G.R. No.
19009 September 26, 1922 appears that the plaintiff had sold 188 bales of the tobacco before its arrival in
E.C. MCCULLOUGH & CO., vs. S. M. BERGER
STATEMENT
For cause of action it is alleged that in the month of February, 1918,
plaintiff and defendant and defendant entered into an agreement by which the
defendant was to deliver plaintiff 501 bales of tobacco of New York City in good
condition. That delivery was made and the plaintiff paid the full purchase price.
That upon an examination later the tobacco was found to be in must condition,
and its value was $12,000 less than it would have been if the tobacco had been
in the condition which defendant agreed that it should be, as a result of which
plaintiff claims damages for P12,000, United States currency, or P24,000,
Philippine currency. That when the condition of the tobacco was discovered,
plaintiff promptly notified the defendant, who ignored the protest. Wherefore,
the plaintiff prays judgment for the amount of P24,000, Philippine currency, for
costs and general relief.
For answer, the defendant denies all the material allegation of the
complaint, and, as a further and separate defense, alleges that on August 15,
1918, he was advised by the plaintiff that the latter was dissatisfied with the
quality of the tobacco, and he made him a formal written offer to repurchase
the tobacco at the original selling price with accrued interest, and that plaintiff
rejected the offer.
That defendant has been ready and willing at all reasonable times
to accept the return of the tobacco and to return the amount of the purchase
price with legal interest, and has a repeatedly tendered to the plaintiff such
purchase price in exchange for the return of the tobacco, and that plaintiff had
refused to return it. That any damages which plaintiff may have suffered have
been wholly due to his willful refusal to return and redeliver the tobacco.
Upon such issues there was a stipulation of facts, and after trial the
lower court rendered judgment against the defendant and in favor of the
plaintiff for the sum of P11,867.98 or P23,735.96 with legal interest from
January 6, 192, and costs, from which, after his motion for a new trial was
overruled, the defendant appeals, claiming that the court erred: First, in finding
that the tobacco was not in good condition when it arrived in New York; second,
in holding that the plaintiff is entitled to maintain an action for breach of
contract after having agreed with the defendant to rescind and to make
restitution of the subject-matter and the price after a violation of the
agreement; third in holding that the plaintiff, having elected to rescind and
notified the defendant of such an election, may now refused it and affirm the
same and recover from the alleged breach of warranty; fourth, in holding that
this action should be maintained, no claim having been made for the alleged
breach of warranty of quality within the statutory period; and, fifth, in
overruling the defendant's motion for a new trial.
JOHNS, J.:
In February, 1918, the defendant met the plaintiff in the city of
Manila and advised him that he had made a shipment of 501 bales of tobacco
to New York City consigned to S. Lowenthal & Sons, who had refused to honor
the draft which was drawn upon them. He asked the plaintiff whether he could
use the tobacco provided it was "perfectly sound." At the plaintiff's request the
defendant made and signed a writing as follows:
Referring to the shipment of 501 bales of tobacco sold you
consisting of 188 200-pound bales of scrap and 313 200-pound bales of booked
tobacco, I beg to confirm my verbal conversation with you in stating that I
guarantee the arrival of the tobacco in New York in good condition, subject, of
course, to conditions arising after its departure from Manila, which
contingencies are covered by adequate insurance. (Stipulation par. 1.)
Upon the strength of this the plaintiff cabled his New York office to
honor the defendant's draft, which was ninety days' sight for $33,109, and was
the same draft and amount which had been refused by S. Lowenthal & Sons.
The draft was honored by his New York office at plaintiff's request. The
shipment consisted of 188 bales of "scrap," invoiced at 28 cents, gold, per
pound, and 313 bales of "striped" and "booked" at 36 cents, gold, per pound,
and was made c.i.f. New York. Before its arrival in New York the plaintiff had
found purchasers for a large portion of it with whom he had made contracts for
sale subject to examination as to condition. The tobacco arrived in two
shipments. The first of 213 bales on April 26, and the second of 288 bales on
May 18, 1918, and it was at once placed in warehouses by plaintiff. With the
exception of four or five bales, it appeared from an examination that the
tobacco was well baled, and to all outward appearances was in good condition
after the shipment. After it was placed in the warehouse, the tobacco itself was
examined as to its condition and quality by the different buyers to whom the
plaintiff had contracted to sell it, and after such physical inspection, they
refused to accept it and complete their purchase because it was "musty." It
New York to a customer in Red Lion, Pennsylvania, to whom he shipped 75 bales
of it after its arrival. This customer refused to receive any of the remaining bales
which he had purchased, and the plaintiff was compelled to again reship it back
to New York. Complying with his agreement, on May 21, 1918, the plaintiff paid
the defendant's draft which he had previously accepted, thus completing his
part of the contract with the defendant.
On May 23, 1918, and as a result of physical inspection, the plaintiff
cabled the defendant that the tobacco was unsatisfactory, and on June 13, he
again cabled that there would likely be a loss. On June 28, 1918, the plaintiff
wrote a letter to the defendant in which, among other things, he says:
. . . The tobacco has a very strong ground smell and somewhat of a
musty smell as though it had been mixed up with must tobacco. In other words,
it appears like this tobacco assorted from bales which were mildewed and this
is that part of the bale which was not mildewed. It does not seem possible that
this odor, or musty smell, could have developed in transit as it seems perfectly
clear that the tobacco was packed in that same condition. In all the bales which
we have examined, which have been considerable, the tobacco seems to be
perfectly dry. In view of that I can see nothing but every indication that the
tobacco was originally a bad lot.
In this letter he also advised the defendant that he was doing
everything he could to sell the tobacco, and that he did not have any
prospective buyer even at a loss of 25 per cent.
August 9, 1918, the defendant acknowledge the receipt of the letter
and cables, saying that he was "not in a position to lose between seventeen and
twenty thousand pesos, and that he would consent to a reduction of four
thousand pesos, if that was acceptable, and, if it was not, to have the bank pay
back the amount of the draft with interest and take charge of the tobacco until
the defendant would arrive in New York." The plaintiff did not receive this cable
until August 21, when he cabled in reply that he would turn the tobacco over
to the defendant, and that he "awaited telegraphic instruction in regard to it.
That at least twenty dealers had passed on the tobacco." At that time the
plaintiff had sold 66 bales of scattered samples from which, with the 75 bales
sold to the Red Lion customer, he realized $9,031.71.
September 5, 1918, the defendant wrote the New York Agency of the Philippine
National Bank in which he said that the plaintiff had advised him that the
tobacco on arrival was satisfactory, and that there would be a loss, and that the
had assured its arrival at destination "in good condition." That he was taking it
back. That the bank should pay plaintiff $33,109 plus interest upon delivery to
it of the 501 bales. That "on no account should they agree to accept any
shortage in the number of bales."
October 18, 1918, without any knowledge of the defendant's
instruction to the bank, the plaintiff wrote him that his proposition to take the
tobacco back was satisfactory in which he said that he had not heard from the
bank "at the time of writing with reference to taking back of the tobacco."
October 30, 1918, the bank wrote the plaintiff that it would take back the
identical 501 bales, and pay him the amount of the draft and interest. The
plaintiff then wrote the bank a complete history of the transaction, and
explained why the identical 501 bales could not be returned. That he had
realized $9,031.71 from 141 bales of it which he had sold, for which he would
account and return the balance of the tobacco which was then unsold and in
the New York warehouse. The $9,031.71 was more than the actual agreed
purchase price of the 141 bales. This offer was cabled to the defendant, who
replied:
The instructions given you in my letter dated September
5, 1918, will not be modified.
The bank notified the plaintiff of the receipt of this cable, and in turn notified
the plaintiff of the receipt of this cable, and in turn notified the plaintiff of the
receipt of this cable, and in turn notified the defendant that the plaintiff would
sell the tobacco at public auction, and then sue him for the balance of the
purchase price, and later the plaintiff did sell the remainder of the tobacco
upon which there was a net actual loss to him of $11,867.98, over and above
all actual charges and expenses.
Although at the time of the making of the contract between them the plaintiff
and defendant were in Manila, the tobacco involved was on the high seas in
transit to New York. From necessity the plaintiff could not see or examine it and
would not know anything about its grade or quality, and, for that reason,
insisted that the defendant should make and sign the writing above quoted in
which he says:
I guarantee the arrival of the tobacco in New York in good condition, subject,
of course to, to conditions arising after its departure from Manila, which
contingencies are covered by adequate insurance.
The trial court found and the testimony is conclusive that the tobacco did not
arrive in New York "in good condition," and that , as a matter of fact, it was not
"in good condition" when it left Manila.
The plaintiff and defendant had known each other for about ten years, and had
mutual confidence in each other, and were experienced business men.
Defendant's draft of the tobacco had been dishonored. Plaintiff was willing to
take the tobacco and honor the draft, with the proviso that the defendant
would guarantee its arrival "in good condition."
The evidence shows that in the whole transaction, the plaintiff acted in good
faith and made an earnest effort to protect the defendant and minimized his
loss. Defendant knew that in the very nature of things the plaintiff bought the
tobacco for the purpose of resale, and that in the ordinary course of business,
he would resell it. The record shows that he found purchasers for portions of it
before its arrival in New York. The only reason why plaintiff's sales were not
consummated was because the tobacco did not stand inspection and was not
"in good condition" at the time of its arrival in New York. In other words, plaintiff
bought and paid the defendant for tobacco which was not "in good condition,"
and bought it for the purpose of resale. In the very nature of things, the
defendant knew that the plaintiff bought the tobacco for the purpose of resale,
and he also knew that , if the tobacco was not "in good condition," it was not
worth the amount of the purchase price which plaintiff paid.
The defense cites and relies upon articles 336 and 342 of the Code of
Commerce which are as follows:
A purchaser who, at the time of receiving the merchandise, fully examines the
vendor, alleging a defect in the quantity or quality of the merchandise.
A purchaser shall have a right of action against a vendor for defects in the
quantity or quality of merchandise receive in bales or packages, provided he
brings his action within the four days following it receipt, and that the damage
is not due to accident or to natural defect of the merchandise or to fraud.
In such cases the purchaser may choose between the rescission of the contract
or its fulfillment in accordance with what has been agreed upon, but always
with the payment of the damages he may have suffered by reason of the
defects or faults.
The vendor may avoid this claim by demanding when making the delivery that
the merchandise be examined by the purchaser for his satisfaction with regard
to the quantity and quality thereof.
Article 342:
A purchaser who has not made any claim based on the inherent defects in the
article sold, within the thirty days following its delivery, shall lose all rights of
action against the vendor for such defects.
Whatever may be the rule as to sales which are completed within the
jurisdiction of the Philippine Islands, those sections do not, and were never
intended to, apply to a case founded upon the facts shown in the record.
Although it is true that the contract between the plaintiff and the defendant
was made in Manila, yet at the time it was made the tobacco was on the high
seas, and under the contract, it was to be delivered "in good condition" in the
City of New York, in consideration of which the plaintiff agreed to pay the draft.
That is to say, the transaction was not complete until after the arrival of the
tobacco in New York "in good condition," and the payment of the draft. It must
be conceded that if, for any reason, the tobacco did not arrive in New York, the
defendant could not recover upon the draft from the plaintiff. Hence, it must
follow that the delivery of the tobacco at New York was a condition precedent
which devolved upon the defendant to perform without which he would not
have a cause of action against the plaintiff.
It is true that the writing recites "the shipment of 501 bales of tobacco sold
you." Yet, the fact remains that it was necessary to deliver the tobacco in New
York to complete the sale.
Contracts of this nature should be construed with reference to the surrounding
conditions and the relative situation of the parties.
At the time this contract was made both parties were in Manila, the tobacco
was in transit to New York, and the defendant knew that the plaintiff entered
into the contract for the purpose of a resale. Soon after the contract was made,
the plaintiff left Manila and went to New York where, relying upon this contract
with the defendant, he found purchasers for the tobacco on the assumption
that it was "in good condition."
Although the word "sold" is used in the written contract, the transaction shows
that the sale was not complete until the arrival of the goods in New York.
The case of Middleton vs. Ballingall (1 Cal., 446), is somewhat in point, in which
the court says:
I think that the fair construction to be put upon the contract is, that on the
arrival of the ship containing the goods, the defendants should deliver them,
and the plaintiffs should pay the contract price. And the authorities hold that
the arrival of the goods, in such case, is a condition precedent, which must be
shown to have taken place before either party can bring suit.
In the instant case, the contract was at least executory as to the delivery of the
tobacco in New York.
Cyc., vol. 35, pp. 274, 275 and 276, says:
In order to pass the title to goods as against the seller or those claiming under
him there must be a valid existing and completed contract of sale. Under a
complete contract of sale the property in the goods passes at once from the
seller to the buyer, at the place where the contract becomes complete, and for
this reason the agreement is frequently called an executed contract. The sale
is, however, an executory contract, if the seller merely promises to transfer the
property at some future day, or the agreement contemplates the performance
of some act or condition necessary to complete the transfer. Under such a
contract until the act is performed or the condition fulfilled which is necessary
to convert the executory into an executed contract, no title passes to the buyer
as against the seller or persons claiming under him. While certain terms and
expressions standing alone import an executed or executory contract, they are
by no means conclusive but must be construed with reference to other
provisions of the contract and according to what appears to have been the real
intention of the parties, and so a mere recital in the writing evidencing the
contract that the article is "sold" or that the buyer has "purchased" it does not
necessarily make the contract executed; while on the other hand a recital that
the seller "agrees to sell" is not conclusive that the title was not intended to
pass immediately.
The trial court found and the evidence sustains the finding that that plaintiff
acted in good faith. The contract was made in February, 1918 the draft was
payable ninety days after date; the first shipment of 213 bales arrived on April
26, and the second of 288 bales on May 18, and the plaintiff the draft on May
21 1918, and the transaction between the parties then became complete. On
May 23, he cabled the defendant that the tobacco was unsatisfactory. On June
13, he cabled that there would be a loss. On June 28, he wrote the letter above
quoted. September 5, the defendant wrote the New York Agency of the
Philippine National Bank that he would take the tobacco back on condition that
there was not any shortage in the number of bales. During all of this time, the
defendant had the use of plaintiff's money. It is true that the defendant offered
to take the tobacco back and refund the money, but this offer was not actually
made to the plaintiff until October , and was upon the condition that the full
amount of the 501 bales should be returned, which was an impossible condition
for the plaintiff to perform. But the plaintiff did offer to account to the
defendant for the tobacco which he had sold and to return all of the unsold
tobacco which was then in his warehouse, and the defendant declined the
offer. As a business man, he knew that the plaintiff has then purchased the
tobacco for the purpose of a resale, and that the tobacco had arrived at New
York about five months before the offer was made, and he also knew that the
plaintiff was using every effort to sell it and convert it into money, and that he
would sell the whole or any part of it if a purchaser could be found at a
reasonable price. At the time the defendant's offer was communicated to the
plaintiff by the bank the plaintiff in turn offered to account to the defendant for
the entire proceeds of the 141 bales which he had already sold, and to deliver
to him all of the unsold tobacco. This was all that the plaintiff could do under
the existing conditions. The fact that the defendant did not accept this offer is
strong evidence that he was seeking an undue advantage, and that his offer to
plaintiff was not made in good faith.
The second shipment arrived in New York on May 18, and the plaintiff could
not be expected to take any final action until the las shipment arrived. On
learning the true condition of the tobacco, the plaintiff cabled the defendant
on May 23 that it was unsatisfactory, and again on June 13, that there would
be a substantial loss, which was followed by the letter of June 28th above
quoted.
The defects in the tobacco were inherent and could not be ascertained without
opening the bales and making a physical examination. When this was done, the
plaintiff promptly cabled the defendant that the tobacco was not satisfactory.
In the nature of things, the plaintiff could not then render the defendant a
statement of the amount of this claim. By the terms of the contract, the
defendant guaranteed the arrival of the tobacco in New York "in good
condition."
Plaintiff's first cable sent ten days after the arrival of the tobacco advised the
defendant that it was unsatisfactory, and the second, twenty-six days after its
arrival, advised him that there would be a loss.
Appellant's attorneys have submitted a very able and adroit brief in which they
severely criticize the evidence on the part of the plaintiff. Upon all of the
material questions of fact, the trial court found for the plaintiff, and, in our
opinion, the evidence sustains the findings.
It must be remembered that during all these times there was about ten
thousand miles of ocean between them.
The plaintiff had parted with his money and honored the draft, expecting to sell
the tobacco and get his money back with a profit.
The testimony is conclusive that the plaintiff in good faith tried to sell the
tobacco, and that he sold the 141 bales at the best obtainable price; that the
only reason why he did not sell the remainder was because the tobacco was
not "in good condition;" and that when he first knew that it was not "in good
condition," he promptly cabled that defendant that it was unsatisfactory.
As we construe the record, after the tobacco was inspected, the plaintiff
promptly advised the defendant that it was unsatisfactory, and that he would
have to sustain a loss, and in goo faith undertook to protect the defendant and
to minimize the loss, and plaintiff's claim is not barred by the provisions of
either article 336 or 342 of the Code of Commerce.
The judgment is affirmed, with costs. So ordered.
Araullo, C.J., Johnson, Malcolm, Avanceña, Villamor, Ostrand and Romualdez,
JJ., concur.
G.R. No. L-17441 July 31, 1962
WELGO DICHOSO, ET AL., vs. LAURA ROXAS, ET AL.,
DIZON, J.:
Appeal from the following decision of the Court of First Instance of
Laguna:
WHEREFORE, the Court renders judgment ordering the plaintiffs to deposit
with the Clerk of this Court for the account of defendant Laura A. Roxas the
amount of P320.00 and, upon the deposit of the said amount, defendant Laura
A. Roxas is ordered to execute a document transferring her rights, title and
interest in the land in controversy to plaintiffs Welgo Dichoso and Emilia
Hernandez within five (5) days from such deposit. In the event that Laura A.
Roxas fails to execute the document within the aforementioned period, the
same shall executed by the Clerk of Court in her behalf.
Defendants Celso Borja and Nelia Alanguilan are order to execute a
deed of re-sale of the land in controversy and the improvements thereon in
favor of plaintiffs Welgo Dichoso and Emilia Hernandez within five (5) days after
the document transfer has been executed by or on behalf of Laura A. Roxas. If
defendants Celso Borja and Nelia Alanguilan fail to do so, the Clerk of Court
shall execute the document in their behalf. At any time after the execution of
the deed of re-sale, defendants Celso Borja and Nelia Alanguilan may withdraw
from the People's Bank and Trust Company of San Pablo City the amount of
P850.00 which had been deposited by plaintiff Welgo Dichoso as repurchase
price and the People's Bank & Tru Company is ordered to deliver the said
amount to the aforementioned defendants.
The Court considers defendants Celso Borja and Nelia Alanguilan as
possessors in good faith and are not required account for the fruits that they
have received from the Ian it controversy up to the time this decision becomes
final.
Laura A. Roxas is ordered to return to defendants Celso Borja and
Nelia Alanguilan the amount of P1,684.00 which she received as additional
purchase price for the land in controversy.
All defendants are jointly and severally ordered to pay the costs.
The complaint alleged, in substance, that on December 13, 1954,
Laura A. Roxas sold to appellants for the sum of P850.00 a parcel of
unregistered coconut land with an area of 16,965 square meters and with 393
coconut trees, situated in Barrio San Diego, San Pablo, Laguna, subject to the
condition, inter alia, that the vendor could repurchase it for the same amount
within five years, but not earlier than three years, from the date of the sale,
which was evidenced by a public document attached to the complaint as Annex
A; that from November 26, 1955 to July 5, 1957, Roxas had received from
appellees several sums of money amounting to P770.00, their agreement being
that after December 13, 1957, Roxas would sell the same property, by absolute
sale, to appellees for the total sum of P2,000.00, the aforesaid sum of P770.00
to be considered as initial or advance payment on the purchase price; that out
of the balance of P1,230.00, appellees would use the sum of P850.00 to
repurchase the property from appellants after December 13, 1954 but within
the five years stipulated for the exercise of Roxas' right to repurchase; that on
October 22, 1957, pursuant to Roxas' request made on July 23, 1957, appellees
sent her a check for the sum of P320.00 "in full payment of the P2,000.00
consideration for the deed of absolute sale" and thereafter they informed
appellants of their readiness to repurchase the property; that on November 29,
1957 Roxas sent them back the check just referred to with the request that they
endorse the same to appellants when they made the repurchase, because it
appeared that, aside from the P850.00 consideration of the pacto de retro sale,
Roxas had received additional sums from appellants; that again, after
December 13, 1957, appellees made representations to appellants that they
were ready to make the repurchase, as well as to Roxas for the latter to be
ready to execute the corresponding deed of absolute sale in their favor after
they had made the repurchase; that notwithstanding these demand and
representations, Roxas and appellants had deliberately failed to execute the
corresponding deed of absolute sale and deed of resale already mentioned.
On January 8, 1958 appellants filed a motion to dismiss the
complaint upon the ground that appellees had no cause of action against them
because their contract was not them but with Laura A. Roxas. After due hearing,
lower court sustained the motion and dismissed the complaint because,
according to the same, "there exists no written contract of assignment of rights
executed by Laura A. Roxas in favor of the herein plaintiffs concerning property
which said Laura A. Roxas sold to her co-defendants under a deed of pacto de
retro sale, and that the purpose of the present action is precisely to compel
Laura A. Roxas to execute the corresponding deed of assignment."
However, on July 31, 1958, over appellants' objection, the lower
court admitted the amended complaint previously filed by appellees. The
principal amendment introduced consisted in the allegation that on July 5,
1957, for sum of P770.00, Laura A. Roxas had ceded to appellees her right to
repurchase the property from appellants; that on November 29, 1957, Roxas
had "ordered and author the said plaintiffs spouses to repurchase the said
parcel land from the defendants vendee-a-retro after the 3 years period, which
would terminate on December 13, 1957," and that on December 13, 1957,
appellees tendered to appellants the required sum with which to effect the
repurchase, but that the latter refused to accept the same, thus compelling
appellees to consign the amount with the Office of Clerk, Court of First Instance
of Laguna.
Upon petition of appellants, the lower court on August 18, 1958,
ordered appellees to furnish, and the latter furnished appellants, with a copy
of the alleged deed of assignment dated July 8, 1958, referred to in paragraph
4 of the amended complaint, which deed reads as follows:
TALASTASIN NG SINO MAN:
Tinangap ko ngayong Julio 5, 1957 ang halagang Pit Dean at Pitong Pong
(P770.00) peso cuartang pang kasal yan sa mag- asawa ni Welgo Dichoso at
Emilia Hernandez, lang paunang bayad sa isang puesto kong lupa humigit
kumulang sa apat na raang tanim na niog.
Ang aming pinagkasondoan pag dating ng dalagang wang libong (P2,000.00)
pesong pagkakautang pate tobos walong daan at limang pong (P850.00) peso
sa pagka pag na mabibiling muli o sanla) sa magasawa ni Celso Borja Nelia
Alanguilan ay mag gagawaan ng documento o kasulatan bilihang toloyan o
bintarial absoluta sa halagang dalawang libong (P2,000.00) peso na nasabe sa
itaas nito.
Ang nasabing lupa ay nakatayo sa Salang lupa kung tawagin Bo. San Diego sakop
ng Ciudad ng San Pablo. Sa katonayan na hinde ako sisira sa pinagusapan ay
lumagda ako ng pangalan at apellido na kaharap ang isang testigo.
(Lgda.) Cosme Punto (Lgda.) Laura A. Roxas
A motion to dismiss the amended complaint was denied by the
lower court for the reason that the grounds relied upon therein did not appear
to be indubitable and their consideration was deferred until after trial on the
merits. Thereafter appellants filed their answer in which, after making specific
denial of some facts averred in the amended complaint, they alleged the
following affirmative defenses:
1. That the alleged transfer of right to repurchase supposedly executed by
defendant Laura A. Roxas in favor of plaintiffs herein is not in any manner a
transfer of right to repurchase but at most a receipt of indebtedness;
2. That even assuming although not admitting that there was a transfer of right
to repurchase made by the defendant Laura A. Roxas in favor of the plaintiffs
regarding the property in question, yet said right to repurchase could not be
exercised by the plaintiffs considering that before December 13, 1957 arrived,
the period within which the repurchase might be made, said land in question
had already become the absolute and exclusive property of the answering
defendants herein.
3. That defendants spouses in the exercise of the rights of dominion over the
property, had since December 13, 1957 harvested and are harvesting the fruits
to date; and paid the taxes therefor; and had attended to the disposition of the
pro. proceeds therefrom;
4. That whatever alleged agreement may have been entered into between
plaintiffs and defendant Laura Roxas cannot in any way affect third persons like
defendants spouses Celso Boria and Nelia Alanguilan, unless the same is in a
public document;
5. That even assuming, although not admitting, that the Plaintiffs tendered into
the answering defendants the repurchase price of the land in question on or
immediately after December 13, 1947, yet the answering defendants have all
the reasons and are justified in refusing to accept the said repurchase price
considering that before said date of December 13, 1957, answering defendants
were already the absolute and exclusive owners of the land in question, subject
to no other conditions.
As counterclaim, appellants alleged in their answer following facts:
1. That the answering defendants incorporate and part hereof paragraph 1 of
the plaintiffs' amended complaint;
2. That before this case was filed, plaintiffs knew f well that the property in
question is already owned absolute by answering defendants; and which
therefore, cannot be subject of repurchase anymore;
3. That plaintiff Welgo Dichoso was the agent who responsible for the
consummation of the sale with right to purchase as a matter of fact he was the
witness to the s document;
4. That a parcel of land abutting this parcel in quest was likewise offered by
plaintiff Welgo Dichoso to defend spouses who acceded to buy the same on the
representation the former Dichoso that inasmuch as answering defendant are
now the owners of the land in question, this smaller if united with the bigger
piece of property here in quest would not only enhance agriculture but would
afford t greater benefits as to two parcels are adjoining to each other.
5. Defendants spouses would not have bought the p property in question if not
for the assurance of Welgo Dichoso t co- defendant would sooner or later sell
same to them by of absolute sale;
6. That in filing this case, plaintiffs have acted w evident bad faith, considering
that this case was only intended to harass answering defendants who are his
first cousins a therefore ore must be required to pay answering defendants
amount of P500.00 as exemplary damages;
7. That because of the unwarranted and unjustified filing this case, the
answering defendants suffered damages in amount of P500.00 and will
continue to suffer the same by of litigation expenses; and at the same time
were compel to retain the services of counsel and are obliged to pay amount
of P1,000.00 in the concept of attorney's fees,
On September 19, 1958, appellees filed a reply in which they alleged, inter alia,
that when they offered to repurchase the property from appellants, on behalf
of La A. Roxas, appellants had not become absolute and exclusive owners of the
property in question; that after the offer to repurchase made on December 13,
1957, appellate became possessors in bad faith and were in duty bound to
account for the fruits of the property; that although the agreement between
appellees, on the ore hand, a Roxas, on the other, was not contained in a public
instrument appellants were bound by it because they knew the agreement.
Appellees also denied the facts alleged in the counterclaim.
On April 1, 1959, appellees filed a supplementary complaint
wherein, on the claim that after July 23, 1958 the price of coconuts had
considerably gone up, they prayed that the judgment for damages they sought
in the amended complaint be increased in amount accordingly.
After trial upon the issues stated above, the lower court rendered
the appealed judgment, from which the Borja spouses appealed claiming that
the court committed the following errors:
1. In not finding defendant-appellants Celso Boria and Nelia Alanguilan as the
true, lawful and absolute owners of the land in question, their title thereto
being evidenced by public and private documents coupled by possession in
good faith and for value.
2. In not finding appellants Celso Borja and Nelia Alanguilan possessors as
absolute owners from December 8, 1957, the date of the execution of the deed
of absolute sale (Exh. "7") in their favor.
3. In not giving weight to the deed of confirmation (Exh. "8"), a public document
executed to cure defects in proof only.
4. In construing Exhibit "I" (a private document) as a document of sale and in
extending its effects to third parties (appellants) who are total strangers to it.
5. In not sustaining the plea of res judicata by the defendant-appellants.
The pertinent portions of the decision appealed from are the
following:
It appears from the evidence that Laura A. Roxas had sold her rights to the land
in controversy to two (2) different parties. The first one was on July 5, 1957, in
favor of the plaintiffs Welgo Dichoso and Emilia Hernandez (Exh. "I"), and the
second one allegedly on December 8, 1957 in favor of defendants Celso Borja
and Nelia Alanguilan (Exh. "7"). The principal question to be determined is
which of these two documents shall prevail. Both the documents in favor of the
plaintiffs Exh. "I" and that in favor of the defendants Exh. "7" are private
documents same not having been acknowledged before a Notary Public.
The Court is of the opinion that the document in favor of the plaintiffs being of
an earlier date than the document in favor of the defendants shall prevail in
accordance with the provisions of paragraph 3 of Article 1544 of the Civil Code
of the Philippines which read as follows:
'If the same thing should have been sold to different vendees, the
ownership shall be transferred to the person who may have first taken
possession thereof in good faith, if it should be movable property.
'Should 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)
While it may be true that the defendants were in possession of the
land in controversy at the time Laura A. Roxas executed the deed of sale in favor
of the plaintiffs, such possession was merely that of a "vendee a retro" and not
as vendee in an absolute sale. It has also been held that with reference to
unregistered lands, an earlier instrument, be it a sale or a mortgage, shall
prevail over a later one, and the registration of any one of them is immaterial
(Nisce vs. Milo, G.R. No. 42546, Jan. 1936; Nota vs. Concepcion, 56 Phil. 712,
cited in Noblejas, Land Titles and Deeds, 1955 ed., p. 207).
The deed of confirmation of sale executed by Laura A. Roxas in favor
of defendants Celso Borja and Nelia Alanguilan on September 5, 1958, Exhibits
"8", cannot in any manner prejudice the rights of the plaintiffs because the said
deed of confirmation was made more than nine (9) months after this case was
filed. If the execution of the said deed of confirmation. It also proves the joint
efforts of all the "I" executed by Laura A. Roxas in plaintiffs' favor.
It is obvious that, in deciding the case, the lower court failed to give
due weight to the private document Exhibit 7 (deed of absolute sale) executed
by Laura A. Roxas in favor of appellants on December 8, 1957 — in effect
superseding the pacto de retro sale mentioned heretofore for a total
consideration of P1,684.00, of which the amount of P850.00 paid as
consideration for the pacto de retro sale was considered as a part. There is no
dispute at all as to the genuineness of this private deed of absolute sale nor as
to its execution on December 8, 1957. that is, five days prior to December 13,
1957, when. according to appellees themselves, they made the first attempt to
repurchase the property in question, and on which occasion appellants refused
to allow the repurchase "because Laura A. Roxas was not with them", according
to the lower court. After December 8, 1957, appellants' rights were no longer
based on the superseded pacto de retro sale but on the aforesaid deed of
absolute sale — which was a perfectly valid contract as between the parties. In
plain words, after that date Laura A. Roxas no longer had any right to
repurchase the property.
Upon the other hand, appellees' contention that appellants were
aware of their agreement with Laura A. Roxas has not been sufficiently
substantiated. Appellees' own evidence shows that appellants became aware
of their claim to the property when they tried, for the first time, to exercise the
right to repurchase on December 18, 1957 five days after the deed of absolute
sale in favor of said appellants. After a careful consideration of the issues and
the evidence, we believe that the lower court also erred in considering Exhibit
I, executed on July 5, 1957, as a deed of sale of the land in question in favor of
appellees.
In the first place, the phraseology employed therein shows that the
contract between the parties was a mere promise to sell, on the part of Roxas,
because the latter merely promised to execute a deed of absolute sale upon
appellees complaining payment to her of the total sum of P2,000.00, of which
the P850.00 to be paid to appellants for the repurchase of the property would
be an integral part. This repurchase had not yet been made on July 5, 1957,
when this Exhibit I was executed. In the second place, an that date all that Roxas
could possibly sell or convey in relation to the property in question was her right
to repurchase the same from appellants. Consequently, the best consideration
that could be given to the private document Exhibit I is that it was an
assignment by Roxas to appellees of her right to repurchase of which —
according to the evidence — appellants had no knowledge until December 13,
1957 when appellees attempted to make the repurchase. Such being its
condition, it could not possibly give rise to the case of one and the same
property having been sold to two different purchasers. The salt — in favor of
appellants was of the property itself, while the one in favor of appellees, if not
a mere promise to assign, was at most an actual assignment of the right to
repurchase the same property. The provisions of paragraph 3, Article 1544 of
the Civil Code of the Philippines do not, therefore, apply.
Having arrived at the above conclusions, we are constrained to hold
that, upon the facts of the case, appellees are not entitled to the reliefs sought
in their amended complaint and that whatever remedy they have is exclusively
against Laura A. Roxas to recover from her, among other things, what they paid
as consideration for the execution of the private document Exhibit I.
WHEREFORE, the decision appealed from is reversed, with the result that this
case is dismissed, with costs, reserving to appellees, however, the right to file a
separate action against Laura A. Roxas to enforce whatever rights they may
have against her in consonance with this decision.

G.R. No. L-25885 January 31, 1972
LUZON BROKERAGE CO., INC., vs. MARITIME BUILDING CO., INC., and MYERS
BUILDING CO., INC.,
REYES, J.B.L., J.:p
Direct appeal (prior to the effectivity of Republic Act 5440) by Maritime Building
Co., Inc. from a decision of the Court of First Instance of Manila (in its Civil Case
No. 47319), the dispositive part of which provides as follows:
FOR ALL THE FOREGOING CONSIDERATIONS, judgment is hereby
rendered declaring that the Myers Building Co., Inc. is entitled to receive the
rentals which the plaintiff has been paying, including those already deposited
in Court, thereby relieving the plaintiff of any obligation to pay the same to any
other party, and ordering the Maritime Building Co., Inc. to pay the commission
fees paid by the Myers Building Co., Inc. to the Clerk of this Court, plus the sum
of P3,000.00 as and for attorney's fees.
On the cross-claim by the Myers Building Co., Inc., the Maritima
Building Co., Inc. is hereby ordered to pay the Myers Building Co., Inc. the sum
of P10,000.00 damages, plus the sum of P30,000.00, representing rentals
wrongfully collected by it from the plaintiff corresponding to the months of
March, April and May, 1961 and the costs hereof.
The antecedents of the litigation are summarized in the appealed judgment
thus:
This is an action for interpleading.
It appears that on April 30, 1949, in the City of Manila, the defendant
Myers Building Co., Inc., owner of three parcels of land in the City of Manila,
together with the improvements thereon, entered into a contract entitled
"Deed of Conditional Sale" in favor of Bary Building Co., Inc., later known as
Maritime Building Co., Inc., whereby the former sold the same to the latter for
P1,000,000.00, Philippine currency. P50,000.00 of this price was paid upon the
execution of the said contract and the parties agreed that the balance of
P950,000.00 was to be paid in monthly installments at the rate of P10,000.00
with interest of 5% per annum until the same was fully paid.
In Par. (O), they agreed that in case of failure on the part of the vendee to pay
any of the installments due and payable, the contract shall be annulled at the
option of the vendor and all payments already made by vendee shall be
forfeited and the vendor shall have right to re-enter the property and take
possession thereof.
Later, the monthly installment of P10,000.00 above-stipulated with
5% interest per annum was amended or decreased to P5,000.00 per month and
the interest was raised to 5-1/2% per annum. The monthly installments under
the contract was regularly paid by the Bary Building Co., Inc. and/or the
Maritime Co., Inc. until the end of February, 1961. It failed to pay the monthly
installment corresponding to the month of March 1961, for which the Vice-
President, George Schedler, of the Maritime Building Co., Inc., wrote a letter to
the President of Myers, Mr. C. Parsons, requesting for a moratorium on the
monthly payment of the installments until the end of the year 1961, for the
reason that the said company was encountering difficulties in connection with
the operation of the warehouse business. However, Mr. C. Parsons, in behalf of
the Myers Estate, answered that the monthly payments due were not payable
to the Myers Estate but to the Myers Building Co., Inc., and that the Board of
Directors of the Myers Co., Inc. refused to grant the request for moratorium for
suspension of payments under any condition.
Notwithstanding the denial of this request for moratorium by the
Myers Board of Directors the Maritime Building Co., Inc. failed to pay the
monthly installments corresponding to the months of March, April and May,
1961. Whereupon, on May 16, 1961, the Myers Building Co., Inc. made a
demand upon the Maritime Building Co., Inc., for the payment of the
installments that had become due and payable, which letter, however, was
returned unclaimed.
Then, on June 5, 1961, the Myers Building Co., Inc. wrote the
Maritime Building Co., Inc. another letter advising it of the cancellation of the
Deed of Conditional Sale entered into between them and demanding the return
of the possession of the properties and holding the Maritime Building Co., Inc.
liable for use and occupation of the said properties at P10,000.00 monthly.
In the meantime, the Myers Building Co., Inc. demanded upon the Luzon
Brokerage Co., Inc. to whom the Maritime Building Co., Inc. leased the
properties, the payment of monthly rentals of P10,000.00 and the surrender of
the same to it. As a consequence, the Luzon Brokerage Co., Inc. found itself in
a payment to the wrong party, filed this action for interpleader against the
Maritime Building Co., Inc.
After the filing of this action, the Myers Building Co., Inc. in its
answer filed a cross-claim against the Maritime Building Co., Inc. praying for the
confirmation of its right to cancel the said contract. In the meantime, the
contract between the Maritime Building Co., Inc. and the Luzon Brokerage Co.,
Inc. was extended by mutual agreement for a period of four (4) more years,
from April, 1964 to March 31, 1968.
The Maritime Building Co., Inc. now contends (1) that the Myers
Building Co., Inc. cannot cancel the contract entered into by them for the
conditional sale of the properties in question extrajudicially and (2) that it had
not failed to pay the monthly installments due under the contract and,
therefore, is not guilty of having violated the same.
It should be further elucidated that the suspension by the appellant
Maritime Building Co., Inc. (hereinafter called Maritime) of the payment of
installments due from it to appellee Myers Building Co., Inc. (hereinafter
designated as Myers Corporation) arose from an award of backwages made by
the Court of Industrial Relations in favor of members of Luzon Labor Union who
served the Fil-American forces in Bataan in early 1942 at the instance of the
employer Luzon Brokerage Co. and for which F. H. Myers, former majority
stockholder of the Luzon Brokerage Co., had allegedly promised to indemnify
E. M. Schedler (who controlled Maritime) when the latter purchased Myers'
stock in the Brokerage Company. Schedler contended that he was being sued
for the backpay award of some P325,000, when it was a liability of Myers, or of
the latter's estate upon his death. In his letter to Myers Corporation (Exhibit
"11", Maritime) dated 7 April 1961 (two months and ten days before the initial
complaint in the case at bar), Schedler claimed the following:
At all times when the F. H. Myers Estate was open in the Philippine Islands and
open in San Francisco, the Myers Estate or heirs assumed the defense of the
Labor Union claims and led us to believe that they would indemnify us
therefrom.
Recently, however, for the first time, and after both the Philippine and San
Francisco F. H. Myers Estates were closed, we have been notified that the F. H.
Myers indemnity on the Labor Union case will not be honored, and in fact Mrs.
Schedler and I have been sued in the Philippines by my successor in interest,
Mr. Wentholt, and have been put to considerable expense.
You are advised that my wife and I, as the owners of the Maritime
Building Company, intend to withhold any further payments to Myers Building
Company or Estate, in order that we can preserve those funds and assets to set
off against the potential liability to which I am now exposed by the failure of
the Myers heirs to honor the indemnity agreement pertaining to the Labor
claims.
The trial court found the position of Schedler indefensible, and that
Maritime, by its failure to pay, committed a breach of the sale contract; that
Myers Company, from and after the breach, became entitled to terminate the
contract, to forfeit the installments paid, as well as to repossess, and collect the
rentals of, the building from its lessee, Luzon Brokerage Co., in view of the
terms of the conditional contract of sale stipulating that:
(d) It is hereby agreed, covenanted and stipulated by and between the parties
hereto that the Vendor will execute and deliver to the Vendee a definite or
absolute deed of sale upon the full payment by the vendee of the unpaid
balance of the purchase price hereinabove stipulated; that should the Vendee
fail to pay any of the monthly installments, when due, or otherwise fail to
comply with any of the terms and conditions herein stipulated, then this Deed
of Conditional Sale shall automatically and without any further formality,
become null and void, and all sums so paid by the Vendee by reason thereof,
shall be considered as rentals and the Vendor shall then and there be free to
enter into the premises, take possession thereof or sell the properties to any
other party.
xxx xxx xxx
(o) In case the Vendee fails to make payment or payments, or any part thereof,
as herein provided, or fails to perform any of the covenants or agreements
hereof, this contract shall, at the option of the Vendor, be annulled and, in such
event, all payments made by the Vendee to the Vendor by virtue of this
contract shall be forfeited and retained by the Vendor in full satisfaction of the
liquidated damages by said Vendor sustained; and the said Vendor shall have
the right to forthwith re-enter, and take possession of, the premises subject-
matter of this contract.
"The remedy of forfeiture stated in the next-preceding paragraph shall not be
exclusive of any other remedy, but the Vendor shall have every other remedy
granted it by virtue of this contract, by law, and by equity."
From the judgment of the court below, the dispositive portion whereof has
been transcribed at the start of this opinion, Myers duly appealed to this Court.
The main issue posed by appellant is that there has been no breach of contract
by Maritime; and assuming that there was one, that the appellee Myers was
not entitled to rescind or resolve the contract without recoursing to judicial
process.
It is difficult to understand how appellant Maritime can seriously contend that
its failure or refusal to pay the P5,000 monthly installments corresponding to
the months of March, April and May, 1961 did not constitute a breach of
contract with Myers, when said agreement (transcribed in the Record on
Appeal, pages 59-71) expressly stipulated that the balance of the purchase
price (P950,000) —
shall be paid at the rate of Ten Thousand Pesos (P10,000) monthly on or before
the 10th day of each month with interest at 5% per annum, this amount to be
first applied on the interest, and the balance paid to the principal thereof; and
the failure to pay any installment or interest when due shall ipso factocause the
whole unpaid balance of the principal and interest to be and become
immediately due and payable. (Contract, paragraph b; Record on Appeal, page
63)
Contrary to appellant Maritime's averments, the default was not made in good
faith. The text of the letter to Myers (Exhibit "11", Maritime), heretofore
quoted, leaves no doubt that the non-payment of the installments was the
result of a deliberate course of action on the part of appellant, designed to
coerce the appellee Myers Corporation into answering for an alleged promise
of the late F. H. MYERS to indemnify E. W. Schedler, the controlling stock-holder
of appellant, for any payments to be made to the members of the Luzon Labor
Union. This is apparent also from appellant's letter to his counsel (Exhibit "12",
Maritime):
... I do not wish to deposit pesos representing the months of March, April and
May, since the Myers refusal to honor the indemnity concerning the labor
claims has caused me to disburse (sic) roughly $10,000.00 to date in fees, cost
and travel expenses. However, if the Myers people will deposit in trust with Mr.
C. Parsons 25,000 pesos to cover my costs to date, I will then deposit with Mr.
Parsons, in trust, 15,000 pesos for March, April and May and will also post a
monthly deposit of 5,000 pesos until the dispute is settled. The dispute won't
be settled in my mind, unless and until:
a) The Myers people indemnify me fully the labor cases;
b) The labor cases are terminated favorably to Luzon Brokerage and no liability
exists;
c) The Myers people pay any judgment entered on the labor cases thereby
releasing me; or
d) It is finally determined either in San Francisco or in the Philippines by a court
that the Myers heirs must honor the indemnity which Mr. F. H. Myers promised
when I purchased Luzon Brokerage Company.
Yet appellant Maritime (assuming that it had validly acquired the claims of its
president and controlling stockholder, E. M. Schedler) could not ignore the fact
that whatever obligation F. H. Myers or his estate had assumed in favor of
Schedler with respect to the Luzon Brokerage labor case was not, and could not
have been, an obligation of appellee corporation (Myers Building Company). No
proof exists that the board of directors of the Myers Corporation had agreed to
assume responsibility for the debts (if any) that the late Myers or his heirs had
incurred in favor of Schedler. Not only this, but it is apparent from the letters
quoted heretofore that Schedler had allowed the estate proceedings of the late
F. M. Myers to close without providing for any contingent liability in Schedler's
favor; so that by offsetting the alleged debt of Myers to him, against the balance
of the price due under the "Deed of Conditional Sale", appellant Maritime was
in fact attempting to burden the Myers Building Company with an uncollectible
debt, since enforcement thereof against the estate of F. H. Myers was already
barred.
Under the circumstances, the action of Maritime in suspending payments to
Myers Corporation was a breach of contract tainted with fraud or malice (dolo),
as distinguished from mere negligence (culpa), "dolo" being succinctly defined
as a "conscious and intentional design to evade the normal fulfillment of
existing obligations" (Capistrano, Civil Code of the Philippines, Vol. 3, page 38),
and therefore incompatible with good faith (Castan, Derecho Civil, 7th Ed., Vol.
3, page 129; Diaz Pairo, Teoria de Obligaciones, Vol. 1, page 116).
Maritime having acted in bad faith, it was not entitled to ask the court to give
it further time to make payment and thereby erase the default or breach that
it had deliberately incurred. Thus the lower court committed no error in
refusing to extend the periods for payment. To do otherwise would be to
sanction a deliberate and reiterated infringement of the contractual obligations
incurred by Maritime, an attitude repugnant to the stability and obligatory
force of contracts.
From another point of view, it is irrelevant whether appellant Maritime's
infringement of its contract was casual or serious, for as pointed out by this
Court in Manuel vs. Rodriguez, 109 Phil. 1, at page 10 —
The contention of plaintiff-appellant that Payatas Subdivision Inc. had no right
to cancel the contract as there was only a "casual breach" is likewise untenable.
In contracts to sell, where ownership is retained by the seller and is not to pass
until the full payment of the price, such payment, as we said, is a positive
suspensive condition, the 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, in accordance with Article 1117 of the Old Civil Code.
To argue that there was only a casual breach is to proceed from the assumption
that the contract is one of absolute sale, where non-payment is a resolutory
condition, which is not the case.
But it is argued for Maritime that even if it had really violated the Contract of
Conditional Sale with Myers, the latter could not extrajudicially rescind or
resolve the contract, but must first recourse to the courts. While recognizing
that paragraph (d) of the deed of conditional sale expressly provides inter
alia —
that should the Vendee fail to pay any of the monthly installments when due,
or otherwise fail to comply with any of the terms and conditions herein
stipulated, then this Deed of Conditional Sale shall automatically and without
any further formality, become null and void, and all sums so paid by the Vendee
by reason thereof shall be considered as rentals.. (Emphasis supplied)
herein appellant Maritime avers that paragraph (e) of the deed contemplates
that a suit should be brought in court for a judicial declaration of rescission. The
paragraph relied upon by Maritime is couched in the following, terms:
(e) It is also hereby agreed, covenanted and stipulated by and between the
parties hereto that should the Vendor rescind this Deed of Conditional Sale, for
any of the reasons stipulated in the preceding paragraph, the Vendee by these
presents obligates itself to peacefully deliver the properties subject of this
contract to the Vendor, and in the event that the Vendee refuses to peacefully
deliver the possession of the properties subject of this contract to the Vendor
in case of rescission, and a suit should be brought in court by the Vendor to
seek judicial declaration of rescission and take possession of the properties
subject of this contract, the Vendee hereby obligates itself to pay all the
expenses to be incurred by reason of such suit and in addition obligates itself
to pay the sum of P10,000.00, in concept of damages, penalty and attorney's
fees.
Correlation of this paragraph (e) with the preceding paragraph (d) of the Deed
of Conditional Sale (quoted in page 5 of this opinion) reveals no incompatibility
between the two; and the suit to "be brought in Court by the Vendor to seek
judicial declaration of rescission" is provided for by paragraph(e) only in the
eventuality that, notwithstanding the automatic annulment of the deed under
paragraph (d), the Vendee "refuses to peacefully deliver the possession of the
properties subject of this contract". The step contemplated is logical since the
Vendor can not, by himself, dispossess the Vendee manu militari, if the latter
should refuse to vacate despite the violation of the contract, since no party can
take the law in his own hands. But the bringing of such an action in no way
contradicts or restricts the automatic termination of the contract in case the
Vendee (i.e., appellant Maritime) should not comply with the agreement.
Anyway, this Court has repeatedly held that —
Well settled is, however, the rule that a judicial action for the rescission of a
contract is not necessary where the contract provides that it may be revoked
and cancelled for violation of any of its terms and conditions" (Lopez vs.
Commissioner of Customs, L-28235, 30 January 1971, 37 SCRA 327, 334,, and
cases cited therein).1 (Emphasis supplied.)
Resort to judicial action for rescission is obviously not contemplated.... The
validity of the stipulation can not be seriously disputed. It is in the nature of a
facultative resolutory condition which in many cases has been upheld by this
Court. (Ponce Enrile vs. Court of Appeals, L-27549, 30 Sept. 1969; 29 SCRA 504).
The obvious remedy of the party opposing the rescission for any reason being
to file the corresponding action to question the rescission and enforce the
agreement, as indicated in our decision in University of the Philippines vs.
Walfrido de los Angeles, L-28602, 29 September 1970, 35 SCRA 107.
Of course, it must be understood that the act of a party in treating a contract
as cancelled or resolved on account of infractions by the other contracting party
must be made known to the other and is always provisional, being ever subject
to scrutiny and review by the proper court. If the other party denies that
rescission is justified, it is free to resort to judicial action in its own behalf, and
bring the matter to court. Then, should the court, after due hearing, decide that
the resolution of the contract was not warranted, the responsible party will be
sentenced to damages; in the contrary case, the resolution will be affirmed, and
the consequent indemnity awarded to the party prejudiced.
In other words, the party who deems the contract violated may consider it
resolved or rescinded, and act accordingly, without previous court action, but
it proceeds at its own risk. For it is only the final judgment of the corresponding
court that will conclusively and finally settle whether the action taken was or
was not correct in law. But the law definitely does not require that the
contracting party who believes itself injured must first file suit and wait for a
judgment before taking extrajudicial steps to protect its interest. Otherwise,
the party injured by the other's breach will have to passively sit and watch its
damages accumulate during the pendency of the suit until the final judgment
of rescission is rendered when the law itself requires that he should exercise
due diligence to minimize its own damages (Civil Code, Article 2203).
Maritime likewise invokes Article 1592 of the Civil Code of the Philippines as
entitling it to pay despite its default:
ART. 1592. In the sale of immovable property, even though it may have been
stipulated that upon failure to pay the price at the time agreed upon the
rescission of the contract shall of right take place, the vendee may pay, even
after the expiration of the period, as long as no demand for rescission of the
contract has been made upon him either judicially or by a notarial act. After the
demand, the court may not grant him a new term.
Assuming arguendo that Article 1592 is applicable, the cross-claim filed by
Myers against Maritime in the court below constituted a judicial demand for
rescission that satisfies the requirements of said article.
But even if it were not so, appellant overlooks that its contract with appellee
Myers is not the ordinary sale envisaged by Article 1592, transferring ownership
simultaneously with the delivery of the real property sold, but one in which the
vendor retained ownership of the immovable object of the sale, merely
undertaking to convey it provided the buyer strictly complied with the terms of
the contract (see paragraph [d], ante, page 5). In suing to recover possession of
the building from Maritime, appellee Myers is not after the resolution or setting
aside of the contract and the restoration of the parties to the status quo ante,
as contemplated by Article 1592, but precisely enforcing the provisions of the
agreement that it is no longer obligated to part with the ownership or
possession of the property because Maritime failed to comply with the
specified condition precedent, which is to pay the installments as they fell due.
The distinction between contracts of sale and contract to sell with reserved title
has been recognized by this Court in repeated decisions2 upholding the power
of promisors under contracts to sell in case of failure of the other party to
complete payment, to extrajudicially terminate the operation of the contract,
refuse conveyance and retain the sums or installments already received, where
such rights are expressly provided for, as in the case at bar.
Maritime's appeal that it would be iniquituous that it should be compelled to
forfeit the P973,000 already paid to Myers, as a result of its failure to make
good a balance of only P319,300.65, payable at P5,000 monthly, becomes
unimpressive when it is considered that while obligated to pay the price of one
million pesos at P5,000 monthly, plus interest, Maritime, on the other hand,
had leased the building to Luzon Brokerage, Inc. since 1949; and Luzon paid
P13,000 a month rent, from September, 1951 to August 1956, and thereafter
until 1961, at P10,000 a month, thus paying a total of around one and a half
million pesos in rentals to Maritime. Even adding to Maritime's losses of
P973,000 the P10,000 damages and P3,000 attorneys' fees awarded by the trial
court, it is undeniable that appellant Maritime has come out of the entire
transaction still at a profit to itself.
There remains the procedural objection raised by appellant Maritime to this
interpleader action filed by the Luzon Brokerage Co., the lessee of the building
conditionally sold by Myers to Maritime. It should be recalled that when
Maritime defaulted in its payments to Myers, and the latter notified the former
that it was cancelling the contract of conditional sale, Myers also notified Luzon
Brokerage, Maritime's lessee of the building, of the cancellation of the sale, and
demanded that Luzon should pay to Myers the rentals of the building beginning
from June, 1961, under penalty of ejectment (Record on Appeal, pages 14-15).
In doubt as to who was entitled to the rentals, Luzon filed this action for
interpleader against Myers and Maritime, and deposited the rentals in court as
they fell due. The appellant Maritime moved to dismiss on the ground that (a)
Luzon could not entertain doubts as to whom the rentals should be paid since
Luzon had leased the building from Maritime since 1949, renewing the contract
from time to time, and Myers had no right to cancel the lease; and (b) that
Luzon was not a disinterested party, since it tended to favor appellee Myers.
The court below overruled Maritime's objections and We see no plausible
reason to overturn the order. While Myers was not a party to the lease, its
cancellation of the conditional sale of the premises to Maritime, Luzon's lessor,
could not but raise reasonable doubts as to the continuation of the lease, for
the termination of the lessor's right of possession of the premises necessarily
ended its right to the rentals falling due thereafter. The preceding portion of
our opinion is conclusive that Luzon's doubts were grounded under the law and
the jurisprudence of this Court.
No adequate proof exists that Luzon was favoring any one of the contending
parties. It was interested in being protected against prejudice deriving from the
result of the controversy, regardless of who should win. For the purpose it was
simpler for Luzon to compel the disputants to litigate between themselves,
rather than chance being sued by Myers, and later being compelled to proceed
against Maritime to recoup its losses. In any event, Maritime ultimately
confirmed the act of Luzon in suing for interpleader, by agreeing to renew
Luzon's lease in 1963 during the pendency of the present action, and
authorizing Luzon to continue depositing the rentals in court "until otherwise
directed by a court of competent jurisdiction" (Exhibit "18-Maritime"). The
procedural objection has thus become moot.
PREMISES CONSIDERED, the appealed decision should be, and hereby is,
affirmed, and appellant Maritime Building Co., as well as appellee Luzon
Brokerage Co., are further ordered to surrender the premises to the appellee
Myers Building Co. Costs against appellant.
Concepcion, C.J., Makalintal, Zaldivar, Castro, Teehankee, Barredo, Villamor and
Makasiar, JJ., concur.
Fernando, J., took no part.
G.R. No. 156171 April 22, 2005
Spouses RICARDO and FERMA PORTIC vs ANASTACIA CRISTOBAL,
DECISION
PANGANIBAN, J.:
An agreement in which ownership is reserved in the vendor and is not to pass
to the vendee until full payment of the purchase price is known as a contract to
sell. The absence of full payment suspends the vendors obligation to convey
title. This principle holds true between the parties, even if the sale has already
been registered. Registration does not vest, but merely serves as evidence of,
title to a particular property. Our land registration laws do not give title holders
any better ownership than what they actually had prior to registration.
The Case
Before us is a Petition for Review[1] under Rule 45 of the Rules of Court,
challenging the January 29, 2002Decision[2] and the November 18,
2002 Resolution[3] of the Court of Appeals (CA) in CA-GR CV No. 66393. The
assailed Decision disposed as follows:
WHEREFORE, foregoing considered, the appealed decision is hereby
REVERSED and SET ASIDE. A new one is hereby entered ORDERING defendant-
appellant to pay the unpaid balance of P55,000.00 plus legal interest of 6% per
annum counted from the filing of this case. The ownership of defendant-
appellant over the subject property is hereby confirmed.
No pronouncement as to costs.[4]
In the challenged Resolution,[5] the CA denied petitioners Motion for
Partial Reconsideration.
The Facts
The facts were summarized by the appellate court as follows:
Spouses Clodualdo Alcantara and Candelaria Edrosalam were the
original registered owners of a parcel of land with three-door apartment,
located at No. 9, 1st Street BBB, Marulas, Valenzuela City. Transfer Certificate of
Title No. T-71316 was issued in the names of spouses Clodualdo Alcantara and
Candelaria Edrosalam.
On October 2, 1968, spouses Clodualdo Alcantara and Candelaria
Edrosalam sold the subject property in favor of [petitioners] with the condition
that the latter shall assume the mortgage executed over the subject property
by spouses Clodualdo Alcantara and Candelaria Edrosalam in favor of the Social
Security System.
[Petitioners] defaulted in the payment of the monthly amortizations due
on the mortgage. The Social Security System foreclosed the mortgage and sold
the subject property at public auction with the Social Security System as the
highest bidder.
On May 22, 1984, before the expiration of the redemption period,
[petitioners] sold the subject property in favor of [respondent] in consideration
of P200,025.89. Among others, the parties agreed that [respondent] shall pay
the sum of P45,025.89 as down payment and the balance of P155,000.00 shall
be paid on or before May 22, 1985. The parties further agreed that in case
[respondent] should fail to comply with the conditions, the sale shall be
considered void and [petitioners] shall reimburse [respondent] of whatever
amount already paid.
On the same date, [petitioners] and [respondent] executed a Deed of Sale
with Assumption of Mortgage whereby [petitioners] sold the subject property
in favor of [respondent] in consideration of P80,000.00, P45,000.00 thereof
shall be paid to the Social Security System.
On July 30, 1984, spouses Clodualdo Alcantara and Candelaria Edrosalam,
the original owners of the subject property, sold the subject property in favor
of [respondent] for P50,000.00.
 On the same date, [respondent] executed a Deed of Mortgage
whereby [respondent] constituted a mortgage over the subject property to
secure a P150,000.00 indebtedness in favor of [petitioners].
[Respondent] paid the indebtedness due over the subject property to the
Social Security System.
On August 6, 1984, Transfer Certificate of Title No. T-71316 in the names
of spouses Clodualdo Alcantara and Candelaria Edrosalam was cancelled and in
lieu thereof Transfer Certificate of Title No. T-113299 was issued in the name
of [respondent].
On May 20, 1996, [petitioners] demanded from [respondent] the alleged
unpaid balance of P55,000.00. [Respondent] refused to pay.
On June 6, 1996, [petitioners] filed this instant civil case against
[respondent] to remove the cloud created by the issuance of TCT No. T-113299
in favor of [respondent]. [Petitioners] claimed that they sold the subject
property to [respondent] on the condition that [respondent] shall pay the
balance on or before May 22, 1985; that in case of failure to pay, the sale shall
be considered void and [petitioners] shall reimburse [respondent] of the
amounts already paid; that [respondent] failed to fully pay the purchase price
within the period; that on account of this failure, the sale of the subject
property by [petitioners] to [respondent] is void; that in spite of this failure,
[respondent] required [petitioners] to sign a lease contract over the apartment
which [petitioners] occupy; that [respondent] should be required to reconvey
back the title to the subject property to [petitioners].
[Respondent] on her part claimed that her title over the subject property
is already indefeasible; that the true agreement of the parties is that embodied
in the Deed of Absolute Sale with Assumption of Mortgage; that [respondent]
had fully paid the purchase price; that [respondent] is the true owner of the
subject property; that [petitioners] claim is already barred by laches.[6]
After trial, the Regional Trial Court (RTC) of Valenzuela City rendered
this judgment in favor of petitioners:
WHEREFORE, premises considered, this Court hereby adjudicates
on this case as follows:
1.) The Court hereby orders the quieting of title or removal of cloud over the
[petitioners] parcel of land and three (3) door apartment now covered by
Transfer Certificate of Title No. T-113299 of the Registry of Deeds
for Caloocan City and Tax Declaration Nos. C-018-00235 & C-031-012077
respectively, of Valenzuela City;
2.) The Court hereby orders the [respondent] to reconvey in favor of the
[petitioners] the parcel of land and three (3) door apartment now covered by
Transfer Certificate of Title No. T-113299 of the Registry of Deeds of Caloocan
City after reimbursement by the [petitioners] of the amount actually paid by
the [respondent] in the total amount of P145,025.89;
3.) The Court hereby DENIES damages as claimed by both parties.[7]
Ruling of the Court of Appeals
The Court of Appeals opined that the first Memorandum of Agreement (MOA)
embodied the real agreement between the parties, and that the subsequent
Deeds were executed merely to secure their respective rights over the
property.[8] The MOA stated that Cristobal had not fully paid the purchase price.
Although this statement might have given rise to a cause of action to annul the
Deed of Sale, prescription already set in because the case had been filed
beyond the ten-year reglementary period,[9]as observed by the CA.
Nonetheless, in conformity with the principle of unjust enrichment, the
appellate court ordered respondent to pay petitioners the remaining balance
of the purchase price.[10]
In their Motion for Partial Reconsideration, petitioners contended
that their action was not one for the enforcement of a written contract, but
one for the quieting of title -- an action that was imprescriptible as long as they
remained in possession of the premises.[11] The CA held, however, that the
agreement between the parties was valid, and that respondents title to the
property was amply supported by the evidence.[12] Therefore, their action for
the quieting of title would not prosper, because they failed to show the
invalidity of the cloud on their title. Hence, this Petition.[13]
The Issue
In its Memorandum, petitioners raise the following issues for our
consideration:
(1) Whether or not the [petitioners] cause of action is for quieting of title.
(2) Whether or not the [petitioners] cause of action has prescribed.
The main issue revolves around the characterization of the parties agreement
and the viability of petitioners cause of action.
This Courts Ruling
The Petition has merit.
Main Issue:
Nature of the Action: Quieting of Title or Enforcement of a Written Contract
Petitioners argue that the action they filed in the RTC was for the
quieting of title. Respondents demand that they desist from entering into new
lease agreements with the tenants of the property allegedly attests to the fact
of their possession of the subject premises.[15] Further, they point to the
existence of Civil Case No. 7446, an action for unlawful detainer that
respondent filed against them,[16] as further proof of that fact. Being in
continuous possession of the property, they argue that their action for the
quieting of title has not prescribed.[17]
On the other hand, respondent joins the appellate court in characterizing
the action petitioners filed in the RTC as one for the enforcement of the MOA.
Being based on a written instrument, such action has already prescribed,
respondent claims.[18] She adds that petitioners could not have been in
continuous possession of the subject property because, under a duly notarized
lease agreement, they have been paying her a monthly rental fee of P500,
which was later increased to P800.
Two questions need to be answered to resolve the present case; namely,
(1) whether Cristobals title to the property is valid; and (2) whether the Portics
are in possession of the premises, a fact that would render the action for
quieting of title imprescriptible.
Validity of Title
The CA held that the action for the quieting of title could not
prosper, because Cristobals title to the property was amply supported by
evidence.
Article 476 of the Civil Code provides as follows:
Whenever there is a cloud on title to real property or any interest therein, by
reason of any instrument, record, claim, encumbrance or proceeding which is
apparently valid or effective but is in truth and in fact invalid, ineffective,
voidable, or unenforceable, and may be prejudicial to said title, an action may
be brought to remove such cloud or to quiet the title.
An action may also be brought to prevent a cloud from being cast upon
title to real property or any interest therein.
Suits to quiet title are characterized as proceedings quasi in
rem.[19] Technically, they are neither in rem nor in personam. In an action quasi
in rem, an individual is named as defendant.[20] However, unlike suits in rem,
a quasi in rem judgment is conclusive only between the parties.[21]
Generally, the registered owner of a property is the proper party to
bring an action to quiet title. However, it has been held that this remedy may
also be availed of by a person other than the registered owner because, in the
Article reproduced above, title does not necessarily refer to the original or
transfer certificate of title.[22] Thus, lack of an actual certificate of title to a
property does not necessarily bar an action to quiet title. As will be shown later,
petitioners have not turned over and have thus retained their title to the
property.
On the other hand, the claim of respondent cannot be sustained.
The transfer of ownership of the premises in her favor was subject to the
suspensive condition stipulated by the parties in paragraph 3 of the MOA,
which states as follows:
3. That while the balance of P155,000.00 has not yet been fully paid the FIRST
PARTY OWNERS shall retain the ownership of the above described parcel of
land together with its improvements but the SECOND PARTY BUYER shall have
the right to collect the monthly rentals due on the first door (13-A) of the said
apartment;[23]
The above-cited provision characterizes the agreement between
the parties as a contract to sell, not a contract of sale. Ownership is retained by
the vendors, the Portics; it will not be passed to the vendee, the Cristobals, until
the full payment of the purchase price. Such payment is a positive suspensive
condition, and failure to comply with it is not a breach of obligation; it is merely
an event that prevents the effectivity of the obligation of the vendor to convey
the title.[24] In short, until the full price is paid, the vendor retains ownership.
The mere issuance of the Certificate of Title in favor of Cristobal did not
vest ownership in her. Neither did it validate the alleged absolute purchase of
the lot. Time and time again, this Court has stressed that registration does not
vest, but merely serves as evidence of, title. Our land registration laws do not give
the holders any better title than that which they actually have prior to registration. [25]
Under Article 1544 of the Civil Code, mere registration is not enough to
acquire a new title. Good faith must concur.[26] Clearly, respondent has not yet
fully paid the purchase price. Hence, as long as it remains unpaid, she cannot
feign good faith. She is also precluded from asserting ownership against
petitioners. The appellate courts finding that she had a valid title to the
property must, therefore, be set aside.
Continuous Possession
 The issue of whether the Portics have been in actual, continuous
possession of the premises is necessarily a question of fact. Well-entrenched is
the rule that findings of fact of the Court of Appeals, when supported by
substantial evidence, are final and conclusive and may not be reviewed on
appeal.[27] This Court finds no cogent reason to disturb the CAs findings
sustaining those of the trial court, which held that petitioners had been in
continuous possession of the premises. For this reason, the action to quiet title
has not prescribed.
WHEREFORE, the Petition is GRANTED. The challenged Decision and Resolution
of the Court of Appeals are REVERSED and SET ASIDE. The Decision of the RTC
of Valenzuela City in Civil Case No. 4935-V-96, dated September 23, 1999, is
hereby REINSTATED. No pronouncement as to costs.
SO ORDERED.
[G.R. No. 158646. June 23, 2005]
HEIRS OF JESUS M. MASCUANA, vs. COURT OF APPEALS
DECISION
CALLEJO, SR., J.:
This is a petition for review on certiorari of the Decision[1] of the Court of
Appeals (CA) in CA-G.R. CV No. 53117 affirming the Decision[2] of the Regional
Trial Court (RTC) of San Carlos City, Negros Occidental, which ordered the
dismissal of the petitioners complaint for recovery of possession and damages.
The Antecedents
Gertrudis Wuthrich and her six other siblings were the co-owners of a parcel of
land identified as Lot No. 124 of the San Carlos City, Negros Occidental
Cadastre, with an area of 1,729 square meters and covered by Transfer
Certificate of Title (TCT) No. 1453-R (T-29937)-38.[3] Over time, Gertrudis and
two other co-owners sold each of their one-seventh (1/7) shares, or a total area
of 741 square meters, to Jesus Mascuana. The latter then sold a portion of his
140-square-meter undivided share of the property to Diosdado Sumilhig.
Mascuana later sold an additional 160-square-meter portion to Sumilhig on
April 7, 1961. However, the parties agreed to revoke the said deed of sale and,
in lieu thereof, executed a Deed of Absolute Sale on August 12, 1961. In the
said deed, Mascuana, as vendor, sold an undivided 469-square-meter portion
of the property for P4,690.00, with P3,690.00 as down payment, and under the
following terms of payment:
That the balance of ONE THOUSAND PESOS (P1,000.00) shall be paid by the
VENDEE unto the VENDOR as soon as the above-portions of Lot 124 shall have
been surveyed in the name of the VENDEE and all papers pertinent and
necessary to the issuance of a separate Certificate of Title in the name of the
VENDEE shall have been prepared.[4]
On December 31, 1961, Mascuana and Jose G. Estabillo executed a Deed of
Exchange and Absolute Sale of Real Estate,[5] in which Estabillo deeded to
Mascuana a portion of his property abutting that of Sumilhig on the southeast.
In the meantime, a survey was conducted for the co-owners of Lot No. 124 on
July 9, 1962. The subdivision plan of the said lot was approved by the Director
of Lands on August 2, 1962. The portion of the property deeded to Sumilhig
was identified in the said plan as Lot No. 124-B.[6]
Meanwhile, Mascuana died intestate on April 20, 1965 and was survived by his
heirs, Eva M. Ellisin, Renee Hewlett, Carmen Vda. de Opea, Marilou Dy and Jose
Ma. R. Mascuana.
On April 24, 1968, Sumilhig executed a Deed of Sale of Real Property[7] on a
portion of Lot No. 124-B with an area of 469 square meters and the
improvements thereon, in favor of Corazon Layumas, the wife of Judge Rodolfo
Layumas, for the price of P11,000.00. The spouses Layumas then had the
property subdivided into two lots: Lot No. 124-B-2 with an area of 71 square
meters under the name of Jesus Mascuana, and Lot No. 124-B-1, with an area
of 469 square meters under their names.[8] The spouses Layumas took
possession of the property and caused the cutting of tall grasses thereon. Upon
the plea of a religious organization, they allowed a chapel to be constructed on
a portion of the property.[9] In January 1985, the spouses Layumas allowed
Aquilino Barte to stay on a portion of the property to ward off
squatters.[10] Barte and his kin, Rostom Barte, then had their houses
constructed on the property.
On October 1, 1985, the spouses Layumas received a Letter[11] from the counsel
of Renee Tedrew, offering to buy their share of the property for US$1,000.00.
For her part, Corazon Layumas wrote Pepito Mascuana, offering to pay the
amount of P1,000.00, the balance of the purchase price of the property under
the deed of absolute sale executed by Mascuana and Sumilhig on August 12,
1961.[12]However, the addressee refused to receive the mail matter.[13]
Unknown to the spouses Layumas, TCT No. 8986[14] was issued over Lot No.
124-B in the name of Jesus Mascuana on March 17, 1986.
On November 17, 1986, the heirs of Mascuana filed a Complaint[15] for recovery
of possession of Lot No. 124-B and damages with a writ of preliminary
injunction, alleging that they owned the subject lot by virtue of successional
rights from their deceased father. They averred that Barte surreptitiously
entered the premises, fenced the area and constructed a house thereon
without their consent. Attached as annexes to the complaint were TCT No.
8986 and a certification[16] from the Office of the City Treasurer, Land Tax
Division, vouching that the property in question was owned by the petitioners
and that they had paid the taxes thereon until 1992.
In his answer to the complaint, Barte admitted having occupied a portion of Lot
No. 124-B, but claimed that he secured the permission of Rodolfo Layumas, the
owner of the subject property. He added that he did not fence the property,
and that the petitioners did not use the same as a passageway in going to Broce
Street from their house. Barte raised the following special defenses: (a) the
petitioners were estopped from asserting ownership over the lot in question
because they did not object when he occupied the said portion of the lot; (b)
neither did the petitioners protest when a church was built on the property, or
when residential houses were constructed thereon; (c) the petitioners still
asked Barte and the other occupants whether they had notified Rodolfo
Layumas of the constructions on the property; and (d) the heirs of Mascuana,
through the lawyer of Mrs. Renee M. Tedrew, even wrote a letter[17] to Rodolfo
Layumas on October 1, 1985, expressing her willingness to buy the subject
property for US$1,000.00.
On April 8, 1991, the spouses Layumas filed a Motion for Leave to
Intervene,[18] alleging therein that they had a legal interest in Lot No. 124-B-1
as its buyers from Sumilhig, who in turn purchased the same from Mascuana.
In their answer in intervention,[19] the spouses Layumas alleged that they were
the true owners of the subject property and that they had wanted to pay the
taxes thereon, but the Land Tax clerk refused to receive their payments on
account that the petitioners had already made such payment. The spouses
Layumas further maintained that the petitioners had no cause of action against
Barte, as they had authorized him to occupy a portion of Lot No. 124-B-1. The
spouses Layumas also averred that the petitioners were estopped from denying
their right of ownership and possession of the subject lot, as one of them had
even offered to repurchase a portion of Lot No. 124-B via letter. The said
spouses interposed a counterclaim for damages, claiming ownership over the
property, and prayed, thus:
WHEREFORE, it is most respectfully prayed that this HONORABLE COURT
render judgment in favor of the Intervenors and the defendant Aquilino Barte,
ordering:
1. That the complaint against Aquilino Barte be dismissed with costs against the
plaintiff;
2. That the Intervenors spouses Judge Rodolfo S. Layumas and Corazon A.
Layumas be declared as the legal and true owners of Lot 124-B;
3. That the plaintiffs should deliver immediately to the Intervenors, TCT No.
8986 which is in their possession;
4. That the plaintiffs be made to pay to the Intervenors the sum of THIRTY
THOUSAND (P30,000.00) PESOS moral damages; TEN THOUSAND (P10,000.00)
PESOS attorneys fees plus THREE HUNDRED (P300.00) PESOS as appearance fee
per hearing.
Intervenors pray for such other relief and remedies as may be deemed by this
Honorable Court as just and equitable in the premises.
At the trial, intervenor Rodolfo Layumas testified that he and his wife bought
the subject property in 1968, and that nobody objected to their possession of
the land, including the petitioners. In 1970, a religious organization asked his
permission to construct a chapel on the disputed lot; he allowed the
construction since the same would be used for the fiesta. He further declared
that part of the chapel still stood on the property. In 1985, a fire razed the
towns public market, thereby dislocating numerous people. Barte was one of
the fire victims, who also happened to be a good friend and political supporter
of Rodolfo. Out of goodwill, Barte was allowed to occupy a portion of the said
lot, along with some other fire victims. Rodolfo clarified that the others were to
stay there only on a temporary basis, but admitted that Bartes children also
stayed in the subject property.[20]
Rodolfo Layumas further narrated that in 1987, Corazon wrote one of the
petitioners-heirs, Pepito Mascuana, requesting that the title of the lot be
transferred in Sumilhigs name so that they could likewise arrange for the
conveyance of the title in their names. Pepito failed to claim the letter, and
thereafter, filed a case of ejectment against Barte and Rodolfo Layumas
brother-in-law, Pepito Antonio. The case, the witness added, was dismissed as
against the two parties. Offered in evidence were the following: a Sworn
Statement on the Current and Fair Market Value of the Real Property issued in
1973 as required by Presidential Decree No. 76, and tax receipts.[21]
Rodolfo Layumas admitted on cross-examination that at the time they bought
the property from Sumilhig, the title was still in the possession of the Wuthrich
family. He added that he filed an adverse claim before the Register of Deeds of
San Carlos City, Negros Occidental, on Lot No. 124-B in January 1986, or after
the case had already been filed in court. Lastly, the witness deposed that he did
not fence the property after buying the same, but that his brother-in-law
constructed a coco-lumber yard thereon upon his authority.[22]
On January 30, 1996, the trial court rendered judgment in favor of Barte and
the spouses Layumas. The fallo of the decision reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of
Intervenors-counterclaimants and defendant and against plaintiffs-
counterclaim defendants ordering as follows:
1. The dismissal of the plaintiffs complaint with costs against them;
2. The plaintiffs to jointly pay Intervenors-counterclaimants now RTC Judge
Rodolfo S. Layumas and Corazon A. Layumas:
(a) P10,000.00 for attorneys fees; and
(b) P30,000.00 as moral damages;
3. The plaintiffs, as counterclaim defendants, to comply with the above-stated
obligation of their late father, Mr. Jesus Mascuana, under the Deed of Absolute
Sale, Exh. 3, pp. 92-93, Exp., thru plaintiff Mr. Jose Mascuana, including the
desegragation (sic) survey to desegregate the 469-square-meter portion of said
Lot No. 124-B, San Carlos Cadastre, this province, sold to the late Diosdado
Sumilhig, if the same has not yet been done despite what has been said herein
earlier to said effect, and the execution of the Final Deed of Sale in their
capacity as the heirs and successors-in-interest of the late Mr. Jesus Mascuana,
thru Mr. Jose Mascuana, covering the 469-square-meter desegregated portion
of said Lot No. 124-B, within sixty (60) days counted from the finality of this
Decision, in favor of the Intervenors-spouses, after which the said Intervenors-
spouses shall pay them, thru Mr. Jose Mascuana, the P1,000.00 balance due to
them as successors-in-interest of the late Mr. Jesus Mascuana;
4. In case plaintiffs fail to comply with what are herein ordered for them to do,
the Clerk of Court V of this Court to do all that they were to do as herein ordered
in the text and dispositive portion hereof, at the expense of Intervenors spouses
to be later reimbursed by plaintiffs, including the desegragation (sic) survey of
said 469-square-meter portion of said Lot [No.] 124-B, San Carlos Cadastre,
Negros Occidental, if the same has not yet been done and the execution of the
Final Deed of Sale on behalf of all the plaintiffs as heirs and successors-in-
interest of the late Mr. Jesus Mascuana covering the said desegregated portion
of 469 square meters of the aforesaid lot, in favor of Intervenors spouses, to
the end that separate title therefor may be issued in their names, after they
shall have paid the P1,000.00 balance due plaintiffs under said Deed of
Absolute Sale, Exh. 3.
SO ORDERED.[23]
Forthwith, the petitioners appealed the case to the CA, raising the following
issues of fact and law:
a. Whether or not the contract of alienation of Lot No. 124-B in favor of
Diosdado Sumilhig in 1961 was a contract to sell or a contract of sale;
b. Whether or not Diosdado Sumilhig had any right to sell Lot No. 124-B in favor
of intervenor Corazon Layumas in 1968.[24]
On May 5, 2003, the CA affirmed the decision of the trial court. It ruled that the
contract between the petitioners father and Sumilhig was one of sale.
Foremost, the CA explained, the contract was denominated as a Deed of
Absolute Sale. The stipulations in the contract likewise revealed the clear
intention on the part of the vendor (Mascuana) to alienate the property in favor
of the vendee (Sumilhig). In three various documents, the late Mascuana even
made declarations that Sumilhig was already the owner of the disputed land.
The CA added that the admission may be given in evidence against Mascuana
and his predecessors-in-interest under Section 26, Rule 130 of the Revised
Rules on Evidence. As to the argument that the contract between Mascuana
and Sumilhig was not effective because it was subject to a suspensive condition
that did not occur, the CA ruled that the condition referred to by the petitioners
refers only to the payment of the balance of the purchase price and not to the
effectivity of the contract.
As to the petitioners contention that even if the contract were one of sale,
ownership cannot be transferred to Sumilhig because Mascuana was not yet
the owner of the lot at the time of the alleged sale, the appellate court ruled
that the registration of the land to be sold is not a prerequisite to a contract of
sale.
The Present Petition
Aggrieved, the petitioners filed the instant petition for review on certiorari with
this Court, where the following lone legal issue was raised:
WAS THE SALE OF LOT NO. 124-B MADE BY JESUS M. MASCUANA IN FAVOR OF
DIOSDADO SUMILHIG A CONTRACT TO SELL OR CONTRACT OF SALE?[25]
We note that the original action of the petitioners against Aquilino Barte was
one for recovery of possession of Lot No. 124-B. With the intervention of the
respondents Rodolfo and Corazon Layumas who claimed ownership over the
property, and the acquiescence of the parties, evidence was adduced to prove
who, between the petitioners (as plaintiffs) and the respondents (as
defendants-intervenors) were the lawful owners of the subject property and
entitled to its possession.
The petitioners resolutely contend that the Deed of Absolute Sale dated August
12, 1961 between their father and Sumilhig was a mere contract to sell because
at the time of the said sale, the late Mascuana was not yet the registered owner
of Lot No. 124 or any of its portions. They assert that Sumilhig could not have
acquired any rights over the lot due to the fact that a person can only sell what
he owns or is authorized to sell, and the buyer can acquire no more than what
the seller can transfer legally. Finally, the petitioners insist that the document
in controversy was subject to a suspensive condition, not a resolutory
condition, which is a typical attribute of a contract of sale.
The petition is denied for lack of merit.
The issues raised by the petitioners in this case are factual, and under Rule 45
of the Rules of Court, only questions of law may be raised in this Court, the
reason being that this Court is not a trier of facts. It is not to re-examine the
evidence on record and to calibrate the same. Moreover, the findings and
conclusions of the trial court as affirmed by the CA are conclusive on the Court,
absent of any evidence that the trial court, as well as the CA ignored,
misinterpreted and misconstrued facts and circumstances of substance which,
if considered, would alter or reverse the outcome of the case.[26]
We have reviewed the records and find no justification for a reversal or even a
modification of the assailed decision of the CA.
Even on the merits of the petition, the Court finds that the decision of the trial
court as well as the ruling of the CA are based on the evidence on record and
the applicable law.
The petitioners reiterated their pose that the deed of absolute sale over the
property executed by their father, Jesus Mascuana, as vendor, and Diosdado
Sumilhig as vendee, was a contract to sell and not a contract of sale. They assert
that on its face, the contract appears to be a contract to sell, because the
payment of the P1,000.00 balance of the purchase price was subject to a
suspensive condition: the survey of the property, the segregation of the portion
thereof subject of the sale, and the completion of the documents necessary for
the issuance of a Torrens title over the property to and in the name of Sumilhig
who was the vendee. The petitioners assert that Sumilhig never paid the
aforesaid amount to the vendor; hence, the obligation of the latter and his
predecessors-in-interest (herein petitioners) to execute a final deed of sale
never arose. As such, they aver, title to the property remained reserved in the
vendor and his heirs even after his death. There was no need for the vendor to
rescind the deed or collect the said amount of P1,000.00 under Article 1191 of
the New Civil Code because such a remedy applies only to contracts of sale. The
petitioners insist that Sumilhig never acquired title over the property; he could
not have transferred any title to the respondents. Sumilhig could not have
transferred that which he did not own.
The petitioners contention has no factual and legal bases.
The deed of absolute sale executed by Jesus Mascuana and Sumilhig, provides,
thus:
That the VENDOR is the true and absolute owner of a parcel of land known as
Lot No. 124 of the Cadastral Survey of San Carlos, situated at Broce Street and
is free from liens and encumbrances, and covered by O.C.T. No. T-299[3]7 (R-
1453) of Reg. of Deeds, Negros Occ.
That for and in consideration of the sum of FOUR THOUSAND SIX HUNDRED
NINETY PESOS (P4,690.00), Philippine Currency, to be paid by the VENDEE in
the manner hereinafter stated, the VENDOR does hereby sell, transfer, cede
and convey, a portion of the above-described property containing an area of
469 square meters, the sketch of which can be found at the back of this
document and having a frontage at Broce Street of around 14 meters, and from
the Broce Street to the interior on its Southwest side with a length of 30.9
meters, with a length of 24.8 meters on its Northeast side where it turned to
the right with a length of 2.8 meters and continuing to Northwest with a length
of 6.72 meters, the backyard dimension is 17.5 meters to the Northwest, unto
the VENDEE, his heirs and assigns, by way of Absolute Sale, upon the receipt of
the down payment of THREE THOUSAND SIX HUNDRED NINETY PESOS
(P3,690.00), which is hereby acknowledged by the VENDOR as received by him.
That the balance of ONE THOUSAND PESOS (P1,000.00) shall be paid by the
VENDEE unto the VENDOR as soon as the above-portions of Lot 124 shall have
been surveyed in the name of the VENDEE and all papers pertinent and
necessary to the issuance of a separate Certificate of Title in the name of the
VENDEE shall have been prepared.
The evidence on record shows that during the lifetime of vendor Jesus
Mascuana, and even after his death, his heirs, the petitioners herein,
unequivocably declared that Diosdado Sumilhig was the owner of the property
subject of this case, and that the respondents acquired title over the property,
having purchased the same via a deed of absolute sale from Diosdado Sumilhig.
Thus, on December 31, 1961, Jesus Mascuana and Jose Estabillo executed a
Deed of Exchange and Absolute Sale of Real Estate, in which both parties
declared that they were co-owners of portions of Lot No. 124 abutted by the
property owned by Diosdado Sumilhig.[27]
In the subdivision plan of Lot No. 124, signed by Ricardo Quilop, Private Land
Surveyor, following his survey of Lot No. 124 on July 9, 1962 for and in behalf
of Jesus Mascuana, et al., it appears that Lot No. 124-B with an area of 540
square meters belonged to Diosdado Sumilhig,[28] which is abutted by Lot No.
124-C, owned by Jesus Mascuana.
On October 1, 1985, long after the death of Jesus Mascuana, one of his heirs,
petitioner Renee Tedrew, through counsel, wrote respondent Rodolfo Layumas
offering to buy the property occupied by his overseer Aquilino Barte for
US$1,000.00:
ATTY. RODOLFO S. LAYUMAS
San Carlos City
Negros Occidental
Dear Atty. Layumas:
This has reference to the lot located at Broce Street, portions of which are
presently occupied by Mr. Barte.
Mrs. Renee Tedrew (nee Agapuyan), who is now in the United States, would
like to offer the amount of $1,000.00 to buy your share of the said lot.
If you are amenable, kindly inform the undersigned for him to communicate
[with] Mrs. Tedrew in California.
Very truly yours,
(Sgd.)
SAMUEL SM LEZAMA[29]
It was only after the respondents rejected the proposal of petitioner Renee
Tedrew that the petitioners secured title over the property on March 17, 1986
in the name of Jesus Mascuana (already deceased at the time), canceling TCT
No. 967 issued on July 6, 1962 under the name of Jesus Mascuana, who appears
to be a co-owner of Lot No. 124 with an undivided two-seventh (2/7) portion
thereof.[30]
While it is true that Jesus Mascuana executed the deed of absolute sale over
the property on August 12, 1961 in favor of Diosdado Sumilhig for P4,690.00,
and that it was only on July 6, 1962 that TCT No. 967 was issued in his name as
one of the co-owners of Lot No. 124, Diosdado Sumilhig and the respondents
nevertheless acquired ownership over the property. The deed of sale executed
by Jesus Mascuana in favor of Diosdado Sumilhig on August 12, 1961 was a
perfected contract of sale over the property. It is settled that a perfected
contract of sale cannot be challenged on the ground of the non-transfer of
ownership of the property sold at that time of the perfection of the contract,
since it is consummated upon delivery of the property to the vendee. It is
through tradition or delivery that the buyer acquires ownership of the property
sold. As provided in Article 1458 of the New Civil Code, when the sale is made
through a public instrument, the execution thereof is equivalent to the delivery
of the thing which is the object of the contract, unless the contrary appears or
can be inferred. The record of the sale with the Register of Deeds and the
issuance of the certificate of title in the name of the buyer over the property
merely bind third parties to the sale. As between the seller and the buyer, the
transfer of ownership takes effect upon the execution of a public instrument
covering the real property.[31] Long before the petitioners secured a Torrens
title over the property, the respondents had been in actual possession of the
property and had designated Barte as their overseer.
Article 1458 of the New Civil Code provides:
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.
Thus, there are three essential elements of sale, 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.[32]
In this case, there was a meeting of the minds between the vendor and the
vendee, when the vendor undertook to deliver and transfer ownership over the
property covered by the deed of absolute sale to the vendee for the price
of P4,690.00 of which P3,690.00 was paid by the vendee to the vendor as down
payment. The vendor undertook to have the property sold, surveyed and
segregated and a separate title therefor issued in the name of the vendee, upon
which the latter would be obliged to pay the balance of P1,000.00. There was
no stipulation in the deed that the title to the property remained with the
vendor, or that the right to unilaterally resolve the contract upon the buyers
failure to pay within a fixed period was given to such vendor. Patently, the
contract executed by the parties is a deed of sale and not a contract to sell. As
the Court ruled in a recent case:
In Dignos v. Court of Appeals (158 SCRA 375), we have said that, although
denominated a Deed of Conditional Sale, a sale is still absolute where the
contract is devoid of any proviso that title is reserved or the right to unilaterally
rescind is stipulated, e.g., until or unless the price is paid. Ownership will then
be transferred to the buyer upon actual or constructive delivery (e.g. by the
execution of a public document) of the property sold. Where the condition is
imposed upon the perfection of the contract itself, the failure of the condition
would prevent such perfection. If the condition is imposed on the obligation of
a party which is not fulfilled, the other party may either waive the condition or
refuse to proceed with the sale. (Art. 1545, Civil Code)
Thus, in one case, when the sellers declared in a Receipt of Down Payment that
they received an amount as purchase price for a house and lot without any
reservation of title until full payment of the entire purchase price, the
implication was that they sold their property. In Peoples Industrial and
Commercial Corporation v. Court of Appeals, it was stated:
A deed of sale is considered absolute in nature where there is neither a
stipulation in the deed that title to the property sold is reserved in the seller
until full payment of the price, nor one giving the vendor the right to unilaterally
resolve the contract the moment the buyer fails to pay within a fixed period.
Applying these principles to this case, it cannot be gainsaid that the contract of
sale between the parties is absolute, not conditional. There is no reservation of
ownership nor a stipulation providing for a unilateral rescission by either party.
In fact, the sale was consummated upon the delivery of the lot to respondent.
Thus, Art. 1477 provides that the ownership of the thing sold shall be
transferred to the vendee upon the actual or constructive delivery thereof.[33]
The condition in the deed that the balance of P1,000.00 shall be paid to the
vendor by the vendee as soon as the property sold shall have been surveyed in
the name of the vendee and all papers pertinent and necessary to the issuance
of a separate certificate of title in the name of the vendee shall have been
prepared is not a condition which prevented the efficacy of the contract of sale.
It merely provides the manner by which the total purchase price of the property
is to be paid. The condition did not prevent the contract from being in full force
and effect:
The stipulation that the payment of the full consideration based on a survey
shall be due and payable in five (5) years from the execution of a formal deed
of sale is not a condition which affects the efficacy of the contract of sale. It
merely provides the manner by which the full consideration is to be computed
and the time within which the same is to be paid. But it does not affect in any
manner the effectivity of the contract. [34]
In a contract to sell, ownership is retained by a seller and is not to be transferred
to the vendee until full payment of the price. Such payment is a positive
suspensive condition, the failure of which is not a breach of contract but simply
an event that prevented the obligation from acquiring binding force.[35]
It bears stressing that in a contract of sale, the non-payment of the price is a
resolutory condition which extinguishes the transaction that, for a time, existed
and discharges the obligation created under the transaction.[36] A seller cannot
unilaterally and extrajudicially rescind a contract of sale unless there is an
express stipulation authorizing it. In such case, the vendor may file an action for
specific performance or judicial rescission.[37]
Article 1169 of the New Civil Code provides that 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 fulfills his obligation, delay by the other begins. In
this case, the vendor (Jesus Mascuana) failed to comply with his obligation of
segregating Lot No. 124-B and the issuance of a Torrens title over the property
in favor of the vendee, or the latters successors-in-interest, the respondents
herein. Worse, petitioner Jose Mascuana was able to secure title over the
property under the name of his deceased father.
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of merit. Costs
against the petitioners.
SO ORDERED.
Puno, (Chairman), Austria-Martinez, Tinga, and Chico-Nazario, JJ., concur.
G.R. No. 142411 October 14, 2005
WINIFREDA URSAL VS COURT OF APPEALS
 The Monesets answered that it was Ursal who stopped paying the agreed
DECISION monthly installments in breach of their agreement.[12] The Bank, on the other
AUSTRIA-MARTINEZ, J.: hand, averred that the title of the property was in the name of Cristita Radaza
Before us is a petition for review on certiorari under Rule 45 of the Moneset married to Jesus Moneset and did not show any legal infirmity.[13]
Rules of Court seeking the reversal of the Decision[1] of the Court of Appeals
(CA) dated June 28, 1999 and the Resolution dated January 31, 2000 denying
petitioners motion for reconsideration.[2]
These are the facts:
The spouses Jesus and Cristita Moneset (Monesets) are the registered owners
of a 333-square meter land together with a house thereon situated at Sitio Bundalo, meanwhile, was not served summons because he could no longer be
Laguna, Basak, Cebu City covered by Transfer Certificate of Title No. 78374.[3] found at his given address.[14]
On January 9, 1985, they executed a Contract to Sell Lot & House in favor of
petitioner Winifreda Ursal (Ursal), with the following terms and conditions:
That the VENDOR (Cristita R. Moneset) offers to SELL and the
VENDEE accepts to BUY at the agreed lump sum price of P130,000.00 payable
on the installment basis as follows
1. That on the date of the signing of this agreement, the VENDEE will tender Trial on the merits proceeded. Thereafter, the Regional Trial Court of Cebu City,
an earnest money or downpayment of P50,000.00 to the VENDOR, and by these Branch 24, rendered its decision finding that Ursal is more credible than the
presents, the latter hereby acknowledges receipt of said amount from the Monesets and that the Monesets are liable for damages for fraud and breach
former; of the contract to sell:
2. That the balance of the selling price of P80,000.00 shall be paid by the
VENDEE to the VENDOR in equal monthly installments of P3,000.00 starting the
month of February, 1985, until said balance of the selling price shall be fully
paid;
3. That if the VENDEE shall fail or in default to pay six (6) monthly installments
to the VENDOR the herein agreement is deemed cancelled, terminated and/or The evidence of [Ursal] show that she was the first to acquire a substantial
rescinded and in such event, the VENDEE (sic) binds to refund to the VENDOR interest over the lot and house by virtue of the execution of the Contract to Sell
(sic) the deposit of P50,000.00 and with the latters (sic) obligation to pay the (Exh. A). After the execution of Exh. A plaintiff took possession of the
former (sic) as a corresponding refund for cost of improvements made in the questioned lot and houseafter she made a downpayment of P50,000.00. [S]he
premises by VENDEE; paid the installments for six (6) months without fail. [However] plaintiff
4. That on the date of receipt of the downpayment of P50,000.00 by the (stopped) paying the installment because defendant spouses failed to give her
VENDOR, it is mutually agreed for VENDEE to occupy and take physical the Transfer Certificate of Title over the lot and house despite repeated
possession of the premises as well as for the latter (VENDEE) to keep and hold demands. It is evident then that the first to violate the conditions of Exh. A were
in possession the corresponding transfer certificate of title No. ______ of the the defendants Spouses Moneset. This is the reason why plaintiff was not able
land in question which is the subject of this agreement; to annotate Exh. A on the TCT. The evidence of plaintiff show that there was no
5. That on the date of final payment by the VENDEE to the VENDOR, the intention on her part to discontinue paying the installments. In a reciprocal
latter shall execute at her expense the corresponding document of DEED OF obligation, one cannot be compelled to do if the other party fails to do his part
ABSOLUTE SALE for the former as well as the payment of realty clearances, BIR (Art. 1169, New Civil Code).
Capital Gain Tax, sales tax or transfer fees and attorneys fees; that, for the
issuance of title in VENDEEs name shall be the exclusive account of said
VENDEE. [4]

Petitioner paid the down payment and took possession of the

property. She immediately built a concrete perimeter fence and an artesian
well, and planted fruit bearing trees and flowering plants thereon which all
amounted to P50,000.00. After paying six monthly installments, petitioner
stopped paying due to the Monesets failure to deliver to her the transfer
certificate of title of the property as per their agreement; and because of the
failure of the Monesets to turn over said title, petitioner failed to have the
contract of sale annotated thereon.[5]
Unknown to petitioner, the Monesets executed on November 5,
1985 an absolute deed of sale in favor of Dr. Rafael Canora, Jr. over the said
property for P14,000.00.[6] On September 15, 1986, the Monesets executed
another sale, this time with pacto de retro with Restituto Bundalo.[7] On the
same day, Bundalo, as attorney-in-fact of the Monesets, executed a real estate
mortgage over said property with Rural Bank of Larena (hereafter Bank) located
in Siquijor for the amount of P100,000.00.[8] The special power of attorney
made by the Monesets in favor of Bundalo as well as the real estate mortgage
was then annotated on the title on September 16, 1986.[9] For the failure of
the Monesets to pay the loan, the Bank served a notice of extrajudicial
foreclosure dated January 27, 1988 on Bundalo.[10]
On September 30, 1989, Ursal filed an action for declaration of non-
effectivity of mortgage and damages against the Monesets, Bundalo and the
Bank. She claimed that the defendants committed fraud and/or bad faith in
mortgaging the property she earlier bought from the Monesets with a bank
located in another island, Siquijor; and the Bank acted in bad faith since it
granted the real estate mortgage in spite of its knowledge that the property
was in the possession of petitioner.[11]
The acts of defendant Spouses Moneset in selling again the lot and house in
question to Dr. Canora by executing a Deed of Absolute Sale; in selling the same
on pacto de retro to defendant Bundalo; and in mortgaging the same to
defendant Rural Bank of Larena are plainly and clearly fraudulent because they
were done while Exh. A was still existing and the transaction was done without
notice to the plaintiff. As provided in Art. 1170 of the New Civil Code, those who
are guilty of fraud in the performance of their obligation --- and those who in
any manner contravene the tenor thereof, are liable for damages.
Another ground for liability under this article is when there is fraud/deceit. In
the instant case, there was fraud/deceit on the part of the defendant spouses
Moneset when they executed the Deed of Sale to Dr. Canora; the Deed of Sale
with Pacto de Retro to Bundalo and the Special Power of Attorney for Bundalo
to execute for and in their behalf the Real Estate Mortgage with the Rural Bank
of Larena knowing fully well that the Contract to Sell house and lot, Exh. A was
still existing notwithstanding their violation to the provisions thereto. It is
therefore crystal clear that defendant spouses Moneset are liable for
damages.[15]
As to the real estate mortgage, the trial court held that the same was valid and
the Bank was not under any obligation to look beyond the title, although the
present controversy could have been avoided had the Bank been more astute
in ascertaining the nature of petitioners possession of the property, thus:
The Real Estate Mortgage and the Foreclosure Proceedings cannot be
considered null and void in the sense that per se the formalities required by law
were complied with except for the fact that behind their execution there was
fraud, deceit and bad faith on the part of defendant spouses Moneset and
Bundalo.
The defendant Rural Bank of Larena for its part could have avoided this
situation if the bank appraiser who made the ocular inspection of the subject
house and lot went deeper and investigated further when he learned that the
owner is not the actual occupant. He was however told by Moneset that the
actual occupant was only a lessee. Banking on this information that the actual
occupant was only a lessee with no other right over and above such, the bank
approved a loan of P100,000.00 in favor of Moneset through Bundalo their
attorney-in-fact.
Likewise the Rural Bank of Larena had the right to rely on what appeared on
the certificate of title of the Monesets and it was under no obligation to look
beyond the certificate and investigate the title of the mortgagor appearing on
the face of the certificate.
The approval of the P100,000.00 loan from the Rural Bank of Larena was made
possible through the deception and bad faith of defendant spouses Moneset
and Bundalo but the pertinent documents were per se in order. The court is of
the honest belief that the case against the defendant bank be dismissed for lack
of merit. The court however believes that for reasons of equity the bank should
give the plaintiff Ursal the preferential right to redeem the subject house and
lot.[16]
The trial court then disposed of the case as follows:
Wherefore premises considered, judgment is hereby rendered in favor of the
defendant Rural Bank of Larena dismissing the complaint against it for lack of
merit and against the defendant spouses Moneset ordering them to:
1. reimburse to plaintiff Ursal the following:
a.) downpayment of P50,000.00
b.) monthly installments for six months at P3,000.00 per month --- P18,000.00
c.) expenses improvements P61, 676.52
2. pay to plaintiff the following:
a.) moral damages ----------------- P30,000.00
b.) exemplary damages ----------- P20,000.00
c.) litigation expenses------------- P 5,000.00
d.) attorneys fees ----------------- P10,000.00
e.) costs
3. order the defendant Rural Bank of Larena to give the plaintiff the
preferential right to redeem the subject house and lot.
SO ORDERED.[17]
Both Ursal and the Monesets appealed the decision to the CA. Ursal alleged
that the Bank was guilty of bad faith for not investigating the
presence of Ursal on the property in question, while the Monesets claimed that
the trial court erred in giving preferential right to Ursal to redeem the property
and in ordering them to pay damages.[18]
The CA affirmed in toto the decision of the trial court. It held that the Bank did
not have prior knowledge of the contract to sell the house and lot and the
Monesets acted fraudulently thus they cannot be given preferential right to
redeem the property and were therefore correctly ordered to pay
damages.[19]
The Monesets filed a motion for reconsideration which was denied outright for
having been filed out of time.[20] Ursals motion for reconsideration was denied
by the CA on January 31, 2000 for lack of merit.[21]
Hence, the present petition raising the sole error:
That with grave abuse of discretion amounting to excess of jurisdiction, the
Honorable Court of Appeals erred in rendering a decision and Resolution NOT
in accordance with law and the applicable rulings of the Supreme Court.[22]
Petitioner claims that: the Bank was duly informed through its appraiser that
the house and lot to be mortgaged by Monesets were in the possession of a
lessee; the Bank should have taken this as a cue to investigate further the
Monesets right over the same; the case of Embrado vs. Court of Appeals (233
SCRA 335) held that where a purchaser neglects to make the necessary inquiry
and closes his eyes to facts which should put a reasonable man on his guard to
the possibility of the existence of a defect in his vendors title, he cannot claim
that he is a purchaser in good faith; Sec. 50 of Act 496 provides that where a
party has knowledge of a prior existing interest which is unregistered at the
time he acquired the land, his knowledge of that prior unregistered interest has
the effect of registration as to him and the Torrens system cannot be used as a
shield against fraud; following Art. 2176 of the Civil Code, respondent Bank is
obliged to pay for the damage done.[23]

Petitioner then prayed that the Deed of Real Estate Mortgage be declared as
non-effective and non-enforceable as far as petitioner is concerned; that she
be declared as the absolute owner of the house and lot in question; that the
Monesets be ordered to execute a deed of absolute sale covering the subject
property; and that the Bank be ordered to direct the collection or payment of
the loan of P100,000.00 plus interest from the Monesets for they were the ones
who received and enjoyed the said loan.[24]
Respondent Bank, in its Memorandum dated July 20, 2005, reiterated the
arguments it made in its Comment that: the case cited by petitioner requiring
extra ordinary diligence is inapplicable in this case since what is involved here
is mortgage and not sale; as mortgagee, its interest is limited only to
determining whether the mortgagor is the registered owner of the property
whose certificate of title showed that there were no existing encumbrances
thereon; and even with unregistered encumbrances, the Bank has priority by
the registration of the loan documents.[30]

On the other hand, respondent Bank in its Comment argues that: its interest in
the property was only that of mortgagee and not a purchaser thus its interest
is limited only to ascertaining that the mortgagor is the registered owner; the No memorandum is filed by respondent Monesets.
case cited is inapplicable at bar since it involves the purchase of real property;
Ursal was purportedly only a lessee of the property, thus as mortgagor who is
not entitled to possess the mortgaged property, they no longer considered the
lease in the processing and approval of the loan; Sec. 50 of Act No. 496 is also
inapplicable since the alleged prior existing interest was only that of a lessee;
in any case, it was the Monesets who lied to the Bank anent the real nature of The crux of petitioners contention is that the Bank failed to look beyond the
the encumbrance, thus, it is the Monesets who are guilty of fraud and not the transfer certificate of title of the property for which it must be held liable.
Bank.[25]

We agree. Banks cannot merely rely on certificates of title in ascertaining the

In her Rejoinder,[26] petitioner argued that: under the law on mortgage, the status of mortgaged properties; as their business is impressed with public
mortgagor must be the owner of the property he offers as security of his loan; interest, they are expected to exercise more care and prudence in their dealings
the mortgagee like herein Bank which neglects to verify the ownership of the than private individuals.[31] Indeed, the rule that persons dealing with
property offered as security of the loan runs the risk of his folly; the Banks registered lands can rely solely on the certificate of title does not apply to
negligence is not excusable because an adverse claim and notice of lis pendens banks.[32]
were already annotated on the certificate of title when the mortgage was
constituted or when the deed of real estate mortgage was annotated; it would
be unfair to put the blame on petitioner who was innocent of the transaction;
the trial court found that the Bank even provided its appraiser the amount of
P15,000.00 to redeem the pacto de retro sale allegedly executed in favor of Dr.
Canora; this should have aroused the Banks suspicion and prompted it to As enunciated in Cruz vs. Bancom:[33]
investigate further the property; the trial court recognized the bad faith
committed by the Monesets and ordered them to pay the sum of P126,676.52
in damages but exonerated the Bank who is equally guilty of bad faith; the
Monesets cannot pay the damages as they have no money and property thus if
the decision of the trial court as affirmed by the CA is to be enforced, they will
only be holding an empty bag while the Bank which is equally guilty will go free; Respondent is not an ordinary mortgagee; it is a mortgagee-bank. As such,
what would be fair is to let the unlike private individuals, it is expected to exercise greater care and prudence
in its dealings, including those involving registered lands. A banking institution
two respondents bear jointly and severally the consequences of their is expected to exercise due diligence before entering into a mortgage contract.
transaction and let the innocent petitioner ultimately own the house and lot in The ascertainment of the status or condition of a property offered to it as
question.[27] security for a loan must be a standard and indispensable part of its
operations.[34]

The petitioner, in her Memorandum dated July 31, 2005, raised the issues of:
(1) Whether or not the document captioned: Contract to Sell Lot and House
(Exh. A) is valid and binding so much so that the herein Petitioner who is the Our agreement with petitioner on this point of law, notwithstanding, we are
Vendee is the lawful and true owner of the lot and house in question; (2) constrained to refrain from granting the prayers of her petition, to wit: that the
Whether or not the herein respondents spouses Jesus Moneset and Cristita Deed of Real Estate Mortgage be declared as non-effective and non-
Moneset who were the vendors and/or mortgagors together with respondent enforceable as far as petitioner is concerned; that she be declared as the
Restituto Bundalo were conniving and acting in bad faith; and (3) Whether or absolute owner of the house and lot in question; that the Monesets be ordered
not respondent Rural Bank of Larena measured up to the strict requirement of to execute a deed of absolute sale covering the subject property; and that the
making a thorough investigation of the property offered as collateral before Bank be ordered to direct the collection or payment of the loan of P100,000.00
granting a loan and be considered as innocent mortgagee and entitled to the plus interest from the Monesets for they were the ones who received and
protection of the law.[28] Petitioner reiterated her arguments in support of the enjoyed the said loan.[35]
first and third issues raised in the Memorandum while she merely adopted the
CA findings in support of the second issue, i.e., when the Monesets
encumbered the Transfer Certificate of Title (TCT) to Dr. Canora and thereafter
to Bundalo, they committed bad faith or fraud since the contract to sell with
Ursal was still valid and subsisting.[29]
The reason is that, the contract between petitioner and the Monesets being
one of Contract to Sell Lot and House, petitioner, under the circumstances,
never acquired ownership over the property and her rights were limited to
demand for specific performance from the Monesets, which at this juncture
however is no longer feasible as the property had already been sold to other In this case, the parties not only titled their contract as Contract to Sell Lot and
persons. House but specified in their agreement that the vendor shall only execute a
deed of absolute sale on the date of the final payment by vendee.[42] Such
provision signifies that the parties truly intended their contract to be that of
contract to sell.[43]

A contract to sell is 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.[36]
In such contract, the prospective seller expressly reserves the transfer of title
to the prospective buyer, until the happening of an event, which in this case is
the full payment of the purchase price. What the seller agrees or obligates
himself to do is to fulfill his promise to sell the subject property when the entire
amount of the purchase price is delivered to him. Stated differently, 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.[37]
Since the contract in this case is a contract to sell, the ownership of the property
remained with the Monesets even after petitioner has paid the down payment
and took possession of the property. In Flancia vs. Court of Appeals,[44] where
the vendee in the contract to sell also took possession of the property, this
Court held that the subsequent mortgage constituted by the owner over said
property in favor of another person was valid since the vendee retained
absolute ownership over the property.[45] At most, the vendee in the contract
to sell was entitled only to damages.[46]
Petitioner attributes her decision to stop paying installments to the failure of
the Monesets to comply with their agreement to deliver the transfer certificate
of title after the down payment of P50,000.00. On this point, the trial court was
correct in holding that for such failure, the Monesets are liable to pay damages
pursuant to Art. 1169 of the Civil Code on reciprocal obligations.[47]

It is different from contracts of sale, since ownership in contracts to sell is

reserved by the vendor and is not to pass to the vendee until full payment of
the purchase price, while in contracts of sale, title to the property passess to The vendors breach of the contract, notwithstanding, ownership still remained
the vendee upon the delivery of the thing sold. In contracts of sale the vendor with the Monesets and petitioner cannot justify her failure to complete the
loses ownership over the property and cannot recover it unless and until the payment.
contract is resolved or rescinded, while in contracts to sell, title is retained by
the vendor until full payment of the price.[38] In contracts to sell, full payment
is a positive suspensive condition while in contracts of sale, non-payment is a
negative resolutory condition.[39]

In Pangilinan vs. Court of Appeals,[48] the vendees contended that their failure
to pay the balance of the total contract price was because the vendor reneged
on its obligation to improve the subdivision and its facilities. In said case, the
Court held that the vendees were barred by laches from asking for specific
A contract to sell may further be distinguished from a conditional contract of performance eight years from the date of last installment. The Court held that:
sale, in that, the fulfillment of the suspensive condition, which is the full
payment of the purchase price, will not automatically transfer ownership to the
buyer although the property may have been previously delivered to him. The
prospective vendor still has to convey title to the

prospective buyer by entering into a contract of absolute sale. While in a
conditional contract of sale, the fulfillment of the suspensive condition renders
the sale absolute and affects the sellers title thereto such that if there was
previous delivery of the property, the sellers ownership or title to the property
is automatically transferred to the buyer. [40]
(the vendees) instead of being vigilant and diligent in asserting their rights over
the subject property had failed to assert their rights when the law requires
them to act. Laches or stale demands is based upon grounds of public policy
which requires, for the peace of society, the discouragement of stale claims and
unlike the statute of limitations, is not a mere question of time but is principally
a question of the inequity or unfairness of permitting a right or claim to be
enforced or asserted.

Indeed, in contracts to sell the obligation of the seller to sell becomes The legal adage finds application in the case at bar. Tempus enim modus
demandable only upon the happening of the suspensive condition, that is, the tollendi obligations et actiones, quia tempus currit contra desides et sui juris
full payment of the purchase price by the buyer. It is only upon the existence of contemptoresFor time is a means of dissipating obligations and actions,
the contract of sale that the seller becomes obligated to transfer the ownership because time runs against the slothful and careless of their own rights.[49]
of the thing sold to the buyer. Prior to the existence of the contract of sale, the
seller is not obligated to transfer the ownership to the buyer, even if there is a
contract to sell between them. [41]
In this case, petitioner instituted an action for Declaration of Non-Effectivity of
Mortgage with Damages four years from the date of her last installment and
only as a reaction to the foreclosure proceedings instituted by respondent
Bank. After the Monesets failed to deliver the TCT, petitioner merely stopped
paying installments and did not institute an action for specific performance,
neither did she consign payment of the remaining balance as proof of her
willingness and readiness to comply with her part of the obligation. As we held
in San Lorenzo Development Corp. vs. Court of Appeals,[50] the perfected
contract to sell imposed on the vendee the obligation to pay the balance of the
purchase price. There being an obligation to pay the price, the vendee should
have made the proper tender of payment and consignation of the price in court
as required by law. Consignation of the amounts due in court is essential in
order to extinguish the vendees obligation to pay the balance of the purchase
price.[51] Since there is no indication in the records that petitioner even
attempted to make the proper consignation of the amounts due, the obligation
on the part of the Monesets to transfer ownership never acquired obligatory
force.
In other words, petitioner did not acquire ownership over the subject property
as she did not pay in full the equal price of the contract to sell. Further, the
Monesets breach did not entitle petitioner to any preferential treatment over
the property especially when such property has been sold to other persons.
As explained in Coronel vs. Court of Appeals:[52]
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.[53] (Emphasis supplied)
In this case, the lower courts found that the property was sold to Dr. Canora
and then to Bundalo who in turn acted as attorney-in-fact for the Monesets in
mortgaging the property to respondent Bank. The trial court and the CA erred
in giving petitioner the preferential right to redeem the property as such would
prejudice the rights of the subsequent buyers who were not parties in the
proceedings below. While the matter of giving petitioner preferential right to
redeem the property was not put in issue before us, in the exercise of our
discretionary power to correct manifest and palpable error, we deem it proper
to delete said portion of the decision for being erroneous.[54]
Petitioners rights were limited to asking for specific performance and damages
from the Monesets. Specific performance, however, is no longer feasible at this
point as explained above. This being the case, it follows that petitioner never
had any cause of action against respondent Bank. Having no cause of action
against the bank and not being an owner of the subject property, petitioner is
not entitled to redeem the subject property.
Petitioner had lost her right to demand specific performance when the
Monesets executed a Deed of Absolute Sale in favor of Dr. Canora. Contrary to
what she claims, petitioner had no vested right over the property.
Indeed, it is the Monesets who first breached their obligation towards
petitioner and are guilty of fraud against her. It cannot be denied however that
petitioner is also not without fault. She sat on her rights and never consigned
the full amount of the property. She therefore cannot ask to be declared the
owner of the property, this late, especially since the same has already passed
hands several times, neither can she question the mortgage constituted on the
property years after title has already passed to another person by virtue of a
deed of absolute sale.
At this point, let it be stated that the courts below and even this Court have no
jurisdiction to resolve the issue whether there was bad faith among the
Monesets, Canora and Bundalo. Canora was never impleaded. Bundalo has not
been served with summons.
WHEREFORE, the petition is DENIED. The decision of the Regional Trial Court of
Cebu City, Branch 24, promulgated on February 5, 1993 and the decision of the
Court of Appeals dated June 28, 1999 are hereby AFFIRMED. However, in the
higher interest of substantial justice, the Court MODIFIES the same to the effect
that the portion ordering the Rural Bank of Larena (Siquijor), Inc. to give
petitioner the preferential right to redeem the house and lot covered by
Transfer Certificate of Title No. 78374 is DELETED for lack of legal basis.
No costs.
SO ORDERED.
THIRD DIVISION
FERNANDO CARRASCOSO, JR.,
Petitioner,
-versus-
THE HONORABLE COURT OF APPEALS, LAURO LEVISTE, as Director and Minority
Stockholder and On Behalf of Other Stockholders of El Dorado Plantation, Inc.
and EL DORADO PLANTATION, INC., represented by one of its minority
stockholders, Lauro P. Leviste,
Respondents.
x---------------------------------------x
PHILIPPINE LONG DISTANCE TELEPHONE COMPANY,
Petitioner,
-versus-

LAURO LEVISTE, as Director and Minority Stockholder and On Behalf of Other
Stockholders of El Dorado Plantation, Inc., EL DORADO PLANTATION, INC.,
represented by Minority Stockholder, Lauro P. Leviste, and FERNANDO
CARRASCOSO, JR.
Respondents.
G.R. No. 123672
Present:
PANGANIBAN, J., Chairman,
SANDOVAL-GUTIERREZ,
CORONA,
CARPIO MORALES, and GARCIA, JJ.
G. R. No. 164489
Promulgated:
December 14, 2005
x----------------------------------------------x
DECISION
CARPIO MORALES, J.:
El Dorado Plantation, Inc. (El Dorado) was the registered owner of a parcel of
land (the property) with an area of approximately 1,825 hectares covered by
Transfer Certificate of Title (TCT) No. T-93[1] situated in Sablayan, Occidental
Mindoro.
On February 15, 1972, at a special meeting of El Dorados Board of Directors, a
Resolution[2] was passed authorizing Feliciano Leviste, then President of El
Dorado, to negotiate the sale of the property and sign all documents and
contracts bearing thereon.
On March 23, 1972, by a Deed of Sale of Real Property,[3] El Dorado, through
Feliciano Leviste, sold the property to Fernando O. Carrascoso, Jr. (Carrascoso).
The pertinent provisions of the Deed of Sale read:
NOW, THEREFORE, for and in consideration of the sum of ONE MILLION EIGHT
HUNDRED THOUSAND (1,800,000.00) PESOS, Philippine Currency, the Vendor
hereby sells, cedes, and transfer (sic) unto the herein VENDEE, his heirs,
successors and assigns, the above-described property subject to the following
terms and consitions (sic):
1. Of the said sum of P1,800,000.00 which constitutes the full consideration of
this sale, P290,000.00 shall be paid, as it is hereby paid, to the Philippines (sic)
National Bank, thereby effecting the release and cancellation fo (sic) the
present mortgage over the above-described property.
2. That the sum of P210,000.00 shall be paid, as it is hereby paid by the VENDEE
to the VENDOR, receipt of which amount is hereby acknowledged by the
VENDOR.
3. The remaining balance of P1,300,000.00 plus interest thereon at the rate of
10% per annum shall be paid by the VENDEE to the VENDOR within a period of
three (3) years, as follows:
(a) One (1) year from the date of the signing of this agreement, the VENDEE
shall pay to the VENDOR the sum of FIVE HUNDRED NINETEEN THOUSAND
EIGHT HUNDRED THIRTY THREE & 33/100 (P519,833.33) PESOS.
(b) Two (2) years from the date of signing of this agreement, the VENDEE shall
pay to the VENDOR the sum of FIVE HUNDRED NINETTEN (sic) THOUSAND
EIGHT HUNDRED AND THIRTY-THREE & 33/100 (P519,833.33) PESOS.
(c) Three (3) years from the date of signing of this agreement, the VENDEE shall
pay to the VENDOR the sum of FIVE Hundred NINETEEN THOUSAND EIGHT
HUNDRED AND THIRTY-THREE & 33/100 (P519,833.33) PESOS.
4. The title of the property, subject of this agreement, shall pass and be
transferred to the VENDEE who shall have full authority to register the same
and obtain the corresponding transfer certificate of title in his name.
xxx
6. THE VENDOR certifies and warrants that the property above-described is not
being cultivated by any tenant and is therefore not covered by the provisions
of the Land Reform Code. If, therefore, the VENDEE becomes liable under the
said law, the VENDOR shall reimburse the VENDEE for all expenses and
damages he may incur thereon.[4] (Underscoring supplied)
From the above-quoted provisions of the Deed of Sale, Carrascoso was to pay
the full amount of the purchase price on March 23, 1975.
On even date, the Board of Directors of El Dorado passed a Resolution reading:
RESOLVED that by reason of the sale of that parcel of land covered by TCT No.
T-93 to Dr. FERNANDO O. CARRASCOSO, JR., the corporation interposes
no objection to the property being mortgage (sic) by Dr. FERNANDO O.
CARRASCOSO, JR. to any bank of his choice as long as the balance on the Deed
of Sale shall be recognized by Dr. FERNANDO O. CARRASCOSO, JR.;
RESOLVED, FURTHER, that the corporation authorizes the prefered (sic) claim
on the property to be subordinated to any mortgage that may be constituted
by Dr. FERNANDO O. CARRASCOSO, JR.;
RESOLVED, FINALLY, that in case of any mortgage on the property, the
corporation waives the preference of any vendors lien on the
property.[5] (Emphasis and underscoring supplied)
Feliciano Leviste also executed the following affidavit on the same day:
1. That by reason of the sale of that parcel of land covered by Transfer
Certificate of Title T-93 as evidenced by the Deed of Sale attached hereto as
Annex A and made an integral part hereof, the El Dorado Plantation, Inc. has no
objection to the aforementioned property being mortgaged by Dr. Fernando O.
Carrascoso, Jr. to any bank of his choice, as long as the payment of the balance
due the El Dorado Plantation, Inc. under the Deed of Sale, Annex A hereof, shall
be recognized by the vendee therein, Dr. Fernando O. Carrascoso, Jr. though
subordinated to the preferred claim of the mortgagee bank.
2. That in case of any mortgage on the property, the vendor hereby waives the
preference of any vendors lien on the property, subject matter of the deed of
sale.
3. That this affidavit is being executed to avoid any question on the authority of
Dr. Fernando O. Carrascoso, Jr. to mortgage the property subject of the Deed
of Sale, Annex A hereof, where the purchase price provided therein has not
been fully paid.
4. That this affidavit has been executed pursuant to a board resolution of El
Dorado Plantation, Inc.[6] (Emphasis and underscoring supplied)
On the following day, March 24, 1972, Carrascoso and his wife Marlene
executed a Real Estate Mortgage[7] over the property in favor of Home Savings
Bank (HSB) to secure a loan in the amount of P1,000,000.00. Of this
amount, P290,000.00 was paid to Philippine National Bank to release the
mortgage priorly constituted on the property and P210,000.00 was paid to El
Dorado pursuant to above-quoted paragraph Nos. 1 and 2 of the terms and
conditions of the Deed of Sale.[8]
The March 23, 1972 Deed of Sale of Real Property was registered and
annotated on El Dorados TCT No. T-93 as Entry No. 15240[9] on April 5, 1972.
On even date, TCT No. T-93 covering the property was cancelled and TCT No.
T-6055[10] was in its stead issued by the Registry of Deeds of Occidental Mindoro
in the name of Carrascoso on which the real estate mortgage in favor of HSB
was annotated as Entry No. 15242.[11]
On May 18, 1972, the real estate mortgage in favor of HSB was amended to
include an additional three year loan of P70,000.00 as requested by the
spouses Carrascoso.[12] The Amendment of Real Estate Mortgage was also
annotated on TCT No. T-6055 as Entry No. 15486 on May 24, 1972.[13]
The 3-year period for Carrascoso to fully pay for the property on March 23,
1975 passed without him having complied therewith.
In the meantime, on July 11, 1975, Carrascoso and the Philippine Long Distance
Telephone Company (PLDT), through its President Ramon Cojuangco, executed
an Agreement to Buy and Sell[14] whereby the former agreed to sell 1,000
hectares of the property to the latter at a consideration of P3,000.00 per
hectare or a total of P3,000,000.00.
The July 11, 1975 Agreement to Buy and Sell was not registered and annotated
on Carrascosos TCT No. T-6055.
Lauro Leviste (Lauro), a stockholder and member of the Board of Directors of
El Dorado, through his counsel, Atty. Benjamin Aquino, by letter[15] dated
December 27, 1976, called the attention of the Board to Carrascosos failure to
pay the balance of the purchase price of the property amounting
to P1,300,000.00. And Lauros lawyer manifested that:
Because of the default for a long time of Mr. Carrascoso to pay the balance of
the consideration of the sale, Don Lauro Leviste, in his behalf and in behalf of
the other shareholders similarly situated like him, want a rescission of the
sale made by the El Dorado Plantation, Inc. to Mr. Carrascoso. He desires that
the Board of Directors take the corresponding action for rescission.[16]
Lauros desire to rescind the sale was reiterated in two other
letters[17] addressed to the Board dated January 20, 1977 and March 3, 1977.
Jose P. Leviste, as President of El Dorado, later sent a letter of February 21,
1977[18] to Carrascoso informing him that in view of his failure to pay the
balance of the purchase price of the property, El Dorado was seeking the
rescission of the March 23, 1972 Deed of Sale of Real Property.
The pertinent portions of the letter read:
xxx
I regret to inform you that the balance of P1,300,000.00 and the interest
thereon have long been due and payable, although you have mortgaged said
property with the Home Savings Bank for P1,000,000.00 on March 24, 1972,
which was subsequently increased to P1,070,000.00 on May 18, 1972.
You very well know that the El Dorado Plantation, Inc., is a close family
corporation, owned exclusively by the members of the Leviste family and I am
one of the co-owners of the land. As nothing appears to have been done on
your part after our numerous requests for payment of the said amount of
P1,300,000.00 and the interest of 10% per annum due thereon, please be
advised that we would like to rescind the contract of sale of the
land.[19] (Underscoring supplied)
Jose Leviste, by letter[20] dated March 10, 1977, informed Lauros counsel Atty.
Aquino of his (Joses) February 21, 1977 letter to Carrascoso, he lamenting that
Carrascoso has not deemed it fit to give [his] letter the courtesy of a reply and
advis[ing] that some of the Directors of [El Dorado] could not see their way clear
in complying with the demands of your client [Lauro] and have failed to reach
a consensus to bring the corresponding action for rescission of the contract
against . . . Carrascoso.[21]
Lauro and El Dorado finally filed on March 15, 1977 a complaint[22] for rescission
of the March 23, 1972 Deed of Sale of Real Property between El Dorado and
Carrascoso with damages before the Court of First Instance (CFI) of Occidental
Mindoro, docketed as Civil Case No. R-226.
Lauro and El Dorado also sought the cancellation of TCT No. T-6055 in the name
of Carrascoso and the revival of TCT No. T-93 in the name of El Dorado, free
from any liens and encumbrances. Furthermore, the two prayed for the
issuance of an order for Carrascoso to: (1) reconvey the property to El Dorado
upon return to him of P500,000.00, (2) secure a discharge of the real estate
mortgage constituted on the property from HSB, (3) submit an accounting of
the fruits of the property from March 23, 1972 up to the return of possession
of the land to El Dorado, (4) turn over said fruits or the equivalent value thereof
to El Dorado and (5) pay the amount of P100,000.00 for attorneys fees and
other damages.[23]
Also on March 15, 1977, Lauro and El Dorado caused to be annotated on TCT
No. T-6055 a Notice of Lis Pendens,inscribed as Entry No. 39737.[24]
In the meantime, Carrascoso, as vendor and PLDT, as vendee forged on April 6,
1977 a Deed of Absolute Sale[25] over the 1,000 hectare portion of the property
subject of their July 11, 1975 Agreement to Buy and Sell. The pertinent portions
of the Deed are as follows:
WHEREAS, the VENDOR and the VENDEE entered into an agreement To Buy and
Sell on July 11, 1975, which is made a part hereof by reference;
WHEREAS, the VENDOR and the VENDEE are now decided to execute the Deed
of Absolute Sale referred to in the aforementioned agreement to Buy and Sell;
WHEREFORE, for and in consideration of the foregoing premises and the terms
hereunder stated, the VENDOR and the VENDEE have agreed as follows:
1. For and in consideration of the sum of THREE MILLION PESOS
(P3,000,000.00), Philippine currency, of which ONE HUNDRED TWENTY
THOUSAND PESOS P120,000.00 have (sic) already been received by the
VENDOR, the VENDOR hereby sells, transfers and conveys unto the VENDEE
one thousand hectares (1,000 has.) of his parcel of land covered by T.C.T. No.
T-6055 of the Registry of Deeds of Mindoro, delineated as Lot No. 3-B-1 in the
subdivision survey plan xxx
2. The VENDEE shall pay to the VENDOR upon the signing of this agreement,
the sum of TWO MILLION FIVE HUNDRED THOUSAND PESOS (P2,500,000.00) in
the following manner:
a) The sum of TWO MILLION THREE HUNDRED THOUSAND PESOS
(P2,300,000.00) to Home Savings Bank in full payment of the VENDORs
mortgaged obligation therewith;
b) The sum of TWO HUNDRED THOUSAND PESOS (P200,000.00) to VENDOR;
The remaining balance of the purchase price in the sum of THREE HUNDRED
EIGHTY THOUSAND PESOS (P380,000.00), less such expenses which may be
advanced by the VENDEE but which are for the account of the VENDOR under
Paragraph 6 of the Agreement to Buy and Sell, shall be paid by the VENDEE to
the VENDOR upon issuance of title to the VENDEE.[26] (Underscoring supplied)
In turn, PLDT, by Deed of Absolute Sale[27] dated May 30, 1977, conveyed the
aforesaid 1,000 hectare portion of the property to its subsidiary, PLDT
Agricultural Corporation (PLDTAC), for a consideration of P3,000,000.00, the
amount of P2,620,000.00 of which was payable to PLDT upon signing of said
Deed, and P380,000.00 to Carrascoso upon issuance of title to PLDTAC.
In the meantime, on October 19, 1977, the El Dorado Board of Directors, by a
special meeting,[28] adopted and approved a Resolution ratifying and conferring
the prosecution of Civil Case No. R-226 of the Court of First Instance of
Occidental Mindoro, entitled Lauro P. Leviste vs. Fernando Carascoso (sic), etc.
initiated by stockholder Mr. Lauro P. Leviste.[29]
In his Answer with Compulsory Counterclaim,[30] Carrascoso alleged that: (1) he
had not paid his remaining P1,300,000.00 obligation under the March 23, 1972
Deed of Sale of Real Property in view of the extensions of time to comply
therewith granted him by El Dorado; (2) the complaint suffered from fatal
defects, there being no showing of compliance with the condition precedent of
exhaustion of intra-corporate remedies and the requirement that a derivative
suit instituted by a complaining stockholder be verified under oath; (3) El
Dorado committed a gross misrepresentation when it warranted that the
property was not being cultivated by any tenant to take it out of the coverage
of the Land Reform Code; and (4) he suffered damages due to the premature
filing of the complaint for which Lauro and El Dorado must be held liable.
On February 21, 1978, the April 6, 1977 and May 30, 1977 Deeds of Absolute
Sale and the respective Articles of Incorporation of PLDT and PLDTAC were
annotated on TCT No. T-6055 as Entry Nos. 24770,[31] 42774,[32] 42769[33] and
24772,[34] respectively. On even date, Carrascosos TCT No. T-6055 was
cancelled and TCT No. T-12480[35] covering the 1,000 hectare portion of the
property was issued in the name of PLDTAC. The March 15, 1977 Notice of Lis
Pendens was carried over to TCT No. T-12480.
On July 31, 1978, PLDT and PLDTAC filed an Urgent Motion for
Intervention[36] which was granted by the trial court by Order[37] of September
7, 1978.
PLDT and PLDTAC thereupon filed their Answer In Intervention with
Compulsory Counterclaim and Crossclaim[38]against Carrascoso on November
13, 1978, alleging that: (1) when Carrascoso executed the April 6, 1977 Deed of
Absolute Sale in favor of PLDT, PLDT was not aware of any litigation involving
the 1,000 hectare portion of the property or of any flaw in his title, (2) PLDT is
a purchaser in good faith and for value; (3) when PLDT executed the May 30,
1977 Deed of Absolute Sale in favor of PLDTAC, they had no knowledge of any
pending litigation over the property and neither were they aware that a notice
of lis pendens had been annotated on Carrascosos title; and (4) Lauro and El
Dorado knew of the sale by Carrascoso to PLDT and PLDTs actual possession of
the 1,000 hectare portion of the property since June 30, 1975 and of its exercise
of exclusive rights of ownership thereon through agricultural development.[39]
By Decision[40] of January 28, 1991, Branch 45 of the San Jose Occidental
Mindoro Regional Trial Court to which the CFI has been renamed, dismissed the
complaint on the ground of prematurity, disposing as follows, quoted verbatim:
WHEREFORE, in view of all the foregoing considerations, judgment is hereby
rendered:
1. Dismissing the plaintiffs complaint against the defendant on the ground of
prematurity;
2. Ordering the plaintiffs to pay to the defendant the sum of P2,980,000.00 as
actual and compensatory damages, as well as the sum of P100,000.00 as and
for attorneys fees; provided, however, that the aforesaid amounts must first be
set off from the latters unpaid balance to the former;
3. Dismissing the defendants-intervenors counterclaim and cross-claim; and
4. Ordering the plaintiffs to pay to (sic) the costs of suit.
SO ORDERED.[41] (Underscoring supplied)
Carrascoso, PLDT and PLDTAC filed their respective appeals to the Court of
Appeals.
By Decision[42] of January 31, 1996, the appellate court reversed the decision of
the trial court, disposing as follows, quoted verbatim:
WHEREFORE, not being meritorious, PLDTs/PLDTACs appeal is hereby
DISMISSED and finding El Dorados appeal to be impressed with merit, We
REVERSE the appealed Decision and render the following judgment:
1. The Deed of Sale of Real Property (Exhibit C) is hereby rescinded and TCT No.
T-12480 (Exhibit Q) is cancelled while TCT No. T-93 (Exhibit A), is reactivated.
2. Fernando Carrascoso, Jr. is commanded to:
2.1. return the possession of the 825 [hectare-] remaining portion of the land
to El Dorado Plantation, Inc. without prejudice to the landholdings of legitimate
tenants thereon;
2.2. return the net fruits of the land to El Dorado Plantation, Inc. from March
23, 1972 to July 11, 1975, and of the 825-hectare-remaining portion minus the
tenants landholdings, from July 11, 1975 up to its delivery to El Dorado
Plantation, Inc. including whatever he may have received from the tenants if
any by way of compensation under the Operation Land Transfer or under any
other pertinent agrarian law;
2.3 Pay El Dorado Plantation, Inc. an attorneys fee of P20,000.00 and litigation
expenses of P30,000.00;
2.4 Return to Philippine Long Distance Telephone Company/PLDT Agricultural
Corporation P3,000,000.00 plus legal interest from April 6, 1977 until fully paid;
3. PLDT Agricultural Corporation is ordered to surrender the possession of the
1000-hectare Farm to El Dorado Plantation, Inc.;
4. El Dorado Plantation, Inc. is directed to return the P500,000.00 to Fernando
Carrascoso, Jr. plus legal interest from March 23, 1972 until fully paid. The
performance of this obligation will however await the full compliance by
Fernando Carrascoso, Jr. of his obligation to account for and deliver the net
fruits of the land mentioned above to El Dorado Plantation, Inc.
5. To comply with paragraph 2.2 herein, Carrascoso is directed to submit in (sic)
the court a quo a full accounting of the fruits of the land during the period
mentioned above for the latters approval, after which the net fruits shall be
delivered to El Dorado, Plantation, Inc.
6. El Dorado Plantation, Inc. should inform Philippine Long Distance Telephone
Co. and PLDT Agricultural Corporation in writing within ten (10) days after
finality of this decision regarding the exercise of its option under Art. 448 of the
Civil Code.
SO ORDERED.[43] (Underscoring supplied)
PLDT and PLDTAC filed on February 22, 1996, a Motion for
Reconsideration[44] of the January 31, 1996 CA Decision, while Carrascoso went
up this Court by filing on March 25, 1996 a petition for review,[45] docketed as
G.R. No. 123672, assailing the January 31, 1996 CA Decision and seeking the
reinstatement of the January 28, 1991 Decision of the trial court except with
respect to its finding that the acquisition of PLDT and PLDTAC of the 1,000
hectare portion of the property was subject to the notice of lis pendens.
Lauro, in the meantime, died, hence, on April 16, 1996, a Motion for
Substitution of Party[46] was filed praying that his heirs, represented by Conrad
C. Leviste, be substituted as respondents. The Motion was granted by
Resolution[47] of July 10, 1996.
PLDT and PLDTAC filed their Comment[48] to Carrascosos petition and prayed
that judgment be rendered finding them to be purchasers in good faith to thus
entitle them to possession and ownership of the 1,000 hectare portion of the
property, together with all the improvements they built thereon. Reiterating
that they were not purchasers pendente lite, they averred that El Dorado and
Lauro had actual knowledge of their interests in the said portion of the property
prior to the annotation of the notice of lis pendens to thereby render said
notice ineffective.
El Dorado and the heirs of Lauro, both represented by Conrad C. Leviste, also
filed their Comment[49] to Carrascosos petition, praying that it be dismissed for
lack of merit and that paragraph 6 of the dispositive portion of the January 31,
1996 CA Decision be modified to read as follows:

6. El Dorado Plantation, Inc. should inform Philippine Long Distance Telephone
Co. and PLDT Agricultural Corporation in writing within ten (10) days after
finality of this decision regarding the exercise of its option under Arts. 449 and
450 of the Civil Code, without right to indemnity on the part of the latter should
the former decide to keep the improvements under Article
449.[50](Underscoring supplied)
Carrascoso filed on November 13, 1996 his Reply[51] to the Comment of El
Dorado and the heirs of Lauro.
In the meantime, as the February 22, 1996 Motion for Reconsideration filed by
PLDT and PLDTAC of the CA decision had remained unresolved, this Court, by
Resolution[52] of June 30, 2003, directed the appellate court to resolve the
same.
By Resolution[53] of July 8, 2004, the CA denied PLDT and PLDTACs Motion for
Reconsideration for lack of merit.
PLDT[54] thereupon filed on September 2, 2004 a petition for review[55] before
this Court, docketed as G.R. No. 164489, seeking to reverse and set aside the
January 31, 1996 Decision and the July 8, 2004 Resolution of the appellate
court. It prayed that judgment be rendered upholding its right, interest and title
to the 1,000 hectare portion of the property and that it and its successors-in-
interest be declared owners and legal possessors thereof, together with all
improvements built, sown and planted thereon.
By Resolution[56] of August 25, 2004, G.R. No. 164489 was consolidated with
G.R. No. 123672.
In his petition, Carrascoso faults the CA as follows:
I have acquired the thing, in accordance with Articles 1385 and 1388 and the
THE COURT OF APPEALS ACTED WITH GRAVE ABUSE OF DISCRETION AND
COMMITTED A MISTAKE OF LAW IN NOT DECLARING THAT THE ACTION FOR
RESCISSION WAS PREMATURELY FILED.
II
THE COURT OF APPEALS ACTED WITH GRAVE ABUSE OF DISCRETION AND
COMMITTED A MISTAKE OF LAW IN DISREGARDING THE CRUCIAL
SIGNIFICANCE OF THE WARRANTY OF NON-TENANCY EXPRESSLY STIPULATED
IN THE CONTRACT OF SALE.
III
THE COURT OF APPEALS ACTED WITH GRAVE ABUSE OF DISCRETION IN
REVERSING THE DECISION OF THE TRIAL COURT.[57] (Underscoring supplied)
PLDT, on the other hand, faults the CA as follows:
I contract.[65]
THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN HOLDING THAT
PETITIONER AND PLTAC (sic) TOOK THEIR RIGHT, INTEREST AND TITLE TO THE
FARM SUBJECT TO THE NOTICE OF LIS PENDENS, THE SAME IN DISREGARD OF
THE PROTECTION ACCORDED THEM UNDER ARTICLES 1181 AND 1187 OF THE
NEW CIVIL CODE.
II
THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN HOLDING THAT
PETITIONER AND PLDTAC TOOK THEIR RIGHT, INTEREST AND TITLE TO THE
FARM SUBJECT TO THE NOTICE OF LIS PENDENS, THE SAME IN DISREGARD OF
THE LEGAL PRINCIPLE THAT RESPONDENTS EL DORADO ET AL.s PRIOR, ACTUAL
KNOWLEDGE OF PETITIONER PLDTS AGREEMENT TO BUY AND SELL WITH
RESPONDENT CARRASCOSO RESULTING IN THE DELIVERY TO, AND
POSSESSION, OCCUPATION AND DEVELOPMENT BY, SAID PETITIONER OF THE
FARM, IS EQUIVALENT TO REGISTRATION OF SUCH RIGHT, INTEREST AND TITLE
AND, THEREFORE, A PRIOR REGISTRATION NOT AFFECTED BY THE LATER
NOTICE OF LIS PENDENS.[58] (Underscoring supplied)
Carrascoso posits that in the El Dorado Board Resolution and the Affidavit of
Feliciano Leviste, both dated March 23, 1972, no objection was interposed to
his mortgaging of the property to any bank provided that the balance of the
purchase price of the property under the March 23, 1972 Deed of Sale of Real
Property is recognized, hence, El Dorado could collect the unpaid balance
of P1,300,000.00 only after the mortgage in favor of HSB is paid in full; and the
filing of the complaint for rescission with damages on March 15, 1977 was
premature as he fully paid his obligation to HSB only on April 5, 1977 as
evidenced by the Cancellation of Mortgage[59] signed by HSB President Gregorio
B. Licaros.
Carrascoso further posits that extensions of the period to pay El Dorado were
verbally accorded him by El Dorados directors and officers, particularly Jose and
Angel Leviste.
Article 1191 of the Civil Code provides:
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
Mortgage Law.
Reciprocal obligations are those which arise from the same cause, and in which
each party is a debtor and a creditor of the other, such that the obligation of
one is dependent upon the obligation of the other.[60] They are to be performed
simultaneously such that the performance of one is conditioned upon the
simultaneous fulfillment of the other.[61]
The right of rescission of a party to an obligation under Article 1191 is
predicated on a breach of faith by the other party who violates the reciprocity
between them.[62]
A contract of sale is a reciprocal obligation. The seller obligates itself to transfer
the ownership of and deliver a determinate thing, and the buyer obligates itself
to pay therefor a price certain in money or its equivalent.[63] The non-payment
of the price by the buyer is a resolutory condition which extinguishes the
transaction that for a time existed, and discharges the obligations created
thereunder.[64] Such failure to pay the price in the manner prescribed by the
contract of sale entitles the unpaid seller to sue for collection or to rescind the
In the case at bar, El Dorado already performed its obligation through the
execution of the March 23, 1972 Deed of Sale of Real Property which effectively
transferred ownership of the property to Carrascoso. The latter, on the other
hand, failed to perform his correlative obligation of paying in full the contract
price in the manner and within the period agreed upon.
The terms of the Deed are clear and unequivocal: Carrascoso was to pay the
balance of the purchase price of the property amounting to P1,300,000.00 plus
interest thereon at the rate of 10% per annum within a period of three (3) years
from the signing of the contract on March 23, 1972. When Jose Leviste
informed him that El Dorado was seeking rescission of the contract by letter of
February 21, 1977, the period given to him within which to fully satisfy his
obligation had long lapsed.
The El Dorado Board Resolution and the Affidavit of Jose Leviste interposing no
objection to Carrascosos mortgaging of the property to any bank did not have
the effect of suspending the period to fully pay the purchase price, as expressly
stipulated in the Deed, pending full payment of any mortgage obligation of
Carrascoso.
As the CA correctly found:
The adverted resolution (Exhibit 2) does not say that the obligation of
Carrascoso to pay the balance was extended. Neither can We see in it anything
that can logically infer said accommodation.
A partially unpaid seller can agree to the buyers mortgaging the subject of the
sale without changing the time fixed for the payment of the balance of the
price. The two agreements are not incompatible with each other such that
when one is to be implemented, the other has to be suspended. In the case at
bench, there was no impediment for Carrascoso to pay the balance of the price
after mortgaging the land.
Also, El Dorados subordinating its preferred claim or waiving its superior
vendors lien over the land in favor of the mortgagee of said property only
means that in a situation where the unpaid price of the Land and loan secured
by the mortgage over the Land both become due and demandable, the
mortgagee shall have precedence in going after the Land for the satisfaction of
the loan. Such accommodations do not necessarily imply the modification of
the period fixed in the contract of sale for the payment by Carrascoso of the
balance.
The palpable purpose of El Dorado in not raising any objection to Carrascosos
mortgaging the land was to eliminate any legal impediment to such a contract.
That was so succinctly expressed in the Affidavit (Exhibit 2-A) of President
Feleciano (sic) Leviste. El Dorados yielding its superior lien over the land in favor
of the mortgagee was plainly intended to overcome the natural reluctance of
lending institutions to accept a land whose price has not yet been fully paid as
collateral of a loan.[66] (Underscoring supplied)
Respecting Carrascosos insistence that he was granted verbal extensions within
which to pay the balance of the purchase price of the property by El Dorados
directors and officers Jose and Angel Leviste, this Court finds the same
unsubstantiated by the evidence on record.
It bears recalling that Jose Leviste wrote Carrascoso, by letter of February 21,
1977, calling his attention to his failure to comply, despite numerous requests,
with his obligation to pay the amount of P1,300,000.00 and 10% annual interest
thereon, and advising him that we would like to rescind the contract of sale.
This letter reiterated the term of payment agreed upon in the March 23, 1972
Deed of Sale of Real Property and Carrascososs non-compliance therewith.
Carrascoso, harping on Jose Levistes March 10, 1977 letter to Lauros counsel
wherein he (Jose Leviste) stated that some of the Directors of the corporation
could not see their way clear in complying with the demands of [Lauro] and
have failed to reach a consensus to bring the corresponding action for
rescission of the contract against Dr. Fernando Carrascoso, argues that the
extensions priorly given to him no doubt lead to the logical conclusion on some
of the directors inability to file suit against him.[67]
The argument is specious. As the CA found, even if some officers of El Dorado
were initially reluctant to file suit against him, the same should not be
interpreted to mean that this was brought about by a prior extension of the
period to pay the balance of the purchase price of the property as such
reluctance could have been due to a myriad of reasons totally unrelated to the
period of payment of the balance.
The bottomline however is, if El Dorado really intended to extend the period of
payment of the balance there was absolutely no reason why it did not do it in
writing in clear and unmistakable terms. That there is no such writing negates
all the speculations of the court a quo and pretensions of Carrascoso.
xxx
The unalterable fact here remains that on March 23, 1973, with or without
demand, the obligation of Carrascoso to pay P519,933.33 became due. The
same was true on March 23, 1974 and on March 23, 1975 for equal amounts.
Since he did not perform his obligation under the contract of sale, he, therefore,
breached it. Having breached the contract, El Dorados cause of action for
rescission of that contract arose.[68] (Underscoring supplied)
Carrascoso goes on to argue that the appellate court erred in ignoring the
import of the warranty of non-tenancy expressly stipulated in the March 23,
1972 Deed of Sale of Real Property. He alleges that on March 8, 1972 or two
weeks prior to the execution of the Deed of Sale, he discovered, while
inspecting the property on board a helicopter, that there were people and
cattle in the area; when he confronted El Dorado about it, he was told that the
occupants were caretakers of cattle who would soon leave;[69] four months
after the execution of the Deed of Sale, upon inquiry with the Bureau of Lands
and the Bureau of Soils, he was informed that there were people claiming to be
tenants in certain portions of the property;[70] and he thus brought the matter
again to El Dorado which informed him that the occupants were not tenants
but squatters.[71]
Carrascoso now alleges that as a result of what he concludes to be a breach of
the warranty of non-tenancy committed by El Dorado, he incurred expenses in
the amount of P2,890,000.00 for which he should be reimbursed, his unpaid
obligation to El Dorado amounting to P1,300,000.00 to be deducted
therefrom.[72]
The breach of an express warranty makes the seller liable for damages.[73] The
following requisites must be established in order that there be an express
warranty in a contract of sale: (1) the express warranty must be an affirmation
of fact or any promise by the seller relating to the subject matter of the sale;
(2) the natural tendency of such affirmation or promise is to induce the buyer
to purchase the thing; and (3) the buyer purchases the thing relying on such
affirmation or promise thereon.[74]
Under the March 23, 1972 Deed of Sale of Real Property, El Dorado warranted
that the property was not being cultivated by any tenant and was, and
therefore, not covered by the provisions of the Land Reform Code. If Carrascoso
would become liable under the said law, he would be reimbursed for all
expenses and damages incurred thereon.
Carrascoso claims to have incurred expenses in relocating persons found on the
property four months after the execution of the Deed of Sale. Apart from such
bare claim, the records are bereft of any proof that those persons were indeed
tenants.[75]The fact of tenancy[76] not having been priorly established,[77] El
Dorado may not be held liable for actual damages.
Carrascoso further argues that both the trial and appellate courts erred in
holding that the sale of the 1,000 hectare portion of the property to PLDT, as
well as its subsequent sale to PLDTAC, is subject to the March 15, 1977 Notice
of Lis Pendens.
PLDT additionally argues that the CA incorrectly ignored the Agreement to Buy
and Sell which it entered into with Carrascoso on July 11, 1975, positing that
the efficacy of its purchase from Carrascoso, upon his fulfillment of the
condition it imposed resulting in its decision to formalize their transaction and
execute the April 6, 1977 Deed of Sale, retroacted to July 11, 1975 or before
the annotation of the Notice of Lis Pendens.[78]
The pertinent portions of the July 11, 1975 Agreement to Buy and Sell between
PLDT and Carrascoso read:
2. That the VENDOR hereby agrees to sell to the VENDEE and the latter hereby
agrees to purchase from the former, 1,000 hectares of the above-described
parcel of land as shown in the map hereto attached as Annex A and made an
integral part hereof and as hereafter to be more particularly determined by the
survey to be conducted by Certeza & Co., at the purchase price of P3,000.00
per hectare or for a total consideration of Three Million Pesos (P3,000,000.00)
payable in cash.
3. That this contract shall be considered rescinded and cancelled and of no
further force and effect, upon failure of the VENDOR to clear the
aforementioned 1,000 hectares of land of all the occupants therein located,
within a period of one (1) year from the date of execution of this Agreement.
However, the VENDEE shall have the option to extend the life of this Agreement
by another six months, during which period the VENDEE shall definitely inform
the VENDOR of its decision on whether or not to finalize the deed of absolute
sale for the aforementioned 1,000 hectares of land.
The VENDOR agrees that the amount of P500.00 per family within the
aforementioned 1,000 hectares of land shall be spent by him for relocation
purposes, which amount however shall be advanced by the VENDEE and which
shall not exceed the total amount of P120,000.00, the same to be thereafter
deducted by the VENDEE from the aforementioned purchase price of
P3,000,000.00.
The aforementioned advance of P120,000.00 shall be remitted by the VENDEE
to the VENDOR upon the signing of this Agreement.
xxx
It is likewise further agreed that the VENDEE shall have the right to enter into
any part of the aforementioned 1,000 hectares at any time within the period of
this Agreement for purposes of commencing the development of the same.
xxx
5. Title to the aforementioned land shall also be cleared of all liens or
encumbrances and if there are any unpaid taxes, existing mortgages, liens and
encumbrances on the land, the payments to be made by the VENDEE to the
VENDOR of the purchase price shall first be applied to liquidate said mortgages,
liens and/or encumbrances, such that said payments shall be made directly to
the corresponding creditors. Thus, the balance of the purchase price will be
paid to the VENDOR after the title to the land is cleared of all such liens and
encumbrances.
xxx
7. The VENDOR agrees that, during the existence of this Agreement and without
the previous written permission from the VENDEE, he shall not sell, cede, assign
and/or transfer the parcel of land subject of this Agreement.[79]
A notice of lis pendens is an announcement to the whole world that a particular
real property is in litigation, and serves as a warning that one who acquires an
interest over said property does so at his own risk, or that he gambles on the
result of the litigation over said property.[80]
Once a notice of lis pendens has been duly registered, any cancellation or
issuance of title over the land involved as well as any subsequent transaction
affecting the same would have to be subject to the outcome of the suit. In other
words, a purchaser who buys registered land with full notice of the fact that it
is in litigation between the vendor and a third party stands in the shoes of his
vendor and his title is subject to the incidents and result of the pending
litigation.[81]
x x x Notice of lis pendens has been conceived and, more often than not, availed
of, to protect the real rights of the registrant while the case involving such rights
is pending resolution or decision. With the notice of lis pendens duly recorded,
and while it remains uncancelled, the registrant could rest secure that he would
not lose the property or any part of it during the litigation.
The filing of a notice of lis pendens in effect (1) keeps the subject matter of
litigation within the power of the court until the entry of the final judgment so
as to prevent the defeat of the latter by successive alienations; and (2) binds a
purchaser of the land subject of the litigation to the judgment or decree that
will be promulgated thereon whether such a purchaser is a bona fide purchaser
or not; but (3) does not create a non-existent right or lien.
The doctrine of lis pendens is founded upon reason of public policy and
necessity, the purpose of which is to keep the subject matter of the litigation
within the power of the court until the judgment or decree shall have been
entered; otherwise by successive alienations pending the litigation, its
judgment or decree shall be rendered abortive and impossible of execution.
The doctrine of lis pendens is based on considerations of public policy and
convenience, which forbid a litigant to give rights to others, pending the
litigation, so as to affect the proceedings of the court then progressing to
enforce those rights, the rule being necessary to the administration of justice
in order that decisions in pending suits may be binding and may be given full
effect, by keeping the subject matter in controversy within the power of the
court until final adjudication, that there may be an end to litigation, and to
preserve the property that the purpose of the pending suit may not be defeated
by successive alienations and transfers of title.[82] (Italics in the original)
In ruling against PLDT and PLDTAC, the appellate court held:
PLDT and PLDTAC argue that in reality the Farm was bought by the former on
July 11, 1975 when Carrascoso and it entered into the Agreement to Buy and
Sell (Exhibit 15). How can an agreement to buy and sell which is a preparatory
contract be the same as a contract of sale which is a principal contract? If PLDTs
contention is correct that it bought the Farm on July 11, 1975, why did it buy
the same property again on April 6, 1977? There is simply no way PLDT and
PLDTAC can extricate themselves from the effects of said Notice of Lis Pendens.
It is admitted that PLDT took possession of the Farm on July 11, 1975 after the
execution of the Agreement to Buy and Sell but it did so not as owner but as
prospective buyer of the property. As prospective buyer which had actual on
(sic) constructive notice of the lis pendens, why did it pursue and go through
with the sale if it had not been willing to gamble with the result of this
case?[83] (Underscoring supplied)
Further, in its July 8, 2004 Resolution, the CA held:
PLDT cannot shield itself from the notice of lis pendens because all that it had
at the time of its inscription was an Agreement to Buy and Sell with
CARRASCOSO, which in effect is a mere contract to sell that did not pass to it
the ownership of the property.
xxx
Ownership was retained by CARRASCOSO which EL DORADO may very well
recover through its action for rescission.
xxx
PLDTs possession at the time the notice of lis pendens was registered not being
a legal possession based on ownership but a mere possession in fact and the
Agreement to Buy and Sell under which it supposedly took possession not being
registered, it is not protected from an adverse judgment that may be rendered
in the case subject of the notice of lis pendens.[84] (Underscoring supplied)
In a contract of sale, the title passes to the vendee upon the delivery of the
thing sold; whereas in a contract to sell, ownership is not transferred upon
delivery of the property but upon full payment of the purchase price.[85] In the
former, the vendor has lost and cannot recover ownership until and unless the
contract is resolved or rescinded; whereas in the latter, title is retained by the
vendor until the full payment of the price, such payment being a positive
suspensive condition and failure of which is not a breach but an event that
prevents the obligation of the vendor to convey title from becoming
effective.[86]
PLDT argues that the July 11, 1975 Agreement to Buy and Sell is a conditional
contract of sale, thus calling for the application of Articles 1181[87] and
1187[88] of the Civil Code as held in Coronel v. Court of Appeals.[89]
The Court is not persuaded.
For in a conditional contract of sale, 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 automaticallytransfers to the buyer by operation of law without any
further act having to be performed by the seller.[90] Whereas in a contract to
sell, upon fulfillment of the suspensive condition, 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.[91]
A perusal of the contract[92] adverted to in Coronel reveals marked differences
from the Agreement to Buy and Sell in the case at bar. In the Coronel contract,
there was a clear intent on the part of the therein petitioners-sellers to transfer
title to the therein respondent-buyer. In the July 11, 1975 Agreement to Buy
and Sell, PLDT still had to definitely inform Carrascoso of its decision on whether
or not to finalize the deed of absolute sale for the 1,000 hectare portion of the
property, such that in the April 6, 1977 Deed of Absolute Sale subsequently
executed, the parties declared that they are now decided to execute such deed,
indicating that the Agreement to Buy and Sell was, as the appellate court held,
merely a preparatory contract in the nature of a contract to sell. In fact, the
parties even had to stipulate in the said Agreement to Buy and Sell that
Carrascoso, during the existence of the Agreement, shall not sell, cede, assign
and/or transfer the parcel of land, which provision this Court has held to be a
typical characteristic of a contract to sell.[93]
Being a contract to sell, what was vested by the July 11, 1975 Agreement to Buy
and Sell to PLDT was merely the beneficial title to the 1,000 hectare portion of
the property.
The right of Daniel Jovellanos to the property under the contract [to sell] with
Philamlife was merely an inchoate and expectant right which would ripen into
a vested right only upon his acquisition of ownership which, as aforestated, was
contingent upon his full payment of the rentals and compliance with all his
contractual obligations thereunder. A vested right is an immediate fixed right
of present and future enjoyment. It is to be distinguished from a right that is
expectant or contingent. It is a right which is fixed, unalterable, absolute,
complete and unconditional to the exercise of which no obstacle exists, and
which is perfect in itself and not dependent upon a contingency. Thus, for a
property right to be vested, there must be a transition from the potential or
contingent to the actual, and the proprietary interest must have attached to a
thing; it must have become fixed or established and is no longer open to doubt
or controversy.[94] (Underscoring supplied)
In the case at bar, the July 11, 1975 Agreement to Buy and Sell was not
registered, which act of registration is the operative act to convey and affect
the land.
An agreement to sell is a voluntary instrument as it is a willful act of the
registered owner. As such voluntary instrument, Section 50 of Act No. 496 [now
Section 51 of PD 1529] expressly provides that the act of registration shall be
the operative act to convey and affect the land. And Section 55 of the same Act
[now Section 53 of PD 1529] requires the presentation of the owners duplicate
certificate of title for the registration of any deed or voluntary instrument. As
the agreement to sell involves an interest less than an estate in fee simple, the
same should have been registered by filing it with the Register of Deeds who,
in turn, makes a brief memorandum thereof upon the original and owners
duplicate certificate of title. The reason for requiring the production of the
owners duplicate certificate in the registration of a voluntary instrument is that,
being a willful act of the registered owner, it is to be presumed that he is
interested in registering the instrument and would willingly surrender, present
or produce his duplicate certificate of title to the Register of Deeds in order to
accomplish such registration. However, where the owner refuses to surrender
the duplicate certificate for the annotation of the voluntary instrument, the
grantee may file with the Register of Deeds a statement setting forth his
adverse claim, as provided for in Section 110 of Act No. 496.
xxx[95] (Underscoring supplied)
In Valley Golf Club, Inc. v. Salas,[96] where a Deed of Absolute Sale covering a
parcel of land was executed prior to the annotation of a notice of lis pendens by
the original owner thereof but which Deed was registered after such
annotation, this Court held:
The advance payment of P15,000.00 by the CLUB on October 18, 1960 to
ROMERO, and the additional payment by the CLUB of P54,887.50 as full
payment of the purchase price on October 26, 1960, also to ROMERO, cannot
be held to be the dates of sale such as to precede the annotation of the adverse
claim by the SISTERS on October 25, 1960 and the lis pendens on October 27,
1960. It is basic that it is the act of registration of the sale that is the operative
act to convey and affect the land. That registration was not effected by the
CLUB until December 4, 1963, or three (3) years after it had made full payment
to ROMERO. xxx
xxx
As matters stand, therefore, in view of the prior annotations of the adverse
claim and lis pendens, the CLUB must be legally held to have been aware of the
flaws in the title. By virtue of the lis pendens, its acquisition of the property was
subject to whatever judgment was to be rendered in Civil Case No. 6365. xxx
The CLUBs cause of action lies, not against the SISTERS, to whom the property
had been adjudged by final judgment in Civil Case No. 6365, but against
ROMERO who was found to have had no right to dispose of the
land.[97] (Underscoring supplied)
PLDT further argues that El Dorados prior, actual knowledge of the July 11, 1975
Agreement to Buy and Sell is equivalent to prior registration not affected by the
Notice of Lis Pendens. As such, it concludes that it was not a
purchaser pendente lite nor a purchaser in bad faith.
PLDT anchors its argument on the testimony of Lauro and El Dorados counsel
Atty. Aquino from which it infers that Atty. Aquino filed the complaint for
rescission and caused the notice of lis pendens to be annotated on Carrascosos
title only after reading newspaper reports on the sale to PLDT of the 1,000
hectare portion of the property.
The pertinent portions of Atty. Aquinos testimony are reproduced hereunder:
Q: Do you know, Atty. Aquino, what you did after the filing of the complaint in
the instant case of Dr. Carrascoso?
A: Yes, I asked my associates to go to Mamburao and had the notice of Lis
Pendens covering the property as a result of the filing of the instant complaint.
Q: Do you know the notice of Lis Pendens?
A: Yes, it is evidenced by a [Transfer] Certificate Copy of Title of Dr. Carrascoso
entitled Notice of Lis Pendens.
Q: As a consequence of the filing of the complaint which was annotated, you
have known that?
A: Yes.
xxx
Q: After the annotation of the notice of Lis Pendens, do you know, if any further
transaction was held on the property?
A: As we have read in the newspaper, that Dr. Carrascoso had sold the property
in favor of the PLDT, Co.
Q: And what did you do?
A: We verified the portion of the property having recorded under entry No.
24770 xxx and we also discovered that the articles incorporated (sic) and other
corporate matters had been organized and established of the PLDT, Co., and
had been annotated.
xxx
Q: Do you know what happened to the property?
A: It was sold by the PLDT to its sub-PLDT Agitating (sic) Co. when at that time
there was already notice of Lis Pendens.
xxx
Q: In your testimony, you mentioned that you had come cross- (sic) reading the
sale of the subject litigation (sic) between Dr. Fernando Carrascoso, the
defendant herein and the PLDT, one of defendants-intervenor, may I say
when?
A: I cannot remember now, but it was in the newspaper where it was informed
or mentioned of the sold property to PLDT.
xxx
Q: Will you tell to the Honorable Court what newspaper was that?
A: Well, I cannot remember what is that newspaper. That is only a means of
[confirming] the transaction. What was [confirmed] to us is whether there was
really transaction (sic) and we found out that there was in the Register of Deeds
and that was the reason why we obtained the case.
Q: Well, may I say, is there any reason, the answer is immaterial. The question
is as regard the matter of time when counsel is being able (sic) to read the
newspaper allegedly (interrupted)
xxx
Q: The idea of the question, your Honor, is to establish and ask further the
notice of [lis pendens] with regards (sic) to the transfer of property to PLDT,
would have been accorded prior to the pendency of the case.
xxx
A: I cannot remember.[98]
PLDT also relies on the following testimony of Carrascoso:
Q: You mentioned Doctor a while ago that you mentioned to the late Governor
Feliciano Leviste regarding your transaction with the PLDT in relation to the
subject property you allegedly mention (sic) your intention to sell with the
PLDT?
A: It was Dr. Jose Leviste and Dr. Angel Leviste that was constantly in touched
(sic) with me with respect to my transaction with the PLDT, sir.
Q: Any other officer of the corporation who knows with instruction aside from
Dr. Angel Leviste and Dr. Jose Leviste?
A: Yes, sir. It was Trinidad Andaya Leviste and Assemblyman Expedito Leviste.
xxx
Q: What is the position of Mrs. Trinidad Andaya Leviste with the plaintiff-
corporation?
A: One of the stockholders and director of the plaintiff-corporation, sir.
Q: Will you please tell us the other officers?
A: Expedito Leviste, sir.
A: Will you tell the position of Expedito Leviste?
A: He was the corporate secretary, sir.
Q: If you know, was Dr. Jose Leviste also a director at that time?
A: Yes, sir.[99]
On the other hand, El Dorado asserts that it had no knowledge of the July 11,
1975 Agreement to Buy and Sell prior to the filing of the complaint for rescission
against Carrascoso and the annotation of the notice of lis pendens on his title.
It further asserts that it always acted in good faith:
xxx The contract to sell between the Petitioner [Carrascoso] and PLDT was
executed in July 11, 1975. There is no evidence that El Dorado was notified of
this contract. The property is located in Mindoro, El Dorado is based in Manila.
The land was planted to rice. This was not an unusual activity on the land, thus
it could have been the Petitioner who was using the land. Not having been
notified of this sale, El Dorado could not have stopped PLDT from developing
the land.
The absolute sale of the land to PLDT took place on April 6, 1977, or AFTER the
filing of this case on March 15, 1977 and the annotation of a notice of lis
pendens on March 16, 1977. Inspite of the notice of lis pendens, PLDT then
PLDTAC persisted not only in buying the land but also in putting up
improvements on the property such as buildings, roads, irrigation systems and
drainage. This was done during the pendency of this case, where PLDT and
PLDTAC actively participated as intervenors. They were not innocent
bystanders. xxx[100]
This Court finds the above-quoted testimony of Atty. Aquino to be susceptible
of conflicting interpretations. As such, it cannot be the basis for inferring that
El Dorado knew of the July 11, 1975 Agreement to Buy and Sell prior to the
annotation of the notice of lis pendens on Carrascosos title.
Respecting Carrascosos allegation that some of the directors and officers of El
Dorado had knowledge of his dealings with PLDT, it is true that knowledge of
facts acquired or possessed by an officer or agent of a corporation in the course
of his employment, and in relation to matters within the scope of his authority,
is notice to the corporation, whether he communicates such knowledge or
not.[101] In the case at bar, however, apart from Carrascosos claim that he in fact
notified several of the directors about his intention to sell the 1,000 hectare
portion of the property to PLDT, no evidence was presented to substantiate his
claim. Such self-serving, uncorroborated assertion is indubitably inadequate to
prove that El Dorado had notice of the July 11, 1975 Agreement to Buy and Sell
before the annotation of the notice of lis pendens on his title.
PLDT is, of course, not without recourse. As held by the CA:
Between Carrascoso and PLDT/PLDTAC, the former acted in bad faith while the
latter acted in good faith. This is so because it was Carrascosos refusal to pay
his just debt to El Dorado that caused PLDT/PLDTAC to suffer pecuniary losses.
Therefore, Carrascoso should return to PLDT/PLDTAC the P3,000,000.00 price
of the farm plus legal interest from receipt thereof until paid.[102](Underscoring
supplied)
The appellate courts decision ordering the rescission of the March 23, 1972
Deed of Sale of Real Property between El Dorado and Carrascoso being in order,
mutual restitution follows to put back the parties to their original situation prior
to the consummation of the contract.
The exercise of the power to rescind extinguishes the obligatory relation as if it
had never been created, the extinction having a retroactive effect. The
rescission is equivalent to invalidating and unmaking the juridical tie, leaving
things in their status before the celebration of the contract.
Where a contract is rescinded, it is the duty of the court to require both parties
to surrender that which they have respectively received and to place each other
as far as practicable in his original situation, the rescission has the effect of
abrogating the contract in all parts.[103] (Underscoring supplied)
The April 6, 1977 and May 30, 1977 Deeds of Absolute Sale being subject to the
notice of lis pendens, and as the Court affirms the declaration by the appellate
court of the rescission of the Deed of Sale executed by El Dorado in favor of
Carrascoso, possession of the 1,000 hectare portion of the property should be
turned over by PLDT to El Dorado.
As regards the improvements introduced by PLDT on the 1,000 hectare portion
of the property, a distinction should be made between those which it built prior
to the annotation of the notice of lis pendens and those which it introduced
subsequent thereto.
When a person builds in good faith on the land of another, Article 448 of the
Civil Code governs:
Art. 448. The owner of the land on which anything has been built, sown or
planted in good faith, shall have the right to appropriate as his own the works,
sowing or planting, after payment of the indemnity provided for in Articles 546
and 548, or to oblige the one who built or planted to pay the price of the land,
and the one who sowed, the proper rent. However, the builder or planter
cannot be obliged to buy the land if its value is considerably more than that of
the building or trees. In such a case, he shall pay reasonable rent, if the owner
of the land does not choose to appropriate the building or trees after the
proper indemnity. The parties shall agree upon the terms of the lease and in
case of disagreement, the court shall fix the terms thereof.
The above provision covers cases in which the builders, sowers or planters
believe themselves to be owners of the land or, at least, to have a claim of title
thereto.[104] Good faith is thus identified by the belief that the land is owned; or
that by some title one has the right to build, plant, or sow thereon.[105]
The owner of the land on which anything has been built, sown or planted in
good faith shall have the right to appropriate as his own the building, planting
or sowing, after payment to the builder, planter or sower of the necessary and
useful expenses,[106] and in the proper case, expenses for pure luxury or mere
pleasure.[107]
The owner of the land may also oblige the builder, planter or sower to purchase
and pay the price of the land.
If the owner chooses to sell his land, the builder, planter or sower must
purchase the land, otherwise the owner may remove the improvements
thereon. The builder, planter or sower, however, is not obliged to purchase the
land if its value is considerably more than the building, planting or sowing. In
such case, the builder, planter or sower must pay rent to the owner of the land.
If the parties cannot come to terms over the conditions of the lease, the court
must fix the terms thereof.
The right to choose between appropriating the improvement or selling the land
on which the improvement of the builder, planter or sower stands, is given to
the owner of the land.[108]
On the other hand, when a person builds in bad faith on the land of another,
Articles 449 and 450 govern:
Art. 449. He who builds, plants or sows in bad faith on the land of another, loses
what is built, planted or sown without right to indemnity.
Art. 450. The owner of the land on which anything has been built, planted or
sown in bad faith may demand the demolition of the work, or that the planting
or sowing be removed, in order to replace things in their former condition at
the expense of the person who built, planted or sowed; or he may compel the
builder or planter to pay the price of the land, and the sower the proper rent.
In the case at bar, it is undisputed that PLDT commenced construction of
improvements on the 1,000 hectare portion of the property immediately after
the execution of the July 11, 1975 Agreement to Buy and Sell with the full
consent of Carrascoso.[109] Thus, until March 15, 1977 when the Notice of Lis
Pendens was annotated on Carrascosos TCT No. T-6055, PLDT is deemed to
have been in good faith in introducing improvements on the 1,000 hectare
portion of the property.
After March 15, 1977, however, PLDT could no longer invoke the rights of a
builder in good faith.
Should El Dorado then opt to appropriate the improvements made by PLDT on
the 1,000 hectare portion of the property, it should only be made to pay for
those improvements at the time good faith existed on the part of PLDT or until
March 15, 1977,[110] to be pegged at its current fair market value.[111]
The commencement of PLDTs payment of reasonable rent should start on
March 15, 1977 as well, to be paid until such time that the possession of the
1,000 hectare portion is delivered to El Dorado, subject to the reimbursement
of expenses as aforestated, that is, if El Dorado opts to appropriate the
improvements.[112]
If El Dorado opts for compulsory sale, however, the payment of rent should
continue up to the actual transfer of ownership.[113]
WHEREFORE, the petitions are DENIED. The Decision dated January 13, 1996
and Resolution dated July 8, 2004 of the Court of Appeals
are AFFIRMED with MODIFICATION in that
1) the Regional Trial Court of San Jose, Occidental Mindoro, Branch 45 is further
directed to:
a. determine the present fair price of the 1,000 hectare portion of the
property and the amount of the expenses actually spent by PLDT for the
improvements thereon as of March 15, 1977;
b. include for determination the increase in value (plus value) which the
1,000 hectare portion may have acquired by reason of the existence of
the improvements built by PLDT before March 15, 1977 and the current
fair market value of said improvements;
2. El Dorado is ordered to exercise its option under the law, whether to
appropriate the improvements, or to oblige PLDT to pay the price of the land,
and
3) PLDT shall pay El Dorado the amount of Two Thousand Pesos (P2,000.00) per
month as reasonable compensation for its occupancy of the 1,000 hectare
portion of the property from the time that its good faith ceased to exist until
such time that possession of the same is delivered to El Dorado, subject to the
reimbursement of the aforesaid expenses in favor of PLDT or until such time
that the payment of the purchase price of the 1,000 hectare portion is made by
PLDT in favor of El Dorado in case the latter opts for its compulsory sale.
Costs against petitioners.
SO ORDERED.
G.R. No. L-11491 August 23, 1918
ANDRES QUIROGA, vs. PARSONS HARDWARE CO.,
AVANCEÑA, 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.
G.R. No. L-20871 April 30, 1971
KER & CO., LTD vs. JOSE B. LINGAD
FERNANDO, J.:
Petitioner Ker & Co., Ltd. would have us reverse a decision of the Court of Tax
Appeals, holding it liable as a commercial broker under Section 194 (t) of the
National Internal Revenue Code. Its plea, notwithstanding the vigorous effort
of its counsel, is not sufficiently persuasive. An obstacle, well-nigh insuperable
stands in the way. The decision under review conforms to and is in accordance
with the controlling doctrine announced in the recent case of Commissioner of
Internal Revenue v. Constantino.1 The decisive test, as therein set forth, is the
retention of the ownership of the goods delivered to the possession of the
dealer, like herein petitioner, for resale to customers, the price and terms
remaining subject to the control of the firm consigning such goods. The facts,
as found by respondent Court, to which we defer, unmistakably indicate that
such a situation does exist. The juridical consequences must inevitably follow.
We affirm.
It was shown that petitioner was assessed by the then Commissioner of Internal
Revenue Melecio R. Domingo the sum of P20,272.33 as the commercial
broker's percentage tax, surcharge, and compromise penalty for the period
from July 1, 1949 to December 31, 1953. There was a request on the part of
petitioner for the cancellation of such assessment, which request was turned
down. As a result, it filed a petition for review with the Court of Tax Appeals. In
its answer, the then Commissioner Domingo maintained his stand that
petitioner should be taxed in such amount as a commercial broker. In the
decision now under review, promulgated on October 19, 1962, the Court of Tax
Appeals held petitioner taxable except as to the compromise penalty of
P500.00, the amount due from it being fixed at P19,772.33.
Such liability arose from a contract of petitioner with the United States Rubber
International, the former being referred to as the Distributor and the latter
specifically designated as the Company. The contract was to apply to
transactions between the former and petitioner, as Distributor, from July 1,
1948 to continue in force until terminated by either party giving to the other
sixty days' notice.2 The shipments would cover products "for consumption in
Cebu, Bohol, Leyte, Samar, Jolo, Negros Oriental, and Mindanao except [the]
province of Davao", petitioner, as Distributor, being precluded from disposing
such products elsewhere than in the above places unless written consent would
first be obtained from the Company.3 Petitioner, as Distributor, is required to
exert every effort to have the shipment of the products in the maximum
quantity and to promote in every way the sale thereof.4 The prices, discounts,
terms of payment, terms of delivery and other conditions of sale were subject
to change in the discretion of the Company.5
Then came this crucial stipulation: "The Company shall from time to time
consign to the Distributor and the Distributor will receive, accept and/or hold
upon consignment the products specified under the terms of this agreement in
such quantities as in the judgment of the Company may be necessary for the
successful solicitation and maintenance of business in the territory, and the
Distributor agrees that responsibility for the final sole of all goods delivered
shall rest with him. All goods on consignment shall remain the property of the
Company until sold by the Distributor to the purchaser or purchasers, but all
sales made by the Distributor shall be in his name, in which the sale price of all
goods sold less the discount given to the Distributor by the Company in
accordance with the provision of paragraph 13 of this agreement, whether or
not such sale price shall have been collected by the Distributor from the
purchaser or purchasers, shall immediately be paid and remitted by the
Distributor to the Company. It is further agreed that this agreement does not
constitute Distributor the agent or legal representative 4 of the Company for
any purpose whatsoever. Distributor is not granted any right or authority to
assume or to create any obligation or responsibility, express or implied, in
behalf of or in the name of the Company, or to bind the Company in any manner
or thing whatsoever."6
All specifications for the goods ordered were subject to acceptance by the
Company with petitioner, as Distributor, required to accept such goods shipped
as well as to clear the same through customs and to arrange for delivery in its
warehouse in Cebu City. Moreover, orders are to be filled in whole or in part
from the stocks carried by the Company's neighboring branches, subsidiaries or
other sources of Company's brands.7 Shipments were to be invoiced at prices
to be agreed upon, with the customs duties being paid by petitioner, as
Distributor, for account of the Company.8 Moreover, all resale prices, lists,
discounts and general terms and conditions of local resale were to be subject
to the approval of the Company and to change from time to time in its
discretion.9 The dealer, as Distributor, is allowed a discount of ten percent on
the net amount of sales of merchandise made under such agreement. 10 On a
date to be determined by the Company, the petitioner, as Distributor, was
required to report to it data showing in detail all sales during the month
immediately preceding, specifying therein the quantities, sizes and types
together with such information as may be required for accounting purposes,
with the Company rendering an invoice on sales as described to be dated as of
the date of inventory and sales report. As Distributor, petitioner had to make
payment on such invoice or invoices on due date with the Company being
privileged at its option to terminate and cancel the agreement forthwith upon
the failure to comply with this obligation. 11 The Company, at its own expense,
was to keep the consigned stock fully insured against loss or damage by fire or
as a result of fire, the policy of such insurance to be payable to it in the event
of loss. Petitioner, as Distributor, assumed full responsibility with reference to
the stock and its safety at all times; and upon request of the Company at any
time, it was to render inventory of the existing stock which could be subject to
change. 12 There was furthermore this equally tell-tale covenant: "Upon the
termination or any cancellation of this agreement all goods held on
consignment shall be held by the Distributor for the account of the Company,
without expense to the Company, until such time as provision can be made by
the Company for disposition." 13
The issue with the Court of Tax Appeals, as with us now, is whether the
relationship thus created is one of vendor and vendee or of broker and
principal. Not that there would have been the slightest doubt were it not for
the categorical denial in the contract that petitioner was not constituted as "the
agent or legal representative of the Company for any purpose whatsoever." It
would be, however, to impart to such an express disclaimer a meaning it should
not possess to ignore what is manifestly the role assigned to petitioner
considering the instrument as a whole. That would be to lose sight altogether
of what has been agreed upon. The Court of Tax Appeals was not misled in the
language of the decision now on appeal: "That the petitioner Ker & Co., Ltd. is,
by contractual stipulation, an agent of U.S. Rubber International is borne out by
the facts that petitioner can dispose of the products of the Company only to
certain persons or entities and within stipulated limits, unless excepted by the
contract or by the Rubber Company (Par. 2); that it merely receives, accepts
and/or holds upon consignment the products, which remain properties of the
latter company (Par. 8); that every effort shall be made by petitioner to
promote in every way the sale of the products (Par. 3); that sales made by
petitioner are subject to approval by the company (Par. 12); that on dates
determined by the rubber company, petitioner shall render a detailed report
showing sales during the month (Par. 14); that the rubber company shall invoice
the sales as of the dates of inventory and sales report (Par. 14); that the rubber
company agrees to keep the consigned goods fully insured under insurance
policies payable to it in case of loss (Par. 15); that upon request of the rubber
company at any time, petitioner shall render an inventory of the existing stock
which may be checked by an authorized representative of the former (Par. 15);
and that upon termination or cancellation of the Agreement, all goods held on
consignment shall be held by petitioner for the account of the rubber company
until their disposition is provided for by the latter (Par. 19). All these
circumstances are irreconcilably antagonistic to the idea of an independent
merchant." 14 Hence its conclusion: "However, upon analysis of the contract, as
a whole, together with the actual conduct of the parties in respect thereto, we
have arrived at the conclusion that the relationship between them is one of
brokerage or agency." 15 We find ourselves in agreement, notwithstanding the
able brief filed on behalf of petitioner by its counsel. As noted at the outset, we
cannot heed petitioner's plea for reversal.
1. According to the National Internal Revenue Code, a commercial broker
"includes all persons, other than importers, manufacturers, producers, or bona
fide employees, who, for compensation or profit, sell or bring about sales or
purchases of merchandise for other persons or bring proposed buyers and
sellers together, or negotiate freights or other business for owners of vessels
or other means of transportation, or for the shippers, or consignors or
consignees of freight carried by vessels or other means of transportation. The
term includes commission merchants." 16 The controlling decision as to the test
to be followed as to who falls within the above definition of a commercial
broker is that of Commissioner of Internal Revenue v. Constantino. 17 In the
language of Justice J. B. L. Reyes, who penned the opinion: "Since the company
retained ownership of the goods, even as it delivered possession unto the
dealer for resale to customers, the price and terms of which were subject to
the company's control, the relationship between the company and the dealer
is one of agency, ... ." 18 An excerpt from Salisbury v. Brooks 19 cited in support
of such a view follows: " 'The difficulty in distinguishing between contracts of
sale and the creation of an agency to sell has led to the establishment of rules
by the application of which this difficulty may be solved. The decisions say the
transfer of title or agreement to transfer it for a price paid or promised is the
essence of sale. If such transfer puts the transferee in the attitude or position
of an owner and makes him liable to the transferor as a debtor for the agreed
price, and not merely as an agent who must account for the proceeds of a
resale, the transaction is a sale; while the essence of an agency to sell is the
delivery to an agent, not as his property, but as the property of the principal,
who remains the owner and has the right to control sales, fix the price, and
terms, demand and receive the proceeds less the agent's commission upon
sales made.' " 20 The opinion relied on the work of Mechem on Sales as well as
Mechem on Agency. Williston and Tiedman both of whom wrote treatises on
Sales, were likewise referred to.
Equally relevant is this portion of the Salisbury opinion: "It is difficult to
understand or appreciate the necessity or presence of these mutual
requirements and obligations on any theory other than that of a contract of
agency. Salisbury was to furnish the mill and put the timber owned by him into
a marketable condition in the form of lumber; Brooks was to furnish the funds
necessary for that purpose, sell the manufactured product, and account
therefor to Salisbury upon the specific terms of the agreement, less the
compensation fixed by the parties in lieu of interest on the money advanced
and for services as agent. These requirements and stipulations are in tent with
any other conception of the contract. If it constitutes an agreement to sell, they
are meaningless. But they cannot be ignored. They were placed there for some
purpose, doubtless as the result of definite antecedent negotiations therefore,
consummated by the final written expression of the agreement." 21 Hence the
Constantino opinion could categorically affirm that the mere disclaimer in a
contract that an entity like petitioner is not "the agent or legal representative
for any purpose whatsoever" does not suffice to yield the conclusion that it is
an independent merchant if the control over the goods for resale of the goods
consigned is pervasive in character. The Court of Tax Appeals decision now
under review pays fealty to such an applicable doctrine.
2. No merit therefore attaches to the first error imputed by petitioner to the
Court of Tax Appeals. Neither did such Court fail to appreciate in its true
significance the act and conduct pursued in the implementation of the contract
by both the United States Rubber International and petitioner, as was
contended in the second assignment of error. Petitioner ought to have been
aware that there was no need for such an inquiry. The terms of the contract, as
noted, speak quite clearly. There is lacking that degree of ambiguity sufficient
to give rise to serious doubt as to what was contemplated by the parties. A
reading thereof discloses that the relationship arising therefrom was not one
of seller and purchaser. If it were thus intended, then it would not have included
covenants which in their totality would negate the concept of a firm acquiring
as vendee goods from another. Instead, the stipulations were so worded as to
lead to no other conclusion than that the control by the United States Rubber
International over the goods in question is, in the language of the Constantino
opinion, "pervasive". The insistence on a relationship opposed to that apparent
from the language employed might even yield the impression that such a mode
of construction was resorted to in order that the applicability of a taxing statute
might be rendered nugatory. Certainly, such a result is to be avoided.
Nor is it to be lost sight of that on a matter left to the discretion of the Court of
Tax Appeals which has developed an expertise in view of its function being
limited solely to the interpretation of revenue laws, this Court is not prepared
to substitute its own judgment unless a grave abuse of discretion is manifest. It
would be to frustrate the objective for which administrative tribunals are
created if the judiciary, absent such a showing, is to ignore their appraisal on a
matter that forms the staple of their specialized competence. While it is to be
admitted that counsel for petitioner did scrutinize with care the decision under
review with a view to exposing what was considered its flaws, it cannot be said
that there was such a failure to apply what the law commands as to call for its
reversal. Instead, what cannot be denied is that the Court of Tax Appeals
reached a result to which the Court in the recent Constantino decision gave the
imprimatur of its approval.
WHEREFORE, the Court of Tax Appeals decision of October 19, 1962 is affirmed.
With costs against petitioner.
Concepcion C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Castro, Teehankee,
Barredo, Villamor and Makasiar, JJ., concur.
[G.R. No. 153033. June 23, 2005]
DEL MONTE PHILIPPINES, INC., petitioner, vs. NAPOLEON N.ARAGONES
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 Mega-Engineering 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 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.
3.2 - The SUPPLIER shall ensure that all plant facilities/equipment must, at all
times, be accessible for inspection by the representatives of the CONTRACTOR.
3.3 - 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.
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.
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 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.
5.2- The 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.
5.4 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.
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 two-bagger, and two (2) units of
one-bagger.
6.3 To provide drying racks, measuring boxes, wheel borrows and other
necessary hand tools.
6.4 To supervise and provide the required manpower for the operation and
production of concrete blocks.
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 accessories for the
CONTRACTORs exclusive use and 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.
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.
9.2 - 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
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 MEGA-WAFFs 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 MEGA-WAFF 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
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).
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.
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;
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;
(2) Renunciation by the contractor of any amount due him from the owner.
This article is subject to the provisions of special laws (1597a)
(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 contractorup 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
of P10,000.00 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;
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 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 MEGA-WAFFS
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.
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, 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. [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 sub-contractor.
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.
B. IN HOLDING DMPI LIABLE BASED UPON THE PROVISIONS OF ARTICLE 1729
OF THE CIVIL CODE AND ACT 3959, WHICH ARE INAPPLICABLE.
II.
. . . 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 mass-produced
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, framescutting them to
such sizes and combining them in such forms as its customers may desire.
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, this provision, by way of exception to the principle underlying Article 1311
in the ordinary course of its business, manufacture and keep on stock doors of between the owner, on the one hand, and those who furnish labor and/or
the kind sold to Teodoro, it could and/or probably had in stock the sash, materials, on the other.
mouldings and panels it used therefor (some of them at least). (Emphasis in the In fine, a constructive vinculum or contractual privity was created between
original; underscoring supplied). petitioner and Aragones.
Petitioner concludes that as the Supply Agreement between Aragones and Respecting petitioners disclaimer of liability for damages and its claim for moral
MEGA-WAFF was one of sale to which it (petitioner) was not privy, it cannot be damages, attorneys fees and expenses of litigation, the trial courts disposition
held liable for any obligation arising therefrom. thereof, to wit:
Dodging liability for the damages (exemplary and . . . attorneys fees including . . . since the evidence on record shows that [Aragones] was compelled to
the cost of this suit) awarded to Aragones, petitioner claims that it was in fact litigate this matter if only to collect a just and demandable obligation,
the one which was injured by Aragones filing in bad faith of a complaint bereft the refusal of [DMPI and MEGA-WAFF] to pay their obligation upon demand
of cause of action and at best, [one] barred by full payment of the amount due could not be justified by law, thus both should be condemned to pay exemplary
to MEGA-WAFF, on account of which it is entitled to moral damages in the damages in the amount of P20,000.00 each and attorneys fees in the amount
amount of P50,000.00 pursuant to Article 2217 of the Civil Code, and to of P10,000.00 each including costs of this suit (underscoring supplied),
attorneys fees and expenses of litigation in the amount of at least P30,000.00 merits this Courts approval.
plus P2,500.00 per hearing pursuant to Article 2208 of the Civil Code. Why should not petitioner be liable for damages. Aragones request, based on
The petition fails. a provision of law, to petitioner for it to pay directly to him his account
The authorities petitioner cited in fact show that the nature of the Supply receivable from MEGA-WAFF/Garcia out of petitioners account payable to
Agreement between Aragones and MEGA-WAFF was one for a piece of work. MEGA-WAFF was made before petitioners obligation to it was due. Yet
Contrary to petitioners claim that save for the shape, there was no petitioner settled such obligation to MEGA-WAFF on or about April 6, 1989
consideration of any special needs or requirements of DMPI taken into account when it released to it its check-payment. For petitioner to harp on its
in the design or manufacture of the concrete paving blocks, the Supply undertaking under its Agreement with MEGA-WAFF to pay its full obligation
Agreement is replete with specifications, terms or conditions showing that it thereunder within 30 days from complete installation of the pavement by
was one for a piece of work. MEGA-WAFF unless a court injunction could be produced by Aragones is too
As reflected in the highlighted and underscored above-quoted provisions of shallow, under the facts and circumstances surrounding the case, to merit
the Supply Agreement, as well as other evidence on record, the machines consideration.
Aragones was obliged to fabricate were those for casting the concrete blocks Petitioners referral for comment of Garcia, by letter of April 27, 1989, on
specified by Garcia. Aragones did not have those kind of machines in his usual Aragones April 6, 1989 reiterative letter for the withholding of the release of so
business, hence, the special order. much amount to MEGA-WAFF even after it (petitioner) had already released on
While initially Garcia specified that the machines to be fabricated should be for or about April 6, 1989 its check-full payment to MEGA-WAFF reflects a futile
hexagon shaped blocks, he later asked Aragones to instead fabricate machines attempt to cover-up the apparent connivance between it and contractor
for casting S shaped blocks. MEGA-WAFF to the prejudice of Aragones, leaving him no option but to litigate.
In accordance with the Supply Agreement, Garcia furnished the cement and As for the assailed citation by the appellate court of Act No. 3959 (which
aggregates for the fabrication of the blocks and Aragones fabricated three (3) requires a person or firm owning any work of any kind executed by contract to
machines for S shaped blocks which were delivered at the casting site on put up a bond guaranteeing the payment of the laborers)
different dates. And the entire plant/casting machines and . . . . accessories as additional justification to hold petitioner liable to Aragones, indeed, said Act
were, as dictated under the Supply Agreement, devoted by Aragones for had been repealed in 1974 by P.D. No. 442 (The Labor Code of the Philippines).
[MEGA-WAFF]s exclusive use. WHEREFORE, in light of the foregoing discussions, the petition is hereby
There can be no gainsaying that the specifications/conditions in the Supply DENIED.
Agreement and the admitted subsequent directive of Garcia for Aragones to Costs against petitioner.
fabricate machines for casting S shaped, instead of hexagon shaped blocks, SO ORDERED.
show that the concrete blocks were manufactured specifically for, and upon Panganiban, (Chairman), Sandoval-Gutierrez, Corona, and Garcia, JJ., concur.
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.
xxx
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