G.R. No. L-61623 December 26, 1984 PEOPLE'S HOMESITE & HOUSING CORPORATION, petitionerappellant, vs.

COURT OF APPEALS, RIZALINO L. MENDOZA and ADELAIDA R. MENDOZA, respondents-appellees. Manuel M. Lazaro, Pilipinas Arenas Laborte and Antonio M. Brillantes for petitioner PHHC. Tolentino, Cruz, Reyes, Lava and Manuel for private respondents.

The issue is whether there was a perfected sale of Lot 4, with the reduced area, to the Mendozas which they can enforce against the PHHC by an action for specific performance. We hold that there was no perfected sale of Lot 4. It was conditionally or contingently awarded to the Mendozas subject to the approval by the city council of the proposed consolidation subdivision plan and the approval of the award by the valuation committee and higher authorities. The city council did not approve the subdivision plan. The Mendozas were advised in 1961 of the disapproval. In 1964, when the plan with the area of Lot 4 reduced to 2,608.7 square meters was approved, the Mendozas should have manifested in writing their acceptance of the award for the purchase of Lot 4 just to show that they were still interested in its purchase although the area was reduced and to obviate ally doubt on the matter. They did not do so. The PHHC board of directors acted within its rights in withdrawing the tentative award. "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 law governing the form of contracts." (Art. 1475, Civil Code). "Son, sin embargo, excepcion a esta regla los casos en que por virtud de la voluntad de las partes o de la ley, se celebra la venta bajo una condicion suspensiva, y en los cuales no se perfecciona la venta hasta el cumplimiento de la condicion" (4 Castan Tobenas, Derecho Civil Espaol 8th ed. p. 81). "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. (Art. 1181, Civil Code). "Se llama suspensive la condicion de la que depende la perfeccion, o sea el principio del contrato". (9 Giorgi, Teoria de las Obligaciones, p. 57). Under the facts of this case, we cannot say there was a meeting of minds on the purchase of Lot 4 with an area of 2,608.7 square meters at P21 a square meter. The case of Lapinig vs. Court of Appeals, 115 SCRA 213 is not in point because the awardee in that case applied for the purchase of the lot, paid the 10% deposit and a conditional contract to sell was executed in his favor. The PHHC could not re-award that lot to another person. WHEREFORE, the decision of the Appellate Court is reversed and set aside and the judgment of the trial court is affirmed. No costs. SO ORDERED. Makasiar (Chairman), Concepcion, Jr., Abad Santos, Escolin and Cuevas, JJ., concur.

AQUINO, J.: The question in this case is whether the People's Homesite & Housing Corporation bound itself to sell to the Mendoza spouses Lot 4 (Road) Pcs- 4564 of the revised consolidation subdivision plan with an area of 2,6,08.7 (2,503.7) square meters located at Diliman, Quezon City. The PHHC board of directors on February 18, 1960 passed Resolution No. 513 wherein it stated "that subject to the approval of the Quezon City Council of the above-mentioned Consolidation Subdivision Plan, Lot 4. containing 4,182.2 square meters be, as it is hereby awarded to Spouses Rizalino Mendoza and Adelaida Mendoza, at a price of twenty-one pesos (P21.00) per square meter" and "that this award shall be subject to the approval of the OEC (PHHC) Valuation Committee and higher authorities". The city council disapproved the proposed consolidation subdivision plan on August 20, 1961 (Exh. 2). The said spouses were advised by registered mail of the disapproval of the plan (Exh. 2-PHHC). Another subdivision plan was prepared and submitted to the city council for approval. The revised plan, which included Lot 4, with a reduced area of 2,608.7, was approved by the city council on February 25, 1964 (Exh. H). On April 26, 1965 the PHHC board of directors passed a resolution recalling all awards of lots to persons who failed to pay the deposit or down payment for the lots awarded to them (Exh. 5). The Mendozas never paid the price of the lot nor made the 20% initial deposit. On October 18, 1965 the PHHC board of directors passed Resolution No. 218, withdrawing the tentative award of Lot 4 to the Mendoza spouses under Resolution No. 513 and re-awarding said lot jointly and in equal shares to Miguela Sto. Domingo, Enrique Esteban, Virgilio Pinzon, Leonardo Redublo and Jose Fernandez, subject to existing PHHC rules and regulations. The prices would be the same as those of the adjoining lots. The awardees were required to deposit an amount equivalent to 20% of the total selling price (Exh. F). The five awardees made the initial deposit. The corresponding deeds of sale were executed in their favor. The subdivision of Lot 4 into five lots was approved by the city council and the Bureau of Lands. On March 16, 1966 the Mendoza spouses asked for reconsideration of the withdrawal of the previous award to them of Lot 4 and for the cancellation of the re-award of said lot to Sto. Domingo and four others. Before the request could be acted upon, the spouses filed the instant action for specific performance and damages. The trial court sustained the withdrawal of the award. The Mendozas appealed. The Appellate Court reversed that decision and declared void the re-award of Lot 4 and the deeds of sale and directed the PHHC to sell to the Mendozas Lot 4 with an area of 2,603.7 square meters at P21 a square meter and pay to them P4,000 as attorney's fees and litigation expenses. The PHHC appealed to this Court.

G.R. No. L-55665 February 8, 1989 DELTA MOTOR CORPORATION, petitioner, vs. EDUARDA SAMSON GENUINO, JACINTO S. GENUINO, Jr., VICTOR S. GENUINO, HECTOR S. GENUINO, EVELYN S. GENUINO, and The COURT OF APPEALS, respondents. Alcasid, Villanueva & Associates for petitioner. Luna, Puruganan, Sison & Ongkiko for respondents.

subject to our review and confirmation. [Exh. "A" and "C"; Exhs. "l" and "2".] CORTES, J.: Petitioner, through this petition for review by certiorari, appeals from the decision of respondent appellate court in CA-G.R. No. 59848-R entitled "Eduarda Samson Genuino, et al. v. Delta Motor Corporation" promulgated on October 27, 1980. The facts are as follows: Petitioner Delta Motor Corporation (hereinafter referred to as Delta) is a corporation duly organized and existing under Philippine laws. On the other hand, private respondents are the owners of an iceplant and cold storage located at 1879 E. Rodriguez Sr. Avenue, Quezon City doing business under the name "Espaa Extension Iceplant and Cold Storage." In July 1972, two letter-quotations were submitted by Delta to Hector Genuino offering to sell black iron pipes. T The letter dated July 3, 1972 quoted Delta's selling price for 1,200 length of black iron pipes schedule 40, 2" x 20' including delivery at P66,000.00 with the following terms of payment: a. 20% of the net contract price or P13,200.00 will be due and payable upon signing of the contract papers. b. 20% of the net contract price or P13,200.00 will be due and payable before commencement of delivery. c. The balance of 60% of the net contract price or P39,600.00 with 8% financing charge per annum will be covered by a Promissory Note bearing interest at the rate of 14% per annum and payable in TWELVE (12) equal monthly installment (sic), the first of which will become due thirty (30) days after the completion of delivery. Additional 14% will be charged for all delayed payments. [Exh. "A"; Exh. 1.] The second letter-quotation dated July 18, 1972 provides for the selling price of 150 lengths of black iron pipes schedule 40, 1 1/4" x 20' including delivery at P5,400.00 with the following terms of payment: a. 50% of the net contract price or P 2,700.00 will be due and payable upon signing of the contract papers. b. 50% of the net contract price or P 2,700.00 will be due and payable before commencement of delivery. [Exh. "C"; Exh. "2".] Both letter-quotations also contain the following stipulations as to delivery and price offer: DELIVERY Ex-stock subject to prior sales. xxx xxx xxx Our price offer indicated herein shall remain firm within a period of thirty (30) days from the date hereof. Any order placed after said period will be Hector Genuino was agreeable to the offers of Delta hence, he manifested his conformity thereto by signing his name in the space provided on July 17, 1972 and July 24, 1972 for the first and second letter-quotations, respectively. It is undisputed that private respondents made initial payments on both contracts for the first contract, P13,200.00 and, for the second, P2,700.00 for a total sum of P15,900.00 on July 28, 1972 (Exhs. "B" and "D"]. Likewise unquestionable are the following. the non-delivery of the iron pipes by Delta; the non-payment of the subsequent installments by the Genuinos; and the non-execution by the Genuinos of the promissory note called for by the first contract. The evidence presented in the trial court also showed that sometime in July 1972 Delta offered to deliver the iron pipes but the Genuinos did not accept the offer because the construction of the ice plant building where the pipes were to be installed was not yet finished. Almost three years later, on April 15, 1975, Hector Genuino, in behalf of Espaa Extension Ice Plant and Cold Storage, asked Delta to deliver the iron pipes within thirty (30) days from its receipt of the request. At the same time private respondents manifested their preparedness to pay the second installment on both contracts upon notice of Delta's readiness to deliver. Delta countered that the black iron pipes cannot be delivered on the prices quoted as of July 1972. The company called the attention of the Genuinos to the stipulation in their two (2) contracts that the quoted prices were good only within thirty (30) days from date of offer. Whereupon Delta sent new price quotations to the Genuinos based on its current price of black iron pipes, as follows: P241,800.00 for 1,200 lengths of black iron pjpes schedule 40, 2" x 20' [Exh. "G-1".] P17,550.00 for 150 lengths of black iron pipes schedule 40, 1 1/4" x 20' [Exh. "G-2".] The Genuinos rejected the new quoted prices and instead filed a complaint for specific performance with damages seeking to compel Delta to deliver the pipes. Delta, in its answer prayed for rescission of the contracts pursuant to Art. 1191 of the New Civil Code. The case was docketed as Civil Case No. Q-20120 of the then Court of First Instance of Rizal, Branch XVIII, Quezon City. After trial the Court of First Instance ruled in favor of Delta,the dispositive portion of its decision reading as follows: WHEREFORE, premises considered, judgment is rendered: 1. Declaring the contracts, Annexes "A" and "C" of the complaint rescinded; 2. Ordering defendant to refund to plaintiffs the sum of P15,900.00 delivered by the latter as downpayments on the aforesaid contracts; 3. Ordering plaintiffs to pay defendant the sum of P10,000.00 as attorney's fees; and, 4. To pay the costs of suit. [CFI Decision, pp. 13-14; Rollo, pp. 53-54.]

On appeal, the Court of Appeals reversed and ordered private respondents to make the payments specified in "Terms of Payment (b)" of the contracts and to execute the promissory note required in the first contract and thereafter, Delta should immediately commence delivery of the black iron pipes.* [CA Decision, p. 20; Rollo, p. 75.] The Court of Appeals cited two main reasons why it reversed the trial court, namely: 1. As Delta was the one who prepared the contracts and admittedly, it had knowledge of the fact that the black iron pipes would be used by the Genuinos in their cold storage plant which was then undergoing construction and therefore, would require sometime before the Genuinos would require delivery, Delta should have included in said contracts a deadline for delivery but it did not. As a matter of fact neither did it insist on delivery when the Genuinos refused to accept its offer of delivery. [CA Decision, pp. 16-17; Rollo, pp. 71-72.] 2. Delta's refusal to make delivery in 1975 unless the Genuinos pay a price very much higher than the prices it previously quoted would mean an amendment of the contracts. It would be too unfair for the plaintiffs if they will be made to bear the increase in prices of the black iron pipes when they had already paid quite an amount for said items and defendant had made use of the advance payments. That would be unjust enrichment on the part of the defendant at the expense of the plaintiffs and is considered an abominable business practice. [CA Decision, pp. 18-19; Rollo, pp. 73-74.] Respondent court denied Delta's motion for reconsideration hence this petition for review praying for the reversal of the Court of Appeals decision and affirmance of that of the trial court. Petitioner argues that its obligation to deliver the goods under both contracts is subject to conditions required of private respondents as vendees. These conditions are: payment of 20% of the net contract price or P13,200.00 and execution of a promissory note called for by the first contract; and payment of 50% of the net contract price or P2,700.00 under the second contract. These, Delta posits, are suspensive conditions and only upon their performance or compliance would its obligation to deliver the pipes arise [Petition, pp. 9-12; Rollo, pp. 1720.] Thus, when private respondents did not perform their obligations; when they refused to accept petitioner's offer to deliver the goods; and, when it took them three (3) long years before they demanded delivery of the iron pipes that in the meantime, great and sudden fluctuation in market prices have occurred; Delta is entitled to rescind the two (2) contracts. Delta relies on the following provision of law on rescission: Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him. The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible. The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period. This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with articles 1385 and 1388 and the Mortgage Law.

In construing Art. 1191, the Supreme Court has stated that, "[r]escission will be ordered only where the breach complained of is substantial as to defeat the object of the parties in entering into the agreement. It will not be granted where the breach is slight or casual." [Phil. Amusement Enterprises, Inc. v. Natividad, G.R. No. L-21876, September 29, 1967, 21 SCRA 284, 290.] Further, "[t]he question of whether a breach of a contract is substantial depends upon the attendant circumstances." [Universal Food Corporation v. Court of Appeals, G. R. No. L-29155, May 13,1970,33 SCRA 1, 18]. In the case at bar, the conduct of Delta indicates that the Genuinos' nonperformance of its obligations was not a substantial breach, let alone a breach of contract, as would warrant rescission. Firstly, it is undisputed that a month after the execution of the two (2) contracts, Delta's offer to deliver the black iron pipes was rejected by the Genuinos who were "not ready to accept delivery because the cold storage rooms have not been constructed yet. Plaintiffs (private respondents herein) were short-funded, and did not have the space to accommodate the pipes they ordered" [CFI Decision, p. 9; Rollo, p. 49]. Given this answer to its offer, Delta did not do anything. As testified by Crispin Villanueva, manager of the Technical Service department of petitioner: Q You stated that you sent a certain Evangelista to the Espaa Extension and Cold Storage to offer the delivery subject matter of the contract and then you said that Mr. Evangelista reported (sic) to you that plaintiff would not accept delivery, is that correct, as a summary of your statement? A A Yes, sir. Q Now, what did you do in the premises (sic)? A Yes, well, we take the word of Mr. Evangelista. We could not deliver the said black iron pipes, because as per information the Ice Plant is not yet finished. Q Did you not report that fact to ... any other defendant-officials of the Delta Motor Corporation? A No. Q And you did not do anything after that? A Because taking the word of my Engineer we did not do anything. [TSN, December 8, 1975, pp. 18-19.] xxx xxx xxx And secondly, three (3) years later when the Genuinos offered to make payment Delta did not raise any argument but merely demanded that the quoted prices be increased. Thus, in its answer to private respondents' request for delivery of the pipes, Delta countered: Thank you for your letter dated April 15, 1975, requesting for delivery of Black Iron pipes;.

We regret to say, however, that we cannot base our price on our proposals dated July 3 and July 18, 1972 as per the following paragraph quoted on said proposal: Our price offer indicated herein shall remain firm within a period of thirty (30) days from the date hereof. Any order placed after said period will be subject to our review and confirmation. We are, therefore, enclosing our re-quoted proposal based on our current price. [Exh. "G".] Moreover, the power to rescind under Art. 1191 is not absolute. "[T]he act of a party in treating a contract as cancelled or resolved on account of infractions by the other contracting party must be made known to the other and is always provisional, being ever subject to scrutiny and review by the proper court." [University of the Phils. v. De los Angeles, G. R. No. L-28602, September 29, 1970, 35 SCRA 102, 107; Emphasis supplied.] In the instant case, Delta made no manifestation whatsoever that it had opted to rescind its contracts with f-he Genuinos. It only raised rescission as a defense when it was sued for specific performance by private respondents. Further, it would be highly inequitable for petitioner Delta to rescind the two (2) contracts considering the fact that not only does it have in its possession and ownership the black iron pipes, but also the P15,900.00 down payments private respondents have paid. And if petitioner Delta claims the right to rescission, at the very least, it should have offered to return the P15,900.00 down payments [See Art. 1385, Civil Code and Hodges v. Granada, 59 Phil. 429 (1934)]. It is for these same reasons that while there is merit in Delta's claim that the sale is subject to suspensive conditions, the Court finds that it has, nevertheless, waived performance of these conditions and opted to go on with the contracts although at a much higher price. Art. 1545 of the Civil Code provides: Art. 1545. Where the obligation of either party to a contract of sale is subject to any condition which is not performed, such party may refuse to proceed with the contract or he may waived performance of the condition. . . . [Emphasis supplied.] Finally, Delta cannot ask for increased prices based on the price offer stipulation in the contracts and in the increase in the cost of goods. Reliance by Delta on the price offer stipulation is misplaced. Said stipulation makes reference to Delta's price offer as remaining firm for thirty (30) days and thereafter, will be subject to its review and confirmation. The offers of Delta, however, were accepted by the private respondents within the thirty (30)-day period. And as stipulated in the two (2) letter-quotations, acceptance of the offer gives rise to a contract between the parties: In the event that this proposal is acceptable to you, please indicate your conformity by signing the space provided herein below which also serves as a contract of this proposal. [Exhs. "A" and "C"; Exhs. "1" and "2".] And as further provided by the Civil Code: Art. 1319. Consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. Art. 1475. The contract of sale is perfected at the moment there is a meeting of minds upon thing

which is the object of the contract and upon the price. Thus, the moment private respondents accepted the offer of Delta, the contract of sale between them was perfected and neither party could change the terms thereof. Neither could petitioner Delta rely on the fluctuation in the market price of goods to support its claim for rescission. As testified to by petitioner's Vice-President of Marketing for the Electronics, Airconditioning and Refrigeration division, Marcelino Caja, the stipulation in the two (2) contracts as to delivery, ex-stock subject to prior sales, means that "the goods have not been delivered and that there are no prior commitments other than the sale covered by the contracts.. . once the offer is accepted, the company has no more option to change the price." [CFI Decision, p. 5; Rollo, p. 45; Emphasis supplied.] Thus, petitioner cannot claim for higher prices for the black iron pipes due to the increase in the cost of goods. Based on the foregoing, petitioner Delta and private respondents Genuinos should comply with the original terms of their contracts. WHEREFORE, the decision of the Court of Appeals is hereby AFFIRMED. SO ORDERED. Fernan, C.J., Gutierrez, Jr., Feliciano and Bidin, JJ., concur.

Footnotes * The Court of Appeals decision was penned by Justice German. Justice de la Fuente wrote a separate concurring opinion. Justice Cenzon concurred both with Justice German's decision and Justice de la Fuente's opinion. Justice Gancayco, however, wrote a separate dissenting opinion to which Justice Patajo concurred.

G.R. No. L-59266 February 29, 1988 SILVESTRE DIGNOS and ISABEL LUMUNGSOD, petitioners, vs. HON. COURT OF APPEALS and ATILANO G. JABIL, respondents.

BIDIN, J.: This is a petition for review on certiorari seeking the reversal of the: (1) Decision * of the 9th Division, Court of Appeals dated July 31,1981, affirming with modification the Decision, dated August 25, 1972 of the Court of First Instance ** of Cebu in civil Case No. 23-L entitled Atilano G. Jabil vs. Silvestre T. Dignos and Isabela Lumungsod de Dignos and Panfilo Jabalde, as Attorney-in-Fact of Luciano Cabigas and Jovita L. de Cabigas; and (2) its Resolution dated December 16, 1981, denying defendant-appellant's (Petitioner's) motion for reconsideration, for lack of merit. The undisputed facts as found by the Court of Appeals are as follows:

The Dignos spouses were owners of a parcel of land, known as Lot No. 3453, of the cadastral survey of Opon, Lapu-Lapu City. On June 7, 1965, appellants (petitioners) Dignos spouses sold the said parcel of land to plaintiff-appellant (respondent Atilano J. Jabil) for the sum of P28,000.00, payable in two installments, with an assumption of indebtedness with the First Insular Bank of Cebu in the sum of P12,000.00, which was paid and acknowledged by the vendors in the deed of sale (Exh. C) executed in favor of plaintiff-appellant, and the next installment in the sum of P4,000.00 to be paid on or before September 15, 1965. On November 25, 1965, the Dignos spouses sold the same land in favor of defendants spouses, Luciano Cabigas and Jovita L. De Cabigas, who were then U.S. citizens, for the price of P35,000.00. A deed of absolute sale (Exh. J, also marked Exh. 3) was executed by the Dignos spouses in favor of the Cabigas spouses, and which was registered in the Office of the Register of Deeds pursuant to the provisions of Act No. 3344. As the Dignos spouses refused to accept from plaintiff-appellant the balance of the purchase price of the land, and as plaintiff- appellant discovered the second sale made by defendants-appellants to the Cabigas spouses, plaintiff-appellant brought the present suit. (Rollo, pp. 27-28) After due trial, the Court of first Instance of Cebu rendered its Decision on August 25,1972, the decretal portion of which reads: WHEREFORE, the Court hereby declares the deed of sale executed on November 25, 1965 by defendant Isabela L. de Dignos in favor of defendant Luciano Cabigas, a citizen of the United States of America, null and void ab initio, and the deed of sale executed by defendants Silvestre T. Dignos and Isabela Lumungsod de Dignos not rescinded. Consequently, the plaintiff Atilano G. Jabil is hereby ordered to pay the sum, of Sixteen Thousand Pesos (P16,000.00) to the defendants-spouses upon the execution of the Deed of absolute Sale of Lot No. 3453, Opon Cadastre and when the decision of this case becomes final and executory. The plaintiff Atilano G. Jabil is ordered to reimburse the defendants Luciano Cabigas and Jovita L. de Cabigas, through their attorney-in-fact, Panfilo Jabalde, reasonable amount corresponding to the expenses or costs of the hollow block fence, so far constructed. It is further ordered that defendants-spouses Silvestre T. Dignos and Isabela Lumungsod de Dignos should return to defendants-spouses Luciano Cabigas and Jovita L. de Cabigas the sum of P35,000.00, as equity demands that nobody shall enrich himself at the expense of another. The writ of preliminary injunction issued on September 23, 1966, automatically becomes permanent in virtue of this decision. With costs against the defendants. From the foregoing, the plaintiff (respondent herein) and 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 mid-October 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. SO ORDERED. Fernan (Chairman), Gutierrez, Jr., Feliciano and Cortes, JJ., concur.

A day or so after the announcement, Alfonso Flores and his wife, accompanied by a broker, offered a parcel of land measuring 1,952 square meters. Located in Barangay San Dionisio, Paraaque, Metro Manila, the lot was covered by TCT No. 361402 in the name of private respondent Enriqueta Chua vda. de Ongsiong. Petitioner visited the property and, except for the presence of squatters in the area, he found the place suitable for a central warehouse. Later, the Flores spouses called on petitioner with a proposal that should he advance the amount of P50,000.00 which could be used in taking up an ejectment case against the squatters, private respondent would agree to sell the property for only P800.00 per square meter. Petitioner expressed his concurrence. On 09 June 1988, a contract, denominated "Deed of Conditional Sale," was executed between petitioner and private respondent. The simply-drawn contract read: DEED OF CONDITIONAL SALE KNOW ALL MEN BY THESE PRESENTS: This Contract, made and executed in the Municipality of Makati, Philippines this 9th day of June, 1988 by and between: ENRIQUETA CHUA VDA. DE ONGSIONG, of legal age, widow, Filipino and residing at 105 Simoun St., Quezon City, Metro Manila, hereinafter referred to as the VENDOR; -andVIRGILIO R. ROMERO, married to Severina L. Lat, of Legal age, Filipino, and residing at 110 San Miguel St., Plainview Subd., Mandaluyong Metro Manila, hereinafter referred to as the VENDEE: W I T N E S S E T H : That WHEREAS, the VENDOR is the owner of One (1) parcel of land with a total area of ONE THOUSAND NINE HUNDRED FIFTY TWO (1,952) SQUARE METERS, more or less, located in Barrio San Dionisio, Municipality of Paraaque, Province of Rizal, covered by TCT No. 361402 issued by the Registry of Deeds of Pasig and more particularly described as follows: xxx xxx xxx WHEREAS, the VENDEE, for (sic) has offered to buy a parcel of land and the VENDOR has accepted the offer, subject to the terms and conditions hereinafter stipulated: NOW, THEREFORE, for and in consideration of the sum of ONE MILLION FIVE HUNDRED SIXTY ONE THOUSAND SIX HUNDRED PESOS (P1,561,600.00) ONLY, Philippine Currency, payable by VENDEE to in to (sic) manner set forth, the VENDOR agrees to sell to the VENDEE, their heirs, successors, administrators, executors, assign, all her rights, titles and interest in and to the property mentioned in the FIRST WHEREAS CLAUSE, subject to the following terms and conditions:

Footnotes * Penned by Justice Elias B. Asuncion and concurred by Justices Porfirio V. Sison and Vicente V. Mendoza. ** Penned by Judge Ramon E. Nazareno.

G.R. No. 107207 November 23, 1995 VIRGILIO R. ROMERO, petitioner, vs. HON. COURT OF APPEALS and ENRIQUETA CHUA VDA. DE ONGSIONG, respondents.

VITUG, J.: The parties pose this question: May the vendor demand the rescission of a contract for the sale of a parcel of land for a cause traceable to his own failure to have the squatters on the subject property evicted within the contractually-stipulated period? Petitioner Virgilio R. Romero, a civil engineer, was engaged in the business of production, manufacture and exportation of perlite filter aids, permalite insulation and processed perlite ore. In 1988, petitioner and his foreign partners decided to put up a central warehouse in Metro Manila on a land area of approximately 2,000 square meters. The project was made known to several freelance real estate brokers.

1. That the sum of FIFTY THOUSAND PESOS (P50,000.00) ONLY Philippine Currency, is to be paid upon signing and execution of this instrument. 2. The balance of the purchase price in the amount of ONE MILLION FIVE HUNDRED ELEVEN THOUSAND SIX HUNDRED PESOS (P1,511,600.00) ONLY shall be paid 45 days after the removal of all squatters from the above described property. 3. Upon full payment of the overall purchase price as aforesaid, VENDOR without necessity of demand shall immediately sign, execute, acknowledged (sic) and deliver the corresponding deed of absolute sale in favor of the VENDEE free from all liens and encumbrances and all Real Estate taxes are all paid and updated. It is hereby agreed, covenanted and stipulated by and between the parties hereto that if after 60 days from the date of the signing of this contract the VENDOR shall not be able to remove the squatters from the property being purchased, the downpayment made by the buyer shall be returned/reimbursed by the VENDOR to the VENDEE. That in the event that the VENDEE shall not be able to pay the VENDOR the balance of the purchase price of ONE MILLION FIVE HUNDRED ELEVEN THOUSAND SIX HUNDRED PESOS (P1,511,600.00) ONLY after 45 days from written notification to the VENDEE of the removal of the squatters from the property being purchased, the FIFTY THOUSAND PESOS (P50,000.00) previously paid as downpayment shall be forfeited in favor of the VENDOR. Expenses for the registration such as registration fees, documentary stamp, transfer fee, assurances and such other fees and expenses as may be necessary to transfer the title to the name of the VENDEE shall be for the account of the VENDEE while capital gains tax shall be paid by the VENDOR. IN WITNESS WHEREOF, the parties hereunto signed those (sic) presents in the City of Makati MM, Philippines on this 9th day of June, 1988. (Sgd.) (Sgd.) VIRGILIO R. ROMERO ENRIQUETA CHUA VDA. DE ONGSIONG Vendee Vendor SIGNED IN THE PRESENCE OF:

(Sgd.) (Sgd.) Rowena C. Ongsiong Jack M. Cruz 1 Alfonso Flores, in behalf of private respondent, forthwith received and acknowledged a check for P50,000.00 2from petitioner. 3 Pursuant to the agreement, private respondent filed a complaint for ejectment (Civil Case No. 7579) against Melchor Musa and 29 other squatter families with the Metropolitan Trial Court of Paraaque. A few months later, or on 21 February 1989, judgment was rendered ordering the defendants to vacate the premises. The decision was handed down beyond the 60-day period (expiring 09 August 1988) stipulated in the contract. The writ of execution of the judgment was issued, still later, on 30 March 1989. In a letter, dated 07 April 1989, private respondent sought to return the P50,000.00 she received from petitioner since, she said, she could not "get rid of the squatters" on the lot. Atty. Sergio A.F. Apostol, counsel for petitioner, in his reply of 17 April 1989, refused the tender and stated:. Our client believes that with the exercise of reasonable diligence considering the favorable decision rendered by the Court and the writ of execution issued pursuant thereto, it is now possible to eject the squatters from the premises of the subject property, for which reason, he proposes that he shall take it upon himself to eject the squatters, provided, that expenses which shall be incurred by reason thereof shall be chargeable to the purchase price of the land. 4 Meanwhile, the Presidential Commission for the Urban Poor ("PCUD"), through its Regional Director for Luzon, Farley O. Viloria, asked the Metropolitan Trial Court of Paraaque for a grace period of 45 days from 21 April 1989 within which to relocate and transfer the squatter families. Acting favorably on the request, the court suspended the enforcement of the writ of execution accordingly. On 08 June 1989, Atty. Apostol reminded private respondent on the expiry of the 45-day grace period and his client's willingness to "underwrite the expenses for the execution of the judgment and ejectment of the occupants." 5 In his letter of 19 June 1989, Atty. Joaquin Yuseco, Jr., counsel for private respondent, advised Atty. Apostol that the Deed of Conditional Sale had been rendered null and void by virtue of his client's failure to evict the squatters from the premises within the agreed 60-day period. He added that private respondent had "decided to retain the property." 6 On 23 June 1989, Atty. Apostol wrote back to explain: The contract of sale between the parties was perfected from the very moment that there was a meeting of the minds of the parties upon the subject lot and the price in the amount of P1,561,600.00. Moreover, the contract had already been partially fulfilled and executed upon receipt of the downpayment of your client. Ms. Ongsiong is precluded from rejecting its binding effects relying upon her inability to eject the squatters from the premises of subject property during the agreed period. Suffice it to state that, the provision of the Deed of Conditional Sale do not grant her the option or prerogative to rescind the contract and to retain the property should she fail to comply with the obligation she has assumed under the contract. In fact, a perusal of the terms and conditions of the contract clearly shows that the right to rescind the contract and to demand the return/reimbursement of the downpayment is granted to our client for his protection.

Instead, however, of availing himself of the power to rescind the contract and demand the return, reimbursement of the downpayment, our client had opted to take it upon himself to eject the squatters from the premises. Precisely, we refer you to our letters addressed to your client dated April 17, 1989 and June 8, 1989. Moreover, it is basic under the law on contracts that the power to rescind is given to the injured party. Undoubtedly, under the circumstances, our client is the injured party. Furthermore, your client has not complied with her obligation under their contract in good faith. It is undeniable that Ms. Ongsiong deliberately refused to exert efforts to eject the squatters from the premises of the subject property and her decision to retain the property was brought about by the sudden increase in the value of realties in the surrounding areas. Please consider this letter as a tender of payment to your client and a demand to execute the absolute Deed of Sale. 7 A few days later (or on 27 June 1989), private respondent, prompted by petitioner's continued refusal to accept the return of the P50,000.00 advance payment, filed with the Regional Trial Court of Makati, Branch 133, Civil Case No. 89-4394 for rescission of the deed of "conditional" sale, plus damages, and for the consignation of P50,000.00 cash. Meanwhile, on 25 August 1989, the Metropolitan Trial Court issued an alias writ of execution in Civil Case No. 7579 on motion of private respondent but the squatters apparently still stayed on. Back to Civil Case No. 89-4394, on 26 June 1990, the Regional Trial Court of Makati 8 rendered decision holding that private respondent had no right to rescind the contract since it was she who "violated her obligation to eject the squatters from the subject property" and that petitioner, being the injured party, was the party who could, under Article 1191 of the Civil Code, rescind the agreement. The court ruled that the provisions in the contract relating to (a) the return/reimbursement of the P50,000.00 if the vendor were to fail in her obligation to free the property from squatters within the stipulated period or (b), upon the other hand, the sum's forfeiture by the vendor if the vendee were to fail in paying the agreed purchase price, amounted to "penalty clauses". The court added: This Court is not convinced of the ground relied upon by the plaintiff in seeking the rescission, namely: (1) he (sic) is afraid of the squatters; and (2) she has spent so much to eject them from the premises (p. 6, tsn, ses. Jan. 3, 1990). Militating against her profession of good faith is plaintiffs conduct which is not in accord with the rules of fair play and justice. Notably, she caused the issuance of an alias writ of execution on August 25, 1989 (Exh. 6) in the ejectment suit which was almost two months after she filed the complaint before this Court on June 27, 1989. If she were really afraid of the squatters, then she should not have pursued the issuance of an alias writ of execution. Besides, she did not even report to the police the alleged phone threats from the squatters. To the mind of the Court, the so-called squatter factor is simply factuitous (sic). 9 The lower court, accordingly, dismissed the complaint and ordered, instead, private respondent to eject or cause the ejectment of the squatters from the property and to execute the absolute deed of conveyance upon payment of the full purchase price by petitioner.

Private respondent appealed to the Court of Appeals. On 29 May 1992, the appellate court rendered its decision. 10 It opined that the contract entered into by the parties was subject to a resolutory condition, i.e., the ejectment of the squatters from the land, the non-occurrence of which resulted in the failure of the object of the contract; that private respondent substantially complied with her obligation to evict the squatters; that it was petitioner who was not ready to pay the purchase price and fulfill his part of the contract, and that the provision requiring a mandatory return/reimbursement of the P50,000.00 in case private respondent would fail to eject the squatters within the 60-day period was not a penal clause. Thus, it concluded. WHEREFORE, the decision appealed from is REVERSED and SET ASIDE, and a new one entered declaring the contract of conditional sale dated June 9, 1988 cancelled and ordering the defendant-appellee to accept the return of the downpayment in the amount of P50,000.00 which was deposited in the court below. No pronouncement as to costs. 11 Failing to obtain a reconsideration, petitioner filed this petition for review on certiorari raising issues that, in fine, center on the nature of the contract adverted to and the P50,000.00 remittance made by petitioner. A perfected contract of sale may either be absolute or conditional 12 depending on whether the agreement is devoid of, or subject to, any condition imposed on the passing of title of the thing to be conveyed or on the obligation of a party thereto. When ownership is retained until the fulfillment of a positive condition the breach of the condition will simply prevent the duty to convey title from acquiring an obligatory force. If the condition is imposed on an obligationof a party which is not complied with, the other party may either refuse to proceed or waive said condition (Art. 1545, Civil Code). Where, of course, the condition is imposed upon the perfection of the contract itself, the failure of such condition would prevent the juridical relation itself from coming into existence. 13 In determining the real character of the contract, the title given to it by the parties is not as much significant as its substance. For example, a deed of sale, although denominated as a deed of conditional sale, may be treated as absolute in nature, if title to the property sold is not reserved in the vendor or if the vendor is not granted the right to unilaterally rescind the contract predicated on the fulfillment or non-fulfillment, as the case may be, of the prescribed condition. 14 The term "condition" in the context of a perfected contract of sale pertains, in reality, to the compliance by one party of an undertaking the fulfillment of which would beckon, in turn, the demandability of the reciprocal prestation of the other party. The reciprocal obligations referred to would normally be, in the case of vendee, the payment of the agreed purchase price and, in the case of the vendor, the fulfillment of certain express warranties (which, in the case at bench is the timely eviction of the squatters on the property). It would be futile to challenge the agreement here in question as not being a duly perfected contract. A sale is at once perfected when a person (the seller) obligates himself, for a price certain, to deliver and to transfer ownership of a specified thing or right to another (the buyer) over which the latter agrees. 15 The object of the sale, in the case before us, was specifically identified to be a 1,952-square meter lot in San Dionisio, Paraaque, Rizal, covered by Transfer Certificate of Title No. 361402 of the Registry of Deeds for Pasig and therein technically described. The purchase price was fixed at P1,561,600.00, of which P50,000.00 was to be paid upon the execution of the document of sale and the balance of P1,511,600.00 payable "45 days after the removal of all squatters from the above described property." From the moment the contract is perfected, the parties are bound not only to the fulfillment of what has been expressly stipulated but also to all the consequences which, according to their nature, may be in keeping

with good faith, usage and law. Under the agreement, private respondent is obligated to evict the squatters on the property. The ejectment of the squatters is a condition the operative act of which sets into motion the period of compliance by petitioner of his own obligation, i.e., to pay the balance of the purchase price. Private respondent's failure "to remove the squatters from the property" within the stipulated period gives petitioner the right to either refuse to proceed with the agreement or waive that condition in consonance with Article 1545 of the Civil Code. 16 This option clearly belongs to petitioner and not to private respondent. We share the opinion of the appellate court that the undertaking required of private respondent does not constitute a "potestative condition dependent solely on his will" that might, otherwise, be void in accordance with Article 1182 of the Civil Code 17 but a "mixed" condition "dependent not on the will of the vendor alone but also of third persons like the squatters and government agencies and personnel concerned." 18 We must hasten to add, however, that where the so-called "potestative condition" is imposed not on the birth of the obligation but on its fulfillment, only the obligation is avoided, leaving unaffected the obligation itself. 19 In contracts of sale particularly, Article 1545 of the Civil Code, aforementioned, allows the obligee to choose between proceeding with the agreement or waiving the performance of the condition. It is this provision which is the pertinent rule in the case at bench. Here, evidently, petitioner has waived the performance of the condition imposed on private respondent to free the property from squatters. 20 In any case, private respondent's action for rescission is not warranted. She is not the injured party. 21 The right of resolution of a party to an obligation under Article 1191 of the Civil Code is predicated on a breach of faith by the other party that violates the reciprocity between them. 22 It is private respondent who has failed in her obligation under the contract. Petitioner did not breach the agreement. He has agreed, in fact, to shoulder the expenses of the execution of the judgment in the ejectment case and to make arrangements with the sheriff to effect such execution. In his letter of 23 June 1989, counsel for petitioner has tendered payment and demanded forthwith the execution of the deed of absolute sale. Parenthetically, this offer to pay, having been made prior to the demand for rescission, assuming for the sake of argument that such a demand is proper under Article 1592 23 of the Civil Code, would likewise suffice to defeat private respondent's prerogative to rescind thereunder. There is no need to still belabor the question of whether the P50,000.00 advance payment is reimbursable to petitioner or forfeitable by private respondent, since, on the basis of our foregoing conclusions, the matter has ceased to be an issue. Suffice it to say that petitioner having opted to proceed with the sale, neither may petitioner demand its reimbursement from private respondent nor may private respondent subject it to forfeiture. WHEREFORE, the questioned decision of the Court of Appeals is hereby REVERSED AND SET ASIDE, and another is entered ordering petitioner to pay private respondent the balance of the purchase price and the latter to execute the deed of absolute sale in favor of petitioner. No costs. SO ORDERED. Feliciano, Romero, Melo and Panganiban, JJ., concur.

THE COURT OF APPEALS, CONCEPCION D. ALCARAZ, and RAMONA PATRICIA ALCARAZ, assisted by GLORIA F. NOEL as attorney-in-fact, 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 P1,190,000.00 Balance Down payment

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;

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. 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), plaintiffappellee 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 intervenorappellant 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 above-stated". The sale was still subject to this suspensive condition. (Emphasis supplied.) (Rollo, p. 16) Petitioners themselves recognized that they entered into a contract of sale subject to a suspensive condition. Only, they contend, continuing in the same paragraph, that: . . . Had petitioners-sellers not complied with this condition of first transferring the title to the property under their names, there could be no perfected contract of sale. (Emphasis supplied.) (Ibid.) not aware that they 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 petitionersellers' 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 cobuyer is not squarely raised in the instant petition, nor in such assumption disputed between mother and daughter. Thus, We will not touch this issue and no longer disturb the lower courts' ruling on this point. WHEREFORE, premises considered, the instant petition is hereby DISMISSED and the appealed judgment AFFIRMED. SO ORDERED. Narvasa, C.J., Davide, Jr. and Francisco, JJ., concur. Panganiban, J., took no part.

WHEREAS, UMCUPAI, an association duly registered with the SEC (Registration No. 403410) and duly accredited with the Presidential Commission for the Urban Poor, has approached [SFC] and negotiated for the ACQUISITION of the above-described property of [SFC]; WHEREAS, in pursuance to the negotiations between [SFC] and UMCUPAI, the latter has taken steps with the proper government authorities particularly the Mayor of Zamboanga City and its City Housing Board which will act as "Originator" in the acquisition of said property which will enable UMCUPAI to avail of its Community Mortgage Program; WHEREAS, it appears that UMCUPAI will ultimately apply with the Home Mortgage and Finance Corporation for a loan to pay the acquisition price of said land; WHEREAS, as one of the steps required by the government authorities to initiate proceedings is to receive a formal manifestation of Intent to Sell from [SFC]; NOW, THEREFORE, for and in consideration of the foregoing premises, the parties hereto agree as follows: 1. [SFC] expressly declares its intention to sell Lot No. 300 with an area of 61,736 square meters situated in Lower Calarian, Zamboanga City and covered by TCT No. 576 of the Registry of Deeds of Zamboanga City to UMCUPAI at the price of P105.00 per square meter, free from all liens, charges and encumbrances; 2. That UMCUPAI hereby expressly declares its intention to buy the aforesaid property and shall endeavor to raise the necessary funds to acquire same at the abovementioned price of P105.00 per square meter; 3. That the Absolute Deed of Sale shall be executed, signed and delivered together with the title and all other pertinent documents upon full payment of the purchase price; 4. That [SFC] shall pay the capital gains tax and documentary stamps, Registration, transfer tax and other expenses shall be paid by the UMCUPAI.3 However, the intended sale was derailed due to UMCUPAIs inability to secure the loan from NHMF as not all its members occupying Lot No. 300 were willing to join the undertaking. Intent on buying the subject property, UMCUPAI, in a series of conferences with SFC, proposed the subdivision of Lot No. 300 to allow the squatter-occupants to purchase a smaller portion thereof. Consequently, sometime in December 1994, Lot No. 300 was subdivided into three (3) parts covered by separate titles: 1. Lot No. 300-A with an area of 41,460 square meters under TCT No. T-117,448; 2. Lot No. 300-B with an area of 1,405 square meters under TCT No. T-117,449; and 3. Lot No. 300-C with an area of 18,872 square meters under TCT No. T-117,450. On January 11, 1995, UMCUPAI purchased Lot No. 300-A for P4,350,801.58. In turn, Lot No. 300-B was constituted as road right of way and donated by SFC to the local government. UMCUPAI failed to acquire Lot No. 300-C for lack of funds. On March 5, 1995, UMCUPAI negotiated anew with SFC and was given by the latter another three months to purchase Lot No. 300-C. However, despite the extension, the three-month period lapsed with the sale not consummated

G.R. No. 179653

July 31, 2009

UNITED MUSLIM AND CHRISTIAN URBAN POOR ASSOCIATION, INC. represented by its President, MANUEL V. BUEN, Petitioner, vs. BRYC-V DEVELOPMENT CORPORATION represented by its President, BENJAMIN QUIDILLA; and SEA FOODS CORPORATION, represented by its Executive Vice President, VICENTE T. HERNANDEZ,Respondents. DECISION NACHURA, J.: This petition for review on certiorari seeks to set aside the Decision 1 of the Court of Appeals (CA) in CA G.R. CV No. 62557 which affirmed in toto the Decision2 of the Regional Trial Court (RTC), Branch 16, Zamboanga City in Civil Case No. 467(4544). The facts are simple. Respondent Sea Foods Corporation (SFC) is the registered owner of Lot No. 300 located in Lower Calainan, Zamboanga City and covered by Transfer Certificate of Title (TCT) No. 3182 (T-576). Sometime in 1991, petitioner United Muslim and Christian Urban Poor Association, Inc. (UMCUPAI), an organization of squatters occupying Lot No. 300, through its President, Carmen T. Diola, initiated negotiations with SFC for the purchase thereof. UMCUPAI expressed its intention to buy the subject property using the proceeds of its pending loan application with National Home Mortgage Finance Corporation (NHMF). Thereafter, the parties executed a Letter of Intent to Sell by [SFC] and Letter of Intent to Purchase by UMCUPAI, providing, in pertinent part: WHEREAS, [SFC] is the registered owner of a parcel [of] land designated as Lot No. 300 situated in Lower Calarian, Zamboanga City, consisting of 61,736 square meters, and more particularly described in Transfer Certificate of Title No. 576 of the Registry of Deeds of Zamboanga City;

because UMCUPAI still failed to obtain a loan from NHMF. Thus, on July 20, 1995, SFC sold Lot No. 300-C for P2,547,585.00 to respondent BRYC-V Development Corporation (BRYC). A year later, UMCUPAI filed with the RTC a complaint against respondents SFC and BRYC seeking to annul the sale of Lot No. 300-C, and the cancellation of TCT No. T-121,523. UMCUPAI alleged that the sale between the respondents violated its valid and subsisting agreement with SFC embodied in the Letter of Intent. According to UMCUPAI, the Letter of Intent granted it a prior, better, and preferred right over BRYC in the purchase of Lot No. 300-C. In refutation, BRYC said that UMCUPAIs complaint did not state a cause of action since UMCUPAI had unequivocally recognized its ownership of Lot No. 300-C when UMCUPAI likewise sent BRYC a Letter of Intent dated August 18, 1995 imploring BRYC to re-sell the subject lot. In a separate Answer, SFC countered that the Letter of Intent dated October 4, 1991 is not, and cannot be considered, a valid and subsisting contract of sale. On the contrary, SFC averred that the document was drawn and executed merely to accommodate UMCUPAI and enable it to comply with the loan documentation requirements of NHMF. In all, SFC maintained that the Letter of Intent dated October 4, 1991 was subject to a condition i.e., payment of the acquisition price, which UMCUPAI failed to do when it did not obtain the loan from NHMF. After trial, the RTC dismissed UMCUPAIs complaint. The lower court found that the Letter of Intent was executed to facilitate the approval of UMCUPAIs loan from NHMF for its intended purchase of Lot No. 300. According to the RTC, the Letter of Intent was simply SFCs declaration of intention to sell, and not a promise to sell, the subject lot. On the whole, the RTC concluded that the Letter of Intent was neither a promise, nor an option contract, nor an offer contemplated under Article 1319 of the Civil Code, or a bilateral contract to sell and buy. As previously adverted to, the CA, on appeal, affirmed in toto the RTCs ruling. Hence, this recourse by UMCUPAI positing a sole issue for our resolution: IS THE LETTER OF INTENT TO SELL AND LETTER OF INTENT TO BUY A BILATERAL RECIPROCAL CONTRACT WITHIN THE MEANING OR CONTEMPLATION OF ARTICLE 1479, FIRST PARAGRAPH, CIVIL CODE OF THE PHILIPPINES?4 The petition deserves scant consideration. We completely agree with the lower courts rulings. Well-entrenched in jurisprudence is the rule that factual findings of the trial court, especially when affirmed by the appellate court, are accorded the highest degree of respect and are considered conclusive between the parties.5A review of such findings by this Court is not warranted except upon a showing of highly meritorious circumstances, such as: (1) when the findings of a trial court are grounded entirely on speculation, surmises or conjectures; (2) when a lower courts inf erence from its factual findings is manifestly mistaken, absurd or impossible; (3) when there is grave abuse of discretion in the appreciation of facts; (4) when the findings of the appellate court go beyond the issues of the case, or fail to notice certain relevant facts which, if properly considered, would justify a different conclusion; (5) when there is a misappreciation of facts; (6) when the findings of fact are conclusions without mention of the specific evidence on which they are based, or are premised on the absence of evidence, or are contradicted by evidence on record. 6 None of the foregoing exceptions necessitating a reversal of the assailed decision obtain in this instance. UMCUPAI is adamant, however, that the CA erred when it applied the second paragraph of Article 1479 of the Civil Code instead of the first paragraph thereof. UMCUPAI urges us that the first paragraph of Article 1479 contemplates a bilateral reciprocal contract which is binding on the parties. Yet, UMCUPAI is careful not to designate the Letter of Intent as a Contract to Sell. UMCUPAI simply insists that the Letter of Intent is not

a unilateral promise to sell or buy which has to be supported by a consideration distinct from the price for it to be binding on the promissor. In short, UMCUPAI claims that the Letter of Intent did not merely grant the parties the option to respectively sell or buy the subject property. Although not stated plainly, UMCUPAI claims that the Letter of Intent is equivalent to a conditional contract of sale subject only to the suspensive condition of payment of the purchase price. UMCUPAI appears to labor under a cloud of confusion. The first paragraph of Article 1479 contemplates the bilateral relationship of a contract to sell as distinguished from a contract of sale which may be absolute or conditional under Article 14587 of the same code. It reads: 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. The case of Coronel v. Court of Appeals 8 is illuminating and explains the distinction between a conditional contract of sale under Article 1458 of the Civil Code and a bilateral contract to sell under Article 1479 of the same code: 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. However, if the suspensive condition is fulfilled, the contract of sale is thereby perfected, such that if there had already been previous delivery of the property subject of the sale to the buyer, ownership thereto automatically transfers to the buyer by operation of law without any further act having to be performed by the seller. In a contract to sell, upon the fulfillment of the suspensive condition which is the full payment of the purchase price, ownership will not automatically transfer to the buyer although the property may have been previously delivered to him. The prospective seller still has to convey title to the prospective buyer by entering into a contract of absolute sale. It is essential to distinguish between a contract to sell and a conditional contract of sale specially in cases where the subject property is sold by the owner not to the party the seller contracted with, but to a third person, as in the case at bench. In a contract to sell, there being no previous sale of the property, a third person buying such property despite the fulfillment of the suspensive condition such as the full payment of the purchase price, for instance, cannot be deemed a buyer in bad faith and the prospective buyer cannot seek the relief of reconveyance of the property. There is no double sale in such case. Title to the property will transfer to the buyer after registration because there is no defect in the owner-sellers title per se, but the latter, of course, may be sued for damages by the intending buyer. In a conditional contract of sale, however, upon the fulfillment of the suspensive condition, the sale becomes absolute and this will definitely affect the sellers title thereto. In fact, if there had been previous delivery of the subject property, the sellers ownership or title to the property is automatically transferred to the buyer such that, the seller will no longer have any title to transfer to any third person. Applying Article 1544 of the Civil Code, such second buyer of the property who may have had actual or constructive knowledge of such defect in the sellers title, or at least was charged with the obligation to discover such defect, cannot be a

registrant in good faith. Such second buyer cannot defeat the first buyers title. In case a title is issued to the second buyer, the first buyer may seek reconveyance of the property subject of the sale. In the instant case, however, the parties executed a Letter of Intent, which is neither a contract to sell nor a conditional contract of sale. As found by the RTC, and upheld by the CA, the Letter of Intent was executed to accommodate UMCUPAI and facilitate its loan application with NHMF. The 4th and 5th paragraphs of the recitals (whereas clauses) specifically provide: WHEREAS, it appears that UMCUPAI will ultimately apply with the Home Mortgage and Finance Corporation for a loan to pay the acquisition price of said land; WHEREAS, as one of the steps required by the government authorities to initiate proceedings is to receive a formal manifestation of Intent to Sell from [SFC]. Nowhere in the Letter of Intent does it state that SFC relinquishes its title over the subject property, subject only to the condition of complete payment of the purchase price; nor, at the least, that SFC, although expressly retaining ownership thereof, binds itself to sell the property exclusively to UMCUPAI. The Letter of Intent to Buy and Sell is just that a manifestation of SFCs intention to sell the property and UMCUPAIs intention to acquire the same. This is quite obvious from the reference to the execution of an Absolute Deed of Sale in paragraph three9 of the Letter of Intent. As the CA did, we quote with favor the RTCs disquisition: The Decision in this case hinges on the legal interpretation of the Agreement entered into by SFC and UMCUPAI denominated as "Letter of Intent to Sell by Landowner and Letter of Intent to Purchase by United Muslim and Christian Urban Poor Association, Inc." Blacks Law Dictionary says that a Letter of Intent is customarily employed to reduce to writing a preliminary understanding of parties who intend to enter into contract. It is a phrase ordinarily used to denote a brief memorandum of the preliminary understanding of parties who intend to enter into a contract. It is a written statement expressing the intention of the parties to enter into a formal agreement especially a business arrangement or transaction. In their Agreement, SFC expressly declared its "intention" to sell and UMCUPAI expressly declared its "intention" to buy subject property. An intention is a mere idea, goal, or plan. It simply signifies a course of action that one proposes to follow. It simply indicates what one proposes to do or accomplish. A mere "intention" cannot give rise to an obligation to give, to do or not to do (Article 1156, Civil Code). One cannot be bound by what he proposes or plans to do or accomplish. A Letter of Intent is not a contract between the parties thereto because it does not bind one party, with respect to the other, to give something, or to render some service (Art. 1305, Civil Code). xxx xxx xxx

fulfillment of a condition that UMCUPAI could secure a loan to pay for the price of a land. The Letter of Intent/Agreement is not an "option contract" because aside from the fact that it is merely a declaration of intention to sell and to buy subject to the condition that UMCUPAI shall raise the necessary funds to pay the price of the land, and does not contain a binding promise to sell and buy, it is not supported by a distinct consideration distinct from the price of the land intended to be sold and to be bought x x x No option was granted to UMCUPAI under the Letter of Intent/Agreement to buy subject land to the exclusion of all others within a fixed period nor was SFC bound under said Agreement to Sell exclusively to UMCUPAI only the said land within the fixed period.lavvph!l Neither can the Letter of Intent/Agreement be considered a bilateral reciprocal contract to sell and to buy contemplated under Article 1479 of the Civil Code which is reciprocally demandable. The Letter of Intent/Agreement does not contain a PROMISE to sell and to buy subject property. There was no promise or commitment on the part of SFC to sell subject land to UMCUPAI, but merely a declaration of its intention to buy the land, subject to the condition that UMCUPAI could raise the necessary funds to acquire the same at the price of P105.00 per square meter x x x While UMCUPAI succeeded in raising funds to acquire a portion of Lot No. 300-A, it failed to raise funds to pay for Lot No. 300-C. From October 4, 1991 when the Letter of Intent was signed to June, 1995, UMCUPAI had about three (3) years and eight (8) months within which to pursue its intention to buy subject land from SFC. Within that period, UMCUPAI had ample time within which to acquire Lot No. 300-C, as in fact it had acquired Lot No. 300-A which is much bigger than Lot No. 300-C and occupied by more members of UMCUPAI. The failure of UMCUPAI to acquire Lot No. 300-C before it was sold to BRYC-V cannot be blamed on SFC because all that UMCUPAI had to do was to raise funds to pay for Lot No. 300-C which it did with respect to Lot No. 300-A. SFC had nothing to do with SFCs unilateral action through Mrs. Antonina Graciano to "postpone" the processing of the acquisition of Lot No. 300C, which it referred to as Phase II, until after the payment to SFC of the acquisition price for Lot No. 300-A or Phase I x x x WHEREFORE, premises considered, the petition is hereby DENIED. The Decision of the Court of Appeals in CA G.R. CV No. 62557 and the Regional Trial Court in Civil Case No. 467(4544) are AFFIRMED. Costs against the petitioner. SO ORDERED. ANTONIO Associate Justice EDUARDO B. NACHURA

G.R. No. 153820

October 16, 2009

The Letter of Intent/Agreement between SFC and UMCUPAI is merely a written preliminary understanding of the parties wherein they declared their intention to enter into a contract of sale. It is subject to the condition that UMCUPAI will "apply with the Home Mortgage and Finance Corporation for a loan to pay the acquisition price of said land." One of the requirements for such loan is "a formal manifestation of Intent to Sell" from SFC. Thus, the Letter of Intent to Sell fell short of an "offer" contemplated in Article 1319 of the Civil Code because it is not a certain and definite proposal to make a contract but merely a declaration of SFCs intention to enter into a contract. UMCUPAIs declaration of intention to buy is also not certain and definite as it is subject to the condition that UMCUPAI shall endeavor to raise funds to acquire subject land. The acceptance of the offer must be absolute; it must be plain and unconditional. Moreover, the Letter of Intent/Agreement does not contain a promise or commitment to enter into a contract of sale as it merely declared the intention of the parties to enter into a contract of sale upon

DELFIN TAN, Petitioner, vs. ERLINDA C. BENOLIRAO, ANDREW C. BENOLIRAO, ROMANO C. BENOLIRAO, DION C. BENOLIRAO, SPS. REYNALDO TANINGCO and NORMA D. BENOLIRAO, EVELYN T. MONREAL, and ANN KARINA TANINGCO,Respondents. DECISION Is an annotation made pursuant to Section 4, Rule 74 of the Rules of Court (Rules) on a certificate of title covering real property considered an encumbrance on the property? We resolve this question in the petition for review on certiorari1 filed by Delfin Tan (Tan) to assail the decision of the Court of Appeals (CA) in CA-G.R. CV No. 520332and the decision of the Regional Trial Court (RTC)3 that commonly declared the forfeiture of his P200,000.00 down payment as proper, pursuant to the terms of his contract with the respondents.

THE ANTECEDENTS The facts are not disputed. Spouses Lamberto and Erlinda Benolirao and the Spouses Reynaldo and Norma Taningco were the co-owners of a 689-square meter parcel of land (property) located in Tagaytay City and covered by Transfer Certificate of Title (TCT) No. 26423. On October 6, 1992, the co-owners executed a Deed of Conditional Sale over the property in favor of Tan for the price of P1,378,000.00. The deed stated: a) An initial down-payment of TWO HUNDRED (P200,000.00) THOUSAND PESOS, Philippine Currency, upon signing of this contract; then the remaining balance of ONE MILLION ONE HUNDRED SEVENTY EIGHT THOUSAND (P1,178,000.00) PESOS, shall be payable within a period of one hundred fifty (150) days from date hereof without interest; b) That for any reason, BUYER fails to pay the remaining balance within above mentioned period, the BUYER shall have a grace period of sixty (60) days within which to make the payment, provided that there shall be an interest of 15% per annum on the balance amount due from the SELLERS; c) That should in case (sic) the BUYER fails to comply with the terms and conditions within the above stated grace period, then the SELLERS shall have the right to forfeit the down payment, and to rescind this conditional sale without need of judicial action; d) That in case, BUYER have complied with the terms and conditions of this contract, then the SELLERS shall execute and deliver to the BUYER the appropriate Deed of Absolute Sale; Pursuant to the Deed of Conditional Sale, Tan issued and delivered to the co-owners/vendors Metrobank Check No. 904407 for P200,000.00 as down payment for the property, for which the vendors issued a corresponding receipt. On November 6, 1992, Lamberto Benolirao died intestate. Erlinda Benolirao (his widow and one of the vendors of the property) and her children, as heirs of the deceased, executed an extrajudicial settlement of Lambertos estate on January 20, 1993. On the basis of the extrajudicial settlement, a new certificate of title over the property, TCT No. 27335, was issued on March 26, 1993 in the names of the Spouses Reynaldo and Norma Taningco and Erlinda Benolirao and her children. Pursuant to Section 4, Rule 74 of the Rules, the following annotation was made on TCT No. 27335: x x x any liability to credirots (sic), excluded heirs and other persons having right to the property, for a period of two (2) years, with respect only to the share of Erlinda, Andrew, Romano and Dion, all surnamed Benolirao As stated in the Deed of Conditional Sale, Tan had until March 15, 1993 to pay the balance of the purchase price. By agreement of the parties, this period was extended by two months, so Tan had until May 15, 1993 to pay the balance. Tan failed to pay and asked for another extension, which the vendors again granted. Notwithstanding this second extension, Tan still failed to pay the remaining balance due on May 21, 1993. The vendors thus wrote him a letter demanding payment of the balance of the purchase price within five (5) days from notice; otherwise, they would declare the rescission of the conditional sale and the forfeiture of his down payment based on the terms of the contract. Tan refused to comply with the vendors demand and instead wrote them a letter (dated May 28, 1993) claiming that the annotation on the title, made pursuant to Section 4, Rule 74 of the Rules, constituted an encumbrance on the property that would prevent the vendors from delivering a clean title to him. Thus, he alleged that he could no longer be required to pay the balance of the purchase price and demanded the return of his down payment.

When the vendors refused to refund the down payment, Tan, through counsel, sent another demand letter to the vendors on June 18, 1993. The vendors still refused to heed Tans demand, prompting Tan to file on June 19, 1993 a complaint with the RTC of Pasay City for specific performance against the vendors, including Andrew Benolirao, Romano Benolirao, Dion Benolirao as heirs of Lamberto Benolirao, together with Evelyn Monreal and Ann Karina Taningco (collectively, the respondents). In his complaint, Tan alleged that there was a novation of the Deed of Conditional Sale done without his consent since the annotation on the title created an encumbrance over the property. Tan prayed for the refund of the down payment and the rescission of the contract. On August 9, 1993, Tan amended his Complaint, contending that if the respondents insist on forfeiting the down payment, he would be willing to pay the balance of the purchase price provided there is reformation of the Deed of Conditional Sale. In the meantime, Tan caused the annotation on the title of a notice of lis pendens. On August 21, 1993, the respondents executed a Deed of Absolute Sale over the property in favor of Hector de Guzman (de Guzman) for the price of P689,000.00. Thereafter, the respondents moved for the cancellation of the notice of lis pendens on the ground that it was inappropriate since the case that Tan filed was a personal action which did not involve either title to, or possession of, real property. The RTC issued an order dated October 22, 1993 granting the respondents motion to cancel the lis pendens annotation on the title. Meanwhile, based on the Deed of Absolute Sale in his favor, de Guzman registered the property and TCT No. 28104 was issued in his name. Tan then filed a motion to carry over the lis pendens annotation to TCT No. 28104 registered in de Guzmans name, but the RTC denied the motion. On September 8, 1995, after due proceedings, the RTC rendered judgment ruling that the respondents forfeiture of Tans down payment was proper in accordance with the terms and conditions of the contract between the parties.4 The RTC ordered Tan to pay the respondents the amount of P30,000.00, plus P1,000.00 per court appearance, as attorneys fees, and to pay the cost of suit. On appeal, the CA dismissed the petition and affirmed the ruling of the trial court in toto. Hence, the present petition. THE ISSUES Tan argues that the CA erred in affirming the RTCs ruling to cancel the lis pendens annotation on TCT No. 27335. Due to the unauthorized novation of the agreement, Tan presented before the trial court two alternative remedies in his complaint either the rescission of the contract and the return of the down payment, or the reformation of the contract to adjust the payment period, so that Tan will pay the remaining balance of the purchase price only after the lapse of the required twoyear encumbrance on the title. Tan posits that the CA erroneously disregarded the alternative remedy of reformation of contract when it affirmed the removal of the lis pendens annotation on the title. Tan further contends that the CA erred when it recognized the validity of the forfeiture of the down payment in favor of the vendors. While admitting that the Deed of Conditional Sale contained a forfeiture clause, he insists that this clause applies only if the failure to pay the balance of the purchase price was through his own fault or negligence. In the present case, Tan claims that he was justified in refusing to pay the balance price since the vendors would not have been able to comply with their obligation to deliver a "clean" title covering the property. Lastly, Tan maintains that the CA erred in ordering him to pay the respondents P30,000.00, plus P1,000.00 per court appearance as attorneys fees, since he filed the foregoing action in good faith, believing that he is in the right.

The respondents, on the other hand, assert that the petition should be dismissed for raising pure questions of fact, in contravention of the provisions of Rule 45 of the Rules which provides that only questions of law can be raised in petitions for review on certiorari. THE COURTS RULING The petition is granted. No new issues can be raised in the Memorandum At the onset, we note that Tan raised the following additional assignment of errors in his Memorandum: (a) the CA erred in holding that the petitioner could seek reformation of the Deed of Conditional Sale only if he paid the balance of the purchase price and if the vendors refused to execute the deed of absolute sale; and (b) the CA erred in holding that the petitioner was estopped from asking for the reformation of the contract or for specific performance. The Courts September 27, 2004 Resolution expressly stated that "No new issues may be raised by a party in his/its Memorandum." Explaining the reason for this rule, we said that: The raising of additional issues in a memorandum before the Supreme Court is irregular, because said memorandum is supposed to be in support merely of the position taken by the party concerned in his petition, and the raising of new issues amounts to the filing of a petition beyond the reglementary period. The purpose of this rule is to provide all parties to a case a fair opportunity to be heard. No new points of law, theories, issues or arguments may be raised by a party in the Memorandum for the reason that to permit these would be offensive to the basic rules of fair play, justice and due process.5 Tan contravened the Courts explicit instructions by raising these additional errors. Hence, we disregard them and focus instead on the issues previously raised in the petition and properly included in the Memorandum. Petition raises a question of law Contrary to the respondents claim, the issue raised in the present petition defined in the opening paragraph of this Decision is a pure question of law. Hence, the petition and the issue it presents are properly cognizable by this Court. Lis pendens annotation not proper in personal actions Section 14, Rule 13 of the Rules enumerates the instances when a notice of lis pendens can be validly annotated on the title to real property: Sec. 14. Notice of lis pendens. In an action affecting the title or the right of possession of real property, the plaintiff and the defendant, when affirmative relief is claimed in his answer, may record in the office of the registry of deeds of the province in which the property is situated a notice of the pendency of the action. Said notice shall contain the names of the parties and the object of the action or defense, and a description of the property in that province affected thereby. Only from the time of filing such notice for record shall a purchaser, or encumbrancer of the property affected thereby, be deemed to have constructive notice of the pendency of the action, and only of its pendency against the parties designated by their real names. The notice of lis pendens hereinabove mentioned may be cancelled only upon order of the court, after proper showing that the notice is for the purpose of molesting the adverse party, or that it is not necessary to protect the rights of the party who caused it to be recorded. The litigation subject of the notice of lis pendens must directly involve a specific property which is necessarily affected by the judgment.6

Tans complaint prayed for either the rescission or the reformation of the Deed of Conditional Sale. While the Deed does have real property for its object, we find that Tans complaint is an in personam action, as Tan asked the court to compel the respondents to do something either to rescind the contract and return the down payment, or to reform the contract by extending the period given to pay the remaining balance of the purchase price. Either way, Tan wants to enforce his personal rights against the respondents, not against the property subject of the Deed. As we explained in Domagas v. Jensen:7 The settled rule is that the aim and object of an action determine its character. Whether a proceeding is in rem, or in personam, or quasi in rem for that matter, is determined by its nature and purpose, and by these only. A proceeding in personam is a proceeding to enforce personal rights and obligations brought against the person and is based on the jurisdiction of the person, although it may involve his right to, or the exercise of ownership of, specific property, or seek to compel him to control or dispose of it in accordance with the mandate of the court. The purpose of a proceeding in personam is to impose, through the judgment of a court, some responsibility or liability directly upon the person of the defendant. Of this character are suits to compel a defendant to specifically perform some act or actions to fasten a pecuniary liability on him. Furthermore, as will be explained in detail below, the contract between the parties was merely a contract to sell where the vendors retained title and ownership to the property until Tan had fully paid the purchase price. Since Tan had no claim of ownership or title to the property yet, he obviously had no right to ask for the annotation of a lis pendens notice on the title of the property. Contract is a mere contract to sell A contract is what the law defines it to be, taking into consideration its essential elements, and not what the contracting parties call it. 8 Article 1485 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 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. The very essence of a contract of sale is the transfer of ownership in exchange for a price paid or promised.9 In contrast, a contract to sell is defined as a bilateral contract whereby the prospective seller, while expressly reserving the ownership of the property despite delivery thereof to the prospective buyer, binds himself to sell the property exclusively to the prospective buyer upon fulfillment of the condition agreed, i.e., full payment of the purchase price. 10 A contract to sell 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.11 In the present case, the true nature of the contract is revealed by paragraph D thereof, which states: xxx d) That in case, BUYER has complied with the terms and conditions of this contract, then the SELLERS shall execute and deliver to the BUYER the appropriate Deed of Absolute Sale; xxx Jurisprudence has established that where the seller promises to execute a deed of absolute sale upon the completion by the buyer of the payment

of the price, the contract is only a contract to sell. 12 Thus, while the contract is denominated as a Deed of Conditional Sale, the presence of the above-quoted provision identifies the contract as being a mere contract to sell. A Section 4, Rule 74 annotation is an encumbrance on the property While Tan admits that he refused to pay the balance of the purchase price, he claims that he had valid reason to do so the sudden appearance of an annotation on the title pursuant to Section 4, Rule 74 of the Rules, which Tan considered an encumbrance on the property. We find Tans argument meritorious. The annotation placed on TCT No. 27335, the new title issued to reflect the extrajudicial partition of Lamberto Benoliraos estate among his heirs, states: x x x any liability to credirots (sic), excluded heirs and other persons having right to the property, for a period of two (2) years, with respect only to the share of Erlinda, Andrew, Romano and Dion, all surnamed Benolirao [Emphasis supplied.] This annotation was placed on the title pursuant to Section 4, Rule 74 of the Rules, which reads: Sec. 4. Liability of distributees and estate. - If it shall appear at any time within two (2) years after the settlement and distribution of an estate in accordance with the provisions of either of the first two sections of this rule, that an heir or other person has been unduly deprived of his lawful participation in the estate, such heir or such other person may compel the settlement of the estate in the courts in the manner hereinafter provided for the purpose of satisfying such lawful participation. And if withinthe same time of two (2) years, it shall appear that there are debts outstanding against the estate which have not been paid, or that an heir or other person has been unduly deprived of his lawful participation payable in money, the court having jurisdiction of the estate may, by order for that purpose, after hearing, settle the amount of such debts or lawful participation and order how much and in what manner each distributee shall contribute in the payment thereof, and may issue execution, if circumstances require, against the bond provided in the preceding section or against the real estate belonging to the deceased, or both. Such bond and such real estate shall remain charged with a liability to creditors, heirs, or other persons for the full period of two (2) years after such distribution, notwithstanding any transfers of real estate that may have been made. [Emphasis supplied.] Senator Vicente Francisco discusses this provision in his book The Revised Rules of Court in the Philippines,13where he states: The provision of Section 4, Rule 74 prescribes the procedure to be followed if within two years after an extrajudicial partition or summary distribution is made, an heir or other person appears to have been deprived of his lawful participation in the estate, or some outstanding debts which have not been paid are discovered. When the lawful participation of the heir is not payable in money, because, for instance, he is entitled to a part of the real property that has been partitioned, there can be no other procedure than to cancel the partition so made and make a new division, unless, of course, the heir agrees to be paid the value of his participation with interest. But in case the lawful participation of the heir consists in his share in personal property of money left by the decedent, or in case unpaid debts are discovered within the said period of two years, the procedure is not to cancel the partition, nor to appoint an administrator to re-assemble the assets, as was allowed under the old Code, but the court, after hearing, shall fix the amount of such debts or lawful participation in proportion to or to the extent of the assets they have respectively received and, if circumstances require, it may issue execution against the real estate belonging to the decedent, or both. The present procedure is more expedient and less expensive in that it dispenses with the appointment of an administrator and does not disturb the possession enjoyed by the distributees.14 [Emphasis supplied.]

An annotation is placed on new certificates of title issued pursuant to the distribution and partition of a decedents real properties to warn third persons on the possible interests of excluded heirs or unpaid creditors in these properties. The annotation, therefore, creates a legal encumbrance or lien on the real property in favor of the excluded heirs or creditors. Where a buyer purchases the real property despite the annotation, he must be ready for the possibility that the title could be subject to the rights of excluded parties. The cancellation of the sale would be the logical consequence where: (a) the annotation clearly appears on the title, warning all would-be buyers; (b) the sale unlawfully interferes with the rights of heirs; and (c) the rightful heirs bring an action to question the transfer within the two-year period provided by law. As we held in Vda. de Francisco v. Carreon:15 And Section 4, Rule 74 xxx expressly authorizes the court to give to every heir his lawful participation in the real estate "notwithstanding any transfers of such real estate" and to "issue execution" thereon. All this implies that, when within the amendatory period the realty has been alienated, the court in re-dividing it among the heirs has the authority to direct cancellation of such alienation in the same estate proceedings, whenever it becomes necessary to do so. To require the institution of a separate action for such annulment would run counter to the letter of the above rule and the spirit of these summary settlements. [Emphasis supplied.] Similarly, in Sps. Domingo v. Roces,16 we said: The foregoing rule clearly covers transfers of real property to any person, as long as the deprived heir or creditor vindicates his rights within two years from the date of the settlement and distribution of estate. Contrary to petitioners contention, the effects of this provision are not limited to the heirs or original distributees of the estate properties, but shall affect any transferee of the properties. [Emphasis supplied.] Indeed, in David v. Malay,17 although the title of the property had already been registered in the name of the third party buyers, we cancelled the sale and ordered the reconveyance of the property to the estate of the deceased for proper disposal among his rightful heirs. By the time Tans obligation to pay the balance of the purchase price arose on May 21, 1993 (on account of the extensions granted by the respondents), a new certificate of title covering the property had already been issued on March 26, 1993, which contained the encumbrance on the property; the encumbrance would remain so attached until the expiration of the two-year period. Clearly, at this time, the vendors could no longer compel Tan to pay the balance of the purchase since considering they themselves could not fulfill their obligation to transfer a clean title over the property to Tan. Contract to sell is not rescinded but terminated What then happens to the contract? We have held in numerous cases18 that the remedy of rescission under Article 1191 cannot apply to mere contracts to sell. We explained the reason for this in Santos v. Court of Appeals,19 where we said: [I]n a contract to sell, title remains with the vendor and does not pass on to the vendee until the purchase price is paid in full. Thus, in a contract to sell, the payment of the purchase price is a positive suspensive condition.Failure to pay the price agreed upon is not a mere breach, casual or serious, but a situation that prevents the obligation of the vendor to convey title from acquiring an obligatory force. This is entirely different from the situation in a contract of sale, where non-payment of the price is a negative resolutory condition. The effects in law are not identical. In a contract of sale, the vendor has lost ownership of the thing sold and cannot recover it, unless the contract of sale is rescinded and set aside. In a contract to sell, however, the vendor remains the owner for as long as the vendee has not complied fully with the condition of paying the purchase price. If the vendor should eject the vendee for failure to meet the condition precedent, he is enforcing the contract and not rescinding it. x x x Article 1592 speaks of non-payment of the

purchase price as a resolutory condition. It does not apply to a contract to sell. As to Article 1191, it is subordinated to the provisions of Article 1592 when applied to sales of immovable property. Neither provision is applicable [to a contract to sell]. [Emphasis supplied.] We, therefore, hold that the contract to sell was terminated when the vendors could no longer legally compel Tan to pay the balance of the purchase price as a result of the legal encumbrance which attached to the title of the property. Since Tans refusal to pay was due to the supervening event of a legal encumbrance on the property and not through his own fault or negligence, we find and so hold that the forfeiture of Tans down payment was clearly unwarranted. Award of Attorneys fees As evident from our previous discussion, Tan had a valid reason for refusing to pay the balance of the purchase price for the property. Consequently, there is no basis for the award of attorneys fees in favor of the respondents. On the other hand, we award attorneys fees in favor of Tan, since he was compelled to litigate due to the respondents refusal to return his down payment despite the fact that they could no longer comply with their obligation under the contract to sell, i.e., to convey a clean title. Given the facts of this case, we find the award ofP50,000.00 as attorneys fees proper. Monetary award is subject to legal interest Undoubtedly, Tan made a clear and unequivocal demand on the vendors to return his down payment as early as May 28, 1993. Pursuant to our definitive ruling in Eastern Shipping Lines, Inc. v. Court of Appeals ,20 we hold that the vendors should return the P200,000.00 down payment to Tan, subject to the legal interest of 6% per annum computed from May 28, 1993, the date of the first demand letter.1avvphi1 Furthermore, after a judgment has become final and executory, the rate of legal interest, whether the obligation was in the form of a loan or forbearance of money or otherwise, shall be 12% per annum from such finality until its satisfaction. Accordingly, the principal obligation of P200,000.00 shall bear 6% interest from the date of first demand or from May 28, 1993. From the date the liability for the principal obligation and attorneys fees has become final and executory, an annual interest of 12% shall be imposed on these obligations until their final satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit. WHEREFORE, premises considered, we hereby GRANT the petition and, accordingly, ANNUL and SET ASIDE the May 30, 2002 decision of the Court of Appeals in CA-G.R. CV No. 52033. Another judgment is rendered declaring the Deed of Conditional Sale terminated and ordering the respondents to return the P200,000.00 down payment to petitioner Delfin Tan, subject to legal interest of 6% per annum, computed from May 28, 1993. The respondents are also ordered to pay, jointly and severally, petitioner Delfin Tan the amount of P50,000.00 as and by way of attorneys fees. Once this decision becomes final and executory, respondents are ordered to pay interest at 12% per annum on the principal obligation as well as the attorneys fees, until full payment of these amounts. Costs against the respondents. SO ORDERED.

G.R. No. 170405

February 2, 2010 DE LEON, Petitioner,

RAYMUNDO S. vs. BENITA T. ONG.1 Respondent. DECISION CORONA, J.:

On March 10, 1993, petitioner Raymundo S. de Leon sold three parcels of land2 with improvements situated in Antipolo, Rizal to respondent Benita T. Ong. As these properties were mortgaged to Real Savings and Loan Association, Incorporated (RSLAI), petitioner and respondent executed a notarized deed of absolute sale with assumption of mortgage3 stating: xxx xxx xxx

That for and in consideration of the sum of ONE MILLION ONE HUNDRED THOUSAND PESOS (P1.1 million), Philippine currency, the receipt whereof is hereby acknowledged from [RESPONDENT] to the entire satisfaction of [PETITIONER], said [PETITIONER] does hereby sell, transfer and convey in a manner absolute and irrevocable, unto said [RESPONDENT], his heirs and assigns that certain real estate together with the buildings and other improvements existing thereon, situated in [Barrio] Mayamot, Antipolo, Rizal under the following terms and conditions: 1. That upon full payment of [respondent] of the amount of FOUR HUNDRED FIFTEEN THOUSAND FIVE HUNDRED (P415,000), [petitioner] shall execute and sign a deed of assumption of mortgage in favor of [respondent] without any further cost whatsoever; 2. That [respondent] shall assume payment of the outstanding loan of SIX HUNDRED EIGHTY FOUR THOUSAND FIVE HUNDRED PESOS (P684,500) with REAL SAVINGS AND LOAN,4 Cainta, Rizal (emphasis supplied) xxx xxx xxx

Pursuant to this deed, respondent gave petitioner P415,500 as partial payment. Petitioner, on the other hand, handed the keys to the properties and wrote a letter informing RSLAI of the sale and authorizing it to accept payment from respondent and release the certificates of title. Thereafter, respondent undertook repairs and made improvements on the properties.5 Respondent likewise informed RSLAI of her agreement with petitioner for her to assume petitioners outstanding loan. RSLAI required her to undergo credit investigation. Subsequently, respondent learned that petitioner again sold the same properties to one Leona Viloria after March 10, 1993 and changed the locks, rendering the keys he gave her useless. Respondent thus proceeded to RSLAI to inquire about the credit investigation. However, she was informed that petitioner had already paid the amount due and had taken back the certificates of title. Respondent persistently contacted petitioner but her efforts proved futile.

ARTURO Associate Justice WE CONCUR:

D.

BRION On June 18, 1993, respondent filed a complaint for specific performance, declaration of nullity of the second sale and damages6 against petitioner and Viloria in the Regional Trial Court (RTC) of Antipolo, Rizal, Branch 74. She claimed that since petitioner had previously sold the properties to her on March 10, 1993, he no longer had the right to sell the same to Viloria. Thus, petitioner fraudulently deprived her of the properties. Petitioner, on the other hand, insisted that respondent did not have a cause of action against him and consequently prayed for the dismissal of

the complaint. He claimed that since the transaction was subject to a condition (i.e., that RSLAI approve the assumption of mortgage), they only entered into a contract to sell. Inasmuch as respondent did apply for a loan from RSLAI, the condition did not arise. Consequently, the sale was not perfected and he could freely dispose of the properties. Furthermore, he made a counter-claim for damages as respondent filed the complaint allegedly with gross and evident bad faith. Because respondent was a licensed real estate broker, the RTC concluded that she knew that the validity of the sale was subject to a condition. The perfection of a contract of sale depended on RSLAIs approval of the assumption of mortgage. Since RSLAI did not allow respondent to assume petitioners obligation, the RTC held that the sale was never perfected. In a decision dated August 27, 1999,7 the RTC dismissed the complaint for lack of cause of action and ordered respondent to pay petitioner P100,000 moral damages, P20,000 attorneys fees and the cost of suit. Aggrieved, respondent appealed to the Court of Appeals (CA), 8 asserting that the court a quo erred in dismissing the complaint. The CA found that the March 10, 2003 contract executed by the parties did not impose any condition on the sale and held that the parties entered into a contract of sale. Consequently, because petitioner no longer owned the properties when he sold them to Viloria, it declared the second sale void. Moreover, it found petitioner liable for moral and exemplary damages for fraudulently depriving respondent of the properties. In a decision dated July 22, 2005, the CA upheld the sale to respondent and nullified the sale to Viloria. It likewise ordered respondent to reimburse petitioner P715,250 (or the amount he paid to RSLAI). Petitioner, on the other hand, was ordered to deliver the certificates of titles to respondent and pay her P50,000 moral damages andP15,000 exemplary damages. Petitioner moved for reconsideration but it was denied in a resolution dated November 11, 2005.10 Hence, this petition,11 with the sole issue being whether the parties entered into a contract of sale or a contract to sell. Petitioner insists that he entered into a contract to sell since the validity of the transaction was subject to a suspensive condition, that is , the approval by RSLAI of respondents assumption of mortgage. Because RSLAI did not allow respondent to assume his (petitioners) obligation, the condition never materialized. Consequently, there was no sale. Respondent, on the other hand, asserts that they entered into a contract of sale as petitioner already conveyed full ownership of the subject properties upon the execution of the deed. We modify the decision of the CA. Contract of Sale or Contract to Sell? The RTC and the CA had conflicting interpretations of the March 10, 1993 deed. The RTC ruled that it was a contract to sell while the CA held that it was a contract of sale. In a contract of sale, the seller conveys ownership of the property to the buyer upon the perfection of the contract. Should the buyer default in the payment of the purchase price, the seller may either sue for the collection thereof or have the contract judicially resolved and set aside. The non-payment of the price is therefore a negative resolutory condition.12 On the other hand, a contract to sell is subject to a positive suspensive condition. The buyer does not acquire ownership of the property until he
9

fully pays the purchase price. For this reason, if the buyer defaults in the payment thereof, the seller can only sue for damages.13 The deed executed by the parties (as previously quoted) stated that petitioner sold the properties to respondent "in a manner absolute and irrevocable" for a sum of P1.1 million.14 With regard to the manner of payment, it required respondent to pay P415,500 in cash to petitioner upon the execution of the deed, with the balance15payable directly to RSLAI (on behalf of petitioner) within a reasonable time. 16 Nothing in said instrument implied that petitioner reserved ownership of the properties until the full payment of the purchase price. 17 On the contrary, the terms and conditions of the deed only affected the manner of payment, not the immediate transfer of ownership (upon the execution of the notarized contract) from petitioner as seller to respondent as buyer. Otherwise stated, the said terms and conditions pertained to the performance of the contract, not the perfection thereof nor the transfer of ownership. Settled is the rule that the seller is obliged to transfer title over the properties and deliver the same to the buyer.18In this regard, Article 1498 of the Civil Code19 provides that, as a rule, the execution of a notarized deed of sale is equivalent to the delivery of a thing sold. In this instance, petitioner executed a notarized deed of absolute sale in favor of respondent. Moreover, not only did petitioner turn over the keys to the properties to respondent, he also authorized RSLAI to receive payment from respondent and release his certificates of title to her. The totality of petitioners acts clearly indicates that he had unqualifiedly delivered and transferred ownership of the properties to respondent. Clearly, it was a contract of sale the parties entered into. Furthermore, even assuming arguendo that the agreement of the parties was subject to the condition that RSLAI had to approve the assumption of mortgage, the said condition was considered fulfilled as petitioner prevented its fulfillment by paying his outstanding obligation and taking back the certificates of title without even notifying respondent. In this connection, Article 1186 of the Civil Code provides: Article 1186. The condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment. Void Sale Or Double Sale? Petitioner sold the same properties to two buyers, first to respondent and then to Viloria on two separate occasions. 20 However, the second sale was not void for the sole reason that petitioner had previously sold the same properties to respondent. On this account, the CA erred. This case involves a double sale as the disputed properties were sold validly on two separate occasions by the same seller to the two different buyers in good faith. Article 1544 of the Civil Code provides: Article 1544. If the same thing should have been sold to different vendees, the ownership shall be transferred to the person who may have first taken possession thereof in good faith, if it should be movable property. Should it be immovable property, the ownership shall belong to the person acquiring it who in good faith first recorded it in the Registry of Property. Should there be no inscription, the ownership shall pertain to the person who in good faith was first in the possession; and, in the absence thereof, to the person who presents the oldest title, provided there is good faith. (emphasis supplied) This provision clearly states that the rules on double or multiple sales apply only to purchasers in good faith. Needless to say, it disqualifies any purchaser in bad faith.

A purchaser in good faith is one who buys the property of another without notice that some other person has a right to, or an interest in, such property and pays a full and fair price for the same at the time of such purchase, or before he has notice of some other persons claim or interest in the property.21 The law requires, on the part of the buyer, lack of notice of a defect in the title of the seller and payment in full of the fair price at the time of the sale or prior to having notice of any defect in the sellers title. Was respondent a purchaser in good faith? Yes. Respondent purchased the properties, knowing they were encumbered only by the mortgage to RSLAI. According to her agreement with petitioner, respondent had the obligation to assume the balance of petitioners outstanding obligation to RSLAI. Consequently, respondent informed RSLAI of the sale and of her assumption of petitioners obligation. However, because petitioner surreptitiously paid his outstanding obligation and took back her certificates of title, petitioner himself rendered respondents obligation to assume petitioners indebtedness to RSLAI impossible to perform. Article 1266 of the Civil Code provides: Article 1266. The debtor in obligations to do shall be released when the prestation become legally or physically impossible without the fault of the obligor. Since respondents obligation to assume petitioners outstanding balance with RSLAI became impossible without her fault, she was released from the said obligation. Moreover, because petitioner himself willfully prevented the condition vis--vis the payment of the remainder of the purchase price, the said condition is considered fulfilled pursuant to Article 1186 of the Civil Code. For purposes, therefore, of determining whether respondent was a purchaser in good faith, she is deemed to have fully complied with the condition of the payment of the remainder of the purchase price. Respondent was not aware of any interest in or a claim on the properties other than the mortgage to RSLAI which she undertook to assume. Moreover, Viloria bought the properties from petitioner after the latter sold them to respondent. Respondent was therefore a purchaser in good faith. Hence, the rules on double sale are applicable. Article 1544 of the Civil Code provides that when neither buyer registered the sale of the properties with the registrar of deeds, the one who took prior possession of the properties shall be the lawful owner thereof. In this instance, petitioner delivered the properties to respondent when he executed the notarized deed22 and handed over to respondent the keys to the properties. For this reason, respondent took actual possession and exercised control thereof by making repairs and improvements thereon. Clearly, the sale was perfected and consummated on March 10, 1993. Thus, respondent became the lawful owner of the properties. Nonetheless, while the condition as to the payment of the balance of the purchase price was deemed fulfilled, respondents obligation to pay it subsisted. Otherwise, she would be unjustly enriched at the expense of petitioner. Therefore, respondent must pay petitioner P684,500, the amount stated in the deed. This is because the provisions, terms and conditions of the contract constitute the law between the parties. Moreover, the deed itself provided that the assumption of mortgage "was without any further cost whatsoever." Petitioner, on the other hand, must deliver the certificates of title to respondent. We likewise affirm the award of damages. WHEREFORE, the July 22, 2005 decision and November 11, 2005 resolution of the Court of Appeals in CA-G.R. CV No. 59748 are hereby AFFIRMED with MODIFICATION insofar as respondent Benita T. Ong is ordered to pay petitioner Raymundo de Leon P684,500

representing the balance of the purchase price as provided in their March 10, 1993 agreement. Costs against petitioner. SO ORDERED. RENATO Associate Chairperson C. CORONA Justice

G.R. No. 168646

January 12, 2011 BANK, Petitioner,

LUZON DEVELOPMENT vs. ANGELES CATHERINE ENRIQUEZ, Respondent. x - - - - - - - - - - - - - - - - - - - - - - -x G.R. No. 168666

DELTA DEVELOPMENT and MANAGEMENT SERVICES, INC., Petitioner, vs. ANGELES CATHERINE ENRIQUEZ and LUZON DEVELOPMENT BANK, Respondents. DECISION DEL CASTILLO, J.: The protection afforded to a subdivision lot buyer under Presidential Decree (PD) No. 957 or The Subdivision and Condominium Buyers Protective Decree will not be defeated by someone who is not an innocent purchaser for value. The lofty aspirations of PD 957 should be read in every provision of the statute, in every contract that undermines its objects, in every transaction which threatens its fruition. "For a statute derives its vitality from the purpose for which it is enacted and to construe it in a manner that disregards or defeats such purpose is to nullify or destroy the law."1 These cases involve the separate appeals of Luzon Development Bank2 (BANK) and Delta Development and Management Services, Inc.3 (DELTA) from the November 30, 2004 Decision of the Court of Appeals (CA), as well as its June 22, 2005 Resolution in CA-G.R. SP No. 81280. The dispositive portion of the assailed Decision reads: WHEREFORE, premises considered, the Decision dated June 17, 2003 and Resolution dated November 24, 2003 are AFFIRMED with [m]odification in so far as Delta Development and Management Services, Inc. is liable and directed to pay petitioner Luzon Development Bank the value of the subject lot subject matter of the Contract to Sell between Delta Development and Management Services, Inc. and the private respondent [Catherine Angeles Enriquez]. SO ORDERED.4 Factual Antecedents The BANK is a domestic financial corporation that extends loans to subdivision developers/owners.5 Petitioner DELTA is a domestic corporation engaged in the business of developing and selling real estate properties, particularly Delta Homes I

in Cavite. DELTA is owned by Ricardo De Leon (De Leon),6 who is the registered owner of a parcel of land covered by Transfer Certificate of Title (TCT) No. T-6371837 of the Registry of Deeds of the Province of Cavite, which corresponds to Lot 4 of Delta Homes I. Said Lot 4 is the subject matter of these cases. On July 3, 1995, De Leon and his spouse obtained a P4 million loan from the BANK for the express purpose of developing Delta Homes I.8 To secure the loan, the spouses De Leon executed in favor of the BANK a real estate mortgage (REM) on several of their properties, 9 including Lot 4. Subsequently, this REM was amended10 by increasing the amount of the secured loan from P4 million to P8 million. Both the REM and the amendment were annotated on TCT No. T-637183.11 DELTA then obtained a Certificate of Registration12 and a License to Sell13 from the Housing and Land Use Regulatory Board (HLURB). Sometime in 1997, DELTA executed a Contract to Sell with respondent Angeles Catherine Enriquez (Enriquez)14over the house and lot in Lot 4 for the purchase price of P614,950.00. Enriquez made a downpayment ofP114,950.00. The Contract to Sell contained the following provisions: That the vendee/s offered to buy and the Owner agreed to sell the above-described property subject to the following terms and conditions to wit: xxxx 6. That the (sic) warning shall be served upon the Vendee/s for failure to pay x x x Provided, however, that for failure to pay three (3) successive monthly installment payments, the Owner may consider this Contract to Sell null and void ab initio without further proceedings or court action and all payments shall be forfeited in favor of the Owner as liquidated damages and expenses for documentations. x x x That upon full payment of the total consideration if payable in cash, the Owner shall execute a final deed of sale in favor of the Vendee/s. However, if the term of the contract is for a certain period of time, only upon full payment of the total consideration that a final deed of sale shall be executed by the Owner in favor of the Vendee/s.15 When DELTA defaulted on its loan obligation, the BANK, instead of foreclosing the REM, agreed to a dation in payment or a dacion en pago. The Deed of Assignment in Payment of Debt was executed on September 30, 1998 and stated that DELTA "assigns, transfers, and conveys and sets over [to] the assignee that real estate with the building and improvements existing thereon x x x in payment of the total obligation owing to [the Bank] x x x."16Unknown to Enriquez, among the properties assigned to the BANK was the house and lot of Lot 4, 17 which is the subject of her Contract to Sell with DELTA. The records do not bear out and the parties are silent on whether the BANK was able to transfer title to its name. It appears, however, that the dacion en pago was not annotated on the TCT of Lot 4.18 On November 18, 1999, Enriquez filed a complaint against DELTA and the BANK before the Region IV Office of the HLURB 19 alleging that DELTA violated the terms of its License to Sell by: (a) selling the house and lots for a price exceeding that prescribed in Batas Pambansa (BP) Bilang 220;20 and (b) failing to get a clearance for the mortgage from the HLURB. Enriquez sought a full refund of the P301,063.42 that she had already paid to DELTA, award of damages, and the imposition of administrative fines on DELTA and the BANK. In his June 1, 2000 Decision,21 HLURB Arbiter Atty. Raymundo A. Foronda upheld the validity of the purchase price, but ordered DELTA to accept payment of the balance of P108,013.36 from Enriquez, and (upon such payment) to deliver to Enriquez the title to the house and lot free from liens and encumbrances. The dispositive portion reads: WHEREFORE, premises considered, a decision is hereby rendered as follows:

1. Ordering [DELTA] to accept complainant[]s payments in the amount of P108,013.36 representing her balance based on the maximum selling price of P375,000.00; 2. Upon full payment, ordering Delta to deliver the title in favor of the complainant free from any liens and encumbrances; 3. Ordering [DELTA] to pay complainant the amount of P50,000.00 as and by way of moral damages; 4. Ordering [DELTA] to pay complainant the amount of P50,000.00 as and by way of exemplary damages; 5. Ordering [DELTA] to pay complainant P10,000.00 as costs of suit; and 6. Respondent DELTA to pay administrative fine of P10,000.00[22] for violation of Section 18 of P.D. 957[23]and another P10,000.00 for violation of Section 22 of P.D. 957.[24 SO ORDERED.25 DELTA appealed the arbiters Decision to the HLURB Board of Commissioners.26 DELTA questioned the imposition of an administrative fine for its alleged violation of Section 18 of PD 957. It argued that clearance was not required for mortgages that were constituted on a subdivision project prior to registration. According to DELTA, it did not violate the terms of its license because it did not obtain a new mortgage over the subdivision project. It likewise assailed the award of moral and exemplary damages to Enriquez on the ground that the latter has no cause of action.27 Ruling of the Board of Commissioners (Board)28 The Board held that all developers should obtain a clearance for mortgage from the HLURB, regardless of the date when the mortgage was secured, because the law does not distinguish. Having violated this legal requirement, DELTA was held liable to pay the administrative fine. The Board upheld the validity of the contract to sell between DELTA and Enriquez despite the alleged violation of the price ceilings in BP 220. The Board held that DELTA and Enriquez were presumed to have had a meeting of the minds on the object of the sale and the purchase price. Absent any circumstance vitiating Enriquezconsent, she was presumed to have willingly and voluntarily agreed to the higher purchase price; hence, she was bound by the terms of the contract. The Board, however, deleted the arbiters award of damages to Enriquez on the ground that the latter was not free from liability herself, given that she was remiss in her monthly amortizations to DELTA. The dispositive portion of the Boards Decision reads: Wherefore, in view of the foregoing, the Office belows decision dated June 01, 2000 is hereby modified to read as follows: 1. Ordering [Enriquez] to pay [DELTA] the amount due from the time she suspended payment up to filing of the complaint with 12% interest thereon per annum; thereafter the provisions of the Contract to Sell shall apply until full payment is made; 2. Ordering [DELTA] to pay an [a]dministrative [f]ine of P10,000.00 for violation of its license to sell and for violation of Section 18 of P.D. 957. SO ORDERED. Quezon City.29 Enriquez moved for a reconsideration of the Boards Decision30 upholding the contractual purchase price. She maintained that

the price for Lot 4 should not exceed the price ceiling provided in BP 220.31lawph!l Finding Enriquezs arguments as having already been passed upon in the decision, the Board denied reconsideration. The board, however, modified its decision, with respect to the period for the imposition of interest payments. The Boards resolution32 reads: WHEREFORE, premises considered, to [sic] directive No. 1 of the dispositive portion of the decision of our decision [sic] is MODIFIED as follows: 1. Ordering complainant to pay respondent DELTA the amount due from the time she suspended (sic) at 12% interest per annum, reckoned from finality of this decision[,] thereafter the provisions of the Contract to Sell shall apply until full payment is made. In all other respects, the decision is AFFIRMED. SO ORDERED.33 Both Enriquez and the BANK appealed to the Office of the President (OP).34 The BANK disagreed with the ruling upholding Enriquezs Contract to Sell; and insisted on its ownership over Lot 4. It argued that it has become impossible for DELTA to comply with the terms of the contract to sell and to deliver Lot 4s title to Enriquez given that DELTA had already relinquished all its rights to Lot 4 in favor of the BANK 35 via the dation in payment. Meanwhile, Enriquez insisted that the Board erred in not applying the ceiling price as prescribed in BP 220.36 Ruling of the Office of the President37 The OP adopted by reference the findings of fact and conclusions of law of the HLURB Decisions, which it affirmed in toto. Enriquez filed a motion for reconsideration, insisting that she was entitled to a reduction of the purchase price, in order to conform to the provisions of BP 220.38 The motion was denied for lack of merit.39 Only the BANK appealed the OPs Decision to the CA. 40 The BANK reiterated that DELTA can no longer deliver Lot 4 to Enriquez because DELTA had sold the same to the BANK by virtue of the dacion en pago.41 As an alternative argument, in case the appellate court should find that DELTA retained ownership over Lot 4 and could convey the same to Enriquez, the BANK prayed that its REM over Lot 4 be respected such that DELTA would have to redeem it first before it could convey the same to Enriquez in accordance with Section 25 42 of PD 957.43 The BANK likewise sought an award of exemplary damages and attorneys fees in its favor because of the baseless suit filed by Enriquez against it.44 Ruling of the Court of Appeals45

mortgaged property from the BANK. The CA held that the BANK does not have a first lien on Lot 4 because its real estate mortgage over the same had already been extinguished by the dacion en pago. Without a mortgage, the BANK cannot require DELTA to redeem Lot 4 prior to delivery of title to Enriquez.48 The CA denied the BANKs prayer for the award of exemplary damages and attorneys fees for lack of factual and legal basis. 49 Both DELTA50 and the BANK51 moved for a reconsideration of the CAs Decision, but both were denied.52 Hence, these separate petitions of the BANK and DELTA. Petitioner Deltas arguments53 DELTA assails the CA Decision for holding that DELTA conveyed its ownership over Lot 4 to Enriquez via the Contract to Sell. DELTA points out that the Contract to Sell contained a condition that ownership shall only be transferred to Enriquez upon the latters full payment of the purchase price to DELTA. Since Enriquez has yet to comply with this suspensive condition, ownership is retained by DELTA. 54 As the owner of Lot 4, DELTA had every right to enter into a dation in payment to extinguish its loan obligation to the BANK. The BANKs acceptance of the assignment, without any reservation or exception, resulted in the extinguishment of the entire loan obligation; hence, DELTA has no more obligation to pay the value of Enriquezs house and lot to the BANK. 55 DELTA prays for the reinstatement of the OP Decision. The BANKs arguments56 Echoing the argument of DELTA, the BANK argues that the Contract to Sell did not involve a conveyance of DELTAs ownership over Lot 4 to Enriquez. The Contract to Sell expressly provides that DELTA retained ownership over Lot 4 until Enriquez paid the full purchase price. Since Enriquez has not yet made such full payment, DELTA retained ownership over Lot 4 and could validly convey the same to the BANK via dacion en pago.57 Should the dacion en pago over Lot 4 be invalidated and the property ordered to be delivered to Enriquez, the BANK contends that DELTA should pay the corresponding value of Lot 4 to the BANK. It maintains that the loan obligation extinguished by the dacion en pago only extends to the value of the properties delivered; if Lot 4 cannot be delivered to the BANK, then the loan obligation of DELTA remains to the extent of Lot 4s value.58 The BANK prays to be declared the rightful owner of the subject house and lot and asks for an award of exemplary damages and attorneys fees. Enriquezs waiver Enriquez did not file comments59 or memoranda in both cases; instead, she manifested that she will just await the outcome of the case. 60 Issues

The CA ruled against the validity of the dacion en pago executed in favor of the BANK on the ground that DELTA had earlier relinquished its ownership over Lot 4 in favor of Enriquez via the Contract to Sell.46 Since the dacion en pago is invalid with respect to Lot 4, the appellate court held that DELTA remained indebted to the BANK to the extent of Lot 4s value. Thus, the CA ordered DELTA to pay the corresponding value of Lot 4 to the BANK.47 The CA also rejected the BANKs argument that, before DELTA can deliver the title to Lot 4 to Enriquez, DELTA should first redeem the

The following are the issues raised by the two petitions: 1. Whether the Contract to Sell conveys ownership; 2. Whether the dacion en pago extinguished the loan obligation, such that DELTA has no more obligations to the BANK; 3. Whether the BANK is entitled to damages and attorneys fees for being compelled to litigate; and

4. What is the effect of Enriquezs failure to appeal the OPs Decision regarding her obligation to pay the balance on the purchase price. Our Ruling Mortgage contract void As the HLURB Arbiter and Board of Commissioners both found, DELTA violated Section 18 of PD 957 in mortgaging the properties in Delta Homes I (including Lot 4) to the BANK without prior clearance from the HLURB. This point need not be belabored since the parties have chosen not to appeal the administrative fine imposed on DELTA for violation of Section 18. This violation of Section 18 renders the mortgage executed by DELTA void. We have held before that "a mortgage contract executed in breach of Section 18 of [PD 957] is null and void."61 Considering that "PD 957 aims to protect innocent subdivision lot and condominium unit buyers against fraudulent real estate practices," we have construed Section 18 thereof as "prohibitory and acts committed contrary to it are void."62 Because of the nullity of the mortgage, neither DELTA nor the BANK could assert any right arising therefrom. The BANKs loan of P8 million to DELTA has effectively become unsecured due to the nullity of the mortgage. The said loan, however, was eventually settled by the two contracting parties via a dation in payment. In the appealed Decision, the CA invalidated this dation in payment on the ground that DELTA, by previously entering into a Contract to Sell, had already conveyed its ownership over Lot 4 to Enriquez and could no longer convey the same to the BANK. This is error, prescinding from a wrong understanding of the nature of a contract to sell. Contract to sell does not transfer ownership Both parties are correct in arguing that the Contract to Sell executed by DELTA in favor of Enriquez did not transfer ownership over Lot 4 to Enriquez. A contract to sell is one where the prospective seller reserves the transfer of title to the prospective buyer until the happening of an event, such as full payment of the purchase price. What the seller obliges himself to do is to sell the subject property only when the entire amount of the purchase price has already been 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." 63 It does not, by itself, transfer ownership to the buyer.64 In the instant case, there is nothing in the provisions of the contract entered into by DELTA and Enriquez that would exempt it from the general definition of a contract to sell. The terms thereof provide for the reservation of DELTAs ownership until full payment of the purchase price; such that DELTA even reserved the right to unilaterally void the contract should Enriquez fail to pay three successive monthly amortizations. Since the Contract to Sell did not transfer ownership of Lot 4 to Enriquez, said ownership remained with DELTA. DELTA could then validly transfer such ownership (as it did) to another person (the BANK). However, the transferee BANK is bound by the Contract to Sell and has to respect Enriquezs rights thereunder. This is because the Contract to Sell, involving a subdivision lot, is covered and protected by PD 957. One of the protections afforded by PD 957 to buyers such as Enriquez is the right to have her contract to sell registered with the Register of Deeds in order to make it binding on third parties. Thus, Section 17 of PD 957 provides: Section 17. Registration. All contracts to sell, deeds of sale, and other similar instruments relative to the sale or conveyance of the subdivision lots and condominium units, whether or not the purchase price is paid in full, shall be registered by the seller in the Office of the Register of Deeds of the province or city where the property is situated.

x x x x (Emphasis supplied.) The purpose of registration is to protect the buyers from any future unscrupulous transactions involving the object of the sale or contract to sell, whether the purchase price therefor has been fully paid or not. Registration of the sale or contract to sell makes it binding on third parties; it serves as a notice to the whole world that the property is subject to the prior right of the buyer of the property (under a contract to sell or an absolute sale), and anyone who wishes to deal with the said property will be held bound by such prior right. While DELTA, in the instant case, failed to register Enriquezs Contract to Sell with the Register of Deeds, this failure will not prejudice Enriquez or relieve the BANK from its obligation to respect Enriquezs Contract to Sell. Despite the non-registration, the BANK cannot be considered, under the circumstances, an innocent purchaser for value of Lot 4 when it accepted the latter (together with other assigned properties) as payment for DELTAs obligation. The BANK was well aware that the assigned properties, including Lot 4, were subdivision lots and therefore within the purview of PD 957. It knew that the loaned amounts were to be used for the development of DELTAs subdivision project, for this was indicated in the corresponding promissory notes. The technical description of Lot 4 indicates its location, which can easily be determined as included within the subdivision development. Under these circumstances, the BANK knew or should have known of the possibility and risk that the assigned properties were already covered by existing contracts to sell in favor of subdivision lot buyers. As observed by the Court in another case involving a bank regarding a subdivision lot that was already subject of a contract to sell with a third party: [The Bank] should have considered that it was dealing with a property subject of a real estate development project. A reasonable person, particularly a financial institution x x x, should have been aware that, to finance the project, funds other than those obtained from the loan could have been used to serve the purpose, albeit partially. Hence, there was a need to verify whether any part of the property was already intended to be the subject of any other contract involving buyers or potential buyers. In granting the loan, [the Bank] should not have been content merely with a clean title, considering the presence of circumstances indicating the need for a thorough investigation of the existence of buyers x x x. Wanting in care and prudence, the [Bank] cannot be deemed to be an innocent mortgagee. x x x65 Further, as an entity engaged in the banking business, the BANK is required to observe more care and prudence when dealing with registered properties. The Court cannot accept that the BANK was unaware of the Contract to Sell existing in favor of Enriquez. In Keppel Bank Philippines, Inc. v. Adao,66 we held that a bank dealing with a property that is already subject of a contract to sell and is protected by the provisions of PD 957, is bound by the contract to sell (even if the contract to sell in that case was not registered). In the Courts words: It is true that persons dealing with registered property can rely solely on the certificate of title and need not go beyond it. However, x x x, this rule does not apply to banks. Banks are required to exercise more care and prudence than private individuals in dealing even with registered properties for their business is affected with public interest. As master of its business, petitioner should have sent its representatives to check the assigned properties before signing the compromise agreement and it would have discovered that respondent was already occupying one of the condominium units and that a contract to sell existed between [the vendee] and [the developer]. In our view, petitioner was not a purchaser in good faith and we are constrained to rule that petitioner is bound by the contract to sell.67 Bound by the terms of the Contract to Sell, the BANK is obliged to respect the same and honor the payments already made by Enriquez for the purchase price of Lot 4. Thus, the BANK can only collect the balance of the purchase price from Enriquez and has the obligation, upon full payment, to deliver to Enriquez a clean title over the subject property.68 Dacion en pago extinguished the loan obligation

The BANK then posits that, if title to Lot 4 is ordered delivered to Enriquez, DELTA has the obligation to pay the BANK the corresponding value of Lot 4. According to the BANK, the dation in payment extinguished the loan only to the extent of the value of the thing delivered. Since Lot 4 would have no value to the BANK if it will be delivered to Enriquez, DELTA would remain indebted to that extent. We are not persuaded. Like in all contracts, the intention of the parties to the dation in payment is paramount and controlling. The contractual intention determines whether the property subject of the dation will be considered as the full equivalent of the debt and will therefore serve as full satisfaction for the debt. "The dation in payment extinguishes the obligation to the extent of the value of the thing delivered, either as agreed upon by the parties or as may be proved, unless the parties by agreement, express or implied, or by their silence, consider the thing as equivalent to the obligation, in which case the obligation is totally extinguished."69 In the case at bar, the Dacion en Pago executed by DELTA and the BANK indicates a clear intention by the parties that the assigned properties would serve as full payment for DELTAs entire obligation: KNOW ALL MEN BY THESE PRESENTS: This instrument, made and executed by and between: xxxx THAT, the ASSIGNOR acknowledges to be justly indebted to the ASSIGNEE in the sum of ELEVEN MILLION EIGHT HUNDRED SEVENTY-EIGHT THOUSAND EIGHT HUNDRED PESOS (P11,878,800.00), Philippine Currency as of August 25, 1998. Therefore, by virtue of this instrument, ASSIGNOR hereby ASSIGNS, TRANSFERS, and CONVEYS AND SETS OVER [TO] the ASSIGNEE that real estate with the building and improvements existing thereon, more particularly described as follows: xxxx of which the ASSIGNOR is the registered owner being evidenced by TCT No. x x x issued by the Registry of Deeds of Trece Martires City. THAT, the ASSIGNEE does hereby accept this ASSIGNMENT IN PAYMENT OF THE TOTAL OBLIGATION owing to him by the ASSIGNOR as above-stated;70 Without any reservation or condition, the Dacion stated that the assigned properties served as full payment of DELTAs "total obligation" to the BANK. The BANK accepted said properties as equivalent of the loaned amount and as full satisfaction of DELTAs debt. The BANK cannot complain if, as it turned out, some of those assigned properties (such as Lot 4) are covered by existing contracts to sell. As noted earlier, the BANK knew that the assigned properties were subdivision lots and covered by PD 957. It was aware of the nature of DELTAs business, of the location of the assigned properties within DELTAs subdivision development, and the possibility that some of the properties may be subjects of existing contracts to sell which enjoy protection under PD 957. Banks dealing with subdivision properties are expected to conduct a thorough due diligence review to discover the status of the properties they deal with. It may thus be said that the BANK, in accepting the assigned properties as full payment of DELTAs "total obligation," has assumed the risk that some of the assigned properties (such as Lot 4) are covered by contracts to sell which it is bound to honor under PD 957. A dacion en pago is governed by the law of sales.71 Contracts of sale come with warranties, either express (if explicitly stipulated by the parties) or implied (under Article 1547 et seq. of the Civil Code). In this case, however, the BANK does not even point to any breach of warranty by DELTA in connection with the Dation in Payment. To be sure, the Dation in Payment has no express warranties relating to existing contracts to sell over the assigned properties. As to the implied warranty in case of eviction, it is waivable72 and cannot be invoked if the buyer

knew of the risks or danger of eviction and assumed its consequences.73 As we have noted earlier, the BANK, in accepting the assigned properties as full payment of DELTAs "total obligation," has assumed the risk that some of the assigned properties are covered by contracts to sell which must be honored under PD 957. Award of damages There is nothing on record that warrants the award of exemplary damages74 as well as attorneys fees75 in favor of the BANK. Balance to be paid by Enriquez As already mentioned, the Contract to Sell in favor of Enriquez must be respected by the BANK.1avvphi1 Upon Enriquezs full payment of the balance of the purchase price, the BANK is bound to deliver the title over Lot 4 to her. As to the amount of the balance which Enriquez must pay, we adopt the OPs ruling thereon which sustained the amount stipulated in the Contract to Sell. We will not review Enriquezs initi al claims about the supposed violation of the price ceiling in BP 220, since this issue was no longer pursued by the parties, not even by Enriquez, who chose not to file the required pleadings76 before the Court. The parties were informed in the Courts September 5, 2007 Resolution that issues that are not included in their memoranda shall be deemed waived or abandoned. Since Enriquez did not file a memorandum in either petition, she is deemed to have waived the said issue. WHEREFORE, premises considered, the appealed November 30, 2004 Decision of the Court of Appeals, as well as its June 22, 2005 Resolution in CA-G.R. SP No. 81280 are hereby AFFIRMED with the MODIFICATIONS that Delta Development and Management Services, Inc. is NOT LIABLE TO PAY Luzon Development Bank the value of the subject lot; and respondent Angeles Catherine Enriquez is ordered to PAY the balance of the purchase price and the interests accruing thereon, as decreed by the Court of Appeals, to the Luzon Development Bank, instead of Delta Development and Management Services, Inc., within thirty (30) days from finality of this Decision. The Luzon Development Bank is ordered to DELIVER a CLEAN TITLE to Angeles Catherine Enriquez upon the latters full payment of the balance of the purchase price and the accrued interests. SO ORDERED. MARIANO Associate Justice WE CONCUR: C. DEL CASTILLO

G.R. No. 139173

February 28, 2007

SPOUSES ONNIE SERRANO AND AMPARO HERRERA, Petitioners vs. GODOFREDO CAGUIAT, Respondent. DECISION SANDOVAL-GUTIERREZ, J.: Before us is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as amended, assailing the Decision 1 of the Court of Appeals dated January 29, 1999 and its Resolution dated July 14, 1999 in CA-G.R. CV No. 48824. Spouses Onnie and Amparo Herrera, petitioners, are the registered owners of a lot located in Las Pias, Metro Manila covered by Transfer Certificate of Title No. T-9905.

Sometime in March 1990, Godofredo Caguiat, respondent, offered to buy the lot. Petitioners agreed to sell it atP1,500.00 per square meter. Respondent then gave petitioners P100,000.00 as partial payment. In turn, petitioners gave respondent the corresponding receipt stating that respondent promised to pay the balance of the purchase price on or before March 23, 1990, thus: Las Pias, Metro Manila March 19, 1990 RECEIPT FOR PARTIAL PAYMENT OF LOT NO. 23 COVERED BY TCT NO. T-9905, LAS PIAS, METRO MANILA RECEIVED FROM MR. GODOFREDO CAGUIAT THE AMOUNT OF ONE HUNDRED THOUSAND PESOS (P100,000.00) AS PARTIAL PAYMENT OF OUR LOT SITUATED IN LAS PIAS, M.M. COVERED BY TCT NO. T-9905 AND WITH AN AREA OF 439 SQUARE METERS. MR. CAGUIAT PROMISED TO PAY THE BALANCE OF THE PURCHASE PRICE ON OR BEFORE MARCH 23, 1990, AND THAT WE WILL EXECUTE AND SIGN THE FINAL DEED OF SALE ON THIS DATE. SIGNED THIS 19th DAY OF MARCH, 1990 AT LAS PIAS, M.M. (SGD) AMPARO HERRERA (SGD) ONNIE SERRANO"2

Second, plaintiff was the first to react to show his eagerness to push through with the sale by sending defendants the letter dated March 25, 1990. (Exh. D) and reiterated the same intent to pursue the sale in a letter dated April 6, 1990. Third, plaintiff had the balance of the purchase price ready for payment (Exh. C). Defendants mere allegation that it was plaintiff who did not appear on March 23, 1990 is unavailing. Defendants letters (Exhs. 2 and 5) appear to be mere afterthought. On appeal, the Court of Appeals, in its assailed Decision of January 29, 1999, affirmed the trial courts judgment. Forthwith, petitioners filed their motion for reconsideration but it was denied by the appellate court in its Resolution8 dated July 14, 1999. Hence, the present recourse. The basic issue to be resolved is whether the document entitled "Receipt for Partial Payment" signed by both parties earlier mentioned is a contract to sell or a contract of sale. Petitioners contend that the Receipt is not a perfected contract of sale as provided for in Article 14589 in relation to Article 147510 of the Civil Code. The delivery to them of P100,000.00 as down payment cannot be considered as proof of the perfection of a contract of sale under Article 148211 of the same Code since there was no clear agreement between the parties as to the amount of consideration. Generally, the findings of fact of the lower courts are entitled to great weight and should not be disturbed except for cogent reasons.14 Indeed, they should not be changed on appeal in the absence of a clear showing that the trial court overlooked, disregarded, or misinterpreted some facts of weight and significance, which if considered would have altered the result of the case.1awphi1.net12 In the present case, we find that both the trial court and the Court of Appeals interpreted some significant facts resulting in an erroneous resolution of the issue involved. In holding that there is a perfected contract of sale, both courts mainly relied on the earnest money given by respondent to petitioners. They invoked Article 1482 of the Civil Code which provides that "Whenever earnest money is given in a contract of sale, it shall be considered as part of the price and as proof of the perfection of the contract." We are not convinced. In San Miguel Properties Philippines, Inc. v. Spouses Huang,13 we held that the stages of a contract of sale are: (1) negotiation, covering the period from the time the prospective contracting parties indicate interest in the contract to the time the contract is perfected; (2) perfection, which takes place upon the concurrence of the essential elements of the sale, which is the meeting of the minds of the parties as to the object of the contract and upon the price; and (3) consummation, which begins when the parties perform their respective undertakings under the contract of sale, culminating in the extinguishment thereof. With the above postulates as guidelines, we now proceed to determine the real nature of the contract entered into by the parties. 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.14 Thus, when petitioners declared in the said "Receipt for Partial Payment" that they RECEIVED FROM MR. GODOFREDO CAGUIAT THE AMOUNT OF ONE HUNDRED THOUSAND PESOS (P100,000.00) AS PARTIAL PAYMENT OF OUR LOT SITUATED IN LAS PIAS, M.M. COVERED BY TCT NO. T-9905 AND WITH AN AREA OF 439 SQUARE METERS. MR. CAGUIAT PROMISED TO PAY THE BALANCE OF THE PURCHASE PRICE ON OR BEFORE MARCH 23, 1990, AND THAT WE WILL EXECUTE AND SIGN THE FINAL DEED OF SALE ON THIS DATE.

On March 28, 1990, respondent, through his counsel Atty. Ponciano Espiritu, wrote petitioners informing them of his readiness to pay the balance of the contract price and requesting them to prepare the final deed of sale.3 On April 4, 1990, petitioners, through Atty. Ruben V. Lopez, sent a letter4 to respondent stating that petitioner Amparo Herrera is leaving for abroad on or before April 15, 1990 and that they are canceling the transaction. Petitioners also informed respondent that he can recover the earnest money of P100,000.00 anytime. Again, on April 6, 1990,5 petitioners wrote respondent stating that they delivered to his counsel Philippine National Bank Managers Check No. 790537 dated April 6, 1990 in the amount of P100,000.00 payable to him. In view of the cancellation of the contract by petitioners, respondent filed with the Regional Trial Court, Branch 63, Makati City a complaint against them for specific performance and damages, docketed as Civil Case No. 90-1067.6 On June 27, 1994, after hearing, the trial court rendered its Decision7 finding there was a perfected contract of sale between the parties and ordering petitioners to execute a final deed of sale in favor of respondent. The trial court held: xxx In the evaluation of the evidence presented by the parties as to the issue as to who was ready to comply with his obligation on the verbal agreement to sell on March 23, 1990, shows that plaintiffs position deserves more weight and credibility. First, the P100,000.00 that plaintiff paid whether as downpayment or earnest money showed that there was already a perfected contract. Art. 1482 of the Civil Code of the Philippines, reads as follows, to wit: Art. 1482. Whenever earnest money is given in a contract of sale, it shall be considered as part of the price and as proof of the perfection of the contract.

there can be no other interpretation than that they agreed to a conditional contract of sale, consummation of which is subject only to the full payment of the purchase price. A contract to sell is akin to a conditional sale where the efficacy or obligatory force of the vendor's obligation to transfer title 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. The suspensive condition is commonly full payment of the purchase price.15

SO ORDERED. ANGELINA Associate Justice SANDOVAL-GUTIERREZ

G.R. No. 167213 The differences between a contract to sell and a contract of sale are well-settled in jurisprudence. As early as 1951, in Sing Yee v. Santos,16 we held that: x x x [a] distinction must be made between a contract of sale in which title passes to the buyer upon delivery of the thing sold and a contract to sell x x x where by agreement the ownership is reserved in the seller and is not to pass until the full payment, of the purchase price is made. In the first case, non-payment of the price is a negative resolutory condition; in the second case, full payment is a positive suspensive condition. Being contraries, their effect in law cannot be identical. In the first case, the vendor has lost and cannot recover the ownership of the land sold until and unless the contract of sale is itself resolved and set aside. In the second case, however, the title remains in the vendor if the vendee does not comply with the condition precedent of making payment at the time specified in the contract. In other words, in a contract to sell, ownership is retained by the seller and is not to pass to the buyer until full payment of the price. 17 In this case, the "Receipt for Partial Payment" shows that the true agreement between the parties is a contract to sell. First, ownership over the property was retained by petitioners and was not to pass to respondent until full payment of the purchase price. Thus, petitioners need not push through with the sale should respondent fail to remit the balance of the purchase price before the deadline on March 23, 1990. In effect, petitioners have the right to rescind unilaterally the contract the moment respondent fails to pay within the fixed period.18 Second, the agreement between the parties was not embodied in a deed of sale. The absence of a formal deed of conveyance is a strong indication that the parties did not intend immediate transfer of ownership, but only a transfer after full payment of the purchase price.19 Third, petitioners retained possession of the certificate of title of the lot. This is an additional indication that the agreement did not transfer to respondent, either by actual or constructive delivery, ownership of the property.20 It is true that Article 1482 of the Civil Code provides that "Whenever earnest money is given in a contract of sale, it shall be considered as part of the price and proof of the perfection of the contract." However, this article speaks ofearnest money given in a contract of sale. In this case, the earnest money was given in a contract to sell. The earnest money forms part of the consideration only if the sale is consummated upon full payment of the purchase price.21 Now, since the earnest money was given in a contract to sell, Article 1482, which speaks of a contract of sale, does not apply. As previously discussed, the suspensive condition (payment of the balance by respondent) did not take place. Clearly, respondent cannot compel petitioners to transfer ownership of the property to him. WHEREFORE, we GRANT the instant Petition for Review. The challenged Decision of the Court of Appeals isREVERSED and respondents complaint is DISMISSED.

October 31, 2006

DARREL CORDERO, EGMEDIO BAUTISTA, ROSEMAY BAUTISTA, MARION BAUTISTA, DANNY BOY CORDERO, LADYLYN CORDERO and BELEN CORDERO, petitioners, vs. F.S. MANAGEMENT & DEVELOPMENT CORPORATION, respondent.

DECISION

CARPIO MORALES, J.: Assailed via petition for review are issuances of the Court of Appeals in CA-G.R. CV No. 66198, Decision1 dated April 29, 2004 which set aside the decision of Branch 260 of the Regional Trial Court (RTC) of Paraaque in Civil Case No. 97-067, and Resolution dated February 21, 2005 denying petitioners motion for reconsideration. On or about October 27, 1994,2 petitioner Belen Cordero (Belen), in her own behalf and as attorney-in-fact of her co-petitioners Darrel Cordero, Egmedio Bautista, Rosemay Bautista, Marion Bautista, Danny Boy Cordero and Ladylyn Cordero, entered into a contract to sell 3 with respondent, F.S. Management and Development Corporation, through its chairman Roberto P. Tolentino over five (5) parcels of land located in Nasugbu, Batangas described in and covered by TCT Nos. 62692, 62693, 62694, 62695 and 20987. The contract to sell contained the following terms and conditions: 1. That the BUYER will buy the whole lots above described from the OWNER consisting of 50 hectares more or less at P25/sq.m. or with a total price of P12,500,000.00; 2. That the BUYER will pay the OWNER the sum of P500,000.00 as earnest money which will entitle the latter to enter the property and relocate the same, construct the necessary paths and roads with the help of the necessary parties in the area; 3. The BUYER will pay the OWNER the sum of THREE MILLION FIVE HUNDRED THOUSAND PESOS ONLY (P3,500,000.00) on or before April 30, 1995 and the remaining balance will be paid within 18 mons. (sic) from the date of payment of P3.5 Million pesos in 6 equal quarterly payments or P1,411,000.00 every quarter; 4. The title will be transferred by the OWNER to the BUYER upon complete payment of the agreed purchase price. Provided that any obligation by the OWNER brought about by encumbrance or mortgage with any bank shall be settled by the OWNER or by the BUYER which shall be deducted the total purchase price; 5. Provided, the OWNER shall transfer the titles to the BUYER even before the complete payment if the BUYER can provide

post dated checks which shall be in accordance with the time frame of payments as above stated and which shall be guaranteed by a reputable bank; 6. Upon the payment of the earnest money and the down payment of 3.5 Million pesos the BUYER can occupy and introduce improvements in the properties as owner while owner is guaranteeing that the properties will have no tenants or squatters in the properties and cooperate in the development of any project or exercise of ownerships by the BUYER; 7. Delay in the payment by the BUYER in the agreed due date will entitle the SELLER for the legal interest.4 Pursuant to the terms and conditions of the contract to sell, respondent paid earnest money in the amount ofP500,000 on October 27, 1994.5 She likewise paid P1,000,000 on June 30, 1995 and another P1,000,000 on July 6, 1995. No further payments were made thereafter.6 Petitioners thus sent respondent a demand letter dated November 28, 19967 informing her that they were revoking/canceling the contract to sell and were treating the payments already made as payment for damages suffered as a result of the breach of contract, and demanding the payment of the amount of P10 Million Pesos for actual damages suffered due to loss of income by reason thereof. Respondent ignored the demand, however. Hence, on February 21, 1997, petitioner Belen, in her own behalf and as attorney-in-fact of her co-petitioners, filed before the RTC of Paraaque a complaint for rescission of contract with damages 8 alleging that respondent failed to comply with its obligations under the contract to sell, specifically its obligation to pay the downpayment ofP3.5 Million by April 30, 1995, and the balance within 18 months thereafter; and that consequently petitioners are entitled to rescind the contract to sell as well as demand the payment of damages. In its Answer,9 respondent alleged that petitioners have no cause of action considering that they were the first to violate the contract to sell by preventing access to the properties despite payment of P2.5 Million Pesos; petitioners prevented it from complying with its obligation to pay in full by refusing to execute the final contract of sale unless additional payment of legal interest is made; and petitioners refusal to execute the final contract of sale was due to the willingness of another buyer to pay a higher price. In its Pre-trial Order10 of June 9, 1997, the trial court set the pre-trial conference on July 8, 1997 during which neither respondents representative nor its counsel failed to appear. And respondent did not submit a pre-trial brief, hence, it was declared as in default by the trial court which allowed the presentation of evidence ex parte by petitioners.11 Petitioners presented as witnesses petitioner Belen and one Ma. Cristina Cleofe. Belen testified on the execution of the contract to sell; the failure of respondent to make the necessary payments in compliance with the contract; the actual and moral damages sustained by petitioners as a result of the breach, including the lost opportunity to sell the properties for a higher price to another buyer, Ma. Cristina Cleofe; and the attorneys fees incurred by petitioners as a result of the suit. 12 Ma. Cristina Cleofe, on the other hand, testified on the offer she made to petitioners to buy the properties at P35.00/sq.m.13 which was, however, turned down in light of the contract to sell executed by petitioners in favor of the respondent.14 Respondent filed a motion to set aside the order of default 15 which was denied by the trial court by Order dated September 12, 1997.16 Via petition for certiorari, respondent challenged the said order, but it was denied by the Court of Appeals.17

Meanwhile, the trial court issued its decision18 on November 18, 1997, finding for petitioners and ordering respondent to pay damages and attorneys fees. The dispositive portion of the decision reads: WHEREFORE, premises considered, the contract to sell between the Plaintiffs and the Defendant is herebydeclared as rescinded and the defendant is likewise ordered to pay the plaintiff: (1) P4,500,000.00 computed as follows: P5,000,000.00 in actual damages and P2,000,000.00 in moral and exemplary damages, less defendants previous payment of P2,500,000.00 under the contract to sell; and (2) P800,000.00 by way of attorneys fees as well as the costs of suit. SO ORDERED. (Underscoring supplied) Before the Court of Appeals to which respondent appealed the trial courts decision, it raised the following errors: 3.01. The Regional Trial Court erred when it awarded plaintiffsappellees Five Million Pesos (P5,000,000.00) as actual damages. Corollary thereto, the Regional Trial Court erred in declaring defendant-appellant to have acted in wanton disregard of its obligations under the Contract to Sell. 3.02. The Regional Trial Court erred when it awarded plaintiffsappellees Two Million Pesos (P2,000,000.00) as moral and exemplary damages. 3.03. The Regional Trial Court erred when it awarded plaintiffsappellees Eight Hundred Thousand Pesos (P800,000.00) as attorneys fees.19 In the assailed decision,20 the Court of Appeals set aside the contract to sell, it finding that petitioners obligation thereunder did not arise for failure of respondent to pay the full purchase price. It also set aside the award to petitioners of damages for not being duly proven. And it ordered petitioners to return "the amount received from [respondent]." Thus the dispositive portion of the appellate courts decision reads: WHEREFORE, the Decision dated 18 November 1997 of the Regional Trial Court, Branch 260 of Paraaque City in Civil Case No. 97-067 is hereby VACATED. A NEW DECISION is ENTERED ordering the SETTING-ASIDE of the Contract to Sell WITHOUT payment of damages. Plaintiffs-appellees are further ORDERED TO RETURN THE AMOUNTS RECEIVED from defendant-appellant. (Underscoring supplied) SO ORDERED. Their motion for reconsideration having been denied, petitioners filed the present petition for review which raises the following issues: 1. Whether the Court of Appeals erred in ruling on the nature of the contract despite the fact that it was not raised on appeal. 2. Whether or not a contract to sell may be subject to rescission under Article 1191 of the Civil Code. 3. Whether or not the Court of Appeals erred in setting aside the award of damages. Petitioners contend that the Court of Appeals erred in ruling on the nature of the contract to sell and the propriety of the remedy of rescission under Article 1191 of the Civil Code, these matters not having been raised by respondents in the assigned errors. In any event, petitioners

claim that the contract to sell involves reciprocal obligations, hence, it falls within the ambit of Article 1191.21 While a party is required to indicate in his brief an assignment of errors and only those assigned shall be considered by the appellate court in deciding the case, appellate courts have ample authority to rule on matters not assigned as errors in an appeal if these are indispensable or necessary to the just resolution of the pleaded issues. 22 Thus this Court has allowed the consideration of other grounds or matters not raised or assigned as errors, to wit: 1) grounds affecting jurisdiction over the subject matter; 2) matters which are evidently plain or clerical errors within the contemplation of the law; 3) matters the consideration of which is necessary in arriving at a just decision and complete resolution of the case or to serve the interest of justice or to avoid dispensing piecemeal justice; 4) matters of record which were raised in the trial court and which have some bearing on the issue submitted which the parties failed to raise or which the lower court ignored; 5) matters closely related to an error assigned; and 6) matters upon which the determination of a question properly assigned is dependent.23 In the present case, the nature as well as the characteristics of a contract to sell is determinative of the propriety of the remedy of rescission and the award of damages. As will be discussed shortly, the trial court committed manifest error in applying Article 1191 of the Civil Code to the present case, a fundamental error which "lies at the base and foundation of the proceeding, affecting the judgment necessarily," or, as otherwise expressed, "such manifest error as when removed destroys the foundation of the judgment."24 Hence, the Court of Appeals correctly ruled on these matters even if they were not raised in the appeal briefs. Under a contract to sell, the seller retains title to the thing to be sold until the purchaser fully pays the agreed purchase price. The full payment is a positive suspensive condition, the non-fulfillment of which is not a breach of contract but merely an event that prevents the seller from conveying title to the purchaser. The non-payment of the purchase price renders the contract to sell ineffective and without force and effect. 25 Since the obligation of petitioners did not arise because of the failure of respondent to fully pay the purchase price, Article 1191 of the Civil Code would have no application. Rayos v. Court of Appeals26 explained: Construing the contracts together, it is evident that the parties executed a contract to sell and not a contract of sale. The petitioners retained ownership without further remedies by the respondents until the payment of the purchase price of the property in full. Such payment is a positive suspensive condition, failure of which is not really a breach, serious or otherwise, but an event that prevents the obligations of the petitioners to convey title from arising, in accordance with Article 1184 of the Civil Code. x x x The non-fulfillment by the respondent of his obligation to pay, which is a suspensive condition to the obligation of the petitioners to sell and deliver the title to the property, rendered the contract to sell ineffective and without force and effect. The parties stand as if the conditional obligation had never existed. Article 1191 of the New Civil Code will not apply because it presupposes an obligation already extant. There can be no rescission of an obligation that is still non-existing, the suspensive condition not having happened. [Emphasis and underscoring supplied; citations omitted] The subject contract to sell clearly states that "title will be transferred by the owner (petitioners) to the buyer (respondent) upon complete payment of the agreed purchase price."27 Since respondent failed to fully pay the purchase price, petitioners obligation to convey title to the properties did not arise. While rescission does not apply in this case, petitioners may nevertheless cancel the contract to sell, their obligation not having arisen.28This brings this Court to Republic Act No. 6552 (THE REALTY INSTALLMENT BUYER PROTECTION ACT). InRamos v. Heruela29 this Court held:

Articles 1191 and 1592 of the Civil Code are applicable to contracts of sale. In contracts to sell, RA 6552 applies. In Rillo v. Court of Appeals,30 the Court declared: x x x Known as the Maceda Law, R.A. No. 6552 recognizes in conditional sales of all kinds of real estate (industrial, commercial, residential) the right of the seller to cancel the contract upon non-payment of an installment by the buyer, which is simply an event that prevents the obligation of the vendor to convey title from acquiring binding force. It also provides the right of the buyer on installments in case he defaults in the payment of succeeding installments x x x. [Emphasis supplied] The properties subject of the contract having been intended for commercial, and not for residential, purposes, 31petitioners are entitled to retain the payments already made by respondent. RA 6552 expressly recognizes the vendors right to cancel contracts to sell on installment basis industrial and commercial properties with full retention of previous payments.32 But even assuming that the properties were not intended for commercial or industrial purpose, since respondent paid less than two years of installments, it is not entitled to any refund.33 It is on this score that a modification of the challenged issuances of the appellate court is in order. Respecting petitioners claim for damages, failure to make full payment of the purchase price in a contract to sell is not really a breach, serious or otherwise, but, as priorly stated, an event that prevents the obligation of the vendor to convey title to the property from arising.34 Consequently, the award of damages is not warranted in this case. With regard to attorneys fees, Article 220835 of the Civil Code provides that subject to certain exceptions, attorneys fees and expenses of litigation, other than judicial costs, cannot be recovered in the absence of stipulation. None of the enumerated exceptions in Article 2208 is present in this case. It bears stressing that the policy of the law is to put no premium on the right to litigate.36 WHEREFORE, the assailed Court of Appeals Decision dated April 29, 2004 and the Resolution dated February 21, 2005 in CA-G.R. CV No. 66198 are AFFIRMED with the MODIFICATION that petitioners are entitled to retain the payments already received from respondent. SO ORDERED. Quisumbing, J., Chairperson, Carpio, and Velasco, Jr., JJ., concur. Tinga, J., on leave.

G.R. No. 173856

November 20, 2008

DAO HENG BANK, INC., now BANCO DE ORO UNIVERSAL BANK, petitioner vs. SPS. LILIA and REYNALDO LAIGO, respondent. DECISION CARPIO MORALES, J.: The Spouses Lilia and Reynaldo Laigo (respondents) obtained loans from Dao Heng Bank, Inc. (Dao Heng) in the total amount of P11 Million, to secure the payment of which they forged on October 28, 1996, November 18, 1996 and April 18, 1997 three Real Estate Mortgages covering two parcels of land registered in the name of respondent "Lilia D. Laigo, . . . married to Reynaldo Laigo," one containing 569 square meters and the other containing 537 square meters.

The mortgages were duly registered in the Registry of Deeds of Quezon City. The loans were payable within 12 months from the execution of the promissory notes covering the loans. As of 2000, respondents failed to settle their outstanding obligation, drawing them to verbally offer to cede to Dao Heng one of the two mortgaged lots by way of dacion en pago. To appraise the value of the mortgaged lands, Dao Heng in fact commissioned an appraiser whose fees were shouldered by it and respondents. There appears to have been no further action taken by the parties after the appraisal of the properties. Dao Heng was later to demand the settlement of respondents' obligation by letter of August 18, 20001wherein it indicated that they had an outstanding obligation of P10,385,109.92 inclusive of interests and other charges. Respondents failed to heed the demand, however. Dao Heng thereupon filed in September 2000 an application to foreclose the real estate mortgages executed by respondents. The properties subject of the mortgage were sold for P10,776,242 at a public auction conducted on December 20, 2000 to Banco de Oro Universal Bank (hereafter petitioner) which was the highest bidder. It appears that respondents negotiated for the redemption of the mortgages for by a June 29, 2001 letter2to them, petitioner, to which Dao Heng had been merged, through its Vice President on Property Management & Credit Services Department, advised respondent Lilia Laigo as follows: This is to formally advise you of the bank's response to your proposal pertaining to the redemption of the two (2) foreclosed lots located in Fairview, Quezon City as has been relayed to you last June 13, 2001 as follows: 1. Redemption price shall be P11.5MM plus 12% interest based on diminishing balance payable in staggered payments up to January 2, 2002 as follows: a. P3MM - immediately upon receipt of this approval b. Balance payable in staggered payments (plus interest) up to January 2, 2002 2. Release Values for Partial Redemption: a. TCT No. 92257 (along Commonwealth) P7.500 MM* b. TCT No. N-146289 (along Regalado) P4.000 MM* * excluding 12% interest 3. Other Conditions: a. Payments shall be covered by post dated checks b. TCT No. 92257 shall be the first property to be released upon payment of the first P7.5MM plus interest c. Arrangement to be covered by an Agreement If you are agreeable to the foregoing terms and conditions, please affix your signature showing your conformity thereto at the space provided below. (Emphasis and underscoring in the original; italics supplied)

Nothing was heard from respondents, hence, petitioner by its Manager, Property Management & Credit Services Department, advised her by letter of December 26, 20013 that in view of their failure to conform to the conditions set by it for the redemption of the properties, it would proceed to consolidate the titles immediately after the expiration of the redemption period on January 2, 2002. Six days before the expiration of the redemption period or on December 27, 2001, respondents filed a complaint before the Regional Trial Court (RTC) of Quezon City, for Annulment, Injunction with Prayer for Temporary Restraining Order (TRO), praying for the annulment of the foreclosure of the properties subject of the real estate mortgages and for them to be allowed "to deliver by way of dacion en pago' one of the mortgaged properties as full payment of [their] mortgaged obligation" and to, in the meantime, issue a TRO directing the defendant-herein petitioner to desist from consolidating ownership over their properties. By respondents' claim, Dao Heng verbally agreed to enter into a dacion en pago. In its Opposition to respondents' Application for a TRO, 4 petitioner claimed that there was no meeting of the minds between the parties on the settlement of respondents' loan via dacion en pago. A hearing on the application for a TRO was conducted by Branch 215 of the RTC of Quezon City following which it denied the same. Petitioner thereupon filed a Motion to Dismiss the complaint on the ground that the claim on which respondents' action is founded is unenforceable under the Statute of Frauds and the complaint states no cause of action. Respondents opposed the motion, contending that their delivery of the titles to the mortgaged properties constituted partial performance of their obligation under the dacion en pago to take it out from the coverage of the Statute of Frauds. The trial court granted petitioner's Motion to Dismiss in this wise: [P]laintiffs' claim must be based on a document or writing evidencing the alleged dacion en pago, otherwise, the same cannot be enforced in an action in court. The Court is not persuaded by plaintiffs' contention that their case is an exception to the operation of the rule on statute of frauds because of their partial performance of the obligation in the dacion en pago consisting of the delivery of the titles of the properties to the defendants. As correctly pointed out by the defendants,the titles were not delivered to them pursuant to the dacion en pago but by reason of the execution of the mortgage loan agreement. If indeed a dacion en pago agreement was entered into between the parties, it is inconceivable that a written document would not be drafted considering the magnitude of the amount involved.5 (Emphasis and underscoring supplied) Respondents assailed the dismissal of their complaint via Petition for Review before this Court which referred it to the Court of Appeals for disposition. Reversing the trial court's dismissal of the complaint, the appellate court, by Decision of January 26, 2006,6 reinstated respondents' complaint.7 In ordering the reinstatement of respondents' complaint, the appellate court held that the complaint states a cause of action, respondents having alleged that there was partial performance of the agreement to settle their obligation via dacion en pago when they agreed to have the properties appraised to thus place their agreement within the exceptions provided under Article 14038 of the Civil Code on Statute of Frauds. Thus the appellate court ratiocinated: Particularly, in seeking exception to the application of the Statute of Frauds, petitioners[-herein respondents] averred partial performance of the supposed verbal dacion en pago. In paragraph 5 of their complaint, they stated: "As part of the

agreement, defendant Dao Heng Bank had the mortgaged property appraised to determine which of the two shall be delivered as full payment of the mortgage obligation; Also as part of the deal, plaintiffs for their part paid P5,000.00 for the appraisal expense. As reported by the appraiser commissioned by Defendant Dao Heng, the appraised value of the mortgaged properties were as follows: x x x" Having done so, petitioners are at least entitled to a reasonable opportunity to prove their case in the course of a full trial, to which the respondents may equally present their evidence in refutation of the formers' case. (Underscoring supplied) Petitioner's Motion for Reconsideration having been denied by the appellate court by Resolution of July 19, 2006, the present petition was filed faulting the appellate court in ruling: I. . . . THAT THE COMPLAINT ALLEGED A SUFFICIENT CAUSE OF ACTION DESPITE THE ALLEGATIONS, AS WELL AS ADMISSIONS FROM THE RESPONDENTS, THAT THERE WAS NO PERFECTED DACION EN PAGO CONTRACT; II. . . . THAT THE ALLEGED DACION EN PAGO IS NOT UNENFORCEABLE UNDER THE STATUTE OF FRAUDS, DESPITE THE ABSENCE OF A WRITTEN & BINDING CONTRACT; III. . . . THAT THE COMPLAINT SUFFICIENTLY STATED A CAUSE OF ACTION.9 Generally, the presence of a cause of action is determined from the facts alleged in the complaint. In their complaint, respondents alleged: xxxx 4. Sometime in the middle of the year 2000, defendant Dao Heng Bank as the creditor bank agreed to the full settlement of plaintiffs' mortgage obligation of P9 Million through the assignment of one of the two (2) mortgaged properties; [5] As part of the agreement, defendant Dao Heng Bank had the mortgaged properties appraised to determine which of the two (2) mortgaged properties shall be delivered as full payment of the mortgage obligation; Also as part of the deal, plaintiffs for their part paid P5,000.00 for the appraisal expense; As reported by the appraiser commissioned by defendant Dao Heng, the appraised value of the mortgaged properties were as follows: (a) Property No. 92257: P12,518,000.00 1 T.C.T. No.

obligation, defendant Dao Heng Bank proceeded to foreclose the mortgaged properties above-described and sold said properties which were aggregately valued at more than P20 Million for only P10,776,242.00, an unconscionably very low price; (Underscoring supplied) Even if a complaint states a cause of action, however, a motion to dismiss for insufficiency of cause of action may be granted if the evidence discloses facts sufficient to defeat the claim and enables the court to go beyond the disclosures in the complaint. In such instances, the court can dismiss a complaint on this ground, even without a hearing, by taking into account the discussions in said motion to dismiss and the disposition thereto.10 In its Opposition to respondents' application for the issuance of a TRO,11 petitioner, responding to respondents' allegation that it agreed to the settlement of their obligation via the assignment of one of the two mortgaged properties, alleged that there was no meeting of the minds thereon: 4. Plaintiffs' claim that defendant Dao Heng Bank[s] foreclosure sale of the mortgaged properties was improper because there was an agreement to dacion one of the two (2) mortgaged properties as full settlement of the loan obligation and that defendant Dao Heng Bank and Banco de Oro were already negotiating and colluding for the latter's acquisition of the mortgaged [properties] for the unsconscionably low price of P10,776.242.00 are clearly WITHOUT BASIS. Quite to the contrary, there was no meeting of the minds between defendant Dao Heng Bank and the plaintiffs to dacion any of the mortgaged properties as full settlement of the loan. Although there was a PROPOSALand NEGOTIATIONS to settle the loan by way of dacion, nothing came out of said proposal, much less did the negotiations mature into the execution of a dacion en pago instrument. Defendant Dao Heng Bank found the offer to settle by way of dacion not acceptable and thus, it opted to foreclose on the mortgage. The law clearly provides that "the debtor of a thing cannot compel the creditor to receive a different one, although the latter may be of the same value, or more valuable than that which is due" (Article 1244, New Civil Code). "The oblige is entitled to demand fulfillment of the obligation or performance as stipulated" (Palmares v. Court of Appeals, 288 SCRA 422 at p. 444 [1998]). "The power to decide whether or not to foreclose on the mortgage is the sole prerogative of the mortgagee" (Rural Bank of San Mateo, Inc. vs. Intermediate Appellate Court, 146 SCRA 205, at 213 [1986]) Defendant Dao Heng Bank merely opted to exercise such prerogative.12 (Emphasis in the original; capitalization and underscoring supplied) Dacion en pago as a mode of extinguishing an existing obligation partakes of the nature of sale whereby property is alienated to the creditor in satisfaction of a debt in money. 13 It is an objective novation of the obligation, hence, common consent of the parties is required in order to extinguish the obligation. . . . In dacion en pago, as a special mode of payment, the debtor offers another thing to the creditor who accepts it as equivalent of payment of an outstanding debt. The undertaking really partakes in one sense of the nature of sale, that is, the creditor is really buying the thing or property of the debtor, payment for which is to be charged against the debtor's debt. As such the 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 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."14(Emphasis, italics and underscoring supplied; citation omitted)

L2A Blk 12 Don Mariano Marcos Ave., Fairview, QC (b) Property No. 2 T.C.T. No. 146289: P8,055,000.00 L36 Blk 87 Regalado Ave. Cor. Ipil St., Neopolitan, QC [6] Sometime in December, year 2000, the protest of plaintiffs notwithstanding and in blatantbreach of the agreed "Dacion en pago" as the mode of full payment of plaintiffs' mortgage

Being likened to that of a contract of sale, dacion en pago is governed by the law on sales.15 The partial execution of a contract of sale takes the transaction out of the provisions of the Statute of Frauds so long as the essential requisites of consent of the contracting parties, object and cause of the obligationconcur and are clearly established to be present.16 Respondents claim that petitioner's commissioning of an appraiser to appraise the value of the mortgaged properties, his services for which they and petitioner paid, and their delivery to petitioner of the titles to the properties constitute partial performance of their agreement to take the case out of the provisions on the Statute of Frauds. There is no concrete showing, however, that after the appraisal of the properties, petitioner approved respondents' proposal to settle their obligation via dacion en pago. The delivery to petitioner of the titles to the properties is a usual condition sine qua non to the execution of the mortgage, both for security and registration purposes. For if the title to a property is not delivered to the mortgagee, what will prevent the mortgagor from again encumbering it also by mortgage or even by sale to a third party. Finally, that respondents did not deny proposing to redeem the mortgages,17 as reflected in petitioner's June 29, 2001 letter to them, dooms their claim of the existence of a perfected dacion en pago. WHEREFORE, the Court of Appeals Decision of January 26, 2006 is REVERSED and SET ASIDE. The Resolution of July 2, 2002 of the Regional Trial Court of Quezon City, Branch 215 dismissing respondents' complaint is REINSTATED. SO ORDERED.

1. Plaintiff Lydia P. Cuba is a grantee of a Fishpond Lease Agreement No. 2083 (new) dated May 13, 1974 from the Government; 2. Plaintiff Lydia P. Cuba obtained loans from the Development Bank of the Philippines in the amounts of P109,000.00; P109,000.00; and P98,700.00 under the terms stated in the Promissory Notes dated September 6, 1974; August 11, 1975; and April 4, 1977; 3. As security for said loans, plaintiff Lydia P. Cuba executed two Deeds of Assignment of her Leasehold Rights; 4. Plaintiff failed to pay her loan on the scheduled dates thereof in accordance with the terms of the Promissory Notes; 5. Without foreclosure proceedings, whether judicial or extra-judicial, defendant DBP appropriated the Leasehold Rights of plaintiff Lydia Cuba over the fishpond in question; 6. After defendant DBP has appropriated the Leasehold Rights of plaintiff Lydia Cuba over the fishpond in question, defendant DBP, in turn, executed a Deed of Conditional Sale of the Leasehold Rights in favor of plaintiff Lydia Cuba over the same fishpond in question; 7. In the negotiation for repurchase, plaintiff Lydia Cuba addressed two letters to the Manager DBP, Dagupan City dated November 6, 1979 and December 20, 1979. DBP thereafter accepted the offer to repurchase in a letter addressed to plaintiff dated February 1, 1982; 8. After the Deed of Conditional Sale was executed in favor of plaintiff Lydia Cuba, a new Fishpond Lease Agreement No. 2083-A dated March 24, 1980 was issued by the Ministry of Agriculture and Food in favor of plaintiff Lydia Cuba only, excluding her husband; 9. Plaintiff Lydia Cuba failed to pay the amortizations stipulated in the Deed of Conditional Sale; 10. After plaintiff Lydia Cuba failed to pay the amortization as stated in Deed of Conditional Sale, she entered with the DBP a temporary arrangement whereby in consideration for the deferment of the Notarial Rescission of Deed of Conditional Sale, plaintiff Lydia Cuba promised to make certain payments as stated in temporary Arrangement dated February 23, 1982; 11. Defendant DBP thereafter sent a Notice of Rescission thru Notarial Act dated March 13, 1984, and which was received by plaintiff Lydia Cuba; 12. After the Notice of Rescission, defendant DBP took possession of the Leasehold Rights of the fishpond in question; 13. That after defendant DBP took possession of the Leasehold Rights over the fishpond in question, DBP advertised in the SUNDAY PUNCH the public bidding dated June 24, 1984, to dispose of the property;

G.R. No. 118342 January 5, 1998 DEVELOPMENT BANK OF THE PHILIPPINES, petitioner, vs. COURT OF APPEALS and LYDIA CUBA, respondents. G.R. No. 118367 January 5, 1998 LYDIA P. CUBA, petitioner, vs. COURT OF APPEALS, DEVELOPMENT BANK OF THE PHILIPPINES and AGRIPINA P. CAPERAL, respondents.

DAVIDE, JR., J.: These two consolidated cases stemmed from a complaint 1 filed against the Development Bank of the Philippines (hereafter DBP) and Agripina Caperal filed by Lydia Cuba (hereafter CUBA) on 21 May 1985 with the Regional Trial Court of Pangasinan, Branch 54. The said complaint sought (1) the declaration of nullity of DBP's appropriation of CUBA's rights, title, and interests over a 44-hectares fishpond located in Bolinao, Pangasinan, for being violative of Article 2088 of the Civil Code; (2) the annulment of the Deed of Conditional Sale executed in her favor by DBP; (3) the annulment of DBP's sale of the subject fishpond to Caperal; (4) the restoration of her rights, title, and interests over the fishpond; and (5) the recovery of damages, attorney's fees, and expenses of litigation. After the joinder of issues following the filing by the parties of their respective pleadings, the trial court conducted a pre-trial where CUBA and DBP agreed on the following facts, which were embodied in the pretrial order: 2

14. That the DBP thereafter executed a Deed of Conditional Sale in favor of defendant Agripina Caperal on August 16, 1984; 15. Thereafter, defendant Caperal was awarded Fishpond Lease Agreement No. 2083-A on December 28, 1984 by the Ministry of Agriculture and Food. Defendant Caperal admitted only the facts stated in paragraphs 14 and 15 of the pre-trial order. 3 Trial was thereafter had on other matters. The principal issue presented was whether the act of DBP in appropriating to itself CUBA's leasehold rights over the fishpond in question without foreclosure proceedings was contrary to Article 2088 of the Civil Code and, therefore, invalid. CUBA insisted on an affirmative resolution. DBP stressed that it merely exercised its contractual right under the Assignments of Leasehold Rights, which was not a contract of mortgage. Defendant Caperal sided with DBP. The trial court resolved the issue in favor of CUBA by declaring that DBP's taking possession and ownership of the property without foreclosure was plainly violative of Article 2088 of the Civil Code which provides as follows: Art. 2088. The creditor cannot appropriate the things given by way of pledge or mortgage, or dispose of them. Any stipulation to the contrary is null and void. It disagreed with DBP's stand that the Assignments of Leasehold Rights were not contracts of mortgage because (1) they were given as security for loans, (2) although the "fishpond land" in question is still a public land, CUBA's leasehold rights and interest thereon are alienable rights which can be the proper subject of a mortgage; and (3) the intention of the contracting parties to treat the Assignment of Leasehold Rights as a mortgage was obvious and unmistakable; hence, upon CUBA's default, DBP's only right was to foreclose the Assignment in accordance with law. The trial court also declared invalid condition no. 12 of the Assignment of Leasehold Rights for being a clear case of pactum commissorium expressly prohibited and declared null and void by Article 2088 of the Civil Code. It then concluded that since DBP never acquired lawful ownership of CUBA's leasehold rights, all acts of ownership and possession by the said bank were void. Accordingly, the Deed of Conditional Sale in favor of CUBA, the notarial rescission of such sale, and the Deed of Conditional Sale in favor of defendant Caperal, as well as the Assignment of Leasehold Rights executed by Caperal in favor of DBP, were also void and ineffective. As to damages, the trial court found "ample evidence on record" that in 1984 the representatives of DBP ejected CUBA and her caretakers not only from the fishpond area but also from the adjoining big house; and that when CUBA's son and caretaker went there on 15 September 1985, they found the said house unoccupied and destroyed and CUBA's personal belongings, machineries, equipment, tools, and other articles used in fishpond operation which were kept in the house were missing. The missing items were valued at about P550,000. It further found that when CUBA and her men were ejected by DBP for the first time in 1979, CUBA had stocked the fishpond with 250,000 pieces of bangus fish (milkfish), all of which died because the DBP representatives prevented CUBA's men from feeding the fish. At the conservative price of P3.00 per fish, the gross value would have been P690,000, and after deducting 25% of said value as reasonable allowance for the cost of feeds, CUBA suffered a loss of P517,500. It then set the aggregate of the actual damages sustained by CUBA at P1,067,500. The trial court further found that DBP was guilty of gross bad faith in falsely representing to the Bureau of Fisheries that it had foreclosed its mortgage on CUBA's leasehold rights. Such representation induced the said Bureau to terminate CUBA's leasehold rights and to approve the Deed of Conditional Sale in favor of CUBA. And considering that by

reason of her unlawful ejectment by DBP, CUBA "suffered moral shock, degradation, social humiliation, and serious anxieties for which she became sick and had to be hospitalized" the trial court found her entitled to moral and exemplary damages. The trial court also held that CUBA was entitled to P100,000 attorney's fees in view of the considerable expenses she incurred for lawyers' fees and in view of the finding that she was entitled to exemplary damages. In its decision of 31 January 1990, 4 the trial court disposed as follows: WHEREFORE, judgment is hereby rendered in favor of plaintiff: 1. DECLARING null and void and without any legal effect the act of defendant Development Bank of the Philippines in appropriating for its own interest, without any judicial or extra-judicial foreclosure, plaintiff's leasehold rights and interest over the fishpond land in question under her Fishpond Lease Agreement No. 2083 (new); 2. DECLARING the Deed of Conditional Sale dated February 21, 1980 by and between the defendant Development Bank of the Philippines and plaintiff (Exh. E and Exh. 1) and the acts of notarial rescission of the Development Bank of the Philippines relative to said sale (Exhs. 16 and 26) as void and ineffective; 3. DECLARING the Deed of Conditional Sale dated August 16, 1984 by and between the Development Bank of the Philippines and defendant Agripina Caperal (Exh. F and Exh. 21), the Fishpond Lease Agreement No. 2083-A dated December 28, 1984 of defendant Agripina Caperal (Exh. 23) and the Assignment of Leasehold Rights dated February 12, 1985 executed by defendant Agripina Caperal in favor of the defendant Development Bank of the Philippines (Exh. 24) as void ab initio; 4. ORDERING defendant Development Bank of the Philippines and defendant Agripina Caperal, jointly and severally, to restore to plaintiff the latter's leasehold rights and interests and right of possession over the fishpond land in question, without prejudice to the right of defendant Development Bank of the Philippines to foreclose the securities given by plaintiff; 5. ORDERING defendant Development Bank of the Philippines to pay to plaintiff the following amounts: a) The sum of ONE MILLION SIXTY-SEVEN THOUSAND FIVE HUNDRED PESOS (P1,067,500.00), as and for actual damages; b) The sum of ONE HUNDRED THOUSAND (P100,000.00) PESOS as moral damages; c) The sum of FIFTY THOUSAND (P50,000.00) PESOS, as and for exemplary damages; d) And the sum of ONE HUNDRED THOUSAND (P100,000.00) PESOS, as and for attorney's fees;

6. And ORDERING defendant Development Bank of the Philippines to reimburse and pay to defendant Agripina Caperal the sum of ONE MILLION FIVE HUNDRED THIRTY-TWO THOUSAND SIX HUNDRED TEN PESOS AND SEVENTY-FIVE CENTAVOS (P1,532,610.75) representing the amounts paid by defendant Agripina Caperal to defendant Development Bank of the Philippines under their Deed of Conditional Sale. CUBA and DBP interposed separate appeals from the decision to the Court of Appeals. The former sought an increase in the amount of damages, while the latter questioned the findings of fact and law of the lower court. In its decision 5 of 25 May 1994, the Court of Appeals ruled that (1) the trial court erred in declaring that the deed of assignment was null and void and that defendant Caperal could not validly acquire the leasehold rights from DBP; (2) contrary to the claim of DBP, the assignment was not a cession under Article 1255 of the Civil Code because DBP appeared to be the sole creditor to CUBA cession presupposes plurality of debts and creditors; (3) the deeds of assignment represented the voluntary act of CUBA in assigning her property rights in payment of her debts, which amounted to a novation of the promissory notes executed by CUBA in favor of DBP; (4) CUBA was estopped from questioning the assignment of the leasehold rights, since she agreed to repurchase the said rights under a deed of conditional sale; and (5) condition no. 12 of the deed of assignment was an express authority from CUBA for DBP to sell whatever right she had over the fishpond. It also ruled that CUBA was not entitled to loss of profits for lack of evidence, but agreed with the trial court as to the actual damages of P1,067,500. It, however, deleted the amount of exemplary damages and reduced the award of moral damages from P100,000 to P50,000 and attorney's fees, from P100,000 to P50,000. The Court of Appeals thus declared as valid the following: (1) the act of DBP in appropriating Cuba's leasehold rights and interest under Fishpond Lease Agreement No. 2083; (2) the deeds of assignment executed by Cuba in favor of DBP; (3) the deed of conditional sale between CUBA and DBP; and (4) the deed of conditional sale between DBP and Caperal, the Fishpond Lease Agreement in favor of Caperal, and the assignment of leasehold rights executed by Caperal in favor of DBP. It then ordered DBP to turn over possession of the property to Caperal as lawful holder of the leasehold rights and to pay CUBA the following amounts: (a) P1,067,500 as actual damages; P50,000 as moral damages; and P50,000 as attorney's fees. Since their motions for reconsideration were denied, 6 DBP and CUBA filed separate petitions for review. In its petition (G.R. No. 118342), DBP assails the award of actual and moral damages and attorney's fees in favor of CUBA. Upon the other hand, in her petition (G.R. No. 118367), CUBA contends that the Court of Appeals erred (1) in not holding that the questioned deed of assignment was a pactum commissorium contrary to Article 2088 of the Civil Code; (b) in holding that the deed of assignment effected a novation of the promissory notes; (c) in holding that CUBA was estopped from questioning the validity of the deed of assignment when she agreed to repurchase her leasehold rights under a deed of conditional sale; and (d) in reducing the amounts of moral damages and attorney's fees, in deleting the award of exemplary damages, and in not increasing the amount of damages. We agree with CUBA that the assignment of leasehold rights was a mortgage contract. It is undisputed that CUBA obtained from DBP three separate loans totalling P335,000, each of which was covered by a promissory note. In all of these notes, there was a provision that: "In the event of foreclosure of the mortgagesecuring this notes, I/We further bind myself/ourselves, jointly and severally, to pay the deficiency, if any." 7

Simultaneous with the execution of the notes was the execution of "Assignments of Leasehold Rights" 8 where CUBA assigned her leasehold rights and interest on a 44-hectare fishpond, together with the improvements thereon. As pointed out by CUBA, the deeds of assignment constantly referred to the assignor (CUBA) as "borrower"; the assigned rights, as mortgaged properties; and the instrument itself, as mortgage contract. Moreover, under condition no. 22 of the deed, it was provided that "failure to comply with the terms and condition of any of the loans shall cause all other loans to become due and demandable and all mortgages shall be foreclosed." And, condition no. 33 provided that if "foreclosure is actually accomplished, the usual 10% attorney's fees and 10% liquidated damages of the total obligation shall be imposed." There is, therefore, no shred of doubt that a mortgage was intended. Besides, in their stipulation of facts the parties admitted that the assignment was by way of security for the payment of the loans; thus: 3. As security for said loans, plaintiff Lydia P. Cuba executed two Deeds of Assignment of her Leasehold Rights. In People's Bank & Trust Co. vs. Odom, 9 this Court had the occasion to rule that an assignment to guarantee an obligation is in effect a mortgage. We find no merit in DBP's contention that the assignment novated the promissory notes in that the obligation to pay a sum of money the loans (under the promissory notes) was substituted by the assignment of the rights over the fishpond (under the deed of assignment). As correctly pointed out by CUBA, the said assignment merely complemented or supplemented the notes; both could stand together. The former was only an accessory to the latter. Contrary to DBP's submission, the obligation to pay a sum of money remained, and the assignment merely served as security for the loans covered by the promissory notes. Significantly, both the deeds of assignment and the promissory notes were executed on the same dates the loans were granted. Also, the last paragraph of the assignment stated: "The assignor further reiterates and states all terms, covenants, and conditions stipulated in the promissory note or notes covering the proceeds of this loan, making said promissory note or notes, to all intent and purposes, an integral part hereof." Neither did the assignment amount to payment by cession under Article 1255 of the Civil Code for the plain and simple reason that there was only one creditor, the DBP. Article 1255 contemplates the existence of two or more creditors and involves the assignment of all the debtor's property. Nor did the assignment constitute dation in payment under Article 1245 of the civil Code, which reads: "Dation in payment, whereby property is alienated to the creditor in satisfaction of a debt in money, shall be governed by the law on sales." It bears stressing that the assignment, being in its essence a mortgage, was but a security and not a satisfaction of indebtedness. 10 We do not, however, buy CUBA's argument that condition no. 12 of the deed of assignment constituted pactum commissorium. Said condition reads: 12. That effective upon the breach of any condition of this assignment, the Assignor hereby appoints the Assignee his Attorney-in-fact with full power and authority to take actual possession of the property above-described, together with all improvements thereon, subject to the approval of the Secretary of Agriculture and Natural Resources, to lease the same or any portion thereof and collect rentals, to make repairs or improvements thereon and pay the same, to sell or otherwise dispose of whatever rights the Assignor has or might have over said property and/or its improvements and perform any other act which the Assignee may deem convenient to protect its interest. All expenses advanced by the Assignee in connection with purpose above indicated which

shall bear the same rate of interest aforementioned are also guaranteed by this Assignment. Any amount received from rents, administration, sale or disposal of said property may be supplied by the Assignee to the payment of repairs, improvements, taxes, assessments and other incidental expenses and obligations and the balance, if any, to the payment of interest and then on the capital of the indebtedness secured hereby. If after disposal or sale of said property and upon application of total amounts received there shall remain a deficiency, said Assignor hereby binds himself to pay the same to the Assignee upon demand, together with all interest thereon until fully paid. The power herein granted shall not be revoked as long as the Assignor is indebted to the Assignee and all acts that may be executed by the Assignee by virtue of said power are hereby ratified. The elements of pactum commissorium are as follows: (1) there should be a property mortgaged by way of security for the payment of the principal obligation, and (2) there should be a stipulation for automatic appropriation by the creditor of the thing mortgaged in case of nonpayment of the principal obligation within the stipulated period. 11 Condition no. 12 did not provide that the ownership over the leasehold rights would automatically pass to DBP upon CUBA's failure to pay the loan on time. It merely provided for the appointment of DBP as attorneyin-fact with authority, among other things, to sell or otherwise dispose of the said real rights, in case of default by CUBA, and to apply the proceeds to the payment of the loan. This provision is a standard condition in mortgage contracts and is in conformity with Article 2087 of the Civil Code, which authorizes the mortgagee to foreclose the mortgage and alienate the mortgaged property for the payment of the principal obligation. DBP, however, exceeded the authority vested by condition no. 12 of the deed of assignment. As admitted by it during the pre-trial, it had "[w]ithout foreclosure proceedings, whether judicial or extrajudicial, . . . appropriated the [l]easehold [r]ights of plaintiff Lydia Cuba over the fishpond in question." Its contention that it limited itself to mere administration by posting caretakers is further belied by the deed of conditional sale it executed in favor of CUBA. The deed stated: WHEREAS, the Vendor [DBP] by virtue of a deed of assignment executed in its favor by the herein vendees [Cuba spouses] the former acquired all the right and interest of the latter over the abovedescribed property; xxx xxx xxx The title to the real estate property [sic] and all improvements thereon shall remain in the name of the Vendor until after the purchase price, advances and interest shall have been fully paid. (Emphasis supplied). It is obvious from the above-quoted paragraphs that DBP had appropriated and taken ownership of CUBA's leasehold rights merely on the strength of the deed of assignment. DBP cannot take refuge in condition no. 12 of the deed of assignment to justify its act of appropriating the leasehold rights. As stated earlier, condition no. 12 did not provide that CUBA's default would operate to vest in DBP ownership of the said rights. Besides, an assignment to guarantee an obligation, as in the present case, is virtually a mortgage and not an absolute conveyance of title which confers ownership on the assignee. 12 At any rate, DBP's act of appropriating CUBA's leasehold rights was violative of Article 2088 of the Civil Code, which forbids a credit or from

appropriating, or disposing of, the thing given as security for the payment of a debt. The fact that CUBA offered and agreed to repurchase her leasehold rights from DBP did not estop her from questioning DBP's act of appropriation. Estoppel is unavailing in this case. As held by this Court in some cases, 13estoppel cannot give validity to an act that is prohibited by law or against public policy. Hence, the appropriation of the leasehold rights, being contrary to Article 2088 of the Civil Code and to public policy, cannot be deemed validated by estoppel. Instead of taking ownership of the questioned real rights upon default by CUBA, DBP should have foreclosed the mortgage, as has been stipulated in condition no. 22 of the deed of assignment. But, as admitted by DBP, there was no such foreclosure. Yet, in its letter dated 26 October 1979, addressed to the Minister of Agriculture and Natural Resources and coursed through the Director of the Bureau of Fisheries and Aquatic Resources, DBP declared that it "had foreclosed the mortgage and enforced the assignment of leasehold rights on March 21, 1979 for failure of said spouses [Cuba spouces] to pay their loan amortizations." 14 This only goes to show that DBP was aware of the necessity of foreclosure proceedings. In view of the false representation of DBP that it had already foreclosed the mortgage, the Bureau of Fisheries cancelled CUBA's original lease permit, approved the deed of conditional sale, and issued a new permit in favor of CUBA. Said acts which were predicated on such false representation, as well as the subsequent acts emanating from DBP's appropriation of the leasehold rights, should therefore be set aside. To validate these acts would open the floodgates to circumvention of Article 2088 of the Civil Code. Even in cases where foreclosure proceedings were had, this Court had not hesitated to nullify the consequent auction sale for failure to comply with the requirements laid down by law, such as Act No. 3135, as amended. 15With more reason that the sale of property given as security for the payment of a debt be set aside if there was no prior fore closure proceeding. Hence, DBP should render an accounting of the income derived from the operation of the fishpond in question and apply the said income in accordance with condition no. 12 of the deed of assignment which provided: "Any amount received from rents, administration, . . . may be applied to the payment of repairs, improvements, taxes, assessment, and other incidental expenses and obligations and the balance, if any, to the payment of interest and then on the capital of the indebtedness. . ." We shall now take up the issue of damages. Article 2199 provides: Except as provided by law or by stipulation, one is entitled to an adequate compensation only for such pecuniary loss suffered by him as he has duly proved. Such compensation is referred to as actual or compensatory damages. Actual or compensatory damages cannot be presumed, but must be proved with reasonable degree of certainty. 16 A court cannot rely on speculations, conjectures, or guesswork as to the fact and amount of damages, but must depend upon competent proof that they have been suffered by the injured party and on the best obtainable evidence of the actual amount thereof. 17 It must point out specific facts which could afford a basis for measuring whatever compensatory or actual damages are borne. 18 In the present case, the trial court awarded in favor of CUBA P1,067,500 as actual damages consisting of P550,000 which represented the value of the alleged lost articles of CUBA and P517,500 which represented the value of the 230,000 pieces of bangus allegedly stocked in 1979 when DBP first ejected CUBA from the fishpond and the adjoining house. This award was affirmed by the Court of Appeals.

We find that the alleged loss of personal belongings and equipment was not proved by clear evidence. Other than the testimony of CUBA and her caretaker, there was no proof as to the existence of those items before DBP took over the fishpond in question. As pointed out by DBP, there was not "inventory of the alleged lost items before the loss which is normal in a project which sometimes, if not most often, is left to the care of other persons." Neither was a single receipt or record of acquisition presented. Curiously, in her complaint dated 17 May 1985, CUBA included "losses of property" as among the damages resulting from DBP's take-over of the fishpond. Yet, it was only in September 1985 when her son and a caretaker went to the fishpond and the adjoining house that she came to know of the alleged loss of several articles. Such claim for "losses of property," having been made before knowledge of the alleged actual loss, was therefore speculative. The alleged loss could have been a mere afterthought or subterfuge to justify her claim for actual damages. With regard to the award of P517,000 representing the value of the alleged 230,000 pieces of bangus which died when DBP took possession of the fishpond in March 1979, the same was not called for. Such loss was not duly proved; besides, the claim therefor was delayed unreasonably. From 1979 until after the filing of her complaint in court in May 1985, CUBA did not bring to the attention of DBP the alleged loss. In fact, in her letter dated 24 October 1979, 19 she declared: 1. That from February to May 1978, I was then seriously ill in Manila and within the same period I neglected the management and supervision of the cultivation and harvest of the produce of the aforesaid fishpond thereby resulting to the irreparable loss in the produce of the same in the amount of about P500,000.00 to my great damage and prejudice due to fraudulent acts of some of my fishpond workers. Nowhere in the said letter, which was written seven months after DBP took possession of the fishpond, did CUBA intimate that upon DBP's take-over there was a total of 230,000 pieces of bangus, but all of which died because of DBP's representatives prevented her men from feeding the fish. The award of actual damages should, therefore, be struck down for lack of sufficient basis. In view, however, of DBP's act of appropriating CUBA's leasehold rights which was contrary to law and public policy, as well as its false representation to the then Ministry of Agriculture and Natural Resources that it had "foreclosed the mortgage," an award of moral damages in the amount of P50,000 is in order conformably with Article 2219(10), in relation to Article 21, of the Civil Code. Exemplary or corrective damages in the amount of P25,000 should likewise be awarded by way of example or correction for the public good. 20 There being an award of exemplary damages, attorney's fees are also recoverable. 21 WHEREFORE, the 25 May 1994 Decision of the Court of Appeals in CAG.R. CV No. 26535 is hereby REVERSED, except as to the award of P50,000 as moral damages, which is hereby sustained. The 31 January 1990 Decision of the Regional Trial Court of Pangasinan, Branch 54, in Civil Case No. A-1574 is MODIFIED setting aside the finding that condition no. 12 of the deed of assignment constituted pactum commissorium and the award of actual damages; and by reducing the amounts of moral damages from P100,000 to P50,000; the exemplary damages, from P50,000 to P25,000; and the attorney's fees, from P100,000 to P20,000. The Development Bank of the Philippines is hereby ordered to render an accounting of the income derived from the operation of the fishpond in question. Let this case be REMANDED to the trial court for the reception of the income statement of DBP, as well as the statement of the account of Lydia P. Cuba, and for the determination of each party's financial obligation to one another.

SO ORDERED. Bellosillo, Vitug and Kapunan, JJ., concur.

G.R. No. L-11491

August 23, 1918

ANDRES QUIROGA, plaintiff-appellant, vs. PARSONS HARDWARE CO., defendant-appellee. Alfredo Chicote, Jose Arnaiz and Pascual B. Azanza for appellant. Crossfield & O'Brien for appellee. AVANCEA, J.: On January 24, 1911, in this city of manila, a contract in the following tenor was entered into by and between the plaintiff, as party of the first part, and J. Parsons (to whose rights and obligations the present defendant later subrogated itself), as party of the second part: CONTRACT EXECUTED BY AND BETWEEN ANDRES QUIROGA AND J. PARSONS, BOTH MERCHANTS ESTABLISHED IN MANILA, FOR THE EXCLUSIVE SALE OF "QUIROGA" BEDS IN THE VISAYAN ISLANDS. ARTICLE 1. Don Andres Quiroga grants the exclusive right to sell his beds in the Visayan Islands to J. Parsons under the following conditions: (A) Mr. Quiroga shall furnish beds of his manufacture to Mr. Parsons for the latter's establishment in Iloilo, and shall invoice them at the same price he has fixed for sales, in Manila, and, in the invoices, shall make and allowance of a discount of 25 per cent of the invoiced prices, as commission on the sale; and Mr. Parsons shall order the beds by the dozen, whether of the same or of different styles. (B) Mr. Parsons binds himself to pay Mr. Quiroga for the beds received, within a period of sixty days from the date of their shipment. (C) The expenses for transportation and shipment shall be borne by M. Quiroga, and the freight, insurance, and cost of unloading from the vessel at the point where the beds are received, shall be paid by Mr. Parsons. (D) If, before an invoice falls due, Mr. Quiroga should request its payment, said payment when made shall be considered as a prompt payment, and as such a deduction of 2 per cent shall be made from the amount of the invoice. The same discount shall be made on the amount of any invoice which Mr. Parsons may deem convenient to pay in cash. (E) Mr. Quiroga binds himself to give notice at least fifteen days before hand of any alteration in price which he may plan to make in respect to his beds, and agrees that if on the date when such alteration takes effect he should have any order pending to be served to Mr. Parsons, such order shall enjoy the advantage of the alteration if the price thereby be lowered, but shall not be affected by said alteration if the price thereby be increased, for, in this latter case, Mr. Quiroga assumed the

obligation to invoice the beds at the price at which the order was given. (F) Mr. Parsons binds himself not to sell any other kind except the "Quiroga" beds. ART. 2. In compensation for the expenses of advertisement which, for the benefit of both contracting parties, Mr. Parsons may find himself obliged to make, Mr. Quiroga assumes the obligation to offer and give the preference to Mr. Parsons in case anyone should apply for the exclusive agency for any island not comprised with the Visayan group. ART. 3. Mr. Parsons may sell, or establish branches of his agency for the sale of "Quiroga" beds in all the towns of the Archipelago where there are no exclusive agents, and shall immediately report such action to Mr. Quiroga for his approval. ART. 4. This contract is made for an unlimited period, and may be terminated by either of the contracting parties on a previous notice of ninety days to the other party. 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. The judgment appealed from is affirmed, with costs against the appellant. So ordered. Arellano, C.J., Torres, Johnson, Street and Malcolm, JJ., concur.

Ker & Co., Ltd. vs. Lingad 11072010 KER & CO., G.R. No. L-20871 April 30, 1971 Facts: CIR assessed the sum of P20,272.33 as the commercial brokers percentage tax, surcharge, and compromise penalty against Ker & Co. 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. CTA ruled that that Ker & Co is liable as a commercial broker under Section 194 (t) of the National Internal Revenue Code. Ker & Co signed a contract with the United States Rubber International, the former being referred to as the Distributor and the latter specifically designated as the Company. The shipments would cover products for consumption in Cebu, Bohol, Leyte, Samar, Jolo, Negros Oriental, and Mindanao except [the] province of Davao. Ker & Co, as Distributor, was precluded from disposing such products elsewhere than in the above places unless written consent would first be obtained from the Company. It was 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. The prices, discounts, terms of payment, terms of delivery and other conditions of sale were subject to change in the discretion of the Company. Issue: WON the relationship Ker & Co and US Rubber was that of a vendorvendee or principal-broker? PRINCIPAL- BROKER, hence liable under Section 194 (t) of the NIRC. Held: The relationship between them is one of brokerage or agency. That the petitioner Ker & Co., Ltd. is, by contractual stipulation, an agent of U.S. Rubber International is borne out by the facts that: 1. 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; 2. it merely receives, accepts and/or holds upon consignment the products, which remain properties of the latter company 3. 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 4. on dates determined by the rubber company, petitioner shall render a detailed report showing sales during the month 5. 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 6. 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 7. 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. CONTROLLING TEST (cited CIR vs. Constantino): 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 companys control, the relationship between the company and the dealer is one of agency. Sale vs. Agency a. In sale, the essence is the transfer of title or agreement to transfer it for a price paid or promised. In agency, the essence is the delivery to an agent. b. In sale, the 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. In agency, the transfer does not make LTD. vs. LINGAD

the property as the agents own, but that of principal, who remains the owner and has the right to control sales, fix the price, and terms, demand and receive the proceeds less the agents commission upon sales made. Besides, The control by the United States Rubber International over the goods in question is pervasive.

G.R. No. L-34338 November 21, 1984 LOURDES VALERIO vs. PEOPLE OF THE PHILIPPINES, respondent. RELOVA, J.: Petitioner Lourdes Valerio Lim was found guilty of the crime of estafa and was sentenced "to suffer an imprisonment of four (4) months and one (1) day as minimum to two (2) years and four (4) months as maximum, to indemnify the offended party in the amount of P559.50, with subsidize imprisonment in case of insolvency, and to pay the costs." (p. 14, Rollo) From this judgment, appeal was taken to the then Court of Appeals which affirmed the decision of the lower court but modified the penalty imposed by sentencing her "to suffer an indeterminate penalty of one (1) month and one (1) day of arresto mayor as minimum to one (1) year and one (1) day of prision correccional as maximum, to indemnify the complainant in the amount of P550.50 without subsidiary imprisonment, and to pay the costs of suit." (p. 24, Rollo) The question involved in this case is whether the receipt, Exhibit "A", is a contract of agency to sell or a contract of sale of the subject tobacco between petitioner and the complainant, Maria de Guzman Vda. de Ayroso, thereby precluding criminal liability of petitioner for the crime charged. The findings of facts of the appellate court are as follows: ... The appellant is a businesswoman. On January 10, 1966, the appellant went to the house of Maria Ayroso and proposed to sell Ayroso's tobacco. Ayroso agreed to the proposition of the appellant to sell her tobacco consisting of 615 kilos at P1.30 a kilo. The appellant was to receive the overprice for which she could sell the tobacco. This agreement was made in the presence of plaintiff's sister, Salud G. Bantug. Salvador Bantug drew the document, Exh. A, dated January 10, 1966, which reads: To Whom It May Concern: This is to certify that I have received from Mrs. Maria de Guzman Vda. de Ayroso. of Gapan, Nueva Ecija, six hundred fifteen kilos of leaf tobacco to be sold at Pl.30 per kilo. The proceed in the amount of Seven Hundred Ninety Nine Pesos and 50/100 (P 799.50) will be given to her as soon as it was sold. This was signed by the appellant and witnessed by the complainant's sister, Salud Bantug, and the latter's maid, Genoveva Ruiz. The appellant at that time was bringing a jeep, and the tobacco was LIM, petitioner,

loaded in the jeep and brought by the appellant. Of the total value of P799.50, the appellant had paid to Ayroso only P240.00, and this was paid on three different times. Demands for the payment of the balance of the value of the tobacco were made upon the appellant by Ayroso, and particularly by her sister, Salud Bantug. Salud Bantug further testified that she had gone to the house of the appellant several times, but the appellant often eluded her; and that the "camarin" the appellant was empty. Although the appellant denied that demands for payment were made upon her, it is a fact that on October 19, 1966, she wrote a letter to Salud Bantug which reads as follows: Dear Salud, Hindi ako nakapunta dian noon a 17 nitong nakaraan, dahil kokonte pa ang nasisingil kong pera, magintay ka hanggang dito sa linggo ito at tiak na ako ay magdadala sa iyo. Gosto ko Salud ay makapagbigay man lang ako ng marami para hindi masiadong kahiyahiya sa iyo. Ngayon kung gosto mo ay kahit konte muna ay bibigyan kita. Pupunta lang kami ni Mina sa Maynila ngayon. Salud kung talagang kailangan mo ay bukas ay dadalhan kita ng pera. Medio mahirap ang maningil sa palengke ng Cabanatuan dahil nagsisilipat ang mga suki ko ng puesto. Huwag kang mabahala at tiyak na babayaran kita. Patnubayan tayo ng mahal na panginoon Dios. (Exh. B).

Civil Code does not apply" as against the alternative theory of the petitioner that the fore. going receipt (Exhibit "A") gives rise to an obligation wherein the duration of the period depends upon the will of the debtor in which case the only action that can be maintained is a petition to ask the court to fix the duration of the period; and 3. Whether or not the honorable Court of Appeals was legally right in holding that the foregoing receipt is a contract of agency to sell as against the theory of the petitioner that it is a contract of sale. (pp. 3-4, Rollo) It is clear in the agreement, Exhibit "A", that the proceeds of the sale of the tobacco should be turned over to the complainant as soon as the same was sold, or, that the obligation was immediately demandable as soon as the tobacco was disposed of. Hence, Article 1197 of the New Civil Code, which provides that the courts may fix the duration of the obligation if it does not fix a period, does not apply. Anent the argument that petitioner was not an agent because Exhibit "A" does not say that she would be paid the commission if the goods were sold, the Court of Appeals correctly resolved the matter as follows: ... Aside from the fact that Maria Ayroso testified that the appellant asked her to be her agent in selling Ayroso's tobacco, the appellant herself admitted that there was an agreement that upon the sale of the tobacco she would be given something. The appellant is a businesswoman, and it is unbelievable that she would go to the extent of going to Ayroso's house and take the tobacco with a jeep which she had brought if she did not intend to make a profit out of the transaction. Certainly, if she was doing a favor to Maria Ayroso and it was Ayroso who had requested her to sell her tobacco, it would not have been the appellant who would have gone to the house of Ayroso, but it would have been Ayroso who would have gone to the house of the appellant and deliver the tobacco to the appellant. (p. 19, Rollo) The fact that appellant received the tobacco to be sold at P1.30 per kilo and the proceeds to be given to complainant as soon as it was sold, strongly negates transfer of ownership of the goods to the petitioner. The agreement (Exhibit "A') constituted her as an agent with the obligation to return the tobacco if the same was not sold.

Pursuant to this letter, the appellant sent a money order for P100.00 on October 24, 1967, Exh. 4, and another for P50.00 on March 8, 1967; and she paid P90.00 on April 18, 1967 as evidenced by the receipt Exh. 2, dated April 18, 1967, or a total of P240.00. As no further amount was paid, the complainant filed a complaint against the appellant for estafa. (pp. 14, 15, 16, Rollo) In this petition for review by certiorari, Lourdes Valerio Lim poses the following questions of law, to wit: 1. Whether or not the Honorable Court of Appeals was legally right in holding that the foregoing document (Exhibit "A") "fixed a period" and "the obligation was therefore, immediately demandable as soon as the tobacco was sold" (Decision, p. 6) as against the theory of the petitioner that the obligation does not fix a period, but from its nature and the circumstances it can be inferred that a period was intended in which case the only action that can be maintained is a petition to ask the court to fix the duration thereof; 2. Whether or not the Honorable Court of Appeals was legally right in holding that "Art. 1197 of the New

ACCORDINGLY, the petition for review on certiorari is dismissed for lack of merit. With costs. SO ORDERED. Teehankee (Chairman), Melencio-Herrera, Plana, Gutierrez, Jr. and De la Fuente, JJ., concur.

G.R. No. 188288

January 16, 2012 LOURDES VILORIA, Petitioners,

SPOUSES FERNANDO and vs. CONTINENTAL AIRLINES, INC., DECISION REYES, J.:

This is a petition for review under Rule 45 of the Rules of Court from the January 30, 2009 Decision1 of the Special Thirteenth Division of the Court of Appeals (CA) in CA-G.R. CV No. 88586 entitled "Spouses Fernando and Lourdes Viloria v. Continental Airlines, Inc.," the dispositive portion of which states: WHEREFORE, the Decision of the Regional Trial Court, Branch 74, dated 03 April 2006, awarding US$800.00 or its peso equivalent at the time of payment, plus legal rate of interest from 21 July 1997 until fully paid, [P]100,000.00 as moral damages, [P]50,000.00 as exemplary damages, [P]40,000.00 as attorneys fees and costs of suit to plaintiffsappellees is hereby REVERSED and SET ASIDE. Defendant-appellants counterclaim is DENIED. Costs against plaintiffs-appellees. SO ORDERED.2 On April 3, 2006, the Regional Trial Court of Antipolo City, Branch 74 (RTC) rendered a Decision, giving due course to the complaint for sum of money and damages filed by petitioners Fernando Viloria (Fernando) and Lourdes Viloria (Lourdes), collectively called Spouses Viloria, against respondent Continental Airlines, Inc. (CAI). As culled from the records, below are the facts giving rise to such complaint. On or about July 21, 1997 and while in the United States, Fernando purchased for himself and his wife, Lourdes, two (2) round trip airline tickets from San Diego, California to Newark, New Jersey on board Continental Airlines. Fernando purchased the tickets at US$400.00 each from a travel agency called "Holiday Travel" and was attended to by a certain Margaret Mager (Mager). According to Spouses Viloria, Fernando agreed to buy the said tickets after Mager informed them that there were no available seats at Amtrak, an intercity passenger train service provider in the United States. Per the tickets, Spouses Viloria were scheduled to leave for Newark on August 13, 1997 and return to San Diego on August 21, 1997. Subsequently, Fernando requested Mager to reschedule their flight to Newark to an earlier date or August 6, 1997. Mager informed him that flights to Newark via Continental Airlines were already fully booked and offered the alternative of a round trip flight via Frontier Air. Since flying with Frontier Air called for a higher fare of US$526.00 per passenger and would mean traveling by night, Fernando opted to request for a refund. Mager, however, denied his request as the subject tickets are nonrefundable and the only option that Continental Airlines can offer is the re-issuance of new tickets within one (1) year from the date the subject tickets were issued. Fernando decided to reserve two (2) seats with Frontier Air. As he was having second thoughts on traveling via Frontier Air, Fernando went to the Greyhound Station where he saw an Amtrak station nearby. Fernando made inquiries and was told that there are seats available and he can travel on Amtrak anytime and any day he pleased. Fernando then purchased two (2) tickets for Washington, D.C. From Amtrak, Fernando went to Holiday Travel and confronted Mager with the Amtrak tickets, telling her that she had misled them into buying the Continental Airlines tickets by misrepresenting that Amtrak was already fully booked. Fernando reiterated his demand for a refund but Mager was firm in her position that the subject tickets are nonrefundable. Upon returning to the Philippines, Fernando sent a letter to CAI on February 11, 1998, demanding a refund and alleging that Mager had deluded them into purchasing the subject tickets.3 In a letter dated February 24, 1998, Continental Micronesia informed Fernando that his complaint had been referred to the Customer Refund Services of Continental Airlines at Houston, Texas.4

In a letter dated March 24, 1998, Continental Micronesia denied Fernandos request for a refund and advised him that he may take the subject tickets to any Continental ticketing location for the re-issuance of new tickets within two (2) years from the date they were issued. Continental Micronesia informed Fernando that the subject tickets may be used as a form of payment for the purchase of another Continental ticket, albeit with a re-issuance fee.5 On June 17, 1999, Fernando went to Continentals ticketing office at Ayala Avenue, Makati City to have the subject tickets replaced by a single round trip ticket to Los Angeles, California under his name. Therein, Fernando was informed that Lourdes ticket was nontransferable, thus, cannot be used for the purchase of a ticket in his favor. He was also informed that a round trip ticket to Los Angeles was US$1,867.40 so he would have to pay what will not be covered by the value of his San Diego to Newark round trip ticket. In a letter dated June 21, 1999, Fernando demanded for the refund of the subject tickets as he no longer wished to have them replaced. In addition to the dubious circumstances under which the subject tickets were issued, Fernando claimed that CAIs act of charging him with US$1,867.40 for a round trip ticket to Los Angeles, which other airlines priced at US$856.00, and refusal to allow him to use Lourdes ticket, breached its undertaking under its March 24, 1998 letter. 6 On September 8, 2000, Spouses Viloria filed a complaint against CAI, praying that CAI be ordered to refund the money they used in the purchase of the subject tickets with legal interest from July 21, 1997 and to payP1,000,000.00 as moral damages, P500,000.00 as exemplary damages and P250,000.00 as attorneys fees.7 CAI interposed the following defenses: (a) Spouses Viloria have no right to ask for a refund as the subject tickets are non-refundable; (b) Fernando cannot insist on using the ticket in Lourdes name for the purchase of a round trip ticket to Los Angeles since the same is nontransferable; (c) as Mager is not a CAI employee, CAI is not liable for any of her acts; (d) CAI, its employees and agents did not act in bad faith as to entitle Spouses Viloria to moral and exemplary damages and attorneys fees. CAI also invoked the following clause printed on the subject tickets: 3. To the extent not in conflict with the foregoing carriage and other services performed by each carrier are subject to: (i) provisions contained in this ticket, (ii) applicable tariffs, (iii) carriers conditions of carriage and related regulations which are made part hereof (and are available on application at the offices of carrier), except in transportation between a place in the United States or Canada and any place outside thereof to which tariffs in force in those countries apply. 8 According to CAI, one of the conditions attached to their contract of carriage is the non-transferability and non-refundability of the subject tickets. The RTCs Ruling Following a full-blown trial, the RTC rendered its April 3, 2006 Decision, holding that Spouses Viloria are entitled to a refund in view of Magers misrepresentation in obtaining their consent in the purchase of the subject tickets.9The relevant portion of the April 3, 2006 Decision states: Continental Airlines agent Ms. Mager was in bad faith when she was less candid and diligent in presenting to plaintiffs spouses their booking options. Plaintiff Fernando clearly wanted to travel via AMTRAK, but defendants agent misled him into purchasing Continental Airlines tickets instead on the fraudulent misrepresentation that Amtrak was fully booked. In fact, defendant Airline did not specifically denied (sic) this allegation. Plainly, plaintiffs spouses, particularly plaintiff Fernando, were tricked into buying Continental Airline tickets on Ms. Magers misleading misrepresentations. Continental Airlines agent Ms. Mager further relied on and exploited plaintiff Fernandos need and told him that they must book a flight immediately or risk not being able to travel at all on the

couples preferred date. Unfortunately, plaintiffs spouses fell prey to the airlines and its agents unethical tactics for baiting trusting customers."10 Citing Articles 1868 and 1869 of the Civil Code, the RTC ruled that Mager is CAIs agent, hence, bound by her bad faith and misrepresentation. As far as the RTC is concerned, there is no issue as to whether Mager was CAIs agent in view of CAIs implied recognition of her status as such in its March 24, 1998 letter. The act of a travel agent or agency being involved here, the following are the pertinent New Civil Code provisions on agency: Art. 1868. By the contract of agency a person binds himself to render some service or to do something in representation or on behalf of another, with the consent or authority of the latter. Art. 1869. Agency may be express, or implied from the acts of the principal, from his silence or lack of action, or his failure to repudiate the agency, knowing that another person is acting on his behalf without authority. Agency may be oral, unless the law requires a specific form. As its very name implies, a travel agency binds itself to render some service or to do something in representation or on behalf of another, with the consent or authority of the latter. This court takes judicial notice of the common services rendered by travel agencies that represent themselves as such, specifically the reservation and booking of local and foreign tours as well as the issuance of airline tickets for a commission or fee. The services rendered by Ms. Mager of Holiday Travel agency to the plaintiff spouses on July 21, 1997 were no different from those offered in any other travel agency. Defendant airline impliedly if not expressly acknowledged its principal-agent relationship with Ms. Mager by its offer in the letter dated March 24, 1998 an obvious attempt to assuage plaintiffs spouses hurt feelings.11 Furthermore, the RTC ruled that CAI acted in bad faith in reneging on its undertaking to replace the subject tickets within two (2) years from their date of issue when it charged Fernando with the amount of US$1,867.40 for a round trip ticket to Los Angeles and when it refused to allow Fernando to use Lourdes ticket. Specifically: Tickets may be reissued for up to two years from the original date of issue. When defendant airline still charged plaintiffs spouses US$1,867.40 or more than double the then going rate of US$856.00 for the unused tickets when the same were presented within two (2) years from date of issue, defendant airline exhibited callous treatment of passengers.12 The Appellate Courts Ruling On appeal, the CA reversed the RTCs April 3, 2006 Decision, holding that CAI cannot be held liable for Magers act in the absence of any proof that a principal-agent relationship existed between CAI and Holiday Travel. According to the CA, Spouses Viloria, who have the burden of proof to establish the fact of agency, failed to present evidence demonstrating that Holiday Travel is CAIs agent. Furthermore, contrary to Spouses Vilorias claim, the contractual relationship between Holiday Travel and CAI is not an agency but that of a sale. Plaintiffs-appellees assert that Mager was a sub-agent of Holiday Travel who was in turn a ticketing agent of Holiday Travel who was in turn a ticketing agent of Continental Airlines. Proceeding from this premise, they contend that Continental Airlines should be held liable for the acts of Mager. The trial court held the same view. We do not agree. By the contract of agency, a person binds him/herself to render some service or to do something in representation or on behalf of another, with the consent or authority of the latter. The elements of

agency are: (1) consent, express or implied, of the parties to establish the relationship; (2) the object is the execution of a juridical act in relation to a third person; (3) the agent acts as a representative and not for him/herself; and (4) the agent acts within the scope of his/her authority. As the basis of agency is representation, there must be, on the part of the principal, an actual intention to appoint, an intention naturally inferable from the principals words or actions. In the same manner, there must be an intention on the part of the agent to accept the appointment and act upon it. Absent such mutual intent, there is generally no agency. It is likewise a settled rule that persons dealing with an assumed agent are bound at their peril, if they would hold the principal liable, to ascertain not only the fact of agency but also the nature and extent of authority, and in case either is controverted, the burden of proof is upon them to establish it. Agency is never presumed, neither is it created by the mere use of the word in a trade or business name. We have perused the evidence and documents so far presented. We find nothing except bare allegations of plaintiffs-appellees that Mager/Holiday Travel was acting in behalf of Continental Airlines. From all sides of legal prism, the transaction in issue was simply a contract of sale, wherein Holiday Travel buys airline tickets from Continental Airlines and then, through its employees, Mager included, sells it at a premium to clients.13 The CA also ruled that refund is not available to Spouses Viloria as the word "non-refundable" was clearly printed on the face of the subject tickets, which constitute their contract with CAI. Therefore, the grant of their prayer for a refund would violate the proscription against impairment of contracts. Finally, the CA held that CAI did not act in bad faith when they charged Spouses Viloria with the higher amount of US$1,867.40 for a round trip ticket to Los Angeles. According to the CA, there is no compulsion for CAI to charge the lower amount of US$856.00, which Spouses Viloria claim to be the fee charged by other airlines. The matter of fixing the prices for its services is CAIs prerogative, which Spouses Viloria cannot intervene. In particular: It is within the respective rights of persons owning and/or operating business entities to peg the premium of the services and items which they provide at a price which they deem fit, no matter how expensive or exhorbitant said price may seem vis--vis those of the competing companies. The Spouses Viloria may not intervene with the business judgment of Continental Airlines.14 The Petitioners Case In this Petition, this Court is being asked to review the findings and conclusions of the CA, as the latters reversal of the RTCs April 3, 2006 Decision allegedly lacks factual and legal bases. Spouses Viloria claim that CAI acted in bad faith when it required them to pay a higher amount for a round trip ticket to Los Angeles considering CAIs undertaking to re issue new tickets to them within the period stated in their March 24, 1998 letter. CAI likewise acted in bad faith when it disallowed Fernando to use Lourdes ticket to purchase a round trip to Los Angeles given that there is nothing in Lourdes ticket indicating that it is non-transferable. As a common carrier, it is CAIs duty to inform its passengers of the terms and conditions of their contract and passengers cannot be bound by such terms and conditions which they are not made aware of. Also, the subject contract of carriage is a contract of adhesion; therefore, any ambiguities should be construed against CAI. Notably, the petitioners are no longer questioning the validity of the subject contracts and limited its claim for a refund on CAIs alleged breach of its undertaking in its March 24, 1998 letter. The Respondents Case In its Comment, CAI claimed that Spouses Vilorias allegation of bad faith is negated by its willingness to issue new tickets to them and to credit the value of the subject tickets against the value of the new ticket Fernando requested. CAI argued that Spouses Vilorias sole basis to claim that the price at which CAI was willing to issue the new tickets is unconscionable is a piece of hearsay evidence an advertisement appearing on a newspaper stating that airfares from Manila to Los Angeles or San Francisco cost US$818.00.15 Also, the advertisement pertains to airfares in September 2000 and not to airfares prevailing in June 1999, the time

when Fernando asked CAI to apply the value of the subject tickets for the purchase of a new one.16 CAI likewise argued that it did not undertake to protect Spouses Viloria from any changes or fluctuations in the prices of airline tickets and its only obligation was to apply the value of the subject tickets to the purchase of the newly issued tickets. With respect to Spouses Vilorias claim that they are not aware of CAIs restrictions on the subject tickets and that the terms and conditions that are printed on them are ambiguous, CAI denies any ambiguity and alleged that its representative informed Fernando that the subject tickets are non-transferable when he applied for the issuance of a new ticket. On the other hand, the word "non-refundable" clearly appears on the face of the subject tickets. CAI also denies that it is bound by the acts of Holiday Travel and Mager and that no principal-agency relationship exists between them. As an independent contractor, Holiday Travel was without capacity to bind CAI. Issues To determine the propriety of disturbing the CAs January 30, 2009 Decision and whether Spouses Viloria have the right to the reliefs they prayed for, this Court deems it necessary to resolve the following issues: a. Does a principal-agent relationship exist between CAI and Holiday Travel? b. Assuming that an agency relationship exists between CAI and Holiday Travel, is CAI bound by the acts of Holiday Travels agents and employees such as Mager? c. Assuming that CAI is bound by the acts of Holiday Travels agents and employees, can the representation of Mager as to unavailability of seats at Amtrak be considered fraudulent as to vitiate the consent of Spouse Viloria in the purchase of the subject tickets? d. Is CAI justified in insisting that the subject tickets are nontransferable and non-refundable? e. Is CAI justified in pegging a different price for the round trip ticket to Los Angeles requested by Fernando? f. Alternatively, did CAI act in bad faith or renege its obligation to Spouses Viloria to apply the value of the subject tickets in the purchase of new ones when it refused to allow Fernando to use Lourdes ticket and in charging a higher price for a round trip ticket to Los Angeles? This Courts Ruling I. A principal-agent relationship exists between CAI and Holiday Travel. With respect to the first issue, which is a question of fact that would require this Court to review and re-examine the evidence presented by the parties below, this Court takes exception to the general rule that the CAs findings of fact are conclusive upon Us and our jurisdiction is limited to the review of questions of law. It is well-settled to the point of being axiomatic that this Court is authorized to resolve questions of fact if confronted with contrasting factual findings of the trial court and appellate court and if the findings of the CA are contradicted by the evidence on record.17 According to the CA, agency is never presumed and that he who alleges that it exists has the burden of proof. Spouses Viloria, on whose shoulders such burden rests, presented evidence that fell short of indubitably demonstrating the existence of such agency. We disagree. The CA failed to consider undisputed facts, discrediting CAIs denial that Holiday Travel is one of its agents. Furthermore, in

erroneously characterizing the contractual relationship between CAI and Holiday Travel as a contract of sale, the CA failed to apply the fundamental civil law principles governing agency and differentiating it from sale. In Rallos v. Felix Go Chan & Sons Realty Corporation,18 this Court explained the nature of an agency and spelled out the essential elements thereof: Out of the above given principles, sprung the creation and acceptance of the relationship of agencywhereby one party, called the principal (mandante), authorizes another, called the agent (mandatario), to act for and in his behalf in transactions with third persons. The essential elements of agency are: (1) there is consent, express or implied of the parties to establish the relationship; (2) the object is the execution of a juridical act in relation to a third person; (3) the agent acts as a representative and not for himself, and (4) the agent acts within the scope of his authority.1avvphi1 Agency is basically personal, representative, and derivative in nature. The authority of the agent to act emanates from the powers granted to him by his principal; his act is the act of the principal if done within the scope of the authority. Qui facit per alium facit se. "He who acts through another acts himself."19 Contrary to the findings of the CA, all the elements of an agency exist in this case. The first and second elements are present as CAI does not deny that it concluded an agreement with Holiday Travel, whereby Holiday Travel would enter into contracts of carriage with third persons on CAIs behalf. The third element is also present as it is undisputed that Holiday Travel merely acted in a representative capacity and it is CAI and not Holiday Travel who is bound by the contracts of carriage entered into by Holiday Travel on its behalf. The fourth element is also present considering that CAI has not made any allegation that Holiday Travel exceeded the authority that was granted to it. In fact, CAI consistently maintains the validity of the contracts of carriage that Holiday Travel executed with Spouses Viloria and that Mager was not guilty of any fraudulent misrepresentation. That CAI admits the authority of Holiday Travel to enter into contracts of carriage on its behalf is easily discernible from its February 24, 1998 and March 24, 1998 letters, where it impliedly recognized the validity of the contracts entered into by Holiday Travel with Spouses Viloria. When Fernando informed CAI that it was Holiday Travel who issued to them the subject tickets, CAI did not deny that Holiday Travel is its authorized agent. Prior to Spouses Vilorias filing of a complaint against it, CAI never refuted that it gave Holiday Travel the power and authority to conclude contracts of carriage on its behalf. As clearly extant from the records, CAI recognized the validity of the contracts of carriage that Holiday Travel entered into with Spouses Viloria and considered itself bound with Spouses Viloria by the terms and conditions thereof; and this constitutes an unequivocal testament to Holiday Travels authority to act as its agent. This Court cannot therefore allow CAI to take an altogether different position and deny that Holiday Travel is its agent without condoning or giving imprimatur to whatever damage or prejudice that may result from such denial or retraction to Spouses Viloria, who relied on good faith on CAIs acts in recognition of Holiday Travels authority. Estoppel is primarily based on the doctrine of good faith and the avoidance of harm that will befall an innocent party due to its injurious reliance, the failure to apply it in this case would result in gross travesty of justice.20 Estoppel bars CAI from making such denial. As categorically provided under Article 1869 of the Civil Code, "[a]gency may be express, or implied from the acts of the principal, from his silence or lack of action, or his failure to repudiate the agency, knowing that another person is acting on his behalf without authority." Considering that the fundamental hallmarks of an agency are present, this Court finds it rather peculiar that the CA had branded the contractual relationship between CAI and Holiday Travel as one of sale. The distinctions between a sale and an agency are not difficult to discern and this Court, as early as 1970, had already formulated the guidelines that would aid in differentiating the two (2) contracts. In Commissioner of Internal Revenue v. Constantino,21 this Court extrapolated that the

primordial differentiating consideration between the two (2) contracts is the transfer of ownership or title over the property subject of the contract. In an agency, the principal retains ownership and control over the property and the agent merely acts on the principals behalf and under his instructions in furtherance of the objectives for which the agency was established. On the other hand, the contract is clearly a sale if the parties intended that the delivery of the property will effect a relinquishment of title, control and ownership in such a way that the recipient may do with the property as he pleases. Since the company retained ownership of the goods, even as it delivered possession unto the dealer for resale to customers, the price and terms of which were subject to the company's control, the relationship between the company and the dealer is one of agency, tested under the following criterion: "The difficulty in distinguishing between contracts of sale and the creation of an agency to sell has led to the establishment of rules by the application of which this difficulty may be solved. The decisions say the transfer of title or agreement to transfer it for a price paid or promised is the essence of sale. If such transfer puts the transferee in the attitude or position of an owner and makes him liable to the transferor as a debtor for the agreed price, and not merely as an agent who must account for the proceeds of a resale, the transaction is a sale; while the essence of an agency to sell is the delivery to an agent, not as his property, but as the property of the principal, who remains the owner and has the right to control sales, fix the price, and terms, demand and receive the proceeds less the agent's commission upon sales made. 1 Mechem on Sales, Sec. 43; 1 Mechem on Agency, Sec. 48; Williston on Sales, 1; Tiedeman on Sales, 1." (Salisbury v. Brooks, 94 SE 117, 118-119)22 As to how the CA have arrived at the conclusion that the contract between CAI and Holiday Travel is a sale is certainly confounding, considering that CAI is the one bound by the contracts of carriage embodied by the tickets being sold by Holiday Travel on its behalf. It is undisputed that CAI and not Holiday Travel who is the party to the contracts of carriage executed by Holiday Travel with third persons who desire to travel via Continental Airlines, and this conclusively indicates the existence of a principal-agent relationship. That the principal is bound by all the obligations contracted by the agent within the scope of the authority granted to him is clearly provided under Article 1910 of the Civil Code and this constitutes the very notion of agency. II. In actions based on quasi-delict, a principal can only be held liable for the tort committed by its agents employees if it has been established by preponderance of evidence that the principal was also at fault or negligent or that the principal exercise control and supervision over them. Considering that Holiday Travel is CAIs agent, does it necessarily follow that CAI is liable for the fault or negligence of Holiday Travels employees? Citing China Air Lines, Ltd. v. Court of Appeals, et al. ,23CAI argues that it cannot be held liable for the actions of the employee of its ticketing agent in the absence of an employer-employee relationship. An examination of this Courts pronouncements in China Air Lines will reveal that an airline company is not completely exonerated from any liability for the tort committed by its agents employees. A prior determination of the nature of the passengers cause of action is necessary. If the passengers cause of action against the airline company is premised on culpa aquiliana or quasi-delict for a tort committed by the employee of the airline companys agent, there must be an independent showing that the airline company was at fault or negligent or has contributed to the negligence or tortuous conduct committed by the employee of its agent. The mere fact that the employee of the airline companys agent has committed a tort is not sufficient to hold the airline company liable. There is novinculum juris between the airline company and its agents employees and the contractual relationship between the airline company and its agent does not operate to create a juridical tie between the airline company and its agents employees. Article 2180 of the Civil Code does not make the principal vicariously liable for the tort committed by its agents employees and the principal-agency relationshipper se does not make the principal a party to such tort; hence, the need to prove the principals own fault or negligence.

On the other hand, if the passengers cause of action for damages against the airline company is based on contractual breach or culpa contractual, it is not necessary that there be evidence of the airline companys fault or negligence. As this Court previously stated in China Air Lines and reiterated in Air France vs. Gillego,24 "in an action based on a breach of contract of carriage, the aggrieved party does not have to prove that the common carrier was at fault or was negligent. All that he has to prove is the existence of the contract and the fact of its nonperformance by the carrier." Spouses Vilorias cause of action on the basis of Magers alleged fraudulent misrepresentation is clearly one of tort or quasi-delict, there being no pre-existing contractual relationship between them. Therefore, it was incumbent upon Spouses Viloria to prove that CAI was equally at fault. However, the records are devoid of any evidence by which CAIs alleged liability can be substantiated. Apart from their claim that CAI must be held liable for Magers supposed fraud because Holiday Travel is CAIs agent, Spouses Viloria did not present evidence that CAI was a party or had contributed to Magers complained act either by instructing or authorizing Holiday Travel and Mager to issue the said misrepresentation. It may seem unjust at first glance that CAI would consider Spouses Viloria bound by the terms and conditions of the subject contracts, which Mager entered into with them on CAIs behalf, in order to deny Spouses Vilorias request for a refund or Fernandos use of Lourdes ticket for the re-issuance of a new one, and simultaneously claim that they are not bound by Magers supposed misrepresentation for purposes of avoiding Spouses Vilorias claim for damages and maintaining the validity of the subject contracts. It may likewise be argued that CAI cannot deny liability as it benefited from Magers acts, which were performed in compliance with Holiday Travels obligations as CAIs agent. However, a persons vicarious liability is anchored on his possession of control, whether absolute or limited, on the tortfeasor. Without such control, there is nothing which could justify extending the liability to a person other than the one who committed the tort. As this Court explained in Cangco v. Manila Railroad Co.:25 With respect to extra-contractual obligation arising from negligence, whether of act or omission, it is competent for the legislature to elect and our Legislature has so elected to limit such liability to cases in which the person upon whom such an obligation is imposed is morally culpable or, on the contrary, for reasons of public policy, to extend that liability, without regard to the lack of moral culpability, so as to include responsibility for the negligence of those persons whose acts or omissions are imputable, by a legal fiction, to others who are in a position to exercise an absolute or limited control over them. The legislature which adopted our Civil Code has elected to limit extracontractual liability with certain well-defined exceptions to cases in which moral culpability can be directly imputed to the persons to be charged. This moral responsibility may consist in having failed to exercise due care in one's own acts, or in having failed to exercise due care in the selection and control of one's agent or servants, or in the control of persons who, by reasons of their status, occupy a position of dependency with respect to the person made liable for their conduct.26 (emphasis supplied) It is incumbent upon Spouses Viloria to prove that CAI exercised control or supervision over Mager by preponderant evidence. The existence of control or supervision cannot be presumed and CAI is under no obligation to prove its denial or nugatory assertion. Citing Belen v. Belen,27 this Court ruled in Jayme v. Apostol,28 that: In Belen v. Belen, this Court ruled that it was enough for defendant to deny an alleged employment relationship. The defendant is under no obligation to prove the negative averment. This Court said: "It is an old and well-settled rule of the courts that the burden of proving the action is upon the plaintiff, and that if he fails satisfactorily to show the facts upon which he bases his claim, the defendant is under no obligation to prove his exceptions. This [rule] is in harmony with the

provisions of Section 297 of the Code of Civil Procedure holding that each party must prove his own affirmative allegations, etc." 29 (citations omitted) Therefore, without a modicum of evidence that CAI exercised control over Holiday Travels employees or that CAI was equally at fault, no liability can be imposed on CAI for Magers supposed misrepresentation. III. Even on the assumption that CAI may be held liable for the acts of Mager, still, Spouses Viloria are not entitled to a refund. Magers statement cannot be considered a causal fraud that would justify the annulment of the subject contracts that would oblige CAI to indemnify Spouses Viloria and return the money they paid for the subject tickets. Article 1390, in relation to Article 1391 of the Civil Code, provides that if the consent of the contracting parties was obtained through fraud, the contract is considered voidable and may be annulled within four (4) years from the time of the discovery of the fraud. Once a contract is annulled, the parties are obliged under Article 1398 of the same Code to restore to each other the things subject matter of the contract, including their fruits and interest. On the basis of the foregoing and given the allegation of Spouses Viloria that Fernandos consent to the subject contracts was supposedly secured by Mager through fraudulent means, it is plainly apparent that their demand for a refund is tantamount to seeking for an annulment of the subject contracts on the ground of vitiated consent. Whether the subject contracts are annullable, this Court is required to determine whether Magers alleged misrepresentation constitutes causal fraud. Similar to the dispute on the existence of an agency, whether fraud attended the execution of a contract is factual in nature and this Court, as discussed above, may scrutinize the records if the findings of the CA are contrary to those of the RTC. Under Article 1338 of the Civil Code, there is fraud when, through insidious words or machinations of one of the contracting parties, the other is induced to enter into a contract which, without them, he would not have agreed to. In order that fraud may vitiate consent, it must be the causal (dolo causante), not merely the incidental (dolo incidente), inducement to the making of the contract.30 InSamson v. Court of Appeals,31 causal fraud was defined as "a deception employed by one party prior to or simultaneous to the contract in order to secure the consent of the other."32 Also, fraud must be serious and its existence must be established by clear and convincing evidence. As ruled by this Court in Sierra v. Hon. Court of Appeals, et al.,33 mere preponderance of evidence is not adequate: Fraud must also be discounted, for according to the Civil Code: Art. 1338. There is fraud when, through insidious words or machinations of one of the contracting parties, the other is induced to enter into a contract which without them, he would not have agreed to. Art. 1344. In order that fraud may make a contract voidable, it should be serious and should not have been employed by both contracting parties. To quote Tolentino again, the "misrepresentation constituting the fraud must be established by full, clear, and convincing evidence, and not merely by a preponderance thereof. The deceit must be serious. The fraud is serious when it is sufficient to impress, or to lead an ordinarily prudent person into error; that which cannot deceive a prudent person cannot be a ground for nullity. The circumstances of each case should be considered, taking into account the personal conditions of the victim."34 After meticulously poring over the records, this Court finds that the fraud alleged by Spouses Viloria has not been satisfactorily established as causal in nature to warrant the annulment of the subject contracts. In fact, Spouses Viloria failed to prove by clear and convincing evidence

that Magers statement was fraudulent. Specifically, Spouses Viloria failed to prove that (a) there were indeed available seats at Amtrak for a trip to New Jersey on August 13, 1997 at the time they spoke with Mager on July 21, 1997; (b) Mager knew about this; and (c) that she purposely informed them otherwise. This Court finds the only proof of Magers alleged fraud, which is Fernandos testimony that an Amtrak had assured him of the perennial availability of seats at Amtrak, to be wanting. As CAI correctly pointed out and as Fernando admitted, it was possible that during the intervening period of three (3) weeks from the time Fernando purchased the subject tickets to the time he talked to said Amtrak employee, other passengers may have cancelled their bookings and reservations with Amtrak, making it possible for Amtrak to accommodate them. Indeed, the existence of fraud cannot be proved by mere speculations and conjectures. Fraud is never lightly inferred; it is good faith that is. Under the Rules of Court, it is presumed that "a person is innocent of crime or wrong" and that "private transactions have been fair and regular."35 Spouses Viloria failed to overcome this presumption. IV. Assuming the contrary, Spouses Viloria are nevertheless deemed to have ratified the subject contracts. Even assuming that Magers representation is causal fraud, the subject contracts have been impliedly ratified when Spouses Viloria decided to exercise their right to use the subject tickets for the purchase of new ones. Under Article 1392 of the Civil Code, "ratification extinguishes the action to annul a voidable contract." Ratification of a voidable contract is defined under Article 1393 of the Civil Code as follows: Art. 1393. Ratification may be effected expressly or tacitly. It is understood that there is a tacit ratification if, with knowledge of the reason which renders the contract voidable and such reason having ceased, the person who has a right to invoke it should execute an act which necessarily implies an intention to waive his right. Implied ratification may take diverse forms, such as by silence or acquiescence; by acts showing approval or adoption of the contract; or by acceptance and retention of benefits flowing therefrom. 36 Simultaneous with their demand for a refund on the ground of Fernandos vitiated consent, Spouses Viloria likewise asked for a refund based on CAIs supposed bad faith in reneging on its undertaking to replace the subject tickets with a round trip ticket from Manila to Los Angeles. In doing so, Spouses Viloria are actually asking for a rescission of the subject contracts based on contractual breach. Resolution, the action referred to in Article 1191, is based on the defendants breach of faith, a violation of the reciprocity between the parties 37 and in Solar Harvest, Inc. v. Davao Corrugated Carton Corporation,38 this Court ruled that a claim for a reimbursement in view of the other partys failure to comply with his obligations under the contract is one for rescission or resolution. However, annulment under Article 1390 of the Civil Code and rescission under Article 1191 are two (2) inconsistent remedies. In resolution, all the elements to make the contract valid are present; in annulment, one of the essential elements to a formation of a contract, which is consent, is absent. In resolution, the defect is in the consummation stage of the contract when the parties are in the process of performing their respective obligations; in annulment, the defect is already present at the time of the negotiation and perfection stages of the contract. Accordingly, by pursuing the remedy of rescission under Article 1191, the Vilorias had impliedly admitted the validity of the subject contracts, forfeiting their right to demand their annulment. A party cannot rely on the contract and claim rights or obligations under it and at the same time impugn its existence or validity. Indeed, litigants are enjoined from taking inconsistent positions.39 V. Contracts cannot be rescinded for a slight or casual breach.

CAI cannot insist on the non-transferability of the subject tickets. Considering that the subject contracts are not annullable on the ground of vitiated consent, the next question is: "Do Spouses Viloria have the right to rescind the contract on the ground of CAIs supposed breach of its undertaking to issue new tickets upon surrender of the subject tickets?" Article 1191, as presently worded, states: The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him. The injured party may choose between the fulfilment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible. The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period. This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with articles 1385 and 1388 and the Mortgage Law. According to Spouses Viloria, CAI acted in bad faith and breached the subject contracts when it refused to apply the value of Lourdes ticket for Fernandos purchase of a round trip ticket to Los Angeles and in requiring him to pay an amount higher than the price fixed by other airline companies. In its March 24, 1998 letter, CAI stated that "non-refundable tickets may be used as a form of payment toward the purchase of another Continental ticket for $75.00, per ticket, reissue fee ($50.00, per ticket, for tickets purchased prior to October 30, 1997)." Clearly, there is nothing in the above-quoted section of CAIs letter from which the restriction on the non-transferability of the subject tickets can be inferred. In fact, the words used by CAI in its letter supports the position of Spouses Viloria, that each of them can use the ticket under their name for the purchase of new tickets whether for themselves or for some other person. Moreover, as CAI admitted, it was only when Fernando had expressed his interest to use the subject tickets for the purchase of a round trip ticket between Manila and Los Angeles that he was informed that he cannot use the ticket in Lourdes name as payment. Contrary to CAIs claim, that the subject tickets are non -transferable cannot be implied from a plain reading of the provision printed on the subject tickets stating that "[t]o the extent not in conflict with the foregoing carriage and other services performed by each carrier are subject to: (a) provisions contained in this ticket, x x x (iii) carriers conditions of carriage and related regulations which are made part hereof (and are available on application at the offices of carrier) x x x." As a common carrier whose business is imbued with public interest, the exercise of extraordinary diligence requires CAI to inform Spouses Viloria, or all of its passengers for that matter, of all the terms and conditions governing their contract of carriage. CAI is proscribed from taking advantage of any ambiguity in the contract of carriage to impute knowledge on its passengers of and demand compliance with a certain condition or undertaking that is not clearly stipulated. Since the prohibition on transferability is not written on the face of the subject tickets and CAI failed to inform Spouses Viloria thereof, CAI cannot refuse to apply the value of Lourdes ticket as payment for Fernandos purchase of a new ticket. CAIs refusal to accept Lourdes ticket for the purchase of a new ticket for Fernando is only a casual breach.

Nonetheless, the right to rescind a contract for non-performance of its stipulations is not absolute. The general rule is that rescission of a contract will not be permitted for a slight or casual breach, but only for such substantial and fundamental violations as would defeat the very object of the parties in making the agreement.40 Whether a breach is substantial is largely determined by the attendant circumstances. 41 While CAIs refusal to allow Fernando to use the value of Lourdes ticket as payment for the purchase of a new ticket is unjustified as the nontransferability of the subject tickets was not clearly stipulated, it cannot, however be considered substantial. The endorsability of the subject tickets is not an essential part of the underlying contracts and CAIs failure to comply is not essential to its fulfillment of its undertaking to issue new tickets upon Spouses Vilorias surrender of the subject tickets. This Court takes note of CAIs willingness to perform its principal obligation and this is to apply the price of the ticket in Fernandos name to the price of the round trip ticket between Manila and Los Angeles. CAI was likewise willing to accept the ticket in Lourdes name as full or partial payment as the case may be for the purchase of any ticket, albeit under her name and for her exclusive use. In other words, CAIs willingness to comply with its undertaking under its March 24, 1998 cannot be doubted, albeit tainted with its erroneous insistence that Lourdes ticket is non transferable. Moreover, Spouses Vilorias demand for rescission cannot prosper as CAI cannot be solely faulted for the fact that their agreement failed to consummate and no new ticket was issued to Fernando. Spouses Viloria have no right to insist that a single round trip ticket between Manila and Los Angeles should be priced at around $856.00 and refuse to pay the difference between the price of the subject tickets and the amount fixed by CAI. The petitioners failed to allege, much less prove, that CAI had obliged itself to issue to them tickets for any flight anywhere in the world upon their surrender of the subject tickets. In its March 24, 1998 letter, it was clearly stated that "[n]on-refundable tickets may be used as a form of payment toward the purchase of another Continental ticket" 42 and there is nothing in it suggesting that CAI had obliged itself to protect Spouses Viloria from any fluctuation in the prices of tickets or that the surrender of the subject tickets will be considered as full payment for any ticket that the petitioners intend to buy regardless of actual price and destination. The CA was correct in holding that it is CAIs right and exclusive prerogative to fix the prices for its services and it may not be compelled to observe and maintain the prices of other airline companies.43 The conflict as to the endorsability of the subject tickets is an altogether different matter, which does not preclude CAI from fixing the price of a round trip ticket between Manila and Los Angeles in an amount it deems proper and which does not provide Spouses Viloria an excuse not to pay such price, albeit subject to a reduction coming from the value of the subject tickets. It cannot be denied that Spouses Viloria had the concomitant obligation to pay whatever is not covered by the value of the subject tickets whether or not the subject tickets are transferable or not.1avvphi1 There is also no showing that Spouses Viloria were discriminated against in bad faith by being charged with a higher rate. The only evidence the petitioners presented to prove that the price of a round trip ticket between Manila and Los Angeles at that time was only $856.00 is a newspaper advertisement for another airline company, which is inadmissible for being "hearsay evidence, twice removed." Newspaper clippings are hearsay if they were offered for the purpose of proving the truth of the matter alleged. As ruled in Feria v. Court of Appeals,:44 [N]ewspaper articles amount to "hearsay evidence, twice removed" and are therefore not only inadmissible but without any probative value at all whether objected to or not, unless offered for a purpose other than proving the truth of the matter asserted. In this case, the news article is admissible only as evidence that such publication does exist with the tenor of the news therein stated.45 (citations omitted) The records of this case demonstrate that both parties were equally in default; hence, none of them can seek judicial redress for the cancellation or resolution of the subject contracts and they are therefore bound to their respective obligations thereunder. As the 1st sentence of Article 1192 provides:

Art. 1192. In case both parties have committed a breach of the obligation, the liability of the first infractor shall be equitably tempered by the courts. If it cannot be determined which of the parties first violated the contract, the same shall be deemed extinguished, and each shall bear his own damages. (emphasis supplied) Therefore, CAIs liability for damages for its refusal to accept Lourdes ticket for the purchase of Fernandos round trip ticket is offset by Spouses Vilorias liability for their refusal to pay the amount, which is not covered by the subject tickets. Moreover, the contract between them remains, hence, CAI is duty bound to issue new tickets for a destination chosen by Spouses Viloria upon their surrender of the subject tickets and Spouses Viloria are obliged to pay whatever amount is not covered by the value of the subject tickets. This Court made a similar ruling in Central Bank of the Philippines v. Court of Appeals.46 Thus: Since both parties were in default in the performance of their respective reciprocal obligations, that is, Island Savings Bank failed to comply with its obligation to furnish the entire loan and Sulpicio M. Tolentino failed to comply with his obligation to pay his P17,000.00 debt within 3 years as stipulated, they are both liable for damages. Article 1192 of the Civil Code provides that in case both parties have committed a breach of their reciprocal obligations, the liability of the first infractor shall be equitably tempered by the courts. WE rule that the liability of Island Savings Bank for damages in not furnishing the entire loan is offset by the liability of Sulpicio M. Tolentino for damages, in the form of penalties and surcharges, for not paying his overdue P17,000.00 debt. x x x.47 Another consideration that militates against the propriety of holding CAI liable for moral damages is the absence of a showing that the latter acted fraudulently and in bad faith. Article 2220 of the Civil Code requires evidence of bad faith and fraud and moral damages are generally not recoverable in culpa contractual except when bad faith had been proven.48 The award of exemplary damages is likewise not warranted. Apart from the requirement that the defendant acted in a wanton, oppressive and malevolent manner, the claimant must prove his entitlement to moral damages.49 WHEREFORE, premises considered, the instant Petition is DENIED. SO ORDERED. BIENVENIDO Associate Justice WE CONCUR: L. REYES

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,

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.

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. The appealed decision is consequently affirmed. So ordered. Paras, C. J., Padilla, Montemayor, Bautista Angelo, Concepcion, Reyes, J. B. L., and Felix, JJ., concur.

G.R. No. 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. Office of the Solicitor General Antonio P. Barredo, Assistant Solicitor General Felicisimo R. Rosete, Solicitor Lolita O. Gal-lang, and Special Attorney Gemaliel H. Montalino for Commissioner of Internal Revenue, etc.

Melquides C. Gutierrez, Jose U. Ong, Juan G. Collas, Jr., Luis Ma. Guerrero and J.R. Balonkita for Engineering and Supply Company.

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. L27044). 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;

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

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 air-conditioning system subject to the 3% tax imposed by Section 191 of the same Code, which is essentially a tax on the sale of services or labor of a contractor rather than on the sale of articles subject to the tax referred to in Sections 184, 185 and 186 of the Code. 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. 20-36; 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 requirements.

with

their

needs

and

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 non-existing 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. 150-151, 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. (ExhNo. "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. SO ORDERED.

price is based on the assumption that the cost per bag of premium cement is P54.00 and aggregate at P95.00 per cu. m. Any increase of the above raw materials shall be to the account of the contractor. All taxes shall be for the account of the contractor. 3. PLANT/EQUIPMENT 3.1 The machines for the fabrication/casting of the concrete blocks, including all necessary equipment and accessories, shall be provided by the SUPPLIER. The machines and equipment shall be mobilized and made operational at the specified casting location/stockpiling yard designated and provided by the CONTRACTOR. The SUPPLIER shall ensure that all plant facilities/equipment must, at all times, be accessible for inspection by the representatives of the CONTRACTOR. The SUPPLIER shall ensure that the plant/casting machines actual operating capacities shall not be lower than 75,000 pieces every month. If at any time within the life of this agreement the plant/casting machines are proven to be operating below the required minimum capacity as aforesaid, the SUPPLIER shall be obliged to take the necessary actions to upgrade the plant/casting machines and/or make the necessary rehabilitation to increase the capacity to the required level.

3.2 -

3.3 Makalintal, C.J., Castro, Makasiar and Martin, JJ., concur.

DEL

MONTE PHILIPPINES, INC., petitioner, ARAGONES, respondent.

vs. NAPOLEON

N.

DECISION CARPIO-MORALES, J.: The decision in the present Petition for Review on Certiorari hinges on the nature of the contract denominated Supply Agreement[1] which was forged between Dynablock Enterprises, represented by its Manager herein respondent Napoleon N. Aragones (Aragones) and MegaEngineering Services in joint venture with WAFF Construction System Corporation (MEGA-WAFF) whether it was one of sale or for a piece of work. On September 18, 1988, herein petitioner Del Monte Philippines Inc. (DMPI) entered into an Agreement[2] with MEGA-WAFF, represented by Managing Principal Edilberto Garcia (Garcia), whereby the latter undertook the supply and installation of modular pavement at DMPIs condiments warehouse at Cagayan de Oro City within 60 calendar days from signing of the agreement. To source its supply of concrete blocks to be installed on the pavement of the DMPI warehouse, MEGA-WAFF, as CONTRACTOR represented by Garcia, entered into a Supply Agreement with Dynablock Enterprises, represented by herein respondent Aragones, as SUPPLIER, under the following terms: 1. ITEMS TO BE SUPPLIED The SUPPLIER at its own expense shall provide the CONTRACTOR with labor and all materials, equipment, tools and supplies necessary and incident thereto, the required concrete blocks at the contractors specified casting site, all in accordance with the terms and conditions of this agreement, as well as the requirements of the project specifications and provisions with respect to the fabrication of concrete blocks. 2. PRICE The CONTRACTOR will pay the supplier in consideration for the full and total performance of the above undertaking, inclusive of all applicable taxes, the unit price of P7.00 per supplied and accepted piece. This 4.4 Where the CONTRACTOR has provided materials to the SUPPLIER to be incorporated into the SUPPLIERs production, as in the case of cement and aggregates, the cost of such materials which becomes part of the rejected products due to faulty batching/mixing/curing shall be for the account of the SUPPLIER. 5. MATERIALS AND OTHER PROVISIONS SUPPLIED BY THE CONTRACTOR 5.1 All the materials are for the account of the SUPPLIER. The CONTRACTOR shall, however, provide all the cement and 4. QUALITY OF MATERIALS 4.1 The SUPPLIER guarantees that all materials supplied to the CONTRACTOR shall meet the approved specifications (Attached Annex A) at 5,000 pci. In this connection, the CONTRACTOR shall assign an inspector at the casting site to ensure that all items supplied shall conform with the approved standards. 4.2 The CONTRACTOR may reject any finished product or materials which do not pass the approved standards.

4.3 There shall be a system of sampling the output of the plant and/or each casting machine for testing in accordance with the quality standards specified. Result of such sampling tests shall be the basis for acceptance or rejection of the finished materials.

aggregates requirement for the fabrication of the concrete blocks, in which the corresponding cost shall be deducted from the periodical proceeds due to the SUPPLIER. 5.2The CONTRACTOR shall provide and make available to the SUPPLIER the following provisions/facilities free of charge: a) Casting/Fabrication Area b) Stockpile Area c) Warehouse for Cement d) An all-weather working shed for workers e) Night Watchers 5.3 The CONTRACTOR shall arrange for the installation of electrical and water facilities for the work in which the cost of electricity and water actually consumed shall be borne by the SUPPLIER. The SUPPLIER shall be responsible for all materials already turned over by the CONTRACTOR at the casting area. The responsibility, however, of the SUPPLIER on the finished products ceases upon loading of the same to the CONTRACTORs truck on way to the project site.

accessories for the CONTRACTORs exclusive useand full operation and production of the required concrete blocks for the intended project. 8.2 The SUPPLIER or his agents or representatives shall not, directly or indirectly, enter into any contract, agreement, concessions or transactions of whatever nature or kind with the project owner or of its representative which will affect the rights, interest or participation of the CONTRACTOR in regard to the execution and accomplishment of the project. 8.3 In case of violation of this exclusivity clause, utmost fidelity and good faith being of the essence, the CONTRACTOR shall have the right to demand reasonable amount of damages or terminate this agreement upon due notice.

5.4

9. CONDITIONS OF PAYMENT 9.1 Upon mobilization of the casting machines, equipments accessories and making some operational at the casting area by the SUPPLIER, the CONTRACTOR shall advance to the supplier a downpayment or mobilization fund of TEN THOUSAND (P10,000.00) PESOS per machine. Said mobilization fee shall be deducted from the proceeds of the SUPPLIER at two (2) equal installments beginning at the first billing. The SUPPLIER shall present its billing every fifteen days based on the below indicated payment schedule: a) Billing from 1st/day/month to 15th day payable after fifteen days from the date the billing is submitted. b) Billing from the 16th day of the month to the 31st day of the month, payable after fifteen days from the date the billing is submitted. 10. EFFECTIVITY OF CONTRACT This agreement shall be co-terminus with the terms of the contract for the project and/or upon completion of all requirements therefor; PROVIDED, However, that if for some reason or another the production of the concrete blocks is temporarily suspended, this agreement shall remain in force and effective for a period of fifteen (15) days from the date of the cessation of production. In case the said grace period expires without the production having resumed, the CONTRACTOR shall be obliged to pay reasonable compensation for the period of suspension counted from the expiration of the said grace period. 11. PERFORMANCE BOND The SUPPLIER shall post a SURETY/PERFORMANCE BOND in such sums which may be deemed adequate to secure its faithful compliance of the terms and conditions of this agreement. 12. PENALTY CLAUSE

6. OBLIGATIONS OF SUPPLIER 6.1 To fabricate and provide the required block machines in such number adequate to cope up with time schedule. 6.2 To provide concrete mixers: one (1) unit of twobagger, and two (2) units of one-bagger. 6.3 To provide drying racks, measuring boxes, wheel borrows and other necessary hand tools. To supervise and provide the required manpower for the operation and production of concrete blocks.

9.2 -

6.4

6.5 To undertake the following: a) mixing and formulation of proper mix. b) to consolidate, form and compress the blocks. c) to unload the formed blocks into the drying racks. d) after initial setting of blocks, to unload and arrange them to wooden pallets. e) curing of blocks as per approved standards. 7. OTHER OBLIGATIONS OF CONTRACTOR 7.1 - To provide tarpaulin or canvas or plastic sheets to cover blocks during the seasoning stage. 7.2 - To provide forklift and wooden pallets. 8. EXCLUSIVITY OF PRODUCTION 8.1 - Effective upon the execution of this agreement, the SUPPLIER binds itself to devote the entire plant/casting machines and its

In the event the SUPPLIER fails to meet the requirements demanded in this agreement or when the SUPPLIER is in delay in the performance of its obligation to the prejudice of the CONTRACTOR, the SUPPLIER shall answer for the corresponding damages equivalent to one-tenth (1/10) of

the rated monthly production capacity. (Emphasis and underscoring supplied).[3] Aragones thereupon started assembling the machines for the fabrication/casting of the concrete blocks which MEGA-WAFF specified to be hexagonal shaped. MEGA-WAFF, through Garcia, later directed Aragones to instead fabricate machines for S shaped blocks. As stated in the Agreement between DMPI and MEGA-WAFF, the deadline for the installation of the pavement of the warehouse was November 18, 1988, but it was not met. As extended, the installation was finished on or about February 28, 1989, but MEGA-WAFF was, in accordance with its agreement with DMPI, penalized for the delay, albeit at a reduced amount. Aragones, having in the meantime gotten wind of MEGA-WAFF & DMPIs Agreement, more particularly the imposition of a penalty by DMPI for the delay in the completion of the installation of the warehouse pavement, appealed to DMPI, by letter of March 4, 1989,[4] for leniency in the imposition of the penalty which would affect [him] also although [he] was not a direct party to the contract, he inviting attention to the intricacy and enormity of the job involved. Aragones later failed to collect from MEGA-WAFF the full payment of the concrete blocks. He thus sent DMPI a letter dated March 10, 1989,[5] received by the latter on March 13, 1989,[6] advising it of MEGAWAFFs unpaid obligation and requesting it to earmark and withhold the amount of P188,652.65 from [MEGA-WAFFs] billing to be paid directly to him [l]est Garcia collects and fails to pay [him]. DMPI, in the meantime, verbally advised Aragones to secure a court order directing it to withhold payment of the amount due MEGAWAFF for, in the absence of such court order, DMPI was under its agreement with MEGA-WAFF obliged to release full payment within 30 days from acceptance of the completed work. It appears that Aragones reiterated his request to DMPI for direct payment to him, by letter of March 28, 1989.[7] This was followed by another letter dated April 6, 1989[8] which was received on April 8, 1989[9] by DMPI, copy of which it referred to Garcia, by letter of April 27, 1989,[10] for his comment. By letter of May 3, 1989[11] addressed to DMPI, Garcia, commenting on Aragones April 6, 1989 letter, stated: xxx

Aragones was thus prompted to file on May 25, 1989 a complaint[12] for sum of money (P188,652.65) with damages against Garcia and/or MEGA-WAFF and DMPI before the Regional Trial Court (RTC) of Lanao del Norte which was raffled to Branch 5 thereof. Aragones impleaded DMPI on the strength of Articles 1729 and 1467 of the Civil Code, he contending that it was liable to him who put labor upon or furnished materials for a piece of work. By his July 14, 1989 Answer,[13] Garcia, without disputing the amount being collected by Aragones, justified his refusal to satisfy [Aragones] demand by claiming that Aragones defaulted in his obligation under the Supply Agreement. DMPI, by its Answer[14] of June 25, 1989, pleaded that Aragones had no cause of action against it as it had no privity of contract with him; that it had already paid MEGA-WAFF the full amount due it; and that it had not committed any actionable wrong against Aragones. Aragones later filed an Amended Complaint,[15] with leave of court, to cure certain formal defects in the original complaint as to the designation of parties . . . DMPI also later filed a Motion for Leave to File an Amended Answer with Cross-Claim against Garcia and WAFF President Francisco Castro[16] which the trial court granted. In the Amended Answer with Cross Claim,[17] DMPI alleged, inter alia, that [i]n the event [Aragones] succeeds in obtaining a judgment [against] DMPI, that said judgment should be charged to and paid by the cross-defendants who have collected the full contract price of the Agreement wherein [Aragones] claims the rights of a subcontractor, plus consequential damages (underscoring in the original). The trial court, upon the following issues: a. Whether or not [Aragones] has still a collectible amount of P188,652.65 from defendants Garcia and Castro; b. Whether or not defendant DMPI may also be held accountable for this unpaid obligation of defendant Garcia/MEGA-WAFF; c. Whether or not the remaining balance of defendant DMPI account payable is P188,652.65 insisted by defendant Garcia/MEGA-WAFF or only P157,863.77 insisted by defendant DMPI; d. Whether or not the parties are entitled to damages pleaded;

If there is somebody who have (sic) justifiable ground to complain, it is MEGA-WAFF against Atty. Aragones for all the miseries and embarrassment we had suffered due to the factors attributable to Atty. Aragones Dynablock Enterprises. For proper evaluation of things and to give both parties a fair chance, we enclosed (sic) pertinent papers for your perusal. As contractor and businessman, it is our firm policy not to take advantage of other people and definitely not to renegade (sic) from commitments/obligations. We are willing to pay Atty. Aragones but based on the actual accomplishment and amount only due to him as per reconciliation furnished to him. (attached) We sincerely hope that the facts we had presented will suffice, and please accept our apology for whatever inconvenience it has caused you and we pray that this matter of payments be settled soon for the general benefit of all concerned. x x x (Underscoring supplied).

e. Whether or not there was delay in the performance of the respective obligations of either party or both; f. Assuming that defendant DMPI is liable to plaintiff, whether or not cross defendant Garcia/MEGA-WAFF shall be liable to DMPI for reimbursement.[18], found for the plaintiff Aragones in light of the following considerations: Those who put their labor upon or furnish materials for a piece of work undertaken by the contractor have an action against the owner up to the amount owing from the latter to the contractor at the time the claim is made. However, the following shall not prejudice the laborers, employees and furnishers of materials: (1) Payments made by the owner of the contractor before they are due; Renunciation by the contractor of any amount due him from the owner.

(2)

This article is subject to the provisions of special laws (1597a) It turned out that DMPI had, on or about April 6, 1989, released to MEGA-WAFF a check dated April 4, 1989 in the amount of P157,863.77 representing DMPIs balance of its obligation to MEGA-WAFF. (Article 1729, New Civil Code, [emphasis supplied]).

In interpreting the foregoing provision, the Supreme Court made the following pertinent pronouncement: Article 1729 is promulgated to protect the laborers and the materialmen from being taken advantage of by unscrupulous contractors and from possible connivance between owners and contractors. (Velasco vs. C.A. 95 Phils. (sic) (616-641). The legal issue that arises is whether or not GSIS is liable to the petitioners for the cost of the materials and labor furnished by them in construction of the 63 houses now owned by the GSIS and for the construction of which no payment has been made on the balance due to petitioners. Our considered view is and we so hold that even in equity alone, GSIS should pay the petitioners, without prejudice to its securing indemnity from Laigo Realty Corp. (Velaso vs. C.A., 95 Phils. (sic) 616-641 [emphasis and underscoring supplied]). Moreover, anent this matter another decisional rule, says: Although there was no privity of contract between plaintiff and defendant Joven, Inc., there is sufficient evidence showing that he had really supplied stones and sands to said defendant and also removed dirt and soil from its construction site. And it is this main point which calls for resolution in the light of the provisions of Art. 1729 of the New Civil Code, to determine whether or not defendant corporation is liable for materials supplied and services rendered by the plaintiff. It is quite clear that the owner of the building, Joven Inc. is liable for materials and labor furnished to the contractor up to the amount owing from the latter to the contractor and to enforce such liability, the law allows the person furnishing labor or materials to bring his right of action directly against the owner. (Flores vs. Ruelo, CA 52 OG 850, [emphasis and underscoring supplied]). Of course, while defendant DMPI is indeed directly liable to pay plaintiff the cost of the construction material (modular paving blocks) sought to be collected, this defendant has also a right of recourse against cross defendant Garcia/MEGA-WAFF for reimbursement of whatever amount it will be required here to pay plaintiff, otherwise it would result in making defendant Garcia/MEGA-WAFF enrich itself at the expense of defendant DMPI. Additionally since the evidence on record shows that plaintiff was compelled to litigate this matter if only to collect a just and demandable obligation, the refusal of these defendants to pay their obligation upon demand could not be justified in law, thus both defendants should be condemned to pay exemplary damages in the amount of P20,000.00 each and attorneys fees in the amount ofP10,000.00 each, including the cost of this suit. (Underscoring supplied)[19] The trial court accordingly rendered judgment in favor of Aragones by decision[20] of September 11, 1992, the dispositive portion of which reads: WHEREFORE, the foregoing premises considered, the Court finds that there is ample reason in law and preponderant evidence on record to sustain the cause of action of plaintiff asserted against both defendants, thus judgment is now rendered granting the following relief: a. That the defendants Garcia/MEGA-WAFF and DMPI shall be liable to jointly and severally pay plaintiff the unpaid cost of the modular paving blocks construction material which he delivered to defendant DMPI priced at P188,652.65 and in the event that defendant DMPI will be made to pay the full amount of this particular obligation, the defendant Garcia MEGA-WAFF must reimburse said defendant such amount;

and P10,000.00 for attorneys fees, including the cost of this suit. SO ORDERED. (Emphasis and underscoring supplied).[21] On appeal to the Court of Appeals (CA) by only DMPI, upon the following assigned errors: I THE TRIAL COURT ERRED IN HOLDING THAT PLAINTIFF DID NOT INCUR DELAY AND VIOLATE ITS SUPPLY AGREEMENT WITH DEFENDANT MEGA-WAFF; II THE TRIAL COURT ERRED IN HOLDING THAT DEFENDANT MEGAWAFFS LIABILITY TO PLAINTIFF IS P188,652.65 BECAUSE AS STIPULATED IN THE SUPPLY AGREEMENT, THE CEMENT AND AGGREGATES USED IN THE MANUFACTURE OF THE BLOCKS WERE ADVANCED BY MEGA-WAFF, THE COST OF WHICH WILL BE DEDUCED FROM PLAINTIFFS BILLINGS; III. THE TRIAL COURT ERRED IN HOLDING THAT DEFENDANT DMPI IS ALSO LIABLE TO PLAINTIFF FOR ANY LIABILITY OF MEGA-WAFF UNDER THE SUPPLY AGREEMENT; IV. ASSUMING EX GRATIA ARGUMENTI THAT DMPI IS LIABLE TO PLAINTIFF'S AID LIABILITY CANNOT EXCEED THE SUM OF P157,863.77 BALANCE OF THE CONTRACT PRICE BETWEEN DMPI AND MEGA-WAFF, LESS AGREED PENALTY FOR LATE DELIVERY AS LIQUIDATED DAMAGES; V. THE TRIAL COURT ERRED IN HOLDING DEFENDANT DMPI LIABLE TO PLAINTIFF FOR ATTORNEYS FEES AND COSTS OF COLLECTION CONSIDERING THAT IT HAD THE RIGHT TO RESIST PAYMENT BECAUSE IT HAS NO PRIVITY OF CONTRACT BETWEEN PLAINTIFF AND DEFENDANT MEGA-WAFF, (Underscoring supplied),[22] the CA, by decision of September 19, 2001[23] subject of the petition at bar, affirmed the trial courts decision in this wise: At this juncture it is well to note that the Supply Agreement was in the nature of a contract for a piece of work. The distinction between a contract of sale and one for work, labor and materials is tested by 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 but has been the subject of sale to some other persons even if the order had not been given. If the article ordered by the purchaser is exactly such as the seller makes and keeps on hand for sale to anyone, and no change or modification of it is made at purchasers request, it is a contract of sale even though it may be entirely made after, and in consequence of the purchasers order for it. [Commissioner of Internal Revenue vs. Engineering Equipment and Supply Company, G.R. No. L-27044, June 30, 1975] In the case at bench, the modular paving blocks are not exactly what the plaintiff-appellee makes and keeps on hand for sale to anyone, but with a modification that the same be S in shape. Hence, the agreement falls within the ambit of Article 1467 making Article 1729 likewise applicable in the instant case.

b. That this unpaid obligation sought to be collected must bear legal interest of 12% per annum from the time there was an extrajudicial demand made by plaintiff last March 01, 1989; and c. Lastly, these defendants are condemned that each pay plaintiff P20,000.00 for exemplary damages

As regard the issue of privity of contracts, We need to add only that Article 1311 of the New Civil Code which DMPI invokes is not applicable where the situation contemplated in Article 1729 obtains. The intention of the latter provision is to protect the laborers and the materialmen from being taken advantage of by unscrupulous contractors and from possible connivance between owners and contractors. Thus, aconstructive vinculum or contractual privity is created by this provision, by way of exception to the principle underlying Article 1311 between the owner, on the one hand, and those who furnish labor and/or materials, on the other. [Velasco vs. Court of Appeals, G.R. No. L-47544, January 28, 1980] As a matter of fact, insofar as the laborers are concerned, by a special law, Act no. 3959, otherwise known as An Act making it obligatory for any person, company, firm or corporation owning any work of any kind executed by contract to require the contractor to furnish a bond guaranteeing the payment of the laborers . they are given added protection by requiring contractors to file bonds guaranteeing payment to them. It is true that defendant-appellant had already fully paid its obligation to defendant Garcia however, the formers payment to the latter does not extinguish its legal obligation to plaintiff-appellee because such payment was irregular. The former should have taken care not to pay to such contractor the full amount which he is entitled to receive by virtue of the contract, until he shall have shown that he first paid the wages of the laborer employed in said work, by means of an affidavit made and subscribed by said contractor before a notary public or other officer authorized by law to administer oaths. There is no showing that defendant appellant DMPI, as owner of the building, complied with this requirement paid down in Act No. 3959. Hence, under Section 2 of said law, said defendant-appellant is responsible, jointly and severally with the general contractor, for the payment to plaintiff-appellee as subcontractor. In this connection, while, indeed, Article 1729 refers to the laborers and materialmen themselves, under the peculiar circumstances of this case, it is but fair and just that plaintiff-appellee be deemed as suing for the reimbursement of what they have already paid the laborers and materialmen, as otherwise he would be unduly prejudiced while either defendant-appellant DMPI or defendant Garcia would enrich themselves at plaintiff-appellees expense. Be that as it may, We so hold that plaintiff-appellee has a lawful claim against defendant-appellant DMPI, owner of the constructed warehouse since it disregarded the notice of claim of plaintiff-appellee, at a time when the amounts owing from defendant-appellant DMPI to defendant GARCIA were more than sufficient to pay for plaintiff-appellees claim. The least that defendant-appellant should have done was to withhold payment of the balance still owing to defendant Garcia as until the claim of plaintiff-appellee was clarified. (Italics in the original; emphasis and underscoring supplied).[24] Its Motion for Reconsideration having been denied by the CA, DMPI (hereinafter referred to as petitioner) lodged the present Petition for Review on Certiorari, faulting the CA: I. . . . IN FINDING THAT DMPI WAS LIABLE TO RESPONDENT ARAGONES FOR THE UNPAID PRICE OF THE CONCRETE PAVING BLOCKS OWED BY MEGA-WAFF TO THE LATTER. A. IN FINDING THAT THE CONTRACT FOR THE SUPPLY OF THE CONCRETE PAVING BLOCKS WAS NOT A SALE BUT ONE FOR A PIECE OF WORK. IN HOLDING DMPI LIABLE BASED UPON THE PROVISIONS OF ARTICLE 1729 OF THE CIVIL CODE AND ACT 3959, WHICH ARE INAPPLICABLE.

. . . IN FAILING TO AWARD MORAL DAMAGES, ATTORNEYS FEES, AND LITIGATION EXPENSES TO DMPI ON ITS COUNTERCLAIM.[25] As reflected above, only petitioner appealed the trial courts decision. MEGA-WAFF did not appeal. The decision as to it then is final and executory. Petitioner, in the main, contends that while the CA correctly stated the test in determining whether a transfer is a sale or one for a piece of work, it failed to properly apply the same. Applying the nature of the object test, petitioner insists that the concrete block to be produced by Aragones under the Supply Agreement represented by Garcia clearly shows that the contract was one of sale, advancing the following reasons: 1.4.1 First, the concrete paving blocks were . . . capable of being massproduced 1.4.2 Second, save for the shape, there was here no consideration of any special needs or requirements of DMPI taken into account in the design or manufacture of the concrete paving blocks.[26] Petitioner cites the following ruling in Commissioner of Internal Revenue v. Arnoldus Carpentry Shop, Inc.:[27] x x x 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 on 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 ones business, it is a contract of sale. (Italics and emphasis in the original; underscoring supplied),[28] and argues that given habituality of business and the ability to mass produce the article ordered, that customers requires (sic) certain specifications is of no moment, the transaction remains one of sale. Petitioner further cites, among other authorities, the following ruling in Celestino Co. v. Collector of Internal Revenue:[29] x x x The important thing to remember is that Celestino & Co. 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 of such materials-moulding, frames, panels as it ordinarily manufactured or was in a position habitually to manufacture. xxx 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 of sash, mouldings, panels it would not accept the order and no sale is made. If they do, the transaction would be no different from purchaser of manufactured goods held in stock for sale; they are bought because they meet 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, 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.

B.

II.

xxx x x x Such new form does not divest the Oriental Sash Factory of its character as manufacturer. Neither does it take the transaction out of the category of sales under Article 1467 above quoted, because although the Factory does not, in the ordinary course of its business, manufacture and keep on stock doors of the kind sold to Teodoro, it could and/or probably had in stockthe sash, mouldings and panels it used therefor (some of them at least). (Emphasis in the original; underscoring supplied). Petitioner concludes that as the Supply Agreement between Aragones and MEGA-WAFF was one of sale to which it (petitioner) was not privy, it cannot be held liable for any obligation arising therefrom. Dodging liability for the damages (exemplary and . . . attorneys fees including the cost of this suit) awarded to Aragones, petitioner claims that it was in fact the one which was injured by Aragones filing in bad faith of a complaint bereft of cause of action and at best, [one] barred by full payment of the amount due to MEGA-WAFF, on account of which it is entitled to moral damages in the amount of P50,000.00 pursuant to Article 2217 of the Civil Code, and to attorneys fees and expenses of litigation in the amount of at least P30,000.00 plus P2,500.00 per hearing pursuant to Article 2208 of the Civil Code. The petition fails. The authorities petitioner cited in fact show that the nature of the Supply Agreement between Aragones and MEGA-WAFF was one for a piece of work. Contrary to petitioners claim that save for the shape, there was no consideration of any special needs or requirements of DMPI taken into account in the design or manufacture of the concrete paving blocks, the Supply Agreement is replete with specifications, terms or conditions showing that it was one for a piece of work. As reflected in the highlighted and underscored above-quoted provisions of the Supply Agreement, as well as other evidence on record, the machines Aragones was obliged to fabricate were those for casting the concrete blocks specified by Garcia. Aragones did not have those kind of machines in his usual business, hence, the special order. While initially Garcia specified that the machines to be fabricated should be for hexagon shaped blocks, he later asked Aragones to instead fabricate machines for casting S shaped blocks. In accordance with the Supply Agreement, Garcia furnished the cement and aggregates for the fabrication of the blocks and Aragones fabricated three (3) machines for S shaped blocks which were delivered at the casting site on different dates. And the entire plant/casting machines and . . . . accessories were, as dictated under the Supply Agreement, devoted by Aragones for [MEGA-WAFF]s exclusive use. There can be no gainsaying that the specifications/conditions in the Supply Agreement and the admitted subsequent directive of Garcia for Aragones to fabricate machines for casting S shaped, instead of hexagon shaped blocks, show that the concrete blocks were manufactured specifically for, and upon the special order of Garcia. That Garcia supplied the cement and aggregates and that the entire made-to-order casting machines and accessories used in the manufacture of those unusual shaped blocks were agreed upon to be devoted only for the exclusive use of MEGA-WAFF should belie petitioners contention that the concrete blocks were mass-produced and catered to the general market in the ordinary course of Aragones business. Under Art. 1467 then of the Civil Code which provides: 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. (Emphasis and underscoring supplied),

the Supply Agreement was decidedly a contract for a piece of work. Following Art. 1729 of the Civil Code which provides: ART. 1729. Those who put their labor upon or furnish materials for a piece of work undertaken by the contractor have an action against the owner up to the amount owing from the latter to the contractor at the time the claim is made. x x x x x x (Underscoring supplied), Aragones having specially fabricated three casting machines and furnished some materials for the production of the concrete blocks specially ordered and specified by MEGA-WAFF which were to be and indeed they were for the exclusive use of MEGA-WAFF, he has a cause of action upon petitioner up to the amount it owed MEGA-WAFF at the time Aragones made his claim to petitioner. As Velasco v. CA[30] explains, the intention of Art. 1729 is to protect the laborers and materialmen from being taken advantage of by unscrupulous contractors and from possible connivance between owners and contractors. Thus, a constructive vinculum or contractual privity is created by this provision, by way of exception to the principle underlying Article 1311 between the owner, on the one hand, and those who furnish labor and/or materials, on the other. In fine, a constructive vinculum or contractual privity was created between petitioner and Aragones. Respecting petitioners disclaimer of liability for damages and its claim for moral damages, attorneys fees and expenses of litigation, the trial courts disposition thereof, to wit: . . . since the evidence on record shows that [Aragones] was compelled to litigate this matter if only to collect a just and demandable obligation, the refusal of [DMPI and MEGA-WAFF] to pay their obligation upon demand could not be justified by law, thus both should be condemned to pay exemplary damages in the amount of P20,000.00 each and attorneys fees in the amount of P10,000.00 each including costs of this suit (underscoring supplied), merits this Courts approval. Why should not petitioner be liable for damages. Aragones request, based on a provision of law, to petitioner for it to pay directly to him his account receivable from MEGA-WAFF/Garcia out of petitioners account payable to MEGA-WAFF was made before petitioners obligation to it was due. Yet petitioner settled such obligation to MEGAWAFF on or about April 6, 1989 when it released to it its checkpayment. For petitioner to harp on its undertaking under its Agreement with MEGA-WAFF to pay its full obligation thereunder within 30 days from complete installation of the pavement by MEGAWAFF unless a court injunction could be produced by Aragones is too shallow, under the facts and circumstances surrounding the case, to merit consideration. Petitioners referral for comment of Garcia, by letter of April 27, 1989, on Aragones April 6, 1989 reiterative letter for the withholding of the release of so much amount to MEGA-WAFF even after it (petitioner) had already released on or about April 6, 1989 its check-full payment to MEGA-WAFF reflects a futile attempt to cover-up the apparent connivance between it and contractor MEGA-WAFF to the prejudice of Aragones, leaving him no option but to litigate. As for the assailed citation by the appellate court of Act No. 3959 (which requires a person or firm owning any work of any kind executed by contract to put up a bond guaranteeing the payment of the laborers) as additional justification to hold petitioner liable to Aragones, indeed, said Act had been repealed in 1974 by P.D. No. 442 (The Labor Code of the Philippines). WHEREFORE, in light of the foregoing discussions, the petition is hereby DENIED. Costs against petitioner.

SO ORDERED. Panganiban, (Chairman), Sandoval-Gutierrez, Corona, and Garcia, JJ., concur.

xxx

xxx

x x x.[6]

ANTONIO S. LIM, JR., represented by his attorney-in-fact, PAZ S. LIM, petitioner vs. VICTOR K. SAN and ELINDO LO, respondents. DECISION YNARES-SANTIAGO, J.: This is a petition for review on certiorari of the decision[1] and the resolution[2] of the Court of Appeals in CA-G.R. CV No. 61948 promulgated on May 7, 2003 and August 13, 2003, respectively, which affirmed the July 27, 2003 decision[3] of the Regional Trial Court of Davao City, Branch 12 dismissing the complaint filed by petitioner. Petitioner Antonio S. Lim, Jr., represented by his mother, Paz S. Lim, as attorney-in-fact, filed a complaint[4] before the Regional Trial Court of Davao City seeking the annulment of a Deed of Absolute Sale[5] involving a parcel of land purportedly executed by Paz S. Lim in favor of her brother, respondent Victor K. San. In the second amended complaint dated May 27, 1993, petitioner alleged the following:

Respondent Victor K. San denied all the allegations of the petitioner. He alleged that the parcel of land covered by TCT No. T165010 of the Registry of Deeds of Davao City and registered in his name was validly and regularly issued. He further claimed that he does not have any lease contract with the petitioner with respect to the contested property and does not pay any monthly rental over the same. Moreover, respondent claimed that there was full payment of the consideration of P264,450.00 for the subject property. Respondent Elindo Lo was impleaded as a co-defendant on account of his purchase of one lot covered by TCT No. T191262,[7] notwithstanding the Notice of Adverse Claim andLis Pendens annotated on the title of the said parcel of land. On July 27, 1998, after trial on the merits, the Regional Trial Court of Davao City rendered a decision dismissing the complaint.[8] Petitioner appealed to the Court of Appeals which affirmed the judgment of the trial court in toto. Petitioners motion for reconsideration[9] was denied in a Resolution[10] dated August 13, 2003. Hence the present petition based on the following grounds: a) that the Court of Appeals erred in affirming the trial courts judgment declaring that the petitioner failed to prove by clear and convincing evidence that the signature of his attorney-in-fact was obtained through fraud and trickery and that no consideration was ever paid. that the Court of Appeals erred in declaring that the medical certificates issued by foreign medical institutions to prove Paz S. Lim (sic) severe mental state of depression cannot be given evidentiary weight considering that its due execution and authenticity were not properly established. [11]

b) xxx xxx xxx

4. That plaintiff is an owner of a parcel of land situated at Bajada, Davao City, containing an area of 1,763 square meters, more or less, covered by Transfer Certificate of Title No. T-11072 of the Registry of Deeds of Davao City, x x x; 4.A. That constructed on the afore-cited parcel of land is a fourteen (14) doors commercial building, and that defendant is paying an annual lease of ONE HUNDRED THOUSAND (P100,000.00) PESOS to the herein plaintiff. 5. On May 29, 1991, the herein defendant taking undue advantage of the depressed mental state of plaintiffs Attorney-in-Fact, brought about by the demise of her late husband, Dr. Antonio A. Lim Sr., caused some papers for her to sign, which later turn (sic) out to be an Absolute Deed of Sale, x x x; 6. That the signature of the Attorney-in-Fact in the aforecited Deed of Absolute Sale was obtained through fraud and trickery employed by the herein defendant and that she never appeared before the Notary Public, who notarized the said deed; 7. That no consideration was ever paid, much less received by the plaintiff or by his Attorney-in-Fact. Simply put, the Deed of Absolute Sale was void ab initio for lack of consideration and for lack of a valid consent; 8. After the signing of the aforecited Deed of Sale with its attendant legal flaws and infirmities, plaintiffs Title was transferred in the name of the defendant, Victor K. San, x x x; 9. Knowing that he is holding an infirmed Title, defendant, Victor K. San is now in the process of selling the aforecited property including the commercial building erected thereon to any third person; and that the defendant had already caused the cancellation of the Mother Title No. T165010 by subdividing the same into eight (8) lots with eight (8) different titles, as follows: TCT NO. T-191255, T-191256, T-191257, T-191258, T-191259, T191260, T-191261, T-191262,

Petitioner contends that the deed of sale should be declared void because his consent to the same was vitiated by intimidation and that no consideration was paid for the subject property. Respondents, on the other hand, maintain that the parties to the deed of sale validly entered into the same; that Paz S. Lim freely and voluntarily gave her consent to the sale; and that she received the consideration agreed upon by the parties. After a careful review of the records of this case, we find no cogent reason to deviate from the rulings of the court a quo and the Court of Appeals. 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.[12] It has three essential elements, or those without which there can be no contract consent, subject matter and cause.[13] A knowledge of these essential elements is material because the perfection stage or the birth of the contract only occurs when the parties to a contract agree upon the essential elements of the same. [14] A contract of sale is consensual,[15] as such it is perfected by mere consent.[16] Consent is essential for the existence of a contract, and where it is wanting, the contract is non-existent.[17] Consent in contracts presupposes the following requisites: (1) it should be intelligent or with an exact notion of the matter to which it refers; (2) it should be free; and (3) it should be spontaneous. Intelligence in consent is vitiated by error; freedom by violence, intimidation or undue influence; and spontaneity by fraud.[18] Thus, a contract where consent is given through mistake, violence, intimidation, undue influence or fraud is voidable.[19] Contrary to the allegations of the petitioner that the consent of his attorney-in-fact to the deed of sale was vitiated, a perusal of the records of this case showed that the petitioner failed to establish that violence, intimidation and undue influence vitiated the consent of Paz S. Lim to the deed of sale pertaining to the subject property. In determining whether consent is vitiated by the circumstances provided for in Article 1330 of the Civil Code of the Philippines, courts are given a wide latitude in weighing the facts or circumstances in a given case and in deciding in favor of what they believe to have actually occurred, considering the age, physical infirmity, intelligence, relationship and the conduct of the parties

at the time of making the contract and subsequent thereto, irrespective of whether the contract is in a public or private writing. [20] While it is true that upon the death of her husband, Dr. Antonio T. Lim, Sr., on May 18, 1990,[21] Paz S. Lim returned to the Philippines and subsequently stayed at the house of the respondent, such fact per se is not sufficient to establish that the latter employed intimidation, violence or undue influence upon the former. Defect or lack of valid consent, in order to make the contract voidable, must be established by full, clear and convincing evidence, and not merely by a preponderance thereof.[22] Petitioners mere allegations that respondent threatened his mother with harm if she will not sign the contract failed to measure up to the yardstick of evidence required, not only to prove vitiation of consent, but also to overturn the presumption that private transactions have been fair and regular.[23] Paz S. Lims behavior belies the allegation that respondent threatened to harm her. The following testimony is enlightening: Q You claim that your brother, the defendant Victor K. San threatened to kill you if you will not cooperate you recall having mentioned that on direct? When? Is it not that you mentioned on the direct that you were threatened by your brother Victor San? Yes, many times he will not let me leave. That was at the time you were then staying with your brother, the defendant in this case? Yes, sir. When did you leave your brother in his residence? One day when he was out I think in 1991, I sneaked out of the gate and I saw my cousin Lucila, she said that we live near each other and that I did not know that from then on my relatives just lived across the fence. Let me be clarified, you left your brothers house in late 1991? Yes, sir. After leaving your brothers house late in 1991, where did you live? With my nephew William. What is the complete name of this William? William Tom. Up to the present you are staying with him? Yes, Marlene Babao was living downstairs. After leaving your brothers house, did you ever report this incident wherein you were threatened by your brother to the police? No, I just told my cousin and my nephew, I am afraid to stay there longer. Did you ever file a criminal case against your brother for grave threats, he having allegedly threatened to kill you? I am the big sister, how can I do that to my own brother, I am a Christian. In other words, you did not report this treatment by your brother to the police nor filed any criminal case against him in Court even up to the present? Yes, sir.[24]

evidence of the witnesses deportment on the stand while testifying, which opportunity is denied to the appellate courts. Only the trial judge can observe the furtive glance, blush of conscious shame, hesitation, flippant or sneering tone, calmness, sigh or the scant or full realization of an oath all of which are useful for an accurate determination of a witness honesty and sincerity.[25] WHEREFORE, based on the foregoing, the petition is DENIED. The Decision dated May 7, 2003 and the Resolution dated August 13, 2003 of the Court of Appeals affirming the dismissal of Civil Case No. 21,924-93 before the Regional Trial Court of Davao City, Branch 12, is AFFIRMED in toto. SO ORDERED. Davide, Jr., C.J., (Chairman), Quisumbing and Carpio, JJ., concur. Azcuna, J., on leave.

A Q A Q A Q A

SWEDISH MATCH, AB, JUAN ENRIQUEZ, RENE DIZON, FRANCISCO RAPACON, FIEL SANTOS, BETH FLORES, LAMBRTO DE LA EVA, GLORIA REYES, RODRIGO ORTIZ, NICANOR ESCALANTE, PETER HODGSON, SAMUEL PARTOSA, HERMINDA ASUNCION, JUANITO HERRERA, JACOBUS NICOLAAS, JOSEPH PEKELHARING (now Representing himself without court sanction as JOOST PEKELHARING), MASSIMO ROSSI and ED ENRIQUEZ, petitioners, vs. COURT OF APPEALS, ALS MANAGEMENT & DEVELOPMENT CORPORATION and ANTONIO K. LITONJUA, respondents. DECISION TINGA, J.: Petitioners seek a reversal of the twin Orders[1] of the Court of Appeals dated 15 November 1996[2] and 31 January 1997,[3] in CA-G.R. CV No. 35886, entitled ALS Management et al., v. Swedish Match, AB et al. The appellate court overturned the trial courts Order[4] dismissing the respondents complaint for specific performance and remanded the case to the trial court for further proceedings. Swedish Match, AB (hereinafter SMAB) is a corporation organized under the laws of Sweden not doing business in the Philippines. SMAB, however, had three subsidiary corporations in the Philippines, all organized under Philippine laws, to wit: Phimco Industries, Inc. (Phimco), Provident Tree Farms, Inc., and OTT/Louie (Phils.), Inc. Sometime in 1988, STORA, the then parent company of SMAB, decided to sell SMAB of Sweden and the latters worldwide match, lighter and shaving products operation to Eemland Management Services, now known as Swedish Match NV of Netherlands, (SMNV), a corporation organized and existing under the laws of Netherlands. STORA, however, retained for itself the packaging business. SMNV initiated steps to sell the worldwide match and lighter businesses while retaining for itself the shaving business. SMNV adopted a two-pronged strategy, the first being to sell its shares in Phimco Industries, Inc. and a match company in Brazil, which proposed sale would stave-off defaults in the loan covenants of SMNV with its syndicate of lenders. The other move was to sell at once or in one package all the SMNV companies worldwide which were engaged in match and lighter operations thru a global deal (hereinafter, global deal). Ed Enriquez (Enriquez), Vice-President of Swedish Match Sociedad Anonimas (SMSA)the management company of the Swedish Match groupwas commissioned and granted full powers to negotiate by SMNV, with the resulting transaction, however, made subject to final approval by the board. Enriquez was held under strict instructions that the sale of Phimco shares should be executed on or before 30 June 1990, in view of the tight loan covenants of SMNV. Enriquez came to the Philippines in November 1989 and informed the Philippine financial and business circles that the Phimco shares were for sale. Several interested parties tendered offers to acquire the Phimco shares, among whom were the AFP Retirement and Separation Benefits

Q A Q A Q A Q A Q

A Q

A Q

Well-settled is the rule that the findings of facts and assessment of credibility of witnesses is a matter best left to the trial court because of its unique position of having observed that elusive and incommunicable

System, herein respondent ALS Management & Development Corporation and respondent Antonio Litonjua (Litonjua), the president and general manager of ALS. In his letter dated 3 November 1989, Litonjua submitted to SMAB a firm offer to buy all of the latters shares in Phimco and all of Phimcos shares in Provident Tree Farm, Inc. and OTT/Louie (Phils.), Inc. for the sum of P750,000,000.00.[5] Through its Chief Executive Officer, Massimo Rossi (Rossi), SMAB, in its letter dated 1 December 1989, thanked respondents for their interest in the Phimco shares. Rossi informed respondents that their price offer was below their expectations but urged them to undertake a comprehensive review and analysis of the value and profit potentials of the Phimco shares, with the assurance that respondents would enjoy a certain priority although several parties had indicated their interest to buy the shares.[6] Thereafter, an exchange of correspondence ensued between petitioners and respondents regarding the projected sale of the Phimco shares. In his letter dated 21 May 1990, Litonjua offered to buy the disputed shares, excluding the lighter division for US$30.6 million, which per another letter of the same date was increased to US$36 million.[7] Litonjua stressed that the bid amount could be adjusted subject to availability of additional information and audit verification of the company finances. Responding to Litonjuas offer, Rossi sent his letter dated 11 June 1990, informing the former that ALS should undertake a due diligence process or pre-acquisition audit and review of the draft contract for the Match and Forestry activities of Phimco at ALS convenience. However, Rossi made it clear that at the completion of the due diligence process, ALS should submit its final offer in US dollar terms not later than 30 June 1990, for the shares of SMAB corresponding to ninety-six percent (96%) of the Match and Forestry activities of Phimco. Rossi added that in case the global deal presently under negotiation for the Swedish Match Lights Group would materialize, SMAB would reimburse up to US$20,000.00 of ALS costs related to the due diligence process. [8] Litonjua in a letter dated 18 June 1990, expressed disappointment at the apparent change in SMABs approach to the bidding process. He pointed out that in their 4 June 1990 meeting, he was advised that one final bidder would be selected from among the four contending groups as of that date and that the decision would be made by 6 June 1990. He criticized SMABs decision to accept a new bidder who was not among those who participated in the 25 May 1990 bidding. He informed Rossi that it may not be possible for them to submit their final bid on 30 June 1990, citing the advice to him of the auditing firm that the financial statements would not be completed until the end of July. Litonjua added that he would indicate in their final offer more specific details of the payment mechanics and consider the possibility of signing a conditional sale at that time.[9] Two days prior to the deadline for submission of the final bid, Litonjua again advised Rossi that they would be unable to submit the final offer by 30 June 1990, considering that the acquisition audit of Phimco and the review of the draft agreements had not yet been completed. He said, however, that they would be able to finalize their bid on 17 July 1990 and that in case their bid would turn out better than any other proponent, they would remit payment within ten (10) days from the execution of the contracts.[10] Enriquez sent notice to Litonjua that they would be constrained to entertain bids from other parties in view of Litonjuas failure to make a firm commitment for the shares of Swedish Match in Phimco by 30 June 1990.[11] In a letter dated 3 July 1990, Rossi informed Litonjua that on 2 July 1990, they signed a conditional contract with a local group for the disposal of Phimco. He told Litonjua that his bid would no longer be considered unless the local group would fail to consummate the transaction on or before 15 September1990.[12] Apparently irked by SMABs decision to junk his bid, Litonjua promptly responded by letter dated 4 July 1990. Contrary to his prior manifestations, he asserted that, for all intents and purposes, the US$36 million bid which he submitted on 21 May 1990 was their final bid based on the financial statements for the year 1989. He pointed out that they submitted the best bid and they were already finalizing the terms of the sale. He stressed that they were firmly committed to their bid of US$36

million and if ever there would be adjustments in the bid amount, the adjustments were brought about by SMABs subsequent disclosures and validated accounts, such as the aspect that only ninety-six percent (96%) of Phimco shares was actually being sold and not one-hundred percent (100%).[13] More than two months from receipt of Litonjuas last letter, Enriquez sent a fax communication to the former, advising him that the proposed sale of SMABs shares in Phimco with local buyers did not materialize. Enriquez then invited Litonjua to resume negotiations with SMAB for the sale of Phimco shares. He indicated that SMAB would be prepared to negotiate with ALS on an exclusive basis for a period of fifteen (15) days from 26 September 1990 subject to the terms contained in the letter. Additionally, Enriquez clarified that if the sale would not be completed at the end of the fifteen (15)-day period, SMAB would enter into negotiations with other buyers.[14] Shortly thereafter, Litonjua sent a letter expressing his objections to the totally new set of terms and conditions for the sale of the Phimco shares. He emphasized that the new offer constituted an attempt to reopen the already perfected contract of sale of the shares in his favor. He intimated that he could not accept the new terms and conditions contained therein.[15] On 14 December 1990, respondents, as plaintiffs, filed before the Regional Trial Court (RTC) of Pasig a complaint for specific performance with damages, with a prayer for the issuance of a writ of preliminary injunction, against defendants, now petitioners. The individual defendants were sued in their respective capacities as officers of the corporations or entities involved in the aborted transaction. Aside from the averments related to their principal cause of action for specific performance, respondents alleged that the Phimco management, in utter bad faith, induced SMAB to violate its contract with respondents. They contended that the Phimco management took an interest in acquiring for itself the Phimco shares and that petitioners conspired to thwart the closing of such sale by interposing various obstacles to the completion of the acquisition audit.[16] Respondents claimed that the Phimco management maliciously and deliberately delayed the delivery of documents to Laya Manabat Salgado & Co. which prevented them from completing the acquisition audit in time for the deadline on 30 June 1990 set by petitioners. [17] Respondents added that SMABs refusal to consummate the perfected sale of the Phimco shares amounted to an abuse of right and constituted conduct which is contrary to law, morals, good customs and public policy.[18] Respondents prayed that petitioners be enjoined from selling or transferring the Phimco shares, or otherwise implementing the sale or transfer thereof, in favor of any person or entity other than respondents, and that any such sale to third parties be annulled and set aside. Respondents also asked that petitioners be ordered to execute all documents or instruments and perform all acts necessary to consummate the sales agreement in their favor. Traversing the complaint, petitioners alleged that respondents have no cause of action, contending that no perfected contract, whether verbal or written, existed between them. Petitioners added that respondents cause of action, if any, was barred by the Statute of Frauds since there was no written instrument or document evidencing the alleged sale of the Phimco shares to respondents. Petitioners filed a motion for a preliminary hearing of their defense of bar by the Statute of Frauds, which the trial court granted. Both parties agreed to adopt as their evidence in support of or against the motion to dismiss, as the case may be, the evidence which they adduced in support of their respective positions on the writ of preliminary injunction incident. In its Order dated 17 April 1991, the RTC dismissed respondents complaint.[19] It ruled that there was no perfected contract of sale between petitioners and respondents. The court a quo said that the letter dated 11 June 1990, relied upon by respondents, showed that petitioners did not accept the bid offer of respondents as the letter was a mere invitation for respondents to conduct a due diligence process or pre-acquisition audit of Phimcos match and forestry operations to enable them to submit their final offer on 30 June 1990. Assuming that respondents bid was favored by an oral acceptance made in private by officers of SMAB, the trial court noted, such acceptance was merely preparatory to a formal acceptance by the SMAB the acceptance that would eventually lead to the execution and signing of the contract of

sale. Moreover, the court noted that respondents failed to submit their final bid on the deadline set by petitioners. Respondents appealed to the Court of Appeals, assigning the following errors: A. THE TRIAL COURT EXCEEDED ITS AUTHORITY AND JURISDICTION WHEN IT ERRED PROCEDURALLY IN MOTU PROPIO (sic) DISMISSING THE COMPLAINT IN ITS ENTIRETY FOR LACK OF A VALID CAUSE OF ACTION WITHOUT THE BENEFIT OF A FULLBLOWN TRIAL AND ON THE MERE MOTION TO DISMISS. B. THE TRIAL COURT ERRED IN IGNORING PLAINTIFFAPPELLANTS CAUSE OF ACTION BASED ON TORT WHICH, HAVING BEEN SUFFICIENTLY PLEADED, INDEPENDENTLY WARRANTED A FULL-BLOWN TRIAL. C. THE TRIAL COURT ERRED IN IGNORING PLAINTIFFSAPPELLANTS CAUSE OF ACTION BASED ON PROMISSORY ESTOPPEL WHICH, HAVING BEEN SUFFICIENTLY PLEADED, WARRANTED A FULL-BLOWN TRIAL, INDEPENDENTLY FOR THE OTHER CAUSES OF ACTION. D. THE TRIAL COURT JUDGE ERRED IN FORSWEARING JUDICIAL OBJECTIVITY TO FAVOR DEFENDANTS-APPELLEES BY MAKING UNFOUNDED FINDINGS, ALL IN VIOLATION OF PLAINTIFFSAPPELLANTS RIGHT TO DUE PROCESS.[20] After assessing the respective arguments of the parties, the Court of Appeals reversed the trial courts decision. It ruled that the series of written communications between petitioners and respondents collectively constitute a sufficient memorandum of their agreement under Article 1403 of the Civil Code; thus, respondents complaint should not have been dismissed on the ground that it was unenforceable under the Statute of Frauds. The appellate court opined that any document or writing, whether formal or informal, written either for the purpose of furnishing evidence of the contract or for another purpose which satisfies all the Statutes requirements as to contents and signature would be sufficient; and, that two or more writings properly connected could be considered together. The appellate court concluded that the letters exchanged by and between the parties, taken together, were sufficient to establish that an agreement to sell the disputed shares to respondents was reached. The Court of Appeals clarified, however, that by reversing the appealed decision it was not thereby declaring that respondents are entitled to the reliefs prayed for in their complaint, but only that the case should not have been dismissed on the ground of unenforceability under the Statute of Frauds. It ordered the remand of the case to the trial court for further proceedings. Hence, this petition. Petitioners argue that the Court of Appeals erred in failing to consider that the Statute of Frauds requires not just the existence of any note or memorandum but that such note or memorandum should evidence an agreement to sell; and, that in this case, there was no word, phrase, or statement in the letters exchanged between the two parties to show or even imply that an agreement had been reached for the sale of the shares to respondent. Petitioners stress that respondent Litonjua made it clear in his letters that the quoted prices were merely tentative and still subject to further negotiations between him and the seller. They point out that there was no meeting of the minds on the essential terms and conditions of the sale because SMAB did not accept respondents offer that consideration would be paid in Philippine pesos. Moreover, Litonjua signified their inability to submit their final bid on 30 June 1990, at the same time stating that the broad terms and conditions described in their meeting were inadequate for them to make a response at that time so much so that he would have to await the corresponding specifics. Petitioners argue that the foregoing circumstances prove that they failed to reach an agreement on the sale of the Phimco shares. In their Comment, respondents maintain that the Court of Appeals correctly ruled that the Statute of Frauds does not apply to the instant

case. Respondents assert that the sale of the subject shares to them was perfected as shown by the following circumstances, namely: petitioners assured them that should they increase their bid, the sale would be awarded to them and that they did in fact increase their previous bid of US$30.6 million to US$36 million; petitioners orally accepted their revised offer and the acceptance was relayed to them by Rene Dizon; petitioners directed them to proceed with the acquisition audit and to submit a comfort letter from the United Coconut Planters Bank (UCPB); petitioner corporation confirmed its previous verbal acceptance of their offer in a letter dated 11 June 1990; with the prior approval of petitioners, respondents engaged the services of Laya, Manabat, Salgado & Co., an independent auditing firm, to immediately proceed with the acquisition audit; and, petitioner corporation reiterated its commitment to be bound by the result of the acquisition audit and promised to reimburse respondents cost to the extent of US$20,000.00. All these incidents, according to respondents, overwhelmingly prove that the contract of sale of the Phimco shares was perfected. Further, respondents argued that there was partial performance of the perfected contract on their part. They alleged that with the prior approval of petitioners, they engaged the services of Laya, Manabat, Salgado & Co. to conduct the acquisition audit. They averred that petitioners agreed to be bound by the results of the audit and offered to reimburse the costs thereof to the extent of US$20,000.00. Respondents added that in compliance with their obligations under the contract, they have submitted a comfort letter from UCPB to show petitioners that the bank was willing to finance the acquisition of the Phimco shares.[21] The basic issues to be resolved are: (1) whether the appellate court erred in reversing the trial courts decision dismissing the complaint for being unenforceable under the Statute of Frauds; and (2) whether there was a perfected contract of sale between petitioners and respondents with respect to the Phimco shares. The Statute of Frauds embodied in Article 1403, paragraph (2), of the Civil Code[22] requires certain contracts enumerated therein to be evidenced by some note or memorandum in order to be enforceable. The term Statute of Frauds is descriptive of statutes which require certain classes of contracts to be in writing. The Statute does not deprive the parties of the right to contract with respect to the matters therein involved, but merely regulates the formalities of the contract necessary to render it enforceable.[23] Evidence of the agreement cannot be received without the writing or a secondary evidence of its contents. The Statute, however, simply provides the method by which the contracts enumerated therein may be proved but does not declare them invalid because they are not reduced to writing. By law, contracts are obligatory in whatever form they may have been entered into, provided all the essential requisites for their validity are present. However, when the law requires that a contract be in some form in order that it may be valid or enforceable, or that a contract be proved in a certain way, that requirement is absolute and indispensable.[24]Consequently, the effect of non-compliance with the requirement of the Statute is simply that no action can be enforced unless the requirement is complied with.[25] Clearly, the form required is for evidentiary purposes only. Hence, if the parties permit a contract to be proved, without any objection, it is then just as binding as if the Statute has been complied with.[26] The purpose of the Statute is to prevent fraud and perjury in the enforcement of obligations depending for their evidence on the unassisted memory of witnesses, by requiring certain enumerated contracts and transactions to be evidenced by a writing signed by the party to be charged.[27] However, for a note or memorandum to satisfy the Statute, it must be complete in itself and cannot rest partly in writing and partly in parol. The note or memorandum must contain the names of the parties, the terms and conditions of the contract, and a description of the property sufficient to render it capable of identification. [28] Such note or memorandum must contain the essential elements of the contract expressed with certainty that may be ascertained from the note or memorandum itself, or some other writing to which it refers or within which it is connected, without resorting to parol evidence.[29]

Contrary to the Court of Appeals conclusion, the exchange of correspondence between the parties hardly constitutes the note or memorandum within the context of Article 1403 of the Civil Code. Rossis letter dated 11 June 1990, heavily relied upon by respondents, is not complete in itself. First, it does not indicate at what price the shares were being sold. In paragraph (5) of the letter, respondents were supposed to submit their final offer in U.S. dollar terms, at that after the completion of the due diligence process. The paragraph undoubtedly proves that there was as yet no definite agreement as to the price. Second, the letter does not state the mode of payment of the price. In fact, Litonjua was supposed to indicate in his final offer how and where payment for the shares was planned to be made.[30] Evidently, the trial courts dismissal of the complaint on the ground of unenforceability under the Statute of Frauds is warranted. [31] Even if we were to consider the letters between the parties as a sufficient memorandum for purposes of taking the case out of the operation of the Statute the action for specific performance would still fail. A contract is defined as a juridical convention manifested in legal form, by virtue of which one or more persons bind themselves in favor of another, or others, or reciprocally, to the fulfillment of a prestation to give, to do, or not to do.[32] There can be no contract unless the following requisites concur: (a) consent of the contracting parties; (b) object certain which is the subject matter of the contract; (c) cause of the obligation which is established.[33] Contracts 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.[34] Specifically, in the case of a contract of sale, required is the concurrence of three elements, to wit: (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.[35] Such contract is born from the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price.[36] In general, contracts undergo three distinct stages, to wit: negotiation; perfection or birth; and consummation. Negotiation begins from the time the prospective contracting parties manifest their interest in the contract and ends at the moment of agreement of the parties. Perfection or birth of the contract takes place when the parties agree upon the essential elements of the contract. Consummation occurs when the parties fulfill or perform the terms agreed upon in the contract, culminating in the extinguishment thereof.[37] A negotiation is formally initiated by an offer. A perfected promise merely tends to insure and pave the way for the celebration of a future contract. An imperfect promise (policitacion), on the other hand, is a mere unaccepted offer.[38] Public advertisements or solicitations and the like are ordinarily construed as mere invitations to make offers or only as proposals. At any time prior to the perfection of the contract, either negotiating party may stop the negotiation.[39] The offer, at this stage, may be withdrawn; the withdrawal is effective immediately after its manifestation, such as by its mailing and not necessarily when the offeree learns of the withdrawal.[40] An offer would require, among other things, a clear certainty on both the object and the cause or consideration of the envisioned contract. Consent in a contract of sale should be 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 counteroffer.[41] Quite obviously, Litonjuas letter dated 21 May 1990, proposing the acquisition of the Phimco shares for US$36 million was merely an offer. This offer, however, in Litonjuas own words, is understood to be subject to adjustment on the basis of an audit of the assets, liabilities and net worth of Phimco and its subsidiaries and on the final negotiation between ourselves.[42] Was the offer certain enough to satisfy the requirements of the Statute of Frauds? Definitely not. Litonjua repeatedly stressed in his letters that they would not be able to submit their final bid by 30 June 1990.[43] With indubitable

inconsistency, respondents later claimed that for all intents and purposes, the US$36 million was their final bid. If this were so, it would be inane for Litonjua to state, as he did, in his letter dated 28 June 1990 that they would be in a position to submit their final bid only on 17 July 1990. The lack of a definite offer on the part of respondents could not possibly serve as the basis of their claim that the sale of the Phimco shares in their favor was perfected, for one essential element of a contract of sale was obviously wantingthe price certain in money or its equivalent. The price must be certain, otherwise there is no true consent between the parties.[44] There can be no sale without a price.[45] Quite recently, this Court reiterated the long-standing doctrine that the manner of payment of the purchase price is an essential element before a valid and binding contract of sale can exist since the agreement on 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. [46] Granting arguendo, that the amount of US$36 million was a definite offer, it would remain as a mere offer in the absence of evidence of its acceptance. To produce a contract, there must be acceptance, which may be express or implied, but it must not qualify the terms of the offer.[47] The acceptance of an offer must be unqualified and absolute to perfect the contract.[48] In other words, it must be identical in all respects with that of the offer so as to produce consent or meeting of the minds. [49] Respondents attempt to prove the alleged verbal acceptance of their US$36 million bid becomes futile in the face of the overwhelming evidence on record that there was in the first place no meeting of the minds with respect to the price. It is dramatically clear that the US$36 million was not the actual price agreed upon but merely a preliminary offer which was subject to adjustment after the conclusion of the audit of the company finances. Respondents failure to submit their final bid on the deadline set by petitioners prevented the perfection of the contract of sale. It was not perfected due to the absence of one essential element which was the price certain in money or its equivalent. At any rate, from the procedural stand point, the continuing objections raised by petitioners to the admission of parol evidence[50] on the alleged verbal acceptance of the offer rendered any evidence of acceptance inadmissible. Respondents plea of partial performance should likewise fail. The acquisition audit and submission of a comfort letter, even if considered together, failed to prove the perfection of the contract. Quite the contrary, they indicated that the sale was far from concluded. Respondents conducted the audit as part of the due diligence process to help them arrive at and make their final offer. On the other hand, the submission of the comfort letter was merely a guarantee that respondents had the financial capacity to pay the price in the event that their bid was accepted by petitioners. The Statute of Frauds is applicable only to contracts which are executory and not to those which have been consummated either totally or partially.[51] If a contract has been totally or partially performed, the exclusion of parol evidence would promote fraud or bad faith, for it would enable the defendant to keep the benefits already derived by him from the transaction in litigation, and at the same time, evade the obligations, responsibilities or liabilities assumed or contracted by him thereby.[52] This rule, however, is predicated on the fact of ratification of the contract within the meaning of Article 1405 of the Civil Code either (1) by failure to object to the presentation of oral evidence to prove the same, or (2) by the acceptance of benefits under them. In the instant case, respondents failed to prove that there was partial performance of the contract within the purview of the Statute. Respondents insist that even on the assumption that the Statute of Frauds is applicable in this case, the trial court erred in dismissing the complaint altogether. They point out that the complaint presents several causes of action. A close examination of the complaint reveals that it alleges two distinct causes of action, the first is for specific performance[53] premised on the existence of the contract of sale, while the other is solely for damages, predicated on the purported dilatory maneuvers executed by the Phimco management.[54] With respect to the first cause of action for specific performance, apart from petitioners alleged refusal to honor the contra ct of sale which has never been perfected in the first placerespondents made a number of averments in their complaint all in support of said cause of action. Respondents claimed that petitioners were guilty of promissory

estoppel,[55]warranty breaches[56] and tortious conduct[57] in refusing to honor the alleged contract of sale. These averments are predicated on or at least interwoven with the existence or perfection of the contract of sale. As there was no such perfected contract, the trial court properly rejected the averments in conjunction with the dismissal of the complaint for specific performance. However, respondents second cause of action due to the alleged malicious and deliberate delay of the Phimco management in the delivery of documents necessary for the completion of the audit on time, not being based on the existence of the contract of sale, could stand independently of the action for specific performance and should not be deemed barred by the dismissal of the cause of action predicated on the failed contract. If substantiated, this cause of action would entitle respondents to the recovery of damages against the officers of the corporation responsible for the acts complained of. Thus, the Court cannot forthwith order dismissal of the complaint without affording respondents an opportunity to substantiate their allegations with respect to its cause of action for damages against the officers of Phimco based on the latters alleged self -serving dilatory maneuvers. WHEREFORE, the petition is in part GRANTED. The appealed Decision is hereby MODIFIED insofar as it declared the agreement between the parties enforceable under the Statute of Frauds. The complaint before the trial court is ordered DISMISSED insofar as the cause of action for specific performance is concerned. The case is ordered REMANDED to the trial court for further proceedings with respect to the cause of action for damages as above specified. SO ORDERED. Puno, J., (Chairman), Austria-Martinez, Callejo, Sr. and ChicoNazario, JJ., concur.

1973, petitioner executed an Amendment4 of Real Estate Mortgage over its property. On March 31, 1981, petitioner secured another loan of P653,000.00 from respondent PNB, payable in quarterly installments of P32,650.00, plus interests and other charges.5 On August 5, 1982, respondent PNB filed a petition for extrajudicial foreclosure of the real estate mortgage and sought to have the property sold at public auction for P911,532.21, petitioner's outstanding obligation to respondent PNB as of June 30, 1982, 6 plus interests and attorney's fees. After due notice and publication, the property was sold at public auction on September 28, 1982 where respondent PNB was declared the winning bidder for P1,000,000.00. The Certificate of Sale7 issued in its favor was registered with the Office of the Register of Deeds of Rizal, and was annotated at the dorsal portion of the title on February 17, 1983. Thus, the period to redeem the property was to expire on February 17, 1984. Petitioner sent a letter dated August 25, 1983 to respondent PNB, requesting that it be granted an extension of time to redeem/repurchase the property.8 In its reply dated August 30, 1983, respondent PNB informed petitioner that the request had been referred to its Pasay City Branch for appropriate action and recommendation.9 In a letter10 dated February 10, 1984, petitioner reiterated its request for a one year extension from February 17, 1984 within which to redeem/repurchase the property on installment basis. It reiterated its request to repurchase the property on installment. 11 Meanwhile, some PNB Pasay City Branch personnel informed petitioner that as a matter of policy, the bank does not accept "partial redemption."12 Since petitioner failed to redeem the property, the Register of Deeds cancelled TCT No. 32098 on June 1, 1984, and issued a new title in favor of respondent PNB.13 Petitioner's offers had not yet been acted upon by respondent PNB.

G.R. No. 166862

December 20, 2006 Meanwhile, the Special Assets Management Department (SAMD) had prepared a statement of account, and as of June 25, 1984 petitioner's obligation amounted to P1,574,560.47. This included the bid price of P1,056,924.50, interest, advances of insurance premiums, advances on realty taxes, registration expenses, miscellaneous expenses and publication cost.14 When apprised of the statement of account, petitioner remitted P725,000.00 to respondent PNB as "deposit to repurchase," and Official Receipt No. 978191 was issued to it.15 In the meantime, the SAMD recommended to the management of respondent PNB that petitioner be allowed to repurchase the property for P1,574,560.00. In a letter dated November 14, 1984, the PNB management informed petitioner that it was rejecting the offer and the recommendation of the SAMD. It was suggested that petitioner purchase the property for P2,660,000.00, its minimum market value. Respondent PNB gave petitioner until December 15, 1984 to act on the proposal; otherwise, its P725,000.00 deposit would be returned and the property would be sold to other interested buyers.16 Petitioner, however, did not agree to respondent PNB's proposal. Instead, it wrote another letter dated December 12, 1984 requesting for a reconsideration. Respondent PNB replied in a letter dated December 28, 1984, wherein it reiterated its proposal that petitioner purchase the property for P2,660,000.00. PNB again informed petitioner that it would return the deposit should petitioner desire to withdraw its offer to purchase the property.17 On February 25, 1985, petitioner, through counsel, requested that PNB reconsider its letter dated December 28, 1984. Petitioner declared that it had already agreed to the SAMD's offer to purchase the property forP1,574,560.47, and that was why it had paid P725,000.00. Petitioner warned respondent PNB that it would seek judicial recourse should PNB insist on the position.18 On June 4, 1985, respondent PNB informed petitioner that the PNB Board of Directors had accepted petitioner's offer to purchase the property, but for P1,931,389.53 in cash less the P725,000.00 already deposited with it.19 On page two of the letter was a space above the

MANILA METAL CONTAINER CORPORATION, petitioner, REYNALDO C. TOLENTINO, intervenor, vs. PHILIPPINE NATIONAL BANK, respondent, DMCI-PROJECT DEVELOPERS, INC., intervenor.

DECISION

CALLEJO, SR., J.: Before us is a petition for review on certiorari of the Decision1 of the Court of Appeals (CA) in CA-G.R. No. 46153 which affirmed the decision2 of the Regional Trial Court (RTC), Branch 71, Pasig City, in Civil Case No. 58551, and its Resolution3 denying the motion for reconsideration filed by petitioner Manila Metal Container Corporation (MMCC). The Antecedents Petitioner was the owner of a 8,015 square meter parcel of land located in Mandaluyong (now a City), Metro Manila. The property was covered by Transfer Certificate of Title (TCT) No. 332098 of the Registry of Deeds of Rizal. To secure a P900,000.00 loan it had obtained from respondent Philippine National Bank (PNB), petitioner executed a real estate mortgage over the lot. Respondent PNB later granted petitioner a new credit accommodation of P1,000,000.00; and, on November 16,

typewritten name of petitioner's President, Pablo Gabriel, where he was to affix his signature. However, Pablo Gabriel did not conform to the letter but merely indicated therein that he had received it. 20 Petitioner did not respond, so PNB requested petitioner in a letter dated June 30, 1988 to submit an amended offer to repurchase. Petitioner rejected respondent's proposal in a letter dated July 14, 1988. It maintained that respondent PNB had agreed to sell the property for P1,574,560.47, and that since its P725,000.00 downpayment had been accepted, respondent PNB was proscribed from increasing the purchase price of the property.21 Petitioner averred that it had a net balance payable in the amount of P643,452.34. Respondent PNB, however, rejected petitioner's offer to pay the balance of P643,452.34 in a letter dated August 1, 1989.22 On August 28, 1989, petitioner filed a complaint against respondent PNB for "Annulment of Mortgage and Mortgage Foreclosure, Delivery of Title, or Specific Performance with Damages." To support its cause of action for specific performance, it alleged the following: 34. As early as June 25, 1984, PNB had accepted the down payment from Manila Metal in the substantial amount of P725,000.00 for the redemption/repurchase price of P1,574,560.47 as approved by its SMAD and considering the reliance made by Manila Metal and the long time that has elapsed, the approval of the higher management of the Bank to confirm the agreement of its SMAD is clearly a potestative condition which cannot legally prejudice Manila Metal which has acted and relied on the approval of SMAD. The Bank cannot take advantage of a condition which is entirely dependent upon its own will after accepting and benefiting from the substantial payment made by Manila Metal. 35. PNB approved the repurchase price of P1,574,560.47 for which it accepted P725,000.00 from Manila Metal. PNB cannot take advantage of its own delay and long inaction in demanding a higher amount based on unilateral computation of interest rate without the consent of Manila Metal. Petitioner later filed an amended complaint and supported its claim for damages with the following arguments: 36. That in order to protect itself against the wrongful and malicious acts of the defendant Bank, plaintiff is constrained to engage the services of counsel at an agreed fee of P50,000.00 and to incur litigation expenses of at least P30,000.00, which the defendant PNB should be condemned to pay the plaintiff Manila Metal. 37. That by reason of the wrongful and malicious actuations of defendant PNB, plaintiff Manila Metal suffered besmirched reputation for which defendant PNB is liable for moral damages of at least P50,000.00. 38. That for the wrongful and malicious act of defendant PNB which are highly reprehensible, exemplary damages should be awarded in favor of the plaintiff by way of example or correction for the public good of at least P30,000.00.23 Petitioner prayed that, after due proceedings, judgment be rendered in its favor, thus: a) Declaring the Amended Real Estate Mortgage (Annex "A") null and void and without any legal force and effect. b) Declaring defendant's acts of extra-judicially foreclosing the mortgage over plaintiff's property and setting it for auction sale null and void. c) Ordering the defendant Register of Deeds to cancel the new title issued in the name of PNB (TCT NO. 43792) covering the property described in paragraph 4 of the Complaint, to

reinstate TCT No. 37025 in the name of Manila Metal and to cancel the annotation of the mortgage in question at the back of the TCT No.37025 described in paragraph 4 of this Complaint. d) Ordering the defendant PNB to return and/or deliver physical possession of the TCT No. 37025described in paragraph 4 of this Complaint to the plaintiff Manila Metal. e) Ordering the defendant PNB to pay the plaintiff Manila Metal's actual damages, moral and exemplary damages in the aggregate amount of not less than P80,000.00 as may be warranted by the evidence and fixed by this Honorable Court in the exercise of its sound discretion, and attorney's fees of P50,000.00 and litigation expenses of at least P30,000.00 as may be proved during the trial, and costs of suit. Plaintiff likewise prays for such further reliefs which may be deemed just and equitable in the premises.24 In its Answer to the complaint, respondent PNB averred, as a special and affirmative defense, that it had acquired ownership over the property after the period to redeem had elapsed. It claimed that no contract of sale was perfected between it and petitioner after the period to redeem the property had expired. During pre-trial, the parties agreed to submit the case for decision, based on their stipulation of facts.25 The parties agreed to limit the issues to the following: 1. Whether or not the June 4, 1985 letter of the defendant approving/accepting plaintiff's offer to purchase the property is still valid and legally enforceable. 2. Whether or not the plaintiff has waived its right to purchase the property when it failed to conform with the conditions set forth by the defendant in its letter dated June 4, 1985. 3. Whether or not there is a perfected contract of sale between the parties.26 While the case was pending, respondent PNB demanded, on September 20, 1989, that petitioner vacate the property within 15 days from notice,27 but petitioners refused to do so. On March 18, 1993, petitioner offered to repurchase the property for P3,500,000.00.28 The offer was however rejected by respondent PNB, in a letter dated April 13, 1993. According to it, the prevailing market value of the property was approximately P30,000,000.00, and as a matter of policy, it could not sell the property for less than its market value.29 On June 21, 1993, petitioner offered to purchase the property for P4,250,000.00 in cash.30The offer was again rejected by respondent PNB on September 13, 1993.31 On May 31, 1994, the trial court rendered judgment dismissing the amended complaint and respondent PNB's counterclaim. It ordered respondent PNB to refund the P725,000.00 deposit petitioner had made.32 The trial court ruled that there was no perfected contract of sale between the parties; hence, petitioner had no cause of action for specific performance against respondent. The trial court declared that respondent had rejected petitioner's offer to repurchase the property. Petitioner, in turn, rejected the terms and conditions contained in the June 4, 1985 letter of the SAMD. While petitioner had offered to repurchase the property per its letter of July 14, 1988, the amount of P643,422.34 was way below the P1,206,389.53 which respondent PNB had demanded. It further declared that the P725,000.00 remitted by petitioner to respondent PNB on June 4, 1985 was a "deposit," and not a downpayment or earnest money. On appeal to the CA, petitioner made the following allegations:

I THE LOWER COURT ERRED IN RULING THAT DEFENDANT-APPELLEE'S LETTER DATED 4 JUNE 1985 APPROVING/ACCEPTING PLAINTIFF-APPELLANT'S OFFER TO PURCHASE THE SUBJECT PROPERTY IS NOT VALID AND ENFORCEABLE. II THE LOWER COURT ERRED IN RULING THAT THERE WAS NO PERFECTED CONTRACT OF SALE BETWEEN PLAINTIFF-APPELLANT AND DEFENDANT-APPELLEE. III THE LOWER COURT ERRED IN RULING THAT PLAINTIFFAPPELLLANT WAIVED ITS RIGHT TO PURCHASE THE SUBJECT PROPERTY WHEN IT FAILED TO CONFORM WITH CONDITIONS SET FORTH BY DEFENDANTAPPELLEE IN ITS LETTER DATED 4 JUNE 1985. IV THE LOWER COURT ERRED IN DISREGARDING THE FACT THAT IT WAS THE DEFENDANT-APPELLEE WHICH RENDERED IT DIFFICULT IF NOT IMPOSSIBLE FOR PLAINTIFF-APPELLANT TO COMPLETE THE BALANCE OF THEIR PURCHASE PRICE. V THE LOWER COURT ERRED IN DISREGARDING THE FACT THAT THERE WAS NO VALID RESCISSION OR CANCELLATION OF SUBJECT CONTRACT OF REPURCHASE. VI THE LOWER COURT ERRED IN DECLARING THAT PLAINTIFF FAILED AND REFUSED TO SUBMIT THE AMENDED REPURCHASE OFFER. VII THE LOWER COURT ERRED IN DISMISSING AMENDED COMPLAINT OF PLAINTIFF-APPELLANT. VIII THE LOWER COURT ERRED IN NOT AWARDING PLAINTIFF-APPELLANT ACTUAL, MORAL AND EXEMPLARY DAMAGES, ATTOTRNEY'S FEES AND 33 LITIGATION EXPENSES. Meanwhile, on June 17, 1993, petitioner's Board of Directors approved Resolution No. 3-004, where it waived, assigned and transferred its rights over the property covered by TCT No. 33099 and TCT No. 37025 in favor of Bayani Gabriel, one of its Directors.34 Thereafter, Bayani Gabriel executed a Deed of Assignment over 51% of the ownership and management of the property in favor of Reynaldo Tolentino, who later moved for leave to intervene as plaintiff-appellant. On July 14, 1993, the CA issued a resolution granting the motion,35 and likewise granted the motion of Reynaldo Tolentino substituting petitioner MMCC, as plaintiffappellant, and his motion to withdraw as intervenor.36 The CA rendered judgment on May 11, 2000 affirming the decision of the RTC.37 It declared that petitioner obviously never agreed to the selling price proposed by respondent PNB (P1,931,389.53) since petitioner had THE

kept on insisting that the selling price should be lowered to P1,574,560.47. Clearly therefore, there was no meeting of the minds between the parties as to the price or consideration of the sale. The CA ratiocinated that petitioner's original offer to purchase the subject property had not been accepted by respondent PNB. In fact, it made a counter-offer through its June 4, 1985 letter specifically on the selling price; petitioner did not agree to the counter-offer; and the negotiations did not prosper. Moreover, petitioner did not pay the balance of the purchase price within the sixty-day period set in the June 4, 1985 letter of respondent PNB. Consequently, there was no perfected contract of sale, and as such, there was no contract to rescind. According to the appellate court, the claim for damages and the counterclaim were correctly dismissed by the court a quo for no evidence was presented to support it. Respondent PNB's letter dated June 30, 1988 cannot revive the failed negotiations between the parties. Respondent PNB merely asked petitioner to submit an amended offer to repurchase. While petitioner reiterated its request for a lower selling price and that the balance of the repurchase be reduced, however, respondent rejected the proposal in a letter dated August 1, 1989. Petitioner filed a motion for reconsideration, which the CA likewise denied. Thus, petitioner filed the instant petition for review on certiorari, alleging that: I. THE COURT OF APPEALS ERRED ON A QUESTION OF LAW WHEN IT RULED THAT THERE IS NO PERFECTED CONTRACT OF SALE BETWEEN THE PETITIONER AND RESPONDENT. II. THE COURT OF APPEALS ERRED ON A QUESTION OF LAW WHEN IT RULED THAT THE AMOUNT OF PHP725,000.00 PAID BY THE PETITIONER IS NOT AN EARNEST MONEY. III. THE COURT OF APPEALS ERRED ON A QUESTION OF LAW WHEN IT RULED THAT THE FAILURE OF THE PETITIONER-APPELLANT TO SIGNIFY ITS CONFORMITY TO THE TERMS CONTAINED IN PNB'S JUNE 4, 1985 LETTER MEANS THAT THERE WAS NO VALID AND LEGALLY ENFORCEABLE CONTRACT OF SALE BETWEEN THE PARTIES. IV. THE COURT OF APPEALS ERRED ON A QUESTION OF LAW THAT NON-PAYMENT OF THE PETITIONERAPPELLANT OF THE BALANCE OF THE OFFERED PRICE IN THE LETTER OF PNB DATED JUNE 4, 1985, WITHIN SIXTY (60) DAYS FROM NOTICE OF APPROVAL CONSTITUTES NO VALID AND LEGALLY ENFORCEABLE CONTRACT OF SALE BETWEEN THE PARTIES. V. THE COURT OF APPEALS SERIOUSLY ERRED WHEN IT HELD THAT THE LETTERS OF PETITIONER-APPELLANT DATED MARCH 18, 1993 AND JUNE 21, 1993, OFFERING TO BUY THE SUBJECT PROPERTY AT DIFFERENT AMOUNT WERE PROOF THAT THERE IS NO PERFECTED CONTRACT OF SALE.38 The threshold issue is whether or not petitioner and respondent PNB had entered into a perfected contract for petitioner to repurchase the property from respondent. Petitioner maintains that it had accepted respondent's offer made through the SAMD, to sell the property forP1,574,560.00. When the acceptance was made in its letter dated June 25, 1984; it then deposited P725,000.00 with the SAMD as partial payment, evidenced by Receipt No. 978194 which respondent had issued. Petitioner avers that the SAMD's acceptance of the deposit amounted to an acceptance of its offer to repurchase. Moreover, as gleaned from the letter of SAMD dated

June 4, 1985, the PNB Board of Directors had approved petitioner's offer to purchase the property. It claims that this was the suspensive condition, the fulfillment of which gave rise to the contract. Respondent could no longer unilaterally withdraw its offer to sell the property for P1,574,560.47, since the acceptance of the offer resulted in a perfected contract of sale; it was obliged to remit to respondent the balance of the original purchase price of P1,574,560.47, while respondent was obliged to transfer ownership and deliver the property to petitioner, conformably with Article 1159 of the New Civil Code. Petitioner posits that respondent was proscribed from increasing the interest rate after it had accepted respondent's offer to sell the property for P1,574,560.00. Consequently, respondent could no longer validly make a counter-offer of P1,931,789.88 for the purchase of the property. It likewise maintains that, although theP725,000.00 was considered as "deposit for the repurchase of the property" in the receipt issued by the SAMD, the amount constitutes earnest money as contemplated in Article 1482 of the New Civil Code. Petitioner cites the rulings of this Court in Villonco v. Bormaheco39 and Topacio v. Court of Appeals.40 Petitioner avers that its failure to append its conformity to the June 4, 1984 letter of respondent and its failure to pay the balance of the price as fixed by respondent within the 60-day period from notice was to protest respondent's breach of its obligation to petitioner. It did not amount to a rejection of respondent's offer to sell the property since respondent was merely seeking to enforce its right to pay the balance of P1,570,564.47. In any event, respondent had the option either to accept the balance of the offered price or to cause the rescission of the contract. Petitioner's letters dated March 18, 1993 and June 21, 1993 to respondent during the pendency of the case in the RTC were merely to compromise the pending lawsuit, they did not constitute separate offers to repurchase the property. Such offer to compromise should not be taken against it, in accordance with Section 27, Rule 130 of the Revised Rules of Court. For its part, respondent contends that the parties never graduated from the "negotiation stage" as they could not agree on the amount of the repurchase price of the property. All that transpired was an exchange of proposals and counter-proposals, nothing more. It insists that a definite agreement on the amount and manner of payment of the price are essential elements in the formation of a binding and enforceable contract of sale. There was no such agreement in this case. Primarily, the concept of "suspensive condition" signifies a future and uncertain event upon the fulfillment of which the obligation becomes effective. It clearly presupposes the existence of a valid and binding agreement, the effectivity of which is subordinated to its fulfillment. Since there is no perfected contract in the first place, there is no basis for the application of the principles governing "suspensive conditions." According to respondent, the Statement of Account prepared by SAMD as of June 25, 1984 cannot be classified as a counter-offer; it is simply a recital of its total monetary claims against petitioner. Moreover, the amount stated therein could not likewise be considered as the counteroffer since as admitted by petitioner, it was only recommendation which was subject to approval of the PNB Board of Directors. Neither can the receipt by the SAMD of P725,000.00 be regarded as evidence of a perfected sale contract. As gleaned from the parties' Stipulation of Facts during the proceedings in the court a quo, the amount is merely an acknowledgment of the receipt of P725,000.00 as deposit to repurchase the property. The deposit of P725,000.00 was accepted by respondent on the condition that the purchase price would still be approved by its Board of Directors. Respondent maintains that its acceptance of the amount was qualified by that condition, thus not absolute. Pending such approval, it cannot be legally claimed that respondent is already bound by any contract of sale with petitioner. According to respondent, petitioner knew that the SAMD has no capacity to bind respondent and that its authority is limited to administering, managing and preserving the properties and other special assets of PNB. The SAMD does not have the power to sell, encumber, dispose of, or otherwise alienate the assets, since the power to do so must emanate from its Board of Directors. The SAMD was not authorized by

respondent's Board to enter into contracts of sale with third persons involving corporate assets. There is absolutely nothing on record that respondent authorized the SAMD, or made it appear to petitioner that it represented itself as having such authority. Respondent reiterates that SAMD had informed petitioner that its offer to repurchase had been approved by the Board subject to the condition, among others, "that the selling price shall be the total bank's claim as of documentation date x x x payable in cash (P725,000.00 already deposited) within 60 days from notice of approval." A new Statement of Account was attached therein indicating the total bank's claim to be P1,931,389.53 less deposit of P725,000.00, or P1,206,389.00. Furthermore, while respondent's Board of Directors accepted petitioner's offer to repurchase the property, the acceptance was qualified, in that it required a higher sale price and subject to specified terms and conditions enumerated therein. This qualified acceptance was in effect a counter-offer, necessitating petitioner's acceptance in return. The Ruling of the Court The ruling of the appellate court that there was no perfected contract of sale between the parties on June 4, 1985 is correct. 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.41 Under Article 1318 of the New Civil Code, there is no contract unless the following requisites concur: (1) Consent of the contracting parties; (2) Object certain which is the subject matter of the contract; (3) Cause of the obligation which is established. Contracts are perfected by mere consent which is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. 42 Once perfected, they bind other contracting parties and the obligations arising therefrom have the form of law between the parties and should be complied with in good faith. The parties are bound not only to the fulfillment of what has been expressly stipulated but also to the consequences which, according to their nature, may be in keeping with good faith, usage and law.43 By the contract of sale, one of the contracting parties obligates himself to transfer the ownership of and deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent. 44 The absence of any of the essential elements will negate the existence of a perfected contract of sale. As the Court ruled in Boston Bank of the Philippines v. Manalo:45 A definite agreement as to the price is an essential element of a binding agreement to sell personal or real property because it seriously affects the rights and obligations of the parties. Price is an essential element in the formation of a binding and enforceable contract of sale. The fixing of the price can never be left to the decision of one of the contracting parties. But a price fixed by one of the contracting parties, if accepted by the other, gives rise to a perfected sale.46 A contract of sale is consensual in nature and is perfected upon mere meeting of the minds. When there is merely an offer by one party without acceptance of the other, there is no contract. 47 When the contract of sale is not perfected, it cannot, as an independent source of obligation, serve as a binding juridical relation between the parties. 48 In San Miguel Properties Philippines, Inc. v. Huang,49 the Court ruled that the stages of a contract of sale are as follows: (1) negotiation, covering the period from the time the prospective contracting parties indicate interest in the contract to the time the contract is perfected;

(2) perfection, which takes place upon the concurrence of the essential elements of the sale which are the meeting of the minds of the parties as to the object of the contract and upon the price; and (3) consummation, which begins when the parties perform their respective undertakings under the contract of sale, culminating in the extinguishment thereof. A negotiation is formally initiated by an offer, which, however, must be certain.50 At any time prior to the perfection of the contract, either negotiating party may stop the negotiation. At this stage, the offer may be withdrawn; the withdrawal is effective immediately after its manifestation. To convert the offer into a contract, the acceptance must be absolute and must not qualify the terms of the offer; it must be plain, unequivocal, unconditional and without variance of any sort from the proposal. In Adelfa Properties, Inc. v. Court of Appeals ,51 the Court ruled that: x x x The rule is that except where a formal acceptance is so required, although the acceptance must be affirmatively and clearly made and must be evidenced by some acts or conduct communicated to the offeror, it may be shown by acts, conduct, or words of the accepting party that clearly manifest a present intention or determination to accept the offer to buy or sell. Thus, acceptance may be shown by the acts, conduct, or words of a party recognizing the existence of the contract of sale.52 A qualified acceptance or one that involves a new proposal constitutes a counter-offer and a rejection of the original offer. A counter-offer is considered in law, a rejection of the original offer and an attempt to end the negotiation between the parties on a different basis. 53 Consequently, when something is desired which is not exactly what is proposed in the offer, such acceptance is not sufficient to guarantee consent because any modification or variation from the terms of the offer annuls the offer.54 The acceptance must be identical in all respects with that of the offer so as to produce consent or meeting of the minds. In this case, petitioner had until February 17, 1984 within which to redeem the property. However, since it lacked the resources, it requested for more time to redeem/repurchase the property under such terms and conditions agreed upon by the parties. 55 The request, which was made through a letter dated August 25, 1983, was referred to the respondent's main branch for appropriate action. 56 Before respondent could act on the request, petitioner again wrote respondent as follows: 1. Upon approval of our request, we will pay your goodselves ONE HUNDRED & FIFTY THOUSAND PESOS (P150,000.00); 2. Within six months from date of approval of our request, we will pay another FOUR HUNDRED FIFTY THOUSAND PESOS (P450,000.00); and 3. The remaining balance together with the interest and other expenses that will be incurred will be paid within the last six months of the one year grave period requested for.57 When the petitioner was told that respondent did not allow "partial redemption,"58 it sent a letter to respondent's President reiterating its offer to purchase the property.59 There was no response to petitioner's letters dated February 10 and 15, 1984. The statement of account prepared by the SAMD stating that the net claim of respondent as of June 25, 1984 wasP1,574,560.47 cannot be considered an unqualified acceptance to petitioner's offer to purchase the property. The statement is but a computation of the amount which petitioner was obliged to pay in case respondent would later agree to sell the property, including interests, advances on insurance premium, advances on realty taxes, publication cost, registration expenses and miscellaneous expenses. There is no evidence that the SAMD was authorized by respondent's Board of Directors to accept petitioner's offer and sell the property for P1,574,560.47. Any acceptance by the SAMD of petitioner's offer

would not bind respondent. As this Court ruled in AF Realty Development, Inc. vs. Diesehuan Freight Services, Inc.:60 Section 23 of the Corporation Code expressly provides that the corporate powers of all corporations shall be exercised by the board of directors. Just as a natural person may authorize another to do certain acts in his behalf, so may the board of directors of a corporation validly delegate some of its functions to individual officers or agents appointed by it. Thus, contracts or acts of a corporation must be made either by the board of directors or by a corporate agent duly authorized by the board. Absent such valid delegation/authorization, the rule is that the declarations of an individual director relating to the affairs of the corporation, but not in the course of, or connected with the performance of authorized duties of such director, are held not binding on the corporation. Thus, a corporation can only execute its powers and transact its business through its Board of Directors and through its officers and agents when authorized by a board resolution or its by-laws.61 It appears that the SAMD had prepared a recommendation for respondent to accept petitioner's offer to repurchase the property even beyond the one-year period; it recommended that petitioner be allowed to redeem the property and pay P1,574,560.00 as the purchase price. Respondent later approved the recommendation that the property be sold to petitioner. But instead of the P1,574,560.47 recommended by the SAMD and to which petitioner had previously conformed, respondent set the purchase price at P2,660,000.00. In fine, respondent's acceptance of petitioner's offer was qualified, hence can be at most considered as a counter-offer. If petitioner had accepted this counter-offer, a perfected contract of sale would have arisen; as it turns out, however, petitioner merely sought to have the counter-offer reconsidered. This request for reconsideration would later be rejected by respondent. We do not agree with petitioner's contention that the P725,000.00 it had remitted to respondent was "earnest money" which could be considered as proof of the perfection of a contract of sale under Article 1482 of the New Civil Code. The provision reads: ART. 1482. Whenever earnest money is given in a contract of sale, it shall be considered as part of the price and as proof of the perfection of the contract. This contention is likewise negated by the stipulation of facts which the parties entered into in the trial court: 8. On June 8, 1984, the Special Assets Management Department (SAMD) of PNB prepared an updated Statement of Account showing MMCC's total liability to PNB as of June 25, 1984 to be P1,574,560.47 and recommended this amount as the repurchase price of the subject property. 9. On June 25, 1984, MMCC paid P725,000.00 to PNB as deposit to repurchase the property. The deposit of P725,000 was accepted by PNB on the condition that the purchase price is still subject to the approval of the PNB Board.62 Thus, the P725,000.00 was merely a deposit to be applied as part of the purchase price of the property, in the event that respondent would approve the recommendation of SAMD for respondent to accept petitioner's offer to purchase the property for P1,574,560.47. Unless and until the respondent accepted the offer on these terms, no perfected contract of sale would arise. Absent proof of the concurrence of all the essential elements of a contract of sale, the giving of earnest money cannot establish the existence of a perfected contract of sale.63 It appears that, per its letter to petitioner dated June 4, 1985, the respondent had decided to accept the offer to purchase the property for P1,931,389.53. However, this amounted to an amendment of respondent's qualified acceptance, or an amended counter-offer, because while the respondent lowered the purchase price, it still

declared that its acceptance was subject to the following terms and conditions: 1. That the selling price shall be the total Bank's claim as of documentation date (pls. see attached statement of account as of 5-31-85), payable in cash (P725,000.00 already deposited) within sixty (60) days from notice of approval; 2. The Bank sells only whatever rights, interests and participation it may have in the property and you are charged with full knowledge of the nature and extent of said rights, interests and participation and waive your right to warranty against eviction. 3. All taxes and other government imposts due or to become due on the property, as well as expenses including costs of documents and science stamps, transfer fees, etc., to be incurred in connection with the execution and registration of all covering documents shall be borne by you; 4. That you shall undertake at your own expense and account the ejectment of the occupants of the property subject of the sale, if there are any; 5. That upon your failure to pay the balance of the purchase price within sixty (60) days from receipt of advice accepting your offer, your deposit shall be forfeited and the Bank is thenceforth authorized to sell the property to other interested parties. 6. That the sale shall be subject to such other terms and conditions that the Legal Department may impose to protect the interest of the Bank.64 It appears that although respondent requested petitioner to conform to its amended counter-offer, petitioner refused and instead requested respondent to reconsider its amended counter-offer. Petitioner's request was ultimately rejected and respondent offered to refund its P725,000.00 deposit. In sum, then, there was no perfected contract of sale between petitioner and respondent over the subject property. IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The assailed decision is AFFIRMED. Costs against petitioner Manila Metal Container Corporation. SO ORDERED. Ynares-Santiago, J., Working Chairperson, Austria-Martinez, and ChicoNazario, JJ., concur. Panganiban, C.J., retired as of December 7, 2006.

We review in this petition for review on certiorari1 the decision2 and resolution3 of the Court of Appeals (CA) in CA-G.R. CV No. 49900. The CA affirmed with modifications the decision4 of the Regional Trial Court (RTC), Davao City, Branch 13. The RTC ruled in favor of respondents Cuison Lumber Co., Inc. (CLCI) and Josefa Vda. De Cuison (Mrs. Cuison), collectively referred to as respondents, in the action they commenced for breach of contract, specific performance, damages, and attorneys fees, with prayer for the issuance of a writ of preliminary injunction against petitioner Traders Royal Bank (bank). THE BACKGROUND FACTS On July 14, 1978 and December 9, 1979, respectively, CLCI, through its then president, Roman Cuison Sr., obtained two loans from the bank. The loans were secured by a real estate mortgage over a parcel of land covered by Transfer Certificate of Title No. 10282 (subject property). CLCI failed to pay the loan, prompting the bank to extrajudicially foreclose the mortgage on the subject property. The bank was declared the highest bidder at the public auction that followed, conducted on August 1, 1985. A Certificate of Sale and a Sheriffs Final Certificate of Sale were subsequently issued in the banks favor. In a series of written communications between CLCI and the bank, CLCI manifested its intention to restructure its loan obligations and to repurchase the subject property. On July 31, 1986, Mrs. Cuison, the widow and administratrix of the estate of Roman Cuison Sr., wrote the banks Officer-in-Charge, Remedios Calaguas, a letter indicating her offered terms of repurchase. She stated: 1. That I will pay the interest of P115,538.66, plus the additional expenses of P17,293.69, the total amount of which is P132,832.35 on August 8, 1986; 2. That I will pay 20% of the bid price of P949,632.84, plus whatever interest accruing within sixty (60) days from August 8, 1986; 3. That whatever remaining balance after the above two (2) payments shall be amortized for five (5) years on equal monthly installments including whatever interest accruing lease on diminishing balance.5 CLCI paid the bank P50,000.00 (on August 8, 1986) and P85,000.00 (on September 3, 1986). The bank received and regarded these amounts as "earnest money" for the repurchase of the subject property. On October 20, 1986, the bank sent Atty. Roman Cuison, Jr. (Atty. Cuison), as the president and general

G.R. No. 174286

June 5, 2009

TRADERS ROYAL BANK, Petitioner, vs. CUISON LUMBER CO., INC., and JOSEFA JERODIAS VDA. DE CUISON, Respondents. DECISION BRION, J.:

manager of CLCI, a letter informing CLCI of the banks board of directors resolution of October 10, 1986 (TRB Repurchase Agreement), laying down the conditions for the repurchase of the subject property: This is to formally inform you that our Board of Directors, in its regular meeting held on October 10, 1986, passed a resolution for the repurchase of your property acquired by the bank, subject to the following terms and conditions, viz: 1. That the repurchase price shall be at total banks claim as of the date of implementation; 2. That client shall initially pay P132,000.00 within fifteen (15) days from the expiration of the redemption period (August 8, 1986) and further payment of P200,632.84, representing 20% of the bid price, to be remitted on or before October 31, 1986; 3. That the balance of P749,000.00 to be paid in three (3) years in twelve (12) quarterly amortizations, with interest rate at 26% computed on diminishing balance; 4. That all the interest and other charges starting from August 8, 1986 to date of approval shall be paid first before implementation of the request; interest as of October 31, 1986 isP65,669.53; 5. Possession of the property shall be deemed transferred after signing of the Contract to Sell. However, title to the property shall be delivered only upon full payment of the repurchase pricevia Deed of Absolute Sale; 6. Registration fees, documentary stamps, transfer taxes at the date of sale and other similar government impost shall be for the exclusive account of the buyer; 7. The improvement of the property shall at all times be covered by insurance against loss with a policy to be obtained from a reputable company which designates the bank as beneficiary but premiums shall be paid by the client; 8. That the sale is good for thirty (30) days from the buyers receipt of notice of approval of the offer; otherwise, sale is automatically cancelled; 9. Effective upon signing of the Contract to Sell, all realty taxes which will become due on the property shall be for the account of the buyer;

10. That the first quarterly installment shall be due within ninety (90) days of approval hereof, and the succeeding installment shall be due every three (3) months thereafter; 11. Upon default of the buyer to pay two (2) successive quarterly installments, contract is automatically cancelled at the Banks option and all payments already made shall be treated as rentals or as liquidated damages; and 12. Other terms and conditions that the bank may further impose to protect its interest. Should you agree with the above terms and conditions please sign under "Conforme" on the space provided below. We attach herewith your Statement of Account6 as of October 31, 1986, for your reference. Thank you. Very truly yours, (Signed) Conforme: (Not signed)7 CLCI failed to comply with the above terms notwithstanding the extensions of time given by the bank. Nevertheless, CLCI tendered, on February 3, 1987, a check for P135,091.57 to cover fifty percent (50%) of the twenty percent (20%) bid price. The check, however, was returned for "insufficiency of funds." On May 13, 1987, CLCI tendered an additional P50,000.00.8 On May 29, 1987, the bank sent Atty. Cuison a letter informing him that theP185,000.00 CLCI paid was not a deposit, but formed part of the earnest money under the TRB Repurchase Agreement. On August 28, 1987, Atty. Cuison, by letter, requested that CLCIs outstanding obligation ofP1,221,075.61 (as of July 31, 1987) be reduced to P1 million, and the amount of P221,075.61 be condoned by the bank. To show its commitment to the request, CLCI paid the bank P100,000.00 and P200,000.00 on August 28, 1987. The bank credited both payments as earnest money. A year later, CLCI inquired about the status of its request. The bank responded that the request was still under consideration by the banks Manila office. On September 30, 1988, the bank informed CLCI that it would resell the subject property at an offered price of P3 million, and gave CLCI 15 days to make a formal offer; otherwise, the bank would sell the subject property to third parties. On October 26, 1988, CLCI offered to repurchase the subject property for P1.5

million, given that it had already tendered the amount of P400,000.00 as earnest money. CLCI subsequently claimed that the bank breached the terms of repurchase, as it had wrongly considered its payments (in the amounts of P140,485.18, P200,000.00 and P100,000.00) as earnest money, instead of applying them to the purchase price. Through its counsel, CLCI demanded that the bank rectify the repurchase agreement to reflect the true consideration agreed upon for which the earnest money had been given. The bank did not act on the demand. Instead, it informed CLCI that the amounts it received were not earnest money, and that the bank was willing to return these sums, less the amounts forfeited to answer for the unremitted rentals on the subject property. In view of these developments, CLCI and Mrs. Cuison, on February 10, 1989, filed with the RTC a complaint for breach of contract, specific performance, damages, and attorneys fees against the bank. On April 20, 1989, the bank filed its Answer alleging that the TRB repurchase agreement was already cancelled given CLCIs failure to comply with its provisions; by way of counterclaim, the bank also demanded the payment of the accrued rentals in the subject property as of January 31, 1989, and the award of moral damages and exemplary damages as well as attorneys fees and litigation expenses for the unfounded suit instituted against the bank by CLCI.9 After trial on the merits, the RTC ruled in respondents favor. The dispositive portion of its November 4, 1994 Decision states: WHEREFORE, premises considered, judgment is hereby rendered in favor of plaintiffs and against the defendant bank, ordering said defendant bank to: 1. Execute and consummate a Contract to Sell which is reflective of the true consideration indicated in the Resolution of the Board of Directors of Traders Royal Bank held on October 10, 1986 (Exhibit "F" and Exhibit "13"), duly accrediting the amount of P435,000 as earnest money to be part of the price, the mode of payment being on quarterly installment, but the period within which the first quarterly payment being on quarterly payment shall be made to commence upon the execution of said Contract to Sell; 2. Pay to plaintiffs the amounts of P50,000.00 in concept of moral damages, P20,000.00 as exemplary damages; 3. Pay attorneys fees of P20,000.00; and

4. Pay litigation expenses in the amount of P2,000.00. The counterclaim of defendant bank is hereby dismissed. SO ORDERED. On appeal to the CA, the bank pointed out the misappreciation of facts the RTC committed and argued that: first, the repurchase agreement did not ripen into a perfected contract; and second, even assuming that there was a perfected repurchase agreement, the bank had the right to revoke it and apply the payments already made to the rentals due for the use of the subject property, or as liquidated damages under paragraph 11 of the TRB Repurchase Agreement, since CLCI violated its terms and conditions. Further, the bank contended that CLCI had abandoned the TRB Repurchase Agreement in its letters dated August 28, 1987 and October 26, 1988 when it proposed to repurchase the subject property for P1 million and P1.5 million, respectively. Lastly, the bank objected to the award of damages in the plaintiffs favor. THE CA DECISION On March 31, 2006, the CA issued the challenged Decision and affirmed the RTCs factual findings and legal conclusions. Although it deleted the awards of attorneys fees, moral and exemplary damages, the CA ruled that there was a perfected contract to repurchase the subject property given the banks acceptance (as stated in the letter dated October 20, 1986) of CLCIs proposal contained in Mrs. Cuisons letter of July 31, 1986. The CA distinguished between a condition imposed on the perfection of the contract and a condition imposed on the performance of an obligation, and declared that the conditions laid down in the letter dated October 20, 1986 merely relate to the manner the obligation is to be performed and implemented; failure to comply with the latter obligation does not result in the failure of the contract and only gives the other party the options and/or remedies to protect its interest. The CA held that the same conclusion obtains even if the letter of October 20, 1986 is considered a counter-offer by the bank; CLCIs payment of P135,000.00 operated as an implied acceptance of the banks counter-offer, notwithstanding CLCIs failure to expressly manifest its conforme. In light of these findings, the CA went on to acknowledge the validity of the terms of paragraph 11 of the TRB Repurchase Agreement, but nonetheless held that CLCI has not yet violated its terms given the banks previous acts (i.e., the grant of extensions to pay), which showed that it had waived the agreements original terms of payment.

The CA rejected the theory that CLCI had abandoned the terms of the TRB Repurchase Agreement and found no incompatibility between the agreement and the contents of the August 28, 1987 and October 26, 1988 letters which did not show an implied abandonment by CLCI, nor the latters expressed intent to cancel or abandon the perfected repurchase agreement. In the same manner, the CA struck down the banks position that CLCIs payments were "deposits" rather than earnest money. The appellate court reasoned that while the amounts tendered cannot be strictly considered as earnest money under Article 1482 of the New Civil Code,10 they were nevertheless within the concept of earnest money under this Courts ruling in Spouses Doromal, Sr. v. CA,11 since they were paid as a guarantee so that the buyer would not back out of the contract. The CA however ruled that the award of moral and exemplary damages, attorneys fees and litigation expenses lacked factual and legal support. The CA found that the bank acted in good faith and based its actions on the erroneous belief that CLCI had already abandoned the repurchase agreement. Likewise, the award of moral damages was not in order as there was no showing that CLCIs reputation was debased or besmirched by the banks action of applying the previous payments made to the interest and rentals due on the subject property; neither is Mrs. Cuison entitled to moral damages without any evidence to justify this award. The CA also ruled that there was nothing in the records to warrant the awards of exemplary damages and attorneys fees. The bank subsequently moved but failed to secure a reconsideration of the CA decision. The bank thus came to us with the following ISSUES I. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN APPREHENDING THE SIGNIFICATION (SIC) OF THE TERM "OFFER" ON THE ONE HAND AND "ACCEPTANCE" ON THE OTHER HAND IN SALES CONTRACT WHICH ERROR LED IT TO ARRIVE AT A WRONG CONCLUSION OF LAW. II. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN ITS INTERPRETATION OF THE STIPULATIONS AND TERMS AND CONDITIONS EMBODIED IN THE PROPOSED REPURCHASE AGREEMENT xxx WHICH LED IT TO ERRONEOUSLY CONCLUDE THAT THERE WAS A "PERFECTED" REPURCHASE AGREEMENT

BETWEEN RESPONDENTS AND PETITIONER AND WHICH INTERPRETATION IS NOT IN ACCORDANCE WITH THE APPLICABLE LAW AND ESTABLISHED JURISPRUDENCE. Reduced to the most basic, the main issue posed is whether or not a perfected contract of repurchase existed and can be enforced between the parties. THE COURTS RULING We GRANT the petition. The case presents to us as threshold issue the presence or absence of consent as a requisite for a perfected contract to repurchase the subject property. The RTC ruled that a perfected contract existed based mainly on the following facts: first, the existence of the TRB Repurchase Agreement which "clearly depicts the repurchase agreement of the subject property under the terms therein embodied"; and second, the payment of earnest money in the total amount of P435,000.00 which forms part of the price and, as initial payment, is proof of the perfection of the contract.12 In concurring with the foregoing findings on appeal, the CA, in turn, declared that there was a meeting of the minds between the parties on the offer and acceptance for the repurchase of the subject property under the following quoted facts: It may be recalled that it was Mrs. Cuison, through her letter of July 31, 1986, who proposed to repurchase the foreclosed property. She in fact had tendered right away an amount of P50,000.00 as partial payment of theP132,000.00 she had promised to pay as initial payment. In response, TRB sent a letter dated October 20, 1986 to Atty. Cuison informing him of the resolution passed by the Board of Directors of TRB acknowledging the proposal of Ms. Cuison to repurchase the property. Under the circumstance, the proposal made by Ms. Cuison constituted the "offer" contemplated by law, and the reply of TRB was the corresponding "acceptance" of the proposal-offer. xxx Conceding arguendo that TRBs letter-response October 20, 1986 constituted a counter-offer or politacion, CLCIs ensuing remittance of P135,000.00 as initial payment of the price, operates effectively as an implied acceptance of TRBs counter-offer. The absence of a signature to signify plaintiffs conforme to the repurchase agreement is of no moment. While the conforme portion of the subject repurchase agreement indeed bears no signature at all, this fact, however, does not detract from the accomplished fact that plaintiffs had acquiesced or assented to the standing "conditional counter-offer" of TRB. Plaintiffs "conforme"

would at best be a mere formality considering that the repurchase agreement had already been perfected, if impliedly.13 Based on these findings, the crucial points that the lower courts apparently considered were Mrs. Cuisons letter of July 31, 1986 to the bank; the banks letter of October 20, 1986 to CLCI; and the parties subsequent conduct showing their acknowledgement of the existence of their agreement, specifically, the respondents payments (designated as earnest money) and the banks acceptance of these payments. However, unlike the RTCs conclusion that relied on CLCIs payment and the banks acceptance of the payment as "earnest money," the CA concluded that there was a perfected contract, either because of the banks acceptance of CLCIs offer (made through Mrs. Cuisons letter of July 31, 1986), or by CLCIs implied acceptance indicated by its initial payments in compliance with the terms of the TRB Repurchase Agreement. The petitioner bank, of course, argues differently and concludes that the undisputed facts of the case show that there was no meeting of the minds between the parties given CLCIs failure to give its consent and conformity to the banks letter of October 20, 1986, confirmed by the testimony of Atty. Cuison, no less, when he denied that CLCI consented to the agreements terms of implementation. Our task in this petition for review on certiorari is not to review the factual findings of the CA and the RTC, but to determine whether or not, on the basis of the said findings, the conclusions of law reached by the said courts are correct. Under the law, a contract is perfected by mere consent, that is, from the moment that there is a meeting of the offer and the acceptance upon the thing and the cause that constitute the contract.14 The law requires that the offer must be certain and the acceptance absolute and unqualified.15 An acceptance of an offer may be express and implied; a qualified offer constitutes a counter-offer.16 Case law holds that an offer, to be considered certain, must be definite,17 while an acceptance is considered absolute and unqualified when it is identical in all respects with that of the offer so as to produce consent or a meeting of the minds.18 We have also previously held that the ascertainment of whether there is a meeting of minds on the offer and acceptance depends on the circumstances surrounding the case.19 In Villonco Realty Co. v. Bormacheco,20 the Court found a perfected contract of sale between the parties after considering the parties written communications showing the offer (counter-offer) and acceptance by the

seller who formally manifested his conformity with the offer in the buyers letter. We took note of the acts of the parties the payment of the buyer of an amount representing the partial payment under the contract; the acceptance of the partial payment by the seller; the allowance of the buyer for the seller to encash the check containing the partial payment; the subsequent return of the amount representing the partial payment by the buyer with the corresponding interest stated in the buyers letter (offer) and considered them evidence of the perfection of the sale. Under these circumstances, we also declared that a change in a phrase in the offer to purchase, that does not essentially change the terms of the offer, does not amount to a rejection of the offer and the tender of a counter-offer. In Schuback & Sons Philippine Trading Corp. v. CA,21 we declared a meeting of minds between the vendor and the vendee even though the quantity of goods purchased had not been fully determined. We noted that the vendee, after expressing his intention to purchase the merchandise, simultaneously enclosed a purchase order whose receipt prompted the vendor to immediately order the merchandise. We also took into account the act of the vendee in requesting for a discount as proof of his acceptance of the quoted price. Yuviengco v. Dacuycuy22 yielded a different result, as we considered that the letter and telegrams sent by the parties to each other showed that there was no meeting of minds in the absence of an unconditional acceptance to the terms of the contract of sale; otherwise, the buyers would not have included the phrase "to negotiate details" when they agreed to the property that was subject of the proposed contract. Similarly, in Philippine National Bank v. CA,23 we ruled that there was no perfected contract of sale because the specified terms and conditions imposed under the facts of the case constituted counter-offers against each other that were not accepted by either of the parties. This case involved a first contract, involving the same property, which the parties mutually cancelled; we said that the terms of this earlier contract cannot be considered in determining the acceptance and compliance with the terms of a proposed second contract a distinct and separate contract from the one earlier aborted. The incomplete details of the agreement led us to conclude in Insular Life Assurance Co. Ltd. v. Assets Builders Corp.24 that no perfected contract existed; there were "other matters or details in addition to the subject matter and the consideration [that] would be stipulated and agreed." We likewise considered the subsequent acts between the parties and the existence

of a second proposal which belied the perfection of any initial contract. The recent Navarra v. Planters Development Bank25 is another case where we saw no perfected contract, as the offer was incomplete for lack of agreed details on the manner of paying the purchase price; there was also no acceptance as the letter of Planters Development Bank indicated the need to discuss other details of the transaction.
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of CLCI, to the bank (in response to the banks demand letter dated November 27, 1986 to pay 20% of the bid price); CLCI requested an extension of time, until the end of December 1986, to pay its due obligation;28 (b) Mrs. Cuisons letter-reply of February 3, 1987 (to the banks letter of January 13, 1987) showed that she acknowledged CLCIs failure to comply with its requested extension and proposed a new payment scheme that would be reasonable given CLCIs critical economic difficulties; Mrs. Cuizon tendered a check forP135,091.57, which represented 50% of the 20% bid price;29 (c) The CLCIs continuous payments of the repurchase price after their receipt of the banks letter of October 20, 1986; (d) CLCIs possession of the subject property pursuant to paragraph 5 of the TRB Repurchase Agreement, notwithstanding the absence of a signed contract to sell between the parties; xxx We counted the following facts, too, as indicators leading to the conclusion that a perfected contract existed: CLCI did not raise any objection to the terms and conditions of the TRB Repurchase Agreement, and instead, unconditionally paid without protests or objections30 ; CLCIs acknowledgment of their obligations under the TRB Repurchase Agreement (as shown by Atty. Cuisons letter of November 29, 1986); and Atty. Cuisons admission that the TRB Repurchase Agreement was already a negotiated agreement between CLCI and the bank, as shown by the following testimony: Q When you received this document, this Exh. "F" from the defendant bank, did you already consider this as an agreement? A We consider that as a negotiated agreement pending the documentation of the formal contract to sell which is stated under the repurchase agreement. Q In other words, at the time you received this document Exh. "F," which was on October 23, 1986 date of receipt, was there already a meeting of the minds between the parties? A That is precisely we put [sic] the earnest money because we were of the opinion that the bank is already agreeable to the implementation of the repurchase agreement.

All these cases illustrate the rule that the concurrence of the offer and acceptance is vital to the birth and the perfection of a contract. The clear and neat principle is that the offer must be certain and definite with respect to the cause or consideration and object of the proposed contract, while the acceptance of this offer express or implied must be unmistakable, unqualified, and identical in all respects to the offer. The required concurrence, however, may not always be immediately clear and may have to be read from the attendant circumstances; in fact, a binding contract may exist between the parties whose minds have met, although they did not affix their signatures to any written document.26 The facts of the present case, although ambivalent in some respects, point on the whole to the conclusion that both parties agreed to the repurchase of the subject property. A reading of the petitioners letter of October 20, 1986 informing CLCI that the banks board of directors "passed a resolution for the repurchase of [your] property" shows that the tenor of acceptance, except for the repurchase price, was subject to conditions not identical in all respects with the CLCIs letter-offer of July 31, 1986. In this sense, the banks October 20, 1986 letter was effectively a counter-offer that CLCI must be shown to have accepted absolutely and unqualifiedly in order to give birth to a perfected contract. Evidence exists showing that CLCI did not sign any document to show its conformity with the banks counter-offer. Testimony also exists explaining why CLCI did not sign; Atty. Cuison testified that CLCI did not agree with the implementation of the repurchase transaction since the bank made a wrong computation.27 These indicators notwithstanding, we find that CLCI accepted the terms of the TRC Repurchase Agreement and thus unqualifiedly accepted the banks counteroffer under the TRB Repurchase Agreement and, in fact, partially executed the agreement, as shown from the following undisputed evidence: (a) The letter-reply dated November 29, 1986 of Atty. Cuison, as president and general manager

xxx COURT Q Insofar as Exh. "F" is concerned? A There was initially, that is precisely we [sic] deposited in consideration of the repurchase agreement.31 The bank, for its part, showed its recognition of the existence of a repurchase agreement between itself and CLCI by the following acts: (a) The letter dated November 27, 1986 of the bank, reminding CLCI that it was remiss in its commitments to pay 20% of the bid price under the terms of the TRB Repurchase Agreement; (b) In the same letter, the bank gave CLCI an extension of time (until November 30, 1986) to comply with its past due obligations under the agreement; (c) The banks acceptance of CLCIs payments as earnest money for the repurchase of the property; (d) CLCIs continued possession of the subject property with the banks consent; (e) The banks grant of extensions to CLCI for the payment of its obligations under the contract; (f) The Statement of Account dated July 31, 1987 showing that the bank applied CLCIs payments according to the terms of the TRB Repurchase Agreement; (g) The letter of January 26, 1989 of the banks counsel, Atty. Abarquez, addressed to CLCIs counsel, showing the banks recognition that there was an agreement between the bank and CLCI, which the latter failed to honor; and (h) The testimonies of the banks witnesses Mr. Eulogio Giramis32 and Ms. Arlene Aportadera,33 the banks employees who handled the CLCI transactions who admitted the existence of the repurchase agreement with CLCI and the latters failure to comply with the agreements terms. Admittedly, some evidence on record may be argued to point to the absence of a meeting of the minds (more particularly, the previous offers made by CLCI to change the payment scheme of the repurchase of the

subject property which was not accepted; the banks expressed intent to offer the subject property for sale to third persons at a higher price; and the unaccepted counter-offer by the respondents after the bank increased the purchase price).34 These incidents, however, were the results of CLCIs failure to comply with its obligations to pay the amounts due on the stipulated time and were made after the parties minds had met on the terms of the contract. The seemingly contrary indications, therefore, do not go into and affect the perfection of the contract; they came after the contract had been perfected and, as discussed below, were indicative of the banks cancellation of the repurchase agreement. In light of this conclusion, we now determine the consequential rights, obligations and liabilities of the parties. It is at this point that we diverge from the conclusions of the CA and the RTC, as we conclude that while there was a perfected contract between the parties, the bank effectively cancelled the contract when it communicated with CLCI that it would sell the subject property at a higher price to third parties, giving CLCI 15 days to make a formal offer, and disregarding CLCIs counter-offer to buy the subject property for P1.5 million. We arrive at this conclusion after considering the following reasons: First, the bank communicated its intent not to proceed with the repurchase as above outlined and formally cancelled the TRB Repurchase Agreement in its letters dated January 11 and 30, 1989 to CLCI.35 Thus, CLCIs rights acquired under the TRB Repurchase Agreement to repurchase the subject property have been defeated by its own failure to comply with its obligations under the agreement. The right to cancel for breach is provided under paragraph 11 of the TRB Repurchase Agreement, as follows: 11. Upon default of the buyer to pay two (2) successive quarterly installments, contract is automatically cancelled at the Banks option and all payments already made shall be treated as rentals or as liquidated damages; We note, additionally, that the TRB Repurchase Agreement is in the nature of a contract to sell where the title to the subject property remains in the banks name, as the vendor, and shall only pass to the respondents, as vendees, upon the full payment of the repurchase price.36 The settled rule for contracts to sell is that the full payment of the purchase price is a positive suspensive condition; the failure to pay in full is not to be considered a breach, casual or serious, but simply an event that prevents the obligation of the vendor to convey title from acquiring any obligatory force.37 Viewed in this light, the bank cannot be compelled to perform its obligations under the TRB

Repurchase Agreement that has been rendered ineffective by the respondents non-performance of their own obligations. Second, the respondents violated the terms and conditions of the TRB Repurchase Agreement when they failed to pay their obligations under the agreement as these obligations fell due. Paragraphs 2 and 10 of the TRB Repurchase Agreement are clear on the respondents obligation to pay the bid price and the quarterly installments. Paragraphs 2 and 10 state: 2. That client shall initially pay P132,000.00 within fifteen (15) days from the expiration of the redemption period (August 8, 1986) and further payment of P200,632.84 representing 20% of the bid price to be remitted on or before October 31, 1986; xxx xxx xxx 10. That the first quarterly installment shall be due within ninety (90) days of approval hereof, and the succeeding installment shall be due every three (3) months thereafter; The approval referred to under paragraph 10 is the approval by the bank of the repurchase of the subject property, as indicated in the banks letter of October 20, 1986 which states, "This is to formally inform you that our Board of Directors in its regular meeting held on October 10, 1986, passed a resolution for the repurchase of your property acquired by the bank." It was on the basis of this approval and the quoted terms of the agreement that the bank issued its Statement of Account dated July 31, 1987 indicating that the respondents were already in default, not only with respect to the 20% of the bid price, but also with the three quarterly installments.
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cannot be faulted for the application of other amounts paid as rentals as this is allowed under paragraph 11, quoted above, of the agreement. Fourth, the petitioner bank cannot be said, as the CA ruled, to have already waived the terms of the TRB Repurchase Agreement by extending the time to pay and subsequently accepting late payments. The CAs conclusion lacks factual and legal basis taking into account that the Statement of Account of July 31, 1987, heretofore cited, which shows that the bank considered the respondents already in default. At this point, Atty. Cuison, by letter, requested that part of its outstanding obligation be condoned by the bank, paying P300,000.00 as of August 31, 1987, which amount the bank accepted as earnest money. For one whole year thereafter, neither party moved. Significantly, the respondents, who had continuing payments to make and who had the burden of complying with the terms of the agreement, failed to act except to ask the bank for the status of its requested condonation. Under these facts, a continuing breach of the agreement took place, even granting that a waiver had intervened as of August 31, 1987. Thus, the bank was well within its right to consider the agreement cancelled when, in September 1988, it changed the repurchase terms to P3.0 million. We find it significant that the respondents, instead of asserting its rights under the TRB Repurchase Agreement, counteroffered P1.5 million with the P400,000.00 already paid as part of the purchase price. At that point, it was clear that even the respondents themselves considered the TRB Repurchase Agreement cancelled. Lastly, the perfected repurchase agreement itself provides for the respondents possession of the subject property; in fact, the respondents have been in continuous possession of the subject property since October 1986, despite the absence of a contract to sell apparently with the banks consent. The agreement also provides under its paragraph 11 that upon the respondents default and the cancellation of the agreement, all payments already made shall be treated as rentals or as liquidated damages. The undisputed facts show that the bank has been deprived of the use and benefit of its property that has been in the possession of the respondents for the latters use and benefit without paying any rentals thereon. The records reveal that until now, the respondents are still in possession of the subject property.39 We note that subsequent to the banks counterclaim for the payment of rentals due as of January 31, 1989, the bank also seeks to recover the rentals that accrued after January 31, 1989, which as of August 8, 1993 amounted to P1,123,500.00 as shown by the evidence

Third, the respondents themselves claim that the bank violated the agreement when it applied the respondents payments to the interest and penalties due without the respondents consent, instead of applying these to the repurchase price for the subject property.38 An examination of the provisions of the TRB Repurchase Agreement reveals that the bank is allowed to apply the respondents payments first to the amounts due as interests and other charges, before applying any payment to the repurchase price. Paragraph 4 of the agreement provides: 4. That all the interest and other charges starting from August 8, 1986 to date of approval shall be paid first before implementation of the request; interest as of October 31, 1986 is P65,669.53; Under these terms, the bank cannot be faulted for the application of payments it made. Likewise, the bank

presented by the bank before the RTC and in the pleadings it had filed before the RTC, CA, and the Court.40 Although this claim was not alleged in the banks Answer being an after-acquired claim which was only raised during the trial proper through the testimony dated August 17, 1993 of Ms. Arlene Aportadera,41 the bank is not barred from recovering these rentals. As we explained in Banco de Oro Universal Bank v. CA,42 a party is not barred from setting up a claim even after the filing of the answer if the claim did not exist or had not matured at the time said party filed its answer. Moreover, we note that the respondents did not object to the presentation of this evidence, hence, the issue of rentals from August 8, 1993 and onwards was tried with the implied consent of the parties; applying Section 5, Rule 10 of the 1997 Rules of Civil Procedure,43the issue should be treated in all respects as if it had been raised in the pleadings.44 Given the implied consent, judgment may be validly rendered on this issue even if no motion had been filed and no amendment had been ordered.45 In National Power Corporation v. CA,46 we held that where there is a variance in the defendants pleadings and the evidence adduced by it at the trial, the Court may treat the pleading as amended to conform to the evidence. Additionally, the respondents are also liable to pay interest by way of damages for their failure to pay the rentals due for the use of the subject property. In Eastern Shipping Lines v. CA,47 we laid down the following guidelines with respect to the award and the computation of legal interest, as follows: II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as well as the accrual thereof, is imposed, as follows: 1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code. 2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages

except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169 Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged. 3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit. [Emphasis supplied] The records are unclear on when the bank made a demand outside of the judicial proceedings for the rentals on the subject property.48 However, the records show that the bank made a counterclaim for the payments of the rentals due as of January 31, 1989 in its Answer and subsequently, a claim for the afteracquired rentals was made by the bank through the testimony of Ms. Arlene Aportadera. Applying Eastern Shipping Lines, the payment of interest for the rentals shall be reckoned from the date the judicial demand was made by the bank or on April 20, 1989 when the bank set up its counterclaim for rentals in the subject property. Under the circumstances, we can impose a 6% interest on the rentals from April 20, 1989 up to the finality of this decision. Thereafter, the interest shall be computed at 12% per annum from such finality up to full satisfaction. We find no basis for the award of exemplary damages. Article 2232 of the Civil Code declares: Article 2232. In contracts and quasi-contracts, the court may award exemplary damages if the defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner. Considering the factual circumstances we have discussed above, we can hardly characterize respondents act of insisting on the enforcement of the repurchase agreement as wanton, fraudulent, reckless, oppressive, or malevolent.

As there is no basis for an award of exemplary damages, the awards of attorneys fees and litigation expenses to the bank are not justified under Article 2208 of the Civil Code. WHEREFORE, premises considered, we hereby GRANT the petition. The Decision dated March 31, 2006 and Resolution dated August 11, 2006 of the Court of Appeals in CA-G.R. CV No. 49900 are hereby REVERSED andSET ASIDE. The complaint in Civil Case No. 19416-89 for breach of contract, specific performance, damages, and attorneys fees, with preliminary injunction filed by Cuison Lumber Co., Inc. and Mrs. Cuison against Traders Royal Bank is hereby DISMISSED. The respondents are ordered to vacate the subject property and to restore its possession to the petitioner bank. The respondents are further ordered to pay reasonable compensation, for the use and occupation of the subject property in the amount of P1,123,500.00, representing the accrued rentals as of August 8, 1993, less the amount of P485,000.00 representing deposits paid by the respondents. In additiodn, respondents are also ordered to pay the amount of P13,700.00 a month by way of rentals starting from August 8, 1993 until they vacate the subject property. The rentals shall earn a corresponding legal interest of six percent (6%) per annum to be computed from April 20, 1989 until the finality of this decision. After this decision becomes final and executory, the rate of legal interest shall be computed at twelve percent (12%) per annum from such finality until its satisfaction. Costs against the respondents. SO ORDERED. ARTURO D. BRION Associate Justice WE CONCUR:

The instant petition seeks a reversal of the Decision of the Court of Appeals in CA-G.R. CV No. 48355 entitled "Dr. Galicano S. Macatangay, Jr. v. Arturo R. Abalos and Esther Palisoc-Abalos," promulgated on March 14, 2002. The appellate court reversed the trial courts decision which dismissed the action for specific performance filed by respondent, and ordered petitioner and his wife to execute in favor of herein respondent a deed of sale over the subject property. Spouses Arturo and Esther Abalos are the registered owners of a parcel of land with improvements located at Azucena St., Makati City consisting of about three hundred twenty-seven (327) square meters, covered by Transfer Certificate of Title (TCT) No. 145316 of the Registry of Deeds of Makati. Armed with a Special Power of Attorney dated June 2, 1988, purportedly issued by his wife, Arturo executed aReceipt and Memorandum of Agreement (RMOA) dated October 17, 1989, in favor of respondent, binding himself to sell to respondent the subject property and not to offer the same to any other party within thirty (30) days from date. Arturo acknowledged receipt of a check from respondent in the amount of Five Thousand Pesos (P5,000.00), representing earnest money for the subject property, the amount of which would be deducted from the purchase price of One Million Three Hundred Three Hundred Thousand Pesos (P1,300,000.00). Further, the RMOA stated that full payment would be effected as soon as possession of the property shall have been turned over to respondent. Subsequently, Arturos wife, Esther, executed a Special Power of Attorney dated October 25, 1989, appointing her sister, Bernadette Ramos, to act for and in her behalf relative to the transfer of the property to respondent. Ostensibly, a marital squabble was brewing between Arturo and Esther at the time and to protect his interest, respondent caused the annotation of his adverse claim on the title of the spouses to the property on November 14, 1989. On November 16, 1989, respondent sent a letter to Arturo and Esther informing them of his readiness and willingness to pay the full amount of the purchase price. The letter contained a demand upon the spouses to comply with their obligation to turn over possession of the property to him. On the same date, Esther, through her attorney-in-fact, executed in favor of respondent, a Contract to Sell the property to the extent of her conjugal interest therein for the sum of six hundred fifty thousand pesos (P650,000.00) less the sum already received by her and Arturo. Esther agreed to surrender possession of the property to respondent within twenty (20) days from November 16, 1989, while the latter promised to pay the balance of the purchase price in

G.R. No. 155043

September 30, 2004

ARTURO R. ABALOS, petitioner, vs. DR. GALICANO S. MACATANGAY, JR., respondent. DECISION TINGA, J.:

the amount of one million two hundred ninety thousand pesos (P1,290,000.00) after being placed in possession of the property. Esther also obligated herself to execute and deliver to respondent a deed of absolute sale upon full payment. In a letter dated December 7, 1989, respondent informed the spouses that he had set aside the amount of One Million Two Hundred Ninety Thousand Pesos (P1,290,000.00) as evidenced by Citibank Check No. 278107 as full payment of the purchase price. He reiterated his demand upon them to comply with their obligation to turn over possession of the property. Arturo and Esther failed to deliver the property which prompted respondent to cause the annotation of another adverse claim on TCT No. 145316. On January 12, 1990, respondent filed a complaint for specific performance with damages against petitioners. Arturo filed his answer to the complaint while his wife was declared in default. The Regional Trial Court (RTC) dismissed the complaint for specific performance. It ruled that the Special Power of Attorney (SPA) ostensibly issued by Esther in favor of Arturo was void as it was falsified. Hence, the court concluded that the SPA could not have authorized Arturo to sell the property to respondent. The trial court also noted that the check issued by respondent to cover the earnest money was dishonored due to insufficiency of funds and while it was replaced with another check by respondent, there is no showing that the second check was issued as payment for the earnest money on the property. On appeal taken by respondent, the Court of Appeals reversed the decision of the trial court. It ruled that the SPA in favor of Arturo, assuming that it was void, cannot affect the transaction between Esther and respondent. The appellate court ratiocinated that it was by virtue of the SPA executed by Esther, in favor of her sister, that the sale of the property to respondent was effected. On the other hand, the appellate court considered the RMOA executed by Arturo in favor of respondent valid to effect the sale of Arturos conjugal share in the property. Dissatisfied with the appellate courts disposition of the case, petitioner seeks a reversal of its decision alleging that: I. The Court of Appeals committed serious and manifest error when it decided on the appeal without affording petitioner his right to due process. II.

The Court of Appeals committed serious and manifest error in reversing and setting aside the findings of fact by the trial court. III. The Court of Appeals erred in ruling that a contract to sell is a contract of sale, and in ordering petitioner to execute a registrable form of deed of sale over the property in favor of respondent.1 Petitioner contends that he was not personally served with copies of summons, pleadings, and processes in the appeal proceedings nor was he given an opportunity to submit an appellees brief. He alleges that his counsel was in the United States from 1994 to June 2000, and he never received any news or communication from him after the proceedings in the trial court were terminated. Petitioner submits that he was denied due process because he was not informed of the appeal proceedings, nor given the chance to have legal representation before the appellate court. We are not convinced. The essence of due process is an opportunity to be heard. Petitioners failure to participate in the appeal proceedings is not due to a cause imputable to the appellate court but because of petitioners own neglect in ascertaining the status of his case. Petitioners counsel is equally negligent in failing to inform his client about the recent developments in the appeal proceedings. Settled is the rule that a party is bound by the conduct, negligence and mistakes of his counsel.2 Thus, petitioners plea of denial of due process is downright baseless. Petitioner also blames the appellate court for setting aside the factual findings of the trial court and argues that factual findings of the trial court are given much weight and respect when supported by substantial evidence. He asserts that the sale between him and respondent is void for lack of consent because the SPA purportedly executed by his wife Esther is a forgery and therefore, he could not have validly sold the subject property to respondent. Next, petitioner theorizes that the RMOA he executed in favor of respondent was not perfected because the check representing the earnest money was dishonored. He adds that there is no evidence on record that the second check issued by respondent was intended to replace the first check representing payment of earnest money. Respondent admits that the subject property is coowned by petitioner and his wife, but he objects to the allegations in the petition bearing a relation to the supposed date of the marriage of the vendors. He

contends that the alleged date of marriage between petitioner and his wife is a new factual issue which was not raised nor established in the court a quo. Respondent claims that there is no basis to annul the sale freely and voluntarily entered into by the husband and the wife. The focal issue in the instant petition is whether petitioner may be compelled to convey the property to respondent under the terms of the RMOA and the Contract to Sell. At bottom, the resolution of the issue entails the ascertainment of the contractual nature of the two documents and the status of the contracts contained therein. Contracts, in general, require the presence of three essential elements: (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.3 Until the contract is perfected, it cannot, as an independent source of obligation, serve as a binding juridical relation.4 In a contract of sale, the seller must consent to transfer ownership in exchange for the price, the subject matter must be determinate, and the price must be certain in money or its equivalent.5 Being essentially consensual, a contract of sale is perfected at the moment there is a meeting of the minds upon the thing which is the object of the contract and upon the price.6 However, ownership of the thing sold shall not be transferred to the vendee until actual or constructive delivery of the property.7 On the other hand, an accepted unilateral promise which specifies the thing to be sold and the price to be paid, when coupled with a valuable consideration distinct and separate from the price, is what may properly be termed a perfected contract of option.8 An option merely grants a privilege to buy or sell within an agreed time and at a determined price. It is separate and distinct from that which the parties may enter into upon the consummation of the option.9 A perfected contract of option does not result in the perfection or consummation of the sale; only when the option is exercised may a sale be perfected.10 The option must, however, be supported by a consideration distinct from the price.11 Perusing the RMOA, it signifies a unilateral offer of Arturo to sell the property to respondent for a price certain within a period of thirty days. The RMOA does not impose upon respondent an obligation to buy petitioners property, as in fact it does not even bear his signature thereon. It is quite clear that after the lapse of the thirty-day period, without respondent having exercised his option, Arturo is free to sell the property to another. This shows that the intent of Arturo is

merely to grant respondent the privilege to buy the property within the period therein stated. There is nothing in the RMOA which indicates that Arturo agreed therein to transfer ownership of the land which is an essential element in a contract of sale. Unfortunately, the option is not binding upon the promissory since it is not supported by a consideration distinct from the price.12 As a rule, the holder of the option, after accepting the promise and before he exercises his option, is not bound to buy. He is free either to buy or not to buy later. In Sanchez v. Rigos13 we ruled that in an accepted unilateral promise to sell, the promissor is not bound by his promise and may, accordingly, withdraw it, since there may be no valid contract without a cause or consideration. Pending notice of its withdrawal, his accepted promise partakes of the nature of an offer to sell which, if acceded or consented to, results in a perfected contract of sale. Even conceding for the nonce that respondent had accepted the offer within the period stated and, as a consequence, a bilateral contract of purchase and sale was perfected, the outcome would be the same. To benefit from such situation, respondent would have to pay or at least make a valid tender of payment of the price for only then could he exact compliance with the undertaking of the other party.14 This respondent failed to do. By his own admission, he merely informed respondent spouses of his readiness and willingness to pay. The fact that he had set aside a check in the amount of One Million Two Hundred Ninety Thousand Pesos (P1,290,000.00) representing the balance of the purchase price could not help his cause. Settled is the rule that tender of payment must be made in legal tender. A check is not legal tender, and therefore cannot constitute a valid tender of payment.15 Not having made a valid tender of payment, respondents action for specific performance must fail. With regard to the payment of Five Thousand Pesos (P5,000.00), the Court is of the view that the amount is not earnest money as the term is understood in Article 1482 which signifies proof of the perfection of the contract of sale, but merely a guarantee that respondent is really interested to buy the property. It is not the giving of earnest money, but the proof of the concurrence of all the essential elements of the contract of sale which establishes the existence of a perfected sale.16 No reservation of ownership on the part of Arturo is necessary since, as previously stated, he has never agreed to transfer ownership of the property to respondent. Granting for the sake of argument that the RMOA is a contract of sale, the same would still be void not only for want of consideration and absence of respondents

signature thereon, but also for lack of Esthers conformity thereto. Quite glaring is the absence of the signature of Esther in the RMOA, which proves that she did not give her consent to the transaction initiated by Arturo. The husband cannot alienate any real property of the conjugal partnership without the wifes consent.17 However, it was the Contract to Sell executed by Esther through her attorney-in-fact which the Court of Appeals made full use of. Holding that the contract is valid, the appellate court explained that while Esther did not authorize Arturo to sell the property, her execution of the SPA authorizing her sister to sell the land to respondent clearly shows her intention to convey her interest in favor of respondent. In effect, the court declared that the lack of Esthers consent to the sale made by Arturo was cured by her subsequent conveyance of her interest in the property through her attorney-in-fact. We do not share the ruling. The nullity of the RMOA as a contract of sale emanates not only from lack of Esthers consent thereto but also from want of consideration and absence of respondents signature thereon. Such nullity cannot be obliterated by Esthers subsequent confirmation of the putative transaction as expressed in the Contract to Sell. Under the law, a void contract cannot be ratified18 and the action or defense for the declaration of the inexistence of a contract does not prescribe.19 A void contract produces no effect either against or in favor of anyoneit cannot create, modify or extinguish the juridical relation to which it refers.20 True, in the Contract to Sell, Esther made reference to the earlier RMOA executed by Arturo in favor of respondent. However, the RMOA which Arturo signed is different from the deed which Esther executed through her attorney-in-fact. For one, the first is sought to be enforced as a contract of sale while the second is purportedly a contract to sell only. For another, the terms and conditions as to the issuance of title and delivery of possession are divergent. The congruence of the wills of the spouses is essential for the valid disposition of conjugal property. Where the conveyance is contained in the same document which bears the conformity of both husband and wife, there could be no question on the validity of the transaction. But when there are two (2) documents on which the signatures of the spouses separately appear, textual concordance of the documents is indispensable. Hence, in this case where the wifes putative consent to the sale of conjugal property appears in a separate document which does not, however, contain the same terms and conditions as in the first document signed by the husband, a valid transaction could not have arisen.

Quite a bit of elucidation on the conjugal partnership of gains is in order. Arturo and Esther appear to have been married before the effectivity of the Family Code. There being no indication that they have adopted a different property regime, their property relations would automatically be governed by the regime of conjugal partnership of gains.21 The subject land which had been admittedly acquired during the marriage of the spouses forms part of their conjugal partnership.22 Under the Civil Code, the husband is the administrator of the conjugal partnership. This right is clearly granted to him by law.23 More, the husband is the sole administrator. The wife is not entitled as of right to joint administration.24 The husband, even if he is statutorily designated as administrator of the conjugal partnership, cannot validly alienate or encumber any real property of the conjugal partnership without the wifes consent.25 Similarly, the wife cannot dispose of any property belonging to the conjugal partnership without the conformity of the husband. The law is explicit that the wife cannot bind the conjugal partnership without the husbands consent, except in cases provided by law.26 More significantly, it has been held that prior to the liquidation of the conjugal partnership, the interest of each spouse in the conjugal assets is inchoate, a mere expectancy, which constitutes neither a legal nor an equitable estate, and does not ripen into title until it appears that there are assets in the community as a result of the liquidation and settlement. The interest of each spouse is limited to the net remainder or "remanente liquido" (haber ganancial) resulting from the liquidation of the affairs of the partnership after its dissolution.27 Thus, the right of the husband or wife to one-half of the conjugal assets does not vest until the dissolution and liquidation of the conjugal partnership, or after dissolution of the marriage, when it is finally determined that, after settlement of conjugal obligations, there are net assets left which can be divided between the spouses or their respective heirs.28 In not a few cases, we ruled that the sale by the husband of property belonging to the conjugal partnership without the consent of the wife when there is no showing that the latter is incapacitated is void ab initio because it is in contravention of the mandatory requirements of Article 166 of the Civil Code.29 Since Article 166 of the Civil Code requires the consent of the wife before the husband may alienate or encumber any real property of the conjugal partnership, it follows that

acts or transactions executed against this mandatory provision are void except when the law itself authorizes their validity.30 Quite recently, in San Juan Structural and Steel Fabricators, Inc. v. Court of Appeals,31 we ruled that neither spouse could alienate in favor of another, his or her interest in the partnership or in any property belonging to it, or ask for partition of the properties before the partnership itself had been legally dissolved. Nonetheless, alienation of the share of each spouse in the conjugal partnership could be had after separation of property of the spouses during the marriage had been judicially decreed, upon their petition for any of the causes specified in Article 19132 of the Civil Code in relation to Article 21433 thereof. As an exception, the husband may dispose of conjugal property without the wifes consent if such sale is necessary to answer for conjugal liabilities mentioned in Articles 161 and 162 of the Civil Code.34 In Tinitigan v. Tinitigan, Sr.,35 the Court ruled that the husband may sell property belonging to the conjugal partnership even without the consent of the wife if the sale is necessary to answer for a big conjugal liability which might endanger the familys economic standing. This is one instance where the wifes consent is not required and, impliedly, no judicial intervention is necessary. Significantly, the Family Code has introduced some changes particularly on the aspect of the administration of the conjugal partnership. The new law provides that the administration of the conjugal partnership is now a joint undertaking of the husband and the wife. In the event that one spouse is incapacitated or otherwise unable to participate in the administration of the conjugal partnership, the other spouse may assume sole powers of administration. However, the power of administration does not include the power to dispose or encumber property belonging to the conjugal partnership.36 In all instances, the present law specifically requires the written consent of the other spouse, or authority of the court for the disposition or encumbrance of conjugal partnership property without which, the disposition or encumbrance shall be void.37 Inescapably, herein petitioners action for specific performance must fail. Even on the supposition that the parties only disposed of their respective shares in the property, the sale, assuming that it exists, is still void for as previously stated, the right of the husband or the wife to one-half of the conjugal assets does not vest until the liquidation of the conjugal partnership. Nemo dat qui non habet. No one can give what he has not. WHEREFORE, the appealed Decision is hereby REVERSED and SET ASIDE. The complaint in Civil Case No. 90-106 of the Regional Trial Court of

Makati is ordered DISMISSED. No pronouncement as to costs. SO ORDERED. Puno, Austria-Martinez, Callejo, Sr., and ChicoNazario*, JJ., concur.

G.R. No. 171968

July 31, 2009

XYST CORPORATION, Petitioner, vs. DMC URBAN PROPERTIES DEVELOPMENT INC., Respondent, FE AURORA C. CASTRO, Intervenor. DECISION QUISUMBING, J.: Before us is a petition for review assailing the September 26, 2005 Decision1 and the March 13, 2006 Order2 of the Regional Trial Court (RTC) of Makati City, Branch 64 in Civil Case No. 95-063. The facts are as follows: DMC Urban Properties Development, Inc. and Citibank N.A. entered into an agreement whereby they agreed to take part in the construction of the Citibank Tower, an office condominium building located at Villar corner Valero Streets, Makati City. In said agreement, DMC was allocated the 18th floor of the Citibank Tower subject to the condition that DMC shall not transfer any portion of its allocated floor or rights or interests thereto prior to the completion of the building without the written consent of Citibank N.A. Subsequently, DMC gave authority to sell to several brokers, one of which is herein intervenor, Fe Aurora Castro. Through her effort, Castro found a prospective buyer, Saint Agen Et Fils Limited (SAEFL for brevity), a foreign corporation represented by William Seitz. Notwithstanding the fact that the construction of the Citibank Tower was not yet completed, DMC negotiated with Seitz for the sale of its allocated floor to SAEFL. In a letter dated September 14, 1994,3 SAEFL accepted DMCs offer to sell. The terms of said letter are reproduced below: (1) Property Description

Location

Gross Floor Area Net Saleable Area Net Usable Area Selling Price Total Price Parking Slots

: : : : : :

Soon after, Seitz was informed that the 18th floor is not 18th Floor, Citibank Tower available Paseo de Roxas, Makati for foreign acquisition, so Seitz told DMC that would instead use XYST Corporation, a domestic Metro Manila18thhe Floor, corporation of which he is a director and shareholder, to 2,034 sq m purchase the subject property. XYST then paid the reservation fee. However, DMC advised XYST that the 1,866 sq m signing of the formal document will not take place since Citibank N.A. opted to exercise its right of first refusal. 1,678 sq m Hence, the parties agreed that should Citibank N.A. fail P53,500/ - psm of area tosaleable purchase the 18th floor on the agreed date, the same should be sold to XYST. P99,831,000/-* 22 Eventually, Citibank N.A. did not exercise its right of first refusal, but it reminded DMC that should the sale of the floor to any party materialize, it should be consistent with the documents adopted by the co-founders of the project. Hence, a copy of a pro-forma Contract to Sell was given to DMC, a copy of which was then forwarded to XYST.

* VAT tax for the account of the buyer, except that if payment of 26% of the total price is made before 30 September 1994, then VAT, if any, shall be for the account of the seller. The balance of P6,822,552.97 due to Citibank is included and, hence, is to be deducted from the amount due to DMC-UPDI. (2) Payment Terms Reservation Fee

26% -

Upon signing of agreement but not later than first banking hour of the 28th of September 1994. Due on 31 October 1994 (via post-dated check) Due on 30 November 1994 (via post-dated check)

DMC then undertook to obtain the conformity of Citibank N.A. to the intended sale but DMC encountered problems getting Citibank N.A. to accept the amendments that XYST wanted on the pro-forma contract. For such failure, DMC allowed XYST and N.A. to negotiate directly with one another to : P1,000,000/ -Citibank good [until] facilitate 26 September 1994 the transaction, but to no avail. Citibank N.A. refused to concurto with Non-refundable but applicable thethe amendments imposed by XYST on the pro-forma contract. Hence, DMC decided down payment. to call off the deal and return the reservation fee : P24,956,060/of - P1,000,000.00 to XYST.
lawph!l

24% 50% -

A complaint for specific performance with damages was then filed by XYST against DMC. Trial ensued and on September 26, 2005, the RTC dismissed XYSTs complaint. The dispositive portion of said decision : P23,959,440/ reads: WHEREFORE, in view of the foregoing, judgment is : P43,092,947.03 rendered as follows: 1. The Complaint for Specific Performance and Damages filed by plaintiff XYST : Expanded Withholding Tax CORPORATION against defendant DMCwith BIR clearance to the buyer URBAN PROPERTIES DEVELOPMENT, INC., stating that the seller has paid is DISMISSED. Plaintiff XYST CORPORATION capital gains tax. is hereby ordered to pay defendant DMCURBAN : Doc stamps; registration; and PROPERTIES DEVELOPMENT, INC. amount ofP1,000,000.00 as attorneys fees; notarial and all other the [similar] fees. and 2. The counterclaim of defendant DMC-URBAN PROPERTIES DEVELOPMENT, INC. against the Intervenor Fe Aurora Castro is DISMISSED. SO ORDERED.5

* For the Account of the Seller

For the Account of the Buyer

On September 16, 1994,4 SAEFL, knowing that the consent of Citibank N.A. must first be obtained, sent another letter obliging DMC to cause Citibank N.A. to enter into a Contract to Sell with SAEFL as an additional condition to the payment of the P1,000,000.00 reservation fee.

XYSTs motion for reconsideration was likewise denied. Hence, the instant petition where XYST raises the following issues: I. DID THE TRIAL COURT ERR IN FINDING THAT THERE WAS NO PERFECTED CONTRACT TO SELL BETWEEN XYST AND DEFENDANT DMC BASED ON THE SEPTEMBER 14 AND 16, 1994 LETTER AGREEMENTS, AND THAT DMC CANNOT BE COMPELLED TO PERFORM ITS OBLIGATIONS UNDER THE AGREEMENT? II. DID THE TRIAL COURT ERR IN ORDERING XYST TO PAY DMC ATTORNEYS FEES? III. IS XYST ENTITLED TO ATTORNEYS FEES AND EXEMPLARY DAMAGES.6 Simply stated, in our view, there is one major legal issue for our resolution: whether there is a perfected contract between DMC and XYST. This issue of a legal nature assumes primordial significance because it justified direct resort by petitioner to this Court in a petition for review. XYST argues that there exists a perfected contract of sale between the parties. This was perfected from the moment there was a meeting of the minds upon the thing which is object of the contract and upon the price as manifested by the September 14, 1994 letter. Hence, upon the perfection of the contract, the parties may reciprocally demand performance. Further, XYST avers that the P1,000,000.00 reservation fee it paid is actually in the nature of earnest money or down payment and shall be considered as part of the price and as proof of the perfection of the contract. Conversely, DMC insists that a contract to sell was entered into by the parties. It avers that in the contract to sell, the element of consent is lacking, and since the acceptance made by XYST is not absolute, no contract of sale existed between the parties. It claims that the terms, conditions and amendments which XYST tried to impose upon DMC and Citibank N.A. were proof that indeed XYST had qualifiedly accepted DMCs offer. We find the petition of XYST Corporation bereft of merit. It is a fundamental rule that, being consensual, a contract is perfected by mere consent.7 From the

moment of a meeting of the offer and the acceptance upon the object and the cause that would constitute the contract, consent arises.8 The essence of consent is the conformity of the parties on the terms of the contract, that is, the acceptance by one of the offer made by the other.9 However, the acceptance must be absolute; otherwise, the same constitutes a counteroffer10 and has the effect of rejecting the offer.11 Equally important are the three stages of a contract: (1) preparation or negotiation, (2) perfection, and (3) consummation. Negotiation begins from the time the prospective contracting parties manifest their interest in the contract and ends at the moment of agreement of the parties. The perfection or birth of the contract takes place when the parties agree upon the essential elements of the contract. The last stage is the consummation of the contract wherein the parties fulfill or perform the terms agreed upon in the contract, culminating in the extinguishment thereof.12 XYST and DMC were still in the negotiation stage of the contract when the latter called off the deal. The facts show that DMC as agreed undertook to obtain the conformity of Citibank N.A. However, Citibank N.A.s consent to the intended sale cannot be obtained since it does not conform to the amendments made by XYST on the pro-forma Contract to Sell. By introducing amendments to the contract, XYST presented a counter-offer to which DMC did not agree. Clearly, there was only an offer and a counter-offer that did not sum up to any final arrangement containing the elements of a contract. No meeting of the minds was established. The rule on the concurrence of the offer and its acceptance did not apply because other matters or detailsin addition to the subject matter and the considerationwould still be stipulated and agreed upon by the parties.13 Therefore, since the element of consent is absent, there is no contract to speak of. Where the parties merely exchanged offers and counter-offers, no agreement or contract is perfected.
lavvphil

As to XYSTs claim that the P1,000,000.00 reservation fee it paid is earnest money, we hold that it is not. Earnest money applies to a perfected sale. Here, no contract whatsoever was perfected since the element of consent was lacking. Therefore, the reservation fee paid by XYST could not be earnest money. Coming now to the issue of whether DMC is entitled to attorneys fees, the Court finds that the award of attorneys fees to DMC is not proper. Article 2208 of the Civil Code states that in the absence of a stipulation, attorneys fees cannot be recovered, except in any of the following circumstances:

(1) When exemplary damages are awarded; (2) When the defendants act or omission has compelled the plaintiff to litigate with third persons or to incur expenses to protect his interest; (3) In criminal cases of malicious prosecution against the plaintiff; (4) In case of a clearly unfounded civil action or proceeding against the plaintiff; (5) Where the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiffs plainly valid, just and demandable claim; (6) In actions for legal support; (7) In actions for the recovery of wages of household helpers, laborers and skilled workers; (8) In actions for indemnity under workmens compensation and employers liability laws; (9) In a separate civil action to recover civil liability arising from a crime; (10) When at least double judicial costs are awarded; (11) In any other case where the court deems it just and equitable that attorneys fees and expenses of litigation should be recovered. In the instant case, none of the enumerated grounds for recovery of attorneys fees is present. WHEREFORE, this petition is DENIED. The September 26, 2005 Decision and March 13, 2006 Order of the Regional Trial Court of Makati City, Branch 64 in Civil Case No. 95-063 are hereby AFFIRMED with themodification that the award of attorneys fees in favor of DMC is deleted. Costs against petitioner. SO ORDERED. LEONARDO A. QUISUMBING Associate Justice WE CONCUR:

G.R. No. L-2412

April 11, 1906

PEDRO ROMAN, plaintiff-appellant, vs. ANDRES GRIMALT, defendant-appellee. Alberto Barretto, for appellant. Chicote, Miranda and Sierra, for appellee. TORRES, J.: On July 2, 1904, counsel for Pedro Roman filed a complaint in the Court of First Instance of this city against Andres Grimalt, praying that judgment be entered in his favor and against the defendant (1) for the purchase price of the schooner Santa Marina, to wit, 1,500 pesos or its equivalent in Philippine currency, payable by installments in the manner stipulated; (2) for legal interest on the installments due on the dates set forth in the complaint; (3) for costs of proceedings; and (4) for such other and further remedy as might be considered just and equitable. On October 24 of the same year the court made an order sustaining the demurer filed by defendant to the complaint and allowing plaintiff ten days within which to amend his complaint. To this order the plaintiff duly excepted. Counsel for plaintiff on November 5 amended his complaint and alleged that between the 13th and the 23rd day of June, 1904, both parties, through one Fernando Agustin Pastor, verbally agreed upon the sale of the said schooner; that the defendant in a letter dated June 23 had agreed to purchase the said schooner and of offered to pay therefor in three installment of 500 pesos each, to wit, on July 15, September 15, and November 15, adding in his letter that if the plaintiff accepted the plan of payment suggested by him the sale would become effective on the following day; that plaintiff on or about the 24th of the same month had

notified the defendant through Agustin Pastor that he accepted the plan of payment suggested by him and that from that date the vessel was at his disposal, and offered to deliver the same at once to defendant if he so desired; that the contract having been closed and the vessel being ready for delivery to the purchaser, it was sunk about 3 o'clock p. m., June 25, in the harbor of Manila and is a total loss, as a result of a severe storm; and that on the 30th of the same month demand was made upon the defendant for the payment of the purchase price of the vessel in the manner stipulated and defendant failed to pay. Plaintiff finally prayed that judgment be rendered in accordance with the prayer of his previous complaint. Defendant in his answer asked that the complaint be dismissed with costs to the plaintiff, alleging that on or about June 13 both parties met in a public establishment of this city and the plaintiff personally proposed to the defendant the sale of the said vessel, the plaintiff stating that the vessel belonged to him and that it was then in a sea worthy condition; that defendant accepted the offer of sale on condition that the title papers were found to be satisfactory, also that the vessel was in a seaworthy condition; that both parties then called on Calixto Reyes, a notary public, who, after examining the documents, informed them that they were insufficient to show the ownership of the vessel and to transfer title thereto; that plaintiff then promised to perfect his title and about June 23 called on defendant to close the sale, and the defendant believing that plaintiff had perfected his title, wrote to him on the 23d of June and set the following day for the execution of the contract, but, upon being informed that plaintiff had done nothing to perfect his title, he insisted that he would buy the vessel only when the title papers were perfected and the vessel duly inspected. Defendant also denied the other allegations of the complaint inconsistent with his own

allegations and further denied the statement contained in paragraph 4 of the complaint to the effect that the contract was completed as to the vessel; that the purchase price and method of payment had been agreed upon; that the vessel was ready for delivery to the purchaser and that an attempt had been made to deliver the same, but admitted, however, the allegations contained in the last part of the said paragraph. The court below found that the parties had not arrived at a definite understanding. We think that this finding is supported by the evidence introduced at the trial. A sale shall be considered perfected and binding as between vendor and vendee when they have agreed as to the thing which is the object of the contract and as to the price, even though neither has been actually delivered. (Art. 1450 of the Civil Code.) Ownership is not considered transmitted until the property is actually delivered and the purchaser has taken possession of the value and paid the price agreed upon, in which case the sale is considered perfected. When the sale is made by means of a public instrument the execution thereof shall be equivalent to the delivery of the thing which is the object of the contract. (Art. 1462 of the Civil Code.) Pedro Roman, the owner, and Andres Grimalt, the purchaser, had been for several days negotiating for the purchase of the schooner Santa Marina from the 13th to the 23d of June, 1904. They agreed upon the sale of the vessel for the sum of 1,500 pesos, payable in three installments, provided the title papers to the vessel were in proper form. It is so stated in the letter written by the purchaser to the owner on the 23rd of June.

The sale of the schooner was not perfected and the purchaser did not consent to the execution of the deed of transfer for the reason that the title of the vessel was in the name of one Paulina Giron and not in the name of Pedro Roman, the alleged owner. Roman promised, however, to perfect his title to the vessel, but he failed to do so. The papers presented by him did not show that he was the owner of the vessel. If no contract of sale was actually executed by the parties the loss of the vessel must be borne by its owner and not by a party who only intended to purchase it and who was unable to do so on account of failure on the part of the owner to show proper title to the vessel and thus enable them to draw up the contract of sale. The vessel was sunk in the bay on the afternoon of the 25th of June, 1904, during a severe storm and before the owner had complied with the condition exacted by the proposed purchaser, to wit, the production of the proper papers showing that the plaintiff was in fact the owner of the vessel in question. The defendant was under no obligation to pay the price of the vessel, the purchase of which had not been concluded. The conversations had between the parties and the letter written by defendant to plaintiff did not establish a contract sufficient in itself to create reciprocal rights between the parties. It follows, therefore, that article 1452 of the Civil Code relative to the injury or benefit of the thing sold after a contract has been perfected and articles 1096 and 1182 of the same code relative to the obligation to deliver a specified thing and the extinction of such obligation when the thing is either lost or destroyed, are not applicable to the case at bar.

The first paragraph of article 1460 of the Civil Code and section 335 of the Code of Civil Procedure are not applicable. These provisions contemplate the existence of a perfected contract which can not, however, be enforced on account of the entire loss of the thing or made the basis of an action in court through failure to conform to the requisites provided by law. The judgment of the court below is affirmed and the complaint is dismissed with costs against the plaintiff. After the expiration of twenty days from the date hereof let judgment be entered in accordance herewith and ten days thereafter let the case be remanded to the Court of First Instance for proper action. So ordered. Arellano, C.J., Mapa, Johnson, Carson and Willard, JJ., concur.

G.R. No. L-23351

March 13, 1968

CIRILO PAREDES, plaintiff-appellant, vs. JOSE L. ESPINO, defendant-appellee. Simeon Capule for plaintiff-appellant. Iigo R. Pea for defendant-appellee. REYES, J.B.L., Actg. C.J.: Appeal from an order of the Court of First Instance of Palawan in its Civil Case No. 453, granting a motion to dismiss the complaint. Appellant Cirilo Parades had filed an action to compel defendant-appellee Jose L. Espino to execute a deed of sale and to pay damages. The complaint alleged that the defendant "had entered into the sale" to plaintiff of Lot No. 67 of the Puerto Princesa Cadastre at P4.00 a square meter; that the deal had been "closed by letter and telegram" but the actual execution of the deed of sale and payment of the price were deferred to the arrival of defendant at Puerto Princesa; that defendant upon arrival had refused to execute the deed of sale altho plaintiff was able and willing to pay the price, and continued to refuse despite written

demands of plaintiff; that as a result, plaintiff had lost expected profits from a resale of the property, and caused plaintiff mental anguish and suffering, for which reason the complaint prayed for specific performance and damages. Defendant filed a motion to dismiss upon the ground that the complaint stated no cause of action, and that the plaintiff's claim upon which the action was founded was unenforceable under the Statute of Frauds. Plaintiff opposed in writing the motion to dismiss and annexed to his opposition a copy of a letter purportedly signed by defendant (Annex "A"), wherein it was stated (Record on Appeal, pp. 19-20) 106 GonzagaSt. Tuguegarao,Cagayan May18,1964 Mr.CiriloParedes Pto.Princesa,Palawan

complaint on the ground that there being no written contract, under Article 1403 of the Civil Code of the Philippines Although the contract is valid in itself, the same can not be enforced by virtue of the Statute of Frauds. (Record on Appeal, p. 37).
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Plaintiff duly appealed to this Court. The sole issue here is whether enforcement of the contract pleaded in the complaint is barred by the Statute of Frauds; and the Court a quo plainly erred in holding that it was unenforceable. The Statute of Frauds, embodied in Article 1403 of the Civil Code of the Philippines, does not require that the contract itself be in writing. The plain text 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. Art. 1403. The following contracts are unenforceable, unless they are ratified: (1) . . . (2) Those that do not comply with the Statute of Frauds as set forth in this number. In the following cases an agreement hereafter made shall be unenforceable by action, unless the same, or some note or memorandum thereof, be in writing, and subscribed by the party charged, or by his agent; evidence, therefore, of the agreement cannot be received without the writing, or a secondary evidence of its contents: xxx xxx xxx

Dear Mr. Paredes: So far I received two letters from you, one dated April 17 and the other April 29, both 1964. In reply thereto, please be informed that after consulting with my wife, we both decided to accept your last offer of Four (P4.00) pesos per square meter of the lot which contains 1826 square meters and on cash basis. In order that we can facilitate the transaction of the sale in question, we (Mrs. Espino and I), are going there (Puerto Princess, Pal.) to be there during the last week of the month, May. I will send you a telegram, as per your request, when I will reach Manila before taking the boat for Pto. Princess. As it is now, there is no schedule yet of the boats plying between Manila and Pto. Princess for next week. Plaintiff also appended as Annex "A-1", a telegram apparently from defendant advising plaintiff of his arrival by boat about the last week of May 1964 (Annex "A-1" Record on Appeal, p. 21), as well as a previous letter of defendant (Appendix B, Record on Appeal, p. 35) referring to the lot as the one covered by Certificate of Title No. 62. These allegations and documents notwithstanding, the Court below dismissed the

(e) An agreement for the leasing for a longer period than one year, or for the sale of real property or of an interest therein.
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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 plaintiff's opposition to the motion dismiss. This letter, transcribed above in part, together with that one marked as Appendix B, constitute an adequate memorandum of the transaction. They are signed by the defendant-

appellee; refer to the property sold as a lot in Puerto Princesa, Palawan, covered, by TCT No. 62; give its area as 1826 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. We have ruled in Berg vs. Magdalena Estate, Inc., 92 Phil. 110, 115, that a sufficient memorandum may be contained in two or more documents. Defendant-appellee argues that the authenticity of the letters has not been established. That is not necessary for the purpose of showing prima facie that the contract is enforceable. For as ruled by us in Shaffer vs. Palma, L-24115, March 1, 1968, whether the agreement is in writing or not, is a question of evidence; and the authenticity of the writing need not be established until the trial is held. The plaintiff having alleged that the contract is backed by letter and telegram, and the same being a sufficient memorandum, his cause of action is thereby established, especially since the defendant has not denied the letters in question. At any rate, if the Court below entertained any doubts about the existence of the written memorandum, it should have called for a preliminary hearing on that point, and not dismissed the complaint. WHEREFORE, the appealed order is hereby set aside, and the case remanded to the Court of origin for trial and decision. Costs against defendant-appellee Jose L. Espino. So ordered. Dizon, Makalintal, Bengzon, J.P., Zaldivar, Sanchez, Castro, Angeles and Fernando, JJ., concur.

JR., petitioners, vs. COURT OF APPEALS HON. MAXIMIANO C. ASUNCION and OVERLAND EXPRESS LINES, INC., respondents. RESOLUTION YNARES-SANTIAGO, J.: On January 28, 1999, this Court rendered judgment in these consolidated cases as follows: WHEREFORE, in view of the foregoing, both petitions are GRANTED. The decision dated March 29, 1994 and the resolution dated October 19, 1995 in CA-G.R. CV Nos. 2515354, as well as the decision dated December 11, 1995 and the resolution dated April 23, 1997 in CA-G.R. SP No. 33113 of the Court of Appeals are hereby REVERSED and SET ASIDE. Let the records of this case be remanded to the trial court for immediate execution of the judgment dated November 22, 1982 in Civil Case No. VIII-29155 of the then City Court (now Metropolitan Trial Court) of Quezon City, Branch III as affirmed in the decision dated September 26, 1984 of the then Intermediate Appellate Court (now Court of Appeals) and in the resolution dated June 19, 1985 of this Court. However, petitioners are ordered to REFUND to private respondent the amount of P300,000.00 which they received through Alice A. Dizon on June 20, 1975. SO ORDERED. Private respondent filed a Motion for Reconsideration, Second Motion for Reconsideration, and Motion to Suspend Procedural Rules in the Higher Interest of Substantial Justice, all of which have been denied by this Court. This notwithstanding, the cases were set for oral argument on March 21, 2001, on the following issues: 1. WHETHER THERE ARE CIRCUMSTANCES THAT WOULD JUSTIFY SUSPENSION OF THE RULES OF COURT; 2. WHETHER THE SUM OF P300,000.00 RECEIVED BY ALICE DIZON FROM PRIVATE RESPONDENT WAS INTENDED AS PARTIAL PAYMENT OF THE PURCHASE PRICE OF THE PROPERTY, OR AS PAYMENT OF BACK RENTALS ON THE PROPERTY;

G.R. No. 122544

January 28, 2003

REGINA P. DIZON, AMPARO D. BARTOLOME, FIDELINA D. BALZA, ESTER ABAD DIZON and JOSEPH ANTHONY DIZON, RAYMUND A. DIZON, GERARD A. DIZON and JOSE A. DIZON, JR., petitioners, vs. COURT OF APPEALS and OVERLAND EXPRESS LINES, INC., respondents. x---------------------------------------------------------x G.R. No. 124741 January 28, 2003 REGINA P. DIZON, AMPARO D. BARTOLOME, FIDELINA D. BALZA, ESTER ABAD DIZON and JOSEPH ANTHONY DIZON, RAYMUND A. DIZON, GERARD A. DIZON and JOSE A. DIZON,

3. WHETHER ALICE DIZON WAS AUTHORIZED TO RECEIVE THE SUM OF P300,000.00 ON BEHALF OF PETITIONERS; 4. (A) IF SO, WHETHER PETITIONERS ARE ESTOPPED FROM QUESTIONING THE BELATED EXERCISE BY PRIVATE RESPONDENT OF ITS OPTION TO BUY WHEN THEY ACCEPTED THE SAID PARTIAL PAYMENT; (B) IF SO, WHETHER ALICE DIZON CAN VALIDLY BIND PETITIONERS IN THE ABSENCE OF A WRITTEN POWER OF ATTORNEY; 5. (A) WHETHER THERE WAS A PERFECTED CONTRACT OF SALE BETWEEN THE PARTIES; (B) WHETHER THERE WAS A CONTRACT OF SALE AT LEAST WITH RESPECT TO THE SHARES OF FIDELA AND ALICE DIZON; AND 6. WHETHER PRIVATE RESPONDENT'S ACTION FOR SPECIFIC PERFORMANCE HAS PRESCRIBED. In order to resolve the first issue, it is necessary to pass upon the other questions which relate to the merits of the case. It is only where there exist strong compelling reasons, such as serving the ends of justice and preventing a miscarriage thereof, that this Court can suspend the rules.1 After reviewing the records, we find that, despite all of private respondent's protestations, there is absolutely no written proof of Alice Dizon's authority to bind petitioners. First of all, she was not even a co-owner of the property. Neither was she empowered by the coowners to act on their behalf. The acceptance of the amount of P300,000.00, purportedly as partial payment of the purchase price of the land, was an act integral to the sale of the land. As a matter of fact, private respondent invokes such receipt of payment as giving rise to a perfected contract of sale. In this connection, Article 1874 of the Civil Code is explicit that: "When a sale of a piece of land or any interest therein is through an agent, the authority of the latter shall be in writing; otherwise, the sale shall be void." When the sale of a piece of land or any interest thereon is through an agent, the authority of the latter shall be in writing; otherwise, the sale shall be void. Thus the authority of an agent to execute a contract for the sale of real estate

must be conferred in writing and must give him specific authority, either to conduct the general business of the principal or to execute a binding contract containing terms and conditions which are in the contract he did execute. A special power of attorney is necessary to enter into any contract by which the ownership of an immovable is transmitted or acquired either gratuitously or for a valuable consideration. The express mandate required by law to enable an appointee of an agency (couched) in general terms to sell must be one that expressly mentions a sale or that includes a sale as a necessary ingredient of the act mentioned. For the principal to confer the right upon an agent to sell real estate, a power of attorney must so express the powers of the agent in clear and unmistakable language. When there is any reasonable doubt that the language so used conveys such power, no such construction shall be given the document.2 It necessarily follows, therefore, that petitioners cannot be deemed to have received partial payment of the supposed purchase price for the land through Alice Dizon. It cannot even be said that Alice Dizon's acceptance of the money bound at least the share of Fidela Dizon, in the absence of a written power of attorney from the latter. It should be borne in mind that the Receipt dated June 20, 1975, while made out in the name of Fidela Dizon, was signed by Alice Dizon alone. Moreover, there could not have been a perfected contract of sale. As we held in our Decision dated January 28, 1999, the implied renewal of the contract of lease between the parties affected only those terms and conditions which are germane to the lessee's right of continued enjoyment of the property. The option to purchase afforded private respondent expired after the one-year period granted in the contract. Otherwise stated, the implied renewal of the lease did not include the option to purchase. We see no reason to disturb our ruling on this point,viz: In this case, there was a contract of lease for one (1) year with option to purchase. The contract of lease expired without the private respondent, as lessee, purchasing the property but remained in possession thereof. Hence, there was an implicit renewal of the contract of lease on a monthly basis. The other terms of the original contract of lease which are revived in the implied new lease under Article 1670 of the New Civil Code are only those terms which are germane to the lessee's right of continued enjoyment of the property leased. Therefore, an implied new lease does not ipso facto carry with it any implied revival of private respondent's option to purchase (as lessee thereof) the

leased premises. The provision entitling the lessee the option to purchase the leased premises is not deemed incorporated in the impliedly renewed contract because it is alien to the possession of the lessee. Private respondent's right to exercise the option to purchase expired with the termination of the original contract of lease for one year. The rationale of this Court is that: "This is a reasonable construction of the provision, which is based on the presumption that when the lessor allows the lessee to continue enjoying possession of the property for fifteen days after the expiration of the contract he is willing that such enjoyment shall be for the entire period corresponding to the rent which is customarily paid in this case up to the end of the month because the rent was paid monthly. Necessarily, if the presumed will of the parties refers to the enjoyment of possession the presumption covers the other terms of the contract related to such possession, such as the amount of rental, the date when it must be paid, the care of the property, the responsibility for repairs, etc. But no such presumption may be indulged in with respect to special agreements which by nature are foreign to the right of occupancy or enjoyment inherent in a contract of lease."3 There being no merit in the arguments advanced by private respondent, there is no need to suspend the Rules of Court and to admit the motion for reconsideration. While it is within the power of the Court to suspend its own rules, or to except a particular case from its operation, whenever the interest of justice require it, however, the movant must show strong compelling reasons such as serving the ends of justice and preventing a grave miscarriage thereof,4 none of which obtains in this case. Litigation must end sometime and somewhere. An effective and efficient administration of justice requires that, once a judgment has become final, the winning party be not, through a mere subterfuge, deprived of the fruits of the verdict. Courts must, therefore, guard against any scheme calculated to bring about that result. Constituted as they are to put an end to controversies, courts should frown upon any attempt to prolong them.5 ACCORDINGLY, the Motion to Suspend Procedural Rules in the Higher Interest of Substantial Justice filed

by private respondent is DENIED WITH FINALITY. No further pleadings will be entertained in these cases. SO ORDERED. Davide, Jr., C .J ., see separate opinion. Puno, J., concur.

Separate Opinions DAVIDE, JR., C.J., concurring: After a meticulous evaluation of the antecedent facts in these cases I respectfully submit that private respondent's submission that the sum of P3,000 was intended as partial payment of the purchase price; it was received by Alice Dizon for and in behalf of Fidela Dizon, mother of petitioners; and that Fidela Dizon ratified the at of Alice by accepting the cashier's check representing that consideration drawn in favor of Fidela Dizon, and in encashing it. Neither Alice nor Fidela returned the money. Therefore, there was indeed, a perfected sale in favor of private respondent of, at the very least, the rights, shares and participation in the property in question to private respondent. Hence, private respondent became a co-owner of the property as regards Fidela's coowner. That private respondent exercised its option to buy beyond the term of the original terms of the lease contract is then rendered academic. For, by accepting the P300,000 as partial payment of the land in question and using it for her own benefit and advantages Fidela effectively estopped herself from insisting or a technicality. I therefore vote to grant, pro hac vice, the second motion for reconsideration and to modify the decision by now declaring that Fidela Dizon is bound by the perfected sale to private respondent of, at least, her rights, participation, or share in the property in question.

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:

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. 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) b) c) downpayment insurance BLT registration fee CHMO fee service fee accessories P 53,148.00 P 13,970.00 P 1,067.00 P 2,715.00 P 500.00 P 29,000.00

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

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.

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

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. No pronouncement as to costs. SO ORDERED. Padilla, Bellosillo and Kapunan, JJ., concur. Quiason, J., is on leave.

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,