respondents.
With the foregoing conclusions, the sale to the other petitioner, Catalina B. Mabanag, gave rise to a case
of double sale where Article 1544 of the Civil Code will apply, to wit:
Art. 1544. If the same thing should have been sold to different vendees, the ownership shall be transferred to the
person who may have first taken possession thereof in good faith, if it should be movable property.
Should it be immovable property, the ownership shall belong to the person acquiring it who in good faith first recorded
it in the Registry of Property.
Should there be no inscription, the ownership shall pertain to the person who in good faith was first in the possession;
and, in the absence thereof to the person who presents the oldest title, provided there is good faith.
The record of the case shows that the Deed of Absolute Sale dated April 25, 1985 as proof of the second
contract of sale was registered with the Registry of Deeds of Quezon City giving rise to the issuance of a
new certificate of title in the name of Catalina B. Mabanag on June 5, 1985. Thus, the second paragraph
of Article 1544 shall apply.
The above-cited provision on double sale presumes title or ownership to pass to the buyer, the exceptions
being: (a) when the second buyer, in good faith, registers the sale ahead of the first buyer, and (b) should
there be no inscription by either of the two buyers, when the second buyer, in good faith, acquires
possession of the property ahead of the first buyer. Unless, the second buyer satisfies these requirements,
title or ownership will not transfer to him to the prejudice of the first buyer.
In his commentaries on the Civil Code, an accepted authority on the subject, now a distinguished member
of the Court, Justice Jose C. Vitug, explains:
The governing principle is prius tempore, potior jure (first in time, stronger in right). Knowledge by the first buyer of
the second sale cannot defeat the first buyers rights except when the second buyer first registers in good faith the
second sale (Olivares vs. Gonzales, 159 SCRA 33). Conversely, knowledge gained by the second buyer of the first
sale defeats his rights even if he is first to register, since knowledge taints his registration with bad faith (see also
Astorga vs. Court of Appeals, G.R. No. 58530, 26 December 1984). In Cruz vs. Cabana (G.R. No. 56232, 22 June
1984, 129 SCRA 656), it was held that it is essential, to merit the protection of Art. 1544, second paragraph, that the
second realty buyer must act in good faith in registering his deed of sale (citing Carbonell vs. Court of Appeals, 69
SCRA 99, Crisostomo vs. CA, G.R. No. 95843, 02 September 1992).
(J. Vitug, Compendium of Civil Law and Jurisprudence, 1993 Edition, p. 604).

Petitioners point out that the notice of lis pendens in the case at bar was annotated on the title of the subject
property only on February 22, 1985, whereas, the second sale between petitioners Coronels and petitioner
Mabanag was supposedly perfected prior thereto or on February 18, 1985. The idea conveyed is that at
the time petitioner Mabanag, the second buyer, bought the property under a clean title, she was unaware
of any adverse claim or previous sale, for which reason she is a buyer in good faith.
We are not persuaded by such argument.
In a case of double sale, what finds relevance and materiality is not whether or not the second buyer in
good faith but whether or not said second buyer registers such second sale in good faith, that is, without
knowledge of any defect in the title of the property sold.
As clearly borne out by the evidence in this case, petitioner Mabanag could not have in good faith, registered
the sale entered into on February 18, 1985 because as early as February 22, 1985, a notice of lis pendens
had been annotated on the transfer certificate of title in the names of petitioners, whereas petitioner
Mabanag registered the said sale sometime in April, 1985. At the time of registration, therefore, petitioner
Mabanag knew that the same property had already been previously sold to private respondents, or, at least,
she was charged with knowledge that a previous buyer is claiming title to the same property. Petitioner
Mabanag cannot close her eyes to the defect in petitioners title to the property at the time of the registration
of the property.
This Court had occasions to rule that:
If a vendee in a double sale registers the sale after he has acquired knowledge that there was a previous sale of the
same property to a third party or that another person claims said property in a previous sale, the registration will
constitute a registration in bad faith and will not confer upon him any right. (Salvoro vs. Tanega, 87 SCRA 349 [1978];
citing Palarca vs. Director of Land, 43 Phil. 146; Cagaoan vs. Cagaoan, 43 Phil. 554; Fernandez vs. Mercader, 43
Phil. 581.)
Thus, the sale of the subject parcel of land between petitioners and Ramona P. Alcaraz, perfected on
February 6, 1985, prior to that between petitioners and Catalina B. Mabanag on February 18, 1985, was
correctly upheld by both the courts below.
Although there may be ample indications that there was in fact an agency between Ramona as principal
and Concepcion, her mother, as agent insofar as the subject contract of sale is concerned, the issue of
whether or not Concepcion was also acting in her own behalf as a co-buyer is not squarely raised in the
instant petition, nor in such assumption disputed between mother and daughter. Thus, We will not touch
this issue and no longer disturb the lower courts ruling on this point.
 WHEREFORE, premises considered, the instant petition is hereby DISMISSED and the appealed
judgment AFFIRMED.
SO ORDERED.
Narvasa, C.J. (Chairman), Davide, Jr., and Francisco, JJ., concur.
Panganiban, J., no part.

[G.R. No. 124045. May 21, 1998]

SPOUSES VIVENCIO BABASA and ELENA CANTOS BABASA, petitioners, vs. COURT OF
APPEALS, TABANGAO REALTY, INC., and SHELL GAS PHILIPPINES, INC., respondents.
DECISION
BELLOSILLO, J.:
On 11 April 1981 a contract of Conditional Sale of Registered Lands was executed between the
spouses Vivencio and Elena Babasa as vendors and Tabangao Realty, Inc. (TABANGAO) as a vendee
over three (3) parcels of land, Lots Nos. 17827-A, 17827-B and 17827-C, situated in Brgy. Libjo, Batangas
City. Since the certificates of title over the lots were in the name of third persons who had already executed
deeds of reconveyance and disclaimer in favor of the BABASAS, it was agreed that the total purchase price
of P2,121,920.00 would be paid in the following manner:
P300,000.00 upon signing of the contract, and P1,821,920.00 upon presentation by the BABASAS of
transfer certificates of titles in their name, free from all liens and encumbrances, and delivery of registerable
documents of sale in favor of TABANGAO within twenty (20) months from the signing of the contract. In the
meantime, the retained balance of the purchase price would earn interest at seventeen percent (17%) per
annum or P20,648.43 monthly payable to the BABASAS until 31 December 1982. It was expressly
stipulated that TABANGAO would have the absolute and unconditional right to take immediate possession
of the lots as well as introduce any improvements thereon.
On 18 May 1981 TABANGAO leased the lots to Shell Gas Philippines, Inc., (SHELL), which
immediately started the construction thereon of a Liquefied Petroleum Gas Terminal Project, an approved
zone export enterprise of the Export Processing Zone. TABANGAO is the real estate arm of SHELL.
The parties substantially complied with the terms of the contract. TABANGAO paid the first
installment of P300,000.00 to the BABASAS while the latter delivered actual possession of the lots to the
former. In addition, TABANGAO paid P379,625.00 to the tenants of the lots as disturbance compensation
and as payment for existing crops as well as P334,700.00 to the owners of the house standing thereon in
addition to granting them residential lots with the total area of 2,800 square meters. TABANGAO likewise
paid the stipulated monthly interest for the 20 month period amounting to P408,580.80. Meanwhile, the
BABASAS filed Civil Case No. 519[1] and Petition No. 373[2] for the transfer of titles of the lots in their
name.
However, two (2) days prior to the expiration of the 20-month period, specifically on 31 December
1982, the BABASAS asked TABANGAO for an indefinite extension within which to deliver clean title over
the lots. They asked that TABANGAO continue paying monthly interest of P20,648.43 starting January
1983 on the ground that Civil Case no. 519 and Petition No. 373 had not been resolved with finality in their
favor. TABANGAO refused the request. In retaliation the BABASAS executed a notarized unilateral
rescission dated 28 February 1983 to which TABANGAO responded by reminding the BABASAS that they
were the ones who did not comply with their contractual obligation to deliver clean titles within the stipulated
20-month period, hence, had no right to rescind their contract. The BABASAS insisted on the unilateral
rescission and demanded the SHELL vacate the lots.
On 19 July 1983 TABANGAO instituted an action for specific performance with damages in the
Regional Trial Court of Batangas City to compel the spouses to comply with their obligation to deliver clean
titles over the properties.[3] TABANGAO alleged that the BABASAS were already in a position to secure
clean certificates of title and execute registerable document of sale since execution of judgment pending
appeal had already been granted in their favor in Civil Case No. 519, while an order directing reconstitution
of the original copies of TCT Nos. T-32565, T-32566 and T-32567 covering the lots had been issued in
Petition No. 373. The BABASAS moved to dismiss the complaint on the ground that their contract with
TABANGAO became null and void with the expiration of the 20-month period given them within which to
deliver clean certificates of title. SHELL entered the dispute as intervenor praying that its lease over the
premises be respected by the BASABAS.
 Despite the pendency of the case the BASABAS put up several structures within the area in litigation
to impede the movements of persons and vehicles therein, laid claim to twelve (12) heads of cattle
belonging to intervenor SHELL and threatened to collect levy from all buyers of liquefied petroleum gas
(LPG) for their alleged use of the BABASA estate in their business transactions with intervenor SHELL. As
a result, SHELL applied for and was granted on 10 April 1990 a temporary restraining order against the
Babasa spouses and anyone acting for and in their behalf upon filing of a P2-million bond.[4]
Eventually, judgment was rendered in favor of TABANGAO and SHELL.[5] The court a quo ruled
that the 20-month period stipulated in the contract was never meant to be its term such that upon its
expiration the respective obligations of the parties would be extinguished. On the contrary, the expiration
thereof merely gave rise to the right of TABANGAO to either rescind the contract or to demand that the
BABASAS comply with their contractual obligation to deliver to it clean titles and registerable documents of
sale. The notarial rescission executed by the BABASAS was declared void and of no legal effect
xxxx
1. The unilateral rescission of contract, dated February 28, 1983, executed by the defendant-spouses is
null and void, without any legal force and effect on the agreement dated April 11, 1981, executed between
the plaintiff and the defendant-spouses;
2. The lease contract dated, May 18, 1981, executed by the plaintiff in favor of the intervenor is deemed
legally binding on the defendant-spouses insofar as it affects the three lots subject of this case;
3. The defendant-spouses Vivencio Babasa and Elena Cantos are hereby ordered to deliver to the plaintiff
Tabangao Realty, Inc., clean transfer certificates of title in their name and execute all the necessary deeds
and documents necessary for the Register of Deeds of Batangas City to facilitate the issuance of Transfer
Certificates of Title in the name of plaintiff, Tabangao Realty, Inc. In the event the defendant-spouses fail
to do so, the Register of Deeds of Batangas City is hereby directed to cancel the present transfer certificates
of title over the three lots covered by the Conditional Sale of Registered Lands executed by and between
plaintiff, Tabangao Realty, Inc., and the defendant-spouses Vivencio Babasa and Elena Cantos-Babasa on
April 11, 1981, upon presentation of credible proof that said defendant-spouses have received full payment
for the lots or payment thereof duly consigned to the Court for the amount of the defendant-spouses;
4. Plaintiff Tabangao Realty, Inc., is directed to pay the defendant-spouses Vivencio Babasa and Elena
Cantos-Babasa the remaining balance of P1,821,920.00 out of the full purchase price for these three lots
enumerated in the agreement dated April 11, 1981 plus interest thereon of 17% per annum or P 20,648.43
a month compounded annually beginning January 1983 until fully paid;
5. The Order dated April 10, 1990 issued in favor of the intervenor enjoining and restraining defendant-
spouses Vivencio Babasa and Elena Cantos-Babasa and/or anyone acting for and in their behalf from
putting up any structure on the three lots or interfering in any way in the activities of the intervenor, its
employees and agents, is made permanent, and the bond posted by the intervenor cancelled; and,
6. Defendant-spouses Vivencio Babasa and Elena Cantos-Babasa shall pay the costs of this proceeding
as well as the premium the intervenor may have paid in the posting of the P2,000,000.00 bond for the
issuance of the restraining order of April 10, 1990.[6]
The BABASAS appealed to the Court of Appeals[7] which on 29 February 1996 affirmed the decision
of the trial court court rejecting the contention of the BABASAS that the contract of 11 April 1981 was one
of lease, not of sale;[8] and described it instead as one of absolute sale though denominated conditional.
However, compounded interest was ordered paid from 19 July 1983 only, the date of filing of the complaint,
not from January 1983 as decreed by the trial court.
The BABASAS now come to us reiterating their contention that the contract of 11 April 1981 was in
reality a contract of lease, not for sale; but even assuming that it was indeed a sale, its nature was
conditional only, the efficacy of which was extinguished upon the non-happening of the condition, i.e., non-
delivery of clean certificates of title and registerable documents of sale in favor of TABANGAO within twenty
(20) months from the signing of the contract.
We find no merit in the petition. Respondent appellate court has correctly concluded that the
allegation of petitioners that the contract of 11 April 1981 is one of lease, not of sale, is simply incredible.
First, the contract is replete with terms and stipulations clearly indicative of a contract of sale. Thus, the
opening whereas clause states that the parties desire and mutually agreed on the sale and purchase of the
x x x three parcels of land; the BABASAS were described as the vendors while TABANGAO as the vendee
from the beginning of the contract to its end; the amount of P2,121,920.00 was stated as the purchase price
of the lots; TABANGAO, as vendee, was granted absolute and unconditional right to take immediate
possession of the premises while the BABASAS, as vendors, warranted such peaceful possession forever;
TABANGAO was to shoulder the capital gains tax, and; lastly, the BABASAS were expected to execute a
Final Deed of Absolute Sale in favor of TABANGAO necessary for the issuance of transfer certificates of
title the moment they were able to secure clean certificates of title in their name. Hence, with all the
foregoing, we cannot give credence to the claim of petitioners that subject contract was one of lease simply
because the word ownership was never mentioned therein. Besides, as correctly pointed out by respondent
court, the BABASAS did not object to the terms and stipulations employed in the contract at the time of its
execution when they could have easily done so considering that they were then ably assisted by their
counsel, Atty. Edgardo M. Carreon, whose legal training negates their pretended ignorance on the matter.
Hence, it is too late for petitioners to insist that the contract is not what they intended to be.
But the BABASAS lament that they never intended to sell their ancestral lots but were merely forced
to do so when TABANGAO dangled the threat of expropriation by the government (through the Export
Processing Zone Authority) in the event voluntary negotiations failed. Although a cause to commiserate
with petitioners may be perceived, it is not enough to provide them with an avenue to escape contractual
obligations validly entered into. We have already held that contracts are valid even though one of the parties
entered into it against his own wish and desire, or even against his better judgment.[9] Besides, a threat of
eminent domain proceedings by the government cannot be legally classified as the kind of imminent,
serious and wrongful injury to a contracting party as to vitiate his consent.[10] Private landowners ought to
realize, and eventually accept, that property rights must yield to the valid exercise by the state of its all-
important power of eminent domain.[11]
Finally, petitioners contend that ownership over the three (3) lots was never transferred to
TABANGAO and that the contract of 11 April 1981 was rendered lifeless when the 20-month period
stipulated therein expired without them being able to deliver clean certificates of title to TABANGAO through
no fault of their own. Consequently, their unilateral rescission dated 28 February 1983 should have been
upheld as valid.
We disagree. Although denominated Conditional Sale of Registered Lands, we hold, as did
respondent court, that the contract of 11 April 1981 between petitioners and respondent TABANGAO is one
of absolute sale. Aside from the terms and stipulations used therein indicating such kind of sale, there is
absolutely no proviso reserving title in the BABASAS until full payment of the purchase price, nor any
stipulation giving them the right to unilaterally rescind the contract in case of non-payment. A deed of sale
is absolute in nature although denominated a conditional sale absent such stipulations.[12] In such cases,
ownership of the thing sold passes to the vendee upon the constructive or actual delivery thereof.[13] In
the instant case, ownership over Lots Nos. 17827-A, 17827-B, and 17827-C passed to TABANGAO both
by constructive and actual delivery. Constructive delivery was accomplished upon the execution of the
contract of 11 April 1981 without any reservation of title on the part of the BABASAS while actual delivery
was made when TABANGAO took unconditional possession of the lots and leased them to its associate
company SHELL which constructed its multi-million peso LPG Project thereon.[14]
We do not agree with petitioners that their contract with TABANGAO lost its efficacy when the 20-
month period stipulated therein expired without petitioners being able to deliver clean certificates of title
such that TABANGAO may no longer demand performance of their obligation. In Romero v. Court of
Appeals[15] and Lim v. Court of Appeals[16] the Court distinguished between a condition imposed on the
perfection of a contract and a condition imposed merely on the performance of an obligation. While failure
to comply with the first condition results in the failure of a contract, failure to comply with the second merely
gives the other party the option to either refuse to proceed with the sale or to waive the condition.[17]
Here, a perfected contract of absolute sale exists between the BABASAS and TABANGAO when
they agreed on the sale of a determinate subject matter, i.e., Lots no. 17827-A, 17827-B and 17827-C, and
the price certain therefor without any condition or reservation of title on the part of the BABASAS. However,
the obligation of TABANGAO as vendee to pay the full amount of the purchase price was made subject to
the condition that petitioners first deliver the clean titles over the lots within twenty (20) months from the
signing of the contract. If petitioners succeed in delivering the titles within the stipulated 20-month period,
they would get P1,821,920.00 representing the entire balance of the purchase price retained by
TABANGAO. Otherwise, the deed of sale itself provides that
x x x upon the expiration of the 20-month period from the signing of the contract the Vendee is hereby
authorized to settle out of the balance retained by the Vendee all legally valid and existing obligations on
the properties x x x and whatever balance remaining after said settlement shall be paid to the Vendor.
Clearly then, the BABASAS act of unilaterally rescinding their contract with TABANGAO is
unwarranted. Even without the abovequoted stipulation in the deed, the failure of petitioners to deliver clean
titles within twenty (20) months from the signing of the contract merely gives TABANGAO the option to
either refuse to proceed with the sale of to waive the condition in consonance with Art. 1545 of the New
Civil Code.[18] Besides, it would be the height of inequity to allow the BABASAS to rescind their contract
of sale with TABANGAO by invoking as a ground therefor their own failure to deliver the titles over the lots
within the stipulated period.
WHEREFORE , the petition is DENIED. The appealed decision of the Court of Appeals in CA-G.R. CV No.
39554 affirming that of the Regional Trial Court of Batangas City, Br. 4, is AFFIRMED. No Costs.
SO ORDERED.
Davide, Jr. (Chairman), Vitug, Panganiban, and Quisumbing, JJ., concur.

SECOND DIVISION
[G.R. No. 140715. September 24, 2004]
JOSEFINA L. VALDEZ and CARLOS L. VALDEZ, JR., petitioners, vs. COURT OF APPEALS and JOSE
LAGON, respondents.
DECISION
CALLEJO, SR., J.:
This is a petition for review on certiorari of the Amended Decision[1] of the Court of Appeals in CA-G.R. CV
No. 49413 affirming on appeal the Decision of the Regional Trial Court of Isulan, Sultan Kudarat, Branch
19, in Civil Case No. 778.
The Antecedents
Carlos Valdez, Sr. and Josefina de Leon Valdez were the owners of a parcel of land with an area of 24,725
square meters located in the commercial district of Isulan, Sultan Kudarat. The property was designated as
Lot No. 3 of Pls-208-D-13 and was covered by Transfer Certificate of Title (TCT) No. T-19529 (T-1902)
issued on August 18, 1967.[2] When Carlos Valdez, Sr. died intestate on March 26, 1966, he was survived
by Josefina and their children, including Carlos Valdez, Jr., a practicing lawyer.
On December 28, 1978, Josefina caused the subdivision survey of the property[3] into eight (8) lots, i.e.,
Lots Nos. 3-A to 3-H, all fronting the national road. To enhance the value of the property, she decided to
sell a portion thereof to Jose Lagon, a successful businessman in Sultan Kudarat who owned a construction
firm as well as real estate and business enterprises: the Lagon Enterprises and the Rural Bank of Isulan.
He was also one of the clients of her son, Carlos, Jr., a practicing lawyer.
On May 1, 1979, Josefina executed a Special Power of Attorney authorizing her son, Carlos, Jr. to sell a
portion of Lot No. 3-C and Lot. No. 3-D to Lagon. The lots subject of the sale had an area of 4,094 square
meters, with a frontage of 64.3 square meters. Part of the consideration of the transaction was the condition
that Lagon cause the transfer of the Rural Bank of Isulan to the subject property and construct a commercial
building beside the bank.[4] On May 9, 1979, Josefina, through her son and attorney-in-fact, Carlos, Jr.,
executed a Deed of Absolute Sale of a portion of Lot No. 3 with a frontage of 64.3 square meters facing the
national highway and the National Grains Authority office going towards the Buencamino Movie House
starting from the corner.[5] However, the condition imposed by Josefina was not incorporated in the deed;
what was appended thereto was the Special Power of Attorney executed by Josefina. It was indicated in
the said deed that the property was to be sold for P80,000 cash and that Lagon had already paid the said
amount to Carlos, Jr. In reality, however, Lagon purchased the 4,094-square-meter property at P40.00 per
square meter, or for the amount of P163,760[6] inclusive of Carlos, Jr.s personal account to Lagon in the
amount of P73,760. Lagon had not yet remitted to Josefina the said amount of P163,760.
On April 21, 1981, Lagon gave to Carlos, Jr. PCIB Check No. 55007805 in the amount of P8,196.00 dated
April 21, 1981, and PCIB Check No. 55007806 postdated June 15, 1981 in the amount of P81,880.00 both
checks totaling P90,076.00 in full payment of the purchase price of the property, after deducting the account
of Carlos, Jr. amounting to P73,684.00. Josefina acknowledged the checks, through Carlos, Jr., who signed
a cash voucher for the same.[7] Carlos, Jr. was able to encash PCIB Check No. 55007805, but returned
the other check to Lagons wife, Nenita, after the latter paid him P20,000.00 thereby leaving a balance of
P61,880.00 of the purchase price.[8]
Carlos, Jr. prepared an Affidavit dated April 27, 1981 signed by Lagon, where the latter undertook to transfer
the Rural Bank of Isulan to the property and construct a commercial building thereon, to be in full operation
within a period of five (5) years from May 9, 1979, the date of the deed of absolute sale, or until May 9,
1984,[9] as part of the condition of the sale; and that if Lagon failed to do so, the deed of absolute sale shall
be declared null and void without need of demand therefor.[10] Lagon also made it clear in the said affidavit
that the consideration of the said Deed of Absolute Sale was not only the P80,000.00 purchase price, but
also that the subject property be commercialized.[11]
However, Lagon failed to start the construction of a commercial building and to transfer the rural bank
thereon; he, likewise, failed to pay the balance of the purchase price amounting to P61,880.00.
Consequently, Josefina and Carlos, Jr. refused to deliver to Lagon a torrens title over the purchased
property. On September 4, 1981, Carlos, Jr. wrote Lagon demanding the payment of P61,800.00 within ten
days from notice thereof, otherwise, the sale would be considered rescinded.[12] Still, Lagon failed to pay
or even respond to the letter. Carlos, Jr. again wrote Lagon on September 25, 1981, and this time proposed
the reduction of the area of the property subject of the sale to correspond to the payment so far made by
Lagon in the total amount of P90,676.00.[13] There was no response from Lagon.
In the meantime, TCT No. T-19529 was cancelled on October 9, 1981 by eight (8) titles bearing the following
particulars:
TCT No. Lot No. Area
16436 3-A 2,586 sq. meters[14]
16437 3-B 2,802 sq. meters[15]
16438 3-C 2,534 sq. meters[16]
16439 3-D 3,198 sq. meters[17]
16440 3-E 3,359 sq. meters[18]
16441 3-F 2,952 sq. meters[19]
16442 3-G 3,650 sq. meters[20]
16443 3-H 3,644 sq. meters[21]
All the foregoing subdivision titles were under the name of Josefina L. Valdez, married to Carlos Valdez,
Sr.
On December 31, 1982, Josefina and her children executed a deed of extrajudicial settlement of the estate
of Carlos Valdez, Sr. in which the heirs waived all their rights over the estate in favor of their mother,
Josefina.
On December 1, 1983, Geodetic Engineer Santiago C. Alhambra conducted a subdivision survey of Lot
No. 3-C, covered by TCT No. 16438 into three (3) subdivision lots with the following areas: Lot No. 3-C-1
with 449 square meters; Lot No. 3-C-2 consisting of 350 square meters; and, Lot No. 3-C-3, 1,735 square
meters. Engr. Alhambra prepared a subdivision plan on his survey which he submitted to the Bureau of
Lands on December 12, 1983. Lagon paid for his professional services.
Porfirio L. Cubar, the Bank Manager of the Philippine Commercial Industrial Bank (PCIB) in Isulan talked
to Carlos, Jr. and offered to buy, in behalf of the PCIB, Lot No. 3-C-2 for P100.00 per square meter. Carlos,
Jr. agreed. Josefina executed a deed of absolute sale on May 8, 1984, over Lot No. 3-C-2 for P35,000.00
in favor of PCIB.[22] Carlos, Jr. later learned that Lagon had been saying that he was responsible for the
sale of Lot No. 3-C-2 to the PCIB, but the latter informed Carlos, Jr. in a Letter dated September 13, 1984
that Lagon had nothing to do with the sale.[23]
On October 3, 1984, the Register of Deeds cancelled TCT No. 16438 and issued TCT No. 18817 over Lot
No. 3-C-2 in the name of PCIB.[24] The expenses for the issuance of the said title under the name of the
bank were for the account of Josefina.[25]
On June 11, 1987, the deed of extrajudicial settlement earlier executed by the heirs of Carlos Valdez, Sr.
was filed and registered in the Office of the Register of Deeds.[26] On June 16, 1987, Josefina executed a
Deed of Sale over Lot 3-D in favor of Engr. Rolendo Delfin, who was issued TCT No. 20380 for the
property.[27]
In the meantime, in August 1987, a question ensued in connection with Lagons failure to pay the balance
of the purchase price of the property, to cause the construction of a commercial building and the transfer
of the Rural Bank of Isulan to Lot No. 3, as undertaken by him in his Affidavit dated April 27, 1981. As a
reminder, Carlos, Jr. furnished Lagon with a machine copy of the said affidavit on August 12, 1987. On
August 13, 1987, Lagons counsel, Atty. Ernesto I. Catedral, wrote Carlos, Jr., pointing out that he had
earlier sought Lagons consent for the construction of the PCIB Branch in Lot No. 3. Catedral posited that
by consenting to the sale of the property to PCIB and the construction thereon of its branch office, Lagon
thereby substantially complied with his undertaking under the deed of absolute sale. The lawyer asked
Carlos, Jr. to set a conference to thresh out possibilities of an amicable settlement of the matter.[28] On
September 21, 1987, Carlos, Jr. furnished Atty. Catedral with copies of documents, including a Special
Power of Attorney, executed by Josefina in favor of Carlos, Jr., the deed of absolute sale over Lot No. 3 in
favor of Lagon and the deed of absolute sale executed by Josefina in favor of PCIB, among others.[29]
Lagon, through his counsel, Atty. Rex G. Rico, reiterated his request for a conference on May 23, 1988.[30]
However, Carlos, Jr. was not available on the said date.
On August 4, 1988, Josefina executed a real estate mortgage over Lot No. 3-C-3 covered by TCT No.
18818 in favor of the Development Bank of the Philippines (DBP) as security for a loan of P150,000.00.[31]
Josefina executed a deed of absolute sale over Lot No. 3-C-1 in favor of her son, Carlos, Jr. on February
21, 1989. The Register of Deeds thereafter issued TCT No. 21943 in the latters name on February 28,
1989.[32] In the meantime, in 1984, Carlos, Jr. had an edifice constructed on the property where he put up
his law office, a nipa hut behind the PCIB branch, the Ivy Pharmacy, the K House and the headquarters of
the Nationalista Party.[33]
On September 24, 1990, Lagon filed a Complaint against Josefina, and Carlos, Jr., in his capacity as
attorney-in-fact of Josefina, for specific performance and damages with a prayer for a temporary restraining
order and writ of preliminary injunction. He prayed that, after due proceedings, judgment be rendered in his
favor, thus:
WHEREFORE, it is respectfully prayed that upon the filing of this complaint, a restraining order be issued enjoining
defendants from selling, disposing or otherwise encumbering the property subject of this case; after due hearing, a
writ of preliminary prohibitory injunction be issued in the same tenor as that of the restraining order; and after trial on
the merits, judgment be rendered in favor of plaintiff and against the defendants:
a) Making the writ of preliminary prohibitory injunction permanent;
b) Ordering defendants to immediately and without delay, deliver to plaintiff the possession of and the transfer
certificate of title over the remaining area of that parcel of land they sold to plaintiff;
c) Ordering defendants to pay plaintiff, jointly and severally, the following sums:
i. P500,000.00 representing opportunity loss;
ii. P50,000.00 for and as attorneys fees;
iii. P20,000.00 for and as expenses of litigation; and
iv. P50,000.00 for and as moral, exemplary, temperate and nominal damages.
Other reliefs, just and equitable under the premises, are likewise prayed for.[34]
Lagon testified that Josefina failed to deliver the title to the property he purchased from her, as well as the
possession thereof; hence, he was not certain of the metes and bounds of the property and could not secure
a building permit for the transfer and construction of the Rural Bank of Isulan, as well as the commercial
building. Besides, Carlos, Jr. secured his permission for the construction of the PCIB commercial building
on Lot No. 3-C-2 which was sold to him by Josefina, and even agreed to the deduction of the purchase
price thereof; hence, the balance was only P26,880. Lagon demanded that the title to the property be turned
over to him and the occupants thereof be evicted therefrom so that he could comply with the conditions of
the sale for the construction of the commercial building and the transfer of the Isulan Rural Bank. However,
Carlos, Jr. dilly-dallied, saying that the heirs of Carlos, Sr. needed time to execute the extrajudicial
settlement of his estate, and thus failed to deliver said title to him. Lagon averred that his consent to the
construction by the PCIB of its branch on a portion of the property he had purchased from Josefina
constituted substantial compliance of his undertaking under the deed of absolute sale and the affidavit he
executed in favor of Josefina. He also alleged that he signed the affidavit prepared by Carlos, Jr. without
reading and understanding the same. He pointed out that although Lot No. 3 had already been sold to him
by Josefina, she still sold Lot No. 3-C-3 to her son, Carlos, Jr.; Lot No. 3-D to Engr. Rolendo Delfin; and
mortgaged Lot No. 3-D to DBP which acquired title over the property.
In their answer to the complaint, Josefina and her son, the defendants therein, alleged that Lagon had no
cause of action against them because he failed to comply with the terms of the deed of absolute sale, his
undertaking under his affidavit, and to pay the purchase price of the property in full. Carlos, Jr. denied
securing Lagons consent to the construction of the PCIB branch on Lot 3-C-2, and agreeing to deduct
P35,000 from the balance of Lagons account for the purchase price of the property. Josefina and Carlos,
Jr. interposed counterclaims for damages and attorneys fees.
Lagon withdrew his petition for the issuance of a writ of preliminary injunction which the trial court granted,
per its Order dated February 24, 1993.
On January 20, 1995, the trial court rendered judgment in favor of Lagon. The fallo of the decision reads:
WHEREFORE, upon all the foregoing considerations, judgment is hereby rendered:
1. ORDERING defendant Josefina L. Valdez, by herself, or through her duly authorized attorney-in-fact, defendant
Carlos L. Valdez, Jr., to execute the necessary registrable document of deed of absolute sale in favor of the plaintiff
over the remaining area of that parcel of land, the defendant sold to plaintiff on May 9, 1979, particularly Lot 3-C-3,
Psd-12-005408 covered under Transfer Certificate of Title No. T-18816, in the name of defendant Josefina de Leon
Vda. de Valdez, and for the latter to deliver to plaintiff the possession of and the transfer certificate of title thereof,
and ORDERING further the defendants to pay, jointly and severally, plaintiff the current fair market value of the
remaining area of the land sold to the latter which defendants may not be able to deliver and transfer ownership thereof
to the plaintiff, minus the amount of P26,880.00 representing the unpaid balance of the agreed purchase price of the
4,094 square meter-portion of land sold to plaintiff in the total amount of P163,760.00;
2. ORDERING defendants to pay plaintiff, jointly and severally, the sums of:
(a) P50,000.00 representing attorneys fees for the legal services of plaintiffs counsel, plus P5,000.00, as appearance
fee for plaintiffs counsel, per hearing, for not less than ten (10) times;
(b) P2,119.00 as filing fees (Exhibits W, W-1, W-2, and W-3) paid by plaintiff for the filing of this case;
(c) P23,585.50 representing transportation expenses of plaintiffs counsel through PAL flights from Manila to attend
court hearings in this Court, and in going back to Manila (Exhibits FF, FF-1, GG, HH, II, JJ, KK, LL, and MM);
(d) P50,000.00 for and as moral and exemplary damages; and, further
ORDERING defendants, jointly and severally, to pay the costs of suit.
For lack of merit, the counterclaim interposed by defendants should be, as it is hereby, dismissed.
IT IS SO ORDERED.[35]
Josefina and Carlos, Jr. appealed the decision to the Court of Appeals, contending that
I. THE LOWER COURT ERRED IN NOT UPHOLDING THE DEFENSE OF THE DEFENDANTS-APPELLANTS
THAT THE PLAINTIFF-APPELLEE HAS NO VALID CAUSE OF ACTION AGAINST THEM CONSIDERING
THAT HE FAILED TO COMPLY WITH THE TERMS AND CONDITIONS OF HIS WRITTEN CONTRACTS
WITH THE DEFENDANTS-APPELLANTS.
II. THE COURT ERRED IN NOT UPHOLDING THAT EXHIBIT 3 WHICH IS THE AFFIDAVIT OF PLAINTIFF-
APPELLEE, WAS PART OF THE AGREEMENTS OF THE PARTIES AS IT WAS ADMITTED BY HIM. IT
MUST BE ENFORCED AND PLAINTIFF-APPELLEE IS LIABLE FOR BREACH OF HIS CONTRACT WITH
THE DEFENDANTS-APPELLANTS.
III. THE LOWER COURT ERRED WHEN IT RULED THAT THE TERMS AND CONDITIONS IN THE SPECIAL
POWER OF ATTORNEY (EXHIBITS 1-C AND A-1) WERE NOT PART OF THE DEED OF ABSOLUTE SALE
(EXHIBITS 1 AND A) EXECUTED BY THE PARTIES.
IV. THE LOWER COURT ERRED IN NOT DECLARING THAT THE ACT OF THE DEFENDANTS-
APPELLANTS IN RESCINDING THEIR CONTRACT WITH THE PLAINTIFF-APPELLEE WAS PERFECTLY
LEGAL, VALID, EFFECTIVE AND BINDING ON THE PLAINTIFF-APPELLEE.
V. THE LOWER COURT ERRED IN NOT RENDERING JUDGMENT IN FAVOR OF THE DEFENDANTS-
APPELLANTS DESPITE THE OVERWHELMING EVIDENCE OF THE MANIFEST INCREDULITY AND
UNWORTHINESS OF THE EVIDENCE OF THE PLAINTIFF-APPELLEE.
VI. THE LOWER COURT ERRED IN NOT FINDING THAT THE PLAINTIFF-APPELLEE IS GUILTY OF
LACHES OR ESTOPPEL.
VII. THE COURT ERRED IN AWARDING DAMAGES TO THE PLAINTIFF-APPELLEE AND DISMISSING
THE COUNTERCLAIM OF THE DEFENDANTS-APPELLANTS.[36]
The appellate court rendered judgment on January 28, 1998 reversing the decision of the RTC. The fallo
of the decision reads:
IN VIEW WHEREOF, the Decision of the Lower Court dated January 20, 1995 is hereby REVERSED and SET
ASIDE. Appellants are hereby ordered to return to Appellee the sum of P101,880.00 together with 12% interest per
annum from the finality of this decision. The case filed in the Court a quo is hereby ordered DISMISSED.[37]
The appellate court ruled that based on the deed of absolute sale, the Special Power of Attorney executed
by Josefina, and the affidavit of the respondent, the parties had executed a contract to sell. The respondent
filed a motion for the reconsideration thereof.
On February 4, 1999, the Court of Appeals reversed itself and rendered an Amended Decision, setting
aside its decision and affirming that of the RTC. This time, the appellate court held that Josefina had, after
all, executed a deed of absolute sale over the 4,094-square-meter portion of Lot No. 3. It declared that the
Special Power of Attorney executed by Josefina and the affidavit did not form part of the deed of absolute
sale. It further declared that Lagons affidavit could not be considered part of the said deed because it was
merely an afterthought contrived by Carlos, Jr.
The appellate court also held that even if the Special Power of Attorney and affidavit formed integral parts
of the deed of absolute sale, Lagon was justified in refusing to pay the balance of the purchase price of the
property and to comply with his undertaking thereon, because Josefinas refusal to deliver the title to the
property made it impossible to determine the metes and bounds thereof. According to the appellate court,
under Article 1186 of the New Civil Code, the conditions of the sale are deemed fulfilled. Moreover, the
Court of Appeals ruled, the appellants failed to comply with the procedure under Article 1592 of the New
Civil Code in rescinding the sale.
Josefina and Carlos, Jr., now the petitioners, filed their petition for review on certiorari wherein they raised
the following issues:
I. WHETHER OR NOT THE CONTRACT OF THE PARTIES BEING SUBJECT TO THE SUSPENSIVE
CONDITIONS AGREED UPON WAS A CONTRACT TO SELL OR A CONTRACT OF SALE?
II. WHETHER OF (SIC) NOT THE PETITIONERS HAD THE RIGHT TO RESCIND THEIR CONTRACT
WITH PRIVATE RESPONDENT?
III. WHETHER OF (SIC) NOT PRIVATE RESPONDENT IS ENTITLED TO HIS CLAIM FOR SPECIFIC
PERFORMANCE AND DAMAGES CONSIDERING HIS FAILURE TO COMPLY WITH THE SUSPENSIVE
CONDITIONS AGREED UPON?[38]
The petitioners assert that, the contract agreed upon by the parties was a contract to sell and not a contract
of sale. The petitioners contend that the three documents, the deed of absolute sale, the special power of
attorney executed by petitioner Josefina and the affidavit of the respondent dated April 27, 1981, formed
integral parts containing the terms and conditions of one and the same transaction. They emphasize that
the respondent knew that his contract with petitioner Josefina was a contract to sell because he did not
acquire a torrens title over the property nor took possession thereof after the execution of the deed of
absolute sale; the respondent even failed to register the said deed with the Office of the Register of Deeds
and to declare the same for taxation purposes under his name. They aver that the requirements under
Article 1592 of the New Civil Code do not apply to a contract to sell but only to a contract of sale.
The petitioners insist that the Court of Appeals erred in declaring that the conditions of the sale were
deemed fulfilled by their failure to deliver the torrens title to the property to the respondent, on its finding
that notwithstanding such failure, the respondent continued making partial payments of the purchase price
of the property to the petitioners.
In his comment on the petition, the respondent reiterates that based on the evidence on record, the
admissions of the petitioners, as well as the special power of attorney executed by petitioner Josefina, a
deed of absolute sale was executed between him and petitioner Josefina, not merely a contract to sell of
the portions of Lots 3-C and 3-D. He alleges that under Articles 1477 and 1498 of the New Civil Code, he
acquired title and possession of the property upon the execution of the said deed.
The Ruling of the Court
The Subject Property is the

Exclusive Property of

Josefina de Leon Valdez

Intricately interwoven with the threshold issue raised by the petitioners is the issue of the nature of Lot No.
3 of Pls-208-D-13 covered by TCT No. T-19529 (T-1902).
In the deed of absolute sale executed by petitioner Josefina in favor of the respondent, she declared that
she was the absolute owner of the said property.[39] However, in the deed of extrajudicial settlement of the
estate of Carlos Valdez, Sr. executed by petitioner Josefina and her children on December 31, 1982, the
subject property was declared as part of the estate of the deceased.[40] The Court of Appeals, under its
Amended Decision, affirmed the finding of the RTC that it was only after the execution of the said deed of
extrajudicial settlement that petitioner Josefina became the absolute owner of the property.[41] However,
we find that both the trial and appellate courts erred in so ruling.
We note that TCT No. T-19529 (T-1902) covering the property was issued on August 18, 1967, during the
marriage of the Spouses Carlos Valdez, Sr. and petitioner Josefina, under the name Josefina L. Valdez
married to Carlos Valdez, Sr. The issuance of the title in the name solely of one spouse is not determinative
of the conjugal nature of the property, since there is no showing that it was acquired during the marriage of
the Spouses Carlos Valdez, Sr. and Josefina L. Valdez.[42] The presumption under Article 160 of the New
Civil Code, that property acquired during marriage is conjugal, does not apply where there is no showing
as to when the property alleged to be conjugal was acquired. The presumption cannot prevail when the title
is in the name of only one spouse and the rights of innocent third parties are involved.[43] Moreover, when
the property is registered in the name of only one spouse and there is no showing as to when the property
was acquired by same spouse, this is an indication that the property belongs exclusively to the said
spouse.[44]
In this case, there is no evidence to indicate when the property was acquired by petitioner Josefina. Thus,
we agree with petitioner Josefinas declaration in the deed of absolute sale she executed in favor of the
respondent that she was the absolute and sole owner of the property. We are convinced that the declaration
in the deed of extrajudicial settlement of the estate of the late Carlos Valdez, Sr., that the property formed
part of his estate and that his children waived their rights and claims over the property in favor of their
mother, was done merely to facilitate the issuance of a torrens title over the property in petitioner Josefinas
name with her marital status as widow.
Petitioner Josefina Valdez

and the Respondent entered

into a Contract of Sale over

the Subject Property

The RTC, as well as the Court of Appeals in its Amended Decision, held that petitioner Josefina and the
respondent entered into a contract of sale, not a contract to sell, over the subject property, relying solely on
the deed of absolute sale executed by her on May 9, 1979. Although it was expressly stated in the Affidavit
executed by the respondent on April 27, 1981 appended to the deed, the appellate court affirmed the ruling
of the RTC that such Special Power of Attorney executed by petitioner Josefina in favor of her son, petitioner
Carlos, Jr., did not form part of the said deed. Both tribunals ratiocinated that, indeed, under the Special
Power of Attorney, part of the consideration of the sale of the subject property was the construction of a
commercial building and the transfer of the Isulan Rural Bank thereto within five (5) years from the execution
of the deed. However, since such condition was not actually incorporated in the said deed, the affidavit
prepared by petitioner Carlos, Jr. and signed by the respondent was but an afterthought contrived by
petitioner Carlos, Jr., thus enabling him to surreptitiously insert a provision or condition in the deed of
absolute sale.
We agree with the trial and appellate courts that petitioner Josefina and the respondent entered into a
contract of sale over the subject property and not merely a contract to sell the same.
It is not disputed by the parties that petitioner Josefina executed a Special Power of Attorney in favor of her
son, petitioner Carlos, Jr., as her attorney-in-fact, authorizing the latter to sell the subject property, and
petitioner Josefina, through her son, executed the deed of absolute sale over the subject property. She also
acknowledged receipt of partial payments of the purchase price of the property on April 21, 1981 through
her attorney-in-fact; the balance of the purchase price thus stood at P61,880.00 There is, likewise, no
dispute that the respondent signed the affidavit on April 27, 1981. The parties, however, differ on the real
nature of their transaction and on whether the said affidavit formed an integral part of the deed of absolute
sale executed by petitioner Josefina in favor of the respondent.
The real nature of a contract may be determined from the express terms of the written agreement and from
the contemporaneous and subsequent acts of the parties thereto.[45]
In the construction or interpretation of an instrument, the intention of the parties is primordial and is to be
pursued.[46] 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.[47] If the contract appears to be contrary to the
evident intentions of the parties, the latter shall prevail over the former.[48] The denomination given by the
parties in their contract is not conclusive of the nature of the contents.[49]
The agreement of the parties may be embodied in only one contract or in two or more separate writings. In
such event, the writings of the parties should be read and interpreted together in such a way as to render
their intention effective.[50]
A sale is at once perfected when a person (the seller) obligates himself, for a price certain, to deliver and
to transfer ownership of a specified thing or right to another (the buyer) over which the latter agrees.[51]
From the time the contract is perfected, the parties are bound not only to the fulfillment of what has been
expressly stipulated but also to all the consequences which, according to their nature, may be in keeping
with good faith, usage and law.[52]
In a contract of sale, the title to the property passes to the vendee upon the constructive or actual delivery
thereof, as provided for in Article 1477 of the New Civil Code. The vendor loses ownership over the property
and cannot recover it until and unless the contract is resolved or rescinded by a notarial deed or by judicial
action as provided for in Article 1540 of the New Civil Code. A contract is one of sale, absent any stipulation
therein reserving title over the property to the vendee until full payment of the purchase price nor giving the
vendor the right to unilaterally rescind the contract in case of non-payment.[53] In a contract of sale, the
non-payment of the price is a resolutory condition which extinguishes the transaction that, for a time, existed
and discharges the obligations created thereunder.[54] In a contract to sell, ownership is, by agreement,
reserved in the vendor and is not to pass to the vendee until full payment of the purchase price. Such
payment is a positive suspensive condition, failure of which is not a breach but an event that prevents the
obligation of the vendor to convey title from becoming effective.[55]
In this case, the deed of absolute sale executed by petitioner Josefina reads:
That the Vendor is the registered owner of Lot 3 Allah Valley Pls-208-D-3, located at Isulan, Sultan Kudarat, covered
by Transfer Certificate of Title No. (T-19529) T-1902 of the Register of Deeds of Cotabato, with eight (8) lots
subdivision duly approved pursuant to R.A. 440 on March 27, 1979.
That for and in consideration of the sum of EIGHTY THOUSAND PESOS (P80,000.00), Philippine Currency, in
hand paid by the VENDEE, receipt of which amount in Full is hereby acknowledged by the VENDOR, to the ENTIRE
and full satisfaction of the VENDOR, and who by these presents do hereby sell, cede, deliver and convey unto the
said VENDEE, his heirs, assigns and successors in interests, a portion of the above-mentioned lot, more particularly
described as follows:
TOTAL AREA: FOUR THOUSAND AND NINETY-FOUR (4,094) SQUARE METERS, WITH SIXTY-FOUR
POINT THREE (64.3) METERS, FRONTAGE, FACING THE NATIONAL HIGHWAY and the NGA Office, going
towards the BUENCAMINO MOVIE HOUSE, starting from the corner.
That the Vendor hereby warrants the peaceful possession and ownership of said vendee against any adverse claim.[56]
Irrefragably, the deed is one of sale, not a contract to sell. The deed specifically states that the property is
sold and delivered to the respondent as vendee. Petitioner Josefina even warranted the peaceful
possession and ownership of the respondent over the property subject of the transaction. She did not
reserve the ownership over the property, as well as any right to unilaterally rescind the contract. There has
been, by the execution of the said deed, a constructive delivery of the property to the respondent; hence,
the latter acquired ownership over the same.[57] Upon payment of the purchase price, petitioner Josefina
was obliged to deliver the torrens title over the property to and under the name of the respondent as the
new owner and place him, as vendee, in actual possession thereof; otherwise, the failure or inability to do
so constitutes a breach of the contract sufficient to justify its rescission.[58]
However, we rule that the deed of absolute sale was unenforceable as of the date of its execution, May 9,
1979. This is so, because under the Special Power of Attorney petitioner Josefina executed in favor of her
son, petitioner Carlos, Jr., the latter was authorized to sell the property on cash basis only; petitioner
Josefina likewise required the construction of a commercial building and the transfer of the Rural Bank of
Isulan, as part of the consideration of the sale to be incorporated in the said deed as part of the respondents
obligation as vendee, thus:
(a) To sell sixty four point three meters FRONTAGE and the full length of Lot 3, ALLAH VALLEY, Pls-208-
D-13 described in TCT No. T-(19529) T-1902, somewhere in the 3rd and 4th lots of the 8 lots subdivision,
located at Poblacion, Isulan, Sultan Kudarat, registered in my name, consisting of Four Thousand Ninety-
Four (4,094) Square Meters;
(b) To RECEIVE and SIGN documents and papers necessary in the CONTRACT OF SALE with Mr. JOSE
LAGON, and to RECEIVE the full PRICE in CASH, to be determined by my son, CARLOS L. CARLOS,
JR.;
(c) To IMPOSE in the Contract that aside from the PRICE, another consideration would be for Mr. JOSE
LAGON to transfer the RURAL BANK OF ISULAN to the above-mentioned lot and to put a commercial
building, different from the building of the Rural Bank of Isulan on the same lot.[59]
Clearly, petitioner Carlos, Jr. acted beyond the scope of his authority when he executed the deed of
absolute sale in contravention of petitioner Josefinas express instructions. Worse, he falsely declared in
the said deed that the purchase price was P80,000.00 and that he had already received the said amount,
when, in fact, the property was sold for P40.00 per square meters, or a total of P163,760.00, and that as of
May 9, 1979, he had not yet received the said amount. Under Article 1317 of the New Civil Code, contracts
executed by agents who have acted beyond their powers are unenforceable unless ratified by the principal
either expressly or impliedly:
Art. 1317. No one may contract in the name of another without being authorized by the latter, or unless he has by law
a right to represent him.
A contract entered into in the name of another by one who has no authority or legal representation, or who has acted
beyond his powers, shall be unenforceable, unless it is ratified, expressly or impliedly, by the person on whose behalf
it has been executed, before it is revoked by the other contracting party.
Thus, the effectivity of the contract of sale in the case at bar depends upon the ratification thereof by
petitioner Josefina as principal. If she ratifies the deed, the sale is validated from the moment of its
commencement, and not merely from the time of its ratification.[60] In such case, she can no longer
maintain an action to annul the same based upon defects relating to its original validity.[61]
We find that petitioner Josefina ratified the said deed when she received, through her son and attorney-in-
fact petitioner Carlos, Jr., partial payments of the purchase price of the property from the respondent on
April 21, 1981.[62] Such ratification retroacted to May 9, 1979, the date when petitioner Josefina, through
her attorney-in-fact, executed the deed of sale covering the subject property in favor of the respondent.
Moreover, we rule that the respondent agreed on to transfer the Rural Bank of Isulan to the subject property,
and to cause the construction of a commercial building within five (5) years reckoned from May 9, 1979 or
until May 9, 1984, as evidenced by his affidavit.
We reject the findings of the RTC as affirmed by the CA that the affidavit signed by the respondent on April
27, 1981 was merely an afterthought contrived by petitioner Carlos, Jr., and their conclusion that the said
affidavit had no binding effect on petitioner Josefina. The affidavit of the respondent reads:
1. That I am the Vendee of a Deed of Absolute Sale where the Vendor is Mrs. Josefina L. Valdez, represented by
CARLOS L. CARLOS, JR., through a Special Power of Attorney;
2. That the above-mentioned Deed of Absolute Sale is dated May 9, 1979 and the Special Power of Attorney also
above-mentioned was dated May 1, 1979, both duly notarized by Notary Public Atty. Bienvenido Noveno under Doc.
No. 77; Page No. 16; Book No. XIX; Series of 1979, and Doc. No. 73; Page No. 15; Book No. XIX; Series of 1979;
respectively;
3. That the subject of the above-mentioned Deed of Absolute Sale is a lot consisting of 4,094 square meters, covered
by Transfer Certificate of Title No. T-19529 of the Register of Deeds for the Province of Cotabato, facing the National
Highway and the Isulan NGA Office going towards the Buencamino Movie House, starting from the corner;
4. That the consideration of the above-mentioned Deed of Absolute Sale is EIGHTY THOUSAND PESOS
(P80,000.00) and in addition thereto, I hereby declare and manifest that the above-mentioned 4,094 square meters be
commercialized by putting up at least one (1) bank and any other commercial building in the said 4,094 square meters
within a period of five (5) years from the time of the execution of the above-mentioned Deed of Absolute Sale, in full
operation;
5. That should I fail to commercialize the said 4,094 square meters in full operation within a period of five (5) years
as stated above, I hereby declare and manifest that said Deed of Absolute Sale shall be declared null and void, without
need of demand addressed to me;
6. That the purpose of this Affidavit is to make it clear that the consideration of the said Deed of Absolute Sale is not
only P80,000.00 cash but also the fact that the said 4,094 square meters be commercialized.[63]
The respondent admitted in his complaint that he undertook to construct the said building and transfer the
Rural Bank of Isulan to the property he had purchased from petitioner Josefina.[64] The respondent affirmed
the authenticity and due execution of his affidavit and his obligations therein, and testified, thus:
ATTY. VALDEZ:
Q Mr. Lagon, you testified that according to you the construction of the same, the PCIB Isulan was a
compliance of your obligation under your contract with the Valdezes, do you recall having testified on that?
A Yes, Sir.
Q With in (sic) how many years, by the say (sic), were you supposed to comply with that condition by putting
up a bank or a commercial building in that area?
A Supposed to be five years, Sir.
Q From when?
A According to the affidavit, from the time I purchased the property up to or from May 9, 1979 to 1984,
Sir.[65]
In his letter to petitioner Carlos, Jr., the respondent, through counsel, admitted the binding effect of his
affidavit as follows:
It is hereby submitted therefore that there is in effect substantial compliance on the part of Mr. Lagon with regards to
the additional condition laid down in his affidavit herein-referred to. If you deem it that Mr. Lagon has not
satisfactorily complied with all the obligations you imposed upon him to do thereunder, it is made to reasons not of
his own making but due to factors brought about by circumstances then prevailing, and elaboration on the same can
only be properly stated on the proper to come.[66]
Far from being a mere affidavit, the document embodies the unequivocal undertaking of the respondent to
construct a fully operational commercial building and to transfer the Rural Bank of Isulan to the subject
property as part of the consideration of the sale within five (5) years from the execution of the deed of sale,
or until May 9, 1984.
The intractable refusal of the respondent to pay the balance of the purchase price of the property despite
the petitioners demands had no legal basis. As such, petitioner Josefinas refusal to deliver the torrens title
over the subject property under the respondents name was justified, precisely because of the respondents
refusal to comply with his obligation to pay the balance of the purchase price. Had the respondent paid the
purchase price of the property, such failure on the part of petitioner Josefina to deliver the torrens title to
and under the name of the respondent would have warranted the suspension of the five-year period agreed
upon for the construction of a fully operational commercial building, as well as the transfer of the aforesaid
bank to the property. This is so because absent such torrens title under the name of the respondent, no
building permit for the construction of the buildings could be secured.
Considering all the foregoing, the failure of the respondent to cause the construction of the commercial
building and the transfer of the bank to the property sold under the deed of sale executed between him and
petitioner Josefina was due to the respondents own fault.
There was no need for petitioner Josefina to make a notarized demand to the respondent or file an action
to rescind the deed of absolute sale to enable her to recover the ownership of the property. This is so
because the petitioner and the respondent had agreed that upon the latters failure to construct a new and
fully operational commercial building and to cause the transfer of the Rural Bank of Isulan to the property
on or before May 9, 1984, the deed of absolute sale would be deemed null and void without need of any
demand from the petitioners. Such agreement is evidenced by the affidavit executed by the respondent
himself on April 27, 1981.
We do not agree with the respondents contentions that petitioner Josefina, through her son and attorney-
in-fact petitioner Carlos, Jr., had agreed to the sale of a portion of the property, the construction of the PCIB
branch office thereon, and the crediting of the amount paid by the PCIB to the respondents account, and
deducted from the balance of the purchase price. In the first place, the respondent failed to adduce a morsel
of evidence that petitioner Josefina had knowledge of the said agreement and had agreed thereto.
Furthermore, the respondent failed to adduce documentary evidence that petitioner Josefina authorized
her son and attorney-in-fact to enter into such an agreement.
It bears stressing that petitioner Josefina specifically and unequivocally required in the special power of
attorney, as part of the consideration of the sale of the property to the respondent, the latters obligation to
construct a new and fully operational commercial building and transfer the Rural Bank of Isulan to the
property. Had she agreed to modify the Special Power of Attorney she executed in favor of her son,
petitioner Carlos, Jr., for sure, she would have executed a document to that effect. She did not do so.
Petitioner Carlos, Jr. could not lawfully bind petitioner Josefina thereon because he was not so authorized
to enter into such an agreement with the respondent; neither can such authority be implied from the Special
Power of Attorney petitioner Josefina executed in favor of her son, petitioner Carlos, Jr.
In sum, then, the respondent had no cause for specific performance against the petitioners. However, the
petitioners are obliged to refund to the respondent the latters partial payments for the subject property.[67]
The petitioners failed to adduce sufficient evidence to prove their counterclaims, and, as such, the
counterclaims must forthwith be dismissed.
 IN LIGHT OF ALL THE FOREGOING, the Amended Decision of the Court of Appeals dated
February 4, 1999 is REVERSED and SET ASIDE. The complaint of the respondent is DISMISSED. The
petitioners are directed to refund to the respondent the amount of P101,880.00 with interest thereon at the
rate of 12% per annum from the finality of this decision. No costs.
SO ORDERED.
Puno, (Chairman), Austria-Martinez, and Tinga, JJ., concur.
Chico-Nazario, J., on leave.
G.R. No. L-59266 February 29, 1988
SILVESTRE DIGNOS and ISABEL LUMUNGSOD, petitioners,
vs.
HON. COURT OF APPEALS and ATILANO G. JABIL, respondents.

BIDIN, J.:
This is a petition for review on certiorari seeking the reversal of the: (1) Decision * of the 9th Division, Court
of Appeals dated July 31,1981, affirming with modification the Decision, dated August 25, 1972 of the Court
of First Instance ** of Cebu in civil Case No. 23-L entitled Atilano G. Jabil vs. Silvestre T. Dignos and Isabela
Lumungsod de Dignos and Panfilo Jabalde, as Attorney-in-Fact of Luciano Cabigas and Jovita L. de
Cabigas; and (2) its Resolution dated December 16, 1981, denying defendant-appellant's (Petitioner's)
motion for reconsideration, for lack of merit.
The undisputed facts as found by the Court of Appeals are as follows:
The Dignos spouses were owners of a parcel of land, known as Lot No. 3453, of the cadastral survey of
Opon, Lapu-Lapu City. On June 7, 1965, appellants (petitioners) Dignos spouses sold the said parcel of
land to plaintiff-appellant (respondent Atilano J. Jabil) for the sum of P28,000.00, payable in two
installments, with an assumption of indebtedness with the First Insular Bank of Cebu in the sum of
P12,000.00, which was paid and acknowledged by the vendors in the deed of sale (Exh. C) executed in
favor of plaintiff-appellant, and the next installment in the sum of P4,000.00 to be paid on or before
September 15, 1965.
On November 25, 1965, the Dignos spouses sold the same land in favor of defendants spouses, Luciano
Cabigas and Jovita L. De Cabigas, who were then U.S. citizens, for the price of P35,000.00. A deed of
absolute sale (Exh. J, also marked Exh. 3) was executed by the Dignos spouses in favor of the Cabigas
spouses, and which was registered in the Office of the Register of Deeds pursuant to the provisions of Act
No. 3344.
As the Dignos spouses refused to accept from plaintiff-appellant the balance of the purchase price of the
land, and as plaintiff- appellant discovered the second sale made by defendants-appellants to the Cabigas
spouses, plaintiff-appellant brought the present suit. (Rollo, pp. 27-28)
After due trial, the Court of first Instance of Cebu rendered its Decision on August 25,1972, the decretal
portion of which reads:
WHEREFORE, the Court hereby declares the deed of sale executed on November 25, 1965 by defendant
Isabela L. de Dignos in favor of defendant Luciano Cabigas, a citizen of the United States of America, null
and void ab initio, and the deed of sale executed by defendants Silvestre T. Dignos and Isabela Lumungsod
de Dignos not rescinded. Consequently, the plaintiff Atilano G. Jabil is hereby ordered to pay the sum, of
Sixteen Thousand Pesos (P16,000.00) to the defendants-spouses upon the execution of the Deed of
absolute Sale of Lot No. 3453, Opon Cadastre and when the decision of this case becomes final and
executory.
The plaintiff Atilano G. Jabil is ordered to reimburse the defendants Luciano Cabigas and Jovita L. de
Cabigas, through their attorney-in-fact, Panfilo Jabalde, reasonable amount corresponding to the expenses
or costs of the hollow block fence, so far constructed.
It is further ordered that defendants-spouses Silvestre T. Dignos and Isabela Lumungsod de Dignos should
return to defendants-spouses Luciano Cabigas and Jovita L. de Cabigas the sum of P35,000.00, as equity
demands that nobody shall enrich himself at the expense of another.
The writ of preliminary injunction issued on September 23, 1966, automatically becomes permanent in
virtue of this decision.
With costs against the defendants.
From the foregoing, the plaintiff (respondent herein) and defendants-spouss (petitioners herein) appealed
to the Court of Appeals, which appeal was docketed therein as CA-G.R. No. 54393-R, "Atilano G. Jabil v.
Silvestre T. Dignos, et al."
On July 31, 1981, the Court of Appeals affirmed the decision of the lower court except as to the portion
ordering Jabil to pay for the expenses incurred by the Cabigas spouses for the building of a fence upon the
land in question. The disposive portion of said decision of the Court of Appeals reads:
IN VIEW OF THE FOREGOING CONSIDERATIONS, except as to the modification of the judgment as
pertains to plaintiff-appellant above indicated, the judgment appealed from is hereby AFFIRMED in all other
respects.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC

G.R. No. L-28602 September 29, 1970

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.
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).
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 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.
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.
Reyes, J.B.L., Actg. C.J., is on leave.

G.R. No. L-56076 September 21, 1983

PALAY, INC. and ALBERT ONSTOTT, petitioner,
vs.
JACOBO C. CLAVE, Presidential Executive Assistant NATIONAL HOUSING AUTHORITY and
NAZARIO DUMPIT respondents.
Santos, Calcetas-Santos & Geronimo Law Office for petitioner.
Wilfredo E. Dizon for private respondent.

MELENCIO-HERRERA, J.:
The Resolution, dated May 2, 1980, issued by Presidential Executive Assistant Jacobo Clave in O.P. Case
No. 1459, directing petitioners Palay, Inc. and Alberto Onstott jointly and severally, to refund to private
respondent, Nazario Dumpit, the amount of P13,722.50 with 12% interest per annum, as resolved by the
National Housing Authority in its Resolution of July 10, 1979 in Case No. 2167, as well as the Resolution
of October 28, 1980 denying petitioners' Motion for Reconsideration of said Resolution of May 2, 1980, are
being assailed in this petition.
On March 28, 1965, petitioner Palay, Inc., through its President, Albert Onstott executed in favor of private
respondent, Nazario Dumpit, a Contract to Sell a parcel of Land (Lot No. 8, Block IV) of the Crestview
Heights Subdivision in Antipolo, Rizal, with an area of 1,165 square meters, - covered by TCT No. 90454,
and owned by said corporation. The sale price was P23,300.00 with 9% interest per annum, payable with
a downpayment of P4,660.00 and monthly installments of P246.42 until fully paid. Paragraph 6 of the
contract provided for automatic extrajudicial rescission upon default in payment of any monthly installment
after the lapse of 90 days from the expiration of the grace period of one month, without need of notice and
with forfeiture of all installments paid.
Respondent Dumpit paid the downpayment and several installments amounting to P13,722.50. The last
payment was made on December 5, 1967 for installments up to September 1967.
On May 10, 1973, or almost six (6) years later, private respondent wrote petitioner offering to update all his
overdue accounts with interest, and seeking its written consent to the assignment of his rights to a certain
Lourdes Dizon. He followed this up with another letter dated June 20, 1973 reiterating the same request.
Replying petitioners informed respondent that his Contract to Sell had long been rescinded pursuant to
paragraph 6 of the contract, and that the lot had already been resold.
Questioning the validity of the rescission of the contract, respondent filed a letter complaint with the National
Housing Authority (NHA) for reconveyance with an altenative prayer for refund (Case No. 2167). In a
Resolution, dated July 10, 1979, the NHA, finding the rescission void in the absence of either judicial or
notarial demand, ordered Palay, Inc. and Alberto Onstott in his capacity as President of the corporation,
jointly and severally, to refund immediately to Nazario Dumpit the amount of P13,722.50 with 12% interest
from the filing of the complaint on November 8, 1974. Petitioners' Motion for Reconsideration of said
Resolution was denied by the NHA in its Order dated October 23, 1979. 1
On appeal to the Office of the President, upon the allegation that the NHA Resolution was contrary to law
(O.P. Case No. 1459), respondent Presidential Executive Assistant, on May 2, 1980, affirmed the
Resolution of the NHA. Reconsideration sought by petitioners was denied for lack of merit. Thus, the
present petition wherein the following issues are raised:
I
Whether notice or demand is not mandatory under the circumstances and, therefore, may be dispensed
with by stipulation in a contract to sell.
II
Whether petitioners may be held liable for the refund of the installment payments made by respondent
Nazario M. Dumpit.
III
Whether the doctrine of piercing the veil of corporate fiction has application to the case at bar.
IV
Whether respondent Presidential Executive Assistant committed grave abuse of discretion in upholding the
decision of respondent NHA holding petitioners solidarily liable for the refund of the installment payments
made by respondent Nazario M. Dumpit thereby denying substantial justice to the petitioners, particularly
petitioner Onstott
We issued a Temporary Restraining Order on Feb 11, 1981 enjoining the enforcement of the questioned
Resolutions and of the Writ of Execution that had been issued on December 2, 1980. On October 28, 1981,
we dismissed the petition but upon petitioners' motion, reconsidered the dismissal and gave due course to
the petition on March 15, 1982.
On the first issue, petitioners maintain that it was justified in cancelling the contract to sell without prior
notice or demand upon respondent in view of paragraph 6 thereof which provides-
6. That in case the BUYER falls to satisfy any monthly installment or any other payments herein agreed
upon, the BUYER shall be granted a month of grace within which to make the payment of the t in arrears
together with the one corresponding to the said month of grace. -It shall be understood, however, that
should the month of grace herein granted to the BUYER expire, without the payment & corresponding to
both months having been satisfied, an interest of ten (10%) per cent per annum shall be charged on the
amounts the BUYER should have paid; it is understood further, that should a period of NINETY (90) DAYS
elapse to begin from the expiration of the month of grace hereinbefore mentioned, and the BUYER shall
not have paid all the amounts that the BUYER should have paid with the corresponding interest up to the
date, the SELLER shall have the right to declare this contract cancelled and of no effect without notice, and
as a consequence thereof, the SELLER may dispose of the lot/lots covered by this Contract in favor of
other persons, as if this contract had never been entered into. In case of such cancellation of this Contract,
all the amounts which may have been paid by the BUYER in accordance with the agreement, together with
all the improvements made on the premises, shall be considered as rents paid for the use and occupation
of the above mentioned premises and for liquidated damages suffered by virtue of the failure of the BUYER
to fulfill his part of this agreement : and the BUYER hereby renounces his right to demand or reclaim the
return of the same and further obligates peacefully to vacate the premises and deliver the same to the
SELLER.
Well settled is the rule, as held in previous jurisprudence, 2 that judicial action for the rescission of a contract
is not necessary where the contract provides that it may be revoked and cancelled for violation of any of its
terms and conditions. However, even in the cited cases, there was at least a written notice sent to the
defaulter informing him of the rescission. As stressed in University of the Philippines vs. Walfrido de los
Angeles 3 the act of a party in treating a contract as cancelled should be made known to the other. We
quote the pertinent excerpt:
Of course, it must be understood that the act of a party in treating a contract as cancelled or resolved in
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 (Ocejo Perez & Co.,
vs. International Banking Corp., 37 Phil. 631; Republic vs. Hospital de San Juan De Dios, et al., 84 Phil
820) 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 win be necessary, as without it, the extrajudicial resolution will remain contestable and
subject to judicial invalidation unless attack thereon should become barred by acquiescense, 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
(Emphasis supplied).
Of similar import is the ruling in Nera vs. Vacante 4 , reading:
A stipulation entitling one party to take possession of the land and building if the other party violates the
contract does not ex propio vigore confer upon the former the right to take possession thereof if objected
to without judicial intervention and determination.
This was reiterated in Zulueta vs. Mariano 5 where we held that extrajudicial rescission has legal effect
where the other party does not oppose it.6 Where it is objected to, a judicial determination of the issue is
still necessary.
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 determination. 7
In this case, private respondent has denied that rescission is justified and has resorted to judicial action. It
is now for the Court to determine whether resolution of the contract by petitioners was warranted.
We hold that resolution by petitioners of the contract was ineffective and inoperative against private
respondent for lack of notice of resolution, as held in the U.P. vs. Angeles case, supra
Petitioner relies on Torralba vs. De los Angeles 8 where it was held that "there was no contract to rescind
in court because from the moment the petitioner defaulted in the timely payment of the installments, the
contract between the parties was deemed ipso facto rescinded." However, it should be noted that even in
that case notice in writing was made to the vendee of the cancellation and annulment of the contract
although the contract entitled the seller to immediate repossessing of the land upon default by the buyer.
The indispensability of notice of cancellation to the buyer was to be later underscored in Republic Act No.
6551 entitled "An Act to Provide Protection to Buyers of Real Estate on Installment Payments." which took
effect on September 14, 1972, when it specifically provided:
Sec. 3(b) ... the actual cancellation of the contract shall take place after thirty days from receipt by the buyer
of the notice of cancellation or the demand for rescission of the contract by a notarial act and upon full
payment of the cash surrender value to the buyer. (Emphasis supplied).
The contention that private respondent had waived his right to be notified under paragraph 6 of the contract
is neither meritorious because it was a contract of adhesion, a standard form of petitioner corporation, and
private respondent had no freedom to stipulate. A waiver must be certain and unequivocal, and intelligently
made; such waiver follows only where liberty of choice has been fully accorded. 9 Moreover, it is a matter
of public policy to protect buyers of real estate on installment payments against onerous and oppressive
conditions. Waiver of notice is one such onerous and oppressive condition to buyers of real estate on
installment payments.
Regarding the second issue on refund of the installment payments made by private respondent. Article
1385 of the Civil Code provides:
ART. 1385. Rescission creates the obligation to return the things which were the object of the contract,
together with their fruits, and the price with its interest; consequently, it can be carried out only when he
who demands rescission can return whatever he may be obliged to restore.
Neither sham rescission take place when the things which are the object of the contract are legally in the
possession of third persons who did not act in bad faith.
In this case, indemnity for damages may be demanded from the person causing the loss.
As a consequence of the resolution by petitioners, rights to the lot should be restored to private respondent
or the same should be replaced by another acceptable lot. However, considering that the property had
already been sold to a third person and there is no evidence on record that other lots are still available,
private respondent is entitled to the refund of installments paid plus interest at the legal rate of 12%
computed from the date of the institution of the action. 10 It would be most inequitable if petitioners were to
be allowed to retain private respondent's payments and at the same time appropriate the proceeds of the
second sale to another.
We come now to the third and fourth issues regarding the personal liability of petitioner Onstott who was
made jointly and severally liable with petitioner corporation for refund to private respondent of the total
amount the latter had paid to petitioner company. It is basic that a corporation is invested by law with a
personality separate and distinct from those of the persons composing it as wen as from that of any other
legal entity to which it may be related. 11 As a general rule, a corporation may not be made to answer for
acts or liabilities of its stockholders or those of the legal entities to which it may be connected and vice
versa. However, the veil of corporate fiction may be pierced when it is used as a shield to further an end
subversive of justice 12 ; or for purposes that could not have been intended by the law that created it 13 ;
or to defeat public convenience, justify wrong, protect fraud, or defend crime. 14 ; or to perpetuate fraud or
confuse legitimate issues 15 ; or to circumvent the law or perpetuate deception 16 ; or as an alter ego,
adjunct or business conduit for the sole benefit of the stockholders. 17
We find no badges of fraud on petitioners' part. They had literally relied, albeit mistakenly, on paragraph 6
(supra) of its contract with private respondent when it rescinded the contract to sell extrajudicially and had
sold it to a third person.
In this case, petitioner Onstott was made liable because he was then the President of the corporation and
he a to be the controlling stockholder. No sufficient proof exists on record that said petitioner used the
corporation to defraud private respondent. He cannot, therefore, be made personally liable just because he
"appears to be the controlling stockholder". Mere ownership by a single stockholder or by another
corporation is not of itself sufficient ground for disregarding the separate corporate personality. 18 In this
respect then, a modification of the Resolution under review is called for.
WHEREFORE, the questioned Resolution of respondent public official, dated May 2, 1980, is hereby
modified. Petitioner Palay, Inc. is directed to refund to respondent Nazario M. Dumpit the amount of
P13,722.50, with interest at twelve (12%) percent per annum from November 8, 1974, the date of the filing
of the Complaint. The temporary Restraining Order heretofore issued is hereby lifted.
No costs.
SO ORDERED.

Plana, Relova and Gutierrez, Jr., JJ., concur.

Teehankee, J., concurs in the result.
G.R. No. 85733 February 23, 1990
Sps. ENRIQUE and CONSUELO LIM, petitioners,
vs.
THE HONORABLE COURT OF APPEALS, Sps. TERESITA and OSCAR GUEVARRA, Sps. MARCOS
and ANITA ORLINO, Sps. ROMULO and CONSUELO ORLINO and Sps. FELIX and DOLORES
ORLINO, respondents.
Salonga, Andres, Hernandez & Allado for petitioners.
Ocampo, Dizon & Domingo for private respondent Pacific Banking Corporation.

CRUZ, J.:
The subject of this controversy is a parcel of land consisting of 1,101 square meters and located in Diliman,
Quezon City. It was originally owned by Felix, Manuel and Maria Concepcion Orlino, who mortgaged it to
the Progressive Commercial Bank as security for a P100,000.00 loan on July 1, 1965. The loan not having
been paid, the mortgage was foreclosed and the bank acquired the property as the highest bidder at the
auction sale on March 28, 1969. The mortgagee thereafter transferred all its assets, including the said land,
to the Pacific Banking Corporation (PBC).
On May 22, 1975, the Orlinos, and their respective spouses (hereinafter referred to as the private
respondents), who had remained in possession of the land, made a written offer to PBC to repurchase the
property. In response, the bank, through its Assistant Vice-President, sent the following letter dated
November 9, 1977, to the private respondents' counsel:
This will confirm our agreement concerning the repurchase by your clients, Mr. and Mrs. Oscar C. Guevarra
of that certain property situated at 26 Jose Abad Santos, Heroes Hills, Quezon City with an area of 1,1 01
square meters, more or less, under the following terms and conditions:
a) The cash consideration shall be P160,000.00 payable in full upon signing of the Deed of Absolute Sale;
b) The additional consideration shall consist of your client's conveyance to us of their share of 2,901.15
square meters on the property situated at Camarin, Caloocan City.
We understand that your clients will be applying for a loan with a bank. In this connection, we are enclosing
a xerox copy of the Transfer Certificate of Title No. 218661 Quezon City, Tax Declaration No. 3092 and
Official Receipt No. E-404723 covering payment of real estate taxes for 1977. Kindly request your clients
to expedite the loan so that we can consummate the transaction as soon as possible.
Please request your clients to sign their conformity below and return the duplicate thereof for our files. 1
Oscar C. Guevarra, one of the private respondents, indicated the required conformity.
One year later, on November 2, 1978, PBC advised the private respondents that if the transaction was not
finalized within 30 days, it would consider the offer of other buyers. 2 The record does not show any further
development until June 8, 1979, when the private respondents requested PBC to allow them to secure a
certified true copy of its Torrens certificate over the land for purposes of its survey and partition among
them preparatory to the actual transfer of title to them. 3 PBC granted the request subject to the condition
that title would remain with it until the execution of the necessary deed of conveyance. 4
On April 8, 1980, or two years later, PBC reminded the private respondents of its letter of November 2,
1978, but again no action was taken to deliver to it the stipulated consideration for the sale. Finally, on May
14, 1980, PBC executed a deed of sale over the land in favor of the herein petitioners, the spouses Enrique
and Consuelo Lim, for the sum of P300,000.00. 5
On September 30, 1980, the private respondents filed a complaint in the Regional Trial Court of Quezon
City against the petitioners and PBC for the annulment of the deed of sale on the ground that the subject
land had been earlier sold to them. In its judgment for the plaintiffs, the court held that both PBC and the
spouses Lim had acted in bad faith when they concluded the sale knowing that "there was a cloud in the
status of the property in question." 6 The decision was affirmed in toto by the respondent court, 7 and the
petitioners are now before us, urging reversal.
The petitioners claim they are purchasers in good faith, having relied on the assurances of PBC as verified
from the records in the Registry of Deeds of Quezon City that the land belonged to PBC and was
unencumbered. They therefore should have preferential right to the disputed land, which they had
registered in their name under TCT No. 268623. For their part, the private respondents insist that as they
had a valid and binding earlier deed of sale in their favor, the land could no longer be sold by PBC to the
petitioners, who were aware of their prior right.
In support of their position that it was not incumbent upon them to go beyond the land records to check the
real status of the land, the petitioners cite Seo v. Mangubat8 where the Court said:
In order that a purchaser of land with a Torrens title may be considered as a purchaser in good faith, it is
enough that he examines the latest certificate of title which in this case is that issued in the name of the
immediate transferor. The purchaser is not bound by the original certificate of title but only by the certificate
of title of the person from whom he has purchased the property.
xxx xxx xxx
Thus, where innocent third persons relying on the correctness of the certificate of title issued, acquire rights
over the property, the court cannot disregard such rights and order the total cancellation of the certificate
for that would impair public confidence in the certificate of title; otherwise everyone dealing with property
registered under the torrens system would have to inquire in every instance as to whether the title had been
regularly or irregularly issued by the court. Indeed, this is contrary to the evident purpose of the law. Every
person dealing with registered land may safely rely on the correctness of the certificate of title issued
therefore and the law will in no way oblige him to go behind the certificate to determine the condition of the
property. Stated differently, an innocent purchaser for value relying on a torrens title issued is protected.
And even assuming that there was an earlier valid sale of the property to the private respondents, the
petitioners add, they would still prevail under Article 1544 of the Civil Code, providing as follows:
If the same thing should have been sold to different vendees, the ownership shall be transferred to the
person who may have first taken possession thereof in good faith, if it should be movable property.
Should it be immovable property, the ownership shall belong to the person acquiring it who in good faith
first recorded it in the Registry of Property.
Should there be no inscription, the ownership shall pertain to the person who in good faith was first in the
possession; and, in the absence thereof, to the person who presents the oldest title, provided there is good
faith.
The private respondents, however, deny that the petitioners had acted in good faith, pointing to the evidence
that Consuelo Lim had, before the execution of the disputed deed of sale, visited the property and been
informed of their existing adverse claim thereto.9 Besides, the said deed contained the following stipulation:
That the VENDEE is aware of the fact that the aforementioned property is presently occupied by the former
owners and that clearing of the property of its occupants shall be for the exclusive responsibility and account
of the vendee.
And, indeed, the Court also said in Seno that:
The well-known rule in this jurisdiction is that a person dealing with a registered land has a right to rely upon
the face of the Torrens Certificate of Title and to dispense with the need of inquiring further, except when
the party concerned has actual knowledge of facts and circumstances that would impel a reasonably
cautious man to make such inquiry. (Emphasis supplied.)
As the Court sees it, the real issue is not whether the petitioner acted in good faith but whether there was
in fact a prior sale of the same property to the private respondents. Only if it is established that there was
indeed a double sale of the property will it be necessary to ascertain if Article 1544 is applicable.
Stated differently, the question is: Was the transaction between private respondents and PBC, as embodied
in the letter of November 9, 1977, a contract to sell or a contract of sale?
It is not enough to say that the contract of sale being consensual, it became effective between the bank
and the private respondents as of November 9, 1977. There is no question about that; but such agreement
is like putting the cart before the horse. Precisely, our purpose is to ascertain to what particular undertakings
the parties have given their mutual consent so we can determine the nature of their agreement.
According to Sing Yee v. Santos: 10
... A distinction must be made between a contract of sale in which title passes to the buyer upon delivery of
the thing sold and a contract to sell (or of exclusive right and privilege to purchase as in this case) where
by agreement the ownership is reserved in the seller and is not to pass until the full payment of the purchase
price is made. In the first case, non-payment of the price is a negative resolutory condition; in the second
case, full payment is a positive suspensive condition. Being contraries, their effect in law cannot be
Identical. In the first case, the vendor has lost and cannot recover the ownership of the land sold until and
unless the contract of sale is itself resolved and set aside. In the second case, however, the title remains
in the vendor if the vendee does not comply with the condition precedent of making payment at the time
specified in the contract.
Applying these distinctions, the Court finds that the agreement between PBC and the private respondents
was only a contract to sell, not a contact of sale. And the reasons are obvious.
There was no immediate transfer of title to the private respondents as would have happened if there had
been a sale at the outset. The supposed sale was never registered and TCT No. 218661 in favor of PBC
was not replaced with another certificate of title in favor of the private respondents. In their letter to PBC on
June 8, 1979, they acknowledged that title to the property would remain with the bank until their transaction
shall have been finalized. In response, PBC reiterated the same condition. No less important, the
consideration agreed upon by the parties was never paid by the private respondents, to convert the
agreement into a contract of sale. In fact, PBC reminded them twice on November 2, 1978, and on April
8, 1980 to comply with their obligations. They did not. Their default was not, as the respondent court
described it, "a slight delay" but lasted for all of three years and in fact continued up to the rendition of the
decision in the trial court. As payment of the consideration was a positive suspensive condition, title to the
subject property never passed to the private respondents. Hence, the property was legally unencumbered
and still belonged to PBC on May 14, 1980, when it was sold by the bank to the petitioners.
It is true that the contract to sell imposes reciprocal obligations and so cannot be terminated unilaterally by
either party. Judicial rescission is required under Article 1191 of the Civil Code. However, this rule is not
absolute. We have held that in proper cases, a party may take it upon itself to consider the contract
rescinded and act accordingly albeit subject to judicial confirmation, which may or may not be given. It is
true that the rescinding party takes a risk that its action may not be approved by the court. But as we said
in University of the Philippines v. De los Angeles: 11
Of course, it must be understood that the act of a 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 final judgment of rescission is rendered when the law itself requires that he
should exercise due diligence to minimize its own damages.
In the case at bar, the private respondents obligated themselves to deliver to the bank the sum of
P160,000.00 and their share of 2,901.15 square meters on a property situated in Caloocan City. In the letter
of PBC dated November 9, 1977, they were requested to "expedite the loan (they were negotiating for this
purpose) so we can consummate the transaction as soon as possible". That was in 1977. In 1978, they
were reminded of their obligation and asked to comply within thirty days. They did not. On April 8, 1980,
they were reminded of that letter of November 2, 1978, and again asked to comply; but again they did not.
Surely, the bank could not be required to wait for them forever, especially so since they remained in
possession of the property and there is no record that they were paying rentals. Under the circumstances,
PBC had the right to consider the contract to sell between them terminated for non-payment of the stipulated
consideration. We hereby confirm that rescission.
Having arrived at these conclusions, the Court no longer finds it necessary to determine if the petitioners
acted in bad faith when they purchased the subject property. The private respondents lost all legal interest
in the land when their contract to sell was rescinded by PBC for their non-compliance with its provisions.
As that contract was rito longer effective when the land was sold by PBC to the petitioners, the private
respondents had no legal standing to assail that subsequent transaction. The deed of sale between PBC
and the petitioners must therefore be sustained.
WHEREFORE, the petition is GRANTED and the challenged decision of the Court of Appeals is
REVERSED. TCT No. 268623 in favor of the petitioners is recognized as valid and the complaint for the
annulment of the deed of sale dated May 14, 1980, is hereby dismissed. Costs against the private
respondents.
SO ORDERED.

[G.R. No. 104769. September 10, 2001]

AFP MUTUAL BENEFIT ASSOCIATION, INC., petitioner, vs. COURT OF APPEALS, SOLID HOMES,
INC., INVESTCO, INC., and REGISTER OF DEEDS OF MARIKINA, respondents.
[G.R. No. 135016. September 10, 2001]
SOLID HOMES, INC., petitioner, vs. INVESTCO, INC., substituted by ARMED FORCES OF THE
PHILIPPINES MUTUAL BENEFIT ASSOCIATION, INC., respondent.
RESOLUTION
PARDO, J.:
What is before the Court is Solid Homes, Inc.s motion for reconsideration of the decision promulgated on
March 3, 2000, reversing the decision of the Court of Appeals and ordering the Register of Deeds to cancel the notice
of lis pendens on the titles issued to petitioner AFP Mutual Benefit Association, Inc. (AFPMBAI), declaring it as
buyer in good faith and for value.
 We have defined a purchaser in good faith and for value as one who buys the property of another without notice
that some other person has a right to or interest in such property and pays a full and fair price for the same, at the time
of such purchase, or before he has notice of the claim or interest of some other person in the property.[1]
Solid Homes, Inc.s motion for reconsideration is based on the following grounds: (1) that the Court erred in
ruling that petitioner was a purchaser in good faith and for value; (2) that the Court erred in failing to appreciate Solid
Homes, Inc.s cause of action (in Civil Case No. 52999); and (3) that the Court erred in denying Solid Homes, Inc.s
petition (in G. R. No. 135016) to set aside the trial courts order denying its motion to execute the decision in Civil
Case No. 40615.
We find the motion without merit.
1. Solid Homes, Inc.s position is anchored on the preposition that a notice of lis pendens was duly annotated
on the vendors title that must be deemed carried over to the titles issued to AFPMBAI, subjecting it to the final result
of the litigation[2] as a transferee pendente lite.
However, the law is clear.[3] The Revised Rules of Court[4] allows the annotation of a notice of lis pendens
in actions affecting the title or right of possession of real property,[5] or an interest in such real property.[6] We further
declared that the rule of lis pendens applied to suits brought to establish an equitable estate, interest, or right in specific
real property or to enforce any lien, charge, or encumbrance against it x x x.[7]
Pencil markings, which even Solid Homes, Inc. admits to be provisional,[8] are not an accepted form of
annotating a notice of lis pendens. The Court cannot accept the argument that such pencil annotation can be considered
as a valid annotation of notice of lis pendens, and thus an effective notice to the whole world as to the status of the
title to the land. The law requires proper annotation, not provisional annotation of a notice of lis pendens.
If we allow provisional annotations as a valid form of annotation of notice of lis pendens, we would be eroding
the very value of the indefeasibility of the torrens system. If there were a valid annotation of notice of lis pendens, the
same would have been carried over to the titles issued to AFPMBAI. As it is, the transfer certificates of titles of the
vendor Investco, Inc. conveyed to AFPMBAI were clean and without any encumbrance.
In the present case, there could be no valid annotation on the titles issued to AFPMBAI because the case used
as basis of the annotation pending with the trial court was an action for collection of a sum of money and did not
involve the titles to, possession or ownership of the subject property or an interest therein. This Court, in its final
decision on the case categorized the action initiated by Investco, Inc. against Solid Homes, Inc. (Civil Case No. 40615
of the Regional Trial Court, Pasig, Metro Manila) as:
An action for collection of sums of money, damages and attorneys fees was filed with the Regional Trial Court
(Civil Case No. 40615) of Pasig by private respondents Investco, Angela Perez Staley and Antonio Perez, Jr. against
petitioner Solid Homes, Inc.[9]
Unquestionably, such action did not directly involve titles to, ownership or possession of the subject property,
and, therefore, was not a proper subject of a notice of lis pendens.
The Torrens System was adopted in this country because it was believed to be the most effective measure to
guarantee the integrity of land titles and to protect their indefeasibility once the claim of ownership is established and
recognized. If a person purchases a piece of land on the assurance that the sellers title thereto is valid, he should not
run the risk of being told later that his acquisition was ineffectual after all. This would not only be unfair to him. What
is worse is that if this were permitted, public confidence in the system would be eroded and land transactions would
be attended by complicated and not necessarily conclusive investigations and proof of ownership. The further
consequence would be that land conflicts could be even more numerous and complex than they are now and possibly
also more abrasive, if not even violent.[10]
Prevailing jurisprudence recognizes that All persons dealing with property covered by the torrens certificate of
title are not required to go beyond what appears on the face of the title.[11] The buyer is not even obligated to look
beyond the certificate to investigate the titles of the seller appearing on the face of the certificate.[12] Hence, we ruled
that AFPMBAI is a buyer in good faith and for value.
Consequently, we reject movant Solid Homes, Inc.s contention that AFPMBAI is a transferee pendente lite of
Investco, Inc.
2. It should be emphasized that the contractual relation between Investco, Inc. and Solid Homes, Inc., is based
on an agreement executed in 1976 as a contract to sell and to buy. AFPMBAI never figured in this contract. The
relationship between AFPMBAI and Investco, Inc. arose out of a contract of absolute sale after Solid Homes, Inc.
reneged or defaulted on its contract to sell, and Investco, Inc. rescinded extra-legally such contact to sell with Solid
Homes, Inc. AFPMBAI did not acquire from Solid Homes, Inc. its rights or interest over the property in question;
Investco, Inc. sold the property itself which AFPMBAI paid for in full, thus causing the transfer of titles in the name
of AFPMBAI.
 When the contract was entered into between Solid Homes, Inc. and Investco, Inc. in September 1976, the titles
to the Quezon City and Marikina property had not been transferred in the name of Investco, Inc. as assignee of the
owners. Hence, Investco, Inc. merely agreed to sell, and Solid Homes, Inc. to buy, the formers rights and interest in
the subject property which at the time was still registered in the names of Angela Perez Staley and Antonio Perez,
Investco, Inc.s predecessors-in-interest.
Under the contract to sell and buy, the vendors bound themselves to cause the titles to the land to be transferred
in the name of Investco, Inc. after which, should Solid Homes, Inc. complete the installment payments, Investco, Inc.
would execute a Deed of Absolute Sale in favor of Solid Homes, Inc. and the latter would execute a first preferred
mortgage in favor of Investco, Inc. The deed of absolute sale would replace the contract to sell. Only then would Solid
Homes, Inc. be entitled to take possession of the Quezon City and Marikina parcels of land and introduce
improvements thereon.
On or about March 21, 1979, the titles to the Marikina property were issued in the name of Investco, Inc.
However, Investco, Inc. did not execute a deed of absolute sale in favor of Solid Homes, Inc. because Solid Homes,
Inc. never paid in full its stipulated obligation payable in installments. In fact, Solid Homes, Inc. did not even bother
to register its contract to sell with the Register of Deeds pursuant to Presidential Decree 1529, also known as the
Property Registration Decree.
We find untenable Solid Homes, Inc.s contention that the transaction between AFPMBAI, Investco, Inc. and
Solid Homes, Inc. is in the nature of a double sale. The transaction between Investco, Inc. and Solid Homes, Inc. was
a contract to sell and to buy that was not fully paid because Solid Homes, Inc. defaulted on its payments. On the other
hand, the contract between Investco, Inc. and AFPMBAI was an absolute sale that culminated in the registration of
the deeds and the issuance of certificate of titles in favor of AFPMBAI.
In Salazar v. Court of Appeals,[13] we explained the distinction between a contract to sell and a contract of
sale:
In a contract of sale, the title to the property passes to the vendee upon the delivery of the thing sold; in a contract to
sell, ownership is, by agreement, reserved in the vendor and is not to pass to the vendee until full payment of the
purchase price. Otherwise stated, in a contract of sale, the vendor loses ownership over the property and cannot recover
it until and unless the contract is resolved or rescinded; whereas in a contract to sell, title is retained by the vendor
until full payment of the price. In the latter contract, payment of the price is a positive suspensive condition, failure of
which is not a breach but an event that prevents the obligation of the vendor to convey title from becoming
effective.[14]
Upon Solid Homes, Inc.s failure to comply with its obligation thereunder, there was no need to judicially
rescind the contract to sell. Failure by one of the parties to abide by the conditions in a contract to sell resulted in the
rescission of the contract.[15] Unquestionably, Solid Homes, Inc. reneged on its obligation to pay the installments for
the purchase of the Quezon City and Marikina property of Investco, Inc. on the dates specified in the contract to sell.
4. Movant Solid Homes, Inc. finally contends that when the decision in Civil Case No. 40615 became final,
there was no one to move for execution of the decision since Investco, Inc. had absconded, and had in fact re-sold the
property in question to AFPMBAI. We find the contention without merit. Investco, Inc. was the prevailing party which
had the right to demand execution.[16] Once a judgment becomes final and executory, the prevailing party can have
it executed as a matter of right, and the issuance of a writ of execution becomes a ministerial duty of the court.[17] In
fact, the prevailing party is the one really entitled to file a motion for the issuance of a writ of execution. Yet, in this
case, it was Solid Homes, Inc. that filed on June 19, 1996, a motion for execution of judgment in the court of origin
(RTC Pasig, Branch 157). The trial court denied the motion. Hence, on September 11, 1998, Solid Homes, Inc. filed
a petition for certiorari with this Court.[18]
Assuming that AFPMBAI was bound by the judgment in Civil Case No. 40615, and be substituted for Investco,
Inc., it is clear that Investco, Inc. prevailed in the case. It was the winning party.[19] It is the prevailing party which
is entitled as a matter of right to a writ of execution in its favor.[20] It is not an option of the losing party to file a
motion for execution of judgment to compel the winning party to take the judgment. As the losing party in Civil Case
No. 40615, Solid Homes, Inc. can not now insist on the performance of the very contract on which it defaulted for
more than fourteen (14) years. Hence, Solid Homes, Inc. has no personality to move for execution of the final judgment
in Civil Case No. 40615. The trial court correctly denied its motion for execution.
It would be the height of unfairness if Solid Homes, Inc. which has failed to pay anything since 1981 and
defaulted since 1982, would now get the property by performance of the very contract which it violated. With the
passage of time, more than fourteen (14) years, and appreciation in the value of real estate, the property is now worth
billions of pesos,[21] thus enriching Solid Homes, Inc. for its violation of the contract and default on its obligation.
IN VIEW WHEREOF, we DENY Solid Homes, Inc.s motion for reconsideration, for lack of merit. The denial is
final.
 SO ORDERED.

[G.R. No. 137552. June 16, 2000]

ROBERTO Z. LAFORTEZA, GONZALO Z. LAFORTEZA, MICHAEL Z. LAFORTEZA, DENNIS Z.
LAFORTEZA, and LEA Z. LAFORTEZA, petitioners, vs. ALONZO MACHUCA, respondent.
DECISION
GONZAGA_REYES, J.:
This Petition for Review on Certiorari seeks the reversal of the Decision of the Court of Appeals[1] in CA
G.R. CV No. 47457 entitled "ALONZO MACHUCA versus ROBERTO Z. LAFORTEZA, GONZALO Z.
LAFORTEZA, LEA ZULUETA-LAFORTEZA MICHAEL Z. LAFORTEZA, and DENNIS Z. LAFORTEZA".
The following facts as found by the Court of Appeals are undisputed:
"The property involved consists of a house and lot located at No. 7757 Sherwood Street, Marcelo Green
Village, Paraaque, Metro Manila, covered by Transfer Certificate of Title (TCT) No.
(220656) 8941 of the Registered of Deeds of Paraaque (Exhibit "D", Plaintiff, record,
pp. 331-332). The subject property is registered in the name of the late Francisco Q.
Laforteza, although it is conjugal in nature (Exhibit "8", Defendants, record pp. 331-
386).
On August 2, 1988, defendant Lea Zulueta-Laforteza executed a Special Power of Attorney in favor of
defendants Roberto Z. Laforteza and Gonzalo Z. Laforteza, Jr., appointing both as
her Attorney-in-fact authorizing them jointly to sell the subject property and sign any
document for the settlement of the estate of the late Francisco Q. Laforteza (Exh. "A",
Plaintiff, record, pp. 323-325).
Likewise on the same day, defendant Michael Z. Laforteza executed a Special Power of Attorney in favor
of defendants Roberto Z. Laforteza and Gonzalo Laforteza, Jr., likewise, granting the
same authority (Exh. "B", record, pp. 326-328). Both agency instruments contained a
provision that in any document or paper to exercise authority granted, the signature
of both attorneys-in-fact must be affixed.
On October 27, 1988, defendant Dennis Z. Laforteza executed a Special Power of Attorney in favor of
defendant Roberto Z. Laforteza for the purpose of selling the subject property (Exh.
"C", Plaintiff, record, pp. 329-330). A year later, on October 30, 1989, Dennis Z.
Laforteza executed another Special Power of Attorney in favor of defendants Roberto
Z. Laforteza and Gonzalo Laforteza, Jr. naming both attorneys-in-fact for the purpose
of selling the subject property and signing any document for the settlement of the
estate of the late Francisco Q. Laforteza. The subsequent agency instrument (Exh.
"2", record, pp. 371-373) contained similar provisions that both attorneys-in-fact
should sign any document or paper executed in the exercise of their authority.
In the exercise of the above authority, on January 20, 1989, the heirs of the late Francisco Q. Laforteza
represented by Roberto Z. Laforteza and Gonzalo Z. Laforteza, Jr. entered into a
Memorandum of Agreement (Contract to Sell) with the plaintiff[2] over the subject
property for the sum of SIX HUNDRED THIRTY THOUSAND PESOS (P630,000.00)
payable as follows:
(a) P30,000.00 as earnest money, to be forfeited in favor of the defendants if the sale is not effected due
to the fault of the plaintiff;
(b) P600,000.00 upon issuance of the new certificate of title in the name of the late Francisco Q. Laforteza
and upon execution of an extra-judicial settlement of the decedents estate with sale
in favor of the plaintiff (Par. 2, Exh. "E", record, pp. 335-336).
Significantly, the fourth paragraph of the Memorandum of Agreement (Contract to Sell) dated January 20,
1989 (Exh. "E", supra.) contained a provision as follows:
xxx. Upon issuance by the proper Court of the new title, the BUYER-LESSEE shall be notified in writing
and said BUYER-LESSEE shall have thirty (30) days to produce the
balance of P600,000.00 which shall be paid to the SELLER-LESSORS
upon the execution of the Extrajudicial Settlement with sale.
On January 20, 1989, plaintiff paid the earnest money of THIRTY THOUSAND PESOS (P30,000.00), plus
rentals for the subject property (Exh. "F", Plaintiff, record, p. 339).
On September 18, 1998[3], defendant heirs, through their counsel wrote a letter (Exh. 1, Defendants,
record, p. 370) to the plaintiff furnishing the latter a copy of the reconstituted title to
 the subject property, advising him that he had thirty (3) days to produce the balance
of SIX HUNDRED PESOS (sic) (P600,000.00) under the Memorandum of Agreement
which plaintiff received on the same date.
On October 18, 1989, plaintiff sent the defendant heirs a letter requesting for an extension of the THIRTY
(30) DAYS deadline up to November 15, 1989 within which to produce the balance
of SIX HUNDRED THOUSAND PESOS (P600,000.00) (Exh. "G", Plaintiff, record, pp.
341-342). Defendant Roberto Z. Laforteza, assisted by his counsel Atty. Romeo L.
Gutierrez, signed his conformity to the plaintiffs letter request (Exh. "G-1 and "G-2",
Plaintiff, record, p. 342). The extension, however, does not appear to have been
approved by Gonzalo Z. Laforteza, the second attorney-in-fact as his conformity does
not appear to have been secured.
On November 15, 1989, plaintiff informed the defendant heirs, through defendant Roberto Z. Laforteza, that
he already had the balance of SIX HUNDRED THOUSAND PESOS (P600,000.00)
covered by United Coconut Planters Bank Managers Check No. 000814 dated
November 15, 1989 (TSN, August 25, 1992, p. 11; Exhs. "H", record, pp. 343-344;
"M", records p. 350; and "N", record, p. 351). However, the defendants, refused to
accept the balance (TSN, August 24, 1992, p. 14; Exhs. "M-1", Plaintiff, record, p.
350; and "N-1", Plaintiff, record, p. 351). Defendant Roberto Z. Laforteza had told him
that the subject property was no longer for sale (TSN, October 20, 1992, p. 19; Exh.
"J", record, p. 347).
On November 20, 1998[4], defendants informed the plaintiff that they were canceling the Memorandum of
Agreement (Contract to Sell) in view of the plaintiffs failure to comply with his
contractual obligations (Exh. "3").
Thereafter, plaintiff reiterated his request to tender payment of the balance of SIX HUNDRED THOUSAND
PESOS (P600,000.00). Defendants, however, insisted on the rescission of the
Memorandum of Agreement. Thereafter, plaintiff filed the instant action for specific
performance. The lower court rendered judgment on July 6, 1994 in favor of the
plaintiff, the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered in favor of plaintiff Alonzo Machuca and against the defendant
heirs of the late Francisco Q. Laforteza, ordering the said defendants.
(a) To accept the balance of P600,000.00 as full payment of the consideration for the purchase of the house
and lot located at No. 7757 Sherwood Street, Marcelo Green Village, Paraaque,
Metro Manila, covered by Transfer Certificate of Title No. (220656) 8941 of the
Registry of Deeds of Rizal Paraaque, Branch;
(b) To execute a registrable deed of absolute sale over the subject property in favor of the plaintiff;
(c) Jointly and severally to pay the plaintiff the sum of P20,000.00 as attorneys fees plus cost of suit.
SO ORDERED. (Rollo, pp. 74-75)."[5]
Petitioners appealed to the Court of Appeals, which affirmed with modification the decision of the lower
court; the dispositive portion of the Decision reads:
"WHEREFORE, the questioned decision of the lower court is hereby AFFIRMED with the MODIFICATION
that defendant heirs Lea Zulueta-Laforteza, Michael Z. Laforteza, Dennis Z. Laforteza
and Roberto Z. Laforteza including Gonzalo Z. Laforteza, Jr. are hereby ordered to
pay jointly and severally the sum of FIFTY THOUSAND PESOS (P50,000.00) as
moral damages.
SO ORDERED."[6]
Motion for Reconsideration was denied but the Decision was modified so as to absolve Gonzalo Z.
Laforteza, Jr. from liability for the payment of moral damages.[7] Hence this petition wherein the petitioners
raise the following issues:
"I. WHETHER THE TRIAL AND APPELLATE COURTS CORRECTLY CONSTRUED THE
MEMORANDUM OF AGREEMENT AS IMPOSING RECIPROCAL OBLIGATIONS.
II. WHETHER THE COURTS A QUO CORRECTLY RULED THAT RESCISSION WILL NOT LIE IN THE
INSTANT CASE.
III. WHETHER THE RESPONDENT IS UNDER ESTOPPEL FROM RAISING THE ALLEGED DEFECT IN
THE SPECIAL POWER OF ATTORNEY DATED 30 OCTOBER 1989 EXECUTED BY DENNIS
LAFORTEZA.
IV. SUPPOSING EX GRATIA ARGUMENTI THE MEMORANDUM OF AGREEMENT IMPOSES
RECIPROCAL OBLIGATIONS, WHETHER THE PETITIONERS MAY BE COMPELLED TO SELL THE
SUBJECT PROPERTY WHEN THE RESPONDENT FAILED TO MAKE A JUDICIAL CONSIGNATION
OF THE PURCHASE PRICE?
V. WHETHER THE PETITIONERS ARE IN BAD FAITH SO TO AS MAKE THEM LIABLE FOR MORAL
DAMAGES?"[8]
The petitioners contend that the Memorandum of Agreement is merely a lease agreement with "option to
purchase". As it was merely an option, it only gave the respondent a right to purchase the subject property
within a limited period without imposing upon them any obligation to purchase it. Since the respondents
tender of payment was made after the lapse of the option agreement, his tender did not give rise to the
perfection of a contract of sale.
It is further maintained by the petitioners that the Court of Appeals erred in ruling that rescission of the
contract was already out of the question. Rescission implies that a contract of sale was perfected unlike the
Memorandum of Agreement in question which as previously stated is allegedly only an option contract.
Petitioner adds that at most, the Memorandum of Agreement (Contract to Sell) is a mere contract to sell,
as indicated in its title. The obligation of the petitioners to sell the property to the respondent was conditioned
upon the issuance of a new certificate of title and the execution of the extrajudicial partition with sale and
payment of the P600,000.00. This is why possession of the subject property was not delivered to the
respondent as the owner of the property but only as the lessee thereof. And the failure of the respondent
to pay the purchase price in full prevented the petitioners obligation to convey title from acquiring obligatory
force.
Petitioners also allege that assuming for the sake of argument that a contract of sale was indeed perfected,
the Court of Appeals still erred in holding that respondents failure to pay the purchase price of P600,000.00
was only a "slight or casual breach".
The petitioners also claim that the Court of Appeals erred in ruling that they were not ready to comply with
their obligation to execute the extrajudicial settlement. The Power of Attorney to execute a Deed of Sale
made by Dennis Z. Laforteza was sufficient and necessarily included the power to execute an extrajudicial
settlement. At any rate, the respondent is estopped from claiming that the petitioners were not ready to
comply with their obligation for he acknowledged the petitioners ability to do so when he requested for an
extension of time within which to pay the purchase price. Had he truly believed that the petitioners were not
ready, he would not have needed to ask for said extension.
Finally, the petitioners allege that the respondents uncorroborated testimony that third persons offered a
higher price for the property is hearsay and should not be given any evidentiary weight. Thus, the order of
the lower court awarding moral damages was without any legal basis.
The appeal is bereft of merit.
A perusal of the Memorandum Agreement shows that the transaction between the petitioners and the
respondent was one of sale and lease. The terms of the agreement read:
"1. For and in consideration of the sum of PESOS: SIX HUNDRED THIRTY THOUSAND (P630,000.00)
payable in a manner herein below indicated, SELLER-LESSOR hereby agree to sell
unto BUYER-LESSEE the property described in the first WHEREAS of this
Agreement within six (6) months from the execution date hereof, or upon issuance by
the Court of a new owners certificate of title and the execution of extrajudicial partition
with sale of the estate of Francisco Laforteza, whichever is earlier;
2. The above-mentioned sum of PESOS: SIX HUNDRED THIRTY THOUSAND (P630,000.00) shall be
paid in the following manner:
P30,000.00- as earnest money and as consideration for this Agreement, which amount shall be forfeited in
favor of SELLER-LESSORS if the sale is not effected because of the fault or option of BUYER-LESSEE;
P600,000.00- upon the issuance of the new certificate of title in the name of the late Francisco Laforteza
and upon the execution of an Extrajudicial Settlement of his estate with sale in favor of BUYER-LESSEE
free from lien or any encumbrances.
3. Parties reasonably estimate that the issuance of a new title in place of the lost one, as well as the
execution of extrajudicial settlement of estate with sale to herein BUYER-LESSEE
will be completed within six (6) months from the execution of this Agreement. It is
therefore agreed that during the six months period, BUYER-LESSEE will be leasing
the subject property for six months period at the monthly rate of PESOS: THREE
THOUSAND FIVE HUNDRED (P3,500.00). Provided however, that if the issuance of
 new title and the execution of Extrajudicial Partition is completed prior to the
expiration of the six months period, BUYER-LESSEE shall only be liable for rentals
for the corresponding period commencing from his occupancy of the premises to the
execution and completion of the Extrajudicial Settlement of the estate, provided
further that if after the expiration of six (6) months, the lost title is not yet replaced and
the extra judicial partition is not executed, BUYER-LESSEE shall no longer be
required to pay rentals and shall continue to occupy, and use the premises until
subject condition is complied by SELLER-LESSOR;
4. It is hereby agreed that within reasonable time from the execution of this Agreement and the payment by
BUYER-LESSEE of the amount of P30,000.00 as herein above provided, SELLER-
LESSORS shall immediately file the corresponding petition for the issuance of a new
title in lieu of the lost one in the proper Courts. Upon issuance by the proper Courts
of the new title, the BUYER-LESSEE shall have thirty (30) days to produce the
balance of P600,000.00 which shall be paid to the SELLER-LESSORS upon the
execution of the Extrajudicial Settlement with sale."[9]
A contract of sale is a consensual contract and is perfected at the moment there is a meeting of the minds
upon the thing which is the object of the contract and upon the price.[10] From that moment the parties may
reciprocally demand performance subject to the provisions of the law governing the form of contracts.[11]
The elements of a valid contract of sale under Article 1458 of the Civil Code are (1) consent or meeting of
the minds; (2) determinate subject matter and (3) price certain in money or its equivalent.[12]
In the case at bench, there was a perfected agreement between the petitioners and the respondent whereby
the petitioners obligated themselves to transfer the ownership of and deliver the house and lot located at
7757 Sherwood St., Marcelo Green Village, Paraaque and the respondent to pay the price amounting to
six hundred thousand pesos (P600,000.00). All the elements of a contract of sale were thus present.
However, the balance of the purchase price was to be paid only upon the issuance of the new certificate of
title in lieu of the one in the name of the late Francisco Laforteza and upon the execution of an extrajudicial
settlement of his estate. Prior to the issuance of the "reconstituted" title, the respondent was already placed
in possession of the house and lot as lessee thereof for six months at a monthly rate of three thousand five
hundred pesos (P3,500.00). It was stipulated that should the issuance of the new title and the execution of
the extrajudicial settlement be completed prior to expiration of the six-month period, the respondent would
be liable only for the rentals pertaining to the period commencing from the date of the execution of the
agreement up to the execution of the extrajudicial settlement. It was also expressly stipulated that if after
the expiration of the six month period, the lost title was not yet replaced and the extrajudicial partition was
not yet executed, the respondent would no longer be required to pay rentals and would continue to occupy
and use the premises until the subject condition was complied with by the petitioners.
The six-month period during which the respondent would be in possession of the property as lessee, was
clearly not a period within which to exercise an option. An option is a contract granting a privilege to buy or
sell within an agreed time and at a determined price. An option contract is a separate and distinct contract
from that which the parties may enter into upon the consummation of the option.[13] An option must be
supported by consideration.[14] An option contract is governed by the second paragraph of Article 1479 of
the Civil Code[15], which reads:
"Article 1479. xxx
An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the
promissor if the promise is supported by a consideration distinct from the price."
In the present case, the six-month period merely delayed the demandability of the contract of sale and did
not determine its perfection for after the expiration of the six-month period, there was an absolute obligation
on the part of the petitioners and the respondent to comply with the terms of the sale. The parties made a
"reasonable estimate" that the reconstitution of the lost title of the house and lot would take approximately
six months and thus presumed that after six months, both parties would be able to comply with what was
reciprocally incumbent upon them. The fact that after the expiration of the six-month period, the respondent
would retain possession of the house and lot without need of paying rentals for the use therefor, clearly
indicated that the parties contemplated that ownership over the property would already be transferred by
that time.
The issuance of the new certificate of title in the name of the late Francisco Laforteza and the execution of
an extrajudicial settlement of his estate was not a condition which determined the perfection of the contract
of sale. Petitioners contention that since the condition was not met, they no longer had an obligation to
proceed with the sale of the house and lot is unconvincing. The petitioners fail to distinguish between a
condition imposed upon the perfection of the contract and a condition imposed on the performance of an
obligation. Failure to comply with the first condition results in the failure of a contract, while the failure to
comply with the second condition only gives the other party the option either to refuse to proceed with the
sale or to waive the condition. Thus, Art. 1545 of the Civil Code states:
"Art. 1545. Where the obligation of either party to a contract of sale is subject to any condition which is not
performed, such party may refuse to proceed with the contract or he may waive
performance of the condition. If the other party has promised that the condition should
happen or be performed, such first mentioned party may also treat the
nonperformance of the condition as a breach of warranty.
Where the ownership in the things has not passed, the buyer may treat the fulfillment by the seller of his
obligation to deliver the same as described and as warranted expressly or by
implication in the contract of sale as a condition of the obligation of the buyer to
perform his promise to accept and pay for the thing."[16]
In the case at bar, there was already a perfected contract. The condition was imposed only on the
performance of the obligations contained therein. Considering however that the title was eventually
"reconstituted" and that the petitioners admit their ability to execute the extrajudicial settlement of their
fathers estate, the respondent had a right to demand fulfillment of the petitioners obligation to deliver and
transfer ownership of the house and lot.
What further militates against petitioners argument that they did not enter into a contract of sale is the fact
that the respondent paid thirty thousand pesos (P30,000.00) as earnest money. Earnest money is
something of value to show that the buyer was really in earnest, and given to the seller to bind the
bargain.[17] Whenever earnest money is given in a contract of sale, it is considered as part of the purchase
price and proof of the perfection of the contract.[18]
We do not subscribe to the petitioners view that the Memorandum Agreement was a contract to sell. There
is nothing contained in the Memorandum Agreement from which it can reasonably be deduced that the
parties intended to enter into a contract to sell, i.e. one whereby the prospective seller would explicitly
reserve the transfer of title to the prospective buyer, meaning, the prospective seller does not as yet agree
or consent to transfer ownership of the property subject of the contract to sell until the full payment of the
price, such payment being a positive suspensive condition, the failure of which is not considered a breach,
casual or serious, but simply an event which prevented the obligation from acquiring any obligatory
force.[19] There is clearly no express reservation of title made by the petitioners over the property, or any
provision which would impose non-payment of the price as a condition for the contracts entering into force.
Although the memorandum agreement was also denominated as a "Contract to Sell", we hold that the
parties contemplated a contract of sale. A deed of sale is absolute in nature although denominated a
conditional sale in the absence of a stipulation reserving title in the petitioners until full payment of the
purchase price.[20] In such cases, ownership of the thing sold passes to the vendee upon actual or
constructive delivery thereof.[21] The mere fact that the obligation of the respondent to pay the balance of
the purchase price was made subject to the condition that the petitioners first deliver the reconstituted title
of the house and lot does not make the contract a contract to sell for such condition is not inconsistent with
a contract of sale.[22]
The next issue to be addressed is whether the failure of the respondent to pay the balance of the purchase
price within the period allowed is fatal to his right to enforce the agreement.
We rule in the negative.
Admittedly, the failure of the respondent to pay the balance of the purchase price was a breach of the
contract and was a ground for rescission thereof. The extension of thirty (30) days allegedly granted to the
respondent by Roberto Z. Laforteza (assisted by his counsel Attorney Romeo Gutierrez) was correctly
found by the Court of Appeals to be ineffective inasmuch as the signature of Gonzalo Z. Laforteza did not
appear thereon as required by the Special Powers of Attorney.[23] However, the evidence reveals that after
the expiration of the six-month period provided for in the contract, the petitioners were not ready to comply
with what was incumbent upon them, i.e. the delivery of the reconstituted title of the house and lot. It was
only on September 18, 1989 or nearly eight months after the execution of the Memorandum of Agreement
when the petitioners informed the respondent that they already had a copy of the reconstituted title and
demanded the payment of the balance of the purchase price. The respondent could not therefore be
considered in delay for in reciprocal obligations, neither party incurs in delay if the other party does not
comply or is not ready to comply in a proper manner with what was incumbent upon him.[24]
Even assuming for the sake of argument that the petitioners were ready to comply with their obligation, we
find that rescission of the contract will still not prosper. The rescission of a sale of an immovable property
is specifically governed by Article 1592 of the New Civil Code, which reads:
"In the sale of immovable property, even though it may have been stipulated that upon failure to pay the
price at the time agreed upon the rescission of the contract shall of right take place,
the vendee may pay, even after the expiration of the period, as long as no demand
for rescission of the contract has been made upon him either judicially or by a notarial
act. After the demand, the court may not grant him a new term."[25]
It is not disputed that the petitioners did not make a judicial or notarial demand for rescission. The November
20, 1989 letter of the petitioners informing the respondent of the automatic rescission of the agreement did
not amount to a demand for rescission, as it was not notarized.[26] It was also made five days after the
respondents attempt to make the payment of the purchase price. This offer to pay prior to the demand for
rescission is sufficient to defeat the petitioners right under article 1592 of the Civil Code.[27] Besides, the
Memorandum Agreement between the parties did not contain a clause expressly authorizing the automatic
cancellation of the contract without court intervention in the event that the terms thereof were violated. A
seller cannot unilaterally and extrajudicially rescind a contract of sale where there is no express stipulation
authorizing him to extrajudicially rescind.[28] Neither was there a judicial demand for the rescission thereof.
Thus, when the respondent filed his complaint for specific performance, the agreement was still in force
inasmuch as the contract was not yet rescinded. At any rate, considering that the six-month period was
merely an approximation of the time it would take to reconstitute the lost title and was not a condition
imposed on the perfection of the contract and considering further that the delay in payment was only thirty
days which was caused by the respondents justified but mistaken belief that an extension to pay was
granted to him, we agree with the Court of Appeals that the delay of one month in payment was a mere
casual breach that would not entitle the respondents to rescind the contract. Rescission of a contract will
not be permitted for a slight or casual breach, but only such substantial and fundamental breach as would
defeat the very object of the parties in making the agreement.[29]
Petitioners insistence that the respondent should have consignated the amount is not determinative of
whether respondents action for specific performance will lie. Petitioners themselves point out that the effect
of consignation is to extinguish the obligation. It releases the debtor from responsibility therefor.[30] The
failure of the respondent to consignate the P600,000.00 is not tantamount to a breach of the contract for by
the fact of tendering payment, he was willing and able to comply with his obligation.
The Court of Appeals correctly found the petitioners guilty of bad faith and awarded moral damages to the
respondent. As found by the said Court, the petitioners refused to comply with their obligation for the reason
that they were offered a higher price therefor and the respondent was even offered P100,000.00 by the
petitioners lawyer, Attorney Gutierrez, to relinquish his rights over the property. The award of moral
damages is in accordance with Article 1191[31] of the Civil Code pursuant to Article 2220 which provides
that moral damages may be awarded in case of a breach of contract where the defendant acted in bad
faith. The amount awarded depends on the discretion of the court based on the circumstances of each
case.[32] Under the circumstances, the award given by the Court of Appeals amounting to P50,000.00
appears to us to be fair and reasonable.
ACCORDINGLY, the decision of the Court of Appeals in CA G.R. CV No. 47457 is AFFIRMED and the
instant petition is hereby DENIED.
No pronouncement as to costs.
SO ORDERED.

THIRD DIVISION
[G.R. No. 119777. October 23, 1997]
THE HEIRS OF PEDRO ESCANLAR, FRANCISCO HOLGADO and the SPOUSES DR. EDWIN A.
JAYME and ELISA TAN-JAYME, petitioners, vs. THE HON. COURT OF APPEALS, GENEROSA
MARTINEZ, CARMEN CARI-AN, RODOLFO CARI-AN, NELLY CHUA CARI-AN, for herself and as
guardian ad litem of her minor son, LEONELL C. CARI-AN, FREDISMINDA CARI-AN, the SPOUSES
PAQUITO CHUA and NEY SARROSA-CHUA and THE REGISTER OF DEEDS OF NEGROS
OCCIDENTAL, respondents.
[G.R. No. 120690. October 23, 1997]
FRANCISCO HOLGADO and HRS. OF PEDRO ESCANLAR, namely BERNARDO, FELY, SONIA, LILY,
DYESEBEL and NOEMI all surnamed ESCANLAR, petitioners, vs. HON. COURT OF APPEALS,
GENEROSA MARTINEZ, CARMEN CARI-AN, RODOLFO CARI-AN, NELLY CHUA CARI-AN, for
herself and as guardian ad litem of her minor son, LEONELL C. CARI-AN and FREDISMINDA CARI-
AN, and SP. PAQUITO CHUA and NEY SARROSA CHUA and REGISTER OF DEEDS OF NEGROS
OCCIDENTAL, respondents.
D E C I S I ON
ROMERO, J.:
Before us are consolidated petitions for review of the decision of the Court of Appeals in CA-G.R. CV No.
39975 which affirmed the trial courts pronouncement that the deed of sale of rights, interests and
participation in favor of petitioners is null and void.
The case arose from the following facts:
Spouses Guillermo Nombre and Victoriana Cari-an died without issue in 1924 and 1938, respectively. Nombres heirs
include his nephews and grandnephews. Victoriana Cari-an was succeeded by her late brothers son, Gregorio Cari-
an. The latter was declared as Victorianas heir in the estate proceedings for Nombre and his wife (Special Proceeding
No 7-7279).[1] After Gregorio died in 1971, his wife, Generosa Martinez, and children, Rodolfo, Carmen, Leonardo
and Fredisminda, all surnamed Cari-an, were also adjudged as heirs by representation to Victorianas estate.[2]
Leonardo Cari-an passed away, leaving his widow, Nelly Chua vda. de Cari-an and minor son Leonell, as his heirs.
Two parcels of land, denominated as Lot No. 1616 and 1617 of the Kabankalan Cadastre with an area of 29,350 square
meters and 460,948 square meters, respectively, formed part of the estate of Nombre and Cari-an.
On September 15, 1978, Gregorio Cari-ans heirs, herein collectively referred to as private respondents
Cari-an, executed the Deed of Sale of Rights, Interests and Participation worded as follows:
NOW, THEREFORE, for and in consideration of the sum of TWO HUNDRED SEVENTY-FIVE THOUSAND
(P275,000.00) Pesos, Philippine Currency, to be paid by the VENDEES to the VENDORS, except the share of the
minor child of Leonardo Cari-an, which should be deposited with the Municipal Treasurer of Himamaylan, Province
of Negros Occidental, by the order of the Court of First Instance of Negros Occidental, Branch VI, Himamaylan, by
those presents, do hereby SELL, CEDE, TRANSFER and CONVEY by way of ABSOLUTE SALE, all the RIGHTS,
INTERESTS and PARTICIPATION of the Vendors as to the one-half (1/2) portion pro-indiviso of Lots Nos. 1616
and 1617 (Fishpond), of the Kabankalan Cadastre, pertaining to the one-half (1/2) portion pro-indiviso of the late
Victoriana Cari-an unto and in favor of the Vendees, their heirs, successors and assigns;
xxxxxxxxx
That this Contract of Sale of rights, interests and participations shall become effective only upon the approval by the
Honorable Court of First Instance of Negros Occidental, Branch VI- Himamaylan. (Underscoring supplied.)
Pedro Escanlar and Francisco Holgado, the vendees, were concurrently the lessees of the lots referred to
above.[3] They stipulated that the balance of the purchase price (P225,000.00) shall be paid on or before
May 1979 in a Deed of Agreement executed by the parties on the same day:
WHEREAS, at the time of the signing of the Contract, VENDEES has (sic) only FIFTY THOUSAND (P50,000.00)
Pesos available thereof, and was not able to secure the entire amount;
WHEREAS, the Vendors and one of the Vendees by the name of Pedro Escanlar are relatives, and absolute faith and
trust exist between them, wherein during economic crisis, has not failed to give monetary succor to the Vendors;
WHEREAS, Vendors herein understood the present scarcity of securing available each (sic) in the amount stated in
the contract;
NOW THEREFORE, for and in consideration of the sum of FIFTY THOUSAND (P50,000.00) Pesos, Philippine
Currency, the balance of TWO HUNDRED TWENTY FIVE THOUSAND (P225,000.00) Pesos to be paid by the
Vendees on or before May, 1979, the Vendors herein, by these Presents, do hereby CONFIRM and AFFIRM the Deed
of Sale of the Rights, Interests and Participation dated September 15, 1978, over Lots Nos. 1616 and 1617 (fishpond)
of the Kabankalan Cadastre in favor of the VENDEES, their heirs and assigns.
That pending the complete payment thereof, Vendees shall not assign, sell, lease, nor mortgage the rights, interests
and participation thereof;
That in the event the Vendees fail and/ or omit to pay the balance of said purchase price on May 31, 1979 and the
cancellation of said Contract of Sale is made thereby, the sum of FIFTY THOUSAND (P50,000.00) Pesos shall be
deemed as damages thereof to Vendors. (Underscoring supplied)[4]
Petitioners were unable to pay the Cari-an heirs individual shares, amounting to P55,000.00 each, by the
due date. However, said heirs received at least 12 installments from petitioners after May 1979.[5] Rodolfo
Cari-an was fully paid by June 21, 1979. Generosa Martinez, Carmen Cari-an and Fredisminda Cari-an
were likewise fully compensated for their individual shares, per receipts given in evidence.[6] The minor
Leonells share was deposited with the Regional Trial Court on September 7, 1982.[7]
Being former lessees, petitioners continued in possession of Lot Nos. 1616 and 1617. Interestingly, they
continued to pay rent based on their lease contract. On September 10, 1981, petitioners moved to intervene
in the probate proceedings of Nombre and Cari-an as the buyers of private respondent Cari-ans share in
Lot Nos. 1616 and 1617. Petitioners motion for approval of the September 15, 1978 sale before the same
court, filed on November 10, 1981, was opposed by private respondents Cari-an on January 5, 1982.[8]
On September 16, 1982, the probate court approved a motion filed by the heirs of Cari-an and Nombre to
sell their respective shares in the estate. On September 21, 1982, private respondents Cari-an, in addition
to some heirs of Guillermo Nombre,[9] sold their shares in eight parcels of land including Lot Nos. 1616 and
1617 to the spouses Ney Sarrosa Chua and Paquito Chua for P1,850,000.00. One week later, the vendor-
heirs, including private respondents Cari-an, filed a motion for approval of sale of hereditary rights, i.e. the
sale made on September 21, 1982 to the Chuas.
Private respondents Cari-an instituted this case for cancellation of sale against petitioners (Escanlar and
Holgado) on November 3, 1982.[10] They complained of petitioners failure to pay the balance of the
purchase price by May 31, 1979 and alleged that they only received a total of P132,551.00 in cash and
goods. Petitioners replied that the Cari-ans, having been paid, had no right to resell the subject lots; that
the Chuas were purchasers in bad faith; and that the court approval of the sale to the Chuas was subject
to their existing claim over said properties.
On April 20, 1983, petitioners also sold their rights and interests in the subject parcels of land (Lot Nos.
1616 and 1617) to Edwin Jayme for P735,000.00[11] and turned over possession of both lots to the latter.
The Jaymes in turn, were included in the civil case as fourth-party defendants.
On December 3, 1984, the probate court approved the September 21, 1982 sale without prejudice to
whatever rights, claims and interests over any of those properties of the estate which cannot be properly
and legally ventilated and resolved by the court in the same intestate proceedings.[12] The certificates of
title over the eight lots sold by the heirs of Nombre and Cari-an were later issued in the name of respondents
Ney Sarrosa Chua and Paquito Chua.
The trial court allowed a third-party complaint against the third-party defendants Paquito and Ney Chua on
January 7, 1986 where Escanlar and Holgado alleged that the Cari-ans conspired with the Chuas when
they executed the second sale on September 21, 1982 and that the latter sale is illegal and of no effect.
Respondents Chua countered that they did not know of the earlier sale of one-half portion of the subject
lots to Escanlar and Holgado. Both parties claimed damages.[13]
On April 28, 1988, the trial court approved the Chuas motion to file a fourth-party complaint against the
spouses Jayme. Respondents Chua alleged that the Jaymes refused to vacate said lots despite repeated
demands; and that by reason of the illegal occupation of Lot Nos. 1616 and 1617 by the Jaymes, they
suffered materially from uncollected rentals.
Meanwhile, the Regional Trial Court of Himamaylan which took cognizance of Special Proceeding No. 7-
7279 (Intestate Estate of Guillermo Nombre and Victoriana Cari-an) had rendered its decision on October
30, 1987.[14] The probate court concluded that since all the properties of the estate were disposed of or
sold by the declared heirs of both spouses, the case is considered terminated and the intestate estate of
Guillermo Nombre and Victoriana Cari-an is closed. The court held:
As regards the various incidents of this case, the Court finds no cogent reason to resolve them since the very object of
the various incidents in this case is no longer in existence, that is to say, the properties of the estate of Guillermo
Nombre and Victoriana Cari-an had long been disposed of by the rightful heirs of Guillermo Nombre and Victoriana
Cari-an. In this respect, there is no need to resolve the Motion for Subrogation of Movants Pedro Escanlar and
Francisco Holgado to be subrogated to the rights of the heirs of Victoriana Cari-an since all the properties of the estate
had been transferred and titled to in the name of spouses Ney S. Chua and Dr. Paquito Chua. Since the nature of the
proceedings in this case is summary, this Court, being a Probate Court, has no jurisdiction to pass upon the validity or
invalidity of the sale of rights of the declared heirs of Guillermo Nombre and Victoriana Cari-an to third parties. This
issue must be raised in another action where it can be properly ventilated and resolved. x x x Having determined, after
exhausted (sic) and lengthy hearings, the rightful heirs of Guillermo Nombre and Victoriana Cari-an, the Court found
out that the second issue has become moot and academic considering that there are no more properties left to be
partitioned among the declared heirs as that had long ago been disposed of by the declared heirs x x x. (Underscoring
supplied)
The seminal case at bar was resolved by the trial court on December 18, 1991 in favor of cancellation of
the September 15, 1978 sale. Said transaction was nullified because it was not approved by the probate
court as required by the contested deed of sale of rights, interests and participation and because the Cari-
ans were not fully paid. Consequently, the Deed of Sale executed by the heirs of Nombre and Cari-an in
favor of Paquito and Ney Chua, which was approved by the probate court, was upheld. The dispositive
portion of the lower courts decision reads:
WHEREFORE, premises considered, judgment is hereby rendered as follows:
1) Declaring the following contracts null and void and of no effect:
a) The Deed of Sale, dated Sept. 15, 1978, executed by the plaintiffs in favor of the defendants Pedro Escanlar and
Francisco Holgado (Exh. A, Plaintiffs)
b) The Deed of Agreement, dated Sept. 15, 1978, executed by the plaintiffs in favor of the defendants, Pedro Escanlar
and Francisco Holgado (Exh. B, Plaintiffs)
c) The Deed of Sale, dated April 20, 1983, executed by the defendants in favor of the fourth-party defendants, Dr.
Edwin Jayme and Elisa Tan Jayme
d) The sale of leasehold rights executed by the defendants in favor of the fourth-party defendants
2) Declaring the amount of Fifty Thousand Pesos (P50,000.00) paid by the defendants to the plaintiffs in connection
with the Sept. 15, 1978 deed of sale, as forfeited in favor of the plaintiffs, but ordering the plaintiffs to return to the
defendants whatever amounts they have received from the latter after May 31, 1979 and the amount of Thirty Five
Thousand Two Hundred Eighteen & 75/100 (P35,218.75)[15] deposited with the Treasurer of Himamaylan, Negros
Occidental, for the minor Leonell C. Cari-an -
3) Declaring the deed of sale, dated September 23, 1982, executed by Lasaro Nombre, Victorio Madalag, Domingo
Campillanos, Sofronio Campillanos, Generosa Vda. de Martinez, Carmen Cari-an, Rodolfo Cari-an, Nelly Chua Vda.
de Cari-an, for herself and as guardian ad litem of the minor Leonell C. Cari-an, and Fredisminda Cari-an in favor of
the third-party defendants and fourth-party plaintiffs, spouses Dr. Paquito Chua and Ney Sarrosa Chua (Exh. 2-Chua)
as legal, valid and enforceable provided that the properties covered by the said deed of sale are subject of the burdens
of the estate, if the same have not been paid yet.
4) Ordering the defendants Francisco Holgado and Pedro Escanlar and the fourth-party defendants, spouses Dr. Edwin
Jayme and Elisa Tan Jayme, to pay jointly and severally the amount of One Hundred Thousand Pesos (P100,000.00
as moral damages and the further sum of Thirty Thousand Pesos (P30,000.00) as attorneys fees to the third-party
defendant spouses, Dr. Paquito Chua and Ney Sarrosa-Chua.
5) Ordering the fourth-party defendant spouses, Dr. Edwin Jayme and Elisa Tan Jayme, to pay to the third-party
defendants and fourth-party plaintiffs, spouses Dr. Paquito Chua and Ney Sarrosa-Chua, the sum of One Hundred
Fifty Seven Thousand Pesos (P157,000.00) as rentals for the riceland and Three Million Two Hundred Thousand
Pesos (P3,200,000.00) as rentals for the fishpond from October, 1985 to July 24, 1989 plus the rentals from the latter
date until the property shall have been delivered to the spouses Dr. Paquito Chua and Ney Sarrosa-Chua;
6) Ordering the defendants and the fourth-party defendants to immediately vacate Lots Nos. 1616 and 1617,
Kabankalan Cadastre;
7) Ordering the defendants and the fourth-party defendants to pay costs.
SO ORDERED.[16]
Petitioners raised the case to the Court of Appeals.[17] Respondent court affirmed the decision of the trial
court on February 17, 1995 and held that the questioned deed of sale of rights, interests and participation
is a contract to sell because it shall become effective only upon approval by the probate court and upon full
payment of the purchase price.[18]
Petitioners motion for reconsideration was denied by respondent court on April 3, 1995.[19] Hence, these
petitions.[20]
1. We disagree with the Court of Appeals conclusion that the September 15, 1978 Deed of Sale of Rights,
Interests and Participation is a contract to sell and not one of sale.
The distinction between contracts of sale and contracts to sell with reserved title has been recognized by
this Court in repeated decisions, according to Justice J.B.L. Reyes in Luzon Brokerage Co. Inc. v. Maritime
Building Co., Inc.,[21] upholding the power of promisors under contracts to sell in case of failure of the other
party to complete payment, to extrajudicially terminate the operation of the contract, refuse the conveyance,
and retain the sums of installments already received where such rights are expressly provided for.
In contracts to sell, ownership is retained by the seller and is not to pass until the full payment of the price.
Such payment is a positive suspensive condition, the failure of which is not a breach of contract but simply
an event that prevented the obligation of the vendor to convey title from acquiring binding force.[22] To
illustrate, although a deed of conditional sale is denominated as such, absent a proviso that title to the
property sold is reserved in the vendor until full payment of the purchase price nor a stipulation giving the
vendor the right to unilaterally rescind the contract the moment the vendee fails to pay within a fixed period,
by its nature, it shall be declared a deed of absolute sale.[23]
The September 15, 1978 sale of rights, interests and participation as to 1/2 portion pro indiviso of the two
subject lots is a contract of sale for the following reasons: First, private respondents as sellers did not
reserve unto themselves the ownership of the property until full payment of the unpaid balance of
P225,000.00. Second, there is no stipulation giving the sellers the right to unilaterally rescind the contract
the moment the buyer fails to pay within the fixed period.[24] Prior to the sale, petitioners were in possession
of the subject property as lessees. Upon sale to them of the rights, interests and participation as to the 1/2
portion pro indiviso, they remained in possession, not in concept of lessees anymore but as owners now
through symbolic delivery known as traditio brevi manu.[25] Under Article 1477 of the Civil Code, the
ownership of the thing sold is acquired by the vendee upon actual or constructive delivery thereof.[26]
In a contract of sale, the non-payment of the price is a resolutory condition which extinguishes the
transaction that, for a time, existed and discharges the obligations created thereunder. The remedy of an
unpaid seller in a contract of sale is to seek either specific performance or rescission.[27]
2. Next to be discussed is the stipulation in the disputed September 15, 1978 Deed of Sale of Rights,
Interests and Participation which reads: (t)his Contract of Sale of rights, interests and participations shall
become effective only upon the approval by the Honorable Court of First Instance of Negros Occidental,
Branch VI-Himamaylan. Notably, the trial court and the Court of Appeals both held that the deed of sale is
null and void for not having been approved by the probate court.
There has arisen here a confusion in the concepts of validity and the efficacy of a contract. Under Art. 1318
of the Civil Code, the essential requisites of a contract are: consent of the contracting parties; object certain
which is the subject matter of the contract and cause of the obligation which is established. Absent one of
the above, no contract can arise. Conversely, where all are present, the result is a valid contract. However,
some parties introduce various kinds of restrictions or modalities, the lack of which will not, however, affect
the validity of the contract.
In the instant case, the Deed of Sale, complying as it does with the essential requisites, is a valid one.
However, it did not bear the stamp of approval of the court. This notwithstanding, the contracts validity was
not affected for in the words of the stipulation, . . . this Contract of Sale of rights, interests and participations
shall become effective only upon the approval by the Honorable Court . . . In other words, only the effectivity
and not the validity of the contract is affected.
Then, too, petitioners are correct in saying that the need for approval by the probate court exists only where
specific properties of the estate are sold and not when only ideal and indivisible shares of an heir are
disposed of.
In the case of Dillena v. Court of Appeals,[28] the Court declared that it is within the jurisdiction of the
probate court to approve the sale of properties of a deceased person by his prospective heirs before final
adjudication.[29] It is settled that court approval is necessary for the validity of any disposition of the
decedents estate. However, reference to judicial approval cannot adversely affect the substantive rights of
the heirs to dispose of their ideal share in the co-heirship and/or co-ownership among the heirs.[30] It must
be recalled that during the period of indivision of a decedents estate, each heir, being a co-owner, has full
ownership of his part and may therefore alienate it.[31] But the effect of the alienation with respect to the
co-owners shall be limited to the portion which may be allotted to him in the division upon the termination
of the co-ownership.[32]
From the foregoing, it is clear that hereditary rights in an estate can be validly sold without need of court
approval and that when private respondents Cari-an sold their rights, interests and participation in Lot Nos.
1616 and 1617, they could legally sell the same without the approval of the probate court.
As a general rule, the pertinent contractual stipulation (requiring court approval) should be considered as
the law between the parties. However, the presence of two factors militate against this conclusion. First,
the evident intention of the parties appears to be contrary to the mandatory character of said stipulation.[33]
Whoever crafted the document of conveyance, must have been of the belief that the controversial
stipulation was a legal requirement for the validity of the sale. But the contemporaneous and subsequent
acts of the parties reveal that the original objective of the parties was to give effect to the deed of sale even
without court approval.[34] Receipt and acceptance of the numerous installments on the balance of the
purchase price by the Cari-ans and leaving petitioners in possession of Lot Nos. 1616 and 1617 reveal their
intention to effect the mutual transmission of rights and obligations. It was only after private respondents
Cari-an sold their shares in the subject lots again to the spouses Chua, in September 1982, that these
same heirs filed the case at bar for the cancellation of the September 1978 conveyance. Worth considering
too is the fact that although the period to pay the balance of the purchase price expired in May 1979, the
heirs continued to accept payments until late 1979 and did not seek judicial relief until late 1982 or three
years later.
Second, we hold that the requisite approval was virtually rendered impossible by the Cari-ans because they
opposed the motion for approval of the sale filed by petitioners[35] and sued the latter for the cancellation
of that sale. The probate court explained:
(e) While it is true that Escanlar and Holgado filed a similar motion for the approval of Deed of Sale executed by some
of the heirs in their favor concerning the one-half (1/2) portions of Lots 1616 and 1617 as early as November 10, 1981,
yet the Court could not have favorably acted upon it, because there exists a pending case for the rescission of that
contract, instituted by the vendors therein against Pedro Escanlar and Francisco Holgado and filed before another
branch of this Court. Until now, this case, which attacks the very source of whatever rights or interests Holgado and
Escanlar may have acquired over one-half (1/2) portions of Lots Nos. 1616 and 1617, is pending resolution by another
court. Otherwise, if this Court meddles on these issues raised in that ordinary civil action seeking for the rescission of
an existing contract, then, the act of this Court would be totally ineffective, as the same would be in excess of its
jurisdiction.[36]
Having provided the obstacle and the justification for the stipulated approval not to be granted, private
respondents Cari-an should not be allowed to cancel their first transaction with petitioners because of lack
of approval by the probate court, which lack is of their own making.
3. With respect to rescission of a sale of real property, Article 1592 of the Civil Code governs:
In the sale of immovable property, even though it may have been stipulated that upon failure to pay the price at the
time agreed upon the rescission of the contract shall of right take place, the vendee may pay, even after the expiration
of the period, as long as no demand for rescission of the contract has been made upon him either judicially or by a
notarial act. After the demand, the court may not grant him a new term. (Underscoring added)
In the instant case, the sellers gave the buyers until May 1979 to pay the balance of the purchase price.
After the latter failed to pay installments due, the former made no judicial demand for rescission of the
contract nor did they execute any notarial act demanding the same, as required under Article 1592.
Consequently, the buyers could lawfully make payments even after the May 1979 deadline, as in fact they
paid several installments to the sellers which the latter accepted. Thus, upon the expiration of the period to
pay, the sellers made no move to rescind but continued accepting late payments, an act which cannot but
be construed as a waiver of the right to rescind. When the sellers, instead of availing of their right to rescind,
accepted and received delayed payments of installments beyond the period stipulated, and the buyers were
in arrears, the sellers in effect waived and are now estopped from exercising said right to rescind.[37]
4. The matter of full payment is another issue taken up by petitioners. An exhaustive review of the records
of this case impels us to arrive at a conclusion at variance with that of both the trial and the appellate courts.
The sole witness in the cancellation of sale case was private respondent herein Fredisminda Cari-an
Bustamante. She initially testified that after several installments, she signed a receipt for the full payment
of her share in December 1979 but denied having actually received the P5,000.00 intended to complete
her share. She claims that Escanlar and Holgado made her sign the receipt late in the afternoon and
promised to give the money to her the following morning when the banks opened. She also claimed that
while her brother Rodolfo Cari-ans share had already been fully paid, her mother Generosa Martinez only
received P28,334.00 and her sister-in-law Nelly Chua vda. de Cari-an received only P11,334.00.
Fredisminda also summed up all the installments and came up with the total of P132,551.00 from the long
list on a sheet of a calendar which was transferred from a small brown notebook. She later admitted that
her list may not have been complete for she gave the receipts for installments to petitioners Escanlar and
Holgado. She thus claimed that they were defrauded because petitioners are wealthy and private
respondents are poor.
However, despite all her claims, Fredismindas testimony fails to convince this Court that they were not fully
compensated by petitioners. Fredisminda admits that her mother and her sister signed their individual
receipts of full payment on their own and not in her presence.[38] The receipts presented in evidence show
that Generosa Martinez was paid P45,625.00; Carmen Cari-an, P45,625.00; Rodolfo Cari-an, P47,500.00
on June 21, 1979; Nelly Chua vda. de Cari-an, P11,334.00 and the sum of P34,218.00 was consigned in
court for the minor Leonell Cari-an.[39] Fredisminda insists that she signed a receipt for full payment without
receiving the money therefor and admits that she did not object to the computation. We find it incredible
that a mature woman like Fredisminda Cari-an, would sign a receipt for money she did not receive.
Furthermore, her claims regarding the actual amount of the installments paid to her and her kin are quite
vague and unsupported by competent evidence. She even admits that all the receipts were taken by
petitioner Escanlar.[40] Worth noting too is the absence of supporting testimony from her co-heirs and
siblings Carmen Cari-an, Rodolfo Cari-an and Nelly Chua vda. de Cari-an.
The trial court reasoned out that petitioners, in continuing to pay the rent for the parcels of land they
allegedly bought, admit not having fully paid the Cari-ans. Petitioners response, that they paid rent until
1986 in compliance with their lease contract, only proves that they respected this contract and did not take
undue advantage of the heirs of Nombre and Cari-an who benefited from the lease. Moreover, it is to be
stressed that petitioners purchased the hereditary shares solely of the Cari-ans and not the entire lot.
The foregoing discussion ineluctably leads us to conclude that the Cari-ans were indeed paid the balance
of the purchase price, despite having accepted installments therefor belatedly. There is thus no ground to
rescind the contract of sale because of non-payment.
5. Recapitulating, we have held that the September 15, 1978 deed of sale of rights, interests and
participations is valid and that the sellers-private respondents Cari-an were fully paid the contract price.
However, it must be emphasized that what was sold was only the Cari-ans hereditary shares in Lot Nos.
1616 and 1617 being held pro indiviso by them and is thus a valid conveyance only of said ideal shares.
Specific or designated portions of land were not involved.
Consequently, the subsequent sale of 8 parcels of land, including Lot Nos. 1616 and 1617, to the spouses
Chua is valid except to the extent of what was sold to petitioners in the September 15, 1978 conveyance.
It must be noted however, that the probate court in Special Proceeding No. 7-7279 desisted from awarding
the individual shares of each heir because all the properties belonging to the estate had already been
sold.[41] Thus it is not certain how much private respondents Cari-an were entitled to with respect to the
two lots, or if they were even going to be awarded shares in said lots.
The proceedings surrounding the estate of Nombre and Cari-an having attained finality for nearly a decade
now, the same cannot be re-opened. The protracted proceedings which have undoubtedly left the property
under a cloud and the parties involved in a state of uncertainty compels us to resolve it definitively.
The decision of the probate court declares private respondents Cari-an as the sole heirs by representation
of Victoriana Cari-an who was indisputably entitled to half of the estate.[42] There being no exact
apportionment of the shares of each heir and no competent proof that the heirs received unequal shares in
the disposition of the estate, it can be assumed that the heirs of Victoriana Cari-an collectively are entitled
to half of each property in the estate. More particularly, private respondents Cari-an are entitled to half of
Lot Nos. 1616 and 1617, i.e. 14,675 square meters of Lot No. 1616 and 230,474 square meters of Lot No.
1617. Consequently, petitioners, as their successors-in-interest, own said half of the subject lots and ought
to deliver the possession of the other half, as well as pay rents thereon, to the private respondents Ney
Sarrosa Chua and Paquito Chua but only if the former (petitioners) remained in possession thereof.
The rate of rental payments to be made were given in evidence by Ney Sarrosa Chua in her unrebutted
testimony on July 24, 1989: For the fishpond (Lot No. 1617) - From 1982 up to 1986, rental payment of
P3,000.00 per hectare; from 1986-1989 (and succeeding years), rental payment of P10,000.00 per hectare.
For the riceland (Lot No. 1616) - 15 cavans per hectare per year; from 1982 to 1986, P125.00 per cavan;
1987-1988, P175.00 per cavan; and 1989 and succeeding years, P200.00 per cavan.[43]
WHEREFORE, the petitions are hereby GRANTED. The decision of the Court of Appeals under
review is hereby REVERSED AND SET ASIDE. The case is REMANDED to the Regional Trial Court of
Negros Occidental, Branch 61 for petitioners and private respondents Cari-an or their successors-in-
interest to determine exactly which 1/2 portion of Lot Nos. 1616 and 1617 will be owned by each party, at
the option of petitioners. The trial court is DIRECTED to order the issuance of the corresponding certificates
of title in the name of the respective parties and to resolve the matter of rental payments of the land not
delivered to the Chua spouses subject to the rates specified above with legal interest from date of demand.
SO ORDERED.

THIRD DIVISION
[G.R. No. 119745. June 20, 1997]
POWER COMMERCIAL AND INDUSTRIAL CORPORATION, petitioner, vs. COURT OF APPEALS,
SPOUSES REYNALDO and ANGELITA R. QUIAMBAO and PHILIPPINE NATIONAL BANK,
respondents.
DECISION
PANGANIBAN, J.:
Is the sellers failure to eject the lessees from a lot that is the subject of a contract of sale with assumption
of mortgage a ground (1) for rescission of such contract and (2) for a return by the mortgagee of the
amortization payments made by the buyer who assumed such mortgage?
Petitioner posits an affirmative answer to such question in this petition for review on certiorari of the March
27, 1995 Decision[1] of the Court of Appeals, Eighth Division, in CA-G.R. CV Case No. 32298 upholding
the validity of the contract of sale with assumption of mortgage and absolving the mortgagee from the
liability of returning the mortgage payments already made.[2]
The Facts
Petitioner Power Commercial & Industrial Development Corporation, an industrial asbestos manufacturer,
needed a bigger office space and warehouse for its products. For this purpose, on January 31, 1979, it
entered into a contract of sale with the spouses Reynaldo and Angelita R. Quiambao, herein private
respondents. The contract involved a 612-sq. m. parcel of land covered by Transfer Certificate of Title No.
S-6686 located at the corner of Bagtican and St. Paul Streets, San Antonio Village, Makati City. The parties
agreed that petitioner would pay private respondents P108,000.00 as down payment, and the balance of
P295,000.00 upon the execution of the deed of transfer of the title over the property. Further, petitioner
assumed, as part of the purchase price, the existing mortgage on the land. In full satisfaction thereof, he
paid P79,145.77 to Respondent Philippine National Bank (PNB for brevity).
On June 1, 1979, respondent spouses mortgaged again said land to PNB to guarantee a loan of
P145,000.00, P80,000.00 of which was paid to respondent spouses. Petitioner agreed to assume payment
of the loan.
On June 26, 1979, the parties executed a Deed of Absolute Sale With Assumption of Mortgage which
contained the following terms and conditions:[3]
That for and in consideration of the sum of Two Hundred Ninety-Five Thousand Pesos (P295,000.00) Philippine
Currency, to us in hand paid in cash, and which we hereby acknowledge to be payment in full and received to our
entire satisfaction, by POWER COMMERCIAL AND INDUSTRIAL DEVELOPMENT CORPORATION, a 100%
Filipino Corporation, organized and existing under and by virtue of Philippine Laws with offices located at 252-C
Vito Cruz Extension, we hereby by these presents SELL, TRANSFER and CONVEY by way of absolute sale the
above described property with all the improvements existing thereon unto the said Power Commercial and Industrial
Development Corporation, its successors and assigns, free from all liens and encumbrances.
We hereby certify that the aforesaid property is not subject to nor covered by the provisions of the Land Reform Code
-- the same having no agricultural lessee and/or tenant.
We hereby also warrant that we are the lawful and absolute owners of the above described property, free from any
lien and/or encumbrance, and we hereby agree and warrant to defend its title and peaceful possession thereof in favor
of the said Power Commercial and Industrial Development Corporation, its successors and assigns, against any claims
whatsoever of any and all third persons; subject, however, to the provisions hereunder provided to wit:
That the above described property is mortgaged to the Philippine National Bank, Cubao, Branch, Quezon City for the
amount of one hundred forty-five thousand pesos, Philippine, evidenced by document No. 163, found on page No. 34
of Book No. XV, Series of 1979 of Notary Public Herita L. Altamirano registered with the Register of Deeds of Pasig
(Makati), Rizal xxx;
That the said Power Commercial and Industrial Development Corporation assumes to pay in full the entire amount of
the said mortgage above described plus interest and bank charges, to the said mortgagee bank, thus holding the herein
vendor free from all claims by the said bank;
That both parties herein agree to seek and secure the agreement and approval of the said Philippine National Bank to
the herein sale of this property, hereby agreeing to abide by any and all requirements of the said bank, agreeing that
failure to do so shall give to the bank first lieu (sic) over the herein described property.
On the same date, Mrs. C.D. Constantino, then General Manager of petitioner-corporation, submitted to
PNB said deed with a formal application for assumption of mortgage.[4]
On February 15, 1980, PNB informed respondent spouses that, for petitioners failure to submit the papers
necessary for approval pursuant to the formers letter dated January 15, 1980, the application for
assumption of mortgage was considered withdrawn; that the outstanding balance of P145,000.00 was
deemed fully due and demandable; and that said loan was to be paid in full within fifteen (15) days from
notice.[5]
Petitioner paid PNB P41,880.45 on June 24, 1980 and P20,283.14 on December 23, 1980, payments which
were to be applied to the outstanding loan. On December 23, 1980, PNB received a letter from petitioner
which reads:[6]
With regard to the presence of the people who are currently in physical occupancy of the (l)ot xxx it is our desire as
buyers and new owners of this lot to make use of this lot for our own purpose, which is why it is our desire and
intention that all the people who are currently physically present and in occupation of said lot should be removed
immediately.
For this purpose we respectfully request that xxx our assumption of mortgage be given favorable consideration, and
that the mortgage and title be transferred to our name so that we may undertake the necessary procedures to make use
of this lot ourselves.
It was our understanding that this lot was free and clear of problems of this nature, and that the previous owner would
be responsible for the removal of the people who were there. Inasmuch as the previous owner has not been able to
keep his commitment, it will be necessary for us to take legal possession of this lot inorder (sic) to take physical
possession.
On February 19, 1982, PNB sent petitioner a letter as follows:[7]
(T)his refers to the loan granted to Mr. Reynaldo Quiambao which was assumed by you on June 4, 1979 for
P101,500.00. It was last renewed on December 24, 1980 to mature on June 4, 1981.
A review of our records show that it has been past due from last maturity with interest arrearages amounting to
P25,826.08 as of February 19, 1982. The last payment received by us was on December 24, 1980 for P20,283.14. In
order to place your account in current form, we request you to remit payments to cover interest, charges, and at least
part of the principal.
On March 17, 1982, petitioner filed Civil Case No. 45217 against respondent spouses for rescission and
damages before the Regional Trial Court of Pasig, Branch 159. Then, in its reply to PNBs letter of February
19, 1982, petitioner demanded the return of the payments it made on the ground that its assumption of
mortgage was never approved. On May 31, 1983,[8] while this case was pending, the mortgage was
foreclosed. The property was subsequently bought by PNB during the public auction. Thus, an amended
complaint was filed impleading PNB as party defendant.
On July 12, 1990, the trial court[9] ruled that the failure of respondent spouses to deliver actual possession
to petitioner entitled the latter to rescind the sale, and in view of such failure and of the denial of the latters
assumption of mortgage, PNB was obliged to return the payments made by the latter. The dispositive
portion of said decision states:[10]
IN VIEW OF ALL THE FOREGOING, the Court hereby renders judgment in favor of plaintiff and against
defendants:
(1) Declaring the rescission of the Deed of Sale with Assumption of Mortgage executed between plaintiff and
defendants Spouses Quiambao, dated June 26, 1979;
(2) Ordering defendants Spouses Quiambao to return to plaintiff the amount of P187,144.77 (P108,000.00 plus
P79,145.77) with legal interest of 12% per annum from date of filing of herein complaint, that is, March 17, 1982 until
the same is fully paid;
(3) Ordering defendant PNB to return to plaintiff the amount of P62,163.59 (P41,880.45 and P20,283.14) with 12%
interest thereon from date of herein judgment until the same is fully paid.
No award of other damages and attorneys fees, the same not being warranted under the facts and circumstances of the
case.
The counterclaim of both defendants spouses Quiambao and PNB are dismissed for lack of merit.
No pronouncement as to costs.
SO ORDERED.
On appeal by respondent-spouses and PNB, Respondent Court of Appeals reversed the trial court. In the
assailed Decision, it held that the deed of sale between respondent spouses and petitioner did not obligate
the former to eject the lessees from the land in question as a condition of the sale, nor was the occupation
thereof by said lessees a violation of the warranty against eviction. Hence, there was no substantial breach
to justify the rescission of said contract or the return of the payments made. The dispositive portion of said
Decision reads:[11]
WHEREFORE, the Decision appealed from is hereby REVERSED and the complaint filed by Power Commercial and
Industrial Development Corporation against the spouses Reynaldo and Angelita Quiambao and the Philippine National
Bank is DISMISSED. No costs.
Hence, the recourse to this Court .
Issues
Petitioner contends that: (1) there was a substantial breach of the contract between the parties warranting
rescission; and (2) there was a mistake in payment made by petitioner, obligating PNB to return such
payments. In its Memorandum, it specifically assigns the following errors of law on the part of Respondent
Court:[12]
A. Respondent Court of Appeals gravely erred in failing to consider in its decision that a breach of implied warranty
under Article 1547 in relation to Article 1545 of the Civil Code applies in the case-at-bar.
B. Respondent Court of Appeals gravely erred in failing to consider in its decision that a mistake in payment giving
rise to a situation where the principle of solutio indebiti applies is obtaining in the case-at-bar.
The Courts Ruling
The petition is devoid of merit. It fails to appreciate the difference between a condition and a warranty and
the consequences of such distinction.
Conspicuous Absence of an Imposed Condition
The alleged failure of respondent spouses to eject the lessees from the lot in question and to deliver actual
and physical possession thereof cannot be considered a substantial breach of a condition for two reasons:
first, such failure was not stipulated as a condition -- whether resolutory or suspensive -- in the contract;
and second, its effects and consequences were not specified either.[13]
The provision adverted to by petitioner does not impose a condition or an obligation to eject the lessees
from the lot. The deed of sale provides in part:[14]
We hereby also warrant that we are the lawful and absolute owners of the above described property, free from any
lien and/or encumbrance, and we hereby agree and warrant to defend its title and peaceful possession thereof in favor
of the said Power Commercial and Industrial Development Corporation, its successors and assigns, against any claims
whatsoever of any and all third persons; subject, however, to the provisions hereunder provided to wit:
By his own admission, Anthony Powers, General Manager of petitioner-corporation, did not ask the
corporations lawyers to stipulate in the contract that Respondent Reynaldo was guaranteeing the ejectment
of the occupants, because there was already a proviso in said deed of sale that the sellers were
guaranteeing the peaceful possession by the buyer of the land in question.[15] Any obscurity in a contract,
if the above-quoted provision can be so described, must be construed against the party who caused it.[16]
Petitioner itself caused the obscurity because it omitted this alleged condition when its lawyer drafted said
contract.
If the parties intended to impose on respondent spouses the obligation to eject the tenants from the lot sold,
it should have included in the contract a provision similar to that referred to in Romero vs. Court of
Appeals,[17] where the ejectment of the occupants of the lot sold by private respondent was the operative
act which set into motion the period of petitioners compliance with his own obligation, i.e., to pay the balance
of the purchase price. Failure to remove the squatters within the stipulated period gave the other party the
right to either refuse to proceed with the agreement or to waive that condition of ejectment in consonance
with Article 1545 of the Civil Code. In the case cited, the contract specifically stipulated that the ejectment
was a condition to be fulfilled; otherwise, the obligation to pay the balance would not arise. This is not so in
the case at bar.
Absent a stipulation therefor, we cannot say that the parties intended to make its nonfulfillment a ground
for rescission. If they did intend this, their contract should have expressly stipulated so. In Ang vs. C.A.,[18]
rescission was sought on the ground that the petitioners had failed to fulfill their obligation to remove and
clear the lot sold, the performance of which would have given rise to the payment of the consideration by
private respondent. Rescission was not allowed, however, because the breach was not substantial and
fundamental to the fulfillment by the petitioners of the obligation to sell.
As stated, the provision adverted to in the contract pertains to the usual warranty against eviction, and not
to a condition that was not met. The terms of the contract are so clear as to leave no room for any other
interpretation.[19]
Futhermore, petitioner was well aware of the presence of the tenants at the time it entered into the sales
transaction. As testified to by Reynaldo,[20] petitioners counsel during the sales negotiation even undertook
the job of ejecting the squatters. In fact, petitioner actually filed suit to eject the occupants. Finally, petitioner
in its letter to PNB of December 23, 1980 admitted that it was the buyer(s) and new owner(s) of this lot.
Effective Symbolic Delivery
The Court disagrees with petitioners allegation that the respondent spouses failed to deliver the lot sold.
Petitioner asserts that the legal fiction of symbolic delivery yielded to the truth that, at the execution of the
deed of sale, transfer of possession of said lot was impossible due to the presence of occupants on the lot
sold. We find this misleading.
Although most authorities consider transfer of ownership as the primary purpose of sale, delivery remains
an indispensable requisite as our law does not admit the doctrine of transfer of property by mere
consent.[21] The Civil Code provides that delivery can either be (1) actual (Article 1497) or (2) constructive
(Articles 1498-1501). Symbolic delivery (Article 1498), as a species of constructive delivery, effects the
transfer of ownership through the execution of a public document. Its efficacy can, however, be prevented
if the vendor does not possess control over the thing sold,[22] in which case this legal fiction must yield to
reality.
The key word is control, not possession, of the land as petitioner would like us to believe. The Court has
consistently held that:[23]
x x x (I)n order that this symbolic delivery may produce the effect of tradition, it is necessary that the vendor shall
have had such control over the thing sold that xxx its material delivery could have been made. It is not enough to
confer upon the purchaser the ownership and the right of possession. The thing sold must be placed in his control.
When there is no impediment whatever to prevent the thing sold passing into the tenancy of the purchaser by the sole
will of the vendor, symbolic delivery through the execution of a public instrument is sufficient. But if, notwithstanding
the execution of the instrument, the purchaser cannot have the enjoyment and material tenancy of the thing and make
use of it himself or through another in his name, because such tenancy and enjoyment are opposed by the interposition
of another will, then fiction yields to reality -- the delivery has not been effected.
Considering that the deed of sale between the parties did not stipulate or infer otherwise, delivery was
effected through the execution of said deed. The lot sold had been placed under the control of petitioner;
thus, the filing of the ejectment suit was subsequently done. It signified that its new owner intended to obtain
for itself and to terminate said occupants actual possession thereof. Prior physical delivery or possession
is not legally required and the execution of the deed of sale is deemed equivalent to delivery.[24] This deed
operates as a formal or symbolic delivery of the property sold and authorizes the buyer to use the document
as proof of ownership. Nothing more is required.
Requisites of Breach of Warranty Against Eviction
Obvious to us in the ambivalent stance of petitioner is its failure to establish any breach of the warranty
against eviction. Despite its protestation that its acquisition of the lot was to enable it to set up a warehouse
for its asbestos products and that failure to deliver actual possession thereof defeated this purpose, still no
breach of warranty against eviction can be appreciated because the facts of the case do not show that the
requisites for such breach have been satisfied. A breach of this warranty requires the concurrence of the
following circumstances:
(1) The purchaser has been deprived of the whole or part of the thing sold;
(2) This eviction is by a final judgment;
(3) The basis thereof is by virtue of a right prior to the sale made by the vendor; and
(4) The vendor has been summoned and made co-defendant in the suit for eviction at the instance of the
vendee.[25]
In the absence of these requisites, a breach of the warranty against eviction under Article 1547 cannot be
declared.
Petitioner argues in its memorandum that it has not yet ejected the occupants of said lot, and not that it has
been evicted therefrom. As correctly pointed out by Respondent Court, the presence of lessees does not
constitute an encumbrance of the land,[26] nor does it deprive petitioner of its control thereof.
We note, however, that petitioners deprivation of ownership and control finally occurred when it failed and/or
discontinued paying the amortizations on the mortgage, causing the lot to be foreclosed and sold at public
auction. But this deprivation is due to petitioners fault, and not to any act attributable to the vendor-spouses.
Because petitioner failed to impugn its integrity, the contract is presumed, under the law, to be valid and
subsisting.
Absence of Mistake In Payment
Contrary to the contention of petitioner that a return of the payments it made to PNB is warranted under
Article 2154 of the Code, solutio indebiti does not apply in this case. This doctrine applies where: (1) a
payment is made when there exists no binding relation between the payor, who has no duty to pay, and the
person who received the payment, and (2) the payment is made through mistake, and not through liberality
or some other cause.[27]
In this case, petitioner was under obligation to pay the amortizations on the mortgage under the contract of
sale and the deed of real estate mortgage. Under the deed of sale (Exh. 2),[28] both parties agreed to abide
by any and all the requirements of PNB in connection with the real estate mortgage. Petitioner was aware
that the deed of mortgage (Exh. C) made it solidarily and, therefore, primarily[29] liable for the mortgage
obligation:[30]
(e) The Mortgagor shall neither lease the mortgaged property xxx nor sell or dispose of the same in any manner,
without the written consent of the Mortgagee. However, if not withstanding this stipulation and during the existence
of this mortgage, the property herein mortgaged, or any portion thereof, is xxx sold, it shall be the obligation of the
Mortgagor to impose as a condition of the sale, alienation or encumbrance that the vendee, or the party in whose favor
the alienation or encumbrance is to be made, should take the property subject to the obligation of this mortgage in the
same terms and condition under which it is constituted, it being understood that the Mortgagor is not in any manner
relieved of his obligation to the Mortgagee under this mortgage by such sale, alienation or encumbrance; on the
contrary both the vendor and the vendee, or the party in whose favor the alienation or encumbrance is made shall be
jointly and severally liable for said mortgage obligations. xxx.
Therefore, it cannot be said that it did not have a duty to pay to PNB the amortization on the mortgage.
Also, petitioner insists that its payment of the amortization was a mistake because PNB disapproved its
assumption of mortgage after it failed to submit the necessary papers for the approval of such assumption.
But even if petitioner was a third party in regard to the mortgage of the land purchased, the payment of the
loan by petitioner was a condition clearly imposed by the contract of sale. This fact alone disproves
petitioners insistence that there was a mistake in payment. On the contrary, such payments were necessary
to protect its interest as a the buyer(s) and new owner(s) of the lot.
The quasi-contract of solutio indebiti is one of the concrete manifestations of the ancient principle that no
one shall enrich himself unjustly at the expense of another.[31] But as shown earlier, the payment of the
mortgage was an obligation petitioner assumed under the contract of sale. There is no unjust enrichment
where the transaction, as in this case, is quid pro quo, value for value.
All told, respondent Court did not commit any reversible error which would warrant the reversal of the
assailed Decision.
WHEREFORE, the petition is hereby DENIED, and the assailed Decision is AFFIRMED.
SO ORDERED.

SECOND DIVISION

JAIME GUINHAWA, G.R. No. 162822

Petitioner,
Present:

PUNO, J., Chairman,

AUSTRIA-MARTINEZ,
- versus - CALLEJO, SR.,
TINGA, and
CHICO-NAZARIO, JJ.

Promulgated:
PEOPLE OF THE PHILIPPINES,
Respondent. August 25, 2005
x--------------------------------------------------x

DECISION

CALLEJO, SR., J.:

Jaime Guinhawa was engaged in the business of selling brand new motor vehicles, including Mitsubishi
vans, under the business name of Guinrox Motor Sales. His office and display room for cars were located along
Panganiban Avenue, Naga City. He employed Gil Azotea as his sales manager.

On March 17, 1995, Guinhawa purchased a brand new Mitsubishi L-300 Versa Van with Motor No.
4D56A-C8929 and Serial No. L069WQZJL-07970 from the Union Motors Corporation (UMC) in Paco, Manila. The
van bore Plate No. DLK 406. Guinhawas driver, Leopoldo Olayan, drove the van from Manila to Naga City. However,
while the van was traveling along the highway in Labo, Daet, Camarines Norte, Olayan suffered a heart attack. The
van went out of control, traversed the highway onto the opposite lane, and was ditched into the canal parallel to the
highway.[1] The van was damaged, and the left front tire had to be replaced.

The incident was reported to the local police authorities and was recorded in the police blotter.[2] The van
was repaired and later offered for sale in Guinhawas showroom.[3]

Sometime in October 1995, the spouses Ralph and Josephine Silo wanted to buy a new van for their
garment business; they purchased items in Manila and sold them in Naga City.[4] They went to Guinhawas office,
and were shown the L-300 Versa Van which was on display. The couple inspected its interior portion and found it
beautiful. They no longer inspected the under chassis since they presumed that the vehicle was brand new.[5] Unaware
that the van had been damaged and repaired on account of the accident in Daet, the couple decided to purchase the
van for P591,000.00. Azotea suggested that the couple make a downpayment of P118,200.00, and pay the balance of
the purchase price by installments via a loan from the United Coconut Planters Bank (UCPB), Naga Branch, with the
L-300 Versa Van as collateral. Azotea offered to make the necessary arrangements with the UCPB for the
consummation of the loan transaction. The couple agreed. On November 10, 1995, the spouses executed a Promissory
Note[6] for the amount of P692,676.00 as payment of the balance on the purchase price, and as evidence of the chattel
mortgage over the van in favor of UCPB.

On October 11, 1995, the couple arrived in Guinhawas office to take delivery of the van. Guinhawa
executed the deed of sale, and the couple paid the P161,470.00 downpayment, for which they were issued Receipt No.
0309.[7] They were furnished a Service Manual[8] which contained the warranty terms and conditions. Azotea
instructed the couple on how to start the van and to operate its radio. Ralph Silo no longer conducted a test drive; he
and his wife assumed that there were no defects in the van as it was brand new.[9]

On October 12, 1995, Josephine Silo, accompanied by Glenda Pingol, went to Manila on board the L-300
Versa Van, with Glendas husband, Bayani Pingol III, as the driver. Their trip to Manila was uneventful. However, on
the return trip to Naga from Manila on October 15 or 16, 1995, Bayani Pingol heard a squeaking sound which seemed
to be coming from underneath the van. They were in Calauag, Quezon, where there were no humps along the road.[10]
Pingol stopped the van in Daet, Camarines Norte, and examined the van underneath, but found no abnormalities or
defects.[11] But as he drove the van to Naga City, the squeaking sound persisted.
Believing that the van merely needed grease, Pingol stopped at a Shell gasoline station where it was examined. The
mechanic discovered that some parts underneath the van had been welded. When Pingol complained to Guinhawa,
the latter told him that the defects were mere factory defects. As the defects persisted, the spouses Silo requested that
Guinhawa change the van with two Charade-Daihatsu vehicles within a week or two, with the additional costs to be
taken from their downpayment. Meanwhile, the couple stopped paying the monthly amortization on their loan, pending
the replacement of the van. Guinhawa initially agreed to the couples proposal, but later changed his mind and told
them that he had to sell the van first. The spouses then brought the vehicle to the Rx Auto Clinic in Naga City for
examination. Jesus Rex Raquitico, Jr., the mechanic, examined the van and discovered that it was the left front
stabilizer that was producing the annoying sound, and that it had been repaired.[12] Raquitico prepared a Job Order
containing the following notations and recommendations:

1. CHECK UP SUSPENSION (FRONT)

2. REPLACE THE ROD END
3. REPLACE BUSHING

NOTE: FRONT STEP BOARD HAS BEEN ALREADY DAMAGED AND REPAIRED.

NOTE: FRONT LEFT SUSPENSION MOUNTING IS NOT ON SPECIFIED ALIGNMENT/MEASUREMENT[13]

Josephine Silo filed a complaint for the rescission of the sale and the refund of their money before the
Department of Trade and Industry (DTI). During the confrontation between her and Guinhawa, Josephine learned that
Guinhawa had bought the van from UMC before it was sold to them, and after it was damaged in Daet. Subsequently,
the spouses Silo withdrew their complaint from the DTI.
 On February 14, 1996, Josephine Silo filed a criminal complaint for violation of paragraph 1, Article 318
of the Revised Penal Code against Guinhawa in the Office of the City Prosecutor of Naga City. After the requisite
investigation, an Information was filed against Guinhawa in the Municipal Trial Court (MTC) of Naga City. The
inculpatory portion reads:

The undersigned Assistant Prosecutor of Naga City accuses Jaime Guinhawa of the crime of OTHER DECEITS
defined and penalized under Art. 318, par. 1 of the Revised Penal Code, committed as follows:

That on or about October 11, 1995, in the City of Naga, Philippines, and within the jurisdiction of this Honorable
Court, the said accused, being a motor vehicle dealer using the trade name of Guinhawa Motor Sales at Panganiban
Avenue, Naga City, and a dealer of brand new cars, by means of false pretenses and fraudulent acts, did then and there
willfully, unlawfully and feloniously defraud private complainant, JOSEPHINE P. SILO, as follows: said accused by
means of false manifestations and fraudulent representations, sold to said private complainant, as brand new, an
automobile with trade name L-300 Versa Van colored beige and the latter paid for the same in the amount of
P591,000.00, when, in truth and in fact, the same was not brand new because it was discovered less than a month after
it was sold to said Josephine P. Silo that said L-300 Versa Van had defects in the underchassis and stepboard and
repairs had already been done thereat even before said sale, as was found upon check-up by an auto mechanic; that
private complainant returned said L-300 Versa Van to the accused and demanded its replacement with a new one or
the return of its purchase price from said accused but despite follow-up demands no replacement was made nor was
the purchase price returned to private complainant up to the present to her damage and prejudice in the amount of
P591,000.00, Philippine Currency, plus other damages that may be proven in court.[14]

Guinhawa testified that he was a dealer of brand new Toyota, Mazda, Honda and Mitsubishi cars, under
the business name Guinrox Motor Sales. He purchased Toyota cars from Toyota Philippines, and Mitsubishi cars from
UMC in Paco, Manila.[15] He bought the van from the UMC in March 1995, but did not use it; he merely had it
displayed in his showroom in Naga City.[16] He insisted that the van was a brand new unit when he sold it to the
couple.[17] The spouses Silo bought the van and took delivery only after inspecting and taking it for a road tests.[18]
His sales manager, Azotea, informed him sometime in November 1995 that the spouses Silo had complained about
the defects under the left front portion of the van. By then, the van had a kilometer reading of 4,000 kilometers.[19]
He insisted that he did not make any false statement or fraudulent misrepresentation to the couple about the van, either
before or simultaneous with its purchase. He posited that the defects noticed by the couple were not major ones, and
could be repaired. However, the couple refused to have the van repaired and insisted on a refund of their payment for
the van which he could not allow. He then had the defects repaired by the UMC.[20] He claimed that the van was
never involved in any accident, and denied that his driver, Olayan, met an accident and sustained physical injuries
when he drove the van from Manila to Naga City.[21] He even denied meeting Bayani Pingol.

The accused claimed that the couple filed a Complaint[22] against him with the DTI on January 25, 1996,
only to withdraw it later.[23] The couple then failed to pay the amortizations for the van, which caused the UCPB to
file a petition for the foreclosure of the chattel mortgage and the sale of the van at public auction.[24]

Azotea testified that he had been a car salesman for 16 years and that he sold brand new vans.[25] Before
the couple took delivery of the vehicle, Pingol inspected its exterior, interior, and underside, and even drove it for the
couple.[26] He was present when the van was brought to the Rx Auto Clinic, where he noticed the dent on its front
side.[27] He claimed that the van never figured in any vehicular accident in Labo, Daet, Camarines Norte on March
17, 1995.[28] In fact, he declared, he found no police record of a vehicular accident involving the van on the said
date.[29] He admitted that Olayan was their driver, and was in charge of taking delivery of cars purchased from the
manufacturer in Manila.[30]

On November 6, 2001, the trial court rendered judgment convicting Guinhawa. The fallo of the decision
reads:

WHEREFORE, premises considered, judgment is hereby rendered declaring the accused, JAIME GUINHAWA,
guilty of the crime of Other Deceits defined and penalized under Art. 318(1) of the Revised Penal Code, the
prosecution having proven the guilt of the accused beyond reasonable doubt and hereby imposes upon him the penalty
of imprisonment from 2 months and 1 day to 4 months of Arresto Mayor and a fine of One Hundred Eighty Thousand
Seven Hundred and Eleven Pesos (P180,711.00) the total amount of the actual damages caused to private complainant.

As to the civil aspect of this case which have been deemed instituted with this criminal case, Articles 2201 and 2202
of the Civil Code provides:

Art. 2201. In contracts and quasi-contracts, the damages for which the obligor who acted in good faith is liable shall
be those that are the natural and probable consequences of the breach of the obligation, and which the parties have
foreseen or could have reasonably foreseen at the time the obligation was constituted.

In case of fraud, malice or wanton attitude, the obligor shall be responsible for all damages which may be reasonably
attributed to the non-performance of the obligation.

Art. 2202. In crimes and quasi-delicts, the defendant shall be liable for all damages which are the natural and probable
consequences of the act or omission complained of. It is not necessary that such damages have been foreseen or could
have reasonably been foreseen by the defendant.

Thus, accused is condemned to pay actual damages in the amount of One Hundred Eighty
Thousand Seven Hundred and Eleven Pesos (Php180,711.00), which represents the 20%
downpayment and other miscellaneous expenses paid by the complainant plus the amount of
Nineteen Thousand Two Hundred Forty-One (Php19,241.00) Pesos, representing the 1st
installment payment made by the private complainant to the bank. Accused is, likewise, ordered
to pay moral damages in the amount of One Hundred Thousand Pesos (Php100,000.00) in view
of the moral pain suffered by the complainant; for exemplary damages in the amount of Two
Hundred Thousand Pesos (Php200,000.00) to serve as deterrent for those businessmen similarly
inclined to take undue advantage over the publics innocence. As for attorneys fees, the reasonable
amount of One Hundred Thousand Pesos (Php100,000.00) is hereby awarded.

SO ORDERED.[31]

The trial court declared that the accused made false pretenses or misrepresentations that the van was a
brand new one when, in fact, it had figured in an accident in Labo, Daet, Camarines Norte, and sustained serious
damages before it was sold to the private complainant.

Guinhawa appealed the decision to the Regional Trial Court (RTC) of Naga City, Branch 19, in which he
alleged that:
1. The lower court erred in its finding that the repair works on the left front portion and underchassis of the van was
the result of the accident in Labo, Camarines Norte, where its driver suffered an attack of hypertension.

2. The lower court erred in its four (4) findings of fact that accused-appellant made misrepresentation or false pretenses
that the van was a brand new car, which constituted deceit as defined in Article 318, paragraph 1 of the Revised Penal
Code.

3. The lower court erred in finding accused-appellant civilly liable to complainant Josephine Silo. But, even if there
be such liability, the action therefor has already prescribed and the amount awarded was exhorbitant, excessive and
unconscionable.[32]

Guinhawa insisted that he never talked to the couple about the sale of the van; hence, could not have made
any false pretense or misrepresentation.

On August 1, 2002, the RTC affirmed the appealed judgment.[33]

Guinhawa filed a petition for review with the Court of Appeals (CA), where he averred that:

I
THE COURT A QUO ERRED IN CONVICTING PETITIONER OF THE CRIME OF OTHER DECEITS AND
SENTENCING HIM TO SUFFER IMPRISONMENT OF TWO MONTHS AND ONE DAY TO FOUR MONTHS
OF ARRESTO MAYOR AND TO PAY FINE IN THE AMOUNT OF P180,711.00.

II
THE COURT A QUO ERRED IN ORDERING PETITIONER TO PAY PRIVATE COMPLAINANT P180,711.00
AS DOWNPAYMENT, P19,241.00 AS FIRST INSTALLMENT WITH UCPB NAGA, P100,000.00 AS MORAL
DAMAGES, P200,000.00 AS EXEMPLARY DAMAGES AND P100,000.00 AS ATTORNEYS FEES.[34]

On January 5, 2004, the CA rendered judgment affirming with modification the decision of the RTC. The
fallo of the decision reads:

WHEREFORE, premises considered, the instant petition is hereby

partially granted insofar as the following are concerned: a) the award of moral
damages is hereby REDUCED to P10,000.00 and b) the award of attorneys fees and
exemplary damages are hereby DELETED for lack of factual basis. In all other
respects, We affirm the decision under review.

Costs against petitioner.

 SO ORDERED.[35]

The CA ruled that the private complainant had the right to assume that the van was brand new because Guinhawa held
himself out as a dealer of brand new vans. According to the appellate court, the act of displaying the van in the
showroom without notice to any would-be buyer that it was not a brand new unit was tantamount to deceit. Thus, in
concealing the vans true condition from the buyer, Guinhawa committed deceit.

The appellate court denied Guinhawas motion for reconsideration, prompting him to file the present
petition for review on certiorari, where he contends:

I
THE COURT A QUO ERRED IN NOT HOLDING THAT THE INFORMATION CHARGED AGAINST
PETITIONER DID NOT INFORM HIM OF A CHARGE OF OTHER DECEITS.

II
THE COURT A QUO ERRED IN HOLDING THAT PETITIONER EMPLOYED FRAUD OR DECEIT AS
DEFINED UNDER ARTICLE 318, REVISED PENAL CODE.

III
THE COURT A QUO ERRED IN NOT CONSIDERING THE CIRCUMSTANCES POINTING TO THE
INNOCENCE OF THE PETITIONER.[36]

The issues for resolution are (1) whether, under the Information, the petitioner was charged of other deceits
under paragraph 1, Article 318 of the Revised Penal Code; and (2) whether the respondent adduced proof beyond
reasonable doubt of the petitioners guilt for the crime charged.

The petitioner asserts that based on the allegations in the Information, he was charged with estafa through
false pretenses under paragraph 2, Article 315 of the Revised Penal Code. Considering the allegation that the private
complainant was defrauded of P591,000.00, it is the RTC, not the MTC, which has exclusive jurisdiction over the
case. The petitioner maintains that he is not estopped from assailing this matter because the trial courts lack of
jurisdiction can be assailed at any time, even on appeal, which defect cannot even be cured by the evidence adduced
during the trial. The petitioner further avers that he was convicted of other deceits under paragraph 1, Article 318 of
the Revised Penal Code, a crime for which he was not charged; hence, he was deprived of his constitutional right to
be informed of the nature of the charge against him. And in any case, even if he had been charged of other deceits
under paragraph 1 of Article 318, the CA erred in finding him guilty. He insists that the private complainant merely
assumed that the van was brand new, and that he did not make any misrepresentation to that effect. He avers that
deceit cannot be committed by concealment, the absence of any notice to the public that the van was not brand new
does not amount to deceit. He posits that based on the principle of caveat emptor, if the private complainant purchased
the van without first inspecting it, she must suffer the consequences. Moreover, he did not attend to the private
complainant when they examined the van; thus, he could not have deceived them.

The petitioner maintains that, absent evidence of conspiracy, he is not criminally liable for any
representation Azotea may have made to the private complainant, that the van was brand new. He insists that the
respondent was estopped from adducing evidence that the vehicle was involved in an accident in Daet, Camarines
Norte on March 17, 1995, because such fact was not alleged in the Information.

In its comment on the petition, the Office of the Solicitor General avers that, as gleaned from the material
averments of the Information, the petitioner was charged with other deceits under paragraph 1, Article 318 of the
Revised Penal Code, a felony within the exclusive jurisdiction of the MTC. The petitioner was correctly charged and
convicted, since he falsely claimed that the vehicle was brand new when he sold the same to the private complainant.
The petitioners concealment of the fact that the van sustained serious damages as an aftermath of the accident in Daet,
Camarines Norte constituted deceit within the meaning of paragraph 1 of Article 318.

The Information filed against the petitioner reads:

That on or about October 11, 1995, in the City of Naga, Philippines, and within the jurisdiction of this Honorable
Court, the said accused, being a motor vehicle dealer using the trade name of Guinhawa Motor Sales at Panganiban
Avenue, Naga City, and dealer of brand new cars, by means of false pretenses and fraudulent acts, did then and there,
willfully, unlawfully and feloniously defraud private complainant, JOSEPHINE P. SILO, as follows: said accused by
means of false manifestations and fraudulent representations, sold to said private complainant, as brand new, an
automobile with trade name L-300 Versa Van colored beige and the latter paid for the same in the amount of
P591,000.00, when, in truth and in fact, the same was not brand new because it was discovered less than a month after
it was sold to said Josephine P. Silo that said L-300 Versa Van had defects in the underchassis and stepboard and
repairs have already been done thereat even before said sale, as was found upon check-up by an auto mechanic; that
private complainant returned said L-300 Versa Van to the accused and demanded its replacement with a new one or
the return of its purchase price from said accused but despite follow-up demands no replacement was made nor was
the purchase price returned to private complainant up to the present to her damage and prejudice in the amount of
P591,000.00, Philippine Currency, plus other damages that may be proven in court.

CONTRARY TO LAW.[37]

Section 6, Rule 110 of the Rules of Criminal Procedure requires that the Information must allege the acts
or omissions complained of as constituting the offense:

SEC. 6. Sufficiency of complaint or information. A complaint or information is sufficient if it states the name of the
accused; the designation of the offense given by the statute; the acts or omissions complained of as constituting the
offense; the name of the offended party; the approximate date of the commission of the offense; and the place where
the offense was committed.

When an offense is committed by more than one person, all of them shall be included in the complaint or information.

The real nature of the offense charged is to be ascertained by the facts alleged in the body of the
Information and the punishment provided by law, not by the designation or title or caption given by the Prosecutor in
the Information.[38] The Information must allege clearly and accurately the elements of the crime charged.[39]

As can be gleaned from its averments, the Information alleged the essential elements of the crime under
paragraph 1, Article 318 of the Revised Penal Code.

The false or fraudulent representation by a seller that what he offers for sale is brand new (when, in fact,
it is not) is one of those deceitful acts envisaged in paragraph 1, Article 318 of the Revised Penal Code. The provision
reads:

Art. 318. Other deceits. The penalty of arresto mayor and a fine of not less than the amount of the damage caused and
not more than twice such amount shall be imposed upon any person who shall defraud or damage another by any other
deceit not mentioned in the preceding articles of this chapter.

This provision was taken from Article 554 of the Spanish Penal Code which provides:

El que defraudare o perjudicare a otro, usando de cualquier engao que no se halle expresado en los artculos
anteriores de esta seccin, ser castigado con una multa del tanto al duplo del perjuicio que irrogare; y en caso de
reincidencia, con la del duplo y arresto mayor en su grado medio al mximo.
 For one to be liable for other deceits under the law, it is required that the prosecution must prove the
following essential elements: (a) false pretense, fraudulent act or pretense other than those in the preceding articles;
(b) such false pretense, fraudulent act or pretense must be made or executed prior to or simultaneously with the
commission of the fraud; and (c) as a result, the offended party suffered damage or prejudice.[40] It is essential that
such false statement or fraudulent representation constitutes the very cause or the only motive for the private
complainant to part with her property.

The provision includes any kind of conceivable deceit other than those enumerated in Articles 315 to 317
of the Revised Penal Code.[41] It is intended as the catchall provision for that purpose with its broad scope and
intendment.[42]

Thus, the petitioners reliance on paragraph 2(a), Article 315 of the Revised Penal Code is misplaced. The
said provision reads:

2. By means of any of the following false pretenses or fraudulent acts executed prior to or simultaneously with the
commission of the fraud:

(a) By using fictitious name, or falsely pretending to possess power, influence, qualifications, property, credit, agency,
business or imaginary transactions; or by means of other similar deceits.

The fraudulent representation of the seller, in this case, that the van to be sold is brand new, is not the
deceit contemplated in the law. Under the principle of ejusdem generis, where a statement ascribes things of a
particular class or kind accompanied by words of a generic character, the generic words will usually be limited to
things of a similar nature with those particularly enumerated unless there be something in the context to the
contrary.[43]

Jurisdiction is conferred by the Constitution or by law. It cannot be conferred by the will of the parties,
nor diminished or waived by them. The jurisdiction of the court is determined by the averments of the complaint or
Information, in relation to the law prevailing at the time of the filing of the criminal complaint or Information, and the
penalty provided by law for the crime charged at the time of its commission.

Section 32 of Batas Pambansa Blg. 129, as amended by Republic Act No. 7691, provides that the MTC
has exclusive jurisdiction over offenses punishable with imprisonment not exceeding six years, irrespective of the
amount of the fine:

Sec. 32. Jurisdiction of Metropolitan Trial Courts, Municipal Trial Courts and Municipal Circuit Trial Courts in
Criminal Cases. Except in cases falling within the exclusive original jurisdiction of Regional Trial Courts and of the
Sandiganbayan, the Metropolitan Trial Courts, Municipal Trial Courts, and Municipal Circuit Trial Courts shall
exercise:

(1) Exclusive original jurisdiction over all violations of city or municipal ordinances committed within their respective
territorial jurisdiction; and

(2) Exclusive original jurisdiction over all offenses punishable with imprisonment not exceeding six (6) years
irrespective of the amount of fine, and regardless of other imposable accessory or other penalties, including the civil
liability arising from such offenses or predicated thereon, irrespective of kind, nature, value or amount thereof:
Provided, however, That in offenses involving damage to property through criminal negligence, they shall have
exclusive original jurisdiction thereof.

Since the felony of other deceits is punishable by arresto mayor, the MTC had exclusive jurisdiction over
the offense lodged against the petitioner.
 On the merits of the petition, the Court agrees with the petitioners contention that there is no evidence on
record that he made direct and positive representations or assertions to the private complainant that the van was brand
new. The record shows that the private complainant and her husband Ralph Silo were, in fact, attended to by Azotea.
However, it bears stressing that the representation may be in the form of words, or conduct resorted to by an individual
to serve as an advantage over another. Indeed, as declared by the CA based on the evidence on record:

Petitioner cannot barefacedly claim that he made no personal representation that the herein subject van was brand new
for the simple reason that nowhere in the records did he ever refute the allegation in the complaint, which held him
out as a dealer of brand new cars. It has thus become admitted that the petitioner was dealing with brand new vehicles
a fact which, up to now, petitioner has not categorically denied. Therefore, when private complainant went to
petitioners showroom, the former had every right to assume that she was being sold brand new vehicles there being
nothing to indicate otherwise. But as it turned out, not only did private complainant get a defective and used van, the
vehicle had also earlier figured in a road accident when driven by no less than petitioners own driver.[44]

Indeed, the petitioner and Azotea obdurately insisted in the trial court that the van was brand new, and
that it had never figured in vehicular accident. This representation was accentuated by the fact that the petitioner gave
the Service Manual to the private complainant, which manual
contained the warranty terms and conditions, signifying that the van was brand new. Believing this good faith, the
private complainant decided to purchase the van for her buy-and-sell and garment business, and even made a
downpayment of the purchase price.

As supported by the evidence on record, the van was defective when the petitioner sold it to the private
complainant. It had ditched onto the shoulder of the highway in Daet, Camarines Norte on its way from Manila to
Naga City. The van was damaged and had to be repaired; the rod end and bushing had to be replaced, while the left
front stabilizer which gave out a persistent annoying sound was repaired. Some parts underneath the van were even
welded together. Azotea and the petitioner deliberately concealed these facts from the private complainant when she
bought the van, obviously so as not to derail the sale and the profit from the transaction.

The CA is correct in ruling that fraud or deceit may be committed by omission. As the Court held in
People v. Balasa:[45]

Fraud, in its general sense, is deemed to comprise anything calculated to deceive, including all acts, omissions, and
concealment involving a breach of legal or equitable duty, trust, or confidence justly reposed, resulting in damage to
another, or by which an undue and unconscientious advantage is taken of another. It is a generic term embracing all
multifarious means which human ingenuity can device, and which are resorted to by one individual to secure an
advantage over another by false suggestions or by suppression of truth and includes all surprise, trick, cunning,
dissembling and any unfair way by which another is cheated. On the other hand, deceit is the false representation of
a matter of fact whether by words or conduct, by false or misleading allegations, or by concealment of that which
should have been disclosed which deceives or is intended to deceive another so that he shall act upon it to his legal
injury.[46]

It is true that mere silence is not in itself concealment. Concealment which the law denounces as fraudulent
implies a purpose or design to hide facts which the other party sought to know.[47] Failure to reveal a fact which the
seller is, in good faith, bound to disclose may generally be classified as a deceptive act due to its inherent capacity to
deceive.[48] Suppression of a material fact which a party is bound in good faith to disclose is equivalent to a false
representation.[49] Moreover, a representation is not confined to words or positive assertions; it may consist as well
of deeds, acts or artifacts of a nature calculated to mislead another and thus allow the fraud-feasor to obtain an undue
advantage.[50]

Fraudulent nondisclosure and fraudulent concealment are of the same genre. Fraudulent concealment
presupposes a duty to disclose the truth and that disclosure was not made when opportunity to speak and inform was
presented, and that the party to whom the duty of disclosure, as to a material fact was due, was induced thereby to act
to his injury.[51]
 Article 1389 of the New Civil Code provides that failure to disclose facts when there is a duty to reveal
them constitutes fraud. In a contract of sale, a buyer and seller do not deal from equal bargaining positions when the
latter has knowledge, a material fact which, if communicated to the buyer, would render the grounds unacceptable or,
at least, substantially less desirable.[52] If, in a contract of sale, the vendor knowingly allowed the vendee to be
deceived as to the thing sold in a material matter by failing to disclose an intrinsic circumstance that is vital to the
contract, knowing that the vendee is acting upon the presumption that no such fact exists, deceit is accomplished by
the suppression of the truth.[53]

In the present case, the petitioner and Azotea knew that the van had figured in an accident, was damaged and had to
be repaired. Nevertheless, the van was placed in the showroom, thus making it appear to the public that it was a brand
new unit. The petitioner was mandated to reveal the foregoing facts to the private complainant. But the petitioner and
Azotea even obdurately declared when they testified in the court a quo that the vehicle did not figure in an accident,
nor had it been repaired; they maintained that the van was brand new, knowing that the private complainant was going
to use it for her garment business. Thus, the private complainant bought the van, believing it was brand new.

Significantly, even when the petitioner was apprised that the private complainant had discovered the vans
defects, the petitioner agreed to replace the van, but changed his mind and insisted that it must be first sold.

The petitioner is not relieved of his criminal liability for deceitful concealment of material facts, even if the private
complainant made a visual inspection of the vans interior and exterior before she agreed to buy it and
failed to inspect its under chassis. Case law has it that where the vendee made only a partial investigation and relies,
in part, upon the representation of the vendee, and is deceived by such representation to his injury, he may maintain
an action for such deceit.[54] The seller cannot be heard to say that the vendee should not have relied upon the
fraudulent concealment; that negligence, on the part of the vendee, should not be a defense in order to prevent the
vendor from unjustifiably escaping with the fruits of the fraud.

In one case,[55] the defendant who repainted an automobile, worked it over to resemble a new one and delivered it to
the plaintiff was found to have warranted and represented that the automobile being sold was new. This was found to
be a false representation of an existing fact; and, if it was material and induced the plaintiff to accept something
entirely different from that which he had contracted for, it clearly was a fraud which, upon its discovery and a tender
of the property back to the seller, [it] entitled the plaintiff to rescind the trade and recover the purchase money.[56]

On the petitioners insistence that the private complainant was proscribed from charging him with estafa based on the
principle of caveat emptor, case law has it that this rule only requires the purchaser to exercise such care and attention
as is usually exercised by ordinarily prudent men in like business affairs, and only applies to defects which are open
and patent to the service of one exercising such care.[57] In an avuncular case, it was held that:

The rule of caveat emptor, like the rule of sweet charity, has often been invoked to cover a multitude of sins; but we
think its protecting mantle has never been stretched to this extent. It can only be applied where it is shown or conceded
that the parties to the contract stand on equal footing and have equal knowledge or equal means of knowledge and
there is no relation of trust or confidence between them. But, where one party undertakes to sell to another property
situated at a distance and of which he has or claims to have personal knowledge and of which the buyer knows nothing
except as he is informed by the seller, the buyer may rightfully rely on the truth of the sellers representations as to its
kind, quality, and value made in the course of negotiation for the purpose of inducing the purchase. If, in such case,
the representations prove to be false, neither law nor equity will permit the seller to escape responsibility by the plea
that the buyer ought not to have believed him or ought to have applied to other sources to ascertain the facts. [58]

It bears stressing that Azotea and the petitioner had every opportunity to reveal to the private complainant that the van
was defective. They resolved to maintain their silence, to the prejudice of the private complainant, who was a garment
merchant and who had no special knowledge of parts of motor vehicles. Based on the surrounding circumstances, she
relied on her belief that the van was brand new. In fine, she was the innocent victim of the petitioners fraudulent
nondisclosure or concealment.

The petitioner cannot pin criminal liability for his fraudulent omission on his general manager, Azotea.
The two are equally liable for their collective fraudulent silence. Case law has it that wherever the doing of a
certain act or the transaction of a given affair, or the performance of certain business is confided to an agent, the
authority to so act will, in accordance with a general rule often referred to, carry with it by implication the authority
to do all of the collateral acts which are the natural and ordinary incidents of the main act or business authorized.[59]

The MTC sentenced the petitioner to suffer imprisonment of from two months and one day, as minimum, to four
months of arresto mayor, as maximum. The CA affirmed the penalty imposed by the trial court. This is erroneous.
Section 2 of Act 4103, as amended, otherwise known as the Indeterminate Sentence Law, provides that the law will
not apply if the maximum term of imprisonment does not exceed one year:

SEC. 2. This Act shall not apply to persons convicted of offenses punished with death penalty or life-imprisonment;
to those convicted of treason, conspiracy or proposal to commit treason; to those convicted of misprision of treason,
rebellion, sedition or espionage; to those convicted of piracy; to those who are habitual delinquents; to those who shall
have escaped from confinement or evaded sentence; to those who having been granted conditional pardon by the Chief
Executive shall have violated the terms thereof; to those whose maximum term of imprisonment does not exceed one
year, not to those already sentenced by final judgment at the time of approval of this Act, except as provided in Section
5 hereof. (As amended by Act No. 4225.)

In this case, the maximum term of imprisonment imposed on the petitioner was four months and one day of arresto
mayor. Hence, the MTC was proscribed from imposing an indeterminate penalty on the petitioner. An indeterminate
penalty may be imposed if the minimum of the penalty is
one year or less, and the maximum exceeds one year. For example, the trial court may impose an indeterminate penalty
of six months of arresto mayor, as minimum, to two years and four months of prision correccional, as maximum,
since the maximum term of imprisonment it imposed exceeds one year. If the trial court opts to impose a penalty of
imprisonment of one year or less, it should not impose an indeterminate penalty, but a straight penalty of one year or
less instead. Thus, the petitioner may be sentenced to a straight penalty of one year, or a straight penalty of less than
one year, i.e., ten months or eleven months. We believe that considering the attendant circumstances, a straight penalty
of imprisonment of six months is reasonable.

Conformably with Article 39 in relation to paragraph 3, Article 38 of the Revised Penal Code, the
petitioner shall suffer subsidiary imprisonment if he has no property with which to pay the penalty of fine.

IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The assailed Decision and Resolution are
AFFIRMED WITH MODIFICATION. Considering the surrounding circumstances of the case, the petitioner is
hereby sentenced to suffer a straight penalty of six (6) months imprisonment. The petitioner shall suffer subsidiary
imprisonment in case of insolvency.

Costs against the petitioner.

SO ORDERED.
SECOND DIVISION
[G.R. No. 152219. October 25, 2004]
NUTRIMIX FEEDS CORPORATION, petitioner, vs. COURT OF APPEALS and SPOUSES EFREN AND
MAURA EVANGELISTA, respondents.
DECISION
CALLEJO, SR., J.:
For review on certiorari is the Decision[1] of the Court of Appeals in CA-G.R. CV No. 59615 modifying, on
appeal, the Joint Decision[2] of the Regional Trial Court of Malolos, Bulacan, Branch 9, in Civil Case No.
1026-M-93[3] for sum of money and damages with prayer for issuance of writ of preliminary attachment,
and Civil Case No. 49-M-94[4] for damages. The trial court dismissed the complaint of the respondents,
ordering them to pay the petitioner the unpaid value of the assorted animal feeds delivered to the former
by the latter, with legal interest thereon from the filing of the complaint, including attorneys fees.
The Factual Antecedents
On April 5, 1993, the Spouses Efren and Maura Evangelista, the respondents herein, started to directly
procure various kinds of animal feeds from petitioner Nutrimix Feeds Corporation. The petitioner gave the
respondents a credit period of thirty to forty-five days to postdate checks to be issued in payment for the
delivery of the feeds. The accommodation was made apparently because of the company presidents close
friendship with Eugenio Evangelista, the brother of respondent Efren Evangelista. The various animal feeds
were paid and covered by checks with 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 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
breakdown of the unpaid obligation is as follows:
Sales Invoice Number Date Amount
21334 June 23, 1993 P 7,260.00
21420 June 26, 1993 6,990.00
21437 June 28, 1993 41,510.00
21722 July 12, 1993 45,185.00
22048 July 26, 1993 44,540.00
22054 July 27, 1993 45,246.00
22186 August 2, 1993 84,900.00
Total: P275,631.00
=========
Bank Check Number Due Date Amount
United Coconut
Planters Bank BTS052084 July 30, 1993 P 47,760.00
-do- BTS052087 July 30, 1993 131,340.00
-do- BTS052091 July 30, 1993 59,700.00
-do- BTS062721 August 4, 1993 47,860.00
-do- BTS062720 August 5, 1993 43,780.00
-do- BTS062774 August 6, 1993 15,000.00
-do- BTS062748 September 11, 1993 47,180.00
-do- BTS062763 September 11, 1993 48,440.00
-do- BTS062766 September 18, 1993 49,460.00
Total: P490,520.00
=========
When the above-mentioned checks were deposited at the petitioners depository bank, the same were,
consequently, dishonored because respondent Maura Evangelista had already closed her account. The
petitioner made several demands for the respondents to settle their unpaid obligation, but the latter failed
and refused to pay their remaining balance with the petitioner.
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 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 petitioner. They asserted that the nine
checks issued by respondent Maura Evangelista were made to guarantee the payment of the purchases,
which was previously determined to be procured from the expected proceeds in the sale of their broilers
and hogs. They contended that inasmuch as the sudden and massive death of their animals was caused
by the contaminated products of the petitioner, the nonpayment of their obligation was based on a just and
legal ground.
On January 19, 1994, the respondents also lodged a complaint for damages against the petitioner,
docketed as Civil Case No. 49-M-94, for the untimely and unforeseen death of their 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 petitioner filed its Answer with Counterclaim, alleging that
the death of the respondents animals was due to the widespread pestilence in their farm. The petitioner,
likewise, maintained that it received information that the respondents were in an unstable financial condition
and even sold their animals to settle their obligations from other enraged and insistent creditors. It,
moreover, theorized that it was the respondents who mixed poison to its feeds to make it appear that the
feeds were contaminated.
A joint trial thereafter ensued.
During the hearing, the petitioner presented Rufino Arenas, Nutrimix Assistant Manager, as 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 said respondents still pleaded to the
petitioner to continue to supply them with animal feeds because their livestock were supposedly suffering
from a disease.[6]
For her part, respondent Maura Evangelista testified that as direct buyers of animal feeds from the
petitioner, Mr. Bartolome, the company president, gave them a discount of P12.00 per bag and a credit
term of forty-five to seventy-five days.[7] For the operation of the respondents poultry and piggery farm, the
assorted animal feeds sold by the petitioner were delivered in their residence and stored in an adjacent
bodega made of concrete wall and galvanized iron sheet roofing with monolithic flooring.[8]
It appears that in the morning of July 26, 1993, three various kinds of animal feeds, numbering 130 bags,
were delivered to the residence of the respondents in Sta. Rosa, Marilao, Bulacan. The deliveries came at
about 10:00 a.m. and were fed to the animals at approximately 1:30 p.m. at the respondents farm in
Balasing, Sta. Maria, Bulacan. At about 8:30 p.m., respondent Maura Evangelista received a radio message
from a worker in her farm, warning her that the chickens were dying at rapid intervals. When the
respondents arrived at their farm, they witnessed the death of 18,000 broilers, averaging 1.7 kilos in weight,
approximately forty-one to forty-five days old. The broilers then had a prevailing market price of P46.00 per
kilo.[9]
On July 27, 1993, the respondents received another delivery of 160 bags of animal feeds from the petitioner,
some of which were distributed to the contract growers of the respondents. At that time, respondent Maura
Evangelista requested the representative of the petitioner to notify 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 and hogs died.[10] Efren Evangelista suffered from a heart attack and was
hospitalized as a 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.
Puno, (Chairman), Austria-Martinez, Tinga, and Chico-Nazario, JJ., concur.