SALES G.R. No. L-11491 August 23, 1918 ANDRES QUIROGA, plaintiff-appellant, vs. PARSONS HARDWARE CO., defendant-appellee.

Alfredo Chicote, Jose Arnaiz and Pascual B. Azanza for appellant. Crossfield & O'Brien for appellee. AVANCEA, J.: On January 24, 1911, in this city of manila, a contract in the following tenor was entered into by and between the plaintiff, as party of the first part, and J. Parsons (to whose rights and obligations the present defendant later subrogated itself), as party of the second part: CONTRACT EXECUTED BY AND BETWEEN ANDRES QUIROGA AND J. PARSONS, BOTH MERCHANTS ESTABLISHED IN MANILA, FOR THE EXCLUSIVE SALE OF "QUIROGA" BEDS IN THE VISAYAN ISLANDS. ARTICLE 1. Don Andres Quiroga grants the exclusive right to sell his beds in the Visayan Islands to J. Parsons under the following conditions: (A) Mr. Quiroga shall furnish beds of his manufacture to Mr. Parsons for the latter's establishment in Iloilo, and shall invoice them at the same price he has fixed for sales, in Manila, and, in the invoices, shall make and allowance of a discount

of 25 per cent of the invoiced prices, as commission on the sale; and Mr. Parsons shall order the beds by the dozen, whether of the same or of different styles. (B) Mr. Parsons binds himself to pay Mr. Quiroga for the beds received, within a period of sixty days from the date of their shipment. (C) The expenses for transportation and shipment shall be borne by M. Quiroga, and the freight, insurance, and cost of unloading from the vessel at the point where the beds are received, shall be paid by Mr. Parsons. (D) If, before an invoice falls due, Mr. Quiroga should request its payment, said payment when made shall be considered as a prompt payment, and as such a deduction of 2 per cent shall be made from the amount of the invoice. The same discount shall be made on the amount of any invoice which Mr. Parsons may deem convenient to pay in cash. (E) Mr. Quiroga binds himself to give notice at least fifteen days before hand of any alteration in price which he may plan to make in respect to his beds, and agrees that if on the date when such alteration takes effect he should have any order pending to be served to Mr. Parsons, such order shall enjoy the advantage of the alteration if the price thereby be lowered, but shall not be affected by said alteration if the price thereby be increased, for, in this latter case, Mr. Quiroga assumed the obligation to invoice
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the beds at the price at which the order was given. (F) Mr. Parsons binds himself not to sell any other kind except the "Quiroga" beds. ART. 2. In compensation for the expenses of advertisement which, for the benefit of both contracting parties, Mr. Parsons may find himself obliged to make, Mr. Quiroga assumes the obligation to offer and give the preference to Mr. Parsons in case anyone should apply for the exclusive agency for any island not comprised with the Visayan group. ART. 3. Mr. Parsons may sell, or establish branches of his agency for the sale of "Quiroga" beds in all the towns of the Archipelago where there are no exclusive agents, and shall immediately report such action to Mr. Quiroga for his approval. ART. 4. This contract is made for an unlimited period, and may be terminated by either of the contracting parties on a previous notice of ninety days to the other party. Of the three causes of action alleged by the plaintiff in his complaint, only two of them constitute the subject matter of this appeal and both substantially amount to the averment that the defendant violated the following obligations: not to sell the beds at higher prices than those of the invoices; to have an open establishment in Iloilo; itself to conduct the agency; to keep the beds on public exhibition, and to pay for the advertisement expenses for the same; and to order the beds by the dozen and in no

other manner. As may be seen, with the exception of the obligation on the part of the defendant to order the beds by the dozen and in no other manner, none of the obligations imputed to the defendant in the two causes of action are expressly set forth in the contract. But the plaintiff alleged that the defendant was his agent for the sale of his beds in Iloilo, and that said obligations are implied in a contract of commercial agency. The whole question, therefore, reduced itself to a determination as to whether the defendant, by reason of the contract hereinbefore transcribed, was a purchaser or an agent of the plaintiff for the sale of his beds. In order to classify a contract, due regard must be given to its essential clauses. In the contract in question, what was essential, as constituting its cause and subject matter, is that the plaintiff was to furnish the defendant with the beds which the latter might order, at the price stipulated, and that the defendant was to pay the price in the manner stipulated. The price agreed upon was the one determined by the plaintiff for the sale of these beds in Manila, with a discount of from 20 to 25 per cent, according to their class. Payment was to be made at the end of sixty days, or before, at the plaintiff's request, or in cash, if the defendant so preferred, and in these last two cases an additional discount was to be allowed for prompt payment. These are precisely the essential features of a contract of purchase and sale. There was the obligation on the part of the plaintiff to supply the beds, and, on the part of the defendant, to pay their price. These features exclude the legal conception of an agency or order to sell whereby the mandatory or agent received the thing to sell it, and does
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not pay its price, but delivers to the principal the price he obtains from the sale of the thing to a third person, and if he does not succeed in selling it, he returns it. By virtue of the contract between the plaintiff and the defendant, the latter, on receiving the beds, was necessarily obliged to pay their price within the term fixed, without any other consideration and regardless as to whether he had or had not sold the beds. It would be enough to hold, as we do, that the contract by and between the defendant and the plaintiff is one of purchase and sale, in order to show that it was not one made on the basis of a commission on sales, as the plaintiff claims it was, for these contracts are incompatible with each other. But, besides, examining the clauses of this contract, none of them is found that substantially supports the plaintiff's contention. Not a single one of these clauses necessarily conveys the idea of an agency. The words commission on sales used in clause (A) of article 1 mean nothing else, as stated in the contract itself, than a mere discount on the invoice price. The word agency, also used in articles 2 and 3, only expresses that the defendant was the only one that could sell the plaintiff's beds in the Visayan Islands. With regard to the remaining clauses, the least that can be said is that they are not incompatible with the contract of purchase and sale. The plaintiff calls attention to the testimony of Ernesto Vidal, a former vice-president of the defendant corporation and who established and managed the latter's business in Iloilo. It appears that this witness, prior to the time of his testimony, had serious trouble with the defendant, had

maintained a civil suit against it, and had even accused one of its partners, Guillermo Parsons, of falsification. He testified that it was he who drafted the contract Exhibit A, and, when questioned as to what was his purpose in contracting with the plaintiff, replied that it was to be an agent for his beds and to collect a commission on sales . However, according to the defendant's evidence, it was Mariano Lopez Santos, a director of the corporation, who prepared Exhibit A. But, even supposing that Ernesto Vidal has stated the truth, his statement as to what was his idea in contracting with the plaintiff is of no importance, inasmuch as the agreements contained in Exhibit A which he claims to have drafted, constitute, as we have said, a contract of purchase and sale, and not one of commercial agency. This only means that Ernesto Vidal was mistaken in his classification of the contract. But it must be understood that a contract is what the law defines it to be, and not what it is called by the contracting parties. The plaintiff also endeavored to prove that the defendant had returned beds that it could not sell; that, without previous notice, it forwarded to the defendant the beds that it wanted; and that the defendant received its commission for the beds sold by the plaintiff directly to persons in Iloilo. But all this, at the most only shows that, on the part of both of them, there was mutual tolerance in the performance of the contract in disregard of its terms; and it gives no right to have the contract considered, not as the parties stipulated it, but as they performed it. Only the acts of the contracting parties, subsequent to, and in connection with, the execution of the contract, must be considered for the purpose of interpreting the contract, when such
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interpretation is necessary, but not when, as in the instant case, its essential agreements are clearly set forth and plainly show that the contract belongs to a certain kind and not to another. Furthermore, the return made was of certain brass beds, and was not effected in exchange for the price paid for them, but was for other beds of another kind; and for the letter Exhibit L-1, requested the plaintiff's prior consent with respect to said beds, which shows that it was not considered that the defendant had a right, by virtue of the contract, to make this return. As regards the shipment of beds without previous notice, it is insinuated in the record that these brass beds were precisely the ones so shipped, and that, for this very reason, the plaintiff agreed to their return. And with respect to the so-called commissions, we have said that they merely constituted a discount on the invoice price, and the reason for applying this benefit to the beds sold directly by the plaintiff to persons in Iloilo was because, as the defendant obligated itself in the contract to incur the expenses of advertisement of the plaintiff's beds, such sales were to be considered as a result of that advertisement. In respect to the defendant's obligation to order by the dozen, the only one expressly imposed by the contract, the effect of its breach would only entitle the plaintiff to disregard the orders which the defendant might place under other conditions; but if the plaintiff consents to fill them, he waives his right and cannot complain for having acted thus at his own free will. For the foregoing reasons, we are of opinion that the contract by and between the plaintiff and the defendant

was one of purchase and sale, and that the obligations the breach of which is alleged as a cause of action are not imposed upon the defendant, either by agreement or by law. The judgment appealed from is affirmed, with costs against the appellant. So ordered. G.R. No. 111238 January 25, 1995 ADELFA PROPERTIES, INC., petitioner, vs. COURT OF APPEALS, ROSARIO JIMENEZCASTAEDA and SALUD JIMENEZ, respondents. REGALADO, J.: The main issues presented for resolution in this petition for review on certiorari of the judgment of respondent Court of appeals, dated April 6, 1993, in CA-G.R. CV No. 34767 1 are (1) whether of not the "Exclusive Option to Purchase" executed between petitioner Adelfa Properties, Inc. and private respondents Rosario Jimenez-Castaeda and Salud Jimenez is an option contract; and (2) whether or not there was a valid suspension of payment of the purchase price by said petitioner, and the legal effects thereof on the contractual relations of the parties. The records disclose the following antecedent facts which culminated in the present appellate review, to wit: 1. Herein private respondents and their brothers, Jose and Dominador Jimenez, were the registered co-owners of a
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parcel of land consisting of 17,710 square meters, covered by Transfer Certificate of Title (TCT) No. 309773, 2situated in Barrio Culasi, Las Pias, Metro Manila. 2. On July 28, 1988, Jose and Dominador Jimenez sold their share consisting of one-half of said parcel of land, specifically the eastern portion thereof, to herein petitioner pursuant to a "Kasulatan sa Bilihan ng Lupa." 3Subsequently, a "Confirmatory Extrajudicial Partition Agreement" 4 was executed by the Jimenezes, wherein the eastern portion of the subject lot, with an area of 8,855 square meters was adjudicated to Jose and Dominador Jimenez, while the western portion was allocated to herein private respondents. 3. Thereafter, herein petitioner expressed interest in buying the western portion of the property from private respondents. Accordingly, on November 25, 1989, an "Exclusive Option to Purchase" 5 was executed between petitioner and private respondents, under the following terms and conditions: 1. The selling price of said 8,655 square meters of the subject property is TWO MILLION EIGHT HUNDRED FIFTY SIX THOUSAND ONE HUNDRED FIFTY PESOS ONLY (P2,856,150.00) 2. The sum of P50,000.00 which we received from ADELFA PROPERTIES, INC. as an option money shall be credited as partial payment upon the consummation of the sale and the balance in the sum of TWO

MILLION EIGHT HUNDRED SIX THOUSAND ONE HUNDRED FIFTY PESOS (P2,806,150.00) to be paid on or before November 30, 1989; 3. In case of default on the part of ADELFA PROPERTIES, INC. to pay said balance in accordance with paragraph 2 hereof, this option shall be cancelled and 50% of the option money to be forfeited in our favor and we will refund the remaining 50% of said money upon the sale of said property to a third party; 4. All expenses including the corresponding capital gains tax, cost of documentary stamps are for the account of the VENDORS, and expenses for the registration of the deed of sale in the Registry of Deeds are for the account of ADELFA PROPERTIES, INC. Considering, however, that the owner's copy of the certificate of title issued to respondent Salud Jimenez had been lost, a petition for the re-issuance of a new owner's copy of said certificate of title was filed in court through Atty. Bayani L. Bernardo, who acted as private respondents' counsel. Eventually, a new owner's copy of the certificate of title was issued but it remained in the possession of Atty. Bernardo until he turned it over to petitioner Adelfa Properties, Inc. 4. Before petitioner could make payment, it received summons 6 on November 29, 1989, together with a copy of a complaint filed by the nephews and nieces of private
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respondents against the latter, Jose and Dominador Jimenez, and herein petitioner in the Regional Trial Court of Makati, docketed as Civil Case No. 89-5541, for annulment of the deed of sale in favor of Household Corporation and recovery of ownership of the property covered by TCT No. 309773. 7 5. As a consequence, in a letter dated November 29, 1989, petitioner informed private respondents that it would hold payment of the full purchase price and suggested that private respondents settle the case with their nephews and nieces, adding that ". . . if possible, although November 30, 1989 is a holiday, we will be waiting for you and said plaintiffs at our office up to 7:00 p.m." 8 Another letter of the same tenor and of even date was sent by petitioner to Jose and Dominador Jimenez. 9 Respondent Salud Jimenez refused to heed the suggestion of petitioner and attributed the suspension of payment of the purchase price to "lack of word of honor." 6. On December 7, 1989, petitioner caused to be annotated on the title of the lot its option contract with private respondents, and its contract of sale with Jose and Dominador Jimenez, as Entry No. 1437-4 and entry No. 1438-4, respectively. 7. On December 14, 1989, private respondents sent Francisca Jimenez to see Atty. Bernardo, in his capacity as petitioner's counsel, and to inform the latter that they were cancelling the transaction. In turn, Atty. Bernardo offered to pay the purchase price provided that P500,000.00 be deducted therefrom for the settlement of the civil case. This was rejected by private respondents. On December

22, 1989, Atty. Bernardo wrote private respondents on the same matter but this time reducing the amount from P500,000.00 to P300,000.00, and this was also rejected by the latter. 8. On February 23, 1990, the Regional Trial Court of Makati dismissed Civil Case No. 89-5541. Thus, on February 28, 1990, petitioner caused to be annotated anew on TCT No. 309773 the exclusive option to purchase as Entry No. 4442-4. 9. On the same day, February 28, 1990, private respondents executed a Deed of Conditional Sale 10 in favor of Emylene Chua over the same parcel of land for P3,029,250, of which P1,500,000.00 was paid to private respondents on said date, with the balance to be paid upon the transfer of title to the specified one-half portion. 10. On April 16, 1990, Atty. Bernardo wrote private respondents informing the latter that in view of the dismissal of the case against them, petitioner was willing to pay the purchase price, and he requested that the corresponding deed of absolute sale be executed. 11 This was ignored by private respondents. 11. On July 27, 1990, private respondents' counsel sent a letter to petitioner enclosing therein a check for P25,000.00 representing the refund of fifty percent of the option money paid under the exclusive option to purchase. Private respondents then requested petitioner to return the owner's duplicate copy of the certificate of title of respondent Salud Jimenez. 12 Petitioner failed to surrender the certificate of title, hence private respondents filed Civil Case No. 7532 in the Regional Trial Court of Pasay City, Branch 113, for
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annulment of contract with damages, praying, among others, that the exclusive option to purchase be declared null and void; that defendant, herein petitioner, be ordered to return the owner's duplicate certificate of title; and that the annotation of the option contract on TCT No. 309773 be cancelled. Emylene Chua, the subsequent purchaser of the lot, filed a complaint in intervention. 12. The trial court rendered judgment 13 therein on September 5, 1991 holding that the agreement entered into by the parties was merely an option contract, and declaring that the suspension of payment by herein petitioner constituted a counter-offer which, therefore, was tantamount to a rejection of the option. It likewise ruled that herein petitioner could not validly suspend payment in favor of private respondents on the ground that the vindicatory action filed by the latter's kin did not involve the western portion of the land covered by the contract between petitioner and private respondents, but the eastern portion thereof which was the subject of the sale between petitioner and the brothers Jose and Dominador Jimenez. The trial court then directed the cancellation of the exclusive option to purchase, declared the sale to intervenor Emylene Chua as valid and binding, and ordered petitioner to pay damages and attorney's fees to private respondents, with costs. 13. On appeal, respondent Court of appeals affirmed in toto the decision of the court a quo and held that the failure of petitioner to pay the purchase price within the period agreed upon was tantamount to an election by petitioner not to buy the property; that the suspension of payment

constituted an imposition of a condition which was actually a counter-offer amounting to a rejection of the option; and that Article 1590 of the Civil Code on suspension of payments applies only to a contract of sale or a contract to sell, but not to an option contract which it opined was the nature of the document subject of the case at bar. Said appellate court similarly upheld the validity of the deed of conditional sale executed by private respondents in favor of intervenor Emylene Chua. In the present petition, the following assignment of errors are raised: 1. Respondent court of appeals acted with grave abuse of discretion in making its finding that the agreement entered into by petitioner and private respondents was strictly an option contract; 2. Granting arguendo that the agreement was an option contract, respondent court of Appeals acted with grave abuse of discretion in grievously failing to consider that while the option period had not lapsed, private respondents could not unilaterally and prematurely terminate the option period; 3. Respondent Court of Appeals acted with grave abuse of discretion in failing to appreciate fully the attendant facts and circumstances when it made the conclusion of law that Article 1590 does not apply; and 4. Respondent Court of Appeals acted with grave abuse of discretion in conforming with the sale in favor of appellee Ma. Emylene Chua and the award of damages and attorney's fees which are not only excessive, but also
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without in fact and in law. 14 An analysis of the facts obtaining in this case, as well as the evidence presented by the parties, irresistibly leads to the conclusion that the agreement between the parties is a contract to sell, and not an option contract or a contract of sale. I 1. In view of the extended disquisition thereon by respondent court, it would be worthwhile at this juncture to briefly discourse on the rationale behind our treatment of the alleged option contract as a contract to sell, rather than a contract of sale. The distinction between the two is important for in contract of sale, the title passes to the vendee upon the delivery of the thing sold; whereas in a contract to sell, by agreement the ownership is reserved in the vendor and is not to pass until the full payment of the price. In a contract of sale, the vendor has lost and cannot recover ownership until and unless the contract is resolved or rescinded; whereas in a contract to sell, title is retained by the vendor until the full payment of the price, such payment being a positive suspensive condition and failure of which is not a breach but an event that prevents the obligation of the vendor to convey title from becoming effective. Thus, a deed of sale is considered absolute in nature where there is neither a stipulation in the deed that title to the property sold is reserved in the seller until the full payment of the price, nor one giving the vendor the right to unilaterally resolve the contract the moment the buyer fails to pay within a fixed period. 15 There are two features which convince us that the parties

never intended to transfer ownership to petitioner except upon the full payment of the purchase price. Firstly, the exclusive option to purchase, although it provided for automatic rescission of the contract and partial forfeiture of the amount already paid in case of default, does not mention that petitioner is obliged to return possession or ownership of the property as a consequence of nonpayment. There is no stipulation anent reversion or reconveyance of the property to herein private respondents in the event that petitioner does not comply with its obligation. With the absence of such a stipulation, although there is a provision on the remedies available to the parties in case of breach, it may legally be inferred that the parties never intended to transfer ownership to the petitioner to completion of payment of the purchase price. In effect, there was an implied agreement that ownership shall not pass to the purchaser until he had fully paid the price. Article 1478 of the civil code does not require that such a stipulation be expressly made. Consequently, an implied stipulation to that effect is considered valid and, therefore, binding and enforceable between the parties. It should be noted that under the law and jurisprudence, a contract which contains this kind of stipulation is considered a contract to sell. Moreover, that the parties really intended to execute a contract to sell, and not a contract of sale, is bolstered by the fact that the deed of absolute sale would have been issued only upon the payment of the balance of the purchase price, as may be gleaned from petitioner's letter dated April 16, 1990 16 wherein it informed private
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respondents that it "is now ready and willing to pay you simultaneously with the execution of the corresponding deed of absolute sale." Secondly, it has not been shown there was delivery of the property, actual or constructive, made to herein petitioner. The exclusive option to purchase is not contained in a public instrument the execution of which would have been considered equivalent to delivery. 17 Neither did petitioner take actual, physical possession of the property at any given time. It is true that after the reconstitution of private respondents' certificate of title, it remained in the possession of petitioner's counsel, Atty. Bayani L. Bernardo, who thereafter delivered the same to herein petitioner. Normally, under the law, such possession by the vendee is to be understood as a delivery. 18However, private respondents explained that there was really no intention on their part to deliver the title to herein petitioner with the purpose of transferring ownership to it. They claim that Atty. Bernardo had possession of the title only because he was their counsel in the petition for reconstitution. We have no reason not to believe this explanation of private respondents, aside from the fact that such contention was never refuted or contradicted by petitioner. 2. Irrefragably, the controverted document should legally be considered as a perfected contract to sell. On this particular point, therefore, we reject the position and ratiocination of respondent Court of Appeals which, while awarding the correct relief to private respondents, categorized the instrument as "strictly an option contract."

The important task in contract interpretation is always the ascertainment of the intention of the contracting parties and that task is, of course, to be discharged by looking to the words they used to project that intention in their contract, all the words not just a particular word or two, and words in context not words standing alone. 19Moreover, judging from the subsequent acts of the parties which will hereinafter be discussed, it is undeniable that the intention of the parties was to enter into a contract to sell. 20 In addition, the title of a contract does not necessarily determine its true nature. 21 Hence, the fact that the document under discussion is entitled "Exclusive Option to Purchase" is not controlling where the text thereof shows that it is a contract to sell. An option, as used in the law on sales, is a continuing offer or contract by which the owner stipulates with another that the latter shall have the right to buy the property at a fixed price within a certain time, or under, or in compliance with, certain terms and conditions, or which gives to the owner of the property the right to sell or demand a sale. It is also sometimes called an "unaccepted offer." An option is not of itself a purchase, but merely secures the privilege to buy. 22 It is not a sale of property but a sale of property but a sale of the right to purchase. 23 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 it is, the right or privilege to buy at the election or option of the other party. 24 Its distinguishing characteristic is that it imposes no binding obligation on the person
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holding the option, aside from the consideration for the offer. Until acceptance, it is not, properly speaking, a contract, and does not vest, transfer, or agree to transfer, any title to, or any interest or right in the subject matter, but is merely a contract by which the owner of property gives the optionee the right or privilege of accepting the offer and buying the property on certain terms. 25 On the other hand, a contract, like a contract to sell, involves a meeting of minds two persons whereby one binds himself, with respect to the other, to give something or to render some service. 26 Contracts, in general, are perfected by mere consent, 27 which is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. The offer must be certain and the acceptance absolute. 28 The distinction between an "option" and a contract of sale is that an option is an unaccepted offer. It states the terms and conditions on which the owner is willing to sell the land, if the holder elects to accept them within the time limited. If the holder does so elect, he must give notice to the other party, and the accepted offer thereupon becomes a valid and binding contract. If an acceptance is not made within the time fixed, the owner is no longer bound by his offer, and the option is at an end. A contract of sale, on the other hand, fixes definitely the relative rights and obligations of both parties at the time of its execution. The offer and the acceptance are concurrent, since the minds of the contracting parties meet in the terms of the agreement. 29 A perusal of the contract in this case, as well as the oral

and documentary evidence presented by the parties, readily shows that there is indeed a concurrence of petitioner's offer to buy and private respondents' acceptance thereof. The rule is that except where a formal acceptance is so required, although the acceptance must be affirmatively and clearly made and must be evidenced by some acts or conduct communicated to the offeror, it may be made either in a formal or an informal manner, and may be shown by acts, conduct, or words of the accepting party that clearly manifest a present intention or determination to accept the offer to buy or sell. Thus, acceptance may be shown by the acts, conduct, or words of a party recognizing the existence of the contract of sale. 30 The records also show that private respondents accepted the offer of petitioner to buy their property under the terms of their contract. At the time petitioner made its offer, private respondents suggested that their transfer certificate of title be first reconstituted, to which petitioner agreed. As a matter of fact, it was petitioner's counsel, Atty. Bayani L. Bernardo, who assisted private respondents in filing a petition for reconstitution. After the title was reconstituted, the parties agreed that petitioner would pay either in cash or manager's check the amount of P2,856,150.00 for the lot. Petitioner was supposed to pay the same on November 25, 1989, but it later offered to make a down payment of P50,000.00, with the balance of P2,806,150.00 to be paid on or before November 30, 1989. Private respondents agreed to the counter-offer made by petitioner. 31 As a result, the so-called exclusive option to purchase was prepared by petitioner and was subsequently signed by private respondents, thereby creating a perfected contract
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to sell between them. It cannot be gainsaid that the offer to buy a specific piece of land was definite and certain, while the acceptance thereof was absolute and without any condition or qualification. The agreement as to the object, the price of the property, and the terms of payment was clear and welldefined. No other significance could be given to such acts that than they were meant to finalize and perfect the transaction. The parties even went beyond the basic requirements of the law by stipulating that "all expenses including the corresponding capital gains tax, cost of documentary stamps are for the account of the vendors, and expenses for the registration of the deed of sale in the Registry of Deeds are for the account of Adelfa properties, Inc." Hence, there was nothing left to be done except the performance of the respective obligations of the parties. We do not subscribe to private respondents' submission, which was upheld by both the trial court and respondent court of appeals, that the offer of petitioner to deduct P500,000.00, (later reduced to P300,000.00) from the purchase price for the settlement of the civil case was tantamount to a counter-offer. It must be stressed that there already existed a perfected contract between the parties at the time the alleged counter-offer was made. Thus, any new offer by a party becomes binding only when it is accepted by the other. In the case of private respondents, they actually refused to concur in said offer of petitioner, by reason of which the original terms of the contract continued to be enforceable. At any rate, the same cannot be considered a counter-offer

for the simple reason that petitioner's sole purpose was to settle the civil case in order that it could already comply with its obligation. In fact, it was even indicative of a desire by petitioner to immediately comply therewith, except that it was being prevented from doing so because of the filing of the civil case which, it believed in good faith, rendered compliance improbable at that time. In addition, no inference can be drawn from that suggestion given by petitioner that it was totally abandoning the original contract. More importantly, it will be noted that the failure of petitioner to pay the balance of the purchase price within the agreed period was attributed by private respondents to "lack of word of honor" on the part of the former. The reason of "lack of word of honor" is to us a clear indication that private respondents considered petitioner already bound by its obligation to pay the balance of the consideration. In effect, private respondents were demanding or exacting fulfillment of the obligation from herein petitioner. with the arrival of the period agreed upon by the parties, petitioner was supposed to comply with the obligation incumbent upon it to perform, not merely to exercise an option or a right to buy the property. The obligation of petitioner on November 30, 1993 consisted of an obligation to give something, that is, the payment of the purchase price. The contract did not simply give petitioner the discretion to pay for the property. 32 It will be noted that there is nothing in the said contract to show that petitioner was merely given a certain period within which to exercise its privilege to buy. The agreed
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period was intended to give time to herein petitioner within which to fulfill and comply with its obligation, that is, to pay the balance of the purchase price. No evidence was presented by private respondents to prove otherwise. The test in determining whether a contract is a "contract of sale or purchase" or a mere "option" is whether or not the agreement could be specifically enforced. 33 There is no doubt that the obligation of petitioner to pay the purchase price is specific, definite and certain, and consequently binding and enforceable. Had private respondents chosen to enforce the contract, they could have specifically compelled petitioner to pay the balance of P2,806,150.00. This is distinctly made manifest in the contract itself as an integral stipulation, compliance with which could legally and definitely be demanded from petitioner as a consequence. This is not a case where no right is as yet created nor an obligation declared, as where something further remains to be done before the buyer and seller obligate themselves. 34 An agreement is only an "option" when no obligation rests on the party to make any payment except such as may be agreed on between the parties as consideration to support the option until he has made up his mind within the time specified. 35 An option, and not a contract to purchase, is effected by an agreement to sell real estate for payments to be made within specified time and providing forfeiture of money paid upon failure to make payment, where the purchaser does not agree to purchase, to make payment, or to bind himself in any way other than the forfeiture of the payments made. 36 As

hereinbefore discussed, this is not the situation obtaining in the case at bar. While there is jurisprudence to the effect that a contract which provides that the initial payment shall be totally forfeited in case of default in payment is to be considered as an option contract, 37 still we are not inclined to conform with the findings of respondent court and the court a quo that the contract executed between the parties is an option contract, for the reason that the parties were already contemplating the payment of the balance of the purchase price, and were not merely quoting an agreed value for the property. The term "balance," connotes a remainder or something remaining from the original total sum already agreed upon. In other words, the alleged option money of P50,000.00 was actually earnest money which was intended to form part of the purchase price. The amount of P50,000.00 was not distinct from the cause or consideration for the sale of the property, but was itself a part thereof. It is a statutory rule that whenever earnest money is given in a contract of sale, it shall be considered as part of the price and as proof of the perfection of the contract. 38 It constitutes an advance payment and must, therefore, be deducted from the total price. Also, earnest money is given by the buyer to the seller to bind the bargain. There are clear distinctions between earnest money and option money, viz.: (a) earnest money is part of the purchase price, while option money ids the money given as a distinct consideration for an option contract; (b) earnest money is given only where there is already a sale, while
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option money applies to a sale not yet perfected; and (c) when earnest money is given, the buyer is bound to pay the balance, while when the would-be buyer gives option money, he is not required to buy. 39 The aforequoted characteristics of earnest money are apparent in the so-called option contract under review, even though it was called "option money" by the parties. In addition, private respondents failed to show that the payment of the balance of the purchase price was only a condition precedent to the acceptance of the offer or to the exercise of the right to buy. On the contrary, it has been sufficiently established that such payment was but an element of the performance of petitioner's obligation under the contract to sell. 40 II 1. This brings us to the second issue as to whether or not there was valid suspension of payment of the purchase price by petitioner and the legal consequences thereof. To justify its failure to pay the purchase price within the agreed period, petitioner invokes Article 1590 of the civil Code which provides: Art. 1590. Should the vendee be disturbed in the possession or ownership of the thing acquired, or should he have reasonable grounds to fear such disturbance, by a vindicatory action or a foreclosure of mortgage, he may suspend the payment of the price until the vendor has caused the disturbance or danger to cease, unless the latter gives security for the return of the price

in a proper case, or it has been stipulated that, notwithstanding any such contingency, the vendee shall be bound to make the payment. A mere act of trespass shall not authorize the suspension of the payment of the price. Respondent court refused to apply the aforequoted provision of law on the erroneous assumption that the true agreement between the parties was a contract of option. As we have hereinbefore discussed, it was not an option contract but a perfected contract to sell. Verily, therefore, Article 1590 would properly apply. Both lower courts, however, are in accord that since Civil Case No. 89-5541 filed against the parties herein involved only the eastern half of the land subject of the deed of sale between petitioner and the Jimenez brothers, it did not, therefore, have any adverse effect on private respondents' title and ownership over the western half of the land which is covered by the contract subject of the present case. We have gone over the complaint for recovery of ownership filed in said case 41 and we are not persuaded by the factual findings made by said courts. At a glance, it is easily discernible that, although the complaint prayed for the annulment only of the contract of sale executed between petitioner and the Jimenez brothers, the same likewise prayed for the recovery of therein plaintiffs' share in that parcel of land specifically covered by TCT No. 309773. In other words, the plaintiffs therein were claiming to be co-owners of the entire parcel of land described in TCT No. 309773, and not only of a portion thereof nor, as incorrectly interpreted by the lower courts,
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did their claim pertain exclusively to the eastern half adjudicated to the Jimenez brothers. Such being the case, petitioner was justified in suspending payment of the balance of the purchase price by reason of the aforesaid vindicatory action filed against it. The assurance made by private respondents that petitioner did not have to worry about the case because it was pure and simple harassment 42 is not the kind of guaranty contemplated under the exceptive clause in Article 1590 wherein the vendor is bound to make payment even with the existence of a vindicatory action if the vendee should give a security for the return of the price. 2. Be that as it may, and the validity of the suspension of payment notwithstanding, we find and hold that private respondents may no longer be compelled to sell and deliver the subject property to petitioner for two reasons, that is, petitioner's failure to duly effect the consignation of the purchase price after the disturbance had ceased; and, secondarily, the fact that the contract to sell had been validly rescinded by private respondents. The records of this case reveal that as early as February 28, 1990 when petitioner caused its exclusive option to be annotated anew on the certificate of title, it already knew of the dismissal of civil Case No. 89-5541. However, it was only on April 16, 1990 that petitioner, through its counsel, wrote private respondents expressing its willingness to pay the balance of the purchase price upon the execution of the corresponding deed of absolute sale. At most, that was merely a notice to pay. There was no proper tender of payment nor consignation in this case as

required by law. The mere sending of a letter by the vendee expressing the intention to pay, without the accompanying payment, is not considered a valid tender of payment. 43 Besides, a mere tender of payment is not sufficient to compel private respondents to deliver the property and execute the deed of absolute sale. It is consignation which is essential in order to extinguish petitioner's obligation to pay the balance of the purchase price. 44 The rule is different in case of an option contract 45 or in legal redemption or in a sale with right to repurchase, 46 wherein consignation is not necessary because these cases involve an exercise of a right or privilege (to buy, redeem or repurchase) rather than the discharge of an obligation, hence tender of payment would be sufficient to preserve the right or privilege. This is because the provisions on consignation are not applicable when there is no obligation to pay. 47 A contract to sell, as in the case before us, involves the performance of an obligation, not merely the exercise of a privilege of a right. consequently, performance or payment may be effected not by tender of payment alone but by both tender and consignation. Furthermore, petitioner no longer had the right to suspend payment after the disturbance ceased with the dismissal of the civil case filed against it. Necessarily, therefore, its obligation to pay the balance again arose and resumed after it received notice of such dismissal. Unfortunately, petitioner failed to seasonably make payment, as in fact it has deposit the money with the trial court when this case
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was originally filed therein. By reason of petitioner's failure to comply with its obligation, private respondents elected to resort to and did announce the rescission of the contract through its letter to petitioner dated July 27, 1990. That written notice of rescission is deemed sufficient under the circumstances. Article 1592 of the Civil Code which requires rescission either by judicial action or notarial act is not applicable to a contract to sell. 48 Furthermore, judicial action for rescission of a contract is not necessary where the contract provides for automatic rescission in case of breach, 49 as in the contract involved in the present controversy. We are not unaware of the ruling in University of the Philippines vs. De los Angeles, etc . 50 that the right to rescind is not absolute, being ever subject to scrutiny and review by the proper court. It is our considered view, however, that this rule applies to a situation where the extrajudicial rescission is contested by the defaulting party. In other words, resolution of reciprocal contracts may be made extrajudicially unless successfully impugned in court. If the debtor impugns the declaration, it shall be subject to judicial determination 51 otherwise, if said party does not oppose it, the extrajudicial rescission shall have legal effect. 52 In the case at bar, it has been shown that although petitioner was duly furnished and did receive a written notice of rescission which specified the grounds therefore, it failed to reply thereto or protest against it. Its silence thereon suggests an admission of the veracity and validity of private respondents' claim. 53 Furthermore, the initiative

of instituting suit was transferred from the rescinder to the defaulter by virtue of the automatic rescission clause in the contract. 54 But then, the records bear out the fact that aside from the lackadaisical manner with which petitioner treated private respondents' latter of cancellation, it utterly failed to seriously seek redress from the court for the enforcement of its alleged rights under the contract. If private respondents had not taken the initiative of filing Civil Case No. 7532, evidently petitioner had no intention to take any legal action to compel specific performance from the former. By such cavalier disregard, it has been effectively estopped from seeking the affirmative relief it now desires but which it had theretofore disdained. WHEREFORE, on the foregoing modificatory premises, and considering that the same result has been reached by respondent Court of Appeals with respect to the relief awarded to private respondents by the court a quowhich we find to be correct, its assailed judgment in CA-G.R. CV No. 34767 is hereby AFFIRMED. SO ORDERED. G.R. No. L-25885 January 31, 1972 LUZON BROKERAGE CO., INC., plaintiff-appellee, vs. MARITIME BUILDING CO., INC., and MYERS BUILDING CO., INC., defendants, MARITIME BUILDING CO., INC., defendant-appellant. Ross, Salcedo, Del Rosario, Bito and Misa for plaintiffappellee.
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C. R. Tiongson and L. V. Simbulan and Araneta, Mendoza and Papa for defendant Myers Building Co., Inc. Ambrosio Padilla Law Offices for defendant-appellant Maritima Building Co., Inc. REYES, J.B.L., J.:p Direct appeal (prior to the effectivity of Republic Act 5440) by Maritime Building Co., Inc. from a decision of the Court of First Instance of Manila (in its Civil Case No. 47319), the dispositive part of which provides as follows: FOR ALL THE FOREGOING CONSIDERATIONS, judgment is hereby rendered declaring that the Myers Building Co., Inc. is entitled to receive the rentals which the plaintiff has been paying, including those already deposited in Court, thereby relieving the plaintiff of any obligation to pay the same to any other party, and ordering the Maritime Building Co., Inc. to pay the commission fees paid by the Myers Building Co., Inc. to the Clerk of this Court, plus the sum of P3,000.00 as and for attorney's fees. On the cross-claim by the Myers Building Co., Inc., the Maritima Building Co., Inc. is hereby ordered to pay the Myers Building Co., Inc. the sum of P10,000.00 damages, plus the sum of P30,000.00, representing rentals wrongfully collected by it from the plaintiff corresponding to the months of

March, April and May, 1961 and the costs hereof. The antecedents of the litigation are summarized in the appealed judgment thus: This is an action for interpleading. It appears that on April 30, 1949, in the City of Manila, the defendant Myers Building Co., Inc., owner of three parcels of land in the City of Manila, together with the improvements thereon, entered into a contract entitled "Deed of Conditional Sale" in favor of Bary Building Co., Inc., later known as Maritime Building Co., Inc., whereby the former sold the same to the latter for P1,000,000.00, Philippine currency. P50,000.00 of this price was paid upon the execution of the said contract and the parties agreed that the balance of P950,000.00 was to be paid in monthly installments at the rate of P10,000.00 with interest of 5% per annum until the same was fully paid. In Par. (O), they agreed that in case of failure on the part of the vendee to pay any of the installments due and payable, the contract shall be annulled at the option of the vendor and all payments already made by vendee shall be forfeited and the vendor shall have right to re-enter the property and take possession thereof.
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Later, the monthly installment of P10,000.00 above-stipulated with 5% interest per annum was amended or decreased to P5,000.00 per month and the interest was raised to 5-1/2% per annum. The monthly installments under the contract was regularly paid by the Bary Building Co., Inc. and/or the Maritime Co., Inc. until the end of February, 1961. It failed to pay the monthly installment corresponding to the month of March 1961, for which the Vice-President, George Schedler, of the Maritime Building Co., Inc., wrote a letter to the President of Myers, Mr. C. Parsons, requesting for a moratorium on the monthly payment of the installments until the end of the year 1961, for the reason that the said company was encountering difficulties in connection with the operation of the warehouse business. However, Mr. C. Parsons, in behalf of the Myers Estate, answered that the monthly payments due were not payable to the Myers Estate but to the Myers Building Co., Inc., and that the Board of Directors of the Myers Co., Inc. refused to grant the request for moratorium for suspension of payments under any condition. Notwithstanding the denial of this request for moratorium by the Myers Board of Directors the Maritime Building Co., Inc. failed to pay the monthly installments corresponding to the months of March, April and May, 1961.

Whereupon, on May 16, 1961, the Myers Building Co., Inc. made a demand upon the Maritime Building Co., Inc., for the payment of the installments that had become due and payable, which letter, however, was returned unclaimed. Then, on June 5, 1961, the Myers Building Co., Inc. wrote the Maritime Building Co., Inc. another letter advising it of the cancellation of the Deed of Conditional Sale entered into between them and demanding the return of the possession of the properties and holding the Maritime Building Co., Inc. liable for use and occupation of the said properties at P10,000.00 monthly. In the meantime, the Myers Building Co., Inc. demanded upon the Luzon Brokerage Co., Inc. to whom the Maritime Building Co., Inc. leased the properties, the payment of monthly rentals of P10,000.00 and the surrender of the same to it. As a consequence, the Luzon Brokerage Co., Inc. found itself in a payment to the wrong party, filed this action for interpleader against the Maritime Building Co., Inc. After the filing of this action, the Myers Building Co., Inc. in its answer filed a crossclaim against the Maritime Building Co., Inc. praying for the confirmation of its right to cancel the said contract. In the meantime, the
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contract between the Maritime Building Co., Inc. and the Luzon Brokerage Co., Inc. was extended by mutual agreement for a period of four (4) more years, from April, 1964 to March 31, 1968. The Maritime Building Co., Inc. now contends (1) that the Myers Building Co., Inc. cannot cancel the contract entered into by them for the conditional sale of the properties in question extrajudicially and (2) that it had not failed to pay the monthly installments due under the contract and, therefore, is not guilty of having violated the same. It should be further elucidated that the suspension by the appellant Maritime Building Co., Inc. (hereinafter called Maritime) of the payment of installments due from it to appellee Myers Building Co., Inc. (hereinafter designated as Myers Corporation) arose from an award of backwages made by the Court of Industrial Relations in favor of members of Luzon Labor Union who served the FilAmerican forces in Bataan in early 1942 at the instance of the employer Luzon Brokerage Co. and for which F. H. Myers, former majority stockholder of the Luzon Brokerage Co., had allegedly promised to indemnify E. M. Schedler (who controlled Maritime) when the latter purchased Myers' stock in the Brokerage Company. Schedler contended that he was being sued for the backpay award of some P325,000, when it was a liability of Myers, or of the latter's estate upon his death. In his letter to Myers Corporation (Exhibit "11", Maritime) dated 7 April 1961

(two months and ten days before the initial complaint in the case at bar), Schedler claimed the following: At all times when the F. H. Myers Estate was open in the Philippine Islands and open in San Francisco, the Myers Estate or heirs assumed the defense of the Labor Union claims and led us to believe that they would indemnify us therefrom. Recently, however, for the first time, and after both the Philippine and San Francisco F. H. Myers Estates were closed, we have been notified that the F. H. Myers indemnity on the Labor Union case will not be honored, and in fact Mrs. Schedler and I have been sued in the Philippines by my successor in interest, Mr. Wentholt, and have been put to considerable expense. You are advised that my wife and I, as the owners of the Maritime Building Company, intend to withhold any further payments to Myers Building Company or Estate, in order that we can preserve those funds and assets to set off against the potential liability to which I am now exposed by the failure of the Myers heirs to honor the indemnity agreement pertaining to the Labor claims. The trial court found the position of Schedler indefensible, and that Maritime, by its failure to pay, committed a breach of the sale contract; that Myers Company, from and after the breach, became entitled to terminate the contract, to
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forfeit the installments paid, as well as to repossess, and collect the rentals of, the building from its lessee, Luzon Brokerage Co., in view of the terms of the conditional contract of sale stipulating that: (d) It is hereby agreed, covenanted and stipulated by and between the parties hereto that the Vendor will execute and deliver to the Vendee a definite or absolute deed of sale upon the full payment by the vendee of the unpaid balance of the purchase price hereinabove stipulated; that should the Vendee fail to pay any of the monthly installments, when due, or otherwise fail to comply with any of the terms and conditions herein stipulated, then this Deed of Conditional Sale shall automatically and without any further formality, become null and void, and all sums so paid by the Vendee by reason thereof, shall be considered as rentals and the Vendor shall then and there be free to enter into the premises, take possession thereof or sell the properties to any other party. xxx xxx xxx (o) In case the Vendee fails to make payment or payments, or any part thereof, as herein provided, or fails to perform any of the covenants or agreements hereof, this contract shall, at the option of the Vendor, be annulled and, in such event, all payments made by the

Vendee to the Vendor by virtue of this contract shall be forfeited and retained by the Vendor in full satisfaction of the liquidated damages by said Vendor sustained; and the said Vendor shall have the right to forthwith re-enter, and take possession of, the premises subject-matter of this contract. "The remedy of forfeiture stated in the nextpreceding paragraph shall not be exclusive of any other remedy, but the Vendor shall have every other remedy granted it by virtue of this contract, by law, and by equity." From the judgment of the court below, the dispositive portion whereof has been transcribed at the start of this opinion, Myers duly appealed to this Court. The main issue posed by appellant is that there has been no breach of contract by Maritime; and assuming that there was one, that the appellee Myers was not entitled to rescind or resolve the contract without recoursing to judicial process. It is difficult to understand how appellant Maritime can seriously contend that its failure or refusal to pay the P5,000 monthly installments corresponding to the months of March, April and May, 1961 did not constitute a breach of contract with Myers, when said agreement (transcribed in the Record on Appeal, pages 59-71) expressly stipulated that the balance of the purchase price (P950,000) shall be paid at the rate of Ten Thousand Pesos (P10,000) monthly on or before the
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10th day of each month with interest at 5% per annum, this amount to be first applied on the interest, and the balance paid to the principal thereof; and the failure to pay any installment or interest when due shall ipso facto cause the whole unpaid balance of the principal and interest to be and become immediately due and payable. (Contract, paragraph b; Record on Appeal, page 63) Contrary to appellant Maritime's averments, the default was not made in good faith. The text of the letter to Myers (Exhibit "11", Maritime), heretofore quoted, leaves no doubt that the non-payment of the installments was the result of a deliberate course of action on the part of appellant, designed to coerce the appellee Myers Corporation into answering for an alleged promise of the late F. H. MYERS to indemnify E. W. Schedler, the controlling stock-holder of appellant, for any payments to be made to the members of the Luzon Labor Union. This is apparent also from appellant's letter to his counsel (Exhibit "12", Maritime): ... I do not wish to deposit pesos representing the months of March, April and May, since the Myers refusal to honor the indemnity concerning the labor claims has caused me to disburse (sic) roughly $10,000.00 to date in fees, cost and travel expenses. However, if the Myers people will deposit in trust with Mr. C. Parsons 25,000 pesos to cover my costs to date, I will then deposit with Mr. Parsons, in

trust, 15,000 pesos for March, April and May and will also post a monthly deposit of 5,000 pesos until the dispute is settled. The dispute won't be settled in my mind, unless and until: a) The Myers people indemnify me fully the labor cases; b) The labor cases are terminated favorably to Luzon Brokerage and no liability exists; c) The Myers people pay any judgment entered on the labor cases thereby releasing me; or d) It is finally determined either in San Francisco or in the Philippines by a court that the Myers heirs must honor the indemnity which Mr. F. H. Myers promised when I purchased Luzon Brokerage Company. Yet appellant Maritime (assuming that it had validly acquired the claims of its president and controlling stockholder, E. M. Schedler) could not ignore the fact that whatever obligation F. H. Myers or his estate had assumed in favor of Schedler with respect to the Luzon Brokerage labor case was not, and could not have been, an obligation of appellee corporation (Myers Building Company). No proof exists that the board of directors of the Myers Corporation had agreed to assume responsibility for the debts (if any) that the late Myers or his heirs had incurred in favor of Schedler. Not only this, but it is apparent from the letters quoted heretofore that Schedler had allowed the estate proceedings of the late F. M. Myers to close without
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providing for any contingent liability in Schedler's favor; so that by offsetting the alleged debt of Myers to him, against the balance of the price due under the "Deed of Conditional Sale", appellant Maritime was in fact attempting to burden the Myers Building Company with an uncollectible debt, since enforcement thereof against the estate of F. H. Myers was already barred. Under the circumstances, the action of Maritime in suspending payments to Myers Corporation was a breach of contract tainted with fraud or malice ( dolo), as distinguished from mere negligence ( culpa), "dolo" being succinctly defined as a "conscious and intentional design to evade the normal fulfillment of existing obligations" (Capistrano, Civil Code of the Philippines, Vol. 3, page 38), and therefore incompatible with good faith (Castan, Derecho Civil, 7th Ed., Vol. 3, page 129; Diaz Pairo, Teoria de Obligaciones, Vol. 1, page 116). Maritime having acted in bad faith, it was not entitled to ask the court to give it further time to make payment and thereby erase the default or breach that it had deliberately incurred. Thus the lower court committed no error in refusing to extend the periods for payment. To do otherwise would be to sanction a deliberate and reiterated infringement of the contractual obligations incurred by Maritime, an attitude repugnant to the stability and obligatory force of contracts. From another point of view, it is irrelevant whether appellant Maritime's infringement of its contract was casual or serious, for as pointed out by this Court in Manuel vs. Rodriguez, 109 Phil. 1, at page 10

The contention of plaintiff-appellant that Payatas Subdivision Inc. had no right to cancel the contract as there was only a "casual breach" is likewise untenable. In contracts to sell, where ownership is retained by the seller and is not to pass until the full payment of the price, such payment, as we said, is a positive suspensive condition, the failure of which is not a breach, casual or serious, but simply an event that prevented the obligation of the vendor to convey title from acquiring binding force, in accordance with Article 1117 of the Old Civil Code. To argue that there was only a casual breach is to proceed from the assumption that the contract is one of absolute sale, where non-payment is a resolutory condition, which is not the case. But it is argued for Maritime that even if it had really violated the Contract of Conditional Sale with Myers, the latter could not extrajudicially rescind or resolve the contract, but must first recourse to the courts. While recognizing that paragraph (d) of the deed of conditional sale expressly provides inter alia that should the Vendee fail to pay any of the monthly installments when due, or otherwise fail to comply with any of the terms and conditions herein stipulated, then this Deed of Conditional Saleshall automatically and without any further formality, become null and void, and
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all sums so paid by the Vendee by reason thereof shall be considered as rentals.. (Emphasis supplied) herein appellant Maritime avers that paragraph (e) of the deed contemplates that a suit should be brought in court for a judicial declaration of rescission. The paragraph relied upon by Maritime is couched in the following, terms: (e) It is also hereby agreed, covenanted and stipulated by and between the parties hereto that should the Vendor rescind this Deed of Conditional Sale, for any of the reasons stipulated in the preceding paragraph, the Vendee by these presents obligates itself to peacefully deliver the properties subject of this contract to the Vendor, and in the event that the Vendee refuses to peacefully deliver the possession of the properties subject of this contract to the Vendor in case of rescission, and a suit should be brought in court by the Vendor to seek judicial declaration of rescission and take possession of the properties subject of this contract, the Vendee hereby obligates itself to pay all the expenses to be incurred by reason of such suit and in addition obligates itself to pay the sum of P10,000.00, in concept of damages, penalty and attorney's fees. Correlation of this paragraph (e) with the preceding paragraph (d) of the Deed of Conditional Sale (quoted in page 5 of this opinion) reveals no incompatibility between

the two; and the suit to "be brought in Court by the Vendor to seek judicial declaration of rescission" is provided for by paragraph(e) only in the eventuality that, notwithstanding the automatic annulment of the deed under paragraph (d), the Vendee "refuses to peacefully deliver the possession of the properties subject of this contract". The step contemplated is logical since the Vendor can not, by himself, dispossess the Vendee manu militari, if the latter should refuse to vacate despite the violation of the contract, since no party can take the law in his own hands. But the bringing of such an action in no way contradicts or restricts the automatic termination of the contract in case the Vendee (i.e., appellant Maritime) should not comply with the agreement. Anyway, this Court has repeatedly held that
Well settled is, however, the rule that a judicial action for the rescission of a contract is not necessary where the contract provides that it may be revoked and cancelled for violation of any of its terms and conditions" (Lopez vs. Commissioner of Customs, L-28235, 30 January 1971, 37 SCRA 327, 334,, and cases cited therein). 1 (Emphasis supplied.)

Resort to judicial action for rescission is obviously not contemplated.... The validity of the stipulation can not be seriously disputed. It is in the nature of a facultative resolutory condition which in many cases has been upheld by this Court. (Ponce Enrile vs. Court of Appeals, L-27549, 30 Sept. 1969; 29
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SCRA 504). The obvious remedy of the party opposing the rescission for any reason being to file the corresponding action to question the rescission and enforce the agreement, as indicated in our decision in University of the Philippines vs. Walfrido de los Angeles , L-28602, 29 September 1970, 35 SCRA 107. Of course, it must be understood that the act of a party in treating a contract as cancelled or resolved on account of infractions by the other contracting party must be made known to the other and is always provisional, being ever subject to scrutiny and review by the proper court. If the other party denies that rescission is justified, it is free to resort to judicial action in its own behalf, and bring the matter to court. Then, should the court, after due hearing, decide that the resolution of the contract was not warranted, the responsible party will be sentenced to damages; in the contrary case, the resolution will be affirmed, and the consequent indemnity awarded to the party prejudiced. In other words, the party who deems the contract violated may consider it resolved or rescinded, and act accordingly, without previous court action, but it proceeds at its own risk. For it is only the final judgment of the corresponding court that will conclusively and finally settle whether the action taken was

or was not correct in law. But the law definitely does not require that the contracting party who believes itself injured must first file suit and wait for a judgment before taking extrajudicial steps to protect its interest. Otherwise, the party injured by the other's breach will have to passively sit and watch its damages accumulate during the pendency of the suit until the final judgment of rescission is rendered when the law itself requires that he should exercise due diligence to minimize its own damages (Civil Code, Article 2203). Maritime likewise invokes Article 1592 of the Civil Code of the Philippines as entitling it to pay despite its default: ART. 1592. In the sale of immovable property, even though it may have been stipulated that upon failure to pay the price at the time agreed upon the rescission of the contract shall of right take place, the vendee may pay, even after the expiration of the period, as long as no demand for rescission of the contract has been made upon him either judicially or by a notarial act. After the demand, the court may not grant him a new term. Assuming arguendo that Article 1592 is applicable, the cross-claim filed by Myers against Maritime in the court below constituted a judicial demand for rescission that satisfies the requirements of said article. But even if it were not so, appellant overlooks that its
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contract with appellee Myers is not the ordinary sale envisaged by Article 1592, transferring ownership simultaneously with the delivery of the real property sold, but one in which the vendor retained ownership of the immovable object of the sale, merely undertaking to convey it provided the buyer strictly complied with the terms of the contract (see paragraph [d], ante, page 5). In suing to recover possession of the building from Maritime, appellee Myers is not after the resolution or setting aside of the contract and the restoration of the parties to the status quo ante, as contemplated by Article 1592, but precisely enforcing the provisions of the agreement that it is no longer obligated to part with the ownership or possession of the property because Maritime failed to comply with the specified condition precedent, which is to pay the installments as they fell due. The distinction between contracts of sale and contract to sell with reserved title has been recognized by this Court in repeated decisions 2 upholding the power of promisors under contracts to sell in case of failure of the other party to complete payment, to extrajudicially terminate the operation of the contract, refuse conveyance and retain the sums or installments already received, where such rights are expressly provided for, as in the case at bar. Maritime's appeal that it would be iniquituous that it should be compelled to forfeit the P973,000 already paid to Myers, as a result of its failure to make good a balance of only P319,300.65, payable at P5,000 monthly, becomes unimpressive when it is considered that while obligated to pay the price of one million pesos at P5,000 monthly, plus

interest, Maritime, on the other hand, had leased the building to Luzon Brokerage, Inc. since 1949; and Luzon paid P13,000 a month rent, from September, 1951 to August 1956, and thereafter until 1961, at P10,000 a month, thus paying a total of around one and a half million pesos in rentals to Maritime. Even adding to Maritime's losses of P973,000 the P10,000 damages and P3,000 attorneys' fees awarded by the trial court, it is undeniable that appellant Maritime has come out of the entire transaction still at a profit to itself. There remains the procedural objection raised by appellant Maritime to this interpleader action filed by the Luzon Brokerage Co., the lessee of the building conditionally sold by Myers to Maritime. It should be recalled that when Maritime defaulted in its payments to Myers, and the latter notified the former that it was cancelling the contract of conditional sale, Myers also notified Luzon Brokerage, Maritime's lessee of the building, of the cancellation of the sale, and demanded that Luzon should pay to Myers the rentals of the building beginning from June, 1961, under penalty of ejectment (Record on Appeal, pages 14-15). In doubt as to who was entitled to the rentals, Luzon filed this action for interpleader against Myers and Maritime, and deposited the rentals in court as they fell due. The appellant Maritime moved to dismiss on the ground that (a) Luzon could not entertain doubts as to whom the rentals should be paid since Luzon had leased the building from Maritime since 1949, renewing the contract from time to time, and Myers had no right to cancel the lease; and (b) that Luzon was not a disinterested party, since it tended to favor appellee Myers. The court below overruled
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Maritime's objections and We see no plausible reason to overturn the order. While Myers was not a party to the lease, its cancellation of the conditional sale of the premises to Maritime, Luzon's lessor, could not but raise reasonable doubts as to the continuation of the lease, for the termination of the lessor's right of possession of the premises necessarily ended its right to the rentals falling due thereafter. The preceding portion of our opinion is conclusive that Luzon's doubts were grounded under the law and the jurisprudence of this Court. No adequate proof exists that Luzon was favoring any one of the contending parties. It was interested in being protected against prejudice deriving from the result of the controversy, regardless of who should win. For the purpose it was simpler for Luzon to compel the disputants to litigate between themselves, rather than chance being sued by Myers, and later being compelled to proceed against Maritime to recoup its losses. In any event, Maritime ultimately confirmed the act of Luzon in suing for interpleader, by agreeing to renew Luzon's lease in 1963 during the pendency of the present action, and authorizing Luzon to continue depositing the rentals in court "until otherwise directed by a court of competent jurisdiction" (Exhibit "18-Maritime"). The procedural objection has thus become moot. PREMISES CONSIDERED, the appealed decision should be, and hereby is, affirmed, and appellant Maritime Building Co., as well as appellee Luzon Brokerage Co., are further ordered to surrender the premises to the appellee Myers Building Co. Costs against appellant.

G.R. No. 52267 January 24, 1996 ENGINEERING & MACHINERY CORPORATION, petitioner, vs. COURT OF APPEALS and PONCIANO L. ALMEDA, respondent. DECISION PANGANIBAN, J.: Is a contract for the fabrication and installation of a central air-conditioning system in a building, one of "sale" or "for a piece of work"? What is the prescriptive period for filing actions for breach of the terms of such contract? These are the legal questions brought before this Court in this Petition for review on certiorari under Rule 45 of the Rules of Court, to set aside the Decision 1 of the Court of Appeals2 in CA-G.R. No. 58276-R promulgated on November 28, 1978 (affirming in toto the decision3 dated April 15, 1974 of the then Court of First Instance of Rizal, Branch II4 , in Civil Case No. 14712, which ordered petitioner to pay private respondent the amount needed to rectify the faults and deficiencies of the air-conditioning system installed by petitioner in private respondent's building, plus damages, attorney's fees and costs). By a resolution of the First Division of this Court dated November 13, 1995, this case was transferred to the Third. After deliberating on the various submissions of the parties, including the petition, record on appeal, private respondent's comment and briefs for the petitioner and the private respondent, the Court assigned the writing of this
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Decision to the undersigned, who took his oath as a member of the Court on October 10, 1995. The Facts Pursuant to the contract dated September 10, 1962 between petitioner and private respondent, the former undertook to fabricate, furnish and install the air-conditioning system in the latter's building along Buendia Avenue, Makati in consideration of P210,000.00. Petitioner was to furnish the materials, labor, tools and all services required in order to so fabricate and install said system. The system was completed in 1963 and accepted by private respondent, who paid in full the contract price. On September 2, 1965, private respondent sold the building to the National Investment and Development Corporation (NIDC). The latter took possession of the building but on account of NIDC's noncompliance with the terms and conditions of the deed of sale, private respondent was able to secure judicial rescission thereof. The ownership of the building having been decreed back to private respondent, he re-acquired possession sometime in 1971. It was then that he learned from some NIDC, employees of the defects of the air-conditioning system of the building. Acting on this information, private respondent commissioned Engineer David R. Sapico to render a technical evaluation of the system in relation to the contract with petitioner. In his report, Sapico enumerated the defects of the system and concluded that it was "not capable of maintaining the desired room temperature of 76F - 2F (Exhibit C)"5 .

On the basis of this report, private respondent filed on May 8, 1971 an action for damages against petitioner with the then Court of First Instance of Rizal (Civil Case No. 14712). The complaint alleged that the air-conditioning system installed by petitioner did not comply with the agreed plans and specifications. Hence, private respondent prayed for the amount of P210,000.00 representing the rectification cost, P100,000.00 as damages and P15,000.00 as attorney's fees. Petitioner moved to dismiss the complaint, alleging that the prescriptive period of six months had set in pursuant to Articles 1566 and 1567, in relation to Article 1571 of the Civil Code, regarding the responsibility of a vendor for any hidden faults or defects in the thing sold. Private respondent countered that the contract dated September 10, 1962 was not a contract for sale but a contract for a piece of work under Article 1713 of the Civil Code. Thus, in accordance with Article 1144 (1) of the same Code, the complaint was timely brought within the ten-year prescriptive period. In its reply, petitioner argued that Article 1571 of the Civil Code providing for a six-month prescriptive period is applicable to a contract for a piece of work by virtue of Article 1714, which provides that such a contract shall be governed by the pertinent provisions on warranty of title and against hidden defects and the payment of price in a contract of sale6 . The trial court denied the motion to dismiss. In its answer to the complaint, petitioner reiterated its claim of prescription as an affirmative defense. It alleged that
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whatever defects might have been discovered in the airconditioning system could have been caused by a variety of factors, including ordinary wear and tear and lack of proper and regular maintenance. It pointed out that during the one-year period that private respondent withheld final payment, the system was subjected to "very rigid inspection and testing and corrections or modifications effected" by petitioner. It interposed a compulsory counterclaim suggesting that the complaint was filed "to offset the adverse effects" of the judgment in Civil Case No. 71494, Court of First Instance of Manila, involving the same parties, wherein private respondent was adjudged to pay petitioner the balance of the unpaid contract price for the air-conditioning system installed in another building of private respondent, amounting to P138,482.25. Thereafter, private respondent filed an ex-parte motion for preliminary attachment on the strength of petitioner's own statement to the effect that it had sold its business and was no longer doing business in Manila. The trial court granted the motion and, upon private respondent's posting of a bond of F'50,000.00, ordered the issuance of a writ of attachment. In due course, the trial court rendered a decision finding that petitioner failed to install certain parts and accessories called for by the contract, and deviated from the plans of the system, thus reducing its operational effectiveness to the extent that 35 window-type units had to be installed in the building to achieve a fairly desirable room temperature. On the question of prescription, the trial court ruled that the complaint was filed within the ten-year court

prescriptive period although the contract was one for a piece of work, because it involved the "installation of an air-conditioning system which the defendant itself manufactured, fabricated, designed and installed." Petitioner appealed to the Court of Appeals, which affirmed the decision of the trial court. Hence, it instituted the instant petition. The Submissions of the Parties In the instant Petition, petitioner raised three issues. First, it contended that private respondent's acceptance of the work and his payment of the contract price extinguished any liability with respect to the defects in the airconditioning system. Second, it claimed that the Court of Appeals erred when it held that the defects in the installation were not apparent at the time of delivery and acceptance of the work considering that private respondent was not an expert who could recognize such defects. Third, it insisted that, assuming arguendo that there were indeed hidden defects, private respondent's complaint was barred by prescription under Article 1571 of the Civil Code, which provides for a six-month prescriptive period. Private respondent, on the other hand, averred that the issues raised by petitioner, like the question of whether there was an acceptance of the work by the owner and whether the hidden defects in the installation could have been discovered by simple inspection, involve questions of fact which have been passed upon by the appellate court. The Court's Ruling The Supreme Court reviews only errors of law in petitions
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for review on certiorari under Rule 45. It is not the function of this Court to re-examine the findings of fact of the appellate court unless said findings are not supported by the evidence on record or the judgment is based on a misapprehension of facts7 of Appeals erred when it held that the defects in the installation were not apparent at the time of delivery and acceptance of the work considering that private respondent was not an expert who could recognize such defects. Third. it insisted that, assuming arguendo that there were indeed hidden defects, private respondent's complaint was barred by prescription under Article 1571 of the Civil Code, which provides for a six-month prescriptive period. Private respondent, on the other hand, averred that the issues raised by petitioner, like the question of whether here was an acceptance of the work by the owner and whether the hidden defects in the installation could have been discovered by simple inspection, involve questions of fact which have been passed upon by the appellate court. The Court has consistently held that the factual findings of the trial court, as well as the Court of Appeals, are final and conclusive and may not be reviewed on appeal. Among the exceptional circumstances where a reassessment of facts found by the lower courts is allowed are when the conclusion is a finding grounded entirely on speculation, surmises or conjectures; when the inference made is manifestly absurd, mistaken or impossible; when there is grave abuse of discretion in the appreciation of facts; when the judgment is

premised on a misapprehension of facts; when the findings went beyond the issues of the case and the same are contrary to the admissions of both appellant and appellee. After a careful study of the case at bench, we find none of the above grounds present to justify the re-evaluation of the findings of fact made by the courts below.8 We see no valid reason to discard the factual conclusions of the appellate court. . . . (I)t is not the function of this Court to assess and evaluate all over again the evidence, testimonial and documentary, adduced by the parties, particularly where, such as here, the findings of both the trial court and the appellate court on the matter coincide .9 (Emphasis supplied) Hence, the first two issues will not be resolved as they raise questions of fact. Thus, the only question left to be resolved is that of prescription. In their submissions, the parties argued lengthily on the nature of the contract entered into by them, viz., whether it was one of sale or for a piece of work. Article 1713 of the Civil Code defines a contract for a piece of work thus: By the contract for a piece of work the contractor binds himself to execute a piece of work for the employer, in consideration of a certain price or compensation. The contractor may either employ only his labor or skill, or also furnish the material.
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A contract for a piece of work, labor and materials may be distinguished from a contract of sale by the inquiry as to whether the thing transferred is one not in existence and which would never have existed but for the order, of the person desiring it10 . In such case, the contract is one for a piece of work, not a sale. On the other hand, if the thing subject of the contract would have existed and been the subject of a sale to some other person even if the order had not been given, then the contract is one of sale 11 . Thus, Mr. Justice Vitug12 explains that A contract for the delivery at a certain price of an article which the vendor in the ordinary course of his business manufactures or procures for the general market, whether the same is on hand at the time or not is a contract of sale, but if the goods are to be manufactured specially for the customer and upon his special order, and not for the general market, it is a contract for a piece of work (Art. 1467, Civil Code). The mere fact alone that certain articles are made upon previous orders of customers will not argue against the imposition of the sales tax if such articles are ordinarily manufactured by the taxpayer for sale to the public (Celestino Co. vs. Collector, 99 Phil. 841). To Tolentino, the distinction between the two contracts depends on the intention of the parties. Thus, if the parties intended that at some future date an object has to be delivered, without considering the work or labor of the party bound to deliver, the contract is one of sale. But if one of the parties accepts the undertaking on the basis of

some plan, taking into account the work he will employ personally or through another, there is a contract for a piece of work13 . Clearly, the contract in question is one for a piece of work. It is not petitioner's line of business to manufacture airconditioning systems to be sold "off-the-shelf." Its business and particular field of expertise is the fabrication and installation of such systems as ordered by customers and in accordance with the particular plans and specifications provided by the customers. Naturally, the price or compensation for the system manufactured and installed will depend greatly on the particular plans and specifications agreed upon with the customers. The obligations of a contractor for a piece of work are set forth in Articles 1714 and 1715 of the Civil Code, which provide: Art. 1714. If the contractor agrees to produce the work from material furnished by him, he shall deliver the thing produced to the employer and transfer dominion over the thing. This contract shall be governed by the following articles as well as by the pertinent provisions on warranty of title and against hidden defects and the payment of price in a contract of sale. Art. 1715. The contractor shall execute the work in such a manner that it has the qualities agreed upon and has no defects which destroy or lessen its value or fitness for its ordinary or stipulated use. Should the work be not of such quality, the employer may require that the contractor remove the defect or
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execute another work. If the contractor fails or refuses to comply with this obligation, the employer may have the defect removed or another work executed, at the contractor's cost. The provisions on warranty against hidden defects, referred to in Art. 1714 above-quoted, are found in Articles 1561 and 1566, which read as follows: Art. 1561. The vendor shall be responsible for warranty against the hidden defects which the thing sold may have, should they render it unfit for the use for which it is intended, or should they diminish its fitness for such use to such an extent that, had the vendee been aware thereof, he would not have acquired it or would have given a lower price for it; but said vendor shall not be answerable for patent defects or those which may be visible, or for those which are not visible if the vendee is an expert who, by reason of his trade or profession, should have known them. xxx xxx xxx Art. 1566. The vendor is responsible to the vendee for any hidden faults or defects in the thing sold, even though he was not aware thereof. This provision shall not apply if the contrary has been stipulated, and the vendor was not aware of the hidden faults or defects in the thing sold. The remedy against violations of the warranty against hidden defects is either to withdraw from the contract (redhibitory action) or to demand a proportionate reduction

of the price (accion quanti manoris), with damages in either case14 . In Villostas vs. Court of Appeals15 , we held that, "while it is true that Article 1571 of the Civil Code provides for a prescriptive period of six months for a redhibitory action, a cursory reading of the ten preceding articles to which it refers will reveal that said rule may be applied only in case of implied warranties"; and where there is an express warranty in the contract, as in the case at bench, the prescriptive period is the one specified in the express warranty, and in the absence of such period, "the general rule on rescission of contract, which is four years (Article 1389, Civil Code) shall apply"16 . Consistent with the above discussion, it would appear that this suit is barred by prescription because the complaint was filed more than four years after the execution of the contract and the completion of the air-conditioning system. However, a close scrutiny of the complaint filed in the trial court reveals that the original action is not really for enforcement of the warranties against hidden defects, but one for breach of the contract itself. It alleged 17 that the petitioner, "in the installation of the air conditioning system did not comply with the specifications provided" in the written agreement between the parties, "and an evaluation of the air-conditioning system as installed by the defendant showed the following defects and violations of the specifications of the agreement, to wit: GROUND FLOOR: "A. RIGHT WING:
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Equipped with Worthington Compressor, Model 2VC4 directly driven by an Hp Elin electric motor 1750 rmp, 3 phase, 60 cycles, 220 volts, complete with starter evaporative condenser, circulating water pump, air handling unit air ducts. Defects Noted: 1. Deteriorated evaporative condenser panels, coils are full of scales and heavy corrosion is very evident. 2. Defective gauges of compressors; 3. No belt guard on motor; 4. Main switch has no cover; 5. Desired room temperature not attained; Aside from the above defects, the following were noted not installed although provided in the specifications. 1. Face by-pass damper of G.I. sheets No. 16. This damper regulates the flow of cooled air depending on room condition. 2. No fresh air intake provision were provided which is very necessary for efficient comfort cooling.. 3. No motor to regulate the face and by-pass damper. 4. Liquid level indicator for refrigerant not provided. 5. Suitable heat exchanger is not installed. This is an

important component to increase refrigeration efficiency. 6. Modulating thermostat not provided. 7. Water treatment device for evaporative condenser was not provided. 8. Liquid receiver not provided by sight glass. B. LEFT WING: Worthington Compressor Model 2VC4 is installed complete with 15 Hp electric motor, 3 phase, 220 volts 60 cycles with starter. Defects Noted: Same as right wing. except No. 4, All other defects on right wing are common to the left wing. SECOND FLOOR: (Common up to EIGHT FLOORS) Compressors installed are MELCO with 7.5 Hp Vbelt driven by 1800 RPM, -220 volts, 60 cycles, 3 phase, Thrige electric motor with starters. As stated in the specifications under, Section No. IV, the MELCO compressors do not satisfy the conditions stated therein due to the following: 1. MELCO Compressors are not provided with automatic capacity unloader. 2. Not provided with oil pressure safety control. 3. Particular compressors do not have provision for renewal sleeves.
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Out of the total 15 MELCO compressors installed to serve the 2nd floor up to 8th floors, only six (6) units are in operation and the rest were already replaced. Of the remaining six (6) units, several of them have been replaced with bigger crankshafts. NINTH FLOOR: Two (2) Worthington 2VC4 driven by 15 Hp, 3 phase, 220 volts, 60 cycles, 1750 rpm, Higgs motors with starters. Defects Noted are similar to ground floor. GENERAL REMARKS: Under Section III, Design conditions of specification for air conditioning work, and taking into account "A" & "B" same, the present systems are not capable of maintaining the desired temperature of 76 = 2F (sic). The present tenant have installed 35 window type air conditioning units distributed among the different floor levels. Temperature measurements conducted on March 29. 1971, revealed that 78F room ( sic) is only maintained due to the additional window type units. The trial court, after evaluating the evidence presented, held that, indeed, petitioner failed to install items and parts required in the contract and substituted some other items which were not in accordance with the specifications 18 , thus: From all of the foregoing, the Court is persuaded to

believe the plaintiff that not only had the defendant failed to install items and parts provided for in the specifications of the air-conditioning system be installed, like face and by-pass dampers and modulating thermostat and many others, but also that there are items, parts and accessories which were used and installed on the air-conditioning system which were not in full accord with contract specifications. These omissions to install the equipments, parts and accessories called for in the specifications of the contract, as well as the deviations made in putting into the air-conditioning system equipments, parts and accessories not in full accord with the contract specification naturally resulted to adversely affect the operational effectiveness of the air-conditioning system which necessitated the installation of thirty-five window type of air-conditioning units distributed among the different floor levels in order to be able to obtain a fairly desirable room temperature for the tenants and actual occupants of the building. The Court opines and so holds that the failure of the defendant to follow the contract specifications and said omissions and deviations having resulted in the operational ineffectiveness of the system installed makes the defendant liable to the plaintiff in the amount necessary to rectify to put the air conditioning system in its proper operational condition to make it serve the purpose for which the plaintiff entered into the contract with the defendant. The respondent Court affirmed the trial court's decision
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thereby making the latter's findings also its own. Having concluded that the original complaint is one for damages arising from breach of a written contract - and not a suit to enforce warranties against hidden defects - we here - with declare that the governing law is Article 1715 (supra). However, inasmuch as this provision does not contain a specific prescriptive period, the general law on prescription, which is Article 1144 of the Civil Code, will apply. Said provision states, inter alia, that actions "upon a written contract" prescribe in ten (10) years. Since the governing contract was executed on September 10, 1962 and the complaint was filed on May 8, 1971, it is clear that the action has not prescribed. What about petitioner's contention that "acceptance of the work by the employer relieves the contractor of liability for any defect in the work"? This was answered by respondent Court19 as follows: As the breach of contract which gave rise to the instant case consisted in appellant's omission to install the equipments (sic), parts and accessories not in accordance with the plan and specifications provided for in the contract and the deviations made in putting into the air conditioning system parts and accessories not in accordance with the contract specifications, it is evident that the defect in the installation was not apparent at the time of the delivery and acceptance of the work, considering further that plaintiff is not an expert to recognize the same. From the very nature of things, it is impossible to determine by the simple inspection of

air conditioning system installed in an 8-floor building whether it has been furnished and installed as per agreed specifications. Verily, the mere fact that the private respondent accepted the work does not, ipso facto, relieve the petitioner from liability for deviations from and violations of the written contract, as the law gives him ten (10) years within which to file an action based on breach thereof. WHEREFORE, the petition is hereby DENIED and the assailed Decision is AFFIRMED. No costs. SO ORDERED.

G.R. No. L-69970 November 28, 1988 FELIX DANGUILAN, petitioner, vs. INTERMEDIATE APPELLATE COURT, APOLONIA MELAD, assisted by her husband, JOSE TAGACAY, respondents. Pedro R. Perez, Jr. for petitioner. Teodoro B. Mallonga for private respondent. CRUZ, J.: The subject of this dispute is the two lots owned by Domingo Melad which is claimed by both the petitioner and the respondent. The trial court believed the petitioner but the respondent court, on appeal, upheld the respondent. The case is
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now before us for a resolution of the issues once and for all. On January 29, 1962, the respondent filed a complaint against the petitioner in the then Court of First Instance of Cagayan for recovery of a farm lot and a residential lot which she claimed she had purchased from Domingo Melad in 1943 and were now being unlawfully withheld by the defendant. 1 In his answer, the petitioner denied the allegation and averred that he was the owner of the said lots of which he had been in open, continuous and adverse possession, having acquired them from Domingo Melad in 1941 and 1943. 2 The case was dismissed for failure to prosecute but was refiled in 1967. 3 At the trial, the plaintiff presented a deed of sale dated December 4, 1943, purportedly signed by Domingo Melad and duly notarized, which conveyed the said properties to her for the sum of P80.00. 4 She said the amount was earned by her mother as a worker at the Tabacalera factory. She claimed to be the illegitimate daughter of Domingo Melad, with whom she and her mother were living when he died in 1945. She moved out of the farm only when in 1946 Felix Danguilan approached her and

asked permission to cultivate the land and to stay therein. She had agreed on condition that he would deliver part of the harvest from the farm to her, which he did from that year to 1958. The deliveries having stopped, she then consulted the municipal judge who advised her to file the complaint against Danguilan. The plaintiff 's mother, her only other witness, corroborated this testimony. 5 For his part, the defendant testified that he was the husband of Isidra Melad, Domingo's niece, whom he and his wife Juana Malupang had taken into their home as their ward as they had no children of their own. He and his wife lived with the couple in their house on the residential lot and helped Domingo with the cultivation of the farm. Domingo Melad signed in 1941 a private instrument in which he gave the defendant the farm and in 1943 another private instrument in which he also gave him the residential lot, on the understanding that the latter would take care of the grantor and would bury him upon his death. 6 Danguilan presented three other witnesses 7 to corroborate his statements and to prove that he had been living in the land since his marriage to Isidra and had remained in possession thereof after Domingo
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Melad's death in 1945. Two of said witnesses declared that neither the plaintiff nor her mother lived in the land with Domingo Melad. 8 The decision of the trial court was based mainly on the issue of possession. Weighing the evidence presented by the parties, the judge 9 held that the defendant was more believable and that the plaintiff's evidence was "unpersuasive and unconvincing." It was held that the plaintiff's own declaration that she moved out of the property in 1946 and left it in the possession of the defendant was contradictory to her claim of ownership. She was also inconsistent when she testified first that the defendant was her tenant and later in rebuttal that he was her administrator. The decision concluded that where there was doubt as to the ownership of the property, the presumption was in favor of the one actually occupying the same, which in this case was the defendant. 10 The review by the respondent court 11 of this decision was manifestly less than thorough. For the most part it merely affirmed the factual findings of the trial court except for an irrelevant modification, and it was only toward the end that it went to and resolved what it considered the

lone decisive issue. The respondent court held that Exhibits 2-b and 3-a, by virtue of which Domingo Melad had conveyed the two parcels of land to the petitioner, were null and void. The reason was that they were donations of real property and as such should have been effected through a public instrument. It then set aside the appealed decision and declared the respondents the true and lawful owners of the disputed property. The said exhibits read as follows:
EXHIBIT 2-b is quoted as follows: 12 I, DOMINGO MELAD, of legal age, married, do hereby declare in this receipt the truth of my giving to Felix Danguilan, my agricultural land located at Barrio FuguMacusi, Penablanca, Province of Cagayan, Philippine Islands; that this land is registered under my name; that I hereby declare and bind myself that there is no one to whom I will deliver this land except to him as he will be the one responsible for me in the event that I will die and also for all other things needed and necessary for me, he will be responsible because of this land I am giving to him; that it is true that I have nieces and nephews but they are not living with us and there is no one to whom I will give my land except to Felix Danguilan
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for he lives with me and this is the length 175 m. and the width is 150 m. IN WITNESS WHEREOF, I hereby sign my name below and also those present in the execution of this receipt this 14th day of September 1941. Penablanca 1941. Cagayan, September 14,

west to east is 40 meters. IN WITNESS HEREOF, I hereby sign this receipt this 18th day of December 1943. (SGD.) DOMINGO MELAD WITNESSES: (SGD.) ILLEGIBLE (SGD.) DANIEL ARAO

(SGD.) DOMINGO MELAD WITNESSES: 1. (T.M.) ISIDRO MELAD 2. (SGD.) FELIX DANGUILAN 3. (T.M.) ILLEGIBLE EXHIBIT 3-a is quoted as follows: 13 I, DOMINGO MELAD, a resident of Centro, Penablanca, Province of Cagayan, do hereby swear and declare the truth that I have delivered my residential lot at Centro, Penablanca, Cagayan, to Felix Danguilan, my son-in-law because I have no child; that I have thought of giving him my land because he will be the one to take care of SHELTERING me or bury me when I die and this is why I have thought of executing this document; that the boundaries of this lot ison the east, Cresencio Danguilan; on the north, Arellano Street; on the south by Pastor Lagundi and on the west, Pablo Pelagio and the area of this lot is 35 meters going south; width and length beginning

It is our view, considering the language of the two instruments, that Domingo Melad did intend to donate the properties to the petitioner, as the private respondent contends. We do not think, however, that the donee was moved by pure liberality. While truly donations, the conveyances were onerous donations as the properties were given to the petitioner in exchange for his obligation to take care of the donee for the rest of his life and provide for his burial. Hence, it was not covered by the rule in Article 749 of the Civil Code requiring donations of real properties to be effected through a public instrument. The case at bar comes squarely under the doctrine laid down in Manalo v. De Mesa, 14 where the Court held:
There can be no doubt that the donation in question was made for a valuable consideration, since the donors made it conditional upon the donees' bearing the
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expenses that might be occasioned by the death and burial of the donor Placida Manalo, a condition and obligation which the donee Gregorio de Mesa carried out in his own behalf and for his wife Leoncia Manalo; therefore, in order to determine whether or not said donation is valid and effective it should be sufficient to demonstrate that, as a contract, it embraces the conditions the law requires and is valid and effective, although not recorded in a public instrument.

when he was almost one hundred years old, 15 which would mean that the petitioner farmed the land practically by himself and so provided for the donee (and his wife) during the latter part of Domingo Melad's life. We may assume that there was a fair exchange between the donor and the donee that made the transaction an onerous donation. Regarding the private respondent's claim that she had purchased the properties by virtue of a deed of sale, the respondent court had only the following to say: "Exhibit 'E' taken together with the documentary and oral evidence shows that the preponderance of evidence is in favor of the appellants." This was, we think, a rather superficial way of resolving such a basic and important issue. The deed of sale was allegedly executed when the respondent was only three years old and the consideration was supposedly paid by her mother, Maria Yedan from her earnings as a wage worker in a factory. 16 This was itself a suspicious circumstance, one may well wonder why the transfer was not made to the mother herself, who was after all the one paying for the lands. The sale was made out in favor of Apolonia Melad although she had been using
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The private respondent argues that as there was no equivalence between the value of the lands donated and the services for which they were being exchanged, the two transactions should be considered pure or gratuitous donations of real rights, hence, they should have been effected through a public instrument and not mere private writings. However, no evidence has been adduced to support her contention that the values exchanged were disproportionate or unequal. On the other hand, both the trial court and the respondent court have affirmed the factual allegation that the petitioner did take care of Domingo Melad and later arranged for his burial in accordance with the condition imposed by the donor. It is alleged and not denied that he died

the surname Yedan her mother's surname, before that instrument was signed and in fact even after she got married. 17 The averment was also made that the contract was simulated and prepared after Domingo Melad's death in 1945. 18 It was also alleged that even after the supposed execution of the said contract, the respondent considered Domingo Melad the owner of the properties and that she had never occupied the same. 19 Considering these serious challenges, the appellate court could have devoted a little more time to examining Exhibit "E" and the circumstances surrounding its execution before pronouncing its validity in the manner described above. While it is true that the due execution of a public instrument is presumed, the presumption is disputable and will yield to contradictory evidence, which in this case was not refuted. At any rate, even assuming the validity of the deed of sale, the record shows that the private respondent did not take possession of the disputed properties and indeed waited until 1962 to file this action for recovery of the lands from the petitioner. If she did have possession, she transferred the same to the petitioner in

1946, by her own sworn admission, and moved out to another lot belonging to her step-brother. 20 Her claim that the petitioner was her tenant (later changed to administrator) was disbelieved by the trial court, and properly so, for its inconsistency. In short, she failed to show that she consummated the contract of sale by actual delivery of the properties to her and her actual possession thereof in concept of purchaserowner. As was held in Garchitorena v. Almeda: 21
Since in this jurisdiction it is a fundamental and elementary principle that ownership does not pass by mere stipulation but only by delivery (Civil Code, Art. 1095; Fidelity and Surety Co. v. Wilson, 8 Phil. 51), and the execution of a public document does not constitute sufficient delivery where the property involved is in the actual and adverse possession of third persons (Addison vs. Felix, 38 Phil. 404; Masallo vs. Cesar, 39 Phil. 134), it becomes incontestable that even if included in the contract, the ownership of the property in dispute did not pass thereby to Mariano Garchitorena. Not having become the owner for lack of delivery, Mariano Garchitorena cannot presume to recover the property from its present possessors.
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His action, therefore, is not one of revindicacion, but one against his vendor for specific performance of the sale to him.

In the aforecited case of Fidelity and Deposit Co. v. Wilson, 22 Justice Mapa declared for the Court:
Therefore, in our Civil Code it is a fundamental principle in all matters of contracts and a well- known doctrine of law that "non mudis pactis sed traditione dominia rerum transferuntur". In conformity with said doctrine as established in paragraph 2 of article 609 of said code, that "the ownership and other property rights are acquired and transmitted by law, by gift, by testate or intestate succession, and, in consequence of certain contracts, by tradition". And as the logical application of this disposition article 1095 prescribes the following: "A creditor has the rights to the fruits of a thing from the time the obligation to deliver it arises. However, he shall not acquire a real right" (and the ownership is surely such) "until the property has been delivered to him." In accordance with such disposition and provisions the delivery of a thing constitutes a necessary and indispensable requisite for the purpose of acquiring the ownership of the same by virtue of a

contract. As Manresa states in his Commentaries on the Civil Code, volume 10, pages 339 and 340: "Our law does not admit the doctrine of the transfer of property by mere consent but limits the effect of the agreement to the due execution of the contract. ... The ownership, the property right, is only derived from the delivery of a thing ... "

As for the argument that symbolic delivery was effected through the deed of sale, which was a public instrument, the Court has held:
The Code imposes upon the vendor the obligation to deliver the thing sold. The thing is considered to be delivered when it is placed "in the hands and possession of the vendee." (Civil Code, art. 1462). It is true that the same article declares that the execution of a public instrument is equivalent to the delivery of the thing which is the object of the contract, but, in order that this symbolic delivery may produce the effect of tradition, it is necessary that the vendor shall have had such control over the thing sold that, at the moment of the sale, its material delivery could have been made. It is not enough to confer upon the purchaser the ownership and the right of possession. The thing sold must be placed in his control. When there is no impediment whatever to prevent the thing sold passing
39

into the tenancy of the purchaser by the sole will of the vendor, symbolic delivery through the execution of a public instrument is sufficient. But if, notwithstanding the execution of the instrument, the purchaser cannot have the enjoyment and material tenancy of the thing and make use of it himself or through another in his name, because such tenancy and enjoyment are opposed by the interposition of another will, then fiction yields to realitythe delivery has not been effected. 23

court is SET ASIDE and that of the trial court REINSTATED, with costs against the private respondent. It is so ordered. G.R. No. L-55322 February 16, 1989 MOISES JOCSON, petitioner, vs. HON. COURT OF APPEALS, AGUSTINA JOCSON-VASQUEZ, ERNESTO VASQUEZ, respondents. Dolorfino and Dominguez Law Officers for petitioner. Gabriel G. Mascardo for private respondents. MEDIALDEA, J.: This is a petition for review on certiorari under Rule 45 of the Rules of Court of the decision of the Court of Appeals in CA- G.R. No. 63474, promulgated on April 30, 1980, entitled "MOISES JOCSON, plaintiff-appellee, versus AGUSTINA JOCSON-VASQUEZ and ERNESTO VASQUEZ, defendant-appellants," upholding the validity of three (3) documents questioned by Moises Jocson, in total reversal of the decision of the then Court of First Instance of Cavite, Branch I, which declared them as null and void; and of its resolution, dated September 30, 1980, denying therein
40

There is no dispute that it is the petitioner and not the private respondent who is in actual possession of the litigated properties. Even if the respective claims of the parties were both to be discarded as being inherently weak, the decision should still incline in favor of the petitioner pursuant to the doctrine announced in Santos & Espinosa v. Estejada 24 where the Court announced:
If the claim of both the plaintiff and the defendant are weak, judgment must be for the defendant, for the latter being in possession is presumed to be the owner, and cannot be obliged to show or prove a better right.

WHEREFORE, the decision of the respondent

appellee's motion for reconsideration. Petitioner Moises Jocson and respondent Agustina Jocson-Vasquez are the only surviving offsprings of the spouses Emilio Jocson and Alejandra Poblete, while respondent Ernesto Vasquez is the husband of Agustina. Alejandra Poblete predeceased her husband without her intestate estate being settled. Subsequently, Emilio Jocson also died intestate on April 1, 1972. As adverted to above, the present controversy concerns the validity of three (3) documents executed by Emilio Jocson during his lifetime. These documents purportedly conveyed, by sale, to Agustina Jocson-Vasquez what apparently covers almost all of his properties, including his one-third (1/3) share in the estate of his wife. Petitioner Moises Jocson assails these documents and prays that they be declared null and void and the properties subject matter therein be partitioned between him and Agustina as the only heirs of their deceased parents. The documents, which were presented as evidence not by Moises Jocson, as the party assailing its validity, but rather by herein respondents, are the following:

1) "Kasulatan ng Bilihan ng Lupa," marked as Exhibit 3 (pp. 12-13, Records) for the defendant in the court a quo, dated July 27, 1968. By this document Emilio Jocson sold to Agustina Jocson-Vasquez six (6) parcels of land, all located at Naic, Cavite, for the sum of ten thousand P10,000.00 pesos. On the same document Emilio Jocson acknowledged receipt of the purchase price, thus:
Na ngayon, alang-alang sa halagang SAMPUNG LIBONG PISO (P10,000) salaping Pilipino na aking tinanggap ng buong kasiyahan loob at ang pagkakatanggap ay aking hayagang inaamin sa pamamagitan ng kasulatang ito, sa aking anak na si Agustina Jocson, na may sapat na gulang, mamamayang Pilipino, asawa ni Ernesto Vasquez, at naninirahan sa Poblacion, Naic, Cavite, ay aking ipinagbile ng lubusan at kagyat at walang ano mang pasubali ang nabanggit na anim na pirasong lupa na nasa unang dahon ng dokumentong ito, sa nabanggit na Agustina Jocson, at sa kaniyang tagapagmana o makakahalili at gayon din nais kong banggitin na kahit na may kamurahan ang ginawa kong pagbibile ay
41

dahilan sa ang nakabile ay aking anak na sa akin at mapaglingkod, madamayin at ma-alalahanin, na tulad din ng isa ko pang anak na lalaki. Ang kuartang tinanggap ko na P10,000.00, ay gagamitin ko sa aking katandaan at mga huling araw at sa aking mga ibang mahahalagang pangangailangan. [Emphasis supplied] Na nais ko ring banggitin na ang ginawa kong ito ay hindi labag sa ano mang batas o kautusan, sapagkat ang aking pinagbile ay akin at nasa aking pangalan. Ang mga lupang nasa pangalan ng aking nasirang asawa ay hindi ko ginagalaw ni pinakikialaman at iyon ay dapat na hatiin ng dalawa kong anak alinsunod sa umiiral na batas (p. 13, Records.)

'Na alang-alang sa halagang LIMANG LIBONG PISO (P5,000.00) salaping Pilipino na aking tinanggap ng buong kasiyahan loob sa aking anak na Agustina Jocson .... Na ang halagang ibinayad sa akin ay may kamurahan ng kaunti ngunit dahil sa malaking pagtingin ko sa kaniya ... kaya at pinagbile ko sa kaniya ang mga nabanggit na pagaari kahit na hindi malaking halaga ... (p. 14, Records).

2) "Kasulatan ng Ganap na Bilihan,"dated July 27,1968, marked as Exhibit 4 (p. 14, Records). On the face of this document, Emilio Jocson purportedly sold to Agustina JocsonVasquez, for the sum of FIVE THOUSAND (P5,000.00) PESOS, two rice mills and a camarin (camalig) located at Naic, Cavite. As in the first document, Moises Jocson acknowledged receipt of the purchase price:

3) Lastly, the "Deed of Extrajudicial Partition and Adjudication with Sale, "dated March 9, 1969, marked as Exhibit 2 (p. 10-11, Records), whereby Emilio Jocson and Agustina Jocson-Vasquez, without the participation and intervention of Moises Jocson, extrajudicially partitioned the unsettled estate of Alejandra Poblete, dividing the same into three parts, one-third (1/3) each for the heirs of Alejandra Poblete, namely: Emilio Jocson, Agustina Jocson-Vasquez and Moises Jocson. By the same instrument, Emilio sold his one- third (1/3) share to Agustin for the sum of EIGHT THOUSAND (P8,000.00) PESOS. As in the preceding documents, Emilio Jocson
42

acknowledged purchase price:

receipt

of

the

Now for and in consideration of the sum of only eight thousand (P8,000.00) pesos, which I, the herein Emilio Jocson had received from my daughter Agustina Jocson, do hereby sell, cede, convey and transfer, unto the said Agustina Jocson, her heirs and assigns, administrators and successors in interests, in the nature of absolute and irrevocable sale, all my rights, interest, shares and participation, which is equivalent to one third (1/3) share in the properties herein mentioned and described the one third being adjudicated unto Agustina Jocson and the other third (1/3) portion being the share of Moises Jocson. (p. 11, Records).

Herein petitioner filed his original complaint (Record on Appeal, p. 27, Rollo) on June 20,1973 with the then Court of First Instance of Naic, Cavite (docketed as Civil Case No. TM531), and which was twice amended. In his Second Amended Complaint (pp. 47-58, Record on Appeal), herein petitioner assailed the above documents, as aforementioned, for being null and void. It is necessary to partly quote the allegation of petitioner in his complaint for the reason that the nature of his causes of action is at issue, thus:
8. [With regard the first document, that] the defendants, through fraud, deceit, undue pressure and influence and other illegal machinations, were able to induce, led, and procured their father ... to sign [the] contract of sale ..., for the simulated price of P10,000.00, which is a consideration that is shocking to the conscience of ordinary man and despite the fact that said defendants have no work or livelihood of their own ...; that the sale is null and void, also, because it is fictitious, simulated and fabricated contract x x x (pp. 52-53, Record on Appeal). [Emphasis supplied] xxx xxx xxx 12. [With regards the second and third document, that they] are null and void
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These documents were executed before a notary public. Exhibits 3 and 4 were registered with the Office of the Register of Deeds of Cavite on July 29, 1968 and the transfer certificates of title covering the properties therein in the name of Emilio Jocson, married to Alejandra Poblete," were cancelled and new certificates of title were issued in the name of Agustina Jocson-Vasquez. Exhibit 2 was not registered with the Office of the Register of Deeds.

because the consent of the father, Emilio Jocson, was obtained with fraud, deceit, undue pressure, misrepresentation and unlawful machinations and trickeries committed by the defendant on him; and that the said contracts are simulated, fabricated and fictitious, having been made deliberately to exclude the plaintiff from participating and with the dishonest and selfish motive on the part of the defendants to defraud him of his legitimate share on said properties [subject matter thereof]; and that without any other business or employment or any other source of income, defendants who were just employed in the management and administration of the business of their parents, would not have the sufficient and ample means to purchase the said properties except by getting the earnings of the business or by simulated consideration ... (pp. 54-55, Record on Appeal). [Emphasis supplied]

Jocson and Alejandra Poblete which the former, therefore, cannot validly sell (pp. 53, 57, Record on Appeal). As far as Exhibit 2 is concerned, petitioner questions not the extrajudicial partition but only the sale by his father to Agustina of the former's 1/3 share (p. 13, Rollo). The trial court sustained the foregoing contentions of petitioner (pp. 59-81, Record on Appeal). It declared that the considerations mentioned in the documents were merely simulated and fictitious because: 1) there was no showing that Agustina Jocson-Vasquez paid for the properties; 2) the prices were grossly inadequate which is tantamount to lack of consideration at all; and 3) the improbability of the sale between Emilio Jocson and Agustina Jocson-Vasquez, taking into consideration the circumstances obtaining between the parties; and that the real intention of the parties were donations designed to exclude Moises Jocson from participating in the estate of his parents. It further declared the properties mentioned in Exhibits 3 and 4 as conjugal properties of Emilio Jocson and Alejandra Poblete, because they were registered in the name of "Emilio Jocson, married to Alejandra Poblete" and ordered that the properties subject matter of all the documents be registered in the name of herein
44

Petitioner explained that there could be no real sale between a father and daughter who are living under the same roof, especially so when the father has no need of money as the properties supposedly sold were all incomeproducing. Further, petitioner claimed that the properties mentioned in Exhibits 3 and 4 are the unliquidated conjugal properties of Emilio

petitioners and private respondents. On appeal, the Court of Appeals in CA-G.R. No. 63474-R rendered a decision (pp. 29-42, Rollo) and reversed that of the trial court's and ruled that:
1. That insofar as Exhibits 3 and 4 are concerned the appellee's complaint for annulment, which is indisputably based on fraud, and undue influence, is now barred by prescription, pursuant to the settled rule that an action for annulment of a contract based on fraud must be filed within four (4) years, from the discovery of the fraud, ... which in legal contemplation is deemed to be the date of the registration of said document with the Register of Deeds ... and the records admittedly show that both Exhibits 3 and 4, were all registered on July 29, 1968, while on the other hand, the appellee's complaint was filed on June 20, 1973, clearly beyond the aforesaid fouryear prescriptive period provided by law; 2. That the aforesaid contracts, Exhibits 2, 3, and 4, are decisively not simulated or fictitious contracts, since Emilio Jocson actually and really intended them to be effective and binding against him, as to divest him of the full dominion and ownership over the properties subject of said assailed contracts, as in fact all his

titles over the same were all cancelled and new ones issued to appellant Agustina Jocson-Vasquez ...; 3. That in regard to Exhibit 2, the same is valid and subsisting, and the partition with sale therein made by and between Emilio Jocson and Agustina Jocson-Vasquez, affecting the 2/3 portion of the subject properties described therein have all been made in accordance with Article 996 of the New Civil Code on intestate succession, and the appellee's (herein petitioner) remaining 1/3 has not been prejudiced (pp. 41-42, Rollo).

In this petition for review, Moises Jocson raised the following assignments of errors:
1. HAS THE RESPONDENT COURT OF APPEALS ERRED IN CONCLUDING THAT THE SUIT FOR THE ANNULMENT OF CONTRACTS FILED BY PETITIONERS WITH THE TRIAL COURT IS "BASED ON FRAUD" AND NOT ON ITS INEXISTENCE AND NULLITY BECAUSE OF IT'S BEING SIMULATED OR FICTITIOUS OR WHOSE CAUSE IS CONTRARY TO LAW, MORALS AND GOOD CUSTOMS? II. HAS THE RESPONDENT COURT OF APPEALS ERRED IN CONCLUDING THAT THE COMPLAINT FILED BY
45

PETITIONER IN THE TRIAL COURT IS BARRED BY PRESCRIPTION? III. HAS THE RESPONDENT COURT OF APPEALS ERRED IN NOT DECLARING AS INEXISTENT AND NULL AND VOID THE CONTRACTS IN QUESTION AND IN REVERSING THE DECLARING DECISION OF THE TRIAL COURT? (p. 2, Rollo)

complaint only on June 20, 1973, the Court of Appeals ruled that insofar as these documents were concerned, petitioner's "annulment suit" had prescribed. If fraud were the only ground relied upon by Moises Jocson in assailing the questioned documents, We would have sustained the above pronouncement. But it is not so. As pointed out by petitioner, he further assailed the deeds of conveyance on the ground that they were without consideration since the amounts appearing thereon as paid were in fact merely simulated. According to Article 1352 of the Civil Code, contracts without cause produce no effect whatsoever. A contract of sale with a simulated price is void (Article 1471; also Article 1409 [3]]), and an action for the declaration of its nullity does not prescribe (Article 1410, Civil Code; See also, Castillo v. Galvan, No. L-27841, October 20, l978, 85 SCRA 526). Moises Jocsons saction, therefore, being for the judicial declaration of nullity of Exhibits 3 and 4 on the ground of simulated price, is imprescriptible. II. For petitioner, however, the above discussion may be purely academic. The burden of proof in
46

I. The first and second assignments of errors are related and shall be jointly discussed. According to the Court of Appeals, herein petitioner's causes of action were based on fraud. Under Article 1330 of the Civil Code, a contract tainted by vitiated consent, as when consent was obtained through fraud, is voidable; and the action for annulment must be brought within four years from the time of the discovery of the fraud (Article 1391, par. 4, Civil Code), otherwise the contract may no longer be contested. Under present jurisprudence, discovery of fraud is deemed to have taken place at the time the convenant was registered with the Register of Deeds (Gerona vs. De Guzman, No. L-19060, May 29,1964, 11 SCRA 153). Since Exhibits 3 and 4 were registered on July 29, 1968 but Moises Jocson filed his

showing that contracts lack consideration rests on he who alleged it. The degree of proof becomes more stringent where the documents themselves show that the vendor acknowledged receipt of the price, and more so where the documents were notarized, as in the case at bar. Upon consideration of the records of this case, We are of the opinion that petitioner has not sufficiently proven that the questioned documents are without consideration. Firstly, Moises Jocson's claim that Agustina Jocson-Vasquez had no other source of income other than what she derives from helping in the management of the family business (ricefields and ricemills), and which was insufficient to pay for the purchase price, was contradicted by his own witness, Isaac Bagnas, who testified that Agustina and her husband were engaged in the buy and sell of palay and rice (p. 10, t.s.n., January 14, 1975). Amazingly, petitioner himself and his wife testified that they did not know whether or not Agustina was involved in some other business (p. 40, t.s.n., July 30, 1974; p. 36, t.s.n., May 24, 1974). On the other hand, Agustina testified that she was engaged in the business of buying and selling palay and rice even before her marriage

to Ernesto Vasquez sometime in 1948 and continued doing so thereafter (p. 4, t.s.n., March 15, 1976). Considering the foregoing and the presumption that a contract is with a consideration (Article 1354, Civil Code), it is clear that petitioner miserably failed to prove his allegation. Secondly, neither may the contract be declared void because of alleged inadequacy of price. To begin with, there was no showing that the prices were grossly inadequate. In fact, the total purchase price paid by Agustina JocsonVasquez is above the total assessed value of the properties alleged by petitioner. In his Second Amended Complaint, petitioner alleged that the total assessed value of the properties mentioned in Exhibit 3 was P8,920; Exhibit 4, P3,500; and Exhibit 2, P 24,840, while the purchase price paid was P10,000, P5,000, and P8,000, respectively, the latter for the 1/3 share of Emilio Jocson from the paraphernal properties of his wife, Alejandra Poblete. And any difference between the market value and the purchase price, which as admitted by Emilio Jocson was only slight, may not be so shocking considering that the sales were effected by a father to her daughter in which case filial love must be taken into consideration (Alsua-Betts
47

vs. Court of Appeals, No. L-46430-31, April 30, 1979, 92 SCRA 332). Further, gross inadequacy of price alone does not affect a contract of sale, except that it may indicate a defect in the consent, or that the parties really intended a donation or some other act or contract (Article 1470, Civil Code) and there is nothing in the records at all to indicate any defect in Emilio Jocson's consent. Thirdly, any discussion as to the improbability of a sale between a father and his daughter is purely speculative which has no relevance to a contract where all the essential requisites of consent, object and cause are clearly present. There is another ground relied upon by petitioner in assailing Exhibits 3 and 4, that the properties subject matter therein are conjugal properties of Emilio Jocson and Alejandra Poblete. It is the position of petitioner that since the properties sold to Agustina Jocson-Vasquez under Exhibit 3 were registered in the name of "Emilio Jocson, married to Alejandra Poblete," the certificates of title he presented as evidence (Exhibits "E', to "J', pp. 4-9, Records) were enough proof to show that the properties covered therein were acquired during the marriage of their parents, and, therefore, under

Article 160 of the Civil Code, presumed to be conjugal properties. Article 160 of the Civil Code provides that:
All property of the marriage is presumed to belong to the conjugal partnership, unless it be proved that it pertains exclusively to the husband or to the wife.

In Cobb-Perez vs. Hon. Gregorio Lantin, No. L22320, May 22, 1968, 23 SCRA 637, 644, We held that:
Anent their claim that the shares in question are conjugal assets, the spouses Perez adduced not a modicum of evidence, although they repeatedly invoked article 160 of the New Civil Code which provides that ... . As interpreted by this Court, the party who invokes this presumption must first prove that the property in controversy was acquired during the marriage. In other words, proof of acquisition during the coverture is a condition sine qua non for the operation of the presumption in favor of conjugal ownership. Thus in Camia de Reyes vs. Reyes de Ilano [62 Phil. 629, 639], it was held that "according to law and jurisprudence, it is sufficient to prove that the Property was acquired during the marriage in order that the same may be deemed conjugal property." In the recent case of Maramba vs. Lozano, et. al. [L48

21533, June 29, 1967, 20 SCRA 474], this Court, thru Mr. Justice Makalintal, reiterated that "the presumption under Article 160 of the Civil Code refers to property acquired during the marriage," and then concluded that since "there is no showing as to when the property in question was acquired...the fact that the title is in the wife's name alone is determinative." Similarly, in the case at bar, since there is no evidence as to when the shares of stock were acquired, the fact that they are registered in the name of the husband alone is an indication that the shares belong exclusively to said spouse.'

is no proof that the properties were acquired during the spouses' coverture. Acquisition of title and registration thereof are two different acts. It is well settled that registration does not confer title but merely confirms one already existing (See Torela vs. Torela, supra). It may be that the properties under dispute were acquired by Emilio Jocson when he was still a bachelor but were registered only after his marriage to Alejandra Poblete, which explains why he was described in the certificates of title as married to the latter. Contrary to petitioner's position, the certificates of title show, on their face, that the properties were exclusively Emilio Jocson's, the registered owner. This is so because the words "married to' preceding "Alejandra Poblete' are merely descriptive of the civil status of Emilio Jocson Litam v. Rivera, 100 Phil. 354; Stuart v. Yatco, No. L-16467, April 27, 1962, 4 SCRA 1143; Magallon v. Montejo, G.R. No. L-73733, December 16, 1986, 146 SCRA 282). In other words, the import from the certificates of title is that Emilio Jocson is the owner of the properties, the same having been registered in his name alone, and that he is married to Alejandra Poblete.
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This pronouncement was reiterated in the case of Ponce de Leon vs. Rehabilitation Finance Corporation, No. L-24571, December 18, 1970, 36 SCRA 289, and later in Torela vs. Torela, No. 1,27843, October 11, 1979, 93 SCRA 391. It is thus clear that before Moises Jocson may validly invoke the presumption under Article 160 he must first present proof that the disputed properties were acquired during the marriage of Emilio Jocson and Alejandra Poblete. The certificates of title, however, upon which petitioner rests his claim is insufficient. The fact that the properties were registered in the name of "Emilio Jocson, married to Alejandra Poblete"

We are not unmindful that in numerous cases We consistently held that registration of the property in the name of only one spouse does not negate the possibility of it being conjugal (See Bucoy vs. Paulino, No. L-25775, April 26, 1968, 23 SCRA 248). But this ruling is not inconsistent with the above pronouncement for in those cases there was proof that the properties, though registered in the name of only one spouse, were indeed conjugal properties, or that they have been acquired during the marriage of the spouses, and therefore, presumed conjugal, without the adverse party having presented proof to rebut the presumption (See Mendoza vs- Reyes, No. L-31618, August 17, 1983, 124 SCRA 154). In the instant case, had petitioner, Moises Jocson, presented sufficient proof to show that the disputed properties were acquired during his parents' coverture. We would have ruled that the properties, though registered in the name of Emilio Jocson alone, are conjugal properties in view of the presumption under Article 160. There being no such proof, the condition sine qua non for the application of the presumption does not exist. Necessarily, We rule that the properties under Exhibit 3 are the exclusive properties of Emilio Jocson.

There being no showing also that the camarin and the two ricemills, which are the subject of Exhibit 4, were conjugal properties of the spouses Emilio Jocson and Alejandra Poblete, they should be considered, likewise, as the exclusive properties of Emilio Jocson, the burden of proof being on petitioner. ACCORDINGLY, the petition is DISMISSED and the decision of the Court of Appeals is AFFIRMED. SO ORDERED.

G.R. No. L-37831 November 23, 1981 RESTITUTA V. VDA. DE GORDON, 1 petitioner, vs. THE COURT OF APPEALS 2 and ROSARIO DUAZO, respondents. TEEHANKEE, J.:
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The Court affirms the appealed decision finding the same to be in accordance with the applicable law. The appellate court correctly upheld the tax sale of the real properties at which respondent Rosario Duazo acquired the same and her ownership upon petitioner Restituta V. Vda. de Gordon's failure to redeem the same, having found the sale to have been conducted "under the direction and supervision of the City Treasurer of Quezon City after the proper procedure and legal formalities had been duly accomplished." The apppellate court's decision under review held as follows:
The opposition [to respondent Duazo's petition for consolidation of ownership] has not controverted by specific denials the material averments in the petition. Hence the material averments in the petition are deemed admitted. (Section 1, Rule 9, Revised Rules of Court) Moreover, the opposition has not raised the issue of irregularity in the public sale of the two parcels of land in question. This defense is deemed waived. (Section 2, Rule 9, Id.) The uncontested averments in the petition and the annex attached to said petition disclose that the two parcels of land in

question were sold at public auction at the City Hall, Quezon City on December 3, 1964 under the direction and supervision of the City Treasurer of Quezon City after the proper procedures and legal formalities had been duly accomplished; that the taxes against the two parcels of land in question for the years 1953 to 1963, inclusive, remained unpaid; that the City Treasurer of Quezon City, upon warrant of a certified copy of the record of such delinquency, advertised for sale the two parcels of land in question to satisfy the taxes, penalties and costs for a period of thirty (30) days prior to the sale on December 3, 1964, by keeping a notice of sale posted at the main entrance on the City Hall and in a public and conspicuous place in the district where the same is located and by publication of said notice once a week for three (3) weeks in the "DAILY MIRROR", a newspaper of general circulation in Quezon City, the advertisement stating the amount of taxes and penalties due, time and place of sale, name of the taxpayer against whom the taxes are levied, approximate area, lot and block number, location by district, street and street number of the property; "hat at the public sale on December 3, 1964, the two parcels of land in question were sold to [Duazo] for the amount of P10,500.00 representing the tax,
51

penalty and costs; that the certificate of sale executed by the City treasurer was duly registered on December 28, 1964 in the office of the Register of Deeds of Quezon City; that upon the failure of the registered owner to redeem the two parcels of land in question within the one year period prescribed by law, the City Treasurer of Quezon City executed on January 4, 1966 a final deed of sale of said lands and the improvements thereon; and that said final deed of sale was also registered in the Office of the Register of Deeds of Quezon City on January 18, 1966. The principal issues to be resolved in this appeal are (1) whether the price is so grossly inadequate as to justify the setting aside of the public sale and (2) whether the oppositor [Gordon] is entitled to redeem the two parcels of land in question. The combined assessed value of the two parcels of land is P16,800.00. The price paid at the public sale is P10,500.00. The residential house on the land is assessed at P45,580.00. But the assessment was made in 1961. The present value of the residential house must be much less now considering the depreciation for over ten years. While the price of P10,500.00 is less than

the total assessed value of the land and the improvement thereon, said price cannot be considered so grossly inadequate as to be shocking to the conscience of the court. In Director of Lands vs. Abarca, 61 Phil. 70, cited by the lower court in the order appealed from, the Supreme Court considered the price of P877.25 as so inadequate to shock the conscience of the court because the assessed value of the property in question was P60,000.00. The assessed value of the land was more than sixty times the price paid at the auction sale. In the case at bar, the price of P10,500.00 is about one sixth of the total assessed value of the two parcels of land in question and the residential house thereon. The finding of the lower court that the house and land in question have a fair market value of not less than P200,000.00 has no factual basis. It cannot be said, therefore, that the price of P10,500.00 is so inadequate as to be shocking to the conscience of the court. Mere inadequacy of the price alone is not sufficient ground to annul the public sale. (Barrozo vs. Macaraeg, 83 Phil. 378). Moreover, in Velasquez vs. Coronet, 5 SCRA 985, 988, the Supreme Court has held:
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It is true that respondent treasurer now claims that the prices for which the lands were sold are unconscionable considering the wide divergence between their assessed values and the amounts for which they had been actually sold. However, while in ordinary sales for reasons of equity a transaction may be invalidated on the ground of inadequacy of price, or when such inadequacy shocks one's conscience as to justify- the courts to interfere, such does not follow when the law gives to the owner the right to redeem, as when a sale is made at public auction upon the theory that the lesser the price the easier it is for the owner to effect the redemption. And so it was aptly said: When there is the right to redeem, inadequacy of pace should not be material because the judgment debtor may reacquire the property or also sell his right to redeeem and thus recover the loss he claims to have suffered by

reason of the price obtained at the auction sale. (emphasis supplied). The contention that the oppositor can still redeem the two parcels of land in question because the public sale has not been judicially confirmed deserves scant consideration. The cases cited by the oppositor and by the lower court all refer to foreclosure of mortgage sales which are by express provision of law subject to judicial confirmation. The public sale in the instant case is governed by Section 40 of Commonwealth Act No. 470 which gives the delinquent taxpayer a period of one year from the date of the sale within which to repurchase the property sold. In case the delinquent taxpayer does not repurchase the property sold within the period of one year from the date of the sale, it becomes a mandatory duty of the provincial treasurer to issue in favor of the purchaser a final deed of sale. (Velasquez vs. Coronel, supra) We find that the oppositor is not entitled to repurchase the two parcels of land in question because she failed to do so within one year from the date of the sale thereof. WHEREFORE, the order appealed from is hereby reversed and the ownership of [Duazo] over the two parcels of land in
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question and the improvements thereon is declared consolidated. The Register of Deeds of Quezon City is hereby ordered to cancel Transfer Certificates of Title Nos. 12204 and 12205 and to issue the corresponding transfer certificates of title to [Duazo] over the two parcels of land in question, upon the payment of the prescribed fees. No pronouncement as to costs. 3

The Court finds petitioner's assignment of errors to be without merit. Petitioner's first assignment of error as to alleged lack of personal notice of the tax sale is negated by her own averments in her own opposition filed in the court a quo that "(T)he Oppositor in the above entitled petition is a woman 80 years of age. She was not aware of the auction sale conducted by the City Treasurer of Quezon City on December 3, 1964 or if there was any notice sent to her, the same did not reach her or it must have escaped her mind considering her age. ... 4 Petitioner's second assignment of error that the period for redemption should be the two-year period provided in Republic Act No. 1275 likewise has no merit, since the specific law governing tax sales of properties in Quezon City

is the Quezon City Charter, Commonwealth Act No. 502 which provides in section 31 thereof for a one-year redemption period. The special law covering Quezon City necessarily prevails over the general law. Furthermore, as respondent has pointed out, as of the time of filing in 1974 of respondent's brief, petitioner had not then for a period of 10 years (and 17 years as of now) sought to exercise her alleged right of redemption or make an actual tender thereof, as follows:
Morever, even if we do concede, merely for the sake of argument, that the provisions of Rep. Act No. 1275 may be made applicable in this case which is certainly not and Petitioner should have been granted TWO (2) YEARS from date of the public sale, within which to exercise her right of redemption, yet since the sale of the questioned land to herein Respondent in that public auction in 1964, herein Petitioner never had shown any good faith in exercising her right of redemption. Since 1964 when the auction sale took place, up to the present, 1974, or a period of TEN (10) YEARS have already elapsed and yet herein Petitioner never made any tender of payments with either the Court of First Instance of Quezon City or the Court of Appeals, or the Supreme Court, at least to
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show her good faith. Furthermore, if herein Petitioner really believes in good faith, that [she] had still that right of redemption, then she should have paid the real estate taxes, but as the records wig show, since 1964, Private Respondent Duazo is the one paying the real estate taxes of the lands in question 5

Petitioner's third and last assignment of error as to the alleged gross inadequacy of the purchase price must likewise fail. As the Court has held in Velasquez vs. Coronet 6 alleged gross inadequacy of price is not material "when the law gives the owner the right to redeem as when a sale is made at public auction, upon the theory that the lesser the price the easier it is for the owner to effect the redemption." As the Court further stressed in the recent case of Tajonera vs. Court of Appeals, 7 the law governing tax sales for delinquent taxes may be "harsh and drastic, but it is a necessary means of insuring the prompt collection of taxes so essential to the life of the Government." ACCORDINGLY, the appellate court's decision under review is hereby affirmed. Without costs.

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