Regina Dizon et al v. CA and Overland Express Lines, Inc.

G.R. No. 122544 January 28, 1999Martinez, J.

FACTS:
 Overland Express Lines, Inc. entered into a Contract of Lease with Option
to Buy with petitioners involving a 1,755.80 square meter parcel of land situated at
corner MacArthur Highway and South “H” Street, Diliman, Quezon City. The term of
the lease was for 1 year commencing from May 16,1974 up to May 15, 1975.
During this period, Overland Express Lines was granted an option to
purchase for the amount of P3,000.00 per square meter. Thereafter, the
lease shall be on a per month basis with a monthly rental of P3,000.00.
 For failure of Overland Express Lines to pay the increased rental of P8,000.00 per
month effective June 1976, petitioners filed an action for ejectment against it. The
lower court rendered judgment ordering Overland Express Lines to vacate the leased
premises and to pay the sum of P624,000.00representing rentals in arrears and/or as
damages in the form of reasonable compensation for the use and occupation of the
premises during the period of illegal detainer from June 1976 to November1982 at the monthly
rental of P8,000.00, less payments made, plus 12% interest per annum from
November 18, 1976, the date of filing of the complaint, until fully paid, the
sum of P8,000.00 a month starting December 1982, until Overland Express Lines
fully vacates the premises, and to payP20,000.00 as and by way of attorney’s fees.

ISSUE:
W ON Overland Express Lines actually paid the alleged P300,000.00
t o F i d e l a D i z o n , a s representative (agent) of petitioners in consideration of the
option

HELD:
No.
 CA opined that the payment by Overland Express Lines of P300,000.00 as partial
payment for the leased property, which petitioners accepted (through Alice A. Dizon)
and for which an official receipt was issued, was the operative act that gave rise to a
perfected contract of sale, and that for failure of petitioners to deny receipt thereof,
Overland Express Lines can therefore assume that Alice A. Dizon, acting as agent of
petitioners, was authorized by them to receive the money in their behalf.CA went
further by stating that in fact, what was entered into was a “conditional contract of sale
“wherein ownership over the leased property shall not pass to the Overland Express
Lines until it has fully paid the purchase price. Since Overland Express Lines did not
consign to the court the balance of the purchase price and continued to occupy
the subject premises, it had the obligation to pay the amount of P1,700.00 in monthly
rentals until full payment of the purchase price.
 In an attempt to resurrect the lapsed option, Overland Express Lines gave
P300,000.00 to petitioners(thru Alice A. Dizon) on the erroneous presumption that the said
amount tendered would constitute a perfected contract of sale pursuant to the contract of
lease with option to buy. There was no valid consent by the petitioners (as co-owners
of the leased premises) on the supposed sale entered into by Alice A. Dizon, as
petitioners’ alleged agent, and Overland Express Lines. The basis for agency is
 representation and a person dealing with an agent is put upon inquiry and must
discover upon his peril the authority of the agent. As provided in Article 1868
of the New Civil Code, there was no showing that petitioners consented to
the act of Alice A. Dizon nor authorized her to act on their behalf with regard
to her transaction with private respondent. The most prudent thing private
respondent should have done was to ascertain the extent of the authority of Alice A.
Dizon. Being negligent in this regard, private respondent cannot seek relief on the basis of a
supposed agency.
 Every person dealing with an agent is put upon inquiry
a n d m u s t d i s c o v e r u p o n h i s p e r i l t h e authority of the agent. If he does
not make such inquiry, he is chargeable with knowledge of the agent’s
authority, and his ignorance of that authority will not be any excuse. Persons dealing
with an assumed agency, whether the assumed agency be a general or special one,
are bound at their peril, if they would hold the principal, to ascertain not only the fact
of the agency but also the nature and extent of the authority, and in case either
is controverted, the burden of proof is upon them to establish it.

Corporate Law Sales Case Digest: Manila Metal Container Corp. V. PNB (2006)

G.R. No. 166862 December 20, 2006

Lessons Applicable: Doctrine of Centralized Management: Powers of Board of

Directors (Corporate Law)
 Doctrine of Centralized Management (Corporate Law)
 Price (Sales)
 Earnest Money (Sales)
FACTS:
 Manila Metal Corp. executed a real estate mortgage (TCT. 32098) as a security for
its loan from PNB amounting to 900,000 php, later on 1,000,000 php and 653,000
php
 Aug. 5, 1982: PNB filed a petition for extrajudicial foreclosure for the property to be
sold at a public auction 911,532.21 php (outstanding as of June 30) + interest +
attorney's fees
 Sept. 2, 1982: PNB won the public auction at 1,000,000 php
 Feb. 17, 1983: Certificate of Sale was issued and registered at the Registry of
Deeds and was annotated at the dorsal portion of the title (Redeemable until Feb
17,1983)
 Petitioner requested 1 year extension until Feb 17,1984 but was rejected by PNB
saying it is their policy not to accept partial redemption
 Jun. 1,1984: Since petitioner failed to redeem, TCT. 32098 was cancelled and a
new title was issued in favor of PNB
 Meanwhile, Special Assets Management Department (SAMD) had prepared a
statement of account as of Jun 25,1984 amounting to 1,574,560.47 php (bid price +
 interest + advances of insurance premiums + advances on relaty taxes + reg. exp.
+misc. exp + piblication cost)
 Petitioner deposited 725,000 php as deposit to repurchase and was issued an O.R.
 PNB management rejected the recommendation of SAMD and demanded that
petitioner pay the markt value of 2,660,000 php.
 Jun 24, 1984: PNB informed petitioner that its B.O.D had agreed to accept its offer
to purchase but at 1,931,389.53 less the 725,000 php.
 PNB President did not conform to the letter but merely indicated that he has
received it.
 Petitioner rejected this since PNB has already accepted its downpayment so it can
no longer increase the price.
 PNB also rejected petitioners payment for the balance.
 Petitioner filed a complaint against PNB for Annulment of Mortgage and Mortgage
Foreclosure, Delivery of Title, or Specific Performance with Damages
 CA affirmed RTC: Favored PNB and demanded that it refund the 725,000 php (no
sale because no meeting of the minds in terms of price)
 Lot was later transferred to its PNB President Bayani Gabriel
 Petitioner filed a petition for certiorari
ISSUE:
1. W/N the statement of account by SAMD is only a recommendation subject to the
approval of the BOD - YES
2. W/N there was a contract of sale - NO
3. W/N earnest money establishes a contract of sale - NO
HELD: Denied. Costs Against Petitioner.
1. YES
 Art. 1318 of NCC:
 no contract unless the following requisites concur:
 Consent of the contracting parties;
 Object certain which is the subject matter of the contract;
 Cause of the obligation which is established
 The fixing of the price can never be left to the decision of one of the contracting
parties. But a price fixed by one of the contracting parties, if accepted by the other,
gives rise to a perfected sale.
 When there is merely an offer by one party without acceptance of the other, there is
no contract.
2. NO
 Section 23 of the Corporation Code:
 corporate powers of all corporations shall be exercised by the board of directors.
Just as a natural person may authorize another to do certain acts in his behalf, so
may the board of directors of a corporation validly delegate some of its functions to
individual officers or agents appointed by it. Thus, contracts or acts of a corporation
must be made either by the board of directors or by a corporate agent duly
authorized by the board. Absent such valid delegation/authorization, the rule is that
the declarations of an individual director relating to the affairs of the corporation, but
not in the course of, or connected with the performance of authorized duties of such
director, are held not binding on the corporation.
 a corporation can only execute its powers and transact its business through its:
 Board of Directors
 officers and agents when authorized by:
 a board resolution;or
 its by-laws
3. NO
 ART. 1482. Whenever earnest money is given in a contract of sale, it shall be
considered as part of the price and as proof of the perfection of the contract
 The deposit of P725,000 was accepted by PNB on the condition that the purchase
price is still subject to the approval of the PNB Board
 Absent proof of the concurrence of all the essential elements of a contract of sale,
the giving of earnest money cannot establish the existence of a perfected contract
of sale.

Spouses Buenaventura v. Court of Appeals

G.R. No. 126376. November 20, 2003

FACTS:

Defendant spouses Leonardo Joaquin and Feliciana Landrito are the parents of plaintiffs
Consolacion, Nora, Emma and Natividad as well as of defendants Fidel, Tomas, Artemio,
Clarita, Felicitas, Fe, and Gavino, all surnamed JOAQUIN. The married Joaquin children
are joined in this action by their respective spouses. Sought to be declared null and void
ab initio are certain deeds of sale covering 6 parcels of land executed
by defendant parents Leonardo Joaquin and Feliciana Landrito in favor of their co-
defendant children and the corresponding certificates of title issued in their names. In
seeking the declaration of nullity of the aforesaid deeds of sale and certificates of title,
plaintiffs, in their complaint, aver that the purported sale of the properties in litis was the
result of a deliberate conspiracy designed to unjustly deprive the rest of the compulsory
heirs (plaintiffs herein) of their legitime.

ISSUE:

Whether Petitioners have a legal interest over the properties subject of the Deeds of Sale

RULING:

Petitioners do not have any legal interest over the properties subject of the Deeds of Sale.
As the appellate court stated, petitioners’ right to their parents’ properties is merely
inchoate and vests only upon their parents’ death. While still living, the parents of
petitioners are free to dispose of their properties. In their overzealousness to safeguard
their future legitime, petitioners forget that theoretically, the sale of the lots to their siblings
does not affect the value of their parents’ estate. While the sale of the lots reduced the
estate, cash of equivalent value replaced the lots taken from the estate.
NHA v GRACE BAPTIST CHURCH, G. R. No. 156437, 1 March 2004
posted in Property Cases by katcobing
Facts: Respondent Church applied to purchase lots from a Resettlement Project in
Cavite. Petitioner approved the respondent’s application. Respondents then proceeded
to possess the land and made improvements. The Respondents received the letter from
the petitioner duly approving the sale of the subject lots but in a price not declared to
them by the NHA Field Office. Petitioner returned the check stating that the amount was
insufficient considering that the price of the properties had changed. The Church made
demands to the petitioner but the latter refused to accept the payment.
The Church instituted a complaint for specific performance and the trial court ruled that
there was a valid contract of sale between the parties and ordered that the petitioners
reimburse the respondent Church the overpayment made for the lots. NHA appealed
the case and the appellate court affirmed the trial court’s decision that there was a valid
contract of sale but held that the petitioner sell the lots at the price approved by the
NHA.

A motion for reconsideration was filed but was denied.

Issue: WON there was a valid contract of sale

Ruling: There was no contract at all.
Ratio Decidendi: The principle of estoppel will not apply in this case because it does
not operate against the Government for the acts or inaction of its agents. The case will
cover the principle of equity under the law ad will require the determination of the laws
that will govern. Contracts, once perfected, are binding upon the parties and obligations
arising from it have the force of law between them and should be complied in good faith.
However, contracts are not the only source of law that govern obligations. A contract
must not run in contrary to law, morals, good customs, public order and public policy.
The offer of the NHA to sell the subject property was not accepted by the respondent.
Thus, the alleged contract involved in this case should be more accurately denominated
as inexistent. There being no concurrence of the offer and acceptance, it did not pass
the stage of generation to the point of perfection. As such, it is without force and effect
from the very beginning or from its incipiency, as if it had never been entered into, and
hence, cannot be validated either by lapse of time or ratification. Equity cannot give
validity to a void contract, and this rule should apply with equal force to inexistent
contracts.
The Church, despite knowledge that its intended contract of sale with the NHA had not
been perfected, proceeded to introduce improvements on the disputed land. On the
other hand, the NHA knowingly granted the Church temporary use of the subject
properties and did not prevent the Church from making improvements thereon. Thus,
the Church and the NHA, who both acted in bad faith, shall be treated as if they were
both in good faith.

The case was remanded back to the trial court to access the value of the improvements
made on the land and fix the terms of the lease if the parties so agree.
GAITE vs FONACIER | G.R. No. L-11827
FACTS
Fonacier, owner of mining claims, constituted Gaite as his attorney-in-fact. Gaite was
authorized to enter into a contract with other persons with respect to the mining claims.
Gaite then entered into a contract with Larap Iron Mines, a company Gaite solely
owned, to develop the mining claims. Later, Fonacier abruptly decided to revoke Gaite’s
authority as attorney-in-fact.

Afterwards, Gaite sold the developments his company made in the mining claims areas
and the ore already mined for a sum of money to Fonacier. Fonacier secured the sale
with a surety company. Part of the money was paid upon sale while the other part was
payable out of the first loan of credit covering the first shipment of iron ore and the first
amount derived from the local sale of the iron ore.

After the surety expired, Gaite demanded payment of the remainder of the purchase
price but Fonacier refused arguing no sale of iron ore had yet taken place.

ISSUE
WHETHER OR NOT THE SELLING OF THE IRON ORES IS A SUSPENSIVE
CONDITION FOR PAYING GAITE

HELD: NO.
The sale isn’t a suspensive condition but is only a suspensive period or term. This
interpretation is supported by:
1. The contract expresses no contingency in the buyer’s obligation to pay. The contract
recognizes the existence of an obligation to pay and only the maturity is deferred

2. Gaite never desired or assumed to run the risk of losing his right over the ore without
getting paid for it as shown by his insistence on a surety

3. Treating the condition as a suspensive condition would leave payment at the

debtor’s
discretion because the ore will be sold only when the debtor wants it to be sold.
4. In onerous contracts the rules of interpretation favor the greater reciprocity of interest
and because sale is onerous this rule applies. Greater reciprocity is obtained if the
buyer’s
obligation to pay is deemed existing compared to such obligation non-existing until the
ore was sold.

Milagros Manongsong v. FelomenaJumaquio Estimo

G. R. No. 136773. June 25, 2003

FACTS:

Allegedly, AgatonaGuevarra (“Guevarra”) inherited a property from Justina Navarro,

which is now under possession of the heirs of Guevarra. Guevarra had six children, one
of them is Vicente Lopez, the father of petitioner Milagros Lopez Manongsong
(“Manongsong”). The respondents, the Jumaquio sisters and Leoncia Lopez claimed that
the property was actually sold to them by Justina Navarro prior to her death. The
respondents presented deed of sale dated October 11, 1957. Milagros and
CarlitoManongsong (“petitioners”) filed a Complaint on June 19, 1992 praying for the
partition and award to them of an area equivalent to one-fifth (1/5), by right
of representation. The RTC ruled that the conveyance made by Justina Navarro is
subject to nullity because the property conveyed had a conjugal character and
that AgatonaGuevarra as her compulsory heir should have the legal right to participate
with the distribution of the estate under question to the exclusion of others. The Deed
of Sale did not at all provide for the reserved legitime or the heirs, and, therefore it has
no force and effect against AgatonaGuevarra and should be declared a nullity ab initio.

ISSUE:

Whether or not the rights of the compulsory heirs were impaired by the alleged sale of the
property by Justina.

RULING:

No. The Kasulatan, being a document acknowledged before a notary public, is a public
document and prima facie evidence of its authenticity and due execution. There is no
basis for the trial court’s declaration that the sale embodied in the Kasulatan deprived the
compulsory heirs of Guevarra of their legitimes. As opposed to a disposition inter vivos
by lucrative or gratuitous title, a valid sale for valuable consideration does not diminish
the estate of the seller. When the disposition is for valuable consideration, there is no
diminution of the estate but merely a substitution of values, that is, the property sold is
replaced by the equivalent monetary consideration. The Property was sold in 1957 for
P250.00.

The trial court’s conclusion that the Property was conjugal, hence the sale is void ab initio
was not based on evidence, but rather on a misapprehension of Article 160 of the Civil
Code, which provides: “All property of the marriage is presumed to belong
to the conjugal partnership; unless it be proved that it pertains exclusively to the
husband or to the wife.” The presumption under Article 160 of the Civil Code applies only
when there is proof that the property was acquired during the marriage. Proof of
acquisition during the marriage is an essential condition for the operation of the
presumption in favor of the conjugal partnership. There was no evidence presented
to establish that Navarro acquired the Property during her marriage.

28. DELPHER TRADES CORPORATIONvs. IAC

G.R. No. L-69259 January 26, 1988

Facts: Delfin Pacheco and sister Pelagia were the owners of a parcel of land in Polo (now
Valenzuela). On April 3, 1974, they leased to Construction Components International Inc.
the property and providing for a right of firstrefusal should it decide to buy the said
property.
Construction Components International, Inc. assigned its rights and obligations under the
contract of lease in favor of Hydro Pipes Philippines, Inc. with the signed conformity and
consent of Delfin and Pelagia. In 1976, a deed of exchange was executed between
lessors Delfin and Pelagia Pacheco and defendant Delpher Trades Corporation whereby
the Pachecos conveyed to the latter the leased property together with another parcel
of land also located in Malinta Estate, Valenzuela for 2,500 shares of stock of defendant
corporation with a total value of P1.5M.

On the ground that it was not given the first option to buy the leased property pursuant to
the proviso in the lease agreement, respondent Hydro Pipes Philippines, Inc., filed an
amended complaint for reconveyance of the lot.

Issue: WON the Deed of Exchange of the properties executed by the Pachecos and the
Delpher Trades Corporation on the other was meant to be a contract of sale which, in
effect, prejudiced the Hydro Phil's right of first refusal over the leased property included
in the "deed of exchange,"

Held: No, by their ownership of the 2,500 no par shares of stock, the Pachecos have
control of the corporation. Their equity capital is 55% as against 45% of the other
stockholders, who also belong to the same family group. In effect, the Delpher Trades
Corporation is a business conduit of the Pachecos. What they really did was to invest their
properties and change the nature of their ownership from unincorporated to incorporated
form by organizing Delpher Trades Corporation to take control of their properties and at
the same time save on inheritance taxes.

The "Deed of Exchange" of property between the Pachecos and Delpher Trades
Corporation cannot be considered a contract of sale. There was no transfer of actual
ownership interests by the Pachecos to a third party. The Pacheco family merely changed
their ownership from one form to another. The ownershipremained in the same hands.
Hence, the private respondent has no basis for its claim of a light of first refusal

DE JAYME VS. CA Case Digest

VDA. DE JAYME VS. CA
390 SCRA 380
2002 October 4

FACTS: On January 8, 1973, the spouses Graciano and Mamerta Jayme entered into a
Contract of Lease with George Neri, president of Airland Motors Corporation (now Cebu
Asiancars Inc.), covering one-half of Lot 2700 owned and registered to the former. The
lease was for twenty (20) years. The terms and conditions of the lease contract stipulated
that Cebu Asiancars Inc. may use the leased premises as a collateral to secure payment
of a loan which Asiancars may obtain from any bank, provided that the proceeds of the
loan shall be used solely for the construction of a building which, upon the termination of
the lease or the voluntary surrender of the leased premises before the expiration of the
contract, shall automatically become the property of the Jayme spouses (the lessors).

In October 1977, Asiancars obtained a loan of P6,000,000 from the Metropolitan Bank
and Trust Company. The entire Lot 2700 was offered as one of several properties given
as collateral for the loan. As mortgagors, the spouses signed a Deed of Real Estate
Mortgage dated November 21, 1977 in favor of MBTC. It stated that the deed was to
secure the payment of a loan obtained by Asiancars from the bank. Meeting financial
difficulties and incurring an outstanding balance on the loan, Asiancars conveyed
ownership of the building on the leased premises to MBTC, by way of "dacion en pago."
The building was valued at P980,000 and the amount was applied as partial payment for
the loan. There still remained a balance of P2,942,449.66, which Asiancars failed to pay.
Eventually, MBTC extrajudicially foreclosed the mortgage.

A public auction was held on February 4, 1981. MBTC was the highest bidder for
P1,067,344.35. A certificate of sale was issued and was registered with the Register of
Deeds on February 23, 1981. Meanwhile, Graciano Jayme died, survived by his widow
Mamerta and their children. As a result of the foreclosure, Graciano’s heirs filed a civil
complaint, in January of 1982, for Annulment of Contract with Damages with Prayer for
Issuance of Preliminary Injunction, against respondent Asiancars, its officers and
incorporators and MBTC. Later, in 1999, Mamerta Jayme also passed away.

The trial court ruled that the REM is valid and binding upon the Jaymes. The CA affirmed
with modifications. Both the trial and appellate courts found that no fraud attended the
execution of the deed of mortgage. The Motion for Reconsideration was denied.

ISSUE: Whether or not the dacion en pago by Asiancars in favor of MBTC is valid and
binding despite the stipulation in the lease contract that ownership of the building will vest
on the Jaymes at the termination of the lease.

RULING: YES. The alienation of the building by Asiancars in favor of MBTC for the partial
satisfaction of its indebtedness is valid.

The ownership of the building had been effectively in the name of the lessee-mortgagor
(Asiancars), though with the provision that said ownership be transferred to the Jaymes
upon termination of the lease or the voluntary surrender of the premises. The lease was
constituted on January 8, 1973 and was to expire 20 years thereafter, or on January 8,
1993. The alienation via dacion en pago was made by Asiancars to MBTC on December
18, 1980, during the subsistence of the lease. At this point, the mortgagor, Asiancars,
could validly exercise rights of ownership, including the right to alienate it, as it did to
MBTC.

Dacion en pago is the delivery and transmission of ownership of a thing by the debtor to
the creditor as an accepted equivalent of the performance of the obligation. It is a special
mode of payment where the debtor offers another thing to the creditor who accepts it as
equivalent of payment of an outstanding debt. The undertaking really partakes in one
sense of the nature of sale, that is the creditor is really buying the thing or property of the
debtor, payment for which is to be charged against

the debtor’s debt. As such, the essential elements of a contract of sale, namely, consent,
object certain, and cause or consideration must be present. In its modern concept, what
actually takes place in dacion en pago is an objective novation of the obligation where the
thing offered as an accepted equivalent of the performance of an obligation is considered
as the object of the contract of sale, while the debt is considered as the purchase price.
In any case, common consent is an essential prerequisite, be it sale or novation, to have
the effect of totally extinguishing the debt or obligation. Private respondent MBTC is
ordered to pay petitioners rentals in the total amount of P602,083.33, with six (6) percent
interest per annum until fully paid.

G.R. No. 175952 April 30, 2008

SOCIAL SECURITY SYSTEM, petitioner,

vs.
ATLANTIC GULF AND PACIFIC COMPANY OF MANILA, INC. and SEMIRARA COAL
CORPORATION, respondents.

DECISION

TINGA, J.:

In this Petition for Review on Certiorari1 under Rule 45 of the 1997 Rules of Civil
Procedure, petitioner Republic of the Philippines represented by the Social Security
System (SSS) assails the Decision2

dated 31 August 2006 of the Eleventh Division of the Court of Appeals and its
Resolution3 dated 19 December 2006 denying petitioner’s Motion for Reconsideration.

Following are the antecedents culled from the decision of the Court of Appeals:
On 13 February 2004, Atlantic Gulf and Pacific Company of Manila, Inc. (AG & P) and
Semirara Coal Corporation (SEMIRARA) (collectively referred to as private respondents)
filed a complaint for specific performance and damages against SSS before the Regional
Trial Court of Batangas City, Branch 3, docketed as Civil Case No. 7441. The complaint
alleged that:

xxx

3. Sometime in 2000, plaintiff informed the SSS in writing of its premiums and loan
amortization delinquencies covering the period from January 2000 to May 2000
amounting to P7.3 Million. AG&P proposed to pay its said arrears by end of 2000,
but requested for the condonation of all penalties;

4. In turn, the defendant suggested two (2) options to AG&P, either to pay by
installment or through "dacion en pago";

5. AG&P chose to settle its obligation with the SSS under the second option, that
is through dacion en pago of its 5,999 sq. m. property situated in Baguio City
covered by TCT No. 3941 with an appraised value of about P80.0 Million. SSS
proposes to carve-out from the said property an area sufficient to cover plaintiffs’
delinquencies. AG&P, however, is not amenable to subdivide its Baguio property;

6. AG&P then made another proposal to SSS. This time, offering as payment a
portion of its 58,153 square meter-lot, situated in F.S. Sebastian, Sto. Niño, San
Pascual, Batangas. In addition, SSS informed AG&P of its decision to include other
companies within the umbrella of DMCI group with arrearages with the SSS. In the
process of elimination of the companies belonging to the DMCI group with possible
outstanding obligation with the SSS, it was only SEMIRARA which was left with
outstanding delinquencies with the SSS. Thus, SEMIRARA’s inclusion in the
proposed settlement through dacion en pago;

7. AG&P was, thereafter, directed by the defendant to submit certain documents,

such as Transfer Certificate of Title, Tax Declaration covering the subject lot, and
the proposed subdivision plan, which requirements AG&P immediately complied;

8. On April 4, 2001, SSS, in its Resolution No. 270, finally approved AG&P’s
proposal to settle its and SEMIRARA’s delinquencies through dacion en pago,
which as of March 31, 2001 amounted to P29,261,902.45. Approval of AG&P’s
proposal was communicated to it by Ms. Aurora E.L. Ortega, Vice-President, NCR-
Group of the SSS in a letter dated April 23, 2001. … ;

9. As a result of the approval of the dacion en pago, posting of contributions and

loan amortization to individual member accounts, both for AG&P and SEMIRARA
employees, was effected immediately thereafter. Thus, the benefits of the
member-employees of both companies were restored;
 10. From the time of the approval of AG&P’s proposal up to the present, AG&P is
(sic) religiously remitting the premium contributions and loan amortization of its
member-employees to the defendant;

11. To effect the property transfer, a Deed of Assignment has to be executed

between the plaintiffs and the defendant. Because of SSS failure to come up with
the required Deed of Assignment to effect said transfer, AG&P prepared the draft
and submitted it to the Office of the Vice-President – NCR thru SSS Baclaran
Branch in July 2001. Unfortunately, the defendant failed to take any action on said
Deed of Assignment causing AG&P to re-submit it to the same office of the Vice-
President – NCR in December 2001. From its original submission of the Deed of
Assignment in July 2001 to its re-submission in December 2001, and SSS
returning of the revised draft in February 28, 2003 AG&P was consistent in its
regular follow ups with SSS as to the status of its submitted Deed of Assignment;

12. On February 28, 2003, or more than a year after the approval of AG&P’s
proposal, defendant sent the revised copy of the Deed of Assignment to AG&P.
However, the amount of the plaintiffs’ obligation appearing in the approved Deed
of Assignment has ballooned from P29,261,902.45 to P40,846,610.64 allegedly
because of the additional interests and penalty charges assessed on plaintiffs’
outstanding obligation from April 2001, the date of approval of the proposal, up to
January 2003;

13. AG&P demanded for the waiver and deletion of the additional interests on the
ground that delay in the approval of the deed and the subsequent delay in
conveyance of the property in defendant’s name was solely attributable to the
defendant; hence, to charge plaintiffs with additional interests and penalties
amounting to more than P10,000,000.00, would be unreasonable….;

14. AG&P and SEMIRARA maintain their willingness to settle their alleged
obligation of P29,261,902.45 to SSS. Defendant, however, refused to accept the
payment through dacion en pago, unless plaintiffs also pay the additional interests
and penalties being charged;

xxx

Instead of filing an answer, SSS moved for the dismissal of the complaint for lack of
jurisdiction and non-exhaustion of administrative remedies. In an order dated 28 July
2004, the trial court granted SSS’s motion and dismissed private respondents’ complaint.
The pertinent portions of the assailed order are as follows:

Clearly, the motion is triggered on the issue of the court’s jurisdiction over the
subject matter and the nature of the instant complaint. The length and breadth of
the complaint as perused, boils down to the questions of premium and loan
amortization delinquencies of the plaintiff, the option taken for the payment of the
same in favor of the defendant and the disagreement between the parties as to the
 amount of the unpaid contributions and salary loan repayments. In other words,
said questions are directly related to the collection of contributions due the
defendant. Republic Act No. 1161 as amended by R.A. No. 8282, specifically
provides that any dispute arising under the said Act shall be cognizable by the
Commission and any case filed with respect thereto shall be heard by the
Commission. Hence, a procedural process mandated by a special law.

Observingly, the running dispute between plaintiffs and defendant originated from
the disagreement as to the amount of unpaid contributions and the amount of the
penalties imposed appurtenant thereto. The alleged dacion en pago is crystal clear
manifestation of offering a special form of payment which to the mind of the court
will produce effect only upon acceptance by the offeree and the observance and
compliance of the required formalities by the parties. No matter in what form it may
be, still the court believes that the subject matter is the payment of contributions
and the corresponding penalties which are within the ambit of Sec. 5 (a) of R.A.
No. 1161, as amended by R.A. No. 8282.

WHEREFORE, the Court having no jurisdiction over the subject matter of the
instant complaint, the motion is granted and this case is hereby ordered
DISMISSED.

SO ORDERED.4

Private respondents moved for the reconsideration of the order but the same was denied
in an Order dated 15 September 2004.

Consequently, private respondents filed an appeal before the Court of Appeals alleging
that the trial court erred in its pronouncement that it had no jurisdiction over the subject
matter of the complaint and in granting the motion to dismiss.

The Court of Appeals reversed and set aside the trial court’s challenged order, granted
private respondents’ appeal and ordered the trial court to proceed with the civil case with
dispatch. From the averments in their complaint, the appellate court observed that private
respondents are seeking to implement the Deed of Assignment which they had drafted
and submitted to SSS sometime in July 2001, pursuant to SSS’s letter addressed to AG&
P dated 23 April 2001 approving AG&P and SEMIRARA’S delinquencies through dacion
en pago, which as of 31 March 2001, amounted to P29,261,902.45. The appellate court
thus held that the subject of the complaint is no longer the payment of the premium and
loan amortization delinquencies, as well as the penalties appurtenant thereto, but the
enforcement of the dacion en pago pursuant to SSS Resolution No. 270. The action then
is one for specific performance which case law holds is an action incapable of pecuniary
estimation falling under the jurisdiction of the Regional Trial Court.5

SSS filed a motion for reconsideration of the appellate court’s decision but the same was
denied in a Resolution dated 19 December 2006.
Now before the Court, SSS insists on the Social Security Commission’s (the Commission)
jurisdiction over the complaint pursuant to Section 5 (a) of Republic Act (R.A.) No. 8282.
SSS maintains the Commission’s jurisdiction over all disputes arising from the provisions
of R.A. No. 1161, amended by R.A. No. 8282 to the exclusion of trial courts. 6

The main issue in this case pertains to which body has jurisdiction to entertain a
controversy arising from the non-implementation of a dacion en pago agreed upon by the
parties as a means of settlement of private respondents’ liabilities.

At the outset, it is well to restate the rule that what determines the nature of the action as
well as the tribunal or body which has jurisdiction over the case are the allegations in the
complaint.7

The pertinent provision of law detailing the jurisdiction of the Commission is Section 5(a)
of R.A. No. 1161, as amended by R.A. No. 8282, otherwise known as the Social Security
Act of 1997, to wit:

SEC. 5. Settlement of Disputes.– (a) Any dispute arising under this Act with
respect to coverage, benefits, contributions and penalties thereon or any other
matter related thereto, shall be cognizable by the Commission, and any case filed
with respect thereto shall be heard by the Commission, or any of its members, or
by hearing officers duly authorized by the Commission and decided within the
mandatory period of twenty (20) days after the submission of the evidence. The
filing, determination and settlement of disputes shall be governed by the rules and
regulations promulgated by the Commission.

The law clearly vests upon the Commission jurisdiction over "disputes arising under this
Act with respect to coverage, benefits, contributions and penalties thereon or any matter
related thereto..." Dispute is defined as "a conflict or controversy." 8

From the allegations of respondents’ complaint, it readily appears that there is no longer
any dispute with respect to respondents’ accountability to the SSS. Respondents had, in
fact, admitted their delinquency and offered to settle them by way of dacion en
pagosubsequently approved by the SSS in Resolution No. 270-s. 2001. SSS stated in
said resolution that "the dacion en pago proposal of AG&P Co. of Manila and Semirara
Coals Corporation to pay their liabilities in the total amount of P30,652,710.71 as of 31
March 2001 by offering their 5.8 ha. property located in San Pascual, Batangas, be, as it
is hereby, approved.."9 This statement unequivocally evinces its consent to the dacion en
pago. In Vda. de Jayme v. Court of Appeals,10 the Court ruled significantly as follows:

Dacion en pago is the delivery and transmission of ownership of a thing by the

debtor to the creditor as an accepted equivalent of the performance of the
obligation. It is a special mode of payment where the debtor offers another thing
to the creditor who accepts it as equivalent of payment of an outstanding debt. The
undertaking really partakes in one sense of the nature of sale, that is the creditor
is really buying the thing or property of the debtor, payment for which is to be
 charged against the debtor’s debt. As such, the essential elements of a contract of
sale, namely, consent, object certain, and cause or consideration must be present.
In its modern concept, what actually takes place in dacion en pago is an objective
novation of the obligation where the thing offered as an accepted equivalent of the
performance of an obligation is considered as the object of the contract of sale,
while the debt is considered as the purchase price. In any case, common consent
is an essential prerequisite, be it sale or novation, to have the effect of totally
extinguishing the debt or obligation.11

The controversy, instead, lies in the non-implementation of the approved and

agreed dacion en pago on the part of the SSS. As such, respondents filed a suit to obtain
its enforcement which is, doubtless, a suit for specific performance and one incapable of
pecuniary estimation beyond the competence of the Commission.12 Pertinently, the Court
ruled in Singson v. Isabela Sawmill,13 as follows:

In determining whether an action is one the subject matter of which is not capable
of pecuniary estimation this Court has adopted the criterion of first ascertaining the
nature of the principal action or remedy sought. If it is primarily for the recovery of
a sum of money, the claim is considered capable of pecuniary estimation, and
whether jurisdiction in the municipal courts or in the courts of first instance would
depend on the amount of the claim. However, where the basic issue is something
other than the right to recover a sum of money, where the money claim is purely
incidental to, or a consequence of, the principal relief sought, this Court has
considered such actions as cases where the subject of the litigation may not be
estimated in terms of money, and are cognizable exclusively by courts of first
instance (now Regional Trial Courts).14

In fine, the Court finds the decision of the Court of Appeals in accord with law and
jurisprudence.

WHEREFORE, the petition is DENIED. The Decision dated 31 August 2006 of the Court
of Appeals Eleventh Division in CA-G.R. CV No. 83775 AFFIRMED.

Let the case be remanded to the trial court for further proceedings.

SO ORDERED.

G.R. No. 115349 April 18, 1997

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
THE COURT OF APPEALS, THE COURT OF TAX APPEALS and ATENEO DE
MANILA UNIVERSITY, respondents.

CIVIL LAW; CONTRACTS; CONTRACT OF SALE AND FOR A PIECE OF WORK

REQUIRE TRANSFER OF OWNERSHIP; NOT PRESENT IN CASE AT BAR. — The
questioned transactions of Ateneo's Institute of Philippine Culture cannot be deemed
either as a contract of sale or a contract for a piece of work. "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
equivalents." By its very nature, a contract of sale requires a transfer of ownership. Thus,
Article 1458 of the Civil Code "expressly makes the obligation to transfer ownership as
an essential element of the contract of sale, following modern codes, such as the German
and the Swiss. Even in the absence of this express requirement, however, most writers,
including Sanchez Roman, Gayoso, Valverde, Ruggiero, Colin and Capitant, have
considered such transfer of ownership as the primary purpose of sale. Perez and Alguer
follow the same view, stating that the delivery of the thing does not mean a mere physical
transfer, but is a means of transmitting ownership. Transfer of title or an agreement to
transfer it for a price paid or promised to be paid is the essence of sale." In the case of a
contract for a piece of work, "the contractor binds himself to execute a piece of work for
the employer, in consideration of a certain price or compensation. . . If the contractor
agrees to produce the work from materials furnished by him, he shall deliver the thing
produced to the employer and transfer dominion over the thing. . ." (Articles 1713 and
1714 of the Civil Code of the Philippines). Ineludably, whether the contract be one of sale
or one for a piece of work, a transfer of ownership is involved and a party necessarily
walks away with an object. In the case at bench, it is clear from the evidence on record
that there was no sale either of objects or services because. as adverted to earlier, there
was no transfer of ownership over the research data obtained or the results of research
projects undertaken by the Institute of Philippine Culture. Furthermore, it is clear that the
research activity of the Institute of Philippine Culture is done in
pursuance of maintaining Ateneo's university status and not in the course of an
independent business ofselling such research with profit in mind.||| (Commissioner of
Internal Revenue v. Court of Appeals, G.R. No. 115349, [April 18, 1997], 338 PHIL 322-
338)

DECISION

In conducting researches and studies of social organizations and cultural values thru its
Institute of Philippine Culture, is the Ateneo de Manila University performing the work of
an independent contractor and thus taxable within the purview of then Section 205 of
the National Internal Revenue Code levying a three percent contractor's tax? This
question is answer by the Court in the negative as it resolves this petition assailing the
Decision 1 of the Respondent Court of Appeals 2 in CA-G.R. SP No. 31790 promulgated
on April 27, 1994 affirming that of the Court of Tax Appeals. 3

The Antecedent Facts

The antecedents as found by the Court of Appeals are reproduced hereinbelow, the
same being largely undisputed by the parties.
 Private respondent is a non-stock, non-profit educational institution with
auxiliary units and branches all over the Philippines. One such auxiliary
unit is the Institute of Philippine Culture (IPC), which has no legal
personality separate and distinct from that of private respondent. The IPC
is a Philippine unit engaged in social science studies of Philippine society
and culture. Occasionally, it accepts sponsorships for its research
activities from international organizations, private foundations and
government agencies.

On July 8, 1983, private respondent received from petitioner

Commissioner of Internal Revenue a demand letter dated June 3, 1983,
assessing private respondent the sum of P174,043.97 for alleged
deficiency contractor's tax, and an assessment dated June 27, 1983 in the
sum of P1,141,837 for alleged deficiency income tax, both for the fiscal
year ended March 31, 1978. Denying said tax liabilities, private
respondent sent petitioner a letter-protest and subsequently filed with the
latter a memorandum contesting the validity of the assessments.

On March 17, 1988, petitioner rendered a letter-decision canceling the

assessment for deficiency income tax but modifying the assessment for
deficiency contractor's tax by increasing the amount due to P193,475.55.
Unsatisfied, private respondent requested for a reconsideration or
reinvestigation of the modified assessment. At the same time, it filed in the
respondent court a petition for review of the said letter-decision of the
petitioner. While the petition was pending before the respondent court,
petitioner issued a final decision dated August 3, 1988 reducing the
assessment for deficiency contractor's tax from P193,475.55 to
P46,516.41, exclusive of surcharge and interest.

On July 12, 1993, the respondent court rendered the questioned decision
which dispositively reads:

WHEREFORE, in view of the foregoing, respondent's

decision is SET ASIDE. The deficiency contractor's tax
assessment in the amount of P46,516.41 exclusive of
surcharge and interest for the fiscal year ended March 31,
1978 is hereby CANCELED. No pronouncement as to cost.

SO ORDERED.

Not in accord with said decision, petitioner has come to this Court via the present
petition for review raising the following issues:

1) WHETHER OR NOT PRIVATE RESPONDENT FALLS

UNDER THE PURVIEW OF INDEPENDENT
 CONTRACTOR PURSUANT TO SECTION 205 OF THE
TAX CODE; and

2) WHETHER OR NOT PRIVATE RESPONDENT IS

SUBJECT TO 3% CONTRACTOR'S TAX UNDER SECTION
205 OF THE TAX CODE.

The pertinent portions of Section 205 of the National Internal Revenue Code, as
amended, provide:

Sec. 205. Contractor, proprietors or operators of dockyards, and others. —

A contractor's tax of threeper centum of the gross receipts is hereby
imposed on the following:

xxx xxx xxx

(16) Business agents and other independent contractors

except persons, associations and corporations under
contract for embroidery and apparel for export, as well as
their agents and contractors and except gross receipts of or
from a pioneer industry registered with the Board of
Investments under Republic Act No. 5186:

xxx xxx xxx

The term "independent contractors" include persons

(juridical or natural) not enumerated above (but not including
individuals subject to the occupation tax under Section 12 of
the Local Tax Code) whose activity consists essentially of
the sale of all kinds of services for a fee regardless of
whether or not the performance of the service calls for the
exercise or use of the physical or mental faculties of such
contractors or their employees.

xxx xxx xxx

Petitioner contends that the respondent court erred in holding that private
respondent is not an "independent contractor" within the purview of
Section 205 of the Tax Code. To petitioner, the term "independent
contractor", as defined by the Code, encompasses all kinds of services
rendered for a fee and that the only exceptions are the following:

a. Persons, association and corporations under contract for embroidery

and apparel for export and gross receipts of or from pioneer industry
registered with the Board of Investment under R.A. No. 5186;
 b. Individuals occupation tax under Section 12 of the Local Tax Code
(under the old Section 182 [b] of the Tax Code); and

c. Regional or area headquarters established in the Philippines by

multinational corporations, including their alien executives, and which
headquarters do not earn or derive income from the Philippines and which
act as supervisory, communication and coordinating centers for their
affiliates, subsidiaries or branches in the Asia Pacific Region (Section 205
of the Tax Code).

Petitioner thus submits that since private respondent falls under the
definition of an "independent contractor" and is not among the
aforementioned exceptions, private respondent is therefore subject to the
3% contractor's tax imposed under the same Code. 4

The Court of Appeals disagreed with the Petitioner Commissioner of Internal Revenue
and affirmed the assailed decision of the Court of Tax Appeals. Unfazed, petitioner now
asks us to reverse the CA through this petition for review.

The Issues

Petitioner submits before us the following issues:

1) Whether or not private respondent falls under the purview of

independent contractor pursuant to Section 205 of the Tax Code.

2) Whether or not private respondent is subject to 3% contractor's tax

under Section 205 of the Tax Code. 5

In fine, these may be reduced to a single issue: Is Ateneo de Manila University, through
its auxiliary unit or branch — the Institute of Philippine Culture — performing the work of
an independent contractor and, thus, subject to the three percent contractor's tax levied
by then Section 205 of the National Internal Revenue Code?

The Court's Ruling

The petition is unmeritorious.

Interpretation of Tax Laws

The parts of then Section 205 of the National Internal Revenue Code germane to the
case before us read:

Sec. 205. Contractors, proprietors or operators of dockyards, and others.

— A contractor's tax of threeper centum of the gross receipts is hereby
imposed on the following:
 xxx xxx xxx

(16) Business agents and other independent contractors, except persons,

associations and corporations under contract for embroidery and apparel
for export, as well as their agents and contractors, and except gross
receipts of or from a pioneer industry registered with the Board of
Investments under the provisions of Republic Act No. 5186;

xxx xxx xxx

The term "independent contractors" include persons (juridical or natural)

not enumerated above (but not including individuals subject to the
occupation tax under Section 12 of the Local Tax Code) whose activity
consists essentially of the sale of all kinds of services for a fee regardless
of whether or not the performance of the service calls for the exercise or
use of the physical or mental faculties of such contractors or their
employees.

The term "independent contractor" shall not include regional or area

headquarters established in the Philippines by multinational corporations,
including their alien executives, and which headquarters do not earn or
derive income from the Philippines and which act as supervisory,
communications and coordinating centers for their affiliates, subsidiaries
or branches in the Asia-Pacific Region.

The term "gross receipts" means all amounts received by the prime or
principal contractor as the total contract price, undiminished by amount
paid to the subcontractor, shall be excluded from the taxable gross
receipts of the subcontractor.

Petitioner Commissioner of Internal Revenue contends that Private Respondent Ateneo

de Manila University "falls within the definition" of an independent contractor and "is not
one of those mentioned as excepted"; hence, it is properly a subject of the three percent
contractor's tax levied by the foregoing provision of law. 6 Petitioner states that the "term
'independent contractor' is not specifically defined so as to delimit the scope thereof, so
much so that any person who . . . renders physical and mental service for a fee, is now
indubitably considered an independent contractor liable to 3% contractor's
tax." 7 According to petitioner, Ateneo has the burden of proof to show its exemption
from the coverage of the law.

We disagree. Petitioner Commissioner of Internal Revenue erred in applying the

principles of tax exemption without first applying the well-settled doctrine of strict
interpretation in the imposition of taxes. It is obviously both illogical and impractical to
determine who are exempted without first determining who are covered by the aforesaid
provision. The Commissioner should have determined first if private respondent was
covered by Section 205, applying the rule of strict interpretation of laws imposing taxes
and other burdens on the populace, before asking Ateneo to prove its exemption
therefrom. The Court takes this occasion to reiterate the hornbook doctrine in the
interpretation of tax laws that "(a) statute will not be construed as imposing a tax unless
it does so clearly, expressly, and unambiguously . . . (A) tax cannot be imposed without
clear and express words for that purpose. Accordingly, the general rule of
requiring adherence to the letter in construing statutes applies with peculiar strictness to
tax lawsand the provisions of a taxing act are not to be extended by
implication." 8 Parenthetically, in answering the question of who is subject to tax
statutes, it is basic that "in case of doubt, such statutes are to be construed most
strongly against the government and in favor of the subjects or citizens because
burdens are not to be imposed nor presumed to be imposed beyond what statutes
expressly and clearly import." 9

To fall under its coverage, Section 205 of the National Internal Revenue Code requires
that the independent contractor be engaged in the business of selling its services.
Hence, to impose the three percent contractor's tax on Ateneo's Institute of Philippine
Culture, it should be sufficiently proven that the private respondent is indeed selling its
services for a fee in pursuit of an independent business. And it is only after private
respondent has been found clearly to be subject to the provisions of Sec. 205 that the
question of exemption therefrom would arise. Only after such coverage is shown does
the rule of construction — that tax exemptions are to be strictly construed against the
taxpayer — come into play, contrary to petitioner's position. This is the main line of
reasoning of the Court of Tax Appeals in its decision, 10 which was affirmed by the CA.

The Ateneo de Manila University Did Not Contract

for the Sale of the Service of its Institute of Philippine Culture

After reviewing the records of this case, we find no evidence that Ateneo's Institute of
Philippine Culture ever sold its services for a fee to anyone or was ever engaged in a
business apart from and independently of the academic purposes of the university.

Stressing that "it is not the Ateneo de Manila University per se which is being taxed,"
Petitioner Commissioner of Internal Revenue contends that "the tax is due on its activity
of conducting researches for a fee. The tax is due on the gross receipts made in favor of
IPC pursuant to the contracts the latter entered to conduct researches for the benefit
primarily of its clients. The tax is imposed on the exercise of a taxable activity. . . . [T]he
sale of services of private respondent is made under a contract and the various
contracts entered into between private respondent and its clients are almost of the
same terms, showing, among others, the compensation and terms of
payment." 11(Emphasis supplied.)

In theory, the Commissioner of Internal Revenue may be correct. However, the records
do not show that Ateneo's IPC in fact contracted to sell its research services for a fee.
Clearly then, as found by the Court of Appeals and the Court of Tax Appeals,
petitioner's theory is inapplicable to the established factual milieu obtaining in the instant
case.
In the first place, the petitioner has presented no evidence to prove its bare contention
that, indeed, contracts for sale of services were ever entered into by the private
respondent. As appropriately pointed out by the latter:

An examination of the Commissioner's Written Formal Offer of Evidence in

the Court of Tax Appeals shows that only the following documentary
evidence was presented:

Exhibit 1 BIR letter of authority no. 331844

2 Examiner's Field Audit Report

3 Adjustments to Sales/Receipts

4 Letter-decision of BIR Commissioner

Bienvenido A. Tan Jr.

None of the foregoing evidence even comes close to purport to be

contracts between private respondent and third parties. 12

Moreover, the Court of Tax Appeals accurately and correctly declared that the " funds
received by the Ateneo de Manila University are technically not a fee. They may
however fall as gifts or donations which are tax-exempt" as shown by private
respondent's compliance with the requirement of Section 123 of the National Internal
Revenue Code providing for the exemption of such gifts to an educational institution. 13

Respondent Court of Appeals elucidated on the ruling of the Court of Tax Appeals:

To our mind, private respondent hardly fits into the definition of an

"independent contractor".

For one, the established facts show that IPC, as a unit of the private
respondent, is not engaged in business. Undisputedly, private respondent
is mandated by law to undertake research activities to maintain its
university status. In fact, the research activities being carried out by the
IPC is focused not on business or profit but on social sciences studies of
Philippine society and culture. Since it can only finance a limited number
of IPC's research projects, private respondent occasionally accepts
sponsorship for unfunded IPC research projects from international
organizations, private foundations and governmental agencies. However,
such sponsorships are subject to private respondent's terms and
conditions, among which are, that the research is confined to topics
consistent with the private respondent's academic agenda; that no
proprietary or commercial purpose research is done; and that private
respondent retains not only the absolute right to publish but also the
ownership of the results of the research conducted by the IPC. Quite
 clearly, the aforementioned terms and conditions belie the allegation that
private respondent is a contractor or is engaged in business.

For another, it bears stressing that private respondent is a non-stock, non-

profit educational corporation. The fact that it accepted sponsorship for
IPC's unfunded projects is merely incidental. For, the main function of the
IPC is to undertake research projects under the academic agenda of the
private respondent. Moreover the records do not show that in accepting
sponsorship of research work, IPC realized profits from such work. On the
contrary, the evidence shows that for about 30 years, IPC had
continuously operated at a loss, which means that sponsored funds are
less than actual expenses for its research projects. That IPC has been
operating at a loss loudly bespeaks of the fact that education and not profit
is the motive for undertaking the research projects.

Then, too, granting arguendo that IPC made profits from the sponsored
research projects, the fact still remains that there is no proof that part of
such earnings or profits was ever distributed as dividends to any
stockholder, as in fact none was so distributed because they accrued to
the benefit of the private respondent which is a non-profit educational
institution. 14

Therefore, it is clear that the funds received by Ateneo's Institute of Philippine Culture
are not given in the concept of a fee or price in exchange for the performance of a
service or delivery of an object. Rather, the amounts are in the nature of an endowment
or donation given by IPC's benefactors solely for the purpose of sponsoring or funding
the research with no strings attached. As found by the two courts below, such
sponsorships are subject to IPC's terms and conditions. No proprietary or commercial
research is done, and IPC retains the ownership of the results of the research, including
the absolute right to publish the same. The copyrights over the results of the research
are owned by
Ateneo and, consequently, no portion thereof may be reproduced without its
permission. 15 The amounts given to IPC, therefore, may not be deemed, it bears
stressing as fees or gross receipts that can be subjected to the three percent
contractor's tax.

It is also well to stress that the questioned transactions of Ateneo's Institute of Philippine
Culture cannot be deemed either as a contract of sale or a contract of a piece of work.
"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." 16 By its very nature, a contract of sale requires a
transfer of ownership. Thus, Article 1458 of the Civil Code "expressly makes the
obligation to transfer ownership as an essential element of the contract of sale, following
modern codes, such as the German and the Swiss. Even in the absence of this express
requirement, however, most writers, including Sanchez Roman, Gayoso, Valverde,
Ruggiero, Colin and Capitant, have considered such transfer of ownership as the
primary purpose of sale. Perez and Alguer follow the same view, stating that the
delivery of the thing does not mean a mere physical transfer, but is a means of
transmitting ownership. Transfer of title or an agreement to transfer it for a price paid or
promised to be paid is the essence of sale." 17 In the case of a contract for a piece of
work, "the contractor binds himself to execute a piece of work for the employer, in
consideration of a certain price or compensation. . . . If the contractor agrees to produce
the work from materials furnished by him, he shall deliver the thing produced to the
employer and transfer dominion over the thing, . . ." 18 Ineludably, whether the contract
be one of sale or one for a piece of work, a transfer of ownership is involved and a party
necessarily walks away with an object. 19 In the case at bench, it is clear from the
evidence on record that there was no sale either of objects or services because, as
adverted to earlier, there was no transfer of ownership over the research data obtained
or the results of research projects undertaken by the Institute of Philippine Culture.

Furthermore, it is clear that the research activity of the Institute of Philippine Culture is
done in pursuance of maintaining Ateneo's university status and not in the course of an
independent business of selling such research with profit in mind. This is clear from a
reading of the regulations governing universities:

31. In addition to the legal requisites an institution must meet, among

others, the following requirements before an application for university
status shall be considered:

xxx xxx xxx

(e) The institution must undertake research and operate with a competent
qualified staff at least three graduate departments in accordance with the
rules and standards for graduate education. One of the departments shall
be science and technology. The competence of the staff shall be judged
by their effective teaching, scholarly publications and research activities
published in its school journal as well as their leadership activities in the
profession.

(f) The institution must show evidence of adequate and stable financial
resources and support, a reasonable portion of which should be devoted
to institutional development and research. (emphasis supplied)

xxx xxx xxx

32. University status may be withdrawn, after due notice and hearing, for
failure to maintain satisfactorily the standards and requirements
therefor. 20

Petitioner's contention that it is the Institute of Philippine Culture that is being taxed and
not the Ateneo is patently erroneous because the former is not an independent juridical
entity that is separate and distinct form the latter.
 Factual Findings and Conclusions of the Court of Tax Appeals Affirmed by the
Court of Appeals Generally Conclusive

In addition, we reiterate that the "Court of Tax Appeals is a highly specialized body
specifically created for the purpose of reviewing tax cases. Through its expertise, it is
undeniably competent to determine the issue of whether" 21 Ateneo de Manila University
may be deemed a subject of the three percent contractor's tax "through the evidence
presented before it." Consequently, "as a matter of principle, this Court will not set aside
the conclusion reached by . . . the Court of Tax Appeals which is, by the very nature of
its function, dedicated exclusively to the study and consideration of tax problems and
has necessarily developed an expertise on the subject unless there has been an abuse
or improvident exercise of authority . . ." 22 This point becomes more evident in the case
before us where the findings and conclusions of both the Court of Tax Appeals and the
Court of Appeals appear untainted by any abuse of authority, much less grave abuse of
discretion. Thus, we find the decision of the latter affirming that of the former free from
any palpable error.

Public Service, Not Profit, is the Motive

The records show that the Institute of Philippine Culture conducted its research
activities at a huge deficit of P1,624,014.00 as shown in its statements of fund and
disbursements for the period 1972 to 1985. 23 In fact, it was Ateneo de Manila University
itself that had funded the research projects of the institute, and it was only when Ateneo
could no longer produce the needed funds that the institute sought funding from outside.
The testimony of Ateneo's Director for Accounting Services, Ms. Leonor Wijangco,
provides significant insight on the academic and nonprofit nature of the institute's
research activities done in furtherance of the university's purposes, as follows:

Q Now it was testified to earlier by Miss Thelma Padero (Office Manager

of the Institute of Philippine Culture) that as far as grants from sponsored
research it is possible that the grant sometimes is less than the actual
cost. Will you please tell us in this case when the actual cost is a lot less
than the grant who shoulders the additional cost?

A The University.

Q Now, why is this done by the University?

A Because of our faculty development program as a university, because a

university has to have its own research institute. 24

So, why is it that Ateneo continues to operate and conduct researches through its
Institute of Philippine Culture when it undisputedly loses not an insignificant amount in
the process? The plain and simple answer is that private respondent is not a contractor
selling its services for a fee but an academic institution conducting these researches
pursuant to its commitments to education and, ultimately, to public service. For the
institute to have tenaciously continued operating for so long despite its accumulation of
significant losses, we can only agree with both the Court of Tax Appeals and the Court
of Appeals that "education and not profit is [IPC's] motive for undertaking the research
projects." 25

WHEREFORE, premises considered, the petition is DENIED and the assailed Decision
of the Court of Appeals is hereby AFFIRMED in full.

SO ORDERED.

Inchausti vs Cromwell
20 Phil. 345 October 16, 1911

Facts:
Inchausti is engaged in the business of buying and selling wholesale hemp on
commission. It is customary to sell hemp in bales which are made by compressing the
loose fiber by means of presses, covering two sides of the bale with matting, and
fastening it by means of strips of rattan; that the operation of bailing hemp is designated
among merchants by the word “prensaje.” In all sales of hemp by Inchausti, the price is
quoted to the buyer at so much per picul, no mention being made of bailing. It is with the
tacit understanding that the hemp will be delivered in bales. The amount depends under
the denomination of “prensaje” or the baled hemp. CIR made demand in writing upon
Inchausti for the payment of the sum of P1,370.68 as a tax of one third of one per cent
on the sums of money mentioned as aggreagate sum collected as prensaje or the baled
hemp. Inchausti paid upon protest, contending that the collected amount is illegal upon
the ground that the said charge does not constitute a part of the selling price of the
hemp, but is a charge made for the service of baling the hemp.

Issue:
Whether or not the baled hemp constitutes a contract of sale

Ruling:
Yes, the baled hemp constitutes a contract of sale. In the case at bar, the baled form
before the agreement of sale were made and would have been in existence even if
none of the individual sales in question had been consummated. The hemp, even if sold
to someone else, will be sold in bales. When a person stipulates for the future sale of
articles which he is habitually making, and which at the time are not made or finished, it
is essentially a contract of sale and not a contract for piece of work. It is otherwise when
the article is made pursuant to agreement. If the article ordered by the purchaser is
exactly such as the plaintiff makes and keeps on hand for sale to anyone, and no
change or modification of it is made at the defendant’s request, it is a contract of sale,
even though it may be entirely made after, and in consequence of, the defendant’s
order for it.

Celestino vs CIR
99 Phil. 841 August 31, 1956
Facts:

Celestino is the owner of Oriental Sash Factory. It paid 7% on the gross sales of their
sales. In 1952, they began to pay only 3% tax. Petitioner claims that it does not
manufacture ready-made doors, sash and windows for the public, but only upon special
orders from the customers, hence, it is not engaged in manufacturing under sec 186,
but only in sales of services covered by sec 191. Having failed to convince BIR,
petitioner went to the Court of Tax Appeal where it also failed. CTA, in its decision,
holds that the “petitioner has chosen for its tradename and has offered itself to the
public as a “Factory”, which means it is out to do business, in its chosen lines on a big
scale. As a general rule, sash factories receive orders for doors and windows of special
design only in particular cases but the bulk of their sales is derived from a ready-made
doors and windows of standard sizes for the average home.

Issue:

Whether the petitioner company provides special services or is engaged in

manufacturing.

Ruling:
The Oriental Sash Factory is engaged in manufacturing. The company habitually makes
sash, windows and doors as it has been represented to the public.The fact that windows
and doors are made by it only when customers place their orders, does not alter the
nature of the establishment, for it is obvious that it only accepted such orders as called
for the employment of such material-moulding, frames, panels-as it ordinarily
manufactured or was in a position habitually to manufacture. The Oriental Sash Factory
does nothing more than sell the goods that it mass-produces or habitually makes; sash,
panels, mouldings, frames, cutting them to such sizes and combining them in such
forms as its customers may desire.
Engineering Equipment and Supply Company v. CIR and CTA

Facts:

Engineering Equipment and Supply Company is engaged in the design and installation
of central type air conditioning system, pumping plants and steel fabrications. Upon a
letter from a certain Juan dela Cruz denouncing the company for tax evasion and fraud
in obtaining its dollar allocations, BIR, CB and NBI conducted a raid and confiscated
voluminous documents from the firm. The Commissioner contends that Engineering is a
manufacturer and seller of air conditioning units and parts or accessories thereof and,
therefore, it is subject to the 30% advance sales tax prescribed by Section 185(m) of the
Tax Code, in relation to Section 194 of the same. Engineering claims that it is not a
manufacturer and setter of air-conditioning units and spare parts or accessories thereof
subject to tax under Section 185(m) of the Tax Code, but a contractor engaged in the
design, supply and installation of the central type of air-conditioning system subject to the
3% tax imposed by Section 191 of the same Code, which is essentially a tax on the sale
of services or labor of a contractor rather than on the sale of articles subject to the tax
referred to in Sections 184, 185 and 186 of the Code.

Issue:

Whether or not Engineering is a manufacturer of air conditioning units under Section

185(m), supra, in relation to Sections 183(b) and 194 of the Code, or a contractor under
Section 191 of the same Code

Held:

The distinction between a contract of sale and one for work, labor and materials is tested
by the inquiry whether the thing transferred is one not in existence and which never would
have existed but for the order of the party desiring to acquire it, or a thing which would
have existed and has been the subject of sale to some other persons even if the order
had not been given. If the article ordered by the purchaser is exactly such as the plaintiff
makes and keeps on hand for sale to anyone, and no change or modification of it is made
at defendant's request, it is a contract of sale, even though it may be entirely made after,
and in consequence of, the defendants order for it.

The word "contractor" has come to be used with special reference to a person who, in the
pursuit of the independent business, undertakes to do a specific job or piece of work for
other persons, using his own means and methods without submitting himself to control
as to the petty details. The true test of a contractor would seem to be that he renders
service in the course of an independent occupation, representing the will of his employer
only as to the result of his work, and not as to the means by which it is accomplished.
Engineering, in a nutshell, fabricates, assembles, supplies and installs in the buildings of
its various customers the central type air conditioning system; prepares the plans and
specifications therefor which are distinct and different from each other; the air conditioning
units and spare parts or accessories thereof used by petitioner are not the window type
of air conditioner which are manufactured, assembled and produced locally for sale to the
general market; and the imported air conditioning units and spare parts or accessories
thereof are supplied and installed by petitioner upon previous orders of its customers
conformably with their needs and requirements. The facts and circumstances aforequoted
support the theory that Engineering is a contractor rather than a manufacturer.

Quiroga vs Parsons
G.R. No. L-11491
Subject: Sales
Doctrine: Contract of Agency to Sell vs Contract of Sale
Facts: On Jan 24, 1911, plaintiff and the respondent entered into a contract making the
latter an “agent” of the former. The contract stipulates that Don Andres Quiroga, here in
petitioner, grants exclusive rights to sell his beds in the Visayan region to J. Parsons.
The contract only stipulates that J.Parsons should pay Quiroga within 6 months upon
the delivery of beds.
Quiroga files a case against Parsons for allegedly violating the following stipulations: not
to sell the beds at higher prices than those of the invoices; to have an open
establishment in Iloilo; itself to conduct the agency; to keep the beds on public
exhibition, and to pay for the advertisement expenses for the same; and to order the
beds by the dozen and in no other manner. With the exception of the obligation on the
part of the defendant to order the beds by the dozen and in no other manner, none of
the obligations imputed to the defendant in the two causes of action are expressly set
forth in the contract. But the plaintiff alleged that the defendant was his agent for the
sale of his beds in Iloilo, and that said obligations are implied in a contract of
commercial agency. The whole question, therefore, reduced itself to a determination as
to whether the defendant, by reason of the contract hereinbefore transcribed, was a
purchaser or an agent of the plaintiff for the sale of his beds.
Issue: Whether the contract is a contract of agency or of sale.
Held: In order to classify a contract, due attention must be given to its essential clauses.
In the contract in question, what was essential, as constituting its cause and subject
matter, is that the plaintiff was to furnish the defendant with the beds which the latter
might order, at the price stipulated, and that the defendant was to pay the price in the
manner stipulated. Payment was to be made at the end of sixty days, or before, at the
plaintiff’s request, or in cash, if the defendant so preferred, and in these last two cases
an additional discount was to be allowed for prompt payment. These are precisely the
essential features of a contract of purchase and sale. There was the obligation on the
part of the plaintiff to supply the beds, and, on the part of the defendant, to pay their
price. These features exclude the legal conception of an agency or order to sell
whereby the mandatory or agent received the thing to sell it, and does not pay its price,
but delivers to the principal the price he obtains from the sale of the thing to a third
person, and if he does not succeed in selling it, he returns it. By virtue of the contract
between the plaintiff and the defendant, the latter, on receiving the beds, was
necessarily obliged to pay their price within the term fixed, without any other
consideration and regardless as to whether he had or had not sold the beds.
In respect to the defendant’s obligation to order by the dozen, the only one expressly
imposed by the contract, the effect of its breach would only entitle the plaintiff to
disregard the orders which the defendant might place under other conditions; but if the
plaintiff consents to fill them, he waives his right and cannot complain for having acted
thus at his own free will.
For the foregoing reasons, we are of opinion that the contract by and between the
plaintiff and the defendant was one of purchase and sale, and that the obligations the
breach of which is alleged as a cause of action are not imposed upon the defendant,
either by agreement or by law.

VICTORIAS MILLING CO. vs. COURT OF APPEALS

FACTS:
St. Therese Merchandising (STM) regularly bought sugar from Victorias Milling
Co (VMC). In the course of their dealings, VMC issued several Shipping List/Delivery
Receipts (SLDRs) to STM as proof of purchases. Among these was SLDR No.
1214M.SLDR No. 1214M, dated October 16, 1989, covers 25,000 bags of sugar. Each
bag contained 50 kg and priced at P638.00 per bag. The transaction covered was a “direct
sale”.

On October 25, 1989, STM sold to private respondent Consolidated Sugar

Corporation (CSC) its rights in the same SLDR for P14,750,000.00. CSC issued checks
in payment. That same day, CSC wrote petitioner that it had been authorized by STM to
withdraw the sugar covered by the said SLDR. Enclosed in the letter were a copy of SLDR
No. 1214M and a letter of authority from STM authorizing CSC to “withdraw for and in
our behalf the refined sugar covered by the SLDR” 
On Oct. 27, 1989, STM issued
checks to VMC as payment for 50,000 bags, covering SLDR No. 1214M.
CSC
surrendered the SLDR No. 1214M and to VMC’s NAWACO Warehouse and was allowed
to withdraw sugar. But only 2,000 bags had been released because VMC refused to
release the other 23,000 bags.

Therefore, CSC informed VMC that SLDR No. 1214M had been “sold and
endorsed” to it. But VMC replied that it could not allow any further withdrawals of sugar
against SLDR No. 1214M because STM had already withdrawn all the sugar covered by
the cleared checks. VMC also claimed that CSC was only representing itself as STM’s
agent as it had withdrawn the 2,000 bags against SLDR No. 1214M “for and in behalf” of
STM. Hence, CSC filed a complaint for specific performance against Teresita Ng Sy
(doing business under STM's name) and VMC. However, the suit against Sy was
discontinued because later became a witness. RTC ruled in favor of CSC and ordered
VMC to deliver the 23,000 bags left. CA concurred. Hence this appeal.

ISSUES:
W/N CA erred in not ruling that CSC was an agent of STM and hence, estopped to sue
upon SLDR No. 1214M as assignee.

HELD:
NO. CSC was not an agent of STM. VMC heavily relies on STM’s letter of authority that
said CSC is authorized to withdraw sugar “for and in our behalf”. It is clear from Art. 1868
that the: basis of agency is representation. On the part of the principal, there must
be an actual intention to appoint or an intention naturally inferable from his words
or actions, and on the part of the agent, there must be an intention to accept the
appointment and act on it, and in the absence of such intent, there is generally NO
agency. One factor, which most clearly distinguishes agency from other legal concepts,
is control; one person – the agent – agrees to act under the control or direction of another
– the principal. Indeed, the very word “agency” has come to connote control by the
principal. The control factor, more than any other, has caused the courts to put contracts
between principal and agent in a separate category. Where the relation of agency is
dependent upon the acts of the parties, the law makes no presumption of agency and it
is always a fact to be proved, with the burden of proof resting upon the persons alleging
the agency, to show not only the fact of its existence but also its nature and extent. It
appears that CSC was a buyer and not an agent of STM. CSC was not subject to STM’s
control. The terms “for and in our behalf” should not be eyed as pointing to the existence
of an agency relation. Whether or not a contract is one of sale or agency depends on
the intention of the parties as gathered from the whole scope and effect of the
language employed. Ultimately, what is decisive is the intention of the parties. (In
fact, CSC even informed VMC that the SLDR was sold and endorsed to it.)
Agency distinguished from sale.

In an agency to sell, the agent, in dealing with the thing received, is bound to act according
to the instructions of his principal, while in a sale, the buyer can deal with the thing as he
pleases, being the owner. The elementary notion of sale is the transfer of title to a thing
from one to another, while the essence of agency involves the idea of an appointment of
one to act for another. Agency is a relationship which often results in a sale, but the sale
is a subsequent step in the transaction. (Teller, op. cit., p. 26; see Commissioner of
Internal Revenue vs. Manila Machinery & Supply Co., 135 SCRA 8 [1985].) An
authorization given to another containing the phrase “for and in our behalf’’ does not
necessarily establish an agency, as ultimately what is decisive is the intention of the
parties. Thus, the use of the words “sold and endorsed’’ may mean that the parties
intended a contract of sale, and not a contract of agency.
PARAGAS v. HEIRS OF DOMINADOR BALACANO
FACTS: Gregorio Balacano, married to Lorenza, owned 2 parcels of land. He
was already 81 years old, very weak, could barely talk, and had been battling w/ liver
disease for over a month. On his deathbed, barely a week before he died, he allegedly
signed a Deed of Absolute Sale over the lots in favor of the Paragas Spouses,
accompanied by Atty. De Guzman who proceeded to notarize the same, alleging that it
was a mere confirmation of a previous sale and that Gregorio had already paid a P
50,000.00 deposit. The Paragas’ driver was also there to take a picture of Gregorio
signing the said deed, w/ a ballpen in his hand. There was nothing to show that
the contents of the deed were explained to Gregorio. Paragas then sold a portion of the
disputed lot to Catalino. The grandson of Gregorio, Domingo, sought to annul the sale
and partition. There was no sufficient evidence to support any prior agreement or partial
execution thereof.

ISSUE:W/N Balacano is incapacitated to enter into a contract of sale

HELD:A person is not rendered incompetent merely because of old age; however, when
such age has impaired the mental faculties as to prevent a person from protecting his
rights, then he is undeniably incapacitated. He is clearly at a disadvantage, and
the courts must be vigilant for his protection. In this case, Gregorio’s consent was
clearly absent – hence the sale was null and void. The dubious circumstances raise
serious doubts on his capacity to render consent. Considering that the Paragas
Spouses are not owners of the said properties, it only follows that the subsequent sale
thereof to Catalino – who was not in good faith – is likewise void. Further, the lots
pertained to the conjugal partnership – having been inherited by Gregorio during his
marriage to Lorenza. It cannot thus be sold w/o the latter’s consent.

G.R. No. 153447 February 23, 2004

VICENTE G. VILLARANDA, petitioner,

vs.
Spouses HONORIO G. VILLARANDA and ANA MARIA Y. VILLARANDA; and
COLORHOUSE LABORATORIES, INC., respondents.

DECISION

PANGANIBAN, J.:

Without the wife’s consent, the husband’s alienation or encumbrance of conjugal

property prior to the effectivity of the Family Code is not void, but merely voidable.
The Case

Before us is a Petition for Review1 under Rule 45 of the Rules of Court, challenging the
October 25, 2001 Decision2and the April 23, 2002 Resolution3 of the Court of Appeals
(CA) in CA-GR CV No. 55810. The assailed Decision disposed as follows:

"UPON THE VIEW WE TAKE OF THIS CASE, the present appeal is hereby
DISMISSED and the judgment appealed from AFFIRMED in toto. Costs shall be taxed
against appellant."4

The assailed Resolution denied petitioner’s Motion for Reconsideration.

The trial court’s Decision that was affirmed by the CA had disposed as follows:

"WHEREFORE, judgment is hereby rendered in favor of plaintiffs and against

defendant:

"(a) ORDERING the latter to reconvey to plaintiffs Lot 448-B-7 covered by

Transfer Certificate of Title No. T-65893 Registry of Deeds of Cagayan de Oro
City located at Divisoria, Cagayan de Oro City, in his name without any
consideration; and

"(b) ORDERING defendant to choose his 500 square-meter portion on the lot of
plaintiffs at Bontola, Macasandig, Cagayan de Oro City. After he shall have
chosen his 500 square meter portion of the lot of plaintiff, plaintiff shall thru a
surveyor, segregate this portion. After the subdivision plan shall have been
approved by the Executive Director of the DENR, Region 10, Cagayan de Oro
City, to execute a deed of conveyance in favor of defendant over this 500
square-meter portion of his land located at Bontola, Macasandig, Cagayan de
Oro City, also without consideration;

"(c) With this judgment, plaintiffs and intervenor may now consummate their
transaction.

"WITHOUT PRONOUNCEMENT AS TO COSTS."5

The Facts

This controversy revolves around a Deed of Exchange executed by and between two
brothers, herein Petitioner Vicente Villaranda and Private Respondent Honorio
Villaranda.

A 471-square-meter parcel of land located at Divisoria, Cagayan de Oro City, was left to
the two brothers and their eight other siblings by their parents. Estate Administrator
Bebiano Luminarias leased 124 square meters of the property to Honorio starting on
May 1, 1976, until May 31, 1986. Vicente, on the other hand, inherited 64.22 square
meters of the property that had not been leased to Honorio.6

On July 6, 1976, the two brothers executed the assailed Deed of Exchange. Under this
instrument, Vicente agreed to convey his 64.22-square-meter portion to Honorio, in
exchange for a 500-square-meter property in Macasandig, Cagayan de Oro City, which
was covered by Transfer Certificate of Title (TCT) No. 2138.7

After the execution of the Deed, Honorio took possession of the 64.22-square-meter lot
and constructed a building thereon.8

Years later, on April 6, 1992, a subdivision plan for Lot 448-B was completed, in pursuit
of which TCT No. T-65893 for the 64.22 square-meter share of Vicente was issued in
his name and designated as Lot 448-B-7. The other heirs were issued their own TCTs
for their respective shares.9

Honorio and his wife, Respondent Ana Maria Y. Villaranda, then brought an action for
specific performance10 before the Regional Trial Court (RTC) of Cagayan de Oro City
(Branch 24) to compel Vicente to comply with his obligations under the Deed of
Exchange. The spouses alleged that they could not fully use or dispose of their
Macasandig property, because Vicente had yet to identify and delineate his undivided
500- square-meter portion of the property. They asked the court to compel him to do so,
as well as to convey to them the 64.22-square-meter Divisoria lot, in compliance with
his obligations under the Deed.11

During the pendency of the case, Honorio conditionally sold the Divisoria lot to
Colorhouse Laboratories, Inc. which, by virtue thereof, intervened in the civil case.12

Vicente did not deny that he had entered into the Deed of Exchange with Honorio. The
former, however, averred that he was not bound thereby, 13 contending that because the
property had not been delivered, the Deed had not been consummated. Moreover, he
claimed that the Deed had already been revoked by both parties. 14 According to him,
he, together with his co-heirs, requested Honorio to agree to its rescission, because the
considerations therein were iniquitous. Honorio agreed, provided certain conditions he
had disclosed were met.15 Vicente contended that he had complied with those
conditions; and that, therefore, he and respondent spouses had already revoked the
Deed of Exchange.

During pretrial, the parties stipulated the following facts: (a) the existence and due
execution of the Deed of Exchange; (b) the identity of the parties; (c) the existence of
TCT No. T-65893, which had been registered in the Registry of Deeds of Cagayan de
Oro City in the name of petitioner; and (d) the physical possession by Colorhouse,
through Honorio, of the 64.22-square-meter Divisoria lot.16 As already stated, the trial
court ruled in favor of respondent spouses.

Ruling of the Court of Appeals

On appeal, the CA held that the provisions of the Civil Code were applicable to the case
at bar, since the Deed of Exchange had been entered into prior to the enactment of the
Family Code.17 Thus, the absence of the wife’s signature on the Deed made it only
voidable,18 not void.

The CA further found that Ana was aware of the execution of the Deed,19 and yet she
brought no action for its annulment within ten (10) years from its execution. Her
omission or refusal to rescind it, as well as her act of joining her husband in filing the
case for specific performance, points to the conclusion that she assented to the Deed.20

The CA also ruled that the spouses’ cause of action had accrued, not from the date of
the execution of the Deed, but only from the moment Vicente refused to cause the
transfer of his title to Honorio, some two months before the filing of the present case. It
was only then that the prescriptive period commenced to run. 21

Further, the CA held that as regards the capacity of the parties to enter into the Deed of
Exchange, the only time to be reckoned with was the moment of its execution.22 Honorio
acquired his American citizenship only in September 1992, which was years
thereafter.23 The CA further explained that according to the 1987 Constitution, a natural-
born citizen of the Philippines who had lost Philippine citizenship may own private
lands.24

Finally, the appellate court ruled that the circumstances at the time the parties entered
into the Deed showed that the consideration was not altogether unconscionable as to
warrant voiding the Contract.25

Hence, this Petition.26

The Issues

In his Memorandum,27 petitioner raises two issues for our consideration:

I.

"Whether there was a perfected and consummated deed of exchange on account of the
following:

a) There was no specific identification and delineation of the object of the

Deed of Exchange and that there was a condition precedent for petitioner
to examine and accept the specific area to effect the exchange;

b) There was a need for another contract to be executed in order to

identify the object of the exchange;

c) There was no acceptance and actual delivery of the 500 square meters
lot to petitioner at any given time;
 II.

Whether the Deed of Exchange which was not signed by the wife of Respondent
Honorio G. Villaranda is valid and enforceable."28

The Court’s Ruling

The Petition has no merit.

First Issue:

Perfection and Consummation of the Deed of Exchange

Petitioner argues that the Contract was not perfected or consummated because, at the
time of its execution, its object was not determinate or at least not determinable without
need for a new agreement between the parties, as mandated by the provisions of the
law on sales.29 He argues that, first, he has to make an ocular inspection of the area;
second, the particular 500-square-meter portion of the Macasandig lot that is the object
of the Deed still has to be particularly identified and delineated; third, the finally
determined portion is still subject to the acceptance and agreement of the parties; and
lastly, absent a delineation of the specified portion, no delivery -- which is essential to
the perfection of the contract -- is possible.30 He further contends that, at best, he
merely gave a qualified acceptance amounting to a counter-offer, which was contingent
upon the final delineation and acceptance of the 500-square-meter portion.31

Respondent spouses, on the other hand, argue that petitioner should not be allowed to
adopt a new theory of the case by impugning the validity of the Deed based on a
different ground that was not alleged in the pleadings or raised before the lower and the
appellate courts.32

In any event, respondent spouses contend that the Deed contains all the essential
elements of a contract --consent, object and consideration.33 They insist that what
needs to be executed is not another contract to give effect to their original agreements,
but one in the nature of a partition agreement.34 They aver that the Deed is akin to a
contract of co-ownership, because it involves the conveyance of an undivided interest
over land. Further agreement between the parties is necessary only to effect partition of
the properties and thus terminate the existing co-ownership.35

Respondent Colorhouse raises the same issues as those brought up by respondent

spouses. It adds that when petitioner asked that the agreement be revoked, he was
estopped from claiming its non-perfection, because revocation presupposes the
existence of a valid contract.36

Petitioner’s contentions must fail. It is well-settled that points of law, theories, issues and
arguments not brought to the attention of the lower court need not be -- and ordinarily
will not be -- considered by a reviewing court, as they cannot be raised for the first time
at that late stage.37 Basic rules of fair play, justice and due process impel this rule. Any
issue raised for the first time on appeal is barred by estoppel.38

There are, however, exceptions to the general rule.39 Though not raised below, the
following issues may be considered by the reviewing court: lack of jurisdiction over the
subject matter, as this issue may be raised at any stage; plain error;40 jurisprudential
developments affecting the issues; or the raising of a matter of public policy. 41

Too late in the day is petitioner’s argument that the Deed of Exchange is null and void
on the ground that the object of the contract is not determinate or at least determinable.
Considering that this issue does not fall under any of the enumerated exceptions, there
is no cogent reason for the Court to pass upon it.

Second Issue:

Absence of Spouse’s Signature

Petitioner also contends that the Deed of Exchange is null and void because the
signature of Honorio’s wife, Ana, does not appear on the instrument. 42 To support his
argument, he cites the Family Code; as well as Garcia v. Court of Appeals 43 and Nicolas
v. Court of Appeals,44 in which the Court declared the Deeds of Sale void because of
the absence of the wives’ conformity to the disposition of the conjugal properties
involved therein.

Respondents, on the other hand, argue that the absence of the signature of Ana on the
Deed does not prove lack of her consent thereto, because a contract may validly exist
even if the parties have not reduced their stipulations to writing.45 Too, assuming that
her consent to the Deed is lacking, such fact would not render the agreement void, but
merely voidable.46

Indeed, petitioner’s contention is untenable. The Deed was entered into on July 6, 1976,
while the Family Code took effect only on August 3, 1998. Laws should be applied
prospectively only, unless a legislative intent to give them retroactive effect is expressly
declared or is necessarily implied from the language used.47 Hence, the provisions of
the Civil Code, not the Family Code,48 are applicable to the present case. The
Macasandig lot was part of Honorio and Ana’s conjugal properties. The relevant
provisions of the Civil Code on the disposition of real properties of the conjugal
partnership are the following:

"Article 166. Unless the wife has been declared a non compos mentis or a spendthrift,
or is under civil interdiction or is confined in a leprosarium, the husband cannot alienate
or encumber any real property of the conjugal partnership without the wife’s consent. x x
x

"Article 173. The wife may, during the marriage, and within ten years from the
transaction questioned, ask the courts for the annulment of any contract of the husband
entered into without her consent, when such consent is required, or any act or contract
of the husband which tends to defraud her or impair her interest in the conjugal
partnership property. Should the wife fail to exercise this right, she or her heirs, after the
dissolution of the marriage, may demand the value of the property fraudulently alienated
by the husband."

According to Article 166, the husband cannot alienate or encumber any real property of
the conjugal partnership without the wife’s consent. This provision, however, must be
read in conjunction with Article 173 of the same Code. The latter states that an action to
annul an alienation or encumbrance may be instituted by the wife during the marriage
and within ten years from the transaction questioned. Videlicet, the lack of consent on
her part will not make the husband’s alienation or encumbrance of real property of the
conjugal partnership void, but merely voidable.49 Hence, the Deed is valid until and
unless annulled.

In this case, the records show no evidence that any action to annul the transfer made by
Honorio was ever brought by Ana within ten years from "the transaction questioned."
Her right to bring an action to invalidate the contract has thus prescribed. Hence, the
assailed Deed is still valid and enforceable.

Moreover, in Papa v. Montenegro,50 the Court explained that the legal prohibition
against the disposition of conjugal property by one spouse without consent of the other
has been established for the benefit, not of third persons, but only of the other spouse
for whom the law desires to save the conjugal partnership from damages that might be
caused. Not being the proper party, Vicente cannot avail himself of the remedy
prescribed by Article 173.

Furthermore, his reliance on Garcia v. Court of Appeals and Nicolas v. Court of Appeals
is misplaced. Unlike the present case, the cited cases involve a Petition brought by one
of the spouses for the annulment of the contracts entered into by the other spouse.
Additionally, we must point out that contrary to petitioner’s contention, the contracts
involved therein were not void ab initio, but merely voidable.

WHEREFORE, the Petition is DENIED and the challenged Decision AFFIRMED. Costs
against petitioner.

SO ORDERED.

Davide, Jr., C.J., (Chairman), Ynares-Santiago, Carpio, and Azcuna, JJ., concur.

CORNELIA MATABUENA vs. PETRONILA CERVANTES

L-2877 (38 SCRA 284)

March 31, 1971

FACTS:
 In 1956, herein appellant’s brother Felix Matabuena donated a piece of lot to
his common-law spouse, herein appellee Petronila Cervantes. Felix and Petronila got
married only in 1962 or six years after the deed of donation was executed. Five months
later, or September 13, 1962, Felix died. Thereafter, appellant Cornelia Matabuena, by
reason of being the only sister and nearest collateral relative of the deceased, filed a
claim over the property, by virtue of a an affidavit of self-adjudication executed by her in
1962, had the land declared in her name and paid the estate and inheritance taxes
thereon. The lower court of Sorsogon declared that the donation was valid inasmuch as
it was made at the time when Felix and Petronila were not yet spouses, rendering Article
133 of the Civil Code inapplicable.

ISSUE: Whether or not the ban on donation between spouses during a marriage applies
to a common-law relationship.

HELD:

While Article 133 of the Civil Code considers as void a donation between the
spouses during marriage, policy consideration of the most exigent character as well as
the dictates of morality requires that the same prohibition should apply to a common-law
relationship.

As stated in Buenaventura vs. Bautista (50 OG 3679, 1954), if the policy of the
law is to prohibit donations in favor of the other consort and his descendants because of
fear of undue and improper pressure and influence upon the donor, then there is every
reason to apply the same prohibitive policy to persons living together as husband and
wife without the benefit of nuptials.

The lack of validity of the donation by the deceased to appellee does not
necessarily result in appellant having exclusive right to the disputed property. As a
widow, Cervantes is entitled to one-half of the inheritance, and the surviving sister to the
other half.

Article 1001, Civil Code: Should brothers and sisters or their children survive
with the widow or widower, the latter shall be entitled to one-half of the inheritance and
the brothers and sisters or their children to the other half.

Calimlim-Canullas v. Fortun

Facts:
Petitioner Mercedes Calimlim-Canullas and Fernando Canullas were married in 1962,
with 5 children, and were living on a house situated on a land inherited by the latter. In
1978, Fernando abandoned his family and lived with Corazon Daguines. In 1980,
Fernando sold the house and lot to Daguines, who initiated a complaint for quieting of
title. Mercedes resisted, claiming that the house and lot were conjugal properties, and the
sale was null nad void for she had not consented thereto.

Issues:

(1) Whether or not the construction of a conjugal house on the exclusive property of the
husband ipso facto gave the land the character of conjugal property

(2) Whether or not the sale of the lot together with the house and improvements thereon
was valid under the circumstances surrounding the transaction

Held:

(1) Both the land and the building belong to the conjugal partnership but the conjugal
partnership is indebted to the husband for the value of the land. The spouse owning the
lot becomes a creditor of the conjugal partnership for the value of the lot, which value
would be reimbursed at the liquidation of the conjugal partnership. FERNANDO could not
have alienated the house and lot to DAGUINES since MERCEDES had not given her
consent to said sale.

(2) The contract of sale was null and void for being contrary to morals and public policy.
The sale was made by a husband in favor of a concubine after he had abandoned his
family and left the conjugal home where his wife and children lived and from whence they
derived their support. That sale was subversive of the stability of the family, a basic social
institution which public policy cherishes and protects. The law emphatically prohibits the
spouses from selling property to each other subject to certain exceptions. Similarly,
donations between spouses during marriage are prohibited. And this is so because if
transfers or con conveyances between spouses were allowed during marriage, that would
destroy the system of conjugal partnership, a basic policy in civil law. It was also designed
to prevent the exercise of undue influence by one spouse over the other, as well as to
protect the institution of marriage, which is the cornerstone of family law. The prohibitions
apply to a couple living as husband and wife without benefit of marriage, otherwise, "the
condition of those who incurred guilt would turn out to be better than those in legal union."
Those provisions are dictated by public interest and their criterion must be imposed upon
the wig of the parties.

GLORIA R. CRUZ, petitioner, vs. COURT OF APPEALS, ROMY V.

SUZARA and MANUEL R. VIZCONDE, respondents.
Eliseo M. Cruz for petitioner.
Jose A. Parungo for Romy V. Suzara.
Cabeza & Associates Law Office, co-counsel for petitioner.

SYNOPSIS

Petitioner, out of love and affection for private respondent Suzara, executed a deed of
absolute sale over her Lot in favor of the latter without any monetary consideration.
Suzara registered the document in his favor and used the property as collateral for a
bank loan. For failure to pay the loan the mortgage was foreclosed. Gloria paid the bank
to restructure the loan and extend the period for redemption. However, without her
knowledge, before the expiration of the extended period, Suzara redeemed the
property. To protect her interest, she executed an Affidavit of Adverse Claim, but not
before Suzara sold the property to Vizconde. Petitioner filed a complaint against Suzara
for quieting of title, declaration of nullity of documents and damages with prayer for writ
of preliminary injunction. Later she filed an ex-parte motion to admit her amended
complaint impleading respondent Vizconde as additional defendant. Vizconde answered
the amended complaint alleging that he (Vizconde) was a purchaser for value in good
faith, the sale between him and Suzara was executed long before the execution of the
affidavit of Adverse claim. The trial court found that Vizconde was an innocent
purchaser for value because at the time he purchased the property he was unaware of
the adverse claim of petitioner. On appeal the Court of Appeals affirmed the judgment of
the Court a quo. STHAaD
Although under Art. 1490 the husband and wife cannot sell property to one another as a
rule which, for policy consideration and the dictates of morality require that the
prohibition apply to common-law relationships, petitioner can no longer seek
reconveyance of the property to her as it has already been acquired by respondent
Vizconde in good faith and for value from her own transferee.

SYLLABUS

CIVIL LAW; LAND TITLES; TORRENS SYSTEM OF REGISTRATION; PURPOSE;

RIGHT OF PURCHASER FOR VALUE IN GOOD FAITH. — The real purpose of the
Torrens system of registration is to quiet title to land and to put a stop to any question of
legality of the title except claims which have been recorded in the certificate of title at
the time of registration or which may arise subsequent thereto. Every registered owner
and every subsequent purchaser for value in good faith holds the title to the property
free from all encumbrances except those noted in the certificate. Hence, a purchaser is
not required to explore further what the Torrens title on its face indicates in quest for any
hidden defect or inchoate right that may subsequently defeat his right thereto. Where
innocent third persons, relying on the correctness of the certificate of title thus issued,
acquire rights over the property the court cannot disregard such rights and order the
total cancellation of the certificate. The effect of such an outright cancellation would be
to impair public confidence in the certificate of title, for everyone dealing with property
registered under the Torrens system would have to inquire in every instance whether
the title has been regularly or irregularly issued. 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 therefor and the law will in no way oblige him to go
behind the certificate to determine the condition of the property. Even if a decree in a
registration proceeding is infected with nullity, still an innocent purchaser for value
relying on a Torrens title issued in pursuance thereof is protected. A purchaser in good
faith is one who buys the property to 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 of another person. A contract
of sale is consensual and is perfected once agreement is reached between the parties
on the subject matter and the consideration therefor. CcADHI
||| (Cruz v. Court of Appeals, G.R. No. 120122, [November 6, 1997], 346 PHIL 506-513)

SECOND DIVISION

[G.R. No. 10439. October 17, 1916.]

GAN TINGCO, plaintiff-appellee, vs. SILVINO PABINGUIT, defendant-

appellant.

Leopoldo Rovira for appellant.

No appearance for appellee.

SYLLABUS

1. EXECUTION; SALE; PURCHASE BY JUDGE. — Article 1459, No. 5, of the

Civil Code says: "Judges . . . cannot acquire by purchase, even at public or judicial
auction, neither in person nor by an agent, the property and rights in litigation before
the court in the jurisdiction or territory over which they exercise their respective duties
. . ." For the proper understanding of this prohibition, it is not required that some
contest or litigation over the property should have been tried by the said judge. Such
property is in litigation from the moment that it became subject to the judicial action of
the judge who afterwards purchased it, thereby depriving its lawful owner of his right
of ownership or of possession therein, in manifest violation of law.
2. CONTRACTS; LEGISLATION IN FORCE PRIOR TO CIVIL CODE. — The
Law of Bases, in accordance with which the Civil Code as drafted, maintained, i the
matter of contracts, as a basis (see Base No. 26) the legislation then in force and the
legal principles evolved therefrom by judicial decisions, etc., etc., Without
jurisprudence to the contrary, the legislation then in force, which was the Novisima
Recopilacion (la 4, title 14, book 5) and article 400 of the Penal Code, must govern.
 DECISION

ARELLANO, C.J p:

It is not disputed in these proceedings that Candida Acabo was the owner of
six parcels of land, all situated in the municipality of Jimalalud, Oriental Negros, of
the following dimensions: The first, 8 hectares; the second, 40 ares; the third and
fourth, each 20 ares; the fifth, 40 ares; and the sixth parcel, 20 ares.
According to the notarial instrument, Exhibit A, admitted in evidence without
objection, these lands were sold on June 12, 1911, by their owner Candida Acabo,
to one Gan Tingco, for P500.
But the purchaser Gan Tingco was unable to take possession of the six
parcels of land sold him by Acabo, for they were in the possession of
Silvino Pabinguit, who alleges certain rights therein. He claims to have purchased
them for P375 from Faustino Abad; that Abad had become their owner through
purchase from Henry Gardner; that the latter, in turn, had owned them by reason of
having purchased them for P555 at a public auction held in the barrio of Martelo,
municipality of Tayasan, on March 20, 1907. An effort was made to prove these
facts by document, dated April 29, 1907, which purports to show that on this date
Henry Gardner sold to Faustino Abad seven parcels of land for P275. Exhibit 2 is a
notarial instrument which sets forth that Faustino Abad, on June 19, 1907, for the
sum of P375 sold to Silvino Pabinguit six parcels of land, the area, situation and
bounds of which are described in the document. Exhibit 3 is a copy which the deputy
sheriff said he kept of the proceedings had by virtue of a writ of execution issued by
the justice of the peace of Guijulngan, in which the latter directed him to make a
demand upon Candida Acabo to comply with the judgment rendered against her as
a result of the complaint, filed by Silvestre Basaltos, and further ordering him, in
case of her failure to comply therewith, to levy upon "fixtures and other chattels and
to collect the amounts ordered, that is, P157.50, plus P300 for losses and damages,
the proper costs and those of this execution." The date of the writ appears to be (for
it has been corrected in an illegible manner) that of January 2, 1907, and the first
execution proceedings bear the date of March 14, 1907. In the return the deputy
sheriff begins by saying that he made demand upon Candida Acabo and that the
latter stated that she had neither corn nor money; that he levied upon three plow
carabaos, one brood carabao and the six parcels of land in question, for their identity
was expressly admitted; that their sale was announced for the 20th of March, 1907
(but the return does not show the signature of the woman upon whom the demand
was made, nor does it disclose any evidence whatever to show that the owner of this
property had any knowledge of this attachment or levy); that on March 20, 1907, he
proceeded to sell at public auction all the property levied upon; that the justice of the
peace who ordered the execution, Henry Gardner, himself appeared as the highest
bidder and offered P280 for the four carabaos and P275 for all the coconut groves,
that is, the six parcels of land measuring nine hectares and a fraction in area,
containing bearing fruit trees, or a total sum of P555, which the said successful
bidder then and there paid over; and, finally, that the same justice of the peace,
Gardner, the higher bidder, himself received the sum of P157.50, the remainder of
the proceeds from the execution sale after deduction of the costs, as the person
authorized so to do by the plaintiff Silvestre Basaltos; and that Gardner alone, not
Basaltos nor the judgment debtor Candida Acabo, signed the record of the
proceedings. Afterwards the deputy sheriff certified that he costs of the execution
amounted to P52.50, and that there was a surplus of P45 to Candida Acabo's credit,
which was to be delivered to her after settlement of the matter of the certificates of
ownership and the arrangement of the transfer of the carabaos. These proceedings
were signed only by the deputy sheriff and recite that "by authorization of Candida
Acabo I have delivered the sum of P29 as the true balance in favor of the said
Candida Acabo, of the P45 mentioned in the preceding statement, from which latter
sum there has been deducted the amount of P16 which was paid to the treasurer of
this municipality on the following accounts: Fine, P8; certificate of ownership, P4;
and certificate of transfer, P4." In that manner was the record closed and it was not
signed by any other person than the deputy sheriff, Alejandro Sanchez.
The justice of the peace, Gardner, and the deputy sheriff, Sanchez, were
summoned to appear in the trial court on March 18, 1914. Sanchez did not put in an
appearance. and on being required by telegraph to explain the reason and show
why he should not be punished for contempt of court, he wired back, saying: "From
12th to 18th instant was making investigations attempted rape and theft. Will arrive
there Monday, 23d. Will have enough time to finish investigation," and on the day for
the hearing he presented the document Exhibit 3, referred to in the preceding
paragraph.
Henry Gardner, in testifying for the defense, stated that the deputy sheriff had
executed in Gardner's favor a certificate of his purchase at auction sale, but witness
did not know where the document was and did not need it because he, in turn, has
sold everything he had purchased at that sale; that he was formerly justice of he
peace of the municipality of Guijulngan, of Tayasan, and knew of a complaint by
Silvestre Basaltos against Candida Acabo; that afterwards when the auction was
held, he took part therein, but that as he subsequently learned that he was forbidden
to do so, he sold what he had purchased to Faustino Abad, Candida Acabo's son,
who was but a boy at the time; that a record of the matter; that he had it in the justice
of the peace court and left it there when he ceased to hold office, in 1909.
Faustino Abad testified that Henry Gardner did actually sell to him for P275
the coconut groves which Gardner had purchased at auction; that it was true that on
April 29, 1907, witness was only 19 years old; that he knew that the coconut groves
were those that had belonged to his mother Candida Acabo; and that he, in turn,
sold the said coconut groves to Silvino Pabinguit for P375, on June 19 of the same
year. Both Gardner's deed of sale to Abad and the latter's to Pabinguit were certified
by the same deputy sheriff Alejandro Sanchez as notary public of the municipality of
Tayasan.
This same Alejandro Sanchez, being then the justice of the peace of
Tayasan, testified as a witness for the defense. He began by recognizing the
aforesaid deeds as having been certified by him in his capacity of notary public of
Tayasan, and afterwards stated that he had something to do with a writ of execution
issued by the justice of the peace of Guijulngan, Henry Gardner, upon certain real
estate belonging to Candida Acabo (it does not so appear in the writ, wherein only
fixtures and other chattels are referred to) that, in consideration of the P555 which
Gardner paid at the time of the auction, witness, without any reservation whatsoever,
delivered to Gardner the carabaos and lands knocked down to him at the sale; and
that after he had received from Gardner the purchaser price he returned it to him,
just as he would have delivered it to the plaintiff Silvestre Basaltos, of whom Gardner
claimed to be the representative duly authorized as such by this plaintiff.
Candida Acabo testified that Alejandro Sanchez, while sheriff of Tayasan, did
not take possession of her lands by reason for the levy; that the only property which
he levied upon was four carabaos, and she did not know whether they had been
sold at auction; and that Sanchez had not told her that her lands been levied upon,
or that they had been sold at auction.
Silvino Pabinguit testified that in the month of February he was in Guijulngan
searching for the record of the auction sale of Candida Acabo's property; that four
persons made the search; and . . . the record was not found. This last statement was
made by Alejandro Sanchez.
The Court of First Instance of Oriental Negros rendered judgment in behalf of
the plaintiff, Gan Tingco, declaring him the owner of the lands described in the
complaint, and ordered the defendant, Silvino Pabinguit, to restore the plaintiff to
their possession. No express finding was made as to the costs.
The defendant appealed, with right to a review of the evidence. The appeal
was heard by this court, it having been brought before it by bill of exceptions.
The appellant alleges that the trial court erred in holding that, notwithstanding
the sale of the lands in question at public auction, Candida Acabo did not cease to
be the owner of these properties, because there were certain irregularities and
defects in the said auction.
In the judgment appealed from several of these defects are specified and it is
unnecessary to treat of them in detail. With respect to the legality of the proceedings
had up to the time of the sale of the lands, there is certainly room for doubt. No
evidence is found that Silvestre Basaltos filed any complaint against Candida Acabo
before the justice of the peace court of Guijulngan and that any judgment was
rendered on January 2, 1907, enabling the plaintiff to recover from the defendant
150 cavanes of corn, or in default thereof the sum of P157.50, and in addition P300
for losses and damages and court costs. Only the writ of execution appears in the
record. The original copy of the return to the writ of execution was not presented,
because it was not found; there was offered in evidence only what the sheriff said
was a copy of the return, and he delayed as long in presenting it as he did in
obeying the summons of the court to appear as a witness. No copy of that judgment
was delivered to the judgment debtor, and it does not appear that the provisions of
section 445 of the same Act were complied with, to wit, that if real estate be levied
upon and sold by virtue of the execution, the clerk must record the execution and the
officer's return thereon and certify the same under his hand, as true copies, in a
book to be called the "Execution Book." The justice of the peace, in his writ, certainly
did not order the levy upon or sale of real estate, but only fixtures and other chattels;
but the sheriff's return includes real estate levied upon and sold at public auction.
The purchaser at public auction, the same justice of the peace, could not exhibit the
instrument which he said the sheriff executed in his behalf, because, as he said, he
did not know where it was and that he did not need it. We are not sure that Candida
Acabo, a simple country woman, was not despoiled of her lands under the pretexts
of debt, judgment, and execution.
Leaving out of account that things which should have been proven at trial
were not prove, it is a positive fact that Henry Gardner, justice of the peace of
Guijulngan, was the purchaser at public auction of Candida Acabo's lands
and carabaos levied upon as a result of the judgment, and that he delivered the
price of the sale, P555, to the sheriff; but the latter returned this sum to the justice of
the peace, who said that he was authorized by Silvestre Basaltos, the supposed
creditor, to receive the same. At the finish the sheriff delivered nothing to the owner
Acabo, all the proceeds of the auction sale having been expended in one way or
another without the consent of the judgment debtor appearing of record.
Aside from everything else, the trial court was impressed by the circumstance
that in the public auction the purchaser was the justice of the peace himself. This, in
the judge's opinion, was unauthorized, because article 1459, No. 5, of the Civil
Code, prohibits judges from acquiring by purchase, even at public or judicial sale,
either in person or by an agent, any property or rights litigated in the court in the
jurisdiction or territory within which they exercise their respective duties; this
prohibition includes the taking of property by assignment.
The appellant alleges that the property purchased by justice of the peace
Gardner was not the subject of litigation in the justice court; that the action was to
recover a certain sum of money, and that he had ordered the property sold on
execution.
This raises, therefore, a question as to the true meaning of paragraph 5 of
article 1459 of the Civil Code.
The Ley de Bases, in accordance with which the Civil Code was enacted,
provides as follows, in Base No. 26:
"The forms, requirements and conditions of each particular
contract shall be determined and defined subject to the general list or
table of obligation and their effects, with the understanding that the
legislation in force and the legal principles evolved therefrom by judicial
decisions, etc., etc., shall serve as a basis."
One of the bodies of law which constitute the legislation now in force is
the Novisima Recopilacion. In Law 4, Title 14, Book 5 of the same is found the
following provision: "We order that in public auctions held by direction of our
alcaldes, neither the latter nor any other person whomsoever in their name shall bid
in anything sold at such public auctions." The word alcaldes means judges. The
caption of Title 14 is "Alcaldes or Provincial Judges," and the entire title deals with
the exercise of judicial jurisdiction. Prior to the enactment of the Civil Code, the
Penal Code was also in force. Article 400 of the latter prohibits, under penalty, any
 judge from taking part, either directly or indirectly, in any operation of exchange,
trade or profit with respect to things not the product of his own property, within the
territory over which he exercises jurisdiction. Judging from the legal precedents on
which the Civil Code is based, it would not seem too much to conclude that the said
article of the Civil Code dos not make any distinction between property in litigation.
In effect, it appears to be as delicate a matter for a judge to take part in the sale of
property that had been the subject of litigation in his court, as to intervene in the
auction of property which, though not directly litigated in his court, is nevertheless
levied upon and sold as the result of a writ of execution issued by him. What the law
intends to avoid is the improper interference with and interest of a judge in a thing
levied upon and sold by his order.
If under the law Gardner was prohibited from acquiring the ownership of
Acabo's lands, then he could not have transmitted to Faustino Abad the right of
ownership that he did not possess; nor could Abad, to whim this alleged ownership
had not been transmitted, have conveyed the ownership had not been transmitted,
have conveyed the same to Pabinguit. What Gardner should have done, in view of
the fact that the sale, as he finally acknowledged, was void, was to claim the price
that had been deposited in court, and the justice of the peace of Guijulngan should
have declared the auction void and have ordered a new sale to be held, besides
correcting the errors that had been committed in the proceedings. To the reasons
already stated, there is to be added the additional one, with respect to the sale made
by Faustino Abad to Silvino Pabinguit, that Abad was a minor at the time — a
circumstance that deprived him of capacity to sell (Civil Code, art. 1263). Abad had
no ownership to transmit to anyone and, besides, he had no personality to enable
him to contract by himself, on account of his lack of legal age.
Sanchez, the sheriff, the sole notary who certified all these deeds of
conveyance in order that Pabinguit might become owner of those coconut lands with
which his own lands adjoined, was in such a hurry that, as he testified at the trial, on
the very same day of the auction he had already executed in behalf of Henry
Gardner the final deed of sale of the said lands, without allowing time for their
possible redemption. Section 466 of Act No. 190 prescribes that if redemption has
not been requested, this deed is to be executed within the twelve months
subsequent to the sale.
This court finds no reason whatever why it should not affirm the judgment
appealed from. It is therefore hereby affirmed with the costs of this instance against
the appellant. So ordered.
Torres, Johnson, Trent, and Araullo, JJ., concur.
||| (Tingco v. Pabinguit, G.R. No. 10439, [October 17, 1916], 35 PHIL 81-89)

PAULINO VALENCIA vs. ATTY. ARSENIO FERCABANTINGFACTS:

In 1933, complainant Paulino Valencia and his wife allegedly bought a parcel of land, where they built
their house, from a certain Serapia Raymundo, an heir of Pedro Raymundo the original owner. However,
they failed to register the sale or secure a transfer certificate of title in their names. A conference was
held in the house of Atty. Eduardo Jovellanos to settle the land dispute between Serapia and the
Valenciaspouses. Serapia was willing to relinquish ownership if the Valencias could show documents
evidencing ownership. Paulino exhibited a deed of sale written in the Ilocano dialect. However, Serapia
claimed that the deed covered a different property. Serapia, assisted by Atty. Arsenio Fer. Cabanting,
filed a complaint against Paulino for the recovery of possession with damages. The Valencias engaged
the services of Atty.Dionisio Antiniw. Atty. Antiniw advised them to present a notarized deed of sale in
lieu of the private document written in Ilocano. For this purpose, Paulino gave Atty.Antiniw an amount
of P200.00 to pay the person who would falsify the signature of the alleged vendor. A" Compraventa
Definitiva" as a result thereof. The Court of First Instance of Pangasinan, rendered a decision in favor of
Serapia. Paulino filed a Petitionfor

Certiorari

with Preliminary Injunction before the CA. While the petition was pending, the TC issued an order of
execution stating that "the decision in this case has already become final and executory" .On March 20,
1973, Serapia sold 40 square meters of the litigated lot to Atty. Jovellanos and the remainingportion she
sold to her counsel, Atty. Arsenio Fer. Cabanting, on April 25, 1973. Paulino filed a disbarment
proceeding against Atty. Cabanting on the ground that said counsel allegedly violated Article1491 of the
New Civil Code as well as Article II of the Canons of Professional Ethics, prohibiting the purchase of
property under litigation by a counsel. The appellate court dismissed the petition of Paulino. Constancia
Valencia, daughter of Paulino, also filed a disbarment proceeding against Atty. Dionisio Antiniw for his
participation in the forgery and its subsequent introduction as evidence for his client; and also, against
Attys. Eduardo Jovellanos and Arsenio Cabanting for purchasing a litigated property allegedly in violation
of Article 1491 of the New Civil Code; and against the three lawyers, for allegedly rigging the case
against her parents.

ISSUES:

Whether or not Cabating purchased the subject property in violation of Art. 1491 of theNew Civil Code.

HELD:

Under Article 1491 of the New Civil Code: The following persons cannot acquire by purchase, even at a
public of judicial auction, either in person or through the mediation of another: (5) . . . this prohibition
includes the act of acquiring by assignment and shall apply to lawyers, with respect to the property and
rights which may be the object of any litigation in which they make take part by virtue of their
profession. Public policy prohibits the transactions in view of the fiduciary relationship involved. It is
intended to curtail any undue influence of the lawyer upon his client. Greed may get the better of the
sentiments of loyalty and disinterestedness. Any violation of this prohibition would constitute
malpractice and is a ground for suspension. Art. 1491, prohibiting the sale to the counsel concerned,
applies only while the litigation is pending. In the case at bar, while it is true that Atty. Arsenio Fer.
Cabanting purchased the lot after finality of judgment, there was still a pending certiorari proceeding. A
thing is said to be in litigation not only if there is some contest or litigation over it in court, but also from
the moment that it becomes subject to the judicial action of the judge. Logic indicates, in certiorari
proceedings, that the appellate court may either grant or dismiss the petition. Hence, it is not safe to
conclude, for purposes under Article 1491 that the litigation has terminated when the judgment of the
trial court become final while a certiorari connected therewith is still in progress. Thus, purchase of the
property by Atty. Cabanting in this case constitutes malpractice in violation of Art. 1491 and the Canons
of Professional Ethics. Clearly, this malpractice is a ground for suspension. The sale in favor of Atty.
Jovellanos does not constitute malpractice. There was no attorney-client relationship between Serapia
and Atty. Jovellanos, considering that the latter did not take part as her counsel. The transaction is not
covered by Art.1491 nor by the Canons adverted to.

Rubias v. Batiller
Facts:

Before the war with Japan, Francisco Militante filed an application for
registration of the parcel of land in question. After the war, the petition was
heard and denied. Pending appeal, Militante sold the land to petitioner, his son-
in-law. Plaintiff filed an action for forcible entry against respondent. Defendant
claims the complaint of the plaintiff does not state a cause of action, the truth
of the matter being that he and his predecessors-in-interest have always been
in actual, open and continuous possession since time immemorial under claim
of ownership of the portions of the lot in question.

Issue:

Whether or not the contract of sale between appellant and his father-in-law was
void because it was made when plaintiff was counsel of his father-in-law in a
land registration case involving the property in dispute

Held:

The stipulated facts and exhibits of record indisputably established plaintiff's

lack of cause of action and justified the outright dismissal of the complaint.
Plaintiff's claim of ownership to the land in question was predicated on the sale
thereof made by his father-in- law in his favor, at a time when Militante's
application for registration thereof had already been dismissed by the Iloilo
land registration court and was pending appeal in the Court of Appeals.

Article 1491 of our Civil Code (like Article 1459 of the Spanish Civil Code)
prohibits in its six paragraphs certain persons, by reason of the relation of trust
or their peculiar control over the property, from acquiring such property in their
trust or control either directly or indirectly and "even at a public or judicial
auction," as follows: (1) guardians; (2) agents; (3) administrators; (4) public
officers and employees; judicial officers and employees, prosecuting attorneys,
and lawyers; and (6) others especially disqualified by law.
Fundamental consideration of public policy render void and inexistent such
expressly prohibited purchase (e.g. by public officers and employees of
government property intrusted to them and by justices, judges, fiscals and
lawyers of property and rights in litigation and submitted to or handled by
them, under Article 1491, paragraphs (4) and (5) of our Civil Code) has been
adopted in a new article of our Civil Code, viz, Article 1409 declaring such
prohibited contracts as "inexistent and void from the beginning."
Indeed, the nullity of such prohibited contracts is definite and permanent and
cannot be cured by ratification. The public interest and public policy remain
paramount and do not permit of compromise or ratification. In his aspect, the
permanent disqualification of public and judicial officers and lawyers
grounded on public policy differs from the first three cases of guardians,
agents and administrators (Article 1491, Civil Code), as to whose transactions
it had been opined that they may be "ratified" by means of and in "the form of
a new contact, in which cases its validity shall be determined only by the
circumstances at the time the execution of such new contract. The causes of
nullity which have ceased to exist cannot impair the validity of the new
contract. Thus, the object which was illegal at the time of the first contract,
may have already become lawful at the time of the ratification or second
contract; or the service which was impossible may have become possible; or
the intention which could not be ascertained may have been clarified by the
parties. The ratification or second contract would then be valid from its
execution; however, it does not retroact to the date of the first contract."