INOCENCIA YU DINO and her HUSBAND doing business under the trade name "CANDY CLAIRE FASHION GARMENTS",

petitioners, vs. COURT OF APPEALS and ROMAN SIO, doing business under the name "UNIVERSAL TOY MASTER MANUFACTURING", respondents. PUNO, J.: Though people say, "better late than never", the law frowns upon those who assert their rights past the eleventh hour. For failing to timely institute their action, the petitioners are forever barred from claiming a sum of money from the respondent. This is a petition for review on certiorari to annul and set aside the amended decision of the respondent court dated January 24, 1994 reversing its April 30, 1993 decision and dismissing the plaintiff-petitioners' Complaint on the ground of prescription.The following undisputed facts gave rise to the case at bar: Petitioners spouses Dino, doing business under the trade name "Candy Claire Fashion Garment" are engaged in the business of manufacturing and selling shirts.1 Respondent Sio is part owner and general manager of a manufacturing corporation doing business under the trade name "Universal Toy Master Manufacturing."2 Petitioners and respondent Sio entered into a contract whereby the latter would manufacture for the petitioners 20,000 pieces of vinyl frogs and 20,000 pieces of vinyl mooseheads at P7.00 per piece in accordance with the sample approved by the petitioners. These frogs and mooseheads were to be attached to the shirts petitioners would manufacture and sell.3 Respondent Sio delivered in several installments the 40,000 pieces of frogs and mooseheads. The last delivery was made on September 28, 1988. Petitioner fully paid the agreed price.4 Subsequently, petitioners returned to respondent 29,772 pieces of frogs and mooseheads for failing to comply with the approved sample.5 The return was made on different dates: the initial one on December 12, 1988 consisting of 1,720 pieces,6 the second on January 11, 1989,7 and the last on January 17, 1989.8 Petitioners then demanded from the respondent a refund of the purchase price of the returned goods in the amount of P208,404.00. As respondent Sio refused to pay,9 petitioners filed on July 24, 1989 an action for collection of a sum of money in the Regional Trial Court of Manila, Branch 38. The trial court ruled in favor of the petitioners, viz: "WHEREFORE, judgment is hereby rendered in favor of the plaintiffs Vicente and Inocencia Dino and against defendant Toy Master Manufacturing, Inc. ordering the latter to pay the former: 1. The amount of Two Hundred Eight Thousand Four Hundred Four (P208,404.00) Pesos with legal interest thereon from July 5, 1989, until fully paid; and 2. The amount of Twenty Thousand (P20,000.00) Pesos as attorney's fees and the costs of this suit. The counterclaim on the other hand is hereby dismissed for lack of merit."10 Respondent Sio sought recourse in the Court of Appeals. In its April 30, 1993 decision, the appellate court affirmed the trial court decision. Respondent then filed a Motion for Reconsideration and a Supplemental Motion for Reconsideration alleging therein that the petitioners' action for collection of sum of money based on a breach of warranty had already prescribed. On January 24, 1994, the respondent court reversed its decision and dismissed petitioners' Complaint for having been filed beyond the prescriptive period. The amended decision read in part, viz: "Even if there is failure to raise the affirmative defense of prescription in a motion to dismiss or in an appropriate pleading (answer, amended or supplemental answer) and an amendment would no longer be feasible, still prescription, if apparent on the face of the complaint may be favorably considered (Spouses Matias B. Aznar, III, et al. vs. Hon. Juanito A. Bernad,

etc., supra, G.R. 81190, May 9, 1988). The rule in Gicano vs. Gegato (supra) was reiterated in Severo v. Court of Appeals, (G.R. No. 84051, May 19, 1989). WHEREFORE the Motion For Reconsideration is granted. The judgment of this Court is set aside and judgment is hereby rendered REVERSING the judgment of the trial court and dismissing plaintiff's complaint."11 Hence, this petition with the following assignment of errors: I. The respondent Court of Appeals seriously erred in dismissing the complaint of the Petitioners on the ground that the action had prescribed. II. The respondent Court of Appeals seriously erred in holding that the defense of prescription would still be considered despite the fact that it was not raised in the answer, if apparent on the face of the complaint. We first determine the nature of the action filed in the trial court to resolve the issue of prescription. Petitioners claim that the Complaint they filed in the trial court on July 24, 1989 was one for the collection of a sum of money. Respondent contends that it was an action for breach of warranty as the sum of money petitioners sought to collect was actually a refund of the purchase price they paid for the alleged defective goods they bought from the respondent. We uphold the respondent's contention. The following provisions of the New Civil Code are apropos: "Art. 1467. A contract for the delivery at a certain price of an article which the vendor in the ordinary course of his business manufactures or procures for the general market, whether the same is on hand at the time or not, is a contract of sale, but if the goods are to be manufactured specially for the customer and upon his special order, and not for the general market, it is a contract for a piece of work." "Art. 1713. By the 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. The contractor may either employ only his labor or skill, or also furnish the material." As this Court ruled in Engineering & Machinery Corporation v. Court of Appeals, et al.,12 "a contract for a piece of work, labor and materials may be distinguished from a contract of sale by the inquiry as to whether the thing transferred is one not in existence and which would never have existed but for the order of the person desiring it. In such case, the contract is one for a piece of work, not a sale. On the other hand, if the thing subject of the contract would have existed and been the subject of a sale to some other person even if the order had not been given then the contract is one of sale."13 The contract between the petitioners and respondent stipulated that respondent would manufacture upon order of the petitioners 20,000 pieces of vinyl frogs and 20,000 pieces of vinyl mooseheads according to the samples specified and approved by the petitioners. Respondent Sio did not ordinarily manufacture these products, but only upon order of the petitioners and at the price agreed upon.14Clearly, the contract executed by and between the petitioners and the respondent was a contract for a piece of work. At any rate, whether the agreement between the parties was one of a contract of sale or a piece of work, the provisions on warranty of title against hidden defects in a contract of sale apply to the case at bar, viz: "Art. 1714. If the contractor agrees to produce the work from material furnished by him, he shall deliver the thing produced to the employer and transfer dominion over the thing. This contract shall be governed by the following articles as well as by the pertinent provisions on warranty of title and against hidden defects and the payment of price in a contract of sale." "Art. 1561. The vendor shall be responsible for warranty against the hidden defects which the thing sold may have, should they render it unfit for the use for which it is intended, or should they diminish its fitness for such use to such an extent that, had the vendee been aware thereof, he would not have acquired it or would have given a lower price for it; but said vendor shall not be answerable for patent defects or those which may be visible, or for those which

are not visible if the vendee is an expert who, by reason of his trade or profession, should have known them." Petitioners aver that they discovered the defects in respondent's products when customers in their (petitioners') shirt business came back to them complaining that the frog and moosehead figures attached to the shirts they bought were torn. Petitioners allege that they did not readily see these hidden defects upon their acceptance. A hidden defect is one which is unknown or could not have been known to the vendee.15 Petitioners then returned to the respondent 29,772 defective pieces of vinyl products and demanded a refund of their purchase price in the amount of P208,404.00. Having failed to collect this amount, they filed an action for collection of a sum of money. Article 1567 provides for the remedies available to the vendee in case of hidden defects, viz: "Art. 1567. In the cases of Articles 1561, 1562, 1564, 1565 and 1566, the vendee may elect between withdrawing from the contract and demanding a proportionate reduction of the price, with damages in either case." By returning the 29,772 pieces of vinyl products to respondent and asking for a return of their purchase price, petitioners were in effect "withdrawing from the contract" as provided in Art. 1567. The prescriptive period for this kind of action is provided in Art. 1571 of the New Civil Code, viz: "Art. 1571. Actions arising from the provisions of the preceding ten articles shall be barred after six monthsfrom the delivery of the thing sold." (Emphasis supplied) There is no dispute that respondent made the last delivery of the vinyl products to petitioners on September 28, 1988. It is also settled that the action to recover the purchase price of the goods petitioners returned to the respondent was filed on July 24, 1989,16 more than nine months from the date of last delivery. Petitioners having filed the action three months after the sixmonth period for filing actions for breach of warranty against hidden defects stated in Art. 1571,17 the appellate court dismissed the action. Petitioners fault the ruling on the ground that it was too late in the day for respondent to raise the defense of prescription. The law then applicable to the case at bar, Rule 9, Sec. 2 of the Rules of Court, provides: "Defenses and objections not pleaded either in a motion to dismiss or in the answer are deemed waived; except the failure to state a cause of action . .." Thus, they claim that since the respondent failed to raise the defense of prescription in a motion to dismiss or in its answer, it is deemed waived and cannot be raised for the first time on appeal in a motion for reconsideration of the appellate court's decision. As a rule, the defense of prescription cannot be raised for the first time on appeal. Thus, we held in Ramos v. Osorio,18 viz: "It is settled law in this jurisdiction that the defense of prescription is waivable, and that if it was not raised as a defense in the trial court, it cannot be considered on appeal, the general rule being that the appellate court is not authorized to consider and resolve any question not properly raised in the lower court (Subido vs. Lacson, 55 O.G. 8281, 8285; Moran, Comments on the Rules of Court, Vol. I, p. 784, 1947 Edition)." However, this is not a hard and fast rule. In Gicano v. Gegato,19 we held: ". . .(T)rial courts have authority and discretion to dimiss an action on the ground of prescription when the parties' pleadings or other facts on record show it to be indeed time-barred; (Francisco v. Robles, Feb, 15, 1954; Sison v. McQuaid, 50 O.G. 97; Bambao v. Lednicky, Jan. 28, 1961; Cordova v. Cordova, Jan. 14, 1958; Convets, Inc. v. NDC, Feb. 28, 1958; 32 SCRA 529; Sinaon v. Sorongan, 136 SCRA 408); and it may do so on the basis of a motion to dismiss (Sec. 1,f, Rule 16, Rules of Court), or an answer which sets up such ground as an affirmative defense (Sec. 5, Rule 16), or even if the ground is alleged after judgment on the merits, as in a motion for reconsideration (Ferrer v. Ericta, 84 SCRA 705); or even if the defense has not been asserted at all, as where no statement thereof is found in the pleadings (Garcia v. Mathis, 100

SCRA 250; PNB v. Pacific Commission House, 27 SCRA 766; Chua Lamco v. Dioso, et al., 97 Phil. 821); or where a defendant has been declared in default (PNB v. Perez, 16 SCRA 270). What is essential only, to repeat, is that the facts demonstrating the lapse of the prescriptive period be otherwise sufficiently and satisfactorily apparent on the record; either in the averments of the plaintiff's complaint, or otherwise established by the evidence." (emphasis supplied) In Aldovino, et al. v. Alunan, et al.,20 the Court en banc reiterated the Garcia v. Mathis doctrine cited in the Gicano case that when the plaintiff's own complaint shows clearly that the action has prescribed, the action may be dismissed even if the defense of prescription was not invoked by the defendant. It is apparent in the records that respondent made the last delivery of vinyl products to the petitioners on September 28, 1988. Petitioners admit this in their Memorandum submitted to the trial court and reiterate it in their Petition for Review.21 It is also apparent in the Complaint that petitioners instituted their action on July 24, 1989. The issue for resolution is whether or not the respondent Court of Appeals could dismiss the petitioners' action if the defense of prescription was raised for the first time on appeal but is apparent in the records. Following the Gicano doctrine that allows dismissal of an action on the ground of prescription even after judgment on the merits, or even if the defense was not raised at all so long as the relevant dates are clear on the record, we rule that the action filed by the petitioners has prescribed. The dates of delivery and institution of the action are undisputed. There are no new issues of fact arising in connection with the question of prescription, thus carving out the case at bar as an exception from the general rule that prescription if not impleaded in the answer is deemed waived.22 Even if the defense of prescription was raised for the first time on appeal in respondent's Supplemental Motion for Reconsideration of the appellate court's decision, this does not militate against the due process right of the petitioners. On appeal, there was no new issue of fact that arose in connection with the question of prescription, thus it cannot be said that petitioners were not given the opportunity to present evidence in the trial court to meet a factual issue. Equally important, petitioners had the opportunity to oppose the defense of prescription in their Opposition to the Supplemental Motion for Reconsideration filed in the appellate court and in their Petition for Review in this Court. This Court's application of the Osorio and Gicano doctrines to the case at bar is confirmed and now enshrined in Rule 9, Sec. 1 of the 1997 Rules of Civil Procedure, viz: "Section 1. Defense and objections not pleaded. - Defenses and objections not pleaded whether in a motion to dismiss or in the answer are deemed waived. However, when it appears from the pleadings that the court has no jurisdiction over the subject matter, that there is another action pending between the same parties for the same cause, or that the action is barred by a prior judgment or by statute of limitations, the court shall dismiss the claim." (Emphasis supplied) WHEREFORE, the petition is DENIED and the impugned decision of the Court of Appeals dated January 24, 1994 is AFFIRMED. No costs ___________________________________________________ SOCIAL SECURITY SYSTEM, petitioner, vs. ATLANTIC GULF AND PACIFIC COMPANY OF MANILA, INC. and SEMIRARA COAL CORPORATION, respondents. 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 petitioners 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. Nio, 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, SEMIRARAs 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&Ps proposal to settle its and SEMIRARAs delinquencies through dacion en pago, which as of March 31, 2001 amounted to P29,261,902.45. Approval of AG&Ps proposal was communicated to it by Ms. Aurora E.L. Ortega, VicePresident, 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&Ps 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&Ps 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 defendants 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 SSSs 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 courts 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 courts 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 SSSs letter addressed to AG& P

dated 23 April 2001 approving AG&P and SEMIRARAS 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 thedacion 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 courts decision but the same was denied in a Resolution dated 19 December 2006. Now before the Court, SSS insists on the Social Security Commissions (the Commission) jurisdiction over the complaint pursuant to Section 5 (a) of Republic Act (R.A.) No. 8282. SSS maintains the Commissions 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 debtors 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. __________________________________________________ FILINVEST CREDIT CORPORATION, petitioner, vs. THE COURT OF APPEALS, JOSE SY BANG and ILUMINADA TAN SY BANG,*respondents . SARMIENTO, J.: This is a petition for review on certiorari of the decision, 1 dated March 17, 1988, of the Court of Appeals which affirmed with modification the decision 2 of the Regional Trial Court of Quezon, Branch LIX, Lucena City. The controversy stemmed from the following facts: The private respondents, the spouses Jose Sy Bang and Iluminada Tan, were engaged in the sale of gravel produced from crushed rocks and used for construction purposes. In order to increase their production, they engaged the services of Mr. Ruben Mercurio, the proprietor of Gemini Motor Sales in Lucena City, to look for a rock crusher which they could buy. Mr. Mercurio referred the private respondents to the Rizal Consolidated Corporation which then had for sale one such machinery described as: ONE UNIT LIPPMAN PORTABLE CRUSHING PLANT (RECONDITIONED) [sic] JAW CRUSHER-10xl6 DOUBLE ROLL CRUSHER 16x16 3 UNITS PRODUCT CONVEYOR 75 HP ELECTRIC MOTOR 8 PCS. BRAND NEW TIRES CHASSIS NO. 19696 GOOD RUNNING CONDITION 3 Oscar Sy Bang, a brother of private respondent Jose Sy Bang, went to inspect the machine at the Rizal Consolidated's plant site. Apparently satisfied with the machine, the private respondents signified their intent to purchase the same. They were however confronted with a problem-the rock crusher carried a cash price tag of P 550,000.00. Bent on acquiring the machinery, the private respondents applied for financial assistance from the petitioner, Filinvest Credit Corporation. The petitioner agreed to extend to the private respondents financial aid on the following conditions: that the machinery be purchased in the petitioner's name; that it be leased (with option to purchase upon the termination of the lease period) to the private respondents; and that the private respondents execute a real estate mortgage in favor of the

petitioner as security for the amount advanced by the latter. Accordingly, on May 18,1981, a contract of lease of machinery (with option to purchase) was entered into by the parties whereby the private respondents agreed to lease from the petitioner the rock crusher for two years starting from July 5, 1 981 payable as follows: P10,000.00 - first 3 months 23,000.00 - next 6 months 24,800.00 - next 15 months The contract likewise stipulated that at the end of the two-year period, the machine would be owned by the private respondents. Thus, the private respondents issued in favor of the petitioner a check for P150,550.00, as initial rental (or guaranty deposit), and twenty-four (24) postdated checks corresponding to the 24 monthly rentals. In addition, to guarantee their compliance with the lease contract, the private respondents executed a real estate mortgage over two parcels of land in favor of the petitioner. The rock crusher was delivered to the private respondents on June 9, 1981. Three months from the date of delivery, or on September 7, 1981, however, the private respondents, claiming that they had only tested the machine that month, sent a letter-complaint to the petitioner, alleging that contrary to the 20 to 40 tons per hour capacity of the machine as stated in the lease contract, the machine could only process 5 tons of rocks and stones per hour. They then demanded that the petitioner make good the stipulation in the lease contract. They followed that up with similar written complaints to the petitioner, but the latter did not, however, act on them. Subsequently, the private respondents stopped payment on the remaining checks they had issued to the petitioner. 5 As a consequence of the non-payment by the private respondents of the rentals on the rock crusher as they fell due despite the repeated written demands, the petitioner extrajudicially foreclosed the real estate mortgage. 6 On April 18, 1983, the private respondents received a Sheriff s Notice of Auction Sale informing them that their mortgaged properties were going to be sold at a public auction on May 25, 1983 at 10:00 o'clock in the morning at the Office of the Provincial Sheriff in Lucena City to satisfy their indebtedness to the petitioner. 7 To thwart the impending auction of their properties, the private respondents filed before the Regional Trial Court of Quezon, on May 4, 1983, 8 a complaint against the petitioner, for the rescission of the contract of lease, annullment of the real estate mortgage, and for injunction and damages, with prayer for the issuance of a writ of preliminary injunction. 9On May 23, 1983, three days before the scheduled auction sale, the trial court issued a temporary restraining order commanding the Provincial Sheriff of Quezon, and the petitioner, to refrain and desist from proceeding with the public auction. 10 Two years later, on September 4, 1985, the trial court rendered a decision in favor of the private respondents, the dispositive portion of which reads: WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered: 1. making the injunction permanent; 2. rescinding the contract of lease of the machinery and equipment and ordering the plaintiffs to return to the defendant corporation the machinery subject of the lease contract, and the defendant corporation to return to plaintiffs the sum of P470,950.00 it received from the latter as guaranty deposit and rentals with legal interest thereon until the amount is fully restituted; 3. annulling the real estate mortgage constituted over the properties of the plaintiffs covered by Transfer Certificate of Title Nos. T32480 and T-5779 of the Registry of Deeds of Lucena City; 4. ordering the defendant corporation to pay plaintiffs P30,000.00 as attorney's fees and the costs of the suit. SO ORDERED. 11 Dissatisfied with the trial court's decision, the petitioner elevated the case to the respondent Court of Appeals. On March 17, 1988, the appellate court, finding no error in the appealed judgment, affirmed the same in toto. 12Hence, this petition.

Before us, the petitioner reasserts that the private respondents' cause of action is not against it (the petitioner), but against either the Rizal Consolidated Corporation, the original owner-seller of the subject rock crusher, or Gemini Motors Sales which served as a conduit facilitator of the purchase of the said machine. The petitioner argues that it is a financing institution engaged in quasi-banking activities, primarily the lending of money to entrepreneurs such as the private respondents and the general public, but certainly not the leasing or selling of heavy machineries like the subject rock crusher. The petitioner denies being the seller of the rock crusher and only admits having financed its acquisition by the private respondents. Further, the petitioner absolves itself of any liability arising out of the lease contract it signed with the private respondents due to the waiver of warranty made by the latter. The petitioner likewise maintains that the private respondents being presumed to be knowledgeable about machineries, should be held responsible for the detection of defects in the machine they had acquired, and on account of that, they are estopped from claiming any breach of warranty. Finally, the petitioner interposed the defense of prescription, invoking Article 1571 of the Civil Code, which provides: Art. 1571. Actions arising from the provisions of the preceding ten articles shall be barred after six months, from the delivery of the thing sold. We find the petitioner's first contention untenable. While it is accepted that the petitioner is a financing institution, it is not, however, immune from any recourse by the private respondents. Notwithstanding the testimony of private respondent Jose Sy Bang that he did not purchase the rock crusher from the petitioner, the fact that the rock crusher was purchased from Rizal Consolidated Corporation in the name and with the funds of the petitioner proves beyond doubt that the ownership thereof was effectively transferred to it. It is precisely this ownership which enabled the petitioner to enter into the "Contract of Lease of Machinery and Equipment" with the private respondents. Be that as it may, the real intention of the parties should prevail. The nomenclature of the agreement cannot change its true essence, i.e., a sale on installments. It is basic that a contract is what the law defines it and the parties intend it to be, not what it is called by the parties. 13 It is apparent here thatthe intent of the parties to the subject contract is for the so-called rentals to be the installment payments. Upon the completion of the payments, then the rock crusher, subject matter of the contract, would become the property of the private respondents. This form of agreement has been criticized as a lease only in name. Thus in Vda. de Jose v. Barrueco 14 we stated: Sellers desirous of making conditional sales of their goods, but who do not wish openly to make a bargain in that form, for one reason or another, have frequently resorted to the device of making contracts in the form of leases either with options to the buyer to purchase for a small consideration at the end of term, provided the so-called rent has been duly paid, or with stipulations that if the rent throughout the term is paid, title shall thereupon vest in the lessee. It is obvious that such transactions are leases only in name. The so-called rent must necessarily be regarded as payment of the price in installments since the due payment of the agreed amount results, by the terms of bargain, in the transfer of title to the lessee. 15 The importance of the criticism is heightened in the light of Article 1484 of the new Civil Code which provides for the remedies of an unpaid seller of movables on installment basis. Article 1484. In a contract of sale of personal property the price of which is payable in installments, the vendor may exercise any of the following remedies: (1) Exact fulfillment of the obligation, should the vendee fail to pay; (2) Cancel the sale, should the vendee's failure to pay cover two or more installments; (3) Foreclose the chattel mortgage or the thing sold, if one has been constituted, should the vendee's failure to pay cover two or more installments. In this case, he shall have no further action against the purchaser to recover any unpaid balance of the price. Any agreement to the contrary shall be void.

Under the aforequoted provision, the seller of movables in installments, in case the buyer fails to pay two or more installments may elect to pursue either of the following remedies: (1) exact fulfillment by the purchaser of the obligation; (2) cancel the sale; or (3) foreclose the mortgage on the purchased property if one was constituted thereon. It is now settled that the said remedies are alternative and not cumulative and therefore, the exercise of one bars the exercise of the others. Indubitably, the device contract of lease with option to buy is at times resorted to as a means to circumvent Article 1484, particularly paragraph (3) thereof.Through the set-up, the vendor, by retaining ownership over the property in the guise of being the lessor, retains, likewise, the right to repossess the same, without going through the process of foreclosure, in the event the vendee-lessee defaults in the payment of the installments. There arises therefore no need to constitute a chattel mortgage over the movable sold. More important, the vendor, after repossessing the property and, in effect, canceling the contract of sale, gets to keep all the installments-cum-rentals already paid. It is thus for these reasons that Article 1485 of the new Civil Code provides that: Article 1485. The preceding article shall be applied to contracts purporting to be leases of personal property with option to buy, when the lessor has deprived the lessee of possession or enjoyment of the thing. (Emphasis ours.) Unfortunately, even with the foregoing findings, we however fail to find any reason to hold the petitioner liable for the rock crusher's failure to produce in accordance with its described capacity. According to the petitioner, it was the private respondents who chose, inspected, and tested the subject machinery. It was only after they had inspected and tested the machine, and found it to their satisfaction, that the private respondents sought financial aid from the petitioner. These allegations of the petitioner had never been rebutted by the private respondents. In fact, they were even admitted by the private respondents in the contract they signed. Thus: LESSEE'S SELECTION, INSPECTION AND VERIFICATION.-The LESSEE hereby confirms and acknowledges that he has independently inspected and verified the leased property and has selected and received the same from the Dealer of his own choosing in good order and excellent running and operating condition and on the basis of such verification, etc. the LESSEE has agreed to enter into this Contract." 16 Moreover, considering that between the parties, it is the private respondents, by reason of their business, who are presumed to be more knowledgeable, if not experts, on the machinery subject of the contract, they should not therefore be heard now to complain of any alleged deficiency of the said machinery. It is their failure or neglect to exercise the caution and prudence of an expert, or, at least, of a prudent man, in the selection, testing, and inspection of the rock crusher that gave rise to their difficulty and to this conflict. A well- established principle in law is that between two parties, he, who by his negligence caused the loss, shall bear the same. At any rate, even if the private respondents could not be adjudged as negligent, they still are precluded from imputing any liability on the petitioner. One of the stipulations in the contract they entered into with the petitioner is an express waiver of warranties in favor of the latter. By so signing the agreement, the private respondents absolved the petitioner from any liability arising from any defect or deficiency of the machinery they bought. The stipulation on the machine's production capacity being "typewritten" and that of the waiver being "printed" does not militate against the latter's effectivity. As such, whether "a capacity of 20 to 40 tons per hour" is a condition or a description is of no moment. What stands is that the private respondents had expressly exempted the petitioner from any warranty whatsoever. Their Contract of Lease Of Machinery And Equipment states: WARRANTY-LESSEE absolutely releases the lessor from any liability whatsoever as to any and all matters in relation to warranty in accordance with the provisions hereinafter stipulated. 17

Taking into account that due to the nature of its business and its mode of providing financial assistance to clients, the petitioner deals in goods over which it has no sufficient know-how or expertise, and the selection of a particular item is left to the client concerned, the latter, therefore, shoulders the responsibility of protecting himself against product defects. This is where the waiver of warranties is of paramount importance. Common sense dictates that a buyer inspects a product before purchasing it (under the principle of caveat emptor or "buyer beware") and does not return it for defects discovered later on, particularly if the return of the product is not covered by or stipulated in a contract or warranty. In the case at bar, to declare the waiver as non-effective, as the lower courts did, would impair the obligation of contracts. Certainly, the waiver in question could not be considered a mere surplusage in the contract between the parties. Moreover, nowhere is it shown in the records of the case that the private respondent has argued for its nullity or illegality. In any event, we find no ambiguity in the language of the waiver or the release of warranty. There is therefore no room for any interpretation as to its effect or applicability vis-a- vis the deficient output of the rock crusher. Suffice it to say that the private respondents have validly excused the petitioner from any warranty on the rock crusher. Hence, they should bear the loss for any defect found therein. WHEREFORE, the Petition is GRANTED; the Decision of the Court of Appeals dated March 17, 1988 is hereby REVERSED AND SET ASIDE, and another one rendered DISMISSING the complaint. Costs against the private respondents. ______________________________ G.R. No. L-69259 January 26, 1988 DELPHER TRADES CORPORATION, and DELPHIN PACHECO, petitioners, vs. INTERMEDIATE APPELLATE COURT and HYDRO PIPES PHILIPPINES, INC., respondents. GUTIERREZ, JR., J.: The petitioners question the decision of the Intermediate Appellate Court which sustained the private respondent's contention that the deed of exchange whereby Delfin Pacheco and Pelagia Pacheco conveyed a parcel of land to Delpher Trades Corporation in exchange for 2,500 shares of stock was actually a deed of sale which violated a right of first refusal under a lease contract. Briefly, the facts of the case are summarized as follows: In 1974, Delfin Pacheco and his sister, Pelagia Pacheco, were the owners of 27,169 square meters of real estate Identified as Lot. No. 1095, Malinta Estate, in the Municipality of Polo (now Valenzuela), Province of Bulacan (now Metro Manila) which is covered by Transfer Certificate of Title No. T-4240 of the Bulacan land registry. On April 3, 1974, the said co-owners leased to Construction Components International Inc. the same property and providing that during the existence or after the term of this lease the lessor should he decide to sell the property leased shall first offer the same to the lessee and the letter has the priority to buy under similar conditions (Exhibits A to A-5) On August 3, 1974, lessee 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 lessors Delfin Pacheco and Pelagia Pacheco (Exhs. B to B-6 inclusive) The contract of lease, as well as the assignment of lease were annotated at he back of the title, as per stipulation of the parties (Exhs. A to D-3 inclusive) On January 3, 1976, a deed of exchange was executed between lessors Delfin and Pelagia Pacheco and defendant Delpher Trades Corporation whereby the former conveyed to the latter the leased property (TCT No.T-4240) together with another parcel of land also located in Malinta Estate, Valenzuela, Metro Manila (TCT No. 4273) for 2,500 shares of stock of defendant

corporation with a total value of P1,500,000.00 (Exhs. C to C-5, inclusive) (pp. 44-45, Rollo) 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 Lot. No. 1095 in its favor under conditions similar to those whereby Delpher Trades Corporation acquired the property from Pelagia Pacheco and Delphin Pacheco. After trial, the Court of First Instance of Bulacan ruled in favor of the plaintiff. The dispositive portion of the decision reads: ACCORDINGLY, the judgment is hereby rendered declaring the valid existence of the plaintiffs preferential right to acquire the subject property (right of first refusal) and ordering the defendants and all persons deriving rights therefrom to convey the said property to plaintiff who may offer to acquire the same at the rate of P14.00 per square meter, more or less, for Lot 1095 whose area is 27,169 square meters only. Without pronouncement as to attorney's fees and costs. (Appendix I; Rec., pp. 246- 247). (Appellant's Brief, pp. 1-2; p. 134, Rollo) The lower court's decision was affirmed on appeal by the Intermediate Appellate Court. The defendants-appellants, now the petitioners, filed a petition for certiorari to review the appellate court's decision. We initially denied the petition but upon motion for reconsideration, we set aside the resolution denying the petition and gave it due course. The petitioners allege that: The denial of the petition will work great injustice to the petitioners, in that: 1. Respondent Hydro Pipes Philippines, Inc, ("private respondent") will acquire from petitioners a parcel of industrial land consisting of 27,169 square meters or 2.7 hectares (located right after the Valenzuela, Bulacan exit of the toll expressway) for only P14/sq. meter, or a total of P380,366, although the prevailing value thereof is approximately P300/sq. meter or P8.1 Million; 2. Private respondent is allowed to exercise its right of first refusal even if there is no "sale" or transfer of actual ownership interests by petitioners to third parties; and 3. Assuming arguendo that there has been a transfer of actual ownership interests, private respondent will acquire the land not under "similar conditions" by which it was transferred to petitioner Delpher Trades Corporation, as provided in the same contractual provision invoked by private respondent. (pp. 251-252, Rollo) The resolution of the case hinges on whether or not the "Deed of Exchange" of the properties executed by the Pachecos on the one hand and the Delpher Trades Corporation on the other was meant to be a contract of sale which, in effect, prejudiced the private respondent's right of first refusal over the leased property included in the "deed of exchange." Eduardo Neria, a certified public accountant and son-in-law of the late Pelagia Pacheco testified that Delpher Trades Corporation is a family corporation; that the corporation was organized by the children of the two spouses (spouses Pelagia Pacheco and Benjamin Hernandez and spouses Delfin Pacheco and Pilar Angeles) who owned in common the parcel of land leased to Hydro Pipes Philippines in order to perpetuate their control over the property through the corporation and to avoid taxes; that in order to accomplish this end, two pieces of real estate, including Lot No. 1095 which had been leased to Hydro Pipes Philippines, were transferred to the corporation; that the leased property was transferred to the corporation by virtue of a deed of exchange of property; that in exchange for these properties, Pelagia and Delfin acquired 2,500 unissued no par value shares of stock which are equivalent to a 55% majority in the corporation because the other owners only owned 2,000 shares; and that at the time of incorporation, he knew all about the contract of lease of Lot. No. 1095 to Hydro Pipes Philippines. In the petitioners' motion for reconsideration, they refer to this scheme as "estate planning." (p. 252, Rollo)

Under this factual backdrop, the petitioners contend that there was actually no transfer of ownership of the subject parcel of land since the Pachecos remained in control of the property. Thus, the petitioners allege: "Considering that the beneficial ownership and control of petitioner corporation remained in the hands of the original co-owners, there was no transfer of actual ownership interests over the land when the same was transferred to petitioner corporation in exchange for the latter's shares of stock. The transfer of ownership, if anything, was merely in form but not in substance. In reality, petitioner corporation is a mere alter ego or conduit of the Pacheco co-owners; hence the corporation and the co-owners should be deemed to be the same, there being in substance and in effect an Identity of interest." (p. 254, Rollo) The petitioners maintain that the Pachecos did not sell the property. They argue that there was no sale and that they exchanged the land for shares of stocks in their own corporation. "Hence, such transfer is not within the letter, or even spirit of the contract. There is a sale when ownership is transferred for a price certain in money or its equivalent (Art. 1468, Civil Code) while there is a barter or exchange when one thing is given in consideration of another thing (Art. 1638, Civil Code)." (pp. 254-255, Rollo) On the other hand, the private respondent argues that Delpher Trades Corporation is a corporate entity separate and distinct from the Pachecos. Thus, it contends that it cannot be said that Delpher Trades Corporation is the Pacheco's same alter ego or conduit; that petitioner Delfin Pacheco, having treated Delpher Trades Corporation as such a separate and distinct corporate entity, is not a party who may allege that this separate corporate existence should be disregarded. It maintains that there was actual transfer of ownership interests over the leased property when the same was transferred to Delpher Trades Corporation in exchange for the latter's shares of stock. We rule for the petitioners. After incorporation, one becomes a stockholder of a corporation by subscription or by purchasing stock directly from the corporation or from individual owners thereof (Salmon, Dexter & Co. v. Unson, 47 Phil, 649, citing Bole v. Fulton [1912], 233 Pa., 609). In the case at bar, in exchange for their properties, the Pachecos acquired 2,500 original unissued no par value shares of stocks of the Delpher Trades Corporation. Consequently, the Pachecos became stockholders of the corporation by subscription "The essence of the stock subscription is an agreement to take and pay for original unissued shares of a corporation, formed or to be formed." (Rohrlich 243, cited in Agbayani, Commentaries and Jurisprudence on the Commercial Laws of the Philippines, Vol. III, 1980 Edition, p. 430) It is significant that the Pachecos took no par value shares in exchange for their properties. A no-par value share does not purport to represent any stated proportionate interest in the capital stock measured by value, but only an aliquot part of the whole number of such shares of the issuing corporation. The holder of no-par shares may see from the certificate itself that he is only an aliquot sharer in the assets of the corporation. But this character of proportionate interest is not hidden beneath a false appearance of a given sum in money, as in the case of par value shares. The capital stock of a corporation issuing only no-par value shares is not set forth by a stated amount of money, but instead is expressed to be divided into a stated number of shares, such as, 1,000 shares. This indicates that a shareholder of 100 such shares is an aliquot sharer in the assets of the corporation, no matter what value they may have, to the extent of 100/1,000 or 1/10. Thus, by removing the par value of shares, the attention of persons interested in the financial condition of a corporation is focused upon the value of assets and the amount of its debts. (Agbayani, Commentaries and Jurisprudence on the Commercial Laws of the Philippines, Vol. III, 1980 Edition, p. 107). Moreover, there was no attempt to state the true or current market value of the real estate. Land valued at P300.00 a square meter was turned over to the family's corporation for only P14.00 a square meter.

It is to be stressed that 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. As explained by Eduardo Neria: xxx xxx xxx ATTY. LINSANGAN: Q Mr. Neria, from the point of view of taxation, is there any benefit to the spouses Hernandez and Pacheco in connection with their execution of a deed of exchange on the properties for no par value shares of the defendant corporation? A Yes, sir. COURT: Q What do you mean by "point of view"? A To take advantage for both spouses and corporation in entering in the deed of exchange. ATTY. LINSANGAN: Q (What do you mean by "point of view"?) What are these benefits to the spouses of this deed of exchange? A Continuous control of the property, tax exemption benefits, and other inherent benefits in a corporation. Q What are these advantages to the said spouses from the point of view of taxation in entering in the deed of exchange? A Having fulfilled the conditions in the income tax law, providing for tax free exchange of property, they were able to execute the deed of exchange free from income tax and acquire a corporation. Q What provision in the income tax law are you referring to? A I refer to Section 35 of the National Internal Revenue Code under par. C-sub-par. (2) Exceptions regarding the provision which I quote: "No gain or loss shall also be recognized if a person exchanges his property for stock in a corporation of which as a result of such exchange said person alone or together with others not exceeding four persons gains control of said corporation." Q Did you explain to the spouses this benefit at the time you executed the deed of exchange? A Yes, sir Q You also, testified during the last hearing that the decision to have no par value share in the defendant corporation was for the purpose of flexibility. Can you explain flexibility in connection with the ownership of the property in question? A There is flexibility in using no par value shares as the value is determined by the board of directors in increasing capitalization. The board can fix the value of the shares equivalent to the capital requirements of the corporation. Q Now also from the point of taxation, is there any flexibility in the holding by the corporation of the property in question? A Yes, since a corporation does not die it can continue to hold on to the property indefinitely for a period of at least 50 years. On the other hand, if the property is held by the spouse the property will be tied up in succession proceedings and the consequential payments of estate and inheritance taxes when an owner dies. Q Now what advantage is this continuity in relation to ownership by a particular person of certain properties in respect to taxation? A The property is not subjected to taxes on succession as the corporation does not die. Q So the benefit you are talking about are inheritance taxes?

A Yes, sir. (pp. 3-5, tsn., December 15, 1981) The records do not point to anything wrong or objectionable about this "estate planning" scheme resorted to by the Pachecos. "The legal right of a taxpayer to decrease the amount of what otherwise could be his taxes or altogether avoid them, by means which the law permits, cannot be doubted." (Liddell & Co., Inc. v. The collector of Internal Revenue, 2 SCRA 632 citing Gregory v. Helvering, 293 U.S. 465, 7 L. ed. 596). 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 ownership remained in the same hands. Hence, the private respondent has no basis for its claim of a light of first refusal under the lease contract. WHEREFORE, the instant petition is hereby GRANTED, The questioned decision and resolution of the then Intermediate Appellate Court are REVERSED and SET ASIDE. The amended complaint in Civil Case No. 885-V79 of the then Court of First Instance of Bulacan is DISMISSED. No costs. ________________________________________ G.R. No. L-116650 May 23, 1995 TOYOTA SHAW, INC., petitioner, vs. COURT OF APPEALS and LUNA L. SOSA, respondents. DAVIDE, JR., J.: At the heart of the present controversy is the document marked Exhibit "A" 1 for the private respondent, which was signed by a sales representative of Toyota Shaw, Inc. named Popong Bernardo. The document reads as follows: 4 June 1989 AGREEMENTS BETWEEN MR. SOSA & POPONG BERNARDO OF TOYOTA SHAW, INC. 1. all necessary documents will be submitted to TOYOTA SHAW, INC. (POPONG BERNARDO) a week after, upon arrival of Mr. Sosa from the Province (Marinduque) where the unit will be used on the 19th of June. 2. the downpayment of P100,000.00 will be paid by Mr. Sosa on June 15, 1989. 3. the TOYOTA SHAW, INC. LITE ACE yellow, will be pick-up [sic] and released by TOYOTA SHAW, INC. on the 17th of June at 10 a.m. Very truly yours, (Sgd.) POPONG BERNARDO. Was this document, executed and signed by the petitioner's sales representative, a perfected contract of sale, binding upon the petitioner, breach of which would entitle the private respondent to damages and attorney's fees? The trial court and the Court of Appeals took the affirmative view. The petitioner disagrees. Hence, this petition for review oncertiorari. The antecedents as disclosed in the decisions of both the trial court and the Court of Appeals, as well as in the pleadings of petitioner Toyota Shaw, Inc. (hereinafter Toyota) and respondent Luna L. Sosa (hereinafter Sosa) are as follows. Sometime in June of 1989, Luna L. Sosa wanted to purchase a Toyota Lite Ace. It was then a seller's market and Sosa had difficulty finding a dealer with an available unit for sale. But upon contacting Toyota Shaw, Inc., he was told that there was an available unit. So on 14 June 1989, Sosa and his son, Gilbert, went to the Toyota office at Shaw Boulevard, Pasig, Metro Manila. There they met Popong Bernardo, a sales representative of Toyota. Sosa emphasized to Bernardo that he needed the Lite Ace not later than 17 June 1989 because he, his family, and abalikbayan guest would use it on 18 June 1989 to go to Marinduque, his home province, where he would celebrate his birthday on the 19th of June. He added that if he does not arrive in his hometown with the new car, he would become a "laughing stock." Bernardo assured Sosa that a unit would be ready for pick up at 10:00 a.m. on

17 June 1989. Bernardo then signed the aforequoted "Agreements Between Mr. Sosa & Popong Bernardo of Toyota Shaw, Inc." It was also agreed upon by the parties that the balance of the purchase price would be paid by credit financing through B.A. Finance, and for this Gilbert, on behalf of his father, signed the documents of Toyota and B.A. Finance pertaining to the application for financing. The next day, 15 June 1989, Sosa and Gilbert went to Toyota to deliver the downpayment of P100,000.00. They met Bernardo who then accomplished a printed Vehicle Sales Proposal (VSP) No. 928, 2 on which Gilbert signed under the subheading CONFORME. This document shows that the customer's name is "MR. LUNA SOSA" with home address at No. 2316 Guijo Street, United Paraaque II; that the model series of the vehicle is a "Lite Ace 1500" described as "4 Dr minibus"; that payment is by "installment," to be financed by "B.A.," 3 with the initial cash outlay of P100,000.00 broken down as follows: a downpayment P 53,148.00 ) b ) c ) CHMO fee service fee accessories P 2,715.00 P 500.00 P 29,000.00 BLT registration fee P 1,067.00 insurance P 13,970.00

and that the "BALANCE TO BE FINANCED" is "P274,137.00." The spaces provided for "Delivery Terms" were not filled-up. It also contains the following pertinent provisions: CONDITIONS OF SALES 1. This sale is subject to availability of unit. 2. Stated Price is subject to change without prior notice, Price prevailing and in effect at time of selling will apply. . . . Rodrigo Quirante, the Sales Supervisor of Bernardo, checked and approved the VSP. On 17 June 1989, at around 9:30 a.m., Bernardo called Gilbert to inform him that the vehicle would not be ready for pick up at 10:00 a.m. as previously agreed upon but at 2:00 p.m. that same day. At 2:00 p.m., Sosa and Gilbert met Bernardo at the latter's office. According to Sosa, Bernardo informed them that the Lite Ace was being readied for delivery. After waiting for about an hour, Bernardo told them that the car could not be delivered because "nasulot ang unit ng ibang malakas." Toyota contends, however, that the Lite Ace was not delivered to Sosa because of the disapproval by B.A. Finance of the credit financing application of Sosa. It further alleged that a particular unit had already been reserved and earmarked for Sosa but could not be released due to the uncertainty of payment of the balance of the purchase price. Toyota then gave Sosa the option to purchase the unit by paying the full purchase price in cash but Sosa refused. After it became clear that the Lite Ace would not be delivered to him, Sosa asked that his downpayment be refunded. Toyota did so on the very same day by issuing a Far East Bank check for the full amount of P100,000.00, 4 the receipt of which was shown by a check voucher of Toyota, 5 which Sosa signed with the reservation, "without prejudice to our future claims for damages." Thereafter, Sosa sent two letters to Toyota. In the first letter, dated 27 June 1989 and signed by him, he demanded the refund, within five days from receipt, of the downpayment of P100,000.00 plus interest from the time he paid it and the payment of damages with a warning that in case of Toyota's failure to do so he would be constrained to take legal action. 6 The second,

dated 4 November 1989 and signed by M. O. Caballes, Sosa's counsel, demanded one million pesos representing interest and damages, again, with a warning that legal action would be taken if payment was not made within three days. 7 Toyota's counsel answered through a letter dated 27 November 1989 8 refusing to accede to the demands of Sosa. But even before this answer was made and received by Sosa, the latter filed on 20 November 1989 with Branch 38 of the Regional Trial Court (RTC) of Marinduque a complaint against Toyota for damages under Articles 19 and 21 of the Civil Code in the total amount of P1,230,000.00. 9 He alleges, inter alia, that: 9. As a result of defendant's failure and/or refusal to deliver the vehicle to plaintiff, plaintiff suffered embarrassment, humiliation, ridicule, mental anguish and sleepless nights because: (i) he and his family were constrained to take the public transportation from Manila to Lucena City on their way to Marinduque; (ii) his balikbayan-guest canceled his scheduled first visit to Marinduque in order to avoid the inconvenience of taking public transportation; and (iii) his relatives, friends, neighbors and other provincemates, continuously irked him about "his Brand-New Toyota Lite Ace that never was." Under the circumstances, defendant should be made liable to the plaintiff for moral damages in the amount of One Million Pesos (P1,000,000.00). 10 In its answer to the complaint, Toyota alleged that no sale was entered into between it and Sosa, that Bernardo had no authority to sign Exhibit "A" for and in its behalf, and that Bernardo signed Exhibit "A" in his personal capacity. As special and affirmative defenses, it alleged that: the VSP did not state date of delivery; Sosa had not completed the documents required by the financing company, and as a matter of policy, the vehicle could not and would not be released prior to full compliance with financing requirements, submission of all documents, and execution of the sales agreement/invoice; the P100,000.00 was returned to and received by Sosa; the venue was improperly laid; and Sosa did not have a sufficient cause of action against it. It also interposed compulsory counterclaims. After trial on the issues agreed upon during the pre-trial session, 11 the trial court rendered on 18 February 1992 a decision in favor of Sosa. 12 It ruled that Exhibit "A," the "AGREEMENTS BETWEEN MR. SOSA AND POPONG BERNARDO," was a valid perfected contract of sale between Sosa and Toyota which bound Toyota to deliver the vehicle to Sosa, and further agreed with Sosa that Toyota acted in bad faith in selling to another the unit already reserved for him. As to Toyota's contention that Bernardo had no authority to bind it through Exhibit "A," the trial court held that the extent of Bernardo's authority "was not made known to plaintiff," for as testified to by Quirante, "they do not volunteer any information as to the company's sales policy and guidelines because they are internal matters." 13 Moreover, "[f]rom the beginning of the transaction up to its consummation when the downpayment was made by the plaintiff, the defendants had made known to the plaintiff the impression that Popong Bernardo is an authorized sales executive as it permitted the latter to do acts within the scope of an apparent authority holding him out to the public as possessing power to do these acts." 14 Bernardo then "was an agent of the defendant Toyota Shaw, Inc. and hence bound the defendants." 15 The court further declared that "Luna Sosa proved his social standing in the community and suffered besmirched reputation, wounded feelings and sleepless nights for which he ought to be compensated." 16 Accordingly, it disposed as follows: WHEREFORE, viewed from the above findings, judgment is hereby rendered in favor of the plaintiff and against the defendant: 1. ordering the defendant to pay to the plaintiff the sum of P75,000.00 for moral damages; 2. ordering the defendant to pay the plaintiff the sum of P10,000.00 for exemplary damages; 3. ordering the defendant to pay the sum of P30,000.00 attorney's fees plus P2,000.00 lawyer's transportation fare per trip in attending to the hearing of this case;

4. ordering the defendant to pay the plaintiff the sum of P2,000.00 transportation fare per trip of the plaintiff in attending the hearing of this case; and 5. ordering the defendant to pay the cost of suit. SO ORDERED. Dissatisfied with the trial court's judgment, Toyota appealed to the Court of Appeals. The case was docketed as CA-G.R. CV No. 40043. In its decision promulgated on 29 July 1994, 17 the Court of Appeals affirmed in toto the appealed decision. Toyota now comes before this Court via this petition and raises the core issue stated at the beginning of the ponenciaand also the following related issues: (a) whether or not the standard VSP was the true and documented understanding of the parties which would have led to the ultimate contract of sale, (b) whether or not Sosa has any legal and demandable right to the delivery of the vehicle despite the non-payment of the consideration and the non-approval of his credit application by B.A. Finance, (c) whether or not Toyota acted in good faith when it did not release the vehicle to Sosa, and (d) whether or not Toyota may be held liable for damages. We find merit in the petition. Neither logic nor recourse to one's imagination can lead to the conclusion that Exhibit "A" is a perfected contract of sale. Article 1458 of the Civil Code defines a contract of sale as follows: Art. 1458. By the contract of sale one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent. A contract of sale may be absolute or conditional. and Article 1475 specifically provides when it is deemed perfected: Art. 1475. The contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price. From that moment, the parties may reciprocally demand performance, subject to the provisions of the law governing the form of contracts. What is clear from Exhibit "A" is not what the trial court and the Court of Appeals appear to see. It is not a contract of sale. No obligation on the part of Toyota to transfer ownership of a determinate thing to Sosa and no correlative obligation on the part of the latter to pay therefor a price certain appears therein. The provision on the downpayment of P100,000.00 made no specific reference to a sale of a vehicle. If it was intended for a contract of sale, it could only refer to a sale on installment basis, as the VSP executed the following day confirmed. But nothing was mentioned about the full purchase price and the manner the installments were to be paid. This Court had already ruled that a definite agreement on the manner of payment of the price is an essential element in the formation of a binding and enforceable contract of sale. 18 This is so because the agreement as to the manner of payment goes into the price such that a disagreement on the manner of payment is tantamount to a failure to agree on the price. Definiteness as to the price is an essential element of a binding agreement to sell personal property. 19 Moreover, Exhibit "A" shows the absence of a meeting of minds between Toyota and Sosa. For one thing, Sosa did not even sign it. For another, Sosa was well aware from its title, written in bold letters, viz., AGREEMENTS BETWEEN MR. SOSA & POPONG BERNARDO OF TOYOTA SHAW, INC. that he was not dealing with Toyota but with Popong Bernardo and that the latter did not misrepresent that he had the authority to sell any Toyota vehicle. He knew that Bernardo was only a sales representative of Toyota and hence a mere agent of the latter. It was incumbent upon Sosa to act with ordinary prudence and reasonable diligence to know the extent of Bernardo's authority as an agent 20 in respect of contracts to sell Toyota's vehicles. A person dealing with

an agent is put upon inquiry and must discover upon his peril the authority of the agent. 21 At the most, Exhibit "A" may be considered as part of the initial phase of the generation or negotiation stage of a contract of sale. There are three stages in the contract of sale, namely: (a) preparation, conception, or generation, which is the period of negotiation and bargaining, ending at the moment of agreement of the parties; (b) perfection or birth of the contract, which is the moment when the parties come to agree on the terms of the contract; and (c) consummation or death, which is the fulfillment or performance of the terms agreed upon in the contract. 22 The second phase of the generation or negotiation stage in this case was the execution of the VSP. It must be emphasized that thereunder, the downpayment of the purchase price was P53,148.00 while the balance to be paid on installment should be financed by B.A. Finance Corporation. It is, of course, to be assumed that B.A. Finance Corp. was acceptable to Toyota, otherwise it should not have mentioned B.A. Finance in the VSP. Financing companies are defined in Section 3(a) of R.A. No. 5980, as amended by P.D. No. 1454 and P.D. No. 1793, as "corporations or partnerships, except those regulated by the Central Bank of the Philippines, the Insurance Commission and the Cooperatives Administration Office, which are primarily organized for the purpose of extending credit facilities to consumers and to industrial, commercial, or agricultural enterprises, either by discounting or factoring commercial papers or accounts receivables, or by buying and selling contracts, leases, chattel mortgages, or other evidence of indebtedness, or by leasing of motor vehicles, heavy equipment and industrial machinery, business and office machines and equipment, appliances and other movable property." 23 Accordingly, in a sale on installment basis which is financed by a financing company, three parties are thus involved: the buyer who executes a note or notes for the unpaid balance of the price of the thing purchased on installment, the seller who assigns the notes or discounts them with a financing company, and the financing company which is subrogated in the place of the seller, as the creditor of the installment buyer. 24 Since B.A. Finance did not approve Sosa's application, there was then no meeting of minds on the sale on installment basis. We are inclined to believe Toyota's version that B.A. Finance disapproved Sosa's application for which reason it suggested to Sosa that he pay the full purchase price. When the latter refused, Toyota cancelled the VSP and returned to him his P100,000.00. Sosa's version that the VSP was cancelled because, according to Bernardo, the vehicle was delivered to another who was "mas malakas" does not inspire belief and was obviously a delayed afterthought. It is claimed that Bernardo said, "Pasensiya kayo, nasulot ang unit ng ibang malakas," while the Sosas had already been waiting for an hour for the delivery of the vehicle in the afternoon of 17 June 1989. However, in paragraph 7 of his complaint, Sosa solemnly states: On June 17, 1989 at around 9:30 o'clock in the morning, defendant's sales representative, Mr. Popong Bernardo, called plaintiff's house and informed the plaintiff's son that the vehicle will not be ready for pick-up at 10:00 a.m. of June 17, 1989 but at 2:00 p.m. of that day instead. Plaintiff and his son went to defendant's office on June 17 1989 at 2:00 p.m. in order to pick-up the vehicle but the defendant for reasons known only to its representatives, refused and/or failed to release the vehicle to the plaintiff. Plaintiff demanded for an explanation, but nothing was given; . . . (Emphasis supplied). 25 The VSP was a mere proposal which was aborted in lieu of subsequent events. It follows that the VSP created no demandable right in favor of Sosa for the delivery of the vehicle to him, and its non-delivery did not cause any legally indemnifiable injury. The award then of moral and exemplary damages and attorney's fees and costs of suit is without legal basis. Besides, the only ground upon which Sosa claimed moral damages is that since it was known to his friends,

townmates, and relatives that he was buying a Toyota Lite Ace which they expected to see on his birthday, he suffered humiliation, shame, and sleepless nights when the van was not delivered. The van became the subject matter of talks during his celebration that he may not have paid for it, and this created an impression against his business standing and reputation. At the bottom of this claim is nothing but misplaced pride and ego. He should not have announced his plan to buy a Toyota Lite Ace knowing that he might not be able to pay the full purchase price. It was he who brought embarrassment upon himself by bragging about a thing which he did not own yet. Since Sosa is not entitled to moral damages and there being no award for temperate, liquidated, or compensatory damages, he is likewise not entitled to exemplary damages. Under Article 2229 of the Civil Code, exemplary or corrective damages are imposed by way of example or correction for the public good, in addition to moral, temperate, liquidated, or compensatory damages. Also, it is settled that for attorney's fees to be granted, the court must explicitly state in the body of the decision, and not only in the dispositive portion thereof, the legal reason for the award of attorney's fees. 26 No such explicit determination thereon was made in the body of the decision of the trial court. No reason thus exists for such an award. WHEREFORE, the instant petition is GRANTED. The challenged decision of the Court of Appeals in CA-G.R. CV NO. 40043 as well as that of Branch 38 of the Regional Trial Court of Marinduque in Civil Case No. 89-14 are REVERSED and SET ASIDE and the complaint in Civil Case No. 89-14 is DISMISSED. The counterclaim therein is likewise DISMISSED. _______________________________________ G.R. No. 103577 October 7, 1996 ROMULO A. CORONEL, ALARICO A. CORONEL, ANNETTE A. CORONEL, ANNABELLE C. GONZALES (for herself and on behalf of Florida C. Tupper, as attorney-in-fact), CIELITO A. CORONEL, FLORAIDA A. ALMONTE, and CATALINA BALAIS MABANAG, petitioners, vs. THE COURT OF APPEALS, CONCEPCION D. ALCARAZ, and RAMONA PATRICIA ALCARAZ, assisted by GLORIA F. NOEL as attorney-infact, respondents. MELO, J.:p The petition before us has its roots in a complaint for specific performance to compel herein petitioners (except the last named, Catalina Balais Mabanag) to consummate the sale of a parcel of land with its improvements located along Roosevelt Avenue in Quezon City entered into by the parties sometime in January 1985 for the price of P1,240,000.00. The undisputed facts of the case were summarized by respondent court in this wise: On January 19, 1985, defendants-appellants Romulo Coronel, et al. (hereinafter referred to as Coronels) executed a document entitled "Receipt of Down Payment" (Exh. "A") in favor of plaintiff Ramona Patricia Alcaraz (hereinafter referred to as Ramona) which is reproduced hereunder: RECEIPT OF DOWN PAYMENT P1,240,000.00 Total amount 50,000 Down payment P1,190,000.00 Balance Received from Miss Ramona Patricia Alcaraz of 146 Timog, Quezon City, the sum of Fifty Thousand Pesos purchase price of our inherited house and lot, covered by TCT No. 119627 of the Registry of Deeds of Quezon City, in the total amount of P1,240,000.00. We bind ourselves to effect the transfer in our names from our deceased father, Constancio P. Coronel, the transfer certificate of title immediately upon receipt of the down payment above-stated.

On our presentation of the TCT already in or name, We will immediately execute the deed of absolute sale of said property and Miss Ramona Patricia Alcaraz shall immediately pay the balance of the P1,190,000.00. Clearly, the conditions appurtenant to the sale are the following: 1. Ramona will make a down payment of Fifty Thousand (P50,000.00) Pesos upon execution of the document aforestated; 2. The Coronels will cause the transfer in their names of the title of the property registered in the name of their deceased father upon receipt of the Fifty Thousand (P50,000.00) Pesos down payment; 3. Upon the transfer in their names of the subject property, the Coronels will execute the deed of absolute sale in favor of Ramona and the latter will pay the former the whole balance of One Million One Hundred Ninety Thousand (P1,190,000.00) Pesos. On the same date (January 15, 1985), plaintiff-appellee Concepcion D. Alcaraz (hereinafter referred to as Concepcion), mother of Ramona, paid the down payment of Fifty Thousand (P50,000.00) Pesos (Exh. "B", Exh. "2"). On February 6, 1985, the property originally registered in the name of the Coronels' father was transferred in their names under TCT No. 327043 (Exh. "D"; Exh. "4") On February 18, 1985, the Coronels sold the property covered by TCT No. 327043 to intervenor-appellant Catalina B. Mabanag (hereinafter referred to as Catalina) for One Million Five Hundred Eighty Thousand (P1,580,000.00) Pesos after the latter has paid Three Hundred Thousand (P300,000.00) Pesos (Exhs. "F-3"; Exh. "6-C") For this reason, Coronels canceled and rescinded the contract (Exh. "A") with Ramona by depositing the down payment paid by Concepcion in the bank in trust for Ramona Patricia Alcaraz. On February 22, 1985, Concepcion, et al., filed a complaint for specific performance against the Coronels and caused the annotation of a notice of lis pendens at the back of TCT No. 327403 (Exh. "E"; Exh. "5"). On April 2, 1985, Catalina caused the annotation of a notice of adverse claim covering the same property with the Registry of Deeds of Quezon City (Exh. "F"; Exh. "6"). On April 25, 1985, the Coronels executed a Deed of Absolute Sale over the subject property in favor of Catalina (Exh. "G"; Exh. "7"). On June 5, 1985, a new title over the subject property was issued in the name of Catalina under TCT No. 351582 (Exh. "H"; Exh. "8"). (Rollo, pp. 134-136) In the course of the proceedings before the trial court (Branch 83, RTC, Quezon City) the parties agreed to submit the case for decision solely on the basis of documentary exhibits. Thus, plaintiffs therein (now private respondents) proffered their documentary evidence accordingly marked as Exhibits "A" through "J", inclusive of their corresponding submarkings. Adopting these same exhibits as their own, then defendants (now petitioners) accordingly offered and marked them as Exhibits "1" through "10", likewise inclusive of their corresponding submarkings. Upon motion of the parties, the trial court gave them thirty (30) days within which to simultaneously submit their respective memoranda, and an additional 15 days within which to submit their corresponding comment or reply thereof, after which, the case would be deemed submitted for resolution. On April 14, 1988, the case was submitted for resolution before Judge Reynaldo Roura, who was then temporarily detailed to preside over Branch 82 of the RTC of Quezon City. On March 1, 1989, judgment was handed down by Judge Roura from his regular bench at Macabebe, Pampanga for the Quezon City branch, disposing as follows: WHEREFORE, judgment for specific performance is hereby rendered ordering defendant to execute in favor of plaintiffs a deed of absolute sale covering that parcel of land embraced in and covered by Transfer Certificate of Title No. 327403 (now TCT No. 331582) of the Registry of Deeds for Quezon City, together with all the improvements existing thereon free from all liens and

encumbrances, and once accomplished, to immediately deliver the said document of sale to plaintiffs and upon receipt thereof, the said document of sale to plaintiffs and upon receipt thereof, the plaintiffs are ordered to pay defendants the whole balance of the purchase price amounting to P1,190,000.00 in cash. Transfer Certificate of Title No. 331582 of the Registry of Deeds for Quezon City in the name of intervenor is hereby canceled and declared to be without force and effect. Defendants and intervenor and all other persons claiming under them are hereby ordered to vacate the subject property and deliver possession thereof to plaintiffs. Plaintiffs' claim for damages and attorney's fees, as well as the counterclaims of defendants and intervenors are hereby dismissed. No pronouncement as to costs. So Ordered. Macabebe, Pampanga for Quezon City, March 1, 1989. (Rollo, p. 106) A motion for reconsideration was filed by petitioner before the new presiding judge of the Quezon City RTC but the same was denied by Judge Estrella T. Estrada, thusly: The prayer contained in the instant motion, i.e., to annul the decision and to render anew decision by the undersigned Presiding Judge should be denied for the following reasons: (1) The instant case became submitted for decision as of April 14, 1988 when the parties terminated the presentation of their respective documentary evidence and when the Presiding Judge at that time was Judge Reynaldo Roura. The fact that they were allowed to file memoranda at some future date did not change the fact that the hearing of the case was terminated before Judge Roura and therefore the same should be submitted to him for decision; (2) When the defendants and intervenor did not object to the authority of Judge Reynaldo Roura to decide the case prior to the rendition of the decision, when they met for the first time before the undersigned Presiding Judge at the hearing of a pending incident in Civil Case No. Q-46145 on November 11, 1988, they were deemed to have acquiesced thereto and they are now estopped from questioning said authority of Judge Roura after they received the decision in question which happens to be adverse to them; (3) While it is true that Judge Reynaldo Roura was merely a Judge-on-detail at this Branch of the Court, he was in all respects the Presiding Judge with full authority to act on any pending incident submitted before this Court during his incumbency. When he returned to his Official Station at Macabebe, Pampanga, he did not lose his authority to decide or resolve such cases submitted to him for decision or resolution because he continued as Judge of the Regional Trial Court and is of co-equal rank with the undersigned Presiding Judge. The standing rule and supported by jurisprudence is that a Judge to whom a case is submitted for decision has the authority to decide the case notwithstanding his transfer to another branch or region of the same court (Sec. 9, Rule 135, Rule of Court). Coming now to the twin prayer for reconsideration of the Decision dated March 1, 1989 rendered in the instant case, resolution of which now pertains to the undersigned Presiding Judge, after a meticulous examination of the documentary evidence presented by the parties, she is convinced that the Decision of March 1, 1989 is supported by evidence and, therefore, should not be disturbed. IN VIEW OF THE FOREGOING, the "Motion for Reconsideration and/or to Annul Decision and Render Anew Decision by the Incumbent Presiding Judge" dated March 20, 1989 is hereby DENIED. SO ORDERED. Quezon City, Philippines, July 12, 1989. (Rollo, pp. 108-109) Petitioners thereupon interposed an appeal, but on December 16, 1991, the Court of Appeals (Buena, Gonzaga-Reyes, Abad Santos (P), JJ.) rendered its decision fully agreeing with the trial court. Hence, the instant petition which was filed on March 5, 1992. The last pleading, private respondents' Reply Memorandum, was filed on September

15, 1993. The case was, however, re-raffled to undersigned ponente only on August 28, 1996, due to the voluntary inhibition of the Justice to whom the case was last assigned. While we deem it necessary to introduce certain refinements in the disquisition of respondent court in the affirmance of the trial court's decision, we definitely find the instant petition bereft of merit. The heart of the controversy which is the ultimate key in the resolution of the other issues in the case at bar is the precise determination of the legal significance of the document entitled "Receipt of Down Payment" which was offered in evidence by both parties. There is no dispute as to the fact that said document embodied the binding contract between Ramona Patricia Alcaraz on the one hand, and the heirs of Constancio P. Coronel on the other, pertaining to a particular house and lot covered by TCT No. 119627, as defined in Article 1305 of the Civil Code of the Philippines which reads as follows: Art. 1305. A contract is a meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service. While, it is the position of private respondents that the "Receipt of Down Payment" embodied a perfected contract of sale, which perforce, they seek to enforce by means of an action for specific performance, petitioners on their part insist that what the document signified was a mere executory contract to sell, subject to certain suspensive conditions, and because of the absence of Ramona P. Alcaraz, who left for the United States of America, said contract could not possibly ripen into a contract absolute sale. Plainly, such variance in the contending parties' contentions is brought about by the way each interprets the terms and/or conditions set forth in said private instrument. Withal, based on whatever relevant and admissible evidence may be available on record, this, Court, as were the courts below, is now called upon to adjudge what the real intent of the parties was at the time the said document was executed. The Civil Code defines a contract of sale, thus: Art. 1458. By the contract of sale one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent. Sale, by its very nature, is a consensual contract because it is perfected by mere consent. The essential elements of a contract of sale are the following: a) Consent or meeting of the minds, that is, consent to transfer ownership in exchange for the price; b) Determinate subject matter; and c) Price certain in money or its equivalent. Under this definition, a Contract to Sell may not be considered as a Contract of Sale because the first essential element is lacking. In a contract to sell, the prospective seller explicity reserves the transfer of title to the prospective buyer, meaning, the prospective seller does not as yet agree or consent to transfer ownership of the property subject of the contract to sell until the happening of an event, which for present purposes we shall take as the full payment of the purchase price. What the seller agrees or obliges himself to do is to fulfill is promise to sell the subject property when the entire amount of the purchase price is delivered to him. In other words the full payment of the purchase price partakes of a suspensive condition, the non-fulfillment of which prevents the obligation to sell from arising and thus, ownership is retained by the prospective seller without further remedies by the prospective buyer. In Roque vs. Lapuz (96 SCRA 741 [1980]), this Court had occasion to rule: Hence, We hold that the contract between the petitioner and the respondent was a contract to sell where the ownership or title is retained by the seller and is not to pass until the full payment of the price, such payment being a positive suspensive condition and failure of which is not a breach, casual or serious, but simply an event that prevented the obligation of the vendor to convey title from acquiring binding force.

Stated positively, upon the fulfillment of the suspensive condition which is the full payment of the purchase price, the prospective seller's obligation to sell the subject property by entering into a contract of sale with the prospective buyer becomes demandable as provided in Article 1479 of the Civil Code which states: Art. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable. An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor if the promise is supported by a consideration distinct from the price. A contract to sell may thus be defined as a bilateral contract whereby the prospective seller, while expressly reserving the ownership of the subject property despite delivery thereof to the prospective buyer, binds himself to sell the said property exclusively to the prospective buyer upon fulfillment of the condition agreed upon, that is, full payment of the purchase price. A contract to sell as defined hereinabove, may not even be considered as a conditional contract of sale where the seller may likewise reserve title to the property subject of the sale until the fulfillment of a suspensive condition, because in a conditional contract of sale, the first element of consent is present, although it is conditioned upon the happening of a contingent event which may or may not occur. If the suspensive condition is not fulfilled, the perfection of the contract of sale is completely abated (cf. Homesite and housing Corp. vs. Court of Appeals, 133 SCRA 777 [1984]). However, if the suspensive condition is fulfilled, the contract of sale is thereby perfected, such that if there had already been previous delivery of the property subject of the sale to the buyer, ownership thereto automatically transfers to the buyer by operation of law without any further act having to be performed by the seller. In a contract to sell, upon the fulfillment of the suspensive condition which is the full payment of the purchase price, ownership will not automatically transfer to the buyer although the property may have been previously delivered to him. The prospective seller still has to convey title to the prospective buyer by entering into a contract of absolute sale. It is essential to distinguish between a contract to sell and a conditional contract of sale specially in cases where the subject property is sold by the owner not to the party the seller contracted with, but to a third person, as in the case at bench. In a contract to sell, there being no previous sale of the property, a third person buying such property despite the fulfillment of the suspensive condition such as the full payment of the purchase price, for instance, cannot be deemed a buyer in bad faith and the prospective buyer cannot seek the relief of reconveyance of the property. There is no double sale in such case. Title to the property will transfer to the buyer after registration because there is no defect in the owner-seller's title per se, but the latter, of course, may be used for damages by the intending buyer. In a conditional contract of sale, however, upon the fulfillment of the suspensive condition, the sale becomes absolute and this will definitely affect the seller's title thereto. In fact, if there had been previous delivery of the subject property, the seller's ownership or title to the property is automatically transferred to the buyer such that, the seller will no longer have any title to transfer to any third person. Applying Article 1544 of the Civil Code, such second buyer of the property who may have had actual or constructive knowledge of such defect in the seller's title, or at least was charged with the obligation to discover such defect, cannot be a registrant in good faith. Such second buyer cannot defeat the first buyer's title. In case a title is issued to the second buyer, the first buyer may seek reconveyance of the property subject of the sale. With the above postulates as guidelines, we now proceed to the task of deciphering the real nature of the contract entered into by petitioners and private respondents. It is a canon in the interpretation of contracts that the words used therein should be given their natural and ordinary meaning unless a technical

meaning was intended (Tan vs. Court of Appeals, 212 SCRA 586 [1992]). Thus, when petitioners declared in the said "Receipt of Down Payment" that they Received from Miss Ramona Patricia Alcaraz of 146 Timog, Quezon City, the sum of Fifty Thousand Pesos purchase price of our inherited house and lot, covered by TCT No. 1199627 of the Registry of Deeds of Quezon City, in the total amount of P1,240,000.00. without any reservation of title until full payment of the entire purchase price, the natural and ordinary idea conveyed is that they sold their property. When the "Receipt of Down Payment" is considered in its entirety, it becomes more manifest that there was a clear intent on the part of petitioners to transfer title to the buyer, but since the transfer certificate of title was still in the name of petitioner's father, they could not fully effect such transfer although the buyer was then willing and able to immediately pay the purchase price. Therefore, petitioners-sellers undertook upon receipt of the down payment from private respondent Ramona P. Alcaraz, to cause the issuance of a new certificate of title in their names from that of their father, after which, they promised to present said title, now in their names, to the latter and to execute the deed of absolute sale whereupon, the latter shall, in turn, pay the entire balance of the purchase price. The agreement could not have been a contract to sell because the sellers herein made no express reservation of ownership or title to the subject parcel of land. Furthermore, the circumstance which prevented the parties from entering into an absolute contract of sale pertained to the sellers themselves (the certificate of title was not in their names) and not the full payment of the purchase price. Under the established facts and circumstances of the case, the Court may safely presume that, had the certificate of title been in the names of petitioners-sellers at that time, there would have been no reason why an absolute contract of sale could not have been executed and consummated right there and then. Moreover, unlike in a contract to sell, petitioners in the case at bar did not merely promise to sell the properly to private respondent upon the fulfillment of the suspensive condition. On the contrary, having already agreed to sell the subject property, they undertook to have the certificate of title changed to their names and immediately thereafter, to execute the written deed of absolute sale. Thus, the parties did not merely enter into a contract to sell where the sellers, after compliance by the buyer with certain terms and conditions, promised to sell the property to the latter. What may be perceived from the respective undertakings of the parties to the contract is that petitioners had already agreed to sell the house and lot they inherited from their father, completely willing to transfer full ownership of the subject house and lot to the buyer if the documents were then in order. It just happened, however, that the transfer certificate of title was then still in the name of their father. It was more expedient to first effect the change in the certificate of title so as to bear their names. That is why they undertook to cause the issuance of a new transfer of the certificate of title in their names upon receipt of the down payment in the amount of P50,000.00. As soon as the new certificate of title is issued in their names, petitioners were committed to immediately execute the deed of absolute sale. Only then will the obligation of the buyer to pay the remainder of the purchase price arise. There is no doubt that unlike in a contract to sell which is most commonly entered into so as to protect the seller against a buyer who intends to buy the property in installment by withholding ownership over the property until the buyer effects full payment therefor, in the contract entered into in the case at bar, the sellers were the one who were unable to enter into a contract of absolute sale by reason of the fact that the certificate of title to the property was still in the name of their father. It was the sellers in this case who, as it were, had the impediment which prevented, so to speak, the execution of an contract of absolute sale.

What is clearly established by the plain language of the subject document is that when the said "Receipt of Down Payment" was prepared and signed by petitioners Romeo A. Coronel, et al., the parties had agreed to a conditional contract of sale, consummation of which is subject only to the successful transfer of the certificate of title from the name of petitioners' father, Constancio P. Coronel, to their names. The Court significantly notes this suspensive condition was, in fact, fulfilled on February 6, 1985 (Exh. "D"; Exh. "4"). Thus, on said date, the conditional contract of sale between petitioners and private respondent Ramona P. Alcaraz became obligatory, the only act required for the consummation thereof being the delivery of the property by means of the execution of the deed of absolute sale in a public instrument, which petitioners unequivocally committed themselves to do as evidenced by the "Receipt of Down Payment." Article 1475, in correlation with Article 1181, both of the Civil Code, plainly applies to the case at bench. Thus, Art. 1475. The contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price. From the moment, the parties may reciprocally demand performance, subject to the provisions of the law governing the form of contracts. Art. 1181. In conditional obligations, the acquisition of rights, as well as the extinguishment or loss of those already acquired, shall depend upon the happening of the event which constitutes the condition. Since the condition contemplated by the parties which is the issuance of a certificate of title in petitioners' names was fulfilled on February 6, 1985, the respective obligations of the parties under the contract of sale became mutually demandable, that is, petitioners, as sellers, were obliged to present the transfer certificate of title already in their names to private respondent Ramona P. Alcaraz, the buyer, and to immediately execute the deed of absolute sale, while the buyer on her part, was obliged to forthwith pay the balance of the purchase price amounting to P1,190,000.00. It is also significant to note that in the first paragraph in page 9 of their petition, petitioners conclusively admitted that: 3. The petitioners-sellers Coronel bound themselves "to effect the transfer in our names from our deceased father Constancio P. Coronel, the transfer certificate of title immediately upon receipt of the downpayment abovestated". The sale was still subject to this suspensive condition. (Emphasis supplied.) (Rollo, p. 16) Petitioners themselves recognized that they entered into a contract of sale subject to a suspensive condition. Only, they contend, continuing in the same paragraph, that: . . . Had petitioners-sellers not complied with this condition of first transferring the title to the property under their names, there could be no perfected contract of sale. (Emphasis supplied.) (Ibid.) not aware that they set their own trap for themselves, for Article 1186 of the Civil Code expressly provides that: Art. 1186. The condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment. Besides, it should be stressed and emphasized that what is more controlling than these mere hypothetical arguments is the fact that the condition herein referred to was actually and indisputably fulfilled on February 6, 1985, when a new title was issued in the names of petitioners as evidenced by TCT No. 327403 (Exh. "D"; Exh. "4"). The inevitable conclusion is that on January 19, 1985, as evidenced by the document denominated as "Receipt of Down Payment" (Exh. "A"; Exh. "1"), the parties entered into a contract of sale subject only to the suspensive condition that the sellers shall effect the issuance of new certificate title from

that of their father's name to their names and that, on February 6, 1985, this condition was fulfilled (Exh. "D"; Exh. "4"). We, therefore, hold that, in accordance with Article 1187 which pertinently provides Art. 1187. The effects of conditional obligation to give, once the condition has been fulfilled, shall retroact to the day of the constitution of the obligation . . . In obligation to do or not to do, the courts shall determine, in each case, the retroactive effect of the condition that has been complied with. the rights and obligations of the parties with respect to the perfected contract of sale became mutually due and demandable as of the time of fulfillment or occurrence of the suspensive condition on February 6, 1985. As of that point in time, reciprocal obligations of both seller and buyer arose. Petitioners also argue there could been no perfected contract on January 19, 1985 because they were then not yet the absolute owners of the inherited property. We cannot sustain this argument. Article 774 of the Civil Code defines Succession as a mode of transferring ownership as follows: Art. 774. Succession is a mode of acquisition by virtue of which the property, rights and obligations to be extent and value of the inheritance of a person are transmitted through his death to another or others by his will or by operation of law. Petitioners-sellers in the case at bar being the sons and daughters of the decedent Constancio P. Coronel are compulsory heirs who were called to succession by operation of law. Thus, at the point their father drew his last breath, petitioners stepped into his shoes insofar as the subject property is concerned, such that any rights or obligations pertaining thereto became binding and enforceable upon them. It is expressly provided that rights to the succession are transmitted from the moment of death of the decedent (Article 777, Civil Code; Cuison vs. Villanueva, 90 Phil. 850 [1952]). Be it also noted that petitioners' claim that succession may not be declared unless the creditors have been paid is rendered moot by the fact that they were able to effect the transfer of the title to the property from the decedent's name to their names on February 6, 1985. Aside from this, petitioners are precluded from raising their supposed lack of capacity to enter into an agreement at that time and they cannot be allowed to now take a posture contrary to that which they took when they entered into the agreement with private respondent Ramona P. Alcaraz. The Civil Code expressly states that: Art. 1431. Through estoppel an admission or representation is rendered conclusive upon the person making it, and cannot be denied or disproved as against the person relying thereon. Having represented themselves as the true owners of the subject property at the time of sale, petitioners cannot claim now that they were not yet the absolute owners thereof at that time. Petitioners also contend that although there was in fact a perfected contract of sale between them and Ramona P. Alcaraz, the latter breached her reciprocal obligation when she rendered impossible the consummation thereof by going to the United States of America, without leaving her address, telephone number, and Special Power of Attorney (Paragraphs 14 and 15, Answer with Compulsory Counterclaim to the Amended Complaint, p. 2; Rollo, p. 43), for which reason, so petitioners conclude, they were correct in unilaterally rescinding rescinding the contract of sale. We do not agree with petitioners that there was a valid rescission of the contract of sale in the instant case. We note that these supposed grounds for petitioners' rescission, are mere allegations found only in their responsive pleadings, which by express provision of the rules, are deemed controverted even if no reply is filed by the plaintiffs (Sec. 11, Rule 6, Revised Rules of Court). The records are absolutely bereft of any supporting evidence to substantiate petitioners' allegations. We have stressed time and again that

allegations must be proven by sufficient evidence (Ng Cho Cio vs. Ng Diong, 110 Phil. 882 [1961]; Recaro vs. Embisan, 2 SCRA 598 [1961]. Mere allegation is not an evidence (Lagasca vs. De Vera, 79 Phil. 376 [1947]). Even assuming arguendo that Ramona P. Alcaraz was in the United States of America on February 6, 1985, we cannot justify petitioner-sellers' act of unilaterally and extradicially rescinding the contract of sale, there being no express stipulation authorizing the sellers to extarjudicially rescind the contract of sale. (cf. Dignos vs. CA, 158 SCRA 375 [1988]; Taguba vs. Vda. de Leon, 132 SCRA 722 [1984]) Moreover, petitioners are estopped from raising the alleged absence of Ramona P. Alcaraz because although the evidence on record shows that the sale was in the name of Ramona P. Alcaraz as the buyer, the sellers had been dealing with Concepcion D. Alcaraz, Ramona's mother, who had acted for and in behalf of her daughter, if not also in her own behalf. Indeed, the down payment was made by Concepcion D. Alcaraz with her own personal check (Exh. "B"; Exh. "2") for and in behalf of Ramona P. Alcaraz. There is no evidence showing that petitioners ever questioned Concepcion's authority to represent Ramona P. Alcaraz when they accepted her personal check. Neither did they raise any objection as regards payment being effected by a third person. Accordingly, as far as petitioners are concerned, the physical absence of Ramona P. Alcaraz is not a ground to rescind the contract of sale. Corollarily, Ramona P. Alcaraz cannot even be deemed to be in default, insofar as her obligation to pay the full purchase price is concerned. Petitioners who are precluded from setting up the defense of the physical absence of Ramona P. Alcaraz as above-explained offered no proof whatsoever to show that they actually presented the new transfer certificate of title in their names and signified their willingness and readiness to execute the deed of absolute sale in accordance with their agreement. Ramona's corresponding obligation to pay the balance of the purchase price in the amount of P1,190,000.00 (as buyer) never became due and demandable and, therefore, she cannot be deemed to have been in default. Article 1169 of the Civil Code defines when a party in a contract involving reciprocal obligations may be considered in default, to wit: Art. 1169. Those obliged to deliver or to do something, incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation. xxx xxx xxx In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. From the moment one of the parties fulfill his obligation, delay by the other begins. (Emphasis supplied.) There is thus neither factual nor legal basis to rescind the contract of sale between petitioners and respondents. With the foregoing conclusions, the sale to the other petitioner, Catalina B. Mabanag, gave rise to a case of double sale where Article 1544 of the Civil Code will apply, to wit: Art. 1544. If the same thing should have been sold to different vendees, the ownership shall be transferred to the person who may have first taken possession thereof in good faith, if it should be movable property. Should if be immovable property, the ownership shall belong to the person acquiring it who in good faith first recorded it in Registry of Property. Should there be no inscription, the ownership shall pertain to the person who in good faith was first in the possession; and, in the absence thereof to the person who presents the oldest title, provided there is good faith. The record of the case shows that the Deed of Absolute Sale dated April 25, 1985 as proof of the second contract of sale was registered with the Registry of Deeds of Quezon City giving rise to the issuance of a new certificate of title in the name of Catalina B. Mabanag on June 5, 1985. Thus, the second paragraph of Article 1544 shall apply. The above-cited provision on double sale presumes title or ownership to pass to the first buyer, the exceptions being: (a) when the second buyer, in

good faith, registers the sale ahead of the first buyer, and (b) should there be no inscription by either of the two buyers, when the second buyer, in good faith, acquires possession of the property ahead of the first buyer. Unless, the second buyer satisfies these requirements, title or ownership will not transfer to him to the prejudice of the first buyer. In his commentaries on the Civil Code, an accepted authority on the subject, now a distinguished member of the Court, Justice Jose C. Vitug, explains: The governing principle is prius tempore, potior jure (first in time, stronger in right). Knowledge by the first buyer of the second sale cannot defeat the first buyer's rights except when the second buyer first registers in good faith the second sale (Olivares vs. Gonzales, 159 SCRA 33). Conversely, knowledge gained by the second buyer of the first sale defeats his rights even if he is first to register, since knowledge taints his registration with bad faith (see also Astorga vs. Court of Appeals, G.R. No. 58530, 26 December 1984). In Cruz vs. Cabana (G.R. No. 56232, 22 June 1984, 129 SCRA 656), it has held that it is essential, to merit the protection of Art. 1544, second paragraph, that the second realty buyer must act in good faith in registering his deed of sale (citing Carbonell vs. Court of Appeals, 69 SCRA 99, Crisostomo vs. CA, G.R. No. 95843, 02 September 1992). (J. Vitug Compendium of Civil Law and Jurisprudence, 1993 Edition, p. 604). Petitioner point out that the notice of lis pendens in the case at bar was annoted on the title of the subject property only on February 22, 1985, whereas, the second sale between petitioners Coronels and petitioner Mabanag was supposedly perfected prior thereto or on February 18, 1985. The idea conveyed is that at the time petitioner Mabanag, the second buyer, bought the property under a clean title, she was unaware of any adverse claim or previous sale, for which reason she is buyer in good faith. We are not persuaded by such argument. In a case of double sale, what finds relevance and materiality is not whether or not the second buyer was a buyer in good faith but whether or not said second buyer registers such second sale in good faith, that is, without knowledge of any defect in the title of the property sold. As clearly borne out by the evidence in this case, petitioner Mabanag could not have in good faith, registered the sale entered into on February 18, 1985 because as early as February 22, 1985, a notice of lis pendens had been annotated on the transfer certificate of title in the names of petitioners, whereas petitioner Mabanag registered the said sale sometime in April, 1985. At the time of registration, therefore, petitioner Mabanag knew that the same property had already been previously sold to private respondents, or, at least, she was charged with knowledge that a previous buyer is claiming title to the same property. Petitioner Mabanag cannot close her eyes to the defect in petitioners' title to the property at the time of the registration of the property. This Court had occasions to rule that: If a vendee in a double sale registers that sale after he has acquired knowledge that there was a previous sale of the same property to a third party or that another person claims said property in a pervious sale, the registration will constitute a registration in bad faith and will not confer upon him any right. (Salvoro vs. Tanega, 87 SCRA 349 [1978]; citing Palarca vs. Director of Land, 43 Phil. 146; Cagaoan vs. Cagaoan, 43 Phil. 554; Fernandez vs. Mercader, 43 Phil. 581.) Thus, the sale of the subject parcel of land between petitioners and Ramona P. Alcaraz, perfected on February 6, 1985, prior to that between petitioners and Catalina B. Mabanag on February 18, 1985, was correctly upheld by both the courts below. Although there may be ample indications that there was in fact an agency between Ramona as principal and Concepcion, her mother, as agent insofar as the subject contract of sale is concerned, the issue of whether or not Concepcion was also acting in her own behalf as a co-buyer is not squarely raised in the instant petition, nor in such assumption disputed between mother

and daughter. Thus, We will not touch this issue and no longer disturb the lower courts' ruling on this point. WHEREFORE, premises considered, the instant petition is hereby DISMISSED and the appealed judgment AFFIRMED. ____________________________________________ G.R. No 118114 December 7, 1995 TEODORO ACAP, petitioner, vs. COURT OF APPEALS and EDY DE LOS REYES, respondents. PADILLA, J.: This is a petition for review on certiorari of the decision 1 of the Court of Appeals, 2nd Division, in CA-G.R. No. 36177, which affirmed the decision 2 of the Regional Trial Court of Himamaylan, Negros Occidental holding that private respondent Edy de los Reyes had acquired ownership of Lot No. 1130 of the Cadastral Survey of Hinigaran, Negros Occidental based on a document entitled "Declaration of Heirship and Waiver of Rights", and ordering the dispossession of petitioner as leasehold tenant of the land for failure to pay rentals. The facts of the case are as follows: The title to Lot No. 1130 of the Cadastral Survey of Hinigaran, Negros Occidental was evidenced by OCT No. R-12179. The lot has an area of 13,720 sq. meters. The title was issued and is registered in the name of spouses Santiago Vasquez and Lorenza Oruma. After both spouses died, their only son Felixberto inherited the lot. In 1975, Felixberto executed a duly notarized document entitled "Declaration of Heirship and Deed of Absolute Sale" in favor of Cosme Pido. The evidence before the court a quo established that since 1960, petitioner Teodoro Acap had been the tenant of a portion of the said land, covering an area of nine thousand five hundred (9,500) meters. When ownership was transferred in 1975 by Felixberto to Cosme Pido, Acap continued to be the registered tenant thereof and religiously paid his leasehold rentals to Pido and thereafter, upon Pido's death, to his widow Laurenciana. The controversy began when Pido died intestate and on 27 November 1981, his surviving heirs executed a notarized document denominated as "Declaration of Heirship and Waiver of Rights of Lot No. 1130 Hinigaran Cadastre," wherein they declared; to quote its pertinent portions, that: . . . Cosme Pido died in the Municipality of Hinigaran, Negros Occidental, he died intestate and without any known debts and obligations which the said parcel of land is (sic) held liable. That Cosme Pido was survived by his/her legitimate heirs, namely: LAURENCIANA PIDO, wife, ELY, ERVIN, ELMER, and ELECHOR all surnamed PIDO; children; That invoking the provision of Section 1, Rule 74 of the Rules of Court, the above-mentioned heirs do hereby declare unto [sic] ourselves the only heirs of the late Cosme Pido and that we hereby adjudicate unto ourselves the above-mentioned parcel of land in equal shares. Now, therefore, We LAURENCIANA 3, ELY, ELMER, ERVIN and ELECHOR all surnamed PIDO, do hereby waive, quitclaim all our rights, interests and participation over the said parcel of land in favor of EDY DE LOS REYES, of legal age, (f)ilipino, married to VIRGINIA DE LOS REYES, and resident of Hinigaran, Negros Occidental, Philippines. . . . 4 (Emphasis supplied) The document was signed by all of Pido's heirs. Private respondent Edy de los Reyes did not sign said document. It will be noted that at the time of Cosme Pido's death, title to the property continued to be registered in the name of the Vasquez spouses. Upon obtaining the Declaration of Heirship with Waiver of Rights in his favor, private respondent Edy de los Reyes filed the same with the Registry of Deeds as part of a notice of an adverse claimagainst the original certificate of title.

Thereafter, private respondent sought for petitioner (Acap) to personally inform him that he (Edy) had become the new owner of the land and that the lease rentals thereon should be paid to him. Private respondent further alleged that he and petitioner entered into an oral lease agreement wherein petitioner agreed to pay ten (10) cavans of palay per annum as lease rental. In 1982, petitioner allegedly complied with said obligation. In 1983, however, petitioner refused to pay any further lease rentals on the land, prompting private respondent to seek the assistance of the then Ministry of Agrarian Reform (MAR) in Hinigaran, Negros Occidental. The MAR invited petitioner to a conference scheduled on 13 October 1983. Petitioner did not attend the conference but sent his wife instead to the conference. During the meeting, an officer of the Ministry informed Acap's wife about private respondent's ownership of the said land but she stated that she and her husband (Teodoro) did not recognize private respondent's claim of ownership over the land. On 28 April 1988, after the lapse of four (4) years, private respondent filed a complaint for recovery of possession and damages against petitioner, alleging in the main that as his leasehold tenant, petitioner refused and failed to pay the agreed annual rental of ten (10) cavans of palay despite repeated demands. During the trial before the court a quo, petitioner reiterated his refusal to recognize private respondent's ownership over the subject land. He averred that he continues to recognize Cosme Pido as the owner of the said land, and having been a registered tenant therein since 1960, he never reneged on his rental obligations. When Pido died, he continued to pay rentals to Pido's widow. When the latter left for abroad, she instructed him to stay in the landholding and to pay the accumulated rentals upon her demand or return from abroad. Petitioner further claimed before the trial court that he had no knowledge about any transfer or sale of the lot to private respondent in 1981 and even the following year after Laurenciana's departure for abroad. He denied having entered into a verbal lease tenancy contract with private respondent and that assuming that the said lot was indeed sold to private respondent without his knowledge, R.A. 3844, as amended, grants him the right to redeem the same at a reasonable price. Petitioner also bewailed private respondent's ejectment action as a violation of his right to security of tenure under P.D. 27. On 20 August 1991, the lower court rendered a decision in favor of private respondent, the dispositive part of which reads: WHEREFORE, premises considered, the Court renders judgment in favor of the plaintiff, Edy de los Reyes, and against the defendant, Teodoro Acap, ordering the following, to wit: 1. Declaring forfeiture of defendant's preferred right to issuance of a Certificate of Land Transfer under Presidential Decree No. 27 and his farmholdings; 2. Ordering the defendant Teodoro Acap to deliver possession of said farm to plaintiff, and; 3. Ordering the defendant to pay P5,000.00 as attorney's fees, the sum of P1,000.00 as expenses of litigation and the amount of P10,000.00 as actual damages. 5 In arriving at the above-mentioned judgment, the trial court stated that the evidence had established that the subject land was "sold" by the heirs of Cosme Pido to private respondent. This is clear from the following disquisitions contained in the trial court's six (6) page decision: There is no doubt that defendant is a registered tenant of Cosme Pido. However, when the latter died their tenancy relations changed since ownership of said land was passed on to his heirs who, by executing a Deed of Sale, which defendant admitted in his affidavit, likewise passed on their ownership of Lot 1130 to herein plaintiff (private respondent). As owner hereof, plaintiff has the right to demand payment of rental and the tenant is obligated to pay rentals due from the time demand is made. . . . 6 xxx xxx xxx

Certainly, the sale of the Pido family of Lot 1130 to herein plaintiff does not of itself extinguish the relationship. There was only a change of the personality of the lessor in the person of herein plaintiff Edy de los Reyes who being the purchaser or transferee, assumes the rights and obligations of the former landowner to the tenant Teodoro Acap, herein defendant. 7 Aggrieved, petitioner appealed to the Court of Appeals, imputing error to the lower court when it ruled that private respondent acquired ownership of Lot No. 1130 and that he, as tenant, should pay rentals to private respondent and that failing to pay the same from 1983 to 1987, his right to a certificate of land transfer under P.D. 27 was deemed forfeited. The Court of Appeals brushed aside petitioner's argument that the Declaration of Heirship and Waiver of Rights (Exhibit "D"), the document relied upon by private respondent to prove his ownership to the lot, was excluded by the lower court in its order dated 27 August 1990. The order indeed noted that the document was not identified by Cosme Pido's heirs and was not registered with the Registry of Deeds of Negros Occidental. According to respondent court, however, since the Declaration of Heirship and Waiver of Rights appears to have been duly notarized, no further proof of its due execution was necessary. Like the trial court, respondent court was also convinced that the said document stands as prima facie proof of appellee's (private respondent's) ownership of the land in dispute. With respect to its non-registration, respondent court noted that petitioner had actual knowledge of the subjectsale of the land in dispute to private respondent because as early as 1983, he (petitioner) already knew of private respondent's claim over the said land but which he thereafter denied, and that in 1982, he (petitioner) actually paid rent to private respondent. Otherwise stated, respondent court considered this fact of rental payment in 1982 as estoppel on petitioner's part to thereafter refute private respondent's claim of ownership over the said land. Under these circumstances, respondent court ruled that indeed there was deliberate refusal by petitioner to pay rent for a continued period of five years that merited forfeiture of his otherwise preferred right to the issuance of a certificate of land transfer. In the present petition, petitioner impugns the decision of the Court of Appeals as not in accord with the law and evidence when it rules that private respondent acquired ownership of Lot No. 1130 through the aforementioned Declaration of Heirship and Waiver of Rights. Hence, the issues to be resolved presently are the following: 1. WHETHER OR NOT THE SUBJECT DECLARATION OF HEIRSHIP AND WAIVER OF RIGHTS IS A RECOGNIZED MODE OF ACQUIRING OWNERSHIP BY PRIVATE RESPONDENT OVER THE LOT IN QUESTION. 2. WHETHER OR NOT THE SAID DOCUMENT CAN BE CONSIDERED A DEED OF SALE IN FAVOR OF PRIVATE RESPONDENT OF THE LOT IN QUESTION. Petitioner argues that the Regional Trial Court, in its order dated 7 August 1990, explicitly excluded the document marked as Exhibit "D" (Declaration of Heirship, etc.) as private respondent's evidence because it was not registered with the Registry of Deeds and was not identified by anyone of the heirs of Cosme Pido. The Court of Appeals, however, held the same to be admissible, it being a notarized document, hence, a prima facie proof of private respondents' ownership of the lot to which it refers. Petitioner points out that the Declaration of Heirship and Waiver of Rights is not one of the recognized modes of acquiring ownership under Article 712 of the Civil Code. Neither can the same be considered a deed of sale so as to transfer ownership of the land to private respondent because no consideration is stated in the contract (assuming it is a contract or deed of sale). Private respondent defends the decision of respondent Court of Appeals as in accord with the evidence and the law. He posits that while it may indeed be true that the trial court excluded his Exhibit "D" which is the Declaration of Heirship and Waiver of Rights as part of his evidence, the trial

court declared him nonetheless owner of the subject lot based on other evidence adduced during the trial, namely, the notice of adverse claim (Exhibit "E") duly registered by him with the Registry of Deeds, which contains the questioned Declaration of Heirship and Waiver of Rights as an integral part thereof. We find the petition impressed with merit. In the first place, an asserted right or claim to ownership or a real right over a thing arising from a juridical act, however justified, is not per se sufficient to give rise to ownership over the res. That right or title must be completed by fulfilling certain conditions imposed by law. Hence, ownership and real rights are acquired only pursuant to a legal mode or process. While title is the juridical justification, mode is the actual process of acquisition or transfer of ownership over a thing in question. 8 Under Article 712 of the Civil Code, the modes of acquiring ownership are generally classified into two (2) classes, namely, the original mode (i.e., through occupation, acquisitive prescription, law or intellectual creation) and thederivative mode (i.e., through succession mortis causa or tradition as a result of certain contracts, such as sale, barter, donation, assignment or mutuum). In the case at bench, the trial court was obviously confused as to the nature and effect of the Declaration of Heirship and Waiver of Rights, equating the same with a contract (deed) of sale. They are not the same. In a Contract of Sale, one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other party to pay a price certain in money or its equivalent. 9 Upon the other hand, a declaration of heirship and waiver of rights operates as a public instrument when filed with the Registry of Deeds whereby the intestate heirs adjudicate and divide the estate left by the decedent among themselves as they see fit. It is in effect an extrajudicial settlement between the heirs under Rule 74 of the Rules of Court. 10 Hence, there is a marked difference between a sale of hereditary rights and a waiver of hereditary rights. The first presumes the existence of a contract or deed of sale between the parties. 11 The second is, technically speaking, a mode of extinction of ownership where there is an abdication or intentional relinquishment of a known right with knowledge of its existence and intention to relinquish it, in favor of other persons who are co-heirs in the succession. 12 Private respondent, being then a stranger to the succession of Cosme Pido, cannot conclusively claim ownership over the subject lot on the sole basis of the waiver document which neither recites the elements of either a sale, 13 or a donation, 14 or any other derivative mode of acquiring ownership. Quite surprisingly, both the trial court and public respondent Court of Appeals concluded that a "sale" transpired between Cosme Pido's heirs and private respondent and that petitioner acquired actual knowledge of said sale when he was summoned by the Ministry of Agrarian Reform to discuss private respondent's claim over the lot in question. This conclusion has no basis both in fact and in law. On record, Exhibit "D", which is the "Declaration of Heirship and Waiver of Rights" was excluded by the trial court in its order dated 27 August 1990 because the document was neither registered with the Registry of Deeds nor identified by the heirs of Cosme Pido. There is no showing that private respondent had the same document attached to or made part of the record. What the trial court admitted was Annex "E", a notice of adverse claim filed with the Registry of Deeds which contained the Declaration of Heirship with Waiver of rights and was annotated at the back of the Original Certificate of Title to the land in question. A notice of adverse claim, by its nature, does not however prove private respondent's ownership over the tenanted lot. "A notice of adverse claim is nothing but a notice of a claim adverse to the registered owner, the validity of which is yet to be established in court at some future date, and is no better than a notice of lis pendenswhich is a notice of a case already pending in court." 15

It is to be noted that while the existence of said adverse claim was duly proven, there is no evidence whatsoever that a deed of sale was executed between Cosme Pido's heirs and private respondent transferring the rights of Pido's heirs to the land in favor of private respondent. Private respondent's right or interest therefore in the tenanted lot remains an adverse claim which cannot by itself be sufficient to cancel the OCT to the land and title the same in private respondent's name. Consequently, while the transaction between Pido's heirs and private respondent may be binding on both parties, the right of petitioner as a registered tenant to the land cannot be perfunctorily forfeited on a mere allegation of private respondent's ownership without the corresponding proof thereof. Petitioner had been a registered tenant in the subject land since 1960 and religiously paid lease rentals thereon. In his mind, he continued to be the registered tenant of Cosme Pido and his family (after Pido's death), even if in 1982, private respondent allegedly informed petitioner that he had become the new owner of the land. Under the circumstances, petitioner may have, in good faith, assumed such statement of private respondent to be true and may have in fact delivered 10 cavans of palay as annual rental for 1982 to private respondent. But in 1983, it is clear that petitioner had misgivings over private respondent's claim of ownership over the said land because in the October 1983 MAR conference, his wife Laurenciana categorically denied all of private respondent's allegations. In fact, petitioner even secured a certificate from the MAR dated 9 May 1988 to the effect that he continued to be the registered tenant of Cosme Pido and not of private respondent. The reason is that private respondent never registered the Declaration of Heirship with Waiver of Rights with the Registry of Deeds or with the MAR. Instead, he (private respondent) sought to do indirectly what could not be done directly,i.e., file a notice of adverse claim on the said lot to establish ownership thereover. It stands to reason, therefore, to hold that there was no unjustified or deliberate refusal by petitioner to pay the lease rentals or amortizations to the landowner/agricultural lessor which, in this case, private respondent failed to establish in his favor by clear and convincing evidence. 16 Consequently, the sanction of forfeiture of his preferred right to be issued a Certificate of Land Transfer under P.D. 27 and to the possession of his farmholdings should not be applied against petitioners, since private respondent has not established a cause of action for recovery of possession against petitioner. WHEREFORE, premises considered, the Court hereby GRANTS the petition and the decision of the Court of Appeals dated 1 May 1994 which affirmed the decision of the RTC of Himamaylan, Negros Occidental dated 20 August 1991 is hereby SET ASIDE. The private respondent's complaint for recovery of possession and damages against petitioner Acap is hereby DISMISSED for failure to properly state a cause of action, without prejudice to private respondent taking the proper legal steps to establish the legal mode by which he claims to have acquired ownership of the land in question. ___________________________________ G.R. No. 118509 December 1, 1995 LIMKETKAI SONS MILLING, INC., Petitioner, vs. COURT OF APPEALS, BANK OF THE PHILIPPINE ISLANDS and NATIONAL BOOK STORE, Respondents. virtual law library MELO, J.: virtual law library The issue in the petition before us is whether or not there was a perfected contract between petitioner Limketkai Sons Milling, Inc. and respondent Bank of the Philippine Islands (BPI) covering the sale of a parcel of land, approximately 3.3 hectares in area, and located in Barrio Bagong Ilog, Pasig City, Metro Manila.virtualawlibrary virtual law library Branch 151 of the Regional Trial Court of the National Capital Judicial Region stationed in Pasig ruled that there was a perfected contract of

sale between petitioner and BPI. It stated that there was mutual consent between the parties; the subject matter is definite; and the consideration was determined. It concluded that all the elements of a consensual contract are attendant. It ordered the cancellation of a sale effected by BPI to respondent National Book Store (NBS) while the case was pending and the nullification of a title issued in favor of said respondent NBS.virtualawlibrary virtual law library Upon elevation of the case to the Court of Appeals, it was held that no contract of sale was perfected because there was no concurrence of the three requisites enumerated in Article 1318 of the Civil Code. The decision of the trial court was reversed and the complaint dismissed.virtualawlibrary virtual law library Hence, the instant petition.virtualawlibrary virtual law library Shorn of the interpretations given to the acts of those who participated in the disputed sale, the findings of facts of the trial court and the Court of Appeals narrate basically the same events and occurrences. The records show that on May 14, 1976, Philippine Remnants Co., Inc. constituted BPI as its trustee to manage, administer, and sell its real estate property. One such piece of property placed under trust was the disputed lot, a 33,056-square meter lot at Barrio Bagong Ilog, Pasig, Metro Manila covered by Transfer Certificate of Title No. 493122.virtualawlibrary virtual law library On June 23, 1988, Pedro Revilla, Jr., a licensed real estate broker was given formal authority by BPI to sell the lot for P1,000.00 per square meter. This arrangement was concurred in by the owners of the Philippine Remnants.virtualawlibrary virtual law library Broker Revilla contacted Alfonso Lim of petitioner company who agreed to buy the land. On July 8, 1988, petitioner's officials and Revilla were given permission by Rolando V. Aromin, BPI Assistant Vice-President, to enter and view the property they were buying.virtualawlibrary virtual law library On July 9, 1988, Revilla formally informed BPI that he had procured a buyer, herein petitioner. On July 11, 1988, petitioner's officials, Alfonso Lim and Albino Limketkai, went to BPI to confirm the sale. They were entertained by Vice-President Merlin Albano and Asst. Vice-President Aromin. Petitioner asked that the price of P1,000.00 per square meter be reduced to P900.00 while Albano stated the price to be P1,100.00. The parties finally agreed that the lot would be sold at P1,000.00 per square meter to be paid in cash. Since the authority to sell was on a first come, first served and non-exclusive basis, it may be mentioned at this juncture that there is no dispute over petitioner's being the first comer and the buyer to be first served.virtualawlibrary virtual law library Notwithstanding the final agreement to pay P1,000.00 per square meter on a cash basis, Alfonso Lim asked if it was possible to pay on terms. The bank officials stated that there was no harm in trying to ask for payment on terms because in previous transactions, the same had been allowed. It was the understanding, however, that should the term payment be disapproved, then the price shall be paid in cash.virtualawlibrary virtual law library It was Albano who dictated the terms under which the installment payment may be approved, and acting thereon, Alfonso Lim, on the same date, July 11, 1988, wrote BPI through Merlin Albano embodying the payment initially of 10% and the remaining 90% within a period of 90 days.virtualawlibrary virtual law library Two or three days later, petitioner learned that its offer to pay on terms had been frozen. Alfonso Lim went to BPI on July 18, 1988 and tendered the full payment of P33,056,000.00 to Albano. The payment was refused because Albano stated that the authority to sell that particular piece of property in Pasig had been withdrawn from his unit. The same check was tendered to BPI Vice-President Nelson Bona who also refused to receive payment.virtualawlibrary virtual law library An action for specific performance with damages was thereupon filed on August 25, 1988 by petitioner against BPI. In the course of the trial, BPI informed the trial court that it had sold the property under litigation to NBS on

July 14, 1989. The complaint was thus amended to include NBS.virtualawlibrary virtual law library On June 10, 1991, the trial court rendered judgment in the case as follows: WHEREFORE, judgment is hereby rendered in favor of plaintiff and against defendants Bank of the Philippine Islands and National Book Store, Inc.: - virtual law library 1. Declaring the Deed of Sale of the property covered by T.C.T. No. 493122 in the name of the Bank of the Philippine Islands, situated in Barrio Bagong Ilog, Pasig, Metro Manila, in favor of National Book Store, Inc., null and void; virtual law library 2. Ordering the Register of Deeds of the Province of Rizal to cancel the Transfer Certificate of Title which may have been issued in favor of National Book Store, Inc. by virtue of the aforementioned Deed of Sale dated July 14, 1989; virtual law library 3. Ordering defendant BPI, upon receipt by it from plaintiff of the sum of P33,056,000.00, to execute a Deed of Sale in favor of plaintiff of the aforementioned property at the price of P1,000.00 per square meter; in default thereof, the Clerk of this Court is directed to execute the said deed; virtual law library 4. Ordering the Register of Deeds of Pasig, upon registration of the said deed, whether executed by defendant BPI or the Clerk of Court and payment of the corresponding fees and charges, to cancel said T.C.T. No. 493122 and to issue, in lieu thereof, another transfer certificate of title in the name of plaintiff; virtual law library 5. Ordering defendants BPI and National Book Store, Inc. to pay, jointly and severally, to the plaintiff the sums of P10,000,000.00 as actual and consequential damages and P150,000.00 as attorney's fees and litigation expenses, both with interest at 12% per annum from date hereof; virtual law library 6. On the cross-claim of defendant bank against National Book Store, ordering the latter to indemnify the former of whatever amounts BPI shall have paid to the plaintiff by reason hereof; and virtual law library 7. Dismissing the counterclaims of the defendants against the plaintiff and National Book Store's cross-claim against defendant bank.virtualawlibrary virtual law library Costs against defendants. (pp. 44-45, Rollo.) As earlier intimated, upon the decision being appealed, the Court of Appeals (Buena [P], Rasul, and Mabutas, JJ.), on August 12, 1994, reversed the trial court's decision and dismissed petitioner's complaint for specific performance and damages.virtualawlibrary virtual law library The issues raised by the parties revolve around the following four questions: virtual law library (1) Was there a meeting of the minds between petitioner Limketkai and respondent BPI as to the subject matter of the contract and the cause of the obligation? virtual law library (2) Were the bank officials involved in the transaction authorized by BPI to enter into the questioned contract? virtual law library (3) Is there competent and admissible evidence to support the alleged meeting of the minds? virtual law library (4) Was the sale of the disputed land to the NBS during the pendency of trial effected in good faith? virtual law library There is no dispute in regard to the following: (a) that BPI as trustee of the property of Philippine Remnant Co. authorized a licensed broker, Pedro Revilla, to sell the lot for P1,000.00 per square meter; (b) that Philippine Remnants confirmed the authority to sell of Revilla and the price at which he may sell the lot; (c) that petitioner and Revilla agreed on the former buying the property; (d) that BPI Assistant Vice-President Rolando V. Aromin allowed the broker and the buyer to inspect the property; and (e) that BPI was formally

informed about the broker having procured a buyer.virtualawlibrary virtual law library The controversy revolves around the interpretation or the significance of the happenings or events at this point.virtualawlibrary virtual law library Petitioner states that the contract to sell and to buy was perfected on July 11, 1988 when its top officials and broker Revilla finalized the details with BPI Vice-Presidents Merlin Albano and Rolando V. Aromin at the BPI offices.virtualawlibrary virtual law library Respondents, however, contend that what transpired on this date were part of continuing negotiations to buy the land and not the perfection of the sale. The arguments of respondents center on two propositions - (1) VicePresidents Aromin and Albano had no authority to bind BPI on this particular transaction and (2) the subsequent attempts of petitioner to pay under terms instead of full payment in cash constitutes a counter-offer which negates the existence of a perfected contract.virtualawlibrary virtual law library The alleged lack of authority of the bank officials acting in behalf of BPI is not sustained by the record.virtualawlibrary virtual law library At the start of the transactions, broker Revilla by himself already had full authority to sell the disputed lot. Exhibit B dated June 23, 1988 states, "this will serve as your authority to sell on an as is, where is basis the property located at Pasig Blvd., Bagong Ilog . . . ." We agree with Revilla's testimony that the authority given to him was to sell and not merely to look for a buyer, as contended by respondents.virtualawlibrary virtual law library Revilla testified that at the time he perfected the agreement to sell the litigated property, he was acting for and in behalf of the BPI as if he were the Bank itself. This notwithstanding and to firm up the sale of the land, Revilla saw it fit to bring BPI officials into the transaction. If BPI could give the authority to sell to a licensed broker, we see no reason to doubt the authority to sell of the two BPI Vice-Presidents whose precise job in the Bank was to manage and administer real estate property.virtualawlibrary virtual law library Respondent BPI alleges that sales of trust property need the approval of a Trust Committee made up of top bank officials. It appears from the record that this trust committee meets rather infrequently and it does not have to pass on regular transactions.virtualawlibrary virtual law library Rolando Aromin was BPI Assistant Vice-President and Trust Officer. He directly supervised the BPI Real Property Management Unit. He had been in the Real Estate Division since 1985 and was the head supervising officer of real estate matters. Aromin had been with the BPI Trust Department since 1968 and had been involved in the handling of properties of beneficial owners since 1975 (tsn., December 3, 1990, p. 5).virtualawlibrary virtual law library Exhibit 10 of BPI, the February 15, 1989 letter from Senior VicePresident Edmundo Barcelon, while purporting to inform Aromin of his poor performance, is an admission of BPI that Aromin was in charge of Torrens titles, lease contracts, problems of tenants, insurance policies, installment receivables, management fees, quitclaims, and other matters involving real estate transactions. His immediate superior, Vice-President Merlin Albano had been with the Real Estate Division for only one week but he was present and joined in the discussions with petitioner.virtualawlibrary virtual law library There is nothing to show that Alfonso Lim and Albino Limketkai knew Aromin before the incident. Revilla brought the brothers directly to Aromin upon entering the BPI premises. Aromin acted in a perfectly natural manner on the transaction before him with not the slightest indication that he was acting ultra vires. This shows that BPI held Aromin out to the public as the officer routinely handling real estate transactions and, as Trust Officer, entering into contracts to sell trust properties.virtualawlibrary virtual law library Respondents state and the record shows that the authority to buy and sell this particular trust property was later withdrawn from Trust Officer Aromin and his entire unit. If Aromin did not have any authority to act as alleged, there was no need to withdraw authority which he never possessed.virtualawlibrary virtual law library

Petitioner points to Areola vs. Court of Appeals (236 SCRA 643 [1994]) which cited Prudential Bank vs. Court of Appeals (22 SCRA 350 [1993]), which in turn relied upon McIntosh vs.Dakota Trust Co. (52 ND 752, 204 NW 818, 40 ALR 1021), to wit: Accordingly a banking corporation is liable to innocent third persons where the representation is made in the course of its business by an agent acting within the general scope of his authority even though, in the particular case, the agent is secretly abusing his authority and attempting to perpetrate a fraud upon his principal or some other person for his own ultimate benefit. (at pp. 652-653.) In the present case, the position and title of Aromin alone, not to mention the testimony and documentary evidence about his work, leave no doubt that he had full authority to act for BPI in the questioned transaction. There is no allegation of fraud, nor is there the least indication that Aromin was acting for his own ultimate benefit. BPI later dismissed Aromin because it appeared that a top official of the bank was personally interested in the sale of the Pasig property and did not like Aromin's testimony. Aromin was charged with poor performance but his dismissal was only sometime after he testified in court. More than two long years after the disputed transaction, he was still Assistant Vice-President of BPI.virtualawlibrary virtual law library The records show that the letter of instruction dated June 14, 1988 from the owner of Philippine Remnants Co. regarding the sale of the firm's property was addressed to Aromin. The P1,000.00 figure on the first page of broker Revilla's authority to sell was changed to P1,100.00 by Aromin. The price was later brought down again to P1,000.00, also by Aromin. The permission given to petitioner to view the lot was signed by Aromin and honored by the BPI guards. The letter dated July 9, 1988 from broker Revilla informing BPI that he had a buyer was addressed to Aromin. The conference on July 11, 1988 when the contract was perfected was with Aromin and VicePresident Albano. Albano and Aromin were the ones who assured petitioner Limketkai's officers that term payment was possible. It was Aromin who called up Miguel Bicharra of Philippine Remnants to state that the BPI rejected payment on terms and it was to Aromin that Philippine Remnants gave the go signal to proceed with the cash sale. Everything in the record points to the full authority of Aromin to bind the bank, except for the self-serving memoranda or letters later produced by BPI that Aromin was an inefficient and undesirable officer and who, in fact, was dismissed after he testified in this case. But, of course, Aromin's alleged inefficiency is not proof that he was not fully clothed with authority to bind BPI.virtualawlibrary virtual law library Respondents' second contention is that there was no perfected contract because petitioner's request to pay on terms constituted a counteroffer and that negotiations were still in progress at that point.virtualawlibrary virtual law library Asst. Vice-President Aromin was subpoenaed as a hostile witness for petitioner during trial. Among his statements is one to the effect that . . . Mr. Lim offered to buy the property at P900.00 per square meter while Mr. Albano counter-offered to sell the property at P1,100.00 per square meter but after the usual haggling, we finally agreed to sell the property at the price of P1,000.00 per square meter . . . (tsn, 12-3-90, p. 17; Emphasis supplied.) Asked if there was a meeting of the minds between the buyer and the bank in respect to the price of P1,000.00 per square meter, Aromin answered: Yes, sir, as far as my evaluation there was a meeting of the minds as far as the price is concerned, sir. (ibid, p. 17.) The requirements in the payment of the purchase price on terms instead of cash were suggested by BPI Vice-President Albano. Since the authority given to broker Revilla specified cash payment, the possibility of paying on terms was referred to the Trust Committee but with the mutual agreement that "if the proposed payment on terms will not be approved by our Trust Committee, Limketkai should pay in cash . . . the amount was no longer

subject to the approval or disapproval of the Committee, it is only on the terms." (ibid, p. 19). This is incontrovertibly established in the following testimony of Aromin: A. After you were able to agree on the price of P1,000.00/sq. m., since the letter or authority says the payment must be in cash basis, what transpired later on? virtual law library B. After we have agreed on the price, the Lim brothers inquired on how to go about submitting the covering proposal if they will be allowed to pay on terms. They requested us to give them a guide on how to prepare the corresponding letter of proposal. I recall that, upon the request of Mr. Albino Limketkai, we dictated a guide on how to word a written firm offer that was to be submitted by Mr. Lim to the bank setting out the terms of payment but with the mutual agreement that if his proposed payment on terms will not be approved by our trust committee, Limketkai should pay the price in cash.virtualawlibrary virtual law library Q And did buyer Limketkai agree to pay in cash in case the offer of terms will be cash (disapproved).virtualawlibrary virtual law library A Yes, sir.virtualawlibrary virtual law library Q At the start, did they show their willingness to pay in cash? virtual law library A Yes, sir.virtualawlibrary virtual law library Q You said that the agreement on terms was to be submitted to the trust committee for approval, are you telling the Court that what was to be approved by the trust committee was the provision on the payment on terms? virtual law library A Yes, sir.virtualawlibrary virtual law library Q So the amount was no longer subject to the approval or disapproval of the committee, it is only on the terms? virtual law library A Yes, sir. (tsn, Dec. 3, 1990, pp. 18-19; Emphasis supplied.) The record shows that if payment was in cash, either broker Revilla or Aromin had full authority. But because petitioner took advantage of the suggestion of Vice-President Albano, the matter was sent to higher officials. Immediately upon learning that payment on terms was frozen and/or denied, Limketkai exercised his right within the period given to him and tendered payment in full. The BPI rejected the payment.virtualawlibrary virtual law library In its Comment and Memorandum, respondent NBS cites Ang Yu Asuncion vs. Court of Appeals (238 SCRA 602 [1994]) to bolster its case. Contrarywise, it would seem that the legal principles found in said case strengthen and support petitioner's submission that the contract was perfected upon the meeting of the minds of the parties.virtualawlibrary virtual law library The negotiation or preparation stage started with the authority given by Philippine Remnants to BPI to sell the lot, followed by (a) the authority given by BPI and confirmed by Philippine Remnants to broker Revilla to sell the property, (b) the offer to sell to Limketkai, (c) the inspection of the property and finally (d) the negotiations with Aromin and Albano at the BPI offices.virtualawlibrary virtual law library The perfection of the contract took place when Aromin and Albano, acting for BPI, agreed to sell and Alfonso Lim with Albino Limketkai, acting for petitioner Limketkai, agreed to buy the disputed lot at P1,000.00 per square meter. Aside from this there was the earlier agreement between petitioner and the authorized broker. There was a concurrence of offer and acceptance, on the object, and on the cause thereof.virtualawlibrary virtual law library The phases that a contract goes through may be summarized as follows: a. preparation, conception or generation, which is the period of negotiation and bargaining, ending at the moment of agreement of the parties; virtual law library b. perfection or birth of the contract, which is the moment when the parties come to agree on the terms of the contract; and virtual law library

c. consummation or death, which is the fulfillment or performance of the terms agreed upon in the contract (Toyota Shaw, Inc. vs. Court of Appeals, G.R. No. 116650, May 23, 1995). But in more graphic prose, we turn to Ang Yu Asuncion, per Justice Vitug: . . . A contract undergoes various stages that include its negotiation or preparation, its perfection and, finally, its consummation. Negotiation covers the period from the time the prospective contracting parties indicate interest in the contract to the time the contract is concluded (perfected). The perfection of the contract takes place upon the concurrence of the essential elements thereof. A contract which is consensual as to perfection is so established upon a mere meeting of minds, i.e., the concurrence of offer and acceptance, on the object and on the cause thereof. A contract which requires, in addition to the above, the delivery of the object of the agreement, as in a pledge orcommodatum, is commonly referred to as a real contract. In a solemn contract, compliance with certain formalities prescribed by law, such as in a donation of real property, is essential in order to make the act valid, the prescribed form being thereby an essential element thereof. The stage of consummation begins when the parties perform their respective undertakings under the contract culminating in the extinguishment thereof.virtualawlibrary virtual law library Until the contract is perfected, it cannot, as an independent source of obligation, serve as a binding juridical relation. In sales, particularly, to which the topic for discussion about the case at bench belongs, the contract is perfected when a person, called the seller, obligates himself, for a price certain, to deliver and to transfer ownership of a thing or right to another, called the buyer, over which the latter agrees. (238 SCRA 602; 611 [1994].) In Villonco Realty Company vs. Bormaheco (65 SCRA 352 [1975]), bearing factual antecendents similar to this case, the Court, through Justice Aquino (later to be Chief Justice), quoting authorities, upheld the perfection of the contract of sale thusly: The contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price. From that moment, the parties may reciprocally demand performance, subject to the provisions of the law governing the form of contracts. (Art. 1475, Ibid.) xxx xxx xxx virtual law library Consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. The offer must be certain and the acceptance absolute. A qualified acceptance constitutes a counter-offer (Art. 1319, Civil Code). "An acceptance may be express or implied." (Art. 1320, Civil Code). xxx xxx xxx It is true that an acceptance may contain a request for certain changes in the terms of the offer and yet be a binding acceptance. "So long as it is clear that the meaning of the acceptance is positively and unequivocally to accept the offer, whether such request is granted or not, a contract is formed." (Stuart vs. Franklin Life Ins. Co., 105 Fed. 2nd 965, citing Sec. 79, Williston on Contracts). xxx xxx xxx virtual law library . . . the vendor's change in a phrase of the offer to purchase, which change does not essentially change the terms of the offer, does not amount to a rejection of the offer and the tender or a counter-offer. (Stuart vs. Franklin Life Ins. Co., supra.) (at pp. 362-363; 365-366.) In the case at bench, the allegation of NBS that there was no concurrence of the offer and acceptance upon the cause of the contract is belied by the testimony of the very BPI official with whom the contract was perfected. Aromin and Albano concluded the sale for BPI. The fact that the deed of sale still had to be signed and notarized does not mean that no contract had already been perfected. A sale of land is valid regardless of the

form it may have been entered into (Claudel vs. Court of Appeals, 199 SCRA 113, 119 [1991]). The requisite form under Article 1458 of the Civil Code is merely for greater efficacy or convenience and the failure to comply therewith does not affect the validity and binding effect of the act between the parties (Vitug, Compendium of Civil Law and Jurisprudence, 1993 Revised Edition, p. 552). If the law requires a document or other special form, as in the sale of real property, the contracting parties may compel each other to observe that form, once the contract has been perfected. Their right may be exercised simultaneously with action upon the contract (Article 1359, Civil Code).virtualawlibrary virtual law library Regarding the admissibility and competence of the evidence adduced by petitioner, respondent Court of Appeals ruled that because the sale involved real property, the statute of frauds is applicable.virtualawlibrary virtual law library In any event, petitioner cites Abrenica vs. Gonda (34 Phil. 739 [1916]) wherein it was held that contracts infringing the Statute of Frauds are ratified when the defense fails to object, or asks questions on crossexamination. The succinct words of Justice Araullo still ring in judicial cadence: As no timely objection or protest was made to the admission of the testimony of the plaintiff with respect to the contract; and as the motion to strike out said evidence came too late; and, furthermore, as the defendants themselves, by the cross-questions put by their counsel to the witnesses in respect to said contract, tacitly waived their right to have it stricken out, that evidence, therefore, cannot be considered either inadmissible or illegal, and court, far from having erred in taking it into consideration and basing his judgment thereon, notwithstanding the fact that it was ordered to be stricken out during the trial, merely corrected the error he committed in ordering it to be so stricken out and complied with the rules of procedure hereinbefore cited. (at p. 748.) In the instant case, counsel for respondents cross-examined petitioner's witnesses at length on the contract itself, the purchase price, the tender of cash payment, the authority of Aromin and Revilla, and other details of the litigated contract. Under the Abrenica rule (reiterated in a number of cases, among them Talosig vs. Vda. de Nieba 43 SCRA 472 [1972]), even assuming that parol evidence was initially inadmissible, the same became competent and admissible because of the cross-examination, which elicited evidence proving the evidence of a perfected contract. The cross-examination on the contract is deemed a waiver of the defense of the Statute of Frauds (Vitug, Compendium of Civil Law and Jurisprudence, 1993 Revised Edition, supra, p. 563).virtualawlibrary virtual law library The reason for the rule is that as pointed out in Abrenica "if the answers of those witnesses were stricken out, the cross-examination could have no object whatsoever, and if the questions were put to the witnesses and answered by them, they could only be taken into account by connecting them with the answers given by those witnesses on direct examination" (pp. 747748).virtualawlibrary virtual law library Moreover, under Article 1403 of the Civil Code, an exception to the unenforceability of contracts pursuant to the Statute of Frauds is the existence of a written note or memorandum evidencing the contract. The memorandum may be found in several writings, not necessarily in one document. The memorandum or memoranda is/are written evidence that such a contract was entered into.virtualawlibrary virtual law library We cite the findings of the trial court on this matter: In accordance with the provisions of Art. 1403 of the Civil Code, the existence of a written contract of the sale is not necessary so long as the agreement to sell real property is evidenced by a written note or memorandum, embodying the essentials of the contract and signed by the party charged or his agent. Thus, it has been held: The Statute of Frauds, embodied in Article 1403 of the Civil Code of the Philippines, does not require that the contract itself be written. The plain test of Article 1403, Paragraph (2) is clear that a written note or memorandum,

embodying the essentials of the contract and signed by the party charged, or his agent suffices to make the verbal agreement enforceable, taking it out of the operation of the statute. (Emphasis supplied) xxx xxx xxx In the case at bar, the complaint in its paragraph 3 pleads that the deal had been closed by letter and telegram (Record on Appeal, p. 2), and the letter referred to was evidently the one copy of which was appended as Exhibit A to plaintiffs opposition to the motion to dismiss. The letter, transcribed above in part, together with the one marked as Appendix B, constitute an adequate memorandum of the transaction. They are signed by the defendant-appellant; refer to the property sold as a Lot in Puerto Princesa, Palawan, covered by T.C.T. No. 62, give its area as 1,825 square meters and the purchase price of four (P4.00) pesos per square meter payable in cash. We have in them, therefore, all the essential terms of the contract and they satisfy the requirements of the Statute of Frauds. (Footnote 26, Paredes vs. Espino, 22 SCRA 1000 [1968]).virtualawlibrary virtual law library While there is no written contract of sale of the Pasig property executed by BPI in favor of plaintiff, there are abundant notes and memoranda extant in the records of this case evidencing the elements of a perfected contract. There is Exhibit P, the letter of Kenneth Richard Awad addressed to Roland Aromin, authorizing the sale of the subject property at the price of P1,000.00 per square meter giving 2% commission to the broker and instructing that the sale be on cash basis. Concomitantly, on the basis of the instruction of Mr. Awad, (Exh. P), an authority to sell, (Exh. B) was issued by BPI to Pedro Revilla, Jr., representing Assetrade Co., authorizing the latter to sell the property at the initial quoted price of P1,000.00 per square meter which was altered on an unaccepted offer by Technoland. After the letter authority was issued to Mr. Revilla, a letter authority was signed by Mr. Aromin allowing the buyer to enter the premises of the property to inspect the same (Exh. C). On July 9, 1988, Pedro Revilla, Jr., acting as agent of BPI, wrote a letter to BPI informing it that he had procured a buyer in the name of Limketkai Sons Milling, Inc. with offices at Limketkai Bldg., Greenhills, San Juan, Metro Manila, represented by its Exec. Vice-President, Alfonso Lim (Exh. D). On July 11, 1988, the plaintiff, through Alfonso Lim, wrote a letter to the bank, through Merlin Albano, confirming their transaction regarding the purchase of the subject property (Exh. E). On July 18, 1988, the plaintiff tendered upon the officials of the bank a check for P33,056,000.00 covered by Check No. CA510883, dated July 18, 1988. On July 1, 1988, Alfonso Zamora instructed Mr. Aromin in a letter to resubmit new offers only if there is no transaction closed with Assetrade Co. (Exh. S). Combining all these notes and memoranda, the Court is convinced of the existence of perfected contract of sale. Aptly, the Supreme Court, citing American cases with approval, held: No particular form of language or instrument is necessary to constitute a memorandum or note in writing under the statute of frauds; any document or writing, formal or informal, written either for the purpose of furnishing evidence of the contract or for another purpose, which satisfies all the requirements of the statute as to contents and signature, as discussed respectively infra secs. 178-200, and infra secs. 201-205, is a sufficient memorandum or note. A memorandum may be written as well with lead pencil as with pen and ink. It may also be filled in on a printed form. (37 C.J.S., 653654).virtualawlibrary virtual law library The note or memorandum required by the statute of frauds need not be contained in a single document, nor, when contained in two or more papers, need each paper be sufficient as to contents and signature to satisfy the statute. Two or more writings properly connected may be considered together, matters missing or uncertain in one may be supplied or rendered certain by another, and their sufficiency will depend on whether, taken together, they meet the requirements of the statute as to contents and the requirements of the statutes as to signature, as considered respectively infra secs. 179-200 and secs. 201-215.

(pp. 460-463, Original RTC Record). The credibility of witnesses is also decisive in this case. The trial court directly observed the demeanor and manner of testifying of the witnesses while the Court of Appeals relied merely on the transcript of stenographic notes.virtualawlibrary virtual law library In this regard, the court of origin had this to say: Apart from weighing the merits of the evidence of the parties, the Court had occasion to observe the demeanor of the witnesses they presented. This is one important factor that inclined the Court to believe in the version given by the plaintiff because its witnesses, including hostile witness Roland V. Aromin, an assistant vice-president of the bank, were straightforward, candid and unhesitating in giving their respective testimonies. Upon the other hand, the witnesses of BPI were evasive, less than candid and hesitant in giving their answers to cross examination questions. Moreover, the witnesses for BPI and NBS contradicted each other. Fernando Sison III insisted that the authority to sell issued to Mr. Revilla was merely an evidence by which a broker may convince a prospective buyer that he had authority to offer the property mentioned therein for sale and did not bind the bank. On the contrary, Alfonso Zamora, a Senior Vice-President of the bank, admitted that the authority to sell issued to Mr. Pedro Revilla, Jr. was valid, effective and binding upon the bank being signed by two class "A" signatories and that the bank cannot back out from its commitment in the authority to sell to Mr. Revilla.virtualawlibrary virtual law library While Alfredo Ramos of NBS insisted that he did not know personally and was not acquainted with Edmundo Barcelon, the latter categorically admitted that Alfredo Ramos was his friend and that they have even discussed in one of the luncheon meetings the matter of the sale of the Pasig property to NBS. George Feliciano emphatically said that he was not a consultant of Mr. Ramos nor was he connected with him in any manner, but his calling card states that he was a consultant to the chairman of the Pacific Rim Export and Holdings Corp. whose chairman is Alfredo Ramos. This deliberate act of Mr. Feliciano of concealing his being a consultant to Mr. Alfredo Ramos evidently was done by him to avoid possible implication that he committed some underhanded maneuvers in manipulating to have the subject property sold to NBS, instead of being sold to the plaintiff. (pp. 454-455, Original RTC Record.) On the matter of credibility of witnesses where the findings or conclusions of the Court of Appeals and the trial court are contrary to each other, the pronouncement of the Court in Serrano vs. Court of Appeals (196 SCRA 107 [1991]) bears stressing: It is a settled principle of civil procedure that the conclusions of the trial court regarding the credibility of witnesses are entitled to great respect from the appellate courts because the trial court had an opportunity to observe the demeanor of witnesses while giving testimony which may indicate their candor or lack thereof. While the Supreme Court ordinarily does not rule on the issue of credibility of witnesses, that being a question of fact not properly raised in a petition under Rule 45, the Court has undertaken to do so in exceptional situations where, for instance, as here, the trial court and the Court of Appeals arrived at divergent conclusions on questions of fact and the credibility of witnesses. (at p. 110.) On the fourth question of whether or not NBS is an innocent purchaser for value, the record shows that it is not. It acted in bad faith.virtualawlibrary virtual law library Respondent NBS ignored the notice of lis pendens annotated on the title when it bought the lot. It was the willingness and design of NBS to buy property already sold to another party which led BPI to dishonor the contract with Limketkai.virtualawlibrary virtual law library Petitioner cites several badges of fraud indicating that BPI and NBS conspired to prevent petitioner from paying the agreed price and getting possession of the property: virtual law library

1. The sale was supposed to be done through an authorized broker, but top officials of BPI personally and directly took over this particular sale when a close friend became interested.virtualawlibrary virtual law library 2. BPI Senior Vice President Edmundo Barcelon admitted that NBS's President, Alfredo Ramos, was his friend; that they had lunch meetings before this incident and discussed NBS's purchase of the lot. Barcelon's father was a business associate of Ramos.virtualawlibrary virtual law library 3. George Feliciano, in behalf of NBS, offered P5 million and later P7 million if petitioner would drop the case and give up the lot. Feliciano went to petitioner's office and haggled with Alfonso Lim but failed to convince him inspite of various and increasing offers.virtualawlibrary virtual law library 4. In a place where big and permanent buildings abound, NBS had constructed only a warehouse marked by easy portability. The warehouse is bolted to its foundations and can easily be dismantled.virtualawlibrary virtual law library It is the very nature of the deed of absolute sale between BPI and NBS which, however, clearly negates any allegation of good faith on the part of the buyer. Instead of the vendee insisting that the vendor guarantee its title to the land and recognize the right of the vendee to proceed against the vendor if the title to the land turns out to be defective as when the land belongs to another person, the reverse is found in the deed of sale between BPI and NBS. Any losses which NBS may incur in the event the title turns out to be vested in another person are to be borne by NBS alone. BPI is expressly freed under the contract from any recourse of NBS against it should BPI's title be found defective.virtualawlibrary virtual law library NBS, in its reply memorandum, does not refute or explain the above circumstance squarely. It simply cites the badges of fraud mentioned in Oria vs. McMicking (21 Phil. 243 [1912]) and argues that the enumeration there is exclusive. The decision in said case plainly states "the following are some of the circumstances attending sales which have been denominated by courts (as) badges of fraud." There are innumerable situations where fraud is manifested. One enumeration in a 1912 decision cannot possibly cover all indications of fraud from that time up to the present and into the future.virtualawlibrary virtual law library The Court of Appeals did not discuss the issue of damages. Petitioner cites the fee for filing the amended complaint to implead NBS, sheriffs fees, registration fees, plane fare and hotel expenses of Cebu-based counsel. Petitioner also claimed, and the trial court awarded, damages for the profits and opportunity losses caused to petitioner's business in the amount of P10,000,000.00.virtualawlibrary virtual law library We rule that the profits and the use of the land which were denied to petitioner because of the non-compliance or interference with a solemn obligation by respondents is somehow made up by the appreciation in land values in the meantime.virtualawlibrary virtual law library Prescinding from the above, we rule that there was a perfected contract between BPI and petitioner Limketkai; that the BPI officials who transacted with petitioner had full authority to bind the bank; that the evidence supporting the sale is competent and admissible; and that the sale of the lot to NBS during the trial of the case was characterized by bad faith.virtualawlibrary virtual law library WHEREFORE, the questioned judgment of the Court of Appeals is hereby REVERSED and SET ASIDE. The June 10, 1991 judgment of Branch 151 of the Regional Trial Court of The National Capital Judicial Region stationed in Pasig, Metro Manila is REINSTATED except for the award of Ten Million Pesos (P10,000,000.00) damages which is hereby DELETED. _____________________________________________ [G.R. No. 112733. October 24, 1997] PEOPLES INDUSTRIAL AND COMMERCIAL CORPORATION, petitioner, vs. COURT OF APPEALS AND MAR-ICK INVESTMENT CORPORATION, respondents. DECISION

ROMERO, J.: This petition for review on certiorari of the Decision of the Court of Appeals arose from the complaint for accion publiacana de posesion over several subdivision lots that was premised on the automatic cancellation of the contracts to sell those lots. Private respondents Mar-ick Investment Corporation is the exclusive and registered owner of Mar-ick Subdivision in Barrio Buli, Cainta, Rizal. On May 29, 1961, private respondents entered into six (6) agreements with petitioner Peoples Industrial and Commercial Corporation whereby it agreed to sell to petitioner six (6) subdivision lots. Except for Lot No. 8 that has an area of 253 square meters, all the lots measure 240 square meters each. Five of the agreements, involving Lots. Nos. 3, 4, 5, 6 and 7, similarly stipulate that the petitioner agreed to pay private respondents for each lot, the amount of P 7,333.20 with a down payment of P 480.00. The balance of P 6,853.20 shall be payable in 120 equal monthly installments of P 57.11 every 30th of the month, for a period of ten years. With respect to Lot No. 8, the parties agreed to the purchase price of P7,730.00. With a down payment of P506.00 and equal monthly installments of P60.20. All the agreements have the following provisions: 9. Should the PURCHASER fail to make the payment of any of the monthly installments as agreed herein, within One Hundred Twenty (120) days from its due date, this contract shall, by the mere fact of nonpayment, expire by it self and become null and void without necessity of notice to the PURCHASER or of any judicial declaration to the effect, and any and all sums of money paid under this contract shall be considered and become rentals on the property, and in this event, the PURCHASER should he/she be in possession of the property shall become a mere intruder or unlawful detainer of the same and may be ejected therefrom by means provided by law for trespassers or unlawful detainers. Immediately after the expiration of the 120 days provided for in this clause, the OWNER shall be at liberty to dispose of and sell said parcel of land to any other person in the same manner as if this contract had never been executed or entered into. The breach by the PURCHASER of any of the conditions considered herein shall have the same effect as non-payment of the installments of the purchase price. In any of the above cases the PURCHASER authorizes the OWNER or her representative to enter into the property to take possession of the same and take whatever action is necessary or advisable to protect its rights and interest in the property , and nothing that may be done or made by the PURCHASER shall be considered as revoking this authority or a denial thereof. After the lapse of ten years, however, petitioner still had not fully paid for the six lots; It had paid only the down payment and eight (8) installments, even after private respondents had given petitioner a grace period of four months to pay the arrears. As of May 1, 1980, the total amount due to private respondents under the contract was P214,418.00. In this letter of March 30, 1980 to Mr. Tomas Siatianum (Siatianun) who signed the agreements for petitioner, private respondents counsel protested petitioners encroachment upon a portion of its subdivision particularly Lots Nos. 2, 3, 4, 5, 6, 7, and 8. A portion of the letter reads: Examinations conducted on the records of said lots revealed that you once contracted to purchase said lots but your contracts were cancelled for non-payment of the stipulated installments. Desirous of maintaining good and neighborly relations with you, we caused to send you this formal demand for you to remove your said wall within fifteen (15) days from your receipt hereof, otherwise, much to our regret, we shall be constrained to seek redress before the courts and at the same time charge you with reasonable rentals for the use said lots at the rate of One (P1.00) Peso per square meter per month until you shall have finally removed said wall.

Private respondent reiterated its protest against the encroachment in a letter dated February 16, 1981. It added that petitioner had failed to abide by its promise to remove the encroachment, or to purchase the lots involved at the current price or pay the rentals on the basis of the total area occupied, all within a short period of time. It also demanded the removal of the illegal constructions on the property that had prejudiced the subdivision and its neighbors. After a series of negotiations between the parties, they agreed to enter into a new contract to sell involving seven (7) lots, namely, Lots Nos. 2, 3, 4, 5, 6, 7 and 8, with a total area of 1,693 square meters. The contract stipulates that the previous contracts involving the same lots (actually minus Lot No.2) have been cancelled due to the failure of the PURCHASER to pay the stipulated installments. It states further that the new contract was entered into to avoid litigation, considering that the PURCHASER has already made use of the premises since 1981 to the present without paying the stipulated installments. The parties agreed that the contract price would be P423,250.00 with a down payment of P42,325.00 payable upon the signing of the contract and the balance of P380,925.00 payable in forty-eight (48) equal monthly amortization payments of P7,935.94. The new contract bears the date of October 11, 1983 but neither of the parties signed it. Thereafter, Tomas Siatianum issued the following checks in the total amount of P37,642.72 to private respondent: (a) dated March 4, 1984 for P10,000.00; (b) dated March 31, 1984 for P10,000.00; (c) dated April 30, 1984 for P 10,000.00 ; (d) dated May 31, 1984 for P 7,079.00, and (e) dated May 31, 1984 for P563.72. Private respondent received but did not encash those checks. Instead, on July 12, 1984 it filed in the Regional Trial Court of Antipolo, Rizal, a complaint for accion publicianan de posesion against petitioner and Tomas Siatianum, as president and majority stockholder of petitioner. It prayed that petitioner be ordered to removed the wall on the premises and to surrender in possession of lots Nos. 2 to 8 of Block 11 of the Mar-ick subdivision, and that petitioner and Tomas Siatianum be ordered to pay: (a) P259,074.00 as reasonable rentals for the use of the lots from 1961, plus P1,680,074.00 per month from July 1, 1984 up to and until the premises shall have been vacated and the wall demolished; (b) P10,000.00 as attorneys fees; (c) moral and exemplary damages, and (d)costs of suit. In the alternative , the complaint prayed that should the agreements be deemed not automatically cancelled, the same agreements should be declared null and void. In due course, the lower court rendered a decision finding that the original agreements of the parties were validly cancelled in accordance with provision No.9 of each agreement. The parties did not enter into a new contract in accordance with Art. 1403 (2) of the Civil Code as the parties did not sign the draft contract. Receipt by private respondent of the five checks could not amount to perfection of the contract because private respondent never encash and benefited from those checks. Furthermore, there was no meeting of the minds between the parties because Art 1475 of the Civil Code should be read with the Statute of Frauds that requires the embodiment of the contract in a note or memorandum. The lower court opined that the checks represented the deposit under the new contract because petitioner failed to prove that those were monthly installments that private respondent refused to accept. What petitioner prove instead was the fact that it was not able to pay the rest of the installments because of a strike, fire and storm that affected its operations. Be that is as it may, what was clearly proven was that both parties negotiated a new contract after the termination of the first. Thus, the fact that the parties tried to negotiate a new contract indicated that they considered that first contract as already cancelled. With respect to petitioners allegation on a "free right-of-way constituted on Lot No. 2, the lower court found that the agreement thereon was oral and not in writing. As such, it was not in accordance with Art. 749 of the Civil Code requiring that, to be valid, a donation must be in a public document.

Consequently, because of the principle against unjust enrichment, petitioner must pay rentals for the occupancy of the property. The lower court disposed of the case as follows: IN VIEW OF ALL THE FOREGOING, Defendant Corporation is hereby directed to return subjects Nos. 2, 3, 4, 5, 6, 7, and 8 to Plaintiff Corporation, and to pay the latter the following amounts: 1. reasonable rental of P1.00 per square meter per month from May 29,1961, for Lots Nos. 3, 4, 5, 6, 7, and 8, and from July 21, 1984, for lot No. 2, up to the date they will vacate said lots. The amount of P4,735.21 (Exhibit R) already paid by defendant corporation to plaintiff corporation for the six (6) lots under the original contracts shall be deducted from the said rental; 2. attorneys fees in the amount of P10,000.00; and 3. costs of the suit. SO ORDERED." Petitioner elevated the case to the Court of Appeals. However, or October 16, 1992, the Court of Appeals affirmed in toto the lower courts decision. Petitioners motion for reconsideration having been denied, it instituted the instant petition for review on certiorari raising the following issues for resolution: (1) whether or not the lower court had jurisdiction over the subject matter of the case in view of the provisions of Republic Act No. 6552 and Presidential Decree No. 1344; (2) whether or not there was a perfected and enforceable contract of sale (sic) on October 11, 1983 which modified the earlier contracts to sell which had not been validly rescinded; (3) whether or not there was a valid grant of right of way involving Lot No. 2 in favor of petitioner; and (4) whether or not there was justification for the grant of rentals and the award of attorneys fees in favor of private respondent. The issue of jurisdiction has been precluded by the principle of estoppel. It is settled that lack of jurisdiction may be assailed at any stage of the proceedings. However, a partys participation therein the issue. Petitioner undoubtedly has actively participated in the proceedings from its inception to date. In its answer to the complaint, petitioner did not assail the lower court jurisdiction ; instead, it prayed for affirmative relief. Even after the lower court had decided against it, petitioner continued to affirm the lower courts jurisdiction by elevating the decision to the appellate court, hoping to obtain a favorable decision but the Court Of Appeals affirmed the court a quos ruling. Then and only then did petitioner raise the issue of jurisdiction-in its motion for reconsideration of the appellate courts decision. Such a practice, according to Tijam v. Sibonghanoy, cannot be countenanced for reasons of public policy. Granting, however, that the issue was raised seasonably at the first opportunity, still, petitioner has incorrectly considered as legal bases for its position on the issue of jurisdiction the provisions of P.D. Nos. 957 and 1344 and Republic Act No. 6552 P.D. No. 957, the Subdivision and Condominium Buyers Protective Decree which took effect upon its approval on July 12, 1976, vest upon the National Housing Authority (NHA) exclusive jurisdiction to regulate the real estate trade and business in accordance with the provisions of the same decree. P.D. No. 1344, issued on April 2, 1978, empowered the National Housing Authority to issue a writ of execution in the enforcement of its decisions under P.D. No. 957. These decrees, however, were not yet in existence when private respondents invoked provision No. 9 of the agreements of contracts to sell and cancelled these in October 1971. Article 4 of the Civil Code provides that laws shall have no retroactive effect unless the contrary is provided. Thus, it is necessary that an express provision for its retroactive application must be made in law. There being no such provision in both P.D. Nos. 957 and 1344, these decrees cannot be applied to a situation that occurred years before their promulgation. Moreover, granting that said decreed indeed provide for a retroactive application, still, these may not applied in this case.

The contracts to sell of 1961 were cancelled in virtue of provision No. 9 thereof to which the parties voluntarily bound themselves. In Manila Bay Club Corp. v. Court of Appeals, this Court interpreted as requiring mandatory compliance by the parties, a provision in a lease contract that failure or neglect to perform or comply with any of the covenants, conditions, agreements or restrictions stipulated shall result in the automatic termination and cancellation of the lease. The Court added: x x x . Certainly, there is nothing wrong if the parties to the lease contract agreed on certain mandatory provisions concerning their respective rights and obligations, such as the procurement of insurance and the rescission clause. For it is well to recall that contracts are respected as thelaw between the contracting parties, and they may establish such stipulations, clauses, terms and conditions as they may want to include. As long as such agreements are not contrary to law, moral, good customs, public policy or public order they shall have the force of law between them. Consequently, when petitioner failed to abide by its obligation to pay the installments in accordance with the contracts to sell, provision No. 9 automatically took effect. That private respondent failed to observe Section 4 of Republic Act No. 6552, the Realty installment Buyer Protection Act, is if no moment. That section provides that (I)f the buyers fails to pay the installment due at the expiration of the grace period, the seller may cancel the contract after thirty days from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act. Private respondents cancellation of the agreements without a duly notarized demand for rescission did not mean that it violated said provision of law. Republic Act No. 6552 was approved on August 26, 1972, long after provision No.9 of the contracts to sell had become automatically operational. As with P.D. Nos. 957 and 1344, Republic act No. 6552 does not expressly provide for its retroactive application and, therefore, it could not have encompassed the cancellation of the contracts to sell in this case. At this juncture, it is apropos to stress that the 1961 agreements are contracts to sell and not contracts of sale. The distinction between these contracts is graphically depicted in Adelfa Properties, Inc. v. Court of Appeals, as follows: x x x . The distinction between the two is important for in a contract of sale, the title passes to the vendee upon the delivery of the thing sold; whereas in a contract to sell, by agreement the ownership is reserved in the vendor and is not to pass until the full payment of the price. In a contract of sale, the vendor is not to pass until the full payment of the price. In a contract of sale, the vendor has lost and cannot recover ownership until and unless the contract is resolved or rescinded; whereas, in a contract to sell, title is retained by the vendor until the full payment of the price , such payment being a positive suspensive condition and failure of which is not a breach but an event that prevents the obligation of the vendor to convey title from becoming effective. Thus, a deed of sale is considered absolute in nature where there is neither a stipulation in the deed that title to the property sold is reserved in the seller until the full payment of the price, nor one giving the vendor the right to unilaterally resolve the contract the moment the buyer fails to pay within a fixed period. That the agreements of 1961 are contracts to sell is clear from the following provisions thereof: 3. Title to said parcel of land shall remain in the name of the OWNER until complete payment by the PURCHASER of all obligations herein stipulated, at which time the OWNER agrees to execute a final deed of sale in favor of the PURCHASER and cause the issuance of a certificate of title in the name of the latter, free from liens and encumbrances except those provided in the Land Registration Act, those imposed by the authorities, and those contained in Clauses Nos. Five (5) and Six (6) of this agreement. xxx xxx x x x. 4. The PURCHASER shall be deemed for all purpose to take possession of the parcel of land upon payment of the down or first payment; provided, however, that his/her possession under this section shall be only of

the that of a tenant or lessee and subject to ejectment proceeding during all the period of this agreement. 5.The parcel of land subject of this agreement shall be used by the PURCHASER exclusively for legal purposes, and he shall not be entitled to take or remove soil, stones, or gravel from it or any other lots belonging to the owner. Hence, being contracts to sell, article 592 of the Civil Code which requires rescission either by judicial action or notarial act is not applicable. Neither may petitioner claim ignorance of the cancellation of the contracts. Aside from his letters of March 30, 1980 and February 16, 1981, private respondents counsel. Atty. Manuel Villamor, had sent petitioner other formal protest and demands. These letters adequately satisfied the notice requirement stipulated in provision No.9 of the contracts to sell. If petitioner had not agreed to the automatic and extrajudicial cancellation of the contracts, it could have gone to court to impugn the same but it did not. Instead, it sought to enter into a new contract to sell, thereby confirming its veracity and validity of the extrajudicial rescission. Had not private respondent filed the accion publiciana de posesion, petitioner would have remained silent about the whole situation. It is now estopped from questioning the validity of the cancellation of the contracts. An unopposed rescission of a contract has a legal effects. Petitioners reliance on the portion of the Court of Appeals Decision stating that private respondent had not made known to petitioner its supposed rescission of the contract, is misplaced. Moreover, it quoted only the portion that appears favorable to its case. To be sure, the Court of Appeals quoted provision No. 9 which requires that actual cancellation shall take place thirty days from receipt by the buyer of the notice of cancellation or demand for rescission of the contract by a notarial act and upon full payment of the cash surrender value, and added that R.A. 6552 even more underscored the indispensability of such notice to the defaulting buyer. However, the same appellate court continued: The absence of the aforesaid notice in the case at bar in the forms respectively deemed efficacious before and after the passage of R.A. 6552 does not, however, necessarily impress merit in the appellants position. Extrajudicial rescission, after all, has legal effect where the other party does not oppose it (Zulueta vs. Mariano, 111 SCRA 206; Nera vs. Vacante, 3 SCRA 505; Magdalena Estate vs. Myrick, 71 Phil.344). Where it is objected to, a judicial determination of the issue is still necessary. In other words resolutions of reciprocal contracts maybe made extrajudicially unlesssuccess fully impugned in court. If the debtor impugns the declaration it shall be subject to judicial determination (Jison vs. court of Appeals,164 SCRA 339, citing Palay Inc. vs. Clave, supra; Univ. of the Philippines vs. Angeles , supra). In its July 5, 1984 complaint, the appellee had, in fact, significantly prayed for the cancellation of the said sales agreement in the alternative (p. 4, orig. rec.) (Italics supplied.) Moreover, private respondents act of cancelling the contracts to sell was not done arbitrarily. The record shows that private respondent dealt with petitioner with admirable patience, probably in view of the strike, the fire in 1968 that burned petitioners factory, and the typhoon in 1970. It exercised its contractual authority to cancel the agreements only after petitioner had reneged in its obligation after paying only eight (8) installments. When the contracts matured, it still gave petitioner a grace period of four (4) months within which to comply with its obligations. It considered the contracts cancelled only as of October 1971 or several years after petitioners last installment payment and definitely more than ten years after the agreements were entered into. Because the contracts to sell had long been cancelled when private respondents filed the accion publiciana de posesion on July 12, 1984, it was the proper Regional Trial Court that had jurisdiction over the case. By then, there was no more installment buyer and seller relationship to speak of. It had been recuded to a mere case of an owner claiming possession of its property that had long been illegally withheld from it by another.

Petitioner alleges that there was a new perfected and enforceable contract of sale" between the parties in October 1983 for two reasons. First, it paid private respondent the down payment or deposit of Contract through the five checks. Second, the receipt signed by private respondents representatives satisfies the requirement of a note or memorandum under Article 1403 (2) of the Civil Code because it states the object of the contract (six lots of Mar-Ick Subdivision measuring 1,453 square meters), the price (P250.00 per square meter with a down payment of 10% or P 37,542.72), and the receipt itself opens with a statement referring to the purchase of the six lots of MarIck Subdivision. The contract of October 1983 which respondents offered in evidence as Exhibit S, is entitled CONTRACT TO SELL. While the title of a contract is not controlling, its stipulations confirm the nature of that contract. Thus, it provides: 5. Title to said parcels of land shall remain in the name of the OWNER until complete payment by the PURCHASER of all obligations herein stipulated, at which time, the OWNER agrees to execute a final deed of sale in favor of the PURCHASER and cause the issuance of certificates of title in the name of the latter, free from all liens and encumbrances except those provided in the Land Registration Act, those imposed by the authorities, and those contained in the stipulation that follow. Under the law, there is a binding contract between the parties whose minds met on a certain matter notwithstanding that they did not affix their signature to its written form. In the case at the bar, it was private respondents company lawyer and sole witness, Atty. Manuel Villamayor, who volunteered that after the cancellation of the 1961 agreements, the parties should negotiate and enter into a new agreement based on the current price or at P400.00 per square meter. However, there was a hitch in the negotiations because after he had drafted the contract and sent it to the petitioner, the latter deposited a check for down payment but its representative refused to sign the prepared contract. Private respondent even offered the contract to sell as its Exhibit S. In the absence of proof to the contrary, this draft contract may be deemed to embody the agreement of the parties. Moreover, when Tomas Siatianun, petitioner president, testified, private respondent cross-examined him as regards to the October 1983 contract. Private respondents did not and has not denied the existence of that contract. Under these facts, therefore, the parties may ideally be considered as having perfected the contract of October 1983. Again in Adelfa Properties, Inc. v. Court of Appeals, the Court said that x x x a contract, like a contract to sell, involves a meeting of the minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service. Contracts, in general, are perfected by mere consent, which is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. The offer must be certain and the acceptance absolute. Moreover, private respondents offer to sell and petitioners acceptance thereof are manifest in the documentary evidence presented the (5) checks that, through Atty. Villamayor, it admitted as the down payment under the October 1983 contract. Private respondents intentional nonencashment of the check cannot serve to belie the fact of its tender as down payment. For its part, petitioner presented Exhibit 10, a receipt dated February 28, 1984, showing that private respondents authorized representative received the total amount of P37,642.72 represented by said five checks as deposit of Contract (sic). As this Court also held in the Adelfa Properties case, acceptance may be evidenced by some acts or conduct communicated to the offeror, either in a formal or an informal manner, that clearly manifest the intention of determination to accept the offer to buy or sell. Justice and equity, however, will not be served by a positive ruling on the perfection and performance of the contract to sell. There are facts on record proving that, after all, the parties had not arrived at a definite

agreement. By Atty. Villamayors admission, the checks were not encashed because Tomas Siatianun did not sign the draft contract that he had prepared. On his part, Tomac Siatianun explained that he did not sign the contract because it covered seven (7) lots while their agreement was only for six (6) lots. According to him, private respondent had conceded that Lot No. 2 was meant for petitioners right of way and, therefore, it could not have been part of the properties it wanted to buy. It is on record, moreover, that the only agreement that the parties arrived at in a conference at the Silahis Hotel was the price indicated in the draft contract. The number of lots to be sold is a material component of the contract to sell. Without an agreement on the matter, the parties may not in any way be considered as having arrived at a contract under the law. The parties failure to agree on a fundamental provision of the contract was aggravated by petitioners failure to deposit the installments agreed upon. Neither did it attempt to make a consignation of installments. This Courts disquisition on the matter in the Adelfa Properties case is relevant. Thus: The mere sending of a letter by the vendee expressing the intention to pay, without the accompanying payment, is not considered a valid tender of payment. Besides, a mere tender of payment is not sufficient to compel private respondents to deliver the property and execute the deed of absolute sale. It is consignation which is essential in order to extinguish petitioners obligation to pay the balance of the purchase price. The rule is different in case of an option contract or in legal redemption or in a sale with right to repurchase, wherein consignation is not necessary because this cases involves an exercise of a right privilege (to buy, redeem, or repurchase) rather than the discharge of the obligation, hence tender of payment would be sufficient to preserve the right or privilege. This is because the provision on consignation are not applicable when there is no obligation to pay. A contract to sell, as in the case before us, involves the performance of an obligation, not merely the exercise of the privilege or a right. Consequently, performance or payment may be effected not by tender of payment alone but by both tender and consignation. (Underscoring supplied.) As earlier noted, petitioner did not lift a finger towards the performance of the contract other than the tender of down payment. There is no record that it even bothered to tender payment of the installments or to amend the contract to reflect the true intention of the parties as regards the number of lots to be sold. Indeed, by petitioners inaction, private respondents may not be judicially enjoined to validate a contract that the former appeared to have taken for granted. As in the earlier agreements, petitioner ignored opportunities to resuscitate a contract to sell that was rendered moribund and inoperative by its inaction. In view of the foregoing, there is no need to discuss the issue of whether or not there was a valid grant of right of way in favor of the petitioners. Suffice it to say that the documentary evidence offered by the petitioner on the matter manifest that the right of way on an unidentified property was granted in April 1961 by private respondents board of directors to W. Ick & Sons, Inc. and Julian Martinez. On May 12, 1961, Fritz Ick, the president of W. Ick & Sons, Inc., in turn indorsed the unidentified property to petitioner. What needs stressing is that the installment paid by the petitioner on the land should be deemed rentals in accordance with provision No.9, as well as by law. Article 1486 of the Civil Code provides that a stipulation that the installments or rents paid shall not be returned to the vendee or lessee shall be valid insofar as the same may not be unconscionable under the circumstances. The down payment and the eight (8) installments paid by the petitioner on the six lots under the 1961 agreements amount to P5,672.00. The lots, including Lot No. 2, adjoins petitioners Vetsin and oil factories constructed on a 20,111square-meter land that petitioner likewise bought from private respondent. Obviously, petitioner made use of the lots not only the construction of the factories but also during its operations as an oil factory. Petitioner enclosed the area with a fence and made construction thereon. It is, therefore, not

unconscionable to allow respondents rentals on the lots are correctly decreed by the lower court. As to attorneys fees, Article 2208 of the Civil Code allows the award of such fees when its claimants is compelled to litigate with third persons or to incur expenses to protect its just and valid claim. In view of petitioners rejection of private respondents demands for rentals and its unjustified refusal to settle private respondents claims, the award of attorneys fees of P10,000.00 is more than just and reasonable. WHEREFORE, the instant petition for review on certiorari is hereby denied and the questioned Decision of the Court of Appeals is AFFIRMED. This Decision is immediately executory. Cost against petitioner. SO ORDERED. _______________________________________________ G.R. No. L-59266 February 29, 1988 SILVESTRE DIGNOS and ISABEL LUMUNGSOD, petitioners, vs. HON. COURT OF APPEALS and ATILANO G. JABIL, respondents. BIDIN, J.: This is a petition for review on certiorari seeking the reversal of the: (1) Decision * of the 9th Division, Court of Appeals dated July 31,1981, affirming with modification the Decision, dated August 25, 1972 of the Court of First Instance ** of Cebu in civil Case No. 23-L entitled Atilano G. Jabil vs. Silvestre T. Dignos and Isabela Lumungsod de Dignos and Panfilo Jabalde, as Attorney-in-Fact of Luciano Cabigas and Jovita L. de Cabigas; and (2) its Resolution dated December 16, 1981, denying defendant-appellant's (Petitioner's) motion for reconsideration, for lack of merit. The undisputed facts as found by the Court of Appeals are as follows: The Dignos spouses were owners of a parcel of land, known as Lot No. 3453, of the cadastral survey of Opon, Lapu-Lapu City. On June 7, 1965, appellants (petitioners) Dignos spouses sold the said parcel of land to plaintiffappellant (respondent Atilano J. Jabil) for the sum of P28,000.00, payable in two installments, with an assumption of indebtedness with the First Insular Bank of Cebu in the sum of P12,000.00, which was paid and acknowledged by the vendors in the deed of sale (Exh. C) executed in favor of plaintiff-appellant, and the next installment in the sum of P4,000.00 to be paid on or before September 15, 1965. On November 25, 1965, the Dignos spouses sold the same land in favor of defendants spouses, Luciano Cabigas and Jovita L. De Cabigas, who were then U.S. citizens, for the price of P35,000.00. A deed of absolute sale (Exh. J, also marked Exh. 3) was executed by the Dignos spouses in favor of the Cabigas spouses, and which was registered in the Office of the Register of Deeds pursuant to the provisions of Act No. 3344. As the Dignos spouses refused to accept from plaintiff-appellant the balance of the purchase price of the land, and as plaintiff- appellant discovered the second sale made by defendants-appellants to the Cabigas spouses, plaintiff-appellant brought the present suit. (Rollo, pp. 27-28) After due trial, the Court of first Instance of Cebu rendered its Decision on August 25,1972, the decretal portion of which reads: WHEREFORE, the Court hereby declares the deed of sale executed on November 25, 1965 by defendant Isabela L. de Dignos in favor of defendant Luciano Cabigas, a citizen of the United States of America, null and void ab initio, and the deed of sale executed by defendants Silvestre T. Dignos and Isabela Lumungsod de Dignos not rescinded. Consequently, the plaintiff Atilano G. Jabil is hereby ordered to pay the sum, of Sixteen Thousand Pesos (P16,000.00) to the defendants-spouses upon the execution of the Deed of absolute Sale of Lot No. 3453, Opon Cadastre and when the decision of this case becomes final and executory. The plaintiff Atilano G. Jabil is ordered to reimburse the defendants Luciano Cabigas and Jovita L. de Cabigas, through their attorney-in-fact,

Panfilo Jabalde, reasonable amount corresponding to the expenses or costs of the hollow block fence, so far constructed. It is further ordered that defendants-spouses Silvestre T. Dignos and Isabela Lumungsod de Dignos should return to defendants-spouses Luciano Cabigas and Jovita L. de Cabigas the sum of P35,000.00, as equity demands that nobody shall enrich himself at the expense of another. The writ of preliminary injunction issued on September 23, 1966, automatically becomes permanent in virtue of this decision. With costs against the defendants. From the foregoing, the plaintiff (respondent herein) and defendantsspouss (petitioners herein) appealed to the Court of Appeals, which appeal was docketed therein as CA-G.R. No. 54393-R, "Atilano G. Jabil v. Silvestre T. Dignos, et al." On July 31, 1981, the Court of Appeals affirmed the decision of the lower court except as to the portion ordering Jabil to pay for the expenses incurred by the Cabigas spouses for the building of a fence upon the land in question. The disposive portion of said decision of the Court of Appeals reads: IN VIEW OF THE FOREGOING CONSIDERATIONS, except as to the modification of the judgment as pertains to plaintiff-appellant above indicated, the judgment appealed from is hereby AFFIRMED in all other respects. With costs against defendants-appellants. SO ORDERED. Judgment MODIFIED. A motion for reconsideration of said decision was filed by the defendants- appellants (petitioners) Dignos spouses, but on December 16, 1981, a resolution was issued by the Court of Appeals denying the motion for lack of merit. Hence, this petition. In the resolution of February 10, 1982, the Second Division of this Court denied the petition for lack of merit. A motion for reconsideration of said resolution was filed on March 16, 1982. In the resolution dated April 26,1982, respondents were required to comment thereon, which comment was filed on May 11, 1982 and a reply thereto was filed on July 26, 1982 in compliance with the resolution of June 16,1 982. On August 9,1982, acting on the motion for reconsideration and on all subsequent pleadings filed, this Court resolved to reconsider its resolution of February 10, 1982 and to give due course to the instant petition. On September 6, 1982, respondents filed a rejoinder to reply of petitioners which was noted on the resolution of September 20, 1982. Petitioners raised the following assignment of errors: I THE COURT OF APPEALS COMMITTED A GRAVE ERROR OF LAW IN GROSSLY, INCORRECTLY INTERPRETING THE TERMS OF THE CONTRACT, EXHIBIT C, HOLDING IT AS AN ABSOLUTE SALE, EFFECTIVE TO TRANSFER OWNERSHIP OVER THE PROPERTY IN QUESTION TO THE RESPONDENT AND NOT MERELY A CONTRACT TO SELL OR PROMISE TO SELL; THE COURT ALSO ERRED IN MISAPPLYING ARTICLE 1371 AS WARRANTING READING OF THE AGREEMENT, EXHIBIT C, AS ONE OF ABSOLUTE SALE, DESPITE THE CLARITY OF THE TERMS THEREOF SHOWING IT IS A CONTRACT OF PROMISE TO SELL. II THE COURT OF APPEALS COMMITTED AN ERROR OF LAW IN INCORRECTLY APPLYING AND OR IN MISAPPLYING ARTICLE 1592 OF THE NEW CIVIL CODE AS WARRANTING THE ERRONEOUS CONCLUSION THAT THE NOTICE OF RESCISSION, EXHIBIT G, IS INEFFECTIVE SINCE IT HAS NOT BEEN JUDICIALLY DEMANDED NOR IS IT A NOTARIAL ACT. III THE COURT OF APPEALS COMMITTED AN ERROR OF LAW IN REJECTING THE APPLICABILITY OF ARTICLES 2208,2217 and 2219 OF THE NEW CIVIL CODE AND ESTABLISHED JURISPRUDENCE AS TO

WARRANT THE AWARD OF DAMAGES AND ATTORNEY'S FEES TO PETITIONERS. IV PLAINTIFF'S COMPLAINT FOR SPECIFIC PERFORMANCE SHOULD HAVE BEEN DISMISSED, HE HAVING COME TO COURT WITH UNCLEAN HANDS. V BY AND LARGE, THE COURT OF APPEALS COMMITTED AN ERROR IN AFFIRMING WITH MODIFICATION THE DECISION OF THE TRIAL COURT DUE TO GRAVE MISINTERPRETATION, MISAPPLICATION AND MISAPPREHENSION OF THE TERMS OF THE QUESTIONED CONTRACT AND THE LAW APPLICABLE THERETO. The foregoing assignment of errors may be synthesized into two main issues, to wit: I. Whether or not subject contract is a deed of absolute sale or a contract Lot sell. II. Whether or not there was a valid rescission thereof. There is no merit in this petition. It is significant to note that this petition was denied by the Second Division of this Court in its Resolution dated February 1 0, 1 982 for lack of merit, but on motion for reconsideration and on the basis of all subsequent pleadings filed, the petition was given due course. I. The contract in question (Exhibit C) is a Deed of Sale, with the following conditions: 1. That Atilano G..Jabilis to pay the amount of Twelve Thousand Pesos P12,000.00) Phil. Philippine Currency as advance payment; 2. That Atilano G. Jabil is to assume the balance of Twelve Thousand Pesos (P12,000.00) Loan from the First Insular Bank of Cebu; 3. That Atilano G. Jabil is to pay the said spouses the balance of Four. Thousand Pesos (P4,000.00) on or before September 15,1965; 4. That the said spouses agrees to defend the said Atilano G. Jabil from other claims on the said property; 5. That the spouses agrees to sign a final deed of absolute sale in favor of Atilano G. Jabil over the above-mentioned property upon the payment of the balance of Four Thousand Pesos. (Original Record, pp. 10-11) In their motion for reconsideration, petitioners reiterated their contention that the Deed of Sale (Exhibit "C") is a mere contract to sell and not an absolute sale; that the same is subject to two (2) positive suspensive conditions, namely: the payment of the balance of P4,000.00 on or before September 15,1965 and the immediate assumption of the mortgage of P12,000.00 with the First Insular Bank of Cebu. It is further contended that in said contract, title or ownership over the property was expressly reserved in the vendor, the Dignos spouses until the suspensive condition of full and punctual payment of the balance of the purchase price shall have been met. So that there is no actual sale until full payment is made (Rollo, pp. 51-52). In bolstering their contention that Exhibit "C" is merely a contract to sell, petitioners aver that there is absolutely nothing in Exhibit "C" that indicates that the vendors thereby sell, convey or transfer their ownership to the alleged vendee. Petitioners insist that Exhibit "C" (or 6) is a private instrument and the absence of a formal deed of conveyance is a very strong indication that the parties did not intend "transfer of ownership and title but only a transfer after full payment" (Rollo, p. 52). Moreover, petitioners anchored their contention on the very terms and conditions of the contract, more particularly paragraph four which reads, "that said spouses has agreed to sell the herein mentioned property to Atilano G. Jabil ..." and condition number five which reads, "that the spouses agrees to sign a final deed of absolute sale over the mentioned property upon the payment of the balance of four thousand pesos." Such contention is untenable. By and large, the issues in this case have already been settled by this Court in analogous cases.

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

It has been ruled, however, that "where time is not of the essence of the agreement, a slight delay on the part of one party in the performance of his obligation is not a sufficient ground for the rescission of the agreement" (Taguba v. Vda. de Leon, supra). Considering that private respondent has only a balance of P4,000.00 and was delayed in payment only for one month, equity and justice mandate as in the aforecited case that Jabil be given an additional period within which to complete payment of the purchase price. WHEREFORE, the petition filed is hereby Dismissed for lack of merit and the assailed decision of the Court of Appeals is Affirmed in toto. G.R. No. 80645 August 3, 1993 MARCELINO GALANG, GUADALUPE GALANG, Petitioners, vs. COURT OF APPEALS, RAMON R. BUENAVENTURA, ANGELES BUENAVENTURA, CORAZON BUENAVENTURA, and MA. LUISA BUENAVENTURA, Respondents. ROMERO, J.: This is a petition for review on certiorari of the decision 1 of the Court of Appeals affirming in toto the judgment rendered by the then Court of First Instance in Civil Case No. R-82-7186 (107585). The dispositive portion of the assailed decision reads as follows: WHEREFORE, finding no reversible error in the judgment appealed from, the same is hereby AFFIRMED IN TOTO without any pronouncement as to costs at this instance. 2 virtual law library From the records, we find the following facts.virtualawlibrary virtual law library On July 16, 1976, Ramon Buenaventura on his own behalf and as attorney-in-fact of Angeles, Corazon, Amparo, and Maria Luisa, all surnamed Buenaventura, sold to Guadalupe Galang and Marcelino Galang two (2) parcels of land situated in Tagaytay City. The agreement was embodied in a Deed of Sale which stated the following: I, RAMON R. BUENAVENTURA, Filipino, of legal age, married, and residing at 2111 M. Adriatico, Malate, Manila, in his own behalf and as attorney in fact of Angeles, Corazon, Amparo and Maria Luisa, all surnamed Buenaventura as per the special powers of attorney already registered and annotated at the back of the certificate of title, for and in consideration of the sum of One Hundred Ninety Two Thousand Seven Hundred Ninety Five (P192,795.00) Pesos, Philippine Currency, hereby SELL, TRANSFER AND CONVEY UNTO MARCELINO GALANG and GUADALUPE GALANG, Filipino, of legal age, spouses and residents of 72 4th St., New Manila, Quezon City those parcels of land situated at Tagaytay City, inherited by us from our parents and our exclusive paraphernal property, of which we are the absolute owners, our title thereto being evidenced by TCT No. T-3603 of Tagaytay City Register of Deeds, more particularly desccribed as follows: xxx xxx xxx virtual law library Under the following terms: virtual law library (a) 25% of the purchase price upon signing of this instrument; virtual law library (b) 25% within three months, or upon removal of the "encargado" from the premises, with the delivery of the owner's duplicate certificate of title; virtual law library (c) 50% balance within one (1) year from date hereof upon which the title will be transferred to the buyers but 12% interest per annum will be charged after said one year in the event full payment is not made. 3 virtual law library Marcelino and Guadalupe Galang, herein petitioners paid to the sellers the first 25% of the purchase price as stated in the deed. Thereafter, they allegedly demanded from private respondents failed to do so despite the willingness of petitioners to pay the second 25% of the purchase price. Consequently, Marcelino and Guadalupe Galang filed on March 18, 1977 a complaint for specific performance with damages where they alleged among others, that:

5. The period fixed within the defendants should remove the "encargado' from the premises and to deliver the owner's duplicate certificate of title had lapsed without the defendants complying with their obligations thus preventing the plaintiffs from taking ppossession of the property sold and from developing and improving the same.virtualawlibrary virtual law library 6. On several occasions, the plaintiffs demanded from the defendants, both orally and in writing, the removal of the latter's "encargado" from the premises sold and for them to deliver the owner's duplicate certificate of title to the plaintiffs but said defendants failed and refused and still fail and refuse to do so, the demands notwithstanding. 4 virtual law library Defendants, herein private respondents, denied the allegations and stated that the contract did not state the true intention of the parties and that it was not their fault that the "encargado" refused to leave. Furthermore, they filed on July 21, 1978, a third-party complaint against the "encargado" for subrogation and reimbursement in case of an adverse judgment against thirdparty plaintiff. Upon the "encargado's" motion, the complaint was dismissed on the ground that it did not state a cause of action for the ejectment of the tenant - the "encargado." virtual law library After trial, the lower court rendered a decision, the dispositive portion of which is hereby quoted, to wit: PREMISES CONSIDERED, the Court hereby orders the defendants to pay jointly and severally, the plaintiffs P50,000.00 with interest at 12% per annum from July 16, 1976; P5,000.00 by way of nominal damages; and P3,000.00 as attorney fees and the costs. 5 virtual law library In rendering the decision, the trial court reasoned that: There is no question that, because the defendants had not complied with their obligation to remove the "encargado," the plaintiffs, as injured parties, may choose between the fulfillment of the contract of sale and its rescission, in accordance and (sic) Article 1191 of the Civil Code. They chose enforcement of the contract which, however is legally impossible. The lands sold to the plaintiff are agricultural, planted to coffee, among other plants, not only by the "encargado" but also by his deceased parents. The law prohibits, under pain of damages, fine and imprisonment, and landlord from dispossessing his agricultural tenant without the court's approval and on grounds fixed by the law, not one of which is shown to exist in respect defendants' "encargado." (Section 31 and 36, The Agricultural Land Reform Code, RA 3844 as amended).virtualawlibrary virtual law library Impossible conditions, those contrary to good customs or public policy and those prohibited by law shall annul the obligation which depends upon them. (Article 1183, Civil Code). Since the consummation of the sale between the parties is dependent upon the ouster of an agricultural lessee, which cannot be done because it is against good custom, public policy and the law, the sale is a nullity. . . . 6 virtual law library Agreeing that the "encargado" was an agricultural tenant who could not be ejected without cause, the Court of Appeals affirmed the decision.virtualawlibrary virtual law library Hence, this petition.virtualawlibrary virtual law library In their petition, Marcelino and Guadalupe Galang argued that respondent Court erred in ordering; the rescission instead of specific performance of the contract of sale on the ground that the ejectment of the "encargado" -tenant was a legally impossible condition that prevented the fulfillment of the contract. Contrary to the reason advanced by the Court of Appeals and the trial court, petitioners averred that the removal of the "encargado" was not a condition precedent to the fulfillment of the contract as paragraph two (2) thereof provides for an alternative period within which petitioners would have to pay the second 25% of the purchase price and concomitantly, private respondents would deliver the owner's duplicate certificate of title. Thus, whether or not the "encargado" was removed, the amount would still be due and private respondents would still have to deliver the duplicate title.virtualawlibrary virtual law library

We are now confronted with the question: Was the removal of the "encargado" a condition precedent to the fulfillment of the contract of sale such that finding that it was a legally impossible condition would entitle the buyers to the rescission of the contract? virtual law library We answer in the negative.virtualawlibrary virtual law library The trial court and the Court of Appeals based their decision on Art. 1183 of the Civil Code which provides, thus: Art. 1183. Impossible conditions, those contrary to good customs or public policy and those prohibited by law shall annul the obligation which depends upon them. . . . Both courts declared the "encargado" a tenant. This being the case, it follows that he may not be removed from the subject land without just cause, as provided by Presidential Decree No. 1038. Since the Galangs, then plaintiffs demanded the removal of the "encargado" which, being legally impossible, could not be met, the contract of sale was rescinded by the courts.virtualawlibrary virtual law library We disagree with the conclusion arrived at by the respondent court. Reviewing the terms of the Deed of Sale quoted earlier, it is clear that the parties had reached the stage of perfection of the contract of sale, there being already "a meeting of the minds upon the thing which is the object of the contract and upon the price," 7 and on the basis of which both parties had the personal right to reciprocally demand from the other the fulfillment of their respective obligations. But contracts of sale may either be absolute or conditional. 8 One form of conditional sales, is what is now popularly termed as a "Contract to Sell," where ownership or title is retained until the fulfillment of a positive condition, normally the payment of the purchase price in the manner agreed upon. The breach of that condition can prevent the obligation to convey title from acquiring a binding force. 9 Where the condition is imposed, instead, upon the perfection of the contract, the failure of such condition would prevent such perfection. 10 What we have here is a contract to sell for it is the transfer of ownership, not the perfection of the contract that was subjected to a condition. Ownership was not to vest in the buyers until full payment of the purchase price and the transfer of the title to the buyers. Apart from full payment of the purchase price, we find no other condition which would affect the obligations of the parties, i.e., to pay, on the part of the buyer and to convey ownership, on the part of the seller.virtualawlibrary virtual law library The alleged condition precedent, the removal of the "encargado," was simply an alternative period for payment of the second 25% of the purchase price given by the seller to the buyer. Assuming that the removal of the "encargado" could not be brought about, the buyers, petitioners herein, could have nonetheless demanded the delivery of the owner's duplicate certificate of title by paying the second 25% of the sale price within three months. In this case, the filing of the complaint for specific performance of the seller's obligation was the root of the errors committed first, by the trial court and later, by the Court of Appeals. Both courts overlooked the obvious fact that only the time for paying the second 25% of the purchase price was qualified and that the entire paragraph reads: "25% within three months or upon removal of the "encargado" from the premises . . ." and not simply 25% upon removal of the "encargado." virtual law library The case before us could have been resolved by the lower courts without ruling on whether the "encargado" was a tenant or not. Granting that it was necessary to rule on the legal status of the "encargado," we find that the courts had been quite precipitate in holding that the "encargado" was a tenant. There was no sufficient evidence to support that conclusion apart from the affidavits of the "encargado" and his neighbor. The conclusion of the Court of Appeals regarding this matter rested on surmises. It held: We discern no reversible error in the finding and conclusion of the trial court that the unnamed "encargado" on the lands in question is actually a tenant or agricultural lessee. The bases of this ineluctable conclusion are not hard to see. As succinctly pointed out by the court a quo, the "encargado" is staying in his own existing house thereon, and subject agricultural land is

planted to coffee and other plants not only by the "encargado" but also his deceased parents. Indeed, if the "encargado's" parents were not tenants or agricultural lessees, the present "encargado" could not have continued occupying and working thereon, without facing ejectment proceedings; considering that one of the landowners, defendants-appellees here, is a lawyer himself. In fact, as can be gleaned from the decision under scrutiny, defendants-appellees filed a third-party complaint against the "encargado" but they did not pursue such a course of action because they did not have a clearance from the then Ministry, now the Department of Agrarian Reform, to proceed against such "encargado." Then, too, if the said "encargado" did not have the status of a tenant or agricultural lessee entitled to protection under the agrarian reform laws, he would not have been given the attention and importance as to be brought before the court a quo twice, just for a possible amicable settlement, and he would not have had the firmness to reject an offer for him to continue working half the area under controversy.virtualawlibrary virtual law library Equally supportive of the foregoing opinion are the following ratiocinations in Cruz v. Court of Appeals, L-50350, May 15, 1984, 129 SCRA 222: virtual law library . . . it is also undisputed that respondent lives on a hut erected on the landholding. This fully supports the appellate court's conclusion, since only tenants are entitled to a homelot where he can build his house thereon as an incident to this right as a tenant. xxx xxx xxx virtual law library Also, the Court is aware of the practice of landowners, by way of evading the provisions of tenancy laws, to have their tenants sign contracts or agreements intended to camouflage the real import of their relationship.virtualawlibrary virtual law library All things duly considered, let alone the better rule that all doubts visa-vis the status of a tiller of the soil should be resolved in favor of tenancy relationship. We cannot help but conclude here that the "encargado" on the landholding deeded out in the deed of sale (Exhibit "A") is a tenant or agricultural lessees within the purview and under the mantle of protection of the Code of Agrarian Reforms. 11 virtual law library To summarize, we hold that there was no basis for rescinding the contract because the removal of the "encargado" was not a condition precedent to the contract of sale. Rather, it was one of the alternative periods for the payment of the second installment given by the seller himself to the buyers. Secondly, even granting that it was indeed a condition precedent rendering necessary the determination of the legal status of the "encargado," the lower courts were rash in holding that the "encargado" was a tenant of the land in question.virtualawlibrary virtual law library In view of the foregoing circumstances, we are convinced that specific performance by the parties of their respective obligations is proper. Accordingly, petitioners Marcelino and Guadalupe Galang are ordered to pay private respondents the second 25% of the purchase price. Considering, however, the time that has lapsed since the parties entered into the contract, payment of the full balance, that is, 75% of the purchase price, P192,795.00 is in order. However, the 12% interest per annum that was stipulated in paragraph 3 of the contract of sale should not be assessed against petitioners. On the other hand, private respondents Ramon Buenaventura, Angeles Buenaventura, Corazon Buenaventura, and Maria Luisa Buenaventura are obliged to deliver the owner's duplicate certificate of title and to transfer the title to the land in question upon payment of the purchase price by petitioners.virtualawlibrary virtual law library Under the Civil Code, private respondents are liable for damages to the injured party, the petitioners in this case. However, in lieu of actual payment of damages, and considering the fact that private respondents were in possession of the land during the entire period that this case was pending, private respondents are no longer entitled to the interest payments which would have been due from petitioners. 12 virtual law library

WHEREFORE, in view of the foregoing, the petition is hereby GRANTED and the decision of the Court of Appeals is REVERSED and SET ASIDE. Petitioners Marcelino and Guadalupe Galang are hereby ordered to pay the full 75% balance of the purchase price (P144,596.25) within thirty (30) days from notice, with interest upon default. Private respondents Ramon Buenaventura, Corazon Buenaventura and Maria Luisa Buenaventura are hereby ordered to transfer the title to petitioners upon full payment of the purchase price.virtualawlibrary virtual law library SO ORDERED. ___________________________________________________ G.R. No. L-11827 July 31, 1961 FERNANDO A. GAITE, plaintiff-appellee, vs. ISABELO FONACIER, GEORGE KRAKOWER, LARAP MINES & SMELTING CO., INC., SEGUNDINA VIVAS, FRNACISCO DANTE, PACIFICO ESCANDOR and FERNANDO TY, defendants-appellants. Alejo Mabanag for plaintiff-appellee. Simplicio U. Tapia, Antonio Barredo and Pedro Guevarra for defendantsappellants. REYES, J.B.L., J.: This appeal comes to us directly from the Court of First Instance because the claims involved aggregate more than P200,000.00. Defendant-appellant Isabelo Fonacier was the owner and/or holder, either by himself or in a representative capacity, of 11 iron lode mineral claims, known as the Dawahan Group, situated in the municipality of Jose Panganiban, province of Camarines Norte. By a "Deed of Assignment" dated September 29, 1952(Exhibit "3"), Fonacier constituted and appointed plaintiff-appellee Fernando A. Gaite as his true and lawful attorney-in-fact to enter into a contract with any individual or juridical person for the exploration and development of the mining claims aforementioned on a royalty basis of not less than P0.50 per ton of ore that might be extracted therefrom. On March 19, 1954, Gaite in turn executed a general assignment (Record on Appeal, pp. 17-19) conveying the development and exploitation of said mining claims into the Larap Iron Mines, a single proprietorship owned solely by and belonging to him, on the same royalty basis provided for in Exhibit "3". Thereafter, Gaite embarked upon the development and exploitation of the mining claims in question, opening and paving roads within and outside their boundaries, making other improvements and installing facilities therein for use in the development of the mines, and in time extracted therefrom what he claim and estimated to be approximately 24,000 metric tons of iron ore. For some reason or another, Isabelo Fonacier decided to revoke the authority granted by him to Gaite to exploit and develop the mining claims in question, and Gaite assented thereto subject to certain conditions. As a result, a document entitled "Revocation of Power of Attorney and Contract" was executed on December 8, 1954 (Exhibit "A"),wherein Gaite transferred to Fonacier, for the consideration of P20,000.00, plus 10% of the royalties that Fonacier would receive from the mining claims, all his rights and interests on all the roads, improvements, and facilities in or outside said claims, the right to use the business name "Larap Iron Mines" and its goodwill, and all the records and documents relative to the mines. In the same document, Gaite transferred to Fonacier all his rights and interests over the "24,000 tons of iron ore, more or less" that the former had already extracted from the mineral claims, in consideration of the sum of P75,000.00, P10,000.00 of which was paid upon the signing of the agreement, and b. The balance of SIXTY-FIVE THOUSAND PESOS (P65,000.00) will be paid from and out of the first letter of credit covering the first shipment of iron ores and of the first amount derived from the local sale of iron ore made by the Larap Mines & Smelting Co. Inc., its assigns, administrators, or successors in interests.

To secure the payment of the said balance of P65,000.00, Fonacier promised to execute in favor of Gaite a surety bond, and pursuant to the promise, Fonacier delivered to Gaite a surety bond dated December 8, 1954 with himself (Fonacier) as principal and the Larap Mines and Smelting Co. and its stockholders George Krakower, Segundina Vivas, Pacifico Escandor, Francisco Dante, and Fernando Ty as sureties (Exhibit "A-1"). Gaite testified, however, that when this bond was presented to him by Fonacier together with the "Revocation of Power of Attorney and Contract", Exhibit "A", on December 8, 1954, he refused to sign said Exhibit "A" unless another bond under written by a bonding company was put up by defendants to secure the payment of the P65,000.00 balance of their price of the iron ore in the stockpiles in the mining claims. Hence, a second bond, also dated December 8, 1954 (Exhibit "B"),was executed by the same parties to the first bond Exhibit "A-1", with the Far Eastern Surety and Insurance Co. as additional surety, but it provided that the liability of the surety company would attach only when there had been an actual sale of iron ore by the Larap Mines & Smelting Co. for an amount of not less then P65,000.00, and that, furthermore, the liability of said surety company would automatically expire on December 8, 1955. Both bonds were attached to the "Revocation of Power of Attorney and Contract", Exhibit "A", and made integral parts thereof. On the same day that Fonacier revoked the power of attorney he gave to Gaite and the two executed and signed the "Revocation of Power of Attorney and Contract", Exhibit "A", Fonacier entered into a "Contract of Mining Operation", ceding, transferring, and conveying unto the Larap Mines and Smelting Co., Inc. the right to develop, exploit, and explore the mining claims in question, together with the improvements therein and the use of the name "Larap Iron Mines" and its good will, in consideration of certain royalties. Fonacier likewise transferred, in the same document, the complete title to the approximately 24,000 tons of iron ore which he acquired from Gaite, to the Larap & Smelting Co., in consideration for the signing by the company and its stockholders of the surety bonds delivered by Fonacier to Gaite (Record on Appeal, pp. 82-94). Up to December 8, 1955, when the bond Exhibit "B" expired with respect to the Far Eastern Surety and Insurance Company, no sale of the approximately 24,000 tons of iron ore had been made by the Larap Mines & Smelting Co., Inc., nor had the P65,000.00 balance of the price of said ore been paid to Gaite by Fonacier and his sureties payment of said amount, on the theory that they had lost right to make use of the period given them when their bond, Exhibit "B" automatically expired (Exhibits "C" to "C-24"). And when Fonacier and his sureties failed to pay as demanded by Gaite, the latter filed the present complaint against them in the Court of First Instance of Manila (Civil Case No. 29310) for the payment of the P65,000.00 balance of the price of the ore, consequential damages, and attorney's fees. All the defendants except Francisco Dante set up the uniform defense that the obligation sued upon by Gaite was subject to a condition that the amount of P65,000.00 would be payable out of the first letter of credit covering the first shipment of iron ore and/or the first amount derived from the local sale of the iron ore by the Larap Mines & Smelting Co., Inc.; that up to the time of the filing of the complaint, no sale of the iron ore had been made, hence the condition had not yet been fulfilled; and that consequently, the obligation was not yet due and demandable. Defendant Fonacier also contended that only 7,573 tons of the estimated 24,000 tons of iron ore sold to him by Gaite was actually delivered, and counterclaimed for more than P200,000.00 damages. At the trial of the case, the parties agreed to limit the presentation of evidence to two issues: (1) Whether or not the obligation of Fonacier and his sureties to pay Gaite P65,000.00 become due and demandable when the defendants failed to renew the surety bond underwritten by the Far Eastern Surety and Insurance Co., Inc. (Exhibit "B"), which expired on December 8, 1955; and (2) Whether the estimated 24,000 tons of iron ore sold by plaintiff Gaite to defendant Fonacier were actually in existence in the mining claims

when these parties executed the "Revocation of Power of Attorney and Contract", Exhibit "A." On the first question, the lower court held that the obligation of the defendants to pay plaintiff the P65,000.00 balance of the price of the approximately 24,000 tons of iron ore was one with a term: i.e., that it would be paid upon the sale of sufficient iron ore by defendants, such sale to be effected within one year or before December 8, 1955; that the giving of security was a condition precedent to Gait's giving of credit to defendants; and that as the latter failed to put up a good and sufficient security in lieu of the Far Eastern Surety bond (Exhibit "B") which expired on December 8, 1955, the obligation became due and demandable under Article 1198 of the New Civil Code. As to the second question, the lower court found that plaintiff Gaite did have approximately 24,000 tons of iron ore at the mining claims in question at the time of the execution of the contract Exhibit "A." Judgment was, accordingly, rendered in favor of plaintiff Gaite ordering defendants to pay him, jointly and severally, P65,000.00 with interest at 6% per annum from December 9, 1955 until payment, plus costs. From this judgment, defendants jointly appealed to this Court. During the pendency of this appeal, several incidental motions were presented for resolution: a motion to declare the appellants Larap Mines & Smelting Co., Inc. and George Krakower in contempt, filed by appellant Fonacier, and two motions to dismiss the appeal as having become academic and a motion for new trial and/or to take judicial notice of certain documents, filed by appellee Gaite. The motion for contempt is unmeritorious because the main allegation therein that the appellants Larap Mines & Smelting Co., Inc. and Krakower had sold the iron ore here in question, which allegedly is "property in litigation", has not been substantiated; and even if true, does not make these appellants guilty of contempt, because what is under litigation in this appeal is appellee Gaite's right to the payment of the balance of the price of the ore, and not the iron ore itself. As for the several motions presented by appellee Gaite, it is unnecessary to resolve these motions in view of the results that we have reached in this case, which we shall hereafter discuss. The main issues presented by appellants in this appeal are: (1) that the lower court erred in holding that the obligation of appellant Fonacier to pay appellee Gaite the P65,000.00 (balance of the price of the iron ore in question)is one with a period or term and not one with a suspensive condition, and that the term expired on December 8, 1955; and (2) that the lower court erred in not holding that there were only 10,954.5 tons in the stockpiles of iron ore sold by appellee Gaite to appellant Fonacier. The first issue involves an interpretation of the following provision in the contract Exhibit "A": 7. That Fernando Gaite or Larap Iron Mines hereby transfers to Isabelo F. Fonacier all his rights and interests over the 24,000 tons of iron ore, more or less, above-referred to together with all his rights and interests to operate the mine in consideration of the sum of SEVENTY-FIVE THOUSAND PESOS (P75,000.00) which the latter binds to pay as follows: a. TEN THOUSAND PESOS (P10,000.00) will be paid upon the signing of this agreement. b. The balance of SIXTY-FIVE THOUSAND PESOS (P65,000.00)will be paid from and out of the first letter of credit covering the first shipment of iron ore made by the Larap Mines & Smelting Co., Inc., its assigns, administrators, or successors in interest. We find the court below to be legally correct in holding that the shipment or local sale of the iron ore is not a condition precedent (or suspensive) to the payment of the balance of P65,000.00, but was only a suspensive period or term. What characterizes a conditional obligation is the fact that its efficacy or obligatory force (as distinguished from its demandability) is subordinated to the happening of a future and uncertain event; so that if the suspensive condition does not take place, the parties would stand as if the conditional obligation had never existed. That the parties to the contract Exhibit

"A" did not intend any such state of things to prevail is supported by several circumstances: 1) The words of the contract express no contingency in the buyer's obligation to pay: "The balance of Sixty-Five Thousand Pesos (P65,000.00) will be paid out of the first letter of credit covering the first shipment of iron ores . . ." etc. There is no uncertainty that the payment will have to be made sooner or later; what is undetermined is merely the exact date at which it will be made. By the very terms of the contract, therefore, the existence of the obligation to pay is recognized; only its maturity or demandability is deferred. 2) A contract of sale is normally commutative and onerous: not only does each one of the parties assume a correlative obligation (the seller to deliver and transfer ownership of the thing sold and the buyer to pay the price),but each party anticipates performance by the other from the very start. While in a sale the obligation of one party can be lawfully subordinated to an uncertain event, so that the other understands that he assumes the risk of receiving nothing for what he gives (as in the case of a sale of hopes or expectations, emptio spei), it is not in the usual course of business to do so; hence, the contingent character of the obligation must clearly appear. Nothing is found in the record to evidence that Gaite desired or assumed to run the risk of losing his right over the ore without getting paid for it, or that Fonacier understood that Gaite assumed any such risk. This is proved by the fact that Gaite insisted on a bond a to guarantee payment of the P65,000.00, an not only upon a bond by Fonacier, the Larap Mines & Smelting Co., and the company's stockholders, but also on one by a surety company; and the fact that appellants did put up such bonds indicates that they admitted the definite existence of their obligation to pay the balance of P65,000.00. 3) To subordinate the obligation to pay the remaining P65,000.00 to the sale or shipment of the ore as a condition precedent, would be tantamount to leaving the payment at the discretion of the debtor, for the sale or shipment could not be made unless the appellants took steps to sell the ore. Appellants would thus be able to postpone payment indefinitely. The desireability of avoiding such a construction of the contract Exhibit "A" needs no stressing. 4) Assuming that there could be doubt whether by the wording of the contract the parties indented a suspensive condition or a suspensive period (dies ad quem) for the payment of the P65,000.00, the rules of interpretation would incline the scales in favor of "the greater reciprocity of interests", since sale is essentially onerous. The Civil Code of the Philippines, Article 1378, paragraph 1, in fine, provides: If the contract is onerous, the doubt shall be settled in favor of the greatest reciprocity of interests. and there can be no question that greater reciprocity obtains if the buyer' obligation is deemed to be actually existing, with only its maturity (due date) postponed or deferred, that if such obligation were viewed as nonexistent or not binding until the ore was sold. The only rational view that can be taken is that the sale of the ore to Fonacier was a sale on credit, and not an aleatory contract where the transferor, Gaite, would assume the risk of not being paid at all; and that the previous sale or shipment of the ore was not a suspensive condition for the payment of the balance of the agreed price, but was intended merely to fix the future date of the payment. This issue settled, the next point of inquiry is whether appellants, Fonacier and his sureties, still have the right to insist that Gaite should wait for the sale or shipment of the ore before receiving payment; or, in other words, whether or not they are entitled to take full advantage of the period granted them for making the payment. We agree with the court below that the appellant have forfeited the right court below that the appellants have forfeited the right to compel Gaite to wait for the sale of the ore before receiving payment of the balance of P65,000.00, because of their failure to renew the bond of the Far Eastern Surety Company or else replace it with an equivalent guarantee. The expiration of the bonding company's undertaking on December 8, 1955 substantially

reduced the security of the vendor's rights as creditor for the unpaid P65,000.00, a security that Gaite considered essential and upon which he had insisted when he executed the deed of sale of the ore to Fonacier (Exhibit "A"). The case squarely comes under paragraphs 2 and 3 of Article 1198 of the Civil Code of the Philippines: "ART. 1198. The debtor shall lose every right to make use of the period: (1) . . . (2) When he does not furnish to the creditor the guaranties or securities which he has promised. (3) When by his own acts he has impaired said guaranties or securities after their establishment, and when through fortuitous event they disappear, unless he immediately gives new ones equally satisfactory. Appellants' failure to renew or extend the surety company's bond upon its expiration plainly impaired the securities given to the creditor (appellee Gaite), unless immediately renewed or replaced. There is no merit in appellants' argument that Gaite's acceptance of the surety company's bond with full knowledge that on its face it would automatically expire within one year was a waiver of its renewal after the expiration date. No such waiver could have been intended, for Gaite stood to lose and had nothing to gain barely; and if there was any, it could be rationally explained only if the appellants had agreed to sell the ore and pay Gaite before the surety company's bond expired on December 8, 1955. But in the latter case the defendants-appellants' obligation to pay became absolute after one year from the transfer of the ore to Fonacier by virtue of the deed Exhibit "A.". All the alternatives, therefore, lead to the same result: that Gaite acted within his rights in demanding payment and instituting this action one year from and after the contract (Exhibit "A") was executed, either because the appellant debtors had impaired the securities originally given and thereby forfeited any further time within which to pay; or because the term of payment was originally of no more than one year, and the balance of P65,000.00 became due and payable thereafter. Coming now to the second issue in this appeal, which is whether there were really 24,000 tons of iron ore in the stockpiles sold by appellee Gaite to appellant Fonacier, and whether, if there had been a short-delivery as claimed by appellants, they are entitled to the payment of damages, we must, at the outset, stress two things: first, that this is a case of a sale of a specific mass of fungible goods for a single price or a lump sum, the quantity of "24,000 tons of iron ore, more or less," stated in the contract Exhibit "A," being a mere estimate by the parties of the total tonnage weight of the mass; and second, that the evidence shows that neither of the parties had actually measured of weighed the mass, so that they both tried to arrive at the total quantity by making an estimate of the volume thereof in cubic meters and then multiplying it by the estimated weight per ton of each cubic meter. The sale between the parties is a sale of a specific mass or iron ore because no provision was made in their contract for the measuring or weighing of the ore sold in order to complete or perfect the sale, nor was the price of P75,000,00 agreed upon by the parties based upon any such measurement. (see Art. 1480, second par., New Civil Code). The subject matter of the sale is, therefore, a determinate object, the mass, and not the actual number of units or tons contained therein, so that all that was required of the seller Gaite was to deliver in good faith to his buyer all of the ore found in the mass, notwithstanding that the quantity delivered is less than the amount estimated by them (Mobile Machinery & Supply Co., Inc. vs. York Oilfield Salvage Co., Inc. 171 So. 872, applying art. 2459 of the Louisiana Civil Code). There is no charge in this case that Gaite did not deliver to appellants all the ore found in the stockpiles in the mining claims in questions; Gaite had, therefore, complied with his promise to deliver, and appellants in turn are bound to pay the lump price. But assuming that plaintiff Gaite undertook to sell and appellants undertook to buy, not a definite mass, but approximately 24,000 tons of ore, so

that any substantial difference in this quantity delivered would entitle the buyers to recover damages for the short-delivery, was there really a short-delivery in this case? We think not. As already stated, neither of the parties had actually measured or weighed the whole mass of ore cubic meter by cubic meter, or ton by ton. Both parties predicate their respective claims only upon an estimated number of cubic meters of ore multiplied by the average tonnage factor per cubic meter. Now, appellee Gaite asserts that there was a total of 7,375 cubic meters in the stockpiles of ore that he sold to Fonacier, while appellants contend that by actual measurement, their witness Cirpriano Manlagit found the total volume of ore in the stockpiles to be only 6.609 cubic meters. As to the average weight in tons per cubic meter, the parties are again in disagreement, with appellants claiming the correct tonnage factor to be 2.18 tons to a cubic meter, while appellee Gaite claims that the correct tonnage factor is about 3.7. In the face of the conflict of evidence, we take as the most reliable estimate of the tonnage factor of iron ore in this case to be that made by Leopoldo F. Abad, chief of the Mines and Metallurgical Division of the Bureau of Mines, a government pensionado to the States and a mining engineering graduate of the Universities of Nevada and California, with almost 22 years of experience in the Bureau of Mines. This witness placed the tonnage factor of every cubic meter of iron ore at between 3 metric tons as minimum to 5 metric tons as maximum. This estimate, in turn, closely corresponds to the average tonnage factor of 3.3 adopted in his corrected report (Exhibits "FF" and FF-1") by engineer Nemesio Gamatero, who was sent by the Bureau of Mines to the mining claims involved at the request of appellant Krakower, precisely to make an official estimate of the amount of iron ore in Gaite's stockpiles after the dispute arose. Even granting, then, that the estimate of 6,609 cubic meters of ore in the stockpiles made by appellant's witness Cipriano Manlagit is correct, if we multiply it by the average tonnage factor of 3.3 tons to a cubic meter, the product is 21,809.7 tons, which is not very far from the estimate of 24,000 tons made by appellee Gaite, considering that actual weighing of each unit of the mass was practically impossible, so that a reasonable percentage of error should be allowed anyone making an estimate of the exact quantity in tons found in the mass. It must not be forgotten that the contract Exhibit "A" expressly stated the amount to be 24,000 tons, more or less. (ch. Pine River Logging & Improvement Co. vs U.S., 279, 46 L. Ed. 1164). There was, consequently, no short-delivery in this case as would entitle appellants to the payment of damages, nor could Gaite have been guilty of any fraud in making any misrepresentation to appellants as to the total quantity of ore in the stockpiles of the mining claims in question, as charged by appellants, since Gaite's estimate appears to be substantially correct. WHEREFORE, finding no error in the decision appealed from, we hereby affirm the same, with costs against appellants. ________________________________ G.R. No. L-6584 October 16, 1911 INCHAUSTI AND CO., plaintiff-appellant, vs. ELLIS CROMWELL, Collector of Internal Revenue, defendant-appellee. Haussermann, Cohn & Fisher, for appellant. Acting Attorney-General Harvey, for appellee. MORELAND, J.: This is an appeal by the plaintiff from a judgment of the Court of First Instance of the city of Manila, the Hon. Simplicio del Rosario presiding, dismissing the complaint upon the merits after trial, without costs. The facts presented to this court are agreed upon by both parties, consisting, in so far as they are material to a decision of the case, in the following:

III. That the plaintiff firm for many years past has been and now is engaged in the business of buying and selling at wholesale hemp, both for its own account and on commission. IV. That it is customary to sell hemp in bales which are made by compressing the loose fiber by means of presses, covering two sides of the bale 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." V. That in all sales of hemp by the plaintiff firm, whether for its own account or on commission for others, the price is quoted to the buyer at so much per picul, no mention being made of bailing; but with the tacit understanding, unless otherwise expressly agreed, that the hemp will be delivered in bales and that, according to the custom prevailing among hemp merchants and dealers in the Philippine Islands, a charge, the amount of which depends upon the then prevailing rate, is to be made against the buyer under the denomination of "prensaje." That this charge is made in the same manner in all cases, even when the operation of bailing was performed by the plaintiff or by its principal long before the contract of sale was made. Two specimens of the ordinary form of account used in these operations are hereunto appended, marked Exhibits A and B, respectively, and made a part hereof. VI. That the amount of the charge made against hemp buyers by the plaintiff firm and other sellers of hemp under the denomination of "prensaje" during the period involved in this litigation was P1.75 per bale; that the average cost of the rattan and matting used on each bale of hemp is fifteen (15) centavos and that the average total cost of bailing hemp is one (1) peso per bale. VII. That insurance companies in the Philippine Islands, in estimating the insurable value of hemp always add to the quoted price of same the charge made by the seller under the denomination of "prensaje." VII. That the average weight of a bale of hemp is two (2) piculs (126.5 kilograms). IX. That between the first day of January, 1905, and the 31st day of March, 1910, the plaintiff firm, in accordance with the custom mentioned in paragraph V hereof, collected and received, under the denomination of "prensaje," from purchasers of hemp sold by the said firm for its own account, in addition to the price expressly agreed upon for the said hemp, sums aggregating P380,124.35; and between the 1st day of October, 1908, and the 1st day of March, 1910, collected for the account of the owners of hemp sold by the plaintiff firm in Manila on commission, and under the said denomination of "prensaje," in addition to the price expressly agreed upon the said hemp, sums aggregating P31,080. X. That the plaintiff firm in estimating the amount due it as commissions on sales of hemp made by it for its principals has always based the said amount on the total sum collected from the purchasers of the hemp, including the charge made in each case under the denomination of "prensaje." XI. That the plaintiff has always paid to the defendant or to his predecessor in the office of the Collector of Internal Revenue the tax collectible under the provisions of section 139 of Act No. 1189 upon the selling price expressly agreed upon for all hemp sold by the plaintiff firm both for its own account and on commission, but has not, until compelled to do so as hereinafter stated, paid the said tax upon sums received from the purchaser of such hemp under the denomination of "prensaje." XII. That of the 29th day of April, 1910, the defendant, acting in his official capacity as Collector of Internal Revenue of the Philippine Islands, made demand in writing upon the plaintiff firm for the payment within the period of five (5) days of the sum of P1,370.68 as a tax of one third of one per cent on the sums of money mentioned in Paragraph IX hereof, and which the said defendant claimed to be entitled to receive, under the provisions of the said section 139 of Act No. 1189, upon the said sums of money so collected from purchasers of hemp under the denomination of "prensaje."

XIII. That on the 4th day of May, 1910, the plaintiff firm paid to the defendant under protest the said sum of P1,370.69, and on the same date appealed to the defendant as Collector of Internal Revenue, against the ruling by which the plaintiff firm was required to make said payment, but defendant overruled said protest and adversely decided said appeal, and refused and still refuses to return to plaintiff the said sum of P1,370.68 or any part thereof.1awphil.net XIV. Upon the facts above set forth t is contended by the plaintiff that the tax of P1,370.68 assessed by the defendant upon the aggregate sum of said charges made against said purchasers of hemp by the plaintiff during the period in question, under the denomination of "prensaje" as aforesaid, namely, P411,204.35, is illegal upon the ground that the said charge does not constitute a part of the selling price of the hemp, but is a charge made for the service of baling the hemp, and that the plaintiff firm is therefore entitled to recover of the defendant the said sum of P1,370.68 paid to him under protest, together with all interest thereon at the legal rate since payment, and the costs of this action. Upon the facts above stated it is the contention of the defendant that the said charge made under the denomination of "prensaje" is in truth and in fact a part of the gross value of the hemp sold and of its actual selling price, and that therefore the tax imposed by section 139 of Act No. 1189 lawfully accrued on said sums, that the collection thereof was lawfully and properly made and that therefore the plaintiff is not entitled to recover back said sum or any part thereof; and that the defendant should have judgment against plaintiff for his costs. Under these facts we are of the opinion that the judgment of the court below was right. It is one of the stipulations in the statement of facts that it is customary to sell hemp in bales, and that the price quoted in the market for hemp per picul is the price for the hemp baled. The fact is that among large dealers like the plaintiff in this case it is practically impossible to handle hemp without its being baled, and it is admitted by the statement of facts, as well as demonstrated by the documentary proof introduced in the case, that if the plaintiff sold a quality of hemp it would be the under standing, without words, that such hemp would be delivered in bales, and that the purchase price would include the cost and expense of baling. In other words, it is the fact as stipulated, as well as it would be the fact of necessity, that in all dealings in hemp in the general market the selling price consists of the value of the hemp loose plus the cost and expense of putting it into marketable form. In the sales made by the plaintiff, which are the basis of the controversy here, there were n services performed by him for his vendee. There was agreement that services should be performed. Indeed, at the time of such sales it was not known by the vendee whether the hemp was then actually baled or not. All that he knew and all that concerned him was that the hemp should be delivered to him baled. He did not ask the plaintiff to perform services for him, nor did the plaintiff agree to do so. The contract was single and consisted solely in the sale and purchase of hemp. The purchaser contracted for nothing else and the vendor agreed to deliver nothing else. The word "price" signifies the sum stipulated as the equivalent of the thing sold and also every incident taken into consideration for the fixing of the price, put to the debit of the vendee and agreed to by him. It is quite possible that the plaintiff, in this case in connection with the hemp which he sold, had himself already paid the additional expense of baling as a part of the purchase price which he paid and that he himself had received the hemp baled from his vendor. It is quite possible also that such vendor of the plaintiff may have received the same hemp from his vendor in baled form, that he paid the additions cost of baling as a part of the purchase price which he paid. In such case the plaintiff performed no service whatever for his vendee, nor did the plaintiff's vendor perform any service for him. 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 no 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 been the

subject of sale to some other person, even if the order had not been given. (Groves vs. Buck, 3 Maule & S., 178; Towers vs. Osborne, 1 Strange, 506; Benjamin on Sales, 90.) It is clear that in the case at bar the hemp was in existence in baled form before the agreements of sale were made, or, at least, would have been in existence even if none of the individual sales here in question had been consummated. It would have been baled, nevertheless, for sale to someone else, since, according to the agreed statement of facts, it is customary to sell hemp in bales. When a person stipulates for the future sale of articles which he is habitually making, and which at the time are not made or finished, it is essentially a contract of sale and not a contract for labor. It is otherwise when the article is made pursuant to agreement. (Lamb vs. Crafts, 12 Met., 353; Smith vs. N.Y.C. Ry. Co., 4 Keyes, 180; Benjamin on Sales, 98.) Where labor is employed on the materials of the seller he can not maintain an action for work and labor. (Atkinson vs. Bell, 8 Barn. & C., 277; Lee vs. Griffin, 30 L.J.N. S.Q.B., 252; Prescott vs. Locke, 51 N.H., 94.) 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. (Garbutt s. Watson, 5 Barn. & Ald., 613; Gardner vs.Joy, 9 Met., 177; Lamb vs. Crafts, 12 Met., 353; Waterman vs. Meigs, 4 Cush., 497., Clark vs. Nichols, 107 Mass., 547; May vs. Ward, 134 Mass., 127; Abbott vs. Gilchrist, 38 Me., 260; Crocket vs. Scribner, 64 Me., 105; Pitkin vs.Noyes, 48 N. H., 294; Prescott vs. Locke, 51 N. H., 94; Ellison vs. Brigham, 38 Vt., 64.) It has been held in Massachusetts that a contract to make is a contract of sale if the article ordered is already substantially in existence at the time of the order and merely requires some alteration, modification, or adoption to the buyer's wishes or purposes. (Mixer vs. Howarth, 21 Pick., 205.) It is also held in that state that a contract for the sale of an article which the vendor in the ordinary course of his business manufactures or procures for the general market, whether the same is on hand at the time or not, is a contract for the sale of goods to which the statute of frauds applies. But if the goods are to be manufactured especially for the purchaser and upon his special order, and not for the general market, the case is not within the statute. (Goddard vs. Binney, 115 Mass., 450.) It is clear to our minds that in the case at bar the baling was performed for the general market and was not something done by plaintiff which was a result of any peculiar wording of the particular contract between him and his vendee. It is undoubted that the plaintiff prepared his hemp for the general market. This would be necessary. One whose exposes goods for sale in the market must have them in marketable form. The hemp in question would not have been in that condition if it had not been baled. the baling, therefore, was nothing peculiar to the contract between the plaintiff and his vendee. It was precisely the same contract that was made by every other seller of hemp, engaged as was the plaintiff, and resulted simply in the transfer of title to goods already prepared for the general market. The method of bookkeeping and form of the account rendered is not controlling as to the nature of the contract made. It is conceded in the case tat a separate entry and charge would have been made for the baling even if the plaintiff had not been the one who baled the hemp but, instead, had received it already baled from his vendor. This indicates of necessity tat the mere fact of entering a separate item for the baling of the hemp is formal rather than essential and in no sense indicates in this case the real transaction between the parties. It is undisputable that, if the plaintiff had brought the hemp in question already baled, and that was the hemp the sale which formed the subject of this controversy, then the plaintiff would have performed no service for his vendee and could not, therefore, lawfully charge for the rendition of such service. It is, nevertheless, admitted that in spite of that fact he would still have made the double entry in his invoice of sale to such vendee. This demonstrates the nature of the transaction and discloses, as we have already said, that the entry of a separate charge for baling does not accurately describe the transaction between the parties.

Section 139 [Act No. 1189] of the Internal Revenue Law provides that: There shall be paid by each merchant and manufacturer a tax at the rate of one-third of one per centum on the gross value in money of all goods, wares and merchandise sold, bartered or exchanged in the Philippine Islands, and that this tax shall be assessed on the actual selling price at which every such merchant or manufacturer disposes of his commodities. The operation of baling undoubtedly augments the value of the goods. We agree that there can be no question that, if the value of the hemp were not augmented to the amount of P1.75 per bale by said operation, the purchaser would not pay that sum. If one buys a bale of hemp at a stipulated price of P20, well knowing that there is an agreement on his part, express or implied, to pay an additional amount of P1.75 for that bale, he considers the bale of hemp worth P21. 75. It is agreed, as we have before stated, that hemp is sold in bales. Therefore, baling is performed before the sale. The purchaser of hemp owes to the seller nothing whatever by reason of their contract except the value of the hemp delivered. That value, that sum which the purchaser pays to the vendee, is the true selling price of the hemp, and every item which enters into such price is a part of such selling price. By force of the custom prevailing among hemp dealers in the Philippine Islands, a purchaser of hemp in the market, unless he expressly stipulates that it shall be delivered to him in loose form, obligates himself to purchase and pay for baled hemp. Wheher or not such agreement is express or implied, whether it is actual or tacit, it has the same force. After such an agreement has once been made by the purchaser, he has no right to insists thereafter that the seller shall furnish him with unbaled hemp. It is undoubted that the vendees, in the sales referred to in the case at bar, would have no right, after having made their contracts, to insists on the delivery of loose hemp with the purpose in view themselves to perform the baling and thus save 75 centavos per bale. It is unquestioned that the seller, the plaintiff, would have stood upon his original contract of sale, that is, the obligation to deliver baled hemp, and would have forced his vendees to accept baled hemp, he himself retaining among his own profits those which accrued from the proceed of baling. We are of the opinion that the judgment appealed from must be affirmed, without special finding as to costs, and it is so ordered. ________________________________________________ G.R. No. L-8506 August 31, 1956 CELESTINO CO & COMPANY, petitioner, vs. COLLECTOR OF INTERNAL REVENUE, respondent. Office of the Solicitor General Ambrosio Padilla, Fisrt Assistant Solicitor General Guillermo E. Torres and Solicitor Federico V. Sian for respondent. BENGZON, J.: Appeal from a decision of the Court of Tax Appeals. Celestino Co & Company is a duly registered general copartnership doing business under the trade name of "Oriental Sash Factory". From 1946 to 1951 it paid percentage taxes of 7 per cent on the gross receipts of its sash, door and window factory, in accordance with section one hundred eighty-six of the National Revenue Code imposing taxes on sale of manufactured articles. However in 1952 it began to claim liability only to the contractor's 3 per cent tax (instead of 7 per cent) under section 191 of the same Code; and having failed to convince the Bureau of Internal Revenue, it brought the matter to the Court of Tax Appeals, where it also failed. Said the Court: To support his contention that his client is an ordinary contractor . . . counsel presented . . . duplicate copies of letters, sketches of doors and windows and price quotations supposedly sent by the manager of the Oriental Sash Factory to four customers who allegedly made special orders to doors and window from the said factory. The conclusion that counsel would like us to deduce from these few exhibits is that the Oriental Sash Factory does not manufacture ready-made doors, sash and windows for the public but only upon

special order of its select customers. . . . I cannot believe that petitioner company would take, as in fact it has taken, all the trouble and expense of registering a special trade name for its sash business and then orders company stationery carrying the bold print "Oriental Sash Factory (Celestino Co & Company, Prop.) 926 Raon St. Quiapo, Manila, Tel. No. 33076, Manufacturers of all kinds of doors, windows, sashes, furniture, etc. used season-dried and kiln-dried lumber, of the best quality workmanships" solely for the purpose of supplying the needs for doors, windows and sash of its special and limited customers. One ill note that petitioner has chosen for its tradename and has offered itself to the public as a "Factory", which means it is out to do business, in its chosen lines on a big scale. As a general rule, sash factories receive orders for doors and windows of special design only in particular cases but the bulk of their sales is derived from a ready-made doors and windows of standard sizes for the average home. Moreover, as shown from the investigation of petitioner's book of accounts, during the period from January 1, 1952 to September 30, 1952, it sold sash, doors and windows worth P188,754.69. I find it difficult to believe that this amount which runs to six figures was derived by petitioner entirely from its few customers who made special orders for these items. Even if we were to believe petitioner's claim that it does not manufacture ready-made sash, doors and windows for the public and that it makes these articles only special order of its customers, that does not make it a contractor within the purview of section 191 of the national Internal Revenue Code. there are no less than fifty occupations enumerated in the aforesaid section of the national Internal Revenue Code subject to percentage tax and after reading carefully each and every one of them, we cannot find under which the business of manufacturing sash, doors and windows upon special order of customers fall under the category of "road, building, navigation, artesian well, water workers and other construction work contractors" are those who alter or repair buildings, structures, streets, highways, sewers, street railways railroads logging roads, electric lines or power lines, and includes any other work for the construction, altering or repairing for which machinery driven by mechanical power is used. (Payton vs. City of Anadardo 64 P. 2d 878, 880, 179 Okl. 68). Having thus eliminated the feasibility off taxing petitioner as a contractor under 191 of the national Internal Revenue Code, this leaves us to decide the remaining issue whether or not petitioner could be taxed with lesser strain and more accuracy as seller of its manufactured articles under section 186 of the same code, as the respondent Collector of Internal Revenue has in fact been doing the Oriental Sash Factory was established in 1946. The percentage tax imposed in section 191 of our Tax Code is generally a tax on the sales of services, in contradiction with the tax imposed in section 186 of the same Code which is a tax on the original sales of articles by the manufacturer, producer or importer. (Formilleza's Commentaries and Jurisprudence on the National Internal Revenue Code, Vol. II, p. 744). The fact that the articles sold are manufactured by the seller does not exchange the contract from the purview of section 186 of the National Internal Revenue Code as a sale of articles. There was a strong dissent; but upon careful consideration of the whole matter are inclines to accept the above statement of the facts and the law. The important thing to remember is that Celestino Co & Company habitually makes sash, windows and doors, as it has represented in its stationery and advertisements to the public. That it "manufactures" the same is practically admitted by appellant itself. The fact that windows and doors are made by it only when customers place their orders, does not alter the nature of the establishment, for it is obvious that it only accepted such orders as called for the employment of such material-moulding, frames, panels-as it ordinarily manufactured or was in a position habitually to manufacture. Perhaps the following paragraph represents in brief the appellant's position in this Court: Since the petitioner, by clear proof of facts not disputed by the respondent, manufacturers sash, windows and doors only for special

customers and upon their special orders and in accordance with the desired specifications of the persons ordering the same and not for the general market: since the doors ordered by Don Toribio Teodoro & Sons, Inc., for instance, are not in existence and which never would have existed but for the order of the party desiring it; and since petitioner's contractual relation with his customers is that of a contract for a piece of work or since petitioner is engaged in the sale of services, it follows that the petitioner should be taxed under section 191 of the Tax Code and NOT under section 185 of the same Code." (Appellant's brief, p. 11-12). But the argument rests on a false foundation. Any builder or homeowner, with sufficient money, may order windows or doors of the kind manufactured by this appellant. Therefore it is not true that it serves special customers only or confines its services to them alone. And anyone who sees, and likes, the doors ordered by Don Toribio Teodoro & Sons Inc. may purchase from appellant doors of the same kind, provided he pays the price. Surely, the appellant will not refuse, for it can easily duplicate or even mass-produce the same doors-it is mechanically equipped to do so. That the doors and windows must meet desired specifications is neither here nor there. If these specifications do not happen to be of the kind habitually manufactured by appellant special forms for sash, mouldings of panels it would not accept the order and no sale is made. If they do, the transaction would be no different from a purchasers of manufactured goods held is stock for sale; they are bought because they meet the specifications desired by the purchaser. Nobody will say that when a sawmill cuts lumber in accordance with the peculiar specifications of a customer-sizes not previously held in stock for sale to the public-it thereby becomes an employee or servant of the customer,1 not the seller of lumber. The same consideration applies to this sash manufacturer. The Oriental Sash Factory does nothing more than sell the goods that it mass-produces or habitually makes; sash, panels, mouldings, frames, cutting them to such sizes and combining them in such forms as its customers may desire. On the other hand, petitioner's idea of being a contractor doing construction jobs is untenable. Nobody would regard the doing of two window panels a construction work in common parlance.2 Appellant invokes Article 1467 of the New Civil Code to bolster its contention that in filing orders for windows and doors according to specifications, it did not sell, but merely contracted for particular pieces of work or "merely sold its services". Said article reads as follows: A contract for the delivery at a certain price of an article which the vendor in the ordinary course of his business manufactures or procures for the general market, whether the same is on hand at the time or not, is a contract of sale, but if the goods are to be manufactured specially for the customer and upon his special order, and not for the general market, it is contract for a piece of work. It is at once apparent that the Oriental Sash Factory did not merely sell its services to Don Toribio Teodoro & Co. (To take one instance) because it also sold the materials. The truth of the matter is that it sold materials ordinarily manufactured by it sash, panels, mouldings to Teodoro & Co., although in such form or combination as suited the fancy of the purchaser. Such new form does not divest the Oriental Sash Factory of its character as manufacturer. Neither does it take the transaction out of the category of sales under Article 1467 above quoted, because although the Factory does not, in the ordinary course of its business, manufacture and keep on stockdoors of the kind sold to Teodoro, it could stock and/or probably had in stock the sash, mouldings and panels it used therefor (some of them at least). In our opinion when this Factory accepts a job that requires the use of extraordinary or additional equipment, or involves services not generally performed by it-it thereby contracts for a piece of work filing special orders

within the meaning of Article 1467. The orders herein exhibited were not shown to be special. They were merely orders for work nothing is shown to call them special requiring extraordinary service of the factory. The thought occurs to us that if, as alleged-all the work of appellant is only to fill orders previously made, such orders should not be called special work, but regular work. Would a factory do business performing only special, extraordinary or peculiar merchandise? Anyway, supposing for the moment that the transactions were not sales, they were neither lease of services nor contract jobs by a contractor. But as the doors and windows had been admittedly "manufactured" by the Oriental Sash Factory, such transactions could be, and should be taxed as "transfers" thereof under section 186 of the National Revenue Code. __________________________________________ G.R. No. 52267 January 24, 1996 ENGINEERING & MACHINERY CORPORATION, petitioner, vs. COURT OF APPEALS and PONCIANO L. ALMEDA, respondent. DECISION PANGANIBAN, J.: Is a contract for the fabrication and installation of a central airconditioning system in a building, one of "sale" or "for a piece of work"? What is the prescriptive period for filing actions for breach of the terms of such contract? These are the legal questions brought before this Court in this Petition for review on certiorari under Rule 45 of the Rules of Court, to set aside the Decision1 of the Court of Appeals2 in CA-G.R. No. 58276-R promulgated on November 28, 1978 (affirming in toto the decision3 dated April 15, 1974 of the then Court of First Instance of Rizal, Branch II4 , in Civil Case No. 14712, which ordered petitioner to pay private respondent the amount needed to rectify the faults and deficiencies of the air-conditioning system installed by petitioner in private respondent's building, plus damages, attorney's fees and costs). By a resolution of the First Division of this Court dated November 13, 1995, this case was transferred to the Third. After deliberating on the various submissions of the parties, including the petition, record on appeal, private respondent's comment and briefs for the petitioner and the private respondent, the Court assigned the writing of this Decision to the undersigned, who took his oath as a member of the Court on October 10, 1995. The Facts Pursuant to the contract dated September 10, 1962 between petitioner and private respondent, the former undertook to fabricate, furnish and install the air-conditioning system in the latter's building along Buendia Avenue, Makati in consideration of P210,000.00. Petitioner was to furnish the materials, labor, tools and all services required in order to so fabricate and install said system. The system was completed in 1963 and accepted by private respondent, who paid in full the contract price. On September 2, 1965, private respondent sold the building to the National Investment and Development Corporation (NIDC). The latter took possession of the building but on account of NIDC's noncompliance with the terms and conditions of the deed of sale, private respondent was able to secure judicial rescission thereof. The ownership of the building having been decreed back to private respondent, he re-acquired possession sometime in 1971. It was then that he learned from some NIDC, employees of the defects of the airconditioning system of the building. Acting on this information, private respondent commissioned Engineer David R. Sapico to render a technical evaluation of the system in relation to the contract with petitioner. In his report, Sapico enumerated the defects of the system and concluded that it was "not capable of maintaining the desired room temperature of 76F - 2F (Exhibit C)"5 . On the basis of this report, private respondent filed on May 8, 1971 an action for damages against petitioner with the then Court of First Instance of Rizal (Civil Case No. 14712). The complaint alleged that the air-conditioning

system installed by petitioner did not comply with the agreed plans and specifications. Hence, private respondent prayed for the amount of P210,000.00 representing the rectification cost, P100,000.00 as damages and P15,000.00 as attorney's fees. Petitioner moved to dismiss the complaint, alleging that the prescriptive period of six months had set in pursuant to Articles 1566 and 1567, in relation to Article 1571 of the Civil Code, regarding the responsibility of a vendor for any hidden faults or defects in the thing sold. Private respondent countered that the contract dated September 10, 1962 was not a contract for sale but a contract for a piece of work under Article 1713 of the Civil Code. Thus, in accordance with Article 1144 (1) of the same Code, the complaint was timely brought within the ten-year prescriptive period. In its reply, petitioner argued that Article 1571 of the Civil Code providing for a six-month prescriptive period is applicable to a contract for a piece of work by virtue of Article 1714, which provides that such a contract shall be governed by the pertinent provisions on warranty of title and against hidden defects and the payment of price in a contract of sale6 . The trial court denied the motion to dismiss. In its answer to the complaint, petitioner reiterated its claim of prescription as an affirmative defense. It alleged that whatever defects might have been discovered in the airconditioning system could have been caused by a variety of factors, including ordinary wear and tear and lack of proper and regular maintenance. It pointed out that during the one-year period that private respondent withheld final payment, the system was subjected to "very rigid inspection and testing and corrections or modifications effected" by petitioner. It interposed a compulsory counterclaim suggesting that the complaint was filed "to offset the adverse effects" of the judgment in Civil Case No. 71494, Court of First Instance of Manila, involving the same parties, wherein private respondent was adjudged to pay petitioner the balance of the unpaid contract price for the air-conditioning system installed in another building of private respondent, amounting to P138,482.25. Thereafter, private respondent filed an ex-parte motion for preliminary attachment on the strength of petitioner's own statement to the effect that it had sold its business and was no longer doing business in Manila. The trial court granted the motion and, upon private respondent's posting of a bond of F'50,000.00, ordered the issuance of a writ of attachment. In due course, the trial court rendered a decision finding that petitioner failed to install certain parts and accessories called for by the contract, and deviated from the plans of the system, thus reducing its operational effectiveness to the extent that 35 window-type units had to be installed in the building to achieve a fairly desirable room temperature. On the question of prescription, the trial court ruled that the complaint was filed within the ten-year court prescriptive period although the contract was one for a piece of work, because it involved the "installation of an air-conditioning system which the defendant itself manufactured, fabricated, designed and installed." Petitioner appealed to the Court of Appeals, which affirmed the decision of the trial court. Hence, it instituted the instant petition. The Submissions of the Parties In the instant Petition, petitioner raised three issues. First, it contended that private respondent's acceptance of the work and his payment of the contract price extinguished any liability with respect to the defects in the airconditioning system. Second, it claimed that the Court of Appeals erred when it held that the defects in the installation were not apparent at the time of delivery and acceptance of the work considering that private respondent was not an expert who could recognize such defects. Third, it insisted that, assuming arguendo that there were indeed hidden defects, private respondent's complaint was barred by prescription under Article 1571 of the Civil Code, which provides for a six-month prescriptive period. Private respondent, on the other hand, averred that the issues raised by petitioner, like the question of whether there was an acceptance of the work by the owner and whether the hidden defects in the installation could have

been discovered by simple inspection, involve questions of fact which have been passed upon by the appellate court. The Court's Ruling The Supreme Court reviews only errors of law in petitions for review on certiorari under Rule 45. It is not the function of this Court to re-examine the findings of fact of the appellate court unless said findings are not supported by the evidence on record or the judgment is based on a misapprehension of facts7 of Appeals erred when it held that the defects in the installation were not apparent at the time of delivery and acceptance of the work considering that private respondent was not an expert who could recognize such defects. Third. it insisted that, assuming arguendo that there were indeed hidden defects, private respondent's complaint was barred by prescription under Article 1571 of the Civil Code, which provides for a six-month prescriptive period. Private respondent, on the other hand, averred that the issues raised by petitioner, like the question of whether here was an acceptance of the work by the owner and whether the hidden defects in the installation could have been discovered by simple inspection, involve questions of fact which have been passed upon by the appellate court. The Court has consistently held that the factual findings of the trial court, as well as the Court of Appeals, are final and conclusive and may not be reviewed on appeal. Among the exceptional circumstances where a reassessment of facts found by the lower courts is allowed are when the conclusion is a finding grounded entirely on speculation, surmises or conjectures; when the inference made is manifestly absurd, mistaken or impossible; when there is grave abuse of discretion in the appreciation of facts; when the judgment is premised on a misapprehension of facts; when the findings went beyond the issues of the case and the same are contrary to the admissions of both appellant and appellee. After a careful study of the case at bench, we find none of the above grounds present to justify the re-evaluation of the findings of fact made by the courts below.8 We see no valid reason to discard the factual conclusions of the appellate court. . . . (I)t is not the function of this Court to assess and evaluate all over again the evidence, testimonial and documentary, adduced by the parties, particularly where, such as here, the findings of both the trial court and the appellate court on the matter coincide.9 (Emphasis supplied) Hence, the first two issues will not be resolved as they raise questions of fact. Thus, the only question left to be resolved is that of prescription. In their submissions, the parties argued lengthily on the nature of the contract entered into by them, viz., whether it was one of sale or for a piece of work. Article 1713 of the Civil Code defines a contract for a piece of work thus: By the 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. The contractor may either employ only his labor or skill, or also furnish the material. A contract for a piece of work, labor and materials may be distinguished from a contract of sale by the inquiry as to whether the thing transferred is one not in existence and which would never have existed but for the order, of the person desiring it10 . In such case, the contract is one for a piece of work, not a sale. On the other hand, if the thing subject of the contract would have existed and been the subject of a sale to some other person even if the order had not been given, then the contract is one of sale11 . Thus, Mr. Justice Vitug12 explains that A contract for the delivery at a certain price of an article which the vendor in the ordinary course of his business manufactures or procures for the general market, whether the same is on hand at the time or not is a contract of sale, but if the goods are to be manufactured specially for the customer and upon his special order, and not for the general market, it is a contract for a piece of work (Art. 1467, Civil Code). The mere fact alone that certain articles are made upon previous orders of customers will not argue against the

imposition of the sales tax if such articles are ordinarily manufactured by the taxpayer for sale to the public (Celestino Co. vs. Collector, 99 Phil. 841). To Tolentino, the distinction between the two contracts depends on the intention of the parties. Thus, if the parties intended that at some future date an object has to be delivered, without considering the work or labor of the party bound to deliver, the contract is one of sale. But if one of the parties accepts the undertaking on the basis of some plan, taking into account the work he will employ personally or through another, there is a contract for a piece of work13 . Clearly, the contract in question is one for a piece of work. It is not petitioner's line of business to manufacture air-conditioning systems to be sold "off-the-shelf." Its business and particular field of expertise is the fabrication and installation of such systems as ordered by customers and in accordance with the particular plans and specifications provided by the customers. Naturally, the price or compensation for the system manufactured and installed will depend greatly on the particular plans and specifications agreed upon with the customers. The obligations of a contractor for a piece of work are set forth in Articles 1714 and 1715 of the Civil Code, which provide: Art. 1714. If the contractor agrees to produce the work from material furnished by him, he shall deliver the thing produced to the employer and transfer dominion over the thing. This contract shall be governed by the following articles as well as by the pertinent provisions on warranty of title and against hidden defects and the payment of price in a contract of sale. Art. 1715. The contractor shall execute the work in such a manner that it has the qualities agreed upon and has no defects which destroy or lessen its value or fitness for its ordinary or stipulated use. Should the work be not of such quality, the employer may require that the contractor remove the defect or execute another work. If the contractor fails or refuses to comply with this obligation, the employer may have the defect removed or another work executed, at the contractor's cost. The provisions on warranty against hidden defects, referred to in Art. 1714 above-quoted, are found in Articles 1561 and 1566, which read as follows: Art. 1561. The vendor shall be responsible for warranty against the hidden defects which the thing sold may have, should they render it unfit for the use for which it is intended, or should they diminish its fitness for such use to such an extent that, had the vendee been aware thereof, he would not have acquired it or would have given a lower price for it; but said vendor shall not be answerable for patent defects or those which may be visible, or for those which are not visible if the vendee is an expert who, by reason of his trade or profession, should have known them. xxx xxx xxx Art. 1566. The vendor is responsible to the vendee for any hidden faults or defects in the thing sold, even though he was not aware thereof. This provision shall not apply if the contrary has been stipulated, and the vendor was not aware of the hidden faults or defects in the thing sold. The remedy against violations of the warranty against hidden defects is either to withdraw from the contract (redhibitory action) or to demand a proportionate reduction of the price (accion quanti manoris), with damages in either case14 . In Villostas vs. Court of Appeals15 , we held that, "while it is true that Article 1571 of the Civil Code provides for a prescriptive period of six months for a redhibitory action, a cursory reading of the ten preceding articles to which it refers will reveal that said rule may be applied only in case of implied warranties"; and where there is an express warranty in the contract, as in the case at bench, the prescriptive period is the one specified in the express warranty, and in the absence of such period, "the general rule on rescission of contract, which is four years (Article 1389, Civil Code) shall apply"16 . Consistent with the above discussion, it would appear that this suit is barred by prescription because the complaint was filed more than four years

after the execution of the contract and the completion of the air-conditioning system. However, a close scrutiny of the complaint filed in the trial court reveals that the original action is not really for enforcement of the warranties against hidden defects, but one for breach of the contract itself. It alleged17 that the petitioner, "in the installation of the air conditioning system did not comply with the specifications provided" in the written agreement between the parties, "and an evaluation of the air-conditioning system as installed by the defendant showed the following defects and violations of the specifications of the agreement, to wit: GROUND FLOOR: "A. RIGHT WING: Equipped with Worthington Compressor, Model 2VC4 directly driven by an Hp Elin electric motor 1750 rmp, 3 phase, 60 cycles, 220 volts, complete with starter evaporative condenser, circulating water pump, air handling unit air ducts. Defects Noted: 1. Deteriorated evaporative condenser panels, coils are full of scales and heavy corrosion is very evident. 2. Defective gauges of compressors; 3. No belt guard on motor; 4. Main switch has no cover; 5. Desired room temperature not attained; Aside from the above defects, the following were noted not installed although provided in the specifications. 1. Face by-pass damper of G.I. sheets No. 16. This damper regulates the flow of cooled air depending on room condition. 2. No fresh air intake provision were provided which is very necessary for efficient comfort cooling.. 3. No motor to regulate the face and by-pass damper. 4. Liquid level indicator for refrigerant not provided. 5. Suitable heat exchanger is not installed. This is an important component to increase refrigeration efficiency. 6. Modulating thermostat not provided. 7. Water treatment device for evaporative condenser was not provided. 8. Liquid receiver not provided by sight glass. B. LEFT WING: Worthington Compressor Model 2VC4 is installed complete with 15 Hp electric motor, 3 phase, 220 volts 60 cycles with starter. Defects Noted: Same as right wing. except No. 4, All other defects on right wing are common to the left wing. SECOND FLOOR: (Common up to EIGHT FLOORS) Compressors installed are MELCO with 7.5 Hp V-belt driven by 1800 RPM, -220 volts, 60 cycles, 3 phase, Thrige electric motor with starters. As stated in the specifications under, Section No. IV, the MELCO compressors do not satisfy the conditions stated therein due to the following: 1. MELCO Compressors are not provided with automatic capacity unloader. 2. Not provided with oil pressure safety control. 3. Particular compressors do not have provision for renewal sleeves. Out of the total 15 MELCO compressors installed to serve the 2nd floor up to 8th floors, only six (6) units are in operation and the rest were already replaced. Of the remaining six (6) units, several of them have been replaced with bigger crankshafts. NINTH FLOOR: Two (2) Worthington 2VC4 driven by 15 Hp, 3 phase, 220 volts, 60 cycles, 1750 rpm, Higgs motors with starters. Defects Noted are similar to ground floor. GENERAL REMARKS:

Under Section III, Design conditions of specification for air conditioning work, and taking into account "A" & "B" same, the present systems are not capable of maintaining the desired temperature of 76 = 2F (sic). The present tenant have installed 35 window type air conditioning units distributed among the different floor levels. Temperature measurements conducted on March 29. 1971, revealed that 78F room (sic) is only maintained due to the additional window type units. The trial court, after evaluating the evidence presented, held that, indeed, petitioner failed to install items and parts required in the contract and substituted some other items which were not in accordance with the specifications18 , thus: From all of the foregoing, the Court is persuaded to believe the plaintiff that not only had the defendant failed to install items and parts provided for in the specifications of the air-conditioning system be installed, like face and by-pass dampers and modulating thermostat and many others, but also that there are items, parts and accessories which were used and installed on the air-conditioning system which were not in full accord with contract specifications. These omissions to install the equipments, parts and accessories called for in the specifications of the contract, as well as the deviations made in putting into the air-conditioning system equipments, parts and accessories not in full accord with the contract specification naturally resulted to adversely affect the operational effectiveness of the air-conditioning system which necessitated the installation of thirty-five window type of airconditioning units distributed among the different floor levels in order to be able to obtain a fairly desirable room temperature for the tenants and actual occupants of the building. The Court opines and so holds that the failure of the defendant to follow the contract specifications and said omissions and deviations having resulted in the operational ineffectiveness of the system installed makes the defendant liable to the plaintiff in the amount necessary to rectify to put the air conditioning system in its proper operational condition to make it serve the purpose for which the plaintiff entered into the contract with the defendant. The respondent Court affirmed the trial court's decision thereby making the latter's findings also its own. Having concluded that the original complaint is one for damages arising from breach of a written contract - and not a suit to enforce warranties against hidden defects - we here - with declare that the governing law is Article 1715 (supra). However, inasmuch as this provision does not contain a specific prescriptive period, the general law on prescription, which is Article 1144 of the Civil Code, will apply. Said provision states, inter alia, that actions "upon a written contract" prescribe in ten (10) years. Since the governing contract was executed on September 10, 1962 and the complaint was filed on May 8, 1971, it is clear that the action has not prescribed. What about petitioner's contention that "acceptance of the work by the employer relieves the contractor of liability for any defect in the work"? This was answered by respondent Court19 as follows: As the breach of contract which gave rise to the instant case consisted in appellant's omission to install the equipments (sic), parts and accessories not in accordance with the plan and specifications provided for in the contract and the deviations made in putting into the air conditioning system parts and accessories not in accordance with the contract specifications, it is evident that the defect in the installation was not apparent at the time of the delivery and acceptance of the work, considering further that plaintiff is not an expert to recognize the same. From the very nature of things, it is impossible to determine by the simple inspection of air conditioning system installed in an 8floor building whether it has been furnished and installed as per agreed specifications. Verily, the mere fact that the private respondent accepted the work does not, ipso facto, relieve the petitioner from liability for deviations from and violations of the written contract, as the law gives him ten (10) years within which to file an action based on breach thereof.

WHEREFORE, the petition is hereby DENIED and the assailed Decision is AFFIRMED. No costs. __________________________________________ G.R. No. L-27044 June 30, 1975 THE COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. ENGINEERING EQUIPMENT AND SUPPLY COMPANY AND THE COURT OF TAX APPEALS, respondents. G.R. No. L-27452 June 30, 1975 ENGINEERING EQUIPMENT AND SUPPLY COMPANY, petitioner, vs. THE COMMISSIONER OF INTERNAL REVENUE AND THE COURT OF TAX APPEALS, respondent. ESGUERRA, J.: Petition for review on certiorari of the decision of the Court of Tax Appeals in CTA Case No. 681, dated November 29, 1966, assessing a compensating tax of P174,441.62 on the Engineering Equipment and Supply Company. As found by the Court of Tax Appeals, and as established by the evidence on record, the facts of this case are as follows: Engineering Equipment and Supply Co. (Engineering for short), a domestic corporation, is an engineering and machinery firm. As operator of an integrated engineering shop, it is engaged, among others, in the design and installation of central type air conditioning system, pumping plants and steel fabrications. (Vol. I pp. 12-16 T.S.N. August 23, 1960) On July 27, 1956, one Juan de la Cruz, wrote the then Collector, now Commissioner, of Internal Revenue denouncing Engineering for tax evasion by misdeclaring its imported articles and failing to pay the correct percentage taxes due thereon in connivance with its foreign suppliers (Exh. "2" p. 1 BIR record Vol. I). Engineering was likewise denounced to the Central Bank (CB) for alleged fraud in obtaining its dollar allocations. Acting on these denunciations, a raid and search was conducted by a joint team of Central Bank, (CB), National Bureau of Investigation (NBI) and Bureau of Internal Revenue (BIR) agents on September 27, 1956, on which occasion voluminous records of the firm were seized and confiscated. (pp. 173-177 T.S.N.) On September 30, 1957, revenue examiners Quesada and Catudan reported and recommended to the then Collector, now Commissioner, of Internal Revenue (hereinafter referred to as Commissioner) that Engineering be assessed for P480,912.01 as deficiency advance sales tax on the theory that it misdeclared its importation of air conditioning units and parts and accessories thereof which are subject to tax under Section 185(m) 1 of the Tax Code, instead of Section 186 of the same Code. (Exh. "3" pp. 59-63 BIR rec. Vol. I) This assessment was revised on January 23, 1959, in line with the observation of the Chief, BIR Law Division, and was raised to P916,362.56 representing deficiency advance sales tax and manufacturers sales tax, inclusive of the 25% and 50% surcharges. (pp. 72-80 BIR rec. Vol. I) On March 3, 1959. the Commissioner assessed against, and demanded upon, Engineering payment of the increased amount and suggested that P10,000 be paid as compromise in extrajudicial settlement of Engineering's penal liability for violation of the Tax Code. The firm, however, contested the tax assessment and requested that it be furnished with the details and particulars of the Commissioner's assessment. (Exh. "B" and "15", pp. 86-88 BIR rec. Vol. I) The Commissioner replied that the assessment was in accordance with law and the facts of the case. On July 30, 1959, Engineering appealed the case to the Court of Tax Appeals and during the pendency of the case the investigating revenue examiners reduced Engineering's deficiency tax liabilities from P916,362.65 to P740,587.86 (Exhs. "R" and "9" pp. 162-170, BIR rec.), based on findings after conferences had with Engineering's Accountant and Auditor.

On November 29, 1966, the Court of Tax Appeals rendered its decision, the dispositive portion of which reads as follows: For ALL THE FOREGOING CONSIDERATIONS, the decision of respondent appealed from is hereby modified, and petitioner, as a contractor, is declared exempt from the deficiency manufacturers sales tax covering the period from June 1, 1948. to September 2, 1956. However, petitioner is ordered to pay respondent, or his duly authorized collection agent, the sum of P174,141.62 as compensating tax and 25% surcharge for the period from 1953 to September 1956. With costs against petitioner. The Commissioner, not satisfied with the decision of the Court of Tax Appeals, appealed to this Court on January 18, 1967, (G.R. No. L-27044). On the other hand, Engineering, on January 4, 1967, filed with the Court of Tax Appeals a motion for reconsideration of the decision abovementioned. This was denied on April 6, 1967, prompting Engineering to file also with this Court its appeal, docketed as G.R. No. L-27452. Since the two cases, G.R. No. L-27044 and G.R. No. L-27452, involve the same parties and issues, We have decided to consolidate and jointly decide them. Engineering in its Petition claims that the Court of Tax Appeals committed the following errors: 1. That the Court of Tax Appeals erred in holding Engineering Equipment & Supply Company liable to the 30% compensating tax on its importations of equipment and ordinary articles used in the central type air conditioning systems it designed, fabricated, constructed and installed in the buildings and premises of its customers, rather than to the compensating tax of only 7%; 2. That the Court of Tax Appeals erred in holding Engineering Equipment & Supply Company guilty of fraud in effecting the said importations on the basis of incomplete quotations from the contents of alleged photostat copies of documents seized illegally from Engineering Equipment and Supply Company which should not have been admitted in evidence; 3. That the Court of Tax Appeals erred in holding Engineering Equipment & Supply Company liable to the 25% surcharge prescribed in Section 190 of the Tax Code; 4. That the Court of Tax Appeals erred in holding the assessment as not having prescribed; 5. That the Court of Tax Appeals erred in holding Engineering Equipment & Supply Company liable for the sum of P174,141.62 as 30% compensating tax and 25% surcharge instead of completely absolving it from the deficiency assessment of the Commissioner. The Commissioner on the other hand claims that the Court of Tax Appeals erred: 1. In holding that the respondent company is a contractor and not a manufacturer. 2. In holding respondent company liable to the 3% contractor's tax imposed by Section 191 of the Tax Code instead of the 30% sales tax prescribed in Section 185(m) in relation to Section 194(x) both of the same Code; 3. In holding that the respondent company is subject only to the 30% compensating tax under Section 190 of the Tax Code and not to the 30% advance sales tax imposed by section 183 (b), in relation to section 185(m) both of the same Code, on its importations of parts and accessories of air conditioning units; 4. In not holding the company liable to the 50% fraud surcharge under Section 183 of the Tax Code on its importations of parts and accessories of air conditioning units, notwithstanding the finding of said court that the respondent company fraudulently misdeclared the said importations; 5. In holding the respondent company liable for P174,141.62 as compensating tax and 25% surcharge instead of P740,587.86 as deficiency advance sales tax, deficiency manufacturers tax and 25% and 50% surcharge for the period from June 1, 1948 to December 31, 1956.

The main issue revolves on the question of 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. 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, which defines a manufacturer as follows: Section 194. Words and Phrases Defined. In applying the provisions of this Title, words and phrases shall be taken in the sense and extension indicated below: xxx xxx xxx (x) "Manufacturer" includes every person who by physical or chemical process alters the exterior texture or form or inner substance of any raw material or manufactured or partially manufactured products in such manner as to prepare it for a special use or uses to which it could not have been put in its original condition, or who by any such process alters the quality of any such material or manufactured or partially manufactured product so as to reduce it to marketable shape, or prepare it for any of the uses of industry, or who by any such process combines any such raw material or manufactured or partially manufactured products with other materials or products of the same or of different kinds and in such manner that the finished product of such process of manufacture can be put to special use or uses to which such raw material or manufactured or partially manufactured products in their original condition could not have been put, and who in addition alters such raw material or manufactured or partially manufactured products, or combines the same to produce such finished products for the purpose of their sale or distribution to others and not for his own use or consumption. In answer to the above contention, 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 airconditioning 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. The arguments of both the Engineering and the Commissioner call for a clarification of the term contractor as well as the distinction between a contract of sale and contract for furnishing services, labor and materials. 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. 2 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. 3 Our New Civil Code, likewise distinguishes a contract of sale from a contract for a piece of work thus: Art. 1467. A contract for the delivery at a certain price of an article which the vendor in the ordinary course of his business manufactures or procures for the general market, whether the same is on hand at the time or not, is a contract of sale, but if the goods are to be manufactured specially for the customer and upon his special order and not for the general market, it is a contract for a piece of work. 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. (Araas,

Annotations and Jurisprudence on the National Internal Revenue Code, p. 318, par. 191 (2), 1970 Ed.) The true test of a contractor as was held in the cases of Luzon Stevedoring Co., vs. Trinidad, 43, Phil. 803, 807-808, and La Carlota Sugar Central vs. Trinidad, 43, Phil. 816, 819, 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. With the foregoing criteria as guideposts, We shall now examine whether Engineering really did "manufacture" and sell, as alleged by the Commissioner to hold it liable to the advance sales tax under Section 185(m), or it only had its services "contracted" for installation purposes to hold it liable under section 198 of the Tax Code. I After going over the three volumes of stenographic notes and the voluminous record of the BIR and the CTA as well as the exhibits submitted by both parties, We find that Engineering did not manufacture air conditioning units for sale to the general public, but imported some items (as refrigeration compressors in complete set, heat exchangers or coils, t.s.n. p. 39) which were used in executing contracts entered into by it. Engineering, therefore, undertook negotiations and execution of individual contracts for the design, supply and installation of air conditioning units of the central type (t.s.n. pp. 2036; Exhs. "F", "G", "H", "I", "J", "K", "L", and "M"), taking into consideration in the process such factors as the area of the space to be air conditioned; the number of persons occupying or would be occupying the premises; the purpose for which the various air conditioning areas are to be used; and the sources of heat gain or cooling load on the plant such as sun load, lighting, and other electrical appliances which are or may be in the plan. (t.s.n. p. 34, Vol. I) Engineering also testified during the hearing in the Court of Tax Appeals that relative to the installation of air conditioning system, Engineering designed and engineered complete each particular plant and that no two plants were identical but each had to be engineered separately. As found by the lower court, which finding 4 We adopt 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. The Commissioner in his Brief argues that "it is more in accord with reason and sound business management to say that anyone who desires to have air conditioning units installed in his premises and who is in a position and willing to pay the price can order the same from the company (Engineering) and, therefore, Engineering could have mass produced and stockpiled air conditioning units for sale to the public or to any customer with enough money to buy the same." This is untenable in the light of the fact that air conditioning units, packaged, or what we know as self-contained air conditioning units, are distinct from the central system which Engineering dealt in. To Our mind, the distinction as explained by Engineering, in its Brief, quoting from books, is not an idle play of words as claimed by the Commissioner, but a significant fact which We just cannot ignore. As quoted by Engineering Equipment & Supply Co., from an Engineering handbook by L.C. Morrow, and which We reproduce hereunder for easy reference: ... there is a great variety of equipment in use to do this job (of air conditioning). Some devices are designed to serve a specific type of space; others to perform a specific function; and still others as components to be assembled into a tailor-made system to fit a particular building. Generally,

however, they may be grouped into two classifications unitary and central system. The unitary equipment classification includes those designs such as room air conditioner, where all of the functional components are included in one or two packages, and installation involves only making service connection such as electricity, water and drains. Central-station systems, often referred to as applied or built-up systems, require the installation of components at different points in a building and their interconnection. The room air conditioner is a unitary equipment designed specifically for a room or similar small space. It is unique among air conditioning equipment in two respects: It is in the electrical appliance classification, and it is made by a great number of manufacturers. There is also the testimony of one Carlos Navarro, a licensed Mechanical and Electrical Engineer, who was once the Chairman of the Board of Examiners for Mechanical Engineers and who was allegedly responsible for the preparation of the refrigeration and air conditioning code of the City of Manila, who said that "the central type air conditioning system is an engineering job that requires planning and meticulous layout due to the fact that usually architects assign definite space and usually the spaces they assign are very small and of various sizes. Continuing further, he testified: I don't think I have seen central type of air conditioning machinery room that are exactly alike because all our buildings here are designed by architects dissimilar to existing buildings, and usually they don't coordinate and get the advice of air conditioning and refrigerating engineers so much so that when we come to design, we have to make use of the available space that they are assigning to us so that we have to design the different component parts of the air conditioning system in such a way that will be accommodated in the space assigned and afterwards the system may be considered as a definite portion of the building. ... Definitely there is quite a big difference in the operation because the window type air conditioner is a sort of compromise. In fact it cannot control humidity to the desired level; rather the manufacturers, by hit and miss, were able to satisfy themselves that the desired comfort within a room could be made by a definite setting of the machine as it comes from the factory; whereas the central type system definitely requires an intelligent operator. (t.s.n. pp. 301-305, Vol. II) The point, therefore, is this Engineering definitely did not and was not engaged in the manufacture of air conditioning units but had its services contracted for the installation of a central system. The cases cited by the Commissioner (Advertising Associates, Inc. vs. Collector of Customs, 97, Phil. 636; Celestino Co & Co. vs. Collector of Internal Revenue, 99 Phil. 841 and Manila Trading & Supply Co. vs. City of Manila, 56 O.G. 3629), are not in point. Neither are they applicable because the facts in all the cases cited are entirely different. Take for instance the case of Celestino Co where this Court held the taxpayer to be a manufacturer rather than a contractor of sash, doors and windows manufactured in its factory. Indeed, from the very start, Celestino Co intended itself to be a manufacturer of doors, windows, sashes etc. as it did register a special trade name for its sash business and ordered company stationery carrying the bold print "ORIENTAL SASH FACTORY (CELESTINO CO AND COMPANY, PROP.) 926 Raon St., Quiapo, Manila, Tel. No. etc., Manufacturers of All Kinds of Doors, Windows ... ." Likewise, Celestino Co never put up a contractor's bond as required by Article 1729 of the Civil Code. Also, as a general rule, sash factories receive orders for doors and windows of special design only in particular cases, but the bulk of their sales is derived from ready-made doors and windows of standard sizes for the average home, which "sales" were reflected in their books of accounts totalling P118,754.69 for the period from January, 1952 to September 30, 1952, or for a period of only nine (9) months. This Court found said sum difficult to have been derived from its few customers who placed special orders for these items. Applying the abovestated facts to the case at bar, We found them to he inapposite. Engineering advertised itself as Engineering Equipment and Supply Company,

Machinery Mechanical Supplies, Engineers, Contractors, 174 Marques de Comillas, Manila (Exh. "B" and "15" BIR rec. p. 186), and not as manufacturers. It likewise paid the contractors tax on all the contracts for the design and construction of central system as testified to by Mr. Rey Parker, its President and General Manager. (t.s.n. p. 102, 103) Similarly, Engineering did not have ready-made air conditioning units for sale but as per testimony of Mr. Parker upon inquiry of Judge Luciano of the CTA Q Aside from the general components, which go into air conditioning plant or system of the central type which your company undertakes, and the procedure followed by you in obtaining and executing contracts which you have already testified to in previous hearing, would you say that the covering contracts for these different projects listed ... referred to in the list, Exh. "F" are identical in every respect? I mean every plan or system covered by these different contracts are identical in standard in every respect, so that you can reproduce them? A No, sir. They are not all standard. On the contrary, none of them are the same. Each one must be designed and constructed to meet the particular requirements, whether the application is to be operated. (t.s.n. pp. 101-102) What We consider as on all fours with the case at bar is the case of S.M. Lawrence Co. vs. McFarland,Commissioner of Internal Revenue of the State of Tennessee and McCanless, 355 SW 2d, 100, 101, "where the cause presents the question of whether one engaged in the business of contracting for the establishment of air conditioning system in buildings, which work requires, in addition to the furnishing of a cooling unit, the connection of such unit with electrical and plumbing facilities and the installation of ducts within and through walls, ceilings and floors to convey cool air to various parts of the building, is liable for sale or use tax as a contractor rather than a retailer of tangible personal property. Appellee took the Position that appellant was not engaged in the business of selling air conditioning equipment as such but in the furnishing to its customers of completed air conditioning systems pursuant to contract, was a contractor engaged in the construction or improvement of real property, and as such was liable for sales or use tax as the consumer of materials and equipment used in the consummation of contracts, irrespective of the tax status of its contractors. To transmit the warm or cool air over the buildings, the appellant installed system of ducts running from the basic units through walls, ceilings and floors to registers. The contract called for completed air conditioning systems which became permanent part of the buildings and improvements to the realty." The Court held the appellant a contractor which used the materials and the equipment upon the value of which the tax herein imposed was levied in the performance of its contracts with its customers, and that the customers did not purchase the equipment and have the same installed. Applying the facts of the aforementioned case to the present case, We see that the supply of air conditioning units to Engineer's various customers, whether the said machineries were in hand or not, was especially made for each customer and installed in his building upon his special order. The air conditioning units installed in a central type of air conditioning system would not have existed but for the order of the party desiring to acquire it and if it existed without the special order of Engineering's customer, the said air conditioning units were not intended for sale to the general public. Therefore, We have but to affirm the conclusion of the Court of Tax Appeals that Engineering is a contractor rather than a manufacturer, subject to the contractors tax prescribed by Section 191 of the Code and not to the advance sales tax imposed by Section 185(m) in relation to Section 194 of the same Code. Since it has been proved to Our satisfaction that Engineering imported air conditioning units, parts or accessories thereof for use in its construction business and these items were never sold, resold, bartered or exchanged, Engineering should be held liable to pay taxes prescribed under Section 190 5of the Code. This compensating tax is not a tax on the importation of goods but a tax on the use of imported goods not subject to sales tax. Engineering,

therefore, should be held liable to the payment of 30% compensating tax in accordance with Section 190 of the Tax Code in relation to Section 185(m) of the same, but without the 50% mark up provided in Section 183(b). II We take up next the issue of fraud. The Commissioner charged Engineering with misdeclaration of the imported air conditioning units and parts or accessories thereof so as to make them subject to a lower rate of percentage tax (7%) under Section 186 of the Tax Code, when they are allegedly subject to a higher rate of tax (30%) under its Section 185(m). This charge of fraud was denied by Engineering but the Court of Tax Appeals in its decision found adversely and said" ... We are amply convinced from the evidence presented by respondent that petitioner deliberately and purposely misdeclared its importations. This evidence consists of letters written by petitioner to its foreign suppliers, instructing them on how to invoice and describe the air conditioning units ordered by petitioner. ... (p. 218 CTA rec.) Despite the above findings, however, the Court of Tax Appeals absolved Engineering from paying the 50% surcharge prescribe by Section 183(a) of the Tax Code by reasoning out as follows: The imposition of the 50% surcharge prescribed by Section 183(a) of the Tax Code is based on willful neglect to file the monthly return within 20 days after the end of each month or in case a false or fraudulent return is willfully made, it can readily be seen, that petitioner cannot legally be held subject to the 50% surcharge imposed by Section 183(a) of the Tax Code. Neither can petitioner be held subject to the 50% surcharge under Section 190 of the Tax Code dealing on compensating tax because the provisions thereof do not include the 50% surcharge. Where a particular provision of the Tax Code does not impose the 50% surcharge as fraud penalty we cannot enforce a nonexisting provision of law notwithstanding the assessment of respondent to the contrary. Instances of the exclusion in the Tax Code of the 50% surcharge are those dealing on tax on banks, taxes on receipts of insurance companies, and franchise tax. However, if the Tax Code imposes the 50% surcharge as fraud penalty, it expressly so provides as in the cases of income tax, estate and inheritance taxes, gift taxes, mining tax, amusement tax and the monthly percentage taxes. Accordingly, we hold that petitioner is not subject to the 50% surcharge despite the existence of fraud in the absence of legal basis to support the importation thereof. (p. 228 CTA rec.) We have gone over the exhibits submitted by the Commissioner evidencing fraud committed by Engineering and We reproduce some of them hereunder for clarity. As early as March 18, 1953, Engineering in a letter of even date wrote to Trane Co. (Exh. "3-K" pp. 152-155, BIR rec.) viz: Your invoices should be made in the name of Madrigal & Co., Inc., Manila, Philippines, c/o Engineering Equipment & Supply Co., Manila, Philippines forwarding all correspondence and shipping papers concerning this order to us only and not to the customer. When invoicing, your invoices should be exactly as detailed in the customer's Letter Order dated March 14th, 1953 attached. This is in accordance with the Philippine import licenses granted to Madrigal & Co., Inc. and such details must only be shown on all papers and shipping documents for this shipment. No mention of words air conditioning equipment should be made on any shipping documents as well as on the cases. Please give this matter your careful attention, otherwise great difficulties will be encountered with the Philippine Bureau of Customs when clearing the shipment on its arrival in Manila. All invoices and cases should be marked "THIS EQUIPMENT FOR RIZAL CEMENT CO." The same instruction was made to Acme Industries, Inc., San Francisco, California in a letter dated March 19, 1953 (Exh. "3-J-1" pp. 150151, BIR rec.) On April 6, 1953, Engineering wrote to Owens-Corning Fiberglass Corp., New York, U.S.A. (Exh. "3-1" pp. 147-149, BIR rec.) also enjoining the

latter from mentioning or referring to the term 'air conditioning' and to describe the goods on order as Fiberglass pipe and pipe fitting insulation instead. Likewise on April 30, 1953, Engineering threatened to discontinue the forwarding service of Universal Transcontinental Corporation when it wrote Trane Co. (Exh. "3-H" p. 146, BIR rec.): It will be noted that the Universal Transcontinental Corporation is not following through on the instructions which have been covered by the above correspondence, and which indicates the necessity of discontinuing the use of the term "Air conditioning Machinery or Air Coolers". Our instructions concerning this general situation have been sent to you in ample time to have avoided this error in terminology, and we will ask that on receipt of this letter that you again write to Universal Transcontinental Corp. and inform them that, if in the future, they are unable to cooperate with us on this requirement, we will thereafter be unable to utilize their forwarding service. Please inform them that we will not tolerate another failure to follow our requirements. And on July 17, 1953 (Exh- "3-g" p. 145, BIR rec.) Engineering wrote Trane Co. another letter, viz: In the past, we have always paid the air conditioning tax on climate changers and that mark is recognized in the Philippines, as air conditioning equipment. This matter of avoiding any tie-in on air conditioning is very important to us, and we are asking that from hereon that whoever takes care of the processing of our orders be carefully instructed so as to avoid again using the term "Climate changers" or in any way referring to the equipment as "air conditioning." And in response to the aforequoted letter, Trane Co. wrote on July 30, 1953, suggesting a solution, viz: We feel that we can probably solve all the problems by following the procedure outlined in your letter of March 25, 1953 wherein you stated that in all future jobs you would enclose photostatic copies of your import license so that we might make up two sets of invoices: one set describing equipment ordered simply according to the way that they are listed on the import license and another according to our ordinary regular methods of order write-up. We would then include the set made up according to the import license in the shipping boxes themselves and use those items as our actual shipping documents and invoices, and we will send the other regular invoice to you, by separate correspondence. (Exh- No. "3-F-1", p. 144 BIR rec.) Another interesting letter of Engineering is one dated August 27, 1955 (Exh. "3-C" p. 141 BIR rec.) In the process of clearing the shipment from the piers, one of the Customs inspectors requested to see the packing list. Upon presenting the packing list, it was discovered that the same was prepared on a copy of your letterhead which indicated that the Trane Co. manufactured air conditioning, heating and heat transfer equipment. Accordingly, the inspectors insisted that this equipment was being imported for air conditioning purposes.To date, we have not been able to clear the shipment and it is possible that we will be required to pay heavy taxes on equipment. The purpose of this letter is to request that in the future, no documents of any kind should be sent with the order that indicate in any way that the equipment could possibly be used for air conditioning. It is realized that this a broad request and fairly difficult to accomplish and administer, but we believe with proper caution it can be executed. Your cooperation and close supervision concerning these matters will be appreciated. (Emphasis supplied) The aforequoted communications are strongly indicative of the fraudulent intent of Engineering to misdeclare its importation of air conditioning units and spare parts or accessories thereof to evade payment of the 30% tax. And since the commission of fraud is altogether too glaring, We cannot agree with the Court of Tax Appeals in absolving Engineering from the 50% fraud surcharge, otherwise We will be giving premium to a plainly intolerable act of tax evasion. As aptly stated by then Solicitor General, now Justice, Antonio P. Barredo: 'this circumstance will not free it from the 50% surcharge because in

any case whether it is subject to advance sales tax or compensating tax, it is required by law to truly declare its importation in the import entries and internal revenue declarations before the importations maybe released from customs custody. The said entries are the very documents where the nature, quantity and value of the imported goods declared and where the customs duties, internal revenue taxes, and other fees or charges incident to the importation are computed. These entries, therefore, serve the same purpose as the returns required by Section 183(a) of the Code.' Anent the 25% delinquency surcharge, We fully agree to the ruling made by the Court of Tax Appeals and hold Engineering liable for the same. As held by the lower court: At first blush it would seem that the contention of petitioner that it is not subject to the delinquency, surcharge of 25% is sound, valid and tenable. However, a serious study and critical analysis of the historical provisions of Section 190 of the Tax Code dealing on compensating tax in relation to Section 183(a) of the same Code, will show that the contention of petitioner is without merit. The original text of Section 190 of Commonwealth Act 466, otherwise known as the National Internal Revenue Code, as amended by Commonwealth Act No. 503, effective on October 1, 1939, does not provide for the filing of a compensation tax return and payment of the 25 % surcharge for late payment thereof. Under the original text of Section 190 of the Tax Code as amended by Commonwealth Act No. 503, the contention of the petitioner that it is not subject to the 25% surcharge appears to be legally tenable. However, Section 190 of the Tax Code was subsequently amended by the Republic Acts Nos. 253, 361, 1511 and 1612 effective October 1, 1946, July 1, 1948, June 9, 1949, June 16, 1956 and August 24, 1956 respectively, which invariably provides among others, the following: ... If any article withdrawn from the customhouse or the post office without payment of the compensating tax is subsequently used by the importer for other purposes, corresponding entry should be made in the books of accounts if any are kept or a written notice thereof sent to the Collector of Internal Revenue and payment of the corresponding compensating tax made within 30 days from the date of such entry or notice and if tax is not paid within such period the amount of the tax shall be increased by 25% the increment to be a part of the tax. Since the imported air conditioning units-and spare parts or accessories thereof are subject to the compensating tax of 30% as the same were used in the construction business of Engineering, it is incumbent upon the latter to comply with the aforequoted requirement of Section 190 of the Code, by posting in its books of accounts or notifying the Collector of Internal Revenue that the imported articles were used for other purposes within 30 days. ... Consequently; as the 30% compensating tax was not paid by petitioner within the time prescribed by Section 190 of the Tax Code as amended, it is therefore subject to the 25% surcharge for delinquency in the payment of the said tax. (pp. 224-226 CTA rec.) III Lastly the question of prescription of the tax assessment has been put in issue. Engineering contends that it was not guilty of tax fraud in effecting the importations and, therefore, Section 332(a) prescribing ten years is inapplicable, claiming that the pertinent prescriptive period is five years from the date the questioned importations were made. A review of the record however reveals that Engineering did file a tax return or declaration with the Bureau of Customs before it paid the advance sales tax of 7%. And the declaration filed reveals that it did in fact misdeclare its importations. Section 332 of the Tax Code which provides: Section 332. Exceptions as to period of limitation of assessment and collection of taxes. (a) In the case of a false or fraudulent return with intent to evade tax or of a failure to file a return, the tax may be assessed, or a proceeding in court for the collection of such tax may be begun without assessment at any time within ten years after the discovery of the falsity, fraud or omission.

is applicable, considering the preponderance of evidence of fraud with the intent to evade the higher rate of percentage tax due from Engineering. The, tax assessment was made within the period prescribed by law and prescription had not set in against the Government. WHEREFORE, the decision appealed from is affirmed with the modification that Engineering is hereby also made liable to pay the 50% fraud surcharge. G.R. No. 71122 March 25, 1988 COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. ARNOLDUS CARPENTRY SHOP, INC. and COURT OF TAX APPEALS, respondents. CORTES, J.: Assailed in this petition is the decision of the Court of Tax Appeals in CTA case No. 3357 entitled "ARNOLDUS CARPENTRY SHOP, INC. v. COMMISSIONER OF INTERNAL REVENUE." The facts are simple. Arnoldus Carpentry Shop, Inc. (private respondent herein) is a domestic corporation which has been in existence since 1960. It has for its secondary purpose the "preparing, processing, buying, selling, exporting, importing, manufacturing, trading and dealing in cabinet shop products, wood and metal home and office furniture, cabinets, doors, windows, etc., including their component parts and materials, of any and all nature and description" (Rollo, pp. 160-161). These furniture, cabinets and other woodwork were sold locally and exported abroad. For this business venture, private respondent kept samples or models of its woodwork on display from where its customers may refer to when placing their orders. Sometime in March 1979, the examiners of the petitioner Commissioner of Internal Revenue conducted an investigation of the business tax liabilities of private respondent pursuant to Letter of Authority No. 08307 NA dated November 23, 1978. As per the examination, the total gross sales of private respondent for the year 1977 from both its local and foreign dealings amounted to P5,162,787.59 (Rollo. p. 60). From this amount, private respondent reported in its quarterly percentage tax returns P2,471,981.62 for its gross local sales. The balance of P2,690,805.97, which is 52% of the total gross sales, was considered as its gross export sales (CTA Decision, p. 12). Based on such an examination, BIR examiners Honesto A. Vergel de Dios and Voltaire Trinidad made a report to the Commissioner classifying private respondent as an "other independent contractor" under Sec. 205 (16) [now Sec. 169 (q)] of the Tax Code. The relevant portion of the report reads: Examination of the records show that per purchase orders, which are hereby attached, of the taxpayer's customers during the period under review, subject corporation should be considered a contractor and not a manufacturer. The corporation renders service in the course of an independent occupation representing the will of his employer only as to the result of his work, and not as to the means by which it is accomplished, (Luzon Stevedoring Co. v. Trinidad, 43 Phil. 803). Hence, in the computation of the percentage tax, the 3% contractor's tax should be imposed instead of the 7% manufacturer's tax. [Rollo, p. 591 (Emphasis supplied.) xxx xxx xxx As a result thereof, the examiners assessed private respondent for deficiency tax in the amount of EIGHTY EIGHT THOUSAND NINE HUNDRED SEVENTY TWO PESOS AND TWENTY THREE CENTAVOS ( P88,972.23 ). Later, on January 31, 1981, private respondent received a letter/notice of tax deficiency assessment inclusive of charges and interest for the year 1977 in the amount of ONE HUNDRED EIGHT THOUSAND SEVEN HUNDRED TWENTY PESOS AND NINETY TWO CENTAVOS ( P 108,720.92 ). This tax deficiency was a consequence of the 3% tax imposed on private respondent's gross

export sales which, in turn, resulted from the examiners' finding that categorized private respondent as a contractor (CTA decision, p.2). Against this assessment, private respondent filed on February 19, 1981 a protest with the petitioner Commissioner of Internal Revenue. In the protest letter, private respondent's manager maintained that the carpentry shop is a manufacturer and therefor entitled to tax exemption on its gross export sales under Section 202 (e) of the National Internal Revenue Code. He explained that it was the 7% tax exemption on export sales which prompted private respondent to exploit the foreign market which resulted in the increase of its foreign sales to at least 52% of its total gross sales in 1977 (CTA decision, pp. 1213). On June 23, 1981, private respondent received the final decision of the petitioner stating: It is the stand of this Office that you are considered a contractor an not a manufacturer. Records show that you manufacture woodworks only upon previous order from supposed manufacturers and only in accordance with the latter's own design, model number, color, etc. [Rollo p. 64] (Emphasis supplied.) On July 22, 1981, private respondent appealed to the Court of Tax Appeals alleging that the decision of the Commissioner was contrary to law and the facts of the case. On April 22, 1985, respondent Court of Tax Appeals rendered the questioned decision holding that private respondent was a manufacturer thereby reversing the decision of the petitioner. Hence, this petition for review wherein petitioner raises the sole issue of. Whether or not the Court of Tax Appeals erred in holding that private respondent is a manufacturer and not a contractor and therefore not liable for the amount of P108,720.92, as deficiency contractor's tax, inclusive of surcharge and interest, for the year 1977. The petition is without merit. 1. Private respondent is a "manufacturer" as defined in the Tax Code and not a "contractor" under Section 205(e) of the Tax Code as petitioner would have this Court decide. (a) Section 205 (16) [now Sec. 170 (q)] of the Tax Code defines "independent contractors" as: ... persons (juridical and natural) not enumerated above (but not including individuals subject to the occupation tax under Section 12 of the Local Tax Code) whose activity consists essentially of the sale of all kinds of services for a fee regardless of whether or not the performance of the service calls for the exercise or use of the physical or mental faculties of such contractors or their employees. (Emphasis supplied.) Private respondent's business does not fall under this definition. Petitioner contends that the fact that private respondent "designs and makes samples or models that are 'displayed' or presented or 'submitted' to prospective buyers who 'might choose' therefrom" signifies that what private respondent is selling is a kind of service its shop is capable of rendering in terms of woodwork skills and craftsmanship (Brief for Petitioner, p. 6). He further stresses the point that if there are no orders placed for goods as represented by the sample or model, the shop does not produce anything; on the other hand, if there are orders placed, the shop goes into fall production to fill up the quantity ordered (Petitioner's Brief, p. 7). The facts of the case do not support petitioner's claim. Petitioner is ignoring the fact that private respondent sells goods which it keeps in stock and not services. As the respondent Tax Court had found: xxx xxx xxx Petitioner [private respondent herein] claims, and the records bear petitioner out, that it had a ready stock of its shop products for sale to its foreign and local buyers. As a matter of fact, the purchase orders from its foreign buyers showed that they ordered by referring to the models designated by petitioner. Even purchases by local buyers for television cabinets (Exhs. '2

to13', pp. 1-13, BIR records) were by orders for existing models except only for some adjustments in sizes and accessories utilized. With regard to the television cabinets, petitioner presented three witnesses its bookkeeper, production manager and manager who testified that samples of television cabinets were designed and made by petitioner, from which models the television companies such as Hitachi National and others might choose, then specified whatever innovations they desired. If found to be saleable, some television cabinets were manufactured for display and sold to the general public. These cabinets were not exported but only sold locally. (t.s.n., pp. 2235, February 18,1982; t.s.n., pp. 7-10, March 25, 1982; t.s.n., pp. 3-6, August 10, 1983.) xxx xxx xxx In the case of petitioner's other woodwork products such as barometer cases, knife racks, church furniture, school furniture, knock down chairs, etc., petitioner's above-mentioned witnesses testified that these were manufactured without previous orders. Samples were displayed, and if in stock, were available for immediate sale to local and foreign customers. Such testimony was not contradicted by respondent (petitioner herein). And in all the purchase orders presented as exhibits, whether from foreign or local buyers, reference was made to the model number of the product being ordered or to the sample submitted by petitioner. Respondent's examiners, in their memorandum to the Commissioner of Internal Revenue, stated that petitioner manufactured only upon previous orders from customers and "only in accordance with the latter's own design, model number, color, etc." (Exh. '1', p. 27, BIR records.) Their bare statement that the model numbers and designs were the customers' own, unaccompanied by adequate evidence, is difficult to believe. It ignores commonly accepted and recognized business practices that it is not the customer but the manufacturer who furnishes the samples or models from which the customers select when placing their orders, The evidence adduced by petitioner to prove that the model numbers and designs were its own is more convincing [CTA decision, pp. 6-8.] (Emphasis supplied) xxx xxx xxx This Court finds no reason to disagree with the Tax Court's finding of fact. It has been consistently held that while the decisions of the Court of Tax Appeals are appealable to the Supreme Court, the former's finding of fact are entitled to the highest respect. The factual findings can only be disturbed on the part of the tax court [Collector of Intern. al Revenue v. Henderson, L-12954, February 28, 1961, 1 SCRA 649; Aznar v. Court of Tax Appeals, L-20569, Aug. 23, 1974, 58 SCRA 519; Raymundo v. de Joya, L-27733, Dec. 3, 1980, 101 SCRA 495; Industrial Textiles Manufacturing Co. of the Phils. , Inc. v. Commissioner of Internal Revenue, L-27718 and L-27768, May 27,1985,136 SCRA 549.] (b) Neither can Article 1467 of the New Civil Code help petitioner's cause. Article 1467 states: A contract for the delivery at a certain price of an article Which the vendor in the ordinary course of his business manufactures or procures for the - general market, whether the same is on hand at the time or not, is a contract of sale, but if the goods are to be manufactured specially for the customer and upon his special order, and not for the general market, it is a contract for a piece of work. Petitioner alleged that what exists prior to any order is but the sample model only, nothing more, nothing less and the ordered quantity would never have come into existence but for the particular order as represented by the sample or model [Brief for Petitioner, pp. 9-101.] Petitioner wants to impress upon this Court that under Article 1467, the true test of whether or not the contract is a piece of work (and thus classifying private respondent as a contractor) or a contract of sale (which would classify private respondent as a manufacturer) is the mere existence of the product at the time of the perfection of the contract such that if the thing already exists, the contract is of sale, if not, it is work.

This is not the test followed in this jurisdiction. As can be clearly seen from the wordings of Art. 1467, what determines whether the contract is one of work or of sale is whether the thing has been manufactured specially for the customer and upon his special order." Thus, if the thing is specially done at the order of another, this is a contract for a piece of work. If, on the other hand, the thing is manufactured or procured for the general market in the ordinary course of one's business, it is a b contract of sale. Jurisprudence has followed this criterion. As held in Commissioner of Internal Revenue v. Engineering Equipment and Supply Co. (L-27044 and L27452, June 30, 1975, 64 SCRA 590, 597), "the distinction between a contract of sale and one for work, labor and materials is tested by the inquiry whether the thing transferred is one not in existence and which never would have existed but for the order of the party desiring to acquire it, or a thing which would have existed and has been the subject of sale to some other persons even if the order had not been given." (Emphasis supplied.) And in a BIR ruling, which as per Sec. 326 (now Sec. 277) of the Tax Court the Commissioner has the power to make and which, as per settled jurisprudence is entitled to the greatest weight as an administrative view [National Federation of Sugar Workers (NFSW) v. Ovejera, G.R. No. 59743, May 31, 1982, 114 SCRA 354, 391; Sierra Madre Trust v. Hon. Sec. of Agriculture and Natural Resources, Nos. 32370 and 32767, April 20, 1983,121 SCRA 384; Espanol v. Chairman and Members of the Board of Administrators, Phil. Veterans Administration, L44616, June 29, 1985, 137 SCRA 3141, "one who has ready for the sale to the general public finished furniture is a manufacturer, and the mere fact that he did not have on hand a particular piece or pieces of furniture ordered does not make him a contractor only" (BIR Ruling No. 33-1, series of 1960). Likewise, xxx xxx xxx When the vendor enters into a contract for the delivery of an article which in the ordinary course of his business he manufactures or procures for the general market at a price certain (Art. 1458) such contract is one of sale even if at the time of contracting he may not have such article on hand. Such articles fall within the meaning of "future goods" mentioned in Art. 1462, par. 1. [5 Padilla, Civil Law: Civil Code Annotated 139 (1974) xxx xxx xxx These considerations were what precisely moved the respondent Court of Tax Appeals to rule that 'the fact that [private respondent] kept models of its products... indicate that these products were for sale to the general public and not for special orders,' citing Celestino Co and Co. v. Collector of Internal Revenue [99 Phil, 841 (1956)]. (CTA Decision, pp. 8-9.) Petitioner alleges that the error of the respondent Tax Court was due to the 'heavy albeit misplaced and indiscriminate reliance on the case of Celestino Co and Co. v. Collector of Internal Revenue [99 Phil. 841, 842 (1956)] which is not a case in point' 1 Brief for Petitioner, pp. 14-15). The Commissioner of Internal Revenue made capital of the difference between the kinds of business establishments involved a FACTORY in the Celestino Co case and a CARPENTRY SHOP in this case (Brief for Petitioner, pp. 14-18). Petitioner seems to have missed the whole point in the former case. True, the former case did mention the fact of the business concern being a FACTORY, Thus: xxx xxx xxx ... I cannot believe that petitioner company would take, as in fact it has taken, all the trouble and expense of registering a special trade name for its sash business and then orders company stationery carrying the bold print "Oriental Sash Factory (Celestino Co and Company, Prop.) 926 Raon St., Quiapo, Manila, Tel. No. 33076, Manufacturers of all kinds of doors, windows, sashes furniture, etc. used season dried and kiln-dried lumber, of the best quality workmanship" solely for the purpose of supplying the need for doors, windows and sash of its special and limited customers. One will note that petitioner has chosen for its trade name and has offered itself to the public as a FACTORY, which means it is out to do business in its chosen lines on a big scale. As a general rule, sash factories receive orders for doors and windows of

special design only in particular cases but the bulk of their sales is derived from ready-made doors and windows of standard sizes for the average home. [Emphasis supplied.] xxx xxx xxx However, these findings were merely attendant facts to show what the Court was really driving at the habituality of the production of the goods involved for the general public. In the instant case, it may be that what is involved is a CARPENTRY SHOP. But, in the same vein, there are also attendant facts herein to show habituality of the production for the general public. In this wise, it is noteworthy to again cite the findings of fact of the respondent Tax Court: xxx xxx xxx Petitioner [private respondent herein] claims, and the records bear petitioner out, that it had a ready stock of its shop products for sale to its foreign and local buyers. As a matter of fact, the purchase orders from its foreign buyers showed that they ordered by referring to the models designed by petitioner. Even purchases by local buyers for television cabinets... were by orders for existing models. ... With regard to the television cabinets, petitioner presented three witnesses... who testified that samples of television cabinets were designed and made by petitioner, from which models the television companies ... might choose, then specified whatever innovations they desired. If found to be saleable, some television cabinets were manufactured for display and sold to the general public. xxx xxx xxx In the case of petitioner's other woodwork products... these were manufactured without previous orders. Samples were displayed, and if in stock, were available for immediate sale to local and foreign customers. (CTA decision, pp. 6-8.1 [Emphasis supplied.] (c) The private respondent not being a "contractor" as defined by the Tax Code or of the New Civil Code, is it a 'manufacturer' as countered by the carpentry shop? Sec. 187 (x) [now Sec. 157 (x)] of the Tax Code defines a manufacturer' as follows: "Manufacturer" includes every person who by physical or chemical process alters the exterior texture or form or inner substance of any raw material or manufactured or partially manufactured product in such manner as to prepare it for a special use or uses to which it could not have been in its original condition, or who by any such process alters the quality or any such raw material or manufactured or partially manufactured product so as to reduce it to marketable shape or prepare it for any of the uses of industry, or who by any such process combines any such raw material or manufactured or partially manufactured products with other materials or products of the same or different kinds and in such manner that the finished product of such process or manufacture can be put to a special use or uses to which such raw material or manufactured or partially manufactured products in their original condition would not have been put, and who in addition alters such raw material or manufactured or partially manufactured products, or combines the same to produce such finished products for the purpose of their sale or distribution to others and not for his own use or consumption. It is a basic rule in statutory construction that when the language of the law is clear and unequivocal, the law must be taken to mean exactly what it says [Banawa et al. v. Mirano et al., L-24750, May 16, 1980, 97 SCRA 517, 533]. The term "manufacturer" had been considered in its ordinary and general usage. The term has been construed broadly to include such processes as buying and converting duck eggs to salted eggs ('balut") [Ngo Shiek v. Collector of Internal Revenue, 100 Phil. 60 (1956)1; the processing of unhusked kapok into clean kapok fiber [Oriental Kapok Industries v. Commissioner of Internal Revenue, L-17837, Jan. 31, 1963, 7 SCRA 132]; or

making charcoal out of firewood Bermejo v. Collector of Internal Revenue, 87 Phil. 96 (1950)]. 2. As the Court of Tax Appeals did not err in holding that private respondent is a "manufacturer," then private respondent is entitled to the tax exemption under See. 202 (d) and (e) mow Sec. 167 (d) and (e)] of the Tax Code which states: Sec. 202. Articles not subject to percentage tax on sales. The following shall be exempt from the percentage taxes imposed in Sections 194, 195, 196, 197, 198, 199, and 201: xxx xxx xxx (d) Articles shipped or exported by the manufacturer or producer, irrespective of any shipping arrangement that may be agreed upon which may influence or determine the transfer of ownership of the articles so exported. (e) Articles sold by "registered export producers" to (1) other" registered export producers" (2) "registered export traders' or (3) foreign tourists or travelers, which are considered as "export sales." The law is clear on this point. It is conceded that as a rule, as argued by petitioner, any claim for tax exemption from tax statutes is strictly construed against the taxpayer and it is contingent upon private respondent as taxpayer to establish a clear right to tax exemption [Brief for Petitioners, p. 181. Tax exemptions are strictly construed against the grantee and generally in favor of the taxing authority [City of Baguio v. Busuego, L-29772, Sept. 18, 1980, 100 SCRA 1161; they are looked upon with disfavor [Western Minolco Corp. v. Commissioner Internal Revenue, G.R. No. 61632, Aug. 16,1983,124 1211. They are held strictly against the taxpayer and if expressly mentioned in the law, must at least be within its purview by clear legislative intent [Commissioner of Customs v. Phil., Acetylene Co., L-22443, May 29, 1971, 39 SCRA 70, Light and Power Co. v. Commissioner of Customs, G.R. L-28739 and L-28902, March 29, 1972, 44 SCRA 122]. Conversely therefore, if there is an express mention or if the taxpayer falls within the purview of the exemption by clear legislative intent, then the rule on strict construction will not apply. In the present case the respondent Tax Court did not err in classifying private respondent as a "manufacturer". Clearly, the 'latter falls with the term 'manufacturer' mentioned in Art. 202 (d) and (e) of the Tax Code. As the only question raised by petitioner in relation to this tax exemption claim by private respondent is the classification of the latter as a manufacturer, this Court affirms the holding of respondent Tax Court that private respondent is entitled to the percentage tax exemption on its export sales. There is nothing illegal in taking advantage of tax exemptions. When the private respondent was still exporting less and producing locally more, the petitioner did not question its classification as a manufacturer. But when in 1977 the private respondent produced locally less and exported more, petitioner did a turnabout and imposed the contractor's tax. By classifying the private respondent as a contractor, petitioner would likewise take away the tax exemptions granted under Sec. 202 for manufacturers. Petitioner's action finds no support in the applicable law. WHEREFORE, the Court hereby DENIES the Petition for lack of merit and AFFIRMS the Court of Tax Appeals decision in CTA Case No. 3357. SO ORDERED. __________________________________________________ G.R. No. L-47538 June 20, 1941 GONZALO PUYAT & SONS, INC., petitioner, vs. ARCO AMUSEMENT COMPANY (formerly known as Teatro Arco), respondent. LAUREL, J.: This is a petition for the issuance of a writ of certiorari to the Court of Appeals for the purpose of reviewing its Amusement Company (formerly known

as Teatro Arco), plaintiff-appellant, vs. Gonzalo Puyat and Sons. Inc., defendant-appellee." It appears that the respondent herein brought an action against the herein petitioner in the Court of First Instance of Manila to secure a reimbursement of certain amounts allegedly overpaid by it on account of the purchase price of sound reproducing equipment and machinery ordered by the petitioner from the Starr Piano Company of Richmond, Indiana, U.S.A. The facts of the case as found by the trial court and confirmed by the appellate court, which are admitted by the respondent, are as follows: In the year 1929, the "Teatro Arco", a corporation duly organized under the laws of the Philippine Islands, with its office in Manila, was engaged in the business of operating cinematographs. In 1930, its name was changed to Arco Amusement Company. C. S. Salmon was the president, while A. B. Coulette was the business manager. About the same time, Gonzalo Puyat & Sons, Inc., another corporation doing business in the Philippine Islands, with office in Manila, in addition to its other business, was acting as exclusive agents in the Philippines for the Starr Piano Company of Richmond, Indiana, U.S. A. It would seem that this last company dealt in cinematographer equipment and machinery, and the Arco Amusement Company desiring to equipt its cinematograph with sound reproducing devices, approached Gonzalo Puyat & Sons, Inc., thru its then president and acting manager, Gil Puyat, and an employee named Santos. After some negotiations, it was agreed between the parties, that is to say, Salmon and Coulette on one side, representing the plaintiff, and Gil Puyat on the other, representing the defendant, that the latter would, on behalf of the plaintiff, order sound reproducing equipment from the Starr Piano Company and that the plaintiff would pay the defendant, in addition to the price of the equipment, a 10 per cent commission, plus all expenses, such as, freight, insurance, banking charges, cables, etc. At the expense of the plaintiff, the defendant sent a cable, Exhibit "3", to the Starr Piano Company, inquiring about the equipment desired and making the said company to quote its price without discount. A reply was received by Gonzalo Puyat & Sons, Inc., with the price, evidently the list price of $1,700 f.o.b. factory Richmond, Indiana. The defendant did not show the plaintiff the cable of inquiry nor the reply but merely informed the plaintiff of the price of $1,700. Being agreeable to this price, the plaintiff, by means of Exhibit "1", which is a letter signed by C. S. Salmon dated November 19, 1929, formally authorized the order. The equipment arrived about the end of the year 1929, and upon delivery of the same to the plaintiff and the presentation of necessary papers, the price of $1.700, plus the 10 per cent commission agreed upon and plus all the expenses and charges, was duly paid by the plaintiff to the defendant. Sometime the following year, and after some negotiations between the same parties, plaintiff and defendants, another order for sound reproducing equipment was placed by the plaintiff with the defendant, on the same terms as the first order. This agreement or order was confirmed by the plaintiff by its letter Exhibit "2", without date, that is to say, that the plaintiff would pay for the equipment the amount of $1,600, which was supposed to be the price quoted by the Starr Piano Company, plus 10 per cent commission, plus all expenses incurred. The equipment under the second order arrived in due time, and the defendant was duly paid the price of $1,600 with its 10 per cent commission, and $160, for all expenses and charges. This amount of $160 does not represent actual out-of-pocket expenses paid by the defendant, but a mere flat charge and rough estimate made by the defendant equivalent to 10 per cent of the price of $1,600 of the equipment. About three years later, in connection with a civil case in Vigan, filed by one Fidel Reyes against the defendant herein Gonzalo Puyat & Sons, Inc., the officials of the Arco Amusement Company discovered that the price quoted to them by the defendant with regard to their two orders mentioned was not the net price but rather the list price, and that the defendants had obtained a discount from the Starr Piano Company. Moreover, by reading reviews and literature on prices of machinery and cinematograph equipment, said officials of the plaintiff were convinced that the prices charged them by the defendant were

much too high including the charges for out-of-pocket expense. For these reasons, they sought to obtain a reduction from the defendant or rather a reimbursement, and failing in this they brought the present action. The trial court held that the contract between the petitioner and the respondent was one of outright purchase and sale, and absolved that petitioner from the complaint. The appellate court, however, by a division of four, with one justice dissenting held that the relation between petitioner and respondent was that of agent and principal, the petitioner acting as agent of the respondent in the purchase of the equipment in question, and sentenced the petitioner to pay the respondent alleged overpayments in the total sum of $1,335.52 or P2,671.04, together with legal interest thereon from the date of the filing of the complaint until said amount is fully paid, as well as to pay the costs of the suit in both instances. The appellate court further argued that even if the contract between the petitioner and the respondent was one of purchase and sale, the petitioner was guilty of fraud in concealing the true price and hence would still be liable to reimburse the respondent for the overpayments made by the latter. The petitioner now claims that the following errors have been incurred by the appellate court: I. El Tribunal de Apelaciones incurrio en error de derecho al declarar que, segun hechos, entre la recurrente y la recurrida existia una relacion implicita de mandataria a mandante en la transaccion de que se trata, en vez de la de vendedora a compradora como ha declarado el Juzgado de Primera Instncia de Manila, presidido entonces por el hoy Magistrado Honorable Marcelino Montemayor. II. El Tribunal de Apelaciones incurrio en error de derecho al declarar que, suponiendo que dicha relacion fuerra de vendedora a compradora, la recurrente obtuvo, mediante dolo, el consentimiento de la recurrida en cuanto al precio de $1,700 y $1,600 de las maquinarias y equipos en cuestion, y condenar a la recurrente ha obtenido de la Starr Piano Company of Richmond, Indiana. We sustain the theory of the trial court that the contract between the petitioner and the respondent was one of purchase and sale, and not one of agency, for the reasons now to be stated. In the first place, the contract is the law between the parties and should include all the things they are supposed to have been agreed upon. What does not appear on the face of the contract should be regarded merely as "dealer's" or "trader's talk", which can not bind either party. (Nolbrook v. Conner, 56 So., 576, 11 Am. Rep., 212; Bank v. Brosscell, 120 III., 161; Bank v. Palmer, 47 III., 92; Hosser v. Copper, 8 Allen, 334; Doles v. Merrill, 173 Mass., 411.) The letters, Exhibits 1 and 2, by which the respondent accepted the prices of $1,700 and $1,600, respectively, for the sound reproducing equipment subject of its contract with the petitioner, are clear in their terms and admit no other interpretation that the respondent in question at the prices indicated which are fixed and determinate. The respondent admitted in its complaint filed with the Court of First Instance of Manila that the petitioner agreed to sell to it the first sound reproducing equipment and machinery. The third paragraph of the respondent's cause of action states: 3. That on or about November 19, 1929, the herein plaintiff (respondent) and defendant (petitioner) entered into an agreement, under and by virtue of which the herein defendant was to secure from the United States, and sell and deliver to the herein plaintiff, certain sound reproducing equipment and machinery, for which the said defendant, under and by virtue of said agreement, was to receive the actual cost price plus ten per cent (10%), and was also to be reimbursed for all out of pocket expenses in connection with the purchase and delivery of such equipment, such as costs of telegrams, freight, and similar expenses. (Emphasis ours.) We agree with the trial judge that "whatever unforseen events might have taken place unfavorable to the defendant (petitioner), such as change in prices, mistake in their quotation, loss of the goods not covered by insurance or failure of the Starr Piano Company to properly fill the orders as per

specifications, the plaintiff (respondent) might still legally hold the defendant (petitioner) to the prices fixed of $1,700 and $1,600." This is incompatible with the pretended relation of agency between the petitioner and the respondent, because in agency, the agent is exempted from all liability in the discharge of his commission provided he acts in accordance with the instructions received from his principal (section 254, Code of Commerce), and the principal must indemnify the agent for all damages which the latter may incur in carrying out the agency without fault or imprudence on his part (article 1729, Civil Code). While the latters, Exhibits 1 and 2, state that the petitioner was to receive ten per cent (10%) commission, this does not necessarily make the petitioner an agent of the respondent, as this provision is only an additional price which the respondent bound itself to pay, and which stipulation is not incompatible with the contract of purchase and sale. (See Quiroga vs. Parsons Hardware Co., 38 Phil., 501.) In the second place, to hold the petitioner an agent of the respondent in the purchase of equipment and machinery from the Starr Piano Company of Richmond, Indiana, is incompatible with the admitted fact that the petitioner is the exclusive agent of the same company in the Philippines. It is out of the ordinary for one to be the agent of both the vendor and the purchaser. The facts and circumstances indicated do not point to anything but plain ordinary transaction where the respondent enters into a contract of purchase and sale with the petitioner, the latter as exclusive agent of the Starr Piano Company in the United States. It follows that the petitioner as vendor is not bound to reimburse the respondent as vendee for any difference between the cost price and the sales price which represents the profit realized by the vendor out of the transaction. This is the very essence of commerce without which merchants or middleman would not exist. The respondents contends that it merely agreed to pay the cost price as distinguished from the list price, plus ten per cent (10%) commission and all out-of-pocket expenses incurred by the petitioner. The distinction which the respondents seeks to draw between the cost price and the list price we consider to be spacious. It is to be observed that the twenty-five per cent (25%) discount granted by the Starr piano Company to the petitioner is available only to the latter as the former's exclusive agent in the Philippines. The respondent could not have secured this discount from the Starr Piano Company and neither was the petitioner willing to waive that discount in favor of the respondent. As a matter of fact, no reason is advanced by the respondent why the petitioner should waive the 25 per cent discount granted it by the Starr Piano Company in exchange for the 10 percent commission offered by the respondent. Moreover, the petitioner was not duty bound to reveal the private arrangement it had with the Starr Piano Company relative to such discount to its prospective customers, and the respondent was not even aware of such an arrangement. The respondent, therefore, could not have offered to pay a 10 per cent commission to the petitioner provided it was given the benefit of the 25 per cent discount enjoyed by the petitioner. It is well known that local dealers acting as agents of foreign manufacturers, aside from obtaining a discount from the home office, sometimes add to the list price when they resell to local purchasers. It was apparently to guard against an exhorbitant additional price that the respondent sought to limit it to 10 per cent, and the respondent is estopped from questioning that additional price. If the respondent later on discovers itself at the short end of a bad bargain, it alone must bear the blame, and it cannot rescind the contract, much less compel a reimbursement of the excess price, on that ground alone. The respondent could not secure equipment and machinery manufactured by the Starr Piano Company except from the petitioner alone; it willingly paid the price quoted; it received the equipment and machinery as represented; and that was the end of the matter as far as the respondent was concerned. The fact that the petitioner obtained more or less profit than the respondent calculated before entering into the contract or reducing the price agreed upon between the petitioner and the respondent. Not every concealment is fraud; and short of fraud, it were better

that, within certain limits, business acumen permit of the loosening of the sleeves and of the sharpening of the intellect of men and women in the business world. The writ of certiorari should be, as it is hereby, granted. The decision of the appellate court is accordingly reversed and the petitioner is absolved from the respondent's complaint in G. R. No. 1023, entitled "Arco Amusement Company (formerly known as Teatro Arco), plaintiff-appellant, vs. Gonzalo Puyat & Sons, Inc., defendants-appellee," without pronouncement regarding costs. So ordered. _____________________________________ G.R. No. L-11491 August 23, 1918 ANDRES QUIROGA, plaintiff-appellant, vs. PARSONS HARDWARE CO., defendant-appellee. AVANCEA, J.: On January 24, 1911, in this city of manila, a contract in the following tenor was entered into by and between the plaintiff, as party of the first part, and J. Parsons (to whose rights and obligations the present defendant later subrogated itself), as party of the second part: CONTRACT EXECUTED BY AND BETWEEN ANDRES QUIROGA AND J. PARSONS, BOTH MERCHANTS ESTABLISHED IN MANILA, FOR THE EXCLUSIVE SALE OF "QUIROGA" BEDS IN THE VISAYAN ISLANDS. ARTICLE 1. Don Andres Quiroga grants the exclusive right to sell his beds in the Visayan Islands to J. Parsons under the following conditions: (A) Mr. Quiroga shall furnish beds of his manufacture to Mr. Parsons for the latter's establishment in Iloilo, and shall invoice them at the same price he has fixed for sales, in Manila, and, in the invoices, shall make and allowance of a discount of 25 per cent of the invoiced prices, as commission on the sale; and Mr. Parsons shall order the beds by the dozen, whether of the same or of different styles. (B) Mr. Parsons binds himself to pay Mr. Quiroga for the beds received, within a period of sixty days from the date of their shipment. (C) The expenses for transportation and shipment shall be borne by M. Quiroga, and the freight, insurance, and cost of unloading from the vessel at the point where the beds are received, shall be paid by Mr. Parsons. (D) If, before an invoice falls due, Mr. Quiroga should request its payment, said payment when made shall be considered as a prompt payment, and as such a deduction of 2 per cent shall be made from the amount of the invoice. The same discount shall be made on the amount of any invoice which Mr. Parsons may deem convenient to pay in cash. (E) Mr. Quiroga binds himself to give notice at least fifteen days before hand of any alteration in price which he may plan to make in respect to his beds, and agrees that if on the date when such alteration takes effect he should have any order pending to be served to Mr. Parsons, such order shall enjoy the advantage of the alteration if the price thereby be lowered, but shall not be affected by said alteration if the price thereby be increased, for, in this latter case, Mr. Quiroga assumed the obligation to invoice the beds at the price at which the order was given. (F) Mr. Parsons binds himself not to sell any other kind except the "Quiroga" beds. ART. 2. In compensation for the expenses of advertisement which, for the benefit of both contracting parties, Mr. Parsons may find himself obliged to make, Mr. Quiroga assumes the obligation to offer and give the preference to Mr. Parsons in case anyone should apply for the exclusive agency for any island not comprised with the Visayan group. ART. 3. Mr. Parsons may sell, or establish branches of his agency for the sale of "Quiroga" beds in all the towns of the Archipelago where there are no exclusive agents, and shall immediately report such action to Mr. Quiroga for his approval.

ART. 4. This contract is made for an unlimited period, and may be terminated by either of the contracting parties on a previous notice of ninety days to the other party. Of the three causes of action alleged by the plaintiff in his complaint, only two of them constitute the subject matter of this appeal and both substantially amount to the averment that the defendant violated the following obligations: not to sell the beds at higher prices than those of the invoices; to have an open establishment in Iloilo; itself to conduct the agency; to keep the beds on public exhibition, and to pay for the advertisement expenses for the same; and to order the beds by the dozen and in no other manner. As may be seen, with the exception of the obligation on the part of the defendant to order the beds by the dozen and in no other manner, none of the obligations imputed to the defendant in the two causes of action are expressly set forth in the contract. But the plaintiff alleged that the defendant was his agent for the sale of his beds in Iloilo, and that said obligations are implied in a contract of commercial agency. The whole question, therefore, reduced itself to a determination as to whether the defendant, by reason of the contract hereinbefore transcribed, was a purchaser or an agent of the plaintiff for the sale of his beds. In order to classify a contract, due regard must be given to its essential clauses. In the contract in question, what was essential, as constituting its cause and subject matter, is that the plaintiff was to furnish the defendant with the beds which the latter might order, at the price stipulated, and that the defendant was to pay the price in the manner stipulated. The price agreed upon was the one determined by the plaintiff for the sale of these beds in Manila, with a discount of from 20 to 25 per cent, according to their class. Payment was to be made at the end of sixty days, or before, at the plaintiff's request, or in cash, if the defendant so preferred, and in these last two cases an additional discount was to be allowed for prompt payment. These are precisely the essential features of a contract of purchase and sale. There was the obligation on the part of the plaintiff to supply the beds, and, on the part of the defendant, to pay their price. These features exclude the legal conception of an agency or order to sell whereby the mandatory or agent received the thing to sell it, and does not pay its price, but delivers to the principal the price he obtains from the sale of the thing to a third person, and if he does not succeed in selling it, he returns it. By virtue of the contract between the plaintiff and the defendant, the latter, on receiving the beds, was necessarily obliged to pay their price within the term fixed, without any other consideration and regardless as to whether he had or had not sold the beds. It would be enough to hold, as we do, that the contract by and between the defendant and the plaintiff is one of purchase and sale, in order to show that it was not one made on the basis of a commission on sales, as the plaintiff claims it was, for these contracts are incompatible with each other. But, besides, examining the clauses of this contract, none of them is found that substantially supports the plaintiff's contention. Not a single one of these clauses necessarily conveys the idea of an agency. The words commission on sales used in clause (A) of article 1 mean nothing else, as stated in the contract itself, than a mere discount on the invoice price. The word agency, also used in articles 2 and 3, only expresses that the defendant was the only one that could sell the plaintiff's beds in the Visayan Islands. With regard to the remaining clauses, the least that can be said is that they are not incompatible with the contract of purchase and sale. The plaintiff calls attention to the testimony of Ernesto Vidal, a former vice-president of the defendant corporation and who established and managed the latter's business in Iloilo. It appears that this witness, prior to the time of his testimony, had serious trouble with the defendant, had maintained a civil suit against it, and had even accused one of its partners, Guillermo Parsons, of falsification. He testified that it was he who drafted the contract Exhibit A, and, when questioned as to what was his purpose in contracting with the plaintiff, replied that it was to be an agent for his beds and to collect a commission on sales. However, according to the defendant's evidence, it was Mariano Lopez

Santos, a director of the corporation, who prepared Exhibit A. But, even supposing that Ernesto Vidal has stated the truth, his statement as to what was his idea in contracting with the plaintiff is of no importance, inasmuch as the agreements contained in Exhibit A which he claims to have drafted, constitute, as we have said, a contract of purchase and sale, and not one of commercial agency. This only means that Ernesto Vidal was mistaken in his classification of the contract. But it must be understood that a contract is what the law defines it to be, and not what it is called by the contracting parties. The plaintiff also endeavored to prove that the defendant had returned beds that it could not sell; that, without previous notice, it forwarded to the defendant the beds that it wanted; and that the defendant received its commission for the beds sold by the plaintiff directly to persons in Iloilo. But all this, at the most only shows that, on the part of both of them, there was mutual tolerance in the performance of the contract in disregard of its terms; and it gives no right to have the contract considered, not as the parties stipulated it, but as they performed it. Only the acts of the contracting parties, subsequent to, and in connection with, the execution of the contract, must be considered for the purpose of interpreting the contract, when such interpretation is necessary, but not when, as in the instant case, its essential agreements are clearly set forth and plainly show that the contract belongs to a certain kind and not to another. Furthermore, the return made was of certain brass beds, and was not effected in exchange for the price paid for them, but was for other beds of another kind; and for the letter Exhibit L-1, requested the plaintiff's prior consent with respect to said beds, which shows that it was not considered that the defendant had a right, by virtue of the contract, to make this return. As regards the shipment of beds without previous notice, it is insinuated in the record that these brass beds were precisely the ones so shipped, and that, for this very reason, the plaintiff agreed to their return. And with respect to the so-called commissions, we have said that they merely constituted a discount on the invoice price, and the reason for applying this benefit to the beds sold directly by the plaintiff to persons in Iloilo was because, as the defendant obligated itself in the contract to incur the expenses of advertisement of the plaintiff's beds, such sales were to be considered as a result of that advertisement. In respect to the defendant's obligation to order by the dozen, the only one expressly imposed by the contract, the effect of its breach would only entitle the plaintiff to disregard the orders which the defendant might place under other conditions; but if the plaintiff consents to fill them, he waives his right and cannot complain for having acted thus at his own free will. For the foregoing reasons, we are of opinion that the contract by and between the plaintiff and the defendant was one of purchase and sale, and that the obligations the breach of which is alleged as a cause of action are not imposed upon the defendant, either by agreement or by law. __________________________________ G.R. No. L-20871 April 30, 1971 KER & CO., LTD., petitioner, vs. JOSE B. LINGAD, as Acting Commissioner of Internal Revenue, respondent. FERNANDO, J.: Petitioner Ker & Co., Ltd. would have us reverse a decision of the Court of Tax Appeals, holding it liable as a commercial broker under Section 194 (t) of the National Internal Revenue Code. Its plea, notwithstanding the vigorous effort of its counsel, is not sufficiently persuasive. An obstacle, wellnigh insuperable stands in the way. The decision under review conforms to and is in accordance with the controlling doctrine announced in the recent case of Commissioner of Internal Revenue v. Constantino. 1 The decisive test, as therein set forth, is the retention of the ownership of the goods delivered to the possession of the dealer, like herein petitioner, for resale to customers, the price and terms remaining subject to the control of the firm consigning such goods. The facts, as found by respondent Court, to which we defer,

unmistakably indicate that such a situation does exist. The juridical consequences must inevitably follow. We affirm. It was shown that petitioner was assessed by the then Commissioner of Internal Revenue Melecio R. Domingo the sum of P20,272.33 as the commercial broker's percentage tax, surcharge, and compromise penalty for the period from July 1, 1949 to December 31, 1953. There was a request on the part of petitioner for the cancellation of such assessment, which request was turned down. As a result, it filed a petition for review with the Court of Tax Appeals. In its answer, the then Commissioner Domingo maintained his stand that petitioner should be taxed in such amount as a commercial broker. In the decision now under review, promulgated on October 19, 1962, the Court of Tax Appeals held petitioner taxable except as to the compromise penalty of P500.00, the amount due from it being fixed at P19,772.33. Such liability arose from a contract of petitioner with the United States Rubber International, the former being referred to as the Distributor and the latter specifically designated as the Company. The contract was to apply to transactions between the former and petitioner, as Distributor, from July 1, 1948 to continue in force until terminated by either party giving to the other sixty days' notice. 2 The shipments would cover products "for consumption in Cebu, Bohol, Leyte, Samar, Jolo, Negros Oriental, and Mindanao except [the] province of Davao", petitioner, as Distributor, being precluded from disposing such products elsewhere than in the above places unless written consent would first be obtained from the Company. 3 Petitioner, as Distributor, is required to exert every effort to have the shipment of the products in the maximum quantity and to promote in every way the sale thereof. 4 The prices, discounts, terms of payment, terms of delivery and other conditions of sale were subject to change in the discretion of the Company. 5 Then came this crucial stipulation: "The Company shall from time to time consign to the Distributor and the Distributor will receive, accept and/or hold upon consignment the products specified under the terms of this agreement in such quantities as in the judgment of the Company may be necessary for the successful solicitation and maintenance of business in the territory, and the Distributor agrees that responsibility for the final sole of all goods delivered shall rest with him. All goods on consignment shall remain the property of the Company until sold by the Distributor to the purchaser or purchasers, but all sales made by the Distributor shall be in his name, in which the sale price of all goods sold less the discount given to the Distributor by the Company in accordance with the provision of paragraph 13 of this agreement, whether or not such sale price shall have been collected by the Distributor from the purchaser or purchasers, shall immediately be paid and remitted by the Distributor to the Company. It is further agreed that this agreement does not constitute Distributor the agent or legal representative 4 of the Company for any purpose whatsoever. Distributor is not granted any right or authority to assume or to create any obligation or responsibility, express or implied, in behalf of or in the name of the Company, or to bind the Company in any manner or thing whatsoever." 6 All specifications for the goods ordered were subject to acceptance by the Company with petitioner, as Distributor, required to accept such goods shipped as well as to clear the same through customs and to arrange for delivery in its warehouse in Cebu City. Moreover, orders are to be filled in whole or in part from the stocks carried by the Company's neighboring branches, subsidiaries or other sources of Company's brands. 7 Shipments were to be invoiced at prices to be agreed upon, with the customs duties being paid by petitioner, as Distributor, for account of the Company. 8 Moreover, all resale prices, lists, discounts and general terms and conditions of local resale were to be subject to the approval of the Company and to change from time to time in its discretion. 9 The dealer, as Distributor, is allowed a discount of ten percent on the net amount of sales of merchandise made under such agreement. 10 On a date to be determined by the Company, the petitioner, as Distributor, was required to report to it data showing in detail all sales during the month immediately preceding, specifying therein the quantities, sizes and types

together with such information as may be required for accounting purposes, with the Company rendering an invoice on sales as described to be dated as of the date of inventory and sales report. As Distributor, petitioner had to make payment on such invoice or invoices on due date with the Company being privileged at its option to terminate and cancel the agreement forthwith upon the failure to comply with this obligation. 11 The Company, at its own expense, was to keep the consigned stock fully insured against loss or damage by fire or as a result of fire, the policy of such insurance to be payable to it in the event of loss. Petitioner, as Distributor, assumed full responsibility with reference to the stock and its safety at all times; and upon request of the Company at any time, it was to render inventory of the existing stock which could be subject to change. 12 There was furthermore this equally tell-tale covenant: "Upon the termination or any cancellation of this agreement all goods held on consignment shall be held by the Distributor for the account of the Company, without expense to the Company, until such time as provision can be made by the Company for disposition." 13 The issue with the Court of Tax Appeals, as with us now, is whether the relationship thus created is one of vendor and vendee or of broker and principal. Not that there would have been the slightest doubt were it not for the categorical denial in the contract that petitioner was not constituted as "the agent or legal representative of the Company for any purpose whatsoever." It would be, however, to impart to such an express disclaimer a meaning it should not possess to ignore what is manifestly the role assigned to petitioner considering the instrument as a whole. That would be to lose sight altogether of what has been agreed upon. The Court of Tax Appeals was not misled in the language of the decision now on appeal: "That the petitioner Ker & Co., Ltd. is, by contractual stipulation, an agent of U.S. Rubber International is borne out by the facts that petitioner can dispose of the products of the Company only to certain persons or entities and within stipulated limits, unless excepted by the contract or by the Rubber Company (Par. 2); that it merely receives, accepts and/or holds upon consignment the products, which remain properties of the latter company (Par. 8); that every effort shall be made by petitioner to promote in every way the sale of the products (Par. 3); that sales made by petitioner are subject to approval by the company (Par. 12); that on dates determined by the rubber company, petitioner shall render a detailed report showing sales during the month (Par. 14); that the rubber company shall invoice the sales as of the dates of inventory and sales report (Par. 14); that the rubber company agrees to keep the consigned goods fully insured under insurance policies payable to it in case of loss (Par. 15); that upon request of the rubber company at any time, petitioner shall render an inventory of the existing stock which may be checked by an authorized representative of the former (Par. 15); and that upon termination or cancellation of the Agreement, all goods held on consignment shall be held by petitioner for the account of the rubber company until their disposition is provided for by the latter (Par. 19). All these circumstances are irreconcilably antagonistic to the idea of an independent merchant." 14 Hence its conclusion: "However, upon analysis of the contract, as a whole, together with the actual conduct of the parties in respect thereto, we have arrived at the conclusion that the relationship between them is one of brokerage or agency." 15 We find ourselves in agreement, notwithstanding the able brief filed on behalf of petitioner by its counsel. As noted at the outset, we cannot heed petitioner's plea for reversal. 1. According to the National Internal Revenue Code, a commercial broker "includes all persons, other than importers, manufacturers, producers, or bona fide employees, who, for compensation or profit, sell or bring about sales or purchases of merchandise for other persons or bring proposed buyers and sellers together, or negotiate freights or other business for owners of vessels or other means of transportation, or for the shippers, or consignors or consignees of freight carried by vessels or other means of transportation. The term includes commission merchants." 16 The controlling decision as to the test to be followed as to who falls within the above definition of a commercial broker is that of Commissioner of Internal Revenue v. Constantino. 17 In the language of

Justice J. B. L. Reyes, who penned the opinion: "Since the company retained ownership of the goods, even as it delivered possession unto the dealer for resale to customers, the price and terms of which were subject to the company's control, the relationship between the company and the dealer is one of agency, ... ." 18 An excerpt from Salisbury v. Brooks 19 cited in support of such a view follows: " 'The difficulty in distinguishing between contracts of sale and the creation of an agency to sell has led to the establishment of rules by the application of which this difficulty may be solved. The decisions say the transfer of title or agreement to transfer it for a price paid or promised is the essence of sale. If such transfer puts the transferee in the attitude or position of an owner and makes him liable to the transferor as a debtor for the agreed price, and not merely as an agent who must account for the proceeds of a resale, the transaction is a sale; while the essence of an agency to sell is the delivery to an agent, not as his property, but as the property of the principal, who remains the owner and has the right to control sales, fix the price, and terms, demand and receive the proceeds less the agent's commission upon sales made.' "20 The opinion relied on the work of Mechem on Sales as well as Mechem on Agency. Williston and Tiedman both of whom wrote treatises on Sales, were likewise referred to. Equally relevant is this portion of the Salisbury opinion: "It is difficult to understand or appreciate the necessity or presence of these mutual requirements and obligations on any theory other than that of a contract of agency. Salisbury was to furnish the mill and put the timber owned by him into a marketable condition in the form of lumber; Brooks was to furnish the funds necessary for that purpose, sell the manufactured product, and account therefor to Salisbury upon the specific terms of the agreement, less the compensation fixed by the parties in lieu of interest on the money advanced and for services as agent. These requirements and stipulations are in tent with any other conception of the contract. If it constitutes an agreement to sell, they are meaningless. But they cannot be ignored. They were placed there for some purpose, doubtless as the result of definite antecedent negotiations therefore, consummated by the final written expression of the agreement." 21 Hence the Constantino opinion could categorically affirm that the mere disclaimer in a contract that an entity like petitioner is not "the agent or legal representative for any purpose whatsoever" does not suffice to yield the conclusion that it is an independent merchant if the control over the goods for resale of the goods consigned is pervasive in character. The Court of Tax Appeals decision now under review pays fealty to such an applicable doctrine. 2. No merit therefore attaches to the first error imputed by petitioner to the Court of Tax Appeals. Neither did such Court fail to appreciate in its true significance the act and conduct pursued in the implementation of the contract by both the United States Rubber International and petitioner, as was contended in the second assignment of error. Petitioner ought to have been aware that there was no need for such an inquiry. The terms of the contract, as noted, speak quite clearly. There is lacking that degree of ambiguity sufficient to give rise to serious doubt as to what was contemplated by the parties. A reading thereof discloses that the relationship arising therefrom was not one of seller and purchaser. If it were thus intended, then it would not have included covenants which in their totality would negate the concept of a firm acquiring as vendee goods from another. Instead, the stipulations were so worded as to lead to no other conclusion than that the control by the United States Rubber International over the goods in question is, in the language of the Constantino opinion, "pervasive". The insistence on a relationship opposed to that apparent from the language employed might even yield the impression that such a mode of construction was resorted to in order that the applicability of a taxing statute might be rendered nugatory. Certainly, such a result is to be avoided. Nor is it to be lost sight of that on a matter left to the discretion of the Court of Tax Appeals which has developed an expertise in view of its function being limited solely to the interpretation of revenue laws, this Court is not prepared to substitute its own judgment unless a grave abuse of discretion is manifest. It would be to frustrate the objective for which administrative tribunals

are created if the judiciary, absent such a showing, is to ignore their appraisal on a matter that forms the staple of their specialized competence. While it is to be admitted that counsel for petitioner did scrutinize with care the decision under review with a view to exposing what was considered its flaws, it cannot be said that there was such a failure to apply what the law commands as to call for its reversal. Instead, what cannot be denied is that the Court of Tax Appeals reached a result to which the Court in the recent Constantino decision gave the imprimatur of its approval. ___________________________________________ G.R. No. L-46658 May 13, 1991 PHILIPPINE NATIONAL BANK, petitioner, vs. HON. GREGORIO G. PINEDA, in his capacity as Presiding Judge of the Court of First Instance of Rizal, Branch XXI and TAYABAS CEMENT COMPANY, INC., respondents. FERNAN, C.J.:p In this petition for certiorari, petitioner Philippine National Bank (PNB) seeks to annul and set aside the orders dated March 4, 1977 and May 31, 1977 rendered in Civil Case No. 24422 1 of the Court of First Instance of Rizal, Branch XXI, respectively granting private respondent Tayabas Cement Company, Inc.'s application for a writ of preliminary injunction to enjoin the foreclosure sale of certain properties in Quezon City and Negros Occidental and denying petitioner's motion for reconsideration thereof. In 1963, Ignacio Arroyo, married to Lourdes Tuason Arroyo (the Arroyo Spouses), obtained a loan of P580,000.00 from petitioner bank to purchase 60% of the subscribed capital stock, and thereby acquire the controlling interest of private respondent Tayabas Cement Company, Inc. (TCC). 2 As security for said loan, the spouses Arroyo executed a real estate mortgage over a parcel of land covered by Transfer Certificate of Title No. 55323 of the Register of Deeds of Quezon City known as the La Vista property. Thereafter, TCC filed with petitioner bank an application and agreement for the establishment of an eight (8) year deferred letter of credit (L/C) for $7,000,000.00 in favor of Toyo Menka Kaisha, Ltd. of Tokyo, Japan, to cover the importation of a cement plant machinery and equipment. Upon approval of said application and opening of an L/C by PNB in favor of Toyo Menka Kaisha, Ltd. for the account of TCC, the Arroyo spouses executed the following documents to secure this loan accommodation: Surety Agreement dated August 5, 1964 3 and Covenant dated August 6, 1964. 4 The imported cement plant machinery and equipment arrived from Japan and were released to TCC under a trust receipt agreement. Subsequently, Toyo Menka Kaisha, Ltd. made the corresponding drawings against the L/C as scheduled. TCC, however, failed to remit and/or pay the corresponding amount covered by the drawings. Thus, on May 19, 1968, pursuant to the trust receipt agreement, PNB notified TCC of its intention to repossess, as it later did, the imported machinery and equipment for failure of TCC to settle its obligations under the L/C. 5 In the meantime, the personal accounts of the spouses Arroyo, which included another loan of P160,000.00 secured by a real estate mortgage over parcels of agricultural land known as Hacienda Bacon located in Isabela, Negros Occidental, had likewise become due. The spouses Arroyo having failed to satisfy their obligations with PNB, the latter decided to foreclose the real estate mortgages executed by the spouses Arroyo in its favor. On July 18, 1975, PNB filed with the City Sheriff of Quezon City a petition for extra-judicial foreclosure under Act 3138, as amended by Act 4118 and under Presidential Decree No. 385 of the real estate mortgage over the properties known as the La Vista property covered by TCT No. 55323. 6 PNB likewise filed a similar petition with the City Sheriff of Bacolod, Negros Occidental with respect to the mortgaged properties located at Isabela, Negros Occidental and covered by OCT No. RT 1615.

The foreclosure sale of the La Vista property was scheduled on August 11, 1975. At the auction sale, PNB was the highest bidder with a bid price of P1,000,001.00. However, when said property was about to be awarded to PNB, the representative of the mortgagor-spouses objected and demanded from the PNB the difference between the bid price of P1,000,001.00 and the indebtedness of P499,060.25 of the Arroyo spouses on their personal account. It was the contention of the spouses Arroyo's representative that the foreclosure proceedings referred only to the personal account of the mortgagor spouses without reference to the account of TCC. To remedy the situation, PNB filed a supplemental petition on August 13, 1975 requesting the Sheriff's Office to proceed with the sale of the subject real properties to satisfy not only the amount of P499,060.25 owed by the spouses Arroyos on their personal account but also the amount of P35,019,901.49 exclusive of interest, commission charges and other expenses owed by said spouses as sureties of TCC. 7 Said petition was opposed by the spouses Arroyo and the other bidder, Jose L. Araneta. On September 12, 1975, Acting Clerk of Court and Ex-Officio Sheriff Diana L. Dungca issued a resolution finding that the questions raised by the parties required the reception and evaluation of evidence, hence, proper for adjudication by the courts of law. Since said questions were prejudicial to the holding of the foreclosure sale, she ruled that her "Office, therefore, cannot properly proceed with the foreclosure sale unless and until there be a court ruling on the aforementioned issues." 8 Thus, in May, 1976, PNB filed with the Court of First Instance of Quezon City, Branch V a petition for mandamus 9against said Diana Dungca in her capacity as City Sheriff of Quezon City to compel her to proceed with the foreclosure sale of the mortgaged properties covered by TCT No. 55323 in order to satisfy both the personal obligation of the spouses Arroyo as well as their liabilities as sureties of TCC. 10 On September 6, 1976, the petition was granted and Dungca was directed to proceed with the foreclosure sale of the mortgaged properties covered by TCT No. 55323 pursuant to Act No. 3135 and to issue the corresponding Sheriff's Certificate of Sale. 11 Before the decision could attain finality, TCC filed on September 14, 1976 before the Court of First Instance of Rizal, Pasig, Branch XXI a complaint 12 against PNB, Dungca, and the Provincial Sheriff of Negros Occidental and Ex-Officio Sheriff of Bacolod City seeking, inter alia, the issuance of a writ of preliminary injunction to restrain the foreclosure of the mortgages over the La Vista property and Hacienda Bacon as well as a declaration that its obligation with PNB had been fully paid by reason of the latter's repossession of the imported machinery and equipment. 13 On October 5, 1976, the CFI, thru respondent Judge Gregorio Pineda, issued a restraining order 14 and on March 4, 1977, granted a writ of preliminary injunction. 15 PNB's motion for reconsideration was denied, hence this petition. Petitioner PNB advances four grounds for the setting aside of the writ of preliminary injunction, namely: a) that it contravenes P.D. No. 385 which prohibits the issuance of a restraining order against a government financial institution in any action taken by such institution in compliance with the mandatory foreclosure provided in Section 1 thereof; b) that the writ countermands a final decision of a co-equal and coordinate court; c) that the writ seeks to prohibit the performance of acts beyond the court's territorial jurisdiction; and, d) private respondent TCC has not shown any clear legal right or necessity to the relief of preliminary injunction. Private respondent TCC counters with the argument that P.D. No. 385 does not apply to the case at bar, firstly because no foreclosure proceedings have been instituted against it by PNB and secondly, because its account under the L/C has been fully satisfied with the repossession of the imported machinery and equipment by PNB.

The resolution of the instant controversy lies primarily on the question of whether or not TCC's liability has been extinguished by the repossession of PNB of the imported cement plant machinery and equipment. We rule for the petitioner PNB. It must be remembered that PNB took possession of the imported cement plant machinery and equipment pursuant to the trust receipt agreement executed by and between PNB and TCC giving the former the unqualified right to the possession and disposal of all property shipped under the Letter of Credit until such time as all the liabilities and obligations under said letter had been discharged. 16 In the case of Vintola vs. Insular Bank of Asia and America 17 wherein the same argument was advanced by the Vintolas as entrustees of imported seashells under a trust receipt transaction, we said: Further, the VINTOLAS take the position that their obligation to IBAA has been extinguished inasmuch as, through no fault of their own, they were unable to dispose of the seashells, and that they have relinquished possession thereof to the IBAA, as owner of the goods, by depositing them with the Court. The foregoing submission overlooks the nature and mercantile usage of the transaction involved. A letter of credit-trust receipt arrangement is endowed with its own distinctive features and characteristics. Under that set-up, a bank extends a loan covered by the Letter of Credit, with the trust receipt as a security for the loan. In other words, the transaction involves a loan feature represented by the letter of credit, and a security feature which is in the covering trust receipt. xxx xxx xxx A trust receipt, therefore, is a security agreement, pursuant to which a bank acquires a "security interest" in the goods. It secures an indebtedness and there can be no such thing as security interest that secures no obligation. As defined in our laws: (h) "Security interest" means a property interest in goods, documents or instruments to secure performance of some obligations of the entrustee or of some third persons to the entruster and includes title, whether or not expressed to be absolute, whenever such title is in substance taken or retained for security only. xxx xxx xxx Contrary to the allegation of the VINTOLAS, IBAA did not become the real owner of the goods. It was merely the holder of a security title for the advances it had made to the VINTOLAS. The goods the VINTOLAS had purchased through IBAA financing remain their own property and they hold it at their own risk. The trust receipt arrangement did not convert the IBAA into an investor; the latter remained a lender and creditor. xxx xxx xxx Since the IBAA is not the factual owner of the goods, the VINTOLAS cannot justifiably claim that because they have surrendered the goods to IBAA and subsequently deposited them in the custody of the court, they are absolutely relieved of their obligation to pay their loan because of their inability to dispose of the goods. The fact that they were unable to sell the seashells in question does not affect IBAA's right to recover the advances it had made under the Letter of Credit. PNB's possession of the subject machinery and equipment being precisely as a form of security for the advances given to TCC under the Letter of Credit, said possession by itself cannot be considered payment of the loan secured thereby. Payment would legally result only after PNB had foreclosed on said securities, sold the same and applied the proceeds thereof to TCC's loan obligation. Mere possession does not amount to foreclosure for foreclosure denotes the procedure adopted by the mortgagee to terminate the rights of the mortgagor on the property and includes the sale itself. 18 Neither can said repossession amount to dacion en pago. Dation in payment takes place when property is alienated to the creditor in satisfaction of a debt in money and the same is governed by sales. 19 Dation in payment 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. 20 As aforesaid,

the repossession of the machinery and equipment in question was merely to secure the payment of TCC's loan obligation and not for the purpose of transferring ownership thereof to PNB in satisfaction of said loan. Thus, no dacion en pago was ever accomplished. Proceeding from this finding, PNB has the right to foreclose the mortgages executed by the spouses Arroyo as sureties of TCC. A surety is considered in law as being the same party as the debtor in relation to whatever is adjudged touching the obligation of the latter, and their liabilities are interwoven as to be inseparable. 21 As sureties, the Arroyo spouses are primarily liable as original promissors and are bound immediately to pay the creditor the amount outstanding. 22 Under Presidential Decree No. 385 which took effect on January 31, 1974, government financial institutions like herein petitioner PNB are required to foreclose on the collaterals and/or securities for any loan, credit or accommodation whenever the arrearages on such account amount to at least twenty percent (20%) of the total outstanding obligations, including interests and charges, as appearing in the books of account of the financial institution concerned. 23 It is further provided therein that "no restraining order, temporary or permanent injunction shall be issued by the court against any government financial institution in any action taken by such institution in compliance with the mandatory foreclosure provided in Section 1 hereof, whether such restraining order, temporary or permanent injunction is sought by the borrower(s) or any third party or parties . . ." 24 It is not disputed that the foreclosure proceedings instituted by PNB against the Arroyo spouses were in compliance with the mandate of P.D. 385. This being the case, the respondent judge acted in excess of his jurisdiction in issuing the injunction specifically proscribed under said decree. Another reason for striking down the writ of preliminary injunction complained of is that it interfered with the order of a co-equal and coordinate court. Since Branch V of the CFI of Rizal had already acquired jurisdiction over the question of foreclosure of mortgage over the La Vista property and rendered judgment in relation thereto, then it retained jurisdiction to the exclusion of all other coordinate courts over its judgment, including all incidents relative to the control and conduct of its ministerial officers, namely the sheriff thereof. 25 The foreclosure sale having been ordered by Branch V of the CFI of Rizal, TCC should not have filed injunction proceedings with Branch XXI of the same CFI, but instead should have first sought relief by proper motion and application from the former court which had exclusive jurisdiction over the foreclosure proceeding. 26 This doctrine of non-interference is premised on the principle that a judgment of a court of competent jurisdiction may not be opened, modified or vacated by any court of concurrent jurisdiction. 27 Furthermore, we find the issuance of the preliminary injunction directed against the Provincial Sheriff of Negros Occidental and ex-officio Sheriff of Bacolod City a jurisdictional faux pas as the Courts of First Instance, now Regional Trial Courts, can only enforce their writs of injunction within their respective designated territories. 28 WHEREFORE, the instant petition is hereby granted. The assailed orders are hereby set aside. Costs against private respondent. ____________________________________ G.R. No. L-15113 January 28, 1961 ANTONIO MEDINA, petitioner, vs. COLLECTOR OF INTERNAL REVENUE and THE COURT OF TAX APPEALS respondents. REYES, J.B.L. J.: Petition to review a decision of the Court of Tax Appeals upholding a tax assessment of the Collector of Internal Revenue except with respect to the imposition of so-called compromise penalties, which were set aside.

The records show that on or about May 20, 1944, petitioning taxpayer Antonio Medina married Antonia Rodriguez. Before 1946, the spouses had neither property nor business of their own. Later, however, petitioner acquired forest, concessions in the municipalities of San Mariano and Palanan in the Province of Isabela. From 1946 to 1948, the logs cut and removed by the petitioner from his concessions were sold to different persons in Manila through his agent, Mariano Osorio. Some time in 1949, Antonia R. Medina, petitioner's wife, started to engage in business as a lumber dealer, and up to around 1952, petitioner sold to her almost all the logs produced in his San Mariano, concession. Mrs. Medina, In turn, sold in Manila the logs bought from her husband through the same agent, Mariano Osorio. The proceeds were, upon instructions from petitioner, either received by Osorio for petitioner or deposited by said agent in petitioner's current account with the Philippine National Bank. On the thesis that the sales made by petitioner to his wife were null and void pursuant to the provisions of Article 1490 of the Civil Code of the Philippines (formerly, Art. 1458, Civil Code of 1889), the Collector considered the sales made by Mrs. Medina as the petitioner's original sales taxable under Section 186 of the National Internal Revenue Code and, therefore, imposed a tax assessment on petitioner, calling for the payment of P4,553.54 as deficiency sales taxes and surcharges from 1949 to 1952. This same assessment of September 26, 1953 sought also the collection of another sum of P643.94 as deficiency sales tax and surcharge based on petitioner's quarterly returns from 1946 to 1952. On November 30, 1953, petitioner protested the assessment; however, respondent Collector insisted on his demand. On July 9, 1954, petitioner filed a petition for reconsideration revealing for the first time the existence of an alleged premarital agreement of complete separation of properties between him and his wife, and contending that the assessment for the years 1946 to 1952 had already prescribed. After one hearing, the Conference Staff of the Bureau of Internal Revenue eliminated the 50% fraud penalty and held that the taxes assessed against him before 1948 had already prescribed. Based on these findings, the Collector issued a modified assessment, demanding the payment of only P3,325.68, computed as follows: 5% tax due on P7,209.83 -1949 P 360.49 5% tax due on 16,945.55 - 1950 5% tax due on 16,874.52 - 1951 5% tax due on 11,009.94 - 1952 TOTAL sales tax due 25% Surcharge thereon Short taxes per quarterly returns, 3rd quarter, 1950 25% Surcharge thereon 847.28 843.75 550.50 P2,602.0 650.51 58.52 14.63

TOTAL AMOUNT due & collectible P3,325.68 Petitioner again requested for reconsideration, but respondent Collector, in his letter of April 4, 1955, denied the same. Petitioner appealed to the Court of Tax Appeals, which rendered judgment as aforesaid. The Court's decision was based on two main findings, namely, (a) that there was no premarital agreement of absolute separation of property between the Medina spouse; and (b) assuming that there was such an agreement, the sales in question made by petitioner to his wife were fictitious, simulated, and not bona fide. In his petition for review to this Court, petitioner raises several assignments of error revolving around the central issue of whether or not the sales made by the petitioner to his wife could be considered as his original taxable sales under the provisions of Section 186 of the National Internal Revenue Code.

Relying mainly on testimonial evidence that before their marriage, he and his wife executed and recorded a prenuptial agreement for a regime of complete separation of property, and that all trace of the document was lost on account of the war, petitioner imputes lack of basis for the tax court's factual finding that no agreement of complete separation of property was ever executed by and between the spouses before their marriage. We do not think so. Aside from the material inconsistencies in the testimony of petitioner's witnesses pointed out by the trial court, the circumstantial evidence is against petitioner's claim. Thus, it appears that at the time of the marriage between petitioner and his wife, they neither had any property nor business of their own, as to have really urged them to enter into the supposed property agreement. Secondly, the testimony that the separation of property agreement was recorded in the Registry of Property three months before the marriage, is patently absurd, since such a prenuptial agreement could not be effective before marriage is celebrated, and would automatically be cancelled if the union was called off. How then could it be accepted for recording prior to the marriage? In the third place, despite their insistence on the existence of the ante nuptial contract, the couple, strangely enough, did not act in accordance with its alleged covenants. Quite the contrary, it was proved that even during their taxable years, the ownership, usufruct, and administration of their properties and business were in the husband. And even when the wife was engaged in lumber dealing, and she and her husband contracted sales with each other as aforestated, the proceeds she derived from her alleged subsequent disposition of the logs incidentally, by and through the same agent of her husband, Mariano Osorio were either received by Osorio for the petitioner or deposited by said agent in petitioner's current account with the Philippine National Bank. Fourth, although petitioner, a lawyer by profession, already knew, after he was informed by the Collector on or about September of 1953, that the primary reason why the sales of logs to his wife could not be considered as the original taxable sales was because of the express prohibition found in Article 1490 of the Civil Code of sales between spouses married under a community system; yet it was not until July of 1954 that he alleged, for the first time, the existence of the supposed property separation agreement. Finally, the Day Book of the Register of Deeds on which the agreement would have been entered, had it really been registered as petitioner insists, and which book was among those saved from the ravages of the war, did not show that the document in question was among those recorded therein. We have already ruled that when the credibility of witnesses is the one at issue, the trial court's judgment as to their degree of credence deserves serious consideration by this Court (Collector vs. Bautista, et al., G.R. Nos. L12250 & L-12259, May 27, 1959). This is all the more true in this case because not every copy of the supposed agreement, particularly the one that was said to have been filed with the Clerk of Court of Isabela, was accounted for as lost; so that, applying the "best evidence rule", the court did right in giving little or no credence to the secondary evidence to prove the due execution and contents of the alleged document (see Comments on the Rules of Court, Moran, 1957 Ed., Vol. 3, pp. 10.12). The foregoing findings notwithstanding, the petitioner argues that the prohibition to sell expressed under Article 1490 of the Civil Code has no application to the sales made by said petitioner to his wife, because said transactions are contemplated and allowed by the provisions of Articles 7 and 10 of the Code of Commerce. But said provisions merely state, under certain conditions, a presumption that the wife is authorized to engage in business and for the incidents that flow therefrom when she so engages therein. But the transactions permitted are those entered into with strangers, and do not constitute exceptions to the prohibitory provisions of Article 1490 against sales between spouses. Petitioner's contention that the respondent Collector can not assail the questioned sales, he being a stranger to said transactions, is likewise untenable. The government, as correctly pointed out by the Tax Court, is always an interested party to all matters involving taxable transactions and,

needless to say, qualified to question their validity or legitimacy whenever necessary to block tax evasion. Contracts violative of the provisions of Article 1490 of the Civil Code are null and void (Uy Sui Pin vs. Cantollas, 70 Phil. 55; Uy Coque vs. Sioca 45 Phil. 43). Being void transactions, the sales made by the petitioner to his wife were correctly disregarded by the Collector in his tax assessments that considered as the taxable sales those made by the wife through the spouses' common agent, Mariano Osorio. In upholding that stand, the Court below committed no error. It is also the petitioner's contention that the lower court erred in using illegally seized documentary evidence against him. But even assuming arguendo the truth of petitioner's charge regarding the seizure, it is now settled in this jurisdiction that illegally obtained documents and papers are admissible in evidence, if they are found to be competent and relevant to the case (see Wong & Lee vs. Collector of Internal Revenue, G.R. No. L-10155, August 30, 1958). In fairness to the Collector, however, it should be stated that petitioner's imputation is vehemently denied by him, and relying on Sections 3, 9, 337 and 338 of the Tax Code and the pertinent portions of Revenue Regulations No. V-1 and citing this Court's ruling in U.S. vs. Aviado, 38 Phil. 10, the Collector maintains that he and other internal revenue officers and agents could require the production of books of accounts and other records from a taxpayer. Having arrived at the foregoing conclusion, it becomes unnecessary to discuss the other issues raised, which are but premised on the assumption that a premarital agreement of total separation of property existed between the petitioner and his wife. WHEREFORE, the decision appealed from is affirmed, with costs against the petitioner. __________________________________________ G.R. No. L-46850 June 20, 1940 UY SIU PIN and CHUA HUE, petitioners, vs. CASIMIRA CANTOLLAS, ET AL., respondents. LAUREL, J.: In the year 1929 or thereabout the spouses Pedro Velegao and Casimira Cantollas were indebted to El Hogar Filipino in the sum of P2,000 secured by a mortgage on certain land covered by original certificate of title No. 1017. Upon the death of Pedro Velegao in the same year, there remained an unpaid balance of P1,300. On April 2, 1932 Casimira Cantollas and her son Blas Velegao, who succeeded to the mortgaged land, entered into a contract with Uy Siu Pin by which Casimira and Blas agreed to deliver the latter to possess and enjoy the same with its improvements during the period of fifteen years from April 2, 1932, on condition that Uy Siu Pin would pay to El Hogar Filipino the unpaid balance of the indebtedness of Casimira and Blas, together with all other expenses including realty taxes. It was further covenanted that after the lapse of fifteen years, Uy Siu Pin would return the land to Casimira Cantollas and Blas Velegao without any obligation on the part of the latter to pay anything to Uy Siu Pin, but that, if after the expiration of five years from April 2, 1932, Casimira and Blas would be in a position to do so, they had the right to redeem said land by paying to Uy Siu Pin or his successors in interest the sum of P1,750. In pursuance of this agreement, Uy Siu Pin, on April 2, 1932, took possession of the land and proceeded to make payments to El Hogar Filipino upon account of the indebtedness of Casimira Cantollas and Blas Velegao. The payments thus made amounted to P600 up to July, 1933, when Uy Siu Pin ceased to make further payments to El Hogar Filipino , as a result of which the latter foreclosed the mortgage which it held on the land in question which was then in the possession of Uy Siu Pin by reason of the agreement between him and Casimira and Blas already above referred to. In the foreclosure sale, the land was bought by El Hogar Filipino for P1,062.66. The mortgage debtors, Casimira and Blas, having failed to redeem the land within the statutory period, a final deed of sale was issued in favor of El Hogar

Filipino on December 24, 1934. On December 26, 1934 the latter sold the aforesaid land to Uy Siu Pin for P1,198.17. On December 28, 1934 Uy Siu Pin in turn sold the land to his wife Chua Hue in consideration of P4,000. Transfer certificate of title No. 8446 was issued in favor of Uy Siu Pin but it was later cancelled by a new transfer certificate of title No. 8447, issued in the name of Chua Hue. On December 10, 1935, Casimira Cantollas and Blas Velegao filed in the Court of First Instance of Tayabas a complaint against Uy Siu Pin and Chua Hue in which, as subsequently amended, it was prayed that the sale in favor of Chua Hue and transfer certificate of title No. 8447 in her name be cancelled; that the agreement entered into between Uy Siu Pin and Casimira and Blas on April 2, 1932, and attached to the complaint as Exhibit A, be noted on the transfer certificate of title issued in favor of Uy Siu Pin, and that the defendants be ordered to pay to the plaintiffs the sum of P380 by way of damages and the sum of P7,500 as the value of the land in question. On December 11, 1935 a notice of lis pendens was inscribed in the office of the register of deeds of Tayabas and noted on the back of transfer certificate of title No. 8447. The defendant Uy Siu Pin and Chua Hue filed an answer containing a general denial and the special defenses that Uy Siu Pin entered into the contract Exhibit A through fraud on the part of the plaintiffs Casimira and Blas, that the latter failed to perform their part of the contract in that they failed to deliver to Uy Siu Pin the possession of the land in question, and that Uy Siu Pin, after acquiring said land from El Hogar Filipino independently of the contract Exhibit A, sold the same to his codefendant Chua Hue Juan Magbajos intervening the action, prayed that he be declared the owner of the land involved therein by virtue of the sale executed in his favor by Chua Hue on December 31, 1935. After trial, the Court of First Instance of Tayabas rendered judgment setting aside the sale executed by Uy Siu Pin in favor of Chua Hue as well as the sale executed by the latter in favor of Juan Magbajos, ordering the register of deeds of Tayabas to cancel transfer certificate of title No. 8447 issued in the name of Chua Hue and to note the agreement Exhibit A on transfer certificate of title No. 8446 issued in the name of Uy Siu Pin, and sentencing the latter to pay to the plaintiffs as damages the sum of P380 plus the costs of the action. Upon appeal from this judgment by the defendants and the intervenor, the Court of Appeals, on July 18, 1939, affirmed the same with the sole modification that the award of damages in the sum of P380 was eliminated therefrom. The present petition for certiorari has been presented by Uy Siu Pin and Chua Hue with a view to obtaining a favorable judgment in their favor, the petitioners contending that: I. The Court of Appeals erred in declaring that under the agreement Exhibit A, the petitioner Uy Siu Pin received the land in question from the respondents Casimira Cantollas and Blas Velegao as mere trustee with right of usufruct; II. The Court of Appeals erred in declaring that the petitioner El Hogar Filipino, not in his own right but as trustee of the respondents Casimira Cantollas and Blas Velegao; III. The Court of Appeals erred in holding that the obligation assumed by petitioner Uy Siu Pin under Exhibit A has not been validly extinguished; IV. The Court of Appeals erred in declaring null and void the sale of the land in question in favor of the petitioner Chua Hue V. The Court of Appeals erred in denying petitioner's motion for reconsideration. Counsel for the petitioners stress the argument that Exhibit A was not a contract creating a trust relation as held by the Court of Appeals, but was one of antichresis. We find it unnecessary to make any pronouncement on this point, because whatever may be its denomination, the petitioner Uy Siu Pin is bound to comply therewith, it being still in full force and effect as found by the Court of Appeals. The respondents Casimira Cantollas and Blas Velegao performed their part of the contract when they delivered on April 2, 1932 the land involved herein to the petitioner Uy Siu Pin. Thereafter it was incumbent upon the latter to fulfill his obligation to pay the debt owning by said respondents to El Hogar Filipino and to return said land to them, after the period of fifteen years. It cannot be contended with fairness that Uy Siu Pin

acquired the land in his own right from El Hogar Filipino after the latter had foreclosure the mortgage thereon, because the foreclosure was brought about by his own failure to pay, as stipulated in the contract Exhibit A, the indebtedness of Casimira and Blas. Neither could the latter be blamed for their failure to redeem the land from El Hogar Filipino after the foreclosure sale, for the reason that they had the perfect right to rely on their contract with Uy Siu Pin. In any event, whether we consider Uy Siu Pin as having purchased the land from El Hogar Filipino in his own right, and not on behalf of Casimira Cantollas and Blas Velegao, he is still bound, under the circumstances of this case, to reconvey the same to Casimira and Blas after the expiration of the period stipulated in the existing contract Exhibit A. It is pretended, however, that the obligations assumed by Uy Siu Pin under Exhibit A have been validly extinguished when "he returned the possession of the property in question to the debtors Casimira Cantollas and Blas Velegao." Against this pretension there is the finding of fact of the Court of Appeals, not capable of review by us in the present proceedings, that Uy Siu Pin has remained in possession of the land since April 2, 1932. The sale from Uy Siu Pin to his wife Chua Hue is null and void not only because the former had no right to dispose of the land in controversy in view of the existence of the contract Exhibit A but because such sale comes within the prohibition of article 1458 of the Civil Code. It is not necessary to dwell upon the sale from Chua Hue to the intervenor Juan Magbajos, as the latter has not appealed from the decision complained of by the petitioners. The petition for certiorari will therefore be dismissed and the appealed decision affirmed, with costs against the petitioners. So ordered. MATABUENA ____________________________________________________ G.R. No. L-22487 May 21, 1969 ASUNCION ATILANO, CRISTINA ATILANO, ROSARIO ATILANO, assisted by their respective husbands, HILARIO ROMANO, FELIPE BERNARDO, and MAXIMO LACANDALO, ISABEL ATILANO and GREGORIO ATILANO, plaintiffs-appellees, vs. LADISLAO ATILANO and GREGORIO M. ATILANO, defendants-appellants. MAKALINTAL, J.: In 1916 Eulogio Atilano I acquired, by purchase from one Gerardo Villanueva, lot No. 535 of the then municipality of Zamboanga cadastre. The vendee thereafter obtained transfer certificate of title No. 1134 in his name. In 1920 he had the land subdivided into five parts, identified as lots Nos. 535-A, 535-B, 535-C, 535-D and 535-E, respectively. On May 18 of the same year, after the subdivision had been effected, Eulogio Atilano I, for the sum of P150.00, executed a deed of sale covering lot No. 535-E in favor of his brother Eulogio Atilano II, who thereupon obtained transfer certificate of title No. 3129 in his name. Three other portions, namely lots Nos. 535-B, 535-C and 535-D, were likewise sold to other persons, the original owner, Eulogio Atilano I, retaining for himself only the remaining portion of the land, presumably covered by the title to lot No. 535-A. Upon his death the title to this lot passed to Ladislao Atilano, defendant in this case, in whose name the corresponding certificate (No. T-5056) was issued. On December 6, 1952, Eulogio Atilano II having become a widower upon the death of his wife Luisa Bautista, he and his children obtained transfer certificate of title No. 4889 over lot No. 535-E in their names as coowners. Then, on July 16, 1959, desiring to put an end to the co-ownership, they had the land resurveyed so that it could properly be subdivided; and it was then discovered that the land they were actually occupying on the strength of the deed of sale executed in 1920 was lot No. 535-A and not lot 535-E, as referred to in the deed, while the land which remained in the possession of the vendor, Eulogio Atilano I, and which passed to his successor, defendant Ladislao Atilano, was lot No. 535-E and not lot No. 535-A.

On January 25, 1960, the heirs of Eulogio Atilano II, who was by then also deceased, filed the present action in the Court of First Instance of Zamboanga, alleging, inter alia, that they had offered to surrender to the defendants the possession of lot No. 535-A and demanded in return the possession of lot No. 535-E, but that the defendants had refused to accept the exchange. The plaintiffs' insistence is quite understandable, since lot No. 535-E has an area of 2,612 square meters, as compared to the 1,808 square-meter area of lot No. 535-A. In their answer to the complaint the defendants alleged that the reference to lot No. 535-E in the deed of sale of May 18, 1920 was an involuntary error; that the intention of the parties to that sale was to convey the lot correctly identified as lot No. 535-A; that since 1916, when he acquired the entirety of lot No. 535, and up to the time of his death, Eulogio Atilano I had been possessing and had his house on the portion designated as lot No. 535E, after which he was succeeded in such possession by the defendants herein; and that as a matter of fact Eulogio Atilano I even increased the area under his possession when on June 11, 1920 he bought a portion of an adjoining lot, No. 536, from its owner Fruto del Carpio. On the basis of the foregoing allegations the defendants interposed a counterclaim, praying that the plaintiffs be ordered to execute in their favor the corresponding deed of transfer with respect to lot No. 535-E. The trial court rendered judgment for the plaintiffs on the sole ground that since the property was registered under the Land Registration Act the defendants could not acquire it through prescription. There can be, of course, no dispute as to the correctness of this legal proposition; but the defendants, aside from alleging adverse possession in their answer and counterclaim, also alleged error in the deed of sale of May 18, 1920, thus: "Eulogio Atilano 1.o, por equivocacion o error involuntario, cedio y traspaso a su hermano Eulogio Atilano 2.do el lote No. 535-E en vez del Lote No. 535A."lawphi1.et The logic and common sense of the situation lean heavily in favor of the defendants' contention. When one sells or buys real property a piece of land, for example one sells or buys the property as he sees it, in its actual setting and by its physical metes and bounds, and not by the mere lot number assigned to it in the certificate of title. In the particular case before us, the portion correctly referred to as lot No. 535-A was already in the possession of the vendee, Eulogio Atilano II, who had constructed his residence therein, even before the sale in his favor even before the subdivision of the entire lot No. 535 at the instance of its owner, Eulogio Atillano I. In like manner the latter had his house on the portion correctly identified, after the subdivision, as lot No. 535-E, even adding to the area thereof by purchasing a portion of an adjoining property belonging to a different owner. The two brothers continued in possession of the respective portions the rest of their lives, obviously ignorant of the initial mistake in the designation of the lot subject of the 1920 until 1959, when the mistake was discovered for the first time. The real issue here is not adverse possession, but the real intention of the parties to that sale. From all the facts and circumstances we are convinced that the object thereof, as intended and understood by the parties, was that specific portion where the vendee was then already residing, where he reconstructed his house at the end of the war, and where his heirs, the plaintiffs herein, continued to reside thereafter: namely, lot No. 535-A; and that its designation as lot No. 535-E in the deed of sale was simple mistake in the drafting of the document.1wphi1.et The mistake did not vitiate the consent of the parties, or affect the validity and binding effect of the contract between them. The new Civil Code provides a remedy for such a situation by means of reformation of the instrument. This remedy is available when, there having been a meeting of the funds of the parties to a contract, their true intention is not expressed in the instrument purporting to embody the agreement by reason of mistake, fraud, inequitable conduct on accident (Art. 1359, et seq.) In this case, the deed of sale executed in 1920 need no longer reformed. The parties have retained possession of their respective properties conformably to the real

intention of the parties to that sale, and all they should do is to execute mutual deeds of conveyance. WHEREFORE, the judgment appealed from is reversed. The plaintiffs are ordered to execute a deed of conveyance of lot No. 535-E in favor of the defendants, and the latter in turn, are ordered to execute a similar document, covering lot No. 595-A, in favor of the plaintiffs. Costs against the latter. ______________________________________________ G.R. No. 74470 March 8, 1989 NATIONAL GRAINS AUTHORITY and WILLLAM CABAL, petitioners vs. THE INTERMEDIATE APPELLATE COURT and LEON SORIANO, respondents. MEDIALDEA, J.: This is a petition for review of the decision (pp. 9-21, Rollo) of the Intermediate Appellate Court (now Court of Appeals) dated December 23, 1985 in A.C. G.R. CV No. 03812 entitled, "Leon Soriano, Plaintiff- Appellee versus National Grains Authority and William Cabal, Defendants Appellants", which affirmed the decision of the Court of First Instance of Cagayan, in Civil Case No. 2754 and its resolution (p. 28, Rollo) dated April 17, 1986 which denied the Motion for Reconsideration filed therein. The antecedent facts of the instant case are as follows: Petitioner National Grains Authority (now National Food Authority, NFA for short) is a government agency created under Presidential Decree No. 4. One of its incidental functions is the buying of palay grains from qualified farmers. On August 23, 1979, private respondent Leon Soriano offered to sell palay grains to the NFA, through William Cabal, the Provincial Manager of NFA stationed at Tuguegarao, Cagayan. He submitted the documents required by the NFA for pre-qualifying as a seller, namely: (1) Farmer's Information Sheet accomplished by Soriano and certified by a Bureau of Agricultural Extension (BAEX) technician, Napoleon Callangan, (2) Xerox copies of four (4) tax declarations of the riceland leased to him and copies of the lease contract between him and Judge Concepcion Salud, and (3) his Residence Tax Certificate. Private respondent Soriano's documents were processed and accordingly, he was given a quota of 2,640 cavans of palay. The quota noted in the Farmer's Information Sheet represented the maximum number of cavans of palay that Soriano may sell to the NFA. In the afternoon of August 23, 1979 and on the following day, August 24, 1979, Soriano delivered 630 cavans of palay. The palay delivered during these two days were not rebagged, classified and weighed. when Soriano demanded payment of the 630 cavans of palay, he was informed that its payment will be held in abeyance since Mr. Cabal was still investigating on an information he received that Soriano was not a bona tide farmer and the palay delivered by him was not produced from his farmland but was taken from the warehouse of a rice trader, Ben de Guzman. On August 28, 1979, Cabal wrote Soriano advising him to withdraw from the NFA warehouse the 630 cavans Soriano delivered stating that NFA cannot legally accept the said delivery on the basis of the subsequent certification of the BAEX technician, Napoleon Callangan that Soriano is not a bona fide farmer. Instead of withdrawing the 630 cavans of palay, private respondent Soriano insisted that the palay grains delivered be paid. He then filed a complaint for specific performance and/or collection of money with damages on November 2, 1979, against the National Food Authority and Mr. William Cabal, Provincial Manager of NFA with the Court of First Instance of Tuguegarao, and docketed as Civil Case No. 2754. Meanwhile, by agreement of the parties and upon order of the trial court, the 630 cavans of palay in question were withdrawn from the warehouse of NFA. An inventory was made by the sheriff as representative of the Court, a representative of Soriano and a representative of NFA (p. 13, Rollo).

On September 30, 1982, the trial court rendered judgment ordering petitioner National Food Authority, its officers and agents to pay respondent Soriano (as plaintiff in Civil Case No. 2754) the amount of P 47,250.00 representing the unpaid price of the 630 cavans of palay plus legal interest thereof (p. 1-2, CA Decision). The dispositive portion reads as follows: WHEREFORE, the Court renders judgment in favor of the plaintiff and against the defendants National Grains Authority, and William Cabal and hereby orders: 1. The National Grains Authority, now the National Food Authority, its officers and agents, and Mr. William Cabal, the Provincial Manager of the National Grains Authority at the time of the filing of this case, assigned at Tuguegarao, Cagayan, whomsoever is his successors, to pay to the plaintiff Leon T. Soriano, the amount of P47,250.00, representing the unpaid price of the palay deliveries made by the plaintiff to the defendants consisting of 630 cavans at the rate Pl.50 per kilo of 50 kilos per cavan of palay; 2. That the defendants National Grains Authority, now National Food Authority, its officer and/or agents, and Mr. William Cabal, the Provincial Manager of the National Grains Authority, at the time of the filing of this case assigned at Tuguegarao, Cagayan or whomsoever is his successors, are likewise ordered to pay the plaintiff Leon T. Soriano, the legal interest at the rate of TWELVE (12%) percent per annum, of the amount of P 47,250.00 from the filing of the complaint on November 20, 1979, up to the final payment of the price of P 47,250.00; 3. That the defendants National Grains Authority, now National Food Authority, or their agents and duly authorized representatives can now withdraw the total number of bags (630 bags with an excess of 13 bags) now on deposit in the bonded warehouse of Eng. Ben de Guzman at Tuguegarao, Cagayan pursuant to the order of this court, and as appearing in the written inventory dated October 10, 1980, (Exhibit F for the plaintiff and Exhibit 20 for the defendants) upon payment of the price of P 47,250.00 and TWELVE PERCENT (12%) legal interest to the plaintiff, 4. That the counterclaim of the defendants is hereby dismissed; 5. That there is no pronouncement as to the award of moral and exemplary damages and attorney's fees; and 6. That there is no pronouncement as to costs. SO ORDERED (pp. 9-10, Rollo) Petitioners' motion for reconsideration of the decision was denied on December 6, 1982. Petitioners' appealed the trial court's decision to the Intermediate Appellate Court. In a decision promulgated on December 23, 1986 (pp. 9-21, Rollo) the then Intermediate Appellate Court upheld the findings of the trial court and affirmed the decision ordering NFA and its officers to pay Soriano the price of the 630 cavans of rice plus interest. Petitioners' motion for reconsideration of the appellate court's decision was denied in a resolution dated April 17, 1986 (p. 28, Rollo). Hence, this petition for review filed by the National Food Authority and Mr. William Cabal on May 15, 1986 assailing the decision of the Intermediate Appellate Court on the sole issue of whether or not there was a contract of sale in the case at bar. Petitioners contend that the 630 cavans of palay delivered by Soriano on August 23, 1979 was made only for purposes of having it offered for sale. Further, petitioners stated that the procedure then prevailing in matters of palay procurement from qualified farmers were: firstly, there is a rebagging wherein the palay is transferred from a private sack of a farmer to the NFA sack; secondly, after the rebagging has been undertaken, classification of the palay is made to determine its variety; thirdly, after the determination of its variety and convinced that it passed the quality standard, the same will be weighed to determine the number of kilos; and finally, it will be piled inside the warehouse after the preparation of the Warehouse Stock Receipt (WSP) indicating therein the number of kilos, the variety and the number of bags. Under this procedure, rebagging is the initial operative act signifying acceptance, and acceptance will

be considered complete only after the preparation of the Warehouse Stock Receipt (WSR). When the 630 cavans of palay were brought by Soriano to the Carig warehouse of NFA they were only offered for sale. Since the same were not rebagged, classified and weighed in accordance with the palay procurement program of NFA, there was no acceptance of the offer which, to petitioners' mind is a clear case of solicitation or an unaccepted offer to sell. The petition is not impressed with merit. Article 1458 of the Civil Code of the Philippines defines sale as a contract whereby one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other party to pay therefore a price certain in money or its equivalent. A contract, on the other hand, is a meeting of minds between two (2) persons whereby one binds himself, with respect to the other, to give something or to render some service (Art. 1305, Civil Code of the Philippines). The essential requisites of contracts are: (1) consent of the contracting parties, (2) object certain which is the subject matter of the contract, and (3) cause of the obligation which is established (Art. 1318, Civil Code of the Philippines. In the case at bar, Soriano initially offered to sell palay grains produced in his farmland to NFA. When the latter accepted the offer by noting in Soriano's Farmer's Information Sheet a quota of 2,640 cavans, there was already a meeting of the minds between the parties. The object of the contract, being the palay grains produced in Soriano's farmland and the NFA was to pay the same depending upon its quality. The fact that the exact number of cavans of palay to be delivered has not been determined does not affect the perfection of the contract. Article 1349 of the New Civil Code provides: ". . .. The fact that the quantity is not determinate shall not be an obstacle to the existence of the contract, provided it is possible to determine the same, without the need of a new contract between the parties." In this case, there was no need for NFA and Soriano to enter into a new contract to determine the exact number of cavans of palay to be sold. Soriano can deliver so much of his produce as long as it does not exceed 2,640 cavans. In its memorandum (pp. 66-71, Rollo) dated December 4, 1986, petitioners further contend that there was no contract of sale because of the absence of an essential requisite in contracts, namely, consent. It cited Section 1319 of the Civil Code which states: "Consent is manifested by the meeting of the offer and the acceptance of the thing and the cause which are to constitute the contract. ... " Following this line, petitioners contend that there was no consent because there was no acceptance of the 630 cavans of palay in question. The above contention of petitioner is not correct Sale is a consensual contract, " ... , there is perfection when there is consent upon the subject matter and price, even if neither is delivered." (Obana vs. C.A., L-36249, March 29, 1985, 135 SCRA 557, 560) This is provided by Article 1475 of the Civil Code which states: Art. 1475. The contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price. xxx The acceptance referred to which determines consent is the acceptance of the offer of one party by the other and not of the goods delivered as contended by petitioners. From the moment the contract of sale is perfected, it is incumbent upon the parties to comply with their mutual obligations or "the parties may reciprocally demand performance" thereof. (Article 1475, Civil Code, 2nd par.). The reason why NFA initially refused acceptance of the 630 cavans of palay delivered by Soriano is that it (NFA) cannot legally accept the said delivery because Soriano is allegedly not a bona fide farmer. The trial court and the appellate court found that Soriano was a bona fide farmer and therefore, he was qualified to sell palay grains to NFA.

Both courts likewise agree that NFA's refusal to accept was without just cause. The above factual findings which are supported by the record should not be disturbed on appeal. ACCORDINGLY, the instant petition for review is DISMISSED. The assailed decision of the then Intermediate Appellate Court (now Court of Appeals) is affirmed. No costs. _________________________________________________ CORNELIA MATABUENA vs. PETRONILA CERVANTES L-2877 (38 SCRA 284) March 31, 1971 FACTS: In 1956, herein appellants 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.