SALES CASE DIGEST the Declaration of Heirship and Waiver of Rights the same with a
A. BASIC CONCEPT
I. DEFINITION OF CONTRACT
222
Acap v. CA [G.R. No. 118114. December 7, 1995.]
First Division, Padilla (J): 4 concur
Facts: The title to Lot 1130 of the Cadastral Survey of Hinigaran, Negros
Occidental was evidenced by OCT R-12179. The lot has an area of
13,720 sq. m. The title was issued and is registered in the name of
spouses Santiago Vasquez and Lorenza Oruma. After both spouses died,
their only son Felixberto inherited the lot. In 1975, Felixberto executed a
duly notarized document entitled “Declaration of Heirship and Deed of
Absolute Sale” in favor of Cosme Pido. Since 1960, Teodoro Acap had
been the tenant of a portion of the said land, covering an area of 9,500
sq. m. When ownership was transferred in 1975 by Felixberto to Cosme
Pido, Acap continued to be the registered tenant thereof and religiously
paid his leasehold rentals to Pido and thereafter, upon Pido’s death, to
his widow Laurenciana. The controversy began when Pido died
interstate and on 27 November 1981, his surviving heirs executed a
notarized document denominated as “Declaration of Heirship and
Waiver of Rights of Lot 1130 Hinigaran Cadastre,” wherein they declared
to have adjudicated upon themselves the parcel of land in equal share,
and that they waive, quitclaim all right, interests and participation over
the parcel of land in favor of Edy de los Reyes. The document was
signed by all of Pido’s heirs. Edy de los Reyes did not sign said
document. It will be noted that at the time of Cosme Pido’s death, title
to the property continued to be registered in the name of the Vasquez
spouses. Upon obtaining the Declaration of Heirship with Waiver of
Rights in his favor, de los Reyes filed the same with the Registry of
Deeds as part of a notice of an adverse claim against the original
certificate of title.
Thereafter, delos Reyes sought for Acap to personally inform him that
he had become the new owner of the land and that the lease rentals
thereon should be paid to him. Delos Reyes alleged that he and Acap
entered into an oral lease agreement wherein Acap agreed to pay 10
cavans of palay per annum as lease rental. In 1982, Acap allegedly
complied with said obligation. In 1983, however, Acap refused to pay
any further lease rentals on the land, prompting delos Reyes to seek the
assistance of the then Ministry of Agrarian Reform (MAR) in Hinigaran,
Negros Occidental. The MAR invited Acap, who sent his wife, to a
conference scheduled on 13 October 1983. The wife stated that the she
and her husband did not recognize delos Reyes’s claim of ownership
over the land. On 28 April 1988, after the lapse of four (4) years, delos
Reys field a complaint for recovery of possession and damages against
Acap, alleging that as his leasehold tenant, Acap refused and failed to
pay the agreed annual rental of 10 cavans of palay despite repeated
demands. On 20 August 1991, the lower court rendered a decision in
favor of delos Reyes, ordering the forfeiture of Acap’s preferred right of
a Certificae of Land Transfer under PD 27 and his farmholdings, the
return of the farmland in Acap’s possession to delos Reyes, and Acap to
pay P5,000.00 as attorney’s fees, the sum of P1,000.00 as expenses of
litigation and the amount of P10,000.00 as actual damages.
Aggrieved, petitioner appealed to the Court of Appeals. Subsequently,
the CA affirmed the lower court’s decision, holding that de los Reyes had
acquired ownership of Lot No. 1130 of the Cadastral Survey of
Hinigaran, Negros Occidental based on a document entitled “Declaration
of Heirship and Waiver of Rights”, and ordering the dispossession of
Acap as leasehold tenant of the land for failure to pay rentals. Hence,
the petition for review on certiorari.
The Supreme Court granted the petition, set aside the decision of the
RTC Negros Occidental, dismissed the complaint for recovery of
possession and damages against Acap for failure to properly state a
cause of action, without prejudice to private respondent taking the
proper legal steps to establish the legal mode by which he claims to
have acquired ownership of the land in question.
1. Asserted right or claim to ownership not sufficient per se to give rise
to ownership over the res
An asserted right or claim to ownership or a real right over a thing
arising from a juridical act, however justified, is not per se sufficient to
give rise to ownership over the res. That right or title must be completed
by fulfilling certain conditions imposed by law. Hence, ownership and
real rights are acquired only pursuant to a legal mode or process. While
title is the juridical justification, mode is the actual process of acquisition
transfer of ownership over a thing in question.
2. Classes of modes of acquiring ownership
Under Article 712 of the Civil Code, the modes of acquiring ownership
are generally classified into two (2) classes, namely, the original mode
(i.e, through occupation, acquisitive prescription, law or intellectual
creation) and the derivative mode (i.e., through succession mortis causa
or tradition as a result of certain contracts, such as sale, barter,
donation, assignment or mutuum).
3. Contract of Sale; “Declaration of Heirship and Waiver of Rights” an
extrajudicial settlement between heirs under Rule 74 of the Rules of
Court
In a Contract of Sale, one of the contracting parties obligates himself to
transfer the ownership of and to deliver a determinate thing, and the
other party to pay a price certain in money or its equivalent. On the
other hand, a declaration of heirship and waiver of rights operates as a
public instrument when filed with the Registry of Deeds whereby the
intestate heirs adjudicate and divide the estate left by the decedent
among themselves as they see fit. It is in effect an extrajudicial
settlement between the heirs under Rule 74 of the Rules of Court. In the
present case, the trial court erred in equating the nature and effect of
contract (deed) of sale.
4. Sale of hereditary rights and waiver of hereditary rights
distinguished
There is a marked difference between a sale of hereditary rights and a
waiver of hereditary rights. The first presumes the existence of a
contract or deed of sale between the parties. The second is, technically
speaking, a mode of extinction of ownership where there is an
abdication or intentional relinquishment of a known right with
knowledge of its existence and intention to relinquish it, in favor of other
persons who are co-heirs in the succession. In the present case, de los
Reyes, being then a stranger to the succession of Cosme Pido, cannot
conclusively claim ownership over the subject lot on the sole basis of the
waiver document which neither recites the elements of either a sale, or
a donation, or any other derivative mode of acquiring ownership.
5. Summon of Ministry of Agrarian Reform does not conclude actuality
of sale nor notice of such sale
The conclusion, made by the trial and appellate courts, that a “sale”
transpired between Cosme Pido’s heirs and de los Reyes and that Acap
acquired actual knowledge of said sale when he was summoned by the
Ministry of Agrarian Reform to discuss de los Reyes’ claim over the lot in
question, has no basis both in fact and in law.
6. A notice of adverse claim does not prove ownership over the lot;
Adverse claim not sufficient to cancel the certificate of tile and for
another to be issued in his name
A notice of adverse claim, by its nature, does not however prove private
respondent’s ownership over the tenanted lot. “A notice of adverse
claim is nothing but a notice of a claim adverse to the registered owner,
the validity of which is yet to be established in court at some future
date, and is no better than a notice of lis pendens which is a notice of a
case already pending in court.” In the present case, while the existence
of said adverse claim was duly proven (thus being filed with the Registry
of Deeds which contained the Declaration of Heirship with Waiver of
rights an was annotated at the back of the Original Certificate of Title to
the land in question), there is no evidence whatsoever that a deed of
sale was executed between Cosme Pido’s heirs and de los Reyes
transferring the rights of the heirs to the land in favor of de los Reyes.
De los Reyes’ right or interest therefore in the tenanted lot remains an
adverse claim which cannot by itself be sufficient to cancel the OCT to
the land and title to be issued in de los Reyes’ name.
7. Transaction between heirs and de los Reyes binding between
parties, but cannot affect right of Acap to tenanted land without
corresponding proof thereof
While the transaction between Pido’s heirs and de los Reyes may be
binding on both parties, the right of Acap as a registered tenant to the
land cannot be perfunctorily forfeited on a mere allegation of de los
Reyes’ ownership without the corresponding proof thereof. Acap had
been a registered tenant in the subject land since 1960 and religiously
paid lease rentals thereon. In his mind, he continued to be the
registered tenant of Cosme Pido and his family (after Pido’s death), even
if in 1982, de los Reyes allegedly informed Acap that he had become the
new owner of the land.
8. No unjustified or deliberate refusal to pay the lease rentals to the
landowner / agricultural lessor
De los Reyes never registered the Declaration of Heirship with Waiver of
Rights with the Registry of Deeds or with the MAR, but instead, he filed a
notice of adverse claim on the said lot to establish ownership thereof
(which cannot be done). It stands to reason, therefore, to hold that there
was no unjustified or deliberate refusal by Acap to pay the lease rentals
or amortizations to the landowner/agricultural lessor which, in this case,
de los Reyes failed to established in his favor by clear and convincing
evidence. This notwithstanding the fact that initially, Acap may have, in
good faith, assumed such statement of de los Reyes to be true and may
have in fact delivered 10 cavans of palay as annual rental for 1982 to
latter. For in 1983, it is clear that Acap had misgivings over de los
Reyes’ claim of ownership over the said land because in the October
1983 MAR conference, his wife Laurenciana categorically denied all of
de los Reyes’ allegations. In fact, Acap even secured a certificate from
the MAR dated 9 May 1988 to the effect that he continued to be the
registered tenant of Cosme Pido and not of delos Reyes.
9. Sanction of forfeiture of tenant’s preferred right and possession of
farmholdings should not be applied
The sanction of forfeiture of his preferred right to be issued a Certificate
of Land Transfer under PD 27 and to the possession of his farmholdings
should not be applied against Acap, since de los Reyes has not
established a cause of action for recovery of possession against Acap.
II. NO CONTRACT OF SALE
Toyota Shaw v. CA [G.R. No. 116650. May 23, 1995.]
First Division, Davide Jr (J): 3 concur, 1 on leave
Facts: Sometime in June 1989, Luna L. Sosa wanted to purchase a
Toyota Lite Ace. It was then a seller’s market and Sosa had difficulty
finding a dealer with an available unit for sale. But upon contracting
Toyota Shaw, Inc., he was told that there was an available unit. So on 14
June 1989, Sosa and his son, Gilbert, went to the Toyota Shaw
Boulevard, Pasig, Metro Manila. They met Popong Bernardo, a sales
representative of Toyota. Sosa emphasized to Bernardo that he needed
the Lite Ace not later than 17 June 1989 because he, his family, and a
balikbayan guest would use it on 18 June 1989 to go Marinduque, his
home province, where he would celebrate his birthday on 19 June. He
added that if he does not arrive in his hometown with the new car, he
would become a “laughing stock.” Bernardo assured Sosa that a unit
would be ready for pick up at 10:00 a.m. on 17 June 1989. Bernardo
then signed a document entitled “Agreements Between Mr. Sosa &
Popong Bernardo of Toyota Shaw, Inc,” stipulating that all necessary
documents will be submitted to Toyota Shaw (Popong Bernardo) a week
after, upon arrival of Mr. Sosa from the Province (Marinduque) where the
unit will be used on the 19 June; that the downpayment of P100,000.00
will be paid by Mr. Sosa on 15 June 1989; and that the Toyota Shaw, Inc.
will be released a yellow Lite Ace unit. It was also agreed upon by the
parties that the balance of the purchase price would be paid by credit
financing through B.A. Finance, and for this Gilbert, on behalf of his
father, signed the documents of Toyota and B.A. Finance pertaining to
the application for financing. The next day, Sosa and Gilbert went to
Toyota to deliver the downpayment of P100,000.00. They met Bernardo
who then accomplished a printed Vehicle Sales Proposal (VSP) 928, on
which Gilbert signed under the subheading “conforme”. This document
shows that the customer’s name is “Mr. Luna Sosa” with home address
at 2316 Guijo Street, United Parañaque II; that the model series of the
vehicle is a “Lite Ace 1500″ described as “4 Dr minibus”; that payment
is by “installment,” to be financed by “B.A.,” with the initial cash outlay
of P100,000.00 (downpayment: P53,148.00; insurance: P13,970.00; BLT
registration fee: P1,067.00; CHMO fee: P2,715.00; Service fee: P500.00;
and accessories: P29,000.00) and the balance to be financed is
P274,137.00. The spaces provided for “delivery terms” were not filled-
up. It also contains conditions of sales providing that the sale is subject
to the availability of the unit, and that the stated price is subject to
change without prior notice, and that the price prevailing and in effect
at time of selling will apply. Rodrigo Quirante, the Sales Supervisor of
Bernardo, checked and approved the VSP.
On 17 June (9:30 a.m.), Bernardo called Gilbert to inform him that the
vehicle would not be ready for pick up at 10:00 a.m. as previously
agreed upon but at 2:00 p.m. that same day. At 2:00 p.m., Sosa and
Gilbert met Bernardo at the latter’s office. According to Sosa, Bernardo
informed them that the Lite Ace was being readied for delivery. After
waiting for about an hour, Bernardo told them that the car could not be
delivered because it was acquired by a more influential person. Toyota
contends, however, that the Lite Ace was not delivered to Sosa because
of the disapproval of B.A. Finance of the credit financing application of
Sosa. It further alleged that a particular unit had already been reversed
and earmarked for Sosa but could not be released due to the
uncertainty of payment of the balance of the purchase price. Toyota
then gave Sosa the option to purchase the unit by paying the full
purchase price in cash but Sosa refused. After it became clear that the
Lite Ace would not be delivered to him, Sosa asked that his
downpayment be refunded. Toyota did so on the very same day by
issuing a Far East Bank check for the full amount of P100,000.00, the
receipt of which was shown by a check voucher of Toyota, which Sosa
signed with the reservation, “without prejudice to our future claims for
damages.” Thereafter, Sosa sent two letters to Toyota: one on 27 June
1989 demanding the refund, within 5 days from receipt, of the
downpayment of P100,000.00 plus interest from the time he paid it and
the payment of damages with a warning that in case of Toyota’s failure
to do so he would be constrained to take legal action; and the other on 4
November 1989 (signed by M.O. Caballes, Sosa’s counsel) demanding
P1M representing interest and damages, again, with a warning that legal
action would be taken if payment was not made within 3 days. Toyota’s
counsel answered through as letter dated 27 November 1989 8 refusing
to accede to the demands of Sosa.
But even before the answer was made and received by Sosa, the latter
filed on 20 November 1989 with the RTC Marinduque (Branch 38) a
complaint against Toyota for damages under Articles 19 and 21 of the
Civil Code in the total amount of P1,230,000.00. After trial on the issue
agreed upon during the pre-trial session, the trial court rendered on 18
February 1992 a decision in favor of Sosa. It ruled that the “Agreement
between Mr. Sosa and Popong Bernardo,” was a valid perfected and
contract of sale between Sosa and Toyota which bound Toyota to deliver
the vehicle to Sosa, and further agreed with Sosa that Toyota acted in
bad faith in selling to another the unit already reserved for him; that
Bernardo, as an authorized sales executive of Toyota Shaw, was the
latter’s agent and thus bound Toyota Shaw; that Luna Sosa proved his
social standing in the community and suffered besmirched reputation,
wounded feelings and sleepless nights for which he ought to be
compensated; and thus rendered judgment ordering Toyota Shaw to pay
Sosa the sum of P75,000 as moral damages, P10,000 as exemplary
damages, P30,000 as attorney’s fees plus P2,000 lawyer’s
transportation fare per trip in attending to the hearing of the case,
P2,000 for Sosa’s transportation fare per trip in attending the hearing of
the case, and to pay the cost of the suit.
Dissatisfied with the trial court’s judgment, Toyota appealed to the
Court of Appeals (CA-GR CV 40043). In its decision promulgated on 29
July 1994, the Court of Appeals affirmed in toto the appealed decision.
Hence the petition for review by certiorari by Toyota Shaw.
The Supreme Court granted the petition, and dismissed the challenged
decision of the Court of Appeals and that of Branch 38 of the Regional
Trial Court of Marinduque, and the counterclaim therein; without
pronouncement as to costs.
1. Contract of sale defined; Kinds
Article 1458 of the Civil Code defines a contract of sale as “By the
contract of the sale one of the contracting parties obligates himself to
transfer the ownership of and to deliver a determinate thing, and the
other to pay therefor a price certain in money or its equivalent. A
contract of sale may be absolute or conditional.
2. Contract of sale, when perfected; Effect
Article 1475 of the Civil Code specifically provides when the contract of
sale is deemed perfected, i.e. “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.
3. “Agreement between Mr. Sosa & Popong Bernardo of Toyota Shaw,
Inc.” not a contract of sale
The “Agreements between Mr. Sosa & Popong Bernardo of Toyota Shaw,
Inc.” executed on 4 June 1989, is not a contract of sale. No obligation on
the part of Toyota to transfer ownership of a determinate thing to Sosa
and no correlative obligation on the part of the latter to pay therefor a
price certain appears therein. The provision on the downpayment of
P100,000.00 made no specific reference to a sale, it could only refer to a
sale on installment basis, as the VSP executed the following day
confirmed. But nothing was mentioned about the full purchase price and
the manner the installments were to be paid. Neither logic nor recourse
to one’s imagination can lead to the conclusion that such agreement is a
perfected contract of sale.
4. Definitive price is an essential element in the formation of a binding
and enforceable contract of sale
A definite agreement on the manner of payment of the price is an
essential element in the formation of a binding and enforceable contract
of sale. This is so because the agreement as to the manner of payment
goes into the price such that a disagreement on the manner of payment
is tantamount to a failure to agree on the price. Definiteness as to the
price is an essential element of a binding agreement to sell personal
property.
5. No meeting of the minds
The “Agreements between Mr. Sosa & Popong Bernardo of Toyota Shaw,
Inc.” shows the absence of a meeting of minds between Toyota and
Sosa. Sosa did not even sign it. Further, Sosa was well aware from its
title, written in bold letters, and thus knew that he was not dealing with
Toyota but with Popong Bernardo and that the latter did not
misrepresent that he had the authority to sell any Toyota vehicle.
6. Prudence and reasonable diligence in inquiring authority of agent
Sosa knew that Bernardo was only a sales representative of Toyota and
hence a mere agent of the latter. It was incumbent upon Sosa to act
with ordinary prudence and reasonable diligence to know the extent of
Bernardo’s authority as an agent in respect of contracts to sell Toyota’s
vehicles. A person dealing with an agent is put upon inquiry and must
discover upon his peril the authority of the agent.
7. Three stages in the contract of sale
There are three stages in the contract of sale, namely (a) preparation,
conception, or generation, which is the period of negotiation and
bargaining, ending at the moment of agreement of the parties; (b)
perfection of birth of the contract, which is the moment when the parties
come to agree on the terms of the contract; and (c) consummation or
death, which is the fulfillment or performance of the terms agreed upon
in the contract. In the present case, the “Agreements between Mr. Sosa
& Popong Bernardo of Toyota Shaw, Inc.” may be considered as part of
the initial phase of the generation of negotiation stage of a contract
sale. The second phase of the generation or negotiation stage was the
execution of the VSP (the downpayment of the purchase price was
P53,148.00 while the balance to be paid on installment should be
financed by B.A. Finance. It is assumed that B.A Finance was acceptable
to Toyota).
8. Financing companies defined
Financing companies are defined in Section 3(a) of RA 5980, as
amended by PDs 1454 and 1793, as “corporations or partnerships,
except those regulated by the Central Bank of the Philippines, the
Insurance Commission and the and the Cooperatives Administration
Office, which are primarily organized for the purpose of extending credit
facilities to consumers and to industrial, commercial, or agricultural
enterprises, either by discounting or factoring commercial papers or
accounts receivable, or by buying and selling contracts, leases, chattel
mortgages, or other evidence of indebtedness, or by leasing of motor
vehicles, heavy equipment and industrial machinery, business and office
machines and equipment, appliances and other movable property.”
9. Parties in a sale on installment basis financed by a financing
company; No meeting of minds as financing application was
disapproved
In a sale on installment basis which is financed by a financing company,
3 parties are thus involved: (1) the buyer who executes a note or notes
for the unpaid balance of the price of the thing purchased on
installment, (2) the seller who assigns the notes or discounts them with
a financing company, and (3) the financing company which is
subrogated in the place of the seller, as the creditor of the installment
buyer. Since B.A. Finance did not approve Sosa’s application, there was
then no meeting of minds on the sale on installment basis.
10. Toyota’s version of circumstances leading to non-release of
vehicle more credible
Toyota’s version that B.A. Finance disapproved Sosa’s application for
which reason it suggested to Sosa that he pay the full purchase price is
more credible. When the latter refused, Toyota cancelled the VSP and
returned to him his P100,000.00. Sosa’s version, that the VSP was
cancelled because the vehicle was delivered to another because of a
more influential client, is contradicted by paragraph 7 of his complaint
which states that Bernardo “for reasons known only to its
representatives, refused and/or failed to release the vehicle to the
plaintiff . Plaintiff demanded for an explanation, but nothing was given.”
11. VSP mere proposal and did not create demandable right in favor of
Sosa when it was aborted
The VSP was a mere proposal which was aborted in lieu of subsequent
events. Thus, the VSP created no demandable right in favor of Sosa for
the delivery of the vehicle to him, and its non-delivery did not cause any
legally indemnifiable injury.
12. Award of moral damages without legal basis
The award of moral damages is without legal basis. The only ground
upon which Sosa claimed moral damages is that since it was known to
his friends, townmates, and relatives that he was buying a Toyota Lite
Ace which they expected to see on his birthday, he suffered humiliation,
shame, and sleepless nights when the van was not delivered. The van
became the subject matter of talks during his celebration that he may
not have paid for it, and this created an impression against his business
standing and reputation created an impression against his business
standing and reputation. At the bottom of this claim is nothing but
misplaced pride and ego. He should not have announced his plan to buy
Toyota Lite Ace knowing that he might not be able to pay the full
purchase price. It was he who brought embarrassment upon himself by
bragging about a thing which he did not own yet.
13. Award of exemplary damages without basis; Purpose of exemplary
damages
Since Sosa is not entitled to moral damages and there being no award
for temperate, liquidated, or compensatory damages, he is likewise not
entitled to exemplary damages. Under Article 2229 of the Civil Code,
exemplary or corrective damages are imposed by way of example or
correction for the public good, in addition to moral, temperate,
liquidated, or compensatory damages.
14. Award of attorney’s fees without basis
For attorney’s fees to be granted the court must explicitly state in the
body of the decision, and not only in the dispositive portion thereof, the
legal reason for the award of attorney’s fees. No such explicit
determination thereon was made in the body of the decision of the trial
court. Thus, no reason exists for such award.
B. ESSENTIAL CHARACTERISTICS OF CONTRACT OF SALE
1. NOMINATE AND PRINCIPAL
Romero v. CA
250 SCRA 15
Facts: Virgilio Romero and his foreign partners decided to put up a
central warehouse in Metro Manila. Alfonso Flores, in behalf of Enriqueta
Chua vda. De Ongsiong, proposed the latter’s lot to Romero as the site
for the said warehouse. A contract denominated as “Deed of Conditional
Sale” was executed between Romero and Ongsiong where the amount
of P50,000 was received from Romero for the purpose of taking up am
ejectment case against the squatters found therein. Ongsiong sought to
return the amount she received from Romero as she claimed she is
unable to rid the land of squatters, notwithstanding the favorable
judgment already promulgated by the court in the ejectment case.
Romero’s counsel refused the tender and expressed willingness to
underwrite the expense of executing the judgment chargeable to the
purchase price of the land. Ongsiong filed a case with the trial court for
the rescission of the deed of “conditional” sale, and for the consignation
of the amount of P50,000. The trial court rendered a decision in favor of
Romero, which was reversed by the Court of Appeals.
Issue: Whether the “Deed of Conditional Sale” is a perfected contract of
sale
Held: The deed of sale, even if denominated as a deed of conditional
sale, may be treated as absolute in nature, especially if title to the
property sold is not reserved in the vendor or if the vendor is not
granted the right to unilaterally rescind the contract predicated on the
fulfillment or non-fulfillment of the prescribed condition. In determining
the real character of contract, the substance and not the title given by
the party is more significant. Upon perfection, i.e. where the seller
obligates himself, for a price certain, to deliver and to transfer
ownership of a specific thing or right to the buyer over which the latter
agrees, the parties are bound not only to the fulfillment of what was
expressly stipulated but also the consequences which may be in keeping
with good faith, usage and law. Being a perfected contract of sale, no
rescission can be had. The proper action is an action for damages.
Arguendo that rescission is available as a remedy, as provide by Article
1191 in reciprocal obligations, it may only be availed of by the injured
party.
2.CONSENSUAL
Quijada v. CA [G.R. No. 126444. December 4, 1998.]
Second Division, Martinez (J): 3 concur
Facts: Petitioners (Alfonso, Cresente, Reynalda, Demetrio, Eliuteria,
Eulalio, and Warlito) are the children of the late Trinidad Corvera Vda. de
Quijada. Trinidad was one of the heirs of the late Pedro Corvera and
inherited from the latter the 2-hectare parcel of land subject of the case,
situated in the barrio of San Agustin, Talacogon, Agusan del Sur. On 5
April 1956, Trinidad Quijada together with her sisters Leonila Corvera
Vda. de Sequeña and Paz Corvera Cabiltes and brother Epapiadito
Corvera executed a conditional deed of donation of the 2-hectare parcel
of land in favor of the Municipality of Talacogon, the condition being that
the parcel of land shall be used solely and exclusively as part of the
campus of the proposed provincial high school in Talacogon. Apparently,
Trinidad remained in possession of the parcel of land despite the
donation. On 29 July 1962, Trinidad sold 1 hectare of the subject parcel
of land to Regalado Mondejar. Subsequently, Trinidad verbally sold the
remaining 1 hectare to Mondejar without the benefit of a written deed of
sale and evidenced solely by receipts of payment. In 1980, the heirs of
Trinidad, who at that time was already dead, filed a complaint for
forcible entry against Mondejar, which complaint was, however,
dismissed for failure to prosecute. In 1987, the proposed provincial high
school having failed to materialize, the Sangguniang Bayan of the
municipality of Talacogon enacted a resolution reverting the 2 hectares
of land donated back to the donors. In the meantime, Mondejar sold
portions of the land to Fernando Bautista, Rodolfo Goloran, Efren Guden,
and Ernesto Goloran.
On 5 July 1988, the petitioners filed a complaint against private
respondents (Mondejar, Rodulfo and Ernesto Goloran, Asis, Ras, Abiso,
Bautista, Macasero and Maguisay) for quieting of title, recovery of
possession and ownership of parcels of land with claim for attorney’s
fees and damages. The trial court rendered judgment in favor of the
petitioners, holding that Trinidad Quijada did not have legal title or right
to sell the land to Mondejar as it belongs to the Municipality of
Talacogon at that time, and that the deed of sale in favor of Mondejar
did not carry the conformity and acquiescence of her children
considering that Trinidad was already 63 years old and a widow. The
trial court ordered the defendants (private respondents), and any person
acting in defendants’ behalf to return and vacate the 2 hectares of land
to the plaintiff, and to remove their improvements constructed on the
lot; ordered the cancellation of the deed of sale executed by Trinidad to
Mondejar, as well as the deeds of sale/relinquishments executed by
Mondejar to the other defendants; and ordered the defendants to pay
the plaintiffs, in solidum, the amount of P10,000, P8,000, and P30,000
as attorney’s fees, expenses of litigation and moral damages,
respectively.
On appeal, the Court of Appeals reversed and set aside the judgment a
quo ruling that the sale made by Trinidad Quijada to respondent
Mondejar was valid as the former retained an inchoate interest on the
lots by virtue of the automatic reversion clause in the deed of donation.
Thereafter, petitioners filed a motion for reconsideration. When the CA
denied their motion, petitioners instituted a petition for review to the
Supreme Court.
The Supreme Court affirmed the assailed decision of the Court of
Appeals.
1. Condition valid in donation if not contrary to law, morals, good
customs, public order or public policy
The donation made on April 5, 1956 by Trinidad Quijada and her brother
and sisters was subject to the condition that the donated property shall
be “used solely and exclusively as a part of the campus of the proposed
Provincial High School in Talacogon.” The donation further provides that
should “the proposed Provincial High School be discontinued or if the
same shall be opened but for some reason or another, the same may in
the future be closed” the donated property shall automatically revert to
the donor. Such condition, not being contrary to law, morals, good
customs, public order or public policy was validly imposed in the
donation.
2. Donation as mode of acquiring ownership
When the Municipality’s acceptance of the donation was made known to
the donor, the former became the new owner of the donated property,
donation being a mode of acquiring and transmitting ownership,
notwithstanding the condition imposed by the donee. The donation is
perfected once the acceptance by the donee is made known to the
donor. Accordingly, ownership is immediately transferred to the latter
and that ownership will only revert to the donor if the resolutory
condition is not fulfilled.
3. Condition to construct school is a resolutory condition
The resolutory condition, in the present case, is the construction of the
school. It has been ruled that when a person donates land to another on
the condition that the latter would build upon the land a school, the
condition imposed is not a condition precedent or a suspensive
condition but a resolutory one. So long as the resolutory condition
subsists and is capable of fulfillment, the donation remains effective and
the donee continues to be the owner subject only to the rights of the
donor or his successors-in-interest under the deed of donation. Since no
period was imposed by the donor on when must the donee comply with
the condition, the latter remains the owner so long as he has tried to
comply with the condition within a reasonable period. Such period,
however, became irrelevant herein when the donee manifested that it
cannot comply with the condition and the same was made known to the
donor. Only then, when the non-fulfillment of the resolutory condition
was brought to the donor’s knowledge, that ownership of the donated
property reverted to the donor as provided in the automatic reversion
clause of the deed of donation.
4. Inchoate interest may be subject of contract including a contract of
sale; Interest over property under conditional deed of donation, not the
land itself
The donor may have an inchoate interest in the donated property during
the time that ownership of the land has not reverted to her. Such
inchoate interest may be the subject of contracts including a contract of
sale. In the present case, however, what the donor sold was the land
itself which she no longer owns. It would have been different if the
donor-seller sold her interests over the property under the deed of
donation which is subject to the possibility of reversion of ownership
arising from the non-fulfillment of the resolutory condition.
5. Laches, elements
Laches presupposes failure or neglect for an unreasonable and
unexplained length of time, to do that which, by exercising due
diligence, could or should have been done earlier; “it is negligence or
omission to assert a right within a reasonable time, thus, giving rise to a
presumption that the party entitled to assert it either has abandoned or
declined to assert it.” Its essential elements of (a) Conduct on the part
of the defendant, or of one under whom he claims, giving rise to the
situation complained of; (b) Delay in asserting complainant’s right after
he had knowledge of the defendant’s conduct and after he has an
opportunity to sue; (c) Lack of knowledge or notice on the part of the
defendant that the complainant would assert the right on which he
bases his suit; and, (d) Injury or prejudice to the defendant in the event
relief is accorded to the complainant” are absent in this case. In the
present case, petitioners’ cause of action to quiet title commenced only
when the property reverted to the donor and/or his successors-in-
interest in 1987, not in the 1960’s when they had no interest over the
property at that time except under the deed of donation to which
private respondents were not privy. Moreover, petitioners had
previously filed an ejectment suit against private respondents only that
it did not prosper on a technicality.
6. Sale, being a consensual contract, is perfected by mere consent;
Seller need not own property when sold but when delivered
Sale, being a consensual contract, is perfected by mere consent, which
is manifested the moment there is a meeting of the minds as to the
offer and acceptance thereof on three (3) elements: subject matter,
price and terms of payment of the price. Ownership by the seller on the
thing sold at the time of the perfection of the contract of sale is not an
element for its perfection. What the law requires is that the seller has
the right to transfer ownership at the time the thing sold is delivered.
Perfection per se does not transfer ownership which occurs upon the
actual or constructive delivery of the thing sold. A perfected contract of
sale cannot be challenged on the ground of non-ownership on the part
of the seller at the time of its perfection; hence, the sale is still valid.
7. Seller’s title passes by operation of law to the buyer
The consummation of the perfected contract is another matter. It occurs
upon the constructive or actual delivery of the subject matter to the
buyer when the seller or her successors-in-interest subsequently
acquires ownership thereof. In the present case, such circumstance
happened in this case when petitioners (Trinidad’s heirs) became the
owners of the subject property upon the reversion of the ownership of
the land to them. Consequently, ownership is transferred to Mondejar
and those who claim their right from him. Article 1434 of the New Civil
Code supports the ruling that the seller’s “title passes by operation of
law to the buyer.” This rule applies not only when the subject matter of
the contract of sale is goods, but also to other kinds of property,
including real property.
8. Article 1409 (4) does not provide that the properties of a
municipality are outside the commerce of man; Objects outside of the
commerce of man are those which cannot be appropriated
Nowhere in Article 1409 (4) is it provided that the properties of a
municipality, whether it be those for public use or its patrimonial
property, are outside the commerce of men; so as to render the contract
involving the same inexistent and void from the beginning when sold. In
the present case, the lots were conditionally owned by the municipality.
To rule that the donated properties are outside the commerce of men
would render nugatory the unchallenged reasonableness and justness of
the condition which the donor has the right to impose as owner thereof.
Moreover, the objects referred to as outside the commerce of man are
those which cannot be appropriated, such as the open seas and the
heavenly bodies.
9. No factual or legal basis for the award of fees and damages
There is neither factual nor legal basis for the trial court’s award of
attorney’s fees, litigation expenses and moral damages. Attorney’s fees
and expenses of litigation cannot, following the general rule in Article
2208 of the New Civil Code, be recovered in the present case, there
being no stipulation to that effect and the case does not fall under any
of the exceptions. It cannot be said that private respondents had
compelled petitioners to litigate with third persons. Neither can it be
ruled that the former acted in “gross and evident bad faith” in refusing
to satisfy the latter’s claims considering that private respondents were
under an honest belief that they have a legal right over the property by
virtue of the deed of sale. Moral damages cannot likewise be justified as
none of the circumstances enumerated under Articles 2219 27 and 2220
28 of the New Civil Code concur in this case.
Fule v. CA [G.R. No. 112212. March 2, 1998.]
Third division, Romero (J): 3 concur
Facts: Fr. Antonio Jacobe initially mortgage a 10-hectare property in
Tanay, Rizal (covered by TCT 320725) to the Rural Bank of Alaminos,
Laguna to secure a loan in the amount of P10,000. Said mortgage was
later foreclosed and the property offered for public auction upon his
default. In June 1984, Gregorio Fule, as corporate secretary of the bank,
asked Remelia Dichoso and Olivia Mendoza to look for a buyer who
might be interested in the Tanay property. The two found one in the
person of Ninevetch Cruz. It so happened that in January of said year,
Gregorio Fule, also a jeweler, has shown interest in buying a pair of
emerald-cut diamond earrings owned by Dr. Cruz. Dr. Cruz has declined
Fule’s offer to buy said jewelry for P100,000; and a subsequent bid by
Fule to buy them for US$6,000 at $1 to P25 while making a sketch of
said jewelry during an inspection at the lobby of Prudential Bank (the
latter instance was declined, since the exchange rate appreciated to P19
per dollar). Subsequently, however, negotiations for the barter of the
jewelry and the Tanay property ensued. Atty. Belarmino was requested
by Dr. Cruz to check the property and found out that no sale or barter
was feasible as the 1-year period of redemption has not expired. In an
effort to cut through any legal impediment, Fule executed on 19 October
1984, a deed of redemption on behalf of Fr. Jacobe purportedly in the
amount of P15,987.78, and on even date, Fr. Jacobe sold the property to
Fule for P75,000.00. The haste with which the two deeds were executed
is shown by the fact that the deed of sale was notarized ahead of the
deed of redemption. As Dr. Cruz had already agreed to the proposed
barter, Fule went to Prudential Bank to take a look at the jewelry.
On 23 October 1984, Fule met Atty. Belarmino at the latter’s residence
to prepare the documents of sale. Atty. Belarmino accordingly caused
the preparation of a deed of absolute sale while Fule and Dr. Cruz
attended to the safekeeping of the jewelry. The following day, Fule,
together with Dichoso and Mendoza, arrived at the residence of Atty.
Belarmino to finally execute a deed of absolute sale. Fule signed the
deed and gave Atty. Belarmino the amount of P13,700.00 for necessary
expenses in the transfer of title over the Tanay property; and issued a
certification to the effect that the actual consideration of the sale was
P200,000.00 and not P80,000.00 as indicated in the deed of absolute
sale (the disparity purportedly aimed at minimizing the amount of the
capital gains tax that Fule would have to shoulder). Since the jewelry
was appraised only at P160,000.00, the parties agreed that the balance
of P40,000.00 would just be paid later in cash. Thereafter, at the bank,
as pre-arranged, Dr. Cruz and the cashier opened the safety deposit
box, and delivered the contents thereof to Fule. Fule inspected the
jewelry, near the electric light at the bank’s lobby, for 10-15 minutes.
Fule expressed his satisfaction by nodding his head when asked by Dr.
Cruz if the jewelry was okay. For services rendered, Fule paid the
agents, Dichoso and Mendoza, the amount of US$300.00 and some
pieces of jewelry. He did not, however, give them half of the pair of
earrings in question, which he had earlier promised. Later in the
evening, Fule arrived at the residence of Atty. Belarmino complaining
that the jewelry given him was fake. Dichoso, who borrowed the car of
Dr. Cruz, called up Atty. Belarmino. Informed that Fule was at the
lawyer’s house, went there posthaste thinking that Fule had finally
agreed to give them half of the pair of earrings, only to find Fule
demonstrating with a tester that the earrings were fake. Fule then
accused Dichoso and Mendoza of deceiving him which they, however,
denied. They countered that Fule could not have been fooled because
he had vast experience regarding jewelry. Fule nonetheless took back
the US$300.00 and jewelry he had given them. Thereafter, the group
decided to go to the house of a certain Macario Dimayuga, a jeweler, to
have the earrings tested. Dimayuga, after taking one look at the
earrings, immediately declared them counterfeit. At around 9:30 p.m.,
Fule went to one Atty. Reynaldo Alcantara residing at Lakeside
Subdivision in San Pablo City, complaining about the fake jewelry. Upon
being advised by the latter, Fule reported the matter to the police
station where Dichoso and Mendoza likewise executed sworn
statements.
On 26 October 1984, Fule filed a complaint before the RTC San Pablo
City against private respondents praying, among other things, that the
contract of sale over the Tanay property be declared null and void on
the ground of fraud and deceit. On 30 October 1984, the lower court
issued a temporary restraining order directing the Register of Deeds of
Rizal to refrain from acting on the pertinent documents involved in the
transaction. On 20 November 1984, however, the same court lifted its
previous order and denied the prayer for a writ of preliminary injunction.
After trial, the lower court rendered its decision on 7 March 1989;
holding that the genuine pair of earrings used as consideration for the
sale was delivered by Dr. Cruz to Fule, that the contract was valid even
if the agreement between the parties was principally a barter contract,
that the agreement has been consummated at the time the principal
parties parted ways at the bank, and that damages are due to the
defendants. From the trial court’s adverse decision, petitioner elevated
the matter to the Court of Appeals. On 20 October 1992, the Court of
Appeals, however, rendered a decision affirming in toto the lower court’s
decision. His motion for reconsideration having been denied on 19
October 1993. Hence, the petition for review on certiorari.
The Supreme Court affirmed in toto the decision of the Court of Appeals,
but ordered Dr. Cruz to pay Fule the balance of the purchase price of
P40,000 within 10 days from the finality of the decision; with costs
against petitioner.
1. New factual issues cannot be examined as it unduly transcends the
limits of the Supreme Court’s review power
The Supreme Court cannot entertain a factual issue, and thus examine
and weigh anew the facts regarding the genuineness of the earrings
bartered in exchange for the Tanay property, as this would unduly
transcend the limits of the Court’s review power in petitions of this
nature which are confined merely to pure questions of law. As a general
rule, the Supreme Court accords conclusiveness to a lower court’s
findings of fact unless it is shown, inter alia, that: (1) the conclusion is a
finding grounded on speculations, surmises or conjectures; (2) the
inference is manifestly mistaken, absurd and impossible; (3) when there
is a grave abuse of discretion; (4) when the judgment is based on a
misapprehension of facts; (5) when the findings of fact are conflicting;
and (6) when the Court of Appeals, in making its findings, went beyond
the issues of the case and the same is contrary to the admission of both
parties. To reiterate, the Supreme Court’s jurisdiction is only limited to
reviewing errors of law in the absence of any showing that the findings
complained of are totally devoid of support in the record or that they are
glaringly erroneous as to constitute serious abuse of discretion.
2. Immediate rendition of decision not anomalous
No proof has been adduced that Judge Jaramillo was motivated by a
malicious or sinister intent in disposing of the case with dispatch.
Neither is there proof that someone else wrote the decision for him. The
immediate rendition of the decision was no more than Judge Jaramillo’s
compliance with his duty as a judge to “dispose of the court’s business
promptly and decide cases within the required periods.” The two-year
period within which Judge Jaramillo handled the case provided him with
all the time to study it and even write down its facts as soon as these
were presented to court. In fact, the Supreme Court does not see
anything wrong in the practice of writing a decision days before the
scheduled promulgation of judgment and leaving the dispositive portion
for typing at a time close to the date of promulgation, provided that no
malice or any wrongful conduct attends its adoption. The practice serves
the dual purposes of safeguarding the confidentiality of draft decisions
and rendering decisions with promptness. Neither can Judge Jaramillo be
made administratively answerable for the immediate rendition of the
decision. The acts of a judge which pertain to his judicial functions are
not subject to disciplinary power unless they are committed with fraud,
dishonesty, corruption or bad faith. Hence, in the absence of sufficient
proof to the contrary, Judge Jaramillo is presumed to have performed his
job in accordance with law and should instead be commended for his
close attention to duty.
3. Contract perfected by mere consent, binds parties to stipulation and
all the consequences; Contract of sale perfected upon meeting of minds
upon the thing object of the contract and upon price; Embodiment of
contract in public instrument only for convenience, and registration only
to affect third parties; Lack of formal requirements does not invalidate
the contract
The Civil Code provides that contracts are perfected by mere consent.
From this 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. A contract of sale is perfected at the moment there is a
meeting of the minds upon the thing which is the object of the contract
and upon the price. Being consensual, a contract of sale has the force of
law between the contracting parties and they are expected to abide in
good faith by their respective contractual commitments.
Article 1358 of the Civil Code which requires the embodiment of certain
contracts in a public instrument, is only for convenience, and
registration of the instrument only adversely affects third parties.
Formal requirements are, therefore, for the benefit of third parties. Non-
compliance therewith does not adversely affect the validity of the
contract nor the contractual rights and obligations of the parties
thereunder.
4. Voidable or annullable contracts
Contracts that are voidable or annullable, even though there may have
been no damage to the contracting parties are: (1) those where one of
the parties is incapable of giving consent to a contract; and (2) those
where the consent is vitiated by mistake, violence, intimidation, undue
influence or fraud. The contract can be voided in accordance with law so
as to compel the parties to restore to each other the things that have
been the subject of the contract with their fruits, and the price with
interest.
5. Fraud; No inducement made by the private respondents
There is fraud when, through the insidious words or machinations of one
of the contracting parties, the other is induced to enter into a contract
which, without them, he would not have agreed to. In the present case,
the records, are bare of any evidence manifesting that private
respondents employed such insidious words or machinations to entice
petitioner into entering the contract of barter. Neither is there any
evidence showing that Dr. Cruz induced petitioner to sell his Tanay
property or that she cajoled him to take the earrings in exchange for
said property. On the contrary, Dr. Cruz did not initially accede to
petitioner’s proposal to buy the said jewelry. Rather, it appears that it
was petitioner, through his agents, who led Dr. Cruz to believe that the
Tanay property was worth exchanging for her jewelry as he represented
that its value was P400,000.00 or more than double that of the jewelry
which was valued only at P160,000.00. If indeed petitioner’s property
was truly worth that much, it was certainly contrary to the nature of a
businessman-banker like him to have parted with his real estate for half
its price. In short, it was in fact petitioner who resorted to machinations
to convince Dr. Cruz to exchange her jewelry for the Tanay property.
7. Mistake; Mistake caused by manifest negligence cannot invalidate a
judicial act
To invalidate a contract, mistake must “refer to the substance of the
thing that is the object of the contract, or to those conditions which have
principally moved one or both parties to enter into the contract.” An
example of mistake as to the object of the contract is the substitution of
a specific thing contemplated by the parties with another. In the present
case, the petitioner failed to prove the fact that prior to the delivery of
the jewelry to him, private respondents endeavored to make such
substitution of an inferior one or one with Russian diamonds for the
jewelry he wanted to exchange with his 10-hectare land. Further, on
account of his work as a banker-jeweler, it can be rightfully assumed
that he was an expert on matters regarding gems. He had the
intellectual capacity and the business acumen as a banker to take
precautionary measures to avert such a mistake, considering the value
of both the jewelry and his land. A mistake caused by manifest
negligence cannot invalidate a juridical act. As the Civil Code provides,
“(t)here is no mistake if the party alleging it knew the doubt,
contingency or risk affecting the object of the contract.”
8. Contract of sale absolute if no stipulation that title to property is
reserved to seller until full payment; Ownership transferred upon actual
or constructive delivery
A contract of sale being absolute in nature, title passed to the vendee
upon delivery of the thing sold since there was no stipulation in the
contract that title to the property sold has been reserved in the seller
until full payment of the price or that the vendor has the right to
unilaterally resolve the contract the moment the buyer fails to pay
within a fixed period. Such stipulations are not manifest in the contract
of sale. In the present case, both the trial and appellate courts,
therefore, correctly ruled that there were no legal bases for the
nullification of the contract of sale. Ownership over the parcel of land
and the pair of emerald-cut diamond earrings had been transferred to
Dr. Cruz and Fule, respectively, upon the actual and constructive
delivery thereof.
9. Contract silent when balance is due and demandable; non-payment
does not invalidate the contract
While it is true that the amount of P40,000.00 forming part of the
consideration was still payable to Fule, its nonpayment by Dr. Cruz is not
a sufficient cause to invalidate the contract or bar the transfer of
ownership and possession of the things exchanged considering the fact
that their contract is silent as to when it becomes due and demandable.
10 No interest due if it is not stipulated
Failure to pay the balance of the purchase price does not result in the
payment of interest thereon. Article 1589 of the Civil Code prescribes
the payment of interest by the vendee “for the period between the
delivery of the thing and the payment of the price” in cases “(1) Should
it have been so stipulated; (2) Should the thing sold and delivered
produce fruits or income; (3) Should he be in default, from the time of
judicial or extrajudicial demand for the payment of the price.”
11. Case distinguished from de la Cruz v Legaspi
The present case should be distinguished from De la Cruz v. Legaspi,
where the court held that failure to pay the consideration after the
notarization of the contract as previously promised resulted in the
vendee’s liability for payment of interest. In the present, there is no
stipulation for the payment of interest in the contract of sale nor proof
that the Tanay property produced fruits or income. Neither did petitioner
demand payment of the price as in fact he filed an action to nullify the
contract of sale.
12 Award of moral and exemplary damages
Moral and exemplary damages may be awarded without proof of
pecuniary loss. In awarding such damages, the court shall take into
account the circumstances obtaining in the case and assess damages
according to its discretion. To warrant the award of damages, it must be
shown that the person to whom these are awarded has sustained injury.
He must likewise establish sufficient data upon which the court can
properly base its estimate of the amount of damages. Statements of
facts should establish such data rather than mere conclusions or
opinions of witnesses. Thus, for moral damages to be awarded, it is
essential that the claimant must have satisfactorily proved during the
trial the existence of the factual basis of the damages and its causal
connection with the adverse party’s acts. If the court has no proof or
evidence upon which the claim for moral damages could be based, such
indemnity could not be outrightly awarded. The same holds true with
respect to the award of exemplary damages where it must be shown
that the party acted in a wanton, oppressive or malevolent manner.
13. Rule that moral damages cannot be recovered from person who
filed a complaint does not apply in present case
While, as a rule, moral damages cannot be recovered from a person who
has filed a complaint against another in good faith because it is not
sound policy to place a penalty on the right to litigate, the same,
however, cannot apply in the present case. This is not a situation where
petitioner’s complaint was simply found later to be based on an
erroneous ground which, under settled jurisprudence, would not have
been a reason for awarding moral and exemplary damages. Instead, the
cause of action of the instant case appears to have been contrived by
petitioner himself. The factual findings of the courts a quo to the effect
that petitioner filed this case because he was the victim of fraud; that he
could not have been such a victim because he should have examined
the jewelry in question before accepting delivery thereof, considering
his exposure to the banking and jewelry businesses; and that he filed
the action for the nullification of the contract of sale with unclean hands,
all deserve full faith and credit to support the conclusion that petitioner
was motivated more by ill will than a sincere attempt to protect his
rights in commencing suit against respondents. It must be noted that
before petitioner was able to convince Dr. Cruz to exchange her jewelry
for the Tanay property, petitioner took pains to thoroughly examine said
jewelry, even going to the extent of sketching their appearance. Why at
the precise moment when he was about to take physical possession
thereof he failed to exert extra efforts to check their genuineness
despite the large consideration involved has never been explained at all
by petitioner. His acts thus failed to accord with what an ordinary
prudent man would have done in the same situation.
4. ONEROUS
Gaite v. Fonacier [G.R. No. L-11827. July 31, 1961.]
En Banc, Reyes JBL (J): 9 concur
Facts: Isabelo Fonacier was the owner and/or holder of 11 iron lode
mineral claims (Dawahan Group), situated in Jose Panganiban,
Camarines Norte. By a “Deed of Assignment” dated 29 September
1952, Fonacier constituted and appointed Fernando A. Gaite as his true
and lawful attorney-in-fact to enter into a contract with any individual or
juridical person for the exploration and development of the mining
claims on a royalty basis of not less than P0.50 per ton of ore that might
be extracted therefrom. On 19 March 1954, Gaite in turn executed a
general assignment conveying the development and exploitation of said
mining claims unto the Larap Iron Mines, owned solely by him.
Thereafter Gaite embarked upon the development and exploitation of
the mining claims, opening and paving roads within and outside their
boundaries, making other improvements and installing facilities therein
for use in the development of the mines, and in time extracted
therefrom what he claimed and estimated to be approximately 24,000
metric tons of iron ore.
For some reason or another, Isabelo Fonacier decided to revoke the
authority granted by him to Gaite, and Gaite assented thereto subject to
certain conditions. As a result, a document entitled “Revocation of
Power of Attorney and Contract” was executed on 8 December 1954,
wherein Gaite transferred to Fonacier, for the consideration of P20,000,
plus 10% of the royalties that Fonacier would receive from the mining
claims, all his rights and interests on all the roads, improvements, and
facilities in or outside said claims, the right to use the business name
“Larap Iron Mines” and its goodwill, and all the records and documents
relative to the mines. In the same document, Gaite transferred to
Fonacier all his rights and interests over the “24,000 tons of iron ore,
more or less” that the former had already extracted from the mineral
claims, in consideration of the sum of P75,000, P10,000, of which was
paid upon the signing of the agreement, and the balance to be paid out
of the first letter of credit covering the first shipment of iron ores or the
first amount derived from the local sale of iron ore made by the Larap
Mines & Smelting Co. To secure the payment of the balance, Fonacier
promised to execute in favor of Gaite a surety bond; delivered on 8
December 1954 with Fonacier as principal and the Larap Mines and
Smelting Co. and its stockholders as sureties. A second bond was
executed by the parties to the first bond, on the same day, with the Far
Eastern Surety and Insurance Co. as additional surety, but it provided
that the liability of the surety company would attach only when there
had been an actual sale of iron ore by the Larap Mines & Smelting Co.
for an amount of not less than P65,000. Both bond were attached and
made integral parts of the “Revocation of Power of Attorney and
Contract.” On the same day that Fonacier revoked the power of
attorney, Fonacier entered into a “Contract of Mining Operation” with
Larap Mines and Smelting Co., Inc. to grant it the right to develop,
exploit, and explore the mining claims, together with the improvements
therein and the use of the name “Larap Iron Mines” and its goodwill, in
consideration of certain royalties. Fonacier likewise transferred, in the
same document, the complete title to the approximately 24,000 tons of
iron ore which he acquired from Gaite, to the Larap Mines & Smelting
Co., in consideration for the signing by the company and its
stockholders of the surety bonds delivered by Fonacier to Gaite. On 8
December 1955, the bond with respect to the Far Eastern Surety and
Insurance Company expired with no sale of the approximately 24,000
tons of iron ore, nor had the 65,000 balance of the price of said ore been
paid to Gaite by Fonacier and his sureties. Whereupon, Gaite demanded
from Fonacier and his sureties payment of said amount.
When Fonacier and his sureties failed to pay as demanded by Gaite, the
latter filed a complaint against them in the CFI Manila (Civil Case 29310)
for the payment of the P65,000 balance of the price of the ore,
consequential damages, and attorney’s fees. Judgment was,
accordingly, rendered in favor of plaintiff Gaite ordering defendants to
pay him, jointly and severally, P65,000 with interest at 6% per annum
from 9 December 1955 until full payment, plus costs. From this
judgment, defendants jointly appealed to the Supreme Court as the
claims involved aggregate to more than P200,000.
The Supreme Court affirmed the decision appealed from, with costs
against appellants.
1. Shipment or local sale of ore not a condition precedent but a
suspensive period or term
The shipment or local sale of the iron ore is not a condition precedent
(or suspensive) to the payment of the balance of P65,000, but was only
a suspensive period or term. What characterizes a conditional obligation
is the fact that its efficacy or obligatory force (as distinguished from its
demandability) is subordinated to the happening of a future and
uncertain event; so that if the suspensive condition does not take place,
the parties would stand as if the conditional obligation had never
existed.
2. The words of the contract express no contingency in the buyer’s
obligation to pay.
The contract stipulates that “the balance of Sixty-Five Thousand Pesos
(P65,000) will be paid out of the first letter of credit covering the first
shipment of iron ore . . .” etc. There is no uncertainty that the payment
will have to be made sooner or later; what is undetermined is merely the
exact date at which it will be made. By the very terms of the contract,
therefore, the existence of the obligation to pay is recognized; only its
maturity or demandability is deferred.
3. Contract of sale commutative and onerous; Each party assume
correlative obligation and anticipate performance from the other
A contract of sale is normally commutative and onerous: not only does
each one of the parties assume a correlative obligation (the seller to
deliver and transfer ownership of the thing sold and the buyer to pay the
price), but each party anticipates performance by the other from the
very start. While in a sale the obligation of one party can be lawfully
subordinated to an uncertain event, so that the other understands that
he assumes the risk of receiving nothing for what he gives (as in the
case of a sale of hopes or expectations, emptio spei), it is not in the
usual course of business to do so; hence, the contingent character of the
obligation must clearly appear. In the present case, nothing is found in
the record to evidence that Gaite desired or assumed to run the risk of
losing his rights over the ore without getting paid for it, or that Fonacier
understood that Gaite assumed any such risk. The fact that appellants
did put up such bonds indicates that they admitted the definite
existence of their obligation to pay the balance of P65,000.
4. To consider sale as a condition precedent leaves the payment at
the discretion o fthe debtor
To subordinate the obligation to pay the remaining P65,000 to the sale
or shipment of the ore as a condition precedent, would be tantamount
to leaving the payment at the discretion of the debtor, for the sale or
shipment could not be made unless the appellants took steps to sell the
ore. Appellants would thus be able to postpone payment indefinitely.
Such construction of the contract should be avoided.
5. Interpretation incline in favor of the “greatest reciprocity of
interests”
Assuming that there could be doubt whether by the wording of the
contract the parties intended a suspensive condition or a suspensive
period (dies ad quem) for the payment of the P65,000, the rules of
interpretation would incline the scales in favor of “the greatest
reciprocity of interests”, since sale is essentially onerous. The Civil Code
of the Philippines, Article 1378, paragraph 1, in fine, provides “if the
contract is onerous, the doubt shall be settled in favor of the greatest
reciprocity of interests” and there can be no question that greater
reciprocity obtains if the buyer’s obligation is deemed to be actually
existing, with only its maturity (due date) postponed or deferred, than if
such obligation were viewed as non-existent or not binding until the ore
was sold.
6. Sale of ore to Fonacier was a sale on credit, not an aleatory contract
The sale of the ore to Fonacier was a sale on credit, and not an aleatory
contract where the transferor, Gaite, would assume the risk of not being
paid at all; and that the previous sale or shipment of the ore was not a
suspensive condition for the payment of the balance of the agreed price,
but was intended merely to fix the future date of the payment.
7. Non-renewal of bond impaired the securities given to the creditor
Appellants have forfeited the right to compel Gaite to wait for the sale of
the ore before receiving payment of the balance of P65,000, because of
their failure to renew the bond of the Far Eastern Surety Company or
else replace it with an equivalent guarantee. The expiration of the
bonding company’s undertaking on 8 December 1955 substantially
reduced the security of the vendor’s rights as creditor for the unpaid
P65,000, a security that Gaite considered essential and upon which he
had insisted when he executed the deed of sale of the ore to Fonacier.
The case squarely comes under paragraphs 2 and 3 of Article 1198 of
the Civil Code of the Philippines which provides “(2) When he does not
furnish to the creditor the guaranties or securities which he has
promised. (3) When by his own acts he has impaired said guaranties or
securities after their establishment, and when through fortuitous event
they disappear, unless he immediately gives new ones equally
satisfactory.” Appellants’ failure to renew or extend the surety
company’s bond upon its expiration plainly impaired the securities given
to the creditor (appellee Gaite), unless immediately renewed or
replaced.
8. No waiver intended by creditor
Gaite’s acceptance of the surety company’s bond with full knowledge
that on its face it would automatically expire within one year was not a
waiver of its renewal after the expiration date. No such waiver could
have been intended, for Gaite stood to lose and had nothing to gain
thereby; and if there was any, it could be rationally explained only if the
appellants had agreed to sell the ore and pay Gaite before the surety
company’s bond expired on 8 December 1955. But in the latter case the
defendants- appellants’ obligation to pay became absolute after 1 year
from the transfer of the ore to Fonacier by virtue of the deed.
9. No short-delivery made by Gaite
This is a case of a sale of a specific mass of fungible goods for a single
price or a lump sum, the quantity of “24,000 tons of iron ore, more or
less”, stated in the contract, being a mere estimate by the parties of the
total tonnage weight of the mass; and second, that the evidence shows
that neither of the parties had actually measured or weighed the mass,
so that they both tried to arrive at the total quantity by making an
estimate of the volume thereof in cubic meters and then multiplying it
by the estimated weight per ton of each cubic meter. The sale between
the parties is a sale of a specific mass of iron ore because no provision
was made in their contract for the measuring or weighing of the ore sold
in order to complete or perfect the sale, nor was the price of P75,000
agreed upon by the parties based upon any such measurement (see Art.
1480, second par., New Civil Code). The subject-matter of the sale is,
therefore, a determinate object, the mass, and not the actual number of
units or tons contained therein, so that all that was required of the seller
Gaite was to deliver in good faith to his buyer all of the ore found in the
mass, notwithstanding that the quantity delivered is less than the
amount estimated by them (Mobile Machinery & Supply Co., Inc. vs.
York Oilfield Salvage Co., Inc. 171 So. 872, applying art. 2459 of the
Luisiana Civil Code). The contract expressly stated the amount to be
24,000 tons, more or less. Applying the tonnage factor provided by the
chief of Mines and Metallurgical Division of the Bureau of Mines which
was between 3 metric tons minimum to 5 metric tons maximum, which
was near the 3.3 metric ton tonnage factor adopted by Engr. Gamatero
(at the request of Krakower, a stockholder of Larap), and if appellant’s
witness is correct in his estimate of 6,609 cubic meters of ore, the
product is 21,809.7 tons which is not far from the 24,000 tons estimate.
(cf. Pine River Logging & Improvement Co. vs. U. S., 186 U.S. 279, 46, L.
Ed. 1164). Thus, there was no short-delivery as would entitle appellants
to the payment of damages, nor could Gaite have been guilty of any
fraud in making any misrepresentation to appellants as to the total
quantity of ore in the stockpiles of the mining claims in question since
Gaite’s estimate appears to be substantially correct.
6. SALES IS TITLE, NOT MODE
Equatorial Realty vs. Mayfair Theater [G.R. No. 106063. November 21,
1996.]
En Banc, Hermosisima Jr. (J): 13 concur, 1 took no part
Facts: Carmelo & Bauermann Inc. (Carmelo) owned a parcel of land,
together with two 2-storey buildings constructed thereon located at
Claro M Recto Avenue, Manila (TCT 18529, Register of Deeds of Manila).
On 1 June 1967, Carmelo entered into a contract of lease with Mayfair
Theater for the latter’s lease of a portion of Carmelo’s property, i.e. a
portion of the 2/F of the two-storey building with floor area of 1610
sq.ms. and the second floor and mezzanine of the two-storey building
situated at CM Recto Avenue, Manila with a floor area of 150 sq.ms. for
use by Mayfair as a motion picture theater and for a term of 20 years.
Mayfair thereafter constructed on the leased property a movie house
known as Maxim Theatre. On 31 March 1969, Mayfair entered into a
second contract of lease with Carmelo for the lease of another portion of
Carmelo’s property, i.e. a portion of the 2/F of the two-storey building
with floor area of 1064 sq.ms. and two store spaces at the ground floor
and mezzanine of the two-storey building situated at CM Recto Avenue,
Manila with a floor area of 300 sq.ms. and bearing street numbers 1871
and 1875 for similar use as a movie theater and for a similar term of 20
years. Mayfair put up another movie house known as ‘Miramar Theatre’
on this leased property. Both contracts of lease provide identically
worded paragraph 8, which reads “That if the LESSOR should desire to
sell the leased premises, the lessee shall be given 30-days exclusive
option to purchase the same. In the event, however, that the leased
premises is sold to someone other than the Lessee, the lessor is bound
and obligated, as it hereby binds and obligates itself, to stipulate in the
Deed of Sale thereof that the purchaser shall recognize this lease and
be bound by all the terms and conditions thereof.” Sometime in August
1974, Mr. Henry Pascal of Carmelo informed Mr. Henry Yang, President
of Mayfair, through a telephone conversation that Carmelo was desirous
of selling the entire Claro M. Recto property. Mr. Pascal told Mr. Yang
that a certain Jose Araneta was offering to buy the whole property for
US$1,200,000, and Mr. Pascal asked Mr. Yang if the latter was willing to
buy the property for P6 million to P7 million. Mr. Yang replied that he
would let Mr. Pascal know of his decision. On 23 August 1974, Mayfair
replied through a letter confirming the correspondence between Pascual
and Yang and reiterating paragraph 8 of the two contracts of lease.
Carmelo did no reply to this letter. On 18 September 1974, Mayfair sent
another letter to Carmelo purporting to express interest in acquiring not
only the leased premises but the entire building and other
improvements if the price is reasonable. However, both Carmelo and
Equatorial questioned the authenticity of the second letter. Four years
later, on 30 July 1978, Carmelo sold its entire CM. Recto Avenue land
and building, which included the leased premises housing the ‘Maxim’
and ‘Miramar’ theatres, to Equatorial by virtue of a Deed of Absolute
Sale, for the total sum of P1,300,000.
In September 1978, Mayfair instituted the action for specific
performance and annulment of the sale of the leased premises to
Equatorial. In its Answer, Carmelo alleged as special and affirmative
defense that it had informed Mayfair of its desire to sell the entire CM.
Recto Avenue property and offered the same to Mayfair, but the latter
answered that it was interested only in buying the areas under lease,
which was impossible since the property was not a condominium; and
that the option to purchase invoked by Mayfair is null and void for lack
of consideration. Equatorial, in its Answer, pleaded as special and
affirmative defense that the option is void for lack of consideration and
is unenforceable by reason of its impossibility of performance because
the leased premises could not be sold separately from the other portions
of the land and building. It counterclaimed for cancellation of the
contracts of lease, and for increase of rentals in view of alleged
supervening extraordinary devaluation of the currency. Equatorial
likewise cross-claimed against codefendant Carmelo for indemnification
in respect of Mayfair’s claims. After assessing the evidence, the court
rendered decision dismissing the complaint with costs against Mayfair;
ordering Mayfair to pay Carmelo & Bauermann P40,000.00 by way of
attorneys’s fees on its counterclaim; and ordering Mayfair to pay
Equatorial Realty P35,000.00 per month as reasonable compensation for
the use of areas not covered by the contracts of lease from 31 July 1979
until Mayfair vacates said areas plus legal interest from 31 July 1978;
P70,000.00 per month as reasonable compensation for the use of the
premises covered by the contracts of lease dated (1 June 1967 from 1
June 1987 until Mayfair vacates the premises plus legal interest from 1
June 1987; P55,000.00 per month as reasonable compensation for the
use of the premises covered by the contract of lease dated 31 March
1969 from 30 March 1989 until Mayfair vacates the premises plus legal
interest from 30 March 1989; and P40,000.00 as attorney’s fees; and
dismissing Equatorial’s crossclaim against Carmelo & Bauermann. The
trial court adjudged the identically worded paragraph 8 found in both
lease contracts to be an option clause which however cannot be
deemed to be binding on Carmelo because of lack of distinct
consideration therefor.
Mayfair taking exception to the decision of the trial court, appealed to
the Court of Appeals. The appellate court reversed the trial court and
rendered judgment reversing and setting aside the appealed Decision;
directing Mayfair to pay and return to Equatorial the amount of
P11,300,000.00 within 15 days from notice of this Decision, and
ordering Equatorial to accept such payment; directing Equatorial, upon
payment of the sum of P11,300,000, to execute the deeds and
documents necessary for the issuance and transfer of ownership to
Mayfair of the lot registered under TCT 17350, 118612, 60936, and
52571; and should Mayfair be unable to pay the amount as adjudged,
declaring the Deed of Absolute Sale between Carmelo and Equatorial as
valid and binding upon an the parties. Hence, the petition for review.
The Supreme Court denied the petition for review of the decision of the
Court of Appeals (23 June 1992, in CA-GR CV 32918), declaring the Deed
of Absolute Sale between Equatorial and Carmelo as deemed rescinded;
ordering Carmelo to return to Equatorial the purchase price; directing
Equatorial to execute the deeds and documents necessary to return
ownership to Carmelo of the disputed lots; and ordering Carmelo to
allow Mayfair to buy the lots for P11,300,000.
1. Issue on irregularities in Court of Appeals passed upon so as not to
preempt the administrative proceedings related thereto
It was raised that the Court of Appeals violated its own internal rules in
the assignment of appealed cases when it allowed the same Division XII,
particularly Justice Manuel Herrera, to resolve all the motions in the
“Completion Process” and to still resolve the merits of the case in the
“Decision Stage.” This was related to letter complaint written by the
counsel for Equatorial on 20 September 1992 to the Supreme Court
alleging certain irregularities and infractions committed by certain
lawyers, and Justices of the Court of Appeals and of the Supreme Court
in connection with case CA-GR CV 32918 (GR 106063). This partakes of
the nature of an administrative complaint for misconduct, against
members of the judiciary. While the letter-complaint arose as an
incident in said case, the disposition thereof should be separate and
independent from case GR 106063. It would be correct, prudent and
consistent course of action not to pre-empt the administrative
proceedings to be undertaken respecting the said irregularities. A
discussion of such in the present case would entail a finding on the
merits as to the real nature of the questioned procedures and the true
intentions and motives of the players therein.
2. Paragraph 8 of lease contracts provides for a right of first refusal, and
is not an option clause nor an option contract
The contractual stipulation (Paragraph 8) provides for a right of first
refusal in favor of Mayfair. It is not an option clause or an option contact.
It is a contract of a right of first refusal. The true nature of the paragraph
8 is ascertained to be that of a contractual grant of the right of first
refusal to Mayfair.
3. Option contract; Validity based on a separate and distinct
consideration
As early as 1916, in the case of Beaumont vs. Prieto, unequivocal was
our characterization of an option contract as one necessarily invoking
the choice granted to another for a distinct and separate consideration
as to whether or not to purchase a determinate thing at a
predetermined fixed price. T he deed of option or option clause in a
contract, in order to be valid and enforceable, must, among other
things, indicate the definite price at which the person granting the
option, is willing to sell.
4. Option contract, according to Bouvier Law Dictionary
Bouvier, in his Law Dictionary (edition of 1897) defines an option as a
contract, “a contract by virtue of which A, in consideration of the
payment of a certain sum to B, acquires the privilege of buying from, or
selling to B, certain securities or properties within a limited time at a
specified price. (Story vs Salamon, 71 N.Y. 420.)”
5. Option contract, according to “Words and Phrases”
An agreement in writing to give a person the option to purchase lands
within a given time at a named price is neither a sale nor an agreement
to sell. It is simply a contract by which the owner of property agrees with
another person that he shall have the right to buy his property at a fixed
price within a certain time. He does not sell his land, he does not then
agree to sell it; but he does sell something; that is, the right or privilege
to buy at the election or option of the other party. The second party gets
in praesenti, not lands, nor an agreement that he shall have lands, but
he does get something of value, that is, the right to call for and receive
lands if he elects The owner parts with his right to sell his lands, except
to the second party, for a limited period The second party receives this
right, or, rather, from his point of view, he receives the right to elect to
buy. (Vol. 6, page 5001, of the work ‘Words and Phrases, ‘ citing the
case of Ide vs. Leiser [24 Pac., 695; 10 Mont., 5; 24 Am. St. Rep., 17]).
6. Cases involving option contracts
In Tuason vs. de Asis (107 PHIL 131 [1960]), it was held that the lessee
loses his right to buy the leased property for a named price per square
meter upon failure to make the purchase within the time specified. In
Mendoza vs. Comple (15 SCRA 162), the Court freed the landowner from
her promise to sell her land if the prospective buyer could raise
P4,500.00 in 3 weeks because such option was not supported by a
distinct consideration. In the same vein, in Sanchez vs. Rigos (45 SCRA
368 [1972]), the Court also invalidated an instrument entitled, “Option
to Purchase” a parcel of land for the sum of P1,510.00 because of lack
of consideration. And as an exception to the doctrine enumerated in the
two preceding cases, in Vda de Quirino vs. Palarca (29 SCRA 1 [1969]), it
was ruled that the option to buy the leased premises for P12,000.00 as
stipulated in the lease contract, is not without consideration for in
reciprocal contracts, like lease, the obligation or promise of each party is
the consideration for that of the other. In all these cases, the selling
price of the object thereof is always predetermined and specified in the
option clause in the contract or in the separate deed of option.
Ang Yu Asuncion case:
7. Perfection of a contract of sale
In sales, the contract is perfected when a person, called the seller,
obligates himself, for a price certain, to deliver and to transfer
ownership of a thing or right to another, called the buyer, over which the
latter agrees. Article 1458 of the Civil Code provides that “By the
contract of sale one of the contracting parties obligates himself to
transfer the ownership of and to deliver a determinate thing, and the
other to pay therefor a price certain in money or its equivalent. A
contract of sale may be absolute or conditional.”
8. Contract to sell is conditional; Effect of breach of condition
When the sale is not absolute but conditional, such as in a “Contract to
Sell” where invariably the ownership of the thing sold is retained until
the fulfillment of a positive suspensive condition (normally, the full
payment of the purchase price), the breach of the condition will prevent
the obligation to convey title from acquiring an obligatory force.
9. Unconditional mutual promise to buy and sell obligatory on the
parties
An unconditional mutual promise to buy and sell, as long as the object is
made determinate and the price is fixed, can be obligatory on the
parties, and compliance therewith may accordingly be exacted.
10. Perfected contract of option
An accepted unilateral promise which specifies the thing to be sold and
the price to be paid, when coupled with a valuable consideration distinct
and separate from the price, is what may properly be termed a
perfected contract of option. This contract is legally binding, and in
sales, it conforms with the second paragraph of Article 1479 of the Civil
Code, which provides that “An accepted unilateral promise to buy or to
sell a determinate thing for a price certain is binding upon the promissor
if the promise is supported by a consideration distinct from the price.
(1451a)”
11. Option not the contract of sale itself
The option is not the contract of sale itself. The optionee has the right,
but not the obligation, to buy. Once the option is exercised timely, i.e.,
the offer is accepted before a breach of the option, a bilateral promise
to sell and to buy ensues and both parties are then reciprocally bound to
comply with their respective undertakings.
12. Offer
A negotiation is formally initiated by an offer. An imperfect promise
(policitacion) is merely an offer. Public advertisements or solicitations
and the like are ordinarily construed as mere invitations to make offers
or only as proposals. These relations, until a contract is perfected, are
not considered binding commitments. Thus, at any time prior to the
perfection of the contract, either negotiating party may stop the
negotiation. The offer, at this stage, may be withdrawn; the withdrawal
is effective immediately after its manifestation, such as by its mailing
and not necessarily when the offeree learns of the withdrawal (Laudico
vs. Arias, 43 Phil. 270).
13. Offer with a period; Effects of withdrawal
(1) If the period is not itself founded upon or supported by a
consideration, the offeror is still free and has the right to withdrawal the
offer before its acceptance, or, if an acceptance has been made, before
the offeror’s coming to know of such fact, by communicating that
withdrawal to the offeree (see Art. 1324, Civil Code; see also Atkins,
Kroll & Co. vs. Cua, 102 Phil. 948, holding that this rule is applicable to a
unilateral promise to sell under Art. 1479, modifying the previous
decision in South Western Sugar vs. Atlantic Gulf, 97 Phil. 249; see also
Art. 1319, Civil Code; Rural Bank of Parañaque, Inc., vs. Remolado, 135
SCRA 409; Sanchez vs. Rigos, 45 SCRA 368). The right to withdraw,
however, must not be exercised whimsically or arbitrarily; otherwise, it
could give rise to a damage claim under Article 19 of the Civil Code
which ordains that “every person must, in the exercise of his rights and
in the performance of his duties, act with justice, give everyone his due,
and observe honesty and good faith.” (2) If the period has a separate
consideration, a contract of “option” is deemed perfected, and it would
be a breach of that contract to withdraw the offer during the agreed
period. The option, however, is an independent contract by itself, and it
is to be distinguished from the projected main agreement (subject
matter of the option) which is obviously yet to be concluded. If, in fact,
the optioner-offeror withdraws the offer before its acceptance (exercise
of the option) by the optionee-offeree, the latter may not sue for specific
performance on the proposed contract (”object” of the option) since it
has failed to reach its own stage of perfection. The optioner-offeror,
however, renders himself liable for damages for breach of the option. In
these cases, care should be taken of the real nature of the consideration
given, for if, in fact, it has been intended to be part of the consideration
for the main contract with a right of withdrawal on the part of the
optionee, the main contract could be deemed perfected; a similar
instance would be an “earnest money” in a contract of sale that can
evidence its perfection (Art. 1482, Civil Code).
14. Requirement for separate consideration has no applicability as
paragraph 8 is not an option contract but a right of first refusal
No option to purchase in contemplation of the second paragraph of
Article 1479 of the Civil Code, has been granted to Mayfair under the
said lease contracts. Paragraph 8 grants the right of first refusal to
Mayfair and is not an option contract. The requirement of a separate
consideration for the option, thus, has no applicability in the case. There
is nothing in paragraph “8″ of the contracts which would bring them into
the ambit of the usual offer or option requiring an independent
consideration.
15. Option and Right of First Refusal distinguished
An option is a contract granting a privilege to buy or sell within an
agreed time and at a determined price. It is a separate and distinct
contract from that which the parties may enter into upon the
consummation of the option. It must be supported by consideration. In
the instant case, the right of first refusal is an integral part of the
contracts of lease. The consideration is built into the reciprocal
obligations of the parties.
16. Right of First Refusal inutile if governed by Article 1324 on
withdrawal of the offer on Article 1479 on promise to buy and sell
To rule that a contractual stipulation such as that found in paragraph 8
of the contracts is governed by Article 1324 on withdrawal of the offer
on Article 1479 on promise to buy and sell would render ineffectual or
“inutile” the provisions on right of first refusal so commonly inserted in
leases of real estate nowadays. Paragraph 8 was incorporated into the
contracts of lease for the benefit of Mayfair which wanted to be assured
that it shall be given the first crack or the first option to buy the
property at the price which Carmelo is willing to accept.
17. Consideration in an agreement of right of first refusal: Consideration
for lease
It is not correct to say that there is no consideration in an agreement of
right of first refusal. The stipulation is part and parcel of the entire
contract of lease. The consideration for the lease includes the
consideration for the right of first refusal.
18. Consideration in an agreement of right of first refusal: Consideration
is obligation or promise (reciprocal contract)
Mayfair is in effect stating that it consents to lease the premises and to
pay the price agreed upon provided the lessor also consents that,
should it sell the leased property, then, Mayfair shall be given the right
to match the offered purchase price and to buy the property at that
price. As stated in Vda. De Quirino vs. Palarca, in reciprocal contract, the
obligation or promise of each party is the consideration for that of the
other.
19. Difference to Ang Yu Asuncion case: Equatorial Realty and Carmelo
acted in bad faith
Carmelo and Equatorial Realty acted in bad faith to render Paragraph 8
“inutile.” What Carmelo and Mayfair agreed to, by executing the two
lease contracts, was that Mayfair will have the right of first refusal in the
event Carmelo sells the leased premises. It is undisputed that Carmelo
did recognize this right of Mayfair, for it informed the latter of its
intention to sell the said property in 1974. There was an exchange of
letters evidencing the offer and counter-offers made by both parties.
Carmelo, however, did not pursue the exercise to its logical end. While it
initially recognized Mayfair’s right of first refusal, Carmelo violated such
right when without affording its negotiations with Mayfair the full
process to ripen to at least an interface of a definite offer and a possible
corresponding acceptance within the “30-day exclusive option” time
granted Mayfair, Carmelo abandoned negotiations, kept a low profile for
some time, and then sold, without prior notice to Mayfair, the entire
Claro M. Recto property to Equatorial.
20. Rescission lies when the purchase is in bad faith
Equatorial (being aware of the lease contracts because its lawyers had,
prior to the sale, studied the said contracts) is a buyer in bad faith, and
thus renders the sale to it of the property in question rescissible.
Guzman, Bocaling & Co. vs. Bonnevie case
21. Rescission as remedy
Rescission is a remedy granted by law to the contracting parties and
even to third persons, to secure reparation for damages caused to them
by a contract, even if this should be valid, by means of the restoration of
things to their condition at the moment prior to the celebration of said
contract. It is a relief allowed for the protection of one of the contracting
parties and even third persons from all injury and damage the contract
may cause, or to protect some incompatible and preferential right
created by the contract. Rescission implies a contract which, even if
initially valid, produces a lesion or pecuniary damage to someone that
justifies its invalidation for reasons of equity.
22. Purchaser not considered a third party
It is true that the acquisition by a third person of the property subject of
the contract is an obstacle to the action for its rescission where it is
shown that such third person is in lawful possession of the subject of the
contract and that he did not act in bad faith. However, this rule is not
applicable in the case before us because the petitoner is not considered
a third party in relation to the Contract of Sale nor may its possession of
the subject property be regarded as acquired lawfully and in good faith.
23. Purchaser in good faith defined
A purchaser in good faith and for value who buys the property of
another without notice that some other person has a right to or interest
in such property and pays a full and fair price for the same at the time
of such purchase or before he has notice of the claim or interest of some
other person in the property. Good faith connotes an honest intention to
abstain from taking unconscientious advantage of another. Tested by
these principles, the petitioner cannot tenably claim to be a buyer in
good faith as it had notice of the lease of the property and such
knowledge should have cautioned it to look deeper into the agreement
to determine if it involved stipulations that would prejudice its own
interests.
24. Purchaser required to know term of lease contract when buying
property under lease
Having known that the property it was buying was under lease, it
behooved it as a prudent person to have required the owner of the
property or the broker to show to it the Contract of Lease in which the
right of first refusal is contained.
25. Indivisibility of the property
Common sense and fairness dictate that instead of nullifying the
agreement on the basis that the entire property is indivisible property,
the stipulation should be given effect by including the indivisible
appurtenances in the sale of the dominant portion under the right of
first refusal. A valid and legal contract where the ascendant or the more
important of the two parties is the landowner should be given effect, if
possible, instead of being nullified on a selfish pretext posited by the
owner. Following the arguments of petitioners and the participation of
the owner in the attempt to strip Mayfair of its rights; the right of first
refusal should include not only the property specified in the contracts
but also the appurtenant portions sold to Equatorial which are claimed
by petitioners to be indivisible.
26. Boundaries of the property sold
Mayfair is authorized to exercise its right of first refusal under the
contract to include the entirety of the indivisible property. The
boundaries of the property sold should be the boundaries of the offer
under the right of first refusal.
27. Doctrine in Ang Yu Asuncion deemed modified
As to the remedy to enforce Mayfair’s right, the Court disagrees to a
certain extent with the concluding part of the dissenting opinion of
Justice Vitug. The doctrine enunciated in Ang Yu Asuncion vs. Court of
Appeals should be modified, it not amplified under the peculiar facts of
the present case.
28. Multiplicity of suits frowned upon by Court; Relief: (1) Contract
between Equatorial and Carmelo rescinded, (2) Price fixed
The Supreme Court has always been against multiplicity of suits where
all remedies according to the facts and the law can be included. Since
Mayfair has a right of first refusal, it can exercise the right only if the
fraudulent sale is first set aside or rescinded. All of these matters are
now before us and so there should be no piecemeal determination of
this case and leave festering sores to deteriorate into endless litigation.
Since Carmelo sold the property for P11,300,000 to Equatorial, the price
at which Mayfair could have purchased the property is, therefore, fixed.
The damages which Mayfair suffered are in terms of actual injury and
lost opportunities. The fairest solution would be to allow Mayfair to
exercise its right of first refusal at the price which it was entitled to
accept or reject which is P11,300,000. To follow an alternative solution
that Carmelo and Mayfair may resume negotiations for the sale to the
latter of the disputed property would be unjust and unkind to Mayfair
because it is once more compelled to litigate to enforce its right.
29. Present case covered by law on contracts, not merely by codal
provisions on human relations
Under the Ang Yu Asuncion vs. Court of Appeals decision, the Court
stated that there was nothing to execute because a contract over the
right of first refusal belongs to a class of preparatory juridical relations
governed not by the law on contracts but by the codal provisions on
human relations. This may apply if the contract is limited to the buying
and selling of the real property. However, the obligation of Carmelo to
first offer the property to Mayfair is embodied in a contract. It is
Paragraph 8 on the right of first refusal which created the obligation. It
should be enforced according to the law on contracts instead of the
panoramic and indefinite rule on human relations. The latter remedy
encourages multiplicity of suits. There is something to execute and that
is for Carmelo to comply with its obligation to the property under the
right of the first refusal according to the terms at which they should
have been offered then to Mayfair, at the price when that offer should
have been made. Also, Mayfair has to accept the offer. This juridical
relation is not amorphous nor is it merely preparatory. Paragraphs 8 of
the two leases can be executed according to their terms.
30. No interest due
Carmelo and Equatorial cannot avail of considerations based on equity
which might warrant the grant of interests. The vendor received as
payment from the vendee what, at the time, was a full and fair price for
the property. It has used the P11,300,000.00 all these years earning
income or interest from the amount. Equatorial, on the other hand, has
received rents and otherwise profited from the use of the property
turned over to it by Carmelo. In fact, during all the years that this
controversy was being litigated, Mayfair paid rentals regularly to the
buyer who had an inferior right to purchase the property. Mayfair is
under no obligation to pay any interests arising from this judgment to
either Carmelo or Equatorial.
Aznar vs. Yapdiangco [G.R. No. L-18536. March 31, 1965.]
En Banc, Regala (J): 10 concurring
Facts: In May 1959, Teodoro Santos advertised in two metropolitan
papers the sale of his Ford Fairlane 500. In the afternoon of 28 May
1959, a certain L. De Dios, claiming to be a nephew of Vicente Marella,
went to the Santos residence to answer the ad. However, Teodoro was
out during this call and only the latter’s son, Irineo received and talked
with De Dios. The latter told the young Santos that he had come in
behalf of his uncle, Marella, who was interested to buy the advertised
car. On being informed of the above, Teodoro instructed his son to see
Marella the following day at his given address: 1642 Crisostomo Street,
Sampaloc, Manila. And so, in the morning of 29 May 1959, Irineo went to
said address. At this meeting, Marella agreed to buy the car for
P14,700.00 on the understanding that the price would be paid only after
the car had been registered in his name. Irineo then fetched his father
who, together with De Dios, went to the office of a certain Atty. Jose
Padolina where the deed of sale for the car was executed in Marella’s
favor. The parties to the contract thereafter proceeded to the Motor
Vehicles’ Office in Quezon City where the registration of the car in
Marella’s name was effected. Up to that stage of the transaction, the
purchase price had not been paid. From the Motor Vehicles Office,
Teodoro returned to his house. He gave the registration papers and a
copy of the deed of sale to his son and instructed him not to part with
them until Marella shall have given the full payment for the car. Irineo
and De Dios then proceeded to 1642 Crisostomo Street, Sampaloc in
Manila where the former demanded for the payment from Marella.
Marella said that the amount he had on hand then was short by some
P2,000.00 and begged off to be allowed to secure the shortage from a
sister supposedly living somewhere in Azcarraga Street, also in Manila.
Thereafter, he ordered De Dios to go to the said sister and suggested
that Irineo to go with him. At the same time, he requested for the
registration papers and the deed of sale from Ireneo on the pretext that
he would like to show them to his lawyers. Trusting the good faith of
Marella, Ireneo handed over the same to the latter and thereupon, in the
company of De Dios and another unidentified person, proceeded to the
alleged house of Marella’s sister. At a place in Azcarraga, Irineo and De
Dios alighted from the car and entered a house, while their unidentified
companion remained in the car. Once inside, De Dios asked Irineo to
wait at the sala while he went inside a room. That was the last that
Ireneo saw of him. For, after a considerable length of time waiting in
vain for De Dios to return, Ireneo went down to discover that neither the
car nor their unidentified companion was there anymore. Going back to
the house, he inquired from a woman he saw for De Dios and he was
told that no such name lived or was even known therein. Whereupon,
Ireneo rushed to 1642 Crisostomo to see Marella. He found the house
closed and Marella gone. Finally, he reported the matter to his father
who promptly advised the police authorities. That very same day,
Marella was able to sell the car in question to Jose B. Aznar, for
P15,000.00. Aznar acquired the said car from Marella in good faith, for a
valuable consideration and without notice of the defect appertaining to
the vendor’s title. While the car was thus in the possession of Aznar and
while he was attending to its registration in his name, agents of the
Philippine Constabulary seized and confiscated the same in
consequence of the report to them by Teodoro that the said car was
unlawfully taken from him.
Aznar filed a complaint for replevin before the CFI Quezon City (Branch
IV) against Captain Rafael Yapdiangco, the head of the Philippine
Constabulary unit which seized the car. Claiming ownership of the
vehicle, he prayed for its delivery to him. In the course of the litigation,
however, Teodoro Santos moved and was allowed to intervene by the
lower court. At the end of the trial, the lower court rendered a decision
awarding the disputed motor vehicle to Santos. From the decision, Aznar
appealed.
The Supreme Court dismissed the appeal and affirmed the decision of
the lower court in full; with costs against Aznar.
1. Article 559 of the Civil Code; Santos entitled to recovery of personal
property
Santos had been unlawfully deprived of his personal property by
Marella, from whom Aznar traces his right. Consequently, although
Aznar acquired the car in good faith and for a valuable consideration
from Marella, the said decision concluded, still Santos was entitled to its
recovery on the mandate of Article 559 of the New Civil Code which
provides: ” The possession of movable property acquired in good faith is
equivalent to title. Nevertheless, one who has lost any movable or has
been unlawfully deprived thereof, may recover it from the person in
possession of the same. If the possessor of a movable lost or of which
the owner has been unlawfully deprived, has acquired it in good faith at
a public sale, the owner cannot obtain its return without reimbursing the
price paid therefor.” Under Article 559, the rule is to the effect that if the
owner has lost the thing, or if he has been unlawfully deprived of it, he
has a right to recover it, not only from the finder, thief or robber, but
also from the third person who may have acquired it in good faith from
such finder, thief or robber.
2. Seller’s title, voidable at least, essential in Article 1506; Article 559
applies
Article 1506 provides:” Where the seller of goods has a voidable title
thereto, but his title has not been voided at the time of the sale, the
buyer acquires a good title to the goods, provided he buys them in good
faith, for value, and without notice of the seller’s defect of title.” Under
the provision, it is essential that the seller should have a voidable title at
least. It is very clearly inapplicable where the seller had no title at all.
3. Ownership or title acquired only by tradition or delivery; Article 712
of the Civil Code
Under Article 712 of the Civil Code, “ownership and other real rights
over property are acquired and transmitted by law, by donation, by
testate and intestate succession, and in consequence of certain
contracts, by tradition.” As interpreted by this Court in a host of cases,
by this provision, ownership is not transferred by contract merely but by
tradition or delivery. Contracts only constitute titles or rights to the
transfer or acquisition of ownership, while delivery or tradition is the
mode of accomplishing the same. (Gonzales vs. Rojas, 16 Phil. 51;
Ocejo, Perez and Co. vs. International Bank, 37 Phil. 631; Fidelity and
Deposit Co. vs. Wilson, 8 Phil. 51; Kuenzle & Streiff vs. Wacke &
Chandler, 14 Phil. 610; Easton vs. Diaz & Co., 32 Phil. 180). For the legal
acquisition and transfer of ownership and other property rights, the
thing transferred must be delivered, inasmuch as, according to settled
jurisprudence the tradition of the thing is a necessary and indispensable
requisite in the acquisition of said ownership by virtue of a contract.
(Walter Easton vs. E. Diaz & Co. & the Provincial Sheriff of Albay, supra.)
So long as property is not delivered, the ownership over it is not
transferred by contract merely but by delivery. Contracts only constitute
titles or rights to the transfer or acquisition of ownership, while delivery
or tradition is the method of accomplishing the same, the title and the
method of acquiring it being different in our law.” (Gonzales vs. Rojas,
16 Phil. 51) In the present case, the car was never delivered to the
vendee by the vendor as to complete or consummate the transfer of
ownership by virtue of the contract. It should be recalled that while
there was indeed a contract of sale between Vicente Marella and
Teodoro Santos, the former, as vendee, took possession of the subject
matter thereof by stealing the same while it was in the custody of the
latter’s son.
4. Delivery of key not delivery contemplated by Article 712; Intent
must be present
There is no adequate evidence on record as to whether Irineo Santos
voluntarily delivered the key to the car to the unidentified person who
went with him and L. De Dios to the place in Azcarraga where a sister of
Marella allegedly lived. But even if Irineo Santos did, it was not the
delivery contemplated by Article 712 of the Civil Code. For then, it would
be indisputable that he turned it over to the unidentified companion
only so that he may drive Irineo Santos and De Dios to the said place in
Azcarraga and not vest the title to the said vehicle to him as agent of
Vicente Marella. Article 712 above contemplates that the act be coupled
with the intent of delivering the thing. (10 Manresa 132)
5. Article 559 establishes exception to the general rule or
irrevindicability
Article 559 establishes two exceptions to the general rule of
irrevindicability to wit: when the owner (1) has lost the thing, or (2) has
been unlawfully deprived thereof. In these cases, the possessor cannot
retain the thing as against the owner, who may recover it without
paying any indemnity, except when the possessor acquired it in a public
sale. (Del Rosario vs. Lucena, 8 Phil. 535; Varela vs. Finnick, 9 Phil. 482;
Varela vs. Matute, 9 Phil. 479; Arenas vs. Raymundo, 19 Phil. 46.
Tolentino, id., Vol II, p. 261.)
6. Cruz vs. Pahati on Article 559
In the case of Cruz vs. Pahati, et al., 52 OG 3053, the Court ruled that
“Under Article 559 of the new Civil Code, a Person illegally deprived of
any movable may recover it from the person in possession of the same
and the only defense the latter may have is if he has acquired it in good
faith at a public sale, in which case, the owner cannot obtain its return
without reimbursing the price paid therefor. In the present case, plaintiff
has been illegally deprived of his car through the ingenious scheme of
defendant B to enable the latter to dispose of it as if he were the owner
thereof. Plaintiff, therefore, can still recover possession of the car even if
it is in the possession of a third party who had acquired it in good faith
from defendant B. The maxim that “no man can transfer to another a
better title than he has himself’ obtains in the civil as well as in the
common law.” (U.S. vs. Sootelo, 28 Phil. 147)
7. Common law principle yields to statutory provision
The right of the owner to recover personal property acquired in good
faith by another, is based on his being dispossessed without his consent.
The common law principle that where one of two innocent persons must
suffer by a fraud perpetrated by another, the law imposes the loss upon
the party who, by his misplaced confidence, has enabled the fraud to be
committed, cannot be applied in a case which is covered by an express
provision of the new Civil Code, specifically Article 559. Between a
common law principle and a statutory provision, the latter must prevail
in this jurisdiction. (Cruz vs. Pahati, supra).
C. DISTINGUISHED FROM OTHER TRANSACTIONAL CONTRACT
3. CONTRACT FOR PIECE OF WORK
Celestino Co v. Collector of Internal Revenue [G.R. No. L-8506. August
31, 1956.]
First Division, Bengzon (J): 7 concur
Facts: Celestino Co & Company is a duly registered general
copartnership doing business under the trade name of “Oriental Sash
Factory”. From 1946 to 1951 it paid percentage taxes of 7% on the
gross receipts of its sash, door and window factory, in accordance with
section 186 of the National Revenue Code imposing taxes on sales of
manufactured articles. However in 1952 it began to claim liability only to
the contractor’s 3% tax (instead of 7%) under section 191 of the same
Code; and having failed to convince the Bureau of Internal Revenue, it
brought the matter to the Court of Tax Appeals, where it also failed.
Hence, the appeal.
The Supreme Court affirmed the appealed decision.
1. Business name and income militates against claim as ordinary
contractor
The company has taken all the trouble and expense of registering a
special trade name for its sash business and has ordered company
stationery carrying the bold print “Oriental Sash Factory (Celestino Co &
Company, Prop.) 926 Raon St. Quiapo, Manila, Tel. No. 33076,
Manufacturers of all kinds of doors, windows, sashes, furnitures, etc.
used season-dried and kiln-dried lumber, of the best quality
workmanship.” It is unlikely that these act were made solely for the
purpose of supplying the needs for doors, windows and sash of its
special and limited customers. Further, the Company has chosen for its
tradename and has offered itself to the public as a “Factory”, which
means it is out to do business, in its chosen lines on a big scale.
Moreover, as shown from the investigation of the Company’s books of
accounts (for transactions covering the period of 1 January 1952 to 30
September 1952), it sold sash, doors and windows worth P188,754.69. It
will be difficult to believe that such amount that ran to six figures was
derived entirely from its few customers who made special orders. Thus,
Celestino Co & Company habitually makes sash, windows and doors, as
it has represented in its stationery and advertisements to the public,
and it has admitted by the appellant itself that the company
“manufactures.”
2. Construction work contractors defined
Construction work contractors are those who alter or repair buildings,
structures, streets, highways, sewers, street railways, railroads, logging
roads, electric, steam or water plants telegraph and telephone plants
and lines, electric lines or power lines, and includes any other work for
the construction, altering or repairing for which machinery driven by
mechanical power is used. (Payton vs. City of Anadardo 64 P. 2d 878,
880, 179 Okl. 68).
3. Nature of business does not fall in any of the occupation that may
be classified as contractor within the purview of Section 191 of the
National Internal Revenue Code
Even if it were to believe that the company does not manufacture ready-
made sash, doors and windows for the public and that it makes these
articles only upon special order of its customers, that does not make it a
contractor within the purview of section 191 of the National Internal
Revenue Code. There are no less than fifty occupations enumerated in
the said section of the National Internal Revenue Code subject to
percentage tax, not one under which the business enterprise of
petitioner could appropriately fall. It would require a stretch of the law to
make the business of manufacturing sash, doors and windows upon
special order of customers fall under the category of ‘road, building,
navigation, artesian well, water works and other construction work
contractors.
4. Percentage tax imposed under Section 191 of the Tax Code a tax on
sales of service, while tax imposed by Section 186 a tax on original sales
of articles
The percentage tax imposed in section 191 of the Tax Code is generally
a tax on the sales of services, in contradiction with the tax imposed in
section 186 of the same Code which is a tax on the original sales of
articles by the manufacturer, producer or importer. (Formilleza’s
Commentaries and Jurisprudence on the National Internal Revenue
Code, Vol II, p. 744). The fact that the articles sold are manufactured by
the seller does not exchange the contract from the purview of section
186 of the National Internal Revenue Code as a sale of articles.
5. Custom specifications required by customer does not alter
character of business, the company does not become an employee or
servant of the customer
Nobody will say that when a sawmill cuts lumber in accordance with the
peculiar specifications of a customer, sizes not previously held in stock
for sale to the public, it thereby becomes an employee or servant of the
customer, not the seller of lumber. The same consideration applies to
this sash manufacturer. The Sash Factory does nothing more than sell
the goods that it mass-produces or habitually makes; sash, panels,
mouldings, frames, cutting them to such sizes and combining them in
such forms as its customers may desire.
6. Installation of window panels not construction work in common
parlance
Petitioner’s idea of being a contractor doing construction jobs is
untenable. Nobody would regard the doing of two window panels as
construction work in common parlance.
7. Contract of sale distinguished from a contract for a piece of work
Article 1467 of the New Civil Code provides that “a contract for the
delivery at a certain price of an article which the vendor in the ordinary
course of his business manufactures or procures for the general market,
whether the same is on hand at the time or not, is a contract of sale, but
if the goods are to be manufactured specially for the customer and upon
his special order, and not for the general market, it is contract for a
piece of work.” In the present case, it is apparent that the Factory did
not merely sell its services to Teodoro & Co. because it also sold the
materials. When it sold materials ordinarily manufactured by it (sash,
panels, mouldings), although in such form or combination as suited the
fancy of the purchaser, such new form does not divest the Factory of its
character as manufacturer. Neither does it take the transaction out of
the category of sales under Article 1467 because although the Factory
does not, in the ordinary course of its business, manufacture and keep
on stock doors of the kind sold to Teodoro, it could stock and/or
probably had in stock the sash, mouldings and panels it used therefor.
8. Contract for a piece of work in Factory happens if the use of
extraordinary or additional equipment is required or if it involves
services not generally performed by it
When the Factory accepts a job that requires the use of extraordinary or
additional equipment, or involves services not generally performed by it,
it thereby contracts for a piece of work, i.e. filling special orders within
the meaning of Article 1467. In the present case, however, the orders
exhibited were not shown to be special. They were merely orders for
work, regular work.
9. Transfers under Section 186 of the Tax Code
If all the work of appellant is only to fill orders previously made, such
orders should not be called special work, but regular work; and
supposing for the moment that the transactions were not sales, they
were neither lease of services nor contract jobs by a contractor. Still, as
the doors and windows had been admittedly “manufactured” by the
Sash Factory, such transactions could be, and should be taxed as
“transfers” thereof under section 186 of the National Revenue Code.
Engineering and Machinery Corp. v. CA [G.R. No. 52267. January 24,
1996.]
Third Division, Panganiban (J): 3 concur
Facts: Pursuant to the contract dated 10 September 1962 between the
Engineering and Machinery Corporation (the Corporation) and Almeda,
the former undertook to fabricate, furnish and install the air-conditioning
system in the latter’s building along Buendia Avenue, Makati in
consideration of P12,000.00. The Corporation was to furnish the
materials, labor, tools and all services required in order to so fabricate
and install said system. The system was completed in 1963 and
accepted by Almeda, who paid in full the contract price. On 2 September
1965, Almeda sold the building to the National Investment and
Development Corporation (NIDC). The latter took possession of the
building but on account of NIDC’s noncompliance with the terms and
conditions of the deed of sale, Almeda was able to secure judicial
rescission thereof. The ownership of the building having been decreed
back to Almeda, he re-acquired possession sometime in 1971. It was
then that he learned from some NIDC employees of the defects of the
air-conditioning system of the building. Acting on this information,
Almeda commissioned Engineer David R. Sapico to render a technical
evaluation of the system in relation to the contract with the Corporation.
In his report, Sapico enumerated the defects of the system and
concluded that it was “not capable of maintaining the desired room
temperature of 76ºF — 2ºF.”
On the basis of this report, Almeda filed on 8 May 1971 an action for
damages against the Corporation with the then CFI Rizal (Civil Case
14712). The complaint alleged that the air-conditioning system installed
by the Corporation did not comply with the agreed plans and
specifications, hence, Almeda prayed for the amount of P210,000.00
representing the rectification cost, P100,000.00 as damages and
P15,000.00 as attorney’s fees. The Corporation moved to dismissed the
case, alleging prescription, but which was denied by the Court.
Thereafter, Almeda filed an ex-parte motion for preliminary attachment
on the strength of the Corporation’s own statement to the effect that it
had sold its business and was no longer doing business in Manila. The
trial court granted the motion and, upon Almeda’s posting of a bond of
P50,000.00, ordered the issuance of a writ of attachment.
In due course, and on 15 April 1974, the trial court rendered a decision,
which ordered the Corporation to pay Almeda the amount needed to
rectify the faults and deficiencies of the air-conditioning system installed
by the Corporation in Almeda’s building, plus damages, attorney’s fees
and costs). Petitioner appealed to the Court of Appeals, which affirmed
on 28 November 1978 the decision of the trial court. Hence, it instituted
a petition for review on certiorari under Rule 45 of the Rules of Court.
The Supreme Court denied the petition and affirmed the decision
assailed; without costs.
1. The Court’s power to review
The Supreme Court reviews only errors of law in petitions for review on
certiorari under Rule 45. It is not the function of this Court to re-examine
the findings of fact of the appellate court unless said findings are not
supported by the evidence on record or the judgment is based on a
misapprehension of facts. The Court has consistently held that the
factual findings of the trial court, as well as the Court of Appeals, are
final and conclusive and may not be reviewed on appeal. Among the
exceptional circumstances where a reassessment of facts found by the
lower courts is allowed are when the conclusion is a finding grounded
entirely on speculation, surmises or conjectures; when the inference
made is manifestly absurd, mistaken or impossible; when there is grave
abuse of discretion in the appreciation of facts; when the judgment is
premised on a misapprehension of facts; when the findings went beyond
the issues of the case and the same are contrary to the admissions of
both appellant and appellee. After a careful study of the case at bench,
we find none of the above grounds present to justify the re-evaluation of
the findings of fact made by the courts below.
2. Contract of a piece of work defined
Article 1713 of the Civil Code defines a contract for a piece of work as
“by the contract for a piece of work the contractor binds himself to
execute a piece of work for the employer, in consideration of a certain
price or compensation. The contractor may either employ only his labor
or skill, or also furnish the material.”
3. Contract for a piece of work distinguished from a contract of sale
A contract for a piece of work, labor and materials may be distinguished
from a contract of sale by the inquiry as to whether the thing transferred
is one not in existence and which would never have existed but for the
order of the person desiring it . In such case, the contract is one for a
piece of work, not a sale. On the other hand, if the thing subject of the
contract would have existed and been the subject of a sale to some
other person even if the order had not been given, then the contract is
one of sale.
“A contract for the delivery at a certain price of an article which the
vendor in the ordinary course of his business manufactures or procures
for the general market whether the same is on hand at the time or not is
a contract of sale, but if the goods are to be manufactured specially for
the customer and upon his special order, and not for the general
market, it is a contract for a piece of work (Art. 1467, Civil Code). The
mere fact alone that certain articles are made upon previous orders of
customers will not argue against the imposition of the sales tax if such
articles are ordinarily manufactured by the taxpayer for sale to the
public.” (Celestino Co. vs. Collector, 99 Phil. 8411).
To Tolentino, the distinction between the two contracts depends on the
intention of the parties. Thus, if the parties intended that at some future
date an object has to be delivered, without considering the work or labor
of the party bound to deliver, the contract is one of sale. But if one of
the parties accepts the undertaking on the basis of some plan, taking
into account the work he will employ personally or through another,
there is a contract for a piece of work.
4. Contract in question is one for a piece of work
The contract in question is one for a piece of work. It is not the
Corporation’s line of business to manufacture air-conditioning systems
to be sold “off-the-shelf.” Its business and particular field of expertise is
the fabrication and installation of such systems as ordered by customers
and in accordance with the particular plans and specifications provided
by the customers. Naturally, the price or compensation for the system
manufactured and installed will depend greatly on the particular plans
and specifications agreed upon with the customers.
5. Obligations of a contractor for a piece of work
The obligations of a contractor for a piece of work are set forth in
Articles 1714 and 1715 of the Civil Code. Article 1714 provides that “if
the contractor agrees to produce the work from material furnished by
him, he shall deliver the thing produced to the employer and transfer
dominion over the thing. — This contract shall be governed by the
following articles as well as by the pertinent provisions on warranty of
title and against hidden defects and the payment of price in a contract
of sale.” Article 1715 provides that “the contractor shall execute the
work in such a manner that it has the qualities agreed upon and has no
defects which destroy or lessen its value or fitness for its ordinary or
stipulated use. Should the work be not of such quality, the employer
may require that the contractor remove the defect or execute another
work. If the contractor fails or refuses to comply with this obligation, the
employer may have the defect removed or another work executed, at
the contractor’s cost.”
6. Provisions on warranty against hidden defects
The provisions on warranty against hidden defects, referred to in Article
1714, are found in Articles 1561 and 1566. Article 1561 provides that
“the vendor shall be responsible for warranty against the hidden defects
which the thing sold may have, should they render it unfit for the use for
which it is intended, or should they diminish its fitness for such use to
such an extent that, had the vendee been aware thereof, he would not
have acquired it or would have given a lower price for it; but said vendor
shall not be answerable for patent defects or those which may be
visible, or for those which are not visible if the vendee is an expert who,
by reason of his trade or profession, should have known them.” Article
1566 provides that “the vendor is responsible to the vendee for any
hidden faults or defects in the thing sold, even though he was not aware
thereof,” and provides further that the provision “shall not apply if the
contrary has been stipulated, and the vendor was not aware of the
hidden faults or defects in the thing sold.”
7. Remedy against violation of the warranty against hidden defects
The remedy against violations of the warranty against hidden defects is
either to withdraw from the contract (rehibitory action) or to demand a
proportionate reduction of the price (accion quanti minoris), with
damages in either case.
8. Prescriptive period as specified in express warranty, or in the
absence of which, 4 years; Prescriptive period of 6 months for rehibitory
action is applicable only in implied warranties
While it is true that Article 1571 of the Civil Code provides for a
prescriptive period of six months for a rehibitory action, a cursory
reading of the ten preceding articles to which it refers will reveal that
said rule may be applied only in case of implied warranties; and where
there is an express warranty in the contract, the prescriptive period is
the one specified in the express warranty, and in the absence of such
period, the general rule on rescission of contract, which is four years
(Article 1389, Civil Code) shall apply. (Villostas v. CA)
9. Original complaint is one for arising from breach of a written
contact and not a suit to enforce warranty against hidden defects;
Article 1715 in relation to Article 1144 apply, prescription in 10 years;
Action not prescribed
The lower courts opined and so held that the failure of the defendant to
follow the contract specifications and said omissions and deviations
having resulted in the operational ineffectiveness of the system installed
makes the defendant liable to the plaintiff in the amount necessary to
rectify to put the air conditioning system in its proper operational
condition to make it serve the purpose for which the plaintiff entered
into the contract with the defendant. Thus, having concluded that the
original complaint is one for damages arising from breach of a written
contract, and not a suit to enforce warranties against hidden defects,
the governing law therefore is Article 1715. However, inasmuch as this
provision does not contain a specific prescriptive period, the general law
on prescription, which is Article 1144 of the Civil Code, will apply. Said
provision states, inter alia, that actions “upon a written contract”
prescribe in 10 years. Since the governing contract was executed on 10
September 1962 and the complaint was filed on 8 May 1971, it is clear
that the action has not prescribed.
10. Acceptance of the work by the employer does not relieve the
contractor of liability for any defect in the work
The mere fact that Almeda accepted the work does not, ipso facto,
relieve the Corporation from liability for deviations from and violations of
the written contract, as the law gives him 10 years within which to file
an action based on breach thereof. As held by the Court of Appeals, “as
the breach of contract consisted in appellant’s omission to install the
equipment [sic], parts and accessories not in accordance with the plan
and specifications provided for in the contract and the deviations made
in putting into the air-conditioning system parts and accessories not in
accordance with the contract specifications, it is evident that the defect
in the installation was not apparent at the time of the delivery and
acceptance of the work, considering further that Almeda is not an expert
to recognize the same. From the very nature of things, it is impossible to
determine by the simple inspection of air conditioning system installed
in an 8-floor building whether it has been furnished and installed as per
agreed specifications.”
4. AGENCY TO SELL
Quiroga v. CA
38 Phil 501
Facts: A contract was entered between Quiroga and Parsons for the
exclusive sale of Quiroga beds in the Visayas Islands, specifically Iloilo.
Quiroga furnishes the beds to Parson, who in turn pay the price in the
manner stipulated. Quiroga provided a discount of 20 to 25% for the
beds, depending on their class. Later, Quiroga filed a case against
Parsons for violation of its obligation not to sell the beds at higher price
than those of the invoices, etc. (which are not expressly stipulated in the
contract, except for the manner the beds are ordered by the dozen).
Quiroga maintains that Parson is his agent for the sale of his beds in
Iloilo, and that the contract is that of commercial agency.
Issue: Whether the contact is that of sale or of commercial agency.
Held: The contract between the parties is a contract of purchase and
sale as Parson, by receiving the bed, was necessarily obliged to pay
their price within the term fixed, without any other consideration and
regardless as to whether he had or had not sold the bed. The words
“commission on sales” in the contract is nothing else than a mere
discount on the invoice price. Further, the word “agency” used thereon
only expresses that Parson was the sole seller of Quiroga beds in the
Visayas. None of the other clauses of the contract are not incompatible
with the contract of purchase and sale.
Puyat & Sons v. Arco Amusement
72 Phil 402
Facts: Gonzalo Puyat & Sons is the exclusive agent of Starr Piano
Company of Richmond, Indiana USA, in the Philippines. Teatro Arco, or
Arco Amusement Company, desiring to equip its cinematograph with
sound reproducing devices, approached Puyat. It was agreed by the
parties that Puyat would in behalf of Arco order equipment from Starr
Piano and that Arco would pay Puyat in addition to price of the
equipment, 10% commission plus all expenses such as freight,
insurance, banking charges, cables, etc. Puyat informed Arco that the
price of the equipment was $1,700, to which Arco agreed. Later, a
similar arrangement was made by Arco for the purchase of similar
equipment for $1,600 with 10% commission, with Puyat charging an
additional flat charge of $160 for all expenses and charges. 3 years
later, Arco learned that the price quoted by Puyat on the 2 orders were
not the net price but the list price for the equipment. Arco filed a
complaint with the trial court (CFI) demanding reimbursement from said
“overpriced” sales. The trial court ruled in favor of Puyat, but the Court
of Appeals reversed such decision and declared Puyat an agent of Arco
Amusement in the purchase of said equipment.
Issue: Whether the agreement made between Puyat and Arco
Amusement is that of purchase and sale or that of agency.
Held: Gonzalo Puyat & Sons cannot be the agent of Arco Amusement in
the purchase of equipment from Starr Piano Company as Puyat & Sons
is already the exclusive agent of Starr Piano in the Philippines. Puyat
cannot be the agent of both vendor and purchaser. The fact that a
commission was offered to the other does not necessarily mean that the
latter has become the agent of the former, as this was only an
additional price which Arco bound itself to pay and which is not
incompatible with the contract of purchase and sale. Puyat is not bound
to reimburse the profit acquired in the transaction, as this is the very
essence of commerce involving middlemen and merchants. The contract
is the law between the parties. What does not appear on the face of the
contract should be regarded as “dealer’s or trader’s talk” which cannot
bind either party. Not every concealment is fraud, short of fraud, and
such as that in this case, is considered as business acumen.
6. LEASE
Filinvest Credit vs. CA [G.R. No. 82508. September 29, 1989.]
Second Division, Sarmiento (J): 3 concur, 1 on leave
Facts: The spouses Jose Sy Bang and Iluminada Tan were engaged in the
sale of gravel produced from crushed rocks and used for construction
purposes. In order to increase their production, they engaged the
services of Mr. Ruben Mercurio, the proprietor of Gemini Motor Sales in
Lucena City, to look for a rock crusher which they could buy. Mr.
Mercurio referred the spouses to the Rizal Consolidated Corporation
which then had for sale one such machinery (Lippman portable crushing
plant, reconditioned; Jaw crusher, 10 x 16, Double roll crusher, 16 x 16;
3 units product conveyor, 75 HP electric motor, 8 pcs. Brand new tires;
Chassis 19696, Good running condition). Oscar Sy Bang, a brother of
Jose Sy Bang, went to inspect the machine at the Rizal Consolidated’s
plant site. Apparently satisfied with the machine, Sy Bang signified their
intent to purchase the same. They were confronted with a problem, the
rock crusher carried a cash price tag of P550,000.00. Bent on acquiring
the machinery, the spouses applied for financial assistance from
Filinvest Credit Corporation. Filinvest agreed to extend to the spouses
financial aid on the following conditions: that the machinery be
purchased in Filinvest’s name; that it be leased (with option to purchase
upon the termination of the lease period) to the spouses; and that the
spouses execute a real estate mortgage in favor of Filinvest as security
for the amount advanced by the latter. Accordingly, on 18 May 1981, a
contract of lease of machinery (with option to purchase) was entered
into by the parties whereby the spouses agreed to lease from the
petitioner the rock crusher for two years starting from 5 July 1981
payable at P10,000.00 for first 3 months, P23,000.00 for the next 6
months, and P24,800.00 for the next 15 months. The contract likewise
stipulated that at the end of the two-year period, the machine would be
owned by the spouses. Thus, the spouses issued in favor of Filinvest a
check for P150,550.00, as initial rental (or guaranty deposit), and 24
postdated checks corresponding to the 24 monthly rentals. In addition,
to guarantee their compliance with the lease contract, the spouses
executed a real estate mortgage over two parcels of land in favor of
Filinvest. The rock crusher was delivered to the spouses on 9 June 1981.
Three months from the date of delivery, or on 7 September 1981,
however, the spouses, claiming that they had only tested the machine
that month, sent a letter-complaint to Filinvest, alleging that contrary to
the 20 to 40 tons per hour capacity of the machine as stated in the
lease contract, the machine could only process 5 tons of rocks and
stones per hour. They then demanded that Filinvest make good the
stipulation in the lease contract. They followed that up with similar
written complaints to Filinvest, but the latter did not, however, act on
them. Subsequently, the spouses stopped payment on the remaining
checks they had issued to Filinvest. As a consequence of the non-
payment by the spouses of the rentals on the rock crusher as they fell
due despite the repeated written demands, Filinvest extrajudicially
foreclosed the real estate mortgage. On 18 April 1983, the spouses
received a Sheriff a Notice of Auction Sale informing them that their
mortgaged properties were going to be sold at a public auction on 25
May 1983, 10:00 a.m., at the Office of the Provincial Sheriff in Lucena
City to satisfy their indebtedness to Filinvest.
To thwart the impending auction of their properties, the spouses filed
before the RTC Quezon (Branch LIX, Lucena City), on 4 May 1983, a
complaint against Filinvest for the rescission of the contract of lease,
annullment of the real estate mortgage, and for injunction and
damages, with prayer for the issuance of a writ of preliminary injunction.
On 23 May 1983, 3 days before the scheduled auction sale, the trial
court issued a temporary restraining order commanding the Provincial
Sheriff of Quezon, and Filinvest, to refrain and desist from proceeding
with the public auction. Two years later, on 4 September 1985, the trial
court rendered a decision in favor of the spouses, making the injunction
permanent, rescinding the contract of lease of the machinery and
equipment and ordering the spouses to return to the Filinvest the
machinery subject of the lease contract, and Filinvest to return to the
spouses the sum of P470,950.00 it received from the latter as guaranty
deposit and rentals with legal interest thereon until the amount is fully
restituted; annulling the real estate mortgage constituted over the
properties of the spouses covered by TCTs T-32480 and T-5779 of the
Registry of Deeds of Lucena City; and ordering the Filinvest to pay the
spouses P30,000.00 as attorney’s fees and the costs of the suit.
Dissatisfied with the trial court’s decision, Filinvest elevated the case to
the Court of Appeals. On 17 March 1988, the appellate court, finding no
error in the appealed judgment, affirmed the same in toto. Hence, the
petition for review on certiorari by Filinvest.
The Supreme Court granted the petition, reversed and set aside the 17
March 1988 Decision of the Court of Appeals, and rendered another one
dismissing the complaint; with costs against the spouses.
1. Financial institution not immune from recourse of the spouses;
Filinvest owns crusher
While it is accepted that Filinvest Credit Corporation is a financing
institution, it is not, however, immune from any recourse by the private
respondents. Notwithstanding the testimony of Jose Sy Bang that he did
not purchase the rock crusher from Filinvest, the fact that the rock
crusher was purchased from Rizal Consolidated Corporation in the name
and with the funds of Filinvest proves beyond doubt that the ownership
thereof was effectively transferred to it. It is precisely this ownership
which enabled Filinvest to enter into the “Contract of Lease of
Machinery and Equipment” with the spouses
2. Nomenclature of agreement cannot change its true essence; sale
on installment
The real intention of the parties should prevail. The nomenclature of the
agreement cannot change its true essence, i.e., a sale on installments. It
is basic that a contract is what the law defines it and the parties intend
it to be, not what it is called by the parties. It is apparent that the intent
of the parties to the subject contract is for the so-called rentals to be the
installment payments. Upon the completion of the payments, then the
rock crusher, subject matter of the contract, would become the property
of the spouses. This form of agreement has been criticized as a lease
only in name.
3. Payment in contract of lease with option to buy are installment
payments
In Vda. de Jose v. Barrueco, it was stated that “Sellers desirous of
making conditional sales of their goods, but who do not wish openly to
make a bargain in that form, for one reason or another, have frequently
resorted to the device of making contracts in the form of leases either
with options to the buyer to purchase for a small consideration at the
end of term, provided the so-called rent has been duly paid, or with
stipulations that if the rent throughout the term is paid, title shall
thereupon vest in the lessee. It is obvious that such transactions are
leases only in name. The so-called rent must necessarily be regarded as
payment of the price in installments since the due payment of the
agreed amount results, by the terms of bargain, in the transfer of title to
the lessee.”
4. Article 1484
Article 1484 of the new Civil Code, which provides for the remedies of an
unpaid seller of movables in installment basis, states “In a contract of
sale of personal property the price of which is payable in installments,
the vendor may exercise any of the following remedies: (1) Exact
fulfillment of the obligation, should the vendee fail to pay; (2) Cancel the
sale, should the vendee’s failure to pay cover two or more installments;
(3) Foreclose the chattel mortgage or the thing sold, if one has been
constituted, should the vendee’s failure to pay cover two or more
installments. In this case, he shall have no further action against the
purchaser to recover any unpaid balance of the price. Any agreement to
the contrary shall be void.”
5. Remedies under Article 1484 alternative and not cumulative
Under Article 1484, the seller of movables in installments, in case the
buyer fails to pay two or more installments, may elect to pursue either
of the following remedies: (1) exact fulfillment by the purchaser of the
obligation; (2) cancel the sale; or (3) foreclose the mortgage on the
purchased property if one was constituted thereon. It is now settled that
the said remedies are alternative and not cumulative and therefore, the
exercise of one bars the exercise of the others.
6. Contract of lease with option to buy a device to circumvent Article
1484
The device — contract of lease with option to buy — is at times resorted
to as a means to circumvent Article 1484, particularly paragraph (3)
thereof. Through the set-up, the vendor, by retaining ownership over the
property in the guise of being the lessor, retains, likewise, the right to
repossess the same, without going through the process of foreclosure, in
the event the vendee-lessee defaults in the payment of the installments.
There arises therefore no need to constitute a chattel mortgage over the
movable sold. More important, the vendor, after repossessing the
property and, in effect, canceling the contract of sale, gets to keep all
the installments-cum-rentals already paid.
7. Article 1485 places contract of lease with option to buy within the
applicability of Article 1484
Article 1485 of the new Civil Code provides that “The preceding article
shall be applied to contracts purporting to be leases of personal
property with option to buy, when the lessor has deprived the lessee of
possession or enjoyment of the thing.”
8. No reason to hold Filinvest liable for failure of rock crusher to
produce in accordance with its capacity
The Court failed to find any reason to hold the petitioner liable for the
rock crusher’s failure to produce in accordance with its described
capacity. It was the spouses who chose, inspected, and tested the
subject machinery. It was only after they had inspected and tested the
machine, and found it to their satisfaction, that the spouses sought
financial aid from Filinvest. These allegations of the petitioner had never
been rebutted by the spouses, but in fact, even been admitted in the
contract they signed (“LESSEE’S SELECTION, INSPECTION AND
VERIFICATION. — The LESSEE hereby confirms and acknowledges that
he has independently inspected and verified the leased property and
has selected and received the same from the Dealer of his own choosing
in good order and excellent running and operating condition and on the
basis of such verification, etc. the LESSEE has agreed to enter into this
Contract.”)

9. Spouses presumed knowledgeable on machinery subject of the

contract; Spouses negligent
Considering that between the parties, it is the spouses, by reason of
their business, who are presumed to be more knowledgeable, if not
experts, on the machinery subject of the contract, they should not
therefore be heard now to complain of any alleged deficiency of the said
machinery. It is their failure or neglect to exercise the caution and
prudence of an expert, or, at least, of a prudent man, in the selection,
testing, and inspection of the rock crusher that gave rise to their
difficulty and to this conflict. A well-established principle in law is that
between two parties, he, who by his negligence caused the loss, shall
bear the same.

10. Spouses precluded from imputing liability on Filinvest; Express

waiver of warranties
Even if the spouses could not be adjudged as negligent, they still are
precluded from imputing any liability on Filinvest. One of the stipulations
in the contract they entered into with Filinvest is an express waiver of
warranties in favor of the latter. By so signing the agreement, the
spouses absolved Filinvest from any liability arising from any defect or
deficiency of the machinery they bought. The stipulation on the
machine’s production capacity being “typewritten” and that of the
waiver being “printed” does not militate against the latter’s effectivity.
As such, whether “a capacity of 20 to 40 tons per hour” is a condition or
a description is of no moment. What stands is that the spouses had
expressly exemptd Filinvest from any warranty whatsoever. Their
Contract of Lease Of Machinery And Equipment states “WARRANTY —
LESSEE absolutely releases the lessor from any liability whatsoever as to
any and all matters in relation to warranty in accordance with the
provisions hereinafter stipulated.”

11. Common sense dictates buyer inspects product before purchasing

it; Caveat emptor
Common sense dictates that a buyer inspects a product before
purchasing it (under the principle of caveat emptor or “buyer beware”)
and does not return it for defects discovered later on, particularly if the
return of the product is not covered by or stipulated in a contract or
warranty.

12. Declaration of waiver as non-effective would impair obligations of

contracts
Taking into account that due to the nature of its business and its mode
of providing financial assistance to clients, Filinvest deals in goods over
which it has no sufficient know-how or expertise, and the selection of a
particular item is left to the client concerned, the latter, therefore,
shoulders the responsibility of protecting himself against product
defects. This is where the waiver of warranties is of paramount
importance. In the present case, to declare the waiver as non-effective
would impair the obligation of contracts. Certainly, the waiver in
question could not be considered a mere surplusage in the contract
between the parties. Moreover, nowhere is it shown in the records of the
case that the spouses has argued for its nullity or illegality.

13. No ambiguity in the language of the waiver

In any event, there is no ambiguity in the language of the waiver or the
release of warranty. There is therefore no room for any interpretation as
to its effect or applicability vis-a-vis the deficient output of the rock
crusher. Suffice it to say that the spouses have validly excused Filinvest
from any warranty on the rock crusher. Hence, they should bear the loss
for any defect found therein.