G.R. No. 143697. January 28, 2008.

DIONISIA DORADO VDA. DE DELFIN, represented in this act by

her heirs, petitioner, vs. SALVADOR D. DELLOTA, represented by
his heirs, and THE INTESTATE ESTATE OF THE LATE
GUMERSINDO DELEA, respondents.
Sales; Equitable Mortgage;Elements; Words and Phrases;Equitable
Mortgage, Defined.An equitable mortgage is one which, although lacking
in some formality, or form, or words, or other requisites demanded by a
statute, nevertheless reveals the intention of the parties to charge real
property as security for a debt, and contains nothing impossible or contrary
to law. The essential requisites of an equitable mortgage are: (1) the parties
enter into what appears to be a contract of sale, (2) but their intention is to
secure an existing debt by way of mortgage.
Same; Same; While jurisprudence recognizes that there is no conclusive
test to determine whether a deed purporting to be a sale on its face is really
a simple loan accommodation secured by a mortgage, case law consistently
shows that the presence of even one of the circumstances enumerated in
Article 1602 of the Civil Code suffices to convert a purported contract of sale
into an equitable mortgage.Jurisprudence recognizes that there is no
conclusive test to determine whether a deed purporting to be a sale on its
face is really a simple loan accommodation secured by a mortgage.
However, our case law consistently shows that the presence of even one of
the circumstances enumerated in Article 1602 suffices to convert a
purported contract of sale into an equitable mortgage. In this case, what
should be determined is whether the consideration of P5,300.00 paid by
Gumersindo to Dionisa for a five-hectare portion of Lot No. 1213 on June 9,
1949 is unusually inadequate.
Same; Same; Gross Inadequacy of Price; There is gross inadequacy in
price if a reasonable man will not agree to dispose of his property.
InAguilar v. Ribato and Gonzales Vila, 40 Phil. 570 (1919), this Court ruled

that there is gross inadequacy in price if a reasonable man will not agree to
dispose of his property.
Same; Same; In sales denominated as pacto de retro, the price agreed
upon should not generally be considered as the just value of the thing sold,
absent other corroborative evidencethere is no requirement in sales that
the price be equal to the exact value of the thing subject matter of the sale.
In De Ocampo and Custodio v. Lim, 38 Phil. 579 (1918), this Court held
that in sales denominated as pacto de retro, the price agreed upon
should not generally be considered as the just value of the thing
sold, absent other corroborative evidence. This is because, on the part
of the vendor, the right to repurchase the land makes it immaterial to him
whether or not the price of the sale is the just value thereof. As for the
vendee, the price does not induce him to enter into the contract as he does
not acquire the thing irrevocably, but subject to repurchase at the stated
period. Rather, the vendee pins his hope on the expectancy that he will
acquire the thing absolutely at a favorable price should the vendor fail to
redeem the thing sold. Subsequently, inBuenaventura v. Court of Appeals,
416 SCRA 263 (2003), this Court ruled that there is no requirement in
sales that the price be equal to the exact value of the thing subject matter
of the sale.
Same; Same; If the terms of the pacto de retro sale were unfavorable to
the vendor, the Supreme Court has no business extricating her from that
bad bargaincourts are not guardians of persons who are not legally
incompetent.Following De Ocampoand Buenaventura, this Court finds no
cogent reason to conclude that the 1949 price of P5,300.00 as agreed upon
by the parties was unreasonable or unusually inadequate. Moreover, under
the rules of evidence, it is presumed that a person takes ordinary care of
his concerns. In the present case, there is no evidence herein whatsoever to
show that Dionisia did not understand the ramifications of her signing the
Deed of Sale with Right of Redemption. Nor is there any showing that she
was threatened, forced or defrauded into affixing her signature on the said
contract. If the terms of the pacto de retro sale were unfavorable to
Dionisia, this Court has no business extricating her from that bad bargain.
1

Courts are not guardians of persons who are not legally incompetent, like
Dionisia.
Same; Same; Tax Receipts; Settled is the rule that tax receipts per se
are not conclusive evidence of land ownership absent other corroborative
evidence.Even assuming that the contract of sale with right to
repurchase executed by Dionisia and Gumersindo in 1949 is an equitable
mortgage, the fact remains that from 1949 up to the filing of the complaint
in 1964, or a period of 15 years, she failed to redeem the property. Her
heirs claim that since Dionisia had been paying the realty taxes follows
that she owns the property, not Gumersindo. Settled is the rule that tax
receipts per se are not conclusive evidence of land ownership absent other
corroborative evidence. Moreover, we agree with the Court of Appeals that
the timing of the payment of realty taxes raises some questions. We note
that the real estate taxes corresponding to the period from 1955 to 1963
were paid only on December 27, 1963 or barely six (6) months before
Dionisia filed Civil Case No. V-2760 on June 8, 1964. The inescapable
conclusion is that she paid the taxes in preparation for the filing of Civil
Case No. V-2760.

PETITION for review on certiorari of a decision of the Court of

Appeals.
The facts are stated in the opinion of the Court.
Joselito R. Delfin for himself and the petitioner.
Eduardo B. Sinense for respondents.
SANDOVAL-GUTIERREZ, J.:
For the Courts resolution is the instant petition for review
oncertiorari assailing the Decision of the Court of Appeals (Ninth
Division) dated April 11, 2000 inCA-G.R. CV No. 37210.
1

The facts as found by the appellate court are:

In her lifetime, the late Dionisia Dorado Delfin, herein petitioner,

represented by her heirs, was the registered owner of Lot No. 1213
situated in Panitan, Capiz with an area of 143,935 square meters
covered by Original Certificate of Title No. RP-1124 (14972).
On June 16, 1929, Dionisia executed an Escritura De Venta Con
Pacto de Retro over a 50,000-square meter portion of Lot No. 1213 in
favor of spouses Ildefonso Dellota and Patricia Delfin. However,
Dionisia failed to exercise her right of redemption.
On June 9, 1949, Dionisia sold another portion of Lot No. 1213
consisting of 50,000 square meters to Gumersindo Delea
(respondent herein represented by his estate), as evidenced by a
notarized Deed of Sale with Right of Redemption, thus, leaving an
unsold area of more than 43,000 square meters.
Dionisia never redeemed this 50,000-square meter portion from
Gumersindo. Records show that Salvador Dellota (also a respondent
represented by his heirs) leased this area from Gumersindo.
On October 12, 1956, Dionisia executed a Deed of Mortgage and
Promise To Sell in favor of Salvador over a 90,000square meter
portion of Lot No. 1213, without specifying whether it included the
50,000-square portion sold (with right of redemption) to Gumersindo.
On June 8, 1964, Dionisia filed with the then Court of First
Instance, Branch 2, Roxas City, a complaint for recovery of
possession and damages with an application for a writ of preliminary
mandatory injunction, docketed as Civil Case No. V-2760. Impleaded
as defendant was respondent Salvador D. Dellota, represented by his
wife Genoveva D. Dellota and their children.
For his part, Gumersindo filed a motion for intervention.
On April 30, 1991, after the hearing/proceedings lasting for almost
three decades, the trial court rendered its Decision, the dispositive
portion of which reads:
WHEREFORE, judgment is hereby rendered:

1.Ordering defendant Genoveva D. Dellota to allow the plaintiffs to

redeem the 40,000-square meter portion of subject Lot 1213,
Panitan Cadastre, after plaintiffs shall have paid the defendant
the amount of P2,000;
2.Declaring the ownership over the 50,000-square meter portion of
the subject lot as consolidated by operation of law to and in the
name of the Interventors and heirs of Gumersindo Delena; and
3.Ordering the plaintiffs to pay the costs of this suit.
SO ORDERED.

On appeal by Dionisia, the Court of Appeals rendered a Decision

affirming in toto the judgment of the trial court. Hence, the present
petition.
Dionisias heirs now contend that the Court of Appeals erred in
not holding that the Deed of Sale with Right of Redemption dated
June 9, 1949 entered into by Dionisia and Gumersindo is an
equitable mortgage under Article 1602 of the Civil Code. They insist
that the price of P5,300.00 for a five-hectare portion of Lot No. 1213
is grossly inadequate. This readily shows that the contract is an
equitable mortgage, not a sale with right of redemption. They invoke
this Courts ruling inSantos v. Court of Appeals.
An equitable mortgage is one which, although lacking in some
formality, or form, or words, or other requisites demanded by a
statute, nevertheless reveals the intention of the parties to charge
real property as security for a debt, and contains nothing impossible
or contrary to law. The essential requisites of an equitable mortgage
are: (1) the parties enter into what appears to be a contract of sale,
(2) but their intention is to secure an existing debt by way of
mortgage.
2

Article 1602 of the Civil Code provides:

ART. 1602. The contract shall be presumed to be an equitable mortgage,

in any of the following cases:
1. (1)When the price of a sale with right to repurchase is unusually
inadequate;
2. (2)When the vendor remains in possession as lessee or otherwise;
3. (3)When upon or after the expiration of the right to repurchase,
another instrument extending the period of redemption or granting
a new period is extended;
4. (4)When the purchaser retains for himself a part of the purchase
price;
5. (5)When the vendor binds himself to pay the taxes on the thing sold;
6. (6)In any other case where it may be fairly inferred that the real
intention of the parties is that the transaction shall secure the
payment of a debt or the performance of any other obligation.
In any of the foregoing cases, any money, fruits, or other benefit to be
received by the vendee as rent or otherwise shall be considered as interest
which shall be subject to the usury laws.

Jurisprudence recognizes that there is no conclusive test to

determine whether a deed purporting to be a sale on its face is really
a simple loan accommodation secured by a mortgage. However, our
case law consistently shows that the presence of even one of the
circumstances enumerated in Article 1602 suffices to convert a
purported contract of sale into an equitable mortgage. In this case,
what should be determined is whether the consideration of P5,300.00
paid by Gumersindo to Dionisa for a five-hectare portion of Lot No.
1213 on June 9, 1949 is unusually inadequate.
In Aguilar v. Ribato and Gonzales Vila, this Court ruled that
there is gross inadequacy in price if a reasonable man will not agree
to dispose of his property.
In De Ocampo and Custodio v. Lim, this Court held that in sales
denominated as pacto de retro, the price agreed upon should not
generally be considered as the just value of the thing sold,
absent other corroborative evidence. This is because, on the
5

part of the vendor, the right to repurchase the land makes it

immaterial to him whether or not the price of the sale is the just
value thereof. As for the vendee, the price does not induce him to
enter into the contract as he does not acquire the thing irrevocably,
but subject to repurchase at the stated period. Rather, the vendee
pins his hope on the expectancy that he will acquire the thing
absolutely at a favorable price should the vendor fail to redeem the
thing sold. Subsequently, inBuenaventura v. Court of Appeals, this
Court ruled that there is no requirement in sales that the price be
equal to the exact value of the thing subject matter of the sale.
Following De Ocampo andBuenaventura, this Court finds no
cogent reason to conclude that the 1949 price of P5,300.00 as agreed
upon by the parties was unreasonable or unusually inadequate.
Moreover, under the rules of evidence, it is presumed that a person
takes ordinary care of his concerns. In the present case, there is no
evidence herein whatsoever to show that Dionisia did not understand
the ramifications of her signing the Deed of Sale with Right of
Redemption. Nor is there any showing that she was threatened,
forced or defrauded into affixing her signature on the said contract.
9

10

If the terms of the pacto de retrosale were unfavorable to Dionisia,

this Court has no business extricating her from that bad bargain.
Courts are not guardians of persons who are not legally
incompetent, like Dionisia.
Also, Dionisia failed to prove before the trial court that the price
agreed upon by the parties in 1949 was grossly inadequate.
Even assuming that the contract of sale with right to repurchase
executed by Dionisia and Gumersindo in 1949 is an equitable
mortgage, the fact remains that from 1949 up to the filing of the
complaint in 1964, or a period of 15 years, she failed to redeem the
property. Her heirs claim that since Dionisia had been paying the
realty taxes follows that she owns the property, not Gumersindo.
Settled is the rule that tax receipts per se are not conclusive evidence
of land ownership absent other corroborative evidence. Moreover,
we agree with the Court of Appeals that the timing of the payment of

realty taxes raises some questions. We note that the real estate taxes
corresponding to the period from 1955 to 1963 were paid only on
December 27, 1963 or barely six (6) months before Dionisia filed Civil
Case No. V-2760 on June 8, 1964. The inescapable conclusion is that
she paid the taxes in preparation for the filing of Civil Case No. V2760.
WHEREFORE, we DENY the petition. The Decision of the Court
of Appeals (Ninth Division) dated April 11, 2000 in CAG.R. CV No.
37210 is AFFIRMED. Costs against the heirs of Dionisia.
Puno (C.J.,
Chairperson),Corona, Azcuna and LeonardoDe
Castro, JJ., concur.
Petition denied, judgment affirmed.
Notes.In case of doubt, a contract purporting to be a sale with
right to repurchase shall be construed as an equitable mortgage.
(Olea vs. Court of Appeals, 247 SCRA 274 [1995])
The explicit provision of Article 1602 of the Civil Code that any
of the circumstances enumerated therein would suffice to construe a
contract of sale to be one of equitable mortgage is in consonance with
the rule that the law favors the least transmission of property rights.
(Oronce vs. Court of Appeals, 298 SCRA 133[1998])

11

There is no conclusive test to determine whether a deed

purporting to be an absolute sale on its face is in reality a loan
secured by a mortgage. The presence of any of the circumstances
enumerated in Art. 1602, in relation to Article 1604, of the Civil Code
is sufficient for a contract to be deemed an equitable mortgage.
(Arrofo vs. Quio, 449 SCRA 284 [2005])
o0o

12

G.R. No. 119255. April 9, 2003.

TOMAS K. CHUA, petitioner, vs.COURT OF APPEALS and

ENCARNACION VALDES-CHOY, respondents.
Civil Procedure; Pleadings and Practice; Appeals; An issue not raised
in the court below cannot be raised for the first time on appeal.An issue
not raised in the court below cannot be raised for the first time on appeal,
as this is offensive to the basic rules of fair play, justice and due process. In
addition, when a party deliberately adopts a certain theory, and the case is
tried and decided on that theory in the court below, the party will not be
permitted to change his theory on appeal. To permit him to change his
theory will be unfair to the adverse party.
Civil Law; Contracts; Sales;Contract of Sale vs. Contract to Sell;The
distinction between a contract of sale and contract to sell is well-settled.In
a contract of sale, the title to the property passes to the vendee upon the
delivery of the thing sold; in a contract to sell, ownership is, by agreement,
reserved in the vendor and is not to pass to the vendee until full payment
of the purchase price. Otherwise stated, in a contract of sale, the vendor
loses ownership over the property and cannot recover it until and unless
the contract is resolved or rescinded; whereas, in a contract to sell, title is
retained by the vendor until full payment of the price. In the latter
contract, payment of the price is a positive suspensive condition, failure of
which is not a breach but an event that prevents the obligation of the
vendor to convey title from becoming effective.
Same; Same; Same; Earnest Money; The earnest money forms part of
the consideration only if the sale is consummated upon full payment of the
purchase price.It is true that Article 1482 of the Civil Code provides that
[W]henever earnest money is given in a contract of sale, it shall be
considered as part of the price and proof of the perfection of the contract.
However, this article speaks of earnest money given in a contract of sale. In
this case, the earnest money was given in a contract to sell. The Receipt
evidencing the contract to sell stipulates that the earnest money is a
forfeitable deposit, to be forfeited if the sale is not consummated should
Chua fail to pay the balance of the purchase price. The earnest money

forms part of the consideration only if the sale is consummated upon full
payment of the purchase price.
Same; Same; Same; It is only upon the existence of the contract of sale
that the seller becomes obligated to transfer the ownership of the thing sold
to the buyer.It is only upon the existence of the contract of sale that the
seller becomes obligated to transfer the ownership of the thing sold to the
buyer. 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 ofand to deliver a determinate thing, and
the other to pay therefor a price certain in money or its equivalent. x x x.
(Emphasis supplied) Prior to the existence of the contract of sale, the seller
is not obligated to transfer ownership to the buyer, even if there is a
contract to sell between them. It is also upon the existence of the contract
of sale that the buyer is obligated to pay the purchase price to the seller.
Since the transfer of ownership is in exchange for the purchase price, these
obligations must be simultaneously fulfilled at the time of the execution of
the contract of sale, in the absence of a contrary stipulation.
Same; Same; Same; Delivery; The delivery, therefore, made in any of
the forms provided in articles 1497 to 1505 signifies that the transmission of
ownership from vendor to vendee has taken place.Delivery is not only a
necessary condition for the enjoyment of the thing, but is a mode of
acquiring dominion and determines the transmission of ownership, the
birth of the real right. The delivery, therefore, made in any of the forms
provided in articles 1497 to 1505 signifies that the transmission of
ownership from vendor to vendee has taken place. The delivery of the thing
constitutes an indispensable requisite for the purpose of acquiring
ownership. Our law does not admit the doctrine of transfer of property by
mere consent; the ownership, the property right, is derived only from
delivery of the thing. x x x. (Emphasis supplied)
Same; Same; Same; Same; Payment of the capital gains tax, however,
is not a pre-requisite to the transfer of ownership to the lawyer.The buyer
has more interest in having the capital gains tax paid immediately since
this is a pre-requisite to the issuance of a new Torrens title in his name.
Nevertheless, as far as the government is concerned, the capital gains tax
remains a liability of the seller since it is a tax on the sellers gain from the
5

sale of the real estate.Payment of the capital gains tax, however, is not a
pre-requisite to the transfer of ownership to the buyer. The transfer of
ownership takes effect upon the signing and notarization of the deed of
absolute sale.

PETITION for review on certiorari of a decision of the Court of

Appeals.
The facts are stated in the opinion of the Court.
Benito Fabie for petitioner.
Reynaldo A. Ruiz for private respondent.

On 30 June 1989, Valdes-Choy received from Chua a check for

P100,000.00.
The
receipt
(Receipt)
evidencing
the
transaction, signed by Valdes-Choy as seller, and Chua as buyer,
reads:
30 June 1989
RECEIPT
RECEIVED from MR. TOMAS K. CHUA PBCom Check No. 206011
in the amount of ONE HUNDRED THOUSAND PESOS ONLY
(P100,000.00) as EARNEST MONEY for the sale of the property
located at 40 Tampingco cor. Hidalgo, San Lorenzo Village, Makati,
Metro Manila (Area : 718 sq. meters).

CARPIO, J.:
The Case

The balance of TEN MILLION SEVEN HUNDRED THOUSAND

(P10,700,000.00) is payable on or before 15 July 1989. Capital Gains
Tax for the account of the seller. Failure to pay balance on or before
15 July 1989 forfeits the earnest money. This provided that all papers
are in proper order.
CONFORME: ENCARNACION VALDES
Seller
TOMAS K. CHUA
Buyer
x x x.
5

This is a petition for review on certiorari seeking to reverse the

decision of the Court of Appeals in an action for specific
performance filed in the Regional Trial Court by petitioner Tomas K.
Chua (Chua) against respondent Encarnacion Valdes-Choy
(Valdes-Choy). Chua sought to compel Valdes-Choy to consummate
the sale of her paraphernal house and lot in Makati City. The Court
of Appeals reversed the decision rendered by the trial court in favor
of Chua.
1

The Facts
Valdes-Choy advertised for sale her paraphernal house and lot
(Property) with an area of 718 square meters located at No. 40
Tampingco Street comer Hidalgo Street, San Lorenzo Village,
Makati City. The Property is covered by Transfer Certificate of Title
No. 162955 (TCT) issued by the Register of Deeds of Makati City in
the name of Valdes-Choy. Chua responded to the advertisement.
After several meetings, Chua and Valdes-Choy agreed on a purchase
price of P10,800,000.00 payable in cash.

In the morning of 13 July 1989, Chua secured from Philippme Bank

of Commerce (PBCom) a managers check for P480,000.00.
Strangely, after securing the managers check, Chua immediately
gave PBCom a verbal stop payment order claiming that this
managers check for P480,000.00 was lost and/or misplaced. On the
same day, after receipt of Chuas verbal order, PBCom Assistant
Vice-President Julie C. Pe notified in writing the PBCom Operations
Group of Chuas stop payment order.
In the afternoon of 13 July 1989, Chua and Valdes-Choy met with
their respective counsels to execute the necessary documents and
arrange the payments. Valdes-Choy as vendor and Chua as
8

10

vendee signed two Deeds of Absolute Sale (Deeds of Sale). The first
Deed of Sale covered the house and lot for the purchase price of
P8,000,000.00. The second Deed of Sale covered the furnishings,
fixtures and movable properties contained in the house for the
purchase price of P2,800,000.00. The parties also computed the
capital gains tax to amount to P485,000.00.
On 14 July 1989, the parties met again at the office of ValdesChoys counsel. Chua handed to Valdes-Choy the PBCom managers
check for P485,000.00 so Valdes-Choy could pay the capital gains tax
as she did not have sufficient funds to pay the tax. Valdes-Choy
issued a receipt showing that Chua had a remaining balance of
P10,215,000.00 after deducting the advances made by Chua. This
receipt reads:

stamps paid in advance

by seller

P10,295,000.00

11

12

July 14, 1989

Received from MR. TOMAS K. CHUA PBCom. Check No. 325851 in the
amount of FOUR HUNDRED EIGHTY FIVE THOUSAND PESOS ONLY
(P485,000.00) as Partial Payment for the sale of the property located at 40
Tampingco Cor. Hidalgo St., San Lorenzo Village, Makati, Metro Manila
(Area 718 sq. meters), covered by TCT No. 162955 of the Registry of Deeds
of Makati, Metro Manila.
The total purchase price of the above-mentioned property is TEN
MILLION EIGHT HUNDRED THOUSAND PESOS only, broken down as
follows:

SELLING PRICE
P10,800,000.00
EARNEST P100,000.00
MONEY
PARTIAL
485,000.00
PAYMENT
585,000.00
BALANCE DUE TO
ENCARNACION
P10,215,000.00
VALDEZ-CHOY
PLUS P80,000.00 for
documentary

80,000.00

x x x.

13

On the same day, 14 July 1989, Valdes-Choy, accompanied by Chua,

deposited the P485,000.00 managers check to her account with
Traders Royal Bank, She then purchased a Traders Royal Bank
managers check for P480,000.00 payable to the Commissioner of
Internal Revenue for the capital gains tax. Valdes-Choy and Chua
returned to the office of Valdes-Choys counsel and handed the
Traders Royal Bank check to the counsel who undertook to pay the
capital gains tax. It was then also that Chuashowed to Valdes-Choy
a PBCom managers check for P10,215,000.00 representing the
balance of the purchase price. Chua, however, did not give this
PBCom managers check to Valdes-Choy because the TCT was still
registered in the name of Valdes-Choy. Chua required that the
Property be registered first in his name before he would turn over
the check to Valdes-Choy. This angered Valdes-Choy who tore up the
Deeds of Sale, claiming that what Chua required was not part of
their agreement.
On the same day, 14 July 1989, Chua confirmed his stop payment
order by submitting to PBCom an affidavit of loss of the PBCom
Managers Check for P480,000.00. PBCom Assistant Vice-President
Pe, however, testified that the managers check was nevertheless
honored because Chua subsequently verbally advised the bank that
he was lifting the stop-payment order due to his special
arrangement with the bank.
On 15 July 1989, the deadline for the payment of the balance of
the purchase price, Valdes-Choy suggested to her counsel that to
break the impasse Chua should deposit in escrow the P10,215,000.00
balance. Upon such deposit, Valdes-Choy was willing to cause the
issuance of a new TCT in the name of Chua even without receiving
the balance of the purchase price. Valdes-Choy believed this was the
only way she could protect herself if the certificate of title is
transferred in the name of the buyer before she is fully paid. Valdes14

15

16

17

Choys counsel promised to relay her suggestion to Chua and his

counsel, but nothing came out of it.
On 17 July 1989, Chua filed a complaint for specific performance
against Valdes-Choy which the trial court dismissed on 22 November
1989. On 29 November 1989, Chua re-filed his complaint for specific
performance with damages. After trial in due course, the trial court
rendered judgment in favor of Chua, the dispositive portion of which
reads:
Applying the provisions of Article 1191 of the new Civil Code, since this is
an action for specific performance where the plaintiff, as vendee, wants to
pursue the sale, and in order that the fears of the defendant may be allayed
and still have the sale materialize, judgment is hereby rendered:
1. Ordering the defendant to deliver to the Court not later than five (5)
days from finality of this decision:
a.the owners duplicate copy of TCT No. 162955 registered in her
name;
b.the covering tax declaration and the latest tax receipt evidencing
payment of real estate taxes;
c.the two deeds of sale prepared by Atty. Mark Bocobo on July 13,
1989, duly executed by defendant in favor of the plaintiff, whether
notarized or not; and
2.Within five (5) days from compliance by the defendant of the above,
ordering the plaintiff to deliver to the Branch Clerk of Court of this
Court the sum of P10,295,000.00 representing the balance of the
consideration (with the sum of P80,000.00 for stamps already
included);
3.Ordering the Branch Clerk of this Court or her duly authorized
representative:

a. to make representations with the BIR for the payment of capital

gains tax for the sale of the house and lot (not to include the
fixtures) and to pay the same from the funds deposited with her;
b. to present the deed of sale executed in favor of the plaintiff,
together with the owners duplicate copy of TCT No. 162955, real
estate tax receipt and proof of payment of capital gains tax, to the
Makati Register of Deeds;
c. to pay the required registration fees and stamps (if not yet
advanced by the defendant) and if needed update the real estate
taxes all to be taken from the funds deposited with her; and
d. surrender to the plaintiff the new Torrens title over the property;
4. Should the defendant fail or refuse to surrender the two deeds of sale
over the property and the fixtures that were prepared by Atty. Mark
Bocobo and executed by the parties, the Branch Clerk of Court of this Court
is hereby authorized and empowered to prepare, sign and execute the said
deeds of sale for and in behalf of the defendant;
5. Ordering the defendant to pay to the plaintiff;
a. the sum of P100,000.00 representing moral and compensatory
damages for the plaintiff; and
b. the sum of P50,000.00 as reimbursement for plaintiffs attorneys
fees and cost of litigation.
6. Authorizing the Branch Clerk of Court of this Court to release to the
plaintiff, to be taken from the funds said plaintiff has deposited with the
Court, the amounts covered at paragraph 5 above;
7. Ordering the release of the P10,295,000.00 to the defendant after
deducting therefrom the following amounts:
8

a. the capital gains tax paid to the BIR;

b. the expenses incurred in the registration of the sale, updating of
real estate taxes, and transfer of title; and
c. the amounts paid under this judgment to the plaintiff.
8.Ordering the defendant to surrender to the plaintiff or his
representatives the premises with the furnishings intact within seventytwo (72) hours from receipt of the proceeds of the sale;
9.No interest is imposed on the payment to be made by the plaintiff
because he had always been ready to pay the balance and the premises had
been used or occupied by the defendant for the duration of this case.
II.In the event that specific performance cannot be done for reasons or
causes not attributable to the plaintiff, judgment is hereby rendered
ordering the defendant:

Valdes-Choy appealed to the Court of Appeals which reversed the

decision of the trial court. The Court of Appeals handed down a new
judgment, disposing as follows:
WHEREFORE, the decision appealed from is hereby REVERSED and
SET ASIDE, and another one is rendered:
(1)Dismissing Civil Case No. 89-5772;
(2)Declaring the amount of P100,000.00, representing earnest money as
forfeited in favor of defendant-appellant;
(3)Ordering defendant-appellant to return/refund the amount of
P485,000.00 to plaintiff-appellee without interest;
(4)Dismissing defendant-appellants compulsory counter-claim; and
(5)Ordering the plaintiff-appellee to pay the costs.

19

1.To refund to the plaintiff the earnest money in the sum of

P100,000.00, with interest at the legal rate from June 30, 1989
until fully paid;

Hence, the instant petition.

2.To refund to the plaintiff the sum of P485,000.00 with interest at

the legal rate from July 14, 1989 until fully paid;

The trial court found that the transaction reached an impasse

when Valdes-Choy wanted to be first paid the full consideration
before a new TCT covering the Property is issued in the name of
Chua. On the other hand, Chua did not want to pay the
consideration in full unless a new TCT is first issued in his name.
The trial court faulted Valdes-Choy for this impasse.

3.To pay to the plaintiff the sum of P700,000.00 in the concept of

moral damages and the additional sum of P300,000.00 in the
concept of exemplary damages; and
4.To pay to the plaintiff the sum of P100,000.00 as reimbursement
of attorneys fees and cost of litigation.
SO ORDERED.

18

The Trial Courts Ruling

The trial court held that the parties entered into a contract to
sell on 30 June 1989, as evidenced by the Receipt for the P100,000.00
earnest money. The trial court pointed out that the contract to sell
was subject to the following conditions: (1) the balance of
P10,700,000.00 was payable not later than 15 July 1989; (2) Valdes9

Choy may stay in the Property until 13 August 1989; and (3) all
papers must be in proper order before full payment is made.
The trial court held that Chua complied with the terms of.the
contract to sell. Chua showed that he was prepared to pay ValdesChoy the consideration in full on 13 July 1989, two days before the
deadline of 15 July 1989. Chua even added P80,000.00 for the
documentary stamp tax. He purchased from PBCom two managers
checks both payable to Valdes-Choy. The first check for P485,000.00
was to pay the capital gains tax. The second check for
P10,215,000.00 was to pay the balance of the purchase price. The
trial court was convinced that Chua demonstrated his capacity and
readiness to pay the balance on 13 July 1989 with the production of
the PBCom managers check for P10,215,000.00.
On the other hand, the trial court found that Valdes-Choy did not
perform her correlative obligation under the contract to sell to put all
the papers in order. The trial court noted that as of 14 July 1989, the
capital gains tax had not been paid because Valdes-Choys counsel
who was supposed to pay the tax did not do so. The trial court
declared that Valdes-Choy was in a position to deliver only the
owners duplicate copy of the TCT, the signed Deeds of Sale, the tax
declarations, and the latest realty tax receipt. The trial court
concluded that these documents were all useless without the Bureau
of Internal Revenue receipt evidencing full payment of the capital
gains tax which is a pre-requisite to the issuance of a new certificate
of title in Chuas name.
The trial court held that Chuas non-payment of the balance of
P10,215,000.00 on the agreed date was due to Valdes-Choys fault.

the phrases all papers are in proper order as written on the

Receipt, and transfer of title as demanded by Chua.
Contrary to the findings of the trial court, the Court of Appeals
found that all the papers were in order and that Chua had no valid
reason not to pay on the agreed date. Valdes-Choy was in a position
to deliver the owners duplicate copy of the TCT, the signed Deeds of
Sale, the tax declarations, and the latest realty tax receipt. The
Property was also free from all liens and encumbrances.
The Court of Appeals declared that the trial court erred in
considering Chuas showing to Valdes-Choy of the PBCom managers
check for P10,215,000.00 as compliance with Chuas obligation to pay
on or before 15 July 1989. The Court of Appeals pointed out that
Chua did not want to give up the check unless the property was
already in his name. Although Chua demonstrated his capacity to
pay, this could not be equated with actual payment which he refused
to do.
The Court of Appeals did not consider the non-payment of the
capital gains tax as failure by Valdes-Choy to put the papers in
proper order. The Court of Appeals explained that the payment of
the capital gains tax has no bearing on the validity of the Deeds of
Sale. It is only after the deeds are signed and notarized can the final
computation and payment of the capital gains tax be made.
20

The Issues
In his Memorandum, Chua raises the following issues:
1.WHETHER THERE IS A PERFECTED CONTRACT OF SALE OF
IMMOVABLE PROPERTY;

The Court of Appeals Ruling

In reversing the trial court, the Court of Appeals ruled that
Chuas stance to pay the full consideration only after the Property is
registered in his name was not the agreement of the parties. The
Court of Appeals noted that there is a whale of difference between

2.WHETHER VALDES-CHOY MAY RESCIND THE CONTRACT IN

CONTROVERSY WITHOUT OBSERVING THE PROVISIONS OF
ARTICLE 1592 OF THE NEW CIVIL CODE;
3.WHETHER THE WITHHOLDING OF PAYMENT OF THE
BALANCE OF THE PURCHASE PRICE ON THE PART OF CHUA
(AS VENDEE) WAS JUSTIFIED BY THE CIRCUMSTANCES
10

OBTAINING AND MAY NOT BE RAISED AS GROUND FOR THE

AUTOMATIC RESCISSION OF THE CONTRACT OF SALE;

______________
21

4.WHETHER THERE IS LEGAL AND FACTUAL BASIS FOR THE

COURT OF APPEALS TO DECLARE THE EARNEST MONEY IN
THE AMOUNT OF P100,000.00 AS FORFEITED IN FAVOR OF
VALDES-CHOY;
5.WHETHER THE TRIAL COURTS JUDGMENT IS IN ACCORD
WITH LAW, REASON AND EQUITY DESERVING OF BEING
REINSTATED AND AFFIRMED.
21

The issues for our resolution are: (a) whether the transaction
between Chua and Valdes-Choy is a perfected contract of sale or a
mere contract to sell, and (b) whether Chua can compel Valdes-Choy
to cause the issuance of a new TCT in Chuas name even before
payment of the full purchase price.
The Courts Ruling
The petition is bereft of merit.
There is no dispute that Valdes-Choy is .the absolute owner of the
Property which is registered in her name under TCT No. 162955,
free from all liens and encumbrances. She was ready, able and
willing to deliver to Chua the owners duplicate copy of the TCT, the
signed Deeds of Sale, the tax declarations, and the latest realty tax
receipt. There is also no dispute that on 13 July 1989, Valdes-Choy
received PBCom Check No. 206011 for P100,000.00 as earnest
money from Chua. Likewise, there is no controversy that the Receipt
for the P100,000.00 earnest money embodied the terms of the
binding contract between Valdes-Choy and Chua.
Further, there is no controversy that as embodied in the Receipt,
Valdes-Choy and Chua agreed on the following terms: (1) the balance
of P10,215,000.00 is payable on or before 15 July 1989; (2) the

Ibid., p. 203.

65

VOL. 401, APRIL 9, 2003

Chua vs. Court of Appeals

65

capital gains tax is for the account of Valdes-Choy; and (3) if Chua
fails to pay the balance of P10,215,000.00 on or before 15 July 1989,
Valdes-Choy has the right to forfeit the earnest money, provided that
all papers are in proper order. On 13 July 1989, Chua gave ValdesChoy the PBCom managers check for P485,000.00 to pay the capital
gains tax.
Both the trial and appellate courts found that the balance of
P10,215,000.00 was not actually paid to Valdes-Choy on the agreed
date. On 13 July 1989, Chua didshow to Valdes-Choy the PBCom
managers check for P10,215,000.00, with Valdes-Choy as payee.
However, Chua refusedto give this check to Valdes-Choy until a new
TCT covering the Property is registered in Chuas name. Or, as the
trial court put it, until there is proof of payment of the capital gains
tax which is a pre-requisite to the issuance of a new certificate of
title.
First and Second Issues: Contract of Sale or Contract to Sell?
Chua has consistently characterized his agreement with ValdezChoy, as evidenced by the Receipt, as a contract to sell and not a
contract of sale. This has been Chuas persistent contention in his
pleadings before the trial and appellate courts.
Chua now pleads for the first time that there is a perfected
contract of sale rather than a contract to sell. He contends that there
was no reservation in the contract of sale that Valdes-Choy shall
retain title to the Property until after the sale. There was no
agreement for an automatic rescission of the contract in case of
Chuas default. He argues for the first time that his payment of
earnest money and its acceptance by Valdes-Choy precludes the
11

latter from rejecting the binding effect of the contract of sale. Thus,
Chua claims that Valdes-Choy may not validly rescind the contract
of sale without following Article 1592 of the Civil Code which
requires demand, either judicially or by notarial act, before
rescission may take place.
22

Chuas new theory is not well taken in light of well-settled

jurisprudence. An issue not raised in the court below cannot be
raised for the first time on appeal, as this is offensive to the basic
rules of fair play, justice and due process. In addition, when a party
deliberately adopts a certain theory, and the case is tried and
decided on that theory in the court below, the party will not be
permitted to change his theory on appeal. To permit him to change
his theory will be unfair to the adverse party.
Nevertheless, in order to put to rest all doubts on the matter, we
hold that the agreement between Chua and Valdes-Choy, as
evidenced by the Receipt, is a contract to sell and not a contract of
sale. The distinction between a contract of sale and contract to sell is
well-settled:
23

24

In a contract of sale, the title to the property passes to the vendee upon
the delivery of the thing sold; in a contract to sell, ownership is, by
agreement, reserved in the vendor and is not to pass to the vendee until
full payment of the purchase price. Otherwise stated, in a contract of sale,
the vendor loses ownership over the property and cannot recover it until
and unless the contract is resolved or rescinded; whereas, in a contract to
sell, title is retained by the vendor until full payment of the price. In the
latter contract, payment of the price is a positive suspensive condition,
failure of which is not a breach but an event that prevents the obligation of
the vendor to convey title from becoming effective.
25

A perusal of the Receipt shows that the true agreement between

the parties was a contract to sell. Ownership over the Property was
retained by Valdes-Choy and was not to pass to Chua until full
payment of the purchase price.
First, the Receipt provides that the earnest money shall be
forfeited in case the buyer fails to pay the balance of the purchase

price on or before 15 July 1989. In such event, Valdes-Choy can sell

the Property to other interested parties. There is in effect a right
reserved in favor of Valdes-Choy not to push through with the sale
upon Chuas failure to remit the balance of the purchase price before
the deadline. This is in the nature of a stipulation reserving
ownership in the seller until full payment of the purchase price. This
is also similar to giving the seller the right to rescind unilaterally the
contract the moment the buyer fails to pay within a fixed period.
Second, the agreement between Chua and Valdes-Choy was
embodied in a receipt rather than in a deed of sale, ownership not
having passed between them. The signing of the Deeds of Sale came
later when Valdes-Choy was under the impression that Chua was
about to pay the balance of the purchase price. The absence of a
formal deed of conveyance is a strong indication that the parties did
not intend immediate transfer of ownership, but only a transfer after
full payment of the purchase price.
Third, Valdes-Choy retained possession of the certificate of title
and all other documents relative to the sale. When Chua refused to
pay Valdes-Choy the balance of the purchase price, Valdes-Choy also
refused to turn-over to Chua these documents. These are additional
proof that the agreement did not transfer to Chua, either by actual
or constructive delivery, ownership of the Property.
It is true that Article 1482 of the Civil Code provides that
[W]henever earnest money is given in a contract of sale, it shall be
considered as part of the price and proof of the perfection of the
contract. However, this article speaks of earnest money given in
acontract of sale. In this case, the earnest money was given in a
contract to sell. The Receipt evidencing the contract to sell stipulates
that the earnest money is a forfeitable deposit, to be forfeited if the
sale is not consummated should Chua fail to pay the balance of the
purchase price. The earnest money forms part of the consideration
only if the sale is consummated upon full payment of the purchase
price. If there is a contract of sale, Valdes-Choy should have the right
to compel Chua to pay the balance of the purchase price. Chua,
however, has the right to walk away from the transaction, with no
26

27

28

29

12

obligation to pay the balance, although he will forfeit the earnest

money. Clearly, there is no contract of sale. The earnest money was
given in a contract to sell, and thus Article 1482, which speaks of a
contract of sale, is not applicable.
Since the agreement between Valdes-Choy and Chua is a mere
contract to sell, the full payment of the purchase price partakes of a
suspensive condition. The non-fulfillment of the condition prevents
the obligation to sell from arising and ownership is retained by the
seller without further remedies by the buyer. Article 1592 of the
Civil Code permits the buyer to 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 notarial act. However, Article
1592 does not apply to a contract to sell where the seller reserves the
ownership until full payment of the price.
30

31

Third and Fourth Issues: Withholding of Payment of the

Balance of the Purchase Price and Forfeiture of the Earnest
Money
Chua insists that he was ready to pay the balance of the purchase
price but withheld payment because Valdes-Choy did not fulfill her
contractual obligation to put all the papers in proper order.
Specifically, Chua claims that Valdes-Choy failed to show that the
capital gains tax had been paid after he had advanced the money for
its payment. For the same reason, he contends that Valdes-Choy
may not forfeit the earnest money even if he did not pay on time.
There is a variance of interpretation on the phrase all papers are
in proper order as written in the Receipt. There is no dispute
though, that as long as the papers are in proper order, Valdes-Choy
has the right to forfeit the earnest money if Chua fails to pay the
balance before the deadline.
The trial court interpreted the phrase to include payment of the
capital gains tax, with the Bureau of Internal Revenue receipt as
proof of payment. The Court of Appeals held otherwise. We quote
verbatim the ruling of the Court of Appeals on this matter:

The trial court made much fuss in connection with the payment of the
capital gains tax, of which Section 33 of the National Internal Revenue
Code of 1977, is the governing provision insofar as its computation is
concerned. The trial court failed to consider Section 34-(a) of the said Code,
the last sentence of which provides, that [t]he amount realized from the
sale or other disposition of propertyshall be the sum of money receivedplus
the fair market value of the property (other than money) received; and
that the computation of the capital gains tax can only be finally assessed by
the Commission on Internal Revenue upon the presentation of the Deeds of
Absolute Sale themselves, without which any premature computation of
the capital gains tax becomes of no moment. At any rate, the computation
and payment of the capital gains tax has no bearing insofar as the validity
and effectiveness of the deeds of sale in question are concerned, because it
is only after the contracts of sale are finally executed in due form and have
been duly notarized that the final computation of the capital gains tax can
follow as a matter of course. Indeed, exhibit D, the PBC Check No.
325851, dated July 13, 1989, in the amount of P485,000.00, which is
considered as part of the consideration of the sale, was deposited in the
name of appellant, from which she in turn, purchased the corresponding
check in the amount representing the sum to be paid for capital gains tax
and drawn in the name of the Commissioner of Internal Revenue, which
then allayed any fear or doubt that that amount would not be paid to the
Government after all.
32

We see no reason to disturb the ruling of the Court of Appeals.

In a contract to sell, the obligation of the seller to sell becomes
demandable only upon the happening of the suspensive condition. In
this case, the suspensive condition is the full payment of the
purchase price by Chua. Such full payment gives rise to Chuas right
to demand the execution of the contract of sale.
It is only upon the existence of the contract of sale that the seller
becomes obligated to transfer the ownership of the thing sold to the
buyer. Article 1458 of the Civil Code defines a contract of sale as
follows:

13

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.
x x x. (Emphasis supplied)

Prior to the existence of the contract of sale, the seller is not

obligated to transfer ownership to the buyer, even if there is a
contract to sell between them. It is also upon the existence of the
contract of sale that the buyer is obligated to pay the purchase price
to the seller. Since the transfer of ownership is in exchange for the
purchase price, these obligations must be simultaneously fulfilled at
the time of the execution of the contract of sale, in the absence of a
contrary stipulation.
In a contract of sale, the obligations of the seller are specified in
Article 1495 of the Civil Code, as follows:
Art. 1495. The vendor is bound totransfer the ownership of and deliver, as
well as warrant the thing which is the object of the sale. (Emphasis
supplied)

The obligation of the seller is to transfer to the buyer ownership of

the thing sold. In the sale of real property, the seller is not obligated
to transfer in the name of the buyer a new certificate of title, but
rather to transfer ownership of the real property. There is a
difference between transfer of the certificate of title in the name of
the buyer, and transfer of ownership to the buyer. The buyer may
become the owner of the real property even if the certificate of title is
still registered in the name of the seller. As between the seller and
buyer, ownership is transferred not by the issuance of a new
certificate of title in the name of the buyer but by the execution of
the instrument of sale in a public document.
In a contract of sale, ownership is transferred upon delivery of the
thing sold. As the noted civil law commentator Arturo M. Tolentino
explains it,
Delivery is not only a necessary condition for the enjoyment of the thing,
but is a mode of acquiring dominion and determines the transmission of

ownership, the birth of the real right. The delivery, therefore, made in any
of the forms provided in articles 1497 to 1505 signifies that the transmission
of ownership from vendor to vendee has taken place. The delivery of the
thing constitutes an indispensable requisite for the purpose of acquiring
ownership. Our law does not admit the doctrine of transfer of property by
mere consent; the ownership, the property right, is derived only from
delivery of the thing. x x x. (Emphasis supplied)
33

In a contract of sale of real property, delivery is effected when

the instrument of sale is executed in a public document. When the
deed of absolute sale is signed by the parties and notarized, then
delivery of the real property is deemed made by the seller to the
buyer. Article 1498 of the Civil Code provides that
Art. 1498. When the sale is made through a public instrument, the
execution thereof shall be equivalent to the delivery of the thing which is
the object of the contract, if from the deed the contrary does not appear or
cannot clearly be inferred.
x x x.

Similarly, in a contract to sell real property, once the seller is

ready, able and willing to sign the deed of absolute sale before a
notary public, the seller is in a position to transfer ownership of the
real property to the buyer. At this point, the seller complies with his
undertaking to sell the real property in accordance with the contract
to sell, and to assume all the obligations of a vendor under a contract
of sale pursuant to the relevant articles of the Civil Code. In a
contract to sell, the seller is not obligated to transfer ownership to
the buyer. Neither is the seller obligated to cause the issuance of a
new certificate of title in the name of the buyer. However, the seller
must put all his papers in proper order to the point that he is in a
position to transfer ownership of the real property to the buyer upon
the signing of the contract of sale.
In the instant case, Valdes-Choy was in a position to comply with
all her obligations as a seller under the contract to sell. First, she
already signed the Deeds of Sale in the office of her counsel in the
14

presence of the buyer. Second, she was prepared to turn-over the

owners duplicate of the TCT to the buyer, along with the tax
declarations and latest realty tax receipt. Clearly, at this point
Valdes-Choy was ready, able and willing to transfer ownership of the
Property to the buyer as required by the contract to sell, and by
Articles 1458 and 1495 of the Civil Code to consummate the contract
of sale.
Chua, however, refused to give to Valdes-Choy the PBCom
managers check for the balance of the purchase price. Chua imposed
the condition that a new TCT should first be issued in his name, a
condition that is found neither in the law nor in the contract to sell
as evidenced by the Receipt. Thus, at this point Chua was not ready,
able and willing to pay the full purchase price which is his obligation
under the contract to sell. Chua was also not in a position to assume
the principal obligation of a vendee in a contract of sale, which is also
to pay the full purchase price at the agreed time. Article 1582 of the
Civil Code provides that
Art. 1582. The vendee is bound to accept delivery and to pay the price of the
thing sold at the time and place stipulated in the contract.
x x x. (Emphasis supplied)

In this case, the contract to sell stipulated that Chua should pay
the balance of the purchase price on or before 15 July 1989. The
signed Deeds of Sale also stipulated that the buyer shall pay the
balance of the purchase price upon signing of the deeds. Thus, the
Deeds of Sale, both signed by Chua, state as follows:
Deed of Absolute Sale covering the lot:
xxx
For and in consideration of the sum of EIGHT MILLION PESOS
(P8,000,000.00), Philippine Currency,receipt of which in full is hereby
acknowledged by the VENDOR from the VENDEE, the VENDOR sells,
transfers and conveys unto the VENDEE, his heirs, successors and assigns,
the said parcel of land, together with the improvements existing thereon,
free from all liens and encumbrances. (Emphasis supplied)

Deed of Absolute Sale covering the furnishings:

xxx
For and in consideration of the sum of TWO MILLION EIGHT
HUNDRED
THOUSAND
PESOS
(P2,800,000.00),
Philippine
Currency, receipt of which in full is hereby acknowledged by the VENDOR
from the VENDEE, the VENDOR sells, transfers and conveys unto the
VENDEE, his heirs, successors and assigns, the said furnitures, fixtures
and other movable properties thereon, free from all liens and
encumbrances. (Emphasis supplied)
35

However, on the agreed date, Chua refused to pay the balance of the
purchase price as required by the contract to sell, the signed Deeds of
Sale, and Article 1582 of the Civil Code. Chua was therefore in
default and has only himself to blame for the rescission by ValdesChoy of the contract to sell.
Even if measured under existing usage or custom, ValdesChoy had all her papers in proper order. Article 1376 of the Civil
Code provides that:
Art. 1376. The usage or custom of the place shall be borne in mind in the
interpretation of the ambiguities of a contract, and shall fill the omission of
stipulations which are ordinarily established.

Customarily, in the absence of a contrary agreement, the submission

by an individual seller to the buyer of the following papers would
complete a sale of real estate: (1) owners duplicate copy of the
Torrens title; (2) signed deed of absolute sale; (3) tax declaration;
and (3) latest realty tax receipt. The buyer can retain the amount for
the capital gains tax and pay it upon authority of the seller, or the
seller can pay the tax, depending on the agreement of the parties.
36

The buyer has more interest in having the capital gains tax paid
immediately since this is a pre-requisite to the issuance of a new
Torrens title in his name. Nevertheless, as far as the government is
concerned, the capital gains tax remains a liability of the seller since
it is a tax on the sellers gain from the sale of the real

34

15

estate. Payment of the capital gains tax, however, is not a prerequisite to the transfer of ownership to the buyer. The transfer of
ownership takes effect upon the signing and notarization of the deed
of absolute sale.

the balance of P10,215,000.00, representing 94.58% of the purchase

price, is not customary in a sale of real estate. Such a condition, not
specified in the contract to sell as evidenced by the Receipt, cannot
be considered part of the omissions of stipulations which are
ordinarily established by usage or custom. What is increasingly
becoming customary is to deposit in escrow the balance of the
purchase price pending the issuance of a new certificate of title in the
name of the buyer. Valdes-Choy suggested this solution but
unfortunately, it drew no response from Chua.
41

______________
36

Section 53 of PD No. 1529 provides:

Section 53. Presentation of owners duplicate upon entry of new certificate.No voluntary
instrument shall be registered by the Register of Deeds, unless the owners duplicate certificate is
presented with such instrument, except in cases expressly provided for in this Decree or upon
order of the court, for cause shown.
The production of the owners duplicate certificate, whenever any voluntary instrument is
presented for registration, shall be conclusive authority from the registered owner to the Register
of Deeds to enter a new certificate or to make a memorandum of registration in accordance with
such instrument, and the new certificate or memorandum shall be binding upon the registered
owner and upon all persons claiming under him, in favor of every purchaser for value and in good
faith.
x x x.

74

74 SUPREME COURT REPORTS

ANNOTATED
Chua vs. Court of Appeals
The recording of the sale with the proper Registry of Deeds and the
transfer of the certificate of title in the name of the buyer are
necessary only to bind third parties to the transfer of ownership. As
between the seller and the buyer, the transfer of ownership takes
effect upon the execution of a public instrument conveying the real
estate. Registration of the sale with the Registry of Deeds, or the
issuance of a new certificate of title, does not confer ownership on the
buyer. Such registration or issuance of a new certificate of title is not
one of the modes of acquiring ownership.
In this case, Valdes-Choy was ready, able and willing to submit to
Chua all the papers that customarily would complete the sale, and to
pay as well the capital gains tax. On the other hand, Chuas
condition that a new TCT be first issued in his name before he pays
37

38

39

40

Chua had no reason to fear being swindled. Valdes-Choy was

prepared to turn-over to him the owners duplicate copy of the TCT,
the signed Deeds of Sale, the tax declarations, and the latest realty
tax receipt. There was no hindrance to paying the capital gains tax
as Chua himself had advanced the money to pay the same and
Valdes-Choy had procured a managers check payable to the Bureau
of Internal Revenue covering the amount. It was only a matter of
time before the capital gains tax would be paid. Chua acted
precipitately in filing the action for specific performance a mere two
days after the deadline of 15 July 1989 when there was an impasse.
While this case was dismissed on 22 November 1989, he did not
waste any time in re-filing the same on 29 November 1989.
Accordingly, since Chua refused to pay the consideration in full on
the agreed date, which is a suspensive condition, Chua cannot
compel Valdes-Choy to consummate the sale of the Property. Article
1181 of the Civil Code provides that
ART. 1181. In conditional obligations, the acquisition of rights, as well as
the extinguishment or loss of those already acquired shall depend upon the
happening of the event which constitutes the condition.

Chua acquired no right to compel Valdes-Choy to transfer

ownership of the Property to him because the suspensive condition
the full payment of the purchase pricedid not happen. There is no
correlative obligation on the part of Valdes-Choy to transfer
16

ownership of the Property to Chua. There is also no obligation on the

part of Valdes-Choy to cause the issuance of a new TCT in the name
of Chua since unless expressly stipulated, this is not one of the
obligations of a vendor.
WHEREFORE, the Decision of the Court of Appeals in CA-G.R.
CV No. 37652 dated 23 February 1995 is AFFIRMED in toto.
SO ORDERED.
Davide,
Jr. (C.J.,
Santiago and Azcuna, JJ., concur.
Judgment affirmed in toto.

Chairman), Vitug, Ynares-

Note.Transfer of title or an agreement to transfer it for a price

paid or promised to be paid is the essence of sale. (Commissioner of
Internal Revenue vs. Court of Appeals, 271 SCRA 605 [1997])
o0o

17

G.R. No. 136054. September 5, 2001.

HEIRS OF SEVERINA SAN MIGUEL, namely: MAGNO LAPINA,

PACENCIA LAPINA, MARCELO LAPINA, SEVERINO LAPINA,
ROSARIO LAPINA, FRANCISCO LAPINA, CELIA LAPINA
assisted by husband RODOLFO TOLEDO, petitioners,vs. THE
HONORABLE COURT OF APPEALS, DOMINADOR SAN
MIGUEL, GUILLERMO F. SAN ARTEMIO F. SAN MIGUEL,
PACIENCIA F. SAN MIGUEL, CELESTINO, assisted by husband,
ANTERO CELESTINO, represented by their Attorney-in-Fact
ENRICO CELESTINO, AUGUSTO SAN MIGUEL, ANTONIO SAN
MIGUEL, RODOLFO SAN MIGUEL, CONRADO SAN MIGUEL and
LUCITA SAN MIGUEL, respondents.
Civil Law; Contracts; Sales;Although a contract is the law between the
parties, the provisions of positive law which regulate contracts are deemed
written therein and shall limit and govern the relations between the
parties.It is basic that the law is deemed written into every contract.
Although a contract is the law between the parties, the provisions of
positive law which regulate contracts are deemed written therein and shall
limit and govern the relations between the parties.
Same; Same; Same; In contracts of sale, the vendor need not possess
title to the thing sold at the perfection of the contract; Vendor must however
possess title and must be able to transfer title at the time of delivery.True,
in contracts of sale, the vendor need not possess title to the thing sold at
the perfection of the contract. However, the vendor must possess title and
must be able to transfer title at the time of delivery. In a contract of sale,
title only passes to the vendee upon full payment of the stipulated
consideration, or upon delivery of the thing sold.
Same; Same; Same; The essence of a sale is the transfer of title or an
agreement to transfer it for a price actually paid or promised; If the sellers
cannot deliver the object of the sale to the buyers, such contract may be
deemed to be inoperative.Therefore, to insist that Dominador, et al. pay
the price under such circumstances would result in Severinas heirs unjust
enrichment. Basic is the principle in law, Niguno non deue enriquecerse

tortizamente condano de otro. The essence of a sale is the transfer of title

or an agreement to transfer it for a price actually paid or promised. In Nool
v. Court of Appeals, we held that if the sellers cannot deliver the object of
the sale to the buyers, such contract may be deemed to be inoperative.

PETITION for review on certiorari of a decision of the Court of

Appeals.
The facts are stated in the opinion of the Court.
Bayani L. Bernardo Law Office for petitioners.
De Leon & De Leon Law Office for private respondents.
PARDO, J.:
The Case
The case is a petition for review oncertiorari of the decision of
the Court of Appeals, affirming that of the Regional Trial Court,
Cavite, Branch 19, Bacoor ordering petitioners, Heirs of Severina
San Miguel (hereafter, Severinas heirs) to surrender to
respondents Dominador San Miguel, et al. (hereafter, Dominador, et
al.), Transfer Certificate of Title No. 223511 and further directing
Severinas heirs to pay for the capital gains and related expenses for
the transfer of the two (2) lots to Dominador, et al.
1

The Facts
This case involves a parcel of land originally claimed by Severina
San
Miguel
(petitioners
predecessor-in-interest,
hereafter,
Severina). The land is situated in Panapan, Bacoor, Cavite with an
area of six hundred thirty two square meters (632 sq. m.), more or
less.
Without Severinas knowledge, Dominador managed to cause the
subdivision of the land into three (3) lots, to wit;
4

LRC Psu-1312with an area of 108 square meters;

LRC Psu-1313Lot 1, with an area of 299 square meters;
18

LRC Psu-1313Lot 2, with an area of 225 square meters.

On September 25, 1974, Dominador, et al. filed a petition with the

Court of First Instance, Cavite, as a land registration court, to issue
title over Lots 1 and 2 of LRC Psu-1313, in their names.
On July 19, 1977, the Land Registration Commission (hereafter
LRC) rendered a decision directing the issuance of Original
Certificate of Title No. 0-1816 in the names of Dominador, et al.
On or about August 22, 1978, Severina filed with the Court of
First Instance of Cavite a petition for review of the decision alleging
that the land registration proceedings were fraudulently concealed
by Dominador from her.
On December 27, 1982, the court resolved to set aside the decision
of July 19, 1977, and declared Original Certificate of Title No. 0-1816
as null and void.
On July 13, 1987, the Register of Deeds of Cavite issued Transfer
Certificate of Title No. T-223511 in the names of Severina and her
heirs.
On February 15, 1990, the trial court issued an order in favor of
Severinas heirs, to wit:
5

WHEREFORE, as prayed for, let the writ of possession previously issued

in favor of petitioner Severina San Miguel be implemented.

However, the writ was returned unsatisfied.

On November 28, 1991, the trial court ordered:

WHEREFORE, as prayed for, let an alias writ of demolition be issued in

favor of petitioners, Severina San Miguel.

Again, the writ was not satisfied.

On August 6, 1993, Severinas heirs, decided not to pursue the
writs of possession and demolition and entered into a compromise
with Dominador, et al. According to the compromise, Severinas heirs
were to sell the subject lots to Dominador, et al. for one and a half
million pesos (P1.5 M) with the delivery of Transfer Certificate of
10

Title No. T-223511 (hereafter, the certificate of title) conditioned

upon the purchase of another lot which was not yet titled at an
additional sum of three hundred thousand pesos (P300,000.00). The
salient features of the compromise (hereafterkasunduan)are:
11

12

5.Na ang Lot 1 at Lot 2, plano LRC Psu-1313 na binabanggit sa itaas

na ipinagkasundo ng mga tagapagmana ni Severina San Miguel na
kilala sa kasulatang ito sa taguring LAPINA (representing Severinas
heirs), na ilipat sa pangalan nina SAN MIGUEL (representing
Dominadors heirs,) alang alang sa halagang ISANG MILYON AT
LIMANG DAANG LIBONG PISO (P1,500,000.00) na babayaran nina
SAN MIGUEL kina LAPINA;
6.Na si LAPINA at SAN MIGUEL ay nagkakasundo na ang lote na
sakop ng plano LRC-Psu-1312, may sukat na 108 metro cuadrado ay
ipagbibili na rin kina SAN MIGUEL sa halagang TATLONG DAANG
LIBONG PISO (P300,000.00;
7.Na kinikilala ni SAN MIGUEL na ang tunay na may-ari ng nasabing
lote na sakop ng plano LRC Psu-1312 ay sina LAPINA at sila na ang
magpapatitulo nito at sina LAPINA ay walang pananagutan sa
pagpapatitulo nito at sa paghahabol ng sino mang tao;
8.Na ang nasabing halaga na TATLONG DAANG LIBONG PISO
(P300,000.00) ay babayaran nina SAN MIGUEL kina LAPINA sa loob
ng dalawang (2) buwan mula sa petsa ng kasulatang ito at kung hindi
mabayaran nina SAN MIGUEL ang nasabing halaga sa takdang
panahon ay mawawalan ng kabuluhan ang kasulatang ito;
9.Na sina LAPINA at SAN MIGUEL ay nagkakadunso (sic) rin na ang
owners copy ng Transfer Certificate of Title No. T-223511 na
sumasakop sa Lots 1 at 2, plano LRC Psu-1313 ay ilalagay lamang nina
LAPINA kina SAN MIGUEL pagkatapos mabayaran ang nabanggit na
P300,000.00.

19

On the same day, on August 6, 1993, pursuant to the kasunduan,

Severinas heirs and Dominador, et al. executed a deed of sale
designated as kasulatan sa bilihan ng lupa.
On November 16, 1993, Dominador, et al. filed with the trial
court, Branch 19, Bacoor, Cavite, a motion praying that Severinas
heirs deliver the owners copy of the certificate of title to them.
In time, Severinas heirs opposed the motion stressing that under
the kasunduan, the certificate of title would only be surrendered
upon Dominador, et al.s payment of the amount of three hundred
thousand pesos (P300,000.00) within two months from August 6,
1993, which was not complied with.
Dominador, et al. admitted non-payment of three hundred
thousand pesos (P300,000.00) for the reason that Severinas heirs
have not presented any proof of ownership over the untitled parcel of
land covered by LRC- Psu-1312. Apparently, the parcel of land is
declared in the name of a third party, a certain Emiliano Eugenio.
Dominador, et al. prayed that compliance with the kasunduan be
deferred until such time that Severinas heirs could produce proof of
ownership over the parcel of land.
Severinas heirs countered that the arguments of Dominador, et
al. were untenable in light of the provision in the kasunduan where
Dominador, et al. admitted their ownership over the parcel of land,
hence dispensing with the requirement that they produce actual
proof of title over it. Specifically, they called the trial courts
attention to the following statement in the kasunduan:
13

then they were justified in withholding release of the certificate of

title.
The trial court conducted no hearing and then rendered judgment
based on the pleadings and memoranda submitted by the parties.
21

14

15

16

17

The Trial Courts Ruling

On June 27, 1994, the trial court issued an order to wit:

22

WHEREFORE, finding the Motion to Order to be impressed with merit,

the defendants-oppositors-vendors Heirs of Severina San Miguel are
hereby ordered to surrender to the movant-plaintiffs-vendees-Heirs of
Dominador San Miguel the Transfer Certificates of Title No. 223511 and
for herein defendants-oppositors-vendors to pay for the capital gains and
related expenses for the transfer of the two lots subject of the sale to herein
movants-plaintiffs-vendees-Heirs of Dominador San Miguel.
SO ORDERED.

On July 25, 1994, Severinas heirs filed with the trial court a motion
for reconsideration of the afore-quoted order.
23

18

19

20

7. Na kinikilala ni SAN MIGUEL na ang tunay na may-ari ng

nasabing lote na sakop ng plano LRC Psu-1312 ay sina LAPINA at
sila na ang magpapatitulo nito at sina LAPINA ay walang
pananagutan sa pagpapatitulo nito at sa paghahabol ng sino mang
tao;

According to Severinas heirs, since Dominador, et al. have not

paid the amount of three hundred thousand pesos (P300,000.00),

On January 23, 1995, the trial court denied the motion for
reconsideration for lack of merit and further ordered:
24

x x x. . . Considering that the Lots 1 and 2 covered by TCT No. T-223511

had already been paid since August 6, 1993 by the plaintiffs-vendees
Dominador San Miguel, et al. (Vide, Kasulatan sa Bilihan ng Lupa, Rollo,
pp. 174-176), herein defendants-vendors-Heirs of Severina San Miguel is
hereby ordered (sic) to deliver the aforesaid title to the former (Dominador
San Miguel, et al.) within thirty (30) days from receipt of this order. In case
the defendants-vendors-Heirs of Severina San Miguel fail and refuse to do
the same, then the Register of Deeds of Cavite is ordered to immediately
cancel TCT No. T-223511 in the name of Severina San Miguel and issue
another one in the name of plaintiffs Dominador San Miguel, et al.
Also send a copy of this Order to the Register of Deeds of the Province
of Cavite, Trece Martires City, for her information and guidance.
SO ORDERED.

20

On February 7, 1995, Severinas heirs appealed the orders to the

Court of Appeals.
25

The Court of Appeals Ruling

On June 29, 1998, the Court of Appeals promulgated a
decision denying the appeal, and affirming the decision of the trial
court. The Court of Appeals added that the other matters raised in
the petition were extraneous to thekasunduan. The Court of
Appeals upheld the validity of the contract of sale and sustained the
parties freedom to contract. The Court of Appeals decided, thus:

However, we sift through the arguments and identify the main

legal issue, which is whether Dominador, et al. may be compelled to
pay the three hundred thousand pesos (P300,000.00) as agreed upon
in the kasunduan (as a pre-requisite for the release of the certificate
of title), despite Severinas heirs lack of evidence of ownership over
the parcel of land covered by LRC Psu-1312.
The Courts Ruling

26

27

WHEREFORE, the decision appealed from is hereby AFFIRMED.

SO ORDERED.

We resolve the issue in the negative, and find the petition without
merit.
Severinas heirs anchor their claim on the kasunduan, stressing
on their freedom to stipulate and the binding effect of contracts. This
argument is misplaced. The Civil Code provides:
33

On August 4, 1998, Severinas heirs filed with the Court of Appeals a

motion for reconsideration of the above decision. On October 14,
1998, the Court of Appeals denied the motion for reconsideration for
lack of merit.
Hence, this appeal.
28

29

30

Article 1306. The contracting parties may establish such stipulations,

clauses, terms and conditions as they may deem convenient provided they
are not contrary to law, morals, good customs, public order or public policy
(italics ours).

It is basic that the law is deemed written into every

contract. Although a contract is the law between the parties, the
provisions of positive law which regulate contracts are deemed
written therein and shall limit and govern the relations between the
parties. The Civil Code provisions on sales state:
34

The Issues
Severinas heirs submit that the Court of Appeals erred and
committed grave abuse of discretion: First, when it held that
the kasunduan had no effect on the kasulatan sa bilihan ng lupa.
Second, when it ordered them to surrender the certificate of title to
Dominador, et al., despite non-compliance with their prior
obligations stipulated under thekasunduan. Third, when it did not
find that the kasunduan was null and void for having been entered
into by Dominador, et al. fraudulently and in bad faith.
We find the above issues raised by Severinas heirs to be factual.
The question whether the prerequisites to justify release of the
certificate of title to Dominador, et al. have been complied with is a
question of fact.
31

32

35

Article 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 a price certain in money or its equivalent, x x x
Article 1459. The thing must be licit and the vendor must have a right to
transfer the ownership thereof at the time it is delivered.
Article 1495. The vendor is bound to transfer the ownership of and
deliver, as well as warrant the thing which is the object of sale (italics
ours).

True, in contracts of sale, the vendor need not possess title to the
thing sold at the perfection of the contract. However, the vendor
must possess title and must be able to transfer title at the time of
36

21

delivery. In a contract of sale, title only passes to the vendee upon

full payment of the stipulated consideration, or upon delivery of the
thing sold.
Under the facts of the case, Severinas heirs are not in a position
to transfer title. Without passing on the question of who actually
owned the land covered by LRC Psu-1312, we note that there is no
proof of ownership in favor of Severinas heirs. In fact, it is a certain
Emiliano Eugenio, who holds a tax declaration over the said land in
his name. Though tax declarations do not prove ownership of the
property of the declarant, tax declarations and receipts can be strong
evidence of ownership of land when accompanied by possession for a
period sufficient for prescription. Severinas heirs have nothing to
counter this document.
Therefore, to insist that Dominador, et al. pay the price under
such circumstances would result in Severinas heirs unjust
enrichment. Basic is the principle in law. Niguno non deue
enriquecerse tortizamente condano de otro. The essence of a sale is
the transfer of title or an agreement to transfer it for a price actually
paid or promised. In Nool v. Court of Appeals, we held that if the
sellers cannot deliver the object of the sale to the buyers, such
contract may be deemed to be inoperative. By analogy, such a
contract may fall under Article 1405, No. 5 of the Civil Code, to wit:
37

38

39

Hence, the non-payment of the three hundred thousand pesos

(P300,000.00) is not a valid justification for refusal to deliver the
certificate of title.
Besides, we note that the certificate of title covers Lots 1 and 2 of
LRC Psu-1313, which were fully paid for by Dominador, et al.
Therefore, Severinas heirs are bound to deliver the certificate of title
covering the lots.
The Fallo
WHEREFORE, the petition is DENIED and the decision of the
Court of Appeals in CA-G.R. CV No. 48430 is AFFIRMED in toto.
No costs.
SO ORDERED.

40

41

42

43

Article 1405. The following contracts are inexistent and void from the
beginning: x x x.
(5) Those which contemplate an impossible service. x x x

Severinas heirs insist that delivery of the certificate of title is

predicated on a conditionpayment of three hundred thousand
pesos (P300,000.00) to cover the sale of Lot 3 of LRC Psu 1312. We
find this argument not meritorious. The condition cannot be honored
for reasons afore-discussed. Article 1183 of the Civil Code provides
that:

Davide, Jr. (C.J., Chairman), Puno, Kapunan andYnaresSantiago, JJ., concur.

Petition denied, judgment affirmed in toto.
Note.When a person who is not the owner of the thing sells or
alienates or delivers it and later the seller or grantor acquires title
thereto, such title passes by operation of law to the buyer or grantee.
(Pisuea vs. Heirs of Petra Unating, 313 SCRA 384[1999])
o0o

Impossible conditions, those contrary to good customs or public policy and

those prohibited by law shall annul the obligation which depends upon
them. If the obligation is divisible, that part thereof which is not affected
by the impossible or unlawful condition shall be valid, x x x
22

G.R. No. 107207. November 23, 1995.

VIRGILIO R. ROMERO, petitioner, vs. HON. COURT OF APPEALS

and ENRIQUETA CHUA VDA. DE ONGSIONG, respondents.
Civil Law; Sales; A perfected contract of sale may either be absolute or
conditional.Aperfected contract of sale may either be absolute or
conditional depending on whether the agreement is devoid of, or subject to,
any condition imposed on the passingof title of the thing to be conveyed or
on the obligation of a party thereto. When ownership is retained until the
fulfillment of a positive condition the breach of the condition will simply
prevent the duty to convey title from acquiring an obligatory force. If the
condition is imposed on an obligationof a party which is not complied with,
the other party may either refuse to proceed or waive said condition (Art.
1545, Civil Code). Where, of course, the condition is imposed upon
theperfection of the contract itself, the failure of such condition would
prevent the juridical relation itself from coming into existence.
Same; Same; In determining the real character of the contract, the title
given to it by the parties is not as much significant as its substance.In
determining the real character of the contract, the title given to it by the
parties is not as much significant as its substance. For example, a deed of
sale, although denominated as a deed of conditional sale, may be treated as
absolute in nature, if title to the property sold is not reserved in the vendor
or if the vendor is not granted the right to unilaterally rescind the contract
predicated on the fulfillment or nonfulfillment, as the case may be, of the
prescribed condition.
Same; Same; The term condition in the context of a perfected contract
of sale pertains in reality to the compliance by one party of an undertaking
the fulfillment of which would beckon in turn the demandability of the
reciprocal prestation of the other party.The term condition in the
context of a perfected contract of sale pertains, in reality, to the compliance
by one party of an undertaking the fulfillment of which would beckon, in
turn, the demandability of the reciprocal prestation of the other party. The
reciprocal obligations referred to would normally be, in the case of vendee,
the payment of the agreed purchase price and, in the case of the vendor,

the fulfillment of certain express warranties (which, in the case at bench is

the timely eviction of the squatters on the property).
Same; Same; A sale is at once perfected when a person obligates
himself for a price certain to deliver and to transfer ownership of a specified
thing or right to another over which the latter agrees.It would be futile to
challenge the agreement here in question as not being a duly perfected
contract. A sale is at once perfected when a person (the seller) obligates
himself, for a price certain, to deliver and to transfer ownership of a
specified thing or right to another (the buyer) over which the latter agrees.
Same; Same; From the moment the contract is perfected, the parties are
bound not only to the fulfillment of what has been expressly stipulated but
also to all the consequences which according to their nature may be in
keeping with good faith, usage and law.From the moment the contract is
perfected, the parties are bound not only to the fulfillment of what has been
expressly stipulated but also to all the consequences which, according to
their nature, may be in keeping with good faith, usage and law. Under the
agreement, private respondent is obligated to evict the squatters on the
property. The ejectment of the squatters is a condition the operative act of
which sets into motion the period of compliance by petitioner of his own
obligation, i.e., to pay the balance of the purchase price. Private
respondents failure to remove the squatters from the property within the
stipulated period gives petitioner the right to either refuse to proceed with
the agreement or waive that condition in consonance with Article 1545 of
the Civil Code. This option clearly belongs to petitioner and not to private
respondent.
Same; Same; Where the so-called potestative condition is imposed not
on the birth of the obligation but on its fulfillment, only the condition is
avoided leaving unaffected the obligation itself.We share the opinion of
the appellate court that the undertaking required of private respondent
does not constitute a potestative condition dependent solely on his will
that might, otherwise, be void in accordance with Article 1182 of the Civil
Code but a mixed condition dependent not on the will of the vendor alone
but also of third persons like the squatters and government agencies and
personnel concerned. We must hasten to add, however, that where the socalled potestative condition is imposed not on the birth of the obligation
23

but on its fulfillment, only the condition is avoided, leaving unaffected the
obligation itself.
Same; Same; Rescission; The right of rescission of a party to an
obligation under Article 1191 of the Civil Code is predicated on a breach of
faith by the other party that violates the reciprocity between them.In any
case, private respondents action for rescission is not warranted. She is not
the injured party. The right of resolution of a party to an obligation under
Article 1191 of the Civil Code is predicated on a breach of faith by the other
party that violates the reciprocity between them. It is private respondent
who has failed in her obligation under the contract. Petitioner did not
breach the agreement. He has agreed, in fact, to shoulder the expenses of
the execution of the judgment in the ejectment case and to make
arrangements with the sheriff to effect such execution.

PETITION for review on certiorari of a decision of the Court of

Appeals.
The facts are stated in the opinion of the Court.
Antonio C. Cabreras, Jr. & Peter M. Porras
Offices andYap, Apostol, Gumaru & Balguafor petitioner.
Joaquin Yuseco for private respondent.

A day or so after the announcement, Alfonso Flores and his wife,

accompanied by a broker, offered a parcel of land measuring 1,952
square meters. Located in Barangay San Dionisio, Paraaque, Metro
Manila, the lot was covered by TCT No. 361402 in the name of
private respondent Enriqueta Chua vda. de Ongsiong. Petitioner
visited the property and, except for the presence of squatters in the
area, he found the place suitable for a central warehouse.
Later, the Flores spouses called on petitioner with a proposal that
should he advance the amount of P50,000.00 which could be used in
taking up an ejectment case against the squatters, private
respondent would agree to sell the property for only P800.00 per
square meter. Petitioner expressed his concurrence. On 09 June
1988, a contract, denominated Deed of Conditional Sale, was
executed between petitioner and private respondent. The simplydrawn contract read:
DEED OF CONDITIONAL SALE

Law

VITUG, J.:
The parties pose this question: May the vendor demand the
rescission of a contract for the sale of a parcel of land for a cause
traceable to his own failure to have the squatters on the subject
property evicted within the contractually-stipulated period?
Petitioner Virgilio R. Romero, a civil engineer, was engaged in the
business of production, manufacture and exportation of perlite filter
aids, permalite insulation and processed perlite ore. In 1988,
petitioner and his foreign partners decided to put up a central
warehouse in Metro Manila on a land area of approximately 2,000
square meters. The project was made known to several freelance real
estate brokers.

KNOW ALL MEN BY THESE PRESENTS:

This Contract, made and executed in the Municipality of Makati,
Philippines this 9th day of June, 1988 by and between:
ENRIQUETA CHUA VDA. DE ONGSIONG, of legal age, widow,
Filipino and residing at 105 Simoun St., Quezon City, Metro Manila,
hereinafter referred to as the VENDOR;
- and VIRGILIO R. ROMERO, married to Severina L. Lat, of legal age,
Filipino, and residing at 110 San Miguel St., Plainview Subd.,
Mandaluyong, Metro Manila, hereinafter referred to as the VENDEE:
W I T N E S S E T H: That
WHEREAS, the VENDOR is the owner of One (1) parcel of land with a
total area of ONE THOUSAND NINE HUNDRED FIFTY TWO (1,952)
SQUARE METERS, more or less, located in Barrio San Dionisio,
24

Municipality of Paraaque, Province of Rizal, covered by TCT No. 361402

issued by the Registry of Deeds of Pasig and more particularly described as
follows:
x x x
xxx
x x x.
WHEREAS, the VENDEE, for (sic) has offered to buy a parcel of land
and the VENDOR has accepted the offer, subject to the terms and
conditions hereinafter stipulated:
NOW,THEREFORE, for and in consideration of the sum of ONE
MILLION FIVE HUNDRED SIXTY ONE THOUSAND SIX HUNDRED
PESOS (P1,561,600.00) ONLY, Philippine Currency, payable by VENDEE
to in to (sic) manner set forth, the VENDOR agrees to sell to the VENDEE,
their heirs, successors, administrators, executors, assign, all her rights,
titles and interest in and to the property mentioned in the FIRST
WHEREAS CLAUSE, subject to the following terms and conditions:
1. 1.That the sum of FIFTY THOUSAND PESOS (P50,000.00) ONLY
Philippine Currency, is to be paid upon signing and execution of
this instrument.
2. 2.The balance of the purchase price in the amount of ONE
MILLION FIVE HUNDRED ELEVEN THOUSAND SIX
HUNDRED PESOS (P1,511,600.00) ONLY shall be paid 45 days
after the removal of all squatters from the above described
property.
3. 3.Upon full payment of the overall purchase price as aforesaid,
VENDOR without necessity of demand shall immediately sign,
execute, acknowledged (sic) and deliver the corresponding deed of
absolute sale in favor of the VENDEE free from all liens and
encumbrances and all Real Estate taxes are all paid and updated.
It is hereby agreed, covenanted and stipulated by and between the
parties hereto that if after 60 days from the date of the signing of this
contract the VENDOR shall not be able to remove the squatters from the
property being purchased, the downpayment made by the buyer shall be
returned/reimbursed by the VENDOR to the VENDEE.

That in the event that the VENDEE shall not be able to pay the
VENDOR the balance of the purchase price of ONE MILLION FIVE
HUNDRED
ELEVEN
THOUSAND
SIX
HUNDRED
PESOS
(P1,511,600.00) ONLY after 45 days from written notification to the
VENDEE of the removal of the squatters from the property being
purchased, the FIFTY THOUSAND PESOS (P50,000.00) previously paid as
downpayment shall be forfeited in favor of the VENDOR.
Expenses for the registration such as registration fees, documentary
stamp, transfer fee, assurances and such other fees and expenses as may
be necessary to transfer the title to the name of the VENDEE shall be for
the account of the VENDEE while capital gains tax shall be paid by the
VENDOR.
IN WITNESS WHEREOF, the parties hereunto signed those (sic)
presents in the City of Makati, MM, Philippines on this 9th day of June,
1988. f

(Sgd.)
VIRGILIO R.
ROMERO

(Sgd.)
ENRIQUETA
CHUA VDA.
DE ONGSIONG
Vendee
Vendor
SIGNED IN THE PRESENCE
OF:
(Sgd.)
(Sgd.)
Rowena C.
Jack M. Cruz
Ongsiong
1

Alfonso Flores, in behalf of private respondent, forthwith received

and acknowledged a check for P50,000.00 from petitioner. Pursuant
to the agreement, private respondent filed a complaint for ejectment
(Civil Case No. 7579) against Melchor Musa and 29 other squatter
families with the Metropolitan Trial Court of Paraaque. A few
months later, or on 21 February 1989, judgment was rendered
ordering the defendants to vacate the premises. The decision was
handed down beyond the 60-day period (expiring 09 August 1988)
2

25

stipulated in the contract. The writ of execution of the judgment was

issued, still later, on 30 March 1989.
In a letter, dated 07 April 1989, private respondent sought to
return the P50,000.00 she received from petitioner since, she said,
she could not get rid of the squatters on the lot. Atty. Sergio A.F.
Apostol, counsel for petitioner, in his reply of 17 April 1989, refused
the tender and stated:
Our client believes that with the exercise of reasonable diligence
considering the favorable decision rendered by the Court and the writ of
execution issued pursuant thereto, it is now possible to eject squatters from
the premises of the subject property, for which reason, he proposes that he
shall take it upon himself to eject the squatters, provided, that expenses
which shall be incurred by reason thereof shall be chargeable to the
purchase price of the land.
4

Meanwhile, the Presidential Commission for the Urban Poor

(PCUP), through its Regional Director for Luzon, Farley O. Viloria,
asked the Metropolitan Trial Court of Paraaque for a grace period
of 45 days from 21 April 1989 within which to relocate and transfer
the squatter families. Acting favorably on the request, the court
suspended the enforcement of the writ of execution accordingly.
On 08 June 1989, Atty. Apostol reminded private respondent on
the expiry of the 45-day grace period and his clients willingness to
underwrite the expenses for the execution of the judgment and
ejectment of the occupants.
In his letter of 19 June 1989, Atty. Joaquin Yuseco, Jr., counsel
for private respondent, advised Atty. Apostol that the Deed of
Conditional Sale had been rendered null and void by virtue of his
clients failure to evict the squatters from the premises within the
agreed 60-day period. He added that private respondent had decided
to retain the property.
On 23 June 1989, Atty. Apostol wrote back to explain:
5

The contract of sale between the parties was perfected from the very
moment that there was a meeting of the minds of the parties upon the
subject lot and the price in the amount of P1,561,600.00. Moreover, the
contract had already been partially fulfilled and executed upon receipt of

the downpayment of your client. Ms. Ongsiong is precluded from rejecting

its binding effects relying upon her inability to eject the squatters from the
premises of subject property during the agreed period. Suffice it to state
that, the provision of the Deed of Conditional Sale do not grant her the
option or prerogative to rescind the contract and to retain the property
should she fail to comply with the obligation she has assumed under the
contract. In fact, a perusal of the terms and conditions of the contract
clearly shows that the right to rescind the contract and to demand the
return/reimbursement of the downpayment is granted to our client for his
protection.
Instead, however, of availing himself of the power to rescind the
contract and demand the return, reimbursement of the downpayment, our
client had opted to take it upon himself to eject the squatters from the
premises. Precisely, we refer you to our letters addressed to your client
dated April 17, 1989 and June 8, 1989.
Moreover, it is basic under the law on contracts that the power to
rescind is given to the injured party. Undoubtedly, under the
circumstances, our client is the injured party.
Furthermore, your client has not complied with her obligation under
their contract in good faith. It is undeniable that Ms. Ongsiong deliberately
refused to exert efforts to eject the squatters from the premises of the
subject property and her decision to retain the property was brought about
by the sudden increase in the value of realties in the surrounding areas.
Please consider this letter as a tender of payment to your client and a
demand to execute the absolute Deed of Sale.
7

A few days later (or on 27 June 1989), private respondent, prompted

by petitioners continued refusal to accept the return of the
P50,000.00 advance payment, filed with the Regional Trial Court of
Makati, Branch 133, Civil Case No. 89-4394 for rescission of the deed
of conditional sale, plus damages, and for the consignation of
P50,000.00 cash.
Meanwhile, on 25 August 1989, the Metropolitan Trial Court
issued an alias writ of execution inCivil Case No. 7579 on motion of
private respondent but the squatters apparently still stayed on.
26

Back to Civil Case No. 89-4394, on 26 June 1990, the Regional

Trial Court of Makati rendered decision holding that private
respondent had no right to rescind the contract since it was she who
violated her obligation to eject the squatters from the subject
property and that petitioner, being the injured party, was the party
who could, under Article 1191 of the Civil Code, rescind the
agreement. The court ruled that the provisions in the contract
relating to (a) the return/reimbursement of the P50,000.00 if the
vendor were to fail in her obligation to free the property from
squatters within the stipulated period or (b), upon the other hand,
the sums forfeiture by the vendor if the vendee were to fail in paying
the agreed purchase price, amounted to penalty clauses. The court
added:
8

This Court is not convinced of the ground relied upon by the plaintiff in
seeking the rescission, namely: (1) he (sic) is afraid of the squatters; and (2)
she has spent so much to eject them from the premises (p. 6, tsn, ses. Jan.
3, 1990). Militating against her profession of good faith is plaintiffs
conduct which is not in accord with the rules of fair play and justice.
Notably, she caused the issuance of an alias writ of execution on August 25,
1989 (Exh. 6) in the ejectment suit which was almost two months after she
filed the complaint before this Court on June 27, 1989. If she were really
afraid of the squatters, then she should not have pursued the issuance of
an alias writ of execution. Besides, she did not even report to the police the
alleged phone threats from the squatters. To the mind of the Court, the socalled squatter factor is simply factuitous (sic).
9

The lower court, accordingly, dismissed the complaint and ordered,

instead, private respondent to eject or cause the ejectment of the
squatters from the property and to execute the absolute deed of
conveyance upon payment of the full purchase price by petitioner.
Private respondent appealed to the Court of Appeals. On 29 May
1992, the appellate court rendered its decision. It opined that the
contract entered into by the parties was subject to a resolutory
condition, i.e., the ejectment of the squatters from the land, the nonoccurrence of which resulted in the failure of the object of the
contract; that private respondent substantially complied with her
10

obligation to evict the squatters; that it was petitioner who was not
ready to pay the purchase price and fulfill his part of the contract,
and that the provision requiring a mandatory return/reimbursement
of the P50,000.00 in case private respondent would fail to eject the
squatters within the 60day period was not a penal clause. Thus, it
concluded:
WHEREFORE, the decision appealed from is REVERSED and SET
ASIDE, and a new one entered declaring the contract of conditional sale
dated June 9, 1988 cancelled and ordering the defendantappellee to accept
the return of the downpayment in the amount of P50,000.00 which was
deposited in the court below. No pronouncement as to costs.
11

Failing to obtain a reconsideration, petitioner filed this petition for

review oncertiorari raising issues that, in fine, center on the nature
of the contract adverted to and the P50,000.00 remittance made by
petitioner.
A perfected contract of sale may either be absolute or
conditional depending on whether the agreement is devoid of, or
subject to, any condition imposed on thepassing of title of the thing
to be conveyed or on the obligation of a party thereto. When
ownership is retained until the fulfillment of a positive condition the
breach of the condition will simply prevent the duty to convey title
from acquiring an obligatory force. If the condition is imposed on
an obligation of a party which is not complied with, the other
party may either refuse to proceed or waive said condition (Art. 1545,
Civil Code). Where, of course, the condition is imposed upon
the perfection of the contract itself, the failure of such condition
would prevent the juridical relation itself from coming into
existence.
In determining the real character of the contract, the title given to
it by the parties is not as much significant as its substance. For
example, a deed of sale, although denominated as a deed of
conditional sale, may be treated as absolute in nature, if title to the
property sold is not reserved in the vendor or if the vendor is not
granted the right to unilaterally rescind the contract predicated on
12

13

27

the fulfillment or non-fulfillment, as the case may be, of the

prescribed condition.
The term condition in the context of a perfected contract of sale
pertains, in reality, to the compliance by one party of an undertaking
the fulfillment of which would beckon, in turn, the demandability of
the reciprocal prestation of the other party. The reciprocal
obligations referred to would normally be, in the case of vendee, the
payment of the agreed purchase price and, in the case of the vendor,
the fulfillment of certain express warranties (which, in the case at
bench is the timely eviction of the squatters on the property).
It would be futile to challenge the agreement here in question as
not being a duly perfected contract. A sale is at once perfected when
a person (the seller) obligates himself, for a price certain, to deliver
and to transfer ownership of a specified thing or right to another (the
buyer) over which the latter agrees.
The object of the sale, in the case before us, was specifically
identified to be a 1,952-square meter lot in San Dionisio, Paraaque,
Rizal, covered by Transfer Certificate of Title No. 361402 of the
Registry of Deeds for Pasig and therein technically described. The
purchase price was fixed at P1,561,600.00, of which P50,000.00 was
to be paid upon the execution of the document of sale and the balance
of P1,511,600.00 payable 45 days after the removal of all squatters
from the above described property.
From the moment the contract is perfected, the parties are bound
not only to the fulfillment of what has been expressly stipulated but
also to all the consequences which, according to their nature, may be
in keeping with good faith, usage and law. Under the agreement,
private respondent is obligated to evict the squatters on the property.
The ejectment of the squatters is acondition the operative act of
which sets into motion the period of compliance by petitioner of his
own obligation, i.e., to pay the balance of the purchase price. Private
respondents failure to remove the squatters from the property
within the stipulated period gives petitioner the right to either refuse
to proceed with the agreement or waive that condition in consonance
14

15

with Article 1545 of the Civil Code. This option clearly belongs to
petitioner and not to private respondent.
16

We share the opinion of the appellate court that the undertaking

required of private respondent does not constitute a potestative
condition dependent solely on his will that might, otherwise, be void
in accordance with Article 1182 of the Civil Code but a mixed
condition dependent not on the will of the vendor alone but also of
third persons like the squatters and government agencies and
personnel concerned. We must hasten to add, however, that where
the so-called potestative condition is imposed not on the birth of the
obligation but on its fulfillment, only the condition is avoided,
leaving unaffected the obligation itself.
In contracts of sale particularly, Article 1545 of the Civil Code,
aforementioned, allows the obligee to choose between proceeding
with the agreement or waiving the performance of the condition. It is
this provision which is the pertinent rule in the case at bench. Here,
evidently, petitioner has waived the performance of the condition
imposed on private respondent to free the property from squatters.
In any case, private respondents action for rescission is not
warranted. She is not the injured party. The right of resolution of a
party to an obligation under Article 1191 of the Civil Code is
predicated on a breach of faith by the other party that violates the
reciprocity between them. It is private respondent who has failed in
her obligation under the contract. Petitioner did not breach the
agreement. He has agreed, in fact, to shoulder the expenses of the
execution of the judgment in the ejectment case and to make
arrangements with the sheriff to effect such ex+ecution. In his letter
of 23 June 1989, counsel for petitioner has tendered payment and
demanded forthwith the execution of the deed of absolute sale.
Parenthetically, this offer to pay, having been made prior to the
demand for rescission, assuming for the sake of argument that such
a demand is proper under Article 1592 of the Civil Code, would
likewise suffice to defeat private respondents prerogative to rescind
thereunder.
17

18

19

20

21

22

23

28

There is no need to still belabor the question of whether the

P50,000.00 advance payment is reimbursable to petitioner or
forfeitable by private respondent, since, on the basis of our foregoing
conclusions, the matter has ceased to be an issue. Suffice it to say
that petitioner having opted to proceed with the sale, neither may
petitioner demand its reimbursement from private respondent nor
may private respondent subject it to forfeiture.
WHEREFORE, the questioned decision of the Court of Appeals is
hereby REVERSED AND SET ASIDE, and another is entered
ordering petitioner to pay private respondent the balance of the
purchase price and the latter to execute the deed of absolute sale in
favor of petitioner. No costs.
SO ORDERED.
Feliciano (Chairman),Romero, Melo and Panganiban,
JJ., concur.
Judgment reversed and set aside.
Note.The remedy of rescission only applies to contracts validly
agreed upon by the parties in the cases established by law.
(Causapin vs. Court of Appeals,233 SCRA 615 [1994])
o0o

29

G.R. No. 165889. September 20, 2005.

SACOBIA HILLS DEVELOPMENT CORPORATION and JAIME C.

KOA, petitioners, vs. ALLAN U. TY, respondent.
Sales; Words and Phrases; In a contract to sell, the payment of
purchase price is a positive suspensive condition, the failure of which is not
a breach, casual or serious, but a situation which prevents the obligation of
the vendor to convey title from acquiring an obligatory force; Upon
fulfillment of the suspensive condition, ownership will not automatically
transfer to the buyer although the property may have been previously
delivered to himthe prospective seller still has to convey title to the
prospective buyer by entering into a contract of absolute sale.Since the
agreement between Sacobia and Ty is a contract to sell, the full payment of
the purchase price partakes of a suspensive condition, the non-fulfillment
of which prevents the obligation to sell from arising and ownership is
retained by the seller without further remedies by the buyer. In Cheng v.
Genato, we explained the nature of a contract to sell and its legal
implications in this wise: In a Contract to Sell, the payment of the purchase
price is a positive suspensive condition, the failure of which is not a breach,
casual or serious, but a situation that prevents the obligation of the vendor
to convey title from acquiring an obligatory force. It is one where the
happening of the event gives rise to an obligation. Thus, for its nonfulfillment there will be no contract to speak of, the obligor having failed to
perform the suspensive condition which enforces a juridical relation. In fact
with this circumstance, there can be no rescission of an obligation that is
still non-existent, the suspensive condition not having occurred as yet.
Emphasis should be made that the breach contemplated in Article 1191 of
the New Civil Code is the obligors failure to comply with an obligation
already extant, not a failure of a condition to render binding that
obligation. In a contract to sell, the prospective seller does not consent to
transfer ownership of the property to the buyer until the happening of an
event, which for present purposes, is the full payment of the purchase
price. What the seller agrees or obliges himself to do is to fulfill his promise
to sell the subject property when the entire amount of the purchase price is

delivered to him. Upon the fulfillment of the suspensive condition,

ownership will not automatically transfer to the buyer although the
property may have been previously delivered to him. The prospective seller
still has to convey title to the prospective buyer by entering into a contract
of absolute sale.
Same; Rescission; A non-existent obligation cannot be a subject of
rescission.Ty did not pay the full purchase price which is his obligation
under the contract to sell, therefore, it cannot be said that Sacobia
breached its obligation. No obligations arose on its part because
respondents non-fulfillment of the suspensive condition rendered the
contract to sell ineffective and unperfected. Indeed, there can be no
rescission under Article 1191 of the Civil Code because until the happening
of the condition,i.e. full payment of the contract price, Sacobias obligation
to deliver the title and object of the sale is not yet extant. A non-existent
obligation cannot be subject of rescission. Article 1191 speaks of obligations
already existing, which may be rescinded in case one of the obligors fails to
comply with what is incumbent upon him.

PETITION for review on certiorari of the decision and resolution of

the Court of Appeals.
The facts are stated in the opinion of the Court.
Santiago and Santiago for petitioners.
Dulay, Pagunsan and Ty Law Offices for respondent.
YNARES-SANTIAGO, J.:
This petition for review on certiorari assails the August 19, 2004
decision of the Court of Appeals in CA-G.R. CV No. 76987, which
reversed and set aside the November 29, 2002 decision of the
Regional Trial Court of Manila, Branch 46, and its October 28, 2004
resolution denying reconsideration thereof.
1

The antecedent facts show that petitioner Sacobia Hills

Development Corporation (Sacobia) is the developer of True North
Golf and Country Club (True North) located inside the Clark Special
30

Economic Zone in Pampanga which boasts of amenities that include

a golf course, clubhouse, sports complex and several vacation villas.
On February 12, 1997, respondent Allan U. Ty wrote to Sacobia a
letter expressing his intention to acquire one (1) Class A share of
True North and accordingly paid the reservation fee of P180,000.00
as evidenced by PCI Bank Check No. 0038053.
Through letters dated May 28, 1997 and July 4, 1997, Sacobia
assured its shareholders that the development of True North was
proceeding on schedule; that the golf course would be playable by
October 1999; that the Environmental Clearance Certificate (ECC)
by the Department of Environment and Natural Resources (DENR)
as well as the Permit to Sell from the Securities and Exchange
Commission (SEC) should have been released by October 1997; and
that their registration deposits remained intact in an escrow
account. On September 1, 1997, Sacobia approved the purchase
application and membership of respondent for P600,000.00, subject
to certain terms and conditions. The notice of approval
provided, inter alia:
5

Terms and Conditions

1. Approval of an application to purchase golf/country club shares
is subjected to the full payment of the total purchase price. Should
the buyer opt for the deferred payment scheme, approval is subject
to our receipt of a down payment of at least 30% and the balance
payable in installments over a maximum of eleven (11) months
from the date of application, and covered by postdated cheques.
2. Your reserved share shall be considered withdrawn and may be
deemed cancelled should you fail to settle your obligation within
fifteen (15) days from due date, or failure to cover the value of the
postdated cheques upon their maturity, or your failure to issue the
required postdated cheques. In which case, we shall reserve the
right to offer the said shares to other interested parties. This also
means forfeiture of 50% of the total amount you have already paid.

3. We will undertake to execute the corresponding sales

documents/Deed of Absolute Sale covering the reserved shares
upon full payment of the total purchase price. The Certificate of
Membership shall be issued thereafter.
...

However, on January 12, 1998, respondent notified Sacobia that he

is rescinding the contract and sought refund of the payments already
made due to the latters failure to complete the project on time as
represented.
In an effort to assure the respondent that the project would soon
be operational, Sacobia wrote him a letter dated March 10, 1998,
stating that the DENR had issued the required ECC only on March
5, 1998, and that the golf course would be ready for use by end of
1998.
On April 3, 1998, Sacobia again wrote the respondent advising
him that the 18-hole golf course would be fully operational by
summer of 1999. Sacobia also sought to collect from respondent the
latters outstanding balance of P190,909.08 which was covered by
five (5) post dated checks.
Notwithstanding, respondent notified Sacobia on April 17, 1998
that he had stopped payment on the five (5) post dated checks and
reiterated his demand for the refund of his payments which
amounted to P409,090.92.
On June 16, 1999, respondent sent Sacobia a letter formally
rescinding the contract and demanding for the refund of the
P409,090.92 thus far paid by him.
8

By way of reply, Sacobia informed respondent that it had a norefund policy, and that it had endorsed respondent to Century
Properties, Inc. for assistance on the resale of his share to third
persons.
Thus, on July 21, 1999, respondent filed a complaint for rescission
and damages before the SEC but the case was eventually transferred
31

to the Regional Trial Court of Manila, Branch 46, pursuant to

Administrative Circular AM No. 00-11-03.
On April 13, 2002, the trial court personnel conducted an on-site
ocular inspection and in their report, they made the following
observations:
9

. . . We went up and down the hills on board the golf cart, and have seen
the entire golf course. The 9 holes area are already operational and
playable, we have seen the tee bank (mount soil) color coded flags, blue for
regular golfers, white for senior golfers and red for ladies golfers. We have
seen all their playing areas which all appeared in order except the main
clubhouse which is undergoing finishing touches. Likewise the road leading
to the clubhouse area is undergoing pavement works and concreting.
We learned from our tour guide Mr. Gerry Zoleta, Site Supervisor, that
the timetable in finishing all remaining things (e.g. Clubhouse and the road
leading to it) to be done, are influenced or rather, hampered by the
prevailing weather condition. Such that when it rain, (which often happens
in the area during afternoon or early morning) they cannot really push
thru with the construction due to the soil condition (easily eroded) and
sloping terrain of the place. Except, the clubhouse, all seem prim and
proper for golf playing. In fact, according to Mr. Zoleta, the site has been
operational since January 2002. The first tournament was conducted on
October 2000 and there were three tournaments already took place in the
area.
...
In summary, we found nothing amiss for one not to be able to play and
enjoy golf to the fullest, except as earlier said the clubhouse.

within thirty (30) days from the finality of this decision, otherwise, he
forfeits his payments.
IT IS SO ORDERED.
11

The trial court found that the contract between the parties did not
warrant that the golf course and clubhouse would be completed
within a certain period of time to entitle respondent to rescind. It
also noted that the completion of the project was subject to the
issuance of an ECC and the approval by the SEC of the registration
of non-proprietary golf club shares, which is beyond Sacobias
control.
The appellate court, in its decision dated August 19, 2004,
disposed of the appeal as follows:
WHEREFORE, the appealed November 29, 2002 decision of the Regional
Trial Court of Manila, Branch 46, is hereby REVERSED and SET ASIDE,
and a new one is hereby entered with this Court hereby CONFIRMING the
RESCISSION of the contract of purchase of one (1) Class A proprietary
share of True North Golf and Country Club as elected choice by plaintiffappellant Ty, the aggrieved party, and hereby DIRECTING defendantappellee SACOBIA to:
1) Refund to the plaintiff-appellant Allan U. Ty the amount of
P409,090.20 and all payments made by him thus far on the TRUE
NORTH share, with legal interest of 12% per annum from July 21,
1999, the date of the filing of the complaint with the SEC, until
fully paid;

10

On November 29, 2002, the trial court rendered judgment in favor of

petitioners, the decretal portion of which reads:
WHEREFORE, the complaint is hereby dismissed without
pronouncement as to costs.
If the plaintiff desires to continue with the acquisition of the share, he may
do so by paying the balance of the acquisition price of One Hundred Ninety
Thousand Ninety Pesos and Ten Centavos (P190,090.10) without interest

2) Return the five post-dated checks of the plaintiff-appellant

amounting to P190,908.08;
3) Pay costs of the suit.
SO ORDERED.

12

The Court of Appeals agreed with the trial court that Sacobia was
in delay in the performance of its obligation to respondent. As such,
Ty could properly rescind the contract, or demand specific
32

performance with damages, or demand for damages alone. It held

though that the failure of the DENR to issue the ECC on time is a
valid ground to reduce the damages claimed by Ty. It also ruled that
Sacobia is estopped from asserting that there was no completion date
for the project as no less than its chairman announced the projected
completion dates.
Petitioners motion for reconsideration was denied, hence the
instant petition for review on certiorari which raises the issue of
whether the contract entered into by the parties may be validly
rescinded under Article 1191 of the Civil Code.
Sacobia contends that it was not in breach of the contract as the
Intent to Purchase, the Contract of Purchase, and the Notice of
Approval to Purchase Shares of True North, do not contain any
specific date as to when the golf course and country club would be
completed. It argues that respondent should have known the risks
involved in this kind of project; the construction being contingent on
the issuance of the ECC by the DENR and the payment of the buyers
of their share.
On the other hand, respondent claims that Sacobias arguments
raise new matters which would warrant the reversal of the decision
rendered by the Court of Appeals. He insists that Sacobia failed to
complete the project on time which entitles him to rescind the
contract in accordance with Article 1191 of the Civil Code. He further
argues that the delay in the completion of the project is clearly
established by the fact that there have been no substantial work
done on the site, particularly on the clubhouse, despite the lapse of
nearly 4-years from the issuance of the ECC on March 5, 1998.
The petition is meritorious.
In resolving the present controversy, the lower courts merely
assumed that the delay in the completion of the golf course was the
decisive factor in determining the propriety or impropriety of
rescinding the contract. Yet, confusion could have been avoided had
there been a more thorough scrutiny of the nature of the contract
entered into by the contending parties.

In the notice of approval, which embodies the terms and

conditions of the agreement, Sacobia signified its intent to retain the
ownership of the property until such time that the respondent has
fully paid the purchase price. This condition precedent is
characteristic of a contract to sell. The intention of the contracting
parties is inferable from the following provisions, to wit:
TERMS AND CONDITIONS
1. Approval of an application to purchase golf/country club shares
is subjected to the full payment of the total purchase price. Should
the buyer opt for the deferred payment scheme, approval is subject to our
receipt of a down payment of at least 30% and the balance payable in
installments over a maximum of eleven (11) months from the date of
application, and covered by postdated cheques.
2. Your reserved share shall be considered withdrawn and may
be deemed cancelled should you fail to settle your obligation
within fifteen (15) days from due date, or failure to cover the value
of the postdated cheques upon their maturity, or your failure to
issue the required postdated cheques.In which case, we shall reserve
the right to offer the said shares to other interested parties. This also
means forfeiture of 50% of the total amount you have already paid.
3. We shall undertake to execute the corresponding sales
documents/Deed of Absolute Sale covering the reserved shares
upon full payment of the total purchase price. The Certificate of
Membership shall be issued thereafter.

Clearly, the approval of the application hinged on the full

payment of the total purchase price. In fact, Sacobia explicitly
reserved the right to retain title over the share pending full
satisfaction of the purchase price.
The notice of approval likewise stipulated that the reservation
shall be deemed withdrawn or cancelled in case respondent fails to
settle his obligation within 15 days from the due date or cover the
value of the checks upon their maturity. Thus, Sacobia reserved the
right to unilaterally rescind the contract in the event the respondent
33

fails to comply with his obligation of remitting the full purchase price
within the deadline. In fact, Sacobia, after having cancelled the
agreement, can offer the share to other interested parties.
In addition, the execution of the deed of absolute sale and other
pertinent documents shall be made only upon full payment of the
purchase price. The terms of the agreement between Sacobia and Ty
can be deduced, not on a formal document like a deed of sale, but
from a series of correspondence and acts signifying the parties
intention to enter into a contract. The absence of a formal deed of
conveyance is a strong indication that Sacobia did not intend to
transfer title until respondent shall have completely complied with
his correlative obligation of paying the contact price.
Since the agreement between Sacobia and Ty is a contract to sell,
the full payment of the purchase price partakes of a suspensive
condition, the non-fulfillment of which prevents the obligation to sell
from arising and ownership is retained by the seller without further
remedies by the buyer. In Cheng v. Genato, we explained the nature
of a contract to sell and its legal implications in this wise:
13

In a Contract to Sell, the payment of the purchase price is a positive

suspensive condition, the failure of which is not a breach, casual or serious,
but a situation that prevents the obligation of the vendor to convey title
from acquiring an obligatory force. It is one where the happening of the
event gives rise to an obligation. Thus, for its non-fulfillment there will be
no contract to speak of, the obligor having failed to perform the suspensive
condition which enforces a juridical relation. In fact with this circumstance,
there can be no rescission of an obligation that is still non-existent, the
suspensive condition not having occurred as yet. Emphasis should be made
that the breach contemplated in Article 1191 of the New Civil Code is the
obligors failure to comply with an obligation already extant, not a failure of
a condition to render binding that obligation.

In a contract to sell, the prospective seller does not consent to

transfer ownership of the property to the buyer until the happening
of an event, which for present purposes, is the full payment of the
purchase price. What the seller agrees or obliges himself to do is to

fulfill his promise to sell the subject property when the entire
amount of the purchase price is delivered to him. Upon the
fulfillment of the suspensive condition, ownership will not
automatically transfer to the buyer although the property may have
been previously delivered to him. The prospective seller still has to
convey title to the prospective buyer by entering into a contract of
absolute sale.
According to True North Payment Schedule, respondents checks
dated from October 12, 1997 until January 12, 1998 were marked as
stale. His failure to cover the value of the checks and by issuing a
stop payment order effectively abated the perfection of the contract.
For it is understood that when a sale is made subject to a suspensive
condition, perfection is had only from the moment the condition is
fulfilled.
14

15

16

As shown, Ty did not pay the full purchase price which is his
obligation under the contract to sell, therefore, it cannot be said that
Sacobia breached its obligation. No obligations arose on its part
because respondents non-fulfillment of the suspensive condition
rendered the contract to sell ineffective and unperfected. Indeed,
there can be no rescission under Article 1191 of the Civil Code
because until the happening of the condition, i.e. full payment of the
contract price, Sacobias obligation to deliver the title and object of
the sale is not yet extant. A non-existent obligation cannot be subject
of rescission. Article 1191 speaks of obligations already existing,
which may be rescinded in case one of the obligors fails to comply
with what is incumbent upon him.
As earlier discussed, the payment by Ty of the reservation fee as
well as the issuance of the postdated checks is subject to the
condition that Sacobia was reserving title until full payment, which
is the essence of a contract to sell. The perfection of this kind of
contract would give rise to two distinct obligations, namely, 1) the
buyers obligation to fulfill the suspensive condition, i.e. the full
payment of the contract price as in the instant case, and, 2) the
17

34

correlative obligation of the seller to convey ownership upon

compliance of the suspensive condition.
In the present case, respondents failure to fulfill this suspensive
condition prevented the perfection of the contract to sell. With an
ineffective contract, Ty had not acquired the status of a shareholder
but remained, at most, a prospective investor. In the absence of a
juridical tie between the parties, Ty cannot claim the rights and
privileges accorded to Sacobias full-fledged members and
shareowners, including the full enjoyment of the amenities being
offered. Unfortunately for Ty, he cannot avail of rescission as
envisioned by Article 1191 of the Civil Code. However, he can
withdraw his investment subject to the restrictions under the terms
and conditions pertinent to a reneging investor.
Even assuming arguendo that the delay in the completion of the
golf course and clubhouse was attributable to Sacobia, respondent
had not refuted to this Courts satisfaction the trial courts denial of
such claim upon its finding that, among other things, the parties did
not warrant the completion of the project within a certain period of
time.
As early as January 12, 1998, respondent had notified Sacobia of
his intention to rescind the contract on the ground that there was
unreasonable delay in the completion of the golf course and
clubhouse. Yet, evidence shows that even prior thereto, or on May 28,
1997, Sacobia already informed its investors, including the
respondent, that the full completion of the project was expected by
mid-1999. Patently, respondents claim is premature by one year and
a half, if reckoned from the expected time of completion as foreseen
by Sacobia. Moreover, respondent was well aware of the risk of delay
in the completion of the project considering that he was apprised
beforehand of such delay due to the belated issuance of the proper
documents.
It appears, however, that Sacobia is not really intent on cancelling
Tys reservation. Even after it was notified by Ty that he was
intending to rescind the contract, and had in fact issued a stop-

payment order, Sacobia merely deferred the deposit of Tys checks in

an effort to resolve the issue, instead of cancelling the reservation in
accordance with the terms of the notice of approval. Subsequently, it
sought to collect from Ty his remaining obligations. It also referred
Ty to its marketing arm if Ty is so minded to sell his rights to third
parties. To this extent, the trial court correctly ordered Ty to pay the
remaining balance if he so desires, otherwise, he forfeits half of his
payments, pursuant to the terms of the notice of approval.
WHEREFORE, the petition is GRANTED. The decision dated
August 19, 2004 of the Court of Appeals in CA-G.R. CV No. 76987
and its resolution dated October 28, 2004, are REVERSED and SET
ASIDE. Respondents complaint for rescission of contract and
damages in Civil Case No. 01-99696 is DISMISSED. He is
ORDERED to PAY to Sacobia Hills Development Corporation the
amount of Pesos: One Hundred Ninety Thousand Nine Hundred
Nine and Eight Centavos (P190,909.08) without interest within
thirty (30) days from finality of this decision; otherwise, fifty percent
(50%) of his total payments shall be forfeited.
SO ORDERED.
Davide, Jr. (C.J.,Chairman), Quisumbing, Carpioand Azcuna,
JJ., concur.
Petition granted, judgment and resolution reversed and set aside.
Complaint for rescission and damages dismissed.
Notes.The remedy of rescission only applies to contracts validly
agreed upon by the parties in the cases established by law.
(Causapin vs. Court of Appeals,233 SCRA 615 [1994])
Article 1592 of the New Civil Code, requiring demand by suit or
by notarial act in case the vendor of realty wants to rescind does not
apply to a contract to sell but only to a contract of sale. (Pangilinan
vs. Court of Appeals, 279 SCRA 590 [1997])
35

G.R. No. 186014.

June 26, 2013.*

ALI AKANG, petitioner, vs. MUNICIPALITY OF ISULAN, SULTAN

KUDARAT PROVINCE, represented by its MUNICIPAL MAYOR
and
MUNICIPAL
VICE
MAYOR
and
MUNICIPAL
COUNCILORS/KAGAWADS, respondent.
Pleadings and Practice; Appeals; Actions; Estoppel; The rule is settled
that issues raised for the first time on appeal and not raised in the
proceedings in the lower court are barred by estoppel.The petitioner
asserts that the Deed of Sale was notarized by Atty. Gualberto B. Baclig
who was not authorized to administer the same, hence, null and void. This
argument must be rejected as it is being raised for the first time only in
this petition. In his arguments before the RTC and the CA, the petitioner
focused mainly on the validity and the nature of the Deed of Sale, and
whether there was payment of the purchase price. The rule is settled that
issues raised for the first time on appeal and not raised in the proceedings
in the lower court are barred by estoppel. To consider the alleged facts and
arguments raised belatedly would amount to trampling on the basic
principles of fair play, justice, and due process. Accordingly, the petitioners
attack on the validity of the Deed of Sale vis--vis its compliance with the
2004 New Notarial Law must be disregarded.
Civil Law; Contracts; Contract of Sale; Words and Phrases; 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
therefore a price certain in money or its equivalent.A contract of sale is
defined under Article 1458 of the Civil Code: 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 therefore a price certain
in money or its equivalent. The elements of a contract of sale are: (a)
consent or meeting of the minds, that is, consent to transfer ownership in
exchange for the price; (b) determinate subject matter; and (c) price certain
in money or its equivalent.
Same; Same; Contract to Sell; Words and Phrases; Contract to sell is a
bilateral contract whereby the prospective seller, while expressly reserving

the ownership of the subject property despite delivery thereof to the

prospective buyer, binds himself to sell the said property exclusively to the
prospective buyer upon fulfillment of the condition agreed upon, that is, full
payment of the purchase price.A contract to sell, on the other hand, is
defined by Article 1479 of the Civil Code: [A] bilateral contract whereby the
prospective seller, while expressly reserving the ownership of the subject
property despite delivery thereof to the prospective buyer, binds himself to
sell the said property exclusively to the prospective buyer upon fulfillment
of the condition agreed upon, that is, full payment of the purchase price. In
a contract of sale, the title to the property passes to the buyer upon the
delivery of the thing sold, whereas in a contract to sell, the ownership is, by
agreement, retained by the seller and is not to pass to the vendee until full
payment of the purchase price.
Same; Same; Contract of Sale; A contract of sale is a consensual
contract and what is required is the meeting of the minds on the object and
the price for its perfection and validity.Even assuming, arguendo, that the
petitioner was not paid, such non payment is immaterial and has no effect
on the validity of the contract of sale. A contract of sale is a consensual
contract and what is required is the meeting of the minds on the object and
the price for its perfection and validity. In this case, the contract was
perfected the moment the petitioner and the respondent agreed on the
object of the sale the two-hectare parcel of land, and the price Three
Thousand Pesos (P3,000.00). Non-payment of the purchase price merely
gave rise to a right in favor of the petitioner to either demand specific
performance or rescission of the contract of sale.
Same; Actions; Laches; As a general rule, an action to recover
registered land covered by the Torrens System may not be barred by laches.
Neither can laches be set up to resist the enforcement of an imprescriptible
legal right.Laches has been defined as the failure or neglect, for an
unreasonable and unexplained length of time, to do that which, by
exercising due diligence could or should have been done earlier. It should
be stressed that laches is not concerned only with the mere lapse of time.
As a general rule, an action to recover registered land covered by the
Torrens System may not be barred by laches. Neither can laches be set up
to resist the enforcement of an imprescriptible legal right. In exceptional
36

cases, however, the Court allowed laches as a bar to recover a titled

property. Thus, in Romero v. Natividad, 461 SCRA 553 (2005), the Court
ruled that laches will bar recovery of the property even if the mode of
transfer was invalid. Likewise, in Vda. de Cabrera v. CA, 267 SCRA 339
(1997), the Court ruled: In our jurisdiction, it is an enshrined rule
that even a registered owners of property may be barred from
recovering possession of property by virtue of laches. Under the
Land Registration Act (now the Property Registration Decree), no title to
registered land in derogation to that of the registered owner shall be
acquired by prescription or adverse possession. The same is not true with
regard to laches. x x x.

SPECIAL CIVIL ACTION in the Supreme Court. Certiorari.

The facts are stated in the opinion of the Court.
Adil & Adil, Jr. Law Offices for petitioner.
REYES,

J.:

This case was originally filed as a petition for certiorari under

Rule 65 of the Rules of Court. In the Courts Resolution dated March
9, 2009, however, the petition was treated as one for review under
Rule 45.1Assailed is the Decision2 dated April 25, 2008 and
Resolution3dated October 29, 2008 of the Court of Appeals Mindanao
Station (CA) in CA-G.R. CV No. 00156, which reversed the
Judgment4 dated January 14, 2004 of the Regional Trial Court (RTC)
of Isulan, Sultan Kudarat, Branch 19 in Civil Case No. 1007 for
Recovery of Possession of Subject Property and/or Quieting of Title
thereon and Damages.
The Facts
Ali Akang (petitioner) is a member of the national and cultural
community belonging to the Maguindanaon tribe of Isulan, Province
of Sultan Kudarat and the registered owner of Lot 5-B-2-B-14-F
(LRC) Psd 1100183 located at Kalawag III, Isulan, Sultan Kudarat,

covered by Transfer Certificate of Title (TCT) No. T-3653,5 with an

area of 20,030 square meters.6
Sometime in 1962, a two-hectare portion of the property was sold
by the petitioner to the Municipality of Isulan, Province of Sultan
Kudarat (respondent) through then Isulan Mayor Datu Ampatuan
under a Deed of Sale executed on July 18, 1962, which states:
That for and in consideration of the sum of THREE
THOUSAND PESOS ([P]3,000.00), Philippine Currency, value
to be paid and deliver to me, and of which receipt of which
shall be acknowledged by me to my full satisfaction by the
MUNICIPAL GOVERNMENT OF ISULAN, represented by the
Municipal Mayor, Datu Sama Ampatuan, hereinafter referred
to as the VENDEE, I hereby sell, transfer, cede, convey and
assign as by these presents do have sold, transferred, ceded,
conveyed and assigned, an area of TWO (2) hectares, more or
less, to and in favor of the MUNICIPAL GOVERNMENT OF
ISULAN, her (sic) heirs, assigns and administrators to have and to
hold forevery (sic) and definitely, which portion shall be utilized
purposely and exclusively as a GOVERNMENT CENTER SITE
x x x[.]7

The respondent immediately took possession of the property and

began construction of the municipal building.8Thirty-nine (39) years
later or on October 26, 2001, the petitioner, together with his wife,
Patao Talipasan, filed a civil action for Recovery of Possession of
Subject Property and/or Quieting of Title thereon and Damages
against the respondent, represented by its Municipal Mayor, et
al.9 In his complaint, the petitioner alleged, among others, that the
agreement was one to sell, which was not consummated as the
purchase price was not paid.10
In its answer, the respondent denied the petitioners allegations,
claiming, among others: that the petitioners cause of action was
already barred by laches; that the Deed of Sale was valid; and that it
has been in open, continuous and exclusive possession of the
property for forty (40) years.11
37

After trial, the RTC rendered judgment in favor of the petitioner.

The RTC construed the Deed of Sale as a contract to sell, based on
the wording of the contract, which allegedly showed that the
consideration was still to be paid and delivered on some future date
a characteristic of a contract to sell.12 In addition, the RTC
observed that the Deed of Sale was not determinate as to its object
since it merely indicated two (2) hectares of the 97,163 sq. m. lot,
which is an undivided portion of the entire property owned by the
petitioner. The RTC found that segregation must first be made to
identify the parcel of land indicated in the Deed of Sale and it is only
then that the petitioner could execute a final deed of absolute sale in
favor of the respondent.13
As regards the payment of the purchase price, the RTC found the
same to have not been made by the respondent. According to the
RTC, the Municipal Voucher is not a competent documentary proof of
payment but is merely evidence of admission by the respondent that
on the date of the execution of the Deed of Sale, the consideration
stipulated therein had not yet been paid. The RTC also ruled that
the Municipal Vouchers validity and evidentiary value is in question
as it suffers infirmities, that is, it was neither duly recorded,
numbered, signed by the Municipal Treasurer nor was it preaudited.14
The RTC also ruled that the Deed of Sale was not approved
pursuant to Section 145 of the Administrative Code for Mindanao
and Sulu or Section 120 of the Public Land Act (PLA), as amended.
Resolution No. 70,15which was issued by the respondent,
appropriating the amount of P3,000.00 as payment for the property,
and Resolution No. 644 of the Provincial Board of Cotabato, which
approved Resolution No. 70, cannot be considered proof of the sale as
said Deed of Sale was not presented for examination and approval of
the Provincial Board.16 Further, since the respondents possession of
the property was not in the concept of an owner, laches cannot be a
valid defense for claiming ownership of the property, which has been
registered in the petitioners name under the Torrens System.17

The dispositive portion of the RTC Decision18 dated January 14,

2004 reads:
WHEREFORE, upon all the foregoing considerations,
judgment is hereby rendered:
a. Declaring the contract entered into between the
plaintiffs and the defendant, Municipal Government of
Isulan, Cotabato (now Sultan Kudarat), represented by its
former Mayor, Datu Suma Ampatuan, dated July 18,
1962, as a contract to sell, without its stipulated
consideration having been paid; and for having been
entered into between plaintiff Ali Akang, an illiterate nonChristian, and the defendant, Municipal Government of
Isulan, in violation of Section 120 of C.A. No. 141,said
contract/agreement is hereby declared null and void;
b. Declaring the Deed of Sale (Exh. 1-E) dated July 18,
1962, null and void [ab] initio, for having been executed in
violation of Section 145 of the Administrative Code of
Mindanao and Sulu, and of Section 120 of the Public Land
Law, as amended by R.A. No. 3872;
c. Ordering the defendants to pay plaintiffs, the value of
the lot in question, Lot No. 5-B-2-B-14-F (LRC) Psd
110183, containing an area of 20,030 Square Meters, at
the prevailing market value, as may [be] reflected in its
Tax Declaration, or in the alternative, to agree on the
payment of monthly back rentals, retroactive to 1996,
until defendants should decide to buy and pay the value of
said lot as aforestated, with legal interest in both cases;
d. Ordering the defendant, Municipal Government of
Isulan, Sultan Kudarat, to pay plaintiffs, by way of
attorneys fee, the equivalent of 30% of the value that
defendants would pay the plaintiffs for the lot in question;
and to pay plaintiffs the further sum of [P]100,000.00, by
way of moral and exemplary damages;
e. Ordering the defendants, members of the Sangguniang
Bayan of Isulan, Sultan Kudarat, to pass a
38

resolution/ordinance for the appropriation of funds for the

payment of the value of plaintiffs Lot 5-B-2-B-14-F (LRC)
Psd-110183, and of the damages herein awarded to the
plaintiffs; and
f. Ordering the defendants to pay the costs of suit.
For lack of merit, the counterclaims of the defendants should
be, as it is hereby, dismissed.753
IT IS SO ORDERED.19
By virtue of said RTC decision, proceedings for the Cancellation of
Certificate of Title No. T-49349 registered under the name of the
respondent was instituted by the petitioner under Miscellaneous
Case No. 866 and as a result, the respondents title over the property
was cancelled and a new one issued in the name of the petitioner.
The respondent appealed the RTC Decision dated January 14,
2004 and in the Decision20 dated April 25, 2008, the CA reversed the
ruling of the RTC and upheld the validity of the sale. The dispositive
portion of the CA Decision provides:
WHEREFORE, the assailed decision dated January 14, 2004 is
hereby REVERSED and a new one entered, upholding the contract
of sale executed on July 18, 1962 between the parties.
SO ORDERED.21

The CA sustained the respondents arguments and ruled that the

petitioner is not entitled to recover ownership and possession of the
property as the Deed of Sale already transferred ownership thereof
to the respondent. The CA held that the doctrines of estoppel and
laches must apply against the petitioner for the reasons that: (1) the
petitioner adopted inconsistent positions when, on one hand, he
invoked the interpretation of the Deed of Sale as a contract to sell
but still demanded payment, and called for the application of
Sections 145 and 146 of the Administrative Code for Mindanao and

Sulu, on the other; and (2) the petitioner did not raise at the earliest
opportunity the nullity of the sale and remained passive for 39 years,
as it was raised only in 2001.22
The CA also ruled that the Deed of Sale is not a mere contract to
sell but a perfected contract of sale. There was no express
reservation of ownership of title by the petitioner and the fact that
there was yet no payment at the time of the sale does not affect the
validity or prevent the perfection of the sale.23
As regards the issue of whether payment of the price was made,
the CA ruled that there was actual payment, as evidenced by the
Municipal Voucher, which the petitioner himself prepared and
signed despite the lack of approval of the Municipal Treasurer. Even
if he was not paid the consideration, it does not affect the validity of
the contract of sale for it is not the fact of payment of the price that
determines its validity.24
In addition, the CA noted that there was an erroneous
cancellation of the certificate of title in the name of the respondent
and the registration of the same property in the name of the
petitioner in Miscellaneous Case No. 866. According to the CA, this
does not affect in any way the ownership of the respondent over the
subject property because registration or issuance of a certificate of
title is not one of the modes of acquiring ownership.25
The petitioner sought reconsideration of the CA Decision, which
was denied by the CA in its Resolution26 dated October 29, 2008.
Hence, this petition.
Issue
WHETHER THE PETITIONER IS ENTITLED TO RECOVER
OWNERSHIP AND POSSESSION OF THE PROPERTY IN DISPUTE.

Resolution of the above follows determination of these questions:

(1) whether the Deed of Sale dated July 18, 1962 is a valid and
perfected contract of sale; (2) whether there was payment of
consideration by the respondent; and (3) whether the petitioners
claim is barred by laches.
39

The petitioner claims that the acquisition of the respondent was

null and void because: (1) he is an illiterate non-Christian who only
knows how to sign his name in Arabic and knows how to read the
Quran but can neither read nor write in both Arabic and English; (2)
the respondent has not paid the price for the property; (3) the
Municipal Voucher is not admissible in evidence as proof of payment;
(4) the Deed of Sale was not duly approved in accordance with
Sections 145 and 146 of the Administrative Code of Mindanao and
Sulu, and Section 120 of the PLA, as amended; and (4) the property
is a registered land covered by a TCT and cannot be acquired by
prescription or adverse possession.27 The petitioner also explained
that the delayed filing of the civil action with the RTC was due to
Martial Law and the Ilaga-Blackshirt Troubles in the then Province
of Cotabato.28
The respondent, however, counters that: (1) the petitioner is not
an illiterate non-Christian and he, in fact, was able to execute, sign
in Arabic, and understand the terms and conditions of the Special
Power of Attorney dated July 23, 1996 issued in favor of Baikong
Akang (Baikong); (2) the Deed of Sale is valid as its terms and
conditions were reviewed by the Municipal Council of Isulan and the
Provincial Board of Cotabato; and (3) the Deed of Sale is a contract of
sale and not a contract to sell.29
Ruling of the Court
The Court finds the petition devoid of merit.
Issue Raised for the First Time
on Appeal is Barred by Estoppel
The petitioner asserts that the Deed of Sale was notarized by
Atty. Gualberto B. Baclig who was not authorized to administer the
same, hence, null and void. This argument must be rejected as it is
being raised for the first time only in this petition. In his arguments
before the RTC and the CA, the petitioner focused mainly on the
validity and the nature of the Deed of Sale, and whether there was

payment of the purchase price. The rule is settled that issues raised
for the first time on appeal and not raised in the proceedings in the
lower court are barred by estoppel. To consider the alleged facts and
arguments raised belatedly would amount to trampling on the basic
principles of fair play, justice, and due process.30 Accordingly, the
petitioners attack on the validity of the Deed of Sale vis--vis its
compliance with the 2004 New Notarial Law must be disregarded.31
The Deed of Sale is a Valid
Contract of Sale
The petitioner alleges that the Deed of Sale is merely an
agreement to sell, which was not perfected due to non-payment of the
stipulated consideration.32 The respondent, meanwhile, claims that
the Deed of Sale is a valid and perfected contract of absolute sale.33
A contract of sale is defined under Article 1458 of the Civil Code:
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 therefore a price certain in money or its
equivalent.

The elements of a contract of sale are: (a) consent or meeting of

the minds, that is, consent to transfer ownership in exchange for the
price; (b) determinate subject matter; and (c) price certain in money
or its equivalent.34
A contract to sell, on the other hand, is defined by Article 1479 of
the Civil Code:
[A] bilateral contract whereby the prospective seller, while expressly
reserving the ownership of the subject property despite delivery
thereof to the prospective buyer, binds himself to sell the said
property exclusively to the prospective buyer upon fulfillment of the
condition agreed upon, that is, full payment of the purchase price.

40

In a contract of sale, the title to the property passes to the buyer

upon the delivery of the thing sold, whereas in a contract to sell, the
ownership is, by agreement, retained by the seller and is not to pass
to the vendee until full payment of the purchase price.35
The Deed of Sale executed by the petitioner and the respondent is
a perfected contract of sale, all its elements being present. There was
mutual agreement between them to enter into the sale, as shown by
their free and voluntary signing of the contract. There was also an
absolute transfer of ownership of the property by the petitioner to
the respondent as shown in the stipulation: x x x I [petitioner] hereby
sell, transfer, cede, convey and assign as by these presents do have
sold, transferred, ceded, conveyed and assigned, x x x.36 There was
also a determinate subject matter, that is, the two-hectare parcel of
land as described in the Deed of Sale. Lastly, the price or
consideration is at Three Thousand Pesos (P3,000.00), which was to
be paid after the execution of the contract. The fact that no express
reservation of ownership or title to the property can be found in the
Deed of Sale bolsters the absence of such intent, and the contract,
therefore, could not be one to sell. Had the intention of the petitioner
been otherwise, he could have: (1) immediately sought judicial
recourse to prevent further construction of the municipal building; or
(2) taken legal action to contest the agreement.37 The petitioner did
not opt to undertake any of such recourses.
Payment of consideration or
purchase price
The petitioners allegation of non-payment is of no consequence
taking into account the Municipal Voucher presented before the
RTC, which proves payment by the respondent of Three Thousand
Pesos (P3,000.00). The petitioner, notwithstanding the lack of the
Municipal Treasurers approval, admitted that the signature
appearing on the Municipal Voucher was his and he is now estopped
from disclaiming payment.

Even assuming, arguendo, that the petitioner was not paid, such
non payment is immaterial and has no effect on the validity of the
contract of sale. A contract of sale is a consensual contract and what
is required is the meeting of the minds on the object and the price for
its perfection and validity.38 In this case, the contract was perfected
the moment the petitioner and the respondent agreed on the object of
the sale the two-hectare parcel of land, and the price Three
Thousand Pesos (P3,000.00). Non-payment of the purchase price
merely gave rise to a right in favor of the petitioner to either demand
specific performance or rescission of the contract of sale.39
Sections 145 and 146 of the Administrative Code of Mindanao
and Sulu, and Section 120 of the PLA, as amended, are not
applicable
The petitioner relies on the foregoing laws in assailing the validity
of the Deed of Sale, claiming that the contract lacks executive
approval and that he is an illiterate non-Christian to whom the
benefits of Sections 145 and 146 of the Administrative Code of
Mindanao and Sulu should apply.
Section 145 of the Administrative Code of Mindanao and Sulu
essentially provides for the requisites of the contracts entered into by
a person with any Moro or other non-Christian inhabitants.40
Section 146,41 meanwhile, provides that contracts entered into in
violation of Section 145 are void. These provisions aim to safeguard
the patrimony of the less developed ethnic groups in the Philippines
by shielding them against imposition and fraud when they enter into
agreements dealing with realty.42
Section 120 of the PLA (Commonwealth Act No. 141) affords the
same protection.43 R.A. No. No. 387244 likewise provides that
conveyances and encumbrances made by illiterate non-Christian or
literate non-Christians where the instrument of conveyance or
encumbrance is in a language not understood by said literate nonChristians shall not be valid unless duly approved by the Chairman
of the Commission on National Integration.
41

In Jandoc-Gatdula
v.
Dimalanta,45 however,
the
Court
categorically stated that while the purpose of Sections 145 and 146 of
the Administrative Code of Mindanao and Sulu in requiring
executive approval of contracts entered into by cultural minorities is
indeed to protect them, the Court cannot blindly apply that law
without considering how the parties exercised their rights
and obligations. In this case, Municipality Resolution No. 70,
which approved the appropriation of P3,000.00, was, in fact, accepted
by the Provincial Board of Cotabato. In approving the appropriation
of P3,000.00, the Municipal Council of Isulan and the Provincial
Board of Cotabato, necessarily, scrutinized the Deed of Sale
containing the terms and conditions of the sale. Moreover, there is
nothing on record that proves that the petitioner was duped into
signing the contract, that he was taken advantage of by the
respondent and that his rights were not protected.
The courts duty to protect the native vendor, however, should not
be carried out to such an extent as to deny justice to the vendee when
truth and justice happen to be on the latters side. The law cannot be
used to shield the enrichment of one at the expense of another. More
important, the law will not be applied so stringently as to render
ineffective a contract that is otherwise valid, except for want of
approval by the CNI. This principle holds, especially when the evils
sought to be avoided are not obtaining.46

The Court must also reject the petitioners claim that he did not
understand the import of the agreement. He alleged that he signed
in Arabic the Deed of Sale, the Joint Affidavit and the Municipal
Voucher, which were all in English, and that he was not able to
comprehend its contents. Records show the contrary. The petitioner,
in fact, was able to execute in favor of Baikong a Special Power of
Attorney (SPA) dated July 23, 1996, which was written in English
albeit signed by the petitioner in Arabic. Said SPA authorized
Baikong, the petitioners sister, to follow-up the payment of the
purchase price. This raises doubt on the veracity of the petitioners

allegation that he does not understand the language as he would not

have been able to execute the SPA or he would have prevented its
enforcement.
The
Petitioners
Claim
for
Recovery
of
Possession
and
Ownership is Barred by Laches
Laches has been defined as the failure or neglect, for an
unreasonable and unexplained length of time, to do that which, by
exercising due diligence could or should have been done earlier.47 It
should be stressed that laches is not concerned only with the mere
lapse of time.48
As a general rule, an action to recover registered land covered by
the Torrens System may not be barred by laches.49 Neither can laches
be set up to resist the enforcement of an imprescriptible legal
right.50 In exceptional cases, however, the Court allowed laches as a
bar to recover a titled property.
Thus, in Romero v. Natividad,51the Court ruled that laches will
bar recovery of the property even if the mode of transfer was invalid.
Likewise, in Vda. de Cabrera v. CA,52 the Court ruled:
In our jurisdiction, it is an enshrined rule that even a registered
owners of property may be barred from recovering possession
of property by virtue of laches. Under the Land Registration Act
(now the Property Registration Decree), no title to registered land in
derogation to that of the registered owner shall be acquired by
prescription or adverse possession. The same is not true with regard
to laches. x x x.53 (Citation omitted and emphasis supplied)

More particularly, laches will bar recovery of a property, even if

the mode of transfer used by an alleged member of a cultural
minority lacks executive approval.54 Thus, in Heirs of Dicman v.
Cario,55 the Court upheld the Deed of Conveyance of Part Rights
and Interests in Agricultural Land executed by Ting-el Dicman in
favor of Sioco Cario despite lack of executive approval. The Court
stated that despite the judicial pronouncement that the sale of real
42

property by illiterate ethnic minorities is null and void for lack of

approval of competent authorities, the right to recover possession
has nonetheless been barred through the operation of the equitable
doctrine of laches.56Similarly in this case, while the respondent may
not be considered as having acquired ownership by virtue of its long
and continued possession, nevertheless, the petitioners right to
recover has been converted into a stale demand due to the
respondents long period of possession and by the petitioners own
inaction and neglect.57 The Court cannot accept the petitioners
explanation that his delayed filing and assertion of rights was due to
Martial Law and the Cotabato Ilaga-Black Shirt Troubles. The
Martial Law regime was from 1972 to 1986, while the Ilaga-Black
Shirt Troubles were from the 1970s to the 1980s. The petitioner
could have sought judicial relief, or at the very least made his
demands to the respondent, as early as the third quarter of 1962
after the execution of the Deed of Sale and before the advent of these
events. Moreover, even if, as the petitioner claims, access to courts
were restricted during these times, he could have immediately filed
his claim after Martial Law and after the Cotabato conflict has
ended. The petitioners reliance on the Courts treatment of Martial
Law as force majeure that suspended the running of prescription
inDevelopment Bank of the Philippines v. Pundogar58 is inapplicable
because the Courts ruling therein pertained to prescription and not
laches. Consequently, the petitioners lengthy inaction sufficiently
warrants the conclusion that he acquiesced or conformed to the sale.

SO ORDERED.
Sereno
(CJ.,
Chairperson),
Leonardo-De
Bersaminand Villarama, Jr., JJ., concur.
Appeal denied, judgment and resolution affirmed.

Castro,

Notes.To be valid, a contract of sale need not contain a technical

description of the subject property contracts of sale of real
property have no prescribed form for their validity, they follow the
general rule on contracts that they may be entered into in whatever
form, provided all the essential requisites for their validity are
present. (Naranja vs. Court of Appeals, 586 SCRA 31 [2009])
One of the protections afforded by Presidential Decree (PD) 957 to
buyers is the right to have her contract to sell registered with the
Register of Deeds in order to make it binding on third parties. (Luzon
Development Bank vs. Enriquez, 639 SCRA 332 [2011])
o0o

Vigilantibus sed non dormientibus jura subverniunt. The law aids

the vigilant, not those who sleep on their rights. This legal percept
finds application in the petitioners case.
WHEREFORE, the appeal isDENIED. The Decision dated April
25, 2008 and Resolution dated October 29, 2008 of the Court of
Appeals Mindanao Station in CA-G.R. CV No. 00156
are AFFIRMED.
43

G.R. No. 153820.

October 16, 2009.*

DELFIN TAN, petitioner, vs. ERLINDA C. BENOLIRAO, ANDREW

C. BENOLIRAO, ROMANO C. BENOLIRAO, DION C.
BENOLIRAO, SPS. REYNALDO TANINGCO and NORMA D.
BENOLIRAO, EVELYN T. MONREAL, and ANN KARINA
TANINGCO, respondents.
Appeals; Pleadings and Practice; No new issues can be raised in the
Memorandumthe raising of additional issues in a memorandum before
the Supreme Court is irregular, because said memorandum is supposed to
be in support merely of the position taken by the party concerned in his
petition, and the raising of new issues amounts to the filing of a petition
beyond the reglementary period.The Courts September 27, 2004
Resolution expressly stated that No new issues may be raised by a party in
his/its Memorandum. Explaining the reason for this rule, we said that:
The raising of additional issues in a memorandum before the Supreme
Court is irregular, because said memorandum is supposed to be in support
merely of the position taken by the party concerned in his petition, and the
raising of new issues amounts to the filing of a petition beyond the
reglementary period. The purpose of this rule is to provide all parties to a
case a fair opportunity to be heard. No new points of law, theories, issues or
arguments may be raised by a party in the Memorandum for the reason
that to permit these would be offensive to the basic rules of fair play,
justice and due process.
Actions; Lis Pendens; Words and Phrases; In Personam Actions,
Explained; Lis pendens annotation is not proper in personal actionsthe
litigation subject of the notice of lis pendens must directly involve a
specific property which is necessarily affected by the judgment.The
litigation subject of the notice of lis pendens must directly involve a specific
property which is necessarily affected by the judgment. Tans complaint
prayed for either the rescission or the reformation of the Deed of
Conditional Sale. While the Deed does have real property for its object, we
find that Tans complaint is an in personam action, as Tan asked the court
to compel the respondents to do somethingeither to rescind the contract

and return the down payment, or to reform the contract by extending the
period given to pay the remaining balance of the purchase price. Either
way, Tan wants to enforce his personal rights against the respondents, not
against the property subject of the Deed. As we explained in Domagas v.
Jensen, 448 SCRA 663 (2005): The settled rule is that the aim and object of
an action determine its character. Whether a proceeding is in rem, or in
personam, or quasi in rem for that matter, is determined by its nature and
purpose, and by these only. A proceeding in personam is a proceeding to
enforce personal rights and obligations brought against the person and is
based on the jurisdiction of the person, although it may involve his right to,
or the exercise of ownership of, specific property, or seek to compel him to
control or dispose of it in accordance with the mandate of the court. The
purpose of a proceeding in personam is to impose, through the judgment of
a court, some responsibility or liability directly upon the person of the
defendant. Of this character are suits to compel a defendant to specifically
perform some act or actions to fasten a pecuniary liability on him.
Sales; Contract to Sell; The very essence of a contract of sale is the
transfer of ownership in exchange for a price paid or promised; A contract to
sell is defined as a bilateral contract whereby the prospective seller, while
expressly reserving the ownership of the property despite delivery thereof to
the prospective buyer, binds himself to sell the property exclusively to the
prospective buyer upon fulfillment of the condition agreed, i.e., full payment
of the purchase price.A contract is what the law defines it to be, taking
into consideration its essential elements, and not what the contracting
parties call it. Article 1485 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 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. The very
essence of a contract of sale is the transfer of ownership in exchange
for a price paid or promised. In contrast, a contract to sell is defined as a
bilateral contract whereby the prospective seller, whileexpressly
reserving the ownership of the property despite delivery thereof to the
prospective buyer,binds himself to sell the property exclusively to
the prospective buyer upon fulfillment of the condition agreed, i.e., full
44

payment of the purchase price. A contract to sell may not even be

considered as acondi38tional contract of sale where the seller may likewise reserve
title to the property subject of the sale until the fulfillment of a
suspensive condition, because in a conditional contract of sale, the
first element of consent is present, although it is conditioned upon the
happening of a contingent event which may or may not occur.
Same; Same; Jurisprudence has established that where the seller
promises to execute a deed of absolute sale upon the completion by the buyer
of the payment of the price, the contract is only a contract to sell.
Jurisprudence has established that where the seller promises to execute a
deed of absolute sale upon the completion by the buyer of the payment of
the price, the contract is only a contract to sell. Thus, while the contract is
denominated as a Deed of Conditional Sale, the presence of the abovequoted provision identifies the contract as being a mere contract to sell.
Same; Same; Settlement of Estates; An annotation placed on new
certificates of title issued pursuant to the distribution and partition of a
decedents real properties is a warning to third persons on the possible
interests of excluded heirs or unpaid creditors in these propertieswhere a
buyer purchases the real property despite the annotation, he must be ready
for the possibility that the title could be subject to the rights of excluded
parties.An annotation is placed on new certificates of title issued
pursuant to the distribution and partition of a decedents real properties to
warn third persons on the possible interests of excluded heirs or unpaid
creditors in these properties. The annotation, therefore, creates a legal
encumbrance or lien on the real property in favor of the excluded
heirs or creditors. Where a buyer purchases the real property
despite the annotation, he must be ready for the possibility that
the title could be subject to the rights of excluded parties. The
cancellation of the sale would be the logical consequence where: (a) the
annotation clearly appears on the title, warning all would-be buyers; (b) the
sale unlawfully interferes with the rights of heirs; and (c) the rightful heirs
bring an action to question the transfer within the two-year period
provided by law.

Same; Same; Rescission; The remedy of rescission under Article 1191 of

the Civil Code cannot apply to mere contracts to sellin a contract to sell,
the payment of the purchase price is a positive sus39pensive condition, and failure to pay the price agreed upon is not a
mere breach, casual or serious, but a situation that prevents the obligation
of the vendor to convey title from acquiring an obligatory force.We have
held in numerous cases that the remedy of rescission under Article 1191
cannot apply to mere contracts to sell. We explained the reason for this
in Santos v. Court of Appeals, 337 SCRA 67 (2000) where we said: [I]n a
contract to sell, title remains with the vendor and does not pass on to the
vendee until the purchase price is paid in full. Thus, in a contract to sell,
the payment of the purchase price is a positive suspensive
condition. Failure to pay the price agreed upon is not a mere
breach, casual or serious, but a situation that prevents the
obligation of the vendor to convey title from acquiring an
obligatory force. This is entirely different from the situation in a contract
of sale, where non-payment of the price is a negative resolutory condition.
The effects in law are not identical. In a contract of sale, the vendor has
lost ownership of the thing sold and cannot recover it, unless the contract
of sale is rescinded and set aside. In a contract to sell, however, the
vendor remains the owner for as long as the vendee has not
complied fully with the condition of paying the purchase price. If
the vendor should eject the vendee for failure to meet the condition
precedent, he is enforcing the contract and not rescinding it. x x x Article
1592 speaks of non-payment of the purchase price as a resolutory
condition. It does not apply to a contract to sell. As to Article 1191, it is
subordinated to the provisions of Article 1592 when applied to sales of
immovable property. Neither provision is applicable [to a contract to sell].
Same; Same; Interests; Pursuant to Eastern Shipping Lines, Inc. v.
Court of Appeals, 234 SCRA 78 (1994), the vendors should return the
200,000.00 down payment to the buyer, subject to the legal interest of 6% per
annum computed from the date of the first demand letter.Tan made a
clear and unequivocal demand on the vendors to return his down payment
as early as May 28, 1993. Pursuant to our definitive ruling in Eastern
Shipping Lines, Inc. v. Court of Appeals, 234 SCRA 78 (1994) we hold that
45

the vendors should return the P200,000.00 down payment to Tan, subject
to the legal interest of 6% per annum computed from May 28, 1993, the
date of the first demand letter. Furthermore, after a judgment has become
final and executory, the rate of legal interest, whether the obligation was in
the form of a loan or forbearance of money or oth40erwise, shall be 12% per annum from such finality until its
satisfaction. Accordingly, the principal obligation of P200,000.00 shall bear
6% interest from the date of first demand or from May 28, 1993. From the
date the liability for the principal obligation and attorneys fees has become
final and executory, an annual interest of 12% shall be imposed on these
obligations until their final satisfaction, this interim period being deemed
to be by then an equivalent to a forbearance of credit.

PETITION for review on certiorari of a decision of the Court of

Appeals.
The facts are stated in the opinion of the Court.
Renato A. Abejero for petitioner.
Cabrera, Makalintal & Baliad Law Offices for respondents.
BRION, J.:
Is an annotation made pursuant to Section 4, Rule 74 of the Rules
of Court (Rules) on a certificate of title covering real property
considered an encumbrance on the property? We resolve this
question in the petition for review on certiorari1filed by Delfin Tan
(Tan) to assail the decision of the Court of Appeals (CA) in CA-G.R.
CV No. 520332 and the decision of the Regional Trial Court
(RTC)3 that commonly declared the forfeiture of his P200,000.00
down payment as proper, pursuant to the terms of his contract with
the respondents.
The Antecedents
The facts are not disputed. Spouses Lamberto and Erlinda
Benolirao and the Spouses Reynaldo and Norma Taningco were the
co-owners of a 689-square meter parcel of land (property) located in

Tagaytay City and covered by Transfer Certificate of Title (TCT) No.

26423. On October 6, 1992, the co-owners executed a Deed of
Conditional Sale over the property in favor of Tan for the price of
P1,378,000.00. The deed stated:
a) An initial down-payment of TWO HUNDRED (P200,000.00)
THOUSAND PESOS, Philippine Currency, upon signing of this
contract; then the remaining balance of ONE MILLION ONE
HUNDRED SEVENTY EIGHT THOUSAND (P1,178,000.00)
PESOS, shall be payable within a period of one hundred fifty
(150) days from date hereof without interest;
b) That for any reason, BUYER fails to pay the remaining
balance within above mentioned period, the BUYER shall have
a grace period of sixty (60) days within which to make the
payment, provided that there shall be an interest of 15% per
annum on the balance amount due from the SELLERS;
c) That should in case (sic) the BUYER fails to comply with the
terms and conditions within the above stated grace period, then
the SELLERS shall have the right to forfeit the down payment,
and to rescind this conditional sale without need of judicial
action;
d) That in case, BUYER have complied with the terms and
conditions of this contract, then the SELLERS shall execute
and deliver to the BUYER the appropriate Deed of Absolute
Sale;
Pursuant to the Deed of Conditional Sale, Tan issued and
delivered to the co-owners/vendors Metrobank Check No. 904407 for
P200,000.00 as down payment for the property, for which the
vendors issued a corresponding receipt.42
On November 6, 1992, Lamberto Benolirao died intestate. Erlinda
Benolirao (his widow and one of the vendors of the property) and her
children, as heirs of the deceased, executed an extrajudicial
settlement of Lambertos estate on January 20, 1993. On the basis of
the extrajudicial settlement, a new certificate of title over the
property, TCT No. 27335, was issued on March 26, 1993 in the
46

names of the Spouses Reynaldo and Norma Taningco and Erlinda

Benolirao and her children. Pursuant to Section 4, Rule 74 of the
Rules, the following annotation was made on TCT No. 27335:
x x x any liability to credirots (sic), excluded heirs and other persons
having right to the property, for a period of two (2) years, with respect only
to the share of Erlinda, Andrew, Romano and Dion, all surnamed
Benolirao

As stated in the Deed of Conditional Sale, Tan had until March

15, 1993 to pay the balance of the purchase price. By agreement of
the parties, this period was extended by two months, so Tan had
until May 15, 1993 to pay the balance. Tan failed to pay and asked
for another extension, which the vendors again granted.
Notwithstanding this second extension, Tan still failed to pay the
remaining balance due on May 21, 1993. The vendors thus wrote him
a letter demanding payment of the balance of the purchase price
within five (5) days from notice; otherwise, they would declare the
rescission of the conditional sale and the forfeiture of his down
payment based on the terms of the contract.
Tan refused to comply with the vendors demand and instead
wrote them a letter (dated May 28, 1993) claiming that the
annotation on the title, made pursuant to Section 4, Rule 74 of the
Rules, constituted an encumbrance on the property that would
prevent the vendors from delivering a clean title to him. Thus, he
alleged that he could no longer be required to pay the balance of the
purchase price and demanded the return of his down payment.43
When the vendors refused to refund the down payment, Tan,
through counsel, sent another demand letter to the vendors on June
18, 1993. The vendors still refused to heed Tans demand, prompting
Tan to file on June 19, 1993 a complaint with the RTC of Pasay City
for specific performance against the vendors, including Andrew
Benolirao, Romano Benolirao, Dion Benolirao as heirs of Lamberto
Benolirao, together with Evelyn Monreal and Ann Karina Taningco
(collectively, the respondents). In his complaint, Tan alleged that
there was a novation of the Deed of Conditional Sale done without
his consent since the annotation on the title created an encumbrance

over the property. Tan prayed for the refund of the down payment
and the rescission of the contract.
On August 9, 1993, Tan amended his Complaint, contending that
if the respondents insist on forfeiting the down payment, he would be
willing to pay the balance of the purchase price provided there is
reformation of the Deed of Conditional Sale. In the meantime, Tan
caused the annotation on the title of a notice of lis pendens.
On August 21, 1993, the respondents executed a Deed of Absolute
Sale over the property in favor of Hector de Guzman (de Guzman) for
the price of P689,000.00.
Thereafter, the respondents moved for the cancellation of the
notice of lis pendens on the ground that it was inappropriate since
the case that Tan filed was a personal action which did not involve
either title to, or possession of, real property. The RTC issued an
order dated October 22, 1993 granting the respondents motion to
cancel the lis pendens annotation on the title.
Meanwhile, based on the Deed of Absolute Sale in his favor, de
Guzman registered the property and TCT No. 28104 was issued in
his name. Tan then filed a motion to carry over the lis
pendensannotation to TCT No. 28104 registered in de Guzmans
name, but the RTC denied the motion.
On September 8, 1995, after due proceedings, the RTC rendered
judgment ruling that the respondents forfeiture of
44Tans down payment was proper in accordance with the terms and
conditions of the contract between the parties.4 The RTC ordered Tan
to pay the respondents the amount of P30,000.00, plus P1,000.00 per
court appearance, as attorneys fees, and to pay the cost of suit.
On appeal, the CA dismissed the petition and affirmed the ruling
of the trial court in toto. Hence, the present petition.
The Issues
Tan argues that the CA erred in affirming the RTCs ruling to
cancel the lis pendens annotation on TCT No. 27335. Due to the
unauthorized novation of the agreement, Tan presented before the
trial court two alternative remedies in his complainteither the
47

rescission of the contract and the return of the down payment, or the
reformation of the contract to adjust the payment period, so that Tan
will pay the remaining balance of the purchase price only after the
lapse of the required two-year encumbrance on the title. Tan posits
that the CA erroneously disregarded the alternative remedy of
reformation of contract when it affirmed the removal of the lis
pendensannotation on the title.
Tan further contends that the CA erred when it recognized the
validity of the forfeiture of the down payment in favor of the vendors.
While admitting that the Deed of Conditional Sale contained a
forfeiture clause, he insists that this clause applies only if the failure
to pay the balance of the purchase price was through his own fault or
negligence. In the present case, Tan claims that he was justified in
refusing to pay the balance price since the vendors would not have
been able to comply with their obligation to deliver a clean title
covering the property.
Lastly, Tan maintains that the CA erred in ordering him to pay
the respondents P30,000.00, plus P1,000.00 per court appearance as
attorneys fees, since he filed the foregoing action in good faith,
believing that he is in the right.
The respondents, on the other hand, assert that the petition
should be dismissed for raising pure questions of fact, in
contravention of the provisions of Rule 45 of the Rules which
provides that only questions of law can be raised in petitions for
review on certiorari.
The Courts Ruling
The petition is granted.
No new issues can be raised in the
Memorandum
At the onset, we note that Tan raised the following additional
assignment of errors in his Memorandum: (a) the CA erred in
holding that the petitioner could seek reformation of the Deed of

Conditional Sale only if he paid the balance of the purchase price and
if the vendors refused to execute the deed of absolute sale; and (b)
the CA erred in holding that the petitioner was estopped from asking
for the reformation of the contract or for specific performance.
The Courts September 27, 2004 Resolution expressly stated that
No new issues may be raised by a party in his/its Memorandum.
Explaining the reason for this rule, we said that:
The raising of additional issues in a memorandum before the Supreme
Court is irregular, because said memorandum is supposed to be in support
merely of the position taken by the party concerned in his petition, and the
raising of new issues amounts to the filing of a petition beyond the
reglementary period. The purpose of this rule is to provide all parties to a
case a fair opportunity to be heard. No new points of law, theories, issues or
arguments may be raised by a
46party in the Memorandum for the reason that to permit these would be
offensive to the basic rules of fair play, justice and due process.5

Tan contravened the Courts explicit instructions by raising these

additional errors. Hence, we disregard them and focus instead on the
issues previously raised in the petition and properly included in the
Memorandum.
Petition raises a question of law
Contrary to the respondents claim, the issue raised in the present
petitiondefined in the opening paragraph of this Decisionis a
pure question of law. Hence, the petition and the issue it presents
are properly cognizable by this Court.
Lis pendens annotation not proper
in personal actions
Section 14, Rule 13 of the Rules enumerates the instances when a
notice of lis pendens can be validly annotated on the title to real
property:
Sec. 14. Notice of lis pendens.
48

In an action affecting the title or the right of possession of real

property, the plaintiff and the defendant, when affirmative relief is claimed
in his answer, may record in the office of the registry of deeds of the
province in which the property is situated a notice of the pendency of the
action. Said notice shall contain the names of the parties and the object of
the action or defense, and a description of the property in that province
affected thereby. Only from the time of filing such notice for record shall a
purchaser, or encumbrancer of the property affected thereby, be deemed to
have constructive notice of the pendency of the action, and only of its
pendency against the parties designated by their real names.
The notice of lis pendenshereinabove mentioned may be cancelled only
upon order of the court, after proper showing that the notice is for the
purpose of molesting the adverse party, or that it is not necessary to
protect the rights of the party who caused it to be recorded.

The litigation subject of the notice of lis pendens must directly

involve a specific property which is necessarily affected by the
judgment.6
Tans complaint prayed for either the rescission or the reformation
of the Deed of Conditional Sale. While the Deed does have real
property for its object, we find that Tans complaint is an in
personamaction, as Tan asked the court to compel the respondents to
do somethingeither to rescind the contract and return the down
payment, or to reform the contract by extending the period given to
pay the remaining balance of the purchase price. Either way, Tan
wants to enforce his personal rights against the respondents, not
against the property subject of the Deed. As we explained inDomagas
v. Jensen:7
The settled rule is that the aim and object of an action determine its
character. Whether a proceeding is in rem, or in personam, or quasi in
remfor that matter, is determined by its nature and purpose, and by these
only. A proceeding in personam is a proceeding to enforce personal rights
and obligations brought against the person and is based on the jurisdiction
of the person, although it may involve his right to, or the exercise of
ownership of, specific property, or seek to compel him to control or dispose
of it in accordance with the mandate of the court. The purpose of a

proceedingin personam is to impose, through the judgment of a court, some

responsibility or liability directly upon the person of the defendant. Of this
character are suits to compel a defendant to specifically perform some act
or actions to fasten a pecuniary liability on him.

Furthermore, as will be explained in detail below, the contract

between the parties was merely a contract to sell where the vendors
retained title and ownership to the property until Tan had fully paid
the purchase price. Since Tan had no claim of ownership or title to
the property yet, he obviously had no right to ask for the annotation
of a lis pendens notice on the title of the property.
Contract is a mere contract to sell
A contract is what the law defines it to be, taking into
consideration its essential elements, and not what the contracting
parties call it.8 Article 1485 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 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.

The very essence of a contract of sale is the transfer of

ownership in exchange for a price paid or promised.9
In contrast, a contract to sellis defined as a bilateral contract
whereby the prospective seller, while expressly reserving the
ownership of the propertydespite delivery thereof to the
prospective buyer, binds himself to sell the property exclusively
to the prospective buyer upon fulfillment of the condition
agreed,i.e., full payment of the purchase price.10 A contract to sell
may not even be considered as aconditional contract of salewhere
the seller may likewise reserve title to the property subject of the
sale until thefulfillment of a suspensive condition, because in a
conditional contract of sale, the first element of consent is
49

present, although it is conditioned upon the happening of a

contingent event which may or may not occur.11
In the present case, the true nature of the contract is revealed by
paragraph D thereof, which states:
x x x
d) That in case, BUYER has complied with the terms and
conditions of this contract, then the SELLERS shall execute
and deliver to the BUYER the appropriate Deed of Absolute
Sale;
x x x
Jurisprudence has established that where the seller promises to
execute a deed of absolute sale upon the completion by the buyer of
the payment of the price, the contract is only a contract to sell.12Thus,
while the contract is denominated as a Deed of Conditional Sale, the
presence of the above-quoted provision identifies the contract as
being a mere contract to sell.
A Section 4, Rule 74 annotation is an
encumbrance on the property
While Tan admits that he refused to pay the balance of the
purchase price, he claims that he had valid reason to do sothe
sudden appearance of an annotation on the title pursuant to Section
4, Rule 74 of the Rules, which Tan considered an encumbrance on
the property.
We find Tans argument meritorious.
The annotation placed on TCT No. 27335, the new title issued to
reflect the extrajudicial partition of Lamberto Benoliraos estate
among his heirs, states:
x x x any liability to credirots (sic), excluded heirs and other persons
having right to the property, for a period of two (2) years, with respect
only to the share of Erlinda, Andrew, Romano and Dion, all
surnamed Benolirao [Emphasis supplied.]

This annotation was placed on the title pursuant to Section 4,

Rule 74 of the Rules, which reads:
Sec. 4. Liability of distributees and estate.If it shall appear at any
time within two (2) years after the settlement and distribution of an estate
in accordance with the provisions of either of the first two sections of this
rule, that an heir or other person has been unduly deprived of his lawful
participation in the estate, such heir or such other person may compel the
settlement of the estate in the courts in the manner hereinafter provided
for the purpose of satisfying such lawful participation. And if within the
same time of two (2) years, it shall appear that there are debts
outstanding against the estate which have not been paid, or that
an heir or other person has been unduly deprived of his lawful
participation payable in money, the court having jurisdiction of
the estate may, by order for that purpose, after hearing,settle the
amount of such debts or lawful participation and order how much
and in what manner each distributee shall contribute in the
payment thereof, and may issue execution, if circumstances
require, against the bond provided in the preceding section or
against the real estate belonging to the deceased, or both. Such bond
and such real estate shall remain charged with a liability to creditors,
heirs, or other persons for the full period of two (2) years after such
distribution, notwithstanding any transfers of real estate that may have
been made. [Emphasis supplied.]

Senator Vicente Francisco discusses this provision in his bookThe

Revised Rules of Court in the Philippines,13 where he states:
The provision of Section 4, Rule 74 prescribes the procedure to be
followed if within two years after an extrajudicial partition or summary
distribution is made, an heir or other person appears to have been deprived
of his lawful participation in the estate, or some outstanding debts which
have not been paid are discovered. When the lawful participation of
the heir is not payable in money, because, for instance, he is
entitled to a part of the real property that has been partitioned,
there can be no other procedure than to cancel the partition so
made and make a new division, unless, of course, the heir agrees to
50

be paid the value of his participation with interest. But in case the
lawful participation of the heir consists in his share in personal property of
money left by the decedent, or in case unpaid debts are discovered within
the said period of two years, the procedure is not to cancel the partition,
nor to appoint an administrator to re-assemble the assets, as was allowed
under the old Code, but the court, after hearing, shall fix the amount of
such debts or lawful participation in proportion to or to the extent of the
assets they have respectively received and, if circumstances require, it may
issue execution against the real estate belonging to the decedent, or both.
The present procedure is more expedient and less expensive in that it
dispenses with the appointment of an administrator and does not disturb
the possession enjoyed by the distributees.14 [Emphasis supplied.]

An annotation is placed on new certificates of title issued

pursuant to the distribution and partition of a decedents real
properties to warn third persons on the possible interests of excluded
heirs or unpaid creditors in these properties. The annotation,
therefore, creates a legal encumbrance or lien on the real
property in favor of the excluded heirs or creditors.Where a
buyer purchases the real property despite the annotation, he
must be ready for the possibility that the title could be
subject to the rights of excluded parties. The cancellation of the
sale would be the logical consequence where: (a) the annotation
clearly appears on the title, warning all would-be buyers; (b) the sale
unlawfully interferes with the rights of heirs; and (c) the rightful
heirs bring an action to question the transfer within the two-year
period provided by law.
As we held in Vda. de Francisco v. Carreon:15
And Section 4, Rule 74 xxx expressly authorizes the court to give to
every heir his lawful participation in the real estate notwithstanding any
transfers of such real estate and to issue execution thereon. All this
implies that, when within the amendatory period the realty has
been alienated, the court in re-dividing it among the heirs has the
authority to direct cancellation of such alienation in the same
estate proceedings, whenever it becomes necessary to do so. To
require the institution of a separate action for such annulment would run

counter to the letter of the above rule and the spirit of these summary
settlements. [Emphasis supplied.]

Similarly, in Sps. Domingo v. Roces,16 we said:

The foregoing rule clearly covers transfers of real property
to anyperson, as long as the deprived heir or creditor vindicates his rights
within two years from the date of the settlement and distribution of estate.
Contrary to petitioners contention,the effects of this provision are not
limited to the heirs or original distributees of the estate properties,
but shall affect anytransferee of the properties. [Emphasis supplied.]

Indeed, in David v. Malay,17although the title of the property had

already been registered in the name of the third party buyers, we
cancelled the sale and ordered the reconveyance of the property to
the estate of the deceased for proper disposal among his rightful
heirs.
By the time Tans obligation to pay the balance of the purchase
price arose on May 21, 1993 (on account of the extensions granted by
the respondents), a new certificate of title covering the property had
already been issued on March 26, 1993, which contained the
encumbrance on the property; the encumbrance would remain so
attached until the expiration of the two-year period. Clearly, at this
time, the vendors could no longer compel Tan to pay the balance of
the purchase since considering they themselves could not fulfill their
obligation to transfer a clean title over the property to Tan.
Contract to sell is not rescinded but terminated
What then happens to the contract?
We have held in numerous cases18 that the remedy of rescission
under Article 1191 cannot apply to mere contracts to sell. We
explained the reason for this in Santos v. Court of Appeals,19 where
we said:
[I]n a contract to sell, title remains with the vendor and does not pass on
to the vendee until the purchase price is paid in full. Thus, in a contract to
sell, the payment of the purchase price is a positive suspensive
51

condition.Failure to pay the price agreed upon is not a mere breach,

casual or serious, but a situation that prevents the obligation of
the vendor to convey title from acquiring an obligatory force. This
is entirely different from the situation in a contract of sale, where nonpayment of the price is a negative resolutory condition. The effects in law
are not identical. In a contract of sale, the vendor has lost ownership of the
thing sold and cannot recover it, unless the contract of sale is rescinded and
set aside. In a contract to sell, however, the vendor remains the
owner for as long as the vendee has not complied fully with the
condition of paying the purchase price. If the vendor should eject the
vendee for failure to meet the condition precedent, he is enforcing the
contract and not rescinding it. x x x Article 1592 speaks of non-payment of
the purchase price as a resolutory condition. It does not apply to a contract
to sell. As to Article 1191, it is subordinated to the provisions of Article
1592 when applied to sales of immovable property. Neither provision is
applicable [to a contract to sell]. [Emphasis supplied.]

We, therefore, hold that the contract to sell was terminated when
the vendors could no longer legally compel Tan to pay the balance of
the purchase price as a result of the legal encumbrance which
attached to the title of the property. Since Tans refusal to pay was
due to the supervening event of a legal encumbrance on the property
and not through his own fault or negligence, we find and so hold that
the forfeiture of Tans down payment was clearly unwarranted.
Award of Attorneys fees
As evident from our previous discussion, Tan had a valid reason
for refusing to pay the balance of the purchase price for the property.
Consequently, there is no basis for the award of attorneys fees in
favor of the respondents.
On the other hand, we award attorneys fees in favor of Tan, since
he was compelled to litigate due to the respondents refusal to return
his down payment despite the fact that they could no longer comply
with their obligation under the contract to sell, i.e., to convey a clean

title. Given the facts of this case, we find the award of P50,000.00 as
attorneys fees proper.
Monetary award is subject to legal interest
Undoubtedly, Tan made a clear and unequivocal demand on the
vendors to return his down payment as early as May 28, 1993.
Pursuant to our definitive ruling in Eastern Ship55ping Lines, Inc. v. Court of Appeals,20 we hold that the vendors
should return the P200,000.00 down payment to Tan, subject to the
legal interest of 6% per annum computed from May 28, 1993, the
date of the first demand letter.
Furthermore, after a judgment has become final and executory,
the rate of legal interest, whether the obligation was in the form of a
loan or forbearance of money or otherwise, shall be 12% per
annumfrom such finality until its satisfaction. Accordingly, the
principal obligation of P200,000.00 shall bear 6% interest from the
date of first demand or from May 28, 1993. From the date the
liability for the principal obligation and attorneys fees has become
final and executory, an annual interest of 12% shall be imposed on
these obligations until their final satisfaction, this interim period
being deemed to be by then an equivalent to a forbearance of credit.
WHEREFORE, premises considered, we hereby GRANT the
petition and, accordingly, ANNUL and SET ASIDE the May 30, 2002
decision of the Court of Appeals in CA-G.R. CV No. 52033. Another
judgment is rendered declaring the Deed of Conditional Sale
terminated and ordering the respondents to return the P200,000.00
down payment to petitioner Delfin Tan, subject to legal interest of
6% per annum, computed from May 28, 1993. The respondents are
also ordered to pay, jointly and severally, petitioner Delfin Tan the
amount of P50,000.00 as and by way of attorneys fees. Once this
decision becomes final and executory, respondents are ordered to pay
interest at 12% per annum on the principal obligation as well as the
52

attorneys fees, until full payment of these amounts. Costs against

the respondents.
SO ORDERED.
Quisumbing,** Carpio-Morales, Nachura*** and Abad, JJ., concur.
Petition granted, judgment annulled and set aside.
Notes.There is no such action as one for annotation of lis
pendens. (AFP Mutual Benefit Association, Inc. vs. Court of Appeals,
327 SCRA 203 [2000])
A notice of lis pendens is an announcement to the whole world
that a particular real property is in litigation, and serves as a
warning that one who acquires an interest over said property does so
at his own risk, or that he gambles on the result of the litigation over
said property. (Ruiz vs. Court of Appeals, 334 SCRA 756 [2000])
o0o

53

No. L-29442. November 11, 1987.

FORTUNATO BOLLOZOS, ANDREA BOLLOZOS VDA. DE

RAPANOT, PABLO B. CALAM, EPIFANIA B. BEVERA, SERGIO B.
CALAM, GUALBERTO B. CALAM, IGNACIO B. CALAM, JOSE B.
CALAM, JR. and CAROLINA B. CALAM, plaintiffs-appellees,vs. YU
TIENG SU, alias SISO YU, defendant-appellant.
Civil Law; Contracts; Sale with right of repurchase; Where all the
elements of a valid contract were present, the transaction was a valid sale
with right of repurchase and effectively transferred ownership of the land to
the buyer.The Court holds that the first transaction was a valid sale with
right of repurchase and effectively transferred ownership of the land in
dispute to the defendant-appellant. All the elements of a valid contract
were present, and in any case the plaintiffs-appellees themselves have
stipulated on its authenticity.
Same; Same; Same; Constitutional Law;Acquisition of agricultural
lands by aliens under the Commonwealth Constitution; As to the contract of
sale was concluded in 1934, the prohibition against the acquisition of
agricultural lands by aliens was not yet applicable as it was effective only
under the Commonwealth Constitution; Title acquired by the buyer was
recognized in the Commonwealth Constitution as a vested right and could
no longer be disturbed.As it was concluded in 1934, the prohibition
against the acquisition of agricultural lands by aliens was not yet
applicable, having become effective only from November 15, 1935, under
the Commonwealth Constitution. Moreover, the title acquired by Yu was
recognized in the said Constitution as a vested right that could no longer be
disturbed under the new provisions of that charter reserving ownership of
such lands to Filipino citizens.
Same; Same; Same; Same; Same; Fact that the first transaction was
subject only to the vendors right to redeem the property within a specified
period effectively transferred ownership of the land to the vendee.The
plaintiffs-appellees err in suggesting that the first transaction, being
conditional, did not effectively transfer the ownership of the land to the

vendee. It did, certainly, subject only to the right of the vendor to redeem it
within the period specified.
Same; Same; Same; Same; Same; Same; It is unnecessary for the
parties to enter into a second contract over the property which was merely
an affirmation or reiteration of the parties in the first transaction, and the
first contract of sale had already been perfected and consummated; Purpose
of the second contract was to manifest the sellers waiver of his right to
repurchase.To be sure, Paulino Bollozos could have repurchased the
property within seven years pursuant to the first contract. However, he did
not choose to do so and in fact renounced and repudiated this right two
years later in the second contract. It is noted that this contract also
purported to convey the same property to Yu but this was merely an
affirmation or reiteration of the parties intention in the first transaction. It
was not really necessary to repeat the sale because the first contract had
already been perfected and consummated. Indeed, the sale could not have
been made for the first time then for it would have been illegal under the
provisions of the new Constitution that had come into force in 1935.
Actually, the real purpose of the second contract was to manifest Paulino
Bollozos waiver of his right to repurchase, for which he received the
additional sum of P295.00.
Same; Same; Same; Failure to register the sale did not vitiate it or
render it unenforceable; An unrecorded deed of sale is binding between the
parties and their privies because actual notice is equivalent to registration;
Real purpose of registration.The first deed of sale took effect on
September 1, 1934, and legally transferred ownership of the land subject
thereof from the vendor to Yu on the said date. Failure to register the sale
did not vitiate it or render it unenforceable. As we have held in several
cases, an unrecorded deed of sale is binding between the parties and their
privies because actual notice is equivalent to registration. The real purpose
of registration being to give notice to third persons, deed of sale that has
not been registered does not lose its efficacy insofar as the parties thereto
and their heirs are concerned.
Same; Same; Same; Registration is not a mode of acquiring
ownership.It is settled that registration is not a mode of acquiring
ownership.
54

Same; Same; Same; Same; Title and ownership over lands within the
meaning and purpose of the constitutional prohibition dates back to the
time of their purchase, not later; Alien owners also acquired their lands in
good faith before the prohibition but failed to register them or register them
only after the Constitution was adopted is illegal or unjust.And with
particular reference to problems such as the one at bar, we have ruled that:
Title and ownership over lands within the meaning and for the purposes of
the constitutional prohibition, dates back to the time of their purchase, not
later. Any other ruling would be illegal and unjust, and would operate to
dispossess alien owners who had acquired their lands in good faith before
the prohibition was established, but either failed wholly to register them or
registered them only after the Constitution was adopted.
Same; Same; Same; Equitable mortgage, not a case of; Although the
land continued to be registered and all tax declarations were made in the
name of the vendor-seller, such circumstance would not change the nature of
the 1934 contract of sale but may demonstrate neglect of the vendee who had
a right td transfer the registration in his name.As for the finding of the
trial court that the deed of sale with the right of repurchase was an
equitable mortgage, we hold it has no basis in fact and law. All that is
invoked in its support is that the land continued to be registered, and all
the tax declarations thereon were made, in the name of Paulino Bollozos.
That may well be, but that circumstance would not change the nature of
the contract concluded in 1934. At best, it may demonstrate neglect on the
part of the vendee, who had a right to transfer the registration in his name,
but that would not signify that Paulino Bollozos retained or recovered
ownership of the land he had already sold.
Same; Same; Same; Same; Provision of Art. 1602 of the Civil Code on
equitable mortgage was not embodied in the old Civil Code which was
enforced in 1934; One of the indicia of an equitable mortgage is that the
vendor remains in possession of the property; In case at bar, the vendors
complaint asks for recovery of possession of the land from the vendee.The
defendant-appellant cites Article 1602^ of the Civil Code and argues that
none of the indications mentioned therein of an equitable mortgage are
present in this case. While we are inclined to agree, it should be noted that
the said article is not applicable because it was not embodied in the old

Civil Code which was in force in 1934. This is an innovation in the present
Code. In any event, it is worth stressing that one of the indicia mentioned
in the said article is that the vendor remains in possession of the property
in question, which is not the situation here. The complaint, in fact, asks for
recovery of possession of the land from defendant Yu.
Same; Same; Same; Contract of sale with pacto de retro became
absolute when the vendor waived his right to repurchase under the second
contract.In sum, we hold that the trial court erred in disregarding the
sale with right of repurchase concluded on September 1, 1934, and in
considering it an equitable mortgage. The second contract executed on
September 21, 1936, could not have validly conveyed the land in question
to defendant Yu, who was an alien, as this was already prohibited by the
Commonwealth Constitution. Nevertheless, it was effective in affirming
the earlier contract of September 1,1934, and, more importantly, in making
it absolute with the renunciation by the vendor of his right to repurchase
the property. Accordingly, Yu should be recognized as the lawful owner of
the land in dispute, acquired by him by virtue of a legitimate contract of
sale with pacto de retro which became absolute when the vendor waived his
right of repurchase.
Same; Same; Same; Aliens; Fact that defendant-vendee was an alien
cannot be taken against him as he was not disqualified from acquiring the
land when the sale was concluded in 1934; Supreme Court dispenses equal
justice to the citizen and the alien and judges them on the merits of their
cause and not on the color of their skin.The fact that the defendant in this
case was an alien cannot be taken against him for he was not disqualified
from acquiring the land in question when the sale was concluded in 1934.
It should not deter us from ruling in his favor now. This Court dispenses
equal justice to the citizen and the alien and judges them on the merits of
their cause and not the color of their skin. Having admitted him into our
territory, the State is committed to the recognition of all the rights of the
stranger in our midst save only where they unduly clash with the higher
interests of our own nation. There is no such collision here. On the
contrary, we see here an opportunity to prove, as we do now, that respect
for the foreign guest is ingrained in the law of the land and in the nature of
our people.
55

APPEAL from the decision of the Court of First Instance of Misamis

Oriental, Br. 4.
The facts are stated in the opinion of the Court.
CRUZ, J.:
The original protagonists in this controversy have long since passed
away into the tongueless silence of the dreamless dust and are now
but mute witnesses to this litigation. We can now go only by the
musty records that will take us back to more than half a century ago,
before the period of the Commonwealth.
This case was formally commenced on January 20, 1968, with the
filing of a complaint for the recovery of a 1.2 hectare parcel of land
and accounting for its use from defendant Yu, the herein appellant.
The plaintiffs claimed that the said land had been delivered to him
only for administration so he could apply the produce thereof to the
indebtedness of Paulino Bollozos, their predecessor-in-interest. It
was alleged that Yu had refused to return the land despite demand
and to make the required accounting although the debt had long
been paid.
In his answer, the defendant averred that he had acquired
ownership of the land in question by virtue of two documents
executed in his favor by Paulino Bollozos, to wit, a deed of sale with
right of repurchase dated September 1, 1934, and a deed of absolute
sale dated September 21, 1936. He therefore had no obligation to
return it. Additionally, Yu claimed that the suit was barred by
prescription, the complaint having been filed only after all of 26
years.
Issues having been joined, the parties later entered into a
stipulation of facts before the trial court, reading in full as follows:
1

1. That both parties hereby agree on the identity of the parcel of land
in litigation as described in paragraph II of the amended complaint,
which parcel of land is covered by OCT No. 5033 in the name of
Paulino Bollozos;

2. That plaintiffs Fortunato Bollozos and Andrea Bollozos are the only
surviving children of the late Paulino Bollozos while the rest of the
above-named plaintiffs are the grandchildren of said Paulino
Bollozos;
3. That sometime on September 1, 1934, the late Paulino Bollozos
executed a document entitled Escritura de Compra y Venta Con
Pacto de Retro, the original of which is hereto attached as Annex A
to form part hereof and another document was executed by the late
Paulino Bollozos entitled A Definite and Absolute Purchase and
Sale dated September 21, 1936, the original copy of which is hereto
attached to form an integral part of this complete stipulation of
facts, that the parties agree to submit the entitled case for decision
on the basis of the following issue or issues:
4.
(a) Whether a valid conveyance of ownership was made of the
parcel of land in litigation on September 1, 1934 as
appearing in Annex A, entitled Escritura de Compra y Venta
Con Pacto de Retro, or on September 21, 1936 as appearing
in Annex B, entitled A Definite and Absolute Purchase and
Sale of the parcel of land in litigation, and for the Honorable
Court to determine the legality or nullity of the abovementioned documents.
3

On the basis of this agreement and of the memoranda filed

subsequently by the parties, the lower court, without receiving
further evidence, rendered judgment in favor of the plaintiffs. It
held, first, that the deed of sale with pacto de retro executed on
September 1, 1934, was in reality an equitable mortgage and did not
transfer ownership of the land to the defendant; and second, that the
subsequent sale executed in 1936 was null and void ab initio because
by that time the transfer of agricultural lands to aliens was already
prohibited by the Commonwealth Constitution, which became
effective on November 15, 1935. Yu was a Chinese national.
**

56

The above rulings are the subject of this appeal, which we find
meritorious. We shall reverse.
It is important to note at the outset that there is nothing in the
record to show that the disputed property had merely been entrusted
to Yu for administration in connection with Paulino Bollozos
indebtedness to him, as claimed by the plaintiff. Neither is there any
evidence of such indebtedness. This allegation, which was the very
basis of the complaint, was not among those admitted in the
stipulation of facts and indeed had been categorically denied in the
answer. It thus remained a bare averment without any actual or
presumptive support.
It should also be noted that, by contrast, the defendant, to
substantiate his answer, produced the two above-cited documents
Annexes A and B, which clearly indicate the intention of the
parties regarding the ownership and disposition of the land in
question. These documents are the best and, as it happens, the only
evidence adduced of such intention.
Annex A reads as follows:
***

ESCRITURA DE COMPRA Y VENTA

CON PACTO DE RETRO
Nosotros, PAULINO BOLLOZOS, de 71 aftos de edad y FAUSTINA
LILOC, de 58 aos de edad, marido y mujer respectivamente, filipinos y
vecinos y residentes del barrio de Bonbon, Municipio de Catarman,
Provincia de Misamis Oriental, Islas Filipinas, por la presente hacemos
constar que consideracion a la suma de SEISCIENTOS TREINTA Y SEIS
PESOS (P636.00), en moneda filipina que nos ha pagado y hemos recibido a
nuestra entera satisfaccion del SR. YU TIENG SU, de 34 aos de edad,
chino, casado de la SRA. SIA PUTE, de 29 aos de edad, china y residente
de este Municipio de Catarman, Provincia de Misamis Oriental, Islas
Filipinas, VENDEMOS, CEDEMOS ENTREGAMOS y TRASPASAMOS al
referido SR. YU TIENG SU, sus herederos y causahabientes una parcela de
terreno con todas sus mejoras existentes situada en el distrito de
Quilambon, barrio de Bonbon, Municipio de Catarman, Provincia de
Misamis Oriental, Islas Filipinas bajo el numero del Lote Cadastral de este

Municipio Catarman, Misamis Oriental, Caso No. 9m y cuya descripcion

tecnica es como sigue:
(Technical Description)
Hacemos constar tambien que queda pacto y convenido con el referrido
SR. YU TIENG SU; que si nosotros devolvieramos o mandamos devolver
dentro del termino de SIETE (7) ANOS contados desde esta fecha la suma
de SEISCIENTOS TREINTA Y SEIS PESOS (P636.00) en moneda filipina,
y le abonaremos ademas los gastos que ocasione el presente contrato, nos
otorgaran el comprador o sus representantes escritura de retroventa; pero
si transcurre dicho plazo sin haberse utilizado el derecho de redencion,
adquirira la presente el caracter de absolutamente consumada, y
entretanto solo podra el comprador disponer la finca con las limitaciones
prescritas en la Ley Hipotecaria.
En testimiento de rado lo cual firmamos la presente en este Municipio
de Catarman, Provincia de Misamis Oriental hoy 1, o-de Septiembre, 1934,
A.D.

(Sgd.) PAULINO BOLLOZOS y

(Sgd.) FAUSTINA LILOC
Firmadas en presencia de:
(Sgd.) JOSE LIM PATUNGAN y
(Sgd.) EUFROSINO LIMBACO
The second instrument, Annex B, declared the following:
DEFINITE AND ABSOLUTE PURCHASE AND SALE
That I, PAULINO BOLLOZOS, 72 years of age, Filipino married to
Faustina Liloc, 60 years of age, and resident of the barrio of Bonbon,
Municipality of Catarman, Province of Oriental Misamis, P.I. do hereby
declare and say:
1st.That I am the lawful owner of one parcel of land together with
all existing improvements thereon, located in the sitio of Kilambon,
barrio of Bonbon, Municipality of Catarman, Province of Oriental
Misamis, P.I., particularly described as follows:
57

(Technical Description)
2nd.That the said parcel of land together with all existing
improvements thereon is registered in my name in the Office of the
Register of Deeds of the Province of Oriental Misamis, as
evidenced by the ORIGINAL CERTIFICATE OF TITLE number
FIVE THOUSAND THIRTY THREE (5033).
3rd.That the said parcel of land, together with all existing
improvements thereon was sold by me to Mr. YU TIENG SU,
married to Sia Pute on September 1, 1934 for the sum of SIX
HUNDRED THIRTY SIX (P636.00) under the instrument of
purchase with right or repurchase (Compra venta con pacto de
retro) and said document is ratified before Notary Public Mr.
Eufrosino Limbaco, of Mambajao, Misamis Oriental, on the 1st day
of September 1934, Not. Reg. No. 149-Page No. 97-Book No. 8-Series
of 1934.
4th.That by these presents I do hereby declare and say that I will
forever renounce and repudiate my rights and privileges to
repurchase the said parcel of land together with all its existing
improvements thereon and for and in consideration of an
additional sum of TWO HUNDRED NINETY-FIVE PESOS
(P295.00), Philippine Currency to me in hand paid and the receipt
whereof is hereby acknowledged by Mr. YU TIENG SU, 36 years of
age, Chinese, married to Sia Pute, 31 years of age, Chinese and
resident of this Municipality of Catarman, Misamis Oriental, P.I.,
by these presents I do hereby sell, transfer and forever convey a
deliver unto said Mr. YU TIENG SU, his heirs, executors,
administrators and assigns that parcel of land together with all its
existing improvements thereon, particularly described above (Lot
No. 473). Original Certificate of Title number Five Thousand
Thirty-three.

administrator and assigns all lawful claims of all persons

whomsoever of his right of ownership of the said parcel of land
together with its existing improvements thereon described above.
IN W1TNESSETH WHEREOF, I have hereunto signed my name in this
Municipality of Catarman, Province of Misamis Oriental, P.I., on this 21st
day of September 1936.

(Sgd.) PAULINO BOLLOZOS

Signed in the presence of:
(Sgd.) JOSE LIM PATUNGAN and
(Sgd.) JOSE L. RIVERA
It is clear from the first document that Paulino Bollozos actually
sold the land in question to Yu for the sum of P636.00, subject only to
the formers right to repurchase it within a period of seven years.
There is nothing in this instrument suggesting a different
arrangement such as that alleged by the plaintiffs-appellees in their
complaint, nor have they submitted any evidence in proof of such
arrangement.
The intention clearly embodied in Annex A was affirmed in the
second transaction between the same parties as reduced to writing in
Annex B, denominated as A Definite and Absolute Purchase and
Sale. Concluded two years later, it specifically referred to the first
sale made in 1934 Dy virtue of which, as Paulino Bollozos declared,
the land in question and its improvements were sold by me to Mr.
Yu Tieng Su for the agreed consideration of P636.00. He further
stated in Annex B that by these presents I do hereby declare and
say that I will forever renounce and repudiate my right and privilege
to repurchase the said property as reserved by him in the first
instrument. For such renunciation, Bollozos acknowledged receipt of
an additional sum of P295.00, thus increasing the total purchase
price of the land to P931.00.

5th.Lastly, I do hereby declare and say that I will forever warrant

and defend unto said Mr. YU TIENG SU, his heirs, executors,
58

The Court holds that the first transaction was a valid sale with
right of repurchase and effectively transferred ownership of the land
in dispute to the defendant-appellant. All the elements of a valid
contract were present, and in any case the plaintiffs-appellees
themselves have stipulated on its authenticity. As it was concluded
in 1934, the prohibition against the acquisition of agricultural lands
by aliens was not yet applicable, having become effective only from
November 15, 1935, under the Commonwealth Constitution.
Moreover, the title acquired by Yu was recognized in the said
Constitution as a vested right that could no longer be disturbed
under the new provisions of that charter reserving ownership of such
lands to Filipino citizens.
5

The plaintiffs-appellees err in suggesting that the first

transaction, being conditional, did not effectively transfer the
ownership of the land to the vendee. It did, certainly, subject only to
the right of the vendor to redeem it within the period specified. As
we said in an earlier case:
In the deed olpacto de retro sale executed by Ignacio Reyes in favor
of Lim Kiam on May 30, 1932, covering Lot 9203, the period of repurchase
was not fixed. The Court of Appeals correctly held that in accordance with
Article 1508 of the old Civil Code the right could be exercised within four
years from the date of execution of the conveyancein this case up to May
30,1936. The fact, however, that on this date the Constitution was already
in force did not affect the right acquired by Lim Kiam. We have held in a
number of cases decided under the provisions of the old Civil Code that the
nature of a sale with the right of repurchase is such that the ownership
over the thing sold is transferred to the vendee upon execution of the
contract, subject only to the resolutory condition that the vendor exercise
his right of repurchase within the period agreed upon.Manalansan v.
Manalang, L-13646, July 26, 1960;Almiranez v. Devera, L-19496, February
27, 1965;Rosario v. Rosario, L-13018, December 29, 1960.

A sale with pacto de retro transfers the legal title to the vendee and
this, in the absence of an agreement to the contrary, carries with it the
right of possession. In the case of Santos v. Heirs of Crisostomo and
Tiongson (41 Phil. 342), this court, in discussing the nature of sale
with pacto de retro,said: x x x It is our opinion, however, that the insertion
of a stipulation for repurchase by the vendor in a contract of sale does not
necessarily create any right inconsistent with the right of ownership in the
purchaser. Such a stipulation is in the nature of an option, and the possible
exercise of it rests upon contingency.x x x.
7

To be sure, Paulino Bollozos could have repurchased the property

within seven years pursuant to the first contract. However, he did
not choose to do so and in fact renounced and repudiated this right
two years later in the second contract. It is noted that this contract
also purported to convey the same property to Yu but this was
merely an affirmation or reiteration of the parties intention in the
first transaction. It was not really necessary to repeat the sale
because the first contract had already been perfected and
consummated. Indeed, the sale could not have been made for the
first time then for it would have been illegal under the provisions of
the new Constitution that had come into force in 1935. Actually, the
real purpose of the second contract was to manifest Paulino Bollozos
waiver of his right to repurchase, for which he received the
additional sum of P295.00.
The plaintiffs-appellees make much of the admitted fact that the
disputed property is still in the name of Paulino Bollozos as so too
are the tax declarations. This circumstance, it is argued, proves that
ownership of the land was retained by Bollozos and later transferred
to his heirs, besides being an indication as well that the first contract
was really only an equitable mortgage and not a deed of sale. The
contention is that as long as the land had not yet been registered in
the name of the defendant-appellant, title hereto remained with
Bollozos.

This is not correct. The first deed of sale took effect on September
1, 1934, and legally transferred ownership of the land subject thereof
59

from the vendor to Yu on the said date. Failure to register the sale
did not vitiate it or render it unenforceable. As we have held in
several cases, an unrecorded deed of sale is binding between the
parties and their privies because actual notice is equivalent to
registration. The real purpose of registration being to give notice to
third persons, deed of sale that has not been registered does not lose
its efficacy insofar as the parties thereto and their heirs are
concerned.
It is settled that registration is not a mode of acquiring ownership.
Thus:
8

Registration does not confer ownership. It is not a mode of acquiring

dominion, but only a means of confirming the fact of its existence with
notice to the world at large.
9

And with particular reference to problems such as the one at bar,

we have ruled that:
Title and ownership over lands within the meaning and for the
purposes of the constitutional prohibition, dates back to the time of their
purchase, not later. Any other ruling would be illegal and unjust, and
would operate to dispossess alien owners who had acquired their lands in
good faith before the prohibition was established, but either failed wholly
to register them or registered them only after the Constitution was
adopted.
10

As for the finding of the trial court that the deed of sale with the
right of repurchase was an equitable mortgage, we hold it has no
basis in fact and law. All that is invoked in its support is that the
land continued to be registered, and all the tax declarations thereon
were made, in the name of Paulino Bollozos. That may well be, but
that circumstance would not change the nature of the contract
concluded in 1934. At best, it may demonstrate neglect on the part of
the vendee, who had a right to transfer the registration in his name,
but that would not signify that Paulino Bollozos retained or
recovered ownership of the land he had already sold.

The defendant-appellant cites Article 1602 of the Civil Code and

argues that none of the indications mentioned therein of an equitable
mortgage are present in this case. While we are inclined to agree, it
should be noted that the said article is not applicable because it was
not embodied in the old Civil Code which was in force in 1934. This is
an innovation in the present Code. In any event, it is worth stressing
that one of the indicia mentioned in the said article is that the
vendor remains in possession of the property in question, which is
not the situation here. The complaint, in fact, asks for recovery of
possession of the land from defendant Yu.
In sum, we hold that the trial court erred in disregarding the sale
with right of repurchase concluded on September 1, 1934, and in
considering it an equitable mortgage. The second contract executed
on September 21, 1936, could not have validly conveyed the land in
question to defendant Yu, who was an alien, as this was already
prohibited by the Commonwealth Constitution. Nevertheless, it was
effective in affirming the earlier contract of September 1, 1934, and,
more importantly, in making it absolute with the renunciation by the
vendor of his right to repurchase the property. Accordingly, Yu
should be recognized as the lawful owner of the land in dispute,
acquired by him by virtue of a legitimate contract of sale with pacto
de retrowhich became absolute when the vendor waived his right of
repurchase.
The fact that the defendant in this case was an alien cannot be
taken against him for he was not disqualified from acquiring the
land in question when the sale was concluded in 1934.
It should not deter us from ruling in his favor now.
This Court dispenses equal justice to the citizen and the alien and
judges them on the merits of their cause and not the color of their
skin. Having admitted him into our territory, the State is committed
to the recognition of all the rights of the stranger in our midst save
60

only where they unduly clash with the higher interests of our own
nation. There is no such collision here. On the contrary, we see here
an opportunity to prove, as we do now, that respect for the foreign
guest is ingrained in the law of the land and in the nature of our
people.
WHEREFORE, the appealed decision is REVERSED. The
complaint and the counterclaim in Civil Case No. 66-C are
DISMISSED, with costs against the plaintiffs-appellees. It is so
ordered.
Teehankee, (C.J.), Narvasa, Paras andGancayco, JJ., concur.
Decision reversed.
Notes.Since the case at bar involves the exercise of the right to
repurchase, a showing that petitioner made a valid lender is
sufficient. (Legaspi vs. CA, 142 SCRA 82.)
A contract is not equitable mortgage, but deed of sale with right of
repurchase ownership of property in the absence of any instances in
the law which presumes that the contract is one of equitable
mortgage. (De Bayquen vs. Vda. de Elpa, 143 SCRA 412).
o0o

61

No. L-67181. November 22, 1985.

SPOUSES RESTITUTO NONATO and ESTER NONATO,

petitioners, us. THE HONORABLE INTERMEDIATE APPELLATE
COURT and INVESTOR'S FINANCE CORPORATION, respondents.
Civil Law; Sales; Sale of personal property in installments; Article
1484 of the Civil Code, interpreted; Remedies of a seller where the buyer
fails to pay personal property in installments is alternative, not cumulative,
that the exercise of one would bar the exercise of the others.The meaning
of the aforequoted provision has been repeatedly enunciated in a long line
of cases. Thus: "Should the vendee or purchaser of a personal property
default in the payment of two or more of the agreed installments, the
vendor or seller has the option to avail of any of these three remedies
either to exact fulfillment by the purchaser of the obligation, or to cancel
the sale, or to foreclose the mortgage on the purchased personal property, if
one was constituted. These remedies have been recognized as alternative,
not cumulative, that the exercise of one would bar the exercise of the
others."
Same; Same; Cancellation of contract of sale; Possession by the
assignee of a car purchased in installments where the buyer defaulted in
payment thereof bars it from exacting from the defaulted buyer the balance
of the purchase price of the vehicle repossessed.The receipt issued by the
respondent company to the Nonatos when it took possession of the vehicle
states that the vehicle could be redeemed within fifteen [15] days. This
could only mean that should petitioners fail to redeem the car within the
aforesaid period by paying the balance of the purchase price, the company
would retain permanent possession of the vehicle, as it did in fact.
Respondent corporation further asserts that it repossessed the vehicle
merely for the purpose of appraising its current value. The allegation is
untenable, for even after it had notified the Nonatos that the value of the
car was not sufficient to cover the balance of the purchase price, there was
no attempt at all on the part of the company to return the repossessed car.
Indeed, the acts performed by the corporation are wholly consistent with
the conclusion that it had opted to cancel the contract of sale of the vehicle.

It is thus barred from exacting payment from petitioners of the balance of

the price of the vehicle which it had already repossessed. It cannot have its
cake and eat it too.

PETITION for review of the decision of the Intermediate Appellate

Court.
The facts are stated in the opinion of the Court.
Pamplona, Genito & Valdezco Law Office for petitioners.
Dinglasan Law Office for private respondent.
ESCOLIN, J.:
The issue posed in this petition for review of the decision of the
respondent appellate court is whether a vendor, or his assignee, who
had cancelled the sale of a motor vehicle for failure of the buyer to
pay two or more of the stipulated installments, may also demand
payment of the balance of the purchase price.
The pertinent facts are summarized by the respondent appellate
court as follows:
"On June 28, 1976, defendant spouses Restituto Nonato and Ester Nonato
purchased one (1) unit of Volkswagen Sakbayan from the People's Car,
Inc., on installment basis. To secure complete payment, the defendants
executed a promissory note (Exh. A or 1) and a chattel mortgage in favor of
People's Car, Inc. (Exh. B or 2). People's Car, Inc., assigned its rights and
interests over the note and mortgage in favor of plaintiff Investor's Finance
Corporation (FNCB) Finance). For failure of defendants to pay two or more
installments, despite demands, the car was repossessed by plaintiff on
March 20, 1978 (Exh. E or 4).
"Despite repossession, plaintiff demanded from defendants that they
pay the balance of the price of the car (Exhs. F and C). Finally, on June 9,
1978, plaintiff filed before the Court of First Instance of Negros Occidental
the present complaint against defendants for the latter to pay the balance
of the price of the car, with damages and attorney's fees." (Records, pp. 3637)
62

In their answer, the spouses Nonato alleged by way of defense that

when the company repossessed the vehicle, it had, by that act,
effectively cancelled the sale of the vehicle. It is therefore barred
from exacting recovery of the unpaid balance of the purchase price,
as mandated by the provisions of Article 1484 of the Civil Code.
After due hearing, the trial court rendered a decision in favor of
the IFC and against the Nonatos, as follows:
"PREMISES CONSIDERED, the Court hereby renders judgment ordering
the defendant to pay to the plaintiff the amount of P1, 7,537.60 with
interest at the rate of 14% per annum from July 28, 1976 until fully paid,
10% of the amount due as attorney's fees, litigation expenses in the amount
of P133.05 plus the costs of this suit. No pronouncement as to other charges
and damages, the same not having been proven to the satisfaction of the
Court."
1

On appeal, the respondent appellate court affirmed the judgment.

Hence, this petition for review on certiorari.
The applicable law in the case at bar, involving as it does a sale of
personal property on installment, is Article 1484 of the Civil Code
which provides:
"In a contract of sale of personal property the price of which is payable in
installments, the vendor may exercise any of the following remedies:
(1)Exact fulfillment of the obligation, should the vendee fail to pay;
(2)Cancel the sale, should the vendee's failure to pay cover two or
more installments;
(3)Foreclose the chattel mortgage on the thing sold, if one has been
constituted, should the vendee's failure to pay cover two or more
installments. In this case, he shall have no further action against
the purchaser to recover any unpaid balance of the price. Any
agreement to the contrary shall be void."

purchaser of a personal property default in the payment of two or

more of the agreed installments, the vendor or seller has the option
to avail of any of these three remedieseither to exact fulfillment by
the purchaser of the obligation, or to cancel the sale, or to foreclose
the mortgage on the purchased personal property, if one was
constituted. These remedies have been recognized as alternative, not
cumulative, that the exercise of one would bar the exercise of the
others. "
It is not disputed that the respondent company had taken
possession of the car purchased by the Nonatos on installments. But
while the Nonatos maintain that the company had, by that act,
exercised its option to cancel the contract of sale, the company
contends that the repossession of the vehicle was only for the
purpose of appraising its value and f or storage and safekeeping
pending full payment by the Nonatos of the purchasing price. The
company thus denies having exercised its right to cancel the sale of
the repossessed car. The records show otherwise.
The receipt issued by the respondent company to the Nonatos
when it took possession of the vehicle states that the vehicle could be
redeemed within fifteen [15] days. This could only mean that should
petitioners fail to redeem the car within the aforesaid period by
paying the balance of the purchase price, the company would retain
permanent possession of the vehicle, as it did in fact. This was
confirmed by Mr. Ernesto Carmona, the company's witness, who
testified, to wit:
2

"ATTY. PAMPLONA:
So that Mr. Witness, it is clear now that, per your receipt
and your answer, the company will not return the unit
without paying a sum of money, more particularly the
balance of the account?
WITNESS:
Yes, sir."
4

The meaning of the aforequoted provision has been repeatedly

enunciated in a long line of cases. Thus: "Should the vendee or
63

Respondent corporation further asserts that it repossessed the

vehicle merely for the purpose of appraising its current value. The
allegation is untenable, for even after it had notified the Nonatos
that the value of the car was not sufficient to cover the balance of the
purchase price, there was no attempt at all on the part of the
company to return the repossessed car.
Indeed, the acts performed by the corporation are wholly
consistent with the conclusion that it had opted to cancel the
contract of sale of the vehicle. It is thus barred from exacting
payment from petitioners of the balance of the price of the vehicle
which it had already repossessed. It cannot have its cake and eat it
too.
WHEREFORE, the judgment of the appellate court in CAG.R. No.
69276-R is hereby set aside and the complaint filed by respondent
Investors Finance Corporation against petitioner in Civil Case No.
13852 should be, as it is hereby, dismissed. No costs.
SO ORDERED.
Concepcion,Jr.(Chairman), AbadSantos, Cuevasand Alampay,
JJ., concur.
Judgment set aside.
o0o

64

No. L-43821. May 26, 1977.

INDUSTRIAL FINANCE CORPORATION, petitioner, vs.HON.
PEDRO A. RAMIREZ, Judge of the Court of First Instance of
Manila, and CONSUELO ALCOBA, respondents.
*

Sales; Chattel
mortgage; Execution; Where
the
mortgagee
in
installment sales of personal property chose the remedy of specific
performance in a replevin suit with damages, it is entitled to an alias writ of
execution for the portion of the judgment that has not been satisfied.
According to article 1484, it is only when there has been a foreclosure that
the mortgagor is not liable for any deficiency. In this case, there was no
foreclosure. The mortgagee evidently chose the remedy of specific
performance. It levied upon the car by virtue of an execution and not as an
incident of a foreclosure proceeding. It is entitled to an alias writ of
execution for the portion of the judgment that has not been satisfied.
Same; Same; Same; Same.The rule is that in installment sales, if
the action instituted is for specific performance and the mortgaged
property is subsequently attached and sold, the sale thereof does not
amount to a foreclosure of the mortgage. Hence, the seller-creditor is
entitled to a deficiency judgment.

PETITION for certiorari from an order of the Court of First Instance

of Manila. Ramirez, J.
The facts are stated in the opinion of the Court.
C. R. Sanchez Law Office for petitioner.
Salva, Carballo & Associates for respondent Consuelo Alcoba.
AQUINO, J.:
On December 4, 1970 Arnaldo Dizon sold to Consuelo Alcoba his
1966 model Chevrolet car for P13,157.89, payable in eighteen
monthly installments, which were secured by a chattel mortgage on
the car.

On that same date, Dizon assigned for ten thousand pesos to

Industrial Finance Corporation all his rights and interest in the
chattel mortgage. Consuelo Alcoba defaulted in the payment of the
first four installments, Because of that default and by virtue of the
acceleration clause in the promissory note forming part of the
mortgage, the whole obligation became due and demandable.
As of February 27, 1972 Consuelo Alcoba owed Industrial Finance
Corporation the sum of P7,678.05 computed as follows (Exh. D):

Principal obligation -----------Add: Interest on overdue

installments ---Premium on car insurance---Total amount due ----Deduct payments:
March 1, 1971
March 29, 1971
July 1, 1971
Insurance proceeds:
1-12-71
Interests

P 13,157.89
285.47
656.40
P 14,099.76
P 731.06
730.99
716.39
4,023.51
219.76
Balance still due

6,421.71
P 7,678.05
vvvvvvvvv

On November 20, 1971, or less than a year after Industrial

Finance Corporation had discounted Consuelo Alcobas promissory
note to Dizon, the corporation sued her in the Court of First Instance
of Manila (Civil Case No. 85583). The complaint, a printed form used
by the corporation in collection cases, is denominated replevin with
damages.
It is necessary to scrutinize the allegations of the complaint
because of the controversy between the parties as to whether, by
means of that complaint, Industrial Finance Corporation sought to
foreclose the chattel mortgage as contemplated in article 1484 of the
65

Civil Code, formerly Act No. 4122, otherwise known as the Recto
Installment Sales Law.
It is necessary to scrutinize the allegations of the complaint
because of the controversy between the parties as to whether, by
means of that complaint, Industrial Finance Corporation sought to
foreclose the chattel mortgage as contemplated in article 1484 of the
Civil Code, formerly Act No. 4122, otherwise known as the Recto
Installment Sale Law.
In its complaint Industrial Finance Corporation prayed
for alternative reliefs. The main objective of its complaint was
recovery of the mortgaged car by means of a writ of replevin. It
submitted a redelivery bond. Un doubtedly, the mortgagee-assignee
wanted to foreclose extrajudicially the chattel mortgage but before it
could do so, the sheriff had to seize the car by means of the
provisional remedy of an order for the delivery of personal property.
Industrial Finance Corporation prayed that, if the car could not be
recovered by means of replevin, then Consuelo Alcoba should be
ordered to pay the corporation the sum of P11,083.38, plus twelve
percent interest per annum,damages, and attorneys fees in the sum
of P2,770.85. There was no prayer for the foreclosure of the
mortgage, a relief that should be invoked if the complaint had been
filed under section 8, Rule 68 of the Rules of Court.
Consuelo Alcoba in her answer merely pleaded that Industrial
Finance Corporation waived the recovery of the car by accepting
the sum of P4,228.67. She did not state what that amount
represented. It was the amount paid on January 12, 1972 by the
Malayan Insurance Co., Inc., as insurer of the mortgaged car, to
Industrial Finance Corporation. As indicated in the computation set
forth above, the corporation applied that amount to the partial
payment of Consuelo Alcobas obligation. The record does not show
why the insurance company paid that amount to Industrial Finance
Corporation.
Consuelo Alcobas lawyer, after making reference to the
corporations acceptance of the sum of P4,228.68, incoherently

pleaded that the corporation chose to pursue the remaining balance

of the loan extrajudicially.
The lower court issued the writ of replevin. But the sheriff was
not able to seize the mortgaged car. Consequently, there was no
extrajudicial foreclosure of the mortgage since, for that purpose,
possession of the car by the sheriff is necessary (Bachrach Motor Co.
vs. Summers,42 Phil. 3).
Consuelo Alcoba did not appear at the pre-trial. She was declared
in default. On the basis of the corporations evidence, the trial court
rendered judgment, ordering her to pay the corporation the sum of
P7,678.05, plus twelve percent interest per annum from the filing of
the complaint. No attorneys fees were awarded by the trial court
maybe because the corporation paid only ten thousand pesos for a
vote valued at P13,157.89.
Consuelo Alcoba did not appeal That judgment became final and
executory. On September 27, 1973, or long after the judgment had
become final, she paid Industrial Finance Corporation the sum of
P2,000. The lower court issued writs of execution. The writs were
returned unsatisfied.
A second alias writ of execution was issued. The sheriff was able
to levy upon the mortgaged car which was then in the possession of
the Aco Motor Service of Dagupan City. At the execution sale held on
April 25, 1974 Industrial Finance Corporation bought the mortgaged
car for P4,000 (Exh. 3-A, p. 72, Expediente).
However, in order to take possession of the car, the corporation
had to pay P4,250 to the Aco Motor Service to satisfy its lien for the
repair and storage of the car.
The corporation contended that, because of that payment, it
sustained a loss of P250 in the execution sale. It asked for a third
alias writ of execution in order to satisfy the balance of Consuelo
Alcobas obligation which, together with the 12% interest, it
computed at P11,300.92 as of September 26, 1975.
Consuelo Aleoba opposed the motion for a third alias writ of
execution, The lower court in its order of March 2, 1978 denied the
motion for a third alias writ of execution. It treated the execution
66

sale as a virtual foreclosure of the chattel mortgage which,

although not beneficial to the mortgagee, Industrial Finance
Corporation, barred it from recovering the deficiency under article
1484.
That order of denial is assailed by the corporation in the instant
certiorari case. The lower court relied on Filipinas Investment &
Finance Corporation vs. Ridad, L-27645, November 28, 1969, 30
SCRA 564. In the Ridad case, the mortgagee of a car, the price of
which was payable in installments, filed a replevin suit against the
mortgagor with an alternative prayer for the recovery of the unpaid
price in case the car could not be seized. The car was actually
seized. The mortgage was extrajudicially foreclosed. The trial court
rendered judgment against the mortgagor only for P300 as attorneys
fees and P163.65 as expenses of foreclosure. There was no judgment
for the balance of the mortgage debt.
The mortgagors in the Ridad case appealed to this Court. They
contested the correctness of the judgment for P463.65 as attorneys
fees and expenses for foreclosure.
This Court held that the mortgagors should pay the mortgagee
attorneys fees and expenses of foreclosure because while the
mortgagors should be protected against the capacity of the
mortgagees, the law should not be construed as depriving the
mortgagee
of
protection
against
perverse
mortgagors
(Castro, J., in Ridad case).
It is obvious that the facts of the Ridad case are materially
different from the facts of the instant case. Here, there was no
extrajudicial foreclosure of the mortgage. Consuelo Alcoba, the
mortgagee, acted perversely in not surrendering the mortgaged ear
to the corporation and in preventing extrajudicial foreclosure. Had
she complied with the writ of replevin, then the corporation could
have foreclosed the mortgage and, in that event, she would not be
liable for any deficiency.
But she violated the mortgage by removing the car from her
residence at 3 Gladiola Street, Roxas District, Quezon City. She did

not comply with the stipulation that, upon her default, the car
should be delivered, on demand, to the mortgagee in Manila.
The corporations action was for specific performance or
fulfillment of the obligation and not for judicial foreclosure Consuelo
Alcobas payment of P2,000 on account of the money judgment
against her signified that she acquiesced in the action for specific
performance. She cannot now be heard to say that the judgment
resulting from that action could not be enforced because the
mortgagees had opted for foreclosure of the mortgage. The Civil Code
provides.
ART. 1484. In a contract of sale of personal property the price of which is
payable in installments, the vendor may exercise any of the following
remedies:
(1)Exact fulfillment of the obligation, should the vendee fail to pay;
(2)Cancel the sale, should the vendees failure to pay cover two or
more installments;
(3)Foreclose the chattel mortgage on the thing sold, if one has been
constituted, should the vendees failure to pay cover two or more
installments, In this case, he shall have no further action against
the purchaser to recover any unpaid balance of the price. Any
agreement to the contrary shall be void. (1454-A-a).

According to article 1484, it is only when there has been a

foreclosure that the mortgagor is not liable for any deficiency.
In this case, there was no foreclosure. The mortgagee evidently
chose the remedy of specific performance. It levied upon the car by
virtue of an execution and not as an incident of a foreclosure
proceeding. It is entitled to an alias writ of execution for the portion
of the judgment that has not been satisfied.

67

The rule is that in installment sales, if the action instituted is for

specific performance and the mortgaged property is subsequently
attached and sold, the sale thereof does not amount to a foreclosure
of the mortgage. Hence, the seller-creditor is entitled to a deficiency
judgment (Southern Motors, Inc. vs. Moscoso, 112 Phil. 94).
WHEREFORE, the trial courts order denying the motion for a
third writ of execution is reversed and set aside. Costs against
respondent Consuelo Alcoba.
SO ORDERED.
Fernando (Chairman), Barredo, Antonio andMartin,
concur.
Concepcion Jr., is on leave.
Martin, J., was designated to sit in the Second Division.

make an inconsistent stand by claiming otherwise. (Tumalad vs.

Vicencio, 41 SCRA 153).
The registration of the chattel mortgage is an effective and
binding notice to the assignee of the unsecured judgment creditor of
the chattel mortgagor of its existence. Where the mortgaged property
is no longer recoverable, the proceeds of the execution sale may be
regarded as a partial substitute for the unrecorded property.
(Northern Motors, Inc. vs. Coquia, 68 SCRA 374).
o0o

JJ.,

Order reversed and set aside.

Notes.The chattle mortgage may be rescinded on the ground
that it refers to things under litigation and entered into by the
defendant debtor without the knowledge and approval of the
litigants or of competent judicial authority, (Serra vs. Rodriguez, 56
SCRA 588).
The rentals receivable from the apartment tenants, although they
may be collected by the purchaser during the period of redemption,
do not belong to the latter but still pertain to the debtor or
mortgagor. (Tumalad vs. Vicencio,41 SCRA 143).
Although there is no specific statement referring to the subject
house as personal property, yet by ceding, selling or transferring a
property by way of chattel mortgage defendants-appellants could not
have meant to convey the house as chattel, or at least, intended to
treat the same as such, so that they should not now be allowed to
68

G.R. No. 141205. May 9, 2002.

ACTIVE
REALTY
&
DEVELOPMENT
CORPORATION,
petitioner, vs.NECITA G. DAROYA, represented by Attorney-In-Fact
Shirley Daroya-Quinones, respondents.
Civil Law; Contracts; The declared policy of Republic Act No. 6552
The Realty Installment Buyer Protection Act is to protect buyer of real
estate on installment basis against onerous and oppressive conditions.The
contract to sell in the case at bar is governed by Republic Act No. 6552
The Realty Installment Buyer Protection Act, or more popularly known
as the Maceda Lawwhich came into effect in September 1972. Its
declared public policy is to protect buyer of real estate on installment basis
against onerous and oppressive conditions. The law seeks to address the
acute housing shortage problem in our country that has prompted
thousands of middle and lower class buyers of houses, lots and
condominium units to enter into all sorts of contracts with private housing
developers involving installment schemes. Lot buyers, mostly low income
earners eager to acquire a lot upon which to build their homes, readily affix
their signatures on these contracts, without an opportunity to question the
onerous provisions therein as the contract is offered to them on a take it or
leave it basis.
Same; Same; Petitioner failed to comply with the mandatory twin
requirements for a valid and effective cancellation under the law.The
records clearly show that the petitioner failed to comply with themandatory
twin requirements for a valid and effective cancellation under the
law,i.e., he failed to send a notarized notice of cancellation and refund the
cash surrender value. At no time, from the date it gave a notice of
cancellation up to the time immediately before the respondent filed the
case against petitioner, did the latter exert effort to pay the cash surrender
value.
Same; Same; For failure to cancel the contract in accordance with
procedure provided by law, Court holds that the contract to sell between the
parties remains valid and subsisting.For failure to cancel the contract in
accordance with the procedure provided by law, we hold that the contract

to sell between the parties remains valid and subsisting. Following Section
3(a) of R.A. No. 6552, respondent has the right to offer to pay for the
balance of the purchase price, without interest, which she did in this case.

PETITION for review on certiorari of a decision of the Court of

Appeals.
The facts are stated in the opinion of the Court.
Katigbak, Dimailig, Anosan and Associates for petitioners.
Viola and Guadiz for private respondent.
PUNO, J.:
This is a petition for review on certiorari under Rule 45 of the
Revised Rules of Court which seeks to reverse and set aside the
Resolution of the Court of Appeals, dated August 3, 1999, denying
due course to petitioners appeal for insufficiency of form and
substance.
Petitioner
ACTIVE
REALTY
&
DEVELOPMENT
CORPORATION is the owner and developer of Town & Country
Hills Executive Village in Antipolo, Rizal. On January 2, 1985, it
entered into a Contract to Sell with respondent NECITA DAROYA,
a contract worker in the Middle East, whereby the latter agreed to
buy a 515 sq. m. lot for P224,025.00 in petitioners subdivision.
1

The contract to sell stipulated that the respondent shall pay the
initial amount of P53,766.00 upon execution of the contract and the
balance of P170,259.00 in sixty (60) monthly installments of
P4,893.35. Adding the down payment and installment payments, it
would appear that the total amount is P346,367.00, a figure higher
than that stated as the contract price.
On May 5, 1989, petitioner accepted respondents amortization in
the amount of P40,000.00. By August 8, 1989, respondent was in
default of P15,282.85 representing three (3) monthly amortizations.
69

Petitioner sent respondent a notice of cancellation of their contract to

sell, to take effect thirty (30) days from receipt of the letter. It does
not appear from the records, however, when respondent received the
letter. Nonetheless, when respondent offered to pay for the balance
of the contract price, petitioner refused as it has allegedly sold the lot
to another buyer.
On August 26, 1991, respondent filed a complaint for specific
performance and damages against petitioner before the Arbitration
Branch of the Housing and Land Use Regulatory Board (HLURB). It
sought to compel the petitioner to execute a final Deed of Absolute
Sale in respondents favor after she pays any balance that may still
be due from her. Respondent claimed that she is entitled to the final
deed of sale after she offered to pay the balance of P24,048.47,
considering that she has already paid the total sum of P314,816.76,
which amount is P90,835.76 more than the total contract price of
P224,025.00.
On June 14, 1993, HLURB Arbiter Alfredo M. Tan II found for the
respondent. He ruled that the cancellation of the contract to sell was
void as petitioner failed to pay the cash surrender value to
respondent as mandated by law. However, as the subject lot was
already sold to a third party and the respondent had agreed to a full
refund of her installment payments, petitioner was ordered torefund
to respondent all her payments in the amount of P314,816.70, with
12% interest per annum from August 26, 1991 (the date of the filing of
the complaint) until fully paid and to pay P10,000.00 as attorneys
fees.
On appeal, the HLURB Board of Commissioners set aside the
Arbiters Decision. The Board refused to apply the remedies provided
under the Maceda Law and instead deemed it fit to formulate an
equitable solution to the case. It ruled that, as both parties were at
fault, i.e., respondent incurred in delay in her installment payments
and respondent failed to send a notarized notice of
cancellation, petitioner was ordered to refund to the respondent one
half of the total amount she has paid or P157,408.35, which was
allegedly akin to the remedy provided under the Maceda Law.
2

Respondent appealed to the Office of the President. On June 2,

1998, then Chief Presidential Counsel Renato C. Corona, acting by
authority of the President, modified the Decision of the HLURB as he
found that it was not in accord with the provisions of the Maceda
Law. He held that as petitioner did not comply with the legal
requisites for a valid cancellation of the contract, the contract to sell
between the parties subsisted and concluded that respondent was
entitled to the lot after payment of her outstanding balance.
However, as the petitioner disclosed that the lot was already sold to
another person and that the actual value of the lot as of the date of
the contract was P1,700.00 per square meter, petitioner was ordered
to refund to the respondent the amount of P875,000.00, the true and
actual value of the lot as of the date of the contract, with interest at
12% per annum computed from August 26, 1991 until fully paid, or to
deliver a substitute lot at the choice of respondent.
6

Upon denial of its motion for reconsideration, petitioner assailed

the Decision in the Court of Appeals. However, its petition for
review was denied due course for insufficiency in form and
substance, because: 1) no affidavit of service was attached to the
petition; 2) except for certified true copies of the decision and
resolution of the Office of the President, no other material portions of
the record, as would support the allegations in the petition, were
attached; and, 3) the certification of forum-shopping was signed by
the head counsel and vice-president of the petitioner corporation who
was not authorized by a Board Resolution to represent petitioner.
7

Petitioner moved for reconsideration. The Court of Appeals denied

it on an entirely new ground, i.e., for untimely filing of the petition
for review.
9

Petitioner now impugns the decision of the Court of Appeals and

raises the following procedural issues:
I
70

THE HONORABLE COURT OF APPEALS GROSSLY ERRED IN

RELYING TOO MUCH ON FORM RATHER THAN ON THE MERITS OF
THE PETITION THEREBY DENYING PETITIONER OF ITS RIGHT TO
DUE PROCESS.

Affairs, to represent it in the filing of the appeal, petitioner admits

that this was due to its honest belief that such authority is not
required as it was not mentioned in Section 6(c) of Rule 43. To make
up for such omission, petitioner submitted a Secretarys
Certificate confirming and ratifying the authority of Atty. Katigbak
to represent petitioner.Finally, we find that the Court of Appeals
erred in denying petitioners motion for reconsideration due to
untimely filing as the records clearly show that it was filed on June
25, 1999, a day before the expiration of the period to appeal granted
by the Court of Appeals.
12

13

II
THE HONORABLE COURT OF APPEALS ANCHORED THE DENIAL
OF
PETITIONERS
MOTION
FOR RECONSIDERATION ON
INCONSISTENT AND CONFLICTING RULINGS NOT BORNE BY THE
FACTS AND THE RECORDS OF THE CASE.

On the procedural points raised, we find for the petitioner.

Our perusal of the record reveals that petitioner substantially
complied with the formal requirements of Rule 43 of the Rules of
Court. First, as tothe non-attachment of the affidavit of service, the
records bear that the petition was accompanied by the original
registry receipts issued by the post office, showing that the petition
and its annexes were served upon the parties. Moreover,
respondents counsel of record, Atty. Sergio Guadiz, actually received
a copy of the petition. Second, petitioner likewise complied with
Section 6 (c) of Rule 43 requiring the submission of copies of the
award, judgment, final order and resolution appealed from. Its
petition was accompanied by the duplicate original of the appealed
Decision of the Chief Presidential Legal Counsel and his Resolution
denying petitioners motion for reconsideration, the Decision of the
HLURB Board of Commissioners and that of the HLURB arbiter. A
perusal of these documents will reveal that they contained all the
relevant facts of the case from which the appellate body can form its
own decision. Its failure to submit the other documents, like the
Complaint, Answer, Position Papers and Appeal Memoranda of the
parties before the HLURB, was due to the refusal of the Office of the
President to give them a certified true copy of these documents
which were submitted with said Office.Third, as to the lack of Board
Resolution by petitioner corporation authorizing Atty. Rene
Katigbak, its Chief Legal Counsel and Vice-President for Legal
10

11

14

In denying due course to the petition, the appellate court gave

premium to form and failed to consider the important rights of the
parties in the case at bar. At the very least, petitioner substantially
complied with the procedural requirements for appeal, hence, it is
best to give due course to the petition at bar to clarify the rights and
duties of a buyer in contracts to sell real estate on installment basis.
15

The issue to be resolved is whether or not the petitioner can be

compelled to refund to the respondent the value of the lot or to
deliver a substitute lot at respondents option.
We find for the respondent and rule in the affirmative.
The contract to sell in the case at bar is governed by Republic Act
No. 6552The Realty Installment Buyer Protection Act, or more
popularly known as the Maceda Lawwhich came into effect in
September 1972. Its declared public policy is to protect buyer of real
estate on installment basis against onerous and oppressive
conditions. The law seeks to address the acute housing shortage
problem in our country that has prompted thousands of middle and
lower class buyers of houses, lots and condominium units to enter
into all sorts of contracts with private housing developers involving
installment schemes. Lot buyers, mostly low income earners eager to
acquire a lot upon which to build their homes, readily affix their
16

71

signatures on these contracts, without an opportunity to question the

onerous provisions therein as the contract is offered to them on a
take it or leave it basis. Most of these contracts of adhesion, drawn
exclusively by the developers, entrap innocent buyers by requiring
cash deposits for reservation agreements which oftentimes include,
in fine print, onerous default clauses where all the installment
payments made will be forfeited upon failure to pay any installment
due even if the buyers had made payments for several years. Real
estate developers thus enjoy an unnecessary advantage over lot
buyers who they often exploit with iniquitous results. They get to
forfeit all the installment payments of defaulting buyers and resell
the same lot to another buyer with the same exigent conditions. To
help especially the low income lot buyers, the legislature enacted
R.A. No. 6552 delineating the rights and remedies of lot buyers and
protect them from one-sided and pernicious contract stipulations.
17

18

More specifically, Section 3 of R.A. No. 6552 provided for the

rights of the buyer in case of default in the payment of succeeding
installments, where he has already paid at least two (2) years of
installments, thus:
(a)To pay, without additional interest, the unpaid installments
due within the total grace period earned by him, which is hereby
fixed at the rate of one month grace period for every one year of
installment payments made; x x x
(b)If the contract is cancelled, the seller shall refund to the buyer
the cash surrender value of the payments on the property
equivalent to fifty per cent of the total payments made; provided,
that the actualcancellation of the contract shall take place
after thirty days from receipt by the buyer of the notice of
cancellation or the demand for rescission of the contract by a
notarial act and upon full payment of the cash surrender value to
the buyer.

In this case, respondent has already paid in four (4) years a total of
P314,860.76 or P90,835.76 more than the contract price of
P224,035.00. In April 1989, petitioner decided to cancel the contract
when the respondent incurred in delay in the payment of P15,282.85,
representing three (3) monthly amortizations. Petitioner refused to
accept respondents subsequent tender of payment of the outstanding
balance alleging that it has already cancelled the contract and sold
the subject lot to another buyer. However, the records clearly show
that the petitioner failed to comply with themandatory twin
requirements for a valid and effective cancellation under the
law, i.e., he failed to send a notarized notice of cancellation and
refund the cash surrender value. At no time, from the date it gave a
notice of cancellation up to the time immediately before the
respondent filed the case against petitioner, did the latter exert
effort to pay the cash surrender value. In fact, the records disclose
that it was only during the preliminary hearing of the case before the
HLURB arbiter when petitioner offered to pay the cash surrender
value. Petitioner justifies its inaction on the ground that the
respondent was always out of the country. Even then, the records are
bereft of evidence to show that petitioner attempted to pay the cash
surrender value to respondent through her last known address. The
omission is surprising considering that even during the times
respondent was out of the country, petitioner has been sending her
written notices to remind her to pay her installment arrears through
her last known address. Clearly, had respondent not filed a case
demanding a final deed of sale in her favor, petitioner would not
have lifted a finger to give respondent what was due heractual
payment of the cash surrender value, among others. In disregard of
basic equitable principles, petitioners stance would enable it to resell
the property, keep respondents installment payments, not to
mention the cash surrender value which it was obligated to return.
The Layug case cited by petitioner is inapropos. InLayug, the lot
buyer did not pay for the outstanding balance of his account and the
Court found that notarial rescission or cancellation was no longer
necessary as the seller has already filed in court a case for rescission
19

20

72

of the contract to sell. In the case at bar, respondent offered to pay

for her outstanding balance of the contract price but respondent
refused to accept it. Neither did petitioner adduce proof that the
respondents offer to pay was made after the effectivity date stated in
its notice of cancellation. Moreover, there was no formal notice of
cancellation or court action to rescind the contract. Given the
circumstances, we find it illegal and iniquitous that petitioner,
without complying with the mandatory legal requirements for
canceling the contract, forfeited both respondents land and hardearned money after she has paid for, not just the contract price, but
more than the consideration stated in the contract to sell.
Thus, for failure to cancel the contract in accordance with the
procedure provided by law, we hold that the contract to sell between
the parties remains valid and subsisting. Following Section 3(a) of
R.A. No. 6552, respondent has the right to offer to pay for the balance
of the purchase price, without interest, which she did in this case.
Ordinarily, petitioner would have had no other recourse but to accept
payment. However, respondent can no longer exercise this right as
the subject lot was already sold by the petitioner to another buyer
which lot, as admitted by the petitioner, was valued at P1,700.00 per
square meter. As respondent lost her chance to pay for the balance of
the P875,000.00 lot, it is only just and equitable that the petitioner
be ordered to refund to respondent the actual value of the lot
resold, i.e., P875,000.00, with 12% interest per annum computed
from August 26, 1991 until fully paid or to deliver a substitute lot at
the option of the respondent.
On a final note, it would not be amiss to stress that the HLURB
Board Decision ordering petitioner to refund to respondent one half
of her total payments is not an equitable solution as it punished the
respondent for her delinquent payments but totally disregarded
petitioners failure to comply with the mandatory requisites for a
valid cancellation of the contract to sell. The Board failed to consider
that the Maceda law was enacted to remedy the plight of low and

middle-income lot buyers, save them from the exacting default

clauses in real estate sales and assure them of a home they can call
their own. Neither would the Decision of the HLURB Arbiter
ordering a full refund of the installment payments of respondent in
the amount of P314,816.70 be justified as, under the law, respondent
is entitled to the lot she purchased after payment of her outstanding
balance which she was ready and willing to do. Thus, to penalize the
petitioner for failing in its obligation to deliver the subject lot and to
give the respondent what is rightly hers, the petitioner was correctly
ordered to refund to the respondent the actual value of the land
(P875,000.00) she lost to another buyer, plus interest at the rate of
12% per annum from August 26, 1991 until fully paid or to deliver a
substitute lot at the choice of the respondent.
IN VIEW WHEREOF, the Decision of then Chief Presidential
Legal Assistant Renato Corona, Office of the President, dated June
2, 1998, is AFFIRMED in toto. Costs against petitioner.
SO ORDERED.
Davide,
Jr.,
(C.J.,
Chairman),Kapunan, YnaresSantiago andAustria-Martinez, JJ., concur.
Judgment of Chief Presidential Legal Assistant affirmed in toto.
Note.The right of rescission, or more accurately, resolution of a
party to an obligation under Article 1191 of the Civil Code is
predicated on a breach of faith by the other party that violates the
reciprocity between them. (Uy vs. Court of Appeals, 314 SCRA
69[1999])
o0o

73

G.R. No. 142618. July 12, 2007.

PCI LEASING AND FINANCE, INC., petitioner, vs.GIRAFFE-X

CREATIVE IMAGING, INC., respondent.
Financial Leasing; Financing Company Act (R.A. No. 5980), as last
amended by R.A. No. 8556 (Financing Company Act of 1998); R.A. No.
5980, in its original shape and as amended, partakes of a supervisory or
regulatory legislation, merely providing a regulatory framework for the
organization, registration, and regulation of the operations of financing
companies.R.A. No. 5980, in its original shape and as amended, partakes
of a supervisory or regulatory legislation, merely providing a regulatory
framework for the organization, registration, and regulation of the
operations of financing companies. As couched, it does not specifically
define the rights and obligations of parties to a financial leasing
arrangement. In fact, it does not go beyond defining commercial or
transactional financial leasing and other financial leasing concepts. Thus,
the relevancy of Article 18 of the Civil Code which reads: Article 18.In
matters which are governed by . . . special laws, their deficiency shall be
supplied by the provisions of this [Civil] Code.
Same; Words and Phrases; Financial Leasing, Defined.The Court
can allow that the underlying lease agreement has the earmarks or made
to appear as a financial leasing, a term defined in Section 3(d) of R.A. No.
8556 asa mode of extending credit through a non-cancelable lease
contract under which the lessor purchases or acquires, at the instance of
the lessee, machinery, equipment, . . . office machines, and other movable
or immovable property in consideration of the periodic payment by the
lessee of a fixed amount of money sufficient to amortize at least seventy
(70%) of the purchase price or acquisition cost, including any incidental
expenses and a margin of profit over an obligatory period of not less than
two (2) years during which the lessee has the right to hold and use the
leased property . . . but with no obligation or option on his part to purchase
the leased property from the owner-lessor at the end of the lease contract.

Same; R.A. No. 8556 was, in fact, precisely enacted to regulate

financing companies operations with the end in view of strengthening their
critical role in providing credit and services to small and medium
enterprises and to curtail acts and practices prejudicial to the public
interest, in general, and to their clienteles, in particular.A financing
arrangement has a purpose which is at once practical and salutary. R.A.
No. 8556 was, in fact, precisely enacted to regulate financing companies
operations with the end in view of strengthening their critical role in
providing credit and services to small and medium enterprises and to
curtail acts and practices prejudicial to the public interest, in general, and
to their clienteles, in particular. As a regulated activity, financing
arrangements are not meant to quench only the thirst for profit. They serve
a higher purpose, and R.A. No. 8556 has made that abundantly clear.
Same; Since there is nothing in R.A. No. 8556 which defines the rights
and obligations, as between each other, of the financial lessor and the lessee,
the courts, therefore, in determining the respective responsibilities of the
parties to the agreement, must train a keen eye on the attendant facts and
circumstances of the case in order to ascertain the intention of the parties, in
relation to the law and the written agreement.We stress, however, that
there is nothing in R.A. No. 8556 which defines the rights and obligations,
as between each other, of the financial lessor and the lessee. In
determining the respective responsibilities of the parties to the agreement,
courts, therefore, must train a keen eye on the attendant facts and
circumstances of the case in order to ascertain the intention of the parties,
in relation to the law and the written agreement. Likewise, the public
interest and policy involved should be considered. It may not be amiss to
state that, normally, financing contracts come in a standard prepared form,
unilaterally thought up and written by the financing companies requiring
only the personal circumstances and signature of the borrower or lessee;
the rates and other important covenants in these agreements are still
largely imposed unilaterally by the financing companies. In other words,
these agreements are usually one-sided in favor of such companies. A
perusal of the lease agreement in question exposes the many remedies
available to the petitioner, while there are only the standard contractual

_______________

74

prohibitions against the respondent. This is characteristic of standard

printed form contracts.
Same; Demand Letters; Statutory Construction; Certainly a lawyer
would know that a world of difference exists between and and or in the
manner that the word is employed in a demand letter; A rule in statutory
construction is that the word or is a disjunctive term signifying
dissociation and independence of one thing from other things enumerated
unless the context requires a different interpretation.Evidently, the letter
did not make a demand for the payment of the P8,248,657.47 AND the
return of the equipment; only either one of the two was required. The
demand letter was prepared and signed by Atty. Florecita R. Gonzales,
presumably petitioners counsel. As such, the use of or instead of and
in the letter could hardly be treated as a simple typographical error,
bearing in mind the nature of the demand, the amount involved, and the
fact that it was made by a lawyer. Certainly Atty. Gonzales would have
known that a world of difference exists between and and or in the
manner that the word was employed in the letter. A rule in statutory
construction is that the word or is a disjunctive term signifying
dissociation and independence of one thing from other things enumerated
unless the context requires a different interpretation. In its elementary
sense, or, as used in a statute, is a disjunctive article indicating an
alternative. It often connects a series of words or propositions indicating a
choice of either. When or is used, the various members of the
enumeration are to be taken separately. The word or is a disjunctive term
signifying disassociation and independence of one thing from each of the
other things enumerated.
Same; Recto Law (Art. 1485, Civil Code); Where a lease agreement is in
reality a lease with an option to purchase an equipment to which Article
1485 of the Civil Code applies.The demand could only be that the
respondent need not return the equipment if it paid the P8,248,657.47
outstanding balance, ineluctably suggesting that the respondent can keep
possession of the equipment if it exercises its option to acquire the same by
paying the unpaid balance of the purchase price. Stated otherwise, if the
respondent was not minded to exercise its option of acquiring the
equipment by returning them, then it need not pay the outstanding

balance. This is the logical import of the letter: that the transaction in this
case is a lease in name only. The so-called monthly rentals are in truth
monthly amortizations of the price of the leased office equipment. On the
whole, then, we rule, as did the trial court, that the PCI
LEASINGGIRAFFE lease agreement is in reality a lease with an option to
purchase the equipment. This has been made manifest by the actions of the
petitioner itself, foremost of which is the declarations made in its demand
letter to the respondent. There could be no other explanation than that if
the respondent paid the balance, then it could keep the equipment for its
own; if not, then it should return them. This is clearly an option to
purchase given to the respondent. Being so, Article 1485 of the Civil Code
should apply.
Same; Same; The Supreme Court has long been aware of the practice of
vendors of personal property of denominating a contract of sale on
installment as one of lease to prevent the ownership of the object of the sale
from passing to the vendee until and unless the price is fully paid.The
present case reflects a situation where the financing company can withhold
and concealup to the last momentits intention to sell the property
subject of the finance lease, in order that the provisions of the Recto
Law may be circumvented. It may be, as petitioner pointed out, that the
basic lease agreement does not contain a purchase option clause. The
absence, however, does not necessarily argue against the idea that what
the parties are into is not a straight lease, but a lease with option to
purchase. This Court has, to be sure, long been aware of the practice of
vendors of personal property of denominating a contract of sale on
installment as one of lease to prevent the ownership of the object of the sale
from passing to the vendee until and unless the price is fully paid.
Same; Same; Replevin; The lessor in a lease with option to purchase, in
choosing, through replevin, to deprive the lessee of possession of the leased
equipment, waived its right to bring an action to recover unpaid rentals on
the said leased items; The remedies provided for in Article 1484 of the Civil
Code are alternative, not cumulativethe exercise of one bars the exercise of
the others.In choosing, through replevin, to deprive the respondent of
possession of the leased equipment, the petitioner waived its right to bring
an action to recover unpaid rentals on the said leased items. Paragraph (3),
75

Article 1484 in relation to Article 1485 of the Civil Code, which we are
hereunder re-reproducing, cannot be any clearer. As we articulated
in Elisco Tool Manufacturing Corp. v. Court of Appeals, 307 SCRA 731
(1999), the remedies provided for in Article 1484 of the Civil Code are
alternative, not cumulative. The exercise of one bars the exercise of the
others. This limitation applies to contracts purporting to be leases of
personal property with option to buy by virtue of the same Article 1485.
The condition that the lessor has deprived the lessee of possession or
enjoyment of the thing for the purpose of applying Article 1485 was
fulfilled in this case by the filing by petitioner of the complaint for a sum of
money with prayer for replevin to recover possession of the office
equipment. By virtue of the writ of seizure issued by the trial court, the
petitioner has effectively deprived respondent of their use, a situation
which, by force of the Recto Law, in turn precludes the former from
maintaining an action for recovery of accrued rentals or the recovery of
the balance of the purchase price plus interest.
Same; Same; Human Relations; The imperatives of honest dealings
given prominence in the Civil Code under the heading, Human Relations,
provide another reason why we must hold the petitioner to its word as
embodied in its demand letter; The Recto Law was precisely enacted to
prevent the kind of aberration where the financial lessor would end up
making an instant killing out of the transaction at the expense of its
client.The imperatives of honest dealings given prominence in the Civil
Code under the heading: Human Relations, provide another reason why we
must hold the petitioner to its word as embodied in its demand letter. Else,
we would witness a situation where even if the respondent surrendered the
equipment voluntarily, the petitioner can still sue upon its claim. This
would be most unfair for the respondent. We cannot allow the petitioner to
renege on its word. Yet more than that, the very word or as used in the
letter conveysdistinctly its intention not to claim both the unpaid balance
and the equipment. It is not difficult to discern why: if we add up the
amounts paid by the respondent, the residual value of the property
recovered, and the amount claimed by the petitioner as sued upon herein
(for a total of P21,779,029.47), then it would end up making an instant
killing out of the transaction at the expense of its client, the respondent.

TheRecto Law was precisely enacted to prevent this kind of aberration.

Moreover, due to considerations of equity, public policy and justice, we
cannot allow this to happen. Not only to the respondent, but those similarly
situated who may fall prey to a similar scheme.

PETITION for review on certiorari of the decision and resolution of

the Court of Appeals.
The facts are stated in the opinion of the Court.
Platon, Martinez, Flores, San Pedro and Leao for petitioner.
Cruz, Cruz and Navarro III for respondent.
GARCIA, J.:
On a pure question of law involving the application of Republic
Act (R.A.) No. 5980, as amended by R.A. No. 8556, in relation to
Articles 1484 and 1485 of the Civil Code, petitioner PCI Leasing and
Finance, Inc. (PCI LEASING, for short) has directly come to this
Court viathis petition for review under Rule 45 of the Rules of Court
to nullify and set aside the Decision and Resolution dated December
28, 1998 and February 15, 2000, respectively, of the Regional Trial
Court (RTC) of Quezon City, Branch 227, in its Civil Case No. Q-9834266, a suit for a sum of money and/or personal property with
prayer for a writ of replevin, thereat instituted by the petitioner
against the herein respondent, Giraffe-X Creative Imaging, Inc.
(GIRAFFE, for brevity). The facts:
On December 4, 1996, petitioner PCI LEASING and respondent
GIRAFFE entered into a Lease Agreement, whereby the former
leased out to the latter one (1) set ofSilicon High Impact
Graphics and accessories worth P3,900,00.00 and one (1) unit
of Oxberry Cinescan 6400-10 worth P6,500,000.00. In connection
with this agreement, the parties subsequently signed two (2)
separate documents, each denominated as Lease Schedule. Likewise
forming parts of the basic lease agreement were two (2) separate
1

76

documents denominated Disclosure Statements of Loan/Credit

Transaction (Single Payment or Installment Plan) that GIRAFFE
also executed for each of the leased equipment. These disclosure
statements inter alia described GIRAFFE, vis--vis the two
aforementioned equipment, as the borrower who acknowledged the
net proceeds of the loan, the net amount to be financed, the
financial charges, the total installment payments that it must pay
monthly for thirty-six (36) months, exclusive of the 36% per
annum late payment charges. Thus, for the Silicon High Impact
Graphics, GIRAFFE agreed to pay P116,878.21 monthly, and
for Oxberry Cinescan, P181.362.00 monthly. Hence, the total amount
GIRAFFE has to pay PCI LEASING for 36 months of the lease,
exclusive of monetary penalties imposable, if proper, is as indicated
below:

A year into the life of the Lease Agreement, GIRAFFE defaulted

in its monthly rental-payment obligations. And following a threemonth default, PCI LEASING, through one Atty. Florecita R.
Gonzales, addressed a formal pay-or-surrenderequipment type of
demand letter dated February 24, 1998 to GIRAFFE.

P116,878.21 @ month (for

theSilicon High
Impact Graphics) x 36 months

2. After trial, judgment be rendered in favor of plaintiff [PCI LEASING]

and against the defendant [GIRAFFE], as follows:

-- PLUSP181,362.00 @ month (for

theOxberry
Cinescan) x 36 months
Total Amount to be paid by
GIRAFFE
(or the NET CONTRACT
AMOUNT)

=P
4,207,615.56

The demand went unheeded.

Hence, on May 4, 1998, in the RTC of Quezon City, PCI LEASING
instituted the instant case against GIRAFFE. In its
complaint, docketed in said court asCivil Case No. 9834266 and
raffled to Branch 227 thereof, PCI LEASING prayed for the issuance
of a writ of replevin for the recovery of the leased property, in
addition to the following relief:
5

a. Declaring the plaintiff entitled to the possession of the subject

properties;

=P
6,529,032.00

b. Ordering the defendant to pay the balance of rental/obligation in

the total amount of P8,248,657.47 inclusive of interest and charges
thereon;

P 10,736,647.56

c. Ordering defendant to pay plaintiff the expenses of litigation and

cost of suit. . . . (Words in bracket added.)

By the terms, too, of the Lease Agreement, GIRAFFE undertook to

remit the amount of P3,120,000.00 by way of guaranty deposit, a
sort of performance and compliance bond for the two equipment.
Furthermore, the same agreement embodied a standard acceleration
clause, operative in the event GIRAFFE fails to pay any rental
and/or other accounts due.

Upon PCI LEASINGs posting of a replevin bond, the trial court

issued a writ of replevin, paving the way for PCI LEASING to secure
the seizure and delivery of the equipment covered by the basic lease
agreement.
Instead of an answer, GIRAFFE, as defendant a quo, filed
a Motion to Dismiss, therein arguing that the seizure of the two (2)
leased equipment stripped PCI LEASING of its cause of action.
Expounding on the point, GIRAFFE argues that, pursuant to Article
77

1484 of the Civil Code on installment sales of personal property, PCI

LEASING is barred from further pursuing any claim arising from
the lease agreement and the companion contract documents, adding
that the agreement between the parties is in reality a lease of
movables with option to buy. The given situation, GIRAFFE
continues, squarely brings into applicable play Articles 1484 and
1485 of the Civil Code, commonly referred to as the Recto Law. The
cited articles respectively provide:
ART. 1484. In a contract of sale of personal property the price of which is
payable in installments, the vendor may exercise any of the following
remedies:

LEASING is proscribed by the application to the case of Articles

1484 and 1485, supra, of the Civil Code.
In its Opposition to the motion to dismiss, PCI LEASING
maintains that its contract with GIRAFFE is a straight lease without
an option to buy. Prescinding therefrom, PCI LEASING rejects the
applicability to the suit of Article 1484 in relation to Article 1485 of
the Civil Code, claiming that, under the terms and conditions of the
basic agreement, the relationship between the parties is one between
an ordinary lessor and an ordinary lessee.
In a decision dated December 28, 1998, the trial court granted
GIRAFFEs motion to dismiss mainly on the interplay of the
following premises: 1) the lease agreement package, as memorialized
in the contract documents, is akin to the contract contemplated in
Article 1485 of the Civil Code, and 2) GIRAFFEs loss of possession of
the leased equipment consequent to the enforcement of the writ of
replevin is akin to foreclosure, . . . the condition precedent for
application of Articles 1484 and 1485 [of the Civil Code].
Accordingly, the trial court dismissed Civil Case No. Q-98-34266,
disposing as follows:
7

(1) Exact fulfillment of the obligation, should the vendee fail to pay;
(2) Cancel the sale, should the vendees failure to pay cover two or more
installments;
(3) Foreclose the chattel mortgage on the thing sold, if one has
been constituted, should the vendees failure to pay cover two or more
installments. In this case, he shall have no further action against
the purchaser to recover any unpaid balance of the price. Any
agreement to the contrary shall be void. (Emphasis added.)
ART. 1485. The preceding article shall be applied to contracts
purporting to be leases of personal property with option to buy, when the
lessor has deprived the lessee of the possession or enjoyment of the thing.

It is thus GIRAFFEs posture that the aforequoted Article 1484 of

the Civil Code applies to its contractual relation with PCI LEASING
because the lease agreement in question, as supplemented by the
schedules documents, is really a lease with option to buy under
the companion article, Article 1485. Consequently, so GIRAFFE
argues, upon the seizure of the leased equipment pursuant to the
writ of replevin, which seizure is equivalent to foreclosure, PCI
LEASING has no further recourse against it. In brief, GIRAFFE
asserts in its Motion to Dismiss that the civil complaint filed by PCI

WHEREFORE, premises considered, the defendant [GIRAFFE] having

relinquished any claim to the personal properties subject of replevin which
are now in the possession of the plaintiff [PCI LEASING], plaintiff is
DEEMED fully satisfied pursuant to the provisions of Articles 1484 and
1485 of the New Civil Code. By virtue of said provisions, plaintiff is
DEEMED estopped from further action against the defendant, the plaintiff
having recovered thru (replevin) the personal property sought to be
payable/leased on installments, defendants being under protection of said
RECTO LAW. In view thereof, this case is hereby DISMISSED.

With
court
come
issue

its motion for reconsideration having been denied by the trial

in its resolution of February 15, 2000, petitioner has directly
to this Court via this petition for review raising the sole legal
of whether or not the underlying Lease Agreement, Lease
8

78

Schedules and the Disclosure Statements that embody the financial

leasing arrangement between the parties are covered by and subject
to the consequences of Articles 1484 and 1485 of the New Civil Code.

The Court can allow that the underlying lease agreement has the
earmarks or made to appear as afinancial leasing, a term defined in
Section 3(d) of R.A. No. 8556 as

As in the court below, petitioner contends that the financial

leasing arrangement it concluded with the respondent represents a
straight lease covered by R.A. No. 5980, the Financing Company Act,
as last amended by R.A. No. 8556, otherwise known as Financing
Company Act of 1998, and is outside the application and coverage of
the Recto Law. To the petitioner, R.A. No. 5980 defines and
authorizes its existence and business.

a mode of extending credit through a non-cancelable lease contract

under which the lessor purchases or acquires, at the instance of the lessee,
machinery, equipment, . . . office machines, and other movable or
immovable property in consideration of the periodic payment by the lessee
of a fixed amount of money sufficient to amortize at least seventy (70%) of
the purchase price or acquisition cost, including any incidental expenses
and a margin of profit over an obligatory period of not less than two (2)
years during which the lessee has the right to hold and use the leased
property . . . but with no obligation or option on his part to purchase the
leased property from the owner-lessor at the end of the lease contract.

The recourse is without merit.

R.A. No. 5980, in its original shape and as amended, partakes of a
supervisory or regulatory legislation, merely providing a regulatory
framework for the organization, registration, and regulation of the
operations of financing companies. As couched, it does not
specifically define the rights and obligations of parties to a financial
leasing arrangement. In fact, it does not go beyond defining
commercial or transactional financial leasing and other financial
leasing concepts. Thus, the relevancy of Article 18 of the Civil Code
which reads:
Article 18.In matters which are governed by . . . special laws, their
deficiency shall be supplied by the provisions of this [Civil] Code.

Petitioner foists the argument that the Recto Law, i.e., the Civil Code
provisions on installment sales of movable property, does not apply
to a financial leasing agreement because such agreement, by
definition, does not confer on the lessee the option to buy the
property subject of the financial lease. To the petitioner, the absence
of an option-to-buy stipulation in a financial leasing agreement, as
understood under R.A. No. 8556, prevents the application thereto of
Articles 1484 and 1485 of the Civil Code.

In its previous holdings, however, the Court, taking into account the
following mix: the imperatives of equity, the contractual stipulations
in question and the actuations of parties vis--vis their contract,
treated disguised transactions technically tagged as financing lease,
like here, as creating a different contractual relationship. Notable
among the Courts decisions because of its parallelism with this case
is BA Finance Corporation v. Court of Appeals which involved a
motor vehicle. Thereat, the Court has treated a purported financial
lease as actually a sale of a movable property on installments and
prevented recovery beyond the buyers arrearages. Wrote the Court
in BA Finance:
10

The transaction involved . . . is one of a financial

leaseor financial leasing, where a financing company would, in
effect, initially purchase a mobile equipment and turn around to
lease it to a client who gets, in addition, an option to purchase the
property at the expiry of the lease period. x x x.
xxx
xxx
xxx
The pertinent provisions of [RA] 5980, thus implemented, read:

We are not persuaded.

79

 Financing companies, . . . are primarily organized for the purpose of extending

and circumstances existing in this case, and which the court must consider in

credit facilities to consumers . . . either by . . . leasing of motor vehicles, . . . and

deciding the case, if it is to decide the case according to all the facts. x x x.

office machines and equipment, . . . and other movable property.

xxx

xxx

xxx

Credit shall mean any loan, . . . any contract to sell, or sale or contract of sale
of property or service, . . . under which part or all of the price is payable
subsequent to the making of such sale or contract; any rental-purchase contract; . .
. .;

The foregoing provisions indicate no less than a mere financing scheme

extended by a financing company to a client in acquiring a motor vehicle
and allowing the latter to obtain the immediate possession and use thereof
pending full payment of the financial accommodation that is given.
In the case at bench, x x x. [T]he term of the contract[over a motor
vehicle]was for thirty six (36) months at a monthly rental . . . (P1,689.40),
or for a total amount of P60,821.28. The contract also contained [a] clause
[requiring the Lessee to give a guaranty deposit in the amount of
P20,800.00] x x x
After the private respondent had paid the sum of P41,670.59, excluding
the guaranty deposit of P20,800.00, he stopped further payments. Putting
the two sums together, the financing company had in its hands the amount
of P62,470.59 as against the total agreed rentals of P60,821.28 or an
excess of P1,649.31.
The respondent appellatecourt considered it only just and equitable for
the guaranty deposit made by the private respondent to be applied to his
arrearages and thereafter to hold the contract terminated. Adopting the
ratiocination of the court a quo, the appellate court said:
x x x In view thereof, the guaranty deposit of P20,800.00 made by the defendant
should and must be credited in his favor, in the interest of fairness, justice and
equity. The plaintiff should not be allowed to unduly enrich itself at the
expense of the defendant. xxx This is even more compelling in this case
where although the transaction, on its face, appear ostensibly, to be a
contract of lease, it is actually a financing agreement, with the plaintiff

Considering the factual findings of both the court a quo and the
appellate court, the only logical conclusion is that the private
respondent did opt, as he has claimed, to acquire the motor
vehicle, justifying then the application of the guarantee deposit to
the balance still due and obligating the petitioner to recognize it as
an exercise of the option by the private respondent. The result
would thereby entitle said respondent to the ownership and
possession of the vehicle as the buyer thereof. We, therefore, see no
reversible error in the ultimate judgment of the appellate court. (Italics in
the original; underscoring supplied and words in bracket added.)
11

In Cebu Contractors Consortium Co. v. Court of Appeals, the

Court viewed and thus declared a financial lease agreement as
having been simulated to disguise a simple loan with security, it
appearing that the financing company purchased equipment already
owned by a capital-strapped client, with the intention of leasing it
back to the latter.
12

In the present case, petitioner acquired the office equipment in

question for their subsequent lease to the respondent, with the latter
undertaking to pay a monthly fixed rental therefor in the total
amount of P292,531.00, or a total of P10,531,116.00 for the whole 36
months. As a measure of good faith, respondent made an up-front
guarantee deposit in the amount of P3,120,000.00. The basic
agreement provides that in the event the respondent fails to pay any
rental due or is in a default situation, then the petitioner shall have
cumulative remedies, such as, but not limited to, the following:
13

financing the purchase of defendants automobile . . . . The Court is

constrained, in the interest of truth and justice, to go into this aspect of the
transaction between the plaintiff and the defendant . . . with all the facts

1. Obtain possession of the property/equipment;

2. Retain all amounts paid to it. In addition, the guaranty deposit may
be applied towards the payment of liquidated damages;
80

3. Recover all accrued and unpaid rentals;

4. Recover all rentals for the remaining term of the lease had it
not been cancelled, as additional penalty;
5. Recovery of any and all amounts advanced by PCI LEASING
for GIRAFFEs account x x x;
6. Recover all expenses incurred in repossessing, removing, repairing
and storing the property; and,
7. Recover all damages suffered by PCI LEASING by reason of the
default.

In addition, Sec. 6.1 of the Lease Agreement states that the

guaranty deposit shall be forfeited in the event the respondent, for
any reason, returns the equipment before the expiration of the lease.
At bottom, respondent had paid the equivalent of about a years
lease rentals, or a total of P3,510,372.00, more or less. Throw in
the guaranty deposit(P3,120,000.00) and the respondent had made
a total cash outlay of P6,630,372.00 in favor of the petitioner. The
replevin-seized leased equipment had, as alleged in the complaint,
an estimated residual value ofP6,900.000.00 at the time Civil Case
No. Q-9834266was instituted on May 4, 1998. Adding all cash
advances thus made to the residual value of the equipment, the total
value which the petitioner had actually obtained by virtue of its
lease agreement with the respondent amounts to P13,530,372.00
(P3,510,372.00 + P3,120,000.00 + P6,900.000.00 = P13,530,372.00).

it does not include the rentals in arrears, penalties thereon, and

interest earned by the guaranty deposit.
As may be noted, petitioners demand letter fixed the amount of
P8,248,657.47 as representing the respondents rental balance
which became due and demandable consequent to the application of
the acceleration and other clauses of the lease agreement. Assuming,
then, that the respondent may be compelled to pay P8,248,657.47,
then
it
would
end
up
paying
a
total
of P21,779,029.47 (P13,530,372.00
+
P8,248,657.47
=
P21,779,029.47) for its use - for a year and two months at the most of the equipment. All in all, for an investment of P8,100,000.00, the
petitioner stands to make in a years time, out of the transaction, a
total of P21,779,029.47, or a net of P13,679,029.47, if we are to
believe its outlandish legal submission that the PCI LEASINGGIRAFFE Lease Agreement was an honest-to-goodness straight
lease.
15

A financing arrangement has a purpose which is at once practical

and salutary. R.A. No. 8556 was, in fact, precisely enacted to
regulate financing companies operations with the end in view of
strengthening their critical role in providing credit and services to
small and medium enterprises and to curtail acts and practices
prejudicial to the public interest, in general, and to their clienteles,
in particular. As a regulated activity, financing arrangements are
not meant to quench only the thirst for profit. They serve a higher
purpose, and R.A. No. 8556 has made that abundantly clear.
16

The acquisition cost for both the Silicon High Impact Graphics
equipment and the Oxberry Cinescan was, as stated in no less than
the petitioners letter to the respondent dated November 11,
1996 approving in the latters favor a lease facility,
was P8,100,000.00. Subtracting the acquisition cost of P8,100,000.00
from the total amount, i.e., P13,530,372.00, creditable to the
respondent, it would clearly appear that petitioner realized a gross
income of P5,430,372.00 from its lease transaction with the
respondent. The amount of P5,430,372.00 is not yet a final figure as
14

We stress, however, that there is nothing in R.A. No. 8556 which

defines the rights and obligations, as between each other, of the
financial lessor and the lessee. In determining the respective
responsibilities of the parties to the agreement, courts, therefore,
must train a keen eye on the attendant facts and circumstances of
the case in order to ascertain the intention of the parties, in relation
to the law and the written agreement. Likewise, the public interest
81

and policy involved should be considered. It may not be amiss to

state that, normally, financing contracts come in a standard
prepared form, unilaterally thought up and written by the financing
companies requiring only the personal circumstances and signature
of the borrower or lessee; the rates and other important covenants in
these agreements are still largely imposed unilaterally by the
financing companies. In other words, these agreements are usually
one-sided in favor of such companies. A perusal of the lease
agreement in question exposes the many remedies available to the
petitioner, while there are only the standard contractual prohibitions
against the respondent. This is characteristic of standard printed
form contracts.
There is more. In the adverted February 24, 1998 demand
letter sent to the respondent, petitioner fashioned its claim in the
alternative: payment of the full amount of P8,248,657.47,
representing the unpaid balance for the entire 36-month lease
period or thesurrender of the financed asset under pain of legal
action. To quote the letter:
17

Demand is hereby made upon you to pay in full your outstanding

balance in the amount of P8,248,657.47 on or before March 04, 1998 OR to
surrender to us the one (1) set Silicon High Impact Graphics and one (1)
unit Oxberry Cinescan 6400-10. . .
We trust you will give this matter your serious and preferential
attention. (Emphasis added).

Evidently, the letter did not make a demand for the payment of the
P8,248,657.47 AND the return of the equipment; only either one of
the two was required. The demand letter was prepared and signed by
Atty. Florecita R. Gonzales, presumably petitioners counsel. As
such, the use of or instead of and in the letter could hardly be
treated as a simple typographical error, bearing in mind the nature
of the demand, the amount involved, and the fact that it was made
by a lawyer. Certainly Atty. Gonzales would have known that a

world of difference exists between and and or in the manner that

the word was employed in the letter.
A rule in statutory construction is that the word or is a disjunctive term
signifying dissociation and independence of one thing from other things
enumerated unless the context requires a different interpretation.
18

In its elementary sense, or, as used in a statute, is a disjunctive article

indicating an alternative. It often connects a series of words or propositions
indicating a choice of either. When or is used, the various members of the
enumeration are to be taken separately.
19

The word or is a disjunctive term signifying disassociation and

independence of one thing from each of the other things enumerated.
20

The demand could only be that the respondent need not return the
equipment if it paid the P8,248,657.47 outstanding balance,
ineluctably suggesting that the respondent can keep possession of
the equipment if it exercises its option to acquire the same by paying
the unpaid balance of the purchase price. Stated otherwise, if the
respondent was not minded to exercise its option of acquiring the
equipment by returning them, then it need not pay the outstanding
balance. This is the logical import of the letter: that the transaction
in this case is a lease in name only. The so-called monthly rentals are
in truth monthly amortizations of the price of the leased office
equipment.
On the whole, then, we rule, as did the trial court, that the PCI
LEASING-GIRAFFE lease agreement is in reality a lease with an
option to purchase the equipment. This has been made manifest by
the actions of the petitioner itself, foremost of which is the
declarations made in its demand letter to the respondent. There
could be no other explanation than that if the respondent paid the
balance, then it could keep the equipment for its own; if not, then it
should return them. This is clearly an option to purchase given to the
respondent. Being so, Article 1485 of the Civil Code should apply.
82

The present case reflects a situation where the financing company

can withhold and concealup to the last momentits intention to
sell the property subject of the finance lease, in order that the
provisions of the Recto Law may be circumvented. It may be, as
petitioner pointed out, that the basic lease agreement does not
contain a purchase option clause. The absence, however, does not
necessarily argue against the idea that what the parties are into is
not a straight lease, but a lease with option to purchase. This Court
has, to be sure, long been aware of the practice of vendors of personal
property of denominating a contract of sale on installment as one of
lease to prevent the ownership of the object of the sale from passing
to the vendee until and unless the price is fully paid. As this Court
noted in Vda. de Jose v. Barrueco:
21

Sellers desirous of making conditional sales of their goods, but who do

not wish openly to make a bargain in that form, for one reason or another,
have frequently resorted to thedevice of making contracts in the form
of leases either with options to the buyer to purchase for a small
consideration at the end of term, provided the so-called rent has
been duly paid, or with stipulations that if the rent throughout the
term is paid, title shall thereupon vest in the lessee. It is obvious
that such transactions are leases only in name. The so-called rent
must necessarily be regarded as payment of the price in installments since
the due payment of the agreed amount results, by the terms of the bargain,
in the transfer of title to the lessee.

In another old but still relevant case of U.S. Commercial v.

Halili, a lease agreement was declared to be in fact a sale of
personal property by installments. Said the Court:
22

. . . There can hardly be any question that the so-called contracts of lease
on which the present action is based were veritable leases of personal
property with option to purchase, and as such come within the purview of
the above article [Art. 1454-A of the old Civil Code on sale of personal
property by installment]. x x x

Being leases of personal property with option to purchase as

contemplated in the above article, the contracts in question are subject to
the provision that when the lessor in such case has chosen to deprive the
lessee of the enjoyment of such personal property, he shall have no
further action against the lessee for the recovery of any unpaid balance
owing by the latter, agreement to the contrary being null and void.

In choosing, through replevin, to deprive the respondent of

possession of the leased equipment, the petitioner waived its right to
bring an action to recover unpaid rentals on the said leased items.
Paragraph (3), Article 1484 in relation to Article 1485 of the Civil
Code, which we are hereunder rereproducing, cannot be any clearer.
ART. 1484.In a contract of sale of personal property the price of which
is payable in installments, the vendor may exercise any of the following
remedies:
xxx
xxx
xxx
(3) Foreclose the chattel mortgage on the thing sold, if one has been
constituted, should the vendees failure to pay cover two or more
installments. In this case, he shall haveno further action against the
purchaser to recover any unpaid balance of the price. Any agreement to the
contrary shall be void.
ART.1485.The preceding article shall be applied to contracts purporting
to be leases of personal property with option to buy, when the lessor has
deprived the lessee of the possession or enjoyment of the thing.

As we articulated in Elisco Tool Manufacturing Corp. v. Court of

Appeals, the remedies provided for in Article 1484 of the Civil Code
are alternative, not cumulative. The exercise of one bars the exercise
of the others. This limitation applies to contracts purporting to be
leases of personal property with option to buy by virtue of the same
Article 1485. The condition that the lessor has deprived the lessee of
possession or enjoyment of the thing for the purpose of applying
Article 1485 was fulfilled in this case by the filing by petitioner of the
23

83

complaint for a sum of money with prayer for replevin to recover

possession of the office equipment.24 By virtue of the writ of seizure
issued by the trial court, the petitioner has effectively deprived
respondent of their use,a situation which, by force of the Recto Law,
in turn precludes the former from maintaining an action for recovery
of accrued rentals or the recovery of the balance of the purchase
price plus interest.
25

The imperatives of honest dealings given prominence in the Civil

Code under the heading: Human Relations, provide another reason
why we must hold the petitioner to its word as embodied in its
demand letter. Else, we would witness a situation where even if the
respondent surrendered the equipment voluntarily, the petitioner
can still sue upon its claim. This would be most unfair for the
respondent. We cannot allow the petitioner to renege on its word. Yet
more than that, the very word or as used in the letter
conveys distinctly its intention not to claim both the unpaid balance
and the equipment. It is not difficult to discern why: if we add up the
amounts paid by the respondent, the residual value of the property
recovered, and the amount claimed by the petitioner as sued upon
herein (for a total of P21,779,029.47), then it would end up making
an instant killing out of the transaction at the expense of its client,
the respondent. The Recto Law was precisely enacted to prevent this
kind of aberration. Moreover, due to considerations of equity, public
policy and justice, we cannot allow this to happen. Not only to the
respondent, but those similarly situated who may fall prey to a
similar scheme.

Sandoval-Gutierrez, J., On Leave.

Petition denied, judgment affirmed.
Notes.In a contract of sale of personal property payable in
installments, the mere fact that the vendor secures possession of the
unpaid articles through an attachment does not necessarily mean
that it would resort to a foreclosure of the mortgage. (Palma vs.
Court of Appeals, 232 SCRA 714 [1994])
In a contract involving installment payments with interest
chargeable against the remaining balance of the obligation, it is the
duty of the creditor to inform the debtor of the amount of interest
that falls due and that he is applying the installment payments to
cover said interest. (Rapanut vs. Court of Appeals, 246 SCRA
323[1995])
o0o

WHEREFORE, the instant petition is DENIED and the trial

courts decision is AFFIRMED.
Costs against petitioner.
SO ORDERED.
Puno (C.J., Chairperson), Corona and Azcuna, JJ., concur.
84

G.R. No. 135602. April 28, 2000.

HEIRS OF QUIRICO SERASPI AND PURIFICACION R. SERASPI,

petitioners, vs. COURT OF APPEALS AND SIMEON RECASA,
respondents.
Ownership; Prescription; The contention of a party of having acquired
ownership of a piece of land by ordinary prescription through adverse
possession for 10 years is untenable where he has neither just title nor good
faith.Acquisitive prescription of dominion and other real rights may be
ordinary or extraordinary, depending on whether the property is possessed
in good faith and with just title for the time fixed by law. Private
respondent contends that he acquired the ownership of the questioned
property by ordinary prescription through adverse possession for ten (10)
years. The contention has no merit, because he has neither just title nor
good faith. As Art. 1129 provides: For the purposes of prescription, there is
just title when the adverse claimant came into possession of the property
through one of the modes recognized by law for the acquisition of
ownership or other real rights, but the grantor was not the owner or could
not transmit any right. In the case at bar, private respondent did not
acquire possession of the property through any of the modes recognized by
the Civil Code, to wit: (1) occupation, (2) intellectual creation, (3) law, (4)
donation, (5) succession, (6) tradition in consequence of certain contracts,
and (7) prescription.
Same; Occupation; Succession; Co-Ownership; While as heir to the
intestate estate of his deceased parent is a co-owner of all of the latters
properties, such co-ownership rights were effectively dissolved by the
partition agreed upon by the heirs.Private respondent could not have
acquired ownership over the property through occupation since, under Art.
714 of the Civil Code, the ownership of a piece of land cannot be acquired
by occupation. Nor can he base his ownership on succession for the
property was not part of those distributed to the heirs of the third
marriage, to which private respondent belongs. It must be remembered
that in the partition of the intestate estate of Marcelino Recasa, the
properties were divided into three parts, each part being reserved for each

group of heirs belonging to one of the three marriages Marcelino entered

into. Since the contested parcels of land were adjudicated to the heirs of the
first and second marriages, it follows that private respondent, as heir of the
third marriage, has no right over the parcels of land. While, as heir to the
intestate estate of his father, private respondent was co-owner of all of his
fathers properties, such co-ownership rights were effectively dissolved by
the partition agreed upon by the heirs of Marcelino Recasa.
Good Faith; Words and Phrases; Good faith consists in the reasonable
belief that the person from whom the possessor received the thing was its
owner but could not transmit the ownership thereof.Neither can private
respondent claim good faith in his favor. Good faith consists in the
reasonable belief that the person from whom the possessor received the
thing was its owner but could not transmit the ownership thereof. Private
respondent entered the property without the consent of the previous owner.
For all intents and purposes, he is a mere usurper.
Sales; While a contract of sale is perfected by the meeting of minds
upon the thing which is the object of the contract and upon the price, the
ownership of the thing sold is not transferred to the vendee until actual or
constructive delivery of the property.Like private respondent, petitioners
have not acquired the property through any of the modes recognized by law
for the acquisition of ownership. The basis of petitioners claim of
ownership is the contract of sale they had with Rata, but this by itself is
insufficient to make them owners of the property. For while a contract of
sale is perfected by the meeting of minds upon the thing which is the object
of the contract and upon the price, the ownership of the thing sold is not
transferred to the vendee until actual or constructive delivery of the
property. Hence, the maximnon nudis pactis, sed traditione dominia
dominica rerum transferuntur (not mere agreements but tradition
transfers the ownership of things).
Actions; Ownership; Reconveyance; When the property belonging to a
person is unlawfully taken by another, the former has the right of action
against the latter for the recovery of the property, and such right may be
transferred by the sale or assignment of the property, and the transferee can
maintain such action against the wrongdoer.This does not give private
respondent a right to remain in possession of the property. Petitioners title
85

to the property prevails over private respondents possession in fact but

without basis in law. As held in Waite v. Peterson, when the property
belonging to a person is unlawfully taken by another, the former has the
right of action against the latter for the recovery of the property. Such right
may be transferred by the sale or assignment of the property, and the
transferee can maintain such action against the wrongdoer.

PETITION for review on certiorari of a decision of the Court of

Appeals.
The facts are stated in the opinion of the Court.
Public Attorneys Office for petitioners.
Cyril Tagle for private respondent.
MENDOZA, J.:
This case is here for review of the decision of the Court of Appeals,
dated May 15, 1998, reversing the decision of Branch 1 of the
Regional Trial Court, Kalibo, Aklan and dismissing, on the ground of
prescription, the complaint filed by petitioners for the recovery of
possession and ownership of two parcels of land in Banga, Aklan.
The facts are as follows:
1

Marcelino Recasa was the owner of two parcels of land described

as follows:
PARCEL I: A parcel of cocal land located at Barangay Lapnag, Banga,
Aklan, with an area of 770 square meters, more or less; bounded North by
Lazaro Navarra, now Flocerfina Ibit; South by Celsa Retis; East by BangaLibacao Provincial Road; and West by Aklan River, which parcel of land
declared in the name of Marcelino Recasa under Tax Declaration No. 3721,
Series of 1984, with an assessed value of P2,440.00;
PARCEL II: A parcel of cocal land with an area of 3,648 square meters,
more or less, located in Barangay Lapnag, Banga, Aklan; bounded North by
Concepcion Navarra; South by Diosdado Navarra; East by Gabriel Reloj;

and West by National Road; covered by Tax Declaration No. 11079 in the
name of Purificacion Seraspi, Series of 1984, and having an assessed value
of P1,650.00.

During his lifetime, Marcelino contracted three (3) marriages. At

the time of his death in 1943, he had fifteen (15) children from his
three marriages. In 1948, his intestate estate was partitioned into
three parts by his heirs, each part corresponding to the share of the
heirs in each marriage.
In the same year, Patronicio Recasa, representing the heirs of the
first marriage, sold the share of the heirs in the estate to Dominador
Recasa, an heir of the second marriage. On June 15, 1950,
Dominador, representing the heirs of the second marriage, in turn
sold the share of the heirs to Quirico and Purificacion Seraspi whose
heirs are the present petitioners. Included in this sale was the
property sold by Patronicio to Dominador.
In 1958, the Seraspis obtained a loan from the Kalibo Rural Bank,
Inc. (KRBI) on the security of the lands in question to finance
improvements on the lands. However, they failed to pay the loan for
which reason the mortgage was foreclosed and the lands were sold to
KRBI as the highest bidder. Subsequently, the lands were sold by
KRBI to Manuel Rata, brother-in-law of Quirico Seraspi. It appears
that Rata, as owner of the property, allowed Quirico Seraspi to
administer the property.
In 1974, private respondent Simeon Recasa, Marcelinos child by
his third wife, taking advantage of the illness of Quirico Seraspi, who
had been paralyzed due to a stroke, forcibly entered the lands in
question and took possession thereof.
In 1983, the Seraspis purchased the lands from Manuel Rata and
afterwards filed a complaint against Simeon Recasa for recovery of
possession of the lands.
The trial court ruled in favor of the Seraspis, stating that they
had acquired the property through a sale and acquisitive
prescription. However, on appeal, the Court of Appeals reversed on
86

the ground that the action of the Seraspis was barred by the statute
of limitations. Hence, this petition filed by Quirico Seraspi who, in
the meantime, had passed away and was thus substituted by his
heirs.
Two issues are presented: (1) whether petitioners action is barred
by extinctive prescription; and (2) whether private respondent
Simeon Recasa acquired ownership of the properties in question
through acquisitive prescription.
We rule for petitioners.
The Court of Appeals, while ruling that petitioners were able to
establish the identity of the property as well as the credibility of
their titlethe elements required to prove ones claim for recovery of
property nonetheless held that the action was barred by
prescription. Citing Arradaza v. Court of Appeals, it held that an
action for recovery of title or possession of real property or an
interest therein can only be brought within ten (10) years after the
cause of action has accrued. Since the action for recovery of
possession and ownership was filed by petitioners only on April 12,
1987,i.e., thirteen (13) years after their predecessor-in-interest had
been allegedly deprived of the possession of the property by private
respondent, it was held that the action had prescribed.
Arradaza involves acquisitive, not extinctive, prescription. What
is more, the facts in that case arose before the effectivity of the Civil
Code. Accordingly, what was applied was 41 of the Code of Civil
Procedure which provides that title by prescription is acquired after
ten (10) years, in whatever manner possession may have been
commenced or continued, and regardless of good faith or with just
title. On the other hand, what is involved here is extinctive
prescription, and the applicable law is Art. 1141 of the Civil Code
which provides:
2

The question, therefore, is whether private respondent has acquired

the ownership of the two lands by prescription. On this point, the
Civil Code provides:
Art. 1117. Acquisitive prescription of dominion and other real rights
may be ordinary or extraordinary.
Ordinary acquisitive prescription requires possession of things in good
faith and with just title for the time fixed by law.
Art. 1134. Ownership and other real rights over immovable property are
acquired by ordinary prescription through possession of ten years.
Art. 1137. Ownership and other real rights over immovables also
prescribe through uninterrupted adverse possession thereof for thirty
years, without need of title or of good faith.

Real actions over immovables prescribe after thirty years.

This provision is without prejudice to what is established for the
acquisition of ownership and other real rights by prescription.

Thus, acquisitive prescription of dominion and other real rights

may be ordinary or extraordinary, depending on whether the
property is possessed in good faith and with just title for the time
fixed by law. Private respondent contends that he acquired the
ownership of the questioned property by ordinary prescription
through adverse possession for ten (10) years.
4

The contention has no merit, because he has neither just title nor
good faith. As Art. 1129 provides:
For the purposes of prescription, there is just title when the adverse
claimant came into possession of the property through one of the modes
recognized by law for the acquisition of ownership or other real rights, but
the grantor was not the owner or could not transmit any right.

In the case at bar, private respondent did not acquire possession

of the property through any of the modesrecognized by the Civil
Code, to wit: (1) occupation, (2) intellectual creation, (3) law, (4)
donation, (5) succession, (6) tradition in consequence of certain
contracts, and (7) prescription.
5

87

Private respondent could not have acquired ownership over the

property through occupation since, under Art. 714 of the Civil Code,
the ownership of a piece of land cannot be acquired by occupation.
Nor can he base his ownership on succession for the property was not
part of those distributed to the heirs of the third marriage, to which
private respondent belongs. It must be remembered that in the
partition of the intestate estate of Marcelino Recasa, the properties
were divided into three parts, each part being reserved for each
group of heirs belonging to one of the three marriages Marcelino
entered into. Since the contested parcels of land were adjudicated to
the heirs of the first and second marriages, it follows that private
respondent, as heir of the third marriage, has no right over the
parcels of land. While, as heir to the intestate estate of his father,
private respondent was co-owner of all of his fathers properties, such
co-ownership rights were effectively dissolved by the partition agreed
upon by the heirs of Marcelino Recasa.
Neither can private respondent claim good faith in his favor. Good
faith consists in the reasonable belief that the person from whom the
possessor received the thing was its owner but could not transmit the
ownership thereof. Private respondent entered the property without
the consent of the previous owner. For all intents and purposes, he is
a mere usurper.
6

Like private respondent, petitioners have not acquired the

property through any of the modes recognized by law for the
acquisition of ownership. The basis of petitioners claim of ownership
is the contract of sale they had with Rata, but this by itself is
insufficient to make them owners of the property. For while a
contract of sale is perfected by the meeting of minds upon the thing
which is the object of the contract and upon the price, the ownership
of the thing sold is not transferred to the vendee until actual or
constructive delivery of the property. Hence, the maximnon nudis
pactis, sed traditione dominia dominica rerum transferuntur (not
mere agreements but tradition transfers the ownership of things).

Consequently, petitioners are not the owners of the property since

it has not been delivered to them. At the time they bought the
property from Rata in 1983, the property was in the possession of
private respondent.
However, this does not give private respondent a right to remain
in possession of the property. Petitioners title to the property
prevails over private respondents possession in fact but without
basis in law. As held in Waite v. Peterson, when the property
belonging to a person is unlawfully taken by another, the former has
the right of action against the latter for the recovery of the property.
Such right may be transferred by the sale or assignment of the
property, and the transferee can maintain such action against the
wrongdoer.
9

WHEREFORE, the decision of the respondent Court of Appeals is

hereby REVERSED, and private respondent Simeon Recasa is
ordered to return the possession of the contested parcels of land to
petitioners as heirs of Quirico and Purificacion Seraspi.
SO ORDERED.
Bellosillo (Chairman), Quisumbing, Buena and De Leon, Jr.,
JJ., concur.
Judgment reversed, private respondent
possession of contested land to petitioners.

ordered

to

return

Notes.Prescription of an action for partition does not lie except

when the co-ownership is properly repudiated by the coowner. (Mariategui vs. Court of Appeals, 205 SCRA 337 [1992])

A successor-in-interest to a co-owner is entitled to

aproindiviso share of the income of the property. (Vda. de Alcantara
vs. Court of Appeals, 252 SCRA 457 [1996])
88

Where an heir who owns one-half undivided share in two lots sells
one of the lots without giving to his co-heir the latters share of the
proceeds, the latter may lay exclusive claim to the remaining lot as
his own. (Imperial vs. Court of Appeals, 259 SCRA 65 [1996])
o0o

89

G.R. No. 119745. June 20, 1997.

POWER COMMERCIAL AND INDUSTRIAL CORPORATION,

petitioner, vs. COURT OF APPEALS, SPOUSES REYNALDO and
ANGELITA R. QUIAMBAO and PHILIPPINE NATIONAL BANK,
respondents.
Civil Law; Obligations and Contracts;Sales; Any obscurity in a
contract must be construed against the party who caused it.By his own
admission, Anthony Powers, General Manager of petitioner-corporation,
did not ask the corporations lawyers to stipulate in the contract that
Respondent Reynaldo was guaranteeing the ejectment of the occupants,
because there was already a proviso in said deed of sale that the sellers
were guaranteeing the peaceful possession by the buyer of the land in
question. Any obscurity in a contract, if the above-quoted provision can be
so described, must be construed against the party who caused it. Petitioner
itself caused the obscurity because it omitted this alleged condition when
its lawyer drafted said contract.
Same; Same; Same; If the parties intended to impose on respondent
spouses the obligation to eject the tenants from the lot sold, it should have
included such provision in the contract.If the parties intended to impose
on respondent spouses the obligation to eject the tenants from the lot sold,
it should have included in the contract a provision similar to that referred
to in Romero vs. Court of Appeals, where the ejectment of the occupants of
the lot sold by private respondent was the operative act which set into
motion the period of petitioners compliance with his own obligation, i.e., to
pay the balance of the purchase price. Failure to remove the squatters
within the stipulated period gave the other party the right to either refuse
to proceed with the agreement or to waive that condition of ejectment in
consonance with Article 1545 of the Civil Code. In the case cited, the
contract specifically stipulated that the ejectment was a condition to be
fulfilled; otherwise, the obligation to pay the balance would not arise. This
is not so in the case at bar.
Same; Same; Same; Rescission;Rescission was not allowed as the
breach was not substantial and fundamental to the fulfillment by the

petitioners of the obligation to sell.Absent a stipulation therefor, we

cannot say that the parties intended to make its nonfulfillment a ground
for rescission. If they did intend this, their contract should have expressly
stipulated so. In Ang vs. C.A., rescission was sought on the ground that the
petitioners had failed to fulfill their obligation to remove and clear the lot
sold, the performance of which would have given rise to the payment of the
consideration by private respondent. Rescission was not allowed, however,
because the breach was not substantial and fundamental to the fulfillment
by the petitioners of the obligation to sell.
Same; Same; Same; Symbolic delivery, as a species of constructive
delivery, effects the transfer of ownership through the execution of a public
document. Its efficacy can be prevented if the vendor does not possess control
over the thing sold.Although most authorities consider transfer of
ownership as the primary purpose of sale, delivery remains an
indispensable requisite as our law does not admit the doctrine of transfer of
property by mere consent. The Civil Code provides that delivery can either
be (1) actual (Article 1497) or (2) constructive (Articles 1498-1501).
Symbolic delivery (Article 1498), as a species of constructive delivery,
effects the transfer of ownership through the execution of a public
document. Its efficacy can, however, be prevented if the vendor does not
possess control over the thing sold, in which case this legal fiction must
yield to reality.
Same; Same; Same; In order that this symbolic delivery may produce
the effect of tradition, it is necessary that the vendor shall have had such
control over the thing sold.The key word is control, notpossession, of the
land as petitioner would like us to believe. The Court has consistently held
that: xxx (I)n order that this symbolic delivery may produce the effect of
tradition, it is necessary that the vendor shall have had such control over
the thing sold that xxx its material delivery could have been made. It is not
enough to confer upon the purchaser theownership and the right of
possession. The thing sold must be placed in his control. When there is no
impediment whatever to prevent the thing sold passing into the tenancy of
the purchaser by the sole will of the vendor, symbolic delivery through the
execution of a public instrument is sufficient. But if, notwithstanding the
execution of the instrument, the purchaser cannot have the enjoyment and
90

material tenancy of the thing and make use of it himself or through

another in his name, because such tenancy and enjoyment are opposed by
the interposition of another will, then fiction yields to realitythe delivery
has not been effected.
Same; Same; Same; Prior physical delivery or possession is not legally
required and the execution of the deed of sale is deemed equivalent to
delivery. This deed operates as a formal or symbolic delivery of the property
sold and authorizes the buyer to use the document as proof of ownership.
Considering that the deed of sale between the parties did not stipulate or
infer otherwise, delivery was effected through the execution of said deed.
The lot sold had been placed under the control of petitioner; thus, the filing
of the ejectment suit was subsequently done. It signified that its new owner
intended to obtain for itself and to terminate said occupants actual
possession thereof. Prior physical delivery or possession is not legally
required and the execution of the deed of sale is deemed equivalent to
delivery. This deed operates as a formal or symbolic delivery of the
property sold and authorizes the buyer to use the document as proof of
ownership. Nothing more is required.
Same; Same; Same; Breach of Warranty; Requirements.Obvious to
us in the ambivalent stance of petitioner is its failure to establish any
breach of the warranty against eviction. Despite its protestation that its
acquisition of the lot was to enable it to set up a warehouse for its asbestos
products and that failure to deliver actual possession thereof defeated this
purpose, still no breach of warranty against eviction can be appreciated
because the facts of the case do not show that the requisites for such breach
have been satisfied. A breach of this warranty requires the concurrence of
the following circumstances: (1) The purchaser has been deprived of the
whole or part of the thing sold; (2) This eviction is by a final judgment; (3)
The basis thereof is by virtue of a right prior to the sale made by the
vendor; and (4) The vendor has been summoned and made co-defendant in
the suit for eviction at the instance of the vendee. In the absence of these
requisites, a breach of the warranty against eviction under Article 1547
cannot be declared.
Same; Same; Same; Same; As petitioner failed to impugn the integrity
of the contract, it is presumed, under the law to be valid and subsisting.

We note, however, that petitioners deprivation of ownership and control

finally occurred when it failed and/or discontinued paying the
amortizations on the mortgage, causing the lot to be foreclosed and sold at
public auction. But this deprivation is due to petitioners fault, and not to
any act attributable to the vendor-spouses. Because petitioner failed to
impugn its integrity, the contract is presumed, under the law, to be valid
and subsisting.
Same; Same; Solutio Indebiti; Solutio indebiti applies where: [1] a
payment is made when there exists no binding relation between the payor,
who has no duty to pay, and the person who received the payment, and [2]
the payment is made through mistake, and not through liberality or some
other cause.Contrary to the contention of petitioner that a return of the
payments it made to PNB is warranted under Article 2154 of the
Code,solutio indebiti does not apply in this case. This doctrine applies
where: (1) a payment is made when there exists no binding relation
between the payor, who has no duty to pay, and the person who received
the payment, and (2) the payment is made through mistake, and not
through liberality or some other cause.
Same; Same; Same; Quasi-contract of solutio indebiti is one of the
concrete manifestations of the ancient principle that no one shall enrich
himself unjustly at the expense of another.The quasicontract ofsolutio
indebiti is one of the concrete manifestations of the ancient principle that
no one shall enrich himself unjustly at the expense of another. But as
shown earlier, the payment of the mortgage was an obligation petitioner
assumed under the contract of sale. There is no unjust enrichment where
the transaction, as in this case, is quid pro quo, value for value.

PETITION for review on certiorari of a decision of the Court of

Appeals.
The facts are stated in the opinion of the Court.
Solis, Medina & Magno Law Offices for petitioner.
The Chief Legal Counsel for PNB.
91

Clara Dumandan-Singh for private respondents.

On June 26, 1979, the parties executed a Deed of Absolute Sale

With Assumption of Mortgage which contained the following terms
and conditions:

PANGANIBAN, J.:

Is the sellers failure to eject the lessees from a lot that is the subject
of a contract of sale with assumption of mortgage a ground (1) for
rescission of such contract and (2) for a return by the mortgagee of
the amortization payments made by the buyer who assumed such
mortgage?
Petitioner posits an affirmative answer to such question in this
petition for review on certiorari of the March 27, 1995 Decision of
the Court of Appeals, Eighth Division, in CA-G.R. CV Case No.
32298 upholding the validity of the contract of sale with assumption
of mortgage and absolving the mortgagee from the liability of
returning the mortgage payments already made.
1

The Facts
Petitioner Power Commercial & Industrial Development
Corporation, an industrial asbestos manufacturer, needed a bigger
office space and warehouse for its products. For this purpose, on
January 31, 1979, it entered into a contract of sale with the spouses
Reynaldo and Angelita R. Quiambao, herein private respondents.
The contract involved a 612-sq. m. parcel of land covered by Transfer
Certificate of Title No. S-6686 located at the corner of Bagtican and
St. Paul Streets, San Antonio Village, Makati City. The parties
agreed that petitioner would pay private respondents P108,000.00 as
down payment, and the balance of P295,000.00 upon the execution of
the deed of transfer of the title over the property. Further, petitioner
assumed, as part of the purchase price, the existing mortgage on the
land. In full satisfaction thereof, he paid P79,145.77 to Respondent
Philippine National Bank (PNB for brevity).
On June 1, 1979, respondent spouses mortgaged again said land
to PNB to guarantee a loan of P145,000.00, P80,000.00 of which was
paid to respondent spouses. Petitioner agreed to assume payment of
the loan.

That for and in consideration of the sum of Two Hundred Ninety-Five

Thousand Pesos (P295,000.00) Philippine Currency, to us in hand paid in
cash, and which we hereby acknowledge to be payment in full and received
to our entire satisfaction, by POWER COMMERCIAL AND INDUSTRIAL
DEVELOPMENT CORPORATION, a 100% Filipino Corporation, organized
and existing under and by virtue of Philippine Laws with offices located at
252-C Vito Cruz Extension, we hereby by these presents SELL,
TRANSFER and CONVEY by way of absolute sale the above described
property with all the improvements existing thereon unto the said Power
Commercial and Industrial Development Corporation, its successors and
assigns, free from all liens and encumbrances.
We hereby certify that the aforesaid property is not subject to nor
covered by the provisions of the Land Reform Codethe same having no
agricultural lessee and/or tenant.
We hereby also warrant that we are the lawful and absolute owners of
the above described property, free from any lien and/or encumbrance, and
we hereby agree and warrant to defend its title and peaceful possession
thereof in favor of the said Power Commercial and Industrial Development
Corporation, its successors and assigns, against any claims whatsoever of
any and all third persons; subject, however, to the provisions hereunder
provided to wit: That the above described property is mortgaged to the
Philippine National Bank, Cubao, Branch, Quezon City for the amount of
one hundred forty-five thousand pesos, Philippine currency, evidenced by
document No. 163, found on page No. 34 of Book No. XV, Series of 1979 of
Notary Public Herita L. Altamirano registered with the Register of Deeds
of Pasig (Makati), Rizal x x x;
That the said Power Commercial and Industrial Development
Corporation assumes to pay in full the entire amount of the said mortgage

92

above described plus interest and bank charges, to the said mortgagee
bank, thus holding the herein vendor free from all claims by the said bank;
That both parties herein agree to seek and secure the agreement and
approval of the said Philippine National Bank to the herein sale of this
property, hereby agreeing to abide by any and all requirements of the said
bank, agreeing that failure to do so shall give to the bank first lieu (sic)
over the herein described property.

On the same date, Mrs. C.D. Constantino, then General Manager of

petitioner-corporation, submitted to PNB said deed with a formal
application for assumption of mortgage.
On February 15, 1980, PNB informed respondent spouses that, for
petitioners failure to submit the papers necessary for approval
pursuant to the formers letter dated January 15, 1980, the
application for assumption of mortgage was considered withdrawn;
that the outstanding balance of P145,000.00 was deemed fully due
and demandable; and that said loan was to be paid in full within
fifteen (15) days from notice.
Petitioner paid PNB P41,880.45 on June 24, 1980 and P20,283.14
on December 23, 1980, payments which were to be applied to the
outstanding loan. On December 23, 1980, PNB received a letter from
petitioner which reads:
4

With regard to the presence of the people who are currently in physical
occupancy of the (l)ot xxx it is our desire as buyers and new owners of this
lot to make use of this lot for our own purpose, which is why it is our desire
and intention that all the people who are currently physically present and
in occupation of said lot should be removed immediately.
For this purpose we respectfully request that xxx our assumption of
mortgage be given favorable consideration, and that the mortgage and title
be transferred to our name so that we may undertake the necessary
procedures to make use of this lot ourselves.
It was our understanding that this lot was free and clear of problems of
this nature, and that the previous owner would be responsible for the
removal of the people who were there. Inasmuch as the previous owner has
not been able to keep his commitment, it will be necessary for us to take
legal possession of this lot inorder (sic) to take physical possession.

On February 19, 1982, PNB sent petitioner a letter as follows:

(T)his refers to the loan granted to Mr. Reynaldo Quiambao which was
assumed by you on June 4, 1979 for P101,500.00. It was last renewed on
December 24, 1980 to mature on June 4, 1981.
A review of our records show that it has been past due from last
maturity with interest arrearages amounting to P25,826.08 as of February
19, 1982. The last payment received by us was on December 24, 1980 for
P20,283.14. In order to place your account in current form, we request you
to remit payments to cover interest, charges, and at least part of the
principal.

On March 17, 1982, petitioner filedCivil Case No. 45217 against

respondent spouses for rescission and damages before the Regional
Trial Court of Pasig, Branch 159. Then, in its reply to PNBs letter of
February 19, 1982, petitioner demanded the return of the payments
it made on the ground that its assumption of mortgage was never
approved. On May 31, 1983, while this case was pending, the
mortgage was foreclosed. The property was subsequently bought by
PNB during the public auction. Thus, an amended complaint was
filed impleading PNB as party defendant.
8

On July 12, 1990, the trial court ruled that the failure of
respondent spouses to deliver actual possession to petitioner entitled
the latter to rescind the sale, and in view of such failure and of the
denial of the latters assumption of mortgage, PNB was obliged to
return the payments made by the latter. The dispositive portion of
said decision states:
9

10

IN VIEW OF ALL THE FOREGOING, the Court hereby renders judgment

in favor of plaintiff and against defendants:
(1) Declaring the rescission of the Deed of Sale with Assumption of
Mortgage executed between plaintiff and defendants Spouses
Quiambao, dated June 26, 1979;
(2) Ordering defendants Spouses Quiambao to return to plaintiff the
amount of P187,144.77 (P108,000.00 plus P79,145.77) with legal

93

interest of 12% per annum from date of filing of herein complaint,

that is, March 17, 1982 until the same is fully paid;
(3) Ordering defendant PNB to return to plaintiff the amount of
P62,163.59 (P41,880.45 and P20,283.14) with 12% interest thereon
from date of herein judgment until the same is fully paid.
No award of other damages and attorneys fees, the same not being
warranted under the facts and circumstances of the case.
The counterclaim of both defendants spouses Quiambao and PNB are
dismissed for lack of merit.
No pronouncement as to costs.

was a mistake in payment made by petitioner, obligating PNB to

return such payments. In its Memorandum, it specifically assigns
the following errors of law on the part of Respondent Court:
12

A. Respondent Court of Appeals gravely erred in failing to

consider in its decision that a breach of implied warranty under
Article 1547 in relation to Article 1545 of the Civil Code applies in
the case-at-bar.
B. Respondent Court of Appeals gravely erred in failing to
consider in its decision that a mistake in payment giving rise to a
situation where the principle of solutio indebitiapplies is obtaining
in the case-at-bar.

The Courts Ruling

SO ORDERED.

On appeal by respondent-spouses and PNB, Respondent Court of

Appeals reversed the trial court. In the assailed Decision, it held that
the deed of sale between respondent spouses and petitioner did not
obligate the former to eject the lessees from the land in question as a
condition of the sale, nor was the occupation thereof by said lessees a
violation of the warranty against eviction. Hence, there was no
substantial breach to justify the rescission of said contract or the
return of the payments made. The dispositive portion of said
Decision reads:
11

WHEREFORE, the Decision appealed from is hereby REVERSED and the

complaint filed by Power Commercial and Industrial Development
Corporation against the spouses Reynaldo and Angelita Quiambao and the
Philippine National Bank is DISMISSED. No costs.

Hence, the recourse to this Court.

The petition is devoid of merit. It fails to appreciate the

difference between a condition and a warranty and the consequences
of such distinction.
Conspicuous Absence of an Imposed Condition
The alleged failure of respondent spouses to eject the lessees from
the lot in question and to deliver actual and physical possession
thereof cannot be considered a substantial breach of a condition for
two reasons: first, such failure was not stipulated as a condition
whether resolutory or suspensivein the contract; and second, its
effects and consequences were not specified either.
The provision adverted to by petitioner does not impose a
condition or an obligation to eject the lessees from the lot. The deed
of sale provides in part:
13

14

Issues
Petitioner contends that: (1) there was a substantial breach of
the contract between the parties warranting rescission; and (2) there

We hereby also warrant that we are the lawful and absolute owners of
the above described property, free from any lien and/or encumbrance, and
we hereby agree and warrant to defend its title and peaceful possession
thereof in favor of the said Power Commercial and Industrial Development
Corporation, its successors and assigns, against any claims whatsoever of
94

any and all third persons; subject, however, to the provisions hereunder
provided to wit:

By his own admission, Anthony Powers, General Manager of

petitioner-corporation, did not ask the corporations lawyers to
stipulate in the contract that Respondent Reynaldo was
guaranteeing the ejectment of the occupants, because there was
already a proviso in said deed of sale that the sellers were
guaranteeing the peaceful possession by the buyer of the land in
question. Any obscurity in a contract, if the above-quoted provision
can be so described, must be construed against the party who caused
it. Petitioner itself caused the obscurity because it omitted this
alleged condition when its lawyer drafted said contract.
If the parties intended to impose on respondent spouses the
obligation to eject the tenants from the lot sold, it should have
included in the contract a provision similar to that referred to in
Romero vs. Court of Appeals, where the ejectment of the occupants
of the lot sold by private respondent was the operative act which set
into motion the period of petitioners compliance with his own
obligation, i.e., to pay the balance of the purchase price. Failure to
remove the squatters within the stipulated period gave the other
party the right to either refuse to proceed with the agreement or to
waive that condition of ejectment in consonance with Article 1545 of
the Civil Code. In the case cited, the contract specifically stipulated
that the ejectment was a condition to be fulfilled; otherwise, the
obligation to pay the balance would not arise. This is not so in the
case at bar.
Absent a stipulation therefor, we cannot say that the parties
intended to make its nonfulfillment a ground for rescission. If they
did intend this, their contract should have expressly stipulated so.
In Ang vs. C.A., rescission was sought on the ground that the
petitioners had failed to fulfill their obligation to remove and clear
the lot sold, the performance of which would have given rise to the
payment of the consideration by private respondent. Rescission was
not allowed, however, because the breach was not substantial and
15

16

17

18

fundamental to the fulfillment by the petitioners of the obligation to

sell.
As stated, the provision adverted to in the contract pertains to the
usual warranty against eviction, and not to a condition that was not
met. The terms of the contract are so clear as to leave no room for
any other interpretation.
19

Furthermore, petitioner was well aware of the presence of the

tenants at the time it entered into the sales transaction. As testified
to by Reynaldo, petitioners counsel during the sales negotiation
even undertook the job of ejecting the squatters. In fact, petitioner
actually filed suit to eject the occupants. Finally, petitioner in its
letter to PNB of December 23, 1980 admitted that it was the
buyer(s) and new owner(s) of this lot.
20

Effective Symbolic Delivery

The Court disagrees with petitioners allegation that the
respondent spouses failed to deliver the lot sold. Petitioner asserts
that the legal fiction of symbolic delivery yielded to the truth that, at
the execution of the deed of sale, transfer of possession of said lot
was impossible due to the presence of occupants on the lot sold. We
find this misleading.
Although most authorities consider transfer of ownership as the
primary purpose of sale, delivery remains an indispensable requisite
as our law does not admit the doctrine of transfer of property by
mere consent. The Civil Code provides that delivery can either be (1)
actual (Article 1497) or (2) constructive (Articles 1498-1501).
Symbolic delivery (Article 1498), as a species of constructive delivery,
effects the transfer of ownership through the execution of a public
document. Its efficacy can, however, be prevented if the vendor does
not possess control over the thing sold, in which case this legal
fiction must yield to reality.
21

22

95

The key word is control, notpossession, of the land as petitioner

would like us to believe. The Court has consistently held that:
23

xxx (I)n order that this symbolic delivery may produce the effect of
tradition, it is necessary that the vendor shall have had such control over
the thing sold that xxx its material delivery could have been made. It is not
enough to confer upon the purchaser the ownership and the right of
possession. The thing sold must be placed in his control. When there is no
impediment whatever to prevent the thing sold passing into the tenancy of
the purchaser by the sole will of the vendor, symbolic delivery through the
execution of a public instrument is sufficient. But if, notwithstanding the
execution of the instrument, the purchaser cannot have the enjoyment and
material tenancy of the thing and make use of it himself or through
another in his name, because such tenancy and enjoyment are opposed by
the interposition of another will, then fiction yields to realitythe delivery
has not been effected.

facts of the case do not show that the requisites for such breach have
been satisfied. A breach of this warranty requires the concurrence of
the following circumstances:
(1) The purchaser has been deprived of the whole or part of the thing
sold;
(2) This eviction is by a final judgment;
(3) The basis thereof is by virtue of a right prior to the sale made by the
vendor; and
(4) The vendor has been summoned and made co-defendant in the suit
for eviction at the instance of the vendee.
25

In the absence of these requisites, a breach of the warranty

against eviction under Article 1547 cannot be declared.

Considering that the deed of sale between the parties did not
stipulate or infer otherwise, delivery was effected through the
execution of said deed. The lot sold had been placed under the control
of petitioner; thus, the filing of the ejectment suit was subsequently
done. It signified that its new owner intended to obtain for itself and
to terminate said occupants actual possession thereof. Prior physical
delivery or possession is not legally required and the execution of the
deed of sale is deemed equivalent to delivery. This deed operates as
a formal or symbolic delivery of the property sold and authorizes the
buyer to use the document as proof of ownership. Nothing more is
required.

Petitioner argues in its memorandum that it has not yet ejected

the occupants of said lot, and not that it has been evicted therefrom.
As correctly pointed out by Respondent Court, the presence of lessees
does not constitute an encumbrance of the land, nor does it deprive
petitioner of its control thereof.

Requisites of Breach of Warranty Against Eviction

Because petitioner failed to impugn its integrity, the contract is

presumed, under the law, to be valid and subsisting.

24

Obvious to us in the ambivalent stance of petitioner is its

failure to establish any breach of the warranty against eviction.
Despite its protestation that its acquisition of the lot was to enable it
to set up a warehouse for its asbestos products and that failure to
deliver actual possession thereof defeated this purpose, still no
breach of warranty against eviction can be appreciated because the

26

We note, however, that petitioners deprivation of ownership and

control finally occurred when it failed and/or discontinued paying the
amortizations on the mortgage, causing the lot to be foreclosed and
sold at public auction. But this deprivation is due to petitioners
fault, and not to any act attributable to the vendor-spouses.

Absence of Mistake In Payment

Contrary to the contention of petitioner that a return of the
payments it made to PNB is warranted under Article 2154 of the
Code, solutio indebiti does not apply in this case. This doctrine
96

applies where: (1) a payment is made when there exists no binding

relation between the payor, who has no duty to pay, and the person
who received the payment, and (2) the payment is made through
mistake, and not through liberality or some other cause.
In this case, petitioner was under obligation to pay the
amortizations on the mortgage under the contract of sale and the
deed of real estate mortgage. Under the deed of sale (Exh. 2), both
parties agreed to abide by any and all the requirements of PNB in
connection with the real estate mortgage. Petitioner was aware that
the deed of mortgage (Exh. C) made it solidarily and, therefore,
primarily liable for the mortgage obligation:
27

28

29

30

(e) The Mortgagor shall neither lease the mortgaged property xxx nor sell
or dispose of the same in any manner, without the written consent of the
Mortgagee. However, if not withstanding this stipulation and during the
existence of this mortgage, the property herein mortgaged, or any portion
thereof, is xxx sold, it shall be the obligation of the Mortgagor to impose as
a condition of the sale, alienation or encumbrance that the vendee, or the
party in whose favor the alienation or encumbrance is to be made, should
take the property subject to the obligation of this mortgage in the same
terms and condition under which it is constituted, it being understood that
the Mortgagor is not in any manner relieved of his obligation to the
Mortgagee under this mortgage by such sale, alienation or encumbrance;
on the contrary both the vendor and the vendee, or the party in whose favor
the alienation or encumbrance is made shall be jointly and severally liable
for said mortgage obligations. xxx.

Therefore, it cannot be said that it did not have a duty to pay to PNB
the amortization on the mortgage.
Also, petitioner insists that its payment of the amortization was a
mistake because PNB disapproved its assumption of mortgage after
it failed to submit the necessary papers for the approval of such
assumption.
But even if petitioner was a third party in regard to the mortgage
of the land purchased, the payment of the loan by petitioner was a
condition clearly imposed by the contract of sale. This fact alone
disproves petitioners insistence that there was a mistake in

payment. On the contrary, such payments were necessary to protect

its interest as the buyer(s) and new owner(s) of the lot.
The quasi-contract of solutio indebiti is one of the concrete
manifestations of the ancient principle that no one shall enrich
himself unjustly at the expense of another. But as shown earlier,
the payment of the mortgage was an obligation petitioner assumed
under the contract of sale. There is no unjust enrichment where the
transaction, as in this case, is quid pro quo, value for value.
31

All told, respondent Court did not commit any reversible error
which would warrant the reversal of the assailed Decision.
WHEREFORE, the petition is hereby DENIED, and the assailed
Decision is AFFIRMED.
SO ORDERED.
Narvasa (C.J., Chairman),Davide, Jr. and Melo, JJ., concur.
Petition denied, judgment affirmed.
Notes.The delivery of the instrument is the final act essential
to its consummation as an obligation. (Lim vs. Court of Appeals, 251
SCRA 408 [1995])
Article 1169 of the Civil Code is explicit-those obliged to deliver or
to do something incur in delay from the time the obli-gee judicially or
extrajudicially demands from them the fulfillment of their obligation.
(Navoa vs. Court of Appeals, 251 SCRA 545 [1995])
o0o

97

G.R. No. 135657. January 17, 2001.

JOSE
V.
LAGON,
petitioner, vs. HOOVEN
INDUSTRIES, INC, respondent.

COMALCO

Appeals; Evidence; While factual issues are not within the province of
the Supreme Court, as it is not a trier of facts and is not required to examine
or contrast the oral and documentary evidence de novo, nevertheless, the
Court has the authority to review and, in proper cases, reverse the factual
findings of lower courts in exceptional instances.While factual issues are
not within the province of this Court, as it is not a trier of facts and is not
required to examine or contrast the oral and documentary evidence de
novo, nevertheless, the Court has the authority to review and, in proper
cases, reverse the factual findings of lower courts in these instances: (a)
when the findings of fact of the trial court are in conflict with those of the
appellate court; (b) when the judgment of the appellate court is based on
misapprehension of facts; and, (c) when the appellate court manifestly
overlooked certain relevant facts which, if properly considered, would
justify a different conclusion. This case falls squarely within the foregoing
exceptions.
Sales; Credit Transactions; It is contrary to common experience that a
creditor would take its own sweet time in collecting its credit, more so when
the amount involved is not minuscule but substantial.Even more strange
is the fact that HOOVEN instituted the present action for collection of sum
of money against Lagon only on 24 February 1987, or more than five (5)
years after the supposed completion of the project. Indeed, it is contrary to
common experience that a creditor would take its own sweet time in
collecting its credit, more so in this case when the amount involved is not
miniscule but substantial.
Same; Same; Where it is stipulated that deliveries must be made to the
buyer or his duly authorized representative named in the contracts, the
seller is under obligation to deliver to the buyer only and to no other, unless
the buyer specifically designated someone to receive the delivery of materials
and
his
name
is
written
opposite
the
words
Authorized
Receiver/Depository.As above specifically stated, deliveries must be made

to the buyer or his duly authorized representative named in the contracts.

In other words, unless the buyer specifically designated someone to receive
the delivery of materials and his name is written on the Proposals opposite
the words Authorized Receiver/Depository, the seller is under obligation
to deliver to the buyer only and to no other person; otherwise, the delivery
would be invalid and the seller would not be discharged from liability. In
the present case, petitioner did not name any person in the Proposals who
would receive the deliveries in his behalf, which meant that HOOVEN was
bound to deliver exclusively to petitioner.
Same; Same; The Court is not unaware of the slipshod manner of
preparing receipts, order slips and invoices, which unfortunately has
become a common business practice of traders and businessmen.We are
not unaware of the slipshod manner of preparing receipts, order slips and
invoices, which unfortunately has become a common business practice of
traders and businessmen. In most cases, these commercial forms are not
always fully accomplished to contain all the necessary information
describing the whole business transaction. The sales clerks merely indicate
a description and the price of each item sold without bothering to fill up all
the available spaces in the particular receipt or invoice, and without proper
regard for any legal repercussion for such neglect. Certainly, it would not
hurt if businessmen and traders would strive to make the receipts and
invoices they issue complete, as far as practicable, in material particulars.
These documents are not mere scraps of paper bereft of probative value but
vital pieces of evidence of commercial transactions. They are written
memorials of the details of the consummation of contracts.
Evidence; Pleadings and Practice; Litigations cannot be properly
resolved by suppositions, deductions, or even presumptions, with no basis in
evidence, for the truth must have to be determined by the hard rules of
admissibility and proof.Given this pathetic state of respondents
evidence, how could it be said that respondent had satisfactorily proved its
case? Essentially, respondent has the burden of establishing its affirmative
allegations of complete delivery and installation of the materials, and
petitioners failure to pay therefore. In this regard, its evidence on its
discharge of that duty is grossly anemic. We emphasize that litigations
cannot be properly resolved by suppositions, deductions, or even
98

presumptions, with no basis in evidence, for the truth must have to be

determined by the hard rules of admissibility and proof.
Same; Ocular Inspections; Where the ocular inspection was made by
the trial judge himself at the request of both parties, for the exclusive
purpose of determining whether the materials subject of the case were
actually delivered and installed, there is no basis to give little evidentiary
value on the results of said inspection.The Court of Appeals however
faulted the trial court for supposedly relying solely on the results of the
ocular inspection on the premises, which were not conclusive since the
inspection was conducted several years after the disputed materials were
allegedly installed therein. We disagree. The ocular inspection was made
by the judge himself, at the request of both petitioner and respondent, for
the exclusive purpose of determining whether the materials subject of this
case were actually delivered and installed. There is therefore no basis to
give little evidentiary value on the results of the ocular inspection, as the
Court of Appeals would, and charge the trial court with error for relying
thereon. It is now rather late for any of the parties to disclaim them,
especially when they are not in his or its favor. Furthermore, a cursory
reading of the decision of the court a quo will at once show that it was not
premised solely on the results of the ocular inspection but was likewise
predicated on other evidence presented by the parties and well-considered
facts and circumstances discussed by the trial court in its ratio
decidendi. We cannot ignore the factual findings of the trial court, which
must carry great weight in the evaluation of evidentiary facts, and in the
absence of any indication showing grave error committed by trial court, the
appellate court is bound to respect such findings of fact.
Same; Admissions; The silence of one of the contracting parties and his
failure to protest against the claims of the other party, when he is
chargeable with the duty to do so, strongly suggest an admission of the
veracity and validity of the other partys claims.Petitioner cannot now be
heard to complain against its inclusion in the computation of his liability
since his silence virtually amounted to acquiescence. The silence of one of
the contracting parties and his failure to protest against the claims of the
other party, when he is chargeable with the duty to do so, strongly suggest
an admission of the veracity and validity of the other partys claims.

Same; A court cannot rely on speculations, conjectures or guesswork as

to the fact of damage but must depend upon competent proof that they have
indeed been suffered by the injured party and on the basis of the best
evidence obtainable as to the actual amount thereof.We are not in accord
with the trial courts ruling that petitioner is entitled to actual damages to
the extent of the undelivered materials and undone labor in the amount of
P26,120.00. There is no proof that petitioner already paid for the value of
the undelivered and uninstalled materials to respondent. Therefore,
petitioner may not be deemed to have suffered any such damage. We have
declared in no uncertain terms that actual or compensatory damages
cannot be presumed but must be proved with reasonable degree of
certainty. A court cannot rely on speculations, conjectures or guesswork as
to the fact of damage but must depend upon competent proof that they
have indeed been suffered by the injured party and on the basis of the best
evidence obtainable as to the actual amount thereof. It must point out
specific facts that could provide the gauge for measuring whatever
compensatory or actual damages were borne.
Damages; Bad Faith; Damages; Moral damages awarded to a customer
where the supplier incurred bad faith not so much on its breach of
contractwhere there was no showing that its failure to comply with its
part of the bargain was motivated by ill will or done with fraudulent intentbut rather on its appalling temerity to sue the former for payment of
an alleged unpaid balance of the purchase price notwithstanding knowledge
of its failure to make complete delivery and installation of all the materials
under their contracts,But we agree with petitioner that he is entitled to
moral damages. HOOVENs bad faith lies not so much on its breach of
contractas there was no showing that its failure to comply with its part of
the bargain was motivated by ill will or done with fraudulent intentbut
rather on its appalling temerity to sue petitioner for payment of an alleged
unpaid balance of the purchase price notwithstanding knowledge of its
failure to make complete delivery and installation of all the materials
under their contracts. It is immaterial that, after the trial, petitioner was
found to be liable to respondent to the extent of P6,377.66. Petitioners
right to withhold full payment of the purchase price prior to the delivery
and installation of all the merchandise cannot be denied since under the
99

contracts the balance of the purchase price became due and demandable
only upon the completion of the project. Consequently, the resulting social
humiliation and damage to petitioners reputation as a respected
businessman in the community, occasioned by the filing of this suit provide
sufficient grounds for the award of P50,000.00 as moral damages.

PETITION for review on certiorari of a decision of the Court of

Appeals.
The facts are stated in the opinion of the Court.
Rico & Associates for petitioner.
Florentino & Esmaquel Law Office for respondent.
BELLOSILLO, J.:
This petition for review on certiorari seeks to set aside the Decision
of the Court of Appeals of 28 April 1997 which in turn set aside the
decision of the Regional Trial Court of Davao City and ordered
petitioner Jose V. Lagon to pay respondent Hooven Comalco
Industries, Inc. (HOOVEN) the amount of P69,329.00 with interest
at twelve percent (12%) per annum computed from the filing of the
complaint until fully paid, plus attorneys fees and costs, as well as
the Resolution of the appellate court denying reconsideration
thereof.
Petitioner Jose V. Lagon is a businessman and owner of a
commercial building in Tacurong, Sultan Kudarat. Respondent
HOOVEN on the other hand is a domestic corporation known to be
the biggest manufacturer and installer of aluminum materials in the
country with branch office at E. Quirino Avenue, Davao City.
Sometime in April 1981 Lagon and HOOVEN entered into two (2)
contracts, both denominatedProposal, whereby for a total
consideration of P104,870.00 HOOVEN agreed to sell and install
various aluminum materials in Lagons commercial building in
Tacurong, Sultan Kudarat. Upon execution of the contracts, Lagon
paid HOOVEN P48,00.00 in advance.
1

On 24 February 1987 respondent HOOVEN commenced an action

for sum of money with damages and attorneys fees against
petitioner Lagon before the Regional Trial Court of Davao City.
HOOVEN alleged in its complaint that on different occasions, it
delivered and installed several construction materials in the
commercial building of Lagon pursuant to their contracts; that the
total cost of the labor and materials amounted to P117,329.00 out of
which P69,329.00 remained unpaid even after the completion of the
project; and, despite repeated demands, Lagon failed and refused to
liquidate his indebtedness. HOOVEN also prayed for attorneys fees
and litigation expenses, and in support thereof, presented its OIC,
Alberto Villanueva, and its employee, Ernesto Argente, and other
witnesses, as well as several documentary evidence consisting
mainly of the two (2) proposals, invoices and delivery receipts.
Lagon, in his answer, denied liability and averred that HOOVEN
was the party guilty of breach of contract by failing to deliver and
install some of the materials specified in the proposals; that as a
consequence he was compelled to procure the undelivered materials
from other sources; that as regards the materials duly delivered and
installed by HOOVEN, they were fully paid. He counterclaimed for
actual, moral, exemplary, temperate and nominal damages, as well
as for attorneys fees and expenses of litigation.
On 9 October 1987, upon request of both parties, the trial court
conducted an ocular inspection of Lagons commercial building to
determine whether the items alleged in the complaint and appearing
in the invoices and delivery receipts had been delivered and installed
on the premises. The result of the ocular inspection was
1) with respect to the items covered by Exhibit A and submarkings that
there are only seventeen (17) light diffusers, 13 in the ceiling of the ground
and 4 on the mezzanine (Ocular Inspection, TSN, pp. 5 to 6); 2) on Exhibit
B and submarkings, there are only twenty-three (23) light aluminum
boxes, 14 aluminum boxes in the ceiling of the mezzanine and 9 on the
ceiling of the ground floor (Ocular Inspection, TSN, p. 7); 3) on Exhibit C1, the items are missing in the area where they were supposed to be
installed; 4) on Exhibit C-2, admitted by defendant Lagon when he stated
100

that I will admit that these were installed by the plaintiff but I do not
know exactly the materials, but I really accept that these were installed
sometime in 1981, before the occupation of the DBP. But I have paid that
already in 1981. I could not identify the materials delivered in 1981
because I do not know the exact names of those materials. (Ocular
Inspection, TSN, p. 12); 5) on Exhibit C-2, the glasses are not tinted but
plain white; on Exhibit C-3, the materials cannot be formed (sic) in the
place where they are supposed to be (Ocular Inspection, TSN, p. 7); 6)
Exhibit D and D-1, that the materials were supplied by plaintiff but
they did not install them. It was the defendant who caused the installation
thereof (Ocular Inspection, TSN, p. 13.); and 7) Exhibit E-1, as NUMain
and Cross-Runners and supplied by plaintiff but plaintiff did not install.
They had it installed (Ocular Inspection, TSN, p. 14).

In due course the trial court rendered a decision partly on the

basis of the result of the ocular inspection finding that the total
actual deliveries and installations made by HOOVEN cost
P87,140.00. Deducting therefrom P48,000.00 which Lagon paid in
advance upon execution of their contracts with no further payments
appearing to have been made thereafter, only P39,140.00 remained
unpaid when Lagon incurred in delay. The trial court also awarded
HOOVEN P3,255.00 as attorneys fees, but sustained Lagons
counterclaims and awarded him P26,120.00 as actual damages
representing the value of the undelivered and uninstalled materials,
and P30,000.00 as attorneys fees in addition to litigation expenses of
P45,534.50. According to the court a quo
5

As a result of the partial breach of contract on plaintiffs (Hooven Comalco)

part, the defendant is entitled to actual damages only to the extent of the
undelivered materials and undone labor or to the amount of P26,120.00.
This P26,120.00 will be partially offsetted (sic) to the P39,140.00 unpaid
balance of the defendant (Lagon), so that the difference that remain (sic)
payable to plaintiff is P13,020.00. Evidence is insufficient to show that bad
faith existed in the filing of the instant complaint for collection against the
defendant. Plaintiffs obstinate conduct in prosecuting its claim spending
for litigation expenses and for its lawyers negate the existence of bad faith.

The fact alone that the findings of fact show an unpaid account of the
defendant is proof that the complaint is not completely unfounded though
evidence shows also that plaintiff is guilty of partial breach of contract by
reason of failure to completely deliver and install the materials defendant
ordered pursuant to the contract so that plaintiff is liable for damages. As
plaintiff acted in good faith in the filing of the instant complaint in the
belief that it has a valid cause of action against the defendant to enforce its
claim, engaging a lawyer to prosecute it, plaintiff is entitled to a reasonable
attorneys fees equivalent to 25% of the collectible amount of P13,020.00 or
the amount of P3,225.00. Defendants claim of attorneys fees in the
amount of P152,629.15 is in the opinion of the court clearly unreasonable
and unconscionable considering the nature of the action and the amount
involved. The court has the power to reduce it to render it reasonable and
conscionable whether the contract for attorneys fees is written or oral. The
attorneys fees is fixed at P30,000.00. The defendant presented evidence of
litigation expenses incurred in the course of the trial for plane fare of its
lawyer in coming to Davao City from Manila from 1987 up to July 1990 in
the total amount of P34,730.50 as evidenced by Exhibit 11 to 11-E. The
records show that the defendants counsel came to Davao City from Manila
to attend eleven (11) hearings of the case and the plane fare from 1987 up
to August, 1989 is P2,524.50 and from August 1989 to June 1990 is
P3,007.50. Hotel expenses of defendants counsel at the Maguindanao Hotel
where he was billeted everytime he came to Davao City to attend the trial
amounted to P11,824.00 as evidenced by Exhibit 17, the certification
issued by the said hotel management. So that the total amount of the
actual damage suffered by defendant is 245,534.50. Said amount of
P45,534.50 is partially offsetted (sic) by the amount of P13,020.00
representing the unpaid obligation of the defendant to the plaintiff so that
the plaintiff is still liable to pay the defendant the difference in the amount
of P32,514.50.

Both parties appealed to the Court of Appeals. In its Decision of 28

April 1997, the appellate court set aside the judgment of the trial
court and resolved the case in favor of HOOVEN. It held that the
trial court erred in relying solely on the results of the ocular
inspection since the delivery and installation of the materials in
101

question started as early as 1981, while the ocular inspection was

conducted only in 1987 or six (6) years later, after the entire
mezzanine was altered and the whole building renovated. The
appellate court also stressed that the testimonies of HOOVENs
witnesses were straightforward, categorical and supported by
documentary evidence of the disputed transactions, and that all
Lagon could offer was a mere denial, uncorroborated and self-serving
statements regarding his transactions with HOOVEN. The decretal
portion of the assailed decision of the Court of Appeals reads
ACCORDINGLY, finding the decision of August 26, 1991 appealed from
afflicted by reversible errors, the same is hereby SET ASIDE, and a new
one entered ordering the defendant-appellant (Lagon) to pay
plaintiffappellant (Hooven Comalco):
The amount of P69,329.00 plus interest of 12% per annum computed
from the date of the filing of the complaint, until fully paid.
Fifteen percent (15%) of the amount due, as and by way of attorneys
fees. Defendant-appellant to pay costs.

Petitioners motion for reconsideration having been denied he now

hopes to secure relief from this Court by contending that: (a) The
Court of Appeals erred in holding that the trial court could not rely
on the results of the ocular inspection conducted on his commercial
building in Tacurong, Sultan Kudarat; and, (b) The assailed decision
of the appellate court is based on speculations and contrary to the
evidence adduced during the trial.
The arguments in the petition ultimately boil down to the sole
issue of whether all the materials specified in the contracts had been
delivered and installed by respondent in petitioners commercial
building in Tacurong, Sultan Kudarat. The question is basically
factual involving as it does an evaluation of the conflicting evidence
presented by the contending parties, including the existence and
relevance of specific surrounding circumstances, to determine the
truth or falsity of alleged facts.
While factual issues are not within the province of this Court, as
it is not a trier of facts and is not required to examine or contrast the

oral and documentary evidence de novo, nevertheless, the Court has

the authority to review and, in proper cases, reverse the factual
findings of lower courts in these instances: (a) when the findings of
fact of the trial court are in conflict with those of the appellate court;
(b) when the judgment of the appellate court is based on
misapprehension of facts; and, (c) when the appellate court
manifestly overlooked certain relevant facts which, if properly
considered, would justify a different conclusion. This case falls
squarely within the foregoing exceptions.
Before delving into the merits of this case, we find it necessary to
describe and detail the nature and contents of the vital documentary
exhibits upon which respondent HOOVEN based its claims, thus
6

Exhibit FUndated Proposal:

I. For the supply of
materials and installation of
suspended aluminum
ceiling runners:
Area: 2,290 sq. ft.
Materials: NU-Main &
Cross runners
NU-5 Perimeter
mouldings
G.I. wire hangers
Aluminum straps
stiffeners
Blind Rivets and Screws P14,110.00
Labor charge
4,230.00
18,440.00
II One (1) set: 65 x 68 YP
1,150.00
aluminum cladding
P19,590.00
Delivery and Installation
1,860.00
charge
P21,450.00
102

Exhibit F-1Proposal
dated 3 April 1981
Hooven Aluminum
Casement Windows Anolok
Finish Manually Operated,
with 6.0 mm Brozepane
Tinted Glass
Five x 126-1/2 (w/
(5) transom)
sets:
65
One x 126-1/2 (w/ AC
(1) provision)
set:
65
Two x 125-1/2 -do(2)
sets:
391/2
One x 87 -do(1)
set:
391/2
One x 223 -do(1)
set:
391/2
One x 57-1/2 (w/
(1) transom)
set:
65
One x 4 -do-

(1)
set:
65
P42,530.00
Hooven Aluminum
Entrances and Fixed
Windows Anolok Finish,
with 6.0 mm Bromepane
Tinted Glass
One (1) set: 100-1/2 x 761/2, double sash, double
acting swing door, with
transom.
Two (2) sets: 80 x 278,
fixed panels
Hooven Aluminum
Sliding Windows
Fabricated From SDSections, Anolok Finish,
with 6.0 mm Bromepane
Tinted Glass
One (1) set: 54 x 191
One (1) set: 45 x 302
Add: Delivery and Installation
charge

21,740.00

11,650.00
75,920.00
7,500.00

P84,420.00
Exhibit AInvoice No.
11094 dated
29 December
1982
Eighty Six (86) Pieces, 2.0 mm
Hishilite
Diffusers
Exhibit BInvoice No.

P3,344.00

103

11095 dated
29 December
1982
Forty-Three
Pieces: For the
Supply and
Installation of
Light Boxes
Fabricated from
GA. 032
Aluminum Plain
Sheet
Delivery and Installers
P5,718.00
subsistence
Exhibit CInvoice No.
14349 dated
29 December
1984
Five (5) sets 1.651
Hooven Aluminum
m 3.213 m
Casementwindows,
Anolok finish,
manually operated
with
6.0 Bronzepane tinted
glass.
One (1) set 1.651 m - do - with a/c
3.367 m
provision
Two (2) sets 1.00 m - do - - do
3.188 m
One (1) set 1.00 m
- do - - do
2.210 m
One (1) set 1.00 m
- do - - do
5.664 m
One (1) set 1.651 m - do - - do - with
1.461 m
transom

One (1) set 1.651 m

1.880 m
One (1) set 1.651 m
1.524 m
One (1) set 2.553 m
1.943 m

Two (2) sets 2.032

m 7.061 m
One (1) set .737 m
7.061 m

One (1) set 1.143 m

4.851 m

One (1) set 1.143 m

7.671 m

- do -

with transom

- do - - do
Hooven aluminum
double sash, double
acting swing door,
with transom, with 6.0
mm Bronze-pane
tinted glass.
Fixed windows,
Anolok finish.
Aluminum tubulars
with aluminum
YP-100 cladding,
Anolok finish.
Hooven aluminum
sliding windows
fabricated
from SD sections,
Anolok finish, with 6.0
mm Bronzepane tinted
glass, with 1.88 m
tubular posts.
- do
P75,291.83
4% tax
Delivery
& Subs.

3,011.67
78,303.50
7,500.00
P85,803.50

Exhibit DInvoice No. 14265 dated

29
September
104

1984
For the supply of materials
P5,310.00
and installation
of aluminum stucco
embossed sheet on
spiral staircase
Exhibit EInvoice No.
14264 dated
29
November
1984
For the supply of materials and installation of
suspended aluminum ceiling system.
Materials: NU-4 main and cross runners
NU-5 perimeter mouldings
GI wire hangers
Alum strap stiffeners
Blind
P17,057.00
rivets and
screws
Exhibit A-1Delivery
Receipt dated
9 June 1981
Twenty (20) pieces Light
boxes fabricated from
aluminum sheets
Forty (40) pieces 2.0 mm x
24 x 24 Hishilite
Diffusers
Lump sum cost including
discount and Delivery and
Installer Subsistence
P4,340.00
Exhibit A-2Delivery
Receipt dated
8 August 1981

Twenty (20) pieces Light

boxes fabricated
from .032 aluminum
plain sheet
Twenty Seven (27) 2.0 mm
x 24 x 24 Hishilite
Diffusers
Add: Delivery &
Installers Subsistence
Exhibit A-3Delivery
Receipt, dated 8 December
1981
19 pcs.
2.0 mm x
2 x 2
Hishilite
Diffusers
Exhibit B-1Delivery
Receipt dated
25 June 1981
Additional three (3) pcs.
Light boxes fabricated
from .032 Aluminum
sheets
Exhibit C-1Delivery
Receipt dated
25 August 1983
To change alum tubular
frames for sliding windows
(item
10 & 11)
from 45
L x to
94x 74.

P180.00

P40.00

P140.00

375

105

To change width of one (1) set: item 1

375
from 126-1/2 to 132-1/2.
To add: one (1) set 65H x 60 aluminum
casement
windows with 6.0 mm tinted glass.
To extend alum tubulars of fixed
windows on
2nd floor by 29L and
installation of YP-aluminum
cladding
Exhibit C-2Delivery
Receipt dated
25 August 1983
Hooven Alum Casement
P8,640.00
Windows Anolok Finish
Manually Operated with 6.0
mm Bronzepane
Tinted Glass:
Five (5) sets: 65
One (1) set: 65
Two (2) sets: 39x 126-1/2
1/2
with
transom
One (1) set: 39x 126-1/2
1/2
with AC
provision
One (1) set: 39x 125-1/2 1/2
do
One (l) set: 65
x 7 - do
One (1) set: 65
x 223 - do
x 57-1/2
with
transom
Hooven Alum
x 74 - do Entrances & Fixed

Windows Anolok
Finish with 6.0 mm
Bronzepane Tinted
Glass:
One (1) set: 100-1/2 x 76-1/2,
double sash,
double acting swing door, with
transom
Two (2) sets: 80 x 278
fixed panels
Exhibit C-3Delivery
Receipt dated
25 August 1983
Hoven Alum Sliding Windows
Fabricated from
SD Sections Anolok Finish
with 6.0 mm
Bronzepane Tinted Glass:
One (1) set: 45 x 191
One (1) set: 45 x
302
Add: Delivery and Installation
Less: 7% Discount
Exhibit D-1Delivery
Receipt dated
25 August 1983
For the supply of
materials and
installation of
aluminum
stucco embossed
sheet on spiral

P42,530.00

P21,740.00

P11,650.00
7,500.00
6,256.50

P77,163.50

106

Exhibit E-1Delivery Receipt

dated
25 August 1983
NU- main and cross runners
NU-5 Perimeter mouldings
G.I. Wire Hangers
Aluminum straps stiffeners
Blind rivets and screws

would the materials supposedly delivered by HOOVEN be more than

what was contracted and purchased by Lagon? Thiscircumstance
underscores the need to reexamine the strength, if not weakness, of
respondents cause.

P17,057.00

We have carefully and diligently considered the foregoing exhibits

and we are fully convinced that the mass of documentary evidence
adduced by respondent suffers from patent irregularities and
material inconsistencies on their faces, raising serious questions
requiring cogent explanations. These flaws inevitably deplete the
weight of its evidence, with the result that for lack of the requisite
quantum of evidence, respondent dismally failed in the lower court to
discharge its burden necessary to prevail in this case.
Firstly, the quantity of materials and the amounts stated in the
delivery receipts do not tally with those in the invoices covering
them, notwithstanding that, according to HOOVEN OIC Alberto
Villanueva, the invoices were based merely on the delivery
receipts. For instance, only eleven (11) items were listed in Exhs. C2 and C-3 with a total worth of P77,163.50. But in Exh. C which
was the invoice for Exhs. C-2 and C-3, there were thirteen (13)
items enumerated for a total worth of P85,803.50. If Exh. C is
supposed to be based on Exhs. C-2 and C-3, we cannot
understand the apparent discrepancy in the items listed in those
documents when they all referred to the same materials.
8

Secondly, the total value of the materials as reflected in all the

invoices is P117,329.00 while under the delivery receipts it is only
P112,870.50, or a difference of P4,458.00. Moreover, the materials
listed in the two (2)Proposals, upon which HOOVEN based its
claims, is only for the total sum of P104,870.00. Curiously then, why

Thirdly, under the Proposals HOOVEN bound itself to invoice the

materials when complete and ready for shipment. Oddly, the
records show that the invoices were prepared several years after the
materials were allegedly delivered and installed completely on
petitioners building. Alberto Villanueva testified that their project
with petitioner was completed sometime in August 1981 and that
thereafter no further installation was done in the building. But the
disputed invoices marked Exhs. A and B were prepared only on
29 December 1982; Exhs. C and D were prepared only on 29
December 1984; and, Exh. E was prepared only on 29 November
1984. As for the delivery receipts, Exhs. C-1, C-2, C-3 and E-1
were prepared only on 25 August 1983 or two (2) years after the
completion of the project, while Exh. A-3 was prepared only on 8
December 1981 or some four (4) months after the date of completion.
9

Even more strange is the fact that HOOVEN instituted the

present action for collection of sum of money against Lagon only on
24 February 1987, or more than five (5) years after the supposed
completion of the project. Indeed, it is contrary to common experience
that a creditor would take its own sweet time in collecting its credit,
more so in this case when the amount involved is not miniscule but
substantial.
Fourthly, the demand letter of 25 August 1983 sent to petitioner
by respondent further betrays the falsity of its claims
10

Dear Mr. Lagon:

The bearer, Mr. Fennin Piero, is an authorized representative of this
company. He will arrange for your acceptance of the complete aluminum
and glass installation we have undertaken for your building. He has with
him the delivery receipts for your signature so with a statement of account
107

showing your balance. Kindly favor us with a partial payment to cover our
operation costs. Also kindly relay to him all other installations you wish us
to undertake.
Hoping for your favorable action, we shall remain.
Very Truly Yours,
Hooven Comalco Industries, Inc.
Davao Branch
(Sgd.) Alberto P. Villanueva

If, as claimed by HOOVEN, all the materials were completely

delivered and installed in petitioners building as early as August
1981, why then would it demand partial payment only two (2) years
later? This circumstance is very significant especially considering
that under theProposals the terms of payment should be 50% down
and the balance to be paid in full upon completion. Moreover, it is
surprising that the partial payment demanded was only to cover
operation costs. As correctly observed by petitioner, demand for
payment of operation costs is typical of a still on-going project where
the contractor needs funds to defray his expenses. If there was
complete installation, why would respondent demand payment for
operation costs only? Why not enforce the whole amount of
indebtedness? All these clearly suggest that there was no full and
complete delivery and installation of materials ordered by petitioner.
Fifthly, all the delivery receipts did not appear to have been
signed by petitioner or his duly authorized representative
acknowledging receipt of the materials listed therein. A closer
examination of the receipts clearly showed that the deliveries were
made to a certain Jose Rubin, claimed to be petitioners driver,
Armando Lagon, and a certain bookkeeper. Unfortunately for
HOOVEN, the identities of these persons were never been
established, and there is no way of determining now whether they
were indeed authorized representatives of petitioner. Paragraph 3 of
each Proposal is explicit on this point

3. x x x the sellers responsibility ends with delivery of the merchandise to

carrier in good condition, to buyer, or to buyers authorized
Receiver/Depository named on the face of this proposal (italics supplied).

As above specifically stated, deliveries must be made to the buyer or

his duly authorized representative named in the contracts. In other
words, unless the buyer specifically designated someone to eceive the
delivery
of
materials
and
his
name
is
written
on
the Proposals opposite the words Authorized Receiver/Depository,
the seller is under obligation to deliver to the buyer only and to no
other person; otherwise, the delivery would be invalid and the seller
would not be discharged from liability. In the present case, petitioner
did not name any person in theProposals who would receive the
deliveries in his behalf, which meant that HOOVEN was bound to
deliver exclusively to petitioner.
Sixthly, it is also obvious from the contested delivery receipts that
some important details were not supplied or were left in
blank, i.e.,truck numbers, persons who delivered the materials,
invoice and s.o. numbers. The persons who delivered the materials
were potential witnesses who could shed light on the circumstances
surrounding the alleged deliveries of the materials to petitioner.
Moreover, it could have been easier for HOOVEN to pinpoint
responsibility to any of its employees for the non-delivery of the
materials.
We are not unaware of the slipshod manner of preparing receipts,
order slips and invoices, which unfortunately has become a common
business practice of traders and businessmen. In most cases, these
commercial forms are not always fully accomplished to contain all
the necessary information describing the whole business transaction.
The sales clerks merely indicate a description and the price of each
item sold without bothering to fill up all the available spaces in the
particular receipt or invoice, and without proper regard for any legal
repercussion for such neglect. Certainly, it would not hurt if
businessmen and traders would strive to make the receipts and
108

invoices they issue complete, as far as practicable, in material

particulars. These documents are not mere scraps of paper bereft of
probative value but vital pieces of evidence of commercial
transactions. They are written memorials of the details of the
consummation of contracts.
Given this pathetic state of respondents evidence, how could it be
said that respondent had satisfactorily proved its case? Essentially,
respondent has the burden of establishing its affirmative allegations
of complete delivery and installation of the materials, and
petitioners failure to pay therefore. In this regard, its evidence on its
discharge of that duty is grossly anemic. We emphasize that
litigations cannot be properly resolved by suppositions, deductions,
or even presumptions, with no basis in evidence, for the truth must
have to be determined by the hard rules of admissibility and proof.
The Court of Appeals however faulted the trial court for
supposedly relying solely on the results of the ocular inspection on
the premises, which were not conclusive since the inspection was
conducted several years after the disputed materials were allegedly
installed therein.
We disagree. The ocular inspection was made by the judge
himself, at the request of both petitioner and respondent, for the
exclusive purpose of determining whether the materials subject of
this case were actually delivered and installed. There is therefore no
basis to give little evidentiary value on the results of the ocular
inspection, as the Court of Appeals would, and charge the trial court
with error for relying thereon. It is now rather late for any of the
parties to disclaim them, especially when they are not in his or its
favor. Furthermore, a cursory reading of the decision of the court a
quowill at once show that it was not premised solely on the results of
the ocular inspection but was likewise predicated on other evidence
presented by the parties and well-considered facts and circumstances
discussed by the trial court in itsratio decidendi. We cannot ignore
the factual findings of the trial court, which must carry great weight
in the evaluation of evidentiary facts, and in the absence of any

indication showing grave error committed by trial court, the

appellate court is bound to respect such findings of fact.
We hasten to add however that petitioner is not entirely free from
any liability to respondent. Petitioner admitted the delivery of
materials under Exhs. A and its submarkings, B and its
submarkings, D, D-1 and E. With respect to Exh. C-2,
petitioner acknowledged his obligation under the first heading, Items
Nos. 3, 4 and 5, and the second heading, and denied the rest.
Consequently, he should be made liable therefore in the total amount
of P58,786.65. From this amount, petitioners down payment of
P48,000.00 should be deducted.
It is insisted by petitioner in his appeal brief filed before the Court
of Appeals that the second item under the second heading of Exh. C2 should be excluded in the computation since he never admitted
liability therefore.
We are not persuaded. The transcript of stenographic notes shows
that during the ocular inspection counsel for respondent manifested
in effect that petitioner admitted the delivery and installation of the
second item in his building, and petitioner did not interpose any
objection to respondents manifestation
ATTY. QUIONES: We would like to make of record that defendant
(Lagon) admits that plaintiff (Hooven Comalco) delivered and
installed Item No. 1 under the second column of Exhibit C-2
which is the front door of the ground floor.
ATTY. RICO: Defendant however adds that these were installed in
1981 and had already paid for the said item.
ATTY. QUINOES: I would like to make of record also that
defendant admits the delivery and installation of Item No. 2
under the second column of Exhibit C-2 as having been delivered
and installed by the plaintiff in 1981 with the qualification,
however, that he had already paid the same.
COURT: Are you stating that all these installed items on the ground
floor were all paid by you?
MR. LAGON: Yes, Your Honor.
11

109

Petitioner cannot now be heard to complain against its inclusion in

the computation of his liability since his silence virtually amounted
to acquiescence. The silence of one of the contracting parties and his
failure to protest against the claims of the other party, when he is
chargeable with the duty to do so, strongly suggest an admission of
the veracity and validity of the other partys claims.
In sum, petitioners total liability to respondent may be computed
as follows:

(1) Items under Exh. A, consisting

of 17
light diffusers at P40.00 each
(2) Items under Exh. B, consisting
of 23
light boxes at P40.00 each
Third, fourth and fifth items
(3) under the first heading of Exh.
C-2 which on the basis of their
measurements constitute only 1/3
of the total costs of materials
listed therein
(4) Items under the second heading
of Exh.C-2
(5) Items under Exhs. D and D-1
(6) Items under Exh. E-1
Less: Stipulated 7% discount
Less: Advance payment made by
petitioner to Hooven Comalco
Unpaid Balance of petitioner

P 680.00

The next point of inquiry is the propriety of awarding damages,

attorneys fees and litigation expenses.
We are not in accord with the trial courts ruling that petitioner is
entitled to actual damages to the extent of the undelivered materials
and undone labor in the amount of P26,120.00. There is no proof that
petitioner already paid for the value of the undelivered and
uninstalled materials to respondent. Therefore, petitioner may not
be deemed to have suffered any such damage. We have declared in
no uncertain terms that actual or compensatory damages cannot be
presumed but must be proved with reasonable degree of certainty. A
court cannot rely on speculations, conjectures or guesswork as to the
fact of damage but must depend upon competent proof that they
have indeed been suffered by the injured party and on the basis of
the best evidence obtainable as to the actual amount thereof. It
must point out specific facts that could provide the gauge for
measuring whatever compensatory or actual damages were borne.
12

3,220.00

14,176.65

21,740.00
4,860.00
14,110.00
P58,786.65
4,408.99
P54,377.66
48,000.00
P6,377.66

Notwithstanding the breach of contract by respondent in failing to

deliver and install in the premises of petitioner all the stipulated
materials, we nevertheless accede to the right of respondent to
recover the unpaid balance from petitioner for the materials actually
delivered.

13

But we agree with petitioner that he is entitled to moral damages.

HOOVENs bad faith lies not so much on its breach of contractas
there was no showing that its failure to comply with its part of the
bargain was motivated by ill will or done with fraudulent intent
but rather on its appalling temerity to sue petitioner for payment of
an alleged unpaid balance of the purchase price notwithstanding
knowledge of its failure to make complete delivery and installation of
all the materials under their contracts. It is immaterial that, after
the trial, petitioner was found to be liable to respondent to the extent
of P6,377.66. Petitioners right to withhold full payment of the
purchase price prior to the delivery and installation of all the
merchandise cannot be denied since under the contracts the balance
of the purchase price became due and demandable only upon the
completion of the project. Consequently, the resulting social
humiliation and damage to petitioners reputation as a respected
businessman in the community, occasioned by the filing of this suit
110

provide sufficient grounds for the award of P50,000.00 as moral

damages.
Moreover, considering the fact that petitioner was drawn into this
litigation by respondent and was compelled to hire an attorney to
protect and defend his interest, and taking into account the work
done by said attorney throughout the proceedings, as reflected in the
record, we deem it just and equitable to award attorneys fees for
petitioner in the amount of P30,000.00. In addition, we agree with
the trial court that petitioner is entitled to recover P46,554.50 as
actual damages including litigation expenses as this amount is
sufficiently supported by the evidence.
14

15

WHEREFORE, the assailed Decision of the Court of Appeals

dated 28 April 1997 is MODIFIED. Petitioner Jose V. Lagon is
ordered to pay respondent Hooven Comalco Industries, Inc.,
P6,377.66 representing the value of the unpaid materials admittedly
delivered to him. On the other hand, respondent is ordered to pay
petitioner P50,000.00 as moral damages, P30,000.00 as attorneys
fees and P46,554.50 as actual damages and litigation expenses.

Business forms, e.g., order slip, delivery charge invoice and the
like, which are issued by the seller in the ordinary course of business
are not always fully accomplished to contain all the necessary
information describing in detail the whole business transaction
more often than not they are accomplished perfunctorily without
proper regard to any legal repercussion for such neglect such that
despite their being often incomplete, said business forms are
commonly recognized in ordinary commercial transactions as valid
between the parties and at the very least they serve as an
acknowledgment that a business transaction has in fact transpired.
(Donato C. Cruz Trading Corporation vs. Court of Appeals, 347
SCRA 13 [2000])
o0o

SO ORDERED.
Mendoza, Quisumbing, Buena and De Leon, Jr., JJ., concur.
Decision modified.
Notes.As the term imparts, an ocular inspection is one by
means of actual sight or viewingwhat is visual to the eye though, is
not always reflective of the real cause behind. (Southeastern College,
Inc. vs. Court of Appeals,292 SCRA 422 [1998])
For sure, conducting ocular inspections is only one way of
ensuring compliance with laws and rules relative to the professional
practice of electrical engineering, but it certainty is not the only way.
(Philippine Registered Electrical Practitioners. Inc. [PREPI] vs.
Francia, Jr., 322 SCRA 587 [2000])
111

G.R. No. 133879. November 21, 2001.*

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

INC.,

Ownership; Leases; Rent is a civil fruit that belongs to the owner of the
property producing it by the right of accession.To better understand the
peculiarity of the instant case, let us begin with some basic parameters.
Rent is a civil fruit that belongs to the owner of the property producing it
by right of accession. Consequently and ordinarily, the rentals that fell due
from the time of the perfection of the sale to petitioner until its rescission
by final judgment should belong to the owner of the property during that
period.
Same; Sales; Ownership of the thing sold is a real right, which the
buyer acquires only upon delivery of the thing to him in any of the ways
specified in articles 1497 to 1501, or in any other manner signifying an
agreement that the possession is transferred from the vendor to the vendee;
While the execution of a public instrument of sale is recognized by law as
equivalent to the delivery of the thing sold, such constructive or symbolic
delivery, being merely presumptive, is deemed negated by the failure of the
vendee to take actual possession of the land sold.Ownership of the thing
sold is a real right, which the buyer acquires only upon delivery of the
thing to him in any of the ways specified in articles 1497 to 1501, or in any
other manner signifying an agreement that the possession is transferred
from the vendor to the vendee. This right is transferred, not merely by
contract, but also by tradition or delivery. Non nudis pactis sed traditione
dominia rerum transferantur. And there is said to be delivery if and when
the thing sold is placed in the control and possession of the vendee. Thus,
it has been held that while the execution of a public instrument of sale is
recognized by law as equivalent to the delivery of the thing sold, such
constructive or symbolic delivery, being merely presumptive, is deemed
negated by the failure of the vendee to take actual possession of the land
sold.
Same; Same; Words and Phrases; Delivery, Explained; In the Law on
Sales, delivery may be either actual or constructive, but both forms of
delivery contemplate the absolute giving up of the control and custody of
the property on the part of the vendor, and the assumption of the same by

the vendee.Delivery has been described as a composite act, a thing in

which both parties must join and the minds of both parties concur. It is an
act by which one party parts with the title to and the possession of the
property, and the other acquires the right to and the possession of the
same. In its natural sense, deliverymeans something in addition to the
delivery of property or title; it means transfer of possession. In the Law on
Sales, delivery may be either actual or constructive, but both forms of
delivery contemplate the absolute giving up of the control and custody of
the property on the part of the vendor, and the assumption of the same by
the vendee.
Same; Same; The execution of a contract of sale as a form of
constructive delivery is a legal fictionit holds true only when there is no
impediment that may prevent the passing of the property from the hands of
the vendor into those of the vendee, and when there is such impediment,
fiction yields to realitythe delivery has not been effected.Let us now
apply the foregoing discussion to the present issue. From the peculiar facts
of this case, it is clear that petitioner never took actual
control andpossession of the property sold, in view of respondents timely
objection to the sale and the continued actual possession of the property.
The objection took the form of a court action impugning the sale which, as
we know, was rescinded by a judgment rendered by this Court in the
mother case. It has been held that the execution of a contract of sale as a
form of constructive delivery is a legal fiction. It holds true only when there
is no impediment that may prevent the passing of the property from the
hands of the vendor into those of the vendee. When there is such
impediment, fiction yields to realitythe delivery has not been effected.
Same; Same; Rescission; Since rescission creates the obligation to
return the things which were the object of the contract, together with their
fruits, and the price with its interests, not only the land and building sold,
but also the rental payments paid, if any, has to be returned to the buyer.
However, the point may be raised that under Article 1164 of the Civil Code,
Equatorial as buyer acquired a right to the fruits of the thing sold from the
time the obligation to deliver the property to petitioner arose. That time
arose upon the perfection of the Contract of Sale on July 30, 1978, from
which moment the laws provide that the parties to a sale may reciprocally
112

demand performance. Does this mean that despite the judgment rescinding
the sale, the right to the fruits belonged to, and remained enforceable by,
Equatorial? Article 1385 of the Civil Code answers this question in the
negative, because [rescission creates the obligation to return the things
which were the object of the contract, together with their fruits, and the
price with its interest; x x x. Not only the land and building sold, but also
the rental payments paid, if any, had to be returned by the buyer.
Same; Same; Same; Bad Faith; Even assuming that there was valid
delivery, the guilty party is not entitled to any benefits from a rescinded
Deed of Absolute Sale where it was guilty of bad faith.Furthermore,
assuming for the sake of argument that there was valid delivery, petitioner
is not entitled to any benefits from the rescinded Deed of Absolute Sale
because of its bad faith. This being the law of the mother case decided in
1996, it may no longer be changed because it has long become final and
executory.
Judgments; Res Judicata; Bar by Prior Judgment; A final judgment on
the merits rendered by a court of competent jurisdiction is conclusive as to
the rights of the parties and their privies and constitutes an absolute bar to
subsequent actions involving the same claim, demand, or cause of action.
Under the doctrine of res judicata or bar by prior judgment, a matter that
has been adjudicated by a court of competent jurisdiction must be deemed
to have been finally and conclusively settled if it arises in any subsequent
litigation between the same parties and for the same cause. Thus, [a] final
judgment on the merits rendered by a court of competent jurisdiction is
conclusive as to the rights of the parties and their privies and constitutes
an absolute bar to subsequent actions involving the same claim, demand,
or cause of action. Res judicata is based on the ground that the party to
be affected, or some other with whom he is in privity, has litigated the
same matter in a former action in a court of competent jurisdiction, and
should not be permitted to litigate it again.

building for all the years when it had no right or, as stated in the decision,
had an inferior right over the property.It can be seen from the above
ruling that the issue of rentals and interests was fully discussed and
passed upon in 1996. Equatorial profited from the use of the building for all
the years when it had no right or, as stated in our decision, had an inferior
right over the property. Mayfair, which had the superior right, continued to
pay rent but it was the rate fixed in the lease contract with Carmelo. We
see no reason for us to now deviate from the reasoning given in our main
decision. The decision has been final and executory for five (5) years and
petitioner has failed to present any valid and reasonable ground to
reconsider, modify or reverse it. Let that which has been fairly adjudicated
remain final.
Contracts; Rescission; As far the injured third party is concerned, the
fraudulent contract, once rescinded, is non-existent or void from its
inception.Mayfair starts its arguments with a discussion of Article 1381
of the Civil Code that contracts entered into in fraud of creditors are
rescissible. There is merit in Mayfairs contention that the legal effects are
not restricted to the contracting parties only. On the contrary, the
rescission is for the benefit of a third party, a stranger to the contract.
Mayfair correctly states that as far as the injured third party is concerned,
the fraudulent contract, once rescinded, is non-existent or void from its
inception. Hence, from Mayfairs standpoint, the deed of absolute sale
which should not have been executed in the first place by reason of
Mayfairs superior right to purchase the property and which deed was
cancelled for that reason by this Court, is legally non-existent. There must
be a restoration of things to the condition prior to the celebration of the
contract (Respondent relies on Almeda vs. J.M. & Company, 43072-R,
December 16, 1975, as cited in the Philippine Law Dictionary; IV Arturo M.
Tolentino, Civil Code of the Philippines, 570, 1990 Ed., citing Manresa; IV
Edgardo L. Paras, Civil Code of the Philippines, 717-718, 1994 Ed.).

MELO, J., Concurring Opinion:

VITUG, J., Dissenting Opinion:

Judgments; Ownership; Leases; It can be seen from the previous ruling

in 1996, in G.R. No. 106063, that the issue of rentals and interests was fully
discussed and passed uponEquatorial profited from the use of the

Contracts; Rescission; Classifications of Defective Contracts;In terms of

their efficaciousness, rescissible contracts are regarded as being the closest
to perfectly executed contracts.Civil Law, in its usual sophistication,
113

classifies defective contracts (unlike the seemingly generic treatment in

Common Law), into, first, the rescissible contracts, which are the least
infirm; followed by,second, the voidable contracts; then, third, the
unenforceable contracts; and, finally, fourth, the worst of all or the void
contracts. In terms of their efficaciousness, rescissible contracts are
regarded, among the four, as being the closest to perfectly executed
contracts. A rescissible contract contains all the requisites of a valid
contract and are considered legally binding, but by reason of injury or
damage to either of the contracting parties or to third persons, such as
creditors, it is susceptible to rescission at the instance of the party who
may be prejudiced thereby. A rescissible contract is valid, binding and
effective until it is rescinded. The proper way by which it can be assailed is
by an action for rescission based on any of the causes expressly specified by
law.
Same; Same; When the Court held in the previous case, G.R. No.
106063, the contract to be deemed rescinded, the Court did not mean a
declaration of nullity of the questioned contractthe agreement, being
efficacious until rescinded, validly transferred ownership over the property
to Equatorial from the time the deed of sale was executed in a public
instrument on 30 July 1978 up to the time that the decision in G.R. No.
106063 became final on 17 March 1997.Thus, when the Court held the
contract to be deemed rescinded in G.R. No. 106063, the Court did not
mean a declaration of nullity of the questioned contract. The agreement
between petitioner and Carmelo, being efficacious until rescinded, validly
transferred ownership over the property to petitioner from the time the
deed of sale was executed in a public instrument on 30 July 1978 up to the
time that the decision in G.R. No. 106063 became final on 17 March 1997.
It was only from the latter date that the contract had ceased to be
efficacious. The fact that the subject property was in the hands of a lessee,
or for that matter of any possessor with a juridical title derived from an
owner, would not preclude a conferment of ownership upon the purchaser
nor be an impediment from the transfer of ownership from the seller to the
buyer. Petitioner, being the owner of the property (and none other) until
the judicial rescission of the sale in its favor, was entitled to all incidents of
ownership inclusive of, among its other elements, the right to the fruits of

the property. Rentals or rental value over that disputed property from 30
July 1978 up to 17 March 1997 should then properly pertain to petitioner.
In this respect, the much abused terms of good faith or bad faith play no
role; ownership, unlike other concepts, is never described as being either in
good faith or in bad faith.

SANDOVAL-GUTIERREZ, J., Dissenting Opinion:

Sales; Ownership; Firmly incorporated in our Law on Sales is the
principle that ownership is transferred to the vendee by means of delivery,
actual or constructive.Firmly incorporated in our Law on Sales is the
principle that ownership is transferred to the vendee by means of delivery,
actual or constructive. There is actual delivery when the thing sold is
placed in the control and possession of the vendee. Upon the other hand,
there is constructive delivery when the delivery of the thing sold is
represented by other signs or acts indicative thereof. Article 1498 of the
Civil Code is in point. It provides that When the sale is made through a
public instrument, the execution thereof shall be equivalent to the delivery of
the thing which is the object of the contract, if from the deed the contrary
does not appear or cannot clearly be inferred. Contrary to the majority
opinion, the facts and circumstances of the instant case clearly indicate
that there was indeed actual and constructive delivery of the disputed
property from Carmelo to Equatorial.
Same; Same; Possession; Leases; Receiving rentals is an exercise of
actual possession.That actual possession of the property was turned over
by Carmelo to Equatorial is clear from the fact that the latter received
rents from Mayfair. Significantly, receiving rentals is an exercise of actual
possession. Possession, as defined in the Civil Code, is the holding of a
thing or the enjoyment of a right. It may either be by material occupation
or by merely subjecting the thing or right to the action of our will.
Possession may therefore be exercised through ones self or through
another. It is not necessary that the person in possession should himself be
the occupant of the property, the occupancy can be held by another in the
name of the one who claims possession. In the case at bench, Equatorial
exercised possession over the disputed property through Mayfair. When
Mayfair paid its monthly rentals to Equatorial, the said lessee recognized
114

the superior right of Equatorial to the possession of the property. And even
if Mayfair did not recognize Equatorials superior right over the disputed
property, the fact remains that Equatorial was then enjoying the fruits of
its possession.
Same; Same; Same; Degrees of Possession.At this juncture, it will be
of aid to lay down the degrees of possession. The firstdegree is the mere
holding, or possession without title whatsoever, and in violation of the right
of the owner. Here, both the possessor and the public know that the
possession is wrongful. An example of this is the possession of a thief or a
usurper of land. The second is possession with juridical title, but not that of
ownership. This is possession peaceably acquired, such that of a tenant,
depositary, or pledge. The third is possession with a just title, or a title
sufficient to transfer ownership, but not from the true owner. An example
is the possession of a vendee of a piece of land from one who pretends to be
the owner but is in fact not the owner thereof. And the fourth is possession
with a just title from the true owner. This is possession that springs from
ownership. Undoubtedly, Mayfairs possession is by virtue of juridical title
under the contract of lease, while that of Equatorial is by virtue of its right
of ownership under the contract of sale.
Same; Same; It does not always follow that, because a transaction is
prohibited or illegal, title, as between the parties to the transaction, does not
pass from the seller, donor, or transferor to the vendee, donee, or
transferee.In G.R. No. 106063, Mayfairs main concern in its action for
specific performance was the recognition of its right of first refusal. Hence,
the most that Mayfair could secure from the institution of its suit was to be
allowed to exercise its right to buy the property upon rescission of the
contract of sale. Not until Mayfair actually exercised what it was allowed to
do by this Court in G.R. No. 106063, specifically to buy the disputed
property for P11,300,000.00, would it have any right of ownership. How
then, at that early stage, could Mayfairs action be an impediment in the
consummation of the contract between Carmelo and Equatorial?
Pertinently, it does not always follow that, because a transaction is
prohibited or illegal, title, as between the parties to the transaction, does
not pass from the seller, donor, or transferor to the vendee, donee or
transferee.

Same; Rescission; Bad Faith; Where bad faith was the very reason why
the contract was declared rescissible, to utilize bad faith again, this time, to
deprive Equatorial of its entitlement to the rent corresponding to the period
during which the contract was supposed to validly exist, would not only be
unjust, it would also disturb the very nature of a rescissible contract.
Neither should the presence of bad faith prevent the award of rent to
Equatorial. While Equatorial committed bad faith in entering into the
contract with Carmelo, it has been equitably punished when this Court
rendered the contract rescissible. That such bad faith was the very reason
why the contract was declared rescissible is evident from the Decision
itself. To utilize it again, this time, to deprive Equatorial of its entitlement
to the rent corresponding to the period during which the contract was
supposed to validly exist, would not only be unjust, it would also disturb
the very nature of a rescissible contract.

PETITION for review on certiorari of a decision of the Regional Trial

Court of Manila, Br. 8.
The facts are stated in the opinion of the Court.
Estelito P. Mendoza for petitioner.
De Borja, Medialdea, Bello, Guevarra & Gerodias Law
Offices for Private respondent.
PANGANIBAN, J.:
General propositions do not decide specific cases. Rather, laws are
interpreted in the context of the peculiar factual situation of each
proceeding. Each case has its own flesh and blood and cannot be
ruled upon on the basis of isolated clinical classroom principles.
While we agree with the general proposition that a contract of sale
is valid until rescinded, it is equally true that ownership of the thing
sold is not acquired by mere agreement, but by tradition or delivery.
The peculiar facts of the present controversy as found by this Court
in an earlier relevant Decision show that delivery was not actually
effected; in fact, it was prevented by a legally effective impediment.
Not having been the owner, petitioner cannot be entitled to the civil
115

fruits of ownership like rentals of the thing sold. Furthermore,

petitioners bad faith, as again demonstrated by the specific factual
milieu of said Decision, bars the grant of such benefits. Otherwise,
bad faith would be rewarded instead of punished.
The Case
Filed before this Court is a Petition for Review under Rule 45 of
the Rules of Court, challenging the March 11, 1998 Order of the
Regional Trial Court of Manila (RTC), Branch 8, in Civil Case No.
97-85141. The dispositive portion of the assailed Order reads as
follows:
1

WHEREFORE, the motion to dismiss filed by defendant Mayfair is

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

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

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

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

land, together with two 2-storey buildings constructed thereon,
located at Claro M. Recto Avenue, Manila, and covered by TCT No.
18529 issued in its name by the Register of Deeds of Manila.
On June 1, 1967, Carmelo entered into a Contract of Lease with
Mayfair Theater, Inc. (Mayfair) for a period of 20 years. The lease
covered a portion of the second floor and mezzanine of a two-storey

building with about 1,610 square meters of floor area, which

respondent used as a movie house known as Maxim Theater.
Two years later, on March 31, 1969, Mayfair entered into a second
Contract of Lease with Carmelo for the lease of another portion of
the latters propertynamely, a part of the second floor of the twostorey building, with a floor area of about 1,064 square meters; and
two store spaces on the ground floor and the mezzanine, with a
combined floor area of about 300 square meters. In that space,
Mayfair put up another movie house known as Miramar Theater.
The Contract of Lease was likewise for a period of 20 years.
Both leases contained a provision granting Mayfair a right of first
refusal to purchase the subject properties. However, on July 30,
1978within the 20-year-lease termthe subject properties were
sold by Carmelo to Equatorial Realty Development, Inc.
(Equatorial) for the total sum of P11,300,000, without their first
being offered to Mayfair.
As a result of the sale of the subject properties to Equatorial,
Mayfair filed a Complaint before the Regional Trial Court of Manila
(Branch 7) for (a) the annulment of the Deed of Absolute Sale
between Carmelo and Equatorial, (b) specific performance, and (c)
damages. After trial on the merits, the lower court rendered a
Decision in favor of Carmelo and Equatorial. This case, entitled
Mayfair Theater, Inc. v. Carmelo and Bauermann, Inc., et al., was
docketed as Civil Case No. 118019.
On appeal (docketed as CA-GR CV No. 32918), the Court of
Appeals (CA) completely reversed and set aside the judgment of the
lower court.
The controversy reached this Court via GR No. 106063. In this
mother case, it denied the Petition for Review in this wise:
WHEREFORE, the petition for review of the decision of the Court of
Appeals, dated June 23, 1992, in CA-G.R. CV No. 32918, is HEREBY
DENIED. The Deed of Absolute Sale between petitioners Equatorial Realty
Development, Inc. and Carmelo & Bauermann, Inc. is hereby deemed
rescinded; Carmelo & Bauermann is ordered to return to petitioner
116

Equatorial Realty Development the purchase price. The latter is directed to

execute the deeds and documents necessary to return ownership to
Carmelo & Bauermann of the disputed lots. Carmelo & Bauermann is
ordered to allow Mayfair Theater, Inc. to buy the aforesaid lots for
P11,300,000.00.
6

The foregoing Decision of this Court became final and executory

on March 17, 1997. On April 25, 1997, Mayfair filed a Motion for
Execution, which the trial court granted.
However, Carmelo could no longer be located. Thus, following the
order of execution of the trial court, Mayfair deposited with the clerk
of court a quo its payment to Carmelo in the sum of P11,300,000 less
P847,000 as withholding tax. The lower court issued a Deed of
Reconveyance in favor of Carmelo and a Deed of Sale in favor of
Mayfair. On the basis of these documents, the Registry of Deeds of
Manila cancelled Equatorials titles and issued new Certificates of
Title in the name of Mayfair.
Ruling on Equatorials Petition for Certiorari and Prohibition
contesting the foregoing manner of execution, the CA in its
Resolution of November 20, 1998, explained that Mayfair had no
right to deduct the P847,000 as withholding tax. Since Carmelo could
no longer be located, the appellate court ordered Mayfair to deposit
the said sum with the Office of the Clerk of Court, Manila, to
complete the full amount of P11,300,000 to be turned over to
Equatorial.
Equatorial questioned the legality of the above CA ruling before
this
Court
in GR
No.
136221 entitledEquatorial
Realty
Development, Inc. v. Mayfair Theater, Inc. In a Decision
promulgated on May 12, 2000, this Court directed the trial court to
follow strictly the Decision in GR No. 106063, the mother case. It
explained its ruling in these words:
7

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

amount of eleven million three hundred thousand pesos (P11,300,000.00) to
Equatorial. On the other hand, Mayfair may not deduct from the purchase
price the amount of eight hundred forty-seven thousand pesos

(P847,000.00) as withholding tax. The duty to withhold taxes due, if any, is

imposed on the seller, Carmelo and Bauermann, Inc.
9

Meanwhile, on September 18, 1997barely five months after

Mayfair had submitted its Motion for Execution before the RTC of
Manila, Branch 7Equatorial filed with the Regional Trial Court of
Manila, Branch 8, an action for the collection of a sum of money
against Mayfair, claiming payment of rentals or reasonable
compensation for the defendants use of the subject premises after its
lease contracts had expired. This action was the progenitor of the
present case.
In its Complaint, Equatorial alleged among other things that the
Lease Contract covering the premises occupied by Maxim Theater
expired on May 31, 1987, while the Lease Contract covering the
premises occupied by Miramar Theater lapsed on March 31,
1989. Representing itself as the owner of the subject premises by
reason of the Contract of Sale on July 30, 1978, it claimed rentals
arising from Mayfairs occupation thereof.
10

Ruling of the RTC Manila, Branch 8

As earlier stated, the trial court dismissed the Complaint via the
herein assailed Order and denied the Motion for Reconsideration
filed by Equatorial.
The lower court debunked the claim of petitioner for unpaid back
rentals, holding that the rescission of the Deed of Absolute Sale in
the mother case did not confer on Equatorial any vested or residual
proprietary rights, even in expectancy.
In granting the Motion to Dismiss, the court a quo held that the
critical issue was whether Equatorial was the owner of the subject
property and could thus enjoy the fruits or rentals therefrom. It
declared the rescinded Deed of Absolute Sale as void at its inception
as though it did not happen.
The trial court ratiocinated as follows:
11

117

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

case of Ocampo v. Court of Appeals, G.R. No. 97442, June 30, 1994, the
Supreme Court held that, to rescind is to declare a contract void in its
inception and to put an end as though it never were. It is not merely to
terminate it and release parties from further obligations to each other but
to abrogate it from the beginning and restore parties to relative positions
which they would have occupied had no contract ever been made.
Relative to the foregoing definition, the Deed of Absolute Sale between
Equatorial and Carmelo dated July 31, 1978 is void at its inception as
though it did not happen.
The argument of Equatorial that this complaint for backrentals as
reasonable compensation for use of the subject property after expiration of
the lease contracts presumes that the Deed of Absolute Sale dated July 30,
1978 from whence the fountain of Equatorials alleged property rights flows
is still valid and existing.
xxx xxx xxx
The subject Deed of Absolute Sale having been rescinded by the
Supreme Court, Equatorial is not the owner and does not have any right to
demand backrentals from the subject property, x x x.
12

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

but also ignores the dispositive portion of the Decision of the Supreme
Court in G.R. No. 106063entitled Equatorial Realty Development, Inc. &
Carmelo & Bauermann, Inc. vs. Mayfair Theater, Inc.
B.
The Regional Trial Court erred in holding that the Deed of Absolute
Sale in favor of petitioner by Carmelo & Bauermann, Inc., dated July 31,
1978, over the premises used and occupied by respondent, having been
deemed rescinded by the Supreme Court in G.R. No. 106063, is void at its
inception as though it did not happen.
C.
The Regional Trial Court likewise erred in holding that the aforesaid
Deed of Absolute Sale, dated July 31, 1978, having been deemed rescinded
by the Supreme Court in G.R. No. 106063, petitioner is not the owner and
does not have any right to demand backrentals from the subject property,
and that the rescission of the Deed of Absolute Sale by the Supreme Court
does not confer to petitioner any vested right nor any residual proprietary
rights even in expectancy.
D.

13

Hence, the present recourse.

14

Issues
Petitioner submits, for the consideration of this Court, the following
issues:
15

A.
The basis of the dismissal of the Complaint by the Regional Trial Court not
only disregards basic concepts and principles in the law on contracts and in
civil law, especially those on rescission and its corresponding legal effects,

The issue upon which the Regional Trial Court dismissed the civil case,
as stated in its Order of March 11, 1998, was not raised by respondent in
its Motion to Dismiss.
E.
The sole ground upon which the Regional Trial Court dismissed Civil Case
No. 97-85141 is not one of the grounds of a Motion to Dismiss under Sec. 1
of Rule 16 of the 1997 Rules of Civil Procedure.

Basically, the issues can be summarized into two: (1) the substantive
issue of whether Equatorial is entitled to back rentals; and (2) the
procedural issue of whether the court a quos dismissal of Civil Case
118

No. 97-85141 was based on one of the grounds raised by respondent

in its Motion to Dismiss and covered by Rule 16 of
the Rules of Court.

when the thing sold is placed in the control and possession of the
vendee. Thus, it has been held that while the execution of a public
instrument of sale is recognized by law as equivalent to the delivery
of the thing sold, such constructive or symbolic delivery, being merely
presumptive, is deemed negated by the failure of the vendee to take
actual possession of the land sold.
23

24

This Courts Ruling

The Petition is not meritorious.

25

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

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

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

27

To better understand the peculiarity of the instant case, let us begin

with some basic parameters. Rent is a civil fruit that belongs to the
owner
of
the
property
producing
it by
right
of
accession. Consequently and ordinarily, the rentals that fell due
from the time of the perfection of the sale to petitioner until its
rescission by final judgment should belong to the owner of the
property during that period.
By a contract of sale, one of the contracting parties obligates
himself to transfer ownership of and to deliver a determinate thing
and the other to pay therefor a price certain in money or its
equivalent.
Ownership of the thing sold is a real right, which the buyer
acquires only upon delivery of the thing to him in any of the ways
specified in articles 1497 to 1501, or in any other manner signifying
an agreement that the possession is transferred from the vendor to
the vendee. This right is transferred, not merely by contract, but
also by tradition or delivery. Non nudis pactis sed traditione
dominia rerum transferantur. And there is said to be delivery if and

Possession Never Acquired by Petitioner

16

17

18

19

20

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

29

21

22

119

Hence, respondents opposition to the transfer of the property by

way of sale to Equatorial was a legally sufficient impediment that
effectively prevented the passing of the property into the latters
hands.
This was the same impediment contemplated in Vda. de
Sarmiento v.Lesaca, in which the Court held as follows:
30

The question that now arises is: Is there any stipulation in the sale in
question from which we can infer that the vendor did not intend to deliver
outright the possession of the lands to the vendee? We find none. On the
contrary, it can be clearly seen therein that the vendor intended to place
the vendee in actual possession of the lands immediately as can be inferred
from the stipulation that the vendee takes actual possession thereof x x x
with full rights to dispose, enjoy and make use thereof in such manner and
form as would be most advantageous to herself. The possession referred to
in the contract evidently refers to actual possession and not merely
symbolical inferable from the mere execution of the document.
Has the vendor complied with this express commitment? she did not.
As provided in Article 1462, the thing sold shall be deemed delivered when
the vendee is placed in the control andpossession thereof, which situation
does not here obtain because from the execution of the sale up to the
present the vendee was never able to take possession of the lands due to
the insistent refusal of Martin Deloso to surrender them claiming
ownership thereof. And although it is postulated in the same article that
the execution of a public document is equivalent to delivery, this legal
fiction only holds true when there is no impediment that may prevent the
passing of the property from the hands of the vendor into those of the
vendee. x x x.

in possession of the thing. In the latter case, the sale cannot be

considered consummated.
However, the point may be raised that under Article 1164 of the
Civil Code, Equatorial as buyer acquired a right to the fruits of the
thing sold from the time the obligation to deliver the property to
petitioner arose. That time arose upon the perfection of the Contract
of Sale on July 30, 1978, from which moment the laws provide that
the parties to a sale may reciprocally demand performance.
32

33

Does this mean that despite the judgment rescinding the sale, the
right to the fruits belonged to, and remained enforceable by,
Equatorial?
34

Article 1385 of the Civil Code answers this question in the

negative, because [rescission creates the obligation to return the
things which were the object of the contract, together with their
fruits, and the price with its interest; x x x. Not only the land and
building sold, but also the rental payments paid, if any, had to be
returned by the buyer.
Another point. The Decision in the mother case stated that
Equatorial x x x has received rents from Mayfair during all the
years that this controversy has been litigated. The Separate Opinion
of Justice Teodoro Padilla in the mother case also said that
Equatorial was deriving rental income from the disputed property.
Even hereinponentes Separate Concurring Opinion in the mother
case recognized these rentals. The question now is: Do all these
statements concede actual delivery?

31

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

a prima facie presumption of delivery. Such presumption is
destroyed when the instrument itself expresses or implies that
delivery was not intended; or when by other means it is shown that
such delivery was not effected, because a third person was actually

The answer is No. The fact that Mayfair paid rentals to

Equatorial during the litigation should not be interpreted to mean
either actual delivery or ipso facto recognition of Equatorials title.
The CA Records of the mother case show that Equatorialas
alleged buyer of the disputed properties and as alleged successorin35

120

interest of Carmelos rights as lessorsubmitted two ejectment suits

against Mayfair. Filed in the Metropolitan Trial Court of Manila,
the firstwas docketed as Civil Case No. 121570 on July 9, 1987; and
the second, as Civil Case No. 131944 on May 28, 1990. Mayfair
eventually won them both. However, to be able to maintain physical
possession of the premises while awaiting the outcome of the mother
case, it had no choice but to pay the rentals.

Benefits Precluded by Petitioners Bad Faith

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

The rental payments made by Mayfair should not be construed as

a recognition of Equatorial as the new owner. They were made
merely to avoid imminent eviction. It is in this context that one
should understand the aforequoted factual statements in
the ponencia in the mother case, as well as the Separate Opinion of
Mr. Justice Padilla and the Separate Concurring Opinion of the
herein ponente.
At bottom, it may be conceded that, theoretically, a rescissible
contract is valid until rescinded. However, thisgeneral principle is
not decisive to the issue of whether Equatorial ever acquired the
right to collect rentals. What is decisive is the civil law rule that
ownership is acquired, not by mere agreement, but by tradition or
delivery. Under the factual environment of this controversy as found
by this Court in the mother case, Equatorial was never put in actual
and effective control or possession of the property because of
Mayfairs timely objection.
As pointed out by Justice Holmes, general propositions do not
decide specific cases. Rather, laws are interpreted in the context of
the peculiar factual situation of each case. Each case has its own
flesh and blood and cannot be decided on the basis of isolated clinical
classroom principles.
In short, the sale to Equatorial may have been valid from
inception, but it was judicially rescinded before it could be
consummated. Petitioner never acquired ownership, not because the
sale was void, as erroneously claimed by the trial court, but because
the sale was not consummated by a legally effective delivery of the
property sold.

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

36

Since Equatorial is a buyer in bad faith, this finding renders the sale to
it of the property in question rescissible. We agree with respondent
Appellate Court that the records bear out the fact that Equatorial was
aware of the lease contracts because its lawyers had, prior to the sale,
studied the said contracts. As such, Equatorial cannot tenably claim to be a
purchaser in good faith, and, therefore, rescission lies.
xxx xxx xxx
As also earlier emphasized, the contract of sale between Equatorial and
Carmelo is characterized by bad faith, since it was knowingly entered into
in violation of the rights of and to the prejudice of Mayfair. In fact, as
correctly observed by the Court of Appeals, Equatorial admitted that its
lawyers had studied the contract of lease prior to the sale. Equatorials
knowledge of the stipulations therein should have cautioned it to look
further into the agreement to determine if it involved stipulations that
would prejudice its own interests.
xxx xxx xxx
On the part of Equatorial, it cannot be a buyer in good faithbecause it
bought the property with notice and full knowledge that Mayfair had a
right to or interest in the property superior to its own. Carmelo and
Equatorial took unconscientious advantage of Mayfair. (Italics supplied)
37

121

Thus, petitioner was and still is entitled solely to the return of the
purchase price it paid to Carmelo; no more, no less. This Court has
firmly ruled in the mother case that neither of them is entitled to
any consideration of equity, as both took unconscientious advantage
of Mayfair.
38

In the mother case, this Court categorically denied the payment of

interest, a fruit of ownership. By the same token, rentals, another fruit
of ownership, cannot be granted without mocking this Courts en banc
Decision, which has long become final.
Petitioners claim of reasonable compensation for respondents use
and occupation of the subject property from the time the lease
expired cannot be countenanced. If it suffered any loss, petitioner
must bear it in silence, since it had wrought that loss upon
itself. Otherwise, bad faith would be rewarded instead of punished.
We uphold the trial courts disposition, not for the reason it gave,
but for (a) the patent failure to deliver the property and (b)
petitioners bad faith, as above discussed.
Second Issue: Ground in Motion to Dismiss
Procedurally, petitioner claims that the trial court deviated from
the accepted and usual course of judicial proceedings when it
dismissed Civil Case No. 97-85141 on a ground not raised in
respondents Motion to Dismiss. Worse, it allegedly based its
dismissal on a ground not provided for in a motion to dismiss as
enunciated in the Rules of Court.
We are not convinced. A review of respondents Motion to Dismiss
Civil Case No. 97-85141 shows that there were two grounds invoked,
as follows:
(A)

Plaintiff is guilty of forum-shopping.

(B)
Plaintiffs cause of action, if any, is barred by prior judgment.

39

The court a quo ruled, inter alia, that the cause of action of petitioner
(plaintiff in the case below) had been barred by a prior judgment of
this Court in GR No. 106063, the mother case.
Although it erred in its interpretation of the said Decision when it
argued that the rescinded Deed of Absolute Sale was void, we hold,
nonetheless, that petitioners cause of action is indeed barred by a
prior judgment of this Court. As already discussed, our Decision
in GR No. 106063 shows that petitioner is not entitled to back
rentals, because it never became the owner of the disputed properties
due to a failure of delivery. And even assuming arguendo that there
was a valid delivery, petitioners bad faith negates its entitlement to
the civil fruits of ownership, like interest and rentals.
Under the doctrine of res judicata or bar by prior judgment, a
matter that has been adjudicated by a court of competent jurisdiction
must be deemed to have been finally and conclusively settled if it
arises in any subsequent litigation between the same parties and for
the same cause. Thus, [a] final judgment on the merits rendered by
a court of competent jurisdiction is conclusive as to the rights of the
parties and their privies and constitutes an absolute bar to
subsequent actions involving the same claim, demand, or cause of
action. Res judicata is based on the ground that the party to be
affected, or some other with whom he is in privity, has litigated the
same matter in a former action in a court of competent jurisdiction,
and should not be permitted to litigate it again.
40

41

42

It frees the parties from undergoing all over again the rigors of
unnecessary suits and repetitive trials. At the same time, it prevents
the clogging of court dockets. Equally important, it stabilizes rights
and promotes the rule of law.
122

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

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

Puno, J., I concur and also join the concurring opinion of J.

Melo.
Vitug, J., Please see dissenting opinion.
Kapunan, J., I join the dissenting opinions of Justices Vitug and
Sandoval-Gutierrez.
Mendoza, J., I concur in this and Melo, J.s concurring
opinion.
De Leon, Jr., J., I join the dissenting opinion of Justice J.C.
Vitug.

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

Hence, the trial court decided the Motion to Dismiss on the basis of
res judicata, even if it erred in interpreting the meaning of
rescinded as equivalent to void. In short, it ruled on the ground
raised; namely, bar by prior judgment. By granting the Motion,
it disposed correctly, even if its legal reason for nullifying the sale
was wrong. The correct reasons are given in this Decision.
WHEREFORE, the Petition is hereby DENIED. Costs against
petitioner.
SO ORDERED.
Davide,
Jr. (C.J.), Quisumbing, Pardo, Buena,YnaresSantiago and Carpio, JJ., concur.
Bellosillo, J., I join the dissent of J. Gutierrez.
Melo, J., Please see concurring opinion.
123

[No. 46378. December 17, 1938]

MANILA GAS CORPORATION, plaintiff and appellee, vs.ALFREDO
B. CALUPITAN, defendant and appellant.
CONTRACT; SALE ON INSTALLMENT OF PERSONAL
PROPERTY IN THE FORM OF LEASE.When in a so-called contract
of lease of personal property it is stipulated that the alleged lessee shall
pay a certain amount upon signing the contract, and on or before the 5th
of every month, another specific amount, by way of rental, giving the
alleged lessee the right of option to buy the said personal property
before the expiration of the period of lease, which is the period necessary
for the payment of the said amount at the rate of so much a month,
deducting the payments made by way of advance and alleged monthly
rentals, and the said alleged lessee makes the advance payment and
other monthly installments, noting in his account and in the receipts
issued to him that said payments are on account of the price of the
personal property allegedly leased, said contract is one of sale on
installment and not of lease.

APPEAL from a judgment of the Court of First Instance of Manila.

Tuason, J.
The facts are stated in the opinion of the court.
Alfredo B, Calupitan in his own behalf.
DeWitt, Perkins & Ponce Enrile for appellee.
VlLLA-REAL, J.:
The defendant, Alfredo B. Calupitan, appeals to this court from the
decision of the Court of First Instance of Manila, the dispositive part
of which reads:
"Judgment is therefore rendered, sentencing the defendant to return the
stove and the gas water heater described in the complaint, and to pay for
the use of the gas water heater the sum of P5 a month from June, 1934,
and for the use of the Krefft Stove the sum of P4 a month from January,
1934, until they are returned, with costs of suit."

In support of his appeal the appellant assigns six errors allegedly

committed by the trial court in its decision, on which we shall dwell
in the course of this decision.
From the evidence of record are gathered the following facts:
Defendant-appellant, Alfredo B. Calupitan, entered into a contract
(Exhibit A), containing the following pertinent recitals:
"LEASE. AGREEMENT
"This agreement, made in the City of Manila, P. L, this 3rd day of
May, 1933, between the Manila Gas Corporation, a domestic
corporation duly organized and existing under and by virtue of the
laws of the Philippine Islands, and having its principal place of
business therein in the City of Manila, with its main office at Calle
Otis, Paco, in said City of Manila, hereinafter called the 'OWNER',
and Alfredo B. Calupitan, of age and a resident of No. 9 Baldwin,
Sta. Cruz, P. L, hereinafter called the 'LESSEE'
"WlTNESSETH: That
"1. The Owner hereby leases unto the Lessee and the Lessee hereby
hires from the Owner, for a term of /. months, which term may be
extended at the will of the Owner, the following described' personal
property, to wit:
"1. No. 234 Krefft stove of 4 brs. S. H. which the Lessee
acknowledges having received in good state and condition, and the
value of which is hereby mutually agreed to be P60, subject to and
under the terms and conditions hereinafter specified.
"2. The Lessee hereby agrees
"(a) To pay to the Owner, at its office above stated, for the use of
the above described property, the sum of P5, upon the signing of this
agreement, and a monthly rental of P4, on or before the 5th day of
each succeeding month, beginning with the month next ensuing the
date thereof.
124

"4. The Owner agrees that at any time before the expiration of the
terms of this lease, the Lessee may purchase the said property by
paying to the owner, in cash, the full value thereof as above fixed,
less all payments theretofore made under this agreement, for the use
of said property." On March 3, 1934, that is, ten months after the
execution of the contract Exhibit A, above-quoted, the same parties
entered into another contract (Exhibit B) of the same tenor, except with
respect to the article and the terms of payment, which are as follows:
"1. No. 400 Piccolo Inst. Water Heater which the Lessee acknowledges
having received in good' state and condition, and the value of which is
hereby mutually agreed to be P95, subject to and under the terms and
conditions hereinafter specified.
"2. The Lessee hereby agrees
"(1) To pay to the Owner, at its office above stated, for the use of the
above described property, the sum of P5 upon the signing of this
agreement, and a monthly rental of P5, on or before the 5th day of each
succeeding month, beginning with the month next ensuing the date
thereof."

In accordance with the terms of both contracts, the said defendant

paid to the plaintiff, when the latter delivered to him the stove, the
sum of P5, and another sum of P5 when the water heater "Piccolo
Inst. Water Heater" was delivered to him, and monthly thereafter,
the total of said payments amounting to P42: P27 by virtue of the
contract Exhibit A and P15 by virtue of the contract Exhibit B, for
which receipts were issued in the following form (Exhibit 1):
"Received from Mr. Alfredo Calupitan................ pesos ....................(? ) as
partial payment on Gas appliance Bill No ............. leaving a balance
thereon of P ...............
"MANILA GAS CORPORATION
......................................................
"Cashier
......................................................
"Collector"

Notwithstanding repeated demands to pay alleged rentals, due and

unpaid for months, or to return the stove and the water heater, the
said defendant paid no heed to said demands and continued to make
use of the said articles for more than five years without
compensation of any kind.
Inasmuch as the said defendant neither paid what he owed to the
plaintiff for the stove and the water heater nor returned them to the
latter, the said plaintiff filed the reamended complaint found in the
bill of exceptions, with the following prayer:
"Wherefore, the plaintiff demands judgment against the defendant for
the delivery to the plaintiff of said stove and Piccolo Water Heater above
described and for the sum of P267 as rentals for the use of the same by the
plaintiff, or for their values in the total sum of P155 in case delivery cannot
be made, and for costs of this suit and for such further and other relief as
this court may deem just and equitable."

Being one of procedure, we shall first consider the question raised

in the fourth assignment of error, wherein it is alleged that the trial
court erred in taking cognizance of the present case and in not.
dismissing the same despite the fact that the amount involved in
each contract is within the exclusive jurisdiction of the municipal
court of Manila.
Upon the said ground the defendant interposed a demurrer which
was overruled by the lower court, this action of the court being the
subject matter of the assignment of error under consideration.
By the filing of the said demurrer the defendant admitted
hypothetically that the contract entered into between him and the
plaintiff is one of lease of personal property; that the kitchen stove
and the water heater belong to the said plaintiff; and that he has
neither paid the stipulated rentals nor returned the said goods.

125

The complaint has to do not only with the collection of rentals, but
also, implicitly, with the rescission of the two contracts of lease of
personal property for non-compliance with the obligation to pay
rentals (art. 1124, Civil Code), and the personal delivery thereof (sec.
262, Act No. 190). With respect to the complaint for the rescission of
the contract of lease of personal property and the personal delivery
thereof, the Court of First Instance of Manila has original exclusive
jurisdiction to take cognizance thereof irrespective of the amount of
the due and unpaid rentals.
The trial court, therefore, had original jurisdiction to take
cognizance of the complaint.
As to the first assignment of error, wherein it is alleged that the
trial court erred in holding that the two contracts Exhibits A and B
are contracts of lease and not of sale of personal property on
installment, we have seen above that in both contracts the
defendant, Alfredo B. Calupitan, paid in advance P5 for the kitchen
stove (Exhibit A) and another P5 for the water heater (Exhibit B),
plus P4 and P5 every month for said stove and water heater,
respectively. The price of the stove is P60 and that of the water
heater, P95, the said defendant being able to purchase said goods at
said prices, respectively, before the expiration of the period of the
alleged lease, deducting in each case the amounts already paid
therefor. The periods of the alleged leases have not been fixed in the
contracts; but considering the prices of the goods and monthly
payments to be made, said periods are the number of months which
would result by dividing P60 by P4, which is the supposed monthly
rental of the stove, and P95 by P5, which is supposed to be the
monthly rental of the water heater, that is, 15 and 18 months,
respectively. In the accounts Exhibits A-1 and B-1 of the said
defendant, which the plaintiff carries, the monthly payments made
by the former to the latter for said goods were made to appear as
paid upon the account of their values and were deducted therefrom,
stating the balances after each monthly payment; and in the receipt
issued to the said defendant on March 8, 1935 (Exhibit 1) there was

noted the payment of "P3 made by him as "partial payment on Gas

Appliance Bill No. 63781 leaving a balance of P33." None of the
advance and monthly payments made by Alfredo B. Calupitan has
been stated as having been made by way of advance payment of
rentals, or of deposit to secure said payment, or of monthly rentals.
The P5 which the plaintiff demanded of the defendant to pay upon
signing the contract Exhibit A could not be by way of advance
payment of rentals, inasmuch as the rental for the use of the stove
was P4. Neither could it be by way of deposit to secure the payment
of rental, as it does not appear that such was the intention of the
parties. Moreover, according to the contracts, in case the defendant
should elect to purchase the goods, the said amount of P5 would be
deducted from the cost of the stove and that of the water heater,
together with the alleged monthly rentals which had been paid for
each of them. The ?4 which the defendant should pay on or before the
5th of each month for the stove and the P5 for the water heater,
while they are said to be for rentals in the respective contracts, are
in reality part payments of the prices of the respective kitchen and
bathroom articles, as shown by the lists of payment Exhibits A-1 and
B-1 and the receipt Exhibit 1 which we have above described.
What has gone before shows that the contracts entered into
between the plaintiff and the defendant with respect to the kitchen
stove and the water heater are those of sale on installment rather
than of lease.
The first assignment of alleged error is, therefore, wellfounded.
Having reached this conclusion, we do not find it necessary to
discuss the remaining assignments of error which have been
impliedly resolved.
For the foregoing considerations, we are of the opinion and so
hold, that when in a so-called contract of lease of personal property it
is stipulated that the alleged lessee shall pay a certain amount upon
signing the contract, and on or before the 5th of every month,
another specific amount, by way of rental, giving the alleged lessee
the right of option to buy the said personal property before the
expiration of the period of lease, which is the period necessary for the
126

payment of the said amount at the rate of so much a month,

deducting the payments made by way of advance and alleged
monthly rentals, and the said alleged lessee makes the advance
payment and other monthly installments, noting in his account and
in the receipts issued to him that said payments are on account of
the price of the personal property allegedly leased, said contract is
one of sale on installment and not of lease.
Wherefore, the appealed decision is reversed and it is held that
the contracts Exhibits A and B, entered into between the plaintiff,
Manila Gas Corporation, and the defendant, Alfredo B. Calupitan,
are those of sale on installment; and the said defendant having failed
to comply with the terms of payment, the plaintiff may elect between
compliance with or rescission of the obligation, with indemnity for
damages and interest in either case, without special pronouncement
as to the costs. So ordered.
Avancea, C.
concur.

J., Imperial, Diaz, Laurel, andConcepcion,

JJ.,

Judgment reversed.
__________

127

No. L-36847. July 20, 1983.

SERAFIN
B.
YNGSON,
plaintiff-appellant, vs. THE
HON.
SECRETARY OF AGRICULTURE and NATURAL RESOURCES,
ANITA V. DE GONZALES and JOSE M. LOPEZ, defendantsappellees.
Public Land Act; Leases; Until public lands are released as alienable or
disposable neither the Bureau of Lands nor the Bureau of Fisheries may
lease or otherwise dispose of said lands.It is elementary in the law
governing the disposition of lands of the public domain that until timber or
forest lands are released as disposable and alienable neither the Bureau of
Lands nor the Bureau of Fisheries has authority to lease, grant, sell, or
otherwise dispose of these lands for homesteads, sales patents, leases for
grazing or other purposes, fishpond leases, and other modes of utilization.
(Mapa v. Insular Government, 10 Phil. 175; Ankron v. Government of the
Philippine Islands, 40 Phil. 10; Vda. de Alfafara v. Mapa, 95 Phil. 125;
Director of Forestry v. Muoz, 23 SCRA 1184).
Same; Same: Fisheries Act; Bureau of Fisheries has no jurisdiction to
dispose of swamplands or mangrove lands while same classified as forest or
timberland.The Bureau of Fisheries has no jurisdiction to administer and
dispose of swamplands or mangrove lands forming part of the public
domain while such lands are still classified as forest land or timberland
and not released for fishery or other purposes.
Same; Same; Same; Applications to lease mangrove or swampland for
fishpond purposes are premature if filed before their release to the Bureau of
Fisheries.All the applications being premature, not one of the applicants
can claim to have a preferential right over another. The priority given in
paragraph d of Section 14 is only for those applications filed so close in
time to the actual opening of the swampland for disposition and utilization,
within a period of one year, as to be given some kind of administrative
preferential treatment. Whether or not the administrative agencies could
validly issue such an administrative order is not challenged in this case.
The validity of paragraph d is not in issue because petitioner-appellant
Yngson is clearly not covered by the provision. His application was filed

almost two years before the release of the area for fishpond purposes. The
private respondents, who filed their applications within the one-year
period, do not object to sharing the area with the petitioner-appellant, in
spite of the fact that the latter has apparently the least right to the
fishpond leases. As a matter of fact, the respondent Secretarys order states
that all three applications must be considered as having been filed at the
same time on the day the area was released to the Bureau of Fisheries and
to share the lease of the 66 hectares among the three of them equally. The
private respondents accept this order. They pray that the decision of the
lower court be affirmed in toto.
Same; Same; Same; Statutes;Administrative Law; Interpretation of
Executive Branch that rejected premature applications for fishpond leases
shall be considered filed at the same time when public land is released for
fishpond purposes entitled to controlling weight.The Office of the
President holds the view that the only purpose of the provision in question
is to redeem a rejected premature application and to consider it filed as of
the date the area was released and not to grant a premature application a
better right over another of the same category. We find such an
interpretation as an exercise of sound discretion which should not be
disturbed. In the case of Salaria v. Buenviaje (81 SCRA 722) we reiterated
the rule that the construction of the officer charged with implementing and
enforcing the provision of a statute should be given controlling weight.
Similarly, in Pastor v. Echavez (79 SCRA 220) we held that in the absence
of a clear showing of abuse, the discretion of the appropriate department
head must be respected. The records show that the above rulings should
also apply to the present case.
Same; Contempt; Petitioner failed to show that entry by respondents on
lands in question disturbed the proper administration of justice.The
petitioner has failed to show that the acts committed by the respondents
were a direct disturbance in the proper administration of justice and
processes of the law which constitutes contempt of court. If there were any
violations of petitioners rights, he should resort to PACLAP which issued
the resolution between him and respondents or file, as he alleged he did, a
criminal complaint or other action before the courts. The motion also raises

128

factual considerations including boundaries and geographical locations

more proper for a trial court.
Same; Same; Same.The petitioner has failed to show a contempt of
court which we can take cognizance of and punish. If any of his property or
other rights over his one-thirds share of the disputed property are violated,
he can pursue the correct action before the proper lower court.

APPEAL from the decision of the Court of First Instance of Negros

Occidental.
The facts are stated in the opinion of the Court.
GUTIERREZ, JR., J.:
This is an appeal from the decision of the Court of First Instance
of Negros Occidental which upheld the orders of the Secretary of
Agriculture and Natural Resources and the Office of the President
regarding the disposition of swamplands for conversion into
fishponds. Originally taken to the Court of Appeals, the case was
elevated to this Court on a finding that only a pure question of law
was involved in the appeal.
There is no dispute over the facts. The Court of Appeals adopted
the statement of facts in the Solicitor-Generals brief. We do the
same:
The subject matter of the case at bar are the same mangrove swamps
with an area of about 66 hectares, more or less, situated in sitio Urbaso,
barrio Mabini, municipality of Escalante, province of the Negros
Occidental. In view of the potentialities and possibilities of said area for
fishpond purposes, several persons filed their-applications with the Bureau
of Fisheries, to utilize the same for said purposes. The first applicant was
Teofila Longno de Ligasan who filed her application on January 14, 1946,
followed by Custodio Doromal who filed his on October 28, 1947. Both
applications were rejected, however, because said area were then still

considered as communal forest and therefore not yet available for fishpond
purposes.
On March 19, 1952, petitioner-appellant Serafin B. Yngson filed a
similar application for fishpond permit with the Bureau of Fisheries
followed by those of the respondents-appellees, Anita de Gonzales and Jose
M. Lopez, who filed their respective applications with the same bureau on
March 19 and April 24, 1958. When the applications were filed by the
aforesaid parties in the instant case, said area was not yet available for
fishpond purposes and the same was only released for said purpose on
January 14, 1954. The conflicting claims of the aforesaid parties were
brought to the attention of the Director of the Bureau of Fisheries who
issued an order on April 10, 1954 awarding the whole area in favor of the
petitioner-appellant and rejecting the claims of the respondents-appellees
(pp. 1-3, Rec. on Appeal). Appellants Anita V. de Gonzales and Jose M.
Lopez appealed the order of the Director of Fisheries to the Department of
Agriculture and Natural Resources where their-appeals were docketed as
D.A.N.R. Cases Nos. 901 and 901-A (p. 3, Rec. on Appeal).
In an order dated April 5, 1955, the Honorable Secretary of the
Department of Agriculture and Natural Resources set aside the order of the
Director of the Bureau of Fisheries and caused the division of the area in
question into three portions giving each party an area of one-third (1/3) of
the whole area covered by their respective applications (pp. 4-5, Rec. on
Appeal). Appellant filed a petition for review dated July 6, 1955 from the
aforesaid order of the Department of Agriculture and Natural Resources
but the same was dismissed by the Office of the President of the
Philippines on December 20, 1955 (pp. 5-8, Rec. on Appeal). A motion for
reconsideration filed by the appellant on February 15, 1956 was likewise
denied on August 3, 1956. A second and third motion for reconsiderations
filed by the appellant was also denied on August 5, 1958 and October 26,
1960, respectively (p. 18, Rec. on Appeal).

Not satisfied with one-third of the 66 hectares, Mr. Yngson filed a

petition for certiorari with the Court of First Instance against the
Executive Secretary, Office of the President, the Secretary of
129

Agriculture and Natural Resources, Anita V. Gonzales, and Jose M.

Lopez.
The petitioner-appellant asked that the orders of the public
respondents be declared null and void and that the order of the
Director of Fisheries awarding the entire area to him be reinstated.
The Court of First Instance of Negros Occidental dismissed the
petition on the ground that plaintiff had not established such
capricious and whimsical exercise of judgment on the part of the
Department of Agriculture and Natural Resources and the Office of
the President of the Philippines as to constitute grave abuse of
discretion justifying review by the courts in a special civil action.
The plaintiff-appellant made the following assignments of errors:

DIVISION OF THE AREA INVOLVED IN THESE APPLICATIONS INTO

THREE EQUAL PARTS AWARDING ONE-THIRD SHARE EACH TO
THESE APPLICANTS.

SEC. 14. Priority Right of Application.In determining the priority of

application or right to a permit or lease the following rules shall be
observed:
(a) When two or more applications are filed for the same area, which is
unoccupied and unimproved, the first applicant shall have the right of
preference thereto.
xxx
xxx
xxx
(d) A holder of fishpond application which has been rejected or
cancelled by the Director of Fisheries by reason of the fact that the area
covered thereby has been certified by the Director of Forestry as not
available for fishpond purposes, SHALL NOT LOSE his right as a PRIOR
APPLICANT therefore, if LATER ON, the area applied for is certified by
the Director of Forestry as available for fishpond purposes, provided that
not more than one (1) year has expired since the rejection or cancellation of
his application, in which case, his fishpond application which was rejected
or cancelled before, shall be reinstated and given due course, and all other
fishpond applications filed for the same area shall be rejected.

THE LOWER COURT ERRED IN HOLDING THAT THE PLAINTIFF

HAS NOT ESTABLISHED SUCH CAPRICIOUS AND WHIMSICAL
EXERCISE OF JUDGMENT ON THE PART OF THE DEFENDANTSAPPELLEES DEPARTMENT OF AGRICULTURE AND NATURAL
RESOURCES AND THE OFFICE OF THE PRESIDENT OF THE
PHILIPPINES AS TO CONSTITUTE GRAVE ABUSE OF DISCRETION,
JUSTIFYING REVIEW THEREOF IN A SPECIAL CIVIL ACTION BY
THE COURT.
II
THE LOWER COURT ERRED IN SUSTAINING THE RULE OF THE
DEFENDANTS-APPELLEES ADMINISTRATIVE OFFICES IN EFFECT
ITSELF HOLDING THAT THE PRIORITY RULE ESTABLISHED IN
PARAGRAPHS (a) AND (d), SECTION 14, FISHERY ADMINISTRATIVE
ORDER NO. 14 IS NOT APPLICABLE TO FISHPOND APPLICATIONS
FILED PRIOR TO THE CERTIFICATION OF THE BUREAU OF
FORESTRY THAT THE AREA APPLIED FOR IS AVAILABLE FOR
FISHPOND PURPOSES; IN TREATING THE APPLICATIONS OF THE
APPELLANT AND THAT OF THE APPELLEES LOPEZ AND
GONZALES ON EQUAL FOOTING ONLY AND IN ORDERING THE

III
THE LOWER COURT ERRED IN DISMISSING THE COMPLAINT.

Did the administrative agencies having jurisdiction over leases of

public lands for development into fishponds gravely abuse their
discretion in interpreting and applying their own rules? This is the
only issue in this case.
The pertinent provisions of Fisheries Administrative Order No. 14
read:

The five applicants for the 66 hectares of swampland filed their

applications on the following dates:
1. Teofila L. de LigasanJanuary 14, 1946
2. Custodio DoromalOctober 28, 1947
130

3. Serafin B. YngsonMarch 19, 1952

4. Anita V. GonzalesMarch 19, 1953
5. Jose M. LopezApril 24, 1953

The mangrove swampland was released and made available for

fishpond purposes only on January 14, 1954. It is clear, therefore,
that all five applications were filed prematurely. There was no land
available for lease permits and conversion into fishponds at the time
all five applicants filed their applications.
After the area was opened for development, the Director of
Fisheries inexplicably gave due course to Yngzons application and
rejected those of Anita V. Gonzales and Jose M. Lopez. The reason
given was Yngzons priority of application.
We see no error in the decision of the lower court. The
administrative authorities committed no grave abuse of discretion.
It is elementary in the law governing the disposition of lands of
the public domain that until timber or forest lands are released as
disposable and alienable neither the Bureau of Lands nor the Bureau
of Fisheries has authority to lease, grant, sell, or otherwise dispose of
these lands for homesteads, sales patents, leases for grazing or other
purposes, fishpond leases, and other modes of utilization. (Mapa v.
Insular Government, 10 Phil. 175; Ankron v. Government of the
Philippine Islands,40 Phil. 10; Vda. de Alfafara v. Mapa, 95 Phil.
125; Director of Forestry v. Muoz,23 SCRA 1184).
The Bureau of Fisheries has no jurisdiction to administer and
dispose of swamplands or mangrove lands forming part of the public
domain while such lands are still classified as forest land or
timberland and not released for fishery or other purposes.

All the applications being premature, not one of the applicants

can claim to have a preferential right over another. The priority
given in paragraph d of Section 14 is only for those applications
filed so close in time to the actual opening of the swampland for
disposition and utilization, within a period of one year, as to be given
some kind of administrative preferential treatment. Whether or not
the administrative agencies could validly issue such an
administrative order is not challenged in this case. The validity of
paragraph d is not in issue because petitioner-appellant Yngson is
clearly not covered by the provision. His application was filed almost
two years before the release of the area for fishpond purposes. The
private respondents, who filed their applications within the one-year
period, do not object to sharing the area with the petitionerappellant, in spite of the fact that the latter has apparently the least
right to the fishpond leases. As a matter of fact, the respondent
Secretarys order states that all three applications must be
considered as having been filed at the same time on the day the area
was released to the Bureau of Fisheries and to share the lease of the
66 hectares among the three of them equally. The private
respondents accept this order. They pray that the decision of the
lower court be affirmed in toto.
The Office of the President holds the view that the only purpose of
the provision in question is to redeem a rejected premature
application and to consider it filed as of the date the area was
released and not to grant a premature application a better right over
another of the same category. We find such an interpretation as an
exercise of sound discretion which should not be disturbed. In the
case ofSalaria v. Buenviaje (81 SCRA 722) we reiterated the rule
that the construction of the officer charged with implementing and
enforcing the provision of a statute should be given controlling
weight. Similarly, in Pastor v. Echavez (79 SCRA 220) we held that
in the absence of a clear showing of abuse, the discretion of the
appropriate department head must be respected. The records show
that the above rulings should also apply to the present case.
131

During the pendency of this petition, petitioner Yngson filed a

motion to have Patricio Bayoborda, Rene Amamio, and nine other
respondents, declared in contempt of court. Petitioner charged that
Bayoborda and Amamio entered the property in controversy and
without petitioners consent, laid stakes on the ground alleging that
the same were boundaries of the areas they were claiming; that the
other respondents likewise entered the property on different dates
and destroyed petitioners hut and the uppermost part of his
fishpond and started to build houses and to occupy the same. In their
comment, the respondents in the contempt motion denied petitioners
charges. Bayoborda and Amamio stated that they were bona-fide
applicants for fishpond purposes of areas outside the 22 hectares
alloted for the petitioner and that they were authorized to place
placards in the areas they applied for. As evidence the respondents
attached a copy of the resolution of the Presidential Action
Committee on Land Problems (PACLAP) showing that their
applications have been duly received and acknowledged by the latter
and in compliance with government regulations, they placed markers
and signs in their respective boundaries. The resolution likewise
stated that these markers and signs were subsequently destroyed
and later on Mr. Yngson started development by building dikes in
the area applied for, which he has no authority to do so due to the
present conflict. The resolution further prohibited Yngson from
constructing any improvements in any area outside his 22 hectares
and also prohibited Bayoborda and Amamio from entering and
making constructions in the applied for areas pending the issuance
of their permits.
The petitioner has failed to show that the acts committed by the
respondents were a direct disturbance in the proper administration
of justice and processes of the law which constitutes contempt of
court. If there were any violations of petitioners rights, he should
resort to PACLAP which issued the resolution between him and
respondents or file, as he alleged he did, a criminal complaint or

other action before the courts. The motion also raises factual
considerations including boundaries and geographical locations more
proper for a trial court.
We have held that contempt of court presupposes contumacious
and arrogant defiance of the court. (De Midgely v. Ferandos, 64
SCRA 23; Matutina v. Judge Buslon, 109 Phil. 140, 142)
The petitioner has failed to show a contempt of court which we
can take cognizance of and punish. If any of his property or other
rights over his one-thirds share of the disputed property are
violated, he can pursue the correct action before the proper lower
court.
WHEREFORE, the judgment appealed from is hereby
AFFIRMED. The motion for contempt is also DENIED for lack of
merit. Costs against petitioner-appellant.
SO ORDERED.
Teehankee (Chairman), Plana,Escolin and Relova,
JJ., concur.
Melencio-Herrera and Vasquez, JJ., on leave.
Judgment affirmed. Motion for contempt dented.
Notes.A Spanish document entitled Estadistica is not
considered a title. (Mun. of Santiago, Isabela vs. Court of
Appeals, 120 SCRA 734.)
The Court takes judicial notice of the fact that in all fishpond
permits issued by the Bureau of Fisheries there is the condition that
such permit does not authorize the permittee to interfere with any
prior claim by settlement or occupancy within the areas granted to
him until the consent of the occupant or settler is first had and
obtained or until such claim shall have been legally extinguished.
(Republic vs. De los Angeles, 44 SCRA 255.)
132

Existence of impediment in the grant of a fishpond permit must

be reckoned at the time of the grant thereof, not at the time the
application was filed. (Neravs. Titong, Jr., 56 SCRA 40.)
Disposals made by the Director of Lands within a public forest
does not make the grantee the owner of the lands and the title or
patent issued by the Director of Lands who has no authority to issue
is void. (Republic vs. Court of Appeals, 99 SCRA 42.)
A mere license submitted by the Director of Forestry to the
Secretary of Agriculture and Natural Resources does not authorize
one to cut forest products. (Director of Forestry vs. Benedicto, 104
SCRA 305.)

133

No. L-17846.April 29, 1963.

EDUARDA DUELLOME, petitioner-appellant, vs. BONIFACIO
GOTICO, BERNARDINA GOTICO, ET AL., respondentsappellees.
Lessor and lessee; Lease of building includes lease of lot.The lease of
a building naturally includes the lease of the lot, and the rentals of the
building include those of the lot. (See City of Manila v. Chan Kian, L-l0276,
July 24, 1957; The Philippine Consolidated Freight Lines, Inc. v. Emiliano
Ajon, et al., L-10206-08, April 16, 1958.)
Same; Right of sublessees subordinate to that of sublessor.In view of
the provisions of Article 1652 of the Civil Code, the sublessee can invoke no
right superior to that of his sublessor, and the moment the latter is duly
ousted from the premises, the former has no leg to stand on, the sublessees
right being, if any, to demand reparation for damages from his sublessor,
should the latter be at fault (Sipin, et al. v. Court of First Instance of
Manila, et al, 74 Phil 649.)

APPEAL by certiorari from a decision and resolution of the Court of

Appeals.
The facts are stated in the opinion of the Court.
Ambrosio Padilla Law Offices for petitioner-appellant.
Serafin P. Ramento for respondents-appellees.
REGALA, J.:
Appeal by certiorari from the decision of the Court of Appeals
promulgated on August 27, 1960 and from the resolution of the same
court dated December 5, 1960 denying petitioner-appellants motion
for reconsideration of the said decision.
In November 1945, herein petitioner, Eduarda Duellome, entered
into a lease contract with one Sixto Coronel. Under the said
agreement, the petitioner agreed to lease a portion of her land
situated in Tacloban City to Sixto Coronel at a rental of P10.00 per
month and whereon the latter was to construct a residential house of

mixed materials. Soon thereafter, the house was constructed with

the express written consent of the petitioner.
In 1949, the respondents-appellees, spouses Bernardina Gotico
and Bonifacio Gotico, daughter and son-in-law respectively, of Sixto
Coronel, went to live in the house above mentioned. About a year
later, in 1950, Sixto Coronel and his wife Engracia Coronel
transferred residence to Ormoc City leaving to their daughter and
son-in-law, the appellees herein, sole occupancy of the house.
For the purpose, respondents-appellees agreed to pay a monthly
rental of P20.00. The understanding between them and their parents
was than half of the amount of P10.00 would be remitted to the
petitioner herein as rental for the lot and balance of P10.00 to the
Coronels. This was an arrangement faithfully observed until
September 1955.
Around October 1955, however, Engracia Coronel advised the
Goticos of her husbands illness. At the same time, she requested the
respondents-appellees to remit to her the entire P20.00 monthly
rental as she was then pressed for medical funds. Promptly
thereafter, respondent spouses informed the petitioner herein of the
request and thereupon discounted the land rentals to the petitioner.
When therefore, despite repeated demands the respondent
spouses failed to pay the land rentals from October 1955 to
September 1956, petitioner-appellant addressed a letter to the
Superintendent of Public Schools, since the spouses Gotico were both
public school teachers, and complained that Bonifacio Gotico was
renting one of my lands in Tacloban and for almost a year now did
not pay the rent. The same communication requested the
Superintendent to intervene towards making the respondents herein
pay the accrued rentals, as soon as possible.
Taking action with dispatch, the Superintendent endorsed the
letter-complaint to Bonifacio Gotico, referring the latter to the
provisions of Section 619 of the Service Manual regarding immediate
settlement of just debts. In reply to the endorsement, however,
Bonifacio Gotico denied that he was renting any of her lands. He
asserted that it is the house where we are residing now that we are
134

renting and the said house belongs to another persons to whom we

are paying promptly the monthly rental.
Informed of the above reply, the petitioner-appellant filed on
December 5, 1956 a complaint with the Municipal Court of Tacloban
against the spouses Goticos, herein appellees. The complaint alleged
that the herein defendants, herein respondents, have leased a
portion of petitioners land and have failed to pay the rentals for the
months therein specified. It prayed to evict the defendants from the
land leased, to pay the costs and attorneys fees.
On learning of the ejectment suit, Engracia Coronel sold the house
immediately and paid the rentals due. As a result, the Municipal
Court, on January 12, 1957, dismissed the complaint in an order
worded thus:
In the complaint the plaintiff is claiming P160.00 but after computing
instead of said amount the defendants are only indebted to the plaintiff in
the amount of P150.00 which was already paid on January 8, 1957 and on
this ground the settlement was made.
WHEREFORE, this case is hereby dismissed without special
pronouncement of costs.

On January 5, 1957, respondents-appellees filed an action for

damages against the herein petitioner in the Court of First Instance
of Leyte. They charged that the suit in the Municipal Court was filed
with the malignant purpose of besmirching the good reputation of
plaintiffs; that as a result, they had suffered a total of P66,000.00 in
actual, moral and exemplary damages, lawyers fees and costs.
In answer to the complaint, herein petitioner alleged that
plaintiffs (respondents-appellees) thru one Sixto Coronel, who is
father-in-law and father of plaintiffs respectively, made arrangement
with defendant for the rental of defendants land where plaintiffs
constructed a house. She specifically denied that malice prompted
her to write the letter to the Superintendent of Public Schools and in
filing the complaint for ejectment with the Municipal Court. Aside
from praying for the dismissal of the case, therein defendant

(petitioner herein) likewise asked by way of counterclaim P65,000.00

as moral damages, P5,000.00 as attorneys fees and costs.
On the foregoing considerations, the Court of First Instance
decided against the defendant therein, herein petitioner, ordering
him to pay respondents-appellees P2,000.00 as actual and moral
damages, P200.00 for costs P300.00 for lawyers fees.
Dissatisfied with the aforesaid decision, herein petitioner elevated
the same to the respondent Court of Appeals contending that the
trial court erred in condemning her to pay actual and moral
damages, attorneys fees and costs. On August 27, 1960, however, the
above named respondent court promulgated its own decision, the
dispositive portion of which recited:
WHEREFORE, modified in the sense that appellees are entitled only to
moral damages in the amount of P200.00 and attorneys fees in the sum of
P300.00 the appealed decision is affirmed in other respects, with costs
against appellant.
IT IS SO ORDERED.

And so this appeal by certiorari.

Herein petitioner has assigned four errors to the decision of the
Court of Appeals of August 27, 1960. Briefly stated, they were:
First: The Court of Appeals erred in holding that under the facts of the
case, respondents-appellees were leasing the house alone and not the land
on which it was built as well.
Second: The Court of Appeals erred in declaring wrongful the acts of the
herein petitioner-appellant in seeking to collect directly from the
respondents-appellees the rentals due her which respondents parents
failed to pay; in writing the letter-complaint to the Superintendent of
Public Schools; and, in filing the complaint for ejectment in the Municipal
Court of Tacloban.
Third: The Court of Appeals erred in ruling that the letter-complaint to
the Superintendent of Public Schools was not privileged communication.
Fourth: The Court of Appeals erred in awarding moral damages and
attorneys fees to the respondents-appellees.
135

In other words, the question of law addressed to this Court by this

appeal is whether the lease of a building necessarily includes the
lease of the lot on which it is built.
The Court of Appeals answered the above query in the negative
and declared that it was maliciously false of the herein petitioner to
have written to the Superintendent of Public Schools that appellee
Bonifacio Gotico was renting one of my lands. According to the
same appellate tribunal, the truth was Bonifacio Gotico was renting
merely the house which was constructed on the land of the petitioner
and that this fact known to her.
We cannot accept the conclusion of the respondent court. It is
opposed to the doctrine consistently adopted by this Court that the
lease of a building would naturally include the lease of the lot and
that the rentals of the building include the rentals of the lot.
However, if the City of Manila is to receive the rentals of the building
from September 9, 1954 when the edifice should have been delivered to it,
then the City from that date would no longer have any right to the monthly
rental on the lot, because thelease of the building would naturally
includethe lease of the lot. The City could not validly claim the lawful
possession of the lot and the building and receive the rents therefor since
September 9, 1954, and at the same time ask the defendant to continue
paying the rental on the lot after said date. Consequently, the obligation of
the defendant under the appealed decision to pay rental on the lot at the
rate of P300.00 a month from January, 1953, should be up to September 8,
1954. (Emphasis supplied. City of Manila v. Chan Kian, G.R. No. L-10276,
July 24, 1957)
The real issue, therefore, boils down to who, as between appellant and
appellees, has the superior right to possess the premises in question and
may, therefore, exclude the other from its possession. In resolving this
question, it is important to bear in mind that appellees occupy not only the
land in question but also the building thereon. It should be noted, too, that
appellees, both in their answers and in the stipulation of facts of the
parties, admitted that they are in occupation of the building in question
merely as sublessees of Zacarias de Guzman, who was in turn appellants

lessee. As possessors of the building and the land on which it stands based
on a right derived from a mere sublessor, appellees can invoke no right of
possession superior to that of their sublessor, (Sipin v. Court, 74 Phil. 649;
Madrigal v. Ang Sam To, 46 O.G. 2173), who in turn derives his right to
possession from his lessor, appellant herein. As mere sublessees of
appellants lessee, therefore, appellees can have no right to the premises
better than the original lessee, herein appellant. (Italics ours. The
Philippine Consolidated Freight Lines, Inc. v. Emiliano Ajon, et al., G.R.
Nos. L-10206-08, April 16, 1958)
The view taken by appellees is untenable for several reasons. In the
first place, appellees are, as already stated, occupying not only the land of
the government, but the building of appellant as well. If appellees are in
possession of the land, it is only because appellants building stands
thereon. Their possession of the land is therefore, dependent on and cannot
be dissociated from their possession of the building x x x. (Emphasis
supplied. The Phil. Consolidated Freight Lines, Inc. v. Emiliano Ajon, et
al., supra.)

Furthermore, under our Civil Code, the occupancy, of a building

or house not only suggests but implies the tenancy or possession in
fact of the land on which they are constructed. This is not a new
pronouncement. An extensive elaboration of this rule was discussed
by this Court in the case of Baquiran, et al. v. Baquiran, et. al., 53
O.G. p. 1130, the relevant portion of which said:
Appellants house falls within the scope of the term useful expenses.
Since he built it in good faith, he has the right of retention pending
reimbursement. This right extends to the land itself, because the right to
retain the improvements while the indemnity is not paid implies the
tenancy or possession in fact of the land on which they are built. It was so
held by this Court in the case of Tufexis, et al. v. Chunaco, 36 O. G. No.
114, p. 2454, wherein the following comment of Q. Mucius Scaevola is cited:
Article 361 of the Code offers us also another case of the right of
retention. It does not expressly appear in the statute books, but the basis of
its application is deduced in an irrefutable way. The article referred to
grants the owner of the land on which building, sowing, or planting has
136

been done in good faith the right to appropriate as his own the thing so
built, sown, or planted, upon paying the indemnity provided for in Articles
453 and 454. The builder, the planter, and the sower have the natural
possession of the land on which they built,planted, or sowed, because had
they lacked this tenancy or possession in fact, the building, planting, or
sowing would not have been possible x x x
The right of a builder in good faith to retain both the improvements
and the land on which they have been made until the necessary and useful
expenses have been paid has been recognized by the Supreme Court in
other cases (Martines v. Baganus, 28 Phil. 550; De Guzman v. De la
Fuente, 55 Phil. 501).
Viewed in the light of the rules expressed in the above cited cases of
Chian Kian and Baquiran, the Court of Appeals should have found the
herein appellees-lessees of the house, and for all legal purposes, of the lot
on which it was built as well. The occupancy and tenancy of the first cannot
be dissociated from the second. Consequently, We cannot hold the herein
appellant to have made it false, much less a malicious declaration when
she wrote that Bonifacio Gotico was renting one of my lands in Tacloban
and for almost a year now did not pay the rent.

With the foregoing findings, the second, third and fourth

assignments of errors must necessarily be sustained. They pertain to
the conclusions arrived at by the Court of Appeals which were
premised on the fact of falsehood of appellants declaration in the
letter-complaint to the Superintendent of Public Schools. Inasmuch
as We have already demonstrated the fallacy of the premise, it
follows that the various conclusions drawn therefrom are themselves
fallacious.
There is one aspect of the second assignment of error, however,
which We believe merits further explanation. It was charged that the
Court of Appeals erred in declaring wrongful the acts of the herein
petitioner-appellant in seeking to collect directly from the
respondents-appellees the rentals due her which respondents
parents failed to pay. We believe this contention well and perfectly
taken.
Article 1652 of the Civil Code provides:

ART. 1652. The sublessee is subsidiarily liable to the lessor for any
rent due from the lessee. However, the sublessee shall not be responsible
beyond the amount of rent due from him in accordance with the terms of
the sublease, at the time of the extra-judicial demand by the lessor.
Payments of rent in advance by the sublessee shall be deemed not to
have been made, so far as the lessors claim is concerned, unless said
payments were effected in virtue of the custom of the place.

In the case of Sipin, et al. vs. Court of First Instance of Manila, et

al., 74 Phil. 649, We have explained that by virtue of the above
provision, he subleasee, therefore, cast invoke no right superior to
that of his sublessor and the moment the latter is duly ousted from
the premises the former has no leg to stand on. The sublessees right
if any, is to demand reparation for damages from his sublessor,
should the latter be at fault. And, in another case. We interpreted
the same article to mean that he sublessees can only assert such
right of possession as could have been granted them by their
sublessors, their right of possession depending entirely upon that of
the latter. (Madrigal v. Ang Sam To, et al., 46 O.G. 2173)
Based on the above jurisprudence, the ultimate effect of the
respondent Courts ruling that the herein petitioner should not have
sought to collect directly from the herein appellees would be to confer
upon them rights superior to that of their sublessor. Clearly, the
sublessor in this instance, the spouses Coronel, had no right to resist
or complaint against any direct action for the collection of the unpaid
rentals which the herein petitioner might have pursued against
them. It cannot be denied that they were delinquent in their
payment of the same. When, therefore, the herein petitioner directed
that action not against the spouses Coronel because they were
unavailable, but against the herein appellees who were then the sole
occupants of the house; the appellees had no legal justification to
resent petitioners conduct. Otherwise, they have been invested with
rights superior to that of their sublessor.
As already intimated, we cannot agree with the Court of Appeals
in its conclusions regarding the malice of the petitioner in causing
137

the letter-complaint to be written, the non-privileged nature of the

same, the award of moral and actual damages and finally, the award
of attorneys fees to the respondents appellees. They all resulted from
the untenable premise that the narration contained in the letter was
false and that the petitioner has no right to address the same to the
proper authorities.
IN VIEW OF THE FOREGOING, the decision appealed from is
reversed and set aside and a new one is hereby entered dismissing
respondents-appellees complaint. Costs against appellees.
Bengzon, C.J., Padilla, Bautista Angelo and Labrador, JJ.,
concur.
Concepcion, Barrera, Paredes, Dizonand Makalintal, JJ., concur
in the result.
Reyes, J.B.L., J., concurs on the ground that a sublessee is liable
to the lessor upon default of the lessee sublessor.
Decision reversed and set side.
Note.Where the lessee of a property has transferred, for a
valuable consideration, his lease to another, with all his rights and
obligations as such lessee, the transferee becomes the lessee of the
property by assignment, and is entitled to all the rights of a lessee,
and said rights are enforceable only against the owner of the
property leased, and not against the assignor of the lease (Sy Juco v.
Montemayor, 52 Phil. 73).
_______________

138

G.R. No. 118248. April 5, 2000.

DKC HOLDINGS CORPORATION, petitioner, vs. COURT OF

APPEALS, VICTOR U. BARTOLOME and REGISTER OF DEEDS
FOR METRO MANILA, DISTRICT III, respondents.
Succession; Contracts; The general rule, therefore, is that heirs are
bound by contracts entered into by their predeccesors-in-interest except when
the rights and obligations arising therefrom are not transmissible by (1)
their nature, (2) stipulation or (3) provision of law.The general rule,
therefore, is that heirs are bound by contracts entered into by their
predecessors-in-interest except when the rights and obligations arising
therefrom are not transmissible by (1) their nature, (2) stipulation or (3)
provision of law. In the case at bar, there is neither contractual stipulation
nor legal provision making the rights and obligations under the contract
intransmissible. More importantly, the nature of the rights and obligations
therein are, by their nature, transmissible.
Same; Same; Intransmissible
Rights;Nature.The
nature
of
intransmissible rights as explained by Arturo Tolentino, an eminent
civilist, is as follows: Among contracts which are intransmissible are those
which are purely personal, either by provision of law, such as in cases of
partnerships and agency, or by the very nature of the obligations arising
therefrom, such as those requiring special personal qualifications of the
obligor. It may also be stated that contracts for the payment of money debts
are not transmitted to the heirs of a party, but constitute a charge against
his estate. Thus, where the client in a contract for professional services of a
lawyer died, leaving minor heirs, and the lawyer, instead of presenting his
claim for professional services under the contract to the probate court,
substituted the minors as parties for his client, it was held that the
contract could not be enforced against the minors; the lawyer was limited
to a recovery on the basis of quantum meruit.In American jurisprudence,
(W)here acts stipulated in a contract require the exercise of special
knowledge, genius, skill, taste, ability, experience, judgment, discretion,
integrity, or other personal qualification of one or both parties, the

agreement is of a personal nature, and terminates on the death of the party

who is required to render such service.
Same; Same; There is privity of interest between an heir and his
deceased predecessorhe only succeeds to what rights his predecessor had
and what is valid and binding against the latter is also valid and binding
as against the former.It is futile for Victor to insist that he is not a party
to the contract because of the clear provision of Article 1311 of the Civil
Code. Indeed, being an heir of Encarnacion, there is privity of interest
between him and his deceased mother. He only succeeds to what rights his
mother had and what is valid and binding against her is also valid and
binding as against him.
Same; Same; Lease; The death of a party does not excuse
nonperformance of a contract which involves a property right, and the rights
and obligations thereunder pass to the personal representatives of the
deceased.In the case at bar, the subject matter of the contract is likewise
a lease, which is a property right. The death of a party does not excuse
nonperformance of a contract which involves a property right, and the
rights and obligations thereunder pass to the personal representatives of
the deceased. Similarly, nonperformance is not excused by the death of the
party when the other party has a property interest in the subject matter of
the contract.

PETITION for review on certiorari of a decision of the Court of

Appeals.
The facts are stated in the opinion of the Court.
De Borja, Medialdea, Bello,Guevarra, Serapio & Gerodias for
petitioner.
Jesus E. Mendoza and Oscar T. Mercado for private
respondent.
YNARES-SANTIAGO, J.:
This is a petition for review on certiorari seeking the reversal of
the December 5, 1994 Decision of the Court of Appeals inCA-G.R. CV
No. 40849 entitled DKC Holdings Corporation vs. Victor U.
139

Bartolome, et al., affirming in toto the January 4, 1993 Decision of

the Regional Trial Court of Valenzuela, Branch 172, which
dismissed Civil Case No. 3337-V-90 and ordered petitioner to pay
P30,000.00 as attorneys fees.
The subject of the controversy is a 14,021 square meter parcel of
land located in Malinta, Valenzuela, Metro Manila which was
originally owned by private respondent Victor U. Bartolomes
deceased mother, Encarnacion Bartolome, under Transfer Certificate
of Title No. B-37615 of the Register of Deeds of Metro Manila,
District III. This lot was in front of one of the textile plants of
petitioner and, as such, was seen by the latter as a potential
warehouse site.
On March 16, 1988, petitioner entered into a Contract of Lease
with Option to Buy with Encarnacion Bartolome, whereby petitioner
was given the option to lease or lease with purchase the subject land,
which option must be exercised within a period of two years counted
from the signing of the Contract. In turn, petitioner undertook to pay
P3,000.00 a month as consideration for the reservation of its option.
Within the two-year period, petitioner shall serve formal written
notice upon the lessor Encarnacion Bartolome of its desire to exercise
its option. The contract also provided that in case petitioner chose to
lease the property, it may take actual possession of the premises. In
such an event, the lease shall be for a period of six years, renewable
for another six years, and the monthly rental fee shall be P15,000.00
for the first six years and P18,000.00 for the next six years, in case of
renewal.
Petitioner regularly paid the monthly P3,000.00 provided for by
the Contract to Encarnacion until her death in January 1990.
Thereafter, petitioner coursed its payment to private respondent
Victor Bartolome, being the sole heir of Encarnacion. Victor,
however, refused to accept these payments.
Meanwhile, on January 10, 1990, Victor executed an Affidavit of
Self-Adjudication over all the properties of Encarnacion, including
the subject lot. Accordingly, respondent Register of Deeds cancelled
1

Transfer Certificate of Title No. B-37615 and issued Transfer

Certificate of Title No. V-14249 in the name of Victor Bartolome.
On March 14, 1990, petitioner served upon Victor, via registered
mail, notice that it was exercising its option to lease the property,
tendering the amount of P15,000.00 as rent for the month of March.
Again, Victor refused to accept the tendered rental fee and to
surrender possession of the property to petitioner.
Petitioner thus opened Savings Account No. 1-04-02558-I-1 with
the China Banking Corporation, Cubao Branch, in the name of
Victor Bartolome and deposited therein the P15,000.00 rental fee for
March as well as P6,000.00 reservation fees for the months of
February and March.
Petitioner also tried to register and annotate the Contract on the
title of Victor to the property. Although respondent Register of Deeds
accepted the required fees, he nevertheless refused to register or
annotate the same or even enter it in the day book or primary
register.
Thus, on April 23, 1990, petitioner filed a complaint for specific
performance and damages against Victor and the Register of
Deeds, docketed as Civil Case No. 3337-V-90 which was raffled off to
Branch 171 of the Regional Trial Court of Valenzuela. Petitioner
prayed for the surrender and delivery of possession of the subject
land in accordance with the Contract terms; the surrender of title for
registration and annotation thereon of the Contract; and the
payment of P500,000.00 as actual damages, P500,000.00 as moral
damages, P500,000.00 as exemplary damages and P300,000.00 as
attorneys fees.
Meanwhile, on May 8, 1990, a Motion for Intervention with
Motion to Dismiss was filed by one Andres Lanozo, who claimed that
he was and has been a tenant-tiller of the subject property, which
was agricultural riceland, for forty-five years. He questioned the
jurisdiction of the lower court over the property and invoked the
Comprehensive Agrarian Reform Law to protect his rights that
would be affected by the dispute between the original parties to the
case.
3

140

On May 18, 1990, the lower court issued an Order referring the
case to the Department of Agrarian Reform for preliminary
determination and certification as to whether it was proper for trial
by said court.
On July 4, 1990, the lower court issued another Order referring
the case to Branch 172 of the RTC of Valenzuela which was
designated to hear cases involving agrarian land, after the
Department of Agrarian Reform issued a letter-certification stating
that referral to it for preliminary determination is no longer
required.
On July 16, 1990, the lower court issued an Order denying the
Motion to Intervene, holding that Lanozos rights may well be
ventilated in another proceeding in due time.
After trial on the merits, the RTC of Valenzuela, Branch 172
rendered its Decision on January 4, 1993, dismissing the Complaint
and ordering petitioner to pay Victor P30,000.00 as attorneys fees.
On appeal to the CA, the Decision was affirmed in toto.
Hence, the instant Petition assigning the following errors:
5

(A)
FIRST ASSIGNMENT OF ERROR
THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT
THE PROVISION ON THE NOTICE TO EXERCISE OPTION WAS NOT
TRANSMISSIBLE.
(B)
SECOND ASSIGNMENT OF ERROR
THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT
THE NOTICE Of OPTION MUST BE SERVED BY DKC UPON
ENCARNACION BARTOLOME PERSONALLY.
(C)

THIRD ASSIGNMENT OF ERROR

THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT
THE CONTRACT WAS ONE-SIDED AND ONEROUS IN FAVOR OF
DKC.
(D)
FOURTH ASSIGNMENT OF ERROR
THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT
THE EXISTENCE OF A REGISTERED TENANCY WAS FATAL TO THE
VALIDITY OF THE CONTRACT.
(E)
FIFTH ASSIGNMENT OF ERROR
THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT
PLAINTIFF-APPELLANT WAS LIABLE TO DEFENDANTAPPELLEE
FOR ATTORNEYS FEES.
8

The issue to be resolved in this case is whether or not the

Contract of Lease with Option to Buy entered into by the late
Encarnacion Bartolome with petitioner was terminated upon her
death or whether it binds her sole heir, Victor, even after her demise.
Both the lower court and the Court of Appeals held that the said
contract was terminated upon the death of Encarnacion Bartolome
and did not bind Victor because he was not a party thereto.
Article 1311 of the Civil Code provides, as follows
ART. 1311. Contracts take effect only between the parties, their assigns
and heirs, except in case where the rights and obligations arising from the
contract are not transmissible by their nature, or by stipulation or by
provision of law. The heir is not liable beyond the value of the property he
received from the decedent.
xxx
xxx
x x x.
141

The general rule, therefore, is that heirs are bound by contracts

entered into by their predecessors-in-interest except when the rights
and obligations arising therefrom are not transmissible by (1) their
nature, (2) stipulation or (3) provision of law.
In the case at bar, there is neither contractual stipulation nor
legal provision making the rights and obligations under the contract
intransmissible. More importantly, the nature of the rights and
obligations therein are, by their nature, transmissible.
The nature of intransmissible rights as explained by Arturo
Tolentino, an eminent civilist, is as follows:
Among contracts which are intransmissible are those which are purely
personal, either by provision of law, such as in cases of partnerships and
agency, or by the very nature of the obligations arising therefrom, such as
those requiring special personal qualifications of the obligor. It may also be
stated that contracts for the payment of money debts are not transmitted to
the heirs of a party, but constitute a charge against his estate. Thus, where
the client in a contract for professional services of a lawyer died, leaving
minor heirs, and the lawyer, instead of presenting his claim, for
professional services under the contract to the probate court, substituted
the minors as parties for his client, it was held that the contract could not
be enforced against the minors; the lawyer was limited to a recovery on the
basis of quantum meruit.
9

In American jurisprudence, (W)here acts stipulated in a contract

require the exercise of special knowledge, genius, skill, taste, ability,
experience, judgment, discretion, integrity, or other personal
qualification of one or both parties, the agreement is of a personal
nature, and terminates on the death of the party who is required to
render such service.
It has also been held that a good measure for determining
whether a contract terminates upon the death of one of the parties is
whether it is of such a character that it may be performed by the
promissors personal representative. Contracts to perform personal
acts which cannot be as well performed by others are discharged by
the death of the promissor. Conversely, where the service or act is of
such a character that it may as well be performed by another, or
10

where the contract, by its terms, shows that performance by others

was contemplated, death does not terminate the contract or excuse
nonperformance.
In the case at bar, there is no personal act required from the late
Encarnacion Bartolome. Rather, the obligation of Encarnacion in the
contract to deliver possession of the subject property to petitioner
upon the exercise by the latter of its option to lease the same may
very well be performed by her heir Victor.
11

As early as 1903, it was held that (H)e who contracts does so for
himself and his heirs. In 1952, it was ruled that if the predecessor
was duty-bound to reconvey land to another, and at his death the
reconveyance had not been made, the heirs can be compelled to
execute the proper deed for reconveyance. This was grounded upon
the principle that heirs cannot escape the legal consequence of a
transaction entered into by their predecessor-in-interest because
they have inherited the property subject to the liability affecting
their common ancestor.
It is futile for Victor to insist that he is not a party to the contract
because of the clear provision of Article 1311 of the Civil Code.
Indeed, being an heir of Encarnacion, there is privity of interest
between him and his deceased mother. He only succeeds to what
rights his mother had and what is valid and binding against her is
also valid and binding as against him. This is clear from Paraaque
Kings Enterprises vs. Court of Appeals, where this Court rejected a
similar defense
12

13

14

15

With respect to the contention of respondent Raymundo that he is not privy

to the lease contract, not being the lessor nor the lessee referred to therein,
he could thus not have violated its provisions, but he is nevertheless a
proper party. Clearly, he stepped into the shoes of the owner-lessor of the
land as, by virtue of his purchase, he assumed all the obligations of the
lessor under the lease contract. Moreover, he received benefits in the form
of rental payments. Furthermore, the complaint, as well as the petition,
prayed for the annulment of the sale of the properties to him. Both

142

pleadings also alleged collusion between him and respondent Santos which
defeated the exercise by petitioner of its right of first refusal.
In order then to accord complete relief to petitioner, respondent
Raymundo was a necessary, if not indispensable, party to the case. A
favorable judgment for the petitioner will necessarily affect the rights of
respondent Raymundo as the buyer of the property over which petitioner
would like to assert its right of first option to buy.

In the case at bar, the subject matter of the contract is likewise a

lease, which is a property right. The death of a party does not excuse
nonperformance of a contract which involves a property right, and
the rights and obligations thereunder pass to the personal
representatives of the deceased. Similarly, nonperformance is not
excused by the death of the party when the other party has a
property interest in the subject matter of the contract.
Under both Article 1311 of the Civil Code and jurisprudence,
therefore, Victor is bound by the subject Contract of Lease with
Option to Buy.
That being resolved, we now rule on the issue of whether
petitioner had complied with its obligations under the contract and
with the requisites to exercise its option. The payment by petitioner
of the reservation fees during the two-year period within which it
had the option to lease or purchase the property is not disputed. In
fact, the payment of such reservation fees, except those for February
and March, 1990 were admitted by Victor. This is clear from the
transcripts, to wit
16

17

ATTY. MOJADO:
One request, Your Honor. The last
payment which was allegedly made in
January 1990 just indicate in that
stipulation that it was issued
November of 1989 and postdated
Janaury 1990 and then we will admit
all.

COURT:
All reservation fee?
ATTY. MOJADO:
Yes, Your Honor.
COURT:
All as part of the lease?
ATTY. MOJADO:
Reservation fee, Your Honor. There
was no payment with respect to
payment of rentals.
18

Petitioner also paid the P15,000.00 monthly rental fee on the subject
property by depositing the same in China Bank Savings Account No.
1-04-02558-I-1, in the name of Victor as the sole heir of Encarnacion
Bartolome, for the months of March to July 30, 1990, or a total of
five (5) months, despite the refusal of Victor to turn over the subject
property.
Likewise, petitioner complied with its duty to inform the other
party of its intention to exercise its option to lease through its letter
dated March 12, 1990, well within the twoyear period for it to
exercise its option. Considering that at that time Encarnacion
Bartolome had already passed away, it was legitimate for petitioner
to have addressed its letter to her heir.
It appears, therefore, that the exercise by petitioner of its option
to lease the subject property was made in accordance with the
contractual provisions. Concomitantly, private respondent Victor
Bartolome has the obligation to surrender possession of and lease the
premises to petitioner for a period of six (6) years, pursuant to the
Contract of Lease with Option to Buy.
Coming now to the issue of tenancy, we find that this is not for
this Court to pass upon in the present petition. We note that the
Motion to Intervene and to Dismiss of the alleged tenant, Andres
Lanozo, was denied by the lower court and that such denial was
never made the subject of an appeal. As the lower court stated in its
Order, the alleged right of the tenant may well be ventilated in
another proceeding in due time.
19

20

21

143

WHEREFORE, in view of the foregoing, the instant Petition for

Review is GRANTED. The Decision of the Court of Appeals in CAG.R. CV No. 40849 and that of the Regional Trial Court of
Valenzuela in Civil Case No. 3337-V-90 are both SET ASIDE and a
new one rendered ordering private respondent Victor Bartolome to:
(a) surrender and deliver possession of that parcel of land covered
by Transfer Certificate of Title No. V-14249 by way of lease to
petitioner and to perform all obligations of his predecessor-ininterest, Encarnacion Bartolome, under the subject Contract of
Lease with Option to Buy;

and cannot be the source of any right nor the creator of any
obligation between the parties. (Taedo vs. Court of Appeals, 252
SCRA 80[1996])
Grandchildren are not entitled to provisional support from the
funds of the decedents estate. (Estate of Hilario M. Ruiz vs. Court of
Appeals, 252 SCRA 541 [1996])
o0o

(b) surrender and deliver his copy of Transfer Certificate of Title

No. V-14249 to respondent Register of Deeds for registration and
annotation thereon of the subject Contract of Lease with Option to
Buy;
(c) pay costs of suit.

Respondent Register of Deeds is, accordingly, ordered to register

and annotate the subject Contract of Lease with Option to Buy at the
back of Transfer Certificate of Title No. V-14249 upon submission by
petitioner of a copy thereof to his office.
SO ORDERED.
Davide, Jr. (C.J.), Puno,Kapunan and Pardo, JJ., concur.
Petition granted, judgment of Court of Appeals and trial court set
aside.
Notes.Article 992 of the Civil Code enunciates what is so
commonly referred to in the rules on succession as the principle of
absolute separation between the legitimate family and the
illegitimate family. (Manuel vs. Ferrer, 247 SCRA 476 [1995])
No contract may be entered into upon a future inheritance except
in cases expressly authorized by lawsuch a contract is not valid
144

[No. 35504. March 31, 1932]

CHARTERED BANK OF INDIA, AUSTRALIA AND CHINA,
plaintiff and appellee, vs. DIONISIO CONSTANTINO AND 111
OTHERS, defendants and appellants.
1. MASTER AND SERVANT; LIEN OF SERVANT FOR UNPAID
WAGES;ARTICLE 1600, CIVIL CODE CONSTRUED.Article
1600 of the Civil Code is not applicable to salaried employees.
2. ID.; ID.; INJUNCTION.Where a lumber company has sold and
delivered lumber to a bank, and where the bank attempts to export
'the lumber but is prevented from doing so by the employees of the
lumber company, the bank has a right to an injunction to enjoin
the employees of the lumber company from interfering with or
impeding the bank in the exportation of the lumber.

APPEAL from a judgment of the Court of First Instance of

Zamboanga. Horrilleno, J.
The facts are stated in the opinion of the court.
Jose Erquiaga for appellants.
Eduardo D. Enriquez and Gibbs & McDonough for appellee.
MALCOLM, J.;
On November 26, 1929, the Pananbutan Lumber & Plantation
Company sold and delivered to the Chartered Bank of India,
Australia & China a considerable quantity of lumber. However, on
December 11, 1929, when the bank attempted to export
approximately 250,000 board feet of the lumber purchased by it from
the Pananbutan Lumber & Plantation Company, the bank was
prevented from doing so by the employees of the lumber company.
The bank was then compelled to commence an action in the Court of
First Instance of Zamboanga, asking for the issuance of a writ of
injunction to enjoin the employees of the lumber company from

interfering with or impeding the bank in the exportation of the said

lumber, Upon the filing of a bond, the preliminary injunction was
issued. Defendants' answer to the complaint in that action prayed
that the injunction be dissolved; that plaintiff's complaint be
dismissed, with costs; and that the plaintiff be ordered to pay the
defendants the sum of P30,495.91, representing unpaid salaries and
wages for October, November, and a part of December, 1929, with
legal interest. From a judgment sustaining the legality of the
issuance of the injunction and absolving the plaintiff from
defendants' counterclaim, the latter, 112 individuals in all, have
taken this appeal.
It should further be explained that during the same period of
time, the employees of the Pananbutan Lumber & Plantation
Company instituted an action in the Court of First Instance of
Zamboanga against their employer, the Pananbutan Lumber &
Plantation Company, to recover from it their unpaid salaries and
wages aggregating thirty odd thousand pesos. The Pananbutan
Lumber & Plantation Company was later declared in default and
judgment was rendered against it for the amount claimed by the said
employees. The deplorable situation of these employees will thus be
understood, for they hold a judgment against their employer
undoubtedly of no monetary value, while the lumber formerly owned
by their employer has been transferred to the Chartered Bank of
India, Australia & China.
Counsel for the defendants submits two propositions, based
respectively on articles 1600 and 1922, paragraph 1, of the Civil
Code. The first cited codal article provides that: "Any person who has
done work on personal property is entitled to retain the same as a
pledge until he is paid." Here it is conceded that the employees of the
Pananbutan Lumber & Plantation Company have done work on
lumber, and that they have not been paid for their work. On the
other hand, it is equally certain that the defendants were salaried
employees and not artisans paid for specific work done on personal
145

property. The defendants were paid for actual services rendered

independent of the quality or quantity of the finished product of their
labor. Accordingly, article 1600 of the Civil Code is not applicable, for
the reason that salaried employees do not come within its purview.
Counsel for the appellants in his latest memorandum appears in a
way to concede the correctness of this view, but attempts to draw a
distinction between the right of a servant to retain the property of
his master no matter of what class, and the right of the servant to
retain the property of his master on which the servant has directly
labored. But the distinction is more fancied than real, and the basic
principle of the civil law must be enforced.

aggregate of the lessor's acts embodied in something material, which

is the useful object of the contract.
"Hence, Laurent aptly notes this difference: in treating of the
lease of services of hired laborers, the law does not speak of risks, for
the workman never assumes them; the workman is paid for the labor
he performs, whatever the result of the work assigned to him, and
even should it be destroyed by accident. But in the lease in question,
the price is stipulated taking into consideration not the labor, but the
finished work; the price is not payable until the work is completed
and accepted, and the same cannot lawfully be demandad if the work
is destroyed before it is finished and accepted.

On this point, the distinguished commentator Manresa in

referring to article 1588 of the Civil Code has the following to say:

"We do not think it necessary to distinguish further between the

lease of work by contract or for a fixed price and that other lease
dealt with in the preceding section." (Manresa,Comentarios al Cdigo
Civil, vol. X, 3d ed., pp. 774, 775.)

"The second class of lease of work and services according to the

code is the subject of the present section. The purpose of this lease is
the performance of work by contract or for a fixed price.
"The code does not begin by giving a general idea of the subject
matter, but by fixing its two distinguishing characteristics.
"But such an idea was not absolutely necessary, because the
difference between the lease of work by contract or for a fixed price
and the lease of services of hired servants or laborers is sufficiently
clear. In the latter, the direct object of the contract is the lessor's
labor; the acts in which such labor consists, performed for the benefit
of the lessee, are taken into account immediately. In work done by
contract or for a fixed price, the lessor's labor is indeed an important,
a most important factor; but it is not the direct object of the contract,
nor is it immediately taken into account. The object which the
parties consider, which they bear in mind in order to determine the
cause of the contract, and upon which they really give their consent,
is not the labor but its result, the complete and finished work, the

It is, therefore, plain that the defendants cannot successfully

invoke the provisions of article 1600 of the Civil Code. Neither do we
think that article 1922, paragraph 1, can prove of any avail to them.
This paragraph provides:
"ART. 1922. With respect to determinate personal property of the
debtor, the following are preferred:
"1. Credits for the construction, repair, preservation, or purchase
price of personal property in the possession of the debtor, to the
extent of the value of the same." But in the case before us the fact is
that the credits of the employees do not f all within any of the clauses
of the article. The bank is a bona, fidepurchaser which takes the
property free from any lien. (Pea vs. Mitchell [1908],9 Phil.,
587; Meyers vs. Thein [1910], 15 Phil., 303.)
Before closing, it must be emphasized in a more direct manner
that the def endants have attempted to hinder the culmination of a
146

commercial transaction by taking the law into their own hands.

Instead, in due season, they should have resorted to a legal remedy.
For instance, no judicial proceedings to determine the priority of one
creditor of the Pananbutan Lumber & Plantation Company against
another have been initiated. But the record discloses that the
manager of the Zamboanga branch, of the bank offered to pay the
wages of the employees of the Pananbutan Lumber & Plantation
Company for the month of October, 1929, and it may be that,
notwithstanding the trouble caused by the employees, the bank
would again make good on this offer. However, this would be simply
an act of grace, for legally speaking it has been conclusively
demonstrated that the bank had a right to obtain an injunction.
The judgment appealed from will be affirmed, without special
pronouncement as to costs in this instance.
Avancea,
C.
J,, Street, Villamor,Romualdez, VillaReal, and Imperial, JJ., concur.
Judgment affirmed.
_____________

147