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G.R. No.

107569 November 8, 1994

PHILIPPINE NATIONAL BANK, petitioner,


vs.
COURT OF APPEALS, REMEDIOS JAYME-FERNANDEZ and AMADO
FERNANDEZ, respondents.

Vidad, Corpus & Associates for petitioner.

Remedios Jayme-Fernandez for privaate respondents.

PUNO, J.:

Petitioner bank seeks the review of the decision, dated October 15, 1992,
of the Court of Appeals 1 in CA G.R. CV No. 27195, the dispositive portion
of which reads as follows:

WHEREFORE, the judgment appealed from is hereby SET ASIDE and a


new one is entered ordering defendant-appellee PNB to re-apply the
interest rate of 12% per annum to plaintiffs-appellants' (referring to herein
private respondents) indebtedness and to accordingly take the appropriate
charges from plaintiffs-appellants' (private respondents') payment of
P81,000.00 made on December 26, 1985. Any balance on the
indebtedness should, likewise, be charged interest at the rate of 12% per
annum.

SO ORDERED.

The parties do not dispute the facts as laid down by respondent court in its
impugned decision, viz.:

On April 7, 1982, (private respondents) as owners of a NACIDA-registered


enterprise, obtained a loan under the Cottage Industry Guaranty Loan Fund
(CIGLF) from the Philippine National Bank (PNB) in the amount of Fifty
Thousand (P50,000.00) Pesos, as evidenced by a Credit Agreement.
Under the Promissory Note covering the loan, the loan was to be amortized
over a period of three (3) years to end on March 29, 1985, at twelve (12%)
percent interest annually.

To secure the loan, (private respondents) executed a Real Estate Mortgage


over a 1.5542-hectare parcel of unregistered agricultural land located at
Cambang-ug, Toledo City, which was appraised by the PNB at P1,062.52
and given a loan value of P531.26 by the Bank. In addition, (private
respondents) executed a Chattel Mortgage over a thermo plastic-forming
machine, which had an appraisal value of P8,800 and a loan value of
P4,400.00.

The Credit Agreement provided inter alia, that —

(a) The BANK reserves the right to increase the interest rate within the
limits allowed by law at any time depending on whatever policy it may
adopt in the future; Provided, that the interest rate on this accommodation
shall be correspondingly decreased in the event that the applicable
maximum interest is reduced by law or by the Monetary Board. In either
case, the adjustment in the interest rate agreed upon shall take effect on
the effectivity date of the increase or decrease in the maximum interest
rate.

The Promissory Note, in turn, authorized the PNB to raise the rate of
interest, at any time without notice, beyond the stipulated rate of 12% but
only "within the limits allowed by law."

The Real Estate Mortgage contract likewise provided that —

(k) INCREASE OF INTEREST RATE: The rate of interest charged on the


obligation secured by this mortgage as well as the interest on the amount
which may have been advanced by the MORTGAGE, in accordance with
the provision hereof, shall be subject during the life of this contract to such
an increase within the rate allowed by law, as the Board of Directors of the
MORTGAGEE may prescribe for its debtors.

On February 17, 1983, (private respondents) were granted an additional


NACIDA loan of Fifty Thousand (P50,000.00) Pesos by the PNB, for which
(private respondents) executed another Promissory Note, which was to
mature on April 1, 1985. Other than the date of maturity, the second
promissory note contained the same terms and stipulations as the previous
note. The parties likewise executed a new Credit Agreement, changing the
amount of the loan from P50,000.00 to P100,000.00, but otherwise
preserving the stipulations contained in the original agreement.

As additional security for the loan, (private respondents) constituted


another real estate mortgage over 2 parcels of registered land, with a
combined area of 311 square meters, located at Guadalupe, Cebu City.
The land, upon which several buildings are standing, was appraised by the
PNB to have a value of P40,000.00 and a loan value of P28,000.00.

In a letter dated August 1, 1984, the PNB informed (private respondents)


"that the interest rate of your CIGLF loan account with us is now 25% per
annum plus a penalty of 6% per annum on past dues." The PNB further
increased this interest rate to 30% on October 15, 1984; and to 42% on
October 25, 1984.

The records show that as of December 1985, (private respondents) had an


outstanding principal account of P81,000.00 of which P18,523.14 was
credited to the principal, P57,488.89 to the interest, and the rest to penalty
and other charges. Thus, as of said date, the unpaid principal obligation of
(private respondent) amounted to P62,830.32.

Thereafter, (private respondents) exerted efforts to get the PNB to re-adopt


the 12% interest and to condone the present interest and penalties due; but
to no avail. 2 (Citations omitted.)

On December 15, 1987, private respondents filed a suit for specific


performance against petitioner PNB and the NACIDA. It was docketed as
Civil Case No. CEB-5610, and raffled to the Regional Trial Court, 7th
Judicial Region, Cebu City, Br. 7.3 Private respondents prayed the trial
court to order:

1. The PNB and NACIDA to issue in (private respondents') favor, a release


of mortgage;
2. The PNB to pay pecuniary consequential damages for the destruction of
(private respondents') enterprise;

3. The PNB to pay moral and exemplary damages as well as the costs of
suit; and

4. Granting (private respondents') such other relief as may be found just


and equitable in the premises.4

On February 26, 1990, the trial court dismissed private respondents'


complaint in Civil Case No. CEB-5610. On October 15, 1992, the Court of
Appeals reversed the dismissal with respect to petitioner bank, and
disallowed the increases in interest rates.

Petitioner bank now contends that "respondent Court of Appeals committed


grave error when it ruled (1) that the increase in interest rates are
unauthorized; (2) that the Credit Agreement and the Promissory Notes are
not the law between the parties; (3) that CB Circular No. 773 and CB
Circular
No. 905 are not applicable; and (4) that private respondents are not
estopped from questioning the increase of rate interest made by
petitioner." 5

The petition is bereft of merit.

In making the unilateral increases in interest rates, petitioner bank relied on


the escalation clause contained in their credit agreement which provides,
as follows:

The Bank reserves the right to increase the interest rate within the limits
allowed by law at any time depending on whatever policy it may adopt in
the future and provided, that, the interest rate on this accommodation shall
be correspondingly decreased in the event that the applicable maximum
interest rate is reduced by law or by the Monetary Board. In either case, the
adjustment in the interest rate agreed upon shall take effect on the
effectivity date of the increase or decrease in maximum interest rate.
This clause is authorized by Section 2 of Presidential Decree (P.D.)
No. 1684 which further amended Act No. 2655 ("The Usury Law"), as
amended, thus:

Section 2. The same Act is hereby amended by adding a new section after
Section 7, to read as follows:

Sec. 7-a. Parties to an agreement pertaining to a loan or forbearance of


money, goods or credits may stipulate that the rate of interest agreed upon
may be increased in the event that the applicable maximum rate of interest
is increased by law or by the Monetary Board; Provided, That such
stipulation shall be valid only if there is also a stipulation in the agreement
that the rate of interest agreed upon shall be reduced in the event that the
applicable maximum rate of interest is reduced by law or by the Monetary
Board; Provided further, That the adjustment in the rate of interest agreed
upon shall take effect on or after the effectivity of the increase or decrease
in the maximum rate of interest.

Section 1 of P.D. No. 1684 also empowered the Central Bank's Monetary
Board to prescribe the maximum rates of interest for loans and certain
forbearances. Pursuant to such authority, the Monetary Board issued
Central Bank (C.B.) Circular No. 905, series of 1982, Section 5 of which
provides:

Sec. 5. Section 1303 of the Manual of Regulations (for Banks and Other
Financial Intermediaries) is hereby amended to read as follows:

Sec. 1303. Interest and Other Charges. — The rate of interest, including
commissions, premiums, fees and other charges, on any loan, or
forbearance of any money, goods or credits, regardless of maturity and
whether secured or unsecured, shall not be subject to any ceiling
prescribed under or pursuant to the Usury Law, as amended.

P.D. No. 1684 and C.B. Circular No. 905 no more than allow contracting
parties to stipulate freely regarding any subsequent adjustment in the
interest rate that shall accrue on a loan or forbearance of money, goods or
credits. In fine, they can agree to adjust, upward or downward, the interest
previously stipulated. However, contrary to the stubborn insistence of
petitioner bank, the said law and circular did not authorize either party
to unilaterally raise the interest rate without the other's consent.

It is basic that there can be no contract in the true sense in the absence of
the element of agreement, or of mutual assent of the parties. If this assent
is wanting on the part of the one who contracts, his act has no more
efficacy than if it had been done under duress or by a person of unsound
mind.6

Similarly, contract changes must be made with the consent of the


contracting parties. The minds of all the parties must meet as to the
proposed modification, especially when it affects an important aspect of the
agreement. In the case of loan contracts, it cannot be gainsaid that the rate
of interest is always a vital component, for it can make or break a capital
venture. Thus, any change must be mutually agreed upon, otherwise, it is
bereft of any binding effect.

We cannot countenance petitioner bank's posturing that the escalation


clause at bench gives it unbridled right tounilaterally upwardly adjust the
interest on private respondents' loan. That would completely take away
from private respondents the right to assent to an important modification in
their agreement, and would negate the element of mutuality in contracts.
In Philippine National Bank v. Court of Appeals, et al., 196 SCRA 536, 544-
545 (1991) we held —

. . . The unilateral action of the PNB in increasing the interest rate on the
private respondent's loan violated the mutuality of contracts ordained in
Article 1308 of the Civil Code:

Art. 1308. The contract must bind both contracting parties; its validity or
compliance cannot be left to the will of one of them.

In order that obligations arising from contracts may have the force or law
between the parties, there must be mutuality between the parties based on
their essential equality. A contract containing a condition which makes its
fulfillment dependent exclusively upon the uncontrolled will of one of the
contracting parties, is void . . . . Hence, even assuming that
the . . . loan agreement between the PNB and the private respondent gave
the PNB a license (although in fact there was none) to increase the interest
rate at will during the term of the loan, that license would have been null
and void for being violative of the principle of mutuality essential in
contracts. It would have invested the loan agreement with the character of
a contract of adhesion, where the parties do not bargain on equal footing,
the weaker party's (the debtor) participation being reduced to the
alternative "to take it or leave it" . . . . Such a contract is a veritable trap for
the weaker party whom the courts of justice must protect against abuse
and imposition. (Citation omitted.)

Private respondents are not also estopped from assailing the unilateral
increases in interest rate made by petitioner bank. No one receiving a
proposal to change a contract to which he is a party, is obliged to answer
the proposal, and his silence per se cannot be construed as an
acceptance.7 In the case at bench, the circumstances do not show that
private respondents implicitly agreed to the proposed increases in interest
rate which by any standard were too sudden and too stiff.

IN VIEW THEREOF, the instant petition is DENIED for lack of merit, and
the decision of the Court of Appeals in CA-G.R. CV No. 27195, dated
October 15, 1992, is AFFIRMED. Costs against petitioner.

SO ORDERED.

Narvasa, C.J., Regalado and Mendoza, JJ., concur.


FIRST DIVISION

[G.R. No. 150843. March 14, 2003]

CATHAY PACIFIC AIRWAYS, LTD., petitioner, vs. SPOUSES DANIEL


VAZQUEZ and MARIA LUISA MADRIGAL VAZQUEZ, respondents.

DECISION

DAVIDE, JR., C.J.:

Is an involuntary upgrading of an airline passengers accommodation from


one class to a more superior class at no extra cost a breach of contract of
carriage that would entitle the passenger to an award of damages? This is
a novel question that has to be resolved in this case.

The facts in this case, as found by the Court of Appeals and adopted by
petitioner Cathay Pacific Airways, Ltd., (hereinafter Cathay) are as follows:

Cathay is a common carrier engaged in the business of transporting


passengers and goods by air. Among the many routes it services is the
Manila-Hongkong-Manila course. As part of its marketing strategy, Cathay
accords its frequent flyers membership in its Marco Polo Club. The
members enjoy several privileges, such as priority for upgrading of booking
without any extra charge whenever an opportunity arises. Thus, a frequent
flyer booked in the Business Class has priority for upgrading to First Class
if the Business Class Section is fully booked.

Respondents-spouses Dr. Daniel Earnshaw Vazquez and Maria Luisa


Madrigal Vazquez are frequent flyers of Cathay and are Gold Card
members of its Marco Polo Club.On 24 September 1996, the Vazquezes,
together with their maid and two friends Pacita Cruz and Josefina Vergel de
Dios, went to Hongkong for pleasure and business.

For their return flight to Manila on 28 September 1996, they were booked
on Cathays Flight CX-905, with departure time at 9:20 p.m. Two hours
before their time of departure, the Vazquezes and their companions
checked in their luggage at Cathays check-in counter at Kai Tak Airport
and were given their respective boarding passes, to wit, Business Class
boarding passes for the Vazquezes and their two friends, and Economy
Class for their maid. They then proceeded to the Business Class
passenger lounge.

When boarding time was announced, the Vazquezes and their two friends
went to Departure Gate No. 28, which was designated for Business Class
passengers. Dr. Vazquez presented his boarding pass to the ground
stewardess, who in turn inserted it into an electronic machine reader or
computer at the gate. The ground stewardess was assisted by a ground
attendant by the name of Clara Lai Han Chiu. When Ms. Chiu glanced at
the computer monitor, she saw a message that there was a seat change
from Business Class to First Class for the Vazquezes.

Ms. Chiu approached Dr. Vazquez and told him that the Vazquezes
accommodations were upgraded to First Class. Dr. Vazquez refused the
upgrade, reasoning that it would not look nice for them as hosts to travel in
First Class and their guests, in the Business Class; and moreover, they
were going to discuss business matters during the flight. He also told Ms.
Chiu that she could have other passengers instead transferred to the First
Class Section. Taken aback by the refusal for upgrading, Ms. Chiu
consulted her supervisor, who told her to handle the situation and convince
the Vazquezes to accept the upgrading. Ms. Chiu informed the latter that
the Business Class was fully booked, and that since they were Marco Polo
Club members they had the priority to be upgraded to the First Class. Dr.
Vazquez continued to refuse, so Ms. Chiu told them that if they would not
avail themselves of the privilege, they would not be allowed to take the
flight. Eventually, after talking to his two friends, Dr. Vazquez gave in. He
and Mrs. Vazquez then proceeded to the First Class Cabin.

Upon their return to Manila, the Vazquezes, in a letter of 2 October 1996


addressed to Cathays Country Manager, demanded that they be
indemnified in the amount of P1million for the humiliation and
embarrassment caused by its employees. They also demanded a written
apology from the management of Cathay, preferably a responsible person
with a rank of no less than the Country Manager, as well as the apology
from Ms. Chiu within fifteen days from receipt of the letter.
In his reply of 14 October 1996, Mr. Larry Yuen, the assistant to Cathays
Country Manager Argus Guy Robson, informed the Vazquezes that Cathay
would investigate the incident and get back to them within a weeks time.

On 8 November 1996, after Cathays failure to give them any feedback


within its self-imposed deadline, the Vazquezes instituted before the
Regional Trial Court of Makati City an action for damages against Cathay,
praying for the payment to each of them the amounts of P250,000 as
temperate damages; P500,000 as moral damages; P500,000 as exemplary
or corrective damages; and P250,000 as attorneys fees.

In their complaint, the Vazquezes alleged that when they informed Ms.
Chiu that they preferred to stay in Business Class, Ms. Chiu obstinately,
uncompromisingly and in a loud, discourteous and harsh voice threatened
that they could not board and leave with the flight unless they go to First
Class, since the Business Class was overbooked. Ms. Chius loud and
stringent shouting annoyed, embarrassed, and humiliated them because
the incident was witnessed by all the other passengers waiting for
boarding. They also claimed that they were unjustifiably delayed to board
the plane, and when they were finally permitted to get into the aircraft, the
forward storage compartment was already full. A flight stewardess
instructed Dr. Vazquez to put his roll-on luggage in the overhead storage
compartment. Because he was not assisted by any of the crew in putting
up his luggage, his bilateral carpal tunnel syndrome was aggravated,
causing him extreme pain on his arm and wrist. The Vazquezes also
averred that they belong to the uppermost and absolutely top elite of both
Philippine Society and the Philippine financial community, [and that] they
were among the wealthiest persons in the Philippine[s].

In its answer, Cathay alleged that it is a practice among commercial airlines


to upgrade passengers to the next better class of accommodation,
whenever an opportunity arises, such as when a certain section is fully
booked. Priority in upgrading is given to its frequent flyers, who are
considered favored passengers like the Vazquezes. Thus, when the
Business Class Section of Flight CX-905 was fully booked, Cathays
computer sorted out the names of favored passengers for involuntary
upgrading to First Class. When Ms. Chiu informed the Vazquezes that they
were upgraded to First Class, Dr. Vazquez refused. He then stood at the
entrance of the boarding apron, blocking the queue of passengers from
boarding the plane, which inconvenienced other passengers. He shouted
that it was impossible for him and his wife to be upgraded without his two
friends who were traveling with them. Because of Dr. Vazquezs outburst,
Ms. Chiu thought of upgrading the traveling companions of the
Vazquezes. But when she checked the computer, she learned that the
Vazquezes companions did not have priority for upgrading. She then tried
to book the Vazquezes again to their original seats. However, since the
Business Class Section was already fully booked, she politely informed Dr.
Vazquez of such fact and explained that the upgrading was in recognition
of their status as Cathays valued passengers. Finally, after talking to their
guests, the Vazquezes eventually decided to take the First Class
accommodation.

Cathay also asserted that its employees at the Hong Kong airport acted in
good faith in dealing with the Vazquezes; none of them shouted,
humiliated, embarrassed, or committed any act of disrespect against them
(the Vazquezes). Assuming that there was indeed a breach of contractual
obligation, Cathay acted in good faith, which negates any basis for their
claim for temperate, moral, and exemplary damages and attorneys
fees. Hence, it prayed for the dismissal of the complaint and for payment
of P100,000 for exemplary damages and P300,000 as attorneys fees and
litigation expenses.

During the trial, Dr. Vazquez testified to support the allegations in the
complaint. His testimony was corroborated by his two friends who were
with him at the time of the incident, namely, Pacita G. Cruz and Josefina
Vergel de Dios.

For its part, Cathay presented documentary evidence and the testimonies
of Mr. Yuen; Ms. Chiu; Norma Barrientos, Comptroller of its retained
counsel; and Mr. Robson.Yuen and Robson testified on Cathays policy of
upgrading the seat accommodation of its Marco Polo Club members when
an opportunity arises. The upgrading of the Vazquezes to First Class was
done in good faith; in fact, the First Class Section is definitely much better
than the Business Class in terms of comfort, quality of food, and service
from the cabin crew. They also testified that overbooking is a widely
accepted practice in the airline industry and is in accordance with the
International Air Transport Association (IATA) regulations. Airlines
overbook because a lot of passengers do not show up for their flight. With
respect to Flight CX-905, there was no overall overbooking to a degree that
a passenger was bumped off or downgraded. Yuen and Robson also
stated that the demand letter of the Vazquezes was immediately acted
upon. Reports were gathered from their office in Hong Kong and
immediately forwarded to their counsel Atty. Remollo for legal advice.
However, Atty. Remollo begged off because his services were likewise
retained by the Vazquezes; nonetheless, he undertook to solve the
problem in behalf of Cathay. But nothing happened until Cathay received a
copy of the complaint in this case. For her part, Ms. Chiu denied that she
shouted or used foul or impolite language against the Vazquezes. Ms.
Barrientos testified on the amount of attorneys fees and other litigation
expenses, such as those for the taking of the depositions of Yuen and
Chiu.

In its decision[1] of 19 October 1998, the trial court found for the Vazquezes
and decreed as follows:

WHEREFORE, finding preponderance of evidence to sustain the instant


complaint, judgment is hereby rendered in favor of plaintiffs Vazquez
spouses and against defendant Cathay Pacific Airways, Ltd., ordering the
latter to pay each plaintiff the following:

a) Nominal damages in the amount of P100,000.00 for each plaintiff;

b) Moral damages in the amount of P2,000,000.00 for each plaintiff;

c) Exemplary damages in the amount of P5,000,000.00 for each plaintiff;

d) Attorneys fees and expenses of litigation in the amount of P1,000,000.00


for each plaintiff; and

e) Costs of suit.
SO ORDERED.

According to the trial court, Cathay offers various classes of seats from
which passengers are allowed to choose regardless of their reasons or
motives, whether it be due to budgetary constraints or whim. The choice
imposes a clear obligation on Cathay to transport the passengers in the
class chosen by them. The carrier cannot, without exposing itself to liability,
force a passenger to involuntarily change his choice. The upgrading of the
Vazquezes accommodation over and above their vehement objections was
due to the overbooking of the Business Class. It was a pretext to pack as
many passengers as possible into the plane to maximize Cathays
revenues. Cathays actuations in this case displayed deceit, gross
negligence, and bad faith, which entitled the Vazquezes to awards for
damages.

On appeal by the petitioners, the Court of Appeals, in its decision of 24 July


2001,[2] deleted the award for exemplary damages; and it reduced the
awards for moral and nominal damages for each of the Vazquezes
to P250,000 and P50,000, respectively, and the attorneys fees and
litigation expenses to P50,000 for both of them.

The Court of Appeals ratiocinated that by upgrading the Vazquezes to First


Class, Cathay novated the contract of carriage without the formers consent.
There was a breach of contract not because Cathay overbooked the
Business Class Section of Flight CX-905 but because the latter pushed
through with the upgrading despite the objections of the Vazquezes.

However, the Court of Appeals was not convinced that Ms. Chiu shouted
at, or meant to be discourteous to, Dr. Vazquez, although it might seemed
that way to the latter, who was a member of the elite in Philippine society
and was not therefore used to being harangued by anybody. Ms. Chiu was
a Hong Kong Chinese whose fractured Chinese was difficult to understand
and whose manner of speaking might sound harsh or shrill to Filipinos
because of cultural differences. But the Court of Appeals did not find her to
have acted with deliberate malice, deceit, gross negligence, or bad faith. If
at all, she was negligent in not offering the First Class accommodations to
other passengers. Neither can the flight stewardess in the First Class Cabin
be said to have been in bad faith when she failed to assist Dr. Vazquez in
lifting his baggage into the overhead storage bin.There is no proof that he
asked for help and was refused even after saying that he was suffering
from bilateral carpal tunnel syndrome. Anent the delay of Yuen in
responding to the demand letter of the Vazquezes, the Court of Appeals
found it to have been sufficiently explained.

The Vazquezes and Cathay separately filed motions for a reconsideration


of the decision, both of which were denied by the Court of Appeals.

Cathay seasonably filed with us this petition in this case. Cathay maintains
that the award for moral damages has no basis, since the Court of Appeals
found that there was no wanton, fraudulent, reckless and oppressive
display of manners on the part of its personnel; and that the breach of
contract was not attended by fraud, malice, or bad faith. If any damage had
been suffered by the Vazquezes, it was damnum absque injuria, which is
damage without injury, damage or injury inflicted without injustice, loss or
damage without violation of a legal right, or a wrong done to a man for
which the law provides no remedy. Cathay also invokes our decision
in United Airlines, Inc. v. Court of Appeals[3]where we recognized that, in
accordance with the Civil Aeronautics Boards Economic Regulation No. 7,
as amended, an overbooking that does not exceed ten percent cannot be
considered deliberate and done in bad faith. We thus deleted in that case
the awards for moral and exemplary damages, as well as attorneys fees,
for lack of proof of overbooking exceeding ten percent or of bad faith on the
part of the airline carrier.

On the other hand, the Vazquezes assert that the Court of Appeals was
correct in granting awards for moral and nominal damages and attorneys
fees in view of the breach of contract committed by Cathay for transferring
them from the Business Class to First Class Section without prior notice or
consent and over their vigorous objection. They likewise argue that the
issuance of passenger tickets more than the seating capacity of each
section of the plane is in itself fraudulent, malicious and tainted with bad
faith.
The key issues for our consideration are whether (1) by upgrading the seat
accommodation of the Vazquezes from Business Class to First Class
Cathay breached its contract of carriage with the Vazquezes; (2) the
upgrading was tainted with fraud or bad faith; and (3) the Vazquezes are
entitled to damages.

We resolve the first issue in the affirmative.

A contract is a meeting of minds between two persons whereby one agrees


to give something or render some service to another for a consideration.
There is no contract unless the following requisites concur: (1) consent of
the contracting parties; (2) an object certain which is the subject of the
contract; and (3) the cause of the obligation which is
established.[4] Undoubtedly, a contract of carriage existed between Cathay
and the Vazquezes. They voluntarily and freely gave their consent to an
agreement whose object was the transportation of the Vazquezes from
Manila to Hong Kong and back to Manila, with seats in the Business Class
Section of the aircraft, and whose cause or consideration was the fare paid
by the Vazquezes to Cathay.

The only problem is the legal effect of the upgrading of the seat
accommodation of the Vazquezes. Did it constitute a breach of contract?

Breach of contract is defined as the failure without legal reason to comply


with the terms of a contract.[5] It is also defined as the [f]ailure, without legal
excuse, to perform any promise which forms the whole or part of the
contract.[6]

In previous cases, the breach of contract of carriage consisted in either the


bumping off of a passenger with confirmed reservation or the downgrading
of a passengers seat accommodation from one class to a lower class. In
this case, what happened was the reverse. The contract between the
parties was for Cathay to transport the Vazquezes to Manila on a Business
Class accommodation in Flight CX-905. After checking-in their luggage at
the Kai Tak Airport in Hong Kong, the Vazquezes were given boarding
cards indicating their seat assignments in the Business Class
Section. However, during the boarding time, when the Vazquezes
presented their boarding passes, they were informed that they had a seat
change from Business Class to First Class. It turned out that the Business
Class was overbooked in that there were more passengers than the
number of seats. Thus, the seat assignments of the Vazquezes were given
to waitlisted passengers, and the Vazquezes, being members of the Marco
Polo Club, were upgraded from Business Class to First Class.

We note that in all their pleadings, the Vazquezes never denied that they
were members of Cathays Marco Polo Club. They knew that as members
of the Club, they had priority for upgrading of their seat accommodation at
no extra cost when an opportunity arises. But, just like other privileges,
such priority could be waived. The Vazquezes should have been consulted
first whether they wanted to avail themselves of the privilege or would
consent to a change of seat accommodation before their seat assignments
were given to other passengers. Normally, one would appreciate and
accept an upgrading, for it would mean a better accommodation. But,
whatever their reason was and however odd it might be, the Vazquezes
had every right to decline the upgrade and insist on the Business Class
accommodation they had booked for and which was designated in their
boarding passes. They clearly waived their priority or preference when they
asked that other passengers be given the upgrade. It should not have been
imposed on them over their vehement objection. By insisting on the
upgrade, Cathay breached its contract of carriage with the Vazquezes.

We are not, however, convinced that the upgrading or the breach of


contract was attended by fraud or bad faith. Thus, we resolve the second
issue in the negative.

Bad faith and fraud are allegations of fact that demand clear and
convincing proof. They are serious accusations that can be so conveniently
and casually invoked, and that is why they are never presumed. They
amount to mere slogans or mudslinging unless convincingly substantiated
by whoever is alleging them.

Fraud has been defined to include an inducement through insidious


machination. Insidious machination refers to a deceitful scheme or plot with
an evil or devious purpose.Deceit exists where the party, with intent to
deceive, conceals or omits to state material facts and, by reason of such
omission or concealment, the other party was induced to give consent that
would not otherwise have been given.[7]

Bad faith does not simply connote bad judgment or negligence; it imports a
dishonest purpose or some moral obliquity and conscious doing of a wrong,
a breach of a known duty through some motive or interest or ill will that
partakes of the nature of fraud.[8]

We find no persuasive proof of fraud or bad faith in this case. The


Vazquezes were not induced to agree to the upgrading through insidious
words or deceitful machination or through willful concealment of material
facts. Upon boarding, Ms. Chiu told the Vazquezes that their
accommodations were upgraded to First Class in view of their being Gold
Card members of Cathays Marco Polo Club. She was honest in telling
them that their seats were already given to other passengers and the
Business Class Section was fully booked. Ms. Chiu might have failed to
consider the remedy of offering the First Class seats to other passengers.
But, we find no bad faith in her failure to do so, even if that amounted to an
exercise of poor judgment.

Neither was the transfer of the Vazquezes effected for some evil or devious
purpose. As testified to by Mr. Robson, the First Class Section is better
than the Business Class Section in terms of comfort, quality of food, and
service from the cabin crew; thus, the difference in fare between the First
Class and Business Class at that time was $250.[9]Needless to state, an
upgrading is for the better condition and, definitely, for the benefit of the
passenger.

We are not persuaded by the Vazquezes argument that the overbooking of


the Business Class Section constituted bad faith on the part of Cathay.
Section 3 of the Economic Regulation No. 7 of the Civil Aeronautics Board,
as amended, provides:

Sec 3. Scope. This regulation shall apply to every Philippine and foreign air
carrier with respect to its operation of flights or portions of flights originating
from or terminating at, or serving a point within the territory of the Republic
of the Philippines insofar as it denies boarding to a passenger on a flight, or
portion of a flight inside or outside the Philippines, for which he holds
confirmed reserved space. Furthermore, this Regulation is designed to
cover only honest mistakes on the part of the carriers and excludes
deliberate and willful acts of non-accommodation. Provided, however, that
overbooking not exceeding 10% of the seating capacity of the aircraft shall
not be considered as a deliberate and willful act of non-accommodation.

It is clear from this section that an overbooking that does not exceed ten
percent is not considered deliberate and therefore does not amount to bad
faith.[10] Here, while there was admittedly an overbooking of the Business
Class, there was no evidence of overbooking of the plane beyond ten
percent, and no passenger was ever bumped off or was refused to board
the aircraft.

Now we come to the third issue on damages.

The Court of Appeals awarded each of the Vazquezes moral damages in


the amount of P250,000. Article 2220 of the Civil Code provides:

Article 2220. Willful injury to property may be a legal ground for awarding
moral damages if the court should find that, under the circumstances, such
damages are justly due. The same rule applies to breaches of contract
where the defendant acted fraudulently or in bad faith.

Moral damages include physical suffering, mental anguish, fright, serious


anxiety, besmirched reputation, wounded feelings, moral shock, social
humiliation, and similar injury. Although incapable of pecuniary
computation, moral damages may be recovered if they are the proximate
result of the defendants wrongful act or omission.[11] Thus, case law
establishes the following requisites for the award of moral damages: (1)
there must be an injury clearly sustained by the claimant, whether physical,
mental or psychological; (2) there must be a culpable act or omission
factually established; (3) the wrongful act or omission of the defendant is
the proximate cause of the injury sustained by the claimant; and (4) the
award for damages is predicated on any of the cases stated in Article 2219
of the Civil Code.[12]

Moral damages predicated upon a breach of contract of carriage may only


be recoverable in instances where the carrier is guilty of fraud or bad faith
or where the mishap resulted in the death of a passenger.[13] Where in
breaching the contract of carriage the airline is not shown to have acted
fraudulently or in bad faith, liability for damages is limited to the natural and
probable consequences of the breach of the obligation which the parties
had foreseen or could have reasonably foreseen. In such a case the liability
does not include moral and exemplary damages.[14]

In this case, we have ruled that the breach of contract of carriage, which
consisted in the involuntary upgrading of the Vazquezes seat
accommodation, was not attended by fraud or bad faith. The Court of
Appeals award of moral damages has, therefore, no leg to stand on.

The deletion of the award for exemplary damages by the Court of Appeals
is correct. It is a requisite in the grant of exemplary damages that the act of
the offender must be accompanied by bad faith or done in wanton,
fraudulent or malevolent manner.[15] Such requisite is absent in this case.
Moreover, to be entitled thereto the claimant must first establish his right to
moral, temperate, or compensatory damages.[16] Since the Vazquezes are
not entitled to any of these damages, the award for exemplary damages
has no legal basis. And where the awards for moral and exemplary
damages are eliminated, so must the award for attorneys fees.[17]

The most that can be adjudged in favor of the Vazquezes for Cathays
breach of contract is an award for nominal damages under Article 2221 of
the Civil Code, which reads as follows:

Article 2221 of the Civil Code provides:

Article 2221. Nominal damages are adjudicated in order that a right of the
plaintiff, which has been violated or invaded by the defendant, may be
vindicated or recognized, and not for the purpose of indemnifying the
plaintiff for any loss suffered by him.
Worth noting is the fact that in Cathays Memorandum filed with this Court, it
prayed only for the deletion of the award for moral damages. It deferred to
the Court of Appeals discretion in awarding nominal damages; thus:

As far as the award of nominal damages is concerned, petitioner


respectfully defers to the Honorable Court of Appeals discretion. Aware as
it is that somehow, due to the resistance of respondents-spouses to the
normally-appreciated gesture of petitioner to upgrade their
accommodations, petitioner may have disturbed the respondents-spouses
wish to be with their companions (who traveled to Hong Kong with them) at
the Business Class on their flight to Manila. Petitioner regrets that in its
desire to provide the respondents-spouses with additional amenities for the
one and one-half (1 1/2) hour flight to Manila, unintended tension
ensued.[18]

Nonetheless, considering that the breach was intended to give more benefit
and advantage to the Vazquezes by upgrading their Business Class
accommodation to First Class because of their valued status as Marco Polo
members, we reduce the award for nominal damages to P5,000.

Before writing finis to this decision, we find it well-worth to quote the apt
observation of the Court of Appeals regarding the awards adjudged by the
trial court:

We are not amused but alarmed at the lower courts unbelievable alacrity,
bordering on the scandalous, to award excessive amounts as damages. In
their complaint, appellees asked for P1 million as moral damages but the
lower court awarded P4 million; they asked for P500,000.00 as exemplary
damages but the lower court cavalierly awarded a whooping P10 million;
they asked for P250,000.00 as attorneys fees but were awarded P2 million;
they did not ask for nominal damages but were awarded P200,000.00. It is
as if the lower court went on a rampage, and why it acted that way is
beyond all tests of reason. In fact the excessiveness of the total award
invites the suspicion that it was the result of prejudice or corruption on the
part of the trial court.
The presiding judge of the lower court is enjoined to hearken to the
Supreme Courts admonition in Singson vs. CA (282 SCRA 149
[1997]), where it said:

The well-entrenched principle is that the grant of moral damages depends


upon the discretion of the court based on the circumstances of each
case. This discretion is limited by the principle that the amount awarded
should not be palpably and scandalously excessive as to indicate that it
was the result of prejudice or corruption on the part of the trial court.

and in Alitalia Airways vs. CA (187 SCRA 763 [1990], where it was held:

Nonetheless, we agree with the injunction expressed by the Court of


Appeals that passengers must not prey on international airlines for damage
awards, like trophies in a safari. After all neither the social standing nor
prestige of the passenger should determine the extent to which he would
suffer because of a wrong done, since the dignity affronted in the individual
is a quality inherent in him and not conferred by these social indicators. [19]

We adopt as our own this observation of the Court of Appeals.

WHEREFORE, the instant petition is hereby partly GRANTED. The


Decision of the Court of Appeals of 24 July 2001 in CA-G.R. CV No. 63339
is hereby MODIFIED, and as modified, the awards for moral damages and
attorneys fees are set aside and deleted, and the award for nominal
damages is reduced to P5,000.

No pronouncement on costs.

SO ORDERED.
G.R. No. L-11668 April 1, 1918

ANTONIO ENRIQUEZ DE LA CAVADA, plaintiff-appellee,


vs.
ANTONIO DIAZ, defendant-appellant.

Ramon Diokno for appellant.


Alfredo Chicote and Jose Arnaiz for appellee.

JOHNSON, J.:

This action was instituted by the plaintiff for the purpose of requiring the
defendant to comply with a certain "contract of option" to purchase a
certain piece or parcel of land described in said contract and for damages
for a noncompliance with said contract. After the close of the trial the
Honorable James A. Ostrand, judge, rendered a judgment the dispositive
part of which is as follows:

Wherefore, it is hereby ordered and adjudged that the defendant, within the
period of thirty days from the date upon which this decision becomes final,
convey to the plaintiff a good and sufficient title in fee simple to the land
described in decrees Nos. 13909 and 13919 of the Court of Land
Registration, upon payment or legal tender of payment by said plaintiff of
the sum of thirty thousand pesos (P30,000) in cash, and upon said plaintiff
giving security approved by this court for the payment within the term of 6
years from the date of the conveyance for the additional sum of forty
thousand pesos (P40,000) with interest at the rate of 6 per cent per annum.

It is further ordered and adjudged that in the event of the failure of the
defendant to execute the conveyance as aforesaid, the plaintiff have and
recover judgment against him, the said defendant, for the sum of twenty
thousand pesos (P20,000), with interest at the rate of six per cent (6 per
cent per annum from the date upon which the conveyance should have
been made). It is so ordered.

From that judgment the defendant appealed and made several assignment
of error.
It appears from the record that on the 15th day of November, 1912, the
defendant and the plaintiff entered into the following "contract of option:"

(EXHIBIT A.)

CONTRACT OF OPTION.

I, the undersigned, Antonio Diaz, of legal age, with personal registration


certificate Number F-855949, issued at Pitogo, Tayabas, January 16, 1912,
and temporarily residing in Manila, P. I., do hereby grant an option to
Antonio Enriquez to purchase my hacienda at Pitogo consisting of 100 and
odd hectares, within the period necessary for the approval and issuance of
a Torrens title thereto by the Government for which he may pay me either
the sum of thirty thousand pesos (P30,000), Philippine currency, in cash, or
within the period of six (6) years, beginning with the date of the purchase,
the sum of forty thousand pesos (P40,000), Philippine currency, at six per
cent interest per annum, with due security for the payment of the said
P40,000 in consideration of the sale to him of my property described as
follows, to wit:

About one hundred hectares of land in Pitogo, Tayabas, containing about


20,000 coconut trees and 10,000 nipa-palm trees, all belonging to me,
which I hereby sell to Antonio Enriquez de la Cavada for seventy thousand
pesos, under the conditions herein specified.

I declare that Antonio Enriquez is the sole person who has, and shall have,
during the period of this option, the right to purchase the property above-
mentioned.

I likewise declare that Antonio Enriquez shall be free to resell the said
property at whatever price he may desire, provided that he should comply
with the stipulations covenanted with me.

In witness of my entire conformity with the foregoing, I hereunto affix my


signature, in Manila, P. I., this 15th day of November, 1912.

(Sgd.) Antonio Diaz.

Signed in the presence of:


(Sgd.) J. VALDS DIAZ.

(EXHIBIT B.)

P. I., November 15,


1912.

Sr. Don ANTONIO DIAZ,


Calle Victoria, No. 125, W. C., Manila, P. I.

DEAR SIR: I have the honor to inform you that, in conformity with the letter
of option in my favor of even date, I will buy your coconut plantation in
Pitogo, containing one hundred hectares, together with all the coconut and
nipa-palm trees planted thereon, under the following conditions:

1. I shall send a surveyor to survey the said property, and to apply to the
Government for a Torrens title therefore, and, if the expenses incurred for
the same should not exceed P1,000, I shall pay the P500 and you the other
P500; Provided, however, that you shall give the surveyor all necessary
assistance during his stay at the hacienda.

2. I shall pay the purchase price to you in conformity with our letter of
option of this date, and after the Torrens title shall have been officially
approved.

Yours respectfully,

(Sgd.) A. ENRIQUEZ

I acknowledge receipt of, and conform with, the foregoing.

(Sgd.) ANTONIO DIAZ

It appears from the record that soon after the execution of said contract,
and in part compliance with the terms thereof, the defendant presented two
petitions in the Court of Land Registration (Nos. 13909 and 13919), each
for the purpose of obtaining the registration of a part of the "Hacienda de
Pitogo." Said petitions were granted, and each parcel as registered and a
certificate of title was issued for each part under the Torrens system to the
defendant herein. Later, and pretending to comply with the terms of said
contract, the defendant offered to transfer to the plaintiff one of said
parcels only, which was a part of said "hacienda." The plaintiff refused to
accept said certificate for a part only of said "hacienda" upon the ground (a)
that it was only a part of the "Hacienda de Pitogo," and (b) under the
contract (Exhibits A and B) he was entitled to a transfer to him all said
"hacienda."

The theory of the defendant is that the contract of sale of said "Hacienda
de Pitogo" included only 100 hectares, more or less, of said "hacienda,"
and that by offering to convey to the plaintiff a portion of said "hacienda"
composed of "100 hectares, more or less," he thereby complied with the
terms of the contract. The theory of the plaintiff is that he had
purchased all of said "hacienda," and that the same contained, at least, 100
hectares, more or less. The lower court sustained the contention of the
plaintiff, to wit, that the sale was a sale of the "Hacienda de Pitogo" and not
a sale of a part of it, and rendered a judgment requiring the defendant to
comply with the terms of the contract by transferring to the plaintiff, by
proper deeds of conveyance, all said "hacienda," or to pay in lieu thereof
the sum of P20,000 damages, together with 6 per cent interest from the
date upon which said conveyance should have been made.

After issue had been joined between the plaintiff and defendant upon their
pleadings, they entered into the following agreement with reference to the
method of presenting their proof:

The attorneys for the parties in this case make the following stipulations:

1. Each of the litigating parties shall present his evidence before Don Felipe
Canillas, assistant clerk of the Court of First Instance of Manila, who, for
such purpose, should be appointed commissioner.

2. Said commissioner shall set a day and hour for the presentation of the
evidence above-mentioned, both oral and documentary, and in the
stenographic notes shall have record entered of all objections made to the
evidence by either party, in order that they may afterwards be decided by
the court.
3. The transcription of the stenographic notes, containing the record of the
evidence taken, shall be paid for in equal shares by both parties.

4. At the close of the taking of the evidence, each of the parties shall file his
brief in respect to such evidence, whereupon the case as it then stands
shall be submitted to the decision of the court.

The parties request the court to approve this agreement in the part thereof
which refers to the proceedings in this case.

Manila, P. I., December 21, 1914.

(Sgd.) ANTONIO V. HERRERO. (Sgd.) ALFREDO


CHICOTE.

Approved:

(Sgd.) GEO. R. HARVEY,


Judge.

Said agreement was approved by the lower court, and proof was taken in
accordance therewith. The defendant-appellant now alleges, giving several
reasons therefor, that the proof was improperly practiced, and that the
judge was without authority o decide the cause upon proof taken in the
manner agreed upon by the respective parties. The defendant-appellant
makes no contention that he was not permitted to present all the proof he
desired to present. He makes no contention that he has been prejudiced in
any manner whatsoever by virtue of the method agreed upon for taking the
testimony.

There is nothing in the law nor in public policy which prohibits the parties in
a civil litigation from making the agreement above quoted. While the law
concedes to parties litigant, generally, the right to have their proof taken in
the presence of the judge, such right is a renounceable one. In a civil action
the parties litigant have a right to agree, outside of the court, upon the facts
in litigation. Under certain conditions the parties litigant have a right to take
the depositions of witnesses and submit the sworn statements in that form
to the court. The proof, as it was submitted to the court in the present case,
by virtue of said agreement, was, in effect, in the form of a deposition of the
various witnesses presented. Having agreed to the method of taking the
proof, and the same having been taking in compliance with said
agreement, it is now too late, there being no law to the contrary, for them to
deny and repudiate the effect of their agreement. (Biunas vs. Mora, R. G.
No. 11464, March 11, 1918; Behr vs. Levy Hermanos, R. G. No 12211,
March 19, 1918.1)

Not only is there no law prohibiting the parties from entering into an
agreement to submit their proof to the court in civil actions as was done in
the present case, but it may be a method highly convenient, not only to the
parties, but to busy courts. The judgment of the lower court, therefore,
should not be modified or reversed on account of the first assignment of
error.

In the second assignment of error, the appellant alleges (a) that the lower
court committed an error in declaring the contract (Exhibits A and B) a valid
obligation, for the reason that it not been admitted in evidence, and (b) that
the same was null for a failure of consideration. Upon the first question, an
examination of the proof shows that said contract (Exhibits A and B) was
offered in evidence and admitted as proof without objection. Said contract
was, therefore, properly presented to the court as proof. Not only was the
contract before the court by reason of its having been presented in
evidence, but the defendant himself made said contract an integral part of
his pleadings. The defendant admitted the execution and delivery of the
contract, and alleged that he made an effort to comply with its terms. His
only defense is that he sold to the plaintiff a part of the "hacienda" only and
that he offered, in compliance with the terms of the contract, to convey to
the plaintiff all of the land which he had promised to sell.

With reference to the second objection, to wit, that there was no


consideration for said contract it may be said (a) that the contract was for
the sale of a definite parcel of land; (b) that it was reduced to writing; (c)
that the defendant promised to convey to the plaintiff said parcel of land; (d)
that the plaintiff promised to pay therefor the sum of P70,000 in the manner
prescribed in said contract; (e) that the defendant admitted the execution
and delivery of the contract and alleged that he made an effort to comply
with the same (par. 3 of defendant's answer) and requested the plaintiff to
comply with his part of the contract; and (f) that no defense or pretension
was made in the lower court that there was no consideration for his
contract. Having admitted the execution and delivery of the contract, having
admitted an attempt to comply with its terms, and having failed in the court
below to raise any question whatsoever concerning the inadequacy of
consideration, it is rather late, in the face of said admissions, to raise that
question for the first time in this court. The only dispute between the parties
in the lower court was whether or not the defendant was obliged to convey
to the plaintiff all of said "hacienda." The plaintiff insisted that his contract
entitled him to a conveyance of all of said "hacienda." The defendant
contended that he had complied with the terms of his contract by offering to
convey to the plaintiff a part of the said "hacienda" only. That was the only
question presented to the lower court and that was the only question
decided.

A promise made by one party, if made in accordance with the forms


required by the law, may be a good consideration (causa) for a promise
made by another party. (Art. 1274, Civil Code.) In other words, the
consideration (causa) need not pass from one to the other at the time the
contract is entered into. For example, A promises to sell a certain parcel of
land to B for the sum of P70,000. A, by virtue of the promise of B to pay
P70,000, promises to sell said parcel of land to B for said sum, then the
contract is complete, provided they have complied with the forms required
by the law. The consideration need not be paid at the time of the promise.
The one promise is a consideration for the other. Of course, A cannot
enforce a compliance with the contract and require B to pay said sum until
he has complied with his part of the contract. In the present case, the
defendant promised to convey the land in question to the plaintiff as soon
as the same could be registered. The plaintiff promised to pay to the
defendant P70,000 therefor in accordance with the terms of their contract.
The plaintiff stood ready to comply with his part of the contract. The
defendant, even though he had obtained a registered title to said parcel of
land, refused to comply with his promise. All of the conditions of the
contract on the part of the defendant had been concluded, except
delivering the deeds of transfer. Of course, if the defendant had been
unable to obtain a registration of his title, or if he had violated the terms of
the alleged optional contract by selling the same to some other person than
the plaintiff, then he might have raised the objection that he had received
nothing from the plaintiff for the option which he had conceded. That
condition, of course, would have presented a different question from the
one which we have before us. The said contract (Exhibits A and B) was
not, in fact, an "optional contract" as that phrase is generally used. Reading
the said contract from its four corners it is clearly as absolute promise to
sell a definite parcel of land for a fixed price upon definite conditions. The
defendant promised to convey to the plaintiff the land in question as soon
as the same was registered under the Torrens system, and the plaintiff
promised to pay to the defendant the sum of P70,000, under the conditions
named, upon the happening of that event. The contract was not, in fact,
what is generally known as a "contract of option." It differs very essentially
from a contract of option. An optional contract is a privilege existing in one
person, for which he had paid a consideration, which gives him the right to
buy, for example, certain merchandise of certain specified property, from
another person, if he chooses, at any time within the agreed period, at a
fixed price. The contract of option is a separate and distinct contract from
the contract which the parties may enter into upon the consummation of the
option. A consideration for an optional contract is just as important as the
consideration for any other kind of contract. If there was no consideration
for the contract of option, then it cannot be entered any more than any
other contract where no consideration exists. To illustrate, A offers B the
sum of P100,000 for the option of buying his property within the period of
30 days. While it is true that the conditions upon which A promises to buy
the property at the end of the period mentioned are usually fixed in the
option, the consideration for the option is an entirely different consideration
from the consideration of the contract with reference to which the option
exists. A contract of option is a contract by virtue of the terms of which the
parties thereto promise and obligate themselves to enter into contract at a
future time, upon the happening of certain events, or the fulfillment of
certain conditions.

Upon the other hand, suppose that the defendant had complied with his
part of the contract and had tendered the deeds of transfer of the
"Hacienda de Pitogo" in accordance with its terms and had demanded the
payments specified in the contract, and the plaintiff refused to comply —
what then would have been the rights of the defendant? Might he not have
successfully maintained an action for the specific performance of the
contract, or for the damages resulting from the breach of said contract?
When the defendant alleged that he had complied with his part of the
contract (par. 3 of defendant's answer) and demanded that the plaintiff
should immediately comply with his part of the same, he evidently was
laying the foundation for an action for damages, the nullification or a
specific compliance with the contract.

The appellant contends that the contract which he made was not with the
plaintiff but with Rosenstock, Elser and Co. That question was not
presented in the court below. The contract in question shows, upon its face,
that the defendant made the same with the plaintiff, Not having raised the
question in the court below, and having admitted the execution and delivery
of the contract in question with the plaintiff, we are of the opinion that his
admission is conclusive upon that question (par. 1 of special defense of
defendant's answer) and need not be further discussed.

The appellant further contends that the action was premature, for the
reason that the plaintiff had not paid nor offered to pay the price agreed
upon, under the conditions named, for the land in question. That question
was not raised in the court below, which fact, ordinarily, would be a
sufficient answer to the contention of the appellant. It may be added,
however, that the defendant could not demand the payment until he had
offered the deeds of conveyance, in accordance with the terms of his
contract. He did not offer to comply with the terms of his contract. True it is
that he offered to comply partially with the terms of the contract, but not
fully. While the payment must be simultaneous with the delivery of the
deeds of conveyance, the payment need not be made until the deed of
conveyance is offered. The plaintiff stood ready and willing to perform his
part of the contract immediately upon the performance on the part of the
defendant. (Arts. 1258 and 1451 of Civil Code.)

In the fifth assignment of error the appellant contends that the lower court
committed an error in not declaring that the defendant was not obligated to
sell the "Hacienda de Pitogo" to the plaintiff "por incumplimiento, renuncia
abandono y negligencia del mismo demandante, etc." (For nonfulfillment,
renunciation, abandonment and negligence of plaintiff himself, etc.) That
question was not presented to the court below. But even though it had
been the record shows that the plaintiff, at all times, insisted upon a
compliance with the terms of the contract on the part of the defendant,
standing ready to comply with his part of the same.

The appellant contends in his sixth assignment of error that the plaintiff had
not suffered the damages complained of, to wit, in the sum of P20,000. The
only proof upon the question of damages suffered by the plaintiff for the
noncompliance with the terms of the contract in question on the part of the
defendant is that the plaintiff, in contemplation of the compliance with the
terms of the contract on the part of the defendant, entered into a contract
with a third party to sell the said "hacienda" at a profit of P30,000. That
proof is not disputed. No attempt was made in the lower court to deny that
fact. The proof shows that the person with whom the plaintiff had entered
into a conditional sale of the land in question had made a deposit for the
purpose of guaranteeing the final consummation of that contract. By reason
of the failure of the defendant to comply with the contract here in question,
the plaintiff was obliged to return the sum deposited by said third party with
a promise to pay damages. The record does not show why the plaintiff did
not ask for damages in the sum of P30,000. He asked for a judgment only
in the sum of P20,000. He now asks that the judgment of the lower court be
modified and that he be given a judgment for P30,000. Considering the fact
that he neither asked for a judgment for more than P20,000 nor appealed
from the judgment of the lower court, his request now cannot be granted.
We find no reason for modifying the judgment of the lower court by virtue of
the sixth assignment of error.
In the seventh assignment of error the appellant contends that the contract
of sale was not in effect a contract of sale. He alleges that the contract was,
in fact, a contract by virtue of which the plaintiff promised to find a buyer for
the parcel of land in question; that the plaintiff was not in fact the
purchaser; that the only obligation that the plaintiff assumed was to find
some third person who would purchase the land from the defendant. Again,
it would be sufficient to say, in answer to that assignment of error, that no
contention of that nature was presented in the court below, and for that
reason it is improperly presented now for the first time. In addition,
however, it may be added that the defendant, in his answer, admitted that
he not only sold the land in question, but offered to transfer the same to the
plaintiff, in compliance with the contract. (See answer of defendant.)

In the eighth assignment of error the appellant contends that the lower
court committed an error in its order requiring him to convey to the plaintiff
the "Hacienda de Pitogo," for the reason that the plaintiff had not
demanded a transfer of said property, and for the additional reason that a
portion of said "hacienda" had already been sold to a third person. With
reference to the first contention, the record clearly shows that the plaintiff
was constantly insisting upon a compliance with the terms of the contract,
to wit, a conveyance to him of the "Hacienda de Pitogo" by the defendant.
Naturally, he refused, under the contract, to accept a conveyance of a part
only of said "hacienda." With reference to the second contention, it may be
said that the mere fact that the defendant had sold a part of the "hacienda"
to other persons, is no sufficient reason for not requiring a strict compliance
with the terms of his contract with the plaintiff, or to answer in damages for
his failure. (Arts. 1101 and 1252 of the Civil Code.)

In view of the foregoing, and after a consideration of the facts and the law
applicable thereto, we are persuaded that there is no reason given in the
record justifying a modification or reversal of the judgment of the lower
court. The same is, however, hereby affirmed, with costs. So ordered.

Arellano, C.J., Torres, Street, Malcolm and Fisher, JJ.,


G.R. No. L-12457 January 22, 1919

SERVILLANO AQUINO, plaintiff-appellee,


vs.
EMETERIO TAÑEDO, defendant-appellant.

Zoilo J. Hilario for appellant.


Benigno S. Aquino for appellee.

AVANCEÑA, J.:

The plaintiff demands from the defendant payment of the sum of P10,000,
together with legal interest thereon from the date of the filing of the
complaint. The defendant, in a counterclaim, demands from the plaintiff
payment of the sum of P6,791.75 and legal interest thereon from March 28,
1914.

On May 5, 1913, the plaintiff purchased from the defendant several parcels
of land for the price of P45,000 (Exhibit X). In the contract the defendant
acknowledged receipt of the sum of P10,000, as a part of this price, the
contracting parties stipulating that the rest should be paid as follows:
P7,000 in September of the same year, P10,000 in May, 1914, and
P18,000 in 1915. By virtue of this contract the plaintiff took possession of
the lands purchased. On March 28, 1914, the plaintiff and the defendant,
by virtue of another contract (Exhibit Z), agreed to consider the previous
contract as rescinded and of no value. As a result of this second
agreement, the plaintiff returned to the defendant the lands together with all
the documents pertaining thereto. The defendant, on his part, instead of
returning the price received by him, subscribed in favor of the plaintiff
another document (Exhibit A) in which the acknowledges that he owes the
plaintiff the sum of P12,000, of which P2,000, the amount of the interest on
P10,000 for one year, was to be paid on or before the 31st of May of the
following year, 1915, and, as to the remaining P10,000, it was agreed that
the date of their payment would be fixed upon payment of the P2,000.
On May 28, 1915, the defendant paid the plaintiff the P2,000 in accordance
with the contract, Exhibit A. Upon this payment being made no time was
fixed for the payment of the other P10,000.

Subsequently, the plaintiff filed against the defendant an action in the Court
of First Instance of Tarlac (Civil Case No. 792), wherein he demanded of
the defendant the payment of the P10,000. Before this case was decide,
the plaintiff and the defendant stipulated that, in the event that the court
should find that the defendant's obligation was not due, they should move
the court merely to fix the period in which this sum should be paid, with the
understanding that, if it be not paid within the period fixed by the court, the
plaintiff might bring an action against the defendant for its collection,
without prejudice to the defenses which the defendant might set up. It
appears that this agreement was taken into account by the court, for the
recover shows that on September 13,1915, it rendered judgment in that
case merely fixing a period of three months, counting from October 1,
1915, for the payment of this sum of P10,000 by the defendant.

There is no dispute over the fact that the defendant owes the plaintiff the
P10,000 claimed by the latter. The question raised by this appeal is one
that relates to the defendant's counterclaim. The sum demanded in this
counterclaim is the value of the product of the lands, collected by the
plaintiff during the time he was in possession of them. by virtue of the
contract Exhibit X, specifically, from May 5, 1913, until the plaintiff returned
the lands to the defendant, on March 28, 1914.

The plaintiff contends that the judgment rendered by the Court in Civil Case
No. 792 had resolved all the issues then in controversy between the
plaintiff and the defendant, and among them that of the counterclaim which
is now presented in the instant case. We believe, however, that this
contention is unfounded. The judgment rendered by the court in that Civil
Cae, No. 792, undoubtedly was rendered in consideration of the agreement
between the plaintiff and the defendant to move the court merely to fix the
period within which the defendant should be obliged to pay to the plaintiff
the P10,000, without prejudice to the defenses the defendant might set up
with respect to this obligation. Withal, we are of the opinion that the plaintiff
should be absolved from this counterclaim, for the very reason that we shall
presently set forth.

The question is this: the plaintiff, on account of having purchased the lands
form the defendant on May 15, 1913, according to Exhibit X, took
possession of the same and collected their product. On March 28, 1914,
the plaintiff and the defendant dissolved that contract of sale and, as a
result thereof, the plaintiff returned the lands to the defendant, and the
defendant in turn, bound himself to return to the plaintiff the part of the price
that the latter had paid. Is the plaintiff obliged to return to the defendant the
products to the lands that the plaintiff collected during his possession?

The defendant invokes article 1295 of the Civil code, which prescribes that
the rescission obliges the return of the things which were the objects of the
contract, with their fruits and the price with interest. He maintains that
pursuant to this provision, the plaintiff is obliged to return the fruits collected
by him. But the rescission mentioned in the contract Exhibit Z is not the
rescission referred to in this article 1295. Although the plaintiff and the
defendant employed the word rescind, it has not, in the contract executed
by them, either the scope or the meaning of the words rescission to which
article 1295 refers and which takes place only in the cases mentioned in
the preceding articles, 1291 and 1292. rescission, in the light of these
provisions, is a belief which the law grants, on the premise that the contract
is valid, for the protection of one of the contracting parties and third persons
from all injury and damage the contract may cause, or to protect some
incompatible and preferent right created by the contract. Article 1295 refers
to contract that are rescindible in accordance with law in the cases
expressly fixed thereby, but it does not refer to contracts that are rescinded
by mutual consent and for the mutual convenience of the contracting
parties. The rescission in question was not originated by any of the causes
specified in articles 1291 and 1292 nor is it any relief for the purposes
sought by these articles. It is simply another contract for the dissolution of a
previous one, and its effects, in relation to the contract so dissolved, should
be determined by the agreement made by the parties, or by application of
the other legal provisions to which we shall refer later on, but not by article
1295, which is not applicable.
The defendant alleges that, upon the execution of the contract of
rescission, Exhibit Z, the plaintiff verbally agreed to return the fruits collect
by him. The plaintiff denies this absolutely. As the contract of rescission
was drawn up in writing, it must be presumed that the document wherein
this contract appears contains all the agreements stipulated by the parties.
Although the defendant was permitted to introduce oral evidence to
establish that, besides what is set forth in the written contract, the plaintiff
also agreed verbally, to return the fruits collected, the plaintiff, on his part,
presented other evidence in rebuttal. Examining the evidence adduced by
both parties on this point, we can say that there is no preponderance in
favor of the proof presented by the defendant. In such conditions, the
presumption that the written contract contains all the agreements should
prevail and, consequently, the defendant's contention that such a verbal
agreement made by the plaintiff existed should be rejected.

The defendant argues that , as he bound himself to pay, and in fact did
pay, interest on the P10,000 which he received from the plaintiff as [a part
of] the price of the land, it should be understood that the plaintiff,
reciprocally, also bound himself to return, on his part, the fruits which he
collected from these lands. This argument would be valid if the interest paid
by the defendant has been paid for the time preceding the rescission, that
is, from May 5, 1913, when the contract of purchase and sale was
executed, until March 28, 1914, when it was rescinded. The record shows,
however, that this interest was paid for the time subsequent to the
rescission. It will be recalled that the defendant received from the plaintiff
P10,000 as a part of the price of the lands; that, on rescinding the sale in
March, 1914, the plaintiff returned the lands; and that the defendant, on his
part, instead of returning the part of the price, P10,000, received by him,
executed in favor of the plaintiff the Exhibit A, binding himself to pay the
sum of P12,000, with interest, one year afterwards, that is, on May 31,
1915. Both parties agree that P2,000 of these P12,000 is the interest on
the P10,000 for one year, at the rate of 20 per cent per annum. According
to that, after the defendant had been in receipt of the P10,000 for two
years, he bound himself to pay interest only for one year. This necessarily
supposes that this sum did not earn interested for the other year. If it is
admitted that this interest pertains to the first year previous to the
rescission, then it had accrued and was due when this contract of
rescission was executed; however, it was not deemed to be due on that
date, inasmuch as the defendant did not bind himself to pay it until after the
second year. Furthermore, if it is considered that this interest corresponds
to the first year prior to the rescission, the year in which no interest was due
would be the following year. Thus the result would be that, while the plaintiff
returned the lands, the defendant did not return the price, and if he did not
even bind himself to pay interest on this unreturned price, the transaction
would lack the same reciprocity which the defendant invokes to sustain the
contrary. We accept the conclusion that the interest which the defendant
bound himself to pay, and in fact did pay, to the plaintiff, was for the time
subsequent to the rescission. Consequently the defendant did not bind
himself to pay, nor did he pay, interest on the P10,000 for the time prior to
the rescission. Applying, by inversion, the defendant's argument, we
believe that we ought to conclude that the plaintiff could not have bound
himself to return to the defendant the fruits of the land that the plaintiff
collected during his possession, inasmuch as the defendant did not pay,
nor bind himself to pay, interest during the same time for the part of the
price which he received.

But the plaintiff held the lands by reason of his having purchased them from
the defendant. On this account, his possession, until the contract of
purchase and sale was dissolved and the lands were returned by him, was
in good faith. As such possessor in good, faith, the fruits collected by him
become his own (art. 451, Civil Code) and he is not obliged to return them
to the defendant. In the absence of any covenant, this provisions should be
applied to the instant case.

Aside from the foregoing considerations, equity also lies on the plaintiff's
side, because, as the record shows, for the improvement of the land and in
order to produce the fruits which he collected, he incurred expenses in an
amount such that the products collected by him may, reasonably, be
considered equivalent to the interest for tone year on the P10,000 which he
had paid to the defendant.
Therefore, the judgment appealed from is affirmed, with the costs against
the appellant. So ordered.

Arellano, C.J., Torrens, Johnson, Malcolm and Street, JJ., concur.


EQUATORIAL REALTY DEVELOPMENT, Inc., petitioner, vs. MAYFAIR
THEATER, Inc., respondent.

DECISION

PANGANIBAN, J.:

General propositions do not decide specific cases. Rather, laws are


interpreted in the context of the peculiar factual situation of each
proceeding. Each case has its own flesh and blood and cannot be ruled
upon on the basis of isolated clinical classroom principles.

While we agree with the general proposition that a contract of sale is valid
until rescinded, it is equally true that ownership of the thing sold is not
acquired by mere agreement, but by tradition or delivery. The peculiar facts
of the present controversy as found by this Court in an earlier relevant
Decision show that delivery was not actually effected; in fact, it was
prevented by a legally effective impediment. Not having been the owner,
petitioner cannot be entitled to the civil fruits of ownership like rentals of the
thing sold. Furthermore, petitioners bad faith, as again demonstrated by the
specific factual milieu of said Decision, bars the grant of such
benefits. Otherwise, bad faith would be rewarded instead of punished.

The Case

Filed before this Court is a Petition for Review[1] under Rule 45 of the Rules
of Court, challenging the March 11, 1998 Order[2] of the Regional Trial
Court of Manila (RTC), Branch 8, in Civil Case No. 97-85141. The
dispositive portion of the assailed Order reads as follows:

WHEREFORE, the motion to dismiss filed by defendant Mayfair is hereby


GRANTED, and the complaint filed by plaintiff Equatorial is hereby
DISMISSED.[3]

Also questioned is the May 29, 1998 RTC Order[4] denying petitioners
Motion for Reconsideration.

The Facts
The main factual antecedents of the present Petition are matters of record,
because it arose out of an earlier case decided by this Court on November
21, 1996, entitled Equatorial Realty Development, Inc. v. Mayfair Theater,
Inc.[5] (henceforth referred to as the mother case), docketed as GR No.
106063.

Carmelo & Bauermann, Inc. (Carmelo) used to own a parcel of land,


together with two 2-storey buildings constructed thereon, located at Claro
M. Recto Avenue, Manila, and covered by TCT No. 18529 issued in its
name by the Register of Deeds of Manila.

On June 1, 1967, Carmelo entered into a Contract of Lease with Mayfair


Theater Inc. (Mayfair) for a period of 20 years. The lease covered a portion
of the second floor and mezzanine of a two-storey building with about
1,610 square meters of floor area, which respondent used as a movie
house known as Maxim Theater.

Two years later, on March 31, 1969, Mayfair entered into a second
Contract of Lease with Carmelo for the lease of another portion of the
latters property -- namely, a part of the second floor of the two-storey
building, with a floor area of about 1,064 square meters; and two store
spaces on the ground floor and the mezzanine, with a combined floor area
of about 300 square meters. In that space, Mayfair put up another movie
house known as Miramar Theater. The Contract of Lease was likewise for
a period of 20 years.

Both leases contained a provision granting Mayfair a right of first refusal to


purchase the subject properties. However, on July 30, 1978 - within the 20-
year-lease term -- the subject properties were sold by Carmelo to
Equatorial Realty Development, Inc. (Equatorial) for the total sum
of P11,300,000, without their first being offered to Mayfair.

As a result of the sale of the subject properties to Equatorial, Mayfair filed a


Complaint before the Regional Trial Court of Manila (Branch 7) for (a) the
annulment of the Deed of Absolute Sale between Carmelo and Equatorial,
(b) specific performance, and (c) damages. After trial on the merits, the
lower court rendered a Decision in favor of Carmelo and Equatorial. This
case, entitled Mayfair Theater, Inc. v. Carmelo and Bauermann, Inc., et al.,
was docketed as Civil Case No. 118019.

On appeal (docketed as CA-GR CV No. 32918), the Court of Appeals (CA)


completely reversed and set aside the judgment of the lower court.

The controversy reached this Court via GR No. 106063. In this mother
case, it denied the Petition for Review in this wise:

WHEREFORE, the petition for review of the decision of the Court of


Appeals, dated June 23, 1992, in CA-G.R. CV No. 32918, is HEREBY
DENIED. The Deed of Absolute Sale between petitioners Equatorial Realty
Development, Inc. and Carmelo & Bauermann, Inc. is hereby deemed
rescinded; Carmelo & Bauermann is ordered to return to petitioner
Equatorial Realty Development the purchase price. The latter is directed to
execute the deeds and documents necessary to return ownership to
Carmelo & Bauermann of the disputed lots. Carmelo & Bauermann is
ordered to allow Mayfair Theater, Inc. to buy the aforesaid lots for
P11,300,000.00.[6]

The foregoing Decision of this Court became final and executory on March
17, 1997. On April 25, 1997, Mayfair filed a Motion for Execution, which the
trial court granted.

However, Carmelo could no longer be located. Thus, following the order of


execution of the trial court, Mayfair deposited with the clerk of court a
quo its payment to Carmelo in the sum of P11,300,000 less P847,000 as
withholding tax. The lower court issued a Deed of Reconveyance in favor of
Carmelo and a Deed of Sale in favor of Mayfair. On the basis of these
documents, the Registry of Deeds of Manila cancelled Equatorials titles
and issued new Certificates of Title[7] in the name of Mayfair.

Ruling on Equatorials Petition for Certiorari and Prohibition contesting the


foregoing manner of execution, the CA in its Resolution of November 20,
1998, explained that Mayfair had no right to deduct the P847,000 as
withholding tax. Since Carmelo could no longer be located, the appellate
court ordered Mayfair to deposit the said sum with the Office of the Clerk of
Court, Manila, to complete the full amount of P11,300,000 to be turned over
to Equatorial.

Equatorial questioned the legality of the above CA ruling before this Court
in GR No. 136221 entitled Equatorial Realty Development, Inc. v. Mayfair
Theater, Inc. In a Decision promulgated on May 12, 2000,[8] this Court
directed the trial court to follow strictly the Decision in GR No. 106063, the
mother case. It explained its ruling in these words:

We agree that Carmelo and Bauermann is obliged to return the entire


amount of eleven million three hundred thousand pesos (P11,300,000.00)
to Equatorial. On the other hand, Mayfair may not deduct from the
purchase price the amount of eight hundred forty-seven thousand pesos
(P847,000.00) as withholding tax. The duty to withhold taxes due, if any, is
imposed on the seller, Carmelo and Bauermann, Inc.[9]

Meanwhile, on September 18, 1997 -- barely five months after Mayfair had
submitted its Motion for Execution before the RTC of Manila, Branch 7 --
Equatorial filed with the Regional Trial Court of Manila, Branch 8, an action
for the collection of a sum of money against Mayfair, claiming payment of
rentals or reasonable compensation for the defendants use of the subject
premises after its lease contracts had expired. This action was the
progenitor of the present case.

In its Complaint, Equatorial alleged among other things that the Lease
Contract covering the premises occupied by Maxim Theater expired on
May 31, 1987, while the Lease Contract covering the premises occupied by
Miramar Theater lapsed on March 31, 1989.[10] Representing itself as the
owner of the subject premises by reason of the Contract of Sale on July 30,
1978, it claimed rentals arising from Mayfairs occupation thereof.

Ruling of the RTC Manila, Branch 8

As earlier stated, the trial court dismissed the Complaint via the herein
assailed Order and denied the Motion for Reconsideration filed by
Equatorial.[11]
The lower court debunked the claim of petitioner for unpaid back rentals,
holding that the rescission of the Deed of Absolute Sale in the mother case
did not confer on Equatorial any vested or residual proprietary rights, even
in expectancy.

In granting the Motion to Dismiss, the court a quo held that the critical issue
was whether Equatorial was the owner of the subject property and could
thus enjoy the fruits or rentals therefrom. It declared the rescinded Deed of
Absolute Sale as void at its inception as though it did not happen.

The trial court ratiocinated as follows:

The meaning of rescind in the aforequoted decision is to set aside. In the


case of Ocampo v. Court of Appeals, G.R. No. 97442, June 30, 1994, the
Supreme Court held that, to rescind is to declare a contract void in its
inception and to put an end as though it never were. It is not merely to
terminate it and release parties from further obligations to each other but to
abrogate it from the beginning and restore parties to relative positions
which they would have occupied had no contract ever been made.

Relative to the foregoing definition, the Deed of Absolute Sale between


Equatorial and Carmelo dated July 31, 1978 is void at its inception as
though it did not happen.

The argument of Equatorial that this complaint for backrentals as


reasonable compensation for use of the subject property after expiration
of the lease contracts presumes that the Deed of Absolute Sale dated
July 30, 1978 from whence the fountain of Equatorials alleged property
rights flows is still valid and existing.

xxx xxx xxx

The subject Deed of Absolute Sale having been rescinded by the Supreme
Court, Equatorial is not the owner and does not have any right to demand
backrentals from the subject property. x x x.[12]

The trial court added: The Supreme Court in the Equatorial case, G.R. No.
106063, has categorically stated that the Deed of Absolute Sale dated July
31, 1978 has been rescinded subjecting the present complaint to res
judicata.[13]

Hence, the present recourse.[14]

Issues

Petitioner submits, for the consideration of this Court, the following


issues:[15]

A.

The basis of the dismissal of the Complaint by the Regional Trial Court not
only disregards basic concepts and principles in the law on contracts and in
civil law, especially those on rescission and its corresponding legal effects,
but also ignores the dispositive portion of the Decision of the Supreme
Court in G.R. No. 106063 entitled Equatorial Realty Development, Inc. &
Carmelo & Bauermann, Inc. vs. Mayfair Theater, Inc.

B.

The Regional Trial Court erred in holding that the Deed of Absolute Sale in
favor of petitioner by Carmelo & Bauermann, Inc., dated July 31, 1978,
over the premises used and occupied by respondent, having been deemed
rescinded by the Supreme Court in G.R. No. 106063, is void at its inception
as though it did not happen.

C.

The Regional Trial Court likewise erred in holding that the aforesaid Deed
of Absolute Sale, dated July 31, 1978, having been deemed rescinded by
the Supreme Court in G.R. No. 106063, petitioner is not the owner and
does not have any right to demand backrentals from the subject property,
and that the rescission of the Deed of Absolute Sale by the Supreme Court
does not confer to petitioner any vested right nor any residual proprietary
rights even in expectancy.

D.
The issue upon which the Regional Trial Court dismissed the civil case, as
stated in its Order of March 11, 1998, was not raised by respondent in its
Motion to Dismiss.

E.

The sole ground upon which the Regional Trial Court dismissed Civil Case
No. 97-85141 is not one of the grounds of a Motion to Dismiss under Sec. 1
of Rule 16 of the 1997 Rules of Civil Procedure.

Basically, the issues can be summarized into two: (1) the substantive issue
of whether Equatorial is entitled to back rentals; and (2) the procedural
issue of whether the court a quos dismissal of Civil Case No. 97-85141 was
based on one of the grounds raised by respondent in its Motion to Dismiss
and covered by Rule 16 of the Rules of Court.

This Courts Ruling

The Petition is not meritorious.

First Issue:

Ownership of Subject Properties

We hold that under the peculiar facts and circumstances of the case at bar,
as found by this Court en banc in its Decision promulgated in 1996 in the
mother case, no right of ownership was transferred from Carmelo to
Equatorial in view of a patent failure to deliver the property to the buyer.

Rental - a Civil Fruit of Ownership

To better understand the peculiarity of the instant case, let us begin with
some basic parameters. Rent is a civil fruit[16] that belongs to the owner of
the property producing it[17] by right of accession.[18] Consequently and
ordinarily, the rentals that fell due from the time of the perfection of the sale
to petitioner until its rescission by final judgment should belong to the
owner of the property during that period.
By a contract of sale, one of the contracting parties obligates himself to
transfer ownership of and to deliver a determinate thing and the other to
pay therefor a price certain in money or its equivalent.[19]

Ownership of the thing sold is a real right,[20] which the buyer acquires only
upon delivery of the thing to him in any of the ways specified in articles
1497 to 1501, or in any other manner signifying an agreement that the
possession is transferred from the vendor to the vendee.[21] This right is
transferred, not by contract alone, but by tradition or delivery.[22] Non nudis
pactis sed traditione dominia rerum transferantur. And there is said to be
delivery if and when the thing sold is placed in the control and possession
of the vendee.[23] Thus, it has been held that while the execution of a public
instrument of sale is recognized by law as equivalent to the delivery of the
thing sold,[24] such constructive or symbolic delivery, being merely
presumptive, is deemed negated by the failure of the vendee to take actual
possession of the land sold.[25]

Delivery has been described as a composite act, a thing in which both


parties must join and the minds of both parties concur. It is an act by which
one party parts with the title to and the possession of the property, and the
other acquires the right to and the possession of the same. In its natural
sense, delivery means something in addition to the delivery of property or
title; it means transfer of possession.[26] In the Law on Sales, delivery may
be either actual or constructive, but both forms of delivery contemplate the
absolute giving up of the control and custody of the property on the part of
the vendor, and the assumption of the same by the vendee.[27]

Possession Never Acquired by Petitioner

Let us now apply the foregoing discussion to the present issue. From the
peculiar facts of this case, it is clear that petitioner never took actual
control and possession of the property sold, in view of respondents timely
objection to the sale and the continued actual possession of the
property. The objection took the form of a court action impugning the sale
which, as we know, was rescinded by a judgment rendered by this Court in
the mother case. It has been held that the execution of a contract of sale as
a form of constructive delivery is a legal fiction. It holds true only when
there is no impediment that may prevent the passing of the property from
the hands of the vendor into those of the vendee.[28] When there is such
impediment, fiction yields to reality - the delivery has not been effected.[29]

Hence, respondents opposition to the transfer of the property by way of


sale to Equatorial was a legally sufficient impediment that effectively
prevented the passing of the property into the latters hands.

This was the same impediment contemplated in Vda. de Sarmiento v.


Lesaca,[30] in which the Court held as follows:

The question that now arises is: Is there any stipulation in the sale in
question from which we can infer that the vendor did not intend to deliver
outright the possession of the lands to the vendee?We find none. On the
contrary, it can be clearly seen therein that the vendor intended to place the
vendee in actual possession of the lands immediately as can be inferred
from the stipulation that the vendee takes actual possession thereof x x x
with full rights to dispose, enjoy and make use thereof in such manner and
form as would be most advantageous to herself. The possession referred
to in the contract evidently refers to actual possession and not merely
symbolical inferable from the mere execution of the document.

Has the vendor complied with this express commitment? she did not. As
provided in Article 1462, the thing sold shall be deemed delivered when the
vendee is placed in the control and possession thereof, which situation
does not here obtain because from the execution of the sale up to the
present the vendee was never able to take possession of the lands due to
the insistent refusal of Martin Deloso to surrender them claiming ownership
thereof. And although it is postulated in the same article that the execution
of a public document is equivalent to delivery, this legal fiction only holds
true when there is no impediment that may prevent the passing of the
property from the hands of the vendor into those of the vendee. x x x.[31]

The execution of a public instrument gives rise, therefore, only to a prima


facie presumption of delivery. Such presumption is destroyed when the
instrument itself expresses or implies that delivery was not intended; or
when by other means it is shown that such delivery was not effected,
because a third person was actually in possession of the thing. In the latter
case, the sale cannot be considered consummated.

However, the point may be raised that under Article 1164 of the Civil Code,
Equatorial as buyer acquired a right to the fruits of the thing sold from the
time the obligation to deliver the property to petitioner arose.[32] That time
arose upon the perfection of the Contract of Sale on July 30, 1978, from
which moment the laws provide that the parties to a sale may reciprocally
demand performance.[33] Does this mean that despite the judgment
rescinding the sale, the right to the fruits[34] belonged to, and remained
enforceable by, Equatorial?

Article 1385 of the Civil Code answers this question in the negative,
because [r]escission creates the obligation to return the things which were
the object of the contract, together with their fruits, and the price with its
interest; x x x. Not only the land and building sold, but also the rental
payments paid, if any, had to be returned by the buyer.

Another point. The Decision in the mother case stated that Equatorial x x x
has received rents from Mayfair during all the years that this controversy
has been litigated. The Separate Opinion of Justice Teodoro Padilla in the
mother case also said that Equatorial was deriving rental income from the
disputed property. Even herein ponentes Separate Concurring Opinion in
the mother case recognized these rentals. The question now is: Do all
these statements concede actual delivery?

The answer is No. The fact that Mayfair paid rentals to Equatorial during
the litigation should not be interpreted to mean either actual delivery or ipso
facto recognition of Equatorials title.

The CA Records of the mother case[35] show that Equatorial - as alleged


buyer of the disputed properties and as alleged successor-in-interest of
Carmelos rights as lessor - submitted two ejectment suits against
Mayfair. Filed in the Metropolitan Trial Court of Manila, the first was
docketed as Civil Case No. 121570 on July 9, 1987; and the second, as
Civil Case No. 131944 on May 28, 1990. Mayfair eventually won them both.
However, to be able to maintain physical possession of the premises while
awaiting the outcome of the mother case, it had no choice but to pay the
rentals.

The rental payments made by Mayfair should not be construed as a


recognition of Equatorial as the new owner. They were made merely to
avoid imminent eviction. It is in this context that one should understand the
aforequoted factual statements in the ponencia in the mother case, as well
as the Separate Opinion of Mr. Justice Padilla and the Separate Concurring
Opinion of the herein ponente.

At bottom, it may be conceded that, theoretically, a rescissible contract is


valid until rescinded. However, this general principle is not decisive to the
issue of whether Equatorial ever acquired the right to collect rentals. What
is decisive is the civil law rule that ownership is acquired, not by mere
agreement, but by tradition or delivery. Under the factual environment of
this controversy as found by this Court in the mother case, Equatorial was
never put in actual and effective control or possession of the property
because of Mayfairs timely objection.

As pointed out by Justice Holmes, general propositions do not decide


specific cases. Rather, laws are interpreted in the context of the peculiar
factual situation of each case. Each case has its own flesh and blood and
cannot be decided on the basis of isolated clinical classroom principles.[36]

In short, the sale to Equatorial may have been valid from inception, but it
was judicially rescinded before it could be consummated. Petitioner never
acquired ownership, not because the sale was void, as erroneously
claimed by the trial court, but because the sale was not consummated by
a legally effective delivery of the property sold.

Benefits Precluded by Petitioners Bad Faith

Furthermore, assuming for the sake of argument that there was valid
delivery, petitioner is not entitled to any benefits from the rescinded Deed of
Absolute Sale because of its bad faith. This being the law of the mother
case decided in 1996, it may no longer be changed because it has long
become final and executory. Petitioners bad faith is set forth in the following
pertinent portions of the mother case:

First and foremost is that the petitioners acted in bad faith to render
Paragraph 8 inutile.

xxx xxx xxx

Since Equatorial is a buyer in bad faith, this finding renders the sale to it of
the property in question rescissible. We agree with respondent Appellate
Court that the records bear out the fact that Equatorial was aware of the
lease contracts because its lawyers had, prior to the sale, studied the said
contracts. As such, Equatorial cannot tenably claim to be a purchaser in
good faith, and, therefore, rescission lies.

xxx xxx xxx

As also earlier emphasized, the contract of sale between Equatorial and


Carmelo is characterized by bad faith, since it was knowingly entered into
in violation of the rights of and to the prejudice of Mayfair. In fact, as
correctly observed by the Court of Appeals, Equatorial admitted that its
lawyers had studied the contract of lease prior to the sale. Equatorials
knowledge of the stipulations therein should have cautioned it to look
further into the agreement to determine if it involved stipulations that would
prejudice its own interests.

xxx xxx xxx

On the part of Equatorial, it cannot be a buyer in good faith because it


bought the property with notice and full knowledge that Mayfair had a right
to or interest in the property superior to its own. Carmelo and Equatorial
took unconscientious advantage of Mayfair.[37] (Italics supplied)

Thus, petitioner was and still is entitled solely to the return of the purchase
price it paid to Carmelo; no more, no less. This Court has firmly ruled in the
mother case that neither of them is entitled to any consideration of equity,
as both took unconscientious advantage of Mayfair.[38]
In the mother case, this Court categorically denied the payment of interest,
a fruit of ownership. By the same token, rentals, another fruit of ownership,
cannot be granted without mocking this Courts en banc Decision, which
has long become final.

Petitioners claim of reasonable compensation for respondents use and


occupation of the subject property from the time the lease expired cannot
be countenanced. If it suffered any loss, petitioner must bear it in silence,
since it had wrought that loss upon itself. Otherwise, bad faith would be
rewarded instead of punished.

We uphold the trial courts disposition, not for the reason it gave, but for (a)
the patent failure to deliver the property and (b) petitioners bad faith, as
above discussed.

Second Issue:

Ground in Motion to Dismiss

Procedurally, petitioner claims that the trial court deviated from the
accepted and usual course of judicial proceedings when it dismissed Civil
Case No. 97-85141 on a ground not raised in respondents Motion to
Dismiss. Worse, it allegedly based its dismissal on a ground not provided
for in a motion to dismiss as enunciated in the Rules of Court.

We are not convinced. A review of respondents Motion to Dismiss Civil


Case No. 97-85141 shows that there were two grounds invoked, as follows:

(A)

Plaintiff is guilty of forum-shopping.

(B)

Plaintiffs cause of action, if any, is barred by prior judgment.[39]

The court a quo ruled, inter alia, that the cause of action of petitioner
(plaintiff in the case below) had been barred by a prior judgment of this
Court in GR No. 106063, the mother case.
Although it erred in its interpretation of the said Decision when it argued
that the rescinded Deed of Absolute Sale was void, we hold, nonetheless,
that petitioners cause of action is indeed barred by a prior judgment of this
Court. As already discussed, our Decision in GR No. 106063 shows that
petitioner is not entitled to back rentals, because it never became the
owner of the disputed properties due to a failure of delivery. And even
assuming arguendo that there was a valid delivery, petitioners bad faith
negates its entitlement to the civil fruits of ownership, like interest and
rentals.

Under the doctrine of res judicata or bar by prior judgment, a matter that
has been adjudicated by a court of competent jurisdiction must be deemed
to have been finally and conclusively settled if it arises in any subsequent
litigation between the same parties and for the same cause.[40] Thus, [a]
final judgment on the merits rendered by a court of competent jurisdiction is
conclusive as to the rights of the parties and their privies and constitutes an
absolute bar to subsequent actions involving the same claim, demand, or
cause of action.[41] Res judicata is based on the ground that the party to be
affected, or some other with whom he is in privity, has litigated the same
matter in a former action in a court of competent jurisdiction, and should not
be permitted to litigate it again.[42]

It frees the parties from undergoing all over again the rigors of unnecessary
suits and repetitive trials. At the same time, it prevents the clogging of court
dockets. Equally important, it stabilizes rights and promotes the rule of law.

We find no need to repeat the foregoing disquisitions on the first issue to


show satisfaction of the elements of res judicata. Suffice it to say that,
clearly, our ruling in the mother case bars petitioner from claiming back
rentals from respondent. Although the court a quo erred when it declared
void from inception the Deed of Absolute Sale between Carmelo and
petitioner, our foregoing discussion supports the grant of the Motion to
Dismiss on the ground that our prior judgment in GR No. 106063 has
already resolved the issue of back rentals.
On the basis of the evidence presented during the hearing of Mayfairs
Motion to Dismiss, the trial court found that the issue of ownership of the
subject property has been decided by this Court in favor of Mayfair. We
quote the RTC:

The Supreme Court in the Equatorial case, G.R. No. 106063 has
categorically stated that the Deed of Absolute Sale dated July 31, 1978 has
been rescinded subjecting the present complaint to res
judicata.[43] (Emphasis in the original)

Hence, the trial court decided the Motion to Dismiss on the basis of res
judicata, even if it erred in interpreting the meaning of rescinded as
equivalent to void. In short, it ruled on the ground raised; namely, bar by
prior judgment. By granting the Motion, it disposed correctly, even if its
legal reason for nullifying the sale was wrong. The correct reasons are
given in this Decision.

WHEREFORE, the Petition is hereby DENIED. Costs against petitioner.

SO ORDERED.
ECOND DIVISION

[G.R. No. 100486. December 9, 1992.]

SPOUSES FELIX ZEPEDA and VIRGINIA ZEPEDA, Petitioners, v. THE


COURT OF APPEALS, LEONILA AMANSEC and ARTURO
AMANSEC, Respondents.

Jose S. Santos, Jr., for Petitioners.

Ildefonso Jose T. Cruz for Respondents.

Nora A. Buenviaje for Private Respondents.

SYLLABUS

1. REMEDIAL LAW; FORECLOSURE OF REAL ESTATE MORTGAGE;


AFTER LAPSE OF ONE-YEAR PERIOD OF REDEMPTION, THERE IS
NOTHING THAT CAN BE EXTENDED BY AGREEMENT OF THE
PARTIES. — The one year period of redemption as provided under Section
30, Rule 39 of the Rules of Court had long lapsed and whatever agreement
that took place between the Branch Manager of the bank and private
respondents partook of the nature of a direct sale. As stated by the
appellate court, to which We agree: ". . . The one year period of redemption
foreclosed (sic) and sold at public auction start from the date of the
registration of the sheriff’s certificate of sale in the office of the Register of
Deeds. (Verseles v. Court of First Instance, G.R. No. 62219, 28 February
1989). There is therefore, nothing which can be extended by agreement of
the parties therein. Secondly, the appellees are not among those
mentioned under Section 29, Rule 39 of the Rules of Court who may
redeem property sold on execution."cralaw virtua1aw library

2. ID.; ID.; DEFENSE OF GOOD FAITH; MUST BE SUPPORTED BY


CONVINCING EVIDENCE. — The defense of good faith on the part of the
Zepedas is likewise questionable. We firmly agree once more with the trial
court and the court a quo in its conclusion that there was indeed bad faith
on the part of the Zepedas. The trial court observed: "The defense of the
defendants spouses Felix Zepeda and Virginia Reña, that they are buyers
in good faith, and have no knowledge on the transactions between the
plaintiffs and the defendant Bank before they purchased the property in
question is not supported by convincing evidence, it cannot likewise be
sustained. . . . The defense of good faith based upon the claim of Mrs.
Zepeda that she has knowledge of the plaintiffs’ existing contract because
the Manager of the Bank and its attorney, Mr. Hector F. Dysangco, with
whom she had negotiated to buy the property, concealed or did not divulge
to them the existence of such contract between the Bank and the plaintiffs,
wherein the former agreed to the latter for them to redeem the property for
P12,000.00, is not only uncorroborated by other evidence but highly
improbable for said officers of the bank to hide such kind of transaction. It
may be noted on this point that Mrs. Zepeda’s version does not coincide
with the stand of the Bank that the Manager sold this property to her
because they considered it as an acquired asset of the Bank and can
lawfully do it. . . .

3. CIVIL LAW; CONTRACT OF SALE; WHEN PERFECTED; RESCISSION


ALLOWED ONLY FOR SUBSTANTIAL AND FUNDAMENTAL BREACH.
— A contract of sale is perfected from the moment there is a meeting of
minds upon the thing which is the object of the contract and upon the price.
We concur with the trial court in its finding that the fact that private
respondents were not able to tender the remaining balance of P1,000.00
within one (1) week from the time the sum of P5,000.00 was paid on
January 13, 1981 to the Bank to complete the P6,000.00 advanced deposit
or partial payment of the consideration of the redemption of the property in
question in the amount of P12,000.00, is not a substantial and serious
breach that would defeat the very object of the agreement and cause heavy
damage to the Bank, and a ground to rescind the contract. At the trial,
Leonila Amansec revealed that she went to the Bank to pay the P1,000.00
but unfortunately, the Bank Manager was on leave. The general rule is that
rescission of a contract will not be permitted for a slight or casual breach,
but only for such substantial and fundamental breach as would defeat the
very object of the parties in making the agreement.

4. ID.; EVIDENCE; FINDINGS AND CONCLUSIONS OF THE APPELLATE


COURT, UPHELD. — To strengthen the observance of the Zepedas’ bad
faith, the appellate court said: "The lower court’s accurate observation from
the records that confronted with the foregoing, the Zepedas did not inquire
into the condition of the property and/or failed to discover the bank’s
previous transaction with appellees despite their entrepreneurial status and
acumen; that their protestations of good faith are, at best, insufficient and
uncorroborated; that appellant Bank’s Manager intimated to them about its
earlier agreement with the plaintiffs (TSN, 24 August 1982, pp. 34-35); and,
over and above the foregoing considerations, that the spouses did not file a
cross-claim against the appellant Bank despite the latter’s alleged non-
disclosure of its previous agreement are, sufficient badges of bad faith as
would defeat their claim. Finally, the Zepedas’ harping over the lower
court’s apparent misapprehension of their relation to Tarcilla Santos,
Plaintiff-Appellee Leonila Amansec’s sister-in-law is inconsequential.
Petitioners miserably failed to prove good faith on their part. There is
therefore no reason for Us to disturb the findings and conclusions made by
the Court of Appeals.

DECISION

NOCON, J.:
This is a petition for review under Rule 45 of the Rules of Court of the
decision 1 of the Court of Appeals dismissing the appeal interposed by
herein petitioners.

The case at bar sprung from a complaint for reconveyance with damages
against herein petitioners Felix and Virginia Zepeda by private respondents
Leonila and Arturo Amansec. The piece of land subject of this case is a
residential lot with an area of 1,434 square meters situated at San
Francisco, Nueva Ecija registered in the name of Antonio
Santos.chanrobles.com.ph : virtual law library

On July 17, 1973, Antonio Santos mortgaged his share in the lot in
question with the Sta. Rosa Rural Bank for the amount of P3,000.00. The
property however was foreclosed due to the non-payment of the obligation
of Antonio Santos and the property was sold by public auction in favor of
the Bank. While the sale was annotated at the Memorandum of
Encumbrance of T.C.T. No. NT-57013 on October 8, 1974, said property
was not consolidated in the name of the Bank and no writ of possession
was issued by the Court placing the Bank in possession before the property
in question was disposed of by the Bank in favor of petitioner spouses Felix
Zepeda and Virginia Rena Zepeda on March 12, 1981.

Respondent Leonila Amansec, sister of Antonio Santos, then went to the


bank and talked with the Branch Manager by the name of Rodrigo Corella,
Jr. and expressed her desire to redeem back the property of her brother,
Antonio Santos. She anchored her right on the following: First, she being a
co-heir of Antonio Santos and Second, her property adjoins the property in
question thereby invoking her right of redemption under Articles 1621 and
1622 of the Civil Code of the Philippines.

As borne out from the records, on January 13, 1981, Leonila Amansec and
the Bank Manager came into an agreement that the property in question
may be redeemed for the price of Twelve Thousand (P12,000.00) Pesos,
the Six Thousand (P6,000.00) Pesos to be deposited that same date or
within one (1) week and the other Six Thousand (P6,000.00) Pesos to be
paid within one (1) year from January 13, 1981.

That same date or on January 13, 1981, Leonila Amansec gave Five
Thousand (P5,000.00) Pesos as deposit to the Bank which amount was
evidenced by Official Receipt No. 36012. (Exhibit "C") This agreement 2
was confirmed and ratified on January 22, 1981 by the Board of Directors
of the said Bank.

On February 1981 however, the Bank sold the property in question to


herein petitioners for the amount of Fourteen Thousand (P14,000.00)
Pesos. On March 20, 1981, a letter 3 was sent to the counsel of the bank to
Leonila Amansec informing her that she can withdraw anytime her deposit
of Five Thousand (P5,000.00) and further, that the bank have decided to
sell the property to the Zepedas instead.chanrobles.com.ph : virtual law
library

Hence, the instant complaint filed before Branch 37, Regional Trial Court of
Nueva Ecija, and docketed as Civil Case No. SD-831. After trial on the
merits, judgment 4 was rendered ordering the reconveyance of the property
to private respondents, the dispositive portion of which
reads:jgc:chanrobles.com.ph

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


against the defendants:chanrob1es virtual 1aw library

1. Ordering the defendants spouses Felix Zepeda and Virginia Reña


Zepeda to reconvey the property subject matter of this case, Lot No. 33-A-2
of the Subdivision Plan (LRC) Psd-4181, being a portion of Lot No. 33-A,
with an area of 1,434 square meters, situated at San Francisco, Sto.
Domingo, Nueva Ecija, in favor of the plaintiffs, for the sum of P12,000.00.
The advanced deposit of P5,000.00 which the plaintiffs paid to the
defendant Bank on January 13, 1981, should be applied in the payment of
the consideration stated above.

2. Ordering the defendant, the Sta. Rosa (N.E.) Rural Bank, Inc., to
reimburse the sum of P14,000.00 which the defendants spouses Felix
Zepeda and Virginia Reña-Zepeda paid as consideration of the sale of the
property in question, which is in effect declared unenforceable, with interest
at 14% per annum from March 20, 1981, up to the time it is paid.

3. Ordering the defendant, the Sta. Rosa (N.E.) Rural Bank, Inc., to pay the
plaintiffs the sum of P5,000.00 as exemplary damages and the sum of
P2,000.00 as attorney’s fees.

And to pay the costs of this suit.

SO ORDERED." 5

Herein petitioners and the Bank appealed to the Court of Appeals, but their
respective appeals were dismissed for lack of merit. Hence, this appeal
by certiorari by the spouses Zepeda.

Petitioners advanced several reasons for their inability to conform to the


position of private respondents, which are as follows:chanrob1es virtual
1aw library

First, the right to redeem being contended by private respondents has long
lapsed and prescribed, the property in question having been publicly
auctioned on July 17, 1973 and the certificate of sale inscribed at the back
of the title.

Second, the agreement between the Branch Manager of the bank and
private respondents, was merely an offer by the latter to buy the subject
property on a direct sale and not in redemption because the same has
been an acquired asset of the Bank and which offer was still subject to the
approval of the Board of Directors of the Bank.chanrobles virtual lawlibrary
Third, private respondents did not make good their promise to go back to
the Bank and deposit the balance of P1,000 to complete their initial deposit,
hence there is no valid cause of action against them.

Fourth, the action of the private respondents is barred by laches.

Lastly, there is good faith on the part of herein petitioners and being the
first to register the sale, they have a preferential right over the property in
question than private respondents.

We disagree.

Clearly, as the records will show, the one year period of redemption as
provided under Section 30, Rule 39 of the Rules of Court had long lapsed
and whatever agreement that took place between the Branch Manager of
the bank and private respondents partook of the nature of a direct sale. As
stated by the appellate court, to which We agree:jgc:chanrobles.com.ph

". . . The one year period of redemption foreclosed (sic) and sold at public
auction start from the date of the registration of the sheriff’s certificate of
sale in the office of the Register of Deeds. (Verseles v. Court of First
Instance, G.R. No. 62219, 28 February 1989). There is therefore, nothing
which can be extended by agreement of the parties therein. Secondly, the
appellees are not among those mentioned under Section 29, Rule 39 of the
Rules of Court who may redeem property sold on execution." 6

A contract of sale is perfected from the moment there is a meeting of minds


upon the thing which is the object of the contract and upon the price. 7

We concur with the trial court in its finding that the fact that private
respondents were not able to tender the remaining balance of P1,000.00
within one (1) week from the time the sum of P5,000.00 was paid on
January 13, 1981 to the Bank to complete the P6,000.00 advanced deposit
or partial payment of the consideration of the redemption of the property in
question in the amount of P12,000.00, is not a substantial and serious
breach that would defeat the very object of the agreement and cause heavy
damage to the Bank, and a ground to rescind the contract. At the trial,
Leonila Amansec revealed that she went to the Bank to pay the P1,000.00
but unfortunately, the Bank Manager was on leave. 8

The general rule is that rescission of a contract will not be permitted for a
slight or casual breach, but only for such substantial and fundamental
breach as would defeat the very object of the parties in making the
agreement. 9

As aptly found by the trial court:jgc:chanrobles.com.ph

"Even assuming but without admitting that the plaintiffs were not able to
tender the P1,000.00 within one (1) week from the time the sum of
P5,000.00 was paid on January 13, 1981 to the defendant Bank to
complete the P6,000.00 advanced deposit or partial payment of the
consideration of the redemption of the property in question for P12,000.00,
this is not to the mind of the Court a substantial and serious breach that
would defeat the very object of the agreement and would cause heavy
damage on the part of the Bank, and would be justifiable factor to ignore or
rescind the contract. But the evidence introduced by the plaintiffs which
was not controverted by the Bank, reveals that the plaintiffs went to the
Bank to deposit or pay the P1,000.00 within the stipulated period but the
Manager of the Bank was on leave of absence and no one attended to the
plaintiff. Furthermore, the period which the property in question is to be
redeemed is fixed to be within the year of 1981. (Exhibit "D")." 10

Article 1315 provides:chanrobles virtualawlibrary


chanrobles.com:chanrobles.com.ph

"Contracts are perfected by mere consent, and from the moment the
parties are bound not only to the fulfillment of what has been expressly
stipulated but also to all the consequences which, according to their nature,
may be in keeping with good faith, usage and law."cralaw virtua1aw library
Article 1475 further provides:jgc:chanrobles.com.ph

"The contract of sale is perfected at the moment there is a meeting of


minds upon the thing which is the object of the contract and upon the price.

"From that moment, the parties may reciprocally demand performance,


subject to the provisions of the law governing the form of contracts."cralaw
virtua1aw library

The defense of good faith on the part of the Zepedas is likewise


questionable. We firmly agree once more with the trial court and the court a
quo in its conclusion that there was indeed bad faith on the part of the
Zepedas. The trial court observed:jgc:chanrobles.com.ph

"The defense of the defendants spouses Felix Zepeda and Virginia Reña,
that they are buyers in good faith, and have no knowledge on the
transactions between the plaintiffs and the defendant Bank before they
purchased the property in question is not supported by convincing
evidence, it cannot likewise be sustained.

"The inherent weakness of the defendant’s (Mrs. Zepeda) defense that she
was not aware or informed by the Manager and lawyer of the Bank about
the actual condition of the property being sold to her when she went to the
Bank in the month of January, 1981, to check and verify what the actual
status of the property is become evident, (sic) if one bears in mind that from
the record or title of the land she can readily find out for herself that the lot
was still registered in the name of Antonio Santos under T.C.T. No. NT-
57013; that there has been no yet (sic) consolidation of the property in
favor of the Bank; and that no writ of possession authorizing the bank to
legally take over the possession of the parcel of land mortgaged was
issued (Barrameda v. Gontong 19 SCRA 387).

"While it may be conceded that in case of an extra-judicial foreclosure of a


real estate mortgage, the possession of the property sold may be given to
the purchaser by the Sheriff after the period of redemption had expired,
unless a third person is actually holding the property adversely to the
mortgagor (Sec. 6, Act No. 3135), here there is no evidence presented
during the trial by the defendants that the sheriff delivered the possession
to the Bank after the sale in its favor is made, but there is clear testimonial
evidence that the plaintiffs came to know about the sale of the property in
favor of the defendants Zepedas only when the relatives of the Zepedas
started cutting the trees in the premises of the property in question and
informed them (plaintiffs) that the Zepedas are now the new owners.

"The defense of good faith based upon the claim of Mrs. Zepeda that she
has knowledge of the plaintiffs’ existing contract because the Manager of
the Bank and its attorney, Mr. Hector F. Dysangco, with whom she had
negotiated to buy the property, concealed or did not divulge to them the
existence of such contract between the Bank and the plaintiffs, wherein the
former agreed to the latter for them to redeem the property for P12,000.00,
is not only uncorroborated by other evidence but highly improbable for said
officers of the bank to hide such kind of transaction. It may be noted on this
point that Mrs. Zepeda’s version does not coincide with the stand of the
Bank that the Manager sold this property to her because they considered it
as an acquired asset of the Bank and can lawfully do it.

"Being an intelligent and business oriented person who owns and manages
two big stores and a factory in Metro Manila, who came to St. Domingo,
Nueva Ecija, for three times, talked to many persons, her cousins, and to
the bank’s officers, it would be unbelievable for Mrs. Zepeda to fail to
discover that the plaintiffs are interested to redeem the property of their
brother Antonio Santos.chanrobles.com.ph : virtual law library

"It may be noted too that when she came to the Bank for the first time she
was greeted by the Manager of the Bank ‘so it was you whom she was able
to find’", an expression indicating that she was a prospective buyer willing
to buy the lot in question with better terms and condition already revealed
to her. It is also significant to note that the agreed price in the contract
between the Bank and the plaintiffs is P12,000.00, and the term of payment
is by installment for one year from January 13, 1981; while the defendant
Zepedas offered P14,000.00, or P2,000.00 more than the price agreed
upon by the plaintiffs, and in cash.

"The Bank’s reason for disposing the property to the Zepedas is because
Mrs. Zepeda’s offer was for cash basis and for more (P14,000.00), while
that of Amansec (plaintiff) is for installment and for P12,000.00 (Exh. "E"), a
clear indication that Mrs. Zepeda is aware of this, because she was
apprised of the transaction between the Bank and the Plaintiffs, but tried to
over bid them in order to be able to buy the property. The Zepedas never
assailed this reason.

"Furthermore, why the defendants Zepedas did not file a cross claim, it if
was true that the Manager and the lawyer of the Bank concealed to them
the actual situation or status of the property in question? And if it is true that
said officers of the bank assured them that the property has no legal
infirmity and the bank would answer for any legal defects or flaw before it
was conveyed to her?" 11

To strengthen the observance of the Zepedas’ bad faith, the appellate court
said:jgc:chanrobles.com.ph

"The lower court’s accurate observation from the records that confronted
with the foregoing, the Zepedas did not inquire into the condition of the
property and/or failed to discover the bank’s previous transaction with
appellees despite their entrepreneurial status and acumen; that their
protestations of good faith are, at best, insufficient and uncorroborated; that
appellant Bank’s Manager intimated to them about its earlier agreement
with the plaintiffs (TSN, 24 August 1982, pp. 34-35); and, over and above
the foregoing considerations, that the spouses did not file a cross-claim
against the appellant Bank despite the latter’s alleged non-disclosure of its
previous agreement are, sufficient badges of bad faith as would defeat their
claim. Finally, the Zepedas’ harping over the lower court’s apparent
misapprehension of their relation to Tarcilla Santos, Plaintiff-Appellee
Leonila Amansec’s sister-in-law is inconsequential. (Defendants-Appellants
Zepeda’s Appeal Brief, p. 8)." 12
Petitioners miserably failed to prove good faith on their part. There is
therefore no reason for Us to disturb the findings and conclusions made by
the Court of Appeals.

WHEREFORE, there being no reversible error in the appealed decision,


the same is hereby AFFIRMED.

SO ORDERED.
G.R. No. 101262 September 14, 1994

SPOUSES ALBERTO GARRIDO AND COLOMA DAGURO, petitioners,


vs.
THE COURT OF APPEALS, SPOUSES RUFINO AND CONRADA
SUPLEMENTO, respondents.

Ramon A. Gonzales for petitioners.

Franklin J. Andrada for private respondents.

BELLOSILLO, J.:

Tomas Hingco, a widower, originally owned Lot 209 of the Dingle Cadastre,
Iloilo. He married Consolacion Rondael, a widow, who had a daughter
Magdalena Rondael. In 1947 he donated one half (1/2) of Lot 209 to his
stepdaughter Magdalena subject to the condition that she could not sell,
transfer or cede the same. When he died, Consolacion inherited the
remaining half of Lot 209 which, in turn, was inherited by Magdalena upon
the death of Consolacion. Consequently, the entire Lot 209 was registered
in the name of Magdalena Rondael, married to Lorenzo Daguro, under
Transfer Certificate of Title No.
T-13089.

In 1973 Magdalena sold a portion of Lot 209 (Lot 209-B) to Mariano


Platinos and Florida Macahilo. The remaining portion (Lot 209-A) with an
area of 343 square meters is the subject of this litigation.

In 1976 Lorenzo Daguro died. Magdalena then filed before the Court of
First Instance of Iloilo a petition to cancel the lien prohibiting her from
disposing of Lot 209-A because she needed money for her subsistence
and medical expenses as she was then in her 80's. Besides, she was
sickly. 1 He deposition on oral examination in connection with her petition
was taken on 24 January 1979. 2

On 17 August 1978, during the pendency of her petition, Magdalena


executed a Conditional Deed of Sale of Lot 209-A in favor of respondent
spouses Rufino and Conrada Suplemento "subject to the lien subsisting
and annotated on the face of the Certificate of Title." 3 Magdalena agreed
to bear the cost of the cancellation of the lien and respondents to be bound
thereby as long as it subsisted, with the understanding that in the event the
lien was not cancelled, the amount already paid would be refunded. It was
further stipulated that "out of the Nineteen Thousand (P19,000.00)
consideration . . . only Three Thousand (P3,000.00) pesos . . . shall be
paid pro rata monthly for ten (10) years and to convene (commence?) one
(1) year from the date of this Deed." 4

On 24 January 1979 the petition for cancellation of encumbrance was


denied for the reason that the ground cited for the cancellation was not one
of those allowed by Sec. 112 of Act 496 and that Magdalena failed to
produce the deed of donation which contained the alleged restriction.
Nonetheless, on 19 July 1979 Magdalena executed with the conformity of
her husband a Deed of Absolute Sale covering Lot 209-A in favor of
respondents, spouses Rufino and Conrada Suplemento. 5 The deed was
notarized on the same date. On 13 April 1982, Magdalena died. On 2
December 1982 TCT No. T-108689 was issued in the name of the
Suplementos. 6

Magdalena had two (2) daughters but only one is still living, Coloma
Daguro, married to Alberto Garrido, the spouses being the petitioners
herein. They were based in Davao City and would visit Magdalena only on
occasions. In February 1984, Alberto Garrido visited the Suplementos in
the house where Magdalena used to live. 7 He wanted to find out if the
taxes on the house were being paid. In reply, respondents showed him the
Deed of Absolute Sale signed by his parents-in-law and it was only then
that he came to know that Lot 209-A no longer belonged to his in-laws.

On 28 October 1985 petitioners Coloma Daguro and Alberto Garrido filed a


complaint before the Regional Trial Court of Iloilo City for annulment of the
Deed of Absolute Sale of Lot 209-A, reconveyance and damages claiming
that the deed was fictitious since Magdalena's signature thereon "appears
to have been traced" and Lorenzo Daguro's signature was likewise a
forgery since he died prior to the execution thereof, or on 9 October 1976. 8
The trial court, relying on the deposition of Magdalena on 24 January 1979,
found that she wanted to sell and did in fact sell Lot 209-A to the
Suplementos. In addition, the court found that the genuineness of Lorenzo
Daguro's signature was not germane to the validity of the Deed of Absolute
Sale as said signature was not necessary to convey title to the paraphernal
property of Magdalena. To petitioners' credit, it held that no evidence was
adduced by respondents to show payment of any installment of the balance
of the purchase price to Magdalena before her death or to her heir,
Coloma. Thus, judgment was rendered on 19 October 1988 declaring the
sale of 19 July 1979 valid but ordering the Suplementos to pay petitioners
P16,000.00 with legal rate of interest until fully paid. 9

On appeal, respondent Court of Appeals affirmed the ruling of the Iloilo trial
court in its decision of 27 February 1991 10 and denied reconsideration on
29 July 1991. 11

Petitioners contend that the appellate court erred in holding that they have
no personality to assail the Absolute Deed of Sale and the genuineness of
the signature of Magdalena Rondael.

Petitioners assert that the issue raised in the trial court was whether
Magdalena Rondael could sell the property despite the prohibition in the
deed of donation. In ruling that they were incapacitated to question the non-
observance of the condition, respondent court went beyond the issue,
hence, exceeded its jurisdiction.

We find for respondents. Petitioners have no personality to question the


violation of the restriction because they are not heirs of the donor. When
the donee fails to comply with any of the conditions imposed by the donor,
it is the donor who has the right to impugn the validity of the transaction
affecting the donated property, conformably with Art. 764 of the Civil Code,
which provides that the right to revoke may be transmitted to the heirs of
the donor and may be exercised against the heirs of the donee, and the
action prescribes four years after the violation of the condition.

Petitioners' lack of capacity to question the non-compliance with the


condition is intimately connected with the issue regarding the validity of the
sale on account of the prohibition in the deed of donation. Thus, we have
established the rule that an unassigned error closely related to an error
properly assigned, or upon which the determination of the question properly
assigned is dependent, may be considered by the appellate court. 12

Petitioners also submit that the finding of the appellate court that the
signature of Magdalena Rondael in the Deed of Absolute Sale is genuine
has been overtaken by events. In a letter dated 1 August 1991, the
Regional Director of the NBI, Iloilo City, furnished the Iloilo City Prosecutor
with a copy of NBI Questioned Document Report No. 413-791 dated 23
July 1991, purporting to show that the questioned signature as well as the
standard/sample signatures of the deceased Magdalena Rondael were not
written by one and the same person, 13 hence, a forgery.

Admittedly, the NBI report was never adduced before the lower courts; in
fact, it is presented for the first time and only before this Court. Obviously,
this is not a newly discovered evidence within the purview of Sec. 1, par.
(b), Rule 37, of the Rules of Court. Petitioners should have thought of
having the signature of Magdalena Rondael on the deed of sale examined
when the case was still with the trial court. Nothing would have stopped
them from doing so. Hence, it is now late, too late in fact, to present it
before this Court.

Petitioners' reliance on the NBI report as basis for new trial on the ground
of "newly discovered evidence" is a mistake. In the first place, the rule is
explicit that a motion for new trial should be filed before the trial court and
within the period for appeal. In the second place, in order that a particular
piece of evidence may be properly regarded as "newly discovered" for the
purpose of granting new trial, the following requisites must concur: (a) the
evidence had been discovered after trial; (b) the evidence could not have
been discovered and produced during trial even with the exercise of
reasonable diligence; and, (c) the evidence is material and not merely
corroborative, cumulative or impeaching and is of such weight that if
admitted would probably alter the result. 14 At the pitch of these
requirements is that what is essential is not so much the time when the
evidence offered first sprang into existence nor the time when it first came
to the knowledge of the party now submitting it; rather, that the offering
party had exercised reasonable diligence in producing or locating such
evidence before or during trial but had nonetheless failed to secure it. The
NBI report does not qualify as newly discovered evidence because the
second requirement was not complied with. Petitioners did not exercise
reasonable diligence in procuring such evidence before or during trial. By
their own admission, the Fiscal sought NBI assistance only after the trial of
the case. They could have done so themselves when their case was tried.
Besides, when the City Prosecutor requested the NBI for a handwriting
examination in connection with petitioners' criminal complaint for
falsification against respondents, the initial response of the NBI was: "no
definite opinion can be rendered on the matter due to lack of sufficient
basis necessary for a scientific comparative examination." 15 From there it
can be deduced that petitioners did not submit adequate documents before
the NBI at the first instance, thus showing their want of reasonable
diligence in procuring the evidence they needed for a new trial.

We accord finality to the finding of respondent court, supported as it is by


substantial evidence, that the alleged discrepancy between the signature of
Magdalena Rondael appearing on the Deed of Absolute Sale and her
signatures on the Conditional Deed of Sale, petition to cancel the
annotation prohibiting the sale of the donated property, petitioners' reply to
opposition, 16 transcript of her deposition dated 24 January 1979, and the
deed of sale of Lot 209-B, does not exist. Having alleged forgery,
petitioners had the burden of proof. Here, they utterly failed. They even
attached to their complaint five receipts purportedly signed by Magdalena
but, except for one which was signed "Magdalena Rondael," said receipts
were signed "Magdalena Daguro." 17 Besides, there is not showing that the
signatures presented as bases for comparison are themselves genuine. On
the other hand, the Deed of Absolute Sale is a notarized document which
carries the evidentiary weight conferred upon such public document with
respect to its due execution.

WHEREFORE, the petition is DENIED. The decision of the Court of


Appeals of 27 February 1991 as well as its resolution denying
reconsideration thereof is AFFIRMED.
SO ORDERED.

Davide, Jr., Quiason and Kapunan JJ. concur.

Cruz, J., is on leave.


JULIAN FRANCISCO (Substituted by his Heirs, namely: CARLOS
ALTEA FRANCISCO; the heirs of late ARCADIO FRANCISCO,
namely: CONCHITA SALANGSANG-FRANCISCO (surviving spouse),
and his children namely: TEODULO S. FRANCISCO, EMILIANO S.
FRANCISCO, MARIA THERESA S. FRANCISCO,
PAULINA S. FRANCISCO, THOMAS S. FRANCISCO; PEDRO ALTEA
FRANCISCO; CARINA FRANCISCO-ALCANTARA; EFREN ALTEA
FRANCISCO; DOMINGA LEA FRANCISCO-REGONDON;
BENEDICTO ALTEA FRANCISCO and ANTONIO ALTEA
FRANCISCO), petitioner, vs. PASTOR HERRERA, respondent.

DECISION

QUISUMBING, J.:

This is a petition for review on certiorari of the decision[1] of the Court of


Appeals, dated August 30, 1999, in CA-G.R. CV No. 47869, which
affirmed in toto the judgment[2] of the Regional Trial Court (RTC) of Antipolo
City, Branch 73, in Civil Case No. 92-2267. The appellate court sustained
the trial courts ruling which: (a) declared null and void the deeds of sale of
the properties covered by Tax Declaration Nos. 01-00495 and 01-00497;
and (b) directed petitioner to return the subject properties to respondent
who, in turn, must refund to petitioner the purchase price of P1,750,000.

The facts, as found by the trial court and affirmed by the Court of Appeals,
are as follows:

Eligio Herrera, Sr., the father of respondent, was the owner of two parcels
of land, one consisting of 500 sq. m. and another consisting of 451 sq. m.,
covered by Tax Declaration (TD) Nos. 01-00495 and 01-00497,
respectively. Both were located at Barangay San Andres, Cainta, Rizal.[3]

On January 3, 1991, petitioner bought from said landowner the first parcel,
covered by TD No. 01-00495, for the price of P1,000,000, paid in
installments from November 30, 1990 to August 10, 1991.

On March 12, 1991, petitioner bought the second parcel covered by TD No.
01-00497, for P750,000.
Contending that the contract price for the two parcels of land was grossly
inadequate, the children of Eligio, Sr., namely, Josefina Cavestany, Eligio
Herrera, Jr., and respondent Pastor Herrera, tried to negotiate with
petitioner to increase the purchase price. When petitioner refused, herein
respondent then filed a complaint for annulment of sale, with the RTC of
Antipolo City, docketed as Civil Case No. 92-2267. In his complaint,
respondent claimed ownership over the second parcel, which is the lot
covered by TD No. 01-00497, allegedly by virtue of a sale in his favor since
1973. He likewise claimed that the first parcel, the lot covered by TD No.
01-00495, was subject to the co-ownership of the surviving heirs of
Francisca A. Herrera, the wife of Eligio, Sr., considering that she died
intestate on April 2, 1990, before the alleged sale to petitioner. Finally,
respondent also alleged that the sale of the two lots was null and void on
the ground that at the time of sale, Eligio, Sr. was already incapacitated to
give consent to a contract because he was already afflicted with senile
dementia, characterized by deteriorating mental and physical condition
including loss of memory.

In his answer, petitioner as defendant below alleged that respondent was


estopped from assailing the sale of the lots. Petitioner contended that
respondent had effectively ratified both contracts of sales, by receiving the
consideration offered in each transaction.

On November 14, 1994, the Regional Trial Court handed down its decision,
the dispositive portion of which reads:

WHEREFORE, in view of all the foregoing, this court hereby orders that:

1. The deeds of sale of the properties covered by Tax Dec. Nos. 01-00495
and 01-00497 are declared null and void;

2. The defendant is to return the lots in question including all improvements


thereon to the plaintiff and the plaintiff is ordered to simultaneously return to
the defendant the purchase price of the lots sold totalling to P750,000.00
for lot covered by TD 01-00497 and P1,000,000.00 covered by TD 01-
00495;
3. The court also orders the defendant to pay the cost of the suit.

4. The counter-claim of the defendant is denied for lack of merit.

SO ORDERED.[4]

Petitioner then elevated the matter to the Court of Appeals in CA-G.R. CV


No. 47869. On August 30, 1999, however, the appellate court affirmed the
decision of the Regional Trial Court, thus:

WHEREFORE, premises considered, the decision appealed from is hereby


AFFIRMED in toto. Costs against defendant-appellant.

SO ORDERED.[5]

Hence, this petition for review anchored on the following grounds:

I. THE COURT OF APPEALS COMPLETELY IGNORED THE BASIC


DIFFERENCE BETWEEN A VOID AND A MERELY VOIDABLE
CONTRACT THUS MISSING THE ESSENTIAL SIGNIFICANCE OF THE
ESTABLISHED FACT OF RATIFICATION BY THE RESPONDENT
WHICH EXTINGUISHED WHATEVER BASIS RESPONDENT MAY HAVE
HAD IN HAVING THE CONTRACT AT BENCH ANNULLED.

II. THE DECISION OF THE COURT OF APPEALS ON SENILE


DEMENTIA:

A. DISREGARDED THE FACTUAL BACKGROUND OF THE CASE;

B. WAS CONTRARY TO ESTABLISHED JURISPRUDENCE; AND

C. WAS PURELY CONJECTURAL, THE CONJECTURE BEING


ERRONEOUS.

III. THE COURT OF APPEALS WAS IN GROSS ERROR AND IN FACT


VIOLATED PETITIONERS RIGHT TO DUE PROCESS WHEN IT RULED
THAT THE CONSIDERATION FOR THE QUESTIONED CONTRACTS
WAS GROSSLY INADEQUATE.[6]
The resolution of this case hinges on one pivotal issue: Are the assailed
contracts of sale void or merely voidable and hence capable of being
ratified?

Petitioner contends that the Court of Appeals erred when it ignored the
basic distinction between void and voidable contracts. He argues that the
contracts of sale in the instant case, following Article 1390[7] of the Civil
Code are merely voidable and not void ab initio. Hence, said contracts can
be ratified. Petitioner argues that while it is true that a demented person
cannot give consent to a contract pursuant to Article 1327,[8] nonetheless
the dementia affecting one of the parties will not make the contract void per
se but merely voidable. Hence, when respondent accepted the purchase
price on behalf of his father who was allegedly suffering from senile
dementia, respondent effectively ratified the contracts. The ratified
contracts then become valid and enforceable as between the parties.

Respondent counters that his act of receiving the purchase price does not
imply ratification on his part. He only received the installment payments on
his senile fathers behalf, since the latter could no longer account for the
previous payments. His act was thus meant merely as a safety measure to
prevent the money from going into the wrong hands. Respondent also
maintains that the sales of the two properties were null and void. First, with
respect to the lot covered by TD No. 01-00497, Eligio, Sr. could no longer
sell the same because it had been previously sold to respondent in
1973. As to lot covered by TD No. 01-00495, respondent contends that it is
co-owned by Eligio, Sr. and his children, as heirs of Eligios wife. As such,
Eligio, Sr. could not sell said lot without the consent of his co-owners.

We note that both the trial court and the Court of Appeals found that Eligio,
Sr. was already suffering from senile dementia at the time he sold the lots
in question. In other words, he was already mentally incapacitated when he
entered into the contracts of sale. Settled is the rule that findings of fact of
the trial court, when affirmed by the appellate court, are binding and
conclusive upon the Supreme Court.[9]
Coming now to the pivotal issue in this controversy. A void or inexistent
contract is one which has no force and effect from the very beginning.
Hence, it is as if it has never been entered into and cannot be validated
either by the passage of time or by ratification. There are two types of void
contracts: (1) those where one of the essential requisites of a valid contract
as provided for by Article 1318[10] of the Civil Code is totally wanting; and
(2) those declared to be so under Article 1409[11] of the Civil Code. By
contrast, a voidable or annullable contract is one in which the essential
requisites for validity under Article 1318 are present, but vitiated by want of
capacity, error, violence, intimidation, undue influence, or deceit.

Article 1318 of the Civil Code states that no contract exists unless there is a
concurrence of consent of the parties, object certain as subject matter, and
cause of the obligation established. Article 1327 provides that insane or
demented persons cannot give consent to a contract. But, if an insane or
demented person does enter into a contract, the legal effect is that the
contract is voidable or annullable as specifically provided in Article 1390.[12]

In the present case, it was established that the vendor Eligio, Sr. entered
into an agreement with petitioner, but that the formers capacity to consent
was vitiated by senile dementia. Hence, we must rule that the assailed
contracts are not void or inexistent per se; rather, these are contracts that
are valid and binding unless annulled through a proper action filed in court
seasonably.

An annullable contract may be rendered perfectly valid by ratification, which


can be express or implied. Implied ratification may take the form of
accepting and retaining the benefits of a contract.[13] This is what happened
in this case. Respondents contention that he merely received payments on
behalf of his father merely to avoid their misuse and that he did not intend
to concur with the contracts is unconvincing. If he was not agreeable with
the contracts, he could have prevented petitioner from delivering the
payments, or if this was impossible, he could have immediately instituted
the action for reconveyance and have the payments consigned with the
court. None of these happened. As found by the trial court and the Court of
Appeals, upon learning of the sale, respondent negotiated for the increase
of the purchase price while receiving the installment payments. It was only
when respondent failed to convince petitioner to increase the price that the
former instituted the complaint for reconveyance of the properties. Clearly,
respondent was agreeable to the contracts, only he wanted to get
more. Further, there is no showing that respondent returned the payments
or made an offer to do so. This bolsters the view that indeed there was
ratification. One cannot negotiate for an increase in the price in one breath
and in the same breath contend that the contract of sale is void.

Nor can we find for respondents argument that the contracts were void as
Eligio, Sr., could not sell the lots in question as one of the properties had
already been sold to him, while the other was the subject of a co-ownership
among the heirs of the deceased wife of Eligio, Sr. Note that it was found
by both the trial court and the Court of Appeals that Eligio, Sr., was the
declared owner of said lots. This finding is conclusive on us. As declared
owner of said parcels of land, it follows that Eligio, Sr., had the right to
transfer the ownership thereof under the principle of jus disponendi.

In sum, the appellate court erred in sustaining the judgment of the trial
court that the deeds of sale of the two lots in question were null and void.

WHEREFORE, the instant petition is GRANTED. The decision dated


August 30, 1999 of the Court of Appeals in CA-G.R. CV No. 47869,
affirming the decision of the Regional Trial Court in Civil Case No. 92-2267
is REVERSED. The two contracts of sale covering lots under TD No. 01-
00495 and No. 01-00497 are hereby declared VALID. Costs against
respondent.

SO ORDERED.

Bellosillo, (Chairman), Mendoza, and Callejo, Sr., JJ., concur.

Austria-Martinez, J., on leave.