Michelle Margarette E.

Filart
Sales – 2C

First Meeting:
- Articles 1458-1478 of the Civil Code
- Cases

Cases:
1. DIGNOS VS. CA, 158 SCRA 375
2. TAN VS. BENORILAO, G.R. No. 153820, October 16, 2009
3. ARTATES VS. URBI, G.R. No. L-29421. January 30, 1971.
4. HEIRS OF ENRIQUE ZAMBALES VS. CA, 120 SCRA 897
5. QUIROGA VS. PARSONS, 38 PHIL. 501
6. CONCRETE AGGREGATES INC. VS. CTA, 185 SCRA 461
7. PEOPLE’S HOMESITE & HOUSING CORP. VS. CA, 133 SCRA 777
8. TOYOTA SHAW, INC. VS CA, 244 SCRA 320
9. Sampaguita Pictures vs. Jalwindor Manufacturers, Inc., 93
SCRA 420
G.R. No. L-59266 February 29, 1988
SILVESTRE DIGNOS and ISABEL LUMUNGSOD, petitioners,
vs.
HON. COURT OF APPEALS and ATILANO G. JABIL, respondents.
BIDIN, J.:
This is a petition for review on certiorari seeking the reversal of the: (1)
Decision * of the 9th Division, Court of Appeals dated July 31,1981,
affirming with modification the Decision, dated August 25, 1972 of the
Court of First Instance ** of Cebu in civil Case No. 23-L entitled Atilano
G. Jabil vs. Silvestre T. Dignos and Isabela Lumungsod de Dignos and
Panfilo Jabalde, as Attorney-in-Fact of Luciano Cabigas and Jovita L. de
Cabigas; and (2) its Resolution dated December 16, 1981, denying
defendant-appellant's (Petitioner's) motion for reconsideration, for
lack of merit.
The undisputed facts as found by the Court of Appeals are as follows:
The Dignos spouses were owners of a parcel of land, known as Lot No.
3453, of the cadastral survey of Opon, Lapu-Lapu City. On June 7, 1965,
appellants (petitioners) Dignos spouses sold the said parcel of land to
plaintiff-appellant (respondent Atilano J. Jabil) for the sum of
P28,000.00, payable in two installments, with an assumption of
indebtedness with the First Insular Bank of Cebu in the sum of
P12,000.00, which was paid and acknowledged by the vendors in the
deed of sale (Exh. C) executed in favor of plaintiff-appellant, and the
next installment in the sum of P4,000.00 to be paid on or before
September 15, 1965.
On November 25, 1965, the Dignos spouses sold the same land in favor
of defendants spouses, Luciano Cabigas and Jovita L. De Cabigas, who
were then U.S. citizens, for the price of P35,000.00. A deed of absolute
sale (Exh. J, also marked Exh. 3) was executed by the Dignos spouses in
favor of the Cabigas spouses, and which was registered in the Office of
the Register of Deeds pursuant to the provisions of Act No. 3344.
As the Dignos spouses refused to accept from plaintiff-appellant the
balance of the purchase price of the land, and as plaintiff- appellant
discovered the second sale made by defendants-appellants to the
Cabigas spouses, plaintiff-appellant brought the present suit. (Rollo,
pp. 27-28)
After due trial, the Court of first Instance of Cebu rendered its Decision
on August 25,1972, the decretal portion of which reads:
WHEREFORE, the Court hereby declares the deed of sale executed on
November 25, 1965 by defendant Isabela L. de Dignos in favor of
defendant Luciano Cabigas, a citizen of the United States of America,
null and void ab initio, and the deed of sale executed by defendants
Silvestre T. Dignos and Isabela Lumungsod de Dignos not rescinded.
Consequently, the plaintiff Atilano G. Jabil is hereby ordered to pay the
sum, of Sixteen Thousand Pesos (P16,000.00) to the defendants-
spouses upon the execution of the Deed of absolute Sale of Lot No.
3453, Opon Cadastre and when the decision of this case becomes final
and executory.
The plaintiff Atilano G. Jabil is ordered to reimburse the defendants
Luciano Cabigas and Jovita L. de Cabigas, through their attorney-in-
fact, Panfilo Jabalde, reasonable amount corresponding to the
expenses or costs of the hollow block fence, so far constructed.
It is further ordered that defendants-spouses Silvestre T. Dignos and
Isabela Lumungsod de Dignos should return to defendants-spouses
Luciano Cabigas and Jovita L. de Cabigas the sum of P35,000.00, as
equity demands that nobody shall enrich himself at the expense of
another.
The writ of preliminary injunction issued on September 23, 1966,
automatically becomes permanent in virtue of this decision.
With costs against the defendants.
From the foregoing, the plaintiff (respondent herein) and defendants-
spouss (petitioners herein) appealed to the Court of Appeals, which
appeal was docketed therein as CA-G.R. No. 54393-R, "Atilano G. Jabil
v. Silvestre T. Dignos, et al."
On July 31, 1981, the Court of Appeals affirmed the decision of the
lower court except as to the portion ordering Jabil to pay for the
expenses incurred by the Cabigas spouses for the building of a fence
upon the land in question. The disposive portion of said decision of the
Court of Appeals reads:
IN VIEW OF THE FOREGOING CONSIDERATIONS, except as to the
modification of the judgment as pertains to plaintiff-appellant above
indicated, the judgment appealed from is hereby AFFIRMED in all other
respects.
With costs against defendants-appellants.
SO ORDERED.
Judgment MODIFIED.
A motion for reconsideration of said decision was filed by the
defendants- appellants (petitioners) Dignos spouses, but on December
16, 1981, a resolution was issued by the Court of Appeals denying the
motion for lack of merit.
Hence, this petition.
In the resolution of February 10, 1982, the Second Division of this Court
denied the petition for lack of merit. A motion for reconsideration of
said resolution was filed on March 16, 1982. In the resolution dated
April 26,1982, respondents were required to comment thereon, which
comment was filed on May 11, 1982 and a reply thereto was filed on
July 26, 1982 in compliance with the resolution of June 16,1 982. On
August 9,1982, acting on the motion for reconsideration and on all
subsequent pleadings filed, this Court resolved to reconsider its
resolution of February 10, 1982 and to give due course to the instant
petition. On September 6, 1982, respondents filed a rejoinder to reply
of petitioners which was noted on the resolution of September 20,
1982.
Petitioners raised the following assignment of errors:
I II. Whether or not there was a valid rescission thereof.
THE COURT OF APPEALS COMMITTED A GRAVE ERROR OF LAW IN
GROSSLY, INCORRECTLY INTERPRETING THE TERMS OF THE
CONTRACT, EXHIBIT C, HOLDING IT AS AN ABSOLUTE SALE, EFFECTIVE
TO TRANSFER OWNERSHIP OVER THE PROPERTY IN QUESTION TO THE
RESPONDENT AND NOT MERELY A CONTRACT TO SELL OR PROMISE TO
SELL; THE COURT ALSO ERRED IN MISAPPLYING ARTICLE 1371 AS
WARRANTING READING OF THE AGREEMENT, EXHIBIT C, AS ONE OF
ABSOLUTE SALE, DESPITE THE CLARITY OF THE TERMS THEREOF
SHOWING IT IS A CONTRACT OF PROMISE TO SELL.
II
THE COURT OF APPEALS COMMITTED AN ERROR OF LAW IN
INCORRECTLY APPLYING AND OR IN MISAPPLYING ARTICLE 1592 OF
THE NEW CIVIL CODE AS WARRANTING THE ERRONEOUS CONCLUSION
THAT THE NOTICE OF RESCISSION, EXHIBIT G, IS INEFFECTIVE SINCE IT
HAS NOT BEEN JUDICIALLY DEMANDED NOR IS IT A NOTARIAL ACT.
III
THE COURT OF APPEALS COMMITTED AN ERROR OF LAW IN REJECTING
THE APPLICABILITY OF ARTICLES 2208,2217 and 2219 OF THE NEW
CIVIL CODE AND ESTABLISHED JURISPRUDENCE AS TO WARRANT THE
AWARD OF DAMAGES AND ATTORNEY'S FEES TO PETITIONERS.
IV
PLAINTIFF'S COMPLAINT FOR SPECIFIC PERFORMANCE SHOULD HAVE
BEEN DISMISSED, HE HAVING COME TO COURT WITH UNCLEAN
HANDS.
V
BY AND LARGE, THE COURT OF APPEALS COMMITTED AN ERROR IN
AFFIRMING WITH MODIFICATION THE DECISION OF THE TRIAL COURT
DUE TO GRAVE MISINTERPRETATION, MISAPPLICATION AND
MISAPPREHENSION OF THE TERMS OF THE QUESTIONED CONTRACT
AND THE LAW APPLICABLE THERETO.
The foregoing assignment of errors may be synthesized into two main
issues, to wit:
I. Whether or not subject contract is a deed of absolute sale or a
contract Lot sell.
There is no merit in this petition.
It is significant to note that this petition was denied by the Second
Division of this Court in its Resolution dated February 1 0, 1 982 for lack
of merit, but on motion for reconsideration and on the basis of all
subsequent pleadings filed, the petition was given due course.
I.
The contract in question (Exhibit C) is a Deed of Sale, with the following
conditions:
1. That Atilano G..Jabilis to pay the amount of Twelve Thousand Pesos
P12,000.00) Phil. Philippine Currency as advance payment;
2. That Atilano G. Jabil is to assume the balance of Twelve Thousand
Pesos (P12,000.00) Loan from the First Insular Bank of Cebu;
3. That Atilano G. Jabil is to pay the said spouses the balance of Four.
Thousand Pesos (P4,000.00) on or before September 15,1965;
4. That the said spouses agrees to defend the said Atilano G. Jabil from
other claims on the said property;
5. That the spouses agrees to sign a final deed of absolute sale in favor
of Atilano G. Jabil over the above-mentioned property upon the
payment of the balance of Four Thousand Pesos. (Original Record, pp.
10-11)
In their motion for reconsideration, petitioners reiterated their
contention that the Deed of Sale (Exhibit "C") is a mere contract to sell
and not an absolute sale; that the same is subject to two (2) positive
suspensive conditions, namely: the payment of the balance of
P4,000.00 on or before September 15,1965 and the immediate
assumption of the mortgage of P12,000.00 with the First Insular Bank
of Cebu. It is further contended that in said contract, title or ownership
over the property was expressly reserved in the vendor, the Dignos
spouses until the suspensive condition of full and punctual payment of
the balance of the purchase price shall have been met. So that there is
no actual sale until full payment is made (Rollo, pp. 51-52).
In bolstering their contention that Exhibit "C" is merely a contract to
sell, petitioners aver that there is absolutely nothing in Exhibit "C" that
indicates that the vendors thereby sell, convey or transfer their
ownership to the alleged vendee. Petitioners insist that Exhibit "C" (or
6) is a private instrument and the absence of a formal deed of
conveyance is a very strong indication that the parties did not intend
"transfer of ownership and title but only a transfer after full payment"
(Rollo, p. 52). Moreover, petitioners anchored their contention on the
very terms and conditions of the contract, more particularly paragraph
four which reads, "that said spouses has agreed to sell the herein
mentioned property to Atilano G. Jabil ..." and condition number five
which reads, "that the spouses agrees to sign a final deed of absolute
sale over the mentioned property upon the payment of the balance of
four thousand pesos."
Such contention is untenable.
By and large, the issues in this case have already been settled by this
Court in analogous cases.
Thus, it has been held that a deed of sale is absolute in nature although
denominated as a "Deed of Conditional Sale" where nowhere in the
contract in question is a proviso or stipulation to the effect that title to
the property sold is reserved in the vendor until full payment of the
purchase price, nor is there a stipulation giving the vendor the right to
unilaterally rescind the contract the moment the vendee fails to pay
within a fixed period Taguba v. Vda. de Leon, 132 SCRA 722; Luzon
Brokerage Co., Inc. v. Maritime Building Co., Inc., 86 SCRA 305).
A careful examination of the contract shows that there is no such
stipulation reserving the title of the property on the vendors nor does
it give them the right to unilaterally rescind the contract upon non-
payment of the balance thereof within a fixed period.
On the contrary, all the elements of a valid contract of sale under
Article 1458 of the Civil Code, are present, such as: (1) consent or
meeting of the minds; (2) determinate subject matter; and (3) price
certain in money or its equivalent. In addition, Article 1477 of the same
Code provides that "The ownership of the thing sold shall be
transferred to the vendee upon actual or constructive delivery
thereof." As applied in the case of Froilan v. Pan Oriental Shipping Co.,
et al. (12 SCRA 276), this Court held that in the absence of stipulation
to the contrary, the ownership of the thing sold passes to the vendee
upon actual or constructive delivery thereof.
While it may be conceded that there was no constructive delivery of
the land sold in the case at bar, as subject Deed of Sale is a private
instrument, it is beyond question that there was actual delivery
thereof. As found by the trial court, the Dignos spouses delivered the
possession of the land in question to Jabil as early as March 27,1965 so
that the latter constructed thereon Sally's Beach Resort also known as
Jabil's Beach Resort in March, 1965; Mactan White Beach Resort on
January 15,1966 and Bevirlyn's Beach Resort on September 1, 1965.
Such facts were admitted by petitioner spouses (Decision, Civil Case It has been ruled, however, that "where time is not of the essence of
No. 23-L; Record on Appeal, p. 108). the agreement, a slight delay on the part of one party in the
Moreover, the Court of Appeals in its resolution dated December performance of his obligation is not a sufficient ground for the
16,1981 found that the acts of petitioners, contemporaneous with the rescission of the agreement" (Taguba v. Vda. de Leon, supra).
contract, clearly show that an absolute deed of sale was intended by Considering that private respondent has only a balance of P4,000.00
the parties and not a contract to sell. and was delayed in payment only for one month, equity and justice
Be that as it may, it is evident that when petitioners sold said land to mandate as in the aforecited case that Jabil be given an additional
the Cabigas spouses, they were no longer owners of the same and the period within which to complete payment of the purchase price.
sale is null and void. WHEREFORE, the petition filed is hereby Dismissed for lack of merit
II. and the assailed decision of the Court of Appeals is Affirmed in toto.
Petitioners claim that when they sold the land to the Cabigas spouses,
the contract of sale was already rescinded.
Applying the rationale of the case of Taguba v. Vda. de Leon (supra)
which is on all fours with the case at bar, the contract of sale being
absolute in nature is governed by Article 1592 of the Civil Code. It is
undisputed that petitioners never notified private respondents Jabil by
notarial act that they were rescinding the contract, and neither did
they file a suit in court to rescind the sale. The most that they were
able to show is a letter of Cipriano Amistad who, claiming to be an
emissary of Jabil, informed the Dignos spouses not to go to the house
of Jabil because the latter had no money and further advised
petitioners to sell the land in litigation to another party (Record on
Appeal, p. 23). As correctly found by the Court of Appeals, there is no
showing that Amistad was properly authorized by Jabil to make such
extra-judicial rescission for the latter who, on the contrary, vigorously
denied having sent Amistad to tell petitioners that he was already
waiving his rights to the land in question. Under Article 1358 of the Civil
Code, it is required that acts and contracts which have for their object
the extinguishment of real rights over immovable property must
appear in a public document.
Petitioners laid considerable emphasis on the fact that private
respondent Jabil had no money on the stipulated date of payment on
September 15,1965 and was able to raise the necessary amount only
by mid-October 1965.
Dignos vs CA All the elements of a valid contract of sale are present in the document
Case Digest and that Spouses Dignos never notified Jabil by notarial act that they
were rescinding the contract, and neither did they file a suit in court to
FACTS: rescind the sale. There is no showing that Jabil properly authorized a
Spouses Silvestre Dignos and Isabela Lumungsod de Dignos sold their certain Cipriano Amistad to tell petitioners that he was already waiving
parcel of land in Opon, Lapu-Lapu to private respondent Antonio Jabil his rights to the land in question.
for the sum of P28,000.00 payable for 2 installments, with an
assumption of indebtedness with the First Insular Bank of Cebu in the
sum of P12,000.00 as was acknowledged by vendors in the Deed of
Absolute Sale (Exh. C), and the next installment to be paid 3 months
after. But the same land was also sold by Spouses Dignos (Exh. J) which
was registered in the Registry of Deeds. This prompted Jabil to file a
civil suit against Spouses Dignos for the 2nd sale to Spouses Luciano
Cabigas and Jovita de Cabigas, who were then US citizens. CFI of Cebu
rendered the 2nd sale to Spouses Cabigas null and void, directing
Spouses Dignos to return the P35,000.00 to Spouses Cabigas and
ordered Jabil to pay the remaining balance. Spouses Dignos contend
that Exh. C is a contract to sell and as such, anchored their contention
on the very terms of the contract as mentioned in ¶4, that said spouses
have agreed to sell the herein mentioned property to Alilano B. Jabil
and condition in ¶5, in which the spouses agreed to sign a final deed of
absolute sale upon payment of the remaining balance of P4,000.00.

ISSUE:
Whether the contract between the parties is a contract of sale or a
contract to sell.

HELD:
The contract between the parties is a contract of sale. It has been held
that a deed of sale is absolute in nature although dominated as a “Deed
of Conditional Sale” where nowhere in the contract in question is a
proviso or stipulation to the effect that title to the property sold is
reserved in the vendor until full payment of the purchase price, nor is
there a stipulation giving the vendor the right to unilaterally rescind
the contract the moment the vendee fails to pay within a fixed period.
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.
DECISION
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 certiorari1 filed by Delfin Tan (Tan) to assail the
decision of the Court of Appeals (CA) in CA-G.R. CV No. 520332and the
decision of the Regional Trial Court (RTC)3 that commonly declared the
forfeiture of his ₱200,000.00 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 ₱1,378,000.00. 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 ₱200,000.00
as down payment for the property, for which the vendors issued a
corresponding receipt.
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 Lamberto’s 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 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.
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 Tan’s 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 ₱689,000.00.
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 pendens annotation
to TCT No. 28104 registered in de Guzman’s name, but the RTC denied
the motion.
On September 8, 1995, after due proceedings, the RTC rendered
judgment ruling that the respondents’ forfeiture of Tan’s down
payment was proper in accordance with the terms and conditions of
the contract between the parties.4The RTC ordered Tan to pay the
respondents the amount of ₱30,000.00, plus ₱1,000.00 per court
appearance, as attorney’s 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 RTC’s 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 complaint – either the 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 pendens annotation
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 ₱30,000.00, plus ₱1,000.00 per court appearance as
attorney’s 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 COURT’S 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 Court’s 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.5
Tan contravened the Court’s 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
petition – defined in the opening paragraph of this Decision – is 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.
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 pendens hereinabove 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
Tan’s 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 Tan’s complaint is an in personam action, as
Tan asked the court to compel the respondents to do something –
either 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: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
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.
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 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.10 A contract to sell may not even be considered as a conditional
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.11
In the present case, the true nature of the contract is revealed by
paragraph D thereof, which states:
xxx
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;
xxx
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.12 Thus,
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 so – the 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 Tan’s argument meritorious.
The annotation placed on TCT No. 27335, the new title issued to reflect
the extrajudicial partition of Lamberto Benolirao’s 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 book The
Revised Rules of Court in the Philippines,13where 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 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 decedent’s 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 any person, 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 any transferee of the properties.
[Emphasis supplied.]
Indeed, in David v. Malay,17 although 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 Tan’s 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 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]. [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 Tan’s 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 Tan’s down payment was clearly unwarranted.
Award of Attorney’s 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 attorney’s fees in favor
of the respondents.
On the other hand, we award attorney’s 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 ₱50,000.00 as
attorney’s 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 Shipping Lines, Inc. v. Court
of Appeals,20 we hold that the vendors should return the ₱200,000.00
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.1avvphi1
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 annum from
such finality until its satisfaction. Accordingly, the principal obligation
of ₱200,000.00 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 attorney’s 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 ₱200,000.00 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
₱50,000.00 as and by way of attorney’s 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 attorney’s
fees, until full payment of these amounts. Costs against the
respondents.
Tan vs. Benolirao
Case Digest
Facts: A 689 sq.m. parcel of land in Tagaytay City with TCT №. 26432,
co-owned by respondent spouses Lamberto and Erlinda Benolirao and
spouses Reynaldo and Norma Taningco, was the subject of a Deed of
Conditional Sale in favor of petitioner Delfin Tan for P 1,378,000.
Pursuant to the deed, petitioner paid the P 200,000 downpayment.
Then, Lamberto Benolirao died and an extrajudicial settlement of his
estate was executed which caused the issuance of a new certificate of
title over the property (TCT №. 27355) with a corresponding
annotation in accordance with Section 4, Rule 74 of the Rules of Court.
Despite a second extension, petitioner failed to comply with his
obligation to pay the remaining balance due. In response to the
demand letter subsequently sent by the vendors, petitioner demanded
the return of his downpayment, contending that the annotation on the
title was an encumberance on the property that would prevent the
vendors from delivering a clear title to him. When the vendors refused,
petitioner filed a complaint for specific performance and caused the
annotation of a notice of lis pendens on the title. Respondents filed a
motion for cancellation of the notice of lis pendens and was granted.
The lower court, after due proceedings, ruled that the forfeiture was
proper while the Court of Appeals affirmed in toto hence, the present
petition.
Issue: WON an annotation made pursuant to Section 3, Rule 74 of the
ROC on a COT conveying real property considered an encumberance
on the property?
Held: Court ruled in the affirmative. The litigation subject of a notice of
lis pendens must directly involve a specific property which is
necessarily affected by the judgment. While the deed does have real
property for its object, petitioner’s complaint is an in personam action
since it asks the court to compel the respondent to do something —
 either to rescind or reform the contract — and enforces his personal
rights against the respondent, not against the property subject of the
deed.
The contract between the parties was merely a contract to sell where
the vendor retained title and ownership to the property until petitioner
has fully paid the purchase price. Since he had no claim of ownership
or title yet, he had no right to ask for the annotation of a lis pendens
notice on the title of the property.
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, contract is only a contract to sell.
An annotation is placed on new certificates of title issued pursuant to
the distribution and partition of a decedent’s 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 remedy of rescission under Art. 1191 cannot apply to mere
contracts to sell. In a contract to sell, 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 vendee for failure
to meet the condition precedent, he is enforcing the contract and not
rescinding it. (Termination is the proper remedy.)
Unless time is of the essence to the contract, slight delay is not a
ground for rescission.
G.R. No. L-29421 January 30, 1971
LINO ARTATES and MANUELA POJAS, plaintiffs-appellants,
vs.
DANIEL URBI, CRISANTO SOLIVEN, assisted by his Guardian 'ad litem,'
MARCELA B. SOLIVEN, REMEGIO BUTACAN and NEMESIO OÑATE, in
their private capacities and/or as Ex-Oficio Provincial Sheriff and
Deputy Sheriff of Cagayan, respectively, and BIENVENIDO CACATIAN,
as Deputy Register of Deeds of Cagayan, defendants-appellees.
Bienvenido J. Jimenez for plaintiffs-appellants.
Rogelio Re. Ubarde for defendants-appellees Daniel Urbi and Crisanto
Soliven.
Alfredo J. Donato for defendant-appellant Nemesio Oñate.
The Provincial Fiscal (Cagayan) for defendants-appellees Provincial
Sheriff and Deputy Register of Deeds.
REYES, J.B.L., J.:
This is an appeal from the decision of the Court of First Instance of
Cagayan (Civil Case No. 116-T), involving the public sale of a homestead
to satisfy a civil judgment against the grantee.
The records show that in an action filed in the Court of First Instance
of Cagayan, the spouses Lino Artates and Manuela Pojas sought
annulment of the execution of a homestead1 covered by Patent No. V-
12775 issued to them by the proper land authorities on 23 September
1952, and duly registered in their names (OCT No. P-572). The public
sale, conducted by the Provincial Sheriff of Cagayan on 2 June 1962,
was made to satisfy a judgment against Lino Artates in the amount of
P1,476.35, and awarded to Daniel Urbi by the Justice of the Peace
Court of Camilaniugan, Cagayan, in its Civil Case No. 40, for physical
injuries inflicted by Artates upon Urbi on 21 October 1955. In the
execution sale, the property was sold to the judgment creditor, the
only bidder, for P1,476.35. In their complaint, the plaintiffs spouses
alleged that the sale of the homestead to satisfy an indebtedness of
Lino Artates that accrued on 21 October 1955, violated the provision
of the Public Land law exempting said property from execution for any
debt contracted within five years from the date of the issuance of the
patent; that defendant Urbi, with the intention of defrauding the
plaintiffs, executed on 26 June 1961 a deed for the sale of the same
parcel of land to defendant Crisanto Soliven, a minor, supposedly for
the sum of P2,676.35; that as a result of the aforementioned
transactions, defendants Urbi and Soliven entered into the possession
of the land and deprived plaintiffs of the owners' share in the rice crops
harvested during the agricultural year 1961-1962. Plaintiffs, therefore,
prayed that the public sale of the land to defendant Urbi, as well as the
deed of sale executed by the latter in favor of defendant Soliven, be
declared null and void; that defendants be ordered to deliver to
plaintiffs possession of the land; and to pay to plaintiffs compensatory
damages at the rate of P1,000.00 per agricultural year until possession
is finally restored to them, the sum of P2,000.00 as damages for
maliciously casting cloud upon plaintiffs' title on the land, plus
attorneys' fees and costs.
The defendants2 filed separate answers disputing the averments of the
complaint. On 29 March 1953, the court rendered judgment upholding
the regularity and validity of the execution conducted by the defendant
Provincial Sheriff, but finding that the sale of the lands by defendant
Urbi to the minor Soliven was simulated, intended to place the
property beyond the reach of the judgment debtor, and that plaintiffs
had offered to redeem the land within the 5-year period allowed by
Section 119 of the Public Land law for reacquisition thereof by the
grantee. Consequently, the court declared the sale of the land by
defendant Daniel Urbi to defendant Crisanto Soliven null and void; and
Daniel Urbi was ordered to reconvey the property to the plaintiffs upon
the latter's payment (to Urbi) of the sum of P1,476.35 plus the sheriff's
fee incident to the sale at public auction, with interest thereon at the
rate of 12% per annum from 2 June 1961 until said amount shall have
been fully paid, and the further sum of P783.45 representing the
amount paid by defendant Daniel Urbi to the Philippine National Bank
for the release of the real estate mortgage on the land, contracted by
Lino Artates, with legal rate of interest thereon from 29 June 1961.
From this decision, the plaintiffs interposed the present appeal
assigning several errors allegedly committed by the court below, all
hinged on the validity or invalidity of the public sale of the lot involved
herein.
Section 118 of the Public Land law (Commonwealth Act 141) provides
as follows:
SEC. 118. Except in favor of the Government or any of its branches,
units, or institution, or legally constituted banking corporations, lands
acquired under free patent or homestead provisions shall not be
subject to encumbrance or alienation from the date of the approval of
the application and for a term of five years from and after the date of
issuance of the patent or grant, nor shall they become liable to the
satisfaction of any debt contracted prior to the expiration of said
period, but the improvements or crops on the land may be mortgaged
or pledged to qualified persons, associations or corporations.
xxx xxx xxx
As thus prescribed by law, for a period of five years from the date of
the government grant, lands acquired by free or homestead patent
shall not only be incapable of being encumbered or alienated except in
favor of the government itself or any of its institutions or of duly
constituted banking corporations, but also, they shall not be liable to
the satisfaction of any debt contracted within the said period,3 whether
or not the indebtedness shall mature during or after the prohibited
time.4 This provision against the alienation or encumbrance of public
lands granted within five years from the issuance of the patent, it has
been held, is mandatory;5 a sale made in violation thereof is null and
void6 and produces no effect whatsoever. Though it may be a
limitation on the right of ownership of the grantee, the salutary
purpose of the provision cannot be denied: it is to preserve and keep
for the homesteader or his family the land given to him gratuitously by
the State,7 so that being a property owner, he may become and remain
a contented and useful member of our society.8
In the case at bar, the homestead patent covering the land in question
(No.
V-12775) was issued to appellants on 23 September 1952, and it was
sold at public auction to satisfy the civil liability of appellant Lino
Artates to Daniel Urbi, adjudged in the 14 March 1956 decision of the
Justice of the Peace Court of Camalaniugan,
Cagayan.lâwphî1.ñèt There can be no doubt that the award of
damages to Urbi created for Artates a civil obligation, an indebtedness,
that commenced from the date such obligation was decreed on 14
March 1956. Consequently, it is evident that it can not be enforced
against, or satisfied out of, the sale of the homestead lot acquired by
appellants less than 5 years before the obligation accrued. And this is
true even if the sale involved here is not voluntary. For purposes of
complying with the law, it is immaterial that the satisfaction of the debt
by the encumbrancing or alienation of the land grant made voluntarily,
as in the case of an ordinary sale, or involuntarily, such as that effected
through levy on the property and consequent sale at public auction. In
both instances, the spirit of the law would have been violated.9
Doubts have been expressed as to whether the words "debt contracted
prior to the expiration of said period" (of 5 years from and after the
grant) would include the civil liability arising from a crime committed
by the homesteader. While there is no direct Philippine precedent on
this point, there are various reasons why the non-liability of the
homestead grant should be extended to extra-contractual obligations.
First and foremost, whether it be viewed as an exemption or as a
condition attached to the grant to encourage people to settle and
cultivate public land, the immunity in question is in consonance with
the definite public policy underlying these grants, which is to "preserve
and keep in the family of the homesteader that portion of public land
which the State has given to him" so he may have a place to live with
his family and become a happy citizen and a useful member of
society, 10 and the exemption should not be given restrictive
application. 11 A levy and sale of the homestead on account of extra-
contractual liability incurred would uproot the homesteader and his
family and turn them into homeless waifs as effectively as a levy for
non-payment of a contractual debt. Secondly, the word "debt" in
exemption statutes,—
in its wider sense, (it) includes all that is due to a man under any form
or obligation or promise, and covers not only obligations arising under
contract, but also those imposed by law without contract. 12
Considering the protective policy of the law, it becomes apparent that
"debt contracted" was used in it in the sense of "obligation incurred,"
since Webster gives the verb to "contract" the meaning of "to bring on;
incur; acquire." Finally, our public land laws being copied from
American legislation, 13 resort to American precedents reveals that,
under the weight of authority, exemption from "debts contracted" by
a homesteader has been held to include freedom from money
liabilities, from torts or crimes committed by him, such as from bigamy
(State vs. O'Neil, 7 Ore. 141, 11 Words and Phrases 318) or slander
(Conway vs. Sullivan, 44 Ill. 451, 452), breach of contract (Flanagan vs.
Forsythe, 50 Pac. 152, 153) or other torts (In Re Radway, 20 Fed. Cas.
154, 162).
The execution sale in this case being null and void, the possession of
the land should be returned to the owners, the herein appellants.
There would even be no need to order appellee Urbi to execute a deed
of reconveyance thereof to the owners. It appears that what was
issued here to the judgment creditor/purchaser was only the sheriff's
provisional certificate, under which he derived no definite title or right
until the period for redemption has expired, without a redemption
having been made, 14 or issuance of a final deed or certificate of sale.
In other words, the purchaser herein has not acquired an absolute
ownership or title in fee over the land that would necessitate a deed
of reconveyance to revert ownership back to the appellant spouses. As
things now stand, title to the property covered by OCT No. P-572
remains with the appellants, but Lino Artates shall continue to be
under obligation to satisfy the judgment debt to Daniel Urbi in the sum
of P1,476.35, with legal interest thereon accruing from the date the
writ of execution was first returned unsatisfied. It appearing also that
appellee Daniel Urbi paid to the Philippine National Bank the sum of
P783.45 to release the mortgage on the land, appellants should
reimburse him of said amount or of whatever amount appellants have
actually been benefited by the said payment.
FOR THE FOREGOING CONSIDERATIONS, the decision appealed from is
hereby reversed, and appellants are declared entitled to the return and
possession of the lot covered by Original Certificate of Title No. P-572,
without prejudice to their continuing obligation to pay the judgment
debt, and expenses connected therewith. No costs.
Concepcion, C.J., Dizon, Zaldivar, Fernando and Makasiar, JJ., concur.
Separate Opinions
MAKALINTAL, J., concurring and dissenting:
I concur in the opinion of Justice Teehankee, and vote for the
affirmance of the appealed judgment in toto. The date of the issuance
of the homestead patent to appellants was September 23, 1952. Under
Section 118 of the Public Land Law the homestead could not be held
liable for the satisfaction of any debt contracted during a period of five
years thereafter, or up to September 23, 1957. The opinion of the
majority holds that since the civil obligation of appellant Artates was
adjudged on March 14, 1956, or within the said period, the homestead
cannot be held liable for its satisfaction.lâwphî1.ñèt The obvious
implication is that if the judgment had been delayed — if for instance
it had been rendered on September 24, 1957 — the result would have
been otherwise. I do not believe that such a difference should be made
to depend upon the more or less fortuitous and irrelevant
circumstance of when the judgment decreeing the obligation was
rendered. I am for giving the word "contracted," as used in the law, its
ordinary meaning, for after all one who contracts with a homestead
patentee during the five-year period and accepts an obligation from
him does so with full knowledge of the law's exempting provision,
which is deemed in effect a part of the agreement. The same, however,
is not true of the victim of a tort or a crime, as in the present case, for
here his volition does not come into play, the obligation being imposed
entirely by law.
TEEHANKEE, J., concurring and dissenting:
I vote for the affirmance in toto of the judgment appealed from.
Hence, I concur in that portion of the decision decreeing that
appellants should reimburse appellee Urbi for the sums that Urbi had
paid to the Philippine National Bank to release the mortgage previously
executed by appellants on the subject homestead land, but I dissent
from the principal decree thereof that "title to the property .... remains
with the appellants, but (appellant) Lino Artates shall continue to be
under obligation to satisfy the judgment debt to Daniel Urbi in the sum
of P1,476.35, with legal interest thereon accruing from the date the
writ of execution was first returned unsatisfied."
The issue at bar is whether the execution sale conducted in 1962 by
the sheriff of Artates' homestead lot acquired in 1952 to satisfy
a 1956 judgment against Artates in favor of Urbi (for physical injuries
inflicted by Artates upon Urbi in 1955), at which public sale the
homestead lot was sold to Urbi as the only bidder for the amount of
his judgment credit in the sum of P1,476.35 should be held null and
void, as the majority would now hold, by virtue of the prohibitory
provisions of Section 118 of the Public Land Law. The key provision
cited is that providing that such homesteads "shall not be subject to
encumbrance or alienation from the date of the approval of the
application and for a term of five years from and after the date of
issuance of the patent or grant, nor shall they become liable to the
satisfaction of any debt contracted prior to the expiration of said
period ..".
Under the cited provision, all sales and alienations of the homestead
property made by the homesteader within the 5-year prohibition are
null and void. Similarly, the homestead is held not liable to the
satisfaction of any debt contracted by the homesteader within the said
period, even though it be contracted that the indebtedness shall
mature after the prohibited period. The law's purpose is clear and
salutary: to preserve and keep for the homesteader the land given to
him gratuitously by the State and to protect him from his own
weakness and improvidence.
But in the case at bar, the judgment debt of the homesteader in favor
of Ubi * was not contracted but duly adjudicated by a competent court
in a lawful judgment for injuries inflicted by Artates upon Urbi in 1955,
which, gauging the same from the substantial amount of P1,476.35
awarded, must have been quite serious. The happenstance that
Artates' assault on Urbi and the judgment award occurred within the
prohibitory period should not be construed beyond the law's text and
intent to favor the wrongdoer Artates as against his victim Urbi.
We would have the anomalous situation thereby where, while
recognizing that Artates has a just and continuing obligation to pay
Urbi the judgment debt, the debt would in effect be nullified. The
judgment debt was awarded since 1956 and would by now have
prescribed, but the majority decision would nullify the levy and public
sale of the land to satisfy Urbi's judgment credit conducted
in 1966 long after the expiration of the statutory five-year prohibitory
period. The majority decision bars Urbi forever from looking to Artates
homestead property for the satisfaction of his judgment credit.
Artates' evasion of his judgment debt to Urbi is thereby made certain.
Any later creditor of Artates, real or simulated, from one day after the
expiration on 23 September 1957 of the said five-year prohibitory
period is given sole and exclusive preference to look to the said
property for satisfaction as against Urbi beyond whose reach it is
placed, contrary to the priority and preference that Urbi would lawfully
be entitled to as a bona fide judgment creditor.
Finally, pursuant to Artates' offer to redeem the property from Urbi
within the 5-year redemption period allowed by section 119 of the
Public Land Law, the lower court in its appealed judgment so ordered
such redemption and reconveyance. This strikes me as an eminently
fair and just judgment which should be upheld. Artates, the
homesteader, is thus assured of keeping and preserving his homestead
in accordance ** with the spirit of the law and the lawful judgment
credit of Urbi against him is at the same time duly satisfied.
Castro and Villamor, JJ., concur.
BARREDO, J., dissenting:
I regret I am unable to concur in the ruling in this decision that the
provision of Section 118 of the Public Land Law which says that "lands
acquired under free patent or homestead provisions shall not ...
become liable to the satisfaction of any debt contracted prior to the
expiration of five years from and after the date of issuance of the
patent or grant" contemplates inclusively "the civil liability arising from
a crime committed by the homesteader" within said period. Indeed, I citizens or other inhabitants in this country is far from being a useful
do not feel it is necessary to go deep into the Webster's dictionary member of society. To be sure, his act of committing an offense is
meaning of the verb "to contract" or to look for state court decisions voluntary, but this is not the voluntary act of imprudence and
in America, which could be isolated and based on statutes not similarly improvidence against which the law guards the homesteader even
phrased and oriented as Ours, to resolve the legal issue before Us, it against himself. Crime is an assault upon the sovereign people and the
being sufficient, towards that end, to consider only the basic principles social order, even if not always directly against the national security,
that underlie the disposition of public lands under our own laws on the and it is my considered view that, in principle, one who is guilty thereof
matter. forfeits whatever rights he might have acquired by virtue of the State's
I understand that the ultimate reason behind the exceptions contained generosity, particularly, when, as in this case, it is a grant of a special
in the cited provision of the Public Land Law is to insure the privilege under specified circumstances and not generally and
accomplishment of the double purpose of a homestead grant, which is commonly enjoyed by all citizens/inhabitants of the country.
to encourage the development of arable lands and enhance their For these reasons, I vote to affirm the judgment of the court a quo
productivity in the interest of the national economy and, at the same which, after all, recognizes the appellants' right to redeem the land in
time, provide qualified citizens with a piece of land which they and question under Section 119 of the Public Land Law, which is the most
their families may call their own, on which they can live and which they they should expect from the State, as thus, their right to the land is
can work and thereby become useful members of society. Accordingly, reinstated without practically depriving the innocent victims of the
the homesteader is safeguarded against his own weaknesses crime herein involved of their remedy for the private injury they have
imprudence and improvidence by making it impossible for him to suffered. In other words, under the trial court's decision, all the ends
directly or indirectly, by his voluntary act, dispose of or lose the land in of justice and equity are subserved, whereas it is difficult to say the
favor of others. So also do the exceptions make it impossible for him same of the decision of this Court.
to allow himself to be utilized as dummy of opportunists. If this
understanding of mine is correct, it should follow necessarily that for
these purposes to be achieved, a homesteader must be, during the
exempt period, in physical condition to work the land granted to him.
I cannot help wondering how a person who has been convicted of a
crime, the penalty for which is most likely to include a period of
incarceration can work on and develop his homestead in the manner
conceived in the law. That such a contingency may not be true in all
instances, for there may be punishment of crimes with imprisonment
of insignificantly short duration or even fines only, does not affect the
general principle involved. I consider it implicit in all land grants by the
State that the grantees bind themselves to be loyal and useful
members of society, at least, during the period of development thereof
that the law contemplates, namely, the first five years from the grant.
Surely, one who commits an offense against the State and his fellow-
Artates vs. Urbi
Case Digest

FACTS:
In September 1952, the proper land authorities issued in favor of
herein appellant Lino Artates and Manuela Pojas (spouses Artates) a
homestead which is covered by Patent No. V-12775 and duly registered
in their names (OCT No. P-572). In October 1955, Lino Artates inflicted
injuries upon herein defendant Daniel Urbi who then filed Civil Case
No. 40 against the former. The Justice of the Peace of Court of the CFI
of Camilaniugan, Cagayan, awarded damages in favor of Urbi in the
amount of P1,476.35, so in June 1962, the Provincial Sheriff of Cagayan
made a public sale of the homestead to satisfy the said judgment.
Considering the protective policy of the law, the Supreme Court
reiterated that the Philippines’ public land laws, being copied from
American legislation, resort to American precedents which held that
the exemption from "debts contracted" by a homesteader include
freedom from money liabilities, from torts or crimes committed by
him, such as from bigamy or slander, breach of contract or other torts.

The spouses Artates alleged that the sale of the homestead to satisfy
Lino Artates’ indebtedness accrued in October 1955 violated the
provision of the Public Land Law exempting said property from
execution for any debt contracted within five years from the date of
the issuance of the patent, and that Urbi executed a deed of sale of the
same parcel of land in June 1961 for the sum of P2,676.35 to herein
defendant Crisanto Soliven, who was a minor, to defraud them.

In March 1953, the CFI of Camilaniugan, Cagayan, upheld the execution

made by the Provincial Sheriff upon the homestead, and at declared
null and void the sale of the land between Urbi and Soliven.

ISSUE:
Do the appellants spouses Artates possess absolute ownership over
the homestead which is covered by a patent?

RULING:
The Supreme Court reversed the decision appealed from and declared
the spouses Artates to be entitled to the return and possession of the
subject land without prejudice to their continuing obligation to pay the
judgment debt, and expenses connected therewith.
G.R. No. L-54070 February 28, 1983
HEIRS OF ENRIQUE ZAMBALES and JOAQUINA
ZAMBALES, petitioners,
vs.
COURT OF APPEALS, NIN BAY MINING CORPORATION, ANGELA C.
PREYSLER and JOAQUIN B. PREYSLER, respondents.
MELENCIO-HERRERA, J.:
The Decision of respondent Court of Appeals in the case entitled
"Enrique Zambales and Joaquina Zambales, Plaintiffs-appellees vs.
Atty. Perfecto de los Reyes, Nin Bay Mining Corporation and Joaquin B.
Preysler, Defendants-appellants" (CA-G.R. No. 59386-R), setting aside
the judgment of the Court of First Instance of Palawan in Civil Case No.
678 for Annulment of a Deed of Sale with Recovery of Possession and
Ownership with Damages", is the subject of this Petition for Review on
Certiorari.
Joaquin B. Preysler is now deceased and was substituted by Angela C.
Preysler, his widow.
Atty. Perfecto de los Reyes was originally a defendant in Civil Case No.
678 but he did not appeal from the Decision of the lower Court.
The Zambales spouses (Zambaleses, for brevity) were the homestead
patentees of a parcel of land with an area of 17,8474 hectares situated
in the Municipality of Del Pilar, Roxas, Palawan, covered by Original
Certificate of Title No. G 1193 of the Registry of Deeds for the Province
of Palawan, issued pursuant to Homestead Patent No. V-59502 dated
September 6, 1955.
Claiming that the Nin Bay Mining Corporation (Corporation, for short)
had removed silica sand from their land and destroyed the plants and
others improvements thereon, the Zambaleses instituted, on
November 10, 1958, Civil Case No. 316 before the Court of First
Instance of Palawan claiming damages in the total sum of P48,000.00.
The Corporation denied having caused any damages and claimed that
it had excavated and extracted silica sand only from its own mining
claims and on which it had mining lease contracts with the Philippine
Government.
On October 29, 1959, the Zambaleses, duly assisted by their counsel,
Atty. Perfecto de los Reyes, and the Corporation, entered into a
Compromise Agreement, the portions of which, pertinent to this case,
read:
1. DEFENDANT shall pay the PLAINTIFFS a rental of TWENTY (P20.00)
PESOS per hectare per year from September 9, 1955 to September 30,
1960, or a total rental price of ONE THOUSAND SEVEN HUNDRED
EIGHTY-FOUR PESOS AND SEVENTY- FOUR CENTAVOS (P1,784.74),
Philippine currency, in lieu of all damages...
2. The payment to the PLAINTIFFS of the above-mentioned rental price
shall be considered full, absolute and final payment and indemnity for
all the alleged damages to PLAINTIFFS' property and its improvements,
or any other actual, moral, exemplary or other damages that
PLAINTIFFS may have suffered or will suffer in connection with the
mining operations of DEFENDANT on the property in question, which
property, by virtue of the terms of this Agreement shall be used by
DEFENDANT as occupant thereof until September 30, 1960.
3. PLAINTIFFS hereby agree and bind themselves to sell, transfer and
convey, and DEFENDANT or its assigns, qualified to acquire or hold
lands of the public domain, hereby agrees to purchase and pay for, the
aforesaid property of the PLAINTIFFS, containing an area of 17.8474
hectares, situated in the Municipality of Del Pilar, Roxas, Palawan, and
covered by Original Certificate of Title No. G1193 of the Registry of
Deeds of Palawan, at the fixed selling price of FIVE HUNDRED (P500.00)
PESOS per hectare or a total purchase price of EIGHT THOUSAND NINE
HUNDRED TWENTY THREE PESOS and SEVENTY CENTAVOS
(P8,923.70), Philippine currency. The contract to purchase and sell
herein provided for, shall be reciprocally demandable and enforceable
by the parties hereto on September 10, 1960. PLAINTIFFS hereby
irrevocably constitute and appoint DEFENDANT, its successors and/or
assigns their true and lawful attorney-in-fact with full power and
authority to sell, transfer and convey on September 10, 1960 or at any
time thereafter the whole or any part of PLAINTIFFS' property
hereinabove mentioned to the DEFENDANT, its successors and/or
assigns, or to any third party, and to execute and deliver all instruments
and documents whatsoever necessary for the purpose, and all acts
done and to be done by DEFENDANT, its successors and/or assigns in
conformity with the powers herein granted are hereby ratified and
confirmed by the PLAINTIFFS. ...
4. In consideration of the payment of the amount of P1,784.74 by
DEFENDANT, and of other good and valuable consideration,
PLAINTIFFS, jointly and severally, hereby forever release, fully and
completely, said DEFENDANT, its successors and/or assigns in interest,
from any and all liabilities, whether arising from past, present or future
excavation or removal of silica sand from the property in question or
otherwise, and from all the other claims against the DEFENDANT
contained in their Complaint in Civil Case No. 316 of the Court of First
Instance of Palawan. 1
The Trial Court rendered judgment on October 29, 1959 based on the
Compromise Agreement. The document was duly annotated an OCT
No. G - 1193 (Exhibit " A ") the day after, or on October 30, 1959 (Exhibit
" 10 A ").
On September 10, 1960, the Corporation, as attorney-in-fact for the
Zambaleses, as Vendors, sold the disputed property to Joaquin B.
Preysler for the sum of P8,923.70 fixed in the Compromise Agreement
(Exhibit " 11 "). Transfer Certificate of Title No. T-970 was issued in the
vendee's name on December 19, 1960 (Exhibit " 2 ").
The Deed of Sale to Preysler contained the following proviso:
The VENDORS hereby represent and warrant that the five-year
restrictive period on alienation of lands acquired under the homestead
provisions of Commonwealth Act No. 141, as amended, otherwise
known as the Public Land Act, has already expired, the date of issuance
of the herein homestead patent to the VENDORS as aforesaid being
September 6, 1955 as shown in Original Certificate of Title No. G-1193.
On October 18, 1960, the Secretary of Agriculture and Natural
Resources approved the sale to Preysler of the subject property
(Exhibit "13 ").
On. December 6, 1969, or ten (10) years after the Trial Court's Decision
based on the Compromise Agreement, and nine (9) years after the sale
to Preysler, the Zambaleses filed Civil Case No. 678 before the Court of
First Instance of Palawan for "Annulment of a Deed of Sale with
Recovery of Possession and Ownership with Damages". They
contended that it was their lawyer who prevailed upon them to sign
the Compromise Agreement; that they are unschooled and did not
understand the contents thereof; that they were made to understand
that they would receive the sum of P10,700.00, only as payment for
damages sustained by the land from 1955 to 1960; that through fraud,
deceit and manipulation by their lawyer and the Corporation, they
were made to agree to appoint the Corporation as their attorney-in-
fact with full power and authority to sell; that it was never their
intention to sell the land; that in September 1969, they were surprised
to learn that the land was already titled in the name of Joaquin B.
Preysler; that the land was acquired and registered in the latter's name
through fraud and deceit. The Zambaleses then prayed that the deed
of sale and the title in Preysler's name be annulled on the ground of
fraud and that the property be reconveyed to them.
In their Answer, the Corporation denied all allegations that the
Zambaleses had signed the Compromise Agreement without
understanding the contents thereof, the truth being that it was read to
them by their counsel, Atty. Perfecto de los Reyes, who explained
thoroughly the full implication and legal consequence of each and
every provision, which was then submitted and approved by then
Presiding Judge Juan L. Bocar; and that the Corporation had sold the
property to Preysler as a duly constituted attorney-in-fact pursuant to
the Compromise Agreement.
After trial, the lower Court rendered judgment in favor of the
Zambaleses, the dispositive part of which reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and
against the defendants as follows:
1) That the deed of sale executed by Nin Bay Mining Corporation
through its president, to Joaquin B. Preysler is hereby declared null and
void;
2) That the defendant Joaquin B. Preysler is hereby ordered to
reconvey the land subject matter of this litigation to the plaintiffs;
3) That the defendants Nin Bay Mining Corporation and Joaquin B.
Preysler shall pay the plaintiffs the sum of P85,000.00 as actual
damages plus the legal rate of interest from September 30, 1960 up to
the time the amount is fully paid;
4) That the defendants to pay the sum of FIVE THOUSAND (P5,000.00)
PESOS as attorneys fees; and
5) The defendants to pay the costs.
On appeal by the Corporation, the Court of Appeals reversed the Trial
Court, after finding that the alleged fraud or misrepresentation in the
execution of the Compromise Agreement had not been substantiated
by evidence.
The case is now before us on review.
The controversy revolves around the issue of due execution and
validity of the Compromise Agreement (Exhibit "8") dated October 29;
1959, and of the subsequent Deed of Sale (Exhibit "11 "), dated 10
September 1960.
I We sustain the finding of the Court of Appeals that fraud and
The general rule is that whoever alleges fraud or mistake must
substantiate his allegation, since the presumption is that a person
takes ordinary care of his concerns and that private transactions have
been fair and regular. The rule admits of an exception in Article 1332
of the Civil Code which provides:
When one of the parties is unable to read, or if the contract is in a
language not understood by him, and mistake or fraud is alleged, the
person enforcing the contract must show that the terms thereof have
been fully explained to the former.
For the proper application of said provision, it has first to be
established convincingly that the illiterate or the party at a
disadvantage could not read or understand the language in which the
contract was written. 2 The evidence discloses that the spouses
Zambales are unschooled. They cannot read, speak, much less
understand English or write, except to sign their names. 3 The
Zambaleses alleged in their Complaint that the Compromise
Agreement (Exhibit "8") was executed through fraud by the
Corporation and by their counsel Atty. Perfecto de los Reyes, whom
they included as a defendant. The burden of proof, therefore, shifted
to the Corporation to show that the compromise agreement had been
fully explained to the plaintiffs.
In refuting the allegation that plaintiffs were misled into signing the
compromise agreement, their former counsel, Atty. Perfecto de los
Reyes, and the notary, Atty. Salomon Reyes, a lawyer for Nin Bay
Mining Corporation, established that the terms and conditions of the
Compromise Agreement were thoroughly explained and fully
understood by the spouses Zambales in accordance with their proposal
to sell the land at P500.00 a hectare; that before the signing of the
Compromise Agreement, the notary requested Atty. de los Reyes to
read and explain each and every provision to the spouses, and with the
help of Ricardo Nunala, Atty. de los Reyes did so in their dialect
(Cuyuno). Thereafter, the parties went to Judge Juan Bocar, who was
assured that the spouses Zambales understood and signed the
Compromise Agreement. 4
misrepresentation did not vitiate petitioners' consent to the
Agreement when it observed:
Taking into account the foregoing observations, this Court is not
convinced that indeed appellees were victims of a fraudulent scheme
employed upon them by their former counsel by reason of their alleged
illiteracy and ignorance. The evidence discloses that appellees,
although unschooled, are intelligent, well-informed and intelligent
people. They are not the kind of persons who could easily be fooled of
their rights and interests. Even as commented by the court a quo,
which had a chance to observe the demeanor of the witness, it had no
observation that the witness, Joaquina Zambales, is ignorant. As
correctly observed by appellants, appellees 'are political leaders and
chief campaigners; they speak in the platform during political rallies;
and they are widely travelled' (p. 28, Appellants' Brief). As a matter of
fact they are knowledgeable of the right connections in the
government. They had approached former Sen. Rogelio de la Rosa, no
less, the congressman and the governor. Even the lawyers they have
retained previous to their present counsel are the Padilla Law Office
and the Diokno Law Office, It is common knowledge that these law
offices are among the established law offices in Manila. It is far
convincing that an ignorant couple would have knowledge of these law
firms. All these are obvious manifestations of their being well-informed
and the way they have conducted their way of living apparently is
inconsistent with the plea of being illiterate and/or ignorant. They
cannot capitalize on the fact that they are uneducated only because
they had no formal schooling inasmuch as one's knowledge of the facts
of life is not dependent on whether one had formal schooling or not
and it does not necessarily follow always that if one is unschooled he
is ignorant.
Furthermore, when plaintiffs-appellees signed the questioned
compromise agreement they were duly assisted and represented by
their counsel, Atty. de los Reyes. When Atty. de los Reyes testified in
court he categorically declared that it was to the best interest of his
clients that they compromise Civil Case No. 316. This declaration finds
support in Joaquina Zambales' testimony wherein she stated thus:
ATTY. SEMBRANO:
Q. Except for this present case, would you say to the Court that Atty.
de los Reyes extended to you legal assistance to your satisfaction?
A. Yes, sir, he is good to us.
xxx xxx xxx
Q. So these people never gave their services to you?
A. Nobody was able to help us except Atty. de los Reyes. (Tsn., pp. 29,
31 & 32, June 19, 1974)
... Thus, it having been established that appellees could not have been
misled by their former counsel into signing the compromise agreement
and taking into account the acts of the appellees and their children
subsequent to the execution of the compromise agreement perforce
the court a quo erred in not giving credence to the clear and convincing
testimonies of Atty. Perfecto de los Reyes and Atty. Salomon Reyes
anent the execution of the compromise agreement. 5
However, although we find that the Zambaleses were not misled into
signing the Compromise Agreement, we hold that there has been
violation of the Public Land Act. The evidence on record shows that the
land in question was awarded t the Zambaleses as a homestead on
September 6, 1955 (Exhibit "A"). Before us, the Zambaleses now argue
that the Compromise Agreement executed on October 29, 1959 is in
violation of the Public Land Act, which prohibits alienation and
encumbrance of a homestead lot within five years from the issuance
of the patent. 6
We sustain that contention. The fact that the issue was not raised in
the Courts below is not a deterrent factor considering that the question
affects the validity of the agreement between the parties. The
Supreme Court has the authority to review matters even if they are not
assigned as errors in the appeal, if it is found that their consideration
is necessary in arriving at a just decision of the case. 7 Moreover, a
party may change his legal theory on appeal only when the factual
bases thereof would not require presentation of any further evidence
by the adverse party in order to enable it to properly meet the issue
raised in the new theory. 8 In the case at bar it is indisputable that
Homestead Patent No. V-59502 was issued on September 6, 1955 as
shown in Original Certificate of Title No. 1193 (Exhibit "A ").
The sale of a homestead lot within the five-year prohibitory period is
illegal and void. The law does not distinguish between executory and
consummated sales.
The law prohibiting any transfer or alienation of homestead land within
five years from the issuance of the patent does not distinguish
between executory and consummated sales; and it would hardly be in
keeping with the primordial aim of this prohibition to preserve and
keep in the family of the homesteader the piece of land that the state
had gratuitously given to them, to hold valid a homestead sale actually
perfected during the period of prohibition but with the execution of
the formal deed of conveyance and the delivery of possession of the
land sold to the buyer deferred until after the expiration of the
prohibitory period, purposely to circumvent the very law that prohibits
and declares invalid such transaction to protect the homesteader and
his family. 9
In the compromise agreement executed between the parties, (1) the
Zambaleses promised to sell and the Corporation agreed to buy the
disputed lot at P500.00 per hectare, the contract to be reciprocally
demandable and enforceable on September 10, 1960; and as a
substitute procedure, (2) an irrevocable agency was constituted in
favor of the Corporation as attorney- in-fact to sell the land to any third
person on September 10, 1960 or any time thereafter.
Clearly, the bilateral promise to buy and sell the homestead lot at a
price certain, which was reciprocally demandable 10, was entered into
within the five-year prohibitory period and is therefore, illegal and
void. Further, the agency to sell the homestead lot to a third party was
coupled with an interest inasmuch as a bilateral contract was
dependent on it and was not revocable at will by any of the
parties.11 To all intents and purposes, therefore, there was an actual
executory sale perfected during the period of prohibition except that
it was reciprocally demandable thereafter and the agency to sell to any
third party was deferred until after the expiration of the prohibitory
period. That "rentals" were ostensibly to be paid during the five-year
prohibitory period, and the agency to sell made effective only after the
lapse of the said period, was merely a devise to circumvent the
prohibition.
To hold valid such an arrangement would be to throw the door wide
open to all possible subterfuges that persons interested in homesteads
may devise to defeat the legal prohibition against alienation within five
years from the issuance of the patent.
We hold, therefore, that the bilateral promise to buy and sell, and the
agency to sell, entered into within five years from the date of the
homestead patent, was in violation of section 118 of the Public Land
Law, although the executed sale was deferred until after the expiration
of the five-year- prohibitory period.
As the contract is void from the beginning, for being expressly
prohibited by law 12 the action for the declaration of its inexistence
does not prescribe. 13 Being absolutely void, it is entitled to no
authority or respect, the sale may be impeached in a collateral
proceeding by any one with whose rights and interest it conflicts. There
is no presumption of its validity. 14 The approval of the sale by the
Secretary of Agriculture and Natural Resources after the lapse of five
years from the date of the patent would neither legalize the sale. 15
The homestead in question should be returned to the Zambaleses,
petitioners herein, who are, in turn, bound to restore to the
Corporation the sum of P8,923.70 as the price thereof. The actual
damages awarded by the Trial Court of P85,000.00 have not been
adequately substantiated. Moreover, under the agreement, the total
rental price of P1,784.74 was intended to be "in lieu of all damages, or
any other actual, moral, exemplary or other damages.
This is without prejudice to the corresponding action on the part of the
State for reversion of the property and its improvements, if any, under
Section 124 of the Public Land Act. 16
WHEREFORE, the judgment under review is hereby REVERSED, and
another one entered (1) declaring null and void a) the bilateral promise
to buy and sell entered into between Enrique Zambales and Joaquina
Zambales, on the one hand, and the Nin Bay Mining Corporation on the
other, and b) the sale executed by Nin Bay Mining Corporation in favor
of Joaquin B. Preysler; (2) ordering Angela C. Preysler to reconvey the
land subject matter of this litigation to petitioners upon refund by the
latter to the Nin Bay Mining Corporation of the sum of P8,923.70, all
expenses for the reconveyance to be borne by private respondents; (3)
ordering Nin Bay Mining Corporation to pay rentals to petitioners at
the price of P20.00 per hectare per year from December 6, 1969, the
date of the institution of the Complaint, till the date that possession is
turned over to petitioners; and (4) ordering the Register of Deeds for
the Province of Palawan to cancel Transfer Certificate of Title No. T-970
of his Registry, and reissue to the Heirs of Enrique Zambales and
Joaquina Zambales the title to the homestead in question.
Let a copy of this Decision be served on the Solicitor General.
Heirs of Enrique Zambales vs. Court of Appeals & Nin Bay Mining
Corp.
Case Digest
FACTS:
The spouses Enrique Zambales and Joaquina Zambales (the
Zambaleses), who are illiterate, were the homestead patentees of a
parcel of land in the Municipality of Del Pilar, Roxas, Palawan, pursuant
to Homestead Patent No. V-59502 dated September 6, 1955. They
claimed in November 1956 that respondent Nin Bay Mining
Corporation (Corporation) had removed silica sand from their land and
destroyed the plants and other improvements thereon, to which said
Corporation denied to have done so. On October 29, 1959, the
Zambaleses, duly assisted by their counsel, Atty. Perfecto de los Reyes,
and the Corporation, entered into a Compromise Agreement which
state, among others, that the Zambaleses are giving the Corporation
full power and authority to sell, transfer and convey on September 10,
1960 or at any time thereafter the whole or any part of herein subject
property.
On September 10, 1960, the Corporation sold the disputed property to
Joaquin B. Preysler for the sum of P8,923.70 fixed in the Compromise
Agreement. On December 6, 1969, or ten (10) years after the Trial
Court's Decision based on the Compromise Agreement, and nine (9)
years after the sale to Preysler, the Zambaleses filed a civil action in the
CFI of Palawan for "Annulment of a Deed of Sale with Recovery of
Possession and Ownership with Damages”, alleging that Atty. de los
Reyes and the Corporation induced them through fraud, deceit and
manipulation to sign the Compromise Agreement.
The trial court declared null and void the deed of sale executed
between Preysler and the Corporation, but the Court of Appeals
reversed the said decision after finding that the alleged fraud or
misrepresentation in the execution of the Compromise Agreement had
not been substantiated by evidence.
ISSUE:
Are the compromise agreement and the subsequent deed of sale valid
and legal?
RULING:
The Supreme Court sustained the finding of the appellate court that
fraud and misrepresentation did not vitiate petitioners' consent to the
Agreement because the latter were not as ignorant as they themselves
tried to show. The Zambaleses were political leaders who speak in the
platform during political rallies, and the lawyers they have hired belong
to well-established law firms in Manila, which show that although they
were illiterate, they are still well-informed.
However, while the Compromise Agreement was held to be in violation
of the Public Land Act, which prohibits alienation and encumbrance of
a homestead lot within five years from the issuance of the patent.
Although the issue was not raised in the Courts below, the Supreme
Court has the authority to review matters even if they are not assigned
as errors in the appeal, if it is found that their consideration is
necessary in arriving at a just decision of the case. The bilateral promise
to sell between the Zambaleses and the Corporation, and the
subsequent deed of sale between Preysler and the latter were declared
null and void.
G.R. No. L-11491 August 23, 1918
ANDRES QUIROGA, plaintiff-appellant,
vs.
PARSONS HARDWARE CO., defendant-appellee.
Alfredo Chicote, Jose Arnaiz and Pascual B. Azanza for appellant.
Crossfield & O'Brien for appellee.
AVANCEÑA, J.:
On January 24, 1911, in this city of manila, a contract in the following
tenor was entered into by and between the plaintiff, as party of the
first part, and J. Parsons (to whose rights and obligations the present
defendant later subrogated itself), as party of the second part:
CONTRACT EXECUTED BY AND BETWEEN ANDRES QUIROGA AND J.
PARSONS, BOTH MERCHANTS ESTABLISHED IN MANILA, FOR THE
EXCLUSIVE SALE OF "QUIROGA" BEDS IN THE VISAYAN ISLANDS.
ARTICLE 1. Don Andres Quiroga grants the exclusive right to sell his
beds in the Visayan Islands to J. Parsons under the following conditions:
(A) Mr. Quiroga shall furnish beds of his manufacture to Mr. Parsons
for the latter's establishment in Iloilo, and shall invoice them at the
same price he has fixed for sales, in Manila, and, in the invoices, shall
make and allowance of a discount of 25 per cent of the invoiced prices,
as commission on the sale; and Mr. Parsons shall order the beds by the
dozen, whether of the same or of different styles.
(B) Mr. Parsons binds himself to pay Mr. Quiroga for the beds received,
within a period of sixty days from the date of their shipment.
(C) The expenses for transportation and shipment shall be borne by M.
Quiroga, and the freight, insurance, and cost of unloading from the
vessel at the point where the beds are received, shall be paid by Mr.
Parsons.
(D) If, before an invoice falls due, Mr. Quiroga should request its
payment, said payment when made shall be considered as a prompt
payment, and as such a deduction of 2 per cent shall be made from the
amount of the invoice.
The same discount shall be made on the amount of any invoice which
Mr. Parsons may deem convenient to pay in cash.
(E) Mr. Quiroga binds himself to give notice at least fifteen days before
hand of any alteration in price which he may plan to make in respect
to his beds, and agrees that if on the date when such alteration takes
effect he should have any order pending to be served to Mr. Parsons,
such order shall enjoy the advantage of the alteration if the price
thereby be lowered, but shall not be affected by said alteration if the
price thereby be increased, for, in this latter case, Mr. Quiroga
assumed the obligation to invoice the beds at the price at which the
order was given.
(F) Mr. Parsons binds himself not to sell any other kind except the
"Quiroga" beds.
ART. 2. In compensation for the expenses of advertisement which, for
the benefit of both contracting parties, Mr. Parsons may find himself
obliged to make, Mr. Quiroga assumes the obligation to offer and give
the preference to Mr. Parsons in case anyone should apply for the
exclusive agency for any island not comprised with the Visayan group.
ART. 3. Mr. Parsons may sell, or establish branches of his agency for
the sale of "Quiroga" beds in all the towns of the Archipelago where
there are no exclusive agents, and shall immediately report such action
to Mr. Quiroga for his approval.
ART. 4. This contract is made for an unlimited period, and may be
terminated by either of the contracting parties on a previous notice of
ninety days to the other party.
Of the three causes of action alleged by the plaintiff in his complaint,
only two of them constitute the subject matter of this appeal and both
substantially amount to the averment that the defendant violated the
following obligations: not to sell the beds at higher prices than those
of the invoices; to have an open establishment in Iloilo; itself to
conduct the agency; to keep the beds on public exhibition, and to pay
for the advertisement expenses for the same; and to order the beds by
the dozen and in no other manner. As may be seen, with the exception
of the obligation on the part of the defendant to order the beds by the
dozen and in no other manner, none of the obligations imputed to the
defendant in the two causes of action are expressly set forth in the
contract. But the plaintiff alleged that the defendant was his agent for
the sale of his beds in Iloilo, and that said obligations are implied in a
contract of commercial agency. The whole question, therefore,
reduced itself to a determination as to whether the defendant, by
reason of the contract hereinbefore transcribed, was a purchaser or an
agent of the plaintiff for the sale of his beds.
In order to classify a contract, due regard must be given to its essential
clauses. In the contract in question, what was essential, as constituting
its cause and subject matter, is that the plaintiff was to furnish the
defendant with the beds which the latter might order, at the price
stipulated, and that the defendant was to pay the price in the manner
stipulated. The price agreed upon was the one determined by the
plaintiff for the sale of these beds in Manila, with a discount of from 20
to 25 per cent, according to their class. Payment was to be made at the
end of sixty days, or before, at the plaintiff's request, or in cash, if the
defendant so preferred, and in these last two cases an additional
discount was to be allowed for prompt payment. These are precisely
the essential features of a contract of purchase and sale. There was the
obligation on the part of the plaintiff to supply the beds, and, on the
part of the defendant, to pay their price. These features exclude the
legal conception of an agency or order to sell whereby the mandatory
or agent received the thing to sell it, and does not pay its price, but
delivers to the principal the price he obtains from the sale of the thing
to a third person, and if he does not succeed in selling it, he returns it.
By virtue of the contract between the plaintiff and the defendant, the
latter, on receiving the beds, was necessarily obliged to pay their price
within the term fixed, without any other consideration and regardless
as to whether he had or had not sold the beds.
It would be enough to hold, as we do, that the contract by and between
the defendant and the plaintiff is one of purchase and sale, in order to
show that it was not one made on the basis of a commission on sales,
as the plaintiff claims it was, for these contracts are incompatible with
each other. But, besides, examining the clauses of this contract, none
of them is found that substantially supports the plaintiff's contention.
Not a single one of these clauses necessarily conveys the idea of an
agency. The words commission on sales used in clause (A) of article 1
mean nothing else, as stated in the contract itself, than a mere discount
on the invoice price. The word agency, also used in articles 2 and 3,
only expresses that the defendant was the only one that could sell the
plaintiff's beds in the Visayan Islands. With regard to the remaining
clauses, the least that can be said is that they are not incompatible with
the contract of purchase and sale.
The plaintiff calls attention to the testimony of Ernesto Vidal, a former
vice-president of the defendant corporation and who established and
managed the latter's business in Iloilo. It appears that this witness,
prior to the time of his testimony, had serious trouble with the
defendant, had maintained a civil suit against it, and had even accused
one of its partners, Guillermo Parsons, of falsification. He testified that
it was he who drafted the contract Exhibit A, and, when questioned as
to what was his purpose in contracting with the plaintiff, replied that it
was to be an agent for his beds and to collect a commission on sales.
However, according to the defendant's evidence, it was Mariano Lopez
Santos, a director of the corporation, who prepared Exhibit A. But,
even supposing that Ernesto Vidal has stated the truth, his statement
as to what was his idea in contracting with the plaintiff is of no
importance, inasmuch as the agreements contained in Exhibit A which
he claims to have drafted, constitute, as we have said, a contract of
purchase and sale, and not one of commercial agency. This only means
that Ernesto Vidal was mistaken in his classification of the contract. But
it must be understood that a contract is what the law defines it to be,
and not what it is called by the contracting parties.
The plaintiff also endeavored to prove that the defendant had returned
beds that it could not sell; that, without previous notice, it forwarded
to the defendant the beds that it wanted; and that the defendant
received its commission for the beds sold by the plaintiff directly to
persons in Iloilo. But all this, at the most only shows that, on the part
of both of them, there was mutual tolerance in the performance of the
contract in disregard of its terms; and it gives no right to have the
contract considered, not as the parties stipulated it, but as they
performed it. Only the acts of the contracting parties, subsequent to,
and in connection with, the execution of the contract, must be
considered for the purpose of interpreting the contract, when such
interpretation is necessary, but not when, as in the instant case, its
essential agreements are clearly set forth and plainly show that the
contract belongs to a certain kind and not to another. Furthermore, the
return made was of certain brass beds, and was not effected in
exchange for the price paid for them, but was for other beds of another
kind; and for the letter Exhibit L-1, requested the plaintiff's prior
consent with respect to said beds, which shows that it was not
considered that the defendant had a right, by virtue of the contract, to
make this return. As regards the shipment of beds without previous
notice, it is insinuated in the record that these brass beds were
precisely the ones so shipped, and that, for this very reason, the
plaintiff agreed to their return. And with respect to the so-called
commissions, we have said that they merely constituted a discount on
the invoice price, and the reason for applying this benefit to the beds
sold directly by the plaintiff to persons in Iloilo was because, as the
defendant obligated itself in the contract to incur the expenses of
advertisement of the plaintiff's beds, such sales were to be considered
as a result of that advertisement.
In respect to the defendant's obligation to order by the dozen, the only
one expressly imposed by the contract, the effect of its breach would
only entitle the plaintiff to disregard the orders which the defendant
might place under other conditions; but if the plaintiff consents to fill
them, he waives his right and cannot complain for having acted thus at
his own free will.
For the foregoing reasons, we are of opinion that the contract by and
between the plaintiff and the defendant was one of purchase and sale,
and that the obligations the breach of which is alleged as a cause of
action are not imposed upon the defendant, either by agreement or by
law.
The judgment appealed from is affirmed, with costs against the
appellant. So ordered.
Quiroga vs Parsons
Case Digest
Facts: On Jan 24, 1911, plaintiff and the respondent entered into a
contract making the latter an “agent” of the former. The contract
stipulates that Don Andres Quiroga, here in petitioner, grants exclusive
rights to sell his beds in the Visayan region to J. Parsons. The contract
only stipulates that J.Parsons should pay Quiroga within 6 months
upon the delivery of beds.
Quiroga files a case against Parsons for allegedly violating the following
stipulations: not to sell the beds at higher prices than those of the
invoices; to have an open establishment in Iloilo; itself to conduct the
agency; to keep the beds on public exhibition, and to pay for the
advertisement expenses for the same; and to order the beds by the
dozen and in no other manner. With the exception of the obligation on
the part of the defendant to order the beds by the dozen and in no
other manner, none of the obligations imputed to the defendant in the
two causes of action are expressly set forth in the contract. But the
plaintiff alleged that the defendant was his agent for the sale of his
beds in Iloilo, and that said obligations are implied in a contract of
commercial agency. The whole question, therefore, reduced itself to a
determination as to whether the defendant, by reason of the contract
hereinbefore transcribed, was a purchaser or an agent of the plaintiff
for the sale of his beds.
Issue:
Whether the contract is a contract of agency or of sale.
Held:
In order to classify a contract, due attention must be given to its
essential clauses. In the contract in question, what was essential, as
constituting its cause and subject matter, is that the plaintiff was to
furnish the defendant with the beds which the latter might order, at
the price stipulated, and that the defendant was to pay the price in the
manner stipulated. Payment was to be made at the end of sixty days,
or before, at the plaintiff’s request, or in cash, if the defendant so
preferred, and in these last two cases an additional discount was to be
allowed for prompt payment. These are precisely the essential features
of a contract of purchase and sale. There was the obligation on the part
of the plaintiff to supply the beds, and, on the part of the defendant,
to pay their price. These features exclude the legal conception of an
agency or order to sell whereby the mandatory or agent received the
thing to sell it, and does not pay its price, but delivers to the principal
the price he obtains from the sale of the thing to a third person, and if
he does not succeed in selling it, he returns it. By virtue of the contract
between the plaintiff and the defendant, the latter, on receiving the
beds, was necessarily obliged to pay their price within the term fixed,
without any other consideration and regardless as to whether he had
or had not sold the beds.
In respect to the defendant’s obligation to order by the dozen, the only
one expressly imposed by the contract, the effect of its breach would
only entitle the plaintiff to disregard the orders which the defendant
might place under other conditions; but if the plaintiff consents to fill
them, he waives his right and cannot complain for having acted thus at
his own free will.
For the foregoing reasons, we are of opinion that the contract by and
between the plaintiff and the defendant was one of purchase and sale,
and that the obligations the breach of which is alleged as a cause of
action are not imposed upon the defendant, either by agreement or by
law.
G.R. No. 55793 May 18, 1990 Sometime in 1968, the agents of respondent commissioner conducted
CONCRETE AGGREGATES, INC., petitioner, an investigation of petitioner's tax liabilities. As a consequence thereof,
vs. in a letter dated December 14, 1970 said respondent assessed and
COURT OF TAX APPEALS and COMMISSIONER OF INTERNAL demanded payment from petitioner of the amount of P244,002.76 as
REVENUE, respondents. sales and ad valorem taxes for the first semester of 1968, inclusive of
Santiago, Tinga & Associates for petitioner. surcharges. Petitioner disputed the said assessment in its letter dated
February 2, 1971 without, however, contesting the portion pertaining
REGALADO, J.: to the ad valorem tax.
This petition for review on certiorari seeks the annulment of the In his letter dated July 24, 1972, respondent reiterated the said
decision of respondent Court of Tax Appeals, 1 dated September 19, assessment of sales and ad valorem taxes which, as explained in his
1980, and its resolution denying reconsideration thereof, dated preceding letter, had been arrived at as follows. 3
December 3, 1980, both promulgated in CTA Case No. 2433, entitled Taxable sales P 4,164,092.44
"Concrete Aggregates, Inc. vs. Commissioner of Internal Revenue," the ——————
decretal portion of which decision reads: 7% sales tax due thereon P 291,486.47
Having reached the conclusion that petitioner is a manufacturer Less: Tax already paid 116,523.55
subject to the 7% sales tax under Section 186 of the then National ——————
Internal Revenue Code, the decision of respondent dated July 24, 1972 Deficiency tax due P 174,962.92
should therefore be sustained. Accordingly, petitioner Concrete Add: 25% surcharge 43,740.73
Aggregates, Inc. is hereby ordered to pay to respondent Commissioner ——————
of Internal Revenue the total amount of P244,022.76 representing Total deficiency tax and surcharge P 218,703.65
sales and ad valorem taxes for the first semester of 1968 inclusive of Add: 1 1/2% ad valorem on P20,239.29
surcharges, plus interest at the rate of 14% per centum from January 1, 25% surcharge thereon 5,059.82 25,299.11
1973 up to the date of full payment thereof pursuant to Section 183 ———— —————
(now 193) of the National Internal Revenue Code. TOTAL AMOUNT DUE & COLLECTIBLE P244,002.76
WHEREFORE, the decision appealed from is hereby affirmed at Consequently, demand for the payment of the said amount within ten
petitioner's costs. days from receipt of the letter was made by respondent on petitioner,
SO ORDERED. 2 otherwise the same would be collected thru the summary remedies
The records disclose that petitioner is a domestic corporation, duly provided for by law. Instead of paying, petitioner appealed to
organized and existing under the laws of the Philippines, with business respondent court.
address at Longos, Quezon City. It has an aggregate plant at As earlier stated, a judgment adverse to petitioner was handed down
Montalban, Rizal which processes rock aggregates mined by it from by respondent court, whereupon he came to this Court on a petition
private lands. Petitioner also maintains and operates a plant at Longos, for review. In its resolution dated September 7, 1981, the Court,
Quezon City for the production of ready-mixed concrete and plant- through its First Division, denied the petition for review for lack of
mixed hot asphalt. merit. 4 Petitioner filed a motion for reconsideration which was
likewise denied in the resolution of October 19, 1981 for lack of merit,
the denial being expressly declared to be final. 5 With leave of court,
petitioner filed its second motion for reconsideration which was
granted by the Court in its resolution dated November 23, 1981. 6
The sole issue in this case is whether petitioner is a contractor subject
to the 3% contractor's tax under Section 191 of the 1968 National
Internal Revenue Code or a manufacturer subject to the 7% sales tax
under Section 186 of the same Code.
Petitioner disclaims liability on the ground that it is a contractor within
the meaning of Section 191 of the 1968 Tax Code, the pertinent portion
of which reads:
Sec. 191. Percentage tax on road, building, irrigation, artesian well,
waterworks, and other construction work contractors, proprietors or
operators of dockyards, and others. — Road, building, irrigation,
artesian well, waterworks, and other construction work contractors; . .
. and other independent contractors, . . . shall pay a. tax equivalent to
three per centum of their gross receipts.
xxx xxx xxx
Petitioner contends that its business falls under "other construction
work contractors" or "other independent contractors" and, as such, it
was a holder of a license under Republic Act No. 4566, otherwise
known as the "Contractors Licensing Law" and was classified
thereunder as a "general engineering contractor" and "specialty
asphalt and concrete contractor. 7 It advances the theory that it
produced asphalt and concrete mix only upon previous orders, which
may be proved by its system of requiring the filling of job orders where
the customers specify the construction requirements, and that without
such order, it would not do so considering the highly perishable nature
of the asphalt and concrete mix. 8
It emphasizes that the mixing of asphalt and cement, if they were to be
sold to the public, is not a simple matter of putting things together in a
rotating bowl but involves a careful selection of components, proper
measuring and weighing of ingredients, calibration of the plant to
arrive at the right mixing temperature, and testing of the strength of
the material, altogether using its own means and methods without
submitting itself to control by the customers. 9
Thus, it adopts the view that if the article subject of the sale is one
which is not ready for delivery, as it is yet to be manufactured
according to the order, the seller thereof is a contractor. However, if
the article subject of the sale is one which is ready for delivery when
the order therefor is placed, the seller is a
10
manufacturer. Complementary to this, it postulates that as a
contractor dealing exclusively in the construction of roads, buildings
and other building or construction works, its business consists of
rendering service by way of furnishing its customers with pre-mixed
concrete or asphalt, in effect merely doing for the customers what the
latter used to do themselves, that is, to buy the ingredients and then
mix the concrete or asphalt. 11 It concludes that in doing so, it does not
become a manufacturer.
We have had the occasion to construe Section 191, now Section 205,
of the Tax Code in Commissioner of Internal Revenue vs. The Court of
Tax Appeals, et al. 12 where we reiterated the test as to when one may
be considered a contractor within its context, thus;
The word "contractor" has come to be used with special reference to a
person who, in the pursuit of the independent business, undertakes to
do a specific job or piece of work for other persons, using his own
means and methods without submitting himself to control as to the
petty details. (Aranas, Annotations and Jurisprudence on the National
Internal Revenue Code, p. 318, par. 191(2), 1970 Ed.) The true test of a
contractor as was held in the cases of Luzon Stevedoring
Co. vs. Trinidad, 43 Phil. 803, 807-808, and La Carlota Sugar Central
vs. Trinidad, 43 Phil. 816, 819, would seem to be that he renders service
in the course of an independent occupation, representing the will of his
employer only as to the result of his work, and not as to the means by
which it is accomplished. (Emphasis supplied)
It is quite evident that the percentage tax imposed in Section 191 is
generally a tax on the sale of services or labor. In its factual findings,
respondent court found that petitioner was formed and organized
primarily as a manufacturer; that it has an aggregate plant at
Montalban, Rizal, which processes rock aggregates mined by it from
private lands; it operates a concrete batching plant at Longos, Quezon
City where the specified aggregates from its plant at Montalban are
mixed with sand and cement, after which water is added and the
concrete mixture is sold and delivered to customers; and at its plant
site at Longos, Quezon City, petitioner has also an asphalt mixing
machinery where bituminous asphalt mix is manufactured. 13
We see no reason to disturb the findings of respondent court.
Petitioner is a manufacturer as defined by Section 194(x), now Section
187(x), of the Tax Code.
Sec. 1 94. Words and phrases defined. — In applying the provisions of
this Title words and phrases shall be taken in the sense and extension
indicated below:
xxx xxx xxx
(x) "Manufacturer" includes every person who by physical or chemical
process alters the exterior texture or form or inner substance of any
raw material or manufactured or partially manufactured product in
such manner as to prepare it for a special use or uses to which it could
not have been put in its original condition, or who by any such process
alters the quality of any such raw material or manufactured or partially
manufactured product so as to reduce it to marketable shape or
prepare it for any of the uses of industry, or who by any such process
combines any such raw material or manufactured or partially
manufactured products with other materials or products of the same
or different kinds and in such manner that the finished product of such
process or manufacture can be put to a special use or uses to which
such raw material or manufactured or partially manufactured
products, in their original condition could not have been put, and who
in addition alters such raw material or manufactured or partially
manufactured products, or combines the same to produce such
finished products for the purpose of their sale or distribution to others
and not for his own use or consumption.
As aptly pointed out by the Solicitor General, petitioner's raw materials
are processed under a prescribed formula and thereby changed by
means of machinery into a finished product, altering their quality,
transforming them into marketable state or preparing them for any of
the specific uses of industry. Thus, the raw materials become a distinct
class of merchandise or "finished products for the purpose of their
sales or distribution to others and not for his own use or consumption."
Evidently, without the above process, the raw materials or aggregates
could not, in their original form, perform the uses of the finished
product. 14
In a case involving the making of ready-mixed concrete, it was held that
concrete is a product resulting from a combination of sand or gravel or
broken bits of limestones with water and cement; a combination which
requires the use of skill and most generally of machinery. Concrete in
forms designed for use and supplied to others for buildings, bridges
and other structures is a distinct article of commerce and the making
of them would be manufacturing by the corporation doing so. 15
Selling or distribution is an essential ingredient of manufacturing. The
sale of a manufactured product is properly incident to manufacture.
The power to sell is an indispensable adjunct to a manufacturing
business. 16 Petitioner, as a manufacturer, not only manufactures the
finished articles but also sells or distributes them to others. This is
inferable from the testimonial evidence of petitioner's witness that, in
the marketing of its products, the company has marketing personnel
who visit the client, whether he is a regular or a prospective customer,
and that it is the customer who specifies the requirement according to
his needs by filling up a purchase order, after which a job order is
issued. This is followed by the delivery of the finished product to the
job site. 17
Petitioner relies heavily on the case of The Commissioner of Internal
Revenue vs. Engineering Equipment and Supply Co., et al. 18 and on the
basis thereof posits that it has passed the test of a contractor under
Article 1467 of the Civil Code which provides:
Art. 1467. A contract for the delivery at a certain price of an article
which the vendor in the ordinary course of his business manufactures
or procures for the general market, whether the same is on hand at the
time or not, is a contract of sale but if the goods are to be
manufactured specially for the customer and upon his special order,
and not for the general market, it is a contract for a piece of work.
It is readily apparent that, in declaring private respondent in the
aforesaid Engineering Equipment case as a contractor, the Court relied
on findings of fact distinguishable from those in the case at bar.
. . . We find that Engineering did not manufacture air conditioning units
for sale to the general public, but imported some items (as
refrigeration coils, . . .) which were used in executing contracts entered
into by it. Engineering, therefore, undertook negotiations and
execution of individual contracts for the design, supply and installation
of air conditioning units of the central type . . ., taking into
consideration in the process such factors as the area of the space to be
air conditioned; the number of persons occupying or would be
occupying the premises; the purpose for which the various air
conditioning areas are to be used; and the sources of heat gain or
cooling load on the plant such as the sun load, lighting, and other
electrical appliances which are or may be in the plan. . . . Engineering
also testified during the hearing in the Court of Tax Appeals that
relative to the installation of air conditioning system, Engineering
designed and engineered complete each particular plant and that no
two plants were identical but each had to be engineered separately.
As found by the lower court, which finding We adopt —
Engineering, in a nutshell, fabricates, assembles, supplies and installs
in the buildings of its various customers the central type air
conditioning system; prepares the plans and specifications therefor
which are distinct and different from each other; the air conditioning
units and spare parts or accessories thereof used by petitioner are not
the window type of air conditioners which are manufactured,
assembled and produced locally for sale to the general market; and the
imported air conditioning units and spare parts or accessories thereof
are supplied and installed by petitioner upon previous orders of its
customers conformably with their needs and requirements.
The facts and circumstances aforequoted support the theory that
Engineering is a contractor rather than a manufacturer.
It is still good law that a contract to make is a contract of sale if the
article is already substantially in existence at the time of the order and
merely requires some alteration, modification or adaptation to the
buyer's wishes or purposes. A contract for the sale of an article which
the vendor in the ordinary course of his business manufactures or
procures for the general market, whether the same is on hand at the
time or not is a contract for the sale of goods. 19
Petitioner insists that it would produce asphalt or concrete mix only
upon previous job orders otherwise it would not do so. It does not and
will not carry in stock cement and asphalt mix. 20 But the reason is
obvious. What practically prevents the petitioner from mass
production and storage is the nature of its products, that is, they easily
harden due to temperature change and water and cement
reaction. 21 Stated differently by respondent court, "it is self-evident
that it is due to the highly perishable nature of asphalt and concrete
mix, as petitioner itself argues, that makes impossible for them to be
carried in stock because they cool and harden with time, and once
hardened, they become useless. 22
Had it not been for this fact, petitioner could easily mass produce the
ready-mixed concrete or asphalt desired and needed by its various
customers and for which it is mechanically equipped to do. It is clear,
however, that petitioner does nothing more than sell the articles that
it habitually manufactures. It stocks raw materials, ready at any time,
for the manufacture of asphalt and/or concrete mix. 23 Its marketing
system would readily disclose that its products are available for sale to
anyone needing them. Whosoever would need its products, whether
builder, contractor, homeowner or payer with sufficient money, may
order aggregates, concrete mix or bituminous asphalt mix of the kind
manufactured by petitioner.24 The habituality of the production of
goods for the general public characterizes the business of petitioner.
We are likewise persuaded by the submissions of the Solicitor General
that the ruling in Celestino Co & Company vs. Collector of Internal
Revenue 25 is applicable to this case in that unless an activity is covered
by Section 191 of the Tax Code, one who manufactures articles,
although upon a previous order and subject to the specifications of the
buyer, is nonetheless a manufacturer.
We also reject petitioner's theory that, with the amendment of Section
191 of the Tax Code, it can be considered as a "specialty contractor."
As observed by respondent, a specialty contractor is one whose ISSUE:
operations pertain to construction work requiring special skill and Is the petitioner a contractor subject to the 3% contractor's tax under
involves the use of specialized building trades or crafts. The Section 191 or a manufacturer subject to the 7% sales tax under
manufacture of concrete and cement mix do not involve the foregoing Section 186?
requirements as to put it within such special category.
ON THE FOREGOING CONSIDERATIONS, certiorari is DENIED and the RULING:
appealed decision of respondent Court of Tax Appeals is AFFIRMED. The Supreme Court affirmed respondent CTA’s decision and declared
that petitioner is a manufacturer as defined by Section 194(x), now
Concrete Aggregates vs. CTA and CIR Section 187(x), of the Tax Code. It reiterated the respondent CTA’s
Case Digest finding that petitioner was formed and organized primarily as a
manufacturer; that it has an aggregate plant at Montalban, Rizal, which
FACTS: processes rock aggregates mined by it from private lands; it operates a
Petitioner, a domestic corporation duly existing under the laws of the concrete batching plant at Longos, Quezon City where the specified
Philippines, has an aggregate plant at Montalban, Rizal which aggregates from its plant at Montalban are mixed with sand and
processes rock aggregates mined by it from private lands, and cement, after which water is added and the concrete mixture is sold
maintains and operates a plant at Longos, Quezon City for the and delivered to customers; and at its plant site at Longos, Quezon City,
production of ready-mixed concrete and plant-mixed hot asphalt. petitioner has also an asphalt mixing machinery where bituminous
Sometime in 1968, the agents of respondent Commission on Internal asphalt mix is manufactured.
Revenue (CIR) conducted an investigation of petitioner's tax liabilities,
and assessed and demanded payment from petitioner the amount of
P244,002.76 as sales and ad valorem taxes for the first semester of
1968, inclusive of surcharges.
Instead of paying, the petitioner appealed to respondent CTA. The said
Court concluded that petitioner is a manufacturer subject to the 7%
sales tax under the Section Section 186 of the 1968 National Internal
Revenue Code, and ordered it to pay what the respondent CIR
demands, plus interest at the rate of 14% per centum from January 1,
1973 up to the date of full payment thereof pursuant to Section 183
(now 193) of the same Code. Petitioner contends, however, that it is a
contractor within the meaning of Section 191 under the same Code,
that its business falls under "other construction work contractors" or
"other independent contractors", and that it produced asphalt and
concrete mix only upon previous orders.
G.R. No. L-61623 December 26, 1984
PEOPLE'S HOMESITE & HOUSING CORPORATION, petitioner-
appellant,
vs.
COURT OF APPEALS, RIZALINO L. MENDOZA and ADELAIDA R.
MENDOZA, respondents-appellees.
Manuel M. Lazaro, Pilipinas Arenas Laborte and Antonio M. Brillantes
for petitioner PHHC.
Tolentino, Cruz, Reyes, Lava and Manuel for private respondents.
AQUINO, J.:
The question in this case is whether the People's Homesite & Housing
Corporation bound itself to sell to the Mendoza spouses Lot 4 (Road)
Pcs- 4564 of the revised consolidation subdivision plan with an area of
2,6,08.7 (2,503.7) square meters located at Diliman, Quezon City.
The PHHC board of directors on February 18, 1960 passed Resolution
No. 513 wherein it stated "that subject to the approval of the Quezon
City Council of the above-mentioned Consolidation Subdivision Plan,
Lot 4. containing 4,182.2 square meters be, as it is hereby awarded to
Spouses Rizalino Mendoza and Adelaida Mendoza, at a price of twenty-
one pesos (P21.00) per square meter" and "that this award shall be
subject to the approval of the OEC (PHHC) Valuation Committee and
higher authorities".
The city council disapproved the proposed consolidation subdivision
plan on August 20, 1961 (Exh. 2). The said spouses were advised by
registered mail of the disapproval of the plan (Exh. 2-PHHC). Another
subdivision plan was prepared and submitted to the city council for
approval. The revised plan, which included Lot 4, with a reduced area
of 2,608.7, was approved by the city council on February 25, 1964 (Exh.
H).
On April 26, 1965 the PHHC board of directors passed a
resolution recalling all awards of lots to persons who failed to pay the
deposit or down payment for the lots awarded to them (Exh. 5). The
Mendozas never paid the price of the lot nor made the 20% initial
deposit.
On October 18, 1965 the PHHC board of directors passed Resolution
No. 218, withdrawing the tentative award of Lot 4 to the Mendoza -
spouses under Resolution No. 513 and re-awarding said lot jointly and
in equal shares to Miguela Sto. Domingo, Enrique Esteban, Virgilio
Pinzon, Leonardo Redublo and Jose Fernandez, subject to existing
PHHC rules and regulations. The prices would be the same as those of
the adjoining lots. The awardees were required to deposit an amount
equivalent to 20% of the total selling price (Exh. F).
The five awardees made the initial deposit. The corresponding deeds
of sale were executed in their favor. The subdivision of Lot 4 into five
lots was approved by the city council and the Bureau of Lands.
On March 16, 1966 the Mendoza spouses asked for reconsideration of
the withdrawal of the previous award to them of Lot 4 and for the
cancellation of the re-award of said lot to Sto. Domingo and four
others. Before the request could be acted upon, the spouses filed the
instant action for specific performance and damages.
The trial court sustained the withdrawal of the award. The Mendozas
appealed. The Appellate Court reversed that decision and declared
void the re-award of Lot 4 and the deeds of sale and directed the PHHC
to sell to the Mendozas Lot 4 with an area of 2,603.7 square meters at
P21 a square meter and pay to them P4,000 as attorney's fees and
litigation expenses. The PHHC appealed to this Court.
The issue is whether there was a perfected sale of Lot 4, with the
reduced area, to the Mendozas which they can enforce against the
PHHC by an action for specific performance.
We hold that there was no perfected sale of Lot 4. It was conditionally
or contingently awarded to the Mendozas subject to the approval by
the city council of the proposed consolidation subdivision plan and the
approval of the award by the valuation committee and higher
authorities.
The city council did not approve the subdivision plan. The Mendozas
were advised in 1961 of the disapproval. In 1964, when the plan with
the area of Lot 4 reduced to 2,608.7 square meters was approved, the
Mendozas should have manifested in writing their acceptance of the
award for the purchase of Lot 4 just to show that they were still
interested in its purchase although the area was reduced and to
obviate ally doubt on the matter. They did not do so. The PHHC board
of directors acted within its rights in withdrawing the tentative award.
"The contract of sale is perfected at the moment there is a meeting of
minds upon the thing which is the object of the contract and upon the
price. From that moment, the parties may reciprocally demand
performance, subject to the law governing the form of contracts." (Art.
1475, Civil Code).
"Son, sin embargo, excepcion a esta regla los casos en que por virtud
de la voluntad de las partes o de la ley, se celebra la venta bajo una
condicion suspensiva, y en los cuales no se perfecciona la venta hasta
el cumplimiento de la condicion" (4 Castan Tobenas, Derecho Civil
Español 8th ed. p. 81).
"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. (Art. 1181,
Civil Code). "Se llama suspensive la condicion de la que depende la
perfeccion, o sea el principio del contrato". (9 Giorgi, Teoria de las
Obligaciones, p. 57).
Under the facts of this case, we cannot say there was a meeting of
minds on the purchase of Lot 4 with an area of 2,608.7 square meters
at P21 a square meter.
The case of Lapinig vs. Court of Appeals, 115 SCRA 213 is not in point
because the awardee in that case applied for the purchase of the lot,
paid the 10% deposit and a conditional contract to sell was executed in
his favor. The PHHC could not re-award that lot to another person.
WHEREFORE, the decision of the Appellate Court is reversed and set
aside and the judgment of the trial court is affirmed. No costs.
People’s Homesite vs. Court of Appeals, and Mendoza Mendozas subject to the approval by the Court council of the proposed
Case Digest consolidation subdivision plan and the approval of the award by the
valuation committee and higher authorities. When the plan with the
FACTS: area of Lot 4 reduced to 2,608.7 square meters was approved in 1964,
In February 1960, herein petitioner People’s Homesite & Housing the spouses Court should have manifested in writing their acceptance
Corporation (PHHC) passed a resolution, subject to the approval of the of the award for the purchase of Lot 4 just to show that they were still
Court Court Council of the PHHC’s consolidation subdivision plan, interested in its purchase although the area was reduced. Article 1475
awarding Lot 4 with an area of 4,182.2 square meters located at of the Civil Court says “[t]he contract of sale is perfected at the moment
Diliman, Court City to respondents Rizalino and Adelaida Mendoza there is a meeting of minds upon the thing which is the object of the
(spouses Mendoza) at a price of twenty-one pesos (P21.00) per square contract and upon the price. From that moment, the parties may
meter. The Court Court Council disapproved the consolidation reciprocally demand performance, subject to the law governing the
subdivision plan in August 1960 but approved in February 1964 its form of contracts.” Indeed, there was a no meeting of the minds
revised version where Lot 4 was reduced to an area of 2,608.7 square between the parties on the purchase of Lot 4 with an area of 2,608.7
meters. Then in October 1965, the PHHC withdrew the tentative award square meters at P21 a square meter and the PHHC board of directors
of Lot 4 to the spouses Mendoza for the latter’s failure neither to pay acted within its rights in withdrawing the tentative award.
its price nor to make a 20% initial deposit, and re-awarded said lot
jointly and in equal shares to Miguela Sto. Domingo, Enrique Esteban,
Virgilio Pinzon, Leonardo Redublo and Jose Fernandez, all of whom
made the initial deposit. The subdivision of Lot 4 into five lots was later
approved by the Court council and the Bureau of Lands.
The spouses Mendoza asked for reconsideration and for the
withdrawal of the said 2nd award to Sto. Domingo and four others, and
at the same time filed an action for specific performance plus damages.
The trial court sustained the award but the Court of Appeals reversed
the said decision, declared void the re-award to Sto. Domingo and four
others, and ordered the PHHC to sell Lot 4 with an area of 2,608.7
square meters at P21.00 per square meter to spouses Mendoza.

ISSUE:
Was there a perfected sale of Lot 4, with its reduced area, between the
parties?

RULING:
The Supreme Court found that there was no perfected sale of Lot 4
because the said lot was conditionally or contingently awarded to the
G.R. No. L-116650 May 23, 1995
TOYOTA SHAW, INC., petitioner,
vs.
COURT OF APPEALS and LUNA L. SOSA, respondents.
DAVIDE, JR., J.:
At the heart of the present controversy is the document marked Exhibit
"A" 1 for the private respondent, which was signed by a sales
representative of Toyota Shaw, Inc. named Popong Bernardo. The
document reads as follows:
4 June 1989
AGREEMENTS BETWEEN MR. SOSA
& POPONG BERNARDO OF TOYOTA
SHAW, INC.
1. all necessary documents will be submitted to TOYOTA SHAW, INC.
(POPONG BERNARDO) a week after, upon arrival of Mr. Sosa from the
Province (Marinduque) where the unit will be used on the 19th of June.
2. the downpayment of P100,000.00 will be paid by Mr. Sosa on June
15, 1989.
3. the TOYOTA SHAW, INC. LITE ACE yellow, will be pick-up [sic] and
released by TOYOTA SHAW, INC. on the 17th of June at 10 a.m.
Very truly yours,
(Sgd.) POPONG BERNARDO.
Was this document, executed and signed by the petitioner's sales
representative, a perfected contract of sale, binding upon the
petitioner, breach of which would entitle the private respondent to
damages and attorney's fees? The trial court and the Court of Appeals
took the affirmative view. The petitioner disagrees. Hence, this petition
for review on certiorari.
The antecedents as disclosed in the decisions of both the trial court
and the Court of Appeals, as well as in the pleadings of petitioner
Toyota Shaw, Inc. (hereinafter Toyota) and respondent Luna L. Sosa
(hereinafter Sosa) are as follows. Sometime in June of 1989, Luna L.
Sosa wanted to purchase a Toyota Lite Ace. It was then a seller's market
and Sosa had difficulty finding a dealer with an available unit for sale.
But upon contacting Toyota Shaw, Inc., he was told that there was an
available unit. So on 14 June 1989, Sosa and his son, Gilbert, went to
the Toyota office at Shaw Boulevard, Pasig, Metro Manila. There they
met Popong Bernardo, a sales representative of Toyota.
Sosa emphasized to Bernardo that he needed the Lite Ace not later
than 17 June 1989 because he, his family, and a balikbayan guest
would use it on 18 June 1989 to go to Marinduque, his home province,
where he would celebrate his birthday on the 19th of June. He added
that if he does not arrive in his hometown with the new car, he would
become a "laughing stock." Bernardo assured Sosa that a unit would
be ready for pick up at 10:00 a.m. on 17 June 1989. Bernardo then
signed the aforequoted "Agreements Between Mr. Sosa & Popong
Bernardo of Toyota Shaw, Inc." It was also agreed upon by the parties
that the balance of the purchase price would be paid by credit
financing through B.A. Finance, and for this Gilbert, on behalf of his
father, signed the documents of Toyota and B.A. Finance pertaining to
the application for financing.
The next day, 15 June 1989, Sosa and Gilbert went to Toyota to deliver
the downpayment of P100,000.00. They met Bernardo who then
accomplished a printed Vehicle Sales Proposal (VSP) No. 928,2 on
which Gilbert signed under the subheading CONFORME. This
document shows that the customer's name is "MR. LUNA SOSA" with
home address at No. 2316 Guijo Street, United Parañaque II; that the
model series of the vehicle is a "Lite Ace 1500" described as "4 Dr
minibus"; that payment is by "installment," to be financed by
"B.A.," 3 with the initial cash outlay of P100,000.00 broken down as
follows:
a) downpayment — P 53,148.00
b) insurance — P 13,970.00
c) BLT registration fee — P 1,067.00
CHMO fee — P 2,715.00
service fee — P 500.00
accessories — P 29,000.00

and that the "BALANCE TO BE FINANCED" is "P274,137.00." The spaces
provided for "Delivery Terms" were not filled-up. It also contains the
following pertinent provisions:
CONDITIONS OF SALES
1. This sale is subject to availability of unit.
2. Stated Price is subject to change without prior notice, Price
prevailing and in effect at time of selling will apply. . . .
Rodrigo Quirante, the Sales Supervisor of Bernardo, checked and
approved the VSP.
On 17 June 1989, at around 9:30 a.m., Bernardo called Gilbert to
inform him that the vehicle would not be ready for pick up at 10:00
a.m. as previously agreed upon but at 2:00 p.m. that same day. At 2:00
p.m., Sosa and Gilbert met Bernardo at the latter's office. According to
Sosa, Bernardo informed them that the Lite Ace was being readied for
delivery. After waiting for about an hour, Bernardo told them that the
car could not be delivered because "nasulot ang unit ng ibang
malakas."
Toyota contends, however, that the Lite Ace was not delivered to Sosa
because of the disapproval by B.A. Finance of the credit financing
application of Sosa. It further alleged that a particular unit had already
been reserved and earmarked for Sosa but could not be released due
to the uncertainty of payment of the balance of the purchase price.
Toyota then gave Sosa the option to purchase the unit by paying the
full purchase price in cash but Sosa refused.
After it became clear that the Lite Ace would not be delivered to him,
Sosa asked that his downpayment be refunded. Toyota did so on the
very same day by issuing a Far East Bank check for the full amount of
P100,000.00, 4 the receipt of which was shown by a check voucher of
Toyota,5 which Sosa signed with the reservation, "without prejudice to
our future claims for damages."
Thereafter, Sosa sent two letters to Toyota. In the first letter, dated 27
June 1989 and signed by him, he demanded the refund, within five
days from receipt, of the downpayment of P100,000.00 plus interest
from the time he paid it and the payment of damages with a warning
that in case of Toyota's failure to do so he would be constrained to take
legal action. 6 The second, dated 4 November 1989 and signed by M.
O. Caballes, Sosa's counsel, demanded one million pesos representing
interest and damages, again, with a warning that legal action would be
taken if payment was not made within three days.7 Toyota's counsel
answered through a letter dated 27 November 1989 8 refusing to
accede to the demands of Sosa. But even before this answer was made
and received by Sosa, the latter filed on 20 November 1989 with
Branch 38 of the Regional Trial Court (RTC) of Marinduque a complaint
against Toyota for damages under Articles 19 and 21 of the Civil Code
in the total amount of P1,230,000.00.9 He alleges, inter alia, that:
9. As a result of defendant's failure and/or refusal to deliver the vehicle
to plaintiff, plaintiff suffered embarrassment, humiliation, ridicule,
mental anguish and sleepless nights because: (i) he and his family were
constrained to take the public transportation from Manila to Lucena
City on their way to Marinduque; (ii) his balikbayan-guest canceled his
scheduled first visit to Marinduque in order to avoid the inconvenience
of taking public transportation; and (iii) his relatives, friends, neighbors
and other provincemates, continuously irked him about "his Brand-
New Toyota Lite Ace — that never was." Under the circumstances,
defendant should be made liable to the plaintiff for moral damages in
the amount of One Million Pesos (P1,000,000.00). 10
In its answer to the complaint, Toyota alleged that no sale was entered
into between it and Sosa, that Bernardo had no authority to sign
Exhibit "A" for and in its behalf, and that Bernardo signed Exhibit "A"
in his personal capacity. As special and affirmative defenses, it alleged
that: the VSP did not state date of delivery; Sosa had not completed
the documents required by the financing company, and as a matter of
policy, the vehicle could not and would not be released prior to full
compliance with financing requirements, submission of all documents,
and execution of the sales agreement/invoice; the P100,000.00 was
returned to and received by Sosa; the venue was improperly laid; and
Sosa did not have a sufficient cause of action against it. It also
interposed compulsory counterclaims.
After trial on the issues agreed upon during the pre-trial session, 11 the
trial court rendered on 18 February 1992 a decision in favor of
Sosa. 12 It ruled that Exhibit "A," the "AGREEMENTS BETWEEN MR.
SOSA AND POPONG BERNARDO," was a valid perfected contract of sale
between Sosa and Toyota which bound Toyota to deliver the vehicle to
Sosa, and further agreed with Sosa that Toyota acted in bad faith in
selling to another the unit already reserved for him.
As to Toyota's contention that Bernardo had no authority to bind it
through Exhibit "A," the trial court held that the extent of Bernardo's
authority "was not made known to plaintiff," for as testified to by
Quirante, "they do not volunteer any information as to the company's
sales policy and guidelines because they are internal
matters." 13 Moreover, "[f]rom the beginning of the transaction up to
its consummation when the downpayment was made by the plaintiff,
the defendants had made known to the plaintiff the impression that
Popong Bernardo is an authorized sales executive as it permitted the
latter to do acts within the scope of an apparent authority holding him
out to the public as possessing power to do these acts." 14 Bernardo
then "was an agent of the defendant Toyota Shaw, Inc. and hence
bound the defendants." 15
The court further declared that "Luna Sosa proved his social standing
in the community and suffered besmirched reputation, wounded
feelings and sleepless nights for which he ought to be
compensated." 16 Accordingly, it disposed as follows:
WHEREFORE, viewed from the above findings, judgment is hereby
rendered in favor of the plaintiff and against the defendant:
1. ordering the defendant to pay to the plaintiff the sum of P75,000.00
for moral damages;
2. ordering the defendant to pay the plaintiff the sum of P10,000.00
for exemplary damages;
3. ordering the defendant to pay the sum of P30,000.00 attorney's fees
plus P2,000.00 lawyer's transportation fare per trip in attending to the
hearing of this case;
4. ordering the defendant to pay the plaintiff the sum of P2,000.00
transportation fare per trip of the plaintiff in attending the hearing of
this case; and
5. ordering the defendant to pay the cost of suit.
SO ORDERED.
Dissatisfied with the trial court's judgment, Toyota appealed to the
Court of Appeals. The case was docketed as CA-G.R. CV No. 40043. In
its decision promulgated on 29 July 1994,17 the Court of Appeals
affirmed in toto the appealed decision.
Toyota now comes before this Court via this petition and raises the
core issue stated at the beginning of the ponenciaand also the
following related issues: (a) whether or not the standard VSP was the
true and documented understanding of the parties which would have
led to the ultimate contract of sale, (b) whether or not Sosa has any
legal and demandable right to the delivery of the vehicle despite the
non-payment of the consideration and the non-approval of his credit
application by B.A. Finance, (c) whether or not Toyota acted in good
faith when it did not release the vehicle to Sosa, and (d) whether or not
Toyota may be held liable for damages.
We find merit in the petition.
Neither logic nor recourse to one's imagination can lead to the
conclusion that Exhibit "A" is a perfected contract of sale.
Article 1458 of the Civil Code defines a contract of sale as follows:
Art. 1458. By the contract of sale one of the contracting parties
obligates himself to transfer the ownership of and to deliver a
determinate thing, and the other to pay therefor a price certain in
money or its equivalent.
A contract of sale may be absolute or conditional.
and Article 1475 specifically provides when it is deemed perfected:
Art. 1475. The contract of sale is perfected at the moment there is a
meeting of minds upon the thing which is the object of the contract
and upon the price.
From that moment, the parties may reciprocally demand performance,
subject to the provisions of the law governing the form of contracts.
What is clear from Exhibit "A" is not what the trial court and the Court
of Appeals appear to see. It is not a contract of sale. No obligation on
the part of Toyota to transfer ownership of a determinate thing to Sosa
and no correlative obligation on the part of the latter to pay therefor a
price certain appears therein. The provision on the downpayment of
P100,000.00 made no specific reference to a sale of a vehicle. If it was
intended for a contract of sale, it could only refer to a sale on
installment basis, as the VSP executed the following day confirmed. But
nothing was mentioned about the full purchase price and the manner
the installments were to be paid.
This Court had already ruled that a definite agreement on the manner
of payment of the price is an essential element in the formation of a
binding and enforceable contract of sale. 18 This is so because the
agreement as to the manner of payment goes into the price such that
a disagreement on the manner of payment is tantamount to a failure
to agree on the price. Definiteness as to the price is an essential
element of a binding agreement to sell personal property. 19
Moreover, Exhibit "A" shows the absence of a meeting of minds
between Toyota and Sosa. For one thing, Sosa did not even sign it. For
another, Sosa was well aware from its title, written in bold letters, viz.,
AGREEMENTS BETWEEN MR. SOSA & POPONG BERNARDO OF TOYOTA
SHAW, INC.
that he was not dealing with Toyota but with Popong Bernardo and
that the latter did not misrepresent that he had the authority to sell
any Toyota vehicle. He knew that Bernardo was only a sales
representative of Toyota and hence a mere agent of the latter. It was
incumbent upon Sosa to act with ordinary prudence and reasonable
diligence to know the extent of Bernardo's authority as an
agent20 in respect of contracts to sell Toyota's vehicles. A person
dealing with an agent is put upon inquiry and must discover upon his
peril the authority of the agent.21
At the most, Exhibit "A" may be considered as part of the initial phase
of the generation or negotiation stage of a contract of sale. There are
three stages in the contract of sale, namely:
(a) preparation, conception, or generation, which is the period of
negotiation and bargaining, ending at the moment of agreement of the
parties;
(b) perfection or birth of the contract, which is the moment when the
parties come to agree on the terms of the contract; and
(c) consummation or death, which is the fulfillment or performance of
the terms agreed upon in the contract.22
The second phase of the generation or negotiation stage in this case
was the execution of the VSP. It must be emphasized that thereunder,
the downpayment of the purchase price was P53,148.00 while the
balance to be paid on installment should be financed by B.A. Finance
Corporation. It is, of course, to be assumed that B.A. Finance Corp. was
acceptable to Toyota, otherwise it should not have mentioned B.A.
Finance in the VSP.
Financing companies are defined in Section 3(a) of R.A. No. 5980, as
amended by P.D. No. 1454 and P.D. No. 1793, as "corporations or
partnerships, except those regulated by the Central Bank of the
Philippines, the Insurance Commission and the Cooperatives
Administration Office, which are primarily organized for the purpose of
extending credit facilities to consumers and to industrial, commercial,
or agricultural enterprises, either by discounting or factoring
commercial papers or accounts receivables, or by buying and selling
contracts, leases, chattel mortgages, or other evidence of
indebtedness, or by leasing of motor vehicles, heavy equipment and
industrial machinery, business and office machines and equipment,
appliances and other movable property." 23
Accordingly, in a sale on installment basis which is financed by a
financing company, three parties are thus involved: the buyer who
executes a note or notes for the unpaid balance of the price of the thing
purchased on installment, the seller who assigns the notes or discounts
them with a financing company, and the financing company which is
subrogated in the place of the seller, as the creditor of the installment
buyer. 24 Since B.A. Finance did not approve Sosa's application, there
was then no meeting of minds on the sale on installment basis.
We are inclined to believe Toyota's version that B.A. Finance purchase price. It was he who brought embarrassment upon himself
disapproved Sosa's application for which reason it suggested to Sosa by bragging about a thing which he did not own yet.
that he pay the full purchase price. When the latter refused, Toyota Since Sosa is not entitled to moral damages and there being no award
cancelled the VSP and returned to him his P100,000.00. Sosa's version for temperate, liquidated, or compensatory damages, he is likewise not
that the VSP was cancelled because, according to Bernardo, the vehicle entitled to exemplary damages. Under Article 2229 of the Civil Code,
was delivered to another who was "mas malakas" does not inspire exemplary or corrective damages are imposed by way of example or
belief and was obviously a delayed afterthought. It is claimed that correction for the public good, in addition to moral, temperate,
Bernardo said, "Pasensiya kayo, nasulot ang unit ng ibang malakas," liquidated, or compensatory damages.
while the Sosas had already been waiting for an hour for the delivery Also, it is settled that for attorney's fees to be granted, the court must
of the vehicle in the afternoon of 17 June 1989. However, in paragraph explicitly state in the body of the decision, and not only in the
7 of his complaint, Sosa solemnly states: dispositive portion thereof, the legal reason for the award of attorney's
On June 17, 1989 at around 9:30 o'clock in the morning, defendant's fees. 26 No such explicit determination thereon was made in the body
sales representative, Mr. Popong Bernardo, called plaintiff's house and of the decision of the trial court. No reason thus exists for such an
informed the plaintiff's son that the vehicle will not be ready for pick- award.
up at 10:00 a.m. of June 17, 1989 but at 2:00 p.m. of that day WHEREFORE, the instant petition is GRANTED. The challenged decision
instead. Plaintiff and his son went to defendant's office on June 17 1989 of the Court of Appeals in CA-G.R. CV NO. 40043 as well as that of
at 2:00 p.m. in order to pick-up the vehicle but the defendant for Branch 38 of the Regional Trial Court of Marinduque in Civil Case No.
reasons known only to its representatives, refused and/or failed to 89-14 are REVERSED and SET ASIDE and the complaint in Civil Case No.
release the vehicle to the plaintiff. Plaintiff demanded for an 89-14 is DISMISSED. The counterclaim therein is likewise DISMISSED.
explanation, but nothing was given; . . . (Emphasis supplied). 25
The VSP was a mere proposal which was aborted in lieu of subsequent
events. It follows that the VSP created no demandable right in favor of
Sosa for the delivery of the vehicle to him, and its non-delivery did not
cause any legally indemnifiable injury.
The award then of moral and exemplary damages and attorney's fees
and costs of suit is without legal basis. Besides, the only ground upon
which Sosa claimed moral damages is that since it was known to his
friends, townmates, and relatives that he was buying a Toyota Lite Ace
which they expected to see on his birthday, he suffered humiliation,
shame, and sleepless nights when the van was not delivered. The van
became the subject matter of talks during his celebration that he may
not have paid for it, and this created an impression against his business
standing and reputation. At the bottom of this claim is nothing but
misplaced pride and ego. He should not have announced his plan to
buy a Toyota Lite Ace knowing that he might not be able to pay the full
Toyota Shaw Inc. vs. Court of Appeals, and Sosa
Case Digest
FACTS:
Luna L. Sosa and his son, Gilbert, went to purchase a yellow Toyota Lite
Ace from the Toyota office at Shaw Boulevard, Pasig (petitioner
Toyota) on June 14, 1989 where they met Popong Bernardo who was
a sales representative of said branch. Sosa emphasized that he needed
the car not later than June 17, 1989 because he, his family, and a
balikbayan guest would be using it on June 18 to go home to
Marinduque where he will celebrate his birthday on June 19. Bernardo
assured Sosa that a unit would be ready for pick up on June 17 at 10:00
in the morning, and signed the "Agreements Between Mr. Sosa &
Popong Bernardo of Toyota Shaw, Inc.,” a document which did not
mention anything about the full purchase price and the manner the
installments were to be paid. Sosa and Gilbert delivered the down
payment of P100,000.00 on June 15, 1989 and Bernardo accomplished
a printed Vehicle Sales Proposal (VSP) No. 928 which showed Sosa’s full
name and home address, that payment is by "installment," to be
financed by "B.A.," and that the "BALANCE TO BE FINANCED" is
"P274,137.00", but the spaces provided for "Delivery Terms" were not
filled-up.
When June 17 came, however, petitioner Toyota did not deliver the
Lite Ace. Hence, Sosa asked that his down payment be refunded and
petitioner Toyota issued also on June 17 a Far East Bank check for the
full amount of P100,000.00, the receipt of which was shown by a check
voucher of Toyota, which Sosa signed with the reservation, "without
prejudice to our future claims for damages." Petitioner Toyota
contended that the B.A. Finance disapproved Sosa’s the credit
financing application and further alleged that a particular unit had
already been reserved and earmarked for Sosa but could not be
released due to the uncertainty of payment of the balance of the
purchase price. Toyota then gave Sosa the option to purchase the unit
by paying the full purchase price in cash but Sosa refused.
The trial court found that there was a valid perfected contract of sale
between Sosa and Toyota which bound the latter to deliver the vehicle
and that Toyota acted in bad faith in selling to another the unit already
reserved for Sosa, and the Court of Appeals affirmed the said decision.
ISSUE:
Was there a perfected contract of sale between respondent Sosa and
petitioner Toyota?
RULING:
The Supreme Court granted Toyota’s petition and dismissed Sosa’s
complaint for damages because the document entitled “Agreements
Between Mr. Sosa & Popong Bernardo of Toyota Shaw, Inc.,” was not
a perfected contract of sale, but merely an agreement between Mr.
Sosa and Bernardo as private individuals and not between Mr. Sosa and
Toyota as parties to a contract.
There was no indication in the said document of any obligation on the
part of Toyota to transfer ownership of a determinate thing to Sosa
and neither was there a correlative obligation on the part of the latter
to pay therefor a price certain. The provision on the downpayment of
P100,000.00 made no specific reference to a sale of a vehicle. If it was
intended for a contract of sale, it could only refer to a sale on
installment basis, as VSP No.928 executed on June 15, 1989 confirmed.
The VSP also created no demandable right in favor of Sosa for the
delivery of the vehicle to him, and its non-delivery did not cause any
legally indemnifiable injury.
G.R. No. L-43059 October 11, 1979
SAMPAGUITA PICTURES, INC., plaintiff-appellant,
vs.
JALWINDOR MANUFACTURERS, INC., defendant-appellee.
DE CASTRO, J:
This case was certified to this Court by the Court of Appeals pursuant
to the provisions of Section 17, paragraph (6) in relation to Section 31
of the Judiciary Act of 1948.
Plaintiff-appellant Sampaguita Pictures, Inc. (hereinafter referred to as
Sampaguita) is the owner of the Sampaguita Pictures Building located
at the corner of General Araneta and General Roxas Streets, Cubao,
Quezon City. The roofdeck of the building and all existing
improvements thereon were leased by Sampaguita to Capitol "300"
Inc. (Capitol for short), and it was agreed, among other things, that the
premises shall be used by said club for social purposes exclusively for
its members and guests; that all permanent improvements made by
the lessee on the leased premises shall belong to the lessor without
any obligation on the part of the lessor to reimburse the lessee for the
sum spent for said improvements; that the improvements made by
lessee have been considered as part of the consideration of the
monthly rental and said improvements belong to the lessor; that any
remodelling, alterations and/or addition to the premises shall be at the
expense of the lessee and such improvements belong to the lessor,
without any obligation to reimburse the lessee of any sum spent for
said improvements. (pp. 29-32, Record on Appeal).
Capitol "300" purchased on credit from defendant-appellee Jalwindor
Manufacturers, Inc. (hereinafter referred to as Jalwindor) glass and
wooden jalousies which were delivered and installed in the leased
premises by Jalwindor replacing the existing windows. On June 1, 1964,
Jalwindor filed with the Court of First Instance of Rizal, Quezon City, an
action for collection of a sum of money with a petition for preliminary
attachment against Capitol for its failure to pay its purchases. The
parties submitted to the trial court a Compromise Agreement wherein
Capitol acknowledged its indebtedness to Jalwindor in the amount of
P9,531.09, exclusive of attorney's fees and interest, payable in monthly
installments of at least P300.00 a month beginning December 15, 1964;
and pending liquidation of the said obligation, all the materials
purchased by Capitol will be considered as security for such
undertaking. (p. 13, Record on Appeal).
In the meantime, Capitol "300" was not able to pay rentals to
Sampaguita from March 1, 1964 to April 30, 1965, water, electric and
telephone services. Sampaguita filed a complaint for ejectment and for
collection of a sum of money against Capitol and on June 8, 1965, the
City Court of Quezon City rendered judgment ordering Capitol to
vacate the premises and to pay Sampaguita.
On the other hand, Capitol likewise failed to comply with the terms of
the Compromise Agreement, and on July 31, 1965, the Sheriff of
Quezon City made levy on the glass and wooden jalousies in question.
Sampaguita filed a third party claim alleging that it is the owner of said
materials and not Capitol, Jalwindor however, filed an indemnity bond
in favor of the Sheriff and the items were sold et public auction on
August 30, 1965 with Jalwindor as the highest bidder for P6,000.00.
Sampaguita filed with the Court of First Instance of Rizal, Branch IV of
Quezon City, an action to nullify the Sheriff's Sale and for the issuance
of a writ of preliminary injunction against Jalwindor from detaching the
glass and wooden jalousies. Jalwindor was ordered to maintain
the status quo pending final determination of the case. No actual
hearing was held and the parties submitted the following stipulation of
facts for the consideration of the court.
1. That plaintiff and defendant are both domestic corporations duly
organized and existing by and under the laws of the Philippines:
2. That plaintiff leased to the CAPITOL "300", Inc. the roofdeck of the
Sampaguita building and all the existing improvements thereon for a
monthly, rental of P650.00; that the parties to the lease contract
agreed that all permanent improvements made by the lessee on the
leased premises shall belong to the lessor without any obligation on
the part of the lessor to reimburse the lessee for the sum spent for said
improvements; that it was agreed upon by the parties that the
improvements made by the lessee have been considered as part of the
consideration of the monthly rental;
3. That CAPITOL "300", Inc. made alterations on the leased premises;
that it removed the then existing windows and replaced 'them with the
following items bought on credit from the JALWINDOR
MANUFACTURERS INC.. valued at P9,531.09, to wit:
J-21(lever-type) Solex Bluepane
Glass Jaluosies
11 Sets 15'-1 3/4" x 47-7/8" (5 units)
4 Sets 13'-5 3/4" x 47-7/8" (5 units)
3 Sets 10'-9 3/4" x 47-7/7" (4 units)
2 Sets 18'-1 3/3" x 56-3/8" (6 units)
1 Set 9'-1 3/4" x 65-3/8" (3 units)
115 Pcs. Roto Operators for J-21
MODEL J-21 (Roto-type) Glass
and Wood Jalousies
8 Sets 32-1/2" x 60" Solex Bluepane
19 Sets 31-1/4" x 48" Solex Bluepane
18 Sets 34" x 48" Wood
4. That after the CAPITOL "300", Inc. failed to pay the price of the items
mentioned in the preceding paragraph, JALWINDOR
MANUFACTURERS, Inc, filed a case for collection of a sum of money
against CAPITOL "300", Inc. with the Court of First Instance of Rizal
(Branch IV Quezon City), Civil Case No. Q-8040; that by virtue of a
Compromise Agreement, CAPITOL "300", Inc. acknowledged
indebtedness in favor of JALWINDOR in the amount of P9,531,09, with
a stipulation in the said Compromise Agreement, that the items
forming part of the improvements will form as security for such an
undertaking;
5. That due to non-compliance by CAPITOL "300", Inc., JALWINDOR
executed judgment that the Sheriff of Quezon City made levy on the
items above-stated in paragraph 3 hereof and sold them at a public
auction to JALWINDOR MANUFACTURERS, INC. as the highest bidder,
on August 30, 1965, for the total amount of P 6,000.00:
6. That after CAPITOL "300", Inc. failed to pay the rentals in arrears
from March 1, 1964 to April 30, 1965, water, electric and telephone
services amounting to P 10,772.90, the plaintiff SAMPAGUITA
PICTURES, INC. filed with the City Court of Quezon City, Civil Case No.
11-13161 for ejectment and collection of a sum of money against the
CAPITOL "300", Inc,; that the City Court rendered judgment in favor of
the Sampaguita Pictures, Inc., on June 8, 1965, ordering the CAPITOL
"300", Inc. to vacate the premises located at the Sampaguita Building
and to pay the Sampaguita Pictures, Inc.;
7. That after the Sheriff of Quezon City made levy on the items above-
stated in paragraph 3 hereof situated on the roofdeck of the
Sampaguita Building, plaintiff filed a Third Party Claim stated in its
affidavit on the ground of its right and title to the possession of the
items and that CAPITOL "300", Inc. has no right or title whatsoever to
the possession over said items; that defendant filed a bond to
indemnify the Sheriff against the claim, and the Sheriff sold the items
to the defendant; that the JALWINDOR MANUFACTURERS, Inc., being
the highest bidder and the execution creditor, considered itself paid to
the amount of P6,000.00;
8. That the parties herein agree that the matter of attorney's fees be
left to the sound discretion of the Court, which shall not be less than
P500.00. (Record on Appeal, pp. 11-14).
On October 20, 1967, based on said Stipulation of Facts, the lower
court dismissed the complaint and ordered Sampaguita to pay
Jalwindor the amount of P500.00 as attorney's fees. Sampaguita filed
a motion for reconsideration which was likewise denied, hence, the
instant appeal.
Petitioner-appellant raised the following assignment of errors:
I
The lower court erred in holding that Capitol "300" Inc. could not
legally transfer or assign the glass and wooden jalousies in question to
the plaintiff-appellant.
II
The lower court erred in not holding that plaintiff-appellant was the
rightful owner of the glass and wooden jalousies when they were sold
by the Sheriff at the public auction,
III
The lower court erred in not declaring as null and void the levy on
execution and the Sheriff's sale at public auction of the glass and
wooden jalousies.
IV
The lower court erred in holding that defendant-appellee became the
rightful owner of the glass and wooden jalousies.
When the glass and wooden jalousies in question were delivered and
installed in the leased premises, Capitol became the owner thereof.
Ownership is not transferred by perfection of the contract but by
delivery, either actual or constructive. This is true even if the purchase
has been made on credit, as in the case at bar. Payment of the purchase
price is not essential to the transfer of ownership as long as the
property sold has been delivered. Ownership is acquired from the
moment the thing sold was delivered to vendee, as when it is placed in
his control and possession. (Arts. 1477, 1496 and 1497, Civil Code of
the Phil.)
Capitol entered into a lease Contract with Sampaguita in 1964, and the
latter became the owner of the items in question by virtue of the
agreement in said contract "that all permanent improvements made
by lessee shall belong to the lessor and that said improvements have
been considered as part of the monthly rentals." When levy or said
items was made on July 31, 1965, Capitol, the judgment debtor, was
no longer the owner thereof.
The action taken by Sampaguita to protect its interest is sanctioned by
Section 17, Rule 39 of the Rules of Court, which reads:
Section 17, Proceedings where property claimed by third person.
... The officer is not liable for damages for the taking or keeping of the
property to any third-party claimant unless a claim is made by the
latter and unless an action for damages is brought by him against the
officer within one hundred twenty (120) days from the date of the filing
of the bond. But nothing herein contained shall prevent claimant from
vindicating his claim to the property by any action.
It is, likewise, recignized in the case of Bayer Phil., Inc. vs. Agana, et al.,
63 SCRA 358, wherein the Court declared, "that the rights of third party
claimants over certain properties levied upon by the sheriff to satisfy
the judgment, may not be taken up in the case where such claims are
presented but in a separate and independent action instituted by
claimants. ... and should a third-party appear to claim is denied, the
remedy contemplated by the rules in the filing by said party of a
reinvicatiry action against the execution creditor or the purchaser of
the property after the sale is completed or that a complaint for
damages to be charged against the bond filed by the creditor in favor
of the sheriff. ... Thus, when a property levied upon by the sheriff
pursuant to a writ of execution is claimed by a third person in a sworn
statement of ownership thereof, as prescribed by the rules, an entirely
different matter calling for a new adjudication arises."
The items in question were illegally levied upon since they do not
belong to the judgemnt debtor. The power of the Court in execution of
judgment extends only to properties unquestionably belonging to the
judgment debtor. The fact that Capitol failed to pay Jalwindor the
purchase price of the items levied upon did not prevent the transfer of
ownership to Capitol. The complaint of Sampaguita to nullify the
Sheriff's sale well-founded, and should prosper. Execution sales affect
the rights of judgment debtor only, and the purchaser in the auction
sale acquires only the right as the debtor has at the time of sale. Since
the items already belong to Sampaguita and not to Capitol, the
judgment debtor, the levy and auction sale are, accordingly, null and
void. It is well-settled in this jurisdiction that the sheriff is not
authorized to attach property not belonging to the judgment debtor.
(Arabay, Inc. vs. Salvador, et al., 3 PHILAJUR, 413 [1978], Herald
Publishing vs. Ramos, 88 Phil. 94, 100).
WHEREFORE, the decision appealed from is hereby reversed, and
plaintiff-appellant Sampaguita is declared the lawful owner of the
disputed glass and wooden jalousies. Defendant-appellee Jalwindor is
permanently enjoined from detaching said items from the roofdeck of
the Sampaguita Pictures Building, and is also ordered to pay plaintiff-
appellant the sum of P1,000.00 for and as attorney's fees, and costs.
Sampaguita Pictures, Inc. vs. Jalwindor Manufacturers, Inc.
Case Digest
FACTS:
Both the plaintiff-appellant Sampaguita Pictures Inc. (Sampaguita) and
defendant-appellee Jalwindor Manufacturers Inc. (Jalwindor) were
domestic corporations duly organized under the Philippine laws.
Sampaguita leased to Capitol “300” Inc. (Capitol) the roof deck of its
building with the agreement that all permanent improvements Capitol
will make on said property shall belong to Sampaguita without any part
on the latter to reimburse Capitol for the expenses of said
improvements. Shortly, Capitol purchased on credit from Jalwindor
glass and wooden jalousies, which the latter itself delivered and
installed in the leased premises, replacing the existing windows.
On June 1, 1964, Jalwindor filed with the CFI of Rizal, Quezon City an
action for collection of a sum of money with a petition for preliminary
attachment against Capitol for its failure to pay its purchases. Later,
Jalwindor and Capitol submitted to the trial court a Compromised
Agreement wherein Capitol acknowledged its indebtedness of
P9,531.09, payable in monthly installments of at least P300.00 a month
beginning December 15,1964 and that all the materials that Capitol
purchased will be considered as security for such undertaking.
Meanwhile, Sampaguita filed a complaint for ejectment and for
collection of a sum of money against Capitol for the latter’s failure to
pay rentals from March 1964 to April 1965, and the City Court of
Quezon City ordered Capitol on June 8, 1965 to vacate the premises
and to pay Sampaguita.
On the other hand, Capitol likewise failed to comply with the terms of
the Compromise Agreement, and on July 31, 1966, the Sheriff of
Quezon City made levy on the glass and wooden jalousies. Sampaguita
filed a third-party claim alleging that it is the owner of said materials
and not Capitol, but Jalwindor filed an idemnity bond in favor of the
Sheriff and the items were sold at public auction on August 30, 1966,
with Jalwindor as the highest bidder for P6,000.00. Sampaguita filed
with the CFI of Rizal, Quezon City an action to nullify the Sheriff's sale
and for an injunction to prevent Jalwindor from detaching the glass and
wooden jalousies. Jalwindor was ordered to maintain the status quo
pending final determination of the case, and on October 20, 1967, the
lower court dismissed the complaint and ordered Sampaguita to pay
Jalwindor the amount of P500.00 as attorney's fees.
ISSUE:
Was there a delivery made and, therefore, a transfer of ownership of
the thing sold?
RULING:
The Supreme Court reversed the decision of the lower court declaring
Sampaguita as declared the lawful owner of the disputed glass and
wooden jalousies, permanently enjoining Jalwindor from detaching
said items from the roof deck of the Sampaguita Pictures Building, and
ordered Jalwindor to pay Sampaguita the sum of P1,000.00 for and as
attorney's fees.
When a property levied upon by the sheriff pursuant to a writ of
execution is claimed by a third person in a sworn statement of
ownership thereof, as prescribed by the rules, an entirely different
matter calling for a new adjudication arises. The items in question were
illegally levied upon since they do not belong to the judgment debtor.
The power of the Court in execution of judgment extends only to
properties unquestionably belonging to the judgment debtor. The fact
that Capitol failed to pay Jalwindor the purchase price of the items
levied upon did not prevent the transfer of ownership to Capitol and,
later, to Sampaguita by virtue of the agreement in their lease contract.
Therefore, the complaint of Sampaguita to nullify the Sheriff's sale is
well founded, and should prosper.