SILVESTRE DIGNOS and ISABEL LUMUNGSOD, petitioners,

vs.
HON. COURT OF APPEALS and ATILANO G. JABIL, respondents.

BIDIN, J.:
This is a petition for review on certiorari seeking the reversal of the: (1)
Decision * of the 9th Division, Court of Appeals dated July 31,1981,
affirming with modification the Decision, dated August 25, 1972 of the Court
of First Instance ** of Cebu in civil Case No. 23-L entitled Atilano G. Jabil
vs. Silvestre T. Dignos and Isabela Lumungsod de Dignos and Panfilo
Jabalde, as Attorney-in-Fact of Luciano Cabigas and Jovita L. de Cabigas;
and (2) its Resolution dated December 16, 1981, denying defendant-
appellant's (Petitioner's) motion for reconsideration, for lack of merit.
The undisputed facts as found by the Court of Appeals are as follows:
The Dignos spouses were owners of a parcel of land, known as
Lot No. 3453, of the cadastral survey of Opon, Lapu-Lapu City.
On June 7, 1965, appellants (petitioners) Dignos spouses sold
the said parcel of land to plaintiff-appellant (respondent Atilano
J. Jabil) for the sum of P28,000.00, payable in two installments,
with an assumption of indebtedness with the First Insular Bank
of Cebu in the sum of P12,000.00, which was paid and
acknowledged by the vendors in the deed of sale (Exh. C)
executed in favor of plaintiff-appellant, and the next installment
in the sum of P4,000.00 to be paid on or before September 15,
1965.
On November 25, 1965, the Dignos spouses sold the same land
in favor of defendants spouses, Luciano Cabigas and Jovita L. De
Cabigas, who were then U.S. citizens, for the price of
P35,000.00. A deed of absolute sale (Exh. J, also marked Exh. 3)
was executed by the Dignos spouses in favor of the Cabigas
spouses, and which was registered in the Office of the Register
of Deeds pursuant to the provisions of Act No. 3344.
As the Dignos spouses refused to accept from plaintiff-appellant
the balance of the purchase price of the land, and as plaintiff-
appellant discovered the second sale made by defendants-
appellants to the Cabigas spouses, plaintiff-appellant brought the
present suit. (Rollo, pp. 27-28)
After due trial, the Court of first Instance of Cebu rendered its Decision on
August 25,1972, the decretal portion of which reads:
WHEREFORE, the Court hereby declares the deed of sale
executed on November 25, 1965 by defendant Isabela L. de
Dignos in favor of defendant Luciano Cabigas, a citizen of the
United States of America, null and void ab initio, and the deed of
sale executed by defendants Silvestre T. Dignos and Isabela
Lumungsod de Dignos not rescinded. Consequently, the plaintiff
Atilano G. Jabil is hereby ordered to pay the sum, of Sixteen
Thousand Pesos (P16,000.00) to the defendants-spouses upon
the execution of the Deed of absolute Sale of Lot No. 3453,
Opon Cadastre and when the decision of this case becomes final
and executory.
The plaintiff Atilano G. Jabil is ordered to reimburse the
defendants Luciano Cabigas and Jovita L. de Cabigas, through
their attorney-in-fact, Panfilo Jabalde, reasonable amount
corresponding to the expenses or costs of the hollow block
fence, so far constructed.
It is further ordered that defendants-spouses Silvestre T. Dignos
and Isabela Lumungsod de Dignos should return to defendants-
spouses Luciano Cabigas and Jovita L. de Cabigas the sum of
P35,000.00, as equity demands that nobody shall enrich himself
at the expense of another.
The writ of preliminary injunction issued on September 23, 1966,
automatically becomes permanent in virtue of this decision.
With costs against the defendants.
From the foregoing, the plaintiff (respondent herein) and defendants-spouss
(petitioners herein) appealed to the Court of Appeals, which appeal was
docketed therein as CA-G.R. No. 54393-R, "Atilano G. Jabil v. Silvestre T.
Dignos, et al."
On July 31, 1981, the Court of Appeals affirmed the decision of the lower
court except as to the portion ordering Jabil to pay for the expenses incurred
by the Cabigas spouses for the building of a fence upon the land in question.
The disposive portion of said decision of the Court of Appeals reads:
IN VIEW OF THE FOREGOING CONSIDERATIONS, except as to
the modification of the judgment as pertains to plaintiff-
appellant above indicated, the judgment appealed from is hereby
AFFIRMED in all other respects.
With costs against defendants-appellants.
SO ORDERED.
Judgment MODIFIED.
A motion for reconsideration of said decision was filed by the defendants-
appellants (petitioners) Dignos spouses, but on December 16, 1981, a
resolution was issued by the Court of Appeals denying the motion for lack of
merit.
Hence, this petition.
In the resolution of February 10, 1982, the Second Division of this Court
denied the petition for lack of merit. A motion for reconsideration of said
resolution was filed on March 16, 1982. In the resolution dated April
26,1982, respondents were required to comment thereon, which comment
was filed on May 11, 1982 and a reply thereto was filed on July 26, 1982 in
compliance with the resolution of June 16,1 982. On August 9,1982, acting
on the motion for reconsideration and on all subsequent pleadings filed, this
Court resolved to reconsider its resolution of February 10, 1982 and to give
due course to the instant petition. On September 6, 1982, respondents filed
a rejoinder to reply of petitioners which was noted on the resolution of
September 20, 1982.
Petitioners raised the following assignment of errors:
I
THE COURT OF APPEALS COMMITTED A GRAVE ERROR OF LAW IN
GROSSLY, INCORRECTLY INTERPRETING THE TERMS OF THE CONTRACT,
EXHIBIT C, HOLDING IT AS AN ABSOLUTE SALE, EFFECTIVE TO TRANSFER
OWNERSHIP OVER THE PROPERTY IN QUESTION TO THE RESPONDENT AND
NOT MERELY A CONTRACT TO SELL OR PROMISE TO SELL; THE COURT
ALSO ERRED IN MISAPPLYING ARTICLE 1371 AS WARRANTING READING OF
THE AGREEMENT, EXHIBIT C, AS ONE OF ABSOLUTE SALE, DESPITE THE
CLARITY OF THE TERMS THEREOF SHOWING IT IS A CONTRACT OF
PROMISE TO SELL.
II
THE COURT OF APPEALS COMMITTED AN ERROR OF LAW IN INCORRECTLY
APPLYING AND OR IN MISAPPLYING ARTICLE 1592 OF THE NEW CIVIL CODE
AS WARRANTING THE ERRONEOUS CONCLUSION THAT THE NOTICE OF
RESCISSION, EXHIBIT G, IS INEFFECTIVE SINCE IT HAS NOT BEEN
JUDICIALLY DEMANDED NOR IS IT A NOTARIAL ACT.
III
THE COURT OF APPEALS COMMITTED AN ERROR OF LAW IN REJECTING THE
APPLICABILITY OF ARTICLES 2208,2217 and 2219 OF THE NEW CIVIL CODE
AND ESTABLISHED JURISPRUDENCE AS TO WARRANT THE AWARD OF
DAMAGES AND ATTORNEY'S FEES TO PETITIONERS.
IV
PLAINTIFF'S COMPLAINT FOR SPECIFIC PERFORMANCE SHOULD HAVE BEEN
DISMISSED, HE HAVING COME TO COURT WITH UNCLEAN HANDS.
V
BY AND LARGE, THE COURT OF APPEALS COMMITTED AN ERROR IN
AFFIRMING WITH MODIFICATION THE DECISION OF THE TRIAL COURT DUE
TO GRAVE MISINTERPRETATION, MISAPPLICATION AND MISAPPREHENSION
OF THE TERMS OF THE QUESTIONED CONTRACT AND THE LAW APPLICABLE
THERETO.
The foregoing assignment of errors may be synthesized into two main
issues, to wit:
I. Whether or not subject contract is a deed of absolute sale or a
contract Lot sell.
II. Whether or not there was a valid rescission thereof.
There is no merit in this petition.
It is significant to note that this petition was denied by the Second Division
of this Court in its Resolution dated February 1 0, 1 982 for lack of merit, but
on motion for reconsideration and on the basis of all subsequent pleadings
filed, the petition was given due course.
I.
The contract in question (Exhibit C) is a Deed of Sale, with the following
conditions:
1. That Atilano G..Jabilis to pay the amount of Twelve Thousand
Pesos P12,000.00) Phil. Philippine Currency as advance
payment;
2. That Atilano G. Jabil is to assume the balance of Twelve
Thousand Pesos (P12,000.00) Loan from the First Insular Bank
of Cebu;
3. That Atilano G. Jabil is to pay the said spouses the balance of
Four. Thousand Pesos (P4,000.00) on or before September
15,1965;
4. That the said spouses agrees to defend the said Atilano G.
Jabil from other claims on the said property;
5. That the spouses agrees to sign a final deed of absolute sale
in favor of Atilano G. Jabil over the above-mentioned property
upon the payment of the balance of Four Thousand Pesos.
(Original Record, pp. 10-11)
In their motion for reconsideration, petitioners reiterated their contention
that the Deed of Sale (Exhibit "C") is a mere contract to sell and not an
absolute sale; that the same is subject to two (2) positive suspensive
conditions, namely: the payment of the balance of P4,000.00 on or before
September 15,1965 and the immediate assumption of the mortgage of
P12,000.00 with the First Insular Bank of Cebu. It is further contended that
in said contract, title or ownership over the property was expressly reserved
in the vendor, the Dignos spouses until the suspensive condition of full and
punctual payment of the balance of the purchase price shall have been met.
So that there is no actual sale until full payment is made (Rollo, pp. 51-52).
In bolstering their contention that Exhibit "C" is merely a contract to sell,
petitioners aver that there is absolutely nothing in Exhibit "C" that indicates
that the vendors thereby sell, convey or transfer their ownership to the
alleged vendee. Petitioners insist that Exhibit "C" (or 6) is a private
instrument and the absence of a formal deed of conveyance is a very strong
indication that the parties did not intend "transfer of ownership and title but
only a transfer after full payment" (Rollo, p. 52). Moreover, petitioners
anchored their contention on the very terms and conditions of the contract,
more particularly paragraph four which reads, "that said spouses has agreed
to sell the herein mentioned property to Atilano G. Jabil ..." and condition
number five which reads, "that the spouses agrees to sign a final deed of
absolute sale over the mentioned property upon the payment of the balance
of four thousand pesos."
Such contention is untenable.
By and large, the issues in this case have already been settled by this Court
in analogous cases.
Thus, it has been held that a deed of sale is absolute in nature although
denominated as a "Deed of Conditional Sale" where nowhere in the contract
in question is a proviso or stipulation to the effect that title to the property
sold is reserved in the vendor until full payment of the purchase price, nor is
there a stipulation giving the vendor the right to unilaterally rescind the
contract the moment the vendee fails to pay within a fixed period Taguba v.
Vda. de Leon, 132 SCRA 722; Luzon Brokerage Co., Inc. v. Maritime Building
Co., Inc., 86 SCRA 305).
A careful examination of the contract shows that there is no such stipulation
reserving the title of the property on the vendors nor does it give them the
right to unilaterally rescind the contract upon non-payment of the balance
thereof within a fixed period.
On the contrary, all the elements of a valid contract of sale under Article
1458 of the Civil Code, are present, such as: (1) consent or meeting of the
minds; (2) determinate subject matter; and (3) price certain in money or its
equivalent. In addition, Article 1477 of the same Code provides that "The
ownership of the thing sold shall be transferred to the vendee upon actual or
constructive delivery thereof." As applied in the case of Froilan v. Pan
Oriental Shipping Co., et al. (12 SCRA 276), this Court held that in the
absence of stipulation to the contrary, the ownership of the thing sold passes
to the vendee upon actual or constructive delivery thereof.
While it may be conceded that there was no constructive delivery of the land
sold in the case at bar, as subject Deed of Sale is a private instrument, it is
beyond question that there was actual delivery thereof. As found by the trial
court, the Dignos spouses delivered the possession of the land in question to
Jabil as early as March 27,1965 so that the latter constructed thereon Sally's
Beach Resort also known as Jabil's Beach Resort in March, 1965; Mactan
White Beach Resort on January 15,1966 and Bevirlyn's Beach Resort on
September 1, 1965. Such facts were admitted by petitioner spouses
(Decision, Civil Case No. 23-L; Record on Appeal, p. 108).
Moreover, the Court of Appeals in its resolution dated December 16,1981
found that the acts of petitioners, contemporaneous with the contract,
clearly show that an absolute deed of sale was intended by the parties and
not a contract to sell.
Be that as it may, it is evident that when petitioners sold said land to the
Cabigas spouses, they were no longer owners of the same and the sale is
null and void.
II.
Petitioners claim that when they sold the land to the Cabigas spouses, the
contract of sale was already rescinded.
Applying the rationale of the case of Taguba v. Vda. de Leon (supra) which is
on all fours with the case at bar, the contract of sale being absolute in
nature is governed by Article 1592 of the Civil Code. It is undisputed that
petitioners never notified private respondents Jabil by notarial act that they
were rescinding the contract, and neither did they file a suit in court to
rescind the sale. The most that they were able to show is a letter of Cipriano
Amistad who, claiming to be an emissary of Jabil, informed the Dignos
spouses not to go to the house of Jabil because the latter had no money and
further advised petitioners to sell the land in litigation to another party
(Record on Appeal, p. 23). As correctly found by the Court of Appeals, there
is no showing that Amistad was properly authorized by Jabil to make such
extra-judicial rescission for the latter who, on the contrary, vigorously
denied having sent Amistad to tell petitioners that he was already waiving
his rights to the land in question. Under Article 1358 of the Civil Code, it is
required that acts and contracts which have for their object the
extinguishment of real rights over immovable property must appear in a
public document.
Petitioners laid considerable emphasis on the fact that private respondent
Jabil had no money on the stipulated date of payment on September
15,1965 and was able to raise the necessary amount only by mid-October
1965.
It has been ruled, however, that "where time is not of the essence of the
agreement, a slight delay on the part of one party in the performance of his
obligation is not a sufficient ground for the rescission of the agreement"
(Taguba v. Vda. de Leon, supra). Considering that private respondent has
only a balance of P4,000.00 and was delayed in payment only for one
month, equity and justice mandate as in the aforecited case that Jabil be
given an additional period within which to complete payment of the purchase
price.
WHEREFORE, the petition filed is hereby Dismissed for lack of merit and the
assailed decision of the Court of Appeals is Affirmed in toto.
SO ORDERED.
Fernan (Chairman), Gutierrez, Jr., Feliciano and Cortes, JJ., concur.
LINO ARTATES and MANUELA POJAS, plaintiffs-appellants,
vs.
DANIEL URBI, CRISANTO SOLIVEN, assisted by his Guardian 'ad
litem,' MARCELA B. SOLIVEN, REMEGIO BUTACAN and NEMESIO
OATE, in their private capacities and/or as Ex-Oficio Provincial
Sheriff and Deputy Sheriff of Cagayan, respectively, and
BIENVENIDO CACATIAN, as Deputy Register of Deeds of
Cagayan, defendants-appellees.
Bienvenido J. Jimenez for plaintiffs-appellants.
Rogelio Re. Ubarde for defendants-appellees Daniel Urbi and Crisanto
Soliven.
Alfredo J. Donato for defendant-appellant Nemesio Oate.
The Provincial Fiscal (Cagayan) for defendants-appellees Provincial Sheriff
and Deputy Register of Deeds.

REYES, J.B.L., J.:
This is an appeal from the decision of the Court of First Instance of Cagayan
(Civil Case No. 116-T), involving the public sale of a homestead to satisfy a
civil judgment against the grantee.
The records show that in an action filed in the Court of First Instance of
Cagayan, the spouses Lino Artates and Manuela Pojas sought annulment of
the execution of a homestead
1
covered by Patent No. V-12775 issued to
them by the proper land authorities on 23 September 1952, and duly
registered in their names (OCT No. P-572). The public sale, conducted by
the Provincial Sheriff of Cagayan on 2 June 1962, was made to satisfy a
judgment against Lino Artates in the amount of P1,476.35, and awarded to
Daniel Urbi by the Justice of the Peace Court of Camilaniugan, Cagayan, in
its Civil Case No. 40, for physical injuries inflicted by Artates upon Urbi on 21
October 1955. In the execution sale, the property was sold to the judgment
creditor, the only bidder, for P1,476.35. In their complaint, the plaintiffs
spouses alleged that the sale of the homestead to satisfy an indebtedness of
Lino Artates that accrued on 21 October 1955, violated the provision of the
Public Land law exempting said property from execution for any debt
contracted within five years from the date of the issuance of the patent; that
defendant Urbi, with the intention of defrauding the plaintiffs, executed on
26 June 1961 a deed for the sale of the same parcel of land to defendant
Crisanto Soliven, a minor, supposedly for the sum of P2,676.35; that as a
result of the aforementioned transactions, defendants Urbi and Soliven
entered into the possession of the land and deprived plaintiffs of the owners'
share in the rice crops harvested during the agricultural year 1961-1962.
Plaintiffs, therefore, prayed that the public sale of the land to defendant
Urbi, as well as the deed of sale executed by the latter in favor of defendant
Soliven, be declared null and void; that defendants be ordered to deliver to
plaintiffs possession of the land; and to pay to plaintiffs compensatory
damages at the rate of P1,000.00 per agricultural year until possession is
finally restored to them, the sum of P2,000.00 as damages for maliciously
casting cloud upon plaintiffs' title on the land, plus attorneys' fees and costs.
The defendants
2
filed separate answers disputing the averments of the
complaint. On 29 March 1953, the court rendered judgment upholding the
regularity and validity of the execution conducted by the defendant
Provincial Sheriff, but finding that the sale of the lands by defendant Urbi to
the minor Soliven was simulated, intended to place the property beyond the
reach of the judgment debtor, and that plaintiffs had offered to redeem the
land within the 5-year period allowed by Section 119 of the Public Land law
for reacquisition thereof by the grantee. Consequently, the court declared
the sale of the land by defendant Daniel Urbi to defendant Crisanto Soliven
null and void; and Daniel Urbi was ordered to reconvey the property to the
plaintiffs upon the latter's payment (to Urbi) of the sum of P1,476.35 plus
the sheriff's fee incident to the sale at public auction, with interest thereon
at the rate of 12% per annum from 2 June 1961 until said amount shall have
been fully paid, and the further sum of P783.45 representing the amount
paid by defendant Daniel Urbi to the Philippine National Bank for the release
of the real estate mortgage on the land, contracted by Lino Artates, with
legal rate of interest thereon from 29 June 1961.
From this decision, the plaintiffs interposed the present appeal assigning
several errors allegedly committed by the court below, all hinged on the
validity or invalidity of the public sale of the lot involved herein.
Section 118 of the Public Land law (Commonwealth Act 141) provides as
follows:
SEC. 118. Except in favor of the Government or any of its
branches, units, or institution, or legally constituted banking
corporations, lands acquired under free patent or homestead
provisions shall not be subject to encumbrance or alienation
from the date of the approval of the application and for a term of
five years from and after the date of issuance of the patent or
grant, nor shall they become liable to the satisfaction of any debt
contracted prior to the expiration of said period, but the
improvements or crops on the land may be mortgaged or
pledged to qualified persons, associations or corporations.
xxx xxx xxx
As thus prescribed by law, for a period of five years from the date of the
government grant, lands acquired by free or homestead patent shall not only
be incapable of being encumbered or alienated except in favor of the
government itself or any of its institutions or of duly constituted banking
corporations, but also, they shall not be liable to the satisfaction of any debt
contracted within the said period,
3
whether or not the indebtedness shall
mature during or after the prohibited time.
4
This provision against the
alienation or encumbrance of public lands granted within five years from the
issuance of the patent, it has been held, is mandatory;
5
a sale made in
violation thereof is null and void
6
and produces no effect whatsoever.
Though it may be a limitation on the right of ownership of the grantee, the
salutary purpose of the provision cannot be denied: it is to preserve and
keep for the homesteader or his family the land given to him gratuitously by
the State,
7
so that being a property owner, he may become and remain a
contented and useful member of our society.
8

In the case at bar, the homestead patent covering the land in question (No.
V-12775) was issued to appellants on 23 September 1952, and it was sold
at public auction to satisfy the civil liability of appellant Lino Artates to Daniel
Urbi, adjudged in the 14 March 1956 decision of the Justice of the Peace
Court of Camalaniugan, Cagayan.lwph1.t There can be no doubt that the
award of damages to Urbi created for Artates a civil obligation, an
indebtedness, that commenced from the date such obligation was decreed
on 14 March 1956. Consequently, it is evident that it can not be enforced
against, or satisfied out of, the sale of the homestead lot acquired by
appellants less than 5 years before the obligation accrued. And this is true
even if the sale involved here is not voluntary. For purposes of complying
with the law, it is immaterial that the satisfaction of the debt by the
encumbrancing or alienation of the land grant made voluntarily, as in the
case of an ordinary sale, or involuntarily, such as that effected through levy
on the property and consequent sale at public auction. In both instances, the
spirit of the law would have been violated.
9

Doubts have been expressed as to whether the words "debt contracted prior
to the expiration of said period" (of 5 years from and after the grant) would
include the civil liability arising from a crime committed by the homesteader.
While there is no direct Philippine precedent on this point, there are various
reasons why the non-liability of the homestead grant should be extended to
extra-contractual obligations. First and foremost, whether it be viewed as an
exemption or as a condition attached to the grant to encourage people to
settle and cultivate public land, the immunity in question is in consonance
with the definite public policy underlying these grants, which is to "preserve
and keep in the family of the homesteader that portion of public land which
the State has given to him" so he may have a place to live with his family
and become a happy citizen and a useful member of society,
10
and the
exemption should not be given restrictive application.
11
A levy and sale of
the homestead on account of extra-contractual liability incurred would
uproot the homesteader and his family and turn them into homeless waifs as
effectively as a levy for non-payment of a contractual debt. Secondly, the
word "debt" in exemption statutes,
in its wider sense, (it) includes all that is due to a man under
any form or obligation or promise, and covers not only
obligations arising under contract, but also those imposed by law
without contract.
12

Considering the protective policy of the law, it becomes apparent that "debt
contracted" was used in it in the sense of "obligation incurred," since
Webster gives the verb to "contract" the meaning of "to bring on; incur;
acquire." Finally, our public land laws being copied from American
legislation,
13
resort to American precedents reveals that, under the weight
of authority, exemption from "debts contracted" by a homesteader has been
held to include freedom from money liabilities, from torts or crimes
committed by him, such as from bigamy (State vs. O'Neil, 7 Ore. 141, 11
Words and Phrases 318) or slander (Conway vs. Sullivan, 44 Ill. 451, 452),
breach of contract (Flanagan vs. Forsythe, 50 Pac. 152, 153) or other torts
(In Re Radway, 20 Fed. Cas. 154, 162).
The execution sale in this case being null and void, the possession of the
land should be returned to the owners, the herein appellants. There would
even be no need to order appellee Urbi to execute a deed of reconveyance
thereof to the owners. It appears that what was issued here to the judgment
creditor/purchaser was only the sheriff's provisional certificate, under which
he derived no definite title or right until the period for redemption has
expired, without a redemption having been made,
14
or issuance of a final
deed or certificate of sale. In other words, the purchaser herein has not
acquired an absolute ownership or title in fee over the land that would
necessitate a deed of reconveyance to revert ownership back to the
appellant spouses. As things now stand, title to the property covered by OCT
No. P-572 remains with the appellants, but Lino Artates shall continue to be
under obligation to satisfy the judgment debt to Daniel Urbi in the sum of
P1,476.35, with legal interest thereon accruing from the date the writ of
execution was first returned unsatisfied. It appearing also that appellee
Daniel Urbi paid to the Philippine National Bank the sum of P783.45 to
release the mortgage on the land, appellants should reimburse him of said
amount or of whatever amount appellants have actually been benefited by
the said payment.
FOR THE FOREGOING CONSIDERATIONS, the decision appealed from is
hereby reversed, and appellants are declared entitled to the return and
possession of the lot covered by Original Certificate of Title No. P-572,
without prejudice to their continuing obligation to pay the judgment debt,
and expenses connected therewith. No costs.
Concepcion, C.J., Dizon, Zaldivar, Fernando and Makasiar, JJ., concur.



Separate Opinions

MAKALINTAL, J., concurring and dissenting:
I concur in the opinion of Justice Teehankee, and vote for the affirmance of
the appealed judgment in toto. The date of the issuance of the homestead
patent to appellants was September 23, 1952. Under Section 118 of the
Public Land Law the homestead could not be held liable for the satisfaction of
any debt contracted during a period of five years thereafter, or up to
September 23, 1957. The opinion of the majority holds that since the civil
obligation of appellant Artates was adjudged on March 14, 1956, or within
the said period, the homestead cannot be held liable for its
satisfaction.lwph1.t The obvious implication is that if the judgment had
been delayed if for instance it had been rendered on September 24, 1957
the result would have been otherwise. I do not believe that such a
difference should be made to depend upon the more or less fortuitous and
irrelevant circumstance of when the judgment decreeing the obligation was
rendered. I am for giving the word "contracted," as used in the law, its
ordinary meaning, for after all one who contracts with a homestead patentee
during the five-year period and accepts an obligation from him does so with
full knowledge of the law's exempting provision, which is deemed in effect a
part of the agreement. The same, however, is not true of the victim of a tort
or a crime, as in the present case, for here his volition does not come into
play, the obligation being imposed entirely by law.
TEEHANKEE, J., concurring and dissenting:
I vote for the affirmance in toto of the judgment appealed from. Hence, I
concur in that portion of the decision decreeing that appellants should
reimburse appellee Urbi for the sums that Urbi had paid to the Philippine
National Bank to release the mortgage previously executed by appellants on
the subject homestead land, but I dissent from the principal decree thereof
that "title to the property .... remains with the appellants, but (appellant)
Lino Artates shall continue to be under obligation to satisfy the judgment
debt to Daniel Urbi in the sum of P1,476.35, with legal interest thereon
accruing from the date the writ of execution was first returned unsatisfied."
The issue at bar is whether the execution sale conducted in 1962 by the
sheriff of Artates' homestead lot acquired in 1952 to satisfy a 1956 judgment
against Artates in favor of Urbi (for physical injuries inflicted by Artates upon
Urbi in 1955), at which public sale the homestead lot was sold to Urbi as the
only bidder for the amount of his judgment credit in the sum of P1,476.35
should be held null and void, as the majority would now hold, by virtue of
the prohibitory provisions of Section 118 of the Public Land Law. The key
provision cited is that providing that such homesteads "shall not be subject
to encumbrance or alienation from the date of the approval of the
application and for a term of five years from and after the date of issuance
of the patent or grant, nor shall they become liable to the satisfaction of any
debt contracted prior to the expiration of said period ..".
Under the cited provision, all sales and alienations of the homestead
property made by the homesteader within the 5-year prohibition are null and
void. Similarly, the homestead is held not liable to the satisfaction of any
debtcontracted by the homesteader within the said period, even though it
be contracted that the indebtedness shall mature after the prohibited period.
The law's purpose is clear and salutary: to preserve and keep for the
homesteader the land given to him gratuitously by the State and to protect
him from his own weakness and improvidence.
But in the case at bar, the judgment debt of the homesteader in favor of
Ubi * was not contracted but duly adjudicated by a competent court in a
lawful judgment for injuries inflicted by Artates upon Urbi in 1955, which,
gauging the same from the substantial amount of P1,476.35 awarded, must
have been quite serious. The happenstance that Artates' assault on Urbi and
the judgment award occurred within the prohibitory period should not be
construed beyond the law's text and intent to favor the wrongdoer Artates
as against his victim Urbi.
We would have the anomalous situation thereby where, while recognizing
that Artates has a just and continuing obligation to pay Urbi the judgment
debt, the debt would in effect be nullified. The judgment debt was awarded
since 1956 and would by now have prescribed, but the majority decision
would nullify the levy and public sale of the land to satisfy Urbi's judgment
credit conducted in 1966 long after the expiration of the statutory five-year
prohibitory period. The majority decision bars Urbi forever from looking to
Artates homestead property for the satisfaction of his judgment credit.
Artates' evasion of his judgment debt to Urbi is thereby made certain. Any
later creditor of Artates, real or simulated, from one day after the expiration
on 23 September 1957 of the said five-year prohibitory period is given sole
and exclusive preference to look to the said property for satisfaction as
against Urbi beyond whose reach it is placed, contrary to the priority and
preference that Urbi would lawfully be entitled to as a bona fide judgment
creditor.
Finally, pursuant to Artates' offer to redeem the property from Urbi within
the 5-year redemption period allowed by section 119 of the Public Land Law,
the lower court in its appealed judgment so ordered such redemption and
reconveyance. This strikes me as an eminently fair and just judgment which
should be upheld. Artates, the homesteader, is thus assured of keeping and
preserving his homestead in accordance ** with the spirit of the law and the
lawful judgment credit of Urbi against him is at the same time duly satisfied.
Castro and Villamor, JJ., concur.
BARREDO, J., dissenting:
I regret I am unable to concur in the ruling in this decision that the provision
of Section 118 of the Public Land Law which says that "lands acquired under
free patent or homestead provisions shall not ... become liable to the
satisfaction of any debt contracted prior to the expiration of five years from
and after the date of issuance of the patent or grant" contemplates
inclusively "the civil liability arising from a crime committed by the
homesteader" within said period. Indeed, I do not feel it is necessary to go
deep into the Webster's dictionary meaning of the verb "to contract" or to
look for state court decisions in America, which could be isolated and based
on statutes not similarly phrased and oriented as Ours, to resolve the legal
issue before Us, it being sufficient, towards that end, to consider only the
basic principles that underlie the disposition of public lands under our own
laws on the matter.
I understand that the ultimate reason behind the exceptions contained in the
cited provision of the Public Land Law is to insure the accomplishment of the
double purpose of a homestead grant, which is to encourage the
development of arable lands and enhance their productivity in the interest of
the national economy and, at the same time, provide qualified citizens with a
piece of land which they and their families may call their own, on which they
can live and which they can work and thereby become useful members of
society. Accordingly, the homesteader is safeguarded against his own
weaknesses imprudence and improvidence by making it impossible for him
to directly or indirectly, by his voluntary act, dispose of or lose the land in
favor of others. So also do the exceptions make it impossible for him to
allow himself to be utilized as dummy of opportunists. If this understanding
of mine is correct, it should follow necessarily that for these purposes to be
achieved, a homesteader must be, during the exempt period, in physical
condition to work the land granted to him. I cannot help wondering how a
person who has been convicted of a crime, the penalty for which is most
likely to include a period of incarceration can work on and develop his
homestead in the manner conceived in the law. That such a contingency
may not be true in all instances, for there may be punishment of crimes with
imprisonment of insignificantly short duration or even fines only, does not
affect the general principle involved. I consider it implicit in all land grants
by the State that the grantees bind themselves to be loyal and useful
members of society, at least, during the period of development thereof that
the law contemplates, namely, the first five years from the grant. Surely,
one who commits an offense against the State and his fellow-citizens or
other inhabitants in this country is far from being a useful member of
society. To be sure, his act of committing an offense is voluntary, but this is
not the voluntary act of imprudence and improvidence against which the law
guards the homesteader even against himself. Crime is an assault upon the
sovereign people and the social order, even if not always directly against the
national security, and it is my considered view that, in principle, one who is
guilty thereof forfeits whatever rights he might have acquired by virtue of
the State's generosity, particularly, when, as in this case, it is a grant of a
special privilege under specified circumstances and not generally and
commonly enjoyed by all citizens/inhabitants of the country.
For these reasons, I vote to affirm the judgment of the court a quo which,
after all, recognizes the appellants' right to redeem the land in question
under Section 119 of the Public Land Law, which is the most they should
expect from the State, as thus, their right to the land is reinstated without
practically depriving the innocent victims of the crime herein involved of
their remedy for the private injury they have suffered. In other words, under
the trial court's decision, all the ends of justice and equity are subserved,
whereas it is difficult to say the same of the decision of this Court.
REYES, J.B.L., J.:


Separate Opinions
MAKALINTAL, J., concurring and dissenting:
I concur in the opinion of Justice Teehankee, and vote for the affirmance of
the appealed judgment in toto. The date of the issuance of the homestead
patent to appellants was September 23, 1952. Under Section 118 of the
Public Land Law the homestead could not be held liable for the satisfaction of
any debt contracted during a period of five years thereafter, or up to
September 23, 1957. The opinion of the majority holds that since the civil
obligation of appellant Artates was adjudged on March 14, 1956, or within
the said period, the homestead cannot be held liable for its satisfaction. The
obvious implication is that if the judgment had been delayed if for
instance it had been rendered on September 24, 1957 the result would
have been otherwise. I do not believe that such a difference should be made
to depend upon the more or less fortuitous and irrelevant circumstance of
when the judgment decreeing the obligation was rendered. I am for giving
the word "contracted," as used in the law, its ordinary meaning, for after all
one who contracts with a homestead patentee during the five-year period
and accepts an obligation from him does so with full knowledge of the law's
exempting provision, which is deemed in effect a part of the
agreement.lwph1.t The same, however, is not true of the victim of a tort
or a crime, as in the present case, for here his volition does not come into
play, the obligation being imposed entirely by law.
TEEHANKEE, J., concurring and dissenting:
I vote for the affirmance in toto of the judgment appealed from. Hence, I
concur in that portion of the decision decreeing that appellants should
reimburse appellee Urbi for the sums that Urbi had paid to the Philippine
National Bank to release the mortgage previously executed by appellants on
the subject homestead land, but I dissent from the principal decree thereof
that "title to the property .... remains with the appellants, but (appellant)
Lino Artates shall continue to be under obligation to satisfy the judgment
debt to Daniel Urbi in the sum of P1,476.35, with legal interest thereon
accruing from the date the writ of execution was first returned unsatisfied."
The issue at bar is whether the execution sale conducted in 1962 by the
sheriff of Artates' homestead lot acquired in 1952 to satisfy a 1956 judgment
against Artates in favor of Urbi (for physical injuries inflicted by Artates upon
Urbi in 1955), at which public sale the homestead lot was sold to Urbi as the
only bidder for the amount of his judgment credit in the sum of P1,476.35
should be held null and void, as the majority would now hold, by virtue of
the prohibitory provisions of Section 118 of the Public Land Law. The key
provision cited is that providing that such homesteads "shall not be subject
to encumbrance or alienation from the date of the approval of the
application and for a term of five years from and after the date of issuance
of the patent or grant, nor shall they become liable to the satisfaction of any
debt contracted prior to the expiration of said period ..".
Under the cited provision, all sales and alienations of the homestead
property made by the homesteader within the 5-year prohibition are null and
void. Similarly, the homestead is held not liable to the satisfaction of any
debtcontracted by the homesteader within the said period, even though it
be contracted that the indebtedness shall mature after the prohibited period.
The law's purpose is clear and salutary: to preserve and keep for the
homesteader the land given to him gratuitously by the State and to protect
him from his own weakness and improvidence.
But in the case at bar, the judgment debt of the homesteader in favor of Ubi
* was not contracted but duly adjudicated by a competent court in a lawful
judgment for injuries inflicted by Artates upon Urbi in 1955, which, gauging
the same from the substantial amount of P1,476.35 awarded, must have
been quite serious. The happenstance that Artates' assault on Urbi and the
judgment award occurred within the prohibitory period should not be
construed beyond the law's text and intent to favor the wrongdoer Artates
as against his victim Urbi.
We would have the anomalous situation thereby where, while recognizing
that Artates has a just and continuing obligation to pay Urbi the judgment
debt, the debt would in effect be nullified. The judgment debt was awarded
since 1956 and would by now have prescribed, but the majority decision
would nullify the levy and public sale of the land to satisfy Urbi's judgment
credit conducted in 1966 long after the expiration of the statutory five-year
prohibitory period.lwph1.t The majority decision bars Urbi forever from
looking to Artates homestead property for the satisfaction of his judgment
credit. Artates' evasion of his judgment debt to Urbi is thereby made certain.
Any later creditor of Artates, real or simulated, from one day after the
expiration on 23 September 1957 of the said five-year prohibitory period is
given sole and exclusive preference to look to the said property for
satisfaction as against Urbi beyond whose reach it is placed, contrary to the
priority and preference that Urbi would lawfully be entitled to as a bona
fide judgment creditor.
Finally, pursuant to Artates' offer to redeem the property from Urbi within
the 5-year redemption period allowed by section 119 of the Public Land Law,
the lower court in its appealed judgment so ordered such redemption and
reconveyance. This strikes me as an eminently fair and just judgment which
should be upheld. Artates, the homesteader, is thus assured of keeping and
preserving his homestead in accordance ** with the spirit of the law and the
lawful judgment credit of Urbi against him is at the same time duly satisfied.
Castro and Villamor, JJ., concur.
BARREDO, J., dissenting:
I regret I am unable to concur in the ruling in this decision that the provision
of Section 118 of the Public Land Law which says that "lands acquired under
free patent or homestead provisions shall not ... become liable to the
satisfaction of any debt contracted prior to the expiration of five years from
and after the date of issuance of the patent or grant" contemplates
inclusively "the civil liability arising from a crime committed by the
homesteader" within said period. Indeed, I do not feel it is necessary to go
deep into the Webster's dictionary meaning of the verb "to contract" or to
look for state court decisions in America, which could be isolated and based
on statutes not similarly phrased and oriented as Ours, to resolve the legal
issue before Us, it being sufficient, towards that end, to consider only the
basic principles that underlie the disposition of public lands under our own
laws on the matter.
I understand that the ultimate reason behind the exceptions contained in the
cited provision of the Public Land Law is to insure the accomplishment of the
double purpose of a homestead grant, which is to encourage the
development of arable lands and enhance their productivity in the interest of
the national economy and, at the same time, provide qualified citizens with a
piece of land which they and their families may call their own, on which they
can live and which they can work and thereby become useful members of
society. Accordingly, the homesteader is safeguarded against his own
weaknesses imprudence and improvidence by making it impossible for him
to directly or indirectly, by his voluntary act, dispose of or lose the land in
favor of others. So also do the exceptions make it impossible for him to
allow himself to be utilized as dummy of opportunists. If this understanding
of mine is correct, it should follow necessarily that for these purposes to be
achieved, a homesteader must be, during the exempt period, in physical
condition to work the land granted to him. I cannot help wondering how a
person who has been convicted of a crime, the penalty for which is most
likely to include a period of incarceration can work on and develop his
homestead in the manner conceived in the law. That such a contingency
may not be true in all instances, for there may be punishment of crimes with
imprisonment of insignificantly short duration or even fines only, does not
affect the general principle involved. I consider it implicit in all land grants
by the State that the grantees bind themselves to be loyal and useful
members of society, at least, during the period of development thereof that
the law contemplates, namely, the first five years from the grant. Surely,
one who commits an offense against the State and his fellow-citizens or
other inhabitants in this country is far from being a useful member of
society. To be sure, his act of committing an offense is voluntary, but this is
not the voluntary act of imprudence and improvidence against which the law
guards the homesteader even against himself. Crime is an assault upon the
sovereign people and the social order, even if not always directly against the
national security, and it is my considered view that, in principle, one who is
guilty thereof forfeits whatever rights he might have acquired by virtue of
the State's generosity, particularly, when, as in this case, it is a grant of a
special privilege under specified circumstances and not generally and
commonly enjoyed by all citizens/inhabitants of the country.
For these reasons, I vote to affirm the judgment of the court a quo which,
after all, recognizes the appellants' right to redeem the land in question
under Section 119 of the Public Land Law, which is the most they should
expect from the State, as thus, their right to the land is reinstated without
practically depriving the innocent victims of the crime herein involved of
their remedy for the private injury they have suffered. In other words, under
the trial court's decision, all the ends of justice and equity are subserved,
whereas it is difficult to say the same of the decision of this Court.
REYES, J.B.L., J., concu.r
POUSES FERNANDO G.R. No. 188288
and LOURDES VILORIA,
Petitioners,




- versus -




CONTINENTAL AIRLINES, INC.,
Respondent.

Present:

CARPIO, J.,
Chairperson,
PEREZ,
SERENO,
REYES, and
BERNABE, JJ.



Promulgated:

January 16, 2012

x------------------------------------------------------------------------------------x

DECISION

REYES, J.:

This is a petition for review under Rule 45 of the Rules of Court from
the January 30, 2009 Decision
1
of the Special Thirteenth Division of the
Court of Appeals (CA) in CA-G.R. CV No. 88586 entitled Spouses Fernando
and Lourdes Viloria v. Continental Airlines, Inc., the dispositive portion of
which states:

WHEREFORE, the Decision of the Regional Trial Court,
Branch 74, dated 03 April 2006, awarding US$800.00 or its peso
equivalent at the time of payment, plus legal rate of interest
from 21 July 1997 until fully paid, [P]100,000.00 as moral
damages, [P]50,000.00 as exemplary damages, [P]40,000.00 as
attorneys fees and costs of suit to plaintiffs-appellees is
hereby REVERSED and SET ASIDE.

Defendant-appellants counterclaim is DENIED.

Costs against plaintiffs-appellees.

SO ORDERED.
2



On April 3, 2006, the Regional Trial Court of Antipolo City, Branch 74
(RTC) rendered a Decision, giving due course to the complaint for sum of
money and damages filed by petitioners Fernando Viloria (Fernando) and
Lourdes Viloria (Lourdes), collectively called Spouses Viloria, against
respondent Continental Airlines, Inc. (CAI). As culled from the records,
below are the facts giving rise to such complaint.

On or about July 21, 1997 and while in the United States, Fernando
purchased for himself and his wife, Lourdes, two (2) round trip airline tickets
from San Diego, California to Newark, New Jersey on board Continental
Airlines. Fernando purchased the tickets at US$400.00 each from a travel
agency called Holiday Travel and was attended to by a certain Margaret
Mager (Mager). According to Spouses Viloria, Fernando agreed to buy the
said tickets after Mager informed them that there were no available seats at
Amtrak, an intercity passenger train service provider in the United States.
Per the tickets, Spouses Viloria were scheduled to leave for Newark on
August 13, 1997 and return to San Diego on August 21, 1997.

Subsequently, Fernando requested Mager to reschedule their flight to
Newark to an earlier date or August 6, 1997. Mager informed him that flights
to Newark via Continental Airlines were already fully booked and offered the
alternative of a round trip flight via Frontier Air. Since flying with Frontier Air
called for a higher fare of US$526.00 per passenger and would mean
traveling by night, Fernando opted to request for a refund. Mager, however,
denied his request as the subject tickets are non-refundable and the only
option that Continental Airlines can offer is the re-issuance of new tickets
within one (1) year from the date the subject tickets were issued. Fernando
decided to reserve two (2) seats with Frontier Air.

As he was having second thoughts on traveling via Frontier Air,
Fernando went to the Greyhound Station where he saw an Amtrak station
nearby. Fernando made inquiries and was told that there are seats available
and he can travel on Amtrak anytime and any day he pleased. Fernando
then purchased two (2) tickets for Washington, D.C.

From Amtrak, Fernando went to Holiday Travel and confronted Mager
with the Amtrak tickets, telling her that she had misled them into buying the
Continental Airlines tickets by misrepresenting that Amtrak was already fully
booked. Fernando reiterated his demand for a refund but Mager was firm in
her position that the subject tickets are non-refundable.

Upon returning to the Philippines, Fernando sent a letter to CAI on
February 11, 1998, demanding a refund and alleging that Mager had
deluded them into purchasing the subject tickets.
3


In a letter dated February 24, 1998, Continental Micronesia informed
Fernando that his complaint had been referred to the Customer Refund
Services of Continental Airlines at Houston, Texas.
4


In a letter dated March 24, 1998, Continental Micronesia denied
Fernandos request for a refund and advised him that he may take the
subject tickets to any Continental ticketing location for the re-issuance of
new tickets within two (2) years from the date they were issued. Continental
Micronesia informed Fernando that the subject tickets may be used as a
form of payment for the purchase of another Continental ticket, albeit with a
re-issuance fee.
5


On June 17, 1999, Fernando went to Continentals ticketing office at
Ayala Avenue, Makati City to have the subject tickets replaced by a single
round trip ticket to Los Angeles, California under his name. Therein,
Fernando was informed that Lourdes ticket was non-transferable, thus,
cannot be used for the purchase of a ticket in his favor. He was also
informed that a round trip ticket to Los Angeles was US$1,867.40 so he
would have to pay what will not be covered by the value of his San Diego to
Newark round trip ticket.

In a letter dated June 21, 1999, Fernando demanded for the refund of
the subject tickets as he no longer wished to have them replaced. In
addition to the dubious circumstances under which the subject tickets were
issued, Fernando claimed that CAIs act of charging him with US$1,867.40
for a round trip ticket to Los Angeles, which other airlines priced at
US$856.00, and refusal to allow him to use Lourdes ticket, breached its
undertaking under its March 24, 1998 letter.
6


On September 8, 2000, Spouses Viloria filed a complaint against CAI,
praying that CAI be ordered to refund the money they used in the purchase
of the subject tickets with legal interest from July 21, 1997 and to
pay P1,000,000.00 as moral damages, P500,000.00 as exemplary damages
andP250,000.00 as attorneys fees.
7


CAI interposed the following defenses: (a) Spouses Viloria have no
right to ask for a refund as the subject tickets are non-refundable; (b)
Fernando cannot insist on using the ticket in Lourdes name for the purchase
of a round trip ticket to Los Angeles since the same is non-transferable; (c)
as Mager is not a CAI employee, CAI is not liable for any of her acts; (d)
CAI, its employees and agents did not act in bad faith as to entitle Spouses
Viloria to moral and exemplary damages and attorneys fees. CAI also
invoked the following clause printed on the subject tickets:

3. To the extent not in conflict with the foregoing carriage and
other services performed by each carrier are subject to: (i)
provisions contained in this ticket, (ii) applicable tariffs, (iii)
carriers conditions of carriage and related regulations which are
made part hereof (and are available on application at the offices
of carrier), except in transportation between a place in the
United States or Canada and any place outside thereof to which
tariffs in force in those countries apply.
8



According to CAI, one of the conditions attached to their contract of
carriage is the non-transferability and non-refundability of the subject
tickets.

The RTCs Ruling

Following a full-blown trial, the RTC rendered its April 3, 2006
Decision, holding that Spouses Viloria are entitled to a refund in view of
Magers misrepresentation in obtaining their consent in the purchase of the
subject tickets.
9
The relevant portion of the April 3, 2006 Decision states:

Continental Airlines agent Ms. Mager was in bad faith when
she was less candid and diligent in presenting to plaintiffs
spouses their booking options. Plaintiff Fernando clearly wanted
to travel via AMTRAK, but defendants agent misled him into
purchasing Continental Airlines tickets instead on the fraudulent
misrepresentation that Amtrak was fully booked. In fact,
defendant Airline did not specifically denied (sic) this allegation.

Plainly, plaintiffs spouses, particularly plaintiff Fernando,
were tricked into buying Continental Airline tickets on Ms.
Magers misleading misrepresentations. Continental Airlines
agent Ms. Mager further relied on and exploited plaintiff
Fernandos need and told him that they must book a flight
immediately or risk not being able to travel at all on the couples
preferred date. Unfortunately, plaintiffs spouses fell prey to the
airlines and its agents unethical tactics for baiting trusting
customers.
10



Citing Articles 1868 and 1869 of the Civil Code, the RTC ruled that
Mager is CAIs agent, hence, bound by her bad faith and misrepresentation.
As far as the RTC is concerned, there is no issue as to whether Mager was
CAIs agent in view of CAIs implied recognition of her status as such in its
March 24, 1998 letter.

The act of a travel agent or agency being involved here,
the following are the pertinent New Civil Code provisions on
agency:

Art. 1868. By the contract of agency a person
binds himself to render some service or to do
something in representation or on behalf of another,
with the consent or authority of the latter.

Art. 1869. Agency may be express, or implied
from the acts of the principal, from his silence or lack
of action, or his failure to repudiate the agency,
knowing that another person is acting on his behalf
without authority.

Agency may be oral, unless the law requires a
specific form.

As its very name implies, a travel agency binds itself to
render some service or to do something in representation or on
behalf of another, with the consent or authority of the latter.
This court takes judicial notice of the common services rendered
by travel agencies that represent themselves as such,
specifically the reservation and booking of local and foreign tours
as well as the issuance of airline tickets for a commission or fee.

The services rendered by Ms. Mager of Holiday Travel
agency to the plaintiff spouses on July 21, 1997 were no
different from those offered in any other travel agency.
Defendant airline impliedly if not expressly acknowledged its
principal-agent relationship with Ms. Mager by its offer in the
letter dated March 24, 1998 an obvious attempt to assuage
plaintiffs spouses hurt feelings.
11



Furthermore, the RTC ruled that CAI acted in bad faith in reneging on
its undertaking to replace the subject tickets within two (2) years from their
date of issue when it charged Fernando with the amount of US$1,867.40 for
a round trip ticket to Los Angeles and when it refused to allow Fernando to
use Lourdes ticket. Specifically:

Tickets may be reissued for up to two years from the original
date of issue. When defendant airline still charged plaintiffs
spouses US$1,867.40 or more than double the then going rate of
US$856.00 for the unused tickets when the same were
presented within two (2) years from date of issue, defendant
airline exhibited callous treatment of passengers.
12



The Appellate Courts Ruling

On appeal, the CA reversed the RTCs April 3, 2006 Decision, holding
that CAI cannot be held liable for Magers act in the absence of any proof
that a principal-agent relationship existed between CAI and Holiday Travel.
According to the CA, Spouses Viloria, who have the burden of proof to
establish the fact of agency, failed to present evidence demonstrating that
Holiday Travel is CAIs agent. Furthermore, contrary to Spouses Vilorias
claim, the contractual relationship between Holiday Travel and CAI is not an
agency but that of a sale.

Plaintiffs-appellees assert that Mager was a sub-agent of
Holiday Travel who was in turn a ticketing agent of Holiday
Travel who was in turn a ticketing agent of Continental Airlines.
Proceeding from this premise, they contend that Continental
Airlines should be held liable for the acts of Mager. The trial
court held the same view.

We do not agree. By the contract of agency, a person
binds him/herself to render some service or to do something in
representation or on behalf of another, with the consent or
authority of the latter. The elements of agency are: (1) consent,
express or implied, of the parties to establish the relationship;
(2) the object is the execution of a juridical act in relation to a
third person; (3) the agent acts as a representative and not for
him/herself; and (4) the agent acts within the scope of his/her
authority. As the basis of agency is representation, there must
be, on the part of the principal, an actual intention to appoint, an
intention naturally inferable from the principals words or
actions. In the same manner, there must be an intention on the
part of the agent to accept the appointment and act upon it.
Absent such mutual intent, there is generally no agency. It is
likewise a settled rule that persons dealing with an assumed
agent are bound at their peril, if they would hold the principal
liable, to ascertain not only the fact of agency but also the
nature and extent of authority, and in case either is
controverted, the burden of proof is upon them to establish it.
Agency is never presumed, neither is it created by the mere use
of the word in a trade or business name. We have perused the
evidence and documents so far presented. We find nothing
except bare allegations of plaintiffs-appellees that Mager/Holiday
Travel was acting in behalf of Continental Airlines. From all sides
of legal prism, the transaction in issue was simply a contract of
sale, wherein Holiday Travel buys airline tickets from Continental
Airlines and then, through its employees, Mager included, sells it
at a premium to clients.
13



The CA also ruled that refund is not available to Spouses Viloria as the
word non-refundable was clearly printed on the face of the subject tickets,
which constitute their contract with CAI. Therefore, the grant of their prayer
for a refund would violate the proscription against impairment of contracts.

Finally, the CA held that CAI did not act in bad faith when they
charged Spouses Viloria with the higher amount of US$1,867.40 for a round
trip ticket to Los Angeles. According to the CA, there is no compulsion for
CAI to charge the lower amount of US$856.00, which Spouses Viloria claim
to be the fee charged by other airlines. The matter of fixing the prices for its
services is CAIs prerogative, which Spouses Viloria cannot intervene. In
particular:

It is within the respective rights of persons owning and/or
operating business entities to peg the premium of the services
and items which they provide at a price which they deem fit, no
matter how expensive or exhorbitant said price may seem vis--
vis those of the competing companies. The Spouses Viloria may
not intervene with the business judgment of Continental
Airlines.
14



The Petitioners Case

In this Petition, this Court is being asked to review the findings and
conclusions of the CA, as the latters reversal of the RTCs April 3, 2006
Decision allegedly lacks factual and legal bases. Spouses Viloria claim that
CAI acted in bad faith when it required them to pay a higher amount for a
round trip ticket to Los Angeles considering CAIs undertaking to re-issue
new tickets to them within the period stated in their March 24, 1998 letter.
CAI likewise acted in bad faith when it disallowed Fernando to use Lourdes
ticket to purchase a round trip to Los Angeles given that there is nothing in
Lourdes ticket indicating that it is non-transferable. As a common carrier, it
is CAIs duty to inform its passengers of the terms and conditions of their
contract and passengers cannot be bound by such terms and conditions
which they are not made aware of. Also, the subject contract of carriage is a
contract of adhesion; therefore, any ambiguities should be construed against
CAI. Notably, the petitioners are no longer questioning the validity of the
subject contracts and limited its claim for a refund on CAIs alleged breach of
its undertaking in its March 24, 1998 letter.

The Respondents Case

In its Comment, CAI claimed that Spouses Vilorias allegation of bad
faith is negated by its willingness to issue new tickets to them and to credit
the value of the subject tickets against the value of the new ticket Fernando
requested. CAI argued that Spouses Vilorias sole basis to claim that the
price at which CAI was willing to issue the new tickets is unconscionable is a
piece of hearsay evidence an advertisement appearing on a newspaper
stating that airfares from Manila to Los Angeles or San Francisco cost
US$818.00.
15
Also, the advertisement pertains to airfares in September
2000 and not to airfares prevailing in June 1999, the time when Fernando
asked CAI to apply the value of the subject tickets for the purchase of a new
one.
16
CAI likewise argued that it did not undertake to protect Spouses
Viloria from any changes or fluctuations in the prices of airline tickets and its
only obligation was to apply the value of the subject tickets to the purchase
of the newly issued tickets.

With respect to Spouses Vilorias claim that they are not aware of
CAIs restrictions on the subject tickets and that the terms and conditions
that are printed on them are ambiguous, CAI denies any ambiguity and
alleged that its representative informed Fernando that the subject tickets are
non-transferable when he applied for the issuance of a new ticket. On the
other hand, the word non-refundable clearly appears on the face of the
subject tickets.

CAI also denies that it is bound by the acts of Holiday Travel and
Mager and that no principal-agency relationship exists between them. As an
independent contractor, Holiday Travel was without capacity to bind CAI.

Issues

To determine the propriety of disturbing the CAs January 30, 2009
Decision and whether Spouses Viloria have the right to the reliefs they
prayed for, this Court deems it necessary to resolve the following issues:

a. Does a principal-agent relationship exist between CAI and
Holiday Travel?
b. Assuming that an agency relationship exists between CAI and
Holiday Travel, is CAI bound by the acts of Holiday Travels
agents and employees such as Mager?
c. Assuming that CAI is bound by the acts of Holiday Travels
agents and employees, can the representation of Mager as
to unavailability of seats at Amtrak be considered
fraudulent as to vitiate the consent of Spouse Viloria in the
purchase of the subject tickets?
d. Is CAI justified in insisting that the subject tickets are non-
transferable and non-refundable?
e. Is CAI justified in pegging a different price for the round trip
ticket to Los Angeles requested by Fernando?
f. Alternatively, did CAI act in bad faith or renege its obligation
to Spouses Viloria to apply the value of the subject tickets
in the purchase of new ones when it refused to allow
Fernando to use Lourdes ticket and in charging a higher
price for a round trip ticket to Los Angeles?

This Courts Ruling

I. A principal-agent relationship
exists between CAI and Holiday
Travel.


With respect to the first issue, which is a question of fact that would
require this Court to review and re-examine the evidence presented by the
parties below, this Court takes exception to the general rule that the CAs
findings of fact are conclusive upon Us and our jurisdiction is limited to the
review of questions of law. It is well-settled to the point of being axiomatic
that this Court is authorized to resolve questions of fact if confronted with
contrasting factual findings of the trial court and appellate court and if the
findings of the CA are contradicted by the evidence on record.
17


According to the CA, agency is never presumed and that he who
alleges that it exists has the burden of proof. Spouses Viloria, on whose
shoulders such burden rests, presented evidence that fell short of
indubitably demonstrating the existence of such agency.

We disagree. The CA failed to consider undisputed facts, discrediting
CAIs denial that Holiday Travel is one of its agents. Furthermore, in
erroneously characterizing the contractual relationship between CAI and
Holiday Travel as a contract of sale, the CA failed to apply the fundamental
civil law principles governing agency and differentiating it from sale.

In Rallos v. Felix Go Chan & Sons Realty Corporation,
18
this Court
explained the nature of an agency and spelled out the essential elements
thereof:

Out of the above given principles, sprung the creation and
acceptance of therelationship of agency whereby one party,
called the principal (mandante), authorizes another, called the
agent (mandatario), to act for and in his behalf in transactions
with third persons. The essential elements of agency are: (1)
there is consent, express or implied of the parties to establish
the relationship; (2) the object is the execution of a juridical act
in relation to a third person; (3) the agent acts as a
representative and not for himself, and (4) the agent acts within
the scope of his authority.

Agency is basically personal, representative,
and derivative in nature. The authority of the agent to act
emanates from the powers granted to him by his principal; his
act is the act of the principal if done within the scope of the
authority. Qui facit per alium facit se. "He who acts through
another acts himself."
19



Contrary to the findings of the CA, all the elements of an agency exist
in this case. The first and second elements are present as CAI does not deny
that it concluded an agreement with Holiday Travel, whereby Holiday Travel
would enter into contracts of carriage with third persons on CAIs behalf. The
third element is also present as it is undisputed that Holiday Travel merely
acted in a representative capacity and it is CAI and not Holiday Travel who is
bound by the contracts of carriage entered into by Holiday Travel on its
behalf. The fourth element is also present considering that CAI has not made
any allegation that Holiday Travel exceeded the authority that was granted
to it. In fact, CAI consistently maintains the validity of the contracts of
carriage that Holiday Travel executed with Spouses Viloria and that Mager
was not guilty of any fraudulent misrepresentation. That CAI admits the
authority of Holiday Travel to enter into contracts of carriage on its behalf is
easily discernible from its February 24, 1998 and March 24, 1998 letters,
where it impliedly recognized the validity of the contracts entered into by
Holiday Travel with Spouses Viloria. When Fernando informed CAI that it was
Holiday Travel who issued to them the subject tickets, CAI did not deny that
Holiday Travel is its authorized agent.

Prior to Spouses Vilorias filing of a complaint against it, CAI never
refuted that it gave Holiday Travel the power and authority to conclude
contracts of carriage on its behalf. As clearly extant from the records, CAI
recognized the validity of the contracts of carriage that Holiday Travel
entered into with Spouses Viloria and considered itself bound with Spouses
Viloria by the terms and conditions thereof; and this constitutes an
unequivocal testament to Holiday Travels authority to act as its agent. This
Court cannot therefore allow CAI to take an altogether different position and
deny that Holiday Travel is its agent without condoning or giving imprimatur
to whatever damage or prejudice that may result from such denial or
retraction to Spouses Viloria, who relied on good faith on CAIs acts in
recognition of Holiday Travels authority. Estoppel is primarily based on the
doctrine of good faith and the avoidance of harm that will befall an innocent
party due to its injurious reliance, the failure to apply it in this case would
result in gross travesty of justice.
20
Estoppel bars CAI from making such
denial.

As categorically provided under Article 1869 of the Civil
Code, [a]gency may be express, or implied from the acts of the principal,
from his silence or lack of action, or his failure to repudiate the agency,
knowing that another person is acting on his behalf without authority.

Considering that the fundamental hallmarks of an agency are present,
this Court finds it rather peculiar that the CA had branded the contractual
relationship between CAI and Holiday Travel as one of sale. The distinctions
between a sale and an agency are not difficult to discern and this Court, as
early as 1970, had already formulated the guidelines that would aid in
differentiating the two (2) contracts. In Commissioner of Internal Revenue v.
Constantino,
21
this Court extrapolated that the primordial differentiating
consideration between the two (2) contracts is the transfer of ownership or
title over the property subject of the contract. In an agency, the principal
retains ownership and control over the property and the agent merely acts
on the principals behalf and under his instructions in furtherance of the
objectives for which the agency was established. On the other hand, the
contract is clearly a sale if the parties intended that the delivery of the
property will effect a relinquishment of title, control and ownership in such a
way that the recipient may do with the property as he pleases.

Since the company retained ownership of the goods, even
as it delivered possession unto the dealer for resale to
customers, the price and terms of which were subject to the
company's control, the relationship between the company and
the dealer is one of agency, tested under the following criterion:

The difficulty in distinguishing between contracts of
sale and the creation of an agency to sell has led to the
establishment of rules by the application of which this
difficulty may be solved. The decisions say the transfer of
title or agreement to transfer it for a price paid or
promised is the essence of sale. If such transfer puts the
transferee in the attitude or position of an owner and
makes him liable to the transferor as a debtor for the
agreed price, and not merely as an agent who must
account for the proceeds of a resale, the transaction is a
sale; while the essence of an agency to sell is the delivery
to an agent, not as his property, but as the property of the
principal, who remains the owner and has the right to
control sales, fix the price, and terms, demand and receive
the proceeds less the agent's commission upon sales
made. 1 Mechem on Sales, Sec. 43; 1 Mechem on Agency,
Sec. 48; Williston on Sales, 1; Tiedeman on Sales, 1.
(Salisbury v. Brooks, 94 SE 117, 118-119)
22



As to how the CA have arrived at the conclusion that the contract
between CAI and Holiday Travel is a sale is certainly confounding,
considering that CAI is the one bound by the contracts of carriage embodied
by the tickets being sold by Holiday Travel on its behalf. It is undisputed that
CAI and not Holiday Travel who is the party to the contracts of carriage
executed by Holiday Travel with third persons who desire to travel via
Continental Airlines, and this conclusively indicates the existence of a
principal-agent relationship. That the principal is bound by all the obligations
contracted by the agent within the scope of the authority granted to him is
clearly provided under Article 1910 of the Civil Code and this constitutes the
very notion of agency.

II. In actions based on quasi-delict,
a principal can only be held liable for
the tort committed by its agents
employees if it has been established
by preponderance of evidence that
the principal was also at fault or
negligent or that the principal
exercise control and supervision
over them.


Considering that Holiday Travel is CAIs agent, does it necessarily
follow that CAI is liable for the fault or negligence of Holiday Travels
employees? Citing China Air Lines, Ltd. v. Court of Appeals, et al.,
23
CAI
argues that it cannot be held liable for the actions of the employee of its
ticketing agent in the absence of an employer-employee relationship.

An examination of this Courts pronouncements in China Air Lines will
reveal that an airline company is not completely exonerated from any
liability for the tort committed by its agents employees. A prior
determination of the nature of the passengers cause of action is necessary.
If the passengers cause of action against the airline company is premised
on culpa aquiliana or quasi-delict for a tort committed by the employee of
the airline companys agent, there must be an independent showing that the
airline company was at fault or negligent or has contributed to the
negligence or tortuous conduct committed by the employee of its agent. The
mere fact that the employee of the airline companys agent has committed a
tort is not sufficient to hold the airline company liable. There is novinculum
juris between the airline company and its agents employees and the
contractual relationship between the airline company and its agent does not
operate to create a juridical tie between the airline company and its agents
employees. Article 2180 of the Civil Code does not make the principal
vicariously liable for the tort committed by its agents employees and the
principal-agency relationshipper se does not make the principal a party to
such tort; hence, the need to prove the principals own fault or negligence.

On the other hand, if the passengers cause of action for damages
against the airline company is based on contractual breach or culpa
contractual, it is not necessary that there be evidence of the airline
companys fault or negligence. As this Court previously stated in China Air
Lines and reiterated in Air France vs. Gillego,
24
in an action based on a
breach of contract of carriage, the aggrieved party does not have to prove
that the common carrier was at fault or was negligent. All that he has to
prove is the existence of the contract and the fact of its non-performance by
the carrier.

Spouses Vilorias cause of action on the basis of Magers alleged
fraudulent misrepresentation is clearly one of tort or quasi-delict, there
being no pre-existing contractual relationship between them. Therefore, it
was incumbent upon Spouses Viloria to prove that CAI was equally at fault.

However, the records are devoid of any evidence by which CAIs
alleged liability can be substantiated. Apart from their claim that CAI must
be held liable for Magers supposed fraud because Holiday Travel is CAIs
agent, Spouses Viloria did not present evidence that CAI was a party or had
contributed to Magers complained act either by instructing or authorizing
Holiday Travel and Mager to issue the said misrepresentation.

It may seem unjust at first glance that CAI would consider Spouses
Viloria bound by the terms and conditions of the subject contracts, which
Mager entered into with them on CAIs behalf, in order to deny Spouses
Vilorias request for a refund or Fernandos use of Lourdes ticket for the re-
issuance of a new one, and simultaneously claim that they are not bound by
Magers supposed misrepresentation for purposes of avoiding Spouses
Vilorias claim for damages and maintaining the validity of the subject
contracts. It may likewise be argued that CAI cannot deny liability as it
benefited from Magers acts, which were performed in compliance with
Holiday Travels obligations as CAIs agent.

However, a persons vicarious liability is anchored on his possession of
control, whether absolute or limited, on the tortfeasor. Without such control,
there is nothing which could justify extending the liability to a person other
than the one who committed the tort. As this Court explained inCangco v.
Manila Railroad Co.:
25


With respect to extra-contractual obligation arising from
negligence, whether of act or omission, it is competent for
the legislature to elect and our Legislature has so elected to
limit such liability to cases in which the person upon whom such
an obligation is imposed is morally culpable or, on the
contrary, for reasons of public policy, to extend that
liability, without regard to the lack of moral culpability, so
as to include responsibility for the negligence of those
persons whose acts or omissions are imputable, by a legal
fiction, to others who are in a position to exercise an
absolute or limited control over them. The legislature which
adopted our Civil Code has elected to limit extra-contractual
liability with certain well-defined exceptions to cases in
which moral culpability can be directly imputed to the persons to
be charged. This moral responsibility may consist in having failed
to exercise due care in one's own acts, or in having failed to
exercise due care in the selection and control of one's agent or
servants, or in the control of persons who, by reasons of their
status, occupy a position of dependency with respect to the
person made liable for their conduct.
26
(emphasis supplied)


It is incumbent upon Spouses Viloria to prove that CAI exercised
control or supervision over Mager by preponderant evidence. The existence
of control or supervision cannot be presumed and CAI is under no obligation
to prove its denial or nugatory assertion. Citing Belen v. Belen,
27
this Court
ruled in Jayme v. Apostol,
28
that:

In Belen v. Belen, this Court ruled that it was enough for
defendant to deny an alleged employment relationship. The
defendant is under no obligation to prove the negative
averment. This Court said:

It is an old and well-settled rule of the courts
that the burden of proving the action is upon the
plaintiff, and that if he fails satisfactorily to show the
facts upon which he bases his claim, the defendant is
under no obligation to prove his exceptions. This
[rule] is in harmony with the provisions of Section
297 of the Code of Civil Procedure holding that each
party must prove his own affirmative allegations,
etc.
29
(citations omitted)


Therefore, without a modicum of evidence that CAI exercised control over
Holiday Travels employees or that CAI was equally at fault, no liability can
be imposed on CAI for Magers supposed misrepresentation.

III. Even on the assumption that
CAI may be held liable for the
acts of Mager, still, Spouses
Viloria are not entitled to a
refund. Magers statement
cannot be considered a causal
fraud that would justify the
annulment of the subject
contracts that would oblige CAI
to indemnify Spouses Viloria
and return the money they paid
for the subject tickets.


Article 1390, in relation to Article 1391 of the Civil Code, provides that
if the consent of the contracting parties was obtained through fraud, the
contract is considered voidable and may be annulled within four (4) years
from the time of the discovery of the fraud. Once a contract is annulled, the
parties are obliged under Article 1398 of the same Code to restore to each
other the things subject matter of the contract, including their fruits and
interest.

On the basis of the foregoing and given the allegation of Spouses
Viloria that Fernandos consent to the subject contracts was supposedly
secured by Mager through fraudulent means, it is plainly apparent that their
demand for a refund is tantamount to seeking for an annulment of the
subject contracts on the ground of vitiated consent.

Whether the subject contracts are annullable, this Court is required to
determine whether Magers alleged misrepresentation constitutes causal
fraud. Similar to the dispute on the existence of an agency, whether fraud
attended the execution of a contract is factual in nature and this Court, as
discussed above, may scrutinize the records if the findings of the CA are
contrary to those of the RTC.

Under Article 1338 of the Civil Code, there is fraud when, through
insidious words or machinations of one of the contracting parties, the other
is induced to enter into a contract which, without them, he would not have
agreed to. In order that fraud may vitiate consent, it must be the causal
(dolo causante), not merely the incidental (dolo incidente), inducement to
the making of the contract.
30
In Samson v. Court of Appeals,
31
causal fraud
was defined as a deception employed by one party prior to or simultaneous
to the contract in order to secure the consent of the other.
32


Also, fraud must be serious and its existence must be established by
clear and convincing evidence. As ruled by this Court in Sierra v. Hon. Court
of Appeals, et al.,
33
mere preponderance of evidence is not adequate:

Fraud must also be discounted, for according to the Civil
Code:

Art. 1338. There is fraud when, through
insidious words or machinations of one of the
contracting parties, the other is induced to enter into
a contract which without them, he would not have
agreed to.

Art. 1344. In order that fraud may make a
contract voidable, it should be serious and should
not have been employed by both contracting parties.

To quote Tolentino again, the misrepresentation
constituting the fraud must be established by full, clear, and
convincing evidence, and not merely by a preponderance
thereof. The deceit must be serious. The fraud is serious when it
is sufficient to impress, or to lead an ordinarily prudent person
into error; that which cannot deceive a prudent person cannot be
a ground for nullity. The circumstances of each case should be
considered, taking into account the personal conditions of the
victim.
34



After meticulously poring over the records, this Court finds that the
fraud alleged by Spouses Viloria has not been satisfactorily established as
causal in nature to warrant the annulment of the subject contracts. In fact,
Spouses Viloria failed to prove by clear and convincing evidence that Magers
statement was fraudulent. Specifically, Spouses Viloria failed to prove that
(a) there were indeed available seats at Amtrak for a trip to New Jersey on
August 13, 1997 at the time they spoke with Mager on July 21, 1997; (b)
Mager knew about this; and (c) that she purposely informed them otherwise.

This Court finds the only proof of Magers alleged fraud, which is
Fernandos testimony that an Amtrak had assured him of the perennial
availability of seats at Amtrak, to be wanting. As CAI correctly pointed out
and as Fernando admitted, it was possible that during the intervening period
of three (3) weeks from the time Fernando purchased the subject tickets to
the time he talked to said Amtrak employee, other passengers may have
cancelled their bookings and reservations with Amtrak, making it possible for
Amtrak to accommodate them. Indeed, the existence of fraud cannot be
proved by mere speculations and conjectures. Fraud is never lightly inferred;
it is good faith that is. Under the Rules of Court, it is presumed that "a
person is innocent of crime or wrong" and that "private transactions have
been fair and regular."
35
Spouses Viloria failed to overcome this
presumption.

IV. Assuming the contrary, Spouses
Viloria are nevertheless deemed to
have ratified the subject contracts.


Even assuming that Magers representation is causal fraud, the subject
contracts have been impliedly ratified when Spouses Viloria decided to
exercise their right to use the subject tickets for the purchase of new ones.
Under Article 1392 of the Civil Code, ratification extinguishes the action to
annul a voidable contract.

Ratification of a voidable contract is defined under Article 1393 of the
Civil Code as follows:

Art. 1393. Ratification may be effected expressly or tacitly. It is
understood that there is a tacit ratification if, with knowledge of
the reason which renders the contract voidable and such reason
having ceased, the person who has a right to invoke it should
execute an act which necessarily implies an intention to waive
his right.


Implied ratification may take diverse forms, such as by silence or
acquiescence; by acts showing approval or adoption of the contract; or by
acceptance and retention of benefits flowing therefrom.
36


Simultaneous with their demand for a refund on the ground of
Fernandos vitiated consent, Spouses Viloria likewise asked for a refund
based on CAIs supposed bad faith in reneging on its undertaking to replace
the subject tickets with a round trip ticket from Manila to Los Angeles.

In doing so, Spouses Viloria are actually asking for a rescission of the
subject contracts based on contractual breach. Resolution, the action
referred to in Article 1191, is based on the defendants breach of faith, a
violation of the reciprocity between the parties
37
and in Solar Harvest, Inc. v.
Davao Corrugated Carton Corporation,
38
this Court ruled that a claim for a
reimbursement in view of the other partys failure to comply with his
obligations under the contract is one for rescission or resolution.

However, annulment under Article 1390 of the Civil Code and
rescission under Article 1191 are two (2) inconsistent remedies. In
resolution, all the elements to make the contract valid are present; in
annulment, one of the essential elements to a formation of a contract, which
is consent, is absent. In resolution, the defect is in the consummation stage
of the contract when the parties are in the process of performing their
respective obligations; in annulment, the defect is already present at the
time of the negotiation and perfection stages of the contract. Accordingly, by
pursuing the remedy of rescission under Article 1191, the Vilorias had
impliedly admitted the validity of the subject contracts, forfeiting their right
to demand their annulment. A party cannot rely on the contract and claim
rights or obligations under it and at the same time impugn its existence or
validity. Indeed, litigants are enjoined from taking inconsistent positions.
39


V. Contracts cannot be rescinded for
a slight or casual breach.


CAI cannot insist on the non-
transferability of the subject tickets.


Considering that the subject contracts are not annullable on the
ground of vitiated consent, the next question is: Do Spouses Viloria have
the right to rescind the contract on the ground of CAIs supposed breach of
its undertaking to issue new tickets upon surrender of the subject tickets?

Article 1191, as presently worded, states:

The power to rescind obligations is implied in reciprocal ones, in
case one of the obligors should not comply with what is
incumbent upon him.

The injured party may choose between the fulfilment and the
rescission of the obligation, with the payment of damages in
either case. He may also seek rescission, even after he has
chosen fulfillment, if the latter should become impossible.

The court shall decree the rescission claimed, unless there be
just cause authorizing the fixing of a period.

This is understood to be without prejudice to the rights of third
persons who have acquired the thing, in accordance with articles
1385 and 1388 and the Mortgage Law.


According to Spouses Viloria, CAI acted in bad faith and breached the
subject contracts when it refused to apply the value of Lourdes ticket for
Fernandos purchase of a round trip ticket to Los Angeles and in requiring
him to pay an amount higher than the price fixed by other airline companies.

In its March 24, 1998 letter, CAI stated that non-refundable tickets
may be used as a form of payment toward the purchase of another
Continental ticket for $75.00, per ticket, reissue fee ($50.00, per ticket, for
tickets purchased prior to October 30, 1997).

Clearly, there is nothing in the above-quoted section of CAIs letter
from which the restriction on the non-transferability of the subject tickets
can be inferred. In fact, the words used by CAI in its letter supports the
position of Spouses Viloria, that each of them can use the ticket under their
name for the purchase of new tickets whether for themselves or for some
other person.

Moreover, as CAI admitted, it was only when Fernando had expressed
his interest to use the subject tickets for the purchase of a round trip ticket
between Manila and Los Angeles that he was informed that he cannot use
the ticket in Lourdes name as payment.

Contrary to CAIs claim, that the subject tickets are non-transferable
cannot be implied from a plain reading of the provision printed on the
subject tickets stating that [t]o the extent not in conflict with the foregoing
carriage and other services performed by each carrier are subject to: (a)
provisions contained in this ticket, x x x (iii) carriers conditions of carriage
and related regulations which are made part hereof (and are available on
application at the offices of carrier) x x x. As a common carrier whose
business is imbued with public interest, the exercise of extraordinary
diligence requires CAI to inform Spouses Viloria, or all of its passengers for
that matter, of all the terms and conditions governing their contract of
carriage. CAI is proscribed from taking advantage of any ambiguity in the
contract of carriage to impute knowledge on its passengers of and demand
compliance with a certain condition or undertaking that is not clearly
stipulated. Since the prohibition on transferability is not written on the face
of the subject tickets and CAI failed to inform Spouses Viloria thereof, CAI
cannot refuse to apply the value of Lourdes ticket as payment for
Fernandos purchase of a new ticket.

CAIs refusal to accept Lourdes
ticket for the purchase of a new
ticket for Fernando is only a casual
breach.


Nonetheless, the right to rescind a contract for non-performance of its
stipulations is not absolute. The general rule is that rescission of a contract
will not be permitted for a slight or casual breach, but only for such
substantial and fundamental violations as would defeat the very object of
the parties in making the agreement.
40
Whether a breach is substantial is
largely determined by the attendant circumstances.
41


While CAIs refusal to allow Fernando to use the value of Lourdes
ticket as payment for the purchase of a new ticket is unjustified as the non-
transferability of the subject tickets was not clearly stipulated, it cannot,
however be considered substantial. The endorsability of the subject tickets is
not an essential part of the underlying contracts and CAIs failure to comply
is not essential to its fulfillment of its undertaking to issue new tickets upon
Spouses Vilorias surrender of the subject tickets. This Court takes note of
CAIs willingness to perform its principal obligation and this is to apply the
price of the ticket in Fernandos name to the price of the round trip ticket
between Manila and Los Angeles. CAI was likewise willing to accept the
ticket in Lourdes name as full or partial payment as the case may be for the
purchase of any ticket, albeit under her name and for her exclusive use. In
other words, CAIs willingness to comply with its undertaking under its March
24, 1998 cannot be doubted, albeit tainted with its erroneous insistence that
Lourdes ticket is non-transferable.

Moreover, Spouses Vilorias demand for rescission cannot prosper as
CAI cannot be solely faulted for the fact that their agreement failed to
consummate and no new ticket was issued to Fernando. Spouses Viloria
have no right to insist that a single round trip ticket between Manila and Los
Angeles should be priced at around $856.00 and refuse to pay the difference
between the price of the subject tickets and the amount fixed by CAI. The
petitioners failed to allege, much less prove, that CAI had obliged itself to
issue to them tickets for any flight anywhere in the world upon their
surrender of the subject tickets. In its March 24, 1998 letter, it was clearly
stated that [n]on-refundable tickets may be used as a form of payment
toward the purchase of another Continental ticket
42
and there is nothing in
it suggesting that CAI had obliged itself to protect Spouses Viloria from any
fluctuation in the prices of tickets or that the surrender of the subject tickets
will be considered as full payment for any ticket that the petitioners intend
to buy regardless of actual price and destination. The CA was correct in
holding that it is CAIs right and exclusive prerogative to fix the prices for its
services and it may not be compelled to observe and maintain the prices of
other airline companies.
43


The conflict as to the endorsability of the subject tickets is an
altogether different matter, which does not preclude CAI from fixing the
price of a round trip ticket between Manila and Los Angeles in an amount it
deems proper and which does not provide Spouses Viloria an excuse not to
pay such price, albeit subject to a reduction coming from the value of the
subject tickets. It cannot be denied that Spouses Viloria had the concomitant
obligation to pay whatever is not covered by the value of the subject tickets
whether or not the subject tickets are transferable or not.

There is also no showing that Spouses Viloria were discriminated
against in bad faith by being charged with a higher rate. The only evidence
the petitioners presented to prove that the price of a round trip ticket
between Manila and Los Angeles at that time was only $856.00 is a
newspaper advertisement for another airline company, which is inadmissible
for being hearsay evidence, twice removed. Newspaper clippings are
hearsay if they were offered for the purpose of proving the truth of the
matter alleged. As ruled in Feria v. Court of Appeals,:
44


[N]ewspaper articles amount to hearsay evidence, twice
removed and are therefore not only inadmissible but without
any probative value at all whether objected to or not,

unless
offered for a purpose other than proving the truth of the matter
asserted. In this case, the news article is admissible only as
evidence that such publication does exist with the tenor of the
news therein stated.
45
(citations omitted)


The records of this case demonstrate that both parties were equally in
default; hence, none of them can seek judicial redress for the cancellation or
resolution of the subject contracts and they are therefore bound to their
respective obligations thereunder. As the 1
st
sentence of Article 1192
provides:
Art. 1192. In case both parties have committed a
breach of the obligation, the liability of the first infractor
shall be equitably tempered by the courts. If it cannot be
determined which of the parties first violated the contract, the
same shall be deemed extinguished, and each shall bear his own
damages. (emphasis supplied)

Therefore, CAIs liability for damages for its refusal to accept Lourdes
ticket for the purchase of Fernandos round trip ticket is offset by Spouses
Vilorias liability for their refusal to pay the amount, which is not covered by
the subject tickets. Moreover, the contract between them remains, hence,
CAI is duty bound to issue new tickets for a destination chosen by Spouses
Viloria upon their surrender of the subject tickets and Spouses Viloria are
obliged to pay whatever amount is not covered by the value of the subject
tickets.

This Court made a similar ruling in Central Bank of the Philippines v.
Court of Appeals.
46
Thus:

Since both parties were in default in the performance of
their respective reciprocal obligations, that is, Island Savings
Bank failed to comply with its obligation to furnish the entire
loan and Sulpicio M. Tolentino failed to comply with his obligation
to pay hisP17,000.00 debt within 3 years as stipulated, they are
both liable for damages.

Article 1192 of the Civil Code provides that in case both
parties have committed a breach of their reciprocal obligations,
the liability of the first infractor shall be equitably tempered by
the courts. WE rule that the liability of Island Savings Bank for
damages in not furnishing the entire loan is offset by the liability
of Sulpicio M. Tolentino for damages, in the form of penalties
and surcharges, for not paying his overdue P17,000.00 debt. x x
x.
47


Another consideration that militates against the propriety of holding
CAI liable for moral damages is the absence of a showing that the latter
acted fraudulently and in bad faith. Article 2220 of the Civil Code requires
evidence of bad faith and fraud and moral damages are generally not
recoverable in culpa contractual except when bad faith had been
proven.
48
The award of exemplary damages is likewise not warranted. Apart
from the requirement that the defendant acted in a wanton, oppressive and
malevolent manner, the claimant must prove his entitlement to moral
damages.
49


WHEREFORE, premises considered, the instant Petition is DENIED.

SO ORDERED.


BIENVENIDO L. REYES
Associate Justice

CONCRETE AGGREGATES, INC., petitioner,
vs.
COURT OF TAX APPEALS and COMMISSIONER OF INTERNAL
REVENUE, respondents.
Santiago, Tinga & Associates for petitioner.

REGALADO, J.:
This petition for review on certiorari seeks the annulment of the decision of
respondent Court of Tax Appeals,
1
dated September 19, 1980, and its
resolution denying reconsideration thereof, dated December 3, 1980, both
promulgated in CTA Case No. 2433, entitled "Concrete Aggregates, Inc. vs.
Commissioner of Internal Revenue," the decretal portion of which decision
reads:
Having reached the conclusion that petitioner is a manufacturer
subject to the 7% sales tax under Section 186 of the then
National Internal Revenue Code, the decision of respondent
dated July 24, 1972 should therefore be sustained. Accordingly,
petitioner Concrete Aggregates, Inc. is hereby ordered to pay to
respondent Commissioner of Internal Revenue the total amount
of P244,022.76 representing sales and ad valorem taxes for the
first semester of 1968 inclusive of surcharges, plus interest at
the rate of 14% per centum from January 1, 1973 up to the date
of full payment thereof pursuant to Section 183 (now 193) of the
National Internal Revenue Code.
WHEREFORE, the decision appealed from is hereby affirmed at
petitioner's costs.
SO ORDERED.
2

The records disclose that petitioner is a domestic corporation, duly organized
and existing under the laws of the Philippines, with business address at
Longos, Quezon City. It has an aggregate plant at Montalban, Rizal which
processes rock aggregates mined by it from private lands. Petitioner also
maintains and operates a plant at Longos, Quezon City for the production of
ready-mixed concrete and plant-mixed hot asphalt.
Sometime in 1968, the agents of respondent commissioner conducted an
investigation of petitioner's tax liabilities. As a consequence thereof, in a
letter dated December 14, 1970 said respondent assessed and demanded
payment from petitioner of the amount of P244,002.76 as sales and ad
valorem taxes for the first semester of 1968, inclusive of surcharges.
Petitioner disputed the said assessment in its letter dated February 2, 1971
without, however, contesting the portion pertaining to the ad valorem tax.
In his letter dated July 24, 1972, respondent reiterated the said assessment
of sales and ad valorem taxes which, as explained in his preceding letter,
had been arrived at as follows.
3

Taxable sales P 4,164,092.44

7% sales tax due thereon P 291,486.47
Less: Tax already paid 116,523.55

Deficiency tax due P 174,962.92
Add: 25% surcharge 43,740.73

Total deficiency tax and surcharge P 218,703.65
Add: 1 1/2% ad valorem on P20,239.29
25% surcharge thereon 5,059.82 25,299.11

TOTAL AMOUNT DUE & COLLECTIBLE P244,002.76
Consequently, demand for the payment of the said amount within ten days
from receipt of the letter was made by respondent on petitioner, otherwise
the same would be collected thru the summary remedies provided for by
law. Instead of paying, petitioner appealed to respondent court.
As earlier stated, a judgment adverse to petitioner was handed down by
respondent court, whereupon he came to this Court on a petition for review.
In its resolution dated September 7, 1981, the Court, through its First
Division, denied the petition for review for lack of merit.
4
Petitioner filed a
motion for reconsideration which was likewise denied in the resolution of
October 19, 1981 for lack of merit, the denial being expressly declared to be
final.
5
With leave of court, petitioner filed its second motion for
reconsideration which was granted by the Court in its resolution dated
November 23, 1981.
6

The sole issue in this case is whether petitioner is a contractor subject to the
3% contractor's tax under Section 191 of the 1968 National Internal
Revenue Code or a manufacturer subject to the 7% sales tax under Section
186 of the same Code.
Petitioner disclaims liability on the ground that it is a contractor within the
meaning of Section 191 of the 1968 Tax Code, the pertinent portion of which
reads:
Sec. 191. Percentage tax on road, building, irrigation, artesian
well, waterworks, and other construction work contractors,
proprietors or operators of dockyards, and others. Road,
building, irrigation, artesian well, waterworks, and other
construction work contractors; . . . and other independent
contractors, . . . shall pay a. tax equivalent to three per
centum of their gross receipts.
xxx xxx xxx
Petitioner contends that its business falls under "other construction work
contractors" or "other independent contractors" and, as such, it was a holder
of a license under Republic Act No. 4566, otherwise known as the
"Contractors Licensing Law" and was classified thereunder as a "general
engineering contractor" and "specialty asphalt and concrete contractor.
7
It
advances the theory that it produced asphalt and concrete mix only upon
previous orders, which may be proved by its system of requiring the filling of
job orders where the customers specify the construction requirements, and
that without such order, it would not do so considering the highly perishable
nature of the asphalt and concrete mix.
8

It emphasizes that the mixing of asphalt and cement, if they were to be sold
to the public, is not a simple matter of putting things together in a rotating
bowl but involves a careful selection of components, proper measuring and
weighing of ingredients, calibration of the plant to arrive at the right mixing
temperature, and testing of the strength of the material, altogether using its
own means and methods without submitting itself to control by the
customers.
9

Thus, it adopts the view that if the article subject of the sale is one which is
not ready for delivery, as it is yet to be manufactured according to the order,
the seller thereof is a contractor. However, if the article subject of the sale is
one which is ready for delivery when the order therefor is placed, the seller
is a manufacturer.
10
Complementary to this, it postulates that as a
contractor dealing exclusively in the construction of roads, buildings and
other building or construction works, its business consists of rendering
service by way of furnishing its customers with pre-mixed concrete or
asphalt, in effect merely doing for the customers what the latter used to do
themselves, that is, to buy the ingredients and then mix the concrete or
asphalt.
11
It concludes that in doing so, it does not become a manufacturer.
We have had the occasion to construe Section 191, now Section 205, of the
Tax Code in Commissioner of Internal Revenue vs. The Court of Tax Appeals,
et al.
12
where we reiterated the test as to when one may be considered a
contractor within its context, thus;
The word "contractor" has come to be used with special
reference to a person who, in the pursuit of the independent
business, undertakes to do a specific job or piece of work for
other persons, using his own means and methods without
submitting himself to control as to the petty details. (Aranas,
Annotations and Jurisprudence on the National Internal Revenue
Code, p. 318, par. 191(2), 1970 Ed.) The true test of a
contractor as was held in the cases of Luzon Stevedoring
Co. vs. Trinidad,43 Phil. 803, 807-808, and La Carlota Sugar
Central vs. Trinidad, 43 Phil. 816, 819, would seem to be that
he renders service in the course of an independent
occupation, representing the will of his employer only as to the
result of his work, and not as to the means by which it is
accomplished. (Emphasis supplied)
It is quite evident that the percentage tax imposed in Section 191 is
generally a tax on the sale of services or labor. In its factual findings,
respondent court found that petitioner was formed and organized primarily
as a manufacturer; that it has an aggregate plant at Montalban, Rizal, which
processes rock aggregates mined by it from private lands; it operates a
concrete batching plant at Longos, Quezon City where the specified
aggregates from its plant at Montalban are mixed with sand and cement,
after which water is added and the concrete mixture is sold and delivered to
customers; and at its plant site at Longos, Quezon City, petitioner has also
an asphalt mixing machinery where bituminous asphalt mix is
manufactured.
13

We see no reason to disturb the findings of respondent court. Petitioner is a
manufacturer as defined by Section 194(x), now Section 187(x), of the Tax
Code.
Sec. 1 94. Words and phrases defined. In applying the
provisions of this Title words and phrases shall be taken in the
sense and extension indicated below:
xxx xxx xxx
(x) "Manufacturer" includes every person who by physical or
chemical process alters the exterior texture or form or inner
substance of any raw material or manufactured or partially
manufactured product in such manner as to prepare it for a
special use or uses to which it could not have been put in its
original condition, or who by any such process alters the quality
of any such raw material or manufactured or partially
manufactured product so as to reduce it to marketable shape or
prepare it for any of the uses of industry, or who by any such
process combines any such raw material or manufactured or
partially manufactured products with other materials or products
of the same or different kinds and in such manner that the
finished product of such process or manufacture can be put to a
special use or uses to which such raw material or manufactured
or partially manufactured products, in their original condition
could not have been put, and who in addition alters such raw
material or manufactured or partially manufactured products, or
combines the same to produce such finished products for the
purpose of their sale or distribution to others and not for his own
use or consumption.
As aptly pointed out by the Solicitor General, petitioner's raw materials are
processed under a prescribed formula and thereby changed by means of
machinery into a finished product, altering their quality, transforming them
into marketable state or preparing them for any of the specific uses of
industry. Thus, the raw materials become a distinct class of merchandise or
"finished products for the purpose of their sales or distribution to others and
not for his own use or consumption." Evidently, without the above process,
the raw materials or aggregates could not, in their original form, perform the
uses of the finished product.
14

In a case involving the making of ready-mixed concrete, it was held that
concrete is a product resulting from a combination of sand or gravel or
broken bits of limestones with water and cement; a combination which
requires the use of skill and most generally of machinery. Concrete in forms
designed for use and supplied to others for buildings, bridges and other
structures is a distinct article of commerce and the making of them would be
manufacturing by the corporation doing so.
15

Selling or distribution is an essential ingredient of manufacturing. The sale of
a manufactured product is properly incident to manufacture. The power to
sell is an indispensable adjunct to a manufacturing business.
16
Petitioner, as
a manufacturer, not only manufactures the finished articles but also sells or
distributes them to others. This is inferable from the testimonial evidence of
petitioner's witness that, in the marketing of its products, the company has
marketing personnel who visit the client, whether he is a regular or a
prospective customer, and that it is the customer who specifies the
requirement according to his needs by filling up a purchase order, after
which a job order is issued. This is followed by the delivery of the finished
product to the job site.
17

Petitioner relies heavily on the case of The Commissioner of Internal
Revenue vs. Engineering Equipment and Supply Co., et al.
18
and on the
basis thereof posits that it has passed the test of a contractor under Article
1467 of the Civil Code which provides:
Art. 1467. A contract for the delivery at a certain price of an
article which the vendor in the ordinary course of his business
manufactures or procures for the general market, whether the
same is on hand at the time or not, is a contract of sale but if
the goods are to be manufactured specially for the customer and
upon his special order, and not for the general market, it is a
contract for a piece of work.
It is readily apparent that, in declaring private respondent in the
aforesaid Engineering Equipment case as a contractor, the Court relied on
findings of fact distinguishable from those in the case at bar.
. . . We find that Engineering did not manufacture air
conditioning units for sale to the general public, but imported
some items (as refrigeration coils, . . .) which were used in
executing contracts entered into by it. Engineering, therefore,
undertook negotiations and execution of individual contracts for
the design, supply and installation of air conditioning units of the
central type . . ., taking into consideration in the process such
factors as the area of the space to be air conditioned; the
number of persons occupying or would be occupying the
premises; the purpose for which the various air conditioning
areas are to be used; and the sources of heat gain or cooling
load on the plant such as the sun load, lighting, and other
electrical appliances which are or may be in the plan. . . .
Engineering also testified during the hearing in the Court of Tax
Appeals that relative to the installation of air conditioning
system, Engineering designed and engineered complete each
particular plant and that no two plants were identical but each
had to be engineered separately.
As found by the lower court, which finding We adopt
Engineering, in a nutshell, fabricates, assembles, supplies and
installs in the buildings of its various customers the central type
air conditioning system; prepares the plans and specifications
therefor which are distinct and different from each other; the air
conditioning units and spare parts or accessories thereof used by
petitioner are not the window type of air conditioners which are
manufactured, assembled and produced locally for sale to the
general market; and the imported air conditioning units and
spare parts or accessories thereof are supplied and installed by
petitioner upon previous orders of its customers conformably
with their needs and requirements.
The facts and circumstances aforequoted support the theory that
Engineering is a contractor rather than a manufacturer.
It is still good law that a contract to make is a contract of sale if the article is
already substantially in existence at the time of the order and merely
requires some alteration, modification or adaptation to the buyer's wishes or
purposes. A contract for the sale 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 for the
sale of goods.
19

Petitioner insists that it would produce asphalt or concrete mix only upon
previous job orders otherwise it would not do so. It does not and will not
carry in stock cement and asphalt mix.
20
But the reason is obvious. What
practically prevents the petitioner from mass production and storage is the
nature of its products, that is, they easily harden due to temperature change
and water and cement reaction.
21
Stated differently by respondent court, "it
is self-evident that it is due to the highly perishable nature of asphalt and
concrete mix, as petitioner itself argues, that makes impossible for them to
be carried in stock because they cool and harden with time, and once
hardened, they become useless.
22

Had it not been for this fact, petitioner could easily mass produce the ready-
mixed concrete or asphalt desired and needed by its various customers and
for which it is mechanically equipped to do. It is clear, however, that
petitioner does nothing more than sell the articles that it habitually
manufactures. It stocks raw materials, ready at any time, for the
manufacture of asphalt and/or concrete mix.
23
Its marketing system would
readily disclose that its products are available for sale to anyone needing
them. Whosoever would need its products, whether builder, contractor,
homeowner or payer with sufficient money, may order aggregates, concrete
mix or bituminous asphalt mix of the kind manufactured by petitioner.
24
The
habituality of the production of goods for the general public characterizes the
business of petitioner.
We are likewise persuaded by the submissions of the Solicitor General that
the ruling in Celestino Co & Company vs. Collector of Internal Revenue
25
is
applicable to this case in that unless an activity is covered by Section 191 of
the Tax Code, one who manufactures articles, although upon a previous
order and subject to the specifications of the buyer, is nonetheless a
manufacturer.
We also reject petitioner's theory that, with the amendment of Section 191
of the Tax Code, it can be considered as a "specialty contractor." As
observed by respondent, a specialty contractor is one whose operations
pertain to construction work requiring special skill and involves the use of
specialized building trades or crafts. The manufacture of concrete and
cement mix do not involve the foregoing requirements as to put it within
such special category.
ON THE FOREGOING CONSIDERATIONS, certiorari is DENIED and the
appealed decision of respondent Court of Tax Appeals is AFFIRMED.
SO ORDERED.
Melencio-Herrera, Paras, Padilla and Sarmiento, JJ., concur.
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. THE COURT
OF APPEALS, THE COURT OF TAX APPEALS and ATENEO DE
MANILA UNIVERSITY, respondents.
D E C I S I O N
PANGANIBAN, J.:
In conducting researches and studies of social organizations and cultural
values thru its Institute of Philippine Culture, is the Ateneo de Manila
University performing the work of an independent contractor and thus
taxable within the purview of then Section 205 of the National Internal
Revenue Code levying a three percent contractors tax? This question is
answered by the Court in the negative as it resolves this petition assailing
the Decision
[1]
of the Respondent Court of Appeals
[2]
in CA-G.R. SP No.
31790 promulgated on April 27, 1994 affirming that of the Court of Tax
Appeals.
[3]

The Antecedent Facts
The antecedents as found by the Court of Appeals are reproduced
hereinbelow, the same being largely undisputed by the parties.
Private respondent is a non-stock, non-profit educational institution
with auxiliary units and branches all over the Philippines. One such
auxiliary unit is the Institute of Philippine Culture (IPC), which has no
legal personality separate and distinct from that of private
respondent. The IPC is a Philippine unit engaged in social science
studies of Philippine society and culture. Occasionally, it accepts
sponsorships for its research activities from international
organizations, private foundations and government agencies.
On July 8, 1983, private respondent received from petitioner
Commissioner of Internal Revenue a demand letter dated June 3,
1983, assessing private respondent the sum of P174,043.97 for
alleged deficiency contractors tax, and an assessment dated June 27,
1983 in the sum of P1,141,837 for alleged deficiency income tax,
both for the fiscal year ended March 31, 1978. Denying said tax
liabilities, private respondent sent petitioner a letter-protest and
subsequently filed with the latter a memorandum contesting the
validity of the assessments.
On March 17, 1988, petitioner rendered a letter-decision canceling
the assessment for deficiency income tax but modifying the
assessment for deficiency contractors tax by increasing the amount
due to P193,475.55. Unsatisfied, private respondent requested for a
reconsideration or reinvestigation of the modified assessment. At the
same time, it filed in the respondent court a petition for review of the
said letter-decision of the petitioner. While the petition was pending
before the respondent court, petitioner issued a final decision dated
August 3, 1988 reducing the assessment for deficiency contractors
tax from P193,475.55 to P46,516.41, exclusive of surcharge and
interest.
On July 12, 1993, the respondent court rendered the questioned
decision which dispositively reads:
WHEREFORE, in view of the foregoing, respondents decision
is SET ASIDE. The deficiency contractors tax assessment in
the amount of P46,516.41 exclusive of surcharge and interest
for the fiscal year ended March 31, 1978 is hereby
CANCELED. No pronouncement as to cost.
SO ORDERED.
Not in accord with said decision, petitioner has come to this
Court via the present petition for review raising the following issues:
1)WHETHER OR NOT PRIVATE RESPONDENT FALLS
UNDER THE PURVIEW OF INDEPENDENT CONTRACTOR
PURSUANT TO SECTION 205 OF THE TAX CODE; and
2) WHETHER OR NOT PRIVATE RESPONDENT IS SUBJECT
TO 3% CONTRACTORS TAX UNDER SECTION 205 OF
THE TAX CODE.
The pertinent portions of Section 205 of the National Internal
Revenue Code, as amended, provide:
Sec. 205. Contractor, proprietors or operators of dockyards,
and others. - A contractors tax of three per centum of the
gross receipts is hereby imposed on the following:
x x x x x x x x x
(16) Business agents and other independent contractors except
persons, associations and corporations under contract for embroidery
and apparel for export, as well as their agents and contractors and
except gross receipts of or from a pioneer industry registered with
the Board of Investments under Republic Act No. 5186:
x x x x x x x x x
The term independent contractors include persons (juridical or
natural) not enumerated above (but not including individuals subject
to the occupation tax under Section 12 of the Local Tax Code) whose
activity consists essentially of the sale of all kinds of services for a
fee regardless of whether or not the performance of the service calls
for the exercise or use of the physical or mental faculties of such
contractors or their employees.
x x x x x x x x x
Petitioner contends that the respondent court erred in holding that
private respondent is not an independent contractor within the
purview of Section 205 of the Tax Code. To petitioner, the term
independent contractor, as defined by the Code, encompasses all
kinds of services rendered for a fee and that the only exceptions are
the following:
a. Persons, association and corporations under contract
for embroidery and apparel for export and gross receipts of or
from pioneer industry registered with the Board of Investment
under R.A. No. 5186;
b. Individuals occupation tax under Section 12 of the
Local Tax Code (under the old Section 182 [b] of the Tax
Code); and
c. Regional or area headquarters established in the
Philippines by multinational corporations, including their alien
executives, and which headquarters do not earn or derive
income from the Philippines and which act as supervisory,
communication and coordinating centers for their affiliates,
subsidiaries or branches in the Asia Pacific Region (Section
205 of the Tax Code).
Petitioner thus submits that since private respondent falls under the
definition of an independent contractor and is not among the
aforementioned exceptions, private respondent is therefore subject to
the 3% contractors tax imposed under the same Code.
[4]

The Court of Appeals disagreed with the Petitioner Commissioner of
Internal Revenue and affirmed the assailed decision of the Court of Tax
Appeals. Unfazed, petitioner now asks us to reverse the CA through this
petition for review.
The Issues
Petitioner submits before us the following issues:
1) Whether or not private respondent falls under the purview
of independent contractor pursuant to Section 205 of the Tax
Code
2) Whether or not private respondent is subject to 3%
contractors tax under Section 205 of the Tax Code.
[5]

In fine, these may be reduced to a single issue: Is Ateneo de Manila
University, through its auxiliary unit or branch -- the Institute of Philippine
Culture -- performing the work of an independent contractor and, thus,
subject to the three percent contractors tax levied by then Section 205 of
the National Internal Revenue Code?
The Courts Ruling
The petition is unmeritorious.
Interpretation of Tax Laws
The parts of then Section 205 of the National Internal Revenue Code
germane to the case before us read:
SEC. 205. Contractors, proprietors or operators of dockyards, and
others. -- A contractors tax of three per centum of the gross
receipts is hereby imposed on the following:
x x x x x x x x x
(16) Business agents and other independent contractors,
except persons, associations and corporations under contract
for embroidery and apparel for export, as well as their agents
and contractors, and except gross receipts of or from a
pioneer industry registered with the Board of Investments
under the provisions of Republic Act No. 5186;
x x x x x x x x x
The term independent contractors include persons (juridical
or natural) not enumerated above (but not including
individuals subject to the occupation tax under Section 12 of
the Local Tax Code) whose activity consists essentially of the
sale of all kinds of services for a fee regardless of whether or
not the performance of the service calls for the exercise or use
of the physical or mental faculties of such contractors or their
employees.
The term independent contractor shall not include regional or
area headquarters established in the Philippines by
multinational corporations, including their alien executives,
and which headquarters do not earn or derive income from the
Philippines and which act as supervisory, communications and
coordinating centers for their affiliates, subsidiaries or
branches in the Asia-Pacific Region.
The term gross receipts means all amounts received by the
prime or principal contractor as the total contract price,
undiminished by amount paid to the subcontractor, shall be
excluded from the taxable gross receipts of the
subcontractor.
Petitioner Commissioner of Internal Revenue contends that Private
Respondent Ateneo de Manila University falls within the definition of an
independent contractor and is not one of those mentioned as excepted;
hence, it is properly a subject of the three percent contractors tax levied by
the foregoing provision of law.
[6]
Petitioner states that the term
independent contractor is not specifically defined so as to delimit the scope
thereof, so much so that any person who x x x renders physical and mental
service for a fee, is now indubitably considered an independent contractor
liable to 3% contractors tax.
[7]
according to petitioner, Ateneo has the
burden of proof to show its exemption from the coverage of the law.
We disagree. Petitioner Commissioner of Internal Revenue erred in
applying the principles of tax exemption without first applying the well-
settled doctrine of strict interpretation in the imposition of taxes. It is
obviously both illogical and impractical to determine who are exempted
without first determining who are covered by the aforesaid provision. The
Commissioner should have determined first if private respondent was
covered by Section 205, applying the rule of strict interpretation of laws
imposing taxes and other burdens on the populace, before asking Ateneo to
prove its exemption therefrom. The Court takes this occasion to reiterate
the hornbook doctrine in the interpretation of tax laws that (a) statute will
not be construed as imposing a tax unless it does so clearly, expressly,
and unambiguously. x x x (A) tax cannot be imposed without clear and
express words for that purpose. Accordingly, the general rule of
requiring adherence to the letter in construing statutes applies with peculiar
strictness to tax laws and the provisions of a taxing act are not to
be extended by implication.
[8]
Parenthetically, in answering the question of
who is subject to tax statutes, it is basic that in case of doubt, such statutes
are to be construed most strongly against the government and in favor of
the subjects or citizens because burdens are not to be imposed nor
presumed to be imposed beyond what statutes expressly and clearly
import.
[9]

To fall under its coverage, Section 205 of the National Internal Revenue
Code requires that the independent contractor be engaged in the business of
selling its services. Hence, to impose the three percent contractors tax on
Ateneos Institute of Philippine Culture, it should be sufficiently proven that
the private respondent is indeed selling its services for a fee in pursuit of an
independent business. And it is only after private respondent has been
found clearly to be subject to the provisions of Sec. 205 that the question of
exemption therefrom would arise. Only after such coverage is shown does
the rule of construction -- that tax exemptions are to be strictly construed
against the taxpayer -- come into play, contrary to petitioners
position. This is the main line of reasoning of the Court of Tax Appeals in its
decision,
[10]
which was affirmed by the CA.
The Ateneo de Manila University Did Not Contract
for the Sale of the Services of its Institute of Philippine Culture
After reviewing the records of this case, we find no evidence that
Ateneos Institute of Philippine Culture ever sold its services for a fee to
anyone or was ever engaged in a business apart from and independently of
the academic purposes of the university.
Stressing that it is not the Ateneo de Manila University per se which is
being taxed, Petitioner Commissioner of Internal Revenue contends
that the tax is due on its activity of conducting researches for a fee. The
tax is due on the gross receipts made in favor of IPC pursuant to the
contracts the latter entered to conduct researches for the benefit primarily of
its clients. The tax is imposed on the exercise of a taxable activity. x x x
[T]he sale of services of private respondent is made under a contract and
the various contracts entered into between private respondent and its clients
are almost of the same terms, showing, among others, the compensation
and terms of payment.
[11]
(Underscoring supplied.)
In theory, the Commissioner of Internal Revenue may be
correct. However, the records do not show that Ateneos IPC in fact
contracted to sell its research services for a fee. Clearly then, as found by
the Court of Appeals and the Court of Tax Appeals, petitioners theory is
inapplicable to the established factual milieu obtaining in the instant case.
In the first place, the petitioner has presented no evidence to prove its
bare contention that, indeed, contracts for sale of services were ever
entered into by the private respondent. As appropriately pointed out by the
latter:
An examination of the Commissioners Written Formal Offer of
Evidence in the Court of Tax Appeals shows that only the following
documentary evidence was presented:
Exhibit 1 BIR letter of authority no. 331844
2 Examiners Field Audit Report
3 Adjustments to Sales/Receipts
4 Letter-decision of BIR Commissioner
Bienvenido A. Tan Jr.
None of the foregoing evidence even comes close to purport to be contracts
between private respondent and third parties.
[12]

Moreover, the Court of Tax Appeals accurately and correctly declared
that the funds received by the Ateneo de Manila University are technically
not a fee. They may however fall as gifts or donations which are tax-
exempt as shown by private respondents compliance with the requirement
of Section 123 of the National Internal Revenue Code providing for the
exemption of such gifts to an educational institution.
[13]

Respondent Court of Appeals elucidated on the ruling of the Court of Tax
Appeals:
To our mind, private respondent hardly fits into the definition of an
independent contractor.
For one, the established facts show that IPC, as a unit of the private
respondent, is not engaged in business. Undisputedly, private
respondent is mandated by law to undertake research activities to
maintain its university status. In fact, the research activities being
carried out by the IPC is focused not on business or profit but on
social sciences studies of Philippine society and culture. Since it can
only finance a limited number of IPCs research projects, private
respondent occasionally accepts sponsorship for unfunded IPC
research projects from international organizations, private
foundations and governmental agencies. However, such sponsorships
are subject to private respondents terms and conditions, among
which are, that the research is confined to topics consistent with the
private respondents academic agenda; that no proprietary or
commercial purpose research is done; and that private respondent
retains not only the absolute right to publish but also the ownership
of the results of the research conducted by the IPC. Quite clearly, the
aforementioned terms and conditions belie the allegation that private
respondent is a contractor or is engaged in business.
For another, it bears stressing that private respondent is a non-stock,
non-profit educational corporation. The fact that it accepted
sponsorship for IPCs unfunded projects is merely incidental. For, the
main function of the IPC is to undertake research projects under the
academic agenda of the private respondent. Moreover, the records
do not show that in accepting sponsorship of research work, IPC
realized profits from such work. On the contrary, the evidence shows
that for about 30 years, IPC had continuously operated at a loss,
which means that sponsored funds are less than actual expenses for
its research projects. That IPC has been operating at a loss loudly
bespeaks of the fact that education and not profit is the motive for
undertaking the research projects.
Then, too, granting arguendo that IPC made profits from the
sponsored research projects, the fact still remains that there is no
proof that part of such earnings or profits was ever distributed as
dividends to any stockholder, as in fact none was so distributed
because they accrued to the benefit of the private respondent which
is a non-profit educational institution.
[14]

Therefore, it is clear that the funds received by Ateneos Institute of
Philippine Culture are not given in the concept of a fee or price in exchange
for the performance of a service or delivery of an object. Rather, the
amounts are in the nature of an endowment or donation given by IPCs
benefactors solely for the purpose of sponsoring or funding the research with
no strings attached. As found by the two courts below, such sponsorships
are subject to IPCs terms and conditions. No proprietary or commercial
research is done, and IPC retains the ownership of the results of the
research, including the absolute right to publish the same. The copyrights
over the results of the research are owned by Ateneo and, consequently, no
portion thereof may be reproduced without its permission.
[15]
The amounts
given to IPC, therefore, may not be deemed, it bears stressing, as fees or
gross receipts that can be subjected to the three percent contractors tax.
It is also well to stress that the questioned transactions of Ateneos
Institute of Philippine Culture cannot be deemed either as a contract of sale
or a contract for a piece of work. By the contract of sale, one of the
contracting parties obligates himself to transfer the ownership of and to
deliver a determinate thing, and the other to pay therefor a price certain in
money or its equivalent.
[16]
By its very nature, a contract of sale requires a
transfer of ownership. Thus, Article 1458 of the Civil Code expressly makes
the obligation to transfer ownership as an essential element of the contract
of sale, following modern codes, such as the German and the Swiss. Even in
the absence of this express requirement, however, most writers, including
Sanchez Roman, Gayoso, Valverde, Ruggiero, Colin and Capitant, have
considered such transfer of ownership as the primary purpose of sale. Perez
and Alguer follow the same view, stating that the delivery of the thing does
not mean a mere physical transfer, but is a means of transmitting
ownership. Transfer of title or an agreement to transfer it for a price paid or
promised to be paid is the essence of sale.
[17]
In the case of a 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. x x x If
the contractor agrees to produce the work from materials furnished by him,
he shall deliver the thing produced to the employer and transfer dominion
over the thing. x x x.
[18]
Ineludably, whether the contract be one of sale or
one for a piece of work, a transfer of ownership is involved and a party
necessarily walks away with an object.
[19]
In the case at bench, it is clear
from the evidence on record that there was no sale either of objects or
services because, as adverted to earlier, there was no transfer of ownership
over the research data obtained or the results of research projects
undertaken by the Institute of Philippine Culture.
Furthermore, it is clear that the research activity of the Institute of
Philippine Culture is done in pursuance of maintaining Ateneos university
status and not in the course of an independent business of selling such
research with profit in mind. This is clear from a reading of the regulations
governing universities:
31.In addition to the legal requisites an institution must meet, among
others, the following requirements before an application for university
status shall be considered:
x x x x x x x x x
(e) The institution must undertake research and
operate with a competent qualified staff at least three
graduate departments in accordance with the rules and
standards for graduate education. One of the departments
shall be science and technology. The competence of the staff
shall be judged by their effective teaching, scholarly
publications and research activities published in its school
journal as well as their leadership activities in the profession.
(f) The institution must show evidence of adequate
and stable financial resources and support, a reasonable
portion of which should be devoted to institutional
development and research. (underscoring supplied)
x x x x x x x x x
32. University status may be withdrawn, after due notice and
hearing, for failure to maintain satisfactorily the standards and
requirements therefor.
[20]

Petitioners contention that it is the Institute of Philippine Culture that is
being taxed and not the Ateneo is patently erroneous because the former is
not an independent juridical entity that is separate and distinct from the
latter.
Factual Findings and Conclusions of the Court of Tax Appeals
Affirmed by the Court of Appeals Generally Conclusive
In addition, we reiterate that the Court of Tax Appeals is a highly
specialized body specifically created for the purpose of reviewing tax
cases. Through its expertise, it is undeniably competent to determine the
issue of whether
[21]
Ateneo de Manila University may be deemed a subject
of the three percent contractors tax through the evidence presented before
it. Consequently, as a matter of principle, this Court will not set aside the
conclusion reached by x x x the Court of Tax Appeals which is, by the very
nature of its function, dedicated exclusively to the study and consideration of
tax problems and has necessarily developed an expertise on the subject
unless there has been an abuse or improvident exercise of authority x x
x.
[22]
This point becomes more evident in the case before us where the
findings and conclusions of both the Court of Tax Appeals and the Court of
Appeals appear untainted by any abuse of authority, much less grave abuse
of discretion. Thus, we find the decision of the latter affirming that of the
former free from any palpable error.
Public Service, Not Profit, is the Motive
The records show that the Institute of Philippine Culture conducted its
research activities at a huge deficit of P1,624,014.00 as shown in its
statements of fund and disbursements for the period 1972 to 1985.
[23]
In
fact, it was Ateneo de Manila University itself that had funded the research
projects of the institute, and it was only when Ateneo could no longer
produce the needed funds that the institute sought funding from
outside. The testimony of Ateneos Director for Accounting Services, Ms.
Leonor Wijangco, provides significant insight on the academic and nonprofit
nature of the institutes research activities done in furtherance of the
universitys purposes, as follows:
Q Now it was testified to earlier by Miss Thelma Padero (Office
Manager of the Institute of Philippine Culture) that as far as
grants from sponsored research it is possible that the grant
sometimes is less than the actual cost. Will you please tell us in
this case when the actual cost is a lot less than the grant who
shoulders the additional cost?
A The University.
Q Now, why is this done by the University?
A Because of our faculty development program as a university,
because a university has to have its own research institute.
[24]

So, why is it that Ateneo continues to operate and conduct researches
through its Institute of Philippine Culture when it undisputedly loses not an
insignificant amount in the process? The plain and simple answer is that
private respondent is not a contractor selling its services for a fee but an
academic institution conducting these researches pursuant to its
commitments to education and, ultimately, to public service. For the
institute to have tenaciously continued operating for so long despite its
accumulation of significant losses, we can only agree with both the Court of
Tax Appeals and the Court of Appeals that education and not profit is
[IPCs] motive for undertaking the research projects.
[25]

WHEREFORE, premises considered, the petition is DENIED and the
assailed Decision of the Court of Appeals is hereby AFFIRMED in full.
SO ORDERED.
Narvasa, C.J., (Chairman) , Davide, Jr., Melo, and Francisco, JJ., concur.

TOYOTA SHAW, INC., petitioner,
vs.
COURT OF APPEALS and LUNA L. SOSA, respondents.

DAVIDE, JR., J.:
At the heart of the present controversy is the document marked Exhibit
"A"
1
for the private respondent, which was signed by a sales representative
of Toyota Shaw, Inc. named Popong Bernardo. The document reads as
follows:
4

J
u
n
e

1
9
8
9
AGREEMENTS BETWEEN MR. SOSA
& POPONG BERNARDO OF TOYOTA
SHAW, INC.
1. all necessary documents will be submitted to TOYOTA SHAW,
INC. (POPONG BERNARDO) a week after, upon arrival of Mr.
Sosa from the Province (Marinduque) where the unit will be used
on the 19th of June.
2. the downpayment of P100,000.00 will be paid by Mr. Sosa on
June 15, 1989.
3. the TOYOTA SHAW, INC. LITE ACE yellow, will be pick-up [sic]
and released by TOYOTA SHAW, INC. on the 17th of June at 10
a.m.
V
e
r
y

t
r
u
l
y

y
o
u
r
s
,
(Sgd.
)
POPO
NG
BERN
ARDO
.
Was this document, executed and signed by the petitioner's sales
representative, a perfected contract of sale, binding upon the petitioner,
breach of which would entitle the private respondent to damages and
attorney's fees? The trial court and the Court of Appeals took the affirmative
view. The petitioner disagrees. Hence, this petition for review on certiorari.
The antecedents as disclosed in the decisions of both the trial court and the
Court of Appeals, as well as in the pleadings of petitioner Toyota Shaw, Inc.
(hereinafter Toyota) and respondent Luna L. Sosa (hereinafter Sosa) are as
follows. Sometime in June of 1989, Luna L. Sosa wanted to purchase a
Toyota Lite Ace. It was then a seller's market and Sosa had difficulty finding
a dealer with an available unit for sale. But upon contacting Toyota Shaw,
Inc., he was told that there was an available unit. So on 14 June 1989, Sosa
and his son, Gilbert, went to the Toyota office at Shaw Boulevard, Pasig,
Metro Manila. There they met Popong Bernardo, a sales representative of
Toyota.
Sosa emphasized to Bernardo that he needed the Lite Ace not later than 17
June 1989 because he, his family, and abalikbayan guest would use it on 18
June 1989 to go to Marinduque, his home province, where he would
celebrate his birthday on the 19th of June. He added that if he does not
arrive in his hometown with the new car, he would become a "laughing
stock." Bernardo assured Sosa that a unit would be ready for pick up at
10:00 a.m. on 17 June 1989. Bernardo then signed the aforequoted
"Agreements Between Mr. Sosa & Popong Bernardo of Toyota Shaw, Inc." It
was also agreed upon by the parties that the balance of the purchase price
would be paid by credit financing through B.A. Finance, and for this Gilbert,
on behalf of his father, signed the documents of Toyota and B.A. Finance
pertaining to the application for financing.
The next day, 15 June 1989, Sosa and Gilbert went to Toyota to deliver the
downpayment of P100,000.00. They met Bernardo who then accomplished a
printed Vehicle Sales Proposal (VSP) No. 928,
2
on which Gilbert signed
under the subheading CONFORME. This document shows that the customer's
name is "MR. LUNA SOSA" with home address at No. 2316 Guijo Street,
United Paraaque II; that the model series of the vehicle is a "Lite Ace 1500"
described as "4 Dr minibus"; that payment is by "installment," to be
financed by "B.A.,"
3
with the initial cash outlay of P100,000.00 broken down
as follows:
a) downpayment P 53,148.00
b) insurance P 13,970.00
c) BLT registration
fee
P 1,067.00
CHMO fee P 2,715.00
service fee P 500.00
accessories P 29,000.00

and that the "BALANCE TO BE FINANCED" is "P274,137.00." The spaces
provided for "Delivery Terms" were not filled-up. It also contains the
following pertinent provisions:
CONDITIONS OF SALES
1. This sale is subject to availability of unit.
2. Stated Price is subject to change without prior notice, Price
prevailing and in effect at time of selling will apply. . . .
Rodrigo Quirante, the Sales Supervisor of Bernardo, checked and approved
the VSP.
On 17 June 1989, at around 9:30 a.m., Bernardo called Gilbert to inform
him that the vehicle would not be ready for pick up at 10:00 a.m. as
previously agreed upon but at 2:00 p.m. that same day. At 2:00 p.m., Sosa
and Gilbert met Bernardo at the latter's office. According to Sosa, Bernardo
informed them that the Lite Ace was being readied for delivery. After waiting
for about an hour, Bernardo told them that the car could not be delivered
because "nasulot ang unit ng ibang malakas."
Toyota contends, however, that the Lite Ace was not delivered to Sosa
because of the disapproval by B.A. Finance of the credit financing application
of Sosa. It further alleged that a particular unit had already been reserved
and earmarked for Sosa but could not be released due to the uncertainty of
payment of the balance of the purchase price. Toyota then gave Sosa the
option to purchase the unit by paying the full purchase price in cash but
Sosa refused.
After it became clear that the Lite Ace would not be delivered to him, Sosa
asked that his downpayment be refunded. Toyota did so on the very same
day by issuing a Far East Bank check for the full amount of
P100,000.00,
4
the receipt of which was shown by a check voucher of
Toyota,
5
which Sosa signed with the reservation, "without prejudice to our
future claims for damages."
Thereafter, Sosa sent two letters to Toyota. In the first letter, dated 27 June
1989 and signed by him, he demanded the refund, within five days from
receipt, of the downpayment of P100,000.00 plus interest from the time he
paid it and the payment of damages with a warning that in case of Toyota's
failure to do so he would be constrained to take legal action.
6
The second,
dated 4 November 1989 and signed by M. O. Caballes, Sosa's counsel,
demanded one million pesos representing interest and damages, again, with
a warning that legal action would be taken if payment was not made within
three days.
7
Toyota's counsel answered through a letter dated 27 November
1989
8
refusing to accede to the demands of Sosa. But even before this
answer was made and received by Sosa, the latter filed on 20 November
1989 with Branch 38 of the Regional Trial Court (RTC) of Marinduque a
complaint against Toyota for damages under Articles 19 and 21 of the Civil
Code in the total amount of P1,230,000.00.
9
He alleges, inter alia, that:
9. As a result of defendant's failure and/or refusal to deliver the
vehicle to plaintiff, plaintiff suffered embarrassment, humiliation,
ridicule, mental anguish and sleepless nights because: (i) he and
his family were constrained to take the public transportation
from Manila to Lucena City on their way to Marinduque; (ii) his
balikbayan-guest canceled his scheduled first visit to Marinduque
in order to avoid the inconvenience of taking public
transportation; and (iii) his relatives, friends, neighbors and
other provincemates, continuously irked him about "his Brand-
New Toyota Lite Ace that never was." Under the
circumstances, defendant should be made liable to the plaintiff
for moral damages in the amount of One Million Pesos
(P1,000,000.00).
10

In its answer to the complaint, Toyota alleged that no sale was entered into
between it and Sosa, that Bernardo had no authority to sign Exhibit "A" for
and in its behalf, and that Bernardo signed Exhibit "A" in his personal
capacity. As special and affirmative defenses, it alleged that: the VSP did not
state date of delivery; Sosa had not completed the documents required by
the financing company, and as a matter of policy, the vehicle could not and
would not be released prior to full compliance with financing requirements,
submission of all documents, and execution of the sales agreement/invoice;
the P100,000.00 was returned to and received by Sosa; the venue was
improperly laid; and Sosa did not have a sufficient cause of action against it.
It also interposed compulsory counterclaims.
After trial on the issues agreed upon during the pre-trial session,
11
the trial
court rendered on 18 February 1992 a decision in favor of Sosa.
12
It ruled
that Exhibit "A," the "AGREEMENTS BETWEEN MR. SOSA AND POPONG
BERNARDO," was a valid perfected contract of sale between Sosa and
Toyota which bound Toyota to deliver the vehicle to Sosa, and further
agreed with Sosa that Toyota acted in bad faith in selling to another the unit
already reserved for him.
As to Toyota's contention that Bernardo had no authority to bind it through
Exhibit "A," the trial court held that the extent of Bernardo's authority "was
not made known to plaintiff," for as testified to by Quirante, "they do not
volunteer any information as to the company's sales policy and guidelines
because they are internal matters."
13
Moreover, "[f]rom the beginning of
the transaction up to its consummation when the downpayment was made
by the plaintiff, the defendants had made known to the plaintiff the
impression that Popong Bernardo is an authorized sales executive as it
permitted the latter to do acts within the scope of an apparent authority
holding him out to the public as possessing power to do these
acts."
14
Bernardo then "was an agent of the defendant Toyota Shaw, Inc.
and hence bound the defendants."
15

The court further declared that "Luna Sosa proved his social standing in the
community and suffered besmirched reputation, wounded feelings and
sleepless nights for which he ought to be compensated."
16
Accordingly, it
disposed as follows:
WHEREFORE, viewed from the above findings, judgment is
hereby rendered in favor of the plaintiff and against the
defendant:
1. ordering the defendant to pay to the plaintiff the
sum of P75,000.00 for moral damages;
2. ordering the defendant to pay the plaintiff the
sum of P10,000.00 for exemplary damages;
3. ordering the defendant to pay the sum of
P30,000.00 attorney's fees plus P2,000.00 lawyer's
transportation fare per trip in attending to the
hearing of this case;
4. ordering the defendant to pay the plaintiff the
sum of P2,000.00 transportation fare per trip of the
plaintiff in attending the hearing of this case; and
5. ordering the defendant to pay the cost of suit.
SO ORDERED.
Dissatisfied with the trial court's judgment, Toyota appealed to the Court of
Appeals. The case was docketed as CA-G.R. CV No. 40043. In its decision
promulgated on 29 July 1994,
17
the Court of Appeals affirmed in toto the
appealed decision.
Toyota now comes before this Court via this petition and raises the core
issue stated at the beginning of the ponenciaand also the following related
issues: (a) whether or not the standard VSP was the true and documented
understanding of the parties which would have led to the ultimate contract
of sale, (b) whether or not Sosa has any legal and demandable right to the
delivery of the vehicle despite the non-payment of the consideration and the
non-approval of his credit application by B.A. Finance, (c) whether or not
Toyota acted in good faith when it did not release the vehicle to Sosa, and
(d) whether or not Toyota may be held liable for damages.
We find merit in the petition.
Neither logic nor recourse to one's imagination can lead to the conclusion
that Exhibit "A" is a perfected contract of sale.
Article 1458 of the Civil Code defines a contract of sale as follows:
Art. 1458. By the contract of sale one of the contracting parties
obligates himself to transfer the ownership of and to deliver a
determinate thing, and the other to pay therefor a price certain
in money or its equivalent.
A contract of sale may be absolute or conditional.
and Article 1475 specifically provides when it is deemed perfected:
Art. 1475. The contract of sale is perfected at the moment there
is a meeting of minds upon the thing which is the object of the
contract and upon the price.
From that moment, the parties may reciprocally demand
performance, subject to the provisions of the law governing the
form of contracts.
What is clear from Exhibit "A" is not what the trial court and the Court of
Appeals appear to see. It is not a contract of sale. No obligation on the part
of Toyota to transfer ownership of a determinate thing to Sosa and no
correlative obligation on the part of the latter to pay therefor a price certain
appears therein. The provision on the downpayment of P100,000.00 made
no specific reference to a sale of a vehicle. If it was intended for a contract
of sale, it could only refer to a sale on installment basis, as the VSP executed
the following day confirmed. But nothing was mentioned about the full
purchase price and the manner the installments were to be paid.
This Court had already ruled that a definite agreement on the manner of
payment of the price is an essential element in the formation of a binding
and enforceable contract of sale.
18
This is so because the agreement as to
the manner of payment goes into the price such that a disagreement on the
manner of payment is tantamount to a failure to agree on the price.
Definiteness as to the price is an essential element of a binding agreement
to sell personal property.
19

Moreover, Exhibit "A" shows the absence of a meeting of minds between
Toyota and Sosa. For one thing, Sosa did not even sign it. For another, Sosa
was well aware from its title, written in bold letters, viz.,
AGREEMENTS BETWEEN MR. SOSA & POPONG
BERNARDO OF TOYOTA SHAW, INC.
that he was not dealing with Toyota but with Popong Bernardo and that the
latter did not misrepresent that he had the authority to sell any Toyota
vehicle. He knew that Bernardo was only a sales representative of Toyota
and hence a mere agent of the latter. It was incumbent upon Sosa to act
with ordinary prudence and reasonable diligence to know the extent of
Bernardo's authority as an
agent
20
in respect of contracts to sell Toyota's vehicles. A person dealing
with an agent is put upon inquiry and must discover upon his peril the
authority of the agent.
21

At the most, Exhibit "A" may be considered as part of the initial phase of the
generation or negotiation stage of a contract of sale. There are three stages
in the contract of sale, namely:
(a) preparation, conception, or generation, which is the period of
negotiation and bargaining, ending at the moment of agreement
of the parties;
(b) perfection or birth of the contract, which is the moment when
the parties come to agree on the terms of the contract; and
(c) consummation or death, which is the fulfillment or
performance of the terms agreed upon in the contract.
22

The second phase of the generation or negotiation stage in this case was the
execution of the VSP. It must be emphasized that thereunder, the
downpayment of the purchase price was P53,148.00 while the balance to be
paid on installment should be financed by B.A. Finance Corporation. It is, of
course, to be assumed that B.A. Finance Corp. was acceptable to Toyota,
otherwise it should not have mentioned B.A. Finance in the VSP.
Financing companies are defined in Section 3(a) of R.A. No. 5980, as
amended by P.D. No. 1454 and P.D. No. 1793, as "corporations or
partnerships, except those regulated by the Central Bank of the Philippines,
the Insurance Commission and the Cooperatives Administration Office, which
are primarily organized for the purpose of extending credit facilities to
consumers and to industrial, commercial, or agricultural enterprises, either
by discounting or factoring commercial papers or accounts receivables, or by
buying and selling contracts, leases, chattel mortgages, or other evidence of
indebtedness, or by leasing of motor vehicles, heavy equipment and
industrial machinery, business and office machines and equipment,
appliances and other movable property."
23

Accordingly, in a sale on installment basis which is financed by a financing
company, three parties are thus involved: the buyer who executes a note or
notes for the unpaid balance of the price of the thing purchased on
installment, the seller who assigns the notes or discounts them with a
financing company, and the financing company which is subrogated in the
place of the seller, as the creditor of the installment buyer.
24
Since B.A.
Finance did not approve Sosa's application, there was then no meeting of
minds on the sale on installment basis.
We are inclined to believe Toyota's version that B.A. Finance disapproved
Sosa's application for which reason it suggested to Sosa that he pay the full
purchase price. When the latter refused, Toyota cancelled the VSP and
returned to him his P100,000.00. Sosa's version that the VSP was cancelled
because, according to Bernardo, the vehicle was delivered to another who
was "mas malakas" does not inspire belief and was obviously a delayed
afterthought. It is claimed that Bernardo said, "Pasensiya kayo, nasulot ang
unit ng ibang malakas," while the Sosas had already been waiting for an
hour for the delivery of the vehicle in the afternoon of 17 June 1989.
However, in paragraph 7 of his complaint, Sosa solemnly states:
On June 17, 1989 at around 9:30 o'clock in the morning,
defendant's sales representative, Mr. Popong Bernardo, called
plaintiff's house and informed the plaintiff's son that the vehicle
will not be ready for pick-up at 10:00 a.m. of June 17, 1989 but
at 2:00 p.m. of that day instead. Plaintiff and his son went to
defendant's office on June 17 1989 at 2:00 p.m. in order to pick-
up the vehicle but the defendant for reasons known only to its
representatives, refused and/or failed to release the vehicle to
the plaintiff. Plaintiff demanded for an explanation, but nothing
was given; . . . (Emphasis supplied).
25

The VSP was a mere proposal which was aborted in lieu of subsequent
events. It follows that the VSP created no demandable right in favor of Sosa
for the delivery of the vehicle to him, and its non-delivery did not cause any
legally indemnifiable injury.
The award then of moral and exemplary damages and attorney's fees and
costs of suit is without legal basis. Besides, the only ground upon which Sosa
claimed moral damages is that since it was known to his friends, townmates,
and relatives that he was buying a Toyota Lite Ace which they expected to
see on his birthday, he suffered humiliation, shame, and sleepless nights
when the van was not delivered. The van became the subject matter of talks
during his celebration that he may not have paid for it, and this created an
impression against his business standing and reputation. At the bottom of
this claim is nothing but misplaced pride and ego. He should not have
announced his plan to buy a Toyota Lite Ace knowing that he might not be
able to pay the full purchase price. It was he who brought embarrassment
upon himself by bragging about a thing which he did not own yet.
Since Sosa is not entitled to moral damages and there being no award for
temperate, liquidated, or compensatory damages, he is likewise not entitled
to exemplary damages. Under Article 2229 of the Civil Code, exemplary or
corrective damages are imposed by way of example or correction for the
public good, in addition to moral, temperate, liquidated, or compensatory
damages.
Also, it is settled that for attorney's fees to be granted, the court must
explicitly state in the body of the decision, and not only in the dispositive
portion thereof, the legal reason for the award of attorney's fees.
26
No such
explicit determination thereon was made in the body of the decision of the
trial court. No reason thus exists for such an award.
WHEREFORE, the instant petition is GRANTED. The challenged decision of
the Court of Appeals in CA-G.R. CV NO. 40043 as well as that of Branch 38
of the Regional Trial Court of Marinduque in Civil Case No. 89-14 are
REVERSED and SET ASIDE and the complaint in Civil Case No. 89-14 is
DISMISSED. The counterclaim therein is likewise DISMISSED.
No pronouncement as to costs.
SO ORDERED.
Padilla, Bellosillo and Kapunan, JJ., concur.
Quiason, J., is on leave.
LIMKETKAI SONS MILLING INC., petitioner, vs. COURT OF APPEALS,
ET AL., respondents.
R E S O L U T I O N
FRANCISCO, J.:
In this motion for reconsideration, the Court
*
is called upon to take a
second hard look on its December 1, 1995 decision reversing and setting
aside respondent Court of Appeals judgment of August 12, 1994 that
dismissed petitioner Limketkai Sons Milling Inc.s complaint for specific
performance and damages against private respondents Bank of the
Philippine Islands (BPI) and National Book Store (NBS). Petitioner Limketkai
Sons Milling, Inc., opposed the motion and filed its Consolidated Comment,
to which private respondent NBS filed a Reply. Thereafter, petitioner filed its
Manifestation and Motion for the voluntary inhibition of Chief Justice Andres
R. Narvasa from taking part in any subsequent deliberations in this case.
The Honorable Chief Justice declined.
[1]

The Court is swayed to reconsider.
The bottomline issue is whether or not a contract of sale of the subject
parcel of land existed between the petitioner and respondent BPI. A re-
evaluation of the attendant facts and the evidence on record, specifically
petitioners Exhibits A to I, yields the negative. To elaborate:
Exhibit A
[2]
is a Deed of Trust dated May 14, 1976, entered into
between Philippine Remnants Co. Inc., as grantor, and respondent BPI, as
trustee, stating that subject property covered by TCT 493122 (formerly TCT
No. 27324)
[3]
has [been] assigned, transferred, conveyed and set over unto
the Trustee
[4]
expressly authorizing and empowering the same in its own
name to sell and dispose of said trust property or any lot or parcel
thereof
[5]
and to facilitate [the] sale of the trust property, the Trustee may
engage the services of real estate broker or brokers, under such terms and
conditions which the Trustee may deem proper, to sell the Trust property or
any lot or parcel thereof.
[6]

Exhibit B is a Letter of Authority for the petitioner issued by
respondent BPI to Pedro A. Revilla, Jr., a real estate broker, to sell the
property pursuant to the Deed of Trust. The full text of Exhibit B is hereby
quoted:
Trust Account No. 75-09
23 June 1988
ASSETRADE CO.
70 San Francisco St.
Capitol Subdivision
Pasig, Metro Manila
Attention: Mr. Pedro P. Revilla, Jr.
Managing Partner .
Gentlemen:
This will serve as your authority to sell on an as is where is basis the
property located at Pasig Blvd., Bagong Ilog, Pasig, Metro Manila, under the
following details and basic terms and conditions:
TCT No. : 493122 in the name of BPI as trustee of Philippine
Remnants Co., Inc.
Area : 33,056.0 square meters (net of 890 sq. m. sold to
the Republic of the Philippines due to the widening
of Pasig Blvd.)
Price : P1,100.00 per sq. m. or P36,361,600.000.
Terms : Cash
Brokers Commission : 2%
Others : a) Docuemntary (sic) stamps to be affixed to Deed of
Absolute Sale, transfer tax, registration expenses, and
other titling expenses for account of the Buyer.
b) Capital gains tax, if payable, and real estate taxes up
to 30 June 1988 shall be for the account of the Seller.
This authority which is good for thirty (30) days only from date hereof is
non-exclusive and on a first come first-serve basis.
Very truly yours,
BANK OF THE PHILIPPINE ISLANDS
as trustee of
Philippine Remnants Co., Inc.
(Sgd.) (Sgd.)
FERNANDO J. SISON, III ALFONSO R. ZAMORA
Assistant Vice-President Vice President
[Note: Italics supplied]
security guard on duty at subject property to allow him (Revilla, Jr.) and his
companion to conduct an ocular inspection of the premises.
[7]

Exhibit D is a letter addressed by Pedro Revilla, Jr. to respondent BPI
informing the latter that he has procured a prospective buyer.
[8]

Exhibit E is the written proposal submitted by Alfonso Y. Lim in behalf
of petitioner Limketkai Sons Milling, Inc., offering to buy the subject
property at P1,000.00/sq. m.
[9]

Exhibit F is respondent BPIs letter addressed to petitioner pointing
out that petitioners proposal embodied in its Letter (Exhibit E) has been
rejected by the respondent BPIs Trust Committee.
[10]

Exhibit G is petitioners letter dated July 22, 1988 reiterating its offer
to buy the subject property at P1,000/sq. m. but now on cash basis.
[11]

Exhibit H refers to respondent BPIs another rejection of petitioners
offer to buy the property at P1,000/sq. m.
[12]

And finally, Exhibit I is a letter by petitioner addressed to respondent
BPI claiming the existence of a perfected contract of sale of the subject
property between them.
[13]

These exhibits, either scrutinized singly or collectively, do not reveal a
perfection of the purported contract of sale. Article 1458 of the Civil Code
defines a contract of sale as follows:
ART. 1458. By the contract of sale one of the contracting parties obligates
himself to transfer the ownership of and to deliver a determinate thing, and
the other to pay therefor a price certain in money or its equivalent.
A contract of sale may be absolute or conditional.
Article 1475 of the same code specifically provides when a contract of
sale is deemed perfected, to wit:
ART. 1475. The contract of sale is perfected at the moment there is
meeting of minds upon the thing which is the object of the contract and
upon the price.
From that moment, the parties may reciprocally demand performance,
subject to the provisions of the law governing the form of contracts.
The Court in Toyota Shaw, Inc. v. Court of Appeals
[14]
had already ruled that
a definite agreement on the manner of payment of the price is an essential
element in the formation of a binding and enforceable contract of
sale. Petitioners exhibits did not establish any definitive agreement or
meeting of the minds between the concerned parties as regards the price or
term of payment. Instead, what merely appears therefrom is respondent
BPIs repeated rejection of the petitioners proposal to buy the property at
P1,000/ sq.m.
[15]
In addition, even on the assumption that Exhibit E
reflects that respondent BPI offered to sell the disputed property for
P1,000/sq. m., petitioners acceptance of the offer is conditioned upon or
qualified by its proposed terms
[16]
to which respondent BPI must first agree
with.
On the subject of consent as an essential element of contracts, Article
1319 of the Civil Code has this to say:
ART. 1319. Consent is manifested by the meeting of the offer and the
acceptance upon the thing and the cause which are to constitute the
contract. The offer must be certain and the acceptance absolute. A
qualified acceptance constitutes a counter-offer.
xxx xxx xxx.
The acceptance of an offer must therefor be unqualified and absolute. In
other words, it must be identical in all respects with that of the offer so as to
produce consent or meeting of the minds. This was not the case herein
considering that petitioners acceptance of the offer was qualified, which
amounts to a rejection of the original offer.
[17]
And contrary to petitioners
assertion that its offer was accepted by respondent BPI, there was no
showing that petitioner complied with the terms and conditions explicitly laid
down by respondent BPI for prospective buyers.
[18]
Neither was the
petitioner able to prove that its offer to buy the subject property was
formally approved by the beneficial owner of the property and the Trust
Committee of the Bank, an essential requirement for the acceptance of the
offer which was clearly specified in Exhibits F and H. Even more telling is
petitioners unexplained failure to reduce in writing the alleged acceptance of
its offer to buy the property at P1,000/sq. m.
The Court also finds as unconvincing petitioners representation under
Exhibits E, G, and I that its proposal to buy the subject property for P
1,000/ sq. m. has been accepted by respondent BPI, considering that none
of the said Exhibits contained the signature of any responsible official of
respondent bank.
It is therefore evident from the foregoing that petitioners documentary
evidence floundered in establishing its claim of a perfected contract of sale.
Moreover, petitioners case failed to hurdle the strict requirements of the
Statute of Frauds. Article 1403 of the Civil Code states:
ART. 1403. - The following contracts are unenforceable, unless they are
ratified:
(1) xxx xxx xxx
(2) Those that do not comply with the Statute of Frauds as set forth in this
number. In the following cases an agreement hereafter made shall be
unenforceable by action, unless the same, or some note or memorandum,
thereof, be in writing, and subscribed by the party charged, or by his agent;
evidence, therefore, of the agreement cannot be received without the
writing, or a secondary evidence of its contents:
xxx xxx xxx
(e) An agreement for the leasing for a long period than one year, or for the
sale of real property or of an interest therein.
xxx xxx xxx.
In this case there is a patent absence of any deed of sale categorically
conveying the subject property from respondent BPI to petitioner. Exhibits
E, G, I which petitioner claims as proof of perfected contract of sale
between it and respondent BPI were not subscribed by the party charged,
i.e., BPI, and did not constitute the memoranda or notes that the law speaks
of.
[19]
To consider them sufficient compliance with the Statute of Frauds is to
betray the avowed purpose of the law to prevent fraud and perjury in the
enforcement of obligations. We share, in this connection, respondent Court
of Appeals observation when it said:
xxx. The requirement that the notes or memoranda be subscribed by BPI
or its agents, as the party charged, is very vital for the strict compliance
with the avowed purpose of the Statute of Frauds which is to prevent fraud
and perjury in the enforcement of obligations depending for their evidence
on the unassisted memory of witnesses by requiring certain enumerated
contracts and transactions to be evidenced by a writing signed by the party
to be charged(Asia Production Co., Inc. vs. Pano, 205 SCRA 458). It cannot
be gainsaid that a shrewd person could easily concoct a story in his letters
addressed to the other party and present the letters to the court as notes to
prove the existence of a perfected oral contract of sale when in truth there is
none.
In adherence to the provisions of the Statute of Frauds, the examination
and evaluation of the notes or memoranda adduced by the appellee was
confined and limited to within the four corners of the documents. To go
beyond what appears on the face of the documents constituting the notes or
memoranda, stretching their import beyond what is written in black and
white, would certainly be uncalled for, if not violative of the Statute of
Frauds and opening the doors to fraud, the very evil sought to be avoided by
the statute. In fine, considering that the documents adduced by the
appellee do not embody the essentials of the contract of sale aside from not
having been subscribed by the party charged or its agent, the transaction
involved definitely falls within the ambit of the Statute of Frauds.
[20]

[Note: Italics added]
Corrolarily, as the petitioners exhibits failed to establish the perfection of
the contract of sale, oral testimony cannot take their place without violating
the parol evidence rule.
[21]
It was therefore irregular for the trial court to
have admitted in evidence testimony to prove the existence of a contract of
sale of a real property between the parties despite de persistent objection
made by private respondents counsels as early as the first scheduled
hearing. While said counsels cross-examined the witnesses, this, to our
view, did not constitute a waiver of the parol evidence rule. The Talosig v.
Vda. de Nieba,
[22]
and Abrenica v. Gonda and de Gracia
[23]
cases cited by the
Court in its initial decision, which ruled to the effect that an objection against
the admission of any evidence must be made at the proper time, i.e., x x x
at the time question is asked,
[24]
and that if not so made it will be
understood to have been waived, do not apply as these two cases involved
facts
[25]
different from the case at bench. More importantly, here, the direct
testimonies of the witnesses were presented in affidavit-form where
prompt objection to inadmissible evidence is hardly possible, whereas the
direct testimonies in these cited cases were delivered orally in open
court. The best that counsels could have done, and which they did, under
the circumstances was to preface the cross-examination with
objection. Thus:
ATTY. VARGAS:
Before I proceed with the cross-examination of the witness, your
Honor, may we object to the particular portion of the affidavit which attempt
to prove the existence of a verbal contract to sell more specifically the
answers contained in page 3, Par. 1, the whole of the answer.
x x x x x x x x x.
COURT:
Objection overruled.
Atty. VARGAS.
Your Honor, what has been denied by the Court was the motion for
preliminary hearing on affirmative defenses. The statement made by the
witness to prove that there was a verbal contract to sell is inadmissible in
evidence in this case because an agreement must be in writing.
COURT:
Go ahead, that has been already overruled.
ATTY. VARGAS:
So may we reiterate our objection with regards to all other portions of the
affidavit which deal on the verbal contract. (TSN, Feb. 28, 1989, pp. 3-
5; Italics supplied.)
[26]

xxx xxx xxx
ATTY. CORNAGO:
Before we proceed, we would like to make of record our continuing objection
insofar as questions and answers propounded to Pedro Revilla
dated February 27, 1989, in so far as questions would illicit (sic) answers
which would be violative of the best evidence rule in relation to Art. 1403. I
refer to questions Nos. 8, 13, 16 and 19 of the affidavit of this witness which
is considered as his direct testimony. (T.S.N., June 29, 1990, p. 2)
ATTY. CORNAGO:
May we make of record our continued objection on the testimony which is
violative of the best evidence rule in relation to Art. 1403 as contained in the
affidavit particularly questions Nos. 12, 14, 19 and 20 of the affidavit of
Alfonso Lim executed on February 24, 1989 x x x. (T.S.N., June 28, 1990,
p. 8).
[27]

Counsels should not be blamed and, worst, penalized for taking the path of
prudence by choosing to cross-examine the witnesses instead of keeping
mum and letting the inadmissible testimony in affidavit form pass without
challenge. We thus quote with approval the observation of public
respondent Court of Appeals on this point:
As a logical consequence of the above findings, it follows that the court a
quo erred in allowing the appellee to introduce parol evidence to prove the
existence of a perfected contract of sale over and above the objection of the
counsel for the defendant-appellant. The records show that the court a quo
allowed the direct testimony of the witnesses to be in affidavit form subject
to cross-examination by the opposing counsel. If the purpose thereof was to
prevent the opposing counsel from objecting timely to the direct testimony,
the scheme failed for as early as the first hearing of the case on February
28, 1989 during the presentation of the testimony in affidavit form of Pedro
Revilla, Jr., plaintiff-appellees first witness, the presentation of such
testimony was already objected to as inadmissible.
[28]

[Italics supplied.]
WHEREFORE, in view of the foregoing premises, the Court hereby
GRANTS the motion for reconsideration, and SETS ASIDE its December 1,
1995 decision. Accordingly, the petition is DENIED and the Court of Appeals
decision dated August 12, 1994, appealed from is AFFIRMED in toto.
SO ORDERED.
Narvasa, C.J. (Chairman) and Davide, Jr., J., concur.
Panganiban, J., joins Justice Melos dissent.
TRADERS ROYAL BANK,
Petitioner,


G.R. No. 174286

Present:



- versus -




CUISON LUMBER CO., INC.,
and JOSEFA JERODIAS VDA.
DE CUISON,
Respondents.
QUISUMBING, Chairperson,

*
YNARES-SANTIAGO,
VELASCO, JR.,

**
LEONARDO-DE CASTRO, and
BRION, JJ.


Promulgated:

June 5, 2009

x ------------------------------------------------------------------------------
----------x


D E C I S I O N

BRION, J.:


We review in this petition for review on certiorari
[1]
the
decision
[2]
and resolution
[3]
of the Court of Appeals (CA) in CA-G.R. CV No.
49900. The CA affirmed with modifications the decision
[4]
of the Regional
Trial Court (RTC), Davao City, Branch 13. The RTC ruled in favor of
respondents Cuison Lumber Co., Inc. (CLCI) and Josefa Vda. De Cuison
(Mrs. Cuison), collectively referred to as respondents, in the action they
commenced for breach of contract, specific performance, damages, and
attorneys fees, with prayer for the issuance of a writ of preliminary
injunction against petitioner Traders Royal Bank (bank).


THE BACKGROUND FACTS


On July 14, 1978 and December 9, 1979, respectively, CLCI, through
its then president, Roman Cuison Sr., obtained two loans from the
bank. The loans were secured by a real estate mortgage over a parcel of
land covered by Transfer Certificate of Title No. 10282 (subject property).
CLCI failed to pay the loan, prompting the bank to extrajudicially foreclose
the mortgage on the subject property. The bank was declared the highest
bidder at the public auction that followed, conducted on August 1, 1985. A
Certificate of Sale and a Sheriffs Final Certificate of Sale were subsequently
issued in the banks favor.

In a series of written communications between CLCI and the
bank, CLCI manifested its intention to restructure its loan obligations and
to repurchase the subject property. On July 31, 1986, Mrs. Cuison, the
widow and administratrix of the estate of Roman Cuison Sr., wrote the
banks Officer-in-Charge, Remedios Calaguas, a letter indicating her offered
terms of repurchase. She stated:
1. That I will pay the interest of P115,538.66, plus
the additional expenses ofP17,293.69, the total amount of
which is P132,832.35 on August 8, 1986;

2. That I will pay 20% of the bid price
of P949,632.84, plus whatever interest accruing within
sixty (60) days from August 8, 1986;

3. That whatever remaining balance after the above
two (2) payments shall be amortized for five (5) years on
equal monthly installments including whatever interest
accruing lease on diminishing balance.
[5]


CLCI paid the bank P50,000.00 (on August 8, 1986) and P85,000.00
(on September 3, 1986). The bank received and regarded these amounts as
earnest money for the repurchase of the subject property. On October
20, 1986, the bank sent Atty. Roman Cuison, Jr. (Atty. Cuison), as the
president and general manager of CLCI, a letter informing CLCI of the banks
board of directors resolution of October 10, 1986 (TRB Repurchase
Agreement), laying down the conditions for the repurchase of the subject
property:
This is to formally inform you that our Board of Directors,
in its regular meeting held on October 10, 1986, passed a
resolution for the repurchase of your property acquired by the
bank, subject to the following terms and conditions, viz:

1. That the repurchase price shall be at total banks claim
as of the date of implementation;

2. That client shall initially pay P132,000.00 within fifteen
(15) days from the expiration of the redemption period (August
8, 1986) and further payment of P200,632.84, representing 20%
of the bid price, to be remitted on or before October 31, 1986;

3. That the balance of P749,000.00 to be paid in three (3)
years in twelve (12) quarterly amortizations, with interest rate at
26% computed on diminishing balance;

4. That all the interest and other charges starting from
August 8, 1986 to date of approval shall be paid first before
implementation of the request; interest as of October 31, 1986
is P65,669.53;

5. Possession of the property shall be deemed transferred
after signing of the Contract to Sell. However, title to the
property shall be delivered only upon full payment of the
repurchase price via Deed of Absolute Sale;

6. Registration fees, documentary stamps, transfer taxes
at the date of sale and other similar government impost shall be
for the exclusive account of the buyer;

7. The improvement of the property shall at all times be
covered by insurance against loss with a policy to be obtained
from a reputable company which designates the bank as
beneficiary but premiums shall be paid by the client;

8. That the sale is good for thirty (30) days from the
buyers receipt of notice of approval of the offer; otherwise, sale
is automatically cancelled;

9. Effective upon signing of the Contract to Sell, all realty
taxes which will become due on the property shall be for the
account of the buyer;

10. That the first quarterly installment shall be due within
ninety (90) days of approval hereof, and the succeeding
installment shall be due every three (3) months thereafter;

11. Upon default of the buyer to pay two (2) successive
quarterly installments, contract is automatically cancelled at the
Banks option and all payments already made shall be treated as
rentals or as liquidated damages; and

12. Other terms and conditions that the bank may further
impose to protect its interest.

Should you agree with the above terms and conditions
please sign under Conforme on the space provided below.

We attach herewith your Statement of Account
[6]
as of
October 31, 1986, for your reference.

Thank you.

Very
truly yours,
(Sig
ned)

Conforme: (Not signed)
[7]



CLCI failed to comply with the above terms notwithstanding the
extensions of time given by the bank. Nevertheless, CLCI tendered, on
February 3, 1987, a check forP135,091.57 to cover fifty percent (50%) of
the twenty percent (20%) bid price. The check, however, was returned for
insufficiency of funds. On May 13, 1987, CLCI tendered an
additional P50,000.00.
[8]
On May 29, 1987, the bank sent Atty. Cuison a
letter informing him that the P185,000.00 CLCI paid was not a deposit, but
formed part of the earnest money under the TRB Repurchase Agreement. On
August 28, 1987, Atty. Cuison, by letter, requested that CLCIs outstanding
obligation of P1,221,075.61 (as of July 31, 1987) be reduced to P1
million, and the amount of P221,075.61 be condoned by the bank. To show
its commitment to the request, CLCI paid the bank P100,000.00
andP200,000.00 on August 28, 1987. The bank credited both payments as
earnest money.

A year later, CLCI inquired about the status of its request. The bank
responded that the request was still under consideration by the banks
Manila office. On September 30, 1988, the bank informed CLCI that it would
resell the subject property at an offered price of P3 million, and gave CLCI
15 days to make a formal offer; otherwise, the bank would sell the subject
property to third parties. On October 26, 1988, CLCI offered to repurchase
the subject property for P1.5 million, given that it had already tendered the
amount of P400,000.00 as earnest money.

CLCI subsequently claimed that the bank breached the terms of
repurchase, as it had wrongly considered its payments (in the amounts
of P140,485.18, P200,000.00 andP100,000.00) as earnest money, instead of
applying them to the purchase price. Through its counsel, CLCI demanded
that the bank rectify the repurchase agreement to reflect the true
consideration agreed upon for which the earnest money had been given. The
bank did not act on the demand. Instead, it informed CLCI that the amounts
it received were not earnest money, and that the bank was willing to return
these sums, less the amounts forfeited to answer for the unremitted rentals
on the subject property.

In view of these developments, CLCI and Mrs. Cuison, on February 10,
1989, filed with the RTC a complaint for breach of contract, specific
performance, damages, and attorneys fees against the bank. On April 20,
1989, the bank filed its Answer alleging that the TRB repurchase agreement
was already cancelled given CLCIs failure to comply with its provisions; by
way of counterclaim, the bank also demanded the payment of the
accruedrentals in the subject property as of January 31, 1989, and the
award of moral damages and exemplary damages as well as attorneys fees
and litigation expenses for the unfounded suit instituted against the bank by
CLCI.
[9]
After trial on the merits, the RTC ruled in respondents favor. The
dispositive portion of its November 4, 1994 Decision states:

WHEREFORE, premises considered, judgment is hereby
rendered in favor of plaintiffs and against the defendant bank,
ordering said defendant bank to:

1. Execute and consummate a Contract to Sell which is
reflective of the true consideration indicated in the Resolution of
the Board of Directors of Traders Royal Bank held on October 10,
1986 (Exhibit F and Exhibit 13), duly accrediting the amount
ofP435,000 as earnest money to be part of the price, the mode
of payment being on quarterly installment, but the period within
which the first quarterly payment being on quarterly payment
shall be made to commence upon the execution of said Contract
to Sell;

2. Pay to plaintiffs the amounts of P50,000.00 in concept
of moral damages,P20,000.00 as exemplary damages;

3. Pay attorneys fees of P20,000.00; and

4. Pay litigation expenses in the amount of P2,000.00.

The counterclaim of defendant bank is hereby dismissed.

SO ORDERED.


On appeal to the CA, the bank pointed out the misappreciation of
facts the RTC committed and argued that: first, the repurchase agreement
did not ripen into a perfected contract; and second, even assuming that
there was a perfected repurchase agreement, the bank had the right to
revoke it and apply the payments already made to the rentals due for the
use of the subject property, or as liquidated damages under paragraph 11 of
the TRB Repurchase Agreement, since CLCI violated its terms and
conditions. Further, the bank contended that CLCI had abandoned the TRB
Repurchase Agreement in its letters dated August 28, 1987 and October 26,
1988 when it proposed to repurchase the subject property for P1 million
and P1.5 million, respectively. Lastly, the bank objected to the award of
damages in the plaintiffs favor.

THE CA DECISION


On March 31, 2006, the CA issued the challenged Decision and
affirmed the RTCs factual findings and legal conclusions. Although it deleted
the awards of attorneys fees, moral and exemplary damages, the CA ruled
that there was a perfected contract to repurchase the subject property given
the banks acceptance (as stated in the letter dated October 20, 1986) of
CLCIs proposal contained in Mrs. Cuisons letter of July 31, 1986. The CA
distinguished between a condition imposed on the perfection of the contract
and a condition imposed on the performance of an obligation, and declared
that the conditions laid down in the letter dated October 20, 1986 merely
relate to the manner the obligation is to be performed and implemented;
failure to comply with the latter obligation does not result in the failure of
the contract and only gives the other party the options and/or remedies to
protect its interest. The CA held that the same conclusion obtains even if the
letter of October 20, 1986 is considered a counter-offer by the bank; CLCIs
payment ofP135,000.00 operated as an implied acceptance of the banks
counter-offer, notwithstanding CLCIs failure to expressly manifest
its conforme. In light of these findings, the CA went on to acknowledge the
validity of the terms of paragraph 11 of the TRB Repurchase Agreement, but
nonetheless held that CLCI has not yet violated its terms given the banks
previous acts (i.e., the grant of extensions to pay), which showed that it had
waived the agreements original terms of payment.

The CA rejected the theory that CLCI had abandoned the terms of the
TRB Repurchase Agreement and found no incompatibility between the
agreement and the contents of the August 28, 1987 and October 26, 1988
letters which did not show an implied abandonment by CLCI, nor the latters
expressed intent to cancel or abandon the perfected repurchase
agreement. In the same manner, the CA struck down the banks position
that CLCIs payments were deposits rather than earnest money. The
appellate court reasoned that while the amounts tendered cannot be strictly
considered as earnest money under Article 1482 of the New Civil
Code,
[10]
they were nevertheless within the concept of earnest money under
this Courts ruling in Spouses Doromal, Sr. v. CA,
[11]
since they were paid as
a guarantee so that the buyer would not back out of the contract.

The CA however ruled that the award of moral and exemplary
damages, attorneys fees and litigation expenses lacked factual and legal
support. The CA found that the bank acted in good faith and based its
actions on the erroneous belief that CLCI had already abandoned the
repurchase agreement. Likewise, the award of moral damages was not in
order as there was no showing that CLCIs reputation was debased or
besmirched by the banks action of applying the previous payments made to
the interest and rentals due on the subject property; neither is Mrs. Cuison
entitled to moral damages without any evidence to justify this award. The
CA also ruled that there was nothing in the records to warrant the awards of
exemplary damages and attorneys fees.

The bank subsequently moved but failed to secure a reconsideration of
the CA decision. The bank thus came to us with the following

ISSUES

I.

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN
APPREHENDING THE SIGNIFICATION (SIC) OF THE TERM
OFFER ON THE ONE HAND AND ACCEPTANCE ON THE OTHER
HAND IN SALES CONTRACT WHICH ERROR LED IT TO ARRIVE
AT A WRONG CONCLUSION OF LAW.

II.

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN ITS
INTERPRETATION OF THE STIPULATIONS AND TERMS AND
CONDITIONS EMBODIED IN THE PROPOSED REPURCHASE
AGREEMENT xxx WHICH LED IT TO ERRONEOUSLY CONCLUDE
THAT THERE WAS A PERFECTED REPURCHASE AGREEMENT
BETWEEN RESPONDENTS AND PETITIONER AND WHICH
INTERPRETATION IS NOT IN ACCORDANCE WITH THE
APPLICABLE LAW AND ESTABLISHED JURISPRUDENCE.


Reduced to the most basic, the main issue posed is whether or
not a perfected contract of repurchase existed and can be enforced
between the parties.

THE COURTS RULING


We GRANT the petition.


The case presents to us as threshold issue the presence or absence of
consent as a requisite for a perfected contract to repurchase the subject
property. The RTC ruled that a perfected contract existed based mainly on
the following facts: first, the existence of the TRB Repurchase Agreement
which clearly depicts the repurchase agreement of the subject property
under the terms therein embodied; and second, the payment of earnest
money in the total amount of P435,000.00 which forms part of the price
and, as initial payment, is proof of the perfection of the contract.
[12]
In
concurring with the foregoing findings on appeal, the CA, in turn, declared
that there was a meeting of the minds between the parties on the offer and
acceptance
for the repurchase of the subject property under the following quoted facts:

It may be recalled that it was Mrs. Cuison, through her
letter of July 31, 1986, who proposed to repurchase the
foreclosed property. She in fact had tendered right away an
amount of P50,000.00 as partial payment of the P132,000.00
she had promised to pay as initial payment. In response, TRB
sent a letter dated October 20, 1986 to Atty. Cuison informing
him of the resolution passed by the Board of Directors of TRB
acknowledging the proposal of Ms. Cuison to repurchase the
property. Under the circumstance, the proposal made by Ms.
Cuison constituted the offer contemplated by law, and the
reply of TRB was the corresponding acceptance of the
proposal-offer.

x x x

Conceding arguendo that TRBs letter-response October
20, 1986 constituted a counter-offer or politacion, CLCIs
ensuing remittance of P135,000.00 as initial payment of the
price, operates effectively as an implied acceptance of TRBs
counter-offer. The absence of a signature to signify
plaintiffs conforme to the repurchase agreement is of no
moment. While the conforme portion of the subject repurchase
agreement indeed bears no signature at all, this fact, however,
does not detract from the accomplished fact that plaintiffs had
acquiesced or assented to the standing conditional counter-
offer of TRB. Plaintiffsconforme would at best be a mere
formality considering that the repurchase agreement had already
been perfected, if impliedly.
[13]



Based on these findings, the crucial points that the lower courts
apparently considered were Mrs. Cuisons letter of July 31, 1986 to the
bank; the banks letter of October 20, 1986 to CLCI; and the parties
subsequent conduct showing their acknowledgement of the existence of their
agreement, specifically, the respondents payments (designated as earnest
money) and the banks acceptance of these payments. However, unlike the
RTCs conclusion that relied on CLCIs payment and the banks acceptance of
the payment as earnest money, the CA concluded that there was a
perfected contract, either because of the banks acceptance of CLCIs offer
(made through Mrs. Cuisons letter of July 31, 1986), or by CLCIs implied
acceptance indicated by its initial payments in compliance with the terms of
the TRB Repurchase Agreement.

The petitioner bank, of course, argues differently and concludes that
the undisputed facts of the case show that there was no meeting of the
minds between the parties given CLCIs failure to give its consent and
conformity to the banks letter of October 20, 1986, confirmed by the
testimony of Atty. Cuison, no less, when he denied that CLCI consented to
the agreements terms of implementation.

Our task in this petition for review on certiorari is not to review the
factual findings of the CA and the RTC, but to determine whether or not, on
the basis of the said findings, the conclusions of law reached by the said
courts are correct.

Under the law, a contract is perfected by mere consent, that is, from
the moment that there is a meeting of the offer and the acceptance upon the
thing and the cause that constitute the contract.
[14]
The law requires that the
offer must be certain and the acceptance absolute and unqualified.
[15]
An
acceptance of an offer may be express and implied; a qualified offer
constitutes a counter-offer.
[16]
Case law holds that an offer, to be considered
certain, must be definite,
[17]
while an acceptance is considered absolute and
unqualified when it is identical in all respects with that of the offer so as to
produce consent or a meeting of the minds.
[18]
We have also previously held
that the ascertainment of whether there is a meeting of minds on the offer
and acceptance depends on the circumstances surrounding the case.
[19]


In Villonco Realty Co. v. Bormacheco,
[20]
the Court found a perfected
contract of sale between the parties after considering the parties written
communications showing the offer (counter-offer) and acceptance by the
seller who formally manifested his conformity with the offer in the buyers
letter. We took note of the acts of the parties the payment of the buyer of
an amount representing the partial payment under the contract; the
acceptance of the partial payment by the seller; the allowance of the buyer
for the seller to encash the check containing the partial payment; the
subsequent return of the amount representing the partial payment by the
buyer with the corresponding interest stated in the buyers letter (offer)
and considered them evidence of the perfection of the sale. Under these
circumstances, we also declared that a change in a phrase in the offer to
purchase, that does not essentially change the terms of the offer, does not
amount to a rejection of the offer and the tender of a counter-offer.

In Schuback & Sons Philippine Trading Corp. v. CA,
[21]
we declared a
meeting of minds between the vendor and the vendee even though the
quantity of goods purchased had not been fully determined. We noted that
the vendee, after expressing his intention to purchase the merchandise,
simultaneously enclosed a purchase order whose receipt prompted the
vendor to immediately order the merchandise. We also took into account
the act of the vendee in requesting for a discount as proof of his acceptance
of the quoted price.

Yuviengco v. Dacuycuy
[22]
yielded a different result, as we considered
that the letter and telegrams sent by the parties to each other showed that
there was no meeting of minds in the absence of an unconditional
acceptance to the terms of the contract of sale; otherwise, the buyers would
not have included the phrase to negotiate details when they agreed to the
property that was subject of the proposed contract.

Similarly, in Philippine National Bank v. CA,
[23]
we ruled that there was
no perfected contract of sale because the specified terms and conditions
imposed under the facts of the case constituted counter-offers against each
other that were not accepted by either of the parties. This case involved a
first contract, involving the same property, which the parties mutually
cancelled; we said that the terms of this earlier contract cannot be
considered in determining the acceptance and compliance with the terms of
a proposed second contract a distinct and separate contract from the one
earlier aborted.

The incomplete details of the agreement led us to conclude in Insular
Life Assurance Co. Ltd. v. Assets Builders Corp.
[24]
that no perfected contract
existed; there were other matters or details in addition to the subject
matter and the consideration [that] would be stipulated and agreed. We
likewise considered the subsequent acts between the parties and the
existence of a second proposal which belied the perfection of any initial
contract.

The recent Navarra v. Planters Development Bank
[25]
is another case
where we saw no perfected contract, as the offer was incomplete for lack of
agreed details on the manner of paying the purchase price; there was also
no acceptance as the letter of Planters Development Bank indicated the need
to discuss other details of the transaction.

All these cases illustrate the rule that the concurrence of the offer and
acceptance is vital to the birth and the perfection of a contract. The clear
and neat principle is that the offer must be certain and definite with respect
to the cause or consideration and object of the proposed contract, while the
acceptance of this offer express or implied must be
unmistakable, unqualified, and identical in all respects to the offer. The
required concurrence, however, may not always be immediately clear and
may have to be read from the attendant circumstances; in fact, a binding
contract may exist between the parties whose minds have met, although
they did not affix their signatures to any written document.
[26]


The facts of the present case, although ambivalent in some
respects, point on the whole to the conclusion that both parties
agreed to the repurchase of the subject property.

A reading of the petitioners letter of October 20, 1986 informing CLCI
that the banks board of directors passed a resolution for the repurchase of
[your] property shows that the tenor of acceptance, except for the
repurchase price, was subject to conditions not identical in all respects with
the CLCIs letter-offer of July 31, 1986. In this sense, the banks October 20,
1986 letter was effectively a counter-offer that CLCI must be shown to have
accepted absolutely and unqualifiedly in order to give birth to a perfected
contract. Evidence exists showing that CLCI did not sign any document to
show its conformity with the banks counter-offer. Testimony also exists
explaining why CLCI did not sign; Atty. Cuison testified that CLCI did not
agree with the implementation of the repurchase transaction since the bank
made a wrong computation.
[27]


These indicators notwithstanding, we find that CLCI accepted the
terms of the TRC Repurchase Agreement and thus unqualifiedly accepted the
banks counter-offer under the TRB Repurchase Agreement and, in fact,
partially executed the agreement, as shown from the following undisputed
evidence:

(a) The letter-reply dated November 29, 1986 of Atty. Cuison, as
president and general manager of CLCI, to the bank (in response
to the banks demand letter dated November 27, 1986 to pay
20% of the bid price); CLCI requested an extension of time, until
the end of December 1986, to pay its due obligation;
[28]


(b) Mrs. Cuisons letter-reply of February 3, 1987 (to the banks
letter of January 13, 1987) showed that she acknowledged CLCIs
failure to comply with its requested extension and proposed a new
payment scheme that would be reasonable given CLCIs critical
economic difficulties; Mrs. Cuizon tendered a check
for P135,091.57, which represented 50% of the 20% bid price;
[29]


(c) The CLCIs continuous payments of the repurchase price after
their receipt of the banks letter of October 20, 1986;

(d) CLCIs possession of the subject property pursuant to
paragraph 5 of the TRB Repurchase Agreement, notwithstanding
the absence of a signed contract to sell between the parties;

x x x

We counted the following facts, too, as indicators leading to the conclusion
that a perfected contract existed: CLCI did not raise any objection to the
terms and conditions of the TRB Repurchase Agreement, and instead,
unconditionally paid without protests or objections
[30]
; CLCIs
acknowledgment of their obligations under the TRB Repurchase Agreement
(as shown by Atty. Cuisons letter of November 29, 1986); and Atty.
Cuisons admission that the TRB Repurchase Agreement was already a
negotiated agreement between CLCI and the bank, as shown by the
following testimony:

Q When you received this document, this Exh. F from the
defendant bank, did you already consider this as an
agreement?
A We consider that as a negotiated agreement pending the
documentation of the formal contract to sell which is
stated under the repurchase agreement.

Q In other words, at the time you received this document
Exh. F, which was on October 23, 1986 date of receipt,
was there already a meeting of the minds between the
parties?
A That is precisely we put [sic] the earnest money because
we were of the opinion that the bank is already agreeable
to the implementation of the repurchase agreement.
x x x
COURT

Q Insofar as Exh. F is concerned?
A There was initially, that is precisely we [sic] deposited in
consideration of the repurchase agreement.
[31]



The bank, for its part, showed its recognition of the existence of a
repurchase agreement between itself and CLCI by the following acts:

(a) The letter dated November 27, 1986 of the bank, reminding
CLCI that it was remiss in its commitments to pay 20% of the bid
price under the terms of the TRB Repurchase Agreement;

(b) In the same letter, the bank gave CLCI an extension of time
(until November 30, 1986) to comply with its past due obligations
under the agreement;

(c) The banks acceptance of CLCIs payments as earnest
money for the repurchase of the property;

(d) CLCIs continued possession of the subject property with the
banks consent;

(e) The banks grant of extensions to CLCI for the payment of
its obligations under the contract;

(f) The Statement of Account dated July 31, 1987 showing that
the bank applied CLCIs payments according to the terms of the
TRB Repurchase Agreement;

(g) The letter of January 26, 1989 of the banks counsel, Atty.
Abarquez, addressed to CLCIs counsel, showing the banks
recognition that there was an agreement between the bank and
CLCI, which the latter failed to honor; and

(h) The testimonies of the banks witnesses Mr. Eulogio
Giramis
[32]
and Ms. Arlene Aportadera,
[33]
the banks employees
who handled the CLCI transactions who admitted the existence
of the repurchase agreement with CLCI and the latters failure to
comply with the agreements terms.


Admittedly, some evidence on record may be argued to point to the
absence of a meeting of the minds (more particularly, the previous offers
made by CLCI to change the payment scheme of the repurchase of the
subject property which was not accepted; the banks expressed intent to
offer the subject property for sale to third persons at a higher price; and the
unaccepted counter-offer by the respondents after the bank increased the
purchase price).
[34]
These incidents, however, were the results of CLCIs
failure to comply with its obligations to pay the amounts due on the
stipulated time and were made after the parties minds had met on the
terms of the contract. The seemingly contrary indications, therefore, do not
go into and affect the perfection of the contract; they came after the
contract had been perfected and, as discussed below, were indicative of the
banks cancellation of the repurchase agreement.

In light of this conclusion, we now determine the consequential rights,
obligations and liabilities of the parties. It is at this point that we diverge
from the conclusions of the CA and the RTC, as we conclude that while there
was a perfected contract between the parties, the bank effectively cancelled
the contract when it communicated with CLCI that it would sell the subject
property at a higher price to third parties, giving CLCI 15 days to make a
formal offer, and disregarding CLCIs counter-offer to buy the subject
property forP1.5 million. We arrive at this conclusion after considering the
following reasons:

First, the bank communicated its intent not to proceed with the
repurchase as above outlined and formally cancelled the TRB Repurchase
Agreement in its letters dated January 11 and 30, 1989 to CLCI.
[35]
Thus,
CLCIs rights acquired under the TRB Repurchase Agreement to repurchase
the subject property have been defeated by its own failure to comply with its
obligations under the agreement. The right to cancel for breach is provided
under paragraph 11 of the TRB Repurchase Agreement, as follows:

11. Upon default of the buyer to pay two (2) successive
quarterly installments, contract is automatically cancelled at
the Banks option and all payments already made shall be
treated as rentals or as liquidated damages;

We note, additionally, that the TRB Repurchase Agreement is in the nature
of a contract to sell where the title to the subject property remains in the
banks name, as the vendor, and shall only pass to the respondents, as
vendees, upon the full payment of the repurchase price.
[36]
The settled rule
for contracts to sell is that the full payment of the purchase price is a
positive suspensive condition; the failure to pay in full is not to be
considered a breach, casual or serious, but simply an event that prevents
the obligation of the vendor to convey title from acquiring any obligatory
force.
[37]
Viewed in this light, the bank cannot be compelled to perform its
obligations under the TRB Repurchase Agreement that has been rendered
ineffective by the respondents non-performance of their own obligations.

Second, the respondents violated the terms and conditions of the TRB
Repurchase Agreement when they failed to pay their obligations under the
agreement as these obligations fell due. Paragraphs 2 and 10 of the TRB
Repurchase Agreement are clear on the respondents obligation to pay the
bid price and the quarterly installments. Paragraphs 2 and 10 state:

2. That client shall initially pay P132,000.00 within fifteen
(15) days from the expiration of the redemption period
(August 8, 1986) and further payment of P200,632.84
representing 20% of the bid price to be remitted on or before
October 31, 1986;

xxx xxx xxx

10. That the first quarterly installment shall be due within
ninety (90) days of approval hereof, and the succeeding
installment shall be due every three (3) months thereafter;


The approval referred to under paragraph 10 is the approval by the bank of
the repurchase of the subject property, as indicated in the banks letter of
October 20, 1986 which states,This is to formally inform you that our Board
of Directors in its regular meeting held on October 10, 1986, passed a
resolution for the repurchase of your property acquired by the bank. It
was on the basis of this approval and the quoted terms of the agreement
that the bank issued its Statement of Account dated July 31, 1987 indicating
that the respondents were already in default, not only with respect to the
20% of the bid price, but also with the three quarterly installments.

Third, the respondents themselves claim that the bank violated the
agreement when it applied the respondents payments to the interest and
penalties due without the respondents consent, instead of applying these to
the repurchase price for the subject property.
[38]
An examination of the
provisions of the TRB Repurchase Agreement reveals that the bank is
allowed to apply the respondents payments first to the amounts due as
interests and other charges, before applying any payment to the repurchase
price. Paragraph 4 of the agreement provides:

4. That all the interest and other charges starting from
August 8, 1986 to date of approval shall be paid first before
implementation of the request; interest as of October 31,
1986 is P65,669.53;

Under these terms, the bank cannot be faulted for the application of
payments it made. Likewise, the bank cannot be faulted for the application
of other amounts paid as rentals as this is allowed under paragraph 11,
quoted above, of the agreement.

Fourth, the petitioner bank cannot be said, as the CA ruled, to have
already waived the terms of the TRB Repurchase Agreement by extending
the time to pay and subsequently accepting late payments. The CAs
conclusion lacks factual and legal basis taking into account that the
Statement of Account of July 31, 1987, heretofore cited, which shows that
the bank considered the respondents already in default. At this point, Atty.
Cuison, by letter, requested that part of its outstanding obligation be
condoned by the bank, paying P300,000.00 as of August 31, 1987, which
amount the bank accepted as earnest money. For one whole year
thereafter, neither party moved. Significantly, the respondents, who had
continuing payments to make and who had the burden of complying with the
terms of the agreement, failed to act except to ask the bank for the status of
its requested condonation. Under these facts, a continuing breach of the
agreement took place, even granting that a waiver had intervened as of
August 31, 1987. Thus, the bank was well within its right to consider the
agreement cancelled when, in September 1988, it changed the repurchase
terms to P3.0 million. We find it significant that the respondents, instead of
asserting its rights under the TRB Repurchase Agreement, counter-
offered P1.5 million with the P400,000.00 already paid as part of the
purchase price. At that point, it was clear that even the respondents
themselves considered the TRB Repurchase Agreement cancelled.

Lastly, the perfected repurchase agreement itself provides for the
respondents possession of the subject property; in fact, the respondents
have been in continuous possession of the subject property since October
1986, despite the absence of a contract to sell apparently with the banks
consent. The agreement also provides under its paragraph 11 that upon the
respondents default and the cancellation of the agreement, all payments
already made shall be treated as rentals or as liquidated damages.

The undisputed facts show that the bank has been deprived of the use
and benefit of its property that has been in the possession of the
respondents for the latters use and benefit without paying any rentals
thereon. The records reveal that until now, the respondents are still in
possession of the subject property.
[39]


We note that subsequent to the banks counterclaim for the payment
of rentals due as of January 31, 1989, the bank also seeks to recover the
rentals that accrued after January 31, 1989, which as of August 8, 1993
amounted to P1,123,500.00 as shown by the evidence presented by the
bank before the RTC and in the pleadings it had filed before the RTC, CA,
and the Court.
[40]
Although this claim was not alleged in the banks Answer
being an after-acquired claim which was only raised during the trial proper
through the testimony dated August 17, 1993 of Ms. Arlene
Aportadera,
[41]
the bank is not barred from recovering these rentals. As we
explained in Banco de Oro Universal Bank v. CA,
[42]
a party is not barred
from setting up a claim even after the filing of the answer if the claim did not
exist or had not matured at the time said party filed its answer. Moreover,
we note that the respondents did not object to the presentation of this
evidence, hence, the issue of rentals from August 8, 1993 and onwards was
tried with the implied consent of the parties; applying Section 5, Rule 10 of
the 1997 Rules of Civil Procedure,
[43]
the issue should be treated in all
respects as if it had been raised in the pleadings.
[44]
Given the implied
consent, judgment may be validly rendered on this issue even if no motion
had been filed and no amendment had been ordered.
[45]


In National Power Corporation v. CA,
[46]
we held that where there is a
variance in the defendants pleadings and the evidence adduced by it at the
trial, the Court may treat the pleading as amended to conform to the
evidence.

Additionally, the respondents are also liable to pay interest by way of
damages for their failure to pay the rentals due for the use of the subject
property. In Eastern Shipping Lines v. CA,
[47]
we laid down the following
guidelines with respect to the award and the computation of legal interest,
as follows:
II. With regard particularly to an award of interest in the concept
of actual and compensatorydamages, the rate of interest, as well
as the accrual thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the
payment of a sum of money, i.e., a loan or forbearance of
money, the interest due should be that which may have been
stipulated in writing. Furthermore, the interest due shall itself
earn legal interest from the time it is judicially demanded. In
the absence of stipulation, the rate of interest shall be 12% per
annum to be computed from default, i.e., from judicial or
extrajudicial demand under and subject to the provisions of
Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of
money, is breached, an interest on the amount of damages
awarded may be imposed at the discretion of the court at the
rate of 6% per annum. No interest, however, shall be
adjudged on unliquidated claims or damages except when
or until the demand can be established with reasonable
certainty. Accordingly, where the demand is established
with reasonable certainty, the interest shall begin to run
from the time the claim is made judicially or
extrajudicially (Art. 1169 Civil Code) but when such
certainty cannot be so reasonably established at the time
the demand is made, the interest shall begin to run only
from the date the judgment of the court is made (at which
time quantification of damages may be deemed to have
been reasonably ascertained). The actual base for the
computation of legal interest shall, in any case, be on the
amount finally adjudged.
3. When the judgment of the court awarding a sum of money
becomes final and executory, the rate of legal interest, whether
the case falls under paragraph 1 or paragraph 2, above, shall be
12% per annum from such finality until its satisfaction, this
interim period being deemed to be by then an equivalent to a
forbearance of credit. [Emphasis supplied]

The records are unclear on when the bank made a demand outside of
the judicial proceedings for the rentals on the subject property.
[48]
However,
the records show that the bank made a counterclaim for the payments of the
rentals due as of January 31, 1989 in its Answer and subsequently, a claim
for the after-acquired rentals was made by the bank through the testimony
of Ms. Arlene Aportadera. Applying Eastern Shipping Lines, the payment of
interest for the rentals shall be reckoned from the date the judicial demand
was made by the bank or on April 20, 1989 when the bank set up its
counterclaim for rentals in the subject property.

Under the circumstances, we can impose a 6% interest on the rentals
from April 20, 1989 up to the finality of this decision. Thereafter, the
interest shall be computed at 12% per annum from such finality up to full
satisfaction.

We find no basis for the award of exemplary damages. Article 2232 of
the Civil Code declares:
Article 2232. In contracts and quasi-contracts, the court
may award exemplary damages if the defendant acted in a
wanton, fraudulent, reckless, oppressive, or malevolent manner.

Considering the factual circumstances we have discussed above, we can
hardly characterize respondents act of insisting on the enforcement of the
repurchase agreement as wanton, fraudulent, reckless, oppressive, or
malevolent.

As there is no basis for an award of exemplary damages, the awards of
attorneys fees and litigation expenses to the bank are not justified under
Article 2208 of the Civil Code.

WHEREFORE, premises considered, we hereby GRANT the petition.
The Decision dated March 31, 2006 and Resolution dated August 11, 2006 of
the Court of Appeals in CA-G.R. CV No. 49900 are
hereby REVERSED and SET ASIDE.

The complaint in Civil Case No. 19416-89 for breach of contract,
specific performance, damages, and attorneys fees, with preliminary
injunction filed by Cuison Lumber Co., Inc. and Mrs. Cuison against Traders
Royal Bank is hereby DISMISSED. The respondents are ordered to vacate
the subject property and to restore its possession to the petitioner bank.

The respondents are further ordered to pay reasonable compensation,
for the use and occupation of the subject property in the amount
of P1,123,500.00, representing the accrued rentals as of August 8, 1993,
less the amount of P485,000.00 representing deposits paid by the
respondents. In additiodn, respondents are also ordered to pay the amount
of P13,700.00 a month by way of rentals starting from August 8, 1993 until
they vacate the subject property. The rentals shall earn a corresponding
legal interest of six percent (6%) per annum to be computed from April 20,
1989 until the finality of this decision. After this decision becomes final and
executory, the rate of legal interest shall be computed at twelve percent
(12%) per annum from such finality until its satisfaction.

Costs against the respondents.

SO ORDERED.
REPUBLIC OF THE PHILIPPINES, G.R. No. 166866
represented by the PHILIPPINE
ECONOMIC ZONE AUTHORITY
(PEZA) through its Director
General, Lilia B. de Lima,
Petitioner, Present:

PUNO, C.J., Chairperson,
CARPIO,
- v e r s u s - CORONA,
AZCUNA, and
LEONARDO-DE CASTRO, JJ.

ANTONIO and LILI FLORENDO,
*

Respondents. Promulgated:

March 27, 2008
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
- - - - x


D E C I S I O N

CORONA, J.:


This is a petition for review on certiorari
[1]
of the February 7, 2005
decision
[2]
of the Court of Appeals (CA) in CA-G.R. SP No. 86718. The CA
dismissed petitioner Republic of the Philippines' petition for certiorari and
prohibition assailing various orders of the Regional Trial Court (RTC), Lapu-
Lapu City, Cebu, Branch 27, in connection with the execution of the RTC's
judgment dated December 21, 1993 in Civil Case No. 2415-L, as modified by
the decision of the CA dated June 25, 2002 in CA-G.R. CV No. 54765. This
pertained to a case for expropriation of respondent spouses Antonio and Lili
Florendo's properties.
[3]


Petitioner Republic of the Philippines is represented in this case by the
Philippine Economic Zone Authority (PEZA), a government corporation
created under RA 7916,
[4]
as amended.

On April 14, 1991, the Export Processing Zone Authority, (PEZA),
predecessor of PEZA, filed a complaint for the expropriation of seven parcels
of land (Lot Nos. 4703-B-part, 4702-C, 4702-B, 4704, 4705-H, 4709 and
4710)
[5]
located at Barrio Ibo, Lapu-Lapu City, Cebu, owned by
respondents. The complaint was filed in the RTC of Lapu-Lapu City, Branch
27 and docketed as Civil Case No. 2415-L. The purpose of the expropriation
was to establish and develop an export processing zone or a part thereof on
those real properties.
[6]


After trial on the merits, the RTC rendered a decision ordering the
expropriation of the seven parcels of land and payment of just compensation
of P1,500 per sq. m. with 12% interest per annum from the time petitioner
took possession on March 12, 1992 until full payment thereof.
[7]
For the
aggregate area of 17,967.5 sq. m., the total compensation wasP26,951,250.

Petitioner filed an appeal in the CA docketed as CA-G.R. CV No.
54765 to question the correctness of the valuation of P1,500 per sq. m. as
just compensation.
[8]
Pending appeal, petitioner and respondents reached
an amicable settlement and agreed on the following:

1. P1,500 per sq. m. valuation fixed by the RTC;
2. waiver by respondents of the payment of the court-
awarded 12% interest and
3. presentation by respondents of clean titles of all the subject
properties before payment by petitioner.

Accordingly, the parties executed a deed of absolute sale dated June
25, 2001 which set out the terms and conditions of their settlement, the
transfer of ownership of Lot No. 4704 under TCT No. 21289 from
respondents to petitioner and the execution by the parties of the
corresponding deed of absolute sale for the remaining six lots as soon as
respondents could settle or clear the encumbrances or other problems
affecting them.
[9]


Thereafter, the consideration for Lot Nos. 4705-H, 4709 and 4710
was paid by petitioner and ownership was subsequently transferred to
it. Petitioner prepared a joint motion to dismiss the expropriation case but
respondent Antonio Florendo refused to sign because there were still three
lots (Lot Nos. 4703-B-part, 4702-C and 4702-B) which had not yet been
paid. Respondents could not clear these properties of their encumbrances
and liens as there were pending cases filed by third party claimants over
them. Instead, they proposed that a partial compromise agreement be
executed to cover the four lots that had already been sold and transferred to
PEZA. Petitioner, however, found the proposal unacceptable and contrary to
their compromise agreement.
[10]


While the parties were still trying to decide whether a partial
compromise agreement or a joint motion to dismiss should be executed, the
CA rendered a decision
[11]
in CA-G.R. CV No. 54765 dated June 25, 2002
affirming the decision of the RTC with the modification that the fair market
value of the subject properties should be P1,000 per sq. m. instead
of P1,500 per sq. m. No appeal was taken by either party. Neither did they
inform the CA that they had already entered into a compromise
agreement.
[12]
Hence, the decision attained finality on July 18, 2002.
[13]


On October 28, 2002, respondents filed a motion for execution of the
final judgment of the CA with respect to the three parcels of land, namely
Lot Nos. 4703-B-part, 4702-C and 4702-B.
[14]
In an order dated March 21,
2003, the RTC granted respondents motion and a writ of execution was
issued on April 24, 2003.
[15]
Consequently, notices of garnishment
[16]
were
served on the Land Bank of the Philippines, Lapu-Lapu City Branch which
was petitioners depository bank, for the amount of P6,108,300.
[17]


On May 19, 2003, petitioner filed a motion to quash the writ of
execution and an urgent ex-parte motion to lift the garnishment. Both
motions were denied by the RTC in an order dated May 21, 2004 on the
ground that, since the deed of absolute sale executed by the parties while
the appeal was pending in the CA was not approved by the latter, the
agreement did not bind it and did not moot the decision it promulgated. In
the same order, the RTC ordered the sheriff to implement the writ of
execution dated April 24, 2003.
[18]


Thereafter, notices of garnishment
[19]
were served upon business
establishments and other locators of PEZA
[20]
prompting petitioner to file
motions to recall, lift and set aside the notices of garnishment.
[21]


On September 15, 2004, the RTC denied petitioner's motion for
reconsideration of the order dated May 21, 2004.
[22]
Aggrieved anew,
petitioner filed a petition for certiorari and prohibition in the CA docketed as
CA-G.R. SP No. 86718.

In a decision promulgated on February 7, 2005, the CA dismissed the
petition for lack of merit. It held that there was no supervening event that
would render execution of the judgment unjust. However, it directed that in
executing the final judgment, any amount that might have already been paid
by petitioner to respondents with respect to the four lots should be
deducted.
[23]


Hence this petition with prayer for the issuance of a temporary
restraining order and writ of preliminary injunction. In a resolution dated
February 21, 2005, we directed the parties to maintain the status quo before
the issuance of the order dated March 21, 2003 until further orders from the
Court.
[24]


Petitioner raises the following issues: (1) whether the compromise
agreement of the parties constituted res judicata and therefore the June 25,
2002 decision of the CA could not have superseded it and (2) whether or not
there was a supervening event that rendered the execution of the final
judgment inequitable.

The parties agree that out of the seven lots, four had been sold and
paid for. The three other lots remain unpaid because respondents could not
deliver the clean titles of these lots to petitioner in accordance with their
compromise agreement.
[25]


Petitioner argues that the parties' compromise agreement became res
judicata and was implemented upon the payment of the four
lots. Accordingly, respondents are estopped from repudiating this
agreement by insisting on the execution of the June 25, 2002 CA
decision.
[26]


Respondents counter that there was no perfected compromise
agreement over the three remaining lots as they were not taken out of the
judgment of the appealed case in the CA which became final. Execution of
this final judgment would therefore be proper and just compensation for
these remaining lots should be paid.
[27]


We grant the petition.

The pertinent terms and conditions of the parties' compromise
agreement were expressed in the whereas clauses of the June 25, 2001
deed of sale they executed:

WHEREAS, on 21 December 1993, the [RTC] rendered
its decision fixing the just compensation of the 7 lots at
Php1,500 per sq.m. or a total sum of Php26,951,250.00 plus
twelve percent (12%) interest per annum from 12 March 1992
until fully paid; which judgment was appealed by the VENDEE to
the Court of Appeals under CA-G.R. CV No. 54765 which is still
pending with the said court;

WHEREAS, the parties have mutually agreed to
settle the said expropriation case amicably with the
VENDEE waiving so much of the court awarded
interest thereby saving the government much needed funds for
other public purposes;

WHEREAS, for this purpose, the Board of Directors of
the VENDEE has issued board Resolution No. 00-416 dated 29
December 2000 approving the purchase of the aforementioned
lots for Php26,951,250.00;

WHEREAS, the parties have agreed to execute a Deed of
Absolute Sale covering initially the lot under TCT No. 21289 (1 of
the 7 lots of the vendors, which has only a minor
encumbrance/problem) considering that the remaining 6 lots of
the vendors either have encumbrances or are untitled, with the
understanding that the parties shall execute the
corresponding Deed of Absolute Sale for the remaining 6
lots the moment the VENDORS shall have settled/cleared
the encumbrances/problems affecting the other 6 lots;
(Emphasis supplied)

xxx xxx
xxx
A compromise agreement is a contract whereby the parties make
reciprocal concessions in order to resolve their differences and thus avoid
litigation or to put an end to one already commenced.
[28]
When it complies
with the requisites and principles of contracts, it becomes a valid agreement
which has the force of law between the parties.
[29]
It has the effect and
authority of res judicata once entered into,
[30]
even without judicial
approval.
[31]


A compromise agreement is a simple contract which is perfected by
mere consent.
[32]
From that moment of the meeting of the minds of the
parties, it becomes binding on them. To be valid, judicial approval is not
required.
[33]


When a compromise agreement is given judicial approval, it becomes
more than a contract binding upon the parties. Having been sanctioned by
the court, it is a determination of the controversy and has the force and
effect of a judgment. It is immediately executory and not appealable,
except for vices of consent, forgery, fraud, misrepresentation and
coercion.
[34]
Thus, although a compromise agreement has the effect and
authority of res judicata upon the parties even without judicial approval, no
execution may issue until it has received the approval of the court where the
litigation is pending and compliance with the terms of the agreement is
thereupon decreed.
[35]


The first question to answer is whether there was a perfected
compromise agreement with respect to the remaining three lots which have
not been paid by petitioner because respondents could not deliver clean
titles thereto.

The compromise agreement the parties executed was in the form of a
contract of sale. The elements of a valid contract of sale are: (a) consent or
meeting of the minds; (b) determinate subject matter and (c) price certain
in money or its equivalent.
[36]
All the elements are present here. The parties
agreed on the sale of a determinate object (the seven lots) and the price
certain (P26,951,250).
[37]


Respondents, however, insist that, as to the three lots, there was no
meeting of the minds because the condition relating to the delivery of clean
titles was not fulfilled. Respondents are wrong.

The delivery of clean titles was not a condition imposed on the
perfection of the contract of sale but a condition imposed on petitioner's
obligation to pay the purchase price of these lots.
[38]
In Jardine Davies Inc.
v. CA,
[39]
we distinguished between a condition imposed on the perfection of
a contract and a condition imposed merely on the performance of an
obligation. While failure to comply with the first condition results in the
failure of a contract, non-compliance with the second merely gives the other
party options and/or remedies to protect its interests.
[40]


The next question is whether this perfected compromise agreement is
valid despite the finality of judgment of the CA. In Magbanua v. Uy,
[41]
we
answered in the affirmative:

The issue involving the validity of a compromise
agreement notwithstanding a final judgment is not novel. Jesalva
v. Bautista upheld a compromise agreement that covered cases
pending trial, on appeal, and with final judgment. The Court
noted that Article 2040 impliedly allowed such agreements; there
was no limitation as to when these should be entered
into. Palanca v. Court of Industrial Relations sustained a
compromise agreement, notwithstanding a final judgment in
which only the amount of back wages was left to be determined.
The Court found no evidence of fraud or of any showing that the
agreement was contrary to law, morals, good customs, public
order, or public policy.

Gatchalian v. Arlegui upheld the right to compromise
prior to the execution of a final judgment. The Court ruled that
the final judgment had been novated and superseded by a
compromise agreement.
[42]


Accordingly, we hold that the compromise agreement reached by the
parties while the appeal was pending in the CA is valid. When the CA
rendered its June 25, 2002 decision, it unknowingly adjudicated a case
which, for all intents and purposes, had already been closed and terminated
by the parties themselves when they agreed on a settlement.
[43]
It does not
matter that the CA decision lapsed into finality when neither party
questioned it. A compromise agreement is still valid even if there is already
a final and executory judgment.
[44]


Furthermore, compromises are favored and encouraged by the
courts.
[45]
Parties are bound to abide by them in good faith.
[46]
Since they
have the force of law between the parties, no party may discard them
unilaterally.
[47]


Consequently, considering that the June 25, 2002 decision of the CA
had been superseded by the compromise agreement of the parties, the
various orders of the RTC directing the execution of the said June 25, 2002
CA decision were invalid and of no force and effect.
[48]


And since the compromise agreement between the parties has been
upheld and the execution of the June 25, 2002 CA decision has been
invalidated, it is no longer necessary to resolve the second issue.
[49]


WHEREFORE, the petition is hereby GRANTED. The February 7, 2005
decision of the Court of Appeals in CA-G.R. SP No. 86718 is SET
ASIDE. The following orders of the Regional Trial Court, Lapu-Lapu City,
Cebu, Branch 27 are hereby declared NULL AND VOID:

(1) order of the RTC, Lapu-Lapu City, Branch 27 dated March 21,
2003 granting respondents' motion for execution;
(2) order of the RTC dated May 21, 2004 denying petitioners
motion to quash writ of execution and motion to lift
garnishment;
(3) order of the RTC dated September 15, 2004 denying petitioners
motion for reconsideration of the order dated May 21, 2004;
(4) writ of execution dated April 24, 2003 and
(5) notices of garnishment dated May 14, 2003, June 22, 2004, and
September 23, 2004, and all other orders and notices pursuant
to the writ of execution.

The status quo order issued by this Court on February 21, 2005
is LIFTED.

SO ORDERED.

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


D E C I S I O N


CALLEJO, SR., J.:
Before us is a petition for review on certiorari of the Decision
1
of the Court of
Appeals (CA) in CA-G.R. No. 46153 which affirmed the decision
2
of the
Regional Trial Court (RTC), Branch 71, Pasig City, in Civil Case No. 58551,
and its Resolution
3
denying the motion for reconsideration filed by petitioner
Manila Metal Container Corporation (MMCC).
The Antecedents
Petitioner was the owner of a 8,015 square meter parcel of land located in
Mandaluyong (now a City), Metro Manila. The property was covered by
Transfer Certificate of Title (TCT) No. 332098 of the Registry of Deeds of
Rizal. To secure a P900,000.00 loan it had obtained from respondent
Philippine National Bank (PNB), petitioner executed a real estate mortgage
over the lot. Respondent PNB later granted petitioner a new credit
accommodation of P1,000,000.00; and, on November 16, 1973, petitioner
executed an Amendment
4
of Real Estate Mortgage over its property. On
March 31, 1981, petitioner secured another loan of P653,000.00 from
respondent PNB, payable in quarterly installments of P32,650.00, plus
interests and other charges.
5

On August 5, 1982, respondent PNB filed a petition for extrajudicial
foreclosure of the real estate mortgage and sought to have the property sold
at public auction for P911,532.21, petitioner's outstanding obligation to
respondent PNB as of June 30, 1982,
6
plus interests and attorney's fees.
After due notice and publication, the property was sold at public auction on
September 28, 1982 where respondent PNB was declared the winning bidder
for P1,000,000.00. The Certificate of Sale
7
issued in its favor was registered
with the Office of the Register of Deeds of Rizal, and was annotated at the
dorsal portion of the title on February 17, 1983. Thus, the period to redeem
the property was to expire on February 17, 1984.
Petitioner sent a letter dated August 25, 1983 to respondent PNB, requesting
that it be granted an extension of time to redeem/repurchase the
property.
8
In its reply dated August 30, 1983, respondent PNB informed
petitioner that the request had been referred to its Pasay City Branch for
appropriate action and recommendation.
9

In a letter
10
dated February 10, 1984, petitioner reiterated its request for a
one year extension from February 17, 1984 within which to
redeem/repurchase the property on installment basis. It reiterated its
request to repurchase the property on installment.
11
Meanwhile, some PNB
Pasay City Branch personnel informed petitioner that as a matter of policy,
the bank does not accept "partial redemption."
12

Since petitioner failed to redeem the property, the Register of Deeds
cancelled TCT No. 32098 on June 1, 1984, and issued a new title in favor of
respondent PNB.
13
Petitioner's offers had not yet been acted upon by
respondent PNB.
Meanwhile, the Special Assets Management Department (SAMD) had
prepared a statement of account, and as of June 25, 1984 petitioner's
obligation amounted to P1,574,560.47. This included the bid price
ofP1,056,924.50, interest, advances of insurance premiums, advances on
realty taxes, registration expenses, miscellaneous expenses and publication
cost.
14
When apprised of the statement of account, petitioner
remittedP725,000.00 to respondent PNB as "deposit to repurchase," and
Official Receipt No. 978191 was issued to it.
15

In the meantime, the SAMD recommended to the management of
respondent PNB that petitioner be allowed to repurchase the property
for P1,574,560.00. In a letter dated November 14, 1984, the PNB
management informed petitioner that it was rejecting the offer and the
recommendation of the SAMD. It was suggested that petitioner purchase the
property for P2,660,000.00, its minimum market value. Respondent PNB
gave petitioner until December 15, 1984 to act on the proposal; otherwise,
its P725,000.00 deposit would be returned and the property would be sold to
other interested buyers.
16

Petitioner, however, did not agree to respondent PNB's proposal. Instead, it
wrote another letter dated December 12, 1984 requesting for a
reconsideration. Respondent PNB replied in a letter dated December 28,
1984, wherein it reiterated its proposal that petitioner purchase the property
for P2,660,000.00. PNB again informed petitioner that it would return the
deposit should petitioner desire to withdraw its offer to purchase the
property.
17
On February 25, 1985, petitioner, through counsel, requested
that PNB reconsider its letter dated December 28, 1984. Petitioner declared
that it had already agreed to the SAMD's offer to purchase the property
forP1,574,560.47, and that was why it had paid P725,000.00. Petitioner
warned respondent PNB that it would seek judicial recourse should PNB
insist on the position.
18

On June 4, 1985, respondent PNB informed petitioner that the PNB Board of
Directors had accepted petitioner's offer to purchase the property, but
for P1,931,389.53 in cash less the P725,000.00 already deposited with
it.
19
On page two of the letter was a space above the typewritten name of
petitioner's President, Pablo Gabriel, where he was to affix his signature.
However, Pablo Gabriel did not conform to the letter but merely indicated
therein that he had received it.
20
Petitioner did not respond, so PNB
requested petitioner in a letter dated June 30, 1988 to submit an amended
offer to repurchase.
Petitioner rejected respondent's proposal in a letter dated July 14, 1988. It
maintained that respondent PNB had agreed to sell the property
for P1,574,560.47, and that since its P725,000.00 downpayment had been
accepted, respondent PNB was proscribed from increasing the purchase price
of the property.
21
Petitioner averred that it had a net balance payable in the
amount of P643,452.34. Respondent PNB, however, rejected petitioner's
offer to pay the balance of P643,452.34 in a letter dated August 1, 1989.
22

On August 28, 1989, petitioner filed a complaint against respondent PNB for
"Annulment of Mortgage and Mortgage Foreclosure, Delivery of Title, or
Specific Performance with Damages." To support its cause of action for
specific performance, it alleged the following:
34. As early as June 25, 1984, PNB had accepted the down payment
from Manila Metal in the substantial amount of P725,000.00 for the
redemption/repurchase price of P1,574,560.47 as approved by its
SMAD and considering the reliance made by Manila Metal and the long
time that has elapsed, the approval of the higher management of the
Bank to confirm the agreement of its SMAD is clearly a potestative
condition which cannot legally prejudice Manila Metal which has acted
and relied on the approval of SMAD. The Bank cannot take advantage
of a condition which is entirely dependent upon its own will after
accepting and benefiting from the substantial payment made by Manila
Metal.
35. PNB approved the repurchase price of P1,574,560.47 for which it
accepted P725,000.00 from Manila Metal. PNB cannot take advantage
of its own delay and long inaction in demanding a higher amount
based on unilateral computation of interest rate without the consent of
Manila Metal.
Petitioner later filed an amended complaint and supported its claim for
damages with the following arguments:
36. That in order to protect itself against the wrongful and malicious
acts of the defendant Bank, plaintiff is constrained to engage the
services of counsel at an agreed fee of P50,000.00 and to incur
litigation expenses of at least P30,000.00, which the defendant PNB
should be condemned to pay the plaintiff Manila Metal.
37. That by reason of the wrongful and malicious actuations of
defendant PNB, plaintiff Manila Metal suffered besmirched reputation
for which defendant PNB is liable for moral damages of at
leastP50,000.00.
38. That for the wrongful and malicious act of defendant PNB which
are highly reprehensible, exemplary damages should be awarded in
favor of the plaintiff by way of example or correction for the public
good of at least P30,000.00.
23

Petitioner prayed that, after due proceedings, judgment be rendered in its
favor, thus:
a) Declaring the Amended Real Estate Mortgage (Annex "A") null and
void and without any legal force and effect.
b) Declaring defendant's acts of extra-judicially foreclosing the
mortgage over plaintiff's property and setting it for auction sale null
and void.
c) Ordering the defendant Register of Deeds to cancel the new title
issued in the name of PNB (TCT NO. 43792) covering the property
described in paragraph 4 of the Complaint, to reinstate TCT
No. 37025 in the name of Manila Metal and to cancel the annotation of
the mortgage in question at the back of the TCT No.37025 described in
paragraph 4 of this Complaint.
d) Ordering the defendant PNB to return and/or deliver physical
possession of the TCT No. 37025described in paragraph 4 of this
Complaint to the plaintiff Manila Metal.
e) Ordering the defendant PNB to pay the plaintiff Manila Metal's actual
damages, moral and exemplary damages in the aggregate amount of
not less than P80,000.00 as may be warranted by the evidence and
fixed by this Honorable Court in the exercise of its sound discretion,
and attorney's fees of P50,000.00 and litigation expenses of at
least P30,000.00 as may be proved during the trial, and costs of suit.
Plaintiff likewise prays for such further reliefs which may be deemed
just and equitable in the premises.
24

In its Answer to the complaint, respondent PNB averred, as a special and
affirmative defense, that it had acquired ownership over the property after
the period to redeem had elapsed. It claimed that no contract of sale was
perfected between it and petitioner after the period to redeem the property
had expired.
During pre-trial, the parties agreed to submit the case for decision, based on
their stipulation of facts.
25
The parties agreed to limit the issues to the
following:
1. Whether or not the June 4, 1985 letter of the defendant
approving/accepting plaintiff's offer to purchase the property is still
valid and legally enforceable.
2. Whether or not the plaintiff has waived its right to purchase the
property when it failed to conform with the conditions set forth by the
defendant in its letter dated June 4, 1985.
3. Whether or not there is a perfected contract of sale between the
parties.
26

While the case was pending, respondent PNB demanded, on September 20,
1989, that petitioner vacate the property within 15 days from notice,
27
but
petitioners refused to do so.
On March 18, 1993, petitioner offered to repurchase the property
for P3,500,000.00.
28
The offer was however rejected by respondent PNB, in
a letter dated April 13, 1993. According to it, the prevailing market value of
the property was approximately P30,000,000.00, and as a matter of policy,
it could not sell the property for less than its market value.
29
On June 21,
1993, petitioner offered to purchase the property for P4,250,000.00 in
cash.
30
The offer was again rejected by respondent PNB on September 13,
1993.
31

On May 31, 1994, the trial court rendered judgment dismissing the amended
complaint and respondent PNB's counterclaim. It ordered respondent PNB to
refund the P725,000.00 deposit petitioner had made.
32
The trial court ruled
that there was no perfected contract of sale between the parties; hence,
petitioner had no cause of action for specific performance against
respondent. The trial court declared that respondent had rejected
petitioner's offer to repurchase the property. Petitioner, in turn, rejected the
terms and conditions contained in the June 4, 1985 letter of the SAMD.
While petitioner had offered to repurchase the property per its letter of July
14, 1988, the amount of P643,422.34 was way below the P1,206,389.53
which respondent PNB had demanded. It further declared that
the P725,000.00 remitted by petitioner to respondent PNB on June 4, 1985
was a "deposit," and not a downpayment or earnest money.
On appeal to the CA, petitioner made the following allegations:
I
THE LOWER COURT ERRED IN RULING THAT DEFENDANT-APPELLEE'S
LETTER DATED 4 JUNE 1985 APPROVING/ACCEPTING PLAINTIFF-
APPELLANT'S OFFER TO PURCHASE THE SUBJECT PROPERTY IS NOT
VALID AND ENFORCEABLE.
II
THE LOWER COURT ERRED IN RULING THAT THERE WAS NO
PERFECTED CONTRACT OF SALE BETWEEN PLAINTIFF-APPELLANT AND
DEFENDANT-APPELLEE.
III
THE LOWER COURT ERRED IN RULING THAT PLAINTIFF-APPELLLANT
WAIVED ITS RIGHT TO PURCHASE THE SUBJECT PROPERTY WHEN IT
FAILED TO CONFORM WITH CONDITIONS SET FORTH BY DEFENDANT-
APPELLEE IN ITS LETTER DATED 4 JUNE 1985.
IV
THE LOWER COURT ERRED IN DISREGARDING THE FACT THAT IT
WAS THE DEFENDANT-APPELLEE WHICH RENDERED IT DIFFICULT IF
NOT IMPOSSIBLE FOR PLAINTIFF-APPELLANT TO COMPLETE THE
BALANCE OF THEIR PURCHASE PRICE.
V
THE LOWER COURT ERRED IN DISREGARDING THE FACT THAT THERE
WAS NO VALID RESCISSION OR CANCELLATION OF SUBJECT
CONTRACT OF REPURCHASE.
VI
THE LOWER COURT ERRED IN DECLARING THAT PLAINTIFF FAILED
AND REFUSED TO SUBMIT THE AMENDED REPURCHASE OFFER.
VII
THE LOWER COURT ERRED IN DISMISSING THE AMENDED
COMPLAINT OF PLAINTIFF-APPELLANT.
VIII
THE LOWER COURT ERRED IN NOT AWARDING PLAINTIFF-APPELLANT
ACTUAL, MORAL AND EXEMPLARY DAMAGES, ATTOTRNEY'S FEES AND
LITIGATION EXPENSES.
33

Meanwhile, on June 17, 1993, petitioner's Board of Directors approved
Resolution No. 3-004, where it waived, assigned and transferred its rights
over the property covered by TCT No. 33099 and TCT No. 37025 in favor of
Bayani Gabriel, one of its Directors.
34
Thereafter, Bayani Gabriel executed a
Deed of Assignment over 51% of the ownership and management of the
property in favor of Reynaldo Tolentino, who later moved for leave to
intervene as plaintiff-appellant. On July 14, 1993, the CA issued a resolution
granting the motion,
35
and likewise granted the motion of Reynaldo
Tolentino substituting petitioner MMCC, as plaintiff-appellant, and his motion
to withdraw as intervenor.
36

The CA rendered judgment on May 11, 2000 affirming the decision of the
RTC.
37
It declared that petitioner obviously never agreed to the selling price
proposed by respondent PNB (P1,931,389.53) since petitioner had kept on
insisting that the selling price should be lowered to P1,574,560.47. Clearly
therefore, there was no meeting of the minds between the parties as to the
price or consideration of the sale.
The CA ratiocinated that petitioner's original offer to purchase the subject
property had not been accepted by respondent PNB. In fact, it made a
counter-offer through its June 4, 1985 letter specifically on the selling price;
petitioner did not agree to the counter-offer; and the negotiations did not
prosper. Moreover, petitioner did not pay the balance of the purchase price
within the sixty-day period set in the June 4, 1985 letter of respondent PNB.
Consequently, there was no perfected contract of sale, and as such, there
was no contract to rescind.
According to the appellate court, the claim for damages and the
counterclaim were correctly dismissed by the court a quo for no evidence
was presented to support it. Respondent PNB's letter dated June 30, 1988
cannot revive the failed negotiations between the parties. Respondent PNB
merely asked petitioner to submit an amended offer to repurchase. While
petitioner reiterated its request for a lower selling price and that the balance
of the repurchase be reduced, however, respondent rejected the proposal in
a letter dated August 1, 1989.
Petitioner filed a motion for reconsideration, which the CA likewise denied.
Thus, petitioner filed the instant petition for review on certiorari, alleging
that:
I. THE COURT OF APPEALS ERRED ON A QUESTION OF LAW WHEN IT
RULED THAT THERE IS NO PERFECTED CONTRACT OF SALE BETWEEN
THE PETITIONER AND RESPONDENT.
II. THE COURT OF APPEALS ERRED ON A QUESTION OF LAW WHEN IT
RULED THAT THE AMOUNT OF PHP725,000.00 PAID BY THE
PETITIONER IS NOT AN EARNEST MONEY.
III. THE COURT OF APPEALS ERRED ON A QUESTION OF LAW WHEN IT
RULED THAT THE FAILURE OF THE PETITIONER-APPELLANT TO
SIGNIFY ITS CONFORMITY TO THE TERMS CONTAINED IN PNB'S JUNE
4, 1985 LETTER MEANS THAT THERE WAS NO VALID AND LEGALLY
ENFORCEABLE CONTRACT OF SALE BETWEEN THE PARTIES.
IV. THE COURT OF APPEALS ERRED ON A QUESTION OF LAW THAT
NON-PAYMENT OF THE PETITIONER-APPELLANT OF THE BALANCE OF
THE OFFERED PRICE IN THE LETTER OF PNB DATED JUNE 4, 1985,
WITHIN SIXTY (60) DAYS FROM NOTICE OF APPROVAL CONSTITUTES
NO VALID AND LEGALLY ENFORCEABLE CONTRACT OF SALE BETWEEN
THE PARTIES.
V. THE COURT OF APPEALS SERIOUSLY ERRED WHEN IT HELD THAT
THE LETTERS OF PETITIONER-APPELLANT DATED MARCH 18, 1993
AND JUNE 21, 1993, OFFERING TO BUY THE SUBJECT PROPERTY AT
DIFFERENT AMOUNT WERE PROOF THAT THERE IS NO PERFECTED
CONTRACT OF SALE.
38

The threshold issue is whether or not petitioner and respondent PNB had
entered into a perfected contract for petitioner to repurchase the property
from respondent.
Petitioner maintains that it had accepted respondent's offer made through
the SAMD, to sell the property forP1,574,560.00. When the acceptance was
made in its letter dated June 25, 1984; it then depositedP725,000.00 with
the SAMD as partial payment, evidenced by Receipt No. 978194 which
respondent had issued. Petitioner avers that the SAMD's acceptance of the
deposit amounted to an acceptance of its offer to repurchase. Moreover, as
gleaned from the letter of SAMD dated June 4, 1985, the PNB Board of
Directors had approved petitioner's offer to purchase the property. It claims
that this was the suspensive condition, the fulfillment of which gave rise to
the contract. Respondent could no longer unilaterally withdraw its offer to
sell the property for P1,574,560.47, since the acceptance of the offer
resulted in a perfected contract of sale; it was obliged to remit to respondent
the balance of the original purchase price of P1,574,560.47, while
respondent was obliged to transfer ownership and deliver the property to
petitioner, conformably with Article 1159 of the New Civil Code.
Petitioner posits that respondent was proscribed from increasing the interest
rate after it had accepted respondent's offer to sell the property
for P1,574,560.00. Consequently, respondent could no longer validly make a
counter-offer of P1,931,789.88 for the purchase of the property. It likewise
maintains that, although theP725,000.00 was considered as "deposit for the
repurchase of the property" in the receipt issued by the SAMD, the amount
constitutes earnest money as contemplated in Article 1482 of the New Civil
Code. Petitioner cites the rulings of this Court in Villonco v.
Bormaheco
39
and Topacio v. Court of Appeals.
40

Petitioner avers that its failure to append its conformity to the June 4, 1984
letter of respondent and its failure to pay the balance of the price as fixed by
respondent within the 60-day period from notice was to protest respondent's
breach of its obligation to petitioner. It did not amount to a rejection of
respondent's offer to sell the property since respondent was merely seeking
to enforce its right to pay the balance of P1,570,564.47. In any event,
respondent had the option either to accept the balance of the offered price
or to cause the rescission of the contract.
Petitioner's letters dated March 18, 1993 and June 21, 1993 to respondent
during the pendency of the case in the RTC were merely to compromise the
pending lawsuit, they did not constitute separate offers to repurchase the
property. Such offer to compromise should not be taken against it, in
accordance with Section 27, Rule 130 of the Revised Rules of Court.
For its part, respondent contends that the parties never graduated from the
"negotiation stage" as they could not agree on the amount of the repurchase
price of the property. All that transpired was an exchange of proposals and
counter-proposals, nothing more. It insists that a definite agreement on the
amount and manner of payment of the price are essential elements in the
formation of a binding and enforceable contract of sale. There was no such
agreement in this case. Primarily, the concept of "suspensive condition"
signifies a future and uncertain event upon the fulfillment of which the
obligation becomes effective. It clearly presupposes the existence of a valid
and binding agreement, the effectivity of which is subordinated to its
fulfillment. Since there is no perfected contract in the first place, there is no
basis for the application of the principles governing "suspensive conditions."
According to respondent, the Statement of Account prepared by SAMD as of
June 25, 1984 cannot be classified as a counter-offer; it is simply a recital of
its total monetary claims against petitioner. Moreover, the amount stated
therein could not likewise be considered as the counter-offer since as
admitted by petitioner, it was only recommendation which was subject to
approval of the PNB Board of Directors.
Neither can the receipt by the SAMD of P725,000.00 be regarded as
evidence of a perfected sale contract. As gleaned from the
parties' Stipulation of Facts during the proceedings in the court a quo, the
amount is merely an acknowledgment of the receipt of P725,000.00 as
deposit to repurchase the property. The deposit ofP725,000.00 was accepted
by respondent on the condition that the purchase price would still be
approved by its Board of Directors. Respondent maintains that its
acceptance of the amount was qualified by that condition, thus not absolute.
Pending such approval, it cannot be legally claimed that respondent is
already bound by any contract of sale with petitioner.
According to respondent, petitioner knew that the SAMD has no capacity to
bind respondent and that its authority is limited to administering, managing
and preserving the properties and other special assets of PNB. The SAMD
does not have the power to sell, encumber, dispose of, or otherwise alienate
the assets, since the power to do so must emanate from its Board of
Directors. The SAMD was not authorized by respondent's Board to enter into
contracts of sale with third persons involving corporate assets. There is
absolutely nothing on record that respondent authorized the SAMD, or made
it appear to petitioner that it represented itself as having such authority.
Respondent reiterates that SAMD had informed petitioner that its offer to
repurchase had been approved by the Board subject to the condition, among
others, "that the selling price shall be the total bank's claim as of
documentation date x x x payable in cash (P725,000.00 already deposited)
within 60 days from notice of approval." A new Statement of Account was
attached therein indicating the total bank's claim to be P1,931,389.53 less
deposit of P725,000.00, or P1,206,389.00. Furthermore, while respondent's
Board of Directors accepted petitioner's offer to repurchase the property, the
acceptance was qualified, in that it required a higher sale price and subject
to specified terms and conditions enumerated therein. This qualified
acceptance was in effect a counter-offer, necessitating petitioner's
acceptance in return.
The Ruling of the Court
The ruling of the appellate court that there was no perfected contract of sale
between the parties on June 4, 1985 is correct.
A contract is a meeting of minds between two persons whereby one binds
himself, with respect to the other, to give something or to render some
service.
41
Under Article 1318 of the New Civil Code, there is no contract
unless the following requisites concur:
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established.
Contracts are perfected by mere consent which is manifested by the meeting
of the offer and the acceptance upon the thing and the cause which are to
constitute the contract.
42
Once perfected, they bind other contracting parties
and the obligations arising therefrom have the form of law between the
parties and should be complied with in good faith. The parties are bound not
only to the fulfillment of what has been expressly stipulated but also to the
consequences which, according to their nature, may be in keeping with good
faith, usage and law.
43

By the contract of sale, one of the contracting parties obligates himself to
transfer the ownership of and deliver a determinate thing, and the other to
pay therefor a price certain in money or its equivalent.
44
The absence of any
of the essential elements will negate the existence of a perfected contract of
sale. As the Court ruled in Boston Bank of the Philippines v. Manalo:
45

A definite agreement as to the price is an essential element of a
binding agreement to sell personal or real property because it
seriously affects the rights and obligations of the parties. Price is an
essential element in the formation of a binding and enforceable
contract of sale. The fixing of the price can never be left to the
decision of one of the contracting parties. But a price fixed by one of
the contracting parties, if accepted by the other, gives rise to a
perfected sale.
46

A contract of sale is consensual in nature and is perfected upon mere
meeting of the minds. When there is merely an offer by one party without
acceptance of the other, there is no contract.
47
When the contract of sale is
not perfected, it cannot, as an independent source of obligation, serve as a
binding juridical relation between the parties.
48

In San Miguel Properties Philippines, Inc. v. Huang,
49
the Court ruled that
the stages of a contract of sale are as follows: (1) negotiation, covering the
period from the time the prospective contracting parties indicate interest in
the contract to the time the contract is perfected; (2) perfection, which
takes place upon the concurrence of the essential elements of the sale which
are the meeting of the minds of the parties as to the object of the contract
and upon the price; and (3) consummation, which begins when the parties
perform their respective undertakings under the contract of sale, culminating
in the extinguishment thereof.
A negotiation is formally initiated by an offer, which, however, must be
certain.
50
At any time prior to the perfection of the contract, either
negotiating party may stop the negotiation. At this stage, the offer may be
withdrawn; the withdrawal is effective immediately after its manifestation.
To convert the offer into a contract, the acceptance must be absolute and
must not qualify the terms of the offer; it must be plain, unequivocal,
unconditional and without variance of any sort from the proposal. In Adelfa
Properties, Inc. v. Court of Appeals,
51
the Court ruled that:
x x x The rule is that except where a formal acceptance is so required,
although the acceptance must be affirmatively and clearly made and
must be evidenced by some acts or conduct communicated to the
offeror, it may be shown by acts, conduct, or words of the accepting
party that clearly manifest a present intention or determination to
accept the offer to buy or sell. Thus, acceptance may be shown by the
acts, conduct, or words of a party recognizing the existence of the
contract of sale.
52

A qualified acceptance or one that involves a new proposal constitutes a
counter-offer and a rejection of the original offer. A counter-offer is
considered in law, a rejection of the original offer and an attempt to end the
negotiation between the parties on a different basis.
53
Consequently, when
something is desired which is not exactly what is proposed in the offer, such
acceptance is not sufficient to guarantee consent because any modification
or variation from the terms of the offer annuls the offer.
54
The acceptance
must be identical in all respects with that of the offer so as to produce
consent or meeting of the minds.
In this case, petitioner had until February 17, 1984 within which to redeem
the property. However, since it lacked the resources, it requested for more
time to redeem/repurchase the property under such terms and conditions
agreed upon by the parties.
55
The request, which was made through a letter
dated August 25, 1983, was referred to the respondent's main branch for
appropriate action.
56
Before respondent could act on the request, petitioner
again wrote respondent as follows:
1. Upon approval of our request, we will pay your goodselves ONE
HUNDRED & FIFTY THOUSAND PESOS (P150,000.00);
2. Within six months from date of approval of our request, we will pay
another FOUR HUNDRED FIFTY THOUSAND PESOS (P450,000.00); and
3. The remaining balance together with the interest and other
expenses that will be incurred will be paid within the last six months of
the one year grave period requested for.
57

When the petitioner was told that respondent did not allow "partial
redemption,"
58
it sent a letter to respondent's President reiterating its offer
to purchase the property.
59
There was no response to petitioner's letters
dated February 10 and 15, 1984.
The statement of account prepared by the SAMD stating that the net claim
of respondent as of June 25, 1984 was P1,574,560.47 cannot be considered
an unqualified acceptance to petitioner's offer to purchase the property. The
statement is but a computation of the amount which petitioner was obliged
to pay in case respondent would later agree to sell the property, including
interests, advances on insurance premium, advances on realty taxes,
publication cost, registration expenses and miscellaneous expenses.
There is no evidence that the SAMD was authorized by respondent's Board of
Directors to accept petitioner's offer and sell the property for P1,574,560.47.
Any acceptance by the SAMD of petitioner's offer would not bind respondent.
As this Court ruled in AF Realty Development, Inc. vs. Diesehuan Freight
Services, Inc.:
60

Section 23 of the Corporation Code expressly provides that the
corporate powers of all corporations shall be exercised by the board of
directors. Just as a natural person may authorize another to do certain
acts in his behalf, so may the board of directors of a corporation
validly delegate some of its functions to individual officers or agents
appointed by it. Thus, contracts or acts of a corporation must be made
either by the board of directors or by a corporate agent duly
authorized by the board. Absent such valid delegation/authorization,
the rule is that the declarations of an individual director relating to the
affairs of the corporation, but not in the course of, or connected with
the performance of authorized duties of such director, are held not
binding on the corporation.
Thus, a corporation can only execute its powers and transact its business
through its Board of Directors and through its officers and agents when
authorized by a board resolution or its by-laws.
61

It appears that the SAMD had prepared a recommendation for respondent to
accept petitioner's offer to repurchase the property even beyond the one-
year period; it recommended that petitioner be allowed to redeem the
property and pay P1,574,560.00 as the purchase price. Respondent later
approved the recommendation that the property be sold to petitioner. But
instead of the P1,574,560.47 recommended by the SAMD and to which
petitioner had previously conformed, respondent set the purchase price
at P2,660,000.00. In fine, respondent's acceptance of petitioner's offer was
qualified, hence can be at most considered as a counter-offer. If petitioner
had accepted this counter-offer, a perfected contract of sale would have
arisen; as it turns out, however, petitioner merely sought to have the
counter-offer reconsidered. This request for reconsideration would later be
rejected by respondent.
We do not agree with petitioner's contention that the P725,000.00 it had
remitted to respondent was "earnest money" which could be considered as
proof of the perfection of a contract of sale under Article 1482 of the New
Civil Code. The provision reads:
ART. 1482. Whenever earnest money is given in a contract of sale, it
shall be considered as part of the price and as proof of the perfection
of the contract.
This contention is likewise negated by the stipulation of facts which the
parties entered into in the trial court:
8. On June 8, 1984, the Special Assets Management Department
(SAMD) of PNB prepared an updated Statement of Account showing
MMCC's total liability to PNB as of June 25, 1984 to be P1,574,560.47
and recommended this amount as the repurchase price of the subject
property.
9. On June 25, 1984, MMCC paid P725,000.00 to PNB as deposit to
repurchase the property. The deposit of P725,000 was accepted
by PNB on the condition that the purchase price is still subject
to the approval of the PNB Board.
62

Thus, the P725,000.00 was merely a deposit to be applied as part of the
purchase price of the property, in the event that respondent would approve
the recommendation of SAMD for respondent to accept petitioner's offer to
purchase the property for P1,574,560.47. Unless and until the respondent
accepted the offer on these terms, no perfected contract of sale would arise.
Absent proof of the concurrence of all the essential elements of a contract of
sale, the giving of earnest money cannot establish the existence of a
perfected contract of sale.
63

It appears that, per its letter to petitioner dated June 4, 1985, the
respondent had decided to accept the offer to purchase the property
for P1,931,389.53. However, this amounted to an amendment of
respondent's qualified acceptance, or an amended counter-offer, because
while the respondent lowered the purchase price, it still declared that its
acceptance was subject to the following terms and conditions:
1. That the selling price shall be the total Bank's claim as of
documentation date (pls. see attached statement of account as of 5-
31-85), payable in cash (P725,000.00 already deposited) within sixty
(60) days from notice of approval;
2. The Bank sells only whatever rights, interests and participation it
may have in the property and you are charged with full knowledge of
the nature and extent of said rights, interests and participation and
waive your right to warranty against eviction.
3. All taxes and other government imposts due or to become due on
the property, as well as expenses including costs of documents and
science stamps, transfer fees, etc., to be incurred in connection with
the execution and registration of all covering documents shall be borne
by you;
4. That you shall undertake at your own expense and account the
ejectment of the occupants of the property subject of the sale, if there
are any;
5. That upon your failure to pay the balance of the purchase price
within sixty (60) days from receipt of advice accepting your offer, your
deposit shall be forfeited and the Bank is thenceforth authorized to sell
the property to other interested parties.
6. That the sale shall be subject to such other terms and conditions
that the Legal Department may impose to protect the interest of the
Bank.
64

It appears that although respondent requested petitioner to conform to its
amended counter-offer, petitioner refused and instead requested respondent
to reconsider its amended counter-offer. Petitioner's request was ultimately
rejected and respondent offered to refund its P725,000.00 deposit.
In sum, then, there was no perfected contract of sale between petitioner and
respondent over the subject property.
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED.
The assailed decision is AFFIRMED. Costs against petitioner Manila Metal
Container Corporation.
SO ORDERED.
Ynares-Santiago, J., Working Chairperson, Austria-Martinez, and Chico-
Nazario, JJ., concur.
Panganiban, C.J., retired as of December 7, 2006.
Heirs of Spouses REMEDIOS R. SANDEJAS and ELIODORO P.
SANDEJAS SR. -- ROBERTO R. SANDEJAS, ANTONIO R.
SANDEJAS, CRISTINA SANDEJAS MORELAND, BENJAMIN R.
SANDEJAS, REMEDIOS R. SANDEJAS; and heirs of SIXTO S.
SANDEJAS II, RAMON R. SANDEJAS, TERESITA R. SANDEJAS,
and ELIODORO R. SANDEJAS JR., all represented by ROBERTO
R. SANDEJAS, petitioners, vs. ALEX A. LINA, respondent.
D E C I S I O N
PANGANIBAN, J.:
A contract of sale is not invalidated by the fact that it is subject to
probate court approval. The transaction remains binding on the seller-heir,
but not on the other heirs who have not given their consent to it. In settling
the estate of the deceased, a probate court has jurisdiction over matters
incidental and collateral to the exercise of its recognized powers. Such
matters include selling, mortgaging or otherwise encumbering realty
belonging to the estate. Rule 89, Section 8 of the Rules of Court, deals with
the conveyance of real property contracted by the decedent while still
alive. In contrast with Sections 2 and 4 of the same Rule, the said provision
does not limit to the executor or administrator the right to file the
application for authority to sell, mortgage or otherwise encumber realty
under administration. The standing to pursue such course of action before
the probate court inures to any person who stands to be benefited or injured
by the judgment or to be entitled to the avails of the suit.
The Case

Before us is a Petition for Review under Rule 45 of the Rules of Court,
seeking to reverse and set aside the Decision
[1]
dated April 16, 1999 and the
Resolution
[2]
dated January 12, 2000, both promulgated by the Court of
Appeals in CA-GR CV No. 49491. The dispositive portion of the assailed
Decision reads as follows:
[3]

WHEREFORE, for all the foregoing, [w]e hereby MODIFY the [O]rder of the
lower court dated January 13, 1995, approving the Receipt of Earnest Money
With Promise to Buy and Sell dated June 7, 1982, only to the three-fifth
(3/5) portion of the disputed lots covering the share of [A]dministrator
Eliodoro Sandejas, Sr. [in] the property. The intervenor is hereby directed
to pay appellant the balance of the purchase price of the three-fifth (3/5)
portion of the property within thirty (30) days from receipt of this [O]rder
and x x x the administrator [is directed] to execute the necessary and
proper deeds of conveyance in favor of appellee within thirty (30) days
thereafter.
The assailed Resolution denied reconsideration of the foregoing
disposition.
The Facts

The facts of the case, as narrated by the Court of Appeals (CA), are as
follows:
[4]

On February 17, 1981, Eliodoro Sandejas, Sr. filed a petition (Record, SP.
Proc. No. R-83-15601, pp. 8-10) in the lower court praying that letters of
administration be issued in his favor for the settlement of the estate of his
wife, REMEDIOS R. SANDEJAS, who died on April 17, 1955. On July 1,
1981, Letters of Administration [were issued by the lower court appointing
Eliodoro Sandejas, Sr. as administrator of the estate of the late Remedios
Sandejas (Record, SP. Proc. No. R-83-15601, p. 16). Likewise on the same
date, Eliodoro Sandejas, Sr. took his oath as administrator
(Record, SP. Proc. No. R-83-15601, p. 17). x x x.
On November 19, 1981, the 4th floor of Manila City Hall was burned and
among the records burned were the records of Branch XI of the Court of
First Instance of Manila. As a result, [A]dministrator Eliodoro Sandejas, Sr.
filed a [M]otion for [R]econstitution of the records of the case on February 9,
1983 (Record, SP. Proc. No. R-83-15601, pp. 1-5). On February 16, 1983,
the lower court in its [O]rder granted the said motion (Record, SP. Proc. No.
R-83-15601, pp. 28-29).
On April 19, 1983, an Omnibus Pleading for motion to intervene and
petition-in-intervention was filed by [M]ovant Alex A. Lina alleging among
others that on June 7, 1982, movant and [A]dministrator Eliodoro P.
Sandejas, in his capacity as seller, bound and obligated himself, his heirs,
administrators, and assigns, to sell forever and absolutely and in their
entirety the following parcels of land which formed part of the estate of the
late Remedios R. Sandejas, to wit:
1. A parcel of land (Lot No. 22 Block No. 45 of the subdivision plan Psd-
21121, being a portion of Block 45 described on plan Psd-19508, G.L.R.O.
Rec. No. 2029), situated in the Municipality of Makati, province of Rizal,
containing an area of TWO HUNDRED SEVENTY (270) SQUARE METERS,
more or less, with TCT No. 13465;
2. A parcel of land (Lot No. 21 Block No. 45 of the subdivision plan Psd-
21141, being a portion of Block 45 described on plan Psd-19508 G.L.R.O.
Rec. No. 2029), situated in the Municipality of Makati, Province of Rizal,
containing an area of TWO HUNDRED SEVENTY (270) SQUARE METERS,
more or less, with TCT No. 13464;
3. A parcel of land (Lot No. 5 Block No. 45 of the subdivision plan Psd-
21141, being a portion of Block 45 described on plan Psd-19508 G.L.R.O.
Rec. No. 2029), situated in the Municipality of Makati, Province of Rizal,
containing an area of TWO HUNDRED EIGHT (208) SQUARE METERS, more
or less, with TCT No. 13468;
4. A parcel of land (Lot No. 6, Block No. 45 of the subdivision plan Psd-
21141, being a portion of Block 45 described on plan Psd-19508 G.L.R.O.
Rec. No. 2029), situated in the Municipality of Makati, Province of Rizal,
containing an area of TWO HUNDRED EIGHT (208) SQUARE METERS, more
or less, with TCT No. 13468;
The [R]eceipt of the [E]arnest [M]oney with [P]romise to [S]ell and to
[B]uy is hereunder quoted, to wit:
Received today from MR. ALEX A. LINA the sum of ONE HUNDRED
THOUSAND (P100,000.00) PESOS, Philippine Currency, per Metropolitan
Bank & Trust Company Chec[k] No. 319913 dated today for P100,000.00, x
x x as additional earnest money for the following:
x x x x x x x x x
all registered with the Registry of Deeds of the [P]rovince of Rizal (Makati
Branch Office) in the name of SELLER ELIODORO SANDEJAS, Filipino
Citizen, of legal age, married to Remedios Reyes de Sandejas; and which
undersigned, as SELLER, binds and obligates himself, his heirs,
administrators and assigns, to sell forever and absolutely in their entirety
(all of the four (4) parcels of land above described, which are contiguous to
each other as to form one big lot) to said Mr. Alex A. Lina, who has agreed
to buy all of them, also binding on his heirs, administrators and assigns, for
the consideration of ONE MILLION (P1,000,000.00) PESOS, Philippine
Currency, upon such reasonable terms of payment as may be agreed upon
by them. The parties have, however, agreed on the following terms and
conditions:
1. The P100,000.00 herein received is in addition to the P70,000.00
earnest money already received by SELLER from BUYER, all of which shall
form part of, and shall be deducted from, the purchase price of
P1,000,000.00, once the deed of absolute [sale] shall be executed;
2. As a consideration separate and distinct from the price, undersigned
SELLER also acknowledges receipt from Mr. Alex A. Lina of the sum of ONE
THOUSAND (P1,000.00) PESOS, Philippine Currency, per Metropolitan Bank
& Trust Company Check No. 319912 dated today and payable to SELLER for
P1,000.00;
3. Considering that Mrs. Remedios Reyes de Sandejas is already
deceased and as there is a pending intestate proceedings for the settlement
of her estate (Spec. Proc. No. 138393, Manila CFI, Branch XI), wherein
SELLER was appointed as administrator of said Estate, and as SELLER, in his
capacity as administrator of said Estate, has informed BUYER that he
(SELLER) already filed a [M]otion with the Court for authority to sell the
above parcels of land to herein BUYER, but which has been delayed due to
the burning of the records of said Spec. Pro. No. 138398, which records are
presently under reconstitution, the parties shall have at least ninety (90)
days from receipt of the Order authorizing SELLER, in his capacity as
administrator, to sell all THE ABOVE DESCRIBED PARCELS OF LAND TO
HEREIN BUYER (but extendible for another period of ninety (90) days upon
the request of either of the parties upon the other), within which to execute
the deed of absolute sale covering all above parcels of land;
4. In the event the deed of absolute sale shall not proceed or not be
executed for causes either due to SELLERS fault, or for causes of which the
BUYER is innocent, SELLER binds himself to personally return to Mr. Alex A.
Lina the entire ONE HUNDRED SEVENTY THOUSAND ([P]170,000.00) PESOS
in earnest money received from said Mr. Lina by SELLER, plus fourteen
(14%) percentum interest per annum, all of which shall be considered as
liens of said parcels of land, or at least on the share therein of herein
SELLER;
5. Whether indicated or not, all of above terms and conditions shall be
binding on the heirs, administrators, and assigns of both the SELLER
(undersigned MR. ELIODORO P. SANDEJAS, SR.) and BUYER (MR. ALEX A.
LINA). (Record, SP. Proc. No. R-83-15601, pp. 52-54)
On July 17, 1984, the lower court issued an [O]rder granting the
intervention of Alex A. Lina (Record, SP. Proc. No. R-83-15601, p. 167).
On January 7, 1985, the counsel for [A]dministrator Eliodoro P. Sandejas
filed a [M]anifestation alleging among others that the administrator, Mr.
Eliodoro P. Sandejas, died sometime in November 1984 in Canada and said
counsel is still waiting for official word on the fact of the death of the
administrator. He also alleged, among others that the matter of the claim of
Intervenor Alex A. Lina becomes a money claim to be filed in the estate of
the late Mr. Eliodoro P. Sandejas (Record, SP. Proc. No. R-83-15601, p.
220). On February 15, 1985, the lower court issued an [O]rder directing,
among others, that the counsel for the four (4) heirs and other heirs of
Teresita R. Sandejas to move for the appointment of [a] new administrator
within fifteen (15) days from receipt of this [O]rder (Record, SP. Proc. No. R-
83-15601, p. 227). In the same manner, on November 4, 1985, the lower
court again issued an order, the content of which reads:
On October 2, 1985, all the heirs, Sixto, Roberto, Antonio, Benjamin all
surnamed Sandejas were ordered to move for the appointment of [a] new
administrator. On October 16, 1985, the same heirs were given a period of
fifteen (15) days from said date within which to move for the appointment of
the new administrator. Compliance was set for October 30, 1985, no
appearance for the aforenamed heirs. The aforenamed heirs are hereby
ordered to show cause within fifteen (15) days from receipt of this Order
why this Petition for Settlement of Estate should not be dismissed for lack of
interest and failure to comply with a lawful order of this Court.
SO ORDERED. (Record, SP. Proc. No. R-83-15601, p. 273)
On November 22, 1985, Alex A. Lina as petitioner filed with the Regional
Trial Court of Manila an Omnibus Pleading for (1) petition for letters of
administration [and] (2) to consolidate instant case with SP. Proc. No. R-83-
15601 RTC-Branch XI-Manila, docketed therein as SP. Proc. No. 85-33707
entitled IN RE: INTESTATE ESTATE OF ELIODORO P. SANDEJAS, SR., ALEX
A. LINA PETITIONER, [for letters of administration] (Record, SP. Proc. No.
85-33707, pp. 1-7). On November 29, 1985, Branch XXXVI of the Regional
Trial Court of Manila issued an [O]rder consolidating SP. Proc. No. 85-33707,
with SP. Proc. No. R-83-15601 (Record, SP. Proc. No.85-33707, p.
13). Likewise, on December 13, 1985, the Regional Trial Court of Manila,
Branch XI, issued an [O]rder stating that this Court has no objection to the
consolidation of Special Proceedings No. 85-331707, now pending before
Branch XXXVI of this Court, with the present proceedings now pending
before this Branch (Record, SP. Proc. No. R-83-15601, p. 279).
On January 15, 1986, Intervenor Alex A. Lina filed [a] Motion for his
appointment as a new administrator of the Intestate Estate of Remedios R.
Sandejas on the following reasons:
5.01. FIRST, as of this date, [i]ntervenor has not received any motion on
the part of the heirs Sixto, Antonio, Roberto and Benjamin, all surnamed
Sandejas, for the appointment of a new [a]dministrator in place of their
father, Mr. Eliodoro P. Sandejas, Sr.;
5.02. SECOND, since Sp. Proc. 85-33707, wherein the [p]etitioner is herein
Intervenor Alex A. Lina and the instant Sp. PROC. R-83-15601, in effect are
already consolidated, then the appointment of Mr. Alex Lina as
[a]dministrator of the Intestate Estate of Remedios R. Sandejas in instant
Sp. Proc. R-83-15601, would be beneficial to the heirs and also to the
Intervenor;
5.03. THIRD, of course, Mr. Alex A. Lina would be willing to give way at
anytime to any [a]dministrator who may be proposed by the heirs of the
deceased Remedios R. Sandejas, so long as such [a]dministrator is
qualified. (Record, SP. Proc. No. R-83-15601, pp. 281-283)
On May 15, 1986, the lower court issued an order granting the [M]otion of
Alex A. Lina as the new [a]dministrator of the Intestate Estate of Remedios
R. Sandejas in this proceedings. (Record, SP. Proc. No. R-83-15601, pp.
288-290)
On August 28, 1986, heirs Sixto, Roberto, Antonio and Benjamin, all
surnamed Sandejas, and heirs [sic] filed a [M]otion for [R]econsideration
and the appointment of another administrator Mr. Sixto Sandejas, in lieu of
[I]ntervenor Alex A. Lina stating among others that it [was] only lately that
Mr. Sixto Sandejas, a son and heir, expressed his willingness to act as a new
administrator of the intestate estate of his mother, Remedios R. Sandejas
(Record, SP. Proc. No. 85-33707, pp. 29-31). On October 2, 1986,
Intervenor Alex A. Lina filed his [M]anifestation and [C]ounter [M]otion
alleging that he ha[d] no objection to the appointment of Sixto Sandejas as
[a]dministrator of the [i]ntestate [e]state of his mother Remedios R.
Sandejas (Sp. Proc. No. 85-15601), provided that Sixto Sandejas be also
appointed as administrator of the [i]ntestate [e]state of his father, Eliodoro
P. Sandejas, Sr. (Spec. Proc. No. 85-33707), which two (2) cases have been
consolidated (Record, SP. Proc. No. 85-33707, pp. 34-36). On March 30,
1987, the lower court granted the said [M]otion and substituted Alex Lina
with Sixto Sandejas as petitioner in the said [P]etitions (Record, SP. Proc.
No. 85-33707, p.52). After the payment of the administrators bond
(Record, SP. Proc. No. 83-15601, pp. 348-349) and approval thereof by the
court (Record, SP. Proc. No. 83-15601, p. 361), Administrator Sixto
Sandejas on January 16, 1989 took his oath as administrator of the estate of
the deceased Remedios R. Sandejas and Eliodoro P. Sandejas (Record, SP.
Proc. No. 83-15601, p. 367) and was likewise issued Letters of
Administration on the same day (Record, SP. Proc. No. 83-15601, p. 366).
On November 29, 1993, Intervenor filed [an] Omnibus Motion (a) to
approve the deed of conditional sale executed between Plaintiff-in-
Intervention Alex A. Lina and Elidioro [sic] Sandejas, Sr. on June 7, 1982;
(b) to compel the heirs of Remedios Sandejas and Eliodoro Sandejas, Sr.
thru their administrator, to execute a deed of absolute sale in favor of
[I]ntervenor Alex A. Lina pursuant to said conditional deed of sale (Record,
SP. Proc. No. 83-15601, pp. 554-561) to which the administrator filed a
[M]otion to [D]ismiss and/or [O]pposition to said omnibus motion on
December 13, 1993 (Record, SP. Proc. No. 83-15601, pp. 591-603).
On January 13, 1995, the lower court rendered the questioned order
granting intervenors [M]otion for the [A]pproval of the Receipt of Earnest
Money with promise to buy between Plaintiff-in-Intervention Alex A. Lina and
Eliodoro Sandejas, Sr. dated June 7, 1982 (Record, SP. Proc. No. 83-15601,
pp. 652-654). x x x.
The Order of the intestate court
[5]
disposed as follows:
WHEREFORE, [i]ntervenors motion for the approval of the Receipt Of
Earnest Money With Promise To Sell And To Buy dated June 7, 1982, is
granted. The [i]ntervenor is directed to pay the balance of the purchase
price amounting to P729,000.00 within thirty (30) days from receipt of this
Order and the Administrator is directed to execute within thirty (30) days
thereafter the necessary and proper deeds of conveyancing.
[6]

Ruling of the Court of Appeals

Overturning the RTC ruling, the CA held that the contract between
Eliodoro Sandejas Sr. and respondent was merely a contract to sell, not a
perfected contract of sale. It ruled that the ownership of the four lots was to
remain in the intestate estate of Remedios Sandejas until the approval of the
sale was obtained from the settlement court. That approval was a positive
suspensive condition, the nonfulfillment of which was not tantamount to a
breach. It was simply an event that prevented the obligation from maturing
or becoming effective. If the condition did not happen, the obligation would
not arise or come into existence.
The CA held that Section 1, Rule 89
[7]
of the Rules of Court was
inapplicable, because the lack of written notice to the other heirs showed the
lack of consent of those heirs other than Eliodoro Sandejas Sr. For this
reason, bad faith was imputed to him, for no one is allowed to enjoy a claim
arising from ones own wrongdoing. Thus, Eliodoro Sr. was bound, as a
matter of justice and good faith, to comply with his contractual
commitments as an owner and heir. When he entered into the agreement
with respondent, he bound his conjugal and successional shares in the
property.
Hence, this Petition.
[8]

Issues

In their Memorandum, petitioners submit the following issues for our
resolution:
a) Whether or not Eliodoro P. Sandejas Sr. is legally obligated to
convey title to the property referred to in the subject document which was
found to be in the nature of a contract to sell where the suspensive
condition set forth therein [i.e.] court approval, was not complied with;
b) Whether or not Eliodoro P. Sandejas Sr. was guilty of bad faith
despite the conclusion of the Court of Appeals that the respondent [bore] the
burden of proving that a motion for authority to sell ha[d] been filed in
court;
c) Whether or not the undivided shares of Eliodoro P. Sandejas Sr.
in the subject property is three-fifth (3/5) and the administrator of the latter
should execute deeds of conveyance therefor within thirty days from receipt
of the balance of the purchase price from the respondent; and
d) Whether or not the respondents petition-in-intervention was
converted to a money claim and whether the [trial court] acting as a probate
court could approve the sale and compel the petitioners to execute [a] deed
of conveyance even for the share alone of Eliodoro P. Sandejas Sr.
[9]

In brief, the Petition poses the main issue of whether the CA erred in
modifying the trial courts Decision and in obligating petitioners to sell 3/5 of
the disputed properties to respondent, even if the suspensive condition had
not been fulfilled. It also raises the following collateral issues: (1) the
settlement courts jurisdiction; (2) respondent-intervenors standing to file
an application for the approval of the sale of realty in the settlement case,
(3) the decedents bad faith, and (4) the computation of the decedents
share in the realty under administration.
This Courts Ruling

The Petition is partially meritorious.
Main Issue:

Obligation With a Suspensive Condition

Petitioners argue that the CA erred in ordering the conveyance of the
disputed 3/5 of the parcels of land, despite the nonfulfillment of the
suspensive condition -- court approval of the sale -- as contained in the
Receipt of Earnest Money with Promise to Sell and to Buy (also referred to
as the Receipt). Instead, they assert that because this condition had not
been satisfied, their obligation to deliver the disputed parcels of land was
converted into a money claim.
We disagree. Petitioners admit that the agreement between the
deceased Eliodoro Sandejas Sr. and respondent was a contract to sell. Not
exactly. In a contract to sell, the payment of the purchase price is a positive
suspensive condition. The vendors obligation to convey the title does not
become effective in case of failure to pay.
[10]

On the other hand, the agreement between Eliodoro Sr. and respondent
is subject to a suspensive condition -- the procurement of a court approval,
not full payment. There was no reservation of ownership in the
agreement. In accordance with paragraph 1 of the Receipt, petitioners were
supposed to deed the disputed lots over to respondent. This they could do
upon the courts approval, even before full payment. Hence, their contract
was a conditional sale, rather than a contract to sell as determined by the
CA.
When a contract is subject to a suspensive condition, its birth or
effectivity can take place only if and when the condition happens or is
fulfilled.
[11]
Thus, the intestate courts grant of the Motion for Approval of the
sale filed by respondent resulted in petitioners obligation to execute the
Deed of Sale of the disputed lots in his favor. The condition having been
satisfied, the contract was perfected. Henceforth, the parties were bound to
fulfill what they had expressly agreed upon.
Court approval is required in any disposition of the decedents estate per
Rule 89 of the Rules of Court. Reference to judicial approval, however,
cannot adversely affect the substantive rights of heirs to dispose of their
own pro indiviso shares in the co-heirship or co-ownership.
[12]
In other
words, they can sell their rights, interests or participation in the property
under administration. A stipulation requiring court approval does not affect
the validity and the effectivity of the sale as regards the selling heirs. It
merely implies that the property may be taken out of custodia legis, but only
with the courts permission.
[13]
It would seem that the suspensive condition
in the present conditional sale was imposed only for this reason.
Thus, we are not persuaded by petitioners argument that the obligation
was converted into a mere monetary claim. Paragraph 4 of the
Receipt, which petitioners rely on, refers to a situation wherein the sale has
not materialized. In such a case, the seller is bound to return to the buyer
the earnest money paid plus interest at fourteen percent per annum. But
the sale was approved by the intestate court; hence, the provisodoes not
apply.
Because petitioners did not consent to the sale of their ideal shares in
the disputed lots, the CA correctly limited the scope of the Receipt to
the pro-indiviso share of Eliodoro Sr. Thus, it correctly modified the
intestate courts ruling by excluding their shares from the ambit of the
transaction.
First Collateral Issue:

Jurisdiction of Settlement Court

Petitioners also fault the CA Decision by arguing, inter alia, (a)
jurisdiction over ordinary civil action seeking not merely to enforce a sale
but to compel performance of a contract falls upon a civil court, not upon an
intestate court; and (b) that Section 8 of Rule 89 allows the executor or
administrator, and no one else, to file an application for approval of a sale of
the property under administration.
Citing Gil v. Cancio
[14]
and Acebedo v. Abesamis,
[15]
petitioners contend
that the CA erred in clothing the settlement court with the jurisdiction to
approve the sale and to compel petitioners to execute the Deed of
Sale. They allege factual differences between these cases and the instant
case, as follows: in Gil, the sale of the realty in administration was a clear
and an unequivocal agreement for the support of the widow and the adopted
child of the decedent; and in Acebedo, a clear sale had been made, and all
the heirs consented to the disposition of their shares in the realty in
administration.
We are not persuaded. We hold that Section 8 of Rule 89 allows this
action to proceed. The factual differences alleged by petitioners have no
bearing on the intestate courts jurisdiction over the approval of the subject
conditional sale. Probate jurisdiction covers all matters relating to the
settlement of estates (Rules 74 & 86-91) and the probate of wills (Rules 75-
77) of deceased persons, including the appointment and the removal of
administrators and executors (Rules 78-85). It also extends to matters
incidental and collateral to the exercise of a probate courts recognized
powers such as selling, mortgaging or otherwise encumbering realty
belonging to the estate. Indeed, the rules on this point are intended to
settle the estate in a speedy manner, so that the benefits that may flow
from such settlement may be immediately enjoyed by the heirs and the
beneficiaries.
[16]

In the present case, the Motion for Approval was meant to settle the
decedents obligation to respondent; hence, that obligation clearly falls
under the jurisdiction of the settlement court. To require respondent to file
a separate action -- on whether petitioners should convey the title to
Eliodoro Sr.s share of the disputed realty -- will unnecessarily prolong the
settlement of the intestate estates of the deceased spouses.
The suspensive condition did not reduce the conditional sale between
Eliodoro Sr. and respondent to one that was not a definite, clear and
absolute document of sale, as contended by petitioners. Upon the
occurrence of the condition, the conditional sale became a reciprocally
demandable obligation that is binding upon the parties.
[17]
That Acebedo also
involved a conditional sale of real property
[18]
proves that the existence of
the suspensive condition did not remove that property from the jurisdiction
of the intestate court.
Second Collateral Issue: Intervenors Standing

Petitioners contend that under said Rule 89, only the executor or
administrator is authorized to apply for the approval of a sale of realty under
administration. Hence, the settlement court allegedly erred in entertaining
and granting respondents Motion for Approval.
We read no such limitation. Section 8, Rule 89 of the Rules of Court,
provides:
SEC. 8. When court may authorize conveyance of realty which deceased
contracted to convey. Notice. Effect of deed.Where the deceased was in
his lifetime under contract, binding in law, to deed real property, or an
interest therein, the court having jurisdiction of the estate may, on
application for that purpose, authorize the executor or administrator to
convey such property according to such contract, or with such modifications
as are agreed upon by the parties and approved by the court; and if the
contract is to convey real property to the executor or administrator, the
clerk of the court shall execute the deed. x x x.
This provision should be differentiated from Sections 2 and 4 of the same
Rule, specifically requiring only the executor or administrator to file the
application for authority to sell, mortgage or otherwise encumber real estate
for the purpose of paying debts, expenses and legacies (Section 2);
[19]
or for
authority to sell real or personal estate beneficial to the heirs, devisees or
legatees and other interested persons, although such authority is not
necessary to pay debts, legacies or expenses of administration (Section
4).
[20]
Section 8 mentions only an application to authorize the conveyance of
realty under a contract that the deceased entered into while still alive. While
this Rule does not specify who should file the application, it stands to reason
that the proper party must be one who is to be benefited or injured by the
judgment, or one who is to be entitled to the avails of the suit.
[21]

Third Collateral Issue: Bad Faith

Petitioners assert that Eliodoro Sr. was not in bad faith, because (a) he
informed respondent of the need to secure court approval prior to the sale of
the lots, and (2) he did not promise that he could obtain the approval.
We agree. Eliodoro Sr. did not misrepresent these lots to respondent as
his own properties to which he alone had a title in fee simple. The fact that
he failed to obtain the approval of the conditional sale did not automatically
imply bad faith on his part. The CA held him in bad faith only for the
purpose of binding him to the conditional sale. This was unnecessary
because his being bound to it is, as already shown, beyond cavil.
Fourth Collateral Issue: Computation of Eliodoros Share

Petitioners aver that the CAs computation of Eliodoro Sr.s share in the
disputed parcels of land was erroneous because, as the conjugal partner of
Remedios, he owned one half of these lots plus a further one tenth of the
remaining half, in his capacity as a one of her legal heirs. Hence, Eliodoros
share should be 11/20 of the entire property. Respondent poses no
objection to this computation.
[22]

On the other hand, the CA held that, at the very least, the conditional
sale should cover the one half (1/2)pro indiviso conjugal share of Eliodoro
plus his one tenth (1/10) hereditary share as one of the ten legal heirs of
the decedent, or a total of three fifths (3/5) of the lots in administration.
[23]

Petitioners computation is correct. The CA computed Eliodoros share as
an heir based on one tenth of the entire disputed property. It should be
based only on the remaining half, after deducting the conjugal share.
[24]

The proper determination of the seller-heirs shares requires further
explanation. Succession laws and jurisprudence require that when a
marriage is dissolved by the death of the husband or the wife, the
decedents entire estate under the concept of conjugal properties of gains
-- must be divided equally, with one half going to the surviving spouse and
the other half to the heirs of the deceased.
[25]
After the settlement of the
debts and obligations, the remaining half of the estate is then distributed to
the legal heirs, legatees and devices. We assume, however, that this
preliminary determination of the decedents estate has already been taken
into account by the parties, since the only issue raised in this case is
whether Eliodoros share is 11/20 or 3/5 of the disputed lots.
WHEREFORE, the Petition is hereby PARTIALLY GRANTED. The
appealed Decision and Resolution are AFFIRMED with
the MODIFICATION that respondent is entitled to only a pro-indiviso share
equivalent to 11/20 of the disputed lots.
SO ORDERED.
Melo, (Chairman), Vitug, Gonzaga-Reyes, and Sandoval-Gutierrez,
JJ., concur.
ONAPAL PHILIPPINES COMMODITIES, INC., petitioner,
vs.
THE HONORABLE COURT OF APPEALS and SUSAN CHUA, respondents.
Zosa & Quijano Law Offices for private respondents.

CAMPOS, JR., J.:
This is an appeal by way of a Petition for Certiorari under Rule 45 of the
Rules of Court to annul and set aside the following actions of the Court of
Appeals:
a) Decision * in Case CA-G.R. CV No. 08924; and
b) Resolution ** denying a Motion for Reconsideration
on the ground of grave abuse of discretion amounting to lack or excess
of jurisdiction and further ground that the decision is contrary to law
and evidence. The questioned decision upheld the trial court's findings
that the Trading Contract
1
on "futures" is a specie of gambling and
therefore null and void. Accordingly, the petitioner (as defendant in
lower court) was ordered to refund to the private respondent (as
plaintiff) the losses incurred in the trading transactions.
In support of the petition, the grounds alleged are:
1) Article 2018 of the New Civil Code is inapplicable to the factual milieu of
the instant case considering that in a commodity futures transaction the
broker is not the direct participant and cannot be considered as winner or
loser and the contract itself, from its very nature, cannot be considered as
gambling.
2) A commodity futures contract, being a specie of securities, is valid and
enforceable as its terms are governed by special laws, notably the Revised
Securities Act and the Revised Rules and Regulations on Commodity Futures
Trading issued by the Securities and Exchange Commission (SEC) and
approved by the Monetary Board of the Central Bank; hence, the Civil Code
is not the controlling piece of legislation.
From the records, We gather the following antecedent facts and proceedings.
The petitioner, ONAPAL Philippines Commodities, Inc. (petitioner), a duly
organized and existing corporation, was licensed as commission
merchant/broker by the SEC, to engage in commodity futures trading in
Cebu City under Certificate of Registration No. CEB-182. On April 27, 1983,
petitioner and private respondent concluded a "Trading Contract". Like all
customers of the petitioner, private respondent was furnished regularly with
"Commodities Daily Quotations" showing daily movements of prices of
commodity futures traded and of market reports indicating the volume of
trade in different future exchanges in Hongkong, Tokyo and other centers.
Every time a customer enters into a trading transaction with petitioner as
broker, the trading order is communicated by telex to its principal, Frankwell
Enterprises of Hongkong. If the transaction, either buying or selling
commodity futures, is consummated by the principal, the petitioner issues a
document known as "Confirmation of Contract and Balance Sheet" to the
customer. An order of a customer of the petitioner is supposed to be
transmitted from Cebu to petitioner's office in Manila. From Manila, it should
be forwarded to Hongkong and from there, transmitted to the Commodity
Futures Exchange in Japan.
There were only two parties involved as far as the transactions covered by
the Trading Contract are concerned the petitioner and the private
respondents. We quote hereunder the respondent Court's detailed findings of
the transactions between the parties:
It appears from plaintiff's testimony that sometime in April of
1983, she was invited by defendant's Account Executive
Elizabeth Diaz to invest in the commodity futures trading by
depositing the amount of P500,000.00 (Exh. "A"); She was
further told that the business is "profitable" and that she could
withdraw her money anytime; she was furthermore instructed to
go to the Onapal Office where she met the Manager, Mr. Ciam,
and the Account Executive Elizabeth Diaz who told her that they
would take care of how to trade business and her account. She
was then made to sign the Trading Contract and other
documents without making her aware/understand the risks
involved; that at the time they let her sign "those papers" they
were telling her that those papers were for "formality sake"; that
when she was told later on that she made a profit of P20,480.00
in a span of three days in the first transaction, they told her that
the business is "very profitable" (tsn, Francisco, March 14, 1985,
p. 11).
On June 2, 1983, plaintiff was informed by Miss Diaz that she
had to deposit an additional amount of P300,000.00 "to pay the
difference" in prices, otherwise she will lose her original deposit
of P500,000.00; Fearing the loss of her original deposit, plaintiff
was constrained to deposit an additional amount of P300,000.00
(Exh. "B"); Since she was made to understand that she could
withdraw her deposit/investment anytime, she not knowing how
the business is operated/managed as she was not made to
understand what the business was all about, she wanted to
withdraw her investment; but Elizabeth Diaz, defendant's
Account Executive, told her she could not get out because there
are some accounts hanging on the transactions.
Plaintiff further testified that she understood the transaction of
buying and selling as speculating in prices, and her paying the
difference between gains and losses without actual delivery of
the goods to be gambling, and she would like to withdraw from
this kind of business, the risk of which she was not made aware
of. Plaintiff further testified that she stopped trading in
commodity futures in September, 1983 when she realized she
was engaged in gambling. She was able to get only P470,000.00
out of her total deposit of P800,000.00. In order to recover the
loss of P330,000.00, she filed this case and engaged the services
of counsel for P40,000.00 and expects to incur expenses of
litigation in the sum of P20,000.00."
2

A commodity futures contract is a specie of securities included in the broad
definition of what constitutes securities under Section 2 of the Revised
Securities Act.
3

Sec. 2 . . .:
(a) Securities shall include bonds, . . ., commodity futures
contracts, . . . .
The Revised Rules and Regulations on Commodity Futures Trading
issued by the SEC and approved by the Monetary Board of the Central
bank defines such contracts as follows:
"Commodity Futures Contract" shall refer to an agreement to
buy or sell a specified quantity and grade of a commodity at a
future date at a price established at the floor of the exchange.
The petitioner is a duly licensed commodity futures broker as defined
under the Revised Rules and Regulations on Commodity Futures
Trading as follows:
"Futures Commission Merchant/Broker" shall refer to a
corporation or partnership, which must be registered and
licensed as a Futures Commission Merchant/Broker and is
engaged in soliciting or in accepting orders for the purchase or
sale of any commodity for future delivery on or subject to the
rules of the contract market and that, in connection with such
solicitation or acceptance of orders, accepts any money,
securities or property (or extends credit in lieu thereof) to
margin, guarantee or secure any trade or contract that results or
may result therefrom.
At the time private respondent entered into the transaction with the
petitioner, she signed a document denominated as "Trading Contract"
in printed form as prepared by the petitioner represented by its Branch
Manager, Albert Chiam, incorporating the Rules for Commodity
Trading. A copy of said contract was furnished to the private
respondent but the contents thereof were not explained to the former,
beyond what was told her by the petitioner's Account Executive
Elizabeth Diaz. Private respondent was also told that the petitioner's
principal was Frankwell Enterprises with offices in Hongkong but the
private respondent's money which was supposed to have been
transmitted to Hongkong, was kept by petitioner in a separate account
in a local bank.
Petitioner now contends that commodity futures trading is a legitimate
business practiced in the United States, recognized by the SEC and
permitted under the Civil Code, specifically Article 1462 thereof, quoted as
follows:
The goods which form the subject of a contract of sale may be
either existing goods, owned or possessed by the seller, or
goods to be manufactured, raised or acquired by the seller after
the perfection of the contract of sale, in this Title called "future
goods".
There may be a contract of sale of goods, whose acquisition by
the seller depends upon a contingency which may or may not
happen.
Petitioner further argues that the SEC, in the exercise of its powers,
authorized the operation of commodity exchanges to supervise and regulate
commodity futures trading.
4

The contract between the parties falls under the kind commonly called
"futures". In the late 1880's, trading in futures became rampant in the
purchase and sale of cotton and grain in the United States, giving rise to
unregulated trading exchanges known as "bucket shops". These were
common in Chicago and New York City where cotton from the South and
grain from the Mid-west were constantly traded in. The name of the party to
whom the seller was to make delivery when the future contract of sale was
closed or from whom he was to receive delivery in case of purchase is not
given the memorandum (contract). The business dealings between the
parties were terminated by the closing of the transaction of purchase and
sale of commodities without directions of the buyer because his margins
were exhausted.
5
Under the rules of the trading exchanges, weekly
settlements were required if there was any difference in the prices of the
cotton between those obtaining at the time of the contract and at the date of
delivery so that under the contract made by the purchaser, if the price of
cotton had advanced, he would have received in cash from the seller each
week the advance (increase) in price and if cotton prices declined, the
purchaser had to make like payments to the seller. In the terminology of the
exchange, these payments are called "margins".
6
Either the seller or the
buyer may elect to make or demand delivery of the cotton agreed to be sold
and bought, but in general, it seems practically a uniform custom that
settlements are made by payments and receipts of difference in prices at the
time of delivery from that prevailing at the time of payment of the past
weekly "margins". These settlements are made by "closing out" the
contracts.
7
Where the broker represented the buyer in buying and selling
cotton for future delivery with himself extending credit margins, and some of
the transactions were closed at a profit while the others at a loss, payments
being made of the difference in prices arising out of their rise or fall above or
below the contract price, and the facts showed that no actual delivery of
cotton was contemplated, such contracts are of the kind commonly called
"futures".
8
Making contracts for the purchase and sale of commodities for
future delivery, the parties not intending an actual delivery, or contracts of
the kind commonly called futures, are unenforceable.
9

The term "futures" has grown out of those purely speculative transactions in
which there are nominal contracts to sell for future delivery, but where in
fact no delivery is intended or executed. The nominal seller does not have or
expect to have a stock of merchandise he purports to sell nor does the
nominal buyer expect to receive it or to pay for the price. Instead of that, a
percentage or margin is paid, which is increased or diminished as the market
rates go up and down, and accounted for to the buyer. This is simple
speculation, gambling or wagering on prices within a given time; it is not
buying and selling and is illegal as against public policy.
10

The facts as disclosed by the evidence on record show that private
respondent made arrangements with Elizabeth Diaz, Account Executive of
petitioner for her to see Mr. Albert Chiam, petitioner's Branch Manager. The
contract signed by private respondent purports to be for the delivery of
goods with the intention that the difference between the price stipulated and
the exchange or market price at the time of the pretended delivery shall be
paid by the loser to the winner. We quote with approval the following
findings of the trial court as cited in the Court of Appeals decision:
The evidence of the plaintiff tend to show that in her
transactions with the defendant, the parties never intended to
make or accept delivery of any particular commodity but the
parties merely made a speculation on the rise or fall in the
market of the contract price of the commodity, subject of the
transaction, on the pretended date of delivery so that if the
forecast was correct, one party would make a profit, but if the
forecast was wrong, one party would lose money. Under this
scheme, plaintiff was only able to recover P470,000.00 out of
her original and "additional" deposit of P800,000.00 with the
defendant.
The defendant admits that in all the transactions that it had with
the plaintiff, there was (sic) no actual deliveries and that it has
made no arrangement with the Central Bank for the remittance
of its customer's money abroad but defendant contends in its
defense that the mere fact that there were no actual deliveries
made in the transactions which plaintiff had with the defendant,
did not mean that no such actual deliveries were intended by the
parties since paragraph 10 of the rules for commodity trading,
attached to the trading contract which plaintiff signed before she
traded with the defendant, amply provides for actual delivery of
the commodity subject of the transaction.
The court has, therefore, to find out from all the facts and
circumstances of this case, whether the parties really intended to
make or accept deliveries of the commodities traded or whether
the defendant merely placed a provision for delivery in its rules
for commodity futures trading so as to escape from being called
a bucket shop, . . .
xxx xxx xxx
. . . the court is convinced that the parties never really intended
to make or accept delivery of any commodity being trade as, in
fact, the unrebutted testimony of Mr. Go is to the effect that all
the defendant's customers were mere speculators who merely
forecast the rise or fall in the market of the commodity, subject
of the transaction, below or above the contract price on the
pretended date of delivery and, in fact, the defendant even
discourages its customers from taking or accepting delivery of
any commodity by making it hard, if not impossible, for them to
make or accept delivery of any commodity. Proof of this is
paragraph 10(d) of defendant's rules for commodity trading
which provides that the customer shall apply for the necessary
licenses and documents with the proper government agency for
the importation and exportation of any particular commodity.
11

The trading contract signed by private respondent and Albert Chiam,
representing petitioner, is a contract for the sale of products for future
delivery, in which either seller or buyer may elect to make or demand
delivery of goods agreed to be bought and sold, but where no such delivery
is actually made. By delivery is meant the act by which the res or subject is
placed in the actual or constructive possession or control of another. It may
be actual as when physical possession is given to the vendee or his
representative; or constructive which takes place without actual transfer of
goods, but includes symbolic delivery or substituted delivery as when the
evidence of title to the goods, the key to the warehouse or bill of
lading/warehouse receipt is delivered.
12
As a contract in printed form,
prepared by petitioner and served on private respondent, for the latter's
signature, the trading contract bears all the indicia of a valid trading contract
because it complies with the Rules and Regulations on Commodity Futures
Trading as prescribed by the SEC. But when the transaction which was
carried out to implement the written contract deviates from the true import
of the agreement as when no such delivery, actual or constructive, of the
commodity or goods is made, and final settlement is made by payment and
receipt of only the difference in prices at the time of delivery from that
prevailing at the time the sale is made, the dealings in futures become mere
speculative contracts in which the parties merely gamble on the rise or fall in
prices. A contract for the sale or purchase of goods/commodity to be
delivered at future time, if entered into without the intention of having any
goods/commodity pass from one party to another, but with an
understanding that at the appointed time, the purchaser is merely to receive
or pay the difference between the contract and the market prices, is a
transaction which the law will not sanction, for being illegal.
13

The written trading contract in question is not illegal but the transaction
between the petitioner and the private respondent purportedly to implement
the contract is in the nature of a gambling agreement and falls within the
ambit of Article 2018 of the New Civil Code, which is quoted hereunder:
If a contract which purports to be for the delivery of goods,
securities or shares of stock is entered into with the intention
that the difference between the price stipulated and the
exchange or market price at the time of the pretended delivery
shall be paid by the loser to the winner, the transaction is null
and void. The loser may recover what he has paid.
The facts clearly establish that the petitioner is a direct participant in the
transaction, acting through its authorized agents. It received the customer's
orders and private respondent's money. As per terms of the trading
contract, customer's orders shall be directly transmitted by the petitioner as
broker to its principal, Frankwell Enterprises Ltd. of Hongkong, being a
registered member of the International Commodity Clearing House, which in
turn must place the customer's orders with the Tokyo Exchange. There is no
evidence that the orders and money were transmitted to its principal
Frankwell Enterprises Ltd. in Hongkong nor were the orders forwarded to the
Tokyo Exchange. We draw the conclusion that no actual delivery of goods
and commodity was intended and ever made by the parties. In the realities
of the transaction, the parties merely speculated on the rise and fall in the
price of the goods/commodity subject matter of the transaction. If private
respondent's speculation was correct, she would be the winner and the
petitioner, the loser, so petitioner would have to pay private respondent the
"margin". But if private respondent was wrong in her speculation then she
would emerge as the loser and the petitioner, the winner. The petitioner
would keep the money or collect the difference from the private respondent.
This is clearly a form of gambling provided for with unmistakeable certainty
under Article 2018 abovestated. It would thus be governed by the New Civil
Code and not by the Revised Securities Act nor the Rules and Regulations on
Commodity Futures Trading laid down by the SEC.
Article 1462 of the New Civil Code does not govern this case because the
said provision contemplates a contract of sale of specific goods where one of
the contracting parties binds himself to transfer the ownership of and deliver
a determinate thing and the other to pay therefore a price certain in money
or its equivalent.
14
The said article requires that there be delivery of goods,
actual or constructive, to be applicable. In the transaction in question, there
was no such delivery; neither was there any intention to deliver a
determinate thing.
The transaction is not what the parties call it but what the law defines it to
be.
15

After considering all the evidence in this case, it appears that petitioner and
private respondent did not intend, in the deals of purchasing and selling for
future delivery, the actual or constructive delivery of the goods/commodity,
despite the payment of the full price therefor. The contract between them
falls under the definition of what is called "futures". The payments made
under said contract were payments of difference in prices arising out of the
rise or fall in the market price above or below the contract price thus making
it purely gambling and declared null and void by law.
16

In England and America where contracts commonly called futures originated,
such contracts were at first held valid and could be enforced by resort to
courts. Later these contracts were held invalid for being speculative, and in
some states in America, it was unlawful to make contracts commonly called
"futures". Such contracts were found to be mere gambling or wagering
agreements covered and protected by the rules and regulations of exchange
in which they were transacted under devices which rendered it impossible for
the courts to discover their true character.
17
The evil sought to be
suppressed by legislation is the speculative dealings by means of such
trading contracts, which degenerated into mere gambling in the future price
of goods/commodities ostensibly but not actually, bought or sold.
18

Under Article 2018, the private respondent is entitled to refund from the
petitioner what she paid. There is no evidence that the orders of private
respondent were actually transmitted to the petitioner's principal in
Hongkong and Tokyo. There was no arrangement made by petitioner with
the Central Bank for the purpose of remitting the money of its customers
abroad. The money which was supposed to be remitted to Frankwell
Enterprises of Hongkong was kept by petitioner in a separate account in a
local bank. Having received the money and orders of private respondent
under the trading contract, petitioner has the burden of proving that said
orders and money of private respondent had been transmitted. But
petitioner failed to prove this point.
For reasons indicated and construed in the light of the applicable rules and
under the plain language of the statute, We find no reversible error
committed by the respondent Court that would justify the setting aside of
the questioned decision and resolution. For lack of merit, the petition is
DISMISSED and the judgment sought to be reversed is hereby AFFIRMED.
With costs against petitioner.
SO ORDERED.
Narvasa, C.J., Feliciano, Regalado and Nocon, JJ., concur.
THE HEIRS OF PEDRO ESCANLAR, FRANCISCO HOLGADO and the
SPOUSES DR. EDWIN A. JAYME and ELISA TAN-JAYME,
petitioners, vs. THE HON. COURT OF APPEALS, GENEROSA
MARTINEZ, CARMEN CARI-AN, RODOLFO CARI-AN, NELLY CHUA
CARI-AN, for herself and as guardian ad litem of her minor son,
LEONELL C. CARI-AN, FREDISMINDA CARI-AN, the SPOUSES
PAQUITO CHUA and NEY SARROSA-CHUA and THE REGISTER OF
DEEDS OF NEGROS OCCIDENTAL, respondents.
[G.R. No. 120690. October 23, 1997]
FRANCISCO HOLGADO and HRS. OF PEDRO ESCANLAR, namely
BERNARDO, FELY, SONIA, LILY, DYESEBEL and NOEMI all
surnamed ESCANLAR, petitioners, vs. HON. COURT OF
APPEALS, GENEROSA MARTINEZ, CARMEN CARI-AN, RODOLFO
CARI-AN, NELLY CHUA CARI-AN, for herself and as guardian ad
litem of her minor son, LEONELL C. CARI-AN and FREDISMINDA
CARI-AN, and SP. PAQUITO CHUA and NEY SARROSA CHUA and
REGISTER OF DEEDS OF NEGROS OCCIDENTAL,respondents.
D E C I S I ON
ROMERO, J.:
Before us are consolidated petitions for review of the decision of the
Court of Appeals in CA-G.R. CV No. 39975 which affirmed the trial courts
pronouncement that the deed of sale of rights, interests and participation in
favor of petitioners is null and void.
The case arose from the following facts:
Spouses Guillermo Nombre and Victoriana Cari-an died without issue in 1924
and 1938, respectively. Nombres heirs include his nephews and
grandnephews. Victoriana Cari-an was succeeded by her late brothers son,
Gregorio Cari-an. The latter was declared as Victorianas heir in the estate
proceedings for Nombre and his wife (Special Proceeding No 7-
7279).
[1]
After Gregorio died in 1971, his wife, Generosa Martinez, and
children, Rodolfo, Carmen, Leonardo and Fredisminda, all surnamed Cari-an,
were also adjudged as heirs by representation to Victorianas
estate.
[2]
Leonardo Cari-an passed away, leaving his widow, Nelly Chua vda.
de Cari-an and minor son Leonell, as his heirs.
Two parcels of land, denominated as Lot No. 1616 and 1617 of the
Kabankalan Cadastre with an area of 29,350 square meters and 460,948
square meters, respectively, formed part of the estate of Nombre and Cari-
an.
On September 15, 1978, Gregorio Cari-ans heirs, herein collectively
referred to as private respondents Cari-an, executed the Deed of Sale of
Rights, Interests and Participation worded as follows:
NOW, THEREFORE, for and in consideration of the sum of TWO HUNDRED
SEVENTY-FIVE THOUSAND (P275,000.00) Pesos, Philippine Currency, to be
paid by the VENDEES to the VENDORS, except the share of the minor child
of Leonardo Cari-an, which should be deposited with the Municipal Treasurer
of Himamaylan, Province of Negros Occidental, by the order of the Court of
First Instance of Negros Occidental, Branch VI, Himamaylan, by those
presents, do hereby SELL, CEDE, TRANSFER and CONVEY by way of
ABSOLUTE SALE, all the RIGHTS, INTERESTS and PARTICIPATION of the
Vendors as to the one-half (1/2) portion pro-indiviso of Lots Nos. 1616 and
1617 (Fishpond), of the Kabankalan Cadastre, pertaining to the one-half
(1/2) portion pro-indiviso of the late Victoriana Cari-an unto and in favor of
the Vendees, their heirs, successors and assigns;
x x x x x x x x x
That this Contract of Sale of rights, interests and participations shall become
effective only upon the approval by the Honorable Court of First Instance of
Negros Occidental, Branch VI- Himamaylan. (Underscoring supplied.)
Pedro Escanlar and Francisco Holgado, the vendees, were concurrently
the lessees of the lots referred to above.
[3]
They stipulated that the balance
of the purchase price (P225,000.00) shall be paid on or before May 1979 in
a Deed of Agreement executed by the parties on the same day:
WHEREAS, at the time of the signing of the Contract, VENDEES has (sic)
only FIFTY THOUSAND (P50,000.00) Pesos available thereof, and was not
able to secure the entire amount;
WHEREAS, the Vendors and one of the Vendees by the name of Pedro
Escanlar are relatives, and absolute faith and trust exist between them,
wherein during economic crisis, has not failed to give monetary succor to the
Vendors;
WHEREAS, Vendors herein understood the present scarcity of securing
available each (sic) in the amount stated in the contract;
NOW THEREFORE, for and in consideration of the sum of FIFTY THOUSAND
(P50,000.00) Pesos, Philippine Currency, the balance of TWO HUNDRED
TWENTY FIVE THOUSAND (P225,000.00) Pesos to be paid by the Vendees
on or before May, 1979, the Vendors herein, by these Presents, do hereby
CONFIRM and AFFIRM the Deed of Sale of the Rights, Interests and
Participation dated September 15, 1978, over Lots Nos. 1616 and 1617
(fishpond) of the Kabankalan Cadastre in favor of the VENDEES, their heirs
and assigns.
That pending the complete payment thereof, Vendees shall not assign, sell,
lease, nor mortgage the rights, interests and participation thereof;
That in the event the Vendees fail and/ or omit to pay the balance of said
purchase price on May 31, 1979 and the cancellation of said Contract of Sale
is made thereby, the sum of FIFTY THOUSAND (P50,000.00) Pesos shall be
deemed as damages thereof to Vendors. (Underscoring supplied)
[4]

Petitioners were unable to pay the Cari-an heirs individual shares,
amounting to P55,000.00 each,

by the due date. However, said heirs
received at least 12 installments from petitioners after May 1979.
[5]
Rodolfo
Cari-an was fully paid by June 21, 1979. Generosa Martinez, Carmen Cari-
an and Fredisminda Cari-an were likewise fully compensated for their
individual shares, per receipts given in evidence.
[6]
The minor Leonells share
was deposited with the Regional Trial Court on September 7, 1982.
[7]

Being former lessees, petitioners continued in possession of Lot Nos.
1616 and 1617. Interestingly, they continued to pay rent based on their
lease contract. On September 10, 1981, petitioners moved to intervene in
the probate proceedings of Nombre and Cari-an as the buyers of private
respondent Cari-ans share in Lot Nos. 1616 and 1617. Petitioners motion
for approval of the September 15, 1978 sale before the same court, filed on
November 10, 1981, was opposed by private respondents Cari-an on
January 5, 1982.
[8]

On September 16, 1982, the probate court approved a motion filed by
the heirs of Cari-an and Nombre to sell their respective shares in the estate.
On September 21, 1982, private respondents Cari-an, in addition to some
heirs of Guillermo Nombre,
[9]
sold their shares in eight parcels of land
including Lot Nos. 1616 and 1617 to the spouses Ney Sarrosa Chua and
Paquito Chua for P1,850,000.00. One week later, the vendor-heirs,
including private respondents Cari-an, filed a motion for approval of sale of
hereditary rights, i.e. the sale made on September 21, 1982 to the Chuas.
Private respondents Cari-an instituted this case for cancellation of sale
against petitioners (Escanlar and Holgado) on November 3, 1982.
[10]
They
complained of petitioners failure to pay the balance of the purchase price by
May 31, 1979 and alleged that they only received a total ofP132,551.00 in
cash and goods. Petitioners replied that the Cari-ans, having been paid, had
no right to resell the subject lots; that the Chuas were purchasers in bad
faith; and that the court approval of the sale to the Chuas was subject to
their existing claim over said properties.
On April 20, 1983, petitioners also sold their rights and interests in the
subject parcels of land (Lot Nos. 1616 and 1617) to Edwin Jayme
for P735,000.00
[11]
and turned over possession of both lots to the
latter. The Jaymes in turn, were included in the civil case as fourth-party
defendants.
On December 3, 1984, the probate court approved the September 21,
1982 sale without prejudice to whatever rights, claims and interests over
any of those properties of the estate which cannot be properly and legally
ventilated and resolved by the court in the same intestate
proceedings.
[12]
The certificates of title over the eight lots sold by the heirs
of Nombre and Cari-an were later issued in the name of respondents Ney
Sarrosa Chua and Paquito Chua.
The trial court allowed a third-party complaint against the third-party
defendants Paquito and Ney Chua on January 7, 1986 where Escanlar and
Holgado alleged that the Cari-ans conspired with the Chuas when they
executed the second sale on September 21, 1982 and that the latter sale is
illegal and of no effect. Respondents Chua countered that they did not know
of the earlier sale of one-half portion of the subject lots to Escanlar and
Holgado. Both parties claimed damages.
[13]

On April 28, 1988, the trial court approved the Chuas motion to file a
fourth-party complaint against the spouses Jayme. Respondents Chua
alleged that the Jaymes refused to vacate said lots despite repeated
demands; and that by reason of the illegal occupation of Lot Nos. 1616 and
1617 by the Jaymes, they suffered materially from uncollected rentals.
Meanwhile, the Regional Trial Court of Himamaylan which took
cognizance of Special Proceeding No. 7-7279 (Intestate Estate of Guillermo
Nombre and Victoriana Cari-an) had rendered its decision on October 30,
1987.
[14]
The probate court concluded that since all the properties of the
estate were disposed of or sold by the declared heirs of both spouses, the
case is considered terminated and the intestate estate of Guillermo Nombre
and Victoriana Cari-an is closed. The court held:
As regards the various incidents of this case, the Court finds no cogent
reason to resolve them since the very object of the various incidents in this
case is no longer in existence, that is to say, the properties of the estate of
Guillermo Nombre and Victoriana Cari-an had long been disposed of by the
rightful heirs of Guillermo Nombre and Victoriana Cari-an. In this respect,
there is no need to resolve the Motion for Subrogation of Movants Pedro
Escanlar and Francisco Holgado to be subrogated to the rights of the heirs of
Victoriana Cari-an since all the properties of the estate had been transferred
and titled to in the name of spouses Ney S. Chua and Dr. Paquito
Chua. Since the nature of the proceedings in this case is summary, this
Court, being a Probate Court, has no jurisdiction to pass upon the validity or
invalidity of the sale of rights of the declared heirs of Guillermo Nombre and
Victoriana Cari-an to third parties. This issue must be raised in another
action where it can be properly ventilated and resolved. x x x Having
determined, after exhausted (sic) and lengthy hearings, the rightful heirs of
Guillermo Nombre and Victoriana Cari-an, the Court found out that the
second issue has become moot and academic considering that there are no
more properties left to be partitioned among the declared heirs as that had
long ago been disposed of by the declared heirs x x x. (Underscoring
supplied)
The seminal case at bar was resolved by the trial court on December 18,
1991 in favor of cancellation of the September 15, 1978 sale. Said
transaction was nullified because it was not approved by the probate court
as required by the contested deed of sale of rights, interests and
participation and because the Cari-ans were not fully paid. Consequently,
the Deed of Sale executed by the heirs of Nombre and Cari-an in favor of
Paquito and Ney Chua, which was approved by the probate court, was
upheld. The dispositive portion of the lower courts decision reads:
WHEREFORE, premises considered, judgment is hereby rendered as follows:
1) Declaring the following contracts null and void and of no effect:
a) The Deed of Sale, dated Sept. 15, 1978, executed by the
plaintiffs in favor of the defendants Pedro Escanlar and Francisco
Holgado (Exh. A, Plaintiffs)
b) The Deed of Agreement, dated Sept. 15, 1978, executed by
the plaintiffs in favor of the defendants, Pedro Escanlar and Francisco
Holgado (Exh. B, Plaintiffs)
c) The Deed of Sale, dated April 20, 1983, executed by the
defendants in favor of the fourth-party defendants, Dr. Edwin Jayme
and Elisa Tan Jayme
d) The sale of leasehold rights executed by the defendants in
favor of the fourth-party defendants
2) Declaring the amount of Fifty Thousand Pesos (P50,000.00) paid
by the defendants to the plaintiffs in connection with the Sept. 15, 1978
deed of sale, as forfeited in favor of the plaintiffs, but ordering the plaintiffs
to return to the defendants whatever amounts they have received from the
latter after May 31, 1979 and the amount of Thirty Five Thousand Two
Hundred Eighteen & 75/100 (P35,218.75)
[15]
deposited with the Treasurer of
Himamaylan, Negros Occidental, for the minor Leonell C. Cari-an -
3) Declaring the deed of sale, dated September 23, 1982, executed
by Lasaro Nombre, Victorio Madalag, Domingo Campillanos, Sofronio
Campillanos, Generosa Vda. de Martinez, Carmen Cari-an, Rodolfo Cari-an,
Nelly Chua Vda. de Cari-an, for herself and as guardian ad litem of the minor
Leonell C. Cari-an, and Fredisminda Cari-an in favor of the third-party
defendants and fourth-party plaintiffs, spouses Dr. Paquito Chua and Ney
Sarrosa Chua (Exh. 2-Chua) as legal, valid and enforceable provided that
the properties covered by the said deed of sale are subject of the burdens of
the estate, if the same have not been paid yet.
4) Ordering the defendants Francisco Holgado and Pedro Escanlar
and the fourth-party defendants, spouses Dr. Edwin Jayme and Elisa Tan
Jayme, to pay jointly and severally the amount of One Hundred Thousand
Pesos (P100,000.00 as moral damages and the further sum of Thirty
Thousand Pesos (P30,000.00) as attorneys fees to the third-party defendant
spouses, Dr. Paquito Chua and Ney Sarrosa-Chua.
5) Ordering the fourth-party defendant spouses, Dr. Edwin Jayme
and Elisa Tan Jayme, to pay to the third-party defendants and fourth-party
plaintiffs, spouses Dr. Paquito Chua and Ney Sarrosa-Chua, the sum of One
Hundred Fifty Seven Thousand Pesos (P157,000.00) as rentals for the
riceland and Three Million Two Hundred Thousand Pesos (P3,200,000.00) as
rentals for the fishpond from October, 1985 to July 24, 1989 plus the rentals
from the latter date until the property shall have been delivered to the
spouses Dr. Paquito Chua and Ney Sarrosa-Chua;
6) Ordering the defendants and the fourth-party defendants to
immediately vacate Lots Nos. 1616 and 1617, Kabankalan Cadastre;
7) Ordering the defendants and the fourth-party defendants to pay
costs.
SO ORDERED.
[16]

Petitioners raised the case to the Court of Appeals.
[17]
Respondent court
affirmed the decision of the trial court on February 17, 1995 and held that
the questioned deed of sale of rights, interests and participation is a contract
to sell because it shall become effective only upon approval by the probate
court and upon full payment of the purchase price.
[18]

Petitioners motion for reconsideration was denied by respondent court
on April 3, 1995.
[19]
Hence, these petitions.
[20]

1. We disagree with the Court of Appeals conclusion that the September
15, 1978 Deed of Sale of Rights, Interests and Participation is a contract to
sell and not one of sale.
The distinction between contracts of sale and contracts to sell with
reserved title has been recognized by this Court in repeated decisions,
according to Justice J.B.L. Reyes in Luzon Brokerage Co. Inc. v. Maritime
Building Co., Inc.,
[21]
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 the
conveyance, and retain the sums of installments already received where
such rights are expressly provided for.
In contracts to sell, ownership is retained by the seller and is not to pass
until the full payment of the price. Such payment is a positive suspensive
condition, the failure of which is not a breach of contract but simply an event
that prevented the obligation of the vendor to convey title from acquiring
binding force.
[22]
To illustrate, although a deed of conditional sale is
denominated as such, absent a proviso that title to the property sold is
reserved in the vendor until full payment of the purchase price nor a
stipulation giving the vendor the right to unilaterally rescind the contract the
moment the vendee fails to pay within a fixed period, by its nature, it shall
be declared a deed of absolute sale.
[23]

The September 15, 1978 sale of rights, interests and participation as to
1/2 portion pro indiviso of the two subject lots is a contract of sale for the
following reasons: First, private respondents as sellers did not reserve unto
themselves the ownership of the property until full payment of the unpaid
balance of P225,000.00. Second, there is no stipulation giving the sellers
the right to unilaterally rescind the contract the moment the buyer fails to
pay within the fixed period.
[24]
Prior to the sale, petitioners were in
possession of the subject property as lessees. Upon sale to them of the
rights, interests and participation as to the 1/2 portion pro indiviso, they
remained in possession, not in concept of lessees anymore but as owners
now through symbolic delivery known as traditio brevi manu.
[25]
Under
Article 1477 of the Civil Code, the ownership of the thing sold is acquired by
the vendee upon actual or constructive delivery thereof.
[26]

In a contract of sale, the non-payment of the price is a resolutory
condition which extinguishes the transaction that, for a time, existed and
discharges the obligations created thereunder. The remedy of an unpaid
seller in a contract of sale is to seek either specific performance or
rescission.
[27]

2. Next to be discussed is the stipulation in the disputed September 15,
1978 Deed of Sale of Rights, Interests and Participation which reads: (t)his
Contract of Sale of rights, interests and participations shall become effective
only upon the approval by the Honorable Court of First Instance of Negros
Occidental, Branch VI-Himamaylan. Notably, the trial court and the Court
of Appeals both held that the deed of sale is null and void for not having
been approved by the probate court.
There has arisen here a confusion in the concepts of validity and the
efficacy of a contract. Under Art. 1318 of the Civil Code, the essential
requisites of a contract are: consent of the contracting parties; object
certain which is the subject matter of the contract and cause of the
obligation which is established. Absent one of the above, no contract can
arise. Conversely, where all are present, the result is a valid
contract. However, some parties introduce various kinds of restrictions or
modalities, the lack of which will not, however, affect the validity of the
contract.
In the instant case, the Deed of Sale, complying as it does with the
essential requisites, is a valid one. However, it did not bear the stamp of
approval of the court. This notwithstanding, the contracts validity was not
affected for in the words of the stipulation, . . . this Contract of Sale of
rights, interests and participations shall become effective only upon the
approval by the Honorable Court . . . In other words, only the effectivity
and not the validity of the contract is affected.
Then, too, petitioners are correct in saying that the need for approval by
the probate court exists only where specific properties of the estate are sold
and not when only ideal and indivisible shares of an heir are disposed of.
In the case of Dillena v. Court of Appeals,
[28]
the Court declared that it is
within the jurisdiction of the probate court to approve the sale of properties
of a deceased person by his prospective heirs before final adjudication.
[29]
It
is settled that court approval is necessary for the validity of any disposition
of the decedents estate. However, reference to judicial approval cannot
adversely affect the substantive rights of the heirs to dispose of their ideal
share in the co-heirship and/or co-ownership among the heirs.
[30]
It must be
recalled that during the period of indivision of a decedents estate, each heir,
being a co-owner, has full ownership of his part and may therefore alienate
it.
[31]
But the effect of the alienation with respect to the co-owners shall be
limited to the portion which may be allotted to him in the division upon the
termination of the co-ownership.
[32]

From the foregoing, it is clear that hereditary rights in an estate can be
validly sold without need of court approval and that when private
respondents Cari-an sold their rights, interests and participation in Lot Nos.
1616 and 1617, they could legally sell the same without the approval of the
probate court.
As a general rule, the pertinent contractual stipulation (requiring court
approval) should be considered as the law between the parties. However,
the presence of two factors militate against this conclusion. First, the
evident intention of the parties appears to be contrary to the mandatory
character of said stipulation.
[33]
Whoever crafted the document of
conveyance, must have been of the belief that the controversial stipulation
was a legal requirement for the validity of the sale. But the
contemporaneous and subsequent acts of the parties reveal that the original
objective of the parties was to give effect to the deed of sale even without
court approval.
[34]
Receipt and acceptance of the numerous installments on
the balance of the purchase price by the Cari-ans and leaving petitioners in
possession of Lot Nos. 1616 and 1617 reveal their intention to effect the
mutual transmission of rights and obligations. It was only after private
respondents Cari-an sold their shares in the subject lots again to the
spouses Chua, in September 1982, that these same heirs filed the case at
bar for the cancellation of the September 1978 conveyance. Worth
considering too is the fact that although the period to pay the balance of the
purchase price expired in May 1979, the heirs continued to accept payments
until late 1979 and did not seek judicial relief until late 1982 or three years
later.
Second, we hold that the requisite approval was virtually rendered
impossible by the Cari-ans because they opposed the motion for approval of
the sale filed by petitioners
[35]
and sued the latter for the cancellation of that
sale. The probate court explained:
(e) While it is true that Escanlar and Holgado filed a similar motion for
the approval of Deed of Sale executed by some of the heirs in their favor
concerning the one-half (1/2) portions of Lots 1616 and 1617 as early as
November 10, 1981, yet the Court could not have favorably acted upon it,
because there exists a pending case for the rescission of that contract,
instituted by the vendors therein against Pedro Escanlar and Francisco
Holgado and filed before another branch of this Court. Until now, this case,
which attacks the very source of whatever rights or interests Holgado and
Escanlar may have acquired over one-half (1/2) portions of Lots Nos. 1616
and 1617, is pending resolution by another court. Otherwise, if this Court
meddles on these issues raised in that ordinary civil action seeking for the
rescission of an existing contract, then, the act of this Court would be totally
ineffective, as the same would be in excess of its jurisdiction.
[36]

Having provided the obstacle and the justification for the stipulated
approval not to be granted, private respondents Cari-an should not be
allowed to cancel their first transaction with petitioners because of lack of
approval by the probate court, which lack is of their own making.
3. With respect to rescission of a sale of real property, Article 1592 of
the Civil Code governs:
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. (Underscoring
added)
In the instant case, the sellers gave the buyers until May 1979 to pay the
balance of the purchase price. After the latter failed to pay installments due,
the former made no judicial demand for rescission of the contract nor did
they execute any notarial act demanding the same, as required under Article
1592. Consequently, the buyers could lawfully make payments even after
the May 1979 deadline, as in fact they paid several installments to the
sellers which the latter accepted. Thus, upon the expiration of the period to
pay, the sellers made no move to rescind but continued accepting late
payments, an act which cannot but be construed as a waiver of the right to
rescind. When the sellers, instead of availing of their right to rescind,
accepted and received delayed payments of installments beyond the period
stipulated, and the buyers were in arrears, the sellers in effect waived and
are now estopped from exercising said right to rescind.
[37]

4. The matter of full payment is another issue taken up by
petitioners. An exhaustive review of the records of this case impels us to
arrive at a conclusion at variance with that of both the trial and the appellate
courts.
The sole witness in the cancellation of sale case was private respondent
herein Fredisminda Cari-an Bustamante. She initially testified that after
several installments, she signed a receipt for the full payment of her share in
December 1979 but denied having actually received theP5,000.00 intended
to complete her share. She claims that Escanlar and Holgado made her sign
the receipt late in the afternoon and promised to give the money to her the
following morning when the banks opened. She also claimed that while her
brother Rodolfo Cari-ans share had already been fully paid, her mother
Generosa Martinez only received P28,334.00 and her sister-in-law Nelly
Chua vda. de Cari-an received only P11,334.00. Fredisminda also summed
up all the installments and came up with the total of P132,551.00 from the
long list on a sheet of a calendar which was transferred from a small brown
notebook. She later admitted that her list may not have been complete for
she gave the receipts for installments to petitioners Escanlar and
Holgado. She thus claimed that they were defrauded because petitioners are
wealthy and private respondents are poor.
However, despite all her claims, Fredismindas testimony fails to convince
this Court that they were not fully compensated by petitioners. Fredisminda
admits that her mother and her sister signed their individual receipts of full
payment on their own and not in her presence.
[38]
The receipts presented in
evidence show that Generosa Martinez was paid P45,625.00; Carmen Cari-
an, P45,625.00; Rodolfo Cari-an, P47,500.00 on June 21, 1979; Nelly Chua
vda. de Cari-an,P11,334.00 and the sum of P34,218.00 was consigned in
court for the minor Leonell Cari-an.
[39]
Fredisminda insists that she signed a
receipt for full payment without receiving the money therefor and admits
that she did not object to the computation. We find it incredible that a
mature woman like Fredisminda Cari-an, would sign a receipt for money she
did not receive. Furthermore, her claims regarding the actual amount of the
installments paid to her and her kin are quite vague and unsupported by
competent evidence. She even admits that all the receipts were taken by
petitioner Escanlar.
[40]
Worth noting too is the absence of supporting
testimony from her co-heirs and siblings Carmen Cari-an, Rodolfo Cari-an
and Nelly Chua vda. de Cari-an.
The trial court reasoned out that petitioners, in continuing to pay the rent
for the parcels of land they allegedly bought, admit not having fully paid the
Cari-ans. Petitioners response, that they paid rent until 1986 in compliance
with their lease contract, only proves that they respected this contract and
did not take undue advantage of the heirs of Nombre and Cari-an who
benefited from the lease. Moreover, it is to be stressed that petitioners
purchased the hereditary shares solely of the Cari-ans and not the entire lot.
The foregoing discussion ineluctably leads us to conclude that the Cari-
ans were indeed paid the balance of the purchase price, despite having
accepted installments therefor belatedly. There is thus no ground to rescind
the contract of sale because of non-payment.
5. Recapitulating, we have held that the September 15, 1978 deed of
sale of rights, interests and participations is valid and that the sellers-private
respondents Cari-an were fully paid the contract price. However, it must be
emphasized that what was sold was only the Cari-ans hereditary shares in
Lot Nos. 1616 and 1617 being held pro indiviso by them and is thus a valid
conveyance only of said ideal shares. Specific or designated portions of land
were not involved.
Consequently, the subsequent sale of 8 parcels of land, including Lot
Nos. 1616 and 1617, to the spouses Chua is valid except to the extent of
what was sold to petitioners in the September 15, 1978 conveyance. It
must be noted however, that the probate court in Special Proceeding No. 7-
7279 desisted from awarding the individual shares of each heir because all
the properties belonging to the estate had already been sold.
[41]
Thus it is
not certain how much private respondents Cari-an were entitled to with
respect to the two lots, or if they were even going to be awarded shares in
said lots.
The proceedings surrounding the estate of Nombre and Cari-an having
attained finality for nearly a decade now, the same cannot be re-
opened. The protracted proceedings which have undoubtedly left the
property under a cloud and the parties involved in a state of uncertainty
compels us to resolve it definitively.
The decision of the probate court declares private respondents Cari-an as
the sole heirs by representation of Victoriana Cari-an who was indisputably
entitled to half of the estate.
[42]
There being no exact apportionment of the
shares of each heir and no competent proof that the heirs received unequal
shares in the disposition of the estate, it can be assumed that the heirs of
Victoriana Cari-an collectively are entitled to half of each property in the
estate. More particularly, private respondents Cari-an are entitled to half of
Lot Nos. 1616 and 1617, i.e. 14,675 square meters of Lot No. 1616 and
230,474 square meters of Lot No. 1617. Consequently, petitioners, as their
successors-in-interest, own said half of the subject lots and ought to deliver
the possession of the other half, as well as pay rents thereon, to the private
respondents Ney Sarrosa Chua and Paquito Chua but only if the former
(petitioners) remained in possession thereof.
The rate of rental payments to be made were given in evidence by Ney
Sarrosa Chua in her unrebutted testimony on July 24, 1989: For the
fishpond (Lot No. 1617) - From 1982 up to 1986, rental payment
of P3,000.00 per hectare; from 1986-1989 (and succeeding years), rental
payment of P10,000.00 per hectare. For the riceland (Lot No. 1616) - 15
cavans per hectare per year; from 1982 to 1986, P125.00 per cavan; 1987-
1988, P175.00 per cavan; and 1989 and succeeding years, P200.00 per
cavan.
[43]

WHEREFORE, the petitions are hereby GRANTED. The decision of the
Court of Appeals under review is hereby REVERSED AND SET ASIDE. The
case is REMANDED to the Regional Trial Court of Negros Occidental, Branch
61 for petitioners and private respondents Cari-an or their successors-in-
interest to determine exactly which 1/2 portion of Lot Nos. 1616 and 1617
will be owned by each party, at the option of petitioners. The trial court
is DIRECTED to order the issuance of the corresponding certificates of title in
the name of the respective parties and to resolve the matter of rental
payments of the land not delivered to the Chua spouses subject to the rates
specified above with legal interest from date of demand.
SO ORDERED.
Melo, Francisco, and Panganiban, JJ., concur.
Narvasa, C.J., (Chairman), on leave.

JOCELYN B. DOLES, Petitioner,
vs.
MA. AURA TINA ANGELES, Respondent.
D E C I S I O N
AUSTRIA-MARTINEZ, J.:
This refers to the Petition for Review on Certiorari under Rule 45 of the Rules
of Court questioning the Decision
1
dated April 30, 2001 of the Court of
Appeals (CA) in C.A.-G.R. CV No. 66985, which reversed the Decision dated
July 29, 1998 of the Regional Trial Court (RTC), Branch 21, City of Manila;
and the CA Resolution
2
dated August 6, 2001 which denied petitioners
Motion for Reconsideration.
The antecedents of the case follow:
On April 1, 1997, Ma. Aura Tina Angeles (respondent) filed with the RTC a
complaint for Specific Performance with Damages against Jocelyn B. Doles
(petitioner), docketed as Civil Case No. 97-82716. Respondent alleged that
petitioner was indebted to the former in the concept of a personal loan
amounting to P405,430.00 representing the principal amount and interest;
that on October 5, 1996, by virtue of a "Deed of Absolute Sale",
3
petitioner,
as seller, ceded to respondent, as buyer, a parcel of land, as well as the
improvements thereon, with an area of 42 square meters, covered by
Transfer Certificate of Title No. 382532,
4
and located at a subdivision project
known as Camella Townhomes Sorrente in Bacoor, Cavite, in order to satisfy
her personal loan with respondent; that this property was mortgaged to
National Home Mortgage Finance Corporation (NHMFC) to secure petitioners
loan in the sum of P337,050.00 with that entity; that as a condition for the
foregoing sale, respondent shall assume the undue balance of the mortgage
and pay the monthly amortization of P4,748.11 for the remainder of the 25
years which began on September 3, 1994; that the property was at that
time being occupied by a tenant paying a monthly rent of P3,000.00; that
upon verification with the NHMFC, respondent learned that petitioner had
incurred arrearages amounting to P26,744.09, inclusive of penalties and
interest; that upon informing the petitioner of her arrears, petitioner denied
that she incurred them and refused to pay the same; that despite repeated
demand, petitioner refused to cooperate with respondent to execute the
necessary documents and other formalities required by the NHMFC to effect
the transfer of the title over the property; that petitioner collected rent over
the property for the month of January 1997 and refused to remit the
proceeds to respondent; and that respondent suffered damages as a result
and was forced to litigate.
Petitioner, then defendant, while admitting some allegations in the
Complaint, denied that she borrowed money from respondent, and averred
that from June to September 1995, she referred her friends to respondent
whom she knew to be engaged in the business of lending money in
exchange for personal checks through her capitalist Arsenio Pua. She alleged
that her friends, namely, Zenaida Romulo, Theresa Moratin, Julia Inocencio,
Virginia Jacob, and Elizabeth Tomelden, borrowed money from respondent
and issued personal checks in payment of the loan; that the checks bounced
for insufficiency of funds; that despite her efforts to assist respondent to
collect from the borrowers, she could no longer locate them; that, because
of this, respondent became furious and threatened petitioner that if the
accounts were not settled, a criminal case will be filed against her; that she
was forced to issue eight checks amounting to P350,000 to answer for the
bounced checks of the borrowers she referred; that prior to the issuance of
the checks she informed respondent that they were not sufficiently funded
but the latter nonetheless deposited the checks and for which reason they
were subsequently dishonored; that respondent then threatened to initiate a
criminal case against her for violation ofBatas Pambansa Blg. 22; that she
was forced by respondent to execute an "Absolute Deed of Sale" over her
property in Bacoor, Cavite, to avoid criminal prosecution; that the said deed
had no valid consideration; that she did not appear before a notary public;
that the Community Tax Certificate number on the deed was not hers and
for which respondent may be prosecuted for falsification and perjury; and
that she suffered damages and lost rental as a result.
The RTC identified the issues as follows: first, whether the Deed of Absolute
Sale is valid; second; if valid, whether petitioner is obliged to sign and
execute the necessary documents to effect the transfer of her rights over the
property to the respondent; and third, whether petitioner is liable for
damages.
On July 29, 1998, the RTC rendered a decision the dispositive portion of
which states:
WHEREFORE, premises considered, the Court hereby orders the dismissal of
the complaint for insufficiency of evidence. With costs against plaintiff.
SO ORDERED.
The RTC held that the sale was void for lack of cause or consideration:
5

Plaintiff Angeles admission that the borrowers are the friends of defendant
Doles and further admission that the checks issued by these borrowers in
payment of the loan obligation negates [sic] the cause or consideration of
the contract of sale executed by and between plaintiff and defendant.
Moreover, the property is not solely owned by defendant as appearing in
Entry No. 9055 of Transfer Certificate of Title No. 382532 (Annex A,
Complaint), thus:
"Entry No. 9055. Special Power of Attorney in favor of Jocelyn Doles
covering the share of Teodorico Doles on the parcel of land described in this
certificate of title by virtue of the special power of attorney to mortgage,
executed before the notary public, etc."
The rule under the Civil Code is that contracts without a cause or
consideration produce no effect whatsoever. (Art. 1352, Civil Code).
Respondent appealed to the CA. In her appeal brief, respondent interposed
her sole assignment of error:
THE TRIAL COURT ERRED IN DISMISSING THE CASE AT BAR ON THE
GROUND OF [sic] THE DEED OF SALE BETWEEN THE PARTIES HAS NO
CONSIDERATION OR INSUFFICIENCY OF EVIDENCE.
6

On April 30, 2001, the CA promulgated its Decision, the dispositive portion
of which reads:
WHEREFORE, IN VIEW OF THE FOREGOING, this appeal is hereby GRANTED.
The Decision of the lower court dated July 29, 1998 is REVERSED and SET
ASIDE. A new one is entered ordering defendant-appellee to execute all
necessary documents to effect transfer of subject property to plaintiff-
appellant with the arrearages of the formers loan with the NHMFC, at the
latters expense. No costs.
SO ORDERED.
The CA concluded that petitioner was the borrower and, in turn, would "re-
lend" the amount borrowed from the respondent to her friends. Hence, the
Deed of Absolute Sale was supported by a valid consideration, which is the
sum of money petitioner owed respondent amounting to P405,430.00,
representing both principal and interest.
The CA took into account the following circumstances in their entirety: the
supposed friends of petitioner never presented themselves to respondent
and that all transactions were made by and between petitioner and
respondent;
7
that the money borrowed was deposited with the bank account
of the petitioner, while payments made for the loan were deposited by the
latter to respondents bank account;
8
that petitioner herself admitted in open
court that she was "re-lending" the money loaned from respondent to other
individuals for profit;
9
and that the documentary evidence shows that the
actual borrowers, the friends of petitioner, consider her as their creditor and
not the respondent.
10

Furthermore, the CA held that the alleged threat or intimidation by
respondent did not vitiate consent, since the same is considered just or legal
if made to enforce ones claim through competent authority under Article
1335
11
of the Civil Code;
12
that with respect to the arrearages of petitioner
on her monthly amortization with the NHMFC in the sum of P26,744.09, the
same shall be deemed part of the balance of petitioners loan with the
NHMFC which respondent agreed to assume; and that the amount
of P3,000.00 representing the rental for January 1997 supposedly collected
by petitioner, as well as the claim for damages and attorneys fees, is denied
for insufficiency of evidence.
13

On May 29, 2001, petitioner filed her Motion for Reconsideration with the
CA, arguing that respondent categorically admitted in open court that she
acted only as agent or representative of Arsenio Pua, the principal financier
and, hence, she had no legal capacity to sue petitioner; and that the CA
failed to consider the fact that petitioners father, who co-owned the subject
property, was not impleaded as a defendant nor was he indebted to the
respondent and, hence, she cannot be made to sign the documents to effect
the transfer of ownership over the entire property.
On August 6, 2001, the CA issued its Resolution denying the motion on the
ground that the foregoing matters had already been passed upon.
On August 13, 2001, petitioner received a copy of the CA Resolution. On
August 28, 2001, petitioner filed the present Petition and raised the
following issues:
I.
WHETHER OR NOT THE PETITIONER CAN BE CONSIDERED AS A
DEBTOR OF THE RESPONDENT.
II.
WHETHER OR NOT AN AGENT WHO WAS NOT AUTHORIZED BY THE
PRINCIPAL TO COLLECT DEBT IN HIS BEHALF COULD DIRECTLY
COLLECT PAYMENT FROM THE DEBTOR.
III.
WHETHER OR NOT THE CONTRACT OF SALE WAS EXECUTED FOR A
CAUSE.
14

Although, as a rule, it is not the business of this Court to review the findings
of fact made by the lower courts, jurisprudence has recognized several
exceptions, at least three of which are present in the instant case, namely:
when the judgment is based on a misapprehension of facts; when the
findings of facts of the courts a quo are conflicting; and when the CA
manifestly overlooked certain relevant facts not disputed by the parties,
which, if properly considered, could justify a different conclusion.
15
To arrive
at a proper judgment, therefore, the Court finds it necessary to re-examine
the evidence presented by the contending parties during the trial of the
case.
The Petition is meritorious.
The principal issue is whether the Deed of Absolute Sale is supported by a
valid consideration.
1. Petitioner argues that since she is merely the agent or representative of
the alleged debtors, then she is not a party to the loan; and that the Deed of
Sale executed between her and the respondent in their own names, which
was predicated on that pre-existing debt, is void for lack of consideration.
Indeed, the Deed of Absolute Sale purports to be supported by a
consideration in the form of a price certain in money
16
and that this sum
indisputably pertains to the debt in issue. This Court has consistently held
that a contract of sale is null and void and produces no effect whatsoever
where the same is without cause or consideration.
17
The question that has to
be resolved for the moment is whether this debt can be considered as a valid
cause or consideration for the sale.
To restate, the CA cited four instances in the record to support its holding
that petitioner "re-lends" the amount borrowed from respondent to her
friends: first, the friends of petitioner never presented themselves to
respondent and that all transactions were made by and between petitioner
and respondent;
18
second; the money passed through the bank accounts of
petitioner and respondent;
19
third, petitioner herself admitted that she was
"re-lending" the money loaned to other individuals for profit;
20
and fourth,
the documentary evidence shows that the actual borrowers, the friends of
petitioner, consider her as their creditor and not the respondent.
21

On the first, third, and fourth points, the CA cites the testimony of the
petitioner, then defendant, during her cross-examination:
22

Atty. Diza:
q. You also mentioned that you were not the one indebted to the
plaintiff?
witness:
a. Yes, sir.
Atty. Diza:
q. And you mentioned the persons[,] namely, Elizabeth Tomelden,
Teresa Moraquin, Maria Luisa Inocencio, Zenaida Romulo, they are
your friends?
witness:
a. Inocencio and Moraquin are my friends while [as to] Jacob and
Tomelden[,] they were just referred.
Atty. Diza:
q. And you have transact[ed] with the plaintiff?
witness:
a. Yes, sir.
Atty. Diza:
q. What is that transaction?
witness:
a. To refer those persons to Aura and to refer again to Arsenio Pua,
sir.
Atty. Diza:
q. Did the plaintiff personally see the transactions with your friends?
witness:
a. No, sir.
Atty. Diza:
q. Your friends and the plaintiff did not meet personally?
witness:
a. Yes, sir.
Atty. Diza:
q. You are intermediaries?
witness:
a. We are both intermediaries. As evidenced by the checks of the
debtors they were deposited to the name of Arsenio Pua because the
money came from Arsenio Pua.
x x x x
Atty. Diza:
q. Did the plaintiff knew [sic] that you will lend the money to your
friends specifically the one you mentioned [a] while ago?
witness:
a. Yes, she knows the money will go to those persons.
Atty. Diza:
q. You are re-lending the money?
witness:
a. Yes, sir.
Atty. Diza:
q. What profit do you have, do you have commission?
witness:
a. Yes, sir.
Atty. Diza:
q. How much?
witness:
a. Two percent to Tomelden, one percent to Jacob and then Inocencio
and my friends none, sir.
Based on the foregoing, the CA concluded that petitioner is the real
borrower, while the respondent, the real lender.
But as correctly noted by the RTC, respondent, then plaintiff, made the
following admission during her cross examination:
23

Atty. Villacorta:
q. Who is this Arsenio Pua?
witness:
a. Principal financier, sir.
Atty. Villacorta:
q. So the money came from Arsenio Pua?
witness:
a. Yes, because I am only representing him, sir.
Other portions of the testimony of respondent must likewise be
considered:
24

Atty. Villacorta:
q. So it is not actually your money but the money of Arsenio Pua?
witness:
a. Yes, sir.
Court:
q. It is not your money?
witness:
a. Yes, Your Honor.
Atty. Villacorta:
q. Is it not a fact Ms. Witness that the defendant borrowed from you to
accommodate somebody, are you aware of that?
witness:
a. I am aware of that.
Atty. Villacorta:
q. More or less she [accommodated] several friends of the defendant?
witness:
a. Yes, sir, I am aware of that.
x x x x
Atty. Villacorta:
q. And these friends of the defendant borrowed money from you with
the assurance of the defendant?
witness:
a. They go direct to Jocelyn because I dont know them.
x x x x
Atty. Villacorta:
q. And is it not also a fact Madam witness that everytime that the
defendant borrowed money from you her friends who [are] in need of
money issued check[s] to you? There were checks issued to you?
witness:
a. Yes, there were checks issued.
Atty. Villacorta:
q. By the friends of the defendant, am I correct?
witness:
a. Yes, sir.
Atty. Villacorta:
q. And because of your assistance, the friends of the defendant who
are in need of money were able to obtain loan to [sic] Arsenio Pua
through your assistance?
witness:
a. Yes, sir.
Atty. Villacorta:
q. So that occasion lasted for more than a year?
witness:
a. Yes, sir.
Atty. Villacorta:
q. And some of the checks that were issued by the friends of the
defendant bounced, am I correct?
witness:
a. Yes, sir.
Atty. Villacorta:
q. And because of that Arsenio Pua got mad with you?
witness:
a. Yes, sir.
Respondent is estopped to deny that she herself acted as agent of a certain
Arsenio Pua, her disclosed principal. She is also estopped to deny that
petitioner acted as agent for the alleged debtors, the friends whom she
(petitioner) referred.
This Court has affirmed that, under Article 1868 of the Civil Code, the basis
of agency is representation.
25
The question of whether an agency has been
created is ordinarily a question which may be established in the same way
as any other fact, either by direct or circumstantial evidence. The question is
ultimately one of intention.
26
Agency may even be implied from the words
and conduct of the parties and the circumstances of the particular
case.
27
Though the fact or extent of authority of the agents may not, as a
general rule, be established from the declarations of the agents alone, if one
professes to act as agent for another, she may be estopped to deny her
agency both as against the asserted principal and the third persons
interested in the transaction in which he or she is engaged.
28

In this case, petitioner knew that the financier of respondent is Pua; and
respondent knew that the borrowers are friends of petitioner.
The CA is incorrect when it considered the fact that the "supposed friends of
[petitioner], the actual borrowers, did not present themselves to
[respondent]" as evidence that negates the agency relationshipit is
sufficient that petitioner disclosed to respondent that the former was acting
in behalf of her principals, her friends whom she referred to respondent. For
an agency to arise, it is not necessary that the principal personally encounter
the third person with whom the agent interacts. The law in fact
contemplates, and to a great degree, impersonal dealings where the
principal need not personally know or meet the third person with whom her
agent transacts: precisely, the purpose of agency is to extend the
personality of the principal through the facility of the agent.
29

In the case at bar, both petitioner and respondent have undeniably disclosed
to each other that they are representing someone else, and so both of them
are estopped to deny the same. It is evident from the record that petitioner
merely refers actual borrowers and then collects and disburses the amounts
of the loan upon which she received a commission; and that respondent
transacts on behalf of her "principal financier", a certain Arsenio Pua. If their
respective principals do not actually and personally know each other, such
ignorance does not affect their juridical standing as agents, especially since
the very purpose of agency is to extend the personality of the principal
through the facility of the agent.
With respect to the admission of petitioner that she is "re-lending" the
money loaned from respondent to other individuals for profit, it must be
stressed that the manner in which the parties designate the relationship is
not controlling. If an act done by one person in behalf of another is in its
essential nature one of agency, the former is the agent of the latter
notwithstanding he or she is not so called.
30
The question is to be
determined by the fact that one represents and is acting for another, and if
relations exist which will constitute an agency, it will be an agency whether
the parties understood the exact nature of the relation or not.
31

That both parties acted as mere agents is shown by the undisputed fact that
the friends of petitioner issued checks in payment of the loan in the name of
Pua. If it is true that petitioner was "re-lending", then the checks should
have been drawn in her name and not directly paid to Pua.
With respect to the second point, particularly, the finding of the CA that the
disbursements and payments for the loan were made through the bank
accounts of petitioner and respondent,
suffice it to say that in the normal course of commercial dealings and for
reasons of convenience and practical utility it can be reasonably expected
that the facilities of the agent, such as a bank account, may be employed,
and that a sub-agent be appointed, such as the bank itself, to carry out the
task, especially where there is no stipulation to the contrary.
32

In view of the two agency relationships, petitioner and respondent are not
privy to the contract of loan between their principals. Since the sale is
predicated on that loan, then the sale is void for lack of consideration.
2. A further scrutiny of the record shows, however, that the sale might have
been backed up by another consideration that is separate and distinct from
the debt: respondent averred in her complaint and testified that the parties
had agreed that as a condition for the conveyance of the property the
respondent shall assume the balance of the mortgage loan which petitioner
allegedly owed to the NHMFC.
33
This Court in the recent past has declared
that an assumption of a mortgage debt may constitute a valid consideration
for a sale.
34

Although the record shows that petitioner admitted at the time of trial that
she owned the property described in the TCT,
35
the Court must stress that
the Transfer Certificate of Title No. 382532
36
on its face shows that the
owner of the property which admittedly forms the subject matter of the
Deed of Absolute Sale refers neither to the petitioner nor to her father,
Teodorico Doles, the alleged co-owner. Rather, it states that the property is
registered in the name of "Household Development Corporation." Although
there is an entry to the effect that the petitioner had been granted a special
power of attorney "covering the shares of Teodorico Doles on the parcel of
land described in this certificate,"
37
it cannot be inferred from this bare
notation, nor from any other evidence on the record, that the petitioner or
her father held any direct interest on the property in question so as to
validly constitute a mortgage thereon
38
and, with more reason, to effect the
delivery of the object of the sale at the consummation stage.
39
What is
worse, there is a notation that the TCT itself has been "cancelled."
40

In view of these anomalies, the Court cannot entertain the
possibility that respondent agreed to assume the balance of the mortgage
loan which petitioner allegedly owed to the NHMFC, especially since the
record is bereft of any factual finding that petitioner was, in the first place,
endowed with any ownership rights to validly mortgage and convey the
property. As the complainant who initiated the case, respondent bears the
burden of proving the basis of her complaint. Having failed to discharge such
burden, the Court has no choice but to declare the sale void for lack of
cause. And since the sale is void, the Court finds it unnecessary to dwell on
the issue of whether duress or intimidation had been foisted upon petitioner
upon the execution of the sale.
Moreover, even assuming the mortgage validly exists, the Court notes
respondents allegation that the mortgage with the NHMFC was for 25 years
which began September 3, 1994. Respondent filed her Complaint for Specific
Performance in 1997. Since the 25 years had not lapsed, the prayer of
respondent to compel petitioner to execute necessary documents to effect
the transfer of title is premature.
WHEREFORE, the petition is granted. The Decision and Resolution of the
Court of Appeals are REVERSED andSET ASIDE. The complaint of
respondent in Civil Case No. 97-82716 is DISMISSED.
SO ORDERED.
MA. ALICIA AUSTRIA-MARTINEZ
Associate Justice
WE CONCUR:
UNICANE FOOD PRODUCTS MANUFACTURING, INC. petitioner,
vs. HON. COURT OF APPEALS, SPOUSES PABLO & FELISA
MANESE, SPOUSES NICANOR & LUTGARDA VELASQUEZ and
CICERON MANESE, respondents.
D E C I S I O N
PARDO, J.:
The case before us is a petition for review on certiorari of the decision of
the Court of Appeals reversing the appealed decision and dismissing
petitioners complaint.
[1]

The facts taken from the decision of the Court of Appeals are as follows:
On June 6, 1975, Felisa Feliciano Manese and Roberto Regala Keh Yung
entered into a contract of lease
[2]
with option to buy a parcel of land covered
by Transfer Certificate of Title No. 121058-R
[3]
in the name of Felisa
Feliciano Manese as her paraphernal property, consisting of thirty-eight
thousand twenty seven (38,027) square meters, more or less, located at Bo.
San Isidro, San Fernando, Pampanga. The lease was for a period of fifteen
(15) years, from June 6, 1975 to June 7, 1990, at a yearly rental of ten
thousand (P10,000.00) pesos.
Three days after the execution of the lease, the parties agreed to an
amendment
[4]
in the contract of lease. The parties mutually agreed that the
real and actual LESSEE of the premises is the UNICANE FOOD PRODUCTS
MANUFACTURING, INC., (hereinafter UNICANE for brevity) but all the other
terms of the original contract of lease remain the same. Both contracts of
lease were registered in the memorandum of encumbrance on TCT No.
121058-R, as entries 1340 and 2191, respectively.
Subsequently, UNICANE faithfully complied with the terms and conditions
of the lease agreement, paying in advance its yearly rentals. In the course
of the lease agreement, UNICANE and Felisa Manese verbally agreed to
extend the term of the lease up to December 7, 1997, and UNICANE paid
advance rental in the amount of twenty thousand pesos (20,000.00) on July
3, 1987, for the extended term. Felisa promised that she would execute an
extended lease contract.
However, on September 6, 1978, upon the persuasion of her two
daughters Lutgarda and Ciceron Manese, Felisa sold her three (3) parcels of
land for fifteen thousand pesos (P15,000.00), without the consent of her
husband Pablo, to her daughters who were in financial difficulties. The sale
was with the undertaking that the parcels of land would be returned to Felisa
after the two daughters had overcome their financial problems.
Due to the sale, a new certificate of title
[5]
was issued in the name of
Lutgarda and Ciceron Manese, and, on January 25, 1989, Lutgarda and
Ciceron mortgaged the property with the Planters Development Bank in
consideration of a loan. Not a single centavo of the mortgage proceeds ever
went to Felisa.
Petitioner after realizing that Felisa was not keen on issuing an amended
lease contract decided to have the receipts for its advance payments of the
rentals registered as an encumbrance on the property.
It was at this time that petitioner learned about the Deed of Absolute
Sale of the property covered by the lease to Lutgarda Manese-Velasquez,
married to Nicanor Velasquez and Ciceron Manese for the sum of fifteen
thousand (P15,000.00) pesos, and that Lutgarda and Ciceron Manese had
obtained a Transfer Certificate of Title in their names on August 1988, under
TCT No. 265688-R, over ten years after the deed of absolute sale was
executed.
UNICANE then demanded that the deed of absolute sale between Felisa
Manese and Lutgarda and Cicero Manese be disregarded as he was deprived
of his preferential option to buy as stated in paragraph 7 of the contract of
lease. However, Lutgarda and Ciceron Manese even warned petitioner
UNICANE that they would no longer extend the lease agreement beyond
1990, which is contrary to UNICANEs agreement with Felisa that the lease
would be extended up to December 7, 1997. Petitioner also wanted to
exercise its option to buy the premises at the same price it was sold to
Lutgarda and Ciceron Manese.
However, respondents Manese refused to sell. Hence, on July 10, 1989,
UNICANE filed with the Regional Trial Court, San Fernando, Pampanga,
Branch 46, a complaint
[6]
for annulment of the deed of absolute sale against
respondents.
[7]

On September 8, 1992 the trial court rendered a decision in favor of
petitioner, the dispositive portion of which states:
WHEREFORE, this Court hereby holds and so orders that:
1. The period of the contract of lease between defendant Felisa Feliciano
Manese and the plaintiff was effectively extended up to December 7,
1997;
2. The Deed of Absolute Sale (Exhibit G) between defendant Felisa
Feliciano Manese on the one hand, and defendants Lutgarda Manese
Velasquez (married to Nicanor Velasquez) and Ciceron Manese, executed
on September 6,1978 is hereby rescinded or nullified;
3. Defendant Felisa Feliciano Manese execute a deed of absolute sale
over the leased premises in favor of the plaintiff at a purchase price of
Fifteen Thousand Pesos (P15,000.00) and under the same terms and
conditions as the Deed of Absolute Sale she executed in favor of
defendants Lutgarda Manese Velasquez Manese and Ciceron Manese;
4. Defendants pay, jointly and severally, plaintiff the sum of
P50,000.00, for and as attorneys fees; and
5. Defendants pay, jointly and severally, plaintiff the costs of suit and
litigation.
SO ORDERED.
[8]

On September 15, 1992, respondents filed with the trial court their
notice of appeal.
[9]
After due proceedings, on February 29, 1996, the Court
of Appeals promulgated its decision, the relevant portions of which read:
We note that the supposed sale was between a parent, Felisa Feliciano
Manese and the children Lutgarda Manese Velasquez and Ciceron Manese. It
is common knowledge and practice that between relatives especially
between parent and children, ways are performed in order to transfer
property without incurring monetary burden on the part of both the
transferor and transferee. x x x
Thus , in 1978, when the deed of absolute sale was executed by Felisa, the
latter had no intention to transfer ownership thereof. More so, there was
likewise no intention to buy the property on the part of the supposed vendee
as they had not paid the price of the property. x x x The fact that the
actual negotiation with the bank was held ten years later is of no moment as
the intention of the supposed vendor and vendees in 1978 was not to
transfer ownership which is an incident of the sale. Hence the preferential
option of Unicane while the contract of lease was subsisting was not
violated. We hold therefore that since the intent to be bound is not present,
the supposed sale is an absolutely simulated one, which the law regards as
null and void. x x x
It is, thus clear from the foregoing that no valid extension of the lease up to
1997 was entered between appellee Unicane and appellant Felisa Feliciano
Manese; that the sale between Felisa Feliciano Manese and Lutgarda Manese
Velasquez and Ciceron Manese is a simulated one; and that Unicane has no
legal right to compel Felisa Feliciano Manese to execute a deed of absolute
sale over the subject property as its preferential option was lost with the
expiration of the lease contract.
Consequently, plaintiff-appellee is not entitled to attorneys fees.
WHEREFORE, premises considered, the complaint is DISMISSED and the
appealed decision is hereby REVERSED.
[10]

On March 26, 1996, petitioner Unicane filed a motion for reconsideration
of the decision;
[11]
however, on June 28, 1996, the Court of Appeals denied
the motion.
Hence, this petition.
[12]

Petitioner raised the following issues:
1. Whether the advance rentals covered by receipts were to be
construed as evidence of and extension of the contract of lease.
2. Whether the deed of absolute sale by Felisa Feliciano Manese in favor
of Lutgarda Manese Velasquez and Ciceron Manese was simulated and
not enforceable.
3. Whether petitioner has the right to invoke its option to buy the leased
premises since the lease had expired.
[13]

The petition has no merit.
As to the first issue, we rule that the advance rentals covered by receipts
can not be considered as evidence of an extension of the lease
agreement. It must be emphasized that Felisa Manese was an elderly
illiterate woman, who at the time of the payment of the advance rentals
was not aware of what was written in the receipts that she signed. Unicane
prepared the receipts and did not explain the contents to Felisa.
We fully agree with the appellate court when it held that:
Such want of explanation is inconsistent with Article 1332 of the Civil Code,
which provides:
When one of the parties is unable to read, or if the contract is in a language
not understood by him, and mistake or fraud is alleged, the person enforcing
the contract must show that the terms thereof have been fully explained to
the former.
Under the foregoing provisions, where a party to a contract is illiterate, or
can not read or understand the language in which the contract is written, the
burden is on the party interested in enforcing the contract to prove that the
terms thereof are fully explained to the former in a language understood by
her (Sales v. Court of Appeals, 120 SCRA 897; Bunyi v. Reyes, 39 SCRA
504). In all contractual, property or other relations, when one of the parties
is at a disadvantage on account of his physical, mental or other handicap,
the courts must be careful and vigilant for his protection (Civil Code of the
Philippines, Art. 24; Rural Bank of Caloocan, Inc. vs. Court of Appeals, 104
SCRA 151).
[14]

It is obvious that what the corporation wanted was to extend the lease
agreement without fully apprising Felisa Manese of the implications of the
receipt of the advance rentals. Unicane simply wanted to get the lease
extended at all cost.
As to the second issue, it is not uncommon among Filipino families to
extend a helping hand to a family member in financial need. Here is a
mothers sincere desire to help alleviate the financial woes of her
daughters. During the trial, respondents proved that the sale was simulated
because there was no consideration paid to Felisa Manese.
The sale was arranged without any pecuniary benefit for Felisa. It was
done so that the property may be used as collateral for a P500,000.00 loan
from Planters Development Bank. Not a single centavo was given to Felisa
Manese, how then can this be considered a sale when there was no
consideration received by the seller?
We agree with the appellate court that this was a simulated sale, where
the parties agreed that the title would revert back to Felisa Manese once her
daughters Lutgarda and Ciceron Manese were financially capable.
In Roman Catholic Archbishop of Manila v. Court of Appeals, we held that
from the language of Article 1670 of the Civil Code, an implied new lease
may be created only where (1) the continued enjoyment of the thing by the
lessee is with acquiescence of the lessor, and (2) no notice to the contrary
has been given by the lessor.
[15]
In the case at bar, both requisites are
wanting. As early as 1989, the sisters Lutgarda and Ciceron Manese told
Unicane that they were no longer extending the lease after 1990.
Also during the hearing of the Unicane complaint on July 10, 1989, at the
Regional Trial Court, San Fernando, Pampanga, respondent Felisa Manese
declared that she was not aware of the contents of the receipts that Unicane
asked her to sign. Clearly then, the lessee Uicane was put on notice that the
lessor Felisa Manese was not going to extend the lease agreement beyond
1990.
With the expiration of the lease contract in 1990, and its non-renewal,
petitioners option to acquire the premises no longer exists.
IN VIEW WHEREOF, the decision of the Court of Appeals is
AFFIRMED in toto.
No costs.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Puno, Kapunan, and Ynares-Santiago,
JJ., concur.