320 SUPREME COURT REPORTS ANNOTATED
244, MAY 23, 1995
Toyota Shaw, Inc. vs. Court of Appeals
G.R. No. 116650. May 23, 1995.*
TOYOTA SHAW, INC., petitioner, vs. COURT OF APPEALS and LUNA
L. SOSA, respondents.
Civil Law; Contracts; Sales; Exhibit “A” is not a contract of sale.—
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.
Same; Same; Same; Definiteness as to the price is an essential
element of a binding agreement to sell personal property.—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. 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.
Same; Same; Same; Agency; A person dealing with an agent is put
upon inquiry and must discover upon his peril the authority of the
agent.—He knew that Bernardo was only a sales representative of
Toyota and hence a mere agent of the latter. It was incumbent upon Sosa
to act with ordinary prudence and reasonable diligence to know the
extent of Bernardo’s authority as an agent 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.
Same; Same; Same; Damages; Attorney’s Fees; Award of moral
and exemplary damages and attorney’s fees and costs of suit is without
legal basis.—The award then of moral and exemplary damages and
attorney’s fees and costs of suit is without legal basis. Besides, the only
_______________
* FIRST DIVISION.
321
VOL.
Toyota Shaw, Inc. vs. Court of Appeals
ground upon which Sosa claimed moral damages is that since it was
known to his friends, townmates, and relatives that he was buying a
Toyota Lite Ace which they expected to see on his birthday, he suffered
humiliation, shame, and sleepless nights when the van was not delivered.
The van became the subject matter of talks during his celebration that he
may not have paid for it, and this created an impression against his
business standing and reputation. At the bottom of this claim is nothing
but misplaced pride and ego. He should not have announced his plan to
buy a Toyota Lite Ace knowing that he might not be able to pay the full
purchase price. It was he who brought embarrassment upon himself by
bragging about a thing which he did not own yet. Since Sosa is not
entitled to moral damages and there being no award for temperate,
liquidated, or compensatory damages, he is likewise not entitled to
exemplary damages. Under Article 2229 of the Civil Code, exemplary or
corrective damages are imposed by way of example or correction for the
public good, in addition to moral, temperate, liquidated, or compensatory
damages. Also, it is settled that for attorney’s fees to be granted, the
court must explicitly state in the body of the decision, and not only in the
dispositive portion thereof, the legal reason for the award of attorney’s
fees. No such explicit determination thereon was made in the body of the
decision of the trial court. No reason thus exists for such an award.
PETITION for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Bengzon, Zarraga, Narciso, Cudala, Pecson, Bengzon & Jimenezf
or petitioner.
Carag, Caballes, Jamora & Somera Law Offices for private
respondent.
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:
_______________
1
Annex “A” of Complaint in Civil Case No. 89-14 of Branch 38 of the
Regional Trial Court of Marinduque; Rollo, 70.
322
1
322 SUPREME COURT REPORTS ANNOTATED Toyota Shaw, Inc. vs. Court of Appeals
Toyota Shaw, Inc. vs. Court of Appeals with the new car, he would become a “laughing stock.” Bernardo assured
4 June 1989 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.
AGREEMENTS BETWEEN MR. SOSA Sosa & Popong Bernardo of Toyota Shaw, Inc.” It was also agreed upon
& POPONG BERNARDO OF TOYOTA by the parties that the balance of the purchase price would be paid by
SHAW, INC. 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
1. 1.all necessary documents will be submitted to TOYOTA SHAW, the application for financing.
INC. (POPONG BERNARDO) a week after, upon arrival of Mr. The next day, 15 June 1989, Sosa and Gilbert went to Toyota to
Sosa from the Province (Marinduque) where the unit will be deliver the downpayment of P100,000.00. They met Bernardo who then
used on the 19th of June. accomplished a printed Vehicle Sales Proposal (VSP) No. 928,2 on which
2. 2.the downpayment of P100,000.00 will be paid by Mr. Sosa on Gilbert signed under the subheading CONFORME. This document shows
June 15, 1989 that the customer’s name is “MR. LUNA SOSA” with home address at
3. 3.the TOYOTA SHAW, INC. LITE ACE yellow, will be pick-up [sic] No. 2316 Guijo Street, United Parañaque II; that the model series of the
and released by TOYOTA SHAW, INC. on the 17th of June at vehicle is a “Lite Ace 1500” described as “4 Dr minibus”; that payment is
10 a.m. by “installment,” to be financed by “B.A.,”3 with the initial cash outlay of
P100,000.00 broken down as follows:
Very truly yours, a) downpayment —P53,14
(Sgd.) POPONG BERNARDO. b) insurance —P13,97
c) BLT registration fee —P 1,06
Was this document, executed and signed by the petitioner’s sales CHMO fee —P 2,71
representative, a perfected contract of sale, binding upon the petitioner, service fee —P 50
breach of which would entitle the private respondent to damages and accessories —P29,00
attorney’s fees? The trial court and the Court of Appeals took the and that the “BALANCE TO BE FINANCED” is “P274,137.00.” The
affirmative view. The petitioner disagrees. Hence, this petition for review spaces provided for “Delivery Terms” were not filled-up. It also contains
on certiorari. the following pertinent provisions:
The antecedents as disclosed in the decisions of both the trial court CONDITIONS OF SALES
and the Court of Appeals, as well as in the pleadings of petitioner Toyota
Shaw, Inc. (hereinafter Toyota) and respondent Luna L. Sosa 1. 1.This sale is subject to availability of unit.
(hereinafter Sosa) are as follows. Sometime in June of 1989, Luna L. 2. 2.Stated Price is subject to change without prior notice. Price
Sosa wanted to purchase a Toyota Lite Ace. It was then a seller’s market prevailing and in effect at time of selling will apply . . . .
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 324
Popong Bernardo, a sales representative of Toyota. 324 SUPREME COURT REPORTS ANNOTATED
Sosa emphasized to Bernardo that he needed the Lite Ace not later Toyota Shaw, Inc. vs. Court of Appeals
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
1. Rodrigo Quirante, the Sales Supervisor of Bernardo, checked and
he would celebrate his birthday on the 19th of June. He added that if he
approved the VSP.
does not arrive in his hometown
323
VOL. 244, MAY 23, 1995 323
2
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 re-servation, “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.6The 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 pay-
_______________
4
325
VOL. 244, MAY 23, 1995
Toyota Shaw, Inc. vs. Court of Appeals
ment was not made within three days.7 Toyota’s counsel answered
through a letter dated 27 November 19898 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:
1. 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 a 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.
_______________
7
326
326 SUPREME COURT REPORTS ANNOTATED
Toyota Shaw, Inc. vs. Court of Appeals
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
325that Exhibit “A,” the “AGREEMENTS BETWEEN MR. SOSA AND
ruled
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.”13Moreover, “[f]rom the
beginning of the transaction up to its consummation when the
3
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. 1.ordering the defendant to pay to the plaintiff the sum of
P75,000.00 for moral damages;
2. 2.ordering the defendant to pay the plaintiff the sum of
P10,000.00 for exemplary damages;
_______________
327
VOL. 244, MAY 23, 1995
Toyota Shaw, Inc. vs. Court of Appeals
1. 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;
2. 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
3. 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 ponencia and 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 per-
_______________
17
Annex “A” of Petition; Rollo, 45-62. Per Tayao-Jaguros, L., J., with
Elbinias, J. and Salas, B., JJ., concurring.
328
328 SUPREME COURT REPORTS ANNOTATED
327 Toyota Shaw, Inc. vs. Court of Appeals
fected:
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
4
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.
_______________
329
VOL. 244, MAY 23, 1995
Toyota Shaw, Inc. vs. Court of Appeals
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:
1. (a)preparation, conception, or generation, which is the period of
negotiation and bargaining, ending at the moment of agreement
of the parties;
2. (b)perfection or birth of the contract, which is the moment when
the parties come to agree on the terms of the contract; and
3. (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
________________
330
330 SUPREME COURT REPORTS ANNOTATED
Toyota Shaw, Inc. vs. Court of Appeals
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
329
Accordingly, in a sale on installment basis which is financed by a
financing company, three parties are thus involved: the buyer who
executes a note or notes for the unpaid balance of the price of the thing
purchased on installment, the seller who assigns the notes or discounts
them with a financing company, and the financing company which is
subrogated in the place of the seller, as the creditor of the installment
buyer.24 Since B.A. Finance did not approve Sosa’s application, there
was then no meeting of minds on the sale on installment basis.
We are inclined to believe Toyota’s version that B.A. Finance
disapproved Sosa’s application for which reason it suggested to Sosa
that he pay the full purchase price. When the latter refused, Toyota
cancelled the VSP and returned to him his P100,000.00. Sosa’s version
that the VSP was cancelled because, according to Bernardo, the vehicle
was delivered to another who was “mas malakas” does not inspire belief
and was obviously a delayed afterthought. It is claimed that Bernardo
said, “Pasensiya kayo, nasulot ang unit ng ibang malakas,” while the
Sosas had already been waiting for an hour for the delivery of the vehicle
in the afternoon of 17 June 1989. However, in paragraph 7 of his
complaint, Sosa solemnly states:
On June 17, 1989 at around 9:30 o’clock in the morning, defendant’s
sales representative, Mr. Popong Bernardo, called plaintiff’s house and
informed the plaintiff’s son that the vehicle will not be ready for pick-up at
10:00 a.m. of June 17, 1989 but at 2:00 p.m. of that day instead. Plaintiff
and his son went to defendant’s office on June 17, 1989 at 2:00
_______________
23
See Beltran vs. PAIC Finance Corp., 209 SCRA 105 [1992].
331
VOL. 244, MAY 23, 1995
Toyota Shaw, Inc. vs. Court of Appeals
p.m. in order to pick-up the vehicle but the defendant, for reasons known
only to its representatives, refused and/or failed to release the vehicle to
5
the plaintiff. Plaintiff demanded for an explanation, but nothing was given; SO ORDERED.
. . . (Emphasis supplied)25 Padilla (Chairman), Bellosillo and Kapunan, JJ., concur.
Quiason, J., On official leave.
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 Petition granted. Judgment reversed and set aside.
Sosa for the delivery of the vehicle to him, and its non-delivery did not Note.—Moral damages to be recoverable in a relationship based on a
cause any legally indemnifiable injury. contract, a party committing breach thereof must have acted fraudulently
The award then of moral and exemplary damages and attorney’s fees or in bad faith. (Sia vs. Court of Appeals, 222 SCRA 24[1993])
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 ———o0o——
friends, townmates, and relatives that he was buying a Toyota Lite Ace
which they expected to see on his birthday, he suffered humiliation, Terminal, Inc. vs. Shoppers Paradise FTI Corporation, 498 SCRA 429
shame, and sleepless nights when the van was not delivered. The van [2006])
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 ——o0o——
standing and reputation. At the bottom of this claim is nothing but
misplaced pride and ego. He should not have announced his plan to buy
a Toyota Lite Ace knowing that he might not be able to pay the full
purchase price. It was he who brought embarrassment upon himself by
bragging about a thing which he did not own yet.
Since Sosa is not entitled to moral damages and there being no
award for temperate, liquidated, or compensatory damages, he is
likewise not entitled to exemplary damages. Under Article 2229 of the
Civil Code, exemplary or corrective damages are imposed by way of
example or correction for the public good, in addition to moral, temperate,
liquidated, or compensatory damages.
Also, it is settled that for attorney’s fees to be granted, the court must
explicitly state in the body of the decision, and not only in the dispositive
portion thereof, the legal reason for the award of attorney’s fees.26 No
such explicit determination thereon
_______________

332
332 SUPREME COURT REPORTS ANNOTATED
Commissioner of Internal Revenue vs. Tokyo Shipping Co., Ltd.
was made in the body of the decision of the trial court. No reason thus
exists for such an award.
WHEREFORE, the instant petition is GRANTED. The challenged
decision of the Court of Appeals in CA-G.R. CV No. 40043 as well as that
of Branch 38 of the Regional Trial Court of Marinduque in Civil Case No.
89-14 are REVERSED and SET ASIDE and the complaint in Civil Case November 5, 2009. G.R. No. 169681.*
No. 89-14 is DISMISSED. The counterclaim therein is likewise THE ESTATE OF PEDRO C. GONZALES and HEIRS OF PEDRO C.
DISMISSED. GONZALES, petitioners, vs. THE HEIRS OF MARCOS PEREZ,
No pronouncement as to costs. respondents.

6
 Civil Law; Contracts; Sales; Voidable or Annullable Contracts,
before they are set aside, are existent, valid and binding and are effective
and obligatory between the parties.—It is clear from the above-quoted
pronouncements of the Court that, pending approval or disapproval by
the Provincial Governor of a contract entered into by a municipality which
falls under the provisions of Section 2196 of the Revised Administrative
Code, such contract is considered voidable. In the instant case, there is
no showing that the contract of sale entered into between Pedro and the
Municipality of Marikina was ever acted upon by the Provincial Governor.
Hence, consistent with the rulings enunciated above, the subject contract
should be considered voidable. Voidable or annullable contracts, before
they are set aside, are existent, valid, and binding, and are effective and
obligatory between the parties.
Same; Same; Same; Statute of Frauds; Under Article 1403 (2), the
sale of real property should be in writing and subscribed by the party
charged for it to be enforceable.—Under Article 1403(2), the sale of real
property should be in writing and subscribed by the party charged for it to
be enforceable. In the case before the Court, the Deed of Sale between
Pedro and Marcos is in writing and subscribed by Pedro and his wife
Francisca; hence, it is enforceable under the Statute of Frauds.
_______________
* THIRD DIVISION.
48
Same; Same; Same; Same; Although a conveyance of land is not
made in a public document, it does not affect the validity of such
conveyance; Article 1358 does not require the accomplishment of the
acts or contracts in a public instrument in order to validate the act or
contract but only to insure its efficacy.—Not having been subscribed and
sworn to before a notary public, the Deed of Sale is not a public
document and, therefore, does not comply with Article 1358 of the Civil
Code. Nonetheless, it is a settled rule that the failure to observe the
proper form prescribed by Article 1358 does not render the acts or
contracts enumerated therein invalid. It has been uniformly held that the
form required under the said Article is not essential to the validity or
enforceability of the transaction, but merely for convenience. The Court
agrees with the CA in holding that a sale of real property, though not
consigned in a public instrument or formal writing, is, nevertheless, valid
and binding among the parties, for the time-honored rule is that even a
verbal contract of sale of real estate produces legal effects between the
parties. Stated differently, although a conveyance of land is not made in a
public document, it does not affect the validity of such conveyance.
Article 1358 does not require the accomplishment of the acts or contracts
in a public instrument in order to validate the act or contract but only to
insure its efficacy. Thus, based on the foregoing, the Court finds that the
CA did not err in ruling that the contract of sale between Pedro and
Marcos is valid and binding.
PETITION for review on certiorari of the decision and resolution of the
Court of Appeals.
The facts are stated in the opinion of the Court.
Evelina R. Tamayao-Volante for petitioners.
Reynaldo S. Samson for respondents.
PERALTA,J.:
This resolves the instant Petition for Review on Certiorari under Rule
45 of the Rules of Court praying for the nullifica-
49tion of the Decision1 of the Court of Appeals (CA) dated April 25, 2005
in CA-G.R. CV No. 60998 and its Resolution2 dated September 14, 2005.
The challenged Decision of the CA reversed and set aside the judgment
of the Regional Trial Court (RTC) of Marikina City, Branch 272 in Civil
Case No. 94-57-MK while its assailed Resolution denied petitioners’
motion for reconsideration.
The antecedent facts are as follows:
The former Municipality of Marikina in the Province of Rizal (now City
of Marikina, Metro Manila) used to own a parcel of land located in Barrio
Concepcion of the said municipality covered by Original Certificate of
Title (OCT) No. 6293 of the Register of Deeds of Rizal. The said property
was subdivided into three (3) lots, namely, lots A, B and C, per
subdivision plan (LRC) Psd-4571.4
On January 14, 1966, the Municipal Council of Marikina passed
Resolution No. 9, series of 1966 which authorized the sale through public
bidding of Municipal Lots A and C.
On April 25, 1966, a public bidding was conducted wherein Pedro
Gonzales was the highest bidder. Two days thereafter, or on April 27,
1966, the Municipal Council of Marikina issued Resolution No. 75
accepting the bid of Pedro. Thereafter, a deed of sale was executed in
favor of the latter which was later forwarded to the Provincial Governor of
Rizal for his approval. The Governor, however, did not act upon the said
deed.
Sometime in September 1966, Pedro sold to Marcos Perez a portion
of Lot C, denominated as Lot C-3, which contains an area of 375 square
meters. The contract of sale was embodied
_______________
1
50in a Deed of Sale5 which, however, was not notarized. To segregate
the subject property from the remaining portions of Lot C, Marcos had the
7
same surveyed wherein a technical description of the subject lot was
prepared by a surveyor.6
Subsequently, Pedro and Marcos died.
On February 7, 1992, the Municipality of Marikina, through its then
Mayor Rodolfo Valentino, executed a Deed of Absolute Transfer of Real
Property over Lots A and C in favor of the Estate of Pedro C.
Gonzales.7 On June 25, 1992, Transfer Certificate of Title (TCT) No.
223361, covering Lot C, was issued in the name of the said estate.8
Subsequently, herein petitioners executed an extrajudicial partition
wherein Lot C was subdivided into three lots. As a result of the
subdivision, new titles were issued wherein the 370-square-meter portion
of Lot C-3 is now denominated as Lot C-1 and is covered by TCT No.
2444479 and the remaining 5 square meters of the subject lot (Lot C-3)
now forms a portion of another lot denominated as Lot C-2 and is now
covered by TCT No. 244448.10
On October 1, 1992, herein respondents sent a demand letter to one
of herein petitioners asking for the reconveyance of the subject
property.11 However, petitioners refused to reconvey the said lot. As a
consequence, respondents filed an action for “Annulment and/or
Rescission of Deed of Absolute Transfer of Real Property x x x and for
Reconveyance with Damages.”12
_______________
. essential to the validity or enforceability of the transactions but only for
51 On February 2, 1998, the RTC rendered its Decision with the
following dispositive portion:
“WHEREFORE, foregoing premises, judgment is hereby rendered as
follows:
1. DISMISSING the complaint subject of the case in caption
for lack of merit;
2. DECLARING VALID both Transfer Certificates of Title Nos.
244447 and 244448 issued by the Register of Deeds of
Marikina;
3. DISMISSING the defendants’ counterclaim.
No pronouncement as to costs.
SO ORDERED.”13
The RTC ruled that since the Deed of Sale executed between Pedro
and Marcos was not notarized, the same is considered void and of no
effect. In addition, the trial court also held that Pedro became the owner
of the subject lot only on February 7, 1992; as such, he could not have
lawfully transferred ownership thereof to Marcos in 1966.
Herein respondents appealed the RTC Decision to the CA contending
that the RTC erred in relying only on Articles 1356 and 1358 of the Civil
Code. Instead, respondents assert that the RTC should also have applied
the provisions of Articles 1357, 1403 (2), 1405 and 1406 of the same
Code.
On April 25, 2005, the CA rendered its presently assailed Decision
disposing as follows:
“WHEREFORE, premises considered, the instant Appeal is
hereby GRANTED and the assailed Decision dated February 2, 1998
is REVERSED and SET ASIDE.TCT No. 244447 and partially, TCT No.
244448, with respect to five (5) square meters, are declared NULL and
VOID and defendants-appellees are ordered to reconvey in favor of the
plaintiffs-appellants the subject property
_______________
.
52covered by said Transfer Certificates of Title (five square meters only
with respect to TCT No. 244448). The trial court’s dismissal of
defendants-appellees’ counterclaim is, however, AFFIRMED.
SO ORDERED.”14
The CA held that a sale of real property, though not consigned in a
public instrument, is nevertheless valid and binding among the parties
and that the form required in Article 1358 of the Civil Code is not
convenience.
Petitioners filed a motion for reconsideration, but the same was
denied by the CA in its Resolution of September 14, 2005 on the ground
that the said motion was filed out of time.
Hence, the present petition with the following assignment of errors:
WITH DUE RESPECT TO THE HONORABLE COURT OF APPEALS,
ITS FINDINGS OF FACT RUN COUNTER TO THOSE OF THE TRIAL
COURT, THUS, IT HAS DECIDED THE CASE IN A WAY NOT IN
ACCORD WITH LAW AND JURISPRUDENCE.
WITH DUE RESPECT, THE ALLEGED DEED OF SALE IS SUSPECT
AND RIDDEN WITH INCONSISTENCIES. IN FACT, THE LOWER
COURT HELD THAT THE DEED OF SALE FAILED TO MEET THE
SOLEMNITY REQUIREMENTS PROVIDED UNDER THE LAW FOR ITS
VALIDITY.
WITH DUE RESPECT, THE COURT OF APPEALS ERRED IN
DISREGARDING THE FINDINGS OF FACT AND THE APPLICATION
OF LAW BY THE REGIONAL TRIAL COURT THAT UNDER THE
PURPORTED DEED OF SALE THE VENDOR COULD NOT HAVE
TRANSFERRED OWNERSHIP.15
8
 In their first and last assigned errors, petitioners contend that Marcos,
who is respondents’ predecessor-in-interest, could not have legally
bought the disputed parcel of land from
_______________
14 Rollo, p. 35.
15 Id., at pp. 14, 16, and 18.
53petitioners’ predecessor-in-interest, Pedro, in September 1966
because, during that time, Pedro had not yet acquired ownership of the
subject lot. Petitioners’ assertion is based on the premise that as of
February 29, 1968, the Deed of Sale between Pedro and the Municipality
of Marikina was still subject to approval by the Provincial Governor of
Rizal, as required under Section 2196 of the Revised Administrative
Code. Considering that on the supposed date of sale in favor of Marcos,
the requisite approval of the Provincial Governor was not yet secured,
petitioners conclude that Pedro could not be considered as the owner of
the subject property and, as such, he did not yet possess the right to
transfer ownership thereof and, thus, could not have lawfully sold the
same to Marcos.
The Court does not agree.
Section 2196 of the Revised Administrative Code provides:
2196. “SECTIONExecution of deeds.—When the government of a
municipality is a party to a deed or an instrument which conveys real
property or any interest therein or which creates a lien upon the same,
such deed or instrument shall be executed on behalf of the municipal
government by the mayor, upon resolution of the council, with the
approval of the governor.”
In Municipality of Camiling v. Lopez,16 the Court found occasion to
expound on the nature and effect of the provincial governor’s power to
approve contracts entered into by a municipal government as provided
for under Section 2196 of the Revised Administrative Code. The Court
held, thus:
“x x x The approval by the provincial governor of contracts entered into
and executed by a municipal council, as required in [S]ection 2196 of the
Revised Administrative Code, is part of the system of supervision that the
provincial government exercises over the municipal governments. It is not
a prohibition against municipal councils entering into contracts regarding
municipal properties subject of
_______________
16 99 Phil. 187 (1956).
54municipal administration or control. It does not deny the power, right or
capacity of municipal councils to enter into such contracts; such power or
capacity is recognized. Only the exercise thereof is subject to supervision
by approval or disapproval, i.e., contracts entered in pursuance of the
power would ordinarily be approved if entered into in good faith and for
the best interests of the municipality; they would be denied approval if
found illegal or unfavorable to public or municipal interest. The absence
of the approval, therefore, does not per semake the contracts null
and void.”17
This pronouncement was later reiterated in Pechueco Sons Company
v. Provincial Board of Antique,18 where the Court ruled more emphatically
that:
“In other words, as regards the municipal transactions specified in
Section 2196 of the Revised Administrative Code, the Provincial
Governor has two courses of action to take—either to approve or
disapprove the same. And since absence of such approval does not
necessarily render the contract entered into by the municipality null
and void, the transaction remains voidable until such time when by
subsequent unfavorable action of the governor, for reasons of
public interest, the contract is thereby invalidated.”19
It is clear from the above-quoted pronouncements of the Court that,
pending approval or disapproval by the Provincial Governor of a contract
entered into by a municipality which falls under the provisions of Section
2196 of the Revised Administrative Code, such contract is considered
voidable. In the instant case, there is no showing that the contract of sale
entered into between Pedro and the Municipality of Marikina was ever
acted upon by the Provincial Governor. Hence, consistent with the rulings
enunciated above, the subject contract should be considered voidable.
Voidable or annullable contracts, before they are set aside, are existent,
valid, and
_______________
55binding, and are effective and obligatory between the parties.20
In the present case, since the contract was never annulled or set
aside, it had the effect of transferring ownership of the subject property to
Pedro. Having lawfully acquired ownership of Lots A and C, Pedro, in
turn, had the full capacity to transfer ownership of these parcels of land or
parts thereof, including the subject property which comprises a portion of
Lot C.
It is wrong for petitioners to argue that it was only on June 25, 1992,
when TCT No. 223361 covering Lot C was issued in the name of the
estate of Pedro, that he became the owner thereof.
Article 1496 of the Civil Code provides:
9
 “The ownership of the thing sold is acquired by the vendee from the
moment it is delivered to him in any of the ways specified in Articles 1497
to 1501, or in any other manner signifying an agreement that the
possession is transferred from the vendor to the vendee.”
In conjunction with the above-stated provision, Article 1497 of the Civil
Code states that:
“The thing sold shall be understood as delivered when it is placed in
the control and possession of the vendee.”
In the present case, there is no dispute that Pedro took control and
possession of the said lot immediately after his bid was accepted by the
Municipal Government of Marikina. In fact, herein petitioners, in their
Answer with Compulsory Counterclaim admit that both Pedro and
Marcos, together with their respective heirs, were already occupying the
subject property even before the same was sold to Pedro and that,
_______________
56after buying the same, Pedro allowed Marcos and his family to stay
thereon.21This only shows that upon perfection of the contract of sale
between the Municipality of Marikina and Pedro, the latter acquired
ownership of the subject property by means of delivery of the same to
him.
Hence, the issuance of TCT No. 223361, as well as the execution of
the Deed of Absolute Transfer of Real Property on February 7, 1992 by
the Municipal Mayor of Marikina, could not be considered as the
operative acts which transferred ownership of Lot C to Pedro. Pedro
already acquired ownership of the subject property as early as 1966
when the same was delivered to him by the Municipality of Marikina, and
the execution of the Deed of Absolute Transfer of Real Property as well
as the consequent issuance of TCT No. 223316 are simply a confirmation
of such ownership.
It may not be amiss to point out at this juncture that the Deed of
Absolute Transfer of Real Property executed by the Mayor of Marikina
was no longer subject to approval by the Provincial Governor of Rizal
because Marikina already became part of Metro Manila on November 7,
1975.22 On December 8, 1996, Marikina became a chartered city.23
In their second assignment of error, petitioners question the
authenticity and due execution of the Deed of Sale executed by Pedro in
favor of Marcos. Petitioners also argue that even assuming that Pedro
actually executed the subject Deed of Sale, the same is not valid
because it was not notarized as required under the provisions of Articles
1403 and 1358 of the Civil Code.
The Court is not persuaded.
The RTC, in its abbreviated discussion of the questions raised before
it, did not touch on the issue of whether the
_______________
57Deed of Sale between Pedro and Marcos is authentic and duly
executed. However, the CA, in its presently assailed Decision,
adequately discussed this issue and ruled as follows:
“x x x In the present case, We are convinced that plaintiffs-appellants
[herein respondents] have substantially proven that Pedro, indeed, sold
the subject property to Marcos for P9,378.75. The fact that no receipt was
presented to prove actual payment of consideration, in itself, the absence
of receipts, or any proof of consideration, would not be conclusive since
consideration is always presumed. Likewise, the categorical statement in
the trial court of Manuel P. Bernardo, one of the witnesses in the Deed of
Sale, that he himself saw Pedro sign such Deed lends credence. This
was corroborated by another witness, Guillermo Flores. Although the
defendants-appellees [herein petitioners] are assailing the genuineness
of the signatures of their parents on the said Deed, they presented no
evidence of the genuine signatures of their parents as would give this
Court a chance to scrutinize and compare it with the assailed signatures.
Bare allegations, unsubstantiated by evidence, are not equivalent to proof
under our Rules.”24
In the instant petition, petitioners would have us review the factual
determinations of the CA. However, settled is the rule that the Court is
not a trier of facts and only questions of law are the proper subject of a
petition for review on certiorari in this Court.25While there are exceptions
to this rule,26 the
_______________
When the Court of Appeals, in making its findings, went beyond the
issues of the case and the same is contrary to the admissions of both
appellant and appellee; 6.
58Court finds that the instant case does not fall under any of them.
Hence, the Court sees no reason to disturb the findings of the CA, which
are supported by evidence on record.
On the question of whether the subject Deed of Sale is invalid on the
ground that it does not appear in a public document, Article 1358 of the
same Code enumerates the acts and contracts that should be embodied
in a public document, to wit:
The following must appear in a public document: 1358. “Art.
Acts and contracts which have for their object the creation,
transmission, modification or extinguishment of real rights over
10
immovable property; sales of real property or of an interest therein
are governed by Articles 1403, No. 2 and 1405; (1)
The cession, repudiation or renunciation of hereditary rights or of
those of the conjugal partnership of gains; (2)
The power to administer property, or any other power which has for its
object an act appearing or which should appear in a public document, or
should prejudice a third person; and (3)
The cession of actions or rights proceeding from an act appearing in a
public document. (4)
All other contracts where the amount involved exceeds five hundred
pesos must appear in writing, even a private one. But sales of goods,
chattels or things in action are governed by Articles 1403, No. 2 and
1405.”
_______________
When the findings are contrary to those of the trial court; 7.
When the findings of fact are conclusions without citation of specific
evidence on which they are based; 8.
When the facts set forth in the petition as well as in the petitioners’
main and reply briefs are not disputed by the respondents; and 9.
When the findings of fact of the Court of Appeals are premised on the
supposed absence of evidence and contradicted by the evidence on
record. ( 10.Samaniego-Celada v. Abena, G.R. No. 145545, June 30,
2008, 556 SCRA 569, 576-577)
59On the other hand, pertinent portions of Article 1403 of the Civil
Code provide as follows:
The following contracts are unenforceable, unless they are ratified:
1403. “Art.
xxxx
Those that do not comply with the Statute of Frauds as set forth in this
number. (2) In the following cases an agreement hereafter made
shall be unenforceable by action, unless the same, or some note or
memorandum thereof, be in writing, and subscribed by the party
charged, or by his agent;evidence, therefore, of the agreement cannot
be received without the writing, or a secondary evidence of its contents:
An agreement that by its terms is not to be performed
within a year from the making thereof; (a)
xxxx
An agreement for the leasing for a longer period than
one year, or (e) for the sale of real property or of an
interest therein; x x x”27
Under Article 1403(2), the sale of real property should be in writing
and subscribed by the party charged for it to be enforceable.28 In the case
before the Court, the Deed of Sale between Pedro and Marcos is in
writing and subscribed by Pedro and his wife Francisca; hence, it is
enforceable under the Statute of Frauds.
However, not having been subscribed and sworn to before a notary
public, the Deed of Sale is not a public document and, therefore, does not
comply with Article 1358 of the Civil Code.
Nonetheless, it is a settled rule that the failure to observe the proper
form prescribed by Article 1358 does not render the acts or contracts
enumerated therein invalid. It has been uniformly held that the form
required under the said Article
_______________
60is not essential to the validity or enforceability of the transaction, but
merely for convenience.29 The Court agrees with the CA in holding that a
sale of real property, though not consigned in a public instrument or
formal writing, is, nevertheless, valid and binding among the parties, for
the time-honored rule is that even a verbal contract of sale of real estate
produces legal effects between the parties.30Stated differently, although a
conveyance of land is not made in a public document, it does not affect
the validity of such conveyance. Article 1358 does not require the
accomplishment of the acts or contracts in a public instrument in order to
validate the act or contract but only to insure its efficacy.31 Thus, based
on the foregoing, the Court finds that the CA did not err in ruling that the
contract of sale between Pedro and Marcos is valid and binding.
WHEREFORE, the instant petition is DENIED. The assailed Decision
and Resolution of the Court of Appeals in CA-G.R. CV No. 60998 are
AFFIRMED.
SO ORDERED.
Quisumbing,** Carpio (Chairperson), Chico-Nazario and Abad,*** JJ.,
concur.
Petition denied, judgment and resolution affirmed.
_______________
© Copyright 2019 Central Book Supply, Inc. All rights reserved.
June 29, 2010. G.R. No. 176841.*
11
ANTHONY ORDUÑA, DENNIS ORDUÑA, and ANTONITA
ORDUÑA, petitioners, vs. EDUARDO J. FUENTEBELLA, MARCOS S.
CID, BENJAMIN F. CID, BERNARD G. BANTA, and ARMANDO
GABRIEL, JR., respondents.
Civil Law; Contracts; Statute of Frauds; The Statute of Frauds
expressed in Article 1403, par. (2), of the Civil Code applies only to
executory contracts, i.e, those where no performance has yet been
made; The Statute does not come into play where the contract in
question is completed, executed, or partially consummated.—Foremost
of these is that the Statute of Frauds expressed in Article 1403, par. (2),
of the Civil Code applies only to executory contracts, i.e., those where no
performance has yet been made. Stated a bit differently, the legal
consequence of non-compliance with the Statute does not come into play
where the contract in question is completed, executed, or partially
consummated.
Same; Same; Same; The Statute does not deprive the parties of the
right to contract with respect to the matters therein involved, but merely
regulates the formalities of the contract necessary to render it
enforceable.—The purpose of the Statute is to prevent fraud and perjury
in the enforcement of obligations depending for their evidence on the
unassisted memory of witnesses, by requiring certain enumerated
contracts and transactions to be evidenced by a writing signed by the
party to be charged. The Statute requires certain contracts to be
evidenced by some note or memorandum in order to
* FIRST DIVISION.
147
VOL. 622, JUNE 29, 2010 147
Orduña vs. Fuentebella
be enforceable. The term “Statute of Frauds” is descriptive of statutes
that require certain classes of contracts to be in writing. The Statute does
not deprive the parties of the right to contract with respect to the matters
therein involved, but merely regulates the formalities of the contract
necessary to render it enforceable.
Same; Same; Same; The form required under the Statute is for
convenience or evidentiary purposes only.—Since contracts are generally
obligatory in whatever form they may have been entered into, provided all
the essential requisites for their validity are present, the Statute simply
provides the method by which the contracts enumerated in Art. 1403 (2)
may be proved but does not declare them invalid because they are not
reduced to writing. In fine, the form required under the Statute is for
convenience or evidentiary purposes only.
Same; Same; Same; A contract that infringes the Statute of Frauds
is ratified by the acceptance of benefits under the contract.—Lest it be
overlooked, a contract that infringes the Statute of Frauds is ratified by
the acceptance of benefits under the contract. Evidently, Gabriel, Jr., as
his father earlier, had benefited from the partial payments made by the
petitioners.
Same; Property; Reconveyance; Prescription; An action for
annulment of title or reconveyance based on fraud
is imprescriptible where the suitor is in possession of the property subject
of the acts, the action partaking as it does of a suit for quieting of title
which is imprescriptible.—The basic complaint, as couched, ultimately
seeks the reconveyance of a fraudulently registered piece of residential
land. Having possession of the subject lot, petitioners’ right to the
reconveyance thereof, and the annulment of the covering title, has not
prescribed or is not time-barred. This is so for an action for annulment of
title or reconveyance based on fraud is imprescriptible where the suitor is
in possession of the property subject of the acts, the action partaking as it
does of a suit for quieting of title which is imprescriptible. Such is the case
in this instance. Petitioners have possession of subject lots as owners
having purchased the same from Gabriel, Sr. subject only to the full
payment of the agreed price.148
1 SUPREME COURT REPORTS ANNOTATED
48
Orduña vs. Fuentebella
Same; Same; Double Sales; Buyer in Good Faith; A buyer of a
piece of land which is in the actual possession of persons other than the
seller must be wary and should investigate the rights of those in
possession; The buyer who has failed to know or discover that the land
sold to him is in adverse possession of another is a buyer in bad faith.—
Basic is the rule that a buyer of a piece of land which is in the actual
possession of persons other than the seller must be wary and should
investigate the rights of those in possession. Otherwise, without such
inquiry, the buyer can hardly be regarded as a buyer in good faith. When
a man proposes to buy or deal with realty, his duty is to read the public
manuscript, i.e., to look and see who is there upon it and what his rights
are. A want of caution and diligence which an honest man of ordinary
prudence is accustomed to exercise in making purchases is, in
contemplation of law, a want of good faith. The buyer who has failed to
know or discover that the land sold to him is in adverse possession of
another is a buyer in bad faith.
12
 Same; Same; Same; Same; Not being purchasers in good faith,
respondents having registered the sale, will not, as against the
petitioners, carry the day for any of them under Article 1544 of the Civil
Code prescribing rules on preference in case of double sales of
immovable property; Rules in the Application of Article 1544.—Not being
purchasers in good faith, their having registered the sale, will not, as
against the petitioners, carry the day for any of them under Art. 1544 of
the Civil Code prescribing rules on preference in case of double sales of
immovable property. Occeña v. Esponilla, 431 SCRA 116 (2004) laid
down the following rules in the application of Art. 1544: (1) knowledge by
the first buyer of the second sale cannot defeat the first buyer’s rights
except when the second buyer first register in good faith the second sale;
and (2) knowledge gained by the second buyer of the first sale defeats
his rights even if he is first to register, since such knowledge taints his
registration with bad faith.
PETITION for review on certiorari of the decision and resolution of the
Court of Appeals.
The facts are stated in the opinion of the Court.
Benigno Y. Cornes for petitioners.
149
VOL. 622, JUNE 29, 2010 149
Orduña vs. Fuentebella
Galo Reyes for respondents Cids.
Zosimo Abratique for respondents Fuentebella and Banta.
VELASCO, JR.,J.:
In this Petition for Review[1] under Rule 45 of the Rules of Court,
Anthony Orduña, Dennis Orduña and Antonita Orduña assail and seek to
set aside the Decision[2] of the Court of Appeals (CA) dated December 4,
2006 in CA-G.R. CV No. 79680, as reiterated in its Resolution of March
6, 2007, which affirmed the May 26, 2003 Decision[3] of the Regional Trial
Court (RTC), Branch 3 in Baguio City, in Civil Case No. 4984-R, a suit for
annulment of title and reconveyance commenced by herein petitioners
against herein respondents.
Central to the case is a residential lot with an area of 74 square
meters located at Fairview Subdivision, Baguio City, originally registered
in the name of Armando Gabriel, Sr. (Gabriel Sr.) under Transfer
Certificate of Title (TCT) No. 67181 of the Registry of Deeds of Baguio
City.[4]
As gathered from the petition, with its enclosures, and the comments
thereon of four of the five respondents,[5] the Court gathers the following
relevant facts:
Sometime in 1996 or thereabouts, Gabriel Sr. sold the subject lot to
petitioner Antonita Orduña (Antonita), but no formal deed was executed
to document the sale. The contract price was apparently payable in
installments as Antonita
_______________
150
150 SUPREME COURT REPORTS ANNOTATED
Orduña vs. Fuentebella
remitted from time to time and Gabriel Sr. accepted partial payments.
One of the Orduñas would later testify that Gabriel Sr. agreed to execute
a final deed of sale upon full payment of the purchase price.[6]
As early as 1979, however, Antonita and her sons, Dennis and
Anthony Orduña, were already occupying the subject lot on the basis of
some arrangement undisclosed in the records and even constructed their
house thereon. They also paid real property taxes for the house and
declared it for tax purposes, as evidenced by Tax Declaration No. (TD)
96-04012-111087[7] in which they place the assessed value of the
structure at PhP 20,090.
After the death of Gabriel Sr., his son and namesake, respondent
Gabriel Jr., secured TCT No. T-71499[8]over the subject lot and continued
accepting payments from the petitioners. On December 12, 1996, Gabriel
Jr. wrote Antonita authorizing her to fence off the said lot and to construct
a road in the adjacent lot.[9] On December 13, 1996, Gabriel Jr.
acknowledged receipt of a PhP 40,000 payment from
petitioners.[10] Through a letter[11] dated May 1, 1997, Gabriel Jr.
acknowledged that petitioner had so far made an aggregate payment of
PhP 65,000, leaving an outstanding balance of PhP 60,000. A receipt
Gabriel Jr. issued dated November 24, 1997 reflected a PhP 10,000
payment.
Despite all those payments made for the subject lot, Gabriel Jr. would
later sell it to Bernard Banta (Bernard) obviously without the knowledge of
petitioners, as later developments would show.
_______________
151
VOL. 622, JUNE 29, 2010 151
Orduña vs. Fuentebella
As narrated by the RTC, the lot conveyance from Gabriel Jr. to
Bernard was effected against the following backdrop: Badly in need of
money, Gabriel Jr. borrowed from Bernard the amount of PhP 50,000,
payable in two weeks at a fixed interest rate, with the further condition
13
that the subject lot would answer for the loan in case of default. Gabriel
Jr. failed to pay the loan and this led to the execution of a Deed of
Sale[12] dated June 30, 1999 and the issuance later of TCT No. T-
72782[13] for subject lot in the name of Bernard upon cancellation of TCT
No. 71499 in the name of Gabriel, Jr. As the RTC decision indicated, the
reluctant Bernard agreed to acquire the lot, since he had by then ready
buyers in respondents Marcos Cid and Benjamin F. Cid (Marcos and
Benjamin or the Cids).
Subsequently, Bernard sold to the Cids the subject lot for PhP 80,000.
Armed with a Deed of Absolute Sale of a Registered Land[14]dated
January 19, 2000, the Cids were able to cancel TCT No. T-72782 and
secure TCT No. 72783[15] covering the subject lot. Just like in the
immediately preceding transaction, the deed of sale between Bernard
and the Cids had respondent Eduardo J. Fuentebella (Eduardo) as one of
the instrumental witnesses.
Marcos and Benjamin, in turn, ceded the subject lot to Eduardo
through a Deed of Absolute Sale[16] dated May 11, 2000. Thus, the
consequent cancellation of TCT No. T-72782 and issuance on May 16,
2000 of TCT No. T-3276[17] over subject lot in the name of Eduardo.
As successive buyers of the subject lot, Bernard, then Marcos and
Benjamin, and finally Eduardo, checked, so each
_______________
152
152 SUPREME COURT REPORTS ANNOTATED
Orduña vs. Fuentebella
claimed, the title of their respective predecessors-in-interest with the
Baguio Registry and discovered said title to be free and unencumbered at
the time each purchased the property. Furthermore, respondent Eduardo,
before buying the property, was said to have inspected the same and
found it unoccupied by the Orduñas.[18]
Sometime in May 2000, or shortly after his purchase of the subject lot,
Eduardo, through his lawyer, sent a letter addressed to the residence of
Gabriel Jr. demanding that all persons residing on or physically
occupying the subject lot vacate the premises or face the prospect of
being ejected.[19]
Learning of Eduardo’s threat, petitioners went to the residence of
Gabriel Jr. at No. 34 Dominican Hill, Baguio City. There, they met Gabriel
Jr.’s estranged wife, Teresita, who informed them about her having filed
an affidavit-complaint against her husband and the Cids for falsification of
public documents on March 30, 2000. According to Teresita, her
signature on the June 30, 1999 Gabriel Jr. – Bernard deed of sale was a
forgery. Teresita further informed the petitioners of her intent to honor the
aforementioned 1996 verbal agreement between Gabriel Sr. and Antonita
and the partial payments they gave her father-in-law and her husband for
the subject lot.
On July 3, 2001, petitioners, joined by Teresita, filed a
Complaint[20] for Annulment of Title, Reconveyance with
Damages against the respondents before the RTC, docketed as Civil
Case No. 4984-R, specifically praying that TCT No. T-3276 dated May
16, 2000 in the name of Eduardo be annulled. Corollary to this prayer,
petitioners pleaded that Gabriel Jr.’s title to the lot be reinstated and that
petitioners be declared as entitled to acquire ownership of the same upon
payment of
_______________
153
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Orduña vs. Fuentebella
the remaining balance of the purchase price therefor agreed upon by
Gabriel Sr. and Antonita.
While impleaded and served with summons, Gabriel Jr. opted not to
submit an answer.
Ruling of the RTC
By Decision dated May 26, 2003, the RTC ruled for the respondents,
as defendants a quo, and against the petitioners, as plaintiffs therein, the
dispositive portion of which reads:
“WHEREFORE, the instant complaint is hereby DISMISSED for lack
of merit. The four (4) plaintiffs are hereby ordered by this Court to
pay each defendant (except Armando Gabriel, Jr., Benjamin F. Cid, and
Eduardo J. Fuentebella who did not testify on these damages), Moral
Damages of Twenty Thousand (P20,000.00) Pesos, so
that eachdefendant shall receive Moral Damages of Eighty Thousand
(P80,000.00) Pesos each. Plaintiffs shall also pay all defendants (except
Armando Gabriel, Jr., Benjamin F. Cid, and Eduardo J. Fuentebella who
did not testify on these damages), Exemplary Damages of Ten Thousand
(P10,000.00) Pesos each so that eachdefendant shall receive Forty
Thousand (P40,000.00) Pesos as Exemplary Damages. Also, plaintiffs
are ordered to pay each defendant (except Armando Gabriel, Jr.,
Benjamin F. Cid, and Eduardo J. Fuentebella who did not testify on these
damages), Fifty Thousand (P50,000.00) Pesos as Attorney’s Fees, jointly
and solidarily.
Cost of suit against the plaintiffs.”[21]
On the main, the RTC predicated its dismissal action on the basis of
the following grounds and/or premises:
Eduardo was a purchaser in good faith and, hence, may avail himself
of the provision of Article 1544 1.[22] of the Civil
14
_______________
154
154 SUPREME COURT REPORTS ANNOTATED
Orduña vs. Fuentebella
Code, which provides that in case of double sale, the party in good faith
who is able to register the property has better right over the property;
Under Arts. 1356 2.[23]and 1358[24] of the Code, conveyance of real
property must be in the proper form, else it is unenforceable;
The verbal sale had no adequate consideration; and 3.
Petitioners’ right of action to assail Eduardo’s title prescribes in one
year from date of the issuance of such title and the one-year period has
already lapsed. 4.
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VOL. 622, JUNE 29, 2010 155
Orduña vs. Fuentebella
From the above decision, only petitioners appealed to the CA, their
appeal docketed as CA-G.R. CV No. 79680.
The CA Ruling
On December 4, 2006, the appellate court rendered the assailed
Decision affirming the RTC decision. The falloreads:
“WHEREFORE, premises considered, the instant appeal is hereby
DISMISSED and the 26 May 2003 Decision of the Regional Trial Court,
Branch 3 of Baguio City in Civil Case No. 4989-R is hereby AFFIRMED.
SO ORDERED.”[25]
Hence, the instant petition on the submission that the appellate court
committed reversible error of law:
1. xxx WHEN IT HELD THAT THE SALE OF THE SUBJECT LOT
BY ARMANDO GABRIEL, SR. AND RESPONDENT ARMANDO
GABRIEL, JR. TO THE PETITIONERS IS UNENFORCEABLE.
2. xxx IN NOT FINDING THAT THE SALE OF THE SUBJECT LOT
BY RESPONDENT ARMANDO GABRIEL, JR. TO RESPONDENT
BERNARD BANTA AND ITS SUBSEQUENT SALE BY THE LATTER TO
HIS CO-RESPONDENTS ARE NULL AND VOID.
3. xxx IN NOT FINDING THAT THE RESPONDENTS ARE
BUYERS IN BAD FAITH
4. xxx IN FINDING THAT THE SALE OF THE SUBJECT LOT
BETWEEN GABRIEL, SR. AND RESPONDENT GABRIEL, JR. AND
THE PETITIONERS HAS NO ADEQUATE CONSIDERATION.
5. xxx IN RULING THAT THE INSTANT ACTION HAD ALREADY
PRESCRIBED.
6. xxx IN FINDING THAT THE PLAINTIFFS-APPELLANTS ARE
LIABLE FOR MORAL AND EXEMPLARY DAMAGES AND
ATTORNEY’S FEES.[26]
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156
156 SUPREME COURT REPORTS ANNOTATED
Orduña vs. Fuentebella
The Court’s Ruling
The core issues tendered in this appeal may be reduced to four and
formulated as follows, to wit: first, whether or not the sale of the subject
lot by Gabriel Sr. to Antonita is unenforceable under the Statute of
Frauds; second, whether or not such sale has adequate
consideration; third, whether the instant action has already prescribed;
and, fourth, whether or not respondents are purchasers in good faith.
The petition is meritorious.
Statute of Frauds Inapplicable
to Partially Executed Contracts
It is undisputed that Gabriel Sr., during his lifetime, sold the subject
property to Antonita, the purchase price payable on installment basis.
Gabriel Sr. appeared to have been a recipient of some partial payments.
After his death, his son duly recognized the sale by accepting payments
and issuing what may be considered as receipts therefor. Gabriel Jr., in a
gesture virtually acknowledging the petitioners’ dominion of the property,
authorized them to construct a fence around it. And no less than his wife,
Teresita, testified as to the fact of sale and of payments received.
Pursuant to such sale, Antonita and her two sons established their
residence on the lot, occupying the house they earlier constructed
thereon. They later declared the property for tax purposes, as evidenced
by the issuance of TD 96-04012-111087 in their or Antonita’s name, and
paid the real estates due thereon, obviously as sign that they are
occupying the lot in the concept of owners.
Given the foregoing perspective, Eduardo’s assertion in his Answer
that “persons appeared in the property”[27] only after
_______________
[26] Supra note 1 at pp. 14-15.
[27] Rollo, p. 40.
157
VOL. 622, JUNE 29, 2010 157
Orduña vs. Fuentebella
15
“he initiated ejectment proceedings”[28] is clearly baseless. If indeed
petitioners entered and took possession of the property after he
(Eduardo) instituted the ejectment suit, how could they explain the fact
that he sent a demand letter to vacate sometime in May 2000?
With the foregoing factual antecedents, the question to be resolved is
whether or not the Statute of Frauds bars the enforcement of the verbal
sale contract between Gabriel Sr. and Antonita.
The CA, just as the RTC, ruled that the contract is unenforceable for
non-compliance with the Statute of Frauds.
We disagree for several reasons. Foremost of these is that the Statute
of Fraudsexpressed in Article 1403, par. (2),[29] of the Civil Codeapplies
only to executory contracts, i.e., those where no performance has yet
been made. Stated a bit differently, the legal consequence of non-
compliance with the Statute does not come into play where the contract
in question is completed, executed, or partially consummated.[30]
_______________
158
158 SUPREME COURT REPORTS ANNOTATED
Orduña vs. Fuentebella
The Statute of Frauds, in context, provides that a contract for the sale
of real property or of an interest therein shall be unenforceable unless the
sale or some note or memorandum thereof is in writing and subscribed by
the party or his agent. However, where the verbal contract of sale has
been partially executed through the partial payments made by one
party duly received by the vendor, as in the present case, the contract is
taken out of the scope of the Statute.
The purpose of the Statute is to prevent fraud and perjury in the
enforcement of obligations depending for their evidence on the
unassisted memory of witnesses, by requiring certain enumerated
contracts and transactions to be evidenced by a writing signed by the
party to be charged.[31] The Statute requires certain contracts to be
evidenced by some note or memorandum in order to be enforceable.
The term “Statute of Frauds” is descriptive of statutes that require certain
classes of contracts to be in writing. The Statute does not deprive the
parties of the right to contract with respect to the matters therein involved,
but merely regulates the formalities of the contract necessary to render it
enforceable.[32]
Since contracts are generally obligatory in whatever form they may
have been entered into, provided all the essential requisites for their
validity are present,[33] the Statute simply provides the method by which
the contracts enumerated in Art. 1403 (2) may be proved but does
notdeclare them invalid because they are not reduced to writing. In fine,
the form required under the Statute is for convenience or evidentiary
purposes only.
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159
VOL. 622, JUNE 29, 2010 159
Orduña vs. Fuentebella
There can be no serious argument about the partial execution of the
sale in question. The records show that petitioners had, on separate
occasions, given Gabriel Sr. and Gabriel Jr. sums of money as partial
payments of the purchase price. These payments were duly receipted by
Gabriel Jr. To recall, in his letter of May 1, 1997, Gabriel, Jr.
acknowledged having received the aggregate payment of PhP 65,000
from petitioners with the balance of PhP 60,000 still remaining unpaid.
But on top of the partial payments thus made, possession of the subject
of the sale had been transferred to Antonita as buyer. Owing thus to its
partial execution, the subject sale is no longer within the purview of the
Statute of Frauds.
Lest it be overlooked, a contract that infringes the Statute of Frauds is
ratified by the acceptance of benefits under the contract.[34]Evidently,
Gabriel, Jr., as his father earlier, had benefited from the partial payments
made by the petitioners. Thus, neither Gabriel Jr. nor the other
respondents—successive purchasers of subject lots—could plausibly set
up the Statute of Frauds to thwart petitioners’ efforts towards establishing
their lawful right over the subject lot and removing any cloud in their title.
As it were, petitioners need only to pay the outstanding balance of the
purchase price and that would complete the execution of the oral sale.
There was Adequate Consideration
Without directly saying so, the trial court held that the petitioners
cannot sue upon the oral sale since in its own words: “x x x for more than
a decade, [petitioners] have not paid in full Armando Gabriel, Sr. or his
estate, so that the sale trans-
_______________
[34] Article 1405, Civil Code, which states:
Contracts infringing the Statute of Frauds, referred to in No. 2 of
Article 1403, are ratified by the failure to object to the presentation of oral
evidence to prove the same, or by the acceptance of benefits under
them.
160
160 SUPREME COURT REPORTS ANNOTATED
Orduña vs. Fuentebella
action between Armando Gabriel Sr. and [petitioners] [has] no adequate
consideration.”
The trial court’s posture, with which the CA effectively concurred, is
patently flawed. For starters, they equated incomplete payment of the
purchase price with inadequacy of price or what passes as lesion, when
16
both are different civil law concepts with differing legal consequences, the
first being a ground to rescind an otherwise valid and enforceable
contract. Perceived inadequacy of price, on the other hand, is not a
sufficient ground for setting aside a sale freely entered into, save perhaps
when the inadequacy is shocking to the conscience.[35]
The Court to be sure takes stock of the fact that the contracting
parties to the 1995 or 1996 sale agreed to a purchase price of PhP
125,000 payable on installments. But the original lot owner, Gabriel Sr.,
died before full payment can be effected. Nevertheless, petitioners
continued remitting payments to Gabriel, Jr., who sold the subject lot to
Bernard on June 30, 1999. Gabriel, Jr., as may be noted, parted with the
property only for PhP 50,000. On the other hand, Bernard sold it for PhP
80,000 to Marcos and Benjamin. From the foregoing price figures, what is
abundantly clear is that what Antonita agreed to pay Gabriel, Sr., albeit in
installment, was very much more than what his son, for the same lot,
received from his buyer and the latter’s buyer later. The Court, therefore,
cannot see its way clear as to how the RTC arrived at its simplistic
conclusion about the transaction between Gabriel Sr. and Antonita being
without “adequate consideration.”
The Issues of Prescription and the Bona
Fides of the Respondents as Purchasers
Considering the interrelation of these two issues, we will discuss them
jointly.
_______________
[35] 4 Paras, CIVIL CODE OF THE PHILIPPINES ANNOTATED 723 (13th ed.,
1995).
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VOL. 622, JUNE 29, 2010 161
Orduña vs. Fuentebella
There can be no quibbling about the fraudulent nature of the
conveyance of the subject lot effected by Gabriel Jr. in favor of Bernard. It
is understandable that after his father’s death, Gabriel Jr. inherited
subject lot and for which he was issued TCT No. No. T-71499. Since the
Gabriel Sr.–Antonita sales transaction called for payment of the contract
price in installments, it is also understandable why the title to the property
remained with the Gabriels. And after the demise of his father, Gabriel Jr.
received payments from the Orduñas and even authorized them to
enclose the subject lot with a fence. In sum, Gabriel Jr. knew fully well
about the sale and is bound by the contract as predecessor-in-interest of
Gabriel Sr. over the property thus sold.
Yet, the other respondents (purchasers of subject lot) still maintain
that they are innocent purchasers for value whose rights are protected by
law and besides which prescription has set in against petitioners’ action
for annulment of title and reconveyance.
The RTC and necessarily the CA found the purchaser-respondents’
thesis on prescription correct stating in this regard that Eduardo’s TCT
No. T-3276 was issued on May 16, 2000 while petitioners filed their
complaint for annulment only on July 3, 2001. To the courts below, the
one-year prescriptive period to assail the issuance of a certificate of title
had already elapsed.
We are not persuaded.
The basic complaint, as couched, ultimately seeks the reconveyance
of a fraudulently registered piece of residential land. Having possession
of the subject lot, petitioners’ right to the reconveyance thereof, and the
annulment of the covering title, has not prescribed or is not time-barred.
This is so for an action for annulment of title or reconveyance based on
fraud is imprescriptible where the suitor is in possession of the
162
162 SUPREME COURT REPORTS ANNOTATED
Orduña vs. Fuentebella
property subject of the acts,[36] the action partaking as it does of a suit for
quieting of title which is imprescriptible.[37] Such is the case in this
instance. Petitioners have possession of subject lots as owners having
purchased the same from Gabriel, Sr. subject only to the full payment of
the agreed price.
The prescriptive period for the reconveyance of fraudulently registered
real property is 10 years, reckoned from the date of the issuance of the
certificate of title, if the plaintiff is not in possession, but imprescriptible if
he is in possession of the property.[38] Thus, one who is in actual
possession of a piece of land claiming to be the owner thereof may wait
until his possession is disturbed or his title is attacked before taking steps
to vindicate his right.[39] As it is, petitioners’ action for reconveyance is
imprescriptible.
This brings us to the question of whether or not the respondent-
purchasers, i.e., Bernard, Marcos and Benjamin, and Eduardo, have the
status of innocent purchasers for value, as was the thrust of the trial
court’s disquisition and disposition.
We are unable to agree with the RTC.
It is the common defense of the respondent-purchasers that they each
checked the title of the subject lot when it was his turn to acquire the
same and found it clean, meaning without annotation of any
encumbrance or adverse third party interest. And it is upon this postulate
that each claims to be an
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17
163
VOL. 622, JUNE 29, 2010 163
Orduña vs. Fuentebella
innocent purchaser for value, or one who buys the property of another
without notice that some other person has a right to or interest in it, and
who pays therefor a full and fair price at the time of the purchase or
before receiving such notice.[40]
The general rule is that one dealing with a parcel of land registered
under the Torrens System may safely rely on the correctness of the
certificate of title issued therefor and is not obliged to go beyond the
certificate.[41]Where, in other words, the certificate of title is in the name of
the seller, the innocent purchaser for value has the right to rely on what
appears on the certificate, as he is charged with notice only of burdens or
claims on the res as noted in the certificate. Another formulation of the
rule is that (a) in the absence of anything to arouse suspicion or (b)
except where the party has actual knowledge of facts and circumstances
that would impel a reasonably cautious man to make such inquiry or (c)
when the purchaser has knowledge of a defect of title in his vendor or of
sufficient facts to induce a reasonably prudent man to inquire into the
status of the title of the property,[42] said purchaser is without obligation to
look beyond the certificate and investigate the title of the seller.
Eduardo and, for that matter, Bernard and Marcos and Benjamin, can
hardly claim to be innocent purchasers for value or purchasers in good
faith. For each knew or was at least expected to know that somebody
else other than Gabriel, Jr. has a right or interest over the lot. This is
borne by the fact that the initial seller, Gabriel Jr., was not in possession
of subject property. With respect to Marcos and Benjamin, they knew as
buyers that Bernard, the seller, was not also in pos-
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164
164 SUPREME COURT REPORTS ANNOTATED
Orduña vs. Fuentebella
session of the same property. The same goes with Eduardo, as buyer,
with respect to Marcos and Benjamin.
Basic is the rule that a buyer of a piece of land which is in the actual
possession of persons other than the seller must be wary and should
investigate the rights of those in possession. Otherwise, without such
inquiry, the buyer can hardly be regarded as a buyer in good faith. When
a man proposes to buy or deal with realty, his duty is to read the public
manuscript, i.e., to look and see who is there upon it and what his rights
are. A want of caution and diligence which an honest man of ordinary
prudence is accustomed to exercise in making purchases is, in
contemplation of law, a want of good faith. The buyer who has failed to
know or discover that the land sold to him is in adverse possession of
another is a buyer in bad faith.[43]
Where the land sold is in the possession of a person other than the
vendor, the purchaser must go beyond the certificates of title and make
inquiries concerning the rights of the actual possessor.[44] And where, as
in the instant case, Gabriel Jr. and the subsequent vendors were not in
possession of the property, the prospective vendees are obliged to
investigate the rights of the one in possession. Evidently, Bernard,
Marcos and Benjamin, and Eduardo did not investigate the rights over the
subject lot of the petitioners who, during the period material to this case,
were in actual possession thereof. Bernard, et al. are, thus, not
purchasers in good faith and, as such, cannot be accorded the protection
extended by the law
_______________
[43] Embrado v. Court of Appeals, G.R. No. 51457, June 27, 1994,
233 SCRA 335, 347; citing J.M. Tuason & Co., Inc. v. Court of Appeals,
G.R. No. L-41233, November 21, 1979, 94 SCRA 413, 422-423
and Angelo v. Pacheco, 56 Phil. 70 (1931).
[44] Heirs of Trinidad De Leon Vda. de Roxas v. Court of Appeals,
G.R. No. 138660, February 5, 2004, 422 SCRA 101, 117;
citing Development Bank of the Philippines v. Court of Appeals, G.R. No.
129471, April 28, 2000, 331 SCRA 267.
165
VOL. 622, JUNE 29, 2010 165
Orduña vs. Fuentebella
to such purchasers.[45]Moreover, not being purchasers in good faith, their
having registered the sale, will not, as against the petitioners, carry the
day for any of them under Art. 1544 of the Civil Code prescribing rules on
preference in case of double sales of immovable
property. Occeña v.Esponilla[46] laid down the following rules in the
application of Art. 1544: (1) knowledge by the first buyer of the second
sale cannot defeat the first buyer’s rights except when the second buyer
first register in good faith the second sale; and (2) knowledge gained by
the second buyer of the first sale defeats his rights even if he is first to
register, since such knowledge taints his registration with bad faith.
Upon the facts obtaining in this case, the act of registration by any of
the three respondent-purchasers was not coupled
_______________
[45] Sec. 32 of Presidential Decree No. 1529, which provides:
32. SectionReview of decree of registration; Innocent purchaser for
value.––The decree of registration shall not be reopened or revised by
reason of absence, minority, or other disability of any person adversely
affected thereby, nor by any proceeding in any court for reversing
18
judgments, subject, however, to the right of any person, x x x deprived of is ORDERED to execute a Deed of Absolute Sale for the transfer of title
land or of any estate or interest therein by such adjudication or of subject lot to the name of Antonita Orduña, within three (3) days from
confirmation of title obtained by actual fraud, to file in the proper [RTC] a receipt of said payment.
petition for reopening and review of the decree of registration not later No pronouncement as to costs.
than one year from and after the date of the entry of such decree of SO ORDERED.
registration, but in no case shall such petition be entertained by the court Corona (C.J., Chairperson), Leonardo-De Castro, Del
where an innocent purchaser for value has acquired the land or an Castillo andPerez, JJ., concur.
interest therein, whose rights may be prejudiced. Whenever the phrase
“innocent purchaser for value” or an equivalent phrase occurs in this Petition granted, judgment and resolution reversed and set aside.
Decree, it shall be deemed to include an innocent lessee, mortgagee, or
other encumbrance for value. 167
VOL. 622, JUNE 29, 2010 167
Upon the expiration of said period of one year, the decree of
registration and the certificate of title issued shall become Orduña vs. Fuentebella
incontrovertible. Any person aggrieved by such decree of registration in Note.—The requirement under the Statute of Fraud does not affect
any case may pursue his remedy by action for damages against the the validity of the contract of sale but is needed merely for its
applicant or any other persons responsible for the fraud. enforceability. (Yaneza vs. Court of Appeals, 572 SCRA 413 [2008])
[46] Supra note 37. ——o0o——

166 © Copyright 2019 Central Book Supply, Inc. All rights reserved.
166 SUPREME COURT REPORTS ANNOTATED
Orduña vs. Fuentebella
with good faith. At the minimum, each was aware or is at least presumed
to be aware of facts which should put him upon such inquiry and
investigation as might be necessary to acquaint him with the defects in
the title of his vendor.
The award by the lower courts of damages and attorney’s fees to
some of the herein respondents was predicated on the filing by the
original plaintiffs of what the RTC characterized as an unwarranted suit.
The basis of the award, needless to stress, no longer obtains and, hence,
the same is set aside.
WHEREFORE, the petition is hereby GRANTED. The appealed
December 4, 2006 Decision and the March 6, 2007 Resolution of the
Court of Appeals in CA-G.R. CV No. 79680 affirming the May 26, 2003
Decision of the Regional Trial Court, Branch 3 in Baguio City are hereby
REVERSED and SET ASIDE. Accordingly, petitioner Antonita Orduña is
hereby recognized to have the right of ownership over subject lot covered
by TCT No. T-3276 of the Baguio Registry registered in the name of
Eduardo J. Fuentebella. The Register of Deeds of Baguio City is hereby
ORDERED to cancel said TCT No. T-3276 and to issue a new one in the
January 28, 2015. G.R. No. 199648.*
name of Armando Gabriel, Jr. with the proper annotation of the
conditional sale of the lot covered by said title in favor of Antonita Orduña
FIRST OPTIMA REALTY CORPORATION, petitioner,vs. SECURITRON
subject to the payment of the PhP 50,000 outstanding balance. Upon full
SECURITY SERVICES, INC., respondent.
payment of the purchase price by Antonita Orduña, Armando Gabriel, Jr.

19
 Civil Law; Contracts; When there is merely an offer by one (1) party
without acceptance of the other, there is no contract.—It cannot be
denied that there were negotiations between the parties conducted after
the respondent’s December 9, 2004 letter-offer and prior to the February
4, 2005 letter. These negotiations culminated in a meeting between
Eleazar and Young whereby the latter declined to enter into an
agreement and accept cash payment then being tendered by the former.
Instead, Young informed Eleazar during said meeting that she still had to
confer with her sister and petitioner’s board of directors; in turn, Eleazar
told Young that respondent shall await the necessary approval. Thus, the
trial and appellate courts failed to appreciate that respondent’s offer to
purchase the subject property was never accepted by the petitioner at
any instance, even after negotiations were held between them. Thus, as
between them, there is no sale to speak of. “When there is merely an
offer by one party without acceptance of the other, there is no contract.”
To borrow a pronouncement in a previously decided case: The stages of
a contract of sale are: (1) negotiation, starting from the time the
prospective contracting parties indicate interest in the contract to the time
the contract is perfected; (2) perfection, which takes place upon the
concurrence of the essential elements of the sale; and (3) consummation,
which commences when the parties perform their respective
undertakings under the contract of sale, culminating in the
extinguishment of the contract. In the present case, the parties never got
past the negotiation stage. Nothing shows that the parties had agreed on
any final arrangement containing the essential elements of a contract of
sale, namely, (1) consent or the meeting of the minds of the parties; (2)
object or subject matter of the contract; and (3) price or consideration of
the sale.
Same; Sales; Contract of Sale; Earnest Money; As contemplated
under Art. 1482 of the Civil Code, “there must first be a perfected
_______________
* SECOND DIVISION.
535
VOL. 748, JANUARY 28, 2015 535
First Optima Realty Corporation vs. Securitron Security Services,
Inc.
contract of sale before we can speak of earnest money.”—
Respondent’s subsequent sending of the February 4, 2005 letter and
check to petitioner — without awaiting the approval of petitioner’s board
of directors and Young’s decision, or without making a new offer —
constitutes a mere reiteration of its original offer which was already
rejected previously; thus, petitioner was under no obligation to reply to
the February 4, 2005 letter. It would be absurd to require a party to reject
the very same offer each and every time it is made; otherwise, a
perfected contract of sale could simply arise from the failure to reject the
same offer made for the hundredth time. Thus, said letter cannot be
considered as evidence of a perfected sale, which does not exist in the
first place; no binding obligation on the part of the petitioner to sell its
property arose as a consequence. The letter made no new offer replacing
the first which was rejected. Since there is no perfected sale between the
parties, respondent had no obligation to make payment through the
check; nor did it possess the right to deliver earnest money to petitioner
in order to bind the latter to a sale. As contemplated under Art. 1482 of
the Civil Code, “there must first be a perfected contract of sale before we
can speak of earnest money.” “Where the parties merely exchanged
offers and counter-offers, no contract is perfected since they did not yet
give their consent to such offers. Earnest money applies to a perfected
sale.”
Same; Same; Same; Same; In a potential sale transaction, the prior
payment of earnest money even before the property owner can agree to
sell his property is irregular, and cannot be used to bind the owner to the
obligations of a seller under an otherwise perfected contract of sale; to
cite a well-worn cliché, the carriage cannot be placed before the horse.—
In a potential sale transaction, the prior payment of earnest money even
before the property owner can agree to sell his property is irregular, and
cannot be used to bind the owner to the obligations of a seller under an
otherwise perfected contract of sale; to cite a well-worn cliché, the
carriage cannot be placed before the horse. The property owner-
prospective seller may not be legally obliged to enter into a sale with a
prospective buyer through the latter’s employment of questionable
practices which prevent the owner from freely giving his consent to the
transaction; this constitutes a palpable transgression of the prospective
seller’s rights of ownership over his property, an anomaly which the Court
will certainly not condone. An agreement where the prior free consent of
one party thereto is withheld or suppressed will be struck
536
536 SUPREME COURT REPORTS ANNOTATED
First Optima Realty Corporation vs. Securitron Security Services,
Inc.
down, and the Court shall always endeavor to protect a property
owner’s rights against devious practices that put his property in danger of
being lost or unduly disposed without his prior knowledge or consent. As
this ponente has held before, “[t]his Court cannot presume the existence
of a sale of land, absent any direct proof of it.”
20
PETITION for review on certiorari of the decision and resolution of the
Court of Appeals.
The facts are stated in the opinion of the Court.
Rodrigo, Berenguer and Guno for petitioner.
Restituto M. Ancheta, Jr. for respondent.
DEL CASTILLO,J.:
In a potential sale transaction, the prior payment of earnest money
even before the property owner can agree to sell his property is irregular,
and cannot be used to bind the owner to the obligations of a seller under
an otherwise perfected contract of sale; to cite a well-worn cliché, the
carriage cannot be placed before the horse. The property owner-
prospective seller may not be legally obliged to enter into a sale with a
prospective buyer through the latter’s employment of questionable
practices which prevent the owner from freely giving his consent to the
transaction; this constitutes a palpable transgression of the prospective
seller’s rights of ownership over his property, an anomaly which the Court
will certainly not condone.
This Petition for Review on Certiorari1 seeks to set aside: 1) the
September 30, 2011 Decision2 of the Court of Appeals (CA) in C.A.-G.R.
CV No. 93715 affirming the February 16, 2009
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537
VOL. 748, JANUARY 28, 2015 537
First Optima Realty Corporation vs. Securitron Security Services,
Inc.
3
Decision of the Regional Trial Court (RTC) of Pasay City, Branch 115
in Civil Case No. 06-0492 CFM; and 2) the CA’s December 9, 2011
Resolution4 denying the herein petitioner’s Motion for Reconsideration5of
the assailed judgment.
Factual Antecedents
Petitioner First Optima Realty Corporation is a domestic corporation
engaged in the real estate business. It is the registered owner of a 256-
square-meter parcel of land with improvements located in Pasay City,
covered by Transfer Certificate of Title No. 125318 (the subject
property).6 Respondent Securitron Security Services, Inc., on the other
hand, is a domestic corporation with offices located beside the subject
property.
Looking to expand its business and add to its existing offices,
respondent — through its General Manager, Antonio Eleazar (Eleazar) —
sent a December 9, 2004 Letter7 addressed to petitioner — through its
Executive Vice President, Carolina T. Young (Young) — offering to
purchase the subject property at P6,000.00 per square meter. A series of
telephone calls ensued, but only between Eleazar and Young’s
secretary;8 Eleazar likewise personally negotiated with a certain Maria
Remoso (Remoso), who was an employee of petitioner.9 At this point,
Eleazar was unable to personally negotiate with Young or the petitioner’s
board of directors.
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First Optima Realty Corporation vs. Securitron Security Services,
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Sometime thereafter, Eleazar personally went to petitioner’s office
offering to pay for the subject property in cash, which he already brought
with him. However, Young declined to accept payment, saying that she
still needed to secure her sister’s advice on the matter.10 She likewise
informed Eleazar that prior approval of petitioner’s Board of Directors was
required for the transaction, to which remark Eleazar replied that
respondent shall instead await such approval.11
On February 4, 2005, respondent sent a Letter12 of even date to
petitioner. It was accompanied by Philippine National Bank Check No.
24677 (the subject check), issued for P100,000.00 and made payable to
petitioner. The letter states thus:
Gentlemen:
As agreed upon, we are making a deposit of ONE HUNDRED
THOUSAND PESOS (Php100,000.00) as earnest money for your
property at the corner of Layug St., & Lim-An St., Pasay City as per TCT
No. 125318 with an area of 256 sq. m. at 6,000.00/sq. m. for a total of
ONE MILLION FIVE HUNDRED THIRTY-SIX THOUSAND PESOS
(Php1,536,000.00).
Full payment upon clearing of the tenants at said property and signing
of the Deed of Sale.
(signed)
ANTONIO S. ELEAZAR13
Despite the delicate nature of the matter and large amount involved,
respondent did not deliver the letter and check directly to Young or her
office; instead, they were coursed through an ordinary receiving
clerk/receptionist of the peti-
21
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tioner, who thus received the same and therefor issued and signed
Provisional Receipt No. 33430.14 The said receipt reads:
Received from x x x Antonio Eleazar x x x the sum of Pesos One
Hundred Thousand x x x
IN PAYMENT OF THE FOLLOWING x x x
Earnest money or Partial payment of
Pasay Property Layug & Lim-an St. x x x.
Note: This is issued to transactions not yet cleared but subsequently
an Official Receipt will be issued. x x x15
The check was eventually deposited with and credited to petitioner’s
bank account.
Thereafter, respondent through counsel demanded in writing that
petitioner proceed with the sale of the property.16 In a March 3, 2006
Letter17 addressed to respondent’s counsel, petitioner wrote back:
Dear Atty. De Jesus:
Anent your letter dated January 16, 2006 received on February 20,
2006, please be informed of the following:
1. It was your client SECURITRON SECURITY SERVICES, INC.,
represented by Mr. Antonio Eleazar who offered to buy our property
located at corner Layug and Lim-An St., Pasay City;
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540
540 SUPREME COURT REPORTS ANNOTATED
First Optima Realty Corporation vs. Securitron Security Services,
Inc.
2. It tendered an earnest money despite the fact that we are still
undecided to sell the said property;
3. Our Board of Directors failed to pass a resolution to date whether it
agrees to sell the property;
4. We have no Contract for the earnest money nor Contract to Sell the
said property with your client;
Considering therefore the above as well as due to haste and demands
which we feel [are forms] of intimidation and harassment, we regret to
inform you that we are now incline (sic) not to accept your offer to buy our
property. Please inform your client to coordinate with us for the refund of
this (sic) money.
Very truly yours,
(signed)
CAROLINA T. YOUNG
Executive Vice[-]President18
Ruling of the Regional Trial Court of Pasay City
On April 18, 2006, respondent filed with the Pasay RTC a civil case
against petitioner for specific performance with damages to compel the
latter to consummate the supposed sale of the subject property.
Docketed as Civil Case No. 06-0492 CFM and assigned to Branch 115 of
the Pasay RTC, the Complaint19 is predicated on the claim that since a
perfected contract of sale arose between the parties after negotiations
were conducted and respondent paid the P100,000.00 supposed earnest
money — which petitioner accepted, the latter should be compelled to
sell the subject property to the former. Thus, respondent prayed that
petitioner be ordered to comply
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with its obligation as seller, accept the balance of the purchase price,
and execute the corresponding deed of sale in respondent’s favor; and
that petitioner be made to pay P200,000.00 damages for its breach and
delay in the performance of its obligations, P200,000.00 by way of
attorney’s fees, and costs of suit.
In its Answer with Compulsory Counterclaim,20petitioner argued that it
never agreed to sell the subject property; that its board of directors did
not authorize the sale thereof to respondent, as no corresponding board
resolution to such effect was issued; that the respondent’s P100,000.00
check payment cannot be considered as earnest money for the subject
property, since said payment was merely coursed through petitioner’s
receiving clerk, who was forced to accept the same; and that respondent
was simply motivated by a desire to acquire the subject property at any
cost. Thus, petitioner prayed for the dismissal of the case and, by way of
counterclaim, it sought the payment of moral damages in the amount of
P200,000.00; exemplary damages in the amount of P100,000.00; and
attorney’s fees and costs of suit.
22
 In a Reply,21 respondent countered that authorization by petitioner’s
Board of Directors was not necessary since it is a real estate corporation
principally engaged in the buying and selling of real property; that
respondent did not force nor intimidate petitioner’s receiving clerk into
accepting the February 4, 2005 letter and check for P100,000.00; that
petitioner’s acceptance of the check and its failure — for more than a
year — to return respondent’s payment amounts to estoppel and a
ratification of the sale; and that petitioner is not entitled to its
counterclaim.
After due proceedings were taken, the Pasay RTC issued its Decision
dated February 16, 2009, decreeing as follows:
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542 SUPREME COURT REPORTS ANNOTATED
First Optima Realty Corporation vs. Securitron Security Services,
Inc.
WHEREFORE, defendant First Optima Realty Corporation is directed
to comply with its obligation by accepting the remaining balance of One
Million Five Hundred Thirty-Six Thousand Pesos and Ninety-Nine
Centavos (P1,536,000.99), and executing the corresponding deed of sale
in favor of the plaintiff Securitron Security Services, Inc. over the subject
parcel of land.
No costs.
SO ORDERED.22
In ruling for the respondent, the trial court held that petitioner’s
acceptance of P100,000.00 earnest money indicated the existence of a
perfected contract of sale between the parties; that there is no showing
that when respondent gave the February 4, 2005 letter and check to
petitioner’s receiving clerk, the latter was harassed or forced to accept
the same; and that for the sale of the subject property, no resolution of
petitioner’s board of directors was required since Young was “free to
represent” the corporation in negotiating with respondent for the sale
thereof.
Ruling of the Court of Appeals
Petitioner filed an appeal with the CA. Docketed as C.A.-G.R. CV No.
93715, the appeal made out a case that no earnest money can be
considered to have been paid to petitioner as the supposed payment was
received by a mere receiving clerk, who was not authorized to accept the
same; that the required board of directors resolution authorizing the sale
of corporate assets cannot be dispensed with in the case of petitioner;
that whatever negotiations were held between the parties only concerned
the possible sale, not the sale itself, of the subject property; that without
the written authority of petitioner’s board of directors, Young cannot enter
into a sale of its corpo-
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22 Rollo, p. 98.
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rate property; and finally, that there was no meeting of the minds
between the parties in the first place.
On September 30, 2011, the CA issued the assailed Decision
affirming the trial court’s February 16, 2009 Decision, pronouncing thus:
Article 1318 of the Civil Code declares that no contract exists unless
the following requisites concur: (1) consent of the contracting parties; (2)
object certain which is the subject matter of the contract; and (3) cause of
the obligation established.
A careful perusal of the records of the case show[s] that there was
indeed a negotiation between the parties as regards the sale of the
subject property, their disagreement lies on whether they have arrived on
an agreement regarding said sale. Plaintiff-appellee avers that the parties
have already agreed on the sale and the price for it and the payment of
earnest money and the remaining balance upon clearing of the property
of unwanted tenants. Defendant-appellant on the other hand disputes the
same and insists that there was no concrete agreement between the
parties.
Upon a careful consideration of the arguments of the parties and the
records of the case, we are more inclined to sustain the arguments of the
plaintiff-appellee and affirm the findings of the trial court that there was
indeed a perfected contract of sale between the parties. The following
instances militate against the claim of the defendant-appellant: First. The
letter of the plaintiff-appellee dated February 4, 2005 reiterating their
agreement as to the sale of the realty for the consideration of
Php1,536,000.00 was not disputed nor replied to by the defendant-
appellant, the said letter also provides for the payment of the earnest
money of Php100,000.00 and the full payment upon the clearing of the
property of unwanted tenants, if the defendant-appellant did not really
agree on the sale of the property it could have easily replied to the said
letter informing the plaintiff-appellee that it is not selling the property or
that the matter will
23
 544
544 SUPREME COURT REPORTS ANNOTATED
First Optima Realty Corporation vs. Securitron Security Services,
Inc.
be decided first by the board of directors, defendant-appellant’s
silence or inaction on said letter shows its conformity or consent
thereto; Second. In addition to the aforementioned letter, defendant-
appellant’s acceptance of the earnest money and the issuance of a
provisional receipt clearly shows that there was indeed an agreement
between the parties and we do not subscribe to the argument of the
defendant-appellant that the check was merely forced upon its employee
and the contents of the receipt was just dictated by the plaintiff-appellee’s
employee because common sense dictates that a person would not issue
a receipt for a check with a huge amount if she does not know what that
is for and similarly would not issue [a] receipt which would bind her
employer if she does not have prior instructions to do [so] from her
superiors; Third. The said check for earnest money was deposited in the
bank by defendant-appellant and not until after one year did it offer to
return the same. Defendant-appellant cannot claim lack of knowledge of
the payment of the check since there was a letter for it, and it is just
incredible that a big amount of money was deposited in [its] account
[without knowing] about it [or] investigat[ing] what [it was] for. We are
more inclined to believe that their inaction for more than one year on the
earnest money paid was due to the fact that after the payment of earnest
money the place should be cleared of unwanted tenants before the full
amount of the purchase price will be paid as agreed upon as shown in
the letter sent by the plaintiff-appellee.
As stated above the presence of defendant-appellant’s consent and,
corollarily, the existence of a perfected contract between the parties are
evidenced by the payment and receipt of Php100,000.00 as earnest
money by the contracting parties’ x x x. Under the law on sales,
specifically Article 1482 of the Civil Code, it provides that whenever
earnest money is given in a contract of sale, it shall be considered as part
of the price and proof of the perfection of the contract. Although the
presumption is not conclusive, as the parties may treat the earnest
money differently, there is nothing alleged in the
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present case that would give rise to a contrary presumption.
We also do not find merit in the contention of the defendant-appellant
that there is a need for a board resolution for them to sell the subject
property since it is a corporation, a juridical entity which acts only thru the
board of directors. While we agree that said rule is correct, we must also
point out that said rule is the general rule for all corporations [but] a
corporation [whose main business is buying and selling real estate] like
herein defendant-appellant, is not required to have a board resolution for
the sale of the realty in the ordinary course of business, thus defendant-
appellant’s claim deserves scant consideration.
Furthermore, the High Court has held that “a corporate officer or
agent may represent and bind the corporation in transactions with third
persons to the extent that the authority to do so has been conferred upon
him, and this includes powers which have been intentionally conferred,
and also such powers as, in the usual course of the particular business,
are incidental to, or may be implied from, the powers intentionally
conferred, powers added by custom and usage, as usually pertaining to
the particular officer or agent, and such apparent powers as the
corporation has caused persons dealing with the officer or agent to
believe that it was conferred.”
In the case at bench, it is not disputed and in fact was admitted by the
defendant-appellant that Ms. Young, the Executive Vice President was
authorized to negotiate for the possible sale of the subject parcel of land.
Therefore, Ms. Young can represent and bind defendant-appellant in the
transaction.
Moreover, plaintiff-appellee can assume that Ms. Young, by virtue of
her position, was authorized to sell the property of the corporation. Selling
of realty is not foreign to [an] executive vice[-]president’s function, and the
real estate sale was shown to be a normal business activity of defendant-
appellant since its primary business is the buy and sell of real estate.
Unmistakably, its Executive Vice President is cloaked with actual or
apparent
546
546 SUPREME COURT REPORTS ANNOTATED
First Optima Realty Corporation vs. Securitron Security Services,
Inc.
authority to buy or sell real property, an activity which falls within the
scope of her general authority.
Furthermore, assuming arguendo that a board resolution was indeed
needed for the sale of the subject property, the defendant-appellant is
estopped from raising it now since, [it] did not inform the plaintiff-appellee
of the same, and the latter deal (sic) with them in good faith. Also it must
be stressed that the plaintiff-appellee negotiated with one of the top
24
officer (sic) of the company thus, any requirement on the said sale must
have been known to Ms. Young and she should have informed the
plaintiff-appellee of the same.
In view of the foregoing we do not find any reason to deviate from the
findings of the trial court, the parties entered into the contract freely, thus
they must perform their obligation faithfully. Defendant-appellant’s
unjustified refusal to perform its part of the agreement constitutes bad
faith and the court will not tolerate the same.
WHEREFORE, premises considered, the Decision of the Regional
Trial Court of Pasay City Branch 115, in Civil Case No. 06-0492 CFM is
hereby AFFIRMED.
SO ORDERED.23
Petitioner moved for reconsideration,24 but in a December 9, 2011
Resolution, the CA held its ground. Hence, the present Petition.
Issues
In an October 9, 2013 Resolution,25 this Court resolved to give due
course to the Petition, which raises the following issues:
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I about the supposed transaction and was simply obliged to accept the
THE HONORABLE COURT OF APPEALS ERRED ON A QUESTION
OF LAW WHEN IT RULED THAT THE MONEY RESPONDENT
DELIVERED TO PETITIONER WAS EARNEST MONEY THEREBY
PROVIDING A PERFECTED CONTRACT OF SALE.
II
THE HONORABLE COURT OF APPEALS ERRED ON A QUESTION
OF LAW WHEN IT RULED THAT THE TIME THAT LAPSED IN
RETURNING THE MONEY AND IN REPLYING TO THE LETTER IS
PROOF OF ACCEPTANCE OF EARNEST MONEY.
III
THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS
AND GRAVE ERROR WHEN IT IGNORED THE RESERVATION IN THE
PROVISIONAL RECEIPT — “Note: This is issued to transactions not yet
cleared but subsequently an Official Receipt will be issued.”26
Petitioner’s Arguments
In its Petition and Reply27seeking to reverse and set aside the
assailed CA dispositions and in effect to dismiss Civil Case No. 06-0492
CFM, petitioner argues that respondent failed to prove its case that a
contract of sale was perfected between the parties. It particularly notes
that, contrary to the CA’s ruling, respondent’s delivery of the February 4,
2005 letter and check; petitioner’s failure to respond to said letter;
petitioner’s supposed acceptance of the check by depositing the same in
its account; and its failure to return the same after more than one year
from its tender — these circumstances do not at all prove that a contract
of sale was perfected between the parties. It claims that there was never
an
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548
548 SUPREME COURT REPORTS ANNOTATED
First Optima Realty Corporation vs. Securitron Security Services,
Inc.
agreement in the first place between them concerning the sale of the
subject property, much less the payment of earnest money therefor; that
during trial, Eleazar himself admitted that the check was merely a
“deposit”;28 that the February 4, 2005 letter and check were delivered not
to Young, but to a mere receiving clerk of petitioner who knew nothing
same without the prerogative to reject them; that the acceptance of
respondent’s supposed payment was not cleared and was subject to
approval and issuance of the corresponding official receipt as noted in
Provisional Receipt No. 33430; that respondent intentionally delivered the
letter and check in the manner that it did in order to bind petitioner to the
supposed sale with or without the latter’s consent; that petitioner could
not be faulted for receiving the check and for depositing the same as a
matter of operational procedure with respect to checks received in the
course of its day-to-day business.
Petitioner argues that ultimately, it cannot be said that it gave its
consent to any transaction with respondent or to the payment made by
the latter. Respondent’s letter and check constitute merely an offer which
required petitioner’s acceptance in order to give rise to a perfected sale;
“[o]therwise, a buyer can easily bind any unsuspecting seller to a contract
of sale by merely devising a way that prevents the latter from acting on
the communicated offer.”29
25
 Petitioner thus theorizes that since it had no perfected agreement with
the respondent, the latter’s check should be treated not as earnest
money, but as mere guarantee, deposit or option money to prevent the
prospective seller from back-
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30
ing out from the sale, since the payment of any consideration
acquires the character of earnest money only after a perfected sale
between the parties has been arrived at.31
Respondent’s Arguments
In its Comment,32respondent counters that petitioner’s case typifies a
situation where the seller has had an undue change of mind and desires
to escape the legal consequences attendant to a perfected contract of
sale. It reiterates the appellate court’s pronouncements that petitioner’s
failure to reply to respondent’s February 4, 2005 letter indicates its
consent to the sale; that its acceptance of the check as earnest money
and the issuance of the provisional receipt prove that there is a prior
agreement between the parties; that the deposit of the check in
petitioner’s account and failure to timely return the money to respondent
militates against petitioner’s claim of lack of knowledge and consent.
Rather they indicate petitioner’s decision to sell subject property as
agreed. Respondent adds that contrary to petitioner’s claim, negotiations
were in fact held between the parties after it sent its December 9, 2004
letter-offer, which negotiations precisely culminated in the preparation
and issuance of the February 4, 2005 letter; that petitioner’s failure to
reply to its February 4, 2005 letter meant that it was amenable to
respondent’s terms; that the issuance of a provisional receipt does not
prevent the perfection of the agreement between the parties, since
earnest money was already paid; and that petitioner cannot pretend to be
ignorant of respondent’s check payment, as it involved a
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First Optima Realty Corporation vs. Securitron Security Services,
Inc.
large sum of money that was deposited in the former’s bank account.
Our Ruling
The Court grants the Petition. The trial and appellate courts erred
materially in deciding the case; they overlooked important facts that
should change the complexion and outcome of the case.
It cannot be denied that there were negotiations between the parties
conducted after the respondent’s December 9, 2004 letter-offer and prior
to the February 4, 2005 letter. These negotiations culminated in a
meeting between Eleazar and Young whereby the latter declined to enter
into an agreement and accept cash payment then being tendered by the
former. Instead, Young informed Eleazar during said meeting that she still
had to confer with her sister and petitioner’s board of directors; in turn,
Eleazar told Young that respondent shall await the necessary approval.
Thus, the trial and appellate courts failed to appreciate that
respondent’s offer to purchase the subject property was never accepted
by the petitioner at any instance, even after negotiations were held
between them. Thus, as between them, there is no sale to speak of.
“When there is merely an offer by one party without acceptance of the
other, there is no contract.”33 To borrow a pronouncement in a previously
decided case:
The stages of a contract of sale are: (1) negotiation, starting from the
time the prospective contracting parties indicate interest in the contract to
the time the contract is perfected; (2) perfection, which takes place upon
the concurrence of the essential elements of the sale; and (3)
consummation, which commences when the parties perform
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their respective undertakings under the contract of sale, culminating in
the extinguishment of the contract.
In the present case, the parties never got past the negotiation stage.
Nothing shows that the parties had agreed on any final arrangement
containing the essential elements of a contract of sale, namely, (1)
consent or the meeting of the minds of the parties; (2) object or subject
matter of the contract; and (3) price or consideration of the sale.34
Respondent’s subsequent sending of the February 4, 2005 letter and
check to petitioner — without awaiting the approval of petitioner’s board
of directors and Young’s decision, or without making a new offer —
26
constitutes a mere reiteration of its original offer which was already
rejected previously; thus, petitioner was under no obligation to reply to
the February 4, 2005 letter. It would be absurd to require a party to reject
the very same offer each and every time it is made; otherwise, a
perfected contract of sale could simply arise from the failure to reject the
same offer made for the hundredth time. Thus, said letter cannot be
considered as evidence of a perfected sale, which does not exist in the
first place; no binding obligation on the part of the petitioner to sell its
property arose as a consequence. The letter made no new offer replacing
the first which was rejected.
Since there is no perfected sale between the parties, respondent had
no obligation to make payment through the check; nor did it possess the
right to deliver earnest money to petitioner in order to bind the latter to a
sale. As contemplated under Art. 1482 of the Civil Code, “there must first
be a perfected contract of sale before we can speak of earnest
money.”35 “Where the parties merely exchanged offers and
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First Optima Realty Corporation vs. Securitron Security Services,
Inc.
counter-offers, no contract is perfected since they did not yet give
their consent to such offers. Earnest money applies to a perfected sale.”36
This Court is inclined to accept petitioner’s explanation that since the
check was mixed up with all other checks and correspondence sent to
and received by the corporation during the course of its daily operations,
Young could not have timely discovered respondent’s check payment;
petitioner’s failure to return the purported earnest money cannot mean
that it agreed to respondent’s offer. Besides, respondent’s payment of
supposed earnest money was made under dubious circumstances and in
disregard of sound business practice and common sense. Indeed,
respondent must be faulted for taking such a course of action that is
irregular and extraordinary: common sense and logic dictate that if any
payment is made under the supposed sale transaction, it should have
been made directly to Young or coursed directly through her office, since
she is the officer directly responsible for negotiating the sale, as far as
respondent is concerned and considering the amount of money involved;
no other ranking officer of petitioner can be expected to know of the
ongoing talks covering the subject property. Respondent already knew,
from Eleazar’s previous meeting with Young, that it could only effectively
deal with her; more than that, it should know that corporations work only
through the proper channels. By acting the way it did — coursing the
February 4, 2005 letter and check through petitioner’s mere receiving
clerk or receptionist instead of directly with Young’s office, respondent
placed itself under grave suspicion of putting into effect a premeditated
plan to unduly bind petitioner to its rejected offer, in a manner which it
could not achieve through negotiation and employing normal business
practices. It impresses the Court that respondent attempted to secure the
consent needed for the sale by depositing part of the purchase price and
under
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the false pretense that an agreement was already arrived at, even
though there was none. Respondent achieved the desired effect up to
this point, but the Court will not be fooled.
Thus, as between respondent’s irregular and improper actions and
petitioner’s failure to timely return the P100,000.00 purported earnest
money, this Court sides with petitioner. In a manner of speaking,
respondent cannot fault petitioner for not making a refund since it is
equally to blame for making such payment under false pretenses and
irregular circumstances, and with improper motives. Parties must come to
court with clean hands, as it were.
In a potential sale transaction, the prior payment of earnest money
even before the property owner can agree to sell his property is irregular,
and cannot be used to bind the owner to the obligations of a seller under
an otherwise perfected contract of sale; to cite a well-worn cliché, the
carriage cannot be placed before the horse. The property owner-
prospective seller may not be legally obliged to enter into a sale with a
prospective buyer through the latter’s employment of questionable
practices which prevent the owner from freely giving his consent to the
transaction; this constitutes a palpable transgression of the prospective
seller’s rights of ownership over his property, an anomaly which the Court
will certainly not condone. An agreement where the prior free consent of
one party thereto is withheld or suppressed will be struck down, and the
Court shall always endeavor to protect a property owner’s rights against
devious practices that put his property in danger of being lost or unduly
disposed without his prior knowledge or consent. As this ponente has
held before, “[t]his Court cannot presume the existence of a sale of land,
absent any direct proof of it.”37
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554
554 SUPREME COURT REPORTS ANNOTATED
27
 First Optima Realty Corporation vs. Securitron Security Services, contract. (Government Service Insurance System vs. Lopez, 592 SCRA
Inc. 456 [2009])
Nor will respondent’s supposed payment be treated as a deposit or ——o0o——
guarantee; its actions will not be dignified and must be called for what
they are: they were done irregularly and with a view to acquiring the
subject property against petitioner’s consent.
Finally, since there is nothing in legal contemplation which petitioner
must perform particularly for the respondent, it should follow that Civil
Case No. 06-0492 CFM for specific performance with damages is left
with no leg to stand on; it must be dismissed.
With the foregoing view, there is no need to resolve the other specific
issues and arguments raised by the petitioner, as they do not materially
affect the rights and obligations of the parties — the Court having
declared that no agreement exists between them; nor do they have the
effect of altering the outcome of the case.
WHEREFORE, the Petition is GRANTED. The September 30, 2011
Decision and December 9, 2011 Resolution of the Court of Appeals in
C.A.-G.R. CV No. 93715, as well as the February 16, 2009 Decision of
the Regional Trial Court of Pasay City, Branch 115 in Civil Case No. 06-
0492 CFM are REVERSED and SET ASIDE. Civil Case No. 06-0492
CFM is ordered DISMISSED.
Petitioner First Optima Realty Corporation is ordered to REFUND the
amount of P100,000.00 to respondent Securitron Security Services, Inc.
without interest, unless petitioner has done so during the course of the
proceedings.
SO ORDERED.
Carpio (Chairperson), Velasco, Jr.,** Mendoza and Leonen, JJ.,
concur.

_______________

* * Designated acting member per Special Order No. 1910 dated

January 12, 2015.

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Petition granted, judgment and resolution reversed and set aside.

Notes.—Earnest money constitutes an advance payment to be

deducted from the total price. (Escueta vs. Lim, 512 SCRA 411 [2007])
Whenever earnest money is given in a contract of sale, it shall be
considered as part of the price and as proof of the perfection of the

28

© Copyright 2019 Central Book Supply, Inc. All rights reserved.
170 SUPREME COURT REPORTS ANNOTATED
Lim vs. Court of Appeals
G.R. No. 102784. February 28, 1996.*
ROSA LIM, petitioner, vs.COURT OF APPEALS and PEOPLE OF THE
PHILIPPINES, respondents.
Civil Law; Contracts; Fact that accused’s signature appears on the
upper portion of the receipt does not have the effect of altering the terms
of the transaction from a contract of agency to sell on commission basis
to a contract of sale.—Rosa Lim’s signature indeed appears on the upper
portion of the receipt immediately below the description of the items
taken. We find that this fact does not have the effect of altering the terms
of the transaction from a contract of agency to sell on commission basis
to a contract of sale. Neither does it indicate absence or vitiation of
consent thereto on the part of Rosa Lim which would make the contract
void or voidable. The moment she affixed her signature thereon,
petitioner became bound by all the terms stipulated in the receipt. She,
thus, opened herself to all the legal obligations that may arise from their
breach.
Same; Same; A contract of agency to sell on commission basis
does not belong to any of the three categories, hence it is valid and
enforceable in whatever form it may be entered into.—However, there are
some provisions of the law which require certain formalities for particular
contracts. The first is when the form is required for the validity of the
contract; the second is when it is required to make the contract effective
as against third parties such as those mentioned in Articles 1357 and
1358; and the third is when the form is required for the purpose of proving
the existence of the contract, such as those provided in the Statute of
Frauds in Article 1403. A contract of agency to sell on commission basis
does not belong to any of these three categories, hence it is valid and
enforceable in whatever form it may be entered into.
Criminal Procedure; Evidence; Credibility of Witnesses; Weight of
evidence is not determined mathematically by the numerical superiority of
the witnesses testifying to a given fact.—The issue as to the return of the
ring boils down to one of credibility. Weight of evidence is not determined
mathematically by the numerical superiority of the witnesses testifying to
a given fact. It depends
_______________
*
FIRST DIVISION.
171
VOL. 254, FEBRUARY 28, 1996 1
71
Lim vs. Court of Appeals
upon its practical effect in inducing belief on the part of the judge
trying the case. In the case at bench, both the trial court and the Court of
Appeals gave weight to the testimony of Vicky Suarez that she did not
authorize Rosa Lim to return the pieces of jewelry to Nadera.
Same; Same; Same; Court should not interfere with the judgment of
the trial court in determining the credibility of witnesses.—We shall not
disturb this finding of the respondent court. It is well settled that we
should not interfere with the judgment of the trial court in determining the
credibility of witnesses, unless there appears in the record some fact or
circumstance of weight and influence which has been overlooked or the
significance of which has been misinterpreted. The reason is that the trial
court is in a better position to determine questions involving credibility
having heard the witnesses and having observed their deportment and
manner of testifying during the trial.
PETITION for review of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Zosa & Quijano Law Offices for petitioner.
The Solicitor Generalfor respondents.
HERMOSISIMA, JR., J.:
This is a petition to review the Decision of the Court of Appeals in CA-
G.R. CR No. 10290, entitled “People v. Rosa Lim,” promulgated on
August 30, 1991.
On January 26, 1989, an Information for Estafa was filed against
petitioner Rosa Lim before Branch 92 of the Regional Trial Court of
Quezon City.1 The Information reads:
29
“That on or about the 8th day of October 1987, in Quezon City,
Philippines and within the jurisdiction of this Honorable Court, the said
accused with intent to gain, with unfaithfulness and/or abuse of
confidence, did, then and there, wilfully, unlawfully and feloniously
defraud one VICTORIA SUAREZ, in the following manner, to wit: on
_______________
1
Docketed as Criminal Case No. Q-89-2216.
172
172 SUPREME COURT REPORTS ANNOTATED
Lim vs. Court of Appeals
the date and place aforementioned said accused got and received in trust
from said complainant one (1) ring 3.35 solo worth P169,000.00,
Philippine Currency, with the obligation to sell the same on commission
basis and to turn over the proceeds of the sale to said complainant or to
return said jewelry if unsold, but the said accused once in possession
thereof and far from complying with her obligation despite repeated
demands therefor, misapplied, misappropriated and converted the same
to her own personal use and benefit, to the damage and prejudice of the
said offended party in the amount aforementioned and in such other
amount as may be awarded under the provisions of the Civil Code.”
“CONTRARY TO LAW.”2
After arraignment and trial on the merits, the trial court rendered
judgment, the dispositive portion of which reads:
“WHEREFORE, in view of the foregoing, judgment is hereby rendered:
1. 1.Finding accused Rosa Lim GUILTY beyond reasonable doubt
of the offense of estafa as defined and penalized under Article
315, paragraph 1(b) of the Revised Penal Code;
2. 2.Sentencing her to suffer the Indeterminate penalty of FOUR (4)
YEARS and TWO (2) MONTHS of prision correccional as
minimum, to TEN (10) YEARS of prision mayor as maximum;
3. 3.Ordering her to return to the offended party Mrs. Victoria
Suarez the ring or its value in the amount of P169,000 without
subsidiary imprisonment in case insolvency; and
4. 4.To pay costs.”3
On appeal, the Court of Appeals affirmed the judgment of conviction with
the modification that the penalty imposed shall be six (6) years, eight (8)
months and twenty-one (21) days to twenty (20) years in accordance with
Article 315, paragraph 1 of the Revised Penal Code.4
Petitioner filed a motion for reconsideration before the appellate court
on September 20, 1991, but the motion was
_______________
2
Records, p. 1.
3Ibid.,p. 168.
4
Rollo, p. 66.
173
VOL. 254, FEBRUARY 28, 1996 173
Lim vs. Court of Appeals
denied in a Resolution dated November 11, 1991.
In her final bid to exonerate herself, petitioner filed the instant petition
for review alleging the following grounds:
I
THE RESPONDENT COURT VIOLATED THE CONSTITUTION, THE
RULES OF COURT AND THE DECISION OF THIS HONORABLE
COURT IN NOT PASSING UPON THE FIRST AND THIRD ASSIGNED
ERRORS IN PETITIONER’S BRIEF;
II
THE RESPONDENT COURT FAILED TO APPLY THE PRINCIPLE
THAT THE PAROL EVIDENCE RULE WAS WAIVED WHEN THE
PRIVATE PROSECUTOR CROSS-EXAMINED THE PETITIONER AND
AURELIA NADERA AND WHEN COMPLAINANT WAS CROSS-
EXAMINED BY THE COUNSEL FOR THE PETITIONER AS TO THE
TRUE NATURE OF THE AGREEMENT BETWEEN THE PARTIES
WHEREIN IT WAS DISCLOSED THAT THE TRUE AGREEMENT OF
THE PARTIES WAS A SALE OF JEWELRIES AND NOT WHAT WAS
EMBODIED IN THE RECEIPT MARKED AS EXHIBIT “A” WHICH WAS
RELIED UPON BY THE RESPONDENT COURT IN AFFIRMING THE
JUDGMENT OF CONVICTION AGAINST HEREIN PETITIONER; and
III
THE RESPONDENT COURT FAILED TO APPLY IN THIS CASE
THE PRINCIPLE ENUNCIATED BY THIS HONORABLE COURT TO
THE EFFECT THAT “ACCUSATION” IS NOT, ACCORDING TO THE
FUNDAMENTAL LAW, SYNONYMOUS WITH GUILT; THE
PROSECUTION MUST OVERTHROW THE PRESUMPTION OF
INNOCENCE WITH PROOF OF GUILT BEYOND REASONABLE
DOUBT. TO MEET THIS STANDARD, THERE IS NEED FOR THE
30
MOST CAREFUL SCRUTINY OF THE TESTIMONY OF THE STATE,
BOTH ORAL AND DOCUMENTARY, INDEPENDENTLY OF
WHATEVER DEFENSE IS OFFERED BY THE ACCUSED. ONLY IF
THE JUDGE BELOW AND THE APPELLATE TRIBUNAL COULD
ARRIVE AT A CONCLUSION THAT THE CRIME HAD BEEN
COMMITTED PRECISELY BY THE PERSON ON TRIAL UNDER SUCH
AN EXACTING TEST
174
174 SUPREME COURT REPORTS ANNOTATED
Lim vs. Court of Appeals
SHOULD SENTENCE THUS REQUIRED THAT EVERY INNOCENCE
BE DULY TAKEN INTO ACCOUNT. THE PROOF AGAINST HIM MUST
SURVIVE THE TEST OF REASON; THE STRONGEST SUSPICION
MUST NOT BE PERMITTED TO SWAY JUDGMENT.” (People vs.
Austria, 195 SCRA 700)5
Herein the pertinent facts as alleged by the prosecution.
On or about October 8, 1987, petitioner Rosa Lim who had come from
Cebu received from private respondent Victoria Suarez the following two
pieces of jewelry: one (1) 3.35 carat diamond ring worth P169,000.00 and
one (1) bracelet worth P170,000.00, to be sold on commission basis. The
agreement was reflected in a receipt marked as Exhibit “A”6 for the
prosecution. The transaction took place at the Sir Williams Apartelle in
Timog Avenue, Quezon City, where Rosa Lim was temporarily billeted.
On December 15, 1987, petitioner returned the bracelet to Vicky
Suarez, but failed to return the diamond ring or to turn over the proceeds
thereof if sold. As a result, private complainant, aside from making verbal
demands, wrote a demand letter7 to petitioner asking for the return of
said ring or the proceeds of the sale thereof. In response, petitioner, thru
counsel, wrote a letter8 to private respondent’s counsel alleging that Rosa
Lim had returned both ring and bracelet to Vicky Suarez sometime in
September, 1987, for which reason, petitioner had no longer any liability
to Mrs. Suarez insofar as the pieces of jewelry were concerned. Irked,
Vicky Suarez filed a complaint for estafa under Article 315, par 1(b) of the
Revised Penal Code for which the petitioner herein stands convicted.
Petitioner has a different version.
Rosa Lim admitted in court that she arrived in Manila from Cebu
sometime in October 1987, together with one Aurelia
175
VOL. 254, FEBRUARY 28, 1996 175
Lim vs. Court of Appeals
Nadera, who introduced petitioner to private respondent, and that they
were lodged at the Williams Apartelle in Timog, Quezon City. Petitioner
denied that the transaction was for her to sell the two pieces of jewelry on
commission basis. She told Mrs. Suarez that she would consider buying
the pieces of jewelry for her own use and that she would inform the
private complainant of such decision before she goes back to Cebu.
Thereafter, the petitioner took the pieces of jewelry and told Mrs. Suarez
to prepare the “necessary paper for me to sign because I was not yet
prepare(d) to buy it.”9After the document was prepared, petitioner signed
it. To prove that she did not agree to the terms of the receipt regarding
the sale on commission basis, petitioner insists that she signed the
aforesaid document on the upper portion thereof and not at the bottom
where a space is provided for the signature of the person(s) receiving the
jewelry.10
On October 12, 1987 before departing for Cebu, petitioner called up
Mrs. Suarez by telephone in order to inform her that she was no longer
interested in the ring and bracelet. Mrs. Suarez replied that she was busy
at the time and so, she instructed the petitioner to give the pieces of
jewelry to Aurelia Nadera who would in turn give them back to the private
complainant. The petitioner did as she was told and gave the two pieces
of jewelry to Nadera as evidenced by a handwritten receipt, dated
October 12, 1987.11
Two issues need to be resolved: First, what was the real transaction
between Rosa Lim and Vicky Suarez—a contract of agency to sell on
commission basis as set out in the receipt or a sale on credit; and,
second, was the subject diamond ring returned to Mrs. Suarez through
Aurelia Nadera?
Petitioner maintains that she cannot be liable for estafa since she
never received the jewelries in trust or on commission basis from Vicky
Suarez. The real agreement between her and the private respondent was
a sale on credit with Mrs.
_______________
176
176 SUPREME COURT REPORTS ANNOTATED
Lim vs. Court of Appeals
Suarez as the owner-seller and petitioner as the buyer, as indicated by
the fact that petitioner did not sign on the blank space provided for the
signature of the person receiving the jewelry but at the upper portion
thereof immediately below the description of the items taken.12
The contention is far from meritorious.
The receipt marked as Exhibit “A” which establishes a contract of
agency to sell on commission basis between Vicky Suarez and Rosa Lim
is herein reproduced in order to come to a proper perspective:
31
“THIS IS TO CERTIFY, that I received from Vicky received jewelries (Lagda
SuarezPINATUTUNAYAN KO na aking tinanggap kay ng Tumanggap ng mga Alahas)
________________ Address:..........................................................…”
the following jewelries:
ang mga alahas na sumusunod: Rosa Lim’s signature indeed appears on the upper portion of the receipt
immediately below the description of the items taken. We find that this
Description Price fact does not have the effect of altering the terms of the transaction from
Mga Uri Halaga a contract of agency to sell on commission basis to a contract of sale.
1 ring 3.35 solo P169,000.00 Neither does it indicate absence or vitiation of consent thereto on the part
1 bracelet 170,000.00 of Rosa Lim which would make the contract void or voidable. The
total Kabuuan P339,000.00 moment she affixed her signature thereon, petitioner became bound by
in good condition, to be sold in CASH ONLY within . . . days from date all the terms stipulated in the receipt. She, thus, opened herself to all the
of signing this receipt na nasa mabuting kalagayan upang ipagbili ng legal obligations that may arise from their breach. This is clear from
KALIWAAN (ALCONTADO) lamang sa loob ng . . . araw mula ng ating Article 1356 of the New Civil Code which provides:
pagkalagdaan: “Contracts shall be obligatory in whatever form they may have been
‘if I could not sell, I shall return all the jewelry within the period mentioned entered into, provided all the essential requisites for their validity are
above; if I would be able to sell, I shall immediately deliver and account present.” x x x.”
the whole proceeds of sale thereof to the owner of the jewelries at his/her
residence; my compensation or commission shall be the over-price on However, there are some provisions of the law which require certain
the value of each jewelry quoted above. I am prohibited to sell any formalities for particular contracts. The first is when the form is required
jewelry on credit or by installment; deposit, give for safekeeping; lend, for the validity of the contract; the second is when it is required to make
pledge or give as security or guaranty under any circumstance or the contract effective as against
manner, any jewelry to other person or persons.’ 178
‘kung hindi ko maipagbili ay isasauli ko ang lahat ng alahas sa loob ng 178 SUPREME COURT REPORTS ANNOTATED
taning na panahong nakatala sa itaas; kung maipag- Lim vs. Court of Appeals
_______________ third parties such as those mentioned in Articles 1357 and 1358; and the
third is when the form is required for the purpose of proving the existence
12 Exhibit “1,” supra. of the contract, such as those provided in the Statute of Frauds in Article
1403.13 A contract of agency to sell on commission basis does not belong
177 to any of these three categories, hence it is valid and enforceable in
VOL. 254, FEBRUARY 28, 1996 177 whatever form it may be entered into.
Lim vs. Court of Appeals Furthermore, there is only one type of legal instrument where the law
bili ko naman ay dagli kong isusulit at ibibigay ang buong pinagbilhan sa strictly prescribes the location of the signature of the parties thereto. This
may-ari ng mga alahas sa kanyang bahay tahanan; ang aking gantimpala is in the case of notarial wills found in Article 805 of the Civil Code, to wit:
ay ang mapapahigit na halaga sa nakatakdang halaga sa itaas ng bawat “Every will, other than a holographic will, must be subscribed at
alahas HINDI ko pinahihintulutang ipa-u-u-tang o ibibigay na hulugan ang the end thereof by the testator himself x x x.
alin mang alahas, ilalagak, ipagkakatiwala; ipahihiram; isasangla o The testator or the person requested by him to write his name and the
ipananagot kahit sa anong paraan ang alin mang alahas sa ibang mga instrumental witnesses of the will, shall also sign, as aforesaid, each and
tao o tao.’ every page thereof, except the last, on the left margin x x x.”

I sign my name this . . . day of . . . 19 . . . at Manila, NILALAGDAAN In the case before us, the parties did not execute a notarial will but a
ko ang kasunduang ito ngayong ika ___ ng dito sa Maynila. simple contract of agency to sell on commission basis, thus making the
________________________ position of petitioner’s signature thereto immaterial.
Signature of Persons who

32
 Petitioner insists, however, that the diamond ring had been returned
to Vicky Suarez through Aurelia Nadera, thus relieving her of any liability.
Rosa Lim testified to this effect on direct examination by her counsel:
“Q And when she left the jewelries with you, what did you do
: thereafter?
A: On October 12, I was bound for Cebu. So I called up Vicky
through telephone and informed her that I am no longer
interested in the bracelet and ring and that I will just return it.
Q: And what was the reply of Vicky Suarez?
A: She told me that she could not come to the apartelle since
_______________
13
Tolentino, Arturo, Commentaries and Jurisprudence on the Civil
Code of the Philippines, Volume IV, 1991 ed., p. 543.
179
VOL. 254, FEBRUARY 28, 1996 17
9 Aurelia Nadera is vehemently denied by the complaining witness, who
Lim vs. Court of Appeals
she was very busy. So, she asked me if Aurelia was there
and when I informed her that Aurelia was there, she
instructed me to give the pieces of jewelry to Aurelia who in
turn will give it back to Vicky.
Q And you gave the two (2) pieces of jewelry to Aurelia
: Nadera?
A: Yes, Your Honor.”14
This was supported by Aurelia Nadera in her direct examination by
petitioner’s counsel:
“Q Do you know if Rosa Lim in fact returned the jewelries?
: overlooked or the significance of which has been misinterpreted. The
A: She gave the jewelries to me.
Q: Why did Rosa Lim give the jewelries to you?
A: Rosa Lim called up Vicky Suarez the following morning and told
Vicky Suarez that she was going home to Cebu and asked if
she could give the jewelries to me.
Q: And when did Rosa Lim give to you the jewelries?
A: Before she left for Cebu.”15
On rebuttal, these testimonies were belied by Vicky Suarez herself:
“Q It has been testified to here also by both Aurelia Nadera and
: Rosa Lim that you gave authorization to Rosa Lim to turn over
the two (2) pieces of jewelries mentioned in Exh ibit “A” to
Aurelia Nadera, what can you say about that?
A: That is not true sir, because at that time Aurelia Nadera is
highly indebted to me in the amount of P140,000.00, so if I gave
it to Nadera, I will be exposing myself to a high srisk.”16
The issue as to the return of the ring boils down to one of credibility.
Weight of evidence is not determined mathematically by the numerical
superiority of the witnesses testifying to a given fact. It depends upon its
practical effect in inducing
_______________
180
180 SUPREME COURT REPORTS ANNOTATED
Lim vs. Court of Appeals
belief on the part of the judge trying the case.17 In the case at bench, both
the trial court and the Court of Appeals gave weight to the testimony of
Vicky Suarez that she did not authorize Rosa Lim to return the pieces of
jewelry to Nadera. The respondent court, in affirming the trial court, said:
“x x x This claim (that the ring had been returned to Suarez thru Nadera)
is disconcerting. It contravenes the very terms of Exhibit A. The
instruction by the complaining witness to appellant to deliver the ring to
declared that she did not authorize and/or instruct appellant to do so. And
thus, by delivering the ring to Aurelia without the express authority and
consent of the complaining witness, appellant assumed the right to
dispose of the jewelry as if it were hers, thereby committing conversion, a
clear breach of trust, punishable under Article 315, par. 1(b), Revised
Penal Code.’
We shall not disturb this finding of the respondent court. It is well settled
that we should not interfere with the judgment of the trial court in
determining the credibility of witnesses, unless there appears in the
record some fact or circumstance of weight and influence which has been
reason is that the trial court is in a better position to determine questions
involving credibility having heard the witnesses and having observed their
deportment and manner of testifying during the trial.18
Article 315, par. 1(b) of the Revised Penal Code provides:
“ART. 315. Swindling (estafa).—Any person who shall defraud another by
any of the means mentioned hereinbelow shall be punished by:
xxx xxx xxx
1. (b)By misappropriating or converting, to the prejudice of another,
money, goods, or any other personal property received by the
offender in trust or on commission, or for administration, or
under
_______________
33
 181 Note.—If a competent person has once assented to a contract freely
VOL. 254, FEBRUARY 28, 1996 181 and fairly he is bound thereby. (Alcasid vs. Court of Appeals, 237 SCRA
Lim vs. Court of Appeals 419 [1994])

1. any other obligation involving the duty to make delivery of or to ——o0o——

return the same, even though such obligation be totally or
partially guaranteed by a bond; or by denying having received © Copyright 2019 Central Book Supply, Inc. All rights reserved.
such money, goods, or other property.
xxx xxx xxx

The elements of estafa with abuse of confidence under this subdivision

are as follows: (1) That money, goods, or other personal property be
received by the offender in trust, or on commission, or for administration,
or under any other obligation involving the duty to make delivery of, or to
return, the same; (2) That there be misappropriation or conversion of
such money or property by the offender or denial on his part of such
receipt; (3) That such misappropriation or conversion or denial is to the
prejudice of another; and (4) That there is a demand made by the
offended party to the offender (Note: The 4th element is not necessary
when there is evidence of misappropriation of the goods by the
defendant)19
All the elements of estafa under Article 315, Paragraph 1(b) of the
Revised Penal Code, are present in the case at bench. First, the receipt
marked as Exhibit “A” proves that petitioner Rosa Lim received the pieces
of jewelry in trust from Vicky Suarez to be sold on commission basis.
Second, petitioner misappropriated or converted the jewelry to her own
use; and, third, such misappropriation obviously caused damage and
prejudice to the private respondent.
WHEREFORE, the petition is DENIED and the Decision of the Court
of Appeals is hereby AFFIRMED. Costs against petitioner.
SO ORDERED.
Padilla (Chairman), Bellosillo and Kapunan, JJ.,concur.
Vitug, J., In the results.

_______________
19
Reyes, Luis B., The Revised Penal Code, Book Two, 13th ed., p.
658.

182
182 SUPREME COURT REPORTS ANNOTATED
Metrolab Industries, Inc. vs. Roldan-Confesor
Petition denied, judgment affirmed.

34

No. 34338. December 31, 1931]
THE GOVERNMENT OF THE PHILIPPINE ISLANDS, applicant and
appellee, vs. FRANCISCA ABRAN ET AL., claimants. THE
MUNICIPALITY OF BAYAMBANG and AGUSTIN V. GOMEZ ET AL.,
appellants.
1. 1.PUBLIC LANDS; TITLE TO; POSSESSION OF.—As it has not
been sufficiently proved that the appellant municipality acquired
from the Insular Government or in some other legal manner, the
lots claimed herein, even assuming it was in possession thereof
prior to the year 1928, it is obvious there is no reason for holding
it to be the owner of said lots, for this court has laid down the
doctrine that municipalities, as at present constituted, do not
acquire public agricultural lands by mere possession or
occupation. (Municipality of Tacloban vs. Director of Lands, 17
____________
1 See dissenting opinion in the following case p. 403, post.
398
3 PHILIPPINE REPORTS ANNOTATED
98
Government of the Philippine Islands vs. Abran
1. Phil., 426; 18 Phil., 201; Municipality of Hagonoy vs. Roman
Catholic Archbishop of Manila, 29 Phil., 320;
Aquino vs.Municipality of Bayambang, 56 Phil., 393.)
1. 2.ID.; ID.; POSSESSORY INFORMATION.—The lands claimed
herein are not public lands. Since the time of the Spanish
Government they have been the object of a possessory
information, and the efficacy of this information in favor of the
possessor is not impaired by the fact that it was recorded in the
registry only in 1920. The fact that it was not recorded earlier,
only rendered it ineffectual against third persons; but once
recorded, it produces full legal effect. (Aquino vs.Municipality of
Bayambang, supra.)
1. 3.ID.; ID.; ID.; HOMESTEADS.—The homestead certificates of
title are sufficient to prevent the registration of the portions
covered thereby which form part of the lands in question, in
favor of the appellants Gomez et al., for they constitute strong
evidence of adverse possession of such portions by the
respective homesteaders, which dates as far back as 1919 or
1920, without a timely or effective protest by said appellants.
(Zarate vs.Director of Lands, 34 Phil., 416; Aquino vs.Director of
Lands, 39 Phil., 850.)
APPEAL from a judgment of the Court of First Instance of Pangasinan.
De Leon, J.
The facts are stated in the opinion of the court.
Provincial Fiscal Fajardo, Sison & Siguion, Alejandro de
Guzman, Serviliano de la Cruz, and Jose Garcia Moyafor appellant
Municipality.
Cruz & Arboleda and Maximino M. Mina for appellants Agustin V.
Gomez, Consolacion Gomez and Julian Macaraeg.
Attorney-General Jaranilla for appellee.
ROMUALDEZ, J.:
This case was presented to the court together with G. R. Nos. 34336 and
34337,1 by the writer of this opinion, because the three cases are closely
related.
The present case deals with the claim of Agustin V. Gomez to certain
portions of lots 8-16, 41, 49, 60-69, 102-104, and to the whole of lots
Nos. 42-48; the claim of Consolacion M. Gomez filed by her guardian ad
litem,Teo-
____________
1
Aquino vs. Municipality of Bayambang, p. 393, ante.
399
VOL. 56, DECEMBER 31, 1931 399
Government of the Philippine Islands vs. Abran
doro Gomez, to certain portions of lots 15-25, 35, 41, 68, 69, 71-73, 76-
79, 95, 94, 102, and the whole of lots Nos. 34, 36-40, 70, 74, and 75; and
35
the claim of Julian Macaraeg to portions of lots 24-31, 33, 78, 79, 82-89,
91, 152, and to the whole of lots 32, 80, and 81.
The Director of Lands and the Director of Forestry hold that the land
referred to is public land.
The municipality of Bayambang, in turn, claims the ownership of all
the lots in the case from No. 1 to No. 182, inclusive, and prays to be
declared the owner thereof.
After due hearing, the Court of First Instance of Pangasinan rejected
the claims of Agustin V. Gomez, Consolacion M. Gomez, and Julian
Macaraeg, as well as that of the municipality of Bayambang, declaring
that lots Nos. 8-49, 60-89, 91, 94, 95, 102, 103, 104, and 152 belong to
the Insular Government.
From this judgment an appeal was taken by the municipality of
Bayambang and by the private claimants, Agustin V. Gomez,
Consolacion M. Gomez, and Julian Macaraeg, each insisting upon the
original claims presented in this case, and assigning several errors as
committed by the trial court.
With reference to the claim of the municipality of Bayambang, we find
the evidence insufficient. Its possession prior to the year 1928, or its
acquisition of the lots claimed either from the Insular Government or from
any other person or entity, has not been satisfactorily shown. And even
assuming it to have been in possession of these lots prior to the year
1928, it has been held that our municipalities, as at present constituted,
do not acquire public agricultural lands by mere possession or
occupation. (Municipality of Tacloban vs. Director of Lands, 17 Phil.,
426; 18 Phil., 201; Municipality of Hagonoy vs. Roman Catholic
Archbishop of Manila, 29 Phil., 320.)
The fact is, however, that the lands here litigated are not, so far as the
record shows, public lands. There is a preponderance of evidence to
show that as far back as the
400
400 PHILIPPINE REPORTS ANNOTATED
Government of the Philippine Islands vs. Abran
Spanish regime, they were the subject of a possessory information
obtained by Juan Fajardo. (Exhibit C—GomezMacaraeg.) The fact that
this information was recorded in the registry only in 1920 does not affect
its present probative value. That entry was made in accordance with the
law, and the lack of it only prevented it from adversely affecting third
persons; but once recorded, it carried full legal effect.
The preponderance of the evidence shows, to our mind, that the lands
here in question are portions of those described in the aforementioned
possessory information. Marciano Fajardo's testimony, corroborated by
that of Primitivo Artacho and by the documentary evidence bears this out.
According to Marciano Fajardo, his father made out a declaration of
ownership of all these lands in the year 1902 (p. 34, t. s. n.), although it
does not appear he paid the corresponding tax. In 1925, Agustin V.
Gomez made out an assessment declaration of the lands here in
question. (Exhibits J, K, L, pages 48-50, Bill of Exhibits.)
Marciano Fajardo's testimony loses none of its force from the fact that
in 1911 he gave the surveyors the data they needed to survey the lands
mentioned in the plan (Exhibit A—Gomez-Macaraeg), inasmuch as it
appears that the survey was made, not because the land belonged to the
municipality of Bayambang, but in order to determine the dividing line
between that municipality and Moncada and Camiling.
With reference to the document (Exhibit 30-Bayambang), we are
satisfied that it does not refer to the lands here in question.
As far as the possession is concerned, we find that the
preponderance of the evidence shows that the individual appellants,
Agustin V. Gomez, Consolacion M. Gomez, and Julian Macaraeg have
been in possession of the lands in question (except for certain portions
awarded to some homesteaders; but we shall speak of this later), and
their
401
VOL. 56, DECEMBER 31, 1931 401
Government of the Philippine Islands vs. Abran
predecessors before them, so that, all in all that possession may be
traced back as far as 1882, when Juan Fajardo entered upon the
possession of those lands. The record ,shows that that possession was
held as owners, peacefully, publicly, continuously, and in fine, with all the
elements required in paragraph (b), section 45, Act No. 2874, for which
reason said appellants are entitled to have their respective parcels
registered in their names, except for the portions alluded to above, which
were granted through homestead certificates of title Exhibits 34, 35, 36,
37, 38, 39, 40, 41, and 42, of the Insular Government.
With respect to the portions of land covered by homestead certificates
of title, we are of opinion that such certificates are sufficient to prevent the
title to such portion f rom going to the appellants aforesaid, for they carry
with them preponderating evidence that the respective homesteaders
held adverse possession of such portions, dating back to 1919 or 1920,
according to the evidence, and the said appellants failed to object to that
possession in time. Under these circumstances, we believe that in this
particular case, the doctrine laid down in Zarate vs.Director of Lands (34
Phil., 416) and reiterated in Aquino vs. Director of Lands(39 Phil., 850), is
more applicable than that enunciated in De los Reyes vs. Razon (38
Phil., 480), in view of the fact that these appellants abandoned said
portions, and the observations made in Government of the Philippine
Islands vs.Federizo (G. R. No. 15946, January 14, 1922)1, Director of
36
Lands vs. Peralta (G. R. Nos. 25733-35, December 24, 1926)2,
and Government of the Philippine Islands vs.Abad (p. 75, ante) are
applicable to them.
Wherefore, modifying the judgment appealed from, it is hereby
ordered that the lots respectively claimed by Agustin V. Gomez,
Consolacion M. Gomez, and Julian Macaraeg, be registered in their
name, with the exclusion of the portions covered by the homestead
certificates Exhibits 34, 35,
_____________
402
402 PHILIPPINE REPORTS ANNOTATED
Government of the Philippine Islands vs. Abran
36, 37, 38, 39, 40, 41, and 42 of the Insular Government, affirming said
judgment in all other respects compatible with this judgment, which is
hereby rendered without ex- press finding as to costs. So ordered.
Avanceña, C. J., Malcolm, and Villamor, JJ.,concur.
IMPERIAL, J.:
I concur, but believe that the portions to which free patent titles have
been issued, should not be excluded.
VlLLA-REAL, J.:
I am of the same opinion as Justice Imperial.
STREET, J., concurring in the result:
I concur in the result in this case for the reason stated below, but dissent
from so much of the opinion as rests upon Zarate vs. Director of
Lands (34 Phil., 416), which was expressly overruled in the well-
considered decision of De los Reyes vs. Razon (38 Phil., 480).
The line of reasoning which commends itself to me in this case is this:
The old possessory information relied upon by the appellants is so vague,
uncertain, and positively incorrect with respect to the land which it is
supposed to describe that it would be unsafe for the court to base a
judgment in favor of the claimants upon that document. The circumstance
that said possessory information was not registered for nearly thirty years
shows that the individuals interested in the property supposedly
described in it considered the information to be worthless.
But ignoring the possessory information, it is nevertheless, in my
opinion, satisfactorily proved by a preponderance of the evidence that the
claimants have been in continuous possession of the property claimed by
them since prior to 1894, with the exception of the portions occupied by
the homesteaders. It results that they are entitled to have the land
registered, with the exception of the portions so held by the
homesteaders. As to those portions possession was interrupted and has
not been continuous in the
403
VOL. 56, DECEMBER 31, 1931 403
Government of the Philippine Islands vs. Abran
sense required by Act No. 2874. Moreover, the claimants did not
establish their right of possession as against the homesteaders during
the period of the existence of the right to restoration to possession.
Having interrupted the continuity of the possession of the claimants, and
having obtained a homestead grant from the Government, the right of the
homesteaders is superior to that of the claimants with respect to the land
occupied by them.
This court has held in more than one case that a claimant who seeks
to obtain registration by virtue of continuous possession alone, beginning
prior to 1894, must prove possession continued from the date mentioned
at least until the date when Act No. 2874 became effective.
(Ongsiaco vs. Magsilang, 50 Phil., 380, and Government of the Philippine
Islands vs. Abad, p. 75 ante.)
OSTRAND, J., dissenting:
I have the greatest respect and consideration for my colleagues, but I am
afraid that in the present case our court has been led astray, and it
seems to me that the trial judge, Dionisio de Leon, has presented a better
view of the case than that taken by this court. His decision is very well
written, and as far as I can see, it is true and accurate in every respect. I
shall therefore quote a rather large portion of that decision:
"The principal questions raised are: (1) Have claimants Agustin
Gomez, Consolacion Gomez and Julian Macaraeg sufficiently and
satisfactorily established the identity of the land being claimed by them?
(2) Have they satisfactorily and sufficiently established the alleged
continuous, uninterrupted and successive possession of the land in
question by Juan Fajardo, Getulio Pitco and Agustin Gomez?
"We now proceed to the question of the identity of the land. It is
contended by Gomez and Macaraeg that Psu54793, Psu-54796, Psu-
54794 and Psu-53122 all indicated on Exhibit A—Gomez-Macaraeg were
formerly the property of Juan Fajardo y Torres, forming one whole mass
of
404
404 PHILIPPINE REPORTS ANNOTATED
Government of the Philippine Islands vs. Abran
37
property consisting of 1,000 hectares, more or less, and that Exhibit C—
Gomez-Macaraeg is the información posesoria instituted by Juan Fajardo
y Torres, covering that whole mass of property and that the six parcels of
land described in said información posesoriacorrespond to that whole
mass of property. The información posesoriadescribes the six parcels as
follows:
" 'La primera: Es un terreno inundadizo para la siembra de palay
conocido por Labir Pasugaoan sito en el sitio denominado Bautista de
esta jurisdicción de Bayambang, Provincia de Pangasinan, que mide
doscientas ochenta hectáreas; linda al norte con terrenos de D. Isabelo
Artacho, D. Primitivo Artacho, y Jose Lagartiza, al este con Lucio Galsim,
Estifanía Junio, Josefa Iglesias, Abundio Niverva y Manuel Insao, al sur
con un camino y al oeste con Gregorio Olfendo. Dicho terreno lo he
adquirido por compra a Inocencio Silva, Carlos Olfendo, Juan Maniling y
otros, valorado en ciento cuarenta pesos, sin titulación alguna.
" 'La segunda: Es un terreno anegadizo para la siembra de palay
denominado Cabalbalinoan en el Barrio de Poponto de esta misma
jurisdicción, que mide: trescientas veinte hectáreas; linda al norte con un
camino, al este con Pedro Perez, Pedro Abalos, Domingo Hipólito y D.
Vicente Ulanday, al sur divisoria entre Bayambang y Camiling y al oeste
con terrenos denunciados por D. Vicente Ma. Vales y D. Posidio Dumlao.
Dicho terreno lo he adquirido por via de cesión y traspaso de D. Vicente
Ulanday, a favor del exponente, valorado en mil pesos.
" 'La tercera: Es un terreno anegadizo destinado para la siembra de
palay conocido por Naclang, sito en el Barrio de Poponto de esta misma
jurisdicción, que mide: trescientas noventa hectáreas; linda al norte con
Juan Canino, al este con terrenos denunciados por D. Vicente Ma. Vales,
Valentín Hipólito y D. Buenaventura Robosa, al sur con vereda y al oeste
con terrenos del exponente. Dicho terreno lo he adquirido por compra y
ocupación simple hace
405
VOL. 56, DECEMBER 31, 1931 405
Government of the Philippine Islands vs. Abran
más de diez años a esta parte, valorado en novecientos pesos.
" 'La cuarta: Es un terreno anegadizo para la siembra de palay, que
radica en los sitios de Guteb na Mananzan y Benlag de esta misma
jurisdicción, que mide: cuatrocientas hectáreas, poco más o menos, linda
al norte con un camino y bosque, al este con Ambrosio Dolog y Pedro
Perez, al sur con senda, bosque y Domingo Estaria y al oeste con estero
denominado Dalay dueg y D. Honorato Carungay, adquirido por compra
hace seis años a Filomena Diaz, viuda, poseyéndolo Diaz más de
veintiséis años, valorado en trescientos pesos.
" 'La quinta radica en el Barrio de Tococ, que ocupa una extension de
cuatro hectáreas y cuarenta y seis centiáreas, equivalente a cuarenta mil
cuarenta y seis metros cuadrados, linda al norte con Eduardo Lasquete,
al este con Valentín 'Hipólito, por el sur con una senda y por el oeste con
Honorato Carungay, adquirido por compra hace cuatro años a Eduardo
Paat, poseyéndola Paat más de veinte años, valorada en cien pesos.
" 'Y la sexta en el Barrio ya mencionado que ocupa una extensión de
cinco hectáreas, veinte areas y dos centiáreas, igual a cuarenta y dos mil
veinte metros cuadrados, linda por el norte con D. Buenaventura
Robosa, por el este con el estero, por el sur con Pedro Básquez y por el
oeste con Gaspar Mejía Ymalada, adquirida por compra hace cuatro
años a Domingo Yglesias, poseyéndola dicho Domingo más de veinte
años, valorada en cuatrocientos pesos.'
"As may be seen above, the first parcel is described as being situated
in the sitioknown as Bautista of the municipality of Bayambang; the
second parcel as being situated in the barrio of Poponto of the
municipality of Bayambang; the third, in the same barrio of Poponto; the
fourth, in the sitiosknown as Gueteb na Mananzan and Benlag of the
same municipality; the fifth, in the barrio of Tococ; and the sixth, in the
same barrio of Tococ. Taking into account the
406
406 PHILIPPINE REPORTS ANNOTATED
Government of the Philippine Islands vs. Abran
boundaries of each of those six parcels as described in the información
posesoria, it is clear, and the court so finds, that the six parcels of land
described in said información posesoria cannot form one mass of
property and have never formed one piece of land. The explanation of the
star witness Marciano Fajardo tried to give us to why the información
posesoria recites the boundary men, such as Lucio Galsim, Josefa
Iglesias, Estefania Junio, Abundio Minerva, Manuel Insua, Ambrosio
Daluag, Pedro Perez and Honorato Carungay, but who do not now
appear as such boundary men, is simply ridiculous, to say the least.
"The court also finds that the municipality of Bautista was, prior to the
year 1901, a barrio of the municipality of Bayambang, but in 1901 it
became an independent municipality and the barrio of Poponto, which
was also formerly of the municipality of Bayambang, became in its
entirety a part of the municipality of Bautista. Such is the testimony of
reliable and competent witnesses presented by the municipality of
Bayambang. The testimony of Marciano Fajardo on this point is wholly
unreliable, taking into account the many flagrant contradictions
characterizing his testimony and his apparent tendency to ignore the truth
on the several occasions that he testified before this court in connection
with this cadastral proceeding. The court has seen this witness testify not
only in these claims of Gomez and Macaraeg, but also in the claims of
Bernabe B. Aquino and Carmen Sackerman Macleod and the record of
this entire cadastre fully demonstrates that Marciano Fajardo does not
38
deserve any credit from the court. As the información posesoria clearly
states that the land therein described is situated in the barrios of Bautista
and Poponto and inasmuch as Bautista in 1901 became an independent
municipality and the barrio of Poponto in its entirety was annexed to it in
said year, the conclusion seems inevitable that the land covered by the
said información posesoriaExhibit C—Gomez-Macaraeg is now and has
been since 1901 situated in the municipality of Bautista, Province of
Panga-
407
VOL. 56, DECEMBER 31, 1931 407
Government of the Philippine Islands vs. Abran
sinan, if such land has ever existed. The land in question being situated
in the municipality of Bayambang, it is clear that claimants Gomez and
Macaraeg have completely failed to prove and establish that the land in
question is the same land covered by the said información posesoria.
* * * * * * * A—Gomez-Macaraeg. If it be true that the land in question was the
"Again, the witnessess of claimants Gomez and Macaraeg have
contradicted each other in giving the boundaries of the supposed land
formerly belonging to Juan Fajardo y Torres. One of them, Primitivo
Artacho, assured the court that lots 60, 51, and 50 and portions of lots 49,
56, 7, 8, 9, 10, 11 and 12 were the property of his brother Isabelo Artacho
who is recited in the información posesoria as a boundary man. The
said información posesoria,however, states that Isabelo Artacho was the
boundary man on the north of parcel 1. But even admitting that the af
oresaid lots were the property of Isabelo Artacho, it is indeed significant
to note that neither Isabelo Artacho nor any of his heirs or successors in
interest has ever claimed the said lots west of Psu-54793 alleging rights
derived from Isabelo Artacho. Marciano de Guzman, who also pretends
to know a great deal about the land in question, stated that the entire
mass of property formerly belonging to Juan Fajardo y Torres and now
being claimed by Gomez and Macaraeg, is bounded on the south by
fishery Tubor. This is false, as the fishery Tubor is not situated anywhere
on the boundary line between the municipalities of Bayambang and
Moncada. Primitivo Artacho further stated that he is a boundary man on
the north of the entire land formerly belonging to Juan Fajardo y Torres
and that that land of his on the north contains 100 hectares and is a good
rice land. His testimony on this point merits no credit whatsoever in view
of his admission in open court that since 1914 he has never occupied his
supposed land of 100 hectares, has never declared it for taxation
purposes nor paid the taxes thereon notwithstanding the f act that he
owns no other land anywhere and that he has four chil-
408
408 PHILIPPINE REPORTS ANNOTATED
Government of the Philippine Islands vs. Abran
dren. Moreover, Primitivo Artacho has never presented any claim in this
proceeding for any of the lots north of Psu-54793.
"Another decisive evidence why the land in question is not and cannot
be the one described in the información posesoriaExhibit C—Gomez-
Macaraeg is the fact that in 1911 when Marciano Fajardo was municipal
president of Bayambang, it was he who gave to the surveyors all the
necessary data for the survey of the entire land represented in Exhibit
A—Gomez-Macaraeg, which survey was made at the instance of the
municipality of Bayambang for the purpose of registering the entire land
in its name. It was Marciano Fajardo who indicated to the surveyors all
the points as well as the entire land in question that was surveyed for the
municipality and that the plan made of the entire land as a, result of such
survey marked Exhibit 4Bayambang and attached to the record of the
case No. 2981, Record No. 2506 is exactly the same as the plan Exhibit
original property of his father Juan Fajardo, the court fails to see any
reason why this witness Marciano Fajardo included the land in question
in the survey that was made at the instance of the municipality of
Bayambang. Again, this same witness, during his incumbency as
municipal president of Bayambang, on February 17, 1911, proposed an
ordinance which was approved by the municipal council which provides in
section 5 thereof as follows:
" 'Se declara como sitios de prohibición de esta Ordenanza en
particular todas las bajuras comprendidas en los sitios denominados
Manambong y Mangabol que son de la propiedad de. este Municipio
conocidos por pesquerías municipales, cuya posesión abierta, continua y
no interrumpida data desde en tiempo de España y que se describe de la
manera siguiente: Linda al norte, con límite o divisorio de Bautista con
Bayambang y propiedades del difunto Isabelo Artacho hasta el punto
divisorio de Bautista, Bayambang y Moncada; por el este, límite divisorio
de Moncada con
409
VOL. 56, DECEMBER 31, 1931 409
Government of the Philippine Islands vs. Abran
Bayambang; por el sur, límite divisorio de Camiling con Bayambang; y
por el oeste, con terrenos particulares y Río Agno.' (See Exhibit 6-
Bayambang.)
"The description of the property in the said ordinance as the property
of the municipality of Bayambang known as its municipal fisheries of
which the said municipality, according to said ordinance proposed by said
witness, has been in the open, public, continuous and uninterrupted
possession since the Spanish regime, gives the same boundaries which
39
appear in the plan Exhibit 4-Bayambang and the land comprised in said
Exhibit 4-Bayambang is the same mass of land comprised in this
cadastre No. 31 as shown in Exhibit A—Gomez-Macaraeg. Again
Marciano Fajardo stated, in his cross-examination by the court, that in
1910 he did not know the exact status of the land in question and for that
reason he was looking for some data for the municipality of Bayambang
relative to this land and he went to the office of the executive secretary in
Manila to look for some data for the use and benefit of the municipality of
Bayambang and in his search for such data he found the original of
Exhibit B—Gomez-Macaraeg. Furthermore, in July, 1915, Marciano
Fajardo surveyed for Claudio Galsim lot 153, and in the plan Swo-10893
prepared by said witness, he placed as boundary men on the south of
said lot Juan Benebe and Atanasio Rico. Why did he not place Getulio
Pitco as boundary man on the south, if it is true, as he claims, the entire
land south of lot 153 was property of Getulio Pitco from 1910 to 1919?
But what is most remarkable in the testimony of Fajardo is his story of the
50 hectares comprising lots 18, 19, 20 and 21 included in the claims of
Gomez-Macaraeg. He stated that when Pitco bought in 1910 the entire
land, he asked the latter to allow him to keep possession of said 50
hectares on condition that he would pay the same as soon as he could
make use of them; that in 1919 when he learned that Pitco had sold the
entire property to Agustin V. Gomez, he made the same proposition to
Gomez, so he continued to possess the same until
410
410 PHILIPPINE REPORTS ANNOTATED
Government of the Philippine Islands vs. Abran
the night before he testified in this case, when he went to Gomez to
return the possession thereof. In his sworn answers or claims for these
lots filed long before he testified, he, however, states that he has
acquired those lots by inheritance from his father and in his affidavit
Exhibit 8-Bayambang attached to his complaint in civil case No. 4711 of
the Court of First Instance of Pangasinan (Exhibit 7-Bayambang) filed by
him on August 9, 1926, against the municipality of Bayambang relative to
the said 50 hectares or lots 18, 19, 20 and 21, he states that he has been
in possession of the same as owner, peacefully, adversely and
continuously since the year 1895. The above facts prove once more how
highly unreliable this witness Fajardo is.
"Probably, because the land described in the información
posesoria, has been abandoned for a long time by Juan Fajardo y Torres,
the mistake was committed by these private claimants and their
witnesses in now believing and declaring that the land described in
said información posesoria is within the cadastral plan involved in this
proceeding. That the witnesses of these private claimants Gomez and
Macaraeg has lost all notion as to the identity and location of the land
described in the información posesoria,is fully shown by the testimony of
Eladio Ramos on behalf of the municipality of Bayambang who testified
that he heard the conversation had between Teodoro Gomez and Juan
Benebe, father-in-law of Eladio Ramos, in 1920 in the barrio of
Villanueva, municipality of Bautista. Be it remembered that Teodoro
Gomez is a brother of Agustin V. Gomez; that Rev. Domingo de Vera is
an uncle of Agustin V. Gomez; and that Julian Macaraeg is a brother-in-
law of Agustin Gomez. In said conversation Teodoro Gomez said to Juan
Benebe: 'I have here a document (referring to a document from Juan
Fajardo y Torres according to witness Ramos) and I ask you where we
could place it.' To this, Juan Benebe answered: 'ln Mangabol. And it
would be better if we take a lease of the fishery Tubor so that when we
order the survey of the land nobody
411
VOL. 56, DECEMBER 31, 1931 411
Government of the Philippine Islands vs. Abran
would oppose the same.' Teodoro Gomez then said, 'From this land we
can obtain about 1,000 hectares and we could divide them among
ourselves, part for Father Domingo de Vera, another for Agustin Gomez,
another for Bernabe B. Aquino and we shall give you 100 hectares.' This
testimony of Eladio Ramos is corroborated by Exhibit 27Bayambang,
which is a sketch prepared by Alejandro Castañeda, draftsman of
surveyor Francisco Licuanan, showing the four divisions made of the land
among Agustin Gomez, Teodoro Gomez, Domingo de Vera and Bernabe
Aquino. The alleged sale by Agustin V. Gomez in favor of Consolacion M.
Gomez represented by her guardian ad litem Teodoro Gomez was
executed only on December 14, 1929, after the hearing of this cadastral
proceeding was commenced and yet, when the survey of Psu-54746 was
made by private land surveyor Francisco Licuanan on August 24, 1926, it
was so surveyed in the name of Teodoro Gomez (see Exhibit D-1—
Gomez-Macaraeg). Eladio Ramos testified that the survey of the land
was made in the year 1926 and the entire land was surveyed into four
parcels and this fact is fully corroborated by the private land survey of
Bernabe B. Aquino, Psu-53722 and Psu-54793—Agustin Gomez, Psu-
54746—Teodoro Gomez, Psu-54794—Domingo de Vera. (SeeExhibits
D, D-1, D-2—Gomez-Macaraeg.) This testimony of Eladio Ramos is also
corroborated by the fact that the información posesoria Exhibit C—
Gomez-Macaraeg was presented f or registration in the office of the
register of deeds for the Province of Pangasinan only on February 17,
1920, and inscribed therein on March 1, 1920, and successively
thereafter the alleged deed of sale executed by Juan Fajardo in favor of
Getulio Pitco on April 26, 1910, which was registered only on March 30,
1920, and the alleged transfer made by Pitco in favor of Agustin Gomez
on March 10, 1919, which was registered only on March 4, 1920. This is
40
further corroborated by Teodoro Illumin Payaoan, rebuttal witness for
claimants Gomez and Macaraeg, who admitted that he
412
412 PHILIPPINE REPORTS ANNOTATED
Government of the Philippine Islands vs. Abran
leased for P12,000 the fishery Tubor in 1926 and 1927 and that his
partner was one Miguel de Vera and that his bondsmen in favor of the
municipality of Bayambang on account of such lease were Teodoro
Gomez and Juan Benebe. (See Exhibits 31 and 31-A—Bayambang.)
Teodoro Ilumin Payaoan was only a tenant of a piece of land consisting
of two hectares and receiving as his participation therefrom only 15
cavanes of palay, just barely enough for his family consumption and yet
he took the lease of fishery Tubor at a considerable sum. This witness
stated that he knew Teodoro Gomez when his partner Miguel de Vera
brought him (witness) to Teodoro Gomez and that was presumably
before the lease of the Tubor fishery was taken from the municipality in
the 'year 1926. Marciano de Guzman, witness for claimants Gomez and
Macaraeg in his cross-examination, has unconsciously, perhaps,
corroborated this testimony of Eladio Ramos when he said that in 1926
Agustin V. Gomez told him (witness) that he had subdivided the land he
bought from Juan Fajardo and that it was subdivided among Agustin
Gomez, Teodoro Gomez, Father Domingo de Vera and Bernabe B.
Aquino (s. t., p. 238). Damian Tolentino, witness for Gomez and
Macaraeg, has also unconsciously perhaps, corroborated the testimony
of Eladio Ramos when, in his cross-examination, he stated that from
1914 up to the present he has been encargado of Agustin V. Gomez of
the entire piece of land consisting of 1,000 hectares less a portion which
they gave to Governor Aquino. Agustin V. Gomez, who was called to the
witness-stand by the court, also corroborated Eladio Ramos when he
testified that after he had bought the land from Getulio Pitco, he
subdivided it, giving a portion to his uncle Father Domingo de Vera,
another portion to his brother Teodoro Gomez, another portion to his
brother-in-law and another portion to Bernabe B. Aquino, but the portion
ceded by him to Father De Vera was subsequently purchased by his
brother-in-law Julian Macaraeg.
413
VOL. 56, DECEMBER 31, 1931 413
Government of the Philippine Islands vs. Abran
"Another significant fact is that Filemon Fajardo is claiming lot 122 distant
from the claims of Gomez, Macaraeg and Aquino and in support of his
claim he presented a portion of an información posesoria,Exhibit 10-
Bayambang giving a similar description as that given for parcel 1
mentioned in Exhibit; C—Gomez-Macaraeg instituted by Juan Fajardo y
Torres. Marciano Fajardo admitted that Filemon Fajardo is his brother.
Certainly, this shows that the very sons of Juan Fajardo y Torres do not
know where to locate the lands described in the información
posesoriainstituted by their said father.
"It seems clear from all the above circumstances that, although the
lease of the Tubor fishery in 1926 and 1927 was taken in the name of
Teodoro Ilumin Payaoan, the real parties back of it and acting behind the
curtain, so to speak, were Teodoro Gomez, Juan Benebe and others, in
order to carry out, as they in fact did, the plan conceived by them as
disclosed in their conversation above testified to by Eladio Ramos.
Ramos testified to the above facts only in the course of his cross-
examination by the court and if there was discrepancy as to the date
when his father-in-law Juan Benebe died and the date of the alleged
survey, the court would attribute such discrepancy to the spontaneous,
sincere and extemporaneous manner he testified to those facts.
"In the mind of the court, the evidence abundantly shows that the land
described in the información posesoria Exhibit C—Gomez-Macaraeg,
which is the basis of the claims of Agustin Gomez, Consolacion Gomez
and Julian Macaraeg, is not and cannot be within the cadastral
plan expedienteNo. 31, G. L. R. O. Record No. 861, of the municipality of
Bayambang and the land described in said información posesoriaExhibit
C—Gomez-Macaraeg is not and cannot be the same identical land
indicated as Psu-54794, Psu-54746, Psu-54794 and Psu-53122 on
Exhibit A—Gomez-Macaraeg.
414
414 PHILIPPINE REPORTS ANNOTATED
Government of the Philippine Islands vs. Abran
"We next come to the question of the alleged successive and continuous
possession of the land in question by Juan Fajardo y Torres, Getulio
Pitco and Agustin Gomez. We discuss this point under the supposition,
for the sake of argument only, that the land claimed by Agustin V.
Gomez, Consolacion Gomez and Julian Macaraeg in this proceeding is
the same land described in the información posesoria Exhibit C—Gomez-
Macaraeg. Marciano Fajardo tried to prove that from 1888 to 1910 his
father was in the peaceful and uninterrupted possession of the land in
question and that he and his father used to go to the land every year from
1888 to 1910, staying on the land at least one month each year. The
falsity of this testimony is shown by the fact that the witness himself has
admitted that from the age of nine till he was twelve years old, he
attended his classes regularly in the public school of Bayambang and that
upon reaching the age of fourteen he attended school in Manila until he
finished his course in surveying at the age of twenty-five and that he
attended his classes in Manila regularly which classes ended the later
part of December of each year and that during the revolution of 1896 he
enlisted as volunteer and was stationed in Manila and Cavite, rendering
41
continuous service outside of Pangasinan up to the surrender of the City
of Manila in 1898 and that from that year on to February, 1899 he was
also continuously away from the municipality of Bayambang, Pangasinan.
"Damian Tolentino, who said that he was encargadoof Agustin Gomez
from the time Agustin Gomez acquired the ownership of the land in
question by purchase from Getulio Pitco in 1919, stated that he
was encargado of the entire land in question for Marciano Fajardo in
1914, and from 1915 up to the present, he has been encargado of the
entire land in question minus the portion given to Bernabe B. Aquino,
working the land and giving Gomez his annual share of the products. This
is palpably false. Marciano Fajardo never claimed he owned the land in
question in
415
VOL. 56, DECEMBER 31, 1931 415
Government of the Philippine Islands vs. Abran
1914 or before or after. Agustin V. Gomez claimed he became owner of
the land only in 1919. How could Damian Tolentino be the encargado for
Marciano Fajardo and Agustin V. Gomez during 1914 and 1915-1919
respectively, when during those years neither Marciano Fajardo nor
Gomez was owner of the land in question? Damian Tolentino went further
and said that Primitivo Artacho, the owner of the land west of the entire
land in question, was seen by him on said land in December, 1929,
whereas Primitivo Artacho said that the last time he had been on the
land, which he said bounds the land of Fajardo, was in 1914. Marciano
Fajardo said that when he made the survey of the land in question in
1894, some of the data -used by him in the survey were
the pilápiles existing on the land. Damian Tolentino, however, stated that
there were no pilápiles on the land. Besides the testimony of the
witnesses for the municipality of Bayambang and the Insular Government
that neither any person named Getulio Pitco nor Mang Kiko was ever
seen on the land in question or worked the same; that neither the two
Gomez brothers nor Julian Macaraeg nor Damian Tolentino ever worked
the land in question nor any portion thereof, the testimony of the
witnesses f or Gomez and Macaraeg with respect to the alleged
cultivation of the land by Pitco and Gomez through their encargados is so
unreliable that the court does not hesitate in concluding, that even
granting that the land in question is the same land described in
the información posesoria Exhibit C—Gomez-Macaraeg, not one of said
persons, Juan Fajardo y Torres, Getulio Pitco and Agustin Gomez
personally or through encargados, has ever been in possession of the
same.
"Another significant fact is that the land in question was never
declared for taxation purposes either in the name of Juan Fajardo y
Torres or in that of Getulio Pitco. It was declared for taxation purposes
only in 1926 by and in the name of Agustin Gomez but under the protest
of the municipal president of Bayambang. And the story given by
416
416 PHILIPPINE REPORTS ANNOTATED
Government of the Philippine Islands vs. Abran
Julian Macaraeg as to how this entire land was declared in 1926 by
Agustin Gomez in his name, notwithstanding the fact that in 1924 a
portion of the same is alleged to have been sold by Agustin Gomez to
Bernabe B. Aquino, is another significant and striking fact. Add to this, the
fact that up to the date of this hearing, not one of the alleged owners has
ever paid tax on the property in question.
"On the other hand, the preponderance of the evidence shows that
the municipality of Bayambang has been in the open, public, continuous
and uninterrupted possession of the entire land in question since 1894 up
to the present;that the municipality of Bayambang has been dedicating
the land to the exploitation of fisheries from which it derives considerable
income annually. The evidence shows that the land in question is under
water every year for six months and that during that period of time fishes,
such as paltat, dalag and araro appear in abundant quantity; that these
fishes spring up naturally in the creeks, ponds and bodies of water over
the land during the rainy season; that they are not at all raised and that if
any planting at all can be made on the land in question, it is only during
the months of February, March, April and May and only short-term crops,
such as sesame, mongo, etc., can be planted. The court finds that while
the Bureau of Lands has been parceling the land in question into lots and
giving them as homesteads, the homestead applicants, however, did not
actually occupy and take possession of their homesteads. All these
homesteaders are living in the municipality of Alcala and have not
established any home in their respective homesteads. They work their
homesteads only during the dry season, because according to them
during June to October, the entire land is covered with water and they
cannot work the same. The municipality of Bayambang has been leasing
to private parties since 1894 the fisheries on the land and the lessees
have occupied not only the marginal ponds, creeks and rivers but also
the entire land, inasmuch as when the rainy season comes,
417
VOL. 56, DECEMBER 31, 1931 417
Government of the Philippine Islands vs. Abran
the entire land is covered with water and becomes a veritable fishpond.
At the ocular inspection made by the court, several fish traps were found
all over the land specially towards the eastern part of the cadastral plan
and such fish traps had been placed thereon by private parties who have
leased the same f rom the municipality of Bayambang. Inasmuch as
these fisheries and the land abutting the fisheries were leased by the
42
municipality and inasmuch as the lessees during the dry season take
care only of the fishponds, rivers and creeks where fishes are deposited,
it is not at all impossible or improbable that these homesteaders during
such dry season would cultivate portions of the land which are left dry
without the knowledge and consent of the municipality of Bayambang or
the lessees. And the municipality of Bayambang has been administering
this land as part of its municipal fisheries since 1893 under the authority
of the Royal Decree No. 618 dated May 19, 1893, and published in the
Gaceta, de Manila on July 9,1898, and later under section 43 of the,
Municipal Code (Act No. 82) and its amendments and lastly under the
authority of section 2321 of Act No. 2711."
It may, perhaps, seem that the judge of the court below has criticized
the principal witness, Marciano Fajardo, too vigorously, but considering
the untrue statements of that witness, it is not too much to say that the
judge did his duty and did it well. In any event, he made a thorough
ocular inspection of the territory in which the land in question was
situated, and as a consequence, he was especially competent to
determine the unreliability of the appellants' witnesses in regard to the
location of the land.
In addition to what has been said by the judge of the court below, I
shall as briefly as possible mention a few matters which, in my opinion,
are of decisive importance:
1. (1)The appellants rely on the so-called información posesoria and
insist that the land now in question is the same as the six
parcels described in that document. That is not
418
418 PHILIPPINE REPORTS ANNOTATED
Government of the Philippine Islands vs. Abran
1. true. The tract claimed by the appellants forms a solid mass of
land embracing about 1,375 hectares; with one exception, all of
the parcels described in the información posesoria are
separated and have separate boundaries. Parcel No. 1 in
the información posesoria is bounded on the north by the land of
the Artachos, and it is said to include 280 hectares. The Artacho
land is close to the western boundary of the municipality of
Bautista as it appears in Exhibit A—Gomez-Macaraeg. Parcel
No. 2 is located in Poponto and embraces 320 hectares. Now it
appears from the official maps that the distance between the
barrio of Poponto and the town of Bautista is about 10
kilometers, and it stands to reason that the two parcels referred
to are far apart.
No. 3 of the parcels is also said to be within Poponto and must also have
been a considerable distance from the first parcel. The fourth parcel is
said to be within the sitios of Guteb na Mananzan and Benlag; the
location of these sitios has not been satisfactorily determined, but it
appears clearly that they are not in any connection with the first three
parcels. The fifth and sixth parcels are only about 4 or 5 hectares each
and are in the barrio of Tococ, which is far away from land now claimed
by the appellants. That land is situated close to Mangabol and is far from
Poponto. Marciano has made an effort to extend Poponto to a more
southern location, but that is not, and cannot, be true. The main part of
the barrio Poponto is close to the boundary between Moncada and
Bautista and the greater part of it is north of the railroad from Manila to
Dagupan.
1. (2)In 1892 Juan Fajardo instituted the información posesoria, but
the document was not inscribed in the registry of property. Two
years later, the Maura Law or Royal Decree of February 13,
1894, was published on April 17. The principal articles in that
decree are as follows:
"ARTICLE 1. All uncultivated lands, soil, earth, and mountains not
included in the following exceptions shall be considered alienable public
lands: First, those which have be-
419
VOL. 56, DECEMBER 31, 1931 419
Government of the Philippine Islands vs. Abran
come subjected to private ownership and have a legitimate owner.
Second, those which belong to the forest zones which the State deems
wise to reserve f or reasons of public utility. * * *"
"ART. 19. Possessors of alienable public lands under cultivation who
have not obtained nor applied f or composition on the date this decree
shall be published in the Gaceta de Manila, may obtain a gratuitous title
of property, by means of a possessory information in conformity with the
law of civil procedure and the mortgage law whenever they establish any
of the following conditions:
"First. Having, or having had, them under cultivation without
interruption during the preceding six years.
"Second. Having had possession of them for twelve consecutive
years, and having had then under cultivation until the date of the inf
ormation, and for three years before that date.
43
 "Third. Having had them in possession ostensibly and without
interruption, for thirty or more years, although the land is not under
cultivation."
"ART. 21. A term of one year, without grace, is granted in order to
perfect the informations referred to in articles 19 and 20."
Article 80 of the regulations for the carrying out of the Royal Decree
above mentioned provided:
"ART. 80. By virtue of the provision of article 21 of the Royal Decree of
February 13, 1894, the inextensible period for carrying out the
informations referred to in the two preceding articles, shall be counted as
closed on the 17th day of April, 1895.
"Upon the expiration of this period the right of cultivators and
possessors to the obtainment of free title shall lapse, and the full property
right in the land shall revert to the State or, in a proper case, to the public
domain. * * *"
Notwithstanding the fact that the Royal Decree was sufficiently published,
Juan Fajardo made no effort to take
420
420 PHILIPPINE REPORTS ANNOTATED
Government of the Philippine Islands vs. Abran
advantage of it, and as a consequence, the land "reverted to the state or,
in a proper case, to the public domain."
It follows, of course, that Fajardo could not obtain any title on the
strength of the information; after the 17th day of April, 1895, the parcels
referred to belonged to the Government. (Baltazar vs. Insular
Government, 40 Phil., 267, 270.)
1. (3)The appellants assert that the possessory information is an
imperfect title, and that notwithstanding the provisions of the
Maura Law, a title may be granted subsequent to the 17th of
April, 1895. That is not so in the present case. In section 45 of
Act No. 2874 the following rules are laid down:
"SEC. 45. The following-described citizens of the Philippine Islands and
the United States, occupying lands of the public domain or claiming to
own any such lands or an interest therein, but whose titles have not been
perfected or completed, may apply to the Court of First Instance of the
province where the land is located for confirmation of their claims and the
issuance of a certificate of title therefor, under the Land Registration Act,
to wit:
1. "(a)Those who prior to the transfer of sovereignty from Spain to
the United States have applied for the purchase, composition or
other form of grant of lands of the public domain under the laws
and royal decree then in force and have instituted and
prosecuted the proceedings in connection therewith, but have,
with or without default upon their part, or for any other cause,
not received title therefor, if such applicants or grantees and
their heirs have occupied and cultivated said lands continuously
since the filing of their applications.
2. "(b)Those who by themselves or through their predecessors in
interest have been in the open, continuous, exclusive, and
notorious possession and occupation of agricultural lands of the
public domain, under a bona fide claim of acquisition of
ownership, except as against the Government,
421
VOL. 56, DECEMBER 31, 1931 421
Government of the Philippine Islands vs. Abran
1. since July twenty-sixth, eighteen hundred and ninety-four, except
when prevented by war or force majeure. These shall be
conclusively presumed to have performed all the conditions
essential to a Government grant and shall be entitled to a
certificate of title under the provisions of this chapter."
These rules are now the only means to acquire judicial confirmation of
imperfect or incomplete titles, but the possessory information in question
does not constitute an imperfect or incomplete title; by virtue of the Maura
Law, the land described in that possessory information reverted to the
State on April 17, 1895. As may be seen, the appellants or their
predecessors in interest have not applied "for purchase, composition, or
other forms of grants of lands of the public domain under the laws and
Royal Decree in force" before the transfer of sovereignty from Spain to
the United States; neither have they been "in open, continuous,
exclusive, and notorious possession and occupation of agricultural lands
of the public domain under a bona fide claim of acquisition of ownership,
except as against the Government since July 26, 1894." On the contrary,
the municipality of Bayambang has been in possession of the land and
administrated its municipal fisheries since 1893 under the authority of
Royal Decree No. 618 published in the Gaceta de Manila on July 9, 1893,
and later under section 43 of the Municipal Code (Act No. 82) and its
amendments, and lastly under the authority of section 2321 of the
Administrative Code. Taking this.into consideration, it is clear that neither
44
Juan Fajardo nor his alleged successors in interest have held possession
of the land administered by the municipality; the land claimed by the
appellants is precisely one of the best parts of the fisheries.
It is not disputed that Juan Fajardo and his successors never paid any
taxes on the land, and none of them, until recently, have made any
objection to the leasing of the land by the municipality to other persons at
high rents. The land claimed by the appellants embraces about 1,375
422
422 PHILIPPINE REPORTS ANNOTATED
Government of the Philippine Islands vs. Abran
hectares. Now, would the municipality allow them, or their predecessors,
to be in "open, continuous, exclusive, and notorious possession and
occupation of the land" since 1902 without requiring them to pay taxes for
that large tract? To my mind, there can be no reasonable doubt that only
the municipality has had possession of the tract on behalf of the
Government since 1894.

1. (4)The appellants cite the case of Cariño vs.Insular

Government(212 U. S., 449), and assert that it is similar to the
present case. That is a mistake. Cariño was a Benguet Igorrote
and his land had been in possession of his and his forebears
from time immemorial, and the courts, under such
circumstances, might well regard the property as a grant from
the Government. In his decision, Justice Holmes said:

"Prescription is mentioned again in the Royal Cedula of October 15,

1754, cited in 3 Phil, 546; 'Where such possessors shall not be able to
produce title deeds, it shall be sufficient if they shall show that ancient
possession, as a valid title by prescription.'"
Considering that Cariño's land was in the hands of his ancestors even
before the year 1700, a valid title by prescription would properly give him
the right to the ownership of the land.
A possessory information is not a title but only a prima facie proof and
is not conclusive neither with possession nor ownership
(Geraldo vs. Arpon, 22 Phil., 407; Alcala vs. Alcala, 35 Phil., 679). In the
present case it is practically useless; article 80 of the Maura Law was
absolute and the land described in the possessory information reverted to
the State, and it has nothing in common with the Cariño case. To grant
the claims of the appellants will necessarily reverse the case
of Baltazar vs. Insular Government (40 Phil., 267).
VOL. 56, DECEMBER 31, 1931 423
In my humble opinion, the decision of the court below should be
affirmed. Baguinguito vs. Rivera
Judgment modified. © Copyright 2019 Central Book Supply, Inc. All rights reserved.
423 VOL. 31, FEBRUARY 27, 1970 779

45
 Commissioner of Internal Revenue vs. Constantino
No. L-25926. February 27, 1970.
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. CIRILO D.
CONSTANTINO AND COURT OF TAX APPEALS, respondents.
Taxation; Tax Code; Where dealer held as commercial broker liable
to tax under Section 194(t) of the Tax Code; Rtde for distinguishing
between contracts of sale and of an agency to sell.—The difficulty in
distinguishing between contracts of sale and the creation of an agency to
sell has led to the establishment of rules by the application of which this
difficulty is solved. The decisions say the transfer of title or agreement to
transfer it for a price paid or promised is the essence of sale. If such
transfer puts the transferee in the attitude or position of an owner and
makes him liable to the transferor as a debtor for the agreed price, and
not merely as an agent who must account for the proceeds of a resale,
the transaction is a sale; while the essence of an agency to sell is the
delivery to an agent, not as his property, but aa the property of the
principal, who remains the owner and has the right to control sales, fix the
price and terms, demand and receive the proceeds less the agent’s
commission upon sales made. (1 Mechem on Sales, Sec, 43). In the
instant case, respondent was held as commercial broker and not an
independent merchant because the company retained ownership of the
goods, even as it delivered possession unto the respondent as dealer for
resale to Qffcstomers, the price and tetms of which being subject to the
company’s control. He is therefore liable for tax as commercial broker
under Section 194 (t) of the Tax Code. The discount of 16% that he
receives is not a “trade discount” but a compensation or profit for selling
or bringing about sales or purchases of merchandise for the company.
APPEAL from a decision of the Court of Tax Appeals.
The facts are stated in the opinion of the Court.
REYES, J.B.L., J.:
Appeal from the decision of the Court of Tax Appeals, in its CTA Case
No. 1016, holding that the respondent,
780
780 SUPREME COURT REPORTS ANNOTATED
Commissioner of Internal Revenue vs, Constantino
Cirilo D. Constantino, is not a commercial broker, as defined by Section
194 (t) of the National Internal Revenue Code, providing as follows:
“ ‘Commercial broker’ includes all persons, other than importers,
manufacturers, producers, or bona fide employees, who, for
compensation or profit, sell or bring about sales or purchases of
merchandise for other persons or bring proposed buyers and sellers
together, or negotiate freights or other business for owners of vessels or
other means of transportation, or for the shippers, or consignors or
consignees of freight carried by vessels or other means of transportation.
The term includes commission merchants.”
and declaring him not liable to pay the commercial broker’s percentage
tax.
Petitioner Commissioner of Internal Revenue assessed against and
demanded from respondent Constantino the commercial broker’s
percentage tax of 6% on his gross compensation for 1956, as dealer or
distributor of the products of International Harvester, Macleod, Inc, (IHM
for short). The tax was computed as follows:
Total discount for 1956 ................................................................
6% broker’s percentage tax due thereon .......................................
25% surcharge ............................................................................
Compromise penalty ......................................................................
Total amount due and collectible .....................................
Constantino protested the assessment on the ground that he is not a
commercial broker. On his protest being overruled, he filed a petition for
review with the Court of Tax Appeals, which, after trial, found for him.
Upon his reversal by the tax court, the revenue Commissioner interposed
the present appeal.
The issue here is whether the relationship between IHM and the
respondent is one of principal and agent, as maintained by the
Commissioner, or one of vendor and vendee, as maintained by the
respondent taxpayer.
Respondent Cirilo D. Constantino is a businessman with a business
establishment in San Pablo City known as
781
VOL. 31, FEBRUARY 27, 1970d 781
Commissioner of Internal Revenue vs. Constantino
“C. C. Motor Service”, where he stores, displays and sells trucks,
machineries, equipment, spare parts and accessor ries shipped to hdm
by International Harvester, Macleod, Inc., (formerly International
Harvester Company of the Philippines) in accordance with their “Dealer
Sales and Service Agreement”, Exhibit “A”, designating the said
respondent as exclusive dealer of the products of the company within a
prescribed territory. According to respondent’s counsel, who is also the
legal counsel and secretary of the company, the company sells its
products through its dealers for purposes of economy and that since it
may not be allowed to retail under the retail trade law, it sells by
wholesale to its dealers (T.s.n., pages 49, 52-53).
46
 In classifying himself as an independent merchant instead of a
commercial broker, respondent Constantino cites the following facts: that
under the “Dealer Sales and Service Agreement” that he signed “with
IHM, he may buy, on cash basis or credit terms, IHM products, such as
trucks, tractors, other types of machinery and equipment and spare parte
and accessories for (resale to his customers within his designated
territory; that under a “Schedule of Discounts and Terms”, Exhibit “B”, he
is granted trade discounts of 16% for trucks, tractors and other heavy
equipment and 30% for service parts; that he is also given a cash
discount of 5% under certain conditions; that the terms and conditions on
his credit purchases are governed by a “Retail Financing Agreement”,
Exhibit “C”; that he may purchase service parts on open credit account or
on a 30-day term; and that he sold service parts to his customers on cash
basis (T.s.n., pages 9-10). He states that his purchases of heavy
equipment are commenced by his filing with the company a “Dealer
Order for Goods”, Exhibit “G” (BIR Record, page 153, after Exhibit “B”, as
the numbering of pages is inverted); if on credit, he executes a chattel
mortgage in favor of IHM, Exhibit “L”; and, if he sells to his customer on
credit, he requires said customer to execute also a chattel mortgage in
his favor and he (respondent Constantino) then executes an “Indenture of
Assignment”, Exhibit “M-
782
782 SUPREME COURT REPORTS ANNOTATED
Commissioner of Internal Revenue vs. Constantino
I,” in favor of IHM,
Constantino also cites the fact that his purchases are covered by
IHM’s sales invoices, and when he re-sells he issues his own sales
invoice; that delivery of his purchases from IHM are accepted by him “ex-
bodega” in Manila, after which he services the heavy equipment at his
establishment in San Pablo before delivery to his customer (T.s.n., page
26); that his credit purchases of trucks and other heavy equipment are
insured by IHM and, in case of loss, the insurance proceeds belong to
both in proportion to their interests, but the premiums are for his own
account; that he insures himself the goods that he purchases on cash
bask; and that at the end of each calendar year he includes in the
inventory that he submits to the Bureau of Internal Revenue unsold
stocks that he had purchased from IHM.
Without considering the forms and documents that petitioner
Commissioner of Internal Revenue alluded to in his brief (forms and
documents that were only annexed to his memorandum submitted to the
tax court and not formally offered in evidence) but considering the entirety
of respondent Constantino’s own evidence, this Court is of the opinion
that, for taxation purposes, he is not an independent merchant but an
agent of IHM or a commercial broker, as defined by the tax code, selling
or bringing about sales and purchases of IHM’s merchandise. A casual
examination of respondent’s evidence may give the impression that this
relationship with the company is that of vendor and vendee, but a closer
look into the actual legal edSfect of the terms and conditions embodied,
rather than the names of the contracts used or the terminologies
employed, in the chain of documents1 shows that the relation between
the company and the respondent is one of principal and agent.
_______________
1
These are all in the nature of adhesion contracts, being on printed
forms prepared and supplied by IHM, that binds the dealer and the
company as well as that which binds him with his customer.
783
VOL. 31, FEBRUARY 27, 1970 783
Commissioner of Internal Revenue vs. Constantino
From his own evidence and statement of facts, if Constantino wishes to
“buy” from XHM, either on “cash basis” or on credit, he files a “Dealer
Order for Goods”, Exhibit “G”. He failed to state or notice, however, the
condition in the said order, which is in small print, that:
“the title of the goods deliveredunder this order shall remain in
International Harvester Company of the
Philippines until the fuU purchase price shaU have been paid in cash or
acceptable security. Upon receipt of the subject equipment, the
undersigned agrees to execute a chattel mortgage or other security
instrument covering the goods ordered herein to secure the payment
therefor, and prior to full payment of the purchase price, the
undersigned shall have no right to sell or dispose of any goods delivered
under this order except in the ordinary course of retail trade for their
reasonable value, and upon the express condition that before delivery to
a Purchaser, the undersigned shall secure from the Purchaser full
settlement, and the proceeds of such resale,whether in cash, property or
an obligation of the Purchaser, shall be considered the property of
International Harvester Company of the Philippines, and shall be held in
trust for the Company and subject to its order/’ (Italics supplied)
In plain language, the effect of the afore-quoted condition is that the title
to goods sold by the Dealer to his “customer” passes directly to the latter
from IHM, and that the price of such goods, even if previously shipped to
the dealer upon his order, belongs to IHM, not to the dealer, who merely
collects and holds the proceeds in trust. Hence, in the “Dealer Order for
Goods”, the dealer does not make purchase orders; he merely orders for
shipment to himself the goods specified therein. And while in the “Dealer
Sales and Service Agreement” the contractual provisions on orders for
47
goods refer or use terms like “purchase”, “obligation to sell” and
“obligation to buy”, the said Dealer Sales and Service Agreement
expressly binds the dealer, when ordering goods, to place his orders
“upon forms furnished by the Company” (Exhibit “A”, page 4), and the
form furnished is the “Dealer Order for Goods”, with the clause previously
quoted.
Where the transaction between Constantino and his customer is on
credit, Constantino requires his customer
784
784 SUPREME COURT REPORTS ANNOTATED
Commissioner of Internal Revenue vs. Constantino
to execute a chattel mortgage in his favor but thsa he must assign in
favor of IHM, by an “Indenture of Assignment”, all his rights, interest and
participation in the goods theretofore mortgaged to himself for the same
amount. When the goods are delivered by IHM to the dealer, the dealer
does not acquire ownership of the goods upon such delivery; and when
the dealer “sells” the goods to his customer, the customer does not
acquire ownership thereof upon such “sale”, because the “Dealer Order
for Goods” expressly stipulates that “title of the goods delivered under
this order shall remain until the purchase price shall have been paid x x
x.” And the fact that the customer is made to execute a chattel mortgage
does not make him the owner, because when the goods were “sold” to
him by the dealer the latter did not own the goods. That the dealer should
issue his own sales invoice to the customer is neither a means of
acquiring ownership nor is it proof of ownership.
In the “Retail Financing Agreement” that the dealer enters into with
the company, when he “buys” goods on aredit for “resale” to customers,
the dealer does not “buy” with his own funds, as the agreement
expressly prohibits Mm from advancing the down payment and any
installment to his customer; and when he “sells” to his customer, the
“retail contract” a well as the customer’s credit is subject to approval by
the company (Exhibit “C”, page 3, paragraph 4). The effect of such an
arrangement is that it is the very customer who buys on credit because
the purchase money comes from Mm, not the dealer, and the credit that
is financed is the credit of the customer, not that of the dealer.
If the transaction is on “cash basis”, a procedure similar to
transactions on credit is followed; the dealer orders specific goods for
shipment to himself by filing the “Dealer Order for Goods”; if his order is
accepted by the company, the company ships the goods and issues a
delivery receipt (Exhibit “D”), not a cash invoice, as the respondent
contends in his brief. Under such a delivery re-
785
VOL. 31, FEBRUARY 27, 1970 785
Commissioner of Internal Revenue vs. Constantino
ceipt, the goods are termed “Sold to Mr, Cirilo D. Constantino” for “Cash”;
but the same receipt also indicates that it is for the supposed vendee’s
“order”, obviously referring to the “Dealer Order for Goods”, and that the
shipment is “Due and payable first day of month following shipment”. It is,
therefore, clear that even when the company ships the goods to the
dealer on a supposed “cash basis” it is payable in cash but it does not
prove that cash or money was paid xxx payment is not yet due cash or
money was paid—payment is not yet due—and that the company
shipped the goods but retained ownership of the same, in accordance
with the “order.”
Since the company retained ownership of the goods, even as it
delivered possession unto the dealer for resale to customers, the price
and terms of which were subject to the company’s control, the
relationship between the company and the dealer is one of agency,
tested under the following criterion:
“The difficulty in distinguishing between contracts of sale and the creation
of an agency to sell has led to the establishment of rules by the
application of which this difficulty may be solved. The decisions say the
transfer of title or agreement to transfer it for a price paid or promised is
the essence of sale. If such transfer puts the transferee in the attitude or
position of an owner and makes him liable to the transferor as a debtor
for the agreed price, and not merely as an agent who must account for
the proceeds of ai resale, the transaction is a sale; while the essence of
an agency to sell is the delivery to an agent, not as his property, but as
the property of the principal, who remains the owner and has the right to
control sales, fix the price, and terms, demand and receive the proceeds
less the agent’s commission upon sales made. 1 Mechem on Sales, Sec.
43; 1 Mechem on Agency, Sec. 48; Williston on Sales, 1; Tiedeman on
Sales, 1.” (Salisbury v. Brooks, 94 SE 117, 118-119)
It is contended that the respondent is not an agent of IHM because their
“Dealer Sales and Service Agreement” expressly provide that he “is not
tltie Company’s agent in any respect x x x”, but the control by the
company of the resale made (or agreed upon to be made) by the
786
786 SUPREME COURT REPORTS ANNOTATED
Commissioner of Internal Revenue vs. Constantino
dealer is so pervasive as to exclude the idea of the latter being an
independent merchant. The extent of his dependence upon and control
by the company is shown in the provisions of the “Dealer Sales and
Service Agreement”:
An order for goods by the dealer “shall not be considered as accepted
until written acceptance x x x is given to the Dealer, or delivery has been
made to the Dealer x x x.” “Prices, discounts and terms xxx shall be those
48
established by the Company x x x” which are “subject to change at any
time without notice.” Places of delivery “shall be those established by the
Company x x x” and the dealer “will accept delivery at points of delivery
selected by the Company and pay all transportation charges thereon x x
x.” “Prior to full payment of the purchase price to the Company, the
Dealer shall have no right to sell or dispose of any goods xxx without first
securing the written approval of the Company.” At any reasonable time,
the company may enter the dealer’s premises “to examine his books and
records x x x.” The dealer Is bound “to provide and maintain adequate
physical facilities acceptable to the Company x x x.” He “agrees to
maintain accounting records”, “to furnish monthly operating statements”
and “a complete detailed financial statement.” He “shall properly store
and care for all goods purchased xxx. and protect the same from injury or
damage from any cause.” The quantity of goods alloted to the dealer
“shall be determined solely by the Company.” “The dealer agrees, in
reselling goods x x x to enter into a Sales Contract with each customer on
one of the current printed blank forms furnished by the Company for that
purpose and to give no different or additional allowances, warranties or
guaranties on behalf of the Company beyond those included in the Sales
Contract.” The agreement “may be terminated at any time by either party
without cause x x x” and since “this is a personal agreement, it shall
automatically terminate upon the death of the Dealer.” The agreement
involves “mutual confidence and trust, and it may not be assigned by
either party.” Now, to insure “the faithful performance on the
787
VOL. 31, FEBRUARY 27, 1970 787
Commissioner of Internal Revenue vs. Constantino
Dealer’s part of the conditions of this agreement,” the dealer is required
to put up a bond, which is in the amount of P30,000.00.
As respondent is not an independent merchant, but an agent, the
discount of 16% that he receives is not a ‘trade discount” but a
compensation or profit for selling or bringing about sales or purchases of
merchandise for the company.
The assessment made by petitioner Commissioner of Internal
Revenue against respondent Constantino does not include the 30%
discount that the respondent is entitled to or benefited from his sales of
service parts; even so, the sales of or transactions on service parts is
covered by stipulations between the company and the
respondent differentfrom those on heavy machineries or big items; for
these reasons, it is unnecessary to pass upon the taxability of said 30%
discount.
FOR THE FOREGOING REASONS, the appealed decision is hereby
reversed, and another one entered affirming the assessment and
ordering the respondent to pay the same, with costs against the
respondent.
Concepcion,
CJ.,Dizon, Makalintal, Zaldivar, Castro, Fernando, Teehankee, Barredo a
nd Villamor, JJ., concur.
Decision reversed.
Notes.—Commercial brokers.—Under the definition of “commercial
broker” in sec. 194 (t) of the Internal Revenue Code as including all
persons who, for compensation, bring proposed buyers and sellers
together, etc., and the common meaning of the word “broker,” as one
who acts for others on a commission basis to negotiate contracts, the
fixed business tax imposed upon commercial brokers by sec. 193 (q) of
that Code, and the 6% gross income tax imposed upon them by sec. 195,
are collectible from anyone doing business within these definitions
whether or not the nature of the work done or the capacity in which they
ate employed is so designated or otherwise designated
788
788 SUPREME COURT REPORTS ANNOTATED
David vs. Santos
in the contract of employment, and whether the contracts negotiated by
them are inside or outside the Philippines, if the contract under which
they are employed is executed in the Philippines and the compensation is
there payable (A. Soriano y Cia. vs. Collector of Internal Revenue, L-
8886, May 22, 1957). Petitioners were held subject to the 6% percentage
tax on commercial brokers imposed by see. 195 of the Internal Revenue
Code with respect to commissions received from a mining company for
negotiating sales of its products in Japan, under a contract entered into
and executed in the Philippines, notwithstanding that the contract of
employment designated petitioner as “technical consultant” and called for
engineering services as well as negotiation of sales, compensation for
engineering services being on a flat fee basis, whereas that for
negotiating sales was on a commission basis, it appearing that the main
and principal purpose of employment was to negotiate sales
————————
© Copyright 2019 Central Book Supply, Inc. All rights reserved.
156 SUPREME COURT REPORTS ANNOTATED
Engineering & Machinery Corporation vs. Court of Appeals
G.R. No. 52267. January 24, 1996.*
ENGINEERING & MACHINERY CORPORATION, petitioner, vs. COURT
OF APPEALS and PONCIANO L. ALMEDA, respondents.
49
 Appeals; Petition for Review on Certiorari; Supreme Court; The
Supreme Court reviews only errors of law in petitions for review on
certiorari under Rule 45.—The Supreme Court reviews only errors of law
in petitions for review on certiorari under Rule 45. It is not the function of
this Court to re-examine the findings of fact of the appellate court unless
said findings are not supported by the evidence on record or the
judgment is based on a misapprehension of facts.
Same; Same; Exceptions to the rule that factual findings of the trial
court and the Court of Appeals are final and conclusive and may not be
reviewed on appeal.—The Court has consistently held that the factual
findings of the trial court, as well as the Court of Appeals, are final and
conclusive and may not be reviewed on appeal. Among the exceptional
circumstances where a reassessment of facts found by the lower courts
is allowed are when the conclusion is a finding grounded entirely on
speculation, surmises or conjectures; when the inference made is
manifestly absurd, mistaken or impossible; when there is grave abuse of
discretion in the appreciation of facts; when the judgment is premised on
a misapprehension of facts; when the findings went beyond the issues of
the case and the same are contrary to the admissions of both appellant
and appellee.
Contracts; Contract for a Piece of Work; Sales; A contract for a
piece of work, labor and materials may be distinguished from a contract
of sale by the inquiry as to whether the thing transferred is one not in
existence and which would never have existed but for the order of the
person desiring it.—A contract for a piece of work, labor and materials
may be distinguished from a contract of sale by the inquiry as to whether
the thing transferred is one not in existence and which would never have
existed but for the order of the person desiring it. In such case, the
contract is one for a piece of work, not a sale. On the other hand, if the
thing subject of the contract would
______________
*THIRD DIVISION.
157
VOL. 252, JANUARY 24, 1996 15
7 complaint is one for damages arising from breach of a written contract—
Engineering & Machinery Corporation vs. Court of Appeals
have existed and been the subject of a sale to some other person
even if the order had not been given, then the contract is one of sale.
Same; Same; Same; A contract for the fabrication and installation of
a central air-conditioning system is one for a piece of work where it is not
the contractor’s line of business to manufacture airconditioning systems
to be sold “off-the-shelf.”—Clearly, the contract in question is one for a
piece of work. It is not petitioner’s line of business to manufacture air-
conditioning systems to be sold “off-the-shelf.” Its business and particular
field of expertise is the fabrication and installation of such systems as
ordered by customers and in accordance with the particular plans and
specifications provided by the customers. Naturally, the price or
compensation for the system manufactured and installed will depend
greatly on the particular plans and specifications agreed upon with the
customers.
Same; Same; Same; Remedies against violations of the warranty
against hidden defects.—The remedy against violations of the warranty
against hidden defects is either to withdraw from the contract (redhibitory
action) or to demand a proportionate reduction of the price (accion quanti
minoris), with damages in either case.
Same; Same; Actions; Prescription; Rescission; Redhibitory action
prescribes in six months, and where there is an express warranty in the
contract, the prescriptive period is the one specified in the warranty, and
in the absence of such period, the general rule on rescission of contracts,
which is four years, shall apply.—In Villostas vs. Court of Appeals, we
held that, “while it is true that Article 1571 of the Civil Code provides for a
prescriptive period of six months for a redhibitory action, a cursory
reading of the ten preceding articles to which it refers will reveal that said
rule may be applied only in case of implied warranties”; and where there
is an express warranty in the contract, as in the case at bench, the
prescriptive period is the one specified in the express warranty, and in the
absence of such period, “the general rule on rescission of contract, which
is four years (Article 1389, Civil Code) shall apply.”
Same; Same; Same; Same; Where the complaint is one for
damages arising from breach of a written contract—and not a suit to
enforce warranties against hidden defects—the governing law is Article
1715 of the Civil Code, but since this provision does not contain a specific
prescriptive period, the general law on prescription,
158
1 SUPREME COURT REPORTS ANNOTATED
58
Engineering & Machinery Corporation vs. Court of Appeals
Article 1144, will apply.—Having concluded that the original
and not a suit to enforce warranties against hidden defects—we herewith
declare that the governing law is Article 1715. However, inasmuch as this
provision does not contain a specific prescriptive period, the general law
on prescription, which is Article 1144 of the Civil Code, will apply. Said
provision states, inter alia, that actions “upon a written contract” prescribe
in ten (10) years. Since the governing contract was executed on
50
September 10, 1962 and the complaint was filed on May 8, 1971, it is
clear that the action has not prescribed.
Same; Same; Same; Same; The mere fact that the employer
accepted the work does not, ipso facto, relieve the contractor from liability
for deviations from and violations of the written contract, as the law gives
him 10 years within which to file an action based on breach thereof.—
Verily, the mere fact that the private respondent accepted the work does
not, ipso facto, relieve the petitioner from liability for deviations from and
violations of the written contract, as the law gives him ten (10) years
within which to file an action based on breach thereof.
PETITION for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Cruz, Durian, Agabin, Alday & Tuason for petitioner.
Carnell S. Valdez for private respondent.
PANGANIBAN, J.:
Is a contract for the fabrication and installation of a central air-
conditioning system in a building, one of “sale” or “for a piece of work”?
What is the prescriptive period for filing actions for breach of the terms of
such contract?
These are the legal questions brought before this Court in this Petition
for review on certiorari under Rule 45 of the
159
VOL. 252, JANUARY 24, 1996 159
Engineering & Machinery Corporation vs. Court of Appeals
Rules of Court, to set aside the Decision1 of the Court of Appeals2 in CA-
G.R. No. 58276-R promulgated on November 28, 1978 (affirming in
toto the decision3 dated April 15, 1974 of the then Court of First Instance
of Rizal, Branch II,4 in Civil Case No. 14712, which ordered petitioner to
pay private respondent the amount needed to rectify the faults and
deficiencies of the air-conditioning system installed by petitioner in private
respondent’s building, plus damages, attorney’s fees and costs).
By a resolution of the First Division of this Court dated November 13,
1995, this case was transferred to the Third. After deliberating on the
various submissions of the parties, including the petition, record on
appeal, private respondent’s comment and briefs for the petitioner and
the private respondent, the Court assigned the writing of this Decision to
the undersigned, who took his oath as a member of the Court on October
10, 1995.
The Facts
Pursuant to the contract dated September 10, 1962 between petitioner
and private respondent, the former undertook to fabricate, furnish and
install the air-conditioning system in the latter’s building along Buendia
Avenue, Makati in consideration of P210,000.00. Petitioner was to furnish
the materials, labor, tools and all services required in order to so fabricate
and install said system. The system was completed in 1963 and accepted
by private respondent, who paid in full the contract price.
______________
160
160 SUPREME COURT REPORTS ANNOTATED
Engineering & Machinery Corporation vs. Court of Appeals
On September 2, 1965, private respondent sold the building to the
National Investment and Development Corporation (NIDC). The latter
took possession of the building but on account of NIDC’s noncompliance
with the terms and conditions of the deed of sale, private respondent was
able to secure judicial rescission thereof. The ownership of the building
having been decreed back to private respondent, he reacquired
possession sometime in 1971. It was then that he learned from some
NIDC employees of the defects of the airconditioning system of the
building.
Acting on this information, private respondent commissioned Engineer
David R. Sapico to render a technical evaluation of the system in relation
to the contract with petitioner. In his report, Sapico enumerated the
defects of the system and concluded that it was “not capable of
maintaining the desired room temperature of 76oF-2oF (Exhibit C).”5
On the basis of this report, private respondent filed on May 8, 1971 an
action for damages against petitioner with the then Court of First Instance
of Rizal (Civil Case No. 14712). The complaint alleged that the air-
conditioning system installed by petitioner did not comply with the agreed
plans and specifications. Hence, private respondent prayed for the
amount of P210,000.00 representing the rectification cost, P100,000.00
as damages and P15,000.00 as attorney’s fees.
Petitioner moved to dismiss the complaint, alleging that the
prescriptive period of six months had set in pursuant to Articles 1566 and
1567, in relation to Article 1571 of the Civil Code, regarding the
responsibility of a vendor for any hidden faults or defects in the thing sold.
Private respondent countered that the contract dated September 10,
1962 was not a contract of sale but a contract for a piece of work under
Article 1713 of the Civil Code. Thus, in accordance with Article 1144 (1)
of the same Code, the complaint was timely brought within the ten-year
prescriptive period.
51
______________
5
CA Decision, p. 6; rollo, p. 40.
161
VOL. 252, JANUARY 24, 1996 161
Engineering & Machinery Corporation vs. Court of Appeals
In its reply, petitioner argued that Article 1571 of the Civil Code providing
for a six-month prescriptive period is applicable to a contract for a piece
of work by virtue of Article 1714, which provides that such a contract shall
be governed by the pertinent provisions on warranty of title and against
hidden defects and the payment of price in a contract of sale.6
The trial court denied the motion to dismiss. In its answer to the
complaint, petitioner reiterated its claim of prescription as an affirmative
defense. It alleged that whatever defects might have been discovered in
the air-conditioning system could have been caused by a variety of
factors, including ordinary wear and tear and lack of proper and regular
maintenance. It pointed out that during the one-year period that private
respondent withheld final payment, the system was subjected to “very
rigid inspection and testing and corrections or modifications effected” by
petitioner. It interposed a compulsory counterclaim suggesting that the
complaint was filed “to offset the adverse effects” of the judgment in Civil
Case No. 71494, Court of First Instance of Manila, involving the same
parties, wherein private respondent was adjudged to pay petitioner the
balance of the unpaid contract price for the air-conditioning system
installed in another building of private respondent, amounting to
P138,482.25.
Thereafter, private respondent filed an ex-partemotion for preliminary
attachment on the strength of petitioner’s own statement to the effect that
it had sold its business and was no longer doing business in Manila. The
trial court granted the motion and, upon private respondent’s posting of a
bond of P50,000.00, ordered the issuance of a writ of attachment.
In due course, the trial court rendered a decision finding that petitioner
failed to install certain parts and accessories called for by the contract,
and deviated from the plans of the system, thus reducing its operational
effectiveness to the extent that 35 window-type units had to be installed
in the building to achieve a fairly desirable room temperature. On the
question of prescription, the trial court ruled that the
______________
6
Record on Appeal, p. 94.
162
162 SUPREME COURT REPORTS ANNOTATED
Engineering & Machinery Corporation vs. Court of Appeals
complaint was filed within the ten-year prescriptive period although the
contract was one for a piece of work, because it involved the “installation
of an air-conditioning system which the defendant itself manufactured,
fabricated, designed and installed.”
Petitioner appealed to the Court of Appeals, which affirmed the
decision of the trial court. Hence, it instituted the instant petition.
The Submissions of the Parties
In the instant Petition, petitioner raised three issues. First, it contended
that private respondent’s acceptance of the work and his payment of the
contract price extinguished any liability with respect to the defects in the
air-conditioning system. Second, it claimed that the Court of Appeals
erred when it held that the defects in the installation were not apparent at
the time of delivery and acceptance of the work considering that private
respondent was not an expert who could recognize such defects. Third, it
insisted that, assuming arguendo that there were indeed hidden defects,
private respondent’s complaint was barred by prescription under Article
1571 of the Civil Code, which provides for a six-month prescriptive
period.
Private respondent, on the other hand, averred that the issues raised
by petitioner, like the question of whether there was an acceptance of the
work by the owner and whether the hidden defects in the installation
could have been discovered by simple inspection, involve questions of
fact which have been passed upon by the appellate court.
The Court’s Ruling
The Supreme Court reviews only errors of law in petitions for review on
certiorari under Rule 45. It is not the function of this Court to re-examine
the findings of fact of the appellate court unless said findings are not
supported by the evidence
163
VOL. 252, JANUARY 24, 1996 163
Engineering & Machinery Corporation vs. Court of Appeals
on record or the judgment is based on a misapprehension of facts.7
“The Court has consistently held that the factual findings of the trial court,
as well as the Court of Appeals, are final and conclusive and may not be
reviewed on appeal. Among the exceptional circumstances where a
reassessment of facts found by the lower courts is allowed are when the
conclusion is a finding grounded entirely on speculation, surmises or
conjectures; when the inference made is manifestly absurd, mistaken or
impossible; when there is grave abuse of discretion in the appreciation of
facts; when the judgment is premised on a misapprehension of facts;
when the findings went beyond the issues of the case and the same are
contrary to the admissions of both appellant and appellee. After a careful
study of the case at bench, we find none of the above grounds present to
justify the re-evaluation of the findings of fact made by the courts below.”8
52
 “We see no valid reason to discard the factual conclusions of the
appellate court. x x x (I)t is not the function of this Court to assess and
evaluate all over again the evidence, testimonial and documentary,
adduced by the parties, particularly where, such as here, the findings of
both the trial court and the appellate court on the matter
coincide.”9 (italics supplied)
Hence, the first two issues will not be resolved as they raise questions of
fact.
Thus, the only question left to be resolved is that of prescription. In
their submissions, the parties argued lengthily on the nature of the
contract entered into by them, viz., whether it was one of sale or for a
piece of work.
______________
164
164 SUPREME COURT REPORTS ANNOTATED
Engineering & Machinery Corporation vs. Court of Appeals
Article 1713 of the Civil Code defines a contract for a piece of work thus:
“By the contract for a piece of work the contractor binds himself to
execute a piece of work for the employer, in consideration of a certain
price or compensation. The contractor may either employ only his labor
or skill, or also furnish the material.”
A contract for a piece of work, labor and materials may be distinguished
from a contract of sale by the inquiry as to whether the thing transferred
is one not in existence and which would never have existed but for the
order of the person desiring it.10 In such case, the contract is one for a
piece of work, not a sale. On the other hand, if the thing subject of the
contract would have existed and been the subject of a sale to some other
person even if the order had not been given, then the contract is one of
sale.11
Thus, Mr. Justice Vitug12explains that—
“A contract for the delivery at a certain price of an article which the
vendor in the ordinary course of his business manufactures or procures
for the general market, whether the same is on hand at the time or not is
a contract of sale, but if the goods are to be manufactured specially for
the customer and upon his special order, and not for the general market,
it is a contract for a piece of work (Art. 1467, Civil Code). The mere fact
alone that certain articles are made upon previous orders of customers
will not argue against the imposition of the sales tax if such articles are
ordinarily manufactured by the taxpayer for sale to the public (Celestino
Co. vs. Collector, 99 Phil. 841).”
______________
581.
165
VOL. 252, JANUARY 24, 1996 165
Engineering & Machinery Corporation vs. Court of Appeals
To Tolentino, the distinction between the two contracts depends on the
intention of the parties. Thus, if the parties intended that at some future
date an object has to be delivered, without considering the work or labor
of the party bound to deliver, the contract is one of sale. But if one of the
parties accepts the undertaking on the basis of some plan, taking into
account the work he will employ personally or through another, there is a
contract for a piece of work.13
Clearly, the contract in question is one for a piece of work. It is not
petitioner’s line of business to manufacture air-conditioning systems to be
sold “off-the-shelf.” Its business and particular field of expertise is the
fabrication and installation of such systems as ordered by customers and
in accordance with the particular plans and specifications provided by the
customers. Naturally, the price or compensation for the system
manufactured and installed will depend greatly on the particular plans
and specifications agreed upon with the customers.
The obligations of a contractor for a piece of work are set forth in
Articles 1714 and 1715 of the Civil Code, which provide:
“Art. 1714. If the contractor agrees to produce the work from material
furnished by him, he shall deliver the thing produced to the employer and
transfer dominion over the thing. This contract shall be governed by the
following articles as well as by the pertinent provisions on warranty of title
and against hidden defects and the payment of price in a contract of
sale.”
“Art. 1715. The contractor shall execute the work in such a manner
that it has the qualities agreed upon and has no defects which destroy or
lessen its value or fitness for its ordinary or stipulated use. Should the
work be not of such quality, the employer may require that the contractor
remove the defect or execute another work. If the contractor fails or
refuses to comply with this
______________
166
166 SUPREME COURT REPORTS ANNOTATED
Engineering & Machinery Corporation vs. Court of Appeals
obligation, the employer may have the defect removed or another work
executed, at the contractor’s cost.”
The provisions on warranty against hidden defects, referred to in Art.
1714 above-quoted, are found in Articles 1561 and 1566, which read as
follows:
53
“Art. 1561. The vendor shall be responsible for warranty against the
hidden defects which the thing sold may have, should they render it unfit
for the use for which it is intended, or should they diminish its fitness for
such use to such an extent that, had the vendee been aware thereof, he
would not have acquired it or would have given a lower price for it; but
said vendor shall not be answerable for patent defects or those which
may be visible, or for those which are not visible if the vendee is an
expert who, by reason of his trade or profession, should have known
them.”
xxx xxx xxx xxx
“Art. 1566. The vendor is responsible to the vendee for any hidden
faults or defects in the thing sold, even though he was not aware thereof.
“This provision shall not apply if the contrary has been stipulated, and
the vendor was not aware of the hidden faults or defects in the thing
sold.”
The remedy against violations of the warranty against hidden defects is
either to withdraw from the contract (redhibitory action) or to demand a
proportionate reduction of the price (accion quanti minoris), with damages
in either case.14
In Villostas vs. Court of Appeals,15 we held that, “while it is true that
Article 1571 of the Civil Code provides for a prescriptive period of six
months for a redhibitory action, a cursory reading of the ten preceding
articles to which it refers will reveal that said rule may be applied only in
case of implied warranties”; and where there is an express warranty in
the contract, as in the case at bench, the prescriptive period is the one
specified in the express warranty, and in the absence
______________
167
VOL. 252, JANUARY 24, 1996 167
Engineering & Machinery Corporation vs. Court of Appeals
of such period, “the general rule on rescission of contract, which is four
years (Article 1389, Civil Code) shall apply.”16
Consistent with the above discussion, it would appear that this suit is
barred by prescription because the complaint was filed more than four
years after the execution of the contract and the completion of the air-
conditioning system.
However, a close scrutiny of the complaint filed in the trial court
reveals that the original action is not really for enforcement of the
warranties against hidden defects, but one for breach of the contract
itself. It alleged17 that the petitioner, “in the installation of the air
conditioning system did not comply with the specifications provided” in
the written agreement between the parties, “and an evaluation of the air-
conditioning system as installed by the defendant showed the following
defects and violations of the specifications of the agreement, to wit:
“GROUND FLOOR:
“A. RIGHT WING:
Equipped with Worthington Compressor, Model 2VC4 directly driven
by an Hp Elin electric motor 1750 rpm, 3 phase, 60 cycles, 220 volts,
complete with starter evaporative condenser, circulating water pump, air
handling unit air ducts.
Defects Noted:
1. 1.Deteriorated evaporative condenser panels, coils are full of
scales and heavy corrosion is very evident.
2. 2.Defective gauges of compressors;
3. 3.No belt guard on motor;
4. 4.Main switch has no cover;
5. 5.Desired room temperature not attained;
Aside from the above defects, the following were noted not installed
although provided in the specifications.
______________
168
168 SUPREME COURT REPORTS ANNOTATED
Engineering & Machinery Corporation vs. Court of Appeals
1. 1.Face and by-pass damper of G.I. sheets No. 16. This damper
regulates the flow of cooled air depending on room condition.
2. 2.No fresh air intake provision were provided which is very
necessary for efficient comfort cooling.
3. 3.No motor to regulate the face and by-pass damper.
4. 4.Liquid level indicator for refrigerant not provided.
5. 5.Suitable heat exchanger is not installed. This is an important
component to increase refrigeration efficiency.
6. 6.Modulating thermostat not provided.
7. 7.Water treatment device for evaporative condenser was not
provided.
8. 8.Liquid receiver not provided by sight glass.
“B. LEFT WING:
Worthington Compressor Model 2VC4 is installed complete with 15
Hp electric motor, 3 phase, 220 volts, 60 cycles with starter.
Defects Noted:
54
 Same as right wing, except No. 4. All other defects on right wing are
common to the left wing.
“SECOND FLOOR: (Common up to EIGHT FLOORS)
Compressors installed are MELCO with 7.5 Hp V-belt driven by 1800
RPM, 220 volts, 60 cycles, 3 phase, Thrige electric motor with starters.
As stated in the specifications under Section No. IV, the MELCO
compressors do not satisfy the conditions stated therein due to the
following:
1. 1.MELCO Compressors are not provided with automatic capacity
unloader.
2. 2.Not provided with oil pressure safety control.
3. 3.Particular compressors do not have provision for renewal
sleeves.
Out of the total 15 MELCO compressors installed to serve the 2nd
floor up to 8th floors, only six (6) units are in operation and the rest were
already replaced. Of the remaining
169
VOL. 252, JANUARY 24, 1996 169
Engineering & Machinery Corporation vs. Court of Appeals
six (6) units, several of them have been replaced with bigger crankshafts.
“NINTH FLOOR:
Two (2) Worthington 2VC4 driven by 15 Hp, 3 phase, 220 volts, 60
cycles, 1750 rpm, Higgs motors with starters. Defects Noted are similar to
ground floor.
“GENERAL REMARKS:
Under Section III, Design conditions of specification for air
conditioning work, and taking into account “A” & “B” same, the present
systems are not capable of maintaining the desired room temperature of
76 = 2oF (sic).
The present tenant have installed 35 window type air conditioning
units distributed among the different floor levels. Temperature
measurements conducted on March 29, 1971, revealed that 78oF room
(sic) is only maintained due to the additional window type units.”
The trial court, after evaluating the evidence presented, held that, indeed,
petitioner failed to install items and parts required in the contract and
substituted some other items which were not in accordance with the
specifications,18 thus:
“From all of the foregoing, the Court is persuaded to believe the plaintiff
that not only had the defendant failed to install items and parts provided
for in the specifications of the air-conditioning system be installed, like
face and by-pass dampers and modulating thermostat and many others,
but also that there are items, parts and accessories which were used and
installed on the air-conditioning system which were not in full accord with
contract specifications. These omissions to install the equipments, parts
and accessories called for in the specifications of the contract, as well as
the deviations made in putting into the air-conditioning system
equipments, parts and accessories not in full accord with the contract
specification naturally resulted to adversely affect the operational
effectiveness of the air-conditioning system which necessitated the
installation of thirty-five window type of air-
______________
18
Record on Appeal, pp. 508-509.
170
170 SUPREME COURT REPORTS ANNOTATED
Engineering & Machinery Corporation vs. Court of Appeals
conditioning units distributed among the different floor levels in order to
be able to obtain a fairly desirable room temperature for the tenants and
actual occupants of the building. The Court opines and so holds that the
failure of the defendant to follow the contract specifications and said
omissions and deviations having resulted in the operational
ineffectiveness of the system installed makes the defendant liable to the
plaintiff in the amount necessary to rectify to put the air conditioning
system in its proper operational condition to make it serve the purpose for
which the plaintiff entered into the contract with the defendant.”
The respondent Court affirmed the trial court’s decision thereby making
the latter’s findings also its own.
Having concluded that the original complaint is one for damages
arising from breach of a written contract—and not a suit to enforce
warranties against hidden defects—we here-with declare that the
governing law is Article 1715 (supra). However, inasmuch as this
provision does not contain a specific prescriptive period, the general law
on prescription, which is Article 1144 of the Civil Code, will apply. Said
provision states, inter alia, that actions “upon a written contract” prescribe
in ten (10) years. Since the governing contract was executed on
September 10, 1962 and the complaint was filed on May 8, 1971, it is
clear that the action has not prescribed.
What about petitioner’s contention that “acceptance of the work by the
employer relieves the contractor of liability for any defect in the work”?
This was answered by respondent Court19 as follows:
“As the breach of contract which gave rise to the instant case consisted in
appellant’s omission to install the equipments (sic), parts and accessories
not in accordance with the plan and specifications provided for in the
contract and the deviations made in putting into the air conditioning
system parts and accessories not in accordance with the contract
55
specifications, it is evident that the defect in the installation was not
apparent at the time of the

______________
19 Rollo, pp. 48-49.
171
VOL. 252, JANUARY 24, 1996 171
Engineering & Machinery Corporation vs. Court of Appeals
delivery and acceptance of the work, considering further that plaintiff is
not an expert to recognize the same. From the very nature of things, it is
impossible to determine by the simple inspection of air conditioning
system installed in an 8-floor building whether it has been furnished and
installed as per agreed specifications.”
Verily, the mere fact that the private respondent accepted the work does
not, ipso facto, relieve the petitioner from liability for deviations from and
violations of the written contract, as the law gives him ten (10) years
within which to file an action based on breach thereof.
WHEREFORE, the petition is hereby DENIED and the assailed
Decision is AFFIRMED. No costs.
SO ORDERED.
Narvasa (C.J., Chairman), Davide, Jr., Melo and Francisco,
JJ.,concur.
Petition denied, judgment affirmed.
VOL. 461, JUNE 23, 2005 139
Notes.—An action for annulment of a contract entered into by minors
or other incapacitated persons shall be brought within four years from the Del Monte Philippines, Inc. vs. Aragones
time the guardianship ceases. (Causapin vs. Court of Appeals, 233 G.R. No. 153033. June 23, 2005.*
SCRA 615[1994]) DEL MONTE PHILIPPINES, INC., petitioner, vs. NAPOLEON N.
The remedy of rescission only applies to contracts validly agreed ARAGONES, respondent.
upon by the parties in the cases established by law. (Ibid.)
Contracts; Sales; Contract for a Piece of Work; Words and
——o0o—— Phrases; 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
172 for a piece of work.—Under Art. 1467 then of the Civil Code which
© Copyright 2019 Central Book Supply, Inc. All rights reserved. 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.
(Emphasis and italics supplied), the “Supply Agreement” was
decidedly a contract for a piece of work. Following Art. 1729 of the Civil
Code which provides: ART. 1729. Those who put their laborupon or
furnish materials for a piece of work undertaken by the contractor have

56
an action against the owner up to the amount owing from the latter to the 141
contractor at the time the claim is made. x x x x x x (Italics supplied), VOL. 461, JUNE 23, 2005 141
Aragones having Del Monte Philippines, Inc. vs. Aragones
_______________
CARPIO-MORALES, J.:
* THIRD DIVISION.
The decision in the present Petition for Review on Certiorari hinges on
140 the nature of the contract denominated “Supply Agreement”1 which was
1 SUPREME COURT REPORTS ANNOTATED forged between Dynablock Enterprises, represented by its Manager
40 herein respondent Napoleon N. Aragones (Aragones) and Mega-
Engineering Services in joint venture with WAFF Construction System
Del Monte Philippines, Inc. vs. Aragones
Corporation (MEGA-WAFF)—whether it was one of sale or for a piece of
specially fabricated three casting machines and furnished some work.
materials for the production of the concrete blocks specially ordered and On September 18, 1988, herein petitioner Del Monte Philippines Inc.
specified by MEGA-WAFF which were to be and indeed they were for (DMPI) entered into an “Agreement”2with MEGA-WAFF, represented by
the exclusive useof MEGA-WAFF, he has a cause of action upon “Managing Principal” Edilberto Garcia (Garcia), whereby the latter
petitioner up to the amount it owed MEGA-WAFF at the time Aragones undertook “the supply and installation of modular pavement” at DMPI’s
made his claim to petitioner. condiments warehouse at Cagayan de Oro City within 60 calendar days
Same; Same; Same; The intention of Art. 1729 of the Civil Code is from signing of the agreement.
to protect the laborers and materialmen from being taken advantage of by To source its supply of concrete blocks to be installed on the
unscrupulous contractors and from possible connivance between owners pavement of the DMPI warehouse, MEGA-WAFF, as
and contractors.—As Velasco v. CA explains, the intention of Art. 1729 is CONTRACTOR represented by Garcia, entered into a “Supply
to protect the laborers and materialmen from being taken advantage of by Agreement” with Dynablock Enterprises, represented by herein
unscrupulous contractors and from possible connivance between owners respondent Aragones, as SUPPLIER, under the following terms:
and contractors. Thus, a constructive vinculum or contractual privity is
created by this provision, by way of exception to the principle underlying
1. 1.ITEMS TO BE SUPPLIED
Article 1311 between the owner, on the one hand, and those who furnish
labor and/or materials, on the other.
Same; Same; Same; Labor Code; Act No. 3959 (which requires a The SUPPLIER at its own expense shall provide the CONTRACTOR with
person or firm owning any work of any kind executed by contract to put labor and all materials, equipment, tools and supplies necessary and
up a bond guaranteeing the payment of the laborers) has been repealed incident thereto, the required concrete blocks at the contractor’s specified
in 1974 by P.D. No. 442 (The Labor Code of the Philippines).—As for the casting site, all in accordance with the terms and conditions of this
assailed citation by the appellate court of Act No. 3959 (which requires a agreement, as well as the requirements of the project
person or firm owning any work of any kind executed by contract to put specifications and provisions with respect to the fabrication of concrete
up a bond guaranteeing the payment of the laborers) blocks.
as additionaljustification to hold petitioner liable to Aragones, indeed, said
_______________
Act had been repealed in 1974 by P.D. No. 442 (The Labor Code of the
Philippines). 1
Exhibit “A,” RTC Records at pp. 262-266.
2
Exh. “1-DMPI”, id., at p. 363.
PETITION for review on certiorari of a decision of the Court of Appeals.
142
The facts are stated in the opinion of the Court. 142 SUPREME COURT REPORTS ANNOTATED
Tan, Acut & Lopez for petitioner.
Del Monte Philippines, Inc. vs. Aragones
Estelito R. Alvia for Heirs of Napoleon Aragones.

57
 1. 2.PRICE
The CONTRACTOR will pay the supplier in consideration for the full and
total performance of the above undertaking, inclusive of all applicable
taxes, the unit price of P7.00 per supplied and accepted piece. This price
is based on the assumption that the cost per bag of premium cement is
P54.00 and aggregate at P95.00 per cu. m. Any increase of the above
raw materials shall be to the account of the contractor. All taxes shall be
for the account of the contractor.
1. 3.PLANT/EQUIPMENT
1. 3.1—The machines for the fabrication/casting of the concrete
blocks,including all necessary equipment and accessories, shall
be provided by the SUPPLIER. The machines and equipment
shall be mobilized and made operational at the specified casting
location/stockpiling yard designated and provided by the
CONTRACTOR.
2. 3.2—The SUPPLIER shall ensure that all plant
facilities/equipment must, at all times, be accessible for
inspection by the representatives of the CONTRACTOR.
3. 3.3—The SUPPLIER shall ensure that the plant/casting machines
actual operating capacities shall not be lowerthan 75,000 pieces
every month. If at any time within the life of this agreement the
plant/casting machines are proven to be operating below the
required minimum capacity as aforesaid, the SUPPLIER shall be
obliged to take the necessary actions to upgrade the
plant/casting machines and/or make the necessary rehabilitation
to increase the capacity to the required level.
1. 4.QUALITY OF MATERIALS
1. 4.1—The SUPPLIER guarantees that all materials supplied to the
CONTRACTOR shall meet the approved specifications
(Attached Annex “A”) at 5,000 pci. In this connection,
the CONTRACTOR shall assign an inspector at the casting site
to ensure that all items supplied shall conform with the approved
standards.
2. 4.2—The CONTRACTOR may reject any finished product or
materials which do not pass the approved standards.
3. 4.3—There shall be a system of sampling the output of the plant
and/or each casting machine for testing in accor
143
VOL. 461, JUNE 23, 2005 143
Del Monte Philippines, Inc. vs. Aragones
dance with the quality standards specified. Result of such sampling tests
shall be the basis for acceptance or rejection of the finished materials.
1. 4.4—Where the CONTRACTOR has provided materials to the
SUPPLIER to be incorporated into the SUPPLIER’s production,
as in the case of cement and aggregates, the cost of such
materials which becomes part of the rejected products due to
faulty batching/mixing/curingshall be for the account of the
SUPPLIER.
1. 5.MATERIALS AND OTHER PROVISIONS SUPPLIED BY THE
CONTRACTOR
1. 5.1—All the materials are for the account of the SUPPLIER. The
CONTRACTOR shall, however, provide all the cement and
aggregates requirement for the fabrication of the concrete
blocks, in which the corresponding cost shall be deducted from
the periodical proceeds due to the SUPPLIER.
2. 5.2—The CONTRACTOR shall provide and make available to the
SUPPLIER the following provisions/facilities free of charge:
1. a) Casting/Fabrication Area
2. b) Stockpile Area
3. c) Warehouse for Cement
4. d) An all-weather working shed for workers
5. e) Night Watchers
1. 5.3—The CONTRACTOR shall arrange for the installation of
electrical and water facilities for the work in which the cost of
electricity and water actually consumed shall be borne by the
SUPPLIER.
2. 5.4—The SUPPLIER shall be responsible for all materials already
turned over by the CONTRACTOR at the casting area. The
responsibility, however, of the SUPPLIER on the finished
products ceases upon loading of the same to the
CONTRACTOR’s truck on way to the project site.
144
144 SUPREME COURT REPORTS ANNOTATED
Del Monte Philippines, Inc. vs. Aragones
58
 1. 6.OBLIGATIONS OF SUPPLIER
1. 6.1—To fabricate and provide the required block machines in
such number adequate to cope up with time schedule.
2. 6.2—To provide concrete mixers: one (1) unit of two-bagger, and
two (2) units of one-bagger.
3. 6.3—To provide drying racks, measuring boxes, wheel borrows
and other necessary hand tools.
4. 6.4—To supervise and provide the required manpower for the
operation and production of concrete blocks.
5. 6.5—To undertake the following:
1. a)mixing and formulation of proper mix.
2. b)to consolidate, form and compress the blocks.
3. c)to unload the formed blocks into the drying racks.
4. d)after initial setting of blocks, to unload and arrange them to
wooden pallets.
5. e)curing of blocks as per approved standards.
1. 7.OTHER OBLIGATIONS OF CONTRACTOR
1. 7.1—To provide tarpaulin or canvas or plastic sheets to cover
blocks during the seasoning stage.
2. 7.2—To provide forklift and wooden pallets.
1. 8.EXCLUSIVITY OF PRODUCTION
1. 8.1—Effective upon the execution of this agreement, the
SUPPLIER binds itself to devote the entire plant/casting
machines and its accessories for the CONTRACTOR’s
exclusive use and full operation and production of the required
concrete blocks for the intended project.
2. 8.2—The SUPPLIER or his agents or representatives shall not,
directly or indirectly, enter into any contract, agreement,
concessions or transactions of whatever nature or kind with the
project owner or of its representative which will affect the rights,
interest or participation of the CONTRACTOR in regard to the
execution and accomplishment of the project.
145
VOL. 461, JUNE 23, 2005 145
Del Monte Philippines, Inc. vs. Aragones
1. 8.3—In case of violation of this exclusivity clause, utmost fidelity
and good faith being of the essence, the CONTRACTOR shall
have the right to demand reasonable amount of damages or
terminate this agreement upon due notice.
1. 9.CONDITIONS OF PAYMENT
1. 9.1—Upon mobilization of the casting machines, equipments
accessories and making some operational at the casting area by
the SUPPLIER, the CONTRACTOR shall advance to the
supplier a downpayment or mobilization fund of TEN
THOUSAND (P10,000.00) PESOS per machine. Said
mobilization fee shall be deducted from the proceeds of the
SUPPLIER at two (2) equal installments beginning at the first
billing.
2. 9.2—The SUPPLIER shall present its billing every fifteen days
based on the below indicated payment schedule:
1. a)Billing from 1st/day/month to 15th day payable after fifteen days
from the date the billing is submitted.
2. b)Billing from the 16th day of the month to the 31st day of the
month, payable after fifteen days from the date the billing is
submitted.
1. 10.EFFECTIVITY OF CONTRACT
This agreement shall be co-terminus with the terms of the contract for the
project and/or upon completion of all requirements therefor; PROVIDED,
However, that if for some reason or another the production of the
concrete blocks is temporarily suspended, this agreement shall remain in
force and effective for a period of fifteen (15) days from the date of the
cessation of production. In case the said grace period expires without the
production having resumed, the CONTRACTOR shall be obliged to pay
reasonable compensation for the period of suspensioncounted from the
expiration of the said grace period.
1. 11.PERFORMANCE BOND
The SUPPLIER shall post a SURETY/PERFORMANCE BOND in such
sums which may be deemed adequate to secure its faithful compliance of
the terms and conditions of this agreement.
146
59
146 SUPREME COURT REPORTS ANNOTATED
Del Monte Philippines, Inc. vs. Aragones
1. 12.PENALTY CLAUSE
In the event the SUPPLIER fails to meet the requirements demanded in
this agreement or when the SUPPLIER is in delay in the performance of
its obligation to the prejudice of the CONTRACTOR, the SUPPLIER shall
answer for the corresponding damages equivalent to one-tenth (1/10) of
the rated monthly production capacity. (Emphasis and italics supplied).3
Aragones thereupon started assembling the machines for the
fabrication/casting of the concrete blocks which MEGA-WAFF specified
to be hexagonal shaped. MEGA-WAFF, through Garcia, later directed
Aragones to instead fabricate machines for S shaped blocks.
As stated in the “Agreement” between DMPI and MEGA-WAFF, the
deadline for the installation of the pavement of the warehouse was
November 18, 1988, but it was not met. As extended, the installation was
finished on or about February 28, 1989, but MEGA-WAFF was, in
accordance with its agreement with DMPI, penalized for the delay, albeit
at a reduced amount.
Aragones, having in the meantime gotten wind of MEGA-WAFF &
DMPI’s “Agreement,” more particularly the imposition of a penalty by
DMPI for the delay in the completion of the installation of the warehouse
pavement, appealed to DMPI, by letter of March 4, 1989,4 for leniency in
the imposition of the penalty which “would affect [him] also although [he]
was not a direct party to the contract,” he inviting attention to the
“intricacy and enormity of the job involved.”
Aragones later failed to collect from MEGA-WAFF the full payment of
the concrete blocks. He thus sent DMPI a letter dated March 10,
1989,5 received by the latter on March 13, 1989,6advising it of MEGA-
WAFF’s unpaid obligation and
_______________
147
VOL. 461, JUNE 23, 2005 147
Del Monte Philippines, Inc. vs. Aragones
requesting it to earmark and withhold the amount of P188,652.65 “from
[MEGA-WAFF’s] billing” to be paid directly to him “[l]est Garcia collects
and fails to pay [him].”
DMPI, in the meantime, verbally advised Aragones to secure a court
order directing it to withhold payment of the amount due MEGA-WAFF
for, in the absence of such court order, DMPI was under its agreement
with MEGA-WAFF obliged to release full payment within 30 days from
acceptance of the completed work.
It appears that Aragones reiterated his request to DMPI for direct
payment to him, by letter of March 28, 1989.7 This was followed by
another letter dated April 6, 19898 which was received on April 8,
19899 by DMPI, copy of which it referred to Garcia, by letter of April 27,
1989,10 for his comment.
By letter of May 3, 198911addressed to DMPI, Garcia, commenting on
Aragones’ April 6, 1989 letter, stated:
xxx
If there is somebody who have (sic) justifiable ground to complain, it is
MEGA-WAFF against Atty. Aragones for all the miseries and
embarrassment we had suffered due to the factors attributable to Atty.
Aragones Dynablock Enterprises.
For proper evaluation of things and to give both parties a fair chance,
we enclosed (sic) pertinent papers for your perusal.
As contractor and businessman, it is our firm policy not to take
advantage of other people and definitely not to renegade (sic) from
commitments/obligations.
We are willing to pay Atty. Aragones but based on the actual
accomplishment and amount only due to him as per reconciliation
furnished to him. (attached)
_______________
148
148 SUPREME COURT REPORTS ANNOTATED
Del Monte Philippines, Inc. vs. Aragones
We sincerely hope that the facts we had presented will suffice, and
please accept our apology for whatever inconvenience it has caused you
and we pray that this matter of payments be settled soon for the general
benefit of all concerned.
x x x (Italics supplied).
It turned out that DMPI had, on or about April 6, 1989, released to MEGA-
WAFF a check dated April 4, 1989 in the amount of P157,863.77
representing DMPI’s balance of its obligation to MEGA-WAFF.
Aragones was thus prompted to file on May 25, 1989 a complaint12 for
sum of money (P188,652.65) with damages against Garcia and/or
MEGA-WAFF and DMPI before the Regional Trial Court (RTC) of Lanao
del Norte which was raffled to Branch 5 thereof.
Aragones impleaded DMPI on the strength of Articles 1729 and 1467
of the Civil Code, he contending that it was liable to him who put labor
upon or furnished materials for a piece of work.
60
 By his July 14, 1989 Answer,13 Garcia, without disputing the amount
being collected by Aragones, justified his “refusal to satisfy [Aragones’]
demand” by claiming that Aragones defaulted in his obligation under the
“Supply Agreement.”
DMPI, by its Answer14 of June 25, 1989, pleaded that Aragones had
no cause of action against it as it had no privity of contract with him; that
it had already paid MEGA-WAFF the full amount due it; and that it had
not committed any actionable wrong against Aragones.
Aragones later filed an Amended Complaint,15 with leave of court, “to
cure certain formal defects in the original complaint as to the designation
of parties . . .”
_______________
149
VOL. 461, JUNE 23, 2005 149
Del Monte Philippines, Inc. vs. Aragones
DMPI also later filed a Motion for Leave to File an Amended Answer with
Cross-Claim against Garcia and WAFF President Francisco
Castro16 which the trial court granted. In the Amended Answer with Cross
Claim,17 DMPI alleged, inter alia, that “[i]n the event [Aragones] succeeds
in obtaining a judgment [against] DMPI, that said judgment should be
charged to and paid by the cross-defendants who have collected the full
contract price of the Agreement wherein [Aragones] claims the rights of a
subcontractor, plus consequential damages” (underscoring in the
original).
The trial court, upon the following issues:
1. a.Whether or not [Aragones] has still a collectible amount of
P188,652.65 from defendants Garcia and Castro;
2. b.Whether or not defendant DMPI may also be held accountable
for this unpaid obligation of defendant Garcia/MEGA-WAFF;
3. c.Whether or not the remaining balance of defendant DMPI
account payable is P188,652.65 insisted by defendant
Garcia/MEGA-WAFF or only P157,863.77 insisted by defendant
DMPI;
4. d.Whether or not the parties are entitled to damages pleaded;
5. e.Whether or not there was delay in the performance of the
respective obligations of either party or both;
6. f.Assuming that defendant DMPI is liable to plaintiff, whether or
not cross defendant Garcia/MEGA-WAFF shall be liable to
DMPI for reimbursement.18
found for the plaintiff Aragones in light of the following considerations:
Those who put their labor upon or furnish materials for a piece of
work undertaken by the contractor have an action against the owner up to
the amount owing from the latter to the contractor
_______________
150
150 SUPREME COURT REPORTS ANNOTATED
Del Monte Philippines, Inc. vs. Aragones
at the time the claim is made. However, the following shall not prejudice
the laborers, employees and furnishers of materials:
1. (1)Payments made by the owner of the contractor before they are
due;
2. (2)Renunciation by the contractor of any amount due him from
the owner.
This article is subject to the provisions of special laws (1597a)
(Article 1729, New Civil Code, [emphasis supplied]).
In interpreting the foregoing provision, the Supreme Court made the
following pertinent pronouncement:
“Article 1729 is promulgated to protect the laborers and the materialmen
from being taken advantage of by unscrupulous contractors and
from possible connivance between owners and contractors.” (Velasco
vs. C.A., 95 Phils. (sic) (616-641).
“The legal issue that arises is whether or not GSIS is liable to the
petitioners for the cost of the materials and labor furnished by them in
construction of the 63 houses now owned by the GSIS and for the
construction of which no payment has been made on the balance due to
petitioners. Our considered view is and we so hold that
even in equity alone, GSIS should pay the petitioners, without prejudice
to its securing indemnity from Laigo Realty Corp.” (Velaso vs. C.A., 95
Phils. (sic) 616-641 [emphasis and italics supplied]).
Moreover, anent this matter another decisional rule, says:
“Although there was no privity of contract between plaintiff and
defendant Joven, Inc., there is sufficient evidence showing that he had
really supplied stones and sands to said defendant and also removed dirt
and soil from its construction site. And it is this main point which calls for
resolution in the light of the provisions of Art. 1729 of the New Civil Code,
to determine whether or not defendant corporation is liable for materials
supplied and services rendered by the plaintiff. It is quite clear that the
61
owner of the building, Joven Inc. is liable for materials and labor furnished 152
to the contractor “up to the amount owing from the latter to the contractor” 152 SUPREME COURT REPORTS ANNOTATED
and to enforce such liability, the law allows the person furnishing Del Monte Philippines, Inc. vs. Aragones
labor or materials to bring his right of action directly against

151 1. c.Lastly, these defendants are condemned that each pay plaintiff
VOL. 461, JUNE 23, 2005 151 P20,000.00 for exemplary damages and P10,000.00 for
attorney’s fees, including the cost of this suit.
Del Monte Philippines, Inc. vs. Aragones
the owner.” (Flores vs. Ruelo, CA 52 OG 850, [emphasis and italics
SO ORDERED. (Emphasis and italics supplied).21
supplied]).
On appeal to the Court of Appeals (CA) by only DMPI, upon the following
Of course, while defendant DMPI is indeed directly liable to pay
assigned errors:
plaintiff the cost of the construction material (modular paving blocks)
I
sought to be collected, this defendant has also a right of recourse against
cross defendant Garcia/MEGA-WAFF for reimbursement of whatever
THE TRIAL COURT ERRED IN HOLDING THAT PLAINTIFF DID NOT
amount it will be required here to pay plaintiff, otherwise it would result in
INCUR DELAY AND VIOLATE ITS SUPPLY AGREEMENT WITH
making defendant Garcia/MEGA-WAFF enrich itself at the expense of
DEFENDANT MEGA-WAFF;
defendant DMPI. Additionally since the evidence on record shows
that plaintiff was compelled to litigate this matterif only to collect a just
II
and demandable obligation, the refusal of these defendants to pay their
obligation upon demand could not be justified in law, thus both
THE TRIAL COURT ERRED IN HOLDING THAT DEFENDANT
defendants should be condemned to pay exemplary damages in the
MEGA-WAFF’S LIABILITY TO PLAINTIFF IS P188,652.65 BECAUSE
amount of P20,000.00 each and attorney’s fees in the amount of
AS STIPULATED IN THE SUPPLY AGREEMENT, THE CEMENT AND
P10,000.00 each, including the cost of this suit. (Italics supplied)19
AGGREGATES USED IN THE MANUFACTURE OF THE BLOCKS
The trial court accordingly rendered judgment in favor of Aragones by WERE ADVANCED BY MEGA-WAFF, THE COST OF WHICH WILL BE
decision20 of September 11, 1992, the dispositive portion of which reads: DEDUCED FROM PLAINTIFF’S BILLINGS;
“WHEREFORE, the foregoing premises considered, the Court finds that
there is ample reason in law and preponderant evidence on record to III.
sustain the cause of action of plaintiff asserted against both defendants,
thus judgment is now rendered granting the following relief: THE TRIAL COURT ERRED IN HOLDING THAT DEFENDANT DMPI
IS ALSO LIABLE TO PLAINTIFF FOR ANY LIABILITY OF MEGA-WAFF
UNDER THE SUPPLY AGREEMENT;
1. a.That the defendants Garcia/MEGA-WAFF and DMPI shall be
liable to jointly and severally pay plaintiffthe unpaid cost of the
IV.
modular paving blocks construction material which he delivered
to defendant DMPI priced at P188,652.65 and in the event that
ASSUMING EX GRATIA ARGUMENTI THAT DMPI IS LIABLE TO
defendant DMPI will be made to pay the full amount of this
PLAINTIFF’S AID LIABILITY CANNOT EXCEED THE SUM OF
particular obligation, the defendant Garcia MEGA-WAFF must
P157,863.77BALANCE OF THE CONTRACT PRICE BETWEEN DMPI
reimburse said defendant such amount;
AND MEGA-WAFF, LESS AGREED PENALTY FOR LATE DELIVERY
2. b.That this unpaid obligation sought to be collected must bear
AS LIQUIDATED DAMAGES;
legal interest of 12% per annum from the time there was an
extrajudicial demand made by plaintiff last March 01, 1989; and
V.
_______________

62
 THE TRIAL COURT ERRED IN HOLDING DEFENDANT DMPI
LIABLE TO PLAINTIFF FOR ATTORNEY’S FEES AND COSTS OF
COLLECTIONCONSIDERING THAT IT HAD THE RIGHT TO
_______________
21 Id., at pp. 13-14.
153
VOL. 461, JUNE 23, 2005 153
Del Monte Philippines, Inc. vs. Aragones
RESIST PAYMENT BECAUSE IT HAS NO PRIVITY OF CONTRACT
BETWEEN PLAINTIFF AND DEFENDANT MEGA-WAFF, (Italics
supplied),22
the CA, by decision of September 19, 200123 subject of the petition at
bar, affirmed the trial court’s decision in this wise:
At this juncture it is well to note that the Supply Agreement was in the
nature of a contract for a piece of work. The distinction between a
contract of sale and one for work, labor and materials is tested by inquiry
whether the thing transferred is one not in existence and which never
would have existed but for the order of the party desiring to acquire it, or
a thing which would have existed but has been the subject of sale to
some other persons even if the order had not been given. If the article
ordered by the purchaser is exactly such as the seller makes and keeps
on hand for sale to anyone, and no change or modification of it is made at
purchaser’s request, it is a contract of sale even though it may be entirely
made after, and in consequence of the purchaser’s order for it.
[Commissioner of Internal Revenue vs. Engineering Equipment and
Supply Company, G.R. No. L-27044, June 30, 1975]
In the case at bench, the modular paving blocks are notexactly what
the plaintiff-appellee makes and keeps on hand for sale to anyone,
but with a modification that the same be “S” in shape. Hence, the
agreement falls within the ambit of Article 1467 making Article 1729
likewise applicablein the instant case.
As regard the issue of privity of contracts, We need to add only that
Article 1311 of the New Civil Code which DMPI invokes is not applicable
where the situation contemplated in Article 1729 obtains. The intention of
the latter provision is to protect the laborers and the materialmen from
being taken advantage of by unscrupulous contractors and from possible
connivance between owners and contractors. Thus, a constructive
vinculum or contractual privity is created by this provision, by way of
exception to the principle underlying Article 1311 between the owner, on
the one hand, and those who furnish labor and/or materials, on the other.
[Velasco vs. Court of Appeals, G.R. No. L-47544, January 28, 1980]
_______________
22
Brief for appellant DMPI, CA Rollo at pp. 24, 26-27.
23
Id., at pp. 68-81.
154
154 SUPREME COURT REPORTS ANNOTATED
Del Monte Philippines, Inc. vs. Aragones
As a matter of fact, insofar as the laborers are concerned, by a special
law, Act no. 3959, otherwise known as “An Act making it obligatory for
any person, company, firm or corporation owning any work of any kind
executed by contract to require the contractor to furnish a bond
guaranteeing the payment of the laborers.” they are given added
protection by requiring contractors to file bonds guaranteeing payment to
them.
It is true that defendant-appellant had already fully paid its obligation
to defendant Garcia however, the former’s payment to the latter does not
extinguish its legal obligation to plaintiff-appellee because such payment
was irregular. The former should have taken care not to pay to such
contractor the full amount which he is entitled to receive by virtue of the
contract, until he shall have shown that he first paid the wages of the
laborer employed in said work, by means of an affidavit made and
subscribed by said contractor before a notary public or other officer
authorized by law to administer oaths. There is no showing that
defendant appellant DMPI, as owner of the building, complied with this
requirement paid down in Act No. 3959. Hence, under Section 2 of said
law, said defendant-appellant is responsible, jointly and severally with the
general contractor, for the payment to plaintiff-appellee as sub-contractor.
In this connection, while, indeed, Article 1729 refers to the laborers
and materialmen themselves, under the peculiar circumstances of this
case, it is but fair and just that plaintiff-appellee be deemed as suing for
the reimbursement of what they have already paid the laborers and
materialmen, as otherwise he would be unduly prejudiced while either
defendant-appellant DMPI or defendant Garcia would enrich themselves
at plaintiff-appellee’s expense.
Be that as it may, We so hold that plaintiff-appellee has a lawful claim
against defendant-appellant DMPI, owner of the constructed warehouse
since it disregarded the notice of claim of plaintiff-appellee, at a time
when the amounts owing from defendant-appellant DMPI to defendant
GARCIA were more than sufficient to pay for plaintiff-appellee’s claim.
The least that defendant-appellant should have done was to withhold
payment of the balance still owing to defendant Garcia as until the claim
of plaintiff-appellee was clarified. (Italics in the original; emphasis and
italics supplied).24
63

_______________
24
Id., at pp. 96-98.
155
VOL. 461, JUNE 23, 2005 155
Del Monte Philippines, Inc. vs. Aragones
Its Motion for Reconsideration having been denied by the CA, DMPI
(hereinafter referred to as petitioner) lodged the present Petition for
Review on Certiorari, faulting the CA:
I.
. . . IN FINDING THAT DMPI WAS LIABLE TO RESPONDENT
ARAGONES FOR THE UNPAID PRICE OF THE CONCRETE PAVING
BLOCKS OWED BY MEGA-WAFF TO THE LATTER.
1. A. . . . IN FINDING THAT THE CONTRACT FOR THE SUPPLY
OF THE CONCRETE PAVING BLOCKS WAS NOT A SALE
BUT ONE FOR A PIECE OF WORK.
2. B. . . . IN HOLDING DMPI LIABLE BASED UPON THE
PROVISIONS OF ARTICLE 1729 OF THE CIVIL CODE AND
ACT 3959, WHICH ARE INAPPLICABLE.
II.
. . . IN FAILING TO AWARD MORAL DAMAGES, ATTORNEY’S
FEES, AND LITIGATION EXPENSES TO DMPI ON ITS
COUNTERCLAIM.25
As reflected above, only petitioner appealed the trial court’s decision.
MEGA-WAFF did not appeal. The decision as to it then is final and
executory.
Petitioner, in the main, contends that while the CA correctly stated the
test in determining whether a transfer is a sale or one for a piece of work,
it failed to properly apply the same.
Applying the “nature of the object” test, petitioner insists that the
concrete block to be produced by Aragones under the “Supply
Agreement” represented by Garcia clearly shows that the contract was
one of sale, advancing the following reasons:
1.4.1 First, the concrete paving blocks were . . . capable of being mass-
produced
_______________
25
Rollo at pp. 16-17.
156
156 SUPREME COURT REPORTS ANNOTATED
Del Monte Philippines, Inc. vs. Aragones
1.4.2 Second, save for the shape, there was here no consideration of any
special needs or requirements of DMPI taken into account in the design
or manufacture of the concrete paving blocks.26
Petitioner cites the following ruling in Commissioner of Internal Revenue
v. Arnoldus Carpentry Shop, Inc.:27
x x x As can be clearly seen from the wordings of Art. 1467, what
determines whether the contract is one of work or of sale is whether the
thing has been“manufactured specially for the customer and upon his
special order.” Thus, if the thing is specially done on the order of another,
this is a contract for a piece of work. If, on the other hand, the thing is
manufactured or procuredfor the general market in the ordinary
course of one’s business, it is a contract of sale.” (Italics and
emphasis in the original; underscoring supplied),28
and argues that “given habituality of business and the ability to mass-
produce the article ordered, that customers requires (sic) certain
specifications is of no moment, the transaction remains one of sale.”
Petitioner further cites, among other authorities, the following ruling
in Celestino Co. v. Collector of Internal Revenue:29
x x x The important thing to remember is that Celestino & Co.
habitually makes sash, windows and doors, as it has represented in
its stationery and advertisements to the public. That it “manufactures”
the same is practically admitted by appellant itself. The fact that windows
and doors are made by it only when customers place their orders, does
not alter the nature of the establishment of such materials-moulding,
frames, panels—as it ordinarily manufactured or was in a position
habitually to manufacture.
_______________
157
VOL. 461, JUNE 23, 2005 157
Del Monte Philippines, Inc. vs. Aragones
xxx
That the doors and windows must meet desired specifications is
neither here nor there. If these specifications do not happen to be of the
kind habitually manufactured by appellant—special forms of sash,
mouldings, panels—it would not accept the order—and no sale is made.
64
If they do, the transaction would be no different from purchaser of
manufactured goods held in stock for sale; they are bought because they
meet specifications desired by the purchaser.
Nobody will say that when a sawmill cuts lumber in accordance with
the peculiar specifications of a customer—sizes not previously held in
stock for sale to the public—it thereby becomes an employee or servant
of the customer, not the seller of lumber. The same consideration applies
to this sash manufacturer. The Oriental Sash Factory does nothing
more than sell the goods that it mass-produces or habitually
makes—sash, panels, mouldings, frames—cutting them to such sizes
and combining them in such forms as its customers may desire.
xxx
x x x Such new form does not divest the Oriental SashFactory of
its character as manufacturer. Neither does it take the transaction
out of the category of sales under Article 1467 above quoted,
because although the Factory does not, in the ordinary course of its
business, manufacture and keep on stock doors of the kind sold to
Teodoro, it could and/or probably had in stock the sash, mouldings
and panels it used therefor (some of them at least). (Emphasis in the
original; italics supplied).
Petitioner concludes that as the “Supply Agreement” between Aragones
and MEGA-WAFF was one of sale to which it (petitioner) was not privy, it
cannot be held liable for any obligation arising therefrom.
Dodging liability for the damages (“exemplary and . . . attorney’s fees
including the cost of this suit”) awarded to Aragones, petitioner claims
that it was in fact the one which was injured by Aragones’ filing in bad
faith of a complaint bereft of cause of action and “at best, [one] barred by
full payment of
158
158 SUPREME COURT REPORTS ANNOTATED
Del Monte Philippines, Inc. vs. Aragones
the amount due to MEGA-WAFF,” on account of which it is entitled to
moral damages in the amount of P50,000.00 pursuant to Article 2217 of
the Civil Code, and to attorney’s fees and expenses of litigation in the
amount of at least P30,000.00 plus P2,500.00 per hearing pursuant to
Article 2208 of the Civil Code.
The petition fails.
The authorities petitioner cited in fact show that the nature of the
“Supply Agreement” between Aragones and MEGA-WAFF was one for
a piece of work.
Contrary to petitioner’s claim that “save for the shape, there was no
consideration of any special needs or requirements of DMPI taken into
account in the design or manufacture of the concrete paving blocks,” the
“Supply Agreement” is replete with specifications, terms or conditions
showing that it was one for a piece of work.
As reflected in the highlighted and underscored above-quoted
provisions of the “Supply Agreement,” as well as other evidence on
record, the machines Aragones was obliged to fabricate were those for
casting the concrete blocks specified by Garcia. Aragones did not have
those kind of machines in his usual business, hence, the special order.
While initially Garcia specified that the machines to be fabricated
should be for hexagon shaped blocks, he later asked Aragones to instead
fabricate machines for casting S shaped blocks.
In accordance with the “Supply Agreement,” Garcia furnished the
cement and aggregates for the fabrication of the blocks and Aragones
fabricated three (3) machines for S shaped blocks which were delivered
at the casting site on different dates. And the “entire plant/casting
machines and . . . . accessories” were, as dictated under the “Supply
Agreement,” devoted by Aragones “for [MEGA-WAFF]’s exclusive use.
159
VOL. 461, JUNE 23, 2005 159
Del Monte Philippines, Inc. vs. Aragones
There can be no gainsaying that the specifications/conditions in the
“Supply Agreement” and the admitted subsequent directive of Garcia for
Aragones to fabricate machines for casting S shaped, instead of hexagon
shaped blocks, show that the concrete blocks were “manufactured
specifically for, and upon the special order” of Garcia.
That Garcia supplied the cement and aggregates and that the entire
made-to-order casting machines and accessories used in the
manufacture of those unusual shaped blocks were agreed upon to be
devoted only “for the exclusive use” of MEGA-WAFF should belie
petitioner’s contention that the concrete blocks were mass-produced and
catered to the general market in the ordinary course of Aragones’
business.
Under Art. 1467 then 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.
(Emphasis and italics supplied),
the “Supply Agreement” was decidedly a contract for a piece of work.
Following Art. 1729 of the Civil Code which provides:
ART. 1729. Those who put their labor upon or furnish materials for a
piece of work undertaken by the contractor have an action against the
65
owner up to the amount owing from the latter to the contractor at the time
the claim is made. x x x
x x x (Italics supplied),
Aragones having specially fabricated three casting machines and
furnished some materials for the production of the concrete blocks
specially ordered and specified by MEGA-WAFF which were to be and
indeed they were for the exclusive use of MEGA-WAFF, he has a cause
of action upon petitioner up to
160
160 SUPREME COURT REPORTS ANNOTATED
Del Monte Philippines, Inc. vs. Aragones
the amount it owed MEGA-WAFF at the time Aragones made his claim to
petitioner.
As Velasco v. CA30explains, the intention of Art. 1729 is
to protect the laborers and materialmen from being taken advantage of by
unscrupulous contractors and from possible connivance between owners
and contractors. Thus, a constructive vinculum or contractual privity is
created by this provision, by way of exception to the principle underlying
Article 1311 between the owner, on the one hand, and those who furnish
labor and/or materials, on the other.
In fine, a constructive vinculum or contractual privity was created
between petitioner and Aragones.
Respecting petitioner’s disclaimer of liability for damages and its claim
for moral damages, attorney’s fees and expenses of litigation, the trial
court’s disposition thereof, to wit:
. . . since the evidence on record shows that [Aragones] was compelled
to litigate this matter if only to collect a just and demandable obligation,
the refusal of [DMPI and MEGA-WAFF] to pay their obligation upon
demand could not be justified by law, thus both . . . should be condemned
to pay exemplary damages in the amount of P20,000.00 each and
attorney’s fees in the amount of P10,000.00 each including . . . costs of
this suit” (italics supplied),
merits this Court’s approval.
Why should not petitioner be liable for damages. Aragones’ request,
based on a provision of law, to petitioner for it to pay directly to him his
account receivable from MEGA-WAFF/ Garcia out of petitioner’s account
payable to MEGA-WAFF was made before petitioner’s obligation to it was
due. Yet petitioner settled such obligation to MEGA-WAFF on or about
April 6, 1989 when it released to it its check-payment. For petitioner to
harp on its undertaking under its “Agreement” with MEGA-WAFF to pay
its full obligation thereunder
_______________
30
95 SCRA 616, 641 (1980).
161
VOL. 461, JUNE 23, 2005 161
Del Monte Philippines, Inc. vs. Aragones
within 30 days from complete installation of the pavement by MEGA-
WAFF unless a court injunction could be produced by Aragones is too
shallow, under the facts and circumstances surrounding the case, to
merit consideration.
Petitioner’s referral for comment of Garcia, by letter of April 27, 1989,
on Aragones’ April 6, 1989 reiterative letter for the withholding of the
release of so much amount to MEGA-WAFF even after it (petitioner) had
already released on or about April 6, 1989 its check-full payment to
MEGA-WAFF reflects a futile attempt to cover-up the apparent
“connivance” between it and contractor MEGA-WAFF to the prejudice of
Aragones, leaving him no option but to litigate.
As for the assailed citation by the appellate court of Act No. 3959
(which requires a person or firm owning any work of any kind executed by
contract to put up a bond guaranteeing the payment of the laborers)
as additional justification to hold petitioner liable to Aragones, indeed,
said Act had been repealed in 1974 by P.D. No. 442 (The Labor Code of
the Philippines).
WHEREFORE, in light of the foregoing discussions, the petition is
hereby DENIED.
Costs against petitioner.
SO ORDERED.
Panganiban(Chairman), Sandoval-Gutierrez, Corona and Garcia,
JJ., concur.
Petition denied.
Notes.—A contract for a piece of work, labor and materials may be
distinguished from a contract of sale by the inquiry as to whether the
thing transferred is one not in existence and which would never have
existed but for the order of the person desiring it. (Engineering &
Machinery Corporation vs. Court of Appeals, 252 SCRA 156[1996])
162
66
162 SUPREME COURT REPORTS ANNOTATED
China Banking Corporation vs. Court of Appeals
In a contract for a piece of work, the contractor binds himself to execute a
piece of work for the employer, in consideration of a certain price or
compensation. (Commissioner of Internal Revenue vs. Court of
Appeals, 271 SCRA 605[1997])

——o0o——

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206 SUPREME COURT REPORTS ANNOTATED
Tan Queto vs. Court of Appeals
No. L-35648. May 16, 1983.*
PERSHING TAN QUETO, petitioner, vs. COURT OF APPEALS, JUAN
POMBUENA and RESTITUTA TACALINAR GUANGCO DE
POMBUENA, respondents.

Evidence; Property; Admission in the pleadings filed in court that

appellee owns the land in question as her paraphernal property is binding
on appellant.—In his answer to the complaint in the illegal detainer case,
defendant-appellant, Pershing Tan Queto alleged: ‘1. That he ADMITS
the averments in Paragraphs I, II, III and IV of the complaint.’ We,
therefore, concur in the finding of the trial
_______________
* EN BANC.

207

VOL. 122, MAY 16, 1983 207

Tan Queto vs. Court of Appeals
court that the land in question is a paraphernal property of plaintiff-
appellant.

67
 Same; Same; Courts; Factual finding of lower court that property is
paraphernal not subject to review.—Both the trial court and the Court of
Appeals found as a fact that the lot in question is the paraphernal
property of Restituta T. Guangco. How the Court of Appeals reached this
conclusion is well explained in its decision. The judgment of the Court of
Appeals is conclusive as to the facts; it cannot be reviewed by this Court.
(2 Moran, Rules of Court [1976], p. 485, citing a long list of cases).
Land Registration; Paraphernal property may be ordered by the
courts to be registered in the name of the wife as paraphernal property.—
Since the lot in question is the paraphernal property of Restituta, the
order to register it in her name as her paraphernal property is well-taken.
Also well-taken is the order annulling the barter agreement and directing
the mutual restitution of the objects bartered because of failure of
consideration.
Property; A builder in bad faith loses the building he builds on
another person’s property without right of refund.—The factual conclusion
that Tan Queto is a builder in bad faith is well-taken. He knew that he
acquired no title to lot in question because of the barter and when he built
on it he did so in bad faith. As a builder in bad faith he has no right to be
refunded the value of the building for Article 449 of the Civil Code
stipulates: “Art. 449. He who builds, plants or sows in bad faith on the
land of another, loses what is built, planted or sown without right to
indemnity.”
PETITION to review the decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Ambrosio Padilla Law Office for petitioner.
Tolentino Law Officefor respondents.
ABAD SANTOS, J.:
Before Us is a petition to review the decision of the defunct Court of
Appeals (now Intermediate Appellate Court) in CA-G.R. No. 39492-
R entitled, Restituta T. Guangco, Plaintiff-Appellant, versus Juan
Pombuena, Defendant-Appellee, and Pershing Tan Queto, Defendant-
Appellant. The decision was
208
208 SUPREME COURT REPORTS ANNOTATED
Tan Queto vs. Court of Appeals
Justices Cecilia Muñoz Palma, and Hermogenes Concepcion, Jr. It
should be noted that all of the aforementioned justices later joined this
Court. Justice Concepcion is still with the Court and is obviously not
taking part in this decision.
The appealed decision is not long and having been written by a jurist
with impressive credentials it readily provides both the factual
background and the issues involved. For this reason the full text of the
decision is reproduced as follows:
“This action for reconveyance of title, annulment of barter and recovery of
property and damages was instituted by Restituta T. Guangco against
Juan Pombuena and Pershing Tan Queto on October 9, 1964 in the
Court of First Instance of Misamis Occidental.
The petition states that the plaintiff is one of the legitimate children of
the late Benito Guangco and Basilides Takalinar, both having died
intestate; that Benito Guangco and Basilides Takalinar were the owner in
fee simple of that parcel of urban land situated at Centro, Ozamiz City,
Philippines, known as Lot No. 304, containing an area of 702 square
meters, more or less; that in their lifetime until their respective deaths,
Benito Guangco and Basilides Takalinar lived with their daughter, the
plaintiff, then marred to the defendant, Juan Pombuena, in the house built
on the southern part of said lot; that it was the plaintiff who took good
care of her parents, Benito Guangco and Basilides Takalinar, until their
respective deaths; that Benito Guangco died ahead of his wife, Basilides
Takalinar; that sometime before her death, Basilides Takalinar, wished
and instructed that after her death, one-half (1/2) portion of the
aforementioned lot be given to Buenaventura Guangco, and the other
one-half (1/2) be given to the daughter, the plaintiff; that the other sisters
and brothers agreed and respected this wish, instruction and
adjudication, so that since February 11, 1927, when the instruction was
given, the plaintiff possessed and owned said property as a realty orally
bequeathed to her by her mother and it thus became her only parapher-
nal property; that in order to strengthen her ownership together with her
husband, the defendant, Juan Pombuena, a deed of sale was executed
with the consideration P50.00 that was never paid for it was only a
simulated price, in favor of the plaintiff and said defendant; that after the
subdivision of the said lot, the southern portion belonging to the plaintiff
was designated Lot No. 304-B; that Lot No. 304-B was designated as
Cad Lot No. 5944, Misamis Cadastre; that through fraud, error and/or
mistake, defendant, Juan Pombuena, obtained for said Cad. Lot No.
5944 O.C.T. No. 0-1160 in his name on
209
VOL. 122, MAY 16, 1983 209
Tan Queto vs. Court of Appeals
April 23, 1962 from the Registry of Property of Ozamis City, to the
damage and prejudice of the true owner, the plaintiff who knew of the title
only very recently; that the title being now indefeasible, this action for
reconveyance was filed; that the plaintiff as owner leased portion of Lot
68
304-B to the defendant, Pershing Tan Queto on September 22, 1949;
that during the existence of the lease contract the defendant-lessee,
Pershing Tan Queto, had shown unusual interest in the property by
sending different persons persuading the plaintiff to sell or barter the
property to him but the plaintiff flatly told the said defendant and his
emissaries that she was not selling or bartering the property because it is
her only paraphernal property which she inherited from her deceased
parents and she wants to preserve the integrity of the property in order to
cherish and keep the memories of her late parents; that persuasion
having failed, the defendant Tan Queto employed the more clever and
subtle strategy by allowing the defendant Juan Pombuena and some of
plaintiff’s children to obtain credit in his store; that defendant Tan Queto
also loaned money to Pombuena and plaintiff’s children, entrapping
defendant, Juan Pombuena in many debts which grew to an amount
which was quite difficult for the plaintiff and her husband, Juan
Pombuena, to pay, so that at the time the lease contract expired, the
defendant Pershing Tan Queto refused to surrender and return the
property to the plaintiff; that in order to recover possession of said
property, the plaintiff filed an unlawful detainer case in the Municipal
Court of Ozamiz City, which was decided against defendant Pershing
Tan Queto; that meanwhile defendant Pershing Tan Queto continued to
cajole the plaintiff into selling or bartering the said property to him and the
plaintiff stood firmly on her conviction never to sell or barter Lot 304-B;
that in spite of the firm refusal of the plaintiff not to sell the property,
without her knowledge and consent, through deceit and
misrepresentation, the defendant Pershing Tan Queto, finally succeeded
in unduly influencing the defendant, Juan Pombuena, into signing a
barter contract on October 10, 1962; that after she knew of the barter
contract, the plaintiff immediately protested against this deceitful act and
one of her children, Napoleon Pombuena, wrote an angry letter to
defendant Pershing Tan Queto vehemently protesting against the barter
contract and said Napoleon Pombuena and his brother, Dr. Solomon
Pombuena, wrote the Register of Deeds of Ozamiz City not to register
said barter contract; that in spite of the vehement protest of plaintiff and
her children against the said barter contract, the defendant Pershing Tan
Queto started and persisted in the construction of the present concrete
building, a portion of which is now illegally standing on the whole of Lot
304-B; that since she had
210
210 SUPREME COURT REPORTS ANNOTATED
Tan Queto vs. Court of Appeals
knowledge of the barter contract, the plaintiff suffered actual and moral
damages; that since October 10, 1962, when defendant Pershing Tan
Queto took possession of Lot 304-B, the plaintiff failed to collect the
monthly rental at the rate of P250.00 per month or a total of P6,000.00 for
the period of 24 months up to and including October 10, 1964; that from
the time of the filing of this case until its final termination, the plaintiff is
entitled to a monthly rental of P250.00 or when defendant Pershing Tan
Queto shall have made business with the portion of the building on Lot
304-B, the rental shall be at P900.00 per month; and that because of the
refusal of defendant Pershing Tan Queto to annul the barter contract and
return the possession of the property to plaintiff, the latter had to engage
counsel whom she agreed to pay P2,000.00 attorney’s fees.
In their answer filed on October 24, 1964 the defendants admit
paragraphs I and VIII of the petition and deny the rest of the material
allegations therein. As affirmative defenses, they aver that on February
11, 1927 defendant Juan Pombuena and the plaintiff acquired by
purchase the land now designated as Lot 304-B, from plaintiff’s mother
Basilides Takalinar for the purchase price of P50.00; that the plaintiff and
her defendant-husband had entered upon the actual occupation and
enjoyment of the land as their conjugal property since then up to October
2, 1952 when the husband conveyed it by barter to defendant Pershing
Tan Queto; that the primitive owner of the land, together with the other
half portion now known as Lot 304-A, was Benito Guangco; that in the
hearing before the Cadastral Court plaintiff never asserted or claimed the
land in question as her paraphernal property, so said court adjudicated
on November 22, 1938 this portion of Lot 304 as conjugal property of the
plaintiff and defendant, Juan Pombuena resulting in the issuance of
O.C.T. No. 0-1160; that plaintiff somehow managed this property
because defendant Juan Pombuena, her husband, had been enmeshed
in earning livehood for himself, his wife and growing family, working
almost overtime even at night as a sawmill employee; that consequently,
the wife sort of administered the land in question, their only conjugal
property; that on September 22, 1949, the plaintiff negotiated with
defendant Pershing Tan Queto the lease over this land, but in the
consummation of the lease defendant, Juan Pombuena, as husband of
plaintiff, affixed his signature to the contract of lease thereby giving his
consent to the transaction; that in fact, in Civil Case No. 448 of the City
Court of Ozamiz City for illegal detainer and damages against defendant
Pershing Tan Queto filed by plaintiff and her husband, paragraph III of
their complaint averred that the spouses ‘executed the contract of lease
in favor of the defendant’; that neither in the complaint nor in the contract
of
211
VOL. 122, MAY 16, 1983 211
Tan Queto vs. Court of Appeals
69
lease was it therein expressly adverted that plaintiff Restituta Takalinar The trial court rendered a decision dated January 12, 1967 the dispositive
was exclusive owner of the land as her paraphernal property, that part of which reads:
defendant Pershing Tan Queto and his co-defendant Juan Pombuena, ‘WHEREFORE, judgment is hereby rendered:
after the illegal detainer case was decided by the City Court of Ozamiz,
both appealed to the Court of First Instance of Misamis Occidental; that 1. a.Annulling the barter agreement dated October 10, 1962, Exhibit
meanwhile an agreement of barter was reached by both defendants “J”;
hereto whereby the land in question would be exchanged for a land with 2. b.Ordering the mutual restitution of properties stated in the barter
an already standing house thereon which the plaintiff and her husband by reason of said annulment;
and children are, and have long been, occupying and in addition thereto 3. c.Ordering the Register of Deeds of Ozamiz City to cancel
the plaintiff and her defendant-husband were given P4,000.00 and the Original Certificate of Title No. 0-1160 and to issue in lieu
indebtedness adjudged against them by the City Court of Ozamiz was thereof a transfer certificate of title in the name of Restituta
condoned; that the plaintiff and her defendant-husband, as well as their Takalinar Guangco, of legal age, Filipino, married to Juan
children, knew and impliedly assented to this transaction of barter Pombuena, and residing at Ozamiz City, as her paraphernal
because they are still making use of the house and land bartered to them property; and
as absolute owners and possessors; that the two sons; Dominador and 4. d.Ordering the defendants to pay the costs.
Napoleon, both surnamed Pombuena, through their mother, the plaintiff,
have each made use of the P4,000.00; that defendant Pershing Tan SO ORDERED.
Queto before entering into the barter transaction diligently inquired and City of Ozamiz, January 12, 1967.
found that the land was adjudicated to plaintiff and defendant Juan
Pombuena as their conjugal property having alleged and proved in the (Sgd.) GERONIMO R. MARAVE
cadastral hearing that they acquired it on February 11, 1927 from Judge’
Basilides Takalinar resulting in the issuance of the Torrens title in
question, that both being advised that the husband could dispose without (Record on Appeal, pp. 40-41)
the consent of the wife property acquired as conjugal property before the
effectivity of the new civil code, the defendants went ahead with the The plaintiff and defendant, Pershing Tan Queto, appealed to this
barter; that had defendant Pershing Tan Queto agreed to spend for the Court.
remodelling of the house bartered to the Pombuena family at an The plaintiff assigns the following errors:
enormous cost, this case would not have arisen; that plaintiff, her I
husband, children and grandchildren have not been paying rental any
more on the house and lot to them bartered by defendant Pershing Tan THAT THE TRIAL COURT ERRED IN NOT DECLARING THAT
Queto since April 1962, which was at the rate of P50.00 monthly; that the PORTION OF THE BUILDING ON THE LAND IN QUESTION BUILT IN
petition states no cause of action, that the instant action primarily involves BAD FAITH.
the husband and wife but there is no allegation in the petition that earnest
efforts toward a compromise have been made; that the property being II
conjugal, no reconveyance is feasible; and that annulment of barter will
not lie in this case because no ground for either rescission or voidance of THAT THE TRIAL COURT ERRED IN NOT ORDERING THE
the contract appears indubitable. DEFENDANT-APPELLANT PAY THE RENTALS IN ARREARS.
The defendant Pershing Tan Queto asks for moral damages and
attorney’s fees. III
The plaintiff seasonably filed an answer to the counterclaim.
THAT THE TRIAL COURT ERRED IN NOT ORDERING THE
212 DEFENDANT APPELLANT PAY DAMAGES.
212 SUPREME COURT REPORTS ANNOTATED
Tan Queto vs. Court of Appeals 213

70
 VOL. 122, MAY 16, 1983 213
Tan Queto vs. Court of Appeals
IV
THAT THE TRIAL COURT ERRED IN NOT ORDERING THE
DEFENDANT APPELLANT PAY THE ATTORNEY’S FEES.’
(Brief of plaintiff-appellant, pp. 1-2)
The defendant, Pershing Tan Queto, contends that the trial court erred in
the following manner:
‘I
THE TRIAL COURT ERRED IN NOT FINDING THAT THE CONTRACT
OF SALE, EXHIBIT “B”, IS TRULY A SALE, NOT JUST A MERE
CONVEYANCE.
II
THE TRIAL COURT ERRED IN FINDING THAT THE LAND
SUBJECT MATTER OF THE PRESENT ACTION IS A PARAPHERNAL
PROPERTY OF THE PLAINTIFF-APPELLANT, AND NOT A CONJUGAL
PROPERTY OF THE APPELLEE AND SAID APPELLANT.
III
THE TRIAL COURT ERRED IN NOT GIVING FULL FORCE, EFFECT
AND VIRTUE TO THE BARTER AGREEMENT, EXHIBIT “G”.
IV
THE TRIAL COURT ERRED IN NOT DISMISSING THE COMPLAINT
WITH COSTS AGAINST PLAINTIFF-APPELLANT: IN NOT GRANTING
TO DEFENDANT-APPELLANT THE REMEDY OR RELIEF HE HAS
PRAYED IN HIS COUNTERCLAIM.’
(Brief of defendant-appellant, pp. 1-2)
We shall first take up the appeal of the defendant, Pershing Tan
Queto.
By whatever name Exh. “B” is called, under the circumstances
surrounding its execution and viewed in the light of Exh. “C-1”, the
214
214 SUPREME COURT REPORTS ANNOTATED
Tan Queto vs. Court of Appeals
real intention of Basilides Takalinar was to convey the land in question to
her daughter, Restituta Takalinar, as the share of the latter in the future
hereditary estate of the former.
The trial court, therefore, did not commit the first error assigned by
appellant Tan Queto.
That the land in question is a paraphernal property of plaintiff-
appellant was admitted by defendant, Juan Pombuena, and appellant,
Tan Queto in the illegal detainer action, Civil Case No. 448 of the City
Court of Ozamiz.
Thus paragraph II of the complaint in said illegal detainer case reads:
‘That plaintiff Restituta Guangco de Pombuena is an owner of a certain
portion of residential land and improvements existing thereon, situated in
the City of Ozamiz, Philippines, bounded and more particularly described
as follows:
Bounded on the North—by remaining portion of Lot 304 now the share of
Buenaventura Guangco and measures 66 ft.; East—by Heirs of
Pangilinan and Rosa Vayson and measures 55 ft.; South—by Heirs of
Ramon Bernad and measures 66 ft.; West—by Rizal street and
measures 55 ft.; containing an approximate area of 3,630 sq. ft.; a portion
only of the bigger lot designated as Lot No. 304 of the City of Ozamiz
Cadastre and covered by Tax Dec. No. 32756 in the name of Benito
Guangco, deceased father of the plaintiff Restituta Guangco de
Pombuena.’
(Complaint, Exh. “D”)
The complaint was verified as true of their own knowledge by
Restituta Guangco, plaintiff-appellant, and her husband, defendant, Juan
Pombuena.
In his answer to the complaint in the illegal detainer case, defendant-
appellant, Pershing Tan Queto alleged:
‘1. That he ADMITS the averments in Paragraphs I, II, III and IV of the
complaint.’
(Exh. E-1)
We, therefore, concur in the finding of the trial court that the land in
question is a paraphernal property of plaintiff-appellant.
215
VOL. 122, MAY 16, 1983 215
Tan Queto vs. Court of Appeals
71
In view of the admission by both Juan Pombuena and Pershing Tan
Queto that the land in question is the paraphernal property of the plaintiff-
appellant, it follows that the barter agreement, Exh. “G” has no effect.
As a consequence, the trial court did not err in not dismissing the
complaint and not granting the relief prayed by defendant-appellant in his
counterclaim.
We now come to the appeal of the plaintiff-appellant.
The first error assigned is meritorious.
We concur in the finding, being supported by overwhelming evidence,
of the trial court that Tan Queto had more than sufficient knowledge that
the land in question was the paraphernal property of Restituta before the
barter agreement between him and Juan Pombuena. Tan Queto,
therefore, was aware that Juan Pombuena, the person he was dealing
with, was not the owner of the land in question. The conclusion is
inescapable that the defendant-appellant, Pershing Tan Queto, was a
builder in bad faith. Hence he has no right to be refunded the value of
whatever he constructed on the land in question. (Arts. 449 and 546, Civil
Code of the Philippines.)
The equity and circumstances of the case do not warrant that the
defendant-appellant be ordered to pay the plaintiff-appellant rentals.
Moreover, it appears that the plaintiff-appellant and her family have been
living on the house and land of Tan Queto without paying any rent.
By the same token, the defendant-appellant should not be made to
pay damages and attorney’s fees.
WHEREFORE, the decision appealed from is hereby affirmed with the
sole modification that the defendant-appellant is not entitled to be
refunded the value of whatever he constructed on the land in question,
without pronouncement as to costs.
The core issue in the trial court, the Court of Appeals and this Court is the
ownership of Lot No. 304-B (Cadastral Lot No. 5944) which is covered by
O.C.T. No. 0-1160 of the Registry of Property of Ozamiz City.
Restituta T. Guangco claims that although the lot was registered in
the name of her husband, Juan Pombuena, it was her paraphernal
property because she acquired it through a lucrative title from her mother.
Upon the other hand, Juan Pombuena and the transferee of the lot,
Pershing Tan Queto, claim that it belongs to the conjugal partnership of
the Pom-
216
216 SUPREME COURT REPORTS ANNOTATED
Tan Queto vs. Court of Appeals
buenas and having been acquired on February 11, 1927, long before the
Civil Code of the Philippines took effect, Juan Pombuena had the
capacity to alienate (barter) it even without the consent of the wife. (Art.
166, par. 2, Civil Code.)
Both the trial court and the Court of Appeals found as a fact that the
lot in question is the paraphernal property of Restituta T. Guangco. How
the Court of Appeals reached this conclusion is well explained in its
decision. The judgment of the Court of Appeals is conclusive as to the
facts; it cannot be reviewed by this Court. (2 Moran, Rules of Court
[1976], p. 485, citing a long list of cases.)
Since the lot in question is the paraphernal property of Restituta, the
order to register it in her name as her paraphernal property is well-taken.
Also well-taken is the order annulling the barter agreement and directing
the mutual restitution of the objects bartered because of failure of
consideration.
The other question relates to the forfeiture of the building which Tan
Queto built on the land in question. The Court of Appeals found as a fact
that Tan Queto was a builder in bad faith because he knew that the land
was the paraphernal property of Restituta and it was not for Juan
Pombuena to barter it.
The factual conclusion that Tan Queto is a builder in bad faith is well-
taken. He knew that he acquired no title to the lot in question because of
the barter and when he built on it he did so in bad faith. As a builder in
bad faith he has no right to be refunded the value of the building for
Article 449 of the Civil Code stipulates:
“Art. 449. He who builds, plants or sows in bad faith on the land of
another, loses what is built, planted or sown without right to indemnity.”
The Court of Appeals committed no error of a legal nature in its decision.
WHEREFORE, the petition is dismissed for lack of merit. Costs
against the petitioner.
SO ORDERED.
217
VOL. 122, MAY 16, 1983 217
Tan Queto vs. Court of Appeals
Makasiar, Guerrero, Melencio-
Herrera, Plana, Escolin, Vasquez, Relova and Gutierrez, Jr., JJ., concur.
Fernando, C.J., on official leave.
Teehankee, Aquino, Concepcion, Jr., and De Castro, JJ., took no
part.
Petition dismissed.
Notes.—The right to dispose properties which is substantive cannot
be curtailed by the Code of Civil Procedure which is a procedural law.
(Escay vs. C.A., 61 SCRA 369.)
72
 An agreement providing for the sale of property yet to be adjudicated
by the court is valid and binding. (Republic vs. Lichauco, 46 SCRA 305.)
An option to purchase land need not be in a public instrument. (De
Guzman vs. Guieb, 48 SCRA 68.)
The trial court and the Court of Appeals ruled that Catalina’s
presumed good faith was not supported by her conduct. She failed to
seek the approval of the PHHC of the supposed transfer of rights to her
and she did not make any payments to PHHC. The Court of Appeals
upheld the trial court’s finding that the true owner of the house was her
sister-in-law, Rosario de Leon. The conjunction of the abovementioned
facts would support the conclusion that she was not a builder in good
faith. (De Leon vs. Castañeda, 91 SCRA 37.)
If the lands were in the possession of the respondent and her
predecessor from 1916 to 1936, petitioner’s claim to an older possession
dating back to Spanish times must be rejected as untenable because
possession as a fact cannot be recognized at the same time in two
different personalities. (Molina vs. De Bacud, 19 SCRA 956.)
——o0o——
218
© Copyright 2019 Central Book Supply, Inc. All rights reserved.
54 SUPREME COURT REPORTS ANNOTATED
Pershing Tan Queto vs. Court of Appeals
No. L-35648. February 27,1987.*
PERSHING TAN QUETO, petitioner, vs. COURT OF APPEALS, JUAN
POMBUENA and RESTITUTA TACALINAR GUANGCO DE
POMBUENA, respondents.
Remedial Law; Evidence; Lower courts' finding of facts conclusive
upon the Supreme Court, exceptions.—The finding by both the Court of
First Instance and the Court of Appeals that the disputed lot is
paraphernal and that TAN QUETO is a builder in bad faith were regarded
by US in Our assailed decision as findings of facts and thus ordinarily
conclusive on Us. Assuming they are factual findings, still if they are
erroneous inferences from certain facts, they can not bind this Court.
Civil Law; Property; Donation; Oral donation of an immovable
property to be valid must be made in a public instrument as provided for
in the Civil Code—The oral donation of the lot cannot be a valid
donation intervivosbecause it was not executed in a public instrument
(Art. 7497Civil Code), nor as a valid donation mortis causa for the
formalities of a will were not complied with. The allegation that the
transfer was a conveyance to RESTITUTA of her hereditary share in the
estate of her mother (or parents) cannot be sustained for the contractual
transmission of future inheritance is generally prohibited.
Same; Same; Tradition as a mode of acquiring ownership.—The
fact is ownership was acquired by both JUAN and RESTITUTA by
tradition (delivery) as a consequence of the contract of sale (See Art.
712, Civil Code) with P50.00 (then a considerable amount) as the cause
or consideration of the transaction. The lot is therefore conjugal, having
been acquired by the spouses thru oneroustitle (the money used being
presumably conjugal, there being no proof that RESTITUTA had
paraphernal funds of her own).
Same; Same; Possession; Concept of possessor or builder in good
or bad faith presupposes ownership in another.—However, as already
73
previously intimated, TAN QUETO having bartered his own lot and small
house with the questioned lot with JUAN (who has been adverted to by a
court decision and by the OCT a conjugal owner) may be said to be the
OWNER-POSSESSOR of the lot. Certainly he is not
_______________
* EN BANC.
55
VOL. 148, FEBRUARY 27, 1987 5 penned by Justice Ramon C. Fernandez concurred in by Justices
5 Hermogenes Concepcion, Jr. and Cecilia Muñoz Palma which affirmed
Pershing Tan Queto vs. Court of Appeals
merely a possessor or builder in good faith (this phrase
presupposes ownership in another); much less is he a builder in bad
faith, He is a builder-possessor (jus possidendi) because he is the
OWNER himself. Please note that the Chapter on Possession {jus
possessionis, not jus possidendi) in the Civil Code refers to a
possessor other than the owner. Please note further that the difference
between a builder (or possessor) in good faith and one in bad faith is that
the former is NOT AWARE of the defect or flaw in his title or mode of
acquisition while the latter is AWARE of such defect or flaw (Art. 526,
Civil Code). But in either case there is a flaw or defect In the case of TAN
QUETO there is no such flaw or defect because it is he himself (not
somebody else) who is the owner of the property.
PETITION to review the decision of the Court of Appeals.
The facts are stated in the resolution of the Court.
RESOLUTION
PARAS, J.:
This is a Motion for Reconsideration of the decision dated May 16,1983
of this Court** in the above-entitled case, asking f or the reversal of said
decision on the following grounds:
1. 1.Decision erred in disregarding the fact that Lot No. 304-B was
registered in the name of the husband, Juan Pombuena, as per
OCT No. 0-1160 issued pursuant to the November 22,1938
Decision (Exh. 3) of the Cadastral Court in Cadastral Case No.
12, G.L.R.O. Cad. Rec. No. 1638, and that petitioner had the
right to rely on said OCT;
2. 2.The Decision erred in misinterpreting the admission in the
Answer of petitioner to the complaint in the unlawful detainer
Case No. 448 (City Court of Ozamiz City) as his admission that
Lot 304-B is the paraphernal property of the wife, Restituta
Tacalinar;
3. 3.The Decision erred in reforming the Contract of Sale (Exh. B) of
Lot 304-B from Basilides Tacalinar (mother) to the respondent,
Restituta Tacalinar Guangco de Pombuena, from a sale to a con
_______________
** Affirming the Decision of the Court of Appeals in G.R. No. 39492-R
the Decision of the Trial Judge Geronimo R. Marave.
56
56 SUPREME COURT REPORTS ANNOTATED
Pershing Tan Queto vs. Court of Appeals
1. veyance of the shareof the wife Restituta Tacalinar (daughter) in
the futurehereditary estate of her parents;
2. 4.The Decision erred in over-looking that the barter agreement is
an onerous contract of exchange, whereby private respondents-
spouses received valuable consideration, concessions and other
benefits therefor and in concluding that 'the barter agreement
has no effect;'
3. 5.The Decision erred in disregarding the fact that petitioner
constructed his concrete building on Lot No. 304-B in good
faith relying OCT No. 0-1160, after the dismissal of the
ejectment case and only after the execution of said barter
agreement;
4. 6.The Decision erred in confusing the conclusion of lawthat
petitioner is a builder in bad faith with a finding of factThe rule is
that questions of law are reviewable on appeal or by certiorari.
Moreover, the rule on finding of fact is subject to well-
settled exceptions.(pp. 257-258, Rollo)
It will be recalled that the undisputed relevant facts indicate:
1. (1)that Restituta Tagalinar Guangco de Pombuena (RESTITUTA,
for short) received the questioned lot (no. 304-B), of the
Cadastre Survey of the Municipality of Centro, Misamis
Occidental, either as a purported donation or by way of
purchase on (February 11,1927)(with P50.00) as the alleged
consideration thereof;
74
 2. (2)that the transaction took place during her mother's lifetime, her
father having pre-deceased the mother;
3. (3)that the donation or sale was consummated while RESTITUTA
was already married to her husband Juan Pombuena (JUAN, for
short);
4. (4)that on January 22, 1935, JUAN filed for himself and his
supposed co-owner RESTITUTA an application for a Torrens
Title over the land;
5. (5)that under date of November 22, 1938 a decision was
promulgated in G.L.R.C. No. 1638 (Cadastral Case No. 12)
pronouncing JUAN ('married to RESTITUTA') as the owner of
the land;
6. (6)that on September 22,1949 a contract of lease over the lot was
entered into between Pershing Tan Queto (TAN QUETO, for
short, the herein petitioner) and RESTITUTA (with the consent
of her husband JUAN) for a period of ten (10) years;
7. (7)that on December 27, 1960 RESTITUTA sued TAN
57
VOL. 148, FEBRUARY 27, 1987 57
Pershing Tan Queto vs. Court of Appeals
1. QUETO for unlawful detainer (the lease contract having expired)
bef ore the Municipal Court of Ozamis City;
2. (8)that as a consequence of the cadastral case, an Original
Certificate of Title (Exh. 10) was issued in JUAN's name
("married to RESTITUTA") on April 22,1962;
3. (9)that the unlawful detainer case was won by the spouses in the
Municipal Court; but on appeal in the Court of First Instance, the
entire case was DISMISSED because of an understanding
(barter) whereby TAN QUETO became the owner of the
disputed lot, and the spouses RESTITUTA and JUAN in turn
became the owners of a parcel of land (with the house
constructed thereon) previously owned (that is, before the
barter) by TAN QUETO;
4. (10)that after the barter agreement dated October 10, 1962
between JUAN and TAN QUETO, the latter constructed (See p.
257, Rollo, Vol. II) on the disputed land a concrete building,
without any objection on the part of RESTITUTA;
5. (11)that later, RESTITUTA sued both JUAN and TAN QUETO for
reconveyance of the title over the registered but disputed lot, for
annulment of the barter, and for recovery of the land with
damages.
The two principal issues are clearly the following:
1. (1)Is the questioned lot paraphernal or conjugal?
2. (2)In having constructed the building on the lot, should TAN
QUETO be regarded as a builder in good faith(and hence
entitled to reimbursement) or a builder in bad faith(with no right
to reimbursement)?
The finding by both the Court of First Instance and the Court of Appeals
that the disputed lot is paraphernal and that TAN QUETO is a builder in
bad faith were regarded by Us in Our assailed decision as findings of
facts and thus ordinarily conclusive on Us. Assuming they are factual
findings, still if they are erroneous inferences from certain facts, they
cannot bind this Court.
A second hard look at the circumstances of the case has constrained
Us to rule as follows:
(1) The land is conjugal, not paraphernal. How was ownership
transferred, if at all, from her mother to RESTITUTA? The oraldonation of
the lot cannot be a valid donation inter-
58
58 SUPREME COURT REPORTS ANNOTATED
Pershing Tan Queto vs. Court of Appeals
vivos because it was not executed in a public instrument (Art. 749, Civil
Code), nor as a valid donation mortis causa for the formalities of a will
were not complied with. The allegation that the transfer was a
conveyance to RESTITUTA of her hereditary share in the estate of her
mother (or parents) cannot be sustained for the contractual transmission
of futureinheritance is generally prohibited.
The fact is ownership was acquired by both JUAN and RESTITUTA
by tradition (delivery) as a consequence of the contract of sale (See Art.
712, Civil Code) with P50.00 (then a considerable amount) as the cause
or consideration of the transaction. The lot is therefore conjugal, having
been acquired by the spouses thru onerous title (the money used being
presumably conjugal, there being no proof that RESTITUTA had
paraphernal funds of her own). The contention that the sale was fictitious
or simulated (and therefore void) is bankrupt. Firstly, there was a valid
consideration therefor. Secondly, assuming that there had indeed been a
simulation, the parties thereto cannot use said simulation to prejudice a
stranger to said strategem (like petitioner herein).
One nagging question has been posed. But did not TAN QUETO
admit in his Answer that RESTITUTA was the owner of the lot. This is not
so. He admitted RESTITUTA was "an owner" (not the owner) of the lot,
and this is true, for she was a co-owner (with JUAN, and
therefore "an owner." Surely, there is no admission of RESTITUTA's
75
exclusive ownership. And yet this is the basis of the trial court's Padilla, J., no part. (Atty. Ambrosio Padilla counsel for the
conclusion that the lot was indeed paraphernal petitioner is related to me.)
(2) Was Tan Queto a possessor and builder in good faith or in bad Cortes, J., no part. I was not in the Supreme Court when this was
faith? taken up.
Even assuming that despite registration of the lot as conjugal, Tan Decision set aside.
Queto nursed the belief that the lot was actually RESTITUTA's (making 60
him in bad faith), still RESTITUTA's failure to prohibit him from building 60 SUPREME COURT REPORTS ANNOTATED
despite her knowledge that construction was actually being done, makes People vs. Veloso
her also in bad faith. The net resultant of mutual bad faith would entitle Notes.—This is the kind of delivery contemplated in article 1462,
TAN QUETO to the rights of a builder in good faith (Art. 448, Civil Code), when it provides that the thing shall be understood as delivered when it is
ergo, reimbursement should be given him if RESTITUTA decides to placed in the control and possession of the vendee. The delivery from
appropriate the building for herself hand to hand, as well as the realization of the purchaser of those material
59 acts known as "taking possession" with respect to immovables, in the
VOL. 148, FEBRUARY 27, 1987 59 presence and with the consent of the vendor, can mean no more than the
Pershing Tan Queto vs. Court of Appeals placing of the thing in the control and possession of the vendee. Thus,
(Art. 448, Civil Code). where the vendee placed the things in the warehouse of the vendee,
However, as already previously intimated, TAN QUETO having leaving them entirely under the latter's control, or where logs were placed
bartered his own lot and small house with the questioned lot with JUAN along a vessel of the vendee, as stipulated in the contract, and they were
(who has been adverted to by a court decision and by the OCT thus placed under the control of the vendee, whose employees attempted
a conjugal owner) may be said to be the OWNER-POSSESSOR of the to load equipment, there was sufficient delivery, there being no necessity
lot. Certainly he is not merely a possessor or builder in good faith (this of showing actual acceptance by the vendee. (Tolentino: Commentaries
phrase presupposes ownership in another); much less is he a builder and Jurisprudence on the Civil Code of the Philippines, pp. 425-426.)
in bad faith. He is a builder-possessor (jus possidendi) because he is the
OWNER himself. Please note that the Chapter on Possession (jus ——o0o——
possessionis, not jus possidendi) in the Civil Code refers to a
possessor other than the owner, Please note further that the difference © Copyright 2019 Central Book Supply, Inc. All rights reserved.
between a builder (or possessor) in good faith and one in bad faith is that
the former is NOT AWARE of the def ect or flaw in his title or mode of
acquisition while the latter is AWARE of such defect or flaw (Art. 526,
Civil Code). But in either case there is a flaw or defect, In the case of
TAN QUETO there is no such flaw or defect because it is he himself (not
somebody else) who is the owner of the property.
WHEREFORE, Our decision promulgated on May 16,1983 is hereby
SET ASIDE, and a new one is hereby rendered declaring the questioned
lot together with the building thereon, as TAN QUETO's exclusive
property. No costs.
SO ORDERED.
Teehankee, C.J., Yap, Fernan, Narvasa, Alampay, Cruz, Felician
o, Gancayco, Bidin and Sarmiento, JJ.,concur.
Melencio-Herrera, J., I vote to uphold the Decision of May
16,1983 and to deny reconsideration.
Gutierrez, Jr., J., I reiterate my vote in the decision sought to be
reconsidered & dissent herein.

76
 VOL. 449, JANUARY 21, 2005 99
San Lorenzo Development Corporation vs. Court of Appeals
G.R. No. 124242. January 21, 2005.*
SAN LORENZO DEVELOPMENT CORPORATION,
petitioner, vs. COURT OF APPEALS, PABLO S. BABASANTA, SPS.
MIGUEL LU and PACITA ZAVALLA LU, respondents.

Civil Law; Contracts; Contracts shall be obligatory in whatever form

they may have been entered into, provided all the essential requisites for
their validity are present.—Contracts, in general, are perfected by mere
consent, which is manifested by the meeting of the offer and the
acceptance upon the thing which are to constitute the contract. The offer
must be certain and the acceptance absolute. Moreover, contracts shall
be obligatory in whatever form they may have been entered into,
provided all the essential requisites for their validity are present.
_______________
* SECOND DIVISION.

100

1 SUPREME COURT REPORTS ANNOTATED

00
San Lorenzo Development Corporation vs. Court of Appeals
Same; Same; Distinction between a contract to sell and a contract of
sale.—The distinction between a contract to sell and a contract of sale is
quite germane. In a contract of sale, title passes to the vendee upon the
delivery of the thing sold; whereas in a contract to sell, by agreement the
ownership is reserved in the vendor and is not to pass until the full
payment of the price. In a contract of sale, the vendor has lost and cannot
recover ownership until and unless the contract is resolved or rescinded;
whereas in a contract to sell, title is retained by the vendor until the full
payment of the price, such payment being a positive suspensive
condition and failure of which is not a breach but an event that prevents
the obligation of the vendor to convey title from becoming effective.
Same; Same; Being a consensual contract, a sale is perfected by
mere consent and from that moment, the parties may reciprocally
demand performance; Essential elements of a contract of sale.—Sale,
being a consensual contract, is perfected by mere consent and from that
moment, the parties may reciprocally demand performance. The
essential elements of a contract of sale, to wit: (1) consent or meeting of
77
the minds, that is, to transfer ownership in exchange for the price; (2)
object certain which is the subject matter of the contract; (3) cause of the
obligation which is established.
Same; Same; Perfection of a contract of sale should not, however,
be confused with its consummation; Sale by itself does not transfer or
affect ownership; the most that sale does is to create the obligation to
transfer ownership.—The perfection of a contract of sale should not,
however, be confused with its consummation. In relation to the
acquisition and transfer of ownership, it should be noted that sale is not a
mode, but merely a title. A mode is the legal means by which dominion or
ownership is created, transferred or destroyed, but title is only the legal
basis by which to affect dominion or ownership. Under Article 712 of the
Civil Code, “ownership and other real rights over property are acquired
and transmitted by law, by donation, by testate and intestate succession,
and in consequence of certain contracts, by tradition.” Contracts only
constitute titles or rights to the transfer or acquisition of ownership, while
delivery or tradition is the mode of accomplishing the same. Therefore,
sale by itself does not transfer or affect ownership; the most that sale
does is to create the obligation to transfer ownership. It is tradition or
delivery, as a consequence of sale, that actually transfers ownership.
101
VOL. 449, JANUARY 21, 2005 10
1 San Lorenzo Development Corporation vs. Court of Appeals
San Lorenzo Development Corporation vs. Court of Appeals
Same; Same; The word “delivered” should not be taken restrictively
to mean transfer of actual physical possession of the property; The law
recognizes two principal modes of delivery, to wit: (1) actual delivery; and
(2) legal or constructive delivery.—Explicitly, the law provides that the
ownership of the thing sold is acquired by the vendee from the moment it
is delivered to him in any of the ways specified in Article 1497 to 1501.
The word “delivered” should not be taken restrictively to mean transfer of
actual physical possession of the property. The law recognizes two
principal modes of delivery, to wit: (1) actual delivery; and (2) legal or
constructive delivery.
Same; Same; Double Sales; When the thing sold twice is an
immovable, the one who acquires it and first records it in the Registry of
Property, both made in good faith, shall be deemed the owner.—The
principle of primus tempore, potior jure (first in time, stronger in right)
gains greater significance in case of double sale of immovable property.
When the thing sold twice is an immovable, the one who acquires it and
first records it in the Registry of Property, both made in good faith, shall
be deemed the owner. Verily, the act of registration must be coupled with
good faith—that is, the registrant must have no knowledge of the defect
or lack of title of his vendor or must not have been aware of facts which
should have put him upon such inquiry and investigation as might be
necessary to acquaint him with the defects in the title of his vendor.
Same; Same; Same; Definition of a purchaser in good faith.—A
purchaser in good faith is one who buys property of another withoutnotice
that some other person has a right to, or interest in, such property and
pays a full and fair price for the same at the time of such purchase,
or before he has notice of the claim or interest of some other person in
the property. Following the foregoing definition, we rule that SLDC
qualifies as a buyer in good faith since there is no evidence extant in the
records that it had knowledge of the prior transaction in favor of
Babasanta.
Same; Same; Same; If a vendee in a double sale registers the sale
after he has acquired knowledge of a previous sale, the registration
constitutes a registration in bad faith and does not confer upon him any
right.—Assuming ex gratia argumenti that SLDC’s registration of the sale
had been tainted by the prior notice of lis pendens and assuming further
for the same nonce that this is a case of double sale, still Babasanta’s
claim could not prevail over that of SLDC’s. In
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1 SUPREME COURT REPORTS ANNOTATED
02
Abarquez v. Court of Appeals, this Court had the occasion to rule
that if a vendee in a double sale registers the sale after he has acquired
knowledge of a previous sale, the registration constitutes a registration in
bad faith and does not confer upon him any right. If the registration is
done in bad faith, it is as if there is no registration at all, and the buyer
who has taken possession first of the property in good faith shall be
preferred.
Same; Same; Same; Article 1544 does not apply to a case where
there was a sale to one party of the land itself while the other contract
was a mere promise to sell the land or at most an actual assignment of
the right to repurchase the same land.—At any rate, the above discussion
on the rules on double sale would be purely academic for as earlier
stated in this decision, the contract between Babasanta and the Spouses
Lu is not a contract of sale but merely a contract to sell. In Dichoso v.
Roxas, we had the occasion to rule that Article 1544 does not apply to a
case where there was a sale to one party of the land itself while the other
contract was a mere promise to sell the land or at most an actual
assignment of the right to repurchase the same land. Accordingly, there
was no double sale of the same land in that case.
78
PETITION for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Enrique M. Belo and Gener Asuncion for petitioner.
Froilan M. Bacunganfor respondent P.S. Babasanta.
Pano, Gonzales, Relova & Associates co-counsel for respondent
P. Babasanta.
TINGA, J.:
From a coaptation of the records of this case, it appears that respondents
Miguel Lu and Pacita Zavalla, (hereinafter, the Spouses Lu) owned two
(2) parcels of land situated in Sta. Rosa, Laguna covered by TCT No. T-
39022 and TCT No. T-39023 both measuring 15,808 square meters or a
total of 3.1616 hectares.
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San Lorenzo Development Corporation vs. Court of Appeals
On 20 August 1986, the Spouses Lu purportedly sold the two parcels of
land to respondent Pablo Babasanta, (hereinafter, Babasanta) for the
price of fifteen pesos (P15.00) per square meter. Babasanta made a
downpayment of fifty thousand pesos (P50,000.00) as evidenced by a
memorandum receipt issued by Pacita Lu of the same date. Several
other payments totaling two hundred thousand pesos (P200,000.00) were
made by Babasanta.
Sometime in May 1989, Babasanta wrote a letter to Pacita Lu to
demand the execution of a final deed of sale in his favor so that he could
effect full payment of the purchase price. In the same letter, Babasanta
notified the spouses about having received information that the spouses
sold the same property to another without his knowledge and consent. He
demanded that the second sale be cancelled and that a final deed of sale
be issued in his favor.
In response, Pacita Lu wrote a letter to Babasanta wherein she
acknowledged having agreed to sell the property to him at fifteen pesos
(P15.00) per square meter. She, however, reminded Babasanta that
when the balance of the purchase price became due, he requested for a
reduction of the price and when she refused, Babasanta backed out of
the sale. Pacita added that she returned the sum of fifty thousand pesos
(P50,000.00) to Babasanta through Eugenio Oya.
On 2 June 1989, respondent Babasanta, as plaintiff, filed before the
Regional Trial Court (RTC), Branch 31, of San Pedro, Laguna,
a Complaint for Specific Performance and Damages1 against his co-
respondents herein, the Spouses Lu. Babasanta alleged that the lands
covered by TCT No. T-39022 and T-39023 had been sold to him by the
spouses at fifteen pesos (P15.00) per square meter. Despite his repeated
demands for the execution of a final deed of sale in his favor,
respondents allegedly refused.
_______________
1 RTC Records, pp. 1-11.
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104 SUPREME COURT REPORTS ANNOTATED
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In their Answer,2 the Spouses Lu alleged that Pacita Lu obtained loans
from Babasanta and when the total advances of Pacita reached fifty
thousand pesos (P50,000.00), the latter and Babasanta, without the
knowledge and consent of Miguel Lu, had verbally agreed to transform
the transaction into a contract to sell the two parcels of land to Babasanta
with the fifty thousand pesos (P50,000.00) to be considered as the
downpayment for the property and the balance to be paid on or before 31
December 1987. Respondents Lu added that as of November 1987, total
payments made by Babasanta amounted to only two hundred thousand
pesos (P200,000.00) and the latter allegedly failed to pay the balance of
two hundred sixty thousand pesos (P260,000.00) despite repeated
demands. Babasanta had purportedly asked Pacita for a reduction of the
price from fifteen pesos (P15.00) to twelve pesos (P12.00) per square
meter and when the Spouses Lu refused to grant Babasanta’s request,
the latter rescinded the contract to sell and declared that the original loan
transaction just be carried out in that the spouses would be indebted to
him in the amount of two hundred thousand pesos (P200,000.00).
Accordingly, on 6 July 1989, they purchased Interbank Manager’s Check
No. 05020269 in the amount of two hundred thousand pesos
(P200,000.00) in the name of Babasanta to show that she was able and
willing to pay the balance of her loan obligation.
Babasanta later filed an Amended Complaint dated 17 January
19903 wherein he prayed for the issuance of a writ of preliminary
injunction with temporary restraining order and the inclusion of the
Register of Deeds of Calamba, Laguna as party defendant. He
contended that the issuance of a preliminary injunction was necessary to
restrain the transfer or conveyance by the Spouses Lu of the subject
property to other persons.
_______________
2 Id., at pp. 30-37.
3 Id., at pp. 73-90.
105
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San Lorenzo Development Corporation vs. Court of Appeals
The Spouses Lu filed their Opposition4 to the amended complaint
contending that it raised new matters which seriously affect their
substantive rights under the original complaint. However, the trial court in
its Orderdated 17 January 19905admitted the amended complaint.
On 19 January 1990, herein petitioner San Lorenzo Development
Corporation (SLDC) filed a Motion for Intervention6before the trial court.
SLDC alleged that it had legal interest in the subject matter under
litigation because on 3 May 1989, the two parcels of land involved,
namely Lot 1764-A and 1764-B, had been sold to it in a Deed of Absolute
Sale with Mortgage.7 It alleged that it was a buyer in good faith and for
value and therefore it had a better right over the property in litigation.
In his Opposition to SLDC’s motion for intervention,8 respondent
Babasanta demurred and argued that the latter had no legal interest in
the case because the two parcels of land involved herein had already
been conveyed to him by the Spouses Lu and hence, the vendors were
without legal capacity to transfer or dispose of the two parcels of land to
the in-tervenor.
Meanwhile, the trial court in its Order dated 21 March 1990 allowed
SLDC to intervene. SLDC filed its Complaint-in-Interventionon 19 April
1990.9Respondent Babasanta’s motion for the issuance of a preliminary
injunction was likewise granted by the trial court in its Order dated 11
January 199110 conditioned upon his filing of a bond in the amount of fifty
thousand pesos (P50,000.00).
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San Lorenzo Development Corporation vs. Court of Appeals
SLDC in its Complaint-in-Intervention alleged that on 11 February 1989,
the Spouses Lu executed in its favor an Option to Buy the lots subject of
the complaint. Accordingly, it paid an option money in the amount of three
hundred sixteen thousand one hundred sixty pesos (P316,160.00) out of
the total consideration for the purchase of the two lots of one million two
hundred sixty-four thousand six hundred forty pesos (P1,264,640.00).
After the Spouses Lu received a total amount of six hundred thirty-two
thousand three hundred twenty pesos (P632,320.00) they executed on 3
May 1989 a Deed of Absolute Sale with Mortgagein its favor. SLDC
added that the certificates of title over the property were delivered to it by
the spouses clean and free from any adverse claims and/or notice of lis
pendens. SLDC further alleged that it only learned of the filing of the
complaint sometime in the early part of January 1990 which prompted it
to file the motion to intervene without delay. Claiming that it was a buyer
in good faith, SLDC argued that it had no obligation to look beyond the
titles submitted to it by the Spouses Lu particularly because Babasanta’s
claims were not annotated on the certificates of title at the time the lands
were sold to it.
After a protracted trial, the RTC rendered its Decision on 30 July 1993
upholding the sale of the property to SLDC. It ordered the Spouses Lu to
pay Babasanta the sum of two hundred thousand pesos (P200,000.00)
with legal interest plus the further sum of fifty thousand pesos
(P50,000.00) as and for attorney’s fees. On the complaint-in-intervention,
the trial court ordered the Register of Deeds of Laguna, Calamba Branch
to cancel the notice of lis pendensannotated on the original of the TCT
No. T-39022 (T-7218) and No. T-39023 (T-7219).
Applying Article 1544 of the Civil Code, the trial court ruled that since
both Babasanta and SLDC did not register the respective sales in their
favor, ownership of the property should pertain to the buyer who first
acquired possession of the property. The trial court equated the
execution of a public instrument in favor of SLDC as sufficient delivery of
the
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San Lorenzo Development Corporation vs. Court of Appeals
property to the latter. It concluded that symbolic possession could be
considered to have been first transferred to SLDC and consequently
ownership of the property pertained to SLDC who purchased the property
in good faith.
Respondent Babasanta appealed the trial court’s decision to the Court
of Appeals alleging in the main that the trial court erred in concluding that
SLDC is a purchaser in good faith and in upholding the validity of the sale
made by the Spouses Lu in favor of SLDC.
Respondent spouses likewise filed an appeal to the Court of Appeals.
They contended that the trial court erred in failing to consider that the
contract to sell between them and Babasanta had been novated when
the latter abandoned the verbal contract of sale and declared that the
original loan transaction just be carried out. The Spouses Lu argued that
since the properties involved were conjugal, the trial court should have
declared the verbal contract to sell between Pacita Lu and Pablo
Babasanta null and void ab initio for lack of knowledge and consent of
Miguel Lu. They further averred that the trial court erred in not dismissing
the complaint filed by Babasanta; in awarding damages in his favor and
in refusing to grant the reliefs prayed for in their answer.
On 4 October 1995, the Court of Appeals rendered
its Decision11 which set aside the judgment of the trial court. It declared
that the sale between Babasanta and the Spouses Lu was valid and
subsisting and ordered the spouses to execute the necessary deed of
80

conveyance in favor of Babasanta, and the latter to pay the balance of
the purchase price in the amount of two hundred sixty thousand pesos
(P260,000.00). The appellate court ruled that the Absolute Deed of Sale
with Mortgagein favor of SLDC was null and void on the ground that
SLDC was a purchaser in bad faith. The Spouses Lu
_______________
11
Penned by Justice Cesar D. Francisco, concurred in by Justices
Eubulo G. Verzola and Oswaldo D. Agcaoili.
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108 SUPREME COURT REPORTS ANNOTATED
San Lorenzo Development Corporation vs. Court of Appeals
were further ordered to return all payments made by SLDC with legal
interest and to pay attorney’s fees to Babasanta.
SLDC and the Spouses Lu filed separate motions for reconsideration
with the appellate court.12 However, in a Manifestation dated 20
December 1995,13 the Spouses Lu informed the appellate court that they
are no longer contesting the decision dated 4 October 1995.
In its Resolution dated 11 March 1996,14 the appellate court
considered as withdrawn the motion for reconsideration filed by the
Spouses Lu in view of their manifestation of 20 December 1995. The
appellate court denied SLDC’s motion for reconsideration on the ground
that no new or substantial arguments were raised therein which would
warrant modification or reversal of the court’s decision dated 4 October
1995.
Hence, this petition.
SLDC assigns the following errors allegedly committed by the
appellate court:
THE COURT OF APPEALS ERRED IN HOLDING THAT SAN LORENZO
WAS NOT A BUYER IN GOOD FAITH BECAUSE WHEN THE SELLER
PACITA ZAVALLA LU OBTAINED FROM IT THE CASH ADVANCE OF
P200,000.00, SAN LORENZO WAS PUT ON INQUIRY OF A PRIOR
TRANSACTION ON THE PROPERTY.
THE COURT OF APPEALS ERRED IN FAILING TO APPRECIATE
THE ESTABLISHED FACT THAT THE ALLEGED FIRST BUYER,
RESPONDENT BABASANTA, WAS NOT IN POSSESSION OF THE
DISPUTED PROPERTY WHEN SAN LORENZO BOUGHT AND TOOK
POSSESSION OF THE PROPERTY AND NO ADVERSE CLAIM, LIEN,
ENCUMBRANCE OR LIS PENDENS WAS ANNOTATED ON THE
TITLES.
_______________
12
CA Rollo, pp. 204-220 for SLDC and pp. 224-230 for Spouses Lu.
13 Id., at p. 251.
14
Id., at pp. 261-262.
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VOL. 449, JANUARY 21, 2005 109
San Lorenzo Development Corporation vs. Court of Appeals
THE COURT OF APPEALS ERRED IN FAILING TO APPRECIATE THE
FACT THAT RESPONDENT BABASANTA HAS SUBMITTED NO
EVIDENCE SHOWING THAT SAN LORENZO WAS AWARE OF HIS
RIGHTS OR INTERESTS IN THE DISPUTED PROPERTY.
THE COURT OF APPEALS ERRED IN HOLDING THAT
NOTWITHSTANDING ITS FULL CONCURRENCE ON THE FINDINGS
OF FACT OF THE TRIAL COURT, IT REVERSED AND SET ASIDE THE
DECISION OF THE TRIAL COURT UPHOLDING THE TITLE OF SAN
LORENZO AS A BUYER AND FIRST POSSESSOR IN GOOD FAITH.15
SLDC contended that the appellate court erred in concluding that it had
prior notice of Babasanta’s claim over the property merely on the basis of
its having advanced the amount of two hundred thousand pesos
(P200,000.00) to Pacita Lu upon the latter’s representation that she
needed the money to pay her obligation to Babasanta. It argued that it
had no reason to suspect that Pacita was not telling the truth that the
money would be used to pay her indebtedness to Babasanta. At any rate,
SLDC averred that the amount of two hundred thousand pesos
(P200,000.00) which it advanced to Pacita Lu would be deducted from
the balance of the purchase price still due from it and should not be
construed as notice of the prior sale of the land to Babasanta. It added
that at no instance did Pacita Lu inform it that the lands had been
previously sold to Babasanta.
Moreover, SLDC stressed that after the execution of the sale in its
favor it immediately took possession of the property and asserted its
rights as new owner as opposed to Babasanta who has never exercised
acts of ownership. Since the titles bore no adverse claim, encumbrance,
or lien at the time it was sold to it, SLDC argued that it had every reason
to rely on the correctness of the certificate of title and it was not obliged to
go beyond the certificate to determine the condition of the property.
Invoking the presumption of good faith, it added
_______________
15
Rollo, pp. 19-20.
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110 SUPREME COURT REPORTS ANNOTATED
81
 San Lorenzo Development Corporation vs. Court of Appeals
that the burden rests on Babasanta to prove that it was aware of the prior
sale to him but the latter failed to do so. SLDC pointed out that the notice
of lis pendenswas annotated only on 2 June 1989 long after the sale of
the property to it was consummated on 3 May 1989.
Meanwhile, in an Urgent Ex-Parte Manifestationdated 27 August
1999, the Spouses Lu informed the Court that due to financial constraints
they have no more interest to pursue their rights in the instant case and
submit themselves to the decision of the Court of Appeals.16
On the other hand, respondent Babasanta argued that SLDC could
not have acquired ownership of the property because it failed to comply
with the requirement of registration of the sale in good faith. He
emphasized that at the time SLDC registered the sale in its favor on 30
June 1990, there was already a notice of lis pendens annotated on the
titles of the property made as early as 2 June 1989. Hence, petitioner’s
registration of the sale did not confer upon it any right. Babasanta further
asserted that petitioner’s bad faith in the acquisition of the property is
evident from the fact that it failed to make necessary inquiry regarding the
purpose of the issuance of the two hundred thousand pesos
(P200,000.00) manager’s check in his favor.
The core issue presented for resolution in the instant petition is who
between SLDC and Babasanta has a better right over the two parcels of
land subject of the instant case in view of the successive transactions
executed by the Spouses Lu.
To prove the perfection of the contract of sale in his favor, Babasanta
presented a document signed by Pacita Lu acknowledging receipt of the
sum of fifty thousand pesos (P50,000.00) as partial payment for 3.6
hectares of farm lot situated at Barangay Pulong, Sta. Cruz, Sta. Rosa,
Laguna.17 While the receipt signed by Pacita did not mention the price
_______________
16
Id., at pp. 347-348.
17
RTC Records, p. 9.
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San Lorenzo Development Corporation vs. Court of Appeals
for which the property was being sold, this deficiency was supplied by
Pacita Lu’s letter dated 29 May 198918wherein she admitted that she
agreed to sell the 3.6 hectares of land to Babasanta for fifteen pesos
(P15.00) per square meter.
An analysis of the facts obtaining in this case, as well as the evidence
presented by the parties, irresistibly leads to the conclusion that the
agreement between Babasanta and the Spouses Lu is a contract to sell
and not a contract of sale.
Contracts, in general, are perfected by mere consent,19which is
manifested by the meeting of the offer and the acceptance upon the thing
which are to constitute the contract. The offer must be certain and the
acceptance absolute.20 Moreover, contracts shall be obligatory in
whatever form they may have been entered into, provided all the
essential requisites for their validity are present.21
The receipt signed by Pacita Lu merely states that she accepted the
sum of fifty thousand pesos (P50,000.00) from Babasanta as partial
payment of 3.6 hectares of farm lot situated in Sta. Rosa, Laguna. While
there is no stipulation that the seller reserves the ownership of the
property until full payment of the price which is a distinguishing feature of
a contract to sell, the subsequent acts of the parties convince us that the
Spouses Lu never intended to transfer ownership to Babasanta except
upon full payment of the purchase price.
Babasanta’s letter dated 22 May 1989 was quite telling. He stated
therein that despite his repeated requests for the execution of the final
deed of sale in his favor so that he could effect full payment of the price,
Pacita Lu allegedly refused to do so. In effect, Babasanta himself
recognized that ownership of the property would not be transferred to him
until such
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time as he shall have effected full payment of the price. Moreover, had
the sellers intended to transfer title, they could have easily executed the
document of sale in its required form simultaneously with their
acceptance of the partial payment, but they did not. Doubtlessly, the
receipt signed by Pacita Lu should legally be considered as a perfected
contract to sell.
The distinction between a contract to sell and a contract of sale is
quite germane. In a contract of sale, title passes to the vendee upon the
delivery of the thing sold; whereas in a contract to sell, by agreement the
ownership is reserved in the vendor and is not to pass until the full
payment of the price.22 In a contract of sale, the vendor has lost and
cannot recover ownership until and unless the contract is resolved or
rescinded; whereas in a contract to sell, title is retained by the vendor
until the full payment of the price, such payment being a positive
suspensive condition and failure of which is not a breach but an event
that prevents the obligation of the vendor to convey title from becoming
effective.23
82
 The perfected contract to sell imposed upon Babasanta the obligation
to pay the balance of the purchase price. There being an obligation to
pay the price, Babasanta should have made the proper tender of
payment and consignation of the price in court as required by law. Mere
sending of a letter by the vendee expressing the intention to pay without
the accompanying payment is not considered a valid tender of
payment.24 Consignation of the amounts due in court is essential in order
to extinguish Babasanta’s obligation to pay the balance of the purchase
price. Glaringly absent from the records is any indication that Babasanta
even attempted to make the proper consignation of the amounts due,
thus, the obligation on the part of the sellers to convey title never
acquired obligatory force.
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San Lorenzo Development Corporation vs. Court of Appeals
On the assumption that the transaction between the parties is a contract
of sale and not a contract to sell, Babasanta’s claim of ownership should
nevertheless fail.
Sale, being a consensual contract, is perfected by mere consent25 and
from that moment, the parties may reciprocally demand
performance.26 The essential elements of a contract of sale, to wit: (1)
consent or meeting of the minds, that is, to transfer ownership in
exchange for the price; (2) object certain which is the subject matter of
the contract; (3) cause of the obligation which is established.27
The perfection of a contract of sale should not, however, be confused
with its consummation. In relation to the acquisition and transfer of
ownership, it should be noted that sale is not a mode, but merely a title. A
mode is the legal means by which dominion or ownership is created,
transferred or destroyed, but title is only the legal basis by which to affect
dominion or ownership.28 Under Article 712 of the Civil Code, “ownership
and other real rights over property are acquired and transmitted by law,
by donation, by testate and intestate succession, and in consequence of
certain contracts, by tradition.” Contracts only constitute titles or rights to
the transfer or acquisition of ownership, while delivery or tradition is the
mode of accomplishing the same.29Therefore, sale by itself does not
transfer or affect ownership; the most that sale does
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114 SUPREME COURT REPORTS ANNOTATED
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is to create the obligation to transfer ownership. It is tradition or delivery,
as a consequence of sale, that actually transfers ownership.
Explicitly, the law provides that the ownership of the thing sold is
acquired by the vendee from the moment it is delivered to him in any of
the ways specified in Article 1497 to 1501.30 The word “delivered” should
not be taken restrictively to mean transfer of actual physical possession
of the property. The law recognizes two principal modes of delivery, to
wit: (1) actual delivery; and (2) legal or constructive delivery.
Actual delivery consists in placing the thing sold in the control and
possession of the vendee.31 Legal or constructive delivery, on the other
hand, may be had through any of the following ways: the execution of a
public instrument evidencing the sale;32symbolical tradition such as the
delivery of the keys of the place where the movable sold is being
kept;33 traditio longa manu or by mere consent or agreement if the
movable sold cannot yet be transferred to the possession of the buyer at
the time of the sale;34 traditio brevi manu if the buyer already had
possession of the object even before the sale;35 and traditio constitutum
possessorium, where the seller remains in possession of the property in a
different capacity.36
Following the above disquisition, respondent Babasanta did not
acquire ownership by the mere execution of the receipt by Pacita Lu
acknowledging receipt of partial payment for the property. For one, the
agreement between Babasanta and the Spouses Lu, though valid, was
not embodied in a public instrument. Hence, no constructive delivery of
the lands could have been effected. For another, Babasanta had not
taken
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San Lorenzo Development Corporation vs. Court of Appeals
possession of the property at any time after the perfection of the sale in
his favor or exercised acts of dominion over it despite his assertions that
he was the rightful owner of the lands. Simply stated, there was no
delivery to Babasanta, whether actual or constructive, which is essential
to transfer ownership of the property. Thus, even on the assumption that
the perfected contract between the parties was a sale, ownership could
not have passed to Babasanta in the absence of delivery, since in a
contract of sale ownership is transferred to the vendee only upon the
delivery of the thing sold.37
However, it must be stressed that the juridical relationship between
the parties in a double sale is primarily governed by
Article 1544 which lays down the rules of preference between the two
purchasers of the same property. It provides: Art. 1544. If the same thing
83
should have been sold to different vendees, the ownership shall be
transferred to the person who may have first taken possession thereof in
good faith, if it should be movable property.
Should it be immovable property, the ownership shall belong to the
person acquiring it who in good faith first recorded it in the Registry of
Property.
Should there be no inscription, the ownership shall pertain to the
person who in good faith was first in the possession; and, in the absence
thereof, to the person who presents the oldest title, provided there is
good faith.
The principle of primus tempore, potior jure (first in time, stronger in right)
gains greater significance in case of double sale of immovable property.
When the thing sold twice is an immovable, the one who acquires it and
first records it in the Registry of Property, both made in good faith, shall
be deemed
_______________
37
Dawson v. Register of Deeds of Quezon City, 356 Phil. 1037; 295
SCRA 733 (1998).
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San Lorenzo Development Corporation vs. Court of Appeals
the owner.38 Verily, the act of registration must be coupled with good
faith—that is, the registrant must have no knowledge of the defect or lack
of title of his vendor or must not have been aware of facts which should
have put him upon such inquiry and investigation as might be necessary
to acquaint him with the defects in the title of his vendor.39
Admittedly, SLDC registered the sale with the Registry of Deeds after
it had acquired knowledge of Babasanta’s claim. Babasanta, however,
strongly argues that the registration of the sale by SLDC was not
sufficient to confer upon the latter any title to the property since the
registration was attended by bad faith. Specifically, he points out that at
the time SLDC registered the sale on 30 June 1990, there was already a
notice of lis pendens on the file with the Register of Deeds, the same
having been filed one year before on 2 June 1989.
Did the registration of the sale after the annotation of the notice of lis
pendensobliterate the effects of delivery and possession in good faith
which admittedly had occurred prior to SLDC’s knowledge of the
transaction in favor of Babasanta?
We do not hold so.
It must be stressed that as early as 11 February 1989, the Spouses
Lu executed the Option to Buyin favor of SLDC upon receiving
P316,160.00 as option money from SLDC. After SLDC had paid more
than one half of the agreed purchase price of P1,264,640.00, the
Spouses Lu subsequently executed on 3 May 1989 a Deed of Absolute
Sale in favor of SLDC. At the time both deeds were executed, SLDC had
no knowledge of the prior transaction of the Spouses Lu with Babasanta.
Simply stated, from the time of execution of the first deed up
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San Lorenzo Development Corporation vs. Court of Appeals
to the moment of transfer and delivery of possession of the lands to
SLDC, it had acted in good faith and the subsequent annotation of lis
pendens has no effect at all on the consummated sale between SLDC
and the Spouses Lu.
A purchaser in good faith is one who buys property of
another without notice that some other person has a right to, or interest
in, such property and pays a full and fair price for the same at the time of
such purchase, or before he has notice of the claim or interest of some
other person in the property.40 Following the foregoing definition, we rule
that SLDC qualifies as a buyer in good faith since there is no evidence
extant in the records that it had knowledge of the prior transaction in favor
of Babasanta. At the time of the sale of the property to SLDC, the
vendors were still the registered owners of the property and were in fact
in possession of the lands. Time and again, this Court has ruled that a
person dealing with the owner of registered land is not bound to go
beyond the certificate of title as he is charged with notice of burdens on
the property which are noted on the face of the register or on the
certificate of title.41 In assailing knowledge of the transaction between him
and the Spouses Lu, Babasanta apparently relies on the principle of
constructive notice incorporated in Section 52 of the Property
Registration Decree (P.D. No. 1529) which reads, thus:
Sec. 52. Constructive notice upon registration.—Every conveyance,
mortgage, lease, lien, attachment, order, judgment, instrument or entry
affecting registered land shall, if registered, filed, or entered in the office
of the Register of Deeds for the province or city where the land to which it
relates lies, be constructive notice to all persons from the time of such
registering, filing, or entering.
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118 SUPREME COURT REPORTS ANNOTATED
San Lorenzo Development Corporation vs. Court of Appeals
84
However, the constructive notice operates as such—by theexpress
wording of Section 52—from the time of the registrationof the notice of lis
pendens which in this case was effectedonly on 2 June 1989, at which
time the sale in favor of SLDChad long been consummated insofar as the
obligation of theSpouses Lu to transfer ownership over the property to
SLDCis concerned.
More fundamentally, given the superiority of the right of SLDC to the
claim of Babasanta the annotation of the notice of lis pendenscannot help
Babasanta’s position a bit and it is irrelevant to the good or bad faith
characterization of SLDC as a purchaser. A notice of lis pendens, as the
Court held in Nataño v. Esteban,42 serves as a warning to a prospective
purchaser or incumbrancer that the particular property is in litigation; and
that he should keep his hands off the same, unless he intends to gamble
on the results of the litigation.” Precisely, in this case SLDC has
intervened in the pending litigation to protect its rights. Obviously, SLDC’s
faith in the merit of its cause has been vindicated with the Court’s present
decision which is the ultimate denouement on the controversy.
The Court of Appeals has made capital43 of SLDC’s averment in
its Complaint-in-Intervention44 that at the instance of Pacita Lu it issued a
check for P200,000.00 payable to Babasanta and the confirmatory
testimony of Pacita Lu herself on cross-examination.45 However, there is
nothing in the said pleading and the testimony which explicitly relates the
amount to the transaction between the Spouses Lu and Babasanta for
what they attest to is that the amount was supposed to pay off the
advances made by Babasanta to Pacita Lu. In any event, the incident
took place after the Spouses Lu had already executed the Deed of
Absolute Sale with Mortgage
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VOL. 449, JANUARY 21, 2005 119
San Lorenzo Development Corporation vs. Court of Appeals
in favor of SLDC and therefore, as previously explained, it has no effect
on the legal position of SLDC.
Assuming ex gratia argumenti that SLDC’s registration of the sale had
been tainted by the prior notice of lis pendens and assuming further for
the same nonce that this is a case of double sale, still Babasanta’s claim
could not prevail over that of SLDC’s. In Abarquez v. Court of
Appeals,46 this Court had the occasion to rule that if a vendee in a double
sale registers the sale after he has acquired knowledge of a previous
sale, the registration constitutes a registration in bad faith and does not
confer upon him any right. If the registration is done in bad faith, it is as if
there is no registration at all, and the buyer who has taken possession
first of the property in good faith shall be preferred.
In Abarquez, the first sale to the spouses Israel was notarized and
registered only after the second vendee, Abarquez, registered their deed
of sale with the Registry of Deeds, but the Israels were first in
possession. This Court awarded the property to the Israels because
registration of the property by Abarquez lacked the element of good faith.
While the facts in the instant case substantially differ from that
in Abarquez, we would not hesitate to rule in favor of SLDC on the basis
of its prior possession of the property in good faith. Be it noted that
delivery of the property to SLDC was immediately effected after the
execution of the deed in its favor, at which time SLDC had no knowledge
at all of the prior transaction by the Spouses Lu in favor of Babasanta.
The law speaks not only of one criterion. The first criterion is priority of
entry in the registry of property; there being no priority of such entry, the
second is priority of possession; and, in the absence of the two priorities,
the third priority is of the date of title, with good faith as the common
critical
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120
120 SUPREME COURT REPORTS ANNOTATED
San Lorenzo Development Corporation vs. Court of Appeals
element. Since SLDC acquired possession of the property in good faith in
contrast to Babasanta, who neither registered nor possessed the property
at any time, SLDC’s right is definitely superior to that of Babasanta’s.
At any rate, the above discussion on the rules on double sale would
be purely academic for as earlier stated in this decision, the contract
between Babasanta and the Spouses Lu is not a contract of sale but
merely a contract to sell. In Dichoso v. Roxas,47 we had the occasion to
rule that Article 1544 does not apply to a case where there was a sale to
one party of the land itself while the other contract was a mere promise to
sell the land or at most an actual assignment of the right to repurchase
the same land. Accordingly, there was no double sale of the same land in
that case.
WHEREFORE, the instant petition is hereby GRANTED. The decision
of the Court of Appeals appealed from is REVERSED and SET ASIDE
and the decision of the Regional Trial Court, Branch 31, of San Pedro,
Laguna is REINSTATED. No costs.
SO ORDERED.
121
© Copyright 2019 Central Book Supply, Inc. All rights reserved.
484 SUPREME COURT REPORTS ANNOTATED
Ten Forty Realty and Development Corp. vs. Cruz
85
 G.R. No. 151212. September 10, 2003.*
TEN FORTY REALTY AND DEVELOPMENT CORP., Represented by its
President, VERONICA G. LORENZANA, petitioner, vs.MARINA CRUZ,
respondent.
Remedial Law; Ejectment; Unlawful Detainer; To justify an action for
unlawful detainer, the permission or tolerance must have been present at
the beginning of the possession.—While possession by tolerance may
initially be lawful, it ceases to be so upon the owner’s demand that the
possessor by tolerance vacate the property. To justify an action for
unlawful detainer, the permission or tolerance must have been present at
the beginning of the possession. Otherwise, if the possession was
unlawful from the start, an action for unlawful detainer would be an
improper remedy.
Same; Same; Same; Forcible Entry; Both causes of action deal only
with the sole issue of physical or de facto possession though they are
really separate and distinct.—While both causes of action deal only with
the sole issue of physical or de facto possession, the two cases are really
separate and distinct.
Same; Same; Same; Same; To maintain a viable action for forcible
entry, plaintiff must have been in prior physical possession of the
property.—The appellate court, therefore, did not err when it ruled that
petitioner’s Complaint for unlawful detainer was a mere subterfuge or a
disguised substitute action for forcible entry, which had already
prescribed. To repeat, to maintain a viable action for forcible entry,
plaintiff must have been in prior physical possession of the property; this
is an essential element of the suit.
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*
THIRD DIVISION.
485
VOL. 410, SEPTEMBER 10, 2003 4 of proof.
85
Ten Forty Realty and Development Corp. vs. Cruz
Civil Law; Sales; Ownership is transferred not by contract but by
tradition or delivery; Nowhere in the Civil Code is it provided that the
execution of a Deed of Sale is a conclusive presumption of delivery of
possession of a piece of real estate.—In a contract of sale, the buyer
acquires the thing sold only upon its delivery “in any of the ways specified
in Articles 1497 to 1501, or in any other manner signifying an agreement
that the possession is transferred from the vendor to the vendee.” With
respect to incorporeal property, Article 1498 lays down the general rule:
the execution of a public instrument shall be equivalent to the delivery of
the thing that is the object of the contract if, from the deed, the contrary
does not appear or cannot be clearly inferred. However, ownership is
transferred not by contract but by tradition or delivery. Nowhere in the
Civil Code is it provided that the execution of a Deed of Sale is
a conclusivepresumption of delivery of possession of a piece of real
estate.
Same; Same; The execution of a public instrument gives rise only to
a prima facie presumption of delivery.—This Court has held that the
execution of a public instrument gives rise only to a prima facie
presumption of delivery. Such presumption is destroyed when the
delivery is not effected because of a legal impediment. Pasagui v.
Villablanca had earlier ruled that such constructive or symbolic delivery,
being merely presumptive, was deemed negated by the failure of the
vendee to take actual possession of the land sold.
Same; Same; The ownership of immovable property sold to two
different buyers at different times is governed by Article 1544 of the Civil
Code; In the absence of the required inscription, the law gives
preferential right to the buyer who in good faith is first in possession;
Possession mentioned in Article 1544 includes not only material but also
symbolic possession.—The ownership of immovable property sold to two
different buyers at different times is governed by Article 1544 of the Civil
Code x x x In the absence of the required inscription, the law gives
preferential right to the buyer who in good faith is first in possession. In
determining the question of who is first in possession, certain basic
parameters have been established by jurisprudence. First, the
possession mentioned in Article 1544 includes not only material but also
symbolic possession. Second, possessors in good faith are those who
are not aware of any flaw in their title or mode of
acquisition. Third, buyers of real property that is in the possession of
persons other than the seller must be wary—they must investigate the
rights of the possessors. Fourth, good faith is always presumed; upon
those who allege bad faith on the part of the possessors rests the burden
PETITION for review on certiorari of the decision and resolution of the
Court of Appeals.
The facts are stated in the opinion of the Court.
486
486 SUPREME COURT REPORTS ANNOTATED
Ten Forty Realty and Development Corp. vs. Cruz
Oscar L. Karaan for petitioner.
Carmelino M. Roquefor private respondent.
PANGANIBAN,** J.:
86
In an ejectment suit, the question of ownership may be provisionally ruled
upon for the sole purpose of determining who is entitled to possession de
facto. In the present case, both parties base their alleged right to possess
on their right to own. Hence, the Court of Appeals did not err in passing
upon the question of ownership to be able to decide who was entitled to
physical possession of the disputed land.
The Case
Before us is a Petition for Review1 under Rule 45 of the Rules of Court,
seeking to nullify the August 31, 2001 Decision2 and December 19, 2001
Resolution3 of the Court of Appeals (CA) in CA-GR SP No. 64861. The
dispositive portion of the assailed Decision is as follows:
“WHEREFORE, premises considered, the petition is hereby DISMISSED
and the Decision dated May 4, 2001 is hereby AFFIRMED.”4 The
assailed Resolution denied petitioner’s Motion for Reconsideration.
The Facts
The facts of the case are narrated by the CA as follows:
“A complaint for ejectment was filed by [Petitioner Ten Forty Realty and
Development Corporation] against x x x [Respondent Marina Cruz] before
the Municipal Trial Court in Cities (MTCC) of Olongapo City, docketed as
Civil Case 4269, which alleged that: petitioner is the true and
_______________
**
Acting Chairman.
1 Rollo, pp. 8-19.
2 Penned by Justice Remedios A. Salazar-Fernando and concurred in
by Justices Romeo A. Brawner (Division chairman) and Rebecca de
Guia-Salvador (member); id., pp. 139-147.
3 Rollo, p. 162.
4 CA Decision, p. 8; Rollo, p. 146.
487
VOL. 410, SEPTEMBER 10, 2003 487
Ten Forty Realty and Development Corp. vs. Cruz
absolute owner of a parcel of lot and residential house situated in #71
18th Street, E.B.B. Olongapo City, particularly described as:
‘A parcel of residential house and lot situated in the abovementioned
address containing an area of 324 square meters more or less bounded
on the Northeast by 041 (Lot 255, Ts-308); on the Southeast by 044 (Lot
255, Ts-308); on the Southwest by 043 (Lot 226-A & 18th street) and on
the Northwest by 045 (Lot 227, Ts-308) and declared for taxation
purposes in the name of [petitioner] under T.D. No. 002-4595-R and 002-
4596.’
having acquired the same on December 5, 1996 from Barbara Galino
by virtue of a Deed of Absolute Sale; the sale was acknowledged by said
Barbara Galino through a ‘Katunayan’; payment of the capital gains tax
for the transfer of the property was evidenced by a Certification
Authorizing Registration issued by the Bureau of Internal Revenue;
petitioner came to know that Barbara Galino sold the same property on
April 24, 1998 to Cruz, who immediately occupied the property and which
occupation was merely tolerated by petitioner; on October 16, 1998, a
complaint for ejectment was filed with the Barangay East Bajac-Bajac,
Olongapo City but for failure to arrive at an amicable settlement, a
Certificate to File Action was issued; on April 12, 1999 a demand letter
was sent to [respondent] to vacate and pay reasonable amount for the
use and occupation of the same, but was ignored by the latter; and due to
the refusal of [respondent] to vacate the premises, petitioner was
constrained to secure the services of a counsel for an agreed fee of
P5,000.00 as attorney’s fee and P500.00 as appearance fee and incurred
an expense of P5,000.00 for litigation.
“In respondent’s Answer with Counterclaim, it was alleged that:
petitioner is not qualified to own the residential lot in dispute, being a
public land; according to Barbara Galino, she did not sell her house and
lot to petitioner but merely obtained a loan from Veronica Lorenzana; the
payment of the capital gains tax does not necessarily show that the Deed
of Absolute Sale was at that time already in existence; the court has no
jurisdiction over the subject matter because the complaint was filed
beyond the one (1) year period after the alleged unlawful deprivation of
possession; there is no allegation that petitioner had been in prior
possession of the premises and the same was lost thru force, stealth or
violence; evidence will show that it was Barbara Galino who was in
possession at the time of the sale and vacated the property in favor of
respondent; never was there an occasion when petitioner occupied a
portion of the premises, before respondent occupied the lot in April 1998,
she caused the cancellation of the tax declaration in the name of Barbara
Galino and a new one issued in respondent’s name; petitioner obtained
its tax declaration over the same property on November 3, 1998, seven
(7) months [after] the respondent [obtained hers]; at the time the house
and lot [were] bought by respondent, the house was not habitable, the
power and water connections
488
488 SUPREME COURT REPORTS ANNOTATED
Ten Forty Realty and Development Corp. vs. Cruz
were disconnected; being a public land, respondent filed a miscellaneous
sales application with the Community Environment and Natural
Resources Office in Olongapo City; and the action for ejectment cannot
succeed where it appears that respondent had been in possession of the
property prior to the petitioner.”5
87
In a Decision6 dated October 30, 2000, the Municipal Trial Court in Cities
(MTCC) ordered respondent to vacate the property and surrender to
petitioner possession thereof. It also directed her to pay, as damages for
its continued unlawful use, P500 a month from April 24, 1999 until the
property was vacated, P5,000 as attorney’s fees, and the costs of the
suit.
On appeal, the Regional Trial Court7 (RTC) of Olongapo City (Branch
72) reversed the MTCC. The RTC ruled as follows: 1) respondent’s entry
into the property was not by mere tolerance of petitioner, but by virtue of
a Waiver and Transfer of Possessory Rights and Deed of Sale in her
favor; 2) the execution of the Deed of Sale without actual transfer of the
physical possession did not have the effect of making petitioner the
owner of the property, because there was no delivery of the object of the
sale as provided for in Article 1428 of the Civil Code; and 3) being a
corporation, petitioner was disqualified from acquiring the property, which
was public land.
Ruling of the Court of Appeals
Sustaining the RTC, the CA held that petitioner had failed to make a case
for unlawful detainer, because no contract—express or implied—had
been entered into by the parties with regard to possession of the
property. It ruled that the action should have been for forcible entry, in
which prior physical possession was indispensable—a circumstance
petitioner had not shown either.
The appellate court also held that petitioner had challenged the RTC’s
ruling on the question of ownership for the purpose of compensating for
the latter’s failure to counter such ruling. The RTC
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5
489
VOL. 410, SEPTEMBER 10, 2003 489
Ten Forty Realty and Development Corp. vs. Cruz
had held that, as a corporation, petitioner had no right to acquire the
property which was alienable public land.
Hence, this Petition.8
Issues
Petitioner submits the following issues for our consideration:
1. “1.The Honorable Court of Appeals had clearly erred in not
holding that [r]espondent’s occupation or possession of the
property in question was merely through the tolerance or
permission of the herein [p]etitioner;
2. “[2.]The Honorable Court of Appeals had likewise erred in holding
that the ejectment case should have been a forcible entry case
where prior physical possession is indispensable; and
3. “[3.]The Honorable Court of Appeals had also erred when it ruled
that the herein [r]espondent’s possession or occupation of the
said property is in the nature of an exercise of ownership which
should put the herein [p]etitioner on guard.”9
The Court’s Ruling
The Petition has no merit.
First Issue:
Alleged Occupation by Tolerance
Petitioner faults the CA for not holding that the former merely tolerated
respondent’s occupation of the subject property. By raising this issue,
petitioner is in effect asking this Court to reassess factual findings. As a
general rule, this kind of reassessment cannot be done through a petition
for review on certiorari under Rule 45 of the Rules of Court, because this
Court is not a trier of facts; it reviews only questions of law.10Petitioner
has not given us ample reasons to depart from the general rule.
_______________
490
490 SUPREME COURT REPORTS ANNOTATED
Ten Forty Realty and Development Corp. vs. Cruz
On the basis of the facts found by the CA and the RTC, we find that
petitioner failed to substantiate its case for unlawful detainer. Admittedly,
no express contract existed between the parties. Not shown either was
the corporation’s alleged tolerance of respondent’s possession.
While possession by tolerance may initially be lawful, it ceases to be
so upon the owner’s demand that the possessor by tolerance vacate the
property.11 To justify an action for unlawful detainer, the permission or
tolerance must have been present at the beginning of the
possession.12 Otherwise, if the possession was unlawful from the start,
an action for unlawful detainer would be an improper remedy. Sarona v.
Villegas13 elucidates thus:
“A close assessment of the law and the concept of the word ‘tolerance’
confirms our view heretofore expressed that such tolerance must be
present right from the start of possession sought to be recovered, to
categorize a cause of action as one of unlawful detainer not of forcible
entry. Indeed, to hold otherwise would espouse a dangerous doctrine.
And for two reasons. First. Forcible entry into the land is an open
challenge to the right of the possessor. Violation of that right authorizes
the speedy redress—in the inferior court—provided for in the rules. If one
88
year from the forcible entry is allowed to lapse before suit is filed, then the
remedy ceases to be speedy; and the possessor is deemed to have
waived his right to seek relief in the inferior court. Second, if a forcible
entry action in the inferior court is allowed after the lapse of a number of
years, then the result may well be that no action for forcible entry can
really prescribe. No matter how long such defendant is in physical
possession, plaintiff will merely make a demand, bring suit in the inferior
court—upon a plea of tolerance to prevent prescription to set in—and
summarily throw him out of the land. Such a conclusion is unreasonable.
Especially if we bear in mind the postulates that proceedings of forcible
entry and unlawful detainer are summary in nature, and that the one year
time bar to suit is but in pursuance of the summary nature of the action.”14
491
VOL. 410, SEPTEMBER 10, 2003 491
Ten Forty Realty and Development Corp. vs. Cruz
In this case, the Complaint and the other pleadings do not recite
any averment of fact that would substantiate the claim of petitioner that it
permitted or tolerated the occupation of the property by Respondent
Cruz. The Complaint contains only bare allegations that 1) respondent
immediately occupied the subject property after its sale to her, an action
merely tolerated by petitioner;15 and 2) her allegedly illegal occupation of
the premises was by mere tolerance.16
These allegations contradict, rather than support, petitioner’s theory
that its cause of action is for unlawful detainer. First,these arguments
advance the view that respondent’s occupation of the property was
unlawful at its inception. Second, they counter the essential requirement
in unlawful detainer cases that petitioner’s supposed act of sufferance or
tolerance must be present right from the start of a possession that is later
sought to be recovered.17
As the bare allegation of petitioner’s tolerance of respondent’s
occupation of the premises has not been proven, the possession should
be deemed illegal from the beginning. Thus, the CA correctly ruled that
the ejectment case should have been for forcible entry—an action that
had already prescribed, however, when the Complaint was filed on May
12, 1999. The prescriptive period of one year for forcible entry cases is
reckoned from the date of respondent’s actual entry into the land, which
in this case was on April 24, 1998.
Second Issue:
Nature of the Case
Much of the difficulty in the present controversy stems from the legal
characterization of the ejectment Complaint filed by petitioner.
Specifically, was it for unlawful detainer or for forcible entry?
The answer is given in Section 1 of Rule 70 of the Rules of Court,
which we reproduce as follows:
“SECTION 1. Who may institute proceedings, and when.—Subject to the
provisions of the next succeeding section, a person deprived of the
_______________
15
492
492 SUPREME COURT REPORTS ANNOTATED
Ten Forty Realty and Development Corp. vs. Cruz
possession of any land or building by force, intimidation, threat, strategy,
or stealth, or a lessor, vendor, vendee, or other person against whom the
possession of any land or building is unlawfully withheld after the
expiration or termination of the right to hold possession, by virtue of any
contract, express or implied, or the legal representatives or assigns of
any such lessor, vendor, vendee, or other person, may, at any time within
one (1) year after such unlawful deprivation or withholding of possession,
bring an action in the proper Municipal Trial Court against the person or
persons unlawfully withholding or depriving of possession, or any person
or persons claiming under them, for the restitution of such possession,
together with damages and costs.”
While both causes of action deal only with the sole issue of physical or de
factopossession,18 the two cases are really separate and distinct, as
explained below:
“x x x. In forcible entry, one is deprived of physical possession of land or
building by means of force, intimidation, threat, strategy, or stealth. In
unlawful detainer, one unlawfully withholds possession thereof after the
expiration or termination of his right to hold possession under any
contract, express or implied. In forcible entry, the possession is illegal
from the beginning and the basic inquiry centers on who has the prior
possession de facto. In unlawful detainer, the possession was originally
lawful but became unlawful by the expiration or termination of the right to
possess, hence the issue of rightful possession is decisive for, in such
action, the defendant is in actual possession and the plaintiff’s cause of
action is the termination of the defendant’s right to continue in
possession.
“What determines the cause of action is the nature of defendant’s
entry into the land. If the entry is illegal, then the action which may be
filed against the intruder within one year therefrom is forcible entry. If, on
the other hand, the entry is legal but the possession thereafter became
illegal, the case is one of unlawful detainer which must be filed within one
year from the date of the last demand.”19
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89
 . Clearly, each of the parties claimed the right to possess the disputed
493
VOL. 410, SEPTEMBER 10, 2003 493
Ten Forty Realty and Development Corp. vs. Cruz
It is axiomatic that what determines the nature of an action as well as
which court has jurisdiction over it are the allegations in the
complaint20 and the character of the relief sought.21
In its Complaint, petitioner alleged that, having acquired the subject
property from Barbara Galino on December 5, 1996,22 it was the true and
absolute owner23 thereof; that Galino had sold the property to
Respondent Cruz on April 24, 1998;24 that after the sale, the latter
immediately occupied the property, an action that was merely tolerated
by petitioner;25 and that, in a letter given to respondent on April 12,
1999,26 petitioner had demanded that the former vacate the property, but
that she refused to do so.27 Petitioner thereupon prayed for judgment
ordering her to vacate the property and to pay reasonable rentals for the
use of the premises, attorney’s fees and the costs of the suit.28
The above allegations appeared to show the elements of unlawful
detainer. They also conferred initiatory jurisdiction on the MTCC, because
the case was filed a month after the last demand to vacate—hence,
within the one-year prescriptive period.
However, what was actually proven by petitioner was that possession
by respondent had been illegal from the beginning. While the Complaint
was crafted to be an unlawful detainer suit, petitioner’s real cause of
action was for forcible entry, which had already prescribed.
Consequently, the MTCC had no more jurisdiction over the action.
The appellate court, therefore, did not err when it ruled that
petitioner’s Complaint for unlawful detainer was a mere subterfuge or a
disguised substitute action for forcible entry, which had al-
_______________
Ten Forty Realty and Development Corp. vs. Cruz
ready prescribed. To repeat, to maintain a viable action for forcible entry,
plaintiff must have been in prior physical possession of the property; this
is an essential element of the suit.29
Third Issue:
Alleged Acts of Ownership
Petitioner next questions the CA’s pronouncement that respondent’s
occupation of the property was an exercise of a right flowing from a claim
of ownership. It submits that the appellate court should not have passed
upon the issue of ownership, because the only question for resolution in
an ejectment suit is that of possession de facto.
property because of alleged ownership of it. Hence, no error could have
been imputed to the appellate court when it passed upon the issue of
ownership only for the purpose of resolving the issue of possession de
facto.30 The CA’s holding is moreover in accord with jurisprudence and
the law.
Execution of a Deed of Sale Not Sufficient as Delivery
In a contract of sale, the buyer acquires the thing sold only upon its
delivery “in any of the ways specified in Articles 1497 to 1501, or in any
other manner signifying an agreement that the possession is transferred
from the vendor to the vendee.”31 With respect to incorporeal property,
Article 1498 lays down the general rule: the execution of a public
instrument shall be equivalent to the delivery of the thing that is the object
of the contract if, from the deed, the contrary does not appear or cannot
be clearly inferred.
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495
VOL. 410, SEPTEMBER 10, 2003 495
Ten Forty Realty and Development Corp. vs. Cruz
However, ownership is transferred not by contract but by tradition or
delivery.32Nowhere in the Civil Code is it provided that the execution of a
Deed of Sale is a conclusive presumption of delivery of possession of a
piece of real estate.33
This Court has held that the execution of a public instrument gives
rise only to a prima facie presumption of delivery. Such presumption is
destroyed when the delivery is not effected because of a legal
impediment.34 Pasagui v. Villablanca35 had earlier ruled that such
constructive or symbolic delivery, being merely presumptive, was
deemed negated by the failure of the vendee to take actual possession of
the land sold.
It is undisputed that petitioner did not occupy the property from the
time it was allegedly sold to it on December 5, 1996 or at any time
thereafter. Nonetheless, it maintains that Galino’s continued stay in the
premises from the time of the sale up to the time respondent’s occupation
of the same on April 24, 1998, was possession held on its behalf and had
the effect of delivery under the law.36
Both the RTC and the CA disagreed. According to the RTC, petitioner
did not gain control and possession of the property, because Galino had
continued to exercise ownership rights over the realty. That is, she had
remained in possession, continued to declare it as her property for tax
purposes and sold it to respondent in 1998.
90
 For its part, the CA found it highly unbelievable that petitioner—which
claims to be the owner of the disputed property—would tolerate
possession of the property by respondent from April 24, 1998 up to
October 16, 1998. How could it have been so tolerant despite its
knowledge that the property had been sold to her, and that it was by
virtue of that sale that she had undertaken major repairs and
improvements on it?
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496
496 SUPREME COURT REPORTS ANNOTATED
Ten Forty Realty and Development Corp. vs. Cruz
Petitioner should have likewise been put on guard by respondent’s
declaration of the property for tax purposes on April 23, 1998,37as
annotated in the tax certificate filed seven months later.38 Verily, the tax
declaration represented an adverse claim over the unregistered property
and was inimical to the right of petitioner.
Indeed, the above circumstances derogated its claim of control and
possession of the property.
Order of Preference in Double Sale of Immovable Property
The ownership of immovable property sold to two different buyers at
different times is governed by Article 1544 of the Civil Code, which reads
as follows:
“Article 1544. x x x
“Should it be immovable property, the ownership shall belong to the
person acquiring it who in good faith first recorded it in the Registry of
Property.
“Should there be no inscription, the ownership shall pertain to the
person who in good faith was first in possession; and, in the absence
thereof, to the person who presents the oldest title, provided there is
good faith.”
Galino allegedly sold the property in question to petitioner on December
5, 1996 and, subsequently, to respondent on April 24, 1998. Petitioner
thus argues that being the first buyer, it has a better right to own the
realty. However, it has not been able to establish that its Deed of Sale
was recorded in the Registry of Deeds of Olongapo City.39 Its claim of an
unattested and unverified notation on its Deed of Absolute Sale40 is not
equivalent to registration. It admits that, indeed, the sale has not been
recorded in the Registry of Deeds.41
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VOL. 410, SEPTEMBER 10, 2003 497
Ten Forty Realty and Development Corp. vs. Cruz
In the absence of the required inscription, the law gives preferential right
to the buyer who in good faith is first in possession. In determining the
question of who is first in possession, certain basic parameters have
been established by jurisprudence.
First, the possession mentioned in Article 1544 includes not only
material but also symbolic possession.42 Second,possessors in good faith
are those who are not aware of any flaw in their title or mode of
acquisition.43 Third,buyers of real property that is in the possession of
persons other than the seller must be wary—they must investigate the
rights of the possessors.44 Fourth, good faith is always presumed; upon
those who allege bad faith on the part of the possessors rests the burden
of proof.45
Earlier, we ruled that the subject property had not been delivered to
petitioner; hence, it did not acquire possession either materially or
symbolically. As between the two buyers, therefore, respondent was first
in actual possession of the property.
Petitioner has not proven that respondent was aware that her mode of
acquiring the property was defective at the time she acquired it from
Galino. At the time, the property—which was public land—had not been
registered in the name of Galino; thus, respondent relied on the tax
declarations thereon. As shown, the former’s name appeared on the tax
declarations for the property until its sale to the latter in 1998. Galino was
in fact occupying the realty when respondent took over possession. Thus,
there was no circumstance that could have placed the latter upon inquiry
or required her to further investigate petitioner’s right of ownership.
Disqualification from Ownership of Alienable Public Land
Private corporations are disqualified from acquiring lands of the public
domain, as provided under Section 3 of Article XII of the Constitution,
which we quote:
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42
Navera v. Court of Appeals,184 SCRA 585, April 26, 1990.
43
Article 526 of the Civil Code.
44 Cardente
v. Intermediate Appellate Court, 155 SCRA 685,
November 27, 1987; Conspecto v. Fruto, 31 Phil. 144, July 23, 1915,
cited in Bautista v. Court of Appeals, 230 SCRA 446, February 28, 1994.
45 Development Bank of the Philippines v. Court of Appeals, 375 Phil.
114; 316 SCRA 650, October 13, 1999; Ballatan v. Court of Appeals, 363
Phil. 408; 304 SCRA 34, March 2, 1999.
498
498 SUPREME COURT REPORTS ANNOTATED
91
 Ten Forty Realty and Development Corp. vs. Cruz
“Sec. 3. Lands of the public domain are classified into agricultural, forest
or timber, mineral lands, and national parks. Agricultural lands of the
public domain may be further classified by law according to the uses to
which they may be devoted. Alienable lands of the public domain shall be
limited to agricultural lands. Private corporations or associations may not
hold such alienable lands of the public domain except by lease, for a
period not exceeding twenty-five years, and not to exceed one thousand
hectares in area. Citizens of the Philippines may not lease not more than
five hundred hectares, or acquire not more than twelve hectares thereof
by purchase, homestead, or grant. x x x.” (Italics supplied)
While corporations cannot acquire land of the public domain, they can
however acquire private land.46Hence, the next issue that needs to be
resolved is the determination of whether the disputed property is private
land or of the public domain.
According to the certification by the City Planning and Development
Office of Olongapo City, the contested property in this case is alienable
and disposable public land.47 It was for this reason that respondent filed a
miscellaneous sales application to acquire it.48
On the other hand, petitioner has not presented proof that, at the time
it purchased the property from Galino, the property had ceased to be of
the public domain and was already private land. The established rule is
that alienable and disposable land of the public domain held and
occupied by a possessor—personally or through predecessors-in-
interest, openly, continuously, and exclusively for 30 years—is ipso
jure converted to private property by the mere lapse of time.49
In view of the foregoing, we affirm the appellate court’s ruling that
respondent is entitled to possession de facto. This determination,
however, is only provisional in nature.50 Well-settled is the rule that an
award of possession de facto over a piece of property does not
constitute res judicata as to the issue of its ownership.51
WHEREFORE, this Petition is DENIED and the assailed Decision
AFFIRMED. Costs against petitioner.
SO ORDERED.
Sandoval-Gutierrez, Corona and Carpio-Morales, JJ., concur.
Puno (J., Chairman),On Official Leave.
Petition denied, judgment affirmed.
Note.—The only issue to be resolved in ejectment cases is the
question as to who is entitled to the physical or material possession of the
premises or possession de facto. (Lagrosa vs. Court of Appeals, 312
SCRA 298 [1999])
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46
See Section 7 of Article XII of the Constitution; Bernas, The 1987
Constitution of the Republic of the Philippines: a Commentary, 1996 ed.,
p. 1020.
47 Rollo, p. 48.
48 Under the Public Land Act (Commonwealth Act No. 141, as

amended), alienable public land may be acquired by the filing of an

application for a sale, a homestead, a free or a special patent.
49 Republic v. Court of Appeals,374 Phil. 209; 315 SCRA 600,

September 30, 1999; Natividad v. Court of Appeals, 202 SCRA 493,

October 4, 1991; Republic v. Intermediate Appellate Court, 168 SCRA
165, November 29, 1988; Director of Lands v. Intermediate Appellate
Court, 146 SCRA 509, December 29, 1986.
499
VOL. 410, SEPTEMBER 11, 2003 499
Villanueva vs. Larcena

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